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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM 8-K
Current Report
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) January 31, 1997
------------------
PEGASUS COMMUNICATIONS CORPORATION
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(Exact name of registrant as specified in charter)
Delaware 0-21389 51-0374669
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(State or other (Commission (I.R.S. Employer
jurisdiction of File Number) Identification No.)
incorporation)
c/o Pegasus Communications Management Company, 100 Matsonford Road,
5 Radnor Corporate Center, Suite 454, Radnor, Pennsylvania 19087
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 610-341-1801
--------------
Not Applicable
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(Former name or former address, if changed since last report.)
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Item 2. Acquisition or Disposition of Assets.
Acquisition of DBS of Indiana, Inc.
On January 31, 1997, DBS of Indiana, Inc. ("DBS of Indiana"), an
independent provider of DIRECTV programming, serving approximately 6,400
customers in certain rural areas of Indiana, was merged into a subsidiary of the
Company, Pegasus Satellite Television of Indiana, Inc. ("PST of Indiana"),
pursuant to the terms of an Agreement and Plan of Merger dated as of January 21,
1997 among the Company, PST of Indiana and DBS of Indiana. As a result of the
merger, the Company acquired the NRTC Distribution Agreement between DBS of
Indiana and the National Rural Telecommunications Cooperative, under which DBS
of Indiana was granted the exclusive right to distribute DIRECTV programming
offered by DIRECTV, Inc. in exclusive areas of Indiana comprising approximately
131,000 television households and 14,000 business locations in seven counties in
Indiana. As consideration for the merger, the former shareholders of DBS of
Indiana received approximately $8.8 million in cash and $5.6 million in Class A
Common Stock of the Company (466,667 shares of Class A Common Stock). The cash
portion of the purchase price is subject to adjustment, as set forth in the
merger agreement.
In connection with the merger, the Company entered into a stockholders'
agreement with the former shareholders of DBS of Indiana (the "Stockholders'
Agreement"), which provides the shareholders with certain piggyback registration
rights until such time as the Class A Common Stock received by such shareholders
(i) have been effectively registered under the Securities Act of 1933, as
amended (the "Securities Act"), or (ii) may be sold to the public pursuant to
Rule 144 under the Securities Act. The Stockholders' Agreement also provides the
Company a right of first offer until January 31, 1999 if any of the shareholders
desire to sell or transfer any Class A Common Stock in a private transaction
exempt from registration under the Securities Act or state securities laws.
The cash portion of the merger was paid out of net proceeds received by
the Company in its $100.0 million offering of units (consisting of the Company's
12 3/4% Series A Cumulative Exchangeable Preferred Stock and Warrants to
purchase Class A Common Stock) (the "Unit Offering"), which was
consummated on January 27, 1997.
Sale of New Hampshire Cable Assets
On January 31, 1997, the Company sold its New Hampshire cable assets to
State Cable TV Corp. ("State Cable") in exchange for approximately $7.1 million
in cash pursuant to an Asset Purchase Agreement dated as of November 6, 1996 by
and between State Cable and Pegasus Cable Television, Inc., a subsidiary of the
Company.
The assets of the Company's New Hampshire cable system consist of two
headends serving six towns in New Hampshire (Moultonborough, Tuftonboro,
Ossipee, Tamworth, Bethleham and Franconia), with approximately 4,100 basic
subscribers.
Acquisition of Mississippi DBS Rights
On February 14, 1997, the Company acquired the exclusive DIRECTV
distribution rights for certain rural portions of Mississippi and related
assets, including receivables (the "Assets") from ClearVision, Inc.
("ClearVision") in exchange for approximately $ 15.0 million in cash. The
purchase price is subject to adjustment as provided for in the acquisition
agreement.
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The Assets consist of properties, rights and other assets used by
ClearVision in the DIRECTV distribution business in certain areas of
Mississippi. The exclusive territory includes approximately 102,000 television
households. As of February 14, 1997, there were approximately 6,700 DIRECTV
subscribers in the exclusive area. The rights acquired by the Company were
granted to ClearVision by the National Rural Telecommunications Cooperative,
through a distribution agreement, pursuant to which ClearVision was granted the
exclusive right to distribute DIRECTV programming offered by DIRECTV, Inc. in
certain exclusive areas of Mississippi.
The purchase price was paid out of the net proceeds received by the
Company in its Unit Offering.
Item 7. Financial Statements, Pro Forma Financial
Information, and Exhibits
(a) Financial Statements of Business Acquired
Not Applicable
(b) Pro Forma Financial Information.
Not Applicable
(c) Exhibits
1. Agreement and Plan of Merger dated as of January 21, 1997
among Pegasus Communications Corporation, Pegasus Satellite
Television of Indiana, Inc. and DBS of Indiana, Inc. and
Exhibit 8 thereto (Stockholders Agreement dated as of
January 31, 1997) (other exhibits have been omitted but
will be provided upon request by the SEC).
2. Asset Purchase Agreement dated as of November 6, 1996
between State Cable Corp.and Pegasus Cable Televisions,
Inc. (which is incorporated by reference to Exhibit 2.12 to
the Company's Registration Statement on Form S-1 (File No.
333-18739)).
3. Asset Purchase Agreement by and among Pegasus
Communications Corporation and ClearVision, Inc. and its
Shareholders, dated as of January 25, 1997 and Amendment
No. 1 thereto (exhibits have been omitted but will be
provided upon request by the SEC).
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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.
PEGASUS COMMUNICATIONS CORPORATION
By /s/ Robert N. Verdecchio
------------------------------------
Robert N. Verdecchio,
Senior Vice President, Chief
Financial Officer and Assistant
Secretary
February 18, 1997
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EXHIBIT INDEX
Exhibit
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1. Agreement and Plan of Merger dated as of January 21, 1997 by and among
Pegasus Communications Corporation, Pegasus Satellite Television of
Indiana, Inc. and DBS of Indiana, Inc. and Exhibit 8 thereto
(Stockholders Agreement dated as of January 31, 1997) (other exhibits
have been omitted but will be provided upon request by the SEC).
2. Asset Purchase Agreement dated as of November 6, 1996 between State
Cable Corp.and Pegasus Cable Televisions, Inc. (which is incorporated by
reference to Exhibit 2.12 to the Company's Registration Statement on
Form S-1 (File No. 333-18739)).
3. Asset Purchase Agreement by and among Pegasus Communications Corporation
and ClearVision, Inc. and its Shareholders, dated as of January 25, 1997
and Amendment No. 1 thereto (exhibits have been omitted but will be
provided upon request by the SEC).
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EXHIBIT 1
AGREEMENT AND PLAN OF MERGER
by and among
PEGASUS COMMUNICATIONS CORPORATION,
PEGASUS SATELLITE TELEVISION OF INDIANA, INC.
and
DBS OF INDIANA, INC.
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Dated as of January 21, 1997
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Table of Contents
<TABLE>
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ARTICLE I - DEFINITIONS................................................................................ 1
1.1 Certain Definitions...................................................................... 1
1.2 Other Definitions........................................................................ 7
ARTICLE II - BASIC TRANSACTION......................................................................... 8
2.1 Merger; Surviving Corporation............................................................ 8
2.2 Certificate of Incorporation............................................................. 8
2.3 By-Laws.................................................................................. 8
2.4 Directors and Officers................................................................... 9
2.5 Effective Time........................................................................... 9
2.6 Conversion of Company Shares............................................................. 9
2.7 Exchange of Certificates................................................................. 9
2.8 Merger Consideration..................................................................... 10
2.9 Manner of Payment........................................................................ 10
2.10 Closing.................................................................................. 11
2.11 Transactions at Closing.................................................................. 11
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................................ 11
3.1 Organization and Qualification........................................................... 11
3.2 Capitalization........................................................................... 12
3.3 Authority and Validity................................................................... 12
3.4 No Breach or Violation................................................................... 13
3.5 Consents and Approvals................................................................... 13
3.6 Title to Assets.......................................................................... 13
3.7 Intellectual Property.................................................................... 14
3.8 Compliance with Legal Requirements....................................................... 14
3.9 Financial Information.................................................................... 14
3.10 Events Subsequent to November 30, 1996................................................... 15
3.11 Undisclosed Liabilities.................................................................. 16
3.12 Legal Proceedings........................................................................ 16
3.13 Taxes.................................................................................... 16
3.14 Employee Benefits; Employees............................................................. 16
3.15 Contracts................................................................................ 17
3.16 Books and Records; Accounts Receivable................................................... 19
3.17 Business Information..................................................................... 19
3.18 Insurance................................................................................ 19
3.19 Disclosure............................................................................... 20
3.20 Brokers or Finders....................................................................... 21
3.21 Certain Payments......................................................................... 21
3.22 Subscribers.............................................................................. 21
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF PEGASUS AND
MERGER SUB.................................................................................... 21
4.1 Organization and Qualification........................................................... 21
4.2 Authority and Validity................................................................... 22
4.3 No Breach or Violation................................................................... 22
4.4 Consents and Approvals................................................................... 23
4.5 Legal Proceedings........................................................................ 23
4.6 Capitalization........................................................................... 23
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4.7 Compliance with Legal Requirements....................................................... 24
4.8 Financial Information.................................................................... 24
4.9 Undisclosed Liabilities.................................................................. 24
4.10 Brokers or Finders....................................................................... 24
4.11 Disclosure............................................................................... 25
ARTICLE V - PRE-CLOSING COVENANTS OF THE COMPANY AND THE
SHAREHOLDERS.................................................................................. 25
5.1 Additional Information................................................................... 25
5.2 Exclusivity.............................................................................. 26
5.3 Continuity and Maintenance of Operations................................................. 26
5.4 Consents and Approvals................................................................... 27
5.5 Adoption by Shareholders................................................................. 28
5.6 Securities Filings; Financial Information................................................ 28
5.7 Notification of Certain Matters.......................................................... 28
5.8 Employee Matters......................................................................... 29
5.9 Schedules................................................................................ 29
5.10 Removal of Encumbrances.................................................................. 29
5.11 Duty of Good Faith and Fair Dealing...................................................... 30
5.12 Shareholder Investment Representations................................................... 30
ARTICLE VI - PRE-CLOSING COVENANTS OF PEGASUS AND
MERGER SUB.................................................................................... 30
6.1 Consents and Approvals................................................................... 30
6.2 Loan..................................................................................... 30
ARTICLE VII - CONDITIONS PRECEDENT TO OBLIGATIONS OF PEGASUS
AND MERGER SUB................................................................................ 31
7.1 Accuracy of Representations.............................................................. 31
7.2 Covenants................................................................................ 31
7.3 Consents................................................................................. 31
7.4 Delivery of Documents.................................................................... 32
7.5 No Material Adverse Change............................................................... 33
7.6 No Litigation............................................................................ 33
7.7 Minimum Subscribers...................................................................... 33
7.8 NRTC Compliance Certificate.............................................................. 33
7.9 Dissenters' Rights....................................................................... 33
7.10 Software License......................................................................... 33
7.11 Repayment of Shareholder Liabilities..................................................... 34
ARTICLE VIII - CONDITIONS PRECEDENT TO OBLIGATIONS OF THE
COMPANY....................................................................................... 34
8.1 Accuracy of Representations.............................................................. 34
8.2 Covenants................................................................................ 34
8.3 Consents................................................................................. 34
8.4 Delivery of Documents.................................................................... 35
8.5 No Material Adverse Change............................................................... 35
8.6 Litigation............................................................................... 35
</TABLE>
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<S> <C>
ARTICLE IX - POST-CLOSING COVENANTS.................................................................... 36
9.1 Taxes.................................................................................... 36
9.2 Territorial Compliance................................................................... 36
9.3 Payment of Fees.......................................................................... 37
ARTICLE X - TERMINATION................................................................................ 37
10.1 Events of Termination................................................................... 37
10.2 Liabilities in Event of Termination..................................................... 38
10.3 Procedure Upon Termination.............................................................. 38
ARTICLE XI - REMEDIES FOR BREACH OF THIS AGREEMENT..................................................... 38
11.1 Survival of Representations and Warranties.............................................. 38
11.2 Indemnification Provisions for Benefit of
Pegasus and Merger Sub.................................................................. 38
11.3 Indemnification Provisions for Benefit of
the Company and Shareholders............................................................ 40
11.4 Matters Involving Third Parties......................................................... 41
11.5 Indemnity Net of Insurance Proceeds..................................................... 42
ARTICLE XII - MISCELLANEOUS............................................................................ 42
12.1 Parties Obligated and Benefited......................................................... 42
12.2 Notices................................................................................. 43
12.3 Waiver.................................................................................. 43
12.4 Headings................................................................................ 44
12.5 Choice of Law........................................................................... 44
12.6 Rights Cumulative....................................................................... 44
12.7 Further Actions......................................................................... 44
12.8 Time of the Essence..................................................................... 44
12.9 Counterparts............................................................................ 44
12.10 Entire Agreement........................................................................ 44
12.11 Amendments and Waivers.................................................................. 44
12.12 Construction............................................................................ 45
12.13 Expenses................................................................................ 45
</TABLE>
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Exhibits
Exhibit 1 Shareholders
Exhibit 2 Service Areas
Exhibit 3 Escrow Agreement
Exhibit 4 Noncompetition Agreement
Exhibit 5 Consultancy Agreement
Exhibit 6 DGCL Certificate of Merger
Exhibit 7 IBCL Articles of Merger
Exhibit 8 Stockholders' Agreement
Exhibit 9 Terms of Pegasus Preferred Stock
Exhibit 10 Current Balance Sheet
Exhibit 11 Lockup Agreement
Exhibit 12 Shareholder Investment Letter
Exhibit 13 Tax Certificate
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AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER ("Agreement") is made as of the 21st
day of January, 1997, by and among PEGASUS COMMUNICATIONS CORPORATION, a
Delaware corporation ("Pegasus"), PEGASUS SATELLITE TELEVISION OF INDIANA, INC.,
a Delaware corporation ("Merger Sub"), and DBS OF INDIANA, INC., an Indiana
corporation (the "Company"). Pegasus, Merger Sub and the Company are
collectively referred to herein as the "Parties."
RECITALS:
WHEREAS, the Company is a party to that certain NRTC Distribution
Agreement (as defined below) with the National Rural Telecommunications
Cooperative ("NRTC"), pursuant to which NRTC has granted to the Company the
right to distribute DIRECTV(R) ("DIRECTV") programming offered by DirecTV, Inc.
in the zip code areas of Indiana identified in Exhibit 2 ("Service Areas");
WHEREAS, the Parties intend for Pegasus to acquire the Business (as
hereinafter defined), including the NRTC Distribution Agreement, by means of the
merger of the Company with and into Merger Sub, upon the terms and subject to
the conditions set forth herein; and
WHEREAS, the Persons identified on Exhibit 1 (individually a
"Shareholder" and collectively the "Shareholders") own beneficially and of
record all the issued and outstanding capital stock of the Company.
NOW, THEREFORE, in consideration of the premises and mutual promises
herein made, and in consideration of the representations, warranties, covenants
and agreements herein contained, and intending to be legally bound hereby, the
Parties agree as follows:
ARTICLE I
DEFINITIONS
1.1 Certain Definitions. The following terms shall, when used in this
Agreement, have the following meanings:
"Accounts Receivable" mean the accounts receivable identified in the
Books and Records.
"Adverse Consequences" mean all actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, assessments, dues, penalties, fines,
interest, costs, amounts paid in settlement, Liabilities, obligations, Taxes,
<PAGE>
liens, losses, expenses and fees (including court costs, settlement costs,
legal, accounting, experts' and other fees, costs and expenses).
"Affiliate" means, with respect to any Person: (i) any Person directly
or indirectly owning, controlling, or holding with power to vote 10% or more of
the outstanding voting securities of such other Person; (ii) any Person 10% or
more of whose outstanding voting securities are directly or indirectly owned,
controlled, or held with power to vote, by such other Person; (iii) any Person
directly or indirectly controlling, controlled by, or under common control with
such other Person; and (iv) any officer, director or partner of such other
Person. "Control" for the foregoing purposes shall mean the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of a Person, whether through the ownership of voting securities or
voting interests, by contract or otherwise.
"Assets" mean all properties, assets (including cash), privileges,
powers, rights, interests and claims of every type and description that are
owned, leased, held, used or useful in the Business and in which the Company has
any right, title or interest or in which the Company acquires any right, title
or interest on or before the Closing Date, wherever located, whether known or
unknown, and whether or not now or on the Closing Date recorded on the Books and
Records of the Company, including Accounts Receivable, Books and Records,
Contracts, Intangibles, Intellectual Property, Inventory, NRTC Patronage
Capital, Personal Property and Closing Subscribers.
"Basis" means any past or present fact, situation, circumstance,
status, condition, activity, practice, plan, occurrence, event, incident,
action, failure to act or transaction that reasonably forms or could reasonably
form the basis for any specified consequence.
"Books and Records" mean all of the Company's books and records,
including minute and stock books, purchase and sale order files, invoices, sales
materials and records, customer lists, mailing lists, personnel records and
files, technical data and records, all correspondence with and documents
pertaining to NRTC, DIRECTV, DSS Systems, subscribers, suppliers, Governmental
Authorities and other third parties, all records evidencing the accounts
receivable and a schedule of accounts receivable aging and all other financial
records.
"Business" means the DIRECTV distribution business conducted by the
Company on the date of this Agreement and through the Closing Date pursuant to
rights granted under the NRTC Distribution Agreement.
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"Business Day" means any day other than Saturday, Sunday or a day on
which banking institutions in New York, New York are required or authorized to
be closed.
"Closing Subscribers" means the active DIRECTV subscriber accounts of
the Business as of the Closing Date, excluding the number of subscribers who (i)
reside outside the Service Area or are not otherwise Committed Member
Residences; (ii) are reported as Level 2 disconnections based upon the most
recent "disconnect report" generated by the NRTC prior to Closing, which number
shall be decreased by the product of the total number of active DIRECTV
subscriber accounts of the Business as of the Closing Date times a fraction, the
numerator of which is the average number of "total reconnects" reported on the
previous three Performance Indicator Reports generated by the NRTC with respect
to the Business, and the denominator of which is the average total subscriber
count reported on the same previous three Performance Indicator Reports; (iii)
are 60 days or more past due in the payment of any amount payable to the
Company; and (iv) have become subscribers pursuant to marketing promotions
subsequent to the execution of the Letter of Intent that are not marketing
promotions conducted in the Ordinary Course.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collateral Documents" mean the Lockup Agreement, Noncompetition
Agreement, Consultancy Agreement, Escrow Agreement, Stockholders' Agreement and
any other documents, instruments and certificates to be executed and delivered
by the Parties or the Shareholders hereunder or thereunder, including the
agreements described in Section 5.12.
"Committed Member Residence" has the meaning assigned to it in the NRTC
Distribution Agreement.
"Confidentiality Agreement" means that certain Confidentiality
Agreement dated September 13, 1996 between Pegasus and the Company.
"Consultancy Agreement" means the form of consultancy and
noncompetition agreement attached hereto as Exhibit 5 among Summe, Pegasus and
the Surviving Corporation.
"DSS System" means the satellite receiving system for DIRECTV
consisting of an eighteen inch satellite antenna dish, an integrated receiver
decoder and a remote control.
"Employee Benefit Plan" means any: (a) nonqualified deferred
compensation or retirement plan or arrangement that is an Employee Pension
Benefit Plan; (b) qualified defined contribution retirement plan or arrangement
that is an Employee Pension Benefit Plan; (c) qualified defined benefit
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retirement plan or arrangement that is an Employee Pension Benefit Plan
(including any Multiemployer Plan); or (d) Employee Welfare Benefit Plan or
material fringe benefit plan or program.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA
Section 3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA
Section 3(1).
"Encumbrance" means any mortgage, pledge, lien, encumbrance, charge,
security interest, security agreement, conditional sale or other title retention
agreement, restriction on transfer or any exception to or defect in title or
other ownership interest (including restrictive covenants, leases and licenses),
but not including (i) encumbrances for current Taxes not delinquent or being
contested in good faith, (ii) mechanics', carriers', workers', repairers' or
other similar liens arising or incurred in the Ordinary Course, and (iii)
purchase money security interests in personal property which secure only the
purchase price of the relevant property identified on Schedule 1.1(a) hereto.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Escrow Agent" means IBJ Schroder Bank & Trust Company.
"Escrow Agreement" means the form of escrow agreement attached hereto
as Exhibit 3.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations thereunder.
"GAAP" means United States generally accepted accounting principles as
in effect from time to time.
"Governmental Authority" means: (i) the United States of America; (ii)
any state, commonwealth, territory or possession of the United States of America
and any political subdivision thereof (including counties, municipalities and
the like); (iii) any foreign (as to the United States of America) sovereign
entity and any political subdivision thereof; or (iv) any agency, authority or
instrumentality of any of the foregoing, including any court, tribunal,
department, bureau, commission or board.
"Intangibles" mean all accounts, notes and other receivables, claims,
deposits, prepayments, refunds, causes of action, chooses in action, rights of
recovery, rights of set-off, rights of recoupment and other intangible assets
owned, used or held for use in the Business.
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"Intellectual Property" means all of the following that are owned, used
or held solely for use in the Business: (i) trademarks, service marks, trade
dress, logos, trade names and corporate names, together with all translations,
adaptations, derivations and combinations thereof and all applications,
registrations and renewals in connection therewith; (ii) all copyrightable
works, all copyrights and all applications, registrations and renewals in
connection therewith; (iii) trade secrets and confidential business information
(including ideas, research and development, know-how, formulas, compositions,
manufacturing and production processes and techniques, technical data, designs,
drawings, specifications, customer and supplier lists, pricing and cost
information and business and marketing plans and proposals); (iv) all computer
software (including data and related documentation) other than the proprietary
subscriber management, lead management and dealer management software to be
transferred to the Shareholders or an entity owned or controlled by the
Shareholders prior to the Closing; (v) all other proprietary rights; and (vi)
all copies and tangible embodiments thereof (in whatever form or medium).
"Inventory" means the DSS Systems and other equipment owned by the
Company for sale, lease or rent to or use by Subscribers.
"Legal Requirement" means any statute, ordinance, law, rule,
regulation, code, plan, injunction, judgment, order, decree, ruling, charge or
other requirement, standard or procedure enacted, adopted or applied by any
Governmental Authority, including judicial decisions applying common law or
interpreting any other Legal Requirement.
"Letter of Intent" means that certain Letter of Intent dated December
4, 1996 between Pegasus and the Company.
"Liability" means any liability (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes, but excluding any Liability to Pegasus
or Merger Sub.
"Lockup Agreement" means the lockup agreement of even date herewith
between Pegasus and Summe, in substantially the form attached hereto as Exhibit
11.
"Majority Shareholder" means Richard D. Summe.
"Multiemployer Plan" has the meaning set forth in ERISA
Section 3(37).
"Noncompetition Agreement" means the form of noncompetition agreement
attached hereto as Exhibit 4 among each Shareholder (other than Summe), Pegasus
and the Surviving Corporation.
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"NRTC Distribution Agreement" means any contract, commitment,
agreement, instrument or other document pursuant to which NRTC and/or DirecTV,
Inc. and/or any of their Affiliates has granted the Company rights relating to
the marketing and distribution of DIRECTV, including that certain NRTC/Member
Agreement for Marketing and Distribution of DBS Services between NRTC and the
Company, as amended and supplemented (Contract Number 1065).
"NRTC Patronage Capital" means any equity interest in NRTC allocated to
the Company or if such equity interest is not transferrable to Merger Sub at
Closing, the right to receive any distributions on account of such equity
interest.
"Ordinary Course" means the ordinary course of business consistent with
past custom and practice (including with respect to quantity and frequency).
"Pegasus Class A Common Stock" means the Class A Common Stock, par
value $0.01 per share, of Pegasus.
"Pegasus Preferred Stock" means the Series B Preferred Stock, par value
$.01 per share, of Pegasus having the terms on Exhibit 9.
"Pegasus Prospectus" means the prospectus dated October 3, 1996,
relating to Pegasus's initial public offering of Class A Common Stock.
"Pegasus Satellite Holdings" means Pegasus Satellite Holdings, Inc., a
subsidiary of Pegasus that will own all of the outstanding capital stock of
Merger Sub and a majority of the voting stock of other subsidiaries engaged in
the DIRECTV distribution business.
"Pegasus 10-Q" means Pegasus's quarterly report for the quarter ended
September 30, 1996 on Form 10-Q to the Securities and Exchange Commission.
"Permit" means any license, permit, consent, approval, registration,
authorization, qualification or similar right granted by a Governmental
Authority.
"Person" means any natural person, corporation, partnership, trust,
unincorporated organization, association, limited liability company,
Governmental Authority or other entity.
"Personal Property" means the personal property of the Company
identified on Schedule 1.1(b).
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"Representative" means any director, officer, employee, agent,
consultant, adviser or other representative of a Person, including legal
counsel, accountants and financial advisors.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations thereunder.
"Stockholders' Agreement" means the form of stockholders' agreement
attached hereto as Exhibit 8.
"Summe" means Richard D. Summe, Chairman and President of the Company
and a Shareholder.
"Tax" means any federal, state, local or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental, customs duties, capital stock,
franchise, profits, withholding, social security (or similar), unemployment,
disability, real property, personal property, sales, use, transfer,
registration, value added, alternative or add-on minimum, estimated or other tax
of any kind whatsoever, including any interest, penalties, fees, deficiencies,
assessments, additions or other charges of any nature with respect thereto,
whether disputed or not.
"Tax Certificate" means the form of certificate from the Company and
the Shareholders to tax counsel for Pegasus, in the form attached hereto as
Exhibit 13.
"Tax Return" means any return, declaration, report, claim for refund or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"Termination Date" means February 28, 1996.
1.2 Other Definitions. The following terms shall, when used in this
Agreement, have the meanings assigned to such terms in the Sections indicated.
Term Section
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"Agreement"...................................................Preamble
"Annual Financial Statements"......................................3.9
"Cash Consideration"............................................2.9(c)
"Closing".........................................................2.10
"Closing Balance Sheet".........................................5.6(b)
"Closing Date"....................................................2.10
"Closing Value"....................................................2.8
"Company Common Stock".............................................2.6
"Contracts".......................................................3.15
"Current Balance Sheet"............................................3.9
"DCGL".............................................................2.1
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"DIRECTV".....................................................Recitals
"Effective Time"...................................................2.5
"Escrow Funds".................................................11.2(c)
"Escrow Property"..............................................11.2(c)
"Escrow Shares".................................................2.9(b)
"IBCL".............................................................2.1
"Financial Statement Procedures"...................................3.9
"Financial Statements".............................................3.9
"Interim Financial Statements".....................................3.9
"Merger"...........................................................2.1
"Merger Consideration".............................................2.8
"NRTC"........................................................Recitals
"Parties".....................................................Preamble
"Pegasus Securities"..............................................3.24
"Service Areas"...............................................Recitals
"Surviving Corporation"............................................2.1
"Survival Period".................................................11.1
"Transfer".........................................................5.2
ARTICLE II
BASIC TRANSACTION
2.1 Merger; Surviving Corporation. In accordance with the provisions of
this Agreement, the General Corporation Law of the State of Delaware ("DGCU")
and the Business Corporation Law of the State of Indiana ("IBCL"), at the
Effective Time the Company shall be merged with and into Merger Sub (the
"Merger"), and Merger Sub shall be the surviving corporation in the Merger
(hereinafter sometimes called the "Surviving Corporation") and shall continue
its corporate existence under the laws of the State of Delaware. At the
Effective Time, the separate existence of the Company shall cease. All
properties, franchises and rights belonging to the Company and Merger Sub, by
virtue of the Merger and without further act or deed, shall be deemed to be
vested in the Surviving Corporation, which shall thenceforth be responsible for
all the liabilities and obligations of each of Merger Sub and the Company.
2.2 Certificate of Incorporation. Merger Sub's Certificate of
Incorporation, as amended, as in effect immediately prior to the Effective Time
shall thereafter continue in full force and effect as the Certificate of
Incorporation of the Surviving Corporation until altered or amended as provided
therein or by law.
2.3 By-Laws. Merger Sub's By-Laws, as amended, in effect immediately
prior to the Effective Time shall be the By-Laws of the Surviving Corporation
until altered, amended or repealed as provided therein or by law.
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2.4 Directors and Officers. The directors of Merger Sub immediately
prior to the Effective Time shall serve as directors of the Surviving
Corporation following the Effective Time in accordance with the Certificate of
Incorporation and By-laws of the Surviving Corporation and the DGCL. The
officers of Merger Sub immediately prior to the Effective Time shall serve in
such capacities at the pleasure of the Board of Directors of the Surviving
Corporation following the Effective Time in accordance with the Certificate of
Incorporation and By-Laws of the Surviving Corporation and the DGCL.
2.5 Effective Time. The Merger shall become effective at the time and
date that the last of the following two events has occurred: (i) the acceptance
for filing of a certificate of merger (the "DGCL Certificate of Merger"), in the
form attached hereto as Exhibit 6, by the Secretary of State of the State of
Delaware in accordance with the provisions of Section 252 of the DGCL; and (ii)
the acceptance for filing of articles of merger (the "IBCL Articles of Merger"),
in the form attached hereto as Exhibit 7, by the Secretary of State of the State
of Indiana in accordance with Section 23-1-40-5 of the IBCL. The DGCL
Certificate of Merger and the IBCL Articles of Merger shall be executed by
Merger Sub and the Company and delivered to the Secretary of State of the State
of Delaware and the Secretary of State of the State of Indiana, respectively,
for filing, as stated above, on the Closing Date. The date and time when the
Merger shall become effective are referred to herein as the "Effective Time."
2.6 Conversion of Company Shares. All shares of common stock, no par
value, of the Company ("Company Common Stock") issued and outstanding
immediately prior to the Effective Time shall, by virtue of the Merger and
without any action on the part of the holders thereof, be converted at the
Effective Time into the Merger Consideration.
2.7 Exchange of Certificates. At the Closing, immediately after the
Effective Time of the Merger, the Shareholders shall surrender to the Surviving
Corporation all of the outstanding certificates theretofore representing shares
of Company Common Stock, free and clear of all Encumbrances, in exchange for the
Merger Consideration payable to the Shareholders at Closing. Until such
certificates are surrendered, outstanding certificates formerly representing
shares of Company Common Stock shall be deemed for all purposes as evidencing
the right to receive the Merger Consideration into which such shares have been
converted as though said surrender and exchange had taken place. In no event
will a holder of shares of Company Common Stock be entitled to interest on the
Merger Consideration issuable in respect of such shares.
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2.8 Merger Consideration.
(a) All of the issued and outstanding shares of Company Common
Stock shall be converted at the Effective Time of the Merger into:
i. cash in an amount equal to (A) $4.9 million, plus (B)
$500 for each Closing Subscriber in excess of 6,000, plus (C) the book value of
rented DSS Systems and the book value of the Accounts Receivable related to
financed DSS Systems which are included in the Assets as of the Closing Date, up
to a maximum of $400,000.00, minus (D) if Pegasus and Merger Sub shall waive the
condition precedent set forth in Section 7.7, $2,000 for each Closing Subscriber
less than 6,000, minus (E) the amount, if any, by which the loan made to the
Company pursuant to Section 6.2 hereof exceeds $3.5 Million; and
ii. shares of Pegasus Class A Common Stock and Pegasus
Preferred Stock having an aggregate Closing Value of $5.6 million in such
proportion as each Shareholder shall have notified Pegasus in writing not later
than five Business Days before the Closing Date (the consideration referred to
in paragraphs (i) and (ii) being referred to as the "Merger Consideration").
(b) As used in subsection (a)(ii), "Closing Value" means (1)
with reference to the Pegasus Preferred Stock, its liquidation preference, and
(2) with reference to the Pegasus Class A Common Stock, the last reported sale
price of the Pegasus Class A Common Stock between a buyer and a seller that are
not Affiliates of Pegasus on the Nasdaq National Market System on the third
Business Day before the Closing Date, or, if no such sale is made on such day,
the average of the closing bid and asked price on such system on such day.
2.9 Manner of Payment.
(a) Upon presentation of the certificates representing the
shares of Company Common Stock owned by the Shareholders, Pegasus shall, subject
to the escrow provisions of subsection (b), make payment of the Merger
Consideration payable to the Shareholders. The Merger Consideration shall be
allocated among the Shareholders in proportion to the number of shares of
Company Common Stock owned by each Shareholder at the Effective Time of the
Merger. The Cash Consideration shall be paid in immediately available U.S.
dollars by wire transfer of funds to a bank account designated by each
Shareholder.
(b) At the Closing, immediately after the delivery to the
Shareholders of certificates for the shares of Pegasus Class A Common Stock and
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Pegasus Preferred Stock to be issued in the Merger, the Shareholders shall
deliver to the escrow agent under the Escrow Agreement a certificate or
certificates representing in the aggregate a total number of such shares having
a Closing Value of $700,000 (the "Escrow Shares"), duly endorsed in blank for
transfer by the Shareholders, to be held in escrow by the Escrow Agent pursuant
to the terms and conditions of the Escrow Agreement.
2.10 Closing. The Closing of the transactions contemplated by this
Agreement and the Collateral Documents ("Closing") shall take place at the
offices of Barnes & Thornburg, 1313 Merchants Bank Building, 11 South Meridian
Street, Indianapolis, Indiana 46204, or at such other location as the parties
may agree, on January 31, 1997; provided that if the conditions precedent to
Closing set forth in Article VII and VIII of this Agreement have not been met as
of January 31, 1997, the Closing shall occur on February 7, 1997 or, if such
conditions have not yet been met as of such date, on the third business day
following the satisfaction or waiver of all such conditions, but not later than
February 28, 1997. The date on which the Closing actually occurs is referred to
herein as the "Closing Date." The parties hereby agree to use their best
reasonable efforts to cause the Closing to occur on January 31, 1997.
2.11 Transactions at Closing. At the Closing:
(a) The Shareholders shall surrender certificates representing
Company Common Stock pursuant to Section 2.7, the Company shall deliver the
Books and Records (which shall be located at the Company's principal office),
and the Company and the Shareholders shall deliver to Pegasus and the Surviving
Corporation such documents, instruments and certificates as are required by this
Agreement to be delivered. The Shareholders shall be entitled to retain a copy
of the Books and Records for their files.
(b) Pegasus shall deliver to the Shareholders: (i) the Merger
Consideration (subject to the escrow arrangements set forth in Section 2.9(b);
and (ii) such documents, instruments and certificates as are required by this
Agreement to be delivered by Pegasus and Merger Sub.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
The Company represents and warrants to Pegasus and Merger Sub that the
statements contained in Article III are correct and complete as of the date of
this Agreement.
3.1 Organization and Qualification. The Company is a corporation duly
organized and validly existing under the laws of the State of Indiana, with all
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requisite power and authority to own, lease and use its assets as they are
currently owned, leased and used and to conduct its business as it is currently
conducted. The Company is duly qualified or licensed to do business and is in
good standing in each jurisdiction in which the character of the properties
owned, leased or used by it or the nature of the activities conducted by it make
such qualification necessary, except any such jurisdiction where the failure to
be so qualified or licensed would not have a material adverse effect on the
Assets or the Business or on the validity, binding effect or enforceability of
this Agreement or the Collateral Documents.
3.2 Capitalization. The Company's authorized, issued and outstanding
capital stock and its other securities are fully and accurately described in
Schedule 3.2. The Company has no issued and outstanding capital stock other than
the Company Common Stock. The Shareholders own all of the issued and outstanding
shares of Company Common Stock, beneficially and of record, in the numbers and
percentages set forth in Exhibit 1, and no other person has any rights, title or
interest, whether legal or equitable, in said shares. No person has any
preemptive or other rights with respect to any such capital stock or securities
and there are no offers, options, warrants, rights, agreements or commitments of
any kind (contingent or otherwise) relating to the issuance, conversion,
registration, sale or transfer of any equity interests or other securities of
the Company or obligating the Company or any other person to purchase or redeem
any such equity interests or other securities. All of the issued and outstanding
shares of Company Common Stock have been duly authorized and are validly issued
and outstanding, fully paid and nonassessable, have been issued in compliance
with applicable securities laws and other Legal Requirements, and to the
Company's knowledge, are subject to no Encumbrances.
3.3 Authority and Validity. The Company has all requisite power to
execute and deliver, to perform its obligations under, and to consummate the
transactions contemplated by, this Agreement. Each Shareholder has all requisite
power to execute and deliver, to perform his obligations under, and to
consummate the transactions contemplated by the Collateral Documents. The
execution and delivery by the Company of, the performance by the Company of its
obligations under, and the consummation by the Company of the transactions
contemplated by, this Agreement have been duly authorized by all requisite
corporate action of the Company. This Agreement has been duly executed and
delivered by the Company and is the legal, valid, and binding obligation of the
Company, enforceable against it in accordance with its terms, except as
enforcement may be limited by bankruptcy, insolvency, moratorium, fraudulent
conveyance or other laws relating to or limiting creditors' rights generally or
by general principles of equity, regardless of whether such enforceability is
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considered in a proceeding at law or in equity. Upon the execution and delivery
by the Shareholders of the Collateral Documents, the Collateral Documents will
be the legal, valid and binding obligations of each of the Shareholders,
enforceable against each in accordance with their respective terms, except as
enforcement may be limited by bankruptcy, insolvency, moratorium, fraudulent
conveyance or other laws relating to or limiting creditors' rights generally or
by general principles of equity, regardless of whether such enforceability is
considered in a proceeding at law or in equity.
3.4 No Breach or Violation. Subject to obtaining the consents,
approvals, authorizations, and orders of and making the registrations or filings
with or giving notices to Governmental Authorities and Persons recited in the
exception to Section 3.5, the execution, delivery and performance by the Company
of this Agreement and by the Shareholders of the Collateral Documents, and the
consummation of the transactions contemplated hereby and thereby in accordance
with the terms and conditions hereof and thereof, do not and will not conflict
with, constitute a violation or breach of, constitute a default or give rise to
any right of termination or acceleration of any right or obligation of the
Company or the Majority Shareholder under, or result in the creation or
imposition of any Encumbrance upon the Company, the Assets or the Business by
reason of the terms of (i) the articles of incorporation, by-laws or other
charter or organizational document of the Company, (ii) any material contract,
agreement, lease, indenture or other instrument to which the Company or the
Majority Shareholder is a party or by or to which the Company or the Majority
Shareholder or the Assets may be bound or subject, (iii) any order, judgment,
injunction, award or decree of any arbitrator or Governmental Authority or any
statute, law, rule or regulation applicable to the Company or the Majority
Shareholder or (iv) any Permit of the Company, which in the case of (ii), (iii)
or (iv) above would have a material adverse effect on the Company, the Assets or
the Business or the ability of the Company or any of the Shareholders to perform
its obligations under this Agreement or any Collateral Document.
3.5 Consents and Approvals. Except (i) as required under the NRTC
Distribution Agreement, and (ii) as set forth in Schedule 3.5 hereto, no
consent, approval, authorization or order of, registration or filing with, or
notice to, any Governmental Authority or any other Person is necessary to be
obtained, made or given by the Company or the Majority Shareholder in connection
with the execution, delivery and performance by them of this Agreement or any
Collateral Document or for the consummation by them of the transactions
contemplated hereby or thereby.
3.6 Title to Assets. The Company has exclusive, good and marketable
title to the Assets, free and clear of any and all Encumbrances. Except as
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provided by this Agreement, no Person has any right to acquire, directly or
indirectly, any interest in the Company or the Assets, and there is no agreement
to which the Company or the Majority Shareholder is a party or is otherwise
bound relating to the direct or indirect sale of the capital stock or assets of
the Company, other than (i) a sale of Assets in the Ordinary Course, and (ii) an
agreement to transfer certain subscriber management, lead management and dealer
management software to the Shareholders or an entity owned or controlled by the
Shareholders prior to Closing.
3.7 Intellectual Property.
(a) Except as are used pursuant to the NRTC Distribution
Agreement, the Company neither uses nor holds any copyrights, tradenames,
servicemarks, service names, logos, licenses, permits or other similar
intellectual property rights and interests in the operations of the Business
that do not incorporate the name "Channelspan" or variations thereof.
(b) To the Company's knowledge, the Company has not in its
operation of the Business interfered with, infringed upon, misappropriated or
otherwise come into conflict with, and the operation of the Business as
currently conducted does not violate or infringe upon, any Intellectual Property
Rights of third parties, and the Company has not received any charge, complaint,
claim, demand or notice alleging any such interference, infringement,
misappropriation or violation (including any claim that the Company or its
predecessor in interest must license or refrain from using any Intellectual
Property rights of any third party). To the knowledge of the Company, no third
party has interfered with, infringed upon, appropriated or otherwise come into
conflict with any Intellectual Property rights of the Company.
3.8 Compliance with Legal Requirements. The Company has operated the
Business in compliance in all material respects with all Legal Requirements and
requirements of the NRTC (including NRTC's by-laws, policies and procedures)
applicable to the Company. No action, suit, proceeding, hearing, investigation,
charge, complaint, claim, demand or notice has been filed, commenced or, to the
Company's knowledge, threatened against the Company alleging any failure to so
comply and, to the Company's knowledge, there is no Basis for any claim that
such a failure to comply exists.
3.9 Financial Information. The Company has delivered to Pegasus the
following financial statements ("Financial Statements"): (i) the Company's
unaudited balance sheet and income statement as of December 31, 1993; (ii) the
Company's unaudited balance sheet and income statement for the quarters ended
March 31, 1994 and June 30, 1994; (iii) the Company's unaudited balance sheet
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and income statement as of each month ended from July, 1994 to and including
November, 1996; and (iv) the Company's unaudited balance sheet as of November
30, 1996, which is attached to this Agreement as Exhibit 10 (the "Current
Balance Sheet"). The Current Balance Sheet has been prepared in all material
respects in accordance with GAAP, subject only to normal year-end adjustments
and the omission of footnotes. To the Company's knowledge, the income statement
for the month ended November 30, 1996 has been prepared in all material respects
in accordance with GAAP, subject only to normal year end adjustments and the
omission of footnotes. The Financial Statements are complete and correct in all
material respects, and present fairly the financial condition of the Company and
results of operations as of the dates and for the periods indicated.
3.10 Events Subsequent to November 30, 1996. Except as set forth on
Schedule 3.10, since November 30, 1996: (i) the Company has not sold, leased,
transferred or assigned any assets of the Business, tangible or intangible,
except in the Ordinary Course or as contemplated by Section 3.6 hereof; (ii) the
Company has not entered into any agreement, contract, lease or license (or
series of related agreements, contracts, leases and licenses) involving more
than $1,000 or outside the Ordinary Course; (iii) no third party has
accelerated, terminated, modified or canceled any material agreement, contract,
lease or license (or series of related agreements, contracts, leases and
licenses) relating to the Company or the Business other than in the Ordinary
Course; (iv) the Company has not imposed or permitted the imposition of any
Encumbrance upon any assets of the Business, tangible or intangible; (v) the
Company has not made any capital investment in, any loan to, or any acquisition
of the securities or assets of, any other Person (or series of related capital
investments, loans or acquisitions); (vi) the Company has not issued any note,
bond or other debt security or created, incurred, assumed or guaranteed any
indebtedness for borrowed money or capitalized lease obligations; (vii) the
Company has not delayed or postponed the payment of accounts payable and other
Liabilities outside the Ordinary Course; (viii) the Company has not canceled,
compromised, waived or released any right or claim (or series of related rights
and claims) involving more than $1,000 or outside the Ordinary Course; (ix) the
Company has not granted any license or sublicense of any rights under or with
respect to any Intellectual Property used or useful in the Business; (x) there
has not been any other material occurrence, event, incident, action, failure to
act or transaction outside the Ordinary Course involving the Company except that
is generally known by other NRTC members and affiliates; and (xi) the Company
has not committed to any of the foregoing. Since November 30, 1996, there has
been no material adverse change in, and no event has occurred which is
reasonably likely, individually or in the aggregate, to result in any material
adverse change in, the operations, assets, prospects or condition (financial or
otherwise) of the Company.
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3.11 Undisclosed Liabilities. Except as set forth in Schedule 3.11, the
Company has no material Liabilities, and, to the Company's knowledge, there is
no Basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim or demand against the Company giving
rise to material Liabilities, except for (1) Liabilities reflected in the
Current Balance Sheet which are fully detailed in Schedule 3.11, and (2)
Liabilities incurred in the Ordinary Course since November 30, 1996.
3.12 Legal Proceedings. Except as set forth on Schedule 3.12, there are
no outstanding judgments or orders against or otherwise affecting the Company,
the Business or the Assets. There is no action, suit, complaint, proceeding or
investigation, judicial, administrative or otherwise, that is pending or, to the
Company's knowledge, threatened and which, if adversely determined, might
materially and adversely affect the Company, the Business or the Assets or which
challenges the validity or propriety of any of the transactions contemplated by
this Agreement or the Collateral Documents. To the Company's knowledge, there is
no Basis upon which any such action, suit, proceeding or investigation could be
brought or initiated.
3.13 Taxes. The Company has duly and timely filed in proper form all
Tax Returns for all Taxes required to be filed with the appropriate Governmental
Authority. All Taxes due and payable by the Company (or claimed to be due and
payable) have been paid (regardless whether Tax Returns relating to such Taxes
have been duly and timely filed or if filed, regardless whether such Tax Returns
are deficient), except such amounts as are being contested diligently and in
good faith and are not in the aggregate material and for which the Company has
adequately reserved in its financial statements. The Company has furnished to
Pegasus true and correct copies of its 1993, 1994 and 1995 federal and state
income tax returns, which are accurate and complete in all material respects.
Except as set forth in Schedule 3.13, there are no pending Tax audits, claims or
proceedings relating to the Company, the Assets or the Business and income
therefrom. The Company has not agreed to any waiver or extension of any statute
of limitations relating to any Tax.
3.14 Employee Benefits; Employees.
(a) Neither the Company nor any Employee Benefit Plan
maintained by the Company is in violation of the provisions of ERISA; no
reportable event, within the meaning of Sections 4043(c)(1), (2), (3), (5), (6),
(7), (10) or (13) of ERISA, has occurred and is continuing with respect to any
such Employee Benefit Plan; and no prohibited transaction, within the meaning of
Title I of ERISA, has occurred with respect to any such Employee Benefit Plan.
Pegasus and Merger Sub are not required under ERISA, the Code or any collective
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bargaining agreement to establish, maintain or continue any Employee Benefit
Plan maintained by the Company or any Affiliate of the Company.
(b) There are no collective bargaining agreements applicable
to any Persons employed by the Company, and the Company has no duty to bargain
with any labor organization with respect to any such Person. There are not
pending any unfair labor practice charges against the Company, nor is there any
demand for recognition, or any other request or demand from a labor organization
for representative status with respect to any person employed by the Company.
(c) The Company is in substantial compliance with all
applicable Legal Requirements respecting employment conditions and practices,
has withheld all amounts required by any applicable Legal Requirements or
Contracts to be withheld from the wages or salaries of its employees, and is not
liable for any arrears of wages or any Taxes or penalties for failure to comply
with any of the foregoing.
(d) There are not pending or, to the Company's knowledge,
threatened unfair labor practice charges or discrimination complaints relating
to race, color, national origin, sex, religion, age, marital status, or handicap
against the Company before any Governmental Authority nor, to the Company's
knowledge, does any Basis therefor exist.
(e) There are no existing or, to the Company's knowledge,
threatened, labor strikes, disputes, grievances or other labor controversies
affecting the Company. There are no pending or, to the Company's knowledge,
threatened representation questions respecting the Company's employees. There
are no pending or, to the Company's knowledge, threatened arbitration
proceedings under any Contract. To the Company's knowledge, there exists no
Basis for any of the above.
(f) Except as set forth in Schedule 3.14 the Company is not a
party to any employment agreement or arrangement, written or oral, relating to
its employees which cannot be terminated at will by the Company.
(g) Schedule 3.14 sets forth a true and complete list of the
names, titles and rates of compensation of all of the Company's employees.
3.15 Contracts. Schedule 3.15 contains a true, correct and complete
list of each contract agreement or commitment, whether written or oral, to which
the Company is a party that meet the following description or criteria
("Contracts"):
i. the NRTC Distribution Agreement and any other agreement
with NRTC or DirecTV, Inc. or any of their Affiliates;
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ii. any agreement (or group of related agreements) for the
lease or rental of real or personal property from any Person, and any form of
lease or rental agreements for DSS Systems used by the Company in its lease and
rental programs (prior to the Closing, the Company will provide to Pegasus and
Merger Sub an itemized list of the subscribers who are parties to such
agreements and the expiration dates of such agreements);
iii. any agreement for an amount in excess of $3,000 per
year for the purchase or sale of supplies, products or other personal property,
and any forms of agreement or purchase orders used by the Company relating to
the sale of DSS Systems or the sale of DIRECTV services;
iv. any agreement concerning a partnership or joint
venture;
v. any agreement (or group of related agreements) under
which the Company has created, incurred, assumed or guaranteed any indebtedness
for borrowed money, or any capitalized lease obligation;
vi. any agreement concerning confidentiality or
noncompetition;
vii. any agreement involving any officer, director or
Shareholder of the Company or any of their Affiliates;
viii. any agreement for the employment of any individual
on a full-time, part-time, consulting or other basis for a specified term;
ix. the most current commission schedule used by the
Company relating to the services of sales representatives and agents, and any
agreements with independent contractors for the installation of DSS Systems;
x. any agreement under which the Company has advanced or
loaned any amount to any employees or any of the Company's current or former
directors, officers or shareholders;
xi. any agreement under which the consequences of a
default or termination could have a material adverse effect on the financial
condition, operations, results of operations or future prospects of the Company,
the Assets or the Business; and
xii. any other agreement the performance of which involves
consideration in excess of $5,000.
Within ten (10) days after the execution of this Agreement, the Company
will deliver to Pegasus a correct and complete copy of each written agreement
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listed on Schedule 3.15 and a written summary setting forth the terms and
conditions of each oral agreement listed therein. With respect to each such
agreement: (A) the agreement is legal, valid, binding, enforceable and in full
force and effect, except as enforcement may be limited by bankruptcy,
insolvency, moratorium, fraudulent conveyance or other laws relating to or
limiting creditors' rights generally or by general principles of equity,
regardless of whether such enforceability is considered in a proceeding at law
or in equity; (B) the agreement will continue to be legal, valid, binding,
enforceable and in full force and effect, subject to the qualifications set
forth in (A), on identical terms following the consummation of the transactions
contemplated hereby; (C) no party is in material breach or default, 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; and (D) no party has repudiated any provision of the agreement.
3.16 Books and Records; Accounts Receivable. The Books and Records
accurately and fairly represent the Business and its results of operations in
all material respects. All Accounts Receivable and Inventory of the Business are
reflected properly on such Books and Records in all material respects. The
Accounts Receivable are valid receivables and properly reflected on the Current
Balance Sheet in accordance with GAAP.
3.17 Business Information. Schedule 3.17 sets forth a materially true
and accurate description of the following information as of the date set forth
in such Schedule: (i) the approximate number of Committed Member Residences in
the Service Area; (ii) the approximate number of Committed Member Residences
that are cabled; (iii) the approximate number of Committed Member Residences
that are uncabled; (iv) the rates charged to subscribers; (v) marketing,
promotional and advertising programs which are representative of the programs
currently in effect for the Business or which have been in effect at any time
since January 1, 1996; and (vi) cable systems (identified by over or under 40
channel capacity) in major markets in the Service Areas.
3.18 Insurance. Schedule 3.18 sets forth the following information with
respect to each insurance policy relating to the Business (including policies
providing property, casualty, liability and workers' compensation coverage and
bond and surety arrangements) to which the Company is a party, a named insured,
or otherwise the beneficiary of coverage at any time:
i. the name, address, and telephone number of the agent;
ii. the name of the insurer, the name of the policyholder
and the name of each covered insured;
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iii. the policy number and the period of coverage;
iv. the scope (including an indication of whether the
coverage was on a claims made, occurrence or other basis) and amount (including
a description of how deductibles and ceilings are calculated and operate) of
coverage; and
v. a description of any retroactive premium adjustments or
other loss-sharing arrangements.
With respect to each such insurance policy: (A) the policy is legal,
valid, binding, enforceable in accordance with its terms, and in full force and
effect; (B) neither the Company, nor any predecessor in interest nor, to the
Company's knowledge, any other party to the policy is in breach or default
(including with respect to the payment of premiums or the giving of notices),
and no event has occurred which, with notice or the lapse of time, would
constitute such a breach or default, or permit termination, modification or
acceleration, under the policy; and (C) no party to the policy has repudiated
any provision thereof. The Business and the Assets have been covered since the
beginning of Business operations in scope and amount customary and reasonable
for such a business and in the case of workers' compensation coverage, in scope
and amount required by applicable Legal Requirements. Schedule 3.18 describes
any self-insurance arrangements affecting the Assets or the Business. Schedule
3.18 also sets forth each material pending insurance claim (other than medical
claims) made or loss incurred relating to the Business pursuant to property,
casualty, liability, workers' compensation and bond and surety policies and,
except as indicated therein, no such material pending claim is outstanding.
3.19 Disclosure. No representation or warranty of the Company in this
Agreement or of the Shareholders in the Collateral Documents and no statement in
any certificate, report, instrument, list or other document furnished or to be
furnished by the Company pursuant to this Agreement or by the Shareholders in
the Collateral Documents or in connection with the transactions contemplated
hereby or thereby, contained, contains or will contain on the date such
agreement, certificate, report, instrument, list or other document was or is
delivered, any untrue statement of a material fact, or omitted, omits or will
omit on such date to state any material fact necessary in order to make the
statements made, in light of the circumstances under which they were made, not
misleading, nor will any such representation or warranty or statement contain on
the Closing Date any untrue statement of a material fact or omit on the Closing
Date to state any material fact necessary in order to make the statements made,
in light of the circumstances under which they were made, not misleading.
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3.20 Brokers or Finders. Except as set forth on Schedule 3.20, no
broker or finder has acted directly or indirectly for the Company in connection
with the transactions contemplated by this Agreement, and the Company has
incurred no obligation to pay any brokerage or finder's fee or other commission
in connection therewith.
3.21 Certain Payments. Neither the Company nor, to the Company's
knowledge, its Representatives has directly or indirectly, on behalf of or for
the purpose of assisting the Business, made any contribution, gift, bribe,
rebate, payoff, influence payment, kickback, or other singular payments to any
Person, private or public, regardless of form, whether in money, property or
services, to obtain favorable treatment in securing business, to pay for
favorable treatment for business secured, to obtain special concessions or for
special concessions already obtained, or in violation of any Legal Requirement,
nor has any such person established or maintained any fund or asset that has not
been recorded in the Books and Records.
3.22 Subscribers. The Company has neither solicited nor encouraged any
Representative or any other Person to solicit, nor has the Company employed any
scheme or device for the purpose of encouraging, nor has the Company encouraged
any Representative or any other Person to employ any scheme or device for the
purpose of encouraging, Persons residing outside the Service Areas or Persons
who would not be deemed Committed Member Residences to become subscribers of the
DIRECTV service offered by the Business. The Business does not provide DIRECTV
service to Persons who reside outside the Service Areas or are not otherwise
Committed Member Residences.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PEGASUS AND MERGER SUB
Pegasus and Merger Sub jointly and severally represent and warrant to
the Company that the statements contained in this Article IV are correct and
complete as of the date of this Agreement.
4.1 Organization and Qualification. Pegasus and Merger Sub each is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, with all requisite power and authority to own, lease
and use its assets and to conduct its business as it is currently conducted.
Pegasus and Merger Sub each is duly qualified or licensed to do business in and
is in good standing in each jurisdiction in which the character of the
properties owned, leased or used by it or the nature of the activities conducted
by it makes such qualification necessary, except any such jurisdiction where the
failure to be so qualified or licensed and in good standing would not have a
material adverse effect on Pegasus or Merger Sub, as the case may be, or on the
validity, binding effect or enforceability of this Agreement.
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4.2 Authority and Validity. Pegasus and Merger Sub each has all
requisite power and authority to execute and deliver, to perform its obligations
under, and to consummate the transactions contemplated by, this Agreement and
the Collateral Documents. The execution and delivery by Pegasus and Merger Sub
of, the performance by Pegasus and Merger Sub of their respective obligations
under, and the consummation by Pegasus and Merger Sub of the transactions
contemplated by, this Agreement and the Collateral Documents have been duly
authorized by all requisite corporate action of Pegasus and Merger Sub. This
Agreement has been duly executed and delivered by each of Pegasus and Merger Sub
and is the legal, valid and binding obligation of Pegasus and Merger Sub,
enforceable against each of them in accordance with its terms, except as
enforcement may be limited by bankruptcy, insolvency, moratorium, fraudulent
conveyance or other laws relating to or limiting to creditors rights generally
or by general principles of equity, regardless of whether such enforceability is
considered in a proceeding at law or in equity. Upon Pegasus's and Merger Sub's
execution and delivery of the Collateral Documents to which it is a party, the
Collateral Documents will be the legal, valid and binding obligations of Pegasus
or Merger Sub, as the case may be, enforceable against them in accordance with
their respective terms, except as enforcement may be limited by bankruptcy,
insolvency, moratorium fraudulent conveyance or other laws relating to or
limiting to creditors rights generally or by general principles of equity,
regardless of whether such enforceability is considered in a proceeding at law
or in equity.
4.3 No Breach or Violation. Subject to obtaining the consents,
approvals, authorizations, and orders of and making the registrations or filings
with or giving notices to Governmental Authorities and Persons recited in the
exception to Section 4.4, the execution, delivery and performance by Pegasus and
Merger Sub of this Agreement and the Collateral Documents to which each is a
party and the consummation of the transactions contemplated hereby and thereby
in accordance with the terms and conditions hereof and thereof, do not and will
not conflict with, constitute a violation or breach of, constitute a default or
give rise to any right of termination or acceleration of any right or obligation
of Pegasus or Merger Sub under, or result in the creation or imposition of any
Encumbrance upon the property of Pegasus or Merger Sub by reason of the terms of
(i) its certificate of incorporation, by-laws or other charter or organizational
document, (ii) any material contract, agreement, lease, indenture or other
instrument to which Pegasus or Merger Sub is a party or by or to which Pegasus
or Merger Sub or its property may be bound or subject, (iii) any order,
judgment, injunction, award or decree of any arbitrator or Governmental
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Authority or any statute, law, rule or regulation applicable to Pegasus or
Merger Sub or (iv) any Permit of Pegasus or Merger Sub, which in the case of
(ii), (iii) or (iv) above would have a material adverse effect on the ability of
Pegasus Or Merger Sub to perform its obligations under this Agreement or any
Collateral Document.
4.4 Consents and Approvals. Except (i) as required under the NRTC
Distribution Agreement, (ii) as required under the Securities Act and the
Exchange Act, and (iii) as set forth in Schedule 4.4 hereto, no consent,
approval, authorization or order of, registration or filing with, or notice to,
any Governmental Authority or any other Person is necessary to be obtained, made
or given by Pegasus or Merger Sub in connection with the execution, delivery and
performance by Pegasus or Mercer Sub of this Agreement or any Collateral
Documents or for the consummation by Pegasus or Merger Sub of the transactions
contemplated hereby or thereby.
4.5 Legal Proceedings. There is no action, suit, proceeding or
investigation, judicial, administrative or otherwise, that is pending or, to the
best knowledge of Pegasus or Merger Sub, threatened against Pegasus or Merger
Sub and that challenges the validity or propriety of, or may prevent or delay,
any of the transactions contemplated by this Agreement or the Collateral
Documents.
4.6 Capitalization. Pegasus's authorized, capital stock consists of
30,000,000 shares of Class A Common Stock, par value $.01 per share, of which
4,663,229 shares are outstanding, 15,000,000 shares of Class B Common Stock, par
value $.01 per share, of which 4,581,900 shares are outstanding, and 5,000,000
shares of Preferred Stock, none of which has been designated as to series by
Pegasus's board of directors and none of which is outstanding. Pegasus has
proposed to issue in a public offering units consisting of Series A Convertible
Preferred Stock and warrants to purchase Class A Common Stock, the terms of
which, to the extent known on the date hereof, are described in Schedule 4.6.
Except as described in Schedule 4.6, no person has any preemptive or other
rights with respect to any such capital stock or securities and there are no
offers, options, warrants, rights, agreements or commitments of any kind
(contingent or otherwise) relating to the issuance, conversion, registration,
sale or transfer of any equity interests or other securities of Pegasus or
obligations. Pegasus or any other person to purchase or redeem any such equity
interests or other securities. The issuance by Pegasus of additional capital
stock or other securities, or rights described in the preceding sentence,
between the date of this Agreement and the Closing Date shall not be deemed to
cause the representations and warranties in this Section to be untrue or
breached as of the Closing Date. All of the issued and outstanding shares of
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Pegasus's Class A Common Stock and Class B Common Stock have been duly
authorized and are validly issued and outstanding, fully paid and nonassessable
and have been issued in compliance with applicable securities laws and other
Legal Requirements. The Pegasus Securities, when issued in accordance with this
Agreement, will have been duly authorized, validly issued and outstanding and
will be fully paid and nonassessable.
4.7 Compliance with Legal Requirements. Pegasus has operated its
business in compliance in all material respects with all Legal Requirements and
requirements of the NRTC (including NRTC's by-laws, policies and procedures)
applicable to Pegasus. No action, suit, proceeding, hearing, investigation,
charge, complaint, claim, demand or notice has been filed, commenced or, to the
best of Pegasus's knowledge, threatened against Pegasus alleging any failure to
so comply and there is no Basis for any claim that such a failure to comply
exists.
4.8 Financial Information. Pegasus has delivered to the Company the
Pegasus Prospectus and the Pegasus 10-Q. The financial statements contained in
the Pegasus Prospectus and the Pegasus 10-Q (including the notes thereto) have
been prepared in accordance with GAAP applied on a consistent basis throughout
the periods covered thereby, are complete and correct in all material respects,
and present fairly the financial condition of the Persons reported on and their
results of operations as of the dates and for the periods indicated, subject in
the case of the unaudited financial statements only to normal year-end
adjustments (none of which will be material in amount) and the omission of
footnotes. Since September 30, 1996, there has been no material adverse change
in, and no event has occurred which is reasonably likely, individually or in the
aggregate, to result in any material adverse change in, the operations, assets,
prospects or condition (financial or otherwise) of Pegasus and its subsidiaries
taken as a whole.
4.9 Undisclosed Liabilities. Pegasus has no material Liabilities and,
to the knowledge of Pegasus, there is no Basis for any present or future action,
suit, proceeding, hearing, investigation, charge, complaint, claim or demand
against Pegasus giving rise to any material Liability, except for (1)
Liabilities set forth in the September 30, 1996, balance sheet included in the
Pegasus 10-Q, (2) Liabilities incurred in the Ordinary Course since September
30, 1996, (3) proposed bank borrowings of up to $5 million, and (4) Liabilities
arising out of pending or completed acquisitions.
4.10 Brokers or Finders. No broker or finder has acted directly or
indirectly for Pegasus in connection with the transactions contemplated by this
Agreement, and Pegasus has incurred no obligation to pay any brokerage or
finder's fee or other commission in connection therewith.
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4.11 Disclosure. No representation or warranty of Pegasus in this
Agreement or the Collateral Documents or any certificate, report, instrument,
list or other document furnished or to be furnished by Pegasus pursuant to this
Agreement or the Collateral Documents or in connection with the transactions
contemplated hereby or thereby, contained, contains or will contain on the date
such agreement, certificate, report, instrument, list or other document was or
is delivered, any untrue statement of a material fact, or omitted, omits or will
omit on such date to state any material fact necessary in order to make the
statements made, in light of the circumstances under which they were made, not
misleading, nor will any such representation or warranty or statement contain on
the Closing Date any untrue statement of a material fact or omit on the Closing
Date to state any material fact necessary in order to make the statements made,
in light of the circumstances under which they were made, not misleading. The
Pegasus Prospectus and the Pegasus 10-Q did not, as of their respective dates,
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
ARTICLE V
PRE-CLOSING COVENANTS OF THE COMPANY AND THE SHAREHOLDERS
5.1 Additional Information. The Company shall provide to Pegasus and
its Representatives, during normal business hours and in a manner that does not
result in a material disruption of the operations of the Company, (i) reasonable
access to all of the Assets and (ii) such financial, operating and other
documents, data and information relating to the Company, the Business and the
Assets and Liabilities of the Company as Pegasus or its Representatives may
reasonably request. Such access shall include the right of Pegasus and its
Representatives to inspect the records and reports of NRTC and DIRECTV and
discuss such records and reports with NRTC, and the Company shall take all
reasonable action necessary to facilitate the foregoing. In addition, the
Company shall take all reasonable action necessary to enable Pegasus and its
Representatives (including Coopers & Lybrand L.L.P.) to review, inspect and
audit the Books and Records, Tax Returns, Assets, Business and Liabilities of
the Company and discuss them with the Company's officers, employees, independent
accountants, and counsel. The Company shall have a right of consultation as to
any material issues. Notwithstanding any investigation that Pegasus may conduct
of the Company, the Business and the Assets, Pegasus and Merger Sub may fully
rely on the Company's and Shareholders' representations, warranties, covenants
and indemnities set forth in this Agreement, the Collateral Documents and any
documents, instruments or certificates delivered hereunder and thereunder, which
will not be waived or affected by or as a result of such investigation.
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5.2 Exclusivity. The Company shall not (i) solicit, initiate or
encourage the submission of any proposal or offer from any Person relating to
the direct or indirect sale or transfer of any of the Company's capital stock or
the Assets ("Transfer"); (ii) participate in any discussions or negotiations
regarding, furnish any information with respect to, assist or participate in or
facilitate in any other manner any effort or attempt by any Person to do or seek
a Transfer; or (iii) permit any Representative to engage in the foregoing on
behalf of the Company or any Shareholder. The Company shall provide to Pegasus
copies of any written (and summaries of any oral) proposals, offers or
inquiries, with respect to a Transfer received by the Company or any Shareholder
after the execution of the Letter of Intent.
5.3 Continuity and Maintenance of Operations.
(a) The Company shall: (i) comply in all material respects
with all Legal Requirements and requirements of the NRTC applicable to the
Company (including NRTC's by-laws, policies and procedures) relating to the
Business; (ii) fulfill in all material respects all of its obligations under and
maintain in full force and effect in all material respects all Contracts,
including the NTRTC Distribution Agreement, and shall not, without the prior
written consent of Pegasus, alter, modify or amend any of the foregoing; (iii)
use its reasonable efforts in consultation with Pegasus and its Affiliates, to
promote the financial success of the Business, and shall promptly notify Pegasus
of any adverse change in the prospects or condition (financial or otherwise) of
the Business; and (iv) use its reasonable efforts to promote, develop and
preserve its relationships with the NRTC, DSS retailers, participating
cooperatives and its present employees as well as the goodwill of its suppliers,
customers and others having business relations with it, and shall promptly
notify Pegasus of any adverse change in its relationship with any such Person.
Without limiting the generality of the foregoing, the Company shall use its
reasonable efforts to maintain the Assets in good order, condition and repair,
shall use its reasonable efforts to maintain insurance relating to the Business
as in effect on the date of this Agreement, shall continue the pricing,
marketing, advertising, promotion and other activities with respect to the
Business (including, without limitation, billing, collection and subscriber
matters), shall use its reasonable efforts to maintain inventories of DSS
Systems and supplies at historic levels and shall keep and maintain all of the
Books and Records in the Ordinary Course. Other than in the Ordinary Course, the
Company shall not itself pay or credit in any way any Accounts Receivable prior
to the Closing Date, and shall not permit any of its agents or employees, or any
officers, directors or Shareholders, to do so either. The Company shall continue
to enforce its procedures for disconnection and discontinuance of service to
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subscribers whose accounts are delinquent in accordance with customary policies
and procedures in effect on the date of this Agreement.
(b) The Company shall not, without the prior written consent
of Pegasus: (i) change the rates charged for the Economy Choice programming
package or deviate from the programming or rates in DIRECTV national packages
(Select Choice and Total Choice); (ii) engage in marketing promotions other than
in the Ordinary Course consistent with past practices; (iii) sell, lease,
transfer, convey, distribute or assign any of the Assets (or enter into any
contract to do any of the foregoing) other than in the Ordinary Course or as
contemplated by Section 3.6 hereof or permit the creation of any Encumbrance on
any of the Assets; (iv) permit the amendment or cancellation of the NRTC
Distribution Agreement or any other Contract other than in the Ordinary Course;
(v) enter into any contract, commitment or agreement or incur any indebtedness
or other liability or obligation of any kind involving an expenditure in excess
of $1,000 other than in the Ordinary Course; (vi) make any change in the
Company's authorized or issued capital stock, grant any stock option or other
right to purchase shares of the Company's capital stock or other securities,
issue or make any commitment to issue any security, including any security
exercisable for, convertible into or exchangeable for capital stock, grant any
registration rights, pay any dividend or make any distribution on its capital
stock or other securities, or purchase, redeem, retire or make any other
acquisition of shares of its capital stock or other securities; or (vii) amend
the Company's articles of incorporation or by-laws.
(c) The Company shall not take or omit to take any action that
would cause the Company to be in breach of any representations, warranties or
covenants in this Agreement or the Collateral Documents or that would, if such
action bad been taken or omitted on or before the date of this Agreement, have
been required to be disclosed on Schedule 3.10.
5.4 Consents and Approvals.
(a) As soon as practicable after execution of this Agreement,
the Company shall use its best reasonable efforts to obtain any necessary
consent, approval, authorization or order of, make any registration or filing
with or give any notice to, any Governmental Authority or Person as is required
to be obtained, made or given by the Company to consummate the transactions
contemplated by this Agreement and the Collateral Documents, including, without
limitation: (i) consents required under the NRTC Distribution Agreement; and
(ii) any authorizations, consents, approvals, actions, filings or notices set
forth in Schedule 3.5.
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(b) The Company shall cooperate with Pegasus in providing such
information and reasonable assistance as may be required in connection with the
obligations of Pegasus under Section 6.1.
5.5 Adoption by Shareholders. The Company shall use its best reasonable
efforts to secure the vote or consent of the Shareholders required by the IBCL
and the Company's articles of incorporation and bylaws to approve and adopt this
Agreement and the Merger, and the board of directors of the Company shall
recommend to the Shareholders such approval and adoption. Unless the Company
elects to obtain Shareholder approval by written consent, the Company shall take
all steps necessary to duty call, give notice of, convene and hold a meeting of
the Shareholders to be held as soon as is reasonably practicable after the date
hereof for the purpose of voting upon the approval of this Agreement and the
Merger. The Company will furnish to each Shareholder a notice of his rights to
dissent from the Merger under the IBCL and to demand an appraisal of his shares
and shall provide Pegasus with a copy of such notice prior to the Closing Date.
5.6 Securities Filings; Financial Information.
(a) The Company shall promptly after execution of this
Agreement, provide such information and documents to Pegasus concerning the
Business as may be required or appropriate for inclusion in any filing,
notification or report required to be made by Pegasus or any Affiliate of
Pegasus under the Securities Act or the Exchange Act; and shall cause its
counsel and independent accountants to cooperate with Pegasus, its Affiliates
and their investment bankers, counsel and independent accountants in the
preparation of such filings, notifications and reports. The Company represents
and warrants to Pegasus that no information or document provided by the Company
for inclusion in any filing, notification or report required to be made by
Pegasus or any Affiliate under the Securities Act or the Exchange Act will
contain any untrue statement of material fact or omit to state any material fact
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading.
(b) Five days prior to the Closing Date, the Company shall
deliver to Pegasus the Company's unaudited balance sheet as of the most recent
month-end prior to the Closing Date (the "Closing Balance Sheet"). The Closing
Balance Sheet will accurately reflect the Books and Records, will be complete
and correct in all material respects, and will present fairly the financial
condition of the Company as of its date.
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5.7 Notification of Certain Matters. The Company shall promptly provide
to Pegasus copies of any material notices or correspondence from and to the NRTC
or DIRECTV or any Affiliates of DIRECTV. The Company shall also promptly notify
Pegasus of any fact, event, circumstance or action that, if known on the date of
this Agreement, would have been required to be disclosed to Pegasus pursuant to
this Agreement or the existence or occurrence of which would cause any of the
Company's representations or warranties under this Agreement not to be correct
and/or complete in all material respects. In addition, the Company shall give
prompt written notice to Pegasus of any adverse development causing a breach of
any of the Company's representations and warranties in Article III. No
disclosure by the Company pursuant to this Section, however, shall be deemed to
amend or supplement this Agreement or to prevent or cure any misrepresentation,
breach of warranty, or breach of covenant by the Company.
5.8 Employee Matters. The Company has entered into letter agreements
with Steven F. Warren, Daryl Cox and Dave Trinkle regarding the terms of their
employment through the Closing and the payment of certain bonuses and
termination benefits. Pegasus and Merger Sub have been provided copies of such
letter agreements. Any liability pursuant to such letters with regard to the
payment of the bonuses or termination benefits described therein shall be for
the account of the Shareholders, and neither the Company nor the Surviving
Corporation shall have any liability with respect to the payment of such bonuses
or termination benefits.
5.9 Schedules. Each of Pegasus, Merger Sub and the Company shall, from
time to time prior to Closing, supplement the Schedules to this Agreement with
additional information that, if existing or known to it on the date of this
Agreement, would have been required to be included in one or more Schedules to
this Agreement for such Schedules to be true and correct in all material
respects. For purposes of determining the satisfaction of any of the conditions
to the obligations of Pegasus, Merger Sub or the Company in Articles VII and
VIII and the liability of Pegasus or the Surviving Corporation or their rights
following Closing for breaches of representations and warranties under this
Agreement, the Schedules to this Agreement shall be deemed to include only (a)
the information contained therein on the date of this Agreement and (b)
information added to the Schedules by written supplements to such Schedules
delivered prior to Closing by the party making such amendment that (i) are
accepted in writing by the other party or (ii) reflect actions expressly
permitted by this Agreement to be taken prior to Closing.
5.10 Removal of Encumbrances. The Company shall take all necessary
actions to cause the termination, release, and removal on or prior to the
Closing Date, of all Encumbrances relating to the Company, the Assets or the
Business, including without limitation the discharging or other satisfaction of
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related claims and obligations, in each case without incurring any obligation on
the part of Pegasus or Merger Sub or otherwise adversely affecting Pegasus or
Merger Sub.
5.11 Duty of Good Faith and Fair Dealing. Each Party agrees that it
will act in good faith with regard to all matters that are the subject of this
Agreement, and will neither intentionally nor knowingly take any action or omit
to take any action at any time for the primary purpose of depriving the other
Party unfairly of any right or benefit that the other party has at such time
under this Agreement.
5.12 Shareholder Investment Representations. The Company shall cause
each Shareholder who has not executed a Lockup Agreement to make written
representations, warranties and agreements to and with Pegasus to the effect set
forth in Exhibit 12.
ARTICLE VI
PRE-CLOSING COVENANTS OF PEGASUS AND MERGER SUB
Pegasus covenants and agrees as follows:
6.1 Consents and Approvals.
(a) As soon as practicable after execution of this Agreement,
Pegasus and Merger Sub shall use their best efforts to obtain any necessary
consent, approval, authorization or order of, make any registration or filing
with or give notice to, any Governmental Authority or Person as is required to
be obtained, made or given by Pegasus or Merger Sub to consummate the
transactions contemplated by this Agreement and the Collateral Documents,
including without limitation: (i) consents required under the NRTC Distribution
Agreement; and (ii) any authorizations, consents, approvals, actions, filings or
notices set forth in Schedule 4.4. Notwithstanding anything in this Section to
the contrary, Pegasus and Merger Sub shall not be required to agree to any
amendments, modifications or changes in, the waiver of any terms or conditions
of, or the imposition of any condition to the transfer to Pegasus of, the INRTC
Distribution Agreement in order to obtain the consents required under the NRTC
Distribution Agreement.
(b) Pegasus and Merger Sub shall cooperate with the Company in
providing such information and reasonable assistance as may be required in
connection with the Company's obligations under Section 5.4(a).
6.2 Loan. Immediately prior to Closing, Pegasus shall, or shall cause
its Affiliate to, loan to the Company an amount in cash adequate to permit the
Company to discharge all of its Liabilities to its Shareholders as of such date,
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and Company shall execute documentation reflecting the terms and conditions of
such loan, which documentation shall be reasonably satisfactory to the Parties.
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF PEGASUS AND MERGER SUB
All obligations of Pegasus and Merger Sub under this Agreement shall be
subject to the fulfillment at or prior to Closing of each of the following
conditions, it being understood that Pegasus and Merger Sub may, in their sole
discretion, to the extent permitted by applicable Legal Requirements, waive any
or all of such conditions in whole or in part:
7.1 Accuracy of Representations. All representations and warranties of
the Company and the Shareholders contained in this Agreement, the Collateral
Documents and any other document, instrument or certificate delivered by the
Company or the Shareholders at or prior to Closing shall be, if specifically
qualified by materiality, true in all respects and, if not so qualified, shall
be true in all material respects, in each case on and as of the Closing Date
with the same effect as if made on and as of the Closing Date. The Company shall
have delivered to Pegasus and Merger Sub a certificate dated the Closing Date to
the foregoing effect.
7.2 Covenants. The Company shall, in all material respects, have
performed and complied with each of the covenants, obligations, conditions and
agreements contained in this Agreement that are to be performed or complied with
by it at or prior to Closing. The Company shall have delivered to Pegasus and
Merger Sub a certificate dated the Closing Date to the foregoing effect. The
Majority Shareholder shall, in all material respects, have performed and
complied with each of the covenants, obligations and agreements contained in the
Lockup Agreement.
7.3 Consents.
(a) All consents, approvals, authorizations and orders
required to be obtained from, and all registrations, filings and notices
required to be made with or given to, any Governmental Authority or Person as
provided in Sections 5.4(a) and 6.1(a) shall have been duly obtained, made, or
given, as the case may be, and shall be in full force and effect, and any
waiting period required by Applicable Law or any Governmental Authority in
connection with such transactions shall have expired or have been earlier
terminated, unless the failure to obtain, make or give any such consent,
approval, authorization, order, registration, filing or notice, or to allow any
such waiting period to expire or terminate would not have a material adverse
effect on the Company, the Assets or the Business or the ability of the Company
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to consummate the transactions contemplated by this Agreement and the Collateral
Documents.
(b) Notwithstanding the foregoing, this condition precedent
shall not have been satisfied if any consent, approval, authorization or order
obtained in connection with the transactions contemplated by this Agreement and
the Collateral Documents has been conditioned upon the amendment, modification,
cancellation or termination of, or waiver of any term or condition of, any
contract, commitment or agreement, or imposes upon Pegasus or the Surviving
Corporation any condition or requirement not now imposed upon the Company.
(c) Pegasus and Merger Sub shall have been furnished with
appropriate evidence, reasonably satisfactory to it and its counsel, of the
granting of such consents, approvals, authorizations and orders, the making of
such registrations and filings and the giving of such notices referred to in
subsection (a).
7.4 Delivery of Documents. The Company and the Shareholders, as
applicable, shall have executed and delivered to Pegasus and Merger Sub the
following documents:
i. Escrow Agreement.
ii. Consultancy Agreement.
iii. Noncompetition Agreement.
iv. Stockholders' Agreement.
v. The agreements described in Section 5.12.
vi. Tax Certificate.
vii. Opinion of Barnes & Thornburg, counsel to the Company
and the Shareholders, dated the Closing Date, addressed to Pegasus and Merger
Sub, in form and substance reasonably satisfactory to Pegasus, Merger Sub and
their counsel.
viii. Such other documents and instruments as Pegasus may
reasonably request: (A) to evidence the performance by the Company and the
Shareholders of, or the compliance by the Company and the Shareholders with, any
covenant, obligation, condition and agreement to be performed or complied with
by the Company and/or any Shareholder under this Agreement and the Collateral
Documents; or (B) to otherwise facilitate the consummation or performance of any
of the transactions contemplated by this Agreement and the Collateral Documents.
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7.5 No Material Adverse Change. There shall have been no material
adverse change in the Assets or in the business, financial condition, prospects
or operations of the Company since November 30, 1996.
7.6 No Litigation. No action, suit or proceeding shall be pending or
threatened, and no Legal Requirement or policy of the NRTC, DirecTV, Inc. or any
of their Affiliates, or any applicable regulatory authority shall have been
enacted, promulgated or issued that would: (i) prohibit or have a material
adverse effect on Pegasus's or the Surviving Corporation's ownership or
operation of all or a material portion of the Business or the Assets or
otherwise materially impair the ability of Pegasus or the Surviving Corporation
to realize the benefits of the transactions contemplated by this Agreement and
the Collateral Documents or have a material adverse effect on the value of the
Assets; (ii) materially restrict or limit or otherwise condition Pegasus's or
the Surviving Corporation's right to transfer and/or assign the Business or the
Assets in the future; (iii) compel Pegasus or the Surviving Corporation to
dispose of or hold separate all or a material portion of the Business or the
Assets as a result of any of the transactions contemplated by this Agreement and
the Collateral Documents; (iv) prevent or make illegal the consummation of any
transactions contemplated by this Agreement and the Collateral Documents; or (v)
cause any of the transactions contemplated by this Agreement and the Collateral
Documents to be rescinded following consummation.
7.7 Minimum Subscribers. As of the Closing Date, the Business shall
have Closing Subscribers of not less than 6,000, as evidenced by such Company
documentation as Pegasus may request (including the DBS Wholesale Invoice issued
by NRTC for the most recent billing cycle).
7.8 NRTC Compliance Certificate. The Company shall have delivered to
Pegasus a certificate or letter from NRTC dated as of the Closing Date to the
effect that, to the knowledge of the NRTC, the Company is in compliance in all
material respects with the NRTC Distribution Agreement and that the Company has
paid all amounts due and payable to the NRTC under the NRTC Distribution
Agreement for which the NRTC has provided the Company an invoice (which amounts
do not represent fees or other costs (i) due in the Ordinary Course and not yet
payable or, (ii) relating to periods after the Closing Date).
7.9 Dissenters' Rights. No Shareholder shall have exercised dissenters'
rights under the IBCL in connection with the Merger.
7.10 Software License. Prior to or upon Closing the Shareholders or
an entity owned or controlled by the Shareholders will grant to the Company a
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fully paid perpetual license to utilize that certain subscriber management, lead
management and dealer management software previously transferred to the
Shareholders or an entity owned or controlled by the Shareholders by the
Company.
7.11 Repayment of Shareholder Liabilities. The Company will provide
Pegasus and Merger Sub with evidence of the repayment by the Company of the
Liabilities of the Company to its Shareholders reflected on the Closing Balance
Sheet.
ARTICLE VIII
CONDITIONS PRECEDENT TO OBLIGATIONS
OF THE COMPANY
All obligations of the Company under this Agreement shall be subject to
the fulfillment at or prior to Closing of the following conditions, it being
understood that the Company may, in its sole discretion, to the extent permitted
by applicable Legal Requirements, waive any or all of such conditions in whole
or in part.
8.1 Accuracy of Representations. All representations and warranties of
Pegasus and Merger Sub contained in this Agreement and the Collateral Documents
shall be, if specifically qualified by materiality, true and correct in all
respects and, if not so qualified, shall be true and correct in all material
respects, in each case on and as of the Closing Date with the same effect as if
made on and as of the Closing Date. Pegasus and Merger Sub shall have delivered
to the Company a certificate dated the Closing Date to the foregoing effect.
8.2 Covenants. Pegasus and Merger Sub shall, in all material respects,
have performed and complied with each obligation, agreement, covenant and
condition contained in this Agreement and the Collateral Documents and required
by this Agreement and the Collateral Documents to be performed or complied with
by Pegasus or Merger Sub at or prior to Closing. Pegasus and Merger Sub shall
have delivered to the Company a certificate dated the Closing Date to the
foregoing effect.
8.3 Consents. All consents, approvals, authorizations and orders
required to be obtained from, and all registrations, filings and notices
required to be made with or given to, any Governmental Authority or Person as
provided in Section 6.1(a) shall have been duly obtained, made or given, as the
case may be, and shall be in full force and effect, and any waiting period
required by applicable law or any Governmental Authority in connection with such
transactions shall have expired or have been earlier terminated, unless the
failure to obtain, make or give any such consent, approval, authorization,
order, registration, filing or notice, or to allow any such waiting period to
expire or terminate would not have a material adverse effect on the ability of
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Pegasus and Merger Sub to consummate the transactions contemplated by this
Agreement and the Collateral Documents. The Company and the Shareholders shall
have been furnished with the appropriate evidence, reasonably satisfactory to
them and their counsel, of the granting of such consents, approvals,
authorizations and orders, the making of such registrations and filings and the
giving of such notices.
8.4 Delivery of Documents. Pegasus and Merger Sub, as applicable,
shall have executed and delivered to the Shareholders the following documents:
i. Escrow Agreement.
ii. Consultancy Agreement.
iii. Stockholders' Agreement.
iv. Opinion of Ted S. Lodge, Senior Vice President, Chief
Administrative Officer and General Counsel of Pegasus, dated the Closing Date,
addressed to the Company and the Shareholders, in form and substance reasonably
satisfactory to the Company and the Shareholders.
v. Opinion of Drinker Biddle & Reath, as tax counsel to
Pegasus and Merger Sub, dated the Closing Date, addressed to the Company and
Shareholders, in form and substance reasonably satisfactory to the Company and
the Shareholders to the effect that the transactions contemplated hereby will
qualify as a tax free reorganization under Sections 368(a)(1)(A) and
368(a)(2)(D) of the Code.
vi. Such other documents and instruments as the Company
may reasonably request: (A) to evidence the performance by Pegasus and Merger
Sub of, or the compliance by Pegasus or Merger Sub with, any covenant,
obligation, condition and agreement to be performed or complied with by Pegasus
or Merger Sub under this Agreement and the Collateral Documents; or (B) to
otherwise facilitate the consummation or performance of any of the transactions
contemplated by this Agreement and the Collateral Documents.
8.5 No Material Adverse Change. There shall have been no material
adverse change in the business, financial condition, prospects or operations of
Pegasus since September 30, 1996.
8.6 Litigation. No action, suit or proceeding shall be pending or
threatened by or before any Governmental Authority and no Legal Requirement
shall have been enacted, promulgated or issued or deemed applicable to any of
the transactions contemplated by this Agreement and the Collateral Documents
that would: (i) prevent consummation of any of the transactions contemplated
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by this Agreement and the Collateral Documents; or (ii) cause any of the
transactions contemplated by this Agreement and the Collateral Documents to be
rescinded following consummation.
ARTICLE IX
POST-CLOSING COVENANTS
The Parties agree as follows with respect to the period following
Closing:
9.1 Taxes. The Shareholders shall be responsible for all capital gains
taxes imposed by the Code or similar provisions of state taxing laws on the
Shareholders as a result of the transactions contemplated herein. Pegasus and
the Surviving Corporation shall be responsible for taxes, ff any, imposed upon
the Company (or the Surviving Corporation, as transferee) as a result of the
transactions contemplated herein. As soon as practicable after the Closing, but
no later than March 7, 1997, the Company's accountant will prepare and deliver
to Pegasus the Company's 1996 federal and state income tax returns (the "1996
Returns"), which will be accurate and complete in all material respects. The
Surviving Corporation, as successor to the Company, will execute the 1996
Returns on behalf of the Company and cause them to be filed with the Internal
Revenue Service and applicable state taxing authorities on or prior to March 15,
1997. Within sixty (60) days after Closing, the Company's accountant will
prepare and deliver to Pegasus the Company's federal and state income tax
returns for the period commencing January 1, 1997 and ending on the Closing Date
(the "1997 Returns"), which will be accurate and complete in all material
respects. The Surviving Corporation, as successor to the Company, will execute
the 1997 Returns on behalf of the Company and cause them to be filed with the
Internal Revenue Service and applicable state taxing authorities on or prior to
the fifteenth day of the third month following the Closing Date. The Company
represents that it will owe no federal or state income taxes with respect to the
periods covered by the 1996 Returns and the 1997 Returns.
9.2 Territorial Compliance. If the Shareholders, or any entity owned or
controlled by the Shareholders, continue efforts to have Persons resident in the
Service Area who as of the Closing Date purchase services directly through
DIRECTV, Inc. reclassified as subscribers of the Surviving Corporation in
accordance with the terms of the NRTC Distribution Agreement, and such efforts
result in an increase in the number of subscribers of the Surviving Corporation
within 90 days after the Closing Date, then Pegasus or the Surviving Corporation
shall pay the Shareholders an amount equal to (i) $500, times (ii) such increase
in the number of subscribers resulting from such efforts (which number shall not
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exceed 3% of the number of Closing Subscribers). Such payment, if any, shall be
made within five (5) days following the expiration of the 90-day period.
9.3 Payment of Fees. Pegasus shall pay, and shall hold the Shareholders
harmless from any claim for payment of, any fees of the type referred to in
Schedule 3.20 of this Agreement.
ARTICLE X
TERMINATION
10.1 Events of Termination. This Agreement may be terminated and the
transactions contemplated by this Agreement may be abandoned at any time prior
to Closing as provided below:
(a) Pegasus, Merger Sub and the Company may terminate this
Agreement by mutual written consent at any time prior to Closing.
(b) Pegasus and Merger Sub may terminate this Agreement by
giving written notice to the Company at any time prior to Closing:
i. if the Company has breached any material
representation, warranty or covenant contained in this Agreement in any material
respect, or the Majority Shareholder shall have breached any material
representation, warranty or covenant contained in the Lockup Agreement, Pegasus
has notified the Company or such Shareholder of the breach, and the breach has
continued without cure for a period of 30 days after the notice of breach; or
ii. if Closing shall not have occurred on or before the
Termination Date by reason of the failure of any condition precedent under
Article VII (unless the failure results primarily from Pegasus or Merger Sub
itself breaching any representation, warranty or covenant contained in this
Agreement).
(c) The Company may terminate this Agreement by giving
written notice to Pegasus at any time prior to Closing:
i. if Pegasus or Merger Sub has breached any material
representation, warranty or covenant contained in this Agreement in any material
respect, the Company has notified Pegasus of the breach, and the breach has
continued without cure for a period of 30 days after the notice of breach; or
ii. if Closing shall not have occurred on or before the
Termination Date by reason of the failure of any condition precedent under
Article VIII hereof (unless the failure results primarily from the Company or
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the Majority Shareholder breaching any representation, warranty or covenant
contained in this Agreement or the Lockup Agreement, respectively).
10.2 Liabilities in Event of Termination. The termination of this
Agreement will in no way limit any obligation or liability of any Party based on
or arising from a breach or default by such Party with respect to any of its
representations, warranties, covenants or agreements contained in this
Agreement.
10.3 Procedure Upon Termination. If this Agreement is terminated by any
Party pursuant to this Article, notice of such termination shall promptly be
given by the terminating Party to the other Party.
ARTICLE XI
REMEDIES FOR BREACH OF THIS AGREEMENT
11.1 Survival of Representations and Warranties. All of the
representations and warranties of Pegasus, Merger Sub and the Company contained
in this Agreement shall survive Closing (even if the damaged Party knew or had
reason to know of any misrepresentation or breach of warranty at the time of
Closing) and continue in full force and effect until (i) the third anniversary
of the Closing, in the case of the representations and warranties contained in
Sections 3.13 and 3.14(a) through (d), or (ii) 30 days after the completion of
the audit of Pegasus's financial statements for the year ending December 31,
1997, but not later than April 30, 1998, in all other cases. The period of
survival prescribed by this Section is referred to as the "Survival Period." The
liabilities of Pegasus, Merger Sub and the Company under their respective
representations and warranties will expire as of the expiration of the Survival
Period; provided, however, that such expiration will not include, extend or
apply to any representation or warranty, the breach of which has been asserted
in good faith by Pegasus or Merger Sub in a written notice to the Shareholders
before such expiration or about which the Shareholders have given Pegasus
written notice in good faith before such expiration indicating that facts or
conditions exist that, with the passage of time or otherwise, can reasonably be
expected to result in a breach (and describing such potential breach in
reasonable detail). Except as otherwise provided in this Agreement, the
covenants and agreements of Pegasus, Merger Sub and the Company contained in
this Agreement shall survive Closing and shall continue in full force and effect
as provided in Section 11.2 and Section 11.3.
11.2 Indemnification Provisions for Benefit of Pegasus and Merger Sub.
(a) If the Company breaches any representations and warranties
contained in this Agreement, and if Pegasus makes a written claim for
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indemnification against the Shareholders within the Survival Period, then
(subject to the limitations in subsection (c)) Pegasus, Pegasus Satellite
Holdings, Inc. and Merger Sub and the shareholders, directors, officers,
employees, agents, successors and assigns of any of such Persons shall be
entitled to be indemnified and held harmless out of the Escrow Shares, from and
against any Adverse Consequences that any such Person may suffer through and
after the date of the claim for indemnification (including any Adverse
Consequences that any such Person may suffer after the end of the Survival
Period) resulting from, arising out of or caused by the breach.
(b) Subject to the limitations in subsection (c), Pegasus,
Pegasus Satellite Holdings, Inc. and Merger Sub, the shareholders, directors,
officers, employees and agents, and the successors and assigns of any of such
Persons shall be entitled to be indemnified and held harmless out of the Escrow
Shares, from and against the entirety of any Adverse Consequences that any such
Person may suffer resulting from, arising out of, or caused by any of the
following: (i) any breach of any covenant, agreement or obligation of the
Company contained in this Agreement and (ii) any Liability for Taxes
attributable to the use, ownership or operation of the Assets by the Company or
the Business relating to periods prior to Closing. Except as otherwise provided
in this Agreement, such Person's rights to indemnity under this Section shall
expire upon the expiration of 30 days after the completion of the audit of
Pegasus's financial statements for the year ended December 31, 1997, but not
later than April 30, 1998; provided, however, that such expiration will not
include, extend or apply to rights for indemnity with respect to any claim
asserted in good faith in a written notice to the Shareholders before such
expiration.
(c) No Person otherwise entitled to indemnification under this
Section shall be so entitled until the aggregate amount otherwise payable under
this Section exceeds $25,000, and shall then be entitled to the indemnification
only as to the excess. Any claim for indemnification under this Section shall be
satisfied only out of the Escrow Shares (or, in the event cash is substituted
for the Escrow Shares pursuant to the Escrow Agreement, such cash (the "Escrow
Funds" and, together with the Escrow Shares, the "Escrow Property")), and no
Shareholder shall be personally liable for any such claim beyond his interest in
the Escrow Property. The order in which any Escrow Property shall be used to
satisfy a claim shall be at the option of Pegasus. Escrow Shares shall be deemed
to satisfy a claim to the extent of (i) in the case of Pegasus Preferred Stock,
its liquidation preference, and (ii) in the case of Pegasus Class A Common
Stock, the higher of (A) the Closing Value of such Escrow Shares, or (B) the
last reported sale price of the Pegasus Class A Common Stock between a buyer and
a seller that are not Affiliates of Pegasus on the Nasdaq National Market System
on the Business Day before Pegasus receives such Escrow Shares, or if no
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such sale is made on such day, the average of the closing bid and asked price on
such system on such day. The Escrow Property held by the Escrow Agent shall be
released on the following schedule: (i) Escrow Property having a value of
$300,000 (with Escrow Shares being valued at the Closing Value) shall be
released to the Shareholders upon the expiration of 30 days after the completion
of the audit of Pegasus's financial statements for the year ending December 31,
1997, but not later than April 30, 1998, (ii) Escrow Property having a value of
$200,000 (with Escrow Shares being valued at the Closing Value) shall be
released to the Shareholders upon the second anniversary of the Closing Date,
and (iii) the balance of the Escrow Property shall be released to the
Shareholders upon the expiration of the Survival Period; provided, however, that
if a claim for indemnification is then pending, the amount of Escrow Property
released shall be reduced by the extent necessary to insure that the amount of
Escrow Property remaining in the possession of the Escrow Agent will be
sufficient to satisfy such claims. The parties hereby agree to take all actions
necessary to obtain the release of the Escrow Property from the Escrow Agent on
the schedule set forth above.
11.3 Indemnification Provisions for Benefit of the Company and
Shareholders.
(a) If Pegasus or Merger Sub breaches any of its
representations and warranties contained in this Agreement and if the
Shareholders make a written claim for indemnification against Pegasus and the
Surviving Corporation within the Survival Period, then (subject to the
limitations in Subsection (c)) Pegasus and the Surviving Corporation shall
jointly and severally indemnify, defend and hold harmless the Shareholders, the
former directors, officers, employees and agents of the Company and the
successors and assigns of any of such Persons, from and against any Adverse
Consequences that any such Person may suffer through and after the date of the
claim for indemnification (including any Adverse Consequences that the
Shareholders may suffer after the end of the Survival Period) resulting from,
arising out of, or caused by the breach.
(b) Subject to the limitations in (c), Pegasus and the
Surviving Corporation agree, jointly and severally, to indemnify the
Shareholders, the former directors, officers, employees, and agents of the
Company and the successors and assigns of any such Persons against the entirety
of any Adverse Consequences that any such Person may suffer resulting from,
arising out of, or caused by any of the following: (i) any breach of any
covenant, agreement or obligation of Pegasus or Merger Sub contained in this
Agreement; (ii) any act or omission of Pegasus or Merger Sub with respect to, or
any event or circumstance related to, the ownership or operation of the Assets
or the conduct of the Business, which act, omission, event or circumstance
occurred after the Closing Date; (iii) any Liability of the Business against
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which Pegasus and Merger Sub are not entitled to indemnity under Section 11.2
or which are not the responsibility of the Shareholders pursuant to this
Agreement and the Collateral Documents; and (iv) any Liability for Taxes
attributable to the use, ownership or operation of the Assets or the transferred
Business by Pegasus or Merger Sub relating to periods after the Closing Date.
The obligations of Pegasus and Merger Sub under this Section shall expire upon
the expiration of 30 days after the completion of the audit of Pegasus's
financial statements for the year ended December 31, 1997, but not later than
April 30, 1998; provided, however, that such expiration will not include, extend
or apply to rights for indemnity with respect to any claim asserted in good
faith in a written notice to Pegasus and the Surviving Corporation before such
expiration.
(c) No Person otherwise entitled to indemnification under this
Section shall be so entitled until the aggregate amount otherwise payable under
this Section exceeds $25,000, and shall then be entitled to the indemnification
only as to the excess, but only in an amount not to exceed $700,000.
11.4 Matters Involving Third Parties.
(a) If any third party shall notify either Pegasus, the
Surviving Corporation or the Shareholders (the "Indemnified Party") with respect
to any matter (a "Third Party Claim") that may give rise to a claim for
indemnification against the other (the "Indemnifying Party") under this Article,
then the Indemnified Party shall promptly notify the Indemnifying Party thereof
in writing; provided, however, that no delay on the part of the Indemnified
Party in notifying any Indemnifying Party shall relieve the Indemnifying Party
from any obligation hereunder unless (and then solely to the extent) the
Indemnifying Party thereby is prejudiced.
(b) Any Indemnifying Party shall have the right to defend the
Indemnified Party against the Third Party Claim with counsel of its choice
reasonably satisfactory to the Indemnified Party so long as: (i) the
Indemnifying Party notifies the Indemnified Party in writing within 15 days
after the Indemnified Party has given notice of the Third Party Claim that the
Indemnifying Party will indemnify the Indemnified Party from and against the
entirety of any Adverse Consequences the Indemnified Party may suffer resulting
from, arising out of, relating to, in the nature of or caused by the Third Party
Claim; and (ii) the Third Party Claim involves only money damages and does not
seek an injunction or other equitable relief.
(c) So long as the Indemnifying Party is conducting the
defense of the Third Party Claim in accordance with subsection (b): (i) the
Indemnified Party may retain separate co-counsel at its sole cost and expense
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and participate in the defense of the Third Party Claim; (ii) the Indemnified
Party shall not consent to the entry of any judgment or enter into any
settlement with respect to the Third Party Claim without the prior written
consent of the Indemnifying Party (not to be withheld unreasonably); and (iii)
the Indemnifying Party shall not consent to the entry of any judgment or enter
into any settlement with respect to the Third Party Claim without the prior
written consent of the Indemnified Party (not to be withheld unreasonably).
(d) If any of the conditions in Section 11.4(b) above is not
or no longer satisfied after seven (7) days advance written notice by the
Indemnified Party: (i) the Indemnified Party may defend against, and consent to
the entry of any judgment or enter into any settlement with respect to, the
Third Party Claim in any manner it reasonably may deem appropriate (and the
Indemnified Party need not consult with, or obtain any consent from, any
Indemnifying Party in connection therewith); (ii) the Indemnifying Party shall
reimburse the Indemnified Party promptly and periodically for the costs of
defending against the Third Party Claim (including attorneys' fees and
expenses); and (iii) the Indemnifying Party shall remain responsible for any
Adverse Consequences the Indemnified Party may suffer resulting from, arising
out of, relating to, in the nature of or caused by the Third Party Claim to the
fullest extent provided in this Article.
11.5 Indemnity Net of Insurance Proceeds. All indemnification payments
under this Article shall be net of any insurance proceeds received by the
Indemnified Party in respect of the event or circumstance giving rise to the
claim for indemnification and shall be deemed adjustments to the Merger
Consideration.
ARTICLE XII
MISCELLANEOUS
12.1 Parties Obligated and Benefited. This Agreement shall be binding
upon the Parties and their respective assigns and successors in interest and
shall inure solely to the benefit of the Parties and their respective assigns
and successors in interest, and no other Person shall be entitled to any of the
benefits conferred by this Agreement, except that the Shareholders shall be
entitled to enforce the Company's rights under this Agreement as third party
beneficiaries of this Agreement. Without the prior written consent of the other
Party, no Party may assign this Agreement or the Collateral Documents or any of
its rights or interests or delegate any of its duties under this Agreement or
the Collateral Documents; provided, however, that Pegasus may assign this
Agreement or any of its rights or interests or delegate any of its duties
hereunder to an Affiliate.
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12.2 Notices. Any notices and other communications required or
permitted hereunder shall be in writing and shall be effective upon delivery by
hand or upon receipt if sent by certified or registered mail (postage prepaid
and return receipt requested) or by a nationally recognized overnight courier
service (appropriately marked for overnight delivery) or upon transmission if
sent by telex or facsimile (with request for immediate confirmation of receipt
in a manner customary for communications of such respective type and with
physical delivery of the communication being made by one or the other means
specified in this Section as promptly as practicable thereafter).
Notices shall be addressed as follows:
(a) If to Pegasus, Merger Sub or the Surviving
Corporation, to:
Pegasus Communications Corporation
c/o Pegasus Communications Management Company
5 Radnor Corporate Center
100 Matsonford Road, Suite 454
Radnor, PA 19087
Attn: Mr. Marshall W. Pagon
(with a copy to Ted S. Lodge at the same address)
(b) If to the Company before the Closing Date or to
the Shareholders before or after the Closing Date, to:
DBS of Indiana, Inc.
11790 E. State Road 334
Zionsville, Indiana 46077
Attn: Richard D. Summe
with a copy to:
Barnes & Thornburg
1313 Merchants Bank Building
11 South Meridian Street
Indianapolis, Indiana 46204
Attn: Steven W. Thornton, Esquire
Any party may change the address to which notices are required to be sent by
giving notice of such change in the manner provided in this Section.
12.3 Waiver. This Agreement or any of its provisions may not be waived
except in writing. The failure of any Party to enforce any right arising under
this Agreement on one or more occasions will not operate as a waiver of that or
any other right on that or any other occasion.
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12.4 Headings. The Article and Section headings of this Agreement are
for convenience only and shall not constitute a part of this Agreement or in any
way affect the meaning or interpretation thereof.
12.5 Choice of Law. This Agreement and the rights of the Parties under
it shall be governed by and construed in all respects in accordance with the
laws of the Commonwealth of Pennsylvania, without giving effect to any choice of
law provision or rule (whether of the Commonwealth of Pennsylvania or any other
jurisdiction that would cause the application of the laws of any jurisdiction
other than the Commonwealth of Pennsylvania).
12.6 Rights Cumulative. All rights and remedies of each of the Parties
under this Agreement shall be cumulative, and the exercise of one or more rights
or remedies shall not preclude the exercise of any other right or remedy
available under this Agreement or applicable law.
12.7 Further Actions. The Parties shall execute and deliver to each
other, from time to time at or after Closing, for no additional consideration
and at no additional cost to the requesting party, such further assignments,
certificates, instruments, records, or other documents, assurances or things as
may be reasonably necessary to give fall effect to this Agreement and to allow
each party fully to enjoy and exercise the rights accorded and acquired by it
under this Agreement.
12.8 Time of the Essence. Time is of the essence under this Agreement.
If the last day permitted for the giving of any notice or the performance of any
act required or permitted under this Agreement falls on a day which is not a
Business Day, the time for the giving of such notice or the performance of such
act shall be extended to the next succeeding Business Day.
12.9 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
12.10 Entire Agreement. This Agreement (including the Exhibits,
Schedules and any other documents, instruments and certificates referred to
herein, which are incorporated in and constitute a part of this Agreement)
contains the entire agreement of the Parties and supersedes all prior oral or
written agreements, understandings and representations to the extent that they
relate in any way to the subject matter hereof, including the Letter of Intent.
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12.11 Amendments and Waivers. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by the
Parties. No waiver by any party of any default, misrepresentation or breach of
warranty or covenant hereunder shall be valid unless the same shall be in
writing and signed by the Person against whom its enforcement is sought, and no
such waiver whether intentional or not, shall be deemed to extend to any prior
or subsequent default, misrepresentation or breach of warranty or covenant
hereunder or affect in any way any rights arising by virtue of any prior or
subsequent such occurrence.
12.12 Construction. The Parties have participated jointly in the
negotiation and drafting of this Agreement. If an ambiguity or question of
intent or interpretation arises, this Agreement shall be construed as if drafted
jointly by the parties and no presumption or burden of proof shall arise
favoring or disfavoring any party by virtue of the authorship of any of the
provisions of this Agreement. Any reference to. any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean "including without limitation." The Parties intend
that each representation, warranty and covenant contained herein shall have
independent significance. If any Party has breached any representation, warranty
or covenant contained herein in any respect, the fact that there exists another
representation, warranty Or covenant relating to the same subject matter
(regardless of the relative levels of specificity) which the Party has not
breached shall not detract from or mitigate the fact that the party is in breach
of the first representation, warranty or covenant.
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12.13 Expenses. Except as otherwise provided in this Agreement, each
Party shall bear its own costs and expenses (including legal fees and expenses
and accountants' fees and expenses) incurred in connection with the negotiation
of this Agreement, the performance of its obligations and the consummation of
the transactions contemplated hereby.
IN WITNESS WHEREOF, the Parties hereto have duly executed this
Agreement as of the day and year first above written.
PEGASUS COMMUNICATIONS CORPORATION
By:__________________________________________
Ted S. Lodge,
Senior Vice President
PEGASUS SATELLITE TELEVISION OF INDIANA, INC.
By:__________________________________________
Ted S. Lodge,
Senior Vice President
DBS OF INDIANA, INC.
By:__________________________________________
Richard D. Summe,
President
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STOCKHOLDERS' AGREEMENT
by and among
PEGASUS COMMUNICATIONS CORPORATION
and
THE FORMER SHAREHOLDER OF DBS
OF INDIANA, INC.
IDENTIFIED ON SCHEDULE I
----------------------------
Dated as of January 31, 1997
----------------------------
<PAGE>
STOCKHOLDERS' AGREEMENT
This STOCKHOLDERS' AGREEMENT ("Agreement") is made as of the 31st day
of January, 1997, by and among Pegasus Communications Corporation, a Delaware
corporation ("Pegasus") and the former Shareholders identified on Schedule I
(the "Shareholders") of DBS of Indiana, Inc., an Indiana corporation (the
"Company"). Pegasus and the Shareholders are collectively referred to herein as
the "Parties."
RECITALS:
WHEREAS, Each Shareholder is receiving the number of shares of Class A
Common Stock and Series B Preferred Stock (each as defined herein) set forth
opposite such Shareholder's name on Schedule I, as part of the consideration for
the merger of the Company with and into Pegasus Satellite Television of Indiana,
Inc., a Delaware corporation (the "Surviving Corporation"), pursuant to the
terms and conditions of that certain Agreement and Plan of Merger dated as of
January 21st, 1997 (the "Merger Agreement"), among Pegasus, the Surviving
Corporation and the Company; and
WHEREAS, it is a condition precedent to the obligations of the Parties
under the Merger Agreement that the Parties shall have entered into this
Agreement;
NOW, THEREFORE, in consideration of the premises, mutual promises,
representations, warranties, covenants and agreements contained herein and in
the Merger Agreement, and intending to be legally bound hereby, the Parties
agree as follows:
ARTICLE I
DEFINITIONS
1.1 Certain Definitions. The following terms shall, when used in this
Agreement, have the following meanings:
"Class A Common Stock" means the Class A Common Stock of
Pegasus.
"Commission" means the Securities and Exchange Commission.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder.
"Holder" means any Shareholder or any subsequent holder of
Registrable Securities.
<PAGE>
"Majority in Interest" means Shareholders holding in the
aggregate a majority of the total number of shares held by the Shareholders at
the relevant time.
"Pegasus Satellite Holdings " means Pegasus Satellite
Holdings, Inc., a subsidiary of Pegasus that will own all of the outstanding
capital stock of the Surviving Corporation and a majority of the voting capital
stock of other subsidiaries engaged in the DIRECTV distribution business.
"Person" means any individual, corporation, partnership,
limited liability company, joint venture, association, joint-stock company,
trust, unincorporated organization, government or any agency or political
subdivision thereof or any other entity.
"Prospectus" shall mean the Prospectus included in any
Registration Statement, as amended or supplemented by any prospectus supplement
with respect to the terms of the offering of any portion of the Registrable
Securities covered by such Registration Statement and all other amendments and
supplements to the Prospectus, including post-effective amendments, and all
material incorporated by reference in such Prospectus.
"Registrable Securities" mean the shares of Class A Common
Stock acquired by the Shareholders pursuant to the Merger Agreement and the
shares of Class A Common Stock issued or issuable upon conversion of the shares
of Series B Preferred Stock acquired by the Shareholders pursuant to the Merger
Agreement, but with respect to any such share, only until such time as such
share (i) has been effectively registered under the Securities Act and disposed
of in accordance with the Registration Statement covering it or (ii) may be sold
to the public pursuant to Rule 144 under the Securities Act (or any similar
provision then in force) and the legend referred to in Section 5.2 has been
removed or the Company has authorized the removal thereof from the certificate
representing such Share.
"Registration Statement" means any registration statement of
Pegasus filed pursuant to the Securities Act and which covers any of the
Registrable Securities pursuant to the provisions of this Agreement, including
the Prospectus amendments and supplements to such Registration Statement,
including post-effective amendments, and all exhibits and all material
incorporated by reference in such Registration Statement.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations thereunder.
"Series B Preferred Stock" means the series B Preference Stock
of Pegasus.
"Shares" means the shares of Class A Common Stock and Series B
Preferred Stock acquired by the Shareholders pursuant to the Merger Agreement
and the shares of Class A Common Stock issued or issuable upon conversion of
such Series B Preferred Stock.
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"Subject Securities" mean Class A Common Stock or securities
convertible into or exchangeable for, or options to purchase, Class A Common
Stock.
1.2 Other Definitions. The following terms shall, when used in this
Agreement, have the meanings assigned such terms in the Sections indicated:
Term Section
- ---- -------
"Agreement"........................................................Preamble
"First Offer Acceptance Period"...................................Article V
"First Offer Notice"..............................................Article V
"First Offer Sale Price"..........................................Article V
"First Offer Shares"..............................................Article V
"Merger Agreement".................................................Recitals
"Pegasus"..........................................................Preamble
"Registration"..........................................................3.1
"Shareholders".....................................................Preamble
"Shareholder Nominee"............................................Article II
ARTICLE II
GOVERNANCE
Immediately upon Closing and thereafter at each annual meeting of
stockholders until the date that the Shareholders collectively own less than 50
percent of the Shares, Pegasus shall cause one director designated by a Majority
in Interest of the Shareholders ("Shareholder Nominee") to be elected to the
Board of Directors of Pegasus Satellite Holdings, provided that such Shareholder
Nominee shall be reasonably acceptable to Pegasus.
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ARTICLE III
PIGGYBACK REGISTRATION RIGHTS
3.1 Right to Piggyback. Whenever Pegasus proposes to register any
Subject Securities under the Securities Act and the registration form to be used
may be used for the registration of the Registrable Securities (other than (a) a
registration statement on form S-4 or S-8 or any similar successor forms, (b) a
one-time registration of Class A Common Stock to be sold or pledged by
management employees of Pegasus other than in an underwritten offering, and (c)
the registration being effected pursuant to Pegasus' registration statement
filed with the Commission on December 24, 1996 and the related registration of
shares of Class A Common Stock issuable upon the exercise of warrants)
("Registration"), Pegasus shall give written notice to all Holders at least 14
days prior to the anticipated filing date, of its intention to effect such a
Registration, which notice will specify (to the extent known to Pegasus) the
proposed offering price, the kind and number of securities proposed to be
registered, the distribution arrangements and such other information that at the
time would be appropriate to include in such notice, and shall, subject to
Section 3.2, include in such Registration, all Registrable Securities with
respect to which Pegasus has received written requests for inclusion therein
within 10 days after the effectiveness of the Pegasus' notice; provided,
however, that if, at any time after giving written notice of its intention to
register any securities and prior to the effective date of the Registration
Statement filed in connection with such securities, Pegasus shall determine for
any reason not to register or to delay registration of such securities, Pegasus
may, at its election, give written notice of such determination to each Holder
and, thereupon, (i) in the case of a determination not to register, Pegasus
shall be relieved of its obligation to register any Registrable Securities under
this Section 3.1 in connection with such Registration and (ii) in the case of a
determination to delay Registration, Pegasus shall be permitted to delay
registering any Registrable Securities under this Section 3.1 during the period
that the Registration of such other securities is delayed. Pegasus further
agrees to supplement or amend a Registration Statement if required by applicable
laws, rules or regulations or by the instructions applicable to the registration
form used by Pegasus for such Registration Statement. Except as may otherwise be
provided in this Agreement, Registrable Securities with respect to which such
request for registration has been received shall be registered by Pegasus and
offered to the public in a Registration pursuant to this Article III on the
terms and conditions at least as favorable as those applicable to the
registration of Subject Securities to be sold by Pegasus.
3.2 Priority of Registrations. If the managing underwriter or
underwriters, if any, advise the Holders in writing that in its or their
reasonable opinion or, in the case of a Registration not being underwritten,
Pegasus shall reasonably determine (and notify the Holders requesting
registration of such determination) that the number or kind of securities
proposed to be sold in such Registration (including Registrable Securities to be
included pursuant to Section 3.1 above) will adversely affect the success of
such offering or will affect the price at which the securities of Pegasus will
be sold therein, Pegasus shall include in such Registration only the number of
securities, if any, which, in the opinion of such underwriter or underwriters,
or Pegasus, as the case may be, can be sold, in the following order of priority:
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(i) first, the shares of Subject Securities Pegasus proposes to sell and (ii)
second, the Registrable Securities requested to be included in such registration
by the Holders or any other Person or entity granted similar registration rights
before or after the date hereof. To the extent that the privilege of including
Registrable Securities in any Registration must be allocated pursuant to this
Section 3.2, the allocation shall be made pro rata based on the number of
securities that each such participant shall have requested to be included
therein.
3.3 Registration Procedures. With respect to any Registration, Pegasus
shall, subject to Section 3.2 above, as expeditiously as practicable:
(a) prepare and file with the Commission a Registration Statement
or Registration Statements relating to the applicable Registration on any
appropriate form under the Securities Act, which form shall be available for the
sale of the Registrable Securities in accordance with the intended method or
methods of distribution thereof;
(b) prepare and file with the Commission such amendments and
post-effective amendments to the Registration Statement as may be necessary to
keep each Registration Statement effective for the applicable period of
distribution contemplated in the Registration Statement, or such shorter period
which will terminate when all Registrable Securities covered by such
Registration Statement have been sold; cause each Prospectus to be supplemented
by any required Prospectus supplement, and as so supplemented to be filed
pursuant to Rule 424 under the Securities Act; and comply with the provisions of
the Securities Act with respect to the disposition of all securities covered by
such Registration Statement during the applicable period in accordance with the
intended method or methods of distribution by the sellers thereof set forth in
such Registration Statement or supplement to the Prospectus;
(c) notify the Holders of Registrable Securities included in the
Registration promptly, and (if requested by any such person or entity) confirm
such advice in writing, (i) when the Prospectus or any Prospectus supplement or
post-effective amendment has been filed, and, with respect to the Registration
Statement or any post-effective amendment, when the same has become effective,
(ii) of any request by the Commission for amendments or supplements to the
Registration Statement or the Prospectus or for additional information, (iii) of
the issuance by the Commission of any stop order suspending the effectiveness of
the Registration Statement or the initiation of any proceedings for that
purpose, (iv) of the receipt by Pegasus of any notification with respect to the
suspension of the qualification of the Registrable Securities for sale in any
jurisdiction or the initiation or threat of any proceeding for such purpose; and
(v) of the happening of any event which makes any statement made in the
Registration Statement, the Prospectus or any document incorporated therein by
reference untrue or which requires the making of any changes in the Registration
Statement, the Prospectus or any document incorporated therein by reference in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading;
(d) make every reasonable effort to obtain the withdrawal of any
order suspending the effectiveness of the Registration Statement;
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<PAGE>
(e) furnish to each selling Holder of Registrable Securities,
without charge, at least one copy of the Registration Statement and any
amendment thereto, including financial statements and schedules, and all
documents incorporated therein by reference;
(f) deliver to each selling Holder of Registrable Securities as
many copies of the Prospectus (including each preliminary prospectus) and any
amendment or supplement thereto as such selling Holder of Registrable Securities
may reasonably request;
(g) prior to any public offering of Registrable Securities,
register or qualify such Registrable Securities for offer and sale under the
securities or "blue sky" laws of such jurisdictions as the selling Holders of
Registrable Securities reasonably request in writing, considering the amount of
Registrable Securities proposed to be sold in each such jurisdiction, and do any
and all other acts or things necessary or advisable to enable the disposition in
such jurisdictions of the Registrable Securities covered by the Registration
Statement; provided, however, that the Registrant shall not be required to
qualify generally to do business in any jurisdiction where it is not then so
qualified or to take any action that would subject it to general service of
process in any such jurisdiction where it is not then so subject;
(h) use its best efforts to cause the Registrable Securities
covered by the applicable Registration Statement to be registered with or
approved by such other governmental agencies or authorities as may be necessary
to enable the seller or sellers thereof, if any, to consummate the disposition
of such Registrable Securities;
(i) upon the occurrence of any event contemplated by Section
3.3(c)(v), prepare a supplement or post-effective amendment to the Registration
Statement or the related Prospectus or any document incorporated therein by
reference or file any other required document; provided that Pegasus may elect
to suspend or abandon the Registration in such event;
(j) cause all Registrable Securities covered by any Registration
Statement to be listed on each securities exchange on which similar securities
issued by Pegasus are then listed; and
(k) provide a CUSIP number for all Registrable Securities, not
later than the effective date of the applicable Registration Statement.
Pegasus may require that each selling Holder of Registrable Securities
furnish to Pegasus such information regarding the proposed distribution of such
securities as Pegasus may from time to time reasonably request in writing.
Each selling Holder of Registrable Securities agrees that upon receipt
of any notice from Pegasus of the happening of any event of the kind described
in Section 3.3(c)(v), such Holder will forthwith discontinue disposition of
Registrable Securities pursuant to the Registration Statement until such
Holder's receipt of copies of the supplemented or amended Prospectus, as
contemplated by Section 3.3(i), or until it is advised in writing by Pegasus
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<PAGE>
that the use of the Prospectus may be resumed, and has received copies of any
additional or supplemental filings that are incorporated by reference in the
Prospectus, and, if so directed by Pegasus, such Holder will deliver to Pegasus
all copies, other than permanent file copies then in such Holder's possession,
of the Prospectus covering such Registrable Securities current at the time of
receipt of such notice.
3.4 Selection of Underwriters. If any Registration is an underwritten
offering, Pegasus shall have the right to select the underwriters and managing
underwriters(s) of the offering.
3.5 Restrictions on Public Sale. To the extent not inconsistent with
applicable law and unless otherwise advised by Pegasus or the underwriter(s) for
the Registrable Securities, each Holder whose Registrable Securities are
included in a Registration Statement hereunder agrees not to effect any public
sale or distribution of Registrable Securities, including a sale pursuant to
Rule 144, during the 15 business days prior to, and during the 180-day period
beginning on the effective date of a Registration Statement pursuant to the
Registration.
3.6 Registration Expenses. All expenses incident and specifically
attributable to Pegasus's performance of or compliance with Article III of this
Agreement shall be borne by Pegasus, including, without limitation, all
registration and filing fees, the fees and expenses of the counsel and
accountants for Pegasus (including the expenses of any "comfort" letters and
special audits), all other costs and expenses of Pegasus incident to the
preparation, printing and filing under the Securities Act of the Registration
Statement (and all amendments and supplements thereto) and furnishing copies
thereof and of the Prospectus included therein, the costs and expenses incurred
by Pegasus in connection with the qualification of the Registrable Securities
under the state securities or "blue sky" laws of various jurisdictions, the
costs and expenses associated with filings required to be made with the NASD
(including, if applicable, the fees and expenses of any "qualified independent
underwriter" and its counsel as may be required by the rules and regulations of
the NASD), the costs and expenses of listing the Registrable Securities for
trading on a national securities exchange or authorizing them for trading on the
Nasdaq National Market, brokerage fees, transfer taxes and all other costs and
expenses incurred by Pegasus in connection with the inclusion of Registrable
Securities in any Registration hereunder. The selling Holders of the Registrable
Securities shall pay, on a pro-rata basis, all fees and expenses of the counsel
and accountants to the selling Holders of Registrable Securities as well as all
underwriting commissions relating to the Registrable Securities sold.
3.7 Indemnification.
(a) Pegasus agrees to indemnify and hold harmless each selling
Holder, each of its directors and officers and each person who controls such
Holder within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act, against any losses, claims, damages or liabilities, joint or
several, to which they or any of them may become subject under the Securities
Act or the Exchange Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon:
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<PAGE>
i. any untrue statement or alleged untrue statement of any
material fact contained in (A) any Registration Statement or Prospectus or any
amendment or supplement thereto or (B) any application or other document, or any
amendment or supplement thereto, executed by Pegasus or based upon written
information furnished by or on behalf of Pegasus filed in any jurisdiction in
order to qualify Registrable Securities under the securities or blue sky laws
thereof or filed with the Commission or any securities association or securities
exchange (each an "Application"); or
ii. the omission or alleged omission to state in any
Registration Statement or Prospectus or any amendment or supplement thereto or
any Application a material fact required to be stated therein or necessary to
make the statements therein not misleading,
and shall reimburse each indemnified person for any legal or other
expenses reasonably incurred by each indemnified person in connection with
investigating and defending against any such loss, claim, damage, liability or
action; provided, however, that Pegasus shall not be liable in any such case to
the extent that any such loss, claim, damage or liability arises out of or is
based upon any untrue statement or alleged untrue statement or omission or
alleged omission made in such Registration Statement or Prospectus or any
amendment or supplement thereto or any Application in reliance upon and in
conformity with information relating to such Holder that was furnished to
Pegasus by such Holder specifically for use therein. Pegasus shall not, without
the prior written consent of any such Person, settle or compromise or consent to
the entry of any judgment in any pending or threatened claim, action, suit or
proceeding in respect of which indemnification may be sought hereunder, unless
such settlement, compromise or consent includes a release of such Person and
such directors, officers or controlling persons from all liability arising out
of such claim, action, suit or proceeding.
(b) Each Holder whose Registrable Securities are included in a
Registration agrees to indemnify and hold harmless Pegasus, each of its
directors and officers and each person who controls Pegasus within the meaning
of Section 15 of the Securities Act or Section 20 of the Exchange Act against
any losses, claims, damages or liabilities to which Pegasus or any such director
or officer or controlling person may become subject under the Securities Act or
the Exchange Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon (i)
any untrue statement or alleged untrue statement of any material fact contained
in any Registration Statement or Prospectus or any amendment or supplement
thereto, or any Application or (ii) the omission or the alleged omission to
state therein a material fact required to be stated in any Registration
Statement or Prospectus or any amendment or supplement thereto, or any
Application necessary to make the statements therein not misleading, in each
case to the extent that such untrue statement or alleged untrue statement or
omission or alleged omission was made in reliance upon and in conformity with
information relating to such Holder that was furnished to Pegasus by such
Holder; and will reimburse any legal or other expenses reasonably incurred by
Pegasus or any such director, officer or controlling person in connection with
investigating or defending any such loss, claim, damage, liability or any action
in respect thereof.
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<PAGE>
(c) Promptly after receipt by an indemnified party under this
Section 3.7 of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party under this Section 3.7, notify the indemnifying party of the commencement
thereof. In case any such action is brought against any indemnified party, and
it notifies the indemnifying party of the commencement thereof, the indemnifying
party shall be entitled to participate therein and assume the defense thereof,
with counsel reasonably satisfactory to such indemnified party; provided,
however, that if the defendants in any such action include both the indemnified
party and the indemnifying party and the indemnified party shall have reasonably
concluded based on the advice of counsel that there may be one or more legal
defenses available to it and/or other indemnified parties which are different
from or additional to those available to the indemnifying party, the
indemnifying party shall not have the right to direct the defense of such action
on behalf of such indemnified party or parties and such indemnified party or
parties shall have the right to select separate counsel to defend such action on
behalf of such indemnified party or parties. After notice from the indemnifying
party to such indemnified party of its election so to assume the defense thereof
and approval by such indemnified party of counsel appointed to defend such
action the indemnifying party will not be liable to such indemnified party under
this Section 3.7 for any legal or other expenses, other than reasonable costs of
investigation, subsequently incurred by such indemnified party in connection
with the defense thereof, unless (i) the indemnified party shall have employed
separate counsel in accordance with the proviso to the immediately preceding
sentence or (ii) the indemnifying party does not promptly retain counsel
reasonably satisfactory to the indemnified party or (iii) the indemnifying party
has authorized the employment of counsel for the indemnified party at the
expense of the indemnifying party. After such notice from the indemnifying party
to such indemnified party, the indemnifying party shall not be liable for the
costs and expenses of any settlement of such action effected by such indemnified
party without the consent of the indemnifying party.
ARTICLE IV
RULE 144
Pegasus agrees that at all times after a Registration Statement
pursuant to the requirements of the Securities Act relating to any class of
equity securities of Pegasus has become effective, it shall file in a timely
manner all reports required to be filed by it pursuant to the Securities Act and
the Exchange Act and shall take such further action as any Holder may reasonably
request in order that such Holder may effect sales of Registrable Securities
pursuant to Rule 144 under the Securities Act. At any reasonable time and upon
request of a Holder, Pegasus shall furnish such Holder and others with such
information as may be necessary to enable the Holder to effect sales of
Registrable Securities pursuant to Rule 144 and shall deliver to such Holder a
written statement as to whether Pegasus has complied with such requirements.
Notwithstanding the foregoing, Pegasus may deregister any class of its equity
securities under Section 12 of the Exchange Act or suspend its duty to file
reports with respect to any class of its securities under Section 12 of the
Exchange Act or suspend its duty to file reports with respect to any class of
its securities pursuant to Section 15(d) of the Exchange Act if it is then
permitted to do so pursuant to the Exchange Act.
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ARTICLE V
TRANSFER RESTRICTIONS
5.1 Right of First Offer. Whenever, during the period up to and
including the second anniversary hereof (unless the holding period under Rule
144 shall be reduced to a shorter period, in which case for such shorter
period), any Shareholder desires to sell or transfer any Shares in a private
transaction exempt from registration under the Securities Act and applicable
"blue sky" laws, such Shareholder shall give notice ("First Offer Notice") to
Pegasus to the foregoing effect specifying the number of Shares that the
Shareholder desires to sell or transfer ("First Offer Shares") and the desired
sale price therefor ("First Offer Sale Price"). Within 30 days after receipt of
the First Offer Notice by Pegasus ("First Offer Acceptance Period"), Pegasus
shall have the right to purchase the First Offer Shares for the First Offer Sale
Price. In the event that Pegasus does not timely respond to the offer or does
not agree to purchase the First Offer Shares at the First Offer Sale Price
during the First Offer Acceptance Period, the transferring Shareholder may,
during the 120 day period following the expiration of the First Offer Acceptance
Period, sell or transfer all (but not less than all) of the First Offer Shares
at a price equal to or greater than the First Offer Sale Price; provided that no
transferee of the First Offer Shares shall be entitled to any rights thereunder,
unless and until the transferring Shareholder shall have (i) informed Pegasus in
writing of the identity of the transferee, the number of shares of Registrable
Securities transferred, and the price paid by the transferee therefor, (ii)
certified that such transfer has been made in compliance with this Agreement,
and (iii) provided to Pegasus an opinion of counsel reasonably satisfactory to
Pegasus that registration of such Registrable Securities under the Securities
Act and applicable "blue sky" laws is not required in connection with such
transfer.
5.2 Legends. The Parties agree that each certificate representing
Shares shall bear the following legend until such time as the same is no longer
applicable:
"THE SHARES OF [CLASS A COMMON STOCK] [SERIES B PREFERRED STOCK]
REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED IN A
TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
AND THE SHARES EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN
APPLICABLE EXEMPTION THEREFROM. THE SHARES EVIDENCED HEREBY ARE
SUBJECT TO THE TERMS OF, AND ARE ENTITLED TO THE BENEFITS SET
FORTH IN, A STOCKHOLDERS' AGREEMENT DATED AS OF ____________ ___,
1997, A COPY OF WHICH IS ON FILE AT THE OFFICE OF PEGASUS
COMMUNICATIONS CORPORATION. PEGASUS COMMUNICATIONS CORPORATION
WILL FURNISH A COPY OF SUCH STOCKHOLDERS' AGREEMENT TO THE RECORD
HOLDER HEREOF WITHOUT CHARGE UPON WRITTEN REQUEST TO PEGASUS
COMMUNICATIONS CORPORATION AT ITS PRINCIPAL PLACE OF BUSINESS OR
REGISTERED OFFICE."
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ARTICLE VI
MISCELLANEOUS
6.1 Notices. Any notices and other communications required or permitted
hereunder shall be in writing and shall be effective upon delivery by hand or
upon receipt if sent by certified or registered mail (postage prepaid and return
receipt requested) or by a nationally recognized overnight courier service
(appropriately marked for overnight delivery) or upon transmission if sent by
telex or facsimile (with request for immediate confirmation of receipt in a
manner customary for communications of such respective type and with physical
delivery of the communication being made by one or the other means specified in
this Section 6.1 as promptly as practicable thereafter). Notices shall be
addressed as follows:
(a) If to Pegasus, to:
Pegasus Communications Corporation
c/o Pegasus Communications Management Company
5 Radnor Corporate Center
100 Matsonford Road, Suite 454
Radnor, Pennsylvania 19087
Attn: Mr. Marshall W. Pagon
(with a copy to Ted S. Lodge at the same address)
(b) If to the Shareholders, to:
DBS of Indiana, Inc.
11790 E. State Road 334
Zionsville, Indiana 46077
Attn: Richard Summe
with a copy to:
Barnes & Thornburg
1313 Merchants Bank Building
11 South Meridian Street
Indianapolis, Indiana 46204
Attn: Steven W. Thornton, Esquire
(c) If to Holders of Registrable Securities (other than
the Shareholders), to their respective addresses
appearing on the stock transfer agent's register.
Any Party may change the address to which notices are required to be sent by
giving notice of such change in the manner provided in this Section 6.1.
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6.2 FCC Compliance. Notwithstanding anything to the contrary contained
herein, the Parties recognize that a Holder may be restricted from the exercise
of certain rights contained herein, including, but not limited to, the right to
transfer the Shares if such exercise would constitute a violation of, or cause
Pegasus to not be in compliance with, the Communications Act of 1934, as
amended, or applicable Federal Communications Commission rules, regulations or
policies, including, but not limited to, those restricting alien ownership (the
"FCC Rules"), and accordingly, the Parties shall act hereunder in compliance
with FCC Rules.
6.3 Amendments and Waivers. The provisions of this Agreement may only
be amended, modified or supplemented, and waivers of or consents to departures
from the provisions hereof may only be given if approved by the Parties in
writing. No action taken pursuant to this Agreement, including, without
limitation, any investigation by or on behalf of any Party, shall be deemed to
constitute a waiver by the Party taking such action. The waiver by any Party
hereto of a breach of any provision of this Agreement shall not operate or be
construed as a waiver of any preceding or succeeding breach and no failure by
any Party to exercise any right or privilege hereunder shall be deemed a waiver
of such Party's rights or privileges hereunder or shall be deemed a waiver of
such Party's rights to exercise the same at any subsequent time or times
hereunder.
6.4 Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the Parties and their respective successors and assigns,
including, without limitation, subsequent holders of Shares.
6.5 Counterparts. This Agreement may be executed in one or more
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same instrument.
6.6 Headings. The headings in this Agreement are for convenience of
reference only and shall not affect the meaning of any provision of this
Agreement.
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6.7 Governing Law. The validity, performance, construction and effect
of this Agreement shall be governed by and construed in accordance with the laws
of the Commonwealth of Pennsylvania applicable to agreements made and to be
performed therein. The parties hereto agree to submit to the jurisdiction of the
courts of the Commonwealth of Pennsylvania in any action or proceeding arising
out of or relating to this Agreement.
6.8 Severability. If any one or more of the provisions contained
herein, or the application thereof in any circumstance, is held to be invalid,
illegal or unenforceable, the validity, legality and enforceability of any such
provision in every other respect and of the remaining provisions contained
herein shall not be affected or impaired thereby.
6.9 Entire Agreement. This Agreement is intended by the parties as a
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings other than those set forth or referred to herein with
respect to the governance and registration rights granted by Pegasus to Holders
or with respect restrictions on transferability of Registrable Securities. This
Agreement supersedes all prior agreements and understandings between the Parties
with respect to such subject matter.
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IN WITNESS WHEREOF, the Parties hereto have duly executed this
Agreement as of the day and year first above written.
PEGASUS COMMUNICATIONS CORPORATION
By: /s/ Ted S. Lodge
----------------------------------------
Ted S. Lodge,
Senior Vice President
---------------------------------------
Richard D. Summe
---------------------------------------
Marshall D. Hedrick
---------------------------------------
L. Gene Tanner
---------------------------------------
Robert L. Lauth
---------------------------------------
R.J. Klein as beneficiary of IRA Acct.
#480-63727-12-011, Smith Barney as
Rollover Custodian FBO Robert J. Klein
---------------------------------------
R.J. Klein
---------------------------------------
R. Michael Henderson
---------------------------------------
Robert L. Hedrick
---------------------------------------
Terry L. Eaton
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IN WITNESS WHEREOF, the Parties hereto have duly executed this
Agreement as of the day and year first above written.
PEGASUS COMMUNICATIONS CORPORATION
By:
----------------------------------------
Ted S. Lodge,
Senior Vice President
----------------------------------------
Richard D. Summe
----------------------------------------
Marshall D. Hedrick
----------------------------------------
L. Gene Tanner
----------------------------------------
Robert L. Lauth
----------------------------------------
Smith Barney as Rollover Custodian FBO
Robert J. Klein, Acct. #480-63727-12-011
----------------------------------------
R.J. Klein
----------------------------------------
R. Michael Henderson
/s/ Robert L. Hedrick
----------------------------------------
Robert L. Hedrick
----------------------------------------
Terry L. Eaton
-14-
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have duly executed this
Agreement as of the day and year first above written.
PEGASUS COMMUNICATIONS CORPORATION
By:
----------------------------------------
Ted S. Lodge,
Senior Vice President
----------------------------------------
Richard D. Summe
----------------------------------------
Marshall D. Hedrick
----------------------------------------
L. Gene Tanner
----------------------------------------
Robert L. Lauth
----------------------------------------
Smith Barney as Rollover Custodian FBO
Robert J. Klein, Acct. #480-63727-12-011
----------------------------------------
R.J. Klein
/s/ R. Michael Henderson
----------------------------------------
R. Michael Henderson
----------------------------------------
Robert L. Hedrick
----------------------------------------
Terry L. Eaton
-14-
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have duly executed this
Agreement as of the day and year first above written.
PEGASUS COMMUNICATIONS CORPORATION
By:
----------------------------------------
Ted S. Lodge,
Senior Vice President
/s/ Richard D. Summe
----------------------------------------
Richard D. Summe
----------------------------------------
Marshall D. Hedrick
----------------------------------------
L. Gene Tanner
----------------------------------------
Robert L. Lauth
----------------------------------------
R.J. Klein as beneficiary of IRA Acct.
#480-63727-12-011, Smith Barney as
Rollover Custodian FBO Robert J. Klein
----------------------------------------
R.J. Klein
----------------------------------------
R. Michael Henderson
----------------------------------------
Robert L. Hedrick
----------------------------------------
Terry L. Eaton
-14-
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have duly executed this
Agreement as of the day and year first above written.
PEGASUS COMMUNICATIONS CORPORATION
By:
----------------------------------------
Ted S. Lodge,
Senior Vice President
----------------------------------------
Richard D. Summe
----------------------------------------
Marshall D. Hedrick
/s/ L. Gene Tanner
----------------------------------------
L. Gene Tanner
----------------------------------------
Robert L. Lauth
----------------------------------------
R.J. Klein as beneficiary of IRA Acct.
#480-63727-12-011, Smith Barney as
Rollover Custodian FBO Robert J. Klein
----------------------------------------
R.J. Klein
----------------------------------------
R. Michael Henderson
----------------------------------------
Robert L. Hedrick
----------------------------------------
Terry L. Eaton
-14-
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have duly executed this
Agreement as of the day and year first above written.
PEGASUS COMMUNICATIONS CORPORATION
By:
----------------------------------------
Ted S. Lodge,
Senior Vice President
----------------------------------------
Richard D. Summe
----------------------------------------
Marshall D. Hedrick
----------------------------------------
L. Gene Tanner
----------------------------------------
/s/ Robert L. Lauth
Robert L. Lauth
----------------------------------------
R.J. Klein as beneficiary of IRA Acct.
#480-63727-12-011, Smith Barney as
Rollover Custodian FBO Robert J. Klein
----------------------------------------
R.J. Klein
----------------------------------------
R. Michael Henderson
----------------------------------------
Robert L. Hedrick
----------------------------------------
Terry L. Eaton
-14-
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have duly executed this
Agreement as of the day and year first above written.
PEGASUS COMMUNICATIONS CORPORATION
By:
----------------------------------------
Ted S. Lodge,
Senior Vice President
----------------------------------------
Richard D. Summe
/s/ Marshall D. Hedrick
----------------------------------------
Marshall D. Hedrick
----------------------------------------
L. Gene Tanner
----------------------------------------
Robert L. Lauth
----------------------------------------
R.J. Klein as beneficiary of IRA Acct.
#480-63727-12-011, Smith Barney as
Rollover Custodian FBO Robert J. Klein
----------------------------------------
R.J. Klein
----------------------------------------
R. Michael Henderson
----------------------------------------
Robert L. Hedrick
----------------------------------------
Terry L. Eaton
-14-
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have duly executed this
Agreement as of the day and year first above written.
PEGASUS COMMUNICATIONS CORPORATION
By:
----------------------------------------
Ted S. Lodge,
Senior Vice President
----------------------------------------
Richard D. Summe
----------------------------------------
Marshall D. Hedrick
----------------------------------------
L. Gene Tanner
----------------------------------------
Robert L. Lauth
/s/ R.J. Klein
----------------------------------------
R.J. Klein as beneficiary of IRA Acct.
#480-63727-12-011, Smith Barney as
Rollover Custodian FBO Robert J. Klein
/s/ R.J. Klein
----------------------------------------
R.J. Klein
----------------------------------------
R. Michael Henderson
----------------------------------------
Robert L. Hedrick
----------------------------------------
Terry L. Eaton
-14-
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have duly executed this
Agreement as of the day and year first above written.
PEGASUS COMMUNICATIONS CORPORATION
By:
----------------------------------------
Ted S. Lodge,
Senior Vice President
----------------------------------------
Richard D. Summe
----------------------------------------
Marshall D. Hedrick
----------------------------------------
L. Gene Tanner
----------------------------------------
Robert L. Lauth
----------------------------------------
Smith Barney as Rollover Custodian FBO
Robert J. Klein, Acct. #480-63727-12-011
----------------------------------------
R.J. Klein
----------------------------------------
R. Michael Henderson
----------------------------------------
Robert L. Hedrick
/s/ Tony L. Eaton
----------------------------------------
Terry L. Eaton
-14-
<PAGE>
SCHEDULE I
Shares of Class A Shares of Series B
Shareholder Common Stock Preferred Stock
- ----------- ----------------- ------------------
-15-
<PAGE>
EXHIBIT 3
ASSET PURCHASE AGREEMENT
by and among
PEGASUS COMMUNICATIONS CORPORATION
and
CLEARVISION, INC.
and its Shareholders listed on Exhibit 1
--------------------------------
Dated as of January 25, 1997
--------------------------------
<PAGE>
Table of Contents
<TABLE>
<S> <C> <C>
ARTICLE I DEFINITIONS.................................................................................1
1.1 Certain Definitions.................................................................1
1.2 Other Definitions...................................................................7
ARTICLE II BASIC TRANSACTION...........................................................................9
2.1 Sale of Assets. ...................................................................9
2.2 Purchase Price......................................................................9
2.3 Escrow Arrangements.................................................................9
2.4 Current Liabilities Adjustment......................................................9
2.5 Operating Adjustment...............................................................10
2.6 Liabilities........................................................................12
2.7 Closing............................................................................12
2.8 Transactions at Closing............................................................12
ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER AND
SHAREHOLDERS...............................................................................12
3.1 Organization and Qualification.....................................................12
3.2 Authority and Validity.............................................................13
3.3 No Breach or Violation.............................................................13
3.4 Consents and Approvals.............................................................13
3.5 Title to Assets....................................................................14
3.6 Intellectual Property..............................................................14
3.7 Compliance with Legal Requirements.................................................14
3.8 Financial Information..............................................................14
3.9 Subsequent Events..................................................................15
3.10 Undisclosed Liabilities............................................................15
3.11 Legal Proceedings..................................................................15
3.12 Taxes Relating to the Business.....................................................15
3.13 Employee Benefits; Employees.......................................................16
3.14 Contracts..........................................................................17
3.15 Books and Records; Accounts Receivable.............................................18
3.16 Business Information...............................................................18
3.17 Insurance..........................................................................18
3.18 Disclosure.........................................................................19
3.19 Brokers or Finders.................................................................19
3.20 Certain Payments...................................................................20
3.21 Subscribers........................................................................20
3.22 Favorable Business Relationships...................................................20
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PURCHASER................................................20
4.1 Organization and Qualification.....................................................20
4.2 Authority and Validity.............................................................20
4.3 No Breach or Violation.............................................................21
4.4 Consents and Approvals.............................................................21
4.5 Legal Proceedings..................................................................21
4.6 Disclosure.........................................................................21
4.7 Brokers or Finders.................................................................22
ARTICLE V PRE-CLOSING COVENANTS OF SELLER AND SHAREHOLDERS...........................................22
5.1 Additional Information.............................................................22
5.2 Exclusivity........................................................................22
5.3 Continuity and Maintenance of Operations...........................................22
5.4 Consents and Approvals.............................................................23
5.5 Securities Filings.................................................................24
5.6 Notification of Certain Matters....................................................24
5.7 Employee Matters. ................................................................24
5.8 Supplements to Schedules...........................................................24
5.9 Satisfaction of Liabilities and Obligations........................................25
5.10 Duty of Good Faith and Fair Dealing................................................25
ARTICLE VI PRE-CLOSING COVENANTS OF PURCHASER.........................................................25
6.1 Consents and Approval..............................................................25
6.2 Notification of Certain Matters....................................................26
6.3 Duty of Good Faith and Fair Dealing................................................26
ARTICLE VII CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER...........................................26
7.1 Accuracy of Representations........................................................26
7.2 Covenants..........................................................................27
7.3 Consents...........................................................................27
7.4 Delivery of Documents..............................................................27
7.5 No Material Adverse Change.........................................................28
7.6 No Litigation......................................................................28
7.7 Minimum Subscribers................................................................28
7.8 Transition Arrangements............................................................28
7.9 NRTC Compliance Certificate........................................................29
7.10 Dealer Arrangements................................................................29
ARTICLE VIII CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER AND
SHAREHOLDERS...............................................................................29
8.1 Accuracy of Representations........................................................29
8.2 Covenants..........................................................................29
8.3 Consents...........................................................................29
8.4 Delivery of Documents..............................................................30
8.5 Litigation.........................................................................30
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE IX POST-CLOSING COVENANTS.....................................................................30
9.1 Transition.........................................................................30
9.2 Transfer Taxes and Fees............................................................30
9.3 NRTC Patronage.....................................................................31
9.4 Subscriber Acquisition Commissions.................................................31
9.5 NRTC Invoices......................................................................31
9.6 Financial Statements...............................................................31
9.7 Liability Insurance................................................................31
9.8 Books and Records..................................................................31
9.9 United States Satellite Broadcasting; Home Shopping Network........................31
9.10 Equipment Receivables..............................................................32
ARTICLE X TERMINATION................................................................................32
10.1 Events of Termination..............................................................32
10.2 Liabilities in Event of Termination................................................33
10.3 Procedure Upon Termination.........................................................33
ARTICLE XI REMEDIES FOR BREACH OF THIS AGREEMENT......................................................33
11.1 Survival of Representations and Warranties.........................................33
11.2 Indemnification Provisions for Benefit of Purchaser................................33
11.3 Indemnification Provisions for Benefit of Seller...................................34
11.4 Matters Involving Third Parties....................................................35
11.5 Determination of Adverse Consequences..............................................36
ARTICLE XII MISCELLANEOUS..............................................................................37
12.1 Parties Obligated and Benefited....................................................37
12.2 Notices............................................................................38
12.3 Attorneys' Fees....................................................................38
12.4 Waiver.............................................................................38
12.5 Headings...........................................................................39
12.6 Choice of Law......................................................................39
12.7 Rights Cumulative..................................................................39
12.8 Further Actions....................................................................39
12.9 Time of the Essence................................................................39
12.10 Late Payments......................................................................39
12.11 Counterparts.......................................................................39
12.12 Entire Agreement...................................................................39
12.13 Amendments and Waivers.............................................................39
12.14 Construction.......................................................................40
12.15 Expenses...........................................................................40
12.16 Bulk Sales.........................................................................40
</TABLE>
iii
<PAGE>
Exhibits
Exhibit 1 ClearVision Shareholders
Exhibit 2 Service Areas
Exhibit 3 Escrow Agreement
Exhibit 4 Consultancy Agreement
Exhibit 5 Noncompetition Agreement
Exhibit 6 Hart-Scott-Rodino Certificate
iv
<PAGE>
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT ("Agreement") is made as of the 25th day
of January, 1997, by and among PEGASUS COMMUNICATIONS CORPORATION ("Purchaser"),
a Delaware corporation, CLEARVISION, INC. ("Seller"), a Mississippi corporation,
and all of the shareholders of Seller, who are listed on Exhibit 1
("Shareholders"). Purchaser, Seller and Shareholders are collectively referred
to herein as the "Parties."
RECITALS:
WHEREAS, Seller is a party to that certain NRTC Distribution Agreement
(as defined below) with the National Rural Telecommunications Cooperative
("NRTC"), pursuant to which NRTC has granted to Seller the right to distribute
DIRECTV(R) ("DIRECTV") programming offered by DirecTV, Inc. in the counties and
zipcode areas of Mississippi identified in Exhibit 2 ("Service Areas"); and
WHEREAS, Purchaser desires to purchase the Assets (as hereinafter
defined), including the NRTC Distribution Agreement from Seller, and Seller
desires to sell the Assets to Purchaser, upon the terms and subject to the
conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and mutual promises
herein made, and in consideration of the representations, warranties, covenants
and agreements herein contained, and intending to be legally bound hereby, the
Parties agree as follows:
ARTICLE I
DEFINITIONS
1.1 Certain Definitions. The following terms shall, when used in this
Agreement, have the following meanings:
"Accountant" means Coopers & Lybrand L.L.P.
"Accounts Receivable" mean the accounts receivable identified
in the Books and Records, except for accounts receivable relating to the
Equipment Receivables.
"Adverse Consequences" mean all actions, suits, proceedings,
hearings, investigations, charges, complaints, claims, demands, injunctions,
judgments, orders, decrees, rulings, damages, assessments, dues, penalties,
fines, interest, costs, amounts paid in settlement, Liabilities, obligations,
Taxes, liens, losses, expenses and fees (including court costs, settlement
costs, legal, accounting, experts' and other fees, costs and expenses).
"Affiliate" means, with respect to any Person: (i) any Person
directly or indirectly owning, controlling, or holding with power to vote 10% or
more of the outstanding voting securities of such other Person; (ii) any Person
10% or more of whose outstanding voting securities are directly or indirectly
owned, controlled, or held with power to vote, by such other Person; (iii) any
Person directly or indirectly controlling, controlled by, or under common
control
<PAGE>
with such other Person; and (iv) any officer, director or partner of such other
Person. "Control" for the foregoing purposes shall mean the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of a Person, whether through the ownership of voting securities or
voting interests, by contract or otherwise.
"Applicable Rate" means the prime rate reported in The Wall
Street Journal, plus 3%.
"Assets" mean all properties, assets, privileges, powers,
rights, interests and claims of every type and description that are owned,
leased or held by, and used or useful in the Business and in which Seller has
any right, title or interest or in which Seller acquires any right, title or
interest on or before the Closing Date, wherever located, whether known or
unknown, and whether or not now or on the Closing Date on the Books and Records
of Seller, including Accounts Receivable and Equipment Receivables, Books and
Records, Contracts, Intangibles, Intellectual Property, Inventory (to the extent
Purchaser elects at Closing to purchase Inventory as provided in this Agreement,
for which there will be a corresponding credit in the Operating Adjustments),
NRTC Patronage Capital, Personal Property and Subscribers, but excluding cash
and cash equivalents, the 1997 GMC Suburban owned by Seller and Seller's lease
for the real property located at 1036 Highway 51, Madison, Mississippi.
"Assumed Liabilities" mean:
(a) Seller's obligations to Subscribers for: (i) Subscriber
deposits held by Seller as of the Closing Date and which are refundable, in the
amount for which Purchaser receives credit under Section 2.5; (ii) Subscriber
deferred or prepaid income held by Seller as of the Closing Date for services to
be rendered by the Business after the Closing Date, in the amount for which
Purchaser receives credit under Section 2.5, except as relates to the $200
Rebate Program of DirecTV, Inc., (for which Purchaser will receive no credit);
(iii) the delivery of DIRECTV services to subscribers of the Business after the
Closing Date;
(b) obligations accruing and relating to periods after the
Closing Date under the NRTC Distribution Agreement;
(c) the Closing Current Liabilities, including items
identified on Schedule 1.1(a); and
(d) obligations under those certain contracts with South
Central Bell relating to yellow page advertising.
Notwithstanding anything in this Agreement to the contrary, the Assumed
Liabilities shall not include: (i) any Liability of Seller and Shareholders or
their Affiliates for income, transfer, sales, use and other Taxes arising in
connection with the consummation of the transactions contemplated hereby; (ii)
any other Liability of Seller and Shareholders or their Affiliates for Taxes;
(iii) any Liability of Seller and Shareholders for costs and expenses incurred
in connection with this Agreement, the Collateral Documents or the transactions
contemplated hereby or thereby; (iv) any obligation of Seller and Shareholders
under this Agreement or the Collateral Documents; (v) any Liability of Seller
and Shareholders for current or long-term obligations and
2
<PAGE>
Liabilities except as otherwise specifically provided in this Agreement; (vi)
any Liability of Seller to employees or independent contractors of Seller
whether under any contract, Employee Benefit Plan or otherwise; (vii) any
Liability of Seller and Shareholders relating to civil, criminal and/or
administrative cases, proceedings, hearings or investigations, or awards of
arbitration tribunals; or (viii) any other Liability of Seller and Shareholders
not specifically included in Assumed Liabilities pursuant to (a), (b) and (c)
above.
"Basis" means any past or present fact, situation,
circumstance, status, condition, activity, practice, plan, occurrence, event,
incident, action, failure to act or transaction that forms or could form the
basis for any specified consequence.
"Books and Records" mean all books and records relating to the
Business, including purchase and sale order files, invoices, sales materials and
records, customer lists, mailing lists, personnel records and files, technical
data and records, all correspondence with and documents pertaining to NRTC,
DIRECTV, DSS Systems, Subscribers, suppliers, Governmental Authorities and other
third parties, all records evidencing the accounts receivable and a schedule of
accounts receivable aging and all other financial records; provided that the
Books and Records shall not include organizational, minute and stock record
books.
"Business" means the DIRECTV distribution business conducted
by Seller on the date of this Agreement and through the Closing Date pursuant to
rights granted under the NRTC Distribution Agreement.
"Business Day" means any day other than Saturday, Sunday or a
day on which banking institutions in New York, New York are required or
authorized to be closed.
"Closing Current Liabilities" mean (i) amounts payable by the
Business in the future to, but not yet invoiced by, the NRTC on account of the
period prior to Closing; and (ii) other current liabilities of the Business
which the Parties agree in writing are to be assumed by Purchaser hereunder
(other than the Equipment Financing Facility, which shall not be assumed by
Purchaser).
"Code" means the Internal Revenue Code of 1986, as amended.
"Collateral Documents" mean the Noncompetition Agreement,
Escrow Agreement and any other documents, instruments and certificates to be
executed and delivered by the Parties hereunder or thereunder.
"Committed Member Residence" has the meaning assigned to it in
the NRTC Distribution Agreement.
"Consultancy Agreement" means the form of consultancy and
noncompetition agreement attached hereto as Exhibit 4.
"DSS System" means the satellite receiving system for DIRECTV
consisting of an eighteen inch satellite antenna dish, an integrated receiver
decoder and a remote control.
3
<PAGE>
"Employee Benefit Plan" means any: (a) nonqualified deferred
compensation or retirement plan or arrangement that is an Employee Pension
Benefit Plan; (b) qualified defined contribution retirement plan or arrangement
that is an Employee Pension Benefit Plan; (c) qualified defined benefit
retirement plan or arrangement that is an Employee Pension Benefit Plan
(including any Multiemployer Plan); or (d) Employee Welfare Benefit Plan or
material fringe benefit plan or program.
"Employee Pension Benefit Plan" has the meaning set forth in
ERISA Section 3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in
ERISA Section 3(l).
"Encumbrance" means any mortgage, pledge, lien, encumbrance,
charge, security interest, security agreement, conditional sale or other title
retention agreement, limitation, option, assessment, restrictive agreement,
restriction, adverse interest, restriction on transfer or any exception to or
defect in title or other ownership interest (including restrictive covenants,
leases and licenses).
"Equipment Financing Facility" means those Promissory Notes
dated September 1, 1995 of Seller in favor of Deposit Guaranty National Bank in
the principal amounts of $1 million and $600,000, and the Security Agreement
dated December 7, 1994 between Seller and Deposit Guaranty National Bank.
"Equipment Receivables" mean the Retail Installment Contracts
and Security Agreements between Seller and certain customers of Seller whose DSS
Systems have been financed by means of the Equipment Financing Facility, which
are identified on the Equipment Receivables Closing Schedule.
"Equipment Receivables Closing Schedule" means the schedule
identifying Equipment Receivables by customer name, account balance and account
status (current, 60-90 days and 90-120 days), which schedule shall be prepared
by Seller and delivered to Purchaser three Business Days prior to Closing.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"Escrow Agent" means IBJ Schroder Bank & Trust Company.
"Escrow Agreement" means the form of escrow agreement attached
hereto as Exhibit 3.
"Estimated Current Liabilities" mean Liabilities from the
operations of the Business incurred in the Ordinary Course which (i) are
estimated to be payable by the Business in the future to, but not yet invoiced
by, the NRTC on account of the period prior to Closing; and (ii) the Parties
agree are to be assumed by Purchaser hereunder (other than the Equipment
Financing Facility which shall not be assumed by Purchaser) and are estimated as
of the Closing Date and set forth on the Estimated Current Liabilities Schedule
(which include items identified on Schedule
4
<PAGE>
1.1(a), and exclude any Liabilities on account of Subscriber deposits and
deferred or prepaid income and any Liabilities on account of the $200 Rebate
Program of DirecTV, Inc.).
"Estimated Current Liabilities Schedule" means the schedule of
Estimated Current Liabilities to be delivered by Seller and agreed upon by the
Parties on the earliest to occur of three Business Days prior to Closing or
February 15, 1997, with such supporting documentation as may be reasonably
required by Purchaser.
"Estimated Operating Adjustments" means the Operating
Adjustments estimated as of the Closing Date and set forth on the Estimated
Operating Adjustments Schedule.
"Estimated Operating Adjustments Schedule" means the schedule
of the Estimated Operating Adjustments to be delivered by Seller and agreed upon
by the Parties on the earliest to occur of three Business Days prior to Closing
or February 15, 1997, with such supporting documentation as may be reasonably
required by Purchaser.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder.
"GAAP" means United States generally accepted accounting
principles as in effect from time to time.
"Governmental Authority" means: (i) the United States of
America; (ii) any state, commonwealth, territory or possession of the United
States of America and any political subdivision thereof (including counties,
municipalities and the like); (iii) any foreign (as to the United States of
America) sovereign entity and any political subdivision thereof; or (iv) any
agency, authority or instrumentality of any of the foregoing, including any
court, tribunal, department, bureau, commission or board.
"Hart-Scott-Rodino Certificate" means the form of certificate
of Hughes attached hereto as Exhibit 6.
"Hughes" means Glenn Hughes, a Shareholder and President of
Seller.
"Intangibles" mean all accounts, notes and other receivables,
claims, deposits, prepayments, refunds, causes of action, choses in action,
rights of recovery, rights of set-off, rights of recoupment and other intangible
assets owned, used or held for use in the Business.
"Intellectual Property" means all of the following that are
owned, used or held solely for use in the Business: (i) trademarks, service
marks, trade dress, logos, trade names and corporate names, together with all
translations, adaptations, derivations and combinations thereof and all
applications, registrations and renewals in connection therewith; (ii) all
copyrightable works, all copyrights and all applications, registrations and
renewals in connection therewith; (iii) trade secrets and confidential business
information (including ideas, research and development, know-how, formulas,
compositions, manufacturing and production processes and techniques, technical
data, designs, drawings, specifications, customer and supplier lists, pricing
and cost
5
<PAGE>
information and business and marketing plans and proposals); (iv) all computer
software (including data and related documentation); (v) all other proprietary
rights; and (vi) all copies and tangible embodiments thereof (in whatever form
or medium).
"Inventory" means the DSS Systems and other equipment held and
owned by Seller for sale, lease or rent to or use by Subscribers.
"Legal Requirement" means any statute, ordinance, law, rule,
regulation, code, plan, injunction, judgment, order, decree, ruling, charge or
other requirement, standard or procedure enacted, adopted or applied by any
Governmental Authority, including judicial decisions applying common law or
interpreting any other Legal Requirement.
"Letter of Intent" means that certain Letter of Intent dated
November 21, 1996 between Purchaser and Seller.
"Liability" means any liability (whether known or unknown,
whether asserted or unasserted, whether absolute or contingent, whether accrued
or unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
"Multiemployer Plan" has the meaning set forth in ERISA
Section 3(37).
"Noncompetition Agreement" means the form of noncompetition
agreement attached hereto as Exhibit 5.
"NRTC Distribution Agreement" means any contract, commitment,
agreement, instrument or other document pursuant to which NRTC and/or DirecTV,
Inc. and/or any of their Affiliates has granted Seller rights relating to the
marketing and distribution of DIRECTV, including that certain NRTC/Member
Agreement for Marketing and Distribution of DBS Services between NRTC and
Seller, as amended and supplemented (Contract Number 1061).
"NRTC Patronage Capital" means any equity interest in NRTC
allocated to Seller or if such equity interest is not transferrable to Purchaser
at Closing, the right to receive any distributions on account of such equity
interest.
"Ordinary Course" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"Permit" means any license, permit, consent, approval,
registration, authorization, qualification or similar right granted by a
Governmental Authority.
"Person" means any natural person, corporation, partnership,
trust, unincorporated organization, association, limited liability company,
Governmental Authority or other entity.
"Personal Property" means the personal property of Seller
identified on Schedule 1.1(d).
6
<PAGE>
"Representative" means any director, officer, employee, agent,
consultant, adviser or other representative of a Person, including legal
counsel, accountants and financial advisors.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations thereunder.
"Seller's Accountant" means Poole Cunningham & Reitano, P.A.
"Subscriber" means any active DIRECTV subscriber account of
the Business, excluding the account of any subscriber who (i) resides outside
the Service Areas or is not otherwise a Committed Member Residence
("Extraterritorial Subscriber"), other than a subscriber who became an
Extraterritorial Subscriber in the Ordinary Course without a breach of Section
3.21; (ii) is disconnected or pending disconnection for any reason; (iii) has
not paid at least $199.95 for a DSS System or installation of a DSS System (or
financed at least such amount); or (iv) receives any free service (excluding
service under the $200 Rebate Program of DirecTV, Inc.).
"Tax" means any federal, state, local or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental, customs duties, capital stock,
franchise, profits, withholding, social security (or similar), unemployment,
disability, real property, personal property, sales, use, transfer,
registration, value added, alternative or add-on minimum, estimated or other tax
of any kind whatsoever, including any interest, penalties, fees, deficiencies,
assessments, additions or other charges of any nature with respect thereto,
whether disputed or not.
"Tax Return" means any return, declaration, report, claim for
refund or information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof.
"Termination Date" means March 15, 1997.
1.2 Other Definitions. The following terms shall, when used in this
Agreement, have the meanings assigned to such terms in the Sections indicated.
<TABLE>
<S> <C>
Term Section
- ---- -------
"Accountant's Current Liabilities Report"........................................................................2.4
"Accountant's Operating Adjustments Report"...................................................................2.5(b)
"Adjusted Accountant's Current Liabilities Report................................................................2.4
"Adjusted Accountant's Operating Adjustments Report"..........................................................2.5(b)
"Agreement".................................................................................................Preamble
"Audited Financial Statements"...................................................................................3.8
"Closing"........................................................................................................2.7
"Closing Accounts Receivable"....................................................................................2.2
"Closing Date"...................................................................................................2.3
"Contracts".....................................................................................................3.14
</TABLE>
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<TABLE>
<S> <C>
"Current Liabilities Objection Period"...........................................................................2.4
"Current Liabilities Report".....................................................................................2.4
"DIRECTV"...................................................................................................Recitals
"Equipment Receivables Price"....................................................................................2.2
"Equipment Receivables Margin"..................................................................................9.10
"Equipment Receivables Write-Offs"..............................................................................9.10
"Escrow Deposit".................................................................................................2.3
"Expiration Date"............................................................................................11.6(b)
"Financial Statements"...........................................................................................3.8
"Financial Statement Procedures".................................................................................3.8
"Indemnification Notice".....................................................................................11.6(b)
"Look-Back Period"...............................................................................................9.7
"1996 Period"....................................................................................................3.8
"NRTC"......................................................................................................Recitals
"Operating Adjustment"........................................................................................2.5(b)
"Operating Adjustment Objection Period".......................................................................2.5(b)
"Operating Adjustments Report"................................................................................2.5(b)
"Parties"...................................................................................................Preamble
"Permanent Subscribers"..........................................................................................9.7
"Purchase Price"..............................................................................................2.2(a)
"Purchaser".................................................................................................Preamble
"Recent Subscriber Adjustment"...................................................................................9.7
"Recent Subscriber Deposit....................................................................................2.3(b)
"Second Current Liabilities Objection Period"....................................................................2.4
"Second Operating Adjustments Objection Period"...............................................................2.5(b)
"Service Areas".............................................................................................Recitals
"Survival Period"...............................................................................................11.1
"Transfer".......................................................................................................5.2
</TABLE>
ARTICLE II
BASIC TRANSACTION
2.1 Sale of Assets. Subject to the terms and conditions of this
Agreement, Seller agrees to sell, transfer, assign, convey and deliver to
Purchaser at Closing, all of Seller's right, title and interest in, to and under
the Assets, free and clear of all Encumbrances, for the consideration set forth
in Section 2.2 below.
2.2 Purchase Price. In consideration for Seller's sale of the Assets to
Purchaser, Purchaser shall pay to Seller at Closing cash in an amount equal to
("Purchase Price"): (w) $14 million; plus (x) the face amount of Accounts
Receivable as of the Closing Date that are not more than 60 days past due
("Closing Accounts Receivable"); plus (y) an amount equal to the outstanding
balance on the Equipment Financing Facility ("Equipment Receivables Price") up
to $1,042,000; minus (z) the amount of the Estimated Current Liabilities; plus
or minus, as applicable (zz) the Estimated Operating Adjustments.
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The Purchase Price shall be subject to the escrow arrangements
set forth in Section 2.3 and the Purchase Price adjustments set forth in
Sections 2.4 and 2.5.
2.3 Escrow Arrangements. Within three Business Days of execution of
this Agreement by the parties, Purchaser shall pay to the Escrow Agent a portion
of the Purchase Price equal to $280,000 ("Escrow Deposit"), which Escrow Deposit
shall be held by the Escrow Agent pursuant to the terms and conditions of the
Escrow Agreement and applied in accordance with Section 11.6.
2.4 Current Liabilities Adjustment. Within 45 days after Closing,
Purchaser shall deliver to Seller a report (the "Current Liabilities Report"),
showing in detail its final determination of Closing Current Liabilities,
together with any documents substantiating the Current Liabilities Report.
Seller shall provide Purchaser with reasonable access to all records that Seller
has in its possession and that are necessary or appropriate for Purchaser to
prepare the Current Liabilities Report, and Purchaser shall provide Seller with
reasonable access to all records that Purchaser has in its possession and that
are necessary or appropriate for Seller to evaluate the Current Liabilities
Report. Within 20 days after receipt of the Current Liabilities Report ("Current
Liabilities Objection Period"), Seller shall give Purchaser written notice of
its objections, if any, to the Current Liabilities Report. In the event that
Seller notifies Purchaser of objections to the Current Liabilities Report within
the Current Liabilities Objection Period, Purchaser and Seller shall either
agree upon Closing Current Liabilities or instruct the Accountant to make a
determination ("Accountant's Current Liabilities Report") of the Closing Current
Liabilities within 20 days after delivery of such instructions, whereupon the
Accountant shall deliver the Accountant's Current Liabilities Report to
Purchaser and Seller. Within 20 days after receipt of the Accountant's Current
Liabilities Report ("Second Current Liabilities Objection Period"), Seller shall
give Purchaser written notice of Seller's objections, if any, to the
Accountant's Current Liabilities Report. In the event that Seller notifies
Purchaser of objections to the Accountant's Current Liabilities Report,
Purchaser and Seller shall instruct the Accountant to deliberate with Seller's
Accountant and make a final and binding determination of the Closing Current
Liabilities acceptable to Seller's Accountant ("Adjusted Accountant's Current
Liabilities Report"). Within 20 days after (x) the Accountant delivers the
Adjusted Accountant's Current Liabilities Report to Purchaser and Seller, (y)
expiration of the Second Current Liabilities Objection Period without notice of
objections from Seller or (z) agreement by Purchaser and Seller upon Closing
Current Liabilities or expiration of the Current Liabilities Objection Period
without notice of objections from Seller, as applicable, Purchaser shall pay to
Seller cash in an amount equal to the excess of the Estimated Current
Liabilities over the Closing Current Liabilities, or Seller shall pay to
Purchaser cash in an amount equal to the excess of the Closing Current
Liabilities over the Estimated Current Liabilities. The Parties shall provide to
the Accountant such information and assistance as the Accountant may reasonably
request for purposes of preparing the Accountant's Current Liabilities Report.
Each of Seller and Purchaser shall pay one-half of the professional fees charged
by the Accountant and Seller's Accountant for the engagements required
hereunder.
2.5 Operating Adjustment.
(a) The Purchase Price shall be adjusted as follows
("Operating Adjustments") in accordance with the procedures set forth in Section
2.5(b):
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i. Adjustments on a pro rata basis as of the
Closing Date shall be made for all expenses prepaid and deposits made by Seller,
all as determined in accordance with GAAP consistently applied, and to reflect
the principle that all such expenses and deposits attributable to the Business
for the period prior to the Closing Date are for the account of Seller, and all
such expenses and deposits attributable to the Business for the period on and
after the Closing Date are for the account of Purchaser.
ii. All Subscriber deposits which have not been
applied or refunded as of the Closing Date shall be retained by Seller and shall
constitute a corresponding decrease in the Purchase Price credited to the
account of Purchaser.
iii. All deferred or prepaid income as of the
Closing Date shall be retained by Seller and shall constitute a corresponding
decrease in the Purchase Price credited to the account of Purchaser (excluding
any adjustment on account of the $200 Rebate Program of DirecTV, Inc.).
iv. All DSS System access card changeover costs
for Subscribers that have been or will be billed by NRTC pursuant to NRTC's
memorandum of August 7, 1996, as updated, shall be paid by Purchaser and shall
constitute a decrease in the Purchase Price credited to the account of
Purchaser, except for those costs previously paid by Seller.
v. To the extent that Purchaser elects at
Closing to purchase Inventory, Seller shall receive credit therefor in an amount
equal to (x) the number of units transferred to Purchaser multiplied by (y) the
book value of such units; provided, however, that Purchaser shall purchase all
new DSS Systems held in Inventory at Closing with a book value of $240 per DSS
System, and at least 125 new DSS Systems held in Inventory at Closing which have
a book value of greater than $240 but less than $300 per single access DSS
System and a book value of not greater than $325 per dual access DSS System, and
Seller shall receive credit therefor.
vi. All Closing Accounts Receivable that become
90 days or more past due within 60 days after Closing shall constitute a
decrease in the Purchase Price credited to the account of Purchaser.
vii. All Accounts Receivable that are more than
60 days past due as of the Closing Date and are collected within 60 days after
Closing shall constitute an increase in the Purchase Price credited to the
Account of Seller.
(b) Within 60 days after Closing, Purchaser shall deliver to
Seller a report (the "Operating Adjustments Report"), showing in detail its
final determination of any Operating Adjustment owed to Seller or Purchaser,
together with any documents substantiating the adjustment set forth in the
Operating Adjustments Report. Seller shall provide Purchaser with reasonable
access to all records that Seller has in its possession and that are necessary
or appropriate for Purchaser to prepare the Operating Adjustments Report, and
Purchaser shall provide Seller with reasonable access to all records that
Purchaser has in its possession and that are necessary or appropriate for Seller
to evaluate the Operating Adjustments Report. Within 20 days after receipt of
the Operating Adjustments Report ("Operating Adjustments Objection Period"),
Seller shall give Purchaser written notice of its objections, if any, to the
Operating
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Adjustments Report. In the event that Seller notifies Purchaser of objections to
the Operating Adjustments Report within the Operating Adjustments Objection
Period, Purchaser and Seller shall either agree upon the Operating Adjustment or
instruct the Accountant to make a determination ("Accountant's Operating
Adjustments Report") of the Operating Adjustment within 20 days after delivery
of such instructions, whereupon the Accountant shall deliver the Accountant's
Operating Adjustments Report to Purchaser and Seller. Within 20 days after
receipt of the Accountant's Operating Adjustments Report ("Second Operating
Adjustments Objection Period"), Seller shall give Purchaser written notice of
Seller's objections, if any, to the Accountant's Operating Adjustments Report.
In the event that Seller notifies Purchaser of objections to the Accountant's
Operating Adjustments Report, Purchaser and Seller shall instruct the Accountant
to deliberate with Seller's Accountant and make a final and binding
determination of the Operating Adjustment acceptable to Seller's Accountant
("Adjusted Accountant's Operating Adjustments Report"). Within 20 days after (x)
the Accountant delivers the Adjusted Accountant's Operating Adjustments Report
to Purchaser and Seller, (y) expiration of the Second Operating Adjustments
Objection Period without notice of objections from Seller or (z) agreement by
Purchaser and Seller upon the Operating Adjustments or expiration of the
Operating Adjustments Objection Period without notice of objections from Seller,
as applicable, Purchaser shall pay to Seller cash in an amount equal to any
Operating Adjustments owed to Seller (adjusted for any Estimated Operating
Adjustments paid by Purchaser to Seller at Closing), or Seller shall pay to
Purchaser cash in an amount equal to any Operating Adjustments owed to Purchaser
(adjusted for any reduction in Purchase Price at Closing on account of any
Estimated Operating Adjustments). Purchaser and Seller shall provide to the
Accountant such information and assistance as the Accountant may reasonably
request for purposes of preparing the Accountant's Operating Adjustments Report.
Each of Seller and Purchaser shall pay one-half of the professional fees charged
by the Accountant and Seller's Accountant for the engagements required
hereunder.
2.6 Liabilities. Subject to the terms and conditions of this
Agreement, Purchaser shall assume and become responsible for all of the Assumed
Liabilities at Closing. The Parties agree that neither Purchaser nor any of its
Affiliates shall assume, nor shall it be deemed to have assumed, nor shall it
pay, perform, discharge or be liable in any manner whatsoever for, nor shall it
have any responsibility with respect to any obligation or Liability of the
Business or Seller or Shareholders or any of Seller's and/or Shareholders'
Affiliates not included within the definition of Assumed Liabilities.
2.7 Closing. The Closing of the transactions contemplated by this
Agreement and the Collateral Documents ("Closing") shall take place at the
offices of Purchaser, or at such other location as the parties may agree on the
next billing cycle cut-off date after satisfaction of all conditions precedent
to Closing set forth in Articles VII and VIII, but not later than March 15, 1997
("Closing Date").
2.8 Transactions at Closing. At the Closing:
(a) Seller shall:
i. sell, transfer, convey, assign and deliver
the Assets to Purchaser, free and clear of any Encumbrances other than the
Assumed Liabilities;
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<PAGE>
ii. deliver to Purchaser such documents,
instruments and certificates as are required by this Agreement to be delivered
by Seller.
(b) Purchaser shall deliver to Seller:
i. the Purchase Price (subject to the escrow
arrangements and adjustments set forth in Sections 2.3, 2.4 and 2.5) by wire
transfer of immediately available funds to such account or accounts as Seller
shall designate to Purchaser prior to the Closing; and
ii. such documents, instruments and certificates
as are required by this Agreement to be delivered by Purchaser.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER AND SHAREHOLDERS
Seller and Shareholders, jointly and severally, represent and warrant
to Purchaser that the statements contained in Article III are correct and
complete as of the date of this Agreement and will be correct and complete as of
the Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout Article III).
3.1 Organization and Qualification. Seller is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Mississippi, with all requisite power and authority to own, lease and use its
assets as they are currently owned, leased and used and to conduct its business
as it is currently conducted. Seller is duly qualified or licensed to do
business and in good standing in each jurisdiction in which the character of the
properties owned, leased or used by it or the nature of the activities conducted
by it make such qualification necessary, except any such jurisdiction where the
failure to be so qualified or licensed would not have a material adverse effect
on the Assets or the Business or on the validity, binding effect or
enforceability of this Agreement or the Collateral Documents.
3.2 Authority and Validity. Each of Seller and Shareholders has
all requisite power and authority to execute and deliver, to perform its
obligations under, and to consummate the transactions contemplated by, this
Agreement and the Collateral Documents to which it is a party. The execution and
delivery by Seller of, the performance by Seller of its obligations under, and
the consummation by Seller of the transactions contemplated by, this Agreement
and the Collateral Documents to which it is a party have been duly authorized by
all requisite corporate action of Seller. This Agreement has been duly executed
and delivered by each of Seller and Shareholders and is the legal, valid, and
binding obligation of each of Seller and Shareholders, enforceable against each
in accordance with its terms. Upon the execution and delivery of the Collateral
Documents to which it is a party by Seller and Shareholders, the Collateral
Documents will be the legal, valid and binding obligations of each of Seller and
Shareholders, enforceable against each in accordance with their respective
terms.
3.3 No Breach or Violation. Subject to obtaining the consents,
approvals, authorizations, and orders of and making the registrations or filings
with or giving notices to Governmental Authorities and Persons recited in the
exception to Section 3.4, the execution, delivery and performance by each of
Seller and Shareholders of this Agreement and the Collateral
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Documents to which it is a party, and the consummation of the transactions
contemplated hereby and thereby in accordance with the terms and conditions
hereof and thereof, do not and will not conflict with, constitute a violation or
breach of, constitute a default or give rise to any right of termination or
acceleration of any right or obligation of Seller or Shareholders under, or
result in the creation or imposition of any Encumbrance upon Seller, the Assets
or the Business by reason of the terms of (i) the certificate of incorporation,
by-laws or other charter or organizational document of Seller, (ii) any material
contract, agreement, lease, indenture or other instrument to which Seller or any
of the Shareholders is a party or by or to which Seller or any of the
Shareholders or the Assets may be bound or subject, (iii) any order, judgment,
injunction, award or decree of any arbitrator or Governmental Authority or any
statute, law, rule or regulation applicable to Seller or any of the Shareholders
or (iv) any Permit of Seller, which in the case of (ii), (iii) or (iv) above
would have a material adverse effect on the Assets or the Business or the
ability of Seller or any of the Shareholders to perform its obligations under
this Agreement or any Collateral Document.
3.4 Consents and Approvals. Except (i) as required under the NRTC
Distribution Agreement, and (ii) as set forth in Schedule 3.4 hereto, no
consent, approval, authorization or order of, registration or filing with, or
notice to, any Governmental Authority or any other Person is necessary to be
obtained, made or given by Seller and Shareholders in connection with the
execution, delivery and performance by them of this Agreement or any Collateral
Document or for the consummation by them of the transactions contemplated hereby
or thereby.
3.5 Title to Assets. Seller has exclusive, good and marketable
title to the Assets, free and clear of any and all Encumbrances of any kind and
nature. Except as provided by this Agreement and except for that certain
shareholders' agreement among the Shareholders and Seller, no Person has any
right to acquire, directly or indirectly, any interest in Seller or the Assets,
and there is no agreement to which Seller or any Shareholder is a party or is
otherwise bound relating to the direct or indirect sale of the capital stock or
assets of Seller.
3.6 Intellectual Property.
(a) Seller neither uses nor holds any copyrights, tradenames,
servicemarks, service names, logos, licenses, permits or other similar
intellectual property rights and interests in the operations of the Business
that do not incorporate the name "ClearVision" or variations thereof.
(b) To the best knowledge of Seller and Shareholders, Seller
has not in its operation of the Business interfered with, infringed upon,
misappropriated or otherwise come into conflict with, and the operation of the
Business as currently conducted does not violate or infringe upon, any
Intellectual Property rights of third parties, and Seller has not received any
charge, complaint, claim, demand or notice alleging any such interference,
infringement, misappropriation or violation (including any claim that Seller or
its predecessor in interest must license or refrain from using any Intellectual
Property rights of any third party). To the best knowledge of Seller, no third
party has interfered with, infringed upon, appropriated or otherwise come into
conflict with any Intellectual Property rights of Seller.
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<PAGE>
3.7 Compliance with Legal Requirements. Except as set forth on
Schedule 3.7, Seller has operated the Business in compliance in all material
respects with all Legal Requirements and requirements of the NRTC (including
NRTC's by-laws, policies and procedures) applicable to Seller. No action, suit,
proceeding, hearing, investigation, charge, complaint, claim, demand or notice
has been filed, commenced or, to the best of Seller's and Shareholders'
knowledge, threatened against Seller or Shareholders alleging any failure to so
comply and there is no Basis for any claim that such a failure to comply exists.
3.8 Financial Information. Seller has delivered, or will deliver
not later than the Closing Date to Purchaser the following financial statements
("Financial Statements"): (i) Seller's audited balance sheet and statements of
operations, changes in stockholders' equity and cash flows as of and for the
fiscal year ended December 31, 1994 ("Audited Financial Statements"); and (ii)
Seller's unaudited balance sheets and statements of operations, changes in
stockholders' equity and cash flows as of and for the year ended January 15,
1996 and for the nine month period ended October 19, 1996 with auditors'
compilation reports ("Compiled Financial Statements"). The Financial Statements
(including the notes thereto) have been prepared in accordance with GAAP applied
on a consistent basis throughout the periods covered thereby, fairly reflect the
Books and Records, are complete in all material respects, and present fairly the
financial condition of Seller and results of operations as of the dates and for
the periods indicated ("Financial Statement Procedures"), except Equipment
Receivables are not accurately presented in the Compiled Financial Statements
for the nine month period ended October 19, 1996.
3.9 Subsequent Events. Except as set forth on Schedule 3.9, since
year ended January 15, 1996: (i) Seller has not sold, leased, transferred or
assigned any assets of the Business, tangible or intangible, except in the
Ordinary Course; (ii) Seller has not entered into any agreement, contract, lease
or license (or series of related agreements, contracts, leases and licenses)
involving more than $2,500 or outside the Ordinary Course; (iii) no third party
has accelerated, terminated, modified or canceled any material agreement,
contract, lease or license (or series of related agreements, contracts, leases
and licenses) relating to Seller or the Business; (iv) Seller has not imposed or
permitted the imposition of any Encumbrance upon any assets of the Business,
tangible or intangible; (v) Seller has not made any capital investment in, any
loan to, or any acquisition of the securities or assets of, any other Person (or
series of related capital investments, loans or acquisitions); (vi) Seller has
not issued any note, bond or other debt security or created, incurred, assumed
or guaranteed any indebtedness for borrowed money or capitalized lease
obligations; (vii) Seller has not delayed or postponed the payment of accounts
payable and other Liabilities outside the Ordinary Course; (viii) Seller has not
canceled, compromised, waived or released any right or claim (or series of
related rights and claims) involving more than $1,000 or outside the Ordinary
Course; (ix) Seller has not granted any license or sublicense of any rights
under or with respect to any Intellectual Property used or useful in the
Business; (x) there has not been any other material occurrence, event, incident,
action, failure to act or transaction outside the Ordinary Course involving
Seller except that is generally known by other NRTC members and affiliates; and
(xi) Seller has not committed to any of the foregoing. Since the year ended
January 15, 1996, there has been no material adverse change in, and to the best
knowledge of Seller and Shareholders, no event has occurred which is likely,
individually or in the aggregate, to result in any material adverse change in,
the operations, assets, prospects or condition (financial or otherwise) of
Seller.
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3.10 Undisclosed Liabilities. To the best of Seller's and
Shareholders' knowledge, Seller has no Liability and there is no Basis for any
present or future action, suit, proceeding, hearing, investigation, charge,
complaint, claim or demand against Seller giving rise to any Liability, except
for Liabilities set forth in Schedule 3.10 (none of which results from, arises
out of, relates to, is in the nature of, or was caused by any breach of
contract, breach of warranty, tort, infringement or violation of any Legal
Requirement) or requirement of the NRTC.
3.11 Legal Proceedings. Except as set forth on Schedule 3.11, there
are no outstanding judgments or orders against or otherwise affecting Seller,
the Business or the Assets. Except as set forth on Schedule 3.11, there is no
action, suit, complaint, proceeding or investigation, judicial, administrative
or otherwise, that is pending or, to the best of Seller's and Shareholders'
knowledge, threatened and which, if adversely determined, might materially and
adversely affect Seller, the Business or the Assets or which challenges the
validity or propriety of any of the transactions contemplated by this Agreement
or the Collateral Documents. Except as set forth on Schedule 3.11, to the best
of Seller's and Shareholders' knowledge, there is no Basis upon which any such
action, suit, proceeding or investigation could be brought or initiated
(including claims arising out of or relating to the Equipment Receivables).
3.12 Taxes Relating to the Business. Seller has duly and timely
filed in proper form all Tax Returns for all Taxes required to be filed with the
appropriate Governmental Authority. All Taxes due and payable by Seller (or
claimed to be due and payable) have been paid (regardless whether Tax Returns
relating to such Taxes have been duly and timely filed or if filed, regardless
whether such Tax Returns are deficient), except such amounts as are being
contested diligently and in good faith and are not in the aggregate material and
for which Seller has adequately reserved in its financial statements. Except as
set forth in Schedule 3.12, there are no pending Tax audits, claims or
proceedings relating to Seller, the Assets or the Business and income therefrom.
Seller has not agreed to any waiver or extension of any statute of limitations
relating to any Tax.
3.13 Employee Benefits; Employees.
(a) Neither Seller nor any Employee Benefit Plan maintained by
Seller is in violation of the provisions of ERISA; no reportable event, within
the meaning of Sections 4043(c)(1), (2), (3), (5), (6), (7), (10) or (13) of
ERISA, has occurred and is continuing with respect to any such Employee Benefit
Plan; and no prohibited transaction, within the meaning of Title I of ERISA, has
occurred with respect to any such Employee Benefit Plan. Buyer is not required
under ERISA, the Code or any collective bargaining agreement to establish,
maintain or continue any Employee Benefit Plan maintained by Seller or any
Affiliate of Seller.
(b) There are no collective bargaining agreements applicable
to any Persons employed by Seller, and Seller has no duty to bargain with any
labor organization with respect to any such Person. There are not pending any
unfair labor practice charges against Seller, nor is there any demand for
recognition, or any other request or demand from a labor organization for
representative status with respect to any person employed by Seller.
(c) Seller is in substantial compliance with all applicable
Legal Requirements respecting employment conditions and practices, has withheld
all amounts required by any
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applicable Legal Requirements or Contracts to be withheld from the wages or
salaries of its employees, and is not liable for any arrears of wages or any
Taxes or penalties for failure to comply with any of the foregoing.
(d) Seller has not engaged in any unfair labor practice within
the meaning of the National Labor Relations Act and has not violated any Legal
Requirement prohibiting discrimination on the basis of race, color, national
origin, sex, religion, age, marital status, or handicap in its employment
conditions or practices. There are not pending or, to Seller's knowledge,
threatened unfair labor practice charges or discrimination complaints relating
to race, color, national origin, sex, religion, age, marital status, or handicap
against Seller before any Governmental Authority nor, to Seller's knowledge,
does any Basis therefor exist.
(e) There are no existing or, to Seller's knowledge,
threatened, labor strikes, disputes, grievances or other labor controversies
affecting Seller. There are no pending or, to Seller's knowledge, threatened
representation questions respecting Seller's employees. There are no pending or,
to Seller's knowledge, threatened arbitration proceedings under any Contract. To
Seller's knowledge, there exists no Basis for any of the above.
(f) Seller is not a party to any employment agreement, written
or oral, relating to its employees which cannot be terminated at will by Seller.
(g) Schedule 3.13 sets forth a true and complete list of the
names, titles and rates of compensation of all of Seller's employees.
3.14 Contracts. Schedule 3.14 contains a true, correct and complete
list of each contract agreement or commitment of the following types, whether
written or oral, to which Seller is a party or to which any of Shareholders is a
party that relates to or affects the Business ("Contracts"):
i. the NRTC Distribution Agreement and any
other agreement with NRTC or DirecTV, Inc. or any of their Affiliates;
ii. any agreement (or group of related
agreements) relating to the lease or rental of personal property to or from any
Person (including any form of lease or rental agreements for DSS Systems
accompanied by an itemized list of the Subscribers who are parties to such
agreements and the expiration dates of such agreements);
iii. any agreement (or group of related
agreements) for the purchase or sale of supplies, products or other personal
property, or for the furnishing or receipt of services (including any forms of
agreement or purchase order relating to the sale of DSS Systems or the sale of
DIRECTV services);
iv. any agreement concerning a partnership or
joint venture;
v. any agreement (or group of related
agreements) under which Seller or any Shareholder has created, incurred, assumed
or guaranteed any indebtedness for borrowed
16
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money, or any capitalized lease obligation, or under which Seller or any
Shareholder has imposed an Encumbrance;
vi. any agreement concerning confidentiality or
noncompetition;
vii. any agreement involving any officer,
director or Shareholder of Seller or any of their Affiliates;
viii. any agreement for the employment of any
individual on a full-time, part-time, consulting or other basis;
ix. any agreement relating to the services of
sales representatives, agents and other independent contractors (including
agreements relating to the installation of DSS Systems);
x. any agreement under which Seller has
advanced or loaned any amount to any employees or any of Seller's current or
former directors, officers or shareholders;
xi. any agreement under which the consequences
of a default or termination could have an adverse effect on the financial
condition, operations, results of operations or future prospects of the Seller,
the Assets or the Business; and
xii. any other agreement (or group of related
agreements) which cannot be terminated on less than 90 days notice or the
performance of which involves consideration in excess of $5,000.
Seller has delivered to Purchaser a correct and complete copy of each
written agreement listed on Schedule 3.14 and a written summary setting forth
the terms and conditions of each oral agreement listed therein. With respect to
each such agreement (or if such agreement is a form of agreement, the completed
and executed form(s) of agreement): (A) the agreement is legal, valid, binding,
enforceable and in full force and effect; (B) the agreement will continue to be
legal, valid, binding, enforceable and in full force and effect on identical
terms following the consummation of the transactions contemplated hereby; (C) no
party is in breach or default, and to the best knowledge of Seller and
Shareholders, no event has occurred which with notice or lapse of time would
constitute a breach or default, or permit termination, modification or
acceleration, under the agreement; and (D) no party has repudiated any provision
of the agreement.
3.15 Books and Records; Accounts Receivable. Schedule 3.15
identifies and describes all of the Books and Records. The Books and Records
accurately and fairly represent the Business and its results of operations in
all material respects. All Accounts Receivable and Inventory of the Business are
reflected properly on such Books and Records. The Accounts Receivable are valid
receivables subject to no setoffs or counterclaims.
3.16 Business Information. Schedule 3.16 sets forth a materially
true and accurate description of the following information as of the date set
forth in such Schedule: (i) the approximate number of Committed Member
Residences in the Service Area; (ii) the approximate
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number of Committed Member Residences that are cabled; (iii) the approximate
number of Committed Member Residences that are uncabled; (iv) the rates charged
to Subscribers; (v) the marketing, promotional and advertising programs
currently in effect for the Business and any other such program that has been in
effect at any time since January 1, 1995; and (vi) cable systems (identified by
over or under 40 channel capacity) and direct-to-home service providers in the
Service Areas.
3.17 Insurance. Schedule 3.17 sets forth the following information
with respect to each insurance policy relating to the Business (including
policies providing property, casualty, liability and workers' compensation
coverage and bond and surety arrangements) to which Seller has been a party, a
named insured, or otherwise the beneficiary of coverage at any time:
i. the name, address, and telephone number of
the agent;
ii. the name of the insurer, the name of the
policyholder and the name of each covered insured;
iii. the policy number and the period of
coverage;
iv. the scope (including an indication of
whether the coverage was on a claims made, occurrence or other basis) and amount
(including a description of how deductibles and ceilings are calculated and
operate) of coverage; and
v. a description of any retroactive premium
adjustments or other loss-sharing arrangements.
With respect to each such insurance policy: (A) the policy is legal,
valid, binding, enforceable, and in full force and effect; (B) neither Seller,
nor any predecessor in interest nor any other party to the policy is in breach
or default (including with respect to the payment of premiums or the giving of
notices), and to the best knowledge of Seller and Shareholders, no event has
occurred which, with notice or the lapse of time, would constitute such a breach
or default, or permit termination, modification or acceleration, under the
policy; and (C) no party to the policy has repudiated any provision thereof. The
Business and the Assets have been covered since the beginning of Business
operations in scope and amount customary and reasonable for such a business and
in the case of workers' compensation coverage, in scope and amount required by
applicable Legal Requirements. Schedule 3.17 describes any self-insurance
arrangements affecting the Assets or the Business. Schedule 3.17 also sets forth
each insurance claim (other than medical claims) made or loss incurred relating
to the Business pursuant to property, casualty, liability, workers' compensation
and bond and surety policies and, except as indicated therein, no such claim is
outstanding.
3.18 Disclosure. No representation or warranty of Seller or
Shareholders in this Agreement or the Collateral Documents and no statement in
any certificate, report, instrument, list or other document furnished or to be
furnished by Seller or Shareholders pursuant to this Agreement or the Collateral
Documents or in connection with the transactions contemplated hereby or thereby,
contained, contains or will contain on the date such agreement, certificate,
report, instrument, list or other document was or is delivered, any untrue
statement of a material
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fact, or omitted, omits or will omit on such date to state any material fact
necessary in order to make the statements made, in light of the circumstances
under which they were made, not misleading, nor will any such representation or
warranty or statement contain on the Closing Date any untrue statement of a
material fact or omit on the Closing Date to state any material fact necessary
in order to make the statements made, in light of the circumstances under which
they were made, not misleading. There is no fact known to Seller or Shareholders
and not disclosed in this Agreement that is not applicable to or known by
Purchaser and the other NRTC members and affiliates providing DIRECTV services
and which fact materially or adversely affects or may in the future materially
or adversely affect, the Business or the Assets.
3.19 Brokers or Finders. No broker or finder has acted directly or
indirectly for Seller in connection with the transactions contemplated by this
Agreement, and Seller has incurred no obligation to pay any brokerage or
finder's fee or other commission in connection therewith.
3.20 Certain Payments. Neither Seller nor its Representatives has
directly or indirectly, on behalf of or for the purpose of assisting the
Business, made any contribution, gift, bribe, rebate, payoff, influence payment,
kickback, or other similar payments to any Person, private or public, regardless
of form, whether in money, property or services, to obtain favorable treatment
in securing business, to pay for favorable treatment for business secured, to
obtain special concessions or for special concessions already obtained, or in
violation of any Legal Requirement, nor has any such person established or
maintained any fund or asset that has not been recorded in the Books and
Records.
3.21 Subscribers. Seller has neither solicited nor encouraged any
Representative or any other Person to solicit, nor has Seller employed any
scheme or device for the purpose of encouraging, nor has Seller encouraged any
Representative or any other Person to employ any scheme or device for the
purpose of encouraging, Persons residing outside the Service Areas or Persons
who would not be deemed Committed Member Residences to become subscribers of the
DIRECTV service offered by the Business.
3.22 Favorable Business Relationships. To the best knowledge of
Seller and Shareholders, there are no favorable business relationships relating
to the Business with lessors, licensors, Subscribers, suppliers or other
business associates of Seller which will terminate after Closing.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to Seller and Shareholders that the
statements contained in this Article IV are correct and complete as of the date
of this Agreement and will be correct and complete as of the Closing Date (as
though made then and as though the Closing Date were substituted for the date of
this Agreement throughout this Article IV).
4.1 Organization and Qualification. Purchaser is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware, with all requisite power and authority to own, lease and use
its assets and to conduct its business as it is currently conducted. Purchaser
is duly qualified or licensed to do business in and is in good standing in
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each jurisdiction in which the character of the properties owned, leased or used
by it or the nature of the activities conducted by it makes such qualification
necessary, except any such jurisdiction where the failure to be so qualified or
licensed and in good standing would not have a material adverse effect on
Purchaser or on the validity, binding effect or enforceability of this
Agreement.
4.2 Authority and Validity. Purchaser has all requisite power and
authority to execute and deliver, to perform its obligations under, and to
consummate the transactions contemplated by, this Agreement and the Collateral
Documents. The execution and delivery by Purchaser of, the performance by
Purchaser of its obligations under, and the consummation by Purchaser of the
transactions contemplated by, this Agreement and the Collateral Documents have
been duly authorized by all requisite corporate action of Purchaser. This
Agreement has been duly executed and delivered by Purchaser and is the legal,
valid and binding obligation of Purchaser, enforceable against Purchaser in
accordance with its terms. Upon Purchaser's execution and delivery of the
Collateral Documents to which it is a party, the Collateral Documents shall be
the legal, valid and binding obligations of Purchaser, enforceable against
Purchaser in accordance with their respective terms.
4.3 No Breach or Violation. Subject to obtaining the consents,
approvals, authorizations, and orders of and making the registrations or filings
with or giving notices to Governmental Authorities and Persons recited in the
exception to Section 4.4, the execution, delivery and performance by Purchaser
of this Agreement and the Collateral Documents to which it is a party and the
consummation of the transactions contemplated hereby and thereby in accordance
with the terms and conditions hereof and thereof, do not and will not conflict
with, constitute a violation or breach of, constitute a default or give rise to
any right of termination or acceleration of any right or obligation of Purchaser
under, or result in the creation or imposition of any Encumbrance upon the
property of Purchaser by reason of the terms of (i) the certificate of
incorporation, by-laws or other charter or organizational document of Purchaser,
(ii) any material contract, agreement, lease, indenture or other instrument to
which Purchaser is a party or by or to which Purchaser or its property may be
bound or subject, (iii) any order, judgment, injunction, award or decree of any
arbitrator or Governmental Authority or any statute, law, rule or regulation
applicable to Purchaser or (iv) any Permit of Purchaser, which in the case of
(ii), (iii) or (iv) above would have a material adverse effect on the ability of
Purchaser to perform its obligations under this Agreement or any Collateral
Document.
4.4 Consents and Approvals. Except (i) as required under the NRTC
Distribution Agreement, (ii) as required under the Securities Act and the
Exchange Act, and (iii) as set forth in Schedule 4.4 hereto, no consent,
approval, authorization or order of, registration or filing with, or notice to,
any Governmental Authority or any other Person is necessary to be obtained, made
or given by Purchaser in connection with the execution, delivery and performance
by Purchaser of this Agreement or any Collateral Documents or for the
consummation by Purchaser of the transactions contemplated hereby or thereby.
4.5 Legal Proceedings. There is no action, suit, proceeding or
investigation, judicial, administrative or otherwise, that is pending or, to the
best knowledge of Purchaser, threatened against Purchaser and that challenges
the validity or propriety of, or may prevent or delay, any of the transactions
contemplated by this Agreement or the Collateral Documents.
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4.6 Disclosure. No representation or warranty of Purchaser in this
Agreement or the Collateral Documents and no statement in any certificate,
report, instrument, list or other document furnished or to be furnished by
Purchaser pursuant to this Agreement or the Collateral Documents or in
connection with the transactions contemplated hereby or thereby, contained,
contains or will contain on the date such agreement, certificate, report,
instrument, list or other document was or is delivered, any untrue statement of
a material fact, or omitted, omits or will omit on such date to state any
material fact necessary in order to make the statements made, in light of the
circumstances under which they were made, not misleading, nor will any such
representation or warranty or statement contain on the Closing Date any untrue
statement of a material fact or omit on the Closing Date to state any material
fact necessary in order to make the statements made, in light of the
circumstances under which they were made, not misleading.
4.7 Brokers or Finders. No broker or finder has acted directly or
indirectly for Purchaser in connection with the transactions contemplated by
this Agreement, and Purchaser has incurred no obligation to pay any brokerage or
finder's fee or other commission in connection therewith.
ARTICLE V
PRE-CLOSING COVENANTS OF SELLER AND SHAREHOLDERS
5.1 Additional Information. Seller shall provide to Purchaser and
its Representatives (i) full and free access to all of the Assets and
Liabilities of Seller and (ii) such financial, operating and other documents,
data and information relating to Seller, the Business and the Assets as
Purchaser may reasonably request. Such access shall include the right of
Purchaser and its Representatives to inspect the records and reports of NRTC and
DIRECTV and discuss such records and reports with NRTC, and Seller shall take
all action necessary to facilitate the foregoing. In addition, Seller shall take
all action necessary to enable Purchaser and its Representatives to inspect,
review and audit the Assets, the Liabilities and Business and discuss the same
with Seller's officers, employees, independent accountants, and counsel.
Notwithstanding any investigation that Purchaser may conduct of Seller, the
Business and the Assets, Purchaser may fully rely on Seller's and Shareholders'
representations, warranties, covenants and indemnities set forth in this
Agreement, the Collateral Documents and any documents, instruments or
certificates delivered hereunder and thereunder, which will not be waived or
affected by or as a result of such investigation; provided, that if Purchaser
obtains actual knowledge that any representation or warranty of Seller and/or
Shareholders is not true, Purchaser shall immediately inform Seller of such
inaccuracy.
5.2 Exclusivity. Neither Seller nor Shareholders shall (i)
solicit, initiate or encourage the submission of any proposal or offer from any
Person relating to the direct or indirect sale or transfer of any of Seller's
capital stock or the Assets ("Transfer"); (ii) participate in any discussions or
negotiations regarding, furnish any information with respect to, assist or
participate in or facilitate in any other manner any effort or attempt by any
Person to do or seek a Transfer; or (iii) authorize or knowingly permit any
Affiliate, employee, representative or agent to engage in the foregoing on
behalf of Seller or Shareholders. Seller and Shareholders shall provide to
Purchaser copies of any written proposals, offers or inquiries, with respect to
a Transfer received by Seller or Shareholders after the execution of the Letter
of Intent.
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5.3 Continuity and Maintenance of Operations.
(a) Seller shall: (i) use its best efforts to comply with all
Legal Requirements applicable to Seller and all requirements of the NRTC
applicable to Seller (including NRTC's by-laws, policies and procedures)
relating to the Business; (ii) fulfill in all material respects all of its
obligations under and maintain in full force and effect all Contracts, including
the NRTC Distribution Agreement, and shall not, without the prior written
consent of Purchaser, alter, modify or amend any of the foregoing; (iii) use its
best efforts in consultation with Purchaser and its Affiliates, to promote the
financial success of the Business and promptly notify Purchaser of any adverse
change in the prospects or condition (financial or otherwise) of the Business;
and (iv) use its best efforts to promote, develop and preserve its relationships
with the NRTC, DSS retailers, participating cooperatives and its present
employees as well as the goodwill of its suppliers, customers and others having
business relations with it, and promptly notify Purchaser of any adverse change
in its relationship with any such Person. Without limiting the generality of the
foregoing, Seller shall maintain the Assets in good order, condition and repair,
shall maintain insurance relating to the Business as in effect on the date of
this Agreement, shall continue the pricing, marketing, advertising, promotion
and other activities with respect to the Business (including, without
limitation, billing, collection and subscriber matters), shall maintain
Inventory of not less than 25 new DSS Systems and shall keep and maintain all of
the Books and Records in the Ordinary Course. Other than in the Ordinary Course,
Seller shall not itself pay or credit in any way any Accounts Receivable prior
to the Closing Date, and shall not permit any of its agents or employees, or any
officers, directors or Shareholders, to do so either. Seller shall continue to
enforce its procedures for disconnection and discontinuance of service to
Subscribers whose accounts are delinquent in accordance with customary policies
and procedures in effect on the date of this Agreement.
(b) Seller shall not, without the prior written consent of
Purchaser: (i) except as set forth on Schedule 5.3, deviate from DIRECTV
national programming packages or rates; (ii) engage in marketing promotions
other than in the Ordinary Course consistent with past practices; (iii) sell,
lease, transfer, convey or assign any of the Assets (or enter into any contract
to do any of the foregoing) or permit the creation of any Encumbrance on any of
the Assets; (v) permit the amendment or cancellation of the NRTC Distribution
Agreement or any other Contract; or (iv) enter into any contract, commitment or
agreement or incur any indebtedness or other liability or obligation of any kind
involving an expenditure outside the Ordinary Course and in excess of $2,500;
(c) Neither Seller nor Shareholders shall take or omit to take
any action that would cause Seller or Shareholders to be in breach of any
representations, warranties or covenants in this Agreement or the Collateral
Documents or that would, if such action had been taken or omitted on or before
the date of this Agreement, have been required to be disclosed on Schedule 3.9.
5.4 Consents and Approvals.
(a) As soon as practicable after execution of this Agreement,
Seller shall use its best efforts to obtain any necessary consent, approval,
authorization or order of, make any registration or filing with or give any
notice to, any Governmental Authority or Person as is
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required to be obtained, made or given by Seller to consummate the transactions
contemplated by this Agreement and the Collateral Documents, including, without
limitation: (i) consents required under the NRTC Distribution Agreement; and
(ii) any authorizations, consents, approvals, actions, filings or notices set
forth in Schedule 3.4. Notwithstanding anything in this Section 5.4(a) to the
contrary, Seller shall not be required to agree to the imposition on Seller by
NRTC of any condition to the transfer to Purchaser of the NRTC Distribution
Agreement (other than the preparation of transfer documentation and the
requirement that Seller pay currently any amounts due to NRTC and DirecTV, Inc.
on account of the Business for the period prior to the Closing Date).
(b) Seller shall cooperate with Purchaser in providing such
information and reasonable assistance as may be required in connection with the
obligations of Purchaser under Section 6.1.
5.5 Securities Filings. Seller shall promptly after execution of
this Agreement, provide such information and documents to Purchaser and its
Affiliates concerning Seller and the Business as may be required or appropriate
for inclusion in any filing, notification or report made by Purchaser or any
Affiliate of Purchaser under the Securities Act or the Exchange Act; and shall
cause its counsel and independent accountants to cooperate with Purchaser, its
Affiliates and their investment bankers, counsel and independent accountants in
the preparation of such filings, notifications and reports. Seller represents
and warrants to Purchaser that no information or document provided by Seller for
inclusion in any filing, notification or report made by Purchaser or any
Affiliate under the Securities Act or the Exchange Act will contain any untrue
statement of material fact or omit to state any material fact necessary in order
to make the statements made therein, in light of the circumstances under which
they were made, not misleading.
5.6 Notification of Certain Matters. Seller shall promptly provide
to Purchaser copies of any material notices from or correspondence from and to
the NRTC or DIRECTV or any Affiliates of DIRECTV. Seller shall also promptly
notify Purchaser of any fact, event, circumstance or action that, if known on
the date of this Agreement, would have been required to be disclosed to
Purchaser pursuant to this Agreement or the existence or occurrence of which
would cause any of Seller's or Shareholders' representations or warranties under
this Agreement not to be correct and/or complete. In addition, Seller shall give
prompt written notice to Purchaser of any adverse development causing a breach
of any of Seller's or Shareholders' representations and warranties in Article
III. No disclosure by Seller pursuant to this Section 5.6, however, shall be
deemed to amend or supplement this Agreement or to prevent or cure any
misrepresentation, breach of warranty, or breach of covenant by Seller.
5.7 Employee Matters. Immediately prior to Closing, Seller shall
terminate all of its employees other than such of those employees whom Seller
may have agreed to retain as its employees after Closing. Purchaser may offer
(but is not obligated to offer) employment to any or all of the employees of
Seller. Seller shall be responsible for and shall cause to be discharged and
satisfied in full all amounts owed to any employee of Seller through the Closing
Date, including wages, salaries, accrued vacation, any employment, incentive,
compensation or bonus agreements, or other benefits or payments on account of
termination, and shall indemnify and hold Purchaser harmless from any Adverse
Consequences resulting therefrom. Seller shall comply with
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the employee notification requirements, if applicable, of the Federal Worker
Adjustment and Retraining Notification Act.
5.8 Supplements to Schedules. Each of Purchaser, Seller and
Shareholders shall, from time to time prior to Closing, supplement the Schedules
to this Agreement with additional information that, if existing or known to it
on the date of this Agreement, would have been required to be included in one or
more Schedules to this Agreement. For purposes of determining the satisfaction
of any of the conditions to the obligations of Purchaser, Seller or Shareholders
in Articles VII and VIII, the Schedules to this Agreement shall be deemed to
include only (a) the information contained therein on the date of this Agreement
and (b) information added to the Schedules by written supplements to such
Schedules delivered prior to Closing by the Party making such amendment that (i)
are accepted in writing by the other Party or (ii) reflect actions expressly
permitted by this Agreement to be taken prior to Closing.
5.9 Satisfaction of Liabilities and Obligations. Seller shall take
all necessary actions: (i) to cause the termination, release, and removal on or
prior to the Closing Date, of all Encumbrances relating to Seller, the Assets or
the Business, including without limitation the discharging or other satisfaction
of related claims and obligations (such as the Equipment Financing Facility);
and (ii) to discharge, pay or satisfy all other outstanding Liabilities and
obligations of or relating to Seller, the Assets or the Business (including the
Equipment Financing Facility and amounts required by NRTC to be paid in
anticipation of Closing), except as otherwise specifically provided in this
Agreement, in each case without incurring any obligations on the part of
Purchaser or otherwise adversely affecting Purchaser.
5.10 Duty of Good Faith and Fair Dealing. Seller agrees that it
will act in good faith with regard to all matters that are the subject of this
Agreement, and will neither intentionally nor knowingly take any action or omit
to take any action at any time for the primary purpose of depriving the other
Party unfairly of any right or benefit that the other Party has at such time
under this Agreement.
ARTICLE VI
PRE-CLOSING COVENANTS OF PURCHASER
Purchaser covenants and agrees as follows:
6.1 Consents and Approvals.
(a) As soon as practicable after execution of this Agreement,
Purchaser shall use its best efforts to obtain any necessary consent, approval,
authorization or order of, make any registration or filing with or give notice
to, any Governmental Authority or Person as is required to be obtained, made or
given by Purchaser to consummate the transactions contemplated by this Agreement
and the Collateral Documents, including without limitation: (i) consents
required under the NRTC Distribution Agreement; and (ii) any authorizations,
consents, approvals, actions, filings or notices set forth in Schedule 4.4.
Notwithstanding anything in this Section 6.1 to the contrary, Purchaser shall
not be required to agree to any amendments, modifications or changes in, the
waiver of any terms or conditions of, or the imposition of any condition to the
transfer to
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Purchaser of, the NRTC Distribution Agreement in order to obtain the consents
required under the NRTC Distribution Agreement.
(b) Purchaser shall cooperate with Seller in providing such
information and reasonable assistance as may be required in connection with
Seller's obligations under Section 5.4(a).
6.2 Notification of Certain Matters. Purchaser shall promptly
provide to Seller copies of any material notices or correspondence from the NRTC
or DIRECTV or any Affiliates of DIRECTV relating to the transaction contemplated
by this Agreement. Purchaser shall also promptly notify Seller of any fact,
event, circumstance or action that, if known on the date of this Agreement,
would have been required to be disclosed to Seller pursuant to this Agreement or
the existence or occurrence of which would cause any of Purchaser's
representations or warranties under this Agreement not to be correct and/or
complete. In addition, Purchaser shall give prompt written notice to Seller of
any adverse development causing a breach of any of Purchaser's representations
and warranties in Article IV. No disclosure by Purchaser pursuant to this
Section 6.2, however, shall be deemed to amend or supplement this Agreement or
to prevent or cure any misrepresentation, breach of warranty, or breach of
covenant by Purchaser.
6.3 Duty of Good Faith and Fair Dealing. Purchaser agrees that it
will act in good faith with regard to all matters that are the subject of this
Agreement, and will neither intentionally nor knowingly take any action or omit
to take any action at any time for the primary purpose of depriving the other
Party unfairly of any right or benefit that the other Party has at such time
under this Agreement.
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER
All obligations of Purchaser under this Agreement shall be subject to
the fulfillment at or prior to Closing of each of the conditions set forth in
this Article VII, it being understood that Purchaser may, in its sole
discretion, to the extent permitted by applicable Legal Requirements, waive any
or all of such conditions in whole or in part. Notwithstanding the foregoing,
the representations and warranties of Seller and Shareholders set forth in
Article III shall be deemed true in all respects after February 15, 1997 solely
for the purpose of determining Purchaser's obligations to close the transaction
contemplated by this Agreement, unless any Schedule or Schedules to such
representations and warranties fail to disclose information required to be
disclosed by such representations and warranties, which information is material
and not known to Purchaser on February 15, 1997 (information shall be deemed to
be material for purposes of this clause if it has financial consequences of at
least $50,000).
7.1 Accuracy of Representations. All representations and
warranties of Seller and Shareholders contained in this Agreement, the
Collateral Documents and any other document, instrument or certificate delivered
by Seller or Shareholders at or prior to Closing shall be, if specifically
qualified by materiality, true in all respects and, if not so qualified, shall
be true in all material respects, in each case on and as of the Closing Date
with the same effect as if made on and as of the Closing Date. Seller and
Shareholders shall have delivered to Purchaser a certificate dated the Closing
Date to the foregoing effect.
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7.2 Covenants. Seller and Shareholders shall, in all material
respects, have performed and complied with each of the covenants, obligations,
conditions and agreements contained in this Agreement and the Collateral
Documents that are to be performed or complied with by them at or prior to
Closing. Seller and Shareholders shall have delivered to Purchaser a certificate
dated the Closing Date to the foregoing effect.
7.3 Consents.
(a) All consents, approvals, authorizations and orders
required to be obtained from, and all registrations, filings and notices
required to be made with or given to, any Governmental Authority or Person as
provided in Sections 5.4(a) and 6.1(a) shall have been duly obtained, made or
given, as the case may be, and shall be in full force and effect, and any
waiting period required by Applicable Law or any Governmental Authority in
connection with such transactions shall have expired or have been earlier
terminated, unless the failure to obtain, make or give any such consent,
approval, authorization, order, registration, filing or notice, or to allow any
such waiting period to expire or terminate would not have a material adverse
effect on Seller, the Assets or the Business or the ability of Seller or
Shareholders to consummate the transactions contemplated by this Agreement and
the Collateral Documents.
(b) Notwithstanding the foregoing, this condition precedent
shall not have been satisfied if any consent, approval, authorization or order
obtained in connection with the transactions contemplated by this Agreement and
the Collateral Documents has been conditioned upon the amendment, modification,
cancellation or termination of, or waiver of any term or condition of, any
contract, commitment or agreement, or imposes upon Purchaser any condition or
requirement not now imposed upon Seller.
(c) Purchaser shall have been furnished with appropriate
evidence, reasonably satisfactory to it and its counsel, of the granting of such
consents, approvals, authorizations and orders, the making of such registrations
and filings and the giving of such notices referred to in paragraph (a) above.
7.4 Delivery of Documents. Seller and Shareholders, as applicable,
shall have executed and delivered to Purchaser the following documents in
addition to the other documents required to be delivered by this Agreement:
i. Escrow Agreement.
ii. Consultancy Agreement.
iii. Noncompetition Agreement.
iv. Bill of Sale and Assignment evidencing
transfer of the Assets to Purchaser in form reasonably satisfactory to
Purchaser.
v. Opinion of Brunini, Grantham, Grower &
Hewes, PLLC, counsel to Seller and Shareholders, dated the Closing Date,
addressed to Purchaser, in form and substance
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reasonably satisfactory to Purchaser and its counsel (including an opinion that
the form of Equipment Receivables complies with Mississippi law).
vi. Hart-Scott-Rodino Certificate.
vii. Pay-off statement of Deposit Guaranty
National Bank evidencing the outstanding balance under the Equipment Financing
Facility as of the Closing Date.
viii. Equipment Receivables Closing Schedule,
which shall be certified by Hughes on behalf of ClearVision as true and correct
in all material respects.
ix. Schedule evidencing satisfaction of Section
7.7, certified by Hughes on behalf of ClearVision as true and correct in all
material respects.
x. Such other documents and instruments as
Purchaser may reasonably request: (A) to evidence the sale, assignment,
conveyance and transfer to Purchaser of all of Seller's right, title and
interest in, to and under the Assets; and (B) to otherwise facilitate the
consummation or performance of any of the transactions contemplated by this
Agreement and the Collateral Documents.
7.5 No Material Adverse Change. There shall have been no material
adverse change in the Assets or in the business, financial condition, prospects
or operations of Seller.
7.6 No Litigation. No action, suit or proceeding shall be pending
or threatened, and no Legal Requirement or policy of the NRTC, DirecTV, Inc. or
any of their Affiliates, or any applicable regulatory authority shall have been
enacted, promulgated or issued that would: (i) prohibit or adversely affect
Purchaser's ownership or operation of all or a material portion of the Business
or the Assets or otherwise impair the ability of Purchaser to realize the
benefits of the transactions contemplated by this Agreement and the Collateral
Documents or adversely affect the value of the Assets; (ii) restrict or limit or
otherwise condition Purchaser's right to transfer and/or assign the Business or
the Assets in the future; (iii) compel Purchaser to dispose of or hold separate
all or a material portion of the Business or the Assets as a result of any of
the transactions contemplated by this Agreement and the Collateral Documents;
(iv) prevent or make illegal the consummation of any transactions contemplated
by this Agreement and the Collateral Documents; or (v) cause any of the
transactions contemplated by this Agreement and the Collateral Documents to be
rescinded following consummation.
7.7 Minimum Subscribers. As of the Closing Date, the Business
shall have total Subscribers of not less than 6,600, as evidenced by such Seller
documentation as Purchaser may request (including the DBS Wholesale Invoice
issued by NRTC for the most recent billing cycle).
7.8 Transition Arrangements. As of the Closing Date, Seller shall
sublease to Purchaser its office at 1036 Highway 51, Madison, Mississippi for a
period of 60 days, at a lease rate equal to the sum of Seller's actual
documented cost for rent, property and casualty insurance, clean-up and pest
control. Purchaser shall permit Hughes to use a desk in the office during the
sublease period.
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7.9 NRTC Compliance Certificate. Seller shall have delivered to
Purchaser a certificate or letter from NRTC dated as of the Closing Date to the
effect that Seller is in compliance with the NRTC Distribution Agreement and
there are no payments due by Seller under the NRTC Distribution Agreement other
than payments for fees due in the Ordinary Course and not yet payable.
7.10 Dealer Arrangements. Seller shall have terminated the
following dealer arrangements and shall be responsible for any amounts owed to
dealers on account of such arrangements: (i) any arrangements with dealers to
collect cash payments from subscribers of the Business; and (ii) any
arrangements to compensate dealers for subscribers based on a percentage of
future revenues derived by Seller from such subscribers.
ARTICLE VIII
CONDITIONS PRECEDENT TO OBLIGATIONS
OF SELLER AND SHAREHOLDERS
All obligations of Seller and Shareholders under this Agreement shall
be subject to the fulfillment at or prior to Closing of each of the following
conditions, it being understood that Seller and Shareholders may, in their sole
discretion, to the extent permitted by applicable Legal Requirements, waive any
or all of such conditions in whole or in part:
8.1 Accuracy of Representations. All representations and
warranties of Purchaser contained in this Agreement and the Collateral Documents
shall be, if specifically qualified by materiality, true and correct in all
respects and, if not so qualified, shall be true and correct in all material
respects, in each case on and as of the Closing Date with the same effect as if
made on and as of the Closing Date. Purchaser shall have delivered to Seller a
certificate dated the Closing Date to the foregoing effect.
8.2 Covenants. Purchaser shall, in all material respects, have
performed and complied with each of the covenants, obligations, conditions and
agreements contained in this Agreement and the Collateral Documents that are to
be performed or complied with by it at or prior to Closing. Purchaser shall have
delivered to Seller and Shareholders a certificate dated the Closing Date to the
foregoing effect.
8.3 Consents. All consents, approvals, authorizations and orders
required to be obtained from, and all registrations, filings and notices
required to be made with or given to, any Governmental Authority or Person as
provided in Section 6.1(a) shall have been duly obtained, made or given, as the
case may be, and shall be in full force and effect, and any waiting period
required by applicable law or any Governmental Authority in connection with such
transactions shall have expired or have been earlier terminated, unless the
failure to obtain, make or give any such consent, approval, authorization,
order, registration, filing or notice, or to allow any such waiting period to
expire or terminate would not have a material adverse effect on the ability of
Purchaser to consummate the transactions contemplated by this Agreement and the
Collateral Documents. Seller shall have been furnished with the appropriate
evidence, reasonably satisfactory to it and its counsel, of the granting of such
consents, approvals, authorizations and orders, the making of such registrations
and filings and the giving of such notices.
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8.4 Delivery of Documents. Purchaser shall have executed and
delivered to Seller the following documents in addition to the other documents
required to be delivered by this Agreement:
i. Escrow Agreement.
ii. Assumption Agreement evidencing the
assumption of the Assumed Liabilities by Purchaser in form reasonably
satisfactory to Seller.
iii. Opinion of Ted S. Lodge, Senior Vice
President, Chief Administrative Officer and General Counsel of Purchaser, dated
the Closing Date, addressed to Seller and Shareholders, in form and substance
reasonably satisfactory to Seller and Shareholders.
iv. Such other documents and instruments as
Seller may reasonably request: (A) to evidence assumption of the Assumed
Liabilities; and (B) to otherwise facilitate the consummation or performance of
any of the transactions contemplated by this Agreement and the Collateral
Documents.
8.5 Litigation. No action, suit or proceeding shall be pending or
threatened by or before any Governmental Authority and no Legal Requirement
shall have been enacted, promulgated or issued or deemed applicable to any of
the transactions contemplated by this Agreement and the Collateral Documents
that would: (i) prevent consummation of any of the transactions contemplated by
this Agreement and the Collateral Documents; or (ii) cause any of the
transactions contemplated by this Agreement and the Collateral Documents to be
rescinded following consummation.
ARTICLE IX
POST-CLOSING COVENANTS
The Parties agree as follows with respect to the period following
Closing:
9.1 Transition. Neither Seller nor Shareholders shall take any
action that is designed or intended to have the effect of discouraging any
lessor, licensor, subscriber, supplier or other business associate of Seller or
the Business from maintaining the same business relationships with Purchaser
after Closing as it maintained with Seller prior to Closing. Seller shall refer
all subscriber inquiries relating to the Business to Purchaser from and after
Closing.
9.2 Transfer Taxes and Fees. Seller and Shareholders shall pay
any sales, use, transfer, excise, documentary or license taxes or fees with
respect to the transfer of any of the Assets pursuant to this Agreement and the
Collateral Documents.
9.3 NRTC Patronage. Seller and Shareholders shall have an ongoing
obligation after Closing and notwithstanding the survival periods provided for
in Article XI to pay to Purchaser any distributions on account of NRTC Patronage
Capital. Notwithstanding the foregoing, Seller shall be entitled to receive any
NRTC patronage distribution made in cash for 1996.
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9.4 Subscriber Acquisition Commissions. Seller and Shareholders
shall have an ongoing obligation after Closing and notwithstanding the survival
periods provided for in Article XI to pay or reimburse Purchaser for any
commissions payable on account of or related to Subscriber acquisitions and
revenues promptly upon Seller's and/or Shareholders' receipt of invoices
therefor (which shall include adequate supporting documentation), including
commissions under the National Joint Promotion, the Committed Member Marketing
Agreement and the Enhanced Marketing Program (but only in the event commissions
under such NRTC programs are invoiced by the NRTC).
9.5 NRTC Invoices. Seller and Shareholders shall have an ongoing
obligation after Closing and notwithstanding the survival periods provided for
in Article XI to pay or reimburse Purchaser for any costs or expenses that are
invoiced by NRTC or DirecTV, Inc. and relate to the period prior to Closing.
9.6 Financial Statements. Not later than 45 days after Closing,
Seller shall provide to Purchaser Seller's audited balance sheet and statements
of operations, changes in stockholders' equity and cash flows for the year ended
January 8, 1997, which shall be prepared in accordance with the Financial
Statement Procedures and shall be accompanied by auditors' compilation reports.
Not later than 60 days after Closing, Seller shall provide to Purchaser Seller's
balance sheet and statements of operations, changes in stockholders' equity and
cash flows for each monthly billing period for the years ended January 15, 1996
and January 8, 1997, and Seller shall use its best efforts to prepare such
financial statements in accordance with the Financial Statement Procedures,
subject only to normal year-end adjustments (none of which will be material in
amount) and the omission of footnotes.
9.7 Liability Insurance. Seller agrees to maintain its existing
liability insurance policies in effect through the Survival Period.
9.8 Books and Records. Purchaser shall provide Seller reasonable
access during normal business hours to the Books and Records relating to the
period prior to Closing for the purpose of preparing Seller's tax returns or as
otherwise contemplated by this Agreement.
9.9 United States Satellite Broadcasting; Home Shopping Network.
Purchaser shall have an ongoing obligation after Closing and notwithstanding the
Survival Periods provided for in Article XI to pay Seller for any commissions
received by Purchaser on account of United States Satellite Broadcasting, Home
Shopping Network and similar commissions earned by Seller during the period
prior to Closing. Purchaser shall provide to Seller a report detailing such
commissions, if any, along with payment therefor, 180 days after Closing.
9.10 Equipment Receivables. In the event that Purchaser writes off
Equipment Receivables during the Survival Period, other than write-offs relating
to Equipment Receivables not more than 35 days outstanding for which Subscribers
have not initiated contact with Purchaser about terminating service ("Equipment
Receivables Write-Offs"), Purchaser shall be entitled to receive Escrow Funds
during the Survival Period on a periodic basis equal to 50 percent of the
Equipment Receivables Write-Offs in excess of the Equipment Receivables Margin;
provided that Purchaser shall in no event be entitled to more than $250,000 of
Escrow Funds under this Section 9.10. "Equipment Receivables Margin" means the
difference between the amount owed under
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Equipment Receivables at the Closing Date that are not more than 120 days past
due and the Equipment Receivables Price. Purchaser's decisions to write off
Equipment Receivables during the Survival Period and policies related thereto
shall be made in good faith in accordance with prudent business judgment related
to collectibility of the Equipment Receivables and retention of Subscribers, and
not with a view to obtain the benefits of this Section 9.10.
ARTICLE X
TERMINATION
10.1 Events of Termination. This Agreement may be terminated and
the transactions contemplated by this Agreement may be abandoned at any time
prior to Closing as provided below:
(a) Purchaser, Seller and Shareholders may terminate this
Agreement by mutual written consent at any time prior to Closing.
(b) Purchaser may terminate this Agreement by giving written
notice to Seller:
i. at any time prior to Closing, if Seller
and/or Shareholders have breached any material representation, warranty or
covenant contained in this Agreement in any material respect, Purchaser has
notified Seller of the breach, and the breach has continued without cure for a
period of 30 days after the notice of breach or if Closing shall not have
occurred on or before the Termination Date by reason of the failure of any
condition precedent under Article VII (unless the failure results primarily from
Purchaser itself breaching any representation, warranty or covenant contained in
this Agreement); or
ii. at any time prior to February 15, 1997, if
Purchaser's due diligence investigation pursuant to Section 5.1 discloses any
information which, in Purchaser's determination, materially impairs or
materially adversely affects the value or condition of the Assets or Business.
(c) Seller may terminate this Agreement by giving written
notice to Purchaser at any time prior to Closing:
i. if Purchaser has breached any material
representation, warranty or covenant contained in this Agreement in any material
respect, Seller has notified Purchaser of the breach, and the breach has
continued without cure for a period of 30 days after the notice of breach; or
ii. if Closing shall not have occurred on or
before the Termination Date by reason of the failure of any condition precedent
under Article VIII hereof (unless the failure results primarily from Seller
and/or Shareholders breaching any representation, warranty or covenant contained
in this Agreement).
10.2 Liabilities in Event of Termination. The termination of this
Agreement will in no way limit any obligation or liability of any Party based on
or arising from a breach or default by
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such Party with respect to any of its representations, warranties, covenants or
agreements contained in this Agreement, except as provided in Section 11.6(c).
10.3 Procedure Upon Termination. If this Agreement is terminated
by Purchaser or Seller pursuant to this Article X, notice of such termination
shall promptly be given by the terminating Party to the other Party.
ARTICLE XI
REMEDIES FOR BREACH OF THIS AGREEMENT
11.1 Survival of Representations and Warranties. All of the
representations and warranties of Purchaser, Seller and Shareholders contained
in this Agreement, the Collateral Documents and other documents, instruments and
certifications required to be delivered hereunder and thereunder shall survive
Closing (unless the damaged Party had actual knowledge of the misrepresentation
or breach of warranty at the time of Closing and did not disclose such breach to
the other party) and continue in full force and effect until April 30, 1998. The
period of survival prescribed by this Section 11.1 is referred to as the
"Survival Period." The liabilities of Purchaser, Seller and Shareholders under
their respective representations and warranties will expire as of the expiration
of the Survival Period; provided, however, that such expiration will not
include, extend or apply to any representation or warranty, the breach of which
has been asserted by Purchaser in a written notice to Seller before such
expiration or about which Seller has given Purchaser written notice before such
expiration indicating that facts or conditions exist that, with the passage of
time or otherwise, can reasonably be expected to result in a breach (and
describing such potential breach in reasonable detail). Except as otherwise
provided in this Agreement, the covenants and agreements of Purchaser, Seller
and Shareholders in this Agreement, the Collateral Documents and in the other
documents, instruments and certificates required to be delivered by Seller or
Purchaser hereunder and thereunder shall survive Closing and shall continue in
full force and effect as provided in Section 11.2(b) and Section 11.3(b).
11.2 Indemnification Provisions for Benefit of Purchaser.
(a) If Seller and/or Shareholders breach any representations
and warranties contained in this Agreement or the Collateral Documents or any
documents, instruments and certificates delivered hereunder and thereunder, and
if Purchaser makes a written claim for indemnification against Seller and/or
Shareholders within the Survival Period, then Seller and Shareholders shall
jointly and severally indemnify, defend and hold harmless Purchaser and its
Affiliates and the shareholders, directors, officers, employees, agents,
successors and assigns of any of such Persons, from and against any Adverse
Consequences that any such Person may suffer through and after the date of the
claim for indemnification (including any Adverse Consequences that any such
Person may suffer after the end of the Survival Period) resulting from, arising
out of, relating to or caused by the breach; provided, however, that
Shareholders shall not be liable for Adverse Consequences resulting from,
arising out of or relating to legal claims of Subscribers that the Equipment
Receivables do not comply with applicable law unless any such Shareholder had
reason to know prior to Closing that there existed a Basis for such claims.
(b) Seller and Shareholders agree, jointly and severally, to
indemnify Purchaser and its Affiliates, and the shareholders, directors,
officers, employees, agents, successors and
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assigns of any of such Persons, from and against the entirety of any Adverse
Consequences that any such Person may suffer resulting from, arising out of,
relating to, in the nature of, or caused by any breach of any covenant,
agreement or obligation of Seller and/or Shareholders contained in this
Agreement or the Collateral Documents or any documents, instruments and
certificates delivered hereunder and thereunder. In addition to, but not
exclusive of, any indemnity on account of the foregoing, Seller agrees to
indemnify Purchaser and its Affiliates, and the shareholders, directors,
officers, employees, agents, successors and assigns of any such Persons, from
and against the entirety of any Adverse Consequences that any such Person may
suffer resulting from, arising out of, relating to, in the nature of or caused
by any act or omission of Seller with respect to, or any event or circumstance
related to, the ownership or operation of the Assets or the conduct of the
Business, which act, omission, event or circumstance occurred or existed prior
to or at the Closing Date, without regard to whether a claim with respect to
such matter is asserted before or after the Closing Date; any Liability of
Seller and/or Shareholders or the Business that is not an Assumed Liability; any
Liability of Purchaser arising by operation of law as a consequence of the
Closing (including under any bulk transfer law of any jurisdiction or under any
common law doctrine of de facto merger or successor liability or under any
fraudulent conveyance law of any jurisdiction) that is not an Assumed Liability;
and any Liability for Taxes attributable to the use, ownership or operation of
the Assets by Seller or the Business relating to periods prior to Closing.
Except as otherwise provided in this agreement, Seller's and Shareholders'
obligations under this Section 11.2(b) shall expire at the end of the Survival
Period; provided, however, that such expiration will not include, extend or
apply to rights for indemnity with respect to any claim asserted in a written
notice to the Seller and/or Shareholders before such expiration.
(c) No Person otherwise entitled to indemnification under this
Section 11.2 shall be so entitled until the aggregate amount otherwise payable
under this Section exceeds $50,000, and shall then be entitled to the
indemnification only as to the excess. The right of Purchaser and its Affiliates
and the shareholders, directors, officers, employees, agents, successors and
assigns of any such Person to indemnity under this Section 11.2 shall be limited
to $5,000,000 in the aggregate. In addition, the liability of Shareholders other
than Hughes shall be limited to the following allocable portions of Adverse
Consequences relating to any indemnifiable claim: Garry Hughes, 1 percent; E.L.
Vowell, 11.1 percent; David Vowell, 11.1 percent.
11.3 Indemnification Provisions for Benefit of Seller and
Shareholders.
(a) If Purchaser breaches any of its representations and
warranties contained in this Agreement or the Collateral Documents or any
documents, instruments and certificates delivered thereunder and if Seller makes
a written claim for indemnification against Purchaser within the Survival
Period, then Purchaser shall indemnify, defend and hold harmless Seller and its
Shareholders, directors, officers, employees, agents, successors and assigns,
from and against any Adverse Consequences that any such Person may suffer
through and after the date of the claim for indemnification (including any
Adverse Consequences that Seller and Shareholders may suffer after the end of
the Survival Period) resulting from, arising out of, relating to or caused by
the breach (or the alleged breach).
(b) Purchaser agrees to indemnify Seller and its Shareholders,
directors, officers, employees, agents, successors and assigns against the
entirety of any Adverse
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Consequences that any such Person may suffer resulting from, arising out of,
relating to, in the nature of, or caused by any of the following: (i) any breach
of any covenant, agreement or obligation of Purchaser contained in this
Agreement or the Collateral Documents or any documents, instruments and
certifications delivered hereunder and thereunder; (ii) any act or omission of
Purchaser with respect to, or any event or circumstance related to, the
ownership or operation of the Assets or the conduct of the Business, which act,
omission, event or circumstance occurred after the Closing Date; (iii) any
Assumed Liability after the Closing Date; and (iv) any Liability for Taxes
attributable to the use, ownership or operation of the Assets or the transferred
Business by Purchaser relating to periods after the Closing Date. The
obligations of Purchaser under Section 11.3(b)(i) shall expire at the end of the
Survival Period and the obligations of Purchaser under Section 11.3(b)(ii),
(iii) and (iv) shall survive the Closing without termination.
(c) No Person otherwise entitled to indemnification under this
Section 11.3 shall be so entitled until the aggregate amount otherwise payable
under this Section exceeds $50,000, and shall then be entitled to the
indemnification only as to the excess. The right of Seller and its Shareholders,
directors, officers, employees, agents, successors and assigns to indemnity
under this Section 11.3 shall be limited to $5,000,000 in the aggregate.
11.4 Matters Involving Third Parties.
(a) If any third party shall notify either Purchaser, Seller
and/or Shareholders (the "Indemnified Party") with respect to any matter (a
"Third Party Claim") that may give rise to a claim for indemnification against
the other (the "Indemnifying Party") under this Article XI, then the Indemnified
Party shall promptly notify the Indemnifying Party thereof in writing; provided,
however, that no delay on the part of the Indemnified Party in notifying any
Indemnifying Party shall relieve the Indemnifying Party from any obligation
hereunder unless (and then solely to the extent) the Indemnifying Party thereby
is prejudiced.
(b) Any Indemnifying Party shall have the right to defend the
Indemnified Party against the Third Party Claim with counsel of its choice
reasonably satisfactory to the Indemnified Party so long as (i) the Indemnifying
Party provides the Indemnified Party with evidence acceptable to the Indemnified
Party that the Indemnifying Party will have the financial resources to defend
against the Third Party Claim and fulfill its indemnification obligations
hereunder; (ii) the Third Party Claim involves only money damages and does not
seek an injunction or other equitable relief; (iii) settlement of, or an adverse
judgment with respect to, the Third Party Claim is not, in the good faith
judgment of the Indemnified Party, likely to establish a precedential custom or
practice adverse to the continuing business interests of the Indemnified Party;
and (iv) the Indemnifying Party conducts the defense of the Third Party Claim
actively and diligently.
(c) So long as the Indemnifying Party is conducting the
defense of the Third Party Claim in accordance with Section 11.4(b) above: (i)
the Indemnified Party may retain separate co-counsel at its sole cost and
expense and participate in the defense of the Third Party Claim; (ii) the
Indemnified Party shall not consent to the entry of any judgment or enter into
any settlement with respect to the Third Party Claim without the prior written
consent of the Indemnifying Party (not to be withheld unreasonably); and (iii)
the Indemnifying Party shall not consent to the entry of any judgment or enter
into any settlement with respect to the Third Party
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Claim without the prior written consent of the Indemnified Party (not to be
withheld unreasonably).
(d) If any of the conditions in Section 11.4(b) above is not
or no longer satisfied, however: (i) the Indemnified Party may defend against,
and consent to the entry of any judgment or enter into any settlement with
respect to, the Third Party Claim in any manner it reasonably may deem
appropriate (and the Indemnified Party need not consult with, or obtain any
consent from, any Indemnifying Party in connection therewith); (ii) the
Indemnifying Party shall reimburse the Indemnified Party promptly and
periodically for the costs of defending against the Third Party Claim (including
attorneys' fees and expenses); and (iii) the Indemnifying Party shall remain
responsible for any Adverse Consequences the Indemnified Party may suffer
resulting from, arising out of, relating to, in the nature of or caused by the
Third Party Claim to the fullest extent provided in this Article XI.
11.5 Determination of Adverse Consequences. Purchaser, Seller and
Shareholders shall take into account the time cost of money (using the
Applicable Rate as the discount rate) in determining Adverse Consequences for
purposes of this Article XI. All indemnification payments under this Article XI
shall be deemed adjustments to the Consideration.
11.6 Escrow Deposit.
(a) Delivery Prior to Closing. In the event this Agreement is
terminated by the Parties in accordance with Section 10.1(a) or by Purchaser in
accordance with Section 10.1(b) or by Seller in accordance with Section
10.1(c)(ii), then Purchaser and Seller promptly shall send a Joint Disbursement
Notice (as defined in the Escrow Agreement) to Escrow Agent instructing Escrow
Agent to transfer the Escrow Funds (as defined in the Escrow Agreement) to
Purchaser in accordance with such Joint Disbursement Notice. In the event this
Agreement is terminated by Seller in accordance with Section 10.1(c)(i), then
Purchaser and Seller promptly shall send a Joint Disbursement Notice to Escrow
Agent instructing Escrow Agent to transfer the Escrow Funds to Seller in
accordance with such Joint Disbursement Notice.
(b) Delivery After Closing. In the event that, following
Closing, Purchaser incurs Adverse Consequences for which Purchaser believes it
is entitled to indemnification from Seller in accordance with Article XI, then
promptly after Purchaser's submission to Seller of a claim for indemnification
describing in reasonable detail the nature and, to the extent then reasonably
practicable, the extent of the Adverse Consequences that Purchaser believes are
indemnifiable by Seller (an "Indemnification Notice"), and provided that there
is no dispute as to the applicability of indemnification for such Adverse
Consequences, Purchaser and Seller promptly shall send a Joint Disbursement
Notice to Escrow Agent instructing Escrow Agent to transfer to Purchaser, in
accordance with such Joint Disbursement Notice, Escrow Funds as necessary to
indemnify Purchaser for such indemnifiable Adverse Consequences. If, by the
close of business on the last calendar day of the Survival Period (or on the
next Business Day if such last calendar day is not a Business Day) ("Expiration
Date"), Seller shall not have received an Indemnification Notice from Purchaser,
then on the Business Day next following the Expiration Date, Purchaser and
Seller shall send a Joint Disbursement Notice to Escrow Agent instructing Escrow
Agent to transfer the balance of the Escrow Funds to Seller in accordance with
such Joint Disbursement Notice. If, however, Seller has received an
Indemnification Notice on or prior to
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the Expiration Date, then Escrow Agent shall retain control over the Escrow
Funds until the Parties have resolved Purchaser's claims for indemnification,
whereupon Buyer and Seller promptly shall send a Joint Disbursement Notice to
Escrow Agent instructing Escrow Agent to transfer Escrow Funds to Buyer and/or
Seller in accordance with the Parties' resolution of such disputes.
(c) Other Remedies. The disbursement of the Escrow Funds to
Purchaser or Seller shall not preclude such Party from exercising any other
rights or remedies provided for in this Agreement or at law or equity in the
event of a breach by the other Party of its obligations under this Agreement,
including the right to seek damages or indemnification for adverse consequences
in excess of the Escrow Funds; provided, however, that notwithstanding anything
in this Agreement to the contrary, the Escrow Funds shall constitute liquidated
damages on account of Adverse Consequences incurred by Seller and its Affiliates
and their shareholders, directors, officers, employees, agents, successors and
assigns, payable to Seller in the event that Seller terminates this Agreement
pursuant to Section 10.1(c)(i), and Purchaser and its Affiliates shall not be
responsible for any Adverse Consequences in excess of the Escrow Funds.
(d) Equipment Receivables. In the event that Purchaser is
entitled to Escrow Funds pursuant to Section 9.10 and Purchaser sends to Seller
notice thereof along with supporting documentation, Purchaser and Seller
promptly shall send a Joint Disbursement Notice to Escrow Agent instructing
Escrow Agent to transfer such Escrow Funds to Purchaser.
ARTICLE XII
MISCELLANEOUS
12.1 Parties Obligated and Benefited. This Agreement shall be
binding upon the Parties and their respective assigns and successors in interest
and shall inure solely to the benefit of the Parties and their respective
assigns and successors in interest, and no other Person shall be entitled to any
of the benefits conferred by this Agreement. Without the prior written consent
of the other Party, no Party may assign this Agreement or the Collateral
Documents or any of its rights or interests or delegate any of its duties under
this Agreements or the Collateral Documents; provided, however, that Purchaser
may assign this Agreement or any of its rights or interests or delegate any of
its duties hereunder to an Affiliate.
12.2 Notices. Any notices and other communications required or
permitted hereunder shall be in writing and shall be effective upon delivery by
hand or upon receipt if sent by certified or registered mail (postage prepaid
and return receipt requested) or by a nationally recognized overnight courier
service (appropriately marked for overnight delivery) or upon transmission if
sent by telex or facsimile (with request for immediate confirmation of receipt
in a manner customary for communications of such respective type and with
physical delivery of the communication being made by one or the other means
specified in this Section 12.2 as promptly as practicable thereafter). Notices
shall be addressed as follows:
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(a) If to Purchaser, to:
Pegasus Communications Corporation
5 Radnor Corporate Center
100 Matsonford Road, Suite 454
Radnor, PA 19087
Attn: Mr. Marshall W. Pagon
(with a copy to Ted S. Lodge at the same address)
(b) If to Seller, to:
ClearVision, Inc.
1036 Highway 51
Madison, Mississippi 39110
Attn: Mr. Glenn Hughes
with a copy to:
Brunini, Grantham, Grower & Hewes, PLLC
1400 Trustmark Building
248 East Capitol
Jackson, Mississippi 39201
Attn: Walter S. Weems, Esquire
Any Party may change the address to which notices are required to be sent by
giving notice of such change in the manner provided in this Section 12.2.
12.3 Attorneys' Fees. In the event of any action or suit based upon
or arising out of any alleged breach by any Party of any representation,
warranty, covenant or agreement contained in this Agreement or the Collateral
Documents, the prevailing Party shall be entitled to recover reasonable
attorneys' fees and other costs of such action or suit from the other Party.
12.4 Waiver. This Agreement or any of its provisions may not be
waived except in writing. The failure of any Party to enforce any right arising
under this Agreement on one or more occasions will not operate as a waiver of
that or any other right on that or any other occasion.
12.5 Headings. The Article and Section headings of this Agreement
are for convenience only and shall not constitute a part of this Agreement or in
any way affect the meaning or interpretation thereof.
12.6 Choice of Law. This Agreement and the rights of the Parties
under it shall be governed by and construed in all respects in accordance with
the laws of the Commonwealth of Pennsylvania, without giving effect to any
choice of law provision or rule (whether of the Commonwealth of Pennsylvania or
any other jurisdiction that would cause the application of the laws of any
jurisdiction other than the Commonwealth of Pennsylvania).
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12.7 Rights Cumulative. All rights and remedies of each of the
Parties under this Agreement shall be cumulative, and the exercise of one or
more rights or remedies shall not preclude the exercise of any other right or
remedy available under this Agreement or applicable law.
12.8 Further Actions. Seller, Shareholders and Purchaser shall
execute and deliver to the other, from time to time at or after Closing, for no
additional consideration and at no additional cost to the requesting party, such
further assignments, certificates, instruments, records, or other documents,
assurances or things as may be reasonably necessary to give full effect to this
Agreement and to allow each party fully to enjoy and exercise the rights
accorded and acquired by it under this Agreement.
12.9 Time of the Essence. Time is of the essence under this
Agreement. If the last day permitted for the giving of any notice or the
performance of any act required or permitted under this Agreement falls on a day
which is not a Business Day, the time for the giving of such notice or the
performance of such act shall be extended to the next succeeding Business Day.
12.10 Late Payments. If either Party fails to pay the other any
amounts when due under this Agreement, the amounts due will bear interest from
the due date to the date of payment at the Applicable Rate.
12.11 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
12.12 Entire Agreement. This Agreement (including the Exhibits,
Schedules and any other documents, instruments and certificates referred to
herein, which are incorporated in and constitute a part of this Agreement)
contains the entire agreement of the Parties and supersedes all prior oral or
written agreements, understandings and representations to the extent that they
relate in any way to the subject matter hereof, including the Letter of Intent.
12.13 Amendments and Waivers. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by the
Parties. No waiver by any Party of any default, misrepresentation or breach of
warranty or covenant hereunder, whether intentional or not, shall be deemed to
extend to any prior or subsequent default, misrepresentation or breach of
warranty or covenant hereunder or affect in any way any rights arising by virtue
of any prior or subsequent such occurrence.
12.14 Construction. The Parties have participated jointly in the
negotiation and drafting of this Agreement. If an ambiguity or question of
intent or interpretation arises, this Agreement shall be construed as if drafted
jointly by the parties and no presumption or burden of proof shall arise
favoring or disfavoring any party by virtue of the authorship of any of the
provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean "including without limitation." Nothing in the
Schedules shall be deemed adequate to disclose an exception to a representation
or warranty made herein unless the Schedule identifies the exception with
particularity and describes the relevant
38
<PAGE>
facts in detail. Without limiting the generality of the foregoing, the mere
listing (or inclusion of a copy) of a document or other item shall not be deemed
adequate to disclose an exception to a representation or warranty made herein
(unless the representation or warranty has to do with the existence of the
document or other item itself). The Parties intend that each representation,
warranty and covenant contained herein shall have independent significance. If
any Party has breached any representation, warranty or covenant contained herein
in any respect, the fact that there exists another representation, warranty or
covenant relating to the same subject matter (regardless of the relative levels
of specificity) which the Party has not breached shall not detract from or
mitigate the fact that the party is in breach of the first representation,
warranty or covenant.
12.15 Expenses. Except as otherwise provided in this Agreement, each
Party shall bear its own costs and expenses (including legal fees and expenses
and accountants' fees and expenses) incurred in connection with the negotiation
of this Agreement, the performance of its obligations and the consummation of
the transactions contemplated hereby.
12.16 Bulk Sales. Purchaser and Seller each waive compliance by the
other with bulk sales Legal Requirements applicable to the transactions
contemplated hereby.
39
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have duly executed this
Agreement as of the day and year first above written.
PEGASUS COMMUNICATIONS CORPORATION
By: /s/ Ted S. Lodge
------------------------------
CLEARVISION, INC.
By: ______________________________
/s/ Glenn Hughes
------------------------------------
Glenn Hughes
/s/ Garry V. Hughes
------------------------------------
Garry V. Hughes
/s/ E.L. Vowell
------------------------------------
E.L. Vowell
/s/ David Vowell
------------------------------------
David Vowell
40
<PAGE>
AMENDMENT NO. 1 TO
ASSET PURCHASE AGREEMENT
This Amendment No. 1 ("Amendment") is made as of the 13th day of
February, 1997, by and among Pegasus Communications Corporation ("Purchaser"), a
Delaware corporation, ClearVision, Inc. ("Seller"), a Mississippi corporation,
and all of the shareholders ("Shareholders") of Seller. Purchaser, Seller and
Shareholders are collectively referred to herein as the "Parties."
RECITALS:
WHEREAS, Purchaser, Seller and Shareholders are parties to that certain
Asset Purchase Agreement dated as of January 25, 1997 ("Asset Purchase
Agreement"); and
WHEREAS, the Parties desire to amend the Asset Purchase Agreement as
provided herein.
NOW, THEREFORE, in consideration of the foregoing premises and the
representations, warranties, covenants and agreements contained herein and in
the Asset Purchase Agreement, and intending to be legally bound hereby, the
Parties agree as follows:
1. Definitions.
(a) Capitalized terms used but not defined herein shall have the
meanings assigned to them in the Asset Purchase Agreement.
(b) Subparagraph (a) of the definition of "Assumed Liabilities" in
Section 1.1 of the Asset Purchase Agreement shall be amended and
restated in its entirety to read as follows:
(a) Seller's obligations to Subscribers for: (i) Subscriber
deposits held by Seller as of the Closing Date and which are
refundable, in the amount for which Purchaser receives
credit under Section 2.5; (ii) Subscriber deferred or
prepaid income or unearned revenue held by Seller as of the
Closing Date for services to be rendered by the Business
after the Closing Date, in the amount for which Purchaser
receives credit under Section 2.5; (iii) obligations to pay
$200 in cash to Subscribers upon presentation by such
<PAGE>
Subscribers of Cash Back Offer certificates (but
specifically excluding DIRECTV programming credits under the
Cash Back Offer program which shall be treated in accordance
with Section 2.5(a)(iii) and shall constitute assumed
liabilities in accordance with (a)(ii) above) ("Cash
Rebates"); (iv) the delivery of DIRECTV services to
subscribers of the Business after the Closing Date;
(c) The definition of "Estimated Current Liabilities" in Section
1 of the Asset Purchase Agreement shall be amended and
restated in its entirety to read as follows:
"Estimated Current Liabilities" mean Liabilities from the
operations of the Business incurred in the Ordinary Course
which (i) are estimated to be payable by the Business in the
future to, but not yet invoiced by, the NRTC on account of
the period prior to Closing; and (ii) the Parties agree are
to be assumed by Purchaser hereunder (other than the
Equipment Financing Facility which shall not be assumed by
Purchaser) and are estimated as of the Closing Date and set
forth on the Estimated Current Liabilities Schedule (which
include items identified on Schedule 1.1(a), and exclude any
Liabilities on account of Subscriber deposits and deferred
or prepaid income or unearned revenue, which shall be set
forth on the Estimated Operating Adjustments Schedule, and
any Liabilities on account of the Cash Rebates).
2. Escrow Arrangements. Section 2.3 of the Asset Purchase Agreement
shall be amended and restated in its entirety to read as follows:
2.3 Escrow Arrangements. Within three Business Days of execution of
this Agreement by the parties, Purchaser shall pay to the Escrow
Agent a portion of the Purchase Price equal to $280,000, and at
Closing Purchaser shall pay to the Escrow Agent an additional
portion of the Purchase Price equal to $95,000 (the two payments
being referred to herein as "Escrow Deposit"), which Escrow
Deposit shall be held by the Escrow Agent pursuant to the terms
and conditions of the Escrow Agreement and applied in accordance
with Section 11.6.
-2-
<PAGE>
3. Operating Adjustments.
(a) Section 2.5(a)(iii) of the Asset Purchase Agreement shall be
amended and restated in its entirety to read as follows:
iii. All deferred or prepaid income or unearned revenue as of
the Closing Date constitute a corresponding decrease in the
Purchase Price credited to the account of Purchaser
(excluding any adjustment on account of the Cash Rebates).
(b) The following shall be added to Section 2.5(a) of the Asset
Purchase Agreement:
viii. Seller shall receive a Purchase Price increase equal to
$30 multiplied by the number of Subscribers participating
in the Cash Back Offer program between commencement of the
Cash Back Offer program and Closing.
4. Closing. Section 2.7 of the Asset Purchase Agreement shall be
amended and restated in its entirety to read as follows:
2.7 Closing. The Closing of the Transactions contemplated by this
Agreement and the Collateral Documents ("Closing") shall take
place at the offices of Purchaser, or at such other location as
the parties may agree on the next billing cycle cut-off date or
on such date as the Parties may otherwise agree after
satisfaction of all conditions precedent to Closing set forth in
Articles VII and VIII, but not later than March 15, 1997
("Closing Date").
5. Equipment Receivables. Section 9.10 of the Asset Purchase Agreement
shall be amended and restated in its entirety to read as follows:
9.10 Equipment Receivables. In the event that Purchaser writes off
Equipment Receivables during the Survival Period, other than
write-offs relating to Equipment Receivables not more than 35
days outstanding for which Subscribers have not initiated
contact with Purchaser about terminating service ("Equipment
Receivables Write-Offs"), Purchaser shall be entitled to
-3-
<PAGE>
receive Escrow Funds during the Survival Period on a periodic
basis equal to 50 percent of the Equipment Receivables
Write-Offs in excess of the Equipment Receivables Margin;
provided that Purchaser shall in no event be entitled to more
than $375,000 of Escrow Funds under this Section 9.10. The
amount of Equipment Receivables Write-Offs shall reduced
dollar for dollar by Purchaser's receipts of late fees,
reconnect fees and lifetime service contract fees from
Subscribers who are Equipment Receivables customers.
"Equipment Receivables Margin" means the difference between
the amount owed under Equipment Receivables at the Closing
Date that are not more than 120 days past due and the
Equipment Receivables Price. Purchaser's decisions to write
off Equipment Receivables during the Survival Period and
policies related thereto shall be made in good faith in
accordance with prudent business judgment related to
collectibility of the Equipment Receivables and retention of
Subscribers, and not with a view principally to obtain the
benefits of this Section 9.10.
6. Dating of Certain Closing Documents. The Parties agree that the
documents described as numbers 6, 10, 11, 12, 14, 17, 20, 21, 22,
26, 28, and 29 on the Closing Checklist attached hereto as Exhibit
A, originally dated February 7, 1997, may be redated February 14,
1997, by interlineation.
7. Entire Agreement. This Amendment constitutes part of the Asset
Purchase Agreement and amends only those provisions of the Asset
Purchase Agreement specifically referenced herein; all other
provisions of the Asset Purchase Agreement shall remain in fall
force and effect. This Amendment along with the Asset Purchase
Agreement (including the Exhibits and Schedules thereto and any
other documents, instruments and certificates referred to therein)
contains the entire agreement of the Parties.
-4-
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have duly executed this
Amendment as of the day and year first above written.
PEGASUS COMMUNICATIONS CORPORATION
By: /s/ Ted S. Lodge
-------------------------------------------
CLEARVISION, INC.
By:
-------------------------------------------
/s/ Glenn Hughes
-------------------------------------------
GLENN HUGHES
/s/ Garry V. Hughes
-------------------------------------------
GARRY V. HUGHES
/s/ E.L. Vowell
-------------------------------------------
E.L. VOWELL
/s/ David Vowell
-------------------------------------------
DAVID VOWELL
-5-
<PAGE>
ASSET PURCHASE AGREEMENT
BY AND AMONG
PEGASUS COMMUNICATIONS CORPORATION
AND
CLEARVISION, INC., AND ITS SHAREHOLDERS
January 25, 1997
Closing Checklist
-----------------
<TABLE>
<CAPTION>
==========================================================================================================================
Contract
Number Item Reference
==========================================================================================================================
<S> <C> <C>
1. Equipment Receivables p.4; ss. 7.4(viii)
Closing Schedule
- --------------------------------------------------------------------------------------------------------------------------
2. Estimated Current p. 5
Liabilities Schedule
- --------------------------------------------------------------------------------------------------------------------------
3. Estimated Operating p. 5
Adjustment Schedule
- --------------------------------------------------------------------------------------------------------------------------
4. Closing Accounts ss. 2.2
Receivable
- --------------------------------------------------------------------------------------------------------------------------
5. Release of Equipment ss. 5.9
Financing Facility
- --------------------------------------------------------------------------------------------------------------------------
6. Seller's Certificate ss.ss.7.1 and 7.2
- --------------------------------------------------------------------------------------------------------------------------
7. NRTC Approval ss.ss.7.3 and 8.3
- --------------------------------------------------------------------------------------------------------------------------
8. Hughes Galaxy Approval ss.ss.7.3 and 8.3
- --------------------------------------------------------------------------------------------------------------------------
9. Escrow Agreement ss.ss.7.4(i) and 8.4(i)
- --------------------------------------------------------------------------------------------------------------------------
10. Consultancy Agreement ss. 7.4(ii)
- --------------------------------------------------------------------------------------------------------------------------
11. Noncompetition ss. 7.4(iii)
Agreement
- --------------------------------------------------------------------------------------------------------------------------
12. Bill of Sale and ss. 7.4(iv)
Assignment
- --------------------------------------------------------------------------------------------------------------------------
13. BGGH Opinion ss. 7.4(v)
- --------------------------------------------------------------------------------------------------------------------------
14. HSR Certificate ss. 7.4(vi)
- --------------------------------------------------------------------------------------------------------------------------
15. DGNB Payoff Statement ss. 7.4(vii)
- --------------------------------------------------------------------------------------------------------------------------
16. Schedule re Subscribers ss. 7.4(ix)
- --------------------------------------------------------------------------------------------------------------------------
17. Sublease ss. 7.8
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
"A-1"
<PAGE>
<TABLE>
<CAPTION>
==========================================================================================================================
Contract
Number Item Reference
==========================================================================================================================
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
18. NRTC Compliance ss. 7.9
Certificate
- --------------------------------------------------------------------------------------------------------------------------
19. Dealer Arrangement ss. 7.10
Terminations
- --------------------------------------------------------------------------------------------------------------------------
20. Buyer's Certificate ss.ss.8.1 and 8.2
- --------------------------------------------------------------------------------------------------------------------------
21. Assumption Agreement ss.ss. 8.4(ii)
- --------------------------------------------------------------------------------------------------------------------------
22. Lodge Opinion ss.ss. 8.4(iii)
- --------------------------------------------------------------------------------------------------------------------------
23. Closing Statement ss. 2.2
- --------------------------------------------------------------------------------------------------------------------------
24. Updated Schedules ss. 5.8
- --------------------------------------------------------------------------------------------------------------------------
25. Good Standing
Certificate of
ClearVision, Inc.
- --------------------------------------------------------------------------------------------------------------------------
26. Secretary's Certificate
of ClearVision, Inc.,
as to incumbency &
authority, accompanied
by authorizing
resolutions
- --------------------------------------------------------------------------------------------------------------------------
27. Good Standing
Certificates of Pegasus
Communications Corp. &
Pegasus Satellite
Television of MS, Inc.
- --------------------------------------------------------------------------------------------------------------------------
28. Secretary's
Certificates of Pegasus
Communications Corp. &
Pegasus Satellite
Television of MS, Inc.,
as to incumbency &
authority, accompanied
by authorizing
resolutions
- --------------------------------------------------------------------------------------------------------------------------
29. Assignment of Asset
Purchase Agreement from
Pegasus Communications
Corp. & Pegasus
Satellite Television of
MS, Inc.
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
"A-2"
<PAGE>
<TABLE>
<CAPTION>
==========================================================================================================================
Contract
Number Item Reference
==========================================================================================================================
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
30. Wire Transfer
Instructions from
ClearVision, Inc.
==========================================================================================================================
</TABLE>
Post-Closing Items
<TABLE>
<CAPTION>
==========================================================================================================================
Contract
Number Item Reference Due Date Responsibility
==========================================================================================================================
<S> <C> <C> <C> <C>
1. Current Liabilities ss.2.4 45 days Pegasus
Adjustment
- --------------------------------------------------------------------------------------------------------------------------
2. Operating Adjustment ss.2.5 60 days Pegasus
- --------------------------------------------------------------------------------------------------------------------------
3. Audit Report ss.9.6 45 days Poole
- --------------------------------------------------------------------------------------------------------------------------
4. Monthly Financials ss.9.6 60 days Poole
- --------------------------------------------------------------------------------------------------------------------------
5. Commissions Owned to ss.9.9 180 days Pegasus
ClearVision
==========================================================================================================================
</TABLE>
"A-3"
