SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
TELETOUCH COMMUNICATIONS, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1. Title of each class of securities to which transaction applies: N/A
2. Aggregate number of securities to which transaction applies: N/A
3. Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined): N/A
4. Proposed maximum aggregate value of transaction: $3,400,000
5. Total fee paid: $680
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1. Amount Previously Paid: N/A
2. Form, Schedule or Registration Statement No.: N/A
3. Filing Party: N/A
4. Date Filed: N/A
1
TELETOUCH COMMUNICATIONS, INC.
[GRAPHIC OMITTED]
1913 DEERBROOK DRIVE
TYLER, TEXAS 75703
Dear Stockholder:
You are cordially invited to attend the Special Meeting of Stockholders
of Teletouch Communications, Inc. on March 1, 2006. The Special Meeting will
begin at 10:00 a.m. local time at the Hotel Adolphus, 1321 Commerce Street,
Dallas, Texas 75202. Information regarding each of the matters to be voted on at
the Special Meeting is contained in the attached Proxy Statement and Notice of
Special Meeting of Stockholders. We urge you to read the Proxy Statement
carefully. In addition to the formal items of business, I will be available at
the meeting to answer your questions. The Proxy Statement is being mailed to all
stockholders on or about January 16, 2006.
Please note that only shareholders of record at the close of business
on January 2, 2006 may vote at the meeting. Your vote is important. Whether or
not you plan to attend the Special Meeting, please complete, date, sign and
return the enclosed proxy card promptly. If you attend the meeting and prefer to
vote in person, you may do so.
We look forward to seeing you in Dallas on March 1, 2006.
Very truly yours,
Robert M. McMurrey
Chairman of the Board
1
TELETOUCH COMMUNICATIONS, INC.
[GRAPHIC OMITTED]
1913 DEERBROOK DRIVE, TYLER, TEXAS 75703
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO THE STOCKHOLDERS OF TELETOUCH COMMUNICATIONS, INC.:
NOTICE IS HEREBY GIVEN that the Special Meeting of Stockholders of
Teletouch Communications, Inc., a Delaware corporation, will be held on March 1,
2006, at the Hotel Adolphus, 1321 Commerce Street, Dallas, Texas 75202, at 10:00
a.m. local time, and thereafter as it may from time to time be adjourned, for
the purposes stated below:
1. To approve the sale of the paging business assets of Teletouch
Communications, Inc.; and
2. To transact such other business as may properly come before the meeting or
any adjournment or postponement thereof.
The foregoing items of business at the Special Meeting are more fully
described in the proxy statement accompanying this Notice. All stockholders are
cordially invited to attend the Special Meeting. The stock transfer books will
not be closed. A complete list of these stockholders will be open for the
examination by any stockholder at the Company's principal offices in Tyler,
Texas for any purpose germane to the meeting for a period of 10 days prior to
the Special Meeting. The list also will be available for the examination by any
stockholder present at the Special Meeting. Only those stockholders of record at
the close of business on January 2, 2006 are entitled to notice of and to vote
at the Special Meeting and any adjournments thereof. Please note that
information relating to stockholder proposals and submissions is located at the
end of this proxy statement for your reference.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE
APPROVAL OF THE SOLE PROPOSAL INCLUDED IN THE PROXY STATEMENT. OUR INDEPENDENT
FINANCIAL ADVISORS, HOWARD FRAZIER BARKER ELLIOT, INC., RENDERED A FAIRNESS
OPINION TO THE BOARD OF DIRECTORS IN WHICH OPINION THEY HAVE CONCLUDED THAT THE
PROPOSED ASSET SALE TRANSACTION IS FAIR TO THE COMMON STOCKHOLDERS OF TELETOUCH
(OTHER THAN ROBERT MCMURREY) FROM A FINANCIAL POINT OF VIEW.
NEITHER DELAWARE LAW, NOR OUR GOVERNING DOCUMENTS ENTITLE STOCKHOLDERS
WHO DISSENT FROM THE APPROVAL OF THE PROPOSED ASSET SALE TRANSACTION TO
APPRAISAL OR ANY SIMILAR RIGHTS FOR THEIR TELETOUCH SHARES.
WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING, PLEASE DATE AND SIGN THE
ENCLOSED FORM OF PROXY AND MAIL IT PROMPTLY IN THE ENVELOPE PROVIDED.
Tyler, Texas By order of the Board of Directors
January 16, 2005
TELETOUCH COMMUNICATIONS, INC.
Douglas E. Sloan, Corporate Secretary
2
TABLE OF CONTENTS
INFORMATION ABOUT THE SPECIAL MEETING AND VOTING
What is the purpose of this special meeting? ........................
Why did you send me this proxy statement?............................
How many votes do I have?............................................
What proposals will be addressed at the Special Meeting?.............
Who may vote on these proposals? ....................................
Why would the Special Meeting be postponed?..........................
How do I vote in person?.............................................
How do I vote by proxy?..............................................
May I revote my proxy?...............................................
Where are Teletouch's principal executive offices?...................
What vote is required to approve the proposals?......................
Are there any dissenters' rights of appraisal?.......................
Who bears the cost of soliciting proxies?............................
Where are Teletouch's principal executive offices? ..................
How can I obtain additional information regarding Teletouch?.........
Security ownership of certain beneficial owners and management................
Proposal 1....................................................................
Stockholder proposals and submissions.........................................
Other business................................................................
Proxy Card
Appendix A - Asset Purchase Agreement, dated as of August 22, 2005
Appendix B - First Amendment to the Asset Purchase Agreement dated as of
December 30, 2005
Appendix C - Pro Forma presentation
Appendix D - Management Agreement, dated as of August 31, 2005
3
TELETOUCH COMMUNICATIONS, INC.
[GRAPHIC OMITTED]
SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON MARCH 1, 2006
PROXY STATEMENT
DATED JANUARY 16, 2006
INFORMATION ABOUT THE SPECIAL MEETING AND VOTING
WHAT IS THE PURPOSE OF THIS SPECIAL MEETING?
The specific proposals to be considered and acted upon at the Special
Meeting of stockholders of Teletouch Communications, Inc., a Delaware
corporation ("Teletouch" or "the Company") to be held at the Hotel Adolphus,
1321 Commerce Street, Dallas, Texas 75202, on March 1, 2006, at 10:00 a.m. local
time, and at any adjournments or postponements thereof ("Special Meeting") are
summarized in the accompanying Notice of Special Meeting. Each proposal is
described in more detail in this proxy statement.
WHY DID YOU SEND ME THIS PROXY STATEMENT?
This proxy statement and the enclosed proxy card are furnished in
connection with the solicitation of proxies by our Board of Directors ("Board")
for use at the Special Meeting. This proxy statement summarizes the information
you need to make an informed vote on the proposals to be considered at the
Special Meeting. However, you do not need to attend the Special Meeting to vote
your shares. Instead, you may simply complete, sign and return the enclosed
proxy card using the envelope provided.
HOW MANY VOTES DO I HAVE?
We will send this proxy statement, the attached Notice of Special
Meeting and the enclosed proxy card on or about January 16, 2006, to all
stockholders. Stockholders who owned Teletouch common stock at the close of
business on January 2, 2006 (the "Record Date") are entitled to one vote for
each share of common stock they held on that date, in all matters properly
brought before the Special Meeting.
Shares / Warrants
Class of Stock Outstanding Equivalent Votes
- --------------- ------------------- ----------------
Common stock 48,735,495 48,735,495
GM Warrant shares (1) 6,000,000 6,000,000
-------------------------------------------
Total Votes at Special Meeting: 54,735,495
1
(1) Under the terms of the Common Stock Purchase Warrant (the "GM Warrant")
issued to GM Holdings, LLC, a Tennessee limited liability company ("GM"), the
vote of the holders of at least a majority of the GM Warrants or the shares of
the Company's common stock issuable upon conversion of the GM Warrant calculated
on an as-exercised basis voting separately, as a single class, given in person
or by proxy, is required to approve, among other things, any sale or disposition
by the Company of all or substantially all of its assets, or any transaction
having a similar effect.
WHAT PROPOSALS WILL BE ADDRESSED AT THE SPECIAL MEETING?
We will address the following proposals at the Special Meeting:
1. Approval of the sale of the paging business assets of Teletouch
Communications, Inc., and
2. Transaction of such other business as may properly come before the meeting or
any adjournment or postponement thereof.
Our Board has taken unanimous affirmative action with respect to the
foregoing proposal and recommends that the stockholders vote FOR such proposal.
WHO MAY VOTE ON THESE PROPOSALS?
All of the holders of record of Teletouch's common stock at the close
of business on January 2, 2006 will be entitled to vote at the Special Meeting.
At the close of business on the Record Date, the Company had 48,735,495 shares
of common stock outstanding and entitled to vote.
As a result of the certain rights contained in 6,000,000 redeemable
common stock warrants issued by the Company as part of its debt and equity
restructuring in 2002, the vote of the holders of at least a majority of the GM
Warrant or the shares of the Company's common stock issuable upon conversion of
the GM Warrant calculated on an as-exercised basis voting separately, as a
single class, given in person or by proxy, is required to approve, among other
things, any sale or disposition by the Company of all or substantially all of
its assets, or any transaction having a similar effect. On September 19, 2005,
the GM Warrant holders notified the Company of their intent to accelerate the
redemption of the GM Warrant based on the same triggering event that allows them
voting rights causing the $3,000,000 redemption value to become due and payable
upon the closing of the proposed asset sale. Under the terms of the warrant
agreement, the GM Warrant could not be redeemed until December 2007. As of the
Record Date, the total number of the Company's common stock which the holders of
the GM Warrant are entitled to vote is 6,000,000.
THE COMPANY IS CURRENTLY NEGOTIATING A REDUCTION IN THE TOTAL AMOUNT
DUE TO THE GM UNDER THE WARRANT UPON THE CLOSING OF THE PROPOSED SALE
TRANSACTIONS AND BELIEVES THAT IF IT IS UNSUCCESSFUL IN REACHING TERMS ON THIS
OBLIGATION THE WARRANT MAY VOTE AGAINST THE PROPOSED SALE AND, THEREFORE, BLOCK
THE CONTEMPLATED ASSET SALE TRANSACTION.
Robert M. McMurrey, Chairman of Teletouch and controlling person of TLL
Partners LLC, an entity that owns approximately 92% of the outstanding common
stock of Teletouch, has agreed to vote in favor of the proposed transactions
unless an agreement cannot be reached with GM which reduces the amount payable
as a result of the acceleration of the redemption feature of the Warrant.
2
The Notice of Special Meeting, this proxy statement and the enclosed
proxy are being mailed to stockholders on or about January 16, 2006.
WHY WOULD THE SPECIAL MEETING BE POSTPONED?
The Special Meeting will be postponed if a quorum is not present at the
Special Meeting on March 1, 2006. The presence, in person or by proxy, of at
least one-third of the shares of the capital stock of the Company outstanding as
of the Record Date, taken together as a single class, constitutes a quorum and
is required to transact business at the Special Meeting. If a quorum is not
present, the Special Meeting may be adjourned until a quorum is obtained.
For purposes of determining whether the stockholders have approved
matters other than the election of directors, abstentions are treated as shares
present or represented and voting, so abstaining has the same effect as a
negative vote. Shares held by brokers who do not have discretionary authority to
vote on a particular matter and who have not received voting instructions from
their customers are not counted or deemed to be present or represented for the
purpose of determining whether stockholders have approved that matter, but they
are counted as present for the purposes of determining the existence of a quorum
at the Special Meeting.
A broker non-vote occurs when a broker submits a proxy card with
respect to shares of common stock held in a fiduciary capacity (typically
referred to as being held in "street name"), but declines to vote on a
particular matter because the broker has not received voting instructions from
the beneficial owner. Under the rules that govern brokers who are voting with
respect to shares held in street name, brokers have the discretion to vote such
shares on routine matters, but not on non-routine matters. Routine matters
include the election of directors, increases in authorized common stock for
general corporate purposes and ratification of auditors. Non-routine matters
include amendments to stock plans.
HOW DO I VOTE BY PROXY?
Whether you plan to attend the Special Meeting or not, we urge you to
complete, sign and date the enclosed proxy card and return it promptly in the
envelope provided. Returning the proxy card will not affect your right to attend
the Special Meeting and vote in person.
If you properly fill in your proxy card and send it to us in time to
vote, your proxy (one of the individuals named on your proxy card) will vote
your shares as you have directed. If you sign the proxy card but do not make
specific choices, your proxy will vote your shares as recommended by the Board
as follows:
o FOR the approval of the sale of the paging business assets of Teletouch
Communications, Inc.
If any other matter is presented, your proxy will vote in accordance
with his best judgment. At the time this proxy statement went to press, we knew
of no matters that needed to be acted on at the Special Meeting other than those
discussed in this proxy statement.
HOW DO I VOTE IN PERSON?
If you plan to attend the Special Meeting and vote in person at the
meeting or at a later date if the meeting is postponed, we will give you a
ballot when you arrive. However, if your shares are held in the name of your
broker, bank or other nominee, you must bring a power of attorney executed by
the broker, bank or other nominee that owns the shares of record for your
benefit and authorizing you to vote the shares.
3
MAY I REVOKE MY PROXY?
If you give a proxy, you may revoke it at any time before it is
exercised. You may revoke your proxy in three ways:
o You may send in another proxy with a later date; or
o You may notify Teletouch in writing (by you or your attorney authorized in
writing, or if the stockholder is a corporation, under its corporate seal,
by an officer or attorney of the corporation) at our principal executive
offices before the Special Meeting, that you are revoking your proxy; or
o You may vote in person at the Special Meeting.
WHAT VOTE IS REQUIRED TO APPROVE PROPOSAL 1?
PROPOSAL 1: SALE OF THE PAGING ASSETS
The approval of Proposal 1 requires an affirmative vote of a majority
of the outstanding shares of common stock entitled to vote, in person or by
proxy, at the Special Meeting.
In addition, the vote of the holders of at least a majority of the GM
Warrants or the shares of the Company's common stock issuable upon conversion of
the GM Warrant calculated on an as-exercised basis voting separately, as a
single class, given in person or by proxy, is required to approve any sale or
disposition by the Company of all or substantially all of its assets, or any
transaction having a similar effect.
Robert M. McMurrey, Chairman of Teletouch, who beneficially owns (as
the controlling person of TLL Partners LLC ("TLL"), a wholly-owned subsidiary of
Progressive Concepts Communications Inc. ("PCCI")) approximately 92% of the
outstanding common stock of Teletouch, has agreed to vote in favor of the
proposed transaction unless an agreement cannot be reached with GM which reduces
the amount payable as a result of the acceleration of the redemption feature of
the GM Warrant. Mr. McMurrey is the controlling person of PCCI by virtue of his
being its majority stockholder.
ARE THERE ANY DISSENTERS' RIGHTS OF APPRAISAL?
Under Delaware law and our Certificate of Incorporation, no appraisal
rights are available to dissenting stockholders with respect to the proposal
included in this proxy statement.
WHO BEARS THE COST OF SOLICITING PROXIES?
Teletouch will bear the cost of soliciting proxies in the accompanying
form and will reimburse brokerage firms and others for expenses involved in
forwarding proxy materials to beneficial owners or soliciting their execution.
We estimate that the costs associated with solicitations of the proxies
requested by this proxy statement will be approximately $20,000.
4
WHERE ARE TELETOUCH'S PRINCIPAL EXECUTIVE OFFICES?
The principal executive offices of Teletouch are located at 1913
Deerbrook Drive, Tyler, Texas 75703 and our telephone number is (903) 595-8800.
HOW CAN I OBTAIN ADDITIONAL INFORMATION ABOUT TELETOUCH?
We will, upon written request of any stockholder, furnish without
charge a copy of our Annual Report on Form 10-K for the year ended May 31, 2005,
as filed with the Securities and Exchange Commission ("SEC") and any amendments
thereto, without exhibits. Please address all such requests to Teletouch
Communications, Inc., 1913 Deerbrook Drive, Tyler, Texas 75703, Attention:
Corporate Secretary. Exhibits to the Form 10-K will be provided upon written
request and payment of an appropriate processing fee.
Teletouch is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended ("Exchange Act") which requires that
Teletouch file reports, proxy statements and other information with the SEC. The
SEC maintains a website on the Internet that contains reports, proxy and
information statements and other information regarding registrants, including
Teletouch, that file electronically with the SEC. The SEC's website address is
www.sec.gov. In addition, our Exchange Act filings may be inspected and copied
at the public reference facilities of the SEC located at Room 1580, 100 F
Street, N.E., Washington, DC 20549; and at the SEC's regional offices at 233
Broadway, New York, NY 10279 and Citicorp Center, 500 West Madison Street, Room
1400, Chicago, IL 60661. Copies of the material may also be obtained upon
request and payment of the appropriate fee from the Public Reference Section of
the SEC located at Room 1580, 100 F Street, N.E., Washington, DC 20549.
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained or incorporated by reference in this proxy
statement that are not based on historical fact are "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995, as
amended. Forward-looking statements may be identified by use of forward-looking
terminology such as "may", "will", "expect", "estimate", "anticipate",
"continue", or similar terms, variations of those terms or the negative of those
terms. Forward-looking statements are based upon numerous assumptions about
future conditions that could prove not to be accurate. Actual events,
transactions and results may differ materially from the anticipated events,
transactions and results described in such statements. The Company's ability to
consummate such transactions and achieve such events or results is subject to
certain risks and uncertainties.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
HOW MUCH STOCK IS OWNED BY DIRECTORS, EXECUTIVE OFFICERS AND AT LEAST 5% OF
TELETOUCH?
Except as otherwise described in this proxy statement, the shares of
common stock are the only voting securities of Teletouch. The following table
shows, as of the Record Date, and to the best of our knowledge, beneficial
ownership of (1) each director and executive officer individually; (2) all
executive officers and directors of Teletouch as a group; and (3) all persons
known by Teletouch to be the beneficial owners of 5% percent or more of
Teletouch common stock as of the close of business on the Record Date. As of the
Record Date, all of our present directors and executive officers, as a group of
7 persons, own beneficially 45,068,099 shares, or 91.9%, of our common stock. As
of the Record Date, there were 49,416,189 shares of Common Stock were issued and
48,735,495 shares outstanding.
Number of Common
Shares
Name and Address Beneficially Owned % of Common Shares
of Beneficial Owner (1) Beneficially Owned
- --------------------------------------------------------------------------------------------------------------------
Robert M. McMurrey (2)(3)(4)(5)(6) 44,740,442 91.8%
5718 Airport Freeway
Fort Worth, TX 76117
Progressive Concepts Communications, Inc. (6) 43,500,000 89.3%
5718 Airport Freeway
Fort Worth, TX 76117
TLL Partners, L.L.C (5) 43,500,000 89.3%
5718 Airport Freeway
Fort Worth, TX 76117
Thomas A. Hyde, Jr. (2)(7) 166,667 *
5718 Airport Freeway
Fort Worth, TX 76117
Douglas E. Sloan. (2)(9) 65,000 *
1913 Deerbrook Drive
Tyler, TX 75703
Clifford E. McFarland (3)(8) 30,662 *
McFarland, Grossman & Co.
9821 Katy Freeway, Suite 500
Houston, TX 77024
Henry Y.L. Toh (3)(9) 21,998 *
1111 Hermann Drive, Unit 6E
Houston, TX 77004
Marshall G. Webb (3)(9) 21,998 *
6110 Inwood
Houston, TX 77057
Susan Stranahan Ciallella (3)(9) 21,332 *
Isolagen, Inc.
405 Eagleview Boulevard
Exton, PA 19341
All Executive Officers & Directors as a Group (7 Persons) 45,068,099 91.9%
5
* Indicates less than 1.0%.
(1) Unless otherwise noted in these footnotes, Teletouch believes that all
shares referenced in this table are owned of record by each person named as
beneficial owner and that each person has sole voting and dispositive power
with respect to the shares of common stock owned by each of them. In
accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as
amended, each person's percentage ownership is determined by assuming that
the options or convertible securities that are held by that person, and
which are exercisable within 60 days, have been exercised or converted, as
the case may be.
(2) Executive Officer.
(3) Director.
(4) Mr. McMurrey has voting and dispositive power over all Teletouch securities
owned by Rainbow Resources, Inc. ("RRI"). The figures for Mr. McMurrey
include the 1,200,000 shares held of record by RRI. Also includes
43,500,000 shares of common stock issued to TLL by the Company in November
2005 upon the conversion of shares of Series C Preferred Stock held by TLL
Partners, a wholly-owned subsidiary of Progressive Concepts Communications
Inc. ("PCCI"); Mr. McMurrey is the controlling person of PCCI by virtue of
his being its majority shareholder over which entity Mr. McMurrey exercises
control. TLL Partners converted 1,000,000 shares of Series C Preferred
Stock in November 2005 into 44,000,000 shares of common stock and
immediately transferred 500,000 shares of common stock to another party
leaving TLL Partners in control of 43,500,000 shares.
(5) Mr. McMurrey has voting and dispositive power over all Teletouch securities
owned by RRI and TLL Partners. The principal business of TLL Partners is to
act as a holding company for investment in Teletouch securities. TLL
Partners is a wholly-owned subsidiary of PCCI; Mr. McMurrey is the
controlling person of PCCI by virtue of his being its majority shareholder.
TLL Partners converted 1,000,000 shares of Series C Preferred Stock in
October 2005 into 44,000,000 shares of common stock and immediately
transferred 500,000 shares of common stock to another party leaving TLL
Partners in control of 43,500,000 shares.
(6) PCCI is the parent holding company of its wholly-owned subsidiaries,
Progressive Concepts, Inc. (PCI) and TLL Partners. Mr. McMurrey is the
controlling person of PCCI by virtue of his being its majority shareholder.
TLL Partners is a wholly-owned subsidiary of PCCI. TLL Partners converted
1,000,000 shares of Series C Preferred Stock in November 2005 into
44,000,000 shares of common stock and immediately transferred 500,000
shares of common stock to another party leaving PCCI beneficially owning
43,500,000 shares.
(7) Includes 166,667 shares underlying stock options granted to Mr. Hyde under
the terms of the Employment Agreement entered into October 2004. Mr. Hyde
was hired as the Company's CEO in October 2004. Under the terms of his
employment contract, Mr. Hyde was granted 500,000 options to purchase
common stock which vest 166,667 shares in October 2005, 166,667 shares in
May 2006 and 166,666 shares in May 2007.
(8) Includes 24,662 shares underlying stock options granted to Mr. McFarland
and 12,000 shares registered in the name of McFarland, Grossman & Co.
(MGCO), of which Mr. McFarland is the President and a director. Such 12,000
shares are held by MGCO for the benefit of another entity of which Mr.
McFarland is a 50% owner. Mr. McFarland disclaims ownership of 6,000 of
such shares. Does not include securities owned by TLL Partners; Mr.
McFarland owns a minority interest in PCCI, the indirect parent of the
Company, which is also the parent of TLL Partners.
(9) Represents shares underlying stock options.
7
PROPOSAL RECOMMENDED FOR CONSIDERATION BY STOCKHOLDERS
PROPOSAL 1
TO APPROVE THE SALE OF THE PAGING BUSINESS ASSETS OF
TELETOUCH COMMUNICATIONS, INC.
SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION REGARDING THE PROPOSED
SALE OF THE PAGING ASSETS OF THE COMPANY. TO UNDERSTAND FULLY THE PROPOSED SALE
OF THESE ASSETS, YOU SHOULD CAREFULLY READ THE ENTIRE DESCRIPTION OF PROPOSAL 1
IN THIS PROXY STATEMENT AND THE DOCUMENTS THAT WE HAVE ATTACHED AS APPENDICES A,
B AND D TO THIS PROXY STATEMENT.
IN ADDITION, THE SHAREHOLDERS OF THE COMPANY SHOULD CAREFULLY REVIEW
THE PRO FORMA PRESENTATION OF THE EFFECTS OF THE PROPOSED ASSET SALE TRANSACTION
ON THE COMPANY'S FINANCIAL STATEMENTS, WHICH PRESENTATION IS PROVIDED IN
APPENDIX C TO THIS PROXY STATEMENT.
BACKGROUND OF THE ASSET SALE
Teletouch is a leading provider of telecommunications services,
primarily paging services, in non-major metropolitan areas and communities in
the Southeast United States. Teletouch has two operating segments: paging
operations and two-way radio operations. The Company has been developing a
telemetry business unit for the past few years but has had limited success to
date growing this portion of its business. Currently, we provide paging services
in Alabama, Arkansas, Louisiana, Mississippi, Missouri, Oklahoma, Texas,
Tennessee and Florida and provide two-way radio services only in Texas. We have
20 paging service centers and 6 two-way radio shops in those states. Through
inter-carrier arrangements, we also provide nationwide and expanded regional
paging coverage.
We were incorporated in the State of Delaware in July 1994 and are
headquartered in Tyler, Texas. Teletouch, or one of its several predecessors,
has operated two-way mobile communications services and telemessaging services
in East Texas for approximately 40 years.
Our primary focus during the fiscal years of 2002 and 2003 was on
positioning the Company for growth in the future through the recapitalization of
our debt and certain equity securities and the restructuring of our operations
to maximize efficiency and profitability. We completed recapitalization of our
debt and certain equity securities in May 2002. By May 2003, we had completed
our restructuring efforts and exited retail distribution channels. The purpose
of the restructuring was to reduce operating expenses while minimizing the
impact on the recurring revenues from the paging subscribers that were being
serviced by the affected locations. The successful recapitalization of our debt
and certain equity securities and the previous restructuring of our operations
has allowed us to generate sufficient cash flows to meet our capital needs for
the previous two fiscal years.
In order for the Company to continue to generate sufficient cash flow
going forward, the Company has concluded is necessary to exit its paging
business. The Company has struggled for the past several years to minimize the
costs of operating its paging business in a time of declining revenues. With
paging revenues expected to continue declining for the foreseeable future and a
relatively fixed cost structure of maintaining the paging network and
infrastructure, it has become increasingly difficult to maintain a positive cash
flow from the paging business. Three years ago, the Company recognized the
declining trend in its paging business and began to develop a telemetry
business. To date revenues from the telemetry business have been insignificant.
The market for telemetry products is large and relatively new but continued
technical issues with our telemetry products have prohibited the Company from
growing this business. In October 2005 the Company decided to restructure its
telemetry operations and is continuing with this effort. This restructuring will
result in changes to the existing telemetry product lines and disposition of
certain assets related to the business. However, the Company will retain
ownership of all intellectual property related to this business. The Company
will attempt to sell part of its telemetry customer base using products that the
Company no longer plans to support as well as to dispose of certain finished
goods inventory and fixed assets not directly utilized in supporting the
intellectual property or the ongoing product lines.
8
The current prospects of the Company's paging business coupled with the
lack of success in the telemetry business led the Company to look to a strategy
that would allow the Company to grow the business in the future. The only
solution apparent was to divest the current business and buy another business
with revenue prospects that could carry the Company forward. After selling the
paging business, the Company plans to acquire one or more growth companies and
integrate them into the existing infrastructure at Teletouch. The Company
believes that the sale of its paging business is necessary at this point while
there is still value in this operation. Teletouch has identified and is in
negotiations with a number of target companies available for acquisition. In the
interim period after the sale and through the time a new company is acquired,
Teletouch will continue to operate as a publicly traded company and restructure
its remaining telemetry business while continuing to capitalize on the
opportunities within the two way radio operations afforded by the recent
availability of homeland security funding to various local public safety
entities to upgrade their communications systems. The Company anticipates
integrating its ongoing telemetry operations with one of the potential
acquisition targets. Subsequent to the successful sale of the paging business,
most of the Company's efforts over the coming months will focus on minimizing
expenses of the remaining operations while securing additional financing to
complete an acquisition.
In August 2005, with the assistance and guidance of its independent
advisors, Howard Frazier Barker Elliot, Inc. ("HFBE"), our management completed
an evaluation of the Company's future business direction and a valuation of the
Company's paging business. Having assessed the limited market opportunities,
reviewed management's recommendation, and reviewed the fairness opinion rendered
by HFBE, the Board has determined that the disposition of the paging business
assets was in the best interests of our stockholders. On August 19, 2005, our
Board approved and authorized our executive management to enter into an Asset
Purchase Agreement ("APA") with the Buyer (as defined below) to sell
substantially all of our assets to the Buyer. The APA was amended in December
2005 (the "First Amendment"). The terms and provisions of the proposed asset
disposition transaction, as set forth in the APA and the First Amendment, are
described below.
On August 26, 2005, we filed a Current Report on Form 8-K disclosing
the material terms and conditions of the proposed asset sale on our financial
operations and attaching the underlying documents as exhibits to that filing.
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REASONS FOR THE SALE OF THE PAGING BUSINESS; BOARD RECOMMENDATION
In approving the proposed APA and recommending that the stockholders
approve the proposed asset sale transaction, our Board considered a number of
relevant factors, including, but not limited to, the following: o a continued
substantial decline in the paging business over the last several years and
strong expectations that net paging subscriber deletions will continue as the
demand for one-way paging continues to decline;
o that Teletouch had vigorously explored alternative strategic
options available to it;
o that the Board believes that all realistic potential acquirers
of our assets had been contacted with no interest/committed
response other than from the Buyer;
o that the value of our assets would decline over time, and may
decline precipitously, and that the asset sale represents the
best opportunity to monetize the value of our assets at their
present value;
o that the proposed asset sale would maximize the amount of cash
available for Teletouch to maximize the value of the
enterprise to its creditors and stockholders;
o that HBFE, our financial advisor, rendered an opinion to
Teletouch that the purchase price under the APA for the
Acquired Assets is fair, from a financial point of view, to
Teletouch and its stockholders.
THE FOREGOING INCLUDES THE MATERIAL FACTORS CONSIDERED BY OUR BOARD. IN
VIEW OF ITS MANY CONSIDERATIONS, THE BOARD DID NOT QUANTIFY OR OTHERWISE ASSIGN
RELATIVE WEIGHT TO THE SPECIFIC FACTORS CONSIDERED. IN ADDITION, INDIVIDUAL
BOARD MEMBERS MAY HAVE GIVEN DIFFERENT WEIGHTS TO DIFFERENT FACTORS.
After weighing all of these considerations, our Board unanimously:
o determined that the APA and the transactions contemplated
thereunder, are fair to Teletouch and in the best interests of
Teletouch and its stockholders,
o approved and adopted the APA and the transactions contemplated
thereunder, in accordance with the requirements of the
Delaware General Corporation Law,
o declared that the APA is advisable, and
o resolved to recommend that our stockholders approve and adopt
the APA.
For the reasons set forth above, our Board believes that the
contemplated asset sale is in the best interests of Teletouch and its
stockholders and unanimously recommends that stockholders vote FOR the approval
and adoption of the APA and the asset sale transaction described herein.
FAIRNESS OPINION
Founded in 1991, HFBE is an investment banking, business valuation and
financial advisory firm providing a range of financial services to both public
and private businesses in a wide range of industries. In addition to fairness
opinions and valuations, HFBE also provides merger and acquisition advisory
services, real estate financing, private placements of debt and equity, senior
debt financing, litigation support and general financial advisory services.
HFBE was engaged to assist us in, among other things, reviewing our existing
business plans and identifying strategic solutions and directions available to
us.
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HFBE made several presentations to our Board in connection with its
engagement by the Company. Specifically, HFBE conducted a detailed assessment of
strengths and challenges facing Teletouch in the present market environment as
well as an informal valuation analysis of the Company. HFBE also reviewed other
transaction alternatives. With management's participation and approval, HFBE
evaluated a number of the most probable strategies. In consultation with HFBE,
the Board concluded that it was unlikely that a suitable equity investor would
be identified to invest in the Company.
Management had previously reviewed many potential merger and
acquisition partners and developed a list of companies/equity sponsors that were
contacted about the opportunity. Various potential partners turned down the
opportunity due to various reasons, including, among others, for a lack of
strong geographic overlap, concerns about splitting out the customer base, cash
usage, general integration issues, and uncertainty of one-way paging viability.
The Buyer (as defined below) was the only company with the necessary
financial capability to express an interest in acquiring the paging assets. In
addition, its offer exhibited several advantages, including, but not limited to
an anticipated prompt closing of the transaction and that the Buyer was prepared
to take over the operations immediately (subject to certain transition support
from our management).
In assessing the proposed asset sale transaction, HFBE considered the
following, among other factors:
o widely accepted valuation methodologies to perform an
independent analysis of the enterprise value and equity value
of the paging business
o the terms of the proposed transaction
o Teletouch's viability under its current capital structure and
the resulting value and benefits available to the existing
common stockholders
o Teletouch's prospects for obtaining additional debt or equity
financing
o Teletouch's future needs for additional capital
o the value available to common stockholders in a bankruptcy or
Chapter 11 reorganization
o comparable merger & acquisition transactions.
In addition to the consideration being fair from a financial point of
view, HFBE further noted several other considerations in its analysis,
including:
o prospective acquisition targets, investors and lenders have
all expressed concern over the declining paging business,
which management believes has prevented Teletouch from raising
capital or using its stock to make acquisitions
o Teletouch's inability to raise additional capital has also
significantly limited the ability to expand the telemetry
business
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o management's strategy to refocus Teletouch on the telemetry
business, eventually gain research analyst coverage and
possibly increase interest in the Company's stock (further
facilitating its use as an acquisition currency) cannot be
accomplished with the paging business
o while there could be no assurance that a better offer could
not be obtained in the future, Teletouch's flexibility was
limited unless a funding source could be identified to provide
the time necessary to explore other options.
o it provides needed capital to Teletouch, which for more than
two years has unsuccessfully attempted to raise both debt and
equity financing.
Based on the foregoing analysis of the proposed transaction, HFBE
provided a fairness opinion to the Board dated August 30, 2005, in which opinion
it concluded that the proposed asset sale transaction would be fair to the
stockholders of Teletouch (other than Robert McMurrey) from a financial point of
view. However, in arriving at this opinion, HFBE did not consider, and was not
requested to consider, the potential impact of any acceleration of the Company's
obligations due under the 6,000,000 redeemable common stock warrants issued in
2002 that may be triggered by the completion of this transaction.
HFBE IS NOT MAKING ANY RECOMMENDATION TO ANY STOCKHOLDER OF THE COMPANY
REGARDING HOW SUCH STOCKHOLDER SHOULD VOTE OR ACT ON ANY MATTER RELATING TO THE
PROPOSED ASSET SALE.
PARTIES TO THE ASSET PURCHASE AGREEMENT
SELLER
TELETOUCH COMMUNICATIONS, INC. is a Delaware corporation. Its principal
offices are located at 1913 Deerbrook Drive, Tyler, Texas 75703. Its telephone
number is (903) 595-8800. Teletouch also maintains an Internet website at
http://www.teletouch.com.
BUYER
TELETOUCH PAGING LP ("Buyer") is a Texas limited partnership and a
wholly-owned newly formed subsidiary of Mayfair Investments, LLC, a private Fort
Worth, Texas investment group. The Buyer's address is 7471 Benbrook Parkway,
Benbrook, Texas 76126. Its telephone number is (817) 820-6300.
GENERAL FINANCIAL TERMS OF THE ASSET PURCHASE AGREEMENT
On August 19, 2005, our Board approved and authorized our executive
management to enter into an Asset Purchase Agreement with the Buyer to sell
substantially all of our assets to the Buyer. The assets included in the asset
sale transaction include substantially all of the designated assets of the
paging business (the "Acquired Assets") with a net carrying value at August 31,
2005 of approximately $3.9 million.
Under the terms of the APA, the Buyer's aggregate consideration for
the Acquired Assets was originally contemplated to be approximately $5.25
million as of August 31, 2005 and will be payable as follows: (i) $4,000,000
less the cumulative earnings before interest, taxes, depreciation and
amortization ("EBITDA") attributable to the paging business from September 1,
2005 through the closing date to be payable in cash to the Company on the
closing date, (ii) $1.2 million non-interest bearing note payable to the Company
due in 12 monthly payments of $100,000 each beginning the earlier of the date
that Buyer has satisfied its obligations under its senior borrowings or August
31, 2007 and (iii) the assumption of approximately $50,000 notes payable related
to vehicles being sold (collectively, the "Purchase Price"). However, because
the transaction is not expected to close before March 2, 2006, the consideration
to be received by the Company for the sale will be reduced by an estimated $1.8
million which approximates the EBITDA of the paging business from September 1,
2005 through the anticipated closing date of March 2, 2006.
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On December 30, 2005, the payment terms of the APA were amended to
reflect the foregoing and certain other changes. A copy of the First Amendment
is included as APPENDIX B to this proxy statement. The amendment to the APA
limits the reductions that can be taken against the cash portion of the
consideration so that in no event will such amount be more or less than $2.2
million and provides that the $1.2 million note payable will be prepaid at
closing. Therefore, the total cash consideration payable to the Company at the
closing will be $3.4 million and the promissory note will be cancelled.
The Purchase Price is subject to adjustment based on the Company's net
working capital, as defined in the APA, at closing and the value of any excess
net working capital transferred will be paid to the Company by the Buyer within
45 days of closing. As of August 31, 2005, approximately $20,000 in excess
working capital, as defined in the APA, is related to the paging business and
would be transferred to the Buyer if the transaction were to have closed at that
date. Because the levels of working capital change monthly, there is no way to
estimate the balance that will exist as of closing.
The APA does not contemplate any termination or breakup fees or
penalties. The APA also contains representations and warranties, indemnification
and other provisions customary for agreements of this nature. Closing of the APA
is contingent upon obtaining the approval of the Company's shareholders as well
as approvals from federal regulators and other customary closing conditions. The
transaction is expected to close within ten days following the receipt of the
required shareholder approval.
The parties to the APA have also entered into a Management Agreement
("MA"), to facilitate a smooth transition of the paging business operations from
Teletouch to the Buyer. A copy of the MA is enclosed as Appendix D to this proxy
statement and its terms and provisions are described in detail further in this
discussion.
All amounts disclosed in this proxy statement with respect to the asset
sale transaction have been calculated in accordance with accounting principles
generally accepted in the United States ("GAAP"). The calculation of these
amounts requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the transaction date, and the
reported amounts of gains and costs. On an on-going basis, management evaluates
its estimates and judgments, including those related to intangible assets,
contingencies, collectibility of receivables and litigation. Management bases
its estimates and judgments on historical experience and various other factors
that are believed to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying values of the assets and
liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or conditions.
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PRINCIPAL PROVISIONS OF THE ASSET PURCHASE AGREEMENT
The material terms of the APA are summarized below. The following
description does not purport to describe all of the terms and conditions of the
APA and MA. Full text of the APA and MA are attached to this proxy statement as
APPENDIX A and APPENDIX D, respectively, and are incorporated by reference into
this discussion. Additionally, the First Amendment to the Asset Purchase
Agreement, dated December 30, 2005, is attached to this proxy statement as
APPENDIX B. All stockholders are urged to read the entire text of the APA and
MA. Also, APPENDIX C to this proxy statement contains pro forma presentation of
the effect of the proposed asset sale transaction on our balance sheet and
statement of operations. All stockholders are urged to review this presentation
in its entirety.
ASSETS TO BE SOLD
The Acquired Assets proposed to be sold to the Buyer consist of
virtually all of the assets currently used to operate Teletouch's paging
business, including (but not limited to):
o PAGING EQUIPMENT AND INVENTORY - all terminals, transmitters,
pagers, accessories and other merchandise, supplies, stock in
trade and other such Teletouch assets held for sale or lease
or to be furnished under contracts of service or held as work
in process or to be used the business, including any inventory
held by customers for replacement of leased pagers, such
equipment commonly referred to as spares;
o SPARE PARTS AND SUPPLIES - all of Teletouch's spare parts,
supplies, specialty tools and other items and equipment;
o LEASES - all rights, title and interest under the real
property leases, licenses and subleases;
o FIXTURES AND FURNITURE - all of Teletouch's shelving, desks,
displays and display cases, lighting, built-in furniture and
other fixtures located at its stores and home offices and all
furniture, movable or immovable;
o STORE EQUIPMENT - cash registers, computers and other
equipment located at the stores;
o PERMITS - all of Teletouch's licenses, permits, franchises,
consents, approvals and authorities granted to Teletouch by
any person or entity and applicable to the business, including
all licenses and permits issued by the FCC and the FAA and all
subsequent permits and pending applications;
o CUSTOMER LISTS AND CONTRACTS - all of Teletouch's rights,
title and interest in and to the customer contracts with
respect to the business;
o LEASED PAGERS - all owned inventory held and used by customers
in the ordinary course of business;
o TELEPHONE NUMBERS, BOOKS AND RECORDS;
o GOODWILL - all goodwill and going concern value of the
business;
o CLAIMS AND DEFENSES - any rights of the Company pertaining to
any counterclaims, set-offs or defenses with respect to any
Assumed Obligations (as described below);
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o PREPAID ITEMS - all prepaid claims, prepaid taxes, prepaid
insurance premiums and other prepaid expense items;
o INDEMNITIES AND INSURANCE - third-party indemnities, policies
of insurance, fidelity, surety or similar bonds related to the
Company's assets;
o ACCOUNTS RECEIVABLE - all accounts receivable of the business
through the closing date;
o INTELLECTUAL PROPERTY;
o CERTAIN RESELLER AND INTER-CARRIER AGREEMENTS;
o ADDITIONAL ASSETS - any additional assets from time to time
acquired for the paging business in the ordinary course of
business prior to closing date.
ASSETS TO BE EXCLUDED FROM SALE
The assets to be acquired by the Buyer under the APA do NOT INCLUDE any
of the following excluded assets:
o ALL CASH - on hand or on deposit and arising out of the
operation of the business prior to the closing date (except
for petty cash at store locations) ;
o ANY ASSETS (including inventory, receivables, payables and
Teletouch's corporate name "Teletouch Communications, Inc."
and the trade names "Teletouch", "Visao Systems" and "Visao)
related to Teletouch's business as a two-way radio dealer or
to its business as a provider of telemetry products and
services;
o CAUSES OF ACTION, THIRD-PARTY INDEMNITIES, policies of
insurance, fidelity, surety or similar bonds and the coverage
afforded thereby OTHER THAN those relating to the Assets;
o TAX REFUNDS related to Teletouch's business or assets relating
to taxes paid for all periods prior to closing date;
o LEASE of Teletouch's corporate headquarters in Tyler, Texas;
o LEASES AND CONTRACTS for telephone systems for Teletouch's
two-way and telemetry businesses; and
o CORPORATE GOVERNANCE DOCUMENTS of Teletouch.
OBLIGATIONS TO BE ASSUMED BY THE BUYER
Upon the consummation of the contemplated asset sale, the Buyer will
assume and agree to pay, perform and discharge, in a timely manner the following
Teletouch obligations:
o PERMITS, CUSTOMER CONTRACTS, RESELLER AGREEMENTS AND LEASES
properly transferred and assigned to the Buyer;
o CUSTOMER DEPOSITS existing on the closing date to the extent
such deposits remain outstanding; and
o TELETOUCH'S OBLIGATIONS ASSOCIATED WITH CERTAIN VEHICLES Used
in Maintenance of the Paging Business.
15
EXCLUDED OBLIGATIONS AND LIABILITIES
Except as provided above, the Buyer will not be obligated to pay,
perform or discharge any of Teletouch's debt, obligation, cost, expense or
liability, including, but not limited to debts, obligations, costs, expenses and
liabilities:
o related to any of the excluded assets or to any employees of
Teletouch, including all severance, retirement, medical and
other benefits payable to employees or former employees or to
their dependents or beneficiaries;
o for any foreign, federal, state or local taxes owed by
Teletouch;
o for any losses, costs, damages, judgments, penalties,
expenses, fines, debts, liabilities and obligations arising
(i) from any agreement, commitment, undertaking, law, rule,
regulation, order or other obligations, or (ii) out of any
claims or actions against Teletouch or Buyer, arising out of
events, facts, circumstances or conditions existing on or
occurring prior to the closing date;
o for any of Teletouch's liabilities or expenses incurred in the
negotiation of and carrying out of its obligations under the
APA;
o for any product liability resulting from any product sold by
Teletouch prior to the closing date or any tort liability of
Teletouch not expressly assumed by the Buyer;
o for any pre-closing date breach or violation of any of the
assigned contracts unless such breach or violation is
specifically assumed by the Buyer; and
o for any regulatory user fees for the period prior to the
closing date and payable to the FCC.
PURCHASE PRICE AND ADJUSTMENTS
The consideration for the Acquired Assets and operations is
approximately $3,400,000 payable in cash to Teletouch on the closing date. The
consideration represents two components contemplated in the APA as amended under
the First Amendment to the Asset Purchase Agreement dated December 30, 2005: (i)
a $2,200,000 cash payment net of certain adjustments as described below and (ii)
a $1,200,000 prepayment against the non-interest bearing promissory note to be
issued in conjunction with the APA.
The APA originally contemplated the consideration to be $4,000,000 in
cash (the "Cash Payment") and a $1,200,000 non-interest bearing promissory note
if the transaction was closed on or before September 1, 2005. Because of delays
expected at the time the execution of the APA, provisions were included in the
APA to reduce the stated cash consideration each month from September 1, 2005
through the closing date, currently, set to occur on March 2, 2006. The Cash
Payment will be:
(1) REDUCED by the amount of Teletouch's EBITDA beginning September 1,
2005 through the closing date determined in accordance with Seller's
current GAAP and business management practices (e.g. monthly
recognition of deferred revenue),
(2) REDUCED by an amount equal to the lesser of (i) the amount, if any,
by which the interest earned on the escrowed funds during the period
between August 31, 2005 and the closing date is less than the imputed
interest on such escrowed funds for the same period, calculated at the
prime rate of interest quoted in the Wall Street Journal on August 31,
2005 plus 1% or (B) $10,000.00 and,
16
(3) increased by the amount of any approved cash capital expenditures
incurred by Teletouch from September 1, 2005 through the closing date.
The calculation of EBITDA discussed above will reflect a reduction of
earnings attributable to payment of the management fees paid by Teletouch to the
Buyer during the period from September 1, 2005 through the closing date (see
"Management Agreement" discussion below). The management fees to be paid in
accordance with the management agreement total $50,000 per month, with $25,000
payable on the 1st and 16th of each month through the closing date
Under the terms of the First Amendment, the Cash Payment will be
$2,200,000 after giving effect to the payment adjustments set forth above.
As of the date hereof, the cash expected to be received at closing is
$3.4 million. The $3.4 million cash expected to be received at closing
represents the original $4.0 million Cash Payment less $1.8 million projected
EBITDA of the paging business from September 1, 2005 through an approximate
closing date of February 28, 2006 plus the $1.2 million prepayment against the
promissory note. The actual EBITDA of the paging business may differ materially
from the projected EBITDA through the closing date, however, under the terms of
the First Amendment the Cash Payment portion of the consideration will be $2.2
million which will result in $3.4 million due to Teletouch at closing including
the prepayment on the promissory note.
Under the APA, a provision exists that allows for certain reductions to
taken by the Buyer against the principal amount of the promissory note if the
Company's contract with Entergy Corporation and its affiliates (collectively,
"Entergy") is not renewed. At the time of execution of the APA, the Entergy
contract had not been renewed but has been renewed as of the date hereof,
therefore, no further rights exist to the Buyer under this provision.
Teletouch and the Buyer agreed that the purchase price will be
allocated to (1) the aggregate appraised value of the assets as determined by
the Buyer and Teletouch, (2) $50,000 to the Non-Competition and Non-Solicitation
Agreement to be executed and (3) the remainder - to goodwill.
A. PURCHASE PRICE ADJUSTMENTS
The purchase price payable under the APA may be adjusted based on the
following:
(i) NET WORKING CAPITAL ADJUSTMENT - The purchase price is subject
to adjustment based upon a measure of the difference between
Teletouch's current assets (as defined), and current
liabilities (as defined) as of the closing date (NWA) as
follows: if the NWA is less than zero, then Teletouch will pay
to the Buyer a sum equal to the NWA; or, if the NWA is greater
than zero, then the Buyer will pay to Teletouch the NWA.
(ii) ADJUSTMENT AMOUNT - The Buyer will have 45 days following the
closing date to prepare and deliver to Teletouch a statement
of charges, expenses and losses incurred by the Buyer as a
result of the breach by Teletouch of any representation or
warranty under the APA. In the event such amount exceeds
$50,000, Teletouch will pay to the Buyer the adjustment amount
within 45 days.
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B. COLLECTIONS GUARANTY
Within 90 days of the APA closing date, the Buyer will prepare
and deliver to Teletouch a statement of Accounts Receivable that remain
uncollected after reasonable and diligent collection efforts by Buyer. If the
uncollected Accounts Receivable on such bad debt statement is less than $25,000,
then the Buyer will pay to Seller the amount of such deficit. Otherwise, if the
uncollected Accounts Receivable are in excess of $25,000, Teletouch agreed to
pay to the Buyer the lesser of (i) the amount by which such uncollected Accounts
Receivable exceeds $25,000 or (ii) 25,000.
REPRESENTATIONS, WARRANTIES, COVENANTS
In the APA, we make certain representations and warranties to the
Buyer, including (but not limited to) our existence and good standing, authority
to complete the asset sale, consents and approvals, net working capital,
warranty claims, contracts and commitments, permits, taxes, intellectual
property, compliance with laws, employment relations, environmental laws and
regulations, disclosure, government contracts and undisclosed liabilities. The
Buyer, in turn, makes representations and warranties to us relating its
existence and good standing, power and authority, no violations, broker's or
finder's fees.
The APA also contains covenants of the parties, including (but not
limited to) cooperation, conduct of business, various provisional agreements,
exclusive dealing, governmental filings, books and records, further assurances,
use of name, etc.
CONDITIONS TO CLOSING
In addition, the APA contains certain conditions to the Buyer's and
Teletouch's obligations as described below. The Buyer's obligations under the
APA to purchase the Acquired Assets and to consummate other contemplated
transactions AND Teletouch's obligations to sell the Acquired Assets are subject
to satisfaction of certain conditions which include (but are not limited to) the
following:
o that the respective party's representations and warranties
contained in the APA are true and correct in all material
respects on and as of the closing date;
o that each and all of the agreements and covenants of the
respective party to the APA to be performed on or before the
closing date have been duly performed in all material
respects;
o that no action or proceedings have been instituted before any
governmental authority to restrain or prohibit any of the
transactions contemplated by the parties to the APA;
o that all proceedings to be taken in connection with the
transactions contemplated by the APA are reasonably
satisfactory in form and substance to the parties to the APA
and their respective counsel; and
o that each of the consents required in connection with the APA
have been obtained.
TRANSFER OF PERMITS
With respect to Teletouch's licenses issued by the FCC, such licenses
will not be transferred until all governmental consents and approvals necessary
to permit the consummation of the asset sale transaction will have been
received, including (but not limited to) all necessary FCC approvals and until
such FCC approvals will be final and non-appealable. Teletouch has agreed to
assign all of its respective rights, title and interest in and to such licenses
and permits to the Buyer on the 1st business day following the date on which the
parties receive evidence of final and nonappealable FCC approvals.
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CLOSING
If our stockholders approve the proposed asset sale to the Buyer, we
plan, subject to the regulatory and other approvals discussed in this Proposal
1, to close the proposed sale as soon as possible and currently expect the
closing to occur on or about March 2, 2005.
INDEMNIFICATION
Teletouch agreed to indemnify the Buyer and its affiliates from any
third party claims and any liabilities incurred, to the extent such liabilities
arise out of or result from and against any and all damages suffered as a result
of:
o any misrepresentation, breach of warranty, non-fulfillment of
any agreement or covenant on the part of Teletouch,
o any liability or obligation which pertains to the ownership,
operation or conduct of the business or assets arising from
any acts, omissions, events, conditions or circumstances
occurring before the closing date and
o the excluded liabilities.
There is no limitation on the indemnification amount under the APA.
TERMINATION
The APA may be terminated and the transactions contemplated thereunder
may be abandoned at any time on or prior to the closing date by:
o the mutual written consent of the parties to the APA;
o by either party on or after the 10th day following receipt of
approval of Teletouch's stockholders, if the closing has not
occurred by such date;
o by Teletouch in writing if (i) the approval of Teletouch's
stockholders has not been obtained by September 30, 2005 or
(ii) if such approval is obtained but 5% or more of the
outstanding shares of capital stock of Teletouch vote against
the proposed transaction and have asserted their dissenters
rights;
o by either party in writing, without prejudice to other rights
and remedies which the terminating party may have, if the
other party will (i) materially fail or have failed to perform
its covenants or agreements contained herein required to be
performed on or prior to the closing date, or (ii) materially
breach or have breached any of its representations or
warranties contained herein.
o by the Buyer in writing without penalty following the
occurrence of any event that has a material adverse impact on
the business and the assets, taken as a whole.
o by either party in writing if the parties cannot agree on a
MSA by August 31, 2005.
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The APA does not contemplate any termination or breakup fees or
penalties.
THE MATERIAL TERMS OF THE APA ARE SUMMARIZED ABOVE. THE FOLLOWING
DESCRIPTION DOES NOT PURPORT TO DESCRIBE ALL OF THE TERMS AND CONDITIONS OF THE
APA AND THE RELATED AGREEMENTS. FULL TEXT OF THE APA IS ATTACHED TO THIS PROXY
STATEMENT AS APPENDIX A AND IS INCORPORATED BY REFERENCE INTO THIS DISCUSSION.
ALL STOCKHOLDERS ARE URGED TO READ THE ENTIRE TEXTS OF THESE AGREEMENTS.
INTERESTS OF OUR DIRECTORS AND EXECUTIVE OFFICERS
To the best of our knowledge, none of our officers or directors have an
interest, direct or indirect, in the asset sale transaction.
STOCKHOLDER, REGULATORY AND OTHER APPROVALS
The proposed asset sale is contingent upon obtaining the approval of
the Teletouch stockholders, the FCC approval and other customary closing
conditions. The Board of Directors decided to seek stockholder approval since
Teletouch is proposing to dispose of its paging business assets, which are a
significant source of the Company revenues and earnings and may, under the laws
of the State of Delaware, be considered to be a substantial part of the
Company's assets. Regulatory approval is required because Teletouch operates
telecommunication services which may only be delivered by certificated entities.
We must comply with certain federal and state regulatory requirements as a
condition of the proposed asset sale. Teletouch is the holder of various state
and federal authorizations and licenses pursuant to which we have been granted
the necessary authority to provide communications services to our customers.
Under the terms of the APA, Teletouch has agreed to seek permission to transfer
permits and licenses to the Buyer. Obtaining the necessary regulatory approval
is not without risk. There is a risk that one or more of the various regulators
does not approve the asset transfer, or that a transfer is not approved on a
timely basis. Either or both of these events may cause the Buyer and Teletouch
not to proceed with the contemplated transaction.
THE BUYER'S REASONS FOR THE ASSET PURCHASE
The Buyer believes that sufficient paging customers will remain within
the Company's market area to generate positive cash flow for an extended period
of time. The Buyer anticipates that the acquisition of Teletouch's assets will
allow the Buyer to generate sufficient revenue to repay the complete purchase
price and continue to generate positive cash flow and earnings thereafter.
USE OF PROCEEDS FROM THE PROPOSED ASSET SALE
We intend to use cash proceeds from the asset sale transaction to fund
an acquisition of one or more businesses that are complimentary to our telemetry
and two way radio businesses and to a lesser extent, fund existing corporate and
telemetry operations.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE ASSET SALE
The following discussion is a general summary of the material federal
income tax consequences of the APA to Teletouch, but does not purport to be a
complete analysis of all the potential tax effects. The discussion does not
address any tax consequences arising under the laws of any state, local or
foreign jurisdiction. The discussion is based upon the Internal Revenue Code of
1986, as amended ("Code"), U.S. Treasury regulations, the Internal Revenue
Service ("IRS") rulings and judicial decisions now in effect, all of which are
subject to change at any time; any such changes may be applied retroactively.
The following discussion has no binding effect on the IRS or the courts and
assumes that Teletouch will consummate the APA substantially in accordance with
its terms. Teletouch will recognize taxable gain or deductible loss on the sale
of each asset pursuant to the APA. The amount of such gain or loss will be the
difference between Teletouch's adjusted tax basis for each asset and the amount
of consideration received for that asset (reduced by the costs of the
transaction allocable to that asset). It is anticipated that Teletouch has tax
basis in the assets to be sold which exceeds the proceeds to be received
pursuant to the APA and thus will incur a deductible loss on the transaction
which may be realized if the Company generates taxable income in the future.
20
The stockholders will not recognize any gain or loss as a result of the
sale of the Acquired Assets under the APA.
NO APPRAISAL RIGHTS
Under Delaware law, our stockholders are not entitled to appraisal
rights for their shares of Teletouch stock in connection with the transactions
contemplated by the APA or to any similar rights of dissenters under Delaware
law.
MANAGEMENT AGREEMENT
The parties to the APA have agreed to enter into a Management
Agreement ("MA") on August 31, 2005 such that the Buyer will have prescribed
decision making authority during the period after the execution of the APA, but
prior to the closing of the transaction, to assist in a smooth transition of the
paging business operations prior to closing.
Under the MA, the Buyer agreed to perform all marketing, managerial and
administrative functions required for the operation of the our stations,
including the collection of revenues and payment of expenses, subject to the
supervisory powers and duties of the Company. The Buyer agreed to remit to the
Company all profits from the operation of the stations, after paying the
expenses of operating the stations from the revenues collected. The Buyer agreed
to manage the business consistent with current Company policies and practice and
any deviations from such policies and practice would require approval of the
Company.
The right of ownership of our stations, and full control and
supervision over their operation remains vested in and is retained by the
Company. We retain full control over and responsibility for all decisions with
regard to the following matters affecting station operation, including:
o policy decisions regarding operation and maintenance;
o the payment of all financial obligations and operating
expenses;
o the hiring, supervision, and dismissal of all employees;
o the receipt of all revenues and profits from operation of the
stations;
o the handling of customer complaints;
o the preparation and filing with the FCC of any applications
for construction permits for additional facilities, licenses
for constructed facilities, or modification of existing
construction permits or licenses; and
o compliance with all FCC rules, regulations and requirements.
21
Furthermore, we retain the right to complete and unfettered access to
and control over all facilities and equipment associated with the stations.
As its compensation for management services under the MA, the Buyer is
entitled to a management fee of $25,000 on the 1st and 16th day of each month
during the term of the MA if the APA closing has not occurred on or prior to the
date that such payment is due. As of the date of this proxy statement, the
Company paid a total of $200,000 to the Buyer in accordance with the terms and
provisions of the MA.
The term of the MA is one year and may be terminated by either party to
the agreement.
THE MATERIAL TERMS OF THE MA ARE SUMMARIZED ABOVE. THE FOLLOWING
DESCRIPTION DOES NOT PURPORT TO DESCRIBE ALL OF THE TERMS AND CONDITIONS OF THE
MA AND THE RELATED AGREEMENTS. FULL TEXT OF THE MA IS ATTACHED TO THIS PROXY
STATEMENT AS APPENDIX D AND IS INCORPORATED BY REFERENCE INTO THIS DISCUSSION.
ALL STOCKHOLDERS ARE URGED TO READ THE ENTIRE TEXTS OF THESE AGREEMENTS.
VOTE REQUIRED AND BOARD RECOMMENDATION
The approval of Proposal 1 requires an affirmative vote of a majority
of the outstanding shares of common stock entitled to vote, in person or by
proxy, at the Annual Meeting.
In addition, the vote of the holders of at least a majority of the GM
Warrant or the shares of the Company's common stock issuable upon conversion of
the GM Warrant calculated on an as-exercised basis voting separately, as a
single class, given in person or by proxy, is required to approve this Proposal
1.
Our Board believes that the proposed asset sale is in the best
interests of Teletouch and our stockholders and recommends a vote FOR this
proposal.
22
STOCKHOLDER PROPOSALS AND SUBMISSIONS
Stockholder proposals that are intended to be presented by such
stockholders at our 2005 Annual Meeting must be received no later than ______
(Deadline) in order to be eligible for inclusion in our proxy statement for the
next annual meeting and must meet all other requirements specified in our
bylaws. The SEC rules establish a different deadline for submission of
stockholder proposals that are not intended to be included in our proxy
statement with respect to regularly scheduled annual meetings. The rules set
forth standards as to what stockholder proposals are required to be included in
a proxy statement. A copy of the relevant Bylaw provisions containing the
requirements for making stockholder proposals may be obtained by contacting our
Corporate Secretary at our executive offices. All stockholder proposals received
after the Deadline will be considered untimely and will not be included in the
proxy statement for the next annual meeting.
OTHER BUSINESS
The Board does not presently intend to bring any other business before
the Special Meeting, and, so far as is known to the Board, no matters are to be
brought before the Special Meeting except as specified in the Notice of the
Special Meeting. As to any business that may properly come before the Meeting,
however, it is intended that proxies, in the form enclosed, will be voted in
respect thereof in accordance with the judgment of the persons voting such
proxies.
By Order of the Board of Directors
TELETOUCH COMMUNICATIONS, INC.
Douglas E. Sloan, Corporate Secretary
WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE SPECIAL MEETING, PLEASE SIGN AND
RETURN THE ENCLOSED PROXY PROMPTLY. YOUR VOTE IS IMPORTANT. IF YOU ARE A
STOCKHOLDER OF RECORD AND ATTEND THE SPECIAL MEETING AND WISH TO VOTE IN PERSON,
YOU MAY WITHDRAW YOUR PROXY AT ANY TIME PRIOR TO THE VOTE.
23
TELETOUCH COMMUNICATIONS, INC.
PROXY
SPECIAL MEETING OF STOCKHOLDERS OF TELETOUCH COMMUNICATIONS, INC.
ON MARCH 1, 2006
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby acknowledges receipt of the Notice of Special
Meeting of Shareholders and the proxy statement, each dated January 16, 2006,
and hereby appoints Henry Y.L. Toh, Marshall G. Webb, Clifford E. McFarland,
Susan S. Ciallella and Robert M. McMurrey, and each or any of them proxies, and
agents and attorneys-in-fact, with power of substitution, to vote all shares of
the undersigned at the Special Meeting of stockholders to be held on March 1,
2006 at 10:00 a.m. at the Hotel Adolphus, 1321 Commerce Street, Dallas, Texas
75202 or at any adjournment thereof, upon the matters set forth in the proxy
statement for such meeting.
1. TO APPROVE THE SALE OF THE PAGING BUSINESS ASSETS OF TELETOUCH
COMMUNICATIONS INC.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. TO TRANSACT ANY OTHER BUSINESS THAT MAY PROPERLY BE PRESENTED
AT THE SPECIAL MEETING OR ANY ADJOURNMENT OR POSTPONEMENT
THEREOF.
In the discretion of the proxies, on such other business as may properly come
before the Special Meeting.
Dated:______________ ________________________________________________________
Signature
________________________________Signature if held jointly
NOTE: When shares are held by joint tenants, both should sign. Persons signing
as Executor, Administrator, Trustee, etc. should so indicate. Please sign
exactly as the name appears on the proxy.
PLEASE SIGN, DATE AND RETURN THE PROXY IN THE ENVELOPE ENCLOSED. IF NO CONTRARY
SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSAL 1. PLEASE MARK,
SIGN AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
24
APPENDIX A
ASSET PURCHASE AGREEMENT
by and between
TELETOUCH PAGING, LP
as Buyer
and
TELETOUCH COMMUNICATIONS, INC.
as Seller
DATED AS OF AUGUST 22, 2005
25
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (this "AGREEMENT") dated as of August 22, 2005,
is by and between Teletouch Communications, Inc., a Delaware corporation
("SELLER"), and TeleTouch Paging, LP, a Texas limited partnership ("BUYER").
W I T N E S S E T H:
WHEREAS, Seller is engaged in the business of operating VHF and UHF
paging telecommunications systems and services and related answering services
(collectively, the "BUSINESS"); and
WHEREAS, Seller wishes to sell to Buyer, and Buyer wishes to purchase
from Seller, substantially all of the assets of Seller associated with the
Business, all upon the terms and subject to the conditions set forth below.
NOW, THEREFORE, for the mutual covenants and other consideration
described herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto covenant and
agree as follows:
ARTICLE I
DEFINITIONS
1.1 DEFINITIONS. As used herein, the following terms have the meanings
set forth below:
"AAA": as defined in SECTION 14.3.
"ACCOUNTS RECEIVABLE": all notes and accounts receivable of Seller
attributable to the Business.
"ACCOUNTS PAYABLE": the payables of Seller associated with the
Business.
"ACT": the Communications Act of 1934, as amended.
"ADJUSTMENT AMOUNT": as defined in SECTION 3.3.
"AFFILIATE": with respect to any Person, any other Person directly or
indirectly controlling (including but not limited to all directors and officers
of such Person), controlled by, or under direct or indirect common control with
such Person.
"AGREEMENT": this Asset Purchase Agreement, as amended from time to
time as provided herein, and all exhibits, schedules and ancillary documents
hereto, except where the context clearly indicates otherwise.
26
"ANTENNA STRUCTURE REGISTRATION": Registration issued by the Commission
with respect to certain antenna structures in accordance with Part 17 of the
Rules and Regulations.
"ASSETS": as defined in SECTION 2.1.
"ASSIGNED CONTRACTS": as defined in SECTION 2.3.
"ASSUMED OBLIGATIONS": as defined in SECTION 2.3.
"BAD DEBT RESERVE": as defined in the definition of "Current Assets" in
this SECTION 1.1.
"BAD DEBT STATEMENT": as defined in SECTION 3.4.
"BOOKS AND RECORDS": all books, records, books of account, files and
data (including customer and supplier lists), catalogs, brochures, sales
literature, promotional material, certificates and other documents used in or
associated with the conduct of the Business or the ownership of the Assets,
except that the Books and Records shall not include personnel records and files
or any books, records, files and other data of Seller which relate exclusively
to (i) organizational or governance proceedings of Seller, (ii) the Excluded
Assets, or (iii) excluded obligations or liabilities in SECTION 2.4 below.
"BUSINESS": as defined in the Recitals to this Agreement; provided,
however, that such term shall in no event refer to (i) Seller's two-way radio
business or (ii) Seller's existing telemetry business.
"BUSINESS DAY": any day excluding Saturday, Sunday and any day on which
banks in Fort Worth, Texas are authorized or required by law or other
governmental action to close.
"BUYER": as defined in the preamble of this Agreement.
"BUYER INDEMNITIES": as defined in SECTION 13.2.
"CASH PAYMENT": as defined in SECTION 3.1.
"CLAIM": as defined in SECTION 13.3.
"CLOSING": as defined in SECTION 11.1.
"CLOSING DATE": as defined in SECTION 11.1.
"CODE": the Internal Revenue Code of 1986, as amended from time to
time, and the regulations promulgated and rulings issued thereunder. Section
references to the Code are to the Code as in effect at the date of this
Agreement and any subsequent provisions of the Code amendatory thereof,
supplemental thereto or substituted therefore.
"COMMISSION": the Federal Communications Commission.
27
"COMMUNICATIONS SITES": All properties on which Seller leases or
licenses tower, ground, rooftop or other space for the operation of paging
transmission equipment.
"CONFIDENTIALITY AGREEMENT": as defined in SECTION 14.13.
"CONTRACT": any written contract, agreement or instrument relating to
the Business to which Seller is a party or is otherwise bound, including,
without limitation, supply contracts, customer agreements and accounts, any
mortgages, deeds of trust, notes or guarantees, pledges, liens, or conditional
sales agreements to which Seller is a party or by which any of its assets may be
bound, of which copies have been made available to Buyer for review, but
excluding Leases.
"CURRENT ASSETS": (i) petty cash at store locations, (ii) trade
accounts receivable (net of a reserve for bad debts equal to $25,000 plus the
amount of all accounts over 90 days past due, such reserve being hereinafter
referred to as the "BAD DEBT Reserve"), (iii) building and service deposits,
(iv) amounts owed to the Seller relating to TNPP and usage-based services
provided by the Business but not yet billed, (v) prepaid expenses and yellow
pages fees, and (vi) Inventory related to the Business.
"CURRENT LIABILITIES": (i) paging service deferred revenue, (ii)
customer accounts with credit balances relating to the Business, and (iii)
customer security deposits related to the Business.
"DAMAGES": as defined in SECTION 13.1.
"DISPUTE": as defined in SECTION 14.3.
"ENCUMBRANCES": liens, security interests, options, rights of first
refusal, easements, mortgages, charges, debentures, indentures, deeds of trust,
rights-of-way, restrictions, encroachments, licenses, Leases, Permits, security
agreements, or any other encumbrances and other restrictions or limitations on
the use or ownership of real or personal property or irregularities in title
thereto.
"ENVIRONMENTAL CLAIM": any and all administrative, regulatory, judicial
or other actions, suits, demands, demand letters, claims, liens, notices of
noncompliance or violations, investigations or proceedings relating in any way
to any Environmental Law or any permit issued under any such Environmental Law
(cumulatively and for purposes of this definition, "ENVIRONMENTAL CLAIMS"),
including without limitation (i) any and all Environmental Claims by
Governmental Authorities for enforcement, penalties, cleanup, removal, remedial
or other actions or damages pursuant to any applicable Environmental Law, and
(ii) any and all Environmental Claims by any third party seeking damages,
enforcement, penalties, contribution, indemnification, cost recovery,
compensation or injunctive relief resulting from Hazardous Materials or arising
from alleged injury or threat of injury to health, safety or the environment.
28
"ENVIRONMENTAL LAW": any federal, state or local statute, law, rule,
regulation, ordinance, code, policy or rule of common law now in effect and in
each case as amended and any judicial or administrative interpretation thereof,
including any judicial or administrative order, consent decree or judgment,
relating to Hazardous Materials, the environment or health relating to or
arising from environmental conditions, including without limitation the National
Environmental Policy Act of 1969 (NEPA), 42 U.S.C. ss.4321 ET. SEQ.; Procedures
Implementing NEPA, 47 C.F.R. ss.1.1307 ET. SEQ.; Occupational Safety and Health
Act, as amended, 29 U.S.C. ss. 651 ET seq; the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended 42 U.S.C. ss. 9601
ET SEQ.; the Hazardous Materials Transportation Act, as amended, 49 U.S.C. ss.
5101 ET SEQ.; the Resource Conservation and Recovery Act, as amended, 42 U.S.C.
ss. 6901 ET SEQ.; the Federal Water Pollution Control Act, as amended, 33 U.S.C.
ss.1251 ET SEQ.; the Toxic Substances Control Act, 15 U.S.C. ss. 2601 ET SEQ.;
the Clean Air Act, 42 U.S.C. ss. 7401 ET SEQ.; the Safe Drinking Water Act, 42
U.S.C. ss. 300f ET SEQ.; the Oil Pollution Act of 1990, 33 U.S.C. ss. 2701 ET
SEQ.; and relevant state and local laws.
"EXCLUDED ASSETS": as defined in SECTION 2.2.
"EXCLUDED LIABILITIES": as defined in SECTION 2.4.
"FCC APPROVALS": as defined in SECTION 11.4.
"GAAP": generally accepted accounting principles consistently applied
(as such term is used in the American Institute of Certified Public Accountants
Professional Standards).
"GOVERNMENTAL AUTHORITY": means (a) any national, state, county,
municipal or other government, domestic or foreign, or any agency, board,
bureau, commission, court, department, or other instrumentality of any such
government, or (b) any person having the authority under any applicable
government requirements to assess and collect taxes for its own account.
"HAZARDOUS MATERIALS": (i) any petroleum or petroleum products,
radioactive materials, asbestos in any form that is or could become friable,
urea formaldehyde foam insulation, transformers or other equipment that contain
dielectric fluid containing levels of polychlorinated biphenyls, and radon gas;
and (ii) any chemicals, materials or substances defined as or included in the
definition of "hazardous substances," "hazardous wastes," "hazardous materials,"
"extremely hazardous wastes," "restricted hazardous wastes," "toxic substances,"
"toxic pollutants," "contaminants," "pollutants," "regulated substances" or
words of similar import under any applicable Environmental Law.
"INDEPENDENT ACCOUNTANTS": as defined in SECTION 3.4.
"INTELLECTUAL PROPERTY": domestic and foreign patents, patent
applications, registered and unregistered trademarks, service marks, trade names
and logos, registered and unregistered copyrights, computer programs and
software, data bases, trade secrets, methods, designs, processes, procedures,
proprietary information and any other intangible property used in or associated
with the conduct of the Business and the ownership of the Assets, including all
of Seller's rights to any such property which is owned by and licensed from
others and any goodwill associated with any of the foregoing.
29
"LEASES": any and all written contracts, agreements, and commitments
regarding the lease of real or personal property to which Seller is a party or
is otherwise bound that relate to or are used in the operation of the Business,
including, but not limited to, leases of towers and transmitter sites.
"LICENSE AGREEMENT": as defined in SECTION 11.2.
"MANAGEMENT AGREEMENT": as defined in ARTICLE IV.
"MATERIAL ADVERSE EFFECT": a material adverse effect on the assets,
liabilities, business, condition (financial or otherwise), results of operations
or prospects of the applicable party.
"NET WORKING CAPITAL": the total of Current Assets as of the Closing
Date less Current Liabilities as of the same date.
"NET WORKING CAPITAL ADJUSTMENT": as defined in SECTION 3.3.
"NONCOMPETITION AND NONSOLICITATION AGREEMENT": a customary
noncompetition and nonsolicitation agreement to be entered into by Buyer and
Seller at Closing pursuant to which Seller agrees to not compete with the
Business within the current market area of the Business for two years following
Closing and agrees to not solicit customers or employees of the Business for two
years following closing.
"PENDING APPLICATIONS": any applications related to the Business filed
with, but not granted by, the Commission on behalf of Seller prior to the
Closing Date.
"PERMITTED ENCUMBRANCES": (i) Encumbrances consisting of easements,
permits and other restrictions or limitations on the use of real property or
irregularities in title thereto that do not materially detract from the value
of, or materially impair the use of, such property by Seller in the operation of
the Business, (ii) Encumbrances for current taxes, assessments or governmental
charges or levies on property not yet due and delinquent, (iii) Encumbrances
created by Buyer, and (iv) Encumbrances, if any, relating to the Assumed
Obligations.
"PERMITS": as defined in SECTION 2.1(J).
"PERSON": any individual, partnership, joint venture, corporation,
limited liability company, trust, unincorporated organization, government or
other department or agency thereof or other entity.
"PRE-CLOSING PERIOD": as defined in SECTION 5.12(A).
"PRICE ALLOCATION": as defined in SECTION 3.2.
"PROMISSORY NOTE": as defined in SECTION 3.1(B).
"PURCHASE PRICE": as defined in SECTION 3.1.
30
"REGULATED PERMITS": as defined in SECTION 11.4.
"RELEASES": as defined in SECTION 5.17.
"REQUISITE STOCKHOLDER APPROVAL": as defined in SECTION 7.4.
"RESELLER AGREEMENTS": as defined in SECTION 2.1(X).
"RETURNS": as defined in SECTION 5.12(A).
"RULES AND REGULATIONS": as defined in SECTION 5.10(B).
"SCHEDULES": The schedules of Seller, Buyer or both as appropriate in
the context and as referenced throughout this Agreement.
"SELLER": as defined in the preamble of this Agreement.
"SELLER INDEMNITIES": as defined in SECTION 13.1.
"STORES": the Seller's leased store and warehouse facilities identified
on SCHEDULE 2.1(F)(II).
"SUBLEASE": as defined in SECTION 11.2.
"SUBSEQUENT PERMITS": any Permits related to the Business acquired by
or granted to Seller after the date of this Agreement but prior to the Closing
Date.
"SUPPLEMENTAL DISCLOSURE": as defined in SECTION 12.3.
"TAX": any net income, alternative or add-on minimum tax, advance,
corporation, gross income, gross receipts, sales, use, ad valorem, franchise,
profits, license, value added, withholding, payroll, employment, excise, stamp
or occupation tax, governmental fee or other like assessment or charge of any
kind whatsoever, together with any interest or any penalty imposed by any
Governmental Authority with respect thereto, and any liability for such amounts
as a result either of being a member of an affiliated group or of a contractual
obligation to indemnify any other entity.
"TERMINATION PERIOD": as defined in SECTION 12.3.
"VEHICLES": as defined in SECTION 2.1(V).
1.2 OTHER TERMS. Other terms may be defined elsewhere in the text of
this Agreement and shall have the meaning indicated throughout this Agreement.
1.3 OTHER DEFINITIONAL PROVISIONS.
31
(a) The words "hereof," "herein" and "hereunder," and words of similar
import, when used in this Agreement, shall refer to this Agreement as a whole
and not any particular provision of this Agreement.
(b) The terms defined in the singular shall have a comparable meaning
when used in the plural, and vice versa.
(c) The terms defined in the neuter or masculine gender shall include
the feminine, neuter and masculine genders, unless the context clearly indicates
otherwise.
(d) Reference to the "best knowledge" of a Person or words of similar
import shall mean the actual or constructive best knowledge of such Person after
reasonable due diligence as to the facts and circumstances addressed.
(e) All references made herein to schedules and exhibits refer to the
schedules and exhibits attached hereto, which are incorporated into and made a
part of this Agreement by reference.
ARTICLE II
THE TRANSACTION
2.1 PURCHASE AND SALE OF ASSETS. Subject to the terms and conditions of
this Agreement, Buyer agrees to purchase from Seller, and Seller agrees to sell,
convey, transfer, assign and deliver, and cause to be sold, conveyed,
transferred, assigned and delivered, all of Seller's rights, title and interest
in and to the following assets (the "ASSETS") free and clear of all Encumbrances
except Permitted Encumbrances, to Buyer on the Closing Date (except with respect
to certain Permits which shall be conveyed in accordance with SECTION 11.4)
against the receipt by Seller of the Purchase Price:
(a) PAGING EQUIPMENT. All of Seller's paging equipment, including
terminals and transmitters, more specifically listed on SCHEDULE 2.1(A), except
as may be consumed in the ordinary course of business prior to Closing;
(b) [INTENTIONALLY DELETED]
(c) INVENTORY. All pagers, accessories and other merchandise, supplies,
stock in trade and other such assets of Seller held for sale or lease in the
ordinary course of the Business or to be furnished under contracts of service or
held as work in process or to be used or consumed in the Business, including but
not limited to the inventory described on SCHEDULE 2.1(C) and including any
inventory held by customers for replacement of leased pagers, such equipment
commonly referred to as spares, except as may be consumed in the ordinary course
of business prior to Closing;
(d) SPARE PARTS AND SUPPLIES. All of Seller's spare parts, supplies,
specialty tools and other items and equipment used or useful in the operation of
the Business;
32
(e) [INTENTIONALLY DELETED]
(f) LEASES. all of Seller's rights, title and interest under the real
property leases, licenses and subleases listed on SCHEDULE 2.1(F)(I);
(g) FIXTURES. all shelving, desks, displays and display cases,
lighting, built-in furniture and other fixtures owned by Seller, located at the
Stores and Home Offices and used or useful in connection with the Business;
(h) FURNITURE. all furniture, movable or immovable, located at the
Stores and used or useful in connection with the Business;
(i) STORE EQUIPMENT. all cash registers, computers and other equipment
located at the Stores and used or useful in connection with the Business, except
as otherwise specifically provided in SCHEDULE 2.1(I);
(j) PERMITS. all licenses, permits, franchises, consents, approvals and
authorities granted to Seller by any Person and applicable to the Business,
including, but not limited to, all licenses and permits issued by the Commission
and the Federal Aviation Administration, including all Subsequent Permits and
Pending Applications (collectively, the "PERMITS"), all of such Permits,
together with associated frequencies (if applicable) are listed on SCHEDULE
2.1(J);
(k) CUSTOMER LISTS. Seller's current customer lists with respect to the
Business, such list of customers being attached hereto as SCHEDULE 2.1(K), and
all contact information associated with the customers on such lists;
(l) CUSTOMER CONTRACTS. all of Seller's rights, title and interest in
and to the customer contracts with respect to the Business (the "CUSTOMER
CONTRACTS");
(m) LEASED PAGERS. All of Seller's owned assets held and used by
customers in the ordinary course of business.
(n) TELEPHONE NUMBERS. All of the telephone numbers of the Business
except as listed on SCHEDULE 2.1(N) attached hereto and made a part hereof;
(o) BOOKS AND RECORDS. all Books and Records;
(p) GOODWILL. all goodwill and going concern value of the Business;
(q) CLAIMS AND DEFENSES. any rights of Seller pertaining to any
counterclaims, set-offs or defenses Seller may have with respect to any Assumed
Obligations;
(r) PREPAID ITEMS. all prepaid claims, prepaid taxes, prepaid insurance
premiums and other prepaid expense items of Seller related to the Business or
the Assets, the sum total of which items are set forth on SCHEDULE 5.4 as of the
date of such schedule;
33
(s) INDEMNITIES AND INSURANCE. third-party indemnities, policies of
insurance, fidelity, surety or similar bonds and the coverages afforded thereby
relating to any of the other Assets;
(t) ACCOUNTS RECEIVABLE. all Accounts Receivable of the Business
incurred in the ordinary course of the Business prior to the Closing Date, which
Accounts receivable as of August 31, 2005, including the aging of such, are
detailed on SCHEDULE 2.1(T);
(u) INTELLECTUAL PROPERTY. all Intellectual Property listed on SCHEDULE
2.1(U);
(v) VEHICLES. the vehicles listed on SCHEDULE 2.1(V) (the "VEHICLES");
and
(w) [INTENTIONALLY DELETED]
(x) RESELLER AND INTER-CARRIER AGREEMENTS. the reseller and
inter-carrier agreements listed on SCHEDULE 2.1(X) (collectively, the "RESELLER
AGREEMENTS"); and
(y) ADDITIONAL ASSETS. any additional assets from time to time acquired
for the Business by Seller in the ordinary course of business prior to Closing
Date, including those assets identified on SCHEDULE 2.1(Y), except for such
property as may be used, sold, consumed or disposed of by Seller in the ordinary
course of business prior to the Closing Date and in compliance with the terms
and conditions of this Agreement.
2.2 EXCLUDED ASSETS. The Assets shall not include any of the following
(the "EXCLUDED ASSETS"):
(a) all cash on hand or on deposit and arising out of the operation of
the Business prior to the Closing Date, except for petty cash at store
locations;
(b) any assets (including inventory, receivables, payables and Seller's
corporate name " Teletouch Communications, Inc" and the names "Teletouch",
"Visao Systems" and "Visao") related to the Seller's business as a two-way radio
dealer or to the Seller's business as a provider of telemetry products and
services;
(c) causes of action and third-party indemnities, policies of
insurance, fidelity, surety or similar bonds and the coverage afforded thereby
other than those relating to the Assets;
(d) tax refunds related to the Business or the Assets received or
receivable by Seller relating to taxes paid by Seller for all periods prior to
the Closing Date;
(e) Seller's lease with respect to the corporate headquarters in Tyler,
Texas;
(f) Seller's leases and contracts for telephone systems for its two-way
and telemetry businesses; and
(g) minute books and governance documents of Seller.
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2.3 ASSUMPTION OF OBLIGATIONS. Upon the sale of the Assets by Seller,
Buyer shall assume and agree to pay, perform and discharge, in a timely manner
and in accordance with the terms thereof, from and after the Closing Date all of
Seller's obligations with respect to the following (collectively, the "ASSUMED
OBLIGATIONS"):
(a) the Permits, Customer Contracts, Reseller Agreements and Leases
properly transferred and assigned to Buyer hereunder in conformity with the
provisions of such Permits, Customer Contracts, Reseller Agreements and Leases,
which are listed in the schedules to this Agreement or otherwise defined herein
(collectively, the "ASSIGNED CONTRACTS");
(b) [INTENTIONALLY DELETED]
(c) the customer deposits and prepaid amounts existing on the Closing
Date to the extent such deposits were made pursuant to and remain outstanding
under the Assigned Contracts, the sum total of which deposits and amounts are
set forth on SCHEDULE 5.4 as of the date of such schedule; and
(d) all of Seller's obligations under the vehicle leases and loans with
respect to certain vehicles used in maintenance of the paging system, which
leases and loans are identified on SCHEDULE 2.3(D).
The assumption by Buyer of the Assumed Obligations shall not enlarge any rights
or remedies of any third parties under any contracts, agreements, instruments or
arrangements of any kind with Seller. Nothing herein shall prevent Buyer from
contesting in good faith any of the Assumed Obligations.
2.4 EXCLUDED OBLIGATIONS AND LIABILITIES. It is expressly understood
and agreed that, except as specifically provided in SECTION 2.3, Buyer shall not
be obligated to pay, perform or discharge any debt, obligation, cost, expense or
liability of Seller, whether absolute or contingent, known or unknown ("EXCLUDED
LIABILITIES"), including, but not limited to debts, obligations, costs, expenses
and liabilities:
(a) related to any of the Excluded Assets or to any employees of
Seller, including all severance, retirement, medical and other benefits payable
to employees or former employees of the Business or of Seller or to their
dependents or beneficiaries;
(b) for any Taxes owed by Seller, including without limitation, any
foreign, federal, state or local Tax (i) based on income or revenues of Seller,
or any state franchise tax or sales or use taxes of Seller, (ii) based on wages
earned by employees of Seller (as that term is defined under Section 3121 of the
Code) or (iii) based on the time the asset was owned or operated by Seller, in
which case Seller will pay its prorated portion of such Taxes when they come
due;
(c) for any losses, costs, damages, judgments, penalties, expenses,
fines, debts, liabilities and obligations of any nature whatsoever based upon or
arising (i) from any agreement, commitment, undertaking, law, rule, regulation,
order or other obligations, or (ii) out of any claims or actions against Seller
or Buyer, in either case arising out of events, facts, circumstances or
conditions existing on or occurring prior to the Closing Date, whether or not
filed or known to Seller prior to the Closing Date, unless such claims arise
from Buyer's failure to perform an Assumed Obligation;
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(d) for any of the liabilities or expenses of Seller incurred in the
negotiation of and carrying out of its obligations under this Agreement;
(e) for liabilities and obligations of Seller to Buyer created by this
Agreement;
(f) for any product liability resulting from any product sold by Seller
prior to the Closing Date or any tort liability of Seller arising out of the
Assets or the Business not expressly assumed by Buyer hereunder;
(g) for any pre-Closing Date breach or violation of any of the Assigned
Contracts unless such breach or violation is specifically disclosed on SCHEDULE
2.4(G) and assumed by Buyer;
(h) [INTENTIONALLY DELETED]
(i) for any regulatory user fees attributable to the Assets or the
Business for the period prior to the Closing Date and payable to the Commission.
Seller agrees to satisfy and discharge all the liabilities of Seller relating to
the Business and which are not assumed by Buyer pursuant to the terms of this
Agreement, whether known at the Closing or thereafter determined, and, pursuant
to SECTION 14.2 below, Seller agrees to indemnify and hold Buyer harmless with
respect thereto.
2.5 NONASSIGNABLE CONTRACTS AND LEASES. If any Permits, Assigned
Contracts or Leases are not by their respective terms assignable, Seller agrees
to use its reasonable best efforts promptly to obtain, or cause to be obtained,
prior to the Closing Date, any written consents necessary to convey to Buyer the
benefit thereof. Buyer shall cooperate with Seller, in such manner as may be
reasonably requested, in connection therewith, including without limitation,
active participation in visits to and meetings, discussions and negotiations
with all Persons with the authority to grant or withhold consent. To the extent
that any such consents cannot be obtained, Seller and Buyer will use their
reasonable best efforts to take such actions as may be possible without
violation or breach of any such nonassignable Permits, Assigned Contracts or
Leases to effectively (i) grant Buyer the economic benefits of, and (ii) impose
upon Buyer the economic burdens of, such Permits, Assigned Contracts and Leases.
2.6 ENTERGY CONTRACT. Buyer and Seller recognize the importance of the
contract with Entergy Corporation and its Affiliates (collectively, "ENTERGY")
in determining the Purchase Price paid for the Assets. To the extent the current
Entergy contract has expired and (i) Entergy has not executed a new contract
materially similar to the current contract and (ii) monthly revenues from
Entergy are less than $85,000.00, Buyer and Seller hereby agree that the
principal amount of the Promissory Note shall be reduced on a monthly basis by
the difference between $85,000.00 and the current monthly billing up to a
maximum of $25,000.00 for each month. In no event shall the Promissory Note be
reduced by more than $600,000.00 pursuant to this SECTION 2.6. Any such
reduction of the Promissory Note shall be evidenced by a written statement
executed by Seller.
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ARTICLE III
PAYMENT OF PURCHASE PRICE
3.1 AMOUNT; DELIVERY. In addition to Buyer's assumption of the Assumed
Obligations, Buyer shall pay to Seller the consideration as follows (the
"PURCHASE PRICE"), subject to adjustment as provided in SECTION 3.3 hereof,
which Purchase Price shall be remitted by Buyer to Seller in the following
manner:
(a) $4,000,000 in cash (the "CASH PAYMENT") to Seller on the Closing
Date (subject to adjustment as provided further in this clause (a)), all of
which shall be paid by check or by wire transfer of immediately available funds
to an account of Seller as designated in writing by Seller to Buyer not more
than three (3) Business Days prior to the Closing Date or at such other date and
time as may be agreed upon by both parties. The Cash Payment will be (1) REDUCED
by the amount of the Earnings Before Interest, Taxes, Depreciation and
Amortization ("EBITDA") of the Business beginning September 1, 2005 through the
Closing Date determined in accordance with Seller's current GAAP and business
management practices (e.g. monthly recognition of deferred revenue), (2) REDUCED
by an amount equal to the lesser of (A) the amount, if any, by which the
interest earned on the escrowed funds referenced below during the period between
August 31, 2005 and the Closing is less than the imputed interest on such
escrowed funds for the same period, calculated at the prime rate of interest
quoted in the Wall Street Journal on August 31, 2005 plus 1% or (B) $10,000.00
and (3) INCREASED by the amount of any approved cash capital expenditures
incurred by the Business from September 1, 2005 through the Closing Date. The
calculation of EBITDA will reflect a reduction of earnings attributable to
payment of the management fees paid pursuant to Article IV. Simply as evidence
that Buyer has funds available to make the Cash Payment at Closing, on or before
August 31, 2005, Buyer shall deposit the Cash Payment in an escrow account
pursuant to an escrow agreement in form and substance satisfactory to both Buyer
and Seller.
(b) A non-interest bearing promissory note (the "PROMISSORY NOTE") in
the amount of $1,200,000.00 payable to Seller due in twelve monthly payments of
$100,000 each beginning March 1, 2007 as evidenced by a copy of such Promissory
Note attached hereto as EXHIBIT A. The Promissory Note shall be secured by a
lien on the Assets subject to customary subordination provisions required by
Buyer's senior lender.
3.2 PRICE ALLOCATION.
(a) Seller and Buyer agree to comply with all filing, notice and
reporting requirements described in Section 1060 of the Code and the Treasury
Regulations promulgated thereunder. Seller and Buyer mutually agree that they
have each independently appraised the Purchased Assets listed in the Schedules
Seller and Buyer mutually agree that the purchase price shall be allocated as
follows (the "PRICE ALLOCATION"):
37
(i) first to the aggregate appraised value of the Assets as determined
by the Buyer and Seller and listed in the Schedules;
(ii) $50,000 to the Noncompetition and Nonsolicitation Agreement to be
executed by Seller; and
(iii) the remainder to goodwill.
(b) Seller and Buyer agree to use their reasonable best efforts to
reflect the Price Allocation as listed in SCHEDULE 3.2(A) on the Form 8594
jointly completed and separately filed with their respective income tax returns
for the tax year in which the Closing occurs. The parties further agree that
they will report the federal, state, municipal, foreign and local and other tax
consequences of the purchase and sale hereunder in a manner consistent with the
Price Allocation, and that they will not take any position inconsistent
therewith.
3.3 PURCHASE PRICE ADJUSTMENT.
1. As of the Closing Date, Seller shall prepare and deliver to Buyer a
statement setting forth the Net Working Capital. Such statement shall be
prepared in a manner consistent with (1) GAAP as applied by the Seller in prior
periods (except as otherwise provided in this Agreement) and (2) SCHEDULE 5.4.
2. Within forty-five (45) days following the Closing Date, Buyer or
Seller shall pay to the other party the Net Working Capital Adjustment as
determined in accordance with this SECTION 3.3(B). If the Net Working Capital is
greater than $0.00, Buyer shall pay to Seller the amount of such Net Working
Capital. If the Net Working Capital is less than $0.00, Seller shall pay to
Buyer the amount of such deficit.
3. Within forty-five (45) days following the Closing Date, Buyer shall
deliver to Seller a statement of charges, expenses and losses incurred by Buyer
as a result of (i) the breach by Seller of any representation or warranty
hereunder, or (ii) the failure by Seller to pay any amounts when due in the
ordinary course of business consistent with past practices (the aggregate of all
such charges, reasonable expenses and losses is hereinafter referred to as the
"ADJUSTMENT AMOUNT"). If and only if the Adjustment Amount exceeds $50,000, the
Adjustment Amount will be paid by the Seller to the Buyer at the same time as
the payment of the Net Working Capital Adjustment.
3.4 COLLECTIONS GUARANTY.
(a) Within three (3) months following the Closing Date, Buyer shall
prepare and deliver to Seller a statement of Accounts Receivable that remain
uncollected after reasonable and diligent collection efforts by Buyer (the "BAD
DEBT STATEMENT").
(b) If Buyer and Seller are unable to agree on the Bad Debt Statement,
Buyer and Seller shall individually prepare and submit to an independent
accounting firm jointly selected by Buyer's and Seller's principal accountants
(the "INDEPENDENT ACCOUNTANTS") their respective versions of the Bad Debt
Statement, together with all documents that form a basis for the calculations
included in such Bad Debt Statement. Each party shall provide the other party
access to documents and personnel as reasonably requested for purposes of
preparing and auditing the Bad Debt Statement. The Independent Accountants
shall, within 10 business days following receipt of the requisite information,
prepare a final Bad Debt Statement based on the information provided, which Bad
Debt Statement shall be final and binding on Buyer and Seller.
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(c) No later than 10 days following the date that the Bad Debt
Statement is finally determined in accordance with SECTIONS 3.4(a) or 3.4(B),
Buyer or Seller, as applicable, shall pay as a purchase price adjustment the
following amounts. If the uncollected Accounts Receivable on such Bad Debt
Statement is less than the Bad Debt Reserve, Buyer shall pay to Seller the
amount of such deficit. If the uncollected Accounts Receivable on such Bad Debt
Statement is greater than the Bad Debt Reserve, Seller shall pay to Buyer the
lesser of (i) the amount by which such uncollected Accounts Receivable exceeds
the Bad Debt Reserve or (ii) $25,000.00.
3.5 SETOFF AGAINST NOTE. Notwithstanding any provision of this ARTICLE
III to the contrary, any amount payable to Buyer by Seller pursuant to this
ARTICLE III shall, if not promptly paid by Seller, be paid and discharged in the
form of a reduction in the principal amount of the Promissory Note as evidenced
by a written statement executed by Seller, with such reduction being applied to
installments of the first maturing principal.
ARTICLE IV
MANAGEMENT AGREEMENT
On or prior to August 31, 2005, Buyer and Seller shall execute and
deliver a management agreement (the "MANAGEMENT Agreement") pursuant to which
Buyer will manage the Business prior to Closing. The Management Agreement will
provide that, for this service, Seller will pay the Buyer a management fee of
$25,000 on the 1st and 16th day of each month during the term of such Management
Agreement if the Closing has not occurred on or prior to the date that such
payment is due (unless the Closing has not occurred as a result of Buyer's
failure to perform its obligation under this Agreement.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Buyer as follows:
5.1 EXISTENCE AND GOOD STANDING. Seller is a corporation duly organized
and validly existing under the laws of the State of Delaware. Seller has the
power and authority to own, lease and operate its property and to carry on its
business as now being conducted and to own or lease the assets owned or leased
by it. Seller is duly qualified or licensed to do business in each jurisdiction
in which the character or location of the properties owned or leased by Seller
or the nature of the businesses conducted by Seller make such qualification
necessary.
5.2 AUTHORIZATION AND VALIDITY OF AGREEMENT. Seller has full corporate
power and authority to execute and deliver this Agreement, to perform its
obligations hereunder, and to consummate the transactions contemplated hereby.
The execution, delivery and performance of this Agreement by Seller and the
consummation of the transactions contemplated hereby, have been duly authorized
and approved by the board of directors of Seller and, upon receipt of the
Requisite Stockholder Approval, no other corporate action on the part of Seller
is necessary to authorize the execution, delivery and performance of this
Agreement by Seller and the consummation of the transactions contemplated
hereby. This Agreement has been duly executed and delivered by Seller and
represents the valid and binding obligations of Seller enforceable against
Seller in accordance with its terms, except to the extent that such
enforceability may be subject to applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles.
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5.3 CONSENTS AND APPROVALS; NO VIOLATIONS. The execution, delivery and
performance of this Agreement by Seller and the consummation by Seller of the
transactions contemplated hereby will not, with or without the giving of notice
or the lapse of time or both: (a) upon receipt of the Requisite Stockholder
Approval, violate, conflict with, or result in a breach or default under any
provision of the articles of incorporation or bylaws of Seller; (b) violate any
statute, ordinance, rule, regulation, order, judgment or decree of any
Governmental Authority applicable to Seller or by which any of its properties or
assets may be bound; (c) require any filing by Seller with, or require Seller to
obtain any Permit of, or require Seller to give any notice to, any Governmental
Authority other than as set forth on SCHEDULE 5.3; or (d) other than as set
forth on SCHEDULE 5.3, result in a violation or breach by Seller of, conflict
with, constitute (with or without due notice or lapse of time or both) a default
by Seller, or give rise to any right of termination, cancellation, payment or
acceleration, under or result in the creation of any Encumbrance upon any of the
Assets under any of the terms, conditions, or provisions of any note, bond,
mortgage, indenture, Permit, Contract, Lease or other instrument or obligation
to which Seller is a party, or by which it or any of the Assets may be bound.
5.4 NET WORKING CAPITAL.
(a) The Current Assets (net of the Accounts Receivable Reserve for Bad
Debts) and Current Liabilities of Buyer as included in Net Working Capital as
described on SCHEDULE 5.4.
(b) SCHEDULE 2.1(T) lists all Accounts Receivable of Seller with
respect to the Business as of August 31, 2005. SCHEDULE 2.1(T) specifically
indicates all such Accounts Receivable from any Affiliate of Seller. All such
Accounts Receivable are, and all Accounts Receivable at the Closing Date will
be, (i) bona fide claims against debtors for sales, services performed or other
charges and (ii) to the best knowledge of Seller, subject to no defenses,
set-offs or counterclaims.
5.5 PAYABLES. [INTENTIONALLY DELETED]
5.6 WARRANTY CLAIMS. Except as set forth on SCHEDULE 5.6 attached
hereto, as of the date hereof, there are no warranty claims relating to products
at any time sold or services at any time performed by Seller pending or, to the
best knowledge of Seller, threatened.
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5.7 TITLE TO PROPERTIES; ENCUMBRANCES; CONDITION AND SUFFICIENCY OF
ASSETS. Except as set forth on SCHEDULE 5.7 Seller owns outright, and has, and
shall at the Closing have, full legal and beneficial title to all of the Assets,
in each case subject to no Encumbrances except for Permitted Encumbrances.
Except as set forth on SCHEDULE 5.7, each Asset is in good operating condition
and repair, subject to ordinary wear and tear and has been properly maintained
in accordance with the manufacturers' specifications and, to Seller's knowledge,
each Asset is in compliance with all applicable federal and state laws and
regulations. The Assets consist of all of the assets used or useful in
connection with the Business and no other assets other than the Assets are
required to operate the Business as presently conducted, including but not
limited to the operation and maintenance of Seller's paging systems. The
Inventory consists of items of a quality and quantity usable or saleable in the
regular course of business of Seller.
5.8 REAL PROPERTY LEASES. SCHEDULE 2.1(F)(I) contains an accurate and
complete list of all Leases to which Seller is a party (as lessee or lessor) and
which are associated with the Business. Each real property lease set forth on
SCHEDULE 2.1(F)(I) is, to the best knowledge of Seller, in full force and
effect; there is no existing default under any of such Leases on the part of
Seller or, to the best of Seller's knowledge, any other party thereto.
5.9 CONTRACTS AND COMMITMENTS. SCHEDULE 5.9 contains an accurate and
complete list of all Assigned Contracts. Each Assigned Contract is in full force
and effect; there is no existing default under any of such Assigned Contracts on
the part of Seller, or, to the best of Seller's knowledge, any other party
thereto. Except as set forth on SCHEDULE 5.9: (a) Seller is not a party to or
bound by any loan, credit or similar agreement or any indenture, trust agreement
or other instrument relating to any issue of bonds, debentures, notes or other
evidences of indebtedness or creating any Encumbrance on any of the Assets;
(b) There are no bonus, pension, profit sharing, retirement, stock
option, stock purchase, deferred compensation, hospitalization or insurance
plans, or vacation or severance pay plans, or any other plans or arrangements
providing benefits to officers, agents or employees of Seller;
(c) Seller does not have nor is Seller currently negotiating any
collective bargaining agreement with any labor union or association or any
employment contract or other binding agreement relating to the employment of any
of its employees;
(d) Seller is not a party to any joint venture agreement or other
agreement involving the sharing of profits relating to the Business and/or the
Assets;
(e) Seller is not a party to any (i) contracts or commitments for
capital expenditures outside the ordinary course of business or involving
obligations on the part of Seller in amounts inconsistent with those incurred by
Seller in the ordinary course of business in accordance with Seller's prior
operation of the Business, (ii) Lease under which personal property is leased to
or from Seller in connection with the Business, (iii) continuing contract for
the future purchase of Inventory or other materials, supplies, machinery or
equipment in excess of the requirements of the Business conducted in the
ordinary course, consistent with the historical operation of the Business, (iv)
other contract or agreement which involves an obligation on the part of Seller,
either individually or in the aggregate, in excess of amounts previously
incurred by Seller in the ordinary course of business or, (v) contract not made
in the ordinary course of business;
41
(f) Seller is not party to any Contract limiting the freedom of Seller
or any of its employees to engage in any line of business or to compete with any
Person, and to the knowledge of Seller, no employee of Seller is subject to any
such restrictions;
(g) Seller is not a party to any Contract in connection with the
Business which involves aggregate expenditures of $10,000 or more and is not
cancelable without penalty within thirty (30) days, except for those agreements
entered into in the normal course of business or those contracts or commitments
specifically identified as "Contracts above $10,000";
(h) There are no persons holding powers of attorney from, or otherwise
authorized to act on behalf of Seller with respect to the Business or the Assets
except for its respective officers and other management personnel regularly
performing their business functions; and
(i) Seller is current with respect to all payments due under the
Assigned Contracts.
Except as specifically identified on SCHEDULE 5.9, Seller has no knowledge that
any Contract, Lease, or other obligation to which Seller is a party,
individually or in the aggregate: (i) will result in a material loss to the
Buyer after the Closing Date; (ii) cannot readily be performed or fulfilled on
time without undue or unusual expenditure of money or effort by the Buyer after
the Closing Date, or (iii) is not in full force and effect and there exists a
default or event of default or event, occurrence, condition or act which, with
the giving of notice, the lapse of time or the happening of any other event or
condition, would become a default or event of default thereunder. A true copy of
each written Contract and Lease as well as all other documents evidencing any
commitment of Seller required to be set forth on any Schedule hereto have been
made available to Buyer for review. Also set forth on SCHEDULE 5.9 is a list of
all proposals, except proposals made by Seller's sales people in the ordinary
course of business, submitted by Seller to any third party that, if accepted by
such third party, would require disclosure on SCHEDULE 5.9.
5.10 PERMITS.
(a) All Permits required in connection with the use, operation or
ownership of the Assets and the conduct of the Business as currently conducted
are listed on SCHEDULE 2.1(J). To the best knowledge of Seller, the Permits
issued to Seller by the Commission can be transferred to Buyer or a subsidiary
corporation of Buyer as part of the consummation of the transactions
contemplated by this Agreement. To Seller's knowledge, no event has occurred or
fact exists with respect to the Permits which allows or, after notice or lapse
of time or both would permit, revocation or termination of any of the Permits or
would result in any other impairment of the rights of the holder of any of the
Permits or which might limit the operation of Seller's Business as it is now
conducted. To Seller's knowledge, Seller has performed all of its respective
obligations under such Permits. The Commission's action granting the Permits,
together with all underlying construction permits, have not been reversed,
stayed, enjoined, annulled, or suspended, and there is not pending or, to the
knowledge of Seller, threatened, any application, petition, objection, or other
pleading with the Commission or other governmental entity which challenges or
questions the validity of or any rights of the holder under any Permit.
42
(b) Except as set forth on SCHEDULE 5.10, all Permits are in full force
and effect and the facilities associated with such Permits have been constructed
within the time frame provided by the rules and regulations promulgated by the
Commission pursuant to the Act (the "RULES AND REGULATIONS") and where required,
Seller has filed appropriate construction notifications with the Commission.
5.11 LITIGATION. Except as set forth on SCHEDULE 5.11, there is no
action, suit, proceeding at law or in equity, arbitration or administrative or
other proceeding by or before (or any investigation by) any Governmental
Authority, pending, or, to the best knowledge of Seller, threatened, against or
affecting the properties or rights of Seller, and Seller does not know of any
valid basis for any such action, proceeding or investigation. There are no such
suits, actions, claims, proceedings or investigations pending or to the best
knowledge of Seller, threatened, seeking to prevent or challenge the
transactions contemplated by this Agreement. Without exception as to materiality
or otherwise, SCHEDULE 5.11 lists all claims, if any, filed with the Commission
with respect to Seller and/or the operation of the Business since January 1,
2003. A decision adverse to Seller with respect to any of the matters listed on
SCHEDULE 5.11, or with respect to all or any combination thereof, would not
result in a Material Adverse Effect with respect to Seller.
5.12 TAXES.
(a) All returns and reports for Taxes for all taxable years or periods
that end on or before the Closing Date and, with respect to any taxable year or
period beginning before and ending after the Closing Date the portion of such
taxable year or period ending on and including the Closing Date (the
"PRE-CLOSING PERIOD"), which are required to be filed by or with respect to
Seller (collectively, the "RETURNS") have been or will be filed when due in a
timely fashion and such Returns as filed are or will be accurate in all material
respects.
(b) There are no agreements for the extension or waiver of the time for
assessment of any Taxes relating to Seller for any Pre-Closing Period and Seller
has not been requested to enter into any such agreement or waiver.
(c) All Taxes relating to Seller which Seller is required by law to
withhold or collect have been duly withheld or collected, and have been timely
paid over to the proper authorities to the extent due and payable.
(d) Seller is not now nor has it ever been a party to any Tax
allocation or sharing agreement that could result in any liability to Buyer.
43
5.13 INSURANCE. In the judgment of Seller, Seller's insurance policies
covering the Business, with respect to their amounts and types of coverage, are
adequate to insure against risks to which Seller and its property and assets are
normally exposed in the operation of the Business, subject to customary
deductibles and policy limits.
5.14 INTELLECTUAL PROPERTY. SCHEDULE 2.1(U) sets forth all Intellectual
Property owned by Seller and used in connection with the Business. The operation
of the Business requires no rights to any Intellectual Property other than
rights under the Intellectual Property listed on SCHEDULE 2.1(U) and rights
granted to Seller pursuant to agreements listed on SCHEDULE 2.1(U). No
litigation is pending or, to the best knowledge of Seller, threatened wherein
Seller is accused of infringing or otherwise violating the intellectual property
rights of another, or of breaching a contract conveying intellectual property
rights.
5.15 COMPLIANCE WITH LAWS. Seller is in compliance in all material
respects with all applicable laws, regulations, orders, judgments and decrees
applicable to the Business.
5.16 EMPLOYMENT RELATIONS. Seller is not engaged in any unfair labor
practice and to its knowledge has a good relationship with its employees.
5.17 ENVIRONMENTAL LAWS AND REGULATIONS. Except as set forth on
SCHEDULE 5.17:
(a) Seller or, to Seller's knowledge, its authorized agents or
independent contractors (including suppliers) have not generated on, used on,
treated or stored on, transported to or from or arranged for transportation to
or from, the real property owned or leased by Seller or any property adjoining
such real property any Hazardous Materials;
(b) to Seller's knowledge, Hazardous Materials have not been disposed,
discharged, injected, spilled, leaked, leached, dumped, emitted, escaped,
emptied, allowed to seep, placed and the like, into or upon any land or water or
air, or otherwise allowed to enter into the environment (collectively,
"RELEASES") by Seller, its authorized agents or independent contractors
(including suppliers) on such real property or by Seller or its agents on any
other property;
(c) Seller is and has been in compliance with all applicable
Environmental Laws, possesses all Permits required thereunder and is in
compliance with all Permits issued thereunder with respect to such real property
and to Seller's operations conducted thereon;
(d) there are no pending or, to the best knowledge of Seller,
threatened Environmental Claims against Seller with respect to such real
property;
(e) to Seller's knowledge, there are no facts or present or past
circumstances, conditions or occurrences on such real property known to Seller
that reasonably could be anticipated (i) to form the basis of an Environmental
Claim against Seller or any owner, operator or lessee of such real property, or
(ii) to cause such real property to be subject to any restrictions on the
ownership, occupancy use or transferability of such real property under any
Environmental Law;
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(f) there are not now and to the best knowledge of Seller, there never
have been any underground storage tanks located on such real property; and
(g) Seller has not in the ordinary course of business transported,
treated, disposed of or stored Hazardous Materials in connection with the
Business.
5.18 CUSTOMERS. SCHEDULE 2.1(K) contains a true, complete and correct
list of all customers of the Business. To the knowledge of Seller, each of the
customers identified on such schedule are content and intend to continue their
relationship with the Business following the Closing Date. Seller has no reason
to believe that any of such customers intend to cancel their relationship with
the Business following the Closing Date.
5.19 SOLVENCY. Seller is not entering into this Agreement with actual
intent to hinder, delay or defraud creditors. Immediately prior to and
immediately subsequent to the Closing Date:
(a) the present fair salable value of the assets of Seller (on a going
concern basis) will exceed the liability of Seller for its debts (including its
contingent obligations);
(b) Seller has not incurred, nor does it intend to or believe that it
will incur, debts (including contingent obligations) beyond its ability to pay
such debts as such debts mature (taking into account the timing and amounts of
cash to be received from any source, and of amounts to be payable on or in
respect of debts); and the amount of cash available to Seller after taking into
account all other anticipated uses of funds is anticipated to be sufficient to
pay all such amounts on or in respect of debts, when such amounts are required
to be paid; and
(c) Seller will have sufficient capital with which to conduct its
business, and the property of Seller does not constitute unreasonably small
capital with which to conduct its business.
For purposes of this SECTION 5.19, "debt" means any liability or a (i) right to
payment whether or not such a right is reduced to judgment, liquidated,
unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed,
legal, equitable secured, or unsecured; or (ii) right to an equitable remedy for
breach of performance if such breach gives rise to a payment, whether or not
such a right to an equitable remedy is reduced to judgment, fixed, contingent,
matured, unmatured, disputed, undisputed, secured, or unsecured.
5.20 DISCLOSURE. No representation or warranty by Seller contained in
this Agreement, nor any statement or certificate furnished or to be furnished by
Seller to Buyer or its representatives in connection herewith or pursuant
hereto, contains or will contain any untrue statement of a material fact, or
omits or will omit to state any material fact required to make the statements
herein or therein contained not misleading or necessary in order to provide a
prospective purchaser of the Business with adequate information as to Seller,
the Business and the Assets.
5.21 GOVERNMENT CONTRACTS. Except as set forth on SCHEDULE 5.21, Seller
does not:
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(a) have any Contracts with any agency of the Government of the United
States involving any information, technology or data which is classified under
Executive Order 12356 of April 2, 1982; or
(b) have any products or services (including research and development)
with respect to which Seller (i) is a supplier, directly or indirectly, to any
of the military services of the United States or the Department of Defense,
other than the United States Coast Guard, except the supply to individuals of
such military in their individual capacity, or (ii) has technology which has or
could have military applications.
5.22 UNDISCLOSED LIABILITIES. The Seller has no liabilities or
obligations, whether accrued, absolute, contingent or otherwise, which are
material to the Business or the Assets taken as a whole, except (i) liabilities
or obligations disclosed on SCHEDULE 5.22 or in the other Schedules hereto and
(ii) liabilities or obligations disclosed in this Agreement.
5.23 RESTRICTIONS ON BUSINESS ACTIVITIES. Except for this Agreement or
as set forth in SCHEDULE 5.23, to the knowledge of Seller, there is no
agreement, judgment, injunction, order or decree binding upon Seller which has
or could reasonably be expected to have the effect of prohibiting or impairing
any business practice of the Business, acquisition of property by Seller for the
Business, or the conduct of business as currently conducted or as proposed to be
conducted by the Business.
5.24 COPIES OF DOCUMENTS. Seller has made available for inspection and
copying by Buyer and its advisers, true, complete and correct copies of all
documents referred to in this ARTICLE V or in any Schedule attached hereto. The
Books and Records to be delivered at Closing are true, complete and correct in
all material respects.
5.25 [INTENTIONALLY DELETED]
5.26 BROKER'S OR FINDER'S FEES. No Person acting on behalf of Seller
is, or will be, entitled to any fee, commission or broker's or finder's fees in
connection with this Agreement or any of the transactions contemplated hereby.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Seller as follows:
6.1 EXISTENCE AND GOOD STANDING OF BUYER; POWER AND AUTHORITY. Buyer is
a limited partnership duly organized, validly existing and in good standing
under the laws of the State of Texas. Buyer has full partnership power and
authority to make, execute, deliver and perform this Agreement, to perform its
obligations hereunder and to consummate the transactions contemplated hereby.
This Agreement has been duly authorized and approved by all required partnership
governance action of Buyer. This Agreement has been duly executed and delivered
by Buyer and is the valid and binding obligations of Buyer enforceable against
Buyer in accordance with its terms, except to the extent that enforceability may
be subject to applicable bankruptcy, insolvency, reorganization, moratorium and
similar laws affecting the enforcement of creditors' rights generally and by
general equitable principles.
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6.2 NO VIOLATIONS. The execution, delivery and performance of this
Agreement by Buyer and the consummation by Buyer of the transactions
contemplated hereby will not, with or without the giving of notice or the lapse
of time or both, (a) violate, conflict with, or result in a breach or default
under any provision of the certificate of limited partnership or agreement of
limited partnership of Buyer; (b) violate any statute, ordinance, rule,
regulation, order, judgment or decree of any Governmental Authority applicable
to Buyer or by which any of its properties or assets may be bound; (c) require
any filing by Buyer with, or require Buyer to obtain any permit, consent or
approval of, or require Buyer to give any notice to, any Governmental Authority
or any third party other than the Commission; or (d) result in a violation or
breach by Buyer of, conflict with, constitute (with or without due notice or
lapse of time or both) a default by Buyer (or give rise to any right of
termination, cancellation, payment or acceleration) under, or result in the
creation of any Encumbrance upon any of the properties or assets of Buyer
pursuant to, any of the terms, conditions or provision of any note, bond,
mortgage, indenture, permit, contract, lease or other instrument or obligation
to which Buyer is a party, or by which it or any of its properties or assets may
be bound except for first lien rights granted Buyers bank related to the
financing of the purchase of the Business.
6.3 BROKER'S OR FINDER'S FEES. No Person acting on behalf of Buyer is,
or will be, entitled to any fee, commission or broker's or finder's fee in
connection with this Agreement or any of the transactions contemplated hereby.
ARTICLE VII
CONDITIONS TO SELLER'S OBLIGATIONS
The obligations of Seller under this Agreement to sell, or cause to be
sold, the Assets and to consummate the other transactions contemplated hereby
shall be subject to the satisfaction (or waiver by Seller) on or prior to the
Closing Date of all of the following conditions:
7.1 TRUTH OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Buyer contained in this Agreement shall be true and correct in all
material respects on and as of the Closing Date with the same effect as though
such representations and warranties had been made on and as of the Closing Date,
and Buyer shall have delivered to Seller on the Closing Date a certificate of an
authorized officer of Buyer, dated the Closing Date, to such effect.
7.2 PERFORMANCE OF AGREEMENTS. Each and all of the agreements and
covenants of Buyer to be performed on or before the Closing Date pursuant to the
terms hereof, including all deliveries and obligations at Closing, shall have
been duly performed in all material respects, and Buyer shall have delivered to
Seller a certificate of an authorized officer of Buyer, dated the Closing Date,
to such effect and evidencing the incumbency of all officers executing any
documents in connection with the Closing.
7.3 NO LITIGATION THREATENED. No action or proceedings shall have been
instituted before any Governmental Authority to restrain or prohibit any of the
transactions contemplated hereby, and Buyer shall have delivered to Seller a
certificate of an authorized officer of Buyer, dated the Closing Date, to such
effect to the best knowledge of such officer.
7.4 PROCEEDINGS. All proceedings, including but not limited to a
Fairness Opinion and the approval of the transactions contemplated hereby by the
stockholders of the Seller (the "REQUISITE STOCKHOLDER APPROVAL"), to be taken
in connection with the transactions contemplated by this Agreement and all
documents incident thereto shall be reasonably satisfactory in form and
substance to Seller and its counsel, and Seller shall have received copies of
all such documents and other evidence as it or its counsel may reasonably
request in order to establish the consummation of such transactions and the
taking of all proceedings in connection therewith.
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ARTICLE VIII
CONDITIONS TO BUYER'S OBLIGATIONS
The obligations of Buyer under this Agreement to purchase the Assets
and to consummate the other transactions contemplated hereby shall be subject to
the satisfaction (or waiver by Buyer) on or prior to the Closing Date of all of
the following conditions:
8.1 TRUTH OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Seller contained herein shall be true and correct in all material
respects on the Closing Date with the same effect as though such representations
and warranties had been made on and as of the Closing Date, and Seller shall
have delivered to Buyer on the Closing Date a certificate of an authorized
representative of Seller, dated the Closing Date, to such effect.
8.2 PERFORMANCE OF AGREEMENTS. Each and all of the agreements and
covenants of Seller to be performed on or before the Closing Date pursuant to
the terms hereof, including all deliveries and obligations at Closing, shall
have been duly performed in all material respects, and Seller shall have
delivered to Buyer a certificate of an authorized representative of Seller,
dated the Closing Date, to such effect and evidencing the incumbency of all
officers executing any documents in connection with the Closing.
8.3 NO LITIGATION THREATENED. No action or proceedings shall have been
instituted before any Governmental Authority to restrain or prohibit any of the
transactions contemplated hereby, and Seller shall have delivered to Buyer a
certificate of an authorized representative of Seller, dated the Closing Date,
to such effect to the best knowledge of such officer.
8.4 CONSENTS. Each of the consents referred to on SCHEDULE 5.3 attached
hereto shall have been obtained.
8.5 PROCEEDINGS. All proceedings to be taken in connection with the
transactions contemplated by this Agreement and all documents incident thereto
shall be reasonably satisfactory in form and substance to Buyer and its counsel,
and Buyer shall have received copies of all such documents and other evidence as
it or its counsel may reasonably request in order to establish the consummation
of such transactions and the taking of all proceedings in connection therewith.
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ARTICLE IX
COVENANTS OF SELLER
Seller hereby covenants and agrees with Buyer as follows:
9.1 COOPERATION BY SELLER. Seller shall use its reasonable best efforts
to cooperate with Buyer to secure all necessary consents, approvals (including
FCC Approvals), authorizations, exemptions and waivers from third parties as
shall be required in order to enable Seller to affect the transactions
contemplated hereby, and Seller shall otherwise use its reasonable best efforts
to cause the consummation of such transactions in accordance with the terms and
conditions hereof and to cause all conditions contained in this Agreement over
which it has control to be satisfied. Seller further agrees to deliver to Buyer
prompt written notice of any event or condition known to or discovered by
Seller, which if it existed on the date of this Agreement or on the Closing
Date, would result in any of the representations and warranties of Seller
contained herein being untrue in any material respect. In addition, Seller shall
cooperate with Buyer and shall use its reasonable best efforts to assist Buyer
in obtaining the proper renewal or replacement of the Permits identified on
SCHEDULE 5.10.
9.2 NOTICE OF BREACHES. Seller shall deliver to Buyer prompt written
notice of any event or condition actually known to or discovered by Seller,
which, if it existed on the date of this Agreement or on the Closing Date, would
result in any of the representations and warranties of Seller contained herein
being untrue in any material respect. Upon the discovery and subsequent notice
of such an event or condition, Buyer and Seller shall be entitled to the rights
and remedies set forth in SECTION 12.1.
9.3 CONDUCT OF BUSINESS. Except as Buyer may otherwise consent to in
writing, between the date hereof and the Closing Date, Seller shall, (a) conduct
the Business only in the ordinary course, (b) use reasonable efforts to keep
available the services of its employees and maintain its current relationships
with licensors, suppliers, lessors, distributors, customers, clients and others,
(c) maintain, consistent with past practice and good business judgment, all of
the Assets in customary repair, order and condition, ordinary wear and tear
excepted, and insurance upon all of the Assets used in the conduct of the
Business in such amounts and of such kinds comparable to that in effect on the
date hereof, to the extent available at current premiums, and (d) maintain the
Books and Records in the usual, regular and ordinary manner, on a basis
consistent with past practice.
9.4 [INTENTIONALLY DELETED]
9.5 [INTENTIONALLY DELETED]
9.6 NEGATIVE COVENANTS OF SELLER. From and after the date hereof and
through the Closing Date and except with the specific prior written consent of
Buyer, Seller covenants and agrees as follows:
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(a) Seller shall not sell, transfer or dispose of any of the Assets
other than in the ordinary course of business; provided, however, that any sale,
transfer or disposition of any Assets in the ordinary course of business shall
not exceed Assets valued at more than $5,000;
(b) Seller shall not grant an Encumbrance (except a Permitted
Encumbrance) on any of the Assets or allow any such Encumbrance (except a
Permitted Encumbrance) to occur or to be created;
(c) Except in the ordinary course of business, Seller shall not acquire
any tangible properties or assets relating to the Business;
(d) Seller shall not enter into any employment and/or any independent
contractor agreements relating to services to be rendered in connection with the
Business or any of the Assets except in the ordinary course of business or the
prior approval of Buyer;
(e) Except in the ordinary course of business, Seller shall not amend,
modify or terminate, without the prior written consent of Buyer, any of the
Contracts, Leases or other agreements, if any, to be assumed by Buyer hereunder;
(f) Seller shall not incur any indebtedness for which any of the Assets
are, or may be, subject to any Encumbrance or claim, either express or implied;
(g) Seller shall not enter into any undertaking to furnish services for
any consideration other than money with respect to the operation of the Assets;
(h) Seller shall not forgive, discharge or write off any debts or
receivables owing to Seller in connection with the Business, including but not
limited to those Accounts Receivable listed on SCHEDULE 2.1(T);
(i) Seller shall not incur any Accounts Payable except in the ordinary
course of Business, consistent with the historical operation of the Business;
and
(j) Seller shall pay all Accounts Payable when due, in accordance with
the ordinary course of the Business.
9.7 EXCLUSIVE DEALING. During the period from the date of this
Agreement to the earlier of the Closing Date or the termination of this
Agreement, Seller shall not take any action, directly or indirectly, to
encourage, initiate or engage in discussions or negotiations with, or provide
any information to, any Person other than Buyer, concerning any sale of the
Assets or any material part thereof or a similar transaction involving Seller.
9.8 REVIEW OF THE ASSETS. Seller agrees that Buyer may, prior to the
Closing Date, through its representatives, review (a) the Assets, (b) the
complete working papers of Seller's certified public accountants used in their
preparation of financial statements for Seller and (c) the Books and Records of
Seller and otherwise review the financial and legal condition of Seller as Buyer
deems necessary or advisable to familiarize itself with the Business and related
matters; such review shall not, however, affect the representations and
warranties made by Seller hereunder or the remedies of Buyer for breaches of
those representations and warranties. Buyer may also, prior to the Closing Date,
through its representatives, inspect any or all of Seller's towers and other
transmitting facilities. Such review and inspection shall occur only during
normal business hours upon reasonable notice by Buyer. Seller shall permit Buyer
and its representatives to have, after the execution of this Agreement, full
access to employees of Seller who can furnish Buyer with financial and operating
data and other information with respect to the Business as Buyer shall from time
to time reasonably request.
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9.9 GOVERNMENTAL FILINGS. It is expressly acknowledged and agreed that,
as soon as practicable after the execution of this Agreement, but in no event
more than fifteen (15) Business Days from the date hereof, Buyer and Seller
shall file any forms required by the Commission to transfer the Assets. Seller
agrees that it will cooperate with Buyer in all respects in connection with such
filings and in connection with any requests for information or further filings
which may be necessary in order to obtain the necessary consents (or to allow
the applicable time periods to expire) with respect thereto. Seller shall
deliver to Buyer and its counsel drafts of such filings by Seller and all other
materials to be submitted sufficiently in advance of any such submission so that
Buyer and its counsel may review and comment upon such filings and other
materials. It is further agreed that (a) as soon as reasonably practicable, but
in no event more than fifteen (15) Business Days after the Closing Date, Buyer
and Seller shall file any forms required by the Commission to transfer the
Subsequent Permits; provided that notwithstanding the provisions of SECTION
11.1, Buyer and Seller shall undertake the Closing prior to the grant of the FCC
Approvals of the assignment of the Subsequent Permits, and (b) as soon as
reasonably practicable, but in no event more than fifteen (15) Business Days
after the Closing Date, Buyer and Seller shall amend any Pending Applications to
replace Seller with Buyer as the proposed licensee.
9.10 USE OF NAME. Seller hereby agrees that, after the Closing Date,
Seller shall discontinue all use of any trade or assumed names used by Seller in
the Business prior to the Closing Date, alone or in any combination of words for
any purpose whatsoever, excluding, however, Seller's corporate name "Teletouch
Communications, Inc.", "Teletouch", "Teletouch Licenses, Inc." and the names
"Visao Systems, Inc" and "Visao." Seller specifically grants Buyer an exclusive
right to the name Teletouch Paging, or a Seller approved derivative thereof, for
use only in the provision of paging services.
9.11 FURTHER ASSURANCES. At any time or from time to time after the
Closing Date, Seller shall, at the reasonable request of Buyer and at Buyer's
expense, execute and deliver any further instruments or documents and take all
such further action as Buyer may reasonably request in order to consummate and
make effective the sale of the Assets and the assumption of the Assumed
Obligations pursuant to this Agreement.
9.12 BANK ACCOUNT; CUSTOMER PAYMENTS. No later than three (3) Business
Days following the Closing Date, Seller shall instruct BankOne to forward all
deposits in Seller's lockbox to an account established by Buyer. Buyer shall
forward to Seller any checks or other payments received by Buyer that are not
associated with the Accounts Receivable purchased hereunder, including the
applicable portion of any payments on joint accounts. Seller shall provide Buyer
with bank statements and any additional information reasonably requested by
Buyer for Buyer to assure Seller's compliance with this section.
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ARTICLE X
COVENANTS OF BUYER
Buyer hereby covenants and agrees with Seller as follows:
10.1 COOPERATION BY BUYER. Buyer will use its reasonable best efforts,
and will cooperate with Seller, to secure all necessary consents, approvals,
authorizations, exemptions and waivers from third parties as shall be required
in order to enable Buyer to effect the transactions contemplated on its part
hereby, and Buyer will otherwise use its reasonable best efforts to cause and
consummation of such transactions in accordance with the terms and conditions
hereof and to cause all conditions contained in this Agreement over which it has
control to be satisfied.
10.2 BOOKS AND RECORDS; PERSONNEL. At all times after the Closing Date,
Buyer shall allow Seller and any agents of Seller, upon reasonable advance
notice to Buyer, access to all Books and Records of Seller which are transferred
to Buyer in connection herewith, to the extent necessary or desirable in
anticipation of, or preparation for, existing or future litigation, employment
matters, tax returns or audits, or reports to or filings with any Governmental
Authorities, during normal working hours at the location where such Books and
Records are maintained, and Seller shall have the right, at Seller's sole cost,
to make copies of any such Books and Records. Buyer agrees to maintain all Books
and Records acquired from Seller for a period of six years from the Closing Date
unless such Books and Records are transferred and delivered to Seller within
such six (6) year period.
10.3 [INTENTIONALLY DELETED]
10.4 FURTHER ASSURANCES. At any time or from time to time after the
Closing Date, Buyer shall, at the request of Seller and at Seller's expense,
execute and deliver any further instruments or documents and take all such
further action as Seller may reasonably request in order to consummate and make
effective the sale of the Assets and the assumption of the Assumed Obligations
pursuant to this Agreement.
10.5 GOVERNMENTAL FILINGS. It is expressly acknowledged and agreed
that, as soon as practicable after the execution of this Agreement, but in no
event more than fifteen (15) Business Days from the date hereof, Buyer and
Seller shall file any forms required by the Commission to authorize the transfer
of the Assets. Buyer agrees that it will cooperate with Seller in all respects
in connection with such filings and in connection with any requests for
information or further filings which may be necessary in order to obtain the
necessary consents (or to allow the applicable time periods to expire) with
respect thereto. Buyer shall deliver to Seller and its counsel drafts of such
filings by Buyer and all other materials to be submitted sufficiently in advance
of any such submission so that Seller and its counsel may review and comment
upon such filings and other materials.
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ARTICLE XI
THE CLOSING
11.1 TIME AND PLACE; EFFECTIVE DATE. The closing of the transactions
contemplated by this Agreement (the "CLOSING") will take place at 9:00 a.m. at
the offices of Teletouch Communications Inc., 1913 Deerbrook Dr. Tyler, Texas
75703, on the last day of the month in which the Requisite Stockholder Approval
is obtained or at such other time, at such other place or on such other date as
the parties hereto may mutually agree. The date on which the Closing occurs is
herein referred to as the "CLOSING DATE" and the transactions contemplated by
this Agreement shall be deemed to be effective as of 12:01 a.m. on the Closing
Date.
11.2 SELLER'S OBLIGATIONS. At the Closing, Seller shall deliver to
Buyer, against delivery of the items specified in SECTION 11.3:
(a) bills of sale, assumptions and other instruments of transfer,
assignment and conveyance in form and substance reasonably satisfactory to Buyer
sufficient to (i) transfer to and effectively vest in Buyer all right, title and
interest in the Assets together with possession of the Assets free and clear of
all Encumbrances except Permitted Encumbrances, and (ii) transfer to Buyer no
later than five (5) days prior to the Closing Date, all rights, title and
interest in and to the Permits;
(b) certified copies of the Articles of Incorporation, Bylaws and Good
Standing and Existence Certificates of Seller;
(c) the Noncompetition and Nonsolicitation Agreement;
(d) a License Agreement granting to Buyer a limited license to use of
the name "TeleTouch Paging," (the "LICENSE AGREEMENT"), which license shall be
limited to use by Buyer and cannot be sold or assigned without the express
written permission of Seller, which shall not be unreasonably withheld;
(e) a sublease agreement subleasing to Buyer space in Seller's Tyler,
Texas for six months following Closing (the "SUBLEASE");
(f) all Books and Records (or acceptable facsimiles thereof) which have
been requested by Buyer hereunder, including all Assigned Contracts;
(g) the certifications required by SECTIONS 8.1, 8.2 and 8.3 which may
be contained in one certificate;
(h) the consents to assignment of the Assigned Contracts as required by
SECTION 8.4;
(i) a blanket letter to Seller's lessors with respect to the office
Leases and Communications Sites, notifying such lessors of the assignment of the
office Leases and Leases of such Communications Sites pursuant to this
Agreement;
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(j) a joint letter to the customers of the Business notifying such
customers of the purchase of the Business by Buyer; and
(k) such other instruments, documents and certificates in form and
substance reasonably satisfactory to Buyer, as Buyer shall have reasonably
required.
11.3 BUYER'S OBLIGATIONS. At the Closing, Buyer shall deliver to
Seller, against delivery of the items specified in SECTION 11.2:
(a) a wire transfer for the total of the Cash Payment ;
(b) the Promissory Note;
(c) the License Agreement;
(d) the Sublease;
(e) a blanket letter to Seller's lessors with respect to the office
Leases and Communications Sites, notifying such lessors of the assignment of the
office Leases and Leases of such Communications Sites pursuant to this
Agreement; and
(f) the certifications required by SECTIONS 7.1, 7.2 and 7.3, which may
be contained in one certificate.
11.4 TRANSFER OF PERMITS.
(a) GOVERNMENTAL APPROVALS. With respect to Seller's licenses issued by
the Commission, such licenses shall not be transferred until all governmental
consents and approvals necessary to permit the consummation of the transactions
contemplated by this Agreement shall have been received, including, but not
limited to, all necessary approvals of the Commission ("FCC APPROVALS") and
until such FCC Approvals shall be final and nonappealable. All Permits requiring
such approvals for transfer are hereinafter referred to collectively as the
"REGULATED PERMITS."
(b) TRANSFER OF REGULATED PERMITS. Notwithstanding any provision of
this Agreement to the contrary, Seller shall assign all of their respective
rights, title and interest in and to the Regulated Permits on the first business
day following the date on which the parties receive evidence of final and
nonappealable FCC Approvals with respect to Seller's licenses issued by the
Commission. Seller shall deliver to Buyer on such date the evidence referenced
in this SECTION 11.4.
11.5 POSSESSION. Simultaneous with the consummation of the transfers
contemplated herein, Seller, through its officers, agents and employees, shall
put Buyer in full possession and enjoyment of all Assets to be conveyed and
transferred by this Agreement.
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ARTICLE XII
TERMINATION
12.1 TERMINATION. This Agreement may be terminated and the transactions
contemplated hereby may be abandoned at any time on or prior to the Closing
Date:
(a) by the mutual written consent of Buyer and Seller;
(b) by either party on or after the 10th day following receipt of
Requisite Stockholder Approval, if the Closing has not occurred by such date,
provided that as of such date neither party is in default or that both parties
are in default under this Agreement;
(c) by Seller in writing if (i) the Requisite Stockholder Approval has
not been obtained by September 30, 2005 or (ii) the Requisite Stockholder
Approval is obtained but 5% or more of the outstanding shares of capital stock
of Seller vote against the proposed transaction and have asserted their
dissenters rights;
(d) by Buyer or Seller in writing, without prejudice to other rights
and remedies which the terminating party may have (provided the terminating
party is not otherwise in material default or breach of this Agreement, or has
failed or refused to close without justification hereunder), if the other party
shall (i) materially fail or have failed to perform its covenants or agreements
contained herein required to be performed on or prior to the Closing Date, or
(ii) materially breach or have breached any of its representations or warranties
contained herein.
(e) by Buyer in writing without penalty following the occurrence of any
event that has a material adverse impact on the Business and the Assets, taken
as a whole.
(f) by Buyer or Seller in writing if the parties cannot agree on a
Management Agreement by August 31, 2005.
12.2 EFFECT ON OBLIGATIONS. Termination of this Agreement pursuant to
this Article shall terminate all obligations of the parties hereunder, except
for (i) SECTIONS 13.1, 13.2, 13.9, 13.10 and 13.11 and Buyer's remedies under
ARTICLE XII hereof. Upon any termination of this Agreement each party hereto
will redeliver all documents, work papers and other material of any other party
relating to the transactions contemplated hereby, and all copies of such
materials, whether so obtained before or after the execution hereof, to the
party furnishing the same.
12.3 LIMITED TERMINATION RIGHT RELATING TO SCHEDULES. Each party agrees
that certain of the schedules to this Agreement will be provided by Seller on or
prior to September 1, 2005, and that Seller shall have the continuing obligation
until the Closing Date to supplement or amend promptly such schedules with
respect to any matter hereafter arising or discovered which, if existing or
known at the date of this Agreement, would have been required to be set forth or
described in the schedules hereto. Upon Buyer's receipt of (a) any schedule
delivered by Seller on or prior to September 1, 2005 or (b) any amendment or
supplement to a schedule thereafter delivered by Seller (any schedule or any
amendment or supplement to a schedule referenced in item (a) or (b) being
referred to as a "SUPPLEMENTAL DISCLOSURE"), Buyer will have five (5) Business
Days after receipt (the "TERMINATION PERIOD") in which to review the
Supplemental Disclosure. If (x) any Supplemental Disclosure relating to Seller's
representations and warranties under ARTICLE V discloses facts that have had or
could reasonably be expected to result, individually or in the aggregate, in a
Material Adverse Effect on the Business and the Assets, taken as a whole, or (y)
any other Supplemental Disclosure contains items that are materially different
than the items that were represented by Seller during Buyer's due diligence
investigation as items to be disclosed on the relevant schedule and such
difference represents a material adverse impact of more than $50,000.00 on the
Business and the Assets, taken as a whole, Buyer may terminate this Agreement by
delivering a termination notice to the Seller within the Termination Period. The
termination notice must identify the specific facts in the Supplemental
Disclosure which give rise to Buyer's termination right. Such termination shall
be Buyer's sole remedy with respect to the content of the Supplemental
Disclosure. If a termination notice is not received within the Termination
Period, the relevant schedules will be deemed, for all purposes, to be provided
or supplemented as described in the Supplemental Disclosure as of the date
hereof and to be binding on Buyer and Seller.
55
ARTICLE XIII
SURVIVAL AND INDEMNIFICATION
13.1 INDEMNIFICATION OF SELLER. Buyer shall indemnify and hold Seller,
its officers, directors, shareholders, agents, Affiliates, successors and
permitted assigns (the "SELLER INDEMNITIES") harmless from and against any and
all damages, including exemplary damages and penalties, losses, deficiencies,
costs, expenses, obligations, fines, expenditures, claims and liabilities,
including reasonable counsel fees and reasonable expenses of investigation,
defending and prosecuting litigation (collectively, the "DAMAGES"), suffered by
Seller Indemnities as a result of, caused by, arising out of, or in any way
relating to (a) any misrepresentation, breach of warranty, or nonfulfillment of
any agreement or covenant on the part of Buyer under this Agreement or (b) any
liability or obligation (other than the Excluded Liabilities or any other
liabilities or obligations for which Buyer is being indemnified by Seller
hereunder) which pertains to the ownership, operation or conduct of the Business
or Assets arising from any acts, omissions, events, conditions or circumstances
occurring on or after the Closing Date, including, but not limited to, Buyer's
failure to perform any of the Assumed Obligations.
13.2 INDEMNIFICATION OF BUYER. Seller shall indemnify and hold Buyer,
its officers, directors, partners, agents, Affiliates, successors and permitted
assigns (the "BUYER INDEMNITIES") harmless from and against any and all Damages
suffered by Buyer Indemnities as a result of, caused by, arising out of, or in
any way relating to (a) any misrepresentation, breach of warranty,
nonfulfillment of any agreement or covenant on the part of Seller under this
Agreement or (b) any liability or obligation (other than those for which Seller
is being indemnified by Buyer hereunder and other than the Assumed Obligations)
which pertains to the ownership, operation or conduct of the Business or Assets
arising from any acts, omissions, events, conditions or circumstances occurring
before the Closing Date and (c) the Excluded Liabilities.
13.3 DEMANDS. Each indemnified party hereunder agrees that promptly
upon its discovery of facts giving rise to a claim for indemnity under the
provisions of this Agreement, including receipt by it of notice of any demand,
assertion, claim, action or proceeding, judicial or otherwise, by any third
party (such third party actions being collectively referred to herein as the
"Claim"), with respect to any matter as to which it claims to be entitled to
indemnity under the provisions of this Agreement, it will give prompt notice
thereof in writing to the indemnifying party, together with a statement of such
information respecting any of the foregoing as it shall have. Such notice shall
include a formal demand for indemnification under this Agreement. The
indemnifying party shall not be obligated to indemnify the indemnified party
with respect to any Claim if the indemnified party knowingly failed to notify
the indemnifying party thereof in accordance with the provisions of this
Agreement in sufficient time to permit the indemnifying party or its counsel to
defend against such matter and to make a timely response thereto including,
without limitation, any responsive motion or answer to a complaint, petition,
notice or other legal, equitable or administrative process relating to the
Claim, only insofar as such knowing failure to notify the indemnifying party has
actually resulted in prejudice or damage to the indemnifying party.
56
13.4 RIGHT TO CONTEST AND DEFEND. The indemnifying party shall be
entitled at its cost and expense to contest and defend by all appropriate legal
proceedings any Claim with respect to which it is called upon to indemnify the
indemnified party under the provisions of this Agreement; provided, that notice
of the intention to contest shall be delivered by the indemnifying party to the
indemnified party within twenty (20) days from the date of receipt by the
indemnifying party of notice by the indemnified party of the assertion of the
Claim. Any such contest may be conducted in the name and on behalf of the
indemnifying party or the indemnified party as may be appropriate. Such contest
shall be conducted by reputable counsel employed by the indemnifying party, but
the indemnified party shall have the right but not the obligation to participate
in such proceedings and to be represented by counsel of its own choosing at its
sole cost and expense. The indemnifying party shall have full authority to
determine all action to be taken with respect thereto; provided, however, that
the indemnifying party will not have the authority to subject the indemnified
party to any obligation whatsoever, other than the performance of purely
ministerial tasks or obligations not involving material expense. If the
indemnifying party does not elect to contest any such Claim, the indemnifying
party shall be bound by the result obtained with respect thereto by the
indemnified party, having used its reasonable best efforts in resolution. At any
time after the commencement of the defense of any Claim, the indemnifying party
may request the indemnified party to agree in writing to the abandonment of such
contest or to the payment or compromise by the indemnified party of the asserted
Claim, whereupon such action shall be taken unless the indemnified party
determines that the contest should be continued, and so notifies the
indemnifying party in writing within fifteen (15) days of such request from the
indemnifying party. If the indemnified party determines that the contest should
be continued, the indemnifying party shall be liable hereunder only to the
extent of the amount that the other party to the contested Claim had agreed
unconditionally to accept in payment or compromise as of the time the
indemnifying party made its request therefore to the indemnified party.
13.5 COOPERATION. If requested by the indemnifying party, the
indemnified party agrees to cooperate with the indemnifying party and its
counsel in contesting any Claim that the indemnifying party elects to contest
or, if appropriate, in making any counterclaim against the person asserting the
Claim, or any cross-complaint against any person, and the indemnifying party
will reimburse the indemnified party for any expenses incurred by it in so
cooperating. If the indemnifying party has not chosen to contest a Claim, the
indemnifying party shall cooperate with the indemnified party and its counsel in
contesting any Claim at no cost or expense to the indemnified party.
57
13.6 RIGHT TO PARTICIPATE. The indemnified party agrees to afford the
indemnifying party and its counsel the opportunity to be present at, and to
participate in, conferences with all persons, including Governmental
Authorities, asserting any Claim against the indemnified party or conferences
with representatives of or counsel for such persons.
13.7 PAYMENT OF DAMAGES. The indemnifying party shall pay to the
indemnified party in immediately available funds any amounts to which the
indemnified party may become entitled by reason of the provisions of this
Agreement subject to offset for any insurance proceeds actually received by the
indemnified party, such payment to be made within five days after any such
amounts are finally determined either by mutual agreement of the parties hereto
or pursuant to the final unappealable judgment of a court of competent
jurisdiction. The availability of insurance proceeds shall not delay or postpone
any indemnification payment required hereunder. If the indemnified party both
collects any such insurance proceeds and receives a payment from the
indemnifying party hereunder, and the sum of such proceeds and payment is in
excess of the amount payable with respect to the matter that is the subject of
the indemnity, then the indemnified party shall promptly refund to the
indemnifying party the amount of such excess, if permitted by the applicable
insurance policies. Except as otherwise provided in the preceding sentence, the
indemnified party's receipt of any such insurance proceeds shall not eliminate
or reduce the obligations of the indemnifying party or the rights of the
indemnified party hereunder. Any amount payable to Buyer Indemnities by Seller
pursuant to this ARTICLE XIII shall, if not promptly paid by Seller, be paid and
discharged in the form of a reduction in the principal amount of the Promissory
Note as evidenced by a written statement executed by Seller, with such reduction
being applied to installments of the first maturing principal.
13.8 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties contained in ARTICLES V and VI of this Agreement shall survive
until the second anniversary date of the Closing Date.
13.9 LIMITATIONS. No party will be required to make any indemnification
under this ARTICLE XIII with respect to any Damages suffered by Buyer
Indemnities or Seller Indemnities, as applicable, unless the aggregate of such
Damages exceed $50,000.00. Notwithstanding any other provision of this Agreement
to the contrary, the aggregate indemnification obligations of any party hereto
shall in no event exceed 25% of the Purchase Price.
13.10 SOLE REMEDY. Indemnification under this ARTICLE XIII shall be the
sole and exclusive remedy of the parties with respect to Damages resulting from
the breach of any representation, warranty or covenant in this Agreement.
58
13.11 GENERAL. THE INDEMNIFICATION AND ASSUMPTION PROVISIONS PROVIDED
FOR IN THIS AGREEMENT HAVE BEEN EXPRESSLY NEGOTIATED IN EVERY DETAIL, ARE
INTENDED TO BE GIVEN FULL AND LITERAL EFFECT, AND SHALL BE APPLICABLE WHETHER OR
NOT THE LIABILITIES, OBLIGATIONS, CLAIMS, JUDGMENTS, LOSSES, COSTS, EXPENSES OR
DAMAGES IN QUESTION ARISE OR AROSE SOLELY OR IN PART FROM THE GROSS, ACTIVE,
PASSIVE OR CONCURRENT NEGLIGENCE, STRICT LIABILITY, OR OTHER FAULT OF ANY
INDEMNIFIED PARTY. BUYER AND SELLER ACKNOWLEDGE THAT THIS STATEMENT COMPLIES
WITH THE EXPRESS NEGLIGENCE RULE AND CONSTITUTES CONSPICUOUS NOTICE. NOTHING IN
THIS CONSPICUOUS NOTICE IS INTENDED TO PROVIDE OR ALTER THE RIGHTS AND
OBLIGATIONS OF THE PARTIES, ALL OF WHICH ARE SPECIFIED ELSEWHERE IN THIS
AGREEMENT.
ARTICLE XIV
MISCELLANEOUS
14.1 NOTICES. Any notice, request, instruction, correspondence or other document
to be given hereunder by either party to the other (herein collectively called
"NOTICE") shall be in writing and delivered in person or by courier service
requiring acknowledgment of receipt of delivery or mailed by certified mail,
postage prepaid and return receipt requested, or by telecopier, as follows:
IF TO SELLER, ADDRESSED TO:
Thomas A. "Kip" Hyde
5718 Airport Freeway
Fort Worth, Texas 76117
IF TO BUYER, ADDRESSED TO:
Robert Albritton
7471 Benbrook Parkway
Benbrook, Texas 76126
Notice given by personal delivery, courier service or mail shall be effective
upon actual receipt. Notice given by telecopier shall be confirmed by
appropriate answer back and shall be effective upon actual receipt if received
during the recipient's normal business hours, or at the beginning of the
recipient's next Business Day after receipt if not received during the
recipient's normal business hours. All Notices by telecopier shall be confirmed
promptly after transmission in writing by certified mail or personal delivery.
Any party may change any address to which Notice is to be given to it by giving
Notice as provided above of such change of address.
14.2 GOVERNING LAW. The provisions of this Agreement shall be governed
by and construed and enforced in accordance with the laws of the State of Texas
(excluding any conflicts-of-law rule or principle that might refer same to the
laws of another jurisdiction).
14.3 ARBITRATION. If any dispute, controversy or claim (referred to
collectively as a "DISPUTE") of any kind or character arises by or among the
Parties which cannot be amicably resolved, then at the written demand of any one
Party to the others, the Dispute shall be fully and finally resolved by
arbitration in Dallas County, Texas before a single arbitrator mutually
acceptable to and selected by the Parties and otherwise in accordance with the
Commercial Arbitration Rules of the American Arbitration Association ("AAA"). If
no prompt agreement can be reached among the Parties concerning the identity of
the arbitrator, then the sole arbitrator shall be selected in accordance with
the applicable AAA Rules.
14.4 ENTIRE AGREEMENT; AMENDMENTS AND WAIVERS. This Agreement
(including the exhibits and schedules hereto) constitutes the entire agreement
between the parties hereto pertaining to the subject matter hereof and supersede
all prior agreements, understandings, negotiations and discussions, whether oral
or written, of the parties, and there are no warranties, representations or
other agreements between the parties in connection with the subject matter
hereof except as set forth specifically herein or contemplated hereby. No
supplement, modification or waiver of this Agreement shall be binding unless
executed in writing by the party to be bound thereby. The failure of a party to
exercise any right or remedy shall not be deemed or constitute a waiver of such
right or remedy in the future. No waiver of any of the provisions of this
Agreement shall be deemed or shall constitute a waiver of any other provision
hereof (regardless of whether similar), nor shall any such waiver constitute a
continuing waiver unless otherwise expressly provided.
59
14.5 BINDING EFFECT AND ASSIGNMENT. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
permitted successors and assigns; but neither this Agreement nor any of the
rights, benefits or obligations hereunder shall be assigned, by operation of law
or otherwise, by Seller or Buyer without the prior written consent of the other
party. Seller hereby specifically consents to the assignment, at the election of
Buyer and in connection with the FCC Approvals to be obtained as a condition of
Closing, of all Permits of Seller issued by the Commission and subject to
assignment and/or transfer from Seller to Buyer pursuant to the Agreement may be
transferred and assigned to either Buyer, or any other wholly-owned subsidiary
of Buyer. Nothing in this Agreement, express or implied, is intended to confer
upon any person or entity other than the parties hereto and their respective
permitted successors and assigns, any rights, benefits or obligations hereunder.
14.6 SEVERABILITY. If any provision of the Agreement is rendered or
declared illegal or unenforceable by reason of any existing or subsequently
enacted legislation or by decree of a court of last resort, Buyer and Seller
shall promptly meet and negotiate substitute provisions for those rendered or
declared illegal or unenforceable so as to preserve as nearly as possible the
contemplated economic effects of the transactions, but all of the remaining
provisions of this Agreement shall remain in full force and effect.
14.7 HEADINGS. The headings of the sections herein are inserted for
convenience of reference only and are not intended to be a part of or to affect
the meaning or interpretation of this Agreement.
14.8 EXECUTION. This Agreement may be executed in multiple counterparts
each of which shall be deemed an original and all of which shall constitute one
instrument.
14.9 SALES AND TRANSFER TAXES. Seller shall be responsible for and pay
any applicable sales, stamp, transfer, documentary, use, filing and other taxes
and fees (including any penalties and interest) that may become due or payable
in connection with this Agreement and the transactions contemplated hereby.
Notwithstanding the foregoing, Buyer shall be responsible for the payment of any
transfer taxes and registrations applicable to the transfer of the Vehicles and
the Permits. Seller shall be responsible for a 8/12th fraction, and Buyer shall
be responsible for the remaining 4/12ths fraction, of any AD VALOREM personal
property taxes assessed with respect to the Assets during the 2005 calendar
year.
60
14.10 EXPENSES. Except as otherwise provided in this Agreement, Seller
and Buyer shall each pay all costs and expenses incurred by them or on their
behalf in connection with this Agreement and the transactions contemplated
hereby.
14.11 PUBLICITY. Except as otherwise required by applicable laws or
regulations (including, without limitation, the federal securities laws), Seller
and Buyer shall cooperate in the issuance of press releases or other public
statements, in each case relating to or connected with or arising out of this
Agreement or the matters contained herein, and shall not unreasonably withhold
approval as to the contents and the manner of presentation and publication
thereof.
14.12 CONFIDENTIALITY. Prior to the Closing Date, neither Buyer nor
Seller will disclose the terms of this Agreement or the acquisition contemplated
hereby to any person other than their respective directors, officers, agents or
representatives, except (a) as otherwise provided herein, (b) as may be required
in connection with obtaining the Requisite Stockholder Approval or (c) as
required by law (including, without limitation, the federal securities laws).
The Seller may make appropriate disclosures of the general nature of the
acquisition to its employees, vendors and customers to protect the goodwill of
the Business and to facilitate the Closing. Buyer may disclose pertinent
information regarding the acquisition to existing and prospective investors,
lenders, or investment bankers or financial advisors for the purpose of
obtaining debt and/or equity financing, and may describe this Agreement and the
transactions contemplated hereby in any offering document with respect to
securities of the Buyer, and may include this Agreement as an exhibit thereto.
14.13 LEGAL REPRESENTATION. Each of the parties hereby acknowledges
that it has been afforded the opportunity to review and discuss this Agreement
and the other documents and instruments contemplated to be delivered in
connection with this Agreement with independent, qualified legal, accounting and
other relevant professional advisors. Buyer hereby acknowledges that Bracewell &
Giuliani LLP has acted as counsel solely for Seller and has explicitly
recommended that Buyer seek the advice of Buyer's legal counsel in connection
with the review of this Agreement.
61
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
executed on its behalf as of the date first above written.
TELETOUCH COMMUNICATIONS, INC.
By: /S/ THOMAS A. HYDE, JR.
----------------------------------------
Thomas A. "Kip" Hyde, Jr.
Chief Executive Officer
TELETOUCH PAGING, LP
By: /S/ ROBERT ALBRITTON
----------------------------------------
Robert Albritton
Chief Executive Officer
62
APPENDIX B
FIRST AMENDMENT TO THE ASSET PURCHASE AGREEMENT
THIS FIRST AMENDMENT TO THE ASSET PURCHASE AGREEMENT (this "AMENDMENT")
is made effective as of the 30th day of December, 2005 by and between Teletouch
Communications, Inc. (the "SELLER") and Teletouch Paging, LP (the "BUYER").
Capitalized terms not defined in this Amendment shall have the meanings set
forth in the Agreement (as defined below).
RECITALS:
WHEREAS, the Buyer and the Seller entered into an Asset Purchase
Agreement, dated as of August 18, 2005 (the "AGREEMENT") in connection with the
sale of the paging business assets of the Seller to the Buyer; and,
WHEREAS, the Buyer and the Seller now desire to amend the Agreement.
NOW THEREFORE, for valuable consideration, the receipt and adequacy of which are
expressly acknowledged, accepted and agreed, the Buyer and the Seller hereby
agree and consent, that Section 3.1 AMOUNT; DELIVERY of the Agreement shall be
amended and restated in its entirety and shall read as follows:
"Section 3.1(a) AMOUNT; DELIVERY. In addition to Buyer's assumption of
the Assumed Obligations, Buyer shall pay to Seller the consideration as follows
(the "Purchase Price"), subject to adjustment as provided in Section 3.3 hereof,
which Purchase Price shall be remitted by Buyer to Seller in the following
manner:
(a) $4,000,000 in cash (the "Cash Payment") to Seller on the Closing
Date (subject to adjustment as provided further in this clause (a)), all of
which shall be paid by check or by wire transfer of immediately available funds
to an account of Seller as designated in writing by Seller to Buyer not more
than three (3) Business Days prior to the Closing Date or at such other date and
time as may be agreed upon by both parties. The Cash Payment will be (1) reduced
by the amount of the Earnings Before Interest, Taxes, Depreciation and
Amortization ("EBITDA") of the Business beginning September 1, 2005 through the
Closing Date determined in accordance with Seller's current GAAP and business
management practices (e.g. monthly recognition of deferred revenue), (2) reduced
by an amount equal to the lesser of (A) the amount, if any, by which the
interest earned on the escrowed funds referenced below during the period between
August 31, 2005 and the Closing is less than the imputed interest on such
escrowed funds for the same period, calculated at the prime rate of interest
quoted in the Wall Street Journal on August 31, 2005 plus 1% or (B) $10,000.00
and (3) increased by the amount of any approved cash capital expenditures
incurred by the Business from September 1, 2005 through the Closing Date;
PROVIDED, however, that in no event shall the Cash Payment contemplated under
Section 3.1 hereof, after giving the effect of the allowable adjustments set
forth hereinabove, be more or less than $2,200,000.
The calculation of EBITDA will reflect a reduction of earnings
attributable to payment of the management fees paid pursuant to Article IV.
Simply as evidence that Buyer has funds available to make the Cash Payment at
Closing, on or before August 31, 2005, Buyer shall deposit the Cash Payment in
an escrow account pursuant to an escrow agreement in form and substance
satisfactory to both Buyer and Seller.
63
(b) A non-interest bearing promissory note (the "Promissory
Note") in the amount of $1,200,000.00 as evidenced by a copy of such Promissory
Note attached hereto as EXHIBIT A. The Promissory Note shall be secured by a
lien on the Assets subject to customary subordination provisions required by
Buyer's senior lender.
The Buyer hereby agrees to prepay the amount owed under the Promissory
Note in whole at the Closing by paying $1,200,000.00 (the "Note Prepayment") to
the Seller. The Seller agrees to cancel the Promissory Note and to discharge the
Buyer's obligations owed to the Seller thereunder upon receipt of the Note
Prepayment."
This Amendment is acknowledged and agreed to this 30th day of December,
2005.
TELETOUCH PAGING, LP
A Limited Partnership
By: /S/ ROBERT ALBRITTON
- -----------------------------------------
Name: Robert Albritton
Title: Chief Executive Officer
TELETOUCH COMMUNICATIONS, INC.
A Delaware Corporation
By: /S/ THOMAS HYDE, JR.
- -----------------------------------------
Name: Thomas Hyde, Jr.
Title: Chief Executive Officer
Date: December 30, 2005
64
APPENDIX C
TELETOUCH COMMUNICATIONS INC.
PRO FORMA PRESENTATION
In regard to the proposed transaction described in Proposal 1 of this
proxy, pro forma information has been provided as follows:
o Pro forma condensed consolidated balance sheet as at August
31, 2005.
o Pro forma statements of operations for the three months ended
August 31, 2004 and 2005, and for the years ended May 31,
2003, 2004 and 2005.
The pro forma information presents Teletouch's statements of operations
and balance sheet as they would have appeared if the proposed transaction had
closed on the financial statement dates, and therefore as if the operations,
assets and liabilities relating to the APA had not been included in the
operations, assets and liabilities of the periods reported.
The pro forma financial information is not necessarily indicative of
the results that would have occurred if the business disposition had occurred on
the dates indicated, or of the results which may occur in the future. Management
undertakes no obligation and does not intend to update, revise or otherwise
publicly release any revisions to this pro forma information to reflect events
or circumstances after the date hereof or to reflect the occurrence of any
unanticipated events.
As discussed in our Current Report on Form 10-K for the year ended May
31, 2005, filed with the SEC on November 8, 2005, a portion of the consideration
for this purchase is in the form of a note receivable that is subordinate to the
buyer's senior lender. Additionally, the cash portion of the consideration for
this transaction which was contemplated to be $4.0 million as of September 1,
2005 is reduced by the earnings before interest, taxes, depreciation and
amortization ("EBITDA") of the paging business through the closing date. Because
of delays encountered in submitting this transaction for shareholder vote the
closing has been delayed longer than anticipated this portion of the
consideration is expected to be reduced to approximately $2.2 million based on
the projected EBITDA of the paging business through the closing date which is
estimated to be March 2, 2006.
On December 30, 2005, the payment terms of the APA were amended. The
amendment to the APA limits the reductions that can be taken against the cash
portion of the consideration to ensure that this portion of the consideration is
$2.2 million and provides that the $1.2 million note payable will be prepaid at
closing. Therefore, the total cash consideration payable to the Company at the
closing will be $3.4 million and the promissory note will be cancelled.
In addition to stockholder approval, this transaction is subject to
regulatory approvals. There is no certainty, if stockholder approval is obtained
for the transaction described in Proposal 1, that the transaction will close,
due to the uncertainties referenced above.
65
Adjustments to the Statements of Operations of Teletouch
Communications, Inc. do not include the loss or closing costs relating the
transaction described in Proposal 1 nor do they include the recognition of the
unamortized portion of the gain on the sale / leaseback transaction that the
Company entered into in 1997 or the accretion on certain redeemable common stock
warrants issued by the Company in 2002. The recognition of the gain on the sale
/ leaseback transaction will be accelerated upon the closing of the sale of the
paging business because the buyer will be assuming the Company's remaining
obligations under these leases. The adjustment for the unearned sale / leaseback
profit is shown only in the attached Balance Sheet as a reduction in the
deferred gain liability recorded related to this leaseback transaction. The
recognition of this gain will only be recorded after the buyer has assumed the
Company's lease obligations in accordance with the terms of the APA. The
redeemable common stock warrants contain a provision that allows their
redemption to be accelerated upon the sale of significantly all the assets of
the Company. The accretion of the redeemable common stock warrants is shown only
in the pro forma balance sheet and represents the potential acceleration of the
redemption value of these warrants that could be triggered upon the sale of the
paging business. As discussed in the notes to the pro forma financial
statements, the Company has presented the full amount that could become due
under the redeemable common stock warrants if the ongoing negotiations with the
warrant holders to reduce this current portion of this liability are
unsuccessful. Robert McMurrey, Chairman of Teletouch, controls approximately 92%
of the outstanding common stock of Teletouch and has informed the Company of his
intent to vote against the sale transaction if negotiations with the warrant
holders are unsuccessful which would result in no acceleration of this
obligation due from the Company.
66
Teletouch Communications, Inc.
Pro Forma Condensed Consolidated Balance Sheet
as of August 31, 2005
(in thousands)
Pro Forma
August 31, 2005 Adjustments Pro Forma
(unaudited) (unaudited) (unaudited)
------------------------------ --------------
CURRENT ASSETS:
Cash and cash equivalents 1,172 3,416 a,b 4,588
Accounts receivable, net of allowance of $112 in fiscal 2006 1,342 (581) b 761
Inventories, net of reserve of $183 in fiscal 2006 869 (302) b 567
Current income tax receivable 652 - 652
Deferred income tax assets 77 - 77
Prepaid expenses and other current assets 302 (69) b 233
------------------------------ --------------
Total Current Assets 4,414 2,464 6,878
------------------------------ --------------
PROPERTY, PLANT AND EQUIPMENT, net of
accumulated depreciation of $15,846 in fiscal 2006 5,102 (3,873) a 1,229
------------------------------ --------------
GOODWILL 343 - 343
OTHER INTANGIBLE ASSETS:
Subscriber bases 226 (114) a 112
FCC licenses 103 - 103
Non-compete agreements 95 - 95
Internally-developed software 149 - 149
Accumulated amortization (296) 114 a (182)
------------------------------ --------------
Total Other Intangible Assets 277 - 277
------------------------------ --------------
DEFERRED INCOME TAXES 98 - 98
------------------------------ --------------
TOTAL ASSETS 10,234 (1,409) 8,825
============================== ==============
CURRENT LIABILITIES:
Accounts payable 1,090 - 1,090
Accrued Expenses and other current liabilities 1,706 (215) b 1,491
Current portion of long-term debt 86 (21) a 65
Current portion of redeemable common stock purchase warrants - 3,000 c 3,000
Current portion of redeemable common stock payable 266 - 266
Current portion of unearned sale/leaseback profit 418 (418) d 0
Deferred revenue 838 (721) b 117
------------------------------ --------------
Total Current Liabilities 4,404 1,625 6,029
------------------------------ --------------
LONG-TERM LIABILITIES:
Long-term debt, net of current portion 108 (25) a 83
Redeemable common stock purchase warrants 2,196 (2,196) c -
Redeemable common stock payable, net of current portion 64 - 64
Unearned sale/leaseback profit, net of current portion 534 (534) d -
------------------------------ --------------
Total long-term liabilities 2,902 (2,755) 147
------------------------------ --------------
TOTAL LIABILITIES 7,306 (1,130) 6,176
------------------------------ --------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY :
Series A cumulative convertible preferred stock,
$.001 par value, 15,000 shares authorized and 0 shares
issued and outstanding in fiscal 2006
- - -
Series B convertible preferred stock, $.001 par value,
411,457 shares authorized 0 shares issued and outstanding in fiscal 2006
- - -
Series C convertible preferred stock, $.001 par value, 1,000,000
shares authorized, issued and outstanding in fiscal 2006
1 - 1
Common stock, $.001 par value, 70,000,000 shares
authorized and 5,416,189 shares issued in fiscal 2006
5 - 5
Additional paid-in capital 31,977 - 31,977
Treasury Stock, 537,959 shares held in fiscal 2006 (185) - (185)
Accumulated deficit (28,870) (279) a,c,d (29,149)
------------------------------ --------------
Total Shareholders' Equity 2,928 (279) 2,649
------------------------------ --------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 10,234 (1,409) 8,825
============================== ==============
67
NOTE 1
- ------
The pro forma information presents Teletouch's balance sheet as it would have
appeared if the APA had closed on the balance sheet date presented. Adjustments
to the balance sheet are as follows:
a. The removal of the property, plant and equipment and
intangible assets related to the paging business and the
removal of the assigned liabilities related to the sale of the
paging business. The assigned liabilities are related to notes
payable on certain vehicles that are used directly in the
paging business. The approximate loss on this transaction as
of August 31, 2005 is calculated below and is reflected as an
increase to accumulated deficit in the balance sheet shown
above:
($ in 000's)
Consideration:
Cash $ 3,400
Assigned liabilities 46
-----------
Total consideration 3,446
Assets Sold:
Property, plant and equipment, net 3,873
Subscriber bases, net -
-----------
Total assets sold 3,873
Loss on sale of assets $ (427)
b. The removal of certain defined working capital items
contemplated under the APA. The excess working capital as
defined in the APA at August 31, 2005 is approximately $20,000
which is to be paid to Teletouch Communications, Inc. by the
Buyer. The components of the defined working capital are as
follows:
($ in 000's)
CURRENT ASSETS SOLD:
Cash and cash equivalents $ 4
Accounts receivable 581
Inventories 302
Prepaid expenses and other current assets 69
---------
Total Current Assets 956
CURRENT LIABILITIES ASSUMED:
Accrued Expenses and other current liabilities 215
Deferred revenue 721
---------
Total Current Liabilities
936
Working Capital Surplus / Cash Due to Teletouch $ 20
c. As a result of certain rights contained in 6,000,000
redeemable common stock warrants (the "GM Warrants") issued by
the Company as part of its debt and equity restructuring in
2002, the redemption of these warrants can be accelerated upon
a sale of substantially all of the assets of the Company. The
holders of the GM Warrants notified the Company of their
intent to redeem these warrants immediately upon the sale of
the paging business. Robert M. McMurrey, Chairman of Teletouch
controls approximately 92% of the outstanding common stock as
of the date hereof and is in negotiations with the holders of
the GM Warrants to reduce the total amount due upon the
68
closing. If unsuccessful in his negotiations, Mr. McMurrey
will not vote for the sale of the paging business which would
result in no acceleration of the redemption of these warrants.
As of August 31, 2005, the Company had recorded $2.2 million
of the $3.0 million redemption value of the GM Warrants. Since
issuance, the Company has accreted the value of the warrants
toward their full redemption value over their original term
which matures in December 2007. Because of the acceleration
rights contained in the warrants, the Company has increased
the liability due under the GM Warrants by $804,000 to the
full $3.0 million and reclassified it as a current liability
in the above pro forma financial statement to help the reader
understand the impact if the sale transaction proceeds without
any negotiated settlement on this obligation. The $804,000
accretion in this liability is also presented as an increase
to accumulated deficit above.
d. The removal of the deferred gain on a certain sale / leaseback
transaction entered into in 1997 by the Company. Upon the sale
of the paging business and the assumption by the Buyer of the
Company's obligations under these leases, the Company will
recognize the remainder of this deferred gain. As of August
31, 2004 the unrecognized portion of the deferred gain was
approximately $952,000 which reduces accumulated deficit
above.
The pro forma financial information is not necessarily indicative of the results
which would have occurred if the business disposition had occurred on the date
indicated, or of the results which may occur in the future.
69
Teletouch Communications, Inc.
Pro Forma Condensed Consolidated Statement of Operations
for the three months ended August 31, 2004
(in thousands)
As Reported Pro Forma
August 31, 2004 Adjustments Pro Forma
(unaudited) (unaudited) Note 1 (unaudited)
----------------------------------- ------------
Operating revenues:
Service, rent, and maintenance revenue 5,342 ($ 4,870) a $ 472
Product sales revenue 1,103 (188) a $ 915
----------------------------------- ------------
Total operating revenues 6,445 (5,058) 1,387
----------------------------------- ------------
Operating expenses:
Cost of service, rent and maintenance
(exclusive of depreciation and amortization included below) 2,782 (2,343) a 439
Cost of products sold 998 (360) a 638
Selling and general and administrative 1,971 (688) a 1,283
Depreciation and amortization 905 (772) a 133
Gain on disposal of assets (54) 53 a (1)
----------------------------------- ------------
Total operating expenses 6,602 (4,110) 2,492
----------------------------------- ------------
Operating loss (157) (948) (1,105)
Interest expense, net (103) 1 a (102)
----------------------------------- ------------
Loss before income tax benefit (260) (947) (1,207)
Income tax benefit (38) (322) (360)
----------------------------------- ------------
Loss from continuing operations ($ 222) ($ 625) ($ 847)
=================================== ============
Basic and diluted loss per share $ (0.05) $ (0.14) $ (0.19)
=================================== ============
Denominator for basic and diluted loss per share - weighted
average number of common shares outstanding 4,546,980 4,546,980
============ ============
NOTE 1
- ------
The pro forma information presents Teletouch's statement of operations as it
would have appeared if the operations relating to the APA had not been included
in the operations of the period presented. Adjustments to the statement of
operations are as follows:
a. The operations of the paging business were removed as if the
transaction occurred on the first day of the reported period. No
adjustments are included for the anticipated book loss on the sale of
the assets or for the expected non-cash gain related to the recognition
of the unamortized portion of certain sale / leaseback profits.
The pro forma financial information is not necessarily indicative of the results
which would have occurred if the business disposition had occurred on the date
indicated, or of the results which may occur in the future.
70
Teletouch Communications, Inc.
Pro Forma Condensed Consolidated Statement of Operations
for the three months ended August 31, 2005
(in thousands)
As Reported Pro Forma
August 31, 2005 Adjustments Pro Forma
(unaudited) (unaudited) Note 1 (unaudited)
----------------------------------- ------------
Operating revenues:
Service, rent, and maintenance revenue $ 4,579 ($ 4,061) a $ 518
Product sales revenue 919 (116) a $ 803
----------------------------------- ------------
Total operating revenues 5,498 (4,177) 1,321
----------------------------------- ------------
Operating expenses:
Cost of service, rent and maintenance (exclusive of
depreciation and amortization included below) 2,651 (1,929) a 722
Cost of products sold 673 (75) a 598
Selling and general and administrative 1,730 (554) a 1,176
Depreciation and amortization 761 (608) a 153
Gain on disposal of assets (1) (8) a (9)
----------------------------------- ------------
Total operating expenses 5,814 (3,174) 2,640
----------------------------------- ------------
Operating loss (316) (1,003) (1,319)
Interest expense, net (115) 1 a (114)
----------------------------------- ------------
Loss from continuing operations ($ 431) ($ 1,002) ($ 1,433)
=================================== ============
Basic and diluted loss per share $ (0.09) $ (0.20) $ (0.29)
=================================== ============
Denominator for basic and diluted loss per share -
weighted average number of common shares outstanding 4,880,558 4,880,558
============ ============
NOTE 1
- ------
The pro forma information presents Teletouch's statement of operations as it
would have appeared if the operations relating to the APA had not been included
in the operations of the period presented. Adjustments to the statement of
operations are as follows:
a. The operations of the paging business were removed as if the
transaction occurred on the first day of the reported period. No
adjustments are included for the anticipated book loss on the sale of
the assets or for the expected non-cash gain related to the recognition
of the unamortized portion of certain sale / leaseback profits
The pro forma financial information is not necessarily indicative of the results
which would have occurred if the business disposition had occurred on the date
indicated, or of the results which may occur in the future.
71
Teletouch Communications, Inc.
Pro Forma Condensed Consolidated Statement of Operations
for year ended May 31, 2003
(in thousands)
As Reported Pro Forma
May 31, 2003 Adjustments Pro Forma
(unaudited) (unaudited) (unaudited)
----------------------------------- ------------
Operating revenues:
Service, rent, and maintenance revenue $ 27,929 ($ 26,497) a $ 1,432
Product sales revenue 6,893 (5,059) a 1,834
----------------------------------- ------------
Total operating revenues 34,822 (31,556) 3,266
----------------------------------- ------------
Operating expenses:
Cost of service, rent and maintenance
(exclusive of depreciation and amortization included below) 14,460 (12,858) a 1,602
Cost of products sold 5,315 (4,046) a 1,269
Selling and general and administrative 11,007 (6,613) a 4,394
Depreciation and amortization 4,665 (4,295) a 370
Loss on disposal of assets 253 (147) a 106
Write-off of equipment 810 (810) a -
----------------------------------- ------------
Total operating expenses 36,510 (28,769) 7,741
----------------------------------- ------------
Operating loss (1,688) (2,787) (4,475)
Gain on extinguishment of debt 510 - 510
Gain on litigation settlement 429 - 429
Interest expense, net (384) - (384)
----------------------------------- ------------
Loss before income tax (benefit) (1,133) (2,787) (3,920)
Income tax (benefit) (372) (947) (1,319)
----------------------------------- ------------
Net loss (761) (1,840) (2,601)
Gain on preferred stock transaction 28,778 - 28,778
Participation rights of Series C
Preferred Stock in undistributed earnings (23,580) - (23,580)
----------------------------------- ------------
Net income (loss) applicable to common shareholders $ 4,437 (1,840) 2,597
=================================== ============
Earnings (loss) per share - basic:
Earnings (loss) applicable to common shareholders $ 0.96 $ (0.40) $ 0.56
=================================== ============
Earnings (loss) per share - diluted:
Earnings (loss) applicable to common shareholders $ 0.30 $ (0.02) $ 0.28
=================================== ============
Weighted average shares outstanding-basic 4,644,978 4,644,978
============ ============
Weighted average shares outstanding-diluted 92,053,503 92,053,503
============ ============
NOTE 1
- ------
The pro forma information presents Teletouch's statement of operations as it
would have appeared if the operations relating to the APA had not been included
in the operations of the period presented. Adjustments to the statement of
operations are as follows:
72
a. The operations of the paging business were removed as if the
transaction occurred on the first day of the reported period. No
adjustments are included for the anticipated book loss on the sale of
the assets or for the expected non-cash gain related to the recognition
of the unamortized portion of certain sale / leaseback profits
The pro forma financial information is not necessarily indicative of the results
which would have occurred if the business disposition had occurred on the date
indicated, or of the results which may occur in the future.
73
Teletouch Communications, Inc.
Pro Forma Condensed Consolidated Statement of Operations
for year ended May 31, 2004
(in thousands)
As Reported Pro Forma
May 31, 2004 Adjustments Pro Forma
(unaudited) (unaudited) Note 1 (unaudited)
----------------------------------- ------------
Operating revenues:
Service, rent, and maintenance revenue $ 23,192 ($ 21,717) a $ 1,475
Product sales revenue 3,562 (1,183) a 2,379
----------------------------------- ------------
Total operating revenues 26,754 (22,900) 3,854
----------------------------------- ------------
Operating expenses:
Cost of service, rent and maintenance
(exclusive of depreciation and amortization included below) 11,025 (9,331) a 1,694
Cost of products sold 3,184 (1,396) a 1,788
Selling and general and administrative 8,613 (3,235) a 5,378
Depreciation and amortization 3,726 (3,313) a 413
Loss (gain) on disposal of assets 372 (41) a 331
----------------------------------- ------------
Total operating expenses 26,920 (17,316) 9,604
----------------------------------- ------------
Operating loss (166) (5,584) (5,750)
Interest expense, net (357) 4 a (353)
----------------------------------- ------------
Loss before income tax expense (benefit) (523) (5,580) (6,103)
Income tax expense (benefit) 60 (1,897) (1,837)
----------------------------------- ------------
Loss from continuing operations (583) (3,683) (4,266)
Basic and diluted loss per share $ (0.12) $ (0.82) $ (0.94)
=================================== ============
Weighted average shares outstanding-basic and diluted 4,546,980 4,546,980
============ ============
NOTE 1
- ------
The pro forma information presents Teletouch's statement of operations as it
would have appeared if the operations relating to the APA had not been included
in the operations of the period presented. Adjustments to the statement of
operations are as follows:
a. The operations of the paging business were removed as if the
transaction occurred on the first day of the reported period. No
adjustments are included for the anticipated book loss on the sale of
the assets or for the expected non-cash gain related to the recognition
of the unamortized portion of certain sale / leaseback profits
The pro forma financial information is not necessarily indicative of the results
which would have occurred if the business disposition had occurred on the date
indicated, or of the results which may occur in the future.
74
Teletouch Communications, Inc.
Pro Forma Condensed Consolidated Statement of Operations
for year ended May 31, 2005
(in thousands)
As Reported Pro Forma
May 31, 2005 Adjustments Pro Forma
(unaudited) (unaudited) Note 1 (unaudited)
----------------------------------- ------------
Operating revenues:
Service, rent, and maintenance revenue $ 19,922 ($ 18,034) a $ 1,888
Product sales revenue 4,747 (731) a 4,016
----------------------------------- ------------
Total operating revenues 24,669 (18,765) 5,904
----------------------------------- ------------
Operating expenses:
Cost of service, rent and maintenance
(exclusive of depreciation and amortization included below) 10,852 (9,129) a 1,723
Cost of products sold 4,273 (1,161) a 3,112
Selling and general and administrative 8,449 (2,463) a 5,986
Depreciation and amortization 3,218 (2,687) a 531
Impairment of goodwill 551 - 551
Loss on disposal of assets 1,019 (731) a 288
----------------------------------- ------------
Total operating expenses 28,362 (16,171) 12,191
----------------------------------- ------------
Operating loss (3,693) (2,594) (6,287)
Interest (expense) income, net (432) 4 a (428)
----------------------------------- ------------
Loss before income tax (benefit) (4,125) (2,590) (6,715)
Income tax (benefit) (673) (880) (1,553)
----------------------------------- ------------
Loss from continuing operations ($ 3,452) ($ 1,710) ($ 5,162)
=================================== ============
Basic and diluted loss per share $ (0.75) $ (0.37) $ (1.12)
=================================== ============
Weighted average shares outstanding-basic and diluted 4,623,164 4,623,164
============ ============
NOTE 1
- ------
The pro forma information presents Teletouch's statement of operations as it
would have appeared if the operations relating to the APA had not been included
in the operations of the period presented. Adjustments to the statement of
operations are as follows:
a. The operations of the paging business were removed as if the
transaction occurred on the first day of the reported period. No
adjustments are included for the anticipated book loss on the sale of
the assets or for the expected non-cash gain related to the recognition
of the unamortized portion of certain sale / leaseback profits
The pro forma financial information is not necessarily indicative of the results
which would have occurred if the business disposition had occurred on the date
indicated, or of the results which may occur in the future.
75
APPENDIX D
MANAGEMENT AGREEMENT
--------------------
THIS AGREEMENT, made this 31st day of August, 2005, by and between
Teletouch Communications, Inc., a corporation organized under the laws of the
State of Delaware and Teletouch Licenses, Inc., a corporation organized under
the laws of the State of Delaware, with their principal place of business at
1913 Deerbrook Drive, Tyler, Texas 75703 (collectively, hereinafter referred to
as "Carrier"), and Teletouch Paging, LP, a limited partnership organized under
the laws of the State of Texas with its principal place of business at 7471
Benbrook Parkway, Benbrook, Texas 76126 (hereinafter referred to as "Agent"),
WITNESSETH:
WHEREAS, Carrier is the permittee and/or licensee of certain stations
(including any subsequently authorized stations within designated areas of the
State of Texas) authorized by the Federal Communications Commission (FCC) to
operate paging transmitters in the VHF/UHF bands as well as various control and
link transmitters throughout the states of Texas, Oklahoma, Missouri, Arkansas,
Louisiana, Mississippi, Alabama and Tennessee (hereinafter referred to as "the
Stations"); and
WHEREAS, Carrier and Agent have reached a definitive agreement for the
purchase and sale of certain assets, including the assignment of certain FCC
radio licenses by Carrier to Agent upon prior FCC approval; and
WHEREAS, Carrier and Agent mutually agree that it would be to their
joint convenience and benefit, and to the benefit of the public subscribers of
the Stations, to have Agent act for and on behalf of Carrier in performing
various duties with respect to the operation of the Stations specified herein,
as a compensated agent of, and under the direct control and supervision of,
Carrier; and
WHEREAS, the parties wish to embody the terms of this arrangement in
the instant Management Agreement.
NOW, THEREFORE, in consideration of the covenants, obligations and
benefits hereinafter set forth, and other good and valuable consideration, it is
agreed between Carrier and Agent as follows:
1. DUTIES OF AGENT. Carrier hereby engages Agent as his contractor and
agent to perform for and on behalf of Carrier all marketing, managerial and
administrative functions required for the operation of the Stations, including
the collection of revenues and payment of expenses (including, but not limited
to insurance) from operating the Stations, subject to the supervisory powers and
duties of Carrier described in paragraph 2 of this Agreement, and the warranties
contained in paragraph 3 herein. Agent shall remit to Carrier all profits from
the operation of the Stations, after paying the expenses of operating the
Stations from the revenues collected. Agent shall manage the business consistent
with current Carrier policies and practice. Any deviations from such policies
and practice would require approval of Carrier.
76
2. DUTIES AND POWERS OF CARRIER. The right of ownership of the
Stations, and full control and supervision over the operation of the Stations,
remains vested in and is hereby expressly retained by Carrier. To this end,
Carrier expressly retains full control over and responsibility for all decisions
with regard to the following matters affecting operation of the Stations: 1)
policy decisions regarding operation and maintenance; 2) the payment of all
financial obligations and operating expenses; 3) the hiring, supervision, and
dismissal of all employees; 4) the receipt of all revenues and profits from
operation of the Stations; 5) the handling of customer complaints; 6) the
preparation and filing with the FCC of any applications for construction permits
for additional facilities, licenses for constructed facilities, or modification
of existing construction permits or licenses; and 7) compliance with all FCC
rules, regulations and requirements. Furthermore, Carrier expressly retains the
right to complete and unfettered access to and control over all facilities and
equipment associated with the Stations.
3. WARRANTIES OF AGENT.
(a) Agent hereby acknowledges and affirms that it fully accepts the
supervisory powers and duties, as well as the right of ownership and access,
retained by Carrier in paragraph 2 of this Agreement, and warrants that it will
undertake no action contrary to or jeopardizing those rights, powers and duties.
(b) Agent warrants that it will fully and faithfully observe and abide
by any instructions given to it by Carrier regarding the matters set forth in
paragraph 2 of this Agreement; will use its best efforts to ensure the continued
provision of service to the customers of the Stations at a high level of
quality; will exercise a reasonable standard of care normally exercised by
managers in similar circumstances; will comply with all applicable federal,
state and local laws, regulations and ordinances.
4. COMPENSATION. Agent shall receive, as compensation for the services
to be provided under the terms of this Agreement, the sum of $50,000 per month,
payable in two equal installments of $25,000 on the 1st and 16th day of each
month during the term of this Agreement if the Closing under that certain Asset
Purchase Agreement has not occurred on or prior to the date such payment is due,
starting with the 16th day of the first full month in which service to the
public is provided under the management of Agent.
5. INDEMNIFICATION.
(a) Agent shall hold Carrier harmless from any liability to the extent
that such liability arises from Agent's negligent and/or intentional acts or
omissions. Agent agrees to indemnify Carrier against, and reimburse Carrier with
respect to, any and all losses, liabilities, costs, or damages (including
reasonable attorneys' fees) arising from Agent's grossly negligent acts or
omissions of any kind, and/or any acts or omissions of Agent which are not
authorized by this Management Agreement.
77
(b) Carrier shall hold Agent harmless from any liability to the extent
that such liability arises from Carrier's negligent and/or intentional acts or
omissions. Carrier agrees to indemnify Agent against, and reimburse Agent with
respect to, any and all losses, liabilities, costs, or damages (including
reasonable attorney's fees) arising from Carrier's grossly negligent acts or
omissions of any kind.
6. TERM. This Agreement shall last for a term of one year; provided,
however, that the Agreement may be terminated by either party at any time upon
30 days notice; and provided that this Agreement will automatically expire upon
the grant of the FCC's consent to the assignment of the licenses with respect to
the above-described facilities by Carrier to Agent, and the timely consummation
of such transaction, in which case the expiration of this Agreement will occur
on the date of consummation of the transaction contemplated by the parties.
During the effective period of this Agreement, Carrier and Agent each shall have
the option to renew this Agreement for an additional four (4) terms of one (1)
year each, provided such renewal is mutually agreeable to the other party.
7. MISCELLANEOUS PROVISIONS.
(a) No provision of this Agreement shall be construed as vesting in
Agent any ownership interest in or ultimate control over the Station.
(b) Nothing in this Agreement shall be construed so as to make Agent an
employee of Carrier. Any other provisions of this Agreement notwithstanding,
Agent is not and shall not be a joint venturer or partner of or with Carrier.
(c) This Agreement shall be construed in accordance with and governed
by the laws of the State of Texas.
(d) This Agreement constitutes the entire Agreement of the parties,
superseding all previous agreements on this subject. Any amendment or
modification hereof shall be in writing executed by both parties hereto.
(e) This Agreement may be executed in counterparts, all of which shall
constitute one agreement, binding on all the parties hereto, notwithstanding
that all of the parties are not signatories to the original or to the same
counterpart.
(f) Severability -- The parties intend every provision of this
Agreement to be severable. In the event at a provision of this Agreement is held
to be illegal, invalid, or unenforceable for any reason, the parties intend that
a court enforce the provision to the maximum extent permissible so as to effect
the intent of the parties (including the enforcement of the remaining
provisions). If necessary to affect the intent of the parties, the parties will
negotiate in good faith to amend this Agreement to replace the unenforceable
provision with an enforceable provision that reflects the original intent of the
parties.
IN WITNESS HEREOF the parties have caused this Agreement to be executed
and to be effective on the day and year first above written.
78
TELETOUCH COMMUNICATIONS, INC.
TELETOUCH LICENSES, INC.
By: /s/ THOMAS A. HYDE, JR.
-------------------------------
Chief Executive Officer
TELETOUCH PAGING, L.P.
By: /s/ ROBERT ALBRITTON
-------------------------------
General Partner
79