AGREEMENT AND PLAN OF MERGER
by and among
PEGASUS COMMUNICATIONS CORPORATION,
PEACH STATE SATELLITE TELEVISION, INC.
VIEWSTAR ENTERTAINMENT SERVICES, INC.
and
▇▇▇▇▇▇ ▇. ▇▇▇▇▇
--------------------------------
Dated as of November 7, 1997
--------------------------------
495543.1
Table of Contents
ARTICLE I
DEFINITIONS............................... 1
1.1 Certain Definitions...................................................... 1
1.2 Other Definitions........................................................ 5
ARTICLE II
BASIC TRANSACTION............................. 7
2.1 Merger; Surviving Corporation............................................ 7
2.2 Certificate of Incorporation............................................. 7
2.3 By-Laws.................................................................. 7
2.4 Directors and Officers................................................... 7
2.5 Effective Time........................................................... 7
2.6 Conversion of Company Shares............................................. 7
2.7 Exchange of Certificates; Termination of Options......................... 8
2.8 Delivery of Closing Allocation Statement; Merger Consideration........... 8
2.9 Manner of Payment........................................................ 9
2.10 Closing................................................................. 9
2.11 Transactions at Closing................................................. 9
2.12 Final Allocation Statement............................................. 10
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND THE MAJORITY SHAREHOLDER.................................. 11
3.1 Organization and Qualification........................................... 11
3.2 Capitalization........................................................... 11
3.3 Authority and Validity................................................... 11
3.4 No Breach or Violation................................................... 12
3.5 Consents and Approvals................................................... 12
3.6 Title to Assets.......................................................... 12
3.7 Intellectual Property.................................................... 12
3.8 Compliance with Legal Requirements....................................... 13
3.9 Financial Information.................................................... 13
3.10 Subsequent Events....................................................... 13
3.11 Undisclosed Liabilities................................................. 14
3.12 Legal Proceedings....................................................... 14
3.13 Taxes................................................................... 14
3.14 Employee Benefits; Employees............................................ 14
3.15 Contracts............................................................... 16
3.16 Books and Records; Accounts Receivable.................................. 17
3.17 Business Information.................................................... 17
3.18 Insurance............................................................... 17
3.19 Disclosure.............................................................. 18
3.20 Brokers or Finders...................................................... 18
3.21 Certain Payments........................................................ 18
3.22 Subscribers............................................................. 19
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3.23 Securities Matters..................................................... 19
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PEGASUS AND MERGER SUB.................... 20
4.1 Organization and Qualification...........................................20
4.2 Authority and Validity...................................................20
4.3 No Breach or Violation...................................................21
4.4 Consents and Approvals...................................................21
4.5 Legal Proceedings........................................................21
4.6 Capitalization...........................................................22
4.7 Financial Information....................................................22
4.8 Brokers or Finders.......................................................22
4.9 Compliance with Legal Requirements.......................................22
4.10 Undisclosed Liabilities................................................ 22
4.11 Disclosure............................................................. 22
ARTICLE V
PRE-CLOSING COVENANTS OF THE COMPANY AND THE MAJORITY SHAREHOLDER
5.1 Additional Information...................................................23
5.2 Exclusivity..............................................................23
5.3 Continuity and Maintenance of Operations.................................23
5.4 Consents and Approvals...................................................24
5.5 Adoption by Shareholders.................................................24
5.6 Securities Filings.......................................................25
5.7 Notification of Certain Matters..........................................25
5.8 Supplements to Schedules.................................................25
5.9 Removal of Encumbrances..................................................25
5.10 Duty of Good Faith and Fair Dealing.................................... 26
5.11 Shareholder Investment Representations................................. 26
ARTICLE VI
PRE-CLOSING COVENANTS OF PEGASUS AND MERGER SUB............................. 26
6.1 Consents and Approval................................................... 26
6.2 Duty of Good Faith and Fair Dealings.................................... 26
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF PEGASUS AND MERGER SUB............... 27
7.1 Accuracy of Representations............................................. 27
7.2 Covenants............................................................... 27
7.3 Consents................................................................ 27
7.4 Delivery of Documents................................................... 27
7.5 No Material Adverse Change.............................................. 28
7.6 No Litigation........................................................... 29
7.7 NRTC Compliance Certificate............................................. 29
7.8 Dissenters' Rights...................................................... 29
7.9 Fairness Opinion........................................................ 29
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ARTICLE VIII
CONDITIONS PRECEDENT TO OBLIGATIONS
OF THE COMPANY AND THE MAJORITY SHAREHOLDER.................................. 29
8.1 Accuracy of Representations.............................................. 29
8.2 Covenants................................................................ 29
8.3 Consents................................................................. 30
8.4 Delivery of Documents.................................................... 30
8.5 Litigation............................................................... 30
8.6 No Material Adverse Change............................................... 30
8.7 Payoff of Loans.......................................................... 31
ARTICLE IX
POST-CLOSING COVENANTS......................... 31
9.1 Transition............................................................... 31
9.2 Employee Matters......................................................... 31
9.3 Taxes.................................................................... 31
9.4 Financial Statements..................................................... 31
9.5 Second Generation Rights................................................. 31
ARTICLE X
TERMINATION............................................ 32
10.1 Events of Termination................................................... 32
10.2 Liabilities in Event of Termination..................................... 32
10.3 Procedure Upon Termination.............................................. 32
ARTICLE XI
REMEDIES FOR BREACH OF THIS AGREEMENT...................................... 32
11.1 Survival of Representations and Warranties.............................. 32
11.2 Indemnification Provisions for Benefit of Pegasus....................... 33
11.3 Indemnification Provisions for Benefit of the Company................... 34
11.4 Matters Involving Third Parties......................................... 34
11.5 Determination of Adverse Consequences................................... 35
ARTICLE XII
MISCELLANEOUS................................ 35
12.1 Parties Obligated and Benefited........................................ 35
12.2 Notices................................................................ 36
12.3 Attorneys' Fees........................................................ 36
12.4 Headings............................................................... 37
12.5 Choice of Law.......................................................... 37
12.6 Rights Cumulative...................................................... 37
12.7 Further Actions........................................................ 37
12.8 Time of the Essence.................................................... 37
12.9 Late Payments.......................................................... 37
12.10 Counterparts.......................................................... 37
12.11 Entire Agreement...................................................... 37
12.12 Amendments and Waivers................................................ 37
12.13 Construction.......................................................... 37
12.14 Expenses.............................................................. 38
12.15 Disclosure............................................................ 38
12.16 Consent............................................................... 38
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12.18 Reliance.............................................................. 38
495543.1
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Exhibits
Exhibit 1 Service Areas
Exhibit 2 Noncompetition Agreement
Exhibit 3 Stockholders' Agreement
Exhibit 4 DGCL Certificate of Merger
Exhibit 5 GBCC Articles of Merger
Exhibit 6 Current Allocation Statement
Exhibit 7 Opinion of Company's Counsel
Exhibit 8 Opinion of Pegasus' Counsel
495543.1
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AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER ("Agreement") is made as of the 7th
day of November, 1997, by and among PEGASUS COMMUNICATIONS CORPORATION, a
Delaware corporation ("Pegasus"), PEACH STATE SATELLITE TELEVISION, INC., a
Delaware corporation ("Merger Sub"), VIEWSTAR ENTERTAINMENT SERVICES, INC., a
Georgia corporation (the "Company"), and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, the majority
shareholder of the Company (the "Majority Shareholder"). Pegasus, Merger Sub,
the Company and the Majority Shareholder are collectively referred to herein as
the "Parties." The Company and the Majority Shareholder are sometimes referred
to herein collectively as the "Sellers".
RECITALS:
WHEREAS, the Company is a party to that certain NRTC Distribution
Agreement (as defined below) with the National Rural Telecommunications
Cooperative ("NRTC"), pursuant to which NRTC has granted to the Company the
right to distribute DIRECTV(R) ("DIRECTV") programming offered by DirecTV, Inc.
in the areas of Georgia identified in Exhibit 1 ("Service Areas"); and
WHEREAS, the Parties intend for Pegasus to acquire the Business (as
hereinafter defined), including the NRTC Distribution Agreement, by means of the
merger of the Company with and into Merger Sub, upon the terms and subject to
the conditions set forth herein; and
WHEREAS, the Parties intend that such merger qualify as a
reorganization pursuant to Section 368(a)(1)(A) and Section 368(a)(2)(D) of the
Internal Revenue Code of 1986, as amended (the "Code");
NOW, THEREFORE, in consideration of the premises and mutual promises
herein made, and in consideration of the representations, warranties, covenants
and agreements herein contained, and intending to be legally bound hereby, the
Parties agree as follows:
ARTICLE I
DEFINITIONS
1.1 Certain Definitions. The following terms shall, when used
in this Agreement, have the following meanings:
"Accountant" means Coopers & ▇▇▇▇▇▇▇ L.L.P.
"Accounts Receivable" mean the accounts receivable identified
in the Books and Records and reported on NRTC Report 19A.
"Adverse Consequences" mean all actions, suits, proceedings,
hearings, investigations, charges, complaints, claims, demands, injunctions,
judgments, orders, decrees, rulings, damages, assessments, dues, penalties,
fines, interest, costs, amounts paid in settlement, Liabilities, obligations,
Taxes, liens, losses, expenses and fees (including court costs, settlement
costs, legal, accounting, experts' and other fees, costs and expenses).
495543.1
"Affiliate" means, with respect to any Person: (i) any Person
directly or indirectly owning, controlling, or holding with power to vote 25% or
more of the outstanding voting securities of such other Person; (ii) any Person
25% or more of whose outstanding voting securities are directly or indirectly
owned, controlled, or held with power to vote, by such other Person; (iii) any
Person directly or indirectly controlling, controlled by, or under common
control with such other Person; and (iv) any officer, director or partner of
such other Person. "Control" for the foregoing purposes shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting securities or voting interests, by contract or otherwise.
"Applicable Rate" means the prime rate reported in The Wall
Street Journal from time to time, plus 3%.
"Assets" mean all properties, assets, privileges, powers,
rights, interests and claims of every type and description that are owned,
leased, held, used or useful in the Business and in which the Company has any
right, title or interest or in which the Company acquires any right, title or
interest on or before the Closing Date, wherever located, whether known or
unknown, and whether or not now or on the Closing Date on the Books and Records
of the Company, including Accounts Receivable, Books and Records, Consumer
Contracts, Contracts, Intangibles, Intellectual Property, Inventory, NRTC
Patronage Capital, Personal Property and Subscribers.
"Books and Records" mean all of the Company's books and
records, including purchase and sale order files, invoices, sales materials and
records, customer lists, mailing lists, marketing information, personnel records
and files, technical data and records, all NRTC Reports and invoices, all
correspondence with and documents pertaining to NRTC, DIRECTV, subscribers,
suppliers, Governmental Authorities and other third parties, all records
evidencing the Accounts Receivable and a schedule of Accounts Receivable aging,
all other financial records and all books and records relating to the Company's
formation and capitalization, including corporate seals, minute books and stock
books.
"Business" means the DIRECTV distribution business conducted
by the Company pursuant to rights granted under the NRTC Distribution Agreement.
"Business Day" means any day other than Saturday, Sunday or a
day on which banking institutions in New York, New York are required or
authorized to be closed.
"Collateral Documents" mean the Exhibits and any other
documents, instruments and certificates to be executed and delivered by the
Parties at Closing pursuant to this Agreement.
"Committed Member Residence" has the meaning assigned to it in
the NRTC Distribution Agreement.
"Company's Accountant" means ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & Co.
"Consumer Contract" means any rental agreement, lease
agreement, installment sale agreement or other agreement or arrangement under
which the Company has rented, leased or sold any DSS System or other Inventory
to a subscriber or has otherwise financed the acquisition or use of any DSS
System or other Inventory by a subscriber.
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"DSS System" means the satellite receiving system for DIRECTV
consisting of an eighteen inch satellite antenna dish, an integrated receiver
decoder and a remote control.
"Employee Benefit Plan" means any: (a) nonqualified deferred
compensation or retirement plan or arrangement that is an Employee Pension
Benefit Plan; (b) qualified defined contribution retirement plan or arrangement
that is an Employee Pension Benefit Plan; (c) qualified defined benefit
retirement plan or arrangement that is an Employee Pension Benefit Plan
(including any Multiemployer Plan); (d) Employee Welfare Benefit Plan or
material fringe benefit plan or program; or (e) other employee benefit
arrangement or payroll practice.
"Employee Pension Benefit Plan" has the meaning set forth in
ERISA Section 3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in
ERISA Section 3(l).
"Encumbrance" means any mortgage, pledge, lien, encumbrance,
charge, security interest, security agreement, conditional sale or other title
retention agreement, option, assessment, restrictive agreement, adverse
interest, restriction on transfer or any exception to or defect in title or
other ownership interest (including restrictive covenants, leases and licenses),
but excluding encumbrances for current taxes not delinquent or being contested
in good faith.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder.
"GAAP" means United States generally accepted accounting
principles as in effect from time to time.
"Governmental Authority" means: (i) the United States of
America; (ii) any state, commonwealth, territory or possession of the United
States of America and any political subdivision thereof (including counties,
municipalities and the like); (iii) any foreign (as to the United States of
America) sovereign entity and any political subdivision thereof; or (iv) any
agency, authority or instrumentality of any of the foregoing, including any
court, tribunal, department, bureau, commission or board.
"Intangibles" mean all accounts, notes and other receivables,
claims, deposits, prepayments, refunds, causes of action, chooses in action,
rights of recovery, rights of set-off, rights of recoupment and other intangible
assets owned, used or held for use in the Business.
"Intellectual Property" means all of the following that are
owned, used or held solely for use in the Business: (i) trademarks, service
marks, trade dress, logos, trade names and corporate names, together with all
translations, adaptations, derivations and combinations thereof and all
applications, registrations and renewals in connection therewith; (ii) all
copyrightable works, all copyrights and all applications, registrations and
renewals in connection therewith; (iii) trade secrets and confidential business
information (including ideas, research and development, know- how, formulas,
compositions, manufacturing and production processes and techniques, technical
data, designs, drawings, specifications, customer and supplier lists, pricing
and cost information and business and marketing plans and proposals); (iv) all
computer software (including data and related documentation); (v) all other
proprietary rights; and (vi) all copies and tangible embodiments thereof (in
whatever form or medium).
495543.1
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"Inventory" means the DSS Systems and other equipment owned by
the Company for sale, lease or rent to subscribers or that has been rented or
leased to subscribers or sold to subscribers on an installment basis.
"Judgment" means any judgment, writ, order, injunction, award
or decree of any court, judge, justice, magistrate or any other Governmental
Authority.
"Leases" mean (a) that certain Lease Agreement dated February
28, 1994 between the Company and Georgia 400 Associates (and amendments
thereto), and (b) that certain Shopping Center Lease dated April 21, 1995
between the Company and Cartersville Crossing Associates, Ltd.
"Legal Requirement" means any statute, ordinance, law, rule,
regulation, code, plan, injunction, judgment, order, decree, ruling, charge or
other requirement, standard or procedure enacted, adopted or applied by any
Governmental Authority, including judicial decisions applying common law or
interpreting any other Legal Requirement.
"Letter of Intent" means that certain Letter of Intent dated
September 11, 1997 by and among Pegasus, the Company and the Majority
Shareholder.
"Liability" means any liability or obligation (whether known
or unknown, whether asserted or unasserted, whether absolute or contingent,
whether accrued or unaccrued, whether liquidated or unliquidated, and whether
due or to become due), including any liability for Taxes.
"Multiemployer Plan" has the meaning set forth in ERISA
Section 3(37).
"Noncompetition Agreement" means the form of noncompetition
agreement attached hereto as Exhibit 2.
"NRTC Distribution Agreement" means any contract, commitment,
agreement, instrument or other document pursuant to which NRTC and/or DirecTV,
Inc. and/or any of their Affiliates has granted the Company rights relating to
the marketing and distribution of DIRECTV in the Service Areas, including that
certain NRTC/Member Agreement for Marketing and Distribution of DBS Services
between NRTC and the Company, as amended and supplemented (Contract Number
1045).
"NRTC Patronage Capital" means any equity interest in NRTC
allocated to the Company or if such equity interest is not transferrable to
Merger Sub at Closing, the right to receive any distributions on account of such
equity interest.
"Option Plan" means the Company's 1995 Stock Option Plan.
"Ordinary Course" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"Pegasus Class A Common Stock" means the Class A Common Stock,
par value $0.01 per share, of Pegasus.
"Pegasus Prospectus" means the Offering Memorandum dated
October 15, 1997, relating to the offering of $115 million of 9 5/8% Senior
Notes due 2005.
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"Pegasus 10-Q" means Pegasus's quarterly report for the
quarter ended June 30, 1997 on Form 10-Q to the Securities and Exchange
Commission.
"Permit" means any license, permit, consent, approval,
registration, authorization, qualification or similar right granted by a
Governmental Authority.
"Person" means any natural person, corporation, partnership,
trust, unincorporated organization, association, limited liability company,
Governmental Authority or other entity.
"Personal Property" means those items of personal property of
the Company identified on Schedule I having an original cost in excess of
$5,000.
"Representative" means any director, officer, employee, agent,
consultant, adviser or other representative of a Person, including legal
counsel, accountants and financial advisors.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations thereunder.
"Stockholders' Agreement" means the form of stockholders'
agreement attached hereto as Exhibit 3.
"Subscriber" means any subscriber who is reported by the NRTC
as an active DIRECTV subscriber account of the Business, excluding the account
of any subscriber who (i) does not pay for a core DIRECTV programming package
(except commercial subscribers); (ii) receives a discount from the Company for
DIRECTV programming other than pursuant to promotions of the NRTC or DIRECTV;
(iii) resides outside the Service Area or is not otherwise a Committed Member
Residence; (iv) is pending disconnection for any reason; (v) is 45 days or more
past due in the payment of any amount payable to the Company or is categorized
as a "Level 2 Disconnection"; or (vi) has become a subscriber pursuant to
marketing promotions that are not customary marketing promotions conducted in
the Ordinary Course.
"Tax" means any federal, state, local or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental, customs duties, capital stock,
franchise, profits, withholding, social security (or similar), unemployment,
disability, real property, personal property, sales, use, transfer,
registration, value added, alternative or add-on minimum, estimated or other tax
of any kind whatsoever, including any interest, penalties, fees, deficiencies,
assessments, additions or other charges of any nature with respect thereto,
whether disputed or not.
"Tax Return" means any return, declaration, report, claim for
refund or information return or statement relating to any Tax, including any
schedule or attachment thereto, and including any amendment thereof.
1.2 Other Definitions. The following terms shall, when used in this
Agreement, have the meanings assigned to such terms in the Sections indicated.
495543.1
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Term Section
"Accountant's Allocation Statement"........................................2.12
"Arbitrator"...............................................................2.12
"Arbitrator's Allocation Statement"........................................2.12
"Agreement"............................................................Preamble
"Closing"..................................................................2.10
"Closing Allocation Statement"..............................................2.8
"Closing Date".............................................................2.10
"Code".................................................................Preamble
"Company Common Stock"......................................................2.6
"Company Employees..........................................................3.3
"Contracts"................................................................3.15
"Current Allocation Statement"..............................................2.8
"Definitive Allocation Statement"..........................................2.12
"DGCL"......................................................................2.1
"DIRECTV"..............................................................Recitals
"Effective Time"............................................................2.5
"Final Allocation Statement"...............................................2.12
"Final Allocation Objection Period"........................................2.12
"Financial Statement Procedures"............................................3.9
"Financial Statements"......................................................3.9
"GBCC"......................................................................2.1
"Market Price"..............................................................2.8
"Merger"....................................................................2.1
"Merger Consideration"......................................................2.8
"NRTC".................................................................Recitals
"Optionholders".............................................................2.7
"Parties"..............................................................Preamble
"Quoted Price"..............................................................2.8
"Sellers"..............................................................Preamble
"Service Areas"........................................................Recitals
"Shareholders"..............................................................2.7
"Surviving Corporation".....................................................2.1
"Survival Period"..........................................................11.1
"Transfer"..................................................................5.2
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ARTICLE II
BASIC TRANSACTION
2.1 Merger; Surviving Corporation. In accordance with the provisions of
this Agreement, the General Corporation Law of the State of Delaware ("DGCL")
and the Georgia Business Corporation Code of the State of Georgia ("GBCC"), at
the Effective Time the Company shall be merged with and into Merger Sub (the
"Merger"), and Merger Sub shall be the surviving corporation in the Merger
(hereinafter sometimes called the "Surviving Corporation") and shall continue
its corporate existence under the laws of the State of Delaware. At the
Effective Time, the separate existence of the Company shall cease. All
properties, franchises and rights belonging to the Company and Merger Sub, by
virtue of the Merger and without further act or deed, shall be deemed to be
vested in the Surviving Corporation, which shall thenceforth be responsible for
all the liabilities and obligations of each of Merger Sub and the Company.
2.2 Certificate of Incorporation. Merger Sub's Certificate of
Incorporation, as amended, as in effect immediately prior to the Effective Time
shall thereafter continue in full force and effect as the Certificate of
Incorporation of the Surviving Corporation until altered or amended as provided
therein or by law.
2.3 By-Laws. Merger Sub's By-Laws, as amended, as in effect immediately
prior to the Effective Time shall be the By-Laws of the Surviving Corporation
until altered, amended or repealed as provided therein or by law.
2.4 Directors and Officers. The directors of Merger Sub immediately
prior to the Effective Time shall serve as directors of the Surviving
Corporation following the Effective Time in accordance with the Certificate of
Incorporation and By-laws of the Surviving Corporation and the DGCL. The
officers of Merger Sub immediately prior to the Effective Time shall serve in
such capacities at the pleasure of the Board of Directors of the Surviving
Corporation following the Effective Time in accordance with the Certificate of
Incorporation and By-Laws of the Surviving Corporation and the DGCL.
2.5 Effective Time. The Merger shall become effective at the time and
date that the last of the following two events has occurred: (i) the acceptance
for filing of a certificate of merger (the "DGCL Certificate of Merger"), in the
form attached hereto as Exhibit 4, by the Secretary of State of the State of
Delaware in accordance with the provisions of Section 252 of the DGCL; and (ii)
the acceptance for filing of articles of merger (the "GBCC Articles of Merger"),
in the form attached hereto as Exhibit 5 , by the Secretary of State of the
State of Georgia, in accordance with Section 14-2-1105 of the GBCC. The DGCL
Certificate of Merger and the GBCC Articles of Merger shall be executed by
Merger Sub and/or the Company, as applicable, and delivered to the Secretary of
State of the State of Delaware and the Secretary of State of the State of
Georgia, respectively, for filing, as stated above, on the Closing Date. The
date and time when the Merger shall become effective are referred to herein as
the "Effective Time."
2.6 Conversion of Company Shares. All shares of common stock, no par
value, of the Company ("Company Common Stock") issued and outstanding
immediately prior to the Effective Time shall, by virtue of the Merger and
without any action on the part of the holders thereof, be converted at the
Effective Time into the Merger Consideration.
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2.7 Exchange of Certificates; Termination of Options.
(a) At the Closing, immediately after the Effective Time of
the Merger, all of the shareholders of the Company, who are listed on Schedule
3.2 along with their respective ownership interests on a fully diluted basis
(the "Shareholders") shall surrender to the Surviving Corporation all of the
outstanding certificates theretofore representing shares of Company Common Stock
in exchange for the Merger Consideration payable to the Shareholders at Closing.
Until such certificates are surrendered, outstanding certificates formerly
representing shares of Company Common Stock shall be deemed for all purposes as
evidencing the right to receive the Merger Consideration into which such shares
have been converted as though said surrender and exchange had taken place. In no
event will a holder of shares of Company Common Stock be entitled to interest on
the Merger Consideration issuable in respect of such shares.
(b) At the Closing, all of the holders of options under the
Option Plan (all of such holders being listed on Schedule 3.2) (collectively,
the "Optionholders") shall execute and deliver to the Surviving Corporation a
receipt (a "Receipt") which (i) acknowledges receipt of a portion of the Merger
Consideration, as determined pursuant to Section 2.9, (ii) acknowledges the
termination of their respective options, and (iii) waives and releases all
rights of any kind arising out of their respective option agreements and all
rights to acquire or otherwise receive any equity interest in the Company or the
Surviving Corporation. Until such Receipts are delivered, the outstanding
options shall, after the Effective Time, be deemed for all purposes as
evidencing the right to receive a portion of the Merger Consideration in
accordance with Section 2.9 as though such execution and delivery had taken
place at the Closing. In no event will an Optionholder be entitled to interest
on the Merger Consideration to which he or she is entitled.
2.8 Delivery of Closing Allocation Statement; Merger Consideration.
(a) Attached hereto as Exhibit 6 is a statement of allocation
of assets and liabilities of the Company as of June 30, 1997 (the "Current
Allocation Statement"). Two days prior to the Closing Date, the Company shall
deliver to Pegasus an updated statement of allocation of assets and liabilities
as of October 31, 1997 which statement shall be reasonably satisfactory to
Pegasus (the "Closing Allocation Statement"). The Closing Allocation Statement
will be identical in form to the Current Allocation Statement, will accurately
reflect the Books and Records, will be complete and correct in all material
respects, and will present fairly the assets and liabilities of the Company as
of its date.
(b) The "Merger Consideration" to be paid by Pegasus in the
Merger shall equal $13,100,000 plus or minus (i) the net working capital
adjustment set forth in column (1) of the Closing Allocation Statement
(calculated in accordance with column (1) of the Current Allocation Statement)
minus (ii) the amount of any short term notes payable of the Company set forth
in column (4) of the Closing Allocation Statement.
(c) At the Effective Time all of the issued and outstanding
shares of Company Common Stock shall be converted into:
(i) cash in an amount equal to $6,151,126; and
(ii) shares of Pegasus Class A Common Stock having an
aggregate Market Price as of October 31, 1997 equal to $6,402,193.
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(d) As used in subsection (c)(ii), the "Market Price" per
share of Pegasus Class A Common Stock as of October 31, 1997 means the average
of the Quoted Prices of the Pegasus Class A Common Stock for 30 consecutive
trading days commencing 50 trading days before October 31, 1997. The "Quoted
Price" of the Pegasus Class A Common Stock means the last reported sales price
of the Pegasus Class A Common Stock as reported by the Nasdaq National Market
or, if the Pegasus Class A Common Stock is listed on a securities exchange, the
last reported sales price of the Pegasus Class A Common Stock on such exchange,
which shall be for consolidated trading if applicable to such exchange, or, if
not so reported or listed, the last reported bid price of the Pegasus Class A
Common Stock.
2.9 Manner of Payment. The Merger Consideration shall be allocated
among the Shareholders and Optionholders in proportion to the number of shares
of Company Common Stock owned by each such Shareholder at the Effective Time and
the number of shares of Company Common Stock which is subject to options held by
the Optionholders at the Effective Time (as adjusted to reflect the aggregate
exercise price of the options held by the Optionholders); provided, however,
that the Majority Shareholder shall determine what percentage of the Merger
Consideration owed to each individual Shareholder will be paid in cash and/or
Class A Common Stock. ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, ITC Service Company and the Optionholders
will not receive Pegasus Common Stock as Merger Consideration. Two days prior to
Closing, the Majority Shareholder shall deliver to Pegasus written instructions
executed by the Majority Shareholder containing the name, address and social
security or employer identification number of each Shareholder and Optionholder,
the portion of the Merger Consideration owed to each Shareholder and
Optionholder and the percentage payable in cash and/or stock, along with wire
transfer instructions for payment of the cash consideration. At the Closing,
upon the Shareholders' surrender of their certificates representing the shares
of Company Common Stock and upon the Optionholders' execution and delivery of
the Receipts, Pegasus shall deliver the Merger Consideration owed to each
Shareholder in accordance with the foregoing instructions, and shall deliver the
portion of the Merger Consideration owed to the Optionholders directly to the
Company who will contemporaneously distribute the Merger Consideration to the
Optionholders in accordance with the foregoing instructions, subject to
compliance with applicable tax withholding requirements.
2.10 Closing. The Closing of the transactions contemplated by this
Agreement and the Collateral Documents ("Closing") shall take place at the
offices of Pegasus, or at such other location as the parties may agree, on
November 7, 1997 provided that all conditions precedent to the Closing set forth
in Articles VII and VIII have been satisfied or waived, or on such other date
that the Parties may agree, provided that all such conditions precedent have
been satisfied or waived. The date on which the Closing actually occurs is
referred to herein as the "Closing Date."
2.11 Transactions at Closing. At the Closing:
(a) The Shareholders shall surrender certificates representing
Company Common Stock pursuant to Section 2.7, the Optionholders shall deliver
the Receipts, and the Company and the Shareholders shall deliver to Pegasus and
the Surviving Corporation such documents, instruments and certificates as are
required by this Agreement to be delivered by them.
(b) Pegasus shall deliver to the Company, Shareholders and the
Optionholders:
(i) the Merger Consideration allocated pursuant to Section
2.9; and
495543.1
9
(ii) such documents, instruments and certificates as are
required by this Agreement to be delivered by Pegasus and Merger Sub.
2.12 Final Allocation Statement. Within 75 days after Closing, Pegasus
shall deliver to the Majority Shareholder a statement (the "Final Allocation
Statement"), showing in detail its final determination of the allocation of
assets and liabilities set forth in the Closing Allocation Statement, together
with any documents substantiating the adjustments set forth in the Final
Allocation Statement. The Majority Shareholder shall provide Pegasus with
reasonable access to all records that the Majority Shareholder has in its
possession and that are necessary or appropriate for Pegasus to prepare the
Final Allocation Statement, and Pegasus shall provide the Majority Shareholder
with reasonable access to all records that Pegasus has in its possession and
that are necessary or appropriate for the Majority Shareholder to evaluate the
Final Allocation Statement. Within 20 days after receipt of the Final Allocation
Statement (the "Final Allocation Objection Period"), the Majority Shareholder
shall give Pegasus written notice of its objections, if any, to the Final
Allocation Statement. In the event that the Majority Shareholder notifies
Pegasus of objections to the Final Allocation Statement within the Objection
Period, Pegasus and the Majority Shareholder shall instruct the Accountant and
the Company's Accountant to make a final and binding determination of the Final
Allocation Statement acceptable to the Accountant and the Company's Accountant
("Accountants' Allocation Statement"). If the Accountant and the Company
Accountant do not reach a mutual agreement as to the Accountants' Allocation
Statement within thirty (30) days after their engagement, the two firms shall
select a third independent accounting firm (the "Arbitrator"), whose
determination of the Accountant's Allocation Statement shall be final and
binding on the Parties (the "Arbitrator's Allocation Statement"). Within 20 days
after (w) the Accountant delivers the Accountants' Allocation Statement to
Pegasus and the Majority Shareholder, (x) expiration of the Final Allocation
Objection Period without notice of objections from the Majority Shareholder, (y)
the Arbitrator delivers the Arbitrator's Allocation Statement or (z) agreement
by Pegasus and the Majority Shareholder upon the Final Allocation Statement, as
applicable, Pegasus shall pay to the Majority Shareholder cash in an amount
equal to the amount owed to the Majority Shareholder as reflected in the Final
Allocation Statement or the Majority Shareholder shall pay to Pegasus cash in an
amount equal to the amount owed to Pegasus as reflected in the Final Allocation
Statement. Notwithstanding any provision herein to the contrary, the Parties
agree that no payment shall be payable under this Section 2.12 unless the
payment which would otherwise be payable under this Section 2.12 is in excess of
$75,000. If the amount determined pursuant to this Section 2.12 is in excess of
$75,000, the Party required to make such payment shall pay the entire amount
(from the first $1.00 forward) as so determined. All determinations under this
Section 2.12 shall be consistent with the Company's historical accounting
methods and practices, to the extent such methods and practices are in
accordance with GAAP. Pegasus and the Majority Shareholder shall provide to the
accountants such information and assistance as the accountants may reasonably
request for purposes of preparing the Accountants' Allocation Statement. Each of
the Majority Shareholder and Pegasus shall pay their own professional fees
charged by the professionals employed by each for the engagement required
hereunder and shall each pay one-half of the Arbitrator's fees and expenses. The
Final Allocation Statement shall, as adjusted to reflect the resolution of any
disputed matter pursuant to this Section 2.12, be final, binding and conclusive
on all Parties, and shall be referred to herein as the "Definitive Allocation
Statement."
495543.1
10
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND THE MAJORITY SHAREHOLDER
The Company and the Majority Shareholder jointly and severally
represent and warrant to Pegasus and Merger Sub that the statements contained in
Article III are correct and complete as of the date of this Agreement.
3.1 Organization and Qualification. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Georgia, with all requisite power and authority to own, lease and use its assets
as they are currently owned, leased and used and to conduct its business as it
is currently conducted. The Company is duly qualified or licensed to do business
and in good standing in each jurisdiction in which the character of the
properties owned, leased or used by it or the nature of the activities conducted
by it make such qualification necessary, except any such jurisdiction where the
failure to be so qualified or licensed would not have a material adverse effect
on the Assets or the Business or on the validity, binding effect or
enforceability of this Agreement or the Collateral Documents.
3.2 Capitalization. The Company's authorized, issued and outstanding
capital stock and its other securities are fully and accurately described in
Schedule 3.2. All of the issued and outstanding shares of Company Common Stock
are owned, beneficially and of record, by the Persons set forth in Schedule 3.2,
in the numbers set forth in Schedule 3.2, and no other Person has any rights,
title or interest, whether legal or equitable, in said shares. Except as set
forth on Schedule 3.2, no Person has any preemptive or other rights with respect
to any such capital stock or securities and there are no offers, options,
warrants, rights, agreements or commitments of any kind (contingent or
otherwise) relating to the issuance, conversion, registration, sale or transfer
of any equity interests or other securities of the Company or obligating the
Company or any other Person to purchase or redeem any such equity interests or
other securities. All of the issued and outstanding shares of Company Common
Stock have been duly authorized and are validly issued and outstanding, fully
paid and nonassessable, have been issued in compliance with applicable
securities laws and other Legal Requirements, and are subject to no
Encumbrances, with the exception of Shareholders Agreements which will be
terminated at Closing.
3.3 Authority and Validity. The Company has all requisite power to
execute and deliver, to perform its obligations under, and to consummate the
transactions contemplated by, this Agreement. The Majority Shareholder, and each
of Messrs. ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ (collectively, the "Company
Employees") has all requisite power to execute and deliver, to perform his
obligations under, and to consummate the transactions contemplated by the
Collateral Documents to which he is a party. Upon the execution and delivery by
the Company Employees of the Collateral Documents, the Collateral Documents will
be the legal, valid and binding obligations of each of them, enforceable against
each in accordance with their respective terms, except as enforcement may be
limited by bankruptcy, insolvency, moratorium, fraudulent conveyance or other
laws relating to or limiting creditors' rights generally or by general
principles of equity, regardless of whether such enforceability is considered in
a proceeding at law or in equity. Upon the execution and delivery by the
Majority Shareholder of this Agreement and each Collateral Document to which he
is a party, this Agreement and each such Collateral Document will be the legal,
valid and binding obligation of the Majority Shareholder, enforceable against
him in accordance with their respective terms, except as enforcement may be
limited by bankruptcy, insolvency, moratorium, fraudulent conveyance or other
laws relating to or limiting creditors' rights generally or by general
principles of equity, regardless of whether such enforceability is considered in
a proceeding at law or in
495543.1
11
equity. The execution and delivery by the Company of, the performance by the
Company of its obligations under, and the consummation by the Company of the
transactions contemplated by, this Agreement have been duly authorized by all
requisite corporate action of the Company. This Agreement has been duly executed
and delivered by the Company and is the legal, valid, and binding obligation of
the Company, enforceable against it in accordance with its terms, except as
enforcement may be limited by bankruptcy, insolvency, moratorium, fraudulent
conveyance or other laws relating to or limiting creditors' rights generally or
by general principles of equity, regardless of whether such enforceability is
considered in a proceeding at law or in equity.
3.4 No Breach or Violation. Subject to obtaining the consents,
approvals, authorizations, and orders of and making the registrations or filings
with or giving notices to Governmental Authorities and Persons recited in the
exception to Section 3.5, the execution, delivery and performance by the Sellers
of this Agreement and by the Majority Shareholder and the Company Employees of
the Collateral Documents, and the consummation of the transactions contemplated
hereby and thereby in accordance with the terms and conditions hereof and
thereof, do not and will not conflict with, constitute a violation or breach of,
constitute a default or give rise to any right of termination or acceleration of
any right or obligation of any Seller or any Company Employee under, or result
in the creation or imposition of any Encumbrance upon the Company, the Assets or
the Business by reason of the terms of (i) the articles of incorporation,
by-laws or other charter or organizational document of the Company, (ii) any
material contract, agreement, lease, indenture or other instrument to which any
Seller or any of the Company Employees is a party or by or to which any Seller
or the Assets may be bound or subject, (iii) any order, judgment, injunction,
award or decree of any arbitrator or Governmental Authority or any statute, law,
rule or regulation applicable to any Seller or any of the Company Employees or
(iv) any Permit of the Company, which in the case of (ii), (iii) or (iv) above
would have a material adverse effect on the Assets or the Business or the
ability of any Seller or any of the Company Employees to perform his or its
obligations under this Agreement or any Collateral Document.
3.5 Consents and Approvals. Except (i) as required under the NRTC
Distribution Agreement, and (ii) as set forth in Schedule 3.5 hereto, no
consent, approval, authorization or order of, registration or filing with, or
notice to, any Governmental Authority or any other Person is necessary to be
obtained, made or given by any Seller or any Company Employee in connection with
the execution, delivery and performance by them of this Agreement or any
Collateral Document or for the consummation by them of the transactions
contemplated hereby or thereby.
3.6 Title to Assets. The Company has exclusive, good and marketable
title to the Assets (or, in the case of leased Assets, a valid leasehold
interest in such Assets), free and clear of any and all Encumbrances of any kind
and nature. Except as provided by this Agreement, no Person has any right to
acquire, directly or indirectly, any interest in the Company or the Assets, and
there is no agreement to which the Company or any of its Affiliates is a party
or is otherwise bound relating to the direct or indirect sale of the NRTC
Distribution Agreement or the capital stock or Assets of the Company, other than
the sale of Inventory in the Ordinary Course.
3.7 Intellectual Property.
(a) Except as are used pursuant to the NRTC Distribution
Agreement and except as set forth on Schedule 3.7, the Company neither uses nor
holds any copyrights, tradenames, servicemarks, service names, logos, licenses,
permits or other similar intellectual property rights and interests in the
operations of the Business that do not incorporate the name "Viewstar" or
variations thereof.
495543.1
12
(b) To the Company's knowledge, (i) the Company has not in its
operation of the Business interfered with, infringed upon, misappropriated or
otherwise come into conflict with, and (ii) the operation of the Business as
currently conducted does not violate or infringe upon, any Intellectual Property
rights of third parties, and the Company has not received any charge, complaint,
claim, demand or notice alleging any such interference, infringement,
misappropriation or violation (including any claim that the Company or its
predecessors in interest must license or refrain from using any Intellectual
Property rights of any third party). To the knowledge of the Company and the
Majority Shareholder, no third party has interfered with, infringed upon,
appropriated or otherwise come into conflict with any Intellectual Property
rights of the Company.
3.8 Compliance with Legal Requirements. The Company has operated the
Business in compliance with all Legal Requirements and requirements of the NRTC
(including NRTC's by- laws, policies, procedures and guidelines) applicable to
the Company. No action, suit, proceeding, hearing, investigation, charge,
complaint, claim, demand or notice has been filed, commenced or, to the
Company's and the Majority Shareholder's knowledge, threatened against the
Company alleging any failure to so comply.
3.9 Financial Information. The Company has delivered to Pegasus the
following financial statements ("Financial Statements"): (i) the Company's
audited balance sheet and statements of operations, changes in stockholders'
equity and cash flows as of December 31, 1996, and for the fiscal year then
ended; and (ii) the Company's unaudited balance sheet and statements of
operations, changes in stockholders' equity and cash flows as of September 30,
1996 and 1997 and for the nine month periods then ended, and as of March 31,
1996 and 1997 and for the three month periods then ended. The Financial
Statements (including the notes thereto) have been prepared in accordance with
GAAP applied on a consistent basis throughout the periods covered thereby,
accurately reflect the Books and Records, are complete and correct in all
material respects, and present fairly the financial condition of the Company and
results of operations as of the dates and for the periods indicated, subject in
the case of the unaudited financial statement only to normal year-end
adjustments (none of which will be material in amount) and the omission of
footnotes ("Financial Statement Procedures").
3.10 Subsequent Events. Except as set forth on Schedule 3.10, since
September 30, 1997: (i) the Company has not sold, leased, transferred or
assigned any assets of the Business, tangible or intangible, except in the
Ordinary Course; (ii) the Company has not entered into any agreement, contract,
lease or license (or series of related agreements, contracts, leases and
licenses) involving more than $1,000 or outside the Ordinary Course; (iii) no
third party has accelerated, terminated, modified or canceled any material
agreement, contract, lease or license (or series of related agreements,
contracts, leases and licenses) relating to the Company or the Business; (iv)
the Company has not imposed or permitted the imposition of any Encumbrance upon
any assets of the Business, tangible or intangible; (v) the Company has not made
any capital investment in, any loan to, or any acquisition of the securities or
assets of, any other Person (or series of related capital investments, loans or
acquisitions); (vi) the Company has not issued any note, bond or other debt
security or created, incurred, assumed or guaranteed any indebtedness for
borrowed money or capitalized lease obligations; (vii) the Company has not
delayed or postponed the payment of accounts payable and other Liabilities
outside the Ordinary Course; (viii) the Company has not canceled, compromised,
waived or released any right or claim (or series of related rights and claims)
involving more than $1,000 or outside the Ordinary Course; (ix) the Company has
not granted any license or sublicense of any rights under or with respect to any
Intellectual Property used or useful in the Business; (x) there has not been any
other material occurrence, event, incident, action, failure to act or
transaction outside the Ordinary Course involving the Company except that is
generally known by other NRTC
495543.1
13
members and affiliates; and (xi) the Company has not committed to any of the
foregoing. Since September 30, 1997, there has been no material adverse change
in the operations, assets, prospects or condition (financial or otherwise) of
the Company.
3.11 Undisclosed Liabilities. The Company has no material Liability,
except for Liabilities that will be set forth on the Definitive Allocation
Statement (none of which results from, arises out of, relates to, is in the
nature of, or was caused by any breach of contract, breach of warranty, tort,
infringement or violation of any Legal Requirement or requirement of the NRTC)
and except for Liabilities incurred in the Ordinary Course since October 31,
1997.
3.12 Legal Proceedings. Except as set forth on Schedule 3.12, there are
no outstanding judgments or orders against or otherwise affecting or related to
the Company, the Business or the Assets. There is no action, suit, complaint,
proceeding or investigation, judicial, administrative or otherwise, that is
pending or, to the Company's and the Majority Shareholder's knowledge, overtly
threatened and which, if adversely determined, would materially and adversely
affect the Company, the Business or the Assets or which challenges the validity
or propriety of any of the transactions contemplated by this Agreement or the
Collateral Documents.
3.13 Taxes. The Company has duly and timely filed in proper form all
Tax Returns for all Taxes required to be filed with the appropriate Governmental
Authority. All Taxes due and payable by the Company (or claimed to be due and
payable) have been paid (regardless whether Tax Returns relating to such Taxes
have been duly and timely filed or if filed, regardless whether such Tax Returns
are deficient). The Company has furnished to Pegasus true and correct copies of
its 1996 federal and state income tax returns, which are accurate and complete
in all material respects. There are no pending Tax audits, claims or proceedings
relating to the Company, the Assets or the Business and income therefrom. The
Company has not agreed to any waiver or extension of any statute of limitations
relating to any Tax.
3.14 Employee Benefits; Employees.
(a) Regarding Employee Benefits Plans:
(i) All Employee Benefit Plans maintained or
contributed to by the Company currently, or within the past six years, are set
forth in Schedule 3.14. All Employee Benefit Plans are in material compliance
with all applicable provisions of the Code and ERISA, including, but not limited
to, the applicable reporting and disclosure requirements, as they relate to such
plans, and the Company is not subject to any liabilities based on past
non-compliance, if any;
(ii) There is not now, and has not been, any
material violation of the Code or ERISA with respect to the filing of applicable
reports, documents, and notices regarding the Employee Benefit Plans with the
Secretary of Labor and the Secretary of the Treasury or the furnishing of such
documents to the participants or beneficiaries of the Employee Benefit Plans;
(iii) No fiduciary or other party in interest with
respect to any of the Employee Benefit Plans has caused any of such plans to
engage in a "prohibited transaction," as defined in ERISA Section 406;
495543.1
14
(iv) There has been no violation of the
"continuation coverage requirements" of "group health plans" as set forth in
Code Section 4980B and Part 6 of Subtitle B of Title I of ERISA with respect to
any Employee Benefit Plan to which such continuation coverage requirements
apply;
(v) The Company does not maintain retired life and
retired health insurance plans which are Employee Welfare Benefit Plans
providing for continuing benefits or coverage for any employee or any
beneficiary of any employee after such employee's termination of employment
(except to the extent such continued coverage is required by Code Section 4980B
and Part 6 of Subtitle B of Title I of ERISA);
(vi) Prior to the Closing Date, the Company will not
establish or create any new Employee Benefit Plan, except with the consent of
Pegasus, nor will the Company amend or modify as to any benefit or in any other
way any existing Employee Benefit Plan, except with the consent of Pegasus; and
(vii) As used in this Section 3.14(a), the term
"Company" shall include any other entity required to be aggregated with the
Company under Code Sections 414(b), 414(c), 414(m) or 414(o) and the regulations
thereunder.
(b) There are no collective bargaining agreements applicable
to any Persons employed by the Company, and the Company has no duty to bargain
with any labor organization with respect to any such Person. There are not
pending any unfair labor practice charges against the Company, nor is there any
demand for recognition, or any other request or demand from a labor organization
for representative status with respect to any person employed by the Company.
(c) The Company is in substantial compliance with all
applicable Legal Requirements respecting employment conditions and practices,
has withheld all amounts required by any applicable Legal Requirements or
Contracts to be withheld from the wages or salaries of its employees, and is not
liable for any arrears of wages or any Taxes or penalties for failure to comply
with any of the foregoing.
(d) The Company has not engaged in any unfair labor practice
within the meaning of the National Labor Relations Act and has not violated any
Legal Requirement prohibiting discrimination on the basis of race, color,
national origin, sex, religion, age, marital status, or handicap in its
employment conditions or practices. There are not pending or, to the Company's
or the Majority Shareholder's knowledge, threatened unfair labor practice
charges or discrimination complaints relating to race, color, national origin,
sex, religion, age, marital status, or handicap against the Company before any
Governmental Authority.
(e) There are no existing or, to the Company's or the Majority
Shareholder's knowledge, threatened, labor strikes, disputes, grievances or
other labor controversies affecting the Company. There are no pending or, to the
Company's or the Majority Shareholder's knowledge, threatened arbitration
proceedings under any Contract.
(f) The Company is not a party to any employment agreement or
arrangement, written or oral, relating to its employees which cannot be
terminated at will by the Company.
(g) Schedule 3.14 sets forth a true and complete list of the
names, titles and rates of compensation of all of the Company's employees.
495543.1
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3.15 Contracts.
(a) Schedule 3.15 contains a true, correct and complete list
of each contract agreement or commitment, whether written or oral, to which the
Majority Shareholder is a party that relates to or affects, directly or
indirectly, the Business, or to which the Company is a party ("Contracts"),
including:
(i) the NRTC Distribution Agreement and any other
agreement with NRTC or DirecTV, Inc. or any of their Affiliates;
(ii) any agreement (or group of related agreements)
relating to the financing, lease or rental of DSS Systems or other personal
property to the Company by any Person;
(iii) each form of Consumer Contract used by the
Company, accompanied by an itemized list of the subscribers who are parties to
such agreements, the expiration dates of such agreements and the outstanding
balances under such agreements;
(iv) any agreement (or group of related agreements)
for the purchase or sale of supplies, products or other personal property, or
for the furnishing or receipt of services (including any forms of agreement or
purchase order relating to the sale of DSS Systems or the sale of DIRECTV
services);
(v) any agreement concerning a partnership or joint
venture;
(vi) any agreement (or group of related agreements)
under which the Company has created, incurred, assumed or guaranteed any
indebtedness for borrowed money, or any capitalized lease obligation, or under
which the Company has imposed an Encumbrance;
(vii) any agreement concerning confidentiality or
noncompetition;
(viii) any agreement involving any officer, director
or shareholder of the Company or any of its Affiliates;
(ix) any agreement for the employment of any
individual on a full-time, part-time, consulting or other basis;
(x) any agreement relating to the services of sales
representatives, agents and other independent contractors (including agreements
relating to the installation of DSS Systems);
(xi) any agreement under which the Company has
advanced or loaned any amount to any employees or any of the current or former
directors, officers or shareholders of the Company or any of its Affiliates;
(xii) any agreement under which the consequences of
a default or termination could have a material adverse effect on the financial
condition, operations, results of operations or future prospects of either the
Company, the Assets or the Business; and
495543.1
16
(xiii) any other agreement (or group of related
agreements) the performance of which involves consideration in excess of $1,000.
The Company and the Majority Shareholder have delivered to Pegasus a
correct and complete copy of each written agreement listed on Schedule 3.15 and
a written summary setting forth the terms and conditions of each oral agreement
listed therein. With respect to each such agreement: (A) the agreement is legal,
valid, binding, enforceable, except as enforcement may be limited by bankruptcy,
insolvency, moratorium, fraudulent conveyance or other laws relating to or
limiting creditors' rights generally or by general principles of equity,
regardless of whether such enforceability is considered in a proceeding at law
or in equity; (B) the agreement will continue in full force and effect on
identical terms following the consummation of the transactions contemplated
hereby; (C) the Company is not in breach or default, and, to the Company's
knowledge, the other party thereto is not in breach or default, and, to the
Company's knowledge, no event has occurred which with notice or lapse of time
would constitute a breach or default, or permit termination, modification or
acceleration, under the agreement; and (D) no party has communicated to the
Company a repudiation of any provision of the agreement.
(b) Each Consumer Contract conforms in all material respects,
and the Company's conduct in the origination, administration and enforcement of
each Consumer Contract has conformed in all material respects, to all applicable
Legal Requirements, including those relating to usury, consumer credit, consumer
credit disclosure and terms, consumer leasing and rental, debt collection and
enforcement practices, equal credit opportunity and credit reporting practices.
(c) The Company is not a party to or otherwise bound by any
agreements or arrangements providing for the payment by the Company over time of
periodic or recurring commissions.
3.16 Books and Records; Accounts Receivable. The Books and Records
accurately and fairly represent the Business and its results of operations in
all material respects. All Accounts Receivable and Inventory of the Business are
reflected properly on such Books and Records in all material respects. The
Accounts Receivable are valid receivables subject to no setoffs or counterclaims
and are current and collectible, subject to the reserve for doubtful accounts
provided for in the Current Allocation Statement (as adjusted by the Definitive
Allocation Statement).
3.17 Business Information. Schedule 3.17 sets forth a materially true
and accurate description of the following information as of the date set forth
in such Schedule: (i) the approximate number of Committed Member Residences in
the Service Areas; (ii) the approximate number of Committed Member Residences in
the Service Areas that are cabled; (iii) the approximate number of Committed
Member Residences in their Service Areas that are uncabled; (iv) the rates
charged to Subscribers; and (v) the marketing, promotional and advertising
programs currently in effect for the Business and any other such program that
has been in effect at any time since January 1, 1997.
3.18 Insurance. Schedule 3.18 sets forth the following information with
respect to each insurance policy relating to the Business (including policies
providing property, casualty, liability and workers' compensation coverage and
bond and surety arrangements) to which the Company has been a party, a named
insured, or otherwise the beneficiary of coverage at any time:
(i) the name, address, and telephone number of the
agent;
495543.1
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(ii) the name of the insurer, the name of the
policyholder and the name of each covered insured;
(iii) the policy number and the period of coverage;
(iv) the scope (including an indication of whether
the coverage was on a claims made, occurrence or other basis) and amount
(including a description of how deductibles and ceilings are calculated and
operate) of coverage; and
(v) a description of any retroactive premium
adjustments or other loss-sharing arrangements.
With respect to each such insurance policy: (A) the policy is
legal, valid, binding, enforceable, and in full force and effect; (B) neither
the Company, nor any predecessor in interest nor any other party to the policy
is in breach or default (including with respect to the payment of premiums or
the giving of notices), and no event has occurred which, with notice or the
lapse of time, would constitute such a breach or default, or permit termination,
modification or acceleration, under the policy; and (C) no party to the policy
has repudiated any provision thereof. The Business and the Assets have been
covered since the beginning of Business operations in scope and amount customary
and reasonable for such a business and in the case of workers' compensation
coverage, in scope and amount required by applicable Legal Requirements.
Schedule 3.18 describes any self-insurance arrangements affecting the Assets or
the Business. Schedule 3.18 also sets forth each insurance claim (other than
medical claims) made or loss incurred relating to the Business pursuant to
property, casualty, liability, workers' compensation and bond and surety
policies and, except as indicated therein, no such claim is outstanding.
3.19 Disclosure. No representation or warranty of any Seller in this
Agreement or of the Majority Shareholder or any Company Employees in the
Collateral Documents contained, contains or will contain on the date such
agreement, certificate, report, instrument, list or other document was or is
delivered, any untrue statement of a material fact, or omitted, omits or will
omit on such date to state any material fact necessary in order to make the
statements made, in light of the circumstances under which they were made, not
misleading, nor will any such representation or warranty or statement contain on
the Closing Date any untrue statement of a material fact or omit on the Closing
Date to state any material fact necessary in order to make the statements made,
in light of the circumstances under which they were made, not misleading.
3.20 Brokers or Finders. No broker or finder has acted directly or
indirectly for the Company or any of its Affiliates in connection with the
transactions contemplated by this Agreement. Neither the Company nor any of its
Affiliates has incurred any obligation to pay any brokerage or finder's fee or
other commission in connection with the transaction contemplated by this
Agreement.
3.21 Certain Payments. Neither the Company nor its Affiliates nor the
Representatives of any of them has directly or indirectly, in violation of any
Legal Requirement, on behalf of or for the purpose of assisting the Business,
made any contribution, gift, bribe, rebate, payoff, influence payment, kickback,
or other similar payments to any Person, private or public, regardless of form,
whether in money, property or services, to obtain favorable treatment in
securing business, to pay for favorable treatment for business secured, to
obtain special concessions or for special concessions already obtained, nor has
any such Person established or maintained, in violation of any Legal
Requirement, any fund or asset that has not been recorded in the Books and
Records.
495543.1
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3.22 Subscribers. Neither the Company nor any of its Affiliates has
solicited nor encouraged any Representative or any other Person to solicit, nor
has the Company or any of its Affiliates employed any scheme or device for the
purpose of encouraging, nor has the Company or its Affiliates encouraged any
Representative or any other Person to employ any scheme or device for the
purpose of encouraging, Persons residing outside the Service Areas or Persons
who would not be deemed Committed Member Residences to become subscribers of the
DIRECTV service offered by the Business. The Business does not provide DIRECTV
service to any Person who does not pay for a core DIRECTV programming package,
who resides outside the Service Areas or who is not otherwise a Committed Member
Residence.
3.23 Securities Matters.
(a) The Company and the Majority Shareholder understand, and
will cause each Shareholder of the Company who is receiving Pegasus Class A
Common Stock to understand, that none of the Pegasus Class A Common Stock
included in the Merger Consideration has been registered under the Securities
Act, on the grounds that the issuance thereof to the Shareholders in connection
with the Merger is exempt from registration pursuant to Section 4(2) of the
Securities Act and/or Regulation D promulgated under the Securities Act
("Regulation D"), and that the reliance of Pegasus on such exemptions is
predicated in part on the representations, warranties, covenants and
acknowledgements set forth in this Section 3.23.
(b) The Majority Shareholder is an Accredited Investor, as
that term is defined in Regulation D, and the Pegasus Class A Common Stock will
be acquired by him for his own account, not as a nominee or agent, for
investment and without a view to resale or other distribution within the meaning
of the Securities Act, and such Shareholder will not distribute or transfer any
of the Pegasus Class A Common Stock in violation of the Securities Act.
(c) The Company and the Majority Shareholder: (i) acknowledge
that the Pegasus Class A Common Stock is not registered under the Securities Act
and must be held indefinitely by the Shareholders unless the Pegasus Class A
Common Stock is subsequently registered under the Securities Act (in accordance
with the Stockholders' Agreement or otherwise) or an exemption from registration
is available, (ii) are aware that any routine sales of the Pegasus Class A
Common Stock made under Rule 144 of the Securities and Exchange Commission under
the Securities Act may be made only in limited amounts and in accordance with
the terms and conditions of that Rule and that in such cases where the Rule is
not applicable, registration or compliance with some other registration
exemption will be required, (iii) are aware that Rule 144 is not now and for a
period of at least one year following the Closing Date hereof will not be,
available for use by the Shareholders for resale of the Pegasus Class A Common
Stock, and (iv) are aware that Pegasus is not obligated to register any sale,
transfer or other disposition of the Pegasus Class A Common Stock except in
accordance with the provisions of the Stockholders' Agreement. The Company and
the Majority Shareholder will cause each Shareholder who is receiving Pegasus
Class A Common Stock to understand the foregoing.
(d) Each Shareholder who is receiving Pegasus Class A Common
Stock has such knowledge and experience in financial and business matters that
he is fully capable of evaluating the risks and merits of such Shareholder's
investment in the Pegasus Class A Common Stock.
(e) The Company and the Majority Shareholder acknowledge
receipt of the Pegasus Prospectus, the Pegasus 10-Q and such other documents,
agreements and information as the Company or any Shareholder has required, has
furnished a copy of the Pegasus Prospectus, the Pegasus 10-Q and such
495543.1
19
other documents, agreements and information to each Shareholder who is receiving
Class A Common Stock, and confirms and acknowledges that: (i) Pegasus has
afforded the Company and each Shareholder the opportunity to ask questions of
and receive answers from Pegasus's officers concerning the terms and conditions
of this Agreement and the Shareholders' investment in the Pegasus Class A Common
Stock and to obtain such additional information as the Company or any
Shareholder has requested, and (ii) the Company and the Shareholders have
availed themselves of such opportunity to the extent they deem necessary and
have received the information requested.
(f) In order to ensure compliance with the provisions of
subsection (b), the Company and the Majority Shareholder will cause each
Shareholder who is receiving Pegasus Class A Common Stock to covenant and agree
that, after the Closing, he will not sell, transfer or otherwise dispose of any
of the Pegasus Class A Common Stock or any interest therein (unless such sale,
transfer or disposition has been registered under the Securities Act in
accordance with the provisions of the Stockholders' Agreement or otherwise)
without there first having been compliance with either of the following
conditions:
(i) Pegasus shall have received a written opinion of
counsel in form and substance reasonably satisfactory to Pegasus, or a copy of a
"no-action" or interpretive letter of the Securities and Exchange Commission,
specifying the nature and circumstances of the proposed transfer and indicating
that the proposed transfer will not be in violation of any of the provisions of
the Securities Act; or
(ii) Pegasus shall have received an opinion from its
own counsel to the effect that the proposed transfer will not be in violation of
any of the provisions of the Securities Act.
(g) The Company and the Majority Shareholder will cause each
Shareholder who is receiving Pegasus Class A Common Stock to acknowledge and
agree that the certificates representing the Pegasus Class A Common Stock
issuable to him will contain a restrictive legend noting the restrictions on
transfer described in this Section and under federal and applicable state
securities laws, and that appropriate "stop-transfer" instructions will be given
to Pegasus's stock transfer agent.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PEGASUS AND MERGER SUB
Pegasus and Merger Sub jointly and severally represent and warrant to
the Company and the Majority Shareholder that the statements contained in this
Article IV are correct and complete as of the date of this Agreement.
4.1 Organization and Qualification. Each of Pegasus and Merger Sub is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, with all requisite power and authority to own, lease
and use its assets and to conduct its business as it is currently conducted.
Each of Pegasus and Merger Sub is duly qualified or licensed to do business in
and is in good standing in each jurisdiction in which the character of the
properties owned, leased or used by it or the nature of the activities conducted
by it makes such qualification necessary, except any such jurisdiction where the
failure to be so qualified or licensed and in good standing would not have a
material adverse effect on Pegasus or Merger Sub, as the case may be, or on the
validity, binding effect or enforceability of this Agreement.
4.2 Authority and Validity. Pegasus and Merger Sub each has all
requisite power and authority to execute and deliver, to perform its obligations
under, and to consummate the transactions contemplated
495543.1
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by, this Agreement and the Collateral Documents. The execution and delivery by
Pegasus and Merger Sub of, the performance by Pegasus and Merger Sub of their
respective obligations under, and the consummation by Pegasus and Merger Sub of
the transactions contemplated by, this Agreement and the Collateral Documents
have been duly authorized by all requisite corporate action of Pegasus and
Merger Sub. This Agreement has been duly executed and delivered by each of
Pegasus and Merger Sub and is the legal, valid and binding obligation of Pegasus
and Merger Sub, enforceable against each of them in accordance with its terms,
except as enforcement may be limited by bankruptcy, insolvency, moratorium,
fraudulent conveyance or other laws relating to or limiting creditors' rights
generally or by general principles of equity, regardless of whether such
enforceability is considered in a proceeding at law or in equity. Upon Pegasus's
and Merger Sub's execution and delivery of the Collateral Documents to which it
is a party, the Collateral Documents will be the legal, valid and binding
obligations of Pegasus or Merger Sub, as the case may be, enforceable against
each of them in accordance with their respective terms, except as enforcement
may be limited by bankruptcy, insolvency, moratorium, fraudulent conveyance or
other laws relating to or limiting creditors' rights generally or by general
principles of equity, regardless of whether such enforceability is considered in
a proceeding at law or in equity.
4.3 No Breach or Violation. Subject to obtaining the consents,
approvals, authorizations, and orders of and making the registrations or filings
with or giving notices to Governmental Authorities and Persons recited in the
exception to Section 4.4, the execution, delivery and performance by Pegasus and
Merger Sub of this Agreement and the Collateral Documents to which each is a
party and the consummation of the transactions contemplated hereby and thereby
in accordance with the terms and conditions hereof and thereof, do not and will
not conflict with, constitute a violation or breach of, constitute a default or
give rise to any right of termination or acceleration of any right or obligation
of Pegasus or Merger Sub under, or result in the creation or imposition of any
Encumbrance upon the property of Pegasus or Merger Sub by reason of the terms of
(i) its certificate of incorporation, by-laws or other charter or organizational
document, (ii) any material contract, agreement, lease, indenture or other
instrument to which Pegasus or Merger Sub is a party or by or to which Pegasus
or Merger Sub or its property may be bound or subject, (iii) any order,
judgment, injunction, award or decree of any arbitrator or Governmental
Authority or any statute, law, rule or regulation applicable to Pegasus or
Merger Sub or (iv) any Permit of Pegasus or Merger Sub, which in the case of
(ii), (iii) or (iv) above would have a material adverse effect on the ability of
Pegasus or Merger Sub to perform its obligations under this Agreement or any
Collateral Document.
4.4 Consents and Approvals. Except (i) as required under the NRTC
Distribution Agreement, (ii) as required under the Securities Act and the
Exchange Act, and (iii) as set forth in Schedule 4.4 hereto, no consent,
approval, authorization or order of, registration or filing with, or notice to,
any Governmental Authority or any other Person is necessary to be obtained, made
or given by Pegasus or Merger Sub in connection with the execution, delivery and
performance by Pegasus or Merger Sub of this Agreement or any Collateral
Documents or for the consummation by Pegasus or Merger Sub of the transactions
contemplated hereby or thereby.
4.5 Legal Proceedings. There is no action, suit, proceeding or
investigation, judicial, administrative or otherwise, that is pending or, to the
best knowledge of Pegasus or Merger Sub, threatened against Pegasus or Merger
Sub and that challenges the validity or propriety of, or may prevent or delay,
any of the transactions contemplated by this Agreement or the Collateral
Documents, or that may have a material adverse effect upon the business,
financial condition, assets or results of operations of Pegasus and Merger Sub
taken as a whole.
495543.1
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4.6 Capitalization. As of October 17, 1997, Pegasus's authorized
capital stock consisted of 30,000,000 shares of Class A Common Stock, per value
$.01 per share, of which 5,342,807 shares were outstanding, 15,000,000 shares of
Class B Common Stock, par value $.01 per share, of which 4,581,900 shares were
outstanding, and 5,000,000 shares of Preferred Stock, of which 105,490 shares
had been designated as Series A Preferred Stock, all of which such shares were
outstanding. Except as described in the Pegasus Prospectus, no Person has any
preemptive or other rights with respect to any such capital stock or securities
and there are no offers, options, warrants, rights, agreements or commitments of
any kind (contingent or otherwise) relating to the issuance, conversion,
registration, sale or transfer of any equity interests or other securities of
Pegasus or obligating Pegasus or any other Person to purchase or redeem any such
equity interests or other securities. The issuance by Pegasus of additional
capital stock or other securities between the date of this Agreement and the
Closing Date shall not be deemed to cause the representations and warranties in
this Section 4.6 to be untrue or breached as of the Closing Date. The Pegasus
Class A Common Stock, when issued in accordance with this Agreement, will have
been duly authorized, validly issued and outstanding and will be fully paid and
nonassessable. All of the issued and outstanding shares of Pegasus's Class A
Common Stock and Class B Common Stock have been duly authorized and are validly
issued and outstanding, fully paid and nonassessable, and have been issued in
compliance with applicable securities laws and other Legal Requirements.
4.7 Financial Information. Pegasus has delivered to the Company the
Pegasus Prospectus and the Pegasus 10-Q. The financial statements contained in
the Pegasus Prospectus and the Pegasus 10-Q (including the notes thereto) have
been prepared in accordance with GAAP applied on a consistent basis throughout
the periods covered thereby, are complete and correct in all material respects,
and present fairly the financial condition of the Persons reported on and their
results of operations as of the dates and for the periods indicated, subject in
the case of the unaudited financial statements only to normal year-end
adjustments (none of which will be material in amount) and the omission of
footnotes. Since October 15, 1997, there has been no material adverse change in,
and no event has occurred which is reasonably likely, individually or in the
aggregate, to result in any material adverse change in, the operations, assets,
prospects or condition (financial or otherwise) of Pegasus and its subsidiaries
taken as a whole.
4.8 Brokers or Finders. No broker or finder has acted directly or
indirectly for Pegasus in connection with the transactions contemplated by this
Agreement, and Pegasus has incurred no obligation to pay any brokerage or
finder's fee or other commission in connection therewith.
4.9 Compliance with Legal Requirements. Pegasus has operated its
business in compliance in all material respects with all Legal Requirements and
requirements of the NRTC (including the NRTC's by-laws, policies and procedures)
applicable to Pegasus. No action, suit, proceeding, hearing, investigation,
charge, complaint, claim, demand notice has been filed, commenced or, to
Pegasus's knowledge, threatened against Pegasus alleging any failure to so
comply.
4.10 Undisclosed Liabilities. Pegasus has no material Liability except
for (1) Liabilities reflected in the Pegasus Prospectus, and (2) Liabilities
incurred in the Ordinary Course since the date of the Pegasus Prospectus.
4.11 Disclosure. No representation or warranty of Pegasus in this
Agreement or the Collateral Documents contained, contains or will contain on the
date such agreement, certificate, report, instrument, list or other document was
or is delivered, any untrue statement of a material fact, or omitted, omits or
will omit on such date to state any material fact necessary in order to make the
statements made, in light of the circumstances under which they were made, not
misleading, nor will any such representation or
495543.1
22
warranty or statement contain on the Closing Date any untrue statement of a
material fact or omit on the Closing Date to state any material fact necessary
in order to make the statements made, in light of the circumstances under which
they were made, not misleading. The Pegasus Prospectus and the Pegasus 10-Q did
not, as of their respective dates, contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. All SEC filings required to be made by Pegasus have been made on
a timely basis.
ARTICLE V
PRE-CLOSING COVENANTS OF THE COMPANY AND THE MAJORITY SHAREHOLDER
5.1 Additional Information. The Company shall provide to Pegasus and
its Representatives (i) reasonable access to all of the Assets and Liabilities
of Company and (ii) such financial, operating and other documents, data and
information relating to the Company, the Business and the Assets and Liabilities
of the Company as Pegasus or its Representatives may reasonably request. Such
access shall include the right of Pegasus and its Representatives to inspect the
records, reports and correspondence of NRTC and DIRECTV and discuss such
records, reports and correspondence with NRTC and DIRECTV, and the Company shall
take all reasonable action necessary to facilitate the foregoing. In addition,
the Company shall take all action reasonably necessary to enable Pegasus and its
Representatives (including Coopers & ▇▇▇▇▇▇▇ L.L.P.) to review, inspect and
audit the Assets, Business and Liabilities of the Company and discuss them with
the Company's officers, employees, independent accountants, and counsel.
Notwithstanding any investigation that Pegasus may conduct of the Company, the
Business, the Assets and Liabilities, Pegasus and Merger Sub may fully rely on
the Company's representations, warranties, covenants and indemnities set forth
in this Agreement, the Collateral Documents and any documents, instruments or
certificates delivered hereunder and thereunder, which will not be waived or
affected by or as a result of such investigation.
5.2 Exclusivity. Neither the Company nor the Majority Shareholder shall
(i) solicit, initiate or encourage the submission of any proposal or offer from
any Person relating to the direct or indirect sale or transfer of any of the
Company's capital stock or the Assets ("Transfer"); (ii) participate in any
discussions or negotiations regarding, furnish any information with respect to,
assist or participate in or facilitate in any other manner any effort or attempt
by any Person to do or seek a Transfer; (iii) enter into any agreement or
understanding relating to a Transfer; or (iv) permit any Affiliate or
Representative to engage in the foregoing on behalf of the Company or the
Majority Shareholder.
5.3 Continuity and Maintenance of Operations.
(a) The Company shall: (i) comply in all material respects with all Legal
Requirements applicable to the Company and all requirements of the NRTC
applicable to the Company (including NRTC's by-laws, policies, procedures and
guidelines) relating to the Business; (ii) fulfill in all material respects its
obligations under and maintain in full force and effect all Contracts, including
the NRTC Distribution Agreement, and shall not, without the prior written
consent of Pegasus, alter, modify or amend any of the foregoing; (iii) use its
reasonable best efforts in consultation with Pegasus and its Affiliates, to
promote the financial success of the Business and promptly notify Pegasus of any
material adverse change in the prospects or condition (financial or otherwise)
of the Business; and (iv) use its reasonable best efforts to promote, develop
and preserve its relationships with the NRTC, DSS retailers, participating
cooperatives and its present employees as well as the goodwill of its suppliers,
customers and others having business relations with it, and promptly notify
Pegasus of any material adverse change in its relationship with any such Person.
Without limiting the generality of the foregoing, the Company shall maintain the
Assets in good order, condition and repair, shall maintain insurance relating to
the Business as in effect on the date of this Agreement, shall continue
promotion and other activities with respect to the Business (including,
495543.1
23
without limitation, billing, collection and subscriber matters) in accordance in
all material respects with past practice and in compliance with NRTC bylaws,
policies, procedures and guidelines, shall maintain inventories of DSS Systems
and supplies at not less than historical levels and shall keep and maintain all
of the Books and Records in the Ordinary Course. The Company shall continue to
enforce procedures for disconnection and/or discontinuance of service to
subscribers in accordance in all material respects with NRTC bylaws, policies,
procedures and guidelines.
(b) The Company shall not, without the prior written consent of
Pegasus: (i) change the rates charged for the Economy Choice programming package
or deviate from DIRECTV national programming packages or rates; (ii) engage in
marketing promotions other than in the Ordinary Course consistent with past
practices; (iii) sell, lease, transfer, convey or assign any of the Assets (or
enter into any contract to do any of the foregoing) other than in the Ordinary
Course, or permit the creation of any Encumbrance on any of the Assets; (iv)
permit the amendment or cancellation of the NRTC Distribution Agreement or any
other material Contract; (v) enter into any contract, commitment or agreement or
incur any indebtedness or other liability or obligation of any kind involving an
expenditure in excess of $1,000; (vi) make any change in the Company's
authorized or issued capital stock, grant any stock option or other right to
purchase shares of the Company's capital stock or other securities, issue or
make any commitment to issue any security, including any security exercisable
for, convertible into or exchangeable for capital stock, grant any registration
rights, pay any dividend or make any distribution on its capital stock or other
securities, or purchase, redeem, retire or make any other acquisition of shares
of its capital stock or other securities; or (vii) amend the Company's articles
of incorporation or by-laws.
(c) Without the prior written consent of Pegasus, neither the Company
nor the Majority Shareholder shall take or omit to take any action that would
cause either of them to be in breach of any representations, warranties or
covenants in this Agreement or the Collateral Documents or that would, if such
action had been taken or omitted on or before the date of this Agreement, have
been required to be disclosed on Schedule 3.10.
5.4 Consents and Approvals.
(a) As soon as practicable after execution of this Agreement,
the Company shall use its reasonable best efforts to obtain any necessary
consent, approval, authorization or order of, make any registration or filing
with or give any notice to, any Governmental Authority or Person as is required
to be obtained, made or given by the Company to consummate the transactions
contemplated by this Agreement and the Collateral Documents, including, without
limitation: (i) consents required under the NRTC Distribution Agreement; and
(ii) any authorizations, consents, approvals, actions, filings or notices set
forth in Schedule 3.5.
(b) The Company and the Majority Shareholder shall cooperate
with Pegasus in providing such information and reasonable assistance as may be
required in connection with the obligations of Pegasus under Section 6.1(a).
5.5 Adoption by Shareholders. The Company has secured the vote or
consent of the Shareholders required by the GBCC and the Company's articles of
incorporation and bylaws to approve and adopt this Agreement and the Merger. The
Company has furnished to each Shareholder a notice of
495543.1
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his rights to dissent from the Merger under the GBCC and to demand an appraisal
of his shares and has provided Pegasus with a copy of such notice.
5.6 Securities Filings. The Company shall, promptly after execution of
this Agreement, provide such information and documents to Pegasus and its
Affiliates concerning the Company as may be required or appropriate for
inclusion in any filing, notification or report required to be made by Pegasus
or any Affiliate of Pegasus under the Securities Act or the Exchange Act; and
shall cause their respective counsels and independent accountants to cooperate
with Pegasus, its Affiliates and their investment bankers, counsel and
independent accountants in the preparation of such filings, notifications and
reports. The Company represents and warrants to Pegasus that no information or
document provided by the Company for inclusion in any filing, notification or
report made by Pegasus or any Affiliate under the Securities Act or the Exchange
Act will contain any untrue statement of material fact or omit to state any
material fact necessary in order to make the statements made therein, in light
of the circumstances under which they were made, not misleading.
5.7 Notification of Certain Matters. The Company shall promptly provide
to Pegasus copies of any material notices from or correspondence from and to the
NRTC or DIRECTV or any Affiliates of DIRECTV. The Company and the Majority
Shareholder shall also promptly notify Pegasus of any fact, event, circumstance
or action that, if known on the date of this Agreement, would have been required
to be disclosed to Pegasus pursuant to this Agreement or the existence or
occurrence of which would cause any of the Company's or the Majority
Shareholder's representations or warranties under this Agreement not to be
correct and/or complete in all material respects. In addition, the Company and
the Majority Shareholder shall give prompt written notice to Pegasus of (i) any
material adverse development causing a breach of any of the Company's or the
Majority Shareholder's representations and warranties in Article III that are
not qualified by materiality, and (ii) any adverse development causing a breach
of any of the Company's or Majority Shareholder's representations and warranties
in Article III that are qualified by materiality. No disclosure by the Company
or the Majority Shareholder pursuant to this Section 5.7, however, shall be
deemed to amend or supplement this Agreement or to prevent or cure any
misrepresentation, breach of warranty, or breach of covenant by the Company or
the Majority Shareholder.
5.8 Supplements to Schedules. Each of Pegasus, Merger Sub, the Company
and the Majority Shareholder shall, from time to time prior to Closing,
supplement the Schedules to this Agreement with additional information that, if
existing or known to it on the date of this Agreement, would have been required
to be included in one or more Schedules to this Agreement for such Schedules to
be true and correct, to the extent the representation and warranties related to
such Schedules are qualified by materiality, or true and correct in all material
respects, to the extent the representations and warranties related to such
Schedules are not qualified by materiality. For purposes of determining the
satisfaction of any of the conditions to the obligations of Pegasus, Merger Sub,
the Company or the Majority Shareholder in Articles VII and VIII and the
liability of Pegasus and the Majority Shareholder following Closing for breaches
of representations and warranties under this Agreement, the Schedules to this
Agreement shall be deemed to include only (a) the information contained therein
on the date of this Agreement and (b) information added to the Schedules by
written supplements to such Schedules delivered prior to Closing by the Party
making such amendment that (i) are accepted in writing by the other Party or
(ii) reflect actions expressly permitted by this Agreement to be taken prior to
Closing.
5.9 Removal of Encumbrances. The Company shall take all necessary
actions to cause the termination, release, and removal on or prior to the
Closing Date, of all Encumbrances relating to the Assets or the Business or
relating to the Company which may reasonably be expected to affect the Assets
495543.1
25
or the Business, including without limitation, the discharging or other
satisfaction of related Liabilities, in each case without incurring any
obligations on the part of Pegasus or Merger Sub or otherwise adversely
affecting Pegasus or Merger Sub.
5.10 Duty of Good Faith and Fair Dealing. The Company and the Majority
Shareholder agree that they will act in good faith with regard to all matters
that are the subject of this Agreement, and will neither intentionally nor
knowingly take any action or omit to take any action at any time for the primary
purpose of depriving Pegasus or Merger Sub unfairly of any right or benefit that
Pegasus or Merger Sub has at such time under this Agreement.
5.11 ShareholderInvestment Representations. The Company and the Majority
Shareholder shall cause each other Shareholder who is to receive Pegasus Common
Stock to make written representations, warranties and agreements to and with
Pegasus to the effect set forth in Section 3.23.
ARTICLE VI
PRE-CLOSING COVENANTS OF PEGASUS AND MERGER SUB
Pegasus covenants and agrees as follows:
6.1 Consents and Approvals.
(a) As soon as practicable after execution of this Agreement,
Pegasus and Merger Sub shall use their best efforts to obtain any necessary
consent, approval, authorization or order of, make any registration or filing
with or give notice to, any Governmental Authority or Person as is required to
be obtained, made or given by Pegasus or Merger Sub to consummate the
transactions contemplated by this Agreement and the Collateral Documents,
including without limitation: (i) consents required under the NRTC Distribution
Agreement; (ii) consents required by Pegasus' lender under a line of credit
and/or a term loan; and (iii) any authorizations, consents, approvals, actions,
filings or notices set forth in Schedule 4.4. Notwithstanding anything in this
Section 6.1(a) to the contrary, Pegasus and Merger Sub shall not be required to
agree to any amendments, modifications or changes in, the waiver of any terms or
conditions of, or the imposition of any condition to the transfer to Pegasus of,
the NRTC Distribution Agreement in order to obtain the consents required under
the NRTC Distribution Agreement, if any such amendments, modification, changes,
waivers or impositions materially impair the ability of Pegasus or the Surviving
Corporation to realize the benefits of the transactions contemplated by this
Agreement. Notwithstanding the foregoing, Pegasus acknowledges that it will be
required to increase the amount of its line of credit in favor of the NRTC and
to pay a transfer fee to the NRTC as a consequence of the transactions
contemplated by this Agreement.
(b) Pegasus and Merger Sub shall cooperate with the Company in
providing such information and reasonable assistance as may be required in
connection with the Company's obligations under Section 5.4(a).
6.2 Duty of Good Faith and Fair Dealings. Pegasus and Merger Sub each
agree that it will act in good faith with regard to all matters that are the
subject of this Agreement and will neither intentionally nor knowingly take any
action or omit to take any action at any time for the primary purpose of
depriving the Company unfairly of any right or benefit that the Company has at
such time under this Agreement.
495543.1
26
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF PEGASUS AND MERGER SUB
All obligations of Pegasus and Merger Sub under this Agreement shall be
subject to the fulfillment at or prior to Closing of each of the following
conditions, it being understood that Pegasus and Merger Sub may, in their sole
discretion, to the extent permitted by applicable Legal Requirements, waive any
or all of such conditions in whole or in part:
7.1 Accuracy of Representations. All representations and warranties of
the Company, the Majority Shareholder and the Company Employees contained in
this Agreement and the Collateral Documents shall be, if specifically qualified
by materiality, true in all respects and, if not so qualified, shall be true in
all material respects, in each case on and as of the Closing Date with the same
effect as if made on and as of the Closing Date. The Company shall have
delivered to Pegasus and Merger Sub a certificate dated the Closing Date to the
foregoing effect.
7.2 Covenants. The Company and the Majority Shareholder shall, in all
material respects, have performed and complied with each of the covenants,
obligations, conditions and agreements contained in this Agreement that are to
be performed or complied with by them at or prior to Closing. The Company shall
have delivered to Pegasus and Merger Sub a certificate dated the Closing Date to
the foregoing effect.
7.3 Consents.
(a) All consents, approvals, authorizations and orders
required to be obtained from, and all registrations, filings and notices
required to be made with or given to, any Governmental Authority or Person as
provided in Sections 5.4(a) and 6.1(a) shall have been duly obtained, made or
given, as the case may be, and shall be in full force and effect, and any
waiting period required by Legal Requirement or any Governmental Authority in
connection with such transactions shall have expired or have been earlier
terminated, unless the failure to obtain, make or give any such consent,
approval, authorization, order, registration, filing or notice, or to allow any
such waiting period to expire or terminate would not have a material adverse
effect on the Company, the Assets or the Business or the ability of the Company
to consummate the transactions contemplated by this Agreement and the Collateral
Documents.
(b) Notwithstanding the foregoing, this condition precedent
shall not have been satisfied if any consent, approval, authorization or order
obtained in connection with the transactions contemplated by this Agreement and
the Collateral Documents has been conditioned upon the amendment, modification,
cancellation or termination of, or waiver of any term or condition of, any
contract, commitment or agreement, or imposes upon Pegasus or the Surviving
Corporation any material condition or requirement not now imposed upon the
Company.
(c) Pegasus and Merger Sub shall have been furnished with
appropriate evidence, reasonably satisfactory to it and its counsel, of the
granting of such consents, approvals, authorizations and orders, the making of
such registrations and filings and the giving of such notices referred to in
paragraph (a) above.
7.4 Delivery of Documents. The Company and the Majority Shareholder
shall have delivered, or caused to be delivered, to Pegasus and Merger Sub the
following documents:
495543.1
27
(i) Noncompetition Agreement executed by the
Majority Shareholder and by each of the Company Employees.
(ii) Stockholders' Agreement executed by the
Majority Shareholder and ▇▇. ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇.
(iii) The agreements described in Section 5.11
executed by each Shareholder who is to receive Pegasus Common Stock (other than
the Majority Shareholder).
(iv) Schedule satisfactory to Pegasus and certified
as being complete and correct by the Company reflecting the number of
Subscribers as of October 31, 1997 based upon reports of the NRTC, including the
most recent ad hoc Active Subscribers Report, ad hoc Active Subscribers Without
Core Packages Report and the ad hoc Cut Off Report by Level.
(v) Evidence reasonably satisfactory to Pegasus that
the Company, the Majority Shareholder and each Company Employee has taken all
action necessary to authorize the execution of this Agreement and the Collateral
Documents to which he or it is a party and the consummation of the transactions
contemplated hereby and thereby, including any actions required to be taken by
the Company and/or its Shareholders pursuant to State law.
(vi) Opinion of ▇▇▇▇▇▇, Golden & ▇▇▇▇▇▇▇, LLP,
counsel to the Company, dated the Closing Date, in the form attached hereto as
Exhibit 7, which opinion shall include a statement authorizing reliance thereon
by those lenders providing debt financing to Pegasus or its Affiliates for which
Bankers Trust is acting as administrative agent.
(vii) The Books and Records.
(viii) The originally executed NRTC Agreement and
all amendments thereto.
(ix) The original Consumer Contracts and all
original files relating thereto, including disclosure statements required by
applicable Legal Requirements.
(x) A pay-off statement for those loans of the
Company to be discharged by Pegasus at Closing pursuant to Section 8.7,
reflecting the outstanding principal and interest owed as of October 31, 1997
and the per diem interest amount, which statement shall be attached hereto as
Schedule 8.7.
(xi) Such other documents and instruments as Pegasus
may reasonably request: (A) to evidence the performance by the Company, the
Majority Shareholder and the Company Employees of, or the compliance by the
Company, the Majority Shareholder and the Company Employees with, any covenant,
obligation, condition and agreement to be performed or complied with by the
Company and/or the Majority Shareholder or any Company Party under this
Agreement and the Collateral Documents; or (B) to otherwise facilitate the
consummation or performance of any of the transactions contemplated by this
Agreement and the Collateral Documents.
7.5 No Material Adverse Change. There shall have been no material
adverse change in the Assets or in the Business. For purposes hereof, a material
adverse change shall include, without limitation,
495543.1
28
fewer than 5,650 Subscribers as of October 31, 1997, as evidenced by the
schedule referred to in Section 7.4(iv) above.
7.6 No Litigation. No action, suit or proceeding shall be pending or
threatened, and no Legal Requirement or policy of the NRTC, DirecTV, Inc. or any
of their Affiliates, or any applicable regulatory authority shall have been
enacted, promulgated or issued that would: (i) prohibit or materially adversely
affect Pegasus's or the Surviving Corporation's ownership or operation of all or
a material portion of the Business or the Assets or otherwise materially impair
the ability of Pegasus or the Surviving Corporation to realize the benefits of
the transactions contemplated by this Agreement and the Collateral Documents or
materially adversely affect the value of the Assets; (ii) materially restrict or
limit or otherwise condition Pegasus's or the Surviving Corporation's right to
transfer and/or assign the Business or the Assets in the future; (iii) compel
Pegasus or the Surviving Corporation to dispose of or hold separate all or a
material portion of the Business or the Assets as a result of any of the
transactions contemplated by this Agreement and the Collateral Documents; (iv)
prevent or make illegal the consummation of any transactions contemplated by
this Agreement and the Collateral Documents; or (v) cause any of the
transactions contemplated by this Agreement and the Collateral Documents to be
rescinded following consummation.
7.7 NRTC Compliance Certificate. The Company shall have delivered to
Pegasus a certificate or letter from NRTC dated as of the Closing Date to the
effect that the Company is in compliance with the NRTC Distribution Agreement
and there are no payments due by the Company under the NRTC Distribution
Agreement other than payments for fees due in the Ordinary Course and not yet
payable.
7.8 Dissenters' Rights. No Shareholder shall have exercised dissenters'
rights under the GBCC in connection with the Merger, and each Shareholder shall
have executed and delivered a waiver of such rights in form and substance
satisfactory to Pegasus.
7.9 Fairness Opinion. Pegasus shall have received a fairness opinion
reasonably satisfactory to it to the effect that the transactions contemplated
by this Agreement are fair to Pegasus from a financial point of view. Pegasus
shall use its reasonable best efforts to obtain such fairness opinion.
ARTICLE VIII
CONDITIONS PRECEDENT TO OBLIGATIONS
OF THE COMPANY AND THE MAJORITY SHAREHOLDER
All obligations of the Company and the Majority Shareholder under this
Agreement shall be subject to the fulfillment at or prior to Closing of the
following conditions, it being understood that the Company and the Majority
Shareholder may, in their sole discretion, to the extent permitted by applicable
Legal Requirements, waive any or all of such conditions in whole or in part.
8.1 Accuracy of Representations. All representations and warranties of
Pegasus and Merger Sub contained in this Agreement and the Collateral Documents
shall be, if specifically qualified by materiality, true and correct in all
respects and, if not so qualified, shall be true and correct in all material
respects, in each case on and as of the Closing Date with the same effect as if
made on and as of the Closing Date. Pegasus and Merger Sub shall have delivered
to the Company a certificate dated the Closing Date to the foregoing effect.
8.2 Covenants. Pegasus and Merger Sub shall, in all material respects,
have performed and complied with each obligation, agreement, covenant and
condition contained in this Agreement and required
495543.1
29
by this Agreement to be performed or complied with by Pegasus or Merger Sub at
or prior to Closing. Pegasus and Merger Sub shall have delivered to the Company
a certificate dated the Closing Date to the foregoing effect.
8.3 Consents. All consents, approvals, authorizations and orders
required to be obtained from, and all registrations, filings and notices
required to be made with or given to, any Governmental Authority or Person as
provided in Section 6.1(a) shall have been duly obtained, made or given, as the
case may be, and shall be in full force and effect, and any waiting period
required by applicable law or any Governmental Authority in connection with such
transactions shall have expired or have been earlier terminated, unless the
failure to obtain, make or give any such consent, approval, authorization,
order, registration, filing or notice, or to allow any such waiting period to
expire or terminate would not have a material adverse effect on the ability of
Pegasus and Merger Sub to consummate the transactions contemplated by this
Agreement and the Collateral Documents. The Company and the Majority Shareholder
shall have been furnished with the appropriate evidence, reasonably satisfactory
to them and their counsel, of the granting of such consents, approvals,
authorizations and orders, the making of such registrations and filings and the
giving of such notices.
8.4 Delivery of Documents. Pegasus and Merger Sub, as applicable, shall
have executed and delivered, or caused to be executed and delivered, to the
Company and the Majority Shareholders the following documents:
(i) Stockholders' Agreement.
(ii) Evidence reasonably satisfactory to the Company
and the Majority Shareholder that Pegasus and Merger Sub have each taken all
action necessary to authorize the execution of this Agreement and the Collateral
Documents and the consummation of the transactions contemplated hereby.
(iii) Such other documents and instruments as the
Company and the Majority Shareholder may reasonably request: (A) to evidence the
performance by Pegasus and Merger Sub of, or the compliance by Pegasus or Merger
Sub with, any covenant, obligation, condition and agreement to be performed or
complied with by Pegasus or Merger Sub under this Agreement and the Collateral
Documents; or (B) to otherwise facilitate the consummation or performance of any
of the transactions contemplated by this Agreement and the Collateral Documents.
(iv) Opinion of Drinker ▇▇▇▇▇▇ & ▇▇▇▇▇ LLP, counsel
to Pegasus and Merger Sub dated the Closing Date, in the form attached hereto as
Exhibit 8.
8.5 Litigation. No action, suit or proceeding shall be pending or
threatened by or before any Governmental Authority and no Legal Requirement
shall have been enacted, promulgated or issued or deemed applicable to any of
the transactions contemplated by this Agreement and the Collateral Documents
that would: (i) prevent consummation of any of the transactions contemplated by
this Agreement and the Collateral Documents; or (ii) cause any of the
transactions contemplated by this Agreement and the Collateral Documents to be
rescinded following consummation.
8.6 No Material Adverse Change. There shall have been no material
adverse change in the business of Pegasus, taken as a whole, since June 30,
1997.
495543.1
30
8.7 Payoff of Loans. Pegasus or Merger Sub shall have repaid, or
Pegasus or Merger Sub shall have caused the repayment of, all Liabilities
(including principal and accrued interest) which are outstanding as of the
Closing under the loans described on Schedule 8.7 attached hereto.
ARTICLE IX
POST-CLOSING COVENANTS
The Parties agree as follows with respect to the period following
Closing:
9.1 Transition.
(a) The Majority Shareholder shall not take any action that is
designed or intended to have the effect of discouraging any lessor, licensor,
subscriber, supplier or other business associate of the Company or the Business
from maintaining the same business relationships with Pegasus and the Surviving
Corporation after Closing as it maintained with the Company prior to Closing.
The Majority Shareholder shall refer all subscriber inquiries which he receives
relating to the Business to Pegasus from and after Closing.
(b) Before or promptly after the Closing Date, the Majority
Shareholder shall furnish to Pegasus a copy of the Company's "Remittance
Processing Cash Report - Daily Summary" for each day from and including October
31, 1997 to and including the Closing Date. Promptly following the Closing Date,
the Majority Shareholder shall remit to Pegasus the amount of the Majority
Shareholder's cash receipts relating to the Business on or after October 31,
1997.
9.2 Employee Matters. After the Closing, Pegasus will provide health
insurance coverage to the former employees of the Company under the Company's
existing health insurance plan or a plan maintained by Pegasus for so long as
such employees remain employed by Pegasus. If Pegasus terminates the employment
of any person identified on Schedule 9.2 hereto, Pegasus will pay to such person
the severance amount set forth opposite his or her name on Schedule 9.2 subject
to the receipt by Pegasus of an executed release from such employee in form and
substance reasonably satisfactory to Pegasus.
9.3 Taxes. Within thirty (30) days after the Closing Date, the Company's
accountants shall prepare and deliver to Pegasus the Company's Tax Returns (on a
pro forma basis) for the period commencing January 1, 1997 and ending on the
Closing Date (the "1997 Returns"), which will be accurate and complete in all
material respects. Pegasus will execute the 1997 Returns on behalf of the
Company and cause them to be filed with the Internal Revenue Service and
applicable state and local taxing authorities.
9.4 Financial Statements. The Majority Shareholder will reasonably
cooperate with and assist Pegasus in the preparation of financial statements for
the Business for the period January 1, 1997 through November 7, 1997, consisting
of balance sheet, a statement of operations and a statement of cash flows. All
such financial statements shall be prepared in accordance with GAAP, subject to
normal year-end adjustments (none of which will be material in amount) and the
omission of notes.
9.5 Second Generation Rights. In the event that the NRTC Distribution
Agreement terminates (when the current generation of satellites is removed from
its orbital location or otherwise) and DIRECTV, or the NRTC again offers
exclusive rights to distribute DIRECTV or a similar product in the Service Areas
("Second Generation Rights"), and Pegasus or its Affiliate notifies the Majority
Shareholder that it desires
495543.1
31
to obtain the Second Generation Rights, then the Majority Shareholder shall
relinquish any rights it or the Company may have to obtain the Second Generation
Rights in favor of Pegasus or its Affiliate. This provision shall survive the
termination of the Survival Period indefinitely.
ARTICLE X
TERMINATION
10.1 Events of Termination. This Agreement may be terminated and the
transactions contemplated by this Agreement may be abandoned at any time prior
to Closing as provided below:
(a) Pegasus, Merger Sub, the Majority Shareholder and the
Company may terminate this Agreement by mutual written consent at any time prior
to Closing.
(b) Pegasus and Merger Sub may terminate this Agreement by
giving written notice to the Company and the Majority Shareholder at any time
prior to Closing if the Company or the Majority Shareholder has breached any
material representation, warranty or covenant contained in this Agreement in any
material respect, Pegasus has notified the Company and the Majority Shareholder
in writing of the breach, and the breach has continued without cure for a period
of 30 days after receipt of the notice of breach;
(c) The Company and the Majority Shareholder may terminate
this Agreement by giving written notice to Pegasus at any time prior to Closing
if Pegasus or Merger Sub has breached any material representation, warranty or
covenant contained in this Agreement in any material respect, the Company has
notified Pegasus in writing of the breach, and the breach has continued without
cure for a period of 30 days after receipt of the notice of breach;
(d) Pegasus and Merger Sub may terminate this Agreement if the
Closing shall not have occurred on or before November 30, 1997 by reason of the
failure of any condition precedent under Article VII (unless the failure results
primarily from Pegasus or Merger Sub breaching any representation, warranty or
covenant contained in this Agreement); or
(e) The Company and the Majority Shareholder may terminate
this Agreement if the Closing shall not have occurred on or before November 30,
1997 by reason of the failure of any condition precedent under Article VIII
hereof (unless the failure results primarily from the Company or the Majority
Shareholder breaching any representation, warranty or covenant contained in this
Agreement).
10.2 Liabilities in Event of Termination. The termination of this
Agreement will in no way limit any obligation or liability of any Party based on
or arising from a breach or default by such Party with respect to any of its
representations, warranties, covenants or agreements contained in this
Agreement.
10.3 Procedure Upon Termination. If this Agreement is terminated by any
Party pursuant to this Article, notice of such termination shall promptly be
given by the terminating Party to the other Party.
ARTICLE XI
REMEDIES FOR BREACH OF THIS AGREEMENT
11.1 Survival of Representations and Warranties. All of the
representations and warranties of Pegasus, Merger Sub, and the Sellers contained
in this Agreement shall survive Closing and continue in
495543.1
32
full force and effect until April 30, 1999 except that (i) any representation or
warranty made by the Sellers in or pursuant to Section 3.13 (Taxes) shall
survive until the expiration of the longest statute of limitations period during
which a claim arising out of or based upon any breach of such representation or
warranty could be brought, and (ii) any representation or warranty made by the
Sellers in or pursuant to Section 3.2 (Capitalization), Section 3.3 (Authority
or Validity) or Section 3.6 (Title to Assets) shall survive indefinitely. The
period of survival prescribed by this Section 11.1 is referred to as the
"Survival Period." The liabilities of Pegasus, Merger Sub and the Sellers under
their respective representations and warranties will expire as of the expiration
of the Survival Period for such representations and warranties; provided,
however, that such expiration will not include, extend or apply to any
representation or warranty, the breach of which has been asserted by (i) Pegasus
or Merger Sub in a written notice to the Majority Shareholder before such
expiration, or (ii) the Majority Shareholder in a written notice to Pegasus
before such expiration, which indicates that facts or conditions exist that,
with the passage of time or otherwise, can reasonably be expected to result in a
breach (and describing such potential breach in reasonable detail). Except as
otherwise provided in this Agreement, the covenants and agreements of Pegasus,
Merger Sub and the Sellers in this Agreement shall survive indefinitely.
11.2 Indemnification Provisions for Benefit of Pegasus and Merger Sub.
(a) If the Sellers breach any representations and warranties
contained in this Agreement or the Collateral Documents or any documents,
instruments and certificates delivered hereunder and thereunder, and if Pegasus
makes a written claim for indemnification against the Majority Shareholder
within the Survival Period for such representations and warranties, then,
subject to the limitations of subsection (c), the Majority Shareholder shall
indemnify Pegasus, Merger Sub and their Affiliates and the shareholders,
directors, officers, employees, agents, successors and assigns of any of such
Persons from and against any Adverse Consequences that any such Person may
suffer through and after the date of the claim for indemnification (including
any Adverse Consequences that any such Person may suffer after the end of the
Survival Period) resulting from, arising out of, relating to or caused by the
breach.
(b) Subject to the limitations of subsection (c), the Majority
Shareholder shall indemnify Pegasus, Merger Sub and their Affiliates, and the
shareholders, directors, officers, employees, agents, successors and assigns of
any of such Persons from and against the entirety of any Adverse Consequences
that any such Person may suffer resulting from, arising out of, relating to, in
the nature of, or caused by any of the following: (i) any breach of any
covenant, agreement or obligation of the Majority Shareholder or the Company
contained in this Agreement or the Collateral Documents, (ii) any Liability for
Taxes attributable to the use, ownership or operation of the Assets by the
Company or the Business or otherwise imposed on the Company relating to periods
prior to Closing, but only to the extent that any such Liability is not included
in the Definitive Allocation Statement, (iii) any commissions or similar
payments payable on account of or related to subscriber acquisitions relating to
periods prior to Closing including, without limitation, commissions under the
National Joint Promotion, the Committed Member Marketing Agreement and Enhanced
Marketing Program, but only to the extent any such commissions or payments are
not accrued for in the Definitive Allocation Statement, or (iv) any claim by an
employee of Company for severance in excess of the amounts set forth on Schedule
9.2. Such Persons' rights to indemnity under this Section 11.2 shall expire on
April 30, 1999; provided, however, that such expiration will not include, extend
or apply to rights for indemnity with respect to (A) any claim asserted in good
faith in a written notice to the Majority Shareholder before such expiration, or
(B) any claim pursuant to subsections (ii) or (iii) above or based on a breach
of Section 9.5.
495543.1
33
(c) No Person otherwise entitled to indemnification under this
Section 11.2 shall be so entitled until the aggregate amount otherwise payable
under this Section 11.2 exceeds $75,000, in which event such Person shall be
entitled to indemnification for the entire amount owed under this Section 11.2
from the first $1.00 forward.
11.3 Indemnification Provisions for Benefit of the Company and
Shareholders.
(a) If Pegasus or Merger Sub breaches any of its
representations and warranties contained in this Agreement and if the Majority
Shareholder makes a written claim for indemnification against Pegasus and the
Surviving Corporation within the Survival Period, then Pegasus and the Surviving
Corporation shall jointly and severally indemnify, defend and hold harmless the
Majority Shareholder (on behalf of the Shareholders and Optionholders who are
damaged by such breach), the former directors, officers, employees and agents of
the Company and the assigns of any of such Persons, from and against any Adverse
Consequences that any such Person may suffer through and after the date of the
claim for indemnification (including any Adverse Consequences that any such
Person may suffer after the end of the Survival Period) resulting from, arising
out of, relating to or caused by the breach.
(b) Pegasus and the Surviving Corporation shall, jointly and
severally, indemnify the Majority Shareholder (on behalf of the Shareholders and
Optionholders who are damaged by a breach or Liability described below), the
former directors, officers, employees, and agents of the Company and the assigns
of any such Persons against the entirety of any Adverse Consequences that any
such Person may suffer resulting from, arising out of, relating to, in the
nature of, or caused by any of the following: (i) any breach of any covenant,
agreement or obligation of Pegasus or Merger Sub contained in this Agreement;
(ii) any Liability for Taxes attributable to the use, ownership or operation of
the Assets or the transferred Business by Pegasus or Merger Sub relating to
periods after the Closing Date; and (iii) any Liability of the Majority
Shareholder arising out of the guarantee signed by the Majority Shareholder in
connection with the Lease Agreement dated February 28, 1994 between the Company
and Georgia 400 Associates, as amended. Such Persons' rights to indemnity under
this Section 11.2 shall expire on April 30, 1999; provided, however, that such
expiration will not include, extend or apply to rights for indemnity with
respect to any claim asserted in good faith in a written notice to Pegasus
before such expiration.
(c) No Person otherwise entitled to indemnification under this
Section 11.3 shall be so entitled until the aggregate amount otherwise payable
under this Section 11.3 exceeds $75,000, in which event such Person shall be
entitled to indemnification for the entire amount owed under this Section 11.2
from the first $1.00 forward.
11.4 Matters Involving Third Parties.
(a) If any third party shall notify either Pegasus, the
Surviving Corporation or the Majority Shareholder (the "Indemnified Party") with
respect to any matter (a "Third Party Claim") that may give rise to a claim for
indemnification against the other (the "Indemnifying Party") under this Article,
then the Indemnified Party shall promptly notify the Indemnifying Party thereof
in writing; provided, however, that no delay on the part of the Indemnified
Party in notifying any Indemnifying Party shall relieve the Indemnifying Party
from any obligation hereunder unless (and then solely to the extent) the
Indemnifying Party thereby is prejudiced.
(b) Any Indemnifying Party shall have the right to defend the
Indemnified Party against the Third Party Claim with counsel of its choice
reasonably satisfactory to the Indemnified Party so long
495543.1
34
as: (i) the Indemnifying Party notifies the Indemnified Party in writing within
15 days after the Indemnified Party has given notice of the Third Party Claim
that the Indemnifying Party will indemnify the Indemnified Party from and
against the entirety of any Adverse Consequences the Indemnified Party may
suffer resulting from, arising out of, relating to, in the nature of or caused
by the Third Party Claim; (ii) the Indemnifying Party provides the Indemnified
Party with evidence acceptable to the Indemnified Party that the Indemnifying
Party will have the financial resources to defend against the Third Party Claim
and fulfill its indemnification obligations hereunder; (iii) settlement of, or
an adverse judgment with respect to, the Third Party Claim is not, in the good
faith judgment of the Indemnified Party, likely to establish a precedential
custom or practice adverse to the continuing business interests of the
Indemnified Party; and (iv) the Indemnifying Party conducts the defense of the
Third Party Claim actively and diligently.
(c) So long as the Indemnifying Party is conducting the
defense of the Third Party Claim in accordance with subsection (b): (i) the
Indemnified Party may retain separate co-counsel at its sole cost and expense
and participate in the defense of the Third Party Claim; (ii) the Indemnified
Party shall not consent to the entry of any judgment or enter into any
settlement with respect to the Third Party Claim without the prior written
consent of the Indemnifying Party; and (iii) the Indemnifying Party shall not
consent to the entry of any judgment or enter into any settlement with respect
to the Third Party Claim without the prior written consent of the Indemnified
Party.
(d) If any of the conditions in Section 11.4(b) above is not
or no longer satisfied, however: (i) the Indemnified Party may defend against,
and consent to the entry of any judgment or enter into any settlement with
respect to, the Third Party Claim in any manner it reasonably may deem
appropriate (and the Indemnified Party need not consult with, or obtain any
consent from, any Indemnifying Party in connection therewith); (ii) the
Indemnifying Party shall reimburse the Indemnified Party promptly and
periodically for the costs of defending against the Third Party Claim (including
attorneys' fees and expenses); and (iii) the Indemnifying Party shall remain
responsible for any Adverse Consequences the Indemnified Party may suffer
resulting from, arising out of, relating to, in the nature of or caused by the
Third Party Claim to the fullest extent provided in this Article XI.
11.5 Determination of Adverse Consequences. Pegasus, the Surviving
Corporation and the Majority Shareholder shall take into account the time cost
of money (using the Applicable Rate as the discount rate) in determining Adverse
Consequences for purposes of this Article XI. All indemnification payments under
this Article shall be net of any insurance proceeds received by the Indemnified
party in respect of the event or circumstance giving rise to the claim for
indemnification and shall be deemed adjustments to the Merger Consideration.
ARTICLE XII
MISCELLANEOUS
12.1 Parties Obligated and Benefited. This Agreement shall be binding
upon the Parties and their respective assigns and successors in interest and
shall inure solely to the benefit of the Parties and their respective assigns
and successors in interest, and no other Person shall be entitled to any of the
benefits conferred by this Agreement, except that the Shareholders shall be
third party beneficiaries of this Agreement. Without the prior written consent
of the other Party, no Party may assign this Agreement or the Collateral
Documents or any of its rights or interests or delegate any of its duties under
this Agreements or the Collateral Documents; provided, however, that Pegasus (a)
may assign this Agreement and the Collateral Documents or any of its rights or
interests or delegate any of its duties hereunder or thereunder to an Affiliate;
provided, however, that any such assignment or delegation shall not release
Pegasus from
495543.1
35
any of its obligations hereunder or thereunder and (b) may collaterally assign
its rights under this Agreement and the Collateral Documents to any group of
lenders providing debt financing to Pegasus or its Affiliates for which Bankers
Trust acts as administrative agent.
12.2 Notices. Any notices and other communications required or
permitted hereunder shall be in writing and shall be effective upon delivery by
hand or upon receipt if sent by certified or registered mail (postage prepaid
and return receipt requested) or by a nationally recognized overnight courier
service (appropriately marked for overnight delivery) or upon transmission if
sent by telex or facsimile (with request for immediate confirmation of receipt
in a manner customary for communications of such respective type and with
physical delivery of the communication being made by one or the other means
specified in this Section as promptly as practicable thereafter). Notices shall
be addressed as follows:
(a) If to Pegasus, Merger Sub or the Surviving Corporation,
to:
Pegasus Communications Corporation
5 Radnor Corporate Center
▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇. ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Telecopier: ▇▇▇-▇▇▇-▇▇▇▇
(with a copy to ▇▇▇ ▇. Lodge, Esquire at the same address)
(b) If to the Company before the Closing Date or to the
Majority Shareholder before or after the Closing Date, to:
Viewstar Entertainment Services, Inc.
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Telecopier: ▇▇▇-▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇, Golden & ▇▇▇▇▇▇▇, LLP
2800 One Atlantic Center
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇., Esq.
Telecopier: ▇▇▇-▇▇▇-▇▇▇▇
Any Party may change the address to which notices are required to be sent by
giving notice of such change in the manner provided in this Section.
12.3 Attorneys' Fees. In the event of any action or suit based upon or
arising out of any alleged breach by any Party of any representation, warranty,
covenant or agreement contained in this Agreement or the Collateral Documents,
the prevailing Party shall be entitled to recover reasonable attorneys' fees and
other costs of such action or suit from the other Party.
495543.1
36
12.4 Headings. The Article and Section headings of this Agreement are
for convenience only and shall not constitute a part of this Agreement or in any
way affect the meaning or interpretation thereof.
12.5 Choice of Law. This Agreement and the rights of the Parties under
it shall be governed by and construed in all respects in accordance with the
laws of the Commonwealth of Pennsylvania, without giving effect to any choice of
law provision or rule (whether of the Commonwealth of Pennsylvania or any other
jurisdiction that would cause the application of the laws of any jurisdiction
other than the Commonwealth of Pennsylvania).
12.6 Rights Cumulative. All rights and remedies of each of the Parties
under this Agreement shall be cumulative, and the exercise of one or more rights
or remedies shall not preclude the exercise of any other right or remedy
available under this Agreement or applicable law.
12.7 Further Actions. The Parties shall execute and deliver to each
other, from time to time at or after Closing, for no additional consideration
and at no additional cost to the requesting party, such further assignments,
certificates, instruments, records, or other documents, assurances or things as
may be reasonably necessary to give full effect to this Agreement and to allow
each party fully to enjoy and exercise the rights accorded and acquired by it
under this Agreement.
12.8 Time of the Essence. Time is of the essence under this Agreement.
If the last day permitted for the giving of any notice or the performance of any
act required or permitted under this Agreement falls on a day which is not a
Business Day, the time for the giving of such notice or the performance of such
act shall be extended to the next succeeding Business Day.
12.9 Late Payments. If either Party fails to pay the other any amounts
when due under this Agreement, the amounts due will bear interest from the due
date to the date of payment at the Applicable Rate.
12.10 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
12.11 Entire Agreement. This Agreement (including the Exhibits,
Schedules and any other documents, instruments and certificates referred to
herein, which are incorporated in and constitute a part of this Agreement)
contains the entire agreement of the Parties and supersedes all prior oral or
written agreements, understandings and representations to the extent that they
relate in any way to the subject matter hereof, including the Letter of Intent.
12.12 Amendments and Waivers. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by the
Parties. No waiver by any party of any default, misrepresentation or breach of
warranty or covenant hereunder shall be valid unless the same shall be in
writing and signed by the Person against whom its enforcement is sought, and no
such waiver whether intentional or not, shall be deemed to extend to any prior
or subsequent default, misrepresentation or breach of warranty or covenant
hereunder or affect in any way any rights arising by virtue of any prior or
subsequent such occurrence.
12.13 Construction. The Parties have participated jointly in the
negotiation and drafting of this Agreement. If an ambiguity or question of
intent or interpretation arises, this Agreement shall be construed as if drafted
jointly by the parties and no presumption or burden of proof shall arise
favoring or disfavoring
495543.1
37
any party by virtue of the authorship of any of the provisions of this
Agreement. Any reference to any federal, state, local, or foreign statute or law
shall be deemed also to refer to all rules and regulations promulgated
thereunder, unless the context requires otherwise. The word "including" shall
mean "including without limitation." The Parties intend that each
representation, warranty, covenant and condition contained herein shall have
independent significance. If any Party has breached any representation, warranty
or covenant contained herein in any respect, the fact that there exists another
representation, warranty or covenant relating to the same subject matter
(regardless of the relative levels of specificity) which the Party has not
breached shall not detract from or mitigate the fact that the party is in breach
of the first representation, warranty or covenant.
12.14 Expenses. Except as otherwise provided in this Agreement, each
Party shall bear its own costs and expenses (including legal fees and expenses
and accountants' fees and expenses) incurred in connection with the negotiation
of this Agreement, the performance of its obligations and the consummation of
the transactions contemplated hereby.
12.15 Disclosure. The terms of this Agreement are confidential and no
Party shall disclose to any individual or entity such existence or terms, except
that (i) any Party may make such disclosure about this Agreement and information
related thereto as is required (in the opinion of its counsel) by law (including
filings and other disclosure required by Pegasus under the United States
securities laws); (ii) any Party may make such disclosure to its Representatives
and lenders who agree to keep the terms of this Agreement confidential; (iii)
the Parties may disclose the existence of this Agreement to the NRTC and
12.16 DirecTV, Inc.; and (i) the Company and the Majority Shareholder
may disclose the existence and terms of this Agreement to the Shareholders. Each
of the Parties will be responsible for any damages resulting from the
unauthorized disclosure of the existence or terms of this Agreement by it or its
Representatives.
12.17 Consent. Wherever the consent or approval of a Party is required
to take an action under the Agreement, such Party shall not unreasonably
withhold or delay such consent or approval.
12.18 Reliance. Notwithstanding any investigation that the Company or
the Majority Shareholder may conduct of Pegasus and its business, assets and
liabilities, and notwithstanding any knowledge or information which may be
imputed to the Majority Shareholder in his capacity as a director of Pegasus,
the Company, the Shareholders and the Optionholders may fully rely on Pegasus'
representations, warranties, covenants and indemnities set forth in this
Agreement, the Collateral Documents and any documents, instruments and
certificates delivered hereunder and thereunder, which will not be waived or
affected by or as a result of such investigation, knowledge or information.
495543.1
38
IN WITNESS WHEREOF, the Parties hereto have duly executed this
Agreement as of the day and year first above written.
PEGASUS COMMUNICATIONS CORPORATION
/s/ ▇▇▇ ▇. Lodge
By: __________________________________________
▇▇▇ ▇. Lodge,
Senior Vice President
PEACH STATE SATELLITE TELEVISION, INC.
/s/ ▇▇▇ ▇. Lodge
By: __________________________________________
▇▇▇ ▇. Lodge,
Senior Vice President
VIEWSTAR ENTERTAINMENT SERVICES, INC.
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
By: _________________________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇▇,
President
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
_________________________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇▇
495543.1
39