EXHIBIT 10.24
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___________________________
PURCHASE AGREEMENT
___________________________
among
OPTEL, INC.,
PHONOSCOPE, LTD.,
PHONOSCOPE MANAGEMENT L.C.,
LEE COOK,
ALTON COOK
and
LEE COOK FAMILY TRUST
Dated as of July 23, 1997
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TABLE OF CONTENTS
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Page
1. SALE AND PURCHASE; PURCHASE PRICE; ADJUSTMENTS........................ 1
1.1 The Purchase..................................................... 1
1.2 The Purchase Price............................................... 2
1.3 Adjustments to the Purchase Price................................ 2
1.4 Resolution of Disputes........................................... 5
2. PAYMENT OF PURCHASE PRICE; ESCROW ARRANGEMENTS........................ 6
2.1 Payment of Purchase Price........................................ 6
2.2 Good Faith Deposit; Second Deposit............................... 7
2.3 General Escrow and Indemnity Escrow.............................. 7
2.4 Consent Escrow................................................... 8
2.5 Network Separation Escrow........................................ 9
3. CLOSING; TERMINATION.................................................. 9
3.1 Date of Closing.................................................. 9
3.2 Closing.......................................................... 9
3.3 Termination...................................................... 10
4. CONDITIONS OF CLOSING................................................. 11
4.1 Conditions to Each Party......................................... 11
4.2 Buyer's Conditions to Closing.................................... 12
4.2.1 Opinions of Counsel to the Sellers..................... 12
4.2.2 Representations and Warranties; Covenants.............. 12
4.2.3 Secretary's Certificates; Organization Documents....... 12
4.2.4 Ownership of Shares.................................... 13
4.2.5 Proceedings............................................ 13
4.2.6 No Adverse Legislation................................. 13
4.2.7 Changes................................................ 13
4.2.8 Resignations........................................... 13
4.2.9 Approval and Consents.................................. 13
4.2.10 Other Agreements....................................... 14
4.2.11 Bank Release........................................... 15
4.3 Sellers' Conditions to Closing................................... 15
4.3.1 Representations and Warranties; Covenants.............. 15
4.3.2 Secretary's Certificate................................ 15
4.3.3 Other Agreements....................................... 15
5. EMPLOYEE MATTERS...................................................... 16
6. COVENANTS.............................................................. 17
6.1 Maintain Existence and Obtain Approvals.......................... 17
6.2 Access to Information............................................ 17
6.3 Certain Payments................................................. 18
6.4 Maintenance of Properties; Insurance; Books and Records;
Compliance with Law; Relationships............................... 18
6.5 Deliveries....................................................... 19
6.6 Filings; Approvals............................................... 20
6.7 Conduct of the Business.......................................... 20
6.8 Right of First Offer/Negotiation................................. 22
6.9 Network Separation; Common Strand Segments....................... 23
6.10 Bulk Sales Compliance............................................ 24
6.11 Assignment of Certain Rights..................................... 24
6.12 Use of Name...................................................... 25
6.13 Transfer Taxes................................................... 25
6.14 Certain Tax Matters.............................................. 25
6.15 Pole Attachment Rights........................................... 25
6.16 Best Efforts..................................................... 26
6.17 Transfer of Franchises, Permits, etc............................. 26
7. REPRESENTATIONS AND WARRANTIES OF THE SELLERS.......................... 26
7.1 Authority; Organization and Qualification; Capitalization........ 26
7.2 Actions Pending.................................................. 28
7.3 Outstanding Debt; Defaults....................................... 28
7.4 Material Liabilities; Financial Statements....................... 28
7.5 Assets........................................................... 29
7.6 Taxes............................................................ 30
7.7 No Conflicts..................................................... 30
7.8 Broker's or Finder's Commissions................................. 31
7.9 Applicable Environmental Regulations............................. 31
7.10 Compliance with Other Laws....................................... 31
7.11 ERISA; Labor Aggreements......................................... 31
7.12 Possession of Franchises, Licenses, etc.......................... 31
7.13 Intellectual Property............................................ 32
7.14 Governmental Consents............................................ 32
7.15 Insurance Coverage............................................... 33
7.16 Disclosure....................................................... 33
7.17 Subscribers, Rights of Entry..................................... 33
7.18 Cable Systems.................................................... 34
7.19 FCC Licenses..................................................... 34
7.20 FCC Applications................................................. 35
7.21 FCC Compliance................................................... 35
7.22 Zoning, Aviation, etc. Compliance................................ 35
7.23 Compliance with the Copyright Act............................. 35
7.24 Must-Carry and Retransmission Consent......................... 36
7.25 Petitions for Special Relief.................................. 36
7.26 Conduct in the Ordinary Course................................ 36
7.27 Solvency...................................................... 36
7.28 Program Audits................................................ 37
7.29 Effective Competition......................................... 37
8. REPRESENTATIONS AND WARRANTIES OF BUYER............................. 37
8.1 Organization.................................................. 37
8.2 Authority..................................................... 37
8.3 No Conflicts.................................................. 38
8.4 Actions Pending............................................... 38
8.5 Solvency...................................................... 38
8.6 Broker's or Finder's Commissions.............................. 38
9. DEFINITIONS......................................................... 38
10. MISCELLANEOUS....................................................... 51
10.1 Indemnification............................................... 51
10.2 Indemnification Procedures, Determination of Damages,
Limitations and Related Matters........................... 52
10.3 Amendments.................................................... 54
10.4 Survival of Representations and Warranties.................... 54
10.5 Successors and Assigns........................................ 54
10.6 Notices; Sellers' Representative.............................. 55
10.7 Descriptive Headings.......................................... 56
10.8 Governing Law................................................. 56
10.9 Submission to Jurisdiction; Venue............................. 57
10.10 Entire Agreement.............................................. 57
10.11 Severability.................................................. 57
10.12 Public Announcement........................................... 57
10.13 Expenses...................................................... 57
10.14 Confidentiality............................................... 58
10.15 No Consequential Damages...................................... 58
10.16 Counterparts.................................................. 59
10.17 No Solicitation or Negotiation................................ 59
10.18 Further Action................................................ 59
PURCHASE AGREEMENT, dated as of July 23, 1997 (the "Agreement"), among
OPTEL, INC., a Delaware corporation ("OpTel"), or OpTel's designee (which shall
be a wholly-owned subsidiary of OpTel; OpTel and such designee being
collectively referred to as "Buyer"), PHONOSCOPE, LTD., a Texas limited
partnership ("Phonoscope"), PHONOSCOPE MANAGEMENT L.C., a Texas limited
liability company (the "General Partner"), Lee Cook ("Cook"), Alton Cook and the
LEE COOK FAMILY TRUST (the "Trust") (together with Cook, the "Stockholders"),
(Phonoscope and the Stockholders, collectively the "Sellers").
R E C I T A L S:
- - - - - - - -
Phonoscope Nevada, Inc. (wholly-owned by Cook) owns all of the issued
and outstanding limited partnership interests of Phonoscope, and the General
Partner, the sole manager of which is Cook, is the sole general partner of
Phonoscope.
The Stockholders in the aggregate own, free and clear of all Liens,
100,000 issued and outstanding shares of common stock, par value $0.10 per share
(the "Entertainment Shares"), of Phonoscope Entertainment, Inc.
("Entertainment"), 100 issued and outstanding shares of common stock, par value
$1.00 per share (the "Bay Area Shares"), of Bay Area Cable Television, Inc.
("Bay Area"), and 100,000 issued and outstanding shares of common stock, par
value $0.10 per share (the "Village Shares", and together with the Entertainment
Shares and the Bay Area Shares, the "Shares"), of Phonoscope Village Cable, Inc.
("Village", and together with Entertainment and Bay Area, the "Companies").
Phonoscope owns, or holds for use in the Business, the Purchased
Assets.
The Sellers desire to sell to Buyer, and Buyer desires to purchase
from the Sellers, all of the Sellers' interest in the Business, consisting of
the Shares and the Purchased Assets, upon the terms and subject to the
conditions set forth herein.
In consideration of the recitals and the mutual agreements and
covenants hereinafter set forth, Buyer and the Sellers hereby agree as follows:
1. SALE AND PURCHASE; PURCHASE PRICE; ADJUSTMENTS.
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1.1 The Purchase. Upon the terms, and subject to the conditions of
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this Agreement, and in reliance upon the representations and warranties
contained herein, at the Closing,
(a) the Stockholders shall sell to Buyer, and Buyer shall
purchase from the Stockholders, all of the Shares; and
(b) Phonoscope shall sell, convey, transfer, assign and deliver
to Buyer and Buyer shall purchase from Phonoscope all of
Phonoscope's right, title and interest in and to the Purchased
Assets.
1.2 The Purchase Price. (a) The purchase price for the Shares and
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the Purchased Assets (the "Purchase Price") shall be $35,300,000, plus
assumption (as of the Closing) of the Assumed Liabilities, as provided in
Section 1.2(b), subject to the adjustments set forth in Section 1.3. The
Purchase Price shall be payable as provided in Section 2.1.
(b) As of the Closing, Buyer shall assume and thereafter pay,
perform and discharge when due, only those Liabilities of Phonoscope that become
due or are to be performed from and after the Closing (and without regard to any
default of Phonoscope existing, or obligations of Phonoscope accrued, as of the
Closing) that are set forth in Schedule 1.2(b) (the "Assumed Liabilities"). The
Assumed Liabilities specifically exclude all past due amounts and all other
payments (including, without limitation, any amounts payable as a result of a
breach) with respect to any agreement or license described in such Schedule
arising from any action or omission prior to the Closing. Phonoscope shall
retain, and shall be responsible for paying, performing and discharging when
due, and Buyer shall not assume or have any responsibility for, any and all
Liabilities of Phonoscope or any of the other Sellers, including, without
limitation, any Indemnified Taxes, other than the Assumed Liabilities (the
"Excluded Liabilities").
1.3 Adjustments to the Purchase Price. The Purchase Price shall be
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subject to the following adjustments:
(a) Adjustments Relating to Liabilities. Two Business Days
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prior to the Closing, the Sellers shall deliver to Buyer a statement signed by
the chief executive officers of Phonoscope and each of the Companies (the
"Closing Statement") certifying (i) such persons' best good faith estimate as of
the Closing Date of (x) the amounts of all Liabilities of the Companies, and (y)
the amounts of all Assumed Liabilities, (ii) the amount of all prepaid expenses
of Phonoscope and the Companies of the types described on Schedule 1.3(a) (the
"Prepaids"), and (iii) all bona fide accounts receivable payable to Phonoscope
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and the Companies in the ordinary course which are not past due other than such
receivables that relate to services to be performed or rendered on or after the
Closing Date (the "ARs"). The estimates of Liabilities of the Companies and
Assumed Liabilities shall be based upon, and prepared in accordance with, GAAP
for all Liabilities that would be reflected on a balance sheet of the Business
prepared in accordance with GAAP, and for all other Liabilities, based upon a
good faith estimate of the present value of such Liabilities. The amounts of
Prepaids and ARs shall be prepared and computed in accordance with GAAP. The
Purchase Price payable to the Sellers on the Closing Date, except as set forth
below, shall be decreased by an amount equal to the sum of all Liabilities of
the Companies and the Assumed Liabilities (as computed in accordance with clause
(i)) as set forth on the Closing Statement less the sum of the Prepaids and ARs.
If such amount is a negative number, the Purchase Price shall be increased by
the absolute value of such number. At the Closing, Buyer shall have the right to
direct the Sellers to use the proceeds received by the Sellers from Buyer to
satisfy the types of liabilities set forth in Schedule 1.3(a) (x) rather than
have such Liability included in the computation described in this Section
1.3(a). In such event, the Sellers shall cause such Liability to be satisfied by
a payment in cash or check from the proceeds received by the Sellers and for all
material liabilities so satisfied, Sellers shall provide to Buyer evidence of
payment by cash or check reasonably satisfactory to Buyer, of such Liability
from the creditor of such Liability. In the case of any outstanding indebtedness
of Phonoscope and any of the Companies to their primary senior lender (the
"Primary Lender"), at the Closing Buyer shall pay all amounts of such
indebtedness directly to the Primary Lender on behalf of Phonoscope and the
Companies, and such amount paid shall be credited as paid to the Sellers as part
of the Purchase Price (and in such case such indebtedness shall not be deemed to
be a
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Liability for purposes of the computation described in this Section 1.3 (a)).
(b) MDU Adjustments. Schedule 1.3(b) (i) sets forth a list of
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the standard labor and materials costs ("Standard Costs") to be used by Buyer
and the Sellers to estimate the cost of wiring and other upgrades required to
enable each MDU property (other than the properties listed in Schedule 1.3(b)
(ii)) to meet the "550 MHz Performance Standard" described in Schedule 1.3(b)
(i) (the "Upgrade") and Schedule 1.3(b) (iii) sets forth a list of all MDU
locations relating to the Business as of the date hereof. Between the date
hereof and five Business Days prior to the Closing Date, Buyer and the Sellers
shall cooperate, pursuant to the costing procedures described in Schedule 1.3(b)
(i), to estimate the costs of the Upgrade for the 100 MDU locations indicated on
Schedule 1.3(b) (iv) by an asterisk to be "costed" (the "Costed Locations"),
based upon the Standard Costs. The aggregate cost so estimated shall be divided
by the number of units in the Costed Locations to determine the "Per Unit
Adjustment." The Purchase Price shall be reduced by an amount equal to the Per
Unit Adjustment multiplied by the total number of all MDU locations relating to
the Business (other than the locations listed in Schedule 1.3(b) (ii)).
(c) Subscriber Adjustments. (i) The Closing Statement shall
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also certify the number of EBUs as of three Business Days prior to the Closing
Date for all the systems of Phonoscope and the Companies used or held for use in
the Business. If there are less than an aggregate of 23,200 of such EBUs at the
Closing, the Purchase Price payable to the Sellers at Closing shall be decreased
by an amount equal to the product of (A) $1,522 multiplied by (B) the difference
between the aggregate number of EBUs and 23,200. If there are more than an
aggregate of 23,200 of such EBU's at the Closing, the Purchase Price payable to
the Sellers at Closing shall be increased by an amount equal to the product of
(A) $1,522 multiplied by (B) the difference between the aggregate number of
EBU's and 23,200, provided, that the maximum increase in the Purchase Price
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pursuant to this Section 1.3(c) shall be no more than $1,522,000.
(ii) If (x) there is a Purchase Price adjustment pursuant to Section
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1.3(c) (i), and (y) subscribers and revenue relating to properties served by
-
Phonoscope and the Companies have been excluded from the definition of EBUs
(pursuant to
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clause (f) of such definition) because such properties had previously received
cable services from Buyer or its Affiliates ("Excluded Properties"), then the
Purchase Price payable to the Sellers shall be increased by an amount equal to
Phonoscope's and the Companies' reasonable, direct out-of-pocket costs
(including sales commissions paid to employees and outside sales persons and the
fees of outside legal counsel, but excluding overhead, administration costs and
profit) of obtaining Rights of Entry ("Direct Right of Entry Costs") to Excluded
Properties up to a number of Excluded Properties that, had such properties been
included in the definition of EBUs, there would not have been any Purchase Price
adjustment pursuant to Section 1.3(c) (i), provided, that such adjustment shall
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be made only to the extent such expenses are reasonably documented and such
documentation is delivered to Buyer not less than two Business Days prior to the
Closing.
(iii) If (x) as of the EBU Evaluation Date there are subscribers and
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revenue relating to properties served by Buyer (or its Affiliates) that were
(pursuant to clause (g) of the definition of EBUs) deemed to be those of
Phonoscope and the Companies ("Duplicate Properties"), and (y) had the
subscribers and revenue relating to such Duplicate Properties been excluded from
the definition of EBUs the adjustment calculated pursuant to Section 1.3(c) (i)
would have been different than as actually calculated pursuant to such section,
then the amount of the Purchase Price payable to the Sellers shall be decreased
by an amount equal to Buyer's and its Affiliates' Direct Right of Entry Costs
relating to such Duplicate Properties, up to a number of Duplicate Properties
that, had such properties been excluded from the definition of EBUs, there would
have been a Purchase Price adjustment pursuant to Section 1.3(c) (i), provided,
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that such adjustment shall be made only to the extent such expenses are
reasonably documented and such documentation is delivered to the Sellers not
less than one Business Day prior to the Closing.
(d) MDUs Under Contract. Two Business Days prior to the Closing
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Date, the Sellers shall deliver to Buyer a list of all agreements by Phonoscope
to serve MDU locations and single family residential areas whose units are not
included in the definition of EBU because such locations are under development
or contract for development and, as a result, are not at such time receiving
service and do not have any EBU's associated with them. At the Closing, Buyer
may elect to acquire any or all of such
5
agreements by paying, as an addition to the Purchase Price, an amount equal to
Phonoscope's actual out-of-pocket costs (as set forth in reasonable detail on
such list) with respect to obtaining such agreements and assuming any
liabilities under such agreements from and after the Closing Date, provided that
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such liabilities shall be excluded from the definition of Liabilities for
purposes of Section 1.3(a). If Buyer does not elect to acquire any such
agreement, Phonoscope shall retain it and, notwithstanding anything in this
Agreement to the contrary, it shall be excluded from the definition of Purchased
Assets and Phonoscope's retention of such agreement and service to such
customers thereunder shall not be deemed to violate the Non-Competition
Agreement.
1.4 Resolution of Disputes. The Closing Statement delivered by the
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Sellers shall be final, binding and conclusive on the parties unless Buyer
submits to the Sellers a written notice of any dispute (setting forth in
reasonable detail the basis for such dispute) within 90 days after the Closing.
If Buyer delivers a timely notice of dispute, the Sellers' Accountants and the
Buyer's Accountants shall confer to determine the nature and scope of any
disagreement among the parties and shall submit such issues to the parties for
resolution. If Buyer and the Sellers are unable to reach a resolution within 30
days after the receipt by the Sellers of Buyer's written notice of dispute, then
Buyer may exercise any and all rights under this Agreement or otherwise
available to it to resolve such dispute, including, but not limited to, making a
claim for indemnification under Section 10.1. Within five days after the final
resolution of all disputes relating to the Closing Statement, Buyer and the
Sellers shall readjust the Purchase Price in the same manner as provided in
Section 1.3. If the payments at Closing by Buyer were greater than the amount
that should have been paid as finally determined by this Section 1.4, the
Sellers shall immediately refund such amount (less any amount that may have been
paid to Buyer from the General and Indemnity Escrow relating to such dispute) to
Buyer, together with interest on such amount from the Closing Date to the date
of such payment at the rate of ten percent per annum, in cash, by wire transfer
of immediately available funds to an account specified by Buyer or by certified
check. If the payments at Closing by Buyer were less than the amount that should
have been paid as finally determined by this Section 1.4, Buyer shall
immediately pay such amount to the Sellers, together with interest on such
amount from the Closing
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Date to the date of such payment at the rate of ten percent per annum, in cash,
by wire transfer of immediately available funds to an account specified by the
Sellers or by certified check.
1.5 Recent Subscriber Adjustments. Immediately prior to the Closing,
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the Sellers shall deliver to Buyer a schedule of Basic Subscribers that were
included in the EBU calculation set forth in the Closing Statement, but which,
as of the Closing Date, had not been Basic Subscribers for longer than 30
continuous days ("Recent Subscribers") together with a list of all customers
that ceased to be Basic Subscribers of the Business during the 120 day period
prior to the Closing Date ("Ex-Subscribers"). Within 60 days following the
Closing Date, Buyer shall deliver to the Sellers a schedule (the "Buyer's
Subscriber Schedule") setting forth all Recent Subscribers (whether or not set
forth on the schedule delivered by the Sellers) that failed to remain as Basic
Subscribers of the Business as of 30 days following the Closing Date
("Excludable Recent Subscribers") together with a list of Ex-Subscribers which
again became Basic Subscribers during the 30 days following the Closing Date
("Return Subscribers"). The Sellers shall pay to Buyer (or Buyer shall pay to
the Sellers, if such number is a negative number) as promptly as practicable
after delivery of the Buyer's Subscriber Schedule, by wire transfer of
immediately available funds to an account specified by Buyer or the Sellers, as
the case may be, as an adjustment to the Purchase Price, an amount equal to (a)
$1,522 multiplied by (b) (i) the number of Return Subscribers, minus (ii) the
number of Excludable Recent Subscribers. The obligation of the Sellers under
this Section 1.5 shall be joint and several.
2. PAYMENT OF PURCHASE PRICE; ESCROW ARRANGEMENTS.
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2.1 Payment of Purchase Price. (a) At the Closing, Buyer shall
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pay to the Sellers the Purchase Price (as adjusted to reflect the adjustments
specified in Section 1.3) (but subject to post-Closing adjustment in the event
of a dispute as to the Closing Statement, as provided in Section 1.4), less the
amount of the Good Faith Deposit, the Second Deposit, the General Escrow Amount,
the Indemnity Escrow Amount, the Network Separation Escrow Amount, and the
Consent Escrow Amount and the Sellers shall retain the Good Faith Deposit and
shall be entitled to the full amount of the Second Deposit at the time of the
Closing, each of which shall be credited against the Purchase
7
Price. The parties hereto acknowledge that the Second Deposit is being held in
escrow by Compass Bank and shall be disbursed only in accordance with an escrow
agreement, dated the date hereof, among the Sellers, Buyer and Compass Bank (the
"Second Deposit Escrow Agreement"), this Section 2.1(a) or, if this Agreement is
terminated prior to Closing, Section 3.3.
(b) Payments pursuant to this Section 2.1 shall be made by a
single wire transfer of immediately available funds to an account designated by
the Sellers at least five Business Days prior to the Closing Date. Each party
hereto agrees and confirms that there shall be no specific allocation of the
Purchase Price in this Agreement among the Entertainment Shares, the Bay Area
Shares, the Village Shares and the Purchased Assets. The Sellers shall be solely
responsible for allocating and distributing amounts of the Purchase Price among
themselves and for allocating among themselves any adjustment to (or amounts
withheld from) the Purchase Price pursuant to this Agreement or any amounts
released to the Sellers from any escrow agreement contemplated by this
Agreement, and each Seller hereby agrees that Buyer's sole responsibility for
payment of the Purchase Price shall be to wire such funds to such account as
provided in this Section 2.1(b). Each of the Sellers hereby irrevocably waives
any rights it may have against Buyer relating to the allocation of the Purchase
Price (whether among the Sellers or among the Entertainment Shares, the Bay Area
Shares, the Village Shares and the Purchased Assets) or the distribution thereof
(other than as provided in this Section 2.1(b)) and shall indemnify, defend and
hold harmless Buyer from and against any Losses that Buyer may suffer arising
from claims by any of the Sellers (or any Person as assignee, heir, devisee,
transferee or otherwise making a claim by, through or on behalf of any of the
Sellers or any such assignee, heir, devisee or transferee) resulting from such
allocation or the distribution of the Purchase Price among the Sellers.
2.2 Good Faith Deposit; Second Deposit. The Sellers hereby
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acknowledge Buyer has (a) paid to the Sellers $125,000 in cash as a non-
-
refundable deposit, creditable against the Purchase Price as provided in Section
2.1 (the "Good Faith Deposit") and (b) concurrently with the execution of this
Agreement, deposited with Compass Bank a deposit of $875,000 in cash, which
shall be held in escrow, in accordance with the Second Deposit Escrow Agreement
(the aggregate amount of all cash held in escrow by
8
Compass Bank, including all interest and income earned thereon, is herein
referred to as the "Second Deposit").
2.3 General Escrow and Indemnity Escrow. (a) At the Closing, Buyer
-----------------------------------
and the Sellers shall execute and deliver an escrow agreement substantially in
the form of Exhibit A hereto (the "General and Indemnity Escrow Agreement")
under which a Person mutually satisfactory to Buyer and the Sellers shall act as
escrow agent (the "General and Indemnity Escrow Agent") with respect to two
separate escrow funds. Buyer shall deposit with the Indemnity Escrow Agent
$1,000,000 (the "General Escrow Amount") and $2,000,000 (the "Indemnity Escrow
Amount"), each of which shall be withheld from the Purchase Price payable to the
Sellers at the Closing as provided in Section 2.1.
(b) Subject to the provisions of this Section 2.3 and the
General and Indemnity Escrow Agreement, the General Escrow Amount shall be paid
to the Sellers as follows: (i) one-half of the General Escrow Amount less the
amount of all asserted claims for indemnification under Section 10.1 as of such
date shall be paid to the Sellers on the 90th day after the Closing Date and
(ii) the balance of all amounts remaining of the General Escrow Amount (after
making the payments in accordance with clause (i)) less the amount of all
asserted claims for indemnification under Section 10.1 as of such date shall be
paid to the Sellers on the 180th day after the Closing Date.
(c) Subject to the provisions of this Section 2.3 and the
General and Indemnity Escrow Agreement, the Indemnity Escrow Amount shall be
paid to the Sellers as follows: (i) one-half of the Indemnity Escrow Amount less
the amount of all asserted claims for indemnification under Section 10.1 arising
out of or relating to claims by Persons other than the parties hereto ("Third
Party Claims") shall be paid to the Sellers on the 270th day after the Closing
Date and (ii) the balance of all-amounts remaining to the Indemnity Escrow
Amount (after making the payments in accordance with clause (i)) less the amount
of all asserted claims for indemnification under Section 10.1 arising out of or
relating to Third Party Claims as of such date shall be paid to the Sellers on
the 540th day after the Closing Date.
(d) Without limiting any other remedies under this Agreement or
otherwise available to Buyer, both the General
9
Escrow Amount and the Indemnity Escrow Amount shall be available to satisfy
claims for indemnification under Section 10.1 arising out of or relating to
Third Party Claims, but the Indemnity Escrow Amount shall not be available to
satisfy other claims for indemnification under Section 10.1.
(e) After the final resolution of all claims against the Sellers
for indemnification pursuant to Section 10.1, all unclaimed portions of the
General Escrow Amount and the Indemnity Escrow Amount shall be released promptly
to the Sellers pursuant to the terms of the Indemnity Escrow Agreement.
2.4 Consent Escrow. (a) At the Closing, Buyer and the Sellers shall
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execute and deliver an escrow agreement substantially in the form of Exhibit B
hereto (the "Consent Escrow Agreement") under which a Person mutually
satisfactory to Buyer and the Sellers shall act as escrow agent (the "Consent
Escrow Agent"). Buyer shall deposit with the Consent Escrow Agent an amount
equal to the amount described in Section 4.2.9, if any (the "Consent Escrow
Amount") which shall be withheld from the Purchase Price payable to the Sellers
at the Closing as provided in Section 2.1.
(b) Subject to the provisions of this Section 2.4 and the
Consent Escrow Agreement, the Consent Escrow Amount shall be paid to the Sellers
from time to time as Required Consents are obtained by the Sellers in amounts
proportionate to the number of EBUs at the Closing Date that relate to such
consents obtained, provided, that 180 days after the Closing Date, all remaining
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amounts of the Consent Escrow Amount shall be released to Buyer and all
agreements to service EBUs for which consents have not been received shall
remain owned by the Sellers. From and after the Closing, Buyer and the Sellers
shall enter into such mutually satisfactory arrangements necessary so that the
Sellers will be in a position to service EBUs for which consents have not yet
been received.
2.5 Network Separation Escrow. (a) At the Closing, Buyer and the
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Sellers shall execute and deliver an escrow agreement substantially in the form
of Exhibit C hereto (the "Network Separation Escrow Agreement") under which a
Person mutually satisfactory to Buyer and the Sellers shall act as escrow agent
(the "Network Separation Escrow"). Buyer shall deposit with the Network
Separation Escrow Agent $500,000 (the
10
"Network Separation Amount") which shall be withheld from the Purchase Price
payable to the Sellers at the Closing pursuant to Section 2.1.
(b) Subject to the provisions of this Section 2.5 and the Network
Separation Escrow Agreement, the Network Separation Amount shall be released 20
Business Days after delivery to Buyer of a certificate, executed by the Sellers
and the Sellers' engineer, certifying that such separation is complete, provided
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that Buyer has not objected to the accuracy of such certificate by delivery of a
written notice to that effect within such 20 Business Day period (in which case
the parties hereto shall consult in good faith to resolve any disagreement among
them and upon such resolution, the Network Separation Amount shall be released
to the Sellers), provided, further, that if the Network Separation is not
-----------------
completed by the first anniversary of the Closing Date, the Network Separation
Amount shall be released to Buyer, and the Sellers shall be released from any
further obligation to perform the Network Separation described in Section 6.9.
3. CLOSING; TERMINATION.
--------------------
3.1 Date of Closing. Subject to the terms and conditions of this
---------------
Agreement, the sale and purchase of the Shares and the Purchased Assets
contemplated by this Agreement shall take place at a closing (the "Closing") to
be held at the offices of Barlow, Todd, Jordan & Oliver, LLP, 17225 El Camino
Real, Suite 400, Houston, Texas 77058 (or at such other place as the parties may
agree in writing) at 10:00 A.M. Houston time on September 30, 1997, or, if
earlier, on a date mutually designated by the Sellers and Buyer, but in no event
later than five Business Days after the date when each of the conditions
specified in Article 4 has been fulfilled (or waived by the party entitled to
waive that condition). (The date on which the Closing is held is referred to
herein as the "Closing Date".)
3.2 Closing. (a) At the Closing the following shall occur
-------
simultaneously, and none shall be deemed to occur without the occurrence of all
of the others:
(i) Phonoscope shall deliver to Buyer bills of sale,
assignments, endorsements, releases and such other documents and
instruments (collectively,
11
"Transfer Documentation") as may be necessary or appropriate to convey
and vest in Buyer, good and marketable title in and to the Purchased
Assets that are tangible assets, and all of Phonoscope's right, title
and interest to the Purchased Assets that are intangible assets, free
and clear of all Liens other than Permitted Liens;
(ii) the Stockholders shall deliver to Buyer, free and clear of
all Liens, certificates representing the Shares, duly endorsed in
blank or accompanied by stock powers or other instruments of transfer
duly endorsed in blank, and bearing or accompanied by all requisite
stock transfer stamps;
(iii) Buyer shall deliver to Phonoscope an assumption agreement
and such other documents and instruments as may be necessary or
appropriate for Buyer to assume the Assumed Liabilities;
(iv) Buyer shall deliver the Purchase Price in the manner set
forth in Section 2.
(b) From time to time, pursuant to the reasonable request of
Buyer delivered to the Sellers after the Closing Date, the Sellers, at the
Sellers' reasonable expense and without any further consideration, will execute
and deliver to Buyer such instruments and documents of conveyance and transfer,
and do and cause to be done such acts or things, as Buyer may reasonably request
at reasonable expense in order to more effectively sell, convey, transfer and
assign to Buyer, or to perfect or record Buyer's interest in or title to, or to
enable Buyer to use, any and all of the Purchased Assets, or otherwise to carry
out the purposes and intent of this Agreement. From and after the Closing, each
of Buyer and Phonoscope shall have the right and authority to endorse the
other's name on any check or other instrument received by it on account of any
accounts receivable title to which such party shall have after the Closing
pursuant to this Agreement. Phonoscope shall deliver promptly any and all
payments of accounts receivable of Phonoscope included in the Purchased Assets
received by Phonoscope after the Closing Date to Buyer, and Buyer shall deliver
promptly any and all payments of accounts receivable of Phonoscope not included
in the Purchased Assets received by it after the Closing Date to Phonoscope.
12
3.3 Termination. (a) This Agreement may be terminated at any time
-----------
prior to the Closing:
(i) by written agreement executed by the Sellers and Buyer;
(ii) by Buyer or the Sellers if the Closing has not occurred on
or before September 30, 1997, provided that the non-occurrence of the
--------
Closing is not attributable to a breach of the terms hereof by the
party seeking termination; or
(iii) by Buyer or the Sellers if it has become impossible for any
condition to the terminating party's obligation to close under this
Agreement to be satisfied, provided that such condition has become
--------
impossible of satisfaction other than as a result of the failure of
such party to perform its obligations under this Agreement.
(b) Upon any termination of this Agreement other than solely as
a result of Buyer's failure to perform its obligations hereunder, pursuant to
the Second Deposit Escrow Agreement the Second Deposit shall be delivered
immediately to Buyer. If this Agreement is terminated solely as a result of
Buyer's failure to perform its obligations hereunder, notwithstanding any other
provision of this Agreement the Sellers' sole remedy under this Agreement shall
be to retain the Good Faith Deposit and be paid the Second Deposit as liquidated
damages. Upon any termination of this Agreement pursuant to Section 3.3(a), this
Agreement shall become void and have no effect, without any liability on the
part of any party hereto or its directors, officers or stockholders in respect
of this Agreement, except (i) the provisions of Sections 2.2, 3.3, 10.1, 10.2,
-
10.3 10.5, 10.6, 10.8, 10.9, 10.11, 10.15, 10.16 and Article 9, shall survive
such termination, and (ii) that nothing herein shall limit the right of Buyer to
--
seek damages from the Sellers for breach of this Agreement (subject to the
provisions of Section 10.15).
13
4. CONDITIONS OF CLOSING.
---------------------
4.1 Conditions to Each Party. The obligations of each party to
------------------------
consummate the transactions contemplated by this Agreement at the Closing shall
be subject to the satisfaction, at or prior to the Closing, of the following
conditions:
(a) All notifications required pursuant to the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), to carry out
the transactions contemplated by this Agreement shall have been made, and the
applicable waiting period and any extensions thereof shall have expired or been
terminated, without the imposition of any material burden or condition on any
party hereto.
(b) No order of any Governmental Body (including a court order)
shall have been entered that enjoins, restrains or prohibits consummation of the
transactions contemplated by this Agreement, or puts in doubt the validity of
this Agreement of any document contemplated herein in any material respect. No
proceeding before any Governmental Body shall be pending or threatened that (i)
restrains, prohibits, prevents or materially changes, or presents a substantial
possibility of restraining, prohibiting, preventing or materially changing, the
terms of the transactions contemplated by this Agreement or (ii) presents a
substantial possibility of resulting in material Losses to any party hereto or
to the Companies in each case arising from the transactions contemplated by this
Agreement.
(c) The parties have completed the MDU costing process on the
100 MDU locations pursuant to Section 1.3(b).
4.2 Buyer's Conditions to Closing. The obligation of Buyer to
-----------------------------
consummate the transactions contemplated by this Agreement at the Closing shall
be subject to the satisfaction; at or prior to the Closing, of the following
conditions:
4.2.1 Opinions of Counsel to the Sellers. Buyer shall have
----------------------------------
received from Barlow, Todd, Jordan & Oliver, LLP a legal opinion addressed to
Buyer and dated the Closing Date, the material provisions of which are set forth
on Exhibit D.
4.2.2 Representations and Warranties; Covenants. The
-----------------------------------------
representations and warranties contained in Section 7 shall
14
be true and correct in all material respects when made and as of the Closing
Date; each of the Sellers shall have duly performed and complied in all material
respects with all agreements and conditions required by this Agreement to be
performed or complied with by it prior to the Closing Date; and each of the
Sellers shall have delivered to Buyer an Officer's Certificate, dated the
Closing Date to the foregoing effect. The Closing Statement shall be true,
correct and complete in all respects.
4.2.3 Secretary's Certificates; Organization Documents. (a)
------------------------------------------------
Buyer shall have received a certificate, dated the Closing Date, of the
Secretary of Phonoscope to which are attached resolutions of the Managers of
Phonoscope Management and all partnership proceedings of Phonoscope authorizing
the execution and delivery of this Agreement by Phonoscope, the agreements and
instruments contemplated herein, and the consummation of the transactions
contemplated hereby. Such Secretary's certificate shall also certify the names
and offices of the officers of Phonoscope and Phonoscope Management authorized
to execute this Agreement and the other documents to be delivered hereunder on
behalf of Phonoscope.
(b) Buyer shall have received certificates, dated the Closing
Date, of the Secretary of each of the Companies to which are attached (i) true
and complete copies of the articles of incorporation of each of the Companies,
as then amended and in force, (ii) true and complete copies of the bylaws of
each of the Companies, as then in force, (iii) certificates of good standing,
dated within five Business Days of Closing, of the secretary of state of the
state of organization for each of the Companies, and (iv) true and complete
original versions of the minutes books of each of the Companies relating to
meetings of the boards of directors, any committee thereof and the stockholders
of the Companies and of the stock registers of the Companies.
4.2.4 Ownership of Shares. On the Closing Date the Sellers
-------------------
shall own all of the Shares free and clear of all Liens subject only to the
Liens of the Primary Lender, which Liens shall be released at the Closing as
provided in Sections 1.3(a) and 4.2.11.
4.2.5 Proceedings. All required corporate and other
-----------
proceedings taken or required to be taken in connection with the transactions
contemplated hereby and all documents
15
incident thereto shall be reasonably satisfactory in form and substance to Buyer
and its counsel, and Buyer and its counsel shall have received all such
counterpart originals or certified or other copies of such documents as each of
them may reasonably request.
4.2.6 No Adverse Legislation. No legislation, order, rule,
----------------------
ruling or regulation shall have been enacted, promulgated or made by or on
behalf of any Governmental Body nor shall any decision of any court of competent
jurisdiction within the United States have been rendered which, in Buyer's
reasonable judgment, could materially and adversely affect (a) the validity or
enforceability of this Agreement or any of the transactions contemplated hereby
or (b) the Shares, the Purchased Assets or the Business or Buyer's rights
thereto or use thereof.
4.2.7 Changes. From the date hereof to and including the
-------
Closing Date, there shall not have been any changes in or effects on the
Business, the Purchased Assets or the Companies, any of which could,
individually or in the aggregate, have a Material Adverse Effect on the Business
or any of the Companies, nor shall there have been any development or discovery
or any material contingency or other Liability which could have such effect.
4.2.8 Resignations. Buyer shall have received the resignations,
------------
effective as of the Closing, of such of the directors and officers of the
Companies as shall be requested by Buyer.
4.2.9 Approval and Consents. (a) Each of the Sellers and Buyer
---------------------
shall have duly received all authorizations, consents, approvals, licenses,
franchises, permits and certificates by or of all federal, state and local
governmental authorities and of all third Persons which (i) are reasonably
necessary for the execution and delivery of this Agreement or (ii) the failure
of which to obtain would be reasonably likely to materially interfere with
Buyer's (or any of the Companies') use and enjoyment of any of the Purchased
Assets or ability to service the customers included in the EBU's to be acquired
directly or indirectly by Buyer or would otherwise materially and adversely
affect the Business or the consummation of the transactions contemplated hereby
(the "Required Consents"), and all Required Consents shall be in full force and
effect at the
16
time of the Closing. Without limiting the foregoing, SWB Communications Inc.
("SWB"), Houston Light and Power Inc. ("HLP") and each other owner of poles from
which Phonoscope or one of the Companies has pole attachment rights (together
with SWB and HLP, the "Pole Owners") each shall have granted to Buyer or its
affiliates pole attachment rights on all poles used or held for use by
Phonoscope or the Companies related to the Business and upon terms and
conditions as a whole no less favorable than those relating to pole attachment
rights of Phonoscope and the Companies with Pole Owners on the date hereof.
Buyer shall have received such certificates or other evidence as Buyer may
reasonably request to establish compliance with these conditions.
Notwithstanding the aforesaid, with respect to consents from property owners,
franchisors and licensors, this condition shall be deemed satisfied if the
aggregate of the EBU's of the properties and residences for which such consents
are received equals or exceeds 95% of the aggregate EBU's of all properties or
residences in the Business, provided that (i) a portion of the Purchase Price
-------- -
equal to $1,522.00 times the number of EBU's affected by the Consents that have
not been obtained shall be paid into the Consent Escrow, as provided in Section
2.4 and shall be released pursuant to such Section, and (ii) after the Closing
--
each of the Sellers shall use its best efforts to obtain such consents as
promptly as practicable.
(b) Buyer shall have received the evidence of payment by cash or
check of Liabilities described in Section 1.3(a) with funds received from Buyer
from Buyer's payment of the Purchase Price.
(c) Buyer shall have received written consents from each external
accountant of Phonoscope and the Companies permitting access to the financial
statements and work papers, and the right to use such financial statements, work
papers and the information contained therein, in each case in the manner
described in Section 6.5(a)
4.2.10 Other Agreements. Each party other than Buyer shall have
----------------
duly executed and delivered each of the documents and instruments described in
Section 3.2 to be executed and delivered by it and each of the following
agreements:
17
(a) the Second Deposit Escrow Agreement;
(b) the General and Indemnity Escrow Agreement;
(c) the Consent Escrow Agreement (if required by Section
2.4);
(d) the Network Separation Escrow Agreement;
(e) the Sublease;
(f) the Services and Cooperation Agreement; and
(g) the Non-Competition Agreement.
4.2.11 Bank Release. Buyer shall have received a release, in
------------
form and substance reasonably satisfactory to it, from the Primary Lender,
releasing upon consummation of the transactions contemplated to occur at the
Closing all Liens on any of the Purchased Assets or any assets of the Companies
and the Primary Lender, the Sellers and the Companies shall have executed and
delivered to Buyer all financing statements and other documents necessary to
release all such Liens in form and substance reasonably satisfactory to Buyer.
4.2.12 Condition of Physical Assets. Buyer shall be reasonably
----------------------------
satisfied with the condition of all the physical assets that are part of the
Purchased Assets or Assets of the Companies.
4.3 Sellers' Conditions to Closing. The obligation of the Sellers to
------------------------------
consummate the transactions contemplated by this Agreement at the Closing shall
be subject to the satisfaction at or prior to the Closing, of the following
conditions:
4.3.1 Representations and Warranties; Covenants. The
-----------------------------------------
representations and warranties contained in Section 8 shall be true and correct
in all material respects when made and as of the Closing Date; Buyer shall have
duly performed and complied in all material respects with all agreements and
conditions required by this Agreement to be performed or complied with by it
prior to the Closing Date; and Buyer shall have delivered to the Sellers
18
an Officer's Certificate, dated the Closing Date, to the foregoing effect.
4.3.2 Secretary's Certificate. The Sellers shall have received
-----------------------
a certificate, dated the Closing Date, of the Secretary of Buyer to which are
attached resolutions of the board of directors of Buyer authorizing the
execution and delivery of this Agreement, the agreements and documents
contemplated herein and the consummation of the transactions contemplated
hereby. Such Secretary's certificates shall also certify the names and
signatures of the officers of Buyer authorized to sign this Agreement and the
other documents to be delivered hereunder.
4.3.3 Other Agreements. Each party other than the Sellers shall
----------------
have duly executed and delivered each of the documents and instruments described
in Section 3.2 to be executed and delivered by it and each of the following
agreements:
(a) the Second Deposit Escrow Agreement;
(b) the General and Indemnity Escrow Agreement;
(c) the Consent Escrow Agreement (if required by
Section 2.4);
(d) the Network Separation Escrow Agreement;
(e) the Sublease;
(f) the Services and Cooperation Agreement; and
(g) the Non-Competition Agreement.
5. EMPLOYEE MATTERS. (a) From and after the Closing neither Buyer nor any
----------------
of the Companies shall be obligated to hire or retain any employee engaged in
the Business. Each of the Sellers and Buyer acknowledge and agree that Buyer
shall have no Liability or obligation whatsoever to the employees engaged in the
Business (including, without limitation, any obligation to hire or retain any
such employees for any period of time following the Closing or any Liability or
obligation relating to any period prior to the Closing whether asserted at any
time before, on or after the Closing Date) and the Sellers shall pay
19
and discharge any and all such Liabilities and obligations (including, without
limitation, any severance or similar liabilities arising from Buyer's failure to
hire, or the Companies' dismissal, of any such employees at any time on or
within six months after the Closing and any liability of Buyer or any of the
Companies under the WARN Act arising from the transactions contemplated by this
Agreement) (collectively, "Employee Liabilities"). The Sellers shall
indemnify and hold each of the Companies and Buyer harmless from any and all
Losses not reflected as Liabilities on the Closing Statement based upon,
attributable to or resulting from or arising out of any Employee Liability
including, but not limited to severance costs or accrued benefits, any costs
associated with compliance with COBRA and any liability under the WARN Act.
Notwithstanding any other provision of this Agreement, the obligation of the
Sellers under this Section 5 shall survive the Closing until the applicable
statute of limitations shall have expired.
(b) At least ten Business Days prior to the Closing Date,
Buyer shall deliver to the Sellers a written list (the "Employee List") of all
those employees (subject to Section 5(e), below) to whom Buyer shall offer
temporary employment agreements, or, in the case of employees of any of the
Companies, to whom Buyer shall continue to employ temporarily pursuant to
agreements after the Closing. Buyer may offer employment, either temporary or
permanent, (or offer to continue employment, as the case may be) to employees of
the Business upon terms and conditions solely within its absolute discretion.
Offers of employment (or continuing employment) to employees engaged in the
Business may be made orally or in writing, at Buyer's sole discretion. Buyer
and the Sellers shall agree upon the text of the initial announcement to
employees of the Business with respect to this Agreement and employment
opportunities following the Closing, which announcement shall be made as
promptly as practicable after the date hereof. The Sellers and the Companies
shall make no other communications with employees engaged in the Business
relating to the transactions contemplated by this Agreement or the status of any
employees without the prior consent of Buyer, which consent shall not be
unreasonably withheld or delayed. Prior to the 60th day after the Closing, Buyer
will deliver to Phonoscope a list of employees to whom Buyer will offer
permanent employment.
20
(c) Buyer and the Companies shall have no obligation to credit
any employees for pre-Closing service for any purpose, including eligibility,
vesting or determining the amount of any benefit or payment due to any employee.
(d) Phonoscope shall retain responsibility for and continue to
pay all dental, medical, life insurance and disability expenses and benefits for
all employees engaged in the Business at the Closing and their covered
dependents with respect to claims incurred on or prior to the Closing Date and
shall comply with all requirements of COBRA following the Closing. For employees
of any of the Companies, the Sellers shall indemnify the Companies from and
against all such Liabilities to the extent not reflected as Liabilities in the
Closing Statement.
(e) Schedule 5(e) sets forth a list of certain of Phonoscope's
and the Company's employees (the "Protected List"), and with respect to the
employees on the Protected List Buyer agrees that for a period of one year from
the Closing Date, Buyer will not directly or indirectly solicit to hire any of
the employees on the Protected List, or induce any employees on the Protected
List to leave the employment of Sellers or their affiliates. Breach and
enforceability of this provision shall be governed by paragraphs 7(a)-(d) of the
Non-Competition Agreement.
6. COVENANTS.
---------
6.1 Maintain Existence and Obtain Approvals. Until the Closing
---------------------------------------
Phonoscope shall, and the Stockholders shall cause each of the Companies to, do
all things necessary to maintain its limited partnership or corporate existence,
as the case may be. Each of the Sellers shall, and shall cause each of the
Companies to, diligently and in good faith use all reasonable efforts to procure
all Required Consents.
6.2 Access to Information. Phonoscope shall, and each of the
---------------------
Stockholders shall cause each of the Companies to, provide to Buyer and its
authorized agents and representatives (including its auditors and legal counsel)
full and free access to the books, records, properties and proceedings relating
to Phonoscope (as the same may be related to the Purchased Assets) , the
Companies and the Business. The Sellers shall deliver to Buyer copies of all
FCC licenses, franchise agreements, pole attachment agreements, access
agreements, right-of-way agreements, right of
21
entry agreements, subscriber agreements, programming agreements, leases and
other agreements of Phonoscope (relating to the Business) and the Companies as
promptly as practicable. The Sellers shall promptly give notice to Buyer of any
occurrence or event, including the commencement of any litigation, investigation
or proceeding, which, in either case, if not cured or if adversely determined
could have a Material Adverse Effect. Without limiting the aforesaid (a) if any
party hereto receives a notice of any order or proceeding described in Section
4. 1 (b) such party shall deliver, as promptly as practicable, notice of such
order or proceeding, together with all pleadings and correspondence received in
connection therewith, to the other parties hereto and (b) if any party hereto
becomes aware of any matter described in Section 4.2.6, such party shall notify
the other parties of such matter as promptly as practicable.
6.3 Certain Payments. Until the Closing, Phonoscope shall, and each
----------------
of the Stockholders shall cause each of the Companies to, pay or discharge or
cause to be paid or discharged, before the same shall become delinquent, (i) all
Taxes, fees, assessments and governmental charges levied or imposed upon or
collectible by the Sellers or any of the Companies and (ii) all lawful claims
for labor, materials and supplies which, if unpaid, might by law become a Lien
upon the Purchased Assets or any Assets of the Companies.
6.4 Maintenance of Properties: Insurance: Books and Records:
-------------------------------------------------------
Compliance with Law: Relationships. Until the Closing,
- - ----------------------------------
(a) Phonoscope shall, and each of the Stockholders shall cause
each of the Companies to, (i) maintain and keep the Purchased Assets and the
Assets of each of the Companies in their condition and state of repair and
working order that existed as of the date hereof, ordinary course wear and tear
excepted and (ii) do or cause to be done all things reasonably necessary or
appropriate to preserve and keep in full force all rights, licenses, franchises,
rights of entry, approvals, authorizations, consents, permits and other
authorizations necessary or desirable to enable Phonoscope and the Companies to
operate the Business as currently conducted;
(b) Phonoscope shall, and each of the Stockholders shall cause
each of the Companies to, maintain
22
insurance with respect to the Assets of the Companies and the Purchased Assets
in accordance with past practices;
(c) Phonoscope shall, and each of the Stockholders shall cause
each of the Companies to, keep proper books of record and accounts, in which
full and correct entries shall be made of all (i) financial transactions, (ii)
the assets and (iii) the business of the Companies and the Business, in
accordance with GAAP consistent with past practices;
(d) Phonoscope shall, and each of the Stockholders shall cause
each of the Companies to, (i) conduct the Business in the usual, regular and
ordinary manner consistent with past practices and (ii) comply in all material
respects, and conduct the Business in material compliance, with all statutes,
laws, ordinances, or rules and regulations and orders of Governmental Bodies to
which the Sellers, any of the Companies or any of their respective assets and
properties or the Business is subject; and
(e) Phonoscope shall, and each of the Stockholders shall cause
each of the Companies to, use commercially reasonable efforts to (i) keep
available for Buyer and the Companies the services of the employees of the
Companies and Phonoscope which are engaged in the Business and (ii) preserve
Phonoscope's and each of the Companies' current relationships with its customers
and other Persons with whom it has a significant business relationship.
6.5 Deliveries. (a) Until the Closing, each of the Sellers shall
----------
deliver to Buyer promptly such periodic financial and/or operating data with
respect to the Companies and the Business as Buyer may reasonably request,
including, without limitation, any audited financial statements that may have
been prepared, provided that nothing herein shall require Phonoscope or the
--------
Companies to prepare audited financial statements. Without limiting the
foregoing, both before and after the Closing, the Sellers shall provide Buyer
with access to all audited financial statements and workpapers of its internal
and external accountants and shall procure from all such external accountants
all consents necessary for such access and otherwise necessary for Buyer to
comply with any reporting requirements that Buyer, in its sole discretion,
determines that it may have under the Securities Exchange Act of 1934, as
amended, and the
23
rules and regulations promulgated thereunder or under the terms of any
indenture or other instrument of Buyer and its affiliates, provided that Buyer
--------
shall pay all fees and expenses of such accountants reasonably incurred in
complying with this Section 6.5(a).
(b) Buyer is hereby authorized to deliver a copy of any
financial statement or certificate delivered pursuant to this Section 6.5 to any
Governmental Body having jurisdiction over it or any financing source that
requests such information; provided, however, that Buyer shall take any and all
--------- -------
steps as may be reasonable to maintain the confidentiality of such information
and material in keeping with their obligations to maintain information in
confidence under the terms hereof and all prior agreements still in force and
effect.
(c) Each of the Sellers shall also deliver to Buyer, promptly
upon receipt by it or any of the Companies, any other reports or other copies of
any reports from Phonoscope's or any of the Companies' auditors, copies of any
correspondence to or from or filings with the FCC or any other Governmental Body
relating to the Business.
6.6 Filings: Approvals (a) The Sellers and Buyer, as promptly as
------------------
practicable, each shall file or supply, or cause to be filed or supplied, all
applications, notifications and information required to be filed or supplied by
any of them, by any Governmental Body in connection with this Agreement or the
consummation of the transactions contemplated hereby, including but not limited
to any filings pursuant to the HSR Act. The Sellers and Buyer each, as promptly
as practicable, shall use all reasonable efforts to obtain or make, or cause to
be obtained or made, all Required Consents necessary to be obtained or made by
it, in order for each of them so to consummate such sale and transfer and such
transactions. Buyer shall bear all out-of-pocket costs and expenses incurred
by the Sellers in connection with any filings pursuant to the HSR Act and any
filings required to be made with the FCC, up to an aggregate of all filing fees
actually paid by the Sellers plus $15,000. Such reimbursement shall be made by
Buyer promptly after delivery to Buyer of statements and receipts reasonably
satisfactory to Buyer evidencing such out-of-pocket costs and expenses.
(b) Each of the Sellers and Buyer will coordinate
24
and cooperate with each other in exchanging such information and supplying such
reasonable assistance as may be reasonably requested by the other in connection
with the filings and other actions contemplated by this Section 6.6.
6.7 Conduct of the Business. Prior to the Closing, without the prior
-----------------------
written consent of Buyer (which consent shall not be unreasonably withheld as to
6.7(a) (iv), below), Phonoscope (with respect to the Purchased Assets) shall
not, and the Stockholders shall cause each of the Companies not to:
(a) enter into or modify, or waive any material term or
condition of, any agreement (i) except in the ordinary and customary course of
the Business consistent with past practice (and with prior notification to
Buyer) relating to the delivery of video programming, (ii) having a term
exceeding six months which is not cancelable by Buyer or the Companies after
Closing at will and without any liability therefor, (iii) providing for the
retention of any agent, contractor or consultant by any of the Companies or the
rendering of services by any of the Companies as such agent, contractor or
consultant which is not cancelable by Buyer or the Companies after the Closing
at will and without any liability therefor, (iv) requiring capital expenditure
by any of the Companies of any sum in excess of $10,000 or (v) not otherwise
incidental to the conduct of the operations of the Business in the ordinary and
customary course consistent with past practices;
(b) incur any Indebtedness other than (i) in the ordinary course
of business, or (ii) pursuant to a restructuring of current indebtedness with
the Primary Lender not to exceed $7,000,000, except for Indebtedness to~trade
creditors and professionals on customary terms and Purchase Money Debt;
(c) declare, set aside or pay any non-cash dividend or
distribution to any stockholder of the Sellers or any of the Companies;
(d) create, incur, assume or suffer to exist any Liens of any
kind against or upon any of its property or assets, or any proceeds therefrom,
other than Permitted Liens which Permitted Liens shall be extinguished at or
prior to Closing;
25
(e) conduct any business or enter into any transaction with or
for the benefit of any Affiliate of any of the Sellers or any agreements among
any of the Sellers and any of the Companies (in each case other than any
transaction contemplated hereby);
(f) directly or indirectly, issue, redeem or purchase any
capital stock or any other security, provided, that Phonoscope may acquire
--------
capital stock or other securities of entities unrelated to the Business and
provided further, that this provision shall not preclude Cook from acquiring the
- - -------- -------
stock of any of the Companies from Alton Cook or the Trust provided the he
assumes all obligations of Alton Cook or the Trust, as the case may be;
(g) enter into any new oral or written employment agreements,
promises, or compensation arrangements or commitments to officers, directors,
employees or consultants (including, but not limited to, any commitment to pay
retirement or other benefits) or modify, extend or terminate any existing
agreements, arrangements or commitments or enter into any plan, arrangement, or
labor or collective bargaining agreement in any case which is not cancelable by
Buyer or the Companies after the Closing at will and without any liability
therefor;
(h) create any Subsidiary or make any investment other than in
certificates of deposit, short-term U.S. Treasury obligations, and other cash
equivalents or lend any money or assets to any Person, or assume, guarantee or
in any other manner become liable with respect to any Indebtedness, or guaranty
any obligation, of any Person, or pay, discharge or satisfy any Indebtedness
liability or obligation, except in the ordinary course of the Business
consistent with past practices;
(i) make any change in or amendment to its articles of
incorporation or bylaws, or, in the case of Phonoscope, its agreement of limited
partnership or certificate of limited partnership;
(j) enter into any leases of real or personal property or any
sale-leaseback transaction;
(k) engage in any business other than the Business and
activities related thereto (or, in the case of
26
Sellers, any business other than the Business and the Retained Businesses); or
(1) agree to do any of the foregoing.
6.8 Right of First Offer/Negotiation. If any of the Sellers or any
--------------------------------
of their respective Affiliates (for purposes of this Section, the "Transferor")
proposes, desires or intends to sell, transfer or convey all of its stock
interest in any cable television, video, data or voice telecommunications
business owned by any of them on the date hereof (and any additional businesses
or related assets that are later combined or integrated with such businesses)
("Subject Businesses") or substantially all of the assets of a Subject Business
(a "Disposition Transaction") other than (i) a transfer pursuant to a
reorganization or transfer as part of tax or estate planning by Phonoscope and
its stockholders or the Stockholders in which no Person other than such
stockholders and members of their immediate families is a party or (ii) a
transfer to a Person (including a joint venture) that is, or upon such transfer
would be, a Subsidiary of such Transferor, prior to any notice or other
communication to any third party relating to a Disposition Transaction (or the
provision to any third party of any information relating thereto) such
Transferor shall first deliver written notice (a "Sale Notice") to Buyer stating
that such Transferor proposes to effect such Disposition Transaction, such
notice to describe in reasonable detail (x) the assets and businesses proposed
-
to be included in such Disposition Transaction (the "Subject Business"), (y) a
-
price (the "Proposed Price") and (z) other material terms of such Disposition
-
Transaction (the "Proposed Terms") . Upon receipt of the Sale Notice, Buyer
shall have the right either (A) to purchase all, but not less than all, of the
-
Subject Business at the Proposed Price, and in accordance with the Proposed
Terms or (B) to cause the Transferor to negotiate exclusively with Buyer in good
-
faith for the acquisition by Buyer of the Subject Business (an "Exclusive
Transaction") for a 30 day period (an "Exclusive Period") . The Sale Notice
shall constitute an offer to Buyer, which is irrevocable during a period of
seven Business Days (the "Offer Notice Period") , to sell to Buyer such Subject
Business upon the terms set forth in this Section 6.8 and the Sale Notice or to
commence such exclusive negotiations. Buyer may exercise either right at any
time during the Offer Notice Period by delivering to the Transferor a written
notice setting forth
27
either (A) its irrevocable commitment to purchase such Subject Business at the
-
Proposed Price in accordance with the Proposed Terms subject to receipt of any
required material third party approvals or governmental approvals (the same to
be specified in reasonable detail in such notice), compliance with applicable
law and the absence of any injunction or similar order preventing such
transaction or (B) its election to undertake negotiations with the Transferor
-
for an Exclusive Transaction and commence an Exclusive Period (such Exclusive
Period to commence upon delivery of such notice from Buyer). During any
Exclusive Period, the Transferor and the Buyer shall negotiate in good faith the
definitive terms of such Exclusive Transaction and the Transferor neither shall
negotiate with, nor shall provide any notice or communication to, any third
party with respect to such Exclusive Transaction or the Subject Business. If
Buyer fails to timely exercise either of the rights provided in this Section
6.8, or if exercised, either (I) Buyer does not close the purchase of the
-
Subject Business within the applicable time period provided in Section 6.8(b) or
(II) in the case of an Exclusive Transaction, Buyer and the Transferor
--
notwithstanding their good faith efforts are unable to agree upon definitive
terms within the Exclusive Period, then such Transferor may sell the Subject
Business to a Person other than Buyer. For purposes of clarification, once the
Sellers have complied with the terms of this Section with respect to a Subject
Business and Buyer has not agreed to purchase such Subject Business or Buyer and
the Transferor have not been able to agree upon the definitive terms of such a
purchase within the Exclusive Period, than such Subject Business will no longer
be subject to this Section 6.8. Notwithstanding anything in this Section 6.8 to
the contrary, this Section 6.8 is not intended to, and does not create, a right
of first refusal in favor of Buyer, and shall have no application in the event a
third party makes an unsolicited offer to buy all of the Sellers' stock interest
in any Subject Business or substantially all of the assets of a Subject Business
that any of the Sellers now or hereafter have provided, that as soon as possible
--------
after execution of a definitive agreement with respect to any such unsolicited
offer, Cook and the Seller selling such Subject Business shall each certify, in
a written certification delivered to Buyer, that the initial contact and offer
to acquire such Subject Business was unsolicited.
6.9 Network Separation: Common Strand Segments. (a) Following the
------------------------------------------
Closing, at the Sellers' sole cost and expense, the
28
Sellers shall use their best efforts to complete the Network Separation (as
described below). For purposes of this Agreement, "Network Separation" shall
mean the supply, construction and installation by Phonoscope, at Phonoscope's
expense, of fiber optic and/or coaxial cable network segments that will (a) be
-
located on the Category II Segment routes (which are described in Schedule 9.1
and set forth on the map in Schedule 9.1), (b) permit Phonoscope, in the
-
operation of the Retained Business, to cease transmitting its signal along the
fibers in the Category II Segments, and (c) comply with the provisions of
-
Section 6.9(b) and of the Services and Cooperation Agreement. In completing the
Network Separation, Phonoscope shall not in any significant respect disturb,
remove, interfere with the operation of or relocate any fiber, cable, electronic
equipment or other item of the Purchased Assets (or, following the Closing, any
assets of Buyer) or any assets of the Companies and if such removal or
relocation is necessary, the last fiber installed will be removed and relocated
to the new attachment. The Sellers acknowledge that, pursuant to the Services
and Cooperation Agreement, from and after the first anniversary of the Closing
Date, the Sellers shall have no rights to use any part of the Category 1 or
Category II Segments (other than such Common Strand Segment) that has not been
so separated.
(b) From and after the Closing, Phonoscope may overlash or otherwise
physically attach fiber or other cable to the strand (which strand is part of
the Purchased Assets) in the Common Strand Segment upon the terms and subject to
the conditions set forth in the Services and Cooperation Agreement. In
completing the Network Separation or otherwise, except as may be expressly
permitted by the Services and Cooperation Agreement, Phonoscope may not overlash
or otherwise physically attach its network to any other portion of the network
owned by Buyer or the Companies after the Closing. From and after the Closing,
Buyer and the Companies may overlash or otherwise physically attach fiber or
other cable to the strand owned by Phonoscope in the Category III Segment (which
is described in Schedule 9.1 and set forth on the maps in Schedule 9.1) up to a
corresponding number of miles that Buyer has permitted Phonoscope to attach in
the Category II Segment upon the terms and subject to the conditions set forth
in the Services and Cooperation Agreement. Except as may be expressly permitted
by the Services and Cooperation Agreement, Buyer and the Companies may not
overlash or otherwise physically attach its network to any other portion of the
network
29
owned by Phonoscope after the Closing.
6.10 Bulk Sales Compliance. Buyer hereby waives compliance by
---------------------
Phonoscope with the provisions of the bulk sales law of any state, and
Phonoscope shall pay and discharge when due all claims of creditors that could
be asserted against Buyer or its Affiliates by reason of such non-compliance to
the extent that liabilities to such creditors are not specifically assumed by
Buyer under this Agreement. The Sellers shall indemnify, defend and hold
harmless Buyer from and against any Losses arising from Phonoscope's failure to
comply with any such bulk sales law.
6.11 Assignment of Certain Rights. Without limiting any rights Buyer
----------------------------
or the Companies may otherwise have pursuant to this Agreement or otherwise, at
the Closing, the Sellers shall provide Buyer and the Companies with all the
benefits of any confidentiality agreements to which any of the Sellers may be a
party or a beneficiary relating to the Purchased Assets or the Companies (to the
extent not otherwise transferred to Buyer as part of the Purchased Assets) by
either assigning all of the rights to enforce such agreements to Buyer (to the
extent such rights are assignable) or undertaking to enforce any such agreement,
for the benefit of Buyer and/or the Companies, upon Buyer's demand.
6.12 Use of Name In order to promote the orderly transition of the
-----------
ownership of the Business to Buyer as contemplated by this Agreement, subject to
the last sentence of this Section 6.12, Phonoscope hereby grants to Buyer (in
consideration of part of the Purchase Price payable by Buyer) and its
Affiliates, as of the Closing, a royalty free, nonexclusive license to use the
name "Phonoscope," any derivative thereof, and any trademark, service mark or
trade name used in the Business prior to the Closing (the "Names") for a period
of 180 days following the Closing solely in connection with the Business. The
Sellers shall cooperate with Buyer in any transition plan undertaken by Buyer
and the Companies after the Closing designed to implement an orderly change by
the Business from use of the Names to other trademarks, service marks and trade
names. If Buyer uses the Names in any manner differently than used in the
Business prior to the Closing that is harmful in any material respect to the
business reputation of Phonoscope or the goodwill of Phonoscope following the
Closing, and Buyer or its Affiliates
30
refuses to discontinue or cease using the Names in such adverse manner within
five Business Days following the delivery to Buyer of written notice thereof
from the Sellers, Phonoscope may terminate the license granted hereunder by
delivery of a written notice to Buyer to that effect, in which event Buyer shall
have no further right to use the Names in any manner whatsoever.
6.13 Transfer Taxes. The Sellers shall pay or cause to be paid all
--------------
Taxes and other expenses of transferring the Purchased Assets and the Shares as
contemplated hereunder, including, without limitation, all sales, use, stock
transfer, real estate transfer, conveyance, gains, stamp, value added and other
similar taxes (including any interest, penalties and additions thereto.
6.14 Certain Tax Matters. Buyer shall prepare and file all Tax
-------------------
Returns with respect to the activities of the Companies for all tax years and
periods ending on or after the Closing Date. The Stockholders shall prepare and
file all Tax Returns with respect to the activities of the Companies for all
tax years and periods ending before the Closing Date.
6.15 Pole Attachment Rights. From and after the Closing, Phonoscope
----------------------
shall provide Buyer and its affiliates with a royalty free, perpetual license to
(a) attach cable, strand and fiber to the poles owned by Phonoscope to which any
-
of the Purchased Assets or Assets of the Companies are affixed on the Closing
Date and (b) to attach new strands (and to wrap fiber bundles around such
-
strands) to each and every pole owned by Phonoscope in the Category III Segment
(as described in the definition of Purchased Assets) (all such poles owned by
Phonoscope, "Phonoscope Poles"). Phonoscope shall not directly or indirectly
transfer any Phonoscope Poles (or any interest therein) to any Person unless
such Person executes an undertaking assuming Phonoscope's obligations under this
Section 6.15.
6.16 Best Efforts Upon the terms and subject to the conditions
------------
hereof, each of the parties hereto shall use its best efforts to take or cause
to be taken all actions and to do or cause to be done all things necessary to
satisfy, as promptly as practicable after the date hereof, and in any case on or
before September 30, 1997, the conditions to the Closing and to consummate the
transactions contemplated by this Agreement and the other agreements
contemplated herein. Without limitation,
31
(a) each party shall use its best efforts to prepare all filings under the HSR
Act as promptly as practicable after the date hereof and to respond promptly to
any requests from the Federal Trade Commission and the Department of Justice
relating thereto, and (b) the Sellers shall be primarily responsible for
obtaining, and each Seller shall use its best efforts to obtain, all other
Required Consents. Periodically between the date hereof and the Closing Date,
and in no event less frequently than weekly, the Sellers shall provide Buyer
with a status report (which report may be oral) describing in reasonable detail
its efforts to obtain Required Consents and the results of such efforts.
6.17 Transfer of Franchises, Permits, etc. Prior to the Closing,
------------------------------------
Cook shall cause Phonoscope Communications, Inc. to transfer franchises,
licenses and permits relating to Hunters Creek Village, Bunker Hill Village and
Hedwig Village to one of the Companies designated by Buyer.
6.18 Purchase Price Allocation. Between the date hereof and the
-------------------------
Closing Date, the parties hereto shall use reasonable efforts to agree upon an
allocation of the Purchase Price among the Shares, the Purchased Assets and the
Non-Competition Agreement, provided that if no allocation is agreed upon by the
--------
parties, the parties shall be free to take whatever position they choose in
their own tax allocation.
7. REPRESENTATIONS AND WARRANTIES OF THE SELLERS. Each of the Sellers
---------------------------------------------
and the General Partner hereby jointly and severally represents and warrants to
Buyer as follows:
7.1 Authority; Organization and Qualification; Capitalization. (a)
---------------------------------------------------------
Each of the Sellers has all requisite power and authority and legal capacity to
enter into this Agreement and each agreement contemplated hereby, to carry out
its obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby. The execution, delivery and performance of this
Agreement and each of the agreements contemplated hereby to which Phonoscope or
the Trust is a party have been duly authorized by all required action on the
part of each of Phonoscope and the Trust (including, but not limited to, all
action by the General Partner and by Cook, as trustee of the Trust. This
Agreement has been, and upon its execution each of the other agreements
contemplated hereby will be, duly executed and delivered by each of the Sellers
and the General Partner and
32
by Cook in his capacity as sole trustee of the Trust which are parties thereto,
and (assuming due authorization, execution and delivery by Buyer) this Agreement
constitutes, and upon their execution each of the other agreements contemplated
hereby will constitute, the legal, valid and binding obligation of each Seller
which is party thereto enforceable against each such Seller in accordance with
its respective terms. Cook is the sole trustee of the Trust and, pursuant to
the instruments governing the Trust has unrestricted authority over the Trust
and its corpus.
(b) Phonoscope is a limited partnership, each of the Companies is a
corporation, the General Partner is a Texas limited liability company, and the
Trust is a Texas trust, in each case duly organized, validly existing and in
good standing under the laws of the state of its organization. Each of
Phonoscope and each of the Companies is duly authorized to do business in each
jurisdiction in which the character of its properties or the nature of its
business makes such qualification necessary, except where the failure so to
qualify would not have a Material Adverse Effect. Each of Phonoscope and each of
the Companies has the power to own its properties and to carry on its business
as currently being conducted and as intended to be conducted. All corporate
actions taken by any of the Companies have been duly authorized and no Company
has taken any action that in any respect conflicts with, constitutes a default
under or results in a violation of any provision of its articles of
incorporation or bylaws. True and complete copies of the certificate of limited
partnership and partnership agreement of Phonoscope and the articles of
incorporation and bylaws of each of the Companies, each as in effect on the date
hereof, have been delivered by the Sellers to Buyer.
(c) The authorized capital stock of each of the Companies is as set
forth on Schedule 7.1. Such Schedule sets forth the number of shares of capital
stock that are issued and outstanding for each Company, all of which are validly
issued, fully paid and nonassessable, and the record owner of such shares set
forth on such Schedule. None of the issued and outstanding shares of capital
stock of any of the Companies was issued in violation of any preemptive rights.
There are no options, warrants, convertible securities or other rights,
agreements, arrangements or commitments of any character relating to the capital
stock of any of the Companies or obligating any Company
33
to issue or sell any shares of capital stock of, or other interest in, any of
the Companies. There are no outstanding contractual obligations of any of the
Companies to repurchase, redeem or otherwise acquire any shares of common stock
of any of the Companies or to provide funds to, or make any investment (in the
form of a loan, capital contribution or otherwise) in, any other Person. The
Shares, in the aggregate, constitute all the issued and outstanding capital
stock of the Companies. The Stockholders collectively own all the Shares
beneficially and of record, free and clear of all Liens except for Liens in
favor of the Primary Lender, which Liens shall be released at the Closing. Upon
consummation of the transactions contemplated by this Agreement, Buyer will
acquire as of the Closing Date all the issued and outstanding capital stock of
the Companies free and clear of all Liens, except for Liens caused by or imposed
solely as a result of the acts or omissions of Buyer. There are no voting
trusts, stockholder agreements, proxies or other agreements or understandings in
effect with respect to the voting or transfer of any of the Shares. Cook owns
all of the outstanding equity interests of the General Partner.
(d) None of the Companies has any Subsidiaries.
7.2 Actions Pending. Except as set forth on Schedule 7.2, there is
---------------
no action, suit or proceeding, or to the best knowledge of each of the Sellers,
investigation, pending or, to the best knowledge of each of the Sellers,
threatened, against or affecting Phonoscope or the Companies or any of their
properties or rights, by or before any court, arbitrator or administrative
tribunal or Governmental Body.
7.3 Outstanding Debt; Defaults. Expect as set forth in Schedule 7.3,
--------------------------
Phonoscope and the Companies (i) have no outstanding Indebtedness (other than
Indebtedness relating solely to the Retained Businesses that does not impose or
support any Lien or any other restriction on any of the Purchased Assets or the
Assets of any of the Companies or the operation of the Business), and (ii) are
not in violation of or in default in any material respect under or with respect
to any lease, license, permit, contract or agreement (including oral and
informal arrangements) to which it is a party and each such lease, license,
permit, contract or agreement is in full force and effect. To the best
knowledge of each of the Sellers, no other party to any such lease, license,
contract or agreement is in
34
default in any material respect. The Sellers have provided to Buyer a true and
complete copy of each such lease, license, permit, contract or agreement.
7.4 Material Liabilities; Financial Statements. (a) There are no
------------------------------------------
material Liabilities, accrued or contingent, of Phonoscope relating to the
Business or any of the Companies that are not disclosed in Schedule 7.4.
(b) Each of the Companies has furnished Buyer with a balance
sheet of it as of June 30, 1996 (applicable to the Companies) and Sellers shall
deliver within 30 days from the date hereof statements of income and cash flows
of the Business for the six months ended June 30, 1997. Such financial
statements (including any related schedules and/or notes) are true and correct
in all material respects, have been prepared in accordance with GAAP
consistently followed throughout the periods involved and show all liabilities,
direct and contingent, of each such entity required to be shown in accordance
with such principles. The balance sheets fairly present the condition of the
Companies as at the dates thereof, and the statements of income and cash flows
fairly present the results of the operations of the Business and its cash flows
for the periods indicated.
7.5 Assets. (a) Phonoscope and the Companies together own, lease or
------
have the legal right to use all the properties and assets used or intended to
be used in the conduct of the Business or otherwise owned, leased or used by any
of the Companies, and, with respect to contract rights, Phonoscope or a Company
is a party to and enjoys the right to the benefits of all contracts, agreements
and other arrangements used or intended to be used by Phonoscope or the
Companies in or relating to the conduct of the Business (collectively, the
"Assets"). Phonoscope or the Companies has good and marketable title to, or, in
the case of leased or subleased Assets, valid and subsisting leasehold interests
in, all its Assets, free and clear of all Liens, except Permitted Liens (which
Permitted Liens shall be extinguished as of the Closing). Phonoscope owns free
and clear of all Liens, each of the Phonoscope Poles and has valid and
enforceable rights from all third parties and Governmental entities to maintain
the Phonoscope Poles at their present locations in perpetuity.
35
(b) The Assets constitute all the properties, assets and rights
forming a part of, used, held or intended to be used in, and all such
properties, assets and rights as are necessary in the conduct of, the Business.
Except for the physical condition of the fiber network (which, for purposes of
this Section 7.5(b), such term shall not include any head end equipment),
substantially all of the Assets are in good operating condition and repair and
are suitable for the purposes for which they are used and intended and are being
conveyed to Buyer "as is", with all faults, if any.
(c) Following the consummation of the transactions contemplated
by this Agreement to be consummated at the Closing, Buyer will be vested in
good, valid and marketable title to, or lease, under valid and subsisting
leases, the Purchased Assets and the Companies will continue to own, with good,
valid and marketable title, or lease, under valid and subsisting leases, the
Assets other than the Purchased Assets, in each case, free and clear of any
Liens other than Permitted Liens and without incurring any penalty or other
adverse consequence, including, without limitation, any increase in rentals,
royalties, or license or other fees imposed as a result of, or arising from, the
consummation of the transactions contemplated by this Agreement.
(d) Set forth on Schedule 7.5(d) is a true and complete list of
equipment, tools, supplies, furniture, fixtures, personalty, vehicles, rolling
stock and other tangible personal property (the "Personal Property") used in the
Business or otherwise owned or leased by any of the Companies. The Personal
Property constitutes all of the equipment, tools, supplies, furniture, fixtures,
personalty, vehicles, rolling stock and other tangible personal property as is
necessary to conduct the Business in the ordinary and customary course,
consistent with past practices. Phonoscope and the Companies have caused the
Personal Property to be maintained in accordance with good business practice and
such personal property is being conveyed to Buyer "as is" and with all faults,
if any.
(e) None of the Companies owns, nor has it ever owned, any real
property. Phonoscope owns no real property used in the Business.
36
7.6 Taxes. Phonoscope and each of the Companies has filed all
-----
Federal, state and other income Tax returns or reports which are required to be
filed, all such Tax returns or reports are true, correct and complete in all
material respects and Phonoscope and each of the Companies has paid all Taxes as
shown on said returns and on all assessments received by it to the extent that
such Taxes have become due and are payable by Phonoscope or any of the
Companies, except as any of the foregoing are being contested in good faith by
appropriate proceedings for which adequate reserves on the financial statements
described in Section 7.4 (b) have been established in accordance with GAAP; and
no Tax lien has been filed and, to the best knowledge of each of the Sellers, no
claim is being asserted with respect to any Tax or other similar charge.
7.7 No Conflicts. Except as set forth in Schedule 7.7, neither the
------------
execution or delivery of this Agreement or any agreement contemplated hereby,
nor fulfillment of or compliance with the terms and provisions hereof and
thereof, nor the consummation of the transactions contemplated hereby and
thereby, will conflict with or result in a breach of the terms, conditions or
provisions of, or constitute a default under, or result in any violation of, or
result in the creation of any Lien upon any of the properties or assets of any
of the Sellers or any of the Companies pursuant to, or require any consent
under, or give to any third Person any rights of termination, amendment,
acceleration, suspension, revocation or cancellation of, (i) the articles of
incorporation or bylaws (or agreement of limited partnership, as the case may
be) of Phonoscope or any of the Companies, (ii) any award of any arbitrator or
any order, judgment, decree, statute, law, rule or regulation to which any of
the Sellers or any of the Companies or any material amount of their respective
properties, assets or business is subject or (iii) any note, bond, mortgage or
indenture, contract, agreement, lease, sublease, license, permit, franchise or
other instrument or arrangement to which any of the Sellers or any of the
Companies is a party or by which any of their assets or properties is bound or
affected, except, with respect to clause (iii), for conflicts which,
individually or in the aggregate, would not have a material adverse effect on
the Purchased Assets, the Companies or the ability of any of the Sellers to
consummate the transactions contemplated herein.
37
7.8 Broker's or Finder's Commissions. No broker's or finder's fees
--------------------------------
or commission will be payable by any of the Sellers or any of the Companies with
respect to the transactions contemplated by this Agreement other than to
Communications Equity Associates ("CEA"), which fees shall be paid by Buyer.
7.9 Applicable Environmental Regulations. Except as would not,
------------------------------------
individually or in the aggregate, have a Material Adverse Effect, Phonoscope and
each of the Companies is in compliance with all applicable laws, rules,
regulations and other requirements of Governmental Bodies relating to health,
safety, hazardous materials, pollution or the environment ("Environmental Laws")
and with all such licenses, permits, authorizations, certificates, exemptions
and approvals required by such Environmental Laws. Except as would not,
individually or in the aggregate, have a Material Adverse Effect, Phonoscope and
each of the Companies has not performed or suffered any act or practice which
could reasonably be expected to give rise to, or has otherwise incurred,
Liability to any Person under any Environmental Laws.
7.10 Compliance with Other Laws. Phonoscope and each of the Companies
--------------------------
has conducted and continues to conduct the Business in compliance in all
material respects with all laws, rules and regulations and orders of
Governmental Bodies, and Phonoscope and each of the Companies is not in
violation in any material respect of any such law, rule, regulation or order of
a Governmental Body.
7.11 ERISA; Labor Agreements. Except as set forth in Schedule 7.11,
-----------------------
none of Phonoscope or any of the Companies currently has, or in the past has it
ever had, any plan, agreement or arrangement, written or otherwise, subject to
ERISA or any Liability to the PBGC. None of Phonoscope or any of the Companies
is currently, or in the past has it ever been, a party to (a) any collective
bargaining agreement or (b) any employment agreement (written or otherwise).
Schedule 7.11 sets forth a complete list of all employees of Phonoscope and the
Companies engaged in activities relating to the Business and their rates of
compensation.
7.12 Possession of Franchises, Licenses, etc. Except as would not,
---------------------------------------
individually or in the aggregate, have a Material Adverse Effect, Phonoscope and
the Companies possess all
38
franchises, certificates, licenses, permits, approvals and other authorizations
from governmental political subdivisions or Governmental Bodies, including the
FCC, that are necessary for the ownership, maintenance and operation of its
properties and assets or for the conduct of the Business. Except as would not,
individually or in the aggregate, have a Material Adverse Effect, all such
franchises, certificates, licenses, permits, approvals and other authorizations
are in full force and effect, and none of Phonoscope or any of the Companies is
in violation of any thereof in any material respect. None of Phonoscope or any
of the Companies has received any notice from any Governmental Body (or from any
third party or other Person requesting such action) revoking, cancelling,
rescinding, modifying or refusing to renew, or threatening to take any such
action with respect to, any such franchise, certificate, license, permit,
approval or other authorization. Except as set forth on Schedule 7.12, all such
franchises, certificates, licenses, permits, approvals and authorizations held
by Phonoscope relating to the Business are freely transferable to Buyer.
Following consummation of the transaction contemplated to be consummated at the
Closing, Buyer will receive (or in the case of the Companies, will continue to
receive) the benefits (without any diminution) of all such franchises,
certificates, licenses, permits, approvals and authorizations.
7.13 Intellectual Property. Phonoscope and the Companies together own
---------------------
or possess adequate licenses or other valid rights to use all patents, patent
rights, trademarks, trademark rights, trade names, trade name rights,
copyrights, service marks, trade secrets, applications for trademarks and for
service marks, mask works, know-how and other proprietary rights and information
necessary for the conduct of the Business as currently conducted or as
contemplated to be conducted by Phonoscope and the Companies, and each of the
Sellers and the Companies is unaware of any assertion or claim, or any state of
facts that could give rise to a claim, challenging the validity of any of the
foregoing. The conduct of the Business as currently conducted and as
contemplated to be conducted does not and will not conflict in any material way
with any patent, patent right, license, trademark, trademark right, trade name,
trade name right, service mark, mask work or copyright of any third party. There
are no infringements of any proprietary rights owned by or licensed by or to
Phonoscope or any of the Companies which, individually or in the aggregate,
could have a Material
39
Adverse Effect. None of the Sellers or any of the Companies has licensed or
otherwise permitted the use by any third party of any proprietary information on
terms or in a manner which, individually or in the aggregate, could have a
Material Adverse Effect.
7.14. Governmental Consents. Except as set forth on Schedule 7.14,
---------------------
and except as would not, individually or in the aggregate, have a Material
Adverse Effect, neither the nature of the Business or any of the Companies or
any of the businesses, assets or properties used in the Business, nor any
relationship between Phonoscope or any of the Companies and any other Person,
nor any circumstance in connection with the transactions contemplated by this
Agreement is such as to require on behalf of any of the Sellers or any of the
Companies, any consent, approval or other action by or any notice to or filing
with any court or administrative body or Governmental Body in connection with
the execution, delivery and performance of this Agreement, except for filings
under the HSR Act.
7.15. Insurance Coverage. The tangible assets and properties of
------------------
Phonoscope used in the Business or any of the Companies are insured for the
benefit of Phonoscope or one of the Companies, as the case may be in such
amounts and covering such risks as are deemed reasonably necessary by Phonoscope
and the Companies consistent with their customary practice. Schedule 7.15 sets
forth a complete and correct list of all insurance policies relating to the
Business.
7.16. Disclosure. The information relating to the Assets, the
----------
Business or any of the Companies provided to Buyer by the Sellers is complete
and accurate, does not contain a misstatement of a material fact and does not
omit to state any material fact necessary to make the information provided not
misleading. None of the Sellers is aware of any material facts pertaining to
Phonoscope, any of the Companies or the Business which may have a Material
Adverse Effect on Phonoscope, any of the Companies, the Business or any of the
Purchased Assets or Assets of the Companies or which are likely in the future to
have a Material Adverse Effect on Phonoscope, the Company, the Business or any
of the Purchased Assets or Assets of the Companies and which have not been
disclosed in this Agreement or to Buyer, its agents, representatives, auditors
or attorneys by the Sellers in writing.
40
7.17 Subscribers, Rights of Entry. Schedule 7.17 is a complete and
----------------------------
correct list of all Rights of Entry relating to the Business and the minimum
number of units served pursuant to each such Right of Entry. True, accurate and
complete copies of all Rights of Entry listed in Schedule 7.17 have been
delivered by the Sellers to Buyer. Except as set forth in Schedule 7.17, all
Rights of Entry, including all amendments thereto, (a) are in writing and are
legal, valid, binding and enforceable in accordance with their terms, (b) if
held by Phonoscope, are freely transferable to Buyer and if held by any of the
Companies do not contain "change in control" or other provisions that may be
affected by the transactions contemplated by this Agreement and (c) the validity
and enforceability (including the rights of the Companies or Buyer to such
Rights of Entry following the Closing) of the same will not be adversely
affected by the consummation of any of the transactions contemplated by this
Agreement. Except as set forth in Schedule 7.17, no material default of any
Person exists under any of the Rights of Entry, and the parties thereto other
than Phonoscope or the Companies have no offsets or defenses to the enforcement
thereof. Schedule 7.17 accurately sets forth the MDUs to which Phonoscope and
the Companies provide service in the conduct of the Business, the locations of
such MDUs, the number of units to such services at each of such locations, the
date of the Rights of Entry relating to each MDU and the expiration of such
Right of Entry.
7.18 Cable Systems. Schedule 7.18 hereto lists the "cable systems," as
-------------
defined by the Act and FCC Rules, operated by the Seller (collectively, "Cable
Systems"), the name of the franchise authority ("Franchisor"), if any, the date
on which the franchise was awarded and the date on which the franchise is
scheduled to expire (if not renewed). Except as set forth on Schedule 7.18 with
respect to each such Cable System, Phonoscope and the Companies (i) have timely
filed all required registration statements with the FCC pursuant to FCC Rule
76.12, (ii) have timely filed all required equal employment opportunity reports
with the FCC pursuant to FCC Rule 76.77, such reports are true and accurate, and
the FCC has certified compliance in response to each such report, (iii) have
complied with the network non-duplication and syndicated exclusivity provisions
of FCC Rules 76.92-76.96 and 76.151-76.156, (iv) are in compliance with all FCC
programming requirements, including the political programming
41
provisions of FCC Rule 76.205, the lottery information transmission provisions
of FCC Rule 76.213, and the children's programming provisions of FCC Rule
76.225, (v) have timely filed all reports, including those required by FCC Rule
76.403, and is in compliance with the record-keeping and inspection requirements
of FCC Rules 76.305, 76.307 and 76.601, (vi) have not received any notice of
non-compliance from any franchisor pursuant to FCC Rule 76.309 and meet or
exceed the customer service provisions set forth in that rule, (vii) have timely
met the performance testing requirements of FCC Rule 76.601, with such
measurements having been conducted pursuant to FCC Rule 76.609, and are in
compliance with the applicable technical standards of FCC Rule 76.605, and
(viii) are in compliance with the aeronautical interference provisions of FCC
Rules 76.610-76.615.
7.19 FCC Licenses. Schedule 7.19 correctly sets forth all of the FCC
------------
licenses, permits, approvals and authorizations (collectively, "FCC Licenses")
used or planned to be used by Phonoscope and the Companies in connection with
the Business and correctly sets forth the entity holding such FCC License, the
call sign or file number and expiration date of each such FCC License.
Phonoscope and the Companies are not required to hold any other FCC License to
conduct the Business. Each such FCC License has been duly and validly issued or
assigned to the Sellers or one of the Companies by or with the consent of the
FFC pursuant to procedures which comply with all requirements of applicable law,
is in full force and effect, and is unimpaired, and Phonoscope or one of the
Companies has the right to use all FCC Licenses in the ordinary course of
business for the operation of the Business. Phonoscope and each of the Companies
is in compliance in all material respects with the FCC Licenses and FCC Rules,
and there is no known conflict with the valid rights of others which could
adversely affect the FCC Licenses, the Business or any of the Companies. There
is no complaint or proceeding pending before the FCC, or to the best knowledge
of any of the Sellers or the Companies threatened, or other event that has
occurred, which could result in the forfeiture, revocation, impairment, non-
renewal or adverse modification, of any such FCC License, or the imposition of a
financial or other penalty upon Phonoscope or any of the Companies. All
facilities authorized pursuant to the FCC Licenses were timely constructed and
properly certified in accordance with such FCC License and FCC rulings and are
operating in compliance therewith and all provisions of the Communications Act
of 1934, as amended (the
42
"Act") and the rules promulgated and policies adopted under the Act
(collectively, "FCC Rules").
7.20 FCC Applications. Schedule 7.20 sets forth all applications
----------------
(collectively, "FCC Applications") that are pending before the FCC with respect
to the Business, the file number of each such application and the date on which
it was accepted for filing by the FCC. Each of the FCC Applications complies in
all material respects with FCC Rules and policies. There are no petitions,
protests, objections, or other proceedings, formal or informal, pending or
threatened, before the FCC requesting dismissal, denial, reconsideration or
reinstatement which, if granted, could result in the denial, dismissal, return,
or non-grant of any FCC Application, the issuance of a cease and desist order,
or the imposition of any administrative or judicial sanction.
7.21 FCC Compliance. Phonoscope and each of the Companies has timely
--------------
filed with the FCC all reports and filings (collectively, "Reports") which are
required to be filed by it under the Act and FCC Rules, including, without
limitation, FCC Rules relating to equal employment opportunity. Each Report
filed with respect to the FCC Licenses is true, correct, and complete in all
material respects.
7.22 Zoning, Aviation, etc. Compliance. Except as set forth in
---------------------------------
Schedule 7.22 and except as would not have a Material Adverse Effect on Buyer's
or any of the Companies' operations of the Business following the Closing, none
of the facilities used in the Business violates in any material respect the
provisions of any applicable federal, state, or local aviation regulation
(including FCC and Federal Aviation Administrative tower markings and lighting
requirements), building restriction, zoning or other similar governmental
ordinance or regulation, and each such facility is zoned, if required, so as to
permit the commercial uses intended by the owner or occupier thereof, and there
are no outstanding variances or special use permits materially affecting any of
such facilities or the uses thereof.
7.23 Compliance with the Copyright Act. Since July 1, 1996, Phonoscope
---------------------------------
and each of the Companies has (a) duly filed in a timely manner all registration
statements, statements of account and other filings relating to the operation of
the Business which are required to be filed under the Copyright Act
43
and under any local laws and rules, (b) has conducted the Business, in all
material respects, in compliance with the Copyright Act and the rules and
regulations of the Copyright Office, and (c) with only immaterial exceptions,
timely remitted all required payments and royalty fees. None of Phonoscope or
any of the Companies is liable to any Person for copyright infringement under
the Copyright Act or trademark infringement under the applicable federal and
state statutes and regulations as a result of its business operations, its
conduct of the Business or otherwise.
7.24 Must-Carry and Retransmission Consent. Schedule 7.24 lists each
-------------------------------------
Broadcast Station (as defined below) which is carried on each Cable System
pursuant to the must-carry provisions of FCC Rules 76.51-76.62, and the channel
on which it is carried. Schedule 7.24 also separately lists each Broadcast
Station carried pursuant to a retransmission consent agreement, and the channel
on which it is carried. Except as set forth on Schedule 7.24 there is no dispute
pending or threatened with respect to the carriage of any Broadcast Station on
the Cable Systems. Except as set forth on Schedule 7.24, the Seller has complied
with all Broadcast Station notification provisions of FCC Rule 76.58 and the
must-carry record-keeping provisions of FCC Rule 76.302 with respect to each
Cable System, and with all other FCC Rules regarding must-carry and
retransmission consent. Each Broadcast Station signal carried by the Cable
Systems is carried either pursuant to the must-carry obligations of the Cable
Systems or pursuant to a valid and binding agreement between the Seller and the
Broadcast Station authorizing the retransmission of the Broadcast Station
signal. For purposes of this Section 7.24, the term "Broadcast Station" means,
in connection with signals retransmitted, a qualified television broadcast
station, or a qualified television translator station, a qualified low power
television station, a qualified educational television broadcasting station, but
does not include a "superstation" as defined by FCC Rule 76.64 (c) (2).
7.25 Petitions for Special Relief. Neither Phonoscope nor any of the
----------------------------
Companies has received or has knowledge of any petition for special relief or
document so styled filed against or with respect to Phonoscope or any of the
Companies concerning any matters which under FCC Rules can be raised in a
petition for special relief.
44
7.26 Conduct in the Ordinary Course. Since December 31, 1996,
------------------------------
Phonoscope and the Companies have has conducted the Business only in the usual,
regular and ordinary manner consistent with past practices.
7.27 Solvency. Each Seller is, and immediately after the consummation
--------
of the transactions contemplated hereby will be, Solvent.
7.28 Program Audits. Other than a routine audit scheduled for August
--------------
1997 by the Basic Program Consortium, none of Phonoscope or any of the Companies
(a) is currently undergoing any program provider audit and (b) has received any
- -
notice of a pending program provider audit and, to the best knowledge of the
Sellers and the Companies, no such audit has been threatened by any program
provider. The Sellers shall cooperate with such audit and shall indemnify and
defend the Companies and Buyer from and against any Losses arising from or
relating in any way to such audit, including, but not limited to, conducting any
defense, paying all costs of defense and paying all awards or settlements
relating thereto.
7.29 Effective Competition. The Cable Systems of the Business are
---------------------
either exempt from rate regulation or are subject to "effective competition" as
defined in FCC Rule 76.905(b) because the Cable Systems serve fewer than 30% of
the households in the franchised area. No franchisor has certified to the FCC as
a pre-condition to rate regulation.
8. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents and warrants
---------------------------------------
to the Sellers as follows:
8.1 Organization. Buyer is a corporation duly organized, validly
------------
existing and in good standing under the laws of the State of Delaware.
8.2 Authority. Buyer has all requisite power and authority to enter
---------
into this Agreement and each agreement contemplated hereby to which it is to be
a party, to carry out its obligations hereunder and thereunder and to
consummate the transactions contemplated hereby and thereby. The execution,
delivery and performance of this Agreement and each of the agreements
contemplated hereby to which it is a party have been duly authorized by all
required corporate action on the part of
45
Buyer. This Agreement has been, and upon their execution each of the agreements
contemplated hereby will be, duly executed and delivered by Buyer, and (assuming
due authorization, execution and delivery by each of the Sellers) this Agreement
constitutes, and upon their execution by Buyer, each of the agreements
contemplated hereby will constitute, legal, valid and binding obligations of
Buyer enforceable against Buyer in accordance with their respective terms.
8.3 No Conflicts. Neither the execution or delivery of this Agreement
------------
or any agreement contemplated hereby, nor fulfillment of or compliance with the
terms and provisions hereof and thereof, nor the consummation of the
transactions contemplated hereby and thereby, will conflict with or result in a
breach of the terms, conditions or provisions, of or constitute a default under,
or result in any violation of, or result in the creation of any Lien upon any of
the properties or assets of Buyer pursuant to, or require any consent under, or
give to any third Person any rights of termination, amendment, acceleration,
suspension, revocation or cancellation of, (i) the certificate of incorporation
or bylaws of Buyer, (ii) any award of any arbitrator or any order judgment,
decree, statute, law, rule or regulation to which Buyer is subject, or (iii) any
note, bond mortgage or indenture contract, agreement lease, sublease, license,
permit, franchise or other instrument or arrangement to which Buyer is a party
or by which any of Buyer's assets or properties are bound or affected, except
for filings under the HSR Act.
8.4 Actions Pending. There is no action, suit, investigation or
---------------
proceeding pending or, to the best knowledge of Buyer, threatened, against or
affecting Buyer or any of its properties or rights, by or before any court,
arbitrator, administrative tribunal or governmental body that is reasonably
likely to materially impair Buyer's ability to the transactions contemplated by
this Agreement.
8.5 Solvency. Buyer is, and immediately after the consummation of the
--------
transactions contemplated hereby will be, Solvent.
8.6 Broker's or Finder's Commissions. No broker's or finder's fee or
--------------------------------
commission will be payable by Buyer with respect to the transactions
contemplated by this Agreement other than the
46
fees of CEA as representative of the Sellers, which fees shall be paid by Buyer.
9. DEFINITIONS.
-----------
As used herein, the following terms shall have the following meanings:
Act: means 47 U.S.C. (S) 522.
---
Affiliate: means with respect to any Person, another Person directly
---------
or indirectly controlling, controlled by, or under direct or indirect common
control with, such Person.
Assets: has the meaning specified in Section 7.5 (which, without
------
limitation, shall include the Purchased Assets).
Assumed Liabilities: has the meaning specified in Section 1.2.
-------------------
Basic Subscriber: means an individual or household in a property
----------------
currently served pursuant to an Eligible Right of Entry, and an individual or
household in a property to which the provisions of the Camden Subscriber
Equivalent apply that, as of the Closing, is an active direct subscriber to the
Standard Cable Package offered by the Seller or one of the Companies, whose
account is not more than 60 days past due provided, that for subscribers who
--------
subscribe to the Seller's or one of the Companies' Broadcast Basic Packages
("BBP") pursuant to which such subscribers pay $9.95 per month and in respect of
which Seller has no programming cost, each BBP subscriber shall count as .60
Basic Subscriber.
Broadcast Station: has the meaning specified in Section 7.24.
-----------------
Bulk Basic Subscriber: means each household at the Closing receiving
---------------------
the Standard Cable Package offered by Phonoscope or any of the Companies
purchased for it by a bulk purchaser under a Bulk Contract which contains an
Eligible Right of Entry and the account for which is not more than 90 days past
due.
47
Bulk Contract: means a contract with a property owner or owners'
-------------
association or a hotel to provide a Standard Cable Package to all dwelling units
in a property for a bulk service fee the account for which is not more than 90
days past due.
Bulk Revenue: means the monthly basic service revenue and monthly
------------
revenue derived from securing bulk arrangements for premium services (excluding
installation fees, service call fees, additional outlet fees, decoder rentals,
late fees, returned check fees and fees for premium or "pay" services other than
premium services that are incorporated in the regular, monthly programming
purchased by the property owner or owners' association for all units in the
property), received from a property owner or owners' association or a hotel
under a Bulk Contract.
Business: means the residential cable television and
--------
telecommunications business of Phonoscope and its Subsidiaries other than the
Retained Business including the business described in the information memorandum
dated April 17, 1996 prepared by CEA (except for changes in the ordinary course
of business since such time).
Business Day: means any day which is not a Saturday or Sunday or other
------------
day on which banks are required or authorized by law to close in the State of
Texas.
Buyer: has the meaning specified in the introduction.
-----
Buyer's Accountants: means the accounting firm of Deloitte & Touche,
-------------------
LLP.
Camden Subscriber Equivalents: means the number of subscriber
-----------------------------
equivalents computed by dividing (a) the aggregate dollar amount paid or
required to be paid to, or owned by, Cable Leasing, Inc. or any affiliate, in
respect of each relevant Eligible Right of Entry at a Camden-owned property
("Camden Property") for the period of calculation by (b) $22.95 or $19.95, as
applicable, based upon whether the Camden Property is serviced by Phonoscope,
Ltd., Phonoscope Entertainment, Inc. or Bay Area Cable Television, Inc. By way
of example, the Camden Subscriber Equivalents would be computed as follows if
$28,000 is the amount paid to Cable Leasing, Inc.:
48
(a) aggregate dollar amount paid
to, required to be paid to, or
owned by, Cable Leasing, Inc.
or any affiliate $28,000.00
divided by: (b) $22.95 assuming Phonoscope serves
this Camden Property 22.95
----------
equals: Camden Subscriber Equivalents to be
subtracted from EBU calculation 1220
It is expressly understood that all Camden subscribers are included on the EBU
calculation prior to the subtraction of Camden Subscriber Equivalents (as
provided in the definition of EBU).
Capitalized Lease Obligations: means all rental obligations which,
-----------------------------
under GAAP in effect on the day incurred, are required to be capitalized on the
books of any of Phonoscope or the Companies, in each case to the extent of the
amount thereof accounted for as indebtedness (net of interest expense) in
accordance with GAAP.
CEA: means Communication Equity Association, Inc.
---
Claim: has the meaning specified in Section 10.2.
-----
Closing: has the meaning specified in Section 3.1.
-------
Closing Date: has the meaning specified in Section 3.1.
------------
Closing Statement: has the meaning specified in Section 1.3 (a).
-----------------
COBRA: means Consolidated Omnibus Budget Reconciliation Act of 1985,
-----
as amended.
Common Strand Segment: means the segment of 39 fiber miles indicated
---------------------
on Schedule 6.9 plus up to six additional fiber miles contiguous to such
indicated segment, as designated by the Sellers by written notice to Buyer
delivered not less than ten Business Days prior to the Closing.
Companies: has the meaning specified in the Recitals.
---------
49
Conveyed Network: means the portions of the network described in
----------------
Schedule 9.1 (and in the maps in Schedule 9.1) to be owned by Buyer and the
Companies following the Closing plus all lines from such network to customer
properties (to the extent owned by Phonoscope or any of the Companies).
Costed Locations: has the meaning specified in Section 1.3(b)
----------------
Direct Right of Entry Costs: has the meaning specified in Section
---------------------------
1.3(c).
Duplicate Properties: has the meaning specified in Section 1.3(c).
--------------------
Eligible Right of Entry: means (i) a valid, lawful, binding and
-----------------------
enforceable written agreement in favor of Phonoscope or one of the Companies to
provide video programming delivery service to one or more MDUs on an exclusive
basis; (ii) contracts that previously qualified under clause (i) that have
expired without termination of service, notice of termination or nonrenewal or
commencement of service at such property by any other video services provider
and to which service is then being provided at Closing; (iii) current subscriber
agreements (including terms and conditions contained in work orders) with
residents of single family subdivisions; (iv) current subscriber agreements
(including terms and conditions contained in work orders) with restaurants; (v)
up to three contracts representing not more than 500 units entered into prior to
January 1, 1997 that would qualify under clause (i) except that they are not
exclusive; and (vi) a Bulk Contract for the provision of service to the
Glenchester Hotel or the Super 8 Motel.
Employee Liabilities: has the meaning specified in Section 5(a).
--------------------
Employee List: has the meaning specified in Section 5(b).
-------------
Environmental Laws: has the meaning specified in Section 7.9.
------------------
50
Equivalent Basic Unit and EBU: means:
-----------------------------
(a) the number of Basic Subscribers
plus: (b) a number of subscriber equivalents computed by dividing the
Bulk Revenue from Bulk Contracts for the 30-day period
ending three (3) business days prior to the date of
computation.
(i) in the case of Bulk Revenue from Bulk Contracts of
Phonoscope, Ltd., and Phonoscope Entertainment, Inc. by
$22.95; or
(ii) in the case of Bulk Revenue from Bulk Contracts of Bay
Area Cable Television, Inc., by $19.95;
plus: (c) a number of subscriber equivalents computed by dividing
Restaurant Revenue for the 30-day period ending three (3)
business days prior to the date of computation by $22.95.
less: (d) the Camden Subscriber Equivalents.
(e) For the purposes of computing the number of EBU, with
respect to all subscribers, the video programming services shall have
been installed at the subscriber's property not less than three (3)
business days prior to Closing. Additionally, all such subscribers
shall have paid or in the case of a subscription received not more
than forty-five (45) days prior to Closing, be obligated to pay the
Company's standard deposit and installation fees, if any, for such
services, (in accordance with the Company's ordinary business
practices, it being understood that Company runs promotional specials
from time to time, consistent with industry practice, in which
installation fees are sometimes waived and other one-time special
benefits offered).
(f) There shall be excluded from the calculation of EBU the
subscribers and bulk revenues under
51
contracts otherwise satisfying the provisions of the definition
provided for herein that were signed by Phonoscope or one of the
Companies after January 1, 1997 with property owners and subscribers
in properties that were receiving cable services from Buyer or any of
its affiliates on or after October 1, 1996.
(g) There shall be included in the calculation of EBU the
subscribers and Bulk Revenues from contracts otherwise satisfying the
provisions of the definitions provided for herein that were signed by
Buyer or any of its affiliates after January 1, 1997 with property
owners and subscribers in properties that were receiving cable
services from Phonoscope or one of the Companies on or after October
1, 1996 under an Eligible Right of Entry and (i) are no longer so
receiving such services (other than those which service was
disconnected due to a default by Phonescope or one of the Companies)
and (ii) which are receiving cable services from Buyer at Closing.
ERISA: means the Employee Retirement Income Security Act of 1974, as
-----
amended.
Excluded Properties: has the meaning specified in Section 1.3(c).
-------------------
Exclusive Transaction: has the meaning specified in Section 6.8.
---------------------
Expanded Basic Revenue: means the additional gross programming
----------------------
revenues received from those Bulk Basic Subscribers who additionally subscribe
directly from Phonoscope or any of the Companies for an expanded tier of
programming service (other than a "pay" or "premium" programming service) in
respect of the monthly programming fees (excluding installation fees, service
call fees, decoder rentals, late fees and fees for "par" or "premium" services)
for such expanded tier, and for which the accounts are not more than 60 days
past due and for which the standard deposit and installation fees for such
services (in accordance with the ordinary practices of the Business) have been
paid for at least one full month prior to the Closing.
52
Expenses: has the meaning specified in Section 10.1(a).
--------
Ex-Subscribers: has the meaning specified in Section 1.5.
--------------
FCC: means the Federal Communications Commission or any successor
---
thereto.
FCC Applications: has the meaning specified in Section 7.20.
----------------
FCC Licenses: has the meaning specified in Section 7.19.
------------
General and Indemnity Escrow Aqent: has the meaning specified in
----------------------------------
Section 2.3.
General and Indemnity Escrow Agreement: has the meaning specified in
--------------------------------------
Section 2.3.
GAAP: means United States generally accepted accounting principles
----
consistently applied throughout the period or periods in question.
Governmental Body: means any government or any political subdivision
-----------------
thereof, whether federal, state, local or foreign, any agency, instrumentality
or authority thereof (including, without limitation, the FCC), and any court or
arbitrator (public or private).
Indebtedness: means, with respect to any Person, (a) all indebtedness
------------
of such Person, whether or not contingent, for borrowed money, (b) all
obligations of such Person evidenced by notes, bonds, debentures or other
similar instruments, (c) all obligations of such Person as lessee under leases
that have been or should be, in accordance with GAAP, recorded as capital
leases, (d) all obligations, contingent or otherwise, of such Person under
acceptance, letter of credit or similar facilities, (e) all Indebtedness of
others referred to in clauses (a) through (d) above guaranteed directly or
indirectly in any manner by such Person, or in effect guaranteed directly or
indirectly by such Person through any agreement or arrangement, and (f) all
Indebtedness referred to in clauses (a) through (d) above secured
53
by any Lien on property owned by such Person, even though such Person has not
assumed or become liable for the payment of such Indebtedness.
Indemnified Taxes: means any Taxes paid or payable by Buyer or any
-----------------
person with whom Buyer pays Taxes on a consolidated, combined, or similar basis
with respect to any taxable year or period of the Companies or predecessor
entities of the Companies which ends on or before the Closing Date, including
any tax liability of the Companies or the Sellers which arises as a result of
the transactions contemplated by this Agreement. Indemnified Taxes also includes
any Taxes paid or payable by Buyer or any person with whom Buyer pays Taxes on a
consolidated, combined, or similar basis with respect to any taxable year or
period of the Companies which begins before and ends after the Closing Date, to
the extent such Taxes are attributable to the activities of the Companies or the
Sellers on or before the Closing Date, including any tax liability of the
Companies or the Sellers which arises as a result of the transactions
contemplated by this Agreement but only to the extent such liability is not
reflected as a liability on the Closing Statement.
Internal Revenue Code: means the Internal Revenue Code of 1986, as
---------------------
amended, and the rules and regulations promulgated thereunder.
Liabilities: means any and all debts, liabilities and obligations,
-----------
whether accrued or fixed, absolute or contingent, matured or unmatured or
determined or undetermined, including, without limitation, those arising under
any law, rule or regulation of any Governmental Body (including, without
limitation, Indemnified Taxes), those arising under any contract, agreement,
arrangement, commitment or undertaking or those to or in respect of employees or
leased employees of the Company and includes, without limitation, the Assumed
Liabilities and the Excluded Liabilities.
Liabilities for Programming Fees: means all amounts which are clearly
--------------------------------
and manifestly owing to a program provider and which are (i) amounts evidenced
by invoices from programming providers, (ii) all amounts due to program
providers as shown on the program provider's books and records, (iii) all
amounts arising from properties in which service has been activated (whether or
not the program provider shall have received notice
54
of such activation) and not yet paid to program providers, (iv) all amounts
calculable with respect to a property by reference to the Company's subscriber
reports to program providers for which the program provider's invoice shall not
have been issued or for which the program provider's invoice shall have been
issued but shall not have been paid or (v) all amounts arising from a claim by a
program provider or from a program provider audit.
Lien: means any mortgage, pledge, security interest, encumbrance,
----
lien or charge of any kind, including any agreement to give any of the
foregoing, any conditional sale or other title retention agreement, any lease in
the nature thereof, and the filing of or agreement to give any financing
statement under the Uniform Commercial Code of any jurisdiction.
Losses: has the meaning specified in Section 10.1(a).
------
Material Adverse Effect: means any circumstance, change in, or effect
-----------------------
on, the Business, any of the Companies or the Assets (including the Purchased
Assets) that, individually or in the aggregate with any other circumstances,
changes in, or effects on, the Business, any of the Companies or the Assets
(including the Purchased Assets): (a) is, or could be, materially adverse to
the business, operations, assets or Liabilities (including, without limitation,
contingent Liabilities), employee relationships, customer or supplier
relationships, prospects, results of operations or the condition (financial or
otherwise) of the Business or the Assets (including the Purchased Assets) or (b)
could materially adversely affect the ability of Buyer or the Companies to
operate or conduct the Business in the manner in which it is currently operated
or conducted by the Sellers and the Companies.
MDUs: means, collectively, multiple dwelling units (comprising high-
----
rise and low-rise apartment, condominium and cooperative complexes, town-house
developments, mobile home parks and congregate care and other similar
facilities, which contain 25 or more dwelling units in a single structure).
Network Separation Escrow Agreement: means the agreement to be
-----------------------------------
entered into at the Closing by Buyer and Sellers in the form attached hereto as
Exhibit C.
55
Network Separation Escrow Amount: has the meaning specified in
--------------------------------
Section 2.5(a).
Non-Competition Agreement: means the agreement to be entered into at
-------------------------
the Closing by Buyer and each of the Sellers in the form attached as Exhibit E.
Notice: has the meaning specified in Section 10.6.
------
Officer's Certificate: means as to any Person, a certificate of its
---------------------
president, vice president, chief financial officer, treasurer or controller or,
in the case of a partnership or limited liability company, an equivalent officer
of a general partner or manager or an individual general partner or manager, or
in the case of an individual, such Person himself.
OpTel: has the meaning specified in the introduction.
-----
OpTel Indemnified Parties: has the meaning specified in Section
-------------------------
10.1(a).
PBGC: means the Pension Benefit Guaranty Corporation established
----
pursuant to Section 4002 of ERISA, or any successor entity thereto.
Permitted Liens: means Purchase Money Security Interests, landlord's
---------------
liens, mechanics' liens, repairmen's liens and other similar liens, if any, that
do not materially detract from the value of the property subject thereto or
materially interfere with the manner in which it is currently being used in the
Business, or materially impair the operations of the Business, and Taxes,
general and special assessments not in default without penalty or interest and
Liens to secure Capitalized Lease Obligations to the extent they exist on the
date hereof.
Person: means an individual, partnership, joint venture, corporation,
------
limited liability company, trust or other entity or any Governmental Body or
subdivision, agency, commission or authority thereof.
Pole Owners: has the meaning specified in Section 4.2.9.
-----------
56
Purchase Money Debt: means debt of Phonoscope or any of the Companies
-------------------
incurred to finance an acquisition of assets which is secured by a Purchase
Money Security Interest.
Purchase Money Security Interest: means a purchase money security
--------------------------------
interest within the meaning of Section 9-107 of the Uniform Commercial Code, as
in effect on the date hereof.
Purchase Price: has the meaning specified in Section 1.1.
--------------
Purchased Assets: means all the assets, business and operations of
----------------
the Business held by Phonoscope, including; without limitation:
(i) the assets and operations referred to in the information
memorandum dated April 17, 1996 prepared by CEA (except for
changes in the ordinary course of business since such time);
(ii) all franchises, licenses, permits, real property rights and
assessments held or pending, except for the Phonoscope
Houston franchise;
(iii) all MDU and single-family residential right of entry and
customer contracts including, without limitation, those
listed in Schedule 9.1;
(iv) the Phonoscope and Bay Area Cable Television head ends, the
material components of which are described on Schedule
7.5(d);
(v) all vehicles, and inventory of spare parts described in
Schedule 9.1, technical and test equipment, receivables and
other current assets (other than cash), systems, computers,
office equipment, books and records related to the Business;
(vi) the Phonoscope "Entertainment Business" fiber network
("Conveyed Network"), a fiber optic network having a
backbone mileage of not less
57
than 1,100 fiber miles, the main backbone of which is
outlined on the map included in Schedule 9.1 and otherwise
is described in Schedule 9.1, and which consists of (without
limitation)
(a) all fiber, coaxial cable and other cable and wiring,
electronic equipment, strand, pole and other
attachments, amplifiers, optical receivers, active and
passive devices on the Category I Segments and Category
II Segments (as such segments are identified on the map
included in Schedule 9.1 and including fiber, cable,
strand and wiring from the segments on such maps to the
residential buildings and customers to the extent owned
by Phonoscope);
(b) the particular fibers enumerated in Schedule 9.1 in
fiber sheathes (bundles) retained by Phonoscope on the
Category III Segments, together with the right to use,
in common with Phonoscope, all electronic equipment,
all strand, pole and other attachments, amplifiers,
optical receivers, active and passive devices; and
(c) all fiber, coaxial cable and other cable and wiring,
electronic equipment, strand, pole and other
attachments, amplifiers, optical receivers, active and
passive devices (including Sellers interest in wiring
and other assets located at MDU locations) that link
the network assets listed in clauses (a) and (b) above
to properties and customers serviced by the Business;
(vii) hotel, motel and restaurant CATV contracts and customers in
suburban areas of greater Houston (not including CATV
contracts and customers in office buildings in greater
58
Houston and not including the Lancaster Hotel);
(viii) all strands and pole attachment rights in the Common Strand
Segment.
Notwithstanding the aforesaid, the Purchased Assets shall not include any assets
or customer relationships described in Schedule 9.2 hereto.
Recent Subscribers: has the meaning specified in Section 1.5.
------------------
Relevant Program Provider: means any programming provider that is or
-------------------------
shall have at any time during the past three years provided programming to
Phonoscope or any of the Companies.
Reports: has the meaning specified in Section 7.21.
-------
Required Consents: has the meaning specified in Section 4.2.9.
-----------------
Restaurant Revenue: means the monthly basic service revenue and the
------------------
monthly revenue derived from recurring bulk arrangements for premium services
(excluding installation fees, service call fees, additional outlet fees,
decoder rentals, late fees, returned check fees and fees for premium or "pay"
services other than premium services that are incorporated in the regular,
monthly programming purchased by a Restaurant Subscriber), received from
Restaurant Subscribers.
Restaurant Subscriber: means a restaurant currently served pursuant
---------------------
to an Eligible Right of Entry that, as of the date of determintion, is an
active subscriber to not less than Standard Cable Package offered by Phonoscope
or one of the Companies, whose account is not more than 60 days past due.
Retained Businesses: means (i) Phonoscope's residential and
-------------------
commercial Internet access, videoconferencing or "Phonoscope" videophone
business; (ii) Phonoscope's businesses of providing switched or unswitched data
and voice transmission services to business; (iii) Phonoscope's business of
providing cable television services to hospitals, businesses at locations in
office buildings and the Lancester Hotel in Houston; or (iv)
59
the right to use the "Phonoscope" name.
Rights of Entry: means valid, lawful, binding and enforceable written
---------------
agreements in favor of Phonoscope's or any of the Companies to provide exclusive
video programming delivery service to one or more MDUs.
Seller: has the meaning specified in the introduction.
------
Seller Indemnified Parties: has the meaning specified in Section
--------------------------
10.1(b).
Sellers' Accountants: means the accounting firm of Nelson & Nelson.
--------------------
Services and Cooperation Agreement: means the agreement to be entered
----------------------------------
into at the Closing by Buyer and Phonoscope in the form attached hereto as
Exhibit G.
Shares: has the meaning specified in the Recitals.
------
Solvent: means, with respect to any Person on a particular date, that
-------
on such date (a) the fair value of the property of such Person is greater than
the total amount of Liabilities, including, without limitation, contingent
Liabilities, of such Person, (b) the present fair salable value of the assets of
such Person is not less than the amount that will be required to pay the
probable Liability of such Person on its debts as they become absolute and
matured, (c) such Person does not intend to, and does not believe that it will,
incur debts or Liabilities beyond such Person's ability to pay as such debts and
Liabilities mature and (d) such Person is not engaged in business or a
transaction, and is not about to engage in business or a transaction, for which
such Person's property would constitute an unreasonably small capital.
Standard Cable Package: means the services sold by Phonoscope or any
----------------------
of the Companies for basic cable channels and/or services and equipment, but
excluding premium channels, deposits, installation fees or premium discounts.
The Standard Cable Package for the customers of Phonoscope includes the
programming listed in Exhibit H attached hereto made a part hereof for all
purposes, and the Standard Cable Package for Customers of each of the Companies
includes the programming
60
listed in Exhibit I hereto.
Standard Costs: has the meaning specified in Section 1.3(b).
--------------
Sublease: means the sublease to be entered into at the Closing by
--------
Buyer and Phonoscope in the form attached hereto as Exhibit J.
Subsidiary: means, as to any Person, a corporation or other Person of
----------
which shares or similar securities having voting power to elect a majority of
the board of directors or other managers are at the time owned, directly or
indirectly, through one or more intermediaries, by such Person.
Tax or Taxes: means any and all taxes, fees, levies, duties, tariffs,
--- -----
imposts, and other charges of any kind (together with any and all interest,
penalties, additions to tax and additional amounts imposed with respect thereto)
imposed by any government or taxing authority, including, without limitation:
taxes or other charges on or with respect to income, capital, gains, capital
gains, franchises, windfall or other profits, gross receipts, property, sales,
use, capital stock, payroll, employment, social security, workers' compensation,
unemployment compensation, or net worth and alternative minimum taxes; taxes or
other charges in the nature of excise, withholding, ad valorem, stamp, transfer,
value added, or gains taxes; license, registration and documentation fees; and
customs' duties, tariffs, and similar charges.
Tax Authority: means any federal, state, local or foreign taxing
-------------
authority, court, or tax administrative body.
Tax Proceeding: means an examination, investigation, audit, hearing,
--------------
or other proceeding conducted by a Tax Authority regarding a Tax Return. A Tax
Proceeding also includes a proceeding in federal Tax Court and a state or local
administrative proceeding.
Tax Return: means any tax return or other tax reporting document
----------
filed or required to be filed by or on behalf of the Companies with a Tax
Authority which relates to Indemnified Taxes.
61
Upgrade: has the meaning specified in Section 1.3(b).
-------
WARN: Worker Adjustment and Retraining Notification Act of 1988, as
----
amended.
10. MISCELLANEOUS
-------------
10.1 Indemnification. (a) The Sellers jointly and severally shall
---------------
indemnify and hold Buyer, each of the Companies and their respective directors,
officers, employees, affiliates, agents, successors and assigns (collectively,
the "OpTel Indemnified Parties") harmless from and against any and all losses,
liabilities, obligations, damages, claims, deficiencies, costs and expenses
("Losses") based upon, attributable to or resulting from or arising out of:
(i) the Excluded Liabilities; (ii) any misrepresentation or breach of
representation or warranty made by the Sellers herein; (iii) breach or non
fulfillment of any agreement or covenant on the part of the Sellers under this
Agreement or any of the agreements contemplated hereby (which shall include, but
not be limited to, any dispute as to the accuracy of the Closing Statement
described in Section 1.4); (iv) all Indemnified Taxes, (v) any and all Losses
arising from or relating to any violations of the Copyright Act prior to the
Closing and (vi) any and all notices, actions, suits, proceedings, demands,
assessments, judgments, costs, penalties and expenses, including attorneys' and
other professionals' fees (including, without limitation, reasonable attorneys'
and other professionals' fees and expenses incurred in any action or proceeding
between the parties hereto or between any party hereto (if such party is the
prevailing party) and a third party, if such matter is subject to the
indemnification provisions of this Article 10) and charges incurred in
connection with the investigation, defending or preparing to defend the
foregoing (collectively, "Expenses").
(b) Buyer shall indemnify and hold the Sellers and their
respective directors, officers, shareholders, employees, heirs, executors,
administrators, affiliates, agents, successors and assigns (collectively, the
"Sellers Indemnified Parties") harmless from and against any and all Losses
based upon, attributable to or resulting from (i) any misrepresentation, breach
of representation or warranty made by Buyer herein, (ii) any breach or non-
fulfillment of any covenant or agreement on the part of Buyer under this
Agreement or any of
62
the agreements contemplated hereby, (iii) any Assumed Liabilities and (iv) any
and all Expenses incident to the foregoing.
(c) Except as set forth below, an indemnifying party may be
liable for Losses arising under Section 10.1(a) (ii) or 10.1(b) (i) only if
written notice of a claim for indemnity in respect of such subject matter is
given to the indemnifying parties on or prior to the second anniversary of the
Closing Date (except that (i) such day shall be the day of expiration of the
applicable statute of limitations in respect of breaches of the representations
and warranties in Section 7.6, (ii) such day shall be the later of the second
anniversary of the Closing Date or 180 days after the indemnified party has
discovered facts or circumstances that indicate a reasonable likelihood that a
breach of the representations and warranties set forth in Sections 7.1, 7.5, 8.1
and 8.2 has occurred and (iii) other than the time limits for accrual of a cause
of action under applicable law, there shall be no time limit on the ability of
any party to bring a claim for any loss arising from intentional
misrepresentation or fraud).
10.2 Indemnification Procedures, Determination of Damages,
-----------------------------------------------------
Limitations and Related Matters. (a) In the event that any legal proceedings,
- - -------------------------------
including, without limitation, any Tax Proceeding, shall be instituted or that
any claim or demand ("Claim") shall be asserted by any Person in respect of
which indemnity may be sought under Section 10.1(a) or Section 10.1(b), the
indemnified party shall reasonably and promptly cause written notice of the
assertion of any Claim of which it has knowledge which is subject to such
indemnity to be forwarded to the indemnifying party; provided, however, that the
-------- -------
failure to notify the indemnifying party shall not affect the indemnifying
party's obligation hereunder except to the extent of actual prejudice. The
indemnifying party shall have the right, at its sole option and expense, to be
represented by counsel of its choice, which shall be satisfactory to the
indemnified party in the reasonable exercise of its discretion. In the event
the indemnifying party is any or all of the Sellers and he (or they)
acknowledges in writing his obligation to indemnify the OpTel Indemnified
Parties against any Losses that may result from such Claim, and if such Claim is
for monetary damages only and the defense of such Claim by such Seller or
Sellers will not, in the judgment of Buyer, otherwise materially adversely
impact the Business, the Company or any OpTel Indemnified Party in any manner
whatsoever, then
63
(and under no other circumstances) such Seller or Sellers shall have the right
to defend against, negotiate, settle or otherwise deal with any Claim which
relates to any Losses indemnified against hereunder; provided, however,
-------- -------
that no settlement shall be made without the prior written consent of Buyer,
which shall not unreasonably withhold or delay its consent. In the event the
indemnifying party is Buyer and Buyer acknowledges in writing its obligation to
indemnify the Sellers Indemnified Parties against any Losses that may result
from such Claim, and if such Claim is for monetary damages only and the defense
of such Claim by the Buyer will not, in the judgment of the Sellers, otherwise
materially adversely impact any Sellers Indemnified Party in any manner
whatsoever, then (and under no other circumstances) Buyer shall have the right
to defend against, negotiate, settle or otherwise deal with any Claim which
relates to any Losses indemnified against hereunder; provided, however, that no
-------- -------
settlement shall be made without the prior written consent of the Sellers, which
shall not unreasonably withhold or delay their consent. If the indemnifying
party elects to defend against, negotiate, settle or otherwise deal with any
Claim which relates to any Losses subject to indemnity hereunder, it shall
within 15 Business Days (or sooner, if the nature of the Claim so requires)
notify the indemnified party of its intent to do so. If the indemnifying party
shall not be entitled to, or elects not to, defend against, negotiate, settle or
otherwise deal with any Claim which relates to any Losses subject to indemnity
hereunder, fails to notify the indemnified party of its election as herein
provided or contests its obligation to provide indemnity hereunder, the
indemnified party may defend against, negotiate, settle or otherwise deal
with such Claim. If the indemnified party defends any Claim, then the
indemnifying party shall periodically reimburse the indemnified party for the
expenses of defending such Claim promptly following submission of invoices
therefor. The indemnified party may not settle any Claim without the prior
written consent of the indemnifying party, which shall not unreasonably withhold
or delay its consent. If the indemnifying party shall assume the defense of any
Claim, the indemnified party may participate, at its own expense, in the defense
of such Claim; provided, however, that the indemnified party shall be entitled
-------- -------
to participate in any such defense with separate counsel, at the expense of the
indemnifying party, if (i) requested by the indemnifying party so to participate
or (ii) in the reasonable opinion of counsel to the indemnified party a conflict
or potential conflict exists between the
64
indemnified party and the indemnifying party that would make such separate
representation advisable; and provided, further, that the indemnifying party
-------- -------
shall not be required to pay for more than one such counsel for all indemnified
parties in connection with any Claim. The parties agree to cooperate fully with
each other in connection with the defense, negotiation or settlement of any such
Claim.
(b) After any final judgment or award shall have been rendered
by a court, arbitration panel or administrative agency of competent jurisdiction
and the expiration of the time in which to appeal therefrom, or a settlement
shall have been consummated, or any indemnified party shall have paid or
experienced Losses for which an indemnified party shall be entitled to
indemnification under Section 10.1(a) or Section 10.1(b) or the indemnified
party and the indemnifying party shall have arrived at a mutually binding
agreement with respect to a Claim, the indemnified party shall forward to the
indemnifying party notice of any sums due and owing by the indemnifying party
pursuant hereto with respect to such matter and the indemnifying party shall be
required to pay all of the sums so due and owing to the indemnified party as
described below.
(c) The OpTel Indemnified Parties shall not be deemed to have
notice of any Claim by virtue of knowledge acquired on or prior to the Closing
Date by an employee of either the Sellers or any of the Companies.
(d) Except as described in clause (e) below, indemnity payments
for Losses due to an indemnified party under this Section 10.2 shall be made by
wire transfer of immediately available funds to an account designated by the
indemnified party, within five business days after the date of the notice
referred to in Section 10.2(b).
(e) If, pursuant to Section 2.3 and the General and Indemnity
Escrow Agreement, the Indemnity Escrow Amount and/or the General Escrow Amount
is available to Buyer to satisfy any claim for indemnification hereunder, and
(i) the Sellers shall not have objected to the amount claimed by the OpTel
Indemnified Parties for indemnification with respect to any Loss in accordance
with the procedures set forth in the General and Indemnity Escrow Agreement or
(ii) the Sellers shall have delivered notice of its disagreement as to the
amount of any
65
indemnification requested by the OpTel Indemnified Parties and either (A) the
Sellers and Buyer shall have, subsequent to the giving of such notice, mutually
agreed that the Sellers is obligated to indemnify the OpTel Indemnified Parties
for a specified amount and shall have so jointly notified the General and
Indemnity Escrow Agent or (B) a final, nonappealable order of a court pursuant
to Section 10.9 by the OpTel Indemnified Parties for indemnification from the
Sellers and the General and Indemnity Escrow Agent shall have received, in the
case of clause (A) above, written instructions from the Sellers and Buyer or, in
the case of clause (B) above, a copy of the final nonappealable judgment of the
court, then the General and Indemnity Escrow Agent shall deliver to the OpTel
Indemnified Parties from the Indemnity Escrow Amount or the General Escrow
Amount, as the case may be, any amount determined to be owed to the OpTel
Indemnified Parties under this Section 10.2 in accordance with the General and
Indemnity Escrow Agreement and upon depletion of the Indemnity Escrow Amount or
the General Escrow Amount, as the case may be, the provisions of Section 10.2(d)
shall apply to any additional amounts due Buyer under Section 10.1 and 10.2. The
lack of availability of the Indemnity Escrow Amount or the General Escrow
Amount, or Buyer's decision not to make a claim against either or both of the
Indemnity Escrow Amount or the General Escrow Amount, shall not limit any claims
for indemnification by Buyer under this Agreement.
10.3 Amendments. This Agreement may not be amended except in a
----------
writing signed by, or on behalf of, all parties hereto.
10.4 Survival of Representations and Warranties. All representations
------------------------------------------
and warranties contained herein or made in writing by or on behalf of any party
hereto in connection herewith shall survive the Closing for the periods
specified in Section 10.1(c) regardless of any investigation made by Buyer or on
its behalf.
10.5 Successors and Assigns. All covenants and agreements in this
----------------------
Agreement contained by or on behalf of the parties hereto shall bind and inure
to the benefit of the respective successors and assigns of the parties, whether
so expressed or not. This Agreement shall not be assignable by any party hereto
without the prior consent of the other party, provided, however, that OpTel
-------- -------
may assign any part or all of its
66
interest under this Agreement to any wholly-owned Subsidiary, in which case,
both OpTel and such Subsidiary shall be jointly and severally liable for all
obligations so assigned.
10.6 Notices; Sellers' Representative (a) All notices, consents,
--------------------------------
instructions and other communications required or permitted under this Agreement
(collectively, "Notice") shall be effective only if given in writing and shall
be considered to have been duly given when (i) delivered by hand, (ii) sent by
telecopier (with receipt confirmed), provided that a copy is mailed (on the same
date) by certified or registered mail, return receipt requested, postage
prepaid, or (iii) received by the addressee, if sent by Express Mail, Federal
Express or other reputable express delivery service (receipt requested), or by
first class certified or registered mail, return receipt requested, postage
prepaid. Notice shall be sent in each case to the appropriate addresses or
telecopier numbers set forth below (or to such other addresses and telecopier
numbers as a party may from time to time designate as to itself by notice
similarly given to the other parties in accordance herewith, which shall not be
deemed given until received by the addressee). Notice shall be given:
(1) to Buyer at:
OpTel, Inc.
1111 West Mockingbird Lane
Dallas, Texas 75247
Attn: General Counsel
Telecopier: (214) 634-3889
copy to: Kronish, Lieb, Weiner & Hellman LLP
1114 Avenue of the Americas
New York, New York 10036-7798
Attn: Eric Simonson, Esq.
Telecopier: (212) 479-6275
(2) to the Sellers (or any of them) at:
Phonoscope, Ltd.
6105 Westline Drive
Houston, Texas 77036
Attn: Lee Cook
Telecopier: (713) 271-4334
67
copy to: Barlow, Todd, Jordan & Oliver, LLP
17225 El Camino Real
Suite 400
Houston, Texas 77058
Attn: Bill A. Todd, Jr.
Telecopier: (214) 488-6832
(b) Each Seller and the General Partner hereby irrevocably
constitutes and appoints Cook as its true and lawful agent and attorney-in-fact
with full power and authority to act, including full power of substitution, in
its name and on its behalf with respect to all matters arising from or in any
way relating to this Agreement or the transactions contemplated hereby,
including, without limitation, to do all things and to perform all acts required
or deemed advisable, in his sole discretion, in connection with the transactions
contemplated by this agreement as fully as each Seller or the General Partner
could if then personally present and acting alone. Without limitation, (i) any
Notice or other delivery (including any delivery of any portion of the Purchase
Price) validly delivered to Cook shall be deemed to have been validly delivered
to each of the Sellers and the General Partner, (ii) any waiver of any provision
of this Agreement or consent, or compromise of any claim arising from or
relating to this Agreement, by Cook shall be binding upon each and every Seller
and the General Partner, and (iii) Cook is hereby authorized to execute for and
on behalf of each Seller and the General Partner (x) any amendment to this
Agreement or (y) any agreement contemplated hereby. Buyer shall be entitled to
rely (without investigation) on any action taken by Cook as being taken by Cook
for himself and on behalf of each of the Sellers and the General Partner, and
fully authorized by each of the Sellers and the General Partner. This
appointment of agency and this power of attorney is coupled with an interest and
shall be irrevocable and shall not be terminated by any Seller or the General
Partner or by operation of law, whether by the death or incapacity of any Seller
that is a natural person, the termination of any trust or estate, the
dissolution, liquidation or bankruptcy of any corporation, partnership or other
entity or the occurrence of any other event, and any action taken by Lee Cook
shall be as valid as if such death, incapacity, termination, dissolution,
liquidation, bankruptcy or other event had not occurred, regardless of whether
or not Cook shall have received any notice thereof. Except as otherwise
expressly provided in
68
this Agreement the Sellers shall be jointly and severally liable for all
obligations of the Sellers (or any of them) under this Agreement. Cook shall
indemnify, defend and hold harmless the OpTel Indemnified Parties from and
against all Losses arising out of or relating to any dispute among the Sellers
and the General Partner or any challenge by any Seller other than Cook or the
General Partner to the validity, propriety or enforceability of any action taken
by Cook pursuant to the powers granted to Cook by this Section 10.6(b).
10.7 Descriptive Headings. The descriptive headings of the several
--------------------
Sections and paragraphs of this Agreement are inserted for convenience only and
do not constitute a part of this Agreement.
10.8 GOVERNING LAW. THIS AGREEMENT IS BEING DELIVERED AND IS
-------------
INTENDED TO BE PERFORMED IN THE STATE OF TEXAS, AND SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY
THE LAW OF SUCH STATE APPLICABLE TO CONTRACTS ENTERED INTO AND TO BE PERFORMED
WHOLLY WITHIN SUCH STATE.
10.9 SUBMISSION TO JURISDICTION; VENUE. EACH PARTY HERETO
---------------------------------
IRREVOCABLY CONSENTS AND AGREES THAT ANY LEGAL ACTION, SUIT OR PROCEEDING
AGAINST IT WITH RESPECT TO ITS OBLIGATIONS OR LIABILITIES UNDER OR ARISING OUT
OF OR IN CONNECTION WITH THIS AGREEMENT SHALL BE BROUGHT BY SUCH PARTY ONLY IN
THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF TEXAS SITTING IN
THE CITY OF HOUSTON OR, IN THE EVENT (BUT ONLY IN THE EVENT) SUCH COURT DOES NOT
HAVE JURISDICTION OVER SUCH ACTION, SUIT OR PROCEEDING, IN THE COURTS OF THE
STATE OF TEXAS SITTING IN THE CITY OF HOUSTON, AND EACH PARTY HEREBY IRREVOCABLY
ACCEPTS AND SUBMITS TO THE JURISDICTION OF EACH OF THE AFORESAID COURTS IN
PERSONAM, WITH RESPECT TO ANY SUCH ACTION, SUIT OR PROCEEDING (INCLUDING,
-------
WITHOUT LIMITATION, CLAIMS FOR INTERIM RELIEF, COUNTERCLAIMS, ACTIONS WITH
MULTIPLE DEFENDANTS AND ACTIONS IN WHICH SUCH PARTY IS IMPLED). EACH PARTY
IRREVOCABLY WAIVES ANY RIGHT THAT IT MAY HAVE TO A JURY TRIAL IN ANY LEGAL
ACTION, SUIT OR PROCEEDING WITH RESPECT TO, OR ARISING OUT OF OR IN CONNECTION
WITH THIS AGREEMENT.
10.10 Entire Agreement. This Agreement and the other writings
----------------
referred to herein or delivered pursuant hereto contain the entire agreement
among the parties with respect to the
69
subject matter hereof and supersede all prior and contemporaneous arrangements
or understandings with respect thereto including, without limitation, the
Summary of Terms dated January 15, 1997, the letter agreement, dated April 21,
1995 between CEA and buyer (other than the provisions regarding payment of fees
to CEA, which shall survive) and the Confidentiality Agreement, dated May 6,
1994, between CEA and Vanguard Communications, Inc. Nothing in this Agreement is
intended to confer any rights or remedies under or by reason of this Agreement
on any Persons other than the Sellers and the Buyer and their respective
successors and permitted assigns.
10.11 Severability. Any provision of this Agreement that is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
10.12 Public Announcement. Neither Buyer on the one hand, nor any of
-------------------
the Sellers or the Companies on the other hand, nor any of their respective
officers, directors or advisors shall make any public announcement or report
with respect to this Agreement or its subject matter, without the prior written
consent of Buyer and the Sellers unless (and only to the extent) such
announcement or report is necessary to comply with legal requirements or to
bring about the consummation of the Closing.
10.13 Expenses. Except as expressly provided in this Agreement, each
--------
party hereto agrees to pay its cash expenses, including the fees and
disbursements of its own advisors and counsel.
10.14 Confidentiality. Each of the Sellers and the General Partner
---------------
agrees to, and shall cause its agents, representatives, Affiliates and employees
to: (i) treat and hold as confidential (and not disclose or provide access to
any Person to) all information relating to trade secrets, processes,
intellectual property applications, product development, price, customer and
supplier lists, pricing and marketing plans, policies and strategies, details of
client, customer, subscriber and consultant contracts and agreements, operations
methods, product development techniques, business acquisition plans, new
70
personnel acquisition plans and all other confidential information with respect
to the Business and the Companies, (ii) in the event that any of the Sellers or
any such agent, representative, Affiliate or employee becomes legally compelled
to disclose any such information, provide Buyer with prompt written notice of
such requirement so that Buyer may seek a protective order or other remedy or
waive compliance with this Section 10.14, (iii) in the event that such
protective order or other remedy is not obtained, or Buyer waives compliance
with this Section 10.14, furnish only that portion of such confidential
information which is legally required to be provided and exercise its best
efforts to obtain assurances that confidential treatment will be accorded such
information, and (iv) promptly furnish (prior to, at, or as soon as practicable
following, the Closing) to Buyer any and all copies (in whatever form or medium)
of all such confidential information then in the possession of the Sellers or
any of their respective agents, representatives, Affiliates or employees, and
destroy any and all additional copies then in the possession of the Sellers or
the General Partner or any of their respective agents, representatives,
Affiliates or employees of such information and of any analyses, compilations,
studies or other documents prepared, in whole or in part, on the basis thereof;
provided, however, that this sentence shall not apply to any information that,
- - -------- -------
at the time of disclosure, is available publicly and was not disclosed in breach
of this Agreement by any of the Sellers or the General Partner, their respective
agents, representatives, Affiliates or employees. Each Seller and the General
Partner agrees and acknowledges that remedies at law for any breach of its
obligations under this Section 10.14 are inadequate and that in addition thereto
Buyer shall be entitled to seek equitable relief, including injunction and
specific performance, in the event of any such breach.
10.15 No Consequential Damages. In no event shall any party to this
------------------------
Agreement be liable to any other party for any consequential, punitive or
speculative damages (including but not limited to damages for lost profits).
10.16 Counterparts. This Agreement may be executed in multiple
------------
counterparts, each of which shall be deemed an original, and it shall not be
necessary in making proof of this Agreement to produce or account for more than
one such counterpart.
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10.17 No Solicitation or Negotiation. Each Seller and the General
------------------------------
Partner agrees that between the date of this Agreement and the earlier of (i)
the Closing and (ii) the termination of this Agreement, none of the Sellers, the
General Partner, any of the Companies or any of their respective Affiliates,
officers, directors, representatives or agents will (a) solicit, initiate,
consider, encourage or accept any other proposals or offers from any Person (i)
relating to any acquisition or purchase of all or any portion of the capital
stock or other equity interests of any of the Companies or assets of any of the
Companies or any of the Purchased Assets, (ii) to enter into any business
combination or (iii) to enter into any other extraordinary business transaction
involving or otherwise relating to the Business or the Assets or (b) participate
in any discussions, conversations, negotiations or other communications
regarding, or furnish to any other Person any information with respect to, or
otherwise cooperate in any way, assist or participate in facilitate or encourage
any effort or attempt by any other Person to seek to do any of the foregoing.
The Sellers immediately shall, and shall cause each of the Companies to, cease
and cause to be terminated all existing discussions, conversations, negotiations
and other communications with any Persons conducted heretofore with respect to
any of the foregoing. The Sellers and the General Partner shall notify Buyer
promptly if any such proposal or offer, or any inquiry or other contact with any
Person with respect thereto, is made and shall, in any such notice to Buyer,
indicate in reasonable detail the identity of the Person making such proposal,
offer, inquiry or contact and the terms and conditions of such proposal, offer,
inquiry or other contact. Each Seller and the General Partner agrees not to, and
agrees to cause each of the Companies not to, without the prior written consent
of Buyer, release any Person from, or waive any provisions of, any
confidentiality or standstill agreement to which any Seller or any of the
Companies is a party.
10.18 Further Action. Each of the parties hereto shall use all
--------------
reasonable efforts to take, or cause to be taken, all appropriate action, do or
cause to be done all things necessary, proper or advisable under applicable
laws, and execute and deliver such documents and other papers, as may be
required to carry out the provisions of this Agreement and consummate and make
effective the transactions contemplated by this Agreement.
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IN WITNESS WHEREOF, the parties have executed, or caused to be
executed, this Agreement as of the date first above written.
OPTEL, INC.
By:__________________________
Name:
Title:
PHONOSCOPE, LTD.
By:__________________________
Name:
Title:
PHONOSCOPE MANAGEMENT L.C.
By:__________________________
Name:
Title:
_____________________________
Lee Cook
LEE COOK FAMILY TRUST
By:__________________________
Lee Cook
Sole Trustee
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_____________________________
Alton Cook
COMMUNICATIONS EQUITY ASSOCIATES
(for purposes of Section 10.10 only)
By:__________________________
Name:
Title:
74