SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)
November 10, 1994 (October 27, 1994)
C-TEC CORPORATION
(Exact name of registrant as specified in its charter)
Pennsylvania 0-11053 23-2093008
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
105 Carnegie Center, Princeton, NJ 08540
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(609) 734-3700
46 Public Square, P.O Box 3000, Wilkes-Barre, PA 18703
(Former name or former address, if changed since last report).
ITEM 5 Other Events
C-TEC Cable Systems, Inc. a wholly owned subsidiary of C-TEC Corporation, has
entered into a Merger Agreement (the "Merger Agreement")
with Twin County Trans Video, Inc. ("Twin County")
and Bark Lee Yee, Stella C. Yee, Susan C. Yee, Raymond C. Yee and Kenneth C.
Yee, shareholders of Twin County, and Robert Tallman,
as trustee of a trust holding certain shares of Twin County common stock.
Under the terms of the Merger Agreement, Twin County will merge with and
into C-TEC Cable Systems of Pennsylvania, Inc., a wholly owned subsidiary
of C-TEC Cable Systems, Inc. The transaction is subject to regulatory
approval and certain other conditions.
The aggregate consideration for the acquisition of all the capital stock of
Twin County and for certain related noncompetition agreements will be cash
of approximately $47.5 million, a promissory note of $4 million, and
exchangeable preferred stock of C-TEC Cable Systems, Inc. with an aggregate
liquidation preference of $52 million (the "Cable Preferred Stock"). The
Cable Preferred Stock consists of Cable Preferred Stock Series A shares
with a total liquidation preference of $41 million (the "Cable Preferred
Stock Series A") and Cable Preferred Stock Series B shares with a total
liquidation preference of $11 million (the "Cable Preferred Stock Series
B"). The cash portion of the purchase price is subject to certain
adjustments, which are not estimated to be material, based on the excess of
Twin County's liabilities over its cash balance at the closing date.
The dividend rate on each series of the Cable Preferred Stock is 5% per
annum of the liquidation preference, and unpaid dividends are cumulative.
Beginning three years from the closing date of the acquisition and expiring
ten years from such closing date, the holders of Cable Preferred Stock
Series A acting unanimously may exchange their Cable Preferred Stock with
C-TEC Corporation for 1,171,428 shares of common stock of C-TEC Corporation
(the "Series A Exchange Shares") and the holders of Cable Preferred Stock
Series B acting unanimously may exchange their Cable Preferred Stock with
C-TEC Corporation for 285,714 shares of common stock of C-TEC Corporation
(the "Series B Exchange Shares"). During the same time period, C-TEC
Corporation may elect to acquire all, but not less than all of either or
both series of Cable Preferred Stock as follows: (i) if the market value
of the Exchange Shares for such series at the time of election is greater
than or equal to the aggregate liquidation preference for such series, the
consideration shall be the Exchange Shares for such series and (ii) if the
market value of the Exchange Shares for such series at the time of election
is less than the aggregate liquidation preference for such series, the
consideration shall be, at the holders' option, either (x) an amount of
cash equal to the aggregate liquidation preference for such series or (y)
the Exchange Shares for such series. If at the end of such period, neither
the holders of the Cable Preferred Stock nor C-TEC Corporation has made any
of the elections described above, then the holders of the Cable Preferred
Stock acting unanimously may elect to sell such stock to C-TEC Corporation
for $52 million.
Twin County provides cable television service to approximately 74,000
subscribers in the Greater Lehigh Valley area of Pennsylvania, situated within
75 miles of the New York, Philadelphia, and Wilkes-Barre metropolitan areas.
Information with respect to Twin County and the historical financial
information of Twin County was provided by Twin County.
ITEM 7. Financial Statements, Pro Forma Financial Information and
Exhibits
(a) Financial Statements of Business to be Acquired
1. Financial Statements of Twin County
as of and for the years ended October 31, 1993
and 1992.
2. Interim Financial Statements (unaudited) of Twin County
as of and for the nine months ended July 31, 1994.
(b) Pro Forma Financial Information
1. Pro Forma Condensed Consolidated Financial Statements
(Unaudited) of C-TEC Corporation taking into
consideration the prior sale of C-TEC Corporation's
cellular business and the pending acquisition of
Twin County.
(c) Exhibits
10. Merger Agreement dated September 23, 1994 among C-TEC
Cable Systems, Inc., C-TEC Cable Systems of Pennsylvania,
Twin County Trans Video, Inc., Bark Lee Yee, Stella C.
Yee, Susan C. Yee, Raymond C. Yee, Kenneth C. Yee and
Robert G. Tallman as trustee for that certain trust
created pursuant to a trust agreement dated December 17,
1992.
SIGNATURES
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 hereunto duly authorized.
C-TEC Corporation
By: /s/ Bruce Godfrey
--------------------------
Name: Bruce Godfrey
Title: Executive Vice President and
Chief Financial Official
Date: November 10, 1994
Item 7(a)(1)
Twin County Trans Video, Inc.
Index to Financial Statements
PAGE NO.
________
INDEPENDENT AUDITOR'S REPORT...................................... F-2
FINANCIAL STATEMENTS
BALANCE SHEETS AS OF
OCTOBER 31, 1993 AND 1992..................................... F-3
OPERATING STATEMENTS FOR THE YEARS ENDED
OCTOBER 31, 1993 AND 1992..................................... F-5
STATEMENTS OF RETAINED EARNINGS AS OF OCTOBER 31, 1993
AND 1992.................................................... F-6
STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED
OCTOBER 31, 1993 AND 1992................................... F-7
NOTES TO FINANCIAL STATEMENTS................................. F-8
INDEPENDENT AUDITOR'S REPORT
Twin County Trans Video, Inc.
5508 Nor-Bath Boulevard
Northampton, Pennsylvania
Gentlemen:
We have audited the accompanying balance sheets of Twin County Trans Video,
Inc. as of October 31, 1993 and 1992, and the related statements of income,
retained earnings, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Twin County Trans Video, Inc.
as of October 31, 1993 and 1992, and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.
As discussed in Note IX to the financial statements, the Company has restated
the financial statements for the years ending October 31, 1993 and 1992.
Very truly yours,
Adams & Associates, P.C.
Edward W. Adams, CPA
Bethlehem, PA
November 9, 1994
TWIN COUNTY TRANS VIDEO, INC.
BALANCE SHEETS
October 31, 1993 and 1992
1993 1992
______________ ______________
Current Assets:
Cash and temporary cash equivalents $ 470,134.77 $ 120,290.86
Accounts receivable (net of allowance
for doubtful accounts of $132,300.00
in 1993 and $89,000.00 in 1992) 605,639.00 386,829.00
Certificate of deposit 101,024.57 174,964.23
Prepaid expenses 212,565.72 215,249.49
Advances to manufacturers 0.00 608,687.45
Inventory 598,922.38 592,817.19
Prepaid taxes 300.00 363.00
Deferred tax assets 1,372,838.37 1,103,640.98
______________ ______________
TOTAL CURRENT ASSETS 3,361,424.81 3,202,842.20
Property, Plant and Equipment:
Land and building 554,236.08 513,236.08
Master antennae 1,628,055.22 1,196,606.60
Trunk and distribution lines 22,626,421.51 20,841,426.82
Microwave equipment 812,557.83 810,557.83
Operating and test equipment 814,220.29 633,821.85
Automotive equipment 1,617,534.88 1,279,182.81
Office furniture and equipment 1,165,362.60 1,115,255.97
Cablecasting and studio equipment 568,313.88 539,556.88
Pay television equipment 7,279,688.96 6,941,929.66
Capitalized drop line costs 2,411,303.92 2,052,409.93
TOTAL PROPERTY, PLANT AND EQUIPMENT 39,477,695.17 35,923,984.43
Less accumulated depreciation and
amortization (22,695,773.85) (20,089,939.17)
______________ ______________
16,781,921.32 15,834,045.26
Construction in progress 382,508.00 409,365.92
Other Assets 745,993.55 724,891.63
Unamortized loan procurement fees (net of
accumulated amortization of $64,720.80 and
$38,999.40 in 1993 and 1992) 180,049.81 205,771.21
Unamortized franchises (net of accumulated
amortization of $119,873.09 and $113,612.87
in 1993 and 1992) 51,906.18 58,166.40
Cash surrender value-officer's life
insurance 1,987,553.79 1,492,415.45
______________ ______________
TOTAL ASSETS $23,491,357.46 $21,927,498.07
============== ==============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THESE FINANCIAL STATEMENTS
TWIN COUNTY TRANS VIDEO, INC.
BALANCE SHEETS
October 31, 1993 and 1992
1993 1992
______________ ______________
Current Liabilities:
Accounts payable $ 1,429,318.60 $ 804,499.22
Accrued payroll and commission 217,899.76 189,819.90
Taxes payable other than income and
capital stock 21,391.19 20,209.17
Income and capital stock taxes 70,397.95 204,593.69
Accrued expenses 601,462.22 562,274.21
Accrued pension expense 298,911.00 267,874.00
Service prepaid by customers 3,121,254.00 2,344,358.00
______________ ______________
TOTAL CURRENT LIABILITIES 5,760,634.72 4,393,628.19
Long term liabilities:
Term loan 11,940,991.11 12,240,991.11
Customer refundable deposits 347,975.00 389,775.00
Deferred tax liability 1,232,926.26 1,162,317.41
______________ ______________
TOTAL LONG TERM LIABILITIES 13,521,892.37 13,793,083.52
Commitments and Contingencies
Stockholders' Equity:
Capital stock - 30,000 Authorized, 3,720.20
issued and outstanding, no par value Common
"A" Non-voting 200,000.00 200,000.00
Capital stock - 10,000 authorized, 5,500
issued and outstanding, no par value
"B" voting 100,000.00 100,000.00
Retained earnings 3,908,830.37 3,440,786.36
______________ ______________
TOTAL STOCKHOLDERS' EQUITY 4,208,830.37 3,740,786.36
______________ ______________
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $23,491,357.46 $21,927,498.07
============== ==============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THESE FINANCIAL STATEMENTS
TWIN COUNTY TRANS VIDEO, INC.
OPERATING STATEMENTS
For The Years Ended October 31, 1993 and 1992
1993 1992
_______________ _______________
Income:
Sales $ 19,999,070.70 $ 18,266,670.76
Operating Expenses:
Payroll 1,811,739.30 1,878,373.90
Employee benefits 480,126.60 379,519.75
Program expense 2,916,512.52 2,705,431.70
Pole rental 305,593.91 281,983.21
Maintenance 2,123,549.82 1,843,609.68
Operating Overhead 1,106,195.02 1,226,641.52
Vehicle expense 216,146.29 187,113.84
Abandonment of cable and equipment 1,507,660.31 1,043,608.21
Amortization, installations and
franchises 153,861.18 179,703.47
Depreciation, fixed assets 2,664,680.55 2,314,306.13
_______________ _______________
13,286,065.50 12,040,291.41
Selling and Administrative Expenses:
Payroll 1,147,047.72 995,842.42
Employee benefits 283,499.09 229,490.36
Selling expense 715,527.51 598,171.32
General business expense 491,286.85 264,905.06
Provision for Doubtful Accounts 349,118.80 573,948.50
Professional services 174,994.56 196,676.23
Franchise taxes 1,252,284.52 1,122,108.18
Taxes Other than Income 133,642.08 (399,782.26)
Office expense 599,937.42 520,695.56
Amortization, loan procurement fees 25,721.40 38,999.40
_______________ _______________
5,173,059.95 4,141,054.77
Operating Income 1,539,945.25 2,085,324.58
Other income and (expenses):
Interest expense (801,637.31) (869,400.33)
Interest income 15,598.82 15,890.18
Gain on insurance proceeds 0.00 13,076.45
Write-off of unamortized
loan procurement fees 0.00 (143,974.31)
_______________ _______________
Income before taxes 753,906.76 1,100,916.57
Provision for income taxes (285,862.75) (477,950.01)
_______________ _______________
Net income $ 468,044.01 $ 622,966.56
=============== ===============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THESE FINANCIAL STATEMENTS
TWIN COUNTY TRANS VIDEO, INC.
STATEMENTS OF RETAINED EARNINGS
October 31, 1993 and 1992
1993 1992
_____________ _____________
Balance retained earnings - beginning
November 1, 1992 and November 1, 1991 $3,440,786.36 $2,817,819.80
Profit: Twelve months ended October 31,
1993 and 1992 468,044.01 622,966.56
Balance retained earnings - ending
October 31, 1993 and 1992 3,908,830.37 3,440,786.36
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THESE FINANCIAL STATEMENTS
TWIN COUNTY TRANS VIDEO, INC.
STATEMENTS OF CASH FLOWS
Years Ended October 31, 1993 and 1992
1993 1992
_____________ _____________
Cash Flows from Operating Activities:
Net income $ 468,044.01 $ 622,966.56
Adjustment to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 2,844,263.13 2,533,009.00
(Increase) decrease in accounts
receivable (262,110.00) 200,403.00
Increase (decrease) in allowance
for doubtful accounts 43,300.00 (36,000.00)
(Increase) decrease in certificate
of deposits 73,939.66 239,069.10
(Increase) decrease in prepaid
operating expenses and prepaid
taxes (18,355.15) 54,241.04
Decrease in advances to manufacturers 608,687.45 76,742.80
(Increase) in inventory (6,105.19) (25,199.59)
(Increase) in deferred tax assets (269,197.39) (175,467.09)
(Increase) in cash surrender
- officer's life (495,138.34) (545,164.54)
Increase (decrease) in current
liabilities 1,367,006.53 (150,688.82)
Increase (decrease) in refundable
deposits (41,800.00) 62,407.75
Increase in deferred tax liability 70,603.85 65,652.51
Write off of loan procurement fees 0.00 143,974.31
Gain on insurance proceeds 0.00 (13,076.45)
Abandonment of cable and equipment 1,507,660.31 1,043,608.21
_____________ _____________
NET CASH PROVIDED BY OPERATING ACTIVITIES 5,890,798.87 4,096,477.79
Cash Flows Used By Investing Activities:
Net capital expenditures (5,240,954.96) (4,205,808.48)
_____________ _____________
NET CASH USED BY INVESTING ACTIVITIES (5,240,954.96) (4,205,808.48)
Cash Flows Provided by (Used In) Financing
Activities:
Net borrowings (repayments) under line
of credit (300,000.00) 115,991.11
_____________ _____________
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES (300,000.00) 115,991.11
Net increase in cash and
temporary cash equivalents 349,843.91 6,660.42
Cash and cash equivalents-beginning of
year 120,290.86 113,630.44
_____________ _____________
Cash and cash equivalents - end of year $ 470,134.77 $ 120,290.86
============= =============
Additional disclosures:
Cash paid for income taxes $ 635,968.00 450,991.00
Cash paid for interest $ 798,380.57 867,571.00
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THESE FINANCIAL STATEMENTS
TWIN COUNTY TRANS VIDEO, INC.
NOTES TO FINANCIAL STATEMENTS
October 31, 1993 and 1992
FOOTNOTE I - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Twin County Trans Video, Inc. (the Company), is a Pennsylvania C Corporation.
Its financial statements are reported on the accrual basis. The Company uses
an October 31 fiscal year for both financial statements and tax reporting.
The Company supplies cable television services, including local origination
television programming, to the Greater Lehigh Valley area. Receivables
are based over a concentrated geographic and homogeneous grouping.
The Company adheres to accounting policies and procedures set forth in
Statement of Financial Accounting Standard No. 51, Financial Reporting by
Cable Television Companies.
The Company maintains money market accounts at financial institutions over the
F.D.I.C. insured limits.
Cash Flows
For purposes of reporting cash flows, the Company considers all highly liquid
investments purchased with an original maturity of six months or less to be
temporary cash equivalents.
Inventory
Inventory is carried at lower of average cost or market and consists of
material, parts and other various items regularly used in the construction of
Cable Television facilities.
Property, Plant and Equipment
Property, plant and equipment is carried at original cost less accumulated
depreciation. Trunk and distribution lines reflect original cost of
construction, including payroll and related employee benefits and other
general administrative costs. Removal of these lines is based on average
cost.
Depreciation is calculated using the straight line method based on estimated
useful lives of various depreciable property as follows:
Building and improvements 15 - 40 years
Cable lines and equipment 7 - 10 years
Automobiles 5 years
Other equipment 10 years
Gain or loss is recognized on major retirements and dispositions. Major
replacements and betterments are capitalized. Repairs of property, plant and
equipment and minor replacements and renewals are expensed as incurred.
Amortization
The Company amortizes the cost of drop lines and franchises over their useful
life with a maximum life of 40 years. The Company also amortizes the cost to
originate the line of credit over the life of the loan.
Cash Surrender Value - Officers Life Insurance
At October 31, 1993 and 1992, the C.S.V. of Officers Life Insurance policies
amount to $1,987,553.79 and $1,492,415.45 respectively. The increase in cash
value each year is netted against the premiums paid and included in General
Business expense. The policies' beneficiaries assigned to the Company the
cash value of the policies under a revocable limited assignment.
FOOTNOTE II
Other Assets
Other assets consist of prepaid fees under apartment service contracts and
equipment maintenance agreements.
FOOTNOTE III
Taxes Payable other than Income
1993 1992
_____________ _____________
Withheld and accrued payroll tax $ 9,070.80 $ 7,508.00
Pennsylvania sales and accrued use tax 12,320.39 12,701.17
_____________ _____________
$ 21,391.19 $ 20,209.17
FOOTNOTE IV
Income Taxes
Effective November 1, 1992 the Company adopted Statement of Financial
Accounting Standards No. 109 "Accounting for Income Taxes" ("SFAS 109"). The
cumulative effect on prior years of the change to this new standard is
reported in prior years' financial statements that have been restated to apply
provisions of SFAS 109.
The adoption of SFAS 109 changes the Company's method of accounting for income
taxes from the deferred approach to an asset and liability approach. The
asset and liability approach requires the recognition of deferred tax assets
and liabilities for the expected future tax consequences of temporary
differences between financial reporting basis and tax basis of assets and
liabilities.
Income Taxes cont'd
The Provision (Benefit) for Income Taxes Consists of the Following:
1993 1992
__________ __________
Current payable -
Federal $ 343,992 $ 539,303
State 140,510 159,927
__________ __________
Total Current 484,502 699,230
Deferred, net -
Federal (139,047) (154,896)
State ( 59,592) ( 66,385)
__________ __________
Total Deferred (198,639) (221,280)
Provision for income taxes $ 285,863 $ 477,950
========== ==========
Temporary differences and carryforwards which give rise to a significant
portion of deferred tax assets and liabilities at October 31, 1993 are as
follows:
Deferred Tax Deferred Tax
Assets Liability
__________ __________
Benefit plans $ 138,994 $ 0
Property, plant and equipment 0 1,232,926
Intangible assets 99,510 0
Customer prepaids and receivables 1,134,334 0
__________ __________
Subtotal 1,372,838 1,232,926
Valuation allowance 0 0
__________ __________
Total Deferred Taxes $1,372,838 $1,232,926
========== ==========
In the opinion of management, based on the future reversal of existing taxable
temporary differences, primarily depreciation, and its expectations of future
operating results, the Company will realize substantially all of its deferred
tax assets.
Reconciliations of the differences between income taxes computed at federal
statutory tax rates and provisions for income taxes are as follows:
1993 1992
__________ __________
Income taxes computed at federal statutory
tax rate $ 207,985 $ 370,455
State tax provisions 103,236 117,624
Prior year credits ( 25,358) ( 10,129)
__________ __________
$ 285,863 $ 477,950
========== ==========
In 1993 and 1992, the provision for deferred income taxes of $(198,639) and
$(221,280), respectively, were provided for significant timing differences in
recognition of revenue and expense for tax and financial statement purposes
which consisted primarily of timing differences between book and tax
depreciation.
At October 31, 1993, the cumulative minimum tax credit was $5,535. This
amount can be carried forward indefinitely to reduce regular tax liabilities
that exceed the AMT in future years.
FOOTNOTE V
Long Term Debt
In August of 1992, the Company entered into a financial arrangement with First
Union National Bank of North Carolina. An $18,600,000 reducing revolver
credit line with interest at prime plus .5% was established at this time. At
October 31, 1993, the outstanding loan amount was $11,940,991.11 all of which
is considered long term with a total commitment of $17,300,000 at October 31,
1993 and $18,350,000 at October 31, 1992. Payout of the remaining balance is
based upon a pre-determined schedule that is based upon the balance
outstanding under the line. At the present level, no repayment of principal
is presently due. The line is collateralized by inventory, accounts
receivable, and fixed assets of the Company. In addition, the Company has
available a $2,500,000 standby letter of credit facility with First Union
National Bank of North Carolina.
The retirement of debt is as follows:
Year Ended
October 31, Amount
___________ _______________
1994 $ 0.00
1995 0.00
1996 0.00
1997 2,240,991.11
1998 2,900,000.00
1999 and Thereafter 6,800,000.00
_______________
$ 11,940,991.11
===============
The Company is in compliance with various covenants set forth as terms and
conditions of the loan agreement, the most restrictive of which is maintenance
of minimum operating cash flow.
In 1992 the Company refinanced its existing line of credit and wrote off the
remaining balance of loan procurement fees of $143,974.31.
FOOTNOTE VI
Retirement Plans
The Company's defined benefit pension plan covers the majority of its
employees. Aggregate pension costs for fiscal 1993 and 1992 were $168,964 and
$177,985 respectively. The plan provides for benefits based on compensation
earned during the five years of service immediately preceding retirement. The
Company's actuarial cost method for its plan is the unit benefit cost method.
The plan has adopted a fiscal year ending February 28. Actuarial assumptions
and calculations are performed annually. Balances at October 31 are estimates
derived by utilization of straight line amortization.
The Company's funding policy for retirement plans is consistent with the
relevant governmental and tax regulations. The pre-retirement rate of return
is 8% and post retirement return is 7%. An interest cost of 8% was used in
the actuarial calculations of the projected benefit obligation. The
compensation rate increase was calculated at 1% each year.
Plan assets consist primarily of pooled funds under management by an insurance
company.
Pension cost for the defined benefit plan of the Company includes the
following components:
October 31, October 31,
1993 1992
__________ __________
Service cost-benefits earned during the year $ 114,573 $ 15,157
Interest cost on projected benefit obligation 113,391 121,587
Net (increase) decrease in fair value of
plan's assets ( 59,000) ( 58,759)
__________ __________
Net Pension Cost $ 168,964 $ 177,985
========== ==========
The plan's status at October 31, 1993 and 1992 was as follows:
October 31, October 31,
1993 1992
__________ __________
Vested benefits $1,495,333 $ 1,283,210
Nonvested benefits 35,588 7,661
__________ __________
Accumulated benefit obligation $1,530,921 $ 1,290,871
Projected benefit obligation 1,684,005 1,417,391
Plan assets at fair value 1,385,094 1,149,517
__________ __________
Plan Assets in Excess of (Less Than)
Projected Benefits Obligations $( 298,911) $( 267,874)
========== ==========
FOOTNOTE VII
Related Party Transactions
The Company leases storage space from a partnership which has common ownership
with the Company. The lease is month to month at a payment monthly of $3,000.
The Company has paid the Pennsylvania Capital Franchise Tax for a related
corporation which is inactive. The annual payment of $300 has been expensed
each year.
The Company leases storage and office space from a stockholder at $800
monthly. The lease is month to month.
FOOTNOTE VIII
In years prior to fiscal 1992, the Company retired 19,425 shares of treasury
stock purchased at a cost of $1,717,850.90 and related warrants at a cost of
$1,000,000.00. While not formally retired, management has deemed these shares
and warrants as constructively retired and has charged the cost of repurchase
to retained earnings.
FOOTNOTE IX
The Company has restated the financial statements for the fiscal years ended
October 31, 1993 and 1992 to reflect methods of accounting for deferred income
taxes, pension benefits, prepayments by customers, bad debts, and
depreciation of plant and equipment in accordance with generally accepted
accounting principles. The effect of these restatements is as follows:
AS REPORTED RESTATED
1992 1993 1992 1993
___________ ___________ ___________ ___________
Current assets $ 2,075,018 $ 1,724,436 $ 3,202,842 $ 3,361,425
Total assets 18,431,670 19,372,575 21,927,498 23,491,357
Current liabilities 1,781,396 2,367,452 4,393,628 5,760,635
Long term liabilities 12,630,766 12,288,966 13,793,084 13,521,892
Stockholders' equity 4,019,508 4,716,157 3,740,788 4,208,830
Sales 18,159,473 20,191,696 18,266,671 19,999,071
Operating income 1,746,235 2,499,201 2,085,325 1,539,945
Provision for income taxes 389,505 342,212 477,950 285,863
Net income 756,097 664,295 622,967 468,044
Item 7(a)(2)
Twin County Trans Video, Inc.
Index to Interim
Financial Statements
(Unaudited)
PAGE NO.
________
BALANCE SHEET................................................. 2
INCOME STATEMENT.............................................. 4
STATEMENT OF RETAINED EARNINGS................................ 5
STATEMENT OF CASH FLOWS....................................... 6
NOTES TO INTERIM FINANCIAL STATEMENTS......................... 7
TWIN COUNTY TRANS VIDEO, INC.
BALANCE SHEET
July 31, 1994
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and temporary cash equivalents $ 947,193.56
Accounts receivable (Net of allowance for doubtful
accounts of $132,300) 645,026.00
Certificates of Deposit 503,521.40
Prepaid expenses 402,185.71
Inventory 612,632.67
Prepaid taxes 9,889.78
Deferred tax asset 1,389,798.42
_______________
TOTAL CURRENT ASSETS 4,510,247.54
===============
PROPERTY PLANT AND EQUIPMENT
Land and building $ 742,216.08
Master antennae 1,666,109.47
Trunk and distribution lines 25,122,151.75
Microwave equipment 812,557.83
Operating and test equipment 748,547.96
Automotive equipment 1,751,098.60
Office furniture and equipment 1,237,993.77
Cablecasting and studio equipment 570,278.87
Pay television equipment 7,454,990.96
Capitalized drop line costs 2,411,303.92
_______________
TOTAL 42,517,249.21
Less: Accumulated depreciation (24,479,658.40) 18,037,590.81
Construction in progress _______________ 12,907.84
Other Assets 717,917.54
Unamortized loan procurement fees (Net of
accumulated amortization of $84,011.85) 160,758.76
Unamortized franchises (Net of accumulated
amortization of $126,133.31) 45,645.96
Cash surrender value - Officer's Life Insurance 2,200,118.36
_______________
TOTAL ASSETS $ 25,685,186.81
===============
TWIN COUNTY TRANS VIDEO, INC.
BALANCE SHEET
July 31, 1994
(Unaudited)
LIABILITIES & STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,172,903.81
Accrued payroll and commission 163,949.31
Taxes payable other than income and
capital stock 68,996.51
Income and capital stock taxes 39,257.95
Accrued expenses 1,317,250.71
Accrued pension expense 329,124.00
Service prepaid by customers 3,654,688.00
_______________
TOTAL CURRENT LIABILITIES 6,746,170.29
LONG TERM LIABILITIES
Term line 11,940,991.11
Customer refundable deposits 324,725.00
Deferred tax liability 1,372,191.90
_______________
TOTAL LIABILITIES 20,384,078.30
STOCKHOLDER'S EQUITY
Capital Stock, 30,000 authorized,
3720.20 issued and outstanding, no
par value-Common "A" Non-voting $ 200,000.00
Capital Stock, 10,000 authorized,
5,500 issued and outstanding, no
par value-Common "B" Voting 100,000.00
Retained earnings 5,001,108.51
______________
TOTAL STOCKHOLDER'S EQUITY 5,301,108.51
_______________
TOTAL LIABILITIES & STOCKHOLDER'S EQUITY $ 25,685,186.81
===============
TWIN COUNTY TRANS VIDEO, INC.
STATEMENT OF INCOME
For The Nine Months Ended July 31, 1994
(Unaudited)
INCOME
Sales $ 18,208,084.24
OPERATING EXPENSES
Payroll $ 1,623,227.75
Employee benefits 447,105.21
Program expense 2,612,798.83
Pole rental 238,214.55
Maintenance 1,404,627.04
Operating overhead 452,530.32
Vehicle expense 176,672.07
Abandonment of cable and equipment 1,338,871.81
Amortization, installations and
franchises 193,882.73
Depreciation, fixed assets 2,026,981.76 10,514,912.07
______________ _____________
7,693,172.17
SELLING & ADMINISTRATIVE EXPENSES
Payroll 1,139,388.59
Employee benefits 291,805.17
Selling expense 526,505.12
General business expense 370,057.93
Provision for Doubtful Accounts 665,884.00
Professional services 212,687.97
Franchise taxes 1,320,841.57
Taxes other than income 214,826.35
Office expense 420,109.88
Amortization, loan procurement fees 19,291.05 5,181,397.63
______________ _____________
OPERATING INCOME 2,511,774.54
OTHER INCOME & (EXPENSES)
Interest income 19,780.33
Interest expense ( 641,886.71)
_____________
INCOME BEFORE TAXES 1,889,668.16
Provision for income taxes ( 797,390.02)
_____________
NET INCOME TO RETAINED EARNINGS $1,092,278.14
=============
TWIN COUNTY TRANS VIDEO, INC.
STATEMENT OF RETAINED EARNINGS
July 31, 1994
(Unaudited)
Balance Retained Earnings - November 1, 1993 $3,908,830.37
Profit: Nine Months Ended July 31, 1994 1,092,278.14
_____________
Retained Earnings - July 31, 1994 $5,001,108.51
=============
TWIN COUNTY TRANS VIDEO, INC.
STATEMENT OF CASH FLOWS
Nine Months Ended July 31, 1994
(Unaudited)
Cash Flows From Operating Activities:
Net Income $1,092,278.14
Adjustment to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,240,155.53
(Increase) in accounts receivable ( 39,387.00)
(Increase) in certificate of deposits (402,496.83)
(Increase) in prepaid operating expenses,
prepaid taxes and other assets (171,133.76)
(Increase) in inventory ( 13,710.29)
(Increase) in deferred tax assets ( 16,960.05)
(Increase) in cash surrender-officer's life (212,564.57)
Increase in current liabilities 985,535.57
(Decrease) in refundable deposits ( 23,250.00)
Increase in deferred tax liability 139,265.64
Abandonment of cable and equipment 1,338,871.81
_______________
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,916,604.19
Cash Flows Used by Investing Activities:
Net capital expenditures $( 4,439,545.40)
_______________
NET CASH USED BY INVESTING ACTIVITIES ( 4,439,545.40)
Cash Flows From Financing Activities:
Net borrowings (repayments)under line-of-credit 0.00
_______________
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 0.00
_______________
Net increase in cash and temporary cash equivalent 477,058.79
Cash and cash equivalents - beginning of year 470,134.77
_______________
Cash & cash equivalents end of nine months $ 947,193.56
===============
Additional Disclosures:
Cash paid for income taxes $ 268,300.00
Cash paid for interest $ 400,821.00
Twin County Trans Video, Inc.
Notes to Interim Financial Statements
July 31, 1994
(a) The Interim Financial Statements included herein have been
prepared by Twin County, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. However, in
the opinion of the Management of Twin County, the Interim Financial
Statements include all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the financial information. The
Interim Financial Statements should be read in conjunction with Twin
County's 1993 and 1992 financial statements and notes thereto included
herein.
Item 7(b)(1)
PRO FORMA FINANCIAL STATEMENTS
In addition to the transaction described in Item 5 of this Form
8-K, on September 26, 1994, C-TEC Corporation (the "Company") filed a Form
8-K to announce the completion, on September 9, 1994, of the sale of its
cellular properties and business to an affiliate of Independent Cellular
Network, Inc. The proceeds were $182.5 million, subject to certain
adjustments to be made within ninety days after closing estimated to result
in approximately $7 million of additional proceeds. The proceeds from the
disposition were received in cash, subject to certain escrow reserves and
holdbacks of approximately $16 million.
The following unaudited Pro Forma Condensed Consolidated Balance
Sheet as of June 30, 1994 gives effect to the disposition of cellular
properties and the pending acquisition of Twin County (the "transactions")
as though they had occurred on June 30, 1994. The following unaudited Pro
Forma Condensed Consolidated Statements of Operations for the six months
ended June 30, 1994 and the year ended December 31, 1993 give effect to the
transactions as though they had occurred on January 1, 1993. These pro
forma financial statements should be read in conjunction with (i) Twin
County's historical financial statements and notes thereto included in this
Current Report on Form 8-K and (ii) the Company's historical consolidated
financial statements and notes thereto contained in the Company's Annual
Report on Form 10-K for the year ended December 31, 1993, as amended on
October 28, 1994 and as further amended on November 10, 1994, and in the
quarterly report on Form 10-Q for the six months ended June 30, 1994, as
amended on October 28, 1994. The Pro Forma Condensed Consolidated
Statements of Operations and Balance Sheet are not necessarily indicative
of the actual results of operations or financial position which would have
been reported if the transactions had occurred on the respective dates
referred to above nor do they purport to indicate the results of future
operations or financial position of the Company. In the opinion of
management, all adjustments necessary to present fairly such pro forma
financial statements have been made.
<TABLE>
<CAPTION>
C-TEC Corporation
Pro Forma Condensed Consolidated Balance Sheet
(Dollars in Thousands)
(Unaudited)
Twin County Twin County
C-TEC Trans Video, Inc. July Trans Video, Inc.
Corporation June Cellular Disposition 31, 1994 Acquisition
30, 1994 (Actual) Adjustments(a) (Actual)(e) Adjustments(b) Pro Forma
------------------ --------------------- ---------------------- ------------------ ----------
<S> <C> <C> <C> <C> <C>
Current Assets
Cash and temporary cash
investments $47,328 $124,779 $947 $(47,500) $125,554
Other current assets 48,811 12,783 2,173 - 63,767
Deferred income taxes 3,134 (27) 1,390 - 4,497
-------- -------- -------- -------- --------
Total current assets 99,273 137,535 4,510 (47,500) 193,818
-------- -------- -------- -------- --------
Property, Plant and Equipment
Telephone plant 388,430 - - - 388,430
Cable plant 180,902 - 40,119 - 221,021
Mobile and Cellular Plant 30,468 (27,797) - - 2,671
Other property, plant and equipment 12,143 - - - 12,143
-------- -------- -------- -------- --------
Total property, plant and equipment 611,943 (27,797) 40,119 - 624,265
Accumulated depreciation 264,040 (9,121) 23,948 (23,948) 254,919
-------- -------- -------- -------- --------
Net property, plant and equipment 347,903 (18,676) 16,171 23,948 369,346
-------- -------- -------- -------- --------
Investments 14,771 (1,283) - - 13,488
-------- -------- -------- -------- --------
Intangible Assets, Net 91,669 (33,236) 45 109,177 167,655
-------- -------- -------- -------- --------
Deferred Charges 17,249 - 4,959 (2,200) 20,008
-------- -------- -------- -------- --------
Total Assets $570,865 84,340 $25,685 $83,425 $764,315
======== ======== ======== ======== ========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current Liabilities
Current maturities of long-term
debt and preferred stock $9,449 ($421) - - $9,028
Advance billings and customer
deposits 8,526 (326) $3,655 - 11,855
Accrued taxes 11,684 - - - 11,684
Accrued interest 6,567 (37) - - 6,530
Other current liabilities 34,513 (3,215) 2,762 - 34,060
-------- -------- -------- -------- --------
Total current liabilities 70,739 (3,999) 6,417 - 73,157
-------- -------- -------- -------- --------
Long-Term Debt 386,187 (1,306) 11,941 $4,000 400,822
-------- -------- -------- -------- --------
Deferred Income Taxes and Investment
Tax Credits 30,572 14,698 1,372 32,726 79,368
-------- -------- -------- -------- --------
Other Deferred Credits 19,718 - 654 - 20,372
-------- -------- -------- -------- --------
Minority Interest 2,448 (2,448) - - -
-------- -------- -------- -------- --------
Exchangeable Preferred Stock
of a Subsidiary - - - 52,000 52,000
Redeemable Preferred Stock 274 - - - 274
-------- -------- -------- -------- --------
Common Shareholders' Equity
Common Stock 16,887 - 300 (300) 16,887
Additional paid-in capital 20,635 - - - 20,635
Retained earnings 28,693 77,395 5,001 (5,001) 106,088
Treasury stock at cost, 377,842
shares at June 30, 1994 (5,288) - - - (5,288)
-------- -------- -------- -------- --------
Total Shareholders' Equity 60,927 77,395 5,301 (5,301) 138,322
-------- -------- -------- -------- --------
Total Liabilities and Shareholders'
Equity $570,865 $84,340 $25,685 $83,425 $764,315
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Pro Forma Condensed Consolidated Statement of Operations
For the Six Months Ended June 30, 1994
(Dollars in Thousands Except Per Share Amounts)
(Unaudited)
C-TEC Twin County
Corporation Six Trans Video, Inc. Twin County
Months Ended Cellular Six Months Ended Trans Video, Inc.
June 30, 1994 Disposition April 30, 1994 Acquisition Pro
(actual) Adjustments (c) (actual) (e) Adjustments (f) Forma (d)
---------------- --------------- ---------------- ----------------- ----------
<S> <C> <C> <C> <C> <C>
Sales $145,114 $(13,785) $11,945 - $143,274
Costs & Expenses 123,551 (12,264) 9,892 $6,315 127,494
-------- -------- -------- -------- --------
Operating Income 21,563 (1,521) 2,053 (6,315) $15,780
Interest Income 1,250 (40) 10 - 1,220
Interest Expense (16,333) 79 (418) (100) (16,772)
Gain on Sale of certain
Pennsylvania Cable 893 - - - 893
Properties
Other Income, Net 613 3 - - 616
-------- -------- -------- -------- --------
Income (Loss) Before Income Taxes 7,986 (1,479) 1,645 (6,415) 1,737
Provision for Income Taxes 3,973 (1,008) 775 (2,245) 1,495
-------- -------- -------- -------- --------
Income (Loss) Before Minority Interest
and Equity in Unconsolidated Entities 4,013 (471) 870 (4,170) 242
Preferred Dividends and Minority Interest
in Income of Consolidated Entities (476) 429 - (1,300) (1,347)
Equity in Income of Unconsolidated Entities 281 (91) - - 190
-------- -------- -------- -------- --------
Income (Loss) Available for Common Stock Before
Extraordinary Charge and Cumulative Effect of
Accounting Principle Change (g) $3,818 $(133) $870 $(5,470) $(915)
======== ======== ======== ======== ========
Earnings (Loss) Per Average Common Share:
Income before extraordinary charge and
cumulative effect of accounting principle change $.23 $(.06)
======== ======== ======== ======== ========
Average Common Shares Outstanding 16,509,593 16,509,593
</TABLE>
<TABLE>
Pro Forma Condensed Consolidated Statement of Operations
For the Year Ended December 31, 1993
(Dollars in Thousands Except Per Share Amounts)
(Unaudited)
Twin County
C-TEC Corporation Trans Video, Inc. Twin County
Year Ended Cellular Year Ended Trans Video, Inc.
December 31, 1993 Disposition October 31, 1993 Acquisition
(actual) Adjustments (c) (actual) (e) Adjustments (f) Pro Forma (d)
----------------- --------------- ----------------- ----------------- -------------
<S> <C> <C> <C> <C> <C>
Sales $283,987 $(22,570) $19,999 $281,416
Costs & Expenses 244,421 (22,924) 18,433 $ 12,766 252,696
Nonrecurring Charges 5,025 - - - 5,025
-------- -------- -------- -------- --------
Operating Income 34,541 354 1,566 (12,766) 23,695
Interest Income 1,609 - 15 - 1,624
Interest Expense (34,204) 184 (827) (200) (35,047)
Gain on Sale of Marketable
Equity Securities 1,988 - - - 1,988
Other Income, Net 1,408 (62) - - 1,346
-------- -------- -------- -------- --------
Income (Loss) Before Income Taxes 5,342 476 754 (12,966) 6,394
Provision for Income Taxes 10,714 (830) 286 (4,408) 5,762
-------- -------- -------- -------- --------
Income (Loss) Before Minority Interest
and Equity in Unconsolidated
Entities (5,372) 1,306 468 (8,558) (12,156)
Preferred Dividends and Minority
Interest in income of
Consolidated Entities (341) 256 - (2,600) (2,685)
Equity in Income of Unconsolidated
Entities 227 (155) - - 72
-------- -------- -------- -------- --------
Income (Loss) Available for Common Stock
Before Extraordinary Charge and
Cumulative Effect of Accounting
Principle Change (g) (5,486) $1,407 $468 $(11,158) $(14,769)
======== ======== ======== ======== ========
Earnings (Loss) Per Average
Common Share:
Income before extraordinary
charge and cumulative effect
of accounting principal change $(.33) $(.89)
======== ======== ======== ======== ========
Average Common Shares Outstanding 16,506,494 16,506,494
</TABLE>
Notes to Pro Forma Condensed Consolidated Financial Statements
(a) Adjustments to record the disposition of certain cellular
properties. The adjustments assume that the sales proceeds, net of certain
escrow reserves and holdbacks discussed below and net of income taxes
estimated to be payable after the utilization of certain net operating loss
carryforwards, are retained as temporary cash investments. The escrow
reserves and holdbacks of approximately $16 million are included in other
current assets. The adjustments assume the realization of deferred tax
assets of approximately $21 million, representing the tax benefits
associated with the utilization of approximately $54.7 million federal net
operating loss carryforwards and approximately $18.9 million state net
operating loss carryforwards. The final resolution of the Company's
current IRS examination may impact the utilization of net operating loss
carryforwards. Adjustments also assume a reduction in a related valuation
allowance for deferred tax assets of approximately $6 million. An after-
tax gain of approximately $71 million was assumed to be recognized on the
sale. Certain working capital adjustments to the sales price to be made
ninety days after closing were estimated to be approximately $7 million
based on the historical asset and liability balances at June 30, 1994.
(b) Adjustments to reflect the pending acquisition of Twin
County. The adjustments assume that the consideration for the acquisition
will be cash of approximately $47.5 million, a promissory note of $4
million, and exchangeable preferred stock of C-TEC Cable Systems, Inc. with
a liquidation preference of $52 million (the "Cable Preferred Stock"). The
purchase price will reflect the fair value of the consideration for the
pending acquisition; such fair value may differ from assumptions used in the
preparation of the pro forma statements. The purchase price has been
allocated based on assumptions of the fair values of the tangible
and identifiable intangible assets acquired and liabilities assumed.
(c) Adjustments to eliminate the historical results of operations of
certain cellular properties. Corporate overhead allocated to cellular
operations has not been eliminated because that overhead would have been
reallocated to other business segments.
(d) The Pro Forma Consolidated Statements of Operations exclude a
non-recurring after-tax gain of approximately $71 million expected to be
realized on the sale, and the reversal of a valuation allowance for deferred
tax assets of approximately $6 million.
(e) Twin County has a fiscal year ending October 31.
Twin County's most recent interim historical balance sheet as of July 31,
1994 is included in the pro forma condensed consolidated balance sheet. Twin
County's statement of operations for the year ended October 31, 1993 is
included in the pro forma condensed consolidated statement of operations for
the year ended December 31, 1993. Twin County's results of operations for the
six months ended April 30, 1994 which are included in the pro forma condensed
consolidated statement of operations for the six months ended June 30, 1994
were derived from its most recent interim historical statement of operations
for the nine months ended July 31, 1994, as follows:
<TABLE>
Nine Months Six Months
Ended Ended
July 31, 1994 Adjustments April 30, 1994
---------------- -------------- -----------------
<S> <C> <C> <C>
Sales $18,208 $(6,263) $11,945
Costs & Expenses 15,677 (5,785) 9,892
---------------- -------------- -----------------
Operating Income 2,531 (478) 2,053
Interest Income 20 (10) 10
Interest Expense (661) 243 (418)
Gain on sale of certain Pennsylvania Cable Properties - - -
Other Income, net - - -
---------------- -------------- -----------------
Income Before Income Taxes 1,890 (245) 1,645
Provision for Income Taxes 797 (22) 775
---------------- -------------- -----------------
Income Before Minority Interest and Equity in
Unconsolidated Entities 1,093 (223) 870
Equity in Income of Unconsolidated Entities - - -
Minority Interest in Income of Consolidated Entities - - -
---------------- -------------- -----------------
Income Before Extraordinary Charge and Cumulative
Effect of Accounting Principle Changes $1,093 $(223) $870
================ ============== =================
</TABLE>
(f) Adjustments to record additional depreciation and amortization
resulting from Twin County purchase price allocation and to increase
interest expense associated with a $4 million promissory note and to record
dividends of 5% on the $52 million of Cable Preferred Stock issued in
connection with the acquisition.
(g) For information purposes only, since 1989 C-TEC has maintained a
policy of not paying cash dividends. C-TEC does not intend to alter this
policy in the foreseeable future.
Exhibit 10
MERGER AGREEMENT
THIS MERGER AGREEMENT (the "AGREEMENT"), entered into as of September
23, 1994, between C-TEC Cable Systems, Inc., a Delaware corporation ("C-TEC"),
C-TEC Cable Systems of Pennsylvania, Inc., a Pennsylvania corporation
("Subsidiary"), TWIN COUNTY TRANS VIDEO, INC., a Pennsylvania corporation (the
"Company"), and Bark Lee Yee, Stella C. Yee, Susan C. Yee, Raymond C. Yee,
Kenneth C. Yee and Robert G. Tallman as trustee for that certain trust created
pursuant to trust agreement dated December 17, 1992 (such individuals and
trustee referred to individually as a "Shareholder" and in the aggregate as
the "Shareholders").
RECITALS
A. The Company is in the business of owning and operating cable
television systems;
B. The Shareholders are the holders of record of all of the issued
and outstanding capital stock of the Company;
C. C-TEC, Subsidiary, the Company and the Shareholders desire to
enter into a Merger and Plan of Merger regarding their various businesses;
D. In connection with the foregoing, the Boards of Directors of
C-TEC, Subsidiary and the Company have approved and by appropriate resolutions
authorized a merger of the Company with and into Subsidiary (the "Merger"),
upon the terms and conditions set forth in this Agreement, which includes the
Plan of Merger (the "Plan of Merger") as set forth in Exhibit A attached
hereto and made a part hereof;
E. The consummation of the Merger pursuant to the Plan of Merger is
conditioned, among other things, upon the fulfillment or performance on or
before the Closing Date (as defined herein) of the conditions set forth in
this Agreement; and
F. Pursuant to the Agreement, the Shareholders agree to vote all of
their shares in favor of the Merger and the Plan of Merger and also make the
representations, warranties and covenants set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. The following terms, as used in this Agreement, have
the following meanings (each such meaning to be equally applicable to both the
singular and plural forms of the respective terms so defined):
Affiliate: when used with reference to a specified Person, any Person
that is a spouse, parent, grandparent, lineal descendant, sibling or
other relative of such Person or any Person that, directly or
indirectly, through one or more intermediaries, controls, or is
controlled by, or is under common control with, the specified Person.
Business Day: any day except a Saturday, Sunday or other day on which
commercial banks are required or authorized to close in New York.
Buy-Sell Agreement: as defined in Section 3.3(1).
CAP: as defined in Section 2.4.
CAP Assets: as defined in Section 3.10.
Capital Stock: the Class A non-voting and Class B voting shares of
common stock and any other shares of capital stock of the Company that
may be authorized from time to time.
CATV Franchise: an initial authorization, or any renewal thereof,
issued by a governmental entity empowered by federal, state or local law
to grant such an authorization is designated as a franchise, permit,
license, resolution, contract, certificate, agreement, or otherwise,
which authorizes the construction or operation of a cable system (as
defined by 47 U.S.C. 522(7)), or any approval of such an authorization
or renewal thereof, issued by a governmental entity empowered by state
or local law to approve such authorization of renewal thereof.
CATV Instruments: as defined in Section 3.10.
CATV System: a community antenna and cable television system that is
the subject of the transaction contemplated by this Agreement, which
includes any facility owned, operated, used or usable, in whole or in
part, by the Company that in whole or in part receives, directly or
indirectly, over or off-the-air, signals transmitting (visual and/or
sound) programs broadcast or originated by others or originated
internally, without change or with amplification or other modifications,
and distributes the same by means of electrical impulse or fiber optics.
Children's Programming: as defined in Section 3.11(5)(c).
Closing: as defined in Section 2.3.
Closing Date: as defined in Section 2.3.
Communications Act: The Communications Act of 1934, as amended,
codified at 47 U.S.C. Section 151 et seq.
Company: Twin County Trans Video, Inc., a Pennsylvania corporation.
Consideration: as defined in Section 2.4.
Consideration Adjustments: the adjustments to the Consideration
provided for in Section 2.7.
Copyright Act: the Copyright Act of 1976, as amended, codified at 17
U.S.C. Section 101 et seq.
C-TEC: C-TEC Cable Systems, Inc., a Delaware corporation.
Customer: a Subscriber or any other user of the Company's cable
television services.
Deposit: as defined in Section 2.6.
EEO: equal employment opportunity, as defined in Section 3.11(5)(e).
Equipment: includes electric devices; trunk and distribution cables;
amplifiers; power supplies; conduit; ropes and pedestals; grounding and
pole hardware; installed subscriber devices (including, without
limitation, drop lines, converters, encoders, transformers behind
television sets and fittings); "headend" (origination, transmission and
distribution system); hardware; tools; inventory; spare parts; maps,
as-built drawings and engineering data; vehicles; microwave equipment;
and all other tangible personal property and facilities owned, used or
held for use in any CATV System or otherwise used in the business of the
company.
Escrow Agreement: as defined in Section 2.6.
FAA: the Federal Aviation Administration.
FCC: the Federal Communications Commission.
FCC Licenses: as defined in Section 3.11(3).
Final Order: as defined in Section 7.2.
Financial Statements: as defined in Section 3.5.
Franchising Authority: any state, city, county, municipality, or
other local governmental body issuing or approving or having the
authority to issue or approve a cable television franchise for the
operation of a CATV System.
GAAP: as defined in Section 2.7(1).
Indemnified Party: as defined in Section 10.
Independent Accountant: as defined in Section 2.7(5).
Indemnifying Party: as defined in Section 10.
Knowledge: means actual knowledge (i.e., the conscious awareness of
facts or other information), without undertaking any investigation, and
not constructive knowledge. The words "know", "knowing" and "known"
shall be construed accordingly. In the case of the Company, knowledge
means the knowledge of any director, officer or other employee with
significant responsibilities. For purposes of this Agreement, all
Shareholders shall be deemed to have "knowledge" of all facts,
circumstances and other matters of which any Shareholder or the Company
has "knowledge".
Lien: means, with respect to any property or asset, any mortgage,
lien, pledge, charge, security interest, encumbrance or other adverse
claim or restriction of any kind in respect of such property or
asset. For purposes of this Agreement, any restriction or limitation
with respect to a security or other ownership interest (including any
restriction on the right to vote, sell or otherwise dispose of such
security or ownership interest) shall constitute a "Lien" thereon.
For the purposes of this Agreement, a Person shall be deemed to own
subject to a Lien any property or asset which it has acquired or
holds subject to the interest of a vendor or lessor under any
conditional sale relating to such property or asset.
Loss: as defined in Section 10.1.
Material Adverse Change: means any change that would have a Material
Adverse Effect on the Company.
Material Adverse Effect: means a material adverse effect on the
financial condition, business (other than effects on the business which
are purely prospective), assets or results of operations of the Company,
taken as a whole. For purposes of this definition and the definition of
"Material Adverse Change" only, effects and changes are material only if
in the aggregate they result in or represent a diminution in the value
of the Company, taken as a whole, of $100,000 or more.
Merger: as defined in Recital D.
Merger Certificate: as defined in Section 2.1.
Monthly Operating Revenues: as defined in Section 2.7(1).
Non-Competition Agreement: the agreement entered into between C-TEC and
the Shareholders, attached as Exhibit E.
Note: as defined in Section 2.4(1).
Objection Notice: as defined in Section 2.7(6).
Person: an individual, corporation, partnership, association, trust or
other entity or organization, including a government or political
subdivision or an agency or instrumentality thereof.
Plan of Merger: as defined in Recital D.
Pre-Closing Period: all tax periods ending on or before the Closing
Date and, with respect to any tax period that includes but does not end
on the Closing Date, the portion of such period up to but not including
the Closing Date.
Pre-Closing Period Tax Amount: as defined in Section 2.7(2).
Preferred Stock: as defined in Section 2.4(1).
Programmer: as defined in Section 3.12.
Rate Refund Obligations: as defined in Section 2.7(3).
Shareholders: Bark Yee Lee, Stella C. Yee, Susan C. Yee, Raymond C. Yee,
Kenneth C. Yee and Robert G. Tallman as trustee for that certain trust
created pursuant to the agreement dated December 17, 1992.
Subscriber: as of any date, means a customer of a CATV System (A) who
is a first outlet connector to basic CATV service (including Basic, MDU,
and Bulk) of a CATV System, (B) who has made at least one monthly
payment prior to the Closing Date at the normal monthly service charge;
(C) on the last day of the calendar month preceding the month in which
Closing occurs, whose account is not more than sixty (60) days past due
from the due date of payment, it being understood that those Subscribers
who are sixty (60) to ninety (90) days past due at Closing shall be
counted as Subscribers if they make one month's payment within sixty
(60) additional days after Closing; (D) who has not notified the Company
of its intent to discontinue service of the Company; (E) as to whom
neither the Company nor the Shareholders have waived or forgiven payment
of the bills or service charges for services of the CATV System rendered
during the two (2) complete calendar months before Closing and for the
period commencing at the end of such two complete calendar months until
Closing, except where there has been or is a failure of the CATV System
to render the services for which charges have been made or where there
has been a promotion offer that is part of normal marketing; and (F)
whom neither the Company nor the Shareholders have induced to become
hooked up to the CATV System or to receive or pay for services from the
CATV System by means of any inducement which is in addition to the
normal marketing practices of the Company. The parties acknowledge that
the normal marketing practices of the Company may include free or
discounted installation, but do not include cash inducements.
Notwithstanding the foregoing, Subscribers shall not include customers
who have been acquired by any action inconsistent with previous
promotional incentives or by offers of discounts exceeding those
customarily given in competitive markets of the cable industry.
Subsidiary: C-TEC Cable Systems of Pennsylvania, Inc., a Pennsylvania
corporation.
Surviving Corporation: the Subsidiary.
Tangible Assets: as defined in Section 3.12.
Tax: any income, alternative minimum, gross income, asset, gross
receipts, sales, use, ad valorem, value added, transfer, franchise,
profits, license, withholding, payroll, employment, excise, stamp,
property, environments or windfall profit tax, duty, governmental fee or
other like assessment or charge, Federal, state or otherwise, and any
interest, fines, penalties or additions attributable to or imposed on or
with respect to any of the foregoing.
Tax-Free Reorganization Certificate: as defined in Section 3.25.
Transaction Agreements: this Agreement, the Plan of Merger, the Note,
the Non-Competition Agreement and all other agreements and instruments
entered into or executed by the parties in connection with or related to
the Merger.
Trustee: Robert G. Tallman as trustee for that certain trust created
pursuant to trust agreement dated December 17, 1992.
ARTICLE II
CONSUMMATION OF TRANSACTION
2.1 Merger. Subject to the terms and conditions provided in this
Agreement, on the Closing Date, C-TEC, Subsidiary and the Company agree to
execute the Plan of Merger and to file a Certificate of Merger (the "Merger
Certificate") substantially in the form of Exhibit B, attached hereto, with
the Pennsylvania Department of State Corporate Bureau pursuant to the
respective relevant statute of the Commonwealth of Pennsylvania and to comply
with all other proceedings necessary and appropriate for the consummation of
the Merger, all as provided in the relevant respective statutes of the
Commonwealth of Pennsylvania. Upon the filing of the Merger Certificate, the
Merger shall become effective, and the date of such filing shall be the
"Effective Date".
2.2. Surviving Corporation. On the Effective Date, pursuant to the Plan
of Merger, the Company shall be merged into Subsidiary and Subsidiary shall be
the surviving corporation (sometimes called the "Surviving Corporation") in
the Merger and continue its corporation existence under the laws of the
Commonwealth of Pennsylvania.
2.3. Closing. The Closing shall take place at the offices of C-TEC
Corporation, 105 Carnegie Center, Princeton, New Jersey on the fifth Business
Day following the date on which all of the respective conditions to the
Company's, the Shareholders', C-TEC's and the Subsidiary's obligations
hereunder, as specified in Article V, have been satisfied or waived, or at
such other place and time as the parties hereto may agree (such date referred
to as the "Closing Date").
2.4. Consideration.
(1) In exchange for their shares of Capital Stock in the
Company, the Shareholders shall receive (a) $36 million in cash;
(b) shares of C-TEC Preferred Stock with an aggregate par value of
$52 million having the rights and privileges described in Exhibit C
attached hereto (the "Preferred Stock"); and (c) promissory notes
with an aggregate principal amount equal to $4 million and in the
form attached hereto as Exhibit D (the "Note") (all of the above
referred to in the aggregate as the "Consideration"). Such
Consideration may be adjusted pursuant to Section 2.7.
(2) In addition to the Consideration, C-TEC shall pay the
Shareholders an amount equal to $11 million, in consideration for
their executing the Non-Competition Agreement in the form attached
hereto as Exhibit E.
(3) C-TEC shall also reimburse the Shareholders for (a) any costs
to third parties up to a maximum of $200,000 incurred in canceling
existing agreements between the Company and Hyperion of which the
Shareholders agree to obtain cancellation on or prior to Closing;
and (b) those costs set forth in Schedule 2.4 which were incurred
(or will be incurred prior to Closing) in connection with the
design and construction, and establishment of the Competitive
Access ("CAP") telephone business.
2.5. Closing Deliveries by the Company and Shareholders. At the
Closing, the Company and Shareholders shall deliver the following to C-TEC:
(1) The Agreement of Merger and Merger Certificate executed by
the Company;
(2) The Non-Competition Agreement executed by each Shareholder
except Trustee;
(3) Share certificates evidencing the shares of Capital Stock to
be exchanged by the Shareholders;
(4) Written documentation satisfactory to C-TEC indicating that
existing agreements with Hyperion have been canceled and setting
forth the terms of such cancellation; and
(5) The opinions, certificates and other documents required to
be delivered pursuant to Section 5.1 hereof; and
(6) Tax-Free Reorganization Certificate.
2.6. Closing Deliveries by C-TEC. At the Closing, C-TEC shall deliver
the following to the Shareholders:
(1) The Plan of Merger and Merger Certificate executed by C-TEC
and Subsidiary;
(2) The cash portion of the Consideration, cash payment for the
Non-Competition Agreement and reimbursements pursuant to Section
2.4(3), all by wire transfer of immediately available funds (such
wire transfer to be reduced by the deposit (the "Deposit")
pursuant to that certain Escrow Agreement (the "Escrow Agreement")
dated August 25, 1994);
(3) Executed Notes;
(4) Share Certificates evidencing the shares of Preferred Stock
to be issued by C-TEC;
(5) The opinions, certificates and other documents required to
be delivered pursuant to Section 5.2; and
(6) Tax-Free Reorganization Certificate.
2.7. Consideration Adjustments.
(1) The cash portion of the Consideration set forth in Section
2.4(1)(a) shall be reduced by the greater of (x) $1,458 multiplied
by the amount, if any, by which 80,250 exceeds the number of
Subscribers at Closing; or (y) $58.56 multiplied by the amount, if
any, by which the Monthly Operating Revenues for the months of
September, October and November 1994, as determined in accordance
with generally accepted accounting principles ("GAAP"), average
less than $2 million per month. Monthly Operating Revenues shall
be the operating revenues billed during such months to
Subscribers. Monthly operating revenues shall not include
interest income, investment income, any nonoperating income,
extraordinary items, past due amounts or prepayments or other
income not in the ordinary course of business. The value of three
(3) months of quarterly, semi-annual and annual billings shall be
included.
(2) To the extent not taken into account as a liability for
purposes of computing Net Liabilities under Section 2.7(5), the
cash portion of the Consideration set forth in Section 2.4(1)(a)
shall also be reduced by an amount equal to the total amount of
Taxes that would be imposed upon or otherwise payable by the
Company through the Closing Date (including amounts that would be
due for the short period ending on the Closing Date if Tax returns
are filed as of the Closing Date) (the "Pre-Closing Period Tax
Amount").
(3) The cash portion of the Consideration set forth in Section
2.4(1)(a) shall also be reduced by the amount of any Rate Refund
Obligations. For purposes of the foregoing, Rate Refund
Obligations mean the amount of refunds, fines, penalties,
interest, assessments, or forfeitures which the FCC or any
Franchising Authority finally determines are owed to customers for
over- charges in contravention of law or FCC or Franchise
Authority rate policies or regulations, except that to the extent
that Rate Refund Obligations have not been determined prior to the
Closing such Rate Refund Obligations made pursuant to Section
2.7(5) hereof, or, if not determined at the time of the
post-Closing Adjustments, will be set-off against principal and/or
interest payments otherwise payable under the Notes;
(4) The cash portion of the Consideration set forth in Section
2.4(1)(a) shall also be reduced by the amount of any deficiency in
assets discovered in connection with C-TEC's conduct of due
diligence, to the extent that all such asset deficiency has not
been reflected in the Company's Financial Statements dated July 31,
1994, and except as such deficiency results from transactions in
the ordinary course of business;
(5) The cash portion of the Consideration set forth in Section
2.4(1)(a) shall be decreased by the amount that the Net
Liabilities as of the Closing Date exceed $14 million and
increased by the amount which the Net Liabilities as of the
Closing Date are less than $14 million. Net Liabilities shall
mean the amount by which all liabilities of the Company (current,
noncurrent or otherwise) as determined in accordance with GAAP
exceed the amount of cash held by the Company.
(6) C-TEC and the Company shall in good faith agree to the
adjustments pursuant to Sections 2.7(1), (2), (3), (4) and (5) as
of the Closing. In connection with the foregoing, C-TEC shall be
entitled to have access to the Company's accountants' work papers
and other relevant data and documentation. Within ninety (90)
days after Closing, a final computation of all Consideration
Adjustments (other than any Rate Refund Obligations not yet
determined) pursuant to Section 2.7(1), (2), (3), (4) and (5)
shall be determined by the Company's accountant. In connection
with the foregoing, the Shareholders shall provide to C-TEC a
balance sheet as of the Closing Date and a detailed statement of
operations for the month used in calculating Monthly Operating
Revenues, all prepared in accordance with GAAP (except as
otherwise discussed in Section 3.5). Upon receipt of such
information, C-TEC will have sixty (60) days to review and
evaluate such information. If C-TEC objects to the results of
such accounting, C-TEC shall notify the Company's accountants and
Shareholders of its objection in writing (the "Objection Notice")
prior to the end of such sixty (60) day period. In such event,
C-TEC and the Shareholders shall endeavor to resolve the open
issues. If such issues are not resolved within thirty (30) days
after the receipt of the Objection Notice, the unresolved issues
shall be submitted to an independent public accountant jointly
selected by C-TEC and the Shareholders (the "Independent
Accountant"). The Independent Accountant shall be a "Big Six"
accounting firm (or other firm if agreed to by both parties) and
shall not have provided any services to the Company, C-TEC or any
of the Shareholders for the prior five (5) years. As soon as
reasonably possible, the Independent Accountant shall deliver a
written report to C-TEC and the Shareholders setting forth the
final determination of the Consideration Adjustments. The
decision of the Independent Accountant shall be final and binding
on C-TEC and the Shareholders. The fees and expenses of any
Independent Accountant shall be borne equally by the Shareholders
and C-TEC. Within three (3) Business Days after determination of
the Consideration Adjustments pursuant to this Section 2.7, the
Consideration shall be adjusted in accordance with this Section
2.7 by a transfer of cash from the Company to the Shareholders or
from the Shareholders to the Company, as appropriate. Any Rate
Refund Obligations that are finally determined after the time of
these post-Closing Consideration Adjustments shall be applied as a
set-off to the repayment obligations under the Notes.
Notwithstanding anything to the contrary, there shall be no
decrease to the Consideration by virtue of Section 2.7, or
indemnification obligation for claim made for breach of warranty
or representation (except those relating to Taxes, Rate Refund
Obligations, or environmental representations under Sections 3.25
and 3.29) except to the extent that the total of such claims and
adjustments exceeds $4,680,000 (the "Consideration Threshold").
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND SHAREHOLDERS
The Company and each of the Shareholders, jointly and severally, hereby
represent and warrant to C-TEC as follows:
3.1. Incorporation. The Company is a privately held duly organized and
validly existing corporation in good standing under the laws of the
Commonwealth of Pennsylvania. The Company has full corporate power and
authority to carry on its business and operations as presently conducted and
as planned to be conducted and is duly qualified to do business in each
jurisdiction in which it is either doing business or in which the failure to
qualify would have an adverse effect on the Company. Except as shown on
Schedule 3.1(a), the Company does not directly or indirectly own or otherwise
control any capital stock of, or have any ownership interest in, any
corporation, partnership or other entity. The current ownership structure has
been approved by all necessary governmental agencies. Attached hereto as
Schedule 3.1(b) is a complete and correct copy of the Articles of
Incorporation and Bylaws (together with all amendments thereto and
restatements thereof) of the Company.
3.2. Corporate and Governmental Authorizations. (1) The Company has
full corporate power and authority to execute and deliver this Agreement and
the other Transaction Agreements to which it is a party, to perform its
obligations hereunder and thereunder and to consummate the Merger. The
execution, delivery and performance of this Agreement and the other Transaction
Agreements to which the Company is a party and the consummation of the Merger
have been duly authorized by all requisite corporate action of the Company.
This Agreement constitutes, and the other Transaction Documents to which the
Company is a party, when executed and delivered by the Company, will
constitute, legal, valid and binding obligations of the Company and
Shareholders, enforceable against the Company and Shareholders in accordance
with their respective terms.
(2) No consent or authorization of, or filing with, any Person
is required on the part of the Company in connection with the Company's
execution, delivery or performance of this Agreement and the other Transaction
Agreements to which it is a party or the consummation of the Merger except for
(a) filing of the Merger Certificate, and (b) those consents and
authorizations listed on Schedule 3.2 (including, but not limited to consents
of the FCC, Franchising Authorities and any parties to contractual
arrangements, programming or otherwise), all of which have been obtained or
made or will be obtained or made prior to Closing.
3.3. Capitalization. The Company's authorized capital stock (the
"Capital Stock") consists of (a) 30,000 shares of Class A non-voting no par
common stock, and (b) 10,000 shares of Class B voting no par common stock of
which 3720.2 shares of Class A non-voting Common Stock and 5,500 shares of
Class B voting Common Stock are issued and outstanding. The issued and
outstanding shares of Capital Stock are fully paid, validly issued and
nonassessable and are owned of record and beneficially, free and clear of all
Liens (except for the Lien granted to First Union National Bank of North
Carolina to secure a revolving credit facility in the amount of $18.5 million,
and a letter of credit facility in the amount of $2.5 million), claims,
encumbrances by the Shareholders and in the amounts set forth on Schedule 3.3.
Except for that certain agreement dated January 11, 1990, as amended May 17,
1990 between the Company and Shareholders (the "Buy-Sell Agreement"), there
are no outstanding preemptive, conversion or other rights, options, warrants,
rights of first refusal or other agreements or arrangements of any kind,
contingent or otherwise, obligating the Shareholders to transfer such shares
or the Company to issue or sell, or cause to be issued or sold, any shares of
the Company's capital stock, or any securities convertible into or
exchangeable for any such shares, and no authorization therefor has been
given. Except for the Transaction Agreements and the Buy-Sell Agreement,
there are no agreements, written or oral, among the shareholders of the
Company or between one or more shareholders and the Company relating to any
Capital Stock. By executing this Agreement, the Company and Shareholders
agree to terminate the Buy-Sell Agreement at Closing and hereby waive any and
all rights under the Buy-Sell Agreement to the extent that it would affect any
of the transactions contemplated hereunder. The Company and the Shareholders
also represent and warrant that the Company is in full compliance with the
terms of the loan from First Union National Bank of North Carolina, that the
outstanding principal on such loan is $12,240,991.11, and that, at Closing in
return for prepaying such principal, any Liens on the assets of the Company or
Capital Stock will be released without additional condition or penalty.
3.4. No Conflicts, etc. Neither the execution and delivery by the
Company and Shareholders of this Agreement or the other Transaction Agreements
nor the consummation of the Merger will (a) violate, conflict with or result
in the breach of, or constitute a default under, (i) any provision of the
organizational documents of the Company, or (ii) any provision of any law or
regulation applicable to the Company or to which any of its assets is subject,
(iii) any order, judgment or order of any court, tribunal or regulatory
authority applicable to the Company or to which any of its assets is subject
or (b) any agreement or instrument to which the Company is a party or by which
any of its assets is bound, or (ii) result in the creation of any Lien upon
any of the assets of the Company.
3.5. Financial Information. (1) The Company and Selling Shareholders
have furnished C-TEC with true and correct copies of (a) the audited balance
sheets of the Company as of October 31, 1992, and October 31, 1993, and the
related audited statements of income, stockholders' equity and cash flows for
the fiscal years ending on such dates and (b) the unaudited balance sheet of
the Company as of July 31, 1994, and the related statements of income,
stockholders equity and cash flows for the period from November 1, 1993,
through the date of such interim balance sheet, setting forth in each case in
comparative form the figures for the corresponding nine (9) months of the
previous fiscal year (collectively "Financial Statements"). The Financial
Statements are true and correct in all material respects and present fairly
the financial position, results of operations and cash flows of the Company at
the dates and for the periods to which they relate, are consistent with the
books and records of the Company and have been prepared in accordance with
GAAP consistently applied throughout the periods involved, except as to
entries on the Financial Statements for Pension Expense, Customer Prepayments,
Bad Debt Reserves, Deferred Taxes, Tax Depreciation and Amortization of
Franchises. However, the Company and Shareholders warrant and represent that
none of the above non-GAAP practices resulted in any double counting of
revenue. Further, the Company and Shareholders shall deliver to C-TEC prior
to Closing revised Financial Statements which do comply with GAAP.
(2) The Company's books and records are complete and, in
reasonable detail, accurately and fairly reflect the transactions and
dispositions of the Company's assets. The Company has consistently maintained
a system of internal accounting controls sufficient to provide reasonable
assurances that (a) transactions are executed in accordance with management's
general or specific authorization, (b) transactions are recorded as necessary
to permit preparation of financial statements in conformity with GAAP or any
other criteria applicable to such statements and to maintain accountability for
such assets, (c) access to assets is permitted only in accordance with
management's general or specific authorization and (d) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
3.6. Absence of Undisclosed Liabilities. Except as and to the extent
(a) expressly reflected or expressly reserved for in the balance sheet dated
July 31, 1994 or (b) set forth on Schedule 3.6, the Company has no liabilities
of any nature, whether known or unknown, accrued, contingent, asserted or
otherwise.
3.7. Business Since July 31, 1994. Except as set forth on Schedule
3.7, since July 31, 1994, (1) the Company has conducted and operated its
business only in the ordinary course in a manner consistent with past
practice, (2) no event has occurred, or could reasonably be expected to occur,
which could have a Material Adverse Effect on the Company and (3) the Company
has not taken any of the following actions (or agreed to take any such
actions):
(a) authorized, declared or paid any dividend or other
distribution in respect of its Capital Stock or purchased or
redeemed, directly or indirectly, any shares of its Capital Stock;
(b) issued, sold, purchased or redeemed or committed to issue,
sell, purchase or redeem any shares of its Capital Stock or any
options, warrants, or other rights to purchase any such shares or
any securities convertible into or exchangeable for any such
shares;
(c) entered into any (or modified any existing) agreement,
commitment or transaction (including without limitation any
borrowing, capital expenditure, capital financing, leasing
arrangement or purchase commitment) material to the business,
operations or financial condition of the Company taken as a whole,
except agreements, commitments or transactions in the ordinary
course of business;
(d) changed in any material respect its accounting or tax
practices, policies or principles;
(e) incurred any Material Adverse Change in the financial
condition, operations, business or prospects of Company,
including, but not limited to, becoming subject to any state or
federal regulatory proceedings which could culminate in an order
or other action which could have such a Material Adverse Change;
(f) suffered any material physical damage or destruction,
whether or not covered by insurance, adversely affecting the
properties, business, operations or prospects of the Company;
(g) suffered any material labor dispute or threat thereof or any
attempt to organize or reorganize the employees of Company for the
purpose of collective bargaining;
(h) entered into any employment or consulting contract (including
any deferred compensation arrangement) with any director, officer
or employee (or altered the terms of any such existing employment,
consulting contract or deferred compensation arrangement), or any
increase of compensation payable or to become payable (or other
bonus or benefit) to any of its officers, employees or agents;
(i) received any communication, whether oral or written, to the
Company or the Selling Shareholders from the Company's customers
or suppliers or agencies regulating the Company, which would
reasonably lead it or any of them to expect a Material Adverse
Change in the Company's business;
(j) executed any guaranty, endorsement or indemnification by the
Company of the obligations of any third person, firm or
corporation;
(k) undertaken any sale or transfer of any assets or cancellation
by the Company of debts or claims having a value, in the
aggregate, of more than $5,000, except, in each case, in the
ordinary course of business;
(l) effected any knowing waiver by the Company of any rights of a
material value;
(m) guaranteed any mortgage, pledge or lien or other encumbrance
of any of its assets, tangible or intangible; or
(n) effected any assignment, sale or transfer of any patent,
trademark, trade name, trade secret, copyright, CATV Instrument,
or other intangible asset.
(o) paid any obligation or liability other than (i) obligations
or liabilities reflected in the balance sheets of the Financial
Statement, (ii) liabilities incurred since the date of the
Financial Statements in the ordinary course of business and (iii)
obligations under contracts and agreements referred to in Schedules
annexed hereto;
(p) implemented any change to the existing pricing structure, fee
or charges to Customers;
(q) implemented any changes to existing Company marketing or
promotional plans and policies;
(r) adopted or modified any bonus, pension, profit sharing,
collective bargaining agreement or other compensation plan; or
(s) entered into any (or modified any existing) agreement or
commitment or transaction (including without limitation any
borrowing, capital expenditure, capital financing leasing
arrangement or purchase commitment), incurred any liability,
absolute or contingent, waived any right or entered into any other
transaction, material to the business operations or financial
condition of the Company as a whole, except agreements,
commitments or transactions in the ordinary course of business.
3.8. Litigation. Except as set forth in Schedule 3.8, there are no
actions, suits, proceedings or investigations (whether or not purportedly on
behalf of the Company) pending or threatened against or affecting the Company
at law or in equity or admiralty, or before or by any federal, state,
municipal or other governmental department, commission, board, agency or
instrumentality, domestic or foreign which could have a Material Adverse
Effect on the Company, nor has any such action, suit, proceeding or
investigation been pending during the twelve-month period preceding the date
of this Agreement. The Company is not operating under or subject to, or in
default with respect to, any order, writ, injunction or decree of any court or
federal, state, municipal or other governmental department, commission, board,
agency or instrumentality, domestic or foreign. The Company and the
Shareholders shall give C-TEC written notice (promptly and not later than the
Closing) if, prior to the Closing, the Company or any of the Shareholders
acquire knowledge of any of the matters set forth in this Section 3.8 or any
grounds therefor.
3.9. Compliance with Laws and Other Instruments. The Company is not in
violation or breach of, or in default under, (i) any provision of its or other
organizational documents, (ii) any provision of any law or regulation
applicable to it or to which any of its assets are subject which violation or
breach would have a Material Adverse Effect on the Company (and no notice has
been received of any violation or breach of law or regulation whatsoever),
(iii) any order, judgment or award of any court, tribunal or administrative or
regulatory authority applicable to it or to which any of its assets are
subject, or (iv) any material agreement or instrument to which it is a party
or to which any of its assets is bound.
3.10. CATV Instruments and CAP Assets. (1) Schedule 3.10(a) lists
for the Company all concessions, franchises, CATV Franchises, licenses, FCC
Licenses, permits, operating authorizations, pole attachment agreements and
other agreements and approvals from governmental authorities and utilities,
and all material easements, rights-of-way and other agreements, necessary
to own and operate the CATV Systems lawfully and in the manner in which
they are now operated (collectively the "CATV Instruments"). Except as
described in Schedule 3.10(a), there has been no material breach or
violation and there is no outstanding material breach or violation of any
CATV Instrument. Schedule 3.10(a) also lists all information as to the
termination and expiration of all such CATV Instruments, the geographical
area covered by each CATV Franchise; and the status of all applications for
the grant, extension or renewal of rights relating to each of the CATV
Instruments. All such applications are being diligently pursued.
(2) The Company holds all the CATV Instruments necessary to
operate the CATV Systems lawfully and as their operations are presently
conducted. Except as described in Schedule 3.10(a), no CATV Instrument is
invalid, not in effect or subject to further approval or action on the part of
any governmental authority or other person so that the rights contemplated to
be received by the Company in connection therewith are fully vested. The CATV
Instruments are currently in full force and effect and are valid in all
material respects under all applicable federal, state, and local laws. The
Company is the owner of each such CATV System free and clear of all Liens.
(3) None of the CATV Instruments may be revoked unless the Company
breaches the terms and conditions of such CATV Instrument, and the Company and
the CATV Systems are in compliance with the terms and conditions of all CATV
Instruments, except where such noncompliance does not have a Material Adverse
Effect. There is no legal action or governmental proceeding pending for the
purpose of modifying, revoking, terminating, suspending, canceling or
reforming any of the CATV Instruments, including, but not limited to modifying
the rates charged under any pole attachment or similar agreement. The Company
and the CATV Systems are not currently subject to notice by a governmental
authority or utility of alleged noncompliance with the terms and conditions of
a CATV Instrument as to which the Company and the CATV Systems are not
actively seeking to cure such alleged breach or challenging in good faith the
basis for such notification.
(4) Each CATV System has been owned by the Company for at least
three (3) years and has been and is and will be through the Closing Date
operated in compliance with all CATV Instruments and applicable local, state
and federal laws, rules and regulations except for such non-compliance as will
not have a Material Adverse Effect. The Company does not own or operate any
multichannel multipoint distribution systems ("MMDS"), or own or operate any
satellite master antenna ("SMATV") system apart from any franchised cable
service in any of the CATV Systems' CATV franchise areas unless grandfathered
pursuant to 47 U.S.C. Section 533(2)(A).
(5) As of Closing, the Company will have full ownership, free and
clear of all Liens, of all assets, rights and privileges currently used by the
Shareholders and the Company in the conduct of the CAP Business, including any
assets created or acquired between the date of this Agreement and Closing.
Attached hereto as Schedule 3.10(b) is a description of all such assets (the
"CAP Assets").
3.11. The CATV Systems. (1) Schedule 3.11(a) lists the following:
(a) each CATV System owned in whole or in part or operated by
the Company, specifying the nature and amount of such interest if
less than one hundred percent (100%) ownership;
(b) for each such CATV System, (A) the minimum number of homes
that must be passed for the CATV System under the terms of the
applicable CATV Instrument, (B) the approximate number of homes
within the geographical area of the CATV System, (C) the number of
Subscribers of the CATV System, (D) the number of Persons to whom
cable service of the CATV System is provided at no charge or for a
reduced charge, (E) the approximate number of kilometers of plant
for such CATV System, classified by type of cable used, (F) the
approximate number of homes passed by fully completed and
operational plant of the CATV System (in such proximity as to
permit connection by installation of a drop only), and (G) the
monthly average revenue per Customer for the CATV System. The
Company does not have Subscriber subscription contracts for any
CATV Systems. The Company has delivered or caused to be delivered
to C-TEC the standard form of installation contract for each CATV
System.
(c) for each such CATV System, an accurate and complete listing
and description of the current channel alignments for the CATV
System, including all broadcast and satellite signals and services
carried, respective cable channel assignments, frequencies
utilized and pilot carrier frequencies of the CATV System as of the
date of this Agreement. Schedule 3.11(a) includes for each CATV
System a break-out of each signal or service carried as between
satellite and off-air reception, and as to whether broadcast
signals are carried pursuant to distant signal, must carry, or
retransmission consent modes. The CATV Systems have a 450 MHz
signal distribution capability and are currently (and at Closing
shall be) carrying all stations or signals required to be carried
by all applicable laws of any federal, state, city, county,
municipal or other local governmental body with authority
thereover. The Company and the CATV Systems have the legal right
and authority, including, without limitation, all FCC Licenses and
all authority from the FCC, required for the carriage and
distribution to Customers of such programming, and upon any
transfer pursuant to this Agreement, C-TEC and Subsidiary will
obtain all such right and authority to carry and use in the
conduct and operation of the CATV Systems all signals (including
distant signals) and frequencies that are set forth in Schedule
3.11(a) and all those then required by all applicable laws of any
federal, state, city, county, municipality or other local
governmental body with authority thereover to be carried by the
CATV Systems. Schedule 3.11(a) will be updated as of the Closing.
(2) The Company is not conducting any cable operations in any
other location or through any other person, or applying for any franchises,
except as disclosed in Schedule 3.11(a). Schedule 3.11(b) identifies and
describes truly, completely, and correctly both all unfulfilled promises or
commitments for capital and service improvements or enhancements, whether or
not legally binding, which have been made in connection with any CATV System,
and identifies and describes all construction and improvement programs in
progress.
(3) The Company is duly authorized and licensed by the FCC to
operate all CARS, microwave, business radio, and transmit-receive earth
stations used by the CATV Systems, and has registered all TVRO earth stations
used by the CATV Systems (such licenses and registrations being referred to
collectively as the "FCC Licenses").
(4) There are no obligations or liabilities to Customers which
are material, except (i) with respect to prepayments or deposits made by
Customers, and (ii) the obligation to supply services to Customers in the
ordinary course of business in accordance with and pursuant to the terms of
the CATV Franchises and FCC Licenses. Schedule 3.11(c) contains a true,
complete and correct current statement of all Customer rates, tariffs and
other charges for cable television or other services provided by the
Company. No necessary approval of or consent to any increase or other
change in any such rate, tariff or other charge at any time proposed to be
instituted by the Company has been denied or withheld and no such proposed
increase or other charge has been voluntarily withdrawn during the past two
years. Except as shown on Schedule 3.11(c), there are currently no
proceedings pending or threatened by any federal, state, city, county,
municipality or other governmental authority concerning the permitted
rates, costs of service, or any Rate Refund Obligations, liabilities or
rate refund liabilities relating to the CATV Systems.
(5) The Company and each of the CATV Systems and all facilities used
in conjunction with the operation of the CATV Systems are in compliance in all
material respects with the Communications Act of 1934, all applicable rules,
regulations requirements and policies of the FCC, including, but not limited
to, Part 76 and Part 78 of the rules and regulations of the FCC, including any
amendments or changes to FCC rules and regulations made between the date of
this agreement and the Closing Date the provisions of the U.S. Copyright Act,
and the rules and regulations of the U.S. Copyright Office, and, as to past
operations, of the former Copyright Royalty Tribunal as then in force, under
the Copyright Act that pertain to cable television retransmission of broadcast
signals the carriage of distant broadcast television signals and including but
not limited to all then-applicable syndicated exclusivity; the rules and
regulations of the FAA regarding antenna structures; and all customer service,
technical and engineering standards required to be met under the CATV
Instruments. Such compliance includes but is not limited to the following:
(a) General Regulatory Compliance.
(i) The Company and each of the CATV Systems has complied,
and is in compliance, in all material respects with the CATV
Instruments, with all federal laws (including the
Communications Act and the Copyright Act), state laws, and
municipal ordinances of any municipality, city, county, or
other local governmental body with authority thereover
wherein any of the CATV Systems conducts operations, and
neither the Company nor the Shareholders nor any of the CATV
Systems has knowledge or has received any notice to the
contrary. The Company has duly and timely filed all cable
television registrations, reports and filings that are
required to be filed and provided all consumer and broadcast
station notices that are required to be provided under the
Communications Act and the rules and regulations of the FCC
and under the laws, ordinances, and regulations of all
Franchising Authorities.
(ii) The Company has recorded or deposited with and paid or
accrued for payment to the Copyright Office the royalty and
syndicated exclusivity fees, and has filed and recorded all
notices (including those necessary to qualify for the
compulsory licenses for FM broadcast and television
stations), statements of account, and other documents and
instruments required under the Copyright Act.
(iv) The Company and the CATV Systems have obtained and are
in compliance with the authorizations required for the
operation of the CATV Systems by the FCC, FAA, the Register
of Copyrights, and any other federal, state, or municipal
government authorities. The Company and the CATV Systems
monitor signal leakage, maintain applicable signal leakage
logs, conduct the cumulative leakage tests, demonstrate
compliance with the cumulative leakage criteria by showing a
passing cumulative leakage index or a successful flyover,
and comply with the frequency separation standards, in
compliance with the requirements set forth in 47 C.F.R.
Sections 76.610 through 76.619.
(v) The Company and the CATV Systems have filed with the FCC
all notifications of utilization of frequencies in the 108 -
137 MHz and 225 - 400 MHz bands and all other reports
required to be filed under such rules and regulations and
have not received any notification of objection thereto by
the FCC that has not been promptly resolved by the Company
and the CATV Systems with no adverse impact on the
operations of the CATV Systems.
(vi) The Company and the CATV Systems are duly authorized
under FCC and FAA rules, regulations and orders to
distribute to the subscribers of the CATV Systems all the
signals currently being carried or required by law or
governmental regulations to be carried and are licensed to
operate any business radio and any cable access relay
service system being operated by the Company or the CATV
Systems, and the operation by the Company and the CATV
Systems of any facility licensed or registered by the FCC or
FAA used in conjunction with the operation of the Company or
the CATV Systems is in compliance with the FCC's and FAA's
rules and regulations.
(vii) The Company and the CATV Systems have complied with
all requirements of the FCC concerning notifications to the
FAA with respect to the construction and/or alteration of
the CATV Systems' antenna structures, and "no hazard"
determinations for each antenna structure have been
obtained,where required.
(viii) Except as set forth on Schedule 3.11(d), as of the
date hereof, there are no applications, complaints, or
proceedings existing or pending before, or to the knowledge
of the Company or the CATV Systems or any of the
Shareholders, before the FCC, FAA, the U.S. Copyright
Office, any other federal agency, or any Franchising
Authority relating to the Company or to any of the CATV
Systems or their operations, other than applications,
complaints, or proceedings that affect the cable television
industry generally and to which neither the Company, the
CATV Systems, nor any of the Shareholders is a party. All
such proceedings relating to the period prior to the Closing
Date shall be the responsibility of the Shareholders (but
C-TEC and Subsidiary shall have the right to participate in
such proceedings and to advance approval of any filings,
pleadings, statements, etc. submitted to any federal agency
or Franchising Authority in conjunction with any such
proceeding). In the event of a dispute with the U.S.
Copyright Office with respect to any copyright royalty fees
or other such payments, the Shareholders may elect to
contest such fees in good faith, at Shareholders' expense,
but whether or not the Shareholders make such election, they
shall indemnify and hold C-TEC and Subsidiary harmless from
any claims made by the Copyright Office relating to any such
payments.
(b) Rate Regulation. Except as shown on Schedule 3.11(5)(b), to
the knowledge of the Company, and the Shareholders, after due
inquiry, where required by applicable law, if any, the rates
charged to subscribers of the CATV Systems were duly adopted,
passed, and/or approved by the action(s) or inaction(s) of
appropriate governmental authorities, agencies, or bodies, and the
rates are being charged by the CATV Systems and the Company in the
normal and usual ordinary course of the CATV Systems' operations
and are not in material violation of the respective franchise
agreements issued by any Franchising Authority for any of the CATV
Systems and comply with all other applicable contracts, tariffs,
licenses, and laws and regulations of any federal, state, county,
city, municipal, or other governmental entity pertaining to the
CATV Systems and the business and operations thereof, including
but not limited to compliance with the Communications Act and the
applicable cable television rate regulation rules and policies of
the FCC. Without limiting the foregoing, in particular, the
Company and Shareholders, to the best of their knowledge and after
due inquiry,
(i) except as shown on Schedule 3.11(5)(b)(i), all of the
CATV Systems, whether or not currently subject to rate
regulation, had established rates as of September 1, 1993,
that were in compliance with the FCC's rate regulations in
effect from September 1, 1993, through May 14, 1994;
(ii) except as shown on Schedule 3.11(5)(b)(ii), all of the
CATV Systems, whether or not currently subject to rate
regulation, had established rates in compliance with the
FCC's current rate regulations by May 15, 1994 (or have
followed proper procedures for deferring refund liability
under the rules until July 14, 1994, or any extension of
that date authorized by the FCC or any Franchising
Authority, and have brought or will bring their rate levels
into compliance with the current rules by July 14, 1994, or
such extension date, as applicable);
(iii) except as shown on Schedule 3.11(5)(b)(iii), all of
the CATV Systems are currently in compliance with the FCC's
rate regulations and will continue to be in compliance with
the FCC's rate regulations through the Closing Date.
(c) Children's and Other Programming. The Company has not
allowed more than 10.5 minutes per hour on weekends and 12.0
minutes per hour on weekdays of commercial advertising to be
carried on any local origination channel or channel on which the
CATV Systems have local advertising time available during any
program originally produced and broadcast primarily for an
audience of children 12 years old and under ("Children's
Programming"). The Company has received certificates from the
programmers of all nonbroadcast programming carried on the CATV
Systems evidencing their compliance with these limits on
advertising carried on Children's Programming. The Company and the
CATV Systems are in compliance with the Communications Act and
with all FCC rules and regulations concerning cable origination
programming, including political broadcasting rules and
regulations, and with all FCC channel access rules and
regulations, except for any non-compliance that would not have a
Material Adverse Effect.
(d) Consumer Electronics and Equipment. The Company and the
CATV Systems have honored all subscriber requests for parental
lockboxes and/or, when required, input selector switches that it
has received in connection with the operation of the CATV Systems.
All new subscribers to the CATV Systems at the time they sign up
for service are and have been given required written notification
of: the availability of parental lockboxes, switches and their
use; their privacy rights and remedies under federal law; and the
availability of local television broadcast signals, if any, which
are not being carried on the CATV Systems. These notifications
have been and continue to be renewed on an annual basis to all
subscribers to the extent required by FCC rules and regulations.
The Company and the CATV Systems are in compliance with the
Communications Act and FCC rules and regulations pertaining to the
capability of the CATV Systems' facilities with consumer
electronics equipment.
(e) All permanent full- and part-time employees employed by the
Company in connection with the operation of the CATV Systems have
been reported to the FCC under the applicable Employment Unit Nos.
Such employment unit(s) is(are) not the subject of any pending
equal employment opportunity ("EEO") complaints or FCC EEO
investigation. Each of the CATV Systems has an EEO program that
complies with the requirements of the Communications Act and the
FCC's rules and regulations pertaining hereto. The FCC has not
denied EEO certification to this(these) employment unit(s) for any
consecutive three year period.
3.12 Programming. Except as set forth in Schedule 3.12, neither the
Company, the CATV Systems, nor any of the Shareholders has any affiliation
with (other than on a third party basis), equity interest in, profit
participation in, contractual right to acquire any such interest or
participation, or any other relationship with any Person that provides
programming ("Programmer"). Each agreement or relationship listed or
described on Schedule 3.12 was entered into on an arms' length basis. The
policies and practices of all Programmers is identified on Schedule 3.12 are
in compliance with the program access requirements of the Communications Act
and the rules and regulations of the FCC pertaining thereto.
3.13 Inventory. The Company has, and at the Closing Date will have, an
inventory of spare parts and other materials relating to the CATV Systems of
the type and nature and maintained at levels consistent with good cable
television industry practices. The Shareholders agree, for a minimum of one
year after Closing, to maintain and support the RK converters, including
maintaining a sufficient quantity of replacement parts and additional
converters to meet supply and maintenance requirements for one year after
Closing.
3.14 Overbuilds. Except as set forth on Schedule 3.14, as of the date
hereof, no construction programs have been undertaken or, to the knowledge of
the Company, or any of the Shareholders, are proposed to be undertaken, by any
other cable television, SMATV, MMDS, DBS, video dialtone, or other
multichannel video programming provider or operator or, with respect to the
provision of multichannel video programming, telephone company in any market
served by the CATV Systems.
3.15 Tangible Assets. (1) Schedule 3.15 lists all Equipment, other
personal property and physical assets owned or leased by the Company
("Tangible Assets"), which consist of all tangible assets used or otherwise
necessary to conduct the business of the Company. Except as set forth in
Schedule 3.15, the Company has good and valid title to the Tangible Assets,
free and clear of any Lien. Except as disclosed on Schedule 3.15, all
Tangible Assets material to the operation of the CATV Systems are in good
working order and repair and comply in all material respects with
applicable rules, regulations and standards regarding their intended use.
Except as disclosed on Schedule 3.15, none of the cable used in the
business of the CATV Systems shall require any substantial rearrangement on
utility poles or rehabilitation. In addition, the CATV Systems meet all
current industry technical performance standards, including FCC CLI
standards, for a system of its particular design, which is a 450 Mhz
system. Further, all of the cable plant is to have been activated, swept
and proofed by the Closing Date. To the knowledge of the Company, and the
Shareholders, the CATV Systems provide reception on all channels shown in
Schedule 3.11(a) in compliance with the requirements of the CATV Systems'
respective CATV Franchises, the FCC, and all applicable laws and
governmental rules and regulations in all material respects, including but
not limited to all electrical banding and ground drop rules and
regulations. The CATV Systems' plant, structures, and equipment are
structurally sound, with no material defects, and are in good operating
condition and repair and are adequate for the uses to which they are being
put, and to the knowledge of the Company, and the Shareholders, none of
such plant, structures or equipment are in need of maintenance or repairs
except for ordinary, routine maintenance and repairs that are not material
in nature or cost;
(2) the Shareholders will deliver to C-TEC and Subsidiary prior to
the Closing substantially true and accurate as-built drawings of the CATV
Systems' cable plant and facilities installed within the CATV Systems'
franchise areas, and such drawings will be updated at C-TEC's and Subsidiary's
reasonable request to reflect the then-current status of installation of cable
plant;
(3) to the knowledge of the Company and the Shareholders, after
performing the tests described in subsection (a) of this Section, the physical
plant and facilities of the CATV Systems are in compliance with the FCC's
rules and regulations regarding signal leakage maintenance programs (including
monitoring and logging of discovered leaks as well as providing evidence of
on-going corrections of identified signal leaks), and such compliance measures
will be continued through Closing.
3.16. Patents, Trademarks, Intellectual Property. Schedule 3.16 sets
forth a complete list of all copyrights, patents, trademarks, trade names, and
other intellectual property assets owned or licensed by the Company, which
assets are owned or licensed free and clear of all Liens and consist of all
patents, trademarks, intellectual property and other intangible assets used or
otherwise necessary to conduct the business of the Company. Except as set
forth on Schedule 3.16, the Company possesses adequate rights, licenses or
other authority to use all such assets as necessary to conduct its business as
presently conducted. Neither the Company nor any of the Shareholders has
received any notice or other information with respect to any alleged
infringement or unlawful use of any such asset, nor has the Company or any of
the Shareholders granted or agreed to grant any license to use any such asset.
3.17. Insurance and Bonds. Schedule 3.17 is a correct and complete
list of all insurance and bonds held by the Company including the policy
number, name of carrier, coverage, term, expiration date and premium. The
Company has its buildings, plants and properties, including, but not limited
to Tangible Assets insured for no less than actual cash value, against loss
or damage by fire and all other hazards and risks of the character usually
insured against by persons operating similar properties in the localities
where such properties are located under valid and enforceable policies issued
by insurers of recognized responsibility. Such insurance coverage will be
continued in full force and effect through the Closing. The Company has not
been refused any insurance by an insurance carrier to which it has applied for
insurance during the past three years. The Company has complied in all
respects with the provisions of said policies and bonds.
3.18. Indebtedness. Schedule 3.18 is a correct and complete list of
all instruments, agreements or arrangements pursuant to which the Company has
borrowed any money, incurred any indebtedness or established any line of
credit which represents any liability, contingent or otherwise, of the Company
or the CATV Systems on the date hereof. Except as set forth in Schedule 3.18,
there is no other liability or outstanding indebtedness of the Company which
in the aggregate exceeds $10,000. Except as noted on Schedule 3.18, true and
complete copies of all such written instruments, agreements or arrangements
have been delivered to C-TEC prior to the date of this Agreement. Except as
noted on Schedule 3.18, there does not exist any default or event or condition
which after notice or lapse of time or both, would constitute a default by the
Company under any such instruments, agreements or arrangements.
3.19. Contracts. Except for the contracts, plans, agreements and
leases listed in Schedule 3.19(a), true and complete copies of which have been
furnished to C-TEC as of the date hereof, the Company is not a party to any
(i) contracts for the future purchase of materials, supplies, equipment or
services which separately involve a consideration of more than $10,000 or, in
the aggregate, involve a consideration of more than $100,000; (ii) programming
agreements; (iii) contracts not made in the ordinary and usual course of
business; (iv) employment or consulting contracts; (v) contracts with any
labor union or other labor organization; (vi) guarantees or accommodations;
(vii) CATV Instruments; (viii) leases of personal or real property; (ix)
contracts or agreements with affiliates or shareholders of the Company, or (x)
contracts continuing for a period of more than nine (9) months from their
respective dates. The Company has performed all obligations required to be
performed by it to date (including having paid any amounts required to have
been paid to date under any agreements including, but not limited to,
programming agreements and all franchise fees payable with respect to all CATV
Franchises) and has not breached and is not in default under any agreement
listed in Schedule 3.19(a) or to which it is a party or by which it is bound,
and all of the same are enforceable in accordance with their terms. All such
agreements are in full force and effect and there does not exist any default
or event or condition which, after notice or lapse of time or both, would
constitute a default thereunder by the Company or to the knowledge of the
Company, by any other party thereto. All of the CATV Franchises issued by any
Franchising Authority have been duly entered into and accepted by the Company
and the CATV Systems, and, were duly issued or were obtained by or transferred
to the Company in accordance with the terms thereof, and as required by
applicable law. To the knowledge of the Company, and the Shareholders, after
due inquiry, no other person or entity has been granted or holds the right or
has applied for the right to construct or operate a cable television system in
any portion of the franchise areas served by the CATV Systems, except as
described in Schedule 3.19(b). Schedule 3.19(c) contains a substantially
complete and accurate list of easements and rights of way pertaining to the
CATV Systems that are to be transferred or assigned to C-TEC and Subsidiary.
Such easements and rights-of-way constitute the easements and rights-of-way
used by the Company in the conduct of its business. C-TEC acknowledges that
certain easements and rights-of-way necessary for the operations of the CATV
System are not set forth on Schedule 3.19(c). The Company is the owner of
such easements and rights-of-way, including those not listed on Schedule
3.19(c) free and clear of all Liens, is in full compliance with the terms of
such easements and rights-of-way and does not require the consent of any party
to such easements and rights-of-way to consummate the transactions set forth
herein.
3.20. Employee Benefit Plans.
(1) Schedule 3.20 contains a list of all pension, retirement,
bonus, profit-sharing, deferred compensation, workers'
compensation insurance, group insurance and other employee pension
or welfare benefit plans of any type whatsoever entered into or
maintained by the Company. All such pension benefit plans are
qualified with the Internal Revenue Service ("IRS") and a copy of
the most recent IRS determination letter for each plan is included
in Schedule 3.20. The Company does not contribute to and/or
maintain any employee benefit plan including any multi-employer
benefit plan, whether funded or unfunded, except as listed in
Schedule 3.20.
(2) The Company is in compliance with and has filed, published
and disseminated all reports, documents, statements and
communications required to be filed, published or disseminated
under the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and the rules and regulations promulgated under
ERISA, and there is no additional funding requirement for any
reason, including but not limited to, amendments or terminations
of any employee benefit plan of the Company.
(3) None of the plans listed in Schedule 3.20 nor any fiduciary
thereof has engaged in transactions which might subject any of the
plans or any fiduciary thereof, of any party dealing with them, to
the tax or penalty on prohibited transactions imposed by Section
4975 of the Internal Revenue Code or to a civil penalty imposed by
Section 502 of ERISA. The Company has complied in all respects
with the terms of such plans.
(4) No such plan has been completely or partially terminated
since January 1, 1993.
(5) None of the plans or trusts has incurred any accumulated
funding deficiency, as such term is defined in Section 412 of the
Internal Revenue Code, whether or not such deficiency has been
waived.
3.21. Employment Collective Bargaining Agreements and Benefits. (1)
Schedule 3.21 contains a list of all collective bargaining agreements to which
the Company is subject. The Company has complied in all material respects
with all collective bargaining agreements for the benefit of employees to
which the Company is a party or by which it is bound.
(2) There are not in existence (or, to the Company's knowledge,
threatened) any (a) work stoppages or demands for collective bargaining
respecting employees of the Company, or (b) grievance or arbitration
proceedings arising out of collective bargaining agreements to which the
Company is a party.
3.22. Employees. Schedule 3.22 sets forth the names, and present
annual rate of compensation of all persons employed by the Company. Such
Schedule also sets forth the names of all directors and officers of the
Company and a description of any agreement with respect to the election or
tenure of any of them as such.
3.23. Title, Real Property Matters. Schedule 3.23 contains
descriptions by categories of the Company's real property (including all
improvements and structures located thereon) as of the date of this Agreement.
Except as set forth in Schedule 3.23, the Company will obtain title insurance
policies on all real estate listed as owned in fee simple on Schedule 3.23,
hereto, prior to the Closing. The Company owns or leases all the furniture,
equipment and leasehold improvements located in the structures referred to in
Schedule 3.23. All other assets and property used in the business of the
Company, and all assets and property reflected in the balance sheets of the
Financial Statements, or acquired after the balance sheet date of the
Financial Statements (other than assets or property sold or otherwise disposed
of in the ordinary course of its business subsequent to such date) are in each
case free and clear of all Liens, except as expressly stated in Schedule 3.23.
The Company's real property interests, appurtenances and leasehold
improvements comply with all applicable ordinances and regulations, building,
and zoning laws where noncompliance could have a Material Adverse Effect on
the Company and the Company has not received notice that it has failed to
comply with any applicable ordinance, regulation, building or zoning law. The
buildings, machinery and equipment of the Company are in good and serviceable
condition, reasonable wear and tear excepted. Neither the Company nor any
other party is in default on any lease of real property and all such leases
set forth in Schedule 3.23 are in full force and effect.
3.24. Brokers. Except for Daniels & Associates, whose fees will be
paid at Closing by the Shareholders, no investment banker, finder, broker
or other intermediary has been retained by or has acted for or on behalf of
the Company or any Shareholders who might be entitled to any fee or
commission from the Company upon the consummation of the transactions
contemplated by this Agreement or the other Transaction Agreements.
3.25. Tax Returns. Except as set forth in Schedule 3.25(a), (1)
All Tax returns, statements, reports and forms (including estimated Tax,
deposits or information returns or reports) (the "Returns") required to be
filed with any governmental or other taxing authority by the Company on or
prior to the date of this Agreement have been duly filed in accordance with
applicable law; (2) such Returns have correctly reflected the facts
regarding the income, businesses, assets, operations and activities of the
Company; (3) such Returns have correctly reflected all Taxes due and
payable by the Company through the Closing Date; (4) the Company has paid
(or withheld or remitted) all Taxes which have become due pursuant to such
Returns; (5) where such Returns have not been audited and approved or
settled, there has not been any waiver or extension of any applicable
statute of limitations; and (6) the Company has not received any notice of
deficiency or adjustment. The amounts shown as accrual for taxes on the
balance sheet of the Financial Statements are sufficient for the payment of
all Taxes, subject to audit and changes in the tax laws.
Except as set forth in Schedule 3.25(a), the Company is not currently
under audit by any federal, state or other tax authority and has not received
any notice and/or assessment either commencing an audit or stating that the
Company owes any taxes, related interest or penalties for any periods ending
prior to the date of this Agreement. At Closing, the Company and Shareholders
will deliver to the Company the certification set forth in Schedule 3.25(b)
(the "Tax-Free Reorganization Certificate"), which relate to the qualification
of the Merger as a tax-free reorganization pursuant to which the Company and
Shareholders will represent and warrant that the Merger qualifies as a
tax-free reorganization and will make certain related representations and
warranties.
3.26. Banks. Schedule 3.26 is a correct and complete list setting
forth the name of each bank in which the Company has an account or safe
deposit box, the names of all persons authorized to draw thereon or to have
access thereto, and the name of each person holding a power of attorney from
the Company.
3.27. Conflict of Interest. Except as set forth in Schedule 3.27,
neither the Shareholders nor any director, officer, or employee of the Company
or any Affiliate of any of the foregoing, (1) has any interest in any
property, real or personal whether owned or leased, tangible or intangible,
including, but not limited to, inventions, patents, trade names or trademarks
used in connection with or pertaining to the business of the Company or any
lender, supplier, customer, sales representatives or distributors of the
Company or (2) has entered into any contract, lending arrangement or other
agreement with the Company to provide services, materials or borrow or loan
money.
3.28. Securities Law. The Company is not now and has never been
subject to the reporting requirements of the Securities and Exchange
Commission ("SEC"). Each of the Shareholders is acquiring shares of Preferred
Stock for investment and not with an intention to resell, distribute such
shares or otherwise take any action not in compliance with Federal or state
securities' laws or otherwise requiring registration.
3.29. Environmental Matters. The Company is in compliance with all
applicable laws and regulations related to the environment, health and safety,
all required governmental permits have been obtained and are in effect, and no
on-site storage, treatment or disposal of hazardous waste or material has been
made (except in compliance with applicable laws and regulations). There are
no pending actions, proceedings, or notices of potential action and the
Company and Selling Shareholders have no knowledge of any facts that may lead
to actions, proceedings, or notices of potential action from any governmental
agency regarding the condition of the properties owned or leased by the
Company under environmental, health or safety laws, which would have a
Materially Adverse Effect on the Company's business. The Company has lawfully
disposed of its waste and no pending or threatened proceedings exist
concerning waste disposal by the Company. There are no underground storage
tanks, PCBs, asbestos, radon gas, harmful nuclear radiation, or hazardous
wastes present on the properties leased by or personal property owned by the
Company. If any environmental audit (which shall be commissioned by C-TEC or
the Subsidiary at its expense) indicates that any real property owned or
occupied by the CATV Systems on or prior to the Closing Date is or is likely
to become subject to any remediation, clean-up, or other obligation or
response under any environmental law then the Shareholders shall be
responsible for paying all the costs of such remediation, clean-up, or other
obligation or response, and the Selling Shareholders shall indemnify C-TEC and
Subsidiary against any claims arising therefrom.
3.30. Americans With Disabilities Act. The Company is in full
compliance with the Americans With Disabilities Act's mandates and
obligations, including but not limited to, those regarding telecommunications
providers, facilities accessibility and employment practices where any
noncompliance would have a Material Adverse Effect on the Company and the
Company has not received notice that it has failed to comply in any respect
with the Americans with Disabilities Act.
3.31. True at Closing. The representations, warranties, covenants and
agreements of the Shareholders and the Company set forth in this Article III,
are and will be true both on the date of this Agreement and on and as of the
Closing, except for representations, warranties, covenants and agreements made
as of a specific date, which will be true as of such specific date. All of
the representations and warranties by the Company and the Shareholders shall
survive the Closing for a period of two (2) years with the exception of the
environmental representations and warranties, which will survive for five (5)
years, and the tax representations and warranties, which will survive for the
respective tax statute of limitation periods.
3.32. Disclosure by the Shareholders and the Company. No
representation or warranty made by the Shareholders or the Company in this
Agreement and no statement made in any certificate to be delivered at the
Closing, Exhibit or Schedule furnished or to be furnished in connection
with the transactions herein contemplated contains or will contain any
untrue statement of a material fact or omits or will omit to state any
material fact necessary to make such representation or warranty or any such
statement not misleading to a prospective purchaser of the Company who is
seeking full information with respect to the Company. No disclosure of
information with respect to any warranty or representation contained in
this Agreement, or other matters contemplated by this Agreement, shall be
deemed to have been made or given unless it expressly appears in this
Agreement, or in any document submitted pursuant to a specific requirement
of this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF C-TEC
C-TEC and Subsidiary, jointly and severally, hereby represent and
warrant to the Company and Shareholders as follows:
4.1. Existence and Power. (a) C-TEC and Subsidiary are corporations
duly organized, validly existing and in good standing under the laws of the
State of Delaware (in the case of Subsidiary, the Commonwealth of
Pennsylvania). Each such corporation has full corporate power and authority
to carry on its business and operations as presently conducted and as proposed
to be conducted.
4.2. Corporate and Governmental Authorizations. (1) Each of C-TEC and
Subsidiary has full corporate power and authority to execute and deliver this
Agreement and the other Transaction Agreements to which it is a party, to
perform its obligations hereunder and thereunder and to consummate the
transactions contemplated hereby and thereby and to consummate the Merger.
The execution, delivery and performance of this Agreement and the other
Transaction Agreements to which either C-TEC or Subsidiary is a party and the
consummation of the Merger have been duly authorized by all requisite
corporate action of C-TEC and Subsidiary. This Agreement constitutes, and the
other Transaction Agreements to which C-TEC or Subsidiary are a party, when
executed and delivered by C-TEC or Subsidiary, will constitute, legal, valid
and binding obligations of C-TEC or Subsidiary enforceable against C-TEC or
Subsidiary in accordance with their respective terms.
(2) No consent or authorization of, or filing with, any Person
is required on the part of C-TEC or Subsidiary in connection with C-TEC's
or Subsidiary's respective execution, delivery or performance of either
this Agreement or the other Transaction Agreements to which either is a
party or the consummation of the Merger except for (i) the filing of the
Agreement of Merger, and (ii) those consents and authorizations identified
on Schedule 4.2, all of which have been obtained or will be obtained or
made prior to Closing.
4.3. No Conflicts, etc. Neither the execution and delivery by C-TEC
and Subsidiary of this Agreement or the other Transaction Agreements to which
either is a party, nor the consummation of the Merger will (1) violate,
conflict with or result in the breach of, or constitute a default under, (a)
any provision of the organizational documents of C-TEC or Subsidiary, (b) any
provision of any law or regulation applicable to C-TEC or Subsidiary, or to
which either of their assets are subject, (c) any order, judgment or award of
any court, tribunal or regulatory authority applicable to C-TEC or Subsidiary,
or to which either of their assets are subject or (d) any agreement or
instrument to which C-TEC or Subsidiary is a party or by which any of their
assets are bound, or (2) result in the creation of any Lien upon any of the
assets of C-TEC or Subsidiary.
4.4. Litigation, etc. There is no action, proceeding or investigation
pending or, to the knowledge of C-TEC threatened against C-TEC before any
court or governmental authority (1) which questions the validity of, or the
obligations of C-TEC under this Agreement or any other Transaction Agreements,
or (2) which seeks to impede, enjoin or invalidate the Merger, in whole or in
part.
4.5. Capitalization. C-TEC's authorized and issued capital stock
(the "C-TEC Capital Stock") consists of 100,000 shares of $1 par value
common stock and 100,000 shares of no par value preferred stock. None of
the preferred stock is issued or outstanding. The issued and outstanding
shares of the C-TEC Capital Stock are fully paid, validly issued and non-
assessable and are owned of record and beneficially free and clear of all
liens, claims and encumbrances except as set forth on Schedule 4.5. All of
the outstanding stock of C-TEC is owned by C-TEC Corporation, a
Pennsylvania corporation. There is no present plan or intention to
liquidate C-TEC or Subsidiary.
4.6. Disclosure by C-TEC and Subsidiary. No representation or warranty
made by C-TEC or Subsidiary in this Agreement, and no statement made in any
certificate to be delivered at the Closing, Exhibit or Schedule furnished or
to be furnished in connection with the transactions herein contemplated,
contains or will contain any untrue statement of a material fact or omits or
will omit a material fact necessary to make the statements contained therein
or herein not misleading.
4.7. Brokers. No investment banker, finder, broker or other
intermediary has been retained by or has acted for or on behalf of C-TEC or
Subsidiary who might be entitled to any fee or commission from the Company or
the Shareholders upon the consummation of the transactions contemplated by
this Agreement or any other Transaction Agreements.
ARTICLE V
CONDITIONS
5.1. Conditions to Obligations of C-TEC and Subsidiary. The
obligations of C-TEC and Subsidiary to consummate the transactions
contemplated by the Closing shall be subject to (1) receipt by C-TEC of the
Schedules required to be provided by the Company hereunder in such form and
substance as shall be satisfactory to C-TEC and (2) to the fulfillment (or
waiver by C-TEC and Subsidiary), on or prior to the Closing Date, of each of
the following conditions:
(1) The representations and warranties of the Company and
Shareholders contained herein shall have been true and correct in
all material respects when made and shall be repeated and be true
and correct in all material respects as of the Closing Date;
(2) The Company and Shareholders shall have performed and
complied in all material respects with all agreements and
conditions contained in this Agreement and the other Transaction
Agreements required to be performed or complied with by it prior
to or at the Closing Date;
(3) All authorizations and approvals of or consents of, or
filings with, any governmental authority or other person required
to be obtained or made by the Company or Shareholders in
connection with the Closing, including but not limited to FCC Form
394 filings shown on Schedule 5.1(3) attached hereto, and any
authorizations, approvals of, or consents of Franchising
Authorities pertaining thereto, shall have been obtained or made
and shall be in full force and effect;
(4) Each of the Transaction Agreements to which the Company or
any Shareholder is a party shall have been duly authorized,
executed and delivered by the Company or such Shareholder and
complete and correct copies thereof shall have been delivered to
C-TEC;
(5) The Company shall have delivered to C-TEC a certificate
executed by an authorized officer of the Company and by each
Shareholder, dated the Closing Date, to the effect that the
conditions set forth in paragraphs (1) through (4) of this Section
5.1 have been fulfilled;
(6) C-TEC shall have received any approvals or consents required
by its institutional lenders to consummate the transactions and
the Shareholders shall have executed (which, by execution of this
Agreement the Shareholders agree to execute) any subordination
agreement with respect to the Notes required by any such lenders;
(7) C-TEC shall have received from Cole, Raywid & Braverman, FCC
counsel to the Company and the
Shareholders, and Tallman, Hudders & Sorrentino, P.C. corporate
counsel to the Company and Shareholders, opinions dated the
Closing Date, substantially in the form of Exhibit F;
(8) All corporate and other proceedings of the Company in
connection with the transactions contemplated by this Agreement
and the other Transaction Documents, and all documents and
instruments incident to such corporate proceedings, shall be
satisfactory in substance and form to C-TEC and its counsel, and
C-TEC and its counsel shall have received all such documents and
instruments, or copies thereof, certified if requested, as may be
reasonably requested;
(9) No action or proceeding shall have been instituted or
threatened against the Company or the Shareholders which could
have a Material Adverse Effect on the business of the Company; no
action or proceeding shall have been instituted or threatened
against any of the parties to this Agreement or their directors or
officers, before any court or governmental department, agency or
commission to restrain or prohibit, or to obtain substantial
damages in respect of, this Agreement or the consummation of the
transactions contemplated hereby; and neither the Company nor C-TEC
shall have received written notice from any court or governmental
department, agency or commission of its intention to institute any
action or proceeding to restrain or enjoin or commence any
investigation (other than a routine letter of inquiry) into the
consummation of this Agreement and the transactions contemplated
hereby or to nullify or render ineffective this Agreement or such
transactions if consummated, which in the opinion of C-TEC would
make it inadvisable to consummate such transactions; provided that
in the event such an investigation (other than a routine letter of
inquiry) is instituted, this Agreement may not be abandoned by
C-TEC for such reason but the consummation of the transactions
provided for in this Agreement shall be delayed for such period,
not in excess of one hundred twenty (120) days, as may be
necessary to determine whether such investigation is likely to
result in an action or proceeding of the type described in the
second clause of this Section 5.1(9).
(10) Prior to the Closing, there shall not have occurred any
Material Adverse Change in the financial condition, operations,
business or prospects of the Company, including, but not
limited to, becoming subject to any state or federal regulatory
proceedings which could culminate in an order or other action
which could cause such a Material Adverse Change;
(11) Prior to the Closing, there shall not have occurred any
damage, destruction or loss to Tangible Assets exceeding $50,000
or other loss that has a Material Adverse Effect on the products,
properties, business operations or prospects of the Company;
(12) Upon receipt of stock transfer information from Bank of
Boston, stock transfer agent for C-TEC, each Shareholder shall
have delivered certificates representing all of the Capital
Stock, free and clear of all Liens and encumbrances, duly
endorsed in blank with guaranteed signatures and all required
transfer stamps, if any. Alternatively, if a Shareholder has
lost his or her certificate(s), such shareholder shall deliver
an affidavit attesting such fact in a form acceptable to C-TEC,
together with an assignment separate from such certificate and
a lost certificate bond insuring C-TEC and the Company for the
full value of any loss occasioned by such lost certificate;
(13) The Company shall have delivered to C-TEC at the Closing
certified copies of resolutions adopted by the Board of Directors
of the Company adopting and approving this Agreement and the
Transaction Agreements. The Company shall have delivered to C-TEC
resignations of all directors and such officers as requested by
C-TEC effective as of the Closing;
(14) The Company shall have delivered to C-TEC a Certificate of
Good Standing (or its equivalent) issued by the Secretary of State
of the Commonwealth of Pennsylvania to the effect that the Company
is duly incorporated and in good standing under the laws of the
Commonwealth of Pennsylvania, no less than 10 days prior to
Closing;
(15) The Plan of Merger shall have been approved by the
affirmative vote of the holders of one hundred (100%) percent of
all outstanding shares of the Company common stock entitled to
vote thereon. Accordingly, none of the holders of the Capital
Stock shall have filed written notice of intent to demand payment
pursuant to the dissenters rights in Pennsylvania corporate law.
By executing this Agreement, each of the Shareholders agrees to
vote affirmatively in favor of the Merger and execute any
documents or instruments necessary to evidence such approval;
(16) The Company shall have furnished to C-TEC a Certificate of
the Secretary of the Company, certified as of the Effective Date,
as to the incumbency and signatures of the officers of the Company
executing this Agreement and any document contemplated or
delivered under this Agreement;
(17) C-TEC, at its option and own cost and expense, shall have
completed a Phase I environmental audit of the properties of the
Company and such audit shall not indicate the presence or likely
presence of environmental hazards on such properties. Such audit
shall be instituted within twenty (20) days after this Agreement
is fully executed by both parties;
(18) Each of the Shareholders of the Company shall have delivered
to C-TEC and Subsidiary, on or before the Closing, a written
waiver, in a form acceptable to C-TEC and Subsidiary, of any and
all preemptive rights to shares of the Company as he, she or it
may, or at any time, did have under applicable Pennsylvania law;
and
(19) On or before the Closing the Company shall have taken, and
the Shareholders shall cause the Company to have taken all
corporate action as may be necessary and satisfactory to C-TEC and
Subsidiary, in their sole discretion, to formalize update, bolster
and ratify the past actions of the employees, officers, directors
and shareholders of the Company.
5.2. Conditions to Obligations of the Company and Shareholders. The
obligations of the Company and Shareholders to consummate the transactions
contemplated by the Closing shall be subject to (1) the receipt by
Shareholders of the Schedules required to be provided by C-TEC hereunder in
such form and substance as shall be satisfactory to the Shareholders and
(2) to the fulfillment (or waiver by the Company and Shareholders), on or
prior to the Closing Date, of each of the following conditions:
(1) The representations and warranties of C-TEC and Subsidiary
contained herein or in any Transaction Agreement to which it is a
party and shall have been true and correct in all material
respects when made and shall be repeated and be true and correct
in all material respects as of the Closing Date;
(2) C-TEC and Subsidiary shall have performed and complied in
all material respects with all agreements and conditions contained
in this Agreement and any Transaction Agreements required to be
performed or complied with by it prior to or at the Closing Date;
(3) All authorizations, consents of and approvals of, or filings
with, any governmental authority or other person required to be
obtained or made by C-TEC or Subsidiary in connection with the
Closing shall have been obtained or made and shall be in full
force and effect;
(4) Each of the Transaction Agreements to which C-TEC or
Subsidiary is a party shall have been duly authorized, executed
and delivered by C-TEC or Subsidiary, and complete and correct
copies thereof shall have been delivered to the Company;
(5) C-TEC and Subsidiary each shall have delivered to the
Company a certificate executed by authorized officers of C-TEC and
Subsidiary, dated the Closing Date, to the effect that the
conditions applicable to it set forth in paragraphs (1) through
(4) of this Section 5.2 have been fulfilled;
(6) The Company and Shareholders shall have received from
Swidler & Berlin, Chartered, counsel to C-TEC and Subsidiary, an
opinion dated the Closing Date, substantially in the form of
Exhibit G;
(7) All corporate and other proceedings of C-TEC and Subsidiary
in connection with the transactions contemplated by this Agreement
and the other Transaction Agreements, and all documents and
instruments incident to such corporate proceedings, shall be
satisfactory in substance and form to the Company and its counsel,
and the Company and its counsel shall have received all such
documents and instruments, or copies thereof, certified if
requested, as may be reasonably requested;
(8) C-TEC and Subsidiary shall have delivered to the Company and
Shareholders at the Closing certified copies of resolutions
adopted by the Board of Directors of each of C-TEC and Subsidiary
adopting and approving this Agreement and the Transaction
Agreements; and
(9) C-TEC and Subsidiary each shall have furnished to the Company
and Shareholders a Certificate of the Secretary of each entity,
certified as of the Effective Date, as to the incumbency and
signatures of the officers of C-TEC and Subsidiary executing this
Agreement and any document contemplated or delivered under this
Agreement.
ARTICLE VI
MUTUAL COVENANTS AND AGREEMENTS
Efforts to Consummate Transactions. Each of the Company and C-TEC shall
use their best efforts to cause the conditions to the Closing contained in
this Agreement to be satisfied as promptly as practicable after the date
hereof and otherwise to effect the transactions contemplated hereby and by the
other Transaction Documents.
ARTICLE VII
COVENANTS OF THE SHAREHOLDERS AND THE
COMPANY PENDING CLOSING
The Shareholders and the Company, jointly and severally, covenant and
agree that from the date hereof to and including the Closing:
7.1. Maintenance of Business. The Company shall continue to carry on
its business diligently, in good faith and in the ordinary course, consistent
with past practices and in compliance with all applicable laws, rules and
regulations. The Company will maintain its plants and equipment and keep its
books of account, records and files in substantially the same manner as
heretofore. The Company will maintain in full force and effect insurance
policies now in effect. Upon the request of C-TEC, the Company will begin
conversion to cable data billing services provided that C-TEC shall reimburse
the Company for any reasonable costs incurred in connection with such
conversion. Upon the request of C-TEC, the Company will begin to maintain its
books and records on an accounting system consistent with that used by C-TEC.
7.2. Existence and Good Standing; Compliance with Laws. The Company
shall continuously maintain its existence and its good standing in the
jurisdiction of its formation and any other appropriate jurisdiction and will
comply in all material respects with all applicable statutes, rules,
regulations, orders, and restrictions of any governmental agency and
instrumentality.
7.3. Contracts and Concessions. The Company will perform and observe
in all material respects all covenants and provisions of all agreements and
all CATV Systems.
7.4. Taxes. The Company shall pay all Taxes as they become due, file
all Returns required to be filed in a timely and correct manner and will
collect or withhold all taxes required to be collected or withheld from
employees, independent consultants or third parties. The Company will not
file any amended Returns or enter into settlement of any audit or tax dispute
with any governmental entity or other taxing authority without the consent of
C-TEC which can be withheld in C-TEC's sole discretion.
7.5. Negative Covenants. Without the prior written consent of C-TEC
which can be withheld in C-TEC's sole discretion, the Company shall not, and
the Shareholders shall do all things and take all necessary and proper action
to provide that the Company shall not take any of the following actions (or
agree to take any such actions):
(1) Issue, sell, purchase or redeem, or grant options,
warrants to purchase or otherwise agree to sell, purchase or
redeem any shares of its Capital Stock or any other securities
of the Company or any securities convertible into or
exchangeable for such shares;
(2) Authorize, declare, or pay any dividend or other distribution
in respect of its Capital Stock or purchase or redeem, directly or
indirectly, any shares of its Capital Stock;
(3) Amend its Articles of Incorporation or Bylaws;
(4) Prepay any liability for borrowed money;
(5) Pay any obligation or liability other than (a) obligations
or liabilities reflected in the balance sheets of the Financial
Statements, (b) liabilities incurred since the date of the
Financial Statements in the ordinary course of business and (c)
obligations under contracts and agreements referred to in
Schedules annexed hereto;
(6) Change any material aspect of its accounting, tax practices,
policies or principles;
(7) Enter into any employment or consulting contract (including
any deferred compensation arrangement) with any director, officer
or employee (or alter the terms of any such existing employment or
consulting contract or deferred compensation arrangement) or
increase the compensation payable or to become payable (or other
bonus or benefit) to any of its officers, employees or agents;
(8) Execute any guaranty, endorsement or indemnification by the
Company of the obligations of any third person, firm or company;
(9) Undertake the sale or transfer of any assets or cancellation
by the Company of debts or claims having a value, in the
aggregate, of more than $5,000, except in each case, in the
ordinary course of business;
(10) Effect any knowing waiver by the Company of any rights of a
material value;
(11) Guarantee any mortgage, pledge or lien or other encumbrance
of any of its assets, tangible or intangible;
(12) Effect any assignment, sale or transfer of any patent,
trademark, trade name, trade secret, copyright, CATV Instruments
or other intangible asset;
(13) Implement any change to the existing pricing structure, fee
or charges to Subscribers;
(14) Implement any changes to existing Company marketing or
promotional plans and policies;
(15) Adopt or modify any bonus, pension, profit sharing
collective bargaining agreement or other compensation plan or
enter into any contract of employment;
(16) Enter into any (or modify any existing) agreement or
commitment or transaction (including without limitation any
borrowing, capital expenditure, capital financing leasing
arrangement or purchase commitment), incur any liability, absolute
or contingent, waive any right or enter into any other
transaction, material to the business operations or financial
condition of the Company as a whole, except agreements,
commitments or transactions in the ordinary course of business; or
(17) Take any action which if taken prior to the date hereof
would constitute a breach of any representation or warranty
contained in this Agreement.
7.6. Organization, Good Will. The Company shall preserve its business
organization intact, retain the services of its present officers and use its
reasonable efforts to retain substantially as at present its employees, and
preserve the good will of its suppliers, customers and others having business
relations with it.
7.7. Access to Plants, Files and Records. During regular business
hours, and at the request of C-TEC, the Company shall, from time to time, give
or cause to be given to C-TEC, its officers, employees, accountants, counsel
and authorized representatives (i) full access to all of the Tangible Assets,
plant, property, accounts, books and other financial records, minute books,
deeds, title, papers, insurance policies, Licenses, agreements, contracts,
commitments, tax returns, records and files of every character, employees,
fixtures, furniture, vehicles, notes and accounts payable and receivable and
inventories of the Company and (ii) all such other information concerning the
affairs of the Company as C-TEC may reasonably request. Notwithstanding the
foregoing, from the date hereof to and through the Closing, C-TEC and
Subsidiary shall have the unrestricted right to consult with the independent
auditors of the Company with respect to all matters, including, but not
limited to, Financial Statements.
7.8. Consents to Leases, Contracts. With respect to all leases,
licenses, CATV Instruments, and other contracts and instruments and rights of
the Company which require the consent of another party to the transaction
contemplated herein, the Company will obtain or cause to be obtained such
consents.
7.9. Notice of Proceedings. The Company will, upon becoming aware of
any order or decree or any compliant praying for an order or decree
restraining or enjoining the consummation of the Agreement or the transactions
contemplated hereunder, or upon receiving any notice from any governmental
department, court, agency or commission of its intention to institute an
investigation into, or institute a suit or proceeding to restrain or enjoin
the consummation of this Agreement or such transactions, or to nullify or
render ineffective this Agreement or such transactions if consummated,
promptly notify C-TEC in writing of such order, decree, complaint or notice.
7.10. Confidential Information. The Shareholders and the Company shall
not disclose to third parties any confidential information received from C-TEC
or Subsidiary in the course of investigating, negotiating and performing the
transactions contemplated by this Agreement; provided, however, that this
provision shall be applicable only with respect to information received from
C-TEC or Subsidiary and clearly identified as confidential information, and
that nothing shall be deemed to be confidential information which:
(1) Is known to the Company at the time of disclosure by C-TEC
or Subsidiary;
(2) Becomes publicly known or available;
(3) Is rightfully received by the Company from a third party; or
(4) Is independently developed by the Company.
7.13. Exclusive Negotiation. Neither the Company nor any of the
Shareholders shall enter into any discussions, negotiations or agreements with
any party other than C-TEC regarding the sale or disposition of the Company or
its business.
7.14. Maintenance of Inventory. To the extent it is necessary in
the ordinary course of the CATV Systems' business to remove and utilize any of
its inventory, the Company shall purchase and pay for like items so that at
Closing the Shareholders shall convey to C-TEC and the Subsidiary under this
Agreement items substantially equal in value, number, kind, and quality to the
inventory existing at the date of this Agreement.
7.15. CATV Franchises. Upon written request of C-TEC Shareholders
and the Company will use their best efforts to aid C-TEC and Subsidiary in
obtaining in accordance with applicable state, city, county, municipal, or
other local laws of governing bodies with authority thereover, extension of
the term of any CATV Franchises such that the term of each thereof shall have
at least ten (10) years remaining from and after the Closing Date, unless
C-TEC and Subsidiary waive this requirement with respect to any CATV System.
7.16. Delivery of Franchise Authority Consents. Upon written
request of C-TEC, the Company and the Shareholders will deliver to C-TEC
copies of each of the CATV Franchises as amended to date, including the
consents, transfers and amendments, if any, required by this Agreement,
certified by the respective public officials of the respective Franchising
Authorities as of a date near the Closing Date. Prior to the Closing, the
Company and the Shareholders will have obtained all necessary state and
municipal consents and approvals relative to the transfer of control or
assignment of the CATV Franchises from the Shareholders and the Company to
C-TEC and subsequently to Subsidiary.
ARTICLE VIII
COVENANTS OF C-TEC AND SUBSIDIARY PENDING MERGER
C-TEC and Subsidiary, jointly and severally, covenant and agree that
from the date hereafter to and including Closing:
8.1. C-TEC as Sole Shareholder of Subsidiary. C-TEC will continue to
be the sole shareholder of Subsidiary, and prior to the Closing Date, subject
to the terms of this Agreement, will adopt and approve at a special meeting of
the shareholder of Subsidiary, or by written consent, the Plan of Merger.
8.2. Notice of Proceedings. C-TEC and Subsidiary will, upon becoming
aware of any order or decree or any complaint praying for an order or decree
restraining or enjoining the consummation of this Agreement or the
transactions contemplated hereunder, or upon receiving any notice from any
governmental department, court, agency or commission of its intention to
institute an investigation into, or institute a suit or proceeding to restrain
or enjoin the consummation of this Agreement or such transactions if
consummated, promptly notify the Company in writing of such order, decree,
complaint or notice.
8.3. Confidential Information. If, for any reason, the transaction
contemplated by this Agreement is not consummated C-TEC and Subsidiary shall
not disclose to third parties any confidential information received from the
Company in the course of investigating, negotiating and performing the
transactions contemplated by this Agreement; provided, however, that this
provision shall be applicable only with respect to information received from
the Company and clearly identified as confidential information, and that
nothing shall be deemed to be confidential information which:
(1) Is known to C-TEC or Subsidiary at the time of disclosure by
the Company;
(2) Becomes publicly known or available;
(3) Is rightfully received by C-TEC or Subsidiary from a third
party; or
(4) Is independently developed by C-TEC or Subsidiary.
ARTICLE IX
MUTUAL COVENANTS AND CONDITIONS TO
OBLIGATIONS OF THE COMPANY, C-TEC AND SUBSIDIARY
9.1. Applications to FCC and Franchising Authorities. As soon as
practicable after execution of this Agreement, the Company, C-TEC, and, if
required, Subsidiary shall join in applications to the FCC and the Franchising
Authorities identified on Schedule 9.1 requesting each such governmental
authority's approvals and authorizations of the transactions contemplated by
this Agreement. Thereafter, the Company and C-TEC and, if necessary,
Subsidiary shall cooperate with each other and shall take such actions as are
necessary and proper to obtain expeditious, favorable actions by the FCC and
the Franchising Authorities. The Company and C-TEC shall share equally all
fees charged in connection with or incidental to the filing and processing of
the aforesaid applications, as well as the costs of filing and processing,
except that each party shall bear its own legal, accounting, and other
professional fees related thereto.
9.2. Necessity for FCC and Franchising Authority Approvals. The
obligations of the Company, C-TEC, Subsidiary and the Shareholders under this
Agreement are subject to the receipt prior to the Closing of "Final Orders" of
the FCC and applicable Franchising Authorities approving and authorizing the
transactions contemplated herein. C-TEC, Subsidiary, the Shareholders and the
Company shall not be obligated to consummate such transactions if, in the
judgment of C-TEC's Board of Directors, there is contained in any such order a
term, condition or provision which is unduly burdensome. For the purposes of
this Section 9.2, a "Final Order" shall mean an order of the FCC or a
Franchising Authority (including an order issued by the staff of the FCC or a
Franchising Authority acting under delegated authority) that is not subject or
potentially subject to further action of any kind, including but not limited to
reconsideration, rehearing or review by the FCC or any Franchising Authority
or to judicial review.
Each of the parties to this Agreement agrees that if C-TEC, using its
reasonable judgment, determines that an application to any other state or
federal agency not identified on Schedule 9.2 for its approval and
authorization of the transactions contemplated herein is required, then C-TEC
shall file such application at its sole expense and the Shareholders and the
Company shall join in such application with C-TEC.
9.3. Other Filings. Within twenty (20) days after the execution of
this Agreement, the Company, Subsidiary and C-TEC, if necessary, shall apply,
file or give notice to the FCC, the Federal Trade Commission and the
Department of Justice, Antitrust Division, of the transactions contemplated
herein. Prior to the Closing Date, any applicable waiting period, under the
Hart-Scott-Rodino Act shall have expired or been terminated. The fees
required for these filings shall be shared equally by the Company and C-TEC
except that each party shall bear its own expenses related thereto.
9.4. Meeting of the Company Shareholders, Proxy Materials. The Company
covenants that it will call and, on or prior to October 14, 1994, or such
other date as may be agreed upon between the Company and C-TEC, hold a meeting
of the Company's shareholders for the purpose of approving the Plan of Merger.
ARTICLE X
INDEMNIFICATION
10.1. Indemnification. (1) The Shareholders and the Company, jointly
and severally, shall indemnify and hold harmless C-TEC, Subsidiary and their
affiliates and the directors, officers and employees of each of the foregoing
from, against and with respect to any and all claims, liabilities, losses,
damages, costs and expenses (including interest, penalties and reasonable
attorney's fees and disbursements), whether or not resulting from third party
claims (each of the foregoing being referred to herein individually as a
"Loss"), arising out of or as a result of (i) any breach by the Company or
Shareholders of any covenant or obligation of the Company in this Agreement or
in any other Transaction Agreement to which it is a party, or (ii) any breach
by the Company or Shareholders of, or any inaccuracy in, any representation or
warranty made by the Company in this Agreement or in any other Transaction
Agreements to which it is a party.
(2) C-TEC and Subsidiary shall indemnify and hold harmless the
Company and the Shareholders and the Company's directors, officers and
employees from, against and with respect to any and all Losses arising out
of or as a result of (i) any breach by C-TEC or Subsidiary of any covenant
or obligation of C-TEC or Subsidiary in this Agreement or in any other
Transaction Agreement to which it is a party, (ii) any breach by C-TEC or
Subsidiary, or any inaccuracy in, any representation or warranty made by
C-TEC or Subsidiary in this Agreement or in any other Transaction Agreement
to which it is a party.
10.2. Indemnification Procedures. For the purposes of this Section
10.2, the party seeking indemnification shall be known as the "Indemnified
Party" and the party from whom indemnification is sought shall be known as the
"Indemnifying Party". As soon as reasonably practicable after receipt by an
Indemnified Party of notice of any Loss in respect of which an Indemnifying
Party may be liable under Section 7.5, the Indemnified Party shall give notice
thereof to the Indemnifying Party, setting forth in reasonable detail the
facts and circumstances pertaining thereto and the Indemnifying Party shall
immediately reimburse the Indemnified Party for any such Loss. In the case of
any action brought by a third party, the Indemnified Party shall permit the
Indemnifying Party, at its option and expense, to assume the defense of any
such claim by counsel satisfactory to the Indemnified Party and to settle or
otherwise dispose of the same; provided that the Indemnified Party may at its
discretion at all times participate (at its own expense) in such defense by
counsel of its own choice. Notwithstanding the foregoing, the Indemnified
Party will have the right to employ its own counsel and to control the defense
or settlement in any such action, but the fees, expenses and other charges of
such counsel will be at the expenses of such Indemnified Party unless (i) the
employment of counsel by the Indemnified Party has been authorized in writing
by the Indemnifying Party, or (ii) a conflict or potential conflict exists
(based on advice of counsel to the Indemnified Party) between the Indemnified
Party and the Indemnifying Party, or (iii) the Indemnifying Party has not in
fact employed counsel to assume the defense of such action within a reasonable
time after receiving notice of the commencement of the action or has not
assumed such defense to the reasonable satisfaction of the Indemnified Party.
The Indemnifying Party shall not, in defense of any such claim, except with
the prior written consent of the Indemnified Party, enter into any settlement
that does not include as an unconditional term thereof the giving by the
claimant or plaintiff in question to the Indemnified Party and its Affiliates
a release of all liabilities in respect of such claims. In the event of a
dispute under this Section 10.2, each of the parties are entitled to all
remedies available in law or equity. Notwithstanding anything to the contrary
in this Article X, except for claims relating to Taxes and environmental
(Sections 3.25 and 3.29), the Shareholders shall only be required to reimburse
C-TEC for losses to the extent that the total of such Losses and Consideration
adjustments pursuant to Section 2.7 exceeds the Consideration Threshold.
Further, the trustee for the trust that holds shares of Capital Stock shall
have no personal liability pursuant to this Article X or any other provision
in this Agreement.
ARTICLE XI
MISCELLANEOUS
11.1. Termination. This Agreement may be terminated at any time prior
to the Closing:
(1) By the written agreement of the Company, C-TEC and the
Shareholders;
(2) Upon written notice given by C-TEC if the Closing has not
occurred on or prior to February 28, 1995;
(3) Upon notice given by C-TEC if the Company or Shareholders
breach any covenant or agreement in this Agreement or any
Transaction Agreement or if any representation or warranty made by
the Company or any Shareholder in or pursuant to this Agreement or
any Transaction Agreement is false in any material respect;
(4) Upon notice given by the Shareholders if C-TEC or Subsidiary
breach any covenant or agreement in this Agreement or any
Transaction Agreement or if any representation or warranty made by
C-TEC or Subsidiary in or pursuant to this Agreement or any
Transaction Agreement is false in any material respect.
(5) Upon notice given by either the Company or C-TEC if
consummation of the transactions contemplated hereby would
violate, in whole or in part, any nonappealable final order,
decree or judgment of any court or governmental body having
competent jurisdiction.
(6) Either the Company or C-TEC shall have the right to
terminate this Agreement immediately prior to Closing in the event
that the Company or C-TEC shall have defaulted in the performance
of any of the material obligations to be performed hereunder, or
should any covenant, warranty or representation made by any other
party in this Agreement prove to be incorrect or incomplete in any
material sense, provided, however, that the parties hereto shall
have the right until the Closing to correct or satisfy any
condition or covenant necessary to the consummation of this
Agreement. Nothing herein shall be construed as relieving a party
from liability for damages to the other party for breach of its
obligations under or by reason of this Agreement, and this right
to terminate shall be in addition to any of the remedies the
parties may have at law or in equity. In the event that a party
rightfully terminates this Agreement, in lieu thereof, and in
addition to any other remedies the terminating party may have at
law or in equity, the terminating party may sue for specific
performance and damages.
11.2. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF PENNSYLVANIA.
11.3. Survival. Those obligations and agreements contained in this
Agreement that by their terms are to be performed after the Closing
(including, but not limited as to, agreements regarding confidentiality and
indemnification) shall survive the Closing and shall not terminate. In
addition, any obligation of any party to this Agreement to indemnify for
breaches of any representation, warranty, covenant or agreement shall apply to
any claim that is asserted before the termination of such representation,
warranty, covenant or agreement. Otherwise, the representations, warranties,
covenants of the parties hereto contained in this Agreement or in any other
Transaction Agreement, or otherwise made in writing in connection with the
transactions contemplated hereby and thereby (in each case as affected by the
transactions contemplated by the Transaction Agreements) shall survive the
Closing.
11.4. Amendment, Assignment, etc. Neither this Agreement nor any term
hereof may be amended, changed, waived, discharged or terminated other than by
an instrument in writing, signed by the party against which enforcement of
such amendment, change, waiver, discharge or termination is sought. This
Agreement shall be binding upon the respective successors and permitted assigns
of the parties hereto. This Agreement shall not be assignable or otherwise
transferable by a party without the prior written consent of the other party
and any attempt to so assign or transfer this Agreement without such consent
shall be void and of no effect.
11.5. Notices. All notices, consents, requests, instructions,
approvals and other communications provided for herein shall be in writing and
shall be deemed validly given upon personal delivery or one day after being
sent by telecopy or overnight courier service"
(a) if to the Company at:
3925 Airport Road
Allentown, PA 18103
(b) if to C-TEC, at:
C-TEC Corporation
105 Carnegie Center
Princeton, New Jersey 08540
Attention: Steven J. Rabbitt
Executive Vice President
C-TEC Cable Systems, Inc.
with a copy to:
C-TEC Corporation
105 Carnegie Center
Princeton, New Jersey 08540
Attention: Raymond B. Ostroski
General Counsel
(c) if to Subsidiary, at:
C-TEC Corporation
105 Carnegie Center
Princeton, New Jersey 08540
Attention: Steven J. Rabbitt
Executive Vice President
C-TEC Cable Systems, Inc.
with a copy to:
C-TEC Corporation
105 Carnegie Center
Princeton, New Jersey 08540
Attention: Raymond B. Ostroski
General Counsel
(d) if to each of the Shareholders listed in the agreement:
(i) Bark Lee Yee;
(ii) Stella C. Yee;
(iii) Susan C. Yee;
(iv) Raymond C. Yee; and
(v) Kenneth C. Yee
at: 3925 Airport Road
Allentown, PA 18103
with a copy to:
Robert G. Tallman
Tallman Hudders & Sorrentino
Lehigh Valley Trust Co. Building
634 Hamilton Mall
Allentown, Pennsylvania 18162
or at such other address or telecopy number as any party hereto may designate
by written notice to the other parties hereto.
11.6. Expenses and Risk of Loss. Except as otherwise specifically
provided in this Agreement, the Shareholders shall pay all costs and expenses
relating to the negotiation and consideration of this Agreement by the Company
and the Shareholders (including all filing fees and the cost of obtaining any
consents or approvals for which the Company or Shareholders are responsible
and related, legal and accounting fees) and C-TEC shall pay all costs and
expenses relating to the negotiation and consummation of this Agreement by
C-TEC and Subsidiary (including all filing fees and the cost of obtaining any
consents or approvals for which C-TEC or Subsidiary is responsible and
related, legal and accounting fees). The cash portion of the Consideration
shall be reduced by the amount of any loss (as agreed to by the parties)
occurring prior to closing by reason of fire, explosion, earthquake,
windstorm, accident, flood, act of God, war, seizure or activities of the
armed forces, or other casualty, ordinary wear and tear excepted, or any of the
Company's assets shall, to the extent not covered by insurance. If such loss
or damage shall be sufficiently substantial to preclude the resumption of
normal operation or a substantially complete restoration of any substantial
part of the CATV Systems within thirty (30) days, or if such loss or damage
materially and adversely affects the value of the Company's assets to the
extent of more than ten (10%) percent of the fair market value thereof, the
Company shall promptly notify C-TEC in writing. C-TEC, at any time within
thirty (30) days after receipt of such notice, may elect to either (i) accept
the proceeds of any insurance coverage relating to the Systems, and consummate
the transactions contemplated by this Agreement, or (ii) terminate this
Agreement. In the latter event, all parties hereto shall stand fully released
and discharged from any and all obligations under this Agreement. If C-TEC
elects to consummate the transactions contemplated by this Agreement the
Consideration shall be reduced by the amount of such loss or damage (as agreed
to by the parties) not compensated by insurance proceeds received by the
Company on the Closing Date. Any purchase price adjustment pursuant to the
Section 11.6 shall not be subject to the Consideration Threshold set forth in
Section 2.7.
11.7. Severability. If any provision of this Agreement is held to be
unenforceable for any reason, it shall be adjusted rather than voided, if
possible, in order to achieve the intent of the parties to this Agreement to
the extent possible. In any event, the invalidity or unenforceability of any
provisions of this Agreement in any jurisdiction shall not affect the validity
or enforceability of the remainder of this Agreement in that jurisdiction or
the validity or enforceability of this Agreement, including that provision, in
any other competent jurisdiction.
11.8. No Third Party Beneficiaries. Persons who are entitled to
indemnification in accordance with Article 10 of this Agreement are
third-party beneficiaries of Sections 3.11(5)(b) and 3.29. Otherwise, nothing
in this Agreement will be construed as giving any Person, other than the
parties hereto and their successors, heirs and permitted assigns, any right,
remedy or claim under or in respect of this Agreement or any provisions
hereof, except as specifically provided for herein.
11.9. Further Assurances. From time to time prior to, at and after the
Closing, the Company, Subsidiary and C-TEC will and will cause their
respective directors and officers to execute all such instruments and take all
such actions as C-TEC, the Subsidiary or the Company, being advised by
counsel, shall reasonably request in connection with the carrying out and
effectuating of the intent and purpose hereof and all transactions and things
contemplated by this Agreement including, without limitation, the execution
and delivery of any and all confirmatory and other instruments in addition to
those to be delivered on the Closing, and any and all actions which may
reasonably be necessary or desirable to complete the transactions contemplated
hereby.
11.10. Public Statements or Releases. The Company, the Shareholders
and C-TEC each agree not to make, issue or release any public announcement,
statement (including notifying existing Subscribers, Franchising
Authorities or parties to any contracts or agreements with the Company) or
acknowledgment of the existence of, or reveal the terms, conditions and
status of, the transactions provided for in this Agreement, without first
attempting to the extent reasonably possible (and in all cases with regard
to written matters) to clear such announcement, statement, acknowledgement
or revelation with the other parties hereto. Each party agrees that it
will not unreasonably withhold any such consent or clearance from another
party.
11.11 Cable Subscription. Following Closing, for the remainder of
her natural life, and as long as Subsidiary continues to conduct the
business conducted by the Company, Subsidiary shall provide basic cable TV
service to Stella C. Yee, at her Pennsylvania residence, without charge.
Such right shall be nonassignable and terminate upon her death.
11.12. Integration; Section Headings; Counterparts; etc. This
Agreement (including the Schedules and Exhibits hereto) and the other
documents delivered pursuant hereto constitute the full and entire
understanding and agreement of the parties and supersedes any and all prior
agreements, arrangements and understandings relating to the subject matters
hereof and thereof. The section headings of this Agreement are for
convenience of reference only and are not to be considered in construing
this Agreement. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same instrument. Neither this Agreement nor
any Transaction Document shall create the relationship of partners, joint
venturers, or principal and agent among the parties hereto or any of their
respective Affiliates. None of the parties hereto shall have any authority
to represent or to bind the other parties in any manner whatsoever.
11.13. Counterparts. This Agreement may be executed in any number of
counterparts,each of which shall be an original, and such counterparts which
taken together shall constitute one and the same Agreements.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the date first above-written.
C-TEC Cable Systems of
Pennsylvania, Inc.
_______________________ By: /s/ David C. McCourt
_______________________________
Name: David C. McCourt
Title: Chief Executive Officer
C-TEC Cable Systems, Inc.
_______________________ By: /s/ David C. McCourt
_______________________________
Name: David C. McCourt
Title: Chief Executive Officer
TWIN COUNTY TRANS VIDEO, INC.
_______________________ By: /s/ Robert G. Tallman
_______________________________
Name: Robert G. Tallman
Title: Assistant Secretary
/s/ Bark Yee Lee
_______________________ ____________________________
Bark Yee Lee
/s/ Stella C. Yee
_______________________ ____________________________
Stella C. Yee
/s/ Raymond C. Yee
_______________________ ____________________________
Raymond C. Yee
/s/ Susan C. Yee
_______________________ ____________________________
Susan C. Yee
/s/ Kenneth C. Yee
_______________________ ____________________________
Kenneth C. Yee
/s/ Robert G. Tallman
_______________________ ____________________________
Robert G. Tallman, Trustee
Exhibit C
Preliminary
C-TEC Cable Systems, Inc. (the Corporation)
Preferred Stock, 5% Series A
The designation preferences, privileges and voting powers of the
shares of the Preferred Stock, 5% Series A, and the restrictions or
qualifications thereof (insofar as they differ from or supplement the
provisions which are applicable to all shares of the Preferred Stock
irrespective of series), are as follows:
(A) The series shall be designated as Preferred Stock,
5% Series A.
(B) The dividend rate thereof shall be five percent
(5%) per annum. The dividends on the shares of the Preferred Stock
shall be cumulative from the first day of the calendar month in which
the shares of the Preferred Stock, 5% Series A, if any, shall be
issued, with accruals of dividends uniform with the unpaid accruals of
dividends, if any, on the Preferred Stock, 5% Series A outstanding at
the time of the issue thereof.
(C) Except as provided in Subsection (K) and (L), the
Preferred Stock, 5% Series A shall have no voting rights whatsoever.
(D) The sum per share payable upon the voluntary or
involuntary dissolution, liquidation or winding up of the Corporation
shall be $1000 per share plus an amount equal to the dividends accrued
and unpaid on such share, whether or not earned or declared.
(E) The holders of the shares of the Preferred Stock,
5% Series A (collectively, the Holders), acting as a whole, may elect,
or may be required, as the case may be, at any time during the period
(the Election Period) commencing on the date that is three (3) years
and expiring on the date that is ten (10) years from the date of
Closing (as such term is defined in that certain Merger Agreement
dated September 23, 1994 (the Agreement)), to exchange their shares of
Preferred Stock, 5% Series A with C-TEC Corporation, a Pennsylvania
corporation (C-TEC), either for shares of Common Stock of C-TEC (C-TEC
Common) or cash. The terms and conditions of such exchange rights are
set forth in that certain Share Exchange Option Agreement between the
Holders and C-TEC dated ___________ (the Exchange Agreement). In the
event that either C-TEC or the Holders exercise their option, in
accordance with the Exchange Agreement to exchange shares of Preferred
Stock, 5% Series A for C-TEC Common or cash, as the case may be, and
provided the Corporation has received notice of any such election in
writing not less than 30 nor more than 90 days prior to the date fixed
for such exchange, the Corporation shall cooperate and take such
actions as are reasonably required to effectuate such exchange on the
books and records of the Corporation.
(F) For so long as shares of Preferred Stock, 5% Series A are
outstanding, the Corporation shall not enter into any Transaction (as
hereafter defined) if, upon entering into any such Transaction, the
ratio of Total Obligations (as hereafter defined) to EBITDA (as
hereafter defined) of the Corporation for the last fiscal quarter,
thereafter annualized by multiplying such amount(s) by four (4),
exceeds 8:1. For purposes hereof, the following terms shall have the
following meanings:
EBITDA shall mean, for any period, the consolidated net
income (or net loss) of the Corporation, as determined in
accordance with generally accepted accounting principles,
plus (1) the sum of, without duplication, the following for
the Corporation: (a) depreciation expense, (b) amortization
expense, (c) the excess, if any, of gross interest expense
for such period over gross interest income for such period,
in each case determined in accordance with generally
accepted accounting principles, (d) total income tax expense
and (e) extraordinary or unusual non-cash losses, less (2)
extraordinary non-cash gains.
Obligations shall mean, with respect to the Corporation, the
consolidated outstanding principal amount of (1)
indebtedness for borrowed money, (2) indebtedness for the
deferred purchase price of property or services (other than
property or services purchased in the ordinary course of
business) and (3) indebtedness evidenced by the issuance of
preferred stock having a payment priority senior to or pari
passu with the shares of Preferred Stock, 5% Series A,
excluding, however, the Preferred Stock, 5% Series B of the
Corporation.
Total Obligations shall mean, with respect to the
Corporation, as of the time of determination, the aggregate
consolidated amount of Obligations.
Transaction shall mean, with respect to the Corporation, (1)
the incurrence of any Obligation; (2) any merger,
reorganization or consolidation to which the Corporation is
a party; or (3) the sale of any assets of the Corporation,
other than in the ordinary course of business.
(G) There shall be no sinking fund with respect to the
shares of the Preferred Stock, 5% Series A.
(H) The holders of the Preferred Stock of each series
shall be entitled to receive, but only when, as and if declared by the
Board of Directors, but in no event more frequently than monthly, dividends
at the rate fixed for such series and no more. Such dividends shall be
payable on a date or dates which shall be fixed by the Board of Directors
and shall be cumulative from such date as may be fixed for the series. All
dividends payable on Preferred Stock shall be fully paid, or declared and
set apart for payment before any dividends on the Common Stock of the
Corporation shall be paid or set apart for payment so that if, for all
dividend periods terminating on the same or an earlier date, dividends on
all outstanding shares of the Preferred Stock at the rates fixed for the
respective series shall not have been paid or set apart for payment, the
deficiency shall be fully paid or set apart before payment on the Common
Stock of the Corporation. Dividends in full shall not be paid or set apart
for payment on the Preferred Stock of any one series for any dividend
period unless dividends in full have been or are contemporaneously paid or
set apart for payment on the Preferred Stock of all other series for all
dividend periods in respect of such series terminating on the same or an
earlier date. When the stated dividends are not paid in full on all series
of the Preferred Stock in respect of any dividend period, the shares of all
series having the same dividend period shall share ratably in the payment
of dividends, including accumulations, if any, based on the dividends which
would be payable on said shares if all dividends in respect of such series
were paid in full. A dividend period is the period between any two
consecutive dividend payment dates, excluding the first of such dates, as
fixed for the series to which a share or shares shall belong. Accruals of
dividends shall not bear interest.
(I) Upon any dissolution, liquidation or winding up of the
Corporation, whether voluntary or involuntary, the holders of the Preferred
Stock of each and every series then outstanding shall be entitled to
receive out of the net assets of the Corporation, whether capital or
surplus, the sums per share fixed for the shares of the respective series
and payable upon such dissolution, liquidation or winding up, plus, in the
case of each share, an amount equal to the dividends accrued and unpaid
thereon, whether or not earned or declared, before any distribution of the
assets of the Corporation shall be made to the holders of the Common Stock
of the Corporation as such.
If the assets distributable on such dissolution, liquidation or
winding up shall be insufficient to permit the payment to the holders of
each series of the Preferred Stock of the full amounts to which they
respectively are entitled as aforesaid, then said assets shall be
distributed among the holders of the respective series of the Preferred
Stock in the order of priority as specified for each class of stock and in
proportion to the sums which would be payable on such dissolution,
liquidation or winding up if all such sums were paid in full in preference
and priority over the shares of any of the Common Stock of the Corporation.
After payment to the holders of the Preferred Stock of the full
amounts to which they respectively are entitled as aforesaid, the holders
of the Preferred Stock, as such, shall have no right or claim to any of the
remaining assets of the Corporation.
The sale, conveyance, exchange or transfer of all or substantially all
of the property of the Corporation, or the merger or consolidation into or
with any other corporation, shall not be deemed a dissolution, liquidation
or winding up for the purposes of this Subsection (I).
(J) Nothing herein contained shall limit any legal right of the
Corporation to purchase or otherwise acquire any shares of the Preferred
Stock.
(K) So long as any shares of the Preferred Stock, 5% Series A are
outstanding, the Corporation shall not, without the consent (given in
writing or by vote at a meeting called for that purpose in the manner
prescribed by the By-Laws of the Corporation) of the holders of record of
at least 50% of the total number of such votes which may be cast by the
Holders, each Holder being entitled to one vote for each such share of
Preferred Stock, 5% Series A:
(1) Create or authorize any kind of stock ranking prior to the
Preferred Stock, 5% Series A with respect to the payment of dividends
or upon the dissolution, liquidation or winding up of the Corporation,
whether voluntary or involuntary, or create or authorize any
obligation or security convertible into shares of any such kind of
stock;
(2) Amend, alter, change or repeal any of the express terms of
the Preferred Stock, 5% Series A so as to affect the Holders thereof
adversely.
(L) So long as any shares of the Preferred Stock, 5% Series A are
outstanding, in the event that the Corporation shall fail to pay dividends
on the Preferred Stock, 5% Series A or Preferred Stock, 5% Series B for at
least twelve (12) consecutive calendar months sufficient to provide a
cumulative dividend rate of five percent (5%) per annum, the Holders shall
be entitled to elect and designate one (1) director of the Board of
Directors of the Corporation and the size of the Board of Directors of the
Corporation shall thereupon be increased by one (1) director, and such
newly elected director shall hold its position on the Board of Directors of
the Corporation only until such time as the Holders shall have received
dividends sufficient to provide a cumulative dividend rate of five percent
(5%) per annum, in which event such newly elected director shall be deemed
to have resigned and the size of the Board of Directors shall thereupon
decrease by one (1) member. The right of the Holders to elect and
designate a member of the Board of Directors of the Corporation shall be
exercised jointly with, and not separately from, the corresponding right
granted to the Holders of the Preferred Stock, 5% Series B, such that only
one (1) member of the Board of Directors of the Corporation may be elected
and designated, in the aggregate, by the Holders of the Preferred Stock, 5%
Series A and the Preferred Stock, 5% Series D.
Preliminary
C-TEC Cable Systems, Inc. (the Corporation)
Preferred Stock, 5% Series B
The designation preferences, privileges and voting powers of the
shares of the Preferred Stock, 5% Series B, and the restrictions or
qualifications thereof (insofar as they differ from or supplement the
provisions which are applicable to all shares of the Preferred Stock
irrespective of series), are as follows:
(A) The series shall be designated as Preferred Stock,
5% Series B.
(B) The dividend rate thereof shall be five percent (5%) per
annum. The dividends on the shares of the Preferred Stock shall be
cumulative from the first day of the calendar month in which the
shares of the Preferred Stock, 5% Series B, if any, shall be issued,
with accruals of dividends uniform with the unpaid accruals of
dividends, if any, on the Preferred Stock, 5% Series B outstanding at
the time of the issue thereof.
(C) Except as provided in Subsection (K) and (L), the
Preferred Stock, 5% Series B shall have no voting rights whatsoever.
(D) The sum per share payable upon the voluntary or
involuntary dissolution, liquidation or winding up of the Corporation
shall be $1000 per share plus an amount equal to the dividends accrued
and unpaid on such share, whether or not earned or declared.
(E) The holders of the shares of the Preferred Stock,
5%, Series B (collectively, the Holders), acting as a whole, may
elect, or may be required, as the case may be, at any time during the
period (the Election Period) commencing on the date that is three (3)
years and expiring on the date that is ten (10) years from the date of
Closing (as such term is defined in that certain Merger Agreement
dated September 23, 1994 (the Agreement)), to exchange their shares of
Preferred Stock, 5% Series B with C-TEC Corporation, a Pennsylvania
corporation (C-TEC), either for shares of Common Stock of C-TEC (C-TEC
Common) or cash. The terms and conditions of such exchange rights are
set forth in that certain Share Exchange Option Agreement between the
Holders and C-TEC dated ______________ (the Exchange Agreement). In
the event that either C-TEC or the Holders exercise their option, in
accordance with the Exchange Agreement to exchange shares of Preferred
Stock, 5% Series B for C-TEC Common or cash, as the case may be, and
provided the Corporation has received notice of any such election in
writing not less than 30 nor more than 90 days prior to the date fixed
for such exchange, the Corporation shall cooperate and take such
actions as are reasonably required to effectuate such exchange on the
books and records of the Corporation.
(F) For so long as shares of Preferred Stock, 5%
Series B are outstanding, the Corporation shall not enter into any
Transaction (as hereafter defined) if, upon entering into any such
Transaction, the ratio of Total obligations (as hereafter defined) to
EBITDA (as hereafter defined) of the Corporation for the last fiscal
quarter, thereafter annualized by multiplying such amount(s) by four (4),
exceeds 8:1. For purposes hereof, the following terms shall have the
following meanings:
EBITDA shall mean, for any period, the consolidated net
income (or net loss) of the Corporation, as determined in
accordance with generally accepted accounting principles,
plus (1) the sum of, without duplication, the following for
the Corporation: (a) depreciation expense, (b) amortization
expense, (c) the excess, if any, of gross interest expense
for such period over gross interest income for such period,
in each case determined in accordance with generally accepted
accounting principles, (d) total income tax expense and (e)
extraordinary or unusual non-cash losses, less (2)
extraordinary non-cash gains.
Obligations shall mean, with respect to the Corporation, the
consolidated outstanding principal amount of (1)
indebtedness for borrowed money, (2) indebtedness for the
deferred purchase price of property or services (other than
property or services purchased in the ordinary course of
business) and (3) indebtedness evidenced by the issuance of
preferred stock having a payment priority senior to or pari
passu with the shares of Preferred Stock, 5% Series B,
excluding, however, the Preferred Stock, 5% Series A of the
Corporation.
Total Obligations shall mean, with respect to the
Corporation, as of the time of determination, the aggregate
consolidated amount of Obligations.
Transaction shall mean, with respect to the Corporation, (1)
the incurrence of any Obligation; (2) any merger,
reorganization or consolidation to which the Corporation is
a party; or (3) the sale of any assets of the Corporation,
other than in the ordinary course of business.
(G) There shall be no sinking fund with respect to the
shares of the Preferred Stock, 5% Series B.
(H) The holders of the Preferred Stock of each series
shall be entitled to receive, but only when, as and if declared by the
Board of Directors, but in no event more frequently than monthly, dividends
at the rate fixed for such series and no more. Such dividends shall be
payable on a date or dates which shall be fixed by the Board of Directors
and shall be cumulative from such date as may be fixed for the series. All
dividends payable on Preferred Stock shall be fully paid, or declared and
set apart for payment before any dividends on the Common Stock of the
Corporation shall be paid or set apart for payment so that if, for all
dividend periods terminating on the same or an earlier date, dividends on
all outstanding shares of the Preferred Stock at the rates fixed for the
respective series shall not have been paid or set apart for payment, the
deficiency shall be fully paid or set apart before payment on the Common
Stock of the Corporation. Dividends in full shall not be paid or set apart
for payment on the Preferred Stock of any one series for any dividend
period unless dividends in full have been or are contemporaneously paid or
set apart for payment on the Preferred Stock of all other series for all
dividend periods in respect of such series terminating on the same or an
earlier date. When the stated dividends are not paid in full on all series
of the Preferred Stock in respect of any dividend period, the shares of all
series having the same dividend period shall share ratably in the payment
of dividends, including accumulations, if any, based on the dividends which
would be payable on said shares if all dividends in respect of such series
were paid in full. A dividend period is the period between any two
consecutive dividend payment dates, excluding the first of such dates, as
fixed for the series to which a share or shares shall belong. Accruals of
dividends shall not bear interest.
(I) Upon any dissolution, liquidation or winding up of
the Corporation, whether voluntary or involuntary, the holders of the
Preferred Stock of each and every series then outstanding shall be entitled
to receive out of the net assets of the Corporation, whether capital or
surplus, the sums per share fixed for the shares of the respective series
and payable upon such dissolution, liquidation or winding up, plus, in the
case of each share, an amount equal to the dividends accrued and unpaid
thereon, whether or not earned or declared, before any distribution of the
assets of the Corporation shall be made to the holders of the Common Stock
of the Corporation as such.
If the assets distributable on such dissolution, liquidation or
winding up shall be insufficient to permit the payment to the holders of
each series of the Preferred Stock of the full amounts to which they
respectively are entitled as aforesaid, then said assets shall be
distributed among the holders of the respective series of the Preferred
Stock in the order of priority as specified for each class of stock and in
proportion to the sums which would be payable on such dissolution,
liquidation or winding up if all such sums were paid in full in preference
and priority over the shares of any of the Common Stock of the Corporation.
After payment to the holders of the Preferred Stock of the full
amounts to which they respectively are entitled as aforesaid, the holders
of the Preferred Stock, as such, shall have no right or claim to any of the
remaining assets of the Corporation.
The sale, conveyance, exchange or transfer of all or substantially all
of the property of the Corporation, or the merger or consolidation into or
with any other corporation, shall not be deemed a dissolution, liquidation
or winding up for the purposes of this Subsection (I).
(J) Nothing herein contained shall limit any legal
right of the Corporation to purchase or otherwise acquire any shares of the
Preferred Stock.
(K) So long as any shares of the Preferred Stock, 5%
Series B are outstanding, the Corporation shall not, without the consent
(given in writing or by vote at a meeting called for that purpose in the
manner prescribed by the By-Laws of the Corporation) of the holders of
record of at least 50% of the total number of such votes which may be cast
by the Holders, each Holder being entitled to one vote for each such share
of Preferred Stock, 5% Series B:
(1) Create or authorize any kind of stock ranking prior to the
Preferred Stock, 5% Series B with respect to the payment of dividends
or upon the dissolution, liquidation or winding up of the Corporation,
whether voluntary or involuntary, or create or authorize any
obligation or security convertible into shares of any such kind of
stock;
(2) Amend, alter, change or repeal any of the express terms of
the Preferred Stock, 5% Series B so as to affect the Holders thereof
adversely.
(L) So long as any shares of the Preferred Stock, 5%
Series B are outstanding, in the event that the Corporation shall fail to
pay dividends on the Preferred Stock, 5% Series A or Preferred Stock, 5%
Series B for at least twelve (12) consecutive calendar months sufficient to
provide a cumulative dividend rate of five percent (5%) per annum, the
Holders shall be entitled to elect and designate one (1) director of the
Board of Directors of the Corporation and the size of the Board of
Directors of the Corporation shall thereupon be increased by one (1)
director, and such newly elected director shall hold its position on the
Board of Directors of the Corporation only until such time as the Holders
shall have received dividends sufficient to provide a cumulative dividend
rate of five percent (5%) per annum, in which event such newly elected
director shall be deemed to have resigned and the size of the Board of
Directors shall thereupon decrease by one (1) member. The right of the
Holders to elect and designate a member of the Board of Directors of the
Corporation shall be exercised jointly with, and not separately from, the
corresponding right granted to the Holders of the Preferred Stock, 5%
Series A, such that only one (1) member of the Board of Directors of the
Corporation may be elected and designated, in the aggregate by the Holders
of the Preferred Stock, 5% Series A and the Preferred Stock, 5% Series B.
(M) In the event that all or any of the Holders shall
be required to make any payment to or indemnify or hold harmless the
Corporation or C-TEC or any affiliate of the Corporation or C-TEC pursuant
to the terms and provisions of the Agreement, including but not limited to
any and all payments and indemnity obligations arising under Article 10 of
the Agreement, the Corporation shall be entitled to set-off all such
payments and indemnification and hold harmless obligations against any and
all amounts, dividends and other payments to be made by the Corporation
hereunder, including but not limited to any consideration, whether in the
form of cash, instruments, stock or otherwise.
Preliminary
Share Exchange Option Agreement
This Share Exchange Option Agreement (this Agreement) is
made as of this ____________ day of ____________________, 1994, by and
among (i) Bark Lee Yee, Stella C. Yee, Susan C. Yee, Raymond
C. Yee, Kenneth C. Yee and Robert G. Tallman, as Trustee for those
certain Trusts created pursuant to a Trust Agreement dated
________________, 19____ and a Trust Agreement dated _________________,
19___ (collectively, the Holders and each, a Holder), and (ii)
C-TEC Corporation, a Pennsylvania corporation (C-TEC).
Recitals
A. The Holders are, collectively, the owners of all of the
Preferred Stock Series A and Preferred Stock Series B of Cable;
B. Cable is a wholly-owned subsidiary of C-TEC and, partly
in consideration for the Holders entering into the Merger
Agreement, C-TEC desires to enter into this Agreement;
C. The Holders and C-TEC have agreed to certain terms and
conditions pursuant to which the Holders shall have an option to
acquire certain shares of the Common Stock from C-TEC and C-TEC
shall have the option to acquire the Preferred Stock from the
Holders; and
D. The Holders and C-TEC desire to enter into this
Agreement to set forth more fully the terms and conditions of
their respective options.
Agreement
Now, therefore, in consideration of the foregoing, for the
mutual promises and covenants contained herein, and for other
good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereby agree as
follows:
1. Definitions. In addition to other words and terms
defined elsewhere in this Agreement, as used herein, the
following words and terms shall have the following meanings,
unless the context clearly requires otherwise:
Cable shall mean C-TEC Cable Systems, Inc., a Delaware
corporation.
Closing shall have the meaning given such term in
Section 5.
Closing Date shall have the meaning given such term in
Section 5.
Common Stock shall mean the shares of Common Stock of
C-TEC then issued, whether or not outstanding.
Effective Date shall mean the date upon which an
Election Notice is deemed validly given in accordance with the
provisions of Section 8(a).
Election Notice shall have the meaning given such term
in Section 4.
Election Period shall mean the period commencing on
the date that is three (3) years from the date of this Agreement
and ending on the date that is ten (10) years from the date of
this Agreement.
Market Value shall mean the then current fair market
value of the Series A Transfer Shares and Series B Transfer
Shares, as applicable, determined as of the applicable Effective
Date, which fair market value shall be deemed to be the closing
price per share of the Common Stock as reported on the NASDAQ
System as of the close of business of the business day
immediately preceding the applicable Effective Date, multiplied
by the applicable number of shares.
Merger Agreement shall mean that certain Merger
Agreement dated September 23, 1994 between the Holders and Cable.
Preferred Stock shall mean, collectively, the Preferred
Stock Series A and the Preferred Stock Series B.
Preferred Stock Series A shall mean those certain
41,000 shares of Preferred Stock, 5% Series A issued by Cable
held in the aggregate by the Holders.
Preferred Stock Series B shall mean those certain
11,000 shares of Preferred Stock, 5% Series B issued by Cable
held in the aggregate by the Holders.
Series A Strike Price shall mean an amount equal to
Forty-one Million Dollars ($41,000,000), which amount is derived
from and approximately equal to the sum of 1,171,428 shares of
Common Stock multiplied by $35.00 per share.
Series B Strike Price shall mean an amount equal to
Eleven Million Dollars ($11,000,000), which amount is derived and
approximately equal to the sum of 285,714 shares of Common Stock
multiplied by $38.50 per share.
Series A Transfer Shares shall mean the 1,171,428
shares of Common Stock to be transferred by C-TEC to the Holders
of Preferred Stock Series A upon the occurrence of certain events
as set forth in this Agreement.
Series B Transfer Shares shall mean the 285,714 shares
of Common Stock to be transferred by C-TEC to the Holders of the
Preferred Stock Series B upon the occurrence of certain events as
set forth in this Agreement.
Transfer Shares shall mean, collectively, the Series A
Transfer Shares and the Series B Transfer Shares.
2. Options in Favor of Holders.
(a) The Holders of Preferred Stock Series A, acting as
a whole but not in part, may elect at any time during the
Election Period, to acquire all, but not less than all, of the
Series A Transfer Shares from C-TEC. In the event the Holders
properly exercise their election to acquire the Series A Transfer
Shares in accordance with the procedures set forth in Section 4,
in consideration of the transfer and delivery of the Series A
Transfer Shares to Holders, the Holders shall, contemporaneously
with such transfer, transfer and deliver the shares of Preferred
Stock Series A to C-TEC. If the Holders are unable to
unanimously make an election pursuant to this subsection with
respect to the Preferred Stock Series A, the Holders shall each
be deemed to have elected to take no action with respect to this
subsection.
(b) The Holders of Preferred Stock Series B, acting as
a whole but not in part, may elect at any time during the
Election Period, to acquire all, but not less than all, of the
Series B Transfer Shares from C-TEC. In the event the Holders
properly exercise their election to acquire the Series B Transfer
Shares in accordance with the procedures set forth in Section 4,
in consideration of the transfer and delivery of the Series B
Transfer Shares to Holders, the Holders shall, contemporaneously
with such transfer, transfer and deliver the shares of Preferred
Stock Series B to C-TEC. If the Holders are unable to
unanimously make an election pursuant to this subsection with
respect to the Preferred Stock Series B, the Holders shall each
be deemed to have elected to take no action with respect to this
subsection.
(c) In the event that, at the expiration of the
Election Period, neither the Holders nor C-TEC have exercised any
of their respective options granted pursuant to Sections 2 and 3
of this Agreement, then the Holders, acting as a whole but not in
part, may elect, within ten (10) days following the expiration of
the Election Period, to sell all of the Preferred Stock to C-TEC.
In the event the Holders properly exercise their rights to sell
the Preferred Stock in accordance with the procedures set forth
in Section 4, in consideration of the transfer of the Preferred
Stock to C-TEC, C-TEC shall pay to the Holders, in immediately
available funds at Closing, an amount equal to the aggregate
amount of the Series A Strike Price and the Series B Strike
Price.
(d) The options in favor of the Holders to acquire the
Preferred Stock Series A and the Preferred Stock Series B granted
pursuant to the foregoing Sections 2(a) and (b) may be exercised
by the Holders, acting as a whole, either separately or jointly
at any time during the Election Period and the exercise by the
Holders of one option shall not preclude the Holders from
exercising the remaining options.
3. 0ption in Favor of C-TEC.
(a) C-TEC may elect at any time during the Election
Period to acquire from the Holders all, but not less than all, of
the Preferred Stock Series A. In the event C-TEC properly
exercises its election to acquire the Preferred Stock Series A in
accordance with the procedures set forth in Section 4 of this
Agreement, in consideration of the transfer of the applicable
shares of Preferred Stock Series A from the Holders to C-TEC,
C-TEC shall:
(i) If the Market Value of the Series A Transfer
Shares is greater than or equal to the Series
A Strike Price, C-TEC shall transfer and
deliver to the Holders of Preferred Stock
Series A the Series A Transfer Shares,
ratably in proportion to the shares of
Preferred Stock Series A held by them;
(ii) If the Market Value of the Series A Transfer
Shares is less than the Series A Strike
Price, C-TEC shall, at Holder's option,
either pay to the Holders in immediately
available funds at Closing an amount equal to
the Series A Strike Price, or C-TEC shall
transfer and deliver to the Holders the
Series A Transfer Shares. The Holders,
acting as a whole but not in part, shall make
their election to receive either cash or
Series A Transfer Shares pursuant to this
Section 3(a)(ii) within ten (10) days of the
applicable Effective Date of the Election
Notice. In the event that the Holders fail
to unanimously make an election within such
ten (10) day period, the Holders shall be
deemed to have conclusively elected to accept
cash in consideration of the transfer and
delivery of the shares of Preferred Stock
Series A.
(b) C-TEC may elect at any time during the Election
Period to acquire from the Holders all, but not less than all, of
the Preferred Stock Series B. In the event C-TEC properly
exercises its election to acquire the Preferred Stock Series B in
accordance with the procedures set forth in Section 4 of this
Agreement, in consideration of the transfer of the applicable
shares of Preferred Stock Series B from the Holders to C-TEC,
C-TEC shall:
(i) If the Market Value of the Series B Transfer
Shares is greater than or equal to the Series
B Strike Price, C-TEC shall transfer and
deliver to the Holders of Preferred Stock
Series B the Series B Transfer Shares,
ratably in proportion to the shares of
Preferred Stock Series B held by them;
(ii) If the Market Value of the Series B Transfer
Shares is less than the Series B Strike
Price, C-TEC shall, at Holder's option,
either pay to the Holders in immediately
available funds at Closing an amount equal to
the Series B Strike Price, or C-TEC shall
transfer and deliver to the Holders the
Series B Transfer Shares. The Holders,
acting as a whole but not in part, shall make
their election to receive either cash or
Series B Transfer Shares pursuant to this
Section 3(b)(ii) within ten (10) days of the
Effective Date of the applicable Election
Notice. In the event that the Holders fail
to unanimously make an election within such
ten (10) day period, the Holders shall be
deemed to have conclusively elected to accept
cash in consideration of the transfer and
delivery of the shares of Preferred Stock
Series B.
(c) The options in favor of C-TEC to acquire the
Preferred Stock Series A and the Preferred Stock Series B granted
pursuant to the foregoing Sections 3(a) and (b) may be exercised
by C-TEC either separately or jointly, at any time during the
Election Period and the exercise by C-TEC of one such option
shall not preclude C-TEC from exercising the remaining option.
4. Election Procedure. In order to exercise the election
rights pursuant to Sections 2 and 3 of this Agreement, the Holders or
C-TEC, as applicable, shall deliver to the other party an irrevocable written
notice of the election (each, an Election Notice). The Election Notice
shall specify the Closing Date upon which the relevant transfers shall
occur, which Closing Date shall not be less than thirty (30) days from the
Effective Date of the Election Notice (if the Holders will be receiving
C-TEC Common Stock) and ninety (90) days from the Effective Date of the
Election Notice (if the Holders will be receiving cash). Upon the exercise
of an election by either the Holders or C-TEC pursuant to Section 2 or 3 of
this Agreement, the remaining election rights of the non-electing party
with respect to any remaining shares of Preferred Stock then held by the
Holders shall continue, and all other election rights shall thereupon be
extinguished.
5. Closing.
(a) In the event of the exercise of any election provided
in Sections 2 or 3 of this Agreement, on the Closing Date specified in the
applicable Election Notice on the applicable Closing Date, each Holder
shall transfer and deliver their respective shares of the applicable series
of Preferred Stock to C-TEC pursuant to an appropriate endorsement and by
physical delivery of such shares, and C-TEC shall either (x)
contemporaneously transfer and deliver to the Holders, ratably in
proportion to their respective shares of Preferred Stock transferred, the
applicable Transfer Shares pursuant to an appropriate endorsement and by
physical delivery of such shares, or (y) pay to the Holders the applicable
strike price for the shares of Preferred Stock transferred in immediately
available funds.
(b) The closing of any such sale and transfer (each, a
Closing) shall take place at the offices of C-TEC Corporation,
105 Carnegie Center, Princeton, New Jersey 08540 on the
applicable Closing Date, or at such other place and time as the
parties may mutually agree.
6. Set-Off Rights. In the event that all or any of the
Holders of Preferred Stock, Series B shall be required to make
any payment to or indemnify or hold harmless C-TEC or Cable, or
any affiliate of C-TEC or Cable, pursuant to the terms and
provisions of the Merger Agreement, including but not limited to
any and all payments and indemnity obligations arising under
Article X of the Merger Agreement, C-TEC shall be entitled to
set-off all such payments and indemnification and hold harmless
obligations in accordance with the Merger Agreement against any
and all amounts, payments and other consideration to be paid and
delivered by C-TEC hereunder whether in the form of cash,
instruments, stock or otherwise.
7. Registration Rights for Common Shares.
(a) Demand Registration Rights. C-TEC covenants and
agrees with the Holders, but not any subsequent holder of, the
Transfer Shares that, upon the unanimous written request of the
Holders made at any time after Closing, but in any event, during
the Election Period, but only once, C-TEC will file as promptly
as practicable and, in any event, within [180] days after receipt
of such written request, a new registration statement (a
Registration Statement) or a post-effective amendment to an
existing registration statement (an Amendment) under the
Securities Act of 1933 (the Act), registering or qualifying the
Transfer Shares for sale. No other securities of C-TEC shall be
entitled to be included in such Amendment or Registration
Statement. C-TEC will use its good faith efforts to file and
cause to become effective any such Amendment or Registration
Statement as promptly as practicable and remain effective for a
period of not less than sixty (60) days or such shorter period as
is necessary to complete the distributions.
(b) Piggyback Registration Rights. C-TEC covenants
and agrees with the Holders, but not any subsequent holder of,
the Transfer Shares that if, at any time within the Election
Period C-TEC proposes to file a Registration Statement with
respect to any class of security (other than in connection with
an offering to C-TEC's employees) under the Act in a primary
registration on behalf of C-TEC and/or in a secondary
registration on behalf of holders of such securities and the
registration form to be used may be used for registration of the
Transfer Shares, C-TEC will give written notice, which shall be
given at least [45] days prior to such filing, to the Holders in
the manner set forth in Section 8(a) of its intention to file a
Registration Statement and will offer to include in such
Registration Statement to the maximum extent possible[, and
limited, in the case of a Regulation A offering, to the amount of
the available exemption,] subject to paragraphs (i) and (ii) of
this paragraph (b), such number of Transfer Shares with respect
to which C-TEC has received written requests for inclusion
therein by the Holders within ten (10) days after the giving of
notice by C-TEC. All registrations requested pursuant to this
Section 7(b) are referred to herein as Piggyback Registrations.
This paragraph is not applicable to a Registration Statement
filed by C-TEC with the Securities and Exchange Commission (the
SEC) on Forms S-4 or S-8 or any successor form or any
Registration Statement filed with the SEC prior to the Closing.
(i) Priority or Primary Registrations. If a
Piggyback Registration includes an
underwritten primary registration on behalf
of C-TEC and the underwriter(s) for the
offering being registered by C-TEC shall
determine in good faith and advise C-TEC in
writing that in its opinion the number of
Transfer Shares requested to be included in
such registration exceeds the number that can
be sold in such offering without materially
adversely affecting the distribution of such
securities by C-TEC, C-TEC will include in
such registration (A) first, the securities
that C-TEC proposes to sell and (B) second,
to the extent feasible, the Transfer Shares
requested to be included in such registration,
apportioned ratably among the Holders of Transfer
Shares requiring to be included in such registration.
(ii) Priority on Secondary Registrations. If a
Piggyback Registration consists only of an
underwritten secondary registration on behalf
of holders of securities of C-TEC (other than
pursuant to Section 7(a)), and the
underwriter(s) for the offering being
registered by C-TEC advise C-TEC in writing
that in its opinion the number of Transfer
Shares requested to be included in such
registration exceeds the number which can be
sold in such offering without materially
adversely affecting the distribution of such
securities by C-TEC, C-TEC will include in
such registration (A) first, the securities
requested to be included therein by the
holders requesting such registration and (B)
second, to the extent feasible, the Transfer
Shares requested to be included in such
registration above, apportioned ratably,
among all such Holders on the basis of the
number of shares requested to be included by
each such Holder.
(c) Restrictions on Registration Rights.
(i) Notwithstanding the provisions set forth in
Sections (b)(i) and (b)(ii) above or any
other provisions, if any such underwriter
shall determine in good faith and advise
C-TEC in writing that the distribution of the
Transfer Shares requested to be included in
the registration concurrently with the
securities being registered by C-TEC would
materially adversely affect the distribution
of such securities by C-TEC, then the Holders
of such Transfer Shares shall delay their
offering and sale for such period ending on
the earliest of (1) [90] days following the
effective date of C-TEC's registration
statement, (2) the day upon which the
underwriting syndicate, if any, for such
offering shall have been disbanded or, (3)
such date as C-TEC, the underwriter(s) and
the Holders shall otherwise agree. In the
event of such delay, C-TEC shall file such
supplements, post-effective amendments and
take any such other steps as may be
reasonably necessary to permit such Holders
to make their proposed offering and sale for
a period not to exceed [90] days immediately
following the end of such period of delay.
If any party disapproves of the terms of any
such underwriting, it may elect to withdraw
therefrom by written notice to C-TEC and the
underwriter. Notwithstanding the foregoing,
C-TEC shall not be required to file a
registration statement to include Transfer
Shares pursuant to this Section 7 if an
opinion of independent counsel, reasonably
satisfactory to counsel for C-TEC, that the
Transfer Shares proposed to be disposed of
may be transferred pursuant to the provisions
of Rule 144 under the Act shall have been
delivered to counsel for C-TEC [and the
Holders shall have agreed to indemnify C-TEC
with respect to the accuracy of the matter
described in any such opinion and the actions
of C-TEC taken in reliance thereon.]
(ii) C-TEC shall not be required to file a
Registration Statement or Amendment at a time
when the audited financial statements
required to be included therein are not
available, [which time shall be limited to
the period commencing 45 days after the end
of C-TEC's last fiscal year and ending 90
days after the end of such fiscal year
existing at the time of the proposed
offering.]
(iii) C-TEC shall not be required to file a
Registration Statement or Amendment if
C-TEC furnishes to the Holders a
certificate signed by C-TEC's Chairman
or President stating that in his or her
good faith judgment it would be
detrimental or otherwise disadvantageous
to C-TEC or its shareholders for such a
Registration Statement or Amendment to
be filed as expeditiously as possible,
in which case C-TEC shall have a period
of not more than 180 days within which
to file such Registration Statement or
Amendment measured from the date of the
C-TEC's receipt of Holders' request for
registration.
(d) Costs of Registration.
(i) All costs, expenses, fees and other charges,
including but not limited to reasonable
attorneys' and accounting fees and expenses
(collectively, the Expenses), arising as a
result of any registration pursuant to
Section 7(a) shall be borne by C-TEC and the
Holders, or both, as follows:
(x) With respect to an election made by the
Holders during the period commencing on
the date that is three (3) years from
the date of this Agreement, through and
until the day prior to the date which is
four (4) years from the date of this
Agreement, the Holders shall be solely
responsible for all such Expenses.
(y) With respect to any election made by the
Holders during the period commencing on
the day that is four (4) years from the
date of this Agreement, through and
until the day prior to the date that is
six (6) years from the date of this
Agreement, the Expenses shall be shared
equally by the Holders and C-TEC.
(z) With respect to any election made by the
Holders during the period commencing on
the earlier of (1) the date that is six
(6) years from the date of this
Agreement, or (2) the date of the
Closing with respect to any option
exercised by C-TEC pursuant to Section 3
of this Agreement (other than where the
Holders have elected to receive
immediately available funds at Closing)
through and until the expiration of the
Election Period, the Expenses shall be
borne solely by C-TEC.
(ii) With respect to any election made by the
Holders pursuant to Section 7(b), the
Expenses shall be borne solely by C-TEC.
(iii) Notwithstanding any other provision of this
Agreement to the contrary, the Holders shall be solely
responsible for any fees and disbursements of any counsel,
accountant or other professional for the Holders; any
underwriters discount or commission in respect of such Transfer
Shares; and the cost of and liability or similar insurance
required by an underwriter to the extent that such costs are
attributable to the offering of such Transfer Shares.
(e) Subsequent Holder. The reference to any
"subsequent holder" as stated above shall not include any trustee
designated by the Holders under a Trust Agreement for their
benefit.
B. Miscellaneous.
(a) Notices. All notices, requests, and other
communications provided for in this Agreement shall be in writing
and shall be deemed validly given upon personal delivery, one day
after being sent by overnight courier service, and upon
confirmation of receipt if sent by telecopier, to the following
address or telecopy number:
(i) if to each of the Shareholders listed in the agreement:
(1) Bark Lee Yee;
(2) Stella C. Yee;
(3) Susan C. Yee;
(5) Raymond C. Yee; and
(6) Kenneth C. Yee
at: 3925 Airport Road
Allentown, PA 18103
with a copy to:
Robert Tallman
Tallman Hudder & Sorrentino
Lehigh Valley Trust Co. Building
634 Hamilton Mall
Allentown, Pennsylvania 18162
(ii) If to C-TEC, at:
C-TEC Corporation
105 Carnegie Center
Princeton, NJ 08540
Attn: Steven J. Rabbitt
Executive Vice President
C-TEC Cable Systems, Inc.
with a copy to:
C-TEC Corporation
105 Carnegie Center
Princeton, NJ 08540
Attn: Raymond B. Ostroski
General Counsel
or at such other address or telecopy number as any
party hereto may designate by written notice to
the other parties hereto.
(b) Fees and Expenses. Except as otherwise
specifically provided in this Agreement, each party hereto shall
pay all its own costs and expenses incident to this Agreement,
and the transactions contemplated hereby, including legal and
accounting fees and disbursements.
(c) Severability. If any provision of this Agreement
is held to be unenforceable for any reason, it shall be adjusted
rather than voided, if possible, in order to achieve the intent
of the parties to this Agreement to the extent possible. In any
event, the invalidity or unenforceability of any provision of
this Agreement in any jurisdiction shall not affect the validity
or enforceability of the remainder of this Agreement in that
jurisdiction or the validity or enforceability of this Agreement,
including that provision, in any other competent jurisdiction.
(d) Further Assurances. From time to time, the
parties shall execute such documents and shall take such actions
as shall be reasonably necessary in order to carry out and
effectuate the intent and purpose of this Agreement and the
transactions contemplated by this Agreement.
(e) Governing Law. This Agreement shall be governed
by and construed in accordance with the laws of the Commonwealth
of Pennsylvania without regard to the choice of law rules
thereof.
(f) Counterparts. This Agreement may be executed in
any number of counterparts, each of which shall be an original,
but all of which together shall constitute one and the same
agreement.
(g) Time of the Essence. Time is of the essence with
respect to the obligations of the parties hereunder.
(h) Securities Laws. All sales of securities by
Holders in connection with the Registration Rights referred to
herein shall be conducted in accordance with all applicable laws
and regulations.
(i) Assignment. In no event shall the Holders be
entitled to assign or transfer any of their rights under this
Agreement, whether voluntarily, involuntarily or by operation of
law, except that the Holders may assign such rights to a Trustee
under an agreement with the Holders and for their sole benefit or
the benefit of their heirs or estates. Any attempted assignment
shall be void.
In witness whereof, the parties hereto have executed this
Agreement as of the date first-above written.
Witness C-TEC CORPORATION,
a Pennsylvania corporation
_____________________________ By: _____________________________
_____________________________ Name: _____________________________
_____________________________ Title: _____________________________
HOLDERS:
_____________________________ ____________________________________
Bark Lee Yee
_____________________________ ____________________________________
Stella C. Yee
_____________________________ ____________________________________
Susan C. Yee
_____________________________ ____________________________________
Raymond C. Yee
_____________________________ ____________________________________
Kenneth C. Yee
_____________________________ ____________________________________
Robert G. Tallman, Trustee
