SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
January 26, 1995
TIME WARNER INC.
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(Exact name of registrant as specified in its charter)
Delaware 1-8637 13-1388520
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(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
75 Rockefeller Plaza, New York, NY 10019
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(Address of principal executive offices) (zip code)
(212) 484-8000
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name or former address, if changed since last
report)
<PAGE>2
Item 5. Other Events.
On January 26, 1995, Time Warner Inc. ("Time
Warner") entered into an Agreement and Plan of Merger (the
"Merger Agreement") with KBLCOM Incorporated ("KBLCOM"),
Houston Industries Incorporated ("Houston Industries") and
TW KBLCOM Acquisition Corp. ("Merger Sub"), a direct, wholly
owned subsidiary of Time Warner.
Pursuant to the Merger Agreement, Merger Sub will
merge with and into KBLCOM, which will become a direct,
wholly owned subsidiary of Time Warner, and all of the
outstanding capital stock of KBLCOM, which is owned by
Houston Industries, will be converted into the right to
receive an aggregate of 1,000,000 shares (subject to certain
adjustments) of common stock of Time Warner and
11,000,000 shares of a newly designated series of
convertible preferred stock of Time Warner (the "Preferred
Stock"). The Merger Agreement also provides that Time
Warner will purchase certain intercompany debt from Houston
Industries for approximately $600 million. To the extent
KBLCOM's indebtedness (including intercompany indebtedness),
working capital and related items exceed $1.24 billion at
the closing date, the payment for intercompany debt will be
reduced.
The Preferred Stock, which will have a liquidation
value of $100 per share, will be convertible into
22,909,040 shares of common stock, which is equivalent to a
conversion price of $48 per share. For the first four years
after the closing the Preferred Stock will pay cash
dividends at an annual rate of $3.75 per share. Thereafter,
dividends will be payable in an amount equal to dividends
paid on the shares of common stock into which the Preferred
Stock may be converted. Time Warner will have the right
after four years to exchange the Preferred Stock for common
stock at the stated conversion price plus accrued and unpaid
dividends. After five years after the closing, Time Warner
will have the right to redeem the Preferred Stock for cash
at a redemption price equal to the liquidation value plus
accrued and unpaid dividends.
The closing of the transaction is subject to
customary conditions for transactions of this type,
including certain regulatory approvals, as specified in the
Merger Agreement.
<PAGE>3
KBLCOM owns and operates cable television systems
serving approximately 690,000 subscribers in San Antonio and
Laredo, Texas, the Minneapolis metropolitan area, Portland,
Oregon and Orange County, California. KBLCOM also owns 50%
of Paragon Communications ("Paragon"), with the other 50%
owned by Time Warner. Paragon serves approximately 967,000
cable subscribers including systems in Tampa, Florida and
northern Manhattan.
Item 7. Exhibits
2(a) Agreement and Plan of Merger dated as of
January 26, 1995, among KBLCOM Incorporated,
Houston Industries Incorporated, Time Warner Inc.
and TW KBLCOM Acquisition Sub
<PAGE>4
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,
thereunto duly authorized, in the City of New York, State of
New York, on January 30, 1995.
TIME WARNER INC.
By: /s/ Peter R. Haje
-----------------------------
Name: Peter R. Haje
Title: Executive Vice
President
<PAGE>5
EXHIBIT INDEX
Exhibit No. Description of Exhibit
2(a) Agreement and Plan of Merger dated as
of January 26, 1995, among KBLCOM
Incorporated, Houston Industries
Incorporated, Time Warner Inc. and TW
KBLCOM Acquisition Sub
<PAGE>1
Exhibit 2.a
CONFORMED COPY
===========================================================
AGREEMENT AND PLAN OF MERGER
Dated as of January 26, 1995
Among
KBLCOM INCORPORATED,
HOUSTON INDUSTRIES
INCORPORATED,
TIME WARNER INC.
And
TW KBLCOM ACQUISITION CORP.
============================================================
<PAGE>2
TABLE OF CONTENTS
Page
Parties and Recitals . . . . . . . . . . . . . . . 1
ARTICLE I
The Merger
SECTION 1.01. The Merger . . . . . . . . . . . . 1
SECTION 1.02. Closing . . . . . . . . . . . . . . 2
SECTION 1.03. Effective Time . . . . . . . . . . 2
SECTION 1.04. Effects of the Merger . . . . . . . 2
ARTICLE II
The Surviving Corporation
SECTION 2.01. Certificate of Incorporation and
By-laws . . . . . . . . . . . . . 2
SECTION 2.02. Directors . . . . . . . . . . . . . 3
SECTION 2.03. Officers . . . . . . . . . . . . . 3
ARTICLE III
Effect of the Merger on the Capital Stock of the
Constituent Corporations; Merger Consideration;
Exchange of Certificates;
Purchase of Intercompany Indebtedness
SECTION 3.01. Effect on Capital Stock . . . . . . 3
SECTION 3.02. Purchase of Intercompany
Indebtedness . . . . . . . . . . . 4
SECTION 3.03. Exchange of Certificates; Delivery
of Parent Preferred Stock and
Parent Common Stock; Payment of any
Distributions . . . . . . . . . . 6
SECTION 3.04. Reconciliation of Adjustment
Amount . . . . . . . . . . . . . 7
<PAGE>3
2
ARTICLE IV
Representations and Warranties
SECTION 4.01. Representations and Warranties of
the Company and the
Stockholder . . . . . . . . . . . 9
(a) Organization, Standing and
Corporate Power . . . . . . 9
(b) Company Subsidiaries and Non-
Subsidiary Equity
Investments, including
Paragon . . . . . . . . . . 9
(c) Capital Structure . . . . . . 10
(d) Authority; Noncontra-
vention . . . . . . . . . . 11
(e) Financial Statements . . . . . 13
(f) Absence of Certain Changes or
Events . . . . . . . . . . 14
(g) Litigation . . . . . . . . . . 15
(h) Benefit Plans . . . . . . . . 16
(i) ERISA Compliance . . . . . . 16
(j) Taxes . . . . . . . . . . . . 19
(k) No Excess Parachute
Payments . . . . . . . . . 20
(l) Brokers; Brokers' Fees and
Expenses . . . . . . . . . 20
(m) Contracts; Loan Instru-
ments . . . . . . . . . . . 20
(n) Title to Properties . . . . . 22
(o) Compliance with Applicable
Laws . . . . . . . . . . . 23
(p) Company Franchises . . . . . . 26
(q) Company Systems . . . . . . . 27
(r) Overbuilds . . . . . . . . . . 27
(s) Rate Regulation . . . . . . . 28
(t) Intellectual Property . . . . 28
(u) Transactions with
Affiliates . . . . . . . . 29
SECTION 4.02. Additional Representations and
Warranties of the Stockholder . . 29
(a) Share Ownership . . . . . . . 29
(b) Investment . . . . . . . . . . 30
(c) Non-Foreign Status . . . . . . 30
<PAGE>4
3
SECTION 4.03. Representations and Warranties of
Parent and Sub . . . . . . . . . 30
(a) Organization, Standing and
Corporate Power . . . . . . 30
(b) Capital Structure . . . . . . 31
(c) Authority; Noncontra-
vention . . . . . . . . . . 31
(d) Parent SEC Documents; Financial
Statements . . . . . . . . 33
(e) Litigation . . . . . . . . . . 35
(f) Tax Matters . . . . . . . . . 35
(g) Brokers . . . . . . . . . . . 36
(h) Investment Intent . . . . . . 36
ARTICLE V
Covenants Relating to Conduct of Business
SECTION 5.01. Conduct of Business by
the Company . . . . . . . . . . . 36
SECTION 5.02. Conduct of the Business of Paragon 40
SECTION 5.03. No Transfer . . . . . . . . . . . . 40
SECTION 5.04. Other Actions . . . . . . . . . . . 40
ARTICLE VI
Additional Agreements
SECTION 6.01. Access to Information;
Confidentiality . . . . . . . . . 41
SECTION 6.02. Commercially Reasonable Efforts . . 42
SECTION 6.03. Incentive Compensation Plans . . . 45
SECTION 6.04. Benefit Plans and Employee
Matters . . . . . . . . . . . . . 45
SECTION 6.05. Fees and Expenses . . . . . . . . . 47
SECTION 6.06. Public Announcements . . . . . . . 47
SECTION 6.07. HSR Act . . . . . . . . . . . . . . 48
SECTION 6.08. Company Systems Certificate . . . . 49
SECTION 6.09. Certificate of Designations . . . . 49
SECTION 6.10. Other Agreements . . . . . . . . . 49
SECTION 6.11. Certain Employee Matters . . . . . 49
SECTION 6.12. TWE-Related Consents . . . . . . . 50
SECTION 6.13. Tax Consistency . . . . . . . . . . 50
SECTION 6.14. Franchise Guarantees . . . . . . . 50
SECTION 6.15. Rate Laws and Rate Proceedings . . 51
SECTION 6.16. Parent Stock . . . . . . . . . . . 53
<PAGE>5
4
SECTION 6.17. Requested Audits . . . . . . . . . 53
SECTION 6.18. Paragon Savings Plan . . . . . . . 53
ARTICLE VII
Conditions Precedent
SECTION 7.01. Conditions to Obligation of the
Company and the Stockholder To
Effect the Merger . . . . . . . . 53
SECTION 7.02. Conditions to Obligation of Parent
and Sub To Effect the Merger . . 56
ARTICLE VIII
Indemnification
SECTION 8.01. Indemnification . . . . . . . . . 60
ARTICLE IX
Termination, Amendment and Waiver
SECTION 9.01. Termination . . . . . . . . . . . . 66
SECTION 9.02. Effect of Termination . . . . . . . 66
SECTION 9.03. Amendment . . . . . . . . . . . . . 67
SECTION 9.04. Extension; Waiver . . . . . . . . . 67
ARTICLE X
Tax Matters
SECTION 10.01. Pre-Closing Taxes . . . . . . . . . 67
SECTION 10.02. Post-Closing Taxes . . . . . . . . 69
SECTION 10.03. Tax Cooperation . . . . . . . . . . 70
SECTION 10.04. Notification of Proceedings;
Refunds. . . . . . . . . . . . . 70
<PAGE>6
5
ARTICLE XI
General Provisions
SECTION 11.01. Notices . . . . . . . . . . . . . . 71
SECTION 11.02. Definitions . . . . . . . . . . . . 74
SECTION 11.03. Interpretation . . . . . . . . . . 94
SECTION 11.04. Counterparts . . . . . . . . . . . 94
SECTION 11.05. Entire Agreement; No Third-Party
Beneficiaries . . . . . . . . . . 94
SECTION 11.06. Governing Law . . . . . . . . . . . 95
SECTION 11.07. Assignment . . . . . . . . . . . . 95
SECTION 11.08. Enforcement . . . . . . . . . . . . 95
SECTION 11.09. Descriptive Headings . . . . . . . 96
SECTION 11.10. Cooperation . . . . . . . . . . . . 96
SECTION 11.11. No Other Representations . . . . . 97
EXHIBITS
EXHIBIT A. KBLCOM Capital Budget
EXHIBIT B. Form of Guarantee Indemnity
EXHIBIT C. Form of Opinion of Cravath, Swaine & Moore
EXHIBIT D. Form of Opinion of Baker & Botts, L.L.P.,
Regarding Tax Matters
EXHIBIT E. Form of Parent Certificate Pursuant to
Section 3.02(a)
EXHIBIT F. Form of Opinion of Baker & Botts, L.L.P.
EXHIBIT G. Form of Company Certificate Pursuant to
Section 3.02(a)
EXHIBIT H. Form of Certificate of Designations
EXHIBIT I. Joint Venture Term Sheet
EXHIBIT J. Form of Registration Rights Agreement
EXHIBIT K. Form of Stockholder's Agreement
<PAGE>7
CONFORMED COPY
AGREEMENT AND PLAN OF MERGER dated as of
January 26, 1995 (this "Agreement"), among
KBLCOM INCORPORATED, a Delaware corporation
(the "Company"), HOUSTON INDUSTRIES
INCORPORATED, a Texas corporation (the
"Stockholder"), TIME WARNER INC., a Delaware
corporation ("Parent"), and TW KBLCOM
ACQUISITION CORP., a Delaware corporation and
a wholly owned subsidiary of Parent ("Sub").
WHEREAS the respective Boards of Directors of the
Company, the Stockholder, Parent and Sub have approved the
merger of Sub with and into the Company, upon the terms and
subject to the conditions set forth in this Agreement (the
"Merger"), whereby each issued and outstanding share of
Common Stock, par value $1.00 per share, of the Company
("Company Common Stock") not owned directly or indirectly by
the Company or any Company Subsidiary (as hereinafter
defined), will be converted into the right to receive the
Merger Consideration (as hereinafter defined);
WHEREAS the Company, the Stockholder, Parent and
Sub desire to make certain representations, warranties,
covenants and agreements in connection with the Merger and
also to prescribe various conditions to the Merger; and
WHEREAS it is intended that the Merger shall
constitute a "reorganization" for Federal income tax
purposes within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code");
NOW, THEREFORE, in consideration of the
representations, warranties, covenants and agreements
contained in this Agreement, the parties agree as follows:
ARTICLE I
The Merger
SECTION 1.01. The Merger. Upon the terms and
subject to the conditions set forth in this Agreement, and
in accordance with the Delaware General Corporation Law (the
"DGCL"), Sub shall be merged with and into the Company at
the Effective Time (as hereinafter defined). Following the
Merger, the separate corporate existence of Sub shall cease
<PAGE>8
2
and the Company shall continue as the surviving corporation
(the "Surviving Corporation") and shall succeed to and
assume all the rights and obligations of Sub in accordance
with the DGCL.
SECTION 1.02. Closing. The closing of the Merger
(the "Closing") will take place at 10:00 a.m. on a date to
be specified by the parties, which shall be no later than
the seventh Business Day after satisfaction or waiver of the
conditions set forth in Article VII (the "Closing Date"), at
the offices of Cravath, Swaine & Moore, Worldwide Plaza,
825 Eighth Avenue, New York, NY 10019, unless another date
or place is agreed to in writing by the parties hereto.
SECTION 1.03. Effective Time. At the time of the
Closing, or as soon as practicable thereafter, the parties
shall file a certificate of merger or other appropriate
documents (in any such case, the "Certificate of Merger")
executed in accordance with the relevant provisions of the
DGCL and shall make all other filings or recordings required
under the DGCL. The Merger shall become effective at such
time as the Certificate of Merger is duly filed with the
Delaware Secretary of State, or at such other time as Sub
and the Company shall agree should be specified in the
Certificate of Merger (the time the Merger becomes effective
being the "Effective Time").
SECTION 1.04. Effects of the Merger. The Merger
shall have the effects set forth in Section 259 of the DGCL.
ARTICLE II
The Surviving Corporation
SECTION 2.01. Certificate of Incorporation and
By-laws. (a) The certificate of incorporation of Sub as in
effect immediately prior to the Effective Time shall be the
certificate of incorporation of the Surviving Corporation
(except that such certificate of incorporation may be
amended at the Effective Time to change the name of the
Surviving Corporation) until thereafter changed or amended
as provided therein or by applicable law.
(b) The By-laws of Sub as in effect at the
Effective Time shall be the By-laws of the Surviving
Corporation, until thereafter changed or amended as provided
therein or by applicable law.
<PAGE>9
3
SECTION 2.02. Directors. The directors of Sub
immediately prior to the Effective Time shall become the
directors of the Surviving Corporation at the Effective
Time, until the earlier of their resignation or removal or
until their respective successors are duly elected and
qualified, as the case may be.
SECTION 2.03. Officers. The officers of Sub
immediately prior to the Effective Time shall become the
officers of the Surviving Corporation at the Effective Time,
until the earlier of their resignation or removal or until
their respective successors are duly elected and qualified,
as the case may be.
ARTICLE III
Effect of the Merger on the Capital Stock of the
Constituent Corporations; Merger Consideration;
Exchange of Certificates;
Purchase of Intercompany Indebtedness
SECTION 3.01. Effect on Capital Stock. As of the
Effective Time, by virtue of the Merger and without any
action on the part of the holder of any shares of Company
Common Stock or any shares of capital stock of Sub:
(a) Capital Stock of Sub. Each share of the
capital stock of Sub issued and outstanding immediately
prior to the Effective Time shall be converted into and
become one share of Surviving Corporation Common Stock.
(b) Conversion of Company Common Stock. All of
the issued and outstanding shares of Company Common
Stock shall be converted into the right to receive
(i) 1,000,000 (as such number may be adjusted from time
to time pursuant to paragraph (c) of this Section 3.01,
the "Common Share Number") fully paid and nonassessable
shares of Parent Common Stock and (ii) 11,000,000 fully
paid and nonassessable shares of Parent Preferred Stock
(collectively, the "Merger Consideration"). As of the
Effective Time, all such shares of Company Common Stock
shall no longer be outstanding and shall automatically
be canceled and retired and shall cease to exist, and
each holder of a certificate representing any such
shares of Company Common Stock shall cease to have any
rights with respect thereto, except the right to
receive the Merger Consideration.
<PAGE>10
4
(c) The Common Share Number shall be adjusted
from time to time after the date hereof and prior to
the Effective Time for events described in Sections 3.6
and 3.7 of the Certificate of Designations as if
(i) the references therein to the term "Conversion
Rate" were instead references to the Common Share
Number as in effect at the time (provided that the
Conversion Price shall be appropriately adjusted as
agreed by the parties) and (ii) the references therein
to "Series D Stock" and "this Series" were instead to
Company Common Stock (taking into account (and giving
effect to) any right of election set forth in such
Sections, including any right of election that would
give such holders a right to receive a distribution
(which distribution shall be treated as a Distribution
for purposes of Section 3.03(b) hereof)).
SECTION 3.02. Purchase of Intercompany
Indebtedness. (a) (i) At the Closing, Parent shall
purchase, at par, a principal amount of Intercompany
Indebtedness equal to $1,241,725,000 less the Estimated
Adjustment Amount. The purchase price for the Intercompany
Indebtedness shall be payable at the Closing in immediately
available funds to an account designated in writing by the
Stockholder at least two Business Days prior to the Closing
Date. The "Estimated Adjustment Amount" shall be the sum of
(x) the Company's good faith estimate of the Company
Adjustment Amount, as set forth in a certificate of the
Company delivered to Parent not later than five Business
Days prior to the Closing Date plus (y) Parent's good faith
estimate of the Paragon Adjustment Amount, as set forth in a
certificate of Parent delivered to the Company not later
than five Business Days prior to the Closing Date.
(ii) The "Company Adjustment Amount" shall be the
amount equal to the following:
(A) Company Closing Indebtedness and Other
Liabilities;
(B) plus (I) Company Working Capital Deficit
or minus (II) Company Working Capital Balance, as
applicable;
(C) plus (I) the Capital Expenditure
Deficiency of the Company or minus (II) the
Capital Expenditure Excess of the Company, as
applicable;
<PAGE>11
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(D) plus (I) the Inventory Deficiency or
minus (II) the Inventory Excess, as applicable;
(E) plus the Debt Prepayment Penalty;
(F) plus the Swap Termination Amount; and
(G) plus the amount of Company Severance and
Incentive Liabilities (insofar as such amounts can
reasonably be calculated or estimated at the time
of determination);
in each case without duplication (each such amount set
forth in clauses (A), (B)(I), (B)(II), (C)(I), (C)(II),
(D)(I), D(II), (E), (F) and (G) above is referred to
herein as a "Company Adjustment Factor", and the
Company's good faith estimate of each Company
Adjustment Factor is referred to herein as an
"Estimated Company Adjustment Factor").
(iii) The "Paragon Adjustment Amount" shall be the
amount equal to the following:
(A) one-half of Paragon Closing Indebtedness
and Other Liabilities;
(B) plus (I) one-half of Paragon Working
Capital Deficit or minus (II) one-half of Paragon
Working Capital Balance, as applicable; and
(C) plus (I) one-half of the Capital
Expenditure Deficiency of Paragon or minus
(II) one-half of the Capital Expenditure Excess of
Paragon, as applicable;
in each case without duplication (each such amount set
forth in clauses (A), (B)(I), (B)(II), (C)(I) and
(C)(II) above is referred to herein as a "Paragon
Adjustment Factor", and Parent's good faith estimate of
each Paragon Adjustment Factor is referred to herein as
the "Estimated Paragon Adjustment Factor").
(iv) Each Company Adjustment Factor and each
Paragon Adjustment Factor is also referred to herein as
an "Adjustment Factor" and each Estimated Company
Adjustment Factor and each Estimated Paragon Adjustment
Factor is also referred to herein as an "Estimated
Adjustment Factor".
<PAGE>12
6
(b) Prior to the Closing Date (including, if
requested, prior to the date of delivery of the certificates
referred to in this Section 3.02), the Stockholder shall
cause the Company and Parent shall cause Paragon to provide
each other with access to records, working papers and other
information necessary to verify the calculation of the
Estimated Adjustment Factors, in each case upon reasonable
notice and during normal business hours.
(c) At the Closing and prior to the Effective
Time, the Stockholder shall make a capital contribution to
the Company of all Intercompany Indebtedness not purchased
by Parent pursuant to Section 3.02(a).
(d) At the Closing and prior to the Effective
Time, the Company shall cancel or cause to be cancelled, all
Indebtedness and payables owed by the Stockholder and its
Affiliates (other than the Company and the Company
Subsidiaries) to the Company or any Company Subsidiary.
SECTION 3.03. Exchange of Certificates; Delivery
of Parent Preferred Stock and Parent Common Stock; Payment
of any Distributions. (a) At the Closing, (i) Parent shall
issue and deliver to the Stockholder one or more
certificates for the number of shares of Parent Common Stock
and Parent Preferred Stock into which the Company Common
Stock is converted in accordance with Section 3.01 and
(ii) the Stockholder shall surrender to Parent all
certificates that, immediately prior to the Effective Time,
represented Company Common Stock.
(b) In the event that (i) Parent shall make a
distribution to the holders of Parent Common Stock of the
type that would require a distribution to holders of Parent
Preferred Stock pursuant to Section 2.3 or 3.7 of the
Certificate of Designations (assuming the Parent Preferred
Stock were outstanding) (a "Distribution") and (ii) the
record date or (if there shall not be a record date)
effective date for the Distribution shall occur after the
date hereof and prior to the Effective Time, Parent shall,
at the Effective Time (or if the date for payment of the
Distribution is after the Effective Time, on the date of
payment) pay to the Persons who become record holders of
Parent Common Stock and Parent Preferred Stock at the
Effective Time the amounts and kinds of assets or capital
stock or other securities that such Persons would have been
entitled to receive had such Persons been record holders of
such Parent Common Stock and Parent Preferred Stock on the
<PAGE>13
7
relevant record date or effective date for the Distribution
(taking into account (and giving effect to) any right of
election of such Person). The foregoing shall not affect
Parent's obligations under Sections 5.04, 6.02 and 6.13.
SECTION 3.04. Reconciliation of Adjustment
Amount. (a) Within 90 days after the Closing Date, Parent
shall prepare, with the assistance of the Stockholder and
the Company, and deliver to the Stockholder a statement (the
"Statement") setting forth Parent's good faith determination
of the Adjustment Amount, including the Adjustment Factors
(provided that the Company Adjustment Amount shall be
determined on the basis of accounting policies that are
consistent with those employed by the Company for purposes
of determining the Company Estimated Adjustment Amount and
the Paragon Adjustment Amount shall be determined on the
basis of accounting policies that are consistent with those
employed by Parent for purposes of determining the Paragon
Estimated Adjustment Amount (in each case subject to the
requirements of this Agreement)). During the 60-day period
following delivery of the Statement to the Stockholder,
Parent shall provide the Stockholder with access during
normal business hours to any books, records, working papers
or other information reasonably necessary or useful in the
review of the Statement and the calculation of the
Adjustment Amount to enable the Stockholder to verify the
accuracy of the Statement. The Statement shall become final
and binding upon all parties hereto on the sixty-first day
following delivery thereof (without counting such day of
delivery) to the Stockholder unless the Stockholder gives
written notice of disagreement with the Statement (a "Notice
of Disagreement") to Parent prior to such date. Any Notice
of Disagreement shall specify in reasonable detail the
nature of any disagreement so asserted and relate solely to
the review of the Statement and the calculation of the
Adjustment Amount.
(b) If a Notice of Disagreement is given by the
Stockholder in a timely manner, then the Statement shall
become final and binding upon all parties hereto on the
earlier of (x) the date the Stockholder and Parent resolve
in writing any differences they may have with respect to all
matters specified in the Notice of Disagreement and (y) the
date all disputed matters are finally resolved in writing by
the Arbitrator (as defined below). During the 30-day period
following the delivery of a Notice of Disagreement, Parent
and the Stockholder shall seek in good faith to resolve any
differences which they may have with respect to any matter
<PAGE>14
8
specified in the Notice of Disagreement and each shall
provide the other with reasonable access to any books,
records, working papers or other information reasonably
necessary or useful in the preparation or calculation of
(i) the Estimated Adjustment Amount, including each
Estimated Adjustment Factor, (ii) the Adjustment Amount,
including each Adjustment Factor, (iii) the Statement,
(iv) any Notice of Disagreement, or (v) otherwise with
respect to any thereof. At the end of such 30-day period if
there has been no resolution of the matters specified in the
Notice of Disagreement, Parent and the Stockholder shall
submit to an arbitrator (the "Arbitrator") for review and
resolution any and all matters arising under this Section
which remain in dispute. The Arbitrator shall be Coopers &
Lybrand, or if such firm is unable or unwilling to act, such
other nationally recognized independent public accounting
firm as shall be agreed upon by Parent and the Stockholder.
The Arbitrator shall render a decision resolving the matters
submitted to the Arbitrator within 30 days following
submission thereto (or as soon thereafter as reasonably
practicable). The fees and expenses of the Arbitrator
pursuant to this Agreement shall be borne 50% by Parent and
50% by the Stockholder.
(c) Within five Business Days after the Statement
becomes final and binding upon the parties, the following
shall occur:
(i) if the Adjustment Amount is less than the
Estimated Adjustment Amount, Parent shall pay to the
Stockholder an amount equal to the excess of the
Estimated Adjustment Amount over the Adjustment Amount;
and
(ii) if the Adjustment Amount is greater than the
Estimated Adjustment Amount, the Stockholder shall pay
to Parent an amount equal to the excess of the
Adjustment Amount over the Estimated Adjustment Amount.
(d) All payments pursuant to this Section 3.04
shall be by wire transfer of immediately available funds to
an account designated by the recipient at least two Business
Days prior to the date of payment.
<PAGE>15
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ARTICLE IV
Representations and Warranties
SECTION 4.01. Representations and Warranties of
the Company and the Stockholder. The Company and the
Stockholder each represents and warrants to Parent and Sub
as follows:
(a) Organization, Standing and Corporate Power.
Each of the Stockholder, the Company and each Company
Subsidiary is a corporation or partnership duly organized,
validly existing and in good standing under the laws of the
jurisdiction in which it is organized and has the requisite
corporate or partnership power and authority to carry on its
business as now being conducted. Each of the Stockholder,
the Company and each Company Subsidiary is duly qualified or
licensed to do business and is in good standing in each
jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such
qualification or licensing necessary, other than in such
jurisdictions where the failure to be so qualified or
licensed (individually or in the aggregate) would be
immaterial as to amount and significance to the operations
or Company System to which they relate. The Company has
delivered or made available to Parent complete and correct
copies of its certificate of incorporation and by-laws and
the certificates of incorporation and by-laws or other
organizational documents of the Company Subsidiaries, in
each case as amended to the date of this Agreement.
(b) Company Subsidiaries and Non-Subsidiary
Equity Investments, including Paragon. (i) Sec-
tion 4.01(b)(i) of the Disclosure Schedule, which has been
delivered by the Company to Parent prior to the execution of
this Agreement (the "Disclosure Schedule"), lists as of the
date hereof each Company Subsidiary, the percentage of the
Company's ownership of each Company Subsidiary and the
identity and percentage ownership of all other Persons with
equity interests in such Company Subsidiary. The
Stockholder will disclose in writing to Parent all changes
to such information of which it has knowledge occurring
subsequent to the date hereof and prior to the Effective
Time. Except as set forth in Section 4.01(b)(i) of the
Disclosure Schedule, all the outstanding shares of capital
stock of each Company Subsidiary that is a corporation have
been validly issued and are fully paid and nonassessable and
are owned by the Company, by one or more Company
<PAGE>16
10
Subsidiaries or by the Company and one or more Company
Subsidiaries, free and clear of all Liens. Except as set
forth in Section 4.01(b)(i) of the Disclosure Schedule, all
of the ownership interests in each Company Subsidiary that
is a partnership are duly authorized, validly issued and
fully paid (with respect to general partnership interests,
only to the extent required at the date this representation
is made) and are owned by the Company, by one or more
Company Subsidiaries or by the Company and one or more
Company Subsidiaries, free and clear of all Liens.
(ii) Section 4.01(b)(ii) of the Disclosure
Schedule sets forth, as of September 30, 1994, the book
value of each such Non-Subsidiary Equity Investment and the
nature and, to the knowledge of the Company or the
Stockholder, the percentage of the Company's ownership of
each such Non-Subsidiary Equity Investment. Except as set
forth in Section 4.01(b)(ii) of the Disclosure Schedule, the
shares of capital stock, the partnership interests or the
other equity interests, as applicable, of each Non-
Subsidiary Equity Investment that are owned by the Company
or a Company Subsidiary are owned free and clear of any
Liens (other than changes therein occurring after the date
hereof and prior to the Effective Time that are permitted
under Section 5.01 hereof).
(iii) The Company is in compliance in all material
respects with the provisions of the partnership agreement of
Paragon.
(c) Capital Structure. (i) The authorized
capital stock of the Company consists of 1,000 shares of
Company Common Stock and 500,000 shares of Company Preferred
Stock. All the shares of Company Common Stock are issued
and outstanding, no shares of Company Common Stock are held
by the Company as treasury shares, and no shares of Company
Preferred Stock are issued and outstanding. Except as set
forth above, no shares of capital stock or other voting
securities of the Company are issued, reserved for issuance
or outstanding, and no rights exist to acquire any capital
stock of the Company or any Company Subsidiary. There are
no outstanding stock appreciation rights, phantom stock
rights or other similar instruments or obligations of the
Company or any Company Subsidiary the value of which
depends, in whole or in part, on the value of any of the
Company's capital stock, any of the capital stock of the
Company Subsidiaries or the financial or business
performance or asset value of the Company or any Company
<PAGE>17
11
Subsidiary. All outstanding shares of capital stock of the
Company are duly authorized, validly issued, fully paid and
nonassessable and not subject to preemptive rights. There
are no bonds, debentures, notes or other indebtedness of the
Company having the right to vote (or convertible into, or
exchangeable for, securities having the right to vote) on
any matters on which stockholders of the Company may vote.
(ii) Except as set forth in Schedule 4.01(c)(ii)
of the Disclosure Schedule, there are no outstanding
securities, options, warrants, calls, rights, commitments,
agreements, arrangements or undertakings of any kind to
which the Company or any Company Subsidiary is a party or by
which any of them is bound obligating the Company or any
Company Subsidiary to issue, deliver or sell, or cause to be
issued, delivered or sold, additional shares of capital
stock or other voting securities of the Company or of any
Company Subsidiary or obligating the Company or any Company
Subsidiary to issue, grant, extend or enter into any such
security, option, warrant, call, right, commitment,
agreement, arrangement or undertaking. Except as set forth
in Section 4.01(c)(ii) of the Disclosure Schedule, there are
no outstanding contractual obligations of the Company or any
Company Subsidiary to repurchase, redeem or otherwise
acquire any shares of capital stock of the Company or any
Company Subsidiary.
(d) Authority; Noncontravention. (i) Each of
the Company and the Stockholder has the requisite corporate
power and authority to enter into this Agreement and the
Transaction Documents and to consummate the transactions
contemplated hereby and thereby. The execution and delivery
of this Agreement and each of the Transaction Documents by
each of the Company and the Stockholder, as applicable, and
the consummation by each of the Company and the Stockholder
of the transactions contemplated hereby and thereby have
been duly authorized by all necessary corporate action on
the part of the Company and the Stockholder, as applicable.
The Stockholder has approved this Agreement and the
transactions contemplated hereby, and no further action to
approve this Agreement and such transactions is necessary on
the part of the holders of the Company Common Stock. This
Agreement has been duly executed and delivered by each of
the Company and the Stockholder and constitutes a valid and
binding obligation of the Company and the Stockholder,
enforceable against the Company and the Stockholder in
accordance with its terms, except (A) as such enforceability
may be limited by bankruptcy, insolvency, reorganization or
<PAGE>18
12
similar laws affecting creditors' rights generally and
(B) as the remedy of specific performance and injunctive and
other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any
proceeding therefor may be brought. Each Transaction
Document has been duly authorized by the Stockholder and,
upon its execution and delivery by the parties thereto
(pursuant to due authorization by the other parties), will
constitute a valid and binding obligation of the
Stockholder, enforceable against the Stockholder in
accordance with its terms, except as aforesaid.
(ii) Except as set forth in Section 4.01(d)(ii) of
the Disclosure Schedule, the execution and delivery of this
Agreement and each of the Transaction Documents does not,
and the consummation of the transactions contemplated by
this Agreement and each of the Transaction Documents and
compliance with the provisions of this Agreement and each of
the Transaction Documents will not, conflict with, or result
in any violation of, or default (with or without notice or
lapse of time, or both) under, or give rise to a right of
termination, cancelation or acceleration of any obligation
or to the loss of a material benefit under, or result in the
creation of any Lien upon any of the properties or assets of
the Company, any Company Subsidiary or the Stockholder under
any of the following:
(A) the certificate of incorporation or by-laws of
the Company, the Stockholder or the comparable charter
or organizational documents of any of the Company
Subsidiaries;
(B) any Third-Party Contract of the Company, any
Company Subsidiary or the Stockholder; or
(C) subject to the governmental filings and other
matters referred to in paragraph (iii) below, any
Company Franchise or Company Permit or any judgment,
order, decree, statute, law, ordinance, rule or
regulation applicable to the Company, any Company
Subsidiary, the Stockholder or their respective
properties or assets (other than Paragon and its
Subsidiaries and their respective properties or
assets);
other than, in the case of clauses (B) or (C), any such
conflicts, violations, defaults, rights or Liens that
individually or in the aggregate would not (x) impair in any
<PAGE>19
13
material respect or materially delay the ability of the
Company or the Stockholder to perform its obligations under
this Agreement or (y) prevent, materially delay or make
unduly burdensome the consummation of any of the
transactions contemplated by this Agreement.
(iii) No consent, approval, order or authorization
of, or registration, declaration or filing with, any
Governmental Entity, is required by the Company, the Company
Subsidiaries or the Stockholder in connection with the
execution and delivery of this Agreement by the Company or
the Stockholder or the consummation by the Company or the
Stockholder of the transactions contemplated by this
Agreement, except for (I) the filing of a premerger
notification and report form by the Company under the HSR
Act, (II) the filing with the SEC by the Stockholder of such
reports under Section 13(a) of the Exchange Act as may be
required in connection with this Agreement and the
transactions contemplated by this Agreement, (III) the
filing of the Certificate of Merger with the Delaware
Secretary of State and appropriate documents with the
relevant authorities of other states in which the Company is
qualified to do business, (IV) approvals of Governmental
Entities, which approvals are listed in Section 4.01(d)(iii)
of the Disclosure Schedule, (V) consents, approvals, orders,
authorizations, registrations, declarations and filings
arising as a result of matters relating primarily to Parent
and its Affiliates and (VI) consents, approvals, orders or
authorizations of, or registrations, declarations and
filings with any Governmental Entities that are immaterial
as to amount and significance to the operations or Company
System to which they relate and can reasonably be expected
to be obtained on a routine basis in the ordinary course of
business.
(e) Financial Statements. Section 4.01(e) of the
Disclosure Schedule sets forth (A)(1) the unaudited
consolidated balance sheet of the Company and its
subsidiaries as of each of December 31, 1992 and
December 31, 1993, and (2) the unaudited statements of
consolidated operations, consolidated stockholder's equity
and consolidated cash flows of the Company and its
subsidiaries for the years then ended, (B)(1) the audited
consolidated balance sheet of KBL and its subsidiaries as of
each of December 31, 1992 and December 31, 1993 and (2) the
audited statements of consolidated operations, consolidated
stockholder's equity and consolidated cash flows of KBL and
its subsidiaries for the years then ended, (C)(1) unaudited
<PAGE>20
14
consolidated balance sheets of the Company and its
subsidiaries and of KBL and its subsidiaries as of
September 30, 1994, and (2) the unaudited statements of
consolidated operations and consolidated cash flows of the
Company and its subsidiaries and KBL and its subsidiaries,
in each case for the year-to-date period then ended,
together with in the case of the financial statements
referred to in clauses (A) and (B), the notes to such
financial statements and, in the case of the audited
financial statements, the report of the independent auditors
thereon (the financial statements described above, together
with the notes to such financial statements, collectively,
the "Financial Statements", and the unaudited consolidated
balance sheet of the Company and its subsidiaries and the
unaudited consolidated balance sheet of KBL and its
subsidiaries as of September 30, 1994, collectively, the
"Balance Sheets"). The Financial Statements and the
Periodic Financial Statements have been or shall be prepared
in conformity with GAAP (except in the case of the Financial
Statements as at and for the period ending September 30,
1994 (and any Periodic Financial Statements covering an
interim period) for normal year-end adjustments and the
absence of notes) consistently applied (except as indicated
in the notes thereto) and fairly present the consolidated
financial condition and results of operations and cash flows
of the Company and its subsidiaries and of KBL and its
subsidiaries, as of the respective dates thereof and for the
respective periods indicated. Notwithstanding the
foregoing, (i) no representation or warranty as to the
Financial Statements (including the Balance Sheets) is made
with respect to information contained therein to the extent
that such information is derived from the financial
statements of Paragon and (ii) any materiality standard
determined with reference to GAAP shall be made as if the
Paragon financial information were not included in the
Financial Statements. For purposes of this paragraph,
"subsidiaries" means those entities required by GAAP to be
consolidated for financial reporting purposes.
(f) Absence of Certain Changes or Events. Except
as disclosed in Section 4.01(f) of the Disclosure Schedule,
since September 30, 1994, the Company has, in all material
respects, conducted its business only in the ordinary
course, and there has not been (i) any Company Material
Adverse Effect, (ii) any declaration, setting aside or
payment of any dividend or other distribution (whether in
cash, stock or property) with respect to any of the
Company's capital stock, except as permitted under Section
<PAGE>21
15
5.01 hereof with respect to events occurring after the date
hereof and prior to the Effective Time, (iii) any split,
combination or reclassification of any of its capital stock
or any issuance or the authorization of any issuance of any
other securities in respect of, in lieu of or in
substitution for shares of its capital stock, (iv) (A) any
granting by the Company or any of the Company Subsidiaries
to any executive officer of the Company or any of the
Company Subsidiaries of any increase in compensation, except
in the ordinary course of business consistent with prior
practice or as was required under employment agreements in
effect as of September 30, 1994, (B) any granting by the
Company or any of the Company Subsidiaries to any such
executive officer of any increase in severance or
termination pay, except as was required under employment,
severance or termination agreements in effect as of
September 30, 1994, or (C) any entry by the Company or any
of the Company Subsidiaries into any employment, severance
or termination agreement with any such executive officer,
(v) any damage, destruction or other similar loss, whether
or not covered by insurance, that has or could reasonably be
expected to have a Company Material Adverse Effect or
(vi) any change in accounting methods, principles or
practices by the Company materially affecting its assets,
liabilities or business, except insofar as may have been
required by a change in GAAP and described in
Section 4.01(f) of the Disclosure Schedule (or, in the case
of changes required by GAAP that arise after the date hereof
and prior to the Effective Time, otherwise disclosed in
writing to Parent).
(g) Litigation. Except as disclosed in
Section 4.01(g) of the Disclosure Schedule, as of the date
of this Agreement, there is no suit, action or proceeding
pending or, to the knowledge of the Company or the
Stockholder, overtly threatened, against any of the Company,
any Company Subsidiary, the Stockholder or any of its
Subsidiaries that, individually or in the aggregate, could
reasonably be expected to (i) have an adverse effect on the
business, properties, condition or results of operations of
the Company (other than suits, actions or proceedings which
are immaterial as to amount and significance to the
operations or Company Systems to which they relate),
(ii) impair in any material respect, or materially delay,
the ability of the Company or the Stockholder to perform its
obligations under this Agreement, any Transaction Document
or the Joint Venture Agreement or (iii) prevent, materially
delay or make unduly burdensome the consummation of any of
<PAGE>22
16
the transactions contemplated by this Agreement, nor is
there any judgment, decree, injunction, rule or order of any
Governmental Entity (other than Franchises) or arbitrator
outstanding that is directed against the Company or any of
the Company Subsidiaries that has, or is reasonably likely
to have, any effect referred to in the foregoing
clauses (i)-(iii).
(h) Benefit Plans. Section 4.01(h) of the
Disclosure Schedule sets forth each collective bargaining
agreement and each bonus, pension, profit sharing, deferred
compensation, incentive compensation, stock ownership, stock
purchase, stock option, phantom stock, retirement, vacation,
severance, disability, death benefit, hospitalization,
medical or other plan, arrangement or understanding (whether
or not legally binding), currently maintained by or
contributed to, or required to be maintained or contributed
to, by the Company or any Company Subsidiary and providing
benefits to any current or former employee, officer or
director of the Company or any of the Company Subsidiaries
(collectively, "Benefit Plans"), other than Benefit Plans or
amendments thereto entered into after the date hereof and
prior to the Effective Time which are permitted under
Section 5.01(k) of this Agreement and disclosed in writing
to Parent). Except as disclosed in Section 4.01(h) of the
Disclosure Schedule, there exist no employment, consulting,
severance, termination or indemnification agreements,
arrangements or understandings between the Company or any of
the Company Subsidiaries and any current or former officer
or director of the Company or any of the Company
Subsidiaries under which there will be unperformed
obligations as of the Effective Date.
(i) ERISA Compliance. (i) The Company has
delivered or made available to Parent true, complete and
correct copies of all Benefit Plans that are in effect on
the date hereof, including "employee pension benefit plans"
(as defined in Section 3(2) of ERISA) (sometimes referred to
herein as "Pension Plans"), "employee welfare benefit plans"
(as defined in Section 3(l) of ERISA) and all other Benefit
Plans currently maintained, or contributed to, or required
to be maintained or contributed to, by the Company or any
other Person (other than Paragon or its Subsidiaries), that
together with the Company, is treated as a single employer
under Section 414(b), (c), (m) or (o) of the Code (each a
"Commonly Controlled Entity") for the benefit of any current
or former employees, officers or directors of the Company or
any of the Company Subsidiaries. The Company has delivered
<PAGE>23
17
or made available to Parent true, complete and correct
copies of (x) the most recent annual report on Form 5500
filed with the Internal Revenue Service with respect to each
Benefit Plan (if any such report was required), (y) the most
recent summary plan description for each Benefit Plan for
which such summary plan description is required and (z) each
trust agreement and group annuity contract relating to any
Benefit Plan.
(ii) Except as disclosed in Section 4.01(i)(ii) of
the Disclosure Schedule, each Benefit Plan has been
administered in all material respects in accordance with its
terms. The Company, the Company Subsidiaries and any
Benefit Plans subject to ERISA are each in compliance in all
material respects with applicable provisions of ERISA and
the Code.
(iii) Except as disclosed in Section 4.01(i)(iii)
of the Disclosure Schedule, all Pension Plans intended to be
qualified under Section 401(a) of the Code have been the
subject of determination letters from the Internal Revenue
Service to the effect that such Pension Plans are qualified
and exempt from Federal income taxes under Section 401(a)
and 501(a), respectively, of the Code and no such
determination letter has been revoked nor, to the knowledge
of the Company or the Stockholder, has revocation been
overtly threatened, nor has any such Pension Plan been
amended since the date of its most recent determination
letter or application therefor in any respect that would
adversely affect its qualification or materially increase
its costs.
(iv) No Pension Plan that the Company or any of
the Company Subsidiaries maintains, or to which the Company
or any of the Company Subsidiaries is obligated to
contribute, other than any Pension Plan that is a
"multiemployer plan" (as such term is defined in
Section 4001(a)(3) of ERISA, collectively, the
"Multiemployer Pension Plans"), had, as of the respective
last annual valuation date for each such Pension Plan, an
"unfunded benefit liability" (as such term is defined in
Section 4001(a)(18) of ERISA), based on actuarial
assumptions which have been furnished to Parent, rather than
the assumptions prescribed by Section 4001(a)(18) of ERISA,
and neither the Company nor the Stockholder is aware of any
existing facts or circumstances that would materially change
the funded status of any such Benefit Plans. None of the
Pension Plans has an "accumulated funding deficiency" (as
<PAGE>24
18
such term is defined in Section 302 of ERISA or Section 412
of the Code), and there has been no application for a waiver
of the minimum funding standards imposed by Section 412 of
the Code with respect to any Benefit Plan that is a Pension
Plan.
(v) To the knowledge of the Company and the
Stockholder, none of the Company, any of the Company
Subsidiaries, any officer of the Company or any of the
Company Subsidiaries or any of the Benefit Plans which are
subject to ERISA, including the Pension Plans, any trusts
created thereunder or any trustee or administrator thereof,
has engaged in a non-exempt "prohibited transaction" (as
such term is defined in Section 406 of ERISA or Section 4975
of the Code) or any other breach of fiduciary responsibility
that could subject the Company, any of the Company
Subsidiaries or any officer of the Company or any of the
Company Subsidiaries to any material Tax or penalty under
ERISA, the Code or other applicable law. Neither any of
such Benefit Plans nor any of such trusts has been
terminated, nor has there been any "reportable event" (as
that term is defined in Section 4043 of ERISA but excluding
any events with respect to which the reporting obligation
has been waived by a Governmental Entity) with respect
thereto, during the last five years with respect to which
the Company or any Company Subsidiary has any continuing
liability.
(vi) Neither the Company nor any Commonly
Controlled Entity has suffered or otherwise caused a
"complete withdrawal" or a "partial withdrawal" (as such
terms are defined in Section 4203 and Section 4205,
respectively, of ERISA) with respect to any of the
Multiemployer Pension Plans that could lead to the
imposition of any withdrawal liability under Section 4201 of
ERISA; and no action has been taken that alone or with the
passage of time could result in either a partial or complete
withdrawal by any Commonly Controlled Entity in respect of
any such plan.
(vii) With respect to any Benefit Plan that is an
employee welfare benefit plan, except as disclosed in
Section 4.01(i)(vii) of the Disclosure Schedule, (x) no such
Benefit Plan is funded through a "welfare benefit fund", as
such term is defined in Section 419(e) of the Code, (y) each
such Benefit Plan that is a "group health plan", as such
term is defined in Section 5000(b)(1) of the Code, complies
in all material respects with the applicable requirements of
<PAGE>25
19
Section 4980B(f) of the Code and (z) each such Benefit Plan
(including any such Plan covering retirees or other former
employees) may be amended or terminated without material
liability to the Company or any of the Company Subsidiaries
on or at any time after the consummation of the Merger.
(viii) No Commonly Controlled Entity has incurred
any material liability to a Pension Plan (other than for
contributions not yet due) or to the Pension Benefit
Guaranty Corporation (other than for the payment of premiums
not yet due), which liability has not been fully paid as of
the date hereof.
(j) Taxes. (i) The Company and each of the
Company Subsidiaries has timely filed all Federal income tax
returns and reports and all other material Tax returns and
reports required to be filed by them, either on a separate
or combined or consolidated basis. All such returns are
complete and correct in all material respects. Each of the
Company and the Company Subsidiaries has paid (or the
Stockholder or the Company has paid on its behalf) all Taxes
shown as due on such returns and all material Taxes for
which no return was required to be filed.
(ii) Except as set forth in Section 4.01(j)(ii) of
the Disclosure Schedule, as of the date hereof, and, with
respect to matters arising after the date hereof and prior
to the Effective Time, except as disclosed in writing to
Parent, no material deficiencies for any Taxes have been
asserted, proposed or assessed against or with respect to
the Company or any of the Company Subsidiaries that have not
been paid or otherwise settled, and no requests for waivers
of the time to assess any such Taxes are pending. The
Federal income tax returns of the Company and each of the
Company Subsidiaries consolidated in such returns have been
examined by and settled with the Internal Revenue Service or
are closed under the statute of limitations for all years
through 1986.
(iii) Neither the Company nor any of the Company
Subsidiaries will be required to include any amount in its
income or exclude any amount from its deductions the Closing
Date by reason of a change in method of accounting or use of
the installment method of accounting in any Pre-Closing Tax
Period. The merger of Sub with and into the Company will
not cause any recognition of gain or income to the Company
or any of the Company Subsidiaries under any provision of
Federal, state or local income or franchise tax law.
<PAGE>26
20
(iv) Except as set forth in Section 4.01(j)(iv) of
the Disclosure Schedule, none of the Company or any of the
Company Subsidiaries is a party to or is bound by any
agreement, arrangement or practice with respect to Taxes
(including any Tax sharing agreements with the Stockholder
or any of the Stockholder's other Affiliates, or with any
Taxing Authority). The Company has delivered or made
available to Parent complete and accurate copies of any such
written agreement, arrangement or practice, and complete and
accurate descriptions of any such oral agreement,
arrangement or practice.
(k) No Excess Parachute Payments. Any amount
that could be received (whether in cash or property or the
vesting of property) as a result of any of the transactions
contemplated by this Agreement by any employee, officer or
director of the Company or any of its Affiliates who is a
"disqualified individual" (as such term is defined in
proposed Treasury Regulation Section 1.280G-1) under any
employment, severance or termination agreement, other
compensation arrangement or Benefit Plan currently in effect
would not be characterized as an "excess parachute payment"
(as such term is defined in Section 280G(b)(1) of the Code),
except for payments to be made by the Stockholder.
(l) Brokers; Brokers' Fees and Expenses. No
broker, investment banker, financial advisor or other
Person, other than CS First Boston Corporation, the fees and
expenses of which will be paid by the Stockholder, is
entitled to any broker's, finder's, financial advisor's or
other similar fee or commission in connection with the
transactions contemplated by this Agreement based upon
arrangements made by or on behalf of the Company.
(m) Contracts; Loan Instruments. (i) Except as
disclosed in Section 4.01(m)(i) of the Disclosure Schedule
(and, in the case of contracts and agreements arising after
the date hereof and prior to the Effective Time, which are
not prohibited by Section 5.01 of this Agreement and are
disclosed in writing to Parent) or as described in
Section 4.01(p), there is no contract or agreement that is
material to the business, financial condition or results of
operations of the Company and the Company Subsidiaries taken
as a whole. Except for violations or defaults that arise in
connection with the consummation of the transactions
contemplated by this Agreement or as described in
Section 4.01(p), neither the Company nor any Company
Subsidiary is in material violation of or in default under
<PAGE>27
21
(nor does there exist any condition which upon the passage
of time or the giving of notice would cause such a violation
of or default under) (A) any loan or credit agreement, note,
bond, mortgage, indenture, financing lease or other debt
instrument or agreement or (B) any other contract,
agreement, arrangement or understanding (the items referred
to in clauses (A) and (B) above being collectively referred
to herein as "Contracts"), to which it is a party or by
which it or any of its properties or assets is bound
(exclusive of any Contracts that are immaterial as to amount
and significance to the operations or Company System to
which they relate and are routinely entered into in the
ordinary course of business).
(ii) Set forth in Section 4.01(m)(ii) of the
Disclosure Schedule is (A) a list of all Loan Instruments
pursuant to which as of a date within 30 days of the date
hereof any Indebtedness of the Company or any of the Company
Subsidiaries in an aggregate principal amount in excess of
$50,000 is outstanding or may be incurred and (B) the
respective principal amounts outstanding thereunder as of
the date of this Agreement. The aggregate amount
outstanding under Loan Instruments of the Company and the
Company Subsidiaries as of the date hereof that is not
referred to in Section 4.01(m)(ii) of the Disclosure
Schedule is not in excess of $250,000.
(iii) Set forth in Section 4.01(m)(iii) of the
Disclosure Schedule are all contracts in effect as of the
date of this Agreement between the Company or any Company
Subsidiary and any cable programming service or broadcast
television station (including oral contracts, courses of
dealing or arrangements), together with the expiration date,
cost and station or programming service or services covered
for each such contract (except to the extent that the
disclosure of the foregoing information is prohibited under
confidentiality provisions binding on the Company or any
Company Subsidiary). Except as set forth in
Section 4.01(m)(iii) of the Disclosure Schedule, the Company
and the Company Subsidiaries have all contracts related to
programming and retransmission as are necessary for the
conduct of the business and operations of the Company
Systems as presently conducted (including oral contracts,
courses of dealing and arrangements where, notwithstanding
the expiration of any written agreement, the Company is
obtaining the service and has no reason to believe that such
oral contract, course of dealing or arrangement will be
terminated or materially changed) and, except for waivers or
<PAGE>28
22
consents which have not been obtained that are necessary in
connection with the consummation of the transactions
contemplated by this Agreement, the Company is not in
default in any material respect of its obligations under any
such contracts.
(iv) The Company has delivered or caused to be
delivered to Parent true and correct copies of (i) the
partnership agreement (the "Minneapolis Partnership
Agreement") of KBL Cablesystems of Minneapolis Limited
Partnership ("KBL Minneapolis") and (ii) the most recent
Offer by the General Partners of KBL Minneapolis to purchase
the limited partnership units thereof. Except as set forth
in Section 4.01(m)(iv) of the Disclosure Schedule, there are
no agreements, letters or other documents binding on the
Company or any Company Subsidiary amending, modifying or
interpreting the Minneapolis Partnership Agreement.
(n) Title to Properties. (i) Section 4.01(n)(i)
of the Disclosure Schedule sets forth as of the date of this
Agreement all real property (other than real property that
is immaterial as to amount and significance to the operation
or Company System to which it relates) owned in fee or
leased by the Company or any Company Subsidiary (including
the street address thereof), together with, in the case of
owned real estate, a listing of all title insurance carried
with respect to such real estate. Each of the Company and
each Company Subsidiary has good title to, or valid
leasehold interests in, all its material properties except
for such as are no longer used or useful in the conduct of
its businesses or as have been disposed of in the ordinary
course of business and except for defects in title,
easements, restrictive covenants and similar encumbrances or
impediments that, in the aggregate, do not materially
interfere with its ability to conduct its business as
currently conducted. All such material properties, other
than properties in which the Company or any Company
Subsidiary has leasehold interests, are free and clear of
all Liens, except for Liens that, in the aggregate, do not
and will not materially interfere with the ability of the
Company and the Company Subsidiaries to conduct business as
currently conducted and except for Liens included in
Section 4.01(n)(i) to the Disclosure Schedule.
(ii) Each of the Company and the Company
Subsidiaries has complied in all material respects with the
terms of all real property leases to which it is a party and
under which it is in occupancy (other than (A) leases which
<PAGE>29
23
have expired in accordance with their respective terms and
which can reasonably be expected to be renewed or replaced
in the ordinary course of business and (B) leases that are
immaterial as to amount and significance to the operations
or Company System to which they relate and are routinely
entered into in the ordinary course of business), and all
such leases are in full force and effect (other than leases
excluded under clause (B) above and leases under which third
parties have defaulted where neither the Company nor the
Stockholder has knowledge of such default). Each of the
Company and the Company Subsidiaries enjoys peaceful and
undisturbed possession under all such leases (other than
leases excluded under clause (B) above).
(o) Compliance with Applicable Laws. (i) Except
as set forth in Section 4.01(o)(i) of the Disclosure
Schedule or as described in Section 4.01(p), each of the
Company and each Company Subsidiary holds all Company
Permits as are necessary for it to own, lease or operate its
properties and assets, including the Company Systems, and to
carry on its business as now conducted (other than any
Company Permits that are immaterial as to amount or
significance to the operations or Company System to which
they relate and can reasonably be expected to be obtained on
a routine basis in the ordinary course of business). Except
for violations occurring as a result of the transactions
contemplated hereby, the Company and the Company
Subsidiaries are in compliance in all material respects with
the terms of the Company Permits (other than those referred
to in the last parenthetical of the immediately preceding
sentence). Except as set forth in Section 4.01(o)(i) of the
Disclosure Schedule or as described in Section 4.01(p) and
except for violations which are immaterial as to amount and
significance to the operations or Company Systems to which
they relate and can reasonably be expected to be resolved in
the ordinary course of business, (x) the businesses of the
Company and the Company Subsidiaries are not being conducted
in violation of any law, ordinance or regulation of any
Governmental Entity and (y) neither the Company nor the
Stockholder has any knowledge of any written claim to the
contrary (except that this sentence shall not be applicable
to any Rate Laws, Rate Practices or Rate Proceedings).
Except as set forth in Section 4.01(o)(i) or 4.01(s) of the
Disclosure Schedule, as described in Section 4.01(p)(i) or
(ii) of the Disclosure Schedule or, with respect to matters
arising after the date hereof and prior to the Effective
Time, as otherwise disclosed in writing to Parent, no
investigation or review by any Governmental Entity with
<PAGE>30
24
respect to the Company or any Company Subsidiary is pending,
or, to the knowledge of the Company or the Stockholder,
overtly threatened (other than any investigations or reviews
(A) the results of which would reasonably be expected to be
immaterial as to amount and significance to the operations
or Company System to which they relate or (B) resulting from
filings made and consents or approvals sought to effect the
transactions contemplated by this Agreement).
(ii) Each of the Company and the Company
Subsidiaries has made all material submissions (including
registration statements) required under the Communications
Act and the applicable rules and regulations thereunder.
The Company has made available to Parent copies of each such
submission since January 1, 1992.
(iii) (A) Except as set forth in
Section 4.01(o)(iii) of the Disclosure Schedule, the Company
and the Company Subsidiaries are in material compliance with
all Environmental Laws, and hold and are in material
compliance with all applicable Environmental Permits.
(B) As of the date hereof, and, with respect to
notices received after the date hereof and prior to the
Effective Time, except as disclosed in writing to Parent,
neither of the Company nor any of the Company Subsidiaries
has received any written notice from any Governmental Entity
that alleges that the Company or any Company Subsidiary is
in violation in any material respect with any Environmental
Laws or Environmental Permits.
(C) As of the date hereof, and, with respect to
decrees or orders entered into after the date hereof and
prior to the Effective Time, except as disclosed in writing
to Parent, neither the Company nor any of the Company
Subsidiaries has entered into or agreed to any court decree
or order and is not subject to any judgment, decree or order
naming the Company or any Company Subsidiary relating to
compliance with any Environmental Law or to investigation or
cleanup of a Hazardous Substance under any Environmental
Law, which in any such case is still outstanding and
continuous in effect.
(D) No Lien that could reasonably be expected to
give rise to a material liability pursuant to any
Environmental Law has been attached, asserted, or to the
knowledge of the Company or the Stockholder, threatened to
<PAGE>31
25
be attached or asserted, to or against any real or personal
property of the Company or any of the Company Subsidiaries.
(E) Except as set forth in Section 4.01(o)(iii)
of the Disclosure Schedule, there has been no Release of
Hazardous Substances on any property owned, operated or
leased by the Company or any of the Company Subsidiaries,
except for (1) Releases in compliance with Environmental
Laws or (2) Releases which, individually or in the
aggregate, would not reasonably be expected to give rise to
a liability that is material in amount or significance to
the operations or Company System to which they relate.
(F) As of the date hereof, and, with respect to
matters arising after the date hereof and prior to the
Effective Time, except as disclosed in writing to Parent,
neither the Company nor any of the Company Subsidiaries has
received a CERCLA 104(e) information request or has received
notice that it has been named a potentially responsible
party at any site included on the Federal National
Priorities List (as such term is defined under Environmental
Law) or any site listed for investigation or remediation
under any analogous state law.
(G) Except as disclosed in Section 4.01(o)(iii)
of the Disclosure Schedule, (1) there are no above-ground or
underground storage tanks on, under or about property owned,
operated or leased by the Company or any of the Company
Subsidiaries and (2) any former above-ground or underground
tanks on such property have been removed in accordance with
Environmental Law and no residual contamination, if any,
remains at such sites in excess of applicable standards.
(H) Except as disclosed in Section 4.01(o)(iii)
of the Disclosure Schedule, there are no polychlorinated
biphenyls in any article, container or equipment located on,
under or about property owned, operated or leased by the
Company or any of the Company Subsidiaries (excluding any
article, container or equipment owned by or under the
control of a utility company or a party unrelated to the
Company) and there is no asbestos-containing material at,
on, under or within such properties, in either case at
levels or in a condition requiring removal, treatment or
remediation under applicable Environmental Laws (on the
basis of the manner in which such properties are used by the
Company or the relevant Company Subsidiary).
<PAGE>32
26
(p) Company Franchises. (i) Section 4.01(p)(i)
of the Disclosure Schedule sets forth or identifies (A) each
Company Franchise as of the date of this Agreement, (B) the
Company Systems in respect of each such Company Franchise,
(C) the expiration date of each such Company Franchise,
(D) all guarantees of the Stockholder that relate to
obligations under Company Franchises or, to the knowledge of
the Company or the Stockholder, Paragon Franchises and
(E) any provisions or arrangements that provide for a buyout
of a Company System or portion thereof at the option of the
grantor of the Company Franchise or a right of first refusal
or similar right.
(ii) Except as set forth in Section 4.01(p)(ii) of
the Disclosure Schedule and except as they relate to the
transactions contemplated hereby, (A) there are no
applications by the Company outside the ordinary course in
connection with the Company Franchises or proceedings
pending or, to the knowledge of the Company or the
Stockholder, overtly threatened before any Governmental
Entity relating to Company Franchises, other than
(x) pending rate complaints filed with the FCC or other
Governmental Entities by subscribers or franchising
authorities as to which the Company or the Stockholder has
knowledge, copies of which have been made available to
Parent, and (y) proceedings which affect the cable
television industry generally; (B) no Governmental Entity
that has issued a Company Franchise has notified the Company
or the Stockholder in writing in the past twelve months of
its intention to exercise any rights to purchase the Company
Systems or any portion thereof subject to such Company
Franchise and no discussions are continuing as to any such
rights; (C) the operations of the Company Systems are in
material compliance with the requirements of the Company
Franchises; (D) the Company Franchises listed in
Section 4.01(p)(i) of the Disclosure Schedule were validly
and lawfully issued and are in full force and effect and
their respective terms have not expired, except for Company
Franchises that, although beyond their stated term, have
been extended on an interim basis pending negotiation of a
definitive renewal franchise agreement (which facts, to the
extent existing on the date hereof, are set forth on
Section 4.01(p)(ii) of the Disclosure Schedule or, to the
extent arising after the date hereof and prior to the
Effective Time, are disclosed in writing to Parent) and can
reasonably be expected to be renewed on commercially
reasonable terms from the point of view of the operator; and
(E) assuming due authorization and issuance of such Company
<PAGE>33
27
Franchise by the applicable Governmental Entity, each
Company Franchise constitutes the legal, valid and binding
agreement of the Company or any of the Company Subsidiaries
to which it is applicable.
(iii) The Company has made available to Parent true
and complete copies of all Company Franchises, including all
amendments thereto and interpretive letters addressed to the
Company or any of the Company Subsidiaries in respect
thereof, and, to the knowledge of the Company or the
Stockholder, true and complete written summaries of all oral
agreements and understandings in respect of any Company
Franchise that are binding on the Company or a Company
Subsidiary.
(iv) To the knowledge of the Company or the
Stockholder, there is no basis for the non-renewal of any
Company Franchise for the provision of cable television
service, and no Governmental Entity has asserted any such
claim in writing, except in either case for allegations
based upon any of the transactions contemplated hereby.
(q) Company Systems. Section 4.01(q) of the
Disclosure Schedule sets forth each Company System and the
following in respect thereof as of September 30,
1994: (i) the approximate number of Homes Passed, (ii) the
approximate number of miles of installed cable, (iii) the
number of Individual Subscribers (within a one percent
margin of error), (iv) the minimum channel and MHZ capacity,
(v) the must-carry/retransmission status of each station
carried by such Company System, (vi) the stations and
signals carried by such Company System and the channel
position of each such signal and station and (vii) the Basic
Subscriber Rate.
(r) Overbuilds. Except as set forth in
Section 4.01(r) of the Disclosure Schedule or, with respect
to matters arising after the date hereof and prior to the
Effective Time, otherwise disclosed in writing to Parent by
the Company, and except for SMATV operations or construction
programs, to the knowledge of the Company or the
Stockholder, since January 1, 1993, (i) no other Person has
applied for a franchise or other authorization to operate a
cable television system, MMDS, video dialtone service or
other multi-channel video programming service in the
Franchise Areas of the Company Systems; and (ii) no
construction programs are being undertaken by other Persons
to construct a cable television system, MMDS or other multi-
<PAGE>34
28
channel video programming service in the Franchise Areas of
the Company Systems. Except as set forth in Section 4.01(r)
of the Disclosure Schedule, as of the date hereof, there are
no existing overbuilds of the Company Systems in the areas
covered by any of the Company Franchises.
(s) Rate Regulation. (i) The Company has filed
all rate regulation forms required to be filed since
October 1, 1993, with the FCC and/or the appropriate
franchising authority for each of the Company Systems that
is required to file such forms. The Company has made
available to Parent true and complete copies of such forms,
and has delivered to Parent a list of all Franchise Areas
that are certified to regulate rates pursuant to the laws
and regulations of the FCC and a list of all Franchise Areas
in which a complaint regarding cable programming services
has been filed with the FCC. All factual statements made by
or on behalf of a Company System in any such form are, in
all material respects, accurate and complete.
(ii) Except as set forth in Section 4.01(s) of the
Disclosure Schedule or, with respect to matters arising
after the date hereof and prior to the Effective Time,
otherwise disclosed in writing to Parent, no Company System
has received any written notice from any Governmental Entity
of its intent to (A) assert jurisdiction to regulate the
subscriber rates of such Company System or (B) investigate
such rates or business practices, pursuant to a subscriber
complaint or otherwise, including under any state or local
so-called consumer protection, trade practice or other
similar law, or any other statute, law, ordinance, rule or
regulation.
(t) Intellectual Property. (i) Section 4.01(t)
of the Disclosure Schedule sets forth as of the date of this
Agreement a list of the Intellectual Property of the Company
and the Company Subsidiaries (other than Intellectual
Property that is immaterial as to amount or significance to
the operations or Company System to which it relates),
specifying, where applicable, (A) the title thereof, (B) the
registration or application number thereof, (C) the record
owner thereof and (D) the jurisdictions in which such
Intellectual Property has been issued or registered, or in
which an application for such issuance or registration has
been filed. Each of the Company and each the Company
Subsidiary has sufficient right, title and interest in and
to all Intellectual Property (other than as specified above)
used in its business to conduct its business as it is
<PAGE>35
29
presently conducted, and the consummation of the
transactions contemplated hereby will not alter or impair
any such rights in any material respect.
(ii) The Company has timely filed with the U.S.
Copyright Office all required Statements of Account in true
and correct form and has paid when due all copyright royalty
fee payments in the correct amount.
(u) Transactions with Affiliates. Except as set
forth in Section 4.01(u) of the Disclosure Schedule or in
the Financial Statements, there are no agreements, contracts
or other arrangements between the Company or any of the
Company Subsidiaries, on the one hand, and the Stockholder
or any of its Subsidiaries (other than the Company or any
Company Subsidiary), on the other hand, and, except as set
forth in Section 4.01(u) of the Disclosure Schedule, none of
such agreements, contracts or other arrangements will
continue in effect after the Closing Date. Except as set
forth in Section 4.01(u) of the Disclosure Schedule or
contemplated by Section 3.02 of the Stockholder's Agreement
and except for the ownership of the Parent Common Stock and
Parent Preferred Stock issued hereunder or otherwise
contemplated by the Stockholder's Agreement, after the
Closing Date none of the Stockholder nor any Subsidiary
thereof and no present or former officer, director or
employee of the Stockholder or any Subsidiary thereof has
any interest in any property (real or personal, tangible or
intangible) or contract used in or pertaining to the
business of the Company and the Company Subsidiaries (or the
Surviving Corporation and its Subsidiaries) and none of the
Stockholder or any of its Subsidiaries has any direct or
indirect ownership interest in any Person (other than
through the Company or any of the Company Subsidiaries) with
which the Company or any of the Company Subsidiaries
competes or has a business relationship. Section 4.01(u) of
the Disclosure Schedule sets forth as of the date of this
Agreement a description of all services provided by the
Stockholder to the Company and any of the Company
Subsidiaries.
SECTION 4.02. Additional Representations and
Warranties of the Stockholder. The Stockholder represents
and warrants to Parent and Sub as follows:
(a) Share Ownership. The Stockholder is the
owner, beneficially and of record, of all of the shares of
Company Common Stock and holds good and valid title to such
<PAGE>36
30
Company Common Stock free and clear of all Liens. There are
no voting trusts, proxies or any other agreements or
understandings with respect to the voting of any capital
stock of the Company.
(b) Investment. The Stockholder is acquiring the
Parent Common Stock and the Parent Preferred Stock for
investment and is not acquiring such Parent Common Stock and
Parent Preferred Stock with a view to or for sale in
connection with any distribution thereof within the meaning
of the Securities Act.
(c) Non-Foreign Status. For purposes of
withholding under Section 1445 of the Code, the Stockholder
represents that it is not a "foreign person" as defined in
Section 1445(f)(3) of the Code. The Stockholder shall
provide to Parent prior to the Closing Date a certificate or
an affidavit necessary to substantiate exemption from such
withholding.
SECTION 4.03. Representations and Warranties of
Parent and Sub. Parent and Sub each represents and warrants
to the Company and the Stockholder as follows:
(a) Organization, Standing and Corporate Power.
(i) Parent and each of its Subsidiaries (including Sub) is
a corporation or partnership duly organized, validly
existing and in good standing under the laws of the
jurisdiction in which it is incorporated or organized and
has the requisite corporate or partnership power and
authority to carry on its business as now being conducted.
Parent and each of its Subsidiaries is duly qualified or
licensed to do business and is in good standing in each
jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such
qualification or licensing necessary, other than in such
jurisdictions where the failure to be so qualified or
licensed (individually or in the aggregate) would not have a
Parent Material Adverse Effect. Parent has delivered or
made available to the Company complete and correct copies of
its certificate of incorporation and by-laws and the
certificate of incorporation and by-laws of Sub, in each
case as amended to the date of this Agreement.
(ii) The Subsidiaries of Parent that are partners
in Paragon are in compliance in all material respects with
the provisions of the partnership agreement of Paragon and
the TWE Management Agreement.
<PAGE>37
31
(b) Capital Structure. As of the date of this
Agreement, the authorized capital stock of Parent consists
of (i) 750,000,000 shares of Parent Common Stock and
(ii) 250,000,000 shares of preferred stock, par value $1.00
per share (the "Additional Parent Preferred Stock"). As of
the close of business on November 30, 1994,
379,254,613 shares (excluding 45,677,131 shares held by
Parent in its treasury (or by a wholly owned subsidiary of
Parent)) of Parent Common Stock were outstanding. As of the
date hereof, 962,068 shares of Additional Parent Preferred
Stock are outstanding (consisting entirely of Series B 6.40%
Preferred Stock), and as of the close of business on
November 30, 1994, 4,000,000 shares of Series A
Participating Cumulative Preferred Stock were reserved for
issuance pursuant to the Rights Agreement dated as of
January 20, 1994, between Parent and Chemical Bank as Rights
Agent. As of December 31, 1993, Parent had reserved
(i) 66,197,497 shares of Parent Common Stock for issuance
upon the conversion of 8.75% convertible subordinated
debentures, zero coupon convertible notes and other
convertible securities of Parent, and (ii) 72,953,537 shares
of Parent Common Stock for issuance upon the exercise of
outstanding options to purchase shares of Parent. All
outstanding shares of capital stock of Parent have been, and
at the Closing Date the Parent Common Stock and Parent
Preferred Stock to be issued hereunder will be, duly
authorized, validly issued and fully paid and nonassessable,
not subject to, or issued in violation of, any preemptive
rights and have not been, and on the Closing Date will not
be, issued in violation of any Federal or state securities
laws. As of the date of this Agreement, the authorized
capital stock of Sub consists of 1,000 shares of common
stock, par value $1.00 per share, all of which have been
validly issued, are fully paid and nonassessable and are
owned by Parent free and clear of any Liens.
(c) Authority; Noncontravention. (i) Each of
Parent and Sub has the requisite corporate power and
authority to enter into this Agreement and the Transaction
Documents and to consummate the transactions contemplated
hereby and thereby. The execution and delivery of this
Agreement and each of the Transaction Documents by each of
Parent and Sub, as applicable, and the consummation by each
of Parent and Sub of the transactions contemplated hereby
and thereby have been duly authorized by all necessary
corporate action on the part of Parent and, in the case of
this Agreement, Sub. This Agreement has been duly executed
and delivered by each of Parent and Sub and constitutes a
<PAGE>38
32
valid and binding obligation of each of Parent and Sub,
enforceable against each of them in accordance with its
terms, except (A) as such enforceability may be limited by
bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally and (B) as the remedy
of specific performance and injunctive and other forms of
equitable relief may be subject to equitable defenses and to
the discretion of the court before which any proceeding
therefor may be brought. Each Transaction Document has been
duly authorized by Parent and, upon its execution and
delivery by the parties thereto (pursuant to due
authorization by the other parties) will constitute a valid
and binding obligation of Parent, enforceable against Parent
in accordance with its terms, except as aforesaid.
(ii) The execution and delivery of this Agreement
and each of the Transaction Documents does not, and the
consummation of the transactions contemplated by this
Agreement and each of the Transaction Documents and
compliance with the provisions of this Agreement and each of
the Transaction Documents will not, conflict with, or result
in any violation of, or default (with or without notice or
lapse of time, or both) under, or give rise to a right of
termination, cancelation or acceleration of any obligation
or to loss of a material benefit under, or result in the
creation of any Lien upon any of the properties or assets of
Parent or any of its Subsidiaries under any of the
following:
(A) the certificate of incorporation or by-laws of
Parent or the comparable charter or organizational
documents of any Subsidiary of Parent;
(B) any Third-Party Contract of Parent or one of
its Subsidiaries (assuming receipt of the consents
contemplated by Section 6.12) or Paragon; or
(C) subject to the governmental filings and other
matters referred to in paragraph (iii) below, any
Paragon Franchise or Paragon Permit or any judgment,
order, decree, statute, law, ordinance, rule or
regulation applicable to Parent or any of its
Subsidiaries or their respective properties or assets;
other than, in the case of clauses (B) or (C), any such
conflicts, violations, defaults, rights or Liens that
individually or in the aggregate would not (x) have a Parent
Material Adverse Effect, (y) impair in any material respect
<PAGE>39
33
or materially delay the ability of Parent or Sub to perform
its obligations under this Agreement or (z) prevent,
materially delay or make unduly burdensome the consummation
of the transactions contemplated by this Agreement.
(iii) No consent, approval, order or authorization
of, or registration, declaration or filing with, any
Governmental Entity is required by Parent or any of its
Subsidiaries in connection with the execution and delivery
of this Agreement or the consummation by Parent or Sub, as
the case may be, of any of the transactions contemplated by
this Agreement, except for (I) the filing of a premerger
notification and report form under the HSR Act, (II) the
filing with the SEC of such reports under Sections 13(a),
13(d) and 16 of the Exchange Act as may be required in
connection with this Agreement and the transactions
contemplated by this Agreement, (III) the filing of the
Certificate of Merger with the Delaware Secretary of State
and appropriate documents with the relevant authorities of
other states in which the Company is qualified to do
business, (IV) approvals of Governmental Entities to the
extent necessary to consummate the transactions contemplated
hereby, (V) consents, approvals, orders, authorizations,
registrations, declarations and filings arising as a result
of matters relating primarily to the Company and its
Affiliates and (VI) consents, approvals, orders,
authorizations, registrations, declarations and filings, the
failure of which to be obtained or made would not,
individually or in the aggregate, have a Parent Material
Adverse Effect, or prevent, materially delay or make unduly
burdensome the consummation of the transactions contemplated
hereby.
(d) Parent SEC Documents; Financial Statements.
(i) Parent has filed all required reports, forms and other
documents with the SEC since January 1, 1994 (such
documents, as filed and amended through the date this
representation is made being called the "Parent SEC
Documents"). Parent has delivered or made available to the
Stockholder copies of the Parent SEC Documents. As of their
respective dates, the Parent SEC Documents complied in all
material respects with the requirements of the Securities
Act or the Exchange Act, as the case may be, and the rules
and regulations of the SEC promulgated thereunder applicable
to such Parent SEC Documents, and none of the Parent SEC
Documents contained any untrue statement of a material fact
or omitted to state a material fact required to be stated
therein or necessary in order to make the statements
<PAGE>40
34
therein, in light of the circumstances under which they were
made, not misleading. Except to the extent that information
contained in any Parent SEC Document has been revised or
superseded by a later-filed Parent SEC Document filed and
publicly available prior to the date this representation is
made, none of the Parent SEC Documents contains any untrue
statement of a material fact or omits to state any material
fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances
under which they were made, not misleading. The financial
statements of Parent included in the Parent SEC Documents
comply as to form in all material respects with applicable
accounting requirements and the published rules and
regulations of the SEC with respect thereto, have been
prepared in accordance with GAAP (except, in the case of
unaudited statements, as permitted by Form 10-Q of the SEC)
applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto) and fairly
present the consolidated financial position of Parent and
its consolidated subsidiaries as of the dates thereof and
the consolidated results of their operations and cash flows
for the periods then ended (subject, in the case of
unaudited statements, to normal year-end adjustments).
Except as set forth in the Parent SEC Documents, and except
for liabilities and obligations incurred in the ordinary
course of business consistent with past practice since the
date of the most recent consolidated balance sheet included
in the Parent SEC Documents, neither Parent nor any of its
subsidiaries has any material liabilities or obligations of
any nature (whether accrued, absolute, contingent,
unasserted or otherwise) required by GAAP to be recognized
or disclosed on a consolidated balance sheet of Parent and
its consolidated subsidiaries or in the notes thereto.
Notwithstanding the provisions of this Section 4.03(d),
Parent shall not be deemed to have made any representations
or warranties to the Company or the Stockholder with respect
to any information furnished in writing by the Company or
the Stockholder for inclusion in any Parent SEC Document.
(ii) Except for matters disclosed in Parent SEC
Documents filed prior to the date hereof, since
September 30, 1994, there has not been a Parent Material
Adverse Effect (provided that the exception referred to in
this paragraph shall not apply to any change in such matters
or in required disclosure with respect to such matters that
arise subsequent to the filing of Parent's Form 10-Q for the
quarter ended September 30, 1994).
<PAGE>41
35
(e) Litigation. There is no suit, action or
proceeding pending or, to the knowledge of Parent, overtly
threatened, against Parent or any of its Subsidiaries that,
individually or in the aggregate, could reasonably be
expected to (i) have an adverse effect on the business,
properties, condition or results of operations of Parent
that constitutes a Parent Material Adverse Effect,
(ii) impair in any material respect, or materially delay,
the ability of Parent or Sub or any of their respective
Subsidiaries to perform their respective obligations under
this Agreement, any Transaction Document or the Joint
Venture Agreement or (iii) prevent, materially delay or make
unduly burdensome the consummation of any of the
transactions contemplated by this Agreement, nor is there
any judgment, decree, injunction rule or order of any
Governmental Entity (other than Franchises) or arbitrator
outstanding that is directed against Parent or any of its
Subsidiaries that has, or is reasonably likely to have, any
effect referred to in the foregoing clauses (i)-(iii).
(f) Tax Matters. (i) None of Parent, any of its
Affiliates, Paragon or its Subsidiaries has any plan or
intention of taking, or permitting the Surviving Corporation
to take, any action after the Effective Time (including any
transfer of any assets by the Surviving Corporation) that
would itself (without regard to any action taken by the
Company or the Stockholder prior to the Effective Time or by
the Stockholder after the Effective Time) cause the Merger
to fail to qualify as a reorganization within the meaning of
Section 368(a) of the Code (it being understood that the
merger of Sub into the Company, the conversion of the
Company Common Stock into Parent Common Stock and Parent
Preferred Stock and compliance by Parent, its Affiliates and
Paragon and its Subsidiaries with the other provisions of
this Agreement (other than an assignment pursuant to
Section 11.07), the Parent Common Stock, the Parent
Preferred Stock or the Transaction Documents shall not
constitute a breach of this Section 4.03(f)(i)).
(ii) Parent has formed Sub solely in order to
consummate the transactions contemplated by this Agreement,
and at no time will Sub conduct any business activities or
other operations of any kind, other than the issuance of its
stock to Parent prior to the Effective Time.
(iii) Immediately prior to the Merger, Parent will
be in control of Sub within the meaning of Section 368(c) of
the Code.
<PAGE>42
36
(iv) Neither Parent nor Sub is an investment
company as defined in Sections 368(a)(2)(F)(iii) and (iv) of
the Code.
(v) There is no indebtedness existing between
Parent or Sub, on the one hand, and the Company, on the
other hand, that was issued or acquired, or will be settled,
at a discount.
(g) Brokers. Except to the extent payable solely
by Parent (or by the Surviving Corporation after the Closing
Date) no broker, investment banker, financial advisor or
other Person is entitled to any broker's, finder's,
financial advisor's or other similar fee or commission in
connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of
Parent or Sub.
(h) Investment Intent. Parent is acquiring the
Company Common Stock for its own account and not with a view
to their distribution within the meaning of Section 2(11) of
the Securities Act. Parent is an "accredited investor" as
such term is defined in Rule 501(a) promulgated pursuant to
the Securities Act.
ARTICLE V
Covenants Relating to Conduct of Business
SECTION 5.01. Conduct of Business by the Company.
Until the Closing Date, the Company shall and shall cause
the Company Subsidiaries to, and the Stockholder shall cause
the Company and the Company Subsidiaries to, carry on their
respective businesses in the ordinary course and use
commercially reasonable efforts to preserve intact their
current business organizations, keep available the services
of their current officers and employees and preserve their
relationships with customers, suppliers and others having
business dealings with them. Without limiting the
generality of the foregoing, until the Closing Date, the
Company shall not, and shall not permit any of the Company
Subsidiaries to, and the Stockholder shall not permit the
Company or any of the Company Subsidiaries, without, in any
such case, the prior written consent of the Parent, to:
(a) (i) declare, set aside or pay any dividends
on, or make any other distributions in respect of, any
<PAGE>43
37
of its capital stock, other than dividends and
distributions by any direct or indirect wholly owned
Company Subsidiary to its parent, (ii) split, combine
or reclassify any of its capital stock or issue or
authorize the issuance of any other securities in
respect of, in lieu of or in substitution for shares of
its capital stock or (iii) purchase, redeem or
otherwise acquire any shares of capital stock of the
Company or any of the Company Subsidiaries or any other
securities thereof or any rights, warrants or options
to acquire any such shares or other securities;
(b) issue, deliver or sell or pledge or otherwise
encumber any shares of its capital stock, any other
voting securities or any securities convertible into,
or any rights, warrants or options to acquire, any such
shares, voting securities or convertible securities;
(c) amend its certificate of incorporation,
by-laws or other comparable charter or organizational
documents;
(d) acquire or agree to acquire (i) by merging or
consolidating with, or by purchasing a substantial
portion of the assets of, or by any other manner, any
Person or division thereof or (ii) any assets that are
material, individually or in the aggregate, to the
Company and the Company Subsidiaries taken as a whole,
except purchases of goods and services in the ordinary
course of business consistent with past practice and
Capital Expenditures of the Company and the Company
Subsidiaries as contemplated by Section 5.01(g);
(e) mortgage or otherwise encumber or subject to
any Lien or, except in the ordinary course of business
consistent with past practice, sell, lease or otherwise
dispose of any of its properties or assets; provided,
however, that the Company may sell Specified Long-Term
Assets pursuant to a merger, reclassification or tender
or exchange offer that in each case is approved by the
board of directors of the issuer thereof;
(f) (i) incur any indebtedness for borrowed money
or guarantee any such indebtedness of another Person,
issue or sell any debt securities or warrants or other
rights to acquire any debt securities of the Company or
any of the Company Subsidiaries, enter into, amend or
terminate any Loan Instrument or any interest rate,
<PAGE>44
38
currency or commodity swap or hedging contract,
guarantee any debt securities of another Person, enter
into any "keep well" or other agreement to maintain any
financial statement condition of another Person or
enter into any arrangement having the economic effect
of any of the foregoing, other than the making of
working capital borrowings under existing Loan
Instruments in the ordinary course of business,
consistent with past practice (including working
capital borrowings to effect the Capital Expenditures
by the Company and the Company Subsidiaries as
contemplated by Section 5.01(g)), or (ii) make any
loans, advances or capital contributions to, or
investments in, any other Person, other than (A) to the
Company or any direct or indirect wholly owned Company
Subsidiary, (B) loans, advances or capital
contributions to Linkatel Pacific, L.P. (not to exceed
$4,000,000 in the aggregate), and (C) loans and
advances to the Stockholder or one of its Subsidiaries
pursuant to the existing cash management arrangements
of the Company (which are set forth or described in
Section 4.01(m)(i) of the Disclosure Schedule) in the
ordinary course of business consistent with past
practice;
(g) fail to make Capital Expenditures in the
ordinary course of business in accordance with the
budget attached hereto as Exhibit A, including pursuant
to any agreement entered into prior to the date hereof
or for the purposes outlined in such budget;
(h) make any material Tax election or settle or
compromise any material Tax liability;
(i) pay, discharge or satisfy any claims,
liabilities or obligations (absolute, accrued, asserted
or unasserted, contingent or otherwise), other than the
payment, discharge or satisfaction, in the ordinary
course of business consistent with past practice or in
accordance with their terms, of liabilities reflected
or reserved against in, or contemplated by, the most
recent Financial Statements (or the notes thereto) of
the Company or incurred in the ordinary course of
business consistent with past practice and the payment,
discharge or satisfaction of Indebtedness in accordance
with its terms in the ordinary course consistent with
past practice;
<PAGE>45
39
(j) unless pursuant to the plans and agreements
set forth in Section 4.01(h) of the Disclosure
Schedule, provide for or allow any increase in
compensation (including bonus, severance or termination
pay) to employees of the Company or any of the Company
Subsidiaries, other than increases in the ordinary
course of business consistent with past practice, or
increase the number of employees of the Company or any
of the Company Subsidiaries other than in the ordinary
course of business consistent with past practice;
(k) except for the plans and agreements set forth
in Section 4.01(h) of the Disclosure Schedule, adopt or
amend any Benefit Plan or actuarial assumptions
relating thereto (other than (A) amendments in the
ordinary course of business that are immaterial as to
amount and significance and are consistent with past
practice (except that the Company will continue to use
the actuarial assumptions referred to in
Section 4.01(h)(iv) for purposes of determining the
funding obligations of the Company with respect to the
Benefit Plans), (B) amendments to existing Benefit
Plans to release the Stockholder or any of its
Affiliates from its obligations thereunder effective
upon the Closing and (C) adoption or amendment of any
Benefit Plan, the obligation for which will be included
in Company Severance and Incentive Liabilities or
otherwise will be solely that of the Stockholder or
where an amendment will not result in increased
liability to the Company or a Company Subsidiary);
(l) except in the ordinary course of business,
modify, amend or terminate any material contract or
agreement to which the Company or any Company
Subsidiary is a party or waive, release or assign any
material rights or claims; provided, however, that the
Company and the Company Subsidiaries may terminate any
tax sharing agreements between the Stockholder or any
of its Affiliates (other than the Company and the
Company Subsidiaries), on the one hand, and the Company
or any of the Company Subsidiaries, on the other hand,
so that the Stockholder, the Company and the Company
Subsidiaries shall thereafter have no obligation
thereunder;
(m) make any payments to the Stockholder or any of
its Affiliates (other than to the Company or any
Company Subsidiary), pursuant to any management
<PAGE>46
40
agreement, Tax sharing agreement or similar contract,
except pursuant to agreements and arrangements
described in Section 5.01(m) of the Disclosure
Schedule;
(n) fail to use commercially reasonable efforts to
renew on commercially reasonable terms any Company
Franchise that will terminate after the date hereof and
prior to the Closing Date in accordance with its terms
(it being understood that the Company or any Company
Subsidiary shall, to the extent reasonably practicable,
permit Parent to participate in the process of renewals
of any such Company Franchise);
(o) without the prior written consent of Parent
(which consent shall not be unreasonably withheld)
purchase or lease any real property (other than
easements or similar rights); or
(p) authorize any of, or commit or agree to take
any of, the foregoing actions.
SECTION 5.02. Conduct of the Business of Paragon.
Until the Closing Date, Parent shall and shall cause its
Subsidiaries to carry on the business of Paragon in the
ordinary course consistent with past practices and in
accordance with the terms and conditions of the TWE
Management Agreement and the partnership agreement of
Paragon, including acting in good faith with respect to any
matter that would materially impact the Paragon Working
Capital Balance or the Paragon Working Capital Deficit, as
applicable.
SECTION 5.03. No Transfer. The Stockholder shall
not sell, transfer or otherwise dispose of the Company
Common Stock to any Person, nor shall it subject such
Company Common Stock to any Lien, in either case at any time
during the term of this Agreement, except as contemplated
hereby. Neither the Company nor Parent shall, directly or
indirectly, sell, transfer or otherwise dispose of the
equity interest in Paragon owned by it to any Person, nor
shall it subject such equity interest to any Lien, in either
case at any time during the term of this Agreement, except
as contemplated hereby.
SECTION 5.04. Other Actions. The parties hereto
shall not, and shall not permit any of their respective
Subsidiaries to, take any action that would, or that could
<PAGE>47
41
reasonably be expected to, result in any of the conditions
set forth in Article VII not being satisfied.
ARTICLE VI
Additional Agreements
SECTION 6.01. Access to Information;
Confidentiality. (a) The Company shall, and shall cause
each of the Company Subsidiaries to, and the Stockholder
shall cause the Company and each of the Company Subsidiaries
to, afford to Parent, and to Parent's officers, employees,
accountants, counsel, financial advisers and other
representatives, reasonable access during normal business
hours during the period prior to the Effective Time to all
their respective properties, books, contracts, commitments,
personnel and records and, during such period, the Company
shall, and shall cause each of the Company Subsidiaries to,
and the Stockholder shall cause the Company and each of the
Company Subsidiaries to, identify and make available
promptly to Parent (i) a copy of each report, schedule and
other document filed by it during such period pursuant to
the requirements of Federal securities laws or in respect of
any action or request for information from the FCC or any
franchising authority, (ii) monthly balance sheets and
statements of income of the Company and the Company
Subsidiaries on a consolidated basis and copies of any other
financial statements and other information provided to any
lenders by the Company or a Company Subsidiary, (iii) the
Periodic Financial Statements, as soon as practicable
following the end of the relevant fiscal period, but in any
event no later than (x) 105 days following the end of any
fiscal year and (y) 60 days following the end of any fiscal
quarter, (iv) Federal, state and local Tax returns and
related working papers of the Company and the Company
Subsidiaries and all tax sharing agreements of the Company
or any of the Company Subsidiaries, on the one hand, and the
Stockholder or any of the Company Subsidiaries, on the other
hand, and (v) all other information concerning its business,
properties and personnel as Parent may reasonably request,
subject however, to the terms of any written confidentiality
agreements that are binding upon the Company or the Company
Subsidiaries (it being understood that the Company and the
Company Subsidiaries shall consult with Parent concerning
the nature and scope of all such confidentiality
obligations, provide a copy of all such confidentiality
<PAGE>48
42
agreements to Parent and shall, to the extent possible,
identify all matters that are subject to such obligations).
(b) Except as required by law, Parent will hold,
and will cause its officers, employees, accountants,
counsel, financial advisers and other representatives and
Affiliates to hold, any confidential information in
accordance with the Confidentiality Agreement dated as of
September 22, 1994, between Parent and the Stockholder (the
"Confidentiality Agreement"), and each of Parent, the
Stockholder, the Company and each Company Subsidiary will,
and will cause their respective representatives to comply
with the terms of the Confidentiality Agreement.
(c) Parent will deliver or make available to the
Stockholder copies of all proxy statements and reports on
Forms 10-K, 10-Q and 8-K filed by Parent with the SEC
between the date hereof and the Closing Date.
SECTION 6.02. Commercially Reasonable Efforts.
(a) Upon the terms and subject to the conditions set forth
in this Agreement (including Sections 6.02(b)-(e),
Section 6.07 and Section 7.02(e)), each of the parties
agrees to use commercially reasonable efforts (x) to cause
all of the conditions in Article VII to be satisfied on or
prior to the Closing Date and (y) to take, or cause to be
taken, all actions, and to do, or cause to be done, and to
assist and cooperate with the other parties in doing, all
things necessary, proper or advisable to consummate and make
effective, in the most expeditious manner practicable, the
Merger and the other transactions contemplated by this
Agreement, including (i) the obtaining of all necessary
actions or nonactions, waivers, consents and approvals from
Governmental Entities and the making of all necessary
registrations and filings (including filings with
Governmental Entities, if any) and the taking of
commercially reasonable steps as may be necessary to obtain
an approval or waiver from, or to avoid an action or
proceeding by, any Governmental Entity, (ii) the obtaining
of all necessary consents, approvals or waivers from third
parties, (iii) the defending of any lawsuits or other legal
proceedings, whether judicial or administrative, challenging
this Agreement or the consummation of any of the
transactions contemplated by this Agreement, including
seeking to have any stay or temporary restraining order
entered by any court or other Governmental Entity vacated or
reversed and (iv) the execution and delivery of any
additional instruments necessary to consummate the
<PAGE>49
43
transactions contemplated by, and to fully carry out the
purposes of, this Agreement.
(b) Without limiting the generality of anything
in Section 6.02(a), in order to secure any necessary
consents relating to any Company Franchises or Paragon
Franchises from Governmental Entities, the Stockholder, the
Company, Parent and Sub shall proceed timely and in good
faith, each using commercially reasonable efforts, to
prepare, file and prosecute each such consent or approval,
including by filing FCC Form 394 and the information
required thereby. The Company (in the case of the Company
Franchises) shall and Parent, with the cooperation of the
Stockholder, shall cause Paragon (in the case of the Paragon
Franchises) to submit to each Governmental Entity whose
consent is required a form of ordinance, resolution or other
required document, as appropriate, relating to the transfer
of control of the applicable Company Franchise or Paragon
Franchise, as the case may be, which ordinance, resolution
or other document shall be in form and substance reasonably
satisfactory to the Stockholder, the Company, Parent and
Sub. The Company and Parent shall consult with each other
and promptly and regularly notify each other with respect to
all material developments in each such consent process. The
Company shall give Parent and Sub reasonable prior notice of
all meetings and hearings scheduled with the relevant
Governmental Entity relating to the Company Franchises, and
Parent and Sub shall have the right to participate therein.
Parent, with the cooperation of the Stockholder, shall cause
Paragon to give the parties hereto reasonable prior notice
of all such meetings and hearings relating to the Paragon
Franchises, and the parties shall have the right to
participate therein. Each of Parent and the Stockholder
shall use its commercially reasonable efforts promptly to
assist the party requesting the Franchise transfer approval
and shall take such actions as may be necessary and
commercially reasonable in obtaining such approvals,
including using commercially reasonable efforts to furnish
information as is reasonably required by and customarily
furnished to the applicable Governmental Entity, and
preparing, filing and prosecuting any joint applications
required to be filed with any Governmental Entity. If
requested by the Company or any Company Subsidiary upon
reasonable notice, Parent or Sub, as applicable, shall be
represented at any meeting or hearing as may be scheduled to
consider any such applications; and if requested by Parent,
Parent or one of its Subsidiaries shall be entitled to be
present at any such meeting. Parent shall pay or reimburse
<PAGE>50
44
the Stockholder for all reasonable out-of-pocket costs
incurred by the Stockholder in connection with seeking or
obtaining any approval for the transfer of a Paragon
Franchise.
(c) If in connection with the process of
obtaining such consents from any Governmental Entity, such
Governmental Entity imposes any conditions applicable to any
Person, the parties hereto shall negotiate jointly with such
Governmental Entity with respect to such condition, with
such condition to be accepted only if consented to by the
Stockholder, the Company, Parent and Sub. The Company, the
Company Subsidiaries, Parent and Sub shall each act in a
commercially reasonable manner in granting or withholding
such consents (taking into account the parties' respective
interests with respect thereto). Each of Parent and Sub
agrees that prior to the Closing Date, it will not without
the prior written consent of the Company or the applicable
Company Subsidiary, seek amendment, modification or other
changes to any Company Franchise, nor will it institute or
participate in any discussions with Governmental Entities
relating to the Company Franchises without offering a
representative of the Company an opportunity to participate
therein.
(d) Notwithstanding anything herein to the
contrary, nothing in this Section 6.02 shall be deemed
(i) to require any party to take any action that would be
reasonably likely to have a Company Material Adverse Effect,
Paragon Material Adverse Effect or Parent Material Adverse
Effect; (ii) to require Parent or Sub to fulfill any
obligations, that should have been fulfilled by the Company
or the Stockholder prior to the Closing Date; or (iii) to
require the Company or the Stockholder to fulfill any
obligations that should have been fulfilled by Parent or
Sub.
(e) The parties agree that to the extent that
Parent and Sub request that the Company or any Company
Subsidiary seek to obtain any waiver, consent or approval
from a Governmental Entity or make any registration or
filing with a Governmental Entity in the name of TWE, TWE-
Advance/Newhouse or any other Subsidiary of Parent, rather
than in the name of Parent or Sub, any such actions taken in
the name of TWE, TWE-Advance/Newhouse or such other
Subsidiary shall be deemed to satisfy the obligations of
Parent or Sub, as applicable, to take such actions pursuant
to this Section (it being understood that TWE, TWE-Advance/
<PAGE>51
45
Newhouse and any other applicable Subsidiary of Parent shall
be required to comply with Section 6.02(a), (b) and (c), as
applicable). Parent and Sub shall promptly notify the
Company of any such request. Each of the Company and the
Company Subsidiaries agrees that it will use its
commercially reasonable efforts to seek any Company Permit
or Company Franchise that is to specifically reference or is
to be obtained in the name of (i) the acquirer, (ii) the
control person of the Company or any of the Company
Subsidiaries or the owner or operator of a Company System or
any other property of the Company or a Company Subsidiary,
in either case, by reference to or in the name of Parent and
its Subsidiaries (or TWE or TWE-Advance Newhouse or another
Subsidiary of Parent if so requested by Parent), rather than
in the name of Parent or Sub. Parent shall use commercially
reasonable efforts to assist the Company or such Company
Subsidiary to obtain such Company Permit or Company
Franchise; provided, however, that in the event that,
notwithstanding the use of commercially reasonable efforts
and consulting with Parent, the Company or any Company
Subsidiary shall be unable to obtain any such Company Permit
or Company Franchise in the name of Parent and its
Subsidiaries (or such other entity), or shall be unable to
do so without unreasonable delay or the creation of undue
burdens, the Company or the applicable Company Subsidiary
shall be deemed to have complied with the requirements of
this Agreement if it shall have sought to obtain such
Company Permit or Company Franchise in the name of Parent.
Notwithstanding the foregoing, no substitution of any Person
other than Parent shall relieve either Parent or Sub in any
respect from its obligations hereunder.
SECTION 6.03. Incentive Compensation Plans.
Insofar as they cover employees of the Company and the
Company Subsidiaries, all Benefit Plans that are deferred
compensation, incentive compensation, stock option or
phantom stock plans, arrangements or agreements which
provide for the payment of benefits solely in the form of or
in relation to common stock of the Company shall terminate
as of the Effective Time, and the Company shall ensure that
following the Effective Time no party to or participant in
any such plan, arrangement or agreement shall have any right
thereunder to acquire any capital stock of Parent, the
Company or the Surviving Corporation.
SECTION 6.04. Benefit Plans and Employee Matters.
(a) Except as provided in Section 6.03, Parent will, for at
least three years after the Effective Time, either
<PAGE>52
46
(i) maintain the Benefit Plans of the Company and the
Company Subsidiaries in effect on the date of this
Agreement, (ii) include employees of the Company and the
Company Subsidiaries in new plans of the Company or the
Company Subsidiaries providing generally comparable benefits
or (iii) include employees of the Company and the Company
Subsidiaries in one or more of the employee benefit plans of
the Parent and its Subsidiaries in which similarly situated
employees participate. In the case of (ii) or (iii), Parent
will give credit for prior service with the Company and the
Company Subsidiaries (and, to the extent credit is given by
the Company and Company Subsidiaries for prior service with
the Stockholder, its Subsidiaries or Paragon, such entities)
for eligibility and vesting (but not benefit accrual)
purposes. Effective as of the Effective Time, the
Stockholder and the Company agree to amend the Houston
Industries Incorporated Savings Plan (the "Savings Plan") to
provide for full vesting for all employees of the Company
and the Company Subsidiaries participating therein. The
Stockholder and Parent agree that the Company and the
Company Subsidiaries shall terminate their participation in
the Savings Plan effective as of the Effective Time. The
Stockholder will cause the Savings Plan to permit
participants who are employees of the Company and the
Company Subsidiaries as of the Effective Time to elect to
receive a distribution of their account balances in the
Savings Plan as soon as practicable after the Effective
Time. If Parent shall establish and maintain for its cable
television employees a similar defined contribution plan
qualified under Sections 401(a) and 401(k) of the Code,
Parent shall provide in such plan that the plan shall accept
rollovers of the accounts of any employee of the Company or
any Company Subsidiary from the Savings Plan if the employee
elects to rollover his or her Savings Plan accounts to
Parent's 401(k) plan subject to the requirements of the
Code.
(b) This Section 6.04 shall inure to the benefit
of the persons entitled to the benefit, or party to
agreements described therein or herein as third-party
beneficiaries, and Parent shall pay all reasonable legal
fees and disbursements (if any) incurred by or on behalf of
such person in successfully enforcing its rights under this
Section 6.04. No provision of the Agreement shall create
any third-party beneficiary rights in any employee or former
employee (including any beneficiary or dependent thereof) of
the Company or any employee of the Company Subsidiaries with
respect to continued employment or resumed employment.
<PAGE>53
47
SECTION 6.05. Fees and Expenses. (a) Except as
provided in Section 6.05(b), all fees and expenses incurred
in connection with the Merger, this Agreement and the
transactions contemplated hereby shall be paid (i) in the
case of Parent and Sub, by Parent, whether or not the Merger
is consummated, (ii) in the case of the Company, by the
Stockholder if the Merger is consummated (unless such
expense has been paid by the Company prior to the Closing
Date or an adjustment therefor is made in determining the
Adjustment Amount) or, by the Company or the Stockholder if
the Merger is not consummated and (iii) in the case of the
Stockholder, by the Stockholder, whether or not the Merger
is consummated; provided that any expenses to be paid by
Stockholder pursuant to this Section 6.05, whether paid
before or after the Closing Date, may at the Stockholder's
option, but without limiting the liability of the
Stockholder, be paid by the Company if taken into account in
determining the Company Working Capital Deficit or Company
Working Capital Balance, as applicable.
(b) All recordation, stamp, transfer and
documentary taxes and fees, and Federal, state or local
excise, sales or use taxes, and any filing or grant fees
imposed by any Governmental Entity (collectively,
"Section 6.05(b) Fees"), that are incurred in connection
with the transactions contemplated by this Agreement, shall
be paid as follows: (i) all Section 6.05(b) Fees with
respect to Paragon Franchises or Paragon Permits shall be
borne by Parent, (ii) all Section 6.05(b) Fees with respect
to the Company Franchises or Company Permits shall be borne
by the Stockholder, (iii) all Section 6.05(b) Fees with
respect to Parent Common Stock and Parent Preferred Stock
shall be borne by Parent, (iv) all Section 6.05(b) Fees with
respect to Company Common Stock shall be borne by the
Stockholder and (v) all other Section 6.05(b) Fees
(including SEC and HSR Act fees) shall be borne by the party
that incurs such fees.
SECTION 6.06. Public Announcements. Parent and
Sub, on the one hand, and the Company and the Stockholder,
on the other hand, will consult with each other before
issuing, and provide each other the opportunity to review
and comment upon, any press release or other public
statements (or relevant portions thereof) relating to the
transactions contemplated by this Agreement and shall not
issue any such press release or make any such public
statement prior to such consultation, except as may be
required by applicable law, court process or by obligations
<PAGE>54
48
pursuant to any listing agreement with any national
securities exchange.
SECTION 6.07. HSR Act. The Company, the
Stockholder, Parent and Sub shall use their commercially
reasonable efforts to file as soon as practicable
notifications under the HSR Act in connection with the
Merger and the transactions contemplated hereby and to
respond as promptly as practicable to any inquiries received
from the FTC and the Antitrust Division of the Department of
Justice (the "Antitrust Division") for additional
information or documentation and to respond as promptly as
practicable to all inquiries and reasonable requests
received therefrom in connection with antitrust matters.
The Company, the Stockholder, Parent and Sub shall use
commercially reasonable efforts to overcome any objections
which may be raised by the FTC or Antitrust Division;
provided, however, that in no event shall any party be
required to take any actions pursuant to this sentence that
would:
(i) (A) prohibit or limit in any material respect
the ability of (1) the Company, the Stockholder and
their Subsidiaries or Affiliates (taken as a group), in
the case of the Company and the Stockholder or
(2) Parent, its Subsidiaries and Affiliates and Paragon
(taken as a group), in the case of Parent, Sub and
their Subsidiaries, to be the owner or the operator of
any Company System or (B) compel the Company, the
Stockholder, Parent, Sub or any of their respective
Subsidiaries to dispose of or hold separate from
(x) the Company, the Stockholder or their Subsidiaries
or Affiliates (taken as a group), in the case of the
Company and the Stockholder, or (y) Parent, its
Subsidiaries or Affiliates or Paragon (taken as a
group), in the case of Parent, Sub and their
Subsidiaries, any Company System, in either case as a
result of the Merger or any or the other transactions
contemplated by this Agreement, or
(ii) be reasonably likely to have a Company
Material Adverse Effect, a Paragon Material Adverse
Effect or a Parent Material Adverse Effect.
The specification above of actions which a party shall not
be required to take shall not be used in interpreting or
determining whether any other matter, whether of like or
different kind, is or is not commercially reasonable.
<PAGE>55
49
SECTION 6.08. Company Systems Certificate. Not
later than five days prior to the Effective Time and not
earlier than 25 days prior to the Effective Time, the
Company shall deliver a certificate, signed by a duly
authorized officer of the Company, setting forth each of the
Company Systems and the information in respect thereof
described in Section 4.01(q) as of a date not earlier than
five days prior to the date of such certificate.
SECTION 6.09. Certificate of Designations. Prior
to the Effective Time, Parent shall file with the Secretary
of State of the State of Delaware, and shall cause to become
effective in accordance with Section 103 of DGCL, the
Certificate of Designations.
SECTION 6.10. Other Agreements. At the Closing,
Parent and the Stockholder shall enter into the Transaction
Documents and shall cause one or more of their respective
Subsidiaries to enter into the Joint Venture Agreement.
SECTION 6.11. Certain Employee Matters.
(a) Prior to the Effective Time, the Company shall, or
shall cause the applicable Company Subsidiary to, give to
each of the Corporate Employees designated by Parent (such
designation to be made not later than 60 days prior to the
Closing Date) ("Specified Corporate Employees") a notice of
termination specifying a date not later than the Closing
Date as the "Notice Date" under the KBLCOM Incorporated
Special Severance Benefits Plan. The Stockholder shall
attempt to obtain a release from each such employee in the
form of the release attached to the KBLCOM Incorporated
Special Severance Benefit Plan and shall require receipt of
a release that cannot be withdrawn pursuant to its terms
from any such employee prior to making any payments to such
employee under such plan.
(b) In the event that the termination of any
Specified Corporate Employee results in a Loss to the
Stockholder, the Surviving Corporation or Parent (other than
a Loss constituting or resulting from the payment of a
Company Severance and Incentive Liability), such Loss shall
be borne in equal amounts by the Stockholder and Parent.
(c) Upon request made by the Stockholder not
earlier than nine (9) months after the final determination
of the Adjustment Amount, Parent will provide an officer's
certificate setting forth (i) the total amount of the
Company Severance and Incentive Liabilities and (ii) the
<PAGE>56
50
total amount paid by the Stockholder in respect thereof,
either through the Adjustment Amount or the indemnity set
forth in Section 8.01(b)(vi). Parent will promptly pay to
the Stockholder the excess, if any, of the amount referred
to in clause (ii) over the amount referred to in clause (i).
SECTION 6.12. TWE-Related Consents. Prior to the
Closing Date, Parent shall obtain all consents and approvals
from the other partners in TWE to the extent that such
consents and approvals are necessary to consummate the
transactions contemplated hereby, including consent, if so
necessary, to the continued ownership by Parent of the
capital stock of the Surviving Corporation and by the
Surviving Corporation of the capital stock of the Company
Subsidiaries.
SECTION 6.13. Tax Consistency. (a) The
Stockholder and Parent agree to report the Merger as a tax-
free reorganization within the meaning of Sections 368(a) of
the Code for Federal, state and local income tax purposes.
The Stockholder and Parent agree to file, and to cause the
Company and the Company Subsidiaries and all Affiliates of
the Stockholder and Parent to file, all income tax returns
affected by, or required or permitted to include, the
transactions contemplated by this Agreement in a manner
consistent with the treatment described in the preceding
sentence.
(b) Neither Parent nor any of its Affiliates
shall take, or permit the Surviving Corporation to take, any
action after the Closing that would itself (without regard
to any action taken by the Company or the Stockholder prior
to the Effective Time or by the Stockholder after the
Effective Time) disqualify the Merger as a reorganization
within the meaning of Section 368(a) of the Code (it being
understood that the merger of Sub into the Company, the
conversion of the Company Common Stock into Parent Common
Stock and Parent Preferred Stock and compliance by Parent
with the other provisions of this Agreement (other than an
assignment pursuant to Section 11.07), the Parent Common
Stock, the Parent Preferred Stock or the Transaction
Documents shall not constitute a breach of this
Section 6.13(b)). If the Stockholder shall waive the
condition set forth in Section 7.01(d), Parent and Sub shall
be released from their obligations under this Section 6.13.
SECTION 6.14. Franchise Guarantees. Parent shall
use its commercially reasonable efforts to assist the
<PAGE>57
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Stockholder in securing the release of the guarantees set
forth in Section 4.01(p) of the Disclosure Schedule. If any
guarantee of the Stockholder that guaranties obligations
with respect to Company Franchises or Paragon Franchises is
not released as of the Closing Date, Parent agrees to
provide an indemnity of the Stockholder with respect to such
guarantee in the form of Exhibit B.
SECTION 6.15. Rate Laws and Rate Proceedings.
(a) The parties hereto acknowledge and agree that
notwithstanding anything in this Agreement to the contrary
or covenants of the Stockholder and the Company made herein
(other than in Section 6.15(b)), any matters relating to, in
connection with or resulting or arising from, Rate Laws or
Rate Proceedings, or (subject to paragraph (b) of this
Section 6.15) any actions taken prior to or after the date
hereof by the Stockholder, the Company or any Company
Subsidiary in a good faith attempt to comply with Rate Laws
or Rate Proceedings, (including (x) any rate reduction,
refund, penalty or similar action which action has the
effect of reducing the rates previously or subsequently paid
by subscribers, whether instituted by or imposed on the
Stockholder, the Company or any Company Subsidiary and,
(y) subject to paragraph (b) of this Section 6.15, changes
to Rate Practices instituted or implemented by the
Stockholder, the Company or any Company Subsidiary thereof),
shall not:
(i) cause or constitute, directly or indirectly, a
breach by the Stockholder or the Company of any of
their respective representations, warranties, covenants
or agreements set forth in this Agreement (and such
representations, warranties, covenants and agreements
shall hereby be deemed to be modified appropriately to
reflect and permit the impact and existence of such
Rate Laws or Rate Proceedings, and, subject to
paragraph (b) of this Section 6.15, to permit any
action by the Stockholder, the Company or any Company
Subsidiary to comply with or attempt in good faith to
comply with such Rate Laws or Rate Proceedings);
(ii) otherwise cause or constitute, directly or
indirectly a default or breach by the Stockholder or
the Company under this Agreement;
(iii) result in the failure of any condition
precedent to the obligations of Parent and Sub under
this Agreement to be satisfied;
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(iv) otherwise excuse Parent's or Sub's performance
of its obligations under this Agreement; or
(v) give rise to any claim for indemnification or
other compensation by Parent or any adjustment of the
Merger Consideration in respect of the shares of
Company Common Stock;
provided, however, that clauses (i) through (v) shall not
apply (x) to any breach by the Stockholder or the Company of
any of their respective representations and warranties in
Section 4.01(s) or (y) to any breach by the Company or a
Company Subsidiary of the covenants set forth in
Section 6.15(b) which, in each case shall be governed by
other applicable provisions of this Agreement.
(b) Notwithstanding anything in paragraph (a) of
this Section 6.15 to the contrary, the Company and each
Company Subsidiary shall obtain the prior written consent of
Parent before instituting or implementing any changes to any
Rate Practices in effect on the date hereof. In connection
with any such changes to the Rate Practices of the Company
or any Company Subsidiaries, (i) the Company or such Company
Subsidiary, as applicable, shall use its commercially
reasonable efforts to notify Parent promptly of any planned
changes to its Rate Practices and of any hearings or
meetings with Governmental Entities with respect thereto and
(ii) the Parent shall use its commercially reasonable
efforts to respond as promptly as practicable (which shall
include, subject to clause (i) above, response in time to
permit the Company and the Company Subsidiaries to respond
to mandatory deadlines) to any requests for consent to any
changes to Rate Practices and shall not unreasonably
withhold consent. Notwithstanding anything in this
Section 6.15(b) to the contrary, (A) to the extent that the
Company or any Company Subsidiary is required by law to
implement changes to Rate Practices, it may do so without
the prior consent of Parent; and (B) if Parent fails to
respond in a reasonably timely fashion as provided in
clause (ii) above, the Company or such Company Subsidiary,
as applicable, shall be permitted to take such actions as it
deems appropriate in its discretion, provided that such
actions shall be commercially reasonable and shall be
consistent with actions that would be taken by the Company
or such Company Subsidiary, as applicable, if it were
expecting to continue to be the long-term operator of the
relevant Company System or Company Systems.
<PAGE>59
53
SECTION 6.16. Parent Stock. (a) As of the
Effective Time, Parent shall have authorized a sufficient
number of shares of Parent Common Stock and Parent Preferred
Stock to enable Parent to issue such shares hereunder and,
in the case of the Parent Common Stock, upon conversion of
the Parent Preferred Stock in accordance with the terms and
conditions of this Agreement and the Certificate of
Designations.
(b) After the date hereof and prior to the
Effective Time, Parent shall not issue shares of any class
or series of capital stock that would be "Senior Stock", as
such term is defined in the Certificate of Designation,
without the consent of the Stockholder.
SECTION 6.17. Requested Audits. If reasonably
requested by Parent, the Company shall cause to be audited
by the Company's independent accountants the Financial
Statements of the Company for the year ended December 31,
1994. The cost of such audit will be borne by Parent.
SECTION 6.18. Paragon Savings Plan. Parent and
the Stockholder agree that the Paragon Communications
Employees Stock Savings Plan shall be amended on or prior to
the Effective Time to cease the ongoing purchase of the
common stock of the Stockholder after the Effective Time.
ARTICLE VII
Conditions Precedent
SECTION 7.01. Conditions to Obligation of the
Company and the Stockholder To Effect the Merger. The
obligation of the Company and the Stockholder to effect
closing of the Merger shall be subject to the fulfillment at
or prior to the Closing Date of the following conditions,
unless waived by the Stockholder:
(a) Parent and Sub shall have performed in all
material respects their agreements contained in this
Agreement required to be performed at or prior to the
Effective Time and the Company shall have received a
certificate executed by the President or any Vice
President of Parent and by the senior financial officer
of Parent to that effect.
<PAGE>60
54
(b) The representations and warranties of Parent
and Sub set forth in the first sentence of
Section 4.03(a) (with respect to Parent and Sub only),
the first two sentences and clause (i) of the fifth
sentence of Section 4.03(c) and Section 4.03(f) shall
be true and correct as of the Effective Time. All
other representations and warranties of Parent and Sub
set forth in this Agreement shall be true and correct
as of the Effective Time, (i) except to the extent such
representations and warranties relate expressly to an
earlier date (in which case such representations and
warranties shall be true and correct on and as of such
earlier date) and (ii) except for breaches of
representations and warranties as to matters that,
individually or in the aggregate (and without regard to
any Parent Material Adverse Effect qualifications
contained therein), are not reasonably likely to have a
Parent Material Adverse Effect. The Company shall have
received a certificate executed by the President or a
Vice President of Parent and by the senior financial
officer of Parent to the effect set forth in this
paragraph.
(c) The Stockholder shall have received an
opinion dated the Closing Date of Cravath, Swaine &
Moore, counsel to Parent and Sub, substantially in the
form of Exhibit C.
(d) The Stockholder shall have received, as of
the Effective Time, an opinion of its counsel, Baker &
Botts, L.L.P., substantially in the form of Exhibit D,
to the effect that the Merger will constitute a
"reorganization" for Federal income tax purposes within
the meaning of Section 368(a) of the Code.
(e) Each of (i) the Parent Common Stock issued in
connection with the Merger and (ii) the Parent Common
Stock into which the Parent Preferred Stock issued in
connection with the Merger is convertible shall have
been authorized for listing on the New York Stock
Exchange (the "NYSE") upon official notice of issuance.
(f) Parent shall have delivered to the
Stockholder an executed counterpart of each of the
Transaction Documents and the Joint Venture Agreement.
(g) There shall not be pending or overtly
threatened any suit, action or proceeding brought by
<PAGE>61
55
any state or Federal Governmental Entity (or any suit,
action or proceeding brought by any local Governmental
Entity or other Person which has a reasonable
likelihood or success), nor shall any statute, rule,
regulation, executive order, decree, temporary
restraining order, or preliminary or permanent
injunction or order of any Governmental Entity have
been issued, (i) challenging or seeking to restrain or
prohibit the consummation of the Merger or any of the
other transactions contemplated by this Agreement
or seeking to obtain from the Stockholder or any of its
Subsidiaries any damages that are material in relation
to the Stockholder and its Subsidiaries taken as a
whole or (ii) seeking to prohibit or limit the
ownership by the Stockholder of the Parent Common Stock
and Parent Preferred Stock to be issued pursuant
hereto; provided, however, that this condition shall be
deemed to be waived by the Stockholder and the Company
as to any suit, action or proceeding (except for any
suit, action or proceeding by any state or Federal
Governmental Entity) if Parent provides to the
Stockholder indemnification in form and substance
satisfactory to the Stockholder and its counsel with
respect to any such suit, action or proceeding.
(h) The waiting period (and any extension
thereof) applicable to the consummation of the Merger
under the HSR Act shall have expired or been
terminated.
(i) Each of Parent and Sub shall have
delivered to the Stockholder certified copies of
resolutions duly adopted by its Board of Directors
evidencing the authorization of the execution, delivery
and performance of this Agreement, the Transaction
Documents and the Joint Venture Agreement and the
consummation of the transactions contemplated hereby
and thereby.
(j) Not later than five Business Days prior
to the Closing Date, Parent shall have delivered to the
Company the certificate of Parent required by
Section 3.02(a), substantially in the form of
Exhibit E hereto. If requested by the Stockholder, the
Stockholder shall have a reasonable opportunity to
review and comment upon work papers and other records
of Paragon pertaining to Parent's calculation of the
Estimated Paragon Adjustment Factors.
<PAGE>62
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(k) Parent shall have delivered to the
Stockholder a certificate signed by a duly authorized
officer of Parent setting forth the aggregate number of
Individual Subscribers in the Paragon Designated
Franchise Areas that are Transferable Franchise Areas.
(l) Subsequent to the date hereof, there
shall not have occurred a Parent Change of Control.
(m) Parent shall have delivered to the
Stockholder a certificate signed by a duly authorized
officer of Parent setting forth the Paragon Franchises
in the Paragon Designated Franchise Areas and the
number of Individual Subscribers in such Franchise
Areas as of the end of the most recent month that is
more than 10 days prior to the Closing Date.
SECTION 7.02. Conditions to Obligation of Parent
and Sub To Effect the Merger. The obligations of Parent and
Sub to effect the closing of the Merger shall be subject to
the fulfillment at or prior to the Closing Date of the
following conditions, unless waived by Parent:
(a) The Company and the Stockholder shall have
performed in all material respects their respective
agreements contained in this Agreement required to be
performed at or prior to the Effective Time and Parent
shall have received a certificate executed by the
president of the Company and by the chief financial
officer of the Company to that effect.
(b) The representations and warranties of the
Company and the Stockholder set forth in the first
sentence of Section 4.01(a) and in Sections 4.01(c),
the first three sentences of Section 4.01(d) (i),
Section 4.01(f) (other than clauses (ii) and (iv)),
Section 4.02(a) and Section 4.02(b) shall be true and
correct as of the Effective Time, except to the extent
such representations and warranties expressly relate to
an earlier date (in which case such representations and
warranties shall be true and correct on and as of such
earlier date). All other representations and
warranties of the Company and the Stockholder set forth
in this Agreement shall be true and correct as of the
Effective Time, (i) except to the extent such
representations and warranties expressly relate to an
earlier date (in which case such representations and
warranties shall be true and correct on and as of such
<PAGE>63
57
earlier date) and (ii) except for breaches of
representations and warranties as to matters that,
individually or in the aggregate (and without regard to
any Company Material Adverse Effect qualifications
contained therein), are not reasonably likely to have a
Company Material Adverse Effect. Parent shall have
received a certificate executed by the President of the
Company and the Chief Financial Officer of the Company
to the effect set forth in this paragraph and further
specifying each matter arising after the date hereof of
which it shall have advised Parent in writing pursuant
to Sections 4.01(b)(i), 4.01(h), 4.01(j) (ii) and (iv),
4.01(m)(i), 4.01(o)(i) and (iii), 4.01(p)(ii), 4.01(r)
and 4.01(s)(ii) hereof.
(c) Each of the Company and the Stockholder shall
have delivered to Parent certified copies of
resolutions duly adopted by the Company's Board of
Directors and shareholders evidencing the taking of all
corporate action necessary to authorize the execution,
delivery and performance of this Agreement, the
Transaction Documents, the Joint Venture and the
consummation of the transactions contemplated hereby,
all in such detail as Parent and its counsel shall
reasonably request.
(d) Parent and Sub shall have received, as of the
Effective Time, an opinion of Baker & Botts, L.L.P.,
counsel to the Stockholder and the Company,
substantially in the form of Exhibit F.
(e) There shall not be pending or overtly
threatened any suit, action or proceeding brought by
any state or Federal Governmental Entity (or any suit,
action or proceeding brought by any local Governmental
Entity or other Person which has a reasonable
likelihood of success), nor shall any statute, rule,
regulation, executive order, decree, temporary
restraining order, or preliminary or permanent
injunction or order of any Governmental Entity have
been issued, (i) challenging or seeking to restrain or
prohibit the consummation of the Merger or any of the
other transactions contemplated by this Agreement or
seeking to obtain from Parent or any of its
Subsidiaries any damages that are material in relation
to Parent and its Subsidiaries taken as a whole, or
(ii) which otherwise is reasonably likely to have a
Company Material Adverse Effect; provided, however,
<PAGE>64
58
that this condition shall be deemed to be waived by
Parent and Sub as to any suit, action or proceeding
(except for any suit, action or proceeding by any state
or Federal Governmental Entity) if the Stockholder
provides to Parent indemnification in form and
substance satisfactory to Parent and its counsel with
respect to any such suit, action or proceeding.
(f) The number of shares of Company Common Stock
outstanding shall be 1,000 as of the Effective Time and
Parent shall have received a certificate executed by
the chief financial officer of the Company to such
effect.
(g) The Stockholder shall have delivered to
Parent an executed counterpart of each of the
Transaction Documents and the Joint Venture Agreement.
(h) (i) The Company shall have delivered to
Parent a certificate signed by a duly authorized
officer of the Company setting forth each of the
Company Franchises and the number of Individual
Subscribers in the Franchise Area of each such Company
Franchise as of the end of the most recent month that
is more than 10 days prior to the Closing Date,
(ii) the aggregate number of Individual Subscribers in
the Franchise Areas of the Company that are
Transferable Franchise Areas shall be at least 90% of
the aggregate number of Individual Subscribers in all
Franchise Areas of the Company, (iii) each of the
Company Designated Franchise Areas shall be a
Transferable Franchise Area and (iv) the aggregate
number of Individual Subscribers in the Paragon
Designated Franchise Areas that are Transferable
Franchise Areas shall at least equal the Paragon
Franchise Number.
(i) The FCC shall have consented, to the extent
such consent is legally required, to the transfer to
the Parent of all FCC licenses set forth in
Section 7.02(i) of the Disclosure Schedule, and all
other FCC licenses possessed by the Company, the
Company Subsidiaries or Paragon shall be such that the
business and operations currently conducted by such
companies or any of the Company Subsidiaries under such
FCC license could continue without FCC approval
pursuant to sharing agreements; and all other approvals
<PAGE>65
59
of Governmental Entities listed in Section 7.02(i) of
the Disclosure Schedule shall have been obtained.
(j) The aggregate number of Individual
Subscribers in respect of the Company Systems shall be
650,000 or greater.
(k) The Stockholder shall have caused the
provisions of any agreement, arrangement or practice
between the Stockholder or any of its Affiliates (other
than the Company and the Company Subsidiaries), on the
one hand, and the Company or any of the Company
Subsidiaries, on the other hand, to be terminated,
including any arrangements with respect to Taxes
(including any Tax sharing agreements), lending or
investment of funds or providing of services, so that
neither the Company nor any Company Subsidiary shall
thereafter have any obligation thereunder.
(l) Not later than five Business Days prior to
the Closing Date, the Company shall have delivered to
Parent the certificate of the Company required by
Section 3.02(a), substantially in the form of Exhibit G
hereto. If requested by Parent, Parent shall have had
a reasonable opportunity to review and comment upon
work papers and other records of the Company pertaining
to the Company's calculation of the Estimated Company
Adjustment Factors.
(m) The Stockholder shall have made the capital
contribution to the Company contemplated by
Section 3.02(b).
(n) The waiting period (and any extension
thereof) applicable to the consummation of the Merger
under the HSR Act shall have expired or been
terminated.
(o) The Company shall have delivered to Parent
evidence reasonably satisfactory to Parent that the
consents, approvals, orders, authorizations,
registrations, declarations and filings referred to in
Section 4.01(d)(iii) (other than those referred to in
clauses (I)-(III), (V) and (VI) thereof) have been
obtained or made.
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ARTICLE VIII
Indemnification
SECTION 8.01. Indemnification. (a) Indemnifica-
tion by Parent. Subject to the limitations specified in
this Section 8.01, Parent shall indemnify, defend and hold
harmless the Stockholder from, against and with respect to
any and all Losses arising out of or in connection with any
of the following:
(i) any breach of any of the representations and
warranties of Parent or Sub contained in this Agreement
or in any certificate delivered pursuant hereto;
(ii) any failure by Parent or Sub to perform or
observe, or to have performed or observed, any
covenant, agreement or condition to be performed or
observed by it pursuant to this Agreement, which
failure is not waived or permitted in writing by the
Stockholder, unless such failure is due to a breach by
the Company or the Stockholder of any representation,
warranty or covenant contained in this Agreement;
(iii) Parent's operation of the Surviving
Corporation, Paragon and the Company Systems on and
after the Effective Time; or
(iv) Taxes of the Surviving Corporation or any of
the Company Subsidiaries with respect to any taxable
period or portion thereof after the Closing Date
determined pursuant to Article X; or
(v) subject to the accuracy in all material
respects of the representations and warranties set
forth in Section 4.01(s) that are relevant to such Loss
and compliance with Section 6.15(b) to the extent
relevant to such Loss, amounts owed by the Stockholder
or any of its Subsidiaries relating to, arising from or
under or in connection with, any Rate Laws, Rate
Practices or Rate Proceedings, whether arising before
or after the Closing.
(b) Indemnification by the Stockholder. Subject
to the limitations specified in this Section 8.01, the
Stockholder shall indemnify, defend and hold harmless Parent
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from, against and with respect to any and all Losses arising
out of or in connection with any of the following:
(i) any breach of any of the representations and
warranties of the Company or the Stockholder contained
in this Agreement or in any certificate delivered
pursuant hereto, other than a breach of a representa-
tion or warranty set forth in Section 4.01(j)(i) or the
first sentence of Section 4.01(j)(ii);
(ii) any failure by the Company or the Stockholder
to perform or observe, or to have performed or
observed, any covenant, agreement or condition to be
performed or observed by it pursuant to this Agreement,
which failure is not waived or permitted in writing by
Parent, unless such failure is due to a breach by
Parent or Sub of any representation, warranty or
covenant contained in this Agreement;
(iii) all liability for Taxes required to be paid or
caused to be paid by the Stockholder pursuant to
Article X, as well as all liability for Taxes of, or
payable by or with respect to, the Company and the
Company Subsidiaries for all Pre-Closing Tax Periods
not covered by Article X; provided that the Stockholder
shall only be required to indemnify Parent for such
Taxes in excess of any such Taxes accrued in the
computation of the Company Working Capital Deficit or
the Company Working Capital Balance, as applicable, for
purposes of Section 3.02(a);
(iv) any liability of the Company or the Company
Subsidiaries for the unpaid Taxes of any Person (other
than the Company or the Company Subsidiaries) under
Treasury Regulation 1.1502-6 (or any similar
provision of state, local or foreign law) or as a
transferee or successor, by contract or otherwise;
(v) any liability or obligation of the Company or
any of the Company Subsidiaries for any Loss arising
out of the agreements described in Section 4.01(l)
hereof including any indemnification obligations
thereunder and any failure of any of the parties
thereto to make payments thereunder; or
(vi) any claim against Parent, the Surviving
Corporation or any Affiliate of either of them in
respect of Company Severance and Incentive Liabilities,
<PAGE>68
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to the extent that is not reflected in the calculation
of the Adjustment Amount.
(c) Notice of Claim. Any party seeking to be
indemnified hereunder (the "Indemnified Party") shall,
within 30 days following discovery of the matters giving
rise to a Loss, promptly notify the party from whom
indemnity is sought (the "Indemnity Obligor") in writing of
any claim for recovery, specifying in reasonable detail the
nature of the Loss and the amount of the liability estimated
to arise therefrom; provided, however, that failure to give
such notification shall not affect the indemnification
provided hereunder except to the extent the Indemnity
Obligor shall have been actually prejudiced as a result of
such failure (except that the Indemnity Obligor shall not be
liable for any expenses incurred during the period in which
the Indemnified Party failed to give such notice). The
Indemnified Party shall provide to the Indemnity Obligor as
promptly as practicable thereafter all information and
documentation reasonably requested by the Indemnity Obligor
with respect to such Loss.
(d) Defense. If the facts pertaining to a Loss
arise out of the claim of any third party, or if there is
any claim against a third party available by virtue of the
circumstances of the Loss, the Indemnity Obligor may, by
giving written notice to the Indemnified Party within
30 days following its receipt of the notice of such claim,
elect to assume the defense or the prosecution thereof,
including the employment of counsel or accountants at its
cost and expense; provided, however, that (i) during the
interim the Indemnified Party shall use commercially
reasonable efforts to take all action (not including
settlement) reasonably necessary to protect against further
damage or loss with respect to the Loss and the Indemnity
Obligor shall have the right to participate in the defense
and (ii) the Indemnity Obligor may not assume the defense of
any claim related to purchase rights asserted by or on
behalf of a local Governmental Entity pursuant to (A) a
Company Franchise that is not identified in Section 4.01(p)
of the Disclosure Schedule pursuant to clause (i)(E) of
Section 4.01(p) of this Agreement or (B) a Company Franchise
in respect of which the Company has breached the
representation in clause (ii)(B) of Section 4.01(p), in
which case the Indemnified Party shall consult with the
Indemnity Obligor. The Indemnified Party shall have the
right to employ counsel separate from counsel employed by
the Indemnity Obligor in any such action and to participate
<PAGE>69
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therein, but the fees and expenses of such counsel shall be
at the Indemnified Party's own expense. Whether or not the
Indemnity Obligor chooses so to defend or prosecute such
claim, all the parties hereto shall cooperate in the defense
or prosecution thereof and shall furnish such records,
information and testimony and shall attend such conferences,
discovery proceedings and trials as may be reasonably
requested in connection therewith. The Indemnity Obligor
shall not be liable for any settlement of any claim by the
Indemnified Party without the prior written consent of the
Indemnity Obligor, which shall not be unreasonably withheld;
and the Indemnity Obligor shall not enter into any
settlement of any such claim without the consent of the
Indemnified Party unless such settlement does not have any
material continuing effect on the conduct by the Parent of
the operation of the Company Systems. In the event of
payment by the Indemnity Obligor to the Indemnified Party in
connection with any Loss arising out of a third-party claim,
the Indemnity Obligor shall be subrogated to and shall stand
in the place of the Indemnified Party as to any events or
circumstances in respect of which the Indemnified Party may
have any right or claim against such third party relating to
such matter. The Indemnified Party shall cooperate with the
Indemnity Obligor in prosecuting any subrogated claim. With
respect to a claim for Taxes, to the extent that the
provisions of Article X are inconsistent with this
Section 8.01(d), the provisions of Article X shall govern,
and to the extent that the provisions of Article X and
Section 8.01(d) are not inconsistent, both provisions shall
govern.
(e) Time for Claims. The obligation to indemnify
and hold harmless a party hereto under this Article VIII
shall expire unless a claim is made pursuant to
Section 8.01(c) as follows:
(i) claims must be made pursuant to
Sections 8.01(a)(iv), 8.01(a)(v), 8.01(b)(iii),
8.01(b)(iv), 8.01(b)(v) and 8.01(b)(vi) no later than
30 days after the expiration of the statute of
limitations giving rise to the obligation with respect
to which the claim is made;
(ii) claims may be made in perpetuity for indemnity
under Section 8.01(a)(iii) and under Section 8.01(a) or
8.01(b) for a breach of any of the representations,
warranties or agreements set forth in the following
Sections: the first sentence of 4.01(a), 4.01(c),
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4.02(a), the first sentence of 4.03(a), 4.03(b),
4.03(f) and 6.13;
(iii) claims must be made pursuant to
Section 8.01(a)(ii) or 8.01(b)(ii) no later than
30 days after the termination of the obligation
required to be performed (and its performance in full);
(iv) claims must be made pursuant to
Section 8.01(b)(i) not later than the fifth anniversary
of the Closing Date for a breach of any of the
representations or warranties set forth in
Section 4.01(o)(iii); and
(v) all other claims for indemnity must be made
not later than May 31, 1997.
(f) Limitation. Notwithstanding the provisions
of Section 8.01(a) or (b), the Indemnity Obligor shall not
have any indemnification obligation under this Agreement
unless and until the aggregate amount of the Losses of the
Indemnified Party exceed, and only for the amount exceeding,
$7,500,000 (the "Deductible") in the aggregate; provided
that (i) any liability of the Stockholder with respect to
income taxes, with respect to Sections 8.01(b)(vi) or as a
result of a breach of the first sentence of Section 4.01(a),
or Sections 4.01(c), 4.01(j)(iv) and 4.02(a) shall not be
included in the calculation of Losses for purposes of
determining whether the Deductible has been exceeded, nor
shall the indemnification obligations of the Stockholder
with respect to income taxes, Section 8.01(b)(v) or
8.01(b)(vi) or as a result of a breach of the first sentence
of Section 4.01(a), or Sections 4.01(c), 4.01(j)(iv), or
4.02(a) be subject to the Deductible and (ii) any liability
of Parent with respect to Sections 8.01(a)(iii) and
8.01(a)(iv) or as a result of a breach of Section 4.03(f) or
Section 6.13 shall not be included in the calculation of
Losses for purposes of determining whether the Deductible
has been exceeded, nor shall the indemnification obligations
of Parent with respect to such Sections or as a result of a
breach of Section 4.03(f) or Section 6.13 be subject to the
Deductible in the aggregate.
(g) Adjustments to Indemnity Payments. (i) The
amount payable by an Indemnity Obligor to an Indemnified
Party under Section 8.01(a) or Section 8.01(b) shall be
increased by the amount of any Tax payable by the
Indemnified Party on or by virtue of the receipt of such
<PAGE>71
65
amount and such increase, so that the net after-Tax amount
realized by the Indemnified Party is equal to the amount of
its Loss sustained, taking into account clause (ii) of this
Section. The amount payable by an Indemnity Obligor to an
Indemnified Party under Section 8.01(a) or Section 8.01(b)
shall be reduced by the amount of any Tax benefit actually
received by (including by refund or by reduction of or
offset against Taxes otherwise payable) the recipient (or by
the affiliated group of which the recipient is a member) by
reason of the payment or incurrence by such recipient of the
item for which the indemnity is being sought. Each party
shall notify the other of such receipt of any such Tax
benefits.
(ii) The amount payable by the Indemnity Obligor
to an Indemnified Party with respect to a Loss shall be
reduced by the amount of any insurance proceeds received by
the Indemnified Party with respect to the Loss, and each of
the parties hereby agrees to use its best efforts to collect
any and all insurance proceeds to which it may be entitled
in respect of any Loss. Any amount payable by Parent as an
Indemnity Obligor shall, at the option of Parent, be paid
either in cash or by delivering Parent Common Stock of equal
value calculated on the basis of the Current Market Price as
of the date such payment is made. If reasonably required by
Stockholder, any such payment by Parent shall be made in
shares of Parent Common Stock, valued as provided in the
preceding sentence.
(h) Representations and Warranties. Notwith-
standing the provisions of Article VII regarding the time as
of which certain representations and warranties are made (or
deemed to be made) for purposes of the conditions to Closing
set forth in such Article, in determining the accuracy of
the representations and warranties for purposes of this
Article VIII, all representations and warranties set forth
in Article IV shall be deemed to be made solely on and as of
the Closing Date, except to the extent such representations
and warranties expressly relate to an earlier date, in which
case such representations and warranties that expressly
relate to an earlier date shall, for purposes of this
Article VIII, be deemed to be made on and as of such earlier
date.
(i) Indemnity as Sole Remedy. After the Closing
Date, indemnification pursuant to this Article VIII shall be
the sole and exclusive remedy of any party to this Agreement
for any breach of a representation, warranty or covenant
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66
made or obligation undertaken by any other party, or for any
Loss arising out of or relating to the items listed in
paragraphs (a) and (b) of Section 8.01 or otherwise related
to the Merger, whether such claim may be asserted as a
breach of contract, tort or otherwise. Except for claims
made pursuant to this Article VIII, no party shall have any
liability after the Closing Date based on any representation
or warranty made herein or pursuant hereto. Parent shall
not be entitled to offset any amounts due under this
Article VIII against any payments due under the Parent
Preferred Stock or the Parent Common Stock.
ARTICLE IX
Termination, Amendment and Waiver
SECTION 9.01. Termination. This Agreement may
be terminated at any time prior to the Effective Time:
(a) by mutual written consent of Parent and the
Stockholder;
(b) by either Parent or the Stockholder if any
Governmental Entity shall have issued an order, decree
or ruling or taken any other action permanently
enjoining, restraining or otherwise prohibiting the
acceptance for payment of, or payment for, shares of
Company Common Stock pursuant to the Merger and such
order, decree or ruling or other action shall have
become final and nonappealable; or
(c) by either Parent or the Stockholder if the
Closing has not occurred by February 29, 1996, unless
the failure of the Closing to occur is the result of a
breach by the Person seeking to terminate the
Agreement.
SECTION 9.02. Effect of Termination. In the
event of termination of this Agreement by either Parent or
the Stockholder as provided in Section 9.01, this Agreement
shall forthwith become void and have no effect, without any
liability or obligation on the part of Parent, Sub, the
Company or the Stockholder, other than Section 6.01(b),
Section 6.05, this Section 9.02 and Article X, and except to
the extent that such termination results from the material
breach by a party of any of its representations, warranties,
covenants or agreements set forth in this Agreement.
<PAGE>73
67
SECTION 9.03. Amendment. This Agreement may be
amended by the parties at any time by an instrument in
writing signed on behalf of each of the parties.
SECTION 9.04. Extension; Waiver. At any time
prior to the Effective Time, the parties may (a) extend the
time for the performance of any of the obligations or other
acts of the other parties, (b) waive any inaccuracies in the
representations and warranties contained in this Agreement
or in any document delivered pursuant to this Agreement or
(c) waive compliance with any of the agreements or
conditions contained in this Agreement. Any agreement on
the part of a party to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed
on behalf of such party. The failure of any party to this
Agreement to assert any of its rights under this Agreement
or otherwise shall not constitute a waiver of those rights.
ARTICLE X
Tax Matters
SECTION 10.01. Pre-Closing Taxes. (a) The
Company and the Company Subsidiaries shall continue to be
included for all taxable periods (or portions thereof)
ending on or before the Closing Date in the Stockholder's
consolidated Federal income tax return and any required
state or local consolidated or combined income or franchise
tax returns that include the Company and the Company
Subsidiaries (all such Tax returns including taxable periods
(or portions thereof) of the Company and the Company
Subsidiaries ending on or before the Closing Date are
hereinafter referred to, collectively, as "Pre-Closing
Consolidated Returns"). The Stockholder shall timely
prepare and file (or cause to be prepared and filed) all
Pre-Closing Consolidated Returns and shall timely pay all
Taxes shown as due and payable on Pre-Closing Consolidated
Returns.
(b) The Stockholder shall timely prepare (or
cause the Company or the Company Subsidiaries to prepare)
all other Tax returns of the Company and the Company
Subsidiaries required by law for all Taxable periods ending
on or before the Closing Date ("Pre-Closing Non-Consolidated
Returns"). All Pre-Closing Non-Consolidated Returns shall
be prepared in a manner consistent with prior practice and
shall properly include and reflect the income, activities,
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68
operations and transactions of the Company and the Company
Subsidiaries. The Stockholder shall timely file all Pre-
Closing Non-Consolidated Returns which are due on or before
the Closing Date and shall pay (or cause the Company and the
Company Subsidiaries to pay) all Taxes due thereon. The
Stockholder shall also pay (or cause the Company and the
Company Subsidiaries to pay) the full amount of any Tax
which is payable by the Company and the Company Subsidiaries
without the filing of a Tax return ("Non-Return Taxes"),
payment of which is due on or before the Closing Date. With
respect to each Pre-Closing Non-Consolidated Return due
after the Closing Date, the Stockholder shall deliver each
such Pre-Closing Non-Consolidated Return to the Company and
the Company Subsidiaries at least 15 days prior to the due
date of such Tax return. The difference between the amount
of Tax shown as due and payable on such Pre-Closing Non-
Consolidated Return (after giving effect to any credits for
the amount of Tax, if any, paid on or prior to the Closing
Date as shown on such Tax return) and the portion of the
Estimated Pre-Closing Separate Tax Amounts (as defined
below) attributable to such Pre-Closing Non-Consolidated
Return shall be accounted for as part of the post-closing
adjustments described in Section 3.02. Together with such
delivery, the Stockholder shall provide Parent with copies
of workpapers which will permit Parent to review and
substantiate the accuracy of such Tax return and such
payment. Subject to the foregoing, Parent shall cause the
Company and the Company Subsidiaries to file all such Pre-
Closing Non-Consolidated Returns that are due after the
Closing Date and to pay the amount of Tax shown as due and
payable thereon (after giving effect to any credits for the
amount of Tax, if any, previously paid as shown on such Tax
return). Any disputes with respect to the preparation or
calculation of Taxes with respect to such Pre-Closing Non-
Consolidated Returns shall be resolved by the Arbitrator.
(c) For purposes of this Article X,
(i) "Estimated Pre-Closing Separate Tax Amounts"
means, with respect to each Tax included in the Pre-
Closing Separate Tax Amounts (as defined below), the
amount thereof as estimated reasonably and in good
faith by the Stockholder as of the Closing Date that is
used to compute the Company's Working Capital
Liabilities and that gives effect to an appropriate
credit, if applicable, for the amount of any such Tax
included in the Pre-Closing Separate Tax Amounts that
has actually been paid on or prior to the Closing Date.
<PAGE>75
69
(ii) "Pre-Closing Separate Tax Amounts" means any
Tax liability with respect to any Pre-Closing Non-
Consolidated Return and with respect to any Tax
liability for the Pre-Closing Tax Period on a Post-
Closing Return (determined by treating the close of
business on the Closing Date as the last date of the
taxable period) and with respect to any Non-Return
Taxes attributable to the portion of the period covered
by any payment of such Taxes which ends on or before
the close of business on the Closing Date (determined
on a pro rata basis based upon the number of days
covered by such payment which are on or before the
Closing Date and the total number of days covered by
such payment).
SECTION 10.02. Post-Closing Taxes. Parent shall
timely prepare and file (or cause to be so prepared and
filed) all Tax returns required by law for all Taxes of the
Company and the Company Subsidiaries for taxable periods
that include and end after the Closing Date ("Post-Closing
Returns"). Parent shall timely pay or cause to be paid all
Taxes relating to Post-Closing Returns ("Post-Closing
Taxes"). The Stockholder shall reimburse Parent for (i) the
amount of Post-Closing Taxes reported as payable on each
Post-Closing Return that is attributable to the portion of
the period covered by such Tax return ending on the close of
business on the Closing Date (the "Pre-Closing Tax Period"),
determined by treating the close of business on the Closing
Date as the last date of the taxable period, and (ii) the
amount of any Non-Return Tax payable after the Closing Date
that is attributable to the portion of the period covered by
such payment which ends on or before the close of business
on the Closing Date (pro rata based upon the number of days
covered by such payment), in each case after giving effect
to any credits for the amount of such Post-Closing Tax or
such Non-Return Tax, if any, paid on or prior to the Closing
Date by the Stockholder, the Company and the Company
Subsidiaries or any of their predecessors or Affiliates, and
in each case reduced by the portion of the Estimated Pre-
Closing Separate Tax Amounts attributable to such specific
Post-Closing Tax or Non-Return Tax. Such reimbursements
shall be made on or before the later of the date on which
such return is filed or 15 days after receipt of a copy of
such return or evidence of such payment and Parent shall
provide the Stockholder with copies of workpapers which will
permit the Stockholder to review and substantiate the
accuracy of such return or such payment. Any disputes with
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respect to such calculations shall be resolved by the
Arbitrator.
Section 10.03. Tax Cooperation. After the
Closing Date, the Stockholder shall submit to Parent blank
Tax return workpaper packages to be used in preparing Pre-
Closing Consolidated Returns. Parent shall cause the
Company and the Company Subsidiaries to prepare completely
and accurately all information that the Stockholder shall
reasonably request in such workpaper packages and shall
submit to the Stockholder such packages within the later of
90 calendar days after Parent's receipt thereof or 90
calendar days after the close of the taxable period to which
a workpaper package relates. The Company and the Company
Subsidiaries, on the one hand, and the, Stockholder, on the
other hand, shall each cooperate with the other in
connection with any Tax investigation, audit or other
proceeding. Parent and the Stockholder shall preserve all
information, returns, books, records, and documents relating
to any liabilities for Taxes with respect to a taxable
period until the later of the expiration of all applicable
statutes of limitation and extensions thereof or a final
determination with respect to Taxes for such period. Each
of Parent and the Stockholder shall have the right to
control any audit or examination by any taxing authority, to
cause any amended return or claim for refund to be filed and
to contest and resolve any adjustment or proposed
adjustment, notice of deficiency or other claim relating to
Taxes for which such party or its Affiliates is responsible
under Article VIII. If both parties are responsible for any
Taxes, both shall jointly have the rights specified in the
preceding sentence with respect to such Taxes.
SECTION 10.04. Notification of Proceedings;
Refunds. (a) In the event that Parent or the Company and
the Company Subsidiaries receive notice, whether orally or
in writing, or any pending or threatened Federal, state,
local, municipal or foreign Tax examinations, claims,
settlements, proposed adjustments, assessments,
reassessments or related matters with respect to Taxes that
could affect the Stockholder or any of its Affiliates, or if
the Stockholder or any of its Affiliates receives notice of
any Tax matter that could affect Parent or the Company or
any of the Company Subsidiaries, the party receiving notice
shall notify in writing the potentially affected party
within 15 calendar days thereof. The failure of any party
to give the notice required by this Section 10.05(a) shall
not impair that party's rights under this Agreement except
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71
to the extent that the other party demonstrates that it has
been damaged thereby.
(b) The Stockholder shall be entitled to, and to
the extent received by Parent or its Affiliates after the
Effective Time shall be promptly paid or caused to be paid
by Parent, all refunds with respect to any Taxes of or
related to the Company or a Company Subsidiary (i) paid by
the Stockholder or by Persons who are Affiliates of the
Stockholder before the Effective Time or (ii) which are
taken into account in determining Working Capital
Liabilities. Parent shall be entitled to, and to the extent
received by the Stockholder and by Persons who are
Affiliates of the Stockholder after the Effective Time shall
be promptly paid or caused to be paid by the Stockholder,
all refunds with respect to Taxes of or related to the
Company or a Company Subsidiary (x) paid by Parent or by
Persons who are Affiliates of Parent after the Effective
Time or (y) which are taken into account in determining
Working Capital Assets.
ARTICLE XI
General Provisions
SECTION 11.01. Notices. All notices, requests,
claims, demands and other communications under this
Agreement shall be in writing and shall be deemed given if
delivered personally or sent by overnight courier (providing
proof of delivery) to the parties at the following addresses
(or at such other address for a party as shall be specified
by like notice):
(a) if to Parent or Sub, to
Time Warner Inc.
75 Rockefeller Plaza
New York, NY 10019
Facsimile: (212) 333-3987
Attention: Peter R. Haje, Esq.
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with a copy (which shall not constitute
notice) to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019
Facsimile: (212) 474-3700
Attention: William P. Rogers, Jr., Esq.
(b) if to the Company, to
KBLCOM Incorporated
Two Allen Center, Suite 1800
1200 Smith Street
Houston, TX 77002
Facsimile: (713) 651-2719
Attention: Mr. John R. Bickham
with a copy (which shall not constitute
notice) to:
Houston Industries Incorporated
611 Walker, 25th Floor
Houston, TX 77002
Facsimile: (713) 220-5503
Attention: Hugh Rice Kelly, Esq.
with a copy (which shall not constitute
notice) to:
Baker & Botts, L.L.P.
One Shell Plaza
910 Louisiana Street
Houston, TX 77002
Facsimile: (713) 229-1522
Attention: J. Patrick Garrett, Esq.
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with a copy (which shall not constitute
notice) to:
Dow, Lohnes & Albertson
1255 23rd Street N.W.
Washington, DC 20037-1194
Facsimile: (202) 857-2900
Attention: Leonard J. Baxt, Esq.
(c) if to the Stockholder, to
Houston Industries Incorporated
Five Post Oak Park
4400 Post Oak Parkway
Houston, TX 77027
Facsimile: (713) 629-3065
Attention: Mr. Stephen W. Naeve
with a copy (which shall not constitute
notice) to:
Houston Industries Incorporated
611 Walker, 25th Floor
Houston, TX 77002
Facsimile: (713) 220-5503
Attention: Hugh Rice Kelly, Esq.
with a copy (which shall not constitute
notice) to:
Baker & Botts L.L.P.
One Shell Plaza
910 Louisiana Street
Houston, TX 77002
Facsimile: (713) 229-1522
Attention: J. Patrick Garrett, Esq.
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with a copy (which shall not constitute
notice) to:
Dow, Lohnes & Albertson
1255 23rd Street N.W.
Washington, DC 20037-1194
Facsimile: (202) 857-2900
Attention: Leonard J. Baxt, Esq.
SECTION 11.02. Definitions. The following terms
shall have the meaning set forth below:
"Additional Parent Preferred Stock" has the
meaning set forth in Section 4.03(b).
"Adjustment Amount" means the sum of the Company
Adjustment Amount and the Paragon Adjustment Amount.
"Adjustment Factor" has the meaning set forth in
Section 3.02.
"Affiliate" of any Person means another Person
that directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under
common control with, such first Person; provided,
however, that Paragon shall not be deemed to be an
Affiliate of the Stockholder, the Company, any Company
Subsidiary or Parent.
"Antitrust Division" has the meaning set forth in
Section 6.07.
"Arbitrator" has the meaning set forth in
Section 3.04(b).
"Balance Sheets" has the meaning set forth in
Section 4.01(e).
"Basic Subscriber Rate" means, with respect to any
System as of any date, the monthly fees and charges
charged by such System as of such date for the
provision of basic services to a single family
household. The Basic Subscriber Rate for each Company
System as of the date of this Agreement is set forth in
Section 4.01(q) of the Disclosure Schedule.
<PAGE>81
75
"Benefit Plans" has the meaning set forth in
Section 4.01(h).
"Business Day" means a day, other than a Saturday
or Sunday, on which banking institutions in New York,
New York and Houston, Texas are required to be open.
"Capital Expenditure" of any Person means any
amount that would be included, in accordance with GAAP
applied consistently with the basis used in preparing
the Financial Statements, as an addition to property,
plant and equipment on a consolidated statement of cash
flows of such Person.
"Capital Expenditure Deficiency" of any Person
means the excess as of the Closing Date, if any, of
such Person's Cumulative Projected Capital Expenditure
Amount as of such date over such Person's Cumulative
Capital Expenditure Amount as of such date.
"Capital Expenditure Excess" of any Person means
the excess as of the Closing Date, if any, of such
Person's Cumulative Capital Expenditure Amount as of
such date over such Person's Cumulative Projected
Capital Expenditure Amount as of such date.
"Certificate of Designations" means the
Certificate of the Voting Powers, Designations
Preferences and Relative Participating, Optional and
Other Special Rights and Qualifications of the Parent
Preferred Stock, in the form attached hereto as
Exhibit H.
"Certificate of Merger" has the meaning set forth
in Section 1.03.
"Closing" and "Closing Date" have the respective
meanings set forth in Section 1.02.
"Closing Indebtedness and Other Liabilities" of
any Person as of the Closing Date means (i) all
Indebtedness of such Person and its Subsidiaries as of
such date, on a consolidated basis (exclusive of
current portion) and (ii) other miscellaneous
liabilities of such Person and its Subsidiaries
(exclusive of deferred Taxes) of the type required to
be disclosed on a balance sheet in accordance with
GAAP.
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"Code" has the meaning set forth in the recitals
hereof.
"Commonly Controlled Entity" has the meaning set
forth in Section 4.01(i).
"Common Share Number" has the meaning set forth in
Section 3.01(b).
"Communications Act" means the Communications Act
of 1934, as amended, including the Cable Communications
Policy Act of 1984 and the Cable Television Consumer
Protection and Competition Act of 1992.
"Company Adjustment Amount" and "Company
Adjustment Factor" have the respective meanings set
forth in Section 3.02(a)(ii).
"Company Closing Indebtedness and Other
Liabilities" means Closing Indebtedness and Other
Liabilities of the Company, including all amounts
outstanding (exclusive of current portion) under
(i) the Revolving Credit and Letter of Credit Facility
Agreement dated as of March 14, 1989, among KBL Cable,
Inc. as borrower, Morgan Guaranty Trust Company of New
York, The First National Bank of Chicago and Chemical
Bank, as agents, and the several banks party thereto as
lenders, as amended by the Consent, Waiver and First
Amendment to Revolving Credit and Letter of Credit
Facility Agreement dated as of October 6, 1989, and
(ii) the Note Agreements, but excluding all
Intercompany Indebtedness.
"Company Common Stock" has the meaning set forth
in the recitals hereof.
"Company Designated Franchise Areas" means those
Franchise Areas as may be identified by written
agreement by Parent and the Stockholder from time to
time.
"Company Franchise" means any Franchise of the
Company or any Company Subsidiary.
"Company Material Adverse Effect" means any change
or effect (or any development that, insofar as can
reasonably be foreseen, is likely to result in any
change or effect) that is materially adverse to the
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77
business, properties, condition (financial or other) or
results of operations of the Company and the Company
Subsidiaries taken as a whole or the Surviving
Corporation and its Subsidiaries taken as a whole, as
applicable; provided, however, that (i) a change or
effect with respect to Paragon shall not be considered
in determining whether a Company Material Adverse
Change or a Company Material Adverse Effect has
occurred and (ii) a change or effect (or development)
shall not be deemed to be a Company Material Adverse
Change or a Company Material Adverse Effect if such
change or effect (or development) is primarily the
result of (A) a change in economic conditions in the
United States of America generally or (B) a change in
conditions applicable to the cable industry generally,
including legislative, regulatory and competitive
conditions, on a national, state or regional basis
(unless, in the case of such legislation, regulation or
competitive activity, such legislation, regulation or
competitive activity is directed primarily at the
Company or any Company Subsidiary (even if such action
is on its face applicable to the cable industry
generally) or is attributable primarily to the actions
or inactions of one or more of the Company or any
Company Subsidiary or the Stockholder, which actions or
inactions are not consistent with what a prudent long-
term cable operator would do or fail to do in the
circumstances).
"Company Permit" means any Permit applicable to
the Company or any Company Subsidiary, whether or not
obtained by the Company or such Company Subsidiary.
"Company Preferred Stock" means the Preferred
Stock, without par value, of the Company.
"Company Severance and Incentive Liabilities"
means all liabilities under (i) the KBLCOM Incorporated
Incentive Bonus Plan and related agreements,
(ii) (A) the KBLCOM Incorporated Executive Incentive
Compensation Plan and (B) the KBLCOM Incorporated
Additional Incentive Compensation Program, in each case
required to be accrued as of the Closing Date,
(iii) the Retention Agreements entered into between the
Company and certain of its Corporate Employees with
regard to retention payments upon occurrence of a
change in control and (iv) the Scheduled Plans (with
respect to Corporate Employees), other than, in the
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case of clause (iv), with respect to Corporate
Employees who accept employment with Parent, its
Subsidiaries or Affiliates or Paragon (other than
employment that is intended to be transitional in
nature). To the extent applicable, the liabilities
referred to in the preceding sentence shall be
determined on the basis of compensation and time of
service as of the Closing Date.
"Company Subsidiary" means any Subsidiary of the
Company; provided, however, that Paragon shall not be
deemed to be a Company Subsidiary.
"Company System" means the Company's cluster of
cable television operations in each of the following
areas: (i) the San Antonio, Texas, metropolitan area
(ii) the state of Minnesota, (iii) the Portland,
Oregon, metropolitan area (iv) Orange County,
California and (v) the Laredo, Texas, metropolitan area
(it being understood that all of the cable television
operations of the Company or a Company Subsidiary are
included in the foregoing five areas).
"Confidentiality Agreement" has the meaning set
forth in Section 6.01.
"Contracts" has the meaning set forth in
Section 4.01(m)(i).
"Corporate Change" has the meaning set forth in
Section 5.01(e).
"Corporate Employees" means each of the employees
of the Company or any Company Subsidiary employed in
the Company's offices in Houston, the Denver
advertising sales office, the MIS office in San Antonio
and any other employees on the payroll of the corporate
office of the Company or the corporate office of KBL-TV
Incorporated.
"Cumulative Capital Expenditure Amount" of the
Company or Paragon, as the case may be, with respect to
the Closing Date, means (i) the aggregate amount of all
Capital Expenditures made by such Person and its
Subsidiaries after the date of this Agreement and on or
prior to the Closing Date (the "Measurement Period"),
plus (ii) the aggregate of the Monthly Interest Amounts
for each month or portion thereof after the date of
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this Agreement and prior to the Closing Date. For
purposes of determining the amount of Capital
Expenditures made during the portion of a month that is
only partially included in the Measurement Period, the
aggregate amount of Capital Expenditures made during
such month shall be allocated pro rata between the
included and excluded portions of such month. The
"Monthly Interest Amount" in respect of any month or
portion thereof equals the product of (i) one-twelfth
times (or a smaller percentage representing the ratio
of the actual number of days in the period divided by
the actual number of days in the year in question)
(A) the rate of interest per annum (expressed as a
decimal) publicly announced from time to time by the
Texas Commerce Bank as its prime rate in effect at its
principal office on the last day of the month in
question or the Closing Date, as applicable, less
(B) one percent, for such month or portion thereof and
(ii) the excess (or deficiency) of (A) the sum of all
Capital Expenditures made by the Company and the
Company Subsidiaries or Paragon and its Subsidiaries,
as applicable, from the date of this Agreement to the
last day of such month or the Closing Date, as
applicable, over (B) $5,000,000 times the total number
of months and portions thereof (each such portion to be
expressed as a decimal) between the date of this
Agreement and the last day of such month or the Closing
Date, as applicable (it being understood that if the
amount in this clause (ii) is a deficiency, the Monthly
Interest Amount in respect of such month shall be a
negative number). For purposes of this definition, a
Capital Expenditure shall be deemed to be "made" on the
last day of the month for which it would be required to
be included on a consolidated statement of cash flows
prepared in accordance with GAAP.
"Cumulative Projected Capital Expenditure Amount"
of the Company or Paragon, as the case may be, with
respect to the Closing Date, means $5,000,000 times the
number of calendar months (or portions thereof) from
the date of this Agreement to the Closing Date.
"Current Market Price" means, with respect to the
Parent Common Stock as of any date, the average of the
closing prices of such stock on the NYSE composite tape
(as reported by The Wall Street Journal (National
Edition) or, if not reported thereby, by any other
authoritative source) for all trading days beginning on
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the thirtieth trading day before such date and ending
on and including the fifth trading day before such
date.
"Debt Prepayment Penalty" means, the amount of the
premium or other penalty payable at the option of the
holder of a note in respect of the early retirement of
the amounts payable pursuant to paragraph 4F(i) of the
Note Agreement as a result of the transactions
contemplated hereby, which for purposes of this
Agreement shall be deemed to be $8,150,000.
"Deductible" has the meaning set forth in
Section 8.01(f).
"DGCL" has the meaning set forth in Section 1.01.
"Disclosure Schedule" has the meaning set forth in
Section 4.01(b).
"Distribution" has the meaning set forth in
Section 3.03(b).
"Effective Time" has the meaning set forth in
Section 1.03.
"Environmental Law" means any and all applicable
treaties, laws, regulations, enforceable requirements,
binding determinations, orders, decrees, judgments or
injunctions issued, promulgated or entered into by any
Governmental Entity, relating to the environment,
preservation or reclamation of natural resources, the
management, Release (as hereinafter defined) or
threatened Release of, or exposure to, Hazardous
Substances or noxious odor, including the Comprehensive
Environmental Response, Compensation and Liability Act,
42 U.S.C. 9601 et seq. ("CERCLA"), the Federal Water
Pollution Control Act, 33 U.S.C. 1251 et seq., the
Clean Air Act, 42 U.S.C. 7401 et seq., the Toxic
Substances Control Act, 15 U.S.C. 2601 et seq., the
Emergency Planning and Community Right-to-Know Act of
1986, 42 U.S.C. 11001 et seq., the Safe Drinking
Water Act, 42 U.S.C. 300(f) et seq., the Hazardous
Materials Transportation Act, 49 U.S.C. 1801 et
seq., and any similar or implementing state or local
law, and all amendments or regulations promulgated
thereunder.
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"Environmental Permit" means any permit, license,
or authorization from any Governmental Entity required
for the Company and the Company Subsidiaries to conduct
their respective business operations under
Environmental Laws.
"ERISA" means Employee Retirement Income Security
Act of 1974, as amended.
"Estimated Adjustment Amount" and "Estimated
Adjustment Factor" have the respective meanings set
forth in Section 3.02(a)(iv).
"Estimated Company Adjustment Factor" has the
meaning set forth in Section 3.02(a)(ii).
"Estimated Paragon Adjustment Factor" has the
meaning set forth in Section 3.02(a)(iii).
"Exchange Act" means the Securities Exchange Act
of 1934, as amended.
"FAA" means the Federal Aviation Administration.
"FCC" means the Federal Communications Commission.
"FTC" means the Federal Trade Commission.
"Financial Statements" has the meaning set forth
in section 4.01(e).
"Franchise" means any Federal, state, county or
municipal franchise (including any contracts with the
Federal government with respect to service on military
bases) for the construction, operation, maintenance or
ownership of a System or portion thereof.
"Franchise Area" of a Person means any of the
geographic areas in which such Person or its
Subsidiaries is authorized to provide cable television
service pursuant to a Franchise or otherwise permitted
to provide cable television service.
"GAAP" means United States generally accepted
accounting principles.
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"Governmental Entity" means any Federal, state or
local government or any court, administrative or
regulatory agency, whether domestic or foreign.
"Hazardous Substance" means all materials or
substances, regulated as "hazardous" or "toxic",
including petroleum and petroleum products (including
crude oil or any fraction thereof), asbestos or
asbestos-containing materials regulated pursuant to any
Environmental Law, including materials listed in 49
C.F.R. 172.101 and materials defined as "hazardous
substances" pursuant to Section 101(14) of CERCLA.
"Homes Passed" means, with respect to any System,
the total of (a) the number of single family residences
capable of being serviced in such System without
further line construction, (b) the number of units in
multi-family residential buildings capable of being
serviced in such System without further line
construction, and (c) the number of business locations
capable of being serviced in such System without
further line construction.
"HSR Act" means The Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the rules and
regulations thereunder.
"Indebtedness" means with respect to any Person,
without duplication, (A) all obligations of such Person
for borrowed money, or with respect to deposits or
advances of any kind (other than subscribers'
prepayments and deposits received in the ordinary
course of such Person's business), (B) all obligations
of such Person evidenced by bonds, debentures, notes or
similar instruments, (C) all obligations of such Person
upon which interest charges are customarily paid (other
than trade payables and operating leases of such Person
incurred in the ordinary course of such Person's
business), (D) all obligations of such Person under
conditional sale or other title retention agreements
relating to property purchased by such Person, (E) all
obligations of such Person issued or assumed as the
deferred purchase price of property or services
(excluding deferred employee compensation pursuant to
existing plans and obligations of such Person to
creditors for raw materials, inventory, services and
supplies incurred in the ordinary course of such
Person's business), (F) all lease obligations of such
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Person capitalized on the books and records of such
Person, (G) all obligations of others secured by any
Lien on property or assets owned or acquired by such
Person (other than mechanics' liens and liens of
similar nature incurred in the ordinary course of such
Person's business), whether or not the obligations
secured thereby have been assumed, (H) all letters of
credit issued for the account of such Person (other
than letters of credit issued for the benefit of
suppliers to support accounts payable to suppliers
incurred in the ordinary course of business and letters
of credit issued in respect of franchise, pole
attachment and insurance agreements) and (I) all
guarantees and arrangements having the economic effect
of a guarantee of such Person of any Indebtedness of
any other Person; provided, however, that
(i) Indebtedness shall not include any amounts in
respect of performance or other similar bonds issued by
such Person in the ordinary course of business and
(ii) the face amount due upon maturity of any
Indebtedness shall be deemed to be the principal amount
of such Indebtedness.
"Indemnified Party" and "Indemnity Obligor" have
the respective meanings set forth in Section 8.01(c).
"Individual Subscriber" means, with respect to any
System as of any date, each subscriber to such System
(i)(A) who has paid for at least one month service
without discount or (B) who has become a subscriber
only pursuant to ordinary and customary marketing
promotions in accordance with past practices, and in
either case (ii)(A) whose payment for service is not
more than 60 days past due from the first day of the
period to which any outstanding bill relates and
(B) who has not given notice of termination. Each
residential customer, whether residing in a single-
family dwelling or a multiple-family dwelling, is
counted as one Individual Subscriber. Each commercial
location (business, hotel, motel, bar, restaurant etc.)
is counted as one Individual Subscriber.
"Intellectual Property" means all trademarks,
trade names, assumed names, service names, service
marks, copyrights, corporate names, patents and patent
applications, invention disclosures, registered
copyrights, and applications for registration of the
foregoing, and all licenses, know-how and trade secrets
(excluding advertising materials and customer and
supplier lists) and unregistered marks.
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"Intercompany Indebtedness" means, as of the
Closing Date, all Indebtedness (including any accrued
and unpaid interest thereon) owed by the Company or any
Company Subsidiary to the Stockholder or any of its
Subsidiaries (other than the Company or any Company
Subsidiary), including the Subordinated Promissory
Notes of the Company payable to the Stockholder, each
dated October 5, 1993, in the respective principal
amounts of $350,000,000, $250,000,000 and $94,097,220.
"Inventory Deficiency" shall mean the excess, if
any, of (i) $7,700,000 over (ii) the amount of the
Company's inventory not held for sale in the ordinary
course of business existing as of the Closing Date.
"Inventory Excess" shall mean the excess, if any,
of (i) the amount of the Company's inventory not held
for sale in the ordinary course of business existing as
of the Closing Date over (ii) $7,700,000.
"Joint Venture Agreement" means the agreement
contemplated by the summary of terms set forth in
Exhibit I.
"KBL" means KBL Cable, Inc., a Delaware
corporation.
"KBL Minneapolis" has the meaning set forth in
Section 4.01(m)(iv).
"Lien" means any pledge, claim, lien, charge,
encumbrance, restriction on transfer or security
interest of any kind or nature whatsoever.
"Loan Instrument" has the meaning set forth in
clause (i) of the definition of Third Party Contract.
"Losses" means any losses, damages, claims,
obligations, liabilities, costs, expenses, interest and
penalties (including reasonable attorneys' fees and
costs and expenses incurred in investigating,
preparing, defending against or prosecuting any
litigation, claim, proceeding or demand) of any kind or
character.
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85
"MMDS" means microwave multichannel distribution
services.
"Merger" has the meaning set forth in the recitals
hereof.
"Merger Consideration" has the meaning set forth
in Section 3.01.
"Minneapolis Partnership Agreement" has the
meaning set forth in Section 4.01(m)(iv).
"Multiemployer Pension Plans" has the meaning set
forth in Section 4.01(i).
"Non-Return Taxes" has the meaning set forth in
Section 10.01.
"Non-Subsidiary Equity Investment" means, with
respect to any Person, any corporation, partnership or
other entity (other than a Subsidiary of such Person)
whose voting securities, partnership interests or other
equity interests are owned by such Person.
"Note Agreement" means any Note Agreement dated as
of March 14, 1989, between KBL and a purchaser of any
of the 10.95% Senior Notes due 1999 or the 11.30%
Senior Subordinated Notes due 1999 of KBL Cable, Inc.,
as amended by the Consent, Waiver and First Amendment
to the Note Agreement dated as of October 6, 1989.
"Notice of Disagreement" has the meaning set forth
in Section 3.04.
"NYSE" has the meaning set forth in
Section 7.01(e).
"Other Contracts" has the meaning set forth in
Section 4.01(m).
"Paragon" means Paragon Communications, a Colorado
general partnership.
"Paragon Adjustment Amount" and "Paragon
Adjustment Factor" have the respective meanings given
such terms in Section 3.02(a)(iii).
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"Paragon Closing Indebtedness and Other
Liabilities" means Closing Indebtedness and Other
Liabilities of Paragon and its Subsidiaries.
"Paragon Designated Franchise Areas" shall mean
such Franchise Areas as may be identified by written
agreement by Parent and the Stockholder from time to
time.
"Paragon Franchise" means any Franchise of Paragon
or any of its Subsidiaries.
"Paragon Franchise Number" means a percentage of
Individual Subscribers of Paragon in all of the Paragon
Designated Franchise Areas, which percentage shall be
identified by written agreement by Parent and the
Stockholder from time to time.
"Paragon Material Adverse Effect" means any change
or effect (or any development that, insofar as can
reasonably be foreseen, is likely to result in any
change or effect) that is materially adverse to (i) the
business, properties, condition (financial or other) or
results of operations of Paragon and its Subsidiaries,
taken as a whole, or (ii) the ability of the
Stockholder to transfer its interest in Paragon to
Parent in accordance with the transactions contemplated
hereby; provided, however, that a change or effect (or
development) shall not be deemed to be a Paragon
Material Adverse Change or a Paragon Material Adverse
Effect if such effect (or development) is primarily the
result of (A) a change in economic conditions in the
United States of America generally or (B) a change in
conditions applicable to the cable industry generally,
including legislative, regulatory and competitive
conditions, on a national, state or regional basis
(unless, in the case of any legislation, regulation or
competitive activity, such legislation, regulation or
competitive activity is directed primarily at Paragon
(even if such action is on its face applicable to the
cable industry generally) or is attributable primarily
to the actions or inactions of one or more of Parent or
any Subsidiary of Parent, which actions or inactions
are not consistent with what a prudent long-term cable
operator would do or fail to do in the circumstances).
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"Paragon Permit" means any Permit applicable to
Paragon or any of its Subsidiaries, whether or not
obtained by Paragon or such Subsidiary.
"Paragon System" means any cable television system
owned by Paragon or any Subsidiary thereof.
"Parent Change of Control" shall mean the
occurrence of one or both of the following events:
(a) individuals who would constitute a majority of the
members of the Parent's board of directors elected at
any meeting of stockholders or by written consent
(without regard to any members of Parent's board of
directors elected pursuant to the terms of any series
of preferred stock of Parent) shall be elected to
Parent's board of directors and the election or the
nomination for election by Parent's stockholders of
such directors was not approved by a vote of at least a
majority of the directors in office immediately prior
to such election or (b) a person or entity or group or
persons or entities acting in concert as a partnership,
limited partnership, syndicate or other group (within
the meaning of Rule 13d-3 under the Exchange Act)
shall, as a result of a tender or exchange offer, open
market purchases, or redemptions or otherwise, have
become the beneficial owner (within the meaning of
Rule 13d-3 under the Exchange Act) of 40% or more of
the outstanding shares of Parent Common Stock.
"Parent Common Stock" means the Common Stock, par
value $1.00 per share, of Parent.
"Parent Material Adverse Effect" means any change
or effect (or any development that, insofar as can
reasonably be foreseen, is likely to result in any
change or effect) that is materially adverse to the
business, properties, condition (financial or other) or
results of operations of Parent and its Subsidiaries,
taken as a whole; provided, however, that a change or
effect (or development) shall not be deemed to be a
Parent Material Adverse Change or a Parent Material
Adverse Effect if such effect (or development) is
primarily the result of (A) a change in economic
conditions in the United States of America generally or
(B) a change in conditions applicable to the cable
industry generally, including legislative, regulatory
and competitive conditions, on a national, state or
regional basis (unless, in the case of any legislation,
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88
regulation or competitive activity, such legislation,
regulation or competitive activity is directed
primarily at Parent or any of its Subsidiaries (even if
such action is on its face applicable to the cable
industry generally) or is attributable primarily to the
actions or inactions of one or more of Parent or any
Subsidiary of Parent, which actions or inactions are
not consistent with what a prudent long-term cable
operator would do or fail to do in the circumstances).
"Parent Preferred Stock" means the Series D
Convertible Preferred Stock, par value $1.00 per share,
of Parent, with rights, preferences and terms as set
forth in the Certificate of Designations attached as
Exhibit H hereto.
"Parent SEC Documents" has the meaning set forth
in Section 4.03(d).
"Pension Plans" has the meaning set forth in
Section 4.01(i).
"Periodic Financial Statements" means the
consolidated financial statements of (i) the Company
and (ii) KBL, covering in each case each fiscal quarter
and fiscal year ending after the date hereof,
identified as such by the Company and consisting of
(x) consolidated balance sheets as of the relevant
period end and (y) statements of consolidated
operations and consolidated cash flows for the relevant
quarter and year-to-date period. The KBL consolidated
financial statements for any fiscal year shall be
audited and all other consolidated financial statements
shall be unaudited (subject to Section 6.17).
"Permit" means any permit (including any FAA or
FCC permit), license, franchise, variance, exemption,
authorization, concession, lease, instrument, order or
approval of any Governmental Entity; provided, however,
that a Franchise shall not be deemed to be a Permit.
"Person" means an individual, corporation,
partnership, joint venture, association, trust,
unincorporated organization or other entity.
"Post-Closing Returns" and "Post-Closing Taxes"
have the respective meanings set forth in
Section 10.02.
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89
"Pre-Closing Consolidated Returns" and "Pre-
Closing Taxes" have the respective meanings set forth
in Section 10.01.
"Pre-Closing Tax Period" means any taxable period
ending on or before the Closing Date (determined in
accordance with Treasury Regulation 1.1502-76(b), as
amended by Treasury Decision 8560), including the
portion up to the Closing Date of a period that begins
before and ends after the Closing Date.
"Rate Laws" means (i) (A) the rate regulation pro-
visions of the Cable Television Consumer Protection and
Competition Act of 1992 (the "92 Act"), (B) any rules,
regulations, orders or other actions promulgated,
enacted or taken on or prior to the date of this
Agreement or at any time thereafter by the FCC or by
any state or local Governmental Entity under or
pursuant to the rate regulation provisions of the
92 Act; and (ii) any other Federal law, statute, rule
or regulation promulgated, enacted or taken after the
date of this Agreement that directly regulates the
rates of any System.
"Rate Practices" means any activity that is or can
reasonably be expected to be subject to Rate Laws.
"Rate Proceeding" means any claim, investigation,
certification, inquiry, suit, action or similar pro-
ceeding made, instituted or threatened by any Person,
(including any Governmental Entity) or before any
Governmental Entity, arising from, relating to or in
connection with Rate Laws, whether existing on the date
of this Agreement or arising thereafter.
"Registration Rights Agreement" means the
agreement between Parent and the Stockholder, to be
entered into on the Closing Date, in the form attached
as Exhibit J hereto.
"Release" means any spill, emission, leaking,
pumping, injection, deposit, disposal, discharge,
dispersal, leaching, emanation or migration of any
Hazardous Substance in, into, onto or through the
environment (including ambient air, surface water,
groundwater, soils, land surface or subsurface strata).
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"SMATV" means satellite master antenna television
distribution systems.
"Savings Plan" has the meaning set forth in
Section 6.04.
"Scheduled Plans" means (i) the 1-Year Parachute
Agreements entered into between the Company and certain
of its employees with regard to severance benefits and
identified on Attachment A to Section 4.01(h) of the
Disclosure Schedule, (ii) the 3-Year Parachute
Agreements entered into between the Company and certain
of its employees with regard to severance benefits and
identified on Attachment A to Section 4.01(h) of the
Disclosure Schedule, (iii) the KBLCOM Incorporated
Special Severance Benefits Plan, effective September 1,
1994 and (iv) the general severance obligations set
forth in Section A, Subsection 160 of the Company's
Personnel Policies and Procedures.
"SEC" means the Securities and Exchange
Commission.
"Section 6.05(b) Fees" has the meaning set forth
in Section 6.05(b).
"Securities Act" means the Securities Act of 1933,
as amended.
"Specified Corporate Employees" has the meaning
set forth in Section 6.11(a).
"Specified Long-Term Assets" means (i) the shares
of capital stock or other equity interests owned by the
Company or Paragon, as applicable, as of the date
hereof in the following Persons: QVC, Inc., Linkatel
Pacific, L.P., Starsight Telecast, Inc., International
Cablecasting Technologies, Inc., Upper Midwest Cable
Partners, CAT Partnership, ARP Partnership and Cable
Advertising Partners and (ii) any assets into which any
such assets are converted, or for which any such assets
are exchanged, in any transaction or series of
transactions (including subsequent conversions or
exchanges).
"Statement" has the meaning set forth in
Section 3.04(a).
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"Stockholder's Agreement" means the agreement
between Parent and the Stockholder, to be entered into
on the Closing Date, in the form attached as Exhibit K
hereto.
"Subsidiary" means, with respect to any Person,
another Person, an amount of the voting securities,
other voting ownership or voting partnership interests
of which is sufficient to elect at least a majority of
its board of directors or other governing body (or, if
there are no such voting interests, 50% or more of the
equity interests of which) is owned (beneficially or
otherwise) directly or indirectly by such first Person
or any Subsidiary thereof; provided, however, that
Paragon shall not be deemed to be a Subsidiary of
Parent, the Stockholder, the Company or any Company
Subsidiary.
"Surviving Corporation" has the meaning set forth
in Section 1.01.
"Surviving Corporation Common Stock" means the
Common Stock, par value $1.00 per share, of the
Surviving Corporation.
"Swap Termination Amount" means the termination
value of the interest rate, currency or commodity swap
or hedging contracts of the Company, which for purposes
of this Agreement shall be deemed to be $350,000.
"System" means any Company System or Paragon
System, as applicable.
"Tax" or "Taxes" includes all Federal, state,
local or foreign income, gross receipts, franchise,
capital, property, sales, use, excise, transfer,
license, payroll, withholding and other taxes,
governmental charges and assessments, together with any
interest or penalties on underpayments of tax, any
additions to tax and any penalties for late filing of
or failure to file tax returns or reports.
"Taxing Authority" means any domestic, foreign,
Federal, national, state, provincial, county or
municipal or other local government, any subdivision,
agency, commission or authority thereof, or any quasi-
governmental body exercising any taxing authority or
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any other authority exercising Tax regulatory
authority.
"Third-Party Contract" of any Person means (i) any
loan or credit agreement, note, bond, mortgage,
indenture, financing lease or other debt instrument or
agreement (collectively "Loan Instruments"), or
(ii) any other contract, agreement or other under-
standing, in each case applicable to such Person, any
of its Subsidiaries or any of their respective
properties and assets, and to which a Governmental
Entity is not a party.
"Transaction Documents" means the Stockholder's
Agreement and the Registration Rights Agreement,
collectively.
"Transferable Franchise Area" means any Franchise
Area with respect to which (A) any authorization,
consent, order or approval of any Governmental Entity
necessary for the transfer of control of the Franchise
for such Franchise Area in connection with the
consummation of the transactions contemplated by this
Agreement shall have been obtained; (B) no
authorization, consent, order or approval of any
Governmental Entity is necessary for the transfer of
control of the Franchise for such Franchise Area in
connection with the consummation of the transactions
contemplated by this Agreement; or (C) no Franchise is
required for the provision of cable television service
in the Franchise Area.
"TWE" means Time Warner Entertainment Company,
L.P., a Delaware limited partnership.
"TWE-Advance/Newhouse" means Time Warner
Entertainment-Advance/Newhouse Partnership, a New York
general partnership.
"TWE Management Agreement" means the Agreement
dated as of August 31, 1988, among Paragon, American
Television and Communications Corporation, a Delaware
corporation, and the Company.
"Working Capital Assets" of any Person as of the
Closing Date consist of current assets, as determined
in accordance with GAAP, which include, but are not
limited to, the following: (i) cash and cash
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93
equivalents, marketable securities (valued at fair
market value), prepaid pole attachment rentals, prepaid
insurance premiums and other prepaid items of such
Person and its Subsidiaries, in each case as of such
date; (ii) receivables from subscribers to the Systems
owned by such Person and its Subsidiaries and other
receivables (valued in each case at Book Value) and
deposits as of such date (but only to the extent that
such receivables and deposits are incurred in the
ordinary course and are available to the Surviving
Corporation after the Closing Date); and
(iv) inventories held for sale in the ordinary course
of business; provided, however, that Working Capital
Assets shall not include (A) accounts receivable from,
or Indebtedness owed by, the Stockholder or any of its
Subsidiaries (other than the Company and the Company
Subsidiaries), (B) Specified Long-Term Assets,
(C) loans to employees that are not in the ordinary
course of business or (D) inventories not held for sale
in the ordinary course of business. The "Book Value"
of any receivable shall be the amount of such
receivable less a reasonable reserve for collectibility
determined in accordance with past practice on a basis
consistent with the Company's experience.
"Working Capital Balance" of any Person means the
excess of Working Capital Assets of such Person over
Working Capital Liabilities of such Person, in each
case computed on a consolidated basis in accordance
with GAAP applied on a basis consistent with that used
in preparing the Financial Statements in the case of
the Company, or such Person's most recent audited
financial statements in any other case, except where a
different computational basis is provided for in the
definition of Working Capital Assets or Working Capital
Liabilities; provided, however, that the Company
Working Capital Balance shall be determined without
giving effect to the Company's interest in the assets
and liabilities of Paragon.
"Working Capital Deficit" of any Person means the
excess of the Working Capital Liabilities of such
Person over the Working Capital Assets of such Person,
in each case computed on a consolidated basis in
accordance with GAAP applied on a basis consistent with
that used in preparing the Financial Statements in the
case of the Company, or in Paragon's most recent
audited financial statements in the case of Paragon,
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except where a different computational basis is
provided for in the definition of Working Capital
Assets or Working Capital Liabilities; provided,
however, that the Company Working Capital Deficit shall
be determined without giving effect to the Company's
interest in the assets and liabilities of Paragon.
"Working Capital Liabilities" of any Person as of
the Closing Date consist of current liabilities as
determined in accordance with GAAP, which include, but
are not limited to, the following: (i) trade accounts
payable, notes payable and the current portion of long-
term debt liabilities of such Person and its
Subsidiaries, (ii) expenses of such Person and its
Subsidiaries relating to the consummation of the
Merger, including fees and expenses such as attorneys ,
accountants, financial advisors and brokers fees, if
such fees and expenses are paid after the Closing Date,
(iii) other accrued and unpaid expenses of such Person
and its Subsidiaries (including amounts due and payable
in respect of unpaid Taxes) as of such date,
(iv) subscribers' prepayments and deposits as of such
date; provided, however, that Working Capital
Liabilities shall not include (w) deferred Taxes of
such Person (x) any Intercompany Indebtedness, (y) any
of the Company Severance and Incentive Liabilities or
(z) the Debt Prepayment Penalty.
SECTION 11.03. Interpretation. When a reference
is made in this Agreement to a Section, Exhibit or Schedule,
such reference shall be to a Section of, or an Exhibit or
Schedule to, this Agreement unless otherwise indicated. The
table of contents and headings contained in this Agreement
are for reference purposes only and shall not affect in any
way the meaning or interpretation of this Agreement.
Whenever the words "include", "includes" or "including" are
used in this Agreement, they shall be deemed to be followed
by the words "without limitation".
SECTION 11.04. Counterparts. This Agreement may
be executed in one or more counterparts, all of which shall
be considered one and the same agreement and shall become
effective when one or more counterparts have been signed by
each of the parties and delivered to the other parties.
SECTION 11.05. Entire Agreement; No Third-Party
Beneficiaries. This Agreement, the Transaction Documents,
the Joint Venture Agreement and the Confidentiality
<PAGE>101
95
Agreement constitute the entire agreement, and supersede all
prior agreements and understandings, both written and oral,
among the parties with respect to the subject matter of this
Agreement and except for Sections 6.03 and 6.04, are not
intended to confer upon any Person other than the parties
any rights or remedies hereunder.
SECTION 11.06. Governing Law. This Agreement
shall be governed by, and construed in accordance with, the
laws of the State of New York, regardless of the laws that
might otherwise govern under applicable principles of
conflict of laws thereof, except to the extent that the laws
of the State of Delaware are mandatorily applicable to the
Merger.
SECTION 11.07. Assignment. Subject to the
limitations in Section 6.02(e), neither this Agreement nor
any of the rights, interests or obligations under this
Agreement shall be assigned, in whole or in part, by
operation of law or otherwise by any of the parties without
the prior written consent of the other parties, except that
Parent or Sub may assign all of its rights, interest or
obligations hereunder to (i) any wholly owned Subsidiary of
Parent (ii) TWE or (iii) TWE-Advance/Newhouse. Subject to
the preceding sentence, this Agreement will be binding upon,
inure to the benefit of, and be enforceable by, the parties
and their respective successors and assigns.
SECTION 11.08. Enforcement. The parties agree
that irreparable damage would occur in the event that any of
the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall
be entitled to an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the
terms and provisions of this Agreement in any court of the
United States located in the State of Delaware or in
Delaware state court, this being in addition to any other
remedy to which they are entitled at law or in equity. In
addition, each of the parties hereto (a) consents to submit
itself to the personal jurisdiction of any Federal court
located in the State of Delaware or any Delaware state court
in the event any dispute arises out of this Agreement or any
of the transactions contemplated by this Agreement,
(b) agrees that it will not attempt to deny or defeat such
personal jurisdiction by notion or other request for leave
from any such court and (c) agrees that it will not bring
any action relating to this Agreement or any of the
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96
transactions contemplated by this Agreement in any court
other than a Federal or state court sitting in the State of
Delaware.
SECTION 11.09. Descriptive Headings. The
descriptive headings used herein are inserted for
convenience of reference only and are not intended to be
part of or to affect the meaning or interpretation of this
Agreement.
SECTION 11.10. Cooperation. (a) In the event
that the Merger is consummated without the requisite
approval of all franchising authorities, the Stockholder
agrees to use commercially reasonable efforts to (i) enter
into such agreements, including any trust or management
agreement, as the parties mutually determine are appropriate
to enable Parent to conduct its operations, subject to
applicable laws, as if all the transactions contemplated
hereby had been consummated and (ii) take actions
contemplated by this Agreement (including Section 6.02) to
be taken by the Stockholder to cause any Franchise Area that
is not a Transferable Franchise Area as of the Effective
Time to become a Transferable Franchise Area; provided,
however, that Parent shall pay any fees and expenses,
including reasonable attorney's fees, of the Stockholder
resulting from or in connection with compliance with this
Section.
(b) After the Closing, upon reasonable written
notice, the Stockholder and Parent shall furnish or cause to
be furnished to each other and to their employees, counsel,
auditors and representatives reasonable access, during
normal business hours, to such information and assistance
relating to the Company (or the Surviving Corporation) and
the Company Subsidiaries as is reasonably necessary for
financial reporting and accounting matters, the preparation
and filing of any tax returns, reports or forms or the
defense of any tax claim or assessment, in order to respond
to inquiries from Governmental Entities or relevant to a
particular claim for indemnification that has been made
pursuant to Article VIII hereof. At the reasonable request
and expense of any party, the other parties shall deliver
copies of any such information to the requesting party.
Each party shall reimburse the other for reasonable out-of-
pocket costs and expenses incurred in assisting the other
pursuant to this Section 11.10(b). No party hereto shall be
required by this Section 11.10(b) to take any action that
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97
would unreasonably interfere with the conduct of its
business or unreasonably disrupt its normal operations.
SECTION 11.11. No Other Representations. Except
as otherwise expressly set forth in this Agreement, the
Disclosure Schedule, the Schedules, Exhibits and
certificates delivered hereto or the Transaction Documents,
none of the parties hereto have made or shall be deemed to
have made any representations, warranties or agreements with
or to each other or to any other Person regarding the
subject matter of this Agreement and the Transaction
Documents. Each expressly disclaims liability and
responsibility for any oral information communicated to any
other party (including any opinion, information or advice
that may have been provided by any officer, stockholder,
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director, employee, agent, consultant or representative of
such party including, in the case of the Stockholder and the
Company, CS First Boston Corporation.
IN WITNESS WHEREOF, the Company, the Stockholder,
Parent and Sub have caused this Agreement to be signed by
their respective officers thereunto duly authorized, all as
of the date first written above.
KBLCOM INCORPORATED,
by /s/ Don D. Jordan
------------------------------
Name: Don D. Jordan
Title: Chairman and Chief
Executive Officer
HOUSTON INDUSTRIES INCORPORATED,
by /s/ Don D. Jordan
------------------------------
Name: Don D. Jordan
Title: Chairman and Chief
Executive Officer
TIME WARNER INC.,
by /s/ Peter R. Haje
-----------------------------
Name: Peter R. Haje
Title: Executive Vice President
and General Counsel
TW KBLCOM ACQUISITION CORP.,
by /s/ Spencer B. Hays
----------------------------
Name: Spencer B. Hays
Title: Vice President
