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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________________to______________________
Commission File No. 33-9030
MAGNAVISION CORPORATION
(exact name of registrant as specified in its charter)
DELAWARE 22-2741313
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(State or other jurisdiction (IRS Employer
of incorporation Identification No.)
1725 ROUTE 35, WALL, NEW JERSEY 07719
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (732) 449-1200
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ ] No [x]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant is not available due to the unavailability of price quotations for
the Registrant's securities.
The number of shares of Registrant's Common Stock outstanding on March 31, 2000
was 1,154,390.
Documents Incorporated by Reference: None.
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P A R T I
ITEM 1. BUSINESS
All common share amounts and prices presented in this report reflect the effects
of the 1-for-20 reverse split effected May 8, 1997.
THE STATEMENTS CONTAINED IN THIS ANNUAL REPORT ON FORM 10-K, INCLUDING THE
EXHIBITS HERETO, RELATING TO MAGNAVISION CORPORATION'S FUTURE OPERATIONS MAY
CONSTITUTE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED. ACTUAL RESULTS OF THE COMPANY MAY DIFFER
MATERIALLY FROM THOSE IN THE FORWARD-LOOKING STATEMENTS AND MAY BE AFFECTED BY A
NUMBER OF FACTORS INCLUDING THE COMPANY'S ABILITY TO EXECUTE ITS WIRELESS PLAN,
THE COMPANY'S ABILITY TO GENERATE REVENUE, THE ABILITY OF THE COMPANY TO
COMPLETE PROJECTS, TO ATTRACT ONE OR MORE NEW STRATEGIC PARTNERS, THEIR
WILLINGNESS TO ENTER INTO ARRANGEMENTS WITH MAGNAVISION CORPORATION ON A TIMELY
BASIS AND THE TERMS OF SUCH ARRANGEMENTS, THE RECEIPT OF REGULATORY APPROVALS
FOR ALTERNATIVE USES OF ITS MMDS SPECTRUM, THE COMMERCIAL VIABILITY OF ANY
ALTERNATIVE USE OF MMDS SPECTRUM CONTEMPLATED BY THE COMPANY'S BUSINESS PLAN,
CONSUMER ACCEPTANCE OF ANY NEW PRODUCTS OFFERED OR TO BE OFFERED BY MAGNAVISION
CORPORATION, SUBSCRIBER EQUIPMENT AVAILABILITY, TOWER SPACE AVAILABILITY,
ABSENCE OF INTERFERENCE AND THE ABILITY OF ITS COMPANY TO REDEPLOY OR SELL
EXCESS EQUIPMENT, THE ASSUMPTIONS, RISKS AND UNCERTAINTIES SET FORTH BELOW IN
THIS "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" AND ELSEWHERE HEREIN, AS WELL AS OTHER FACTORS CONTAINED HEREIN AND
IN THE COMPANY'S OTHER SECURITIES FILINGS. FURTHERMORE, THE FINANCING OBTAINED
BY THE COMPANY TO DATE WILL NOT ENABLE IT TO MEET ITS FUTURE CASH NEEDS AS
CONTEMPLATED IN THE BUSINESS PLAN.
GENERAL
Magnavision Corporation (the "Registrant" or the "Company") was incorporated
under the name Yardley Ventures Inc. in Delaware on April 3, 1986 for the
purpose of acquiring one or more potential businesses. Effective December 30,
1991, the Registrant acquired all of the issued and outstanding capital stock of
Magnavision Corporation, a New Jersey corporation ("Magnavision - N.J."), in a
tax-free, stock-for-stock acquisition. The shareholders of Magnavision - N.J.
received newly issued shares of common stock in the Registrant for their
Magnavision - N.J. shares. The newly issued shares constituted approximately 98%
of the Registrant's outstanding common stock. In connection with the
acquisition, the Registrant effected a one-for-400 reverse split of its common
stock and changed its name to Magnavision Corporation. In addition, the board of
directors of Magnavision - N.J. became the board of directors of the Registrant
and Magnavision - N.J. became a wholly owned subsidiary of the Registrant.
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The Registrant does no business and has no significant assets other than its
stock in Magnavision - N.J. Unless otherwise specified herein, the terms
"Magnavision" and the "Company" shall be deemed to refer to the Registrant
and/or Magnavision - N.J.
In August 1995, the Company entered into a $5,000,000 lending facility with a
bank and two small business investment companies. In May 1997, pursuant to an
Exchange Agreement, the Company and its lenders agreed to exchange the entire $5
million of the lending facility for 8% redeemable preferred stock due in 2002.
The then current loan balance, along with the unused balance of the $5 million
line was exchanged for redeemable preferred stock, which has five-year mandatory
redemption provisions, which are accelerated upon certain liquidity events. In
connection with this transaction, all covenants and defaults under the former
lending facility were waived. At closing, the Company drew down the balance of
its line of approximately $800,000 after expenses. The Company issued redeemable
preferred stock (Series A preferred stock) in the amount of $5 million, with an
8% preferred dividend, and issued additional warrants (new warrants) to purchase
additional shares of common stock, representing approximately 20% of the common
stock at $2.00 per share after a 1-for-20 reverse stock split. The exercise
price of the original issued warrants, $.27 and $.38 per share, was reduced to
$.10 per share prior to such reverse stock split.
The Series A Preferred Shareholders received a total of 1,826,932 warrants at an
exercise price of $2.00 per share to purchase 58% of the Company's common stock,
acquired the right to and have elected a majority of the Board of Directors, and
thus have effected a change of control of the Company. In connection with the
exchange, the Company issued a note to its lenders totaling $105,468. This note,
bearing 10% interest, represented the interest due in May 1997. Both interest
and principal were originally payable on May 8, 1998. At year end 1997, the
redeemable preferred stockholders agreed to extend the maturity of the note to
May 8, 1999 and at year end 1998 agreed to extend the maturity to May 8, 2000.
In September 1997, the Company and Access Capital, Inc. agreed to a $1,250,000
three-year revolving line of credit to be used to expand the Company's private
cable business. At December 1997, the Company had borrowed approximately
$405,000 under the line of credit. Interest was payable currently at the rate of
prime plus 5.5% and was current. The lender received 138,536 warrants at an
exercise price of $2.00 per share to purchase approximately 4% of the Company's
stock on a fully diluted basis.
Subsequent to the fiscal year ended December 31, 1997, the Company was not in
compliance with the working capital and other covenants under the line of
credit. The Company requested a waiver thereof together with a separate working
capital advance. By letter dated May 8, 1998 Access Capital proposed a
restructuring of the financial covenants, an increase in the line of credit to
$3 million dollars and an increase in its warrant ownership of the Company. The
Company elected not to accept the offer and paid back the loan on July 3, 1998.
On July 3, 1998 the Company and BSB Bank and Trust Company entered into an
agreement to refinance the Company's existing credit line and supply working
capital.
Pursuant thereto, Magnavision borrowed the sum of $2.5 million dollars which
bears interest at a fixed rate of 10% per annum and has a 5 year term. The loan
requires monthly installments of interest, plus 9 annual payments of principal,
payable in arrears, in accordance with the agreed upon schedule starting October
1998. The loan was utilized to refinance existing debt and the remaining
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approximately $1.9 million was used to finance the completion of outstanding
contracts for private cable television service at various locations and to
complete the Fordham University data distribution system, and for working
capital.
BSB Bank & Trust Company also granted the Company a $500,000 line of credit, to
be used for future installations of private cable systems and general corporate
purposes. This line of credit, of which $250,000 has been used as of December
31, 1999, is at an interest rate of prime plus 1.5% payable monthly and will
mature in June of this year. Interest and principal payments are current.
In connection with the above transaction BSB Bank & Trust Company received
146,176 warrants to purchase approximately 4% of Magnavision's issued and
outstanding capital stock on a fully diluted basis at an exercise price of $2.00
per share.
DEVELOPMENT OF BUSINESS
The Company was initially formed for the purpose of owning and operating a
multi-channel, wireless cable television system in the New York market. In
August 1990, the Company entered into an agreement to lease channel capacity
(the "Channel Lease Agreement") from the Department of Education of the
Archdiocese of New York (the "Department"). The Channel Lease Agreement
(subsequently amended in January 1994) grants the Company a lease through
January 2004 (with a right to extend for an additional five years, and a right
of first refusal for subsequent renewals), which entitles the Company to use
twenty-eight (28) wireless cable licenses (168 MHz of spectrum), located on
seven different transmitting towers (24 MHz per tower) in New York State. Eight
(8) of these channels (48 MHz of spectrum) are located in New York City.
Since entering into the Channel Lease Agreement, the Company has conducted
various marketing and engineering activities to facilitate the planned operation
of a wireless system and, pursuant to the requirements of the Channel Lease
Agreement, made an escrow deposit of approximately $900,000 to the Department in
September 1995 which is to be utilized for system reconstruction. However, as of
the date hereof, the Company has not commenced operation of a wireless system
and will require substantial additional funding in order to do so. There is no
assurance that such funding will be available. The Company is exploring finding
potential joint venture partners to use the spectrum available to it under the
Channel Lease Agreement or a sale of the Agreement. There can be no assurance
that there will be consumer demand for use of the spectrum including Internet
access services, that the Company and its partners will be able to compete
against other providers, that the Company and its partners can attract and
retain qualified personnel, that the Company can find a joint venture partner,
that the Company and its partners will be able to achieve profitability from
such services in future years, or that the Company will be able to sell the
Agreement.
Apart from development of its wireless television system, the Company has been
engaged since 1992 in the business of offering a private cable television
service to colleges, universities, nursing homes and hospitals throughout the
Eastern Portion of the United States.
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PRIVATE CABLE BUSINESS
General
Private cable television service is a multi-channel subscription television
service where the programming is received at a facility by satellite receiver
and then transmitted via coaxial cable and fiber throughout private property,
often multiple dwelling units ("MDUs"). Private cable companies operate under
agreements with private landowners to service a specific MDU, institution, or
commercial establishment.
Since 1992, the Company has offered private cable television services to various
colleges, universities and nursing home facilities, primarily in the
northeastern United States. To date, the Company has entered into or been
awarded contracts with 39 facilities.
As of December 31, 1999, the Company had long term (generally 5-10 year)
agreements with a total of 39 institutions located primarily in the New York,
New Jersey, Pennsylvania area, but extending as far north as Massachusetts, and
as far south as North Carolina. For the year ended December 31, 1999, the
Company generated approximately $2,962,016 of revenues (which constituted 100%
of the Company's total revenues for the year) from this business. For the year
ended December 31, 1999, revenues from Fordham University which utilized both a
data system and the Company's private cable television services was 21% and
Montclair State University and North Calolina A&T account for about 8% of total
revenues each.
The Company has started offering a high-speed data system using cable modem
technology to deliver data over the television cable system. The benefit of
using this system is that an Institution can access high-speed data and Internet
access without the expense of rewiring the campus. The Company has successfully
implemented this system at Fordham University.
In the Spring of 1999, the Board of Directors instructed management to explore
various strategic alternatives for the Company. Management reported on various
alternatives at numerous meetings and the Board of Directors approved certain
initiatives.
On the March 30, 2000, the majority shareholders of Magnavision voted to accept
the following sale of the private cable assets to Lamont Television Systems,
Inc.
On March 15, 2000, Magnavision Corporation and Lamont Television Systems, Inc.
entered into an Asset Purchase Agreement as of February 29, 2000, to purchase
the service contracts and related fixed assets of Magnavision Corporation's
Private Cable Operation for $7.5 million. The transaction closed on March 30,
2000, with the Company receiving approximately $6,700,000 of the proceeds in
cash after the establishment of an escrow account of approximately $200,000 and
other closing adjustments. The Company used part of the proceeds to pay off its
loan to BSB Bank & Trust Company in the amount of $1,954,000 and its notes to
both IBJS Whitehall and KOCO Capital totaling $105,468 in the aggregate plus the
accrued interest. Other portions of the net proceeds were be used to pay
commissions of $300,000 due under this transaction and to establish accruals for
severance and retention payments and legal fees totaling $330,000. The Company
also will accrue approximately $1.2 million for State and Federal taxes. In
addition, the May 1997 Exchange Agreement and the Company's Certificate of
Incorporation as amended requires a payment of 25% of the net proceeds of the
sale or approximately $1.7 million to be used to retire a portion of the
Company's Series A Preferred Stock and the related preferred stock accumulated
dividend outstanding. The number of shares of Series A Preferred Stock remaining
after the 25% payoff is 3,643,692 shares and the accumulated preferred stock
dividend has been reduced by $314,664.
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Magnavision continues to hold long-term rights to use fixed wireless spectrum at
seven existing transmission sites in New York and additional sites in New
Jersey. The Company intends to use its best efforts to either develop or sell
the wireless spectrum, although, no assurances can be made that it will either
be developed or sold.
Agreements with Institutions
The Company has long-term agreements to provide service to 39 facilities used by
students and patients, with approximately 16,000 outlets for television and
3,200 data drops.
From the date a contract is signed, it generally takes approximately three
months to complete an installation and to make a site operational or place it
"on line". Except for one college and two senior living facilities where the
Company bills residents directly, the Company receives its fees on a monthly
basis (nine (9) months a year for colleges and universities) directly from these
institutions, which include such charges in the tuition or other fees to
students or residents of the subject facilities.
The Company believes that the potential market for this segment of its business
is, in the near term, located in the Eastern portion of the United States. Only
a small portion of the Company's revenues to date include fees from advertisers.
Sales and Marketing
The Company's sales and marketing efforts in the private cable business, be it
television or data system, were focused primarily upon institutions with
concentrated populations, such as colleges and universities with dormitories,
nursing homes and other such locations. Institutional subscribers were asked to
commit to long-term agreements. Some state institutions are prohibited from
entering into long-term agreements, but the Company expects that once it had
wired the subject facility and provided private cable television service the
relationship will become one of long term duration.
Competition
The Company's competition in the residential private cable business consists of
numerous private cable operators located throughout the United States, none of
which is deemed to be a dominant factor. Among the private cable operators, the
largest provider to colleges and universities appears to be Campus Televideo,
which has purchased the Private Cable assets of the Company. In addition to this
competition, any local cable operator, as well as any other cable television
programming distributor, can service these institutions in direct competition
with the Company.
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Regulation
The Telecommunications Act of 1996 (the "1996 Act") changed the rules with
respect to the 1992 Cable Act's uniform rate requirement and MDUs (Multiple
Dwelling Units). Prior to the adoption of the 1996 Act, franchised cable
operators were required to offer uniform rates within franchise areas and with
respect to bulk service contracts for MDUs. Now franchised cable operators may
establish different rates across franchise areas in which they are subject to
effective competition and may offer bulk service contracts to MDUs without any
uniform pricing requirement, except that the franchised cable operator may not
engage in predatory pricing, which concept is undefined in the 1996 Act.
The FCC has adopted a Final Rule and Order on inside wiring known as ICTA. This
rule relates to MDU (multi-housing unit) and delineates procedures for MDUs to
purchase the inside wire at the end of a cable contract. Under this rule the MDU
will notify the current service provider at the end of the contract and the
provider will choose to either sell, abandon or remove the inside wiring.
WIRELESS CABLE BUSINESS
Wireless Technology
In 1983 the Federal Communications Commission ("FCC") reallocated a portion of
the electromagnetic radio spectrum located between 2500 and 2700 MHz and
permitted this spectrum to be used for commercial purposes. Today, there are a
maximum of thirty-three microwave channels used for wireless cable in each
market. These include thirteen Multipoint/Multichannel Distribution Service
("MMDS") channels (Channels 1, 2 or 2A, E1-E4, F1-F4 and H1-H3) and the excess
capacity on up to 20 additional Instructional Television Fixed Services ("ITFS")
channels (Channels A1-A4, B1-B4, C1-C4, D1-D4 and G1-G4). Grandfathered ITFS
stations on the eight E and F channels also lease excess capacity to wireless
cable operators. Except in limited circumstances, the 20 ITFS channels (120 MHz)
in each market can generally be licensed only to qualified non-profit
educational organizations and, in general, each of these channels or an
equivalent video transmission must be used a minimum of 20 hours per week for
instructional programming. The remaining "excess air time" on an ITFS Channel
may be leased to wireless cable operators for commercial use. In addition, the
13 MMDS channels (78 MHz) are made available by the FCC for full time usage
without programming restrictions. The ITFS spectrum is now licensed by the FCC
for one-way video and data transmission.
Two-way Services
In 1998, the FCC issued a report and order on two-way service for MMDS and ITFS.
The order makes provisions for protected service areas for existing licensed
MMDS and ITFS main transmitters, for booster stations, response stations, and
response hubs within protected service areas, and new interference protection
requirements among stations with potential co-channel or adjacent channel
interfaces.
Wireless Business Plan
A typical wireless cable system consists of headend equipment at transmission
locations and reception equipment at each subscriber location. Headend equipment
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includes microwave transmitters, antennas and other broadcast equipment, and
headend equipment for reception of programming and or data, such as earth
stations and satellite receivers or high-speed data lines. For downstream data
transmission, headend equipment also includes routers, servers and Internet
access lines, all known as an Internet Point-of-Presence (PoP). An Internet
Service Provider (ISP) must also provide equipment for upstream data, such as
routers and modems. Reception equipment consists of an antenna and frequency
converter. A set-top converter is generally required for video reception. For
data, a single or multiport wireless modem is required.
The Company, with a potential joint venture partner, intends to develop a
digital wireless cable system with its ITFS leased spectrum as an alternative
use of this spectrum including data and Internet access or the Company intends
to sell its rights in the lease. Recent developments in technology and
regulatory changes now allow ITFS spectrum to be used for high speed Internet
access. The modems used at a receive site can receive data at speeds up to 27
MBPS, almost 1000 times faster than the typical modem used today (28.8 KBPS).
Several operators are operating one-way Internet over their spectrum using the
phone lines for the less demanding return path. The Company's business plan
calls for one or more strategic partners to participate in the development and
include a large portion of such expenditures to be borne by such partners.
The Company believes there is a market for businesses which require high speed
Internet access and data in the New York market. However, Internet service over
wireless is a newly developed business. The Company does not currently have the
funds or partner(s) to implement such service and there is no assurance that the
proposed service by the Company, if such funds were available, could be deployed
in a commercially viable system or if the Company chooses to sell it's rights
that it can effect a sale.
Channel Lease Agreement
On August 20, 1990, the Company entered into the Channel Lease Agreement to
lease from the Department the use of a portion of three (6 MHz) ITFS channels (a
total of 18 MHz) located on seven different tower locations (a total of 126
MHz), with an option to utilize one additional 6 MHz ITFS channel also located
on each of the seven tower locations when the Department obtains the necessary
FCC approvals for such channels. Under the Channel Lease Agreement, the Company
also leases three operationally fixed microwave service ("OFS") channels
(serving as links between the ITFS tower sites), with an option for one
additional OFS channel. The Channel Lease Agreement expires in January, 2004,
although the Company has an option to extend the lease for five years if the FCC
renews the Department's license. Following expiration of the option term (if
extended) in 2009, the Company has a right of first refusal covering the leased
channels. Extension and/or renewal of the Channel Lease Agreement is contingent
upon FCC renewal of the Department's license for the channels, of which there
can be no assurance.
The Company also paid a total of $213,224 in monthly royalties to the Department
during 1999 and will be required to pay additional monthly royalties during 2000
through the expiration of the Channel Lease Agreement, equal to the greater of
$18,464 plus five cents ($.05) per subscriber, or five (5) percent of the gross
receipts per month.
The Channel Lease Agreement includes the Company's right to use space leased to
the Department at the seven transmission sites, including the Empire State
Building, Staten Island, NY, Yonkers, NY, Loomis, NY, Rhinecliff, NY,
Haverstraw, NY and Beacon, NY. Additional space is also available at all other
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locations owned or leased by the Department and can be made available to the
Company by the Department for use in providing the Company's service. The
Agreement provides for certain content restrictions on transmittal materials.
Available Market
There are approximately seven million households located in the New York Area of
Dominant Interest ("ADI") market. The Company estimates that approximately 70%
of these households can receive wireless cable transmission. The greater New
York City area contains the largest commercial market in the country with over a
half million businesses.
Competition
The Company faces competition in data services from a number of sources, some of
which have significantly greater resources, both financial and other. Some of
these are traditional providers of data services, such as local telephone
companies. Others are cable television operators and other wireless data
services.
Telephone Companies
Most Internet access today is provided at relatively low data rates through a
local telephone company using dial-up access at speeds of up to 56 Kilobits per
second (KBPS). Local telephone companies ("Telcos") and competitive access
providers ("CAPS") may also offer services using integrated service data network
("ISDN") technology at 128 KBPS. This service requires an improved Telco
connection and special equipment at the subscriber end. ISDN technology allows a
subscriber to simultaneously communicate using voice and data on a single line.
ISDN is not available in all areas.
A new technology being deployed by the Telcos and CAPS is asynchronous digital
subscriber line (ADSL). ADSL is intended to provide high-speed digital voice and
data services over Telco local loop twisted pair service lines. This service
requires a pre-conditioned ("clean") service line.
Local Telcos, CAPS and Internet service providers ("ISP") may also offer
services using leased lines. These are available at a variety of data rates,
beginning at Frame Relay (256 KBPS), T-1 (1.54 MBPS) and up to T-3 (45 MBPS).
Leased lines may be available on an exclusive or shared use basis.
In addition to Bell Atlantic, there are at least three major CAPS of
telecommunications services that have proprietary fiber optic networks in the
New York Market: MCI WorldCom, RCN Corporation, and AT&T.
Cable Television Operators
Cable television companies have recently been offering cable modem service to
their customers for Internet access. Cable modems operate at speeds similar to
the wireless modems in that it sends data over a "television" channel. Cable
modems may be either unidirectional or bi-directional.
Several of the country's largest cable operators have franchised cable systems
in the greater New York Market. These include Time Warner Cable, Cablevision
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Systems, TCI Cable and Comcast Cablesystems. Some of these operators have been
upgrading their CATV plant and deploying for digital video and data
transmissions.
Direct Broadcast Satellite
Direct Broadcast Satellite ("DBS") service provider now offers to bring
unidirectional Internet service to customers. Hughes Corporation's DirecPC
service offers this Internet service. Subscribers must purchase and install a
21" satellite dish and a special computer modem adapter card and must maintain a
separate ISP account for the upstream path.
Other Wireless Multichannel Multipoint Distribution
MCI Worldcom, Inc. is the only other MMDS/ITFS provider operating in the New
York Market and is believed to be offering high speed Internet access to
customers. Cellular Vision, WinStar, and Telegent are also offering wireless
data services in the New York market but are using a higher frequency of at
least 28 GHz or higher.
Government Regulation
General. The wireless cable industry is subject to regulation by the FCC
pursuant to the Communications Act of 1934, as amended. The Communications Act
empowers the FCC, among other things, to issue, revoke, modify and renew
licenses within the spectrum available to wireless cable; to approve the
assignment and/or transfer of control of such licenses; to approve the location
of wireless cable systems; to regulate the kind, configuration and operation of
equipment used by wireless cable systems; and to impose certain equal employment
opportunity and other reporting requirements on wireless cable operators.
The FCC has determined that wireless cable systems are not "cable systems" for
purposes of the Communications Act. Accordingly, a wireless cable system does
not require a local franchise and is subject to fewer local regulations than a
hardwire cable system. Moreover, all transmission and reception equipment for a
wireless cable system can be located on private property; hence, there is no
need to make use of utility poles, dedicated easements or public rights-of-way.
Although wireless cable operators typically have to lease the right to use
wireless cable channels from the holders of channel licenses, unlike hardwire
cable operators they do not have to pay local franchise fees.
Recently, legislation has been introduced in some states to authorize state and
local authorities to impose on all video program distributors (including
wireless cable distributors) a tax on the distributor's gross receipts
comparable to the franchise fees cable operators' pay. While the proposals vary
among states, the bills all would require, if passed, as much as 5% percent of
gross receipts to be paid by wireless distributors to local authorities.
Under the retransmission consent provisions of the Communications Act, wireless
and hardwire cable operators seeking to retransmit certain commercial television
broadcast signals must first obtain the permission of the broadcast station in
order to retransmit the station's signal. However, wireless cable and private
cable systems, unlike hardwire cable systems, are not required under the FCC's
"must carry" rules to retransmit a specified number of local commercial
television or qualified low power television signals.
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Under current FCC regulations, a wireless cable operator generally may broadcast
anywhere within the line-of-sight of its transmission facility, provided that
its signal does not violate interference standards in the FCC-protected area of
another wireless license holder. Existing wireless license holders generally are
protected from interference within 35 miles of the transmission site; however,
if that site is moved, the protection remains only within the original 35 mile
zone and approval from the FCC is required before a transmission site may be
moved.
On July 10, 1996, the FCC adopted an Order in which it authorized the interim
use of certain digital compression technologies for the provision of video,
voice and data services over MDS and ITFS frequencies. Such technologies may be
utilized by a wireless cable operator or an MDS or ITFS licensee, after applying
for, and being granted, such an authorization by the FCC. Upon receiving a
digital authorization, a licensee also may transmit one-way downstream Internet
service.
The Department has filed and has received grants of applications for digital
authorizations for its ITFS system located at the Empire State Building.
In March 1997, various wireless cable industry companies petitioned the FCC to
permit the grant of applications for two-way transmission of interactive
services over MDS and ITFS frequencies. The petition proposes rule changes,
which would allow the FCC to routinely grant such licensees the right to
implement two-way wireless services. There can be no assurance that the petition
will be granted, or if granted, that the Company will be able to develop
commercially successful products using two-way transmission.
1996 Telecommunications Act. In February 1996, Congress passed and the President
signed into law the 1996 Act. Some of the provisions of the 1996 Act that
directly affect wireless cable television operators are discussed below. Beyond
those specific provisions, the 1996 Act contains provisions intended to increase
competition in the telephone, radio, broadcast television, and hardwire and
wireless cable television businesses. The long term effect of the 1996 Act
cannot be determined at this time, although competition in the video programming
delivery industry is likely to increase as a result of the adoption of the 1996
Act.
The 1996 Act may change the competitive environment of the wireless cable
business. The 1996 Act changes the definition of cable television system so that
the definition excludes any systems that serve customers without using any
public right of way. This change will allow wireless cable system operators to
wire together apartment complexes and other similar properties, as long as the
wiring system does not cross a public right-of-way, without the need to apply
for a local cable television franchise. The 1996 Act will also reduce the
regulatory authority over cable company rates, allow telephone companies, under
certain conditions, to distribute video and afford relief to DBS and wireless
cable providers by exempting them from certain local restrictions on antennas.
The 1996 Act also requires all providers of telecommunications services (as
defined by the 1996 Act) to contribute to a national Universal Service Fund (the
"Fund"). The Fund was created to promote the availability of telecommunications
services to those in low income, rural, insular, and high cost areas at rates
that are reasonably comparable to the lower rates charged in urban areas. The
1996 Act expanded the purpose of the Fund to include provision of affordable
access to advanced telecommunications services for schools, classrooms, health
care facilities, and libraries. Previously, only telephone companies were
required to contribute to the Fund. The FCC is considering whether and to what
-11-
<PAGE>
extent wireless cable operators, such as the Company, must contribute to the
Fund. This matter remains pending before the FCC.
Pursuant to the 1996 Act, video-programming distributors, including wireless
cable operators, will be required to provide closed-captioned video programming
on a phased-in basis starting on January 1, 2000. Requirements to pass-through
captions already contained in programming and to maintain captioning at 1997
levels became effective on January 1, 1998. Because ITFS programming as a class
is exempt from captioning requirements, wireless cable operators that transmit
such programming are not required to provide closed captioning.
Other Regulations. Wireless cable license holders are subject to regulation by
the Federal Aviation Administration with respect to the construction of
transmission towers and to certain local zoning regulations affecting
construction of towers and other facilities. There may also be restrictions
imposed by local authorities. There can be no assurance that the Company will
not be required to incur additional costs in complying with such regulations and
restrictions.
Copyright. Under the federal copyright laws, permission from the copyright
holder generally must be secured before a video program may be retransmitted.
Under Section 111 of the Copyright Act, certain "cable systems" are entitled to
engage in the secondary transmission of programming without the prior permission
of the holders of copyrights in the programming. In order to do so, a cable
system must secure a compulsory copyright license. Such a license comes into
existence upon the filing of certain reports with the payment of certain fees to
the U.S. Copyright Office. In 1994, Congress enacted the Satellite Home Viewer
Act of 1994, which enables operators of wireless cable television systems to
rely on the cable compulsory license under Section 111 of the Copyright Act.
TRADEMARKS, COPYRIGHTS, PATENTS
The Company holds no copyrights or patents but has received a federal service
mark registration for the name Magnavision. The Company does not believe that
these proprietary rights are material to its business.
PERSONNEL
At December 31, 1999, the Company had a staff of 11 full time employees (1 in
sales, 4 in installations and service, 1 in customer service and marketing, 3 in
administration, and 2 in management) and various part time consultants, advisors
and subcontractors, none of whom is a member of a union.
The Company does not plan to expand its staff until it begins to generate
sufficient revenue or receives funding to support expansion. The Company
considers its relationship with its employees to be good.
MAJORITY SHAREHOLDER
At December 31, 1999, Cacomm, Inc., a New Jersey corporation ("Cacomm"), was the
majority shareholder of the Registrant. The Company believes, but could not
confirm, that Cacomm owned approximately 73% at the end of 1999 and 77.5% at the
end of 1998 of the Company's outstanding common stock.
-12-
<PAGE>
The Registrant has been advised that Cacomm is a 25% partner in a general
partnership known as The Grand MMDS Alliance (the "Alliance"), a designated
selectee of the FCC for four MMDS channels in the New York metropolitan market.
The possibility exists that the Alliance could commence business in direct
competition with the Registrant and the Registrant's former Chief Executive
Officer, in his letter of resignation, indicated that he intends to launch such
competitive activities. The Company has no reliable information as to whether
the Grand MMDS Alliance has commenced business operations as of the date of this
report.
The Company continues periodic discussions with the Alliance (the other partners
of which are unaffiliated with the Registrant) for the purpose of exploring
various alternatives relating to the MMDS channels held by the Alliance.
However, such discussions have not proven fruitful in the past, and there is no
assurance that such discussions will be productive in the future.
ITEM 2. PROPERTIES
The Registrant's principal offices are located at 1725 Highway 35, The Wedgewood
Building, Wall, New Jersey, where it occupies approximately 1200 square feet
under a lease agreement which expires in May 2000.
As part of the Channel Lease Agreement with the Department, the Company acquired
the right to use a portion of the Department's transmitting space at the Empire
State Building, in Yonkers, New York and on Staten Island, New York. The Company
pays no additional consideration for this space beyond the fees due to the
Department under the Channel Leasing Agreement.
ITEM 3. LEGAL PROCEEDINGS
CACOMM, INC vs. MAGNAVISION CORPORATION ETAL.
Reference is made in the Company's 10-Q for March 31, 1999. On or about June 1,
1999, the Company was informed that the complaint filed in the court of Chancery
of the State of Delaware entitled Cacomm, Inc. vs. Magnavision Corporation et.al
filed on May 13, 1999, was dismissed by Cacomm, Inc., without the appointment of
a director.
PATRICK MASTRORILLI vs. MAGNAVISION CORPORATION
On June 21, 1999, the Company received a complaint filed in the Superior Court
of New Jersey Legal Division in an action entitled Patrick Mastrorilli vs.
Magnavision Corporation. This litigation relates to a former director and
officer's claim for alleged future commissions due him on contracts and current
renewals placed by him. Discovery is pending in this matter, and the Company can
make no predictions as to its final outcome at this time.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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<PAGE>
P A R T I I
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
(a) The Common Stock has been trading in the over-the-counter market
under the symbol "MAGV". The following table sets forth for the
periods indicated the range of high and low bid quotations for the
Company's Common Stock since January 1, 1998 as reported by the
National Quotation Bureau, Inc. and as reported by the National
Association of Securities Dealers composite feed or other qualified
inter quotation dealer medium. These quotations represent
inter-dealer prices, without retail mark-up, mark-down or
commissions and do not necessarily represent actual transactions. As
trading in the Common Stock has historically been sporadic and in
small volumes, the Company cannot assure that an active public
trading market will develop or be sustained.
CLOSING BID
-----------
1998 HIGH LOW
---- ---- ---
January 2nd through March 31st 1.8125 .9375
April 1st through June 30th 1.0625 .9375
July 1st through September 30th 1.0000 .6250
October 1st through December 31st .6250 .4375
1999
----
January 4th through March 31st .6875 .4375
April 1st through June 30th 14.0000 .6250
July 1st through September 30th 16.2500 6.0000
October 1st through December 31st 9.7500 6.2500
(b) As of December 31, 1999, according to the Registrant's transfer
agent, the approximate number of holders of record of the
Registrant's common stock was 463.
(c) The Registrant has never paid any cash dividends on its Common Stock
and none are presently anticipated. Under the Company's agreements
with its redeemable preferred stockholders and its principal lender,
the Company is prohibited, without their consent, from declaring or
paying any dividends on its Common Stock until the loans made by the
lender have been repaid and the preferred stock is redeemed, in
full. As of December 31, 1999, the Company had accumulated dividends
of $1,057,778 on its 8% Series A preferred stock . The Company is
not required to pay dividends until the redemption date of May 2002,
unless accelerated by certain liquidity events, further described in
Note 13. The redeemable preferred stock will have a preference over
the common stock as to any dividends that may be legally available
for declaration and payment.
-14-
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following is a summary of selected financial data. This data should be read
in conjunction with "Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Item 8-Financial Statements and
Schedules."
-15-
<PAGE>
Income Statement Data
- ---------------------
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues $ 2,962,016 $ 3,652,389 $ 1,607,049 $ 1,285,442 $ 666,366
=========== =========== =========== =========== ===========
Loss Before Extraordinary Item $ (418,216) $ (428,409) $(1,152,529) $(1,411,509) $ (844,493)
=========== =========== =========== =========== ===========
Extraordinary Item-Loss From
Extinguishment of Debt $ - $ 165,779 $ 275,844 $ - $ -
=========== =========== =========== =========== ===========
Net Loss $ (418,216) ($594,188) $(1,428,373) $(1,411,509) $ (844,493)
=========== =========== =========== =========== ===========
Redeemable Preferred Stock Dividend
Requirement $ 400,000 $ 400,000 $ 257,778 $ - $ -
=========== =========== =========== =========== ===========
Accretion of Preferred Stock $ 92,593 $ 92,593 $ 54,012 $ - $ -
=========== =========== =========== =========== ===========
Net Loss Applicable to Common
Stockholders $ (910,809) $(1,086,781) $(1,740,163) $(1,411,509) $ (844,493)
=========== =========== =========== =========== ===========
Basic & Diluted Loss Per Common Share
From Continuing Operations $ (.79) $ (.80) $ (1.27) $ (1.23) $ (.66)
=========== =========== =========== =========== ===========
Basic & Diluted Weighted Average Common
Shares Outstanding 1,157,005 1,154,354 1,152,504 1,147,030 1,276,539
=========== =========== =========== =========== ===========
</TABLE>
Balance Sheet Data
- ------------------
<TABLE>
<CAPTION>
At December 31,
---------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Working Deficit $(1,674,984) $ (366,025) $ (682,031) $(4,338,083) $ (213,988)
=========== =========== =========== =========== ===========
Total Assets $ 3,064,313 $ 3,953,476 $ 2,427,163 $ 2,196,994 $(2,065,771)
=========== =========== =========== =========== ===========
Long Term Debt - $ 1,899,468 $ 111,509 $ 10,563 $ 2,678,784
=========== =========== =========== =========== ===========
Redeemable Preferred Stock $ 4,683,642 $ 4,591,049 $ 4,498,456 $ - $ -
=========== =========== =========== =========== ===========
Stockholders' Equity (Deficit) $(5,635,544) $(4,086,356) $(3,403,335) $(2,608,645) $(1,272,472)
=========== =========== =========== =========== ===========
</TABLE>
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<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain statements under the captions "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business" and elsewhere in
this Form 10-K constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995 (the "Reform Act"). Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements of
the Company, or industry results, to be materially different from any future
results, performance or achievements of the Company, or industry results
expressed or implied by such forward-looking statements. Such factors include
among others, general economic and business conditions, which will, among other
things, impact demand for the Company's services; changes in public taste,
trends and demographic changes; competition from other SMATV and/or cable
companies, which may affect the Company's ability to generate revenues;
political, social and economic conditions and laws, rules and regulations, which
may affect the Company's results of operations; timely completion of
construction projects for new systems; changes in business strategy or
development plans; the significant indebtedness of the Company; quality of
management; availability of qualified personnel; changes in, or the failure to
comply with, government regulations; and other factors referenced in the Form
10-K.
RESULTS OF OPERATIONS
All of the Company's current revenues are derived from its private cable
operations, which now include data services. The wireless channel capacity
operations have not commenced, therefore, no revenue has been derived from the
wireless operation.
The Registrant and its wholly owned subsidiary began service in February 1992 to
various colleges, nursing homes, and hospital facilities in the New York/New
Jersey area utilizing direct satellite technology. This involves the use of
antennas, which are installed at the facility and then separately wired on a
room-by-room basis. The Company has long-term agreements with 39 facilities
under which it is currently providing service to students and patients through
approximately 16,000 outlets in rooms and common areas at such institutional
facilities.
The Company has an agreement to serve over 3,200 students located at certain
Fordham facilities with a data service using cable modems and the cable
television network backbone.
The majority of the facilities using the Company's private cable service are in
New Jersey and New York, but the market area currently reaches from North
Carolina to Massachusetts and as far west as Wisconsin .
Many colleges and senior living and nursing homes in the United States do not
have cable television, but the current trend is for these institutions to
install cable television. Each installation is comprised of a number of billing
outlets. A billing outlet represents a hookup for a television.
-17-
<PAGE>
The Company collects revenue from each television on-line. For the most part,
the colleges are on a nine month billing cycle starting in September and ending
in June of the subsequent year. The nursing homes and hospitals are on a 12
month billing cycle.
1999 vs. 1998
Net loss for 1999 was $418,216 compared to a net loss of $594,188 in 1998. The
Company had an extraordinary item of $165,779 related to the extinguishment of
debt to Access Capital, Inc., in 1998. Also in 1998, the Company refinanced its
debt with BSB Bank & Trust Company. The net income from the private cable
operation was $31,905 in 1999, compared to a loss of $173,693 in 1998. The
income in 1999 was due to the revenue from the new sites and a full year of
revenue from Fordham University Data System. The loss from the Company's
wireless cable for 1999 was $450,121 compared to $420,495 in 1998. The loss was
related to expenses such as the channel lease expense, professional fees,
engineering fees, and salaries.
Revenue decreased $690,373 and gross profit increased $132,682 over last year.
The decrease in revenue and cost of sales were primarily a result of a
full-years of operation for both the outlets installed in 1998 and data delivery
services at Fordham University.
The cost of sales in 1998 was exaggerated by items for building systems. In
1998, the Company installed data delivery service outlets at Fordham University
which resulted in installation revenue earned in 1998. This installation revenue
was non-recurring in 1999.
Operating expenses primarily consist of salaries, depreciation and amortization
and general and administrative expenses. Operating expenses for 1999 were
$2,173,677, an increase of $74,669 over 1998. Salaries accounted for $49,977 of
the increase and deprecation represented $168,068 of the increase. This increase
was offset by a decrease in general and administrative expenses of $143,376. The
additional depreciation related to the purchase of equipment.
Interest expense increased to $237,647 in 1999 from $184,425 in 1998. In the
first half of 1998, the Company was borrowing from Access Capital, Inc., which
was a significantly lower loan balance. Starting in July, interest payments were
based on $2.5 million outstanding term loan with BSB Bank & Trust Company. The
increase in 1999 represents a full-year interest on the BSB Bank and Trust
Company Term Loan Agreement and a partial-year on the line-of-credit under which
the Company borrowed during the summer of 1999.
1998 vs. 1997
Net loss for 1998 was $594,188 compared to a net loss of $1,428,373 in 1997. In
1998, the Company had an extraordinary item of $165,779 related to the
extinguishment of debt to Access Capital, Inc. In 1998, the Company refinanced
its debt with BSB Bank & Trust Company. The net loss from the private cable
operation was $173,693 in 1998, compared to $889,289 in 1997.
The reduction in the loss in 1998 was partially due to the profit on the sale of
equipment to Fordham University. The loss from the Company's wireless cable for
1998 was $420,495 compared to $539,084 in 1997. The loss was related to expenses
such as the channel lease expense, professional fees, engineering fees, and
salaries.
-18-
<PAGE>
Revenues increased $2,045,340 and gross profit increased $905,359 over last
year. The increases were primarily a result of increased outlets on line in the
fall of 1998, revenue related to the data contract at Fordham University, and
non-reoccurring revenue from the installed equipment at various sites.
Operating expenses primarily consist of salaries, depreciation and amortization
and general and administrative expenses. Operating expenses for 1998 was
$2,099,008, an increase of $264,177 over 1997. Salaries accounted for $87,708 of
the increase and deprecation represented $185,091 of the increase. The
additional deprecation was related to the purchase of equipment.
Interest expense decreased to $184,425 in 1998 from $280,546 in 1997. The
interest in 1997 includes interest for a partial year of senior debt over $4
million dollars prior to the conversion in June of 1997. In 1998 the Company
incurred interest expense for Access Capital, Inc. and starting in July interest
on $2.5 million for BSB Bank & Trust Company term loan.
The extraordinary item in 1998 related to the write-off of deferred financing
cost and a prepayment penalty after the pay off of the Access Capital, Inc. line
of credit after refinancing the existing debt with BSB Bank & Trust Company in
July 1998. The extraordinary item in 1997 related to the write-off of deferred
financing costs upon the extinguishment of the debt after the conversion to
Preferred Stock.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flow
Year Ending 1999
For the year ending December 31, 1999, total cash increased by $2,926. The net
cash provided by operating activities was $469,470 in 1999 compared to net cash
used of $749,723 in 1998. The primary reason for the cash provided during 1999
was related to a $467,000 payment received during 1999 from Fordham University
related to the data delivery system.
The cash used in investing activities was $1,136,172 in 1998 compared to
$108,210 in 1999. Funds were used primarily to purchase equipment used to
increase the outlet count on cable systems.
Net cash provided by financing activities was $1,971,440 in 1998 compared to net
cash used of $358,334 in 1999. The cash used in financing activities in 1999 was
principally used to reduce the BSB Bank & Trust Term Loan, which were somewhat
offset by the borrowings under the BSB Bank & Trust line-of-credit. The cash
provided by financing activities in 1998 related primarily to the proceeds under
the BSB Bank & Trust facility offset by the payoff of the Access Capital, Inc.,
facility.
Year Ending 1998
For the year ending December 31, 1998, total cash increased by $85,545. The net
cash used in operating activities increased to $749,723 in 1998 compared to
$447,166 in 1997. The primary reason for the increase was a note from Fordham
for the payment of the data system for which the Company funded the
installation.
-19-
<PAGE>
The cash used in investing activities increased from $674,320 in 1997 to
$1,136,172 in 1998. The funds were used primarily to purchase equipment used to
increase the outlet count on the cable side and for the data system.
Net cash provided by financing activities increased from $1,098,736 in 1997 to
$1,971,440 in 1998. Cash flow from financing activities in 1998 was principally
from the proceeds of the BSB Bank term loan of which a portion was used to
payoff the Access Capital, Inc. loan, both described below.
Liquidity and Capital
Since the inception of service in 1992, the Company has experienced operating
losses, has been in default of certain provisions of its senior debt, and has
had negative cash flow. At December 31, 1999, the Company had a working capital
deficiency and a shareholders' deficit.
The Company's capital commitments at December 31, 1999 include additional
capital to construct facilities at the Department of Education of the
Archdiocese of New York, capital to build the Monmouth and Ocean County ITFS
channel sites, the payments required under the BSB Bank & Trust Company term
loan, and the payment of the preferred shareholders principal and accumulated
dividend due December 31, 2002. As of the date hereof, the Company has not
commenced operation of a wireless system and, if it is executed, will require
substantial additional funding in order to do so.
The management plan is to either a sale of the ITFS spectrum or develop the ITFS
spectrum with a strategic partner(s) willing to participate with the Company in
the development of alternative uses of its ITFS spectrum. The Company's business
plan depends on either a sale or the Company securing a strategic partner(s) for
the capital resources required and the expertise required to run the Wireless of
the business. There is no assurance that the Company will be able to secure
additional financing or strategic relationships or a sale on terms or conditions
satisfactory to the Company, or at all.
Failure to obtain financing or a partner or to sell the ITFS spectrum lease will
have a material adverse effect on the Company. Also, there can be no assurance
that, even with additional financing, the Company will be able to launch its
alternative use of ITFS spectrum in a commercially successful manner.
On March 15, 2000, Magnavision Corporation and Lamont Television Systems, Inc.
entered into an Asset Purchase Agreement as of February 29, 2000, to purchase
the service contracts and related fixed assets of Magnavision Corporation's
Private Cable Operation for $7.5 million. The transaction closed on March 30,
2000, with the Company receiving approximately $6,700,000 of the proceeds in
cash after the establishment of an escrow account of approximately $200,000 and
other closing adjustments. The Company used part of the proceeds to pay off its
loan to BSB Bank & Trust Company in the amount of $1,954,000 and its notes to
both IBJS Whitehall and KOCO Capital totaling $105,468 in the aggregate plus the
accrued interest. Other portions of the net proceeds were be used to pay
commissions of $300,000 due under this transaction and to establish accruals for
severance and retention payments and legal fees totaling $330,000. The Company
also will accrue approximately $1.2 million for State and Federal taxes. In
addition, the May 1997 Exchange Agreement and the Company's Certificate of
Incorporation as amended requires a payment of 25% of the net proceeds of the
sale or approximately $1.7 million to be used to retire a portion of the
Company's Series A Preferred Stock and the accumulated related preferred stock
dividend outstanding.
-20-
<PAGE>
The Company plans to meet short term liquidity requirements for it's wireless
plan from the cash received from the Private Cable System. There can be no
assurance that the Company will be able to obtain additional financing on a
timely basis or at all.
Access Capital, Inc. Line of Credit
In September 1997, the Company and Access Capital, Inc. agreed to a $1,250,000
three year revolving line of credit to be used to expand the Company's private
cable business. At December 31, 1997, the Company had borrowed approximately
$405,000 under the line of credit. Interest was payable currently at the default
rate of prime plus 8%. The line was secured by a pledge of private cable
contracts and other Company assets.
The lender received 138,536 warrants at an exercise price of $2.00 per share to
purchase approximately 4% of the Company's stock on a fully diluted basis. This
loan was paid off in July 1998. The warrants remain outstanding as of December
31, 1999.
BSB Bank & Trust Company Term Loan
On July 3, 1998, the Company and BSB Bank & Trust Company entered into an
agreement to refinance its existing credit line and supply working capital.
Pursuant thereto, the Company borrowed the sum of $2.5 million dollars which
bears interest at a fixed rate of 10% per annum and has a 5 year term.
Installments of principal plus interest, payable in arrears, will be made in
accordance with the agreed upon schedule of which $634,000 was paid in 1999.
This loan was utilized to refinance existing debt and the remaining
approximately $1.9 million was used to finance the completion of outstanding
contracts for private cable television service at various locations, to complete
the Fordham University Internet distribution system, and for working capital.
BSB Bank & Trust Company also granted the Company a $500,000 line of credit, to
be used for future installations of private cable systems and general corporate
purposes. This line of credit is at an interest rate of prime plus 1.5% payable
monthly and will mature in June 2000.
In the above transaction, BSB Bank & Trust Company received warrants to purchase
146,176 shares of Magnavision's issued and outstanding capital stock on a fully
diluted basis at an exercise price of $2.00 per share. The warrants remain
outstanding as of the date of this filing.
In connection with the sale of the private cable business, the Company paid off
both the BSB Term Loan and line of credit with the proceeds from the sale.
Exchange of Debt for Redeemable Preferred Stock
In August 1995, the Company entered into a $5 million lending facility with a
bank and two small business investment companies. See "Item 13- Certain
Relationships and Related Transactions" for further information with regard to
the transactions described above.
As of December 31, 1996, the Company was not in compliance with several
covenants under its senior debt agreement and, as of March 31, 1997, the Company
did not make its quarterly interest payment of $122,095. On May 8, 1997, the
Company agreed with its lenders to exchange its senior subordinated notes into
redeemable Series A Preferred Stock.
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<PAGE>
Under the terms thereof, the Company's outstanding subordinated notes,
aggregating approximately $4.1 million, together with accrued interest and
detachable warrants, were exchanged for $5 million of 8% Series A Preferred
Stock due December 31, 2002.
In connection with the exchange, the lenders also funded the Company the
remaining balance on the existing line. In addition, the note holders received
1,826,932 warrants to purchase up to 58% of the common stock on a fully diluted
basis at an exercise price of $2.00 per share after the Company effected a
1-for-20 reverse stock split, and have the right, which they have exercised, to
elect the majority of the Board of Directors. The warrants remain outstanding as
of December 31, 1999.
This resulted in a change in control of the Company. The agreement also requires
the warrant holders to surrender up to 10% of their stock on a fully diluted
basis, if, as and when certain liquidity events occur. In addition, warrant
holders have the right to require the Company to repurchase the warrants under
certain conditions. This option can only be exercised upon the sale of an asset
of the Company. The value of the warrants was estimated at $555,556 and
represents a discount to the face value of the redeemable preferred stock.
The cost of the put can not be determined at this time since it is based upon
the value of a sale of a significant asset which has not occurred or cannot be
assured. Also, one of the warrant holders has entered into a management service
agreement with the Company. See Item 10, "Directors and Executive Officers of
the Registrant."
Non-Qualified Stock Option Plan
During the first quarter of 1999, Magnavision adopted a non-qualified stock
option plan (the "Plan"). Under the Plan, options to purchase an aggregate of
not more than 349,986 shares of common stock may be granted from time to time to
key employees, including officers, advisors, and independent consultants or to
any other persons. Under the Exchange Agreement (a copy which was filed with the
Company's 10-K for the year ending December 31, 1997) and when the Plan was
complete, options were also to be granted to employees under the Plan. Also
under a letter agreement, the President and C.E.O. was to receive 150,000
options at an exercise price of $1.00.
As of January 19, 1999, the compensation committee awarded or caused to be
issued 223,974 options including: 150,000 options to Robert Hoffman, 43,974
options issued pursuant to the Company's obligation under the Exchange Agreement
at an exercise price of $2.00 per share and awarded 30,000 options to various
employees at an exercise price of $2.00 per option.
During the year, employees exercised 16,154 options that were issued under the
Plan.
The Company accounts for stock options issued to employees under A.P.B. No. 25
"Accounting for Stock Issued to Employee," as permitted by FAS No. 123 under
which no compensation cost has been recognized for the options granted as they
were issued above market value.
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<PAGE>
Change-of-Control Policies
During the third quarter 1999, the Company adopted policies for the purpose of
retaining the services of its employees during a change-of-control of the
Company and paying severance to employees who are terminated as a result of a
change-of-control. The policies are limited in scope and duration, and are
effective only if there is a change-of-control prior to January 1, 2000.
The Company has extended this policy until January 1, 2001.
A change-of-control is defined in the policies as any event that would be
reportable in Item 1(a) of SEC Form 8-K, including, without limitation, any
event that causes any person, directly or indirectly, to become the beneficial
owner of 50% or more of the securities ordinarily having the right to vote at
the election of directors of the Company or the sale of all or substantially all
of the Company's assets or the assets of a wholly owned subsidiary.
The change-of-control policy for non-officer employees calls for both retention
pay and severance pay. The amount of retention incentive pay is up to three
months' base pay for each eligible employee. The amount of severance pay is up
to nine months' base pay for each eligible employee with three or more years of
service and up to six months' base pay for each eligible employee with more than
one year of service.
The change-of control policy for employees who are corporate officers, with the
exception of the President and C.E.O. who has a separate plan, provides for
severance pay in an amount up to 12 months base pay for each eligible employee
and immediate vesting of all issued and outstanding stock options, subject to
certain limitations.
The change-of-control agreement for the President and C.E.O. provides for
severance pay in an amount equal to 12 months base pay upon a change-of-control
prior to June 1, 2000.
Inflation
Management believes that inflation and changing prices will have a minimal
effect on operations. The above should be read in conjunction with the Company's
consolidated financial statements included elsewhere herein.
Seasonality of Installation Activities
The Company installs most of its college and university subscribers over the
summer because the institutions are, for the most part, vacant. Therefore, the
Company experiences lower revenues and higher capital expenditures during the
summer.
-23-
<PAGE>
Year 2000
The Company experienced no issues related to the "Year 2000" problem.
ITEM 7 (a). QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
No effect
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
See pages F-1 through F-21.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
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P A R T I I I
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information with respect to the directors
and officers of the Registrant. These individuals serve in the same capacities
with Magnavision - N.J.
<TABLE>
<CAPTION>
Director or
Name Age Position Office Since
- ---- --- -------- ------------
<S> <C> <C> <C>
Robert E. Hoffman 55 Director, Chairman, President (1) (2) 1998
Jeffrey Haertlein 52 Chief Financial Officer 1996
Keith Heilos 37 Vice President 1991
Brian Mastrorilli 31 Vice President (1) (2) (3) (4) 1991
(resigned January 31, 2000)
Evan Wildstein 29 Director (1) (2) (4) 1997
Geoffrey Thompson 59 Director (4) (3) 1997
George Zombek 36 Director (4) 1997
Kevin Falvey 43 Director (1) (2) (3) (4) 1997
</TABLE>
Pursuant to the Exchange Agreement of May 8, 1997 and the related Stockholders
Agreement of such date, Cacomm retained the right to designate three (3) out of
the Registrant's seven (7) member Board of Directors. Pursuant thereto, Cacomm
appointed Messrs. Nicholas Mastrorilli, Sr., Nicholas Mastrorilli, Jr. and
Patrick Mastrorilli to the Registrant's Board of Directors. Effective upon Mr.
Mastrorilli Sr.'s resignation, Cacomm designated Mr. Hoffman as one of its
designees.
The Registrant received a letter dated April 24, 1998 from Cacomm removing
Nicholas Mastrorilli, Jr. and Patrick Mastrorilli as designees of Cacomm to the
Registrant's Board of Directors. The letter indicated that Cacomm would, in the
near future, appoint replacement designees. Such designees, if not from existing
management, must be reasonably acceptable to the preferred stockholders. By
letter dated February 5, 1999 Cacomm recommended the appointment of Mr. Joseph
M. Carlino as director. The Board of Directors did not seat Mr. Carlino and
Cacomm sued the Company. On May 13, 1999, Cacomm dismissed the suit.
On June 3, 1999, the Board of Directors approved the election of Cacomm Inc.'s
appointee, Brian Mastrorilli, to the Board. Mr. Mastrorilli served as Vice
President of Technical Operations at Magnavision from April 1991 to January
2000. He was also a Director of Cacomm Inc. until May 1999, when he resigned to
become a Director of Magnavision.
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<PAGE>
On January 31, 2000, Mr. Brian Mastrorilli resigned from his position as Vice
President and Director of Magnavision. The Company received a letter from Cacomm
removing him as a designee of Cacomm to the Registrants' Board of Directors on
the same day. The letter indicated that Cacomm would appoint a replacement
designee, which has not as of the date of this report, occurred yet.
(1) Member of Executive Committee.
(2) Member of Audit Committee. The Audit Committee assists the Board of
Directors in fulfilling its responsibilities with respect to the
Company's accounting and financial reporting activities.
(3) Member of Compensation Committee. The Compensation Committee determines
the compensation to be paid by the Company to its officers.
(4) Messrs. Wildstein and Thompson and Messrs. Zombek and Falvey are
representatives of KOCO Capital Company, LP ("KOCO") and IBJS Capital
Company, Inc. ("IBJS"), respectively, and serve on the Registrant's
Board of Directors pursuant to the terms of a certain Stockholders
Agreement dated as of May 8, 1997 between the Registrant, KOCO, IBJS,
Cacomm and Nicholas Mastrorilli, Sr. The Stockholders Agreement
provides for the Registrant to have a Board of Directors consisting of
not more than seven (7) persons, of which, so long as KOCO and IBJS own
20% or more of the fully diluted common stock, such investors shall
each have the right to designate two (2) directors and so long as
Cacomm holds 20% or more of the fully diluted common stock, it has the
right to designate three (3) directors that are members of the
Registrant's management or are approved by KOCO and IBJS. Cacomm,
pursuant to such agreement, previously designated Robert E. Hoffman,
Nicholas Mastrorilli, Jr. and Patrick Mastrorilli its designees to
serve on Registrant's Board of Directors. As noted above, by letter
dated April 24, 1998, Cacomm removed Nicholas Mastrorilli, Jr. and
Patrick Mastrorilli as its designees to be members of the Board of
Directors. Should there be an increase in the size of the Board of
Directors, KOCO and IBJS have the right to designate additional
directors such that their nominees at all times constitute a simple
majority of the Board of Directors. The parties to the Stockholders
Agreement also agreed to appoint one KOCO director and one IBJS
director to serve on the Audit, Compensation and Executive Committees
of the Board of Directors and one management director to serve on the
Compensation and Executive Committees of the Board of Directors. As a
result of the implementation of the Stockholders Agreement, a change in
control of the Registrant was effected. Reference is made to the
Exhibits attached as part of this Form 10-K for additional information
contained in the Exchange Agreement and the Stockholders Agreement of
May 8, 1997.
The directors and officers, other than Mr. Hoffman, who serves pursuant to the
terms of the Employment Agreement described in Item 11, Executive Compensation,
will hold office until the next annual meeting of shareholders and directors,
respectively, or until their successors are duly elected and qualified.
Robert E. Hoffman, became Chairman and Chief Executive Officer of the Registrant
and its subsidiaries on January 8, 1998, effective upon the resignation from
such positions by Nicholas Mastrorilli, Sr. Mr. Hoffman was also elected
President on such date. Prior thereto, and from August 1996, Mr. Hoffman was a
self-employed technology consultant to telecommunications businesses in wireless
cable, television, communications products and DTH satellite television.
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<PAGE>
Prior thereto and concurrent therewith, Mr. Hoffman was President of Wireless
America, Inc., a private company which held and leased frequency licenses for
use in wireless cable television systems. Wireless America, Inc. sold all the
assets and was liquidated in February 1997. From June of 1994 through July of
1996, Mr. Hoffman was Vice President, Engineering for C-COR Electronics, a
manufacturer of cable television distribution equipment.
From January of 1993 through June of 1994, Mr. Hoffman was Vice President,
Engineering for Cincinnati Microwave, Inc., a domestic manufacturer of specialty
consumer electronics and communication products. Prior thereto and from July of
1986 through December 1992, he was President of Comband Technologies, Inc., a
supplier of systems, equipment and services to the wireless (microwave) cable
television industry. Mr. Hoffman received a Bachelors and a Masters degree in
Electrical Engineering from Rensselaer Polytechnic Institute in 1966 and 1971,
respectively.
Jeffrey Haertlein, was elected as the Company's Chief Financial Officer
effective as of January 1, 1996 with responsibility for all of the Registrant's
financial matters. Mr. Haertlein was previously Assistant Vice President of
MidAtlantic Corporation from 1978 to 1995 with responsibility for financial
planning and reporting for such bank holding company and its various
subsidiaries. Prior thereto and from 1977 to 1978, Mr. Haertlein was employed by
Chase Manhattan Bank in the capacity of Internal Auditor. Mr. Haertlein received
a B.A. degree from Monmouth College in accounting/marketing.
Keith M. Heilos, has been Vice President, Customer Relations for the Registrant
since April 1991. Prior to 1991, Mr. Heilos served as Director of Video
Production for Cacomm, Inc. from July of 1987 to April 1991. Mr. Heilos is
directly responsible for customer relations and is the liaison between the
Company and its client base. Mr. Heilos received a B.A. degree from Montclair
State College in 1986.
Brian J. Mastrorilli, served as Vice President, Technical Operations since April
1991 to January 2000. He has also informed the Company that he has been a Vice
President and Director of Cacomm, Inc. from April 1991 to May 1999. On June 3,
1999, the Board of Directors approved the election of Mr. Mastrorilli as Cacomm
Inc.'s appointee to the Board. Mr. Mastrorilli was responsible for all the
Company's technical projects, including system design and documentation,
construction coordination and FCC licensing of the private cable systems and
design and management of the cable modem systems.
Mr. Mastrorilli resigned as of January 31, 2000 as Vice President and as a
Director of the Company.
Evan Wildstein, has been a director of the Registrant since June 1997 as a
representative of Koco Capital Company, LP ("KOCO"), a Small Business Investment
Company. Mr. Wildstein is President of Kisco Capital Corporation, the general
partner of KOCO, and is a principal at Kohlberg & Company, LLC which he joined
in October 1994. Prior to that, Mr. Wildstein was a financial analyst at Dean
Witter Reynolds, Inc. from August 1993 to October 1994. Mr. Wildstein received a
bachelor's degree in Business Administration from the University of Michigan in
1993.
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<PAGE>
Geoffrey Thompson, has been a Director of the Registrant since November 1997 as
a representative of KOCO. Mr. Thompson joined Kohlberg & Company as Principal in
1996 and resigned in 1998. Previously, he was managing partner of Norman
Broadbent International (1995-1996), President of Nordeman Grimm (1993-1994) and
President/CEO of Marine Midland Banks, Inc. from 1981-1993. He holds a
bachelor's degree from Columbia College (1963) and an MBA degree from Harvard
University (1967).
George Zombek, has been a Director of the Registrant since June 1997 as a
representative of IBJS, a Small Business Investment Company and a wholly-owned
subsidiary of IBJ Whitehall Financial Group. Mr. Zombek is Chief Operating
Officer of IBJS and joined such firm in 1997. Prior thereto and from its
inception in 1995, Mr. Zombek was a principal at Canterbury Mezzanine Capital, a
mezzanine finance fund. From 1992 through 1995, Mr. Zombek was affiliated with
the BZW Mezzanine Group and briefly during such period with its Mergers and
Acquisitions Group. Mr. Zombek received an MBA degree in Finance from University
of Chicago in 1989 and a BA degree from New York University in 1985.
Kevin Falvey, has been a Director of the Registrant since November 1997 as a
representative of IBJS. Mr. Falvey joined IBJS in November 1997. From 1992 to
February 1997, Mr. Falvey was a Vice President of CIT Group/Equity Investments,
Inc. Prior thereto and from 1986 to 1991, he was Managing Director of
Manufacturers Hanover Capital Partners, Inc. Mr. Falvey received an MBA degree,
with distinction, from New York University in 1987 and a B.B.A. degree from the
University of Massachusetts in 1978.
ITEM 11. EXECUTIVE COMPENSATION
Set forth below is the aggregate remuneration paid or accrued by the Company
during the years ended December 31, 1999, 1998 and 1997 to the Company's Chief
Executive Officer. No other executive officer of the Company received salary and
bonus aggregating in excess of $100,000 in any of those years.
The Company has a Non-competition and Non-solicitation Agreement with its three
officers, one of which has taken a position with Lamont TeleVision Systems Inc.
SUMMARY COMPENSATION TABLE
Name and Principal Position Year Salary Bonus Options
- --------------------------- ---- ------ ----- -------
Robert E. Hoffman 1999 $175,000 $62,500 150,000
Robert E. Hoffman(1) 1998 $ 74,038 $15,000 -
Nicholas Mastrorilli, Sr.(2) 1997 $109,800 - -
(1) Effective January 8, 1998, the Company entered into an agreement with Robert
E. Hoffman. Pursuant thereto, Mr. Hoffman has agreed to act as Chairman,
President and Chief Executive Officer of the Registrant, for which service
an executive search firm was paid the sum of $17,500 monthly together with
additional amounts if Mr. Hoffman became an employee on a long term basis.
These payments are not reflected in the chart above
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<PAGE>
In June 1998, Robert E. Hoffman became an employee acting as Chairman,
President, and Chief Executive Officer at an annual salary of $125,000 per
year, annual living allowance of $2,000 per month until December 1998 and a
$15,000 cash payment. Effective starting January 1, 1999, his annual salary
was $175,000. He participated in the bonus compensation program in 1999 and
received 150,000 options under the 1999 option plan at $1.00 per share,
which vested upon issuance.
(2) Effective as of January 8, 1998, Nicholas Mastrorilli, Sr. resigned as an
officer, director and employee of the Registrant and its subsidiaries. In
connection therewith, the Registrant agreed to continue Mr. Mastrorilli's
base salary of $105,000 per annum and all health benefits up to the sum of
$500.00 per month, until January 8, 1999.
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<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners:
The following table contains information as of December 31, 1999 as to the
beneficial ownership of shares of Common Stock of the Registrant of each person
who, to the knowledge of the Registrant at that date, was the beneficial owner
of 5% or more of its outstanding shares.
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of
Beneficial Owner Beneficial Ownership % of Class
- ------------------- -------------------- ----------
<S> <C> <C>
Cacomm, Inc. 853,889 73.0
P.O. Box 163
Sea Girt, NJ 08750
KOCO Capital Company, LP 730,773 (1) 38.5
111 Radio Circle
Mt. Kisco, NY 10549
IBJS Whitehall Capital Corporation 1,096,159 (2) 48.4
One State Street
New York, NY 10004
Robert E. Hoffman
521 Susan Constant Drive 159,000 (3) 12.1
Virginia Beach, VA 23451
Access Capital, Inc.
405 Park Avenue 138,536 (4) 10.6
New York, NY 10022
BSB Bank & Trust Company
58-68 Exchange Street 146,176 (5) 11.1
Binghamton, NY 13902-1056
</TABLE>
(1) Constitutes shares subject to currently exercisable warrants issued to KOCO
Capital Company, LP.
(2) Constitutes shares subject to currently exercisable warrants issued to IBJS
Whitehall Capital Corporation.
(3) Constitutes shares subject to currently exercisable options and shares of
Common Stock held by Mr. Robert E. Hoffman.
(4) Constitutes shares subject to currently exercisable warrants issued to
Access Capital, Inc.
(5) Constitutes shares subject to currently exercisable warrants issued to BSB
Bank & Trust Company.
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<PAGE>
(b) Security Ownership of Management:
Set forth below is certain information, as of December 31, 1999, concerning the
number and percentage of shares of Common Stock of the Registrant owned of
record and beneficially by each officer and director of the Registrant and by
all officers and directors as a group.
<TABLE>
<CAPTION>
Name of Amount of Nature of
Beneficial Owner Beneficial Ownership % of Class
---------------- -------------------- ----------
<S> <C> <C>
Robert E. Hoffman 159,000 (1) 12.1
Brian Mastrorilli 25,888 (2) 2.2
Keith Heilos 26,837 (3) 2.2
Jeffrey Haertlein 10,382 (4) .9
All officers and directors as a group 222,107 (5) 16.0
(4 persons)
</TABLE>
(1) Constitutes options currently exercisable and shares of common stock held
by Robert Hoffman.
(2) Constitutes shares subject to currently exercisable warrants, options and
shares of common stock held by Mr. Mastrorilli. Mr. Mastrorilli resigned as
of January 31, 2000, and, therefore, forfeited 5,000 of his options.
(3) Includes shares subject to currently exercisable warrants, options and
shares of common stock held by Mr. Heilos.
(4) Includes shares subject to currently exercisable options held by Mr.
Haertlein.
(5) Includes 211,295 shares subject to currently exercisable warrants and
options held by all officers and directors. Excludes 1,826,932 shares
subject to currently exercisable warrants held in the aggregate by IBJS
Whitehall Capital Corporation and KOCO Capital Company, L.P.,
beneficial ownership of which is disclaimed by Messrs. Zombek and
Falvey and by Messrs. Wildstein and Thompson, respectively, on behalf
of IBJS Capital Company, Inc. and KOCO Capital Company, L.P.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As described in Part I of this Form 10-K, in August 1995, the Company obtained a
$5,000,000 lending facility from IBJ Schroder Bank & Trust Co., IBJS Whitehall
Capital Corporation and KOCO Capital Company, L.P. (the "Lenders").
In August 1995, the Company entered into a $5,000,000 lending facility with a
bank and two small business investment companies. On June 3, 1996, the Company
amended the facility with its lenders and at various times during 1996 and 1997,
the Company, which had borrowed $4,062,932 and had issued senior subordinated
notes in exchange therefore, had not met several covenants under this Agreement
and failed to make its quarterly interest payment of $122,095. In May 1997,
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<PAGE>
pursuant to an Exchange Agreement, the Company and its lenders agreed to
exchange the entire $5 million of the lending facility for 8% redeemable
preferred stock due in 2002. The then current loan balance, along with the
unused balance of the $5 million line was exchanged for redeemable preferred
stock, which has five-year mandatory redemption provisions, which are
accelerated upon certain liquidity events. In connection with this transaction,
all covenants and defaults under the former lending facility were waived. At
closing, the Company drew down the balance of its line of approximately $800,000
after expenses. The Company issued redeemable preferred stock (Series A
preferred stock) in the amount of $5 million, with an 8% preferred dividend, and
issued additional warrants (new warrants) to purchase additional shares of
common stock, representing approximately 20% of the common stock at $2.00 per
share after a 1-for-20 reverse stock split. The exercise price of the original
issued warrants, $.27 and $.38 per share, was reduced to $.10 per share prior to
such reverse stock split.
The preferred shareholders received a total of 1,826,932 warrants at an exercise
price of $2.00 per share to purchase 58% of the Company's common stock, acquired
the right to and have elected a majority of the Board of Directors, and thus
have effected a change of control of the Company. In connection with the
exchange, the Company issued a note to its lenders totaling $105,468. This note,
bearing 10% interest, represented the interest due in May 1997. Both interest
and principal were originally payable on May 8, 1998. At year end 1997, the
redeemable preferred stockholders agreed to extend the maturity of the note to
May 8, 1999 and at year end 1998 agreed to extend the maturity to May 8, 2000.
The Company also entered into a management service agreement with one of the
preferred stockholders to provide management services at $24,000 per year plus
expenses.
The description of the terms and conditions of the 1995 and 1996 agreements with
the Lenders is qualified in its entirety by reference to the entire agreements,
copies of which have been filed as exhibits to Form 10-K dated July 19, 1996 and
is incorporated herein in full by reference thereto. The description of the May,
1997 Exchange Agreement and related documents is qualified in entirety by
reference to the entire agreement, copies of which have been filed as an exhibit
Form 10-K 1997.
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<PAGE>
P A R T I V
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) Financial Statements. The following financial statements are included
in Part II, Item 8:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Auditors .................................................................... F-1
Consolidated Balance Sheets as of December 31, 1999 and 1998 ...................................... F-2
Consolidated Statements of Operations for years ended
December 31, 1999, 1998 and 1997 .................................................................. F-3
Consolidated Statements of Stockholders' Deficiency for years ended December 31, 1999,
1998 and 1997 ..................................................................................... F-4
Consolidated Statements of Cash Flows for years ended December 31, 1999, 1998 and 1997 ............ F-5
Notes to Consolidated Financial Statements ........................................................ F-6
</TABLE>
(a) (2) Schedules. All schedules are omitted since the required information is
either not applicable or not present in amounts sufficient to require submission
of the schedule.
(a) (10) Exhibits
<TABLE>
<CAPTION>
Page or Document
Incorporated
No. Description of Document by Reference
- ---- ----------------------- ----------------
<S> <C> <C>
(2) Merger Agreement dated September 13, Form 8-K
1991 between Yardley Ventures, Inc. dated 9/17/91
and Magnavision Corporation
(3) (a) Articles of Incorporation and By Laws Form
S-1 dated 12/29/86
(3) (b) Amendment to Certificate of Incorporation Form
8-K dated 9/17/91
(10) (a) License Agreement dated August 20, 1990 Form 10-K
between Magnavision Corporation and dated 12/31/91
Department of Education, Archdiocese
of New York
(b) Amended License Agreement dated January Form 10-K
6, 1994 between Magnavision Corporation dated 12/31/93
and Department of Education, Archdiocese
of New York
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
(c) Microcell Systems Corporation Agreement Form 10-K
dated December 15, 1993 dated 12/31/93
(d) Securities Purchase Agreement dated as of Form 10-K
August 25, 1995 among the Registrant, Magnavision dated 4/19/96
Corporation (N.J.), IBJS Whitehall Capital Corporation,
IBJ Schroder Bank & Trust Company and Koco Capital
Company, L.P.
(e) Form of Senior Subordinated Note of the Form 10-K
Registrant and Magnavision Corporation (N.J.) dated 4/19/96
due February 26, 2001
(f) Form of Warrant to Purchase Shares of Registrant's Form 10-K
Common Stock expiring on August 26, 2003 dated 4/19/96
(g) Security Agreement and Collateral Assignment dated Form 10-K
as of August 25, 1995 among Magnavision Corporation dated 4/19/96
(N.J.), University Connection, Inc. and IBJS Capital
Corporation as agent
(h) Registration Rights Agreement dated as of Form 10-K
August 25, 1995 among the Registrant and the investors dated 4/19/96
listed therein
(i) Stockholders' Agreement dated as of August 25, 1995 Form 10-K
among the Registrant, the investors and the other dated 4/19/96
parties listed therein
(j) Non-Competition Agreement dated as of August 25, 1995 Form 10-K
between Magnavision Corporation (N.J.) and dated 4/19/96
Nicholas Mastrorilli, Sr.
(k) Indemnification Agreement dated as of August 25, 1995 Form 10-K
between the Registrant, Cacomm, Inc., and the investors dated 4/19/96
listed therein
(l) Lockbox Service Agreement dated as of August 25, 1995 Form 10-K
among Magnavision Corporation (N.J.), University dated 4/19/96
Connection, Inc., IBJS Whitehall Capital Corporation and IBJ
Schroder Bank & Trust Company.
(m) Amendment No. 1 dated as of June 3, 1996 to Form 10-K
Securities Purchase Agreement dated as of August dated 4/19/96
25, 1995 among the Registrant, Magnavision
Corporation (N.J.), Magnavision Wireless Cable, Inc.,
IBJS Whitehall Capital Corporation, IBJ Schroder Bank & Trust
Company and Koco Capital Company, L.P.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
(n) Amended and Restated Stockholders' Agreement dated Form 10-K
as of June 3, 1996 among the Registrant, dated 4/19/96
Magnavision Corporation (N.J.), Magnavision
Wireless Cable, Inc. and the investors and
other parties listed therein
(o) Amendment No. 1 dated as of June 3, 1996 Form 10-K
to the Registration Rights Agreement dated as dated 4/19/96
of August 25, 1995 among the Registrant and
the investors listed therein
(p) Amendment No. 1 dated as of June 3, 1996 to Form 10-K
the Security Agreement and Collateral Assignment dated 4/19/96
dated as of August 25, 1995 among Magnavision
Corporation (N.J.) Magnavision Wireless Cable,
Inc., Magnavision Private Cable, Inc., University
Connection, Inc. and IBJS Whitehall Capital
Corporation, as agent
(q) Amended and Restated Lockbox Service Agreement Form 10-K
dated as of June 3, 1996 among Magnavision dated 4/19/96
Corporation (N.J.), University Connection, Inc.,
Magnavision Private Cable, Inc., IBJS Capital
Corporation and IBJ Schroder Bank & Trust Company
(r) Pledge Agreement dated as of June 3, 1996 between Form 10-K
Magnavision Corporation (N.J.) and IBJS Capital dated 4/19/96
Corporation as agent
(s) Pledge Agreement dated as of June 3, 1996 between Form 10-K
Magnavision Corporation (N.J.) and IBJS Capital dated 4/19/96
Corporation as agent
(t) General Indenture of Conveyance, Assignment and Form 10-K
Transfer dated as of June 3, 1996 from Magnavision dated 4/19/96
Corporation (N.J.) and University Connection, Inc.
to Magnavision Private Cable, Inc.
(u) General Indenture of Conveyance, Assignment and Form 10-K
Transfer dated as of June 3, 1996 from Magnavision dated 4/19/96
Corporation (N.J.) to Magnavision Wireless Cable, Inc.
(v) Indenture of Assumption of Liabilities dated Form 10-K
as of June 3, 1996 from Magnavision Private dated 4/19/96
Cable, Inc. to Magnavision Corporation (N.J.) and
University Connection, Inc.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
(w) Indenture of Assumption of Liabilities dated Form 10-K
as of June 3, 1996 from Magnavision Wireless dated 4/19/96
Cable, Inc. to Magnavision Corporation (N.J.)
(x) Irrevocable Proxy dated June 3, 1996 issued by Form 10-K
Magnavision Corporation (N.J.) to IBJS Capital dated 4/19/96
Corporation as agent
(y) Form of Amended and Restated Senior Subordinated Form 10-K
Notes dated June 3, 1996 dated 4/19/96
(z) Form of Warrant to Purchase Shares of Registrant's Form 10-K
Common Stock expiring on June 4, 2004 dated 4/19/96
(aa) Letter Agreement dated July 11, 1995 between the Form 10-K
Registrant, Cacomm, Inc. and George S. Callas dated 4/19/96
(bb) Letter Agreement dated August 25, 1995 among the Form 10-K
Registrant, Midlantic Bank, N.A. and George S. Callas dated 4/19/96
(cc) Letter Agreement dated April 3, 1997 between the Form 10-K
Registrant, KOCO Capital Company, L.P. and IBJS dated 4/19/96
Capital Corporation
(dd) Form of Indemnification Agreement for executive officers and Form 10-K
directors dated 6/5/98
(ee) Exchange Agreement dated May 8, 1997 among the Registrant and Form 10-K
the investors listed therein. dated 6/5/98
(ff) Stockholders Agreement dated May 8, 1997 among the Registrant Form 10-K
and the other parties listed therein. dated 6/5/98
(gg) Registration Rights Agreement dated May 8, 1997 among the Form 10-K
Registrant and the other parties listed therein. dated 6/5/98
(hh) Warrant to purchase shares of Common Stock dated May 8, 1997 Form 10-K
among the Registrant and the other parties listed therein dated 6/5/98
(ii) Employment Agreements dated May 8 1997 between the Form 10-K
Registrant and Nicholas Mastrorilli, Sr., Nicholas Mastrorilli, Jr., dated 6/5/98
and Patrick Mastrorilli, respectively.
(jj) Management Agreement dated May 8, 1997 between the Form 10-K
Registrant and KOCO Capital Company, L.P. dated 6/5/98
(kk) Common Stock Purchase Warrant dated September 10, 1997 Form 10-K
issued by the Registrant to the Lender listed therein. dated 6/5/98
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
(ll) Loan and Security Agreement dated September 10, 1997 by Form 10-K
and among the Registrant, Access Capital, Inc. and the other dated 6/5/98
parties listed therein.
(mm) Resignation letter from Nicholas Mastrorilli, Sr. to the Registrant Form 10-K
dated January 8, 1998. dated 6/5/98
(nn) Employment Agreement dated January 9, 1998 between the Form 10-K
Registrant and IMCOR concerning Robert E. Hoffman. dated 6/5/98
(oo) Letter from Cacomm, Inc. to the Registrant dated April 24,1998. Form 10-K
dated 6/5/98
(pp) Form of Promissory Note of the Company to BSB Bank & Trust Company
Dated July 3, 1998
(qq) Form of Loan Agreement dated as of July 3, 1998 between the Company and Form 10-K
BSB Bank & Trust Company dated 4/6/99
(rr) Form of Commercial Security Agreement dated July 3, 1998 between the Form 10-K
Company and BSB Bank & Trust Company dated 4/6/99
(ss) Form of Commercial Pledge and Security Agreement between the Form 10-K
Company and BSB Bank & Trust Company dated July 3, 1998 dated 4/6/99
(tt) Form of Warrant to purchase shares of the Company's Common Stock Form 10-K
expiring on July 3, 2008 dated 4/6/99
(uu) Form of Non-Qualified Stock Option Plan of 1999 date as of
January 19, 1999.
(vv) Form of Asset Purchase Agreement between Lamont Television Systems,
Inc., and Magnavision Corporation dated as of February 29, 2000.
</TABLE>
(21) Subsidiaries of Registrant
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on the
Company's behalf by the undersigned, thereunto duly authorized.
MAGNAVISION CORPORATION
DATE: April 14, 2000 By: /s/ Robert E. Hoffman
------------------------
ROBERT E. HOFFMAN
Principal Executive Officer
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<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Auditors .................................................................... F-1
Consolidated Balance Sheets as of December 31, 1999 and 1998 ...................................... F-2
Consolidated Statements of Operations for years ended
December 31, 1999, 1998 and 1997 .................................................................. F-3
Consolidated Statements of Stockholders' Deficiency for years ended December 31, 1999,
1998 and 1997 ..................................................................................... F-4
Consolidated Statements of Cash Flows for years ended December 31, 1999, 1998 and 1997 ............ F-5
Notes to Consolidated Financial Statements ........................................................ F-6
</TABLE>
<PAGE>
Independent Auditors' Report
The Board of Directors and Shareholders
Magnavision Corporation
We have audited the accompanying consolidated balance sheets of Magnavision
Corporation and subsidiaries as of December 31, 1999 and 1998, and the related
consolidated statements of operations, stockholders' deficiency, and cash flows
for each of the years in the three-year period ended December 31, 1999. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimate made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Magnavision
Corporation and subsidiaries as of December 31, 1999 and 1998, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1999 in conformity with generally accepted accounting
principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in note 1 to the
consolidated financial statements, the Company has suffered recurring losses
from operations, and has a shareholders' deficiency which raises substantial
doubt about the Company's ability to continue as a going concern. Management's
plans in regard to these matters are described in note 1. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ KPMG LLP
Short Hills, New Jersey
February 25, 2000, except as to note 17,
which is as of March 30, 2000
F-1
<PAGE>
MAGNAVISION CORPORATION & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,1999 AND 1998
<TABLE>
<CAPTION>
ASSETS 1999 1998
---------- ----------
<S> <C> <C>
CURRENT ASSETS
Cash $ 230,017 $ 227,091
Trade accounts and other receivables 382,045 276,203
Notes receivable from customer 441,271 467,000
Shareholder loans receivable 20,000 38,707
Prepaid expenses and other current assets 33,428 1,986
---------- ----------
Total current assets 1,106,761 1,010,987
---------- ----------
PROPERTY AND EQUIPMENT
Property and equipment, at cost 3,175,990 3,077,185
Less: accumulated depreciation (1,657,176) (1,122,022)
---------- ----------
Net property and equipment 1,518,814 1,955,163
OTHER ASSETS
Notes receivable from customer, net of current portion -- 441,271
Prepaid lease expense 436,748 543,716
Deposits 1,990 2,339
---------- ----------
TOTAL ASSETS $3,064,313 $3,953,476
========== ==========
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Accounts payable $97,127 $212,390
Accrued expenses 165,385 169,384
Deferred revenues 369,765 354,596
Current portion of long-term debt 1,794,000 640,642
Line of credit 250,000 --
Term loans due to stockholders 105,468 --
---------- ----------
Total current liabilities 2,781,745 1,377,012
Security deposits payable 176,692 172,303
Long-term debt, net of current portion -- 1,899,468
Commitments and contingencies
Series A Preferred Stock, $1 par value, 9,850,000
shares authorized; issued and outstanding, 5,000,000
shares, net of unamortized discount and including
accumulated dividend 4,683,642 4,591,049
Series A Preferred Stock accumulated dividend 1,057,778 --
SHAREHOLDERS' DEFICIENCY
Series B Preferred Stock, $1 par value , 150,000 shares 131,889 131,889
authorized; issued and outstanding, 131,889 shares.
Common Stock, $0.08 par value, 10,000,000 shares
authorized; issued and outstanding, 1,168,931 shares
at December 31,1999 and 1,154,390 shares at December 31, 1998 93,513 92,350
Additional paid-in capital 3,911,617 3,880,601
Accumulated deficit (9,772,563) (8,191,196)
---------- ----------
Total shareholders' deficiency (5,635,544) (4,086,356)
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIENCY $3,064,313 $3,953,476
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
MAGNAVISION CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES
Gross revenues $2,962,016 $3,652,389 $1,607,049
Cost of sales 994,491 1,817,546 677,565
---------- ----------- -----------
GROSS PROFIT 1,967,525 1,834,843 929,484
Salaries 765,041 715,064 627,356
Depreciation 550,357 382,289 197,198
General and administrative expenses 858,279 1,001,655 1,010,277
---------- ----------- -----------
TOTAL OPERATING EXPENSES 2,173,677 2,099,008 1,834,831
OPERATING LOSS (206,152) (264,165) (905,347)
OTHER INCOME (EXPENSE)
Interest expense (237,647) (184,425) (280,546)
Interest income 30,954 25,032 35,824
Other -- -- 1,529
---------- ----------- -----------
Total other income (expense) (206,693) (159,393) (243,193)
LOSS BEFORE PROVISION FOR INCOME TAXES AND EXTRAORDINARY ITEM (412,845) (423,558) (1,148,540)
PROVISION FOR INCOME TAXES 5,371 4,851 3,989
---------- ----------- -----------
LOSS BEFORE EXTRAORDINARY ITEM (418,216) (428,409) (1,152,529)
EXTRAORDINARY ITEM -LOSS ON EXTINGUISHMENT OF DEBT -- 165,779 275,844
---------- ----------- -----------
NET LOSS (418,216) (594,188) (1,428,373)
---------- ----------- -----------
Preferred stockholders dividend requirement 400,000 400,000 257,778
Accretion of preferred stock 92,593 92,593 54,012
---------- ----------- -----------
Net loss to common stockholders ($910,809) ($1,086,781) ($1,740,163)
---------- ----------- -----------
Net loss per common share basic and diluted:
Loss from continuing operations ($0.79) ($0.80) ($1.27)
Extraordinary item - loss on extinguishment of debt -- ($0.14) ($0.24)
Net loss per common share: basic ($0.79) ($0.94) ($1.51)
Weighted average common shares used to compute net loss per share:
Basic and diluted 1,157,005 1,154,354 1,152,504
</TABLE>
See accompanying notes to consolidated financial statements. F-3
<PAGE>
MAGNAVISION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
Series B
Preferred Stock Common Stock
Shares Amount Shares Amount
------------------------- --------------------------
<S> <C> <C> <C> <C>
Balance, December 31,1996 -- -- 1,152,222 $92,178
Common stock issued -- -- 354 28
Conversion of shareholder loan to Series B Preferred Stock 131,889 131,889
Allocation to warrants issued
Purchase of fractional shares (66) (6)
Net loss
Accretion of preferred stock
--------- -------- --------- -------
Balance, December 31, 1997 131,889 131,889 1,152,510 92,200
Common stock issued 1,880 150
Net loss
Accretion of preferred stock
--------- -------- --------- -------
Balance, December 31, 1998 131,889 131,889 1,154,390 92,350
Common stock issued upon the exercise of stock options 16,154 1,292
Repurchase and retirement of common stock (1,613) (129)
Series A Preferred Stock accumulated dividend
Net loss
Accretion of preferred stock
--------- -------- --------- -------
Balance, December 31, 1999 131,889 $131,889 1,168,931 $93,513
</TABLE>
[RESTUB]
<TABLE>
<CAPTION>
Additional Total
Paid in Accumulated Stockholders'
Capital Deficit Deficiency
---------- ------------ -------------
<S> <C> <C> <C>
Balance, December 31,1996 $3,321,207 ($6,022,030) ($2,608,645)
Common stock issued 679 -- 707
Conversion of shareholder loan to Series B Preferred Stock 131,889
Allocation to warrants issued 555,556 555,556
Purchase of fractional shares (451) (457)
Net loss (1,428,373) (1,428,373)
Accretion of preferred stock (54,012) (54,012)
---------- ----------- ----------
Balance, December 31, 1997 3,876,991 (7,504,415) (3,403,335)
Common stock issued 3,610 3,760
Net loss (594,188) (594,188)
Accretion of preferred stock (92,593) (92,593)
---------- ----------- ----------
Balance, December 31, 1998 3,880,601 (8,191,196) (4,086,356)
Common stock issued upon the exercise of stock options 31,016 32,308
Repurchase and retirement of common stock (12,780) (12,909)
Series A Preferred Stock accumulated dividend (1,057,778) (1,057,778)
Net loss (418,216) (418,216)
Accretion of preferred stock (92,593) (92,593)
---------- ----------- ----------
Balance, December 31, 1999 $3,911,617 ($9,772,563) ($5,635,544)
</TABLE>
See accompanying notes to consolidated financial statements. F-4
<PAGE>
MAGNAVISION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss (418,216) ($594,188) ($1,428,373)
Adjustments to reconcile net loss to net cash used in operating activities
Extraordinary item -- 165,779 275,844
Depreciation and amortization 550,357 382,289 197,198
Amortization of deferred financing costs -- 31,123 80,475
Amortization of channel lease prepayments 106,968 106,968 106,968
Changes in assets and liabilities:
Increase in trade accounts and
other receivables (105,842) (39,828) (80,123)
Increase (decrease) in deferred revenues 15,169 140,106 39,142
(Increase) decrease in prepaid expenses and other current assets (31,442) 6,530 (457)
Decrease in deposits 349 2,214 133
Increase (decrease) in accounts payable (115,263) 22,291 206,769
(Decrease) increase in accrued expenses (3,999) 32,768 12,579
(Decrease) increase in accrued severance payment -- (117,000) 117,000
Decrease (increase) in note receivable from customer 467,000 (908,271) --
Increase in security deposits payable 4,389 20,238 25,679
(Decrease) income taxes payable -- (741) --
---------- ---------- ----------
Net cash provided by (used in) operating activities 469,470 (749,723) (447,166)
CASH FLOWS FROM INVESTING ACTIVITIES
Decrease shareholder loans receivable 5,798 5,103 351
Purchases of property and equipment (114,008) (1,141,275) (674,671)
---------- ---------- ----------
Net cash used in investing activities (108,210) (1,136,172) (674,320)
CASH FLOW FROM FINANCING ACTIVITIES
Payments of long-term debt (640,642) (3,624) (3,983)
Decrease in due to shareholders -- -- (8,000)
Proceeds from issuance of preferred stock, net -- -- 863,811
Proceeds from issuance of common stock 32,308 3,760 707
Proceeds from issuance debt 250,000 2,428,000 405,295
Payment of access capital line of credit, including penalty -- (456,696) --
Payment of financing fees -- -- (158,637)
Purchase of common stock -- -- (457)
---------- ---------- ----------
Net cash provided by (used in) financing activities (358,334) 1,971,440 1,098,736
Net increase (decrease) in cash 2,926 85,545 (22,750)
Cash beginning of year 227,091 141,546 164,296
---------- ---------- ----------
Cash end of year $230,017 $227,091 $141,546
========== ========== ==========
Supplemental schedule of cash paid during year for :
Interest $230,093 $91,129 $84,161
Income tax $5,371 $4,851 $3,989
NON CASH ITEMS:
Series A Preferred Stock accumulated dividend $1,057,778 -- --
Repayment of shareholder loan recievable with common stock $12,909 -- --
Exchange of senior debt to redeemable preferred stock -- -- $4,062,932
Conversion of senior debt accrued interest to term loan -- -- $105,468
Conversion of amounts due to shareholder to preferred stock -- -- $131,889
Value assigned to warrants issued -- -- $555,556
</TABLE>
See accompanying notes to consolidated financial statements. F-5
<PAGE>
MAGNAVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,1999, 1998 AND 1997
NOTE 1 - OPERATIONS AND SUMMARY OF ACCOUNTING POLICIES
a. Consolidated Financial Statements - The accompanying financial
statements present the consolidated accounts of Magnavision Corporation,
a Delaware corporation (formerly Yardley Ventures, Inc.), and its wholly
owned subsidiary, Magnavision Corporation, a New Jersey corporation, and
its wholly owned subsidiaries, University Connection, Inc., a New Jersey
corporation, Accu-Trek, Inc., a New Jersey corporation and Magnavision
Laboratories, Inc., a Delaware corporation (collectively "the Company").
As required by the amended senior debt agreement of June 4, 1996,
Magnavision Corporation, a New Jersey corporation, formed two additional
wholly owned subsidiaries, Magnavision Private Cable, Inc., established
to hold the private cable contracts and Magnavision Wireless Cable,
Inc., established to hold the wireless lease. The consolidated financial
statements include all of the assets, liabilities, income, expenses and
cash flows for these companies. All significant intercompany
transactions and balances have been eliminated in consolidation.
Effective at the end of June 1998, the Company merged Accu-Trek, Inc.
and University Connection, Inc. into Magnavision Corporation (New
Jersey). These subsidiaries had no assets, liabilities or operations
and, therefore, the transaction had no impact on the Company's
consolidated financial statements.
b. Organization, Operations and Liquidity - Magnavision Corporation was
incorporated in Delaware on April 3, 1986 to seek to acquire one or more
potential businesses. Magnavision Corporation and its subsidiaries were
established to conduct the business of providing wireless and private
cable television, which is now the business purpose of the Company, to
segments where cable television is not available and as an alternative
to cable television. Magnavision Corporation of New Jersey was formed on
June 15, 1989, pursuant to the laws of the State of New Jersey. As a
result of the amended lending agreement, the Company created two new
subsidiaries, Magnavision Private Cable and Magnavision Wireless Cable.
The accompanying consolidated financial statements have been prepared
assuming the Company will continue as a going concern, which
contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. However, the Company has
suffered recurring losses from operations and has a shareholders'
deficiency at December 31, 1999. The funds received from the sale of the
assets of the Private Cable business (see Note 17) are not sufficient to
execute its current Wireless business plan. The Company will require
additional funding in order to execute its Wireless business plan.
F-6
<PAGE>
MAGNAVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,1999, 1998 AND 1997
If the Company can not execute the sale of its Wireless assets, or a
restructuring of the Company, the Company will have insufficient
liquidity to pay the preferred stock dividend and preferred stock and
may experience liquidity shortfalls in meeting its ongoing obligations.
The Company plans to meet short-term liquidity requirements with the
funds received from the sale of the Private Cable business. On a
long-term basis for its Wireless business plan, the Company is currently
seeking long-term arrangements with a strategic partner(s) for financing
or a sale of the lease. This business plan is dependent upon the Company
securing the necessary capital resources, as well as engineering and
other expertise required to offer this alternative service. There can be
no assurance that the Company will be able to secure financing or a
strategic relationship or partnership or sale on terms and conditions
satisfactory to the Company, if at all.
Failure to obtain such financing and the expertise required to develop
the wireless business plan or the sale of the lease would have a
significant impact on the Company's future performance.
Also, there can be no assurance that, even with financing and receipt of
necessary regulatory authorization, the Company will be able to launch
this wireless alternative service or that it will be commercially
successful.
c. Property and Equipment - Property and equipment are stated at cost.
Depreciation, for financial reporting purposes, is provided on the
straight-line method over the estimated useful lives of the related
assets, which are:
Office Equipment 5 years
Furniture and Fixtures 10 years
Transportation Equipment 5 years
Machinery and Equipment 5 to 10 years
The Company uses accelerated methods and lives, as allowed by the
Internal Revenue Code, to calculate depreciation for income tax
purposes.
d. Revenue Recognition - Revenue is recognized as services are provided to
subscribers. The Company records subscriptions received in advance of
the service being provided as deferred revenue.
F-7
<PAGE>
MAGNAVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,1999, 1998 AND 1997
e. Income Taxes - Deferred tax assets and liabilities are recognized for
the expected tax consequences of temporary differences between the
financial statement carrying amount of existing assets and liabilities
and their respective tax bases and operating loss and tax credit carry
forwards.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that the tax rate changes.
f. Use of Estimates - Management of the Company has made a number of
estimates and assumptions relating to the reporting of assets and
liabilities and revenue and expenses and the disclosure of contingent
assets and liabilities to prepare these consolidated financial
statements in conformity with generally accepted accounting principles.
Actual results could differ from these estimates.
g. Fair Value of Financial Instruments - Statement of Financial Accounting
Standards No. 107, "Disclosures about Fair Value of Financial
Instruments" ("SFAS 107"), requires disclosure of fair value information
about financial instruments, whether or not recognized in the balance
sheet, for which it is practicable to estimate that value. In many
cases, fair value estimates cannot be substantiated by comparison to
independent market information and could not be realized in immediate
settlement of the instrument. SFAS 107 excludes certain financial
instruments and all nonfinancial instruments from its disclosure
requirements.
Accordingly, the aggregate fair value amounts presented may not
represent the underlying value of the Company. In Management's opinion,
cash, trade accounts receivables, shareholder loans receivable, notes
receivable from customers, deposits, accounts payable, accrued expenses
and deferred revenue equal or approximate fair market value due to their
current nature. The long-term debt, term loans and line of credit are at
market rates, which equal or approximate fair value. The fair value of
the prepaid lease expense exceeds its carrying value.
F-8
<PAGE>
MAGNAVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,1999, 1998 AND 1997
h. Impairment of Long-Lived Assets - The Company reviews long-lived assets
and certain identifiable intangibles for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to future
net cash flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is measured
by the amount by which the carrying amount of the assets exceeds the
fair value of the assets. Assets to be disposed of are reported at the
lower of the carrying amount or fair value less costs to sell.
i. Prepaid Lease Expense - Prepaid lease expense represents the Company's
deposit relating to the Channel Lease Agreement (see note 8). The amount
is being amortized over the term of the lease agreement.
j. Deferred Financing Costs - Deferred financing costs at December 31, 1997
represented expenditures relating to the Access Capital, Inc. debt
financing (see note 10). The amount was being amortized over the term of
the loan and security agreement and was expensed as an extraordinary
item in 1998.
k. Earnings Per Share of Common Stock - Basic and diluted net loss per
common share is presented in accordance with SFAS No. 128, "Earnings Per
Share" ("SFAS 128"). Basic net loss per common share excludes dilution
for common stock equivalents and is computed by dividing net loss
available to common shareholders by the weighted average number of
common shares outstanding for the period. Diluted net loss per common
share reflects the potential dilution that would occur if securities or
other contracts to issue common stock were exercised. Diluted net loss
per common share is equal to basic net loss per common share since all
common stock equivalents are anti-dilutive for each of the periods
presented.
l. Stock Based Compensation - Stock based compensation is recognized using
the intrinsic value method in accordance with the provisions of
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees" ("APB 25"), and related interpretations. For disclosure
purposes, net loss and net loss per share data included in note 5 are
provided in accordance with Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-based Compensation" ("SFAS 123"), as if
the fair value method had been applied.
F-9
<PAGE>
MAGNAVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,1999, 1998 AND 1997
NOTE 2 - RELATED PARTY TRANSACTIONS-CONFLICTS OF INTEREST
The following transactions occurred between the Company and related parties:
a. Shareholder loans receivable of $20,000 and $38,707 at December 31, 1999
and 1998 are payable on demand and are interest free. During 1999, a
shareholder repaid his outstanding loan of $12,909 by surrendering 1,613
shares of the Company's common stock to the company.
b. In May 1997, the Company's majority shareholder converted its payables
of $131,889 to Series B Preferred Stock. Previously this was recorded as
a current liability.
c. The Company has been informed that Cacomm, Inc., the Company's majority
shareholder, is a partner in a general partnership known as the Grand
MMDS Alliance. The Grand MMDS Alliance claims to hold the licenses to
certain MMDS channels as a designated selectee of the FCC. These
channels cover similar broadcast areas as the Company and the
possibility exists that the Grand MMDS Alliance could commence business
in direct competition with the Company. The Company has no reliable
information as to whether the Grand MMDS Alliance has commenced business
operations as of the date of this report.
d. During 1997, the prior lenders converted their accrued interest in the
amount of $105,468 to one year notes at 10% interest, with interest and
principal originally payable May 8, 1998. The preferred stockholders
agreed to extend the maturity of the above-mentioned notes to May 8,
2000.
NOTE 3 - STOCK OPTION PLAN
During the first quarter of 1999, Magnavision adopted a non-qualified stock
option plan ("the Plan"). Under this Plan, options may be granted at a price
equal to or less than the fair market value of the Company's stock at the date
of the grant. Options granted under the Plan are exercisable at various dates
specified in the underlying option. The options expire three months after
termination of employment with the Company. Under the Plan, options to purchase
an aggregate of not more than 349,986 shares of common stock may be granted from
time to time to key employees, including officers, advisors, and independent
consultants or to any other persons. Under the Exchange Agreement (a copy which
was filed with the Company's 10K for the year ending December 31, 1997) and when
the Plan was adopted, options were also to be granted to certain employees under
the Plan. Also under a letter agreement, the President and C.E.O. was to receive
150,000 options at an exercise price of $1.00. As of January 19, 1999, the
compensation committee awarded or caused to be issued 223,974 options including:
150,000 options to the President and CEO at an exercise price of $1.00, and
43,974 options issued pursuant to the Company's obligation under the Exchange
Agreement at an exercise price of $2.00 per share and awarded 30,000 options to
various employees at an exercise price of $2.00 per option.
F-10
<PAGE>
MAGNAVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,1999, 1998 AND 1997
The Company accounts for stock options issued to employees under APB 25 as
permitted by SFAS 123 under which no compensation cost has been recognized for
the options granted as they were issued above fair market value.
Summary of stock option activity is as follows:
Weighted-average
Shares under option exercise price
- --------------------------------------------------------------------------------
Granted 223,974 $1.33
Terminated - -
Exercised 16,154 $2.00
------- -----
Balance at December 31, 1999 207,820 $1.28
The following is a summary of options outstanding and exercisable at December
31, 1999.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ----------------------------------------------------------------- ------------------------------------------------
Range of Number outstanding at Weighted-average Weighted- Number exercisable at Weighted-
exercise prices December 31, 1999 remaining contractual average December 31, 1999 average
life exercise exercise
price price
- ------------------------------------------------------------------ ------------------------------------------------
<S> <C> <C> <C> <C> <C>
$1.00 150,000 9 years $ 1.00 150,000 $1.00
2.00 57,820 9 years 2.00 37,820 2.00
---- ------- ------- ------ ------- -----
$1.00-$2.00 207,820 9 years $ 1.28 187,820 $1.20
</TABLE>
The Company applies APB 25 in accounting for its Plan and, accordingly,
compensation cost for stock options is measured as the excess, if any, of the
quoted market price at the date of the grant over the exercise price. Because
the Company grants options at a price equal to or greater than the fair market
value of the stock at the date of grant, no compensation is recorded. Had the
Company determined compensation cost based on the fair market value at the grant
date consistent with the provision of SFAS 123, the Company's net loss to common
shareholders would have been increased to the pro forma amounts indicated below:
1999
----
Net loss
As reported $910,808
Pro forma 1,011,057
Net loss per common share Basic:
As reported (.79)
Pro forma (.87)
F-11
<PAGE>
MAGNAVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,1999, 1998 AND 1997
The pro forma amounts as noted above may not be representative of the effects on
reported earnings for future years. Pro forma net loss per common shareholder
reflects only options granted in 1999.
The weighted average fair value of the stock options granted during the year
ended 1999 was $.49 on the date of grant using the Black Scholes option pricing
model with the following assumptions: for 1999 - expected dividend yield 0.0%,
risk free interest rate of 4.5 %, expected volatility of 70% and expected life
of 5 years.
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1999 and 1998 are summarized by major
classification as follows:
1999 1998
---- ----
Office Furniture and Equipment $ 74,445 $ 73,683
Transportation Equipment 24,879 37,582
Machinery and Equipment 3,076,666 2,965,920
----------- -----------
$3,175,990 $3,077,185
Less: Accumulated Depreciation (1,657,176) (1,122,022)
----------- -----------
$1,518,814 $1,955,163
=========== ===========
Depreciation expense was $550,357 in 1999 and $382,289 in 1998.
Machinery and equipment relate principally to assets owned by the Company
located at the various colleges and nursing home sites serviced by the Company.
NOTE 5 - INCOME TAXES
Income tax expense attributable to loss before provision for income taxes and
extraordinary item:
Current
Year ended December 31, 1999 1998 1997
---- ---- ----
Federal $ 0 $ 0 $ 0
State 5,371 4,851 3,989
------ ------ ------
TOTAL $5,371 $4,851 $3,989
====== ====== ======
F-12
<PAGE>
MAGNAVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,1999, 1998 AND 1997
Income tax expense attributable to loss before provision for income taxes and
extraordinary item differed from the amounts computed by applying the U.S.
Federal income tax rate of 34% to pretax income from operations as a result of
the following:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Computed expected tax benefit $(142,193) $(202,024) $(485,647)
Increase (reduction) in income taxes resulting from:
Increase in valuation allowance for
federal & state deferred tax assets 124,570 180,794 462,815
Book vs. tax depreciation 7,709 11,310 19,200
State and local income taxes, net of
federal income tax benefit 3,545 3,202 2,633
Non-deductible portion of meals and
entertainment 3,734 1,867 2,775
Other, net 8,006 9,702 2,213
--------- --------- ---------
$ 5,371 $ 4,851 $ 3,989
========= ========= =========
</TABLE>
F-13
<PAGE>
MAGNAVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,1999, 1998 AND 1997
The temporary differences and carry forwards which give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1999 and
1998 are presented below:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Deferred tax assets:
Net operating loss carry forwards $3,741,697 $3,359,823
Compensation paid with Company stock 28,123 28,123
Organization and construction costs capitalized for tax
purposes 207,521 256,359
Less valuation allowance (3,955,681) (3,622,645)
---------- ----------
Net deferred tax assets 21,660 21,660
---------- ----------
Deferred tax liabilities:
Property and equipment, principally due to differences
in depreciation (21,660) (21,660)
---------- ----------
Net deferred income taxes $ - $ -
========== ==========
</TABLE>
At December 31, 1999, the Company has net operating loss carry forwards for
federal income tax purposes of approximately $7,932,000 which are available to
offset future taxable income which expire in varying amounts through 2019.
The Company's ability to use such net operating losses is limited by change of
control provisions under the Internal Revenue Code section 382.
NOTE 6 - NOTES RECEIVABLE FROM CUSTOMER
As part of the purchase of equipment by Fordham University for its data system
during 1998, Fordham issued non-interest bearing notes for $467,000 and $441,271
due May 15, 1999 and May 15, 2000, respectively. The $467,000 note was repaid
during 1999. These notes are secured by a security interest in the equipment at
the University for the data system.
NOTE 7 - LONG-TERM DEBT
Long-term debt consists of the following at December 31,:
Senior Debt 1999 1998
- ----------- ---- ----
10% Term loan (a) $1,794,000 $2,428,000
BSB line of credit (a) 250,000 -
12.25% Term note due April 2000 (c) - 6,642
10% Note related to conversion (b) 105,468 105,468
---------- ---------
2,149,468 2,540,110
Less current portion $2,149,468 640,642
========== ---------
Long-term debt - $1,899,468
---------- ==========
F-14
<PAGE>
MAGNAVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,1999, 1998 AND 1997
a. 10% Term BSB Bank & Trust Company Loan - On July 3, 1998, the Company
and BSB Bank and Trust Company ("BSB") entered into an agreement to
refinance the Company's existing credit line and supply working capital.
Pursuant thereto, Magnavision borrowed the sum of $2.5 million dollars
which bears interest at a fixed rate of 10% per annum and has a 5 year
term. The loan requires monthly installments of interest, plus 9 monthly
payments of principal, payable in arrears, in accordance with the agreed
upon schedule starting October 1998. The loan was utilized to refinance
existing debt (see Note 10) and the remaining approximate $1.9 million
was used to finance the completion of outstanding contracts for private
cable television service at various locations and to complete the
Fordham University data distribution system and for working capital.
BSB also granted the Company a $500,000 line of credit to be used for
future installations of private cable systems and general corporate
purposes. This line of credit has an interest rate of prime plus 1.5%,
payable monthly, and matures in June 2000. The weighted average prime
rate as of December 31, 1999 was 8%. Amounts outstanding on the line of
credit at December 31, 1999 were $250,000. No amounts were outstanding
on the line-of-credit as of December 31, 1998.
In connection with the above transactions, BSB received 146,176 warrants
to purchase approximately 4% of Magnavision's issued and outstanding
capital stock on a fully diluted basis at an exercise price of $2.00 per
share.
Both the Term Loan and line of credit were paid off with the proceeds of
the sale of the assets of the Private Cable system (see Note 17).
b. 10% Note Related to Conversion - In 1997, the prior lenders converted
their accrued interest in the amount of $105,468 to one year notes at
10% interest, with interest and principal originally payable May 8,1998.
The preferred stockholders agreed to extend the maturity of the
above-mentioned notes to May 8, 2000. These notes were paid off with the
proceeds of the sale of the assets of the Private Cable system. (see
Note 17)
c. 12.25% Term note due April 2000 - Note payable to financing company,
payable in monthly installments of $436, including interest at 12.25%
collaterilized by the vehicle. This note was paid in full during 1999.
F-15
<PAGE>
MAGNAVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,1999, 1998 AND 1997
NOTE 8 - COMMITMENTS & CONTINGENCIES
Operating Leases
The Company leases office space, equipment and automobiles for use in continuing
operations for terms of 2 years. Minimum lease payments over the remaining lease
terms are as follows:
2000 $11,829
2001 420
-------
$12,249
=======
Rent expense under operating leases amounted to $28,464, $38,998 and $47,464 for
the years ended December 31, 1999, 1998 and 1997, respectively.
Change-of-Control Policies
During the third quarter of 1999, the Company adopted policies for the purpose
of retaining the services of its employees during a change-of-control of the
Company and paying severance to employees who are terminated as a result of a
change-of-control. The policies are limited in scope and duration, and are
effective only if there is a change-of-control prior to January 1, 2001. A
change-of-control is defined in the policies as any event that would be
reportable in Item 1(a) of SEC Form 8-K, including, without limitation, any
event that causes any person, directly or indirectly, to become the beneficial
owner of 50% or more of the securities ordinarily having the right to vote at
the election of directors of the Company or the sale of all or substantially all
of the Company's assets or the assets of a wholly owned subsidiary.
The change-of-control policy for non-officer employees calls for both retention
pay and severance pay. The amount of retention incentive pay is up to three
months base pay for each eligible employee. The amount of severance pay is up to
nine months base pay for each eligible employee with three or more years of
service and up to six months base pay for each eligible employee with more than
one year of service.
The change-of control policy for employees who are corporate officers, with the
exception of the President and C.E.O. who has a separate plan, provides for
severance pay in an amount up to 12 months base pay for each eligible employee
and immediate vesting of all issued and outstanding stock options, subject to
certain limitations.
The change-of-control agreement for the President and C.E.O. provides for
severance pay in an amount equal to 12 months of base pay upon a
change-of-control prior to June 1, 2000.
NOTE 9 - LICENSE AGREEMENT
On August 20, 1990, the Company entered into an agreement with the Department of
Education, Archdiocese of New York ("the Archdiocese") which would permit the
Company to use the transmission capacity of the Archdiocese. The agreement,
which was amended in January 1994, grants the Company a lease through January
2004 with a right to extend for an additional five years and a right of first
refusal for subsequent renewals.
Pursuant to the agreement, the Company must also pay to the Archdiocese a
royalty fee for the use of the Transmission Capacity, in accordance with the
terms and amounts described in the amended agreement. In connection with the
amended agreement the Company had a contingent obligation to fund the
reconstruction of the Archdiocese's system and deposited $900,277 in an escrow
account for the purpose of system reconstruction upgrades. The Company recorded
the deposit as prepaid lease expense and is amortizing the amount over the life
of the agreement through January 2004.
F-16
<PAGE>
MAGNAVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,1999, 1998 AND 1997
At December 31, 1999, the minimum royalty payments over the remaining license
term are as follows:
For the Year Ended
2000 221,568
2001 221,568
2002 221,568
2003 221,568
2004 18,464
---------
$ 904,736
=========
F-17
<PAGE>
MAGNAVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,1999, 1998 AND 1997
NOTE 10 - NET LOSS PER SHARE
The Company computes basic and diluted earnings per share in accordance with
SFAS 128 "earnings per share" The table reconciles the numerator and denominator
of the basic earnings per share computations shown on the consolidated
statements of operations.
<TABLE>
<CAPTION>
For the years ended December 31, 1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Basic and diluted EPS
Numerator:
Extraordinary loss from early
extinguishment of debt $ 0 $ 165,779 $ 275,844
Net loss (418,216) (594,188) (1,428,373)
Redeemable preferred
stockholders dividend 400,000 400,000 257,778
Accretion of preferred stock 92,593 92,593 54,012
--------- ---------- -----------
Net loss to common stockholders (910,809) (1,086,781) (1,740,163)
========= ========== ===========
Denominator:
Weighted average
Common shares outstanding 1,157,005 1,154,354 1,152,504
Basic and diluted EPS ($.79) ($.94) ($1.51)
</TABLE>
Warrants and stock options to purchase 2,486,860, 2,279,040 and 2,134,774
of common stock outstanding as of December 31, 1999, 1998 and 1997,
respectively, were excluded from the calculation of diluted net loss per
share as the effect of their inclusion would have been anti-dilutive.
NOTE 11 - ACCESS CAPITAL, INC. LINE OF CREDIT
In September 1997, the Company and Access Capital, Inc. agreed to a $1,250,000
three-year revolving line of credit to be used to expand the Company's private
cable business. Interest was payable at prime rate plus five and one-half
percent and all outstanding amounts were payable in September 2000. The line was
secured with the lender by a pledge of private cable contracts and all other
Company assets. In addition, the lender received 138,536 warrants at an exercise
price of $2.00 per share to purchase approximately 4% of the Company's stock on
a fully diluted basis. The warrants contain a put and call option in the event
that the Company sells a significant asset. The put option requires the Company
to purchase a percentage of the lender's warrants as required by a formula
outlined in the amended agreement.
This option can only be exercised upon the sale of a significant asset of the
Company or change of control. Conversely, the call option allows the Company to
purchase all the outstanding warrants at a price set by the formula stated
above. The cost of either the put or call option can not be determined at this
time since it is based upon the value of a sale of a significant asset which
cannot be assured.
The Company paid off this loan with the proceeds of the BSB Bank & Trust loan on
July 3, 1998 as discussed in note 6. The Company incurred a penalty in
connection with this termination. The penalty, together with the write-off of
the unamortized deferred financing costs, has been classified as an
extra-ordinary item in the accompanying 1998 consolidated statement of
operations. The Warrant remains outstanding and expires May 8, 2008.
F-18
<PAGE>
MAGNAVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,1999, 1998 AND 1997
NOTE 12 - EXCHANGE OF DEBT TO REDEEMABLE PREFERRED STOCK
In August 1995, the Company obtained a $5,000,000 senior subordinated lending
facility from IBJ Schroder Bank & Trust Co., IBJS Whitehall Capital Corporation
(collectively "IBJS") and KOCO Capital Company, L.P. ("KOCO").
On May 8, 1997, the Company agreed with its lenders to exchange its senior
subordinated notes into redeemable preferred stock. Under the terms thereof, the
Company's outstanding subordinated notes, aggregating approximately $4.1 million
and the balance under the line together with accrued interest and detachable
warrants, were exchanged for $5 million of 8% redeemable preferred stock due
December 31, 2002.
In addition, the note holders received 1,826,932 warrants to purchase up to 58%
of the common stock on a fully diluted basis at an exercise price of $2.00 per
share after the Company effected a 1-for-20 reverse stock split, and have the
right, which they have exercised, to elect the majority of the Board of
Directors. This resulted in a change in control of the Company. The agreement
also requires the warrant holders to surrender up to 10% of their stock on a
fully diluted basis, if, as and when certain liquidity events occur.
In addition, warrant holders have the right to require the Company to repurchase
the warrants under certain conditions. This option can only be exercised upon
the sale of an asset of the Company. The value of these warrants was determined
to have a fair value of $555,556 and represents a discount to the face value of
the redeemable preferred stock. The cost of the put can not be determined at
this time since it is based upon the value of a sale of a significant asset
which cannot be assured. Also, one of the warrant holders has entered into a
management service agreement with the Company.
In connection with the exchange, the lenders agreed to issue one year unsecured
notes totaling $105,468 with interest at 10% payable at maturity (see Note 7).
During 1997, the Company wrote off the unamortized deferred financing costs
related to the subordinated notes, which has been classified as an extraordinary
item in the accompanying 1997 consolidated statement of operations.
NOTE 13 - REDEEMABLE PREFERRED STOCK
During 1997, the Company authorized 10,000,000 shares of Preferred Stock. The
Company also designated 5,000,000 shares of the authorized amount as Series A
Preferred Stock and 150,000 shares as Series B Preferred Stock concurrent with
the designation of the Preferred Stock. The Series A Preferred Stock has a
mandatory redemption due December 31, 2002 and an optional redemption at face
value at the Company's option. Also, if the Company has a sale of an asset or
other equity transaction in excess of $5,000,000, the Series A Preferred
Stockholders are to receive a liquidation pay off of Series A Preferred Stock
plus all unpaid dividends due on the preferred stock being liquidated in the
amount of 25% of net proceeds of the transaction.
F-19
<PAGE>
MAGNAVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,1999, 1998 AND 1997
During 1997 The senior subordinated notes along with the remaining balance of
the credit line was exchanged for 5,000,000 shares of 8% cumulative redeemable
Series A Preferred Stock, (see Note 12). At closing, the Company received cash
of approximately $800,000 after expenses.
Holders of Series A Preferred Stock are entitled to receive, when and as
declared by the Company's Board of Directors, cash dividends cumulative at the
rate of 8% per share. Cumulative and unpaid dividends amounted to $1,057,778 at
December 31, 1999. Currently the Company does not have positive equity and,
therefore, is prohibited from paying dividends. However, if there is an event,
that causes a liquidation of Preferred Stock, then there is a provision in the
Exchange Agreement to liquidate a portion of the dividends which have
accumulated.
Subsequent to year end, the sale of the Private Cable system caused a $1.7
million liquidation of the Series A Preferred Stock and the related unpaid
dividends due. The remaining Series A Preferred Stock is 3,643,692 shares at $1
per share and accumulated dividend of $743,314. (see Note 17)
NOTE 14 - STOCKHOLDERS EQUITY TRANSACTION
During 1999, option holders exercised options to purchase 16,154 shares of
common stock at $2.00 per stock and in 1997 a warrant holder exercised warrants
to purchase 354 shares of common stock at $2 per share.
During 1999, a former officer of the Company repaid his outstanding loan of
$12,909 with 1,613 shares of his stock. The Company retired these shares.
During 1998, warrant holders exercised warrants to purchase 1,880 shares of
common stock at $2.00 per share.
On May 8,1997, the Company effected a 1-for-20 reverse split of its common stock
such that each outstanding share of common stock was, effective May 9, 1997,
converted into .05 shares of post split common stock and the par value of common
stock was changed from $.004 to $.08 per share.
During 1997, the Company converted a shareholder loan into shares of Series B
Preferred Stock.
NOTE 15 - SIGNIFICANT CUSTOMERS
For the years ending December 31, 1999, 1998 and 1997, revenue from the
Company's three largest customers represented 39%, 33% and 40%, respectively, of
total revenues.
NOTE 16 - CONCENTRATION OF CREDIT RISK
The Company has a note receivable due from Fordham University. The note is
secured by equipment at the University.
Also, the Company maintains its cash at a financial institution. The Federal
Deposit Insurance Corporation only insures up to $100,000 at any one financial
institution. The Company rarely maintains cash of more than $100,000 in any one
institution.
F-20
<PAGE>
MAGNAVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,1999, 1998 AND 1997
NOTE 17 - SUBSEQUENT EVENT: SALE OF PRIVATE CABLE ASSETS
On March 30, 2000, the majority shareholders of Magnavision voted to accept the
following sale of the private cable assets to Lamont Television Systems, Inc.
On March 15, 2000, Magnavision Corporation and Lamont Television Systems, Inc.
entered into an Asset Purchase Agreement dated as of February 29, 2000, to
purchase the service contracts and related fixed assets of Magnavision
Corporation's Private Cable Operation for $7.5 million. The transaction closed
on March 30, 2000, with the Company receiving approximately $6.7 million of the
proceeds in cash after the establishment of an escrow account of approximately
$200,000 and other closing adjustments. The Company used part of the proceeds to
pay off its loan to BSB Bank & Trust Company in the amount of $1,954,000 and its
notes to both IBJS Whitehall and KOCO Capital totaling $105,468 in the
aggregate, plus the accrued interest. Other portions of the net proceeds were to
be used to pay commissions of $300,000 to the company's investment banker due
under this transaction and to establish accruals for severance of $255,000 and
retention payments and legal and other fees totaling $75,000. The Company also
will accrue approximately $1.2 million for State and Federal taxes. In addition,
the May 1997 Exchange Agreement and the Company's Certificate of Incorporation,
as amended, requires a payment of 25% of the net proceeds of the sale, or
approximately $1.7 million to be used to retire a portion of the Company's
Series A Preferred Stock and the related accumulated preferred stock dividend
outstanding. The number of shares of Series A Preferred Stock remaining after
the 25% payoff is 3,643,692 shares at $1 per share and the accumulated preferred
stock dividend has been reduced by $314,664 to $743,314 before the accumulation
for the 1st Quarter of 2000.
Magnavision continues to hold long-term rights to use fixed wireless spectrum at
seven existing transmission sites in New York and additional sites in New
Jersey. The Company intends to use its best efforts to either develop or sell,
the wireless spectrum although, no assurances can be made that it will either be
developed or sold.
F-21
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on the
Company's behalf by the undersigned, thereunto duly authorized.
MAGNAVISION CORPORATION
DATE: April 14, 2000 By: /s/ Robert E. Hoffman
---------------------------
ROBERT E. HOFFMAN
Principal Executive Officer
By: /s/ Jeffrey Haertlein
---------------------------
JEFFREY HAERTLEIN
Principal Financial and
Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Robert E. Hoffman CEO, President, Director April 14, 2000
- ----------------------
Robert E. Hoffman
/s/ George Zombek Director April 14, 2000
- ----------------------
George Zombek
/s/ Evan Wildstein Director April 14, 2000
- ----------------------
Evan Wildstein
/s/ Kevin Falvey Director April 14, 2000
- ----------------------
Kevin Falvey
/s/ Geoffrey Thompson Director April 14, 2000
- ----------------------
Geoffrey Thompson
<PAGE>
EXHIBITS
Supplemental Information to be furnished with reports filed pursuant to Section
15(d) of the Act by Registrants which have not registered securities pursuant to
Section 12 of the Act.
As of the date hereof, the Registrant has never sent any annual report or proxy
material to its security holders. If and when such annual report or proxy
material is furnished to its stockholders, the Registrant shall furnish to the
Commission for its information copies of such material. Such material, when
furnished, shall not be deemed to be "filed" with the Commission or otherwise
subject to liabilities of Section 18 of the Act (except to the extent that the
Registrant specifically incorporates such material by reference in its Form
10-K).
<PAGE>
MagnaVision Corporation
Non-qualified Stock Option Plan of 1999
1. Purpose: The purpose of the 1999 Non-qualified Stock Option Plan of
MagnaVision Corporation is to strengthen MagnaVision's ability to reward
performance which enhances long term shareholder value; to increase
employee stock ownership through performance based compensation plans; and
to strengthen MagnaVision's ability to attract and retain outstanding
employees and executives.
2. Definitions:
"Act" means the Security Exchange Act of 1934, as amended.
"Approved Leave of Absence" means a leave of absence of definite length approved
by the president or by another officer of MagnaVision to whom the Board of
Directors delegates such Authority.
"MagnaVision" means MagnaVision Corporation, its subsidiaries and affiliates or
any successor company.
"Board" means the Board of Directors of MagnaVision.
"Code" means the Internal Revenue Code of 1986, as amended, or the corresponding
provision of any successor statute.
"Committee" means the Compensation Committee designated by the Board to
administer the Plan pursuant to Paragraph 3.
"Common Stock" means the Common Stock, par value $___ per share of MagnaVision
Corporation.
"Non-qualified Option" or "Option" means each Non-qualified Option under the
Plan.
"Optionee" means any Director, officer (including Directors who are also such
officers) or employee of MagnaVision who is granted an Option under the Plan.
"Plan" means this Stock Option Plan of 1998.
3. Administration: The Plan shall be administered by the Committee which shall
be comprised of not less than two members of the Board, none of whom shall
be employees of MagnaVision. The Committee shall (i) grant Options to
Optionees and (ii) determine the terms and conditions in accordance with
the provisions of the Plan. The Committee shall have full authority to
construe and interpret the Plan, to establish, amend and rescind rules and
regulations relating to the Plan, to administer the Plan, and to take all
such steps and make all such determinations in connection with the Plan and
Options granted thereunder as it may deem necessary or advisable. All
determinations of the Committee shall be by a majority of its members and
shall be evidenced by resolution, written consent or other appropriate
action, and the Committee's determination shall be final.
4. Participation: All Directors, full-time salaried officers and employees of
MagnaVision shall be eligible for selection to participate in the Plan. The
Board, at the recommendation of the Committee shall select from the
eligible class and determine individuals for whom Options shall be granted,
the terms and provisions of the respective Stock Option Agreements (which
need not be identical), the times at which such Options shall be granted,
and the number of shares subject to each Option. An individual who has been
granted an Option may, if eligible, be granted additional Options if the
Board shall so determine.
<PAGE>
Exhibit A is the letter form of Option grant.
5. Stock Subject to the Plan: Subject to the provision of Section 8 hereof,
the maximum number and kind of shares as to which Options may be granted
under the Plan are 349,986 shares of Common Stock that may be granted as
either Non-qualified Options less any Incentive Stock Options granted under
the Incentive Stock Option Plan of 1999. Shares of Common Stock subject to
Options under the Plan are authorized but unissued shares. If any Option
shall expire for any reason without having been exercised in full, the
unpurchased shares subject thereto shall again be available for purposes of
the Plan.
All Options hereunder must be granted before May 8, 2007.
6. Terms and Conditions of Non-qualified Options: All Non-qualified Options
under the Plan shall be granted subject to the following terms and
conditions.
a. Option price: The Option price per share with respect to each Option for a
Director shall be determined by the Board but shall not be less than the
higher of the par value or 100% of the fair market value of the Common
Stock on the date the Option is granted, such fair market value to be
determined in accordance with a reasonable valuation method. The Option
price per share with respect to each Option for an officer (including
Directors who are also such officers) or an employee shall be determined by
the Board but shall not be less than the higher of the par value or 85% of
the fair market value of the Common Stock on the date the Option is
granted.
b. Duration of Option: Options shall be exercisable at such time or times and
under such conditions as set forth in the written agreement evidencing such
Option, but in no event shall any Option be exercisable subsequent to the
tenth anniversary of the date on which such Option is granted.
c. Exercise of Option: Except as provided in Section 6e, 6f or 7b, the shares
of Common Stock covered by an Option may not be purchased prior to the
first anniversary of the date on which the Option is granted, unless the
Committee shall determine otherwise, but thereafter may be purchased at one
time or in such installments over the balance of the Option period as may
be provided in the Option. Any share not purchased on the applicable
installment date may, unless the Committee shall have determined otherwise,
be purchased thereafter at any time prior to the final expiration of the
Option. To the extent that the right to purchase shares has accrued
thereunder, Options may be exercised from time to time by written notice to
MagnaVision. Exhibit B is the proper form of notice of exercise.
<PAGE>
The purchase price of any shares shall be paid in full in cash, and no other
form of consideration, at the time of each exercise.
d. Non-Transferability of Options: The Options granted hereunder are not
transferable by the Optionee. During an Optionee's lifetime, the Option may
be exercised only by the Optionee. Upon the death of the Optionee, the
Options may be transferred by the Last Will and Testament of the Optionee
or by the applicable state laws of decedent and distribution and the
Options may only be exercised by the deceased Optionee's duly appointed
legal representative.
e. Termination of Employment: Upon the termination of an Optionee's
employment, for any reason other than death, the Option shall be
exercisable only as to those shares of Common Stock which were then subject
to the exercise of such Option, provided that (i) in the case of disability
as described below, any holding period required by Section 6c shall
automatically be deemed to be satisfied and (ii) the Committee may
determine that particular limitations and restrictions under the Plan shall
not apply, and such Option shall expire according to the following schedule
(unless the Committee should provide for shorter periods at the time the
Option is granted).
(i) Retirement: Option shall expire, unless exercised, five (5) years
after the date of the Optionee's retirement from MagnaVision.
(ii) Disability: Option shall expire, unless exercised, five (5) years
after the date of termination by disability.
(iii) Gross Misconduct: Option shall expire upon receipt by the
Optionee of notice of termination if he or she is terminated for
deliberate, willful or gross misconduct as determined by the
Board.
(iv) All other Terminations: Option shall expire, unless exercised,
three (3) months after the date of such termination.
f. Death of Optionee: Upon the death of an Optionee during his or her period
of employment, the Option shall be exercisable only as to those shares of
Common Stock which were subject to the exercise of such Option at the time
of his or her death provided that (i) any holding period required by
Section 6c shall automatically be deemed to be satisfied and (ii) the
Committee may determine that particular limitations and restrictions under
the Plan shall not apply, and such Option shall expire unless exercised by
the Optionee's legal representative or heirs, one (1) year after the date
of such death.
<PAGE>
In no event, however, shall any Option be exercisable pursuant to 6e or 6f
subsequent to the tenth anniversary of the date on which it is granted.
7. Adjustment in Event of Changes in Capitalization: In the event of
recapitalization, stock split, stock dividend, combination or exchange of
shares, merger, consolidation, rights offering, separation, spin-off,
reorganization or liquidation, or any other change in the corporate
structure or shares of MagnaVision, the Board, upon recommendation of the
Committee, may make such equitable adjustments as it may deem appropriate
in the number and kind of shares authorized by the Plan, in the Option
price of outstanding Options, and in the number and kind of shares or other
securities or property subject to Options or covered by outstanding grants.
8. Termination or Amendment of the Plan: The Board may at any time terminate
the Plan with respect to any shares of Common Stock not at the time being
subject to outstanding Options, and may from time to time alter or amend
the Plan or any part thereof (including, but without limiting the
generality of the foregoing, any amendment deemed necessary to ensure that
the company may obtain any approval referred to in Section ( hereof or to
ensure that the grant of Options, the exercise of Options or any other
provision of the Plan complies with Section 16(b) of the Act), provided
that no change with respect to any Options theretofore granted may be made
which would impair the rights of an Optionee without consent of such
Optionee and, further that without the approval of stockholders, no
alteration or amendment may be made which would (i) increase the maximum
number of shares of Common Stock subject to the Plan as set forth in
Section 5 (except by operation of Section 8), (ii) extend the term of the
Plan or (iii) change the class of eligible persons who may receive Options
under the Plan.
9. Leave of Absence: Unless the Committee shall determine otherwise, a leave
of absence other than an Approved Leave of Absence shall be deemed a
termination of employment for purposes of the Plan. An Approved Leave of
Absence shall not be deemed as a termination of employment for purposes of
the Plan (except for purposes of Section 7), but the period of such Leave
of Absence shall not be counted toward satisfaction of any Restriction
Period or any holding period described in Section 6c.
10. Time of Granting Options: The time an Option is granted, sometimes referred
to as the date of grant, shall be the day of the action of the Board
described in Section 4 hereof; provided, however that if appropriate
resolutions of the Board indicate that an Option is to be granted at a
future date, the time such Option is granted shall be such future date. If
action by the Board is taken by unanimous written consent of its members,
the action of the Board shall be deemed to be at the time the last Board
member signs the consent.
11. Privileges of Stock Ownership; Securities Laws Compliance: Notice of Sale:
No Optionee shall be entitled to the privileges of stock ownership as to
any shares of stock not actually issued and delivered to him or her. No
shares shall be purchased upon the exercise of any Option unless and until
any then applicable requirements of any regulatory agencies having
jurisdiction and of any exchanges upon which the stock of MagnaVision may
be listed shall have been fully complied with. MagnaVision will diligently
endeavor to comply with all applicable securities laws before any Options
are granted under the Plan and before any stock is issued pursuant to the
Options. The Optionee shall give MagnaVision written notice of any sale or
other disposition of any such shares not more than five (5) days after such
sale or other disposition.
12. Effective Date of the Plan: The date on which the Plan is adopted by the
Board.
<PAGE>
13. General Provisions:
a. Neither the Plan nor the grant of any Option nor any action by
MagnaVision, or the Committee shall be held or construed to confer
upon any person any right to be continued in the employ of
MagnaVision. MagnaVision expressly reserves the right to discharge,
without liability but subject to his or her rights under the Plan, any
Optionee, whenever in the sole discretion of MagnaVision, as the case
may be, its interest may so require.
b. All questions pertaining to the construction, regulation, validity and
effect of the Plan shall be determined in accordance with the laws of
the state of New Jersey, without regard to the conflict of laws
doctrine.
14. MagnaVision adopts this Plan, effective as of _____.
<PAGE>
MAGNAVISION CORPORATION
STOCK OPTION AGREEMENT
Page 1
NON-QUALIFIED STOCK OPTION
This STOCK OPTION AGREEMENT ("Agreement") is made as of the ______ day
of ____________, 1999, between MAGNAVISION CORPORATION (the "Company") and
__________________ (the "Optionee").
Grant of Option.
Pursuant to the provisions of the Company's Non-qualified Stock Option
Plan of 1999 (the "Plan"), the Company hereby grants to the Optionee, subject to
the terms and conditions of the Plan, which terms and conditions are
incorporated by reference herein, and subject further to the terms and
conditions herein set forth, the right and option to purchase from the Company
all or any part of an aggregate of _____ shares of Common Stock of the Company
(the "Common Stock") at the purchase price of $ per share (the "Option").
Terms and Conditions.
It is understood and agreed that the Option is subject to the following
terms and conditions:
(a) Date of Grant. Any references to the "date of grant" herein shall
mean the date hereof.
(b) Expiration Date. The Option shall expire at the close of business
on ____________, 2009, or as otherwise specified in subparagraph (e) & (f) of
this paragraph 2.
(c) Exercise of Option. The Option shall become exercisable, in whole,
upon the fulfillment of the first to occur of the following vesting conditions:
(i) Immediate Vesting. This Option is exercisable as to One
hundred percent (100%) of the shares subject to this Option on
________________.
Or,
(ii) Vesting with the Passage of Time. This Option is
exercisable as to the following schedule of shares and dates.
____________ shares on or after _____________,
____________ shares on or after _____________,
____________ shares on or after _____________.
Notice of Exercise. The Optionee shall give written and signed notice to the
Company of his/her intent to exercise the Option in the form of the Exercise
Notice attached hereto. Such notice shall specify the number of full shares to
be purchased. The Option may be exercised only with respect to full shares, and
no fractional shares may be purchased. Such notice shall be accompanied by full
<PAGE>
payment of the exercise price, as provided in subparagraph (d) of this paragraph
2. If the Optionee does not exercise with respect to all of the shares subject
to this Option, he or she may exercise as to any remaining shares at a latter
date, subject to all of the provisions of this Agreement.
Payment of Purchase Price Upon Exercise. At the time of any exercise, the
purchase price of the shares to be purchased shall be paid to the Company in
cash or certified or bank check.
(e) Termination.
(i) Upon the termination of the Optionee's employment, for any
reason other than death, this Option shall be exercisable only as to those
shares of Common Stock which were then subject to exercise of this Option,
provided that in the case of disability, this Option shall become immediately
exercisable as to all of the shares subject to this Option. However, in the
event that the Optionee's employment is terminated, this Option shall expire
according to the following schedule:
Retirement: The Option shall expire, unless exercised, three (3) months after
the date of the Optionee's retirement from the Company.
Disability: In the case of an Optionee who is disabled, the Option shall expire,
unless exercised, one (1) year after the date the Optionee terminates
employment.
Gross Misconduct: The Option shall expire upon receipt by the Optionee of notice
of termination if he or she is terminated for deliberate, willful or gross
misconduct.
All other Terminations: The Option shall expire, unless exercised, three (3)
months after the date of such termination.
(ii) Upon the death of an Optionee during his or her period of
employment, the Option shall become immediately exercisable only as to those
shares of Common Stock which were then subject to exercise of this Option and
may be exercised by the Optionee's legal representative or heirs, within one (1)
year after the date of the Optionee's death. If the Option is not exercised
within one (1) year after the date of the Optionee's death, the Option shall
expire and all rights under this Agreement shall terminate.
(iii) Upon the expiration of the Option, as set forth in
Section 2(e), the Option and all rights under this Agreement shall be canceled
and shall terminate.
(iv) In the event that the Committee shall permit the Option
to be exercised by a person other than the Optionee such person shall furnish
the Company with evidence satisfactory to it of such person's right to exercise
the Option, and shall make such representations and agreements and furnish such
information or execute such documents as the Committee may, in its discretion,
deem necessary or desirable to evidence such exercise or assure compliance by
the Company, on terms acceptable to the Company, with any requirement of this
Option Agreement or the provisions of applicable federal and state securities
and other laws.
(f) Expiration. The Option and all rights under this Agreement shall
terminate and become null and void after the expiration of ten (10) years from
the date the Option is granted as set forth above unless sooner terminated as
provided hereunder.
(g) Nontransferability. During the lifetime of Optionee, this Option is
not transferable and shall be exercisable only by the Optionee (or by the
Optionee's duly appointed guardian or legal representative). Upon the death of
the Optionee, the Option may be transferred by the Last Will and Testament of
the Optionee or by the applicable state laws of decedent and distribution and
the Option may only be exercised by the deceased Optionee's duly appointed legal
representative.
<PAGE>
Adjustments. In the event of recapitalization, stock split, stock dividend,
combination or exchange of shares, merger, consolidation, rights offering,
separation, spin-off, reorganization, liquidation, or any other change in the
corporate structure or shares of MagnaVision, the Board, upon recommendation of
the Committee, may make such equitable adjustments as it may deem appropriate to
preserve the benefits or potential benefits intended to be made available under
the Plan to the Optionee including adjusting equitably (i) the number and kind
of shares in respect of which the Option may be exercised, and (ii) the exercise
price.
No Rights as Stockholder. The Optionee shall have no rights as a stockholder
with respect to any shares of Common Stock subject to this Option prior to the
date of issuance to the Optionee of a certificate or certificates for such
shares.
No Right to Continued Employment. This Option shall not confer upon Optionee any
right with respect to continuance of employment by the Company.
Compliance with Laws and Regulations. This Option and the obligation of the
Company to sell and deliver shares hereunder, shall be subject to all applicable
federal and state laws, rules and regulations and to such approvals by any
government or regulatory agency as may be required. The Company shall not be
required to issue or deliver any certificates for shares of Common Stock if its
exercise, or the receipt of shares of Common Stock pursuant thereto, would be
contrary to applicable law.
Withholding Taxes. The Optionee shall pay to the Company, or make provision
satisfactory to the Committee for the payment of, any taxes of any kind required
by law to be withheld in respect of the Option, no later than the date of the
event creating the tax liability. In the Committee's sole discretion, the
Optionee may elect to have such tax obligations paid, in whole or in part, in
shares of Common Stock, including shares retained from the Option creating the
tax obligation. The Company shall, to the extent permitted by law, have the
right to deduct any such tax obligations from any payment of any kind otherwise
due to the Optionee.
Investment Representation.
The Committee may require the Optionee to furnish the Company, prior to
the exercise of any part of this Option, an agreement (in such form as the
Committee may specify) in which the Optionee represents that the shares acquired
by the Optionee upon exercise are being acquired for investment and not with a
view to the sale or distribution thereof~].
Optionee Bound by Plan.
The Optionee hereby agrees to be bound by all the terms and provisions
of the Plan.
Notices.
Any notice hereunder to the Company shall be addressed to Robert E.
Hoffman, Chairman, MagnaVision Corporation, The Wedgewood Building, 1725 Highway
35, Wall, New Jersey 07719; and any notice hereunder to Optionee shall be
addressed to the Optionee at the following address, subject to the right of
either party to designate at any time hereafter in writing some other address:
Name and Address of Optionee: ______________________________
------------------------------
<PAGE>
Optionee's Social Security Number: __________________
Any notice required or permitted to be given pursuant to any provision of this
Agreement shall be deemed duly given only when in writing, signed by or on
behalf of the person giving same, and either personally delivered (with receipt
acknowledged by the recipient) or deposited in a designated United States mail
depository, registered or certified mail, return receipt requested, postage
prepaid, addressed to the person or persons to whom such notice is to be given
at their respective addresses indicated herein, or at such other address as
shall have been set forth in a notice sent pursuant to the provisions of this
Section 5.
Binding Effect.
This Option Agreement shall be binding upon the Company's successors
and assigns, and shall be binding and inure to the benefit of the Optionee and
the Optionee's heirs, executors, administrators, guardians, trustees,
attorneys-in-fact and legal and personal representatives.
Governing Law.
To the extent that state law shall not be preempted by any laws of the
United States, this Option Agreement shall be governed by, and construed in
accordance with, the laws of the State of New Jersey, without regard to the
conflicts of law doctrine.
IN WITNESS WHEREOF, the Company and the Optionee have executed this
Agreement as of the day and year first above written.
MAGNAVISION CORPORATION
By:
Robert Hoffman
Chairman
Accepted By: _____________________________
Optionee
<PAGE>
NOTICE OF STOCK OPTION EXERCISE
To MagnaVision Corporation:
I hereby give notice of my intention to exercise options to purchase
_________ full shares of Common Stock of MagnaVision Corporation (the
"Company"), in accordance with the terms and conditions of the attached Stock
Option Agreement (the "Agreement") dated as of _________________, 19 , for the
purchase price of $ ______ per share. Enclosed is a certified check or bank
check for _____________________________________, $_________ , in full payment of
the purchase price.
Please issue certificates for such shares of Common Stock in the name
of [Please print]:
Name:
Address:
Social Security or Tax I.D. Number _____-____-_____
Signature:
Dated:
<PAGE>
ASSET PURCHASE AGREEMENT
by and between
LAMONT TELEVISION SYSTEMS, INC.
and
MAGNAVISION CORPORATION
As of February 29, 2000
<PAGE>
TABLE OF CONTENTS
I. PURCHASE AND SALE OF ASSETS..............................................1
1.1 Purchase and Sale of Assets.......................................1
1.2 Excluded Assets...................................................2
1.3 No Assumed Liabilities............................................3
1.4 Assumed Obligations...............................................3
1.5 Excluded Liabilities and Obligations..............................3
II. CONSIDERATION FOR TRANSFER...............................................4
2.1 Consideration.....................................................4
2.2 Payment of Consideration..........................................4
2.3 Disputes Regarding Statements.....................................6
2.4 Allocation........................................................8
2.5 Due Diligence; Escrow.............................................8
2.6 Certain Pre-Closing Testing of Cable System Assets................9
III. THE CLOSING AND TRANSFER OF ASSETS.......................................9
3.1 Closing ..........................................................9
3.2 Deliveries by the Buyer...........................................9
3.3 Deliveries by the Seller.........................................10
3.4 Mutual Deliveries................................................12
3.5 Conditions to Each Party's Obligations Under this Agreement......12
3.6 Conditions to Buyer's Obligations Under This Agreement...........13
IV. REPRESENTATIONS AND WARRANTIES OF THE SELLER............................14
4.1 Organization and Qualification...................................14
4.2 Authorization....................................................14
4.3 No Violation.....................................................14
4.4 Title to Assets..................................................15
4.5 Subsidiaries.....................................................15
4.6 Governmental Authorization.......................................15
4.7 SEC Documents....................................................16
4.8 Computer Software................................................16
4.9 Other Proprietary Rights.........................................17
4.10 Absence of Certain Changes.......................................17
4.11 Contracts........................................................18
4.12 Taxes ...........................................................19
4.13 Compliance with Applicable Laws; Permits and Licenses............19
4.14 Regulatory Reports...............................................20
4.15 Agreements with Regulatory Agencies..............................20
4.16 Customers of the Seller..........................................21
4.17 Representatives..................................................21
4.18 Business Warranties..............................................21
4.19 Litigation.......................................................21
4.20 No Undisclosed Liabilities.......................................22
4.21 Brokers' Fees and Commissions....................................22
4.22 Disclosure.......................................................22
4.23 Copies of Documents..............................................22
<PAGE>
V. REPRESENTATIONS AND WARRANTIES OF THE BUYER.............................22
5.1 Organization and Qualification...................................22
5.2 Authorization....................................................22
5.3 No Violation.....................................................23
5.4 Consents and Approvals...........................................23
5.5 Broker's Fees and Commissions....................................23
5.6 Disclosure.......................................................23
5.7 FCC Qualifications...............................................24
5.8 Financing........................................................24
VI. COVENANTS OF THE SELLER.................................................24
6.1 Interim Conduct of Business......................................24
6.2 Cooperation; Access..............................................25
6.3 Confidentiality..................................................26
6.4 Certain Payments.................................................26
6.5 Records and Documents............................................26
6.6 Best Efforts.....................................................26
6.7 Further Assurances...............................................26
6.8 Employee Matters.................................................26
6.9 Covenant Not to Compete..........................................27
6.10 Collateral Nonsolicitation Agreements............................28
VII. COVENANTS OF THE BUYER..................................................29
7.1 Best Efforts.....................................................29
7.2 Further Assurances...............................................29
VIII. MUTUAL COVENANTS........................................................29
8.1 Bulk Sales.......................................................29
8.2 Notice of Changes................................................29
8.3 Regulatory Approvals.............................................29
8.4 Accounts Receivable, etc.........................................30
IX. SURVIVAL AND INDEMNIFICATION............................................31
9.1 Survival.........................................................31
9.2 Indemnification of the Buyer.....................................31
9.3 Indemnification of the Seller....................................33
9.4 Indemnification Procedure for Third Party Claims Against
Indemnified Parties........................................33
9.5 Failure to Give Timely Third Party Indemnification Notice........35
9.6 Notice of Claims as Between Buyer and Seller; Arbitration........35
9.7 Escrow Agreement.................................................36
<PAGE>
X. MISCELLANEOUS PROVISIONS................................................36
10.1 Waiver; Modification.............................................36
10.2 Invalidity.......................................................36
10.3 Parties in Interest..............................................36
10.4 Expenses.........................................................37
10.5 Notices..........................................................37
10.6 Governing Law; Forum.............................................38
10.7 Counterparts.....................................................38
10.8 Headings.........................................................38
10.9 Integration......................................................38
10.10 Assignment.......................................................38
10.11 Publicity........................................................38
10.12 References to the Seller.........................................39
10.13 Rightful Termination.............................................39
10.14 Procedure and Effect of Termination..............................39
10.15 Consents 40
Attachments:
- -----------
Disclosure Schedule
Exhibits:
A Escrow Agreement
B Instrument of Assumption
C Bill of Sale
D Trademark Assignment
E-1, E-2 Nonsolicitation Agreements
F Cross Receipt
<PAGE>
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT (this "Agreement"), dated as of
February 29, 2000, by and among LAMONT TELEVISION SYSTEMS, INC., a Connecticut
corporation (the "Buyer"), and MAGNAVISION CORPORATION, a Delaware corporation
(the "Seller").
WHEREAS, the Seller is engaged, among other pursuits, in the
business of designing, installing, and servicing cable television and data
systems for and providing cable television and data service to commercial
clients (the "Business"), including those which are parties to the various
Customer Contracts (as defined in Section 4.11(a)) listed on Section 4.11(a) of
the Disclosure Schedule (as defined in Article IV);
WHEREAS, the Business is conducted primarily through the
Seller's wholly-owned subsidiary, MagnaVision Private Cable, Inc., a Delaware
corporation (the "Subsidiary"); and
WHEREAS, the Buyer desires to purchase from the Seller and the
Seller desires to sell to the Buyer those assets, rights, and claims of the
Seller and the Subsidiary relating to the Business on the terms and conditions
set forth herein.
NOW, THEREFORE, in consideration of the foregoing and the
respective representations, warranties, covenants, agreements, and conditions
hereinafter set forth, and intending to be legally bound hereby, the parties
hereto agree as follows:
ARTICLE I. PURCHASE AND SALE OF ASSETS
1.1. Purchase and Sale of Assets. At the Closing (as defined
in Section 3.1), the Seller shall, and shall cause the Subsidiary to, sell,
transfer, assign, and deliver to the Buyer, and the Buyer shall purchase,
accept, assume, and receive, all of the Seller's and the Subsidiary's right,
title, and interest in, to or arising from the Purchased Assets (as defined
below in this Section 1.1).
The "Purchased Assets" are all of the assets, rights, and
claims constituting the Business as a going concern, which consist of all of the
Seller's and the Subsidiary's right, title, and interest in, to, and/or under
the following:
a) All Material Contracts listed in Section 4.11(a) of the
Disclosure Schedule;
<PAGE>
b) All other assets related to the Business (the "Cable
System Assets"), including the following:
(i) all satellite dishes;
(ii) all satellite receivers, channelized modulators,
agile modulators, television or video monitors;
(iii) all equipment boxes and rack systems;
(iv) all amplifiers, wiring, cabling, conduits, and
outlets;
(v) all point-to-point microwave relays;
(vi) all cable modems, ethernet cabling, ethernet
cards, routers, fanouts, and other items used in providing
data services;
(vii) all other hardware and software related to the
provision of services under the Material Contracts listed in
Section 4.11(a) of the Disclosure Schedule including,
without limitation, the Computer Systems (as defined in
Section 4.8); and
(viii) all intellectual property rights of the Seller
or the subsidiary relating to the Purchased Assets, the
Business or the provision of services under the Material
Contracts, including, without limitation, all rights to the
name "MagnaVision" (and any derivatives thereof) and any
trademarks therefor.
c) All documents and records relating to the Cable System
Assets (including registration and warranty materials,
instruction manuals, specification sheets, "as-builts" systems
documentation, wiring diagrams, narrative descriptions, and
repair records and receipts);
d) All documents and records relating to the operations of
the Business (including historical costing and pricing data,
research and development files and studies, market studies
(including studies of competitors), sales histories, and quality
control histories);
e) All permits, licenses, franchises, product registrations,
filings, authorizations, approvals, and indicia of authority (and
pending applications for any thereof) used to conduct the
operations of the Business and to own, engineer, distribute,
install, operate, service, and maintain any service, product,
fixture, facility, equipment, machinery, or installation of the
Business (including, but not limited to, those identified on
Section 4.13(c) of the Disclosure Schedule), and any rights to
use customer-owned equipment referenced in the Disclosure
Schedule;
<PAGE>
f) All prepaid expenses of the Business, and all security
deposits and cash advanced by customers of the Business, the
economic value of which (net of associated liabilities) shall be
conveyed to the Buyer through the provisions of Section 2.2(c)
below; and
g) All claims, causes of action, and other rights related to
the Purchased Assets (including the right to enforce any
performance obligation secured by a prepaid expense or to sue for
reimbursement thereof in the case of nonperformance).
1.2. Excluded Assets. All other assets of the Seller and the
Subsidiary other than the Purchased Assets, including, without limitation, any
cash or bank accounts, any securities (including the capital stock of the Seller
and the Subsidiary), any prepaid expenses, to the extent they do not relate to
Purchased Assets or the Business, any office leases, employment or consulting
agreements, or other contracts relating to the Seller or the Subsidiary
generally and not specifically relating to the Customer Contracts or the Cable
System Assets (including, for example, any transmission capacity leases or
rights with respect to transmission capacity leases which do not relate to the
Cable System Assets or the Business, including, without limitation, any
agreements for lease of channel capacity with the Archdiocese of New York and
any and all instructional television fixed service ("ITFS") and other fixed
service ("OFS") rights, other than as set forth in Section 1.1(b)(v))), and all
of the accounts and notes receivable, debts, and obligations due to the Seller
and the Subsidiary from their respective commercial customers and others through
the Closing Date (including, but not limited to, that certain note receivable
from Fordham University and the security agreement relating thereto), however
evidenced, as recorded on the books and records of the Seller or the Subsidiary,
are expressly excluded.
1.3. No Assumed Liabilities. The Buyer shall neither assume
nor discharge any liabilities of the Business, the Seller, the Subsidiary nor
any other affiliate of the Seller, except as set forth in Section 1.4 below.
1.4. Assumed Obligations. At Closing, the Buyer shall assume
and thereafter discharge all obligations of the Seller and/or the Subsidiary (a)
under the Material Contracts listed in Section 4.11(a) of the Disclosure
Schedule in accordance with their terms and (b) relating to those liabilities
arising under those items set forth on the Closing Statement (as defined in
Section 2.2(c)(ii)) (the "Assumed Obligations").
1.5. Excluded Liabilities and Obligations. Except as expressly
set forth in Section 1.4 above, the Buyer shall not assume and shall not be
liable or responsible for any debt, obligation, or liability of the Business,
the Seller, the Subsidiary or any other affiliate of the Seller, or any claim
against any of the foregoing, of any kind, whether known or unknown, fixed,
contingent, absolute, or otherwise (the "Excluded Liabilities and Obligations").
Without limiting the generality of the foregoing, the Buyer shall not assume,
undertake, or accept, and shall have no responsibility with respect to, the
following liabilities or obligations, all of which shall be Excluded Liabilities
and Obligations:
<PAGE>
a) Liabilities and obligations related to or arising from
transactions with any affiliate of the Seller, including
interdivisional, intracompany, or intercompany payables,
obligations, or agreements;
b) Liabilities and obligations for taxes of any kind,
howsoever denominated, including federal, state, and local taxes
on income, sales, and use; ad valorem duties and assessments;
worker's compensation; unemployment taxes; excise taxes; FICA
contributions; payroll taxes; profit sharing deductions; and all
taxes and charges related to or arising from the transfers
contemplated hereby;
c) Liabilities and obligations for damage or injury (real or
alleged) to person or property arising from the ownership,
possession, or use of any product designed, manufactured,
assembled, installed, processed, treated, distributed, sold, or
serviced or any service rendered by the Seller through the
Closing Date;
d) Any liabilities for the Seller's or the Subsidiary's
breach or default prior to Closing under any contract or
agreement assigned to the Buyer hereunder;
e) Liabilities and obligations of the Seller or the
Subsidiary with respect to any litigation, action, proceeding, or
investigation; any legal, administrative, arbitration, or other
method of settling disputes or disagreements; or any governmental
investigations, if any, pending at the Closing or threatened on
or prior to the Closing, or arising after Closing solely as a
result of events occurring prior to Closing;
f) Any liability of the Seller or the Subsidiary as a result
of any act, omission, or event occurring prior to the Closing
Date, whether or not the related cause of action or damage
occurred after the Closing Date; and
g) Any liability or obligation of the Seller or the
Subsidiary arising from, relating to, or under any excluded asset
referred to in Section 1.2.
After the Closing, the Seller shall (and shall cause the
Subsidiary to) discharge and satisfy in full when due all Excluded Liabilities
and Obligations which are not specifically assumed by the Buyer pursuant to
Section 1.4.
<PAGE>
ARTICLE II. CONSIDERATION FOR TRANSFER
2.1. Consideration. The aggregate consideration for the
Purchased Assets shall be as follows:
a) $7,500,000, subject to adjustment as provided herein (the
"Purchase Price"); and
b) Assumption by the Buyer of the Assumed Obligations set
forth in Section 1.4 hereof.
2.2. Payment of Consideration.
a) At the Closing, the Buyer shall deliver and the Seller
shall accept the following:
(i) the Purchase Price, less the Escrow Amount (as
defined in, and as determined pursuant to, Section 2.5) , in
immediately available funds, which shall be sent by way of
wire transfer to an account of the Seller previously
designated in writing by the Seller to the Buyer; and
(ii) an executed instrument of assumption with respect
to the Assumed Obligations.
b) At Closing, the Seller, the Buyer and the Escrow Agent
named therein (the "Escrow Agent") shall execute and deliver that
certain escrow agreement, substantially in the form of that
attached hereto as Exhibit A (the "Escrow Agreement"). For a
nine-month period following the Closing Date, the Escrow Agent
shall hold the remaining portion of the Purchase Price not
delivered at Closing in escrow pursuant to Section 2.5 hereof and
the terms of such Escrow Agreement, to help pay for any claims,
setoffs, or expenses of the Buyer that, pursuant to the terms
hereof, are the responsibility of the Seller and to fund
remediation of the Disputed Items set forth on the Due Diligence
Punch-List (as defined in Section 2.5) which the Buyer claims
remain unremedied at Closing pursuant to Section 2.5. Any amounts
not expended for such purposes will be paid to the Seller upon
the close of escrow, as more fully set forth in the Escrow
Agreement.
c) The Purchase Price shall be subject to adjustment at
Closing as follows:
<PAGE>
(i) At Closing, the Seller shall deliver to the Buyer a
detailed statement, certified by the chief financial officer
of the Seller and in a form satisfactory to the Buyer (the
"Stub Period Income Statement"), setting forth all payments
received from customers of the Business relating to services
provided by the Business from and after March 1, 2000
through the Closing Date, less any expenses of the Business
paid by the Seller in running the Business during such
period (but excluding any prepaid expenses appearing on the
Closing Statement). The Seller hereby represents and
warrants to the Buyer (and the chief financial officer of
the Seller shall also certify to the following effect upon
delivery of the Stub Period Income Statement) that the Stub
Period Income Statement shall be true and complete as of the
Closing Date for the period covered thereby and shall have
been prepared in accordance with the cash basis method of
accounting and the Seller's books and records, and that the
expenses charged against the revenues indicated thereon
shall have been incurred solely in the ordinary course of
business of the Business, consistent with past practice. The
Seller shall also deliver to the Buyer any supporting
documentation reasonably requested by the Buyer with respect
thereto. If, following the Closing, the Seller receives any
invoices requesting payment for services provided to the
Business from and after March 1, 2000 which were not
reflected on the Stub Period Income Statement, the Seller
will promptly forward them to the Buyer for payment directly
to the vendor supplying the invoiced service.
(ii) At Closing, the Seller shall deliver to the Buyer
a closing statement, certified by the chief financial
officer of the Seller and in a form satisfactory to the
Buyer, setting forth a true and accurate accounting of (1)
all prepaid expenses of the Seller or the Subsidiary
relating to the Business, (2) all customer advances and
security deposits under any Customer Contract, and (3) all
accounts payable and obligations to customers of the
Business for future services in connection with customer
prepayments under Customer Contracts as of the Closing Date,
in each case other than those already reflected on the Stub
Period Income Statement (the "Closing Statement"). The
Seller hereby represents and warrants to the Buyer (and the
chief financial officer of the Seller shall also certify to
the following effect upon delivery of the Closing Statement)
that the Closing Statement shall be true and complete as of
the Closing Date and shall have been prepared in accordance
with U.S. generally accepted accounting principles,
consistently applied ("GAAP"), and the Seller's books and
records, and that the prepaid expenses indicated thereon
shall have been incurred solely in the ordinary course of
business of the Business, consistent with past practice. The
Seller shall also deliver to the Buyer any supporting
documentation reasonably requested by the Buyer with respect
thereto.
<PAGE>
(iii) The Purchase Price shall be adjusted at Closing
based upon the Stub Period Income Statement and the Closing
Statement (collectively, the "Statements") as follows: (A)
in the event that the Stub Period Income Statement shows a
net loss, the Purchase Price payable to the Seller at
Closing shall be increased by the amount of such net loss,
and in the event that the Stub Period Income Statement shows
a net profit, the Purchase Price payable to the Seller at
Closing shall be decreased by the amount of such net profit;
and (B) in the event that the Closing Statement shows that
the assets set forth therein are greater than the
liabilities set forth therein (i.e., the amounts set forth
in clause (1) of Section 2.2(c)(ii) above exceed the sum of
the amounts set forth in clauses (2) and (3) of Section
2.2(c)(ii) above), the Purchase Price shall be increased by
the difference thereof, and in the event that the Closing
Statement shows that the assets set forth therein are less
than the liabilities set forth therein (i.e., the amounts
set forth in clauses (2) and (3) of Section 2.2(c)(ii) above
exceed the amounts set forth in clause (1) of Section
2.2(c)(ii) above), the Purchase Price shall be decreased by
the difference thereof.
d) The Purchase Price, as adjusted pursuant to the terms of
Section 2.2(c), shall be further adjusted by reducing the
Purchase Price at Closing by the agreed-upon estimate of the cost
of rectifying and remedying those items on the Due Diligence
Punch-List which the Buyer and the Seller agree at Closing
(pursuant to Section 2.5) remain unremedied as of the Closing
Date. The Buyer agrees to undertake good faith efforts to remedy
each such item promptly following Closing, and in any event by
the nine-month anniversary date of the Closing. To the extent
that, on such nine-month anniversary date, the Buyer has not
commenced efforts to remedy any such item, the Buyer shall
promptly pay to the Seller the agreed-upon estimate of the cost
of rectifying and remedying such item.
2.3. Disputes Regarding Statements. Disputes with respect to
the Statements shall be dealt with as follows:
a) The Buyer shall have thirty (30) business days following
the Closing (the "Dispute Period") to dispute the net Purchase
Price adjustment amount reflected in the Statements (a "Statement
Dispute"). If the Buyer has a Statement Dispute, the Buyer shall
deliver to the Seller written notice (a "Dispute Notice") within
the Dispute Period setting forth in reasonable detail a
description of the Statement Dispute. Within ten (10) days after
the Buyer's delivery of any such Dispute Notice, the Buyer and
the Seller shall meet at a mutually acceptable time and place and
thereafter as often as such parties reasonably deem necessary and
shall, in good faith, cooperate in an attempt to resolve such
Statement Dispute and agree in writing upon an appropriate
adjustment to the disputed amounts reflected in the Statements.
Without limiting the generality of the foregoing, in connection
with any such Statement Dispute, the Seller agrees to furnish or
cause the Seller's accountants to afford to the Buyer and its
accountants and agents full access to all working papers, books,
records, financial data and other documentation used in the
calculation of the amounts set forth on the Statements.
b) If any Statement Dispute is not finally resolved within
twenty (20) business days after the Buyer shall have delivered a
Dispute Notice, as aforesaid, or if the parties shall fail to
meet within ten (10) days after the Buyer's delivery of any such
Dispute Notice, then the Statement Dispute shall be referred to a
mutually acceptable, independent, accounting firm (the
"Arbitrator") for resolution in accordance with the terms hereof
(the "Statements Arbitration"), and in any event as soon as
practicable. The Seller and the Buyer represent and warrant to
each other that such Arbitrator is an independent entity which
has not represented, nor has had any other business or financial
relationship with, such party or any affiliate thereof within the
past ten (10) years.
<PAGE>
c) In the event that such accounting firm is then unwilling
or unable to serve as the Arbitrator, the parties hereto shall
select by mutual written agreement another nationally recognized
certified public accounting firm to serve as the Arbitrator,
which firm is not then rendering (and during the preceding ten
(10) year period has not rendered) services to any party hereto
or any affiliate thereof, nor shall such firm then have or have
had during the past ten (10) years any other business or
financial relationship with such party or affiliate thereof.
d) The Arbitrator shall hold a hearing within fifteen (15)
days of the submission of the Statement Dispute for arbitration
(the "Hearing") and shall render a decision within ten (10) days
of the conclusion of such hearing. In preparation for its
presentation at such Hearing, the each party may depose such
directors, officers, employees or agents of the other party or
their respective outside accountants or advisors, and any third
parties, as it may deem reasonably necessary for such
preparation. Each party hereto may file with the Arbitrator such
briefs, affidavits and supporting documents as they deem
appropriate. The Seller shall provide the Arbitrator with all
working papers, books, records, financial data and other
documentation used in the calculation of the amounts set forth on
the Statements, as well as any other documentation requested by
the Arbitrator. Any decision made by the Arbitrator within the
scope of its authority shall be final, binding and
non-appealable.
e) The Arbitrator shall be authorized to decide in favor of
and choose the position of either of the parties hereto or to
decide upon a compromise position between the ranges presented by
the parties to such arbitration. The Arbitrator shall base its
decision solely upon the presentations of the parties hereto at
the Hearing and any materials made available to it hereunder and
not upon independent fact-gathering. The Arbitrator shall not
place any reliance in reaching its determination in respect of
any disputed item that such item was treated in a particular
manner in a balance sheet previously certified or reviewed by the
Seller's accountants.
f) The Arbitrator's decision regarding its final resolution
of any Statement Dispute (the "Arbitrator's Decision") shall be
in writing, shall set forth the calculations made in reaching its
decision, shall describe the manner in which such calculations
were made and shall include a representation that the manner so
used was in accordance with GAAP and the specific terms of this
Agreement relative to the calculation of the amounts set forth in
the Statements. The Arbitrator's Decision shall specifically set
forth the amount of any adjustment required to be made to the
Purchase Price pursuant to this Agreement.
g) Any such Statements Arbitration shall take place in the
borough of Manhattan in New York, NY, unless the parties shall
mutually agree on another location. The Statements Arbitration
shall be governed by the United States Arbitration Act, 9 U.S.C.
ss.ss. 1 through 16, and judgment upon the award of the
Arbitrator may be entered by any court having jurisdiction
thereof.
<PAGE>
h) The fees and expenses of the Arbitrator shall be borne
(i) by the Seller in the event that the Buyer's calculation of
the net Purchase Price adjustment was closer in dollar amount to
the Arbitrator's determination than was the Seller's calculation
thereof, and (ii) by the Buyer in the event that the Seller's
calculation of the net Purchase Price adjustment was closer in
dollar amount to the Arbitrator's determination than was the
Buyer's calculation thereof. Subject to the foregoing, each of
the parties hereto shall bear their own costs and expenses
related to any such Statements Arbitration. Upon the request of
the Arbitrator, each party hereto agrees to enter into an
arbitration agreement providing reasonable protection to the
Arbitrator, in such form as may be mutually acceptable to the
Arbitrator and the parties hereto.
i) If the Arbitrator's decision would result in an
adjustment to the Purchase Price, then the Purchase Price shall
be so adjusted by the parties in accordance with such
determination. To the extent a downward adjustment is warranted,
the Buyer may seek non-exclusive remuneration therefor out of the
Escrow Amount under the Escrow Agreement.
2.4. Allocation. The allocation of the consideration for the
Purchased Assets shall be agreed to in writing by the Buyer and the Seller prior
to the Closing. Such allocation shall be used for all purposes, including the
preparation and filing of Internal Revenue Service Form 8594 with respect to the
transactions contemplated hereby.
2.5. Due Diligence; Escrow. The parties hereto acknowledge
that the Buyer has been afforded an opportunity to conduct certain due diligence
with respect to the Seller and the Business prior to the date hereof, with the
full permission of the Seller, and is being afforded the continued right to
conduct a due diligence investigation prior to the Closing. Attached hereto as
Schedule 2.5 is a detailed statement listing and/or describing, as of the date
hereof, any unsatisfactory results of the Buyer's due diligence investigation of
the Business, and setting forth a mutually acceptable calculation of the cost of
rectifying and remedying the items on such list, which has been executed by the
parties hereto as of the date hereof so as to indicate their acceptance thereof
(as updated, the "Due Diligence Punch-List"). At Closing, the Seller shall
deliver to the Buyer an updated Due Diligence Punch-List, certified by an
executive officer of the Seller, representing and warranting as to the status of
the repair of the items listed thereon. Prior to the Closing, the Seller shall
have afforded the Buyer the opportunity to inspect, test and verify the results
of the Seller's remediation efforts and the status of the Due Diligence
Punch-List. In the event that the Buyer agrees at Closing that any item on the
Due Diligence Punch-List has been remedied prior to the Closing, then such item
shall be removed from such list, and no deduction to the Purchase Price shall be
made pursuant to Section 2.2(d) with respect thereto. In the event that the
Buyer claims at Closing that any item which the Seller claims has been remedied
has not so been remedied, then the mutually agreed upon cost of remedying such
item shall be included in the Escrow Amount. In any event, the reduction to the
Purchase Price contemplated by Section 2.2(d) shall consist only of the mutually
agreed upon costs of remedying those items on the Due Diligence Punch-List which
the parties hereto mutually agree remain unremedied as of Closing. The Escrow
Amount delivered to the Escrow Agent at Closing under the Escrow Agreement shall
be comprised of the sum of (i) the mutually-agreed upon costs for remedying and
rectifying those items remaining on the Due Diligence Punch-List at Closing
which the Seller claims were remedied but as to which the Buyer disagrees (the
"Disputed Items"), plus (ii) $222,418 (the "Escrow Amount").
2.6. Certain Pre-Closing Testing of Cable System Assets.
Promptly following execution hereof, and as far in advance of the Closing as
practicable (but not less than five (5) days in advance of the Closing), the
Seller shall commence performing certain cumulative signal leakage testing of
those Cable System Assets which were not substantially built (as defined in 47
C.F.R. 76.620(a)) as of January 1, 1998, as such testing may be required by FCC
(as defined in Section 3.3) regulations. The Seller shall invite the Buyer to
participate in and observe such testing, and the parties shall reasonably
cooperate with each other with respect thereto, and such testing shall be
conducted on an expedited basis prior to the Closing at the expense and cost of
the Seller. The Seller shall promptly provide the Buyer with the results of such
tests as they are conducted, indicating, in particular, performance levels, so
that the Buyer can objectively determine whether any of such tested Cable System
Assets are not in compliance with applicable regulatory standards therefor. The
Seller covenants and agrees to take such actions as are necessary, at its cost
and expense, to cause any Cable System Assets which such tests indicate are not
in compliance with applicable regulatory standards to, in fact, comply by the
Closing, or, at the option of the Seller, to reduce the Purchase Price at
Closing by the agreed upon cost of remediation.
<PAGE>
ARTICLE III. THE CLOSING AND TRANSFER OF ASSETS
3.1. Closing. The transfer of assets contemplated by this
Agreement (the "Closing") shall occur at the offices of Cummings & Lockwood,
Four Stamford Plaza, Stamford, Connecticut, once all of the conditions to
Closing have been met or waived, on such date and at such time as the parties
shall mutually agree upon (the "Closing Date"). The effective time of the
Closing shall be deemed to be 12:01 a.m. on the Closing Date.
3.2. Deliveries by the Buyer. At the Closing, the Buyer shall
deliver the following to the Seller (or the Escrow Agent, as the case may be):
a) The payment required by Section 2.2(a)(i);
b) The Escrow Amount, which shall be delivered to the Escrow
Agent to be held pursuant to the Escrow Agreement;
c) An executed instrument of assumption in substantially the
form of Exhibit B;
d) A certificate of the Secretary of the Buyer, attesting as
to the incumbency of those officers executing this Agreement and
any other agreements in connection herewith on behalf of the
Buyer, and attaching thereto a certified copy of resolutions of
the board of directors of the Buyer providing authority for the
execution, delivery, and performance by the Buyer of this
Agreement, and the other agreements to which the Buyer is a party
entered into in connection herewith, and the transactions
contemplated hereby and thereby;
e) An opinion of Cummings & Lockwood, counsel to the Buyer,
in form and substance reasonably satisfactory to the Seller;
f) A certificate, dated the Closing Date, in form reasonably
satisfactory to the Seller, executed on behalf of the Buyer by a
duly authorized officer of the Buyer, to the effect that the
Buyer has fulfilled the conditions specified in Section 3.5; and
g) Such other instruments or documents as may be necessary
or appropriate to carry out the transactions contemplated hereby.
<PAGE>
3.3. Deliveries by the Seller. At the Closing, the Seller
shall deliver the following to the Buyer:
a) A general assignment and bill of sale for the Purchased
Assets in substantially the form of Exhibit C attached hereto;
b) Consents from the customers party to the respective
Customer Contracts representing at least 55% of the Seller's 1999
revenues, in a form satisfactory to the Buyer;
c) Evidence of the assignment of all items identified in
Section 1.1(e) hereof;
d) A trademark assignment in substantially the form of
Exhibit D attached hereto;
e) Evidence of the satisfaction and termination of all
judgments and liens indicated on the reports submitted pursuant
to Section 3.6(d);
f) A copy of the most recent notice provided to the Federal
Communications Commission ("FCC") by the Seller pursuant to
Sections 76.615 and 76.620(a) of Title 47 of the United States
Code of Federal Regulations, as well as evidence of compliance
(in such form as the Buyer may reasonably request and the Seller
shall be reasonably able to supply) with all FCC regulations
applicable to the Business (including, but not limited to, the
cumulative signal leakage index requirements under Section 76.611
of Title 47 of the United States Code of Federal Regulations)
except as otherwise provided in Section 2.6;
g) A copy of the most recent statement of account provided
to the Register of Copyrights by the Seller pursuant to Section
111 of Title 17 of the United States Code, as well as evidence of
payment of all fees payable thereunder or under any other
Sections of Title 17 or United States Copyright Office
regulations applicable to the Business;
h) A certificate of the Secretary of the Seller, attesting
as to the incumbency of those officers executing this Agreement
and any other agreements in connection herewith on behalf of the
Seller or the Subsidiary, and attaching thereto:
(i) a certified copy of resolutions of the board of
directors of the Seller providing authority for the
execution, delivery, and performance of this Agreement, and
the other agreements to which the Seller is a party entered
into in connection herewith, and the transactions
contemplated hereby and thereby;
(ii) a certified copy of resolutions of the
shareholders of the Seller providing authority for the
execution, delivery, and performance of this Agreement, and
the other agreements to which the Seller is a party, and the
transactions contemplated hereby and thereby; and
<PAGE>
(iii) a certified copy of the current Certificate of
Incorporation and Bylaws of the Seller and the Subsidiary;
i) An opinion of McCarter & English, counsel to the Seller,
in form and substance reasonably satisfactory to the Buyer;
j) A certificate, dated as of the Closing Date, reasonably
satisfactory to the Buyer, executed on behalf of the Seller by a
duly authorized officer of the Seller, to the effect that the
conditions specified in Sections 3.5 and 3.6 have been fulfilled;
k) An updated Disclosure Schedule of the Seller, revised to
reflect any changes to the original Disclosure Schedule submitted
to the Buyer upon execution hereof which are necessary in order
to render such Disclosure Schedule fully accurate and complete as
of the Closing Date; provided, it shall be a condition to Closing
that such revised Disclosure Schedule shall not, in the Buyer's
determination, be materially different from the version thereof
submitted upon execution of this Agreement, and, provided,
further, that the submission of such updated Disclosure Schedule
shall not excuse the Seller from any inaccurate or misleading
disclosure, or failure to disclose any matter, which, upon
execution should have been so disclosed in order to make the
Seller's representations and warranties true upon execution;
l) A "good standing certificate" with respect to the Seller
and the Subsidiary from each jurisdiction where each entity is
incorporated and qualified to do business;
m) Copies of fully-executed nonsolicitation agreements,
substantially in the form of Exhibits E-1 and E-2 attached hereto
(each, a "Nonsolicitation Agreement"), binding the three (3)
executives of the Seller referred to in Section 6.10 hereof; and
n) Such other instruments or documents as may be necessary
or appropriate to carry out the transactions contemplated hereby.
<PAGE>
3.4. Mutual Deliveries. At the Closing, the parties shall
execute, acknowledge, and deliver to each other the following:
a) A Cross-Receipt, in substantially the form attached
hereto as Exhibit F;
b) The Escrow Agreement; and
c) Such other instruments or documents as may be necessary
or appropriate to carry out the transactions contemplated by this
Agreement and to comply with the terms hereof.
3.5. Conditions to Each Party's Obligations Under this
Agreement. The respective obligations of each party under Articles I and II of
this Agreement shall be subject to the satisfaction, or the waiver by such party
hereto, at or prior to the Closing, of each of the following conditions
precedent:
a) The representations and warranties of the other party
contained herein shall be true in all respects on and as of the
Closing Date with the same force and effect as if made on and as
of such date (except as they may specifically relate to another
date), and the other party hereto shall have performed in all
respects all obligations and agreements, and complied in all
respects with all covenants, and satisfied all conditions to
Closing, contained in this Agreement to be performed, complied
with and/or satisfied by such party at or prior to the Closing
Date;
b) No injunction, restraining order, or other ruling or
order issued by any court of competent jurisdiction or
governmental, quasi-governmental, or regulatory department or
authority or other law, rule, regulation, legal restraint, or
prohibition preventing the purchase and sale of the Purchased
Assets, and no investigation by any governmental,
quasi-governmental, or regulatory department or authority, shall
be in effect as of or shall have commenced on or prior to the
Closing Date, and no action, suit, or proceeding brought by any
governmental, quasi-governmental, or regulatory department or
authority shall be pending or threatened as of the Closing Date
that seeks any injunction, restraining order, or other order that
would prohibit the purchase and sale of the Purchased Assets or
materially impair the ability of the Buyer to own and operate the
Business after the Closing;
c) The Seller and the Buyer shall have prepared and filed
with the FCC those certain FCC Applications (as defined in
Section 8.3) referred to in Section 8.3 below; and
<PAGE>
d) The Escrow Agent shall have executed and delivered the
Escrow Agreement.
3.6. Conditions to Buyer's Obligations Under This Agreement.
The obligations of the Buyer under Articles I and II of this Agreement shall be
further subject to the satisfaction, or waiver by the Buyer, at or prior to the
Closing, of each of the following conditions precedent:
a) The Buyer shall have completed its due diligence
investigation with respect to the Seller, the Business and the
Purchased Assets, and the Seller shall have delivered an updated
Due Diligence Punch-List at Closing, certifying as to the
corrective actions taken with respect thereto since the version
delivered upon execution hereof.
b) All consents by third parties (including Governmental
Authorities, as defined in Section 4.3(c)) that are required for
the transfer of the Business and the Purchased Assets, and for
the consummation of the transactions contemplated hereby,
including, without limitation, the consents of the customers
party to the Customer Contracts, shall have been obtained or
provided for; provided, however, for purposes hereof, it shall
suffice, with respect to any consent required from the FCC, if
the FCC shall have granted "special temporary authority" in
response and with respect to the STA Application (as defined in
Section 8.3) filed pursuant to Section 8.3 below.
c) Since the date of execution hereof, the Business and the
Purchased Assets shall not have been materially adversely
affected in any way by any act of God, fire, flood, war, labor
disturbance, legislation (proposed or enacted), or other event or
occurrence, and there shall not have occurred any event,
condition, or state of facts of any character that has materially
and adversely affected or may reasonably be anticipated to
materially and adversely affect the Business or the Purchased
Assets.
d) The Seller shall have caused to be performed a
comprehensive tax lien, UCC lien, and judgment search with
respect to the Seller, the Subsidiary, and the Purchased Assets,
in all appropriate jurisdictions and shall have delivered the
results thereof to the Buyer, and shall have terminated and/or
satisfied all of such liens and judgments to the complete
satisfaction of the Buyer prior to Closing (as set forth in
Section 3.3(d) above).
e) Without limiting any other conditions to Closing, the
Rochester Consent (as defined in Section 4.11(e)) shall be in
full force and effect and shall not have been revoked or
modified.
<PAGE>
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE SELLER
Except as set forth on the schedules attached hereto and
incorporated herein by reference (the "Disclosure Schedule"), the Seller
represents and warrants to the Buyer, as of the date hereof and as of the
Closing Date, as follows:
4.1. Organization and Qualification. Each of the Seller and
the Subsidiary is a corporation duly organized, validly existing, and in good
standing under the laws of its respective state of incorporation, with all
requisite power and authority and legal right to own and operate its assets and
to carry on the Business. Each of the Seller and the Subsidiary is duly licensed
and qualified to do business as a foreign corporation and is in good standing in
every jurisdiction where the ownership or operation of its assets or the conduct
of the Business requires such qualification, except in such jurisdictions where
the failure to so qualify would not have a material adverse effect on the
Business, the Purchased Assets, or the prospects of the Business (a "Material
Adverse Effect") or would not adversely effect the ability of the Buyer to
enforce any material rights included in the Purchased Assets.
4.2. Authorization. The Seller has full corporate power,
authority, and legal right to execute and deliver, and to perform its
obligations under, this Agreement and such other agreements as shall be entered
into by the Seller in connection herewith. The execution and delivery of this
Agreement by the Seller and such other agreements as shall be entered into by
the Seller in connection herewith and the performance by the Seller of its
obligations hereunder and thereunder will have been duly authorized by all
requisite corporate action by the time of the Closing. No other action on the
part of the Seller is necessary to authorize the execution and delivery of this
Agreement or the other agreements to be entered into by the Seller in connection
herewith or the performance of its obligations hereunder or thereunder. This
Agreement has been, and the other documents to be delivered at Closing by the
Seller will be, duly and validly executed and delivered by the Seller and, upon
receipt of requisite shareholder approval, will constitute the legal, valid, and
binding obligation of the Seller, enforceable against the Seller in accordance
with their respective terms, except to the extent that such enforcement may be
subject to applicable bankruptcy, insolvency, reorganization, moratorium, or
other similar laws now or hereafter in effect relating to creditors' rights and
remedies generally, or the application of equitable principles.
4.3. No Violation. Neither the execution and delivery of this
Agreement or the other agreements to be entered into by the Seller in connection
herewith by the Seller, nor the performance by the Seller of its obligations
hereunder or thereunder, will:
<PAGE>
a) Violate or result in any breach of any provision of the
Certificate of Incorporation or By-Laws of the Seller;
b) Violate, conflict with, result in a breach or permit the
termination or acceleration of, require the consent of any other
party to, or constitute a default (with or without due notice,
lapse of time, or both), entitle any party to accelerate any
obligation, result in the loss of any benefit, or give rise to
the creation of any options, pledges, security interests, liens,
mortgages, claims, debts, charges, or other encumbrances or
restrictions of any kind whatsoever (each, an "Encumbrance") upon
any of the Purchased Assets under any of the terms, conditions,
or provisions of, any contract, agreement, or arrangement,
whether written or oral, to which the Seller or the Subsidiary is
a party or by which the Seller or the Subsidiary or any of their
assets are bound, assuming compliance with the matters referred
to in Section 4.6 below; nor
c) Violate any order, writ, judgment, injunction, decree,
statute, law, rule, regulation, or ordinance of any federal,
state, local or foreign court or governmental,
quasi-governmental, or regulatory department or authority
("Governmental Authority") applicable to the Seller or the
Subsidiary or their properties or assets.
<PAGE>
4.4. Title to Assets.
The Seller or the Subsidiary, as the case may be, has good and marketable title
to all of the tangible assets which constitute the Purchased Assets, including,
without limitation, all installed cable, wiring, conduits and fixtures, free and
clear of any and all Encumbrances. The Seller or the Subsidiary, as the case may
be, holds, as the licensee, authorized holder or franchisee, as the case may be,
all of the licenses, authorizations and franchises that comprise the Purchased
Assets, free and clear of any and all Encumbrances. The Seller or the
Subsidiary, as the case may be, holds all rights as itself as stated in and
under each contract that is a Purchased Asset, free and clear of any and all
Encumbrances. The Seller or the Subsidiary, as the case may be, owns all
fixtures, cable, conduit and wiring constituting Purchased Assets and installed
at the property of third parties, free and clear of any and all Encumbrances
other than (i) such rights to fixtures, cable, and wiring as are granted to
another party by the terms of the contract calling for the installation and use
of the fixtures, which such contracts are set forth on Section 4.11 of the
Disclosure Schedule, and (ii) the rights of such other party to retain or
purchase the fixtures under the provisions of state law or FCC regulations upon
the expiration or termination of such contract or the cessation of private cable
service to a subscriber. The Purchased Assets constitute all of the properties
and assets that are used in, necessary for and relevant to the Business. Section
4.4 of the Disclosure Schedule lists all Cable System Assets whose respective
dates of "substantial completion," as such term is referred to in the FCC
regulations, was on or after January 1, 1998.
4.5. Subsidiaries. All of the outstanding capital stock of the
Subsidiary is owned directly by the Company, free and clear of any Encumbrance
and free of any other material limitation or restriction on its rights as owner
thereof (including any restriction on the right to vote such capital stock),
other than those imposed by applicable law with respect to the sale or transfer
of such shares of stock. There are no existing options, calls or commitments of
any character relating to the issued or unissued capital stock or other
securities or equity interests of the Subsidiary.
4.6. Governmental Authorization. Other than the consents and
approvals of or filings or registrations with the governmental or
quasi-governmental or regulatory departments and authorities listed on Section
4.6 of the Disclosure Schedule, no filing or registration with, no notice to,
and no permit, authorization, consent, or approval of any Governmental
Authority, is necessary for the execution and delivery of this Agreement, the
consummation of the purchase and sale of the Business and the Purchased Assets,
or to enable the Buyer to continue to conduct the Business after the Closing in
a manner that is consistent with that in which it is presently conducted.
<PAGE>
4.7. SEC Documents. The Seller has filed a true and complete
copy of each report, schedule, registration statement and definitive proxy
statement required to be filed by the Seller with the Securities and Exchange
Commission (the "SEC") (as such documents have since the time of their filing
been amended, the "SEC Documents"), all of which are available on the SEC's
EDGAR filing system. As of their respective dates, and with respect to the
Purchased Assets and the Business, the SEC Documents complied in all material
respects with the requirements of the Securities Act of 1933, as amended (the
"Securities Act"), or the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), as the case may be, and the rules and regulations of the SEC
thereunder applicable to such SEC Documents, and none of the SEC Documents
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading, with
respect to the Purchased Assets and the Business. The financial statements of
the Seller relating to the Purchased Assets and the Business included in the SEC
Documents comply as to form in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto, have been prepared from and are in accordance with the books
and records of the Seller and fairly present (subject, in the case of the
unaudited statements, to normal, recurring audit adjustments) the consolidated
financial position of the Seller and its consolidated subsidiaries as at the
dates thereof and the consolidated results of their operations and cash flows
for the periods then ended, in each case in conformity with generally accepted
accounting principles applied on a consistent basis during such periods (except
as may be indicated in the notes thereto or, in the case of the unaudited
statements, as permitted by Form 10-Q of the SEC).
4.8. Computer Software. Section 4.8 of the Disclosure Schedule
identifies (i) all of the electronic data processing systems, information
systems, computer software programs, program specifications, charts, procedures,
routines, report layouts and formats, record file layouts, computer databases,
and related material (collectively, the "Computer Systems") that are material to
the conduct of the Business, (ii) whether such Computer Systems are owned or
licensed by the Seller or the Subsidiary and, (iii) if licensed, the name of
such licensor. The Seller or the Subsidiary has, and the Buyer shall have
following the Closing, all legal right to use the Computer Systems as they are
currently being used. The use of the Computer Systems does not infringe upon the
rights of any other person or entity, nor has the Seller or the Subsidiary
received any notice of a claim of such infringement. Except as set forth in
Section 4.8 of the Disclosure Schedule, there are no licenses, sublicenses, or
other agreements relating to the use of the Computer Systems by the Seller or
the Subsidiary or third parties.
<PAGE>
4.9. Other Proprietary Rights.
a) Set forth in Section 4.9(a) of the Disclosure
Schedule is a list of all patents, copyrights, trademarks
and trade names (and all applications therefor and licenses
thereof), inventions, trade secrets, logos, proprietary
processes, formulas and all other proprietary information,
know-how and intellectual property rights (other than the
Computer Systems referred to in Section 4.8) in which the
Seller or the Subsidiary has proprietary rights (hereinafter
referred to collectively as the "Proprietary Rights").
b) The use of the Proprietary Rights does not infringe
upon the rights of any other person or entity, whether or
not registered, patented or copyrighted. The Seller has not
received any notice of a claim of such infringement nor have
any such claims been the subject of any action, suit or
proceeding involving the Seller or any of the Purchased
Assets.
c) The Seller has no knowledge of any infringement or
improper use by any third party of the Proprietary Rights,
nor has the Seller instituted any action, suit or proceeding
in which an act constituting an infringement of any of the
Proprietary Rights was alleged to have been committed by a
third party. Without limiting the provisions of this Section
4.9, in the conduct of the Business, the Seller has the
right to use the corporate name "MagnaVision" in the State
of New Jersey and the federally registered mark
"MagnaVision" in the United States and, to the Seller's
knowledge, no person uses or has the right to use any of
such names or marks or any derivation thereof in connection
with the industry of the Business.
d) There are no licenses, sublicenses or agreements
relating to (i) the use by third parties of the Proprietary
Rights or (ii) the use by the Seller of the Proprietary
Rights.
4.10. Absence of Certain Changes. Except as disclosed in the
SEC Documents, the Seller and the Subsidiary have at all times conducted the
Business only in the ordinary and usual course, and, since the date of the
latest SEC Document (the "Balance Sheet Date"), the Business has been conducted
only in the ordinary and usual course, and, without limiting the generality of
the foregoing, since the Balance Sheet Date there has not occurred with respect
to the Business or the Purchased Assets:
a) Any event, change, or condition of any character in,
to or on the business, properties, assets, financial
condition, results of operations or prospects of the Seller
or the Subsidiary that, individually or in the aggregate,
have had or could reasonably be expected to have a Material
Adverse Effect;
<PAGE>
b) Any sale, lease, license, Encumbrance, or other
transfer or disposition of any material assets or properties
relevant to the Business (either singly or in the
aggregate);
c) Any cancellation of, default under, modification to,
or termination of any Material Contract, nor has any notice
of any of the foregoing been sent or received by the Seller;
d) Any damage, destruction, or loss to or of any of the
Purchased Assets, whether or not covered by insurance, that
has had or may have a Material Adverse Effect; or
e) Any failure by the Seller or Subsidiary to take all
reasonable efforts to preserve its goodwill with its
suppliers, customers and others with which each has business
relationships.
4.11. Contracts.
a) Section 4.11(a) of the Disclosure Schedule sets
forth a list of all of the contracts, agreements, and
arrangements, whether written or oral, formal or informal,
to which the Seller or the Subsidiary is a party that relate
to the provision of private cable television and data
services by the Seller or the Subsidiary to its customers
(the "Customer Contracts") and otherwise support or relate
to the Cable System Assets, including, without limitation,
all retransmission contracts and consents (sometimes
hereinafter collectively referred to as the "Material
Contracts"), accurate, complete and current copies of all of
which have been delivered to the Buyer. The Material
Contracts were negotiated at arms' length and in good faith
on the part of the Seller or the Subsidiary, and are
enforceable in accordance with their respective terms.
b) Neither the Subsidiary nor the Seller is in material
default with respect to any obligation to be performed under
any Material Contract.
<PAGE>
c) The Seller has no knowledge of any material default
by any third party under any Material Contract, nor is the
Seller aware of any fact, condition, or event, including,
without limitation, the execution, delivery, and performance
of this Agreement, that could cause any third party to
terminate any Material Contract. There exists no event,
occurrence, condition, or act that, with the giving of
notice or the lapse of time, would become a material default
by the Seller or the Subsidiary or any third party under any
Material Contract, the result of which could have a Material
Adverse Effect. Neither the Subsidiary nor the Seller has
received, or given, notice of termination, non-renewal or
cancellation of any Material Contract, nor is the Seller
aware of any reasonable basis for the occurrence of any of
the foregoing.
d) No consent by, notice to, or approval from any third
party is required under any Material Contract as a result of
or in connection with the execution, delivery, or
performance of this Agreement and the consummation of the
transactions contemplated herein, and all Material Contracts
shall continue in full force and effect following the
consummation of the transactions contemplated herein.
e) Without limiting the foregoing, the University of
Rochester has provided the Seller with written evidence of
its acceptance and approval of the installation by the
Seller of such institution's private cable system (the
"Rochester Consent"), a copy of which is attached as Section
4.11(e) of the Disclosure Schedule. The Rochester Consent
is, and as of the Closing shall be, valid, enforceable in
accordance with its terms and in full force and effect, in
the form so delivered and so attached.
4.12. Taxes.
a) The Seller has:
(i) timely filed or caused to be filed with appropriate
governmental agencies or departments all Federal, state,
local, and foreign returns (the "Tax Returns") for Taxes (as
defined in Section 4.12(c)) required to be filed (including,
without limitation, estimated tax returns, employer's
withholding tax returns, other withholding tax returns, and
Federal Unemployment Tax Act returns);
(ii) made available to the Buyer complete and
accurate copies of such Tax Returns; and
<PAGE>
(iii) paid or caused to be paid, or have made
adequate provision or set up an adequate accrual or
reserve for the payment of, all Taxes required to be
paid in respect of the periods for which such Tax
Returns are due, and will establish an adequate accrual
or reserve for the payment of all Taxes payable in
respect of the period, including portions thereof,
subsequent to the last of said periods required to be
so accrued or reserved, up to and including the Closing
Date.
b) The Tax Returns are complete and accurate in all
material respects, and the calculations and deductions set
forth therein have been made, in all respects, in compliance
with generally accepted accounting principles, consistent
with historic practice and consistently applied throughout
the relevant periods, and all applicable Tax statutes, laws,
rules, and regulations.
c) For the purposes of this Section 4.12, the term
"Tax" shall include all taxes, charges, withholdings, fees,
levies, penalties, additions, interest, or other assessments
imposed by any United States Federal, state, local, foreign,
or other taxing department or authority on the Seller and
its subsidiaries (including, without limitation, as a result
of being a member of an affiliated, combined, or unitary
group or as a result of any obligation arising out of an
agreement to indemnify any other person), and including, but
not limited to, those related to income, gross receipts,
gross income, sales, use, excise, occupation, services,
leasing, valuation, transfer, license, customs duties, or
franchise.
4.13. Compliance with Applicable Laws; Permits and Licenses.
a) The Seller or the Subsidiary holds all material
licenses, franchises, permits, consents, and authorizations
necessary for the lawful conduct of the Business, and the
Business is not being and has not, during the relevant
statute of limitations period, been conducted in violation
of any provision of any federal, state, local, or foreign
statute, law, ordinance, rule, regulation, judgment, decree,
order, concession, grant, franchise, permit, consent, or
license or other governmental authorization or approval
applicable to the Seller, the Subsidiary, the Business or
the Purchased Assets, including, without limitation, any
cumulative signal leakage index requirements, any
environmental laws and the Employee Retirement Income
Security Act of 1974, as amended. Without limiting the
foregoing, the Seller represents and warrants that, to the
best knowledge of the Seller, the Cable System Assets have
been installed and maintained in accordance with, and are
currently and as of the Closing will be in compliance with,
all specifications and standards therefor required by
applicable law or regulation.
<PAGE>
b) The Seller has not received any notification of any
uncured or unresolved failure by the Seller or the
Subsidiary to comply with any such federal, state, local, or
foreign statute, law, ordinance, rule, regulation, judgment,
decree, order, concession, grant, franchise, permit,
consent, or license or other governmental authorization or
approval applicable to the Business.
c) Section 4.13(c) of the Disclosure Schedule sets
forth all of the licenses, franchises, permits, consents,
and authorizations necessary for the lawful conduct of the
Business.
d) The conduct of the Business does not require or
engage in wireline crossing of public rights-of-way. To the
Seller's knowledge, all easements relevant to the conduct of
the Business have been validly obtained by customers of the
Business, where applicable, and are in full force and
effect. The Seller, or the Subsidiary, has all rights
necessary to use such easements in the conduct of the
Business.
e) To the extent required, the Seller or the Subsidiary
has obtained retransmission consent for carriage of
broadcast signals by the Business.
f) For all accounting periods from the second half of
1996 through the present, the Seller or the Subsidiary has
filed copyright statements of account with the U.S.
Copyright Office pursuant to Section 111 of the Copyright
Act of 1976, as amended (the "Copyright Act"), for each
portion of the Business constituting a copyright filing
entity and has made all royalty fee payments in connection
therewith. There are no outstanding inquiries to the Seller
or the Subsidiary from the Copyright Office nor any claim or
complaint from any third party involving the Business's
compliance with the Copyright Act or related rules and
regulations of the Copyright Office.
4.14. Regulatory Reports. The Seller has filed or caused to be
filed all material reports, registrations, and statements, together with any
amendments required to be made with respect thereto, that was required to be
filed in respect of the Business with any Governmental Authority, and has paid
or caused to be paid all fees or assessments due and payable in connection
therewith. Except for normal periodic examinations conducted by the applicable
Governmental Authority in the regular course of the Business, no Governmental
Authority has initiated any proceeding or investigation into the Business in the
last five (5) year period, nor has the Seller, the Subsidiary or any third party
initiated any such proceeding. There is no unresolved violation, criticism, or
exception by any Governmental Authority with respect to any report or statement
relating to an examination of the Business.
<PAGE>
4.15. Agreements with Regulatory Agencies. Neither the
Subsidiary nor the Seller is subject to any cease-and-desist or other order
issued by, or a party to any written agreement or memorandum of understanding
with, any Governmental Authority that restricts or may adversely impact the
conduct of the Business.
4.16. Customers of the Seller. To the Seller's knowledge, the
Seller's and the Subsidiary's relationship with the parties to the Material
Contracts is good, and the Seller does not know of any fact, condition, or event
that would adversely affect the relationship of the Seller or the Subsidiary
with such parties.
4.17. Representatives. Neither the Subsidiary nor the Seller
has engaged any third parties to perform any services on its behalf to customers
of the Business, and neither owes any monies to any such representative for
provision of any such services.
4.18. Business Warranties. All equipment installed or sold by
the Seller or the Subsidiary (including, without limitation, any Cable System
Assets) and any services rendered by either in connection with the Business have
been in conformity with all applicable contractual commitments, customer
specifications, expressed or implied warranties and laws and regulations, except
for such instances of nonconformance which would not have a Material Adverse
Effect. No liability or claim exists, nor is the Seller aware of any reasonable
basis for any liability or claim arising, which could have a Material Adverse
Effect, for repair, replacement, or damage in connection with such installations
or sales or performance of services, other than those resulting from the
ordinary wear and tear on the Cable System Assets relating thereto. Section 4.18
of the Disclosure Schedule sets forth an accurate, correct, and complete
statement of all warranties relating to the Business. In furtherance of the
Buyer's due diligence investigation, the Seller has furnished to the Buyer
copies of certain systems documentation, "as builts" documentation, customer
specifications and plans relating to the installation, maintenance and
performance of the Cable System Assets (the "Cable System Assets' Customer
Specifications"), and, on or prior to the Closing, the Seller will have
furnished to the Buyer copies of all remaining Cable System Assets' Customer
Specifications (other than those which are the subject of items on the Due
Diligence Punch-List, which the Seller shall use its best efforts to locate and
deliver to the Buyer as soon after the Closing as possible) such that, by the
Closing, the Buyer will have received from the Seller any and all Cable System
Assets' Customer Specifications relevant to all of the Cable System Assets
(except as provided immediately above in this sentence), all of such materials
being true, accurate and complete and representing all materials of such
substance relevant to the continued operation of the Cable System Assets.
<PAGE>
4.19. Litigation. There is no action, suit, inquiry, claim,
judicial or administrative proceeding, arbitration, or investigation pending or,
to the Seller's knowledge, threatened against the Seller, the Subsidiary, any
other affiliate, or any of their properties, assets, or rights, which relate to
the Business or the Purchased Assets, before any court, arbitrator, or
administrative or governmental body, nor is there any judgment, decree,
injunction, rule, or order of any court, governmental department, commission,
agency, instrumentality, or arbitrator outstanding against, and unsatisfied by,
the Seller or an affiliate thereof, nor does the Seller know of any fact, event,
or condition that could reasonably be expected to serve as a basis for the
assertion of any such action, suit, inquiry, claim, judicial or administrative
proceeding, arbitration, or investigation. Section 4.19 of the Disclosure
Schedule sets forth an accurate, correct, and complete list and summary
description of all existing claims, duties, responsibilities, liabilities, and
obligations arising from or alleged to arise from any injury or damage to person
or property as a result of the ownership, possession, or use of any equipment
installed or sold, or service performed, with respect to the Business. All such
claims are fully covered by the Seller's liability insurance or otherwise
provided for by the Seller, and the Seller shall properly satisfy and discharge
all such claims.
4.20. No Undisclosed Liabilities. Since the Balance Sheet
Date, neither the Seller nor any of its subsidiaries has incurred any
liabilities or obligations of any nature, whether or not accrued, contingent or
otherwise, which have, or could reasonably be expected to have, a Material
Adverse Effect on the Seller, the Purchased Assets, the Business or the
Subsidiary, or that would be required by generally accepted accounting
principles to be reflected on a consolidated balance sheet of the Seller and its
subsidiaries (including the notes thereto).
4.21. Brokers' Fees and Commissions. The Seller is solely
responsible for any and all fees and expenses due any investment banker, broker,
finder, or intermediary engaged on behalf of the Seller or any affiliate thereof
in connection with the transactions contemplated herein, including, without
limitation, any fees owing to Daniels & Associates, L.P.
4.22. Disclosure. No representation or warranty as to the
Seller, the Purchased Assets, or the Business contained in this Agreement and no
statement contained in the Disclosure Schedule or any document, instrument, or
agreement delivered pursuant hereto or in connection herewith contains any
untrue statement of a material fact, or omits to state any material fact
necessary, in light of the circumstances under which it was made, in order to
make the statement herein or therein not misleading.
4.23. Copies of Documents. The Seller has delivered or caused
to be made available for inspection and copying by the Buyer and its advisers
true, complete, and correct copies of all documents referred to in any Section
of the Disclosure Schedule.
<PAGE>
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer represents and warrants to the Seller, as of the
date hereof and as of the Closing Date, as follows:
5.1. Organization and Qualification. The Buyer is a
corporation duly organized, validly existing, and in good standing under the
laws of the State of Connecticut, with all requisite power and authority to own
and operate its properties and assets and to carry on its business as it is now
being conducted, and is duly qualified and licensed to do business as a foreign
corporation and is in good standing in each jurisdiction in which the ownership
or operation of its assets or the conduct of its business requires such
licensing or qualification, except in such jurisdictions wherein the failure to
so qualify would not have a material adverse effect on the business, revenues,
financial condition, properties, assets, or prospects of the Buyer.
5.2. Authorization. The Buyer has full corporate power and
authority to execute and deliver, and to perform its obligations under, this
Agreement and the other agreements to be entered into by the Buyer in connection
herewith. The execution and delivery of this Agreement by the Buyer and the
other agreements to be entered into by the Buyer in connection herewith and the
performance by the Buyer of its obligations hereunder and thereunder have been
duly authorized by all requisite corporate action on the part of the Buyer. No
other action on the part of the Buyer is necessary to authorize the execution
and delivery of this Agreement and the other agreements to be entered into by
the Buyer in connection herewith, or the performance of its obligations
hereunder and thereunder. This Agreement has been, and the other documents to be
delivered at the Closing by the Buyer will be, duly and validly executed and
delivered by the Buyer and constitute the legal, valid, and binding obligation
of the Buyer, enforceable against the Buyer in accordance with their terms,
except to the extent that such enforcement may be subject to applicable
bankruptcy, insolvency, reorganization, moratorium, or other similar laws now or
hereafter in effect relating to creditors' rights and remedies generally, or the
application of equitable principles.
5.3. No Violation. Neither the execution and delivery of this
Agreement by the Buyer, nor the performance by the Buyer of its obligations
hereunder, will:
a) Violate or result in any material breach of any
provision of the Certificate of Incorporation or By-Laws of
the Buyer; or
<PAGE>
b) Violate any order, writ, judgment, injunction,
decree, statute, rule, or regulation of any court or
Governmental Authority applicable to the Buyer or its
properties or assets that, in any case, could reasonably be
expected to have a material adverse effect on the business,
revenues, financial condition, results of operations,
properties, assets, or prospects of the Buyer.
5.4. Consents and Approvals. Other than the consents and
approvals of or filings or registrations with the Governmental Authorities
listed on Section 5.4 of the Disclosure Schedule, no filing or registration
with, no notice to, and no permit, authorization, consent, or approval of any
governmental, quasi-governmental, or regulatory department or authority is
necessary for the execution and delivery by the Buyer of this Agreement or the
consummation by the Buyer of the purchase and sale of the Business and the
Purchased Assets.
5.5. Broker's Fees and Commissions. Neither the Buyer nor any
of its shareholders, directors, officers, employees, or agents has employed any
investment banker, broker, finder, or intermediary, and no such fee or other
commission is owed by the Buyer to any third party, in connection with the
transactions contemplated herein.
5.6. Disclosure. No representation or warranty as to the Buyer
contained in this Agreement and no statement made by the Buyer in the Disclosure
Schedule or any document, instrument, or agreement delivered pursuant hereto or
in connection herewith contains any untrue statement of a material fact, or
omits to state any material fact necessary, in light of the circumstances under
which it was made, in order to make the statement herein or therein not
misleading.
5.7. FCC Qualifications. The Buyer is qualified under the
Communications Act of 1934, as amended, and FCC regulations to hold the
FCC-issued authorizations listed in Section 4.6 of the Disclosure Schedule.
5.8. Financing. The Buyer shall use all commercially
reasonable efforts to obtain financing for the transactions contemplated by this
Agreement pursuant to the terms and conditions set forth in the draft financing
commitment letter that has been previously provided by the Buyer to the Seller
and such other terms and conditions that are reasonably satisfactory to the
Buyer.
<PAGE>
ARTICLE VI. COVENANTS OF THE SELLER
The Seller hereby agrees to keep, perform, and fully discharge
the following covenants and agreements:
6.1. Interim Conduct of Business. From the date hereof until
the Closing, the Seller shall (and shall cause the Subsidiary to) preserve,
protect, and maintain the Business and the Purchased Assets and shall (and shall
cause the Subsidiary to) operate the Business consistent with prior practice and
in the ordinary course of business. Without limiting the generality of the
foregoing, from the date hereof until the Closing, except for transactions
expressly approved in writing by the Buyer, the Seller shall (and shall cause
the Subsidiary to), with respect to the Business:
a) Not sell, lease, or otherwise dispose of or agree to
sell, lease, or otherwise dispose of any Purchased Assets;
b) Maintain the Cable System Assets in good repair,
order, and condition (reasonable wear and tear excepted);
c) Maintain and keep in full force and effect all
insurance on or relating to the Business and the Purchased
Assets presently carried;
d) Preserve intact the organization and reputation of
the Business, afford the Buyer and its representatives
access to the Seller's employees and agents for the purposes
of allowing the Buyer to discuss and negotiate potential
employment opportunities with the Buyer following the
Closing, and maintain the good will of suppliers, customers,
and others having material business relationships with the
Business (and, in connection with the foregoing, the Buyer
shall provide the Seller with copies of all offers made to
such employees and agents (which the Seller shall hold in
confidence), and the terms of such offers, including the
location of employment, the relevant position or title,
compensation and job duties);
e) Not amend, modify or terminate, or agree to amend,
modify or terminate, any Material Contracts (except for
renewals in the ordinary course of business on terms
identical to or better for the Seller than those most
recently in effect thereunder);
<PAGE>
f) Proceed toward remedying and correcting the items
listed on the Due Diligence Punch-List and provide the Buyer
with status reports in respect thereof;
g) At the Seller's option, proceed toward fulfilling
the Seller's obligations under Section 2.6 hereof and
provide the Buyer with status reports in respect thereof;
h) Neither waive any rights nor forgive any claims
under any Material Contract that would otherwise exist
following the Closing, other than in the ordinary course of
business;
i) Not take any action to seek, encourage, solicit, or
support or cooperate with any inquiry, proposal, expression
of interest, or offer from, nor engage in negotiations or
discussions with, any other person or entity with respect to
an acquisition, combination, or similar transaction
involving the Business or the Purchased Assets, and the
Seller will promptly inform the Buyer of the existence of
any such inquiry, proposal, expression of interest, or offer
and shall not furnish any information to or participate in
any discussions or negotiations with any other person or
entity regarding the same;
j) Not make any material change in the program
offerings or other aspects of any service package provided
to any customer of the Seller with respect to the Business;
k) Continue to meet the contractual obligations of, and
to pay obligations relating to, the Business as they mature
in normal course, consistent with past practice, including
accounts payable and performance of the Material Contracts
in a manner consistent with past practices and good business
practice, and otherwise continue to comply with all
applicable laws, regulations, orders and permits relating to
the Business; and
l) Not take any action that would be required to be
disclosed under the terms of Section 4.10.
The Seller shall promptly notify the Buyer of any material
change in the financial condition, results of operations, properties, or
prospects of the Business and shall keep the Buyer fully informed of such
events, as well as the occurrence or failure to occur, as the case may be, of
any of the foregoing.
<PAGE>
6.2. Cooperation; Access. From the date hereof through the
Closing Date, the Seller shall cooperate fully in assisting the Buyer in the
planning and implementation of a transitional plan for the transfer of the
Business. Without limiting the foregoing, the Seller shall afford to
representatives of the Buyer reasonable access to its customers, offices,
plants, properties, books, and records, including all financial and operating
data, of the Business as the Buyer may from time to time request, provided, that
no such investigation pursuant to this Section 6.2 or Section 3.6(a) shall
affect any representation or warranty given by the Seller hereunder.
6.3. Confidentiality. For a period of three (3) years
following the Closing, the Seller shall not use, publish, or disclose to any
third person (including a successor in interest to the Seller or any subsidiary
of the Seller) any confidential or proprietary information relating to the
Business; provided, however, that the foregoing restrictions shall not apply to
information that: (i) is necessary to enforce its rights under or defend against
a claim asserted under this or any other agreement with the Buyer, (ii) is
necessary or appropriate to disclose to any regulatory authority or governmental
agency having jurisdiction over the Seller or the Subsidiary or as otherwise
required by law, or (iii) becomes generally known other than through a breach of
this Agreement by the Seller. The Seller acknowledges that there is not an
adequate remedy at law for the breach of this Section 6.3 and that, in addition
to any other remedies available, injunctive relief may be granted for any such
breach.
6.4. Certain Payments. Promptly following Closing, the Seller
shall (and shall cause the Subsidiary to) pay and fully discharge all sales
taxes collected in the conduct of the Business, and all liabilities and
obligations to customers and suppliers of the Business that are not expressly
assumed by the Buyer as and when due, and shall otherwise (and shall cause the
Subsidiary to) pay, discharge, or make adequate provision for all other
liabilities and obligations of the Business, including all Excluded Liabilities
and Obligations. The Seller shall (and shall cause the Subsidiary to) promptly
pay and fully discharge any income, excise, employment, sales, or use taxes
arising as a result of the sale, transfer, conveyance, or assignment of the
Purchased Assets. The Seller shall retain responsibility after the Closing Date
for all pending litigation related to the Business and liability for claims
therein asserted against the Buyer, the Purchased Assets, or the Business.
6.5. Records and Documents. For five (5) years following the
Closing Date, the Seller shall grant to the Buyer and its representatives, at
the Buyer's request, access to and the right to make copies of those records and
documents related to the Business, possession of which is retained by the
Seller, as may be necessary or useful in connection with the Buyer's conduct of
the Business after the Closing. If during such period the Seller elects to
dispose of such records, the Seller shall first give the Buyer sixty (60) days'
written notice, during which period the Buyer shall have the right to take such
records without further consideration.
<PAGE>
6.6. Best Efforts. The Seller shall use its commercially
reasonable best efforts to satisfy or cause to be satisfied all of the
conditions to Closing applicable to it and to consummate the transactions
contemplated by this Agreement.
6.7. Further Assurances. Following the Closing, the Seller
shall take all action reasonably requested by the Buyer to confirm, facilitate,
or perfect the transfer of the Purchased Assets, including, without limitation,
assisting the Buyer with respect to the Buyer's obtaining of any permits or
governmental approvals necessary for the conduct of the Business.
6.8. Employee Matters. The Seller shall use its commercially
reasonable best efforts to assist the Buyer in the Buyer's efforts to retain
those employees of the Seller specifically identified in writing to the Seller
whom the Buyer indicates an interest in potentially hiring following the
Closing. Notwithstanding the foregoing, the Buyer shall not be responsible for,
and the Seller shall indemnify and hold the Buyer harmless against, any
severance or termination pay obligations based upon prior policies of the Seller
arising from the transaction contemplated hereby. The Buyer shall not assume or
be responsible for any employee benefit or welfare plans of the Seller or the
Subsidiary or any liabilities related thereto. Without limiting the foregoing,
the Seller shall provide notices, if any, required under the Workers Adjustment
and Retraining Notification Act and satisfy any state law notice requirements.
6.9. Covenant Not to Compete.
a) The Seller covenants and agrees, on behalf of itself
and its subsidiaries, that, for a period of three (3) years
following the Closing Date, it will (and will cause its
subsidiaries, including the Subsidiary):
(i) not directly or indirectly own, operate,
manage, join, control, participate in the ownership,
management, operation or control of, or be paid or
employed by, or acquire any securities of, or otherwise
become associated with or provide assistance to any
business entity or activity which provides private
cable television or data services, other than wireless
terrestrial micro-wave transmission services (the
"Services") in the Territory (as defined in clause (d)
immediately below); provided, however, that the
foregoing shall not prevent the Seller from acquiring
the securities of or an interest in any business,
provided such ownership of securities or interest
represents at the time of such acquisition, but
including any previously held ownership interest, less
than five percent (5%) of any class or type of
securities of, or interest in, such business;
<PAGE>
(ii) not directly induce any customers to whom the
Buyer is providing any Services, including, without
limitation, the customers party to the Customer
Contracts, to not renew their contracts for Services
with the Buyer or to transfer their patronage from the
Buyer to any other business or company engaged in a
business which is directly or indirectly competitive
with the Services conducted by the Buyer, including the
Business;
(iii) not hire, or attempt to hire for employment,
in any business enterprise or activity, any person who
is an employee of the Buyer or any affiliates thereof
(unless such employee leaves the employment of the
Buyer or such affiliates, in which case the Seller will
refrain from hiring or attempting to hire such an
employee for six (6) months after such employee leaves
the employment of the Buyer), or induce any such person
to terminate his employment with the Buyer or any
affiliates thereof, as the case may be.
Notwithstanding the foregoing, the Buyer acknowledges and agrees that Section
6.9(a)(i) shall not be binding upon a Successor Company. For purposes hereof, a
"Successor Company" shall mean an unaffiliated third party into which the Seller
merges or consolidates following the Closing, whether or not the Seller is the
surviving entity in such merger or consolidation.
b) The Seller agrees that damages would be an
inadequate remedy for the Buyer in the event of a breach or
threatened breach of this Section 6.9 and thus, in the event
of any such breach or threatened breach, either with or
without pursuing any potential damage remedies, the Buyer
may immediately obtain and enforce an injunction prohibiting
the Seller from violating this Section 6.9 in any court of
law or equity.
<PAGE>
c) Any provision of Section 6.9(a) which is deemed
invalid, illegal or unenforceable in any jurisdictions
shall, as to the jurisdiction and subject to this Section
6.9(c), be ineffective to the extent of such invalidity,
illegality or unenforceability without affecting in any way
the remaining provisions of Section 6.9(a) in such
jurisdiction or rendering that or any other provision of
Section 6.9(a) invalid, illegal or unenforceable in any
other jurisdiction. If any covenant or agreement contained
in Section 6.9(a) shall be deemed invalid, illegal or
unenforceable because its scope is deemed too broad, such
covenant or agreement shall be modified so that the scope of
the covenant or agreement is reduced only to the minimum
extent necessary to render the modified covenant or
agreement valid, legal and enforceable.
d) For purposes hereof, "Territory" shall refer to the
United States of America.
e) Following the Closing, the Seller shall not use, nor
permit any affiliate of it to use, the name "MagnaVision",
or any similar name, except that such entities may continue
to use that name as part of their respective corporate names
until such time as Seller modifies its governing
organizational documents, and those of its affiliates, by
effectuating a name change in compliance with this Section
6.9(e), which the Seller agrees to effect on or prior to the
90th day following the Closing Date.
6.10. Collateral Nonsolicitation Agreements. The Seller
covenants and agrees to enter into Nonsolicitation Agreements with each of the
following executives of the Seller prior to the Closing: (i) Robert Hoffman,
(ii) Jeffrey Haertlein, and (iii) Keith Heilos. The Seller acknowledges and
agrees that the Buyer shall not be responsible for any obligation on the part of
the Seller to pay any of such individuals any severance benefits in connection
therewith. The Seller covenants and agrees to enforce such Noncompetition
Agreements following the Closing at the Seller's expense; provided, the Buyer is
hereby assigned the right to join in the enforcement of such Nonsolicitation
Agreements at the Buyer's expense; provided, further, that, in the event the
Seller does not take prompt action to enforce such Nonsolicitation Agreements
following the Closing, the Buyer may do so directly, in the name of the Seller.
Without limiting the foregoing, the Seller further covenants and agrees to
enforce any and all other noncompetition agreements relating to the Business in
accordance with their terms.
<PAGE>
ARTICLE VII. COVENANTS OF THE BUYER
The Buyer hereby agrees to keep, perform, and fully discharge
the following covenants and agreements:
7.1. Best Efforts. The Buyer shall use its commercially
reasonable best efforts to satisfy or cause to be satisfied all of the
conditions to Closing applicable to it and to consummate the transactions
contemplated by this Agreement.
7.2. Further Assurances. Following the Closing, the Buyer
shall take all action reasonably requested by the Seller to confirm, facilitate,
or perfect the transfer of the Purchased Assets.
ARTICLE VIII. MUTUAL COVENANTS
8.1. Bulk Sales. The Buyer and the Seller hereby waive
compliance with the provisions of the bulk sales laws of any state, including
without limitation, the Uniform Commercial Code - Bulk Transfer provisions. The
Seller agrees to indemnify, defend, and hold harmless the Buyer from and against
any liability, loss, cost, or expense (including reasonable attorney's fees) in
connection with or as a result of such waiver and non-compliance.
8.2. Notice of Changes. Each party will promptly advise the
other party in writing (i) of any event known to its executive officers
occurring subsequent to the date of this Agreement that would render any
representation or warranty of such party contained in this Agreement, if made on
or as of the date of such event, untrue, inaccurate or misleading in any
material respect (other than an event so affecting a representation or warranty
which is expressly limited to a state of facts existing at a time prior to the
occurrence of such event) and (ii) of the occurrence of any event which has had
or reasonably may have a Material Adverse Effect upon the Business or the
ability of such party to satisfy the conditions to Closing.
<PAGE>
8.3. Regulatory Approvals. Prior to the Closing Date, each
party shall execute and file, or join in the execution and filing of, any
application or other document that may be necessary in order to obtain the
authorization, approval or consent of any Governmental Authority, which may be
reasonably required, or that the other party may reasonably request, in
connection with the consummation of the transactions contemplated hereby. Each
party shall use its commercially reasonable best efforts to obtain all such
authorizations, approvals and consents. Promptly upon execution hereof, the
Seller and the Buyer shall join in an application or applications to the FCC, to
be filed on the appropriate FCC forms (the "Assignment Application"), requesting
the FCC's written consent to the assignment of the FCC-issued authorizations
listed in Section 4.6 of the Disclosure Schedule. In addition, commensurate with
the preparation and filing of the Assignment Application, the Seller and the
Buyer shall join in an application or applications to the FCC, to be filed on
the appropriate FCC forms, requesting that the FCC grant "special temporary
authority" permitting the Buyer to temporarily operate those certain microwave
radio stations used in the Business pending final FCC approval of the Assignment
Application (the "STA Application;" together with the Assignment Application,
being referred to herein collectively as the "FCC Applications"). Each party
shall pay its own costs in preparing the FCC Applications and shall pay one-half
(1/2) of any FCC filing fee associated with the FCC Applications. Each of the
Seller and the Buyer shall, at its own expense, cooperate in providing all
information and taking all steps necessary, desirable and appropriate to
expedite the preparation, filing, prosecution and granting of such applications.
In the event any person requests the FCC to deny any FCC Application, or
otherwise challenges the grant of any FCC Application, or in the event the FCC
consents to the assignment of any such authorization to the Buyer and any person
appeals or otherwise challenges such consent before the FCC or through a
judicial proceeding, the Seller shall, unless otherwise directed by the Buyer,
oppose such petition or challenge, or defend such action and the order of the
FCC, diligently and in good faith, with the Seller bearing the expense of the
same if and to the extent such challenge relates to the qualifications of the
assignor or the existence of the challenged permit or license, and with the
Buyer bearing the expense of the same if and to the extent such challenge
relates to the qualifications of the Buyer as assignee, to the end that the
transactions contemplated by this Agreement may be finally consummated.
<PAGE>
8.4. Accounts Receivable, etc. At Closing, the Seller shall
deliver to the Buyer an accounts receivable aging report (by customer) with
respect to the Business, which shall reflect the Seller's accounts receivable
outstanding as of the Closing Date, shall be true, accurate and complete and
shall have been prepared in accordance with GAAP and the books and records of
the Seller (the "Accounts Receivable Report"). The Seller and the Buyer shall
mutually cooperate with each other with respect to the giving of any notices by
the Buyer to third parties advising them of the transaction and to whom payments
with respect to any outstanding or future invoices should be directed. Upon
Closing, other than as expressly permitted by the Buyer pursuant to the
immediately preceding sentence, the Seller shall refrain (and shall cause the
Subsidiary to refrain) from contacting any customers of the Business for the
purpose of requesting payment of invoices of the Seller or the Subsidiary
outstanding as of the Closing Date. For so long as the amounts indicated on the
Accounts Receivable Report remain unpaid, but not later than the 90th day
following the Closing (the "Collection Period"), the Buyer covenants and agrees
to use commercially reasonable efforts to collect, on behalf of the Seller, the
Seller's accounts receivable listed on the Accounts Receivable Report from
customers of the Business. Any amounts received by the Buyer from customers of
the Business with respect to the Seller's accounts receivable outstanding as of
the Closing Date shall be remitted to the Seller within five (5) business days
of the Buyer's receipt thereof. If more than one invoice is outstanding for any
customer of the Business, any payments received by the Buyer shall be applied to
the oldest outstanding invoice, unless the customer's payment by its terms
specifies or clearly indicates the particular invoice to which it relates.
Within ten (10) business days following expiration of the Collection Period, the
Buyer and the Seller may mutually agree for the Seller to sell to the Buyer, at
a discounted rate to be mutually agreed upon within such period, any accounts
receivable of the Business listed on the Accounts Receivable Report still
outstanding, in which case the Buyer shall be permitted to pursue those
receivables for its own account. To the extent not so purchased by the Buyer,
the Seller shall have the right to contact its delinquent account payors
directly and collect its outstanding accounts receivable in its own name. The
Seller shall provide the Buyer with immediate written notice of the Seller's
receipt of any of its pre-Closing accounts receivable of the Business so that
the Buyer may update the Accounts Receivable Report on a rolling basis during
the Collection Period to facilitate the administration of the foregoing
arrangement. To the extent the Seller (or any of its affiliates) receives a
payment from a third party, including, without limitation, any customer of the
Business, which is rightfully property of the Buyer, the Seller shall notify the
Buyer of such occurrence and forward such monies to the Buyer within five (5)
business days of its receipt.
<PAGE>
ARTICLE IX. SURVIVAL AND INDEMNIFICATION
9.1. Survival. All representations, warranties, covenants, and
agreements contained in this Agreement, and in any certificate, schedule,
document, or other writing delivered pursuant hereto or in connection with the
transactions contemplated herein, shall be in all cases deemed to have been
relied upon by the parties hereto, and shall survive the Closing; provided,
however, that the representations and warranties shall be fully effective and
enforceable only for a period of one (1) year after the Closing Date, and shall
thereafter be of no further force or effect, except in the case of fraud, in
which case they shall survive until such fraud is discovered and a claim
therefor is finally adjudicated or settled, and except further that the
representations and warranties of the Seller set forth in Section 4.12 shall
survive for the applicable statute of limitations, and the representations and
warranties of the Seller set forth in Section 4.4(a) shall survive indefinitely.
Additionally, the parties agree that the indemnification obligations set forth
in this Article IX shall survive with respect to any claims made within the
applicable survival period until finally resolved or judicially determined,
including any appeal thereof. The representations, warranties, covenants, and
agreements contained in this Agreement or any certificate, schedule, document,
or other writing delivered pursuant hereto shall not be affected by any
investigation, verification, or examination by any party hereto or by any person
acting on behalf of any such party.
9.2. Indemnification of the Buyer. From and after the Closing,
the Seller agrees to indemnify, defend, and save the Buyer and its directors,
officers, employees, owners, agents, affiliates, and their successors and
assigns or heirs and personal representatives, as the case may be (each a "Buyer
Indemnified Party"), harmless from and against, and to promptly pay to a Buyer
Indemnified Party or reimburse a Buyer Indemnified Party for any and all losses,
damages, expenses (including, without limitation, court costs, amounts paid in
settlement, judgments, reasonable attorneys' fees, or other expenses for
investigation and defense, including, without limitation, those arising out of
the enforcement of this Agreement), suits, actions, claims, deficiencies,
liabilities, or obligations (collectively, the "Losses") sustained or incurred
by such Buyer Indemnified Party relating to, caused by, or resulting from:
a) Any misrepresentation or breach of warranty by the
Seller under, or failure to fulfill or satisfy any covenant
(including, without limitation, those set forth in Sections
2.5, 2.6, 6.10, 8.3 and 10.15 hereof) or agreement made by
the Seller contained in this Agreement or any certificate,
schedule, document, or other writing delivered by the Seller
pursuant hereto (provided, however, that inaccuracies in the
Statements shall be addressed exclusively through the
provisions of Section 2.3), or pursuant to any covenant or
agreement made by the Seller in any certificate, schedule,
document, or other writing delivered by the Seller pursuant
hereto; provided, however, that the Seller shall have no
liability for repair or remediation of any item on the Due
Diligence Punch-List which was the subject of a Purchase
Price reduction under Section 2.2(d), and, provided,
further, that the Seller's liability with respect to those
specific Disputed Items remaining on the Due Diligence
Punch-List shall be limited to the portion of the Escrow
Amount respectively allocated to such items on the Due
Diligence Punch-List; and provided, further, however, that
the Due Diligence Punch-List shall not be deemed to
otherwise exculpate the Seller from the breach of any other
representation, warranty or covenant hereunder; without
limiting the foregoing proviso clause, and by way of
example, to the extent the Seller did not provide the Buyer
with Cable System Assets' Customer Specifications for any
particular Cable System Asset prior to delivery of the Due
Diligence Punch-List on the date hereof, the failure of the
Buyer to list or describe in any fashion any problems
related to compliance with the customer specifications of
such related Cable System Asset on the initial Due Diligence
Punch-List shall not relieve the Seller from any liability
therefor under this Agreement;
<PAGE>
b) Any causes of action or claims arising in connection
with the Business, the Purchased Assets or the Assumed
Obligations based, in whole or in part, upon actions or
omissions that occurred prior to the Closing, or relate to
the period prior to the Closing;
c) The Excluded Liabilities and Obligations;
d) Any amounts owing to the Buyer by virtue of any
post-Closing resolution of a Closing Statement Dispute;
e) Any overpayments made by the Buyer to the Seller
pursuant to Section 8.4 hereof, including those made because
of an overstatement by the Seller in the Accounts Receivable
Report; and
f) The non-compliance of the Seller with the provisions
of any applicable bulk sales act governing the purchase and
sale of the Purchased Assets.
Notwithstanding the foregoing provisions of this Section 9.2, in no event shall
the maximum aggregate amount of Losses for which the Seller shall have an
indemnification obligation hereunder exceed $1,000,000.
9.3. Indemnification of the Seller. From and after the
Closing, the Buyer agrees to indemnify, defend, and save the Seller and its
respective legal representatives, heirs, successors, assigns, agents, and
affiliates (each, a "Seller Indemnified Party"), forever harmless from and
against, and to promptly pay to a Seller Indemnified Party or reimburse a Seller
Indemnified Party for, any and all Losses sustained or incurred by such Seller
Indemnified Party relating to, caused by, or resulting from:
a) Any misrepresentation or breach of warranty by the
Buyer under, or failure to fulfill or satisfy any covenant
or agreement made by the Buyer contained in, this Agreement
or any certificate, schedule, document, or other writing
delivered by the Buyer pursuant hereto or pursuant to any
covenant or agreement made by the Buyer in any certificate,
schedule, document, or other writing delivered by the Buyer
pursuant hereto;
b) Any causes of action or claims arising in connection
with the Business, the Purchased Assets or the Assumed
Obligations based upon actions or omissions of or by the
Buyer that occurred following the Closing, or relate to the
period following the Closing; and
c) Any amounts owing to the Seller by virtue of any
post-Closing resolution of a Closing Statement Dispute.
<PAGE>
9.4. Indemnification Procedure for Third Party Claims Against
Indemnified Parties.
a) In the event that subsequent to the Closing any
Buyer Indemnified Party or Seller Indemnified Party (each,
an "Indemnified Party") receives notice of the assertion of
any claim or of the commencement of any action, suit, or
proceeding by any entity that is not a party to this
Agreement (including, without limitation, any governmental,
quasi-governmental, or regulatory agencies) (a "Third Party
Claim") against such Indemnified Party, with respect to
which the Buyer or the Seller, as the case may be, is
required to provide indemnification under this Agreement
(the "Indemnifying Party"), the Indemnified Party shall
promptly give written notice, together with a statement of
any available information regarding such claim
(collectively, the "Third Party Indemnification Notice"), to
the Indemnifying Party within thirty (30) days after
learning of such claim (or within such shorter time as may
be necessary to give the Indemnifying Party a reasonable
opportunity to respond to such claim). The Indemnifying
Party shall have the right, upon delivering written notice
to the Indemnified Party (the "Defense Notice") within
thirty (30) days after receipt from an Indemnified Party of
a Third Party Indemnification Notice, to conduct, at the
Indemnifying Party's sole cost and expense, the defense
against such Third Party Claim in the Indemnifying Party's
own name, or, if necessary, in the name of the Indemnified
Party; provided, however, that the Indemnified Party shall
have the right to reasonably approve the defense counsel
representing the Indemnifying Party, which approval shall
not be unreasonably withheld, and, in the event that the
Indemnifying Party and the Indemnified Party cannot agree
upon such counsel within ten (10) days after the Defense
Notice is provided, the Indemnifying Party shall propose an
alternate defense counsel, which shall be subject again to
the Indemnified Party's reasonable approval in accordance
with the terms hereof.
<PAGE>
b) In the event that the Indemnifying Party shall fail
to give the Defense Notice within the time and as prescribed
by Section 9.4(a) hereof, then in any such event the
Indemnified Party shall have the right to conduct such
defense in good faith with counsel reasonably acceptable to
the Indemnifying Party, but the Indemnified Party shall be
prohibited from compromising or settling any such claim
without the prior written consent of the Indemnifying Party,
which consent shall not be unreasonably withheld and shall
be deemed given in the absence of providing the Indemnified
Party with a written response within ten (10) days of any
request therefor. If the Indemnified Party fails to
diligently defend such claim with counsel reasonably
satisfactory to the Indemnifying Party, or settles any such
claim without the Indemnifying Party's prior written consent
or otherwise breaches this Article IX, the Indemnified Party
will be liable for all costs, expenses, settlement amounts,
or other Losses paid or incurred in connection therewith,
and the Indemnifying Party shall have no obligation to
indemnify the Indemnified Party with respect to such claim.
c) In the event that the Indemnifying Party does
deliver a Defense Notice and thereby elects to conduct the
defense of the subject Third Party Claim, the Indemnified
Party will cooperate with and make available to the
Indemnifying Party such assistance and materials as the
Indemnifying Party may reasonably request, all at the sole
cost and expense of the Indemnifying Party. Regardless of
which party defends such claim, the other party hereto shall
have the right at its own cost and expense to participate in
the defense, assisted by counsel of its own choosing.
Without the prior written consent of the Indemnified Party,
which consent shall not be unreasonably withheld, the
Indemnifying Party will not enter into any settlement of any
Third Party Claim if pursuant to or as a result of such
settlement, such settlement would lead to liability or
create any financial or other obligation on the part of the
Indemnified Party for which the Indemnified Party is not
entitled to indemnification hereunder. If a firm decision is
made to settle a Third Party Claim, which offer the
Indemnifying Party is permitted to settle under this Section
9.4(c), and the Indemnifying Party desires to accept and
agree to such offer, the Indemnifying Party will give at
least five (5) days' prior written notice to the Indemnified
Party to that effect, setting forth in reasonable detail the
terms and conditions of any such settlement (the "Settlement
Notice"). If the Indemnified Party objects to such firm
offer within ten (10) calendar days after its receipt of
such Settlement Notice, the Indemnified Party may continue
to contest or defend such Third Party Claim and, in such
event, the maximum liability of the Indemnifying Party as to
such Third Party Claim will not exceed the amount of such
settlement offer described in the Settlement Notice, plus
costs and expenses paid or incurred by the Indemnified Party
up to the point such Settlement Notice had been delivered.
If an Indemnified Party settles any Third Party Claim
without the prior written consent of the Indemnifying Party,
the Indemnifying Party shall have no obligation to indemnify
the Indemnified Party under this Article IX with respect to
such Third Party Claim.
<PAGE>
d) Any judgment entered or settlement agreed upon in
the manner provided herein shall be binding upon the
Indemnifying Party, and shall be conclusively deemed to be
an obligation with respect to which the Indemnified Party is
entitled to prompt indemnification hereunder, subject to the
Indemnifying Party's right to appeal an appealable judgment
or order. Such indemnification shall be required to be made
no later than the tenth (10th) day following the expiration
of any period in which an appeal may be taken, and shall be
satisfied by payment of the amount thereof in cash.
9.5. Failure to Give Timely Third Party Indemnification
Notice. Any failure by an Indemnified Party to give a timely, complete, and
accurate Third Party Indemnification Notice as provided in this Article IX will
not affect the rights or obligations of any party hereunder except and only to
the extent that, as a result of such failure, any party entitled to receive such
Third Party Indemnification Notice was deprived of its right to recover any
payment under its applicable insurance coverage or was otherwise adversely
affected or damaged as a result of such failure to give a timely, complete, and
accurate Third Party Indemnification Notice.
9.6. Notice of Claims as Between Buyer and Seller;
Arbitration. In the case of a claim for indemnification under Section 9.2 or
Section 9.3 hereof, upon determination by a Buyer Indemnified Party or a Seller
Indemnified Party, as the case may be, that it has a claim for indemnification,
the Indemnified Party shall deliver notice of such claim to the Indemnifying
Party, setting forth in reasonable detail the basis of such claim for
indemnification (each, an "Indemnification Notice"). Upon the Indemnification
Notice having been given to the Indemnifying Party, the Indemnifying Party shall
have thirty (30) days in which to notify the Indemnified Party in writing (the
"Dispute Notice") that the amount of the claim for indemnification is in
dispute, setting forth in reasonable detail the basis of such dispute. In the
event that a Dispute Notice is not given to the Indemnified Party within the
required thirty (30) day period, the Indemnifying Party shall be obligated to
pay to the Indemnified Party the amount set forth in the Indemnification Notice
within sixty (60) days after the date that the Indemnification Notice had been
given to the Indemnifying Party.
<PAGE>
In the event that a Dispute Notice is timely given to an
Indemnified Party, the parties hereto shall have thirty (30) days to resolve any
such dispute. All negotiations in connection with such dispute shall be
confidential and shall be treated as compromise and settlement negotiations for
purposes of applicable rules of evidence. In the event that such dispute is not
resolved by such parties within such period, then the dispute shall be resolved
by final and binding arbitration in accordance with the Commercial Arbitration
Rules of the American Arbitration Association ("AAA"), as the same may be
modified by the terms of this Agreement, including, without limitation, the
AAA's provisions with respect to expedited rules of discovery. Within ten (10)
days of the expiration of the thirty (30) day period referenced above, the
demanding party may initiate arbitration by making a written demand for
arbitration on the other party and simultaneously filing copies of the demand,
together with the required fees, with the office of the AAA in New York, New
York (or such other regional office as is in closest proximity to the situs of
the arbitration, as provided below). Within ten (10) business days after receipt
of such demand by the other party, each party shall designate one arbitrator and
the two arbitrators named by the parties will, within ten (10) business days
thereafter, select a third arbitrator (the three arbitrators being collectively
referred to herein as the "Arbitration Panel"). The Arbitration Panel shall
cause a hearing to be held within thirty (30) calendar days after the date the
third arbitrator is selected and shall render an award within forty-five (45)
calendar days from the commencement date of the hearing based on the unanimous
or majority decision of the arbitrators. The arbitration shall be conducted in
the borough of Manhattan in New York, NY. The parties expressly covenant and
agree to be bound by the decision of the Arbitration Panel and accept any such
decision as the final determination of the matter in dispute. Any decision,
award and/or judgment rendered by the Arbitration Panel may be entered in any
court having competent jurisdiction. In no event shall any demand for
arbitration be made after the date that institution of legal or equitable
proceedings based upon the claim, dispute or other matter would be barred by
this Agreement. The expenses and fees of the Arbitration Panel shall be borne as
set forth in the award of the Arbitration Panel. Otherwise, each party shall
bear its own legal fees and expenses. The procedures specified in this Section
shall be the sole and exclusive procedures for the resolution of a dispute;
provided, however, that a party, without prejudice to the above procedures, may
seek a preliminary injunction or other provisional judicial relief, if in its
sole judgment such action is necessary to avoid irreparable damage or to
preserve the status quo.
9.7 Escrow Agreement. As more fully set forth in the Escrow
Agreement, the Buyer shall have the right to satisfy a successful
indemnification claim out of the escrowed funds held in escrow under the Escrow
Agreement.
<PAGE>
ARTICLE X. MISCELLANEOUS PROVISIONS
10.1. Waiver; Modification. No provision of this Agreement may
be modified, waived, or discharged unless such modification, waiver, or
discharge is agreed to in writing and signed by a duly authorized representative
of each of the parties hereto. The Closing of the transactions contemplated
hereby shall not be deemed to constitute a waiver by either party of the other
party's obligations hereunder (including, without limitation, such other party's
pre-Closing covenants). No waiver by either party hereto at any time of
compliance with, or any breach by the other party hereto of, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time.
10.2. Invalidity. If any provision of this Agreement shall be
determined by any court of competent jurisdiction to be unenforceable or invalid
to any extent, the remainder of this Agreement shall not be affected thereby,
and this Agreement shall be construed to the fullest extent possible to as to
give effect to the intentions of the provision found unenforceable or invalid.
10.3. Parties in Interest. This Agreement shall be binding
upon and inure solely to the benefit of each party hereto, and nothing in this
Agreement, expressed or implied, is intended to confer upon any other person any
rights or remedies of any nature whatsoever under or by reason of this
Agreement.
10.4. Expenses. Except as otherwise specifically provided for
herein, each party hereto shall bear all expenses incurred by it in connection
with this Agreement including, without limitation, the charges of its counsel,
accountants, and other experts.
<PAGE>
10.5. Notices. All notices and other communications provided
for hereunder shall be in writing and shall be delivered to each party hereto by
hand or sent by reputable overnight courier, with receipt verified, or
facsimile, with receipt verified, or registered or certified mail, return
receipt requested, addressed as follows:
a) If to the Buyer:
Lamont Television Systems, Inc.
35 Mason Street
Greenwich, Connecticut 06830
Attention: Edward M. Lamont
Telephone: (203) 661-4771
Facsimile: (203) 661-6143
With a copy to:
Marc R. Esterman, Esq.
Cummings & Lockwood
Four Stamford Plaza
P. O. Box 120
Stamford, Connecticut 06904-0120
Telephone: (203) 327-1700
Facsimile: (203) 351-4534
b) If to the Seller:
MagnaVision Corporation
1725 Highway 35 South
Wall, New Jersey 07719
Attention: Robert E. Hoffman
Telephone: (732) 449-1200
Facsimile: (732) 974-1106
With a copy to:
David Broderick, Esq.
McCarter & English
Four Gateway Center
Newark, New Jersey 07102-4096
Telephone: (973) 639-2031
Facsimile: (973) 624-7070
or at such other address as either party may specify by notice to the other
party given as aforesaid. Such notices shall be deemed to be effective five (5)
business days after the same shall have been deposited, postage prepaid, in the
mail, upon delivery when the same shall have been delivered by hand, one (1)
business day after the same shall have been deposited (charges prepaid) with an
overnight courier, or upon receipt of electronic confirmation if sent via
facsimile transmission, as the case may be.
10.6. Governing Law; Forum. The validity, interpretation,
construction, and performance of this Agreement shall be governed by the laws of
the State of Connecticut without regard to the conflicts of law principles
thereof. The parties hereto do hereby consent and submit to the venue and
jurisdiction of the State or Federal Courts sitting in Connecticut as the sole
and exclusive forum for such matters of dispute, and further agree that, in the
event of any action or suit as to any matters of dispute between the parties,
service of any process may be made upon the other party by mailing a copy of the
summons and/or complaint to the other party at the address set forth herein and
a party's refusal to accept any such notice shall be equivalent to service.
<PAGE>
10.7. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
10.8. Headings. All headings contained in this Agreement are
for reference purposes only and shall not in any way effect the meaning or
interpretation of any provision or provisions of this Agreement.
10.9. Integration. This Agreement, and the documents to be
delivered in connection therewith, and the exhibits and schedules thereto, set
forth the entire agreement of the parties hereto in respect of the subject
matter contained herein and supersede all prior and contemporaneous agreements,
promises, covenants, arrangements, understandings, arrangements, communications,
representations, or warranties, whether oral or written, by any officer,
employee, or representative of any party hereto, and any prior agreement of the
parties hereto in respect of the subject matter contained herein is hereby
terminated and cancelled. No agreements or representations, whether written,
oral, express, or implied, with respect to the subject matter hereof have been
made by either party that are not set forth expressly in this Agreement and the
other documents to be delivered in connection herewith and therewith.
10.10. Assignment. Prior to the Closing, this Agreement shall
not be assignable by either party without the express prior written consent of
the other party. An assignment of this Agreement by the Seller following the
Closing shall not release the Seller of any of its obligations hereunder and the
Seller shall remain primarily liable therefor. Any assignment in contravention
of this Section shall be null and void. This Agreement shall be binding upon and
shall inure to the benefit of the Seller and the Buyer and their respective
successors and permitted assigns.
10.11. Publicity. Neither party shall issue any press release
or public announcement of any kind concerning the transactions contemplated by
this Agreement without the prior written consent of the other party hereto,
except as may be required by law or by the rules of any stock exchange, and if
so required the parties shall to the extent that it is reasonably practicable
consult with each other prior to such publicity. The parties agree to issue an
announcement following the Closing in form and content satisfactory to each of
the parties hereto.
10.12. References to the Seller. Throughout this Agreement,
references to the "knowledge" or "awareness" of the Seller, or the giving or
receipt by the Seller of any notice or the taking or omission of any action by
the Seller, as the case may be, shall be deemed to include the Subsidiary, any
other affiliates of the Seller, and its and their respective directors,
officers, employees and agents.
<PAGE>
10.13. Rightful Termination. This Agreement may be terminated
and the purchase and sale of the Purchased Assets contemplated herein may be
abandoned at any time prior to the Closing:
a) by mutual written consent of the Buyer and the
Seller; or
b) by either the Buyer or the Seller if (i) a court of
competent jurisdiction or a Governmental Authority shall
have issued an order, decree or ruling or taken any other
action (which order, decree, ruling or action the parties
hereto shall use their best efforts to lift or dissolve), in
each case restraining, enjoining or otherwise prohibiting
the purchase and sale of the Purchased Assets or the other
transactions contemplated herein or attempting to do the
same, or (ii) the other party has materially breached a
provision hereof and not cured said breach to the
satisfaction of the non-breaching party, or (iii) the
Closing has not occurred by March 31, 2000; provided,
however, notwithstanding the foregoing, if the only
unsatisfied condition to the Buyer's obligation to close
shall be receipt of the "special temporary authority" from
the FCC referred to in Section 3.6(b), then the parties
hereto agree to extend the deadline referred to in clause
(iii) of this Section 10.13(b) to April 30, 2000, or such
later period as they shall agree to if they believe in good
faith that such special temporary authority is reasonably
imminent.
10.14. Procedure and Effect of Termination. In the event of
the termination of this Agreement and the abandonment of the purchase and sale
of the Purchased Assets pursuant to Section 10.13 hereof, written notice thereof
shall forthwith be given to the other party to this Agreement and this Agreement
shall terminate and the purchase and sale of the Purchased Assets shall be
abandoned, without any further action by any of the parties hereto. If this
Agreement is terminated as provided herein:
a) upon request therefor, each party will redeliver all
documents, work papers and other materials of the party
relating to the transactions contemplated herein, whether
obtained before or after the execution hereof, to the party
furnishing the same; and
b) no party hereto shall have any further liability or
further obligation to any other party to this Agreement
resulting from such termination, except that the provisions
of this Section 10.14 shall remain in full force and effect.
It is mutually understood and agreed that the foregoing shall not limit, or
constitute a waiver of, any party's right to pursue all remedies at law
available to it in the event that the other party breaches a covenant or
obligation hereunder prior to Closing which results in a failure to close the
transactions contemplated hereby.
<PAGE>
10.15. Consents. To the extent that any consent or
authorization of another party (including, without limitation, any Governmental
Authority) is required in order to provide the Buyer with the full benefit of
this Agreement and the Purchased Assets, but such consent or authorization was
not obtained prior to the Closing, the Seller and the Buyer shall use their
respective commercially reasonable efforts to obtain such consent or
authorization following the Closing. Until any such consent or authorization
shall be obtained, the Seller shall cooperate with the Buyer in any arrangement
designed to provide for the Buyer the benefits intended to be assigned or
transferred to the Buyer with respect to the related Purchased Asset, including
undertakings by the Buyer to complete contracts as the agent of the Seller. In
any such arrangement, the Buyer shall have the sole responsibility with respect
to the performance of any obligations following the Closing, and shall be solely
entitled to the benefits thereof, and the Seller shall indemnify the Buyer
against and hold the Buyer harmless with respect to any Losses it shall suffer
as a result of the failure to obtain such consent or authorization, unless, in
the case of any requisite consent from a Governmental Authority, the failure to
so obtain was due to the Buyer's having failed to meet any qualifications
imposed by the Governmental Authority as a condition precedent to granting the
consent or approval so sought.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first set forth above.
MAGNAVISION CORPORATION
By /s/ Robert E. Hoffman
--------------------------------
Name: Robert E. Hoffman
Title: President
LAMONT TELEVISION SYSTEMS, INC.
By /s/ Richard F. X. Burke
--------------------------------
Name: Richard F. X. Burke
Title: Vice President, Chief
Financial Oficer
<PAGE>
MAGNAVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,1999, 1998 AND 1997
Exhibit 21
(21) SUBSIDIARIES OF REGISTRANT
Magnavision Corporation, a Delaware Corporation
Subsidiaries
Magnavision, a New Jersey Corporation
Wholly owned subsidiaries:
Magnavision Private Cable, Inc., a Delaware Corporation
Magnavision Wireless Cable, Inc., a Delaware Corporation
<TABLE> <S> <C>
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<CIK> 0000802781
<NAME> MAGNAVISION CORP.
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JAN-01-1999
<EXCHANGE-RATE> 1
<CASH> 230,017
<SECURITIES> 0
<RECEIVABLES> 382,045
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,106,761
<PP&E> 3,195,990
<DEPRECIATION> 1,657,176
<TOTAL-ASSETS> 3,064,313
<CURRENT-LIABILITIES> 3,839,523
<BONDS> 0
4,683,642
131,889
<COMMON> (5,635,544)
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3,064,313
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<TOTAL-REVENUES> 2,962,016
<CGS> 994,491
<TOTAL-COSTS> 994,491
<OTHER-EXPENSES> 2,173,677
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 237,647
<INCOME-PRETAX> (412,845)
<INCOME-TAX> 5,371
<INCOME-CONTINUING> (418,216)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (418,216)
<EPS-BASIC> (.79)
<EPS-DILUTED> 0
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