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EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
DATED AS OF MAY 16, 1997
BY AND BETWEEN
THE ▇. ▇. ▇▇▇▇▇▇▇ COMPANY
AND
▇▇▇▇▇-▇▇▇▇▇ COMMUNICATIONS, INC.
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TABLE OF CONTENTS
PAGE
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ARTICLE I
THE MERGER
Section 1.1 The Merger ....................................................... 1
Section 1.2 Effective Time of the Merger ..................................... 2
Section 1.3 Closing .......................................................... 2
Section 1.4 Effects of the Merger ............................................ 2
Section 1.5 Constituent Documents ............................................ 2
Section 1.6 Directors ........................................................ 2
Section 1.7 Officers ......................................................... 3
ARTICLE II
CONVERSION OF SECURITIES
Section 2.1 Conversion of Capital Stock ...................................... 3
Section 2.2 Exchange of Certificates ......................................... 4
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 3.1 Organization .................................................... 6
Section 3.2 Capitalization .................................................. 7
Section 3.3 Authority ....................................................... 7
Section 3.4 Consents and Approvals; No Violations ........................... 7
Section 3.5 SEC Reports and Financial Statements ............................ 8
Section 3.6 Information in Disclosure Documents
and Registration Statements ..................................... 9
Section 3.7 Retained Business ............................................... 9
Section 3.8 Litigation ...................................................... 10
Section 3.9 Employee Benefits ............................................... 11
Section 3.10 Absence of Certain Changes or Events ............................ 12
Section 3.11 No Violation of Law ............................................. 12
Section 3.12 Taxes ........................................................... 12
Section 3.13 Environmental Matters ........................................... 14
Section 3.14 Material Contracts .............................................. 15
Section 3.15 Brokers or Finders .............................................. 15
Section 3.16 State Takeover Statutes ......................................... 15
Section 3.17 Opinion of Financial Advisor .................................... 15
Section 3.18 Title to Assets ................................................. 15
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Section 3.19 Employees ........................................................ 15
Section 3.20 Insurance ........................................................ 16
Section 3.21 FCC Licenses ..................................................... 16
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER AND SUB
Section 4.1 Organization ..................................................... 16
Section 4.2 Capitalization ................................................... 17
Section 4.3 Authority ........................................................ 17
Section 4.4 Consents and Approvals; No Violations ............................ 18
Section 4.5 SEC Reports and Financial Statements ............................. 18
Section 4.6 Information in Disclosure Documents and Registration Statements .. 19
Section 4.7 Litigation ....................................................... 19
Section 4.8 Absence of Certain Changes or Events ............................. 19
Section 4.9 No Violation of Law .............................................. 19
Section 4.10 Environmental Matters ............................................ 20
Section 4.11 Unwanted Businesses .............................................. 20
Section 4.12 Purchases of Company Stock ....................................... 20
Section 4.13 Brokers or Finders ............................................... 20
ARTICLE V
COVENANTS PENDING THE EFFECTIVE TIME
Section 5.1 Covenants of the Company with Respect to the Retained Business ... 20
Section 5.2 Covenants of the Company ......................................... 23
Section 5.3 Covenants of Buyer ............................................... 23
Section 5.4 Control of the Company Stations .................................. 25
ARTICLE VI
ADDITIONAL AGREEMENTS
Section 6.1 Reasonable Efforts ............................................... 25
Section 6.2 Access to Information ............................................ 25
Section 6.3 Stockholders Meetings ............................................ 26
Section 6.4 Legal Conditions to Distribution and Merger ...................... 26
Section 6.5 Stock Exchange Listing ........................................... 27
Section 6.6 Company Severance Obligations .................................... 27
Section 6.7 Employee Matters; Company Stock Plans ............................ 27
Section 6.8 Fees and Expenses ................................................ 28
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Section 6.9 No Solicitations ................................................. 28
Section 6.10 Distribution ..................................................... 29
Section 6.11 Tax-Free Nature of Transactions .................................. 29
Section 6.12 Closing Balance Sheet ............................................ 30
Section 6.13 Comfort Letters .................................................. 31
Section 6.14 Notification ..................................................... 31
ARTICLE VII
CONDITIONS
Section 7.1 Conditions to Each Party's Obligation to Effect the Merger ........ 31
Section 7.2 Conditions of Obligations of Buyer ................................ 33
Section 7.3 Conditions of Obligations of the Company .......................... 34
ARTICLE VIII
TERMINATION AND AMENDMENT
Section 8.1 Termination ....................................................... 35
Section 8.2 Termination Intent Notice; Top Up Rights .......................... 37
Section 8.3 Effect of Termination ............................................. 37
Section 8.4 Termination Fee ................................................... 37
Section 8.5 Expense Reimbursement ............................................. 37
Section 8.6 Amendment ......................................................... 37
Section 8.7 Extension; Waiver ................................................. 38
ARTICLE IX
MISCELLANEOUS
Section 9.1 Nonsurvival of Representations and Warranties .................... 38
Section 9.2 Notices .......................................................... 38
Section 9.3 Interpretation ................................................... 39
Section 9.4 Counterparts ..................................................... 39
Section 9.5 Entire Agreement; No Third-Party Beneficiaries ................... 39
Section 9.6 Governing Law .................................................... 40
Section 9.7 Specific Performance ............................................. 40
Section 9.8 Publicity ........................................................ 40
Section 9.9 Assignment ....................................................... 40
Section 9.10 Attorney-Client Privilege; Work Product .......................... 40
Section 9.11 Market Repurchase Program ........................................ 41
Section 9.12 Further Assurances ............................................... 41
Section 9.13 Voting Agreement ................................................. 41
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ANNEXES AND EXHIBITS
Annex I - Distribution Agreement
Exhibit A - Retained Business Financial Statements
Exhibit B - Television Financial Statements
Exhibit C - Newspaper Financial Statements
Exhibit D - Noncompetition Agreement
Exhibit E - Voting Agreement
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AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION, dated as of May 16, 1997,
by and between THE ▇. ▇. ▇▇▇▇▇▇▇ COMPANY, an Ohio corporation ("Buyer") and
▇▇▇▇▇-▇▇▇▇▇ COMMUNICATIONS, INC., a Delaware corporation (the "Company").
WHEREAS, Buyer desires to acquire the Company's newspaper, television and
radio businesses but does not wish to acquire the other businesses conducted or
to be conducted by the Company;
WHEREAS, the Board of Directors of the Company has approved a plan of
distribution embodied in the form of a draft agreement attached hereto as Annex
I, as may be amended pursuant to the provisions of Section 6.10 hereof (the
"Distribution Agreement"), which will be entered into prior to the Effective
Time (as defined in Section 1.2) pursuant to which all of the Company's assets,
other than those used primarily in the Retained Business (as defined in Section
3.7), will be contributed to a wholly owned subsidiary of the Company ("Newco")
(such contributions, together with all other intercompany transfers of assets,
and other actions described in Article IV of the Distribution Agreement, the
"Transfer") and shares of capital stock of Newco will be distributed (the
"Distribution") on a pro rata basis to the stockholders of the Company as
provided in the Distribution Agreement in order to divest the Company of the
businesses and operations that Buyer is unwilling to acquire;
WHEREAS, the respective Boards of Directors of Buyer and the Company have
determined that, following the Distribution, the merger of the Company with and
into Buyer (the "Merger") with Buyer surviving as the surviving corporation
would be advantageous and beneficial to their respective corporations and
stockholders; and
WHEREAS, for federal income tax purposes, it is intended that (i) the
Distribution shall qualify as a distribution to which Section 355(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), applies and (ii) the
Merger shall qualify as a reorganization under Section 368(a) of the Code, and
this Agreement is intended to be and is adopted as a plan of reorganization.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, the
parties hereto agree as follows:
ARTICLE I
THE MERGER
Section 1.1 The Merger. Upon the terms and subject to the conditions
hereof, the Delaware General Corporation Law (the "Delaware Act") and the Ohio
General Corporation Law (the "Ohio Act"), at the Effective Time, the Company
and Buyer shall consummate the Merger
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pursuant to which (i) the Company shall be merged with and into Buyer, (ii) the
separate corporate existence of the Company shall thereupon cease, (iii) Buyer
shall be the surviving corporation in the Merger (the "Surviving Corporation")
and shall continue to be governed by the laws of the State of Ohio and (iv) the
corporate existence of Buyer with its properties, rights, privileges, powers
and franchises shall continue unaffected by the Merger.
Section 1.2 Effective Time of the Merger. Upon the terms and subject to
the conditions hereof, as soon as practicable on or after the Closing Date (as
defined in Section 1.3) (i) a certificate of merger (the "Certificate of
Merger") shall be duly prepared, executed and acknowledged by Buyer and
thereafter delivered to the Secretary of State of the State of Delaware, for
filing, as provided in the Delaware Act and (ii) certificate of merger (the
"Certificate of Merger") shall be prepared, executed and acknowledged by Buyer
and thereafter delivered to the Secretary of State of the State of Ohio, for
filing, as provided in the Ohio Act. The Merger shall become effective
immediately following the Distribution, upon the filing of the Certificate of
Merger with the Secretary of State of the State of Delaware and the Certificate
of Merger with the Secretary of State of the State of Ohio or at such time
thereafter as is provided in the Certificate of Merger (the "Effective Time").
Section 1.3 Closing. The closing of the Merger (the "Closing") will
take place at 10:00 a.m. on a date to be specified by the parties, which shall
be no later than the second business day after satisfaction or waiver of the
conditions set forth in Article VII hereof, at the offices of ▇▇▇▇▇▇ & ▇▇▇▇
L.L.P., ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, unless another date or place is
agreed to in writing by the parties hereto. The date and time at which the
Closing occurs is referred to herein as the "Closing Date."
Section 1.4 Effects of the Merger. The Merger shall have the effects
set forth in the Delaware Act and the Ohio Act. Without limiting the generality
of the foregoing, and subject thereto, at the Effective Time, all the
properties, rights, privileges, powers and franchises of the Company shall vest
in the Surviving Corporation, and all debts, liabilities and duties of the
Company shall become the debts, liabilities and duties of the Surviving
Corporation.
Section 1.5 Constituent Documents.
(a) The Articles of Incorporation of Buyer in effect at the Effective
Time shall be the Articles of Incorporation of the Surviving Corporation until
amended in accordance with the Ohio Act.
(b) The Code of Regulations of Buyer in effect at the Effective Time
shall be the Code of Regulations of the Surviving Corporation until amended in
accordance with the Ohio Act.
Section 1.6 Directors. The directors of Buyer at the Effective Time
shall continue as the directors of the Surviving Corporation, each to hold
office from the Effective Time in accordance with the Articles of Incorporation
and Code of Regulations of the Surviving Corporation and until his or her
successor is duly elected and qualified.
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Section 1.7 Officers. The officers of Buyer at the Effective Time shall
continue as the officers of the Surviving Corporation, each to hold office from
the Effective Time in accordance with the Articles of Incorporation and Code of
Regulations of the Surviving Corporation and until his or her successor is duly
appointed and qualified.
ARTICLE II
CONVERSION OF SECURITIES
Section 2.1 Conversion of Capital Stock. As of the Effective Time, by
virtue of the Merger and without any action on the part of the holders of any
shares of Common Stock, $1.00 par value, of the Company (the "Company Common
Stock") or the holders of any Class A Common Shares, $.01 par value ("Buyer
Common Stock"), or Common Voting Shares, $.01 par value ("Buyer Voting Stock"),
of Buyer:
(a) Cancellation of Treasury Stock and Buyer-Owned Stock. All shares
of Company Common Stock that are owned by the Company and any shares of Company
Common Stock owned by Buyer or any wholly-owned Subsidiary (as hereinafter
defined) of Buyer shall be canceled and retired and shall cease to exist and no
stock of Buyer or other consideration shall be delivered in exchange therefor.
As used in this Agreement, the word "Subsidiary" means, with respect to any
party, any corporation or other organization, whether incorporated or
unincorporated, of which (i) such party or any other Subsidiary of such party
is a general partner (excluding partnerships the general partnership interests
of which held by such party and any Subsidiary of such party do not have a
majority of the voting interest in such partnership) or (ii) securities or
other interests having by their terms a majority of the outstanding voting
power with respect to such corporation or other organization are directly or
indirectly owned or controlled by such party or by any one or more of its
Subsidiaries, or by such party and one or more of its Subsidiaries.
(b) Exchange Ratio for Company Common Stock. Subject to
Section 2.2(e), each issued and outstanding share of Company Common Stock
(other than shares to be canceled in accordance with Section 2.1(a)) shall be
converted into the right to receive the Merger Consideration Per Share in fully
paid and nonassessable Buyer Common Stock. The "Merger Consideration Per Share"
shall mean the Merger Consideration divided by the Effective Time Outstanding
Shares, rounded to the nearest one ten-thousandth of a share. The term "Merger
Consideration" shall mean that number of shares of Buyer Common Stock equal to
(x) $425 million plus the Debt Factor divided by (y) the Average Buyer Price.
The term "Debt Factor" shall be an amount equal to 90% of the amount by which
the principal amount of the Bank Indebtedness (as defined in Section 7.2(e))
outstanding as of the Effective Time is less than $200,000,000. The term
"Average Buyer Price" shall mean the average closing price of Buyer Common
Stock on the New York Stock Exchange (the "NYSE") for fifteen trading days
selected by lot out of the forty trading days ending on and including the third
trading day prior to the Closing Date (the "Random Trading Days"). The Random
Trading Days shall be selected by lot
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by the Company and Buyer at 5:00 p.m. Dallas time on the third trading day
prior to the Closing Date. The term "Effective Time Outstanding Shares" shall
mean the number of shares of Company Common Stock outstanding as of the
Effective Time as certified to Buyer by the Company's transfer agent. At the
Effective Time, all such shares of Company Common Stock shall no longer be
outstanding and shall automatically be canceled and retired and shall cease to
exist, and each holder of a certificate representing any such shares shall
cease to have any rights with respect thereto, except the right to receive the
shares of Buyer Common Stock and any cash in lieu of fractional shares of Buyer
Common Stock to be issued or paid in consideration therefor upon the surrender
of such certificate in accordance with Section 2.2, without interest.
(c) Notwithstanding anything to the contrary contained herein, but
subject to Section 8.2 hereof, in the event that the Average Buyer Price of
Buyer Common Stock is less than $32.72 (the "Minimum Price"), then solely for
the purposes of calculating the Merger Consideration Per Share, the Average
Buyer Price of Buyer Common Stock will be deemed to be the Minimum Price, and
in the event that the Average Buyer Price of Buyer Common Stock is greater than
$40.00 (the "Maximum Price"), then solely for the purposes of calculating the
Merger Consideration Per Share, the Average Buyer Price of Buyer Common Stock
will be deemed the Maximum Price.
Section 2.2 Exchange of Certificates.
(a) Exchange Agent. Prior to the Effective Time, Buyer shall deposit
with Fifth Third Bancorp, Cincinnati, Ohio, or such other bank or trust company
designated by Buyer (and reasonably acceptable to the Company) (the "Exchange
Agent"), for the benefit of the holders of shares of Company Common Stock, for
exchange in accordance with this Article II through the Exchange Agent,
certificates representing the shares of Buyer Common Stock issuable pursuant to
Section 2.1 in exchange for outstanding shares of Company Common Stock,
together with cash to be paid in lieu of fractional shares (such shares of
Buyer Common Stock, together with any dividends or distributions with respect
thereto contemplated by Section 2.2(c) and cash in lieu of fractional shares,
being hereinafter referred to as the "Exchange Fund").
(b) Exchange Procedures. As soon as practicable after the Effective
Time, the Surviving Corporation shall cause the Exchange Agent to mail to each
holder of record of a certificate or certificates which immediately prior to
the Effective Time represented outstanding shares of Company Common Stock (the
"Certificates") whose shares were converted pursuant to Section 2.1 into the
right to receive shares of Buyer Common Stock (i) a letter of transmittal
(which shall be in such form and have such provisions as Buyer and the Company
may reasonably specify) and (ii) instructions for surrendering the Certificates
in exchange for certificates representing shares of Buyer Common Stock. Upon
surrender of a Certificate for cancellation to the Exchange Agent or to such
other agent or agents as may be appointed by Buyer, together with such letter
of transmittal, duly executed, the holder of such Certificate shall be entitled
to receive in exchange therefor a certificate representing that number of whole
shares of Buyer Common Stock which such holder has the right to receive
pursuant to the provisions of this Article II and the Certificate so
surrendered shall forthwith be canceled. In the event of a transfer of
ownership of Company Common Stock which is not registered in the transfer
records
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of the Company, a certificate representing the proper number of shares of Buyer
Common Stock may be issued to a transferee if the Certificate representing such
Company Common Stock is presented to the Exchange Agent, accompanied by all
documents required to evidence and effect such transfer and by evidence that
any applicable stock transfer taxes have been paid. Until surrendered as
contemplated by this Section 2.2, each Certificate shall be deemed at any time
after the Effective Time to represent only the right to receive upon such
surrender a certificate representing shares of Buyer Common Stock and cash in
lieu of any fractional shares of Buyer Common Stock as contemplated by this
Section 2.2.
(c) Distributions with Respect to Unexchanged Shares. No dividends or
other distributions declared or made after the Effective Time with respect to
Buyer Common Stock with a record date after the Effective Time shall be paid to
the holder of any unsurrendered Certificate with respect to the shares of Buyer
Common Stock which such holder is entitled to receive upon the surrender
thereof in accordance with this Section 2.2, and no cash payment in lieu of
fractional shares shall be paid to any such holder pursuant to Section 2.2(e)
until the holder of record of such Certificate shall so surrender such
Certificate. Subject to the effect of applicable laws, following surrender of
any such Certificate, there shall be paid to the record holder of the
certificates representing whole shares of Buyer Common Stock issued in exchange
therefor, without interest, (i) at the time of such surrender, the amount of
any cash payable in lieu of any fractional share of Buyer Common Stock to which
such holder is entitled pursuant to Section 2.2(e) and the amount of dividends
or other distributions with a record date after the Effective Time theretofore
paid with respect to such whole shares of Buyer Common Stock, and (ii) at the
appropriate payment date, the amount of dividends or other distributions with a
record date after the Effective Time but prior to such surrender and a payment
date subsequent to surrender payable with respect to such whole shares of Buyer
Common Stock.
(d) No Further Ownership Rights in Company Common Stock. All shares
of Buyer Common Stock issued upon the surrender for exchange of shares of
Company Common Stock in accordance with the terms hereof (including any cash
paid pursuant to Section 2.2(c) or 2.2(e)) shall be deemed to have been issued
in full satisfaction of all rights pertaining to such shares of Company Common
Stock, and there shall be no further registration of transfers on the stock
transfer books of the Surviving Corporation of the shares of Company Common
Stock which were outstanding immediately prior to the Effective Time. If, after
the Effective Time, Certificates are presented to the Surviving Corporation for
any reason, they shall be canceled and exchanged as provided in this Article
II.
(e) No Fractional Shares. No certificate or scrip representing
fractional shares of Buyer Common Stock shall be issued upon the surrender for
exchange of Certificates, and such fractional share interests will not entitle
the owner thereof to vote or to any rights of a stockholder of Buyer. In lieu
of any such fractional shares, each holder of Company Common Stock who would
otherwise have been entitled to a fraction of a share of Buyer Common Stock
upon surrender of Certificates for exchange will be entitled to receive a cash
payment in lieu of such fractional share in an amount equal to such fraction
multiplied by the Average Buyer Price.
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(f) Termination of Exchange Fund. Any portion of the Exchange Fund
which remains undistributed to the stockholders of the Company for six months
after the Effective Time shall be delivered to Buyer, upon demand, and any
stockholders of the Company who have not theretofore complied with this Article
II shall thereafter look only to Buyer for payment of their claim for Buyer
Common Stock, any cash in lieu of fractional shares of Buyer Common Stock and
any dividends or distributions with respect to Buyer Common Stock.
(g) No Liability. Buyer shall not be liable to any holder of shares
of Company Common Stock or Buyer Common Stock, as the case may be, for such
shares (or dividends or distributions with respect thereto) or cash for payment
in lieu of fractional shares delivered to a public official pursuant to any
applicable abandoned property, escheat or similar law.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Buyer as follows:
Section 3.1 Organization. As used in this Agreement, any reference to
the Company and its Subsidiaries means the Company and each of its
Subsidiaries; any reference to Newco and its Subsidiaries means Newco at the
time of the Distribution and those entities that at or immediately prior to the
Distribution will be direct or indirect Subsidiaries of or merged with or
liquidated into Newco; and references to Subsidiaries of Newco mean those
entities that at or immediately prior to the Distribution will be direct or
indirect Subsidiaries of or merged with or liquidated into Newco. Each of the
Company and its Subsidiaries is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has all
requisite corporate power and authority to own, lease and operate its
properties and to carry on its business as now being conducted, except where
the failure to be so organized, existing and in good standing or to have such
power and authority would not have a material adverse effect on the Retained
Business taken as a whole. The Company and each of its Subsidiaries are duly
qualified or licensed to do business and in good standing in each jurisdiction
in which the property owned, leased or operated by them or the nature of the
business conducted by them makes such qualification or licensing necessary,
except where the failure to be so qualified or licensed and in good standing
would not in the aggregate have a material adverse effect on the Retained
Business (as defined in Section 3.7) taken as a whole or on the ability of the
Company and its Subsidiaries to consummate the transactions contemplated
hereby. True, accurate and complete copies of the Company's Certificate of
Incorporation and bylaws, including all amendments thereto, have heretofore
been delivered to Buyer. As used in this Agreement, any reference to any event,
change or effect having a material adverse effect on or with respect to the
Retained Business or an entity (or group of entities taken as a whole) means
that such event, change or effect is materially adverse to the business,
properties, assets, results of operations or financial condition of the
Retained Business or such entity (or, if with respect thereto, of such group of
entities taken as a whole).
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Section 3.2 Capitalization. The authorized capital stock of the Company
consists of: (i) 125,000,000 shares of Company Common Stock of which, as of
March 17, 1997, 37,217,807 shares were issued and outstanding, and (ii)
1,000,000 shares of preferred stock, par value $1.00 per share (the "Company
Preferred Stock"), of which, as of the date hereof, no shares are issued or
outstanding. As of the date hereof, 4,425,338 shares of Company Common Stock
were reserved for issuance upon exercise of outstanding stock options pursuant
to the Company's 1984 and 1991 Stock Option Plans and the stock option plans of
DiMark, Inc., and for issuance under the Company's 1994 Employee Stock Purchase
Plan (collectively the "Company Stock Plans"). All the outstanding shares of
the Company's capital stock are, and all shares which may be issued pursuant to
the Company Stock Plans will be, when issued in accordance with the terms
thereof, duly authorized, validly issued, fully paid and non-assessable and
free of any preemptive rights in respect thereof. Except as set forth above or
in Section 3.2 of the Company Disclosure Schedule, as of the date hereof, there
are no existing options, warrants, calls, subscriptions or other rights or
other agreements, commitments, understandings or restrictions of any character
binding on the Company or any of its Subsidiaries with respect to the issued or
unissued capital stock of the Company or any of its Subsidiaries. Except as
set forth in Section 3.2 of the Company Disclosure Schedule, there are no
outstanding contractual obligations of the Company or any of its Subsidiaries
to repurchase, redeem or otherwise acquire any shares of capital stock of the
Company or any of its Subsidiaries.
Section 3.3 Authority. The Company has the requisite corporate power
and authority to execute and deliver this Agreement and the Distribution
Agreement and to consummate the transactions contemplated hereby and thereby
other than, with respect to the Merger and the Distribution, the approval and
adoption of this Agreement by the affirmative vote of the holders of at least a
majority of the outstanding shares of Company Common Stock and, with respect to
the Distribution, the declaration of the Distribution by the Company's Board of
Directors. The execution, delivery and performance of this Agreement and the
Distribution Agreement by the Company and the consummation by the Company of
the Distribution and the Merger and of the other transactions contemplated
hereby and thereby have been duly authorized by the Company's Board of
Directors, and no other corporate proceedings on the part of the Company are
necessary to authorize this Agreement or the Distribution Agreement or for the
Company to consummate the transactions so contemplated hereby or thereby other
than, with respect to the Merger and the Distribution, the approval and
adoption of this Agreement by the affirmative vote of the holders of at least a
majority of the outstanding shares of Company Common Stock and, with respect to
the Distribution, declaration of the Distribution by the Company's Board of
Directors. This Agreement has been duly executed and delivered by the Company
and, assuming this Agreement constitutes a valid and binding obligation of
Buyer, constitutes a valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms. Prior to the Distribution,
the Distribution Agreement will be duly executed and delivered by each of the
Company and Newco and upon such execution and delivery will constitute a valid
and binding obligation of each of the Company and Newco, enforceable against
each of them in accordance with its terms.
Section 3.4 Consents and Approvals; No Violations. Except (a) as set
forth in Section 3.4 of the Company Disclosure Schedule, (b) for filings,
permits, authorizations,
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consents and approvals as may be required under, and other applicable
requirements of, the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), the Securities Act of 1933, as amended (the "Securities Act"), the NYSE,
the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), the Communications Act of 1934, as amended (the "FCC Act"), filings
under state securities or "blue sky" laws, the filing with the Secretary of
State of the State of Delaware of the Certificate of Merger and the filing with
the Secretary of State of the State of Ohio of the Certificate of Merger and
(c) as may be necessary as a result of any facts or circumstances relating
solely to Buyer or any of its Subsidiaries, none of the execution, delivery or
performance of this Agreement or the Distribution Agreement by the Company or
the consummation by the Company of the transactions contemplated hereby or
thereby and compliance by the Company with any of the provisions hereof or
thereof will (i) conflict with or result in any breach of any provisions of the
charters or bylaws of the Company or of any of its Subsidiaries, (ii) require
any filing by the Company or any of its Subsidiaries with, or any permit,
authorization, consent or approval to be obtained by the Company or any of its
Subsidiaries of, any court, arbitral tribunal, administrative agency or
commission or other governmental or other regulatory authority or agency (a
"Governmental Entity"), (iii) result in a violation or breach of, or constitute
(with or without due notice or lapse of time or both) a default (or give rise
to any right of termination, amendment, cancellation or acceleration) under,
any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, lease, license, contract, agreement or other instrument, obligation
or commitment to which the Company or any of its Subsidiaries is a party or by
which any of them or any of their properties or assets may be bound
("Contracts") or result in the creation of any lien upon any of the property or
assets of the Company or its Subsidiaries or (iv) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to the Company or
any of its Subsidiaries, except, in the case of clause (ii), (iii) or (iv), for
failures to file or obtain, violations, breaches, defaults or liens which would
not have a material adverse effect on the Retained Business taken as a whole or
the ability of the Company to consummate the transactions contemplated hereby.
The Company has no knowledge of any facts or circumstances relating to the
Company or any of its Subsidiaries that, individually or in the aggregate,
would prevent any necessary approval of the transactions contemplated by this
Agreement under the FCC Act.
Section 3.5 SEC Reports and Financial Statements. The Company has
timely filed with the Securities and Exchange Commission (the "SEC"), and has
heretofore made available to Buyer true and complete copies of, all periodic
reports required to be filed by it since December 31, 1994 under the Exchange
Act (as such documents have been amended since the time of their filing,
together with all such periodic reports to be filed from the date hereof to the
Effective Time, collectively, the "Company SEC Documents"). The Company SEC
Documents, including without limitation any financial statements or schedules
included therein, at the time filed, (a) did not or will not, as the case may
be, contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading and (b) complied or will comply, as the case may be, in all material
respects with the applicable requirements of the Exchange Act. The consolidated
financial statements of the Company included in the Company SEC Documents
(including the notes and schedules thereto, the "Company Financial Statements")
comply as to form in all material respects with applicable
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accounting requirements and with the published rules and regulations of the SEC
with respect thereto, have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto or, in the case of the
unaudited statements, as permitted by Form 10-Q of the SEC) and fairly present
in all material respects (subject, in the case of the unaudited financial
statements, to normal audit and year-end adjustments) the consolidated
financial position of the Company and its consolidated Subsidiaries as at the
dates thereof and the consolidated results of their operations and cash flows
for the periods then ended.
Section 3.6 Information in Disclosure Documents and Registration
Statements. None of the information supplied or to be supplied by the Company
or its representatives for inclusion or incorporation by reference in (i) the
registration statement on Form S-4 to be filed with the SEC by Buyer in
connection with the issuance of shares of Buyer Common Stock in the Merger (the
"S-4") will, at the time such registration statement becomes effective under
the Securities Act and at the Effective Time, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading and (ii) the joint proxy statement
relating to the meetings of each of the Company's and Buyer's stockholders to
be held in connection with the Merger (the "Proxy Statement") will, at the date
mailed to the Company's and Buyer's stockholders and at the time of each of the
meetings of the Company's and Buyer's stockholders to be held in connection
with the Merger, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not misleading. The Proxy Statement will comply as to form in all
material respects with the provisions of the Exchange Act and the rules and
regulations thereunder, except that no representation is made by the Company
with respect to statements made therein based on information supplied by Buyer
for inclusion in the Proxy Statement or with respect to information concerning
Buyer or any of its Subsidiaries incorporated by reference in the Proxy
Statement.
Section 3.7 Retained Business.
(a) Attached hereto as Exhibit A is an unaudited pro forma
consolidated balance sheet of the Retained Business of the Company and its
Subsidiaries at December 31, 1996 (including certain explanatory notes thereto,
the "Retained Business Balance Sheet") and an unaudited pro forma consolidated
statement of operations for the Retained Business of the Company and its
Subsidiaries for the year ended December 31, 1996 (including certain
explanatory notes thereto, the "Retained Business Income Statement" and,
together with the Retained Business Balance Sheet, the "Retained Business
Financial Statements"). The "Retained Business" means and includes the assets,
liabilities, capital stock and interests reflected on the Retained Business
Balance Sheet, as such assets and liabilities may have changed since the date
of the Retained Business Balance Sheet, but in any event shall include all of
the Company's direct and indirect right, title and interest (including minority
interests) in the assets used primarily in, and all of the Company's
liabilities and obligations (accrued, absolute, contingent, undisclosed or
otherwise) which are primarily related to or have arisen or will arise from,
the Company's newspaper, television and radio businesses, including the
ownership and operation of
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the newspapers listed in Section 3.7 of the Company Disclosure Schedule,
KENS-TV and KENS-AM (except for those assets and liabilities identified in
Section 3.7 of the Company Disclosure Schedule under the headings "Excluded
Assets" and "Excluded Liabilities," which shall not be included in the Retained
Business and which are referred to herein as the "Excluded Assets" and
"Excluded Liabilities"). The Retained Business shall include the following
entities: Independent Publishing Company, ▇▇▇▇▇-▇▇▇▇▇ Community Newspapers,
Inc., ▇▇▇▇▇-▇▇▇▇▇ Television, Inc. and a 50% interest in Tall Tower, Inc.
(b) The Retained Business Financial Statements have been prepared in
accordance with generally accepted accounting principles on a basis consistent
with the Company Financial Statements, and, except as set forth in Section 3.7
of the Company Disclosure Schedule, fairly present in all material respects
(subject to normal audit adjustments) the consolidated financial position of
the Company and its Subsidiaries as at the date thereof, after giving pro forma
effect to the Distribution (assuming the Distribution occurred on December 31,
1996), and the consolidated results of their operations for the one-year period
then ended, after giving pro forma effect to the Distribution (assuming the
Distribution occurred on January 1, 1996).
(c) Attached hereto as Exhibits B and C are the audited balance sheets
as of December 31, 1996 and December 31, 1995, and the related statement of
operations and cash flows for the three years ended December 31, 1996 and the
accompanying notes for the Company's television and radio operations and
newspaper operations, respectively (collectively the "Division Financial
Statements").
(d) The Division Financial Statements have been prepared in accordance
with generally accepted accounting principles on a basis consistent with the
Company Financial Statements, and, except as set forth in Section 3.7 of the
Company Disclosure Schedule, fairly present in all material respects the
financial position of the Company's television and radio operations and
newspaper operations, respectively, as at the dates thereof, and the results of
their respective operations for the periods then ended.
(e) At the Effective Time, except for the Excluded Assets and as
contemplated by this Agreement or the Distribution Agreement, neither Newco nor
any of its Subsidiaries will own or have rights to use any of the assets or
property, whether tangible, intangible or mixed, which are necessary for the
conduct of the Retained Business as conducted on the date hereof. Except as
set forth in Section 3.7 of the Company Disclosure Schedule, at the Effective
Time neither Newco nor any of its Subsidiaries will be a party to any material
agreement or arrangement with the Surviving Corporation or any of its
Subsidiaries (other than the Distribution Agreement and any agreements
contemplated by the Distribution Agreement, including the Tax Disaffiliation
Agreement and the Employee Benefits Agreement).
Section 3.8 Litigation. Except as disclosed in the Company SEC
Documents filed prior to the date hereof or as set forth in Section 3.8 of the
Company Disclosure Schedule, there is no suit, action, proceeding or
investigation relating to the Retained Business pending or, to the knowledge of
the Company, threatened, against the Company or any of its Subsidiaries before
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any Governmental Entity which, individually or in the aggregate, is reasonably
likely to have a material adverse effect on the Retained Business taken as a
whole or the ability of the Company to consummate the transactions contemplated
hereby. Except as disclosed in the Company SEC Documents filed prior to the
date hereof or as set forth in Section 3.8 of the Company Disclosure Schedule,
neither the Company nor any of its Subsidiaries is subject to any outstanding
order, writ, injunction or decree relating to the Retained Business which,
individually or in the aggregate, is reasonably likely to have a material
adverse effect on the Retained Business taken as a whole or a material adverse
effect on the ability of the Company to consummate the transactions
contemplated hereby.
Section 3.9 Employee Benefits.
(a) Section 3.9 of the Company Disclosure Schedule contains a list of
all "employee benefit plans" within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), and all other
material benefit plans, programs, agreements and arrangements (the "Benefit
Plans"), which cover employees or former employees of the Company and its
Subsidiaries who are or were employed in the Retained Business (the
"Employees"). True and complete copies of all Benefit Plans, any trust
instruments and/or insurance contracts, if any, forming a part of any such
plans, and all amendments thereto; current summary plan descriptions; where
applicable, the most current determination letter received from the Internal
Revenue Service (the "Service"); and where applicable, annual reports,
financial statements and actuarial reports for the last plan year, which fairly
and accurately reflect the financial condition of the plans have been made
available to Buyer.
(b) The Benefit Plans are in compliance with ERISA, the Code and all
other applicable laws in all material respects. Each Benefit Plan which is an
"employee pension benefit plan" within the meaning of Section 3(2) of ERISA (a
"Pension Plan") and which is intended to be qualified under Section 401(a) of
the Code has received a favorable determination letter from the Service, and
the Company is not aware of any circumstances likely to result in revocation of
any such favorable determination letter. Neither the Company nor any of its
Subsidiaries or any ERISA Affiliate (as defined below) has contributed or been
required to contribute to any Multiemployer Plan (as defined in ERISA) with
respect to any Employees.
(c) No liability under Subtitle C or D of Title IV of ERISA has been
incurred by the Company or any Subsidiary with respect to any ongoing, frozen
or terminated Pension Plan, currently or formerly maintained by any of them, or
the Pension Plan of any entity which is or has been considered one employer
with the Company under Section 4001 of ERISA or Section 414 of the Code (an
"ERISA Affiliate") which would have a material adverse effect on the Retained
Business taken as a whole.
(d) All contributions required to be made or accrued as of December
31, 1996 under the terms of any Benefit Plan for which the Surviving
Corporation or any of its Subsidiaries may have liability have been timely made
or have been reflected on the Retained Business Balance Sheet. Neither any
Pension Plan nor any single-employer plan of an ERISA
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Affiliate has incurred an "accumulated funding deficiency" (whether or not
waived) within the meaning of Section 412 of the Code or Section 302 of ERISA
in an amount which would have a material adverse effect on the Retained
Business taken as a whole. Neither the Company nor any of its Subsidiaries has
provided, or is required to provide, security to any Pension Plan pursuant to
Section 401(a)(29) of the Code.
(e) Neither the Company nor any of its Subsidiaries has any
obligations for retiree health and life benefits for Employees or former
Employees under any Benefit Plan, except as set forth in Section 3.9 of the
Company Disclosure Schedule or as required by Part 6 of Title I of ERISA.
Section 3.10 Absence of Certain Changes or Events. Except as set forth
in Section 3.10 of the Company Disclosure Schedule, since December 31, 1996,
the Company and its Subsidiaries have conducted the Retained Business only in
the ordinary course consistent with past practice, and there has not been any
change or development, or combination of changes or developments (other than
changes relating to or arising from legislative or regulatory changes or
developments generally affecting the newspaper or broadcasting industries or
general economic conditions in the United States), which individually or in the
aggregate have had or are reasonably likely to have a material adverse effect
on the Retained Business taken as a whole.
Section 3.11 No Violation of Law. Except as disclosed in the Company SEC
Documents as filed prior to the date hereof or as set forth in Section 3.11 of
the Company Disclosure Schedule, neither the Company nor any of its
Subsidiaries is in violation of, or, to the knowledge of the Company, is under
investigation with respect to or has been given notice or been charged by any
Governmental Entity with any violation of, any law, statute, order, rule,
regulation or judgment of any Governmental Entity, except for violations which,
in the aggregate, would not have a material adverse effect on the Retained
Business taken as a whole. The Company and its Subsidiaries have all permits,
licenses, franchises and other governmental authorizations, consents and
approvals necessary to conduct the Retained Business as presently conducted,
except for any such permits, licenses, franchises or other governmental
authorizations, consents and approvals the failure of which to have would not
have a material adverse effect on the Retained Business taken as a whole.
Section 3.12 Taxes.
(a) Except as disclosed in the Company Financial Statements for the
year ended December 31, 1996 or as set forth in Section 3.12 of the Company
Disclosure Schedule:
(i) the Company, its Subsidiaries and the consolidated group (the
"Group") of which the Company and/or its Subsidiaries are members have
(A) duly filed with the appropriate governmental authorities all Tax
Returns (as hereinafter defined) required to be filed by them on or prior
to the Effective Time, other than those Tax Returns the failure of which
to file would not have a material adverse effect on the entity required
to file such Tax Return, and such Tax Returns are true, correct and
complete in all material respects, and (B) duly paid in full or made
provision in accordance with
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generally accepted accounting principles for the payment of all Taxes (as
hereinafter defined) due with respect to periods ending on or prior to
the Closing Date;
(ii) all monies which any member of the Group has been required by
law to withhold from employees or other contractors with respect to
payments made or periods ending on or before the Closing Date have been
withheld and timely paid to the appropriate governmental authority;
(iii) as of the date hereof, the Tax Returns for the Company, its
Subsidiaries and/or any member of the Group are not currently the subject
of any audit, investigation or proceeding by the Service or, to the
Company's, any Subsidiary's or the Group's knowledge, any state or local
taxing authority, and the Company, its Subsidiaries and/or any member of
the Group have not received any written notice of deficiency or
assessment from any taxing authority with respect to liabilities for
material Taxes of the Company, its Subsidiaries and/or any member of the
Group which have not been paid or finally settled, other than audits,
deficiencies or assessments disclosed in Section 3.12 of the Company
Disclosure Schedule which are being contested in good faith through
appropriate proceedings; and
(iv) the consolidated federal income tax return of the Group has
been audited through December 31, 1990 and no waiver of any statute of
limitations in respect of Taxes or any extension of time with respect to
a Tax assessment or deficiency granted by the Company or any of its
Subsidiaries is currently in effect.
(b) There are no "deferred intercompany transactions" or "excess loss
accounts" (both as defined in treasury regulations) between (i) the Company and
any Subsidiary of the Company or (ii) Newco (or any member of the Newco Group)
and the Company (or any Subsidiary of the Company), except for "deferred
intercompany transactions" with aggregate deferred gain of less than three
hundred thousand dollars ($300,000).
(c) "Taxes" means all taxes, charges, fees, levies, imposts, duties or
other assessments, including, without limitation, income, gross receipts,
estimated taxes, excise, personal property, real property, sales, ad valorem,
value-added, leasing, withholding, social security, workers' compensation,
unemployment insurance, occupation, use, service, service use, license, stamp,
payroll, employment, windfall profit, environmental, alternative or add-on
minimum tax, franchise, transfer and recording taxes, fees and charges, imposed
by the United States or any state, local, or foreign governmental authority
whether computed on a separate, consolidated, unitary, combined or any other
basis; and such term shall include any interest, fines, penalties or additional
amounts attributable or imposed on or with respect to any such taxes, charges,
fees, levies, imposts, duties or other assessments. "Tax Return" means any
return, report or other document or information required to be supplied to a
taxing authority in connection with Taxes.
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(d) Except as provided in Section 3.12 of the Company Disclosure
Schedule, neither the Company, any of its Subsidiaries nor any member of the
Group (i) has filed a consent pursuant to Section 341(f) of the Code nor agreed
to have Section 341(f)(2) apply to any disposition of a subsection (f) asset
(as such term is defined in Section 341(f) of the Code) owned by a member of
the Group, (ii) has agreed, or is required, to make any adjustment under
Section 481(a) of the Code by reason of a change in accounting method or
otherwise that will affect the liability of the Group for Taxes, (iii) has made
an election, or is required, to treat any asset of the Group as owned by
another person pursuant to the provisions of former Section 168(f)(8) of the
Code, (iv) is now or has ever been a party to any agreement, contract,
arrangement, or plan that would result, separately or in the aggregate, in the
payment of any "excess parachute payments" within the meaning of Section 280G
of the Code, (v) has participated in an international boycott as defined in
Section 999 of the Code, (vi) is now or has ever been a "foreign person" within
the meaning of Section 1445(b)(2) of the Code, (vii) has made any of the
foregoing elections or is required to apply any of the foregoing rules under
any comparable state or local tax provision. After the date hereof, no
extension of the period of limitation will be made without the written consent
of Buyer, or (viii) is now or has ever been a United States real property
holding company within the meaning of Section 897(c)(2) of the Code during the
applicable period specified in Section 897(c)(1)(A)(ii) of the Code.
Section 3.13 Environmental Matters.
(a) Except as disclosed in the Company SEC Documents as filed prior to
the date hereof or as set forth in Section 3.13 of the Company Disclosure
Schedule and except for such matters that, individually or in the aggregate,
would not have a material adverse effect on the Retained Business taken as a
whole, (i) to the knowledge of the Company, the Retained Business of the
Company and its Subsidiaries is in compliance in all material respects with all
applicable Environmental Laws (as hereinafter defined); (ii) to the knowledge
of the Company, the properties included in the Retained Business and presently
owned or operated by the Company or its Subsidiaries (the "Company Properties")
do not contain any Hazardous Substance (as hereinafter defined) other than as
permitted under applicable Environmental Laws; (iii) neither the Company nor
any of its Subsidiaries has since December 31, 1994 received any claims,
notices, demand letters, lawsuits or requests for information from any
Governmental Entity or any private third party alleging that the Retained
Business is in violation of, or liable under, any Environmental Laws; and (iv)
none of the Company, its Subsidiaries or the Company Properties is subject to
any court order, administrative order or decree relating to the Retained
Business arising under any Environmental Law.
(b) "Environmental Law" means any applicable Federal, state or local
law, regulation, permit, judgment or agreement with any Governmental Entity,
relating to (x) the protection, preservation or restoration of the environment
or to human health or safety, or (y) the exposure to, or the use, storage,
recycling, treatment, generation, transportation, processing, handling,
labeling, production, release or disposal of Hazardous Substances. "Hazardous
Substance" means any substance presently listed, defined, designated or
classified as hazardous, toxic, radioactive or dangerous, or otherwise
regulated, under any Environmental Law.
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Section 3.14 Material Contracts. Section 3.14 of the Company Disclosure
Schedule identifies any Contract included in the Retained Business to which the
Company or any of its Subsidiaries is a party or by which any of its assets or
operations may be bound that is (i) a loan or similar agreement or indebtedness
evidenced by a note or other instrument, or any direct or indirect guarantee of
indebtedness of any other person, in excess of $1,000,000; (ii) any Contract
that expressly limits the right to terminate the Contract without penalty upon
less than one year's notice and such Contract provides for future payments in
excess of $250,000 within the next twelve (12) months from the date hereof;
(iii) a network affiliation agreement; (iv) an employment or severance
agreement providing for payments in excess of $100,000 to any employee; and (v)
any Contract related to capital expenditures, which provides for future
payments in excess of $500,000 within the next twelve (12) months from the date
hereof. Except as set forth in Section 3.14 of the Company Disclosure Schedule
(i) each of the Contracts set forth on Schedule 3.14 is in full force and
effect, except where the failure to be in full force and effect would not have
a material adverse effect on the Retained Business taken as a whole and (ii)
there are no existing defaults by the Company or such Subsidiary thereunder
which default would result in a material adverse effect on the Retained
Business taken as a whole.
Section 3.15 Brokers or Finders. Neither the Company nor any of its
Subsidiaries has any liability to any agent, broker, investment banker,
financial advisor or other firm or person for any broker's or finder's fee or
any other commission or similar fee in connection with any of the transactions
contemplated by this Agreement except ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ Securities
Corporation, whose fees and expenses, as previously disclosed to Buyer, will be
paid by the Company in accordance with the Company's agreement with such firm.
Section 3.16 State Takeover Statutes. The provisions of Section 203 of
the Delaware Act will not apply to the Merger, the Distribution or any of the
other transactions contemplated hereby, and to the Company's knowledge, no
other state takeover statute or similar statute or regulation applies to the
Merger, the Distribution, or any of the other transactions contemplated hereby.
Section 3.17 Opinion of Financial Advisor. The Company has received the
opinion of ▇▇▇▇▇▇▇▇▇, Lufkin & ▇▇▇▇▇▇▇▇ Securities Corporation to the effect
that, as of the date of such opinion, the terms of the Distribution and Merger,
taken together, are fair, from a financial point of view, to the holders of
common stock of the Company.
Section 3.18 Title to Assets. Except as set forth in Section 3.18 of the
Company Disclosure Schedule, the Company owns all of the material assets
included in the Retained Business free and clear of any liens, claims, security
interests or encumbrances that, individually or in the aggregate, are
reasonably likely to have a material adverse effect on the Retained Business
taken as a whole.
Section 3.19 Employees. With respect to the Retained Business, neither
the Company nor any of its Subsidiaries is a party to, or is bound by, any
collective bargaining agreement or other contract with a labor union, nor is
the Company or any of its Subsidiaries the subject of any proceeding or
organizing activity seeking to compel it or such Subsidiary to bargain with any
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labor union as to wages and conditions of employment, nor is there any strike,
labor dispute, slow down or stoppage involving the Company or any of its
Subsidiaries pending or, to the knowledge of the Company, threatened that,
individually or in the aggregate, are reasonably likely to have a material
adverse effect on the Retained Business taken as a whole.
Section 3.20 Insurance. Set forth in Section 3.20 of the Company
Disclosure Schedule is a schedule of the insurance coverage (including policy
limits, coverage layers, and named insureds) maintained by the Company on the
assets, properties, premises, operations and personnel of the Retained
Business.
Section 3.21 FCC Licenses. The Company has provided Buyer with a
complete list of the FCC Licenses held or controlled by the Company or any of
its Subsidiaries. Except as does not materially jeopardize the operation by the
Company or the applicable Subsidiary of any of the Company Stations to which
the FCC Licenses apply or as set forth in Section 3.21 of the Company
Disclosure Schedule: (i) the Company and those of its Subsidiaries that are
required to hold FCC Licenses, or that control FCC Licenses, are qualified to
hold such FCC Licenses or to control such FCC Licenses, as the case may be;
(ii) the Company and those of its Subsidiaries that are required to hold FCC
Licenses hold such FCC Licenses; (iii) the Company is not aware of any facts or
circumstances relating to the Company or any of its subsidiaries that would
prevent the FCC's granting the requisite consent to the FCC Form 315 Transfer
of Control Application to be filed with respect to the Merger (the "FCC
Application"), except that the Company has filed a renewal application with the
FCC relating to KENS-AM, which renewal application may delay the granting of
the FCC Application; (iv) each Company Station is in material compliance with
all FCC Licenses held by it; and (v) there is not pending or, to the knowledge
of the Company, threatened any application, petition, objection or other
pleading with the FCC or other Governmental Entity which challenges the
validity of, or any rights of the holder under, any FCC License held by the
Company or one of its Subsidiaries, except for rule making or similar
proceedings of general applicability to persons engaged in substantially the
same business conducted by the Company Stations. As used herein, the term
"Company Station" shall mean KENS-TV and KENS-AM and the term "FCC License"
shall mean any permit, license, waiver or authorization that a person is
required by the FCC to hold in connection with the operation of its business.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to the Company as follows:
Section 4.1 Organization. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation and has all requisite corporate power and authority to own, lease
and operate its properties and to carry on its business as now being conducted
except where the failure to be so organized, existing and in good standing or
to have such power and authority would not have a material adverse effect on
Buyer
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and its Subsidiaries taken as a whole. Buyer and each of its Subsidiaries are
duly qualified or licensed to do business and in good standing in each
jurisdiction in which the property owned, leased or operated by them or the
nature of the business conducted by them makes such qualification or licensing
necessary, except where the failure to be so duly qualified or licensed and in
good standing would not in the aggregate have a material adverse effect on
Buyer and its Subsidiaries taken as a whole or on the ability of Buyer to
consummate the transactions contemplated hereby. True, accurate and complete
copies of Buyer's Articles of Incorporation and Code of Regulations, including
all amendments thereto, have heretofore been delivered to the Company.
Section 4.2 Capitalization. As of the date hereof, the authorized and
outstanding capital stock of Buyer consists of: (i) 120 million shares of
Buyer Common Stock authorized, of which 61,639,561 shares are outstanding, (ii)
30 million shares of Buyer Voting Stock authorized, of which 19,333,711 shares
are outstanding and (iii) 25 million shares of serial preferred stock, par
value $.01 per share authorized, none of which are outstanding. All the
outstanding shares of Buyer's capital stock are, and all shares of Buyer Common
Stock which are to be issued pursuant to the Merger will be when issued in
accordance with the terms hereof, duly authorized, validly issued, fully paid
and nonassessable and free of any preemptive rights in respect thereto. Except
for Buyer Common Stock issuable to directors, officers and employees pursuant
to Buyer stock option and other benefit plans and except for this Agreement,
there are no existing options, warrants, calls, subscriptions or other rights
or other agreements, commitments, understandings or restrictions of any
character relating to the issued or unissued capital stock of Buyer or any of
its Subsidiaries. Since December 31, 1996, no material number of shares of
Buyer Common Stock have been issued except issuances of shares reserved for
issuance as described above.
Section 4.3 Authority. Buyer has the requisite corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby (other than, with respect to the Merger and if
required by the Ohio Act or the rules and regulations of the NYSE, the approval
of the issuance of shares of Buyer Common Stock pursuant to this Agreement by
an affirmative vote of the holders of at least a majority of the shares of
Buyer Voting Stock present, in person or by proxy, and entitled to vote at the
meeting of Buyer's stockholders referred to in Section 6.3(b) for which a
quorum exists). The execution, delivery and performance of this Agreement by
Buyer and the consummation by Buyer of the Merger and the other transactions
contemplated hereby have been duly authorized by the Board of Directors of
Buyer, and no other corporate proceedings on the part of Buyer are necessary to
authorize this Agreement or for Buyer to consummate the transactions so
contemplated (other than, with respect to the Merger and if required by the
Ohio Act or the rules and regulations of the NYSE, the approval of the issuance
of shares of Buyer Common Stock pursuant to this Agreement by an affirmative
vote of the holders of at least a majority of the shares of Buyer Voting Stock
present, in person or by proxy, and entitled to vote at the meeting of Buyer's
stockholders referred to in Section 6.3(b) for which a quorum exists). This
Agreement has been duly executed and delivered by Buyer, and, assuming this
Agreement constitutes a valid and binding obligation of the Company,
constitutes a valid and binding obligation of Buyer, enforceable against it in
accordance with its terms.
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Section 4.4 Consents and Approvals; No Violations. Except for filings,
permits, authorizations, consents and approvals as may be required under, and
other applicable requirements of, the Securities Act, the Exchange Act, the HSR
Act, the FCC Act, the NYSE, filings under state securities or "blue sky" laws,
the filing with the Secretary of State of the State of Delaware of the
Certificate of Merger and the filing with the Secretary of State of the State
of Ohio of the Certificate of Merger and as may be necessary as a result of any
facts or circumstances relating solely to the Company and its Subsidiaries,
neither the execution, delivery or performance of this Agreement by Buyer nor
the consummation by Buyer of the transactions contemplated hereby nor
compliance by Buyer with any of the provisions hereof will (i) conflict with or
result in any breach of any provision of the respective charter or bylaws of
Buyer , (ii) require any filing by Buyer or its Subsidiaries with, or permit,
authorization, consent or approval to be obtained by Buyer or its Subsidiaries
of, any Governmental Entity, (iii) result in a violation or breach of, or
constitute (with or without due notice or lapse of time or both) a default (or
give rise to any right of termination, cancellation or acceleration) under, any
of the terms, conditions or provisions of any Contract to which Buyer or any of
its Subsidiaries is a party or by which any of them or any of their properties
or assets may be bound or (iv) violate any order, writ, injunction, decree,
statute, ordinance, rule or regulation applicable to Buyer or any of its
Subsidiaries, except, in the case of clause (ii), (iii) or (iv), for failures
to file or obtain, violations, breaches or defaults which would not,
individually or in the aggregate, have a material adverse effect on Buyer or
the ability of Buyer to consummate the transactions contemplated hereby. Buyer
has no knowledge of any facts or circumstances relating to Buyer or any of its
Subsidiaries, that, individually or in the aggregate, would prevent any
necessary approval of the transactions contemplated by this Agreement under the
FCC Act. Buyer is legally and financially qualified and, to Buyer's knowledge,
otherwise qualified to hold, or control the entities which hold or will hold,
the FCC Licenses currently held or controlled by the Company or to be held by
Buyer or any person under their control after the Effective Time, and are not
aware of any facts or circumstances that might prevent or delay prompt consent
to or waivers for the FCC Application.
Section 4.5 SEC Reports and Financial Statements. Each of Buyer and its
Subsidiaries has timely filed with the SEC and has heretofore made available to
the Company true and complete copies of all periodic reports required to be
filed by it since December 31, 1994 under the Exchange Act (as such documents
have been amended since the time of their filing, together with all such
periodic reports to be filed from the date hereof to the Effective Time,
collectively, the "Buyer SEC Documents"). The Buyer SEC Documents, including
without limitation any financial statements or schedules included therein, at
the time filed, (a) did not or will not, as the case may be, contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading and (b)
complied or will comply, as the case may be, in all material respects with the
applicable requirements of the Exchange Act. The consolidated financial
statements of Buyer included in the Buyer SEC Documents comply as to form in
all material respects with applicable accounting requirements and with the
published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis during
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the periods involved (except as may be indicated in the notes thereto or, in
the case of unaudited financial statements, as permitted by Form 10-Q of the
SEC) and fairly present (subject, in the case of the unaudited statements, to
normal audit and year-end adjustments) the consolidated financial position of
Buyer and its consolidated Subsidiaries as at the dates thereof and the
consolidated results of their operations and cash flows for the periods then
ended.
Section 4.6 Information in Disclosure Documents and Registration
Statements. None of the information supplied by Buyer or its representatives
for inclusion or incorporation by reference in (i) the S-4 will, at the time
the S-4 becomes effective under the Securities Act and at the Effective Time,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading and
(ii) the Proxy Statement will, at the date mailed to each of the Company's and
Buyer's stockholders and at the time of each of the meetings of the Company's
and Buyer's stockholders to be held in connection with the Merger, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading. The S-4
and the Proxy Statement will comply as to form in all material respects with
the provisions of the Securities Act and the rules and regulations thereunder,
except that no representation is made by Buyer with respect to statements made
therein based on information supplied by the Company for inclusion in the S-4
and the Proxy Statement or with respect to information concerning the Company
incorporated by reference in the S-4 and the Proxy Statement.
Section 4.7 Litigation. Except as disclosed in the Buyer SEC Documents
filed prior to the date of this Agreement, there is no suit, action, proceeding
or investigation pending or, to the knowledge of Buyer, threatened, against
Buyer or any of its Subsidiaries before any Governmental Entity which,
individually or in the aggregate, might reasonably be expected to have a
material adverse effect on Buyer and its Subsidiaries taken as a whole or a
material adverse effect on the ability of Buyer to consummate the transactions
contemplated by this Agreement. Except as disclosed in the Buyer SEC Documents
filed prior to the date of this Agreement, neither Buyer nor any of its
Subsidiaries is subject to any outstanding order, writ, injunction or decree
which, individually or in the aggregate, might reasonably be expected to have a
material adverse effect on Buyer and its Subsidiaries taken as a whole or a
material adverse effect on the ability of Buyer to consummate the transactions
contemplated hereby.
Section 4.8 Absence of Certain Changes or Events. Since December 31,
1996, there has not been any change or development, or combination of changes
or developments (other than changes relating to or arising from legislative or
regulatory changes or developments generally affecting the newspaper or
broadcasting industries or general economic conditions in the United States)
which individually or in the aggregate have had or are reasonably likely to
have a material adverse effect on Buyer and its Subsidiaries taken as a whole.
Section 4.9 No Violation of Law. Except as disclosed in the Buyer SEC
Documents as filed prior to the date hereof, neither Buyer nor any of its
Subsidiaries is in violation of, or, to the knowledge of Buyer, is under
investigation with respect to or has been given notice or been
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charged by any Governmental Entity with any violation of, any law, statute,
order, rule, regulation or judgment of any Governmental Entity, except for
violations which, in the aggregate, do not have a material adverse effect on
the Buyer and its Subsidiaries taken as a whole. Buyer and its Subsidiaries
have all permits, licenses, franchises and other governmental authorizations,
consents and approvals necessary to conduct their businesses as presently
conducted, except for any such permits, licenses, franchises or other
governmental authorizations, consents and approvals the failure of which to
have would not have a material adverse effect on Buyer and its Subsidiaries
taken as a whole.
Section 4.10 Environmental Matters. Except as disclosed in the Buyer SEC
Documents as filed prior to the date hereof, except for such matters that,
individually or in the aggregate, would not have a material adverse effect on
Buyer and its Subsidiaries taken as a whole, (i) Buyer and its Subsidiaries are
in compliance in all material respects with all applicable Environmental Laws;
(ii) to the knowledge of Buyer, the properties presently owned or operated by
Buyer or its Subsidiaries (the "Buyer Properties") do not contain any Hazardous
Substance other than as permitted under applicable Environmental Laws; (iii)
neither Buyer nor any of its Subsidiaries has, since December 31, 1994,
received any claims, notices, demand letters, lawsuits or requests for
information from any Governmental Entity or any private third party alleging
that Buyer is in violation of, or liable under, any Environmental Laws; and
(iv) none of Buyer, its Subsidiaries or the Buyer Properties is subject to any
court order, administrative order or decree arising under any Environmental
Law.
Section 4.11 Unwanted Businesses. Buyer is unwilling to consummate the
Merger unless the Company has divested itself of all of the Company's assets
and Newco has assumed all of the Company's liabilities, other than those
relating to the Retained Business.
Section 4.12 Purchases of Company Stock. Neither Buyer nor any of its
Subsidiaries has acquired any shares of capital stock of the Company since
December 31, 1995.
Section 4.13 Brokers or Finders. Neither Buyer nor any of its
Subsidiaries has any liability to any agent, broker, investment banker,
financial advisor or other firm or person for any broker's or finder's fee or
any other commission or similar fee in connection with any of the transactions
contemplated by this Agreement.
ARTICLE V
COVENANTS PENDING THE EFFECTIVE TIME
Section 5.1 Covenants of the Company with Respect to the Retained
Business. During the period from the date of this Agreement and continuing
until the Effective Time, the Company agrees as to itself and its Subsidiaries
that except (i) for the Distribution and the other transactions, actions or
events provided for in the Distribution Agreement, including the Employee
Benefits Agreement, (ii) as contemplated or permitted by this Agreement, (iii)
as set
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forth in Section 5.1 of the Company Disclosure Schedule or (iv) to the extent
that Buyer shall otherwise consent in writing (which consent will not be
unreasonably withheld or delayed):
(a) Ordinary Course. The Company and its Subsidiaries shall carry on
the Retained Business in the usual, regular and ordinary course consistent with
past practice and use all reasonable efforts to preserve intact the present
business organization, keep available, consistent with past practice, the
services of the present officers and employees and preserve the relationships
with customers, suppliers and others having business dealings with the Retained
Business, it being understood, however, that (i) certain employees of the
Retained Business will also be engaged in activities for Newco and its
Subsidiaries and certain officers of the Company will resign at the time of the
Distribution and will serve as officers of Newco, and (ii) the failure of any
employees of the Retained Business to remain employees of the Retained Business
or become employees of Buyer or any Subsidiary of Buyer shall not constitute a
breach of this covenant. Without limiting the foregoing, except as set forth in
Section 5.1 of the Company Disclosure Schedule and except for "like kind"
replacements and repairs of equipment, the Company will not make or enter into
any contracts, commitments or agreements obligating the Company to make any
capital expenditures primarily relating to, or arising from, the Retained
Business in excess of $5,000,000, in the aggregate.
(b) Dividends; Changes in Stock. The Company shall not (i) declare or
pay any dividends (including dividends in Company Common Stock) on or make
other distributions in respect of any of its capital stock (including such a
distribution or dividend made in connection with a recapitalization,
reclassification, merger, consolidation, reorganization or similar
transaction), except for regular quarterly cash dividends consistent with
amounts currently paid and the Distribution, (ii) split (including a reverse
stock split), combine or reclassify any of its capital stock or issue or
authorize or propose the issuance of any other securities in respect of, in
lieu of or in substitution for shares of its capital stock, or (iii) other than
pursuant to the Company's previously announced stock repurchase program,
repurchase, redeem or otherwise acquire, or permit any Subsidiary to
repurchase, redeem or otherwise acquire, any shares of capital stock of the
Company or any of its Subsidiaries.
(c) Issuance of Securities. The Company shall not, nor shall the
Company permit any of its Subsidiaries included in the Retained Business to,
issue, transfer or sell, or authorize or propose or agree to the issuance,
transfer or sale of, any shares of its capital stock of any class, any other
equity interests or any securities convertible into, or any rights, warrants,
calls, subscriptions, options or other rights or agreements, commitments or
understandings to acquire, any such shares, equity interests or convertible
securities, other than (i) the issuance of shares of Company Common Stock
pursuant to Company Stock Plans or the other agreements referred to in Section
3.2 of the Company Disclosure Schedule, (ii) issuances by a wholly owned
Subsidiary of its capital stock to its parent and (iii) the granting of stock
options or stock grants to employees of the Company other than the Retained
Employees (as defined in Section 6.7) and to Retained Employees first employed
after the date hereof.
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(d) Governing Documents. The Company shall not amend its Certificate
of Incorporation or bylaws in a manner adverse to Buyer or otherwise
inconsistent with the transactions contemplated hereby.
(e) Indebtedness. The Company shall not, nor shall it permit any of
its Subsidiaries to, incur (which shall not be deemed to include (i) entering
into credit agreements, lines of credit or similar arrangements until
borrowings are made under such arrangements or (ii) refinancings of existing
indebtedness) any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities or warrants or rights to
acquire any debt securities of the Company or any of its Subsidiaries or
guarantee any such obligations of others other than (x) in the ordinary course
of business consistent with past practice, (y) pursuant to existing credit or
guaranty agreements or (z) indebtedness incurred solely by, or that will be
assumed and become the obligation solely of Newco or any of its Subsidiaries at
the Time of Distribution (as defined in the Distribution Agreement).
(f) Changes to Benefit Plans. Except as would not materially increase
the costs of the Retained Business and except for changes required to comply
with applicable law, the Company shall not, nor shall it permit any of its
Subsidiaries (other than Newco and its Subsidiaries) to, (i) enter into, adopt,
amend (except as may be required by law and except for immaterial amendments)
or terminate any Benefit Plan or any agreement, arrangement, plan or policy
between the Company or any such Subsidiary and one or more of its directors,
officers or Employees or (ii) except for normal increases in the ordinary
course of business consistent with past practice and the payment of bonuses and
other consideration to employees in the aggregate not to exceed the amount set
forth in Section 5.1 of the Company Disclosure Schedule, increase in any manner
the compensation or fringe benefits of any director, officer or Employee or pay
any benefit to any director, officer or Employee not required by any plan or
arrangement as in effect as of the date hereof or enter into any contract,
agreement, commitment or arrangement to do any of the foregoing; provided that
the foregoing shall not prohibit the Company from hiring and paying new
employees in the ordinary course of business consistent with past practice.
(g) Filings. The Company shall promptly provide Buyer (or its
counsel) copies of all filings (other than those portions of filings under the
HSR Act which Buyer has no reasonable interest in obtaining in connection with
the Merger) made by the Company with any Federal, state or foreign Governmental
Entity in connection with this Agreement, the Distribution Agreement and the
transactions contemplated hereby and thereby.
(h) Accounting Policies and Procedures. The Company will not and will
not permit any of its Subsidiaries to change any of its accounting principles,
policies or procedures, except as may be required by generally accepted
accounting principles.
(i) Newco. The Company shall (i) abide and cause Newco to abide by
their respective obligations under the Distribution Agreement, Tax
Disaffiliation Agreement and Employee Benefits Agreement and (ii) not terminate
or amend, or waive compliance with any obligations under, the Distribution
Agreement, Tax Disaffiliation Agreement or Employee Benefits Agreement in any
manner adverse to Buyer.
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(j) Sale of Assets. The Company shall not sell, lease, exchange,
mortgage, pledge, transfer or otherwise dispose of, or agree to sell, lease,
exchange, mortgage, pledge, transfer or otherwise dispose of, any of the assets
included in the Retained Business, except for dispositions of inventories and
equipment in the ordinary course of the Retained Business and consistent with
past practice.
Section 5.2 Covenants of the Company. During the period from the date
of this Agreement and continuing to the Effective Time, the Company agrees as
to itself and its Subsidiaries that the Company shall not, and shall not permit
any of its Subsidiaries to, take any action, including, without limitation,
with respect to the terms of the Certificate of Incorporation or bylaws of
Newco, that would or is reasonably likely to result in any of the conditions to
the Merger set forth in Article VII not being satisfied or that would
materially impair the ability of the Company to consummate the Distribution in
accordance with the terms of the Distribution Agreement or the Merger in
accordance with the terms hereof or would materially delay such consummation,
and the Company shall promptly advise Buyer orally and in writing of any change
in, or event with respect to, the business or operations of the Company and its
Subsidiaries having, or which insofar as can reasonably be foreseen, could
have, a material adverse effect on the Retained Business.
Section 5.3 Covenants of Buyer. During the period from the date of this
Agreement and continuing until the Effective Time, Buyer agrees as to itself
and its Subsidiaries that except (i) as contemplated or permitted by this
Agreement or (ii) to the extent that the Company shall otherwise consent in
writing (which consent will not be unreasonably withheld or delayed):
(a) Ordinary Course. Buyer and its Subsidiaries shall carry on their
businesses in the usual, regular and ordinary course consistent with past
practice and use all reasonable efforts to preserve intact the present business
organization, keep available, consistent with past practice, the services of
the present officers and employees and preserve the relationships with
customers, suppliers and others having business dealings with them.
(b) Dividends; Changes in Stock. Buyer shall not (i) declare or pay
any dividends (including dividends in Buyer Common Stock) on or make other
distributions in respect of any of its capital stock (including such a
distribution or dividend made in connection with a recapitalization,
reclassification, merger, consolidation, reorganization or similar
transaction), except for regular quarterly cash dividends, (ii) split
(including a reverse split), combine or reclassify any of its capital stock or
issue or authorize or propose the issuance of any other securities in respect
of, in lieu of or in substitution for shares of its capital stock, or (iii)
repurchase, redeem or otherwise acquire, or permit any Subsidiary to
repurchase, redeem or otherwise acquire, any shares of capital stock of Buyer,
except for shares repurchased by Buyer pursuant to its Market Repurchase
Program as defined herein.
(c) Issuance of Securities. Buyer shall not, nor shall Buyer permit
any of its Subsidiaries to, issue, transfer or sell, or authorize or propose or
agree to the issuance, transfer or sale of, any shares of its capital stock of
any class, any other equity interests or any securities
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convertible into, or any rights, warrants, calls, subscriptions, options or
other rights or agreements, commitments or understandings to acquire, any such
shares, equity interests or convertible securities, other than (i) the issuance
of shares of Buyer Common Stock upon the exercise of stock options or stock
grants pursuant to existing employee benefit plans, (ii) issuances by a wholly
owned Subsidiary of its capital stock to its parent, (iii) issuances of Buyer
Common Stock not exceeding twenty percent (20%) of the outstanding shares, and
(iv) the issuance of Buyer Common Stock upon the exercise of the option granted
to The ▇▇▇▇▇▇ ▇. Scripps Trust (the "Trust") pursuant to the Stock Option
Agreement between Buyer and the Trust dated the date hereof, a copy of which
has been furnished to the Company.
(d) Governing Documents. Buyer shall not amend its Articles of
Incorporation or Code of Regulations in a manner adverse to the Company or
otherwise inconsistent with the transactions contemplated hereby.
(e) Indebtedness. Buyer shall not, nor shall it permit any of its
Subsidiaries to, incur (which shall not be deemed to include (i) entering into
credit agreements, lines of credit or similar arrangements until borrowings are
made under such arrangements or (ii) refinancings of existing indebtedness) any
indebtedness for borrowed money or guarantee any such indebtedness or issue or
sell any debt securities or warrants or rights to acquire any debt securities
of Buyer or any of its Subsidiaries or guarantee any such obligations of others
other than (x) in the ordinary course of business consistent with past
practice, (y) pursuant to existing credit or guaranty agreements or (z)
additional indebtedness not to exceed $1 billion in the aggregate.
(f) Filings. Buyer shall promptly provide the Company (or its
counsel) copies of all filings (other than those portions of filings under the
HSR Act which the Company has no reasonable interest in obtaining in connection
with the Merger) made by Buyer with any Federal, state or foreign Governmental
Entity in connection with this Agreement and the transactions contemplated
hereby and thereby.
(g) Accounting Policies and Procedures. Buyer will not and will not
permit any of its Subsidiaries to change any of its accounting principles,
policies or procedures, except as may be required by generally accepted
accounting principles.
(h) Cooperation. Buyer shall not take, nor permit any of its
Subsidiaries to take, any action that would or is reasonably likely to result
in any of the conditions to the Merger set forth in Article VII not being
satisfied or that would materially impair the ability of Buyer to consummate
the Merger in accordance with the terms hereof or materially delay such
consummation, and Buyer shall promptly advise the Company orally and in writing
of any change in, or event with respect to, the business or operations of Buyer
having, or which, insofar as can reasonably be foreseen, could have, a material
adverse effect on Buyer and its Subsidiaries taken as a whole.
(i) Securities Act Compliance. As soon as practicable after the date
of the meeting of the stockholders of the Company to be called in accordance
with Section 6.3(a)
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hereof, the Company will identify to Buyer all persons who are reasonably
believed by the Company to be, at the time of the stockholders meeting,
"affiliates" of the Company as that term is used in paragraphs (c) and (d) of
Rule 145 under the Securities Act ("Rule 145 Affiliates"). The Company will
use its reasonable best efforts to obtain a written agreement in form and
substance satisfactory to Buyer from each person identified as a possible Rule
145 Affiliate and will deliver such written agreements as soon as practicable
after the meeting of the stockholders of the Company. Buyer may place
appropriate legends on the certificates evidencing the shares of Buyer Common
Stock to be received by Rule 145 Affiliates and issue appropriate stop transfer
orders to the Buyer's transfer agent.
Section 5.4 Control of the Company Stations. Prior to the Effective
Time, control of the Company's television and radio broadcast operations, along
with all of the Company's other operations, shall remain with the Company. The
Company and Buyer acknowledge and agree that neither Buyer nor any of its
employees, agents or representatives, directly or indirectly, shall, or have
any right to, control, direct or otherwise supervise, or attempt to control,
direct or otherwise supervise, such broadcast and other operations, it being
understood that supervision of all programs, equipment, operations and other
activities of such broadcast and other operations shall be the sole
responsibility, and at all times prior to the Effective Time remain within the
complete control and discretion, of the Company, subject to the terms of
Sections 5.1 and 5.2.
ARTICLE VI
ADDITIONAL AGREEMENTS
Section 6.1 Reasonable Efforts. Subject to the terms and conditions of
this Agreement, each of the parties hereto agrees to use all reasonable efforts
to take, or cause to be taken, all actions, and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement
including, without limitation, (i) the prompt preparation and filing with the
SEC of the S-4 and the Proxy Statement, (ii) such actions as may be required to
have the S-4 declared effective under the Securities Act and to have the Proxy
Statement cleared by the SEC, in each case as promptly as practicable,
including by consulting with each other as to, and responding promptly to, any
SEC comments with respect thereto, (iii) the prompt preparation and filing of
all necessary documents under the HSR Act and FCC Act including (but not
limited to) any required waiver of the FCC one to a market rule, (iv) such
actions as may be required to have the applicable waiting period under the HSR
Act expire or terminate as promptly as practicable, including by consulting
with each other as to, and responding promptly to any comments or requests for
information with respect thereto, (v) such actions as may be required to be
taken under applicable state securities or "blue sky" laws in connection with
the issuance of shares of Buyer Common Stock contemplated hereby, and (vi) the
distribution of the prospectus constituting a part of the S-4 and the Proxy
Statement to stockholders of the Company. Each party shall promptly consult
with the other and provide any necessary information with respect to all
filings made by such party with any Governmental Entity in connection with this
Agreement and the transactions contemplated hereby.
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Section 6.2 Access to Information. Upon reasonable notice, each of the
Company and Buyer shall (and shall cause its Subsidiaries to) afford to the
officers, employees, accountants, counsel and other representatives of the
other party, access, during normal business hours during the period prior to
the Effective Time, to all its properties, books, contracts, commitments and
records (with respect to the Company, to the extent relating to the Retained
Business), and, during such period, each of the Company and Buyer shall (and
shall cause each of their respective Subsidiaries to) furnish promptly to the
other (a) a copy of each report, schedule, registration statement and other
document filed by it during such period pursuant to the requirements of federal
securities laws and (b) all other information concerning its business,
properties and personnel (with respect to the Company, to the extent related to
the Retained Business) as such other party may reasonably request. After the
Effective Time, upon reasonable notice, Buyer and its Subsidiaries shall afford
to the officers, employees, accountants, counsel and other representatives of
Newco access, during normal business hours, to the Surviving Corporation's and
its Subsidiaries' books and records which Newco may reasonably request in order
to complete tax filings or for other legitimate business purposes. Unless
otherwise required by law, the parties will hold any information made available
pursuant to this Section 6.2 which is nonpublic in confidence in accordance
with the confidentiality agreement, dated March 11, 1997 (the "Confidentiality
Agreement"), between Buyer and the Company.
Section 6.3 Stockholders Meetings.
(a) The Company shall call a meeting of its stockholders to be held
as promptly as practicable for the purpose of voting upon the approval and
adoption of this Agreement. The Company will, through its Board of Directors,
recommend to its stockholders approval and adoption of this Agreement and, if
the Company determines such approval to be necessary or appropriate, the
Distribution and shall use all reasonable efforts to hold such meeting as soon
as practicable after the date hereof; provided, however, that the Board of
Directors of the Company may fail to make such a recommendation, or withdraw,
modify or change any such recommendation if it determines after receiving the
advice of outside counsel that making such recommendation, or that the failure
to withdraw, modify or change its recommendation, would be inconsistent with
its fiduciary duties under applicable law.
(b) If required by the Ohio Act or the rules and regulations of the
NYSE, Buyer shall call a meeting of its stockholders to be held as promptly as
practicable for the purpose of voting upon the approval of the issuance of
shares of Buyer Common Stock pursuant to this Agreement. Buyer will, through
its Board of Directors, recommend to its stockholders such approval and shall
use all reasonable efforts to hold such meeting as soon as practicable after
the date hereof.
Section 6.4 Legal Conditions to Distribution and Merger. Each of the
Company and Buyer will use all reasonable efforts to comply promptly with all
legal requirements which may be imposed on it or its respective Subsidiaries
with respect to the Distribution and the Merger (which actions shall include,
without limitation, furnishing all information required under the HSR Act and
the FCC Act and will promptly cooperate with and furnish information to each
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other in connection with any such requirements imposed upon any of them or any
of their respective Subsidiaries in connection with the Distribution or the
Merger). Subject to the terms and conditions hereof, each of the Company and
Buyer will, and will cause its Subsidiaries to, promptly use all reasonable
efforts to obtain (and will consult and cooperate with each other in obtaining)
any consent, authorization, order or approval of, or any exemption by, any
Governmental Entity or other public or private third party, required to be
obtained or made by such party in connection with the Distribution or the
Merger or the taking of any action contemplated thereby or by this Agreement or
the Distribution Agreement.
Section 6.5 Stock Exchange Listing. Buyer shall use all reasonable
efforts to cause the shares of Buyer Common Stock to be issued in the Merger to
be approved for listing on the NYSE, subject to official notice of issuance,
prior to the Closing Date.
Section 6.6 Company Severance Obligations. Subject to the proviso in
the following sentence, the Company will pay or Newco will assume any
transaction bonus arising out of the transactions contemplated by this
Agreement pursuant to any contract, agreement or arrangement of which the
Company or any of its Subsidiaries is a party, including, without limitation,
payments pursuant to the agreements listed in Section 6.6 of the Company
Disclosure Schedule. In no event shall Buyer or any of its Subsidiaries be
responsible for any such payments, or be under any obligation to honor or
assume any such obligations; provided, however, Buyer shall assume and retain,
with respect to the Retained Employees (as defined in Section 6.7), any and all
severance obligations that arise due to (i) the Merger being a "Change of
Control" under the Severance Agreements for Retained Employees specified in
Section 6.6 of the Company Disclosure Schedule and (ii) events or actions
occurring after the Effective Time.
Section 6.7 Employee Matters; Company Stock Plans.
(a) The Company and Buyer agree that Buyer will immediately after the
Effective Time and for at least one year thereafter, permit the employees of
the Retained Business who will remain in the employ of the Surviving
Corporation or one of its Subsidiaries after the Effective Time (collectively,
the "Retained Employees") (i) to participate in a group health plan of Buyer,
or one of its Subsidiaries in which similarly situated employees of Buyer
participate, in accordance with the terms of the plan and, to waive any
pre-existing condition clause or waiting period requirement in such group
health plan and to give credit for deductible amounts paid by a Retained
Employee during the current deductible year of such group health plan while
employed by the Company; provided, however, that Buyer will be in compliance
with this clause (i) if Buyer assumes the current group health contracts of the
Company and its Subsidiaries to the extent applicable to the Retained
Employees; (ii) to participate in and receive credit for vesting and
eligibility purposes under tax qualified retirement plans of Buyer or any of
its Subsidiaries in which similarly situated employees of Buyer participate,
for which they are otherwise eligible for their service with the Company, to
the extent permitted by applicable tax-qualification requirements; (iii) to
participate in other benefit plans of Buyer which are offered to similarly
situated employees; and (iv) to participate in stock option programs and stock
purchase programs of Buyer which are offered to similarly situated employees.
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(b) Prior to the Effective Time, each outstanding option to purchase
shares of Company Common Stock (a "Company Option") held by a Retained Employee
under the Company Stock Plans, whether vested or unvested, exercisable or
nonexercisable, shall be eliminated as an obligation of the Company. The
Surviving Corporation and Buyer shall have no obligation or responsibility
whatsoever with respect to any Company Options.
(c) All of the Retained Employees of Seller will become employees of
Buyer as of the Closing Date; however, nothing in this Agreement shall be
construed to require Buyer or the Company to continue the employment of any
Retained Employee for any period of time, or, except as required by Section
6.7(a) above, to offer any particular type or level of benefits to any
employee. Nothing in this Agreement shall prevent Buyer or the Company from
disciplining or terminating any Retained Employee or from amending or
terminating any benefit plans at any time.
Section 6.8 Fees and Expenses. Subject to the Distribution Agreement,
whether or not the Merger is consummated and except as otherwise provided
herein, all fees, costs and expenses incurred in connection with this Agreement
and the transactions contemplated hereby shall be paid by the party incurring
such expenses; provided, however, that Buyer and the Company shall each pay
one-half of (i) the printing costs incurred with respect to the S-4 and the
Proxy Statement, (ii) the filing fee required under the HSR Act and (iii) any
filing fee required by the FCC to file the FCC Application.
Section 6.9 No Solicitations. The Company will immediately cease any
existing discussions or negotiations conducted prior to the date hereof with
respect to any merger, consolidation, business combination, sale of a
significant amount of assets outside of the ordinary course of business, sale
of shares of capital stock outside of the ordinary course of business, tender
or exchange offer, spin-off, recapitalization or similar transaction involving
the sale of the Company or any of its Subsidiaries or divisions but excluding
those potential transactions set forth in Section 6.9 of the Company Disclosure
Schedule (an "Acquisition Transaction"). The Company, its Subsidiaries and
their respective directors and officers shall not, and its or its Subsidiaries'
affiliates, representatives and agents shall not, directly or indirectly,
solicit any person, entity or group concerning any Acquisition Transaction
(other than the transactions contemplated by this Agreement); provided that the
Company may (i) furnish information or enter into negotiations to the extent
the Company's Board of Directors determines after receiving the advice of
outside counsel that the failure to do so would be inconsistent with its
fiduciary duties under applicable law; and (ii) recommend to its stockholders a
bona fide transaction or combination of transactions that the Board of
Directors determines after consulting with its legal and other advisors is more
favorable, from a financial point of view, to the stockholders of the Company
than the Distribution and the Merger (a "Higher Proposal"), so long as the
Board of Directors, after receiving advice from outside counsel, determines
that recommendation of such transaction or combination of transactions may be
required for the Board of Directors to act in a manner consistent with its
fiduciary duties under applicable law. The Company will furnish to Buyer a
true and correct copy of any Higher Proposal.
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Section 6.10 Distribution. Prior to the Closing, the Company will enter
into the Distribution Agreement in the form attached hereto, with such changes
as the Company and Newco shall agree and which are not adverse to Buyer, and
cause Newco to enter into the Distribution Agreement and the Company will take
all action necessary to effect the Distribution pursuant to the terms of the
Distribution Agreement.
Section 6.11 Tax-Free Nature of Transactions. (a) Each party agrees to
report the Transfer as one or more tax-free transactions under one or more of
Section 332, 351 or 368(a) of the Code, the Distribution as a tax-free
distribution under Section 355 of the Code and the Merger as a tax-free
reorganization within the meaning of Section 368(a)(1)(A) of the Code on all
Tax Returns and other filings, and take no position inconsistent therewith,
except to the extent Newco has Agreed To Pay Taxes resulting from the Transfer
or the Distribution. Each of the Company and Buyer shall not, and shall not
permit any of its Subsidiaries to, take or cause or permit to be taken, any
action that would disqualify the Distribution as a tax-free distribution under
Section 355 of the Code, disqualify the Transfer as one or more tax-free
transactions under one or more of Section 332, 351 or 368(a) of the Code, or
disqualify the Merger as a reorganization within the meaning of Section
368(a)(1)(A) of the Code, except for actions resulting in, or consistent with,
Taxes Newco has Agreed To Pay. For purposes of this Agreement, the
Distribution Agreement and the Tax Disaffiliation Agreement (as defined in the
Distribution Agreement), Newco has "Agreed To Pay" or "Agrees To Pay" or will
"Agree To Pay" an amount of Taxes if (i) the aggregate amount of all such Taxes
Newco agrees to pay pursuant to such Agreements is less than fifty million
dollars ($50,000,000) and Newco agrees to pay such Taxes in writing, or if (ii)
the aggregate amount of all such Taxes Newco agrees to pay pursuant to such
Agreements is greater than or equal to fifty million dollars ($50,000,000) and
less than or equal to one hundred and fifty million dollars ($150,000,000), and
either (A) Newco delivers to Buyer evidence of payment of all such Taxes to the
appropriate tax authority on or prior to the Closing Date in a form reasonably
acceptable to Buyer, or (B) only with the consent of Buyer, Newco contributes
the amount of all such Taxes to an escrow account on or prior to the Closing
Date, such escrow account to provide that interest thereon is to be payable to
Newco and otherwise to be in a form and subject to terms and conditions
reasonably acceptable to Buyer, or Newco provides a letter of credit or similar
instrument as security for the payment of all such Taxes in a form, and from a
financial institution, reasonably acceptable to Buyer. Newco cannot Agree To
Pay Taxes in an aggregate amount greater than one hundred and fifty million
dollars ($150,000,000).
(b) The Company shall, as promptly as practicable after the date
hereof, prepare and submit to the Service a request for an advance letter
ruling from the Service that the transactions contemplated by the Distribution
Agreement will qualify as one or more tax-free transactions under one or more
of Sections 332, 351 and 368(a)(1)(D) of the Code and a tax-free distribution
under Section 355 of the Code. Such request shall be true and correct in all
material respects, and all facts material to the ruling shall be disclosed in
such request. The Company shall afford Buyer with a reasonable opportunity to
review and comment on such request prior to its submission to the Service, and
such request as filed shall be reasonably acceptable to Buyer. The Company
shall provide Buyer with copies of all materials submitted to the Service.
Buyer shall participate in all meetings and conferences with Service personnel,
whether telephonically
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or in person, and shall reasonably cooperate in good faith with the Company in
seeking to obtain such ruling.
Section 6.12 Closing Balance Sheet.
(a) No later than 45 days after the Effective Date, Newco shall
deliver to Buyer a consolidated balance sheet for the Retained Business at the
Effective Date after giving effect to the Distribution (but not to the Merger)
(the "Closing Balance Sheet"). The Closing Balance Sheet shall be prepared in
accordance with generally accepted accounting principles on a basis consistent
with the Company Financial Statements (except that the Closing Balance Sheet
(i) will not include any assets or liabilities that have been transferred to or
assumed by Newco pursuant to the Distribution Agreement, including without
limitation liabilities or reserves in respect of Continuing Claims (as defined
in the Distribution Agreement), (ii) will reflect all film contracts as
long-term assets and all film contract payables as long-term liabilities, and
(iii) will not reflect as current liabilities the Bank Indebtedness (as defined
in Section 7.2(e), or the Severance Agreements for Retained Employees specified
in Section 6.6). To the extent that the net working capital (current assets
less current liabilities) of the Retained Business as shown on the Closing
Balance Sheet is more or less than the amount estimated by the chief financial
officer of the Company as the net working capital as of the Effective Date
pursuant to Section 7.2(e), Buyer shall pay to Newco, or Newco shall pay to
Buyer, the amount of such excess or shortfall, respectively, in cash within
five days of the earlier to occur of (i) acceptance by Buyer or (ii) the
Neutral Auditors' determination.
(b) After receipt of the Closing Balance Sheet, Buyer shall have 20
days to review the Closing Balance Sheet, together with the workpapers used in
the preparation thereof. The parties agree that representatives of Buyer and
Newco shall be given access to all work papers, books, records and other
information related to the preparation of the Closing Balance Sheet to the
extent required to complete their review of the Closing Balance Sheet. Buyer
may dispute items reflected on the Closing Date Balance Sheet only on the basis
that such amounts were not arrived at in accordance with the consistent
application of accounting principles used in the preparation of the Company
Financial Statements. Unless Buyer delivers written notice to Newco on or prior
to the 20th day after Buyer's receipt of the Closing Balance Sheet specifying
in reasonable detail all disputed items and the basis therefor, Buyer shall be
deemed to have accepted and agreed to the Closing Balance Sheet. If Buyer so
notifies Newco of its objection to the Closing Balance Sheet, Buyer and Newco
shall, within 30 days following such notice (the "Resolution Period"), attempt
to resolve their differences and any resolution by them as to any disputed
amounts shall be final, binding and conclusive.
(c) If at the conclusion of the Resolution Period there remain
amounts in dispute pursuant to paragraph (b) of this Section 6.12, then all
amounts remaining in dispute shall be submitted to a firm of nationally
recognized independent public accountants who shall not have had a material
relationship with Buyer, Newco, or the Company within the past two years (the
"Neutral Auditors") and who shall be selected by mutual agreement of Buyer and
Newco within 10 days after the expiration of the Resolution Period. Each party
agrees to execute, if requested by the Neutral Auditors, a reasonable
engagement letter. All fees and expenses
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relating to the work, if any, to be performed by the Neutral Auditors shall be
borne equally by Buyer and Newco. The Neutral Auditors shall act as an
arbitrator to determine, based solely on presentations by Buyer and Newco, and
not by independent review or audit, only those issues still in dispute. The
Neutral Auditors' determination shall be made within 30 days of their
selection, shall be set forth in a written statement delivered to Buyer and
Newco and shall be final, binding and conclusive.
Section 6.13 Comfort Letters.
(a) The Company shall use all reasonable efforts to cause KPMG Peat
Marwick LLP, the Company's independent public accountants, to deliver a letter
dated as of the date of the Proxy Statement, and addressed to itself and Buyer
and their respective Boards of Directors, in form and substance reasonably
satisfactory to Buyer, and customary in scope and substance for agreed-upon
procedures letters delivered by independent public accountants in connection
with registration statements and proxy statements similar to the S-4 and the
Proxy Statement.
(b) Buyer shall use all reasonable efforts to cause Deloitte & Touche
LLP, the Buyer's independent public accountants, to deliver a letter dated as
of the date of the Proxy Statement, and addressed to itself and the Company and
their respective Boards of Directors, in form and substance reasonably
satisfactory to the Company, and customary in scope and substance for
agreed-upon procedures letters delivered by independent public accountants in
connection with registration statements and proxy statements similar to the S-4
and the Proxy Statement.
6.14 Notification. Each party hereto shall, in the event of, or promptly
after obtaining knowledge of, the occurrence or threatened occurrence of any
fact or circumstance that would cause or constitute a material breach of any of
its representations and warranties set forth herein, give notice thereof to the
other party and shall use its reasonable efforts to prevent or remedy such
breach.
ARTICLE VII
CONDITIONS
Section 7.1 Conditions to Each Party's Obligation to Effect the Merger.
The respective obligations of the parties to effect the Merger are subject to
the satisfaction, on or prior to the Closing Date, of the following conditions:
(a) Stockholder Approvals. This Agreement shall have been approved
and adopted by (i) the affirmative vote of the holders of at least a majority
of the outstanding shares of Company Common Stock and (ii) if required by the
Ohio Act or the rules and regulations of the NYSE, the affirmative vote of the
holders of at least a majority of the shares of Buyer Voting Stock present, in
person or by proxy, and entitled to vote at the meeting of stockholders of
Buyer referred to in Section 6.3(b) for which a quorum exists.
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(b) Stock Exchange Listing. The shares of Buyer Common Stock issuable
to the Company's stockholders pursuant to this Agreement shall have been
authorized for listing on the NYSE, upon official notice of issuance.
(c) Other Approvals. Other than the filing of the Certificate of
Merger and the Articles of Merger provided for by Section 1.2, all
authorizations, consents, orders or approvals of, or declarations or filings
with, or expirations of waiting periods imposed by, any Governmental Entity or
other public or private third party, the failure of which to obtain would have
a material adverse effect on Buyer and its Subsidiaries, in each case taken as
a whole, shall have been filed, occurred or been obtained. Buyer shall have
received all state securities or "blue sky" permits and other authorizations
necessary to issue the Buyer Common Stock pursuant to this Agreement.
(d) Registration Statement. The S-4 shall have become effective under
the Securities Act and shall not be the subject of any stop order or proceeding
by the SEC seeking a stop order.
(e) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Merger or the Distribution shall be in effect (each party
agreeing to use all reasonable efforts to have any such order reversed or
injunction lifted).
(f) HSR and FCC Approvals. Any applicable waiting period under the
HSR Act shall have expired or been terminated and the FCC Application shall
have been approved by the FCC as defined herein. "FCC Approval" means action by
the FCC or its staff granting consent to the transfer of control of the FCC
Licenses to Buyer which, except as may be waived in writing by Buyer in its
sole discretion, has not been reserved, stayed, enjoined, set aside, annulled
or suspended; with respect to which no timely request for stay, petition for
reconsideration or appeal of sua sponte action of the FCC with comparable
effect is pending; and as to which the time for filing any such request,
petition or appeal or for the taking of any such sua sponte action by the FCC
has expired; provided further that, the FCC Approval shall include grant of a
waiver of Section 73.3555(c) of the rules, the one-to-a-market rule (if
necessary under the rules then in effect), permitting common ownership of
Station KENS-TV and KENS-AM.
(g) Consummation of the Distribution. The Distribution shall have
become effective in accordance with the Distribution Agreement.
(h) No Adverse Tax Development. Each of the Buyer and the Company
shall have determined, after considering the advice of independent tax counsel,
that there has not occurred any Adverse Tax Development (as defined below)
after April 1, 1997 that may or will result in Taxes imposed on the Company,
Newco and/or any of their respective Subsidiaries or stockholders in respect of
the Transfer, the Distribution or the Merger, excluding Taxes Newco has Agreed
To Pay (as defined in Section 6.11(a)). For purposes of this Section 7.1(h), an
"Adverse Tax Development" shall mean the enactment of any legislation; the
passage of any ▇▇▇▇
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by either House of the U.S. Congress; the approval of any legislation by either
the Ways and Means Committee of the U.S. House of Representatives or the
Finance Committee of the U.S. Senate; any introduction of legislation by the
Chairman of such Ways and Means Committee and/or the Chairman of such Finance
Committee or any joint statement of an intention to introduce legislation; and
any announcement or notice by the Internal Revenue Service or the Department of
the Treasury, including the issuance of any ruling or the proposal or adoption
of any regulation.
Section 7.2 Conditions of Obligations of Buyer. The obligations of
Buyer to effect the Merger are subject to the satisfaction, on or prior to the
Closing Date, of the following conditions unless waived by Buyer:
(a) Representations and Warranties. The representations and
warranties of the Company contained herein shall be true and correct in all
material respects as of the Closing Date as though made on and as of the
Closing Date, except to the extent such representations and warranties speak as
of an earlier date (in which case, such representations and warranties shall be
true and correct in all material respects as of such earlier date) and except
as otherwise contemplated by this Agreement, and Buyer shall have received a
certificate signed on behalf of the Company by the chief executive officer or
the chief financial officer of the Company to such effect.
(b) Performance of Obligations of the Company. The Company shall have
performed in all material respects all obligations required to be performed by
it under this Agreement and the Distribution Agreement at or prior to the
Closing Date, and Buyer shall have received a certificate signed on behalf of
the Company by the chief executive officer or the chief financial officer of
the Company to such effect.
(c) Merger Opinion of Tax Counsel. Buyer shall have received the
opinion of ▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇ LLP to the effect that the Merger qualifies as a
tax-free reorganization within the meaning of Section 368(a) of the Code.
(d) Letter Ruling or Spin-Off Opinion of Tax Counsel. Either (i) the
Company shall have received a letter ruling from the Service as contemplated in
Section 6.11(b) in form and substance satisfactory to Buyer or, with the
Buyer's consent, Buyer shall have received the opinion of ▇▇▇▇▇▇ & ▇▇▇▇,
L.L.P., to the effect that the Transfer qualifies as one or more tax-free
transactions under one or more of Sections 332, 351, and 368(a)(1)(D) of the
Code and that the Distribution qualifies as a tax-free distribution under
Section 355 of the Code, or (ii) both (A) the Company shall have received a
letter ruling from the Service or, with the Buyer's consent, Buyer shall have
received the opinion of ▇▇▇▇▇▇ & ▇▇▇▇, L.L.P., to the effect that the Transfer
qualifies as one or more tax-free transactions under one or more of Sections
332, 351, and 368(a)(1)(D) of the Code and that the Distribution qualifies as a
tax-free distribution under Section 355 of the Code, except for certain Taxes
identified in such ruling or opinion as payable by the Company, Newco and/or
either of their Subsidiaries ("Specified Taxes"), and (B) all of the Specified
Taxes are Taxes that Newco Agrees To Pay (as defined in Section 6.11(a)).
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(e) Indebtedness of the Retained Business; Working Capital
Adjustment. As of the Effective Time, the Retained Business shall have no
outstanding indebtedness for borrowed money, other than the Bank Indebtedness;
the chief financial officer of the Company shall have estimated the net working
capital of the Retained Business (which shall be calculated on a basis
consistent with the provisions of Section 6.13) as of the Effective Date and,
in satisfaction of the Company's obligation under Section 4.1(c) of the
Distribution Agreement, the Buyer shall have paid to Newco by wire transfer in
immediately available funds the amount so estimated. The term "Bank
Indebtedness" shall mean Indebtedness under the Third Amended and Restated Loan
Agreement dated May 19, 1993, as amended, with Toronto-Dominion Bank, as Agent
or any bank credit agreement used to refinance such Loan Agreement. The amount
of the Bank Indebtedness shall be equal to two hundred million dollars
($200,000,000), provided, however, that if two hundred million dollars
($200,000,000) of Bank Indebtedness would cause Newco or the Company to incur a
Tax liability arising with respect to the Transfer, the Distribution, or the
Merger and a lesser amount of Bank Indebtedness would result in no such Tax
liability, then the Bank Indebtedness shall be equal to the maximum such lesser
amount.
(f) Company Options. At the Effective Time, all Company Options,
including Company Options held by Retained Employees, shall have been
terminated or exchanged for Newco Options or shall have been fully assumed by
Newco.
(g) Agreed to Pay. If Newco agreed in writing pursuant to Section
8.1(i) to Agree To Pay any Taxes, then Newco shall have fulfilled such
agreement.
Section 7.3 Conditions of Obligations of the Company. The obligation
of the Company to effect the Merger is subject to the satisfaction of the
following conditions, on or prior to the Closing Date, unless waived by the
Company:
(a) Representations and Warranties. The representations and
warranties of Buyer contained in this Agreement shall be true and correct in
all material respects as of the Closing Date as though made on and as of the
Closing Date, except to the extent such representations and warranties speak as
of an earlier date (in which case, such representations and warranties shall be
true and correct in all material respects as of such earlier date) and except
as otherwise contemplated by this Agreement, and the Company shall have
received a certificate signed on behalf of Buyer by the chief executive officer
or chief financial officer of Buyer to such effect.
(b) Performance of Obligations of Buyer. Buyer shall have performed
in all material respects all obligations required to be performed by them under
this Agreement at or prior to the Closing Date, and the Company shall have
received a certificate signed on behalf of Buyer by the chief executive officer
or chief financial officer of Buyer to such effect.
(c) Merger Opinion of Tax Counsel. The Company shall have received an
opinion of ▇▇▇▇▇▇ & ▇▇▇▇, L.L.P. to the effect that the Merger qualifies as a
tax-free reorganization within the meaning of Section 368(a) of the Code.
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(d) Letter Ruling or Spin-Off Opinion of Tax Counsel. Either (i) the
Company shall have received a letter ruling from the Service satisfactory to
the Company, or, with the Company's consent, an opinion of ▇▇▇▇▇▇ & ▇▇▇▇,
L.L.P., to the effect that the Transfer qualifies as one or more tax-free
transactions under one or more of Sections 332, 351, and 368(a)(1)(D) of the
Code and that the Distribution qualifies as a tax-free distribution under
Section 355 of the Code, or (ii) both (A) the Company shall have received a
letter ruling from the Service or, with the Company's consent, Company shall
have received the opinion of ▇▇▇▇▇▇ & ▇▇▇▇, L.L.P., to the effect that the
Transfer qualifies as one or more tax-free transactions under one or more of
Sections 332, 351, and 368(a)(1)(D) of the Code and that the Distribution
qualifies as a tax-free distribution under Section 355 of the Code, except for
certain Taxes identified in such ruling or opinion as payable by the Company,
Newco and/or either of their Subsidiaries ("Specified Taxes"), and (B) all of
the Specified Taxes are Taxes that Newco Agrees To Pay (as defined in Section
6.11(a)).
(e) Indebtedness. Newco and its Subsidiaries shall have been fully
released from any and all liability under the Bank Indebtedness as of the
Effective Date.
ARTICLE VIII
TERMINATION AND AMENDMENT
Section 8.1 Termination. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after approval of the Merger and
this Agreement by the stockholders of the Company or, if applicable, Buyer:
(a) by mutual consent of Buyer and the Company;
(b) by either Buyer or the Company if the Merger shall not have been
consummated before April 30, 1998 (unless the failure to so consummate the
Merger by such date shall be due to the action or failure to act of the party
seeking to terminate this Agreement);
(c) by Buyer, upon a material breach of any representation, warranty,
covenant or agreement on the part of the Company set forth in this Agreement,
or if any representation or warranty of the Company shall have become untrue in
any material respect, in either case such that the conditions set forth in
Section 7.2(a) or Section 7.2(b) of this Agreement, as the case may be, would
be incapable of being satisfied by April 30, 1998; provided, that in any case,
a willful breach shall be deemed to cause such conditions to be incapable of
being satisfied for purposes of this Section 8.1(c) if such willful breach
shall not have been remedied within ten (10) days after receipt by the Company
of written notice from Buyer specifying the nature of such willful breach and
requesting that it be remedied;
(d) by the Company, upon a material breach of any representation,
warranty, covenant or agreement on the part of Buyer set forth in this
Agreement, or if any representation or warranty of Buyer shall have become
untrue in any material respect, in either case such that
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the conditions set forth in Section 7.3(a) or Section 7.3(b) of this Agreement,
as the case may be, would be incapable of being satisfied by April 30, 1998; or
provided, that in any case, a willful breach shall be deemed to cause such
conditions to be incapable of being satisfied for purposes of this Section
8.1(d) if such willful breach shall not have been remedied within ten (10) days
after receipt by Buyer of written notice from the Company, specifying the
nature of such willful breach and requesting that it be remedied;
(e) by Buyer if (i) the Company's stockholders do not approve the
Merger and this Agreement at the meeting required under Section 6.3(a) hereof,
(ii) Buyer's stockholders do not approve the issuance of shares of Buyer Common
Stock pursuant to this Agreement at the meeting contemplated under Section
6.3(b) if such meeting is required or (iii) the Company withdraws, amends or
modifies in a manner adverse to Buyer its favorable recommendation of the
Merger;
(f) by the Company if (i) the Company's stockholders do not approve
the Merger and this Agreement at the meeting required under Section 6.3(a)
hereof, (ii) Buyer's stockholders do not approve the issuance of shares of
Buyer Common Stock pursuant to this Agreement at the meeting contemplated under
Section 6.3(b) if such meeting is required, or (iii) the Company has received a
Higher Proposal that it advises Buyer in writing the Company wishes to accept
and the Board of Directors determines, after receiving advice from outside
counsel, that such acceptance may be required for the Board of Directors of the
Company to act in a manner consistent with its fiduciary duties;
(g) by the Company at any time prior to December 31, 1997 to pursue
the Acquisition Agreement dated as of May 16, 1997 between Buyer and the
Company; or
(h) by the Company in accordance with and subject to Section 8.2
hereof:
(i) automatically, without any action by either Buyer or the Company,
at 6:00 p.m. Eastern Time, on December 31, 1997 if either (A) Pending
Legislation (as defined below) is still pending and has not been enacted into
law; or (B) legislation has been enacted on or before 6:00 p.m. Eastern Time on
December 31, 1997 which would impose Taxes, excluding Taxes Newco has agreed in
writing to Agree To Pay (as defined in Section 6.11(a)), on the Company, Newco
and/or any of their respective Subsidiaries or stockholders as a result of the
Transfer, the Distribution or the Merger. For purposes of this Section 8.1(i),
"Pending Legislation" shall mean H.R. 1365 or S. 612, as modified or amended,
their successors, or substitutes in substantially the same form, and any other
legislation passed by either House of the U.S. Congress or approved by either
the Ways and Means Committee of the U.S. House of Representatives and/or the
Finance Committee of the U.S. Senate, any other legislation introduced after
April 1, 1997 by the Chairman of such Ways and Means Committee and/or the
Chairman of such Finance Committee or considered by either such Committee in
hearings or ▇▇▇▇-up after April 1, 1997, any joint announcement after April 1,
1997 by the Chairman of such Ways and Means Committee and/or the Chairman of
such Finance Committee of an intention to introduce legislation which, if
enacted, would impose Taxes, excluding Taxes Newco has agreed in writing to
Agree To Pay (as defined in Section 6.11(a)) on the Company, Newco and/or any
of
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their respective Subsidiaries or stockholders as a result of the Transfer, the
Distribution or the Merger, and upon such termination Buyer and the Company
shall proceed with the transaction contemplated by the Acquisition Agreement
dated as of May 16, 1997 between Buyer and the Company.
Section 8.2 Termination Intent Notice; Top Up Rights. If the Average
Buyer Price is less than the Minimum Price, the Company shall have the right to
give notice to Buyer (the "Termination Intent Notice") that the Company intends
to terminate this Agreement. The Termination Intent Notice shall be delivered
to Buyer in writing at the location where the Closing is to take place no later
than 3:00 p.m. Dallas time on the business day prior to the Closing Date (the
"Pre-Closing Date"). If the Company delivers a Termination Intent Notice,
Buyer shall have the right to give notice to the Company (the "Top-Up Notice")
that Buyer elects to (notwithstanding Section 2.1(d)) calculate the Merger
Consideration Per Share using the Average Buyer Price rather than the Minimum
Price. The Top-Up Notice shall be delivered in person to the Company at the
location where the Closing is to take place no later than 8:00 p.m. Dallas time
on the Pre-Closing Date. If Buyer has not delivered a Top-Up Notice by the
above deadline, this Agreement shall terminate without further action by any of
the parties. If Buyer delivers the Top-Up Notice, the Per Share Merger
Consideration shall be calculated using the Average Buyer Price rather than the
Minimum Price.
Section 8.3 Effect of Termination. In the event of a termination of
this Agreement by either the Company or Buyer as provided in Section 8.1 or
Section 8.2, this Agreement shall forthwith become void and there shall be no
liability or obligation on the part of Buyer or the Company or their affiliates
or respective officers or directors, other than pursuant to the provisions of
Section 8.4 and Section 8.5; provided, however, that any such termination shall
not relieve any party from liability for willful breach of this Agreement or
from its obligations under the Confidentiality Agreement.
Section 8.4 Termination Fee. If Buyer terminates this Agreement
pursuant to Section 8.1(e)(iii) or the Company terminates this Agreement
pursuant to 8.1(f)(iii), the Company will pay to Buyer within three business
days of such termination, a fee, in cash, of $12 million. Such fee shall be the
exclusive remedy of Buyer for the transactions contemplated hereby upon
termination of this Agreement pursuant to Section 8.1(e)(iii) or Section
8.1(f)(iii) and shall be deemed inclusive of expenses incurred by Buyer. Upon
the payment of the $12 million to Buyer in accordance with this Section 8.4,
the Company shall have no further liability with respect to the transactions
contemplated hereby.
Section 8.5 Expense Reimbursement. If Buyer terminates this Agreement
pursuant to Section 8.1(c) as a result of a willful breach by the Company or
pursuant to Section 8.1(e)(i), the Company will pay to Buyer within three
business days of such termination an amount equal to Buyer's documented
reasonable expenses up to a maximum of $3 million.
Section 8.6 Amendment. This Agreement may be amended by the parties
hereto, by action taken or authorized by their respective Boards of Directors,
at any time before or after
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approval of the matters presented in connection with the Merger by the
stockholders of the Company or of Buyer; provided that (i) after any such
approval, no amendment shall be made which by law requires further approval by
such stockholders without such further approval and (ii) after the Effective
Time, this Agreement may be amended only with the written consent of Newco.
This Agreement may not be amended except by an instrument in writing signed on
behalf of each of the parties hereto.
Section 8.7 Extension; Waiver. At any time prior to the Effective Time,
the parties hereto, by action taken or authorized by the respective Boards of
Directors, may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties
hereto, (ii) waive any inaccuracies in the representations and warranties
contained herein or in any document delivered pursuant hereto, and (iii) waive
compliance with any of the agreements or conditions contained here. Any
agreement on the part of a party hereto to any such extension or waiver shall
be valid only if set forth in a written instrument signed on behalf of such
party.
ARTICLE IX
MISCELLANEOUS
Section 9.1 Nonsurvival of Representations and Warranties. None of the
representations or warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Effective Time. This Section 9.1
shall not limit any other covenant or agreement of the parties set forth in
this Agreement or in any instrument delivered pursuant to the terms hereof.
Section 9.2 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given on the date delivered if
delivered personally (including by reputable overnight courier), on the date
transmitted if sent by facsimile (which is confirmed) or mailed by registered
or certified mail (return receipt requested) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
(a) if to Buyer, to
The ▇. ▇. ▇▇▇▇▇▇▇ Company
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
Attn: M. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, Secretary
Telecopy: ▇▇▇-▇▇▇-▇▇▇▇
Confirmation: ▇▇▇-▇▇▇-▇▇▇▇
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with a copy to
▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇ LLP
3200 National City Center
▇▇▇▇ ▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Esq.
Telecopy: ▇▇▇-▇▇▇-▇▇▇▇
Confirmation: ▇▇▇-▇▇▇-▇▇▇▇
and
(b) if to the Company, to
▇▇▇▇▇-▇▇▇▇▇ Communications, Inc.
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Facsimile: 210/829-9403
Confirmation: 210/829-9000
with a copy to
▇▇▇▇▇▇ & ▇▇▇▇, L.L.P.
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Confirmation: (▇▇▇) ▇▇▇-▇▇▇▇
Section 9.3 Interpretation. When a reference is made in this Agreement
to Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the words "include,"
"includes" or "including" are used in this Agreement they shall be deemed to be
followed by the words "without limitation." The phrase "made available" in this
Agreement shall mean that the information referred to has been made available
if requested by the party to whom such information is to be made available.
Section 9.4 Counterparts. This Agreement may be executed in
counterparts, all of which shall be considered one and the same agreement and
shall become effective when a counterpart has been signed by each of the
parties and delivered to each of the other parties, it being under stood that
all parties need not sign the same counterpart.
Section 9.5 Entire Agreement; No Third-Party Beneficiaries. This
Agreement (including the documents and the instruments referred to herein,
including the Distribution Agreement) and the Confidentiality Agreement (a)
constitute the entire agreement and supersede
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all prior agreements and understandings, both written and oral, among the
parties with respect to the subject matter hereof and thereof, and (b) except
as provided in Section 6.6 and Section 6.7, are not intended to confer upon any
person other than the parties hereto and thereto any rights or remedies
hereunder or thereunder; provided that after the Effective Time, Newco may
enforce the obligations of Buyer or the Company under this Agreement.
Section 9.6 Governing Law. This Agreement shall be governed and
construed in accordance with the laws of the State of Delaware without regard
to any applicable conflicts-of-law principles except to the extent that the
laws of the State of Ohio mandatorily apply.
Section 9.7 Specific Performance. The parties hereto agree that if any
of the provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached, irreparable damage would occur, no
adequate remedy at law would exist and damages would be difficult to determine,
and that the parties shall be entitled to specific performance of the terms
hereof, in addition to any other remedy at law or equity.
Section 9.8 Publicity. Except as otherwise required by law or the rules
of the NYSE, for so long as this Agreement is in effect and then with as much
advance notice to the other party as is practicable under the circumstances,
neither the Company nor Buyer shall, or shall permit any of its Subsidiaries
to, issue or cause the publication of any press release or other public
announcement with respect to the transactions contemplated by this Agreement
without the consent of the other party, which consent shall not be unreasonably
withheld or delayed.
Section 9.9 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties, except that Buyer may assign, in its sole
discretion, any or all of its rights hereunder to any direct or indirect wholly
owned Subsidiary of Buyer, and after the Effective Time, Newco shall be
entitled to enforce the obligations of Buyer and the Company pursuant to this
Agreement (including the documents and instruments referred to herein) and the
Confidentiality Agreement. Subject to the preceding sentence, this Agreement
will be binding upon, inure to the benefit of and be enforceable by the parties
and their respective successors and assigns.
Section 9.10 Attorney-Client Privilege; Work Product. Anything herein or
in the Distribution Agreement notwithstanding, the transactions contemplated
hereby and by the Distribution Agreement shall not be deemed to transfer to
Buyer or the Surviving Corporation any right to waive, nor shall they be deemed
to waive, any attorney-client privilege between the Company, the present
officers and directors of the Company or Newco and their legal counsel with
respect to legal advice concerning the transactions contemplated hereby and by
the Distribution Agreement, in either case concerning privileged communications
(or work product related thereto) at any time prior to the Closing Date. Buyer
and the Surviving Corporation and their successors and assigns shall not be
entitled to waive or have access, nor shall they attempt to waive or seek
access, to any privileged communication (or work product related thereto)
between the Company, the present officers and directors of the Company or Newco
and their
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legal counsel relating to the Merger or the Distribution or matters relating to
Newco, its subsidiaries and their respective businesses.
Section 9.11 Market Repurchase Program. Notwithstanding any other
provision of this Agreement, the Company acknowledges that (i) Buyer shall have
the right to announce a market repurchase program (the "Market Repurchase
Program") pursuant to which it may purchase at such times and on such terms as
it determines appropriate a then-indicated amount of common stock of Buyer and
(ii) Buyer has no obligation to make any such purchases. Buyer agrees not to
make purchases during the Random Trading Days.
Section 9.12 Further Assurances. Subject to the terms and conditions
hereof and, as applicable, of the Distribution Agreement, the Company and Buyer
will, and will cause their respective Subsidiaries to, do such additional
things as are necessary or proper to carry out and effectuate the intent of
this Agreement or any part hereof or the transactions contemplated hereby.
Section 9.13 Voting Agreement. Upon execution of this Agreement, the
Buyer shall cause the ▇▇▇▇▇▇ ▇. Scripps Trust, and the Company shall cause each
of the ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ Revocable Trust, Houston ▇. ▇▇▇▇▇, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ and
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ to execute and deliver a Voting Agreement in substantially the
form attached as Exhibit E to this Agreement.
IN WITNESS WHEREOF, Buyer and the Company have caused this Agreement and
Plan of Merger and Reorganization to be signed by their respective officers
thereunto duly authorized as of the date first written above.
THE ▇. ▇. ▇▇▇▇▇▇▇ COMPANY
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-------------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Senior Vice-President,
Corporate Development
▇▇▇▇▇-▇▇▇▇▇ COMMUNICATIONS, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
-------------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: Senior Vice-President, Legal
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Annex I
AGREEMENT AND PLAN OF DISTRIBUTION
AGREEMENT AND PLAN OF DISTRIBUTION, dated as of ___________ _, 1997
(this "Distribution Agreement"), by and between ▇▇▇▇▇-▇▇▇▇▇ COMMUNICATIONS,
INC., a Delaware corporation (the "Company") and [NEWCO], a Delaware
corporation and a wholly owned subsidiary of the Company ("Newco").
RECITALS
A. The Merger Transaction. The Company and The ▇. ▇. ▇▇▇▇▇▇▇
Company, an Ohio corporation ("Buyer") have entered into an Agreement and Plan
of Merger and Reorganization, dated as of May ___, 1997 (the "Merger
Agreement"), providing for the Merger (as defined in the Merger Agreement) of
the Company with and into Buyer, with Buyer as the surviving corporation.
B. The Spin-Off. Immediately prior to the Effective Time (as
defined in Section 1.2 of the Merger Agreement), subject to the satisfaction or
waiver of the conditions set forth in Article VI of this Distribution
Agreement, the Board of Directors of the Company expects to distribute all of
the then-outstanding shares of Common Stock, par value $________ per share, of
Newco ("Newco Common Stock") as a dividend to the holders of Common Stock,
$1.00 par value, of the Company ("Company Common Stock"), on a pro rata basis
(the "Spin-Off").
C. Purpose. The purpose of the Spin-Off is to make possible the
Merger by divesting the Company of the businesses and operations conducted or
to be conducted by Newco, which Buyer is unwilling to acquire. This
Distribution Agreement sets forth or provides for certain agreements between
the Company and Newco in consideration of the separation of their ownership.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, the
parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. As used in this Distribution Agreement, the
following terms shall have the following respective meanings (capitalized terms
used but not defined herein shall have the respective meanings ascribed thereto
in the Merger Agreement):
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"Action" shall mean any suit, claim, action, arbitration, inquiry,
proceeding or investigation by or before any court, arbitral tribunal,
administrative agency or commission or other governmental, regulatory or
administrative agency or commission.
"Company Group" shall mean the Company and its Subsidiaries, other
than the Newco Group.
"Continuing Claims" means all Actions against the Company or any
member of the Company Group that arise from facts or events occurring prior to
the Time of Distribution relating to bodily injury, property damage or worker's
compensation and that would fall under the Company's automobile, general
liability, or worker's compensation coverage.
"Continuing Claims Costs" means all liabilities to third parties,
costs and expenses resulting from the Continuing Claims that are not paid to or
for the account of claimants or the Company by insurance or by any other third
party (other than Affiliates of the Company).
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Fair Market Value" shall mean, with respect to any asset or property,
the sale value that would be obtained in an arms length transaction between an
informed and willing seller under no compulsion to sell and an informed and
willing buyer under no compulsion to buy.
"Governmental Authorization" shall mean any permit, approval, license
or authorization issued by a Governmental Entity.
"Indemnified Loss" shall mean, with respect to any claim by an
Indemnified Party for indemnification pursuant to Article V hereof, any and all
losses, Liabilities, claims, damages, obligations, payments, costs and expenses
(including, without limitation, the costs and expenses of any and all Actions,
demands, assessments, judgments, settlements and compromises relating thereto
and reasonable costs of investigation and attorneys' fees and expenses in
connection therewith) suffered by such Indemnified Party with respect to such
claim.
"Initial Group" shall mean the Company and its Subsidiaries determined
prior to giving effect to the transfers and transactions contemplated by
Section 4.1 hereof.
"Liabilities" shall mean, with respect to any party, except as
otherwise provided herein, any and all debts, liabilities, commitments and
obligations of such party, whether fixed, absolute, accrued, matured or
unmatured, liquidated or unliquidated, contingent, asserted or unasserted,
known or unknown, whenever or however arising reflected on a balance sheet (or
in the notes thereto) or otherwise, including, without limitation, those
arising under any law, rule, regulation,
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49
Action, order or consent decree of any governmental entity or any judgment of
any court of any kind or any award of any arbitrator of any kind, and those
arising under any contract, commitment or undertaking.
"Newco Group" shall mean Newco and its Subsidiaries determined after
giving effect to the transfers and transactions contemplated by Section 4.1 and
Section 4.2 hereof.
"Registration Statement" shall mean a registration statement on Form
S-l to effect the registration of Newco Common Stock pursuant to the Securities
Act and related registration statement on Form 8-A to effect the registration
of Newco Common Stock under the Exchange Act.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Time of Distribution" shall mean the time as of which the Spin-Off is
effective as set forth in Section 2.3 hereof.
"Transfer Agent" shall mean [Bank of Boston], the transfer agent for
the Company Common Stock.
ARTICLE II
CAPITALIZATION OF NEWCO; MECHANICS OF SPIN-OFF
2.1 Capitalization of Newco. The authorized capital stock of
Newco currently consists of __________ shares of Newco Common Stock, all of
which are issued and outstanding and owned beneficially and of record by the
Company.
2.2 Mechanics of Spin-Off. (a) The Spin-Off shall be effected by
the distribution to each holder of record of Company Common Stock, as of the
close of the stock transfer books on the record date designated by or pursuant
to the authorization of the Board of Directors of the Company (the "Record
Date"), of certificates representing [one] share of Newco Common Stock
multiplied by the number of shares of Company Common Stock held by such holder,
provided that no fractional shares of Newco Common Stock shall be distributed.
(b) In the event a holder of Company Common Stock holds of record
on the Record Date a number of shares of Company Common Stock such that, but
for the proviso in Section 2.2(a) hereof, a fractional share of Newco Common
Stock would be distributed to such holder, the Transfer Agent shall distribute
to such holder certificates representing the number of shares of Newco Common
Stock to which such holder is entitled after excluding from that number the
fractional amount. No certificate or scrip representing fractional shares of
Newco Common
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Stock shall be issued in the Spin-Off in lieu of any such fractional shares,
each holder of Company Common Stock who would otherwise have been entitled to a
fraction of a share of Newco Common Stock will be entitled to receive a cash
payment in lieu of such fractional share in an amount equal to such fraction
multiplied by the Average Newco Price. The term "Average Newco Price" shall
mean the average of the closing prices of Newco Common Stock on the New York
Stock Exchange Composite Transactions Reporting System, as reported by The Wall
Street Journal for the five trading days following the Time of Distribution.
2.3 Timing of Spin-Off. Prior to the Effective Time, the Board of
Directors of the Company shall formally declare the dividend constituting the
Spin-Off, which declaration shall be subject to the satisfaction or waiver of
the conditions set forth in Article VI of this Distribution Agreement, and pay
such dividend by delivery of certificates for Newco Common Stock to the
Transfer Agent for delivery to the holders entitled thereto. The Spin-Off
shall be deemed to be effective upon notification immediately prior to the
Effective Time by the Company to the Transfer Agent that such conditions have
been satisfied or waived and that the Transfer Agent is authorized to proceed
with the distribution (the "Time of Distribution").
2.4 Registration and Listing. Prior to the Time of Distribution:
(a) The parties shall take such actions regarding the
Registration Statement and Proxy Statement (as defined in the Merger
Agreement), as is provided in the Merger Agreement to be taken with respect to
the S-4 (as defined therein) and the Proxy Statement, respectively. After the
Registration Statement becomes effective, the Company shall cause the final
Prospectus which is part of the Registration Statement to be delivered to all
holders of record of Company Common Stock on the Record Date.
(b) The parties hereto shall use reasonable efforts to
take all such action as may be necessary or appropriate under state securities
and blue sky laws in connection with the transactions contemplated by this
Agreement.
(c) Newco shall prepare, file and seek to make effective,
an application for the listing of the Newco Common Stock on the New York Stock
Exchange, subject to official notice of issuance.
(d) The parties hereto shall cooperate in preparing,
filing with the Securities and Exchange Commission and causing to become
effective any registration statements or amendments thereto which are necessary
or appropriate in order to effect the transactions contemplated hereby or to
reflect the establishment of, or amendments to, any employee benefit plans
contemplated hereby requiring registration under the Securities Act.
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ARTICLE III
TAX MATTERS
Prior to the Time of Distribution, Newco and the Company shall enter
into an agreement relating to past and future tax sharing and certain issues
associated therewith in substantially the form attached hereto as Exhibit A
(the "Tax Disaffiliation Agreement").
ARTICLE IV
CERTAIN TRANSACTIONS
4.1 Transactions Relating to Spin-Off. (a) Prior to the Time of
Distribution, subject to the satisfaction or waiver of the conditions set forth
in Article VI of this Distribution Agreement, the Company shall transfer,
assign and convey to Newco as a capital contribution all of the capital stock
of the following companies that is owned by the Company:
(i) ▇▇▇▇▇-▇▇▇▇▇ DATA TECHNOLOGIES, INC.
▇▇▇▇▇-▇▇▇▇▇ PTY, Limited
▇▇▇▇▇-▇▇▇▇▇ do Brazil Consultoria
▇▇▇▇▇-▇▇▇▇▇ Limited
Information for Marketing, Ltd.
(ii) ▇▇▇▇▇-▇▇▇▇▇ DIRECT MARKETING/BALTIMORE, INC.
(iii) DIRECT MARKET CONCEPTS, INC.
(iv) ▇▇▇▇▇-▇▇▇▇▇ DIRECT, INC.
(v) ▇▇▇▇▇-▇▇▇▇▇ DIRECT MARKETING/FULLERTON, INC.
(vi) HTS, INC.
(vii) ▇▇▇▇▇-▇▇▇▇▇ RESPONSE MANAGEMENT/BOSTON, INC.
(viii) ▇▇▇▇▇-▇▇▇▇▇ DIRECT MARKETING/CINCINNATI, INC.
(ix) NSO, INC.
(x) ▇▇▇▇▇-▇▇▇▇▇ DIRECT MARKETING/DALLAS, INC.
(xi) ▇▇▇▇▇-▇▇▇▇▇ MARKET RESEARCH, INC.
(xii) SELECT MARKETING, INC.
(xiii) MARKETING COMMUNICATIONS, INC.
(xiv) DIMARK, INC.
MARS Graphic Services, Inc.
DiMark Marketing, Inc.
ProDirect Response Corp.
H&R Communications, Inc.
DMK, Inc.
(xv) THE FLYER PUBLISHING CORPORATION
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(xvi) ▇▇▇▇▇-▇▇▇▇▇ SHOPPERS, INC.
(xvii) NORTHERN COMPRINT, CO.
(xviii) PENNYSAVER PUBLICATIONS, INC.
(xix) POTPOURRI SHOPPER, INC.
(xx) SOUTHERN COMPRINT, INC.
(xxi) ▇▇▇▇▇-▇▇▇▇▇ RESPONSE MANAGEMENT CALL CENTERS, INC.
(xxii) ▇▇▇▇▇-▇▇▇▇▇ STOCK PLAN, INC.
(b) In addition to the transfers referred to above, prior
to the Time of Distribution, the Company shall, or shall cause its Subsidiaries
to, transfer, assign and convey to Newco, as a capital contribution, all other
assets of the Company which are not primarily related to the Retained Business,
including, but not limited to, the following assets:
(i) all assets of the Company and its Subsidiaries located in the
San Antonio, Texas corporate headquarters office (other than
books and records of the Company to the extent that they do
not relate to the business of Newco);
(ii) all cash and cash equivalents (including marketable
securities);
(iii) receivables from employees of the Company (other than Retained
Employees);
(iv) interest receivables on investments;
(v) prepaid insurance deposits and premiums;
(vi) software of the Company;
(vii) stock of peer group companies;
(viii) life insurance policies on executives;
(ix) prepaid taxes and tax refunds; and
(x) any other items included as "Excluded Assets" on Schedule 3.7
of the Merger Agreement to the extent not already covered in
this Section 4.1(b).
(c) In addition to the transfers referred to in (a) and
(b) above, the Company agrees as a capital contribution to transfer and assign
to Newco an amount of cash equal to the net working capital of the Retained
Business as of the Effective Time (to be paid in accordance with the procedures
set forth in Sections 6.12 and 7.2(e) of the Merger Agreement).
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(d) Prior to the Time of Distribution, or as soon as
reasonably practicable thereafter, (i) Newco shall (and, if applicable, shall
cause any other Person over which it has legal or effective direct or indirect
control to) duly and validly transfer or cause to be duly and validly
transferred to the appropriate member of the Company Group all transferable
Governmental Authorizations that relate to the Retained Business but which are
held in the name of any member of the Newco Group, or any of their employees,
officers, directors, stockholders or agents; and (ii) the Company shall (and,
if applicable, shall cause any other Person over which it has legal or
effective direct or indirect control to) duly and validly transfer or cause to
be duly and validly transferred to the appropriate member of the Newco Group
all transferable Governmental Authorizations that relate to the business of the
Initial Group other than the Retained Business (the "Newco Business") but which
are held in the name of any member of the Company Group or any of their
employees, officers, directors, stockholders or agents.
(e) Prior to the Time of Distribution, or as soon as
reasonably practicable thereafter, and subject to the limitations set forth in
this paragraph (e), (i) Newco shall (and, if applicable, shall cause any of the
other members of the Newco Group over which it has legal or effective direct or
indirect control to), assign, transfer and convey to the Company (or such other
member of the Company Group as the Company shall direct) all of its (or such
other member of the Newco Group's) right, title and interest in and to any and
all Contracts that relate exclusively to the Retained Business or any member of
the Company Group; and (ii) the Company shall (and, if applicable, shall cause
any of the other members of the Company Group over which it has legal or
effective direct or indirect control to), assign, transfer and convey to Newco
(or such other member of the Newco Group as Newco shall direct) all of its (or
such other member of the Company Group's) right, title and interest in and to
any and all Contracts that relate exclusively to the Newco Business or any
member of the Newco Group; and (iii) any Contract to which any party hereto
(or any other member of such party's Group) is a party that inures to the
benefit of the Retained Business and the Newco Business shall be assigned in
part, at the expense and risk of the assignee, so that each party (or such
other member of such party's Group) shall be entitled to the rights and
benefits inuring to its Business under such contract.
The assignee of any Contract assigned, in whole or in part, hereunder
(an "Assignee") shall, as a condition to such assignment, assume and agree to
pay, perform, and fully discharge all obligations of the assignor under such
Contract (whether such obligations arose or were incurred prior to, on or
subsequent to the Time of Distribution and irrespective of whether such
obligations have been asserted as of the Time of Distribution) or, in the case
of a partial assignment under clause (iii) above, such Assignee's related
portion of such obligations as determined in accordance with the terms of the
relevant Contract, where determinable on the face thereof, and otherwise as
determined in accordance with the practice of the parties prior to the Time of
Distribution. Furthermore, the Assignee shall use its commercially reasonable
efforts to cause the assignor of such Contract to be released from its
obligations under the assigned Contracts.
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Notwithstanding anything in this Agreement to the contrary, this
Agreement shall not constitute an agreement to assign any Contract, in whole or
in part, or any rights thereunder if the agreement to assign or attempt to
assign, without the consent of a third party, would constitute a breach thereof
or in any way adversely affect the rights of the Assignee thereof until such
consent is obtained.
(f) From and after the transfers referred to in
paragraphs (a) through (e) above, each of the Company and its Subsidiaries, on
the one hand, and Newco and its Subsidiaries, on the other hand, shall have no
liability to the other as a result of the transactions occurring prior to the
date of such transfer other than pursuant to the provisions hereof and the
other agreements referred to herein.
4.2 Transfer of Liabilities. (a) The parties further agree that,
except as otherwise provided in this Distribution Agreement, the Merger
Agreement, the Employee Benefits Agreement (defined below) or the Tax
Disaffiliation Agreement, at or prior to the Time of Distribution Newco shall
assume all Liabilities of the Company and the Newco Group, other than
Liabilities to the extent arising out of, based upon, or resulting from the
operation of the business of, or to the extent relating to, the Retained
Business (the "Newco Assumed Liabilities"), and the Company shall retain all
Liabilities (whether arising before or after the Time of Distribution) to the
extent arising out of, based upon, or resulting from the operation of, or to
the extent relating to, the Retained Business (the "Company Assumed
Liabilities"). Notwithstanding the foregoing, for purposes of this Section
4.2, Company Assumed Liabilities shall be deemed to include, but not be limited
to, the liabilities reflected on the Retained Business Balance Sheet.
(b) Notwithstanding any provisions to the contrary in
this Agreement or the other agreements referred to in Section 4.2(a) above,
Newco acknowledges that the Newco Assumed Liabilities shall include (and the
Company Assumed Liabilities shall not include) any or all Liabilities arising
out of (i) any Action based on any alleged violation by the Company or its
affiliates of any of the provisions of the Exchange Act or the Securities Act
or any corresponding statute (other than any such alleged violations for
statements or omissions based on information provided by Buyer for inclusion in
the Registration Statement or Proxy Statement); (ii) any Action based on any
alleged breach of fiduciary duty by the Board of Directors of the Company
occurring prior to the Merger; (iii) any stockholder derivative suit or other
similar Actions arising out of events or circumstances occurring prior to the
Merger; or (iv) any claim for indemnification by officers, directors, employees
or agents of the Company arising out of events or circumstances occurring prior
to the Merger.
4.3 Method of Transfer. The parties hereto agree that (a) the
contribution and transfer of assets contemplated pursuant to Section 4.1 hereof
shall be effected by delivery by the
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Company to Newco of (i) with respect to those assets which are evidenced by
capital stock certificates or similar instruments, certificates duly endorsed
in blank or accompanied by stock powers or other instruments of assignment
executed in blank and (ii) with respect to all other assets, such good and
sufficient instruments of contribution, transfer and delivery in form and
substance reasonably satisfactory to Buyer, the Company and Newco, as shall be
necessary to vest in Newco all of the rights, title and interest of the Company
Group in and to such assets, and (b) the assumption of the Newco Assumed
Liabilities contemplated pursuant to Section 4.2 hereof shall be effected by
delivery by Newco to the Company of such good and sufficient instruments of
assumption, in form and substance reasonably satisfactory to the Company and
Newco, as shall be necessary for the assumption by Newco of the Newco Assumed
Liabilities.
4.4 Further Assurances. The parties agree that if, after the Time
of Distribution, either party holds assets or Liabilities which by the terms
hereof or of the Merger Agreement were intended to be assigned and transferred
to, or retained by, the other party, such party shall promptly assign and
transfer or cause to be assigned and transferred such assets or Liabilities to
the other party and such other party shall promptly accept such assignment and
transfer of the asset or Liability.
4.5 Use of Names. (a) Following the Time of Distribution, the
Company Group shall have the sole and exclusive ownership of and right to use,
as between the Company Group on the one hand, and the Newco Group on the other
hand, each of the names, trademarks, trade names and other proprietary rights
set forth in Schedule 4.5 (the "Retained Proprietary Name Rights"). Following
the Time of Distribution, the Newco Group shall have the sole and exclusive
ownership of and right to use, as between the Newco Group on the one hand, and
the Company Group on the other hand, all names, trade marks, trade names,
service marks and other proprietary rights owned or used by the Initial Group
immediately prior to the Time of Distribution other than the Retained
Proprietary Name Rights (the "Newco Proprietary Name Rights"). The Newco
Proprietary Name Rights include, without limitation, the name "▇▇▇▇▇-▇▇▇▇▇ "
and derivatives thereof.
(b) Following the Time of Distribution, (i) the Company
shall, and shall cause its Subsidiaries and other affiliates to, take all
action necessary to cease using, and change as promptly as practicable
(including by amending any charter documents), any corporate or other names
which are the same as or confusingly similar to any of the Newco Proprietary
Name Rights, and (ii) Newco shall, and shall cause its Subsidiaries and other
affiliates to, take all action necessary to cease using, and change as promptly
as practicable (including by amending any charter documents), any corporate or
other names which are the same as or confusingly similar to any of the Retained
Proprietary Name Rights.
4.6 Assignment of Contracts and Permits. Notwithstanding any
other provision hereof or of the Merger Agreement, in connection with any
Contract or any Governmental
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Authorization held by the Company which is to be transferred or assigned to
Newco and which, as a matter of law or by its terms, is (i) not assignable, or
(ii) not assignable without the prior approval or consent of the issuer thereof
or the other party or parties thereto (collectively "Non-Assignable Rights")
the Company shall:
(a) apply for and use all reasonable efforts to obtain
all consents or approvals contemplated by the Contracts or Governmental
Authorizations, in form and substance satisfactory to Newco;
(b) cooperate with Newco in any reasonable and lawful
arrangements designed to provide the benefits and burdens of such
Non-Assignable Rights to Newco, including holding any such Non-Assignable
Rights in trust for Newco or acting as agent for Newco;
(c) enforce any rights of the Company arising from such
Non-Assignable Rights against the issuer thereof or the other party or parties
thereto;
(d) take all such actions and do, or cause to be done,
all such things at the request of Newco as shall reasonably be necessary and
proper in order that the value of any Non-Assignable Rights shall be preserved
and shall inure to the benefit of Newco; and
(e) pay over to Newco all monies or other assets
collected by or paid to the Company in respect of such Non-Assignable Rights.
Newco shall reimburse the Company for all reasonably incurred
payments, costs and expenses made, incurred or suffered in performing the
Company's obligations as requested by Newco under this Section 4.6. If the
Company is unable to lawfully provide the benefit of any Governmental
Authorization to Newco, it shall not, at any time, use such Governmental
Authorization for its own purposes or assign or provide the benefit of such
Governmental Authorization to any other party.
4.7 Intercompany Balances. All amounts owing between the Company
Group, on the one hand, and the Newco Group, on the other hand, other than
amounts arising in the ordinary course of business for the purchase of goods or
services in commercial transactions, shall be eliminated in full (without any
payment to either party) at or prior to the Time of Distribution.
4.8 No Representations or Warranties; Consents. (a) Each of the
Company and Newco understands and agrees that neither is, in this Agreement or
in any other agreement or document contemplated by this Agreement (including
the Employee Benefits Agreement and the Tax Disaffiliation Agreement) or
otherwise, making any representation or warranty whatsoever, including without
limitation, any representation or warranty:
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(i) as to the value or freedom from encumbrance
of, or any other matter concerning, any assets of such party; or
(ii) as to the legal sufficiency to convey title
to any asset as of the execution, delivery and filing of this Agreement, the
Employee Benefits Agreement and the Tax Disaffiliation Agreement or any other
document, including, without limitation, any conveyancing or assumption
document.
(b) Each party hereto further understands and agrees that
there are no warranties, express or implied, as to the merchantability or
fitness of any of the assets either transferred to or retained by the Company
Group or the Newco Group, as the case may be, pursuant to the Transfer and the
other terms and provisions of this Agreement, the Employee Benefits Agreement
and the Tax Disaffiliation Agreement or any conveyancing or assumption
document, and all such assets which are so transferred will be transferred on
an "AS IS, WHERE IS" basis, and the party to which any such assets are
transferred hereunder, or which retains assets hereunder, shall bear the
economic and legal risk that any conveyances of such assets shall prove to be
insufficient or that the title of such party or any other member of its
respective Group to any such assets shall be other than good and marketable and
free from encumbrances.
(c) Each of the Company and Newco acknowledges, for
itself and on behalf of each other member of its respective Group, that:
(i) the Company and the other members of the
Company Group have disclosed, and Newco has knowledge of, all matters
pertaining to the assets and properties to be conveyed to Newco or any member
of the Newco Group and the liabilities to be assigned to Newco or any member of
the Newco Group pursuant to the Transfer or otherwise pursuant to the other
terms of this Agreement to the same extent that the Company and the other
members of the Company Group have knowledge of such matters; and
(ii) such knowledge constitutes notice and
disclosure of such matters.
Newco waives, to the fullest extent permitted by law, for itself and
for each other member of its Group, any and all claims or causes of action
which any of them may have arising out of such matters or the failure of any
conveyancing or assumption document to describe or refer to, or provide notice
of, any such matters.
(d) Each of the Company and Newco understands and agrees
that no party hereto is, in this Agreement or in any other agreement or
document contemplated by this Agreement, the Employee Benefits Agreement and
the Tax Disaffiliation Agreement or otherwise, representing or warranting in
any way that the obtaining of any consents or approvals,
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the execution and delivery of any amendatory agreements and the making of any
filings or applications contemplated by this Agreement will satisfy the
provisions of any or all applicable agreements or the requirements of any or
all applicable Laws. Each of the Company and Newco further agrees and
understands that the party to which any assets are transferred as contemplated
by the Transfer or the other provisions of this Agreement shall bear the
economic and legal risk that any necessary consents or approvals are not
obtained, that any necessary amendatory agreements are not executed and
delivered or that any requirements of Laws are not complied with.
(e) Notwithstanding the provisions of 4.8(d) above, the
Company and Newco shall (and shall cause each other member of its respective
Group over which it has direct or indirect legal or effective control to) use
commercially reasonable efforts to obtain all consents and approvals, to enter
into all amendatory agreements and to make all filings and applications which
may be reasonably required for the consummation of the transactions
contemplated by this Agreement and shall take all such further reasonable
actions as shall be reasonably necessary to preserve for each of the Company
and the Newco Group, to the greatest extent feasible, the economic and
operational benefits of the allocation of assets and liabilities contemplated
by this Agreement. In case at any time after the Time of Distribution any
further action is necessary or desirable to carry out the purposes of this
Agreement, the proper officers and directors of each party to this Agreement
shall take all such necessary or desirable action.
ARTICLE V
CERTAIN COVENANTS
5.1 Indemnity as between Newco and the Company from Assumed
Liabilities and Certain Litigation. (a) Effective upon the Spin-Off, Newco
agrees to indemnify and hold the Company, its affiliates, successors and
assigns and the officers, directors, employees, agents, advisors and
representatives of any of them, harmless from and against any and all
Indemnified Losses arising out of or related to the Newco Assumed Liabilities.
Effective upon the Spin-Off, the Company agrees to indemnify and hold Newco,
its affiliates, successors and assigns and the officers, directors, employees,
agents and representatives of any of them, harmless from and against any and
all Indemnified Losses arising out of or related to the Company Assumed
Liabilities. If either of the foregoing indemnities is unavailable for any
reason, the parties shall contribute in respect of any such loss, claim, damage
or Liability on an equitable basis.
(b) Newco shall indemnify from and after the Time of
Distribution the Company and its Subsidiaries against all Indemnified Losses in
connection with any Action pending at or arising after the Time of Distribution
that relates primarily to the Company or the Retained Business prior to or at
the later of the Time of Distribution or the Effective Time ("Pre-Distribution
Actions"). The Company shall indemnify after the later of the Time of
Distribution
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or the Effective Time Newco and its Subsidiaries against all Indemnified Losses
in connection with any Action arising after the Time of Distribution that
relates primarily to the Company or the Retained Business after the Time of
Distribution ("Post-Distribution Actions").
(c) Each of the Company and Newco shall indemnify, defend
and hold harmless the other party in the manner provided in Section 5.3, and
each of such other party's affiliates, successors, assigns, officers,
directors, employees, agents, advisors and representatives, from and against
Indemnified Losses arising out of or resulting from each Action over which such
indemnifying party has authority and control pursuant to Section 5.2 hereof.
(d) Notwithstanding any other provision of this Agreement
to the contrary and except with respect to the Tax Losses (as defined below):
(i) Newco will not be liable to the Company and its Subsidiaries for any
Indemnified Losses pursuant to Section 5.1(b) except to the extent that the
aggregate amount of Indemnified Losses thereunder exceeds $2,500,000; (ii) the
total aggregate liability of Newco for all Indemnified Losses that may arise
under Section 5.1(b) will not exceed $50,000,000; and (iii) any claims for
Indemnified Losses pursuant to Section 5.1(b) can only be made in respect of
Pre-Distribution Actions actually filed or commenced on or prior to eighteen
months after the Closing Date. Notwithstanding any other provision of this
Agreement to the contrary, Newco's liability for Indemnified Losses pursuant to
Section 5.1(b) for Taxes ("Tax Losses") shall be without limit in dollar amount
(although still subject to Section 5.1(d)(i)) and claims for Tax Losses
pursuant hereto may be made at any time.
(e) Notwithstanding the foregoing provisions, Newco shall
indemnify from and after the Time of Distribution the Company and its
Subsidiaries against any Indemnified Loss pursuant to Section 5.1(b) resulting
directly from (i) claims by Retained Employees (as defined in Section 5.6
below) under the Retained Welfare Plans (as defined in the Employee Benefits
and Compensation Agreement) that were incurred but unpaid prior to the Time of
Distribution, but only to the extent such claims exceed (A) the insurance
coverage and trust assets available to cover such claims, plus (B) the amounts
reserved on the Closing Balance Sheet with respect to such claims; and (ii) any
claims by Retained Employees resulting solely from (A) the failure of the
Company or Newco to accelerate the exercisability of such Retained Employees'
outstanding options under the Company Stock Plans (as defined in the Employee
Benefits and Compensation Agreement) or (B) the lapse or cancellation of such
options.
5.2 Right to Control Actions. Following the Time of Distribution,
(a) upon acknowledgment of its liability for the matter in question, the
Company shall have exclusive authority and control over the investigation,
prosecution, defense and appeal of all Post-Distribution Actions and all
Actions relating primarily to the Company Assumed Liabilities (each, a
"Retained Action"), and may settle or compromise, or consent to the entry of
any judgment with respect to, any such Action without the consent of Newco, and
(b) upon acknowledgment of its liability for the matter in question, Newco
shall have exclusive authority
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and control over the investigation, prosecution, defense and appeal of all
Pre-Distribution Actions and all Actions relating primarily to the Newco
Assumed Liabilities (each, a "Newco Action"), and may settle or compromise, or
consent to the entry of any judgment with respect to, any such Action without
the consent of the Company; provided that neither the Company nor Newco (nor
any of their respective Subsidiaries) may settle or compromise, or consent to
the entry of any judgment with respect to, any such Action without the prior
written consent of the other party if such settlement, compromise or consent to
such judgment (i) includes any form of injunctive relief binding upon such
other party or (ii) does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such other party which is subject to
such Action (and any related party of such other party subject to such Action)
of a full and final release from all liability in respect of such claim or
litigation.
5.3 Procedure for Third Party Indemnification. (a) If a party
entitled to be indemnified hereunder (an "Indemnified Party") shall receive
notice of the assertion by a person who is not a party to this Agreement of any
claim or of the commencement by any such person of any Action (a "Third Party
Claim") with respect to which a party hereto is obligated to provide
indemnification (an "Indemnifying Party"), such Indemnified Party shall give
such Indemnifying Party prompt notice thereof after becoming aware of such
Third Party Claim; provided that the failure of any Indemnitee to give notice
as provided in this Section 5.3 shall not relieve the related Indemnifying
Party of its obligations under this Article V, except to the extent that such
Indemnifying Party is actually prejudiced by such failure to give notice. Such
notice shall describe the Third Party Claim in reasonable detail, and, if
practicable, shall indicate the estimated amount of the Indemnified Loss that
has been or may be sustained by such Indemnified Party.
(b) An Indemnifying Party may elect to defend, at such
Indemnifying Party's own expense and by such Indemnifying Party's own counsel,
any Third Party Claim. If an Indemnifying Party elects to defend a Third Party
Claim, it shall, within 30 days of notice of such Third Party Claim (or sooner,
if the nature of such Third Party Claim so requires), notify the related
Indemnified Party of its intent to do so and acknowledge its liability
therefor, and such Indemnified Party shall cooperate in the defense of such
Third Party Claim. After notice from an Indemnifying Party to an Indemnified
Party of its election to assume the defense of a Third Party Claim, such
Indemnifying Party shall not be liable to such Indemnified Party under this
Article V for any legal or other expenses subsequently incurred by such
Indemnified Party in connection with the defense thereof; provided that if,
under applicable standards of professional conduct (as advised by counsel to
the Indemnifying Party), a conflict on any significant issue between such
Indemnified Party and such Indemnifying Party or between any two or more
Indemnified Parties may exist in respect of such claim, then the Indemnifying
Party shall pay the reasonable fees and expenses of one such additional counsel
as may be required to be retained in light of such conflict. If an
Indemnifying Party elects not to defend against a Third Party Claim, or fails
to notify an Indemnified Party of its election as provided in this Section 5.3
within the time period
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specified, such Indemnified Party may defend, compromise and settle such Third
Party Claim. Notwithstanding the foregoing, (i) neither an Indemnifying Party
nor an Indemnified Party, as the party controlling the defense of a Third Party
Claim, may compromise or settle any claim or consent to the entry of any
judgment for other than monetary damages without the prior written consent of
the other; provided that (upon reasonable notice thereof) consent to compromise
or settlement or the entry of a judgment shall not be unreasonably withheld or
delayed, and (ii) no Indemnifying Party shall consent to the entry of any
judgment or enter into any compromise or settlement which does not include as
an unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party and all other Indemnified Parties, as the case may be,
subject to such Third Party Claim of a full and final release from all
liability in respect of such claim or litigation.
5.4 Adjustment for Insurance and Taxes. The amount which either
Newco or the Company is required to pay to, for or on behalf of the other
pursuant to Section 5.1 and the amount which an Indemnifying Party is required
to pay to, for or on behalf of any Indemnified Party pursuant to Section 5.3,
shall be adjusted (including, without limitation, retroactively) (i) by any
insurance proceeds actually recovered by or on behalf of the Company, Newco or
the Indemnified Party, as the case may be, in reduction of the related
Indemnified Loss or Third Party Claim and (ii)(A) reduced by the present value
of the amount of any Tax savings resulting from any tax benefit to the Company,
Newco or the Indemnified Party, as the case may be as a result of the
Indemnified Loss or Third Party Claim, and (B) increased by the present value
of the amount of any Tax due with respect to the indemnification payment
itself. Amounts required to be paid, as so adjusted, are hereafter sometimes
called an "Indemnity Payment." If the Company, Newco or the Indemnified Party,
as the case may be, shall have received or shall have had paid on its behalf an
Indemnity Payment in respect of an Indemnified Loss or Third Party Claim and
shall subsequently receive insurance proceeds in respect of such Indemnified
Loss or Third Party Claim, or realize any net tax benefit (as computed in
clause (ii) above) as a result of such Indemnified Loss or Third Party Claim,
then the Company, Newco or the Indemnified Party, as the case may be, shall pay
to Newco, the Company or the Indemnifying Party, as the case may be, the amount
of such insurance proceeds or net tax benefit, or if lesser, the amount of the
Indemnity Payment.
5.5 Mutual Release, Etc. Effective at the Time of Distribution
and except as otherwise specifically set forth in this Distribution Agreement,
the Company releases and forever discharges Newco, and its officers, directors,
agents, affiliates, record and beneficial security holders (including, without
limitation, trustees and beneficiaries of trusts holding such securities),
advisors and representatives, of and from all debts, demands, actions, causes
of action, suits, accounts, covenants, contracts, agreements, damages, and any
and all claims, demands and Liabilities whatsoever of every name and nature,
both in law and in equity, against Newco or any of its assigns, which the
Company or the Company Group has or ever had, which arise out of or relate to
events, circumstances or actions prior to the Time of Distribution;
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provided, however, that the foregoing general release shall not apply to this
Distribution Agreement or the transactions contemplated hereby and shall not
affect the Company's right to enforce this Distribution Agreement, the Merger
Agreement, the Tax Disaffiliation Agreement, the Employee Benefits Agreement or
any other agreement contemplated hereby in accordance with its terms.
Effective at the Time of Distribution and except as otherwise specifically set
forth in this Distribution Agreement, Newco releases and forever discharges the
Company and its officers, directors, agents, affiliates, record and beneficial
security holders (including, without limitation, trustees and beneficiaries of
trusts holding such securities), advisors and representatives, of and from all
debts, demands, actions, causes of action, suits, accounts, covenants,
contracts, agreements, damages, and any and all claims, demands and Liabilities
whatsoever of every name and nature, both in law and in equity, against the
Company or any of its assigns, which Newco has or ever had, which arise out of
or relate to events, circumstances or actions prior to the Time of
Distribution; provided, however, that the foregoing general release shall not
apply to this Distribution Agreement or the transactions contemplated hereby
and shall not affect Newco's right to enforce this Distribution Agreement, the
Merger Agreement, the Tax Disaffiliation Agreement, the Employee Benefits
Agreement or any other agreement contemplated hereby in accordance with its
terms.
5.6 Transfer of Employees. With respect to the past, present,
active or inactive employees of the Retained Business, and their dependents and
beneficiaries (collectively, the "Retained Employees"), except as specifically
provided in this Distribution Agreement, the Company shall retain the
liabilities and obligations provided in Article II of the Employee Benefits
Agreement. Effective as of the Time of Distribution, the Company and Newco
shall cooperate to transfer to the employ of Newco, each person employed by the
Company, other than the Retained Employees (such employees and any other
persons who become employees of the Newco Group immediately after the Time of
Distribution shall be hereinafter referred to as the "Transferred Employees").
With respect to the Transferred Employees and all other past, present, active
or inactive employees of the Initial Group (or their beneficiaries), other than
the Retained Employees, Newco shall assume the liabilities and obligations
provided in Article II of the Employee Benefits Agreement.
5.7 Certain Employee Benefit Plans. Prior to the Time of
Distribution, Newco and the Company shall enter into an agreement relating to
the parties' responsibilities with respect to certain employee benefit
liabilities and obligations in substantially the form attached hereto as
Exhibit B (the "Employee Benefits Agreement").
5.8 Insurance. (a) Prior to the Time of Distribution the Company
shall transfer and assign to Newco all of the Company's insurance policies
other than (i) subject to Section 5.9, any policy which relates solely to the
Retained Business and (ii) any policy that constitutes a Non-Assignable Right.
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(b) In the event that any policy constitutes a Non-Assignable
Right, it is the intent of the parties that the Newco Group, to the fullest
extent possible, receive benefit of any coverage under any such insurance
policy. The Company agrees to keep such policy in effect during the remaining
term of the policy and to refrain from taking any actions (other than making a
claim) which may affect the Newco Group's entitlement to benefits of, or
coverage under, such policy.
(c) With respect to policies which are subject to a retrospective
premium adjustment, (i) in the event such policies are assigned to the Newco
Group pursuant to this Agreement, the Company agrees that it shall reimburse
Newco Group for the amount of any premium adjustment resulting from or
attributable to the Retained Business and (ii) in the event such policies are
not assigned to Newco pursuant to this Agreement, Newco agrees that it shall
reimburse the Company for the amount of any premium adjustment resulting from
or attributable to the Newco Group.
(d) The Company and Newco agree to cooperate with each other with
respect to the processing of any claims which are covered by any insurance
policy in existence prior to the Time of Distribution. Without limiting the
generality of the foregoing, Newco shall have the right to process and pursue
any claim for insurance (including negotiating with the company issuing the
insurance policy) in connection with any liability of the Newco Group including
any Newco Action, regardless of whether the insurance policy under which such
claim is made is transferred pursuant to Section 5.8(a), and the Company shall
have the right, subject to Section 5.9, to process and pursue any claim for
insurance (including negotiating with the company issuing the insurance policy)
in connection with any liability of the Company Group including any Retained
Action, regardless of whether the insurance policy under which such claim is
made is transferred pursuant to Section 5.8(a).
5.9 Defense and Payment of Certain Claims. (a) The Company and
Newco undertake and agree that, after the Time of Distribution, and in the name
and on behalf of the Company, Newco will (i) conduct, or cause to be conducted,
the administration and defense of the Continuing Claims, and (ii) pay or cause
to be paid, as may be necessary and appropriate, Continuing Claims Costs. In
connection with the foregoing, and independent of the provisions of Section 5.1
hereof, Newco hereby agrees to indemnify and hold the Company and its
directors, officers, employees, agents and Affiliates harmless from all
liability to third parties asserting Continuing Claims.
(b) In consideration for the undertaking and agreement of Newco
set forth in this Section 5.9 and the other consideration provided for in this
Agreement the Company agrees, that:
(i) subject to the obligations of Newco and the Company
after the Time of Distribution under this Section 5.9, at all times after the
Time of Distribution, Newco will have the sole and exclusive right to conduct,
or cause to be conducted, and, whether through insurance
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carriers or otherwise, the administration and defense of all Continuing Claims
as provided above; provided, however, that (i) the Company will be entitled to
monitor, at its own expense, and with any counsel selected by it, the
administration and defense of all material Continuing Claims by Newco and (ii)
the Company may, in its sole and absolute discretion, at any time and from time
to time in respect of any Continuing Claim, elect to terminate Newco's rights
to conduct or cause to be conducted the administration and defense thereof by
giving notice in writing to Newco of such election, whereupon such rights by
Newco will automatically terminate and Newco will automatically be deemed
released from any further liability or obligation under this Section 5.9 in
respect of the Continuing Claims as to which the Company has terminated Newco's
rights and obligations (a "Discontinued Claim"). Notwithstanding any provision
of this Agreement to the contrary, any Liabilities, costs of expenses resulting
from or in connection with a Discontinued Claim that are incurred or paid
subsequent to Newco's receipt of the Company's election to terminate Newco's
rights and obligations with respect thereto will not thereafter be deemed or
treated as a Continuing Claims Cost for purposes of this Section 5.9. If the
Company terminates Newco's rights with respect to the administration and
defense of a Discontinued Claim, Newco will make commercially reasonable
efforts to change counsel of record and otherwise fully vest in the Company the
full and sole right and power to conduct the administration and defense of such
Discontinued Claim;
(ii) at all times after the Time of Distribution, the
Company will give notice, within 5 business days, to Newco of the assertion or
commencement of any Action which would be a Continuing Claim, but no failure to
give such notice will relieve Newco from their obligations provided above
(except to the extent that Newco has suffered actual prejudice thereby).
Further, Newco will have a period of 30 days from the receipt of notice of any
Action in which to investigate such Action and to determine whether to execute
an acknowledgment of claim; provided, however, in the event that the Company
takes any action believed by Newco to be reasonable with respect to such Action
before the end of such 30-day period, such action will not relieve Newco from
its obligations provided above; and provided, further that the Company has
provided Newco with prior written notification of such Action to the extent
practicable;
(iii) The Company will provide or make available to Newco
and its representatives, all records, materials and personnel of the Company
reasonably required by Newco or its representatives for use in the conduct of
the administration and defense of the Continuing Claims and, further, the
Company will cooperate fully with Newco and its representatives in the conduct
of the administration and defense of the Continuing Claims;
(iv) The Company will maintain all books, records,
materials and files of the Company existing as of the Time of Distribution and
relating to any of the Continuing Claims for a period of ten years following
the Time of Distribution;
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(v) The Company will not take any action that would
impair or invalidate the insurance under which any of the Continuing Claims are
or may be covered that are in existence at the Time of Distribution. For
purposes of this Section 5.9, all references to the representatives of Newco
will include the attorneys and insurance carriers of Newco and its Affiliates
as well as the personnel of Newco and its Affiliates; and
(vi) Newco will retain, and the Company agrees to assign
to Newco, any and all insurance claims, insurance receivables and all other
benefits (including premium refunds) arising under any and all insurance
policies covering the Continuing Claims for which Newco is liable or obligated
under this Section 5.9. With respect to the Continuing Claims, the Company
will not have any obligation to make a claim under any insurance policy
procured by the Company after the Time of Distribution; any such insurance
policy will expressly negate or waive any right of subrogation with respect to
any contractual rights against Newco or any Affiliate of Newco or any insurance
carrier of Newco relating to the Continuing Claims.
ARTICLE VI
CONDITIONS
The obligations of the Company and Newco to consummate the Spin-Off
shall be subject to the fulfillment of each of the following conditions:
6.1 Tax Disaffiliation Agreement; Employee Benefits Agreement.
The Tax Disaffiliation Agreement and the Employee Benefits Agreement,
substantially in the forms of Exhibit A and Exhibit B hereto, respectively,
shall have been executed and delivered by each of the Company and Newco.
6.2 Certain Transactions. All of the transactions or obligations
contemplated by Section 2.4 and Article IV hereof to be consummated or
performed at or prior to the Time of Distribution shall have been successfully
consummated or so performed.
6.3 Conditions to Merger Satisfied. Each condition to the closing
of the Merger set forth in Article VII of the Merger Agreement, other than the
condition to each party's obligations set forth in Section 7.1(f) thereof as to
the consummation of the transactions contemplated by this Distribution
Agreement, shall have been satisfied or waived.
6.4 Registration Statement. The Registration Statement shall be
effective under the Securities Act and shall not be the subject of any stop
order or proceeding by the SEC seeking a stop order.
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6.5 Stock Exchange Listing. The shares of Newco Common Stock
issuable pursuant to this Agreement shall have been authorized for listing on
the New York Stock Exchange, upon official notice of issuance.
6.6. Stockholder Approval. The Spin-Off shall have been approved
by the affirmative vote of the holders of at least a majority of the
outstanding shares of Company Common Stock.
6.7 Other Approvals. All authorizations, consents, orders or
approvals of, or declarations or filings with, or expirations of waiting
periods imposed by, any Governmental Entity or other public or private entity
the failure of which to obtain would have a material adverse effect on either
the Newco Group taken as a whole or the Company Group taken as a whole, shall
have been filed, occurred, or been obtained.
6.8 No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Spin-Off shall be in effect (each party agreeing to use all
reasonable efforts to have any such order reversed or injunction lifted).
6.9 Letter Ruling or Spin-Off Opinion of Tax Counsel. Either (i)
the Company shall have received a letter ruling from the Service or an opinion
of ▇▇▇▇▇▇ & ▇▇▇▇, L.L.P. satisfactory to the Company and Newco to the effect
that the Transfer qualifies as one or more tax-free transactions under one or
more of Sections 332, 351, and 368(a)(1)(D) of the Code and that the Spin-Off
qualifies as a tax-free distribution under Section 355 of the Code, or (ii)
both (A) the Company and Newco shall have received the opinion of ▇▇▇▇▇▇ &
▇▇▇▇, L.L.P. to the effect that the Transfer qualifies as one or more tax-free
transactions under one or more of Sections 332, 351 and 368(a)(1)(D) of the
Code and that the Spin- Off qualifies as a tax-free distribution under Section
355 of the Code, except for certain Taxes identified in such opinion as payable
by the Company, Newco and/or either of their Subsidiaries ("Specified Taxes"),
and (B) all the Specified Taxes are Taxes that Newco Agrees To Pay.
ARTICLE VII
ACCESS TO INFORMATION AND SERVICES
7.1 Provision of Corporate Records. Except as provided in the
following sentence, at the Time of Distribution, the Company shall deliver to
Newco all corporate books and records which are corporate records of the
Initial Group which relate primarily to the Newco Group, the assets of the
Newco Group or the Newco Assumed Liabilities, including, without limitation,
original corporate minute books, stock ledgers and certificates and corporate
seals of each
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corporation the capital stock of which is included in the assets of the Newco
Group, and all active agreements, active litigation files and government
filings.
7.2 Access to Information. From and after the Time of
Distribution (i) the Company shall afford to Newco and its authorized
accountants, counsel and other designated representatives reasonable access
(including, without limitation, using reasonable efforts to give access to
persons or firms possessing Information (as defined below)) and duplicating
rights during normal business hours to all records, books, contracts,
instruments, computer data and other data and information (collectively,
"Information") within the Company's possession relating to the Company Group,
the assets of the Company Group or the Company Assumed Liabilities, insofar as
such access is reasonably required by Newco, and (ii) Newco shall afford to the
Company and its authorized accountants, counsel and other designated
representatives reasonable access (including, without limitation, using
reasonable efforts to give access to persons or firms possessing Information)
and duplicating rights during normal business hours to all Information within
Newco's possession relating to the Newco Group, the assets of the Newco Group
or the Newco Assumed Liabilities, insofar as such access is reasonably required
by the Company. Information may be requested under this Section 7.2 for,
without limitation, audit, accounting, claims, litigation and tax purposes, as
well as for purposes of fulfilling disclosure and reporting obligations.
7.3 Production of Witnesses. From and after the Time of
Distribution, each party shall use reasonable efforts to make available to the
other party, upon written request, its officers, directors, employees and
agents as witnesses to the extent that any such person may reasonably be
required in connection with any legal, administrative or other proceedings in
which the requesting party may from time to time be involved.
7.4 Retention of Records. Except as otherwise required by law or
agreed to in writing, Newco and the Company shall each retain, for a period of
at least seven years following the Time of Distribution, all significant
Information relating to (i) in the case of Newco, the Company Group and (ii) in
the case of the Company, the Newco Group. Notwithstanding the foregoing,
either Newco or the Company may destroy or otherwise dispose of any of such
Information at any time, provided that, prior to such destruction or disposal
(a) Newco or the Company, as the case may be, shall provide no less than 90 or
more than 120 days' prior written notice to the other party, specifying the
Information proposed to be destroyed or disposed of and (b) if the other party
shall request in writing prior to the scheduled date for such destruction or
disposal that any of the Information proposed to be destroyed or disposed of be
delivered to the other party, Newco or the Company, as the case may be, shall
promptly arrange for the delivery of such of the Information as was requested,
at the expense of the requesting party.
7.5 Confidentiality. Each party shall hold, and shall cause its
officers, employees, agents, consultants and advisors to hold, in strict
confidence, unless compelled to disclose by
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judicial or administrative process or by other requirements of law or in order
to comply with the terms of a binding stock exchange listing application or
agreement or applicable stock exchange rules, all non-public Information
concerning the other party furnished it by such other party or its
representatives or otherwise in its possession (except to the extent that such
Information can be shown to have been (a) available to such party on a
nonconfidential basis prior to its disclosure by the other party, (b) in the
public domain through no fault of such party or (c) later lawfully acquired
from other sources by the party to which it was furnished), and each party
shall not release or disclose such Information to any other person, except its
auditors, attorneys, financial advisors, bankers and other consultants and
advisors who have a need to know such Information and who agree to be bound by
the provisions of this Section 7.5.
ARTICLE VIII
MISCELLANEOUS AND GENERAL
8.1 Modification or Amendment. The parties hereto may modify or
amend this Distribution Agreement by written agreement executed and delivered
by authorized officers of the respective parties.
8.2 Counterparts. For the convenience of the parties hereto, this
Distribution Agreement may be executed in separate counterparts, each such
counterpart being deemed to be an original instrument, and which counterparts
shall together constitute the same agreement.
8.3 Governing Law. This Distribution Agreement shall be governed
by and construed in accordance with the laws of the State of Delaware, without
reference to its conflicts of law principles.
8.4 Notices. Any notice, request, instruction or other document
to be given hereunder by any party to the other shall be in writing and shall
be deemed to have been duly given (i) on the date of delivery if delivered by
facsimile (upon confirmation of receipt) or personally, (ii) on the first
business day following the date of dispatch if delivered by Federal Express or
other reputable next-day courier service or (iii) on the third business day
following the date of mailing if delivered by registered or certified mail,
return receipt requested, postage prepaid. All notices hereunder shall be
delivered as set forth below, or pursuant to such other instructions as may be
designated in writing by the party to receive such notice.
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If to the Company:
c/o
The ▇. ▇. ▇▇▇▇▇▇▇ Company
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
Attention: M. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, Secretary
Telecopy:
Confirmation:
with a copy to:
▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇ LLP
3200 National City Center
▇▇▇▇ ▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
Attention:
Telecopy:
Confirmation:
If to Newco:
c/o [Newco]
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Telecopy: 210/829-9403
Confirmation: ▇▇▇-▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇ & ▇▇▇▇, L.L.P.
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇; ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Telecopy: 214/939-6100
Confirmation: 214/939-5588
8.5 Captions. All Article, Section and paragraph captions herein
are for convenience of reference only, do not constitute part of this
Distribution Agreement and shall not be deemed to limit or otherwise affect any
of the provisions hereof.
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8.6 Assignment. Nothing contained in this Distribution Agreement
or the agreements referred to herein (except as otherwise expressly set forth
therein) is intended to confer on any person or entity other than the parties
hereto and their respective successors and permitted assigns any benefit,
rights or remedies under or by reason of this Distribution Agreement and such
other agreements, except that the provisions of Sections 5.1 and 5.2 hereof
shall inure to the benefit of the persons referred to therein.
8.7 Further Assurances. Subject to the terms and conditions
hereof and, as applicable, of the Merger Agreement, Newco and the Company will,
and will cause their respective Subsidiaries to, do such additional things as
are necessary or proper to carry out and effectuate the intent of this
Distribution Agreement or any part hereof or the transactions contemplated
hereby.
8.8 Attorney-Client Privilege; Work Product. Anything herein or
in the Merger Agreement notwithstanding, the transactions contemplated hereby
and by the Merger Agreement shall not be deemed to transfer to or vest in the
Company Group (or the surviving corporation in the Merger) any right to waive,
nor shall they be deemed to waive, any attorney-client privilege between the
Newco Group and its legal counsel, with respect to legal advice concerning the
business or operations of the Newco Group including, without limitation, the
Newco Liabilities or the transactions contemplated hereby and by the Merger
Agreement, in either case, concerning privileged communications (or work
product related thereto) at any time prior to the Closing Date (as defined in
the Merger Agreement). The Company (and the surviving corporation in the
Merger) shall assign to Newco the Company's rights (if any) to any
attorney-client privilege with respect to legal advice concerning the business
or operations of the Newco Group including, without limitation, the Newco
Liabilities or the transactions contemplated hereby and by the Merger Agreement
concerning privileged communications (or work product related thereto) at any
time prior to the Closing Date. The Company Group (and the surviving
corporation in the Merger) and their successors and assigns shall not be
entitled to waive or have access, nor shall they attempt to waive or seek
access, to any privileged communications (or work product related thereto)
between the Newco Group and its legal counsel with respect to legal advice
concerning the business or operations of the Newco Group, including the Newco
Liabilities or the transactions contemplated hereby.
8.9 No Third-Party Beneficiaries. Except as provided in Section
5.1 hereof, this Agreement, including the Tax Disaffiliation Agreement and the
Employee Benefits Agreement, are not intended to confer upon any person other
than the parties hereto and thereto any rights or remedies hereunder or
thereunder
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8.10 Conflict with Other Agreements. In the event of any conflict
between this Agreement and the Tax Disaffiliation Agreement or the Employee
Benefits Agreement, the Tax Disaffiliation Agreement or the Employee Benefits
Agreement, as the case may be, shall control.
IN WITNESS WHEREOF, this Distribution Agreement has been duly executed
and delivered by the duly authorized officers of the parties hereto as of the
date first hereinabove written.
▇▇▇▇▇-▇▇▇▇▇ COMMUNICATIONS, INC.
By:
------------------------------------
Name:
Title:
[NEWCO]
By:
------------------------------------
Name:
Title:
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Exhibit A to the Distribution Agreement
TAX DISAFFILIATION AGREEMENT
TAX DISAFFILIATION AGREEMENT dated as of [ ], 199[ ] by and
between ▇▇▇▇▇-▇▇▇▇▇ COMMUNICATIONS, INC., a Delaware corporation (the
"Company"), NEWCO, a Delaware corporation and a wholly owned subsidiary of the
Company ("Newco"), and THE ▇.▇. ▇▇▇▇▇▇▇ COMPANY, an Ohio corporation ("Buyer").
RECITALS
A. Company is the common parent of an affiliated group of corporations
(the "Company Group") within the meaning of Section 1504(a) of the Internal
Revenue Code of 1986, as amended (the "Code"), and the members of the
affiliated group have heretofore joined in filing consolidated Federal income
tax returns.
B. Company expects, pursuant to the Agreement and Plan of Distribution
dated as of [ ], 199[ ] (the "Distribution Agreement") by and
between Company and Newco, to spin-off its interest in certain assets to its
shareholders. In furtherance of this decision, among other things (and as more
fully set forth in the Distribution Agreement) (i) Company intends to transfer
the stock of certain subsidiaries and certain of its assets to Newco as set
forth in Article IV of the Distribution Agreement (together with all other
intercompany transfers of assets, and other actions described in such Article
IV, the "Transfer") and (ii) Company intends to distribute on the Distribution
Date (as hereinafter defined) pro rata to the holders of its Common Stock all
of the outstanding shares of the Common Stock of Newco (the "Distribution").
C. Immediately after the Distribution, the Company will merge with and
into Buyer with Buyer surviving (the "Merger"), as contemplated by the
Agreement and Plan of Merger and Reorganization dated as of May _____, 1997
(the "Merger Agreement") by and among Company and Buyer, in connection with
which the holders of the Common Stock of Company will receive Common Stock of
Buyer.
D. Company and Buyer intend the Merger to be a tax-free reorganization
under Section 368 (a)(1)(A) of the Code.
E. Company and Newco intend the Distribution to be a tax-free
transaction to which Section 355(a) of the Code applies, after which neither
Newco nor any of its Subsidiaries (as hereinafter defined) will be a member of
the Company affiliated group for Federal income tax purposes.
F. Company and Newco desire on behalf of themselves, their subsidiaries
and their successors to set forth their rights and obligations with respect to
Taxes (as hereinafter defined) due for periods before and after the
Distribution.
NOW, THEREFORE, the parties hereto agree as follows:
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ARTICLE I
DEFINITIONS
For the purposes of this Agreement,
1.1 "Buyer" shall have the meaning set forth on page 1 of this
Agreement.
1.2 "Code" shall have the meaning set forth on page 1 of this
Agreement.
1.3 "Company" shall have the meaning set forth on page 1 of this
Agreement.
1.4 "Company Group" shall have the meaning set forth on page 1 of this
Agreement.
1.5 "Disqualifying Disposition" shall mean a disposition (as defined in
Section 424(c) of the Code) by any person of (i) Incentive Stock after the
Distribution Date and during the period described in Section 422(a)(1) of the
Code, or (ii) Stock Purchase Plan Stock after the Distribution Date and during
the period described in Section 423(a)(1) of the Code.
1.6 "Distribution" shall have the meaning set forth on page 1 of this
Agreement.
1.7 "Distribution Agreement" shall have the meaning set forth on page 1
of this Agreement.
1.8 "Distribution Date" shall mean the last day on which, due to the
distribution of the shares of Newco Common Stock to the holders of the Common
Stock of Company, Newco could be considered a member of the affiliated group of
which Company is the common parent.
1.9 "Final Determination" shall mean with respect to any issue (1) a
decision, judgment, decree or other order by any court of competent
jurisdiction, which decision, judgment, decree or other order has become final
and not subject to further appeal, (2) a closing agreement entered into under
Section 7121 of the Code or any other binding settlement agreement (whether or
not with the Internal Revenue Service) entered into in connection with or in
contemplation of an administrative or judicial proceeding, or (3) the
completion of the highest level of administrative proceedings if a judicial
contest is not or is no longer available.
1.10 "Incentive Stock" shall mean any Company stock that was received as
a result of the exercise of an incentive stock option on or before the
Distribution Date, and any Newco stock or Buyer stock received as a result of
owning such Company stock.
1.11 "Indemnitee" shall have the meaning set forth in Section 4.2.
1.12 "Indemnitor" shall have the meaning set forth in Section 4.2.
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1.13 "Merger" shall have the meaning set forth on page 1 of this
Agreement.
1.14 "Merger Agreement" shall have the meaning set forth on page 1 of
this Agreement.
1.15 "Newco" shall have the meaning set forth on page 1 of this
Agreement.
1.16 "Newco Group" shall mean, for any period, Newco and its
Subsidiaries.
1.17 "Payor" shall have the meaning set forth in Section 2.5.
1.18 "Payee" shall have the meaning set forth in Section 2.5.
1.19 "Period After Distribution" shall mean any taxable year or other
taxable period beginning after the Distribution Date and, in the case of any
taxable year or other taxable period that begins before and ends after the
Distribution Date, that part of the taxable year or other taxable period that
begins after the close of the Distribution Date.
1.20 "Period Before Distribution" shall mean any taxable year or other
taxable period that ends on or before the Distribution Date and, in the case of
any taxable year or other taxable period that begins before and ends after the
Distribution Date, that part of the taxable year or other taxable period
through the close of the Distribution Date.
1.21 "Retained Group" shall mean, for any period, Company and its
Subsidiaries.
1.22 "Stock Purchase Plan Stock" shall mean any Company stock that was
received in connection with an employee stock purchase plan (within the meaning
of Section 423 of the Code) on or before the Distribution Date, and any Newco
stock or Buyer stock received as a result of owning such Company stock.
1.23 "Subsidiary" of an entity (the "first entity") shall mean a current
or former corporation, partnership, joint venture or other business entity (the
"second entity") where 50% or more of the outstanding equity or voting power of
such second entity is owned directly or indirectly by the first entity. In
determining whether a Subsidiary is a Subsidiary of Newco or Company for any
period, Newco shall not be considered a Subsidiary of Company, and any
Subsidiary of Newco shall be considered a Subsidiary of Newco, not Company, for
such period. Notwithstanding the foregoing, any corporation whose shares are
transferred pursuant to Article IV of the Distribution Agreement, or that is a
Subsidiary of such corporation, shall be considered a Subsidiary of the
corporation to which its shares are transferred for all periods.
1.24 "Taxes" means all taxes, charges, fees, levies, imposts, duties or
other assessments, including, without limitation, income, gross receipts,
estimated taxes, excise, personal property, real property, sales, ad valorem,
value- added, leasing, withholding, social security, workers' compensation,
unemployment insurance, occupation, use, service, service use,
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license, stamp, payroll, employment, windfall profit, environmental,
alternative or add-on minimum tax, franchise, transfer and recording taxes,
fees and charges, imposed by the United States or any state, local, or foreign
governmental authority whether computed on a separate, consolidated, unitary,
combined or any other basis; and such term shall include any interest, fines,
penalties or additional amounts attributable or imposed on or with respect to
any such taxes, charges, fees, levies, imposts, duties or other assessments.
1.25 "Tax Benefit" shall mean for any taxable period the excess of (i)
the hypothetical Tax liability of the taxpayer for the taxable period
calculated as if a Disqualifying Disposition had not occurred but with all
other facts unchanged, over (ii) the actual Tax liability of the taxpayer for
the taxable period, calculated taking into account the Disqualifying
Disposition (treating a Tax Refund as a negative Tax liability for purposes of
such calculation).
1.26 "Tax Refund" shall mean a refund of Taxes (including a reduction in
Taxes as a result of any credit or any offset against Taxes) reduced (but not
below zero) by any net increase in Taxes by the recipient (or its affiliate)
thereof as a result of the receipt thereof.
1.27 "Tax Returns" shall mean all returns, reports or other documents or
information to be filed or that may be filed for any period with any Taxing
authority (whether domestic or foreign) in connection with any Tax or Taxes
(whether domestic or foreign).
1.28 "Transfer" shall have the meaning set forth on page 1 of this
Agreement.
1.29 "Underpayment Rate" shall mean the rate specified under Section
6621(a)(2) of the Code.
ARTICLE II
TAX RETURNS, TAX PAYMENTS AND EVENT OF LOSS
2.1 Obligation to File Tax Returns. Newco shall timely file (or cause
to be filed) all Tax Returns that (a) are filed on a consolidated, combined or
unitary basis, (b) include Newco or any of its Subsidiaries and Company or any
of its Subsidiaries, and (c) are required to be filed (i) for any Period Before
Distribution or (ii) for any taxable year or period of the Company that begins
before and ends after the Distribution Date, provided, however, that the
Company shall prepare in accordance with past practice of the Company and
deliver to Newco (or cause to be prepared and delivered to Newco) 45 days prior
to the due dates of such Tax Returns pro forma Tax Returns with respect to
members of the Retained Group. Newco shall have sole discretion to take or not
take a position in and with respect to any filed Tax Return which Newco is
required to file or cause to be filed hereunder; provided, however, that all
such Tax Returns shall be consistent with the position that the Transfer is one
or more tax-free transactions under one or more Section 332, 351 or 368(a) of
the Code, the Distribution is a tax-free transaction under Section 355 of the
Code, and the Merger is a tax-free reorganization under Section 368(a)(1)(A) of
the Code, except for Taxes resulting from the Transfer or the Distribution that
Newco has Agreed To Pay (as defined in Section 6.11(a) of the Merger
Agreement). Company shall timely
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file (or cause to be filed) any other Tax Return with respect to the Retained
Group, and Newco shall timely file (or cause to be filed) any other Tax Return
with respect to the Newco Group. Each such Tax Return shall be consistent with
the position that the Distribution is a tax-free transaction under Section 355
of the Code and the Merger is a tax-free reorganization under Section
368(a)(1)(A) of the Code, except for Taxes resulting from the Transfer or the
Distribution that Newco has Agreed To Pay (as defined in Section 6.11(a) of the
Merger Agreement).
2.2 Obligation to Remit Taxes. Company and Newco shall each remit or
cause to be remitted any Taxes due in respect of any Tax for which it is
required to file a Tax Return and shall be entitled to reimbursement for such
payments only to the extent provided in Article II.
2.3 Certain Tax Sharing Obligations and Prior Agreements.
(a) Except as provided in Section 2.3(b) hereof, Newco shall be liable
for and shall hold the Retained Group harmless on an after tax basis against
(i) any liability attributable to any member of the Retained Group for Taxes
attributable to a Period Before Distribution, including any such Tax liability
asserted against any member of the Retained Group under the provisions of
Treas. Reg. 1.1502-6(a) that impose several liability on members of an
affiliated group of corporations that files consolidated returns, or similar
provisions of any foreign, state or local law, (ii) any liability attributable
to any member of the Retained Group for Taxes resulting from the Distribution
or the Merger, and (iii) any liability attributable to any member of the Newco
Group for Taxes, regardless of whether attributable to a Period Before
Distribution or a Period After Distribution, including any liability asserted
against any member of the Newco Group under the provisions of Treas. Reg.
1.1502-6(a) that impose several liability on members of an affiliated group of
corporations that files consolidated returns, or similar provisions of any
foreign, state or local law. Newco shall be entitled to any Tax Refund which
is attributable to both an entity and a taxable year or taxable period for
which Newco has liability hereunder.
(b) Company shall be liable for and Company and Buyer shall hold the
Newco Group harmless on an after tax basis against (i) any liability
attributable to any member of the Retained Group for Taxes attributable to a
Period After Distribution and (ii) notwithstanding anything to the contrary
herein, any Tax liability attributable to any member of the Newco Group or the
Company Group (including, without limitation, any such liability resulting from
the Transfer, the Distribution or the Merger) arising out of or resulting
directly or indirectly from the breach of any of the representations,
warranties or covenants of Buyer set forth in the Merger Agreement, the
Distribution Agreement, or this Agreement. Company shall be entitled to any
Tax Refund which is attributable to both an entity and a taxable year or
taxable period for which Company has liability hereunder.
(c) Each party agrees to report the Transfer as one or more tax-free
transactions under one or more of Section 332, 351 or 368(a) of the Code, the
Distribution as a tax-free distribution under Section 355 of the Code and the
Merger as a tax-free reorganization within the meaning of Section 368(a)(1)(A)
of the Code on all Tax Returns and other filings, and take no position
inconsistent therewith, except for Taxes resulting from the Transfer or the
Distribution that
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Newco has Agreed To Pay (as defined in Section 6.11(a) of the Merger
Agreement). Buyer and Newco shall not, and shall not permit any of its
Subsidiaries to, take or cause or permit to be taken, any action that would
disqualify the Distribution as a tax-free distribution under Section 355 of the
Code, disqualify the Transfer as a tax-free transaction under Section 332, 351
or 368(a) of the Code, or disqualify the Merger as a reorganization within the
meaning of Section 368(a)(1)(A) of the Code, except for actions resulting in,
or consistent with, Taxes Newco has Agreed To Pay (as defined in Section
6.11(a) of the Merger Agreement).
(d) Except as set forth in this Section 2.3 and in consideration of the
mutual indemnities and other obligations of this Agreement, any and all
existing tax sharing agreements and prior practices regarding Taxes and their
payment, allocation, or sharing between any member of the Retained Group and
any member of the Newco Group shall be terminated with respect to the Newco
Group as of the Distribution Date.
(e) Buyer's Market Repurchase Program will continue in effect after the
Effective Time and Buyer intends to continue to purchase Buyer Common Stock
from time to time in the public market; however, Buyer represents and warrants
to Newco that it has no plan or intention to reacquire more than fifty percent
(50%) of the specific shares of Buyer Common Stock to be issued in the Merger
to the Company's stockholders and that it will not enter into any agreement
or understanding for the direct or indirect purchase of the specific
shares of Buyer Common Stock to be issued in the Merger to the Company's
stockholders.
2.4 Period that includes the Distribution Date.
(a) To the extent permitted by law or administrative practice, the
taxable year of the Company Group shall be treated as closing at the close of
business on the Distribution Date. The parties agree that the taxable year of
the Company Group will close for federal income tax purposes at that time, and
further agree that one of the Tax Returns to be filed by Newco pursuant to
Section 2.1 of this Agreement is the consolidated federal income Tax Return of
the Company Group for the tax year beginning January 1, 1997 and ending at the
close of business on the Distribution Date, that such tax year is a Period
Before Distribution under this Agreement, and that such Tax Return properly
does, and will, include all transactions occurring through and including the
Distribution Date, including the Transfer, the Distribution and the Merger.
(b) If it is necessary for purposes of this Agreement to determine the
income tax liability of any member of the Newco Group or of the Retained Group
for a taxable year that begins on or before and ends after the Distribution
Date and is not treated under Section 2.4(a) as closing at the close of the
Distribution Date, the determination shall be made by assuming that such member
of the Newco Group or of the Retained Group had a taxable year that ended at
the close of the Distribution Date, except that exemptions, allowances or
deductions that are calculated on an annual basis shall be apportioned on a per
diem basis.
2.5 Payments. To the extent that a party owes money (the "Payor") to
another party (the "Payee") pursuant to this Article II, the Payor shall pay
the Payee, no later than 15 days prior to the due date of the relevant Tax
Return or estimated Tax Return or 15 days after the Payor
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receives the Payee's calculations, whichever occurs last, the amount for which
the Payor is required to indemnify the Payee under this Article II. The payee
shall submit the Payee's calculations of the amount required to be paid
pursuant to this Article II, showing such calculations in sufficient detail so
as to permit the Payor to understand the calculations. The Payor shall have
the right to disagree with such calculations. Any dispute regarding such
calculations shall be resolved in accordance with Article VII of this
Agreement.
2.6 Interest. Any payment required by this Agreement which is not made
on or before the date provided hereunder shall bear interest after such date at
the Underpayment Rate.
2.7 Tax Refund Claims. Newco shall be permitted to file at Newco's
sole expense, and the Company and its Subsidiaries shall reasonably cooperate
(including signing any Company Tax Return that Newco prepares and executing and
delivering powers of attorney in favor of persons designated by Newco) with
Newco in connection with, any claims for a Tax Refund to which Newco is
entitled pursuant to this Article II or any other provision of this Agreement.
Newco shall reimburse the Company for any reasonable out-of-pocket costs and
expenses incurred by any member of the Company Group in connection with such
cooperation. The Company shall be permitted to file at the Company's sole
expense, and Newco shall reasonably cooperate (including signing any Newco Tax
Return that the Company prepares and executing and delivering powers of
attorney in favor of persons designated by the Company) with the Company in
connection with, any claims for a Tax Refund to which the Company is entitled
pursuant to this Article II or any other provision of this Agreement. The
Company shall reimburse Newco for any reasonable out-of-pocket costs and
expenses incurred by any member of the Newco Group in connection with such
cooperation.
2.8 Disqualifying Dispositions.
(a) In the event that the Company claims a post-Distribution Date Tax
deduction in respect of a Disqualifying Disposition, the Company shall pay to
Newco the amount of any Tax Benefit received by the Buyer or the Company as a
result of such deduction. Any such payment to be made by the Company shall be
due ten (10) days after the later of (i) the expiration of the federal income
tax statute of limitations for assessing Tax deficiencies against the Company
for the tax year in which such deduction is claimed, or (ii) the date of the
Final Determination or dispute regarding the Company's or Scripps' Tax
liability with respect to such tax year if the dispute involves deductions for
Disqualifying Dispositions.
(b) Buyer agrees to claim, or to cause the Company to claim,
post-Distribution Date Tax deductions in respect of Disqualifying Dispositions
if there is a reasonable basis for such deductions.
ARTICLE III
CARRYBACKS
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Without the prior consent of Newco, no member of the Retained Group shall
carry back any net operating loss from a Period After Distribution to a Period
Before Distribution. In addition, no member of the Retained Group shall carry
back any other Tax attribute from a Period After Distribution to a Period
Before Distribution without the consent of Newco, which consent shall not be
withheld unless such carryback shall cause material detriment or damage to
Newco.
ARTICLE IV
TAX AUDITS
4.1 General. Except as provided in Section 4.2, each of Newco and
Company shall have sole responsibility for all audits or other proceedings with
respect to Tax Returns that it is required to file under Section 2.1.
4.2 Indemnified Claims. Company or Newco shall promptly notify the
other in writing of any proposed adjustment to a Tax Return that may result in
liability, or entitlement to refund, of the other party (the "Indemnitor")
under this Agreement. The Indemnitor shall have the sole right to contest the
proposed adjustment and to employ counsel of its choice at its expense. The
Indemnitor shall provide the other party (the "Indemnitee") with information
concerning the proposed adjustments and shall permit the Indemnitee to
participate in the proceeding at the Indemnitee's expense.
4.3 Payment of Audit Assessments. The obligation for payment or
entitlement to refund of the Indemnitor shall be limited to the net increase or
net decrease in tax liability resulting (for all past and future periods) from
a change in tax treatment required by a Final Determination. The obligation or
entitlement of the Indemnitor shall be adjusted to reflect the present value of
the increase and/or decrease in future tax liabilities of the Indemnitee
resulting from the change in tax treatment using, with respect to tax periods
prior to the date of such Final Determination, the highest marginal tax rate of
the applicable taxing jurisdiction known to be applicable to the entities, tax
periods and items involved, and with respect to tax periods thereafter, using
the highest marginal tax rate of the applicable taxing jurisdiction in effect
as of the date of such Final Determination with respect to the entities and
items involved, and using a discount rate equal to the Underpayment Rate in
effect as of the date of such Final Determination.
ARTICLE V
COOPERATION
Company and Newco shall (and shall cause the members of the Company Group
and the Newco Group, as the case may be to) cooperate with each other in the
filing of any Tax Returns and the conduct of any audit or other proceeding and
each shall execute and deliver such powers of attorney and make available such
other documents and employees as are necessary to carry out the intent of this
Agreement. Each party agrees to notify the other party of any audit
adjustments
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which do not result in Tax liability but can be reasonably expected to affect
Tax Returns of the other party, or any of its Subsidiaries, for a Period After
Distribution. Each party agrees to treat the Distribution for all income tax
purposes as a tax-free spin-off pursuant to Section 355(a) of the Code, except
for Taxes resulting from the Distribution that Newco has Agreed to Pay, unless
and until there has been a Final Determination that the Distribution is not a
tax- free spin-off under Section 355(a) of the Code.
ARTICLE VI
RETENTION OF RECORDS; ACCESS
The Retained Group and the Newco Group shall (a) until the expiration of
the relevant statute of limitations, retain records, documents, accounting data
and other information (including computer data) necessary for the preparation
and filing of all Tax Returns in respect of Taxes of the retained Group or the
Newco Group or for the audit of such Tax Returns; and (b) give to the other
party reasonable access to such records, documents, accounting data and other
information (including computer data) and to its personnel (insuring their
cooperation) and premises, for the purpose of the review or audit of such
returns to the extent relevant to an obligation or liability of a party under
this Agreement. Within thirty days following the filing of each of the
Company's final consolidated or combined Tax Returns for Periods Before
Distribution, Newco shall furnish Buyer with (i) copies of the relevant portion
of such Tax Returns that relate to the Retained Group and (ii) information
concerning (a) the tax basis of the assets of the Retained Group as of the
Distribution Date, (b) the earnings and profits of each member of the Retained
Group as of the Distribution Date, (c) the Company's tax basis in its
subsidiaries as of the Closing Date, (d) the net operating loss carryover,
investment tax credit carryover, alternative minimum tax carryover and capital
loss carryover, if any, available to Buyer and the Retained Group as of the
Closing Date and (e) all elections with respect to Taxes in effect for the
Retained Group. Prior to destroying any records, documents, data or other
information in accordance with this Article, the party wishing to destroy such
items will give the other party a reasonable opportunity to obtain such items
(at such other party's expense).
ARTICLE VII
DISPUTES
If the parties disagree as to the calculation of any Tax or the amount of
(but not liability for) any payment to be made under this Agreement, the
parties shall cooperate in good faith to resolve any such dispute, and any
agreed-upon amount shall be paid to the appropriate party. If the parties are
unable to resolve any such dispute within 15 days thereafter, such dispute
shall be resolved by a nationally recognized accounting firm acceptable to both
company and Newco. The decision of such firm shall be final and binding. The
fees and expenses incurred in connection with such decision shall be borne
equally by Company and Newco. Following the decision of such accounting firm,
the parties shall each take (or cause to be taken) any action that is necessary
or appropriate to implement such decision, including, without limitation, the
prompt payment of underpayments or overpayments, with interest calculated on
such overpayments and
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underpayments at the Underpayment Rate from the date such payment was due (the
due date of payments governed by Section 2.5 of this Agreement shall be the
date a payment is due thereunder assuming the party does not dispute the amount
owed) through the date such underpayment or overpayment is paid or refunded.
ARTICLE VII
TERMINATION OF LIABILITIES
Notwithstanding any other provision in this Agreement, any liabilities
determined under this Agreement shall not terminate any earlier than the
expiration of the applicable statute of limitation for such liability. All
other representations, warranties and covenants under this Agreement shall
survive indefinitely.
ARTICLE IX
MISCELLANEOUS PROVISIONS
9.1 Notices and Governing Law. All notices required or permitted to be
given pursuant to this Agreement shall be given, and the applicable law
governing the interpretation of this Agreement shall be determined, by the
applicable provisions of the Distribution Agreement.
9.2 Treatment of Payments. The parties hereto shall treat any payments
made pursuant to the terms of this Agreement as a capital transaction for all
tax purposes, except to the extent such payments represent interest paid
pursuant to Section 2.6
9.3 Binding Effect; No Assignment; Third Party Beneficiaries. This
Agreement shall be binding on, and shall inure to the benefit of, the parties
and their respective successors and assigns, including Buyer. Company and
Newco hereby guarantee the performance of all actions, agreements and
obligations provided for under this Agreement of each member of the Retained
Group and the Newco Group, respectively. Company and Newco shall, upon the
written request of the other, cause any of their respective Subsidiaries to
execute this Agreement. Company or Newco shall not assign any of its rights or
delegate any of its duties under this Agreement without the prior written
consent of the other party. No person (including, without limitation, any
employee of a party or any stockholder of a party) shall be, or shall be deemed
to be, a third party beneficiary of this Agreement.
9.4 Entire Agreement; Amendments. This Agreement constitutes the
entire agreement of the parties concerning the subject matter hereof and
supersedes all prior agreements, whether or not written, concerning such
subject matter. This Agreement may not be amended except by an agreement in
writing, signed by the parties.
9.5 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be an original and all of which shall
constitute together the same document.
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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first above written.
▇▇▇▇▇-▇▇▇▇▇ COMMUNICATIONS, INC.
By:
-------------------------------
Name:
Title:
[NEWCO]
By:
-------------------------------
Name:
Title:
THE ▇. ▇. ▇▇▇▇▇▇▇ COMPANY
By:
-------------------------------
Name:
Title:
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Exhibit B to the Distribution Agreement
EMPLOYEE BENEFITS AND COMPENSATION AGREEMENT
BETWEEN
▇▇▇▇▇-▇▇▇▇▇ COMMUNICATIONS, INC.
AND
[NEWCO]
DATED _____________, 1997
84
EMPLOYEE BENEFITS AND COMPENSATION AGREEMENT
This Agreement dated as of ______________, 1997 between ▇▇▇▇▇-▇▇▇▇▇
Communications, Inc., (the "Company"), a Delaware corporation with offices
at San Antonio, Texas and [Newco] ("Newco"), a Delaware corporation with
offices at San Antonio, Texas governs the rights and obligations of the
Company and Newco with respect to compensation and benefits of the
employees, former employees, and their respective dependents, of each of the
Company and Newco in connection with the transaction effected by the
Distribution, as described below. The term, the Company, when used in
this Agreement shall not be construed to include Newco where such
construction would have the effect of negating any obligation of Newco
hereunder. The term, Newco, when used shall not be construed to include
the Company where such construction would have the effect of negating any
obligation of the Company hereunder.
RECITALS
WHEREAS, the Company, The ▇.▇. ▇▇▇▇▇▇▇ Company, an Ohio corporation
("Buyer") and E.W.S. Acquisition Corp., a Delaware corporation and a
wholly-owned subsidiary of Buyer ("Sub"), have entered into an Agreement and
Plan of Merger and Reorganization, dated as of ______________, 1997 (the
"Merger Agreement"), providing for the Merger (as defined in the Merger
Agreement) of Sub with and into the Company with the Company as the surviving
corporation; and
WHEREAS, pursuant to the terms of that certain Agreement and Plan of
Distribution dated as of _________, 1997 (the "Distribution Agreement"),
including the satisfaction or waiver of the conditions set forth in Article VI
of the Distribution Agreement, immediately prior to the Effective Time (as
defined in Section 1.2 of the Merger Agreement), the Board of Directors expects
to distribute all of the then-outstanding shares of Common Stock, par value
$___ per share, of Newco ("Newco Common Stock") as a dividend to the holders of
Common Stock, par value $1.00 per share, of the Company ("Company Common
Stock"), on a pro rata basis (the "Spin-off"); and
WHEREAS, the purpose of the Spin-off is to make possible the Merger by
divesting the Company of the businesses and operations conducted or to be
conducted by Newco, which Buyer is unwilling to acquire; and
WHEREAS, the Distribution Agreement sets forth or provides for certain
agreements between the Company and Newco in consideration of the separation of
their ownership, including this Employee Benefits and Compensation Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual promises
contained in this Agreement, the Distribution Agreement and in the other
agreements and instruments provided for in such agreement, the parties hereto
agree as follows:
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ARTICLE I
DEFINITIONS
"Company Stock Plans" means the Company's 1984 and 1991 Stock Option
Plans, the Company's 1994 Employee Stock Purchase Plan, and the outstanding
stock options originally issued by DiMark, Inc. and previously assumed by the
Company.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Retained Welfare Plans" means the benefit plans, contracts, agreements
and arrangements listed on Schedule "A" hereto.
"Retained Employees" has the meaning given in Section 5.6 of the
Distribution Agreement.
"Transferred Employee" means each person currently employed by the Company
or its subsidiaries in the Newco Business.
"Transferred Welfare Plans" means the benefit plans, contracts, agreements
and arrangements listed on Schedule "B" hereto.
Any capitalized terms not otherwise defined herein, shall have the meaning
set forth in the Distribution Agreement or the Merger Agreement.
ARTICLE II
SALARY, WAGES, PAYROLL AND RELATED BENEFITS
2.1 Prior to the Time of Distribution, the Company and Newco shall
cooperate to transfer each Transferred Employee to the employ of Newco
effective as of the Time of Distribution.
2.2 With respect to the Transferred Employees and any former employees of
the Newco Business, and any of their dependents or beneficiaries, Newco shall
assume any liabilities and obligations with respect to (or with respect to
insured benefits, shall assume any responsibility of the employer or plan
sponsor with respect to the insurance arrangement), and continue to be
responsible for, any liabilities and obligations in respect of salary, wages,
bonuses, benefits, severance pay, salary continuation, COBRA continuation,
unpaid and unused vacation benefits accrued and earned prior to the Time of
Distribution, other terms and conditions of employment, and similar obligations
relating to the continued employment, or the termination or alleged termination
of such Transferred Employees' or such former employees' employment with the
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Newco Group or Newco Business, including, without limitation, by reason of
consummation of the transactions contemplated in the Distribution Agreement or
the Merger Agreement or otherwise, and neither the Company nor any member of
the Company Group shall assume such liability.
2.3 With respect to Retained Employees, except as specifically provided
in this Agreement and in Section 6.6 of the Merger Agreement, the Company shall
retain any liabilities and obligations with respect to, (or with respect to
insured benefits, shall assume any responsibility of the employer or plan
sponsor with respect to the insurance arrangement) and continue to be
responsible for, any liabilities and obligations whatsoever in connection with
claims made by or on behalf of such persons in respect of salary, wages,
bonuses, benefits, severance pay, salary continuation, COBRA continuation,
unpaid and unused vacation benefits accrued and earned prior to the Time of
Distribution, other terms and conditions of employment, and similar obligations
relating to the continued employment and the termination or alleged termination
of such persons' employment with the Company Group by reason of the
consummation of the transactions contemplated in the Distribution Agreement or
the Merger Agreement or otherwise, and neither Newco nor any member of the
Newco Group shall assume such liability. Notwithstanding anything to the
contrary in the foregoing, with respect to Retained Employees who as of the
Time of Distribution are former employees of the Retained Business, or are not
actively at work, the Company shall retain liability only for (1) any leave
entitlements, reemployment obligations, reinstatement rights, or related
rights, under applicable law, including, without limitation, the Family and
Medical Leave Act of 1993, the Uniformed Services Employment and Reemployment
Rights Act of 1994, workers' compensation laws, or similar laws, and (2) any
rights, benefits or entitlements under the Retained Welfare Plans, including,
without limitation, health care continuation pursuant to Part 6 of Title I of
ERISA.
2.4 Notwithstanding anything to the contrary herein, nothing in this
Agreement shall be construed as a guarantee of employment or modification of
employment at will by Newco or the Company. Except as expressly provided
otherwise herein, nothing in this Agreement shall prevent Newco or the Company
from amending or terminating any benefit plans at any time, or from modifying
terms and conditions of employment at any time.
ARTICLE III
COMPANY STOCK PLANS
3.1 Prior to the Time of the Distribution, the Company and Newco shall
(i) cooperate to amend the Company Stock Plans as may be necessary to provide
for the assumption of such plans by Newco to the extent set forth in Sections
3.2 and 3.4 below, and (ii) take such other steps (consistent with applicable
law and the terms of such affected plans) as may be necessary to prevent the
consummation of the transactions contemplated by this Agreement, the
Distribution Agreement and Merger Agreement (including the transfer of
employment of any Transferred Employee) from causing, resulting in or being
treated as a termination of employment or a change of control with respect to
Transferred Employees who are participants in the Company Stock Plans.
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3.2 Effective as of the Time of Distribution, (i) Newco shall assume the
Company Stock Plans with respect to the participants in such plans who are
Transferred Employees or former employees of the Newco Business and hold
Company Options (as defined below) as of the Time of Distribution (the "Newco
Optionees); and (ii) each outstanding option to purchase shares of Company
Common Stock (a "Company Option") under the Company Stock Plans, whether vested
or unvested, exercisable or unexercisable, that was granted to a person who,
immediately after the Time of Distribution, is a Newco Optionee, shall, subject
to any required consent of the holder of such Company Option, be exchanged for
an option (a "Newco Option") to purchase the number of shares of Newco Common
Stock equal to the product of (1) the quotient of (x) the fair market value of
a share of Company Common Stock, and (y) the fair market value of a share of
Newco Common Stock (the "Conversion Ratio") and (2) the number of shares of
Company Common Stock that the holder of such option would have been entitled to
receive had such holder exercised such option in full immediately prior to the
Time of Distribution (not taking into account whether or not such option was in
fact exercisable) (rounded to the nearest whole share). The per share exercise
price of the Newco Option shall equal the per share exercise price of such
Company Option divided by the Conversion Ratio (rounded to the nearest cent).
The Newco Option shall be subject to the same terms and conditions (including
the vesting schedule) as the Company Option; provided, however, that the Newco
Option shall be exercisable only for Newco Common Stock, and provided further
that, in the case of any Company Stock Option to which Section 421 of the
Internal Revenue Code of 1986, as amended (the "Code") applies by reason of its
qualification under any Sections 422-424 of the Code ("incentive stock
options"), the option price, the number of shares purchasable pursuant to such
option and the terms and conditions of exercise of such option shall be
determined in order to comply with Section 424(a) of the Code. For purposes of
this Section 3.2, the fair market value of the Company Common Stock shall be
equal to the greater of (x) the average of the closing prices of Company Common
Stock on the New York Stock Exchange (the "NYSE") Composite Transactions
Reporting Systems, as reported by The Wall Street Journal, for the ten (10)
trading days immediately preceding the date that the Company Common Stock
commences trading on an ex-dividend basis (with respect to the Distribution) or
(y) the sum of (A) the average of the closing prices of the Company Common
Stock for the period from the ex- dividend date (with respect to the
Distribution) to the Time of Distribution and (B) the average of the closing
prices of the Newco Common Stock on the NYSE Composite Transactions Reporting
System, as reported by The Wall Street Journal, for the ten (10) trading days
following the tenth trading day after the Time of Distribution (the "Newco
Average Price"). The fair market value of a share of Newco Common Stock shall
be equal to the Newco Average Price.
3.3 With respect to Retained Employees, the Company shall take such
actions as it deems appropriate to cause any Retained Employees' Company
Options that are not exercised as of the Time of Distribution to be cancelled
or lapse no later than the Effective Time.
3.4 The Company shall have no liability with respect to any Company Stock
Plans, including, without limitation, 1994 Employee Stock Purchase Plan
("ESPP") subsequent to the Time of Distribution. The Retained Employees shall
cease participating in the ESPP as of the Time of Distribution. Newco shall
assume all obligations with respect to the ESPP and shall cause any uninvested
payroll deduction contributions of Retained Employees to be distributed to such
Retained Employees subsequent to the Time of Distribution.
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ARTICLE IV
NON-TAX-QUALIFIED BENEFIT PLANS
4.1 Prior to the Time of the Distribution, the Company and Newco shall
(i) cooperate to amend the ▇▇▇▇▇-▇▇▇▇▇ Communications, Inc. Pension Restoration
Plan and the ▇▇▇▇▇-▇▇▇▇▇ Deferred Compensation Plan for Management Bonuses as
may be necessary to provide for the assumption of such Plans by Newco as set
forth in Section 4.2 below, (ii) provide that Retained Employees shall cease to
accrue benefits under the plans as of the Time of Distribution, and (iii) take
such other steps (consistent with applicable law and the terms of the affected
plan) as may be necessary to prevent the consummation of the transactions
contemplated by this Agreement, the Distribution Agreement and the Merger
Agreement (including the transfer of employment of any Transferred Employee)
from causing, resulting in or being treated as a termination of employment or a
change of control with respect to Transferred Employees who are participants in
such plans.
4.2 Effective as of the Time of Distribution, the ▇▇▇▇▇- ▇▇▇▇▇
Communications, Inc. Pension Restoration Plan and the ▇▇▇▇▇-▇▇▇▇▇ Deferred
Compensation Plan for Management Bonuses shall be transferred from the Company
to Newco and Newco shall assume such plans and (i) succeed the Company as the
plan sponsor, plan administrator, employer or other party under such plans and
any agreements related thereto and be vested with any and all of the powers,
duties, rights and privileges of such plan sponsor, plan administrator,
employer or other party thereunder; and (ii) assume and agree to perform and
discharge all of the duties and obligations of the employer, sponsor and/or
plan administrator thereunder and to pay, and be solely responsible for all of
the liabilities and obligations of any kind (whether absolute, accrued,
contingent or otherwise) of the employer, sponsor and/or plan administrator
thereunder in respect of, arising under or required to be performed with
respect to the Transferred Employees and Retained Employees under such plans.
The benefits of any Retained Employees under such plans, calculated as of the
Time of Distribution, shall become fully vested and non-forfeitable as of the
time of Distribution, irrespective of their age or service.
ARTICLE V
EMPLOYEE WELFARE BENEFIT PLANS
5.1 Prior to the Time of the Distribution, the Company and Newco shall
(i) cooperate to amend the Transferred Welfare Plans, as may be necessary to
provide for the assumption by Newco of the liabilities with respect to such
plans in accordance with the provisions set forth below, (ii) provide that
Retained Employees shall cease to participate in the Transferred Welfare Plans
as of the Time of Distribution, and (iii) take such other steps (consistent
with applicable law and the terms of the affected plan) as may be necessary to
prevent the consummation of the transactions contemplated by this Agreement,
the Distribution Agreement and the Merger Agreement (including the transfer of
employment of any Transferred Employee) from causing,
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resulting in or being treated as a termination of employment with respect to
Transferred Employees who are participants in such plans.
5.2 Effective as of the Time of Distribution, Newco shall assume the
Transferred Welfare Plans and honor or cause its insurance carriers to honor,
in accordance with the terms of such plans, all claims for benefits incurred by
(i) Transferred Employees (or their dependents or beneficiaries) under such
plans at any time; (ii) former or inactive employees of the Newco Business (or
their dependents or beneficiaries) at any time; or (iii) former employees of
units divested prior to the Time of Distribution (or their dependents or
beneficiaries) at any time; without interruption as a result of the
transactions contemplated by this Agreement, the Distribution Agreement or the
Merger Agreement and the Company shall be relieved of and shall not assume such
liability. In addition, with respect to the fully insured Transferred Welfare
Plans that are identified as such on Schedule "B" hereto, the insurance
carriers shall continue to honor in accordance with the terms of the plans, all
claims incurred by reason of accident, death or disability prior to the Time of
Distribution, including claims incurred by Retained Employees or their
dependents or beneficiaries. As soon as administratively possible after the
Time of Distribution, the Company shall transfer all assets of the Transferred
Welfare Plans (including funds for any contributions or premiums due from the
Company or any subsidiaries of the Company which have accrued or been received
or that have been deducted from payroll as of the Time of Distribution) to
Newco or the plan, as appropriate.
5.3 Effective as of the Time of Distribution, the Company shall remain
liable for, and shall honor or cause its insurance carriers to honor any claims
incurred prior thereto or thereafter by Retained Employees with respect to
benefits under any Retained Welfare Plan, subject to indemnification pursuant
to Section 5.2(e) of the Distribution Agreement.
ARTICLE VI
TAX-QUALIFIED DEFINED CONTRIBUTION PLANS
6.1 Prior to the Time of the Distribution, the Company and Newco shall
(i) cooperate to amend the ▇▇▇▇▇-▇▇▇▇▇ Investment Plus (the "401(k) Plan") as
may be necessary to provide for the assumption of such plan by Newco and the
spin-off of plan assets and liabilities to Buyer's plan as set forth below,
(ii) provide that the Retained Employees will cease to participate in the
401(k) Plan as of the Time of Distribution, and (iii) take such other steps
(consistent with applicable law and the terms of the plan) as may be necessary
to prevent the consummation of the transactions contemplated by this Agreement,
the Distribution Agreement and the Merger Agreement (including the transfer of
employment of any Transferred Employee) from causing, resulting in or being
treated as a termination of employment with respect to the Transferred
Employees who are participants in the 401(k) Plan.
6.2 Effective as of the Time of Distribution, the 401(k) Plan and any
related service provider agreements shall be transferred from the Company to
Newco, and the Company shall transfer its control over the related trust to
Newco and shall transfer to the 401(k) Plan's trust all
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plan assets it holds (including funds for any contributions or participant
loan repayments which have accrued or that have been deducted from payroll as
of the Time of Distribution) and Newco shall assume such plan and any related
service provider agreements and (i) succeed the Company as the plan sponsor,
plan administrator, employer or other party under such plan and any agreements
related thereto and be vested with any and all of the powers, duties, rights
and privileges of such plan sponsor, plan administrator, employer or other
party thereunder, and (ii) assume and agree to perform and discharge all of the
duties and obligations of the employer, sponsor and/or plan administrator
thereunder and to pay and be solely responsible for all of the liabilities and
obligations of any kind (whether absolute, accrued, contingent or otherwise) of
the employer, sponsor and/or plan administrator thereunder in respect of,
arising under or required to be performed under the 401(k) Plan.
6.3 As soon as practicable following the Time of Distribution Newco shall
cause the 401(k) Plan accounts of the Retained Employees to be transferred to
The ▇.▇. ▇▇▇▇▇▇▇ Company Retirement and Investment Plan ("Buyer's Plan") in
accordance with Section 208 of ERISA. The amounts to be transferred to Buyer's
Plan ("Spinoff Amounts") shall be adjusted for investment earnings, gains, or
losses in accordance with the 401(k) Plan's valuation procedures, through a
date as close as reasonably practicable to the date of transfer. The Company
shall cause Buyer's Plan to comply with applicable tax-qualification and ERISA
requirements with respect to the Spinoff Amounts. Subsequent to the Time of
Distribution and prior to the transfer of the Spinoff Amounts, the Company will
cooperate with Newco to cause payroll deductions for loan repayments by
Retained Employees under the 401(k) Plan to continue and to remit such payments
to the 401(k) Plan as frequently as possible. If any participating Retained
Employees have outstanding loan obligations to the 401(k) Plan as of the date
of transfer of the Spinoff Amounts, such obligations shall be transferred to
Buyer's Plan as part of the Spinoff Amount. After the transfer of the Spinoff
Amount, Buyer's Plan shall be responsible for the administration, investment
and payment of the Retained Employees' accounts and neither the 401(k) Plan nor
Newco shall have any further liability with respect thereto.
6.4 The DiMark 401(k) Plan, the Mars Graphics Systems 401(k) Plan and the
MCI 401(k) Plan (collectively the "Direct Marketing 401(k)'s") shall remain the
responsibility of Newco and/or DiMark, Inc., Mars Graphic Services, Inc., and
Marketing Communications, Inc., respectively, (which corporations are to become
wholly owned first or second tier subsidiaries of Newco prior to the Time of
Distribution). If necessary, on request of the Company, Newco shall cause any
additional reasonable steps to be taken to insure that the Company is not
liable or obligated as employer, plan sponsor or plan administrator with
respect to the Direct Marketing 401(k)'s after the Time of Distribution.
ARTICLE VII
TAX-QUALIFIED DEFINED BENEFIT PLANS
7.1 Prior to the Time of the Distribution, the Company and Newco shall
(i) cooperate to amend the ▇▇▇▇▇-▇▇▇▇▇ Communications, Inc. Pension Plan as may
be necessary to provide
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for the assumption of such plan by Newco as set forth below, (ii) provide that
the Retained Employees will cease to accrue benefits under such plan as of the
Time of Distribution and (iii) take such other steps (consistent with
applicable law and the terms of the plan) as may be necessary to prevent the
consummation of the transactions contemplated by this Agreement, the
Distribution Agreement and the Merger Agreement (including the transfer of
employment of any Transferred Employee to Newco) from causing, resulting in or
being treated as a termination of employment or a change of control with
respect to the Transferred Employees who are participants in such plan.
7.2 Effective as of the Time of Distribution, each Retained Employee's
accrued benefit under the ▇▇▇▇▇-▇▇▇▇▇ Communications, Inc. Pension Plan shall
become fully vested and non-forfeitable without regard to such Retained
Employee's length of service. Effective as of the Time of Distribution, the
Company shall transfer to Newco, and Newco shall assume the ▇▇▇▇▇-▇▇▇▇▇
Communications, Inc. Pension Plan and any related service provider contracts,
and the Company shall transfer to Newco its control over the related trust and
shall transfer to such trust funds for any contributions or premiums due from
the Company or subsidiaries of the Company which have accrued as of the Time of
Distribution. In connection with such transfer and assumption Newco shall (i)
succeed the Company as the plan sponsor, plan administrator, employer or other
party under such plan and any agreements related thereto and be vested with any
and all of the powers, duties, rights and privileges of such plan sponsor, plan
administrator, employer or other party thereunder, and (ii) assume and agree to
perform and discharge all of the duties and obligations of the employer,
sponsor or plan administrator thereunder and to pay, and be solely responsible
for all of the liabilities and obligations of any kind (whether absolute,
accrued, contingent or otherwise) of the employer, sponsor and/or plan
administrator thereunder in respect of, arising under or required to be
performed with respect to the Retained Employees and the Transferred Employees
under such plan.
ARTICLE VIII
RETAINED EMPLOYEES
8.1 Rights. The rights of Retained Employees with respect to the periods
following the Time of Distribution will be governed by the Merger Agreement.
ARTICLE IX
MISCELLANEOUS
9.1 Governing Law. This Agreement and the transactions contemplated
hereby shall be construed in accordance with and governed by the internal laws
of the State of Delaware.
9.2 Entire Agreement. This Agreement constitutes the entire
understanding of the parties hereto with respect to the subject matter hereof,
superseding all negotiations, prior
B-9
92
discussions and prior agreements. To the extent a subject is specifically
covered in this Agreement and to the extent any other agreement is in conflict
herewith, this Agreement, if more specific, shall control.
9.3 Parties In Interest. Neither party may assign its right or delegate
any of its duties under this Agreement without prior written consent of the
other. This Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and assigns. Nothing
contained in this Agreement, express or implied, is intended to confer upon any
third party any benefits, rights or remedies.
9.4 Effectiveness. This Agreement shall become effective at the Time of
Distribution and may be terminated by the parties at any time prior thereto by
written agreement.
9.5 Reformation and Severabilty. If any provision of this Agreement
shall be held to be invalid, unenforceable or illegal in any jurisdiction under
any circumstances for any reason, (i) such provision shall be reformed to the
minimum extent necessary to cause such provision to be valid, enforceable and
legal and preserve the original intent of the parties, or (ii) if such
provision cannot be so reformed, such provision shall be severed from this
Agreement. Such holding shall not affect or impair the validity,
enforceability or legality of such provision in any other jurisdiction or under
any other circumstances. Neither such holding nor such reformation or
severance shall affect or impair the legality, validity or enforceability of
any other provision of this Agreement to the extent that such other provision
is not itself actually in conflict with any applicable law.
9.6 Titles and Headings. All titles and headings have been inserted
solely for the convenience of the parties and are not intended to be a part of
this Agreement or to affect its meaning or interpretation.
9.7 No Reliance. No third party is entitled to rely on any of the
representations, warranties and agreements of the parties contained in this
Agreement. The parties assume no liability to any third party because of any
reliance on the representation, warranties and agreements of the parties
contained in this Agreement.
B-10
93
IN WITNESS WHEREOF the Parties have caused this Agreement to be executed
by their duly authorized officers as of this ____ day of ______________, 1997.
▇▇▇▇▇-▇▇▇▇▇ COMMUNICATIONS, INC.
By:
-------------------------------------------
Title:
--------------------------------------
[NEWCO]
By:
-------------------------------------------
Title:
--------------------------------------
B-11
94
SCHEDULE A
RETAINED WELFARE PLANS
1. ABILENE REPORTER-NEWS
Medical Plans
PPO: Continental Life & Accident Company
HMO: FirstCare (Southeast Health Alliances)
Dental Plan - See Footnote 1
Vision Plan - See Footnote 2
2. SAN ▇▇▇▇▇▇ STANDARD-TIMES
Medical Plans
HMO: Blue Cross/Blue Shield of Texas
HMO Blue, South West Texas
HMO: NYLCare Health Plans of Southwest, Inc.
Dental Plan - See Footnote 1
Vision Plan - See Footnote 2
3. WICHITA FALLS TIMES & RECORD-NEWS
Medical Plan
PPO: Blue Cross Blue Shield of Texas, Inc.
Blue Choice Managed Health Care Plan
Dental Plan- See Footnote 1
Vision Plan - See Footnote 2
4. ▇▇▇▇▇-▇▇▇▇▇ COMMUNITY NEWSPAPERS, INC.
Medical Plan
POS, HMO: Prudential Health Care
Dental Plan - See Footnote 1
B-12
95
5. CORPUS CHRISTI CALLER-TIMES
Medical and Dental Plans
PPO, HMO, Dental: Corpus Christi Caller-Times
Comprehensive Major Medical
Health Care Plan
Section 125 Plan: Corpus Christi Caller-Times
Health Benefit Plan
ASO Agreement: South Texas Health Care Alliance
Claims Administrator: Group Administrators San
Antonio, Inc.
Excess Loss Insurance: TransAmerica Occidental Life
Insurance Co.
(specific and aggregate)
Welfare Trust: Trust Agreement and Declaration of
Corpus Christi Caller Times Health Benefit Plan,
effective January 1, 1994.
6. ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇ (INDEPENDENT PUBLISHING COMPANY)
Medical Plan
PPO: Independent Publishing Medical Plan
ASO Agreement: Health First
Dental Plan: Health Source
Excess Loss Insurance: TransAmerica Occidental Life
Insurance Co.
(specific and aggregate)
Term Life and AD&D: Provident Life & Accident
7. KENS-TV5
Medical Plan
HMO, PPO: Prudential Health Care Plan,
Inc.
See Footnote 3
HMO: Pacificare of Texas, Inc.
Dental Plan: See Footnote 1
B-13
96
8. Various Employee Assistance Programs and Educational Assistance Plans
maintained by Retained Business units.
Footnotes:
1. ▇▇▇▇▇-▇▇▇▇▇ Communications, Inc. offers dental coverage through Delta
Insurance Company for this unit and others. The contract with DDIC will
be a Retained Welfare Plan, and various Newco Business units that now also
receive dental benefits through this contract will establish a separate
contract with DDIC.
2. ▇▇▇▇▇-▇▇▇▇▇ Communications, Inc. offers vision coverage through Vision
Service Plan, Inc. for this unit and others. The contract with VSP will
be a Retained Welfare Plan and various Newco Business units that now
receive vision benefits through this contract will establish a separate
contract with VSP.
3. ▇▇▇▇▇-▇▇▇▇▇ Communications, Inc. offers medical coverage through
Prudential Health Care Plan, Inc. for this and another unit. The contract
with Prudential will be a Retained Welfare Plan and another Newco Business
unit that now receives medical benefits through this contract will
establish a separate contract with Prudential.
B-14
97
SCHEDULE B
TRANSFERRED WELFARE PLANS
PLANS
1. Basic Life and AD&D
Pan American Life Insurance Co.*
2. Supplemental Life:
Standard Insurance Company*
Philadelphia Life Insurance Co., prior to 1993*
3. Supplemental AD&D:
Cigna*
4. Medical: See Footnote 3 to Schedule A
5. Dental: See Footnote 1 to Schedule A
6. Vision: See Footnote 2 to Schedule A
7. Long Term Disability:
UNUM Insurance Co.*
Mutual of Omaha, 1992-1993*
▇▇▇▇ ▇▇▇▇▇▇, 1994-1995*
8. ▇▇▇▇▇-▇▇▇▇▇ Communications, Inc. Salary Continuation Plan -
Effective November 1, 1995
9. ▇▇▇▇▇-▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ Pay Plan
10. ▇▇▇▇▇-▇▇▇▇▇ Flexible Benefits Plan (Section 125); provided
that "Transferred Welfare Plans" does not include any
portion of this Plan relating to medical, dental or vision
plans or contracts to the extent they are part of a Retained
Welfare Plan.
11. Business Travel/Blanket Accident
Cigna Group Insurance*
(Life Insurance Company of North America)
12. Retiree medical and life obligations, including without
limitation, those described in Section 3.9 of the Company
Disclosure Schedule.
13. Various Employee Assistance Programs and Eductional
Assistance Plans maintained by Transferred Business units.
____________________
* Plans marked with an asterisk are fully insured plans as
described in Section 5.2 of the Employee Benefits and
Compensation Agreement.
B-2
98
Exhibit A to the Merger Agreement
RETAINED BUSINESS FINANCIAL STATEMENTS
See Exhibits B and C to the Merger Agreement
99
EXHIBIT B TO MERGER AGREEMENT
[KPMG LOGO]
▇▇▇▇▇ ▇▇▇▇▇ TELEVISION
FINANCIAL STATEMENTS
100
[KPMG PEAT MARWICK LLP LOGO]
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
▇▇▇▇▇-▇▇▇▇▇ Communications, Inc.:
We have audited the accompanying balance sheets of ▇▇▇▇▇-▇▇▇▇▇ Television as of
December 31, 1996 and 1995, and the related statements of operations and cash
flows for each of the years in the three-year period ended December 31, 1996.
These financial statements are the responsibility of ▇▇▇▇▇-▇▇▇▇▇
Communications, Inc.'s management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of
the financial statements. We believe that our audits provide a reasonable basis
for our opinion.
The accompanying financial statements were prepared on the basis of
presentation described in note A, and include the assets, liabilities, revenues
and expenses of ▇▇▇▇▇-▇▇▇▇▇ Television.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of ▇▇▇▇▇-▇▇▇▇▇ Television as of
December 31, 1996 and 1995, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1996,
pursuant to the basis of presentation described in note A, in conformity with
generally accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
San Antonio, Texas
April 14, 1997
101
▇▇▇▇▇-▇▇▇▇▇ TELEVISION
BALANCE SHEETS
---------------------------------------------------------------------------------
DECEMBER 31,
IN THOUSANDS 1996 1995
---------------------------------------------------------------------------------
ASSETS
Current assets
Cash $ 228 $ 338
Accounts receivable (less allowance for doubtful
accounts of $67 in 1996 and $47 in 1995) 5,146 5,208
Inventory 29 30
Prepaid expense 261 237
Film contracts 1,517 1,203
Other current assets 188 191
-------- -------
Total current assets 7,369 7,207
-------- -------
Property, plant and equipment
Land 354 354
Buildings and improvements 6,169 6,169
Equipment and furniture 11,701 10,939
-------- -------
18,224 17,462
Less accumulated depreciation 10,621 9,537
-------- -------
7,603 7,925
Construction and equipment installations in progress 67 0
-------- -------
Net property, plant and equipment 7,670 7,925
-------- -------
Intangible and other assets
Goodwill (less accumulated amortization
of $21,481 in 1996 and $19,733 in 1995) 48,575 50,323
Receivable from ▇▇▇▇▇-▇▇▇▇▇ Communications, Inc. 34,251 27,665
Film contracts 2,187 1,275
Other assets 232 176
-------- -------
Total intangible and other assets 85,245 79,439
-------- -------
Total assets $100,284 $94,571
======== =======
LIABILITIES AND EQUITY
Current liabilities
Accounts payable $ 685 $ 632
Accrued payroll and related expenses 727 653
Film contract payable 1,581 1,145
Other current liabilities 37 369
-------- -------
Total current liabilities 3,030 2,799
-------- -------
Film contract payable 1,488 985
Deferred income tax liability 1,841 1,780
Other long term liabilities 489 532
-------- -------
Total liabilities 6,848 6,096
-------- -------
Equity 93,436 88,475
-------- -------
Total liabilities and equity $100,284 $94,571
======== =======
See Notes to Financial Statements
102
▇▇▇▇▇-▇▇▇▇▇ TELEVISION
STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
IN THOUSANDS 1996 1995 1994
--------------------------------------------------------------------------------
Revenues $ 26,100 $ 25,132 $28,629
Operating expenses
Payroll 8,361 8,008 8,624
Production and distribution 1,739 2,040 2,864
Advertising, selling, general
and administrative 2,880 2,848 2,800
Depreciation 1,044 1,066 1,041
Film amortization 1,347 2,224 2,746
Goodwill amortization 1,748 1,748 1,748
-------- -------- -------
17,119 17,934 19,823
-------- -------- -------
Operating income 8,981 7,198 8,806
Other expenses (income)
Interest expense 20 26 26
Other, net -- (85) --
-------- -------- -------
20 (59) 26
-------- -------- -------
Income before income taxes 8,961 7,257 8,780
Income tax expense 4,000 3,366 3,954
-------- -------- -------
Net income $ 4,961 $ 3,891 $ 4,826
======== ======== =======
See Notes to Financial Statements
103
▇▇▇▇▇-▇▇▇▇▇ TELEVISION
STATEMENTS OF CASH FLOWS
---------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
IN THOUSANDS 1996 1995 1994
---------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities
Net income $ 4,961 $ 3,891 $ 4,826
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 1,044 1,066 1,041
Goodwill amortization 1,748 1,748 1,748
Amortization of option related
compensation 93 163 131
Film amortization 1,347 2,224 2,746
Deferred income taxes 37 42 (10)
Other, net -- (85) --
Changes in operating assets and liabilities:
Decrease in accounts receivable, net 62 677 52
Decrease (increase) in inventory 1 6 (6)
Decrease (increase) in prepaid expenses
and other current assets 61 (59) 99
Increase (decrease) in accounts payable 53 (324) 329
(Decrease) in other accrued expenses
and other liabilities (312) (291) (100)
Other, net (258) (114) 15
------- ------- --------
Net cash provided by operating activities 8,837 8,944 10,871
------- ------- --------
Cash Flows from Investing Activities
Purchases of property, plant and
equipment (789) (1,060) (883)
Proceeds from the sale of property,
plant and equipment -- 123 142
Payments on film contracts (1,572) (1,817) (2,123)
------- ------- --------
Net cash (used in) investing activities (2,361) (2,754) (2,864)
------- ------- --------
Cash Flows from Financing Activities
Distributions to ▇▇▇▇▇-▇▇▇▇▇ Communications, Inc.
including payments for income taxes (6,586) (6,406) (7,874)
------- ------- --------
Net increase (decrease) in cash (110) (216) 133
Cash at beginning of period 338 554 421
------- ------- --------
Cash at end of period $ 228 $ 338 $ 554
======= ======= ========
See Notes to Financial Statements
104
▇▇▇▇▇-▇▇▇▇▇ Television
Notes to Financial Statements
NOTE A -- BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying financial statements present the financial position of
▇▇▇▇▇-▇▇▇▇▇ Television (the "Company"). The financial statements exclude all
assets, liabilities, revenues and expenses of ▇▇▇▇▇-▇▇▇▇▇ Communications, Inc.
and its subsidiaries other than assets, liabilities, revenues and expenses of
its television business.
The financial statements have been prepared as if the television business had
operated as an independent, stand alone entity for all periods presented.
Except as described below, such financial statements have been prepared using
the historical basis of accounting and include the assets, liabilities,
revenues, expenses and income taxes of ▇▇▇▇▇-▇▇▇▇▇' television business. These
financial statements do not include any liabilities or disclosure related to
the Company's employee benefit plans other than as disclosed in note C.
However, the cost of all employee benefit plans which relate to employees of
▇▇▇▇▇-▇▇▇▇▇ Television is included in these financial statements. Direct
expenses incurred by ▇▇▇▇▇-▇▇▇▇▇ Communications, Inc. on behalf of the Company
are identified and allocated to the Company based on the actual costs incurred.
Any remaining indirect expenses incurred by ▇▇▇▇▇-▇▇▇▇▇ Communications, Inc.
have not been allocated to the Company because they have been insignificant.
Management believes that this method of allocation is reasonable and that such
costs would not be materially different if they had been incurred with
unaffiliated third parties.
Certain prior year amounts have been reclassified for comparative purposes.
TELEVISION REVENUES
Television revenues are presented net of advertising agency commissions.
INVENTORY
Inventory, consisting primarily of film and television tubes, is stated at the
lower of cost (first-in, first-out method) or market.
1
(Continued)
105
▇▇▇▇▇-▇▇▇▇▇ Television
Notes to Financial Statements
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated on the basis of cost. Depreciation of
buildings and equipment is computed generally on the straight-line method at
rates calculated to amortize the cost of the assets over their useful lives.
The general ranges of estimated useful lives are:
Buildings and improvements 10 to 40 years
Equipment and furniture 4 to 20 years
GOODWILL
Goodwill is stated on the basis of cost, adjusted as discussed below, and is
amortized on a straight-line basis over 40-year periods.
The Company assesses the recoverability of its goodwill by determining whether
the amortization of the goodwill balance over its remaining life can be
recovered through projected undiscounted future cash flows over the remaining
amortization period. If projected undiscounted future cash flows indicate that
unamortized goodwill and the net book value of long-lived assets will not be
recovered, net goodwill is adjusted to an amount consistent with projected
discounted future cash flows. Cash flow projections are based on trends of
historical performance and management's estimate of future performance, giving
consideration to existing and anticipated competitive and economic conditions.
FILM CONTRACTS
Film contract rights represent agreements with film syndicators for television
program material. The capitalized costs of film rights and related liabilities
are recorded when the licensed period begins and the film rights are available
for use. The cost is amortized over the expected number of telecasts.
The portions of the cost to be amortized within one year and after one year
are reflected in the consolidated balance sheets as current and noncurrent
assets, respectively. The payments under these contracts due within one year
and after one year are classified as current and noncurrent liabilities.
INCOME TAXES
Income taxes are calculated using the asset and liability method required by
Statement of Financial Accounting Standards ("SFAS") No. 109. Deferred income
taxes are recognized for the tax consequences resulting from "temporary
differences" by applying enacted statutory tax rates applicable to future
years. These "temporary differences" are associated with differences between
the financial and the tax basis of existing assets and liabilities. Under SFAS
No. 109, a statutory change in tax rates will be recognized immediately in
deferred taxes and income.
2
(Continued)
106
▇▇▇▇▇-▇▇▇▇▇ Television
Notes to Financial Statements
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
NOTE B - INCOME TAXES
The components of income tax expense are as follows:
-------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
IN THOUSANDS 1996 1995 1994
-------------------------------------------------------------------------------
Current
Federal $3,607 $3,025 $ 3,580
State and local 356 299 384
------ ------ -------
Total current $3,963 $3,324 $ 3,964
====== ====== =======
Deferred
Federal $ 33 $ 37 $ (9)
State and local 4 5 (1)
------ ------ -------
Total deferred $ 37 $ 42 $ (10)
====== ====== =======
The differences between total income tax expense and the amount computed by
applying the statutory Federal income tax rate to income before income taxes
were as follows:
----------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
IN THOUSANDS 1996 1995 1994
----------------------------------------------------------------------------------------
Computed expected
income tax
expense $3,136 35% $2,540 35% $3,073 35%
Effect of goodwill
amortization 605 7% 605 8% 605 7%
Net effect of state
income taxes 234 3% 198 3% 249 3%
Other, net 25 -- 23 -- 27 --
-------------------------------------------------------------
Income tax expense
for the period $4,000 45% $3,366 46% $3,954 45%
=============================================================
3
(Continued)
107
▇▇▇▇▇-▇▇▇▇▇ Television
Notes to Financial Statements
The tax effects of temporary differences that gave rise to significant portions
of the deferred tax assets and deferred tax liabilities were as follows:
--------------------------------------------------------------------------
DECEMBER 31,
IN THOUSANDS 1996 1995
--------------------------------------------------------------------------
Deferred tax assets:
Accrued vacation pay $ 109 $ 99
Accrued stock option liability 167 157
Accounts receivable, net 23 16
------- -------
Total gross deferred tax assets 299 272
------- -------
Deferred tax liabilities:
Property, plant and equipment (1,805) (1,756)
State income tax (123) (120)
Other, net (36) (24)
------- -------
Total gross deferred tax liabilities (1,964) (1,900)
------- -------
Net deferred tax liability $(1,665) $(1,628)
======= =======
The net deferred tax liability is recorded both as a current deferred income
tax benefit and as other long term liabilities based upon the classification of
the related temporary difference. In assessing the reliability of deferred tax
assets, management considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of future
taxable income during the periods in which those temporary differences become
deductible. Management considers the scheduled reversal of deferred tax
liabilities, recoverable taxes paid, projected future taxable income and tax
planning strategies in making this assessment. Based on the level of historical
taxable income, the reversal of existing deferred tax liabilities and
projections for future taxable income over the periods which the deferred tax
assets are deductible at December 31, 1996, management believes it is more
likely than not the Company will realize the benefits of these deductible
differences.
4
(Continued)
108
▇▇▇▇▇-▇▇▇▇▇ Television
Notes to Financial Statements
NOTE C -- EMPLOYEE BENEFIT PLANS
▇▇▇▇▇-▇▇▇▇▇ Communications, Inc. maintains a defined benefit pension plan for
which most of ▇▇▇▇▇-▇▇▇▇▇ Television employees are eligible. Benefits are based
on years of service and the employee's compensation for the five highest
consecutive years of salary during the last ten years of service. Benefits vest
to the participants upon completion of five years of service or upon reaching
age 65, whichever is earlier. ▇▇▇▇▇-▇▇▇▇▇' policy is to accrue as expense an
amount computed by its actuary and to fund at least the minimum amount required
by ERISA.
In 1994, the ▇▇▇▇▇-▇▇▇▇▇ Communications, Inc. adopted a non-qualified,
supplemental pension plan covering certain ▇▇▇▇▇-▇▇▇▇▇ Television employees,
which provides for incremental pension payments so that total pension payments
equal amounts that would have been payable from the principal pension plan if
it were not for limitations imposed by income tax regulation.
In determining the 1996, 1995 and 1994 actuarial present value of benefit
obligations, discount rates of 73/4%, 71/4% and 8% were used, respectively. The
assumed annual rate of increase in future compensation levels was 4%, and the
expected long term rate of return on plan assets was 10%. Pension expense for
the years ended December 31, 1996, 1995 and 1994 was $183, $176 and $201,
respectively.
▇▇▇▇▇-▇▇▇▇▇ Communications, Inc. also sponsors a 401(k) plan which provides
employees of ▇▇▇▇▇-▇▇▇▇▇ Television with additional income upon retirement. The
Company matches a portion of employees' voluntary before-tax contributions.
Employees are fully vested in their own contributions and vest in the Company's
matching contributions upon three years of service. Contributions made during
the years ended December 31, 1996, 1995 and 1994 were $36, $40 and $42,
respectively.
The 1994 ▇▇▇▇▇-▇▇▇▇▇ Communications, Inc. Employee Stock Purchase Plan provides
for a total of 450,000 shares to be sold to participating employees at all
▇▇▇▇▇-▇▇▇▇▇ subsidiaries at 85% of the fair market value at specified quarterly
investment dates. At December 31, 1996, 1995 and 1994, ▇▇▇▇▇-▇▇▇▇▇ Television
had $21, $18 and $17, respectively recorded as a liability for amounts withheld
by the Company to be used for the purchase of ▇▇▇▇▇-▇▇▇▇▇ Communications, Inc.
shares in the subsequent January.
All costs related to the above described plans are recorded in the ▇▇▇▇▇-▇▇▇▇▇
Television financial statements to the extent that these costs relate to the
employees of ▇▇▇▇▇-▇▇▇▇▇ Television.
5
(Continued)
109
▇▇▇▇▇-▇▇▇▇▇ Television
Notes to Financial Statements
NOTE D -- EQUITY
A summary of changes in equity is as follows:
-----------------------------------
YEAR ENDED DECEMBER 31,
1996 1995 1994
-----------------------------------
Beginning balance $88,475 $84,584 $79,758
Net earnings 4,961 3,891 4,826
------- ------- -------
Ending balance $93,436 $88,475 $84,584
======= ======= =======
NOTE E -- STOCK OPTION PLANS
1984 PLAN
In 1984, ▇▇▇▇▇-▇▇▇▇▇ Communications, Inc. adopted a Stock Option Plan ("1984
Plan") pursuant to which it issued to officers and key employees options to
purchase shares of common stock at prices equal to the market price on the
grant date. Market price was determined by the Board of Directors for purposes
of granting stock options and making repurchase offers. Options granted under
the 1984 Plan become exercisable five years after date of grant. At December
31, 1996, 1995 and 1994, options held by employees of ▇▇▇▇▇-▇▇▇▇▇ Television to
purchase 37,500 shares, 37,500 shares and 52,500 shares, respectively, were
outstanding under the 1984 Plan, with exercise prices ranging from $3.33 to
$6.67 per share. No additional options will be granted under the 1984 Plan.
1991 PLAN
▇▇▇▇▇-▇▇▇▇▇ Communications, Inc. adopted the 1991 Stock Option Plan ("1991
Plan") pursuant to which it may issue to officers and key employees options to
purchase up to 3,000,000 shares of common stock. Options have been granted to
certain employees of the Company at prices equal to the market price on the
grant date ("market price options") and at prices below market price
("performance options"). As of December 31, 1996, 1995 and 1994, market price
options, held by employees of ▇▇▇▇▇-▇▇▇▇▇ Television, to purchase 175,000
shares, 159,750 shares and 132,750 shares, respectively, were outstanding with
exercise prices ranging from $6.67 to $20.50 per share. Market price options
become exercisable after the fifth anniversary of their date of grant.
6
(Continued)
110
▇▇▇▇▇-▇▇▇▇▇ Television
Notes to Financial Statements
At December 31, 1996, 1995 and 1994 performance options held by employees of
▇▇▇▇▇-▇▇▇▇▇ Television to purchase 49,200 shares, 52,200 shares and 45,450
shares, respectively, were outstanding with exercise prices ranging from $0.67
to $2.00 per share. The performance options become exercisable after the third
anniversary of their date of grant, and the extent to which they become
exercisable at that time depends upon the extent to which ▇▇▇▇▇-▇▇▇▇▇
Communications, Inc. achieves certain goals which are established at the time
the options are granted. That portion of the performance options which does not
become exercisable on the third anniversary of the date of grant becomes
exercisable after the ninth anniversary of the date of grant. Compensation
expense of $93, $163 and $131 was recognized by ▇▇▇▇▇-▇▇▇▇▇ Television for the
performance options held by employees of ▇▇▇▇▇-▇▇▇▇▇ Television for the years
ended December 31, 1996, 1995 and 1994, respectively.
The following summarizes stock option plans activity:
-------------------------------------------------------------
Number Weighted Average
of Shares Option Price
-------------------------------------------------------------
Options outstanding
at January 1, 1994 236,250 $ 5.24
Granted 23,700 9.91
Exercised (29,250) 4.49
-------
Options outstanding
at December 31, 1994 230,700 5.82
Granted 33,750 10.40
Exercised (15,000) 5.00
-------
Options outstanding
at December 31, 1995 249,450 6.49
Granted 22,500 18.03
Exercised (5,250) 0.67
Cancelled (5,000) 11.78
-------
OPTIONS OUTSTANDING AT
DECEMBER 31, 1996 261,700 7.50
-------
EXERCISABLE AT
DECEMBER 31, 1996 102,000 4.55
-------
7
(Continued)
111
▇▇▇▇▇-▇▇▇▇▇ Television
Notes to Financial Statements
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting For Stock-Based
Compensation." Accordingly, no compensation expense has been recognized for
options granted where the exercise price is equal to the market price of the
underlying stock at the date of grant. The Company does recognize compensation
expense for options whose market price of the underlying stock exceeds the
exercise price on the date of grant under the provisions of Accounting
Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to
Employees," as permitted under SFAS No. 123.
Had compensation expense for the Company's options been determined based on the
fair value at the grant date for awards in 1996 and 1995, the Company's net
income and earnings per share would have been reduced to the proforma amounts
indicated below.
-----------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
IN THOUSANDS, EXCEPT PER SHARE AMOUNTS 1996 1995
-----------------------------------------------------------------------------------
Net income - as reported $4,961 $3,891
Net income - proforma 4,925 3,877
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1996 and 1995:
--------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
1996 1995
--------------------------------------------------------------------------------------
Expected dividends yield 0.3% 0.3%
Expected stock price volatility 22.1% 21.3%
Risk-free interest rate 6.4% 6.4%
Expected life of options 3-10 years 3-10 years
The weighted-average fair value of market price options granted during 1996 and
1995 was $7.00 and $5.52, respectively. The weighted-average fair value and
exercise price of performance options was $14.35 and $1.11 in 1996, and $12.15
and $0.67 in 1995, respectively.
NOTE F -- FAIR VALUE OF FINANCIAL INSTRUMENTS
Because of their maturities and/or interest rates, the Company's financial
instruments have a fair value approximating their carrying value. These
instruments include accounts receivable, trade and film payables, and
miscellaneous notes receivable and payable.
8
(Continued)
112
▇▇▇▇▇-▇▇▇▇▇ Television
Notes to Financial Statements
NOTE G -- COMMITMENTS AND CONTINGENCIES
The Company has pending claims incurred in the normal course of business which,
in the opinion of management, and legal counsel, can be disposed of without
material effect on the accompanying financial statements.
NOTE H -- LEASES
The Company leases certain real estate and equipment under various operating
leases. Most of the leases contain renewal options for varying periods of time.
The total rent expense under all operating leases was $320, $307 and $302 for
the years ended December 31, 1996, 1995 and 1994, respectively.
The future minimum rental commitments for all non-cancelable operating leases
with terms in excess of one year as of December 31, 1996 are as follows:
In thousands
-------------------------------------------------------
1997 $ 140
1998 78
1999 26
2000 6
-------------------------------------------------------
Total $ 250
-------------------------------------------------------
9
(Continued)
113
EXHIBIT C TO MERGER AGREEMENT
▇▇▇▇▇ ▇▇▇▇▇ NEWSPAPERS
FINANCIAL STATEMENTS
114
[KPMG LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
▇▇▇▇▇-▇▇▇▇▇ Communications, Inc.:
We have audited the accompanying balance sheets of ▇▇▇▇▇-▇▇▇▇▇ Newspapers as of
December 31, 1996 and 1995, and the related statements of operations and cash
flows for each of the years in the three-year period ended December 31, 1996.
These financial statements are the responsibility of ▇▇▇▇▇-▇▇▇▇▇
Communications, Inc.'s management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of
the financial statements. We believe that our audits provide a reasonable basis
for our opinion.
The accompanying financial statements were prepared on the basis of
presentation described in note A, and include the assets, liabilities, revenues
and expenses of ▇▇▇▇▇-▇▇▇▇▇ Newspapers.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of ▇▇▇▇▇-▇▇▇▇▇ Newspapers as of
December 31, 1996 and 1995, and the results of their operations and their cash
flows for each of the years in the three-year period ended December 31, 1996,
pursuant to the basis of presentation described in note A, in conformity with
generally accepted accounting principles.
San Antonio, Texas
April 14, 1997 /s/ KPMG Peat Marwick LLP
115
▇▇▇▇▇-▇▇▇▇▇ NEWSPAPERS
BALANCE SHEETS
---------------------------------------------------------------------------------------------
DECEMBER 31,
IN THOUSANDS 1996 1995
---------------------------------------------------------------------------------------------
ASSETS
Current assets
Cash $ 2,498 $ 1,257
Accounts receivable (less allowance for doubtful
accounts of $808 in 1996 and $776 in 1995) 14,903 13,679
Inventory 4,679 8,698
Prepaid expense 852 628
Other current assets 1,391 1,402
------- -------
Total current assets 24,323 25,664
------- -------
Property, plant and equipment
Land 4,381 4,381
Buildings and improvements 18,640 18,341
Equipment and furniture 51,496 52,124
------- -------
74,517 74,846
Less accumulated depreciation 41,664 40,728
------- -------
32,853 34,118
Construction and equipment installations in progress 170 243
------- -------
Net property, plant and equipment 33,023 34,361
------- -------
Intangible and other assets
Goodwill (less accumulated amortization
of $58,746 in 1996 and $54,109 in 1995) 128,661 133,298
Receivable from ▇▇▇▇▇-▇▇▇▇▇ Communications, Inc. 122,980 99,204
Other assets 79 56
------- -------
Total intangible and other assets 251,720 232,558
------- -------
Total assets $309,066 $292,583
======= =======
LIABILITIES AND EQUITY
Accounts payable $ 2,532 $ 2,861
Accrued payroll and related expenses 3,590 3,456
Customer deposits 3,567 3,667
Other current liabilities 1,874 1,760
------- -------
Total current liabilities 11,563 11,744
------- -------
Deferred income tax liability 5,546 5,315
Other long term liabilities 1,083 931
------- -------
Total liabilities 18,192 17,990
------- -------
Equity 290,874 274,593
------- -------
Total liabilities and equity $309,066 $292,583
======== =========
See Notes to Financial Statements
116
▇▇▇▇▇-▇▇▇▇▇ NEWSPAPERS
STATEMENTS OF OPERATIONS
---------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
IN THOUSANDS 1996 1995 1994
---------------------------------------------------------------------------------------------
Revenues $124,313 $117,744 $110,949
-------- -------- --------
Operating expenses
Payroll 41,023 40,547 40,800
Production and distribution 32,170 29,091 24,852
Advertising, selling, general
and administrative 13,302 12,684 12,520
Depreciation 3,927 3,735 3,438
Goodwill amortization 4,637 4,637 4,637
-------- -------- --------
95,059 90,694 86,247
-------- -------- --------
Operating income 29,254 27,050 24,702
Other expenses (income) (32) 116 192
-------- -------- --------
Income before income taxes 29,286 26,934 24,510
Income tax expense 13,005 12,091 11,160
-------- -------- --------
Net income $ 16,281 $ 14,843 $ 13,350
======== ======== ========
See Notes to Financial Statements
117
▇▇▇▇▇-▇▇▇▇▇ NEWSPAPERS
STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
IN THOUSANDS 1996 1995 1994
--------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities
Net income $ 16,281 $ 14,843 $ 13,350
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 3,927 3,735 3,438
Goodwill amortization 4,637 4,637 4,637
Amortization of option related
compensation 217 274 315
Deferred income taxes 211 346 (201)
Other, net (55) 116 192
Changes in operating assets and liabilities:
Increase in accounts receivable, net (1,224) (473) (1,177)
Decrease (increase) in inventory 4,019 (2,908) (3,155)
Decrease (increase) in prepaid expenses
and other current assets (173) (149) 222
Increase (decrease) in accounts payable (330) (44) 446
Increase in other accrued expenses and
other liabilities 128 643 589
Other, net (65) (341) (158)
-------- ------- --------
Net cash provided by operating activities 27,573 20,679 18,498
-------- ------- --------
Cash Flows from Investing Activities
Purchases of property, plant and
equipment (2,826) (3,544) (4,258)
Proceeds from the sale of property,
plant and equipment 270 187 193
-------- ------- --------
Net cash (used in) investing activities (2,556) (3,357) (4,065)
-------- ------- --------
Cash Flows from Financing Activities
Distributions to ▇▇▇▇▇-▇▇▇▇▇
Communications, Inc., including
payments for income taxes (23,776) (17,007) (14,308)
-------- -------- --------
Net increase in cash 1,241 315 125
Cash at beginning of period 1,257 942 817
-------- -------- --------
Cash at end of period $ 2,498 $ 1,257 $ 942
======== ======== ========
See Notes to Financial Statements
118
▇▇▇▇▇-▇▇▇▇▇ Newspapers
Notes to Financial Statements
NOTE A -- BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying financial statements present the
financial position of ▇▇▇▇▇-▇▇▇▇▇ Newspapers (the "Company"). The financial
statements exclude all assets, liabilities, revenues and expenses of
▇▇▇▇▇-▇▇▇▇▇ Communications, Inc. and its subsidiaries other than assets,
liabilities, revenues and expenses of its newspapers business.
The financial statements have been prepared as if the newspapers business had
operated as an independent, stand alone entity for all periods presented.
Except as described below, such financial statements have been prepared using
the historical basis of accounting and include the assets, liabilities,
revenues, expenses and income taxes of ▇▇▇▇▇-▇▇▇▇▇' newspapers business.
In March 1995, ▇▇▇▇▇-▇▇▇▇▇ Communications, Inc. sold its suburban Boston
community newspapers. As these newspapers ceased to be a part of ▇▇▇▇▇-▇▇▇▇▇
Newspapers in 1995, their assets, liabilities, revenues and expenses have been
excluded from these financial statements. In addition, all related gain on
divestiture as well as tax assets/liabilities which resulted from this
transaction, have been excluded from these financial statements for all years
presented.
These financial statements do not include any liabilities or disclosure related
to the Company's employee benefit plans other than as disclosed in note C.
However, the cost of all employee benefit plans which relate to employees of
▇▇▇▇▇-▇▇▇▇▇ Newspapers is included in these financial statements. Intercompany
balances and transactions have been eliminated. Direct expenses incurred by
▇▇▇▇▇-▇▇▇▇▇ Communications, Inc. on behalf of the Company are identified and
allocated to the Company based on the actual costs incurred. Any remaining
indirect expenses incurred by ▇▇▇▇▇-▇▇▇▇▇ Communications, Inc. have not been
allocated to the Company because they have been insignificant. Management
believes that this method of allocation is reasonable and that such costs would
not be materially different if they had been incurred with unaffiliated third
parties.
Certain prior year amounts have been reclassified for comparative purposes.
INVENTORY
Inventory, consisting primarily of newsprint and other operating
supplies, is stated at the lower of cost (first-in, first-out method) or
market.
1
(Continued)
119
▇▇▇▇▇-▇▇▇▇▇ Newspapers
Notes to Financial Statements
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated on the
basis of cost. Depreciation of buildings and equipment is computed generally on
the straight-line method at rates calculated to amortize the cost of the assets
over their useful lives. The general ranges of estimated useful lives are:
Buildings and improvements 10 to 40 years
Equipment and furniture 4 to 20 years
GOODWILL
Goodwill is stated on the basis of cost, adjusted as discussed below,
and is amortized on a straight-line basis over 40- year periods.
For each of its investments, the Company assesses the recoverability of its
goodwill by determining whether the amortization of the goodwill balance over
its remaining life can be recovered through projected undiscounted future cash
flows over the remaining amortization period. If projected undiscounted future
cash flows indicate that unamortized goodwill and the net book value of
long-lived assets will not be recovered, net goodwill is adjusted to an amount
consistent with projected discounted future cash flows. Cash flow projections
are based on trends of historical performance and management's estimate of
future performance, giving consideration to existing and anticipated
competitive and economic conditions.
INCOME TAXES
Income taxes are calculated using the asset and liability method
required by Statement of Financial Accounting Standards ("SFAS") No. 109.
Deferred income taxes are recognized for the tax consequences resulting from
"temporary differences" by applying enacted statutory tax rates applicable to
future years. These "temporary differences" are associated with differences
between the financial and the tax basis of existing assets and liabilities.
Under SFAS No. 109, a statutory change in tax rates will be recognized
immediately in deferred taxes and income.
USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
2
(Continued)
120
▇▇▇▇▇-▇▇▇▇▇ Newspapers
Notes to Financial Statements
NOTE B - INCOME TAXES
The components of income tax expense are as follows:
-----------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
IN THOUSANDS 1996 1995 1994
-----------------------------------------------------------------------------------
Current
Federal $11,254 $10,324 $10,003
State and local 1,540 1,421 1,357
------- ------- -------
Total current $12,794 $11,745 $11,360
======= ======= =======
Deferred
Federal $ 188 $ 307 $ (178)
State and local 23 39 (22)
------- ------- -------
Total deferred $ 211 $ 346 $ (200)
======== ======= =======
The differences between total income tax expense and the amount computed by
applying the statutory Federal income tax rate to income before income taxes
were as follows:
-------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
IN THOUSANDS 1996 1995 1994
-------------------------------------------------------------------------------------------------------------
Computed expected income tax
expense $10,251 35% $9,427 35% $8,579 35%
Effect of goodwill amortization 1,622 6% 1,6226 6% 1,622 7%
Net effect of state income taxes 1,016 3% 949 4% 867 4%
Other, net 116 - 93 - 92 -
---------------------------------------------------------------
Income tax expense for the period $13,005 44% $12,091 45% $11,160 46%
===============================================================
(Continued)
3
121
▇▇▇▇▇-▇▇▇▇▇ Newspapers
Notes to Financial Statements
The tax effects of temporary differences that gave rise to significant portions
of the deferred tax assets and deferred tax liabilities were as follows:
--------------------------------------------------------------------------
DECEMBER 31,
IN THOUSANDS 1996 1995
--------------------------------------------------------------------------
Deferred tax assets:
Accrued vacation pay $ 472 $ 503
Accrued stock option liability 371 326
Accounts receivable, net 283 272
Other, net 18 9
------- -------
Total gross deferred tax assets 1,144 1,110
------- -------
Deferred tax liabilities:
State income tax (352) (337)
Property, plant and equipment (5,546) (5,315)
------- -------
Total gross deferred tax liabilities (5,898) (5,652)
------- -------
Net deferred tax liability $(4,754) $(4,542)
======= =======
The net deferred tax liability is recorded both as a current deferred income
tax benefit and as other long term liabilities based upon the classification of
the related temporary difference. In assessing the reliability of deferred tax
assets, management considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of future
taxable income during the periods in which those temporary differences become
deductible. Management considers the scheduled reversal of deferred tax
liabilities, recoverable taxes paid, projected future taxable income and tax
planning strategies in making this assessment. Based on the level of historical
taxable income, the reversal of existing deferred tax liabilities and
projections for future taxable income over the periods which the deferred tax
assets are deductible at December 31, 1996, management believes it is more
likely than not the Company will realize the benefits of these deductible
differences.
NOTE C -- EMPLOYEE BENEFIT PLANS
▇▇▇▇▇-▇▇▇▇▇ Communications, Inc. maintains a defined benefit pension plan for
which most of ▇▇▇▇▇-▇▇▇▇▇ Newspapers employees are eligible. Benefits are based
on years of service and the employee's compensation for the five highest
consecutive years of salary during the last ten years of service. Benefits
vest to the participants upon completion of five years of service or upon
reaching age 65, whichever is earlier. ▇▇▇▇▇-▇▇▇▇▇' policy is
(Continued)
4
122
▇▇▇▇▇-▇▇▇▇▇ Newspapers
Notes to Financial Statements
to accrue as expense an amount computed by its actuary and to fund at least the
minimum amount required by ERISA.
In 1994, the ▇▇▇▇▇-▇▇▇▇▇ Communications, Inc. adopted a non-qualified,
supplemental pension plan covering certain ▇▇▇▇▇- ▇▇▇▇▇ Newspapers employees,
which provides for incremental pension payments so that total pension payments
equal amounts that would have been payable from the principal pension plan if
it were not for limitations imposed by income tax regulation.
In determining the 1996, 1995 and 1994 actuarial present value of benefit
obligations, discount rates of 73/4%, 71/4% and 8% were used, respectively.
The assumed annual rate of increase in future compensation levels was 4%, and
the expected long term rate of return on plan assets was 10%. Pension expense
for the years ended December 31, 1996, 1995 and 1994 was $828, $823 and $789,
respectively.
▇▇▇▇▇-▇▇▇▇▇ Communications, Inc. also sponsors a 401(k) plan which provides
employees of ▇▇▇▇▇-▇▇▇▇▇ Newspapers with additional income upon retirement.
The Company matches a portion of employees' voluntary before-tax contributions.
Employees are fully vested in their own contributions and vest in the Company's
matching contributions upon three years of service. Contributions made during
the years ended December 31, 1996, 1995 and 1994 were $199, $205 and $167,
respectively.
The 1994 ▇▇▇▇▇-▇▇▇▇▇ Communications, Inc. Employee Stock Purchase Plan provides
for a total of 450,000 shares to be sold to participating employees at all
▇▇▇▇▇-▇▇▇▇▇ subsidiaries at 85% of the fair market value at specified quarterly
investment dates. At December 31, 1996, 1995 and 1994, ▇▇▇▇▇-▇▇▇▇▇ Newspapers
had $71, $71 and $69, respectively recorded as a liability for amounts withheld
by the Company to be used for the purchase of ▇▇▇▇▇-▇▇▇▇▇ Communications, Inc.
shares in the subsequent January.
All costs related to the above described plans are recorded in the ▇▇▇▇▇-▇▇▇▇▇
Newspapers financial statements to the extent that these costs relate to the
employees of ▇▇▇▇▇-▇▇▇▇▇ Newspapers.
(Continued)
5
123
▇▇▇▇▇-▇▇▇▇▇ Newspapers
Notes to Financial Statements
NOTE D -- EQUITY
A summary of changes in equity is as follows:
-------------------------------------------
YEARS ENDED DECEMBER 31,
1996 1995 1994
-------------------------------------------
Beginning balance $274,593 $259,750 $246,400
Net earnings. 16,281 14,843 13,350
-------- -------- --------
Ending balance $290,874 $274,593 $259,750
======== ======== ========
NOTE E -- STOCK OPTION PLANS
1984 PLAN
In 1984, ▇▇▇▇▇-▇▇▇▇▇ Communications, Inc. adopted a Stock Option Plan
("1984 Plan") pursuant to which it issued to officers and key employees options
to purchase shares of common stock at prices equal to the market price on the
grant date. Market price was determined by the Board of Directors for purposes
of granting stock options and making repurchase offers. Options granted under
the 1984 Plan become exercisable five years after date of grant. At December
31, 1996, 1995 and 1994, options held by employees of ▇▇▇▇▇-▇▇▇▇▇ Newspapers to
purchase 96,800 shares, 107,400 shares and 149,400 shares, respectively, were
outstanding under the 1984 Plan, with exercise prices ranging from $3.33 to
$6.67 per share. No additional options will be granted under the 1984 Plan.
1991 PLAN
▇▇▇▇▇-▇▇▇▇▇ Communications, Inc. adopted the 1991 Stock Option Plan
("1991 Plan") pursuant to which it may issue to officers and key employees
options to purchase up to 3,000,000 shares of common stock. Options have been
granted to certain employees of the Company at prices equal to the market price
on the grant date ("market price options") and at prices below market price
("performance options"). As of December 31, 1996, 1995 and 1994, market price
options held by employees of ▇▇▇▇▇-▇▇▇▇▇ Newspapers to purchase 302,075 shares,
258,675 shares and 235,200 shares, respectively, were outstanding with exercise
prices ranging from $6.67 to $25.38 per share. Market price options become
exercisable after the fifth anniversary of their date of grant.
At December 31, 1996, 1995 and 1994 performance options to purchase 110,300
shares, 107,100 shares and 116,850 shares, respectively, were outstanding with
exercise prices ranging from $0.67 to $2.00 per share. The performance options
become exercisable after the third anniversary of their date of grant, and the
extent to which they become exercisable at that time depends upon the extent to
which ▇▇▇▇▇-▇▇▇▇▇ Communications, Inc. achieves certain goals which are
established at the time the options are granted. That portion of the
performance options which does not become exercisable on the third
(Continued)
6
124
anniversary of the date of grant becomes exercisable after the ninth
anniversary of the date of grant. Compensation expense of $217, $274 and $315
was recognized by ▇▇▇▇▇-▇▇▇▇▇ Newspapers for the performance options held by
employees of ▇▇▇▇▇-▇▇▇▇▇ Newspapers for the years ended December 31, 1996, 1995
and 1994, respectively.
The following summarizes stock option plans activity:
--------------------------------------------------------------------------------------
Number Weighted Average
of Shares OptionsPrice
--------------------------------------------------------------------------------------
Options outstanding
at January 1, 1994 507,000 $ 4 .95
Granted 34,950 7 .92
Exercised (40,500) 3 .04
--------
Options outstanding
at December 31, 1994 501,450 5 .30
Granted 59,100 10.34
Exercised (60,750) 4 .28
Cancelled (26,625) 7 .47
-------
Options outstanding
at December 31, 1995 473,175 5 .94
Granted 67,450 18.40
Exercised (18,100) 4 .19
Cancelled (13,350) 11.93
-------
OPTIONS OUTSTANDING AT
DECEMBER 31, 1996 509,175 7 .51
=======
EXERCISABLE AT
DECEMBER 31, 1996 207,050 4 .18
=======
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." Accordingly, no compensation expense has been recognized for
options granted where the exercise price is equal to the market price of the
underlying stock at the date of grant. The Company does recognize compensation
expense for options whose market price of the underlying stock exceeds the
exercise price on the date of grant under the provisions of Accounting
Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to
Employees," as permitted under SFAS No. 123.
7
125
▇▇▇▇▇-▇▇▇▇▇ Newspapers
Notes to Financial Statements
Had compensation expense for the Company's options been determined based on the
fair value at the grant date for awards in 1996 and 1995, the Company's net
income would have been reduced to the proforma amounts indicated below.
-----------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
IN THOUSANDS, EXCEPT PER SHARE AMOUNTS 1996 1995
-----------------------------------------------------------------------------------
Net income - as reported $ 16,281 $ 14,843
Net income - proforma 16,190 14,816
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1996 and 1995:
-----------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
1996 1995
-----------------------------------------------------------------------------------------
Expected dividends yield 0.3% 0.3%
Expected stock price volatility 22.1% 21.3%
Risk-free interest rate 6.4% 6.4%
Expected life of options 3-10 years 3-10 years
The weighted-average fair value of market price options granted during 1996 and
1995 was $7.64 and $5.52, respectively. The weighted-average fair value and
exercise price of performance options was $15.01 and $1.25 in 1996, and $12.15
and $0.67 in 1995, respectively.
NOTE F -- FAIR VALUE OF FINANCIAL INSTRUMENTS
Because of their maturities and/or interest rates, the Company's financial
instruments have a fair value approximating their carrying value. These
instruments include accounts receivable, trade payables, and miscellaneous notes
receivable and payable.
NOTE G -- COMMITMENTS AND CONTINGENCIES
The Company has pending claims incurred in the normal course of business which,
in the opinion of management, and legal counsel, can be disposed of without
material effect on the accompanying financial statements.
NOTE H -- LEASES
The Company leases certain real estate and equipment under various operating
leases. Most of the leases contain renewal options for varying periods of time.
The total rent
(Continued)
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▇▇▇▇▇-▇▇▇▇▇ Newspapers
Notes to Financial Statements
expense under all operating leases was $1,054, $994 and $806 for the years
ended December 31, 1996, 1995 and 1994, respectively.
The future minimum rental commitments for all non-cancellable operating leases
with terms in excess of one year as of December 31, 1996 are as follows:
IN THOUSANDS
---------------------------------------
1997 $ 812
1998 726
1999 556
2000 409
2001 244
After 2001 207
--------------------------------------
TOTAL $ 2,954
--------------------------------------
(Continued)
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EXHIBIT D TO THE MERGER AGREEMENT
NONCOMPETITION AGREEMENT
This Noncompetition Agreement (this "Agreement"), dated as of
________________, 1997, is made by and among The ▇.▇. ▇▇▇▇▇▇▇ Company, an Ohio
corporation (the "Parent"), E.W.S. Acquisition Corp., a Delaware corporation
and wholly owned subsidiary of the Parent (the "Sub"), ▇▇▇▇▇-▇▇▇▇▇
Communications, Inc., a Delaware corporation (the "Company") and [NEWCO], a
Delaware corporation and a wholly owned subsidiary of the Company ("Newco").
RECITALS
WHEREAS, the Parent, Sub and Company are parties to that certain
Agreement and Plan of Merger and Reorganization dated as of May ___, 1997 (the
"Merger Agreement") which, among other things, provides for the Merger of Sub
with and into the Company, with the Company as the surviving corporation (the
"Surviving Corporation");
WHEREAS, immediately prior to the Merger, pursuant to the terms of the
Agreement and Plan of Distribution (this and other capitalized terms used and
not defined herein shall have the meanings given to such terms in the Merger
Agreement), the Company will distribute certain businesses and operations to
Newco which Parent is unwilling to acquire (the "Distribution"); and
WHEREAS, the Distribution is one step in a series of transactions as a
result of which (i) Parent will acquire the television and radio broadcasting
and non-shopper newspaper publishing businesses of the Company and its
Television and Newspaper Subsidiaries (the "TV/Newspaper Business") by merging
the Sub with and into the Company, and (ii) Newco will acquire and conduct all
other businesses previously conducted by the Company and its Subsidiaries.
NOW, THEREFORE, in consideration of the foregoing and the agreements
set forth below, the receipt, adequacy and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
NONCOMPETITION COVENANTS
1.1 Noncompetition Covenants. Newco acknowledges that (i) it, on
its own and through the Company and its Subsidiaries and their respective
officers, employees and other representatives, has specialized knowledge and
experience in the operation of television and radio broadcasting stations and
non-shopper newspaper publishing businesses (the "Restricted Business"), (ii)
its reputation and contacts within the Restricted Business and those of the
Company and its Subsidiaries are considered of great value to Parent and the
Company, and (iii) if such knowledge, experience, reputation or contacts were
used to compete with Parent and the
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Surviving Corporation, serious harm to Parent and the Surviving Corporation
could result. Thus, Newco agrees that, for a period of five (5) years after
the Closing Date, neither it nor any of its Subsidiaries shall, directly or
indirectly, on its own behalf or in the service or on behalf of others:
(1) actively solicit for employment (including as an independent
contractor but excluding general solicitations of employment), interfere with
or endeavor to entice away any person who at any time on or after May ___,
1997, was an officer or employee of the Company or any of its Subsidiaries
engaged on behalf of the Company in the TV/Newspaper Business and whom the
Parent or the Surviving Corporation employs effective upon the Closing;
(2) own, manage, operate, finance, join, control, participate or
assist in the ownership, management, operation, financing or control of, or be
connected as a stockholder, partner, principal, agent, representative,
consultant or otherwise with, any business or enterprise engaged in the
Restricted Business in the Restricted Area (a "Restricted Party"); or
(3) use or permit the Company's or Newco's name to be used in
connection with any business or enterprise engaged in the Restricted Business
in the Restricted Area; provided, however, that the provisions of this Section
1.1 shall not be construed to prohibit (i) the ownership by Newco or any
Subsidiary of Newco, as a passive investor, of not more than 5% of any class of
securities registered pursuant to the Exchange Act of any corporation which is
engaged in the Restricted Business, or passive investments in partnerships or
joint ventures representing not more than 5% of any class of any equity
interests therein or (ii) Newco or its Subsidiaries from having a Restricted
Party as an investor in any business, other than a Restricted Business, in
which Newco or its Subsidiaries own an interest. For purposes hereof, the term
"Restricted Area" means the geographic areas served by the TV/Newspaper
Business at the date hereof.
1.2 Reasonableness of Covenants, etc. In the event that the
provisions of Section 1.1 should ever be adjudicated to exceed the time,
geographic or service limitations permitted by applicable law in any
jurisdiction, then such provisions shall be deemed reformed in such
jurisdiction to the maximum time, geographic or service limitations permitted
by applicable law. Newco agrees that its covenants set forth in Section 1.1
(the "Noncompetition Covenants") are appropriate and reasonable when considered
in light of the nature and extent of the Restricted Business and the
transactions contemplated in connection with the Merger Agreement, including,
without limitation, the distribution of certain businesses and operations to
Newco by the Company pursuant to the Agreement and Plan of Distribution.
Without limiting the generality of the foregoing, Newco specifically agrees
that prohibitions on the active solicitation, interference or enticement of
officers, directors, employees or agents of the Parent or any of its
Subsidiaries, as set forth in Section 1.1, are appropriate and reasonable in
all respects. Newco agrees that the Noncompetition Covenants are of the
essence of this Agreement and the Merger Agreement, that each such
Noncompetition Covenant is reasonable and necessary to protect and preserve the
interests and properties of the Parent and its Subsidiaries and the Restricted
Business of the Parent and its Subsidiaries; that irreparable loss and damage
will be suffered by the Parent should Newco or any of its Subsidiaries breach
any such Noncompetition Covenant; that each of such covenants is separate,
distinct and severable not only from the other of such covenants but also from
the other and remaining provisions of this Agreement and the Merger Agreement;
that the
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unenforceability of all or any of the Noncompetition Covenants shall not affect
the validity or enforceability of any other such covenants; that, in addition
to other remedies available to it, the Parent shall be entitled to both
temporary and permanent injunctions to prevent a breach or contemplated breach
by Newco of any of the Noncompetition Covenants, and that Newco hereby waives
any requirements for the posting of a bond or any other security by the Parent
in connection therewith.
1.3 Specific Performance; Other Remedies. Newco recognizes that
the Noncompetition Covenants are unique and, accordingly, the Parent shall, in
addition to such other remedies as may be available to it at law or in equity,
have the right to enforce its rights under Section 1.1 by actions for
injunctive relief and specific performance to the extent permitted by law.
ARTICLE 2
MISCELLANEOUS
2.1 Entire Agreement. This Agreement constitutes the entire
agreement among the parties with respect to the specific subject matter thereof
and supersedes all prior written and oral and all contemporaneous oral
agreements and understandings with respect to the specific subject matter
hereof.
2.2 Governing Law. This Agreement shall governed by and construed
in accordance with the laws of the State of Ohio regardless of conflict of law
principles.
2.3 Descriptive Headings. The descriptive headings herein are
inserted for convenience of reference only and are not intended to be part of
or to affect the meaning or interpretation of this Agreement.
2.4 Notices. All notices and other communications hereunder shall
be in writing and shall be deemed to have been duly given when delivered in
person, by telecopy with answerback, by express or overnight mail delivery by a
nationally recognized air courier (delivery charges prepaid) or by registered
or certified mail (postage prepaid, return receipt requested) to the respective
parties as follows:
if to the Parent or the Company:
The ▇.▇. ▇▇▇▇▇▇▇ Company
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
Attention: M. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, Secretary
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130
with a copy to:
▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇ LLP
3200 National City Center
▇▇▇▇ ▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Esq.
if to Newco:
c/o [Newco]
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
with a copy to:
▇▇▇▇▇▇ & ▇▇▇▇, L.L.P.
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
or to such other address as the party to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
Any notice or communication delivered in person shall be deemed effective on
delivery. Any notice or communication sent by telecopy or by air courier shall
be deemed effective on the first business day at the place at which such notice
or communication is received following the day on which such notice or
communication was sent. Any notice or communication sent by registered or
certified mail shall be deemed effective on the fifth business day at the place
from which such notice or communication was mailed following the day in which
such notice or communication was mailed.
2.5 Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to confer upon any other person any
rights or remedies of any nature whatsoever under or by reason of this
Agreement except for Section 2.7 and 2.8 (which are intended to be for the
benefit of the Persons provided for therein, and may be enforced by such
Persons).
2.6 Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original, but all of which shall
constitute one and the same agreement.
2.7 Personal Liability. This Agreement shall not create or be
deemed to create or permit any personal liability or obligation on the part of
any direct or indirect stockholder of any party hereto or any officer,
director, employee, agent, representative or investor of any party hereto.
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131
2.8 Binding Effect; Assignment. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective legal
representatives and successors, including the Company as the surviving
corporation in the Merger. This Agreement may not be assigned by any party
hereto.
2.9 Amendment. This Agreement may not be amended except by an
instrument in writing signed on behalf of all the parties.
2.10 Legal Fees; Costs. If any party hereto institutes any action
or proceeding to enforce any provision of this Agreement, the prevailing party
therein shall be entitled to receive from the losing party reasonable
attorneys' fees and costs incurred in such action or proceeding, whether or not
such action or proceeding is prosecuted to judgment.
2.11 Failure or Indulgence Not Waiver; Remedies Cumulative. No
failure or delay on the part of any party hereto in the exercise of any right
hereunder shall impair such right or be construed to be a waiver of, or
acquiescence in, any breach of any representation, warranty or agreement
herein, nor shall any single or partial exercise of any such right preclude
other or further exercise thereof or of any other right. All rights and
remedies existing under this Agreement are cumulative to, and not exclusive of,
any rights or remedies otherwise available.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to
be executed on its behalf by its officers thereunto duly authorized on the day
and year first above written.
THE ▇. ▇. ▇▇▇▇▇▇▇ COMPANY
By:
------------------------------------
Name:
Title:
E.W.S. ACQUISITION CORP.
By:
------------------------------------
Name:
Title:
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▇▇▇▇▇-▇▇▇▇▇ COMMUNICATIONS, INC.
By:
------------------------------------
Name:
Title:
[NEWCO]
By:
------------------------------------
Name:
Title:
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EXHIBIT E
VOTING AGREEMENT
This Voting Agreement dated as of May __, 1997 (this "Agreement"), is
by and among The ▇. ▇. ▇▇▇▇▇▇▇ Company, an Ohio corporation ("Buyer"),
▇▇▇▇▇-▇▇▇▇▇ Communications, Inc., a Delaware corporation (the "Company"), The
▇▇▇▇▇▇ ▇. Scripps Trust (the "Trust") and Houston ▇. ▇▇▇▇▇, the ▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇ Revocable Trust, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ (collectively the
"Company Major Stockholders").
WHEREAS, the Trust owns 16,040,000 shares of the Buyer's Common Voting
Stock, $.01 par value per share ("Buyer Common Voting Stock"), and 32,610,000
shares of the Buyer's Class A Common Stock, $.01 par value per share ("Buyer
Class A Common Stock") (all shares of Buyer Common Voting Stock and Buyer Class
A Common Stock now owned and which may hereafter be acquired by the Trust prior
to the termination of this Agreement shall be referred to herein as the "Buyer
Shares");
WHEREAS, the Company Major Stockholders own in the aggregate
approximately 13,551,900 shares or approximately 36.4% of the Company's Common
Stock, $1.00 par value (all shares of such Stock now owned and which may
hereafter be acquired by the Company Major Stockholders prior to the
termination of this Agreement shall be referred to herein as the "Company
Shares");
WHEREAS, the Company and Buyer are entering into an Agreement and Plan
of Merger, dated as of the date hereof (the "Merger Agreement"), which
provides, among other things, that the Company will merge with and into Buyer
pursuant to the Merger (this and other capitalized terms used and not defined
herein shall have the meanings given to such terms in the Merger Agreement);
WHEREAS, it was a condition to the willingness of the Buyer to enter
into the Merger Agreement that the Company Major Stockholders agree, and in
order to induce the Company to enter into the Merger Agreement, the Company
Major Stockholders agreed, to enter into this Agreement;
WHEREAS, it was a condition to the willingness of the Company to enter
into the Merger Agreement that the Trust agree, and in order to induce the
Company to enter into the Merger Agreement, the Trust agreed to enter into this
Agreement; and
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements contained herein, and intending to be legally bound
hereby, the parties hereto hereby agree as follows:
1
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ARTICLE 1
VOTING OF BUYER SHARES AND COMPANY SHARES
SECTION 1.1. VOTING AGREEMENT. (a) Each Company Major Stockholder
hereby agrees that during the time this Agreement is in effect, at any meeting
of the stockholders of the Company, however called, and in any action by
consent of the stockholders of the Company, such Company Major Stockholder
shall vote his or its Company Shares: (i) in favor of the Merger, the Merger
Agreement (as amended from time to time) and the Distribution, (ii) against any
proposal for any recapitalization, merger, sale of assets or other business
combinations between the Company and any person or entity other than Buyer, or
any other action or agreement, that would result in a breach of any covenant,
representation or warranty or any other obligation or agreement of the Company
under the Merger Agreement or that would result in any of the conditions to the
obligations of the Company under the Merger Agreement not being fulfilled, and
(iii) in favor of any other matter relating to the consummation of the Merger
Agreement and the Distribution. The Company Major Stockholders acknowledge
receipt and review of a copy of the Merger Agreement.
(b) The Trust hereby agrees that during the time this Agreement is in
effect, at any meeting of the stockholders of Buyer, however called, and in any
action by consent of the stockholders of Buyer, the Trust shall vote its Buyer
Shares (i) in favor of the Merger and the Merger Agreement (as amended from
time to time), (ii) against any action or agreement that would result in a
breach of any covenant, representation or warranty or any other obligation or
agreement of Buyer under the Merger Agreement or that would result in any of
the conditions to the obligations of Buyer under the Merger Agreement not being
fulfilled and (iii) in favor of any other matter relating to the consummation
of the Merger. The Trust acknowledges receipt and review of a copy of the
Merger Agreement.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY MAJOR STOCKHOLDERS
The Company Major Stockholders each hereby represent and warrant to
the Buyer as follows:
SECTION 2.1. AUTHORITY RELATIVE TO THIS AGREEMENT. Such Company Major
Stockholder has all necessary power and authority to execute and deliver this
Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by such Company Major Stockholder and, assuming the due
authorization, execution and delivery hereof by each other party hereto,
constitutes a legal, valid and binding obligation of such Company Major
Stockholder enforceable against such Company Major Stockholder in accordance
with its terms, except (x) as the same may be limited by applicable bankruptcy,
insolvency, moratorium or similar laws of general application relating to or
affecting creditors' rights, including without
2
135
limitation, the effect of statutory or other laws regarding fraudulent
conveyance and preferential transfers, and (y) for the limitations imposed by
general principles of equity. The Company Major Stockholder which is a trust
(the "▇▇▇▇▇▇▇ Trust") has provided Buyer evidence of its authority to enter
into this Agreement.
SECTION 2.2. NO CONFLICT.
(a) The execution and delivery of this Agreement by such Company Major
Stockholder do not, and the performance of this Agreement by such Company Major
Stockholder shall not, (i) in the case of the ▇▇▇▇▇▇▇ Trust, conflict with or
violate any trust agreement governing it, (ii) conflict with or violate any
law, rule, regulation, order, judgment or decree applicable to such Company
Major Stockholder or by which the Company Shares owned by it are bound or
affected or (iii) result in any breach of or constitute a default (or an event
that with notice or lapse of time or both would become a default) under, or
give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or encumbrance on any of
the Company Shares owned by him or it pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which such Company Major Stockholder is a party or
by which such Company Major Stockholder or the Company Shares owned by it are
bound or affected, except, in the case of clauses (ii) and (iii), for any such
conflicts. violations, breaches, defaults or other occurrences which would not
prevent or delay the performance by such Company Major Stockholder of its
obligations under this Agreement.
(b) The execution and delivery of this Agreement by such Company Major
Stockholder do not, and the performance of this Agreement by such Company Major
Stockholder will not, require any consent, approval, authorization or permit
of, or filing with or notification to, any federal, state, local or foreign
regulatory body, except (i) where the failure to obtain such consents,
approvals. authorizations or permits, or to make such filings or notifications,
would not prevent or delay the performance by such Company Major Stockholder of
his or its obligations under this Agreement or (ii) filings with the SEC under
the Exchange Act.
SECTION 2.3. TITLE TO THE COMPANY SHARES. Such Company Major
Stockholder is the owner of the Company Shares owned by it free and clear of
all Liens (as defined in Section 3.3) whatsoever. Such Company Major
Stockholder has sole voting power with respect to the Company Shares owned by
it or has the power to direct the voting of such Company Shares. Such Company
Major Stockholder has not appointed or granted any proxy, which appointment or
grant is still effective, with respect to the Company Shares owned by it. The
person executing this Agreement on behalf of the ▇▇▇▇▇▇▇ Trust has the power to
direct the voting of such Trust's Company Shares.
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136
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE TRUST
The Trust hereby represents and warrants to the Company as follows:
SECTION 3.1. AUTHORITY RELATIVE TO THIS AGREEMENT. The Trust has all
necessary power and authority to execute and deliver this Agreement, to perform
its obligations hereunder and to consummate the transactions contemplated
hereby. This Agreement has been duly and validly executed and delivered by the
Trust and, assuming the due authorization, execution and delivery hereof by
each other party hereto, constitutes a legal, valid and binding obligation of
the Trust (and the trustees of the Trust in their capacities as such),
enforceable against the Trust in accordance with its terms, except (x) as the
same may be limited by applicable bankruptcy, insolvency, moratorium or similar
laws of general application relating to or affecting creditors' rights,
including without limitation, the effect of statutory or other laws regarding
fraudulent conveyance and preferential transfers, and (y) for the limitations
imposed by general principles of equity. The Trust has allowed the Company to
review a complete copy of the trust agreement establishing the Trust and
provided the Company evidence of its authority to enter into this Agreement.
The Company agrees to hold the contents of such trust agreement in complete
confidence.
SECTION 3.2. NO CONFLICT.
(a) The execution and delivery of this Agreement by the Trust do not,
and the performance of this Agreement by the Trust will not (i) conflict with
or violate the trust agreement establishing the Trust, (ii) conflict with or
violate any law, rule, regulation, order, judgment or decree applicable to the
Trust or by which the Trust's Buyer Shares are bound or affected, or (iii)
result in any breach of or constitute a default (or an event that with notice
or lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, or result in
the creation of a lien or encumbrance on any of the Trust's Buyer Shares
pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation to which the Trust
is a party or by which the Trust or the Trust's Buyer Shares are bound or
affected, except, in the case of clauses (ii) and (iii), for any such
conflicts, violations, breaches, defaults or other occurrences which would not
prevent or delay the performance by the Trust of the Trust's obligations under
this Agreement.
(b) The execution and delivery of this Agreement by the Trust do not,
and the performance of this Agreement by the Trust will not, require any
consent, approval, authorization or permit of, or filing with or notification
to, any federal, state, local or foreign regulatory body, except (i) filings
with the SEC under the Exchange Act and (ii) where the failure to obtain such
consents, approvals, authorizations or permits, or to make such filings or
notifications, would not prevent or delay the performance by the Trust of the
Trust's obligations under this Agreement.
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137
SECTION 3.3. TITLE TO THE BUYER SHARES. The Trust is the owner of the
Buyer Shares, free and clear of all security interests, liens, claims, pledges,
options, rights of first refusal, agreements, limitations on voting rights,
charges and other encumbrances (collectively, "Liens") of any nature
whatsoever. The Trust has not appointed or granted any proxy, which appointment
or grant is still effective, with respect to the Buyer Shares. The Trust has
sole voting power with respect to the Buyer Shares, and the person executing
this Agreement on behalf of the Trust has the power to direct the voting of the
Buyer Shares.
ARTICLE 4
COVENANTS OF THE COMPANY MAJOR STOCKHOLDERS
SECTION 4.1. NO INCONSISTENT AGREEMENT. Each Company Major Stockholder
hereby covenants and agrees that, except as contemplated by this Agreement,
such Stockholder shall not enter into any voting agreement or grant a proxy or
power of attorney with respect to its Company Shares which is inconsistent with
this Agreement.
SECTION 4.2. TRANSFER OF TITLE. Each Company Major Stockholder hereby
covenants and agrees that such Stockholder shall not transfer ownership of any
of its or his Company Shares unless (i) the transferee agrees in writing to be
bound by the terms and conditions of this Agreement or (ii) such transfer of
ownership together with all other such transfers by the other Company Major
Stockholders does not exceed in the aggregate 1% of the Company Common Stock
outstanding. Nothing else contained in this Agreement shall be construed to
prohibit any transfer permitted by this Section 4.2.
ARTICLE 5
COVENANTS OF THE TRUST
SECTION 5.1. NO INCONSISTENT AGREEMENT. The Trust hereby covenants and
agrees that, except as otherwise contemplated by this Agreement, the Trust
shall not enter into any voting agreement or grant a proxy or power of attorney
with respect to the Trust's Buyer Shares which is inconsistent with this
Agreement.
SECTION 5.2. TRANSFER OF TITLE. The Trust hereby covenants and agrees
that the Trust shall not transfer ownership of any of its Buyer Shares unless
(i) the transferee agrees in writing to be bound by the terms and conditions of
this Agreement or (ii) such transfer of ownership will not affect the Trust's
ability to approve of the Merger and the other Transactions with respect to
which the Trust may be entitled to vote without regard to the vote of the other
stockholders of the Buyer. Nothing else contained in this Agreement shall be
construed to prohibit any transfer permitted by this Section 5.2.
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138
ARTICLE 6
MISCELLANEOUS
SECTION 6 1. TERMINATION. This Agreement shall terminate on the
earliest to occur of (i) the date of consummation of the Merger, (ii) the date
which is one year from the date hereof, and (iii) the date of the termination
of the Merger Agreement.
SECTION 6.2. SPECIFIC PERFORMANCE. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or in equity.
SECTION 6.3. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties and supersedes all prior written and oral and all
contemporaneous oral agreements and understandings with respect to the subject
matter hereof.
SECTION 6.4. AMENDMENT. This Agreement may not be amended except by
an instrument in writing signed by all the parties hereto.
SECTION 6.5. SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties
hereto shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the parties as closely as possible in an acceptable
manner to the end that the transactions contemplated hereby are fulfilled to
the extent possible.
SECTION 6.6. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of (i) in the case of the Trust's
obligations, the State of Ohio, and (ii) in the case of the Company Major
Stockholders' obligations, the State of Delaware, regardless of the laws that
might otherwise govern under principles of conflicts of law applicable hereto.
SECTION 6.7. DESCRIPTIVE HEADINGS. The descriptive headings
herein are inserted for convenience of reference only and are not intended to
be part of or to affect the meaning or interpretation of this Agreement.
SECTION 6.8. COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
SECTION 6.9. NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given when delivered
in person, by telecopy with answerback, by express or overnight mail delivered
by a nationally recognized air courier (delivery charges prepaid) or by
registered or certified mail (postage prepaid, return receipt
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requested) to the respective parties as follows: (i) if to the Company
Major Stockholders or the Company, to the address specified in clause (b) of
Section 9.2 of the Merger Agreement, (ii) if to the Trust, to it at ▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇, attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇,
Secretary-Treasurer, and (iii) if to Buyer, to it at ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇, attention: M. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, Secretary, or to such
other address as the party to whom notice is given may have previously
furnished to the others in writing in the manner set forth above. Any notice or
communication delivered in person shall be deemed effective on delivery. Any
notice or communication sent by telecopy or by air courier shall be deemed
effective on the first business day at the place at which such notice or
communication is received following the day on which such notice or
communication was sent. Any notice or communication sent by registered or
certified mail shall be deemed effective on the fifth business day at the place
from which such notice or communication was mailed following the day on which
such notice or communication was mailed.
SECTION 6.10. ASSIGNMENTS. This Agreement shall not be assigned by
operation of law or otherwise.
SECTION 6.11. PARTIES IN INTEREST. This Agreement shall be binding
upon and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to or shall confer upon any person
any right, benefit or remedy of any nature whatsoever under or by reason of
this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day first written above.
THE ▇. ▇. ▇▇▇▇▇▇▇ COMPANY
By:
------------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Senior Vice President,
Corporate Development
THE ▇▇▇▇▇▇ ▇. SCRIPPS TRUST
By:
------------------------------------
Name: ▇▇▇▇▇▇▇ ▇. Scripps
Title: Trustee
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▇▇▇▇▇-▇▇▇▇▇ COMMUNICATIONS, INC.
By:
------------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: Senior Vice President, Legal
THE ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ REVOCABLE TRUST
By:
------------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: Trustee
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HOUSTON ▇. ▇▇▇▇▇
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▇▇▇▇▇▇ ▇. ▇▇▇▇▇
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▇▇▇▇▇ ▇▇▇▇▇▇▇▇
8