<PAGE>
===============================================================================
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 1, 1996
REGISTRATION NO. 333-05057
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 2
to
FORM S-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
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Pegasus Communications Corporation
(Exact name of registrant as specified in its charter)
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<TABLE>
<CAPTION>
<S> <C> <C>
Delaware 4833 51-0374669
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation of Organization) Classification Code Number) Identification Number)
</TABLE>
c/o Pegasus Communications Management Company
Suite 454, 5 Radnor Corporate Center
100 Matsonford Road
Radnor, Pennsylvania 19087
(610) 341-1801
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Marshall W. Pagon, President and Chief Executive Officer
c/o Pegasus Communications Management Company
Suite 454, 5 Radnor Corporate Center
100 Matsonford Road
Radnor, Pennsylvania 19087
(610) 341-1801
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
Michael B. Jordan, Esq. Kirk A. Davenport, Esq.
Scott A. Blank, Esq. Latham & Watkins
Drinker Biddle & Reath 885 Third Avenue
1100 Philadelphia National Bank Building Suite 1000
1345 Chestnut Street New York, New York 10022
Philadelphia, Pennsylvania 19107-3496 (212) 906-1200
(215) 988-2700
Approximate date of commencement of proposed sale to the public: As soon
as practicable after this Registration Statement becomes effective and the
Underwriting Agreement is executed.
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If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
===============================================================================
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
Subject to Completion, dated October 1, 1996
PROSPECTUS
3,000,000 Shares
Class A Common Stock
------
All of the shares of Class A Common Stock of Pegasus Communications
Corporation ("Pegasus" and, together with its direct and indirect
subsidiaries, the "Company") offered hereby are being offered by Pegasus. All
of the shares of Class A Common Stock are being offered (the "Offering") by
the Underwriters (the "Underwriters"). Prior to this Offering, there has been
no public market for the Class A Common Stock. It is currently anticipated
that the initial public offering price will be between $14.00 and $16.00 per
share. See "Underwriting" for a discussion of the factors to be considered in
determining the initial public offering price. The Class A Common Stock has
been approved for listing on the Nasdaq National Market under the symbol
"PGTV," subject to official notice of issuance.
Upon consummation of this Offering, after giving effect to the
Transactions (as defined) and assuming an initial public offering price of
$15.00 per share, Pegasus' issued and outstanding capital stock will consist
of 4,600,704 shares of Class A Common Stock and 4,483,805 shares of Class B
Common Stock. Holders of Class A Common Stock are entitled to one vote per
share on all matters submitted to a vote of stockholders generally and
holders of Class B Common Stock are entitled to ten votes per share. Both
classes vote together as a single class on all matters except in connection
with certain amendments to Pegasus' Amended and Restated Certificate of
Incorporation, the authorization or issuance of additional shares of Class B
Common Stock, and as required by Delaware law. See "Description of Capital
Stock." Immediately after this Offering, Marshall W. Pagon, Pegasus'
President and Chief Executive Officer, by virtue of his beneficial ownership
of all the Class B Common Stock, will generally have the voting power to
determine all matters submitted to the stockholders for approval.
------
For a discussion of certain factors that should be considered by prospective
purchasers of the Class A Common Stock offered hereby, see "Risk Factors"
beginning on page 17.
------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
===============================================================================
Price to Underwriting Discounts Proceeds to
Public and Commissions(1) Company(2)
- -------------------------------------------------------------------------------
Per Share ... $ $ $
- -------------------------------------------------------------------------------
Total(3) .... $ $ $
===============================================================================
(1) Pegasus has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses payable by Pegasus estimated at $975,000.
(3) Pegasus has granted to the Underwriters a 30-day option to purchase up to
450,000 additional shares of Class A Common Stock on the same terms and
conditions as set forth above solely to cover over-allotments, if any. If
such option is exercised in full, the total Price to Public, Underwriting
Discounts and Commissions and Proceeds to Company will be $ , $ and
$ , respectively. See "Underwriting."
------
The shares of Class A Common Stock offered by this Prospectus are offered
by the Underwriters subject to prior sale, to withdrawal, cancellation or
modification of the offer without notice, to delivery to and acceptance by
the Underwriters and to certain further conditions. It is expected that
delivery of the Class A Common Stock will be made at the offices of Lehman
Brothers Inc., New York, New York, on or about , 1996.
------
LEHMAN BROTHERS
BT SECURITIES CORPORATION
CIBC WOOD GUNDY SECURITIES CORP.
PAINEWEBBER INCORPORATED
, 1996
<PAGE>
*Cable TV Systems (New Hampshire -- pending sale)
*To be programmed by Pegasus through an LMA
Figures based on estimates of the U.S. television market derived from Paul
Kagan & Associates and Warren Publishing Inc.'s 1996 Television & Cable Fact
Book.
<TABLE>
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<S> <C> <C> <C>
Primary TV Households 95,000,000 ABC Network Affiliates 204
Secondary TV Households 8,000,000 CBS Network Affiliates 201
Total TV Households 103,000,000 FOX Network Affiliates 140
Total Homes Unpassed by Cable 11,000,000 NBC Network Affilates 209
Total Homes Passed by Cable 92,000,000 UPN Network Affiliates 78
Cable Subscribers 62,000,000 WB Network Affiliates 69
----------
Non-cable subscribers 30,000,000 Total 901
Cable Penetration 67% Total Business Locations 8,600,000
- ------------------------------ ------------- -------------------------- ----------
</TABLE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CLASS
A COMMON STOCK OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE
PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ
NATIONAL MARKET, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in
this Prospectus. Unless the context otherwise requires, all references herein
to the "Company" refer to Pegasus Communications Corporation ("Pegasus")
together with its direct and indirect subsidiaries. The historical financial
and other data for the Company are presented herein on a combined basis. See
Note 1 to Pegasus' Combined Financial Statements included elsewhere herein.
Unless otherwise indicated, the information in this Prospectus assumes the
Underwriters' over-allotment option is not exercised and that all of the PM&C
Class B Shares have been exchanged pursuant to the Registered Exchange Offer.
The discussion below includes certain Transactions that, if not already
completed, are scheduled or anticipated to occur concurrently with or after
the consummation of this Offering. The "Transactions" consist of certain
acquisitions (the Portland Acquisition, the Portland LMA, the Michigan/Texas
DBS Acquisition, the Ohio DBS Acquisition, and the Cable Acquisition),
certain corporate reorganization events (the Parent's contribution of PM&C
Class A Shares to Pegasus, the Management Agreement Acquisition, the
Registered Exchange Offer, the Management Share Exchange, and the Towers
Purchase), the New Hampshire Cable Sale and the closing of the New Credit
Facility. See "-- Acquisitions and Other Transactions." This Offering is
conditioned upon the consummation of all of the Transactions except for the
Registered Exchange Offer, the Management Share Exchange, the Ohio DBS
Acquisition and the New Hampshire Cable Sale. It is anticipated that the Ohio
DBS Acquisition will occur by November 15, 1996 and that the New Hampshire
Cable Sale will occur by December 31, 1996. See "Glossary of Defined Terms,"
which begins on page 14 of this Prospectus Summary, for definitions of
certain terms used in this Prospectus.
THE COMPANY
The Company is a diversified media and communications company operating in
three business segments: broadcast television ("TV"), direct broadcast
satellite television ("DBS") and cable television ("Cable"). The Company has
grown through the acquisition and operation of media and communications
properties characterized by clearly identifiable "franchises" and significant
operating leverage, which enables increases in revenues to be converted into
disproportionately greater increases in Location Cash Flow. The Company's
business segments are described below.
TV. The Company owns and operates five Fox affiliates in midsize
television markets. The Company has entered into agreements to program
additional television stations, pending certain FCC approvals, in two of
these markets in 1997, which stations the Company anticipates will be
affiliated with the United Paramount Network ("UPN").
DBS. The Company is the largest independent provider of DIRECTV(R)
("DIRECTV") services with an exclusive DIRECTV service territory that
includes approximately 476,000 television households and 50,000 business
locations in rural areas of New York, Connecticut, Massachusetts and New
Hampshire. The Company has recently agreed to acquire the DIRECTV
distribution rights and related assets of the third largest independent
provider of DIRECTV services (the "Michigan/Texas DBS Acquisition"), whose
exclusive territory includes approximately 391,000 television households
and 20,000 business locations in rural areas of Michigan and Texas. The
Company has entered into a letter of intent regarding its acquisition of
the DIRECTV distribution rights and related assets of the fifth largest
independent provider of DIRECTV services (the "Ohio DBS Acquisition"),
whose exclusive territory includes approximately 168,000 television
households and 13,000 business locations in rural areas of Ohio. After
giving effect to the Michigan/Texas DBS Acquisition and the Ohio DBS
Acquisition, the Company will have approximately 23,000 DIRECTV
subscribers in territories that include approximately 1,035,000 television
households and 83,000 business locations or a penetration rate of 2.2% in
its service territories. Although the Company's service territories are
exclusive fot DIRECTV, other DBS operators may compete with the Company in
its service territories. See "Business -- Competition."
3
<PAGE>
Cable. The Company owns and operates cable systems in Puerto Rico and New
England serving approximately 47,000 subscribers. The Company recently
acquired a contiguous cable system in Puerto Rico (the "Cable
Acquisition"), which will be interconnected with the Company's existing
system. It is anticipated that as a result of the Cable Acquisition, the
Company's Puerto Rico Cable system will serve approximately 27,000
subscribers in a franchise area comprising approximately 111,000
households from a single headend. The Company has entered into a letter of
intent with respect to the sale of its New Hampshire Cable systems (the
"New Hampshire Cable Sale"). Following the New Hampshire Cable Sale, the
Company's New England Cable systems will serve approximately 15,500
subscribers in a franchise area comprising approximately 22,900
households.
After giving effect to the Transactions, the Company would have had pro
forma net revenues and EBITDA of $51.0 million and $14.7 million,
respectively, for the twelve months ended June 30, 1996. The Company's net
revenues and EBITDA have increased at compound annual growth rates of 98% and
84%, respectively, from 1991 to 1995.
The following tables set forth certain information with respect to the
Company's TV, DBS and Cable segments:
TV
<TABLE>
<CAPTION>
Number Ratings Rank
Acquisition Station Market of TV ----------------- Oversell
Station Date Affiliation Area DMA Households(1) Competitors(2) Prime(3) Access(4) Ratio(5)
- ---------------- ----------- ----------- --------------- ----- ------------- ------------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Existing Stations:
WWLF-56/WILF-53/
WOLF-38(6) .... May 1993 Fox Northeastern PA 49 553,000 3 3 (tie) 1 166%
WPXT-51 ........ January 1996 Fox Portland, ME 79 344,000 3 2 4 122%
WDSI-61 ........ May 1993 Fox Chattanooga, TN 82 320,000 4 4 3 125%
WDBD-40 ........ May 1993 Fox Jackson, MS 91 287,000 3 2 (tie) 2 114%
WTLH-49 ........ March 1996 Fox Tallahassee, FL 116 210,000 3 2 2 100%
Additional Stations:
WOLF-38(6) ..... May 1993 UPN Northeastern PA 49 553,000 3 N/A N/A N/A
WWLA-35(7) ..... May 1996 UPN Portland, ME 79 344,000 3 N/A N/A N/A
</TABLE>
DBS
<TABLE>
<CAPTION>
Homes Average
Not Homes Monthly
Total Passed Passed Penetration Revenue
DIRECTV Homes in by by Total ------------------------------ Per
Territory Territory Cable(8) Cable(9) Subscribers(10) Total Uncabled Cabled Subscriber(11)
----------------- ----------- --------- --------- --------------- ------- ---------- -------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Owned:
Western New
England ........ 288,273 41,465 246,808 5,208 1.8% 10.5% 0.3%
New Hampshire ... 167,531 42,075 125,456 3,273 2.0% 6.6% 0.4%
Martha's Vineyard
and Nantucket .. 20,154 1,007 19,147 635 3.2% 51.7% 0.6%
----------- --------- --------- --------------- ------- ---------- -------- --------------
Total .......... 475,958 84,547 391,411 9,116 1.9% 9.1% 0.4% $40.32
----------- --------- --------- --------------- ------- ---------- -------- --------------
To Be Acquired:
Michigan ........ 241,713 61,774 179,939 5,213 2.2% 6.6% 0.6% $43.35
Texas ........... 149,530 54,504 95,026 4,449 3.0% 6.2% 1.1% $36.95
Ohio ............ 167,558 32,180 135,378 4,355 2.6% 10.1% 0.8% $39.27
----------- --------- --------- --------------- ------- ---------- -------- --------------
Total .......... 558,801 148,458 410,343 14,017 2.5% 7.2% 0.8% $40.10
----------- --------- --------- --------------- ------- ---------- -------- --------------
Total ......... 1,034,759 233,005 801,754 23,133 2.2% 7.9% 0.6% $40.18
=========== ========= ========= =============== ======= ========== ======== ==============
</TABLE>
4
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CABLE
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<CAPTION>
Average
Monthly
Homes in Homes Basic Revenue
Channel Franchise Passed Basic Service per
Cable Systems Capacity Area(12) by Cable(13) Subscribers(14) Penetration(15) Subscriber
------------------- ---------- ----------- ------------ --------------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Owned:
New England ....... (16) 29,400 28,600 20,100 70% $33.08
Mayaguez .......... 62 38,300 34,000 10,900 32% $32.68
San German(17) .... 50(18) 72,400 47,700 16,300 34% $30.82
----------- ------------ --------------- --------------- ------------
Total Puerto Rico 110,700 81,700 27,200 34% $31.57
----------- ------------ --------------- --------------- ------------
To be Sold:
New Hampshire ..... (19) 6,500 6,100 4,600 75% $34.20
----------- ------------ --------------- --------------- ------------
Total ........... 133,600 104,200 42,700 41% $31.99
=========== ============ =============== =============== ============
</TABLE>
- ------
(1) Represents total homes in a DMA for each TV station as estimated by
Broadcast Investment Analysts ("BIA").
(2) Commercial stations not owned by the Company which are licensed to and
operating in the DMA.
(3) "Prime" represents local station rank in the 18 to 49 age category
during "prime time" based on A.C. Nielsen Company ("Nielsen") estimates
for May 1996.
(4) "Access" indicates local station rank in the 18 to 49 age category
during "prime time access" (6:00 p.m. to 8:00 p.m.) based on Nielsen
estimates for May 1996.
(5) The oversell ratio is the station's share of the television market net
revenue divided by its in-market commercial audience share. The oversell
ratio is calculated using 1995 BIA market data and 1995 Nielsen audience
share data.
(6) WOLF, WILF and WWLF are currently simulcast. Pending receipt of certain
FCC approvals, the Company intends to separately program WOLF as an
affiliate of UPN.
(7) The Company anticipates programming WWLA pursuant to an LMA as an
affiliate of UPN.
(8) Based on NRTC estimates of primary residences derived from 1990 U.S.
Census data and after giving effect to a 1% annual housing growth rate
and seasonal residence data obtained from county offices. Does not
include business locations. Includes approximately 23,400 seasonal
residences.
(9) Based on NRTC estimates of primary residences derived from 1990 U.S.
Census data and after giving effect to a 1% annual housing growth rate
and seasonal residence data obtained from county offices. Does not
include business locations. Includes approximately 87,600 seasonal
residences.
(10) As of August 1996.
(11) Based upon July 1996 revenues and average July 1996 subscribers.
(12) Based on information obtained from municipal offices.
(13) A home is deemed to be "passed" by cable if it can be connected to the
distribution system without any further extension of the cable
distribution plant. These data are the Company's estimates as of July
31, 1996.
<PAGE>
(14) A home with one or more television sets connected to a cable system is
counted as one basic subscriber. Bulk accounts (such as motels or
apartments) are included on a "subscriber equivalent" basis whereby the
total monthly bill for the account is divided by the basic monthly
charge for a single outlet in the area. This information is as of July
31, 1996.
(15) Basic subscribers as a percentage of homes passed by cable.
(16) The channel capacities of the New England Cable systems are 36, 50 and
62 and represent 44%, 24% and 32% of the Company's New England Cable
subscribers, respectively. After giving effect to certain system
upgrades which are anticipated to be completed by October 1996, the 36,
50 and 62 channel systems would have represented 22%, 24% and 54% of the
Company's total New England Cable subscribers, respectively.
(17) The San German Cable System was acquired upon consummation of the Cable
Acquisition in August 1996.
(18) After giving effect to certain system upgrades which are anticipated to
be completed during the first quarter of 1997, this system will be
capable of delivering 62 channels.
(19) The channel capacities of the New Hampshire Cable systems are 36 and 50
and represent 16% and 84% of the Company's New Hampshire Cable
subscribers, respectively.
5
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OPERATING AND ACQUISITION STRATEGY
The Company's operating strategy is to generate consistent revenue growth
and to convert this revenue growth into disproportionately greater increases
in Location Cash Flow. The Company's acquisition strategy is to identify
media and communications businesses in which significant increases in
Location Cash Flow can be realized and where the ratio of required investment
to potential Location Cash Flow is low.
TV. The Company's business strategy in broadcast television is to acquire
and operate television stations whose revenues and market shares can be
substantially improved with limited increases in fixed costs. The Company has
focused upon midsize markets because it believes that they have exhibited
consistent and stable increases in local advertising and that television
stations in them have fewer and less aggressive direct competitors. The
Company seeks to increase the audience ratings of its TV stations in key
demographic segments and to capture a greater share of their markets'
advertising revenues than their share of the local television audience. The
Company accomplishes this by developing aggressive, opportunistic local sales
forces and investing in a cost-effective manner in programming, promotion and
technical facilities.
The Company is actively seeking to acquire additional stations in new
markets and to enter into LMAs with owners of stations or construction
permits in markets where it currently owns and operates Fox affiliates. The
Company has historically purchased Fox affiliates because (i) Fox affiliates
generally have had lower ratings and revenue shares than stations affiliated
with ABC, CBS and NBC, and, therefore, greater opportunities for improved
performance, and (ii) Fox-affiliated stations retain a greater percentage of
their inventory of advertising spots than do affiliates of ABC, CBS and NBC,
thereby enabling these stations to retain a greater share of any increase in
the value of their inventory. The Company is pursuing expansion in its
existing markets through LMAs because second stations can be operated with
limited additional fixed costs (resulting in high incremental operating
margins) and can allow the Company to create more attractive packages for
advertisers and program providers.
DBS. The Company believes that DBS is the lowest cost medium for
delivering high capacity, high quality, digital video, audio and data
services to television households and commercial locations in rural areas and
that DIRECTV offers superior video and audio quality and a substantially
greater variety of programming than is available from other multichannel
video services. DIRECTV initiated service to consumers in 1994 and, as of
August 20, 1996, there were approximately 1.8 million DIRECTV subscribers.
The introduction of DIRECTV is widely reported to be one of the most
successful rollouts of a consumer service ever.
As the exclusive provider of DIRECTV services in its purchased
territories, the Company provides a full range of services, including
installation, authorization and financing of equipment for new customers as
well as billing, collections and customer service support for existing
subscribers. The Company's business strategy in DBS is to (i) establish
strong relationships with retailers, (ii) build its own direct sales and
distribution channels, (iii) develop local and regional marketing and
promotion to supplement DIRECTV's national advertising, and (iv) offer
aggressively priced equipment rental, lease and purchase options.
The Company anticipates continued significant growth in subscribers and
operating profitability in DBS through increased penetration of DIRECTV
territories it currently owns and will acquire pursuant to the Michigan/Texas
DBS Acquisition and the Ohio DBS Acquisition. The Company's current DBS
operations achieved positive Location Cash Flow in 1995, its first full year
of operations. The Company's DIRECTV subscribers currently generate revenues
of approximately $40 per month at an average gross margin of 34%. The
Company's remaining expenses consist of marketing costs incurred to build its
growing base of subscribers and overhead costs which are predominantly fixed.
As a result, the Company believes that future increases in its DBS revenues
will result in disproportionately greater increases in Location Cash Flow.
For the first six months of 1996, the Company has been adding DIRECTV
subscribers at approximately twice the rate of the same period in 1995.
6
<PAGE>
The Company also believes that there is an opportunity for additional
growth through the acquisition of DIRECTV territories held by other NRTC
members. NRTC members are the only independent providers of DIRECTV services.
In excess of 250 NRTC members have collectively purchased DIRECTV territories
consisting of approximately 7.7 million television households in
predominantly rural areas of the United States, which are the most likely to
subscribe to DBS services. These territories comprise 8% of United States
television households, but represent between 25% and 30% of DIRECTV's
existing subscriber base. As the largest, and only publicly held, independent
provider of DIRECTV services, the Company believes that it is well positioned
to achieve economies of scale through the acquisition of DIRECTV territories
held by other NRTC members.
Cable. The Company's business strategy in cable is to achieve revenue
growth by (i) adding new subscribers through improved signal quality,
increases in the quality and the quantity of programming, housing growth and
line extensions, and (ii) increasing revenues per subscriber through new
program offerings and rate increases.
ACQUISITIONS AND OTHER TRANSACTIONS
Set forth below are a number of transactions, including acquisitions and
corporate reorganization events, that, if not already completed, are
scheduled or anticipated to occur concurrently with or after the consummation
of this Offering. This Offering is conditioned upon the consummation of all
of the Transactions except for the Registered Exchange Offer, the Management
Share Exchange, the Ohio DBS Acquisition and the New Hampshire Cable Sale.
The pro forma financial data included in this Prospectus assume, unless
otherwise indicated, the completion of each of the Transactions, including
those whose completion is not a condition to the completion of this Offering.
See "The Company -- Acquisitions," "The Company -- Pending Sale" and "The
Company -- Corporate Reorganization and Other Transactions." See "Ownership
and Control" for a chart that sets forth the organizational structure and
ownership interests of Pegasus after giving effect to this Offering and the
Transactions.
COMPLETED ACQUISITIONS
Since January 1, 1996, the Company has acquired the following media and
communications properties:
Television Station WPXT. The Company acquired the principal tangible
assets of television station WPXT, the Fox-affiliated television station
serving the Portland, Maine DMA. Upon the consummation of this Offering, the
Company will have acquired WPXT's license and Fox Affiliation Agreement.
These transactions are collectively referred to as the "Portland
Acquisition."
Television Station WTLH. The Company acquired WTLH, the Fox-affiliated TV
station serving the Tallahassee, Florida DMA (the "Tallahassee Acquisition").
Television Station WWLA. Upon the consummation of this Offering, the
Company will have acquired an LMA with the holder of a construction permit
for WWLA, a new TV station licensed to operate UHF channel 35 in the
Portland, Maine DMA (the "Portland LMA"). Under the Portland LMA, the Company
will lease facilities and provide programming to WWLA. Construction of WWLA
is expected to be completed in 1997.
Cable Acquisition. In August 1996, the Company acquired substantially all
of the assets of a cable system (the "San German Cable System"), serving ten
communities contiguous to the Company's Mayaguez Cable system (the "Cable
Acquisition").
7
<PAGE>
CONCURRENT ACQUISITION
Michigan/Texas DBS Acquisition. In May 1996, the Company entered into an
agreement to acquire DIRECTV distribution rights for portions of Texas and
Michigan and related assets (the "Michigan/Texas DBS Acquisition"). The
Michigan/Texas DBS Acquisition is subject to conditions typical in
acquisitions of this nature, certain of which conditions may be beyond the
Company's control. This Offering is conditioned on completion of the
Michigan/Texas DBS Acquisition. See "Risk Factors -- Risks Attendant to
Acquisition Strategy."
PENDING ACQUISITION
Ohio DBS Acquisition. In July 1996, the Company entered into a letter of
intent with respect to the acquisition of DIRECTV distribution rights for
portions of Ohio and related assets (the "Ohio DBS Acquisition"). The Ohio
DBS Acquisition is subject to the negotiation of a definitive agreement and,
among other conditions, the prior approval of Hughes Communications Galaxy,
Inc. ("Hughes"). In addition to these conditions, the Ohio DBS Acquisition is
also expected to be subject to conditions typical in acquisitions of this
nature, certain of which conditions, like the Hughes consent, may be beyond
the Company's control. The letter of intent provides for a closing to occur
no later than November 15, 1996. There can be no assurance that the Ohio DBS
Acquisition will be consummated on the terms described herein or at all. See
"Risk Factors -- Risks Attendant to Acquisition Strategy."
PENDING SALE
New Hampshire Cable Sale. In July 1996, the Company entered into a letter
of intent with respect to the sale of its New Hampshire Cable systems (the
"New Hampshire Cable Sale"). The New Hampshire Cable Sale is subject to the
negotiation of a definitive agreement, the prior approval of the local
franchising authorities and to other conditions typical in transactions of
this nature, certain of which are beyond the Company's control. The letter of
intent provides for execution of a definitive agreement no later than October
15, 1996. It is anticipated that the New Hampshire Cable Sale will occur by
December 31, 1996. There can be no assurance that the New Hampshire Cable
Sale will be consummated on the terms described herein or at all.
CORPORATE REORGANIZATION AND OTHER TRANSACTIONS
Parent's Contribution of PM&C Class A Shares. The Parent is the holder of
all PM&C Class A Shares. PM&C is the principal subsidiary of the Parent which
now conducts through subsidiaries the Company's current operations as
described in this Prospectus. Concurrently with the consummation of this
Offering, the Parent will contribute all of the PM&C Class A Shares to
Pegasus.
Management Agreement Acquisition. PM&C and its operating subsidiaries are
party to a management agreement (the "Management Agreement") with the
Management Company under which PM&C and its subsidiaries are obligated to pay
the Management Company 5% of their net revenues and reimburse the Management
Company for its accounting department costs. Upon consummation of this
Offering, the Management Agreement together with certain net assets will be
transferred to the Company (the "Management Agreement Acquisition").
Registered Exchange Offer. Purchasers of the Notes in PM&C's 1995 Note
offering hold all of the PM&C Class B Shares. The Company will offer through
a registered exchange offer (the "Registered Exchange Offer") to exchange all
of the PM&C Class B Shares for shares of Class A Common Stock.
Management Share Exchange. Certain members of the Company's management
hold shares of Parent Non-Voting Stock. It is anticipated that all of these
members will exchange their shares for shares of Class A Common Stock
pursuant to an exchange offer (the "Management Share Exchange") and that the
Parent Non-Voting Stock will be distributed to the Parent.
8
<PAGE>
Towers Purchase. An affiliate of the Company operates in the broadcast
tower business. The Company intends to acquire certain tower properties from
this affiliate concurrently with the consummation of this Offering.
New Credit Facility. In August 1996, the Company entered into the New
Credit Facility. Borrowings under the New Credit Facility are available for
acquisitions, subject to the approval of the lenders of the New Credit
Facility, and general corporate purposes. See "Description of Indebtedness --
New Credit Facility."
9
<PAGE>
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
Class A Common Stock offered by the
Company .......................... 3,000,000 shares(1)
Common Stock to be outstanding
after this Offering:
Class A Common Stock ........... 4,600,704 shares(1)(2)(3
Class B Common Stock ........... 4,483,805 shares(2)(4)
Total Common Stock ............. 9,084,509 shares(1)(2)(3)(4)
Voting and conversion rights ...... Holders of Class A Common Stock and Class B Common Stock (collectively,
the "Common Stock") are entitled to one vote per share and ten votes per
share, respectively. Both classes vote together as a single class on all
matters except in connection with certain amendments to Pegasus' Amended
and Restated Certificate of Incorporation, the authorization or issuance
of additional shares of Class B Common Stock, and as required by Delaware
law. Immediately after this Offering, after giving effect to the Transactions
and assuming an initial public offering price of $15.00 per share, (i)
holders of Class A Common Stock and Class B Common Stock will have approximately
9.3% and 90.7%, respectively, of the combined voting power of all outstanding
Common Stock, and (ii) Marshall W. Pagon, Pegasus' President and Chief
Executive Officer, by virtue of his beneficial ownership of all of the
Class B Common Stock, will generally have the voting power to determine
the outcome of all matters submitted to the stockholders for approval.
The Class B Common Stock is convertible into Class A Common Stock on a
share for share basis, at the election of the holder and automatically
upon certain transfers of the Class B Common Stock. See "Description of
Capital Stock."
Use of Proceeds ................... The net proceeds to the Company from this Offering (after deducting
underwriting discounts and commissions and estimated offering expenses)
are estimated to be approximately $40.9 million (approximately $47.2 million
if the Underwriters' over-allotment option is exercised in full). The Company
intends to apply the total estimated net proceeds as follows: (i) $17.9
million for the payment of the cash portion of the purchase price of the
Michigan/Texas DBS Acquisition, (ii) $12.0 million for the Ohio DBS
Acquisition, (iii) $6.0 million to repay indebtedness under the New Credit
Facility, (iv) $1.9 million to make a payment on account of the Portland
Acquisition, (v) $1.4 million for the payment of the cash portion of the
purchase price in the Management Agreement Acquisition and (vi) $1.4 million
for the Towers Purchase. The remaining net proceeds, if any, together with
available borrowings under the New Credit Facility, will be used for future
expansion and general corporate purposes; however, a portion of the net
proceeds may be used for future acquisitions by the Company. See "Use of
Proceeds."
Nasdaq National Market
Symbol ........................... The Class A Common Stock has been approved for listing on the Nasdaq National
Market under the symbol "PGTV," subject to official notice of issuance.
</TABLE>
10
<PAGE>
- ------
(1) Excludes up to 450,000 shares of Class A Common Stock that may be issued
upon the exercise of the over-allotment option granted to the
Underwriters.
(2) Assuming an initial public offering price of $15.00 per share.
(3) Includes 795,303 shares to be issued in the Michigan/Texas DBS
Acquisition, 191,792 shares to be issued pursuant to the Registered
Exchange Offer (assuming that all holders of the PM&C Class B Shares
accept the Registered Exchange Offer), 263,606 shares to be issued
pursuant to the Management Share Exchange, 269,964 shares initially
issued as Class B Common Stock and transferred as Class A Common Stock to
certain members of management who are participants in the Management
Share Exchange, 10,000 shares to be issued in connection with the
Portland Acquisition and 66,667 shares to be issued in connection with
the Portland LMA. Excludes 720,000 shares reserved for issuance under the
Incentive Program, 3,385 reserved for outstanding stock options and
4,483,805 shares reserved for issuance upon conversion of the Class B
Common Stock.
(4) Includes 1,124,015 shares to be issued in the Management Agreement
Acquisition (after giving effect to 182,652 shares of Class B Common
Stock transferred as Class A Common Stock to certain members of
management who are participants in the Management Share Exchange), 66,667
shares to be issued in the Portland Acquisition, and 3,293,124 shares to
be issued to the Parent on account of the Parent's contribution of all of
the outstanding PM&C Class A Shares to Pegasus (after giving effect to
87,312 shares of Class B Common Stock transferred as Class A Common Stock
to certain members of management who are participants in the Management
Share Exchange).
RISK FACTORS
Prior to making an investment in the Class A Common Stock offered hereby,
prospective purchasers of the Class A Common Stock should take into account
the specific considerations set forth in "Risk Factors" as well as other
information set forth in this Prospectus.
11
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA COMBINED FINANCIAL DATA
The following table sets forth summary historical and pro forma combined
financial data for the Company. This information should be read in
conjunction with the Financial Statements and the notes thereto,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Selected Historical and Pro Forma Combined Financial Data" and
"Pro Forma Combined Financial Data" included elsewhere herein.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------
1991 (1) 1992 1993 (1) 1994 1995
---------- ---------- ---------- ---------- ---------
(Dollars in thousands, except earnings per share)
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Net revenues:
$ $
TV ...................... -- -- $10,307 $17,808 $19,973
DBS ..................... -- -- -- 174 1,469
Cable ................... 2,095 5,279 9,134 10,148 10,606
Other ................... 9 40 46 61 100
---------- ---------- ---------- ---------- ---------
Total net revenues .... 2,104 5,319 19,487 28,191 32,148
---------- ---------- ---------- ---------- ---------
Location operating expenses:
TV ...................... -- -- 7,564 12,380 13,933
DBS ..................... -- -- -- 210 1,379
Cable ................... 1,094 2,669 4,655 5,545 5,791
Other ................... 3 12 16 18 38
Incentive compensation (3) . -- 36 192 432 528
Corporate expenses ......... 206 471 1,265 1,506 1,364
Depreciation and
amortization ............ 1,175 2,541 5,978 6,940 8,751
---------- ---------- ---------- ---------- ---------
Income (loss) from
operations .............. (374) (410) (183) 1,160 364
Interest expense ........... (621) (1,255) (4,402) (5,973) (8,817)
Interest income ............ -- -- -- -- 370
Other expense, net ......... (21) (21) (220) (65) (44)
Provision (benefit) for
taxes ................... -- -- -- 140 30
Extraordinary gain (loss)
from extinguishment of
debt .................... -- -- -- (633) 10,211
---------- ---------- ---------- ---------- ---------
Net income (loss) .......... $(1,016) $(1,686) $(4,805) $(5,651) $2,054
========== ========== ========== ========== =========
Net income (loss) per share $0.40
=========
Weighted average shares
outstanding (000's) ..... 5,143
=========
Other Data:
Location Cash Flow (5) ..... $ 1,007 $ 2,638 $ 7,252 $10,038 $11,007
EBITDA (5) ................. 801 2,131 5,795 8,100 9,115
Capital expenditures ....... 213 681 885 1,264 2,640
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<PAGE>
<TABLE>
<CAPTION>
Six Months
Ended June 30,
--------------------------------------
Pro Pro
Forma Forma
1995 (2) 1995 1996 1996 (2)
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Income Statement Data:
Net revenues:
TV ...................... $27,305 $ 8,861 $11,932 $12,600
DBS ..................... 4,924 528 1,568 4,328
Cable ................... 14,919 5,177 5,626 8,032
Other ................... 100 36 56 56
----------- ---------- ---------- ----------
Total net revenues .... 47,248 14,602 19,182 25,016
----------- ---------- ---------- ----------
Location operating expenses:
TV ...................... 19,210 6,714 8,271 8,765
DBS ..................... 5,138 622 1,261 3,604
Cable ................... 8,176 2,912 3,087 4,298
Other ................... 38 14 9 9
Incentive compensation (3) . 511 356 430 421
Corporate expenses ......... 1,364 613 709 709
Depreciation and
amortization ............ 15,368 3,927 4,905 7,356
----------- ---------- ---------- ----------
Income (loss) from
operations .............. (2,557) (556) 510 (146)
Interest expense ........... (11,307) (3,350) (5,570) (6,583)
Interest income ............ 129 -- 151 151
Other expense, net ......... (58) (84) (62) (59)
Provision (benefit) for
taxes ................... 30 20 (133) (133)
Extraordinary gain (loss)
from extinguishment of
debt .................... -- (4) -- -- --
----------- ---------- ---------- ----------
Net income (loss) .......... $(13,823) $(4,010) $(4,838) $(6,504)
=========== ========== ========== ==========
Net income (loss) per share $(1.52) $(0.94) $(0.72)
=========== ========== ==========
Weighted average shares
outstanding (000's) ..... 9,085 5,143 9,085
=========== ========== ==========
Other Data:
Location Cash Flow (5) ..... $14,686 $ 4,340 $6,554 $8,340
EBITDA (5) ................. 12,811 3,371 5,415 7,210
Capital expenditures ....... 3,022 1,536 2,748 2,734
</TABLE>
<TABLE>
<CAPTION>
Pro Forma
Twelve Months
Ended June 30,
1996 (2)
--------------
<S> <C>
Net revenues ........ $50,963
Location Cash Flow
(5) .............. 16,714
EBITDA (5) .......... 14,666
</TABLE>
<TABLE>
<CAPTION>
As of December 31, As of June 30, 1996
--------------------------------------------------------- --------------------------
1991 1992 1993 1994 1995 Actual Pro Forma (2)
-------- -------- --------- ---------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and
restricted cash .......... $ 901 $ 938 $ 1,506 $ 1,380 $21,856 $ 8,068 $ 13,247
Working capital (deficiency) 78 (52) (3,844) (23,074) 17,566 4,073 8,479
Total assets ................ 17,306 17,418 76,386 75,394 95,770 104,247 178,016
Total debt (including
current) ................. 13,675 15,045 72,127 61,629 82,896 94,863 111,663
Total liabilities ........... 14,572 16,417 78,954 68,452 95,521 108,730 126,303
Total equity (deficit) (6) .. 2,734 1,001 (2,427) 6,942 249 (4,483) 51,713
</TABLE>
(footnotes on following page)
12
<PAGE>
- ------
(1) The Company's operations began in 1991. The 1991 data include the results
of the Massachusetts and New Hampshire Cable systems from June 26, 1991
(with the exception of the North Brookfield, Massachusetts Cable system,
which was acquired in July 1992), the Connecticut Cable system from
August 7, 1991 and the results of Pegasus Towers L.P. ("Towers") from May
21, 1991. The 1993 data include the results of the Mayaguez, Puerto Rico
Cable system from March 1, 1993 and WOLF/WWLF/WILF, WDSI and WDBD from
May 1, 1993.
(2) Pro forma income statement and other data for the year ended December 31,
1995, six months ended June 30, 1996 and the twelve months ended June 30,
1996 give effect to the acquisitions and this Offering as if such events
had occurred at the beginning of such periods. The pro forma balance
sheet data as of June 30, 1996 give effect to the acquisitions after June
30, 1996 and this Offering as if such events had occurred on such date.
See "Pro Forma Combined Financial Data."
(3) Incentive compensation represents compensation expenses pursuant to the
Restricted Stock Plan and 401(k) Plans. See "Management and Certain
Transactions -- Incentive Program."
(4) The pro forma income statement data for the year ended December 31, 1995
do not include the extraordinary gain on the extinguishment of debt of
$10.2 million and the $214,000 writeoff of deferred financing costs that
were incurred in 1995 in connection with the creation of the Old Credit
Facility.
(5) Location Cash Flow is defined as net revenues less location operating
expenses. Location operating expenses consist of programming, barter
programming, general and administrative, technical and operations,
marketing and selling expenses. EBITDA is defined as income (loss) before
(i) extraordinary items, (ii) provision (benefit) for income taxes, (iii)
other (income) expense, (iv) interest (income) expense, and (v)
depreciation and amortization expenses. The difference between Location
Cash Flow and EBITDA is that EBITDA includes incentive compensation and
corporate expenses. Although Location Cash Flow and EBITDA are not
measures of performance under generally accepted accounting principles,
the Company believes that Location Cash Flow and EBITDA are accepted
within the Company's business segments as generally recognized measures
of performance and are used by analysts who report publicly on the
performance of companies operating in such segments. Nevertheless, these
measures should not be considered in isolation or as a substitute for
income from operations, net income, net cash provided by operating
activities or any other measure for determining the Company's operating
performance or liquidity which is calculated in accordance with generally
accepted accounting principles.
(6) The Company has not paid any cash dividends and does not anticipate
paying cash dividends on its Common Stock in the foreseeable future.
13
<PAGE>
GLOSSARY OF DEFINED TERMS
<TABLE>
<CAPTION>
Cable Acquisition The acquisition of the San German Cable System.
<S> <C>
Class A Common Stock Pegasus' Class A Common Stock, par value $.01 per share.
Class B Common Stock Pegasus' Class B Common Stock, par value $.01 per share.
Common Stock The Class A Common Stock and the Class B Common Stock.
Company Pegasus and its direct and indirect subsidiaries.
DBS Direct broadcast satellite television.
DIRECTV The video, audio and data services provided via satellite by DIRECTV
Enterprises, Inc.
DMA Designated Market Area. There are 211 DMAs in the United States with each
county in the continental United States assigned uniquely to one DMA. Ranking
of DMAs is based upon Nielsen estimates of the number of television households.
DSS Digital satellite system or DSS(R). DSS(R) is a registered trademark of
DIRECTV Enterprises, Inc.
EBITDA Income (loss) before extraordinary items, provision (benefit) for income
taxes, other (income) expense, interest (income) expense, and depreciation
and amortization expenses. Although EBITDA is not a measure of performance
under generally accepted accounting principles, the Company believes that
EBITDA is accepted within the Company's business segments as a generally
recognized measure of performance and is used by analysts who report publicly
on the performance of companies operating in such segments. Nevertheless,
the measure should not be considered in isolation or as a substitute for
income from operations, net income, net cash provided by operating activities
or any other measure for determining the Company's operating performance
or liquidity which is calculated in accordance with generally accepted
accounting principles.
FCC Federal Communications Commission.
Fox Fox Broadcasting Company.
Fox Affiliation Agreements The affiliation agreements between WOLF, WDSI, WDBD, WTLH, and WPXT and
Fox.
Incentive Program The Company's Restricted Stock Plan together with its 401(k) Plans and Stock
Option Plan. See "Management and Certain Transactions -- Incentive Program."
Indenture The indenture dated July 7, 1995 by and among PM&C, certain of its subsidiaries
and First Union National Bank, as trustee.
LMAs Local marketing agreements, program service agreements or time brokerage
agreements between broadcasters and television station licensees pursuant
to which broadcasters provide programming to and retain the advertising
revenues of such stations in exchange for fees paid to television station
licensees.
14
<PAGE>
Location Cash Flow Net revenues less location operating expenses, which consist of programming,
barter programming, general and administrative, technical and operations,
marketing and selling expenses. The difference between Location Cash Flow
and EBITDA is that EBITDA includes incentive compensation and corporate
expenses. Although Location Cash Flow is not a measure of performance under
generally accepted accounting principles, the Company believes that Location
Cash Flow is accepted within the Company's business segments as a generally
recognized measure of performance and is used by analysts who report publicly
on the performance of companies operating in such segments. Nevertheless,
this measure should not be considered in isolation or as a substitute for
income from operations, net income, net cash provided by operating activities
or any other measure for determining the Company's operating performance
or liquidity which is calculated in accordance with generally accepted
accounting principles.
Management Agreement The agreement between PM&C and its operating subsidiaries and the Management
Company to provide management services.
Management Company BDI Associates L.P., an affiliate of the Company.
Michigan/Texas DBS Acquisition The acquisition of DIRECTV distribution rights for certain rural areas of
Texas and Michigan and related assets.
New Credit Facility The Company's seven-year, senior collateralized credit facility. See
"Description of Indebtedness -- New Credit Facility."
New Hampshire Cable Sale The sale of the Company's New Hampshire Cable systems.
Notes PM&C's 12 1/2% Series B Senior Subordinated Notes due 2005 issued in an
aggregate principal amount of $85.0 million.
NRTC The National Rural Telecommunications Cooperative, the only entity authorized
to provide DIRECTV services that is independent of DIRECTV Enterprises,
Inc. There are 252 NRTC members that are authorized to provide DIRECTV services
in exclusive territories granted to the NRTC by DIRECTV Enterprises, Inc.
Ohio DBS Acquisition The acquisition of DIRECTV distribution rights for certain rural areas of
Ohio and related assets.
Old Credit Facility The Company's $10.0 million revolving credit facility that was retired
concurrently with the entering into of the New Credit Facility.
Parent Pegasus Communications Holdings, Inc., the direct parent of Pegasus.
Parent Non-Voting Stock The Class B Non-Voting Stock of the Parent.
Pegasus Pegasus Communications Corporation, the issuer of the Class A Common Stock
offered hereby.
PM&C Pegasus Media & Communications, Inc., which is currently a direct subsidiary
of the Parent and will become a direct subsidiary of Pegasus upon completion
of this Offering.
15
<PAGE>
PM&C Class A Shares The Class A shares of PM&C held by the Parent, which will be transferred
to Pegasus upon completion of this Offering.
PM&C Class B Shares The Class B shares of PM&C held by purchasers in the Notes offering.
Portland Acquisition The acquisition of WPXT.
Portland LMA The LMA relating to WWLA.
Registered Exchange Offer Pegasus' registered exchange offer to holders of PM&C Class B Shares for
191,792 shares in the aggregate of Class A Common Stock.
Tallahassee Acquisition The acquisition of the principal tangible assets of WTLH.
Towers Purchase The acquisition of certain tower properties from Towers, an affiliate of
the Company.
Towers Pegasus Towers, L.P.
WDBD Station WDBD-TV in the Jackson, Mississippi DMA.
WDSI Station WDSI-TV in the Chattanooga, Tennessee DMA.
WILF Station WILF-TV in the Northeastern Pennsylvania DMA.
WOLF Station WOLF-TV in the Northeastern Pennsylvania DMA.
WPXT Station WPXT-TV in the Portland, Maine DMA.
WTLH Station WTLH-TV in the Tallahassee, Florida DMA.
WTLH Warrants Warrants to purchase $1.0 million of the Class A Common Stock at an exercise
price equal to the price to the public in this Offering, which were issued
in connection with the Tallahassee Acquisition.
WWLA Station WWLA-TV to be constructed to serve the Portland, Maine DMA.
WWLF Station WWLF-TV in the Northeastern Pennsylvania DMA.
</TABLE>
16
<PAGE>
RISK FACTORS
Many of the statements in this Prospectus are forward-looking in nature
and, accordingly, whether they prove to be accurate is subject to many risks
and uncertainties. The actual results that the Company achieves may differ
materially from any forward-looking statements in this Prospectus. Factors
that could cause or contribute to such differences include, but are not
limited to, those discussed below and those contained in "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business," as well as those discussed elsewhere in this Prospectus.
DEPENDENCE ON FOX NETWORK AFFILIATION
Certain of the Company's TV stations are affiliated with the Fox Network,
which provides the stations with up to 40 hours of programming time per week,
including 15 hours of prime time programming, in return for the broadcasting
of Fox-inserted commercials by the stations during such programming. As a
result, the successful operation of the Company's TV stations is highly
dependent on the Company's relationship with Fox and on Fox's success as a
broadcast network. All of the Company's affiliation agreements with Fox
expire on October 31, 1998 with the exception of the affiliation agreement
with respect to WTLH, which expires on December 31, 2000. Thereafter, the
affiliation agreements may be extended for additional two-year terms by Fox
in its sole discretion. Fox has, in the past, changed affiliates in certain
markets where it acquired a significant ownership position in a station in
such market. In the event that Fox, directly or indirectly, acquires any
significant ownership and/or controlling interest in any TV station licensed
to any community within the Company's TV markets, Fox has the right to
terminate the affiliation agreement of the Company's TV station serving that
market. As a consequence, there is no assurance that Fox could not enter into
such an arrangement in one of the Company's markets. There can also be no
assurance that Fox programming will continue to be as successful as in the
past or that Fox will continue to provide programming to its affiliates on
the same basis as it currently does, all of which matters are beyond the
Company's control. The non-renewal or termination of the Fox affiliation of
one or more of the Company's stations could have a material adverse effect on
the Company's operations. See "Business -- TV" and "Business -- Licenses,
LMAs, DBS Agreements and Cable Franchises."
RELIANCE ON DBS TECHNOLOGY AND DIRECTV
The Company's DBS business is a new business with unproven potential.
There are numerous risks associated with DBS technology, in general, and
DIRECTV, in particular. DBS technology is highly complex and requires the
manufacture and integration of diverse and advanced components that may not
function as expected. Although the DIRECTV satellites are estimated to have
orbital lives at least through the year 2007, there can be no assurance as to
the longevity of the satellites or that loss, damage or changes in the
satellites as a result of acts of war, anti-satellite devices, electrostatic
storms or collisions with space debris will not occur and have a material
adverse effect on DIRECTV and the Company's DBS business. Furthermore, the
digital compression technology used by DBS providers is not standardized and
is undergoing rapid change. Since the Company serves as an intermediary for
DIRECTV, the Company would be adversely affected by material adverse changes
in DIRECTV's financial condition, programming, technological capabilities or
services, and such effect could be material to the Company's prospects. There
can also be no assurance that there will be sufficient demand for DIRECTV
services since such demand depends upon consumer acceptance of DBS, the
availability of equipment and related components required to access DIRECTV
services and the competitive pricing of such equipment. See "Business -- DBS"
and "Business -- Competition."
The NRTC is a cooperative organization whose members are engaged in the
distribution of telecommunications and other services in predominately rural
areas of the United States. Pursuant to agreements between Hughes and the
NRTC (the "NRTC Agreement") and between the NRTC and participating NRTC
members (the "Member Agreement" and, together with the NRTC Agreement, the
"DBS Agreements"), participating NRTC members acquired the exclusive right to
provide DIRECTV programming services to residential and commercial
subscribers in certain service areas. The DBS Agreements authorize the NRTC
and participating NRTC members to provide all commercial services offered by
Hughes that are transmitted from the frequencies that the FCC has authorized
for DIRECTV's use at its present orbital location for a term running through
the life of Hughes' current satellites. The NRTC has advised the Company
17
<PAGE>
that the NRTC Agreement also provides the NRTC a right of first refusal to
acquire comparable rights in the event that Hughes elects to launch successor
satellites upon the removal of the present satellites from active service.
The financial terms of any such purchase are likely to be the subject of
negotiations. Any exercise of such right is uncertain and will depend, in
part, on DIRECTV's costs of constructing, launching and placing in service
such successor satellites. The Company is, therefore, unable to predict
whether substantial additional expenditures by the NRTC and its members,
including the Company, will be required in connection with the exercise of
such right of first refusal.
SUBSTANTIAL INDEBTEDNESS AND LEVERAGE
The Company is highly leveraged. As of June 30, 1996, on a pro forma basis
after giving effect to this Offering and the use of the proceeds therefrom
and the Transactions (assuming an initial public offering price of $15.00 per
share), the Company would have had consolidated indebtedness of $111.7
million, total stockholders' equity of $51.7 million and, assuming certain
conditions are met, $50.0 million available under the New Credit Facility.
For the year ended December 31, 1995 and the six months ended June 30, 1996,
on a pro forma basis after giving effect to this Offering and the use of the
proceeds therefrom and the Transactions (assuming an initial public offering
price of $15.00 per share), the Company's earnings would have been inadequate
to cover its fixed charges by $13.2 million and approximately $7.1 million,
respectively. The ability of the Company to repay its existing indebtedness
will depend upon future operating performance, which is subject to the
success of the Company's business strategy, prevailing economic conditions,
regulatory matters, levels of interest rates and financial, business and
other factors, many of which are beyond the Company's control. The current
and future debt service obligations of the Company could have important
consequences, including the following: (i) the ability of the Company to
obtain additional financing for future working capital needs or financing for
possible future acquisitions or other purposes may be limited, (ii) a
substantial portion of the Company's cash flow from operations will be
dedicated to the payment of the principal and interest on its indebtedness,
thereby reducing funds available for other purposes, and (iii) the Company
will be more vulnerable to adverse economic conditions than some of its
competitors and, thus, may be limited in its ability to withstand competitive
pressures. The agreements with respect to the Company's indebtedness contain
numerous financial and operating covenants, including, among others,
restrictions on the ability of the Company to incur additional indebtedness,
to create liens or other encumbrances, to pay dividends and to make certain
other payments and investments, and to sell or otherwise dispose of assets or
merge or consolidate with another entity. These covenants may have the effect
of impeding the Company's growth opportunities, which may affect its cash
flow and the value of the Class A Common Stock. There can be no assurance
that future cash flows of the Company will be sufficient to meet all of the
Company's obligations and commitments. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" and "Description of Indebtedness."
RISKS ATTENDANT TO ACQUISITION STRATEGY
The Company plans to pursue additional acquisitions. Since January 1,
1996, the Company has acquired or entered into agreements to acquire a number
of properties, including the Ohio DBS Acquisition. The Ohio DBS Acquisition
is subject to a number of conditions, certain of which are beyond the
Company's control, and there can be no assurance that this acquisition will
be completed on the terms described herein and as reflected in the pro forma
financial statements included herein or at all. Furthermore, there can be no
assurance that the anticipated benefits of any of the acquisitions described
herein or future acquisitions will be realized. The process of integrating
acquired operations into the Company's operations may result in unforeseen
operating difficulties, could absorb significant management attention and may
require significant financial resources that would otherwise be available for
the ongoing development or expansion of the Company's existing operations.
The Company's acquisition strategy may be unsuccessful since the Company may
be unable to identify acquisitions in the future or, if identified, to take
advantage of them. The successful completion of an acquisition may depend on
consents from third parties, including federal, state and local regulatory
authorities or private parties such as Fox, the NRTC and Hughes, all of whose
consents are beyond the Company's control. Possible future acquisitions by
the Company could result in dilutive issuances of equity securities, the
incurrence of additional debt and contingent liabilities, and additional
amortization expenses related to goodwill and other intangible assets, which
could materially adversely affect the Company's financial condition and
operating results.
18
<PAGE>
INABILITY TO MANAGE GROWTH EFFECTIVELY
The Company has experienced a period of rapid growth primarily as a result
of its acquisition strategy. In order to achieve its business objectives, the
Company expects to continue to expand largely through acquisitions, which
could place a significant strain on its management, operating procedures,
financial resources, employees and other resources. The Company's ability to
manage its growth may require it to continue to improve its operational,
financial and management information systems, and to motivate and effectively
manage its employees. If the Company's management is unable to manage growth
effectively, the Company's results of operations could be materially
adversely affected.
DEPENDENCE ON KEY PERSONNEL
The Company's future success may depend to a significant extent upon the
performance of a number of the Company's key personnel, including Marshall W.
Pagon, Pegasus' President and Chief Executive Officer. See "Management and
Certain Transactions." The loss of Mr. Pagon or other key management
personnel or the failure to recruit and retain personnel could have a
material adverse effect on the Company's business. The Company does not
maintain "key-man" insurance and has not entered into employment agreements
with respect to any such individuals.
COMPETITION IN THE TV, DBS AND CABLE BUSINESSES
Each of the markets in which the Company operates is highly competitive.
Many of the Company's competitors have substantially greater resources than
the Company and may be able to compete more effectively than the Company in
the Company's markets. In addition, the markets in which the Company operates
are in a constant state of change due to technological, economic and
regulatory developments. The Company is unable to predict what forms of
competition will develop in the future, the extent of such competition or its
possible effects on the Company's businesses. The Company's TV stations
compete for audience share, programming and advertising revenue with other
television stations in their respective markets, and compete for advertising
revenue with other advertising media, such as newspapers, radio, magazines,
outdoor advertising, transit advertising, yellow page directories, direct
mail and local cable systems. The Company's DBS business faces competition
from other current or potential multichannel programming distributors,
including other DBS operators, other DTH providers, cable operators, wireless
cable operators and local exchange and long-distance telephone companies,
which may be able to offer more competitive packages or pricing than the
Company or DIRECTV. The Company's Cable systems face competition from
television stations, SMATV systems, wireless cable systems, direct to home
("DTH") and DBS systems. See "Business -- Competition."
GOVERNMENT LEGISLATION, REGULATION, LICENSES AND FRANCHISES
The Company's businesses are subject to extensive and changing laws and
regulations, including those of the FCC and local regulatory bodies. Many of
the Company's operations are subject to licensing and franchising
requirements of federal, state and local law and are, therefore, subject to
the risk that material licenses and franchises will not be obtained or
renewed in the future. The United States Congress and the FCC have in the
past, and may in the future, adopt new laws, regulations and policies
regarding a wide variety of matters, including rulemakings arising as a
result of the Telecommunications Act of 1996 (the "1996 Act"), that could,
directly or indirectly, affect the operations of the Company's businesses.
The business prospects of the Company could be materially adversely affected
by the application of current FCC rules or policies in a manner leading to
the denial of pending applications by the Company, by the adoption of new
laws, policies and regulations, or changes in existing laws, policies and
regulations, including changes to their interpretations or applications, that
modify the present regulatory environment or by the failure of certain rules
or policies to change in the manner anticipated by the Company. See "Business
- -- Licenses, LMAs, DBS Agreements and Cable Franchises" and "Business --
Legislation and Regulation."
To the extent that the Company expects to program stations through the use
of LMAs, there can be no assurance that the licensees of such stations will
not unreasonably exercise rights to preempt the programming of the Company,
or that the licensees of such stations will continue to maintain the
transmission facilities of
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<PAGE>
the stations in a manner sufficient to broadcast a high quality signal over
the station. As the licensees must also maintain all of the qualifications
necessary to be a licensee of the FCC, and as the principals of the licensees
are not under the control of the Company, there can be no assurance that
these licenses will be maintained by the entities which currently hold them.
In the 1996 Act, the continued performance of then existing LMAs was
generally grandfathered. Currently, LMAs are not considered attributable
interests under the FCC's multiple ownership rules. However, the FCC is
currently considering proposals which would make LMAs attributable, as they
generally are in the radio broadcasting industry. If the FCC were to adopt a
rulemaking that makes such interests attributable, without modifying its
current prohibitions against the ownership of more than one television
station in a market, the Company could be prohibited from entering into such
arrangements with other stations in markets in which it owns television
stations.
CONCENTRATION OF SHARE OWNERSHIP AND VOTING CONTROL BY MARSHALL W. PAGON
The Company's capital stock is divided into two classes with different
voting rights. Holders of Class A Common Stock are entitled to one vote per
share on all matters submitted to a vote of stockholders generally and
holders of Class B Common Stock are entitled to ten votes per share. Both
classes vote together as a single class on all matters except in connection
with certain amendments to the Company's Amended and Restated Certificate of
Incorporation, the authorization or issuance of additional shares of Class B
Common Stock, and except where class voting is required under the Delaware
General Corporation Law. See "Description of Capital Stock." Upon completion
of this Offering, as a result of his beneficial ownership of all the
outstanding voting stock of the sole general partner of a limited partnership
that indirectly controls the Parent and of his control of the only other
holder of Class B Common Stock, Marshall W. Pagon, the President and Chief
Executive Officer of Pegasus, will beneficially own all of the Class B Common
Stock of Pegasus. After giving effect to the greater voting rights attached
to the Class B Common Stock, Mr. Pagon will be able to effectively vote 90.7%
of the combined voting power of the outstanding Common Stock and will have
sufficient power (without the consent of the holders of the Class A Common
Stock) to elect the entire Board of Directors of the Company and, in general,
to determine the outcome of matters submitted to the stockholders for
approval. See "Ownership and Control" and "Description of Capital Stock --
Common Stock." Purchasers in this Offering will be acquiring, assuming an
initial public offering price of $15.00 per share of Class A Common Stock,
shares of Class A Common Stock representing 33.0% of all of the outstanding
Common Stock but possessing only 6.1% of the total voting power of the Common
Stock to be outstanding immediately following this Offering, after giving
effect to the shares to be issued in the Transactions.
ABSENCE OF PRIOR PUBLIC MARKET AND VOLATILITY OF STOCK PRICE
Prior to this Offering, there has been no public market for the Class A
Common Stock, and there can be no assurance that an active trading market
will develop or be sustained in the future. The initial public offering price
of the Class A Common Stock has been determined solely by negotiations
between the Company and the representatives of the Underwriters and does not
necessarily reflect the price at which the Class A Common Stock may be sold
in the public market after this Offering. See "Underwriting" for a discussion
of the factors considered in determining the initial public offering price.
There may be significant volatility in the market price of the Class A Common
Stock due to factors that may or may not relate to the Company's performance.
The market price of the Class A Common Stock may be significantly affected by
various factors such as economic forecasts, financial market conditions,
reorganizations and acquisitions and quarterly variations in the Company's
results of operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
Upon completion of this Offering, assuming an initial public offering
price of $15.00 per share of Class A Common Stock and after giving effect to
the issuance of shares contemplated by the Transactions, the Company will
have outstanding 4,600,704 shares of Class A Common Stock and 4,483,805
shares of Class B Common Stock, all of which shares of Class B Common Stock
are convertible into shares of Class A
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<PAGE>
Common Stock on a share for share basis. Of these shares, the 3,000,000
shares of Class A Common Stock sold in this Offering will be tradeable
without restriction unless they are purchased by affiliates of the Company.
All shares to be received pursuant to the Registered Exchange Offer will also
be tradeable without restriction, except that the terms of the Registered
Exchange Offer are expected to require that each exchanging holder agrees not
to sell, otherwise dispose of or pledge any shares of Class A Common Stock
received in the Registered Exchange Offer for a period of at least 180 days
after the date of this Prospectus without the prior written consent of Lehman
Brothers Inc. The approximately 1,600,704 remaining shares of Class A Common
Stock and all of the 4,483,805 shares of Class B Common Stock will be
"restricted securities" under the Securities Act of 1933, as amended (the
"Securities Act"). These "restricted securities" and any shares purchased by
affiliates of the Company in this Offering may be sold only if they are
registered under the Securities Act or pursuant to an applicable exemption
from the registration requirements of the Securities Act, including Rule 144
and Rule 701 thereunder. The holders of 4,846,409 of the 6,084,509 shares
constituting restricted securities have agreed not to sell, otherwise dispose
of or pledge any shares of the Company's Common Stock or securities
convertible into or exercisable or exchangeable for such Common Stock for 180
days after the date of this Prospectus without the prior written consent of
Lehman Brothers Inc. No prediction can be made as to the effect, if any, that
market sales of such shares or the availability of such shares for future
sale will have on the market price of shares of Class A Common Stock
prevailing from time to time. Up to an additional 720,000 and 3,385 shares of
Class A Common Stock are reserved for issuance under the Incentive Program
and for outstanding stock options, respectively. In connection with the
Michigan/Texas DBS Acquisition and the acquistion of the Portland LMA,
holders of the Class A Common Stock have been granted certain piggyback
registration rights in connection with the issuance of their shares. See
"Shares Eligible for Future Sale."
POTENTIAL EFFECT ON COMPANY OF MINORITY OWNERSHIP OF PM&C CAPITAL STOCK
Upon completion of this Offering, PM&C will be the principal subsidiary of
Pegasus with two classes of capital stock outstanding: the PM&C Class A
Shares and the PM&C Class B Shares. Holders of the PM&C Class A Shares are
entitled to ten votes per share, and holders of the PM&C Class B Shares are
entitled to one vote per share. The Parent owns all of the PM&C Class A
Shares, constituting 95% of the capital stock of PM&C and representing 99.5%
of the combined voting power of PM&C, and will transfer these shares to the
Company upon the closing of this Offering. Pegasus has filed a registration
statement with the Securities and Exchange Commission to commence the
Registered Exchange Offer of the PM&C Class B Shares for shares of Class A
Common Stock. Unless all of the holders of the PM&C Class B Shares accept the
Registered Exchange Offer, PM&C will not be a wholly owned subsidiary of the
Company. The pro forma financial data included in this Prospectus assume that
the Registered Exchange Offer has been consummated and that all holders of
the PM&C Class B Shares accepted the offer. If all holders do not accept this
offer, the actual pro forma data would differ from that set forth herein. In
addition, holders of the PM&C Class B Shares have certain preemptive,
tag-along and registration rights which may restrict the Company from
engaging in certain transactions.
DIVIDEND POLICY; RESTRICTIONS ON PAYMENT OF DIVIDENDS
The Company does not anticipate paying cash dividends on its Common Stock
in the foreseeable future. Moreover, Pegasus is a holding company, and its
ability to pay dividends is dependent upon the receipt of dividends from its
direct and indirect subsidiaries. The Company is a party to the New Credit
Facility and the Indenture that restrict its ability to pay dividends. See
"Dividend Policy" and "Description of Indebtedness."
POTENTIAL ANTI-TAKEOVER PROVISIONS
Pegasus' Amended and Restated Certificate of Incorporation contains, among
other things, provisions authorizing the issuance of "blank check" preferred
stock and two classes of Common Stock with different voting rights. See
"Description of Capital Stock." In addition, the Company is subject to the
provisions of Section 203 of the Delaware General Corporation Law. These
provisions could delay, deter or prevent a merger, consolidation, tender
offer, or other business combination or change of control involving the
Company that some or a majority of the Company's stockholders might consider
to be in their best interests,
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<PAGE>
including tender offers or attempted takeovers that might otherwise result in
such stockholders receiving a premium over the market price for the Class A
Common Stock. In the event of a Change of Control (as defined in the
Indenture), the Company will be required, subject to certain conditions, to
offer to purchase all outstanding Notes at a price equal to 101% of the
principal amount thereof, plus accrued interest to the date of purchase. In
addition, upon such a Change of Control, the Company will be obligated to
prepay all amounts owing under the New Credit Facility and the commitments
thereunder will be reduced to zero. The requirement that the Company offer to
repurchase the Notes and the obligation to prepay the amounts owing under the
New Credit Facility and the reduction of the commitments thereunder to zero
in the event of a Change of Control may have the effect of deterring a third
party from acquiring the Company in a transaction that would constitute a
Change of Control. See "Description of Indebtedness."
DILUTION IN INVESTMENT TO PURCHASERS OF THE CLASS A COMMON STOCK
Assuming an initial public offering price of $15.00 per share of Class A
Common Stock, purchasers of the Class A Common Stock offered hereby will
realize an immediate and substantial dilution of approximately $23.88 in net
tangible book value per share of Common Stock of their investment from the
initial public offering price after giving effect to the Transactions. See
"Dilution."
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<PAGE>
THE COMPANY
GENERAL
The Company is a diversified media and communications company operating in
three business segments: TV, DBS and Cable. The Company has grown through the
acquisition and operation of media and communications properties
characterized by clearly identifiable "franchises" and significant operating
leverage, which enables increases in revenues to be converted into
disproportionately greater increases in Location Cash Flow.
Pegasus was incorporated under the laws of the State of Delaware in May
1996. In October 1994, the assets of various affiliates of Pegasus,
principally limited partnerships that owned and operated the Company's TV and
New England Cable operations, were transferred to subsidiaries of PM&C. In
July 1995, the subsidiaries operating the Company's Mayaguez Cable systems
and the Company's New England DBS business became wholly owned subsidiaries
of PM&C. Upon consummation of this Offering, PM&C will become a subsidiary of
Pegasus. Management's principal executive offices are located at Suite 454, 5
Radnor Corporate Center, 100 Matsonford Road, Radnor, Pennsylvania 19087. Its
telephone number is (610) 341-1801.
ACQUISITIONS
Since January 1, 1996, the Parent has entered into agreements and
completed certain transactions in connection with the Portland and
Tallahassee Acquisitions, the Portland LMA and the Cable Acquisition. The
assets relating to these transactions were subsequently contributed to the
Company. Upon the consummation of this Offering, the Company will hold all of
the assets acquired by the Parent in the Michigan/Texas DBS Acquisition and
will have all rights of acquisition with respect to the Ohio DBS Acquisition.
Set forth below is certain information relating to these acquisitions.
COMPLETED ACQUISITIONS
Television Station WPXT. The Company acquired the principal tangible
assets of WPXT, the Fox-affiliated television station serving the Portland,
Maine DMA, and entered into a noncompetition agreement with WPXT's prior
owner for consideration totalling $12.4 million in cash and $400,000 of
assumed liabilities. Upon completion of this Offering and subject to any
necessary FCC approvals, the Parent will contribute WPXT's FCC license and
Fox Affiliation Agreement to the Company in exchange for $1.9 million in cash
and $150,000 of Class A Common Stock (valued at the price to the public in
this Offering) to be paid to WPXT's prior owner and $1.0 million of Class B
Common Stock (valued at the price to the public in this Offering) resulting
in an aggregate consideration of $15.8 million for the Portland Acquisition.
Television Station WTLH. In March 1996, the Company acquired substantially
all of the tangible assets of WTLH, the Fox-affiliated TV station serving the
Tallahassee, Florida DMA, for $5.0 million in cash and WTLH Warrants to
purchase $1.0 million of Class A Common Stock (valued at the price to the
public in this Offering). In August 1996, the Company acquired WTLH's FCC
licenses in exchange for notes of a subsidiary of the Company aggregating
$3.1 million, payable on March 1, 1998, with interest at 10% payable March 1,
1997 and 1998.
Television Station WWLA. In May 1996, the Parent acquired the Portland
LMA. As a condition of the completion of this Offering, the Parent will
contribute the Portland LMA to Pegasus in exchange for $1.0 million of Class
A Common Stock (valued at the price to the public in this Offering), which
the Parent will transfer to the seller. Under the Portland LMA, the Company
will lease facilities and provide programming to WWLA, retain all revenues
generated from advertising sales, and make payments of $52,000 per year to
the FCC license holder in addition to reimbursement of certain expenses.
Construction of WWLA is expected to be completed in 1997. Both WWLA's and
WPXT's offices, studio and transmission facilities will share the same
location.
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<PAGE>
Cable Acquisition. In August 1996, the Company acquired substantially all
of the assets of the San German Cable System, which serves ten communities
contiguous to the Company's Mayaguez Cable system, for approximately $26.4
million in cash and assumed liabilities. The Company plans to interconnect
the Mayaguez and San German Cable systems and operate them from a single
headend.
CONCURRENT ACQUISITION
Michigan/Texas DBS Acquisition. In May 1996, the Parent entered into an
agreement with Harron Communications Corp. ("Harron"), under which the
Company will acquire rights as exclusive provider of DIRECTV services in
certain rural areas of Texas and Michigan and related assets in exchange for
$11.9 million of Class A Common Stock (valued at the price to the public in
this Offering) and approximately $17.9 million in cash. Based upon an assumed
initial public offering price of $15.00 per share of Class A Common Stock,
after giving effect to this Offering and the Transactions, Harron would own
approximately 795,303 shares of the Class A Common Stock and would be deemed
to be the beneficial owner of approximately 8.8% of the outstanding Common
Stock. The Michigan/Texas DBS Acquisition is subject to conditions typical in
acquisitions of this nature, certain of which conditions may be beyond the
Company's control. One of the conditions precedent for the completion of this
Offering is the consummation of the Michigan/Texas DBS Acquisition. In
connection with the Michigan/Texas DBS Acquisition, the Parent agreed to
nominate a designee of Harron as a member of Pegasus' Board of Directors. See
"Risk Factors -- Risks Attendant to Acquisition Strategy."
PENDING ACQUISITION
Ohio DBS Acquisition. In July 1996, the Company entered into a letter of
intent with respect to the acquisition of DIRECTV distribution rights for
portions of Ohio and related assets. The letter of intent contemplates a
purchase price of approximately $12.0 million in cash. The Ohio DBS
Acquisition is subject to the negotiation of a definitive agreement and,
among other conditions, the prior approval of Hughes. In addition to these
conditions, the Ohio DBS Acquisition is also expected to be subject to
conditions typical in acquisitions of this nature, certain of which
conditions, like the Hughes consent, may be beyond the Company's control. The
letter of intent terminates on October 20, 1996 if a definitive agreement is
not entered into by that date and provides for a closing to occur no later
than November 15, 1996. There can be no assurance that the Ohio DBS
Acquisition will be consummated on the terms described herein or at all. The
Ohio DBS Acquisition is expected to be financed by proceeds from this
Offering or borrowings under the New Credit Facility. See "Risk Factors --
Risks Attendant to Acquisition Strategy."
PENDING SALE
New Hampshire Cable Sale. In July 1996, the Company entered into a letter
of intent with respect to the sale of its New Hampshire Cable systems. The
letter of intent contemplates a sale price of approximately $7.3 million in
cash. After payment of a sales commission, the net proceeds are expected to
be approximately $7.1 million. The New Hampshire Cable Sale is subject to the
negotiation of a definitive agreement, the prior approval of the local
franchising authorities and to other conditions typical in transactions of
this nature, certain of which are beyond the Company's control. The letter of
intent provides for execution of a definitive agreement by no later than
October 15, 1996. It is anticipated that the New Hampshire Cable Sale will
occur by December 31, 1996. There can be no assurance that the New Hampshire
Cable Sale will be consummated on the terms described herein or at all.
CORPORATE REORGANIZATION AND OTHER TRANSACTIONS
Set forth below is a description of certain of the Transactions that have
occurred or are scheduled to occur concurrently with or after the
consummation of this Offering. Completion of this Offering is conditioned on
all of the Transactions described below except for the Registered Exchange
Offer and the Management Share Exchange.
PARENT'S CONTRIBUTION OF PM&C CLASS A SHARES
Pegasus is a newly-formed subsidiary of the Parent and has no material
assets or operating history. The Parent's principal subsidiary is PM&C, which
now conducts through subsidiaries the Company's current
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<PAGE>
operations as described herein. Simultaneously with, and as a condition of,
the closing of this Offering, the Parent will contribute to Pegasus all of
its stock in PM&C, which consists of 161,500 PM&C Class A Shares in exchange
for 3,380,435 shares of Class B Common Stock.
MANAGEMENT AGREEMENT ACQUISITION
PM&C and its operating subsidiaries are party to the Management Agreement
with the Management Company, under which the Management Company provides
certain management and accounting services and PM&C and its subsidiaries are
obligated to pay the Management Company 5% of their net revenues and
reimburse the Management Company for its accounting department costs. The
Management Company is an affiliate of PM&C and Pegasus and is controlled and
predominantly owned by Marshall W. Pagon, the President and Chief Executive
Officer of PM&C and Pegasus.
Concurrently with the completion of this Offering, the Company will
acquire the Management Agreement together with certain net assets, including
approximately $1.4 million of accrued management fees, from the Management
Company in exchange for the Company's issuance of 1,306,667 shares of Class B
Common Stock (based upon an assumed initial public offering price of $15.00
per share) and approximately $1.4 million in cash. Of these shares, 182,652
will be exchanged for an equal number of shares of Class A Common Stock and
transferred to certain members of management who are participants in the
Management Share Exchange. The fair market value of the Management Agreement
has been determined by an independent appraiser. At the time that the
Management Agreement is transferred, the executive officers and other
employees of the Management Company will become employees of the Company. See
"Management and Certain Transactions -- Management Agreement."
REGISTERED EXCHANGE OFFER
PM&C has outstanding 8,500 PM&C Class B Shares that were issued to
purchasers of the Notes in PM&C's Notes offering. Shortly after the date of
this Prospectus, Pegasus intends to make the Registered Exchange Offer to the
holders of the PM&C Class B Shares to exchange such shares for 191,792 shares
in the aggregate of Class A Common Stock.
The exchange ratio of Class A Common Stock to be issued in the Registered
Exchange Offer for PM&C Class B Shares has been determined such that
immediately after giving effect to the Parent's contribution of the PM&C
Class A Shares to Pegasus and the completion of the Registered Exchange Offer
(assuming all holders of PM&C Class B Shares exchange their PM&C Class B
Shares), but before giving effect to the closing of this Offering and the
issuance of additional shares of Common Stock in connection with the
remaining Transactions, the Parent and holders of the PM&C Class B Shares,
respectively, will hold 95% and 5% of the equity of Pegasus and 99.5% and
0.5% of the voting rights of Pegasus' Common Stock, which are the same
proportions in which they now own PM&C.
Holders of PM&C Class B Shares who accept the Registered Exchange Offer
will receive shares of Class A Common Stock that have been registered under
the Securities Act and will be freely tradeable, except that the terms of the
Registered Exchange Offer are expected to require that each exchanging holder
agree not to sell, otherwise dispose of or pledge any shares of Class A
Common Stock received in the Registered Exchange Offer for a period of at
least 180 days after the date of this Prospectus without the prior written
consent of Lehman Brothers Inc. Holders who do not accept the Registered
Exchange Offer will retain their PM&C Class B Shares, for which there will be
no trading market. For this reason, the Company expects that all holders of
PM&C Class B Shares will accept the Registered Exchange Offer. However, there
can be no assurance that this will be the case, and the completion of this
Offering is not conditioned on any level of acceptances of the Registered
Exchange Offer. Accordingly, it is possible that PM&C will have up to a 5%
minority equity interest outstanding after completion of this Offering, which
minority interest is not reflected in the pro forma financial statements
included in this Prospectus.
MANAGEMENT SHARE EXCHANGE
Certain members of the Company's management hold 5,000 shares of Parent
Non-Voting Stock. It is expected that all shares of the Parent Non-Voting
Stock will be exchanged for 263,606 shares of Class A Common Stock of Pegasus
pursuant to the Management Share Exchange and that the Parent Non-Voting
Stock will be distributed to the Parent.
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<PAGE>
TOWERS PURCHASE
Concurrently with this Offering, the Company will purchase the broadcast
tower assets of Towers, an affiliate of the Company, for cash consideration
of approximately $1.4 million. These assets consist of ownership or leasehold
interests in three tower properties. Towers leases space on all of its towers
to the Company and also leases space to unaffiliated companies. The purchase
price has been determined by an independent appraisal.
NEW CREDIT FACILITY
In August 1996, the Company entered into the New Credit Facility. The New
Credit Facility provides for up to $50.0 million in revolving credit
borrowings, subject to syndication of $15.0 million of the facility. See
"Description of Indebtedness -- New Credit Facility."
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<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from its sale of 3,000,000 shares of Class
A Common Stock in this Offering at an assumed initial public offering price
of $15.00 per share, after deducting underwriting discounts and commissions
and estimated fees and expenses of this Offering, are estimated to be
approximately $40.9 million (approximately $47.2 million if the Underwriters'
over-allotment option is exercised in full). The Company intends to apply the
total net proceeds from this Offering as follows: (i) $17.9 million for the
payment of the cash portion of the purchase price of the Michigan/Texas DBS
Acquisition, (ii) $12.0 million for the Ohio DBS Acquisition, (iii) $6.0
million to repay indebtedness under the New Credit Facility, (iv) $1.9
million to make a payment on account of the Portland Acquisition, (v) $1.4
million for the payment of the cash portion of the purchase price of the
Management Agreement Acquisition, and (vi) $1.4 million for the Towers
Purchase. See "Management and Certain Transactions." The remaining net
proceeds, if any, together with available borrowings under the New Credit
Facility will be used for working capital and general corporate purposes;
however, they may be applied to future acquisitions. Pending application of
the net proceeds as set forth above, the Company intends to temporarily
invest the net proceeds in short-term, investment grade securities. If the
Ohio DBS Acquisition is not consummated, the Company intends to use the
approximately $12.0 million in net proceeds designated for this acquisition
to fund future acquisitions, for working capital and general corporate
purposes or to repay additional indebtedness under the New Credit Facility.
On August 29, 1996, all outstanding indebtedness under the Old Credit
Facility, which amounted to $8.8 million, was repaid from borrowings under
the New Credit Facility. In addition to the $8.8 million drawn under the New
Credit Facility to retire all outstanding indebtedness under the Old Credit
Facility, $22.8 million was also drawn on August 29, 1996 to fund the Cable
Acquisition. Borrowings under the New Credit Facility bear interest, payable
monthly, at LIBOR or the prime rate (as selected by the Company) plus spreads
that vary with PM&C's ratio of total debt to adjusted operating cash flow (as
defined therein). As of September 1, 1996, the New Credit Facility bore
interest at a blended rate of 9.375%. Borrowings under the New Credit
Facility mature on June 30, 2003, when all outstanding principal and accrued
interest is due and payable.
DIVIDEND POLICY
Pegasus is a newly formed corporation and has not paid any cash dividends
on its Common Stock. The Company currently intends to retain future earnings
for use in its business and, therefore, does not anticipate paying any cash
dividends in the foreseeable future. The payment of future dividends, if any,
will depend, among other things, on the Company's results of operations and
financial condition, any restriction in the Company's loan agreements and on
such other factors as the Company's Board of Directors may, in its
discretion, consider relevant. Since Pegasus is a holding company, its
ability to pay dividends is dependent upon the receipt of dividends from its
direct and indirect subsidiaries. PM&C, which upon consummation of this
Offering will be a direct subsidiary of Pegasus, is a party to the New Credit
Facility and the Indenture that restrict its ability to pay dividends. See
"Description of Indebtedness" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
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<PAGE>
DILUTION
The net tangible book deficit of the Company at June 30, 1996 was $68.2
million, or $20.18 per share of Common Stock. The net tangible book deficit
per share of Common Stock represents the amount of the Company's total
tangible assets less its total liabilities, divided by the number of shares
of Common Stock outstanding. After giving effect to the Transactions
(assuming an initial public offering price of $15.00 per share of Class A
Common Stock), the pro forma net tangible book deficit of the Company as of
June 30, 1996 would have been $121.5 million, or $19.97 per share of Common
Stock. After giving effect to the sale of the 3,000,000 shares of Class A
Common Stock offered by the Company in this Offering and the issuance of
Common Stock pursuant to the Transactions (assuming an initial public
offering price of $15.00 per share of Class A Common Stock), the pro forma
net tangible book deficit of the Company as of June 30, 1996 would have been
$80.6 million, or $8.88 per share of Common Stock. This represents an
immediate increase in net tangible book value of $11.30 per share of Common
Stock to existing stockholders and an immediate dilution in net tangible book
value of $23.88 per share of Common Stock to purchasers of the Class A Common
Stock in this Offering, as shown in the following table.
<TABLE>
<CAPTION>
Assumed initial public offering price per share ....................... $ 15.00
<S> <C> <C>
Net tangible book deficit per share as of June 30, 1996(1) ....... $(20.18)
Increase in net tangible book value per share attributable to new
stockholders purchasing stock ("Purchasers") in this Offering .. $ 15.90
----------
Pro forma net tangible book value per share after giving effect to
this Offering .................................................. $ (4.28)
Decrease in net tangible book value per share after giving effect
to the Transactions ............................................ $ (4.60)
----------
Pro forma net tangible book deficit after giving effect to this
Offering and the Transactions ....................................... $ (8.88)
----------
Dilution in net tangible book value per share to the Purchasers in this
Offering after giving effect to the Transactions .................... $(23.88)
==========
</TABLE>
- ------
(1) Assumes initial exchange of 3,380,435 shares of Class B Common Stock for
161,500 PM&C Class A Shares.
28
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at June
30, 1996 and as adjusted to give effect to (i) the sale and issuance by the
Company of 3,000,000 shares of Class A Common Stock at an assumed offering
price of $15.00 per share and (ii) the issuance of 1,600,704 shares of Class
A Common Stock and 4,483,805 shares of Class B Common Stock pursuant to the
Transactions (after giving effect to the 269,964 shares of Class B Common
Stock transferred as Class A Common Stock to certain members of management
who are participating in the Management Share Exchange). See "Use of
Proceeds," "Selected Historical and Pro Forma Combined Financial Data," and
"Pro Forma Combined Financial Data."
<TABLE>
<CAPTION>
As of June 30, 1996
---------------------------
Pro Forma
Actual As Adjusted
---------- -------------
(Dollars in thousands)
<S> <C> <C>
Cash, cash equivalents and restricted cash ................................... $ 8,068 $ 13,127
========== =============
Total debt:
New Credit Facility(1)(2) .................................................. $ -- $ 25,600
Old Credit Facility ........................................................ 8,800 --
12 1/2 % Series B Senior Subordinated Notes due 2005(3) .................... 81,391 81,391
Capital leases and other ................................................... 4,672 4,672
---------- -------------
Total debt ................................................................. 94,863 111,663
---------- -------------
Total stockholders' equity:
Preferred Stock, $0.01 par value, 5,000,000 shares authorized; no shares
issued and outstanding .................................................. -- --
Class A Common Stock, $0.01 par value, 30,000,000 shares authorized;
4,600,704 shares issued and outstanding, as adjusted .................... 2 46
Class B Common Stock, $0.01 par value, 15,000,000 shares authorized;
4,483,803 shares issued and outstanding, as adjusted .................... -- 45
Additional paid-in capital ................................................. 7,881 59,928
Retained earnings (deficit) ................................................ (474) 3,586
Partners' deficit .......................................................... (11,892) (11,892)
---------- -------------
Total stockholders' equity (deficit) .................................... (4,483) 51,713
---------- -------------
Total capitalization .................................................... $ 90,380 $163,376
========== =============
</TABLE>
- ------
(1) For a description of the New Credit Facility, see "Description of
Indebtedness -- New Credit Facility."
(2) As of August 29, 1996, $31.6 million had been drawn under the New Credit
Facility in connection with the retirement of the Old Credit Facility and
the consummation of the Cable Acquisition.
(3) For a description of the principal terms of the Notes, see "Description
of Indebtedness -- Notes."
29
<PAGE>
SELECTED HISTORICAL AND PRO FORMA COMBINED FINANCIAL DATA
The selected historical combined financial data for the years ended
December 31, 1992 and 1993 have been derived from the Company's Combined
Financial Statements for such periods, which have been audited by Herbein +
Company, Inc., as indicated in their report included elsewhere herein. The
selected historical combined financial data for the years ended December 31,
1994 and 1995 have been derived from the Company's Combined Financial
Statements for such periods, which have been audited by Coopers & Lybrand
L.L.P., as indicated in their report included elsewhere herein. The selected
historical combined financial data for the year ended December 31, 1991 and
the six months ended June 30, 1995 and 1996 have been derived from unaudited
combined financial information, which in the opinion of the Company's
management, contain all adjustments necessary for a fair presentation of this
information. The selected historical combined financial data for the six
months ended June 30, 1996 should not be regarded as indicative of the
results that may be expected for the entire year. The information should be
read in conjunction with the Combined Financial Statements and the notes
thereto, "Management's Discussion and Analysis of Financial Condition and
Results of Operations," and "Pro Forma Combined Financial Data," which are
included elsewhere herein.
30
<PAGE>
SELECTED HISTORICAL AND PRO FORMA COMBINED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------
1991(1) 1992 1993 (1) 1994 1995
---------- ---------- ---------- ---------- ---------
(Dollars in thousands, except earnings per share)
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Net revenues:
TV ....................... $ -- $ -- $10,307 $17,808 $19,973
DBS ...................... -- -- -- 174 1,469
Cable .................... 2,095 5,279 9,134 10,148 10,606
Other .................... 9 40 46 61 100
---------- ---------- ---------- ---------- ---------
Total net revenues ..... 2,104 5,319 19,487 28,191 32,148
---------- ---------- ---------- ---------- ---------
Location operating expenses:
TV ....................... -- -- 7,564 12,380 13,933
DBS ...................... -- -- -- 210 1,379
Cable .................... 1,094 2,669 4,655 5,545 5,791
Other .................... 3 12 16 18 38
Incentive compensation (3) .. -- 36 192 432 528
Corporate expenses .......... 206 471 1,265 1,506 1,364
Depreciation and amortization 1,175 2,541 5,978 6,940 8,751
---------- ---------- ---------- ---------- ---------
Income (loss) from operations (374) (410) (183) 1,160 364
Interest expense ............ (621) (1,255) (4,402) (5,973) (8,817)
Interest income ............. -- -- -- -- 370
Other expense, net .......... (21) (21) (220) (65) (44)
Provision (benefit) for taxes -- -- -- 140 30
Extraordinary gain (loss)
from extinguishment of
debt ..................... -- -- -- (633) 10,211
---------- ---------- ---------- ---------- ---------
Net income (loss) ........... $(1,016) $(1,686) $(4,805) $(5,651) $2,054
========== ========== ========== ========== =========
Income (loss) per share:
Loss before extraordinary
item ..................... $(1.59)
Extraordinary item .......... 1.99
---------
Net income (loss) per share . $0.40
=========
Weighted average shares
outstanding (000's) ...... 5,143
=========
Other Data:
Location Cash Flow (5) ...... $ 1,007 $ 2,638 $ 7,252 $10,038 $11,007
EBITDA (5) .................. 801 2,131 5,795 8,100 9,115
Capital expenditures ........ 213 681 885 1,264 2,640
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<PAGE>
<TABLE>
<CAPTION>
Six Months
Ended June 30,
--------------------------------------
Pro Pro
Forma Forma
1995 (2) 1995 1996 1996 (2)
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Income Statement Data:
Net revenues:
TV ....................... 27,305 $8,861 $11,932 $12,600
DBS ...................... 4,924 528 1,568 4,328
Cable .................... 14,919 5,177 5,626 8,032
Other .................... 100 36 56 56
----------- ---------- ---------- ----------
Total net revenues ..... 47,248 14,602 19,182 25,016
----------- ---------- ---------- ----------
Location operating expenses:
TV ....................... 19,210 6,714 8,271 8,765
DBS ...................... 5,138 622 1,261 3,604
Cable .................... 8,176 2,912 3,087 4,298
Other .................... 38 14 9 9
Incentive compensation (3) .. 511 356 430 421
Corporate expenses .......... 1,364 613 709 709
Depreciation and amortization 15,368 3,927 4,905 7,356
----------- ---------- ---------- ----------
Income (loss) from operations (2,557) (556) 510 (146)
Interest expense ............ (11,307) (3,350) (5,570) (6,583)
Interest income ............. 129 -- 151 151
Other expense, net .......... (58) (84) (62) (59)
Provision (benefit) for taxes 30 20 (133) (133)
Extraordinary gain (loss)
from extinguishment of
debt ..................... -- (4) -- -- --
----------- ---------- ---------- ----------
Net income (loss) ........... $(13,823) $(4,010) $(4,838) $(6,504)
=========== ========== ========== ==========
Income (loss) per share:
Loss before extraordinary
item ..................... $(1.52) $(0.94) $(0.72)
Extraordinary item .......... -- (4) -- --
----------- ---------- ----------
Net income (loss) per share . $(1.52) $(0.94) $(0.72)
=========== ========== ==========
Weighted average shares
outstanding (000's) ...... 9,085 5,143 9,085
=========== ========== ==========
Other Data:
Location Cash Flow (5) ...... $14,686 $4,340 $6,554 $8,340
EBITDA (5) .................. 12,811 3,371 5,415 7,210
Capital expenditures ........ 3,022 1,536 2,748 2,734
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Pro Forma
Twelve Months
Ended June 30,
1996 (2)
--------------
<S> <C>
Net revenues ................ $ 50,963
Location Cash Flow (5) ...... 16,714
EBITDA (5) .................. 14,666
</TABLE>
<TABLE>
<CAPTION>
As of December 31,
---------------------------------------------------------
1991 1992 1993 1994 1995
-------- -------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and
restricted cash ..........$ 901 $ 938 $ 1,506 $ 1,380 $21,856
Working capital (deficiency) 78 (52) (3,844) (23,074) 17,566
Total assets ................ 17,306 17,418 76,386 75,394 95,770
Total debt (including
current) ................. 13,675 15,045 72,127 61,629 82,896
Total liabilities ........... 14,572 16,417 78,954 68,452 95,521
Total equity (deficit) (6) .. 2,734 1,001 (2,427) 6,942 249
As of June 30, 1996
-------------------------------------
Actual Pro Forma (2)
--------- --------------
Balance Sheet Data:
Cash, cash equivalents and
restricted cash .......... $ 8,068 $ 13,247
Working capital (deficiency) 4,073 8,479
Total assets ................ 104,247 178,016
Total debt (including
current) ................. 94,863 111,663
Total liabilities ........... 108,730 126,303
Total equity (deficit) (6) .. (4,483) 51,713
</TABLE>
(footnotes on following page)
31
<PAGE>
- ------
(1) The Company's operations began in 1991. The 1991 data include the results
of the Massachusetts and New Hampshire Cable systems from June 26, 1991
(with the exception of the North Brookfield, Massachusetts Cable system,
which was acquired in July 1992), the Connecticut Cable system from
August 7, 1991 and the results of Towers from May 21, 1991. The 1993 data
include the results of the Mayaguez, Puerto Rico Cable system from March
1, 1993 and WOLF/WWLF/WILF, WDSI and WDBD from May 1, 1993.
(2) Pro forma income statement and other data for the year ended December 31,
1995, six months ended June 30, 1996 and the twelve months ended June 30,
1996 give effect to the acquisitions and this Offering as if such events
had occurred in the beginning of such periods. The pro forma balance
sheet data as of June 30, 1996 give effect to the acquisitions after June
30, 1996 and this Offering as if such events had occurred on such date.
See "Pro Forma Combined Financial Data."
(3) Incentive compensation represents compensation expenses pursuant to the
Restricted Stock Plan and 401(k) Plans. See "Management and Certain
Transactions -- Incentive Program."
(4) The pro forma income statement data for the year ended December 31, 1995
do not include the extraordinary gain on the extinguishment of debt of
$10.0 million and the $214,000 writeoff of deferred financing costs that
were incurred in 1995 in connection with the creation of the Old Credit
Facility.
(5) Location Cash Flow is defined as net revenues less location operating
expenses. Location operating expenses consist of programming, barter
programming, general and administrative, technical and operations,
marketing and selling expenses. EBITDA is defined as income (loss) before
(i) extraordinary items, (ii) provisions for income taxes, (iii) other
(income) expense, (iv) interest (income) expense, and (v) depreciation
and amortization expenses. The difference between Location Cash Flow and
EBITDA is that EBITDA includes incentive compensation and corporate
expenses. Although EBITDA and Location Cash Flow are not measures of
performance under generally accepted accounting principles, the Company
believes that Location Cash Flow and EBITDA are accepted within the
Company's business segments as generally recognized measures of
performance and are used by analysts who report publicly on the
performance of companies operating in such segments. Nevertheless, these
measures should not be considered in isolation or as a substitute for
income from operations, net income, net cash provided by operating
activities or any other measure for determining the Company's operating
performance or liquidity which is calculated in accordance with generally
accepted accounting principles.
(6) The Company has not paid any cash dividends and does not anticipate
paying cash dividends on its Common Stock in the foreseeable future.
32
<PAGE>
PRO FORMA COMBINED FINANCIAL DATA
Pro forma combined income statement and other data for the year ended
December 31, 1995, the six months ended June 30, 1996 and the twelve months
ended June 30, 1996 give effect to (i) the Portland Acquisition, which
actually closed on January 29, 1996, (ii) the Tallahassee Acquisition, which
actually closed on March 8, 1996, (iii) the Michigan/Texas DBS Acquisition,
which is to close concurrently with the closing of this Offering, (iv) the
Cable Acquisition, which actually closed on August 29, 1996, (v) the Ohio DBS
Acquisition, which is a pending acquisition, (vi) the New Hampshire Cable
Sale, which is a pending sale and (vii) this Offering, all as if such events
had occurred at the beginning of each period. The pro forma combined balance
sheet as of June 30, 1996 gives effect to (i) payments in connection with the
Portland Acquisition, (ii) the Michigan/Texas DBS Acquisition, which is to
close concurrently with the closing of this Offering, (iii) the Cable
Acquisition, which actually closed on August 29, 1996, (iv) the Ohio DBS
Acquisition, which is a pending acquisition, (v) acceptance of the Registered
Exchange Offer by all holders of the PM&C Class B Shares, (vi) the New
Hampshire Cable Sale, which is a pending sale and (vii) this Offering, as if
such events had occurred on such date. The Company's pro forma income (loss)
from continuing operations and income (loss) per share would be affected to
the extent that holders of PM&C Class B Shares do not accept the Registered
Exchange Offer. The Company does not believe that any such effect would be
material and expects that all such holders will accept the Registered
Exchange Offer.
These acquisitions are accounted for using the purchase method of
accounting. The total costs of such acquisitions are allocated to the
tangible and intangible assets acquired and liabilities assumed based upon
their respective fair values. The allocation of the purchase price included
in the pro forma financial statements is preliminary. The Company does not
expect that the final allocation of the purchase price will materially differ
from the preliminary allocation.
The pro forma adjustments are based upon available information and upon
certain assumptions that the Company believes are reasonable. The pro forma
combined financial information should be read in conjunction with the
Company's Combined Financial Statements and notes thereto, as well as the
financial statements and notes thereto of the acquisitions, included
elsewhere in this Prospectus. The pro forma combined financial data are not
necessarily indicative of the Company's future results of operations. There
can be no assurance whether or when the Ohio DBS Acquisition or the New
Hampshire Cable Sale will be consummated. See "Risk Factors -- Risks
Attendant to Acquisition Strategy."
33
<PAGE>
PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
Acquisitions
------------------------------------------------------------
MI/TX
Actual Portland(1) Tallahassee(2) DBS(3) Cable(4) Adjustments
-------- --------- ------------ -------- ------- -----------
(Dollars in thousands, except earnings per share)
<S> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Net revenues
TV ................................ $19,973 $ 4,409 $2,784 $ -- $ -- $ 139(7)
DBS ............................... 1,469 -- -- 2,513 -- --
Cable ............................. 10,606 -- -- -- 5,777 --
Other ............................. 100 -- -- -- -- --
-------- --------- ------------ -------- ------- -----------
Total net revenues ............... 32,148 4,409 2,784 2,513 5,777 139
-------- --------- ------------ -------- ------- -----------
Location operating expenses
TV ................................ 13,933 3,441 2,133 -- (186)(8)
-- (111)(9)
DBS ............................... 1,379 -- -- 3,083 -- (280)(10)
Cable ............................. 5,791 -- -- -- 3,485 (332)(11)
Other ............................. 38 -- -- -- -- --
Incentive compensation .............. 528 -- -- -- -- --
Corporate expenses .................. 1,364 147 40 139 -- (326)(12)
Depreciation and amortization ....... 8,751 212 107 559 501 4,527 (13)
-------- --------- ------------ -------- ------- -----------
Income (loss) from operations ....... 364 609 504 (1,268) 1,791 (3,153)
Interest expense .................... (8,817) (1,138) (163) (631) (850) (1,828)(14)
Interest income ..................... 370 -- -- -- -- (241)(15)
Other income (expense), net ......... (44) (542) (64) -- 50 542 (16)
Provision (benefit) for income taxes 30 -- 105 -- (189) 84 (17)
-------- --------- ------------ -------- ------- -----------
Income (loss) before extraordinary
items ............................. $(8,157) $(1,071) $ 172 $(1,899) $1,180 $(4,764)
======== ========= ============ ======== ======= ===========
Income (loss) per share:
Loss before extraordinary items ...
Weighted average shares
outstanding ....................
Other Data:
Location Cash Flow (21) ............. $11,007 $ 968 $ 651 $ (570) $2,292 $1,048
EBITDA (21) ......................... 9,115 821 611 (709) 2,292 1,374
Capital expenditures ................ 2,640 139 28 58 304 --
</TABLE>
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
Pending Transactions
-----------------------------------------
OH DBS NH The Pro
Sub-Total Acquisition(5) Adjustments Cable Sale(6) Total Offering Forma
--------- ------------ ----------- ----------- --------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Net revenues
TV ................................ $ 27,305 $ -- $-- $ -- $27,305 $ -- $27,305
DBS ............................... 3,982 942 -- -- 4,924 -- 4,924
Cable ............................. 16,383 -- -- (1,464) 14,919 -- 14,919
Other ............................. 100 -- -- -- 100 -- 100
--------- ------------ ----------- ----------- --------- ----------- --------
Total net revenues ............... 47,770 942 -- (1,464) 47,248 -- 47,248
--------- ------------ ----------- ----------- --------- ----------- --------
Location operating expenses
TV ................................ 19,210 -- -- -- 19,210 -- 19,210
DBS ............................... 4,182 956 -- -- 5,138 -- 5,138
Cable ............................. 8,944 -- (768) 8,176 -- 8,176
Other ............................. 38 -- -- -- 38 -- 38
Incentive compensation .............. 528 -- -- (17) 511 -- 511
Corporate expenses .................. 1,364 -- -- -- 1,364 -- 1,364
Depreciation and amortization ....... 14,657 183 1,017 (13) (618) 15,239 129(18) 15,368
--------- ------------ ----------- ----------- --------- ----------- --------
Income (loss) from operations ....... (1,153) (197) (1,017) (61) (2,428) (129) (2,557)
Interest expense .................... (13,427) -- (1,065)(14) -- (14,492) 3,185(19) (11,307)
Interest income ..................... 129 -- -- -- 129 -- 129
Other income (expense), net ......... (58) -- -- -- (58) -- (58)
Provision (benefit) for income taxes 30 -- -- 30 -- 30
--------- ------------ ----------- ----------- --------- ----------- ---------
Income (loss) before extraordinary
items ............................. $(14,539) $(197) $(2,082 ) $ (61) $(16,879) $3,056(20) $(13,823)
========= ============ =========== =========== ========= =========== =========
Income (loss) per share:
Loss before extraordinary items ... $(2.77) $(1.52)
========= =========
Weighted average shares
outstanding .................... 6,084,509 9,084,509
========= =========
Other Data:
Location Cash Flow (21) ............. $ 15,396 $ (14) $-- $ (696) $14,686 $ -- $14,686
EBITDA (21) ......................... 13,504 (14) -- (679) 12,811 -- 12,811
Capital expenditures ................ 3,169 -- -- (147) 3,022 -- 3,022
</TABLE>
34
<PAGE>
PRO FORMA STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
Acquisitions
----------------------------------------------------------
MI/TX
Actual Portland(1) Tallahassee(2) DBS(3) Cable(4) Adjustments
--------- --------- ------------ ------- ------ -----------
(Dollars in thousands, except earnings per share)
<S> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Net revenues
TV ................................ $11,932 $ 247 $404 $ -- $ -- $ 17(7)
DBS ............................... 1,568 -- -- 1,896 -- --
Cable ............................. 5,626 -- -- -- 3,190 --
Other ............................. 56 -- -- -- -- --
--------- --------- ------------ ------- ------ -----------
Total net revenues ............... 19,182 247 404 1,896 3,190 17
--------- --------- ------------ ------- ------ -----------
Location operating expenses
TV ................................ 8,271 294 243 -- (28)(8)
-- (15)(9)
DBS ............................... 1,261 -- -- 1,769 -- (168)(10)
Cable ............................. 3,087 -- -- -- 1,811 (166)(11)
Other ............................. 9 -- -- -- -- --
Incentive compensation .............. 430 -- -- -- -- --
Corporate expenses .................. 709 12 21 76 -- (109)(12)
Depreciation and amortization ....... 4,905 6 11 291 201 1,690 (13)
--------- --------- ------------ ------- ------ -----------
Income (loss) from operations ....... 510 (65) 129 (240) 1,178 (1,187)
Interest expense .................... (5,570) (565) (20) (343) (413) (732)(14)
Interest income ..................... 151 -- -- -- -- --
Other income (expense), net ......... (62) 20 (17) -- -- --
Provision (benefit) for income taxes (133) -- 35 -- 333 (368)(17)
--------- --------- ------------ ------- ------ -----------
Income (loss) before extraordinary
items ............................. $(4,838) $(610) $ 57 $ (583) $ 432 $(1,551)
========= ========= ============ ======= ====== ===========
Income (loss) per share:
Loss before extraordinary items ....
Weighted average shares
outstanding ......................
Other Data:
Location Cash Flow (21) ............. $ 6,554 $ (47) $161 $ 127 $1,379 $ 394
EBITDA (21) ......................... 5,415 (59) 140 51 1,379 503
Capital expenditures ................ 2,748 -- -- -- 133 --
</TABLE>
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
Pending Transactions
-----------------------------------------
OH DBS NH The Pro
Sub-Total Acquisition(5) Adjustments Cable Sale(6) Total Offering Forma
--------- ------------ ----------- ----------- --------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Net revenues
TV ................................ $12,600 $ -- $ -- $ -- $12,600 $ -- $12,600
DBS ............................... 3,464 864 -- -- 4,328 -- 4,328
Cable ............................. 8,816 -- -- (784) 8,032 -- 8,032
Other ............................. 56 -- -- -- 56 -- 56
--------- ------------ ----------- ----------- --------- --------- ---------
Total net revenues ............... 24,936 864 -- (784) 25,016 -- 25,016
--------- ------------ ----------- ----------- --------- --------- ---------
Location operating expenses
TV ................................ 8,765 -- -- -- 8,765 -- 8,765
DBS ............................... 2,862 742 -- -- 3,604 -- 3,604
Cable ............................. 4,732 -- -- (434) 4,298 -- 4,298
Other ............................. 9 -- -- -- 9 -- 9
Incentive compensation .............. 430 -- -- (9) 421 -- 421
Corporate expenses .................. 709 -- -- -- 709 -- 709
Depreciation and amortization ....... 7,104 94 406(13) (312) 7,292 64(18) 7,356
--------- ------------ ----------- ----------- --------- ---------- ---------
Income (loss) from operations ....... 325 28 (406) (29) (82) (64) (146)
Interest expense .................... (7,643) -- (533)(14) -- (8,176) 1,593(19) (6,583)
Interest income ..................... 151 -- -- -- 151 -- 151
Other income (expense), net ......... (59) -- -- -- (59) -- (59)
Provision (benefit) for income taxes (133) -- -- -- (133) -- (133)
--------- ------------ ----------- ----------- --------- ---------- ---------
Income (loss) before extraordinary
items ............................. $(7,093) 28 $(939) $ (29) $(8,033) $1,529(20) $ (6,504)
========= ============ =========== =========== ========= ========== =========
Income (loss) per share:
Loss before extraordinary items .... $(1.32) $ (0.72)
========= =========
Weighted average shares
outstanding ...................... 6,084,509 9,084,509
========= =========
Other Data:
Location Cash Flow (21) ............. $ 8,568 $122 -- $(350) $8,340 $ -- $8,340
EBITDA (21) ......................... 7,429 122 -- (341) 7,210 -- 7,210
Capital expenditures ................ 2,881 -- -- (147) 2,734 -- 2,734
</TABLE>
35
<PAGE>
PRO FORMA STATEMENT OF OPERATIONS
TWELVE MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
Acquisitions
-------------------------------------------------------------
MI/TX
Actual Portland(1) Tallahassee(2) DBS(3) Cable(4) Adjustments
--------- --------- ------------ --------- ------- -----------
(Dollars in thousands, except earnings per share)
<S> <C> <C> <C> <C> <C> <C>
Income Statement Data :
Net revenues
TV ............................... $ 23,044 $ 2,467 $1,893 -- -- $100(7)
DBS .............................. 2,509 -- -- $ 3,686 -- --
Cable ............................ 11,055 -- -- -- $6,184 --
Other ............................ 120 -- -- -- -- --
--------- --------- ------------ --------- ------- -----------
Total net revenues ............ 36,728 2,467 1,893 3,686 6,184 100
--------- --------- ------------ --------- ------- -----------
Location operating expenses
TV ............................... 15,490 2,147 1,449 -- -- (121)(8)
(67)(9)
DBS .............................. 2,018 -- -- 4,044 -- (388)(10)
Cable ............................ 5,966 -- -- -- 3,512 (332)(11)
Other ............................ 33 -- -- -- -- --
Incentive compensation ............. 602 -- -- -- -- --
Corporate expenses ................. 1,460 -- -- 145 -- (145)(12)
Depreciation and amortization ...... 9,729 172 58 575 558 4,153 (13)
--------- --------- ------------ --------- ------- ----------
Income (loss) from operations ...... 1,430 148 386 (1,078) 2,114 (3,000)
Interest expense ................... (11,037) (1,423) (123) (666) (852) (1,515)(14)
Interest income .................... 521 -- -- -- -- (211)(15)
Other income (expense), net ........ (22) (522) (85) -- -- 512 (16)
Provision (benefit) for income taxes (123) -- 73 -- 273 (346)(17)
--------- --------- ------------ --------- ------- -----------
Income (loss) before extraordinary
items ............................ $ (8,985) $(1,797) $ 105 $(1,744) $ 989 $(3,868)
========= ========= ============ ========= ======= ========
Income (loss) per share:
Loss before extraordinary items ...
Weighted average shares
outstanding .....................
Other Data:
Location Cash Flow (21) ............ $ 13,221 $ 320 $ 444 $ (358) $2,672 $1,008
EBITDA (21) ........................ 11,159 320 444 (503) 2,672 1,153
Capital expenditures ............... 3,832 50 14 29 267 --
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<PAGE>
<TABLE>
<CAPTION>
Pending Transactions
-----------------------------------------
OH DBS NH The Pro
Sub-Total Acquisition(5) Adjustments Cable Sale(6) Total Offering Forma
--------- ------------ ----------- ----------- --------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data :
Net revenues
TV ............................... $ 27,504 -- $ -- -- $ 27,504 -- $ 27,504
DBS .............................. 6,195 1,473 -- -- 7,668 -- 7,668
Cable ............................ 17,239 -- -- $(1,568) 15,671 -- 15,671
Other ............................ 120 -- -- -- 120 -- 120
--------- ------------ ----------- ----------- --------- ---------- ---------
Total net revenues ............ 51,058 1,473 -- (1,568) 50,963 -- 50,963
--------- ------------ ----------- ----------- --------- ---------- ---------
Location operating expenses
TV ............................... 18,898 -- -- -- 18.898 -- 18.898
DBS .............................. 5,674 1,329 -- -- 6,172 -- 6,172
Cable ............................ 9,146 -- -- (831) 9,146 -- 9,146
Other ............................ 33 -- -- -- 33 -- 33
Incentive compensation ............. 602 -- -- (14) 588 -- 588
Corporate expenses ................. 1,460 -- -- -- 1,460 -- 1,460
Depreciation and amortization ...... 15,245 185 1,015(13) (776) 15,669 129(18) 15,798
--------- ------------ ----------- ----------- --------- ---------- ---------
Income (loss) from operations ...... -- (41) (1,015) 53 (1,003) (129) (1,132)
Interest expense ................... (15,616) -- (1,065)(14) -- (16,681) 3,185(19) (13,496)
Interest income .................... 310 -- -- -- 310 -- 310
Other income (expense), net ........ (117) -- -- -- (117) -- (117)
Provision (benefit) for income taxes (123) -- -- -- (123) -- (123)
--------- ------------ ----------- ----------- --------- ---------- ---------
Income (loss) before extraordinary
items ............................ $(15,300) $ (41) $(2,080) $ 53 $(17,368) $3,056(20) $(14,312)
========= ============ =========== ========= ========= ========== =========
Income (loss) per share:
Loss before extraordinary items ... $ (2.85) $ (1.58)
========= =========
Weighted average shares
outstanding ..................... 6,084,509 9,084,509
========= =========
Other Data:
Location Cash Flow (21) ............ $17,307 $144 -- $(737) $ 16,714 -- $ 16,714
EBITDA (21) ........................ 15,245 144 -- (723) 14,666 -- 14,666
Capital expenditures ............... 4,192 -- -- (245) 3,947 -- 3,947
</TABLE>
36
<PAGE>
- ------
(1) Financial results of Portland Broadcasting, Inc.
(2) Financial results of WTLH, Inc.
(3) Financial results of the DBS Operations of Harron Communications Corp.
(4) Financial results of Dom's Tele Cable, Inc.
(5) Financial results of the DBS Operations of the Chillicothe Telephone
Company.
(6) Financial results of the New Hampshire Operations of Pegasus Cable
Television.
(7) To reduce the commissions paid by WPXT and WTLH to their national
advertising sales representative to conform to the Company's contract.
(8) To eliminate payroll expense related to staff reductions implemented
upon the consummation of the Portland Acquisition.
(9) To eliminate rent expenses incurred by WTLH, Inc. for the tower site
acquired and office property to be acquired by the Company in connection
with the Tallahassee Acquisition.
(10) To eliminate rent and other overhead expenses incurred by the prior
owner that will not be incurred by the Company for certain office
properties in connection with the Michigan/Texas DBS Acquisition.
(11) To eliminate expense reductions, such as redundant staff, rent,
professional fees and utilities to be implemented in connection with the
Cable Acquisition and interconnection of its Puerto Rico Cable systems.
(12) To eliminate corporate expenses charged by prior owners.
(13) To record additional depreciation and amortization resulting from the
purchase accounting treatment of the acquisitions outlined above. Such
amounts are based on a preliminary allocation of the total
consideration. The actual depreciation and amortization may change based
upon the final allocation of the total consideration to be paid to the
tangible and intangible assets acquired.
(14) To record the increase in net interest expense associated with the
borrowings incurred in connection with the acquisitions described above.
(15) To eliminate interest income earned on funds escrowed and used for
acquisitions.
(16) To eliminate certain nonrecurring expenses, primarily comprised of legal
and professional expenses incurred by the prior owners of the businesses
in connection with the acquisitions.
(17) To eliminate net tax benefit in connection with the acquisitions.
(18) To eliminate amortization of deferred costs related to the Old Credit
Facility and record amortization of costs incurred in connection with
the New Credit Facility.
(19) To remove interest expense on the debts to be retired with the proceeds
of this Offering.
(20) Upon repayment of the Old Credit Facility, the Company incurred an
extraordinary expense in connection with the write-down of deferred
financing costs of approximately $214,000, which is not included in
these pro forma statements. Upon consummation of the New Hampshire Cable
Sale, the Company will recognize a one time gain of approximately $4.3
million, which is not included in these pro forma statements.
(21) Location Cash Flow is defined as net revenues less location operating
expenses. Location operating expenses consist of programming, barter
programming, general and administrative, technical and operations,
marketing and selling expenses. EBITDA is defined as income (loss)
before (i) extraordinary items, (ii) provision (benefit) for income
taxes, (iii) other (income) expense, (iv) interest (income) expense, and
(v) depreciation and amortization expenses. The difference between
Location Cash Flow and EBITDA is that EBITDA includes incentive
compensation and corporate expenses. Although Location Cash Flow and
EBITDA are not measures of performance under generally accepted
accounting principles, the Company believes that Location Cash Flow and
EBITDA are accepted within the Company's business segments as generally
recognized measures of performance and are used by analysts who report
publicly on the performance of companies operating in such segments.
Nevertheless, these measures should not be considered in isolation or as
a substitute for income from operations, net income, net cash provided
by operating activities or any other measure for determining the
Company's operating performance or liquidity which is calculated in
accordance with generally accepted accounting principles.
37
<PAGE>
PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF JUNE 30, 1996
<TABLE>
<CAPTION>
Acquisitions
-----------------------------------------------
Portland MI/TX
Actual Portland(1) LMA(2) DBS(3) Cable
--------- --------- -------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $ 3,199 $ (3,550) $ -- $ (17,894) $(22,200)
Restricted cash held in
escrow ............... 4,869 -- -- -- --
Accounts receivable, net 6,825 -- -- -- --
Inventories ............. 460 -- -- -- --
Prepaid expenses and
other current assets . 1,729 -- -- -- --
Property and equipment,
net .................. 24,472 -- -- -- 1,865
Intangibles ............. 60,757 4,100 1,000 29,824 21,708
Other assets ............ 1,936 -- -- -- --
--------- --------- -------- ---------- ----------
Total assets .......... $104,247 $ 550 $1,000 $ 11,930 $ 1,373
========= ========= ======== ========== ==========
Liabilities and Equity:
Current liabilities ..... $ 5,913 $ (600) $ -- $ -- $ 1,373
Notes payable ........... 54 -- -- -- --
Accrued interest ........ 5,322 -- -- -- --
Current portion of
long-term debt ....... 364 -- -- -- --
Current portion of
program liabilities .. 1,356 -- -- -- --
Long-term debt .......... 94,445 -- -- -- --
Long-term program
liabilities .......... 1,161 -- -- -- --
Other long-term
liabilities .......... 115 -- -- -- --
--------- --------- -------- ---------- ----------
Total liabilities ..... 108,730 (600) -- -- 1,373
Class A Common Stock(8) . 2 1 1 8 --
Class B Common Stock .... -- -- -- -- --
Additional paid-in
capital .............. 7,881 1,149 999 11,922 --
Retained earnings
(deficit) ............ (474) -- -- -- --
Partners deficit ........ (11,892) -- -- -- --
--------- --------- -------- ---------- ----------
Total equity .......... (4,483) 1,150 1,000 11,930 --
--------- --------- -------- ---------- ----------
Total liabilities and
equity ............. $104,247 $ 550 $1,000 $ 11,930 $ 1,373
========= ========= ======== ========== ==========
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<PAGE>
Pending Transactions
---------------------------
New NH
Credit OH DBS Cable The
Facility Sub-Total Acquisition(5) Sale(6) Total Offering(7) Pro Forma
-------- ---------- ------------ ----------- --------- --------- ---------
Assets:
Cash and cash equivalents $21,645 $(18,800) $(12,000) $ 7,122 $(23,678) $32,056 $ 8,378
Restricted cash held in
escrow ............... -- 4,869 -- -- 4,869 -- 4,869
Accounts receivable, net -- 6,825 -- -- 6,825 -- 6,825
Inventories ............. -- 460 -- -- 460 -- 460
Prepaid expenses and
other current assets . -- 1,729 -- -- 1,729 -- 1,729
Property and equipment,
net .................. -- 26,337 -- (1,888) 24,449 -- 24,449
Intangibles ............. 941 118,330 12,000 (960) 129,370 -- 129,370
Other assets ............ -- 1,936 -- -- 1,936 -- 1,936
-------- ---------- ------------ ----------- --------- --------- ---------
Total assets .......... $22,586 $141,686 $ -- $ 4,274 $145,960 $32,056 $178,016
======== ========== ============ =========== ========= ========= =========
Liabilities and Equity:
Current liabilities ..... $ -- $ 6,686 $ -- $ -- $ 6,686 $ -- $ 6,686
Notes payable ........... -- 54 -- -- 54 -- 54
Accrued interest ........ -- 5,322 -- -- 5,322 -- 5,322
Current portion of
long-term debt ....... -- 364 -- -- 364 -- 364
Current portion of
program liabilities .. -- 1,356 -- -- 1,356 -- 1,356
Long-term debt .......... 22,800 117,245 -- -- 117,245 (6,000) 111,245
Long-term program
liabilities .......... -- 1,161 -- -- 1,161 -- 1,161
Other long-term
liabilities .......... -- 115 -- -- 115 -- 115
-------- ---------- ------------ ----------- --------- --------- ---------
Total liabilities ..... 22,800 132,303 -- -- 132,303 (6,000) 126,303
Class A Common Stock(8) . -- 12 -- -- 12 34 46
Class B Common Stock .... -- -- -- -- -- 45 45
Additional paid-in
capital .............. -- 21,951 -- -- 21,951 40,796 --
(1,400)
(1,419) 59,928
Retained earnings
(deficit) ............ (214) (688) -- 4,274 3,586 -- 3,586
Partners deficit ........ -- (11,892) -- -- (11,892) -- (11,892)
-------- ---------- ------------ ----------- --------- --------- ---------
Total equity .......... (214) 9,383 -- 4,274 13,657 38,056 51,713
-------- ---------- ------------ ----------- --------- --------- ---------
Total liabilities and
equity ............. $22,586 $141,686 $-- $4,274 $145,960 $32,056 $178,016
======== ========== ============ =========== ========= ========= =========
</TABLE>
38
<PAGE>
- ------
(1) To record the acquisition of WPXT's license and Fox Affiliation
Agreement, the noncompetition agreement with the prior owner of WPXT and
satisfaction of amounts due to the prior owner of WPXT for accrued
compensation for aggregate consideration of $4.7 million. The aggregate
consideration consists of $3.6 million in cash, $1.0 million of Class B
Common Stock (valued at the price to the public in this Offering) and
$150,000 of Class A Common Stock (valued at the price to the public in
this Offering). Of the total consideration, $4.1 million is allocated to
intangible assets consisting of broadcast licenses, network affiliation
agreements and noncompetition agreements and $600,000 is applied as a
reduction of current liabilities.
(2) To record the acquisition of the Portland LMA for $1.0 million of Class A
Common Stock (valued at the price to the public in this Offering), all of
which is allocated to LMAs.
(3) To record the Michigan/Texas DBS Acquisition for total consideration of
approximately $29.8 million consisting of $17.9 million in cash and $11.9
million in Class A Common Stock (valued at the price to the public in
this Offering), all of which is allocated to DBS rights.
(4) To record the Cable Acquisition for total consideration of approximately
$26.4 million consisting of $25.0 million in cash and $1.4 million in
assumed liabilities. Of the total consideration, approximately $4.7
million is allocated to property and equipment and approximately $21.7
million is allocated to franchise agreements.
(5) To record the Ohio DBS Acquisition for $12.0 million in cash, all of
which is allocated to DBS rights.
(6) To record the New Hampshire Cable Sale for $7.1 million, net of
commission.
(7) To record the net proceeds from the issuance of Class A Common Stock and
the intended uses of such proceeds. As of August 29, 1996, $31.6 million
had been drawn under the New Credit Facility in connection with the
retirement of the Old Credit Facility and the consummation of the Cable
Acquisition.
Source of proceeds:
Gross proceeds from this Offering . $45,000
=======
Intended uses of proceeds:
Michigan/Texas DBS Acquisition ... $17,894
Cash pending Ohio DBS Acquisition . 12,000
Repay indebtedness under the New Credit
Facility ....................... 6,000
Pay transaction costs related to this
Offering ....................... 4,125
Payment on account of Portland
Acquisition .................... 1,850
Management Agreement Acquisition . 1,419
Towers Purchase .................. 1,400
General corporate purposes ....... 312
-------
Total intended uses of proceeds $45,000
=======
(8) Pegasus is a newly-formed subsidiary of the Parent and has no material
assets or operating history. The Parent's principal subsidiary is PM&C,
which currently conducts through subsidiaries the Company's operations as
described herein. Simultaneously with, and as a condition of, the closing
of this Offering, the Parent will contribute to Pegasus all of its stock
in PM&C, which consists of 161,500 PM&C Class A Shares in exchange for
3,380,435 shares of Class B Common Stock.
39
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
COMPANY HISTORY
The Company is a diversified media and communications company operating in
three business segments: TV, DBS and Cable. The day-to-day operations of
WDBD, WDSI and the Mayaguez Cable system were managed by the Company prior to
their acquisition by the Company. WOLF was managed by Guyon Turner from its
sign-on in 1985 until its acquisition by the Company. Each of the following
acquisitions was accounted for using the purchase method of accounting. The
following table presents information regarding completed acquisitions, the
concurrent acquisition, the pending acquisition and the pending sale.
<TABLE>
<CAPTION>
Acquisitions
- ---------------------------------------------------------------------------------------------------------------------------------
Adjusted
Property Date Acquired Consideration(1) Form of Consideration
- ------------------------------------ --------------- -------------- -----------------------------------------------
(Dollars in millions)
<S> <C> <C> <C>
Completed acquisitions:
New England Cable systems ......... June 1991(2) $16.1(3) $6.0 cash and $10.1 of assumed liabilities, net
Mayaguez, Puerto Rico Cable system . March 1993(4) $12.3(5) $12.3 of assumed liabilities, net
WOLF/WILF/WWLF, WDSI and WDBD ..... May 1993(6) $24.2(7) $24.2 of assumed liabilities, net
New England DIRECTV rights ........ June 1993(8) $ 5.0 $5.0 cash
$14.2 cash, $0.4 assumed liabilities, $0.2 of Class
WPXT .............................. January 1996(9) $15.8 A Common Stock and $1.0 of Class B Common Stock(10)
$5.0 cash, $3.1 deferred obligation and the WTLH
WTLH .............................. March 1996 $ 8.1 Warrants
Portland LMA ...................... May 1996 $ 1.0 $1.0 of Class A Common Stock(10)
Cable Acquisition ................. August 1996 $26.4 $25.0 cash and $1.4 of assumed liabilities, net
Concurrent acquisition:
Michigan/Texas DBS Acquisition .... (11) $29.8 $17.9 cash and $11.9 of Class A Common Stock(10)
Pending acquisition:
Ohio DBS Acquisition .............. (12) $12.0 $12.0 cash
Pending sale:
New Hampshire Cable Sale .......... (13) $ 7.1 $7.1 cash
</TABLE>
- ------
(1) Adjusted consideration equals total consideration reduced by the amount
of current assets obtained in connection with the acquisition and
discounts realized by the Company and its affiliates on liabilities
assumed in connection with certain of the acquisitions. See footnotes
(3), (5) and (7).
(2) The Connecticut and North Brookfield, Massachusetts Cable systems were
acquired by the Company in August 1991 and July 1992, respectively.
(3) An affiliate of the Company acquired for $6.0 million certain credit
facilities having a face amount of $8.5 million which were assumed by
the Company in connection with these acquisitions and later satisfied in
full by the Company. Proceeds realized by the affiliate were
subsequently used to fund the purchase of New England DIRECTV rights
which the affiliate contributed to the Company.
(4) This Cable system's day-to-day operations have been managed by the
Company's executives since May 1, 1991.
(5) In July 1995, the Company realized a $12.6 million pre-tax gain upon the
extinguishment of certain credit facilities that were assumed by the
Company in connection with this acquisition.
(6) These television stations' day-to-day operations have been managed by
the Company's executives since October 1991.
(7) An affiliate of the Company acquired for $18.5 million certain credit
facilities which were assumed by the Company in connection with these
acquisitions. Immediately subsequent to this transaction, the Company's
indebtedness under these credit facilities of approximately $23.5
million was discharged for approximately $18.5 million of cash and $5.0
million of stock issued to the affiliate.
(8) The Company's rights purchases were initiated in June 1993 and completed
in February 1995. The Company commenced DBS operations in October 1994.
(9) The Company will acquire WPXT's FCC license and Fox Affiliation
Agreement concurrently with the consummation of this Offering.
(10) The number of shares of Common Stock to be issued in connection with
these acquisitions will be based on the price of the Class A Common
Stock to the public in this Offering.
40
<PAGE>
(11) Consummation of the Michigan/Texas DBS Acquisition and this Offering
will occur concurrently.
(12) This Offering is not conditioned upon consummation of the Ohio DBS
Acquisition. The Company anticipates that the Ohio DBS Acquisition will
occur after the consummation of this Offering; however, there can be no
assurance that the Ohio DBS Acquisition will be completed on the terms
described herein or at all. See "Risk Factors -- Risks Attendant to
Acquisition Strategy."
(13) This Offering is not conditioned upon consummation of the New Hampshire
Cable Sale. The Company anticipates that the New Hampshire Cable Sale
will occur after consummation of this Offering; however, there can be no
assurance that the New Hampshire Cable Sale will be completed on the
terms described herein or at all.
REORGANIZATION
The Company's Combined Financial Statements include the accounts of PM&C,
PM&C's subsidiaries, Towers and the Management Company. Concurrently with the
consummation of this Offering, the Parent will contribute all of the PM&C
Class A Shares to Pegasus for 3,380,435 shares of Class B Common Stock. The
Company will offer through the Registered Exchange Offer to exchange all of
the PM&C Class B Shares for 191,792 shares of Class A Common Stock, in the
aggregate. Upon consummation of this Offering the Company will acquire the
assets of Towers for $1.4 million in cash. The Company will also acquire the
Management Agreement together with certain net assets, including
approximately $1.4 million of accrued management fees, for $19.6 million of
Class B Common Stock (valued at the price to the public in this Offering) and
approximately $1.4 million in cash.
Although the Company anticipates that all of the holders of the PM&C Class
B Shares will accept the Registered Exchange Offer, the possibility remains
that some of the PM&C Class B Shares will not be exchanged and that PM&C will
not be a wholly owned subsidiary of Pegasus. In such event, the Company's
Combined Financial Statements would include appropriate disclosure of such
minority interests. See "Risk Factors -- Potential Effect on Company of
Minority Ownership of PM&C Capital Stock."
RESULTS OF OPERATIONS
TV revenues are derived from the sale of broadcast air time to local and
national advertisers. DBS revenues are derived from monthly customer
subscriptions, pay-per-view services, DSS equipment rentals, leases and
installation charges. Cable revenues are derived from monthly subscriptions,
pay-per-view services, subscriber equipment rentals, home shopping
commissions, advertising time sales and installation charges.
The Company's location operating expenses consist of (i) programming
expenses, (ii) marketing and selling costs, including advertising and
promotion expenses, local sales commissions, and ratings and research
expenditures, (iii) technical and operations costs, and (iv) general and
administrative expenses. TV programming expenses include the amortization of
long-term program rights purchases, music license costs and "barter"
programming expenses which represent the value of broadcast air time provided
to television program suppliers in lieu of cash. DBS programming expenses
consist of amounts paid to program suppliers and also include DSS
authorization charges and satellite control fees, each of which is paid on a
per subscriber basis, and DIRECTV royalties which are equal to 5% of program
service revenues. Cable programming expenses consist of amounts paid to
program suppliers on a per subscriber basis.
41
<PAGE>
SUMMARY COMBINED OPERATING RESULTS
<TABLE>
<CAPTION>
Six Months
Year Ended December 31, Ended June 30,
---------------------------------- ---------------------
1993 1994 1995 1995 1996
--------- --------- --------- -------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Net revenues:
TV ................................. $10,307 $17,808 $19,973 $ 8,861 $11,932
DBS ................................ -- 174 1,469 528 1,568
Cable:
Puerto Rico Cable ................ 3,187 3,842 4,007 2,005 2,044
New England Cable ................ 5,947 6,306 6,599 3,172 3,582
------- ------- ------- ------- -------
Total Cable net revenues ........ 9,134 10,148 10,606 5,177 5,626
------- ------- ------- ------- -------
Other .............................. 46 61 100 36 56
------- ------- ------- ------- -------
Total ......................... 19,487 28,191 32,148 14,602 19,182
======= ======= ======= ======= =======
Location operating expenses:
TV ................................. 7,564 12,380 13,933 6,714 8,271
DBS ................................ -- 210 1,379 622 1,261
Cable:
Puerto Rico Cable ................ 1,654 2,319 2,450 1,244 1,857
New England Cable ................ 3,001 3,226 3,341 1,668 1,230
------- ------- ------- ------- -------
Total Cable location operating
expenses ....................... 4,655 5,545 5,791 2,912 3,087
------- ------- ------- ------- -------
Other .............................. 16 18 38 14 9
------- ------- ------- ------- -------
Total ......................... 12,235 18,153 21,141 10,262 12,628
======= ======= ======= ======= =======
Location Cash Flow(1):
TV ................................. 2,744 5,428 6,040 2,147 3,661
DBS ................................ -- (36) 90 (94) 307
Cable:
Puerto Rico Cable ................ 1,533 1,523 1,557 761 814
New England Cable ................ 2,945 3,080 3,258 1,504 1,725
------- ------- ------- ------- -------
Total Cable Location Cash Flow... 4,478 4,603 4,815 2,265 2,539
------- ------- ------- ------- -------
Other .............................. 30 43 62 22 47
------- ------- ------- ------- -------
Total ......................... $ 7,252 $10,038 $11,007 $ 4,340 $ 6,554
======= ======= ======= ======= =======
Other data:
Growth in net revenues ............. 266% 45% 14% 16% 31%
Growth in Location Cash Flow ....... 175% 38% 10% 9% 51%
</TABLE>
- ------
(1) Location Cash Flow is defined as net revenues less location operating
expenses. Location operating expenses consist of programming, barter
programming, general and administrative, technical and operations,
marketing and selling expenses. Although Location Cash Flow is not a
measure of performance under generally accepted accounting principles,
the Company believes that Location Cash Flow is accepted within the
Company's business segments as a generally recognized measure of
performance and is used by analysts who report publicly on the
performance of companies operating in such segments. Nevertheless, this
measure should not be considered in isolation or as a substitute for
income from operations, net income, net cash provided by operating
activities or any other measure for determining the Company's operating
performance or liquidity which is calculated in accordance with generally
accepted accounting principles.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
The Company's net revenues increased by approximately $4,580,000 or 31%
for the six months ended June 30, 1996 as compared to the same period in 1995
as a result of (i) a $3,071,000 or 35% increase in TV revenues of which
$717,000 or 23% was due to ratings growth which the Company was able to
convert into higher revenues and $2,354,000 or 77% was due to acquisitions
made in the first quarter of 1996, (ii) a $1,040,000 or 197% increase in
revenues as a result of an increase in the number of DBS subscribers, (iii) a
$39,000 or 2% increase in Puerto Rico Cable revenues due primarily to a rate
increase in April, (iv) a $410,000 or 13% increase in New England Cable
revenues due primarily to rate increases and new combined service packages,
and (v) a $20,000 increase in Tower rental income.
The Company's total location operating expenses increased by approximately
$2,366,000 or 23% for the six months ended June 30, 1996 as compared to the
same period in 1995 as a result of (i) a $1,557,000 or
42
<PAGE>
23% increase in TV operating expenses as the net result of a $20,000 or 1%
decrease in same station direct operating expenses and a $1,577,000 increase
attributable to stations acquired in the first quarter of 1996, (ii) a
$639,000 or 103% increase in operating expenses generated by the Company's
DBS operations due to an increase in programming costs of $456,000, royalty
costs of $45,000, and other DIRECTV costs such as security, authorization
fees and telemetry and tracking charges totaling $138,000, (iii) a $14,000 or
1% decrease in Puerto Rico Cable operating expenses due primarily to reduced
contractor and converter repair work that was brought "in house," (iv) a
$189,000 or 11% increase in New England Cable operating expenses due
primarily to increases in programming costs associated with the new combined
service packages, and (v) a $5,000 decrease in administrative expenses.
As a result of these factors, Location Cash Flow increased by $2,214,000
or 51% for the six months ended June 30, 1996 as compared to the same period
in 1995 as a result of (i) a $1,514,000 or 71% increase in TV Location Cash
Flow of which $736,000 or 49% was due to an increase in same station Location
Cash Flow and $778,000 or 51% was due to an increase attributable to stations
acquired in the first quarter 1996, (ii) a $401,000 increase in DBS Location
Cash Flow, (iii) a $53,000 or 7% increase in Puerto Rico Cable Location Cash
Flow, (iv) a $221,000 or 15% increase in New England Cable Location Cash
Flow, and a $25,000 increase in Tower Location Cash Flow. Although Location
Cash Flow is not a measure of performance under generally accepted accounting
principles, the Company believes that Location Cash Flow is accepted within
the Company's business segments as a generally recognized measure of
performance and is used by analysts who report publicly on the performance of
companies operating in such segments. Nevertheless, this measure should not
be considered in isolation or as a substitute for income from operations, net
income, net cash provided by operating activities or any other measure for
determining the Company's operating performance or liquidity which is
calculated in accordance with generally accepted accounting principles.
As a result of these factors, incentive compensation, which is calculated
based on increases in Location Cash Flow, increased by approximately $74,000
or 21% for the six months ended June 30, 1996 as compared to the same period
in 1995.
Corporate expenses increased by $96,000 or 16% for the six months ended
June 30, 1996 as compared to the same period in 1995 primarily due to the
initiation of public reporting requirements for PM&C.
Depreciation and amortization expense increased by approximately $978,000
or 25% for the six months ended June 30, 1996 as compared to the same period
in 1995 as the Company increased its fixed and intangible assets as a result
of two completed acquisitions during the first quarter of 1996.
As a result of these factors, income from operations increased by
approximately $1.1 million for the six months ended June 30, 1996 as compared
to the same period in 1995.
Interest expense increased by approximately $2.2 million or 66% for the
six months ended June 30, 1996 as compared to the same period in 1995 as a
result of a combination of the Company's issuance of the Notes on July 7,
1995 and an increase in debt associated with the Company's 1996 acquisitions.
A portion of the proceeds from the issuance of the Notes was used to retire
floating rate debt on which the effective interest rate was lower than the
12.5% interest rate under the Notes.
The Company's net loss increased by $827,000 for the six months ended June
30, 1996 as compared to the same period in 1995 and was the net result of a
increase in income from operations of approximately $1.1 million, an increase
in interest expense of $2.2 million, an increase in interest income of
$151,000, a decrease in the provision for income taxes of $143,000 and a
decrease in other expenses of approximately $23,000.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
The Company's net revenues increased by approximately $4.0 million or 14%
in 1995 as compared to 1994 as a result of (i) a $2.2 million or 12% increase
in TV revenues due to ratings growth and improved economic conditions, within
the Company's markets, which the Company was able to convert into higher
revenues, (ii) a $1.3 million increase in revenues from DBS operations which
commenced in the fourth
43
<PAGE>
quarter of 1994, (iii) a $165,000 or 4% increase in Puerto Rico Cable
revenues due primarily to a rate increase implemented in March 1995, (iv) a
$293,000 or 5% increase in New England Cable revenues due to an increase in
the number of subscribers and rate increases in the third quarter of 1995,
and (v) a $39,000 increase in Tower rental income.
The Company's location operating expenses increased by approximately $3.0
million or 16% in 1995 as compared to 1994 as a result of (i) a $1.6 million
or 13% increase in TV operating expenses primarily due to increases in
programming, sales and promotion expenses, (ii) a $1.2 million increase in
DBS operating expenses primarily due to increases in programming costs which
are payable based on revenues and the number of subscribers, (iii) a $131,000
or 6% increase in Puerto Rico Cable operating expenses due primarily to an
increase in programming costs for existing channels, as well as increases in
the number of Spanish language channels offered by the system, (iv) a
$115,000 or 4% increase in New England Cable operating expenses due primarily
to increases in programming costs, and (v) a $20,000 increase in Tower
administrative expenses.
As a result of these factors, Location Cash Flow increased by
approximately $969,000 or 10% in 1995 as compared to 1994 as a result of (i)
a $612,000 or 11% increase in TV Location Cash Flow, (ii) a $126,000 or 350%
increase in DBS Location Cash Flow, (iii) a $34,000 or 2% increase in Puerto
Rico Cable Location Cash Flow, (iv) a $178,000 or 6% increase in New England
Cable Location Cash Flow, and (v) a $19,000 increase in Tower Location Cash
Flow.
As a result of the increase in Location Cash Flow, incentive compensation
increased by approximately $96,000 or 22% in 1995 as compared to 1994.
Corporate expenses decreased by approximately $142,000 or 9% in 1995 as
compared to 1994 primarily as a result of the transfer of certain functions
from corporate office staff to operating company staff.
Depreciation and amortization expense increased by approximately $1.8
million or 26% in 1995 as compared to 1994 primarily as a result of the
amortization of the Company's DBS rights and deferred financing costs.
As a result of these factors, income from operations decreased by
approximately $796,000 in 1995 as compared to 1994.
Interest expense increased by approximately $2.8 million or 48% in 1995 as
compared to 1994 as a result of the Company's issuance of the Notes on July
7, 1995. A portion of the proceeds from issuance of the Notes was used to
retire floating rate debt on which the effective interest rate was lower than
the 12.5% interest rate under the Notes.
The Company's net income increased by approximately $7.7 million in 1995
as compared to 1994 as a net result of a decrease in income from operations
of approximately $796,000, an increase in interest expense of $2.8 million,
an increase in interest income of $370,000, a decrease in income taxes of
$110,000, a decrease in other expenses of approximately $21,000 and an
increase in extraordinary items of $10.8 million for the reasons described in
"-- Liquidity and Capital Resources."
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
The Company's results for 1994 and 1993 are not directly comparable. The
1994 results include a full year of operations for all the Company's business
segments. The 1993 results include TV operations from May 1, 1993, Puerto
Rico Cable results from March 1, 1993 and full year results for New England
Cable.
The Company's net revenues increased by approximately $8.7 million or 45%
in 1994 as compared to 1993 as a result of (i) a $7.5 million increase or 73%
increase in TV revenues, of which $4.0 million or 53% was due to aquisitions
made in May 1993 and $3.5 million or 47% was due to ratings growth that the
Company was able to convert into higher revenues, (ii) a $174,000 of DBS
revenues generated in 1994, the Company's first year of DBS operations, (iii)
a $655,000 or 21% increase in Puerto Rico Cable revenues, (iv) a $360,000 or
6% increase in New England Cable revenues, and (v) a $15,000 increase in
Tower rental income.
44
<PAGE>
The Company's location operating expenses increased by approximately $5.9
million or 48% in 1994 as compared to 1993 as a result of (i) a $4.8 million
or 64% increase in TV operating expenses, of which $3.4 million or 71% was
due to operating the three TV stations for a full year and the remaining $1.4
million or 29% was due to the replacement of free programming such as
infomercials with syndicated programming and sales expense increases of 73%
which are a direct function of the increase in revenues, (ii) $210,000 of DBS
operating expenses incurred in 1994, the Company's first year of DBS
operations, (iii) a $665,000 or 40% increase in Puerto Rico Cable operating
expenses primarily from operating the system for a full year, but also due to
programming cost increases which were not passed on to subscribers due to
rate freezes imposed by the 1992 Cable Act (as defined), (iv) a $225,000 or
8% increase in New England Cable operating expenses, as a result of
subscriber growth and programming cost increases which were not passed on to
subscribers due to rate freezes imposed by the 1992 Cable Act, and (v) a
$2,000 increase in tower administrative expenses.
As a result of these factors, Location Cash Flow increased by $2.8 million
or 38% in 1994 as compared to 1993 as a result of (i) a $2.7 million or 98%
increase in TV Location Cash Flow, (ii) a negative DBS Location Cash Flow of
$36,000 in the Company's first year of DBS operations, (iii) a $10,000 or 1%
decrease in Puerto Rico Cable Location Cash Flow, (iv) a $135,000 or 5%
increase in New England Cable Location Cash Flow, and (v) a $13,000 increase
in Tower Location Cash Flow.
As a result of the increase in Location Cash Flow, incentive compensation
increased by approximately $240,000 or 125% for year ended December 31, 1994
as compared to the same period in 1993.
Corporate expenses increased by approximately $241,000 or 19% in 1994 as
compared to 1993 due primarily to corporate staff additions related to the
Company's 1993 acquisitions.
Depreciation and amortization increased by $962,000 or 16% in 1994 as
compared to 1993 due primarily to the acquisitions described above.
As a result of these factors, income from operations increased by
approximately $1.3 million in 1994 as compared to 1993.
Interest expense increased by approximately $1.6 million or 36% in 1994 as
compared to 1993 primarily as a result of increases in interest charges on
the Company's floating rate debt and the inclusion of a full year of interest
expense in 1994 on the indebtedness assumed by the Company in connection with
the acquisitions of the three television stations and the Mayaguez Cable
system.
Other expenses decreased by approximately $155,000 in 1994 as compared to
1993 as a result of a tax settlement made during 1993 with the Puerto Rico
Treasury Department in connection with withholding taxes on program payments
made by the Puerto Rico Cable system from 1987 through 1993 which was
recorded in other expenses in 1993.
Income taxes increased by approximately $140,000 in 1994 as compared to
1993 due principally to deferred income taxes recorded in connection with the
conversion of certain of the Company's subsidiaries from partnership to
corporate form during 1994.
As a result of certain refinancing transactions that occurred during 1994,
the Company recorded an extraordinary loss of approximately $633,000
representing the write-off of the balance of deferred finance costs related
to the refinanced indebtedness.
As a result of these factors, the Company's net loss increased by
approximately $845,000 in 1994 as compared to 1993.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity have been the net cash provided
by its TV and Cable operations and credit available under its credit
facilities. Additionally, the Company had $4.9 million in a restricted cash
account that was used to pay interest on the Company's Notes in July 1996.
The Company's principal uses of its cash have been to fund acquisitions, to
meet its debt service obligations, to fund investments in its TV and Cable
technical facilities and to fund investments in Cable and DBS customer
premises equipment that is rented or leased to subscribers.
45
<PAGE>
During the six months ended June 30, 1996, net cash utilized by operations
was approximately $2.0 million, which together with $12.0 million of cash on
hand and $8.8 million of net cash provided by the Company's credit facility
and $5.0 million of restricted cash was used to fund investing activities of
$20.6 million. Investment activities consisted of (i) the acquisitions of the
principal tangible assets of television station WPXT and the Tallahassee
Acquisition for approximately $17.1 million, (ii) the purchase of an office
facility for the Company's Connecticut Cable operations for $135,000, (iii)
the purchase of DSS units used as rental and lease units for $562,000 and
(iv) maintenance and other capital expenditures and intangibles totaling
approximately $2.8 million. As of June 30, 1996, the Company's cash on hand
(excluding restricted cash) approximated $3.2 million.
During 1995, net cash provided by operations was approximately $4.8
million, which together with $1.4 million of cash on hand and $11.1 million
of net cash provided by the Company's financing activities, was used to fund
a $12.5 million distribution to the Parent and to fund investment activities
totalling $5.2 million. Investment activities consisted of (i) the final
payment of the deferred purchase price for the Company's New England DBS
rights of approximately $1.9 million, (ii) the purchase of a new WDSI studio
and office facility for $520,000, (iii) the purchase of a LIBOR cap for
$300,000, (iv) the purchase of DSS units used as rental and lease units for
$157,000, and (v) maintenance and other capital expenditures totalling
approximately $2.3 million.
During 1994, net cash provided by operations amounted to $2.8 million,
which together with cash on hand and borrowings of $35.0 million was used to
fund capital expenditures of $1.3 million, to pay a portion of the deferred
purchase price of the DBS rights for $943,000, to repay debt totalling $34.0
million and to fund debt issuance costs of $1.6 million.
During 1993, net cash provided by operations amounted to $1.7 million,
which together with cash received in acquisitions of $804,000 and borrowings
of $15.1 million, was used to fund maintenance and other capital expenditures
of $885,000, to repay debt totalling $15.2 million and to fund debt issuance
costs of $843,000.
The Company completed the $85.0 million Notes offering on July 7, 1995.
The Notes were issued pursuant to an Indenture between PM&C and First Union
National Bank, as trustee. The Indenture restricts PM&C's ability to engage
in certain types of transactions including debt incurrence, payment of
dividends, investments in unrestricted subsidiaries and affiliate
transactions. The Notes were sold at a $4.0 million discount. The proceeds
from the Notes offering, together with cash on hand, were used to (i) repay
approximately $38.6 million in loans and other obligations, (ii) repurchase
$25.6 million of notes for approximately $13.0 million, which resulted in a
$10.2 million extraordinary gain net of expenses, (iii) make a $12.5 million
distribution to the Parent, (iv) escrow $9.7 million for the purpose of
paying interest on the Notes, (v) pay $3.3 million in fees and expenses, and
(vi) fund $8.8 million of the cash portion of the purchase price of the
Portland Acquisition.
During July 1995, the Company entered into the Old Credit Facility in the
amount of $10.0 million from which $6.0 million was drawn in connection with
the Portland and Tallahassee Acquisitions in the first quarter of 1996 and
$2.8 million was drawn to fund deposits in connection with the Cable
Acquisition. The Old Credit Facility was retired in August 1996 from
borrowings under the New Credit Facility.
The New Credit Facility is a seven-year, senior collateralized revolving
credit facility and will be for $50.0 million upon completion of the lending
consortium. Until such completion, or if other lenders do not join the
consortium, the New Credit Facility will be for $35.0 million. The amount of
the New Credit Facility will reduce quarterly beginning March 31, 1998. As of
August 29, 1996, $31.6 million had been drawn under the New Credit Facility
in connection with the retirement of the Old Credit Facility and the
consummation of the Cable Acquisition. The New Credit Facility is intended to
be used for general corporate purposes and to fund possible future
acquisitions. Borrowings under the New Credit Facility are subject to among
other things, PM&C's ratio of total funded debt to adjusted operating cash
flow. Currently, no additional funds may be drawn under the New Credit
Facility. Upon repayment of $6.0 million of the New Credit Facility from the
proceeds of this Offering, the Company will be able to draw down an
additional $6.0 million from the credit facility, subject to certain
exceptions. The Company's ability to draw under the New Credit Facility
increases as its Location Cash Flow increases. See "Description of
Indebtedness -- New Credit Facility."
The Company plans to use part of the net proceeds of this Offering to
repay $6.0 million of debt under the New Credit Facility (but not to reduce
the commitment level thereunder) and to fund the cash portion of
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<PAGE>
the Michigan/Texas DBS Acquisition. The Company believes that following the
completion of the concurrent and pending acquisition it will have adequate
resources to meet its working capital, maintenance capital expenditure and
debt service obligations. The Company believes that the net proceeds of this
Offering together with available borrowings under the New Credit Facility
will give the Company the ability to fund acquisitions and other capital
requirements in the future. However, there can be no assurance that the
future cash flows of the Company will be sufficient to meet all of the
Company's obligations and commitments. See "Risk Factors -- Substantial
Indebtedness and Leverage."
The Company closely monitors conditions in the capital markets to identify
opportunities for the effective and prudent use of financial leverage. In
financing its future expansion and acquisition requirements, the Company
would expect to avail itself of such opportunities and thereby increase its
indebtedness which could result in increased debt service requirements. The
Company is currently contemplating issuing additional debt securities to
refinance existing debt, to fund expansion and future acquisitions and/or to
fund general corporate purposes. There can be no assurance that such debt
financing can be completed on terms satisfactory to the Company or at all.
The Company may also issue additional equity to fund its future expansion and
acquisition requirements.
CAPITAL EXPENDITURES
The Company expects to incur capital expenditures in the aggregate of
$14.7 million in 1996 and 1997 in comparison to $2.6 million in 1995. With
the exception of recurring renewal and refurbishment expenditures of
approximately $1.6 million per year, these capital expenditures are
discretionary and nonrecurring in nature. The Company believes that
substantial opportunities exist for it to increase Location Cash Flow through
implementation of several significant capital improvement projects. In
addition to recurring renewal and refurbishment expenditures, the Company's
capital expenditure plans for 1996 and 1997,currently include (i) TV
expenditures of approximately $6.1 million for broadcast television
transmitter, tower and facility constructions and upgrades, (ii) DBS
expenditures of approximately $4.1 million for DSS equipment purchases for
lease and rental to the Company's DIRECTV subscribers and certain subscriber
acquisition costs, and (iii) Cable expenditures of approximately $1.3 million
for the interconnection of the Puerto Rico Cable systems and fiber upgrades
in Puerto Rico and New England. Beyond 1997, the Company expects its ongoing
capital expenditures to consist primarily of renewal and refurbishment
expenditures totalling approximately $1.6 million annually. There can be no
assurance that the Company's capital expenditure plans will not change in the
future.
OTHER
As a holding company, Pegasus' ability to pay dividends is dependent upon
the receipt of dividends from its direct and indirect subsidiaries. Under the
terms of the Indenture, PM&C is prohibited from paying dividends prior to
July 1, 1998. The payment of dividends subsequent to July 1, 1998 will be
subject to the satisfaction of certain financial conditions set forth in the
Indenture, and will also be subject to lender consent under the terms of the
New Credit Facility.
PM&C's ability to incur additional indebtedness is limited under the terms
of the Indenture and the New Credit Facility. These limitations take the form
of certain leverage ratios and are dependent upon certain measures of
operating profitability. Under the terms of the New Credit Facility, capital
expenditures and business acquisitions that do not meet certain criteria will
require lender consent.
The Company's revenues vary throughout the year. As is typical in the
broadcast television industry, the Company's first quarter generally produces
the lowest revenues for the year, and the fourth quarter generally produces
the highest revenues for the year. The Company's operating results in any
period may be affected by the incurrence of advertising and promotion
expenses that do not necessarily produce commensurate revenues in the
short-term until the impact of such advertising and promotion is realized in
future periods.
The Company believes that inflation has not been a material factor
affecting the Company's business. In general, the Company's revenues and
expenses are impacted to the same extent by inflation. Substantially all of
the Company's indebtedness bear interest at a fixed rate.
The Company has reviewed the provisions of Statements of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," and No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," and believes that future
implementation of the above standards will not have a material impact on the
Company.
47
<PAGE>
BUSINESS
GENERAL
The Company is a diversified media and communications company operating in
three business segments: TV, DBS and Cable. The Company has grown through the
acquisition and operation of media and communications properties
characterized by clearly identifiable "franchises" and significant operating
leverage, which enables increases in revenues to be converted into
disproportionately greater increases in Location Cash Flow.
OPERATING AND ACQUISITION STRATEGY
The Company's operating strategy is to generate consistent revenue growth
and to convert this revenue growth into disproportionately greater increases
in Location Cash Flow. The Company seeks to achieve revenue growth (i) in TV
by attracting a dominant share of the viewing of underserved demographic
groups it believes to be attractive to advertisers and by developing
aggressive sales forces capable of "overselling" its stations' share of those
audiences, (ii) in DBS by identifying market segments in which DIRECTV
programming will have strong appeal, developing marketing and promotion
campaigns to increase consumer awareness of and demand for DIRECTV
programming within those market segments and building distribution networks
consisting of consumer electronics and satellite equipment dealers,
programming sales agents and the Company's own direct sales force, and (iii)
in Cable by increasing the number of its subscribers and revenue per
subscriber through improvements in signal reception, the quality and quantity
of its programming, line extensions and rate increases. The Company seeks to
convert increases in revenues into disproportionately greater increases in
Location Cash Flow through the use of the incentive plans, which reward
employees in proportion to annual increases in Location Cash Flow, coupled
with rigorous budgeting and strict cost controls.
The Company's acquisition strategy is to identify media and communications
businesses in which significant increases in Location Cash Flow may be
realized and where the ratio of required investment to potential Location
Cash Flow is low. After giving effect to the Transactions, the Company would
have had pro forma net revenues and EBITDA of $51.0 million and $14.7
million, respectively, for the twelve months ended June 30, 1996. The
Company's net revenues and EBITDA have increased at a compound annual growth
rate of 98% and 84%, respectively, from 1991 to 1995.
TV
BUSINESS STRATEGY
The Company's operating strategy in TV is focused on (i) developing strong
local sales forces and sales management to maximize the value of its
stations' inventory of advertising spots, (ii) improving the stations'
programming, promotion and technical facilities in order to maximize their
ratings in a cost-effective manner and (iii) maintaining strict control over
operating costs while motivating employees through the use of incentive
plans, which rewards Company employees in proportion to annual increases in
Location Cash Flow.
The Company seeks to maximize demand for each station's advertising
inventory and thereby increase its revenue per spot. Each station's local
sales force is incentivized to attract first-time television advertisers as
well as provide a high level of service to existing advertisers. Sales
management seeks to "oversell" the Company's share of the local audience. A
television station oversells its audience share if its share of its market's
television revenues exceeds its share of the viewing devoted to all stations
in the market. Historically, the Company's stations have achieved oversell
ratios ranging from 120% to 200%. The Company recruits and develops sales
managers and salespeople who are aggressive, opportunistic and highly
motivated.
In addition, the Company seeks to make cost-effective improvements in its
programming, promotion and transmitting and studio equipment in order to
enable its stations to increase audience ratings in its targeted demographic
segments. In purchasing programming, the Company seeks to avoid competitive
program purchases and to take advantage of group purchasing efficiencies
resulting from the Company's ownership of multiple stations. The Company also
seeks to counter-program its local competitors in order to target specific
audience segments which it believes are underserved.
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<PAGE>
The Company utilizes its own market research together with national
audience research from its national advertising sales representative and
program sources to select programming that is consistent with the demographic
appeal of the Fox network, the tastes and lifestyles characteristic of the
Company's markets and the counter-programming opportunities it has
identified. Examples of programs purchased by the Company's stations include
"Home Improvement," "Seinfeld," "The Simpsons," "Mad About You," and
"Frazier" (off-network); "Star Trek: The Next Generation" and "Baywatch"
(syndication); and "Jenny Jones," "Rosie O'Donnell," and various game shows
(first run). In addition, the Company's stations purchase children's programs
to complement the Fox Children's Network's Monday through Saturday programs.
Each of the Company's stations is its market leader in children's viewing
audiences, with popular syndicated programming such as Disney's "Aladdin" and
"Gargoyles" complementing Fox programs such as the "Mighty Morphin Power
Rangers" and "R.L. Stine's Goosebumps," currently the nation's highest-rated
children's program on television.
The Company's acquisition strategy in TV seeks to identify stations in
markets of between 200,000 and 600,000 television households (DMAs 40 to 120)
which have no more than four competitive commercial television stations
licensed to them and which have a stable and diversified economic base. The
Company has focused upon these markets because it believes that they have
exhibited consistent and stable increases in local advertising and that
television stations in them have fewer and less aggressive direct
competitors. In these markets, the Company seeks television stations whose
revenues and market revenue share can be substantially improved with limited
increases in their fixed costs.
The Company is actively seeking to acquire additional stations in new
markets and to enter into LMAs with owners of stations or construction
permits in markets where it currently owns and operates Fox affiliates. The
Company has historically purchased Fox affiliates because (i) Fox affiliates
generally have had lower ratings and revenue shares than stations affiliated
with ABC, CBS and NBC and, therefore, greater opportunities for improved
performance, and (ii) Fox affiliated stations retain a greater share of their
inventory of advertising spots than do stations affiliated with ABC, CBS or
NBC, thereby enabling these stations to retain a greater share of any
increase in the value of their inventory. The Company is pursuing expansion
in its existing markets through LMAs because second stations can be operated
with limited additional fixed costs (resulting in high incremental operating
margins) and can allow the Company to create more attractive packages for
advertisers and program providers.
THE STATIONS
The following table sets forth general information for each of the
Company's stations.
<TABLE>
<CAPTION>
Number
Acquisition Station Market of TV
Station Date Affiliation Area DMA Households(1) Competitors(2)
---------------- -------------- ------------- --------------- ----- ------------- --------------
Existing Stations:
WWLF-56/WILF-53/
<S> <C> <C> <C> <C> <C> <C>
WOLF-38(6) .... May 1993 Fox Northeastern PA 49 553,000 3
WPXT-51 ........ January 1996 Fox Portland, ME 79 344,000 3
WDSI-61 ........ May 1993 Fox Chattanooga, TN 82 320,000 4
WDBD-40 ........ May 1993 Fox Jackson, MS 91 287,000 3
WTLH-49 ........ March 1996 Fox Tallahassee, FL 116 210,000 3
Additional Stations:
WOLF-38(6) ..... May 1993 UPN Northeastern PA 49 553,000 3
WWLA-35(7) ..... May 1996 UPN Portland, ME 79 344,000 3
</TABLE>
<TABLE>
<CAPTION>
Ratings Rank Oversell
---------------------- ----------
Station Prime(3) Access(4) Ratio(5)
---------------- --------- --------- ----------
Existing Stations:
WWLF-56/WILF-53/
<S> <C> <C> <C>
WOLF-38(6) .... 3 (tie) 1 166%
WPXT-51 ........ 2 4 122%
WDSI-61 ........ 4 3 125%
WDBD-40 ........ 2 (tie) 2 114%
WTLH-49 ........ 2 2 100%
Additional Stations:
WOLF-38(6) ..... N/A N/A N/A
WWLA-35(7) ..... N/A N/A N/A
</TABLE>
- ------
(1) Represents total homes in a DMA for each TV station as estimated by BIA.
(2) Commercial stations not owned by the Company which are licensed to and
operating in the DMA.
(3) "Prime" represents local station rank in the 18 to 49 age category
during "prime time" based on Nielsen estimates for May 1996.
(4) "Access" indicates local station rank in the 18 to 49 age category
during "prime time access" (6:00 p.m. to 8:00 p.m.) based on Nielsen
estimates for May 1996.
(5) The oversell ratio is the station's share of the television market net
revenue divided by its in-market commercial audience share. The oversell
ratio is calculated using 1995 BIA market data and 1995 Nielsen audience
share data.
(6) WOLF, WILF and WWLF are currently simulcast. Pending receipt of certain
FCC approvals, the Company intends to separately program WOLF as an
affiliate of UPN.
(7) The Company anticipates programming WWLA pursuant to an LMA as an
affiliate of UPN.
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NORTHEASTERN PENNSYLVANIA
Northeastern Pennsylvania is the 49th largest DMA in the United States
comprising 17 counties in Pennsylvania with a total of 553,000 television
households and a population of 1,465,000. In the past, the economy was
primarily based on steel and coal mining, but in recent years has diversified
to emphasize manufacturing, health services and tourism. The area is within a
two-hour drive of both New York City and Philadelphia. In 1995, annual retail
sales in this market totaled approximately $11.4 billion and total television
advertising revenues in the Northeastern Pennsylvania DMA increased 3.5% from
approximately $42.5 million to approximately $44.0 million. Northeastern
Pennsylvania is one of only two DMAs in the country in which all TV stations
licensed to it are UHF. In addition to WOLF, WWLF and WILF, which are
licensed to Scranton, Hazelton and Williamsport, respectively, there are
three commercial stations and one educational station operating in the
Northeastern Pennsylvania DMA. The Northeastern Pennsylvania DMA also has an
allocation for an additional channel, which is not operational.
<TABLE>
<CAPTION>
Northeastern Pennsylvania DMA Statistics
--------------------------------------------------
1992 1993 1994 1995 1996(1)
------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C>
Market Revenues (dollars in millions) . $ 35.0 $ 37.1 $ 42.5 $ 44.0 --
Market Growth ....................... -- 6.0% 14.6% 3.5% --
Station Revenue Growth .............. -- 10.0% 18.4% 11.9% --
Prime Rank (18-49) .................. 4 4 4 4 3 (tie)
Access Rank (18-49) ................. 4 4 4 3 1
Oversell Ratio ...................... 196% 176% 166% 166% --
</TABLE>
- ------
(1) Prime and access ratings ranks based on Nielson estimates for
May 1996.
The Company acquired WOLF and WWLF in May 1993 from a partnership of which
Guyon W. Turner was the managing general partner, and also acquired WILF at
the same time from a partnership unaffiliated with Mr. Turner. Mr. Turner is
a Vice President of Pegasus and Vice President of the subsidiary that
operates the Company's TV stations. He has been employed by the Company since
it acquired WOLF and WWLF. Historically, WOLF, WWLF and WILF have been
commonly programmed with WWLF and WILF operated as satellites of WOLF.
However, the Company believes that it can achieve over the air coverage of
the Northeastern Pennsylvania DMA comparable to that currently provided by
WOLF, WWLF and WILF together by moving WWLF to a tower site occupied by the
other stations in the market and by increasing the authorized power of WILF.
The Company has filed an application with the FCC, which if granted, will
enable the Company to accomplish this objective. This application is
currently pending. If this application is granted by the FCC, the Company
intends to relocate WWLF's transmitter and tower, to increase the power of
WILF and to separately program WOLF as an affiliate of UPN. The continued
ownership of WOLF by the Company following relocation of the WWLF tower may
depend on changes in the FCC's ownership rules. See "-- Licenses, LMAs, DBS
Agreements and Cable Franchises."
PORTLAND, MAINE
Portland is the 79th largest DMA in the United States, comprising 12
counties in Maine and New Hampshire with a total of 344,000 television
households and a population of 902,000. Portland's economy is based on
financial services, lumber, tourism, and its status as a transportation and
distribution gateway for central and northern Maine. In 1995, annual retail
sales in the Portland market totaled approximately $8.9 billion and the total
television revenues in this market increased 4.0% from approximately $40.0
million to approximately $41.6 million. In addition to WPXT, there are three
VHF and three UHF stations operating in the Portland DMA, including one VHF
and two UHF educational stations.
50
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<TABLE>
<CAPTION>
Portland, Maine DMA Statistics
------------------------------------------------
1992 1993 1994 1995 1996(1)
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Market Revenues (dollars in millions) . $ 32.3 $ 34.3 $ 40.0 $ 41.6 --
Market Growth ........................ -- 6.2% 16.6% 4.0% --
Station Revenue Growth ............... -- 9.1% 18.0% 2.0% --
Prime Rank (18-49) ................... 4 4 4 2 2
Access Rank (18-49) .................. 4 4 4 3 4
Oversell Ratio ....................... 140% 144% 139% 122% --
</TABLE>
- ------
(1) Prime and access ratings ranks based on Nielson estimates for May 1996.
In the Portland Acquisition, the Company acquired television station WPXT,
the Fox-affiliated television station serving the Portland DMA. Pursuant to
the Portland LMA, the Company acquired an LMA with the holder of a
construction permit for WWLA, a new TV station licensed to operate UHF
channel 35 in the Portland market. Under the Portland LMA, the Company will
lease facilities and provide programming to WWLA, retain all revenues
generated from advertising, and make payments of $52,000 per year to the FCC
license holder in addition to reimbursement of certain expenses. Construction
of WWLA is expected to be completed in 1997. WWLA's offices, studio and
transmission facilities will be co-located with WPXT. In April 1996, an
application was filed with the FCC to significantly increase WWLA's
authorized power in order to expand its potential audience coverage. That
application is currently pending before the FCC.
CHATTANOOGA, TENNESSEE
Chattanooga is the 82nd largest DMA in the United States, comprising 18
counties in Tennessee, Georgia, North Carolina and Alabama with a total of
320,000 television households and a population of 842,000. Chattanooga's
economy is based on insurance and financial services in addition to
manufacturing and tourism. In 1995, annual retail sales in the Chattanooga
market totaled approximately $7.1 billion and total television revenues in
this market increased 2.4% from approximately $37.6 million to approximately
$38.5 million. In addition to WDSI, there are three VHF and four UHF stations
operating in the Chattanooga DMA, including one religious and two educational
stations. The Company acquired WDSI in May 1993. From October 1991 through
April 1993, the station was managed by the Company. See "Management and
Certain Transactions."
<TABLE>
<CAPTION>
Chattanooga, Tennessee DMA Statisitics
------------------------------------------------
1992 1993 1994 1995 1996(1)
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Market Revenues (dollars in millions) . $ 29.8 $ 31.0 $ 37.6 $ 38.5 --
Market Growth ........................ -- 4.0% 21.3% 2.4% --
Station Revenue Growth ............... -- 7.7% 38.6% 9.1% --
Prime Rank (18-49) ................... 4 4 4 4 4
Access Rank (18-49) .................. 3 4 4 4 3
Oversell Ratio ....................... 132% 119% 129% 125% --
</TABLE>
- ------
(1) Prime and access ratings ranks based on Nielson estimates for May 1996.
JACKSON, MISSISSIPPI
Jackson is the 91st largest DMA in the United States, comprising 24
counties in central Mississippi with a total of 287,000 television households
and a population of 819,000. Jackson is the capital of Mississippi and its
economy reflects the state and local government presence as well as
agriculture and service industries. Because of its central location, it is
also a major transportation and distribution center. In 1995, annual retail
sales in the greater Jackson market totaled approximately $6.1 billion and
total television revenues in the market increased 10.8% from approximately
$32.5 million to approximately $36.0 million. In addition to WDBD, there are
two VHF and two UHF television stations operating in the Jackson DMA,
including one educational station. The Jackson DMA also has an allocation for
an additional television channel which is not operational. The Company
acquired WDBD in May 1993. From October 1991 through April 1993, the station
was managed by the Company. See "Management and Certain Transactions."
51
<PAGE>
<TABLE>
<CAPTION>
Jackson, Mississippi DMA Statistics
--------------------------------------------------
1992 1993 1994 1995 1996(1)
------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C>
Market Revenues (dollars in millions) . $ 26.3 $ 28.4 $ 32.5 $ 36.0 --
Market Growth ........................ -- 8.0% 14.4% 10.8% --
Station Revenue Growth ............... -- 21.8% 17.2% 15.9% --
Prime Rank (18-49) ................... 3 3 3 3 2 (tie)
Access Rank (18-49) .................. 4 4 3 3 2
Oversell Ratio ....................... 132% 119% 125% 114% --
</TABLE>
- ------
(1) Prime and access ratings ranks based on Nielson estimates for May 1996.
TALLAHASSEE, FLORIDA
The Tallahassee DMA is the 116th largest in the United States comprising
18 counties in northern Florida and southern Georgia with a total of 210,000
television households and a population of 578,000. Tallahassee is the state
capital of Florida and its major industries include state and local
government as well as firms providing commercial service to North Florida's
cattle, lumber, tobacco and farming industries. In 1995, annual retail sales
in this market totaled $4.4 billion and total television advertising revenues
increased 5.3% from approximately $18.9 million in 1994 to approximately
$19.9 million. In addition to WTLH, there are two VHF and two UHF television
stations operating in the Tallahassee DMA, including one educational station.
An additional station licensed to Valdosta, Georgia broadcasts from a
transmission facility located in the Albany, Georgia DMA. The Tallahassee DMA
has allocations for three TV stations that are not operational.
<TABLE>
<CAPTION>
Tallahassee, Florida DMA Statistics
----------------------------------------------------------
1992 1993 1994 1995 1996(1)
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Market Revenues (dollars in millions) .... $ 16.6 $ 17.2 $ 18.9 $ 19.9 --
Market Growth ............................ -- 3.6% 9.9% 5.3% --
Station Revenue Growth ................... -- 2.4% 31.7% 8.5% --
Prime Rank (18-49) ....................... 4 3 3 2 2
Access Rank (18-49) ...................... 3 3 2 3 2
Oversell Ratio ........................... 118% 100% 117% 100% --
</TABLE>
- ------
(1) Prime and access ratings ranks based on Nielson estimates for May 1996.
In March 1996, the Company acquired the principal tangible assets of WTLH
and entered into an LMA to operate WTLH. In August 1996, the Company acquired
WTLH's FCC license and its Fox Affiliation Agreement. WTLH has filed with the
FCC an application which, if granted, will enable the Company to move WTLH's
tower and transmitter facilities to a site approximately ten miles closer to
Tallahassee and to increase its tower height and power. That application is
currently pending before the FCC. The Company anticipates relocating WTLH's
transmitter and tower to this site in 1997 to increase its audience coverage
in the Tallahassee market.
DBS
DIRECTV
DIRECTV is a multichannel DBS programming service initially introduced to
United States television households in 1994. DIRECTV currently offers in
excess of 175 channels of near laser disc quality video and CD quality audio
programming and transmits via three high-power Ku band satellites, each
containing 16 transponders. As of August 20, 1996, there were over 1.8
million DIRECTV subscribers. DIRECTV expects to have over 2.6 million
subscribers by the end of 1996 and approximately ten million subscribers by
the year 2000.
The equipment required for reception of DIRECTV services (a DSS unit)
includes an 18-inch satellite antenna, a digital receiver approximately the
size of a standard VCR and a remote control, all of which are used with
standard television sets. Each DSS receiver includes a "smart card" which is
uniquely addressed to it. The smart card, which can be removed from the
receiver, prevents unauthorized reception of DIRECTV services and retains
billing information on pay-per-view usage, which information is sent at
regular intervals from the DSS receiver telephonically to DIRECTV's
authorization and billing system. DSS units also enable
52
<PAGE>
subscribers to receive United States Satellite Broadcasting Company, Inc.
("USSB") programming. USSB is a DBS service whose programming consists of 25
channels of video programming transmitted via five transponders it owns on
DIRECTV's first satellite. USSB primarily offers Time Warner and Viacom
satellite programming services, such as multiple channels of HBO and
Showtime, which are not available through DIRECTV but which are generally
complementary to DIRECTV programming.
A license to manufacture DSS units was initially awarded by Hughes to
Thomson Consumer Electronics, Inc., the manufacturer of RCA-branded products
("RCA/Thomson"). This license provided RCA/Thomson with an exclusivity
period, which ended in April 1995, covering the first one million DSS units.
RCA/Thomson's DSS units retail for as low as $399. Hughes awarded a second
license to Sony which provided Sony joint exclusivity with RCA/Thomson until
December 1995. Hughes has awarded additional licenses to Hughes Network
Systems, Toshiba Consumer Electronics, Samsung Electronics America, Inc.,
Sanyo Fisher Corporation, Daewoo Electronics Corporation of America, Uniden
Corporation and Philips Electronics, N.V., whose production and distribution
have commenced or are expected to commence in 1996. At the end of 1995, more
than 20,000 retailers were selling DSS equipment and DIRECTV programming
packages.
In January 1996, DIRECTV entered into a strategic relationship with AT&T
that is designed to accelerate DIRECTV's market penetration. The agreement
calls for AT&T to invest $137.5 million for a 2.5% equity interest in DIRECTV
with rights to purchase up to 30% of DIRECTV based on subscriber acquisition
performance. The agreement gives AT&T an exclusive right to market, except in
NRTC territories, DIRECTV services to all residential customers. In May 1996,
AT&T began to offer DIRECTV programming and DSS receiving equipment to its 90
million customers utilizing its Universal Card to provide financing and its
True Rewards(R) frequent buyers program. Additionally, DIRECTV has recently
announced a joint venture with Microsoft to offer interactive programming and
data services to be introduced in early 1997.
THE COMPANY'S DBS OPERATIONS
The Company owns, through agreements with the NRTC, the exclusive right to
provide DIRECTV services in certain rural areas of Connecticut,
Massachusetts, New Hampshire and New York. Upon consummation of the
Michigan/Texas DBS Acquisition and the Ohio DBS Acquisition, it will also
acquire exclusive rights to provide DIRECTV services in certain rural areas
of Michigan, Texas and Ohio. The Company is the largest independent provider
of DIRECTV services not affiliated with Hughes. The Company's New England DBS
service area encompasses all of its New England Cable systems except for its
systems in central Massachusetts. Its Michigan DBS service area covers nine
counties in the Flint, Saginaw and thumb regions of Michigan, its Texas DBS
service area covers seven counties approximately 45 miles south of the
Dallas/Fort Worth metroplex and its Ohio DBS service area covers 11 counties
in southern Ohio.
53
<PAGE>
<TABLE>
<CAPTION>
Homes Average
Not Homes Monthly
Total Passed Passed Penetration Revenue
DIRECTV Homes in by by Total -------------------------------- Per
Territory Territory Cable(1) Cable(2) Subscribers(3) Total Uncabled Cabled Subscriber(4)
----------------- ----------- --------- --------- -------------- ------- ---------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Owned:
Western New
England ........ 288,273 41,465 246,808 5,208 1.8% 10.5% 0.3%
New Hampshire ... 167,531 42,075 125,456 3,273 2.0% 6.6% 0.4%
Martha's Vineyard
and Nantucket .. 20,154 1,007 19,147 635 3.2% 51.7% 0.6%
----------- --------- --------- -------------- ------- ---------- -------- ---------
Total .......... 475,958 84,547 391,411 9,116 1.9% 9.1% 0.4% $40.32
----------- --------- --------- -------------- ------- ---------- -------- ---------
To Be Acquired:
Michigan ........ 241,713 61,774 179,939 5,213 2.2% 6.6% 0.6% $43.35
Texas ........... 149,530 54,504 95,026 4,449 3.0% 6.2% 1.1% $36.95
Ohio ............ 167,558 32,180 135,378 4,355 2.6% 10.1% 0.8% $39.27
----------- --------- --------- -------------- ------- ---------- -------- ---------
Total .......... 558,801 148,458 410,343 14,017 2.5% 7.2% 0.8% $40.10
----------- --------- --------- -------------- ------- ---------- -------- ---------
Total ......... 1,034,759 233,005 801,754 23,133 2.2% 7.9% 0.6% $40.18
=========== ========= ========= ============== ======= ========== ======== =========
</TABLE>
- ------
(1) Based on NRTC estimates of primary residences derived from 1990 U.S.
census data and after giving effect to a 1% annual housing growth rate
and seasonal residence data obtained from county offices. Does not
include business locations. Includes approximately 22,200 seasonal
residences.
(2) Based on NRTC estimates of primary residences derived from 1990 U.S.
census data and after giving effect to a 1% annual housing growth rate
and seasonal residence data obtained from county offices. Does not
include business locations. Includes approximately 80,300 seasonal
residences.
(3) As of August 1996.
(4) Based upon July 1996 revenues and average July 1996 subscribers.
BUSINESS STRATEGY
As the exclusive provider of DIRECTV services in its purchased
territories, the Company provides a full range of services, including
installation, authorization and financing of equipment for new customers as
well as billing, collections and customer service support for existing
subscribers. The Company's operating strategy in DBS is to (i) establish
strong relationships with retailers, (ii) build its own direct sales and
distribution channels, (iii) develop local and regional marketing and
promotion to supplement DIRECTV's national advertising, and (iv) offer
aggressively priced equipment rental, lease and purchase options.
The Company anticipates continued significant growth in subscribers and
operating profitability in DBS through increased penetration of DIRECTV
territories it currently owns and will acquire pursuant to the Michigan/Texas
DBS Acquisition and the Ohio DBS Acquisition. The Company's DBS operations
achieved positive Location Cash Flow in 1995, its first full year of
operations. The Company's DIRECTV subscribers currently generate revenues of
approximately $40 per month at an average gross margin of 34%. The Company's
remaining expenses consist of marketing costs incurred to build its growing
base of subscribers and overhead costs which are predominantly fixed. As a
result, the Company believes that future increases in its DBS revenues will
result in disproportionately greater increases in Location Cash Flow. For the
first six months of 1996, the Company has been adding DIRECTV subscribers at
approximately twice the rate of the same period in 1995.
The Company also believes that there is an opportunity for additional
growth through the acquisition of DIRECTV territories held by other NRTC
members. NRTC members are the only independent providers of DIRECTV services.
In excess of 250 NRTC members have collectively purchased DIRECTV territories
consisting of approximately 7.7 million television households in
predominantly rural areas of the United States, which are among the most
likely to subscribe to DBS services. These territories comprise 8% of United
States television households, but represent between 25% and 30% of DIRECTV's
existing subscriber base. As the largest, and only publicly held, independent
provider of DIRECTV services, the Company believes that it is well positioned
to achieve economies of scale through the acquisition of DIRECTV territories
held by other NRTC members.
DIRECTV PROGRAMMING
DIRECTV programming includes (i) cable networks, broadcast networks and
<PAGE>
audio services available for purchase in tiers for a monthly subscription,
(ii) premium services available a la carte or in tiers for a monthly
subscription, (iii) sports programming (including regional sports networks
and seasonal college and major professional league sports packages) available
for a yearly, seasonal or monthly subscription and (iv) movies
54
<PAGE>
and events available for purchase on a pay-per-view basis. Satellite and
premium services available a la carte or for a monthly subscription are
priced comparably to cable. Pay-per-view movies are generally $2.99 per
movie. Movies recently released for pay-per-view are available for viewing on
multiple channels at staggered starting times so that a viewer generally
would not have to wait more than 30 minutes to view a particular pay-per-view
movie. The following is a summary of some of the more popular programming
packages currently available from the Company's DIRECTV operations:
Plus DIRECTV: Package of 45 channels (including 29 CD audio channels) which
retails for $14.95 per month and includes a $2.50 coupon for purchase of
pay-per-view movies or events. Plus DIRECTV consists of channels not
typically offered on most cable systems and is intended to be sold to
existing cable subscribers to augment their cable satellite and basic
services.
Economy or Select Choice: Two packages of 19 to 33 channels which retail for
between $16.95 and $19.95 per month and include a $2.50 coupon for purchase
of pay-per-view movies or events. The Economy service is available only in
DIRECTV territories held by NRTC members. Economy and Select Choice are often
offered in conjunction with DSS rental or leasing options to create a total
monthly payment comparable to the price of cable.
Total Choice: Package of 74 channels (including 29 CD audio channels, two
Disney channels, Encore Multiplex and an in-market regional sports network)
which retails for $29.95 per month and includes a $2.50 coupon for purchase
of pay-per-view movies or events. This is DIRECTV's flagship package.
DIRECTV Limited: Package comprising Bloomberg Information Television and the
DIRECTV Preview Channel which retails for $4.95 per month and includes a
$2.50 coupon for purchase of pay-per-view movies or events. This is intended
for subscribers who are principally interested in DIRECTV's pay-per-view
movies, sports and events.
Playboy: Adult service available monthly for $9.95 or 12 hours for $4.99.
Encore Multiplex: Seven theme movie services (Love Stories, Westerns,
Mystery, Action, True Stories, WAM! and Encore) for $5.95 per month (free
with Total Choice).
Networks: ABC (East and West), NBC (East and West), CBS (East and West), Fox
and PBS available individually for $0.99 per month or together for $4.95 per
month. (Available only to subscribers unable to receive networks over-the-air
and who have not subscribed to cable in the last 90 days.)
Sports Choice: Package of 24 channels (including 19 regional networks) and
five general sports networks (the Golf channel, NewSport, Speedvision,
Classic Sports Network and Outdoor Life) for $12.00 per month on a stand
alone basis.
NBA League Pass: Out-of-market NBA games for $149.00 per season.
NHL Center Ice: Out-of-market NHL games for $119.00 per season.
NFL Sunday Ticket: All out-of-market NFL Sunday games for $159.00 per season.
MLB Extra Innings: Up to 1,000 out-of-market major league baseball games for
$139.00 per season.
DIRECT Ticket: Movies available for pay-per-view from all major Hollywood
studios at $2.99 and special events at a range of $14.99 to $30.00.
STARZ! Package: Package of 3 channels which include STARZ! (East and West)
and the Independent Film Channel for $5.00 per month.
DISTRIBUTION, MARKETING AND PROMOTION
In general, subscriptions to DIRECTV programming are offered through
commissioned sales representatives who are also authorized by the
manufacturers to sell DSS units. DIRECTV programming is offered (i) directly
through national retailers (e.g. Sears, Circuit City and Best Buy) selected
by DIRECTV,
55
<PAGE>
(ii) through consumer electronics dealers authorized by DIRECTV to sell
DIRECTV programming, (iii) through satellite dealers and consumer electronics
dealers authorized by five regional sales management agents ("SMAs") selected
by DIRECTV, (iv) through members of the NRTC who, like the Company, have
agreements with the NRTC to provide DIRECTV services, and (v) by AT&T, which
has the exclusive right to market, except in NRTC territories, DIRECTV
services to all residential customers. All programming packages currently
must be authorized by the Company in its service areas. See "Business --
Licenses, LMAs, DBS Agreements, and Cable Franchises."
The Company markets DIRECTV programming services and DSS units in its
distribution area in three separate but overlapping ways. In residential
market segments in which authorized DSS dealers exist, the Company seeks to
develop close, cooperative relationships with these dealers in which the
Company provides marketing, subscriber authorization, installation and
customer service support, but where the purchase, inventory and sale of the
DSS unit is handled by the dealers. In these circumstances, the dealer earns
a profit on the sale of the DSS unit and a commission payable by the Company
from the sale of DIRECTV programming, while the Company may receive a profit
from a subscriber's initial installation and receives the programming service
revenues payable by the subscriber. Many DSS dealers are also authorized to
offer the Company's lease program.
In addition, the Company has developed a network of its own sales agents
("Programming Sales Agents") from among local satellite dealers, utilities,
cable installation companies, retailers and other contract sales people or
organizations. Programming Sales Agents earn commissions on the lease or sale
of DSS units, as well as on the sale of DIRECTV programming.
In residential market segments in which a significant number of potential
subscribers wish to lease DSS units and in all commercial market segments,
the Company utilizes its own telemarketing and direct sales agents to sell
DIRECTV residential and commercial programming packages, to sell or lease DSS
units and to provide subscriber installations. In these instances, the
Company earns a profit from the sale, lease or rental of the DSS unit, from a
subscriber's initial installation and from the programming service revenues
payable by the subscriber.
The Company offers a lease program in which subscribers may lease DSS
units for $15 per month. The initial lease term is 36 months, at the end of
which the subscriber has the option to continue to pay $15 a month for an
additional 12 months to purchase the unit or continue on a month-to-month
basis. Subscribers that lease equipment must also select a monthly
programming package from DIRECTV throughout the term of the lease. Additional
receivers can be leased for an additional $15 per month. Programming
authorizations for additional outlets are $1.95 per month. There is a
one-time charge of $199 for standard installations. The lease program is
available only to subscribers that reside in the Company's service area.
The Company seeks to identify and target market segments within its
service area in which it believes DIRECTV programming services will have
strong appeal. Depending upon their individual circumstances, potential
subscribers may subscribe to DIRECTV services as a source of multichannel
television where no other source currently exists, as a substitute for
existing cable service due to its high price or poor quality or as a source
of programming which is not available via cable but which is purchased as a
supplement to existing cable service. The Company seeks to develop
promotional campaigns, marketing methods and distribution channels designed
specifically for each market segment.
The Company's primary target market consists of residences which are not
passed by cable or which are passed by older cable systems with fewer than 40
channels. The Company estimates that after giving effect to the
Michigan/Texas DBS Acquisition and the Ohio DBS Acquisition, its exclusive
DIRECTV territories will contain approximately 233,000 television households
which are not passed by cable and approximately 488,000 television households
which are passed by older cable systems with fewer than 40 channels. The
Company actively markets DIRECTV services as a primary source of television
programming to potential subscribers in this market segment since the Company
believes that it will achieve its largest percentage penetration in this
segment.
The Company also targets potential subscribers who are likely to be
attracted by specific DIRECTV programming services. This market segment
includes (i) residences in which a high percentage of the viewing is devoted
to movie rentals or sports, (ii) residences in which high fidelity audio or
video systems have been
56
<PAGE>
installed and (iii) commercial locations (such as bars, restaurants, hotels
and private offices) which currently subscribe to pay television or
background music services. The Company estimates that after giving effect to
the Michigan/Texas DBS Acquisition and the Ohio DBS Acquisition, its
exclusive DIRECTV territories will contain approximately 83,000 commercial
locations in its DBS territory.
The Company also targets seasonal residences in which it believes that the
capacity to start and discontinue DIRECTV programming seasonally or at the
end of a rental term has significant appeal. These subscribers are easily
accommodated on short notice without the requirement of a service call
because DIRECTV programming is a fully "addressable" digital service. The
Company estimates that after giving effect to the Michigan/Texas DBS
Acquisition and the Ohio DBS Acquisition, its exclusive DIRECTV territories
will contain in excess of 111,000 seasonal residences in this market segment.
Additional target markets include apartment buildings, multiple dwelling
units and private housing developments. While DSS units designed specifically
for use in such locations have not yet been introduced commercially,
RCA/Thomson has announced its intention to offer such a product for sale by
the end of 1996.
Finally, DIRECTV has announced its intention to utilize a portion of the
additional capacity from its third satellite and improved compression to
offer, in a joint venture with Microsoft, one or more data services to
residences and businesses in 1997. When this occurs, the Company believes
that additional market segments will develop for data services within its
service areas.
The Company benefits from national promotion expenditures incurred by
DIRECTV, USSB and licensed manufacturers of DSS, such as RCA/Thomson and
Sony, to increase consumer awareness and demand for DIRECTV programming and
DSS units. The Company benefits as well from national, regional and local
advertising placed by national retailers, satellite dealers and consumer
electronics dealers authorized to sell DIRECTV programming and DSS units. The
Company also undertakes advertising and promotion cooperatively with local
dealers designed for specific market segments in its distribution area, which
are placed through local newspapers, television, radio and yellow pages. The
Company supplements its advertising and promotion campaigns with direct mail,
telemarketing and door-to-door direct sales.
CABLE
BUSINESS STRATEGY
The Company operates cable systems whose revenues and Location Cash Flow
it believes can be increased with limited increases in fixed costs. In
general, the Company's Cable systems (i) have the capacity to offer in excess
of 50 channels of programming, (ii) are "addressable" and (iii) serve
communities where off-air reception is poor. The Company's business strategy
in cable is to achieve revenue growth by (i) adding new subscribers through
improved signal quality, increases in the quality and the quantity of
programming, housing growth and line extensions and (ii) increasing revenues
per subscriber through new program offerings and rate increases. The Company
emphasizes the development of strong engineering management and the delivery
of a reliable, high-quality signal to subscribers. The Company adds new
programming (including new cable services, premium services and pay-per-view
movies and events) and invests in additional channel capacity, improved
signal delivery and line extensions to the extent it believes that it can add
subscribers at a low incremental fixed cost.
The Company believes that significant opportunities for growth in revenues
and Location Cash Flow exist in Puerto Rico from the delivery of traditional
cable services. Cable penetration in Puerto Rico averages 34% (versus a
United States average of 65% to 70%). The Company believes that this low
penetration is due principally to the limited amount of Spanish language
programming offered on Puerto Rico's cable systems. In contrast, Spanish
language programming represents virtually all of the programming offered by
television stations in Puerto Rico. The Company believes that cable
penetration in its Puerto Rico Cable systems will increase over the next five
years as it substitutes Spanish language programming for much of the English
language cable programming currently offered. The Company may also
selectively expand its presence in Puerto Rico.
57
<PAGE>
THE CABLE SYSTEMS
The following table sets forth general information for the Company's Cable
systems.
<TABLE>
<CAPTION>
Average
Monthly
Homes in Homes Basic Revenue
Channel Franchise Passed Basic Service per
Cable Systems Capacity Area(1) by Cable(2) Subscribers(3) Penetration(4) Subscriber
------------------- ---------- ----------- ----------- -------------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Owned:
New England ....... (5) 29,400 28,600 20,100 70% $33.08
Mayaguez .......... 62 38,300 34,000 10,900 32% $32.68
San German(6) ..... 50(7) 72,400 47,700 16,300 34% $30.82
----------- ----------- -------------- -------------- ------------
Total Puerto Rico 110,700 81,700 27,200 34% $31.57
----------- ----------- -------------- -------------- ------------
To Be Sold:
New Hampshire ..... (8) 6,500 6,100 4,600 75% $34.20
----------- ----------- -------------- -------------- ------------
Total ........... 133,600 104,200 42,700 41% $31.99
=========== =========== ============== ============== ============
</TABLE>
- ------
(1) Based on information obtained from municipal offices.
(2) A home is deemed to be "passed" by cable if it can be connected to the
distribution system without any further extension of the cable
distribution plant. These data are the Company's estimates as of July 31,
1996.
(3) A home with one or more television sets connected to a cable system is
counted as one basic subscriber. Bulk accounts (such as motels or
apartments) are included on a "subscriber equivalent" basis whereby the
total monthly bill for the account is divided by the basic monthly charge
for a single outlet in the area. This information is as of July 31, 1996.
(4) Basic subscribers as a percentage of homes passed by cable.
(5) The channel capacities of New England Cable systems are 36, 50 and 62 and
represent 44%, 24% and 32% of the Company's New England Cable
subscribers, respectively. After giving effect to certain system upgrades
which are anticipated to be completed by September 1996, the 36, 50 and
62 channel systems would have represented 22%, 24% and 54% of the
Company's total New England Cable subscribers, respectively.
(6) The San German Cable System was acquired upon consummation of the Cable
Acquisition in August 1996.
(7) After giving effect to certain system upgrades which are anticipated to
be completed during the first quarter of 1997, this system will be
capable of delivering 62 channels.
(8) The channel capacities of the New Hampshire Cable systems are 36 and 50
and represent 16% and 84% of the Company's New Hampshire Cable
subscribers, respectively.
PUERTO RICO CABLE SYSTEMS
Mayaguez. The Mayaguez Cable system serves the port city of Mayaguez,
Puerto Rico's third largest municipality and the economic hub of the western
coast of Puerto Rico. The economy is based largely on pharmaceuticals,
canning, textiles and electronics. Key employers include Eli Lilly, Bristol
Laboratories, Bumble Bee, Neptune, Allergan, Hewlett-Packard, Digital
Equipment, Wrangler and Levi Strauss. At June 30, 1996, the system passed
approximately 34,000 homes with 260 miles of plant and had 10,900 basic
subscribers, representing a basic penetration rate of 32%. The system
currently has a 62-channel capacity and offers 58 channels of programming.
The system is fully addressable.
San German. The San German Cable System serves a franchised area
comprising ten communities and approximately 72,400 households. The system
currently serves eight of these communities (two towns are unbuilt) with 480
miles of plant from two headends. At July 31, 1996, the system had 16,300
subscribers. The economy is based largely on tourism, light manufacturing,
pharmaceuticals and electronics. Key employers include Baxter Laboratories,
General Electric, OMJ Pharmaceuticals, White Westinghouse and Allergan
Medical Optics. The system currently offers 45 channels of programming and
has a 52 channel capacity. The system is fully addressable.
Consolidation of Puerto Rico Systems. As a result of the Cable
Acquisition, the Company serves contiguous franchise areas of approximately
111,000 households. The Company plans to increase the channel capacity of the
San German Cable System to 62 channels and to consolidate the headends,
offices, billing systems, channel lineup, and rates of the Mayaguez and San
German Cable systems. The consolidated system will consist of one headend
serving approximately 27,200 subscribers and passing approximately 82,000
homes with 740 miles of plant. The Company estimates that the consolidation
will result in significant expense savings and will also enable it to
increase revenues in the San German Cable System from the addition of
pay-per-view movies, additional programming (including Spanish language
channels) and improvements in picture quality. The Company also plans to
expand the system to pass an additional 8,950 homes in the San German
franchise.
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NEW ENGLAND CABLE SYSTEMS
The Company's New England Cable systems consist of seven headends serving
19 towns in Connecticut, Massachusetts and New Hampshire. At July 31, 1996,
these systems had approximately 20,100 basic subscribers. From 1990 to 1995,
these systems experienced compound annual growth rates of 10% in the number
of their subscribers and 37% in Location Cash Flow. This growth has been
principally achieved as a result of line extensions and housing growth. New
England Cable systems historically have had higher than national average
basic penetration rates due to the region's higher household income levels
and poor off air reception. The Company's systems offer addressable
converters to all premium and pay-per-view customers, which allow the Company
to activate these services without the requirement of a service call. The
Massachusetts and New Hampshire systems were acquired in June 1991 (with the
exception of the North Brookfield, Massachusetts Cable system, which was
acquired in July 1992), and the Connecticut system was acquired in August
1991.
The Company has entered into a letter of intent with respect to the sale
of its New Hampshire Cable systems. The Company's New Hampshire Cable systems
consist of two headends serving six towns. At July 31, 1996, these systems
had approximately 4,600 basic subscribers.
COMPETITION
The Company's TV stations compete for audience share, programming and
advertising revenue with other television stations in their respective
markets, and compete for advertising revenue with other advertising media,
such as newspapers, radio, magazines, outdoor advertising, transit
advertising, yellow page directories, direct mail and local cable systems.
Competition for audience share is primarily based on program popularity,
which has a direct effect on advertising rates. Advertising rates are based
upon the size of the market in which the station operates, a program's
popularity among the viewers that an advertiser wishes to attract, the number
of advertisers competing for the available time, the demographic composition
of the market served by the station, the availability of alternative
advertising media in the market area, aggressive and knowledgeable sales
forces and the development of projects, features and programs that tie
advertiser messages to programming. The Company believes that its focus on a
limited number of markets and the strength of its programming allows it to
compete effectively for advertising within its markets.
Cable operators face competition from television stations, private
satellite master antenna television ("SMATV") systems that serve
condominiums, apartment complexes and other private residential developments,
wireless cable, direct-to-home ("DTH") and DBS systems. As a result of the
passage of the 1996 Act, electric utilities and telephone companies will be
allowed to compete directly with cable operators both inside and outside of
their telephone service areas. In September 1996, an affiliate of Southern
New England Telephone Company, which is the dominant provider of local
telephone service in Connecticut, was granted a non-exclusive franchise to
provide cable television service throughout Connecticut. Currently, there is
only limited competition from SMATV, wireless cable, DTH and DBS systems in
the Company's franchise areas. The only DTH and DBS systems with which the
Company's cable systems currently compete are DIRECTV, USSB, EchoStar
Communications Corp. ("EchoStar"), PrimeStar Partners ("PrimeStar") and
AlphaStar Digital Television. The Company is the exclusive provider of
DIRECTV services to areas encompassing over 60% of its cable subscribers in
New England. However, the Company cannot predict whether additional
competition will develop in its service areas in the future. Additionally,
cable systems generally operate pursuant to franchises granted on a
non-exclusive basis and, thus, more than one applicant could secure a cable
franchise for an area at any time. It is possible that a franchising
authority might grant a second franchise to another cable company containing
terms and conditions more favorable than those afforded the Company. Although
the potential for "overbuilds" exists, there are presently no overbuilds in
any of the Company's franchise areas and, except as noted above with respect
to its Connecticut franchise, the Company is not aware of any other company
that is actively seeking franchises for areas currently served by the
Company.
Both the television and cable industries are continuously faced with
technological change and innovation, the possible rise in popularity of
competing entertainment and communications media, and governmental
restrictions or actions of federal regulatory bodies, including the FCC, any
of which could possibly have a material effect on the Company's operations
and results.
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DIRECTV faces competition from cable (including in New England, the
Company's Cable systems), wireless cable and other microwave systems and
other DTH and DBS operators. Cable currently possesses certain advantages
over DIRECTV in that cable is an established provider of programming, offers
local programming and does not require that its subscribers purchase
receiving equipment in order to begin receiving cable services. DIRECTV,
however, offers significantly expanded service compared to most cable
systems. Additionally, upgrading cable companies' coaxial systems to offer
expanded digital video and audio programming similar to that offered by
DIRECTV will be costly. While local programming is not currently available
through DIRECTV directly, DIRECTV provides programming from affiliates of
national broadcast networks to subscribers who are unable to receive networks
over-the-air and who have not subscribed to cable. DIRECTV faces additional
competition from wireless cable systems such as multichannel multipoint
distribution systems ("MMDS") which use microwave frequencies to transmit
video programming over the air from a tower to specially equipped homes
within the line of sight of the tower. The Company is unable to predict
whether wireless video services, such as MMDS, will continue to develop in
the future or whether such competition will have a material impact on the
operations of the Company.
DIRECTV also faces competition from other providers and potential
providers of DBS services. Of the eight orbital locations within the BSS band
allocated for United States licensees, three orbital positions enable full
coverage of the contiguous United States. The remaining orbital positions are
situated to provide coverage to either the eastern or western United States,
but cannot provide full coverage of the contiguous United States. This
provides companies licensed to the three orbital locations with full coverage
a significant advantage in providing DBS service to the entire United States,
as they must place satellites in service at only one and not two orbital
locations. The orbital location licensed to Hughes and USSB is generally
recognized as the most centrally located for coverage of the contiguous
United States; however, EchoStar has launched, and a joint venture of MCI and
News Corp. has announced its intention to launch, DBS services from the other
two orbital locations with full coverage of the contiguous United States.
MCI/News Corp. was the successful bidder for the transponder slot auctioned
by the FCC at 110o west longitude. MCI/News Corp. has announced that it
anticipates being operational in two years.
In addition, two entities, Western Tele-Communications, Inc., a
wholly-owned subsidiary of Tele-Communications, Inc. ("TCI"), and another
company, TeleQuest Ventures, L.L.C., have applied for authority from the FCC
to operate earth stations that would be used to communicate with Canadian DBS
satellites that have service coverage of the United States. If such authority
is granted, these entities could enter the United States multichannel
television programming distribution market and compete with DIRECTV.
The Company also competes with PrimeStar, owned primarily by a consortium
of cable companies, including TCI, that currently offers medium-power Ku-band
programming service to customers using dishes approximately three feet in
diameter.
INDUSTRY BACKGROUND
TV
Commercial television began in the United States on a regular basis in the
1940s. Initially, television stations operated only in the larger cities on a
portion of the broadcast spectrum commonly known as the "VHF" band.
Additional television channels were subsequently assigned to cities
throughout the country for use on the "UHF" band. There are 12 channels in
the VHF band, numbered 2 through 13, and 56 channels in the UHF band,
numbered 14 through 69. UHF band channels differ from VHF channels in that
UHF channels broadcast at higher frequencies and thus are more affected by
terrain and obstructions to line-of-sight transmission. There are only a
limited number of channels available for broadcasting in any one geographic
area, with the license to operate a station being granted by the FCC.
The majority of commercial television stations in the United States are
affiliated with the major national networks (ABC, CBS, NBC, and Fox). Two
newer networks, UPN and the Warner Brothers Network ("WB"), are affiliated
with many of the remainder. Stations that operate without network
affiliations are commonly referred to as "independent" stations. Each
national network offers its affiliates a wide variety of television programs
in exchange for the right to retain a significant portion of the available
advertising time during its network programs. ABC, CBS and NBC currently
offer more than 12 hours of programming a day on average, which represents
approximately two-thirds of the typical broadcasting day. UPN and WB program
up
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to six hours per week in prime time. Since its inception in 1986, Fox has
increased the amount of programming available to its affiliates. Fox
currently provides its affiliates with six hours of programming a day on
average. The Fox network currently consists of 163 primary affiliates, and
Fox programming is available in more than 94% of the television households in
the United States.
Advertising and Ratings
Most television station revenues are derived from the sale of time to
national, regional and local advertisers for commercials which are inserted
in or adjacent to the programming shown on the station. These commercials are
commonly referred to as "spot" advertising. Network-affiliated stations are
required to carry the advertising sold by the network during the network
programming broadcast by the station. This reduces the amount of spot
advertising available for sale by the station. The networks generally
compensate their affiliates for network carriage according to a formula based
on coverage as well as other qualitative factors. Independent stations retain
all of the revenues received from the sale of advertising time.
The advertising sales market consists of national network advertising,
national spot advertising and local spot advertising. An advertiser wishing
to reach a nationwide audience usually purchases advertising time directly
from the major networks, including Fox, or nationwide ad hoc networks (groups
of otherwise unrelated stations that combine to show a particular program or
series of programs). A national advertiser wishing to reach a particular
regional or local audience usually buys advertising time directly from local
stations through national advertising sales representative firms. Local
businesses purchase advertising directly from the stations' local sales
staffs. In addition, television stations derive significant revenues from the
sale of time (usually in the early morning time blocks) for the broadcast of
"infomercials" and other programs supplied by advertisers.
Programming that is not supplied to stations by a network is acquired from
programming syndicators either for cash, in exchange for advertising time
("barter") or a combination of cash and barter. Typically, television
stations acquiring syndicated programs are given the exclusive right to show
the program in the station's market for the number of times and during the
period of time agreed upon by the station and the syndicator. Over the last
several years, there has been an increase in programming available through
barter or a combination of cash and barter and a decrease in cash
transactions in the syndication market.
Nielsen periodically publishes data on estimated audiences for television
stations in all DMAs throughout the United States. The estimates are
expressed in terms of the station's share of the total potential audience in
the market (the station's "rating") and of the audience actually watching
television (the station's "share"). The ratings service provides such data on
the basis of total television households and of selected demographic
groupings in the market. Nielsen uses one of two methods to measure the
station's actual viewership. In larger markets, ratings are determined by a
combination of meters connected directly to selected television sets (the
results of which are reported on a daily basis) and periodic surveys of
television viewing (diaries), while in smaller markets only periodic surveys
are conducted. Generally, ratings for Fox affiliates and independent stations
are lower in diary (non-metered) markets than in metered markets. Most
analysts believe that this is a result of the greater accuracy of measurement
that meters allow.
DBS
The widespread use of satellites for television developed in the 1970s, as
a means to distribute news and entertainment programming to and from
broadcast television stations and to the headends of cable systems. The use
of satellites by cable systems permitted low cost networking of cable
systems, thereby promoting the growth of satellite-delivered pay channel
services (such as HBO and Showtime) and enhanced basic services (such as CNN,
ESPN and C-SPAN).
The DTH satellite market developed as consumers in rural markets without
access to cable or broadcast television programming purchased home satellite
television receive only ("TVRO") products to receive programming directed
towards broadcast television stations and cable headends. The DTH business
has grown as satellite-delivered services have been developed and marketed
specifically for TVRO system owners. Currently, there are estimated to be
approximately 2.3 million TVRO systems authorized to receive DTH programming
in the United States.
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Until recently, most satellite applications for television were within the
C band radio frequencies allocated by the FCC for fixed satellite service
("FSS"). Most TVRO systems are designed to receive the signals of C band
satellites and require antennas ranging from six to 12 feet in diameter.
Newer DTH services may be transmitted using Ku band satellites, the signals
of which can be received with antennas ranging from three to six feet in
diameter.
In the 1980's, the FCC began licensing additional radio spectrum within a
portion of the Ku band for broadcast satellite service ("BSS") and DBS
service. Unlike traditional FSS satellites, BSS satellites are designed
specifically for transmitting television signals directly to consumers. These
satellites have significantly higher effective radiated power, operate at
higher frequencies and are deployed at wider orbital spacing than FSS
satellites. As a result, they allow for reception using antennas as small as
18 inches in diameter.
Pursuant to international agreements governing the use of the radio
spectrum, there are eight orbital positions allocated for use by the United
States within the BSS band with 32 frequencies licensed to each orbital
position. The FCC initially awarded frequencies at these eight orbital
locations to nine companies, including Hughes and USSB. See "Business --
Competition."
Of the eight orbital locations for United States-licensed DBS satellites,
only three enable full coverage of the contiguous United States. The
remaining orbital positions are situated to provide coverage to either the
eastern or western United States, but not to both. The orbital location used
by DIRECTV is one of the three locations with full coverage and is considered
to be the most centrally located. Companies awarded frequencies at the three
locations with full coverage have a significant competitive advantage in
providing nationwide service.
CABLE
A cable system receives television, radio and data signals that are
transmitted to the system's headend site by means of off-air antennas,
microwave relay systems and satellite earth stations. These signals are then
modulated, amplified and distributed, through coaxial and fiber optic cable,
to customers who pay a fee for this service. Cable systems may also originate
their own television programming and other information services. Cable
systems generally are constructed and operated pursuant to non-exclusive
franchises or similar licenses granted by local governmental authorities for
a specified term.
The cable industry developed in the United States in the late 1940s and
1950s in response to the needs of residents in predominantly rural and
mountainous areas of the country where the quality of off-air television
reception was inadequate due to factors such as topography and remoteness
from television broadcast towers. In the 1960s and 1970s, cable systems also
developed in small and medium-sized cities and suburban areas that had a
limited availability of clear off-air television station signals. All of
these markets are regarded within the cable industry as "classic" cable
system markets. In the 1980s, cable systems were constructed in large cities
and nearby suburban areas, where good off-air reception from multiple
television stations usually was already available, in order to offer
satellite-delivered channels which were not available via broadcast
television reception.
Cable systems offer customers multiple channels of television
entertainment and information. The selection of programming varies from
system to system due to differences in channel capacity and customer
interest. Cable systems typically offer a "broadcast basic" service
consisting of local broadcast stations, local origination channels and
public, educational and governmental ("PEG") access channels and an "enhanced
basic service" or satellite service consisting of satellite delivered
non-broadcast cable networks (such as CNN, MTV, USA, ESPN and TNT) as well as
satellite-delivered signals from broadcast "superstations" (such as WTBS, WGN
and WWOR). For an extra monthly charge, cable systems also generally offer
premium television services to their customers. These services (such as Home
Box Office, Showtime, The Disney Channel and regional sports networks) are
satellite-delivered channels consisting principally of feature films, live
sports events, concerts and other special entertainment features, usually
presented without commercial interruption. In addition to customer revenues
from these services, cable systems generate revenues from additional fees
paid by customers for pay-per-view programming of movies, concerts, sporting
and special
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events and from the sale of available advertising spots on
advertiser-supported programming and on locally generated programming. Cable
systems also frequently offer to their customers home shopping services,
which pay the systems a share of revenues from sales of products in the
systems' service areas. Lastly, cable systems may charge subscribers for
services such as installations, reconnections, and service calls and the
monthly rental of equipment such as converters and remote controls.
LICENSES, LMAS, DBS AGREEMENTS AND CABLE FRANCHISES
TV
FCC Licensing. The broadcast television industry is subject to regulation
by the FCC pursuant to the Communications Act of 1934, as amended (the
"Communications Act"). Approval by the FCC is required for the issuance,
renewal, transfer and assignment of broadcast station operating licenses.
Under the 1996 Act, the FCC has been authorized to renew television station
licenses for a term of up to eight years. The FCC is currently conducting a
rulemaking to determine whether television license terms should be extended
from their current term of five years to the maximum eight-year term provided
by the 1996 Act. While in the vast majority of cases such licenses are
renewed by the FCC, there can be no assurance that the Company's licenses
will be renewed at their expiration dates or that such renewals will be for
full terms. The Company's licenses with respect to TV stations
WOLF/WWLF/WILF, WDSI and WDBD are scheduled to expire on August 1, 1999,
August 1, 1997 and June 1, 1997, respectively. In addition, the licenses with
respect to stations WTLH and WPXT are scheduled to expire on April 1, 1997
and April 1, 1999, respectively. In order for the Company to acquire the
licenses for television stations WTLH and WPXT, the FCC's consent to the
assignment of these licenses to the Company is required. See "Business --
TV."
Fox Affiliation Agreement. Each of the Company's TV stations which are
affiliated with Fox is a party to a substantially identical station
affiliation agreement with Fox (as amended, the "Fox Affiliation
Agreements"). Each Fox Affiliation Agreement provides the Company's
Fox-affiliated stations with the right to broadcast all programs transmitted
by Fox, on behalf of itself and its wholly-owned subsidiary, the Fox
Children's Network, Inc. ("FCN"), which include programming from Fox as well
as from FCN. In exchange, Fox has the right to sell a substantial portion of
the advertising time associated with such programs and to retain the revenue
from the advertising it has sold. The stations are entitled to sell the
remainder of the advertising time and retain the associated advertising
revenue. The stations are also compensated by Fox according to a
ratings-based formula for Fox programming and a share of the programming net
profits of FCN programming, as specified in the Fox Affiliation Agreements.
Each Fox Affiliation Agreement is for a term ending October 31, 1998 with
the exception of the WTLH Fox Affiliation Agreement, which expires on
December 31, 2000. The Fox Affiliation Agreements are renewable for a
two-year extension, at the discretion of Fox and upon acceptance by the
Company. The Fox Affiliation Agreements may be terminated generally (a) by
Fox upon (i) a material change in the station's transmitter location, power,
frequency, programming format or hours of operation, with 30 days' written
notice, (ii) acquisition by Fox, directly or indirectly, of a significant
ownership and/or controlling interest in any television station in the same
market, with 60 days' written notice, (iii) assignment or attempted
assignment by the Company of the Fox Affiliation Agreements, with 30 days
written notice, (iv) three or more unauthorized preemptions of Fox
programming within a 12-month period, with 30 days written notice, or (b) by
either Fox or the affiliate station upon occurrence of a force majeure event
which substantially interrupts Fox's ability to provide programming or the
station's ability to broadcast the programming. The Company's Fox Affiliation
Agreements have been renewed in the past. The Company believes that it enjoys
good relations with Fox.
Each Fox Affiliation Agreement provides the Company's Fox-affiliated
stations with all programming which Fox and FCN make available for
broadcasting in the community to which the station is licensed by the FCC.
Fox has committed to supply approximately six hours of programming per day
during specified time periods. Each of the Company's stations have agreed to
broadcast all such Fox programs in their entirety, including all commercial
announcements. In return for a station's full performance of its obligations
under its respective affiliation agreement, Fox will pay such station
compensation determined in accordance with Fox's current, standard,
performance-based station compensation formula.
As part of the agreement with Fox to extend the stations' Fox Affiliation
Agreements until 1998, each of the stations granted Fox the right to
negotiate with the cable operators in their respective markets for
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retransmission consent agreements. Under the Fox "Win/Win Plan," the cable
operators received the right to retransmit the programming of the Company's
TV stations in exchange for the carriage by the cable operators of a new
cable channel owned by Fox. The Company's TV stations are to receive
consideration from Fox based on the number of subscribers carrying the new
Fox channel within the stations' market. Fox has reached agreements in
principle with most of the largest cable operators in the country.
LMAs. Current FCC rules preclude the ownership of more than one television
station in a market, unless such stations are operated as a satellite of a
primary station, initially duplicating the programming of the primary station
for a significant portion of their broadcast day. WWLF and WILF are currently
authorized as satellites of WOLF. In recent years, in a number of markets
across the country, certain television owners have entered into arrangements
to provide the bulk of the broadcast programming on stations owned by other
licensees, and to retain the advertising revenues generated from such
programming.
When operating pursuant to an LMA, while the bulk of the programming is
provided by someone other than the licensee of the station, the station
licensee must retain control of the station for FCC purposes. Thus, the
licensee has the ultimate responsibility for the programming broadcast on the
station and for the station's compliance with all FCC rules, regulations, and
policies. The licensee must retain the right to preempt programming supplied
pursuant to the LMA where the licensee determines, in its sole discretion,
that the programming does not promote the public interest or where the
licensee believes that the substitution of other programming would better
serve the public interest. The licensee must also have the primary
operational control over the transmission facilities of the station.
To the extent that the Company currently programs WTLH through an LMA, and
expects to program other stations through the use of such agreements, there
can be no assurance that the licensee of such stations will not unreasonably
exercise its right to preempt the programming of the Company, or that the
licensees of such stations will continue to maintain the transmission
facilities of the stations in a manner sufficient to broadcast a high quality
signal over the station. As the licensee must also maintain all of the
qualifications necessary to be a licensee of the FCC, and as the principals
of the licensee are not under the control of the Company, there can be no
assurances that these licenses will be maintained by the entities which
currently hold them.
In the 1996 Act, the continued performance of then existing LMAs was
generally grandfathered. Currently, LMAs are not considered attributable
interests under the FCC's multiple ownership rules. However, the FCC is
currently considering proposals which would make LMAs attributable, as they
generally are in the radio broadcasting industry. If the FCC were to adopt a
rulemaking that makes such interests attributable, without modifying its
current prohibitions against the ownership of more than one television
station in a market, the Company could be prohibited from entering into such
arrangements with other stations in markets in which it owns television
stations.
DBS AGREEMENTS
Prior to the launch of the first DIRECTV satellite in 1993, Hughes entered
into various agreements intended to assist it in the introduction of DIRECTV
services, including agreements with RCA/Thomson for the development and
manufacture of DSS units and with USSB for the sale of five transponders on
the first satellite. At this time, Hughes also offered the NRTC and its
members the opportunity to become the exclusive providers of DIRECTV services
in rural areas of the United States in which an NRTC member purchased such a
right. The NRTC is a cooperative organization whose members are engaged in
the distribution of telecommunications and other services in predominantly
rural areas of the United States. Pursuant to the DBS Agreements,
participating NRTC members acquired the exclusive right to provide DIRECTV
programming services to residential and commercial subscribers in certain
service areas. Service areas purchased by participating NRTC members comprise
approximately 7.7 million television households and were acquired for
aggregate purchase payments exceeding $100 million.
The DBS Agreements provide the NRTC and participating NRTC members in
their service areas substantially all of the rights and benefits otherwise
retained by DIRECTV in other areas, including the right
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to set pricing (subject to certain obligations to honor national pricing on
subscriptions sold by national retailers), to bill subscribers and retain all
subscription remittances and to appoint sales agents within their
distribution areas (subject to certain obligations to honor sales agents
appointed by DIRECTV and its regional SMAs). In exchange, the NRTC and
participating NRTC members paid to DIRECTV a one-time purchase price. In
addition to the purchase price, NRTC members are required to reimburse
DIRECTV for the allocable share of certain common expenses (such as
programming, satellite-specific costs and expenses associated with the
billing and authorization systems) and to remit to DIRECTV a 5% royalty on
subscription revenues.
The DBS Agreements authorize the NRTC and participating NRTC members to
provide all commercial services offered by Hughes that are transmitted from
the frequencies that the FCC has authorized for DIRECTV's use at its present
orbital location for a term running through the life of Hughes' current
satellites. The NRTC has advised the Company that the NRTC Agreement also
provides the NRTC a right of first refusal to acquire comparable rights in
the event that Hughes elects to launch successor satellites upon the removal
of the present satellites from active service. The financial terms of any
such purchase are likely to be the subject of negotiation and the Company is
unable to predict whether substantial additional expenditures of the NRTC
will be required in connection with the exercise of such right of first
refusal. Finally, under a separate agreement with Hughes (the "Dealer
Agreement"), the Company is an authorized agent for sale of DIRECTV
programming services to subscribers outside of its service area on terms
comparable to those of DIRECTV's other authorized sales agents.
The Member Agreement terminates when Hughes removes DIRECTV satellites
from their orbital location, although under the Dealer Agreement the right of
the Company to serve as a DIRECTV sales agent outside of its designated
territories may be terminated upon 60 days' notice by either party. If the
satellites are removed earlier than June 2004, the tenth anniversary of the
commencement of DIRECTV services, the Company will receive a prorated refund
of its original purchase price for the DIRECTV rights. The Member Agreement
may be terminated prior to the expiration of its term as follows: (a) if the
NRTC Agreement is terminated because of a breach by Hughes, the NRTC may
terminate the Member Agreement, but the NRTC will be responsible for paying
to the Company its pro rata portion of any refunds that the NRTC receives
from Hughes, (b) if the Company fails to make any payment due to the NRTC or
otherwise breaches a material obligation of the Member Agreement, the NRTC
may terminate the Member Agreement in addition to exercising other rights and
remedies against the Company and (c) if the NRTC Agreement is terminated
because of a breach by the NRTC, Hughes is obligated to continue to provide
DIRECTV services to the Company (i) by assuming the NRTC's rights and
obligations under the Member Agreement or (ii) under a new agreement
containing substantially the same terms and conditions as the Member
Agreement.
The Company is not permitted under the Member Agreement or the Dealer
Agreement to assign or transfer, directly or indirectly, its rights under
these agreements without the prior written consent of the NRTC and Hughes,
which consent cannot be unreasonably withheld.
CABLE FRANCHISES
Cable systems are generally constructed and operated under non-exclusive
franchises granted by state or local governmental authorities. The franchise
agreements may contain many conditions, such as the payment of franchise
fees; time limitations on commencement and completion of construction;
conditions of service, including the number of channels, the carriage of
public, educational and governmental access channels, the carriage of broad
categories of programming agreed to by the cable operator, and the provision
of free service to schools and certain other public institutions; and the
maintenance of insurance and indemnity bonds. Certain provisions of local
franchises are subject to limitations under the 1992 Cable Act.
After giving effect to the Cable Acquisition and the New Hampshire Cable
Sale, the Company will hold 11 cable franchises, all of which are
non-exclusive. The Cable Communications Policy Act of 1984 (the "1984 Cable
Act") prohibits franchising authorities from imposing annual franchise fees
in excess of 5% of gross revenues and permits the cable system operator to
seek renegotiation and modification of franchise requirements if warranted by
changed circumstances.
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The table below groups the Company's franchises by date of expiration and
presents the number of franchises per group and the approximate number and
percent of basic subscribers of the Company in each group as of July 31,
1996, after giving effect to the Cable Acquisition and the New Hampshire
Cable Sale.
<TABLE>
<CAPTION>
Number of Basic Percent of Basic
Year of Franchise Expiration Number of Franchises Subscribers Subscribers
---------------------------- -------------------- --------------- ----------------
<C> <C> <C> <C>
1996-1998 .................. 1 2,900 7%
1999-2002 .................. 2 9,800 22%
2003 and thereafter ........ 8 30,000 71%
-------------------- --------------- ----------------
Total .................... 11 42,700 100%
</TABLE>
The Company has never had a franchise revoked. All of the franchises of
the systems eligible for renewal have been renewed or extended at or prior to
their stated expirations. The 1992 Cable Act provides, among other things,
for an orderly franchise renewal process in which renewal will not be
unreasonably withheld. In addition, the 1992 Cable Act establishes
comprehensive renewal procedures which require that an incumbent franchisee's
renewal application be assessed on its own merit and not as part of a
comparative process with competing applications. The Company believes that it
has good relations with its franchising authorities.
LEGISLATION AND REGULATION
TV
The ownership, operation and sale of television stations, including those
licensed to subsidiaries of the Company, are subject to the jurisdiction of
the FCC under authority granted it pursuant to the Communications Act.
Matters subject to FCC oversight include, but are not limited to, the
assignment of frequency bands for broadcast television; the approval of a
television station's frequency, location and operating power; the issuance,
renewal, revocation or modification of a television station's FCC license;
the approval of changes in the ownership or control of a television station's
licensee; the regulation of equipment used by television stations; and the
adoption and implementation of regulations and policies concerning the
ownership, operation and employment practices of television stations. The FCC
has the power to impose penalties, including fines or license revocations,
upon a licensee of a television station for violations of the FCC's rules and
regulations.
The following is a brief summary of certain provisions of the
Communications Act and of specific FCC regulations and policies affecting
broadcast television. Reference should be made to the Communications Act, FCC
rules and the public notices and rulings of the FCC for further information
concerning the nature and extent of FCC regulation of broadcast television
stations.
License Renewal. Under law in effect prior to the 1996 Act, television
station licenses were granted for a maximum allowable period of five years
and were renewable thereafter for additional five year periods. The 1996 Act,
however, authorizes the FCC to grant television broadcast licenses, and
renewals thereof, for terms of up to eight years. The FCC is currently
conducting a rulemaking to determine if television station licenses will be
extended to the full eight year term. The FCC may revoke or deny licenses,
after a hearing, for serious violations of its regulations. Petitions to deny
renewal of a license may be filed on or before the first day of the last
month of a license term. Generally, however, in the absence of serious
violations of FCC rules or policies, license renewal is expected in the
ordinary course. The 1996 Act prohibits the FCC from considering competing
applications for the frequency used by the renewal applicant if the FCC finds
that the station seeking renewal has served the public interest, convenience
and necessity, that there have been no serious violations by the licensee of
the Communications Act or the rules and regulations of the FCC, and that
there have been no other violations by the licensee of the Communications Act
or the rules and regulations of the FCC that, when taken together, would
constitute a pattern of abuse. The Company's licenses with respect to TV
stations WOLF/WWLF/WILF, WDSI and WDBD are scheduled to expire on August 1,
1999, August 1, 1997 and June 1, 1997, respectively. In addition, the
licenses with respect to television stations WTLH and WPXT are scheduled to
expire on April 1, 1997 and April 1, 1999, respectively. The Company is not
aware of any facts or circumstances that might reasonably be expected to
prevent any of its stations from having its current license renewed at the
end of its respective term.
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Ownership Matters. The Communications Act contains a number of
restrictions on the ownership and control of broadcast licenses. The
Communications Act prohibits the assignment of a broadcast license or the
transfer of control of a broadcast licensee without the prior approval of the
FCC. The Communications Act and the FCC's rules also place limitations on
alien ownership; common ownership of broadcast, cable and newspaper
properties; ownership by those not having the requisite "character"
qualifications and those persons holding "attributable" interests in the
licensee. The 1996 Act and pending FCC rulemakings modify and will modify
many of these requirements. The exact nature of these modifications and their
impact on the Company cannot be predicted.
Alien Ownership Restrictions. The Communications Act restricts the ability
of foreign entities to own or hold interests in broadcast licenses. Foreign
governments, representatives of foreign governments, non-citizens and
representatives of non-citizens, corporations and partnerships organized
under the laws of a foreign nation are barred from holding broadcast
licenses. Non-citizens, foreign governments, foreign corporations and
representatives of any of the foregoing, collectively, may directly or
indirectly own or vote up to 20% of the capital stock of a broadcast
licensee. In addition, a broadcast license may not be granted to or held by
any corporation that is controlled, directly or indirectly, by any other
corporation more than one-fourth of whose capital stock is owned or voted by
non-citizens or their representatives, by foreign governments or their
representatives, or by non-United States corporations, if the FCC finds that
the public interest will be served by the refusal or the revocation of such
license. The FCC has interpreted this provision of the Communications Act to
require an affirmative public interest finding before a broadcast license may
be granted to or held by any such corporation. To the Company's knowledge,
the Commission has made such a finding in only one case involving a broadcast
licensee. Because of these provisions, Pegasus may be prohibited from having
more than one-fourth of its stock owned or voted directly or indirectly by
non-citizens, foreign governments, foreign corporations or representatives of
any of the foregoing.
Multiple Ownership Rules. FCC rules limit the number of television
stations any one entity can acquire or own. The FCC's television national
multiple ownership rule limits the combined audience of television stations
in which an entity may hold an attributable interest to 35% of total United
States audience reach. The FCC's television multiple ownership local contour
overlap rule generally prohibits ownership of attributable interests by a
single entity in two or more television stations which serve the same
geographic market; however, changes in these rules are under consideration,
but the Company cannot predict the outcome of the proceeding in which such
changes are being considered.
Cross-Ownership Rules. FCC rules have generally prohibited or restricted
the cross-ownership, operation or control of a radio station and a television
station serving the same geographic market, of a television station and a
cable system serving the same geographic market, and of a television station
and a daily newspaper serving the same geographic market. The 1996 Act
directs the FCC to amend its rules to permit ownership of television stations
and cable systems in the same geographic market. The 1996 Act also directs
the FCC to presumptively waive, in the top 50 markets, its prohibition on
ownership of television and radio stations in the same geographic market.
Under these rules, absent waivers, the Company would not be permitted to
acquire any daily newspaper or radio broadcast station in a geographic market
in which it now owns or controls any TV properties. The FCC is currently
considering a rulemaking to change the radio/television cross-ownership
restrictions. The Company cannot predict the outcome of that rulemaking.
Programming and Operation. The Communications Act requires broadcasters to
serve the "public interest." Since the late 1970s, the FCC gradually has
relaxed or eliminated many of the formal procedures it had developed to
promote the broadcast of certain types of programming responsive to the needs
of a station's community of license. However, broadcast station licensees
continue to be required to present programming that is responsive to local
community problems, needs and interests and to maintain certain records
demonstrating such responsiveness. Complaints from viewers concerning a
station's programming often will be considered by the FCC when it evaluates
license renewal applications, although such complaints may be filed at any
time and generally may be considered by the FCC at any time. Stations also
must follow various rules promulgated under the Communications Act that
regulate, among other things, political advertising, sponsorship
identifications, the advertisements of contests and lotteries, programming
directed to children, obscene and indecent broadcasts and technical
operations, including limits on radio frequency radiation.
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In August 1996, the FCC adopted new children's television rules mandating,
among other things, that as of January 1, 1996 stations must identify and
provide information concerning children's programming to publishers of
program guides and listings and as of September 1, 1997 stations must
broadcast three hours each week of educational and informational programming
directed to children. The 1996 Act also requires commercial television
stations to report on complaints concerning violent programming in their
license renewal applications. In addition, most broadcast licensees,
including the Company's licensees, must develop and implement affirmative
action programs designed to promote equal employment opportunities and must
submit reports to the FCC with respect to these matters on an annual basis
and in connection with a license renewal application.
Must Carry and Retransmission Consent. The 1992 Cable Act requires each
television broadcaster to make an election to exercise either certain "must
carry" or, alternatively, "retransmission consent" rights in connection with
its carriage by cable systems in the station's local market. If a broadcaster
chooses to exercise its must carry rights, it may demand carriage on a
specified channel on cable systems within its defined market. Must carry
rights are not absolute, and their exercise is dependent on variables such as
the number of activated channels on, and the location and size of, the cable
system and the amount of duplicative programming on a broadcast station.
Under certain circumstances, a cable system may decline carriage of a given
station. If a broadcaster chooses to exercise its retransmission consent
rights, it may prohibit cable systems from carrying its signal, or permit
carriage under a negotiated compensation arrangement. The FCC's must carry
requirements took effect on June 2, 1993; however, stations had until June
17, 1993 to make their must carry/retransmission consent elections. Under the
Company's Fox Affiliation Agreements, the Company appointed Fox as its
irrevocable agent to negotiate such retransmission consents with the major
cable operators in the Company's respective markets. Fox exercised the
Company's stations' retransmission consent rights. Television stations must
make a new election between must carry and retransmission consent rights
every three years. The next required election date is October 1, 1996.
Although the Company expects the current retransmission consent agreements to
be renewed upon their expiration, there can be no assurance that such
renewals will be obtained.
In April 1993, the United States District Court for the District of
Columbia upheld the constitutionality of the legislative must carry
provision. This decision was vacated by the United States Supreme Court in
June 1994, and remanded to the District Court for further development of a
factual record. The District Court has again upheld the must carry rules, and
the matter will be considered again by the Supreme Court. The Company cannot
predict the outcome of the case. In the meantime, the must carry provisions
and the FCC's regulations implementing those provisions are in effect.
Pending or Proposed Legislation and FCC Rulemakings. The FCC has proposed
rules for implementing advanced (including high-definition) television
("ATV") service in the United States. Implementation of ATV is intended to
improve the technical quality of television. Under certain circumstances,
however, conversion to ATV operations may reduce a station's coverage area.
The FCC is considering an implementation proposal that would allot a second
broadcast channel to each full-power commercial television station for ATV
operation. Under the proposal, stations would be required to phase in their
ATV operations on the second channel over approximately nine years following
adoption of a final table of allotments and to surrender their present
channel six years later. Recently, there has been consideration by the FCC of
shortening further this transition period. In August 1995, the FCC commenced
a further rulemaking proceeding to address ATV transition issues. In August
1996, the FCC adopted a further notice of proposed rulemaking presenting a
proposed table of allotments for television stations for ATV operations. The
table is only a draft proposal and may differ significantly from the final
table. Implementation of ATV service may impose additional costs on
television stations providing the new service, due to increased equipment
costs, and may affect the competitive nature of the markets in which the
Company operates if competing stations adopt and implement the new technology
before the Company's stations. Various proposals have been put forth in
Congress to auction the new ATV channels, which could preclude the Company
from obtaining such channels if better financed companies were to participate
in such auction. The FCC's current proposal that television stations obtain
ATV channels and subsequently surrender their existing channels appears to
have stalled the auction effort, although the Company cannot predict the
ultimate outcome of the legislative consideration of these matters.
The FCC is now conducting a rulemaking proceeding to consider changes to
the multiple ownership rules that could, under certain limited circumstances,
permit common ownership of television stations with
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overlapping service areas, while imposing restrictions on television time
brokerage. Certain of these changes, if adopted, could allow owners of
television stations who currently cannot buy a television station or an
additional television station in the Company's markets to acquire television
properties in such markets. This may increase competition in such markets,
but may also work to the Company's advantage by permitting it to acquire
additional stations in its present markets and by enhancing the value of the
Company's stations by increasing the number of potential buyers. In addition,
the FCC is conducting an inquiry to consider proposals to increase
broadcasters' obligations under its rules implementing the Children's
Television Act of 1990, which requires television stations to present
programming specifically directed to the "educational and informational"
needs of children. The FCC also is conducting a rulemaking proceeding to
consider the adoption of more restrictive standards for the exposure of the
public and workers to potentially harmful radio frequency radiation emitted
by broadcast station transmitting facilities. Other matters which could
affect the Company's broadcast properties include technological innovations
affecting the mass communications industry and technical allocation matters,
including assignment by the FCC of channels for additional broadcast
stations, low-power television stations and wireless cable systems and their
relationship to and competition with full power television service, as well
as possible spectrum fees or other changes imposed on broadcasters for the
use of their channels. The ultimate outcome of these pending proceedings
cannot be predicted at this time.
The FCC has initiated a Notice of Inquiry proceeding seeking comment on
whether the public interest would be served by establishing limits on the
amount of commercial matter broadcast by television stations. No prediction
can be made at this time as to whether the FCC will impose any commercial
limits at the conclusion of its deliberations. The Company is unable to
determine what effect, if any, the imposition of limits on the commercial
matter broadcast by television stations would have upon the Company's
operations.
The FCC recently lifted its financial interest/syndication ("FIN/SYN")
rules that prohibited ABC, CBS and NBC from engaging in syndication for the
sale, licensing, or distribution of television programs for non-network
broadcast exhibition in the United States. Further, these rules prohibited
networks from sharing profits from any syndication and from acquiring any new
financial or proprietary interest in programs of which they were not the sole
producer. The Company cannot predict the effect of the elimination of the
FIN/SYN rules on the Company's ability to acquire desirable programming at
reasonable prices.
The FCC also recently eliminated the prime time access rule ("PTAR"),
effective August 30, 1996. PTAR currently limits a station's ability to
broadcast network programming (including syndicated programming previously
broadcast over a network) during prime time hours. The elimination of PTAR
could increase the amount of network programming broadcast over a station
affiliated with ABC, CBS or NBC. Such elimination also could result in (i) an
increase in the compensation paid by the network (due to the additional prime
time hours during which network programming could be aired by a
network-affiliated station) and (ii) increased competition for syndicated
network programming that previously was unavailable for broadcast by network
affiliates during prime time. For purposes of the prime time access rule, the
FCC defines "network" to include those entities that deliver more than 15
hours of "prime time programming" (a term defined in those rules) to
affiliates reaching 75% of the nation's television homes. Neither Fox nor its
affiliates, including the Company's TV stations, are subject to the prime
time access rule. The Company cannot predict the effect that the repeal many
ultimately have on the market for syndicated programming.
The Congress and the FCC have considered in the past and may consider and
adopt in the future, (i) other changes to existing laws, regulations and
policies or (ii) new laws, regulations and policies regarding a wide variety
of matters that could affect, directly or indirectly, the operation,
ownership, and profitability of the Company's broadcast stations, result in
the loss of audience share and advertising revenues for these stations or
affect the ability of the Company to acquire additional broadcast stations or
finance such acquisitions.
DBS
Unlike a common carrier, such as a telephone company, or a cable operator,
DBS operators such as DIRECTV are free to set prices and serve customers
according to their business judgment, without rate of return or other
regulation or the obligation not to discriminate among customers. However,
there are laws and regulations that affect DIRECTV and, therefore, affect the
Company. As an operator of a privately owned United States satellite system,
DIRECTV is subject to the regulatory jurisdiction of the FCC, primarily with
respect to (i) the licensing of individual satellites (i.e., the requirement
that DIRECTV meet minimum
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financial, legal and technical standards), (ii) avoidance of interference
with radio stations and (iii) compliance with rules that the FCC has
established specifically for DBS satellite licenses. As a distributor of
television programming, DIRECTV is also affected by numerous other laws and
regulations, including in particular the 1992 Cable Act's program access and
exclusivity provisions. In addition to regulating pricing practices and
competition within the cable television industry, the 1992 Cable Act is
intended to establish and support alternative multichannel video distribution
services, such as wireless cable and DBS.
State and local authorities in some jurisdictions restrict or prohibit the
use of satellite dishes pursuant to zoning and other regulations. The FCC has
recently adopted new rules that preempt state and local regulations that
affect receive-only satellite dishes that are two meters or less in diameter,
in any area where commercial or industrial uses are generally permitted by
local land use regulation, or that are one meter or less in diameter in any
area. Satellite dishes for the reception of DIRECTV's services are less than
one meter in diameter, and thus the FCC's rules are expected to ease local
regulatory burdens on the use of those dishes.
CABLE
1984 Cable Act and 1992 Cable Act. The Cable Communications Policy Act of
1984 (the "1984 Cable Act") created uniform national standards and guidelines
for the regulation of cable systems. Among other things, the 1984 Cable Act
generally preempted local control over cable rates in most areas. In
addition, the 1984 Cable Act affirmed the right of franchising authorities
(state or local, depending on the practice in individual states) to award one
or more franchises within their jurisdictions. It also prohibited
non-grandfathered cable systems from operating without a franchise in such
jurisdictions.
The Cable Television Consumer Protection and Competition Act of 1992 (the
"1992 Cable Act") amended the 1984 Cable Act in many respects and
significantly changed the legislative and regulatory environment in which the
cable industry operates. The 1992 Cable Act allows for a greater degree of
regulation with respect to, among other things, cable system rates for both
basic and certain nonbasic services; programming access and exclusivity
arrangements; access to cable channels by unaffiliated programming services;
leased access terms and conditions; horizontal and vertical ownership of
cable systems; customer service requirements; franchise renewals; television
broadcast signal carriage and retransmission consent; technical standards;
subscriber privacy; consumer protection issues; cable equipment
compatibility; obscene or indecent programming; and cable system requirements
that subscribers subscribe to tiers of service other than basic service as a
condition of purchasing premium services. Additionally, the legislation
encourages competition with existing cable systems by allowing municipalities
to own and operate their own cable systems without having to obtain a
franchise; preventing franchising authorities from granting exclusive
franchises or unreasonably refusing to award additional franchises covering
an existing cable system's service area; and prohibiting the common ownership
of cable systems and co-located wireless systems known as MMDS and private
SMATV.
The 1992 Cable Act also precludes video programmers affiliated with cable
television companies from favoring cable operators over competitors and
requires such programmers to sell their programming to other multichannel
video distributors. This provision may limit the ability of cable program
suppliers to offer exclusive programming arrangements to cable television
companies. The FCC, the principal federal regulatory agency with jurisdiction
over cable television, has adopted many regulations to implement the
provisions of the 1992 Cable Act.
The FCC has the authority to enforce these regulations through the
imposition of substantial fines, the issuance of cease and desist orders
and/or the imposition of other administrative sanctions, such as the
revocation of FCC licenses needed to operate transmission facilities often
used in connection with cable operations.
The Telecommunications Act of 1996. On February 1, 1996, the Congress
passed the 1996 Act. On February 8, 1996, the President signed it into law.
This new law will alter federal, state and local laws and regulations
regarding telecommunications providers and services, including the Company
and the cable television and other telecommunications services provided by
the Company. There are numerous rulemakings to be undertaken by the FCC which
will interpret and implement the provisions of the 1996 Act. It is not
possible at this time to predict the outcome of such rulemakings.
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Cable Rate Regulation. The 1996 Act eliminates cable programming service
tier ("CPST") rate regulation effective March 31, 1999, for all cable
operators. In the interim, CPST rate regulation can be triggered only by a
local unit of government (commonly referred to as local franchising
authorities or "LFA") complaint to the FCC. Since the Company is a small
cable operator within the meaning of the 1996 Act, CPST rate regulation for
the Company ended upon the enactment of the 1996 Act. The Company's status as
a small cable operator may be affected by future acquisitions. The 1996 Act
does not disturb existing rate determinations of the FCC. The Company's basic
tier of cable service ("BST") rates remain subject to LFA regulation under
the 1996 Act.
Rate regulation is precluded wherever a cable operator faces "effective
competition." The 1996 Act expands the definition of effective competition to
include any franchise area where a local exchange carrier ("LEC") (or
affiliate) provides video programming services to subscribers by any means
other than through DBS. There is no penetration minimum for the local
exchange carrier to qualify as an effective competitor, but it must provide
"comparable" programming services in the franchise area.
Under the 1996 Act, the Company will be allowed to aggregate, on a
franchise, system, regional or company level, its equipment costs into broad
categories, such as converter boxes, regardless of the varying levels of
functionality of the equipment within each such broad category. The 1996 Act
will allow the Company to average together costs of different types of
converters (including non-addressable, addressable, and digital). The
statutory changes will also facilitate the rationalizing of equipment rates
across jurisdictional boundaries. These favorable cost-aggregation rules do
not apply to the limited equipment used by "BST-only" subscribers.
In June 1995, the FCC adopted rules which provide significant rate relief
for small cable operators, which include operators the size of the Company.
The Company's current rates are below the maximum presumed reasonable under
the FCC's rules for small operators, and the Company may use this new rate
relief to justify current rates, rates already subject to pending rate
proceedings and new rates.
Anti-Buy Through Provisions. In March 1993, the FCC adopted regulations
pursuant to the 1992 Cable Act which require cable systems to permit
customers to purchase video programming on a per channel or a per program
basis without the necessity of subscribing to any tier of service, other than
the basic service tier, unless the cable system is technically incapable of
doing so. Generally, this exemption from compliance with the statute for
cable systems that do not have such technical capability is available until a
cable system obtains the capability, but not later than December 2002. The
Company's systems have the necessary technical capability and have complied
with this regulation.
Indecent Programming on Leased Access Channels. FCC regulations pursuant
to the 1992 Cable Act permit cable operators to restrict or refuse the
carriage of indecent programming on so-called "leased access" channels, i.e.,
channels the operator must set aside for commercial use by persons
unaffiliated with the operator. Operators were also permitted to prohibit
indecent programming on public access channels. In June 1996, the Supreme
Court ruled unconstitutional the indecency prohibitions on public access
programming as well as the "segregate and block" restriction on indecent
leased access programming.
Scrambling. The 1996 Act requires that upon the request of a cable
subscriber, the cable operator must, free of charge, fully scramble or
otherwise fully block the audio and video programming of each channel
carrying adult programming so that a non-subscriber does not receive it.
Cable operators must also fully scramble or otherwise fully block the
video and audio portion of sexually explicit or other programming that is
indecent on any programming channel that is primarily dedicated to sexually
oriented programming so that a non-subscriber to such channel may not receive
it. Until full scrambling or blocking occurs, cable operators must limit the
carriage of such programming to hours when a significant number of children
are not likely to view the programming. The Company's systems do not
presently have the necessary technical capability to comply with the
scrambling requirement. However, the effective date of these requirements has
been stayed by the United States District Court for Delaware.
Cable Entry Into Telecommunications. The 1996 Act declares that no state
or local laws or regulations may prohibit or have the effect of prohibiting
the ability of any entity to provide any interstate or intrastate
telecommunications service. States are authorized to impose "competitively
neutral" requirements regarding universal service, public safety and welfare,
service quality, and consumer protection. The 1996 Act further
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provides that cable operators and affiliates providing telecommunications
services are not required to obtain a separate franchise from LFAs for such
services. The 1996 Act prohibits LFAs from requiring cable operators to
provide telecommunications service or facilities as a condition of a grant of
a franchise, franchise renewal, or franchise transfer, except that LFAs can
seek "institutional networks" as part of franchise negotiations.
The 1996 Act clarifies that traditional cable franchise fees may only be
based on revenues related to the provision of cable television services.
However, when cable operators provide telecommunications services, LFAs may
require reasonable, competitively neutral compensation for management of the
public rights-of-way.
Interconnection and Other Telecommunications Carrier Obligations. To
facilitate the entry of new telecommunications providers including cable
operators, the 1996 Act imposes interconnection obligations on all
telecommunications carriers. All carriers must interconnect their networks
with other carriers and may not deploy network features and functions that
interfere with interoperability.
Telephone Company Entry Into Cable Television. The 1996 Act allows
telephone companies to compete directly with cable operators by repealing the
telephone company-cable cross-ownership ban and the FCC's video dialtone
regulations. This will allow LECs, including the Bell Operating Companies, to
compete with cable both inside and outside their telephone service areas.
The 1996 Act replaces the FCC's video dialtone rules with an "open video
system" ("OVS") plan by which LECs can provide cable service in their
telephone service area. LECs complying with FCC OVS regulations will receive
relaxed oversight. Only the program access, negative option billing
prohibition, subscriber privacy, Equal Employment Opportunity, PEG,
must-carry and retransmission consent provisions of the Communications Act
will apply to LECs providing OVS. Franchising, rate regulation, consumer
service provisions, leased access and equipment compatibility will not apply.
Cable copyright provisions will apply to programmers using OVS. LFAs may
require OVS operators to pay "franchise fees" only to the extent that the OVS
provider or its affiliates provide cable services over the OVS. OVS operators
will be subject to LFA general right-of-way management regulations. Such fees
may not exceed the franchise fees charged to cable operators in the area, and
the OVS provider may pass through the fees as a separate subscriber bill
item.
The 1996 Act requires the FCC to adopt, within six months, regulations
prohibiting an OVS operator from discriminating among programmers, and
ensuring that OVS rates, terms, and conditions for service are reasonable and
nondiscriminatory. Further, the FCC is to adopt regulations prohibiting a
LEC-OVS operator, or its affiliates, from occupying more than one-third of a
system's activated channels when demand for channels exceeds supply, although
there are no numeric limits. The 1996 Act also mandates OVS regulations
governing channel sharing; extending the FCC's sports exclusivity, network
nonduplication, and syndex regulations; and controlling the positioning of
programmers on menus and program guides. The 1996 Act does not require LECs
to use separate subsidiaries to provide incidental inter Local Access and
Transport Area ("interLATA") video or audio programming services to
subscribers or for their own programming ventures.
Cable and Broadcast Television Cross-Ownership. The 1996 Act requires that
the FCC amend its rules to allow a person or entity to own or control a
network of broadcast stations and a cable system. The 1996 Act abolishes the
prohibition of ownership of cable systems and television stations where
service areas overlap.
Signal Carriage. The 1992 Cable Act imposed obligations and restrictions
on cable operator carriage of non-satellite delivered television stations.
Under the must-carry provision of the 1992 Cable Act, a cable operator,
subject to certain restrictions, must carry, upon request by the station, all
commercial television stations with adequate signals which are licensed to
the same market as the cable system. Cable operators are also obligated to
carry all local non-commercial stations. If a non-satellite delivered
commercial broadcast station does not request carriage under the must-carry
provisions of the 1992 Cable Act, a cable operator may not carry that station
without that station's explicit written consent for the cable operator to
retransmit its programming. The Company is carrying all television stations
that have made legitimate requests for carriage. All other television
stations are carried pursuant to written retransmission consent agreements.
Copyright Licensing. Cable systems are subject to federal copyright
licensing covering carriage of broadcast signals. In exchange for making
semi-annual payments to a federal copyright royalty pool and meeting certain
other obligations, cable operators obtain a blanket license to retransmit
broadcast signals. Bills
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have been introduced in Congress over the past several years that would
eliminate or modify the cable compulsory license. The 1992 Cable Act's
retransmission consent provisions expressly provide that retransmission
consent agreements between television stations and cable operators do not
obviate the need for cable operators to obtain a copyright license for the
programming carried on each broadcaster's signal.
Electric Utility Entry Into Telecommunications. The 1996 Act provides that
registered utility holding companies and subsidiaries may provide
telecommunications services (including cable) notwithstanding the Public
Utility Holding Company Act. Electric utilities must establish separate
subsidiaries, known as "exempt telecommunications companies" and must apply
to the FCC for operating authority. It is anticipated that large utility
holding companies will become significant competitors to both cable
television and other telecommunications providers.
State and Local Regulation. Because a cable system uses streets and
rights-of-way, cable systems are subject to state and local regulation,
typically imposed through the franchising process. State and/or local
officials are usually involved in franchisee selection, system design and
construction, safety, consumer relations, billing practices and
community-related programming and services among other matters. Cable systems
generally are operated pursuant to nonexclusive franchises, permits or
licenses granted by a municipality or other state or local government entity.
Franchises generally are granted for fixed terms and in many cases are
terminable if the franchise operator fails to comply with material
provisions. The 1992 Cable Act prohibits the award of exclusive franchises
and allows franchising authorities to exercise greater control over the
operation of franchised cable systems, especially in the area of customer
service and rate regulation. The 1992 Cable Act also allows franchising
authorities to operate their own multichannel video distribution system
without having to obtain a franchise and permits states or LFAs to adopt
certain restrictions on the ownership of cable systems. Moreover, franchising
authorities are immunized from monetary damage awards arising from regulation
of cable systems or decisions made on franchise grants, renewals, transfers
and amendments. Under certain circumstances, LFAs may become certified to
regulate basic service cable rates.
The specific terms and conditions of a franchise and the laws and
regulations under which it was granted directly affect the profitability of
the cable system. Cable franchises generally contain provisions governing
fees to be paid to the franchising authority, length of the franchise term,
renewal, sale or transfer of the franchise, territory of the franchise,
design and technical performance of the system, use and occupancy of public
streets and number and types of cable services provided.
Although federal law has established certain procedural safeguards to
protect incumbent cable television franchisees against arbitrary denials of
renewal, the renewal of a franchise cannot be assured unless the franchisee
has met certain statutory standards. Moreover, even if a franchise is
renewed, a franchising authority may impose new and stricter requirements,
such as the upgrading of facilities and equipment or higher franchise fees
(subject, however, to limits set by federal law). To date, however, no
request of the Company for franchise renewals or extensions has been denied.
Despite favorable legislation and good relationships with its franchising
authorities, there can be no assurance that franchises will be renewed or
extended.
Various proposals have been introduced at the state and local levels with
regard to the regulation of cable systems, and several states have adopted
legislation subjecting cable systems to the jurisdiction of centralized state
governmental agencies, some that impose regulation similar to that of a
public utility. Attempts in other states to regulate cable systems are
continuing and can be expected to increase. Such proposals and legislation
may be preempted by federal statute and/or FCC regulation. Massachusetts and
Connecticut have adopted state level regulation.
The foregoing does not purport to describe all present and proposed
federal, state and local regulations and legislation relating to the cable
industry. Other existing federal regulations, copyright licensing and, in
many jurisdictions, state and local franchise requirements currently are the
subject of a variety of judicial proceedings, legislative hearings and
administrative and legislative proposals which could change, in varying
degrees, the manner in which cable systems operate. Neither the outcome of
these proceedings nor the impact upon the cable industry or the Company's
cable systems can be predicted at this time.
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<PAGE>
PROPERTIES
The Company's TV stations own and lease studio, tower, transmitter and
antenna facilities and the Company's Cable systems own and lease studio,
parking, storage, headend, tower, earth station and office facilities in the
localities in which they operate. The Company leases office space in
Marlboro, Massachusetts for its DBS operations. The television transmitter
and antenna sites are generally located so as to provide optimum market
coverage. The cable headend and tower sites are located at strategic points
within the cable system franchise area to support the distribution system.
The Company believes that its facilities are in good operating condition and
are satisfactory for their present and intended uses. The following table
contains certain information describing the general character of the
Company's properties after giving effect to the Transactions:
<TABLE>
<CAPTION>
Expiration of Lease
Location and Type of Property Owned or Leased Approximate Size or Renewal Options
------------------------------------------------- ------------------ --------------------------------- -------------------
<S> <C> <C> <C>
Corporate Office
Radnor, Pennsylvania (office) Leased 4,848 square feet 11/30/97
TV Stations
Jackson, MS (TV transmitting equipment) Leased 1,125 foot tower 2/28/04
Jackson, MS (television station and Lease-Purchase (1) 5,600 square foot building; N/A
transmitter building) 900 square foot building
West Mountain, PA (tower and
transmitter) Leased 9.6 acres 1/31/00
916 Oak Street, Scranton, PA Leased 8,600 square feet 4/30/00
station) (television 400 square feet
Bald Eagle Mountain, PA (transmitting) Leased (Williamsport Tower) 9/30/97
Nescopec Mountain, PA (transmitting) Owned 400 foot tower N/A
Williamsport, PA (tower) Owned 175 foot tower N/A
Chattanooga, TN (transmitting) Owned 577 foot tower N/A
2401 East Main St., Chattanooga, TN Owned 14,800 square feet N/A
(former television station)
1201 East Main St., Chattanooga, TN Owned 16,240 square foot building N/A
(present television station) on 3.17 acres
2320 Congress Street, Portland, ME Leased 8,000 square feet 12/31/97
(television station)
Gray, ME (tower) Owned 18.6 acres N/A
1203 Governor's Square, Tallahassee, FL Leased 5,012 square feet 1/31/97
(television station)
Leon County, FL Leased(2) 30 acres 2/28/98
Nickleville, GA (tower) Owned 22.5 acres N/A
DBS Systems
Marlboro, MA (office) Leased 1,310 square feet 7/31/99
Charlton, MA (warehouse) Leased 1,750 square foot area monthly
Cable Systems
Winchester, CT (headend) Owned 15.22 acres N/A
140 Willow Street, Winsted, CT (office) Owned 1,900 square feet N/A
Charlton, MA (office, headend site) Leased 38,223 square feet 5/9/99
Hinsdale, MA (headend site) Leased 30,590 square feet 2/1/04
Lanesboro, MA (headend site) Leased 62,500 square feet 4/13/97
West Stockbridge, MA (headend site) Leased 1.59 acres 4/4/05
Bethlehem, NH (headend site)(3) Leased 1.84 acres 5/1/03
Moultonboro, NH (office)(3) Leased 1,250 square feet 12/31/02
Tuftonboro, NH (headend site)(3) Leased 58,789 square feet 6/30/03
Route #2, Puerto Rico (office) Leased 2,520 square foot building 8/30/98
Mayaguez, Puerto Rico (headend) Leased 530 square foot building 8/30/98
Mayaguez, Puerto Rico (warehouse) Leased 1,750 square foot area monthly
San German, Puerto Rico (headend site) Owned 1,200 square feet; 200 foot tower N/A
San German, Puerto Rico (tower and Owned 60 foot tower; 192 square meters N/A
transmitter)
San German, Puerto Rico (office) Leased 2,928 square feet 2/1/01
Anasco, Puerto Rico (office) Leased 500 square feet 2/28/99
Anasco, Puerto Rico (headend site) Leased 1,200 square meters 3/24/97
Anasco, Puerto Rico (headend) Owned 59 foot tower N/A
Guanica, Puerto Rico (headend site) Leased 40 foot tower; 121 square meters 2/28/04
Cabo Rojo, Puerto Rico (headend site) Leased 40 foot tower; 121 square meters 11/10/04
Hormigueros, Puerto Rico (warehouse) Leased 2,000 square feet monthly
</TABLE>
- ------
(1) The Company entered into a lease/purchase agreement in July 1993 which
calls for 60 monthly payments of $4,500 at the end of which the property
is conveyed to the Company.
(2) The Company holds an option to purchase this site for $150,000.
(3) In connection with the New Hampshire Cable Sale, these leases would be
assigned to the prospective purchaser.
74
<PAGE>
EMPLOYEES
At August 15, 1996, the Company had 240 full-time and 29 part-time
employees. The Company is not a party to any collective bargaining agreement
and considers its relations with its employees to be good.
LEGAL AND OTHER PROCEEDINGS
Pursuant to the 1992 Cable Act and related regulations and orders, the
Connecticut Department of Public Utility Control (the "DPUC") initiated
proceedings in 1994 to review the basic service rates and certain related
charges of certain cable systems in Connecticut, including those of the
Company. In addition, pursuant to complaints received in accordance with the
1992 Cable Act and related regulations and orders, the FCC initiated a review
of rates for CPST services (comprising traditional cable networks) provided
by certain of the Company's New England Cable systems. In connection with the
state and FCC proceedings, the Company has made filings to justify its
existing service rates and to request further rate increases. In March and
April 1996, the FCC approved the CPST rates that had been in effect for the
Company's Connecticut Cable system, and in July 1996, the final rate
complaint affecting the Company's Massachusetts Cable System was dismissed.
The Connecticut DPUC issued two adverse rate orders on November 28, 1994
concerning the cost-of-service rate justification filed by the Company,
requiring the Company to issue refunds for two different time periods. The
first order ("Phase One") covers the period September 1, 1993 through May 14,
1994. The second order ("Phase Two") covers the period after May 14, 1994. In
its rate orders, the Connecticut DPUC ordered refunds of basic service and
equipment charges totalling $90,000 and $51,000 as of December 31, 1994 for
the Phase One and Phase Two periods, respectively. The Company appealed the
Connecticut DPUC order to the FCC arguing that in ordering refunds, the
Connecticut DPUC misapplied its own and the FCC's cost-of-service standards
by ignoring past precedent, by failing to consider the Company's unique
circumstances and by failing to make appropriate exceptions to
cost-of-service presumptions. The FCC has stayed the Connecticut DPUC orders.
To date, the FCC has not yet issued sufficient rulings to predict how it will
decide the issues raised by the Company on appeal. Although no decision with
respect to the Company's Connecticut DPUC appeal has been reached, in the
event the FCC issues an adverse ruling, the Company expects to make refunds
in kind rather than in cash.
The 1996 Act immediately eliminates rate regulation for CPST for small
cable operators, such as the Company. Pursuant to the 1996 Act, a small cable
operator is one that directly or through an affiliate serves in the aggregate
less than one percent of the subscribers in the United States and is not
affiliated with any entity or entities whose gross annual revenues in the
aggregate exceeds $250,000,000. In June 1995 the FCC released an order
providing rate regulation relief to small cable operators which serve 400,000
or fewer subscribers in any system with 15,000 or fewer subscribers. As a
result of this order, such small cable operators are now eligible to justify
their basic rates based on a four-element rate calculation. If the per
channel rate resulting from this calculation is $1.24 or less, the rate is
presumed reasonable. If the rate is higher than $1.24, the cable operator
bears the burden of justifying the higher rate. The current per channel rate
for each of the Company's Cable systems is substantially less than $1.24.
This new rate regulation option is available regardless of whether the
operator has used another option previously. If a small system is later
acquired by a larger company, the system will continue to have this
regulatory option. In addition, small systems, as defined by this ruling, are
now permitted to use all previously available small system and small operator
relief, which includes the ability to pass through certain headend upgrade
costs, and the ability to enter into alternative rate regulation agreements
with franchising authorities.
Acting pursuant to the FCC's June 1995 order with respect to small cable
systems, in early 1996, the Company filed with the Massachusetts Community
Antenna Television Commission (the "Massachusetts Cable Commission") and the
Connecticut DPUC proposed new rates for the Company's revised basic service
for its Massachusetts and Connecticut cable systems. In March 1996, the
Massachusetts Cable Commission approved the proposed higher rates for the
Massachusetts systems, and those rates went into effect on April 1, 1996. As
of this date, the Connecticut DPUC has not yet acted upon the Company's
filing. On April 1, 1996, the Company put into effect the proposed new rates
for its Connecticut system, subject to possible refund. The new rates are on
a per-channel basis less that the $1.24 presumed-reasonable standard
established by the FCC's June 1995 order.
75
<PAGE>
MANAGEMENT AND CERTAIN TRANSACTIONS
EXECUTIVE OFFICERS AND DIRECTORS
Set forth below is certain information concerning the executive officers
and directors of Pegasus.
<TABLE>
<CAPTION>
Name Age Position
---------------------- ----- --------------------------------------------------
<S> <C> <C>
Marshall W. Pagon. ... 40 Chairman of the Board, President, Chief Executive Officer
and Treasurer
Robert N. Verdecchio. 39 Senior Vice President, Chief Financial Officer and
Assistant Secretary
Ted S. Lodge ......... 40 Senior Vice President, General Counsel, Chief
Administrative Officer and Assistant Secretary
Howard E. Verlin ..... 35 Vice President and Secretary
Guyon W. Turner ...... 54 Vice President
Donald W. Weber ...... 59 Director
</TABLE>
Marshall W. Pagon has served as President, Chief Executive Officer,
Treasurer and Chairman of the Board of Pegasus since its incorporation. Mr.
Pagon also serves as Chief Executive Officer and Director of each of Pegasus'
subsidiaries. From 1991 to October 1994, when the assets of various
affiliates of PM&C, principally limited partnerships that owned and operated
the Company's TV and Cable operations, were transferred to PM&C's
subsidiaries, Mr. Pagon or entities controlled or affiliated with Mr. Pagon
served as the general partner of these partnerships and conducted the
business of the Company. Mr. Pagon's background includes over 15 years of
experience in the media and communications industry. In 1987, Mr. Pagon
organized the Management Company to provide management and other services to
companies in the media and communications industry. The Management Company
has provided management and accounting services to PM&C and its subsidiaries.
Robert N. Verdecchio has served as Pegasus' Senior Vice President, Chief
Financial Officer and Assistant Secretary since its inception. He has also
served similar functions for PM&C's affiliates and predecessors in interest
since 1990. Mr. Verdecchio is a certified public accountant and has over ten
years of experience in the media and communications industry.
Ted S. Lodge has served as Senior Vice President, General Counsel, Chief
Administrative Officer and Assistant Secretary of Pegasus since July 1, 1996.
From June 1992 through May 1996, Mr. Lodge practiced law with the law firm of
Lodge & Company. During such period, Mr. Lodge was engaged by the Company as
its outside legal counsel in connection with several of the Company's
acquisitions. Prior to founding Lodge & Company, Mr. Lodge served as Vice
President, Legal Department of SEI Corporation from May 1991 to June 1992 and
as Vice President, General Counsel of Vik Brothers Insurance, Inc. from March
1989 to May 1991.
Howard E. Verlin is a Vice President and Secretary of Pegasus and is
responsible for operating activities of the Company's Cable and DBS
subsidiaries, including supervision of their general managers. Mr. Verlin has
served similar functions with respect to the Company's predecessors in
interest and affiliates since 1987 and has over 14 years of experience in the
media and communications industry.
Guyon W. Turner is a Vice President of Pegasus and is responsible for the
Company's broadcast television subsidiary. From 1984 to 1993, Mr. Turner was
the managing general partner of Scranton TV Partners, Ltd., from which the
Company acquired WOLF and WWLF in 1993. Mr. Turner was also chairman and
director of Empire Radio Partners, Ltd. from March 1991 to December 1993. In
November 1992, Empire filed for protection under Chapter 11 of the Bankruptcy
Code. Mr. Turner's background includes over 20 years of experience in the
media and communications industry.
Donald W. Weber has been a Director of Pegasus since its incorporation and
a director of PM&C since November 1995. Mr. Weber has been the President and
Chief Executive Officer of Viewstar Entertainment Services, Inc., an NRTC
member that distributes DIRECTV services in North Georgia, since August 1993.
76
<PAGE>
From November 1991 through August 1993, Mr. Weber was a private investor and
consultant to various communication companies. Prior to that time, Mr. Weber
was President and Chief Operating Officer of Contel Corporation until its
merger with GTE Corporation in 1991. Mr. Weber is currently a member of the
boards of directors of InterCel, Inc. and Healthdyne Information Enterprises,
Inc. each of which are publicly-traded companies.
In connection with the Michigan/Texas DBS Acquisition, the Parent agreed
to nominate a designee of Harron as a member of the Company's Board of
Directors. Shortly after the consummation of this Offering, the Company
anticipates having a Board of Directors consisting of five members, including
Mr. Pagon, Mr. Weber and the Harron nominee.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to this Offering, the Company did not have a compensation committee
or any other committee of the Board of Directors performing similar
functions. Decisions concerning compensation of executive officers were made
by the Board of Directors, which included Mr. Pagon, the President and Chief
Executive Officer of the Company. Upon increasing the size of the Board to
five members, the Company expects to establish a compensation committee.
COMPENSATION OF DIRECTORS
Under the Company's By-laws, each director is entitled to receive such
compensation, if any, as may from time to time be fixed by the Board of
Directors. The Company currently pays its directors who are not employees or
officers of the Company an annual retainer of $5,000 plus $500 for each Board
meeting attended in person and $250 for each Board meeting held by telephone.
The Company also reimburses each director for all reasonable expenses
incurred in traveling to and from the place of each meeting of the Board or
committee of the Board.
As additional remuneration for joining the Board, Mr. Weber was granted in
April 1996 an option to purchase 3,385 shares of Class A Common Stock at an
exercise price of $15.00 per share (assuming an initial offering price of
$15.00 per share). Mr. Weber's option vested upon issuance, is exercisable
until November 2000 and, at the time of grant, was issued at an exercise
price equal to fair market value at the time Mr. Weber was elected a
director.
MANAGEMENT AGREEMENT
The Management Company performs various management and accounting services
for the Company pursuant to the Management Agreement between the Management
Company and the Company. Mr. Pagon controls and is the majority owner of the
Management Company. Upon the consummation of this Offering, the Management
Agreement will be transferred to the Company, and the employees of the
Management Company will become employees of the Company. In consideration for
the transfer of this agreement together with certain net assets, including
approximately $1.4 million of accrued management fees, the Management Company
will receive $19.6 million of Class B Common Stock or 1,306,667 shares of
Class B Common Stock (assuming an initial offering price of $15.00 per share
) and approximately $1.4 million in cash. Of these shares, 182,652 will be
exchanged for an equal number of shares of Class A Common Stock and
transferred to certain members of management who are participants in the
Management Share Exchange. The fair market value of the Management Agreement
has been determined by Kane Reece Associates, Inc. ("Kane Reece"), an
independent appraiser, based upon a discounted cash flow approach using
historical financial results and management's financial projections. In
return for Kane Reece's services, the Company incurred a fee of approximately
$15,000 plus expenses.
Under the Management Agreement, the Management Company provided specified
executive, administrative and management services to PM&C and its operating
subsidiaries. These services included: (i) selection of personnel; (ii)
review, supervision and control of accounting, bookkeeping, recordkeeping,
reporting and revenue collection; (iii) supervision of compliance with legal
and regulatory requirements; and (iv) conduct and control of daily
operational aspects of the Company. In consideration for the services
performed by the Management Company under the Management Agreement, the
Company was charged management fees, which represented 5% of the Company's
net revenues, and reimbursements for the Management Company's accounting
department costs. The Management Company's offices are located at 5 Radnor
Corporate Center, Suite 454, Radnor, Pennsylvania 19087.
77
<PAGE>
TOWERS PURCHASE
Simultaneously with the completion of this Offering, the Company will
purchase Towers' assets for total consideration of approximately $1.4
million. Towers is beneficially owned by Marshall W. Pagon. The Towers
Purchase consists of ownership and leasehold interests in three tower
properties. Towers leases space on each of its towers to the Company and also
leases space to unaffiliated companies. The purchase price has been
determined by an independent appraisal.
SPLIT DOLLAR AGREEMENT
In October 1996, the Company plans to enter into a Split Dollar Agreement
with the trustees of an insurance trust established by Marshall W. Pagon.
Under the Split Dollar Agreement, the Company will agree to pay a portion of
the premiums for certain life insurance policies covering Mr. Pagon owned by
the insurance trust. The Agreement will provide that the Company will be
repaid for all amounts it expends for such premiums, either from the cash
surrender value or the proceeds of the insurance policies.
EXECUTIVE COMPENSATION
The salaries of the Company's executive officers have historically been
paid by the Management Company. Upon the closing of this Offering, the
Management Agreement will be transferred to the Company and the salaries of
the Company's executive officers will be paid for by the Company. The
following table summarizes the compensation paid for the last two fiscal
years to the Chief Executive Officer and to each of the Company's most highly
compensated officers whose total annual salary and bonus for the fiscal year
ended December 31, 1995 exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Annual Compensation(1) Compensation
---------------------------- --------------
Restricted
Other Annual Stock
Name Principal Position Year Salary Compensation Awards
--------------------- -------------------------------------- ------ ---------- -------------- --------------
<S> <C> <C> <C> <C>
Marshall W. Pagon ... President and Chief Executive Officer 1995 $150,000 -- --
1994 $150,000 -- --
Robert N. Verdecchio Senior Vice President, Chief Financial 1995 $122,083 -- $133,450(3)
Officer and Assistant Secretary 1994 $ 90,000 -- --
Howard E. Verlin .... Vice President, Cable and Satellite 1995 $100,000 -- $ 95,321(3)
Television, and Secretary 1994 $ 65,000 -- --
Guyon W. Turner ..... Vice President, Broadcast Television 1995 $130,486 $18,200(2) $ 95,321(3)
1994 $140,364 $20,480(2) --
</TABLE>
- ------
(1) The Company's executive officers have never received any salary or bonus
compensation from the Company. The salary amounts presented above were
paid by the Management Company. There are no employment agreements
between the Company and its executive officers.
(2) Includes $18,000 housing allowance paid by the Company.
(3) Represents grants of the Parent's Non-Voting Common Stock in 1995 (875
shares to Mr. Verdecchio and 625 shares each to Messrs. Verlin and
Turner). Amounts shown in the table are based on a valuation prepared for
the Parent at the time of the grants. One-fourth of the shares vest on
December 31 of each of 1995, 1996, 1997 and 1998. Upon the completion of
this Offering, it is anticipated that all of the Parent's Non-Voting
Common Stock will be exchanged for shares of Class A Common Stock
pursuant to the Managaement Share Exchange.
INCENTIVE PROGRAM
GENERAL
The Incentive Program, which includes the Restricted Stock Plan (as
defined), the 401(k) Plans (as defined) and the Stock Option Plan (as
defined), is designed to promote growth in stockholder value by providing
employees with restricted stock awards in the form of Class A Common Stock
and grants of options
78
<PAGE>
to purchase Class A Common Stock. Awards under the Restricted Stock Plan and
the 401(k) Plans are in proportion to annual increases in Location Cash Flow.
For this purpose Location Cash Flow is automatically adjusted for
acquisitions such that, for the purpose of calculating the annual increase in
Location Cash Flow, the Location Cash Flow of the acquired properties is
included as if it had been a part of the Company's financial results for the
comparable period of the prior year. The Company has authorized up to 720,000
shares of Class A Common Stock in connection with the Incentive Program
(subject to adjustment to reflect stock dividends, stock splits,
recapitalizations, and similar changes in the capitalization of Pegasus).
The Company believes that the Restricted Stock Plan and 401(k) Plans
result in greater increases in stockholder value than result from a
conventional stock option program, because these plans create a clear cause
and effect relationship between initiatives taken to increase Location Cash
Flow and the amount of incentive compensation that results therefrom.
Although the Restricted Stock Plan and 401(k) Plans like conventional
stock option programs provide compensation to employees as a function of
growth in stockholder value, the tax and accounting treatments of these
programs are different. For tax purposes, incentive compensation awarded
under the Restricted Stock Plan (upon vesting) and the 401(k) Plans is fully
tax deductible as compared to conventional stock option grants which
generally are only partially tax deductible upon exercise. For accounting
purposes, conventional stock option programs generally do not result in a
charge to earnings while compensation under the Restricted Stock Plan and the
401(k) Plans do result in a charge to earnings. The Company believes that
these differences result in a lack of comparability between the EBITDA of
companies that utilize conventional stock option programs and the EBITDA of
the Company.
The table below lists the specific maximum components of the Restricted
Stock Plan and the 401(k) Plans in terms of a $1 increase in annual Location
Cash Flow.
<TABLE>
<CAPTION>
Component Amount
------------------------------------------------------------------------------------------ ----------
<S> <C>
Restricted Stock grants to general managers based on the increase in annual Location Cash
Flow of individual business units ....................................................... 6cents
Restricted Stock grants to department managers based on the increase in annual Location
Cash Flow of individual business units .................................................. 6cents
Restricted Stock grants to corporate managers (other than executive officers) based on the
Company-wide increase in annual Location Cash Flow ...................................... 3cents
Restricted Stock grants to employees selected for special recognition .................... 5cents
Restricted Stock grants under the 401(k) Plan for the benefit of all eligible employees
and allocated pro-rata based on wages ................................................... 10cents
----------
Total ................................................................................ 30cents
==========
</TABLE>
Currently, the Company has seven general managers, 27 department managers
and nine corporate managers.
Executive officers and non-employee directors are not eligible to receive
profit sharing awards under the Restricted Stock Plan. Executive officers are
eligible to receive awards under the Restricted Stock Plan consisting of (i)
special recognition awards and (ii) awards made to the extent that an
employee does not receive a matching contribution because of restrictions of
the Internal Revenue Code of 1986, as amended (the "Code"). Executive
Officers and non-employee directors are eligible to receive options under the
Stock Option Plan.
RESTRICTED STOCK PLAN
In September 1996, Pegasus adopted the Pegasus Restricted Stock Plan (the
"Restricted Stock Plan" and, together with the 401(k) Plans and the Stock
Option Plan, the "Incentive Program"), which was also approved by Pegasus'
stockholders in September 1996. Under the Restricted Stock Plan, 270,000
shares of Class A Common Stock (subject to adjustment to reflect stock
dividends, stock splits, recapitalizations, and similar changes in the
capitalization of Pegasus) are available for granting restricted stock awards
to eligible employees of the Company who have completed at least one year of
service. The Restricted Stock Plan provides for three types of restricted
stock awards that are made in the form of Class A Common Stock as
79
<PAGE>
shown in the table above: (i) profit sharing awards to general managers,
department managers and corporate managers (other than executive officers);
(ii) special recognition awards for consistency (team award), initiative (a
team or individual award), problem solving (a team or individual award) and
individual excellence; and (iii) awards that are made to the extent that an
employee does not receive a matching contribution under the U.S. 401(k) Plan
because of restrictions of the Code.
Administration. The Restricted Stock Plan is administered by a committee
whose members are selected by Pegasus' Board of Directors (the "Restricted
Stock Plan Committee"). With respect to special recognition awards made to
managers who are officers or directors, the Restricted Stock Plan will be
administered by a committee of not fewer than two non-employee directors of
Pegasus, or the entire Board of Pegasus.
Vesting. Restricted Stock Awards vest on the following schedule: 34% after
two years of service with the Company (including years before the Restricted
Stock Plan was established), 67% after three years of service and 100% after
four years of service. A grantee also becomes fully vested in his outstanding
restricted stock award(s) upon death or disability. If a grantee's employment
is terminated for a reason other than death or disability before completing
four years of service, his unvested restricted stock awards will be
forfeited. Restricted stock is held by the Company prior to becoming vested.
The grantee will, however, be entitled to vote the restricted stock and
receive any dividends of record prior to vesting.
Duration and Amendment of Restricted Stock Plan. The Restricted Stock Plan
became effective in September 1996, and will terminate in September 2006. The
Board of Directors of Pegasus may amend, suspend or terminate the Restricted
Stock Plan, and the Restricted Stock Plan administrator may amend any
outstanding restricted stock awards, at any time, subject to stockholder
approval under certain circumstances, including increases in the number of
shares authorized under the plan. A grantee must approve the suspension,
discontinuance or amendment of the Restricted Stock Plan or the agreement
evidencing his restricted stock award, if such action would materially impair
the rights of the grantee under any restricted stock award previously granted
to him or her.
Restricted Stock Awards. The following special recognition awards have
been made under the Restricted Stock Plan:
Number of
Name and Position Shares(1)
----------------------------------------------------- -----------------
Marshall W. Pagon, President
and Chief Executive Officer ........................ N/A(2)
Robert N. Verdecchio, Senior Vice President, Chief
Financial Officer and Assistant Secretary .......... 843
Howard E. Verlin, Vice President, Cable and
Satellite Television and Secretary ................. 0
Guyon W. Turner, Vice President, Broadcast Television 0
Executive Group ..................................... 843
Non-Executive Director Group ........................ N/A(2)
Non-Executive Officer Employee Group ................ 2,530
-----------
Total ..................................... 3,373
===========
- ------
(1) Number of shares of Class A Common Stock subject to restricted stock
awards granted to date, based upon an assumed initial offering price of
$15.00 per share of Class A Common Stock.
(2) Marshall W. Pagon and non-executive directors are not eligible to receive
the special recognition awards under the Restricted Stock Plan.
80
<PAGE>
Had the Restricted Stock Plan been in effect for the last fiscal year, the
following profit sharing awards would have been made under the Restricted
Stock Plan:
Name and Position Number of Shares(1)
--------------------------------------------------------- --------------------
Marshall W. Pagon, President
and Chief Executive Officer ............................ N/A(2)
Robert N. Verdecchio, Senior Vice President, Chief
Financial Officer and Assistant Secretary .............. N/A(2)
Howard E. Verlin, Vice President, Cable and
Satellite Television and Secretary ..................... N/A(2)
Guyon W. Turner, Vice President, Broadcast Television ... N/A(2)
Executive Group ......................................... N/A(2)
Non-Executive Director Group ............................ N/A(2)
Non-Executive Officer Employee Group .................... 16,867
- ------
(1) Number of shares of Class A Common Stock, based upon an assumed initial
public offering price of $15.00 per share of Class A Common Stock.
(2) The Company's executive officers and non-executive directors are not
eligible to participate in the profit sharing awards under the Restricted
Stock Plan.
STOCK OPTION PLAN
In September 1996, Pegasus adopted the Pegasus Communications 1996 Stock
Option Plan (the "Stock Option Plan"), which was also approved by Pegasus'
stockholders in September 1996. Under the Stock Option Plan, up to 450,000
shares of Class A Common Stock (subject to adjustment to reflect stock
dividends, stock splits, recapitalizations, and similar changes in the
capitalization of Pegasus) are available for the granting of nonqualified
stock options ("NQSOs") and options qualifying as incentive stock options
("ISOs") under Section 422 of the Code.
Executive officers, who are not eligible to receive profit sharing awards
under the Restricted Stock Plan, are eligible to receive NQSOs or ISOs under
the Stock Option Plan, but no executive officer may be granted options
covering more than 275,000 shares of Class A Common Stock under the Stock
Option Plan. Directors of Pegasus who are not employees of the Company are
eligible to receive NQSOs under the Stock Option Plan. Currently, five
executive officers and one non-employee director are eligible to receive
options under the Stock Option Plan.
Administration. The Stock Option Plan is administered by a committee of
not fewer than two non-employee directors of Pegasus, or the entire Board of
Pegasus (the "Stock Option Plan Committee"). Executive officers and
non-employee directors selected by the Stock Option Plan Committee will be
eligible to receive options based on an executive officer's or non-employee
director's contribution to the achievement of the Company's objectives and
other relevant matters.
Terms and Conditions of Options. When an option is granted, the Stock
Option Plan Committee determines the term of the option (which may not be
more than ten years), the exercise price (which may not be less than the fair
market value of Class A Common Stock on the date of grant), and the date(s)
on which the option becomes exercisable. However, ISOs granted to a person
who owns more than 10% of the combined voting power of the stock of Pegasus
(or of a subsidiary or parent) must have a term of not more than five years,
and an exercise price of not less than 110% of the fair market value of Class
A Common Stock on the date of grant. Options automatically become exercisable
upon a Change of Control (as defined in the Stock Option Plan).
The Stock Option Plan Committee may also provide that the term of an
option will be shorter than it otherwise would have been if an optionee
terminates employment or Board membership (for any reason, including death or
disability). However, an ISO will expire no later than (i) three months after
termination of employment for a reason other than death or disability, or
(ii) one year after termination of employment on account of disability. Also,
no option may be exercised more than three years after an optionee's death.
The exercise price and tax withholding obligations on exercise may be paid
in various methods, including a cash payment and/or surrendering shares
subject to the option or previously acquired shares of Class A Common Stock.
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Duration and Amendment of Stock Option Plan. The Stock Option Plan will
terminate in September 2006 (ten years after it was adopted by the Board of
Directors of Pegasus). The Board of Directors of Pegasus may amend, suspend
or terminate the Stock Option Plan, and the Stock Plan Committee may amend
any outstanding options, at any time. Nevertheless, certain amendments listed
in the Stock Option Plan require stockholder approval. Examples of amendments
which require stockholder approval include an amendment increasing the number
of shares which may be subject to options, and an amendment increasing the
duration of the Stock Option Plan with respect to ISOs. Further, an optionee
must approve the suspension, discontinuance or amendment of the Stock Option
Plan or the agreement evidencing his or her option, if such action would
materially impair the rights of the optionee under any option previously
granted to him or her.
Federal Income Tax Treatment of Options.
ISOs. If the requirements of Section 422 of the Code are met, an
optionee recognizes no income upon the grant or exercise of an ISO (unless
the alternative minimum tax rules apply), and the Company is not entitled to
a deduction.
NQSOs. An optionee recognizes no income at the time an NQSO is granted.
Upon exercise of the NQSO, the optionee recognizes ordinary income for
federal income tax purposes in an amount generally measured as the excess of
the then fair market value of Class A Common Stock over the exercise price.
Subject to Section 162(m) of the Code, the Company will be entitled to a tax
deduction in the amount and at the time that an optionee recognizes ordinary
income with respect to an NQSO.
401(K) PLANS
Effective January 1, 1996, PM&C adopted the Pegasus Communications Savings
Plan (the "U.S. 401(k) Plan") for eligible employees of PM&C and its domestic
subsidiaries. In 1996, the Company's Puerto Rico subsidiary adopted the
Pegasus Communications Puerto Rico Savings Plan (the "Puerto Rico 401(k)
Plan" and, together with the U.S. 401(k) Plan, the "401(k) Plans") for
eligible employees of the Company's Puerto Rico subsidiaries. The U.S. 401(k)
Plan is intended to be qualified under sections 401(a) and 401(k) of the
Code. The Puerto Rico 401(k) Plan is intended to be qualified under sections
1165(a) and 1165(e) of the Puerto Rico Internal Revenue Code of 1994, as
amended.
Substantially all Company employees who, as of the enrollment date under
the 401(k) Plans, have completed at least one year of service with the
Company are eligible to participate in one of the 401(k) Plans. Participants
may make salary deferral contributions of 2% to 6% of salary to the 401(k)
Plans.
The Company may make three types of contributions to the 401(k) Plans, each
allocable to a participant's account if the participant completes at least 1,000
hours of service in the applicable plan year, and is employed on the last day of
the applicable plan year: (i) the Company matches 100% of a participant's salary
deferral contributions to the extent the participant invested his or her salary
deferral contributions in Class A Common Stock at the time of his or her initial
contribution to the 401(k) Plans; (ii) the Company, in its discretion, may
contribute in an amount that equals up to 10% of the annual increase in
Company-wide Location Cash Flow (these Company discretionary contributions, if
any, are allocated to eligible participants' accounts based on each
participant's salary for the plan year); and (iii) the Company also matches a
participant's rollover contribution, if any, to the 401(k) Plans, to the extent
the participant invests his or her rollover contribution in Class A Common Stock
at the time of his or her initial contribution to the 401(k) Plans.
Discretionary Company contributions and Company matches of employee salary
deferral contributions and rollover contributions are made in the form of Class
A Common Stock, or in cash used to purchase Class A Common Stock. Company
contributions to the 401(k) Plans are subject to limitations under applicable
laws and regulations.
All employee contributions to the 401(k) Plans are fully vested at all
times and all Company contributions, if any, vest on the following schedule:
34% after two years of service with the Company (including years before the
401(k) Plans were established); 67% after three years of service and 100%
after four years of service. A participant also becomes fully vested in
Company contributions to the 401(k) Plans upon attaining age 65 or upon his
or her death or disability.
To the extent a participant's account under the 401(k) Plans is invested
in Class A Common Stock (one of eight investment alternatives currently
available under the 401(k) Plans), distributions are made in Class A Common
Stock. As of August 15, 1996, $88,225 of employee contributions are held by
the Trustees of the 401(k) Plans pending the purchase of Class A Common
Stock.
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OWNERSHIP AND CONTROL
The following table sets forth certain information with respect to the
beneficial holdings of each director, each of the executive officers named in
the Summary Compensation Table, and all executive officers and directors as a
group, as well as the holdings of each stockholder who was known to Pegasus
to be the beneficial owner, as defined in Rule 13d-3 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), of more than 5% of the
Class A Common Stock and Class B Common Stock and gives effect, based upon an
initial public offering price of $15.00 per share, to the Transactions.
Holders of Class A Common Stock are entitled to one vote per share on all
matters submitted to a vote of stockholders generally, and holders of Class B
Common Stock are entitled to ten votes per share. Shares of Class B Common
Stock are convertible immediately into shares of Class A Common Stock on a
one-for-one basis, and accordingly, holders of Class B Common Stock are
deemed to own the same number of shares of Class A Common Stock. The Parent
and Pegasus Capital, L.P. hold in the aggregate all shares of Class B Common
Stock, representing 49.4% of the Common Stock (and 90.7% of the combined
voting power of all voting stock) of Pegasus on a fully diluted basis.
Marshall W. Pagon is deemed to be the beneficial owner of all of the Class B
Common Stock. Upon consummation of this Offering and the Transactions, the
outstanding capital stock of the Parent will consist of 64,119 shares of
Class A Voting Common Stock and 5,000 shares of Parent Non-Voting Stock, all
of which will be beneficially owned by Marshall W. Pagon. See "Risk Factors
- -- Concentration of Share Ownership and Voting Control by Marshall W. Pagon."
<TABLE>
<CAPTION>
Pegasus Class B
Common Stock
Pegasus Class A Pegasus Class A Beneficially
Common Stock Beneficially Common Stock Beneficially Owned Before and After
Owned Before Offering Owned After Offering Offering
------------------------- ------------------------- -----------------------
Beneficial Owner Shares % Shares % Shares %
------------------------- -------------- ------- -------------- ------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Marshall W. Pagon(1)(2) . 4,483,805(3) 73.7% 4,483,805(3) 49.4% 4,483,805 100.0%
Guyon W. Turner(1) ...... 114,184 7.1% 114,184 2.5% -- --
Robert N. Verdecchio(1) . 191,328 12.0% 191,328 4.2% -- --
Howard E. Verlin ........ 57,092 3.6% 57,092 1.2% -- --
Donald W. Weber(4) ...... 3,385 (5) 3,385 (5) -- --
Harron Communications
Corp.(6)
70 East Lancaster Avenue
Frazer, PA 19355 ....... 795,303 49.7% 795,303 17.3% -- --
Directors and Executive
Officers as a Group (6
persons)(7) ............ 4,849,794 79.7% 4,849,794 53.4% 4,483,805 100.0%
</TABLE>
- ------
(1) The address of this person is c/o Pegasus Communications Management
Company, 5 Radnor Corporate Center, Suite 454, 100 Matsonford Road,
Radnor, Pennsylvania 19087.
(2) Pegasus Capital, L.P. holds 1,124,015 shares of Class B Common Stock. Mr.
Pagon is the sole shareholder of the general partner of Pegasus Capital,
L.P. and is deemed to be the beneficial owner of these shares. All of the
3,359,790 remaining shares of Class B Common Stock are owned by the
Parent. All Class A Voting Common Stock of the Parent are held by Pegasus
Communications Limited Partnership. Mr. Pagon controls Pegasus
Communications Limited Partnership by reason of his ownership of all the
outstanding voting stock of the sole general partner of a limited
partnership that is, in turn, the sole general partner in Pegasus
Communications Limited Partnership. As such, Mr. Pagon is the beneficial
owner of 100% of Class B Common Stock with sole voting and investment
power over all such shares.
(3) Represents 4,483,805 shares of Class B Common Stock, which are
convertible into shares of Class A Common Stock on a one-for-one basis.
(4) Consists of 3,385 shares of Class A Common Stock issuable upon the
exercise of the vested portion of outstanding stock options.
(5) Represents less than 1% of the outstanding shares of the class of Common
Stock.
(6) Under the terms of a stockholder's agreement entered into by the Company
in connection with the Michigan/Texas DBS Acquisition, the Company has a
right of first offer to purchase any shares sold by Harron in a private
transaction exempt from registration under the Securities Act.
(7) See footnotes (2), (3) and (4).
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PRO FORMA ORGANIZATIONAL STRUCTURE AND OWNERSHIP INTERESTS(1)
CLASS A COMMON STOCK
CLASS B COMMON STOCK
Marshall W. Pagon
Public Participants in
Stockholders the Registered
in this Exchange Offer Parent and
Offering and Management Pegasus Capital,
(2) Share Exchange Harron Other L.P.
(3) (4) (5) (6)
33.0% 8.0% 8.8% 0.8% 49.4%
100.0%
Pegasus
100.0%
PM&C
- ------
(1) This chart assumes an initial public offering price of $15.00 per share
of Class A Common Stock and that all holders of the PM&C Class B Shares
have accepted the Registered Exchange Offer.
(2) Consists of 3,000,000 shares of Class A Common Stock offered to the
public in this Offering, which represents 6.1% of the voting power, and
does not give effect to any exercise of the Underwriters' over-allotment
option.
(3) Consists of 191,792 shares of Class A Common Stock offered to the holders
of the PM&C Class B Shares pursuant to the Registered Exchange Offer
(assuming all holders of the PM&C Class B Shares accept the Registered
Exchange Offer), which represents 0.4% of the voting power; 263,606
shares of the Company's Class A Common Stock to be issued in connection
with the Management Share Exchange, which represents 0.5% of the voting
power; and 269,964 shares initially issued as Class B Common Stock and
transferred as Class A Common Stock to certain members of management who
are participants in the Management Share Exchange, which represents 0.5%
of the voting power.
(4) Consists of 795,303 shares of the Class A Common Stock to be issued to
Harron Communications Corp. ("Harron") in connection with the
Michigan/Texas DBS Acquisition, which represents 1.6% of the voting
power.
(5) Includes 10,000 shares of the Company's Class A Common Stock to be issued
in connection with the Portland Acquisition and 66,667 shares of the
Company's Class A Common Stock to be issued in connection with the
Portland LMA.
(6) Consists of 3,293,123 shares of Class B Common Stock to be issued to the
Parent in exchange for the Parent's contribution of all of the PM&C Class
A Shares (after giving effect to 87,312 shares of Class B Common Stock
transferred as Class A Common Stock to certain members of management who
are participants in the Management Share Exchange); 1,124,015 shares to
be issued to Pegasus Capital, L.P. in connection with the Management
Agreement Acquisition (after giving effect to 182,652 shares of Class B
Common Stock transferred as Class A Common Stock to certain members of
management who are participants in the Management Share Exchange); and
66,667 shares to be issued to the Parent in connection with the Portland
Acquisition. Marshall W. Pagon is deemed to be the beneficial owner of
all Common Stock held by the Parent and Pegasus Capital, L.P. See
footnote 2 to the "Ownership and Control" table above. As such, Mr. Pagon
has control of over 90.7% of the voting power of the Common Stock.
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DESCRIPTION OF INDEBTEDNESS
NOTES
PM&C, which will become the direct subsidiary of Pegasus upon completion
of this Offering, has outstanding $85.0 million in aggregate principal amount
of its 12 1/2 % Series B Senior Subordinated Notes due 2005 (the "Notes").
The Notes are subject to the terms and conditions of an Indenture dated as of
July 7, 1995 among PM&C, certain of its direct and indirect subsidiaries, as
guarantors (the "Guarantors"), and First Union National Bank, as trustee, a
copy of which is filed as an exhibit to the registration statement of which
this Prospectus is a part. The Notes are subject to all of the terms and
conditions of the Indenture. The following summary of the material provisions
of the Indenture does not purport to be complete, and is subject to, and
qualified in its entirety by reference to, all of the provisions of the
Indenture and those terms made a part of the Indenture by the Trust Indenture
Act of 1939, as amended. All terms defined in the Indenture and not otherwise
defined herein are used below with the meanings set forth in the Indenture.
General. The Notes will mature on July 1, 2005 and bear interest at 12 1/2
% per annum, payable semi-annually on January 1 and July 1 of each year. The
Notes are general unsecured obligations of PM&C and are subordinated in right
of payment to all existing and future Senior Debt of PM&C. The Notes are
unconditionally guaranteed, on an unsecured senior subordinated basis,
jointly and severally, by the Guarantors.
Optional Redemption. The Notes are subject to redemption at any time, at
the option of PM&C, in whole or in part, on or after July 1, 2000 at
redemption prices (plus accrued interest and Liquidated Damages, if any)
starting at 106.25% of principal during the 12-month period beginning July 1,
2000 and declining annually to 100% of principal on July 1, 2003 and
thereafter.
In addition, prior to July 1, 1998, PM&C may redeem up to 33 1/3 % of the
aggregate principal amount of the Notes with the net proceeds of one or more
public offerings of its common equity or the common equity of PM&C's direct
parent, to the extent such proceeds are contributed (within 120 days of any
such offering) to PM&C as common equity, at a price equal to 112.5% of the
principal amount thereof plus accrued interest and Liquidated Damages, if
any, provided that at least 66 2/3% of the original aggregate principal
amount of the Notes remains outstanding thereafter.
Change of Control. Upon the occurrence of a Change of Control, each holder
of the Notes may require the Company to repurchase all or a portion of such
holder's Notes at a purchase price equal to 101% of the principal amount
thereof, together with accrued and unpaid interest and Liquidated Damages
thereon, if any, to the date of repurchase. Generally, a Change of Control,
means the occurrence of any of the following: (i) the disposition of all or
substantially all of PM&C's assets to any person other than Marshall W. Pagon
or his Related Parties, (ii) the adoption of a plan relating to the
liquidation or dissolution of PM&C, (iii) the consummation of any transaction
in which a person becomes the beneficial owner of more of the voting stock of
PM&C than is beneficially owned at such time by Mr. Pagon and his Related
Parties, or (iv) the first day on which a majority of the members of the
Board of Directors of PM&C or the Parent are not Continuing Directors.
Subordination. The Notes are general unsecured obligations of PM&C and are
subordinate to all existing and future Senior Debt of PM&C. The Notes will
rank senior in right of payment to all junior subordinated Indebtedness of
PM&C. The Subsidiary Guarantees are general unsecured obligations of the
Guarantors and are subordinated to the Senior Debt and to the guarantees of
Senior Debt of such Guarantors. The Subsidiary Guarantees rank senior in
right of payment to all junior subordinated Indebtedness of the Guarantors.
Certain Covenants. The Indenture contains a number of covenants
restricting the operations of PM&C, which, among other things, limit the
ability of PM&C to incur additional Indebtedness, pay dividends or make
distributions, sell assets, issue subsidiary stock, restrict distributions
from Subsidiaries, create certain liens, enter into certain consolidations or
mergers and enter into certain transactions with affiliates.
Events of Default. Events of Default under the Indenture include the
following: (i) a default for 30 days in the payment when due of interest on,
or Liquidated Damages with respect to, the Notes; (ii) default in payment
when due of the principal of or premium, if any, on the Notes; (iii) failure
by PM&C to comply with certain provisions of the Indenture (subject, in some
but not all cases, to notice and cure periods); (iv) default
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<PAGE>
under certain items of Indebtedness for money borrowed by PM&C or any of its
Restricted Subsidiaries; (v) failure by PM&C or any Restricted Subsidiary
that would be a Significant Subsidiary to pay final judgments aggregating in
excess of $2.0 million, which judgments are not paid, discharged or stayed
for a period of 60 days; (vi) except as permitted by the Indenture, any
Subsidiary Guarantee shall be held in any judicial proceeding to be
unenforceable or invalid or shall cease for any reason to be in full force
and effect or any Guarantor, or any Person acting on behalf of any Guarantor,
shall deny or disaffirm its obligations under its Subsidiary Guarantee; or
(vii) certain events of bankruptcy or insolvency with respect to PM&C or any
of its Restricted Subsidiaries.
Upon the occurrence of an Event of Default, with certain exceptions, the
Trustee or the holders of at least 25% in principal amount of the then
outstanding Notes may accelerate the maturity of all the Notes as provided in
the Indenture.
NEW CREDIT FACILITY
PM&C entered into a seven-year, senior secured revolving credit facility.
The New Credit Facility will be for $50.0 million upon the completion of the
lending consortium. Until such completion, or if other lenders do not join
the consortium, the New Credit Facility will be for $35.0 million. Proceeds
of borrowings under the New Credit Facility may be used for acquisitions
approved by the lenders in the TV, DBS or Cable businesses and for general
corporate purposes. All subsidiaries of PM&C (other than Pegasus Cable
Television of Connecticut, Inc. and subsidiaries that hold certain of the
Company's broadcast licenses) are guarantors of the New Credit Facility,
which is collateralized by a security interest in all assets of, and all
stock in, Pegasus' subsidiaries (other than the assets of Pegasus Cable
Television of Connecticut, Inc., the assets and stock of certain of the
Company's license-holding subsidiaries, and any PM&C Class B Shares not held
by Pegasus following the Registered Exchange Offer).
Borrowings under the New Credit Facility bear interest, payable monthly,
at LIBOR or the prime rate (as selected by the Company) plus spreads that
vary with PM&C's ratio of total debt to operating cash flow. The New Credit
Facility required payment of a closing fee of approximately $950,000 (which
will increase by $350,000 to approximately $1.3 million upon completion of
the lending consortium) and an annual commitment fee of 0.5% of the unused
portion of the commitment payable quarterly in arrears and requires PM&C to
purchase an interest rate hedging contract covering an amount equal to at
least 50% of the total amount of borrowings from the reducing revolving
facility for a minimum period of at least two years.
The New Credit Facility requires prepayments and concurrent reductions of
the commitment from asset sales or other transactions outside the ordinary
course of business (subject to provisions permitting the proceeds of certain
sales to be used to make approved acquisitions within stated time periods
without reducing the commitments of the lenders) and contains covenants
limiting the amounts of indebtedness that PM&C may incur, requiring the
maintenance of minimum fixed charge coverage, interest coverage and debt
service coverage ratios and limiting capital expenditures, dividends and
other restricted payments. The New Credit Facility also contains other
customary covenants, representations, warranties, indemnities, conditions
precedent to closing and borrowing, and events of default.
Beginning March 31, 1998, commitments under the New Credit Facility will
reduce in quarterly amounts ranging from $1.3 million per quarter in 1998 to
$2.3 million in 2002.
All indebtedness under the New Credit Facility will constitute Senior Debt
(as defined in the Indenture). See "Description of Indebtedness -- Notes."
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company (which, in this section,
refers only to Pegasus) consists of (i) 30,000,000 shares of Class A Common
Stock, par value $.01 per share (the "Class A Common Stock"), (ii) 15,000,000
shares of Class B Common Stock, par value $.01 per share (the "Class B Common
Stock" and, together with the Class A Common Stock, the "Common Stock"), and
(iii) 5,000,000 shares of Preferred Stock, par value $.01 per share (the
"Preferred Stock"). Upon the closing of this Offering and after giving effect
to the Transactions, 4,600,704 shares of Class A Common Stock and 4,483,805
shares of Class B Common Stock will be issued and outstanding, assuming an
initial public offering price of $15.00 per share. There are currently no
shares of Preferred Stock outstanding.
The following summary description relating to the Company's capital stock
sets forth the material terms of the capital stock, but does not purport to
be complete. A description of the Company's capital stock is contained in the
Amended and Restated Certificate of Incorporation, which is filed as an
exhibit to the registration statement of which this Prospectus forms a part.
Reference is made to such exhibit for a detailed description of the
provisions thereof summarized below.
COMMON STOCK
Voting, Dividend and Other Rights. The voting powers, preferences and
relative rights of the Class A Common Stock and the Class B Common Stock are
identical in all respects, except that (i) the holders of Class A Common
Stock are entitled to one vote per share and holders of Class B Common Stock
are entitled to ten votes per share, (ii) stock dividends on Class A Common
Stock may be paid only in shares of Class A Common Stock and stock dividends
on Class B Common Stock may be paid only in shares of Class B Common Stock
and (iii) shares of Class B Common Stock have certain conversion rights and
are subject to certain restrictions on ownership and transfer described below
under "Conversion Rights and Restrictions on Transfer of Class B Common
Stock." Any amendment to the Amended and Restated Certificate of
Incorporation that has any of the following effects will require the approval
of the holders of a majority of the outstanding shares of each of the Class A
Common Stock and Class B Common Stock, voting as separate classes: (i) any
decrease in the voting rights per share of Class A Common Stock or any
increase in the voting rights of Class B Common Stock; (ii) any increase in
the number of shares of Class A Common Stock into which shares of Class B
Common Stock are convertible; (iii) any relaxation on the restrictions on
transfer of the Class B Common Stock; or (iv) any change in the powers,
preferences or special rights of the Class A Common Stock or Class B Common
Stock adversely affecting the holders of the Class A Common Stock. The
approval of the holders of a majority of the outstanding shares of each of
the Class A Common Stock and Class B Common Stock, voting as separate
classes, is also required to authorize or issue additional shares of Class B
Common Stock after the completion of this Offering (except for parallel
action with respect to Class A Common Stock in connection with stock
dividends, stock splits, recapitalizations and similar changes in the
capitalization of Pegasus). Except as described above or as required by law,
holders of Class A Common Stock and Class B Common Stock vote together on all
matters presented to the stockholders for their vote or approval, including
the election of directors.
After the sale of the Class A Common Stock offered hereby, assuming an
initial public offering price of $15.00 per share and the consummation of the
Transactions, the outstanding shares of Class A Common Stock will equal 50.6%
of the total Common Stock outstanding, and the holders of Class B Common
Stock will have control of approximately 90.7% of the combined voting power
of the Common Stock. The holders of the Class B Common Stock will, therefore,
have the power to elect the entire Board of Directors of the Company. In
particular, Marshall W. Pagon, by virtue of his beneficial ownership of all
of the Class B Common Stock, will have sufficient voting power to determine
the outcome of any matter submitted to the stockholders for approval (except
matters on which the holders of Class A Common Stock are entitled to vote
separately as a class), including the power to determine the outcome of all
corporate transactions.
Each share of Class A Common Stock and Class B Common Stock is entitled to
receive dividends if, as and when declared by the Board of Directors of the
Company out of funds legally available therefor. The Class A Common Stock and
Class B Common Stock share equally, on a share-for-share basis, in any cash
dividends declared by the Board of Directors.
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In the event of a merger or consolidation to which the Company is a party,
each share of Class A Common Stock and Class B Common Stock will be entitled
to receive the same consideration, except that holders of Class B Common
Stock may receive stock with greater voting power in lieu of stock with
lesser voting power received by holders of the Company's Class A Common Stock
in a merger in which the Company is not the surviving corporation.
Stockholders of the Company have no preemptive or other rights to
subscribe for additional shares. Subject to any rights of holders of any
Preferred Stock, all holders of Common Stock, regardless of class, are
entitled to share equally on a share for share basis in any assets available
for distribution to stockholders on liquidation, dissolution or winding up of
the Company. No shares of Common Stock are subject to redemption or a sinking
fund. All shares of Class B Common Stock are, and all shares of Class A
Common Stock offered hereby will be, when so issued or sold, validly issued,
fully paid and nonassessable. In the event of any increase or decrease in the
number of outstanding shares of either Class A Common Stock or Class B Common
Stock from a stock split, combination or consolidation of shares or other
capital reclassification, the Company is required to take parallel action
with respect to the other class so that the number of shares of each class
outstanding immediately following the stock split, combination, consolidation
or capital reclassification bears the same relationship to each other as the
number of shares of each class outstanding before such event.
Conversion Rights and Restrictions on Transfer of Class B Common Stock.
The Class A Common Stock has no conversion rights. Each share of Class B
Common Stock is convertible at the option of the holder at any time and from
time to time into one share of Class A Common Stock.
The Company's Amended and Restated Certificate of Incorporation provides
that any holder of shares of Class B Common Stock desiring to transfer such
shares to a person other than a Permitted Transferee (as defined below) must
present such shares to the Company for conversion into an equal number of
shares of Class A Common Stock upon such transfer. Thereafter, such shares of
Class A Common Stock may be freely transferred to persons other than
Permitted Transferees, subject to applicable securities laws.
Shares of Class B Common Stock may not be transferred except to (i)
Marshall W. Pagon or any "immediate family member" of his; (ii) any trust
(including a voting trust), corporation, partnership or other entity, more
than 50% of the voting equity interests of which are owned directly or
indirectly by (or, in the case of a trust not having voting equity interests
which is more than 50% for the benefit of) and which is controlled by, one or
more persons referred to in this paragraph; or (iii) the estate of any person
referred to in this paragraph until such time as the property of such estate
is distributed in accordance with such person's will or applicable law
(collectively, "Permitted Transferees"). "Immediate family member" means the
spouse or any parent of Marshall W. Pagon, any lineal descendent of a parent
of Marshall W. Pagon and the spouse of any such lineal descendent (parentage
and descent in each case to include adoptive and step relationships). Upon
any sale or transfer of ownership or voting rights to a transferee other than
a Permitted Transferee or if an entity no longer remains a Permitted
Transferee, such shares of Class B Common Stock will automatically convert
into an equal number of shares of Class A Common Stock. Accordingly, no
trading market is expected to develop in the Class B Common Stock and the
Class B Common Stock will not be listed or traded on any exchange or in any
market.
Effects of Disproportionate Voting Rights. The disproportionate voting
rights of the Class A Common Stock and Class B Common Stock could have an
adverse effect on the market price of the Class A Common Stock. Such
disproportionate voting rights may make the Company a less attractive target
for a takeover than it otherwise might be, or render more difficult or
discourage a merger proposal, a tender offer or a proxy contest, even if such
actions were favored by stockholders of the Company other than the holders of
the Class B Common Stock. Accordingly, such disproportionate voting rights
may deprive holders of Class A Common Stock of an opportunity to sell their
shares at a premium over prevailing market prices, since takeover bids
frequently involve purchases of stock directly from stockholders at such a
premium price.
PREFERRED STOCK
The Company has authorized 5,000,000 shares of Preferred Stock. No shares
of Preferred Stock have been issued and the Company does not presently
contemplate the issuance of such shares. The Board of
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Directors is empowered by Pegasus' Amended and Restated Certificate of
Incorporation to designate and issue from time to time one or more classes or
series of Preferred Stock without any action of the stockholders. The Board
of Directors may authorize issuance in one or more classes or series, and may
fix and determine the relative rights, preferences and limitations of each
class or series so authorized. Such action could adversely affect the voting
power of the holders of the Common Stock or could have the effect of
discouraging or making difficult any attempt by a person or group to obtain
control of the Company.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is First Union
National Bank.
LIMITATION ON DIRECTORS' LIABILITY
The Delaware General Corporation Law authorizes corporations to limit or
eliminate the personal liability of directors to corporations and their
stockholders for monetary damages for breach of directors' fiduciary duty of
care. The duty of care requires that, when acting on behalf of the
corporation, directors must exercise an informed business judgment based on
all material information reasonably available to them. In the absence of the
limitations authorized by the Delaware statute, directors could be
accountable to corporations and their stockholders for monetary damages for
conduct that does not satisfy their duty of care. Although the statute does
not change directors' duty of care, it enables corporations to limit
available relief to equitable remedies such as injunction or rescission.
Pegasus' Amended and Restated Certificate of Incorporation limits the
liability of Pegasus' directors to Pegasus or its stockholders to the fullest
extent permitted by the Delaware statute. Specifically, the directors of
Pegasus will not be personally liable for monetary damages for breach of a
director's fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to Pegasus or its stockholders, (ii)
for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) for unlawful payments of
dividends or unlawful stock repurchases or redemptions as provided in Section
174 of the Delaware General Corporation law or (iv) for any transaction from
which the director derived an improper personal benefit. The inclusion of
this provision in the Amended and Restated Certificate of Incorporation may
have the effect of reducing the likelihood of derivative litigation against
directors and may discourage or deter stockholders or management from
bringing a lawsuit against directors for breach of their duty of care, even
though such an action, if successful, might otherwise have benefited Pegasus
and its stockholders.
89
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, assuming an initial public offering
price of $15.00 per share of Class A Common Stock, and after giving effect to
the issuance of shares contemplated by the Transactions, the Company will
have outstanding 4,600,704 shares of Class A Common Stock and 4,483,805
shares of Class B Common Stock, all of which shares of Class B Common Stock
are convertible into shares of Class A Common Stock on a share for share
basis. Of these shares, the 3,000,000 shares of Class A Common Stock sold in
this Offering will be tradeable without restriction unless they are purchased
by affiliates of the Company. All shares to be received pursuant to the
Registered Exchange Offer will also be tradeable without restriction, except
that the terms of the Registered Exchange Offer are expected to require that
each exchanging holder agrees not to sell, otherwise dispose of or pledge any
shares of the Class A Common Stock received in the Registered Exchange Offer
for a period of at least 180 days after the date of this Prospectus without
the prior written consent of Lehman Brothers Inc. The approximately 1,600,704
remaining shares of Class A Common Stock and all of the 4,483,805 shares of
Class B Common Stock are "restricted securities" under the Securities Act.
These "restricted securities" and any shares purchased by affiliates of the
Company in this Offering may be sold only if they are registered under the
Securities Act or pursuant to an applicable exemption from the registration
requirements of the Securities Act, including Rule 144 and Rule 701
thereunder. The holders of the remaining 4,846,409 shares have agreed not to
sell, otherwise dispose of or pledge any shares of the Company's Common Stock
or securities convertible into or exercisable or exchangeable for such Common
Stock for 180 days after the date of this Prospectus without the prior
written consent of Lehman Brothers Inc. All of the Company's directors and
executive officers are subject to the 180-day lock-up.
In general, under Rule 144 as currently in effect, a person who has
beneficially owned restricted shares for at least two years, including
affiliates, may sell, within any three-month period, a number of shares that
does not exceed the greater of 1% of the then outstanding Class A Common
Stock (approximately 90,845 shares immediately after this Offering) or the
average weekly trading volume in the Class A Common Stock on the Nasdaq
during the four calendar weeks preceding such sale. Sales under Rule 144 are
also subject to certain provisions regarding the manner of sale, notice
requirements and the availability of current public information about the
Company. A person who is not deemed an affiliate of the Company and who has
beneficially owned restricted shares for three years from the date of
acquisition of restricted securities from the Company or any affiliate is
entitled to sell such shares under Rule 144(k) freely and without restriction
or registration under the Securities Act. As used in Rule 144, affiliates of
the Company generally include its directors, executive officers and persons
directly or indirectly owning 10% or more of the Class A Common Stock.
Without consideration of the lock-up agreements described above, none of the
restricted securities would be available for immediate sale in the public
market in reliance on Rule 144(k) or would be available for immediate sale
under Rule 144.
The Securities and Exchange Commission (the "Commission") has proposed to
amend the holding period required by Rule 144 to permit sales of "restricted
securities" after one year rather than two years (and two years rather than
three years for non-affiliates who desire to sell such shares under Rule
144(k). If such proposed amendment were enacted, the "restricted securities"
would become freely tradeable (subject to any applicable contractual
restrictions) at correspondingly earlier dates.
Under Rule 701, any employee, officer or director of, or consultant to the
Company who prior to this Offering purchased shares pursuant to a written
compensatory plan or contract and who is not an affiliate of the Company, is
entitled to sell such shares without having to comply with the public
information, holding period, volume limitation or notice provisions of Rule
144 commencing 90 days after this Offering. Rule 701 also permits affiliates
to sell such shares without having to comply with the Rule 144 holding period
restrictions commencing 90 days after this Offering. As of the date hereof,
approximately 264,449 shares of Class A Common Stock would be eligible for
sale under Rule 701.
OPTIONS AND WARRANTS
As additional remuneration for joining the Board of Directors of PM&C,
Donald W. Weber was granted in April 1996 an option to purchase 3,385 shares
of Class A Common Stock at an exercise price of $15.00 per
90
<PAGE>
share (assuming an initial public offering price of $15.00 per share). Mr.
Weber's option vested upon issuance, is exercisable until November 2000 and,
at the time of grant, was issued at an exercise price equal to fair market
value at the time Mr. Weber was elected a director.
In connection with the acquisition of WTLH, the Parent issued to various
trusts controlled by the sellers of WTLH (the "WTLH Trusts") the WTLH
Warrants to purchase in the aggregate $1,000,000 of Class A Common Stock of
Pegasus at the price to the public in this Offering, commencing on the date
that the registration statement to which this Prospectus relates is declared
effective and ending 120 days after such date. Assuming an initial public
offering price of $15.00 per share of Class A Common Stock, the WTLH Trusts
will have the right to acquire approximately 66,667 shares of Class A Common
Stock. Such shares will be "restricted securities" within the meaning of Rule
144.
REGISTRATION RIGHTS
Class A Common Stock. In connection with the Michigan/Texas DBS
Acquisition, the Company granted certain piggyback registration rights to
Harron. These rights expire upon the Class A Common Stock issued to Harron
becoming eligible for sale under Rule 144 of the Securities Act. Similar
rights have been granted to the holder of the $1.0 million in shares of Class
A Common Stock issued in connection with the acquisition of the Portland LMA
and the $150,000 of shares of Class A Common Stock issued in connection with
the Portland Acquisition.
PM&C Class B Shares. The holders of the PM&C Class B Shares are entitled
to certain demand and piggyback registration rights with respect to the
registration of capital stock by the Parent or PM&C. These rights do not
apply with respect to offerings by Pegasus. Although the Company expects that
all holders of the PM&C Class B Shares will accept the Registered Exchange
Offer, a possibility exists that some holders of the PM&C Class B Shares will
retain their shares. It is likely that once this Offering is completed that
these registration rights will provide little or no practical benefit to
holders of the PM&C Class B Shares who fail to accept the Registered Exchange
Offer. First, it is unlikely that PM&C, once it is a subsidiary of Pegasus,
or the Parent will ever make a public equity offering. Thus, it is unlikely
that holders would have an opportunity to exercise their piggyback
registration rights. Second, the demand registration rights may be exercised
only if the demand registration includes at least 25% of the PM&C Class B
Shares originally issued. If, as the Company anticipates, the holders of more
than 75% of the PM&C Class B Shares accept the Registered Exchange Offer, the
remaining holders of the PM&C Class B Shares will not hold the 25% necessary
to require registration of the PM&C Class B Shares. Third, even if holders of
the PM&C Class B Shares retain more than 25% of their stock after the
Registered Exchange Offer and can initiate a demand registration after July
7, 2000, the date when the demand registration right applies in the absence
of a prior public equity offering by PM&C or the Parent, there is not
expected to be a market for the PM&C Class B Shares.
LOCK-UP AGREEMENT
All of the executive officers and directors of Pegasus, who will be deemed
to beneficially own 4,792,702 shares of Common Stock upon consummation of
this Offering, have agreed with the Underwriters not to sell, otherwise
dispose of or pledge any shares of the Common Stock or any securities
convertible into or exercisable for such Common Stock for 180 days after the
date of this Prospectus without the prior written consent of Lehman Brothers
Inc. In addition, the terms of the Registered Exchange Offer are expected to
require that each exchanging holder agree not to sell, otherwise dispose of
or pledge any shares of the Class A Common Stock received in the Registered
Exchange Offer for a period of at least 180 days after the date of this
Prospectus without the consent of Lehman Brothers Inc.
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<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in the
Underwriting Agreement, the form of which is filed as an exhibit to the
Registration Statement of which this Prospectus forms a part, the
Underwriters named below, for whom Lehman Brothers Inc., BT Securities
Corporation, CIBC Wood Gundy Securities Corp. and PaineWebber Incorporated
are acting as representatives (the "Representatives"), have severally agreed
to purchase from Pegasus, and Pegasus has agreed to sell to each Underwriter,
the aggregate number of shares of Class A Common Stock set forth opposite the
name of each such Underwriter below:
Number
Underwriter of Shares
------------------------------------- -------------
Lehman Brothers Inc. ................
BT Securities Corporation ...........
CIBC Wood Gundy Securities Corp. ....
PaineWebber Incorporated ............
-------------
Total .............................. 3,000,000
=============
Pegasus has been advised by the Representatives that the Underwriters propose
to offer the shares of Class A Common Stock to the public at the initial public
offering price set forth on the cover page hereof, and to certain dealers at
such initial public offering price less a selling concession not in excess of
$____ per share. The Underwriters may allow, and such dealers may reallow, a
concession not in excess of $____ per share to certain other Underwriters or to
certain other brokers or dealers. After the initial offering to the public, the
offering price and other selling terms may be changed by the Representatives.
The Underwriting Agreement provides that the obligation of the several
Underwriters to pay for and accept delivery of the shares of Class A Common
Stock offered hereby are subject to approval of certain legal matters by
counsel and to certain other conditions, including the condition that no stop
order suspending the effectiveness of the Registration Statement is in effect
and no proceedings for such purpose are pending or threatened by the
Commission and that there has been no material adverse change or any
development involving a prospective material adverse change in the condition
of the Company from that set forth in the Registration Statement otherwise
than as set forth or contemplated in this Prospectus, and that certain
certificates, opinions and letters have been received from the Company and
its counsel and independent auditors. The Underwriters are obligated to take
and pay for all of the above shares of Class A Common Stock if any such
shares are taken.
Pegasus and the Underwriters have agreed in the Underwriting Agreement to
indemnify each other against certain liabilities, including liabilities under
the Securities Act.
Pegasus has granted to the Underwriters an option to purchase up to an
additional 450,000 shares of Class A Common Stock, exercisable solely to
cover over-allotments, at the initial public offering price less the
underwriting discounts and commissions shown on the cover page of this
Prospectus. Such option may be exercised at any time within 30 days after the
date of the Underwriting Agreement. To the extent that the option is
exercised, each Underwriter will be committed to purchase a number of the
additional shares of Class A Common Stock proportionate to such Underwriter's
initial commitment as indicated in the preceding table.
92
<PAGE>
The Underwriters have reserved for sale, at the initial public offering
price, up to shares of Class A Common Stock offered hereby to
employees of the Company and certain other individuals who have expressed an
interest in purchasing such shares of Class A Common Stock in the Offering.
The number of shares available for sale to the general public will be reduced
to the extent such persons purchase such reserved shares. Any reserved shares
not so purchased will be offered by the Underwriters to the general public on
the same basis as the other shares offered hereby.
The Representatives of the Underwriters have informed Pegasus that the
Underwriters do not intend to confirm sales to accounts over which they
exercise discretionary authority.
Stockholders of 4,792,702 shares have agreed not to, directly or
indirectly, offer, sell or otherwise dispose of shares of Common Stock of
Pegasus or any securities convertible into, or exercisable or exchangeable
for such Common Stock, with certain limited exceptions, for a period of 180
days after the date of this Prospectus without the prior written consent of
Lehman Brothers Inc. Pegasus has agreed not to offer, sell, contract to sell
or otherwise issue any shares of Common Stock or other capital stock or any
securities convertible into or exchangeable for, or any rights to acquire,
Common Stock or other capital stock, with certain limited exceptions, prior
to the expiration of 180 days from the date of this Prospectus without the
prior written consent of Lehman Brothers Inc., other than (i) Class A Common
Stock to be issued in this Offering and Common Stock to be issued pursuant to
the Transactions, (ii) stock grants pursuant to the Incentive Program, and
(iii) securities issued as consideration for an acquisition if the party
being issued the securities agrees to similar lock-up provisions or if the
securities issued are "restricted securities" under the Securities Act.
Prior to this Offering, there has been no public market for the Class A
Common Stock. The initial public offering price will be negotiated between
Pegasus and the Representatives. Among the factors to be considered in
determining the initial public offering price of the Class A Common Stock, in
addition to the prevailing market conditions, will be the Company's
historical performance, capital structure, estimates of the business
potential and earnings prospects of the Company, an assessment of the
Company's management and consideration of the above factors in relation to
market values of the companies in related businesses.
An affiliate of CIBC Wood Gundy Securities Corp., one of the
Representatives of this Offering, is one of the lenders under the New Credit
Facility. CIBC Wood Gundy Securities Corp. has acted as a financial advisor
to the Company in connection with, among other things, the selection of the
Representatives. For its financial advisory services, CIBC Wood Gundy
Securities Corp. has received a fee of $100,000.
Under Rule 2710(c)(8) of the Conduct Rules of the National Association of
Securities Dealers, Inc. (the "NASD"), if more than 10% of the net proceeds
of a public offering of equity securities are to be paid to members of the
NASD that are participating in the offering, or affiliated or associated
persons, the price at which the equity securities are distributed to the
public must be no lower than that recommended by a "qualified independent
underwriter," as defined in Rule 2720 of the Conduct Rules of the NASD.
Because CIBC Inc., an affiliate of CIBC Wood Gundy Securities Corp., one of
the Representatives of this Offering, may receive more than 10% of the net
proceeds of this Offering as a result of the repayment of amounts under the
New Credit Facility, Lehman Brothers Inc. will act as a qualified independent
underwriter in connection with this Offering.
93
<PAGE>
LEGAL MATTERS
The validity of the issuance of the Class A Common Stock offered hereby
will be passed upon by Drinker Biddle & Reath, counsel for the Company.
Michael B. Jordan, a partner of Drinker Biddle & Reath, is an Assistant
Secretary of the Company. Certain legal matters in connection with this
Offering will be passed upon for the Underwriters by Latham & Watkins, New
York, New York.
EXPERTS
The Company's combined balance sheets as of December 31, 1994 and 1995 and
the related combined statements of operations, statements of changes in total
equity and statements of cash flows for each of the two years in the period
ended December 31, 1995 included in this Prospectus, have been included
herein in reliance on the report of Coopers & Lybrand L.L.P., independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
The Company's combined statement of operations, statement of changes in
total equity and statement of cash flows for the year ended December 31, 1993
included in this Prospectus, have been included herein in reliance on the
report of Herbein + Company, Inc., independent accountants, given on the
authority of that firm as experts in accounting and auditing.
The balance sheets of Portland Broadcasting, Inc. as of September 25, 1994
and September 24, 1995 and the related statements of operations, statements
of deficiency in assets and statements of cash flows for the fiscal years
ended September 26, 1993, September 25, 1994 and September 24, 1995, included
in this Prospectus, have been included herein in reliance on the report of
Ernst & Young LLP, independent accountants, given on the authority of that
firm as experts in accounting and auditing.
The balance sheets of WTLH, Inc. as of December 31, 1994 and 1995 and the
related statements of operations, statements of capital deficiency, and
statements of cash flows for each of the two years in the period ended
December 31, 1995, included in this Prospectus, have been included herein in
reliance on the report of Coopers & Lybrand L.L.P., independent accountants,
given on the authority of that firm as experts in accounting and auditing.
The combined balance sheets of the DBS Operations of Harron Communications
Corp. as of December 31, 1994 and 1995 and the related combined statements of
operations, and statements of cash flows for each of the two years in the
period ended December 31, 1995 included in this Prospectus, have been
included herein in reliance on the report of Deloitte & Touche, LLP,
independent auditors, given on the authority of that firm as experts in
accounting and auditing.
The balance sheets of Dom's Tele-Cable, Inc. as of May 31, 1995 and 1996
and the related statements of operations and deficit, and statements of cash
flows for each of the three years in the period ended May 31, 1996 included
in this Prospectus, have been included herein in reliance on the report of
Coopers & Lybrand L.L.P., independent accountants, given on the authority of
that firm as experts in accounting and auditing.
In March 1995, the Company, with the recommendation and approval of the
Company's sole director, selected Coopers & Lybrand L.L.P. to act as
independent accountants for the Company and informed Herbein + Company, Inc.,
the Company's independent accountants since 1990, of its decision. In
connection with its audit for the year ended December 31, 1993 and through
its dismissal in March 1995, there were no disagreements with Herbein +
Company, Inc. on any matters of accounting principles or practices, financial
statement disclosure, or auditing scope or procedures. Herbein + Company,
Inc.'s report on the Company's financial statements for the fiscal year ended
December 31, 1993 contained no adverse opinions or disclaimers of opinion and
were not modified or qualified as to uncertainly, audit scope, or accounting
principles.
94
<PAGE>
ADDITIONAL INFORMATION
The Company is not currently subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The
Company has filed with the Securities and Exchange Commission a Registration
Statement on Form S-1 under the Securities Act with respect to the
registration of the Class A Common Stock offered hereby. This Prospectus,
which constitutes a part of the Registration Statement, omits certain
information contained in the Registration Statement, and reference is made to
the Registration Statement and the exhibits thereto for further information
with respect to the Company and the Class A Common Stock to which this
Prospectus relates. Statements contained herein concerning the provisions of
any contract, agreement or other document are not necessarily complete, and,
in each instance, reference is made to the copy of such document filed as an
exhibit to the Registration Statement for a more complete description of the
matter involved, and each such statement is qualified in its entirety by such
reference. The Registration Statement, including the exhibits and schedules
filed therewith, may be inspected at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549 and at the regional offices of the Commission located at 7 World Trade
Center, New York, New York 10048 and Northwestern Atrium Center, 500 West
Madison Street, Chicago, Illinois 60606. Copies of such materials may be
obtained from the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. The Commission
maintains a web site at http://www.sec.gov that contains reports, proxy
information statements and other information regarding registrants, like
Pegasus, that file electronically with the Commission.
As a result of this Offering of the Class A Common Stock, the Company will
become subject to the informational requirements of the Exchange Act. PM&C,
the direct subsidiary of the Company, has been subject to the informational
requirements of the Exchange Act since October 5, 1995. The Company intends
to furnish to its stockholders annual reports containing audited financial
information and furnish quarterly reports containing condensed unaudited
financial information for each of the first three quarters of each fiscal
year.
95
<PAGE>
[The inside back cover page contains a map of Puerto Rico which shows color
coded regions where Cable TV operators operate. Below the map is the following
color coded chart:
Puerto Rico Cable TV Operators:
MCT Cablevision (Pegasus)
Dom's TeleCable TV (Pegasus)
Cable TV del noroeste (Independent)
Tele Ponce (Independent)
Buena Vision (50% owned by TCI)
Greater TV of San Juan (Century)
Puerto Rico Totals*
Population 3,483,000
TV Households 1,132,000
Homes Passed by Cable 735,000
Cable Subscribers 254,000
Cable Penetration 34%
*Based on estimates provided by Media Fax, Inc.
<PAGE>
PEGASUS COMMUNICATIONS CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
--------
<S> <C>
Pegasus Communications Corporation (a newly formed entity which has nominal assets and includes
the combined operations of entities under common control)
Report of Coopers & Lybrand L.L.P. .................................................................... F-2
Report of Herbein + Company, Inc. ..................................................................... F-3
Combined Balance Sheets as of December 31, 1994, 1995 and June 30, 1996 (unaudited) ................... F-4
Combined Statements of Operations for the years ended December 31, 1993, 1994, 1995 and six months
ended June 30, 1995 (unaudited) and 1996 (unaudited) ................................................. F-5
Combined Statements of Changes in Total Equity for the years ended December 31, 1993, 1994, 1995 and
June 30, 1996 (unaudited) ............................................................................ F-6
Combined Statements of Cash Flows for the years ended December 31, 1993, 1994 and 1995 and the six
months ended June 30, 1995 (unaudited) and 1996 (unaudited) .......................................... F-7
Notes to Combined Financial Statements ................................................................ F-8
Portland Broadcasting, Inc. (an acquired entity)
Report of Ernst & Young LLP ........................................................................... F-20
Balance Sheets as of September 25, 1994, September 24, 1995, and December 31, 1995 (unaudited) ........ F-21
Statements of Operations for fiscal year ended September 26, 1993, September 25, 1994, September 24,
1995 and fiscal quarters ended December 25, 1994 (unaudited) and December 31, 1995 (unaudited) ....... F-22
Statements of Deficiency in Assets for the fiscal years ended September 26, 1993, September 25, 1994
and September 24, 1995 and the fiscal quarter ended December 31, 1995 (unaudited) .................... F-23
Statements of Cash Flows for fiscal years ended September 26, 1993, September 25, 1994 and September
24, 1995 and fiscal quarter ended December 1994 (unaudited) and 1995 (unaudited) ..................... F-24
Notes to Financial Statements ......................................................................... F-25
WTLH, Inc. (an acquired entity)
Report of Coopers & Lybrand L.L.P. .................................................................... F-29
Balance Sheets as of December 31, 1994, 1995 and February 29, 1996 (unaudited) ........................ F-30
Statements of Operations for the years ended December 31, 1994, 1995 and for the two months ended
February 28, 1995 (unaudited) and February 29, 1996 (unaudited) ...................................... F-31
Statements of Capital Deficiency for the years ended December 31, 1994, 1995 and for the two months
ended February 29, 1996 (unaudited) .................................................................. F-32
Statements of Cash Flows for the years ended December 31, 1994, 1995 and the two months ended February
28, 1995 (unaudited) and February 29, 1996 (unaudited) ............................................... F-33
Notes to Financial Statements ......................................................................... F-34
DBS Operations of Harron Communications Corp. (a proposed acquisition)
Report of Deloitte & Touche LLP ....................................................................... F-40
Combined Balance Sheets as of December 31, 1994, 1995 and June 30, 1996 (unaudited) ................... F-41
Combined Statements of Operations for years ended December 31, 1994, 1995 and the six months ended June
30, 1995 (unaudited) and 1996 (unaudited) ............................................................ F-42
Combined Statements of Cash Flows for years ended December 31, 1994, 1995 and the six months ended June
30, 1995 (unaudited) and 1996 (unaudited) ............................................................ F-43
Notes to Combined Financial Statements ................................................................ F-44
Dom's Tele Cable, Inc. (an acquired entity)
Report of Coopers & Lybrand L.L.P. .................................................................... F-48
Balance Sheets as of May 31, 1995 and 1996 ............................................................ F-49
Statements of Operations and Deficit for years ended May 31, 1994, 1995 and 1996 ...................... F-50
Statements of Cash Flows for the years ended May 31, 1994, 1995 and 1996 .............................. F-51
Notes to Financial Statements ......................................................................... F-52
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of
Pegasus Communications Corporation
We have audited the accompanying combined balance sheets of Pegasus
Communications Corporation and affiliates as of December 31, 1994 and 1995,
and the related combined statements of operations, changes in total equity,
and cash flows for each of the two years in the period ended December 31,
1995. These financial statements are the responsibility of the Company'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
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Pegasus
Communications Corporation and affiliates as of December 31, 1994 and 1995,
and the results of its operations and its cash flows for each of the two
years in the period ended December 31, 1995 in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
May 31, 1996 except as to Note 14
for which the date is
October 1, 1996
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of
Pegasus Communications Corporation
We have audited the accompanying combined statements of operations, changes
in total equity, and cash flows of Pegasus Communications Corporation and
affiliates for the year ended December 31, 1993. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit 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
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined results of the operations and cash flows
of Pegasus Communications Corporation and affiliates for the year ended
December 31, 1993, in conformity with generally accepted accounting
principles.
HERBEIN + COMPANY, INC.
Reading, Pennsylvania
March 4, 1994
F-3
<PAGE>
PEGASUS COMMUNICATIONS CORPORATION
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
------------------------------ June 30,
1994 1995 1996
------------- ------------- --------------
(unaudited)
ASSETS
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents ................. $ 1,380,029 $11,974,747 $ 3,199,051
Restricted cash ........................... -- 9,881,198 4,869,114
Accounts receivable, less allowance for
doubtful accounts at December 31, 1994,
1995 and June 30, 1996 of $348,000,
$238,000 and $223,000, respectively ..... 4,000,671 4,884,045 6,825,211
Program rights ............................ 1,097,619 931,664 1,194,954
Inventory ................................. 711,581 1,100,899 460,395
Deferred taxes ............................ 77,232 42,440 77,887
Prepaid expenses and other ................ 629,274 329,895 456,280
------------- ------------- --------------
Total current assets .................... 7,896,406 29,144,888 17,082,892
Property and equipment, net .................... 18,047,416 16,571,538 24,472,098
Intangible assets, net ......................... 47,354,826 48,028,410 60,757,363
Program rights ................................. 1,688,866 1,932,680 1,777,760
Deposits and other ............................. 406,168 92,325 156,556
------------- ------------- --------------
Total assets ............................ $75,393,682 $95,769,841 $104,246,669
============= ============= ==============
LIABILITIES AND TOTAL EQUITY
Current liabilities:
Notes payable ............................. $ 285,471 $ 316,188 $ 53,893
Advances payable -- related party ......... 142,048 468,327 343,905
Current portion of long-term debt ......... 25,578,406 271,934 363,516
Accounts payable .......................... 2,388,974 2,494,738 2,618,456
Accrued interest .......................... -- 5,173,745 5,321,500
Accrued expenses .......................... 1,619,052 1,712,000 2,951,216
Current portion of program rights payable . 956,740 1,141,793 1,356,325
------------- ------------- --------------
Total current liabilities ............... 30,970,691 11,579,328 13,008,811
------------- ------------- --------------
Long-term debt, net ............................ 35,765,495 82,308,195 94,445,326
Program rights payable ......................... 1,499,180 1,421,399 1,161,393
Deferred taxes ................................. 216,694 211,902 114,593
------------- ------------- --------------
Total liabilities ....................... 68,452,060 95,520,824 108,730,123
Commitments and contingent liabilities ......... -- -- --
Total equity (deficiency):
Common stock .............................. 494 1,700 1,700
Additional paid-in capital ................ 16,382,054 7,880,848 7,880,848
Retained earnings (deficit) ............... (3,905,909) 1,825,283 (474,404)
Partners' deficit ......................... (5,535,017) (9,458,814) (11,891,598)
------------- ------------- --------------
Total equity (deficiency) ............... 6,941,622 249,017 (4,483,454)
------------- ------------- --------------
Total liabilities and equity ............ $75,393,682 $95,769,841 $104,246,669
============= ============= ==============
</TABLE>
See accompanying notes to combined financial statements
F-4
<PAGE>
PEGASUS COMMUNICATIONS CORPORATION
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31, Six Months Ended June 30,
------------------------------------------------ --------------------------------
1993 1994 1995 1995 1996
-------------- -------------- ------------- -------------- --------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Broadcasting revenue, net of
agency commissions ......... $ 7,572,051 $13,204,148 $14,862,734 $6,415,733 $9,326,825
Barter programming revenue .... 2,735,500 4,604,200 5,110,662 2,319,960 2,482,357
Basic and satellite service ... 7,537,325 8,455,815 10,002,579 4,800,924 6,111,267
Premium services .............. 1,335,108 1,502,929 1,652,419 801,619 947,948
Other ......................... 307,388 423,998 519,682 263,572 313,842
-------------- -------------- ------------- -------------- --------------
Total revenues ............... 19,487,372 28,191,090 32,148,076 14,601,808 19,182,239
-------------- -------------- ------------- -------------- --------------
Operating expenses:
Barter programming expense .... 2,735,500 4,604,200 5,110,662 2,319,960 2,482,357
Programming ................... 3,139,284 4,094,688 5,475,623 2,636,623 3,664,245
General and administrative .... 2,219,133 3,289,532 3,885,473 1,894,129 2,497,190
Technical and operations ...... 2,070,896 2,791,885 2,740,670 1,357,530 1,610,481
Marketing and selling ......... 2,070,404 3,372,482 3,928,073 2,053,531 2,374,617
Incentive compensation ........ 192,070 432,066 527,663 356,207 429,765
Corporate expenses ............ 1,265,451 1,505,904 1,364,323 613,040 709,118
Depreciation and amortization . 5,977,678 6,940,147 8,751,489 3,927,134 4,904,796
-------------- -------------- ------------- -------------- --------------
Income (loss) from operations (183,044) 1,160,186 364,100 (556,346) 509,670
Interest expense .............. (4,043,692) (5,360,729) (8,793,823) (3,349,836) (5,570,257)
Interest expense - related
party ...................... (358,318) (612,191) (22,759) -- --
Interest income ............... -- -- 370,300 -- 151,487
Other expenses, net ........... (220,319) (65,369) (44,488) (84,298) (61,541)
-------------- -------------- ------------- -------------- --------------
Loss before income taxes and
extraordinary items ........ (4,805,373) (4,878,103) (8,126,670) (3,990,480) (4,970,641)
Provision (benefit) for income
taxes ...................... -- 139,462 30,000 20,000 (132,756)
-------------- -------------- ------------- -------------- --------------
Loss before extraordinary items (4,805,373) (5,017,565) (8,156,670) (4,010,480) (4,837,885)
Extraordinary gain (loss) from
extinguishment of debt, net -- (633,267) 10,210,580 -- --
-------------- -------------- ------------- -------------- --------------
Net income (loss) ............. ($ 4,805,373) ($ 5,650,832) $2,053,910 ($4,010,480) ($4,837,885)
============== ============== ============= ============== ==============
Pro forma income (loss) per
share; (See Note 14)
Loss before extraordinary
items .................... $(1.59) $(0.94)
Extraordinary gain ......... 1.99 --
------------- --------------
Net income (loss) .......... $0.40 $(0.94)
============= ==============
Weighted average shares .... 5,142,500 5,142,500
</TABLE>
See accompanying notes to combined financial statements
F-5
<PAGE>
PEGASUS COMMUNICATIONS CORPORATION
COMBINED STATEMENTS OF CHANGES IN TOTAL EQUITY
<TABLE>
<CAPTION>
Common Stock
---------------------- Additional Retained Partners' Total
Number Par Paid-In Earnings Capital Equity
of Shares Value Capital (Deficit) (Deficit) (Deficiency)
----------- -------- -------------- ------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1992 .. $ 157,819 $ 1,000,492 $ 1,158,311
Net loss ....................... (17,447) (4,787,926) (4,805,373)
Distributions to partners ...... (115,290) (115,290)
Issuance of LP interest ........ 1,335,000 1,335,000
----------- -------- -------------- ------------- --------------- --------------
Balances at December 31, 1993 .. 140,372 (2,567,724) (2,427,352)
Net loss ....................... (790,501) (4,860,331) (5,650,832)
Incorporation of partnerships .. 444 $ 444 (3,255,780) 3,228,038 (27,298)
Redemption of minority interest ($ 49,490) (49,490)
LP interests contribution ...... 1,335,000 (1,335,000)
Conversion of term loans ....... 50 50 15,096,544 15,096,594
----------- -------- -------------- ------------- --------------- --------------
Balances at December 31, 1994 .. 494 494 16,382,054 (3,905,909) (5,535,017) 6,941,622
Net income (loss) .............. 5,731,192 (3,677,282) 2,053,910
Distributions to partners ...... (246,515) (246,515)
Distribution to Parent ......... (12,500,000) (12,500,000)
Exchange of PM&C Class A Shares 161,500 1,121 (1,121)
Issuance of PM&C Class B Shares 8,500 85 3,999,915 4,000,000
----------- -------- -------------- ------------- --------------- --------------
Balances at December 31, 1995 .. 170,000 1,700 7,880,848 1,825,283 (9,458,814) 249,017
Net loss ....................... (2,299,687) (2,538,198) (4,837,885)
Contribution by partner ........ 105,414 105,414
----------- -------- -------------- ------------- --------------- --------------
Balances at June 30, 1996
(unaudited) ................... 170,000 $1,700 $ 7,880,848 ($ 474,404) ($11,891,598) ($ 4,483,454)
=========== ======== ============== ============= =============== ==============
</TABLE>
See accompanying notes to combined financial statements
F-6
<PAGE>
PEGASUS COMMUNICATIONS CORPORATION
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31, Six Months Ended June 30,
------------------------------------------------- --------------------------------
1993 1994 1995 1995 1996
-------------- -------------- -------------- -------------- --------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ..................... ($ 4,805,373) ($ 5,650,832) $ 2,053,910 ($ 4,010,480) ($ 4,837,885)
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Extraordinary (gain) loss on
extinguishment of debt, net ...... -- 633,267 (10,210,580) -- --
Depreciation and amortization ...... 5,977,678 6,940,147 8,751,489 3,927,134 4,904,796
Program rights amortization ........ 1,342,194 1,193,559 1,263,190 662,542 760,929
Accretion of bond discount ......... -- -- -- -- 195,926
Gain (loss) on disposal of fixed assets (9,344) 30,524 -- -- --
Bad debt expense ................... 96,932 200,039 146,147 91,470 130,713
Deferred income taxes .............. -- 139,462 30,000 20,000 (132,756)
Payments of programming rights ..... (1,278,650) (1,310,294) (1,233,777) (605,078) (607,085)
Interest paid with refinancing of debt (671,803) -- -- -- --
Change in assets and liabilities:
Accounts receivable .............. (853,305) (1,353,448) (815,241) 751,771 (2,086,735)
Inventory ........................ -- (711,581) (389,318) (326,382) 590,352
Prepaid expenses and other ....... (133,745) (250,128) 490,636 -- 50,152
Accounts payable & accrued expenses (113,160) 702,240 (826,453) 19,657 (942,632)
Advances payable -- related party . -- 142,048 326,279 370,488 (124,422)
Accrued interest ................. 1,851,800 2,048,569 5,173,745 443 134,464
Deposits and other ............... 64,133 39,633 5,843 2,631 (68,611)
-------------- -------------- -------------- -------------- --------------
Net cash provided (used) by operating
activities ......................... 1,693,677 2,793,205 4,765,870 904,196 (2,032,794)
Cash flows from investing activities:
Acquisitions ....................... -- -- -- -- (17,107,329)
Capital expenditures ............... (884,950) (1,264,212) (2,640,475) (1,536,086) (2,747,890)
Purchase of intangible assets ...... -- (943,238) (2,334,656) (1,895,493) (573,239)
Cash acquired from acquisitions .... 803,908 -- -- -- --
Other .............................. (25,065) (53,648) (250,000) (28,761) (157,500)
-------------- -------------- -------------- -------------- --------------
Net cash used for investing activities . (106,107) (2,261,098) (5,225,131) (3,460,340) (20,585,958)
Cash flows from financing activities:
Proceeds from long-term debt ....... 15,060,000 35,015,000 81,651,373 590,202 247,736
Borrowings on revolving credit facility -- -- 2,591,335 2,591,335 8,800,000
Proceeds from long-term borrowings from
related parties .................. 5,574 26,000 20,000 13,000 --
Repayments on revolving credit
facility ......................... -- -- (2,591,335) -- --
Repayments of long-term debt ....... (15,194,664) (33,991,965) (48,095,692) (38,150) (53,283)
Restricted cash .................... -- -- (9,881,198) -- 5,012,084
Debt issuance costs ................ (843,380) (1,552,539) (3,974,454) -- --
Capital lease repayments ........... (47,347) (154,640) (166,050) (138,302) (163,481)
Distributions to Parent ............ -- -- (12,500,000) -- --
Proceeds from the issuance of PM&C Class
B Shares ......................... -- -- 4,000,000 -- --
-------------- -------------- -------------- -------------- --------------
Net cash provided (used) by financing
activities ....................... (1,019,817) (658,144) 11,053,979 3,018,085 13,843,056
Net increase (decrease) in cash and cash
equivalents ........................... 567,753 (126,037) 10,594,718 461,941 (8,775,696)
Cash and cash equivalents, beginning of period 938,313 1,506,066 1,380,029 1,380,029 11,974,747
-------------- -------------- -------------- -------------- --------------
Cash and cash equivalents, end of period . $ 1,506,066 $ 1,380,029 $ 11,974,747 $ 1,841,970 $ 3,199,051
============== ============== ============== ============== ==============
</TABLE>
See accompanying notes to combined financial statements
F-7
<PAGE>
PEGASUS COMMUNICATIONS CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
1. THE COMPANY:
Pegasus Communications Corporation ("Pegasus" or together with its
subsidiaries and affiliates stated below, the "Company"), a Delaware
corporation incorporated in May 1996, is a wholly owned subsidiary of Pegasus
Communications Holdings, Inc. ("PCH" or the "Parent").
Pegasus Media & Communications, Inc. ("PM&C") is a diversified media and
communications company whose subsidiaries consist of Pegasus Broadcast
Television, Inc. ("PBT"), Pegasus Cable Television, Inc. ("PCT"), Pegasus
Broadcast Associates, L.P. ("PBA"), Pegasus Satellite Television, Inc.
("PST") and MCT Cablevision, Limited Partnership ("MCT"). PBT operates
broadcast television stations affiliated with the Fox Broadcasting Company
television network ("Fox"). PCT, together with its subsidiary, Pegasus Cable
Television of Connecticut, Inc. ("PCT-CT") and MCT operate cable television
systems that provide service to individual and commercial subscribers in New
England and Puerto Rico, respectively. PST provides direct broadcast
satellite service to customers in the New England area. PBA holds a
television station license which simulcasts programming from a station
operated by PBT.
On October 31, 1994, the limited partnerships which owned and operated
PCH's broadcast television, cable and satellite operations, restructured and
transferred their assets to the PM&C's subsidiaries, PBT, PCT and PST,
respectively. This reorganization has been accounted for as if a pooling of
interests had occurred.
Pegasus Towers L.P. ("Towers"), an affiliated entity of Pegasus, owns and
operates television and radio transmitting towers located in Pennsylvania and
Tennessee.
Pegasus Communications Management Company ("PCMC"), an affiliated entity
of Pegasus, provides certain management and accounting services to its
affiliates.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION:
The combined financial statements include the accounts of Pegasus, PM&C,
PBT, PCT, PST, PBA, MCT, Towers and PCMC. All significant intercompany
transactions and balances have been eliminated.
The 1994 conversion from limited partnerships to corporate form has been
treated as a reorganization of the aforementioned subsidiaries and affiliated
entities, with the assets and liabilities recorded at their historical cost.
The accompanying combined financial statements and notes hereto reflect the
limited partnerships' historical results of operations for the periods prior
to October 31, 1994 and the operations of the Company as a corporation from
that date through December 31, 1994, except for MCT which reflects the
limited partnership's results of operations from the effective date of
acquisition, March 1, 1993.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS:
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 revenues, expenses, assets
and liabilities and disclosure of contingencies. Actual results could differ
from those estimates.
F-8
<PAGE>
PEGASUS COMMUNICATIONS CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)
2. Summary of Significant Accounting Policies: - (Continued)
INVENTORIES:
Inventories consist of equipment held for resale to customers and
installation supplies. Inventories are stated at lower of cost or market on a
first-in, first-out basis.
PROPERTY AND EQUIPMENT:
Property and equipment are stated at cost. The cost and related
accumulated depreciation of assets sold, retired, or otherwise disposed of
are removed from the respective accounts, and any resulting gains or losses
are included in the statement of operations. For cable television systems,
initial subscriber installation costs, including material, labor and overhead
costs of the hookup, are capitalized as part of the distribution facilities.
The costs of disconnection and reconnection are charged to expense. Satellite
equipment that is leased to customers is stated at cost.
Depreciation is computed for financial reporting purposes using the
straight-line method based upon the following lives:
Reception and distribution facilities .................... 7 to 11 years
Transmitter equipment .................................... 5 to 10 years
Equipment, furniture and fixtures ........................ 5 to 10 years
Building and improvements ................................ 12 to 39 years
Vehicles ................................................. 3 to 5 years
INTANGIBLE ASSETS:
Intangible assets are stated at cost and amortized by the straight-line
method. Costs of successful franchise applications are capitalized and
amortized over the lives of the related franchise agreements, while
unsuccessful franchise applications and abandoned franchises are charged to
expense. Financing costs incurred in obtaining long-term financing are
amortized over the term of the applicable loan. Goodwill, broadcast licenses,
network affiliation agreements and other intangible assets ("Intangible
Assets") are reviewed for impairment whenever events or circumstances provide
evidence that suggest that the carrying amounts may not be recoverable. The
Company assesses the recoverability of its Intangible Assets by determining
whether the amortization of the respective Intangible Asset balance can be
recovered through projected undiscounted future cash flows.
Amortization of Intangible Assets is computed using the straight-line
method based upon the following lives:
Broadcast licenses ....................................... 40 years
Network affiliation agreement ............................ 40 years
Goodwill ................................................. 40 years
Other intangibles ........................................ 2 to 14 years
REVENUE:
The Company operates in three industry segments: broadcast television
("TV"), cable television ("Cable") and direct broadcast satellite television
("DBS"). The Company recognizes revenue in its TV operations when advertising
spots are broadcasted. The Company recognizes revenue in its Cable and DBS
operations when video and audio services are provided.
PROGRAMMING:
The Company obtains a portion of its programming, including presold
advertisements, through its network affiliation agreement with Fox and also
through independent producers. The Company does not make any direct payments
for this programming. For running network programming, the Company received
payments from Fox, which totaled $60,608, $71,139 and $215,310 in 1993, 1994
and 1995, respectively. For
F-9
<PAGE>
PEGASUS COMMUNICATIONS CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)
2. Summary of Significant Accounting Policies: - (Continued)
running independent producers' programming, the Company received no direct
payments. Instead, the Company retains a portion of the available
advertisement spots to sell on its own account. Barter programming revenue
and the related expense are recognized when the presold advertisements are
broadcasted. The Company recorded barter programming revenue and related
programming expenses of $2,735,500, $4,604,200 and $5,110,662 for the years
ended December 31, 1993, 1994 and 1995, respectively. These amounts are
presented gross as barter programming revenue and expense in the accompanying
combined statements of operations.
CASH AND CASH EQUIVALENTS:
Cash and cash equivalents include highly liquid investments purchased with
an initial maturity of three months or less. The Company has cash balances in
excess of the federally insured limits at various banks.
RESTRICTED CASH:
The Company had restricted cash held in escrow of $9,881,198 and
$4,869,114 at December 31, 1995 and June 30, 1996, respectively. These funds
may be disbursed from the escrow only to pay interest on its Series B Senior
Subordinated Notes due 2005 (the "Series B Notes").
PROGRAM RIGHTS:
The Company enters into agreements to show motion pictures and syndicated
programs on television. In accordance with the Statements of Financial
Accounting Standards No. 63 ("SFAS No. 63"), only the right and associated
liabilities for those films and programs currently available for showing are
recorded. These rights are recorded at the lower of unamortized cost or
estimated net realizable value and are amortized on the straight-line method
over the license period which approximates amortization based on the
estimated number of showings during the contract period. Amortization of
$1,359,117, $1,238,849 and $1,306,768 is included in programming expenses for
the years ended December 31, 1993, 1994 and 1995, respectively. The
obligations arising from the acquisition of film rights are recorded at the
gross amount. Payments for the contracts are made pursuant to the contractual
terms over periods which are generally shorter than the license periods.
The Company has entered into agreements totaling $798,800 as of December
31, 1995, which are not yet available for showing at December 31, 1995, and
accordingly, are not recorded by the Company.
At December 31, 1995, the Company has commitments for future program
rights of $1,141,793, $827,793, $438,947 and $154,659 in 1996, 1997, 1998 and
1999, respectively.
INCOME TAXES:
On October 31, 1994, in conjunction with the incorporation, PBT, PCT, and
PST adopted the provisions of Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" ("SFAS No. 109"). Prior to such date, the
above entities operated as partnerships for federal and state income tax
purposes and, therefore, no provision for income taxes was necessary. MCT is
treated as a partnership for federal and state income tax purposes, but taxed
as a corporation for Puerto Rico income tax purposes. The adoption of SFAS
No. 109 did not have a material impact on the Company's financial position or
results of operations. For the year ended December 31, 1994, income and
deferred taxes are based on the Company's operations from November 1, 1994
through December 31, 1994, excluding (i) MCT, which for Puerto Rico income
tax purposes is taxed as a corporation for the 12 month period ended December
31, 1994, and (ii) PBA and Towers, which are limited partnerships.
CONCENTRATION OF CREDIT RISK:
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of trade receivables.
Concentrations of credit risk with respect to trade receivables are
limited due to the large number of customers comprising the Company's
customer base, and their dispersion across different businesses and
geographic regions. As of December 31, 1994 and 1995, the Company had no
significant concentrations of credit risk.
F-10
<PAGE>
PEGASUS COMMUNICATIONS CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)
2. Summary of Significant Accounting Policies: - (Continued)
3. INTERIM FINANCIAL INFORMATION:
The financial statements as of June 30, 1996 and for the six months ended
June 30, 1995 and 1996 are unaudited. In the opinion of management, all
adjustments, including normal recurring adjustments, necessary for a fair
presentation of the results of operations have been included. Results for the
six months ended June 30, 1996 may not be indicative of the results expected
for the year ending December 31, 1996.
The Company has provided unaudited footnote information for the interim
periods to the extent such information is substantially different from the
audited periods.
4. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31, December 31, June 30,
1994 1995 1996
-------------- -------------- --------------
(unaudited)
<S> <C> <C> <C>
Land ................................. $ 153,459 $ 259,459 $ 862,298
Reception and distribution facilities 22,261,777 22,839,470 26,163,561
Transmitter equipment ................ 7,249,289 7,478,134 10,371,864
Building and improvements ............ 823,428 1,554,743 1,579,571
Equipment, furniture and fixtures .... 938,323 1,333,797 3,830,115
Vehicles ............................. 304,509 571,456 703,042
Other equipment ...................... 655,167 997,352 1,702,213
-------------- -------------- --------------
32,385,952 35,034,411 45,212,664
Accumulated depreciation ............. (14,338,536) (18,462,873) (20,740,566)
-------------- -------------- --------------
Net property and equipment ........... $ 18,047,416 $ 16,571,538 $ 24,472,098
============== ============== ==============
</TABLE>
Depreciation expense amounted to $3,154,394, $4,027,866, $4,140,058,
$2,065,358 and $2,277,693 for the years ended December 31, 1993, 1994, 1995
and for the six months ended June 30, 1995 and 1996, respectively.
5. INTANGIBLES:
Intangible assets consist of the following:
<TABLE>
<CAPTION>
December 31, December 31, June 30,
1994 1995 1996
-------------- -------------- --------------
(unaudited)
<S> <C> <C> <C>
Goodwill ............................. $28,490,035 $ 28,490,035 $ 35,980,396
Deferred franchise costs ............. 13,254,985 13,254,985 13,254,985
Broadcast licenses ................... 3,124,461 3,124,461 4,649,461
Network affiliation agreements ....... 1,236,641 1,236,641 2,761,641
Deferred financing costs ............. 1,788,677 3,974,454 4,003,702
DBS rights ........................... 3,130,093 4,832,160 4,832,160
Non-compete agreement ................ -- -- 1,800,000
Organization and other deferred costs 3,130,926 3,862,021 6,781,791
-------------- -------------- --------------
54,155,818 58,774,757 74,064,136
Accumulated amortization ............. (6,800,992) (10,746,347) (13,306,773)
-------------- -------------- --------------
Net intangible assets .............. $47,354,826 $ 48,028,410 $ 60,757,363
============== ============== ==============
</TABLE>
Amortization expense amounted to $2,823,284, $2,912,281, $4,611,431,
$1,861,771 and $2,560,737 for the years ended December 31, 1993, 1994, 1995
and for the six months ended June 30, 1995 and 1996, respectively.
F-11
<PAGE>
PEGASUS COMMUNICATIONS CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)
6. LONG-TERM DEBT:
Long-term debt consists of the following at:
<TABLE>
<CAPTION>
December 31, December 31, June 30,
1994 1995 1996
-------------- -------------- -------------
(unaudited)
<S> <C> <C>
Series B Notes payable by PM&C, due 2005, interest at 12.5%,
payable semi-annually in arrears on January 1, and July 1,
net of unamortized discount of $3,804,546 and $3,608,620 as
of December 31, 1995 and June 30, 1996, respectively ....... $81,195,454 $81,391,380
Senior term note, due 2001, interest at the Company's option
at either the bank's prime rate, plus an applicable margin
or LIBOR, plus an applicable margin (9.25% at December 31,
1994) ...................................................... $20,000,000 -- --
Subordinated term loan, due 2003, interest at the Company's
option of either 4%, plus the higher of the bank's prime
rate or the Federal Funds rate plus 1% or the Eurodollar
rate, plus 6.5% (12.5% at December 31, 1994) ............... 15,000,000 -- --
Senior loan payable by MCT, due 1995, interest at prime, plus
2% (10.5% at December 31, 1994) ............................ 15,000,000 -- --
Junior loan payable by MCT, due 1995, interest at prime plus
2% (10.5% at December 31, 1994) ............................ 10,348,857 -- --
Senior five year revolving credit facility dated July 7,
1995, interest at the Company's option at either the banks
prime rate, plus an applicable margin or LIBOR, plus an
applicable margin (8.2% at June 30, 1996) .................. -- -- 8,800,000
Mortgage payable, due 2000, interest at 8.75% ............... -- 517,535 508,209
Other ....................................................... 995,044 867,140 4,109,253
-------------- -------------- -------------
61,343,901 82,580,129 94,808,842
Less current maturities ..................................... 25,578,406 271,934 363,516
-------------- -------------- -------------
Long-term debt .............................................. $35,765,495 $82,308,195 $94,445,326
============== ============== =============
</TABLE>
On July 7, 1995, PM&C entered into a $10 million senior collateralized
five-year revolving credit facility with a bank. There were no funds drawn on
this facility as of December 31, 1995. The amount available under the credit
facility was $1.2 million at June 30, 1996.
On October 31, 1994, the Company repaid the outstanding balances under its
senior and junior term loan agreements with a portion of the proceeds from a
$20,000,000 term note agreement ("senior note") and $15,000,000 subordinated
term loan agreement ("subordinated loan") from various banking institutions.
The senior note and subordinated loan were scheduled to mature on December
31, 2001 and September 30, 2003, respectively. Amounts were subsequently
repaid as described below.
On July 7, 1995, the Company sold 85,000 units consisting of $85,000,000
in aggregate amount of 12.5% Series A Senior Subordinated Notes due 2005 (the
"Series A Notes" and, together with the Series B Notes, the "Notes") and
8,500 shares of Class B Common Stock of PM&C (the "Note Offering"). The net
proceeds from the sale were used to (i) repay approximately $38.6 million in
loans and other obligations, (ii) repurchase $26.0 million of notes for
approximately $13.0 million resulting in an extraordinary gain of $10.2
million, net of expenses of $2.8 million, (iii) make a $12.5 million
distribution to PCH, (iv) escrow $9.7 million for the purpose of paying
interest on the Notes, (v) pay $3.3 million in fees and expenses and (vi) to
fund proposed acquisitions.
F-12
<PAGE>
PEGASUS COMMUNICATIONS CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)
6. Long-Term Debt: - (Continued)
On November 14, 1995, the Company exchanged its Series B Notes for the
Series A Notes. The Series B Notes have substantially the same terms and
provisions as the Series A Notes. There was no gain or loss recorded with
this transaction.
The Series B Notes are guaranteed on a full, unconditional, senior
subordinated basis, jointly and severally by each of the wholly owned direct
and indirect subsidiaries of PM&C with the exception of PCT-CT.
The Company's indebtedness contain certain financial and operating
covenants, including restrictions on the Company to incur additional
indebtedness, create liens and to pay dividends.
The fair value of the Series B Notes approximates $85 million as of
December 31, 1995. This amount is approximately $3.8 million higher than the
carrying amount reported on the balance sheet at December 31, 1995. Fair
value is estimated based on the quoted market price for the same or similar
instruments.
At December 31, 1995, maturities of long-term debt and capital leases are
as follows:
1996 ..................................................... $ 271,934
1997 ..................................................... 296,771
1998 ..................................................... 211,103
1999 ..................................................... 147,244
2000 ..................................................... 435,515
Thereafter ............................................... 81,217,562
------------
$82,508,129
============
7. LEASES:
The Company leases certain studios, towers, utility pole attachments,
occupancy of underground conduits and headend sites under operating leases.
The Company also leases office space, vehicles and various types of equipment
through separate operating lease agreements. The operating leases expire at
various dates through 2007. Rent expense for the years ended December 31,
1993, 1994 and 1995 was $429,304, $464,477 and $503,118, respectively.
The Company leases equipment under long-term leases and has the option to
purchase the equipment for a nominal cost at the termination of the leases.
The related obligations are included in long-term debt. Property and
equipment at December 31 include the following amounts for leases that have
been capitalized:
1994 1995
----------- -----------
Equipment, furniture and fixtures $ 351,854 $ 375,190
Vehicles ......................... 193,626 196,064
----------- -----------
545,480 571,254
Accumulated depreciation ......... (102,777) (190,500)
----------- -----------
Total Total .................... $ 442,703 $ 380,754
=========== ===========
F-13
<PAGE>
PEGASUS COMMUNICATIONS CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)
7. Leases: - (Continued)
Future minimum lease payments on noncancellable operating and capital
leases at December 31, 1995 are as follows:
Operating Capital
Leases Leases
----------- ----------
1996 ............................................ $160,000 $183,000
1997 ............................................ 131,000 157,000
1998 ............................................ 106,000 88,000
1999 ............................................ 31,000 23,000
2000 ............................................ 9,000 6,000
Thereafter ...................................... 15,000 3,000
----------- ----------
Total minimum payments .......................... $452,000 460,000
----------- ----------
Less: amount representing interest .............. 56,000
----------
Present value of net minimum lease payments
including current maturities of $142,000 ....... $404,000
==========
8. COMMITMENTS AND CONTINGENT LIABILITIES:
LEGAL MATTERS:
The operations of the Company are subject to regulation by the Federal
Communications Commission ("FCC") and other franchising authorities,
including the Connecticut Department of Public Utility Control ("DPUC").
During 1994, the DPUC ordered a reduction in the rates charged by PCT-CT
for its basic cable service tier and equipment charges and refunds for
related overcharges, plus interest, retroactive to September 1, 1993
requiring PCT-CT to issue refunds totaling $141,000. In December 1994, the
Company filed an appeal with the FCC. In March 1995, the FCC granted a stay
of the DPUC's rate reduction and refund order pending the appeal. The FCC has
not ruled on the appeal and the outcome cannot be predicted with any degree
of certainty. The Company believes it will prevail in its appeal. In the
event of an adverse ruling, the Company expects to make refunds in kind
rather than cash.
The Company is currently contesting a claim for unpaid premiums on its
workers' compensation insurance policy assessed by the state insurance fund
of Puerto Rico. Based upon current information available, the Company's
liability related to the claim is estimated to be less than $200,000.
From time to time the Company is also involved with claims that arise in
the normal course of business. In the opinion of management, the ultimate
liability with respect to these claims will not have a material adverse
effect on the combined operations, cash flows or financial position of the
Company.
9. INCOME TAXES:
Effective October 1, 1994, in conjunction with the incorporation of PBT,
PCT, and PST, the Company, excluding MCT which for Puerto Rico income tax
purposes has been treated as a corporation and Towers and PBA which are
limited partnerships, adopted SFAS No. 109.
F-14
<PAGE>
PEGASUS COMMUNICATIONS CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)
9. Income Taxes: - (Continued)
The following is a summary of the components of income taxes from
operations:
1994 1995
---------- ---------
Federal -- deferred ....... $104,644 $23,000
State and local ........... 34,818 7,000
---------- ---------
Provision for income
taxes ................ $139,462 $30,000
========== =========
The deferred income tax assets and liabilities recorded in the combined
balance sheets at December 31, 1994 and 1995, are as follows:
<TABLE>
<CAPTION>
1994 1995
------------- -------------
<S> <C> <C>
Assets:
Receivables .................................... $ 77,232 $ 42,440
Excess of tax basis over book basis from tax
gain recognized upon incorporation of
subsidiaries ................................ 1,876,128 1,751,053
Loss carryforwards ............................. 745,862 9,478,069
Other .......................................... 739,810 806,312
------------- -------------
Total deferred tax assets ................... 3,439,032 12,077,874
Liabilities:
Excess of book basis over tax basis of property,
plant and equipment ......................... (1,224,527) (1,015,611)
Excess of book basis over tax basis of
amortizable intangible assets ............... (597,837) (4,277,512)
Total deferred tax liabilities .............. (1,822,364) (5,293,123)
------------- -------------
Net deferred tax assets ........................ 1,616,668 6,784,751
Valuation allowance ............................ (1,756,130) (6,954,213)
------------- -------------
Net deferred tax liabilities ................... $ (139,462) $ (169,462)
============= =============
</TABLE>
The Company has recorded a valuation allowance of $6,954,213 to reflect
the estimated amount of deferred tax assets which may not be realized due to
the expiration of the Company's net operating loss carryforwards and portions
of other deferred tax assets related to prior acquisitions. The valuation
allowance increased primarily as the result of net operating loss
carryforwards generated during 1995 which may not be utilized.
At December 31, 1995, the Company has net operating loss carryforwards of
approximately $9.5 million which are available to offset future taxable
income and expire through 2010.
A reconciliation of the federal statutory rate to the effective tax rate
is as follows:
1994 1995
---------- ----------
U.S. statutory federal income tax rate ............. (34.00%) (34.00%)
Net operating loss attributable to the partnerships 29.55 --
Foreign net operating income (loss) ................ (18.14) (27.09)
State net operating loss ........................... (.96) --
Valuation allowance ................................ 25.70 61.46
Other .............................................. .72 --
---------- ----------
Effective tax rate ................................. 2.87% .37%
========== ==========
F-15
<PAGE>
PEGASUS COMMUNICATIONS CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)
10. RELATED PARTY TRANSACTIONS:
Related party transaction balances at December 31, 1994 and 1995 are as
follows:
1994 1995
---------- ----------
Notes payable ....................................... $211,728 $257,228
Interest expense related to subordinated notes payable 594,875 --
At December 31, 1994 and 1995, PCMC had advances payable to an affiliate
for $142,048 and $468,327, respectively. The advances are payable on demand
and are non-interest bearing.
At December 31, 1994 and 1995, Towers had a demand note payable to an
affiliate, with interest accruing at 8% per annum, for $131,815 and $151,815,
respectively. Total interest expense on the affiliated debt was $10,440 and
$10,901 for the years ended December 31, 1994 and 1995, respectively. Also,
at December 31, 1994 and 1995, PBA had a demand note payable to an affiliate,
with interest accruing at prime plus two percent payable monthly in arrears,
for $79,913 and $105,413, respectively. The effective interest rate was
10.25% at December 31, 1995. Total interest expense on the affiliated debt
was $6,876 and $11,858, for the years ended December 31, 1994 and 1995,
respectively.
11. SUPPLEMENTAL CASH FLOW INFORMATION:
Significant noncash investing and financing activities are as follows:
<TABLE>
<CAPTION>
Years ended December 31, Six months ended June 30,
--------------------------------------------- ----------------------------
1993 1994 1995 1995 1996
------------- ------------- ------------ ------------ ------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Acquisition of subsidiaries ............ $33,804,622
Refinancing of long-term debt .......... 24,074,135
Capital contribution and related
reduction of debt ..................... 7,650,335 $15,069,173
Barter revenue and related expense ..... 2,735,500 4,604,200 $5,110,662 $2,319,960 $2,482,357
Intangible assets and related affiliated
debt .................................. 2,994,811 -- -- -- --
Acquisition of program rights and
assumption of related program payables -- 1,797,866 1,335,275 317,265 --
Acquisition of plant under capital
leases ................................ 289,786 168,960 121,373 121,373 247,736
Redemption of minority interests and
related receivable .................... -- 49,490 246,515 -- --
Interest converted to principal ........ -- 867,715 -- -- --
Issuance of put/call agreement ......... -- -- -- -- 3,050,000
</TABLE>
For the years ended December 31, 1993, 1994, 1995 and for the six months
ended June 30, 1995 and 1996, the Company paid cash for interest in the
amount of $3,280,520, $3,757,097, $3,620,931, $3,349,836 and $5,531,271,
respectively. The Company paid no taxes for the years ended December 31,
1993, 1994, 1995 and for the six months ended June 30, 1995 and 1996.
F-16
<PAGE>
PEGASUS COMMUNICATIONS CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)
12. COMMON STOCK:
At December 31, 1994, common stock consists of the following:
PM&C common stock, $1.00 par value; 1,000 shares
authorized; 394 issued and outstanding ............. $394
PST common stock, $1.00 par value; 20,000 shares
authorized; 100 issued and outstanding ............. 100
------
Total common stock ................................ $494
======
At December 31, 1995, common stock consists of the following:
PM&C Class A common stock, $0.01 par value; 230,000
shares authorized; 161,500 issued and outstanding $1,615
PM&C Class B common stock, $0.01 par value; 20,000
shares authorized; 8,500 issued and outstanding .. 85
--------
Total common stock .............................. $1,700
========
On July 7, 1995, as part of a plan of reorganization, PM&C agreed to
exchange 161,500 Class A Shares for all of the existing common stock
outstanding of PM&C, all outstanding shares of PST and a 99% limited interest
in PBA. The Company also acquired all of the outstanding interests of MCT for
nominal consideration. Additionally, the Company issued 8,500 Class B Shares
of PM&C on July 7, 1995 in connection with the Note Offering (see footnote
6).
In May 1996, Pegasus was incorporated. Pegasus is authorized to issue
30,000,000 shares of Class A and 15,000,000 shares of Class B, $0.01 par
value common stock and 5,000,000 shares of Preferred Stock.
13. INDUSTRY SEGMENTS:
The Company operates in three industry segments: broadcast television
(TV), cable television (Cable), and direct broadcast satellite television
(DBS). TV consists of three Fox affiliated television stations, of which one
also simulcasts its signal in Hazelton and Williamsport, Pennsylvania. Cable
and DBS consists of cable television services and direct broadcast satellite
services/equipment, respectively. Information regarding the Company's
business segments in 1993, 1994, and 1995 is as follows:
<TABLE>
<CAPTION>
TV DBS Cable Other Combined
---------- --------- ---------- ------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C>
1993
Revenues ................. $10,307 $ 9,134 $ 46 $19,487
Operating income (loss) .. 488 (625) (46) (183)
Identifiable assets ...... 34,939 $2,995 38,251 319 76,504
Incentive compensation ... 106 -- 86 -- 192
Corporate expenses ....... 649 -- 612 4 1,265
Depreciation &
amortization .......... 1,501 -- 4,405 72 5,978
Capital expenditures ..... 127 -- 691 67 885
1994
Revenues ................. $17,808 $ 174 $10,148 $ 61 $28,191
Operating income (loss) .. 2,057 (103) (769) (25) 1,160
Identifiable assets ...... 36,078 4,438 34,535 343 75,394
Incentive compensation ... 327 -- 105 -- 432
Corporate expenses ....... 860 5 634 7 1,506
Depreciation &
amortization .......... 2,184 61 4,632 63 6,940
Capital expenditures ..... 411 57 704 92 1,264
</TABLE>
F-17
<PAGE>
PEGASUS COMMUNICATIONS CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)
13. Industry Segments: - (Continued)
<TABLE>
<CAPTION>
TV DBS Cable Other Combined
---------- --------- ---------- ------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C>
1995
Revenues ................. $19,973 $1,469 $10,606 $100 $32,148
Operating income (loss) .. 2,252 (752) (1,103) (33) 364
Identifiable assets ...... 36,906 5,577 52,934 353 95,770
Incentive compensation ... 415 9 104 -- 528
Corporate expenses ....... 782 114 450 18 1,364
Depreciation &
amortization .......... 2,591 719 5,364 77 8,751
Capital expenditures ..... 1,403 216 953 69 2,641
</TABLE>
14. SUBSEQUENT EVENTS:
A. PEGASUS SAVINGS PLAN
Effective January 1, 1996, the Company adopted the Pegasus Communications
Savings Plan (the "U.S. Plan"). The U.S. Plan is intended to be qualified
under sections 401(a) and 401(k) of the Internal Revenue Code of 1986, as
amended. Substantially all the Company's employees who have completed at
least one year of service are eligible to participate. Participants may make
salary contributions up to 6% of their base salary.
The Company makes employing matching contributions up to 100% of
participant contributions. Company matching contributions vest over a four
year period.
B. ACQUISITIONS
On January 29, 1996, PCH acquired 100% of the outstanding stock of
Portland Broadcasting, Inc. ("PBI"), a wholly owned subsidiary of Bride
Communications, Inc. ("BCI") which owns the tangible assets of WPXT,
Portland, Maine. PCH immediately transferred the ownership of PBI to the
Company. The aggregate purchase price was approximately $11,700,000 of which
$4,200,000 was allocated to fixed and tangible assets and $7,500,000 to
goodwill. On June 20, 1996, PCH acquired the FCC license of WPXT for
aggregate consideration of $3,000,000.
Effective March 1, 1996, the Company acquired the principal tangible
assets of WTLH, Inc. and certain of its affiliates for approximately
$5,000,000 in cash, except for the FCC license and Fox affiliation agreement.
Additionally, WTLH License Corp., a subsidiary of the Company entered into a
put/call agreement regarding the FCC license and Fox affiliation agreement
with General Management Consultants, Inc. ("GMC"), the licensee of WTLH,
Tallahassee, Florida. As a result of entering into the put/call agreement,
the Company recorded $3,050,000 in intangible assets and long term debt
representing the FCC license and Fox affiliation agreement and the related
contingent liability. In August 1996, the Company exercised the put/call
agreement for $3,050,000.
The aggregate purchase price of WTLH, Inc. and the related FCC licenses
and Fox affiliation agreement is approximately $8,050,000 of which $2,150,000
was allocated to fixed and tangible assets and $5,900,000 to various
intangible assets. In addition, the Company granted the owners of WTLH a
warrant to purchase $1,000,000 of stock at the initial public offering price.
The warrant expires 120 days after the effective date of the registration
statement relating to the Company's initial public offering.
On March 21, 1996, the Company entered into a definitive agreement to
acquire all of the assets of Dom's Tele Cable, Inc. ("Dom's") for
approximately $25 million in cash and $1.4 million in assumed liabilities.
Dom's operates a cable system serving ten communities contiguous to MCT. The
Company completed this transaction on August 29, 1996.
F-18
<PAGE>
PEGASUS COMMUNICATIONS CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)
14. Subsequent Events: - (Continued)
On May 30, 1996, PCH entered into an agreement with Harron Communications
Corp., under which the Company will acquire the rights to provide DIRECTV
programming in certain rural areas of Texas and Michigan and related assets
in exchange for approximately $17.9 million in cash and $11.9 million of the
Company's Class A Common Stock.
The above acquisitions have been or will be accounted for as purchases.
C. ADDITIONAL ACQUISITIONS AND DEPOSITIONS
On July 8, 1996, the Company entered into a letter of intent to purchase
the direct broadcast satellite assets of Chillicothe Telephone Company for
approximately $12 million in cash.
In July 1996, the Company entered into a letter of intent to sell certain
assets of its New England cable system for approximately $7 million in cash.
The Company anticipates recognizing a gain in the transaction.
D. PRO FORMA INCOME (LOSS) PER SHARE
Historical earnings per share has not been provided since it is not
meaningful due to the combined presentation of Pegasus. Pro forma earnings
per share has been presented as if Pegasus operated as a consolidated entity
for the year ended December 31, 1995 and the six months ended June 30, 1996.
The pro forma income (loss) per share has been calculated based upon
5,142,500 shares outstanding and has been retroactively applied. The pro
forma average shares consists of the following:
<TABLE>
<CAPTION>
Class A Class B Total
--------- ----------- -----------
<S> <C> <C> <C>
o Exchange for 161,500 Class A shares of PM&C . 3,380,435 3,380,435
o Exchange for 8,500 Class B shares of PM&C ... 191,792 191,792
o Exchange for 5,000 shares of Parent
non-voting common stock ...................... 263,606 263,606
o Exchange for certain assets and liabilities
of PCMC at an assumed offering price of $15
per share .................................... 1,306,667 1,306,667
--------- ----------- -----------
455,398 4,687,102 5,142,500
========= =========== ===========
</TABLE>
E. STOCK OPTION PLANS
In September 1996, the Pegasus Communications 1996 Stock Option Plan,
which provides for the granting of up to 450,000 qualified and non qualified
stock options, and the Pegasus Restricted Stock Option Plan, which provides
for the granting for up to 270,000 shares, were adopted.
F. NEW CREDIT FACILITY
On August 29, 1996, PM&C entered into a $50.0 million seven-year senior
revolving credit facility, which is collateralized by substantially all of
the assets of PM&C. On the same date, the Company had drawn $8.8 million to
repay all amounts outstanding under the $10 million senior collateralized
five-year revolving credit facility and approximately $23 million to fund the
acquisition of Dom's.
F-19
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Portland Broadcasting, Inc.
Portland, Maine
We have audited the accompanying balance sheets of Portland Broadcasting,
Inc. as of September 25, 1994 and September 24, 1995, and the related
statements of operations, deficiency in assets, and cash flows for each of
the three fiscal years in the period ended September 24, 1995. These
financial statements are the responsibility of Portland Broadcasting, 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
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Portland Broadcasting, Inc.
as of September 25, 1994 and September 24, 1995, and the results of its
operations and its cash flows for each of the three fiscal years in the
period ended September 24, 1995, in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As more fully described in Notes 3
and 5, the Company has incurred recurring operating losses, has a working
capital deficiency and is delinquent in paying certain creditors. These
conditions raise substantial doubt about Portland Broadcasting, Inc.'s
ability to continue as a going concern. Management's plans in regard to these
matters also are described in Note 3. The financial statements do not include
any adjustments to reflect the possible future effects on the recoverability
and classification of assets or the amounts and classification of liabilities
that may result from the outcome of this uncertainty.
Ernst & Young LLP
Pittsburgh, Pennsylvania
October 27, 1995
F-20
<PAGE>
PORTLAND BROADCASTING, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
September 25, September 24, December 31,
1994 1995 1995
--------------- --------------- --------------
(unaudited)
<S> <C> <C> <C>
Assets
Current assets:
Customer accounts receivable ............... $ 764,709 $ 879,983 $ 903,700
Deferred film costs--current ............... 89,702 121,018 178,320
Other assets ............................... 70,434 14,314 91,619
--------------- --------------- --------------
Total current assets ......................... 924,845 1,015,315 1,173,639
Property, plant, and equipment:
Land ....................................... 63,204 63,204 63,204
Building ................................... 111,128 113,401 114,859
Equipment .................................. 2,954,857 3,073,797 3,127,742
--------------- --------------- --------------
3,129,189 3,250,402 3,305,805
Less accumulated depreciation .............. (2,635,855) (2,716,061) (2,733,461)
--------------- --------------- --------------
493,334 534,341 572,344
Deposits and other assets .................... 35,114 21,523 5,036
--------------- --------------- --------------
$ 1,453,293 $ 1,571,179 $ 1,751,019
=============== =============== ==============
Liabilities
Current liabilities:
Bank overdraft ............................. $ 34,859 $ 23,324 $ --
Accounts payable and accrued expenses ...... 1,244,646 1,117,621 1,424,950
Accrued officers' compensation ............. 588,000 621,750 621,750
Accrued interest ........................... 433,454 992,699 1,106,258
Current portion of long-term debt .......... 6,731,182 6,615,165 6,621,177
Current portion of film contract commitments 1,222,244 1,246,862 1,300,241
Notes payable to affiliated companies ...... 1,452,586 1,509,217 1,503,684
--------------- --------------- --------------
Total current liabilities .................... 11,706,971 12,126,638 12,578,060
Long-term liabilities, less current portion:
Long-term debt ............................. 24,417 346,489 302,168
Film contract commitments .................. 154,057 69,638 32,242
--------------- --------------- --------------
178,474 416,127 334,410
Deficiency in assets:
Common stock, no par -- authorized 1,000
shares; issued and outstanding 411 shares 10,662 10,662 10,662
Retained deficit ........................... (10,442,814) (10,982,248) (11,172,113)
--------------- --------------- --------------
(10,432,152) (10,971,586) (11,161,451)
--------------- --------------- --------------
$ 1,453,293 $ 1,571,179 $ 1,751,019
=============== =============== ==============
</TABLE>
See accompanying notes.
F-21
<PAGE>
PORTLAND BROADCASTING, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Fiscal year ended Fiscal quarters ended
---------------------------------------------------- --------------------------------
September 26, September 25, September 24, December 25, December 31,
1993 1994 1995 1994 1995
--------------- --------------- --------------- -------------- --------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Broadcasting revenues:
Local ............................. $1,258,595 $1,890,080 $ 2,089,864 $ 614,558 $ 549,286
National and regional ............. 1,928,266 2,303,805 2,894,417 906,756 742,793
Other ............................. 820,325 217,523 352,100 75,729 134,056
--------------- --------------- --------------- -------------- --------------
4,007,186 4,411,408 5,336,381 1,597,043 1,426,135
Less: Agency commissions ............ 482,321 548,197 663,594 210,120 164,367
Credits and other allowances ....... 76,152 39,769 115,413 17,813 40,612
--------------- --------------- --------------- -------------- --------------
3,448,713 3,823,442 4,557,374 1,369,110 1,221,156
Station operating costs and expenses:
Broadcasting operations ........... 1,137,090 1,211,682 1,374,379 228,391 279,473
Selling, general, and
administrative ................. 1,544,980 1,604,265 1,853,808 545,878 703,955
Officer's compensation ............ 84,308 90,000 146,528 33,770 35,000
Depreciation and amortization ..... 410,891 311,945 202,738 47,546 59,183
--------------- --------------- --------------- -------------- --------------
3,177,269 3,217,892 3,577,453 855,585 1,077,611
--------------- --------------- --------------- -------------- --------------
Income before interest expense and
nonoperating (loss) income ........ 271,444 605,550 979,921 513,525 143,545
Interest expense .................... (670,779) (784,763) (1,114,355) -- (196,160)
Nonoperating (loss) income .......... 57,432 304,807 (405,000) (172,178) (137,250)
--------------- --------------- --------------- -------------- --------------
Net (loss) income ................... $ (341,903) $ 125,594 $ (539,434) $ 341,347 $ (189,865)
=============== =============== =============== ============== ==============
</TABLE>
See accompanying notes.
F-22
<PAGE>
PORTLAND BROADCASTING, INC.
STATEMENTS OF DEFICIENCY IN ASSETS
<TABLE>
<CAPTION>
Common Retained Deficiency
Stock Deficit in Assets
--------- --------------- ---------------
<S> <C> <C> <C>
Balance at September 27, 1992 ........... $10,662 $(10,226,505) $(10,215,843)
Net loss .............................. -- (341,903) (341,903)
--------- --------------- ---------------
Balance at September 26, 1993 ........... 10,662 (10,568,408) (10,557,746)
Net income ............................ -- 125,594 125,594
--------- --------------- ---------------
Balance at September 25, 1994 ........... 10,662 (10,442,814) (10,432,152)
Net loss .............................. -- (539,434) (539,434)
--------- --------------- ---------------
Balance at September 24, 1995 ........... 10,662 (10,982,248) (10,971,586)
Net loss (unaudited) .................. -- (189,865) (189,865)
--------- --------------- ---------------
Balance at December 31, 1995 (unaudited) $10,662 $(11,172,113) $(11,161,451)
========= =============== ===============
</TABLE>
See accompanying notes.
F-23
<PAGE>
PORTLAND BROADCASTING, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Fiscal year ended Fiscal quarter ended
---------------------------------------------------- --------------------------------
September 26, September 25, September 24, December 25, December 31,
1993 1994 1995 1994 1995
--------------- --------------- --------------- -------------- --------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Operating activities
Net (loss) income ....................... $(341,903) $ 125,594 $(539,434) $ 341,347 $(189,865)
Adjustments to reconcile net (loss)
income to net cash provided by operating
activities:
Depreciation and amortization ...... 410,891 311,945 202,738 47,546 59,183
Payments on film contract
commitments ...................... (128,875) (127,838) (216,975) (65,790) (68,478)
Gain from write-off of trade and
film payables .................... (57,432) (304,807) (82,122) -- --
Loss on contingency reserve for film
contracts ........................ -- -- 400,000 -- --
Net change in operating assets and
liabilities (using) or providing
cash:
Customer accounts receivable .. (38,612) (93,717) (115,274) (340,036) (23,717)
Other assets .................. 4,641 (41,991) 57,756 634 (60,817)
Accounts payable and accrued
expenses .................... 98,098 (25,402) (138,560) (77,081) 284,005
Accrued officer's compensation 55,000 45,000 33,750 8,438 --
Accrued interest .............. 71,302 187,710 559,245 125,784 113,559
--------------- --------------- --------------- -------------- --------------
Net cash provided by operating activities 73,110 76,494 161,124 40,842 113,870
Investing activities
Net purchases of equipment .............. (15,664) (40,811) (88,801) (19,651) (70,028)
Financing activities
Proceeds from long-term debt ............ -- 87,857 -- -- --
Repayment of long-term debt ............. (56,771) (126,710) (126,357) (15,306) (38,309)
Borrowings (repayments) on notes payable
to affiliated company and officer ..... (675) 3,170 54,034 (5,885) (5,533)
--------------- --------------- --------------- -------------- --------------
Net cash used by financing activities ... (57,446) (35,683) (72,323) (21,191) (43,842)
--------------- --------------- --------------- -------------- --------------
Change in cash .......................... -- -- -- -- --
Cash at beginning of period ............. -- -- -- -- --
--------------- --------------- --------------- -------------- --------------
Cash at end of period ................... $ -- $ -- $ -- $ -- $ --
=============== =============== =============== ============== ==============
</TABLE>
See accompanying notes.
F-24
<PAGE>
PORTLAND BROADCASTING, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
Portland Broadcasting, Inc. (the "Company") is principally engaged in
television broadcasting. The Company, a wholly owned subsidiary of Bride
Communications, Inc. (Bride), operates a television station, WPXT-TV, Channel
51, a FOX network affiliate, in Portland, Maine.
2. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING
The accounts of the Company are maintained on the accrual basis of
accounting. The financial statements include only the accounts of the Company
and do not include the accounts of Bride, its parent, or other Bride
subsidiaries.
DEFERRED FILM COSTS AND FILM CONTRACT COMMITMENTS
The Company has contracts with various film distributors from which films
are leased for television transmission over various contract periods
(generally one to five years). The total obligations due under these
contracts are recorded as liabilities and the related film costs are stated
at the lower of amortized cost or estimated net realizable value. Deferred
film costs are amortized based on an accelerated method over the contract
period.
The portions of the cost to be amortized within one year and after one
year are reported in the balance sheet as current and other assets,
respectively, and the payments under these contracts due within one year and
after one year are similarly classified as current and long-term liabilities.
BANK OVERDRAFT
Bank overdraft represents the overdrawn balance of the Company's demand
deposit accounts with a financial institution, and is included in the change
in accounts payable and accrued expenses for statement of cash flow purposes.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are stated at cost or value received in
exchange for broadcasting. Depreciation is provided using the straight-line
method over the estimated useful lives of the assets. In general, estimated
useful lives of such assets are 19 years for buildings and range from 5 to 10
years for equipment.
BARTER TRANSACTIONS
Revenue from barter transactions (advertising provided in exchange for
goods and services) is recognized as income when advertisements are broadcast
and goods or services received are capitalized or charged to operations when
received or used. Included in the statements of operations is broadcasting
net revenue from barter transactions of $290,168, $278,935, and $331,233 and
station operating costs and expenses from barter transactions of $307,525,
$277,806, and $321,667 for 1993, 1994, and 1995, respectively. Included in
the balance sheets is equipment capitalized from barter transactions of
$4,437, $8,869, and $30,814 during 1993, 1994, and 1995, respectively, and
deferred barter expense of $21,581, $26,593, and $7,103 at September 26,
1993, September 25, 1994, and September 24, 1995, respectively.
INCOME TAXES
The operations of the Company are included in the consolidated federal and
state income tax returns filed under Bride Communications, Inc. and
subsidiaries. Federal and state income taxes are provided based on the amount
that would be payable on a separate company basis. Tax benefits are allocated
to loss members in the same year the losses are availed of by the profit
members of the consolidated group. Investment tax credits have been accounted
for using the flow-through method.
F-25
<PAGE>
PORTLAND BROADCASTING, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
2. Significant Accounting Policies - (Continued)
Deferred income taxes are normally provided on timing differences between
financial and tax reporting due to depreciation, allowance for doubtful
accounts, and vacation and officer's salary accrual. However, certain net
operating loss carryovers have been utilized to eliminate current tax
liability.
FISCAL YEAR
The Company operates on a 52/53 week fiscal year corresponding to the
national broadcast calendar. The Company's fiscal year ends on the last
Sunday in September.
RECLASSIFICATIONS
Certain amounts from the prior year have been reclassified to conform to
the statement presentation for the current year. These reclassifications have
no effect on the statements of operations.
3. GOING CONCERN
At September 24, 1995, the Company was delinquent in payment of amounts
due to former shareholders, amounts due under film contract commitments,
certain of its trade payables, and other contractual obligations. The amounts
owing under all such obligations are classified as current liabilities in the
accompanying financial statements. Other delinquencies, if declared in
default and not cured, could adversely affect the Company's ability to
continue operations.
During 1995, the senior obligation to a bank was sold by the bank to
former shareholders, who also hold other notes receivable from the Company as
described in Note 4. At September 24, 1995, the Company continues to be in
default on this former bank obligation, which currently has no stated
maturity or repayment terms.
Management continues to negotiate settlements with its creditors.
Settlement arrangements are comprised of extended payment schedules with
additional interest charges, and write-off of a percentage of the balance
due.
The Company may require additional funding in order to sustain its
operations. Management is currently pursuing the sale of the net assets of
the Company as discussed in Note 8. The Company expects its efforts in this
regard to be successful, and has no reason to believe that the net proceeds
would not be sufficient to repay its recorded liabilities and recover the
stated value of its assets; however, no estimate of the outcome of the
Company's negotiations can be determined at this time.
If the Company is unable to arrange additional funding as may be required,
or successfully complete the sale transaction as further discussed in Note 8,
the Company may be unable to continue as a going concern.
4. LONG-TERM LIABILITIES
LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
September 25, September 24,
1994 1995
--------------- ---------------
<S> <C> <C>
Term notes payable to former shareholders:
Stock purchase agreement ...................................... $2,789,875 $2,789,875
Bank term note acquired by former shareholders ................ -- 3,347,595
Term note payable to a bank (in default) ........................ 3,441,202 --
Notes payable under noncompete agreements with former
shareholders .................................................. 430,228 430,228
Consent judgment, film contract payable ......................... -- 286,645
Capital equipment notes ......................................... 10,138 35,655
Other ........................................................... 84,156 71,656
--------------- ---------------
6,755,599 6,961,654
Less current portion ............................................ 6,731,182 6,615,165
--------------- ---------------
$ 24,417 $ 346,489
=============== ===============
</TABLE>
F-26
<PAGE>
PORTLAND BROADCASTING, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
4. Long-Term Liabilities - (Continued)
The term notes payable to former shareholders in connection with a stock
purchase agreement were issued by Bride in October 1987 in the amount of
$2,010,000. These notes were assigned to the Company by Bride, which was
agreed to by the former shareholders. The notes were due in quarterly
payments of principal and interest at 10% from August 1989 through November
1992. In accordance with the terms of the notes, accrued interest in the
amount of $779,875 was capitalized into the note balance on November 11,
1992, and interest was accrued at 12% thereafter on the adjusted note balance
of $2,789,875.
Scheduled principal payments of the term notes payable to former
shareholders have not been made when due. At September 24, 1995, the entire
obligation is reflected as currently payable.
The bank term note of $3,347,595 was purchased from the bank by the former
shareholders on May 30, 1995. The note provided $3,600,000 for the purpose of
paying off existing notes payable, along with accrued interest, and to
provide additional working capital. The note was payable in monthly payments
of interest only through August 1990, followed by 25 consecutive monthly
payments of principal and interest based on a 108-month amortization,
followed by one final installment of the balance of principal and interest.
Interest continues to be applied on the unpaid balance at a monthly rate
equivalent to the Bank of New York Prime plus 3.00% per annum, or 10.75% and
11.75% as of September 25, 1994 and September 24, 1995, respectively. The
note is secured by a pledge of the stock of Portland and substantially all
tangible and intangible property. The note also contains restrictive
covenants with respect to the payment of dividends, distributions, obtaining
additional indebtedness, etc.
Notes payable under noncompete agreements totaling $430,228 were payable
to former shareholders in scheduled quarterly installments through November
1992; however, no installment payments have been made.
In March 1995, the Company entered into a consent judgment related to a
film contract payable of $300,000. Under the terms of the judgment, the
amount is unsecured, and is being repaid over three- or four-year monthly
installments including interest at 10%. A balloon payment of $159,324 or
$219,368 is due at the end of the third year or fourth year, respectively,
the former amount representing a discount of $100,000 from principal.
Payments on long-term debt disclosed below assume a four-year repayment
schedule. The amount had previously been included in the current portion of
film contract commitments at September 25, 1994.
Other long-term liabilities relate to a 6% promissory note for $84,156
related to the previous lease agreement for a building. The payment terms are
$500 weekly through September 1997, with an additional $15,817 lump sum due
at the end of this term. The Company is currently negotiating a new lease for
its current facility.
Future principal payments of long-term debt are as follows: 1996 --
$6,615,165; 1997 -- $71,662; and 1998 -- $274,827. The Company paid interest
of $599,477, $492,441, and $305,942 in 1993, 1994, and 1995, respectively.
FILM CONTRACT COMMITMENTS
Film contract commitments are payable under license arrangements for
program material in monthly installments over periods ranging from one to
five years. Annual payments required under these commitments are as follows:
1995, and prior, payments not made when due -- $1,162,578; 1996 -- $84,284;
and 1997 -- $69,638.
5. OFFICER'S COMPENSATION
Accrued officer's compensation totaling $588,000 and $621,750 was recorded
by the Company at September 25, 1994 and September 24, 1995, respectively,
pursuant to a resolution approved by the Board of Directors (Board). The
Board resolution provides for payments only in the event of sufficient cash
flows or pursuant to the sale or liquidation of the Company. In addition, the
amount of officer's compensation paid is limited by certain covenants of the
note payable to former shareholders acquired from a bank.
F-27
<PAGE>
PORTLAND BROADCASTING, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
6. CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to significant
concentrations of credit risk consist principally of customers' accounts
receivable. Credit is extended based on the Company's evaluation of the
customer's financial condition, and the Company does not require collateral.
The Company's accounts receivable consist primarily of credit extended to a
variety of businesses in the greater Portland area and to national
advertising agencies for the purchase of advertising.
7. INCOME TAXES
The Company has unused income tax loss carryforwards approximating
$6,039,000 for tax purposes expiring between years 2001 and 2008.
An investment tax credit carryforward of $89,641 (after reduction required
by the Tax Reform Act of 1986) expires in 2001.
Deferred tax assets and liabilities result from temporary differences in
the recognition of income and expense for financial and income tax reporting
purposes including the temporary differences between book and tax
deductibility of the officer's salary accrual, vacation accrual, bad debt
reserve and depreciation. They represent future tax benefits or costs to be
recognized when those temporary differences reverse. At September 24, 1995, a
valuation allowance of $2,821,579 ($2,643,744 at September 25, 1994) was
recorded to offset net deferred tax assets. Significant components of the
Company's deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
1994 1995
------------- -------------
<S> <C> <C>
Deferred tax assets:
Accrued officer's salary ................. $ 235,200 $ 248,700
Contingent liability ..................... -- 160,000
Accrued interest to shareholders ......... 7,143 387
Bad debt reserve ......................... 13,346 16,800
Accrued vacation ......................... 4,374 7,779
Net operating loss carryforwards ......... 2,415,084 2,405,479
Investment tax credit carryforward ....... 89,641 89,641
------------- -------------
Total deferred assets ...................... 2,764,788 2,928,786
Valuation allowance for deferred tax assets (2,643,744) (2,821,579)
------------- -------------
Net deferred tax assets .................... 121,044 107,207
Deferred tax liability:
Depreciation .............................. 121,044 107,207
------------- -------------
Net deferred tax assets .................... $ -- $ --
============= =============
</TABLE>
During 1994 and 1995, the Company utilized net operating loss
carryforwards of approximately $235,000 and $24,000, realizing a benefit of
approximately $89,000 and $5,500, respectively.
8. SUBSEQUENT EVENT
On October 16, 1995, the Company entered into an Asset Purchase Agreement
for the sale of substantially all assets and liabilities of the Company, with
the exception of the station's FCC License.
F-28
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of
WTLH, Inc.
We have audited the accompanying balance sheets of WTLH, Inc. as of December
31, 1994 and 1995, and the related statements of operations, capital
deficiency, and cash flows for the years then ended. These financial
statements are the responsibility of the Company'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
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of WTLH, Inc. as of December
31, 1994 and 1995, and the results of its operations and its cash flows for
the years then ended, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Jacksonville, Florida
March 8, 1996
F-29
<PAGE>
WTLH, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, December 31, February 29,
ASSETS 1994 1995 1996
-------------- -------------- --------------
(unaudited)
<S> <C> <C> <C>
Current assets:
Cash ............................................ $ 190,582 $ 337,665 $ 375,813
Accounts receivable, less allowance for doubtful
accounts of $8,000 at December 31, 1994 and
1995 and February 29, 1996 ................... 623,317 673,434 588,961
Film rights ..................................... 154,098 200,585 200,585
Prepaid expenses ................................ 6,925 4,475 1,388
Deferred income taxes ........................... 176,753 71,347 72,209
-------------- -------------- --------------
Total current assets ......................... 1,151,675 1,287,506 1,238,956
Equipment, net .................................... 77,283 51,005 50,246
Building and equipment under capital leases, net .. 226,003 692,819 682,514
Film rights ....................................... 216,745 262,022 228,591
Deferred income taxes ............................. 24,291 24,790 24,790
Deposits and other assets ......................... 11,914 8,992 8,992
-------------- -------------- --------------
Total assets ................................. $ 1,707,911 $ 2,327,134 $ 2,234,089
============== ============== ==============
LIABILITIES AND CAPITAL DEFICIENCY
Current liabilities:
Accounts payable ................................ $ 148,449 $ 175,809 $ 112,539
Accrued interest due affiliates ................. 237,360 180,953 182,456
Other accrued expenses .......................... 76,460 74,489 65,742
Current portion of long-term debt to affiliates . 4,250 0 0
Current portion of capital lease obligations .... 92,247 61,559 65,432
Current portion of film rights payable .......... 169,475 225,211 225,211
-------------- -------------- --------------
Total current liabilities .................... 728,241 718,021 651,380
Long-term liabilities:
Long-term debt to affiliates .................... 610,257 531,181 494,893
Obligations under capital leases ................ 187,772 692,619 686,051
Film rights payable ............................. 248,138 280,117 239,335
Subordinated debt ............................... 1,200,000 1,200,000 1,200,000
-------------- -------------- --------------
Total liabilities ............................ 2,974,408 3,421,938 3,271,659
Shareholder deficiency:
Common stock, $1 par value, 1,000 shares
authorized, 100 shares issued and outstanding 100 100 100
Additional paid-in capital ...................... 900 900 900
Accumulated deficit ............................. (1,145,639) (973,946) (916,712)
Receivable from affiliate ....................... (121,858) (121,858) (121,858)
-------------- -------------- --------------
Total capital deficiency ..................... (1,266,497) (1,094,804) (1,037,570)
-------------- -------------- --------------
Total liabilities and capital deficiency ..... $ 1,707,911 $ 2,327,134 $ 2,234,089
============== ============== ==============
</TABLE>
See accompanying notes to financial statements.
F-30
<PAGE>
WTLH, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended Two Months Ended
-------------------------------- --------------------------------
December 31, December 31, February 28, February 29,
1994 1995 1995 1996
-------------- -------------- -------------- --------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues:
Broadcasting revenue, net of agency
commissions of $587,810, $585,124,
$80,559 and $79,300 .............. $2,256,174 $2,313,467 $316,268 $325,964
Barter broadcasting revenue ......... 310,208 470,589 51,701 78,431
-------------- -------------- -------------- --------------
Total revenues ................... 2,566,382 2,784,056 367,969 404,395
-------------- -------------- -------------- --------------
Operating expenses:
Technical and operations ............ 278,312 320,215 46,777 33,256
Programming, including amortization
of $194,993, $199,260, $31,624 and
$33,431 .......................... 242,769 253,959 39,614 42,946
Barter programming .................. 310,208 470,589 51,701 78,431
General and administrative .......... 401,675 440,370 20,537 11,104
Promotion ........................... 237,419 346,529 28,174 26,236
Sales ............................... 279,031 300,903 46,363 51,066
Depreciation ........................ 135,474 107,197 14,985 11,064
Management fee ...................... 55,600 40,500 11,000 21,400
-------------- -------------- -------------- --------------
Total operating expenses ......... 1,940,488 2,280,262 259,151 275,503
-------------- -------------- -------------- --------------
Income from operations ........... 625,894 503,794 108,818 128,892
Interest expense ...................... (135,064) (163,111) (31,162) (19,853)
Other expenses, net ................... 0 (63,743) (8,189) (17,089)
-------------- -------------- -------------- --------------
Income before income taxes ....... 490,830 276,940 69,467 91,950
Provision for income taxes ............ 190,000 105,247 26,437 34,716
-------------- -------------- -------------- --------------
Net income ....................... $ 300,830 $ 171,693 $ 43,030 $ 57,234
============== ============== ============== ==============
</TABLE>
See accompanying notes to financial statements.
F-31
<PAGE>
WTLH, INC.
STATEMENTS OF CAPITAL DEFICIENCY
<TABLE>
<CAPTION>
Additional Receivable Total
Common Paid-In From Capital
Stock Capital Deficit Affiliate Deficiency
-------- ------------ --------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1993 $100 $900 $(1,446,469) $ 121,858) $(1,567,327)
Net income ............... 0 0 300,830 0 300,830
-------- ------------ --------------- ------------- ---------------
Balance, December 31, 1994 100 900 (1,145,639) (121,858) (1,266,497)
Net income ............... 0 0 171,693 0 171,693
-------- ------------ --------------- ------------- ---------------
Balance, December 31, 1995 100 900 (973,946) (121,858) (1,094,804)
Net income (unaudited) ... 0 0 57,234 0 57,234
-------- ------------ --------------- ------------- ---------------
Balance February 29, 1996
(unaudited) ............. $100 $900 $ (916,712) $(121,858) $(1,037,570)
======== ============ =============== ============= ===============
</TABLE>
See accompanying notes to financial statements.
F-32
<PAGE>
WTLH, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended Two Months Ended
-------------------------------- --------------------------------
December 31, December 31, February 28, February 29,
1994 1995 1995 1996
-------------- -------------- -------------- --------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income ................................. $ 300,830 $ 171,693 $ 43,030 $ 57,234
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation ............................ 135,474 107,197 14,985 11,064
Deferred income taxes ................... 186,243 104,907 26,437 (862)
Loss on sale of vehicle ................. 0 2,853 0 0
Change in assets and liabilities:
Accounts receivable ................... (191,338) (50,117) 188,612 84,473
Film rights ........................... 106,738 (91,764) (91,347) 33,431
Prepaid expenses ...................... 675 2,450 3,954 3,087
Other assets .......................... 276 2,922 11,813 0
Accounts payable ...................... (104,678) 27,360 (28,631) (63,270)
Accrued interest due affiliates ....... 27,172 (56,407) (54,121) 1,503
Other accrued expenses ................ (20,109) (1,973) (50,664) (8,747)
Film rights payable ................... (84,401) 87,715 (29,672) (40,782)
-------------- -------------- -------------- --------------
Net cash provided by operating
activities ....................... 356,882 306,836 34,396 77,131
-------------- -------------- -------------- --------------
Cash flows for investing activities:
Purchase of property and equipment ......... (34,973) (28,311) (16,672) 0
Proceeds from sale of vehicle .............. 0 2,723 0 0
-------------- -------------- -------------- --------------
Net cash used in investing activities . (34,973) (25,588) (16,672) 0
-------------- -------------- -------------- --------------
Cash flows (for) from financing activities:
Principal payments on long-term debt to
affiliates .............................. (108,586) (83,324) 0 (36,288)
Advances from affiliates ................... 0 0 31,436 0
Payments made under capital leases ......... (16,426) (50,841) 0 (2,695)
-------------- -------------- -------------- --------------
Net cash (used in) provided by
financing activities ............... (125,012) (134,165) 31,436 (38,983)
-------------- -------------- -------------- --------------
Net increase in cash ......................... 196,897 147,083 49,160 38,148
Cash (overdraft) at beginning of year ........ (6,315) 190,582 190,582 337,665
-------------- -------------- -------------- --------------
Cash at end of year .......................... $ 190,582 $ 337,665 $239,742 $375,813
============== ============== ============== ==============
Supplemental Disclosure of Cash Flow
Information:
Cash paid for interest ..................... $ 103,287 $ 224,404 $ 16,881 12,607
============== ============== ============== ==============
Cash paid for income taxes ................. $ 0 $ 7,757 $ 0 $ 0
============== ============== ============== ==============
Supplemental Schedule of Noncash
Investing and Financing Activities:
Capital lease obligation incurred for
building ................................ $ 0 $ 525,000 $525,000 $ 0
============== ============== ============== ==============
</TABLE>
See accompanying notes to financial statements.
F-33
<PAGE>
WTLH, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization -- WTLH, Inc. (the Company) was formed in 1988 to own and
operate a broadcast television station, WTLH, located in Tallahassee,
Florida. The station is a Fox Network affiliate.
Unaudited Interim Financial Information -- The unaudited balance sheet as
of February 29, 1996 and the unaudited statements of operations and
accumulated deficit and cash flows for the two months ended February 28, 1995
and February 29, 1996 (interim financial information) are unaudited and have
been prepared on the same basis as the audited financial statements included
herein. In the opinion of the Company, the interim financial information
includes all adjustments, consisting of only normal recurring adjustments,
necessary for a fair statement of the results of the interim period. The
results of operations for the two month period ending February 29, 1996 are
not necessarily indicative of the results for a full year. All disclosures
for the two month periods ended February 28, 1995 and February 29, 1996
included herein are unaudited.
Property and Equipment -- Equipment is stated at cost less accumulated
depreciation. The Company operates in leased facilities with lease terms
ranging up to 2014. Real property and equipment leased under capital leases
are amortized over the lives of the respective leases using the straight-line
method. Maintenance and repairs are expensed as incurred.
Depreciation of equipment is computed using principally accelerated
methods based upon the following estimated useful lives:
Tower and building under lease ...... 20 years
Transmitter and studio equipment .... 5-7 years
Computer equipment .................. 5 years
Furniture and fixtures .............. 7 years
Other equipment ..................... 5-7 years
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 and disclosure of contingent 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.
Film Rights -- The Company enters into agreements to show motion pictures
and syndicated programs on television. Only the rights and associated
liabilities for those films and programs currently available for showing are
recorded on the Company's books. These rights are recorded at cost, the gross
amount of the contract liability. Program rights are amortized over the
license period, which approximates amortization based on the estimated number
of showings during the contract period, using the straight-line method except
where an accelerated method would produce more appropriate matching of cost
with revenue. Payments for the contracts are made pursuant to contractual
terms over periods which are generally shorter than the license periods.
Programming -- The Company obtains a portion of its programming, including
presold advertisements, through its network affiliation agreement with Fox
Broadcasting, Inc. ("Fox"), and also through independent producers.
The Company does not make any direct payments for network and certain
independent producers' programming. For broadcasting network programming, the
Company receives payments from Fox, which totaled $38,559, $63,023, $11,302
and $6,955 for the years ended December 31, 1994 and 1995 and the two month
period ended February 28, 1995 and February 29, 1996, respectively. For
running independent producers' programming, the Company receives no direct
payments. Instead, the Company retains a portion of the available
advertisement spots to sell on its own account, which are recorded as
broadcasting revenue. Management estimates the value, and related programming
expense, of the presold advertising included in the
F-34
<PAGE>
WTLH, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
1. Summary of Significant Accounting Policies: - (Continued)
independent producers' programming to be $310,208, $470,589, 51,701 and
$78,431 for the years ended December 31, 1994 and 1995 and the two month
periods ended February 28, 1995 and February 29, 1996, respectively. These
amounts are presented gross as barter broadcasting revenue and barter
programming expense in the accompanying financial statements.
Income Taxes -- Deferred income tax assets are recognized for the expected
future consequences of events that have been included in the financial
statements and income tax returns. Deferred tax assets and liabilities are
determined based on the difference between the financial statement and tax
bases of assets and liabilities using enacted tax rates in effect for the
year in which the differences are expected to reverse.
2. PROPERTY AND EQUIPMENT:
The major classes of equipment consist of the following:
<TABLE>
<CAPTION>
February 29,
1994 1995 1996
----------- ----------- --------------
(Unaudited)
<S> <C> <C> <C>
Transmitter and studio equipment $731,962 $718,958 $718,958
Computer equipment .............. 40,772 25,019 25,019
Furniture and fixtures .......... 27,914 27,914 27,914
Other equipment ................. 56,141 63,827 63,827
----------- ----------- --------------
856,789 835,718 835,718
Less accumulated depreciation ... 779,506 784,713 785,472
----------- ----------- --------------
$ 77,283 $ 51,005 $ 50,246
=========== =========== ==============
</TABLE>
Building and equipment under capital leases consist of the following:
<TABLE>
<CAPTION>
December 31, December 31, February 29,
1994 1995 1996
-------------- -------------- --------------
(Unaudited)
<S> <C> <C> <C>
Building ........................ $ 0 $525,000 $525,000
Transmitter and studio equipment 38,400 38,400 38,400
Tower ........................... 210,055 210,055 210,055
Computer equipment .............. 41,300 41,300 41,300
Furniture and fixtures .......... 7,950 7,950 7,950
Vehicle ......................... 8,952 0 0
-------------- -------------- --------------
306,657 822,705 822,705
Less accumulated depreciation ... 80,654 129,886 140,191
-------------- -------------- --------------
$226,003 $692,819 $682,514
============== ============== ==============
</TABLE>
Depreciation expense amounted to $135,474, $107,197, $13,936 and $10,305
for the years ended December 31, 1994 and 1995 and the two months ended
February 28, 1995 and February 29, 1996, respectively.
F-35
<PAGE>
WTLH, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
3. LONG-TERM DEBT TO AFFILIATES:
The following is a summary of long-term debt to affiliates:
<TABLE>
<CAPTION>
December 31, December 31, February 29,
1994 1995 1996
-------------- -------------- --------------
(Unaudited)
<S> <C> <C> <C>
Note payable to affiliated company through common
ownership, interest at 12.97%, due at the earlier of
August 12, 1999 or the date the station is refinanced or
sold, collateralized by an assignment of outstanding
accounts receivable .................................... $453,673 $418,623 $392,335
Note payable to stockholders, interest at 12.97%, due
upon sale of the station ............................... 156,584 112,558 102,558
Other ................................................... 4,250 0 0
-------------- -------------- --------------
Total ................................................. 614,507 531,181 494,893
Less current portion .................................. 4,250 0 0
-------------- -------------- --------------
Long-term debt to affiliates .......................... $610,257 $531,181 $494,893
============== ============== ==============
</TABLE>
Scheduled maturities of long-term debt to affiliates, exclusive of
$112,558 for sale of the station, are as follows:
<TABLE>
<CAPTION>
<S> <C>
1999 ........................................................... $418,623
========
</TABLE>
4. LEASES:
The Company leases a broadcasting tower, a vehicle and computer and other
equipment which have been accounted for as capital leases. The following is a
summary of capital lease obligations:
<TABLE>
<CAPTION>
December 31, December 31, February 29,
1994 1995 1996
-------------- -------------- --------------
(Unaudited)
<S> <C> <C> <C>
Lease of a building with stockholders, interest at 10.4%,
payable in varying monthly installments through January
1, 2014 ................................................ $ 0 $497,634 $498,314
Lease of a broadcasting tower with an affiliated company
through common ownership, interest at 12.97%, payable in
varying monthly installments through October 2010 ...... 210,055 210,055 210,055
Lease of equipment, interest at 14.47%, payable in
monthly installments of $1,114 through August 1998 ..... 33,283 25,170 23,710
Leases of computer equipment, interest ranging from
12.05% to 17.42%, payable in monthly installments
ranging from $166 to $725 through April 1998 ........... 27,653 19,329 17,794
Lease of a vehicle, interest at 9%, payable in monthly
installments of $285 through July 1996 ................. 4,776 0 0
Lease of telephone equipment, interest at 14.33%, payable
in monthly installments of $227 through January 1997 ... 4,252 1,990 1,610
-------------- -------------- --------------
Total ................................................. 280,019 754,178 751,483
Less current portion .................................. (92,247) (61,559) (65,432)
-------------- -------------- --------------
Long-term portion ..................................... $187,772 $692,619 $686,051
============== ============== ==============
</TABLE>
F-36
<PAGE>
WTLH, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
4. Leases: - (Continued)
The Company also leases its studios, the land surrounding its tower from
an affiliated company, three vehicles from its stockholders and various other
equipment under non-cancelable operating leases. The leases expire at various
dates through 2014. Rent expense under non-cancelable operating leases
totaled $141,684, $166,680, $25,522, and $25,900 for the years ended December
31, 1994 and 1995 and the two months ended February 28, 1995 and February 29,
1996, respectively. Future minimum payments as of December 31, 1995 under
capital leases and non-cancelable operating leases consist of the following:
Capital Operating
Year ended December 31: Leases Leases
-------------------------------------------- ----------- -----------
1996 ....................................... $ 97,613 $151,728
1997 ....................................... 102,767 63,575
1998 ....................................... 94,240 46,495
1999 ....................................... 88,211 35,321
2000 ....................................... 92,428 36,387
Thereafter ................................. 1,473,638 634,110
----------- -----------
Total lease payments .................. 1,948,897 967,616
Less amount representing interest ..... 1,194,719 0
----------- -----------
Present value of net minimum lease
payments ............................ $ 754,178 $967,616
=========== ===========
5. FILM RIGHTS PAYABLE:
Commitments for film rights payable as of December 31, 1995 are as follows
for years ending December 31:
1996 ....................................................... $225,211
1997 ....................................................... 143,208
1998 ....................................................... 93,668
1999 ....................................................... 40,457
2000 ....................................................... 2,784
-----------
$505,328
===========
The Company has entered into agreements totaling $154,500 as of December
31, 1995, which are not yet available for showing at December 31, 1995, and,
accordingly, are not recorded on the Company's financial statements.
6. INCOME TAXES:
The provision for income taxes is summarized as follows:
Year Ended Two Months Ended
------------------------------- --------------------------------
December 31, December 31, February 28, February 29,
1994 1995 1995 1996
-------------- -------------- -------------- --------------
(Unaudited) (Unaudited)
Current ... $ 3,757 $ 0 $ 0 $35,578
Deferred .. 186,243 105,247 26,437 (862)
-------------- -------------- -------------- --------------
$190,000 $105,247 $26,437 $34,716
============== ============== ============== ==============
F-37
<PAGE>
WTLH, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
6. Income Taxes: - (Continued)
The differences between the federal statutory tax rate and the Company's
effective tax rate are as follows:
<TABLE>
<CAPTION>
Year Ended Two Months Ended
-------------------------------- --------------------------------
December 31, December 31, February 28, February 29,
1994 1995 1995 1996
-------------- -------------- -------------- --------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Federal income tax at federal statutory rate 34.0 % 34.0 % 34.0 % 34.0%
State income taxes, net of federal income tax
benefit .................................... 3.6 3.6 3.6 3.6
Other ....................................... 1.1 0.6 0.4 0.1
-------------- -------------- -------------- --------------
38.7 % 38.2 % 38.0 % 37.7 %
============== ============== ============== ==============
</TABLE>
The components of net deferred tax assets are as follows:
<TABLE>
<CAPTION>
December 31, December 31, February 29,
1994 1995 1996
-------------- -------------- --------------
(Unaudited)
<S> <C> <C> <C>
Current deferred tax assets: ...
Net operating loss benefits .. $ 80,714 $14,044 $ 0
Accrued interest due
affiliates ................ 92,869 54,293 72,209
Allowance for doubtful
accounts .................. 3,170 3,010 0
-------------- -------------- --------------
176,753 71,347 72,209
Long-term deferred tax assets:
Program rights amortization .. 24,291 24,790 24,790
-------------- -------------- --------------
$201,044 $96,137 $96,999
============== ============== ==============
</TABLE>
At December 31, 1995, the Company has recorded a deferred tax asset of
$96,137, including the benefit of approximately $37,000 in loss
carryforwards, which expire in 2006. Realization is dependent on generating
sufficient taxable income prior to expiration of the loss carryforwards.
Although realization is not assured, management believes it is more likely
than not that all of the deferred tax asset will be realized.
The amount of the deferred tax asset considered realizable, however, could
be reduced in the near term if estimates of future taxable income during the
carryforward period are reduced.
7. RELATED PARTY TRANSACTIONS:
The Company has a $121,858 receivable from an affiliated company for
reimbursement of certain costs. The receivable is non interest bearing with
no fixed terms of repayment. The receivable has been presented as a reduction
of stockholders' equity in the accompanying financial statements.
The Company paid $55,600, $151,500 (including $111,000 of payments for
lease obligations which have been reclassified for financial statement
presentation purposes) $11,000 and $21,400 in management fees to an
affiliated company through common ownership for the years ended December 31,
1994 and 1995 and the two months ended February 28, 1995 and February 29,
1996, respectively.
The Company made payments to stockholders and affiliates under leases as
described in Note 4 aggregating $45,777, $138,236, $20,500 and $23,039 for
the years ended December 31, 1994 and 1995 and the two months ended February
28, 1995 and February 29, 1996, respectively.
F-38
<PAGE>
WTLH, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
8. FINANCIAL INSTRUMENTS:
Concentrations of Credit Risk -- Certain financial instruments potentially
subject the Company to concentrations of credit risk. These financial
instruments consist primarily of accounts receivable and cash. Concentrations
of credit risk with respect to receivables are limited due to the large
number of customers comprising the Company's customer base and their
dispersion across different business and geographic regions, of which
approximately 60% was related to national accounts.
Disclosures About Fair Value of Financial Instruments -- The following
methods and assumptions were used to estimate the fair value of each class of
financial instruments:
Cash and Accounts Receivable: The carrying amount approximates fair
value.
Long-Term Debt: The fair value of the Company's long-term debt
approximates fair value since the debt was settled in full in 1996. See
Note 10.
9. SUBORDINATED DEBT:
The $1,200,000 subordinated debt is non-interest bearing and is payable to
the Company's former stockholder under certain circumstances. The debt is
subordinate to up to $1,500,000 of institutional or stockholder loans and is
collateralized by all tangible and intangible personal property of the
Company.
In connection with the sale of the Company (see Note 10) a settlement
agreement was entered into that reduced the outstanding liability to
$521,100, which was paid in March 1996.
10. SUBSEQUENT EVENT:
On March 8, 1996, the principal assets of the Company were sold to Pegasus
Media & Communications, Inc. for $5 million in cash, including payments under
noncompetition agreements with the owners and an employee of the station.
F-39
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Harron Communications Corp.
We have audited the accompanying combined balance sheets of the DBS
Operations of Harron Communications Corp. (operating divisions of Harron
Communications Corp., as more fully described in Note 1 to financial
statements) (the "Divisions") as of December 31, 1995 and 1994, and the
related combined statements of operations, and cash flows for the years then
ended. These financial statements are the responsibility of the Divisions'
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
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such combined financial statements present fairly, in all
material respects, the financial position of the DBS Operations of Harron
Communications Corp. at December 31, 1995 and 1994, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
The accompanying financial statements may not necessarily be indicative of
the conditions that would have existed or the results of operations had the
Divisions been unaffiliated with Harron Communications Corp. As discussed in
Notes 1 and 8 to the combined financial statements, Harron Communications
Corp. provides financing and certain legal, treasury, accounting, tax, risk
management and other corporate services to the Divisions.
DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
April 26, 1996, except for
Note 9 as to which the
date is September 3, 1996
F-40
<PAGE>
DBS OPERATIONS OF HARRON COMMUNICATIONS CORP.
COMBINED BALANCE SHEETS
DECEMBER 31, 1994 AND 1995, AND JUNE 30, 1996
<TABLE>
<CAPTION>
December 31,
------------------------------ June 30,
1994 1995 1996
------------- ------------- -------------
(Unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash ........................................... $ 140,311 $ 452,016 $ 313,923
Accounts Receivable, net of allowance for
doubtful accounts of $64,100 in 1995 and 1996 71,818 485,803 323,659
Inventory ...................................... 766,945 304,335 31,079
------------- ------------- -------------
Total current assets ................... 979,074 1,242,154 668,661
------------- ------------- -------------
PROPERTY AND EQUIPMENT ........................... 14,270 71,777 71,777
Accumulated depreciation ....................... (1,000) (9,565) (17,132)
------------- ------------- -------------
Property and equipment, net ............ 13,270 62,212 54,645
------------- ------------- -------------
FRANCHISE COSTS .................................. 5,399,321 5,590,167 5,590,167
Accumulated amortization ....................... (224,877) (775,423) (1,058,599)
------------- ------------- -------------
Franchise costs, net ................... 5,174,444 4,814,744 4,531,568
------------- ------------- -------------
TOTAL ............................................ $6,166,788 $ 6,119,110 $ 5,254,874
============= ============= =============
LIABILITIES AND DIVISION DEFICIENCY
CURRENT LIABILITIES:
Accounts payable ............................... $ 272,340 $ 49,290 $ 22,987
Accrued expenses (Note 4) ..................... 121,085 504,339 651,127
------------- ------------- -------------
Total current liabilities .............. 393,425 553,629 674,114
------------- ------------- -------------
DUE TO AFFILIATE (Note 8) ........................ 6,708,407 8,399,809 7,997,900
------------- ------------- -------------
Total liabilities ............................ 7,101,832 8,953,438 8,672,014
COMMITMENTS AND CONTINGENCIES
DIVISION DEFICIENCY .............................. (935,044) (2,834,328) (3,417,140)
------------- ------------- -------------
TOTAL ............................................ $6,166,788 $ 6,119,110 $ 5,254,874
============= ============= =============
</TABLE>
See notes to combined financial statements.
F-41
<PAGE>
DBS OPERATIONS OF HARRON COMMUNICATIONS CORP.
COMBINED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1994 AND 1995, AND
SIX MONTHS ENDED JUNE 30, 1995 AND 1996
<TABLE>
<CAPTION>
Year Ended Six Months Ended
December 31, June 30,
-------------------------------- -----------------------------
1994 1995 1995 1996
------------- --------------- ------------ -------------
(Unaudited)
<S> <C> <C> <C> <C>
REVENUES:
Programming ................ $ 95,488 $ 1,677,581 $ 576,032 $1,606,878
Equipment and other ........ 279,430 835,379 147,175 289,708
------------- --------------- ------------ -------------
374,918 2,512,960 723,207 1,896,586
------------- --------------- ------------ -------------
COST OF SALES:
Programming ................ 42,464 707,880 245,717 798,796
Equipment and other ........ 233,778 901,420 135,386 288,284
------------- --------------- ------------ -------------
276,242 1,609,300 381,103 1,087,080
------------- --------------- ------------ -------------
GROSS PROFIT ................. 98,676 903,660 342,104 809,506
------------- --------------- ------------ -------------
OPERATING EXPENSES:
Selling .................... 17,382 463,425 85,806 87,241
General and administrative . 199,683 1,009,633 341,657 594,479
Corporate allocation ....... 103,200 139,700 69,800 76,393
Depreciation and
amortization ............ 225,877 559,111 274,661 290,743
------------- --------------- ------------ -------------
546,142 2,171,869 771,924 1,048,856
------------- --------------- ------------ -------------
LOSS FROM OPERATIONS ......... (447,466) (1,268,209) (429,820) (239,350)
INTEREST EXPENSE ............. 487,578 631,075 307,843 343,462
------------- --------------- ------------ -------------
NET LOSS ..................... $(935,044) $ 1,899,284) $(737,663) $ (582,812)
============= =============== ============ =============
</TABLE>
See notes to combined financial statements.
F-42
<PAGE>
DBS OPERATIONS OF HARRON COMMUNICATIONS CORP.
COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994 AND 1995, AND
SIX MONTHS ENDED JUNE 30, 1995 AND 1996
<TABLE>
<CAPTION>
Year Ended Six Months Ended
December 31, June 30,
-------------------------------- ------------------------------
1994 1995 1995 1996
------------- --------------- ------------- -------------
(Unaudited)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss .................................. $ (935,044) $(1,899,284) $ (737,663) $(582,812)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Depreciation and amortization .......... 225,877 559,111 274,661 290,743
Changes in assets and liabilities:
Accounts receivable .................. (71,818) (413,985) (35,256) 162,144
Inventory ............................ (766,945) 462,610 (169,343) 273,256
Accounts payable ..................... 272,340 (223,050) (165,084) (26,303)
Accrued expenses ..................... 121,085 383,254 66,048 146,788
------------- --------------- ------------- -------------
Net cash provided by (used in)
operating activities ............ (1,154,505) (1,131,344) (766,637) 263,816
------------- --------------- ------------- -------------
INVESTING ACTIVITIES:
Purchase of property and equipment ........ (14,270) (57,507) (48,217) --
Purchase of franchise rights and other .... (190,846) (189,690) --
------------- --------------- ------------- -------------
Net cash used in investing
activities ...................... (14,270) (248,353) (237,907) --
------------- --------------- ------------- -------------
FINANCING ACTIVITIES -- Advances from (to)
affiliate, net ............................ 1,309,086 1,691,402 1,006,890 (401,909)
------------- --------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH ............. 140,311 311,705 2,346 (138,093)
CASH, BEGINNING OF YEAR ..................... 140,311 140,311 452,016
------------- --------------- ------------- -------------
CASH, END OF YEAR ........................... $ 140,311 $ 452,016 $ 142,657 $ 313,923
============= =============== ============= =============
</TABLE>
See notes to combined financial statements.
F-43
<PAGE>
DBS OPERATIONS OF HARRON COMMUNICATIONS CORP.
NOTES TO COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994 AND 1995
1. PRESENTATION AND NATURE OF BUSINESS
Basis of Presentation -- The DBS Operations of Harron Communications Corp.
(the "Divisions") are comprised of the assets and liabilities of two
operating divisions of Harron Communications Corp. ("Harron") that provide
direct broadcast satellite ("DBS") services. Harron intends to sell these
assets pursuant to an agreement with Pegasus Communications Holdings, Inc.
(see Note 9). These divisions have no separate legal existence apart from
Harron.
The historical combined financial statements of the DBS Operations of
Harron Communications Corp. do not necessarily reflect the results of
operations or financial position that would have existed if the component DBS
operating divisions were independent companies. Harron provides certain
legal, treasury, accounting, tax, risk management and other corporate
services to the Divisions (see Note 8). There are no significant intercompany
transactions or balances between the component divisions.
Nature of Business -- The Divisions provide direct broadcast satellite
television distribution services and sell the related equipment in rural
territories located in Michigan and Texas franchised by the National Rural
Telecommunications Cooperative ("NRTC") and DIRECTV. While these franchises
are exclusive as they relate to programming provided by DIRECTV, other
programming providers may offer DBS services within the Divisions' markets.
In 1993, the Divisions purchased their initial franchises with a potential
subscriber base of 343,174 homes for approximately $5,395,000. In July 1994,
the Divisions added their first DBS subscriber. In 1995, the Divisions
purchased an additional franchise with a potential subscriber base of 7,695
homes for approximately $190,000. Total subscribers at December 31, 1995 and
1994 were 6,573 and 1,737 homes, respectively.
Under the franchise agreements, DIRECTV operates a satellite through which
programming is transmitted. The NRTC provides certain billing and collection
services to the Divisions.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounts Receivable -- Accounts receivable consist of amounts due from
customers for programming services and equipment purchases and installation.
In 1995, the Divisions sold equipment and related installation to
approximately 50 customers under contracts with repayment terms of up to 48
months. The Divisions have provided a reserve for estimated uncollectible
amounts of $64,100 at December 31, 1995. Bad debt expense in 1994 and 1995
was $0 and $87,400, respectively.
Inventory -- Inventory, consisting of DBS systems (primarily, satellite
dishes and converter boxes) and related parts and supplies, is stated at the
lower of cost (first in - first out method) or market. Because of the nature
of the technology involved, the value of inventory held by the Divisions is
subject to changing market conditions. Accordingly, inventory has been
written down to its estimated net realizable value, and results of operations
in 1995 include a corresponding charge of approximately $105,000.
In 1995, the Divisions provided demonstration units to certain dealers and
others. The cost of demonstration units is expensed when such units are
placed in service. In 1995, demonstration units amounting to approximately
$32,000 were placed in service.
Property and Equipment -- Property and equipment are recorded at cost.
Depreciation is provided using the straight-line method over the estimated
useful lives of the assets.
Franchise Costs -- Franchise acquisition costs are capitalized and are
being amortized using the straight-line method over the remaining minimum
franchise period (originally 10 years) which approximates the estimated
useful life of the satellite operated by DIRECTV.
F-44
<PAGE>
DBS OPERATIONS OF HARRON COMMUNICATIONS CORP.
NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)
YEARS ENDED DECEMBER 31, 1994 AND 1995
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
The Divisions evaluate the carrying value of long-term assets, including
franchise acquisition costs, based upon current anticipated undiscounted cash
flows, and recognizes impairment when it is probable that such estimated cash
flows will be less than the carrying value of the asset. Measurement of the
amount of the impairment, if any, is based upon the difference between the
carrying value and the estimated fair value.
Revenue Recognition -- Revenue in connection with programming services and
associated costs are recognized when such services are provided. Amounts
received in advance of the services being provided are recorded as unearned
revenue. Revenue in connection with the sale of equipment and installation
and associated costs are recognized when the equipment is installed.
Income Taxes -- The Divisions are included in the consolidated tax return
of Harron. Accordingly, income taxes have been presented in these combined
financial statements as though the Divisions filed a separate combined
federal income tax return and separate state tax returns.
The Divisions account for income taxes under the provisions of Statement
of Financial Accounting Standards ("SFAS") No. 109, Accounting for Income
Taxes (See Note 5).
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 and disclosure of contingent 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 these
estimates.
Unaudited Data -- The combined balance sheet as of June 30, 1996 and the
combined statements of operations and cash flows for the three months ended
June 30, 1995 and 1996 have been prepared by the Divisions and have not been
audited. In the opinion of management, all adjustments (which include only
normal recurring adjustments) necessary to present fairly the combined
financial position, results of operations and cash flows of the Divisions as
of June 30, 1996 and for the six months ended June 30, 1995 and 1996 have
been made. The combined results of operations for the six months ended June
30, 1996 are not necessarily indicative of operating results for the full
year.
Disclosures About Fair Value of Financial Instruments -- The following
disclosure of the estimated fair value of financial instruments is made in
accordance with SFAS No. 107, Disclosures About Fair Value of Financial
Instruments.
Cash, Accounts Receivable, Accounts Payable, and Accrued Expenses --
The carrying amounts of these items approximate their fair values as of
December 31, 1994 and 1995 because of their short maturity.
Due to Affiliates -- A reasonable estimate of fair value is not
practicable to obtain because of the related party nature of this item.
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
Estimated December 31,
Years --------------------------
Useful Life 1994 1995
------------- --------- ---------
Furniture and fixtures . 10 $ 8,550 $19,435
Computer equipment ..... 5 5,720 25,839
Automobiles ............ 3 21,005
Other .................. 3 5,498
--------- ---------
14,270 71,777
Accumulated depreciation . (1,000) (9,565)
--------- ---------
$13,270 $62,212
========= =========
F-45
<PAGE>
DBS OPERATIONS OF HARRON COMMUNICATIONS CORP.
NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)
YEARS ENDED DECEMBER 31, 1994 AND 1995
4. ACCRUED EXPENSES
Accrued expenses consist of the following:
December 31,
--------------------------------------
1994 1995
---------- ----------
Programming ......... $ 33,038 $200,300
Commissions ......... 5,618 84,676
Salaries and benefits 25,000 16,019
Unearned revenue .... 47,339 165,496
Other ............... 10,090 37,848
---------- ----------
$121,085 $504,339
========== ==========
5. INCOME TAXES
The Divisions account for income taxes under the provisions of SFAS No.
109, Accounting for Income Taxes, which requires an asset and liability
approach for financial accounting and reporting of income taxes. Under this
approach, deferred taxes are recognized for the estimated taxes ultimately
payable or recoverable based on enacted tax law. Changes in enacted tax law
will be reflected in the tax provision as they occur. Deferred income taxes
reflect the net tax effects of (a) temporary differences between carrying
amounts of assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes, and (b) operating loss carryforwards.
For each year presented, there is no provision or benefit for income taxes
due to net losses incurred and the effect of recording a 100% valuation
allowance on net deferred tax assets.
Significant items comprising the Divisions' deferred tax assets and
liabilities at December 31, are as follows:
1994 1995
----------- -------------
Differences between book and tax basis:
Intangible assets ................... $ 17,000 $ 85,000
Inventory ........................... 52,000
Other ............................... 24,000
Net operating carryforwards ........... 342,000 978,000
----------- -------------
Net deferred tax asset ...... 359,000 1,139,000
Valuation allowance ................... (359,000) (1,139,000)
----------- -------------
Net deferred tax balance .............. $ 0 $ 0
=========== =============
The Divisions have recorded a valuation allowance of $359,000 and
$1,139,000 at December 31, 1994 and 1995, respectively, against deferred tax
assets, reducing these assets to amounts which are more likely than not to be
realized. The increase in the valuation allowance of $780,000 from December
31, 1994 is primarily attributable to the increase in the tax benefits
associated with the Divisions' net operating loss carryforwards. The benefits
of these net operating loss carryforwards are not transferable pursuant to
the transaction described in Note 9.
F-46
<PAGE>
DBS OPERATIONS OF HARRON COMMUNICATIONS CORP.
NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)
YEARS ENDED DECEMBER 31, 1994 AND 1995
6. DIVISION DEFICIENCY
Changes in division deficiency for the years ended December 31, 1994 and
1995 are as follows:
Balance, January 1, 1994 ................................ $ 0
1994 Net Loss .......................................... (935,044)
-------------
Balance, December 31, 1994 ................................ (935,044)
1995 Net loss .......................................... (1,899,284)
-------------
Balance, December 31, 1995 ................................ $(2,834,328)
=============
7. EMPLOYEE SAVINGS PLAN
Employees of the Divisions who have completed one year of service, as
defined, may contribute from 1% to 15% of their earnings to a 401(k) plan
administered by Harron for its employees. The Divisions will match 50% of the
employee contributions up to 6% of earnings. The Divisions' expense related
to the savings plan was $0 and $1,280 in 1994 and 1995, respectively.
8. RELATED PARTY TRANSACTIONS
Amounts due to affiliate represent cash advances for franchise
acquisitions, capital expenditures and working capital deficiencies. Interest
expense of approximately $488,000 and $631,000 was charged in 1994 and 1995,
respectively, and was added to the outstanding balance. The rate of interest
is determined by Harron based on its cost of borrowed funds. At December 31,
1995, this rate was approximately 8.3%. Although these advances have no
stated repayment terms, Harron has agreed not to seek repayment through March
1997.
Approximately $103,200 and $139,700 of Harron's corporate expenses has
been charged to the Divisions in 1994 and 1995, respectively. In addition,
approximately $26,000 and $143,000 has been charged to the Divisions for
Harron's regional support of the Divisions' operations in 1994 and 1995,
respectively, and are included in general and administrative expenses. These
costs include legal, treasury, accounting, tax, risk management, advertising
and building rent and are charged to the Divisions based on management's
estimate of the Divisions' allocable share of such costs. Management believes
that its allocation method is reasonable.
The Divisions' assets have been pledged as collateral for certain loans of
Harron that have outstanding balances of approximately $188,000,000 at
December 31, 1995.
9. SUBSEQUENT EVENT
On April 4, 1996, Harron entered into a letter of intent with Pegasus
Communications Holdings, Inc. ("Pegasus"). The terms of this letter are
subject to change pursuant to ongoing negotiations between Pegasus and
Harron. Under the present understanding of terms as of September 3, 1996,
Pegasus and Harron would simultaneously contribute assets into a newly-formed
Delaware Corporation ("Newco"). Newco would simultaneously undertake an
initial public offering of common stock ("Public Stock"). At the closing of
the transaction, Harron would contribute its DBS operations to Newco in
exchange for (a) cash in the amount of $17.9 million and (b) the number of
shares of Newco common stock that could be purchased for $11.9 million at the
price at which the Public Stock is first offered to the public. Although the
Divisions believe that this transaction will be consummated, there can be no
assurances that it will occur at all or on the terms described above.
F-47
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Dom's Tele Cable, Inc.
We have audited the accompanying balance sheets of Dom's Tele Cable, Inc. as
of May 31, 1995 and 1996 and the related statements of operations and deficit
and cash flows for the years ended May 31, 1994, 1995 and 1996. These
financial statements are the responsibility of the Company'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 required 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
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Dom's Tele Cable, Inc. as of
May 31, 1995 and 1996, and the results of operations and deficit and its cash
flows for the years ended May 31, 1994, 1995 and 1996 in conformity with
generally accepted accounting principles.
As discussed in Note 11, to the financial statements, the Company has
restated the depreciation expense for the year ended May 31, 1994, to
properly reflect the calculation of depreciation expense.
COOPERS & LYBRAND L.L.P.
San Juan, Puerto Rico
August 9, 1996
F-48
<PAGE>
DOM'S TELE CABLE, INC.
BALANCE SHEETS
MAY 31, 1995 AND 1996
<TABLE>
<CAPTION>
May 31, May 31,
1995 1996
------------- -------------
ASSETS
<S> <C> <C>
Property, plant, and equipment net of accumulated
depreciation and amortization ...................... $ 5,077,102 $ 4,839,293
Cash ................................................ 60,648 146,368
Accounts receivable, trade -- net of allowance for
doubtful accounts of $26,900 and $30,390 for May 31,
1995 and 1996, respectively ........................ 107,876 26,314
Prepaid expenses .................................... 85,536 62,856
Other assets ........................................ 11,086 11,086
Due from related parties ............................ 212 212
Deferred tax asset .................................. 330,200 0
------------- -------------
Total assets ................................... $ 5,672,660 $ 5,086,129
============= =============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Liabilities:
Notes and loans payable ........................... $ 6,079,357 $ 5,086,232
Accounts payable, trade ........................... 695,519 194,856
Accrued expenses .................................. 942,227 1,055,337
Unearned revenues ................................. 53,852 41,369
Income tax payable ................................ 16,840 15,410
------------- -------------
7,787,795 6,393,204
------------- -------------
Commitments and contingencies ....................... 477,083 495,352
Stockholders' Deficiency:
Common stock -- $10 par value; authorized, 100,000
shares, issued and outstanding 9,575 shares .... 95,750 95,750
Accumulated deficit ............................... (2,687,968) (1,898,177)
------------- -------------
(2,592,218) (1,802,427)
------------- -------------
Total liabilities and stockholders' deficiency . $ 5,672,660 $ 5,086,129
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-49
<PAGE>
DOM'S TELE CABLE, INC.
STATEMENTS OF OPERATIONS AND DEFICIT
FOR THE YEARS ENDED MAY 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
May 31, May 31, May 31,
1994 1995 1996
--------------- --------------- --------------
As Restated
<S> <C> <C> <C>
Revenues ............................ $ 5,356,652 $ 5,447,228 $ 6,015,072
Operating costs and expenses ........ 1,521,390 1,950,762 1,909,206
--------------- --------------- --------------
Gross profit ................... 3,835,262 3,496,466 4,105,866
--------------- --------------- --------------
Marketing, general, and
administrative expenses ...... 1,346,487 1,412,951 1,636,322
Depreciation and amortization .. 634,750 491,295 505,042
--------------- --------------- --------------
1,981,237 1,904,246 2,141,364
--------------- --------------- --------------
Operating income .................... 1,854,025 1,592,220 1,964,502
Non-operating (income) expenses:
Other ............................. -- (50,000) --
Interest expense .................. 753,047 777,461 827,800
--------------- --------------- --------------
Income before benefit (provision)
for income taxes ............... 1,100,978 864,759 1,136,702
Benefit (provision) for income
taxes .......................... 184,000 129,356 (346,911)
--------------- --------------- --------------
Net income ..................... 1,284,978 994,115 789,791
Deficit at beginning of period ...... (4,967,061) (3,682,083) (2,687,968)
--------------- --------------- --------------
Deficit at end of period ............ $(3,682,083) $(2,687,968) $(1,898,177)
=============== =============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-50
<PAGE>
DOM'S TELE CABLE, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MAY 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
May 31, May 31, May 31,
1994 1995 1996
------------- ------------- -------------
As Restated
<S> <C> <C> <C>
Cash flows from operating activities:
Net income .................................. $ 1,284,978 $ 994,115 $ 789,791
------------- ------------- -------------
Adjustments to reconcile net income to net cash
provided by operating activities: ...........
Depreciation and amortization ............ 634,750 491,295 505,042
Provision for doubtful accounts .......... 50,595 9,241 110,408
Changes in assets and liabilities:
Increase in accounts
receivables, trade .................. (24,781) (51,864) (28,846)
(Increase) decrease in accounts
receivable, other ................... (14,743) 35,866 --
(Increase) decrease in prepaid expenses (35,218) (4,845) 22,679
Increase in other assets ............... (3,916) -- --
(Increase) decrease in due from related
parties ............................. (2,887) 3,414 --
(Increase) decrease in deferred tax
asset ............................... (184,000) (146,200) 330,200
Increase (decrease) in accounts payable 238,870 266,705 (500,663)
Increase (decrease) in accrued expenses (186,870) (120,322) 113,110
Increase (decrease) in income tax
payable ............................. -- 16,840 (1,430)
Decrease in unearned revenues .......... (12,483) (22,908) (12,483)
Increase in contingencies .............. -- 191,083 18,269
------------- ------------- -------------
Total adjustments ................... 459,317 668,305 556,286
------------- ------------- -------------
Net cash provided by operating
activities ........................ 1,744,295 1,662,420 1,346,077
------------- ------------- -------------
Cash flows from investing activities:
Capital expenditures ........................ (390,172) (249,727) (267,232)
------------- ------------- -------------
Net cash used in investing activities (390,172) (249,727) (267,232)
------------- ------------- -------------
Cash flows from financing activities:
Payments of notes payable ................... (1,469,104) (1,443,650) (1,011,925)
Proceeds from issuance of loan payable ...... 40,000 -- 18,800
------------- ------------- -------------
Net cash used in financing activities (1,429,104) (1,443,650) (993,125)
------------- ------------- -------------
Net increase (decrease) in cash ............... (74,981) (30,957) 85,720
Cash, beginning of period ..................... 166,586 91,605 60,648
------------- ------------- -------------
Cash, end of period ........................... $ 91,605 $ 60,648 $ 146,368
============= ============= =============
Supplemental disclosure of cash flows
information:
Cash paid during the period for interest ..... $ 713,821 $ 805,421 $ 833,209
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-51
<PAGE>
DOM'S TELE CABLE, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Dom's Tele Cable, Inc. (the "Company") was incorporated pursuant to the
provisions of the General Corporations Law of the Commonwealth of Puerto Rico
on February 23, 1983. The Company operates a cable television system under a
franchise authorization by the Public Service Commission of Puerto Rico and
the Federal Communications Commission which includes the towns of San German,
Lajas, Cabo Rojo, Sabana Grande, Hormigueros, Guanica, Rincon, Anasco, Las
Marias, and Maricao in Puerto Rico.
CLASSIFICATION OF ACCOUNTS
There is no distinction between current assets and liabilities and
non-current assets and liabilities inasmuch such distinction is not practical
in the cable industry.
REVENUE RECOGNITION
Revenues as well as costs and expenses are recognized under the accrual
method of accounting; as such revenues are earned as the related costs and
expenses are incurred.
UNEARNED REVENUES
Unearned revenues are recorded when a customer pays for the services
before they are delivered or rendered, and are included in income over the
contract or service period.
INITIAL SUBSCRIBER INSTALLATION COSTS
Initial subscriber installation costs, including material, labor and
overhead costs of the drop, are capitalized and depreciated over a period no
longer than 7 years.
HOOKUP REVENUES
The excess of revenues over selling costs for initial cable television
hookups are deferred and amortized over the estimated average period that
subscribers are expected to remain connected to the system, which is
estimated at 10 years.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are stated at cost. Expenditures for
additions and improvements that increase the productive capacity or extend
the useful life of the assets are capitalized and expenditures for
maintenance and repairs are charged to operations. When properties are
retired or otherwise disposed of, the costs and related accumulated
depreciation are removed from the books, and any gain or loss from disposal
is included in operations. Fully depreciated assets are written off against
accumulated depreciation.
Depreciation of property, and equipment is computed on the straight-line
method based upon the following estimated useful lives:
Tower and distribution system 18 years
Machinery and equipment 5 years
Furniture and fixtures 5 years
Motor vehicles 5 years
Building 30 years
Leasehold improvements 5 years
F-52
<PAGE>
DOM'S TELE CABLE, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
INCOME TAXES
Deferred income taxes are recognized for the tax consequences in future
years of differences between the tax bases of assets and liabilities and
their financial reporting amounts at each year-end based on enacted tax laws
and statutory tax rates applicable to the periods in which the differences
are expected to affect taxable income.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amounts expected to be realized. Income tax expense is the tax
payable for the period and the change during the period in deferred tax
assets and liabilities.
FAIR VALUE OF FINANCIAL INSTRUMENTS
For cash and accounts receivable, the estimated fair value is the same or
approximately the same as the recorded value.
RISKS AND UNCERTAINTIES
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 and
disclosure of contingent 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.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1995 financial statements
to be consistent with the current year presentation.
2. FRANCHISE FEES AND COMMITMENTS
The Company was granted a cable television franchise for certain
municipalities on December 28, 1984 by the Puerto Rico Service Commission for
twenty years. The franchise agreement requires a payment of 3% of the
Company's gross revenues. In addition, the Company has to pay its subscribers
5% interest on its customer deposits.
The Company's pole rental agreements with the Puerto Rico Telephone
Company and the Puerto Rico Electric Power Authority are renewed on a yearly
basis. These contracts specify that the Company will pay $3.00 and $7.33,
respectively, for the use of each pole. The rental expense for the years
ended May 31, 1994, 1995, and 1996, amounted to $58,334, $73,063 and $73,065,
respectively.
3. RELATED PARTY TRANSACTION
The Company was partially owned by Three-Sixty Corporation. Transactions
with Three-Sixty Corporation not disclosed elsewhere are management fees
amounting to $55,367, $54,952 and $55,367 in May 31, 1994, 1995, and 1996,
respectively.
In October 1994, all of the Company's stock was acquired by the majority
stockholder.
F-53
<PAGE>
DOM'S TELE CABLE, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
4. PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment consists of:
May 31, May 31,
1995 1996
------------- ------------
Building ..................................... $ 122,713 $ 122,713
Tower and distribution ....................... 11,006,704 11,223,338
Furniture and fixtures ....................... 137,498 142,128
Equipment .................................... 394,703 433,743
Leasehold improvements ....................... 32,350 39,279
------------- ------------
11,693,968 11,961,201
Less accumulated depreciation and amortization 6,781,354 7,286,396
Land ......................................... 164,488 164,488
------------- ------------
Property, plant and equipment, net ........... $ 5,077,102 $ 4,839,293
============= ============
5. NOTES AND LOANS PAYABLE
<TABLE>
<CAPTION>
May 31, May 31
1995 1996
------------- -----------
<S> <C> <C>
Loan payable in 84 monthly installments which fluctuates
from $13,543 up to $67,711 during the term of the loan in
accordance with a payment schedule known as the Term
Loan, plus interest at .75% over the prevailing prime
rate as published from time to time by Citibank N.A. in
New York or at 2% over the U.S. Internal Revenue Code
Section 936 interest rate for the portion of the loan
funded with 936 funds. The loan matures on July 1, 1996. $ 974,315 $ 188,874
Loan payable in 83 monthly installments which fluctuates
from $15,000 up to $100,000 during the term of the loan
in accordance with the payment schedule and one final
balloon payment of $3,305,000, known as the Credit
Facility Loan, plus interest at .75% over the prevailing
prime rate as published from time to time by Citibank
N.A. in New York or at 2% over the U.S. Internal Revenue
Code Section 936 interest rate for the portion of the
loan funded with 936 funds. The loan matures on July 1,
1996. ................................................... 5,080,020 4,880,021
Loan payable to Western Bank of Puerto Rico in 60 equal
monthly installments of $1,112, plus interest at 2% over
the prevailing prime rate, and collateralized with a
motor vehicle. This loan was paid in full on January 19,
1996. ................................................... 25,022 --
Capital lease equipment bearing interest at 7.56% with a
residual value of $3,900. This lease agreement is due in
2001. ................................................... -- 17,337
------------- -----------
$6,079,357 $5,086,232
============= ===========
</TABLE>
F-54
<PAGE>
DOM'S TELE CABLE, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
5. NOTES AND LOANS PAYABLE - (Continued)
Aggregate maturities of notes and loans payable are as follows:
Years Ending May 31,
--------------------
1997 ............................................ $5,072,483
Thereafter ...................................... 13,749
------------
$5,086,232
============
On October 26, 1995, Philip Credit Corporation sold, assigned and
transferred all of its rights, title, and interest, in and to the credit
agreement dated June 28, 1988, as amended to Lazard Freres & Co., L.L.C. The
credit agreement between the Company is comprised of a Term Loan and a Credit
Facility Loan which are collateralized by substantially all of the assets
owned by the Company along with a personal guarantee of the Company's
stockholder.
The credit agreement contains certain restrictive covenants such as: (i)
subscriber debt ratio; (ii) subscriber payment; (iii) number of homes in
cable system; (iv) number of subscribers; (v) combined plant mileage; and
(vi) subscribers' mileage ratio. As of May 31, 1995, and 1996, the Company
was not in compliance with certain of the restrictive covenants and is in
default on principal payments amounting to approximately $1,500,000 on the
Credit Facility Loan. See Note 10.
6. INCOME TAXES
The Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," as of June 1, 1993. The application of the
statement did not affect the Company's financial position and result of
operations because the components of the deferred tax primarily relate to net
operating loss carryforwards of $1,611,300 for which a valuation allowance of
100% was provided. During 1994, the Company changed its conclusion about the
realization of operating loss carryforwards and decided to record $184,000
for the realization of losses during 1995. The Company did not recognize a
deferred tax asset for net operating losses to be realized after May 31, 1995
because management expects to have completed the assets sale and liquidation
of the Company shortly after May 31, 1996.
The components of deferred tax asset were as follows:
May 31, May 31,
1995 1996
----------- -----------
Net operating loss carryforwards $ 712,758 $ 500,677
Valuation allowance ............. (382,558) (500,677)
----------- -----------
$ 330,200 $ --
=========== ===========
The comparison of income tax expense at the Puerto Rico statutory rate to
the Company's income tax benefit (provision) is as follows:
<TABLE>
<CAPTION>
May 31, May 31, May 31,
1994 1995 1996
------------- ------------- -----------
As Restated
<S> <C> <C> <C>
Tax at statutory rate ..................... $ 462,411 $ 363,199 $ 443,314
Adjustment due to:
Benefit of net operating loss
carryforwards ...................... (456,149) (354,255) (439,187)
Alternative minimum tax .............. 0 16,844 16,711
Change in valuation allowances ....... (184,000) (146,200) 330,200
Others, net .......................... (6,262) (8,944) (4,127)
------------- ------------- -----------
$(184,000) $(129,356) $ 346,911
============= ============= ===========
</TABLE>
F-55
<PAGE>
DOM'S TELE CABLE, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
7. CONCENTRATION OF CREDIT RISK
Substantially all of the Company's business activity is with customers
located in eight municipalities located in the southwestern area of Puerto
Rico and as such the Company is subject to the risks of Puerto Rico and more
specifically the economy of such geographic area.
8. CONTINGENCIES
The Company is involved in various litigations arising in the normal
course of business. Management believes that the outcome of these
uncertainties will not have a material adverse effect on its financial
statements.
The Company has not filed the Copyright Statement of Accounts with the
Copyright Office nor has paid royalty fees and interest amounting to
approximately $477,083 and $495,352 for May 31, 1995, and 1996, respectively.
The Company can be subject to various remedies for copyright infringement and
additional penalties for not filing the Copyright Statement of Accounts.
Management has accrued $477,083 and $495,352 for May 31, 1995 and 1996,
respectively, for royalty fees and interest for the unexpired filing periods,
which is three years in accordance with the statute of limitations.
Management plans to make the filing and payment concurrently with the
proposed sale of the Company.
9. SIGNIFICANT TRANSACTIONS
On January 11, 1996, the Company's sole stockholder signed a letter of
intent with respect to the liquidation of the Company's operations and the
eventual sale of its net assets, in an transaction that should be consummated
on or before August 31, 1996. Long-term obligations payable to Lazard Freres
& Co., L.L.C., at present, CIBC Wood Gundy Securities Corporation, will be
paid from the proceeds of this sale. In the event the planned sale is not
made the Company may need to seek additional financing from other sources or
restructure its debt.
10. SUBSEQUENT EVENTS
Effective on June 1, 1996, the Company was liquidated and a new legal
entity was incorporated under the laws of the Commonwealth of Puerto Rico
known as DOMAR Inc., to be in accordance with the sale contract agreement
entered with the buyer, Pegasus Media & Communications, Inc.
On July 1, 1996, Lazard Freres & Co., L.L.C., sold, assigned and
transferred all of its rights, title, interest and obligation to CIBC Wood
Gundy Securities Corporation.
11. PRIOR PERIOD ADJUSTMENT
The Company restated its depreciation expense by $520,329 to correct the
depreciation expense for the year ended May 31, 1994. The effect was to
increase net income for the year ended May 31, 1994 by $520,329.
F-56
<PAGE>
[The inside back cover page contains a map of Puerto Rico which shows color
coded regions where Cable TV operators operate. Below the map is the following
color coded chart:
Puerto Rico Cable TV Operators:
MCT Cablevision (Pegasus)
Dom's TeleCable TV (Pegasus)
Cable TV del noroeste (Independent)
Tele Ponce (Independent)
Buena Vision (50% owned by TCI)
Greater TV of San Juan (Century)
Puerto Rico Totals*
Population 3,483,000
TV Households 1,132,000
Homes Passed by Cable 735,000
Cable Subscribers 254,000
Cable Penetration 34%
*Based on estimates provided by Media Fax, Inc.
<PAGE>
=============================================================================
No dealer, sales representative or any other person has been authorized to
give any information or to make any representations not contained in this
Prospectus, and, if given or made, such information or representations must
not be relied upon as having been authorized by the Company or any of the
Underwriters. This Prospectus does not constitute an offer to sell or a
solicitation of any offer to buy any securities offered hereby in any
jurisdiction in which such an offer or solicitation would be unlawful.
Neither the delivery of this Prospectus nor any sale made hereunder shall,
under any circumstances, create any implication that the information
contained herein is correct as of any time subsequent to the date hereof.
-----------------
TABLE OF CONTENTS
Page
--------
Prospectus Summary .............................. 3
Risk Factors .................................... 17
The Company ..................................... 23
Use of Proceeds ................................. 27
Dividend Policy ................................. 27
Dilution ........................................ 28
Capitalization .................................. 29
Selected Historical and Pro Forma Combined
Financial Data ................................. 30
Pro Forma Combined Financial Data ............... 33
Management's Discussion and Analysis of
Financial Condition and Results of Operations .. 40
Business ........................................ 48
Management and Certain Transactions ............. 76
Ownership and Control ........................... 83
Description of Indebtedness ..................... 85
Description of Capital Stock .................... 87
Shares Eligible for Future Sale ................. 90
Underwriting .................................... 92
Legal Matters ................................... 94
Experts ......................................... 94
Additional Information .......................... 95
Index to Financial Statements ................... F-1
-----------------
Until , 1996 (25 days after the date of this Prospectus), all dealers
effecting transactions in the Class A Common Stock offered hereby, whether or
not participating in this distribution, may be required to deliver a
Prospectus. This is in addition to the obligations of dealers to deliver a
Prospectus when acting as Underwriters and with respect to their unsold
allotments or subscriptions.
==============================================================================
<PAGE>
==============================================================================
3,000,000 SHARES
LOGO
CLASS A COMMON STOCK
----------
PROSPECTUS
, 1996
----------
LEHMAN BROTHERS
BT SECURITIES CORPORATION
CIBC WOOD GUNDY SECURITIES CORP.
PAINEWEBBER INCORPORATED
=============================================================================
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses payable by the Registrant in
connection with this Registration Statement. All of such expenses are
estimates, other than the filing and listing fees payable to the Securities
and Exchange Commission and the National Association of Securities Dealers,
Inc.
Filing Fee -- Securities and Exchange Commission ............ $ 19,035
Filing Fee -- National Association of Securities Dealers,
Inc. ....................................................... $ 6,250
Listing Fees -- Nasdaq National Market ...................... $ 22,500
Fees and Expenses of Accountants ............................ $225,000
Fees and Expenses of Counsel ................................ $435,000
Printing Expenses ........................................... $140,000
Blue Sky Fees and Expenses .................................. $ 15,000
Miscellaneous Expenses ...................................... $112,215
----------
Total ..................................................... $975,000
==========
- ------
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant's Amended and Restated Certificate of Incorporation
provides that a director of the Registrant shall have no personal liability
to the Registrant or to its stockholders for monetary damages for breach of
fiduciary duty as a director except to the extent that Section 102(b)(7) (or
any successor provision) of the Delaware General Corporation Law, as amended
form time to time, expressly provides that the liability of a director may
not be eliminated or limited.
Article 6 of the Registrant's By-Laws provides that any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, by reason of the fact that such person is or was a director
or officer of the Registrant, or is or was serving while a director or
officer of the Registrant at the request of the Registrant as a director,
officer, employee, agent, fiduciary or other representative of another
corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise, shall be indemnified by the Registrant against expenses
(including attorneys' fees), judgments, fines, excise taxes and amounts paid
in settlement actually and reasonably incurred by such person in connection
with such action, suit or proceeding to the full extent permissible under
Delaware law. Article 6 also provides that any person who is claiming
indemnification under the Registrant's By-Laws is entitled to advances from
the Registrant for the payment of expenses incurred by such person in the
manner and to the full extent permitted under Delaware law.
The Underwriting Agreement provides that the Underwriters are obligated,
under certain circumstances, to indemnify directors, officers and controlling
persons of the Registrant against certain liabilities under the Securities
Act of 1933, as amended. Reference is made to Section 8 of the form of
Underwriting Agreement which is filed as Exhibit 1.1 hereto.
The Registrant intends to obtain directors' and officers' liability
insurance.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The Registrant was incorporated on May 30, 1996. In connection with its
incorporation, the Registrant issued 100 shares of Class B Common Stock to
its parent, Pegasus Communications Holdings, Inc. on May 30, 1996, in
reliance on the exemption from registration set forth in Section 4(2) of the
Securities Act. See "The Company -- Acquisitions" and "The Company --
Corporate Reorganization and Other Transactions" for information concerning
certain issuances (in reliance on the exemption from registration set forth
in Section 4(2) of the Securities Act) of securities that are proposed to be
made concurrently with the completion of the offering to which this
Registration Statement relates.
II-1
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------------ ------------------------------------------------------------------------------------------------------
<S> <C>
1.1* Form of Underwriting Agreement.
2.1 Asset Purchase Agreement, dated March 21, 1996, among Dominica Padilla Acosta, Maria Del Carmen Padilla
Lopez, Dom's Tele-Cable, Inc. and the Parent relating to the acquisition of Dom's Tele-Cable, Inc. (which
is incorporated herein by reference to Exhibit 2.1 of the Form 10-K for the year ended December 31, 1995
of Pegasus Media & Communications, Inc.).
2.2 Contribution and Exchange Agreement by and between the Parent and Harron dated as of May 30, 1996. (including
form of Joinder Agreement, Stockholder's Agreement and Noncompetition Agreement)
2.3* Amendment No. 1 to Exhibit 2.1 (which is incorporated by reference to Exhibit 2 to Pegasus Media & Communications,
Inc.'s Form 8-K dated August 29, 1996).
2.4* Joinder Agreement dated as of May 31, 1996 by and among the Parent, Dominica Padilla Acosta (aka Dominick
Padilla), Maria Del Carmen Padilla Lopez and Domar (which is incorporated by reference to Exhibit 5 to Pegasus
Media & Communications, Inc.'s Form 8-K dated August 29, 1996).
2.5* Amendment No. 2 to Exhibit 2.2
3.1* Certificate of Incorporation of Pegasus, as amended.
3.2 By-Laws of Pegasus.
4.1 Indenture, dated as of July 7, 1995, by and among Pegasus Media & Communications, Inc., the Guarantors (as
this term is defined in the Indenture), and First Fidelity Bank, National Association, as Trustee, relating
to the 12 1/2% Series B Senior Subordinated Notes due 2005 (including the form of Notes and Subsidiary
Guarantee) (which is incorporated herein by reference to Exhibit 4.1 to Pegasus Media & Communications,
Inc.'s Registration Statement on Form S-4 (File No. 33-95042).
4.2 Form of Notes (included in Exhibit 4.1 above)).
4.3 Form of Subsidiary Guarantee (included in Exhibit 4.1 above).
5.1* Opinion of Drinker Biddle & Reath.
10.1 Tax Sharing Agreement, made as of July 7, 1995, among the Parent, Pegasus Media & Communications, Inc.,
the Guarantors, Pegasus Cable Television of Connecticut, Inc., and Pegasus Communications Portfolio Holdings,
Inc. (which is incorporated herein by reference to Exhibit 10.1 to Pegasus Media & Communications, Inc.'s
Registration Statement on Form S-4 (File No. 33-95042)).
10.2 Management Agreement, dated July 7, 1995, between Pegasus Media & Communications, Inc. and BDI Associates
L.P. (which is incorporated herein by reference to Exhibit 10.2 to Pegasus Media & Communications, Inc.'s
Registration Statement on Form S-4 (File No. 33-95042)).
10.3 Station Affiliation Agreement, dated March 30, 1992, between Fox Broadcasting Company and D. & K. Broadcast
Properties L.P. relating to television station WDBD (which is incorporated herein by reference to Exhibit
10.5 to Pegasus Media & Communications, Inc.'s Registration Statement on Form S-4 (File No. 33- 95042)).
10.4 Agreement and Amendment to Station Affiliation Agreement, dated as of June 11, 1993, between Fox Broadcasting
Company and Donatelli & Klein Broadcast relating to television station WDBD (which is incorporated herein
by reference to Exhibit 10.6 to Pegasus Media & Communications, Inc.'s Registration Statement on Form S-4
(File No. 33-95042)).
10.5 Station Affiliation Agreement, dated March 30, 1992, between Fox Broadcast Company and Scranton TV Partners
Ltd. relating to television station WOLF (which is incorporated herein by reference to Exhibit 10.8 to Pegasus
Media & Communications, Inc.'s Registration Statement on Form S-4 (File No. 33-95042)).
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
- ------------ ------------------------------------------------------------------------------------------------------
<S> <C>
10.6 Agreement and Amendment to Station Affiliation Agreement, dated June 11, 1993, between Fox Broadcasting
Company and Scranton TV Partners, Ltd. relating to television station WOLF (which is incorporated herein
by reference to Exhibit 10.9 to Pegasus Media & Communications, Inc.'s Registration Statement on Form S-4
(File No. 33-95042)).
10.7 Amendment to Fox Broadcasting Company Station Affiliation Agreement Regarding Network Nonduplication Protection,
dated December 2, 1993, between Fox Broadcasting Company and Pegasus Broadcast Television, L.P. relating
to television stations WOLF, WWLF, and WILF (which is incorporated herein by reference to Exhibit 10.10
to Pegasus Media & Communications, Inc.'s Registration Statement on Form S-4 (File No. 33- 95042)).
10.8 Consent to Assignment, dated May 1, 1993, between Fox Broadcasting Company and Pegasus Broadcast Television,
L.P. relating to television station WOLF (which is incorporated herein by reference to Exhibit 10.11 to
Pegasus Media & Communications, Inc.'s Registration Statement on Form S-4 (File No. 33-95042)).
10.9 Station Affiliation Agreement, dated March 30, 1992, between Fox Broadcasting Company and WDSI Ltd. relating
to television station WDSI (which is incorporated herein by reference to Exhibit 10.12 to Pegasus Media
& Communications, Inc.'s Registration Statement on Form S-4 (File No. 33-95042)).
10.10 Agreement and Amendment to Station Affiliation Agreement, dated June 11, 1993, between Fox Broadcasting
Company and Pegasus Broadcast Television, L.P. relating to television station WDSI (which is incorporated
herein by reference to Exhibit 10.13 to Pegasus Media & Communications, Inc.'s Registration Statement on
Form S-4 (File No. 33-95042)).
10.11 Franchise Agreement for Mayaguez, Puerto Rico (which is incorporated herein by reference to Exhibit 10.14
to Pegasus Media & Communications, Inc.'s Registration Statement on Form S-4 (File No. 33-95042)).
10.12 NRTC/Member Agreement for Marketing and Distribution of DBS Services, dated June 24, 1993, between the National
Rural Telecommunications Cooperative and Pegasus Cable Associates, Ltd. (which is incorporated herein by
reference to Exhibit 10.28 to Pegasus Media & Communications, Inc.'s Registration Statement on Form S-4
(File No. 33-95042)).
10.13 Amendment to NRTC/Member Agreement for Marketing and Distribution of DBS Services, dated June 24, 1993,
between the National Rural Telecommunications Cooperative and Pegasus Cable Associates, Ltd. (which is
incorporated herein by reference to Exhibit 10.29 to Pegasus Media & Communications, Inc.'s Registration
Statement on Form S-4 (File No. 33-95042)).
10.14 DIRECTV Sign-Up Agreement, dated May 3, 1995, between DIRECTV, Inc. and Pegasus Satellite Television, Inc.
(which is incorporated herein by reference to Exhibit 10.30 to Pegasus Media & Communications, Inc.'s Registration
Statement on Form S-4 (File No. 33-95042)).
10.15 Stock Purchase Agreement dated January 25, 1996, among the Parent, Portland Broadcasting, Inc., HMW, Inc.,
Bride Communications, Inc., John W. Bride, John W. Bride and Christopher McHenry Bride, as amended (the
"Stock Purchase Agreement") (which is incorporated herein by reference to Exhibit A to Exhibit 2.1 to Pegasus
Media & Communications, Inc.'s Form 8-K dated January 29, 1996).
10.16 Amendment to the Stock Purchase Agreement (which is incorporated herein by reference to Exhibit 2 to Pegasus
Media & Communications, Inc.'s Form 8-K dated January 29, 1996).
10.17 Time Brokerage Agreement dated as of January 28, 1996, between HMW, Inc. and the Parent (which is incorporated
herein by reference to Exhibit 3 to Pegasus Media & Communications, Inc.'s Form 8-K dated January 29, 1996).
10.18 Asset Purchase Agreement, dated October 13, 1995, among WTLH, Inc. ("WTLH"), General Management Consultants,
Inc. ("GMC"), TV 57 Live-Oak Gainsville, Inc. ("TV-57"), Paul Lansat, Renee Lansat and Pegasus Broadcast
Television, Inc. ("PBT") (which is incorporated herein by reference to Exhibit A to Exhibit 2.1 to Pegasus
Media & Communications, Inc.'s Registration Statement on Form S-4 (File No. 33-95042)).
10.19 Agreement of Sale, dated October 13, 1995, between Lansat Communications Inc. ("LCI") and PBT (which is
incorporated herein by reference to Exhibit B to Exhibit 2.1 to Pegasus Media & Communications, Inc.'s
Registration Statement on Form S-4 (File No. 33-95042)).
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
- ------------ ------------------------------------------------------------------------------------------------------
<S> <C>
10.20 Modification Agreement, dated March 8, 1996, among WTLH, GMC, TV57, LCI, Paul Lansat, Renee Lansat, WTLH
License Corp. ("License Corp.") and the Parent (which is incorporated herein by reference to Exhibit 3 to
Pegasus Media & Communications, Inc.'s Form 8-K dated March 8, 1996).
10.21 Put-Call and Security Agreement, dated March 8, 1996, among WTLH, GMC, Paul Lansat, renee Lansat, License
Corp., PBT and the Parent (which is incorporated herein by reference to Exhibit 4 to Pegasus Media &
Communications, Inc.'s Form 8-K dated March 8, 1996).
10.22 Time Brokerage Agreement, dated March 8, 1996, among GMC, WTLH and the Parent (to be assigned to a subsidiary
of Pegasus) (which is incorporated herein by reference to Exhibit 5 to Pegasus Media & Communications, Inc.'s
Form 8-K dated March 8, 1996).
10.23 Noncompetition Agreement, dated March 8, 1996, among Paul Lansat, Renee Lansat, the Parent, PBT and License
Corp. (which is incorporated herein by reference to Exhibit 6 to Pegasus Media & Communications, Inc.'s
Form 8-K dated March 8, 1996).
10.24 Noncompetition Agreement, dated March 8, 1996, among Frank Watson, the Parent, PBT and License Corp. (which
is incorporated herein by reference to Exhibit 7 to Pegasus Media & Communications, Inc.'s Form 8-K dated
March 8, 1996).
10.25 Franchise Agreement granted to Dom's Tele-Cable, Inc., to build and operate cable television systems for
the municipalities of Cabo Rojo, San German, Lajas, Hormigueros, Guanica, Sabana Grande and Maricao (which
is incorporated herein by reference to Exhibit 2 to Pegasus Media & Communications, Inc.'s Form 8-K dated
March 21, 1996).
10.26 Franchise Agreement granted to Dom's Tele-Cable, Inc. to build and operate cable television systems for
the municipalities of Anasco, Rincon and Las Marias (which is incorporated herein by reference to Exhibit
3 to Pegasus Media & Communications, Inc.'s Form 8-K dated March 21, 1996).
10.27* New Credit Facility (Certain Schedules and exhibits described in the agreement are omitted, but will be
furnished Supplementally to the Commission upon request)
10.28* Pegasus Restricted Stock Plan
10.29* Form of Option Agreement for Donald W. Weber
10.30* Pegasus 1996 Stock Option Plan
16.1 Letter from Herbein + Company, Inc. relating to change in certifying accountant.
21.1(a)* Subsidiaries of Pegasus
23.1 Consent of Drinker Biddle & Reath (included in their opinion filed as Exhibits 5.1)
23.2* Consent of Herbein + Company, Inc.
23.3* Consents of Coopers & Lybrand L.L.P.
23.4* Consent of Ernst & Young LLP
23.5* Consent of Deloitte & Touche LLP
24.1 Powers of Attorney (included in Signatures and Powers of Attorney)
27.1 Financial Data Schedule
</TABLE>
- ------
* Filed herewith. All other exhibits have been previously filed.
(b) Financial Statement Schedules
Schedule II. Valuation and Qualifying Accounts
All other schedules of Pegasus for which provision is made in the
applicable accounting regulations of the Commission are not required, are
inapplicable or have been disclosed in the notes to the consolidated
financial statements and therefore have been omitted.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise,
II-4
<PAGE>
the registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of
expenses incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent, submit
to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
II-5
<PAGE>
The undersigned registrant hereby undertakes that:
1. For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
the form of prospectus filed by the registrant pursuant to Rule 424(b)(1)
or (4) or 497(h) under the Securities Act shall be deemed to be part of
this Registration Statement as of the time it was declared effective.
2. For the purposes of determining any liability under the Securities
Act of 1933, each post- effective amendment that contains a form of
prospectus shall be deemed to be a new Registration Statement relating to
the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting agreements
certificates in such denominations and registered in such names as required
by the underwriters to permit prompt delivery to each purchaser.
II-6
<PAGE>
SIGNATURES AND POWERS OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant has duly caused this Registration Statement to be signed on
its behalf by the undersigned and hereunto duly authorized in the City of
Radnor, Commonwealth of Pennsylvania, on the 1st day of October, 1996.
PEGASUS COMMUNICATIONS CORPORATION
By: /s/ Marshall W. Pagon
-----------------------------------
Marshall W. Pagon
Chief Executive Officer and
President
Each person whose signature appears below hereby constitutes and appoints
Marshall W. Pagon and Robert N. Verdecchio as his attorneys-in-fact and
agents, with full power and substitution for him in any and all capacities,
to sign any or all amendments or post-effective amendments to this
Registration Statement, or any Registration Statement for the same offering
that is to be effective upon filing pursuant to Rule 462(b) under the
Securities Act of 1933, as amended, and to file the same, with exhibits
thereto and other documents in connection therewith or in connection with the
registration of the Class A Common Stock under the Securities Exchange Act of
1934, as amended, with the Securities and Exchange Commission, granting unto
each of such attorneys-in-fact the agents full power and authority to do and
perform each and ever act and thing requisite and necessary in connection
with such matters and hereby ratifying and confirming all that each of such
attorneys-in-fact and agents or his substitutes may do or cause to be done by
virtue hereof.
<TABLE>
<CAPTION>
Signature Title Date
--------------------------------- ------------------------------------- ------------------
<S> <C> <C>
/s/ Marshall W. Pagon President, Chief Executive Officer and October 1, 1996
-------------------------------- Chairman of the Board
Marshall W. Pagon
(Principal Executive Officer)
/s/ Robert N. Verdecchio Senior Vice President, Chief October 1, 1996
-------------------------------- Financial Officer and Assistant
Robert N. Verdecchio Secretary
(Principal Financial and
Accounting Officer)
/s/ Donald W. Weber Director October 1, 1996
--------------------------------
Donald W. Weber
</TABLE>
II-7
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
In connection with our audits of the combined financial statements of Pegasus
Communications Corporation as of December 31, 1994 and 1995, and for each of
the two years in the period ended December 31, 1995 which financial
statements are included in the Prospectus, we have audited the financial
statement schedule listed in Item 16 herein.
In our opinion, the financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, present fairly, in all
material respects, the information required to be included therein.
COOPERS & LYBRAND L.L.P.
Philadelphia, Pennsylvania
May 31, 1996
S-1
<PAGE>
HERBEIN+COMPANY, INC.
To the Board of Directors and Stockholders
Pegasus Communications Corporation
Radnor, Pennsylvania
REPORT OF INDEPENDENT ACCOUNTANTS
In connection with our audit of the combined financial statements of Pegasus
Communications Corporation for the year ended December 31, 1993, which
financial statements are included in the Form S-1 Registration Statement, we
have audited the financial statement Schedule II -- Valuation and Qualifying
Accounts.
In our opinion, the financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included therein.
HERBEIN + COMPANY, INC.
Reading, Pennsylvania
March 4, 1994
S-2
<PAGE>
PEGASUS COMMUNICATIONS CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Balance at Additions Additions Balance at
Beginning Charged To Charged To End of
Description of Period Expenses Other Accounts Deductions Period
<S> <C> <C> <C> <C> <C>
Allowance for Uncollectible
Accounts Receivable
Year 1993 ............ $ 108 $ 156 $245 (a) $ 201 (b) $ 308
Year 1994 ............ $ 308 $ 200 $ -- $ 160 (b) $ 348
Year 1995 ............ $ 348 $ 151 $ -- $ 261 (b) $ 238
Valuation Allowance for
Deferred Tax Assets
Year 1994 ............ $ 0 $1,756 $ -- $ -- $1,756
Year 1995 ............ $1,756 $8,675 $ -- $3,477 $6,954
</TABLE>
(a) Balance at acquisition date.
(b) Amounts written off, net of recoveries.
S-3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------------ ------------------------------------------------------------------------------------------------------
<S> <C>
1.1* Form of Underwriting Agreement.
2.1 Asset Purchase Agreement, dated March 21, 1996, among Dominica Padilla Acosta, Maria Del Carmen Padilla
Lopez, Dom's Tele-Cable, Inc. and the Parent relating to the acquisition of Dom's Tele-Cable, Inc. (which
is incorporated herein by reference to Exhibit 2.1 of the Form 10-K for the year ended December 31, 1995
of Pegasus Media & Communications, Inc.).
2.2 Contribution and Exchange Agreement by and between the Parent and Harron dated as of May 30, 1996. (including
form of Joinder Agreement, Stockholder's Agreement and Noncompetition Agreement)
2.3* Amendment No. 1 to Exhibit 2.1 (which is incorporated by reference to Exhibit 2 to Pegasus Media & Communications,
Inc.'s Form 8-K dated August 29, 1996).
2.4* Joinder Agreement dated as of May 31, 1996 by and among the Parent, Dominica Padilla Acosta (aka Dominick
Padilla), Maria Del Carmen Padilla Lopez and Domar (which is incorporated by reference to Exhibit 5 to Pegasus
Media & Communications, Inc.'s Form 8-K dated August 29, 1996).
2.5* Amendment No. 2 to Exhibit 2.2
3.1* Certificate of Incorporation of Pegasus, as amended.
3.2 By-Laws of Pegasus.
4.1 Indenture, dated as of July 7, 1995, by and among Pegasus Media & Communications, Inc., the Guarantors (as
this term is defined in the Indenture), and First Fidelity Bank, National Association, as Trustee, relating
to the 12 1/2 % Series B Senior Subordinated Notes due 2005 (including the form of Notes and Subsidiary
Guarantee) (which is incorporated herein by reference to Exhibit 4.1 to Pegasus Media & Communications,
Inc.'s Registration Statement on Form S-4 (File No. 33-95042)).
4.2 Form of Notes (included in Exhibit 4.1 above).
4.3 Form of Subsidiary Guarantee (included in Exhibit 4.1 above).
5.1* Opinion of Drinker Biddle & Reath.
10.1 Tax Sharing Agreement, made as of July 7, 1995, among the Parent, Pegasus Media & Communications, Inc.,
the Guarantors, Pegasus Cable Television of Connecticut, Inc., and Pegasus Communications Portfolio Holdings,
Inc. (which is incorporated herein by reference to Exhibit 10.1 to Pegasus Media & Communications, Inc.'s
Registration Statement on Form S-4 (File No. 33-95042)).
10.2 Management Agreement, dated July 7, 1995, between Pegasus Media & Communications, Inc. and BDI Associates
L.P. (which is incorporated herein by reference to Exhibit 10.2 to Pegasus Media & Communications, Inc.'s
Registration Statement on Form S-4 (File No. 33-95042)).
10.3 Station Affiliation Agreement, dated March 30, 1992, between Fox Broadcasting Company and D. & K. Broadcast
Properties L.P. relating to television station WDBD (which is incorporated herein by reference to Exhibit
10.5 to Pegasus Media & Communications, Inc.'s Registration Statement on Form S-4 (File No. 33- 95042)).
10.4 Agreement and Amendment to Station Affiliation Agreement, dated as of June 11, 1993, between Fox Broadcasting
Company and Donatelli & Klein Broadcast relating to television station WDBD (which is incorporated herein
by reference to Exhibit 10.6 to Pegasus Media & Communications, Inc.'s Registration Statement on Form S-4
(File No. 33-95042)).
10.5 Station Affiliation Agreement, dated March 30, 1992, between Fox Broadcast Company and Scranton TV Partners
Ltd. relating to television station WOLF (which is incorporated herein by reference to Exhibit 10.8 to Pegasus
Media & Communications, Inc.'s Registration Statement on Form S-4 (File No. 33-95042)).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------------ ------------------------------------------------------------------------------------------------------
<C> <C>
10.6 Agreement and Amendment to Station Affiliation Agreement, dated June 11, 1993, between Fox Broadcasting
Company and Scranton TV Partners, Ltd. relating to television station WOLF (which is incorporated herein
by reference to Exhibit 10.9 to Pegasus Media & Communications, Inc.'s Registration Statement on Form S-4
(File No. 33-95042)).
10.7 Amendment to Fox Broadcasting Company Station Affiliation Agreement Regarding Network Nonduplication Protection,
dated December 2, 1993, between Fox Broadcasting Company and Pegasus Broadcast Television, L.P. relating
to television stations WOLF, WWLF, and WILF (which is incorporated herein by reference to Exhibit 10.10
to Pegasus Media & Communications, Inc.'s Registration Statement on Form S-4 (File No. 33- 95042)).
10.8 Consent to Assignment, dated May 1, 1993, between Fox Broadcasting Company and Pegasus Broadcast Television,
L.P. relating to television station WOLF (which is incorporated herein by reference to Exhibit 10.11 to
Pegasus Media & Communications, Inc.'s Registration Statement on Form S-4 (File No. 33-95042)).
10.9 Station Affiliation Agreement, dated March 30, 1992, between Fox Broadcasting Company and WDSI Ltd. relating
to television station WDSI (which is incorporated herein by reference to Exhibit 10.12 to Pegasus Media
& Communications, Inc.'s Registration Statement on Form S-4 (File No. 33-95042)).
10.10 Agreement and Amendment to Station Affiliation Agreement, dated June 11, 1993, between Fox Broadcasting
Company and Pegasus Broadcast Television, L.P. relating to television station WDSI (which is incorporated
herein by reference to Exhibit 10.13 to Pegasus Media & Communications, Inc.'s Registration Statement on
Form S-4 (File No. 33-95042)).
10.11 Franchise Agreement for Mayaguez, Puerto Rico (which is incorporated herein by reference to Exhibit 10.14
to Pegasus Media & Communications, Inc.'s Registration Statement on Form S-4 (File No. 33-95042)).
10.12 NRTC/Member Agreement for Marketing and Distribution of DBS Services, dated June 24, 1993, between the National
Rural Telecommunications Cooperative and Pegasus Cable Associates, Ltd. (which is incorporated herein by
reference to Exhibit 10.28 to Pegasus Media & Communications, Inc.'s Registration Statement on Form S-4
(File No. 33-95042)).
10.13 Amendment to NRTC/Member Agreement for Marketing and Distribution of DBS Services, dated June 24, 1993,
between the National Rural Telecommunications Cooperative and Pegasus Cable Associates, Ltd. (which is
incorporated herein by reference to Exhibit 10.29 to Pegasus Media & Communications, Inc.'s Registration
Statement on Form S-4 (File No. 33-95042)).
10.14 DIRECTV Sign-Up Agreement, dated May 3, 1995, between DIRECTV, Inc. and Pegasus Satellite Television, Inc.
(which is incorporated herein by reference to Exhibit 10.30 to Pegasus Media & Communications, Inc.'s Registration
Statement on Form S-4 (File No. 33-95042)).
10.15 Stock Purchase Agreement dated January 25, 1996, among the Parent, Portland Broadcasting, Inc., HMW, Inc.,
Bride Communications, Inc., John W. Bride, John W. Bride and Christopher McHenry Bride, as amended (the
"Stock Purchase Agreement") (which is incorporated herein by reference to Exhibit A to Exhibit 2.1 to Pegasus
Media & Communications, Inc.'s Form 8-K dated January 29, 1996)).
10.16 Amendment to the Stock Purchase Agreement (which is incorporated herein by reference to Exhibit 2 to Pegasus
Media & Communications, Inc.'s Form 8-K dated January 29, 1996)).
10.17 Time Brokerage Agreement dated as of January 28, 1996, between HMW, Inc. and the Parent (which is incorporated
herein by reference to Exhibit 3 to Pegasus Media & Communications, Inc.'s Form 8-K dated January 29, 1996).
10.18 Asset Purchase Agreement, dated October 13, 1995, among WTLH, Inc. ("WTLH"), General Management Consultants,
Inc. ("GMC"), TV 57 Live-Oak Gainsville, Inc. ("TV-57"), Paul Lansat, Renee Lansat and Pegasus Broadcast
Television, Inc. ("PBT") (which is incorporated herein by reference to Exhibit A to Exhibit 2.1 to Pegasus
Media & Communications, Inc.'s Registration Statement on Form S-4 (File No. 33-95042)).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
- ------------ ------------------------------------------------------------------------------------------------------
<C> <C>
10.19 Agreement of Sale, dated October 13, 1995, between Lansat Communications Inc. ("LCI") and PBT (which is
incorporated herein by reference to Exhibit B to Exhibit 2.1 to Pegasus Media & Communications, Inc.'s
Registration Statement on Form S-4 (File No. 33-95042)).
10.20 Modification Agreement, dated March 8, 1996, among WTLH, GMC, TV57, LCI, Paul Lansat, Renee Lansat, WTLH
License Corp. ("License Corp.") and the Parent (which is incorporated herein by reference to Exhibit 3 to
Pegasus Media & Communications, Inc.'s Form 8-K dated March 8, 1996).
10.21 Put-Call and Security Agreement, dated March 8, 1996, among WTLH, GMC, Paul Lansat, renee Lansat, License
Corp., PBT and the Parent (which is incorporated herein by reference to Exhibit 4 to Pegasus Media &
Communications,
Inc.'s Form 8-K dated March 8, 1996).
10.22 Time Brokerage Agreement, dated March 8, 1996, among GMC, WTLH and the Parent (to be assigned to a subsidiary
of Pegasus) (which is incorporated herein by reference to Exhibit 5 to Pegasus Media & Communications, Inc.'s
Form 8-K dated March 8, 1996).
10.23 Noncompetition Agreement, dated March 8, 1996, among Paul Lansat, Renee Lansat, the Parent, PBT and License
Corp. (which is incorporated herein by reference to Exhibit 6 to Pegasus Media & Communications, Inc.'s
Form 8-K dated March 8, 1996).
10.24 Noncompetition Agreement, dated March 8, 1996, among Frank Watson, the Parent, PBT and License Corp. (which
is incorporated herein by reference to Exhibit 7 to Pegasus Media & Communications, Inc.'s Form 8-K dated
March 8, 1996).
10.25 Franchise Agreement granted to Dom's Tele-Cable, Inc., to build and operate cable television systems for
the municipalities of Cabo Rojo, San German, Lajas, Hormigueros, Guanica, Sabana Grande and Maricao (which
is incorporated herein by reference to Exhibit 2 to Pegasus Media & Communications, Inc.'s Form 8-K dated
March 21, 1996).
10.26 Franchise Agreement granted to Dom's Tele-Cable, Inc. to build and operate cable television systems for
the municipalities of Anasco, Rincon and Las Marias (which is incorporated herein by reference to Exhibit
3 to Pegasus Media & Communications, Inc.'s Form 8-K dated March 21, 1996).
10.27* New Credit Facility (Certain Schedules and exhibits described in the agreement are omitted, but will be
furnished Supplementally to the Commission upon request).
10.28* Pegasus Restricted Stock Plan
10.29* Form of Option Agreement for Donald W. Weber
10.30* Pegasus 1996 Stock Option Plan
16.1 Letter from Herbein + Company, Inc. relating to change in certifying accountant.
21.1(a)* Subsidiaries of Pegasus
23.1 Consent of Drinker Biddle & Reath (included in their opinion filed as Exhibits 5.1)
23.2* Consent of Herbein + Company, Inc.
23.3* Consents of Coopers & Lybrand L.L.P.
23.4* Consent of Ernst & Young LLP
23.5* Consent of Deloitte & Touche LLP
24.1 Powers of Attorney (included in Signatures and Powers of Attorney)
27.1 Financial Data Schedule
</TABLE>
- ------
* Filed herewith. All other exhibits have been previously filed.
<PAGE>
Exhibit 1.1
L&W Draft of September 30, 1996
PEGASUS COMMUNICATIONS CORPORATION
Class A Common Stock
LEHMAN BROTHERS INC.
BT SECURITIES CORPORATION
CIBC WOOD GUNDY SECURITIES CORP.
PAINEWEBBER INCORPORATED
As Representatives of the several
Underwriters named in Schedule 1,
c/o Lehman Brothers Inc.
Three World Financial Center
New York, New York 10285
Ladies and Gentlemen:
Pegasus Communications Corporation, a Delaware corporation
(the "Company"), proposes to sell 3,000,000 shares (the "Firm Shares") of the
Company's Class A Common Stock, par value $.01 per share (the "Class A Common
Stock") to the Underwriters named in Schedule 1 hereto (the "Underwriters"). In
addition, the Company proposes to grant to the Underwriters an option to
purchase up to an additional 450,000 shares of the Class A Common Stock on the
terms and for the purposes set forth in Section 2 (the "Option Shares"). The
Firm Shares and the Option Shares, if purchased, are hereinafter collectively
referred to as the "Shares." Capitalized terms used herein without definition
shall have the meanings assigned to them in the Registration Statement and the
Prospectus (each as defined below).
Concurrent with or shortly after the offering (the "Offering")
to the public of the Firm Shares by the Company, the following transactions (the
"Transactions"), if not already completed, are expected to take place: (i) the
contribution by Pegasus Communications Holdings, Inc., the direct parent of the
Company (the "Parent"), of 100% of the outstanding shares of Class A Common
Stock (the "PM&C Class A Shares") of Pegasus Media & Communications, Inc.
("PM&C") to the Company for ___ shares of the Company's Class B Common Stock,
par value $.01 per share (the "Class B Common Stock") (the "Contribution"); (ii)
the commencement of a registered exchange offer (the "Exchange Offer") of an
aggregate of ____ shares of Class A Common Stock for all of the outstanding
shares of PM&C's Class B Common Stock (the "PM&C Class B Shares"); (iii) the
contribution by the Parent to the Company of all of the outstanding stock of
Bride Communications, Inc. for $1,850,000 in cash, _____ shares of Class A
Common Stock and ___ shares of Class B Common Stock (the "WPXT Contribution");
(iv) the contribution by the Parent to the Company of all of the outstanding
stock of B.T. Satellite, Inc. for ___ shares of Class A Common Stock (the "WWLA
Contribution"); (v) the acquisition by the Company of DIRECTV distribution
rights for $17,894,319 in cash and ___ shares of Class A Common Stock (the "DBS
Acquisition") pursuant to an agreement between the Parent and Harron
Communications Corp. dated May 30, 1996 (the "DBS Acquisition Agreement"); (vi)
the contribution of the stock of Pegasus Communications Management Company,
which holds the management agreement (the "Management Agreement") among PM&C and
its operating subsidiaries and BDI Associates L.P. (the "Management Company")
together with certain net assets, including $1.4 million of accrued management
fees, to the Company for ___ shares of Class B Common Stock and approximately
$1.4 million in cash (the "Management Agreement Acquisition"); (vii) the
acquisition of substantially all of the
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assets of a cable system in San German, Puerto Rico (the "Cable Acquisition")
pursuant to an agreement among the Parent, Dominica Padilla Acosta, Maria Del
Carmen Padilla Lopez and Dom's Tele-Cable, Inc. dated March 21, 1996, as amended
by an Amendment No. 1 thereto dated May 31, 1996 (as amended, the "Cable
Acquisition Agreement"); (viii) the entering into by the PM&C of a $50.0 million
revolving credit facility (the "New Credit Facility"); (ix) the acquisition by
the Company of the broadcast tower assets of Pegasus Towers, L.P. (the "Towers
Purchase") for $1.4 million in cash and (x) the exchange pursuant to an exchange
offer of the Parent's Class B Non-Voting Stock (the "Parent NonVoting Stock")
for ___ shares of Class A Common Stock held by Suite 454 Partners and the
subsequent liquidation of Suite 454 Partners and the distribution of the shares
of Class A Common Stock to certain members of the Company's management (the
"Management Share Exchange"). The Offering is conditioned upon the consummation
of (i) the DBS Acquisition, (ii) the Contribution, (iii) the Management
Agreement Acquisition, (iv) the Towers Purchase, (v) the WPXT Contribution, (vi)
the WWLA Contribution, and (vii) the entering into of the New Credit Facility
(collectively, the "Operative Transactions"). The "Operative Documents" means
each of (i) the DBS Acquisition Agreement, (ii) the agreement governing the
Contribution, (iii) the agreement governing the Management Agreement
Acquisition, (iv) the deeds and other instruments governing the Towers Purchase,
(v) the agreement governing the WPXT Contribution, (vi) the agreement governing
the WWLA Contribution, (vii) the Cable Acquisition Agreement, (viii) the
agreements governing the New Credit Facility, (ix) the documents governing the
Exchange Offer and (x) the documents governing the Management Share Exchange
and, in each case, all documents ancillary thereto.
This is to confirm the agreement concerning the purchase of
the Shares from the Company by the Underwriters hereto.
1. Representations, Warranties and Agreements of the Company
and the Subsidiaries. The Company and each of the Subsidiaries (as defined
below) represents, warrants and agrees that:
(a) The Registration Statement on Form S-1 with respect to the
Shares has (i) been prepared by the Company in conformity with the
requirements of the United States Securities Act of 1933, as amended
(the "Securities Act"), and the rules and regulations (the "Rule and
Regulations") of the United States Securities and Exchange Commission
(the "Commission") thereunder, (ii) been filed with the Commission
under the Securities Act and (iii) become effective under the
Securities Act or will become effective not later than 10:00 a.m., New
York City time, on the date of this Agreement or at such later date and
time as the Underwriters may approve. Copies of the Registration
Statement have been delivered by the Company to each of you as the
representatives (the "Representatives") of the Underwriters. As used in
this Agreement, "Effective Time" means the date and the time as of
which the Registration Statement, or the most recent post-effective
amendment thereto, if any, was declared effective by the Commission;
"Effective Date" means the date of the Effective Time; "Preliminary
Prospectus" means each prospectus included in such Registration
Statement, or amendments thereof, before it became effective under the
Securities Act and any prospectus filed with the Commission by the
Company with the consent of the Representatives pursuant to Rule 424(a)
of the Rules and Regulations; "Registration Statement" means such
Registration Statement, as amended at the Effective Time, including a
registration statement (if any) filed pursuant to Rule 462(b) under the
Securities Act increasing the size of the Offering registered under the
Securities Act and all information contained in the final prospectus
filed with the Commission pursuant to Rule 424(b) of the Rules and
Regulations in accordance with Section 5(a) hereof and deemed to be a
part of the Registration Statement as of the Effective Time pursuant to
paragraph (b) of Rule 430A of the Rules and Regulations; and
"Prospectus" means such final prospectus, as first filed with the
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Commission pursuant to paragraph (1) or (4) of Rule 424(b) of the Rules
and Regulations. The Commission has not issued any order preventing or
suspending the use of the Registration Statement or any Preliminary
Prospectus.
(b) The Registration Statement conforms, and the Prospectus
and any further amendments or supplements to the Registration Statement
or the Prospectus will, when they become effective or are filed with
the Commission, as the case may be, conform in all respects to the
requirements of the Securities Act and the Rules and Regulations and do
not and will not (i) as of the Effective Date, as to the Registration
Statement and any amendment thereto, contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading and
(ii) as of the applicable filing date, as to the Prospectus and any
amendment or supplement thereto, contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading; provided
that no representation or warranty is made as to information contained
in or omitted from the Registration Statement or the Prospectus in
reliance upon and in conformity with written information furnished to
the Company through the Representatives by or on behalf of any
Underwriter specifically for inclusion therein.
(c) The Company is duly organized and validly existing as a
corporation in good standing under the laws of its jurisdiction of
incorporation, has all requisite corporate power and authority to carry
on its business as it is being conducted and as described in the
Registration Statement and the Prospectus and to own, lease and operate
its properties, and is duly qualified and in good standing as a foreign
corporation authorized to do business in each jurisdiction in which the
nature of its business or its ownership or leasing of property requires
such qualification.
(d) All the outstanding shares of capital stock or other
securities evidencing equity ownership of the Company have been and,
after consummation of the Transactions, will be duly authorized and
validly issued and are and, after consummation of the Transactions,
will be fully paid, non-assessable and not subject to any preemptive or
similar rights. The Shares to be issued and sold by the Company
hereunder have been duly authorized and, when issued and delivered to
the Representatives for the account of each Underwriter against payment
therefor as provided in this Agreement, will have been validly issued
and will be fully paid and non-assessable, and the issuance of such
Shares will not be subject to any preemptive or similar rights. The
authorized, issued and outstanding stock of the Company was as of
[October ___], 1996 and will be, after giving effect to the
consummation of this Offering and the Transactions, as set forth in the
Registration Statement and the Prospectus under the captions
"Capitalization" and "Description of Capital Stock." After giving
effect to the Offering, the Transactions and the application of the
proceeds thereof as described in the Registration Statement and the
Prospectus under the caption "Use of Proceeds," the Company's
consolidated capitalization as of [October __], 1996 would have been as
set forth under the "Pro Forma As Adjusted" column under the caption
"Capitalization." The table under the caption "Capitalization" sets
forth and identifies in reasonable detail all outstanding short-term
and long-term indebtedness of the Company and its Subsidiaries, on a
consolidated basis, prior to and after giving effect to the Offering
and the Transactions. The authorized capital stock of the Company,
including the Shares, conforms as to legal matters to the description
thereof contained in the Registration Statement and the Prospectus.
Except as set forth in the Registration Statement and the Prospectus,
there are no
3
<PAGE>
outstanding rights, warrants or options to acquire, or instruments
convertible into or exchangeable for, any shares of capital stock or
other equity interest in the Company.
(e) After giving effect to the Transactions, the Company's
direct and indirect subsidiaries (collectively, the "Subsidiaries")
will be as set forth on Schedule 2 hereto. Each Subsidiary is duly
organized and validly existing as a corporation or partnership, as the
case may be, in good standing under the laws of its jurisdiction of
incorporation or organization, as the case may be, and has all
requisite corporate power (in the case of corporations) or legal
capacity (in the case of partnerships) and authority to carry on its
business as it is being conducted and as described in the Registration
Statement and the Prospectus and to own, lease and operate its
properties, and is duly qualified and in good standing as a foreign
corporation or partnership, as the case may be, authorized to do
business in each jurisdiction in which the nature of its business or
its ownership or leasing of property requires such qualification. All
of the outstanding shares of capital stock and other securities
evidencing equity ownership of each of the Subsidiaries are fully paid
and (except in the case of general partnership interests and in the
case of limited partnership interests, except to the extent that the
provisions of the applicable limited partnership act requiring partners
to return distributions may be deemed to constitute assessability)
nonassessable and, in the case of Subsidiaries other than PM&C, free of
any preemptive or similar rights, and, after giving effect to the
Transactions will be (with the exception of the PM&C Class B Shares)
owned by the Company directly, or indirectly through one of the other
Subsidiaries, free and clear of any lien, adverse claim, security
interest or other encumbrance, except as are in effect under the New
Credit Facility.
(f) The Company and each of the Subsidiaries has all requisite
corporate power (in the case of corporations) or legal capacity (in the
case of partnerships) and authority to execute, deliver and perform its
obligations under this Agreement and the Operative Documents, as
applicable, and to consummate the transactions contemplated hereby and
thereby, including, without limitation, in the case of the Company, all
requisite corporate power and authority to issue, sell and deliver the
Shares, as provided herein.
(g) This Agreement has been duly and validly authorized,
executed and delivered by each of the Company and the Subsidiaries and
is the legally valid and binding agreement of each of them, enforceable
against each of them in accordance with its terms except as such
enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other similar laws relating to or
affecting creditors' rights generally (including laws relating to
fraudulent transfers or conveyances), by general equitable principles
(regardless of whether such enforceability is considered in a
proceeding in equity or at law) and, as to rights of indemnification
and contribution, by federal and state securities laws and principles
of public policy.
(h) The DBS Acquisition Agreement has been duly and validly
authorized, executed and delivered by the Parent and is the legally
valid and binding obligation of the Parent, enforceable against it in
accordance with its terms, except as such enforceability may be limited
by bankruptcy, insolvency, reorganization, moratorium and other similar
laws relating to or affecting creditors' rights generally (including
laws relating to fraudulent transfers or conveyances) and by general
equitable principles (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
4
<PAGE>
(i) The documents governing the Towers Purchase have been duly
and validly authorized, executed and delivered by each of the Company
and Pegasus Towers, L.P., and are the legally valid and binding
obligations of each of the Company and Pegasus Towers, L.P.,
enforceable against each of them in accordance with their terms, except
as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other similar laws relating to or
affecting creditors' rights generally (including laws relating to
fraudulent transfers and conveyances), and by general equitable
principles (regardless of whether such enforceability is considered in
a proceeding in equity or at law).
(j) The documents governing the Management Agreement
Acquisition have been duly and validly authorized, executed and
delivered by each of Pegasus Capital, L.P., Pegasus Communications
Management Company, the Company and the Management Company, and are the
legally valid and binding obligations of each of them, enforceable
against each of them in accordance with their terms, except as such
enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other similar laws relating to or
affecting creditors' rights generally (including laws relating to
fraudulent transfers and conveyances), and by general equitable
principles (regardless of whether such enforceability is considered in
a proceeding in equity or at law).
(k) The documents governing the Contribution have been duly
and validly authorized, executed and delivered by each of the Parent
and the Company, and are the legally valid and binding obligations of
each of the Parent and the Company, enforceable against each of them in
accordance with their terms, except as such enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium and other
similar laws relating to or affecting creditors' rights generally
(including laws relating to fraudulent transfers and conveyances), and
by general equitable principles (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
(l) The Cable Acquisition Agreement has been duly and validly
authorized, executed and delivered by the Parent and is the legally
valid and binding obligation of the Parent, enforceable against it in
accordance with its terms, except as such enforceability may be limited
by bankruptcy, insolvency, reorganization, moratorium and other similar
laws relating to or affecting creditors' rights generally (including
laws relating to fraudulent transfers and conveyances), and by general
equitable principles (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
(m) The New Credit Facility and the documents executed in
connection therewith have been duly and validly authorized by PM&C and
each of the Subsidiaries that is a party thereto and, when duly
executed and delivered by PM&C and the Subsidiaries party thereto, will
be the legally valid and binding obligations of PM&C and each of the
Subsidiaries party thereto, enforceable against each of them in
accordance with their terms, except as such enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium and other
similar laws relating to or affecting creditors' rights generally
(including laws relating to fraudulent transfers and conveyances), and
by general equitable principles (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
(n) The documents governing the WPXT Contribution have been
duly and validly authorized, executed and delivered by each of the
Company and the Parent and are the legally valid and binding
obligations of each of the Company and the Parent, enforceable against
each
5
<PAGE>
of them in accordance with their terms, except as such enforceability
may be limited by bankruptcy, insolvency, reorganization, moratorium
and other similar laws relating to or affecting creditors' rights
generally (including laws relating to fraudulent transfers and
conveyances), and by general equitable principles (regardless of
whether such enforceability is considered in a proceeding in equity or
at law).
(o) The documents governing the WWLA Contribution have been
duly and validly authorized, executed and delivered by each of the
Company and the Parent and are the legally valid and binding
obligations of each of the Company and the Parent, enforceable against
each of them in accordance with their terms, except as such
enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other similar laws relating to or
affecting creditors' rights generally (including laws relating to
fraudulent transfers and conveyances), and by general equitable
principles (regardless of whether such enforceability is considered in
a proceeding in equity or at law).
(p) Neither the Company nor any of the Subsidiaries is (A) in
violation of its charter, bylaws, limited partnership agreement or
other organizational documents or (B) in default in the performance of
any material bond, debenture, note, indenture, mortgage, deed of trust
or other agreement or instrument to which it is a party or by which it
is bound or to which any of its properties is subject, or (C) in
violation in any material respect of any law, statute, rule,
regulation, judgment or court decree applicable to it or any of its
assets or properties, except in the case of clauses (B) and (C), for
any violation or default that would not, singly or in the aggregate,
have a Material Adverse Effect (as defined below). There exists no
condition that, with notice, the passage of time or otherwise, would
constitute a default under any such document or instrument.
(q) None of (A) the execution, delivery or performance by the
Company or any of the Subsidiaries of this Agreement and the Operative
Documents, as applicable, (B) the issuance and sale of the Shares or
(C) the transactions contemplated by this Agreement and the Operative
Documents will violate, conflict with or constitute a breach of any of
the terms or provisions of, or a default under (or an event that with
notice or the lapse of time, or both, would constitute a default), or
require consent under (except as contemplated in the second and third
sentences of this paragraph), or result in the imposition of a lien or
encumbrance on any properties of the Company or any Subsidiary, or an
acceleration of any indebtedness of the Company or any Subsidiary
pursuant to, (i) the charter, bylaws, limited partnership agreement or
other organizational documents of the Company or any Subsidiary, (ii)
any bond, debenture, note, indenture, mortgage, deed of trust or other
agreement or instrument to which the Company or any Subsidiary is a
party or by which any of them or their respective property is or may be
bound, (iii) any statute, rule or regulation applicable to the Company
or any Subsidiary or their respective assets or properties (except such
as are, in the aggregate, immaterial) or (iv) any judgment, order or
decree of any court or governmental agency, body or administrative
agency or authority having jurisdiction over the Company, any
Subsidiary or their respective assets or properties, except for any
such violation, default, consent, imposition of a lien or acceleration
that would not, in the case of clauses (ii), (iii) and (iv), singly or
in the aggregate, have a Material Adverse Effect. No consent, approval,
authorization or order of, or filing, registration, qualification,
license or permit of or with, any court or governmental agency, body or
administrative agency or authority is required for (1) the execution,
delivery and performance by the Company and the Subsidiaries of this
Agreement and the Operative Documents, as applicable, (2) the issuance
and sale of the Shares or (3) the transactions contemplated by this
Agreement or
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<PAGE>
the Operative Documents, except for (A) the registration of the Shares
under the Securities Act, (B) such consents, approvals, authorizations,
registrations or qualifications as may be required under the Securities
and Exchange Act of 1934, as amended (the "Exchange Act"), and
applicable state securities laws in connection with the purchase and
distribution of the Shares by the Underwriters, (C) such as may be
required by the National Association of Securities Dealers, Inc. (the
"NASD"), (D) to the extent that governing laws, regulations, or orders
may require post-closing filings with the FCC, the Connecticut
Department of Public Utility Control (the "DPUC") and the Puerto Rico
Public Service Commission (the "PSC"), and from time to time, FCC, DPUC
or PSC authorizations or filings required in the ordinary course of
business of the Company and the Subsidiaries, and that certain resales
of shares could require, if combined with other offerings of equity in
the Company, FCC, DPUC or PSC consent or be restricted by FCC, DPUC or
PSC rules, regulations or policies, and (E) such as have been obtained
or made. No consents or waivers from any other person are required for
the execution, delivery and performance by the Company, the Parent and
the Subsidiaries, as applicable, of this Agreement and the Operative
Documents, the issuance and sale of the Shares or the consummation of
the transactions contemplated by this Agreement and the Operative
Documents, other than (A) such consents and waivers as have been
obtained and (B) such as are disclosed in the Registration Statement
and the Prospectus.
(r) There is (i) except as otherwise disclosed in the
Registration Statement and the Prospectus, no action, suit, proceeding
or investigation before or by any court, arbitrator or governmental
agency, body or official, domestic or foreign, now pending or, to the
best knowledge of the Company and the Subsidiaries, threatened or
contemplated to which the Company or any Subsidiary is or may be a
party or to which the business or property of the Company or any
Subsidiary is subject, (ii) except as otherwise disclosed in the
Registration Statement and the Prospectus, no statute, rule, regulation
or order that has been enacted, adopted or issued by any governmental
agency or that has been proposed by any governmental body, (iii) no
injunction, restraining order or order of any nature by a federal or
state court or foreign court of competent jurisdiction to which the
Company or any Subsidiary is or may be subject or to which the
business, assets, or property of the Company or any Subsidiary is or
may be subject, issued that, in the case of clauses (i), (ii) and (iii)
above, (x) might, singly or in the aggregate, result in a material
adverse effect on the assets, liabilities, business, results of
operations, condition (financial or otherwise), cash flows, affairs or
prospects of the Company and the Subsidiaries, taken as a whole, (y)
would interfere with or adversely affect the issuance or marketability
of the Shares pursuant hereto or (z) in any manner draw into question
the validity of this Agreement or any of the Operative Documents or any
of the transactions contemplated hereby or thereby (any of the events
set forth in clauses (x), (y) or (z), a "Material Adverse Effect").
(s) No action has been taken by the Company or any Subsidiary
(or, to the best knowledge of the Company and the Subsidiaries, by any
other Person) and no statute, rule, regulation or order has been
enacted, adopted or issued by any governmental agency that prevents the
issuance of the Shares or prevents or suspends the use of the
Registration Statement or the Prospectus; no injunction, restraining
order or order of any nature by a federal, state or municipal court or
any governmental authority or agency or any other tribunal of competent
jurisdiction has been issued that prevents the issuance of the Shares
or prevents or suspends the sale of the Shares in any jurisdiction
referred to in Section 5(h) hereof; and every request of any securities
authority or agency of any jurisdiction for additional information has
been complied with in all material respects.
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(t) There is (i) no significant unfair labor practice
complaint pending or, to the best knowledge of the Company and the
Subsidiaries, threatened against the Company or any Subsidiary before
the National Labor Relations Board, any state or local labor relations
board or any foreign labor relations board, and no significant
grievance or significant arbitration proceeding arising out of or under
any collective bargaining agreement is so pending or, to the best
knowledge of the Company and the Subsidiaries, threatened against the
Company or any Subsidiary, (ii) no significant strike, labor dispute,
slowdown or stoppage pending against the Company or any Subsidiary nor,
to the best knowledge of the Company and the Subsidiaries, threatened
against the Company or any Subsidiary, and (iii) no union
representation question existing with respect to the employees of the
Company or any Subsidiary. To the best knowledge of the Company and the
Subsidiaries, no union organizing activities are taking place. Neither
the Company nor any Subsidiary has violated (A) any federal, state or
local law, statute, rule or regulation or foreign law, statute, rule or
regulation relating to discrimination in hiring, promotion or pay of
employees, (B) any applicable wage or hour laws, (C) any provision of
the Employee Retirement Income Security Act of 1974, as amended, or the
rules and regulations thereunder, or (D) analogous foreign laws,
statutes, rules and regulations, which in the case of clause (A), (B),
(C) or (D) above might, individually or in the aggregate, result in a
Material Adverse Effect.
(u) In the ordinary course of its business, the Company and
each Subsidiary conducts periodic reviews of the effect of
Environmental Laws (as defined below) and the disposal of hazardous or
toxic substances, wastes, pollutants and contaminants on the business,
assets, operations and properties of the Company and each Subsidiary,
in the course of which it identifies and evaluates associated costs and
liabilities (including, without limitation, all material capital and
operating expenditures required for clean-up, closure of properties and
compliance with Environmental Laws, all permits, licenses and
approvals, all related constraints on operating activities and all
potential liabilities to third parties). On the basis of such reviews
the Company has reasonably concluded that such associated costs and
liabilities would not have a Material Adverse Effect. Neither the
Company nor any Subsidiary has violated any environmental, safety or
similar law or regulation applicable to it or its business or property
relating to the protection of human health and safety, the environment
or hazardous or toxic substances or wastes, pollutants or contaminants
("Environmental Laws"), lacks any permit, license or other approval
required of it under applicable Environmental Laws or is violating any
term or condition of such permit, license or approval which might,
either individually or in the aggregate, have a Material Adverse
Effect.
(v) The Company and each Subsidiary has (i) good and
marketable title to all of the properties and assets necessary for the
operation of its business as described in the Registration Statement
and the Prospectus as owned by it, free and clear of all liens,
charges, encumbrances and restrictions, except such as (A) are
described in the Registration Statement and the Prospectus, (B) are in
effect under the New Credit Facility, or (C) would not have a Material
Adverse Effect, (ii) peaceful and undisturbed possession under all
leases to which it is party as lessee except such as would not either
individually or in the aggregate have a Material Adverse Effect, (iii)
all licenses, certificates, permits, authorizations, approvals,
franchises and other rights from, and will have made all declarations
and filings with, all federal, state and local authorities, all
self-regulatory authorities and all courts or governmental agencies,
bodies or administrative agencies or authorities (each an
"Authorization") necessary to engage in the business conducted by it in
the manner described in the Registration Statement and the Prospectus,
except where failure to hold such Authorizations would not have a
Material Adverse Effect and (iv) no reason
8
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to believe that any governmental body or agency is considering
limiting, suspending or revoking any such Authorization. Except where
the failure to be in full force and effect would not have a Material
Adverse Effect, all such Authorizations are valid and in full force and
effect. The Company and each Subsidiary is in compliance in all
material respects with the terms and conditions of all such
Authorizations and with the rules and regulations of the regulatory
authorities having jurisdiction with respect thereto. All material
leases to which the Company and each Subsidiary is a party are valid
and binding and no default by the Company or any such Subsidiary has
occurred and is continuing thereunder and no material defaults by the
landlord are existing under any such lease.
(w) The Company and each Subsidiary owns or has valid and
enforceable licenses to use all patents, patent rights, licenses,
inventions, copyrights, know-how (including, without limitation, trade
secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures), trademarks, service
marks and trade names (collectively, the "Intellectual Property")
employed by it in connection with the businesses operated by it as
described in the Registration Statement and the Prospectus, and neither
the Company nor any Subsidiary has received any notice of infringement
of or conflict with asserted rights of others with respect to any of
the foregoing. To the best knowledge of the Company, the use of the
Intellectual Property in connection with the business and operations of
the Company and the Subsidiaries does not infringe on the rights of any
person.
(x) All tax returns required to be filed by the Company and
each Subsidiary, in all jurisdictions, have been so filed, except to
the extent such failure to file would not, individually or in the
aggregate, have a Material Adverse Effect. All taxes, including
withholding taxes, penalties and interest, assessments, fees and other
charges due or claimed to be due from such entities or that are due and
payable have been paid, other than those being contested in good faith
and for which adequate reserves have been provided or those currently
payable without penalty or interest. There are no material proposed
additional tax assessments against the Company or any Subsidiary or the
assets or property of the Company or any Subsidiary.
(y) None of the Company or the Subsidiaries is (i) an
"investment company" or a company "controlled" by an "investment
company" within the meaning of the Investment Company Act of 1940, as
amended (the "Investment Company Act").
(z) There are no holders of securities of the Company or any
Subsidiary who, by reason of the execution by the Company, the Parent
or the Subsidiaries of this Agreement or any Operative Document to
which any of the Company, the Parent or any Subsidiary is a party or
the consummation by the Company, the Parent or the Subsidiaries, as
applicable, of the transactions contemplated hereby and thereby, have
the right to request or demand that the Company or any Subsidiary
register under the Securities Act or analogous foreign laws and
regulations securities held by them, other than as disclosed in the
Registration Statement and the Prospectus.
(aa) There are no contracts, agreements or understandings
between the Company or any Subsidiary and any other person that would
give rise to a valid claim against the Company, any Subsidiary or any
of the Underwriters for a brokerage commission, finder's fee or like
payment in connection with the issuance, purchase and sale of the
Shares, other than arrangements with CIBC Wood Gundy Securities Corp.
with respect to the selection of the Representatives.
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(ab) The Company and each Subsidiary maintains a system of
internal accounting controls sufficient to provide reasonable assurance
that (i) transactions are executed in accordance with management's
general or specific authorizations, (ii) transactions are recorded as
necessary to permit preparation of financial statements in conformity
with generally accepted accounting principles and to maintain
accountability for assets, (iii) access to assets is permitted only in
accordance with management's general or specific authorization and (iv)
the recorded accountability for assets is compared with the existing
assets at reasonable intervals and appropriate action is taken with
respect thereto.
(ac) The Company and each Subsidiary maintains insurance
covering its properties, operations, personnel and businesses. Such
insurance insures against such losses and risks as are adequate in
accordance with customary industry practice to protect the Company, the
Subsidiaries and their businesses. Neither the Company nor any
Subsidiary has received notice from any insurer or agent of such
insurer that substantial capital improvements or other expenditures
will have to be made in order to continue such insurance. All such
insurance is outstanding and duly in force on the date hereof.
(ad) Neither the Company nor any Subsidiary has (i) taken,
directly or indirectly, any action designed to, or that might
reasonably be expected to, cause or result in stabilization or
manipulation of the price of any security of the Company or any
Subsidiary to facilitate the sale or resale of the Shares. Except as
permitted by the Securities Act, none of the Company or any of the
Subsidiaries has distributed any Registration Statement, Preliminary
Prospectus, Prospectus or other offering material in connection with
the offering and sale of the Shares.
(ae) Except as described in the Registration Statement and the
Prospectus, the Company has not sold or issued any shares of Class A
Common Stock during the six-month period preceding the date of the
Prospectus, including any sales pursuant to Rule 144A or Regulations D
or S under the Securities Act.
(af) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus
and up to the Delivery Date (as defined below), except as set forth or
contemplated in the Registration Statement and the Prospectus, neither
the Company nor any Subsidiary has incurred any liabilities or
obligations, direct or contingent, that are material to the Company and
the Subsidiaries, taken as a whole, or entered into any transaction not
in the ordinary course of business; there has not been, singly or in
the aggregate, any material adverse change, or any development that may
reasonably be expected to involve a material adverse change, in the
assets, liabilities, business, results of operations, condition
(financial or otherwise), cash flows, affairs or prospects of the
Company and the Subsidiaries, taken as a whole; and there has been no
dividend or distribution of any kind declared, paid or made by the
Company or any Subsidiary on any class of its capital stock.
(ag) The accountants who have certified or shall certify the
financial statements included or to be included as part of the
Registration Statement and the Prospectus (the "Accountants"), are
independent accountants within the meaning of the Securities Act. The
historical combined financial statements and schedules of the Company
and the Subsidiaries and the historical financial statements and
schedules of each of the entities and businesses acquired or to be
acquired by the Company and the Subsidiaries comply as to form in all
material respects with the requirements applicable to registration
statements on Form S-1 under the Securities Act and present fairly the
combined financial position and results of operations of the Company
and
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the Subsidiaries and the financial position and results of operations
of each of the entities and businesses acquired or to be acquired by
the Company and the Subsidiaries at the respective dates and for the
respective periods indicated. Such financial statements have been
prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods presented. The pro
forma financial statements included in the Registration Statement and
the Prospectus have been prepared on a basis consistent with such
historical statements, except for the pro forma adjustments specified
therein, and give effect to assumptions made on a reasonable basis and
present fairly the historical and proposed transactions contemplated by
this Agreement and as set forth in the Prospectus; and such pro forma
financial statements comply as to form in all material respects with
the requirements applicable to pro forma financial statements included
in registration statements on Form S-1 under the Securities Act. The
other historical and pro forma financial and statistical information
and data included in the Prospectus and the Registration Statement are
accurately presented in all material respects and prepared on a basis
consistent with the financial statements, historical and pro forma,
included in the Registration Statement, the Prospectus and the books
and records of the Company, the Subsidiaries or the entities or
businesses acquired or to be acquired by the Company and the
Subsidiaries.
(ah) Neither the Company nor any of the Subsidiaries nor, to
the best knowledge of the Company or any Subsidiary, any employee or
agent of the Company or any of the Subsidiaries has made any payment of
funds of the Company or any of the Subsidiaries or received or retained
any funds in violation of any law, rule or regulation, which payment,
receipt or retention of funds is of a character required to be
disclosed in the Registration Statement and the Prospectus.
(ai) Each certificate signed by any officer of the Company or
any Subsidiary and delivered to the Underwriters or counsel for the
Underwriters shall be deemed to be a representation and warranty by the
Company or such Subsidiary, as applicable, to the Underwriters as to
the matters covered thereby.
(aj) Neither the Company nor any Subsidiary intends to, nor do
they believe that they will, incur debts beyond their ability to pay
such debts as they mature. The present fair saleable value of the
assets of the Company and the Subsidiaries exceeds the amount that will
be required to be paid on or in respect of the existing debts and other
liabilities (including, without limitation, contingent liabilities) of
the Company and the Subsidiaries as they become absolute and matured.
The assets of the Company and the Subsidiaries do not constitute
unreasonably small capital to carry out the business of the Company and
the Subsidiaries, as conducted or as proposed to be conducted. Upon the
issuance of the Shares, the present fair saleable value of the assets
of the Company and the Subsidiaries will exceed the amount that will be
required to be paid on or in respect of the existing debts and other
liabilities (including, without limitation, contingent liabilities) of
the Company and the Subsidiaries as they become absolute and matured.
Upon the issuance of the Shares, the assets of the Company and the
Subsidiaries will not constitute unreasonably small capital to carry
out their businesses as now conducted, including the capital needs of
the Company and the Subsidiaries, taking into account the projected
capital requirements and capital availability.
(ak) There are no contracts or other documents which are
required to be described in the Registration Statement or the
Prospectus or filed as exhibits to the Registration Statement by the
Securities Act or by the Rules and Regulations which have not been
described in the
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<PAGE>
Registration Statement or the Prospectus or filed as exhibits to the
Registration Statement or incorporated therein by reference as
permitted by the Rules and Regulations.
(al) No relationship, direct or indirect, exists between or
among the Company or any Subsidiary on the one hand, and the directors,
officers, stockholders, customers or suppliers of the Company or any
Subsidiary on the other hand, which is required to be described in the
Prospectus and which is not so described.
(am) Since the date as of which information is given in the
Registration Statement or the Prospectus through the date hereof, and
except as may otherwise be disclosed or contemplated in the
Registration Statement or the Prospectus, the Company and the
Subsidiaries have not (i) issued or granted any securities, (ii)
incurred any liability or obligation, direct or contingent, other than
liabilities and obligations which were incurred in the ordinary course
of business, (iii) entered into any transaction not in the ordinary
course of business or (iv) declared or paid any dividend on their
capital stock.
2. Purchase of the Shares by the Underwriters. On the basis of
the representations and warranties contained in, and subject to the terms and
conditions of, this Agreement, the Company agrees to sell the Firm Shares to the
several Underwriters and each of the Underwriters, severally and not jointly,
agrees to purchase the number of Firm Shares set forth opposite that
Underwriter's name in Schedule 1 hereto. The respective purchase obligations of
the Underwriters with respect to the Firm Shares shall be rounded among the
Underwriters to avoid fractional shares, as the Representatives may determine.
In addition, the Company grants to the Underwriters an option
to purchase up to _______ Option Shares. Such option is granted solely for the
purpose of covering over-allotments in the sale of the Firm Shares and is
exercisable as provided in Section 4 hereof. Option Shares shall be purchased
severally for the account of the Underwriters in proportion to the number of
Firm Shares set forth opposite the name of such Underwriters in Schedule 1
hereto. The respective purchase obligations of each Underwriter with respect to
the Option Shares shall be adjusted by the Representatives so that no
Underwriter shall be obligated to purchase Option Shares other than in 100 share
amounts. The price to the Underwriters of both the Firm Shares and any Option
Shares shall be $_____ per share.
The Company shall not be obligated to deliver any of the
Shares to be delivered on the First Delivery Date (as hereinafter defined) or
the Option Delivery Date (as hereinafter defined), as the case may be, except
upon payment for all the Shares to be purchased on such Delivery Date as
provided herein.
3. Offering of Shares by the Underwriters.
Upon authorization by the Representatives of the release of
the Shares, the several Underwriters propose to offer the Shares for sale upon
the terms and conditions set forth in the Prospectus.
4. Delivery of and Payment for the Shares. Delivery of and
payment for the Firm Shares shall be made at the office of Latham & Watkins, 885
Third Avenue, New York, New York 10022, at 9:00 a.m., New York City time, on
__________, 1996 or at such other date or place as shall be determined by
agreement among the Representatives and the Company. This date and time are
sometimes referred to as the "First Delivery Date." On the First Delivery Date,
the Company shall
12
<PAGE>
deliver or cause to be delivered certificates representing the Firm Shares to
the Representatives for the account of each Underwriter against payment to or
upon the order of the Company or as the Company may direct of the purchase price
(deposit of which the Underwriters shall bear no responsibility for) by
certified or official bank check or checks payable in next day funds, or in such
manner as all parties to this Agreement shall have previously agreed. Time shall
be of the essence, and delivery at the time and place specified pursuant to this
Agreement is a further condition of the obligation of each Underwriter
hereunder. Upon delivery, the Firm Shares shall be registered in such names and
in such denominations as the Representatives shall request in writing not less
than two full Business Days prior to the First Delivery Date. For the purpose of
expediting the checking and packaging of the certificates for the Firm Shares,
the Company shall make the certificates representing the Firm Shares available
for inspection by the Representatives in New York, New York, not later than 2:00
p.m., New York City time, on the Business Day prior to the First Delivery Date.
At any time, and from time to time, on or before the thirtieth
day after the date of this Agreement the option granted in Section 2 may be
exercised, in whole or in part, by written notice being given to the Company by
the Representatives. Such notice shall set forth the aggregate number of Option
Shares as to which the option is being exercised, the names in which the Option
Shares are to be registered, the denominations in which the Option Shares are to
be issued and the date and time, as determined by the Representatives, when the
Option Shares are to be delivered; provided, however, that this date and time
shall not be (i) earlier than the First Delivery Date or (ii) earlier than the
second Business Day, or later the tenth Business Day, after the Company's
receipt of the notice of exercise. The date[s] and time[s] the Option Shares are
delivered are sometimes referred to as the "Option Delivery Date" and the First
Delivery Date and the Option Delivery Date are sometimes each referred to as a
"Delivery Date."
Delivery of and payment for the Option Shares shall be made at
the place specified in the first sentence of the first paragraph of this Section
4 (or at such other place as shall be determined by agreement between the
Representatives and the Company) at 9:00 a.m., New York City time, on the Option
Delivery Date. On the Option Delivery Date, the Company shall deliver or cause
to be delivered the certificates representing the Option Shares to the
Representatives for the account of each Underwriter against payment to or upon
the order of the Company or as the Company may direct of the purchase price
(deposit of which the Underwriters shall bear no responsibility for) by
certified or official bank check or checks payable in next day funds, or in such
manner as all parties to this Agreement shall have previously agreed. Time shall
be of the essence, and delivery at the time and place specified pursuant to this
Agreement is a further condition of the obligation of each Underwriter
hereunder. Upon delivery, the Option Shares shall be registered in such names
and in such denominations as the Representatives shall request in the aforesaid
written notice. For the purpose of expediting the checking and packaging of the
certificates for the Option Shares, the Company shall make the certificates
representing the Option Shares available for inspection by the Representatives
in New York, New York, not later than 2:00 p.m., New York City time, on the
Business Day prior to the respective Option Delivery Date.
5. Further Agreements of the Company. The Company agrees:
(a) To prepare the Prospectus in a form approved by the
Representatives and to file such Prospectus, if required by the Act,
pursuant to Rule 424(b) under the Securities Act not later than
Commission's close of business on the second Business Day following the
execution and delivery of this Agreement or, if applicable, such
earlier time as may be required by Rule 430A(a)(3) under the Securities
Act; to make no further amendment or any supplement to the Registration
Statement or to the Prospectus except as permitted herein; to advise
the
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<PAGE>
Representatives, promptly after it receives notice thereof, of the time
when any amendment to the Registration Statement has been filed or
becomes effective or any supplement to the Prospectus or any amended
Prospectus has been filed and to furnish the Representatives with
copies thereof; to advise the Representatives, promptly after it
receives notice thereof, of the issuance by the Commission of any stop
order or of any order preventing or suspending the use of the
Registration Statement, any Preliminary Prospectus or the Prospectus,
of the suspension of the qualification of the Shares for offering or
sale in any jurisdiction, of the initiation or threatening of any
proceeding for any such purpose, or of any request by the Commission
for the amending or supplementing of the Registration Statement or the
Prospectus or for additional information; and, in the event of the
issuance of any stop order or of any order preventing or suspending the
use of the Registration Statement, any Preliminary Prospectus or the
Prospectus or suspending any such qualification, to use promptly its
best efforts to obtain its withdrawal;
(b) To furnish promptly to each of the Representatives and to
counsel for the Underwriters, without charge, a signed copy of the
Registration Statement as originally filed with the Commission, and
each amendment thereto filed with the Commission, including all
consents and exhibits filed therewith;
(c) To deliver promptly to the Representatives, without
charge, such number of the following documents as the Representatives
shall reasonably request: (i) conformed copies of the Registration
Statement as originally filed with the Commission and each amendment
thereto (in each case including exhibits) and (ii) each Preliminary
Prospectus, the Prospectus and any amended or supplemented Prospectus
and, if the delivery of a prospectus is required at any time after the
Effective Time in connection with the offering or sale of the Shares or
any other securities relating thereto and if at such time any events
shall have occurred as a result of which the Prospectus as then amended
or supplemented would include an untrue statement of a material fact or
omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made when such Prospectus is delivered, not misleading, or, if for
any other reason it shall be necessary to amend or supplement the
Prospectus in order to comply with the Securities Act, to notify the
Representatives and, upon their request, to file such document and to
prepare and furnish without charge to each Underwriter and to any
dealer in securities as many copies as the Representatives may from
time to time reasonably request of an amended or supplemented
Prospectus which will correct such statement or omission or effect such
compliance;
(d) To file promptly with the Commission any amendment to the
Registration Statement or the Prospectus, any supplement to the
Prospectus or any registration statement pursuant to Rule 462(b) under
the Securities Act that may, in the judgment of the Company or the
Representatives, be required by the Securities Act or requested by the
Commission;
(e) Prior to filing with the Commission any amendment to the
Registration Statement or supplement to the Prospectus or any
Prospectus pursuant to Rule 424 of the Rules and Regulations, to
furnish, at least two days before filing such amendment to the
Registration Statement or supplement to the Prospectus, a copy thereof
to the Representatives and counsel for the Underwriters and obtain the
consent of the Representatives to the filing;
(f) As soon as practicable after the Effective Date, to make
generally available to the Company's security holders and to deliver to
the Representatives an earnings statement of the
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<PAGE>
Company and its Subsidiaries (which need not be audited) complying with
Section 11(a) of the Securities Act and the Rules and Regulations
(including Rule 158);
(g) For a period of five years following the Effective Date,
to furnish to the Representatives copies of all materials furnished by
the Company to its shareholders and all public reports and all reports
and financial statements furnished by the Company to the principal
national securities exchange upon which the Class A Common Stock may be
listed pursuant to requirements of or agreements with such exchange or
to the Commission pursuant to the Exchange Act or any rule or
regulation of the Commission thereunder;
(h) The Company will arrange for the qualification of the
Shares for sale under the securities or Blue Sky laws of such
jurisdictions in the United States as the Representatives may
designate, and will maintain such qualifications in effect so long as
required for the sale of the Shares; provided that the Company shall
not be required to qualify as a foreign corporation or to file a
general consent to service of process in any jurisdiction. The Company
will promptly advise the Representatives of the receipt by the Company
of any notification with respect to the suspension of the qualification
of the Shares for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose;
(i) For a period of 180 days from the date of the Prospectus
(the "Lock-Up Period"), not to, directly or indirectly, offer for sale,
sell or otherwise dispose of or pledge (or enter into any transaction
or device which is designed to, or could be expected to, result in the
disposition by any person during the Lock-Up Period of) any shares of
Class A Common Stock or other capital stock of the Company (other than
(i) the Class A Common Stock to be issued in pursuant to this Agreement
and Class A Common Stock or Class B Common Stock to be issued pursuant
to the Operative Documents, (ii) stock grants made pursuant to the
terms of the Incentive Program (as in effect on the date of the
Prospectus), (iii) stock grants made pursuant to the Stock Option Plan
(as in effect on the date of the Prospectus) and (iv) securities issued
as consideration for an acquisition if the party being issued the
securities agrees to lock-up provisions similar to those contained in
this subsection or if the securities issued are "restricted securities"
under the Securities Act), or sell or grant options, rights or warrants
with respect to any shares of Class A Common Stock or other capital
stock of the Company (other than the grant of options pursuant to
option plans existing on the date hereof), without the prior written
consent of Lehman Brothers Inc.; and that the document that sets forth
the terms of the Exchange Offer will require that each holder
participating in the Exchange Offer agree not to, directly or
indirectly, offer for sale, sell or otherwise dispose of or pledge (or
enter into any transaction or device which is designed to, or could be
expected to, result in the disposition by any person during the Lock-Up
Period of) any shares of Class A Common Stock received in such Exchange
Offer during the Lock-Up Period, without the prior written consent of
Lehman Brothers Inc.;
(j) Prior to the Effective Date, to apply for the listing of
the Shares on the Nasdaq National Market and to use its best efforts to
complete that listing, subject only to official notice of issuance and
evidence of satisfactory distribution, prior to the First Delivery
Date;
(k) Prior to filing with the Commission a registration
statement on Form 8-A, to furnish a copy thereof to the counsel for the
Underwriters and receive and consider its comments thereon, and to
deliver promptly to the Representatives a signed copy of the
registration statement on Form 8-A filed by it with the Commission;
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<PAGE>
(l) The Company will use all amounts received by it pursuant
to Section 4 of this Agreement in the manner described under "Use of
Proceeds" in the Registration Statement and the Prospectus and pursuant
to a funds flow memorandum, which shall be available for review prior
to the Delivery Date and acceptable in both form and substance to the
Representatives (the "Funds Flow Memorandum"); and
(m) To take such steps as shall be necessary to ensure that
neither the Company nor any subsidiary shall become an "investment
company" within the meaning of such term under the Investment Company
Act of 1940 and the rules and regulations of the Commission thereunder.
6. Expenses. The Company agrees to pay (a) the costs incident
to the authorization, issuance, sale and delivery of the Shares and any taxes
payable in connection therewith; (b) the costs incident to the preparation,
printing and filing under the Securities Act of the Registration Statement and
any amendments and exhibits thereto; (c) the costs of distributing the
Registration Statement as originally filed and each amendment thereto and any
post-effective amendments thereof (including, in each case, exhibits), any
Preliminary Prospectus, the Prospectus and any amendment or supplement to the
Prospectus, all as provided in this Agreement; (d) the costs of producing and
distributing this Agreement and any other related documents in connection with
the offering, purchase, sale and delivery of the Shares; (e) the filing fees
incident to securing any required review by the NASD of the terms of sale of the
Shares; (f) any applicable listing or other fees; (g) the fees and expenses of
qualifying the Shares under the securities laws of the several jurisdictions as
provided in Section 5(h) and of preparing, printing and distributing a Blue Sky
Memorandum (including related fees and expenses of counsel to the Underwriters
in connection therewith); (h) all fees and expenses of Lehman Brothers, Inc.
("Lehman Brothers") in its capacity as a qualified independent underwriter; and
(i) all other costs and expenses incident to the performance of the obligations
of the Company and the Subsidiaries under this Agreement; provided that, except
as provided in this Section 6 and in Section 11, the Underwriters shall pay
their own costs and expenses, including the costs and expenses of their counsel,
any transfer taxes on the Shares which they may sell and the expenses of
advertising any offering of the Shares made by the Underwriters.
7. Conditions of Underwriters' Obligations. The respective
obligations of the Underwriters hereunder are subject to the accuracy, when made
and on each Delivery Date, of the representations and warranties of the Company
and the Subsidiaries contained herein, to the performance by the Company and the
Subsidiaries of obligations hereunder, and to each of the following additional
terms and conditions:
(a) The Registration Statement, including a registration
statement filed under Rule 462(b) of the Securities Act, shall have
become effective not later than 10:00 a.m., New York City time, on the
date of this Agreement or at such later date and time as the
Representatives may approve; the Prospectus shall have been timely
filed with the Commission in accordance with Section 5(a) hereof; no
stop order suspending the effectiveness of the Registration Statement
or any part thereof shall have been issued and no proceeding for that
purpose shall have been initiated or threatened by the Commission; and
any request of the Commission for inclusion of additional information
in the Registration Statement or the Prospectus or otherwise shall have
been complied with.
(b) No Underwriter shall have discovered and disclosed to the
Company on or prior to such Delivery Date that the Registration
Statement or the Prospectus or any amendment or supplement thereto
contains an untrue statement of a fact which, in the opinion of Latham
&
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<PAGE>
Watkins, counsel for the Underwriters, is material or omits to state a
fact which, in the opinion of such counsel, is material and is required
to be stated therein or is necessary to make the statements therein not
misleading.
(c) All corporate proceedings and other legal matters incident
to the authorization, form and validity of this Agreement, the Shares,
the Registration Statement and the Prospectus, and all other legal
matters relating to this Agreement, the Operative Documents and the
transactions contemplated hereby and thereby shall be reasonably
satisfactory in all material respects to counsel for the Underwriters,
and the Company shall have furnished to such counsel all documents and
information that they may reasonably request to enable them to pass
upon such matters.
(d) Drinker Biddle & Reath shall have furnished to the
Representatives its written opinion, as counsel to the Company,
addressed to the Underwriters and dated such Delivery Date, in form and
substance reasonably satisfactory to the Representatives, to the effect
that:
(i) The Company is duly incorporated and validly
existing as a corporation in good standing under the laws of
its jurisdiction of incorporation, and has all requisite
corporate power and authority to carry on its business as, to
such counsel's knowledge, it is being conducted and as
described in the Registration Statement and the Prospectus and
to own, lease and operate its properties known to such
counsel, and is not qualified as a foreign corporation
authorized to do business in any other jurisdiction.
(ii) Each of the Subsidiaries is duly incorporated or
formed and validly existing as a corporation or partnership,
as the case may be, in good standing under the laws of its
jurisdiction of incorporation or formation, as the case may
be, and has all requisite corporate power and authority (in
the case of corporations) or legal capacity (in the case of
partnerships) to carry on its business as, to such counsel's
knowledge, it is being conducted and as described in the
Registration Statement and the Prospectus and to own, lease
and operate its properties know to such counsel, and is duly
qualified and in good standing as a foreign corporation or
partnership, as the case may be, authorized to do business in
each jurisdiction mentioned on Schedule 1 to such opinion. All
of the outstanding shares of capital stock and other
securities evidencing equity ownership of each of the
Subsidiaries are fully paid and (except in the case of general
partnership interests and, in the case of limited partnership
interests, except to the extent that the provisions of the
applicable limited partnership act requiring partners to
return distributions may be deemed to constitute
assessability) nonassessable and free of any preemptive or
similar rights, and are owned by the Company directly, or
indirectly through one of the other Subsidiaries, free and
clear of any lien, adverse claim, security interest or other
encumbrance known to such counsel except as described in the
Registration Statement and the Prospectus and for security
interests securing the New Credit Facility.
(iii) The authorized capital stock of the Company
consists of 30,000,000 shares of Class A Common Stock, par
value $.01 per share, 15,000,000 shares of Class B Common
Stock, par value $.01 per share, and 5,000,000 shares of
Preferred Stock, par value $.01 per share. Upon the
consummation of the Offering and the Transactions (assuming
all holders of the PM&C Class B Shares exchange their shares
for Class A Common Stock in the Exchange Offer), _______
shares of Class A Common Stock and
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<PAGE>
_______ shares of Class B Common Stock will be issued and
outstanding. There are currently no shares of Preferred Stock
outstanding. The authorized capital stock of the Company,
including the Shares, conforms as to legal matters to the
description thereof contained in the Registration Statement
and the Prospectus. The Shares to be issued and sold by the
Company hereunder have been duly authorized and, when issued
and delivered to the Underwriters against payment therefor as
provided by this Agreement, will have been validly issued and
will be fully paid and non-assessable, and the issuance of
such Shares will not be subject to any preemptive or similar
rights.
(iv) The Registration Statement was declared
effective under the Securities Act as of the date and time
specified in such opinion; the Prospectus was filed with the
Commission pursuant to the subparagraph of Rule 424(b) of the
Rules and Regulations on the date specified therein; and, to
the knowledge of such counsel, no stop order suspending the
effectiveness of the Registration Statement has been issued
and no proceeding for that purpose is pending or threatened by
the Commission.
(v) The Registration Statement and the Prospectus and
any further amendments or supplements thereto made by the
Company prior to such Delivery Date (other than the financial
statements, including the notes thereto, and supporting
schedules and other financial, statistical and accounting data
included therein or omitted therefrom, as to which such
counsel need express no opinion) comply as to form in all
material respects with the requirements of the Securities Act
and the Rules and Regulations.
(vi) To the best of such counsel's knowledge, there
are no contracts or other documents which are required to be
described in the Registration Statement and the Prospectus or
filed as exhibits to the Registration Statement by the
Securities Act or by the Rules and Regulations which have not
been described or filed as exhibits to the Registration
Statement or incorporated therein by reference as permitted by
the Rules and Regulations.
(vii) To the best of such counsel's knowledge, except
as set forth in the Registration Statement and the Prospectus,
there are no outstanding rights, warrants or options to
acquire, or instruments convertible into or exchangeable for,
any shares of capital stock or other equity interest in the
Company.
(viii) There are no preemptive or other rights to
subscribe for or to purchase, nor any restriction upon the
voting or transfer of, any of the Shares pursuant to the
Company's charter or by-laws or any agreement or other
instrument known to such counsel.
(ix) The Parent, the Company and each of the
Subsidiaries have all requisite power and authority to
execute, deliver and perform their respective obligations
under this Agreement and the Operative Documents, as
applicable, and to consummate the transactions contemplated
hereby and thereby, including, without limitation, in the case
of the Company, the corporate power and authority to issue,
sell and deliver the Shares, as provided herein.
(x) This Agreement has been duly and validly
authorized, executed and delivered by the Company and the
Subsidiaries.
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(xi) The DBS Acquisition Agreement has been duly and
validly authorized, executed and delivered by the Parent and
is the legally valid and binding obligation of the Parent,
enforceable against it in accordance with its terms, except as
such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other similar laws relating to
or affecting creditors' rights generally (including laws
relating to fraudulent transfers and conveyances), and by
general equitable principles (regardless of whether such
enforceability is considered in a proceeding in equity or at
law).
(xii) The documents governing the Towers Purchase
have been duly and validly authorized, executed and delivered
by each of the Company and Pegasus Towers, L.P. and are the
legally valid and binding obligations of each of the Company
and Pegasus Towers, L.P., enforceable against each of them in
accordance with their terms, except as such enforceability may
be limited by bankruptcy, insolvency, reorganization,
moratorium and other similar laws relating to or affecting
creditors' rights generally (including laws relating to
fraudulent transfers and conveyances), and by general
equitable principles (regardless of whether such
enforceability is considered in a proceeding in equity or at
law).
(xiii) The documents governing the Management
Agreement Acquisition have been duly and validly authorized,
executed and delivered by each of Pegasus Capital, L.P.,
Pegasus Communications Management Company, the Company and the
Management Company and are the legally valid and binding
obligations of each of them, enforceable against each of them
in accordance with their terms, except as such enforceability
may be limited by bankruptcy, insolvency, reorganization,
moratorium and other similar laws relating to or affecting
creditors' rights generally (including laws relating to
fraudulent transfers and conveyances), and by general
equitable principles (regardless of whether such
enforceability is considered in a proceeding in equity or at
law).
(xiv) The documents governing the Contribution have
been duly and validly authorized, executed and delivered by
each of the Parent and the Company and are the legally valid
and binding obligations of each of the Parent and the Company,
enforceable against each of them in accordance with their
terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium and other
similar laws relating to or affecting creditors' rights
generally (including laws relating to fraudulent transfers and
conveyances), and by general equitable principles (regardless
of whether such enforceability is considered in a proceeding
in equity or at law).
(xv) The Cable Acquisition Agreement has been duly
and validly authorized, executed and delivered by the Parent
and is the legally valid and binding obligation of the Parent,
enforceable against it in accordance with its terms, except as
such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other similar laws relating to
or affecting creditors' rights generally (including laws
relating to fraudulent transfers and conveyances), and by
general equitable principles (regardless of whether such
enforceability is considered in a proceeding in equity or at
law).
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(xvi) The New Credit Facility and the documents
executed in connection therewith have been duly and validly
authorized, executed and delivered by PM&C and each of the
Subsidiaries party thereto and are the legally valid and
binding obligations of PM&C and each of the Subsidiaries party
thereto, enforceable against each of them in accordance with
their terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium and other
similar laws relating to or affecting creditors' rights
generally (including laws relating to fraudulent transfers and
conveyances), and by general equitable principles (regardless
of whether such enforceability is considered in a proceeding
in equity or at law).
(xvii) The documents governing the WPXT Contribution
have been duly and validly authorized, executed and delivered
by each of the Company and the Parent and are the legally
valid and binding obligations of each of the Company and the
Parent, enforceable against each of them in accordance with
their terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium and other
similar laws relating to or affecting creditors' rights
generally (including laws relating to fraudulent transfers and
conveyances), and by general equitable principles (regardless
of whether such enforceability is considered in a proceeding
in equity or at law).
(xviii) The documents governing the WWLA Contribution
have been duly and validly authorized, executed and delivered
by each of the Company and the Parent and are the legally
valid and binding obligations of each of the Company and the
Parent, enforceable against each of them in accordance with
their terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium and other
similar laws relating to or affecting creditors' rights
generally (including laws relating to fraudulent transfers and
conveyances), and by general equitable principles (regardless
of whether such enforceability is considered in a proceeding
in equity or at law).
(xix) Each of the DBS Acquisition, the Cable
Acquisition, the Towers Purchase, the Contribution, the
Management Agreement Acquisition, the New Credit Facility, the
WPXT Contribution and the WWLA Contribution and the Operative
Documents conform in all material respects to the descriptions
thereof in the Registration Statement and the Prospectus.
(xx) None of (A) the execution, delivery or
performance by the Company or any of the Subsidiaries of this
Agreement or any of the Operative Documents, as applicable,
(B) the issuance and sale of the Shares or (C) the
transactions contemplated by this Agreement and the Operative
Documents will violate, conflict with or constitute a breach
of any of the terms or provisions of, or a default under (or
an event that with notice or the lapse of time, or both, would
constitute a default), or (except as contemplated in the
second and third sentences of this paragraph) require consent
under, or result in the imposition of a lien or encumbrance on
any properties of the Company or any Subsidiary, or an
acceleration of any indebtedness of the Company or any
Subsidiary pursuant to, (i) the charter, bylaws, limited
partnership or other organizational documents of the Company
or any Subsidiary, (ii) any material bond, debenture, note,
indenture, mortgage, deed of trust or other agreement or
instrument known to such counsel relating to borrowed money to
which the Company or any Subsidiary is a party
20
<PAGE>
or by which any of them or their respective property is bound,
(iii) any statute, rule or regulation known to such counsel
applicable to the Company or any Subsidiary or their
respective assets or properties (except such as are, in the
aggregate, immaterial) or (iv) any judgment, order or decree
known to such counsel of any court or governmental agency,
body or administrative agency or authority having jurisdiction
over the Company, any Subsidiary or their respective assets or
properties. No consent, approval, authorization or order of,
or filing, registration, qualification, license or permit of
or with, any regulatory agency or body, administrative agency,
or other governmental agency is required for (1) the
execution, delivery and performance by the Company and the
Subsidiaries of this Agreement or any of the Operative
Documents, as applicable, (2) the issuance and sale of the
Shares or (3) the transactions contemplated by this Agreement
or the Operative Documents, except for (A) the registration of
the Shares under the Securities Act, (B) such consents,
approvals, authorizations, registrations or qualifications as
may be required under the Exchange Act and applicable state
securities laws in connection with the purchase and
distribution of the Shares by the Underwriters, (C) such as
may be required by the NASD, and (D) such as have been
obtained or made, it being understood that such counsel need
express no opinion concerning any law administered by, or any
rule, regulation or order of, the FCC, the DPUC or the PSC, or
any other law, rule or regulation pertaining to the broadcast
television or cable television industry. To the best of such
counsel's knowledge, no consents or waivers from any other
person are required for the execution, delivery and
performance by the Company, the Parent and the Subsidiaries,
as applicable, of this Agreement and the Operative Documents,
the issuance and sale of the Shares to the Underwriters or the
consummation of the transactions contemplated by this
Agreement and the Operative Documents, other than (1) such
consents and waivers as have been obtained and (2) such as are
disclosed in the Registration Statement and the Prospectus.
(xxi) None of the Company or the Subsidiaries is (i)
an "investment company" or (ii) a company "controlled" by an
"investment company" within the meaning of the Investment
Company Act of 1940, as amended.
(xxii) The statements in the Prospectus under the
captions "Prospectus Summary," "Risk Factors," "Business -
Licenses, LMAs, DBS Agreements and Cable Franchises,"
"Management and Certain Transactions - Management Agreement,"
"Management and Certain Transactions - Incentive Program,"
"Description of Indebtedness," "Description of Capital Stock"
and "Shares Eligible for Future Sale," and Items 14, 15 and 17
of Part II of the Registration Statement, in so far as they
are descriptions of contracts, agreements or other legal
documents or laws, regulations or statutes are accurate, in
all material respects, and present fairly the information
required to be shown.
(xxiii) To the best of such counsel's knowledge,
there are no holders of securities of the Company or any
Subsidiary who, by reason of the execution by the Company, the
Parent or any Subsidiary of this Agreement or any of the
Operative Documents to which any of the Company, the Parent or
any Subsidiary, as applicable, is a party or the consummation
by the Company, the Parent and the Subsidiaries of the
transactions contemplated hereby and thereby, as applicable,
have the right to request or demand that the Company or any
Subsidiary register under the Securities Act or
21
<PAGE>
analogous foreign laws and regulations securities held by
them, other than as disclosed in the Registration Statement
and the Prospectus.
(xxiv) To the best of such counsel's knowledge, there
are no contracts, agreements or understandings between the
Company or any Subsidiary and any other person that would give
rise to a valid claim against the Company, any Subsidiary or
any of the Underwriters for a brokerage commission, finder's
fee or like payment in connection with the issuance, purchase
and sale of the Shares.
(xxv) To the best of such counsel's knowledge and
other than as set forth in the Registration Statement and the
Prospectus, there are no legal or governmental proceedings
pending to which the Company or any of the Subsidiaries is a
party or of which any property or assets of the Company or any
of the Subsidiaries is the subject which, if determined
adversely to the Company or any of the Subsidiaries, might
have a Material Adverse Effect; and, to the best of such
counsel's knowledge, no such proceedings are threatened or
contemplated by governmental authorities or threatened by
others.
In addition, such counsel shall state that it has participated in
conferences with officers and other representatives of the Company and
the Subsidiaries and representatives of the Accountants at which the
contents of the Registration Statement and the Prospectus and related
matters were discussed and, although such counsel has not undertaken to
investigate or verify independently, and does not assume any
responsibility for, the accuracy, completeness or fairness of the
statements contained in the Registration Statement and the Prospectus,
on the basis of the foregoing (relying as to materiality to a large
extent upon the opinions of officers and other representatives of the
Company) such counsel does not believe that (A) the Registration
Statement and any amendment or supplement thereto (except as to
financial statements, including the notes thereto, and supporting
schedules and other financial, statistical and accounting data included
therein or omitted therefrom, as to which no belief need be expressed)
as of the Effective Date, contained an untrue statement of a material
fact or omitted to state any fact required to be stated therein or
necessary to make the statements therein not misleading and (B) the
Prospectus and any amendment or supplement thereto (except as to
financial statements, including the notes thereto, and supporting
schedules and other financial, statistical and accounting data included
therein or omitted therefrom, as to which no belief need be expressed)
as of its date or the Delivery Date, contained an untrue statement of a
material fact or omitted to state any fact required to be stated
therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
(e) Vorys, Sater, Seymour and Pease shall have furnished to
the Representatives its written opinion, as special regulatory counsel
for the Company and the Subsidiaries, addressed to the Underwriters and
dated such Delivery Date, in form and substance reasonably satisfactory
to the Representatives, substantially in the form of Exhibit A attached
hereto.
(f) Fisher Wayland Cooper Leader & Zaragoza L.L.P. shall have
furnished to the Representatives its written opinion, as special
regulatory counsel for the Company and the Subsidiaries, addressed to
the Underwriters and dated such Delivery Date, in form and substance
reasonably satisfactory to the Representatives, substantially in the
form of Exhibit B attached hereto.
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<PAGE>
(g) Murtha, Cullina, Richter and Pinney shall have furnished
to the Representatives its written opinion, as special regulatory
counsel for the Company and the Subsidiaries, addressed to the
Underwriters and dated such Delivery Date, in form and substance
reasonably satisfactory to the Representatives, substantially in the
form of Exhibit C attached hereto.
(h) The Representatives shall have received from Latham &
Watkins, counsel for the Underwriters, such opinion or opinions, dated
such Delivery Date, with respect to the issuance and sale of the
Shares, the Registration Statement, the Prospectus and other related
matters as the Representatives may reasonably require, and the Company
shall have furnished to such counsel such documents as they reasonably
request for the purpose of enabling them to pass upon such matters.
(i) The Accountants shall have furnished to the
Representatives a letter or letters, dated respectively as of the date
hereof and such Delivery Date, addressed to the Underwriters, in form
and substance satisfactory to each of the Representatives, containing
statements and information, of the type ordinarily included in
accountants' "comfort letters" with respect to the financial statements
and financial information contained in the Registration Statement and
the Prospectus.
(j) The Company shall have furnished to the Underwriters a
certificate of the Company and the Subsidiaries, signed by the Chairman
of the Board or the President and the principal financial or accounting
officer of the Company and each of the Subsidiaries, dated such
Delivery Date, to the effect that the signers of such certificate have
carefully examined the Registration Statement and the Prospectus (and
any amendment or supplement thereto) and this Agreement and that:
(i) the representations and warranties of the Company
and the Subsidiaries in this Agreement are true and correct in
all material respects on and as of such Delivery Date with the
same effect as if made on such Delivery Date and the Company
and the Subsidiaries have complied with all the agreements and
satisfied all the conditions on their part to be performed or
satisfied at or prior to such Delivery Date;
(ii) they have carefully examined (A) the
Registration Statement and, in their opinion (1) as of the
Effective Date, the Registration Statement did not include any
untrue statement of a material fact and did not omit to state
a material fact required to be stated therein or necessary to
make the statements therein not misleading, and (2) since the
Effective Date no event has occurred which should have been
set forth in an amendment to the Registration Statement and
(B) the Prospectus and, in their opinion (1) as of the
Effective Date, the Prospectus did not include any untrue
statement of a material fact and did not omit to state a
material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances
under which they were made, not misleading, and (2) since the
Effective Date no event has occurred which should have been
set forth in a supplement or amendment to the Prospectus.
(iii) since the date of the most recent financial
statements included in the Registration Statement and the
Prospectus (including any amendment or supplement thereto),
there has been no material adverse change in the condition
(financial or other), earnings, business, properties or
prospects of the Company and the Subsidiaries, taken as a
whole, or any development involving a prospective material
adverse change in the
23
<PAGE>
capital stock or in the long-term debt of the Company and the
Subsidiaries from that set forth in the Registration Statement
and the Prospectus, whether or not arising from transactions
in the ordinary course of business, except as set forth in the
Registration Statement and the Prospectus (exclusive of any
amendment or supplement thereto);
(iv) the Company and the Subsidiaries have no
liability or obligation, direct or contingent, which is
material to the Company and the Subsidiaries, taken as a
whole, other than those reflected in the Registration
Statement and the Prospectus; and
(v) the copies furnished by the Company, on or before
the date hereof, of each of the Operative Documents are true,
correct and complete, were duly and validly authorized and
constitute valid and binding obligations of the Parent, the
Company and the Subsidiaries, as applicable, except as such
enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other similar laws relating to
or affecting creditors' rights generally (including laws
relating to fraudulent transfers and conveyances), and by
general equitable principles (regardless of whether such
enforceability is considered in a proceeding in equity or at
law).
(k) Subsequent to the date hereof or, if earlier, the dates as
of which information is given in the Registration Statement and the
Prospectus (exclusive of any amendment or supplement thereto), there
shall not have been (i) any change or decrease specified in the letter
or letters referred to in paragraph (i) of this Section 7 or (ii) any
change, or any development involving a prospective change, in or
affecting the business or properties of the Company or any of the
Subsidiaries, the effect of which is, in the judgment of the
Representatives, so material and adverse as to make it impractical or
inadvisable to market the Shares as contemplated by the Registration
Statement and the Prospectus (exclusive of any amendment or supplement
thereto).
(l) Subsequent to the date hereof and on or prior to such
Delivery Date, there shall not have been any decrease in the rating of
any of the Company's or the Subsidiaries' securities by any "nationally
recognized statistical rating organization" (as defined for purposes of
Rule 436(g)(2) under the Securities Act) or any notice given of any
intended or potential decrease in any such rating or of a possible
change in any such rating that does not indicate the direction of the
possible change.
(m) The Company, the Parent and each of the Subsidiaries shall
have duly entered into this Agreement and the Operative Documents, as
applicable, and the Underwriters shall have received executed copies of
each of such documents and agreements.
(n) The rights to act as the exclusive provider of DIRECTV
programming in certain rural areas of Texas and Michigan and the assets
related to such rights shall have been transferred to the Company, free
and clear of any lien, adverse claim, security interest or other
encumbrance pursuant to the DBS Acquisition Agreement, as in effect on
the date hereof, in the manner described in the Registration Statement
and the Prospectus. There shall exist at and as of the Delivery Date,
after giving effect to the transactions contemplated by this Agreement
and the Operative Documents, no conditions that would constitute a
default (or an event that with notice or the lapse of time, or both,
would constitute a default) under the DBS Acquisition Agreement or that
would have a material adverse effect on the Company's ability to
consummate the DBS Acquisition as described in the Registration
Statement and the Prospectus.
24
<PAGE>
(o) The Parent shall have contributed to the Company all of
its stock in PM&C, which consists of 161,500 PM&C Class A Shares, free
and clear of any lien, adverse claim, security interest or other
encumbrance on the terms described in the Registration Statement and
the Prospectus.
(p) The Management Agreement shall have been transferred to
the Company pursuant to the documents governing the Management
Agreement Acquisition, as in effect on the date hereof, on the terms
described in the Registration Statement and the Prospectus.
(q) The broadcast tower assets of Pegasus Towers, L.P. shall
have been transferred to the Company pursuant to the documents
governing the Towers Purchase, as in effect on the date hereof, on the
terms described in the Registration Statement and the Prospectus.
(r) The contribution by the Parent to the Company of all of
the outstanding stock of B.T. Satellite, Inc. shall have been made on
the terms described in the Registration Statement and the Prospectus.
(s) The contribution by the Parent to the Company of all of
the outstanding stock of Bride Communications, Inc. shall have been
made on the terms described in the Registration Statement and the
Prospectus.
(t) An appraisal by Kane Reece Associates, Inc. of the fair
market value of the Management Agreement shall have been furnished and
delivered to the Representatives.
(u) A report of an independent appraiser shall have been
furnished and delivered to the Representatives setting forth the fair
market purchase price of the properties to be acquired pursuant to the
Towers Purchase.
(v) Each of the Operative Documents shall be in full force and
effect.
(w) PM&C shall have entered into the New Credit Facility, the
form and substance of which shall be reasonably acceptable to the
Representatives, and the Representatives shall have received
counterparts, conformed as executed, thereof and of all other documents
and agreements entered into in connection therewith.
(x) Each condition to the closing contemplated by the New
Credit Facility shall have been satisfied or waived. There shall exist
at and as of the Delivery Date (after giving effect to the transactions
contemplated by this Agreement and the other Operative Documents) no
conditions that would constitute a default (or an event that with
notice or the lapse of time, or both, would constitute a default) under
the New Credit Facility. On the Delivery Date, the closing under the
New Credit Facility shall have been consummated on terms that conform
in all material respects to the description thereof in the Registration
Statement and Prospectus and the Representatives shall have received
evidence satisfactory to the Underwriters of the consummation thereof.
(y) On such Delivery Date, the Representatives shall have
received evidence reasonably satisfactory to each of the
Representatives that any consents or waivers necessary for the Company
and the Subsidiaries to effect the transactions contemplated hereby are
in effect.
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(z) The Underwriters' counsel shall have been furnished with
such documents as they may reasonably require for the purpose of
enabling them to review or pass upon the matters referred to in this
Section 7 and in order to evidence the accuracy, completeness or
satisfaction in all material respects of any of the representations,
warranties or conditions herein contained.
(aa) The Old Credit Facility shall have been repaid in
accordance with the terms of the governing instrument and the
Representatives shall have received copies of instruments of
satisfaction and discharge satisfactory to them from the lender under
the Old Credit Facility evidencing the discharge and satisfaction of
the Old Credit Facility.
(ab) Each officer and director of the Company shall have
furnished to the Representatives, prior to the First Delivery Date, a
letter or letters, in form and substance satisfactory to counsel for
the Underwriters, pursuant to which each such person shall agree not
to, directly or indirectly, offer for sale, sell or otherwise dispose
of or pledge (or enter into any transaction or device which is designed
to, or could be expected to, result in the disposition by any person
during the Lock-Up Period of) any shares of Class A Common Stock or
other capital stock of the Company during the Lock-Up Period, without
the prior written consent of Lehman Brothers Inc.
(ac) The amounts received by the Company pursuant to Section 4
of this Agreement shall have been disbursed by the Company as described
in the Funds Flow Memorandum.
(ad) On or prior to such Delivery Date, the Company shall have
furnished to the Underwriters such further information, certificates
and documents as the Underwriters may reasonably request.
(ae) No action shall have been taken and no statute, rule or
regulation or order shall have been enacted, adopted or issued by any
governmental agency that would as of such Delivery Date prevent the
issuance of the Shares; no injunction, restraining order or order of
any nature by a federal or state court of competent jurisdiction shall
have been issued as of such Delivery Date that would prevent the
issuance of the Shares; and, on such Delivery Date no action, suit or
proceeding shall be pending against or affect the Company or any of the
Subsidiaries, before any court or arbitrator or any governmental body,
agency or official that, if adversely determined, would interfere with
or adversely affect the issuance of the Shares or would, except as
disclosed in the Registration Statement and the Prospectus,
individually or in the aggregate have a Material Adverse Effect or in
any manner draw into question the validity of this Agreement, the
Operative Documents or the Shares.
(af) The Nasdaq National Market shall have approved the Shares
for listing, subject only to official notice of issuance and evidence
of satisfactory distribution.
If any of the conditions specified in this Section 7 shall not
have been waived by the Representatives or fulfilled in all material respects
when and as provided in this Agreement, or if any of the opinions and
certificates mentioned above or elsewhere in this Agreement shall not be in all
material respects reasonably satisfactory in form and substance to each of the
Representatives and counsel for the Underwriters, this Agreement and all
obligations of the Underwriters hereunder may be canceled at, or at any time
prior to, such Delivery Date by the Underwriters. Notice of such cancellation
shall be given to the Company in writing or by telephone or telegraph confirmed
in writing.
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8. Indemnification and Contribution.
(a) The Company and the Subsidiaries, jointly and severally,
shall indemnify and hold harmless each Underwriter (including any
Underwriter in its role as qualified independent underwriter pursuant
to the rules of the NASD), its officers and employees and each person,
if any, who controls any Underwriter within the meaning of the
Securities Act, from and against any loss, claim, damage or liability,
joint or several, or any action in respect thereof (including, but not
limited to, any loss, claim, damage, liability or action relating to
purchases and sales of Shares), to which that Underwriter, officer,
employee or controlling person may become subject, under the Securities
Act or otherwise, insofar as such loss, claim, damage, liability or
action arises out of, or is based upon, (i) any untrue statement or
alleged untrue statement of a material fact contained (A) in any
Preliminary Prospectus, the Registration Statement or the Prospectus or
in any amendment or supplement thereto or (B) in any blue sky
application or other document prepared or executed by the Company (or
based upon any written information furnished by the Company)
specifically for the purpose of qualifying any or all of the Shares
under the securities laws of any state or other jurisdiction (any such
application, document or information being hereinafter called a "Blue
Sky Application"), (ii) the omission or alleged omission to state in
the Registration Statement or in any amendment or supplement thereto,
or in any Blue Sky Application any material fact required to be stated
therein or necessary to make the statements therein not misleading, or
in any Preliminary Prospectus or the Prospectus, or in any amendment or
supplement thereto, any material facts required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading, or (iii) any act or failure
to act or any alleged act or failure to act by any Underwriter in
connection with, or relating in any manner to, the Shares or the
offering contemplated hereby, and which is included as part of or
referred to in any loss, claim, damage, liability or action arising out
of or based upon matters covered by clause (i) or (ii) above (provided
that the Company and the Subsidiaries shall not be liable under this
clause (iii) to the extent that it is determined in a final judgment by
a court of competent jurisdiction that such loss, claim, damage,
liability or action resulted directly from any such acts or failures to
act undertaken or omitted to be taken by such Underwriter through its
gross negligence or willful misconduct), and shall reimburse each
Underwriter and each such officer, employee or controlling person
promptly upon demand for any legal or other expenses reasonably
incurred by that Underwriter, officer, employee or controlling person
in connection with investigating or defending or preparing to defend
against any such loss, claim, damage, liability or action as such
expenses are incurred; provided, however, that the Company and the
Subsidiaries shall not be liable in any such case to the extent that
any such loss, claim, damage, liability or action arises out of, or is
based upon, any untrue statement or alleged untrue statement or
omission or alleged omission made in any Preliminary Prospectus, the
Registration Statement or the Prospectus, or in any such amendment or
supplement, or in any Blue Sky Application, in reliance upon and in
conformity with written information concerning such Underwriter
furnished to the Company through the Representatives by or on behalf of
any Underwriter specifically for inclusion therein. The Company and the
Subsidiaries agree, jointly and severally, to indemnify and hold
harmless Lehman Brothers for any liability caused by, based upon or
arising from Lehman Brothers acting or serving as "qualified
independent underwriter" for the Offering of the Shares within the
meaning of Schedule E to the By-Laws of the NASD, except for any such
losses, claims, damages or liabilities which are finally judicially
determined to have resulted from bad faith or gross negligence on the
part of Lehman Brothers. The foregoing indemnity agreement is in
addition to any liability which the Company or the Subsidiaries may
otherwise have to any Underwriter or to any officer, employee or
controlling person of that Underwriter.
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(b) Each Underwriter, severally and not jointly, shall
indemnify and hold harmless the Company, its officers and employees,
each of its directors (including any person who, with his or her
consent, is named in the Registration Statement as about to become a
director of the Company), and each person, if any, who controls the
Company within the meaning of the Securities Act, from and against any
loss, claim, damage or liability, joint or several, or any action in
respect thereof, to which the Company or any such director, officer or
controlling person may become subject, under the Securities Act or
otherwise, insofar as such loss, claim, damage, liability or action
arises out of, or is based upon, (i) any untrue statement or alleged
untrue statement of a material fact contained (A) in any Preliminary
Prospectus, the Registration Statement or the Prospectus or in any
amendment or supplement thereto, or (B) in any Blue Sky Application or
(ii) the omission or alleged omission to state in the Registration
Statement or in any amendment or supplement thereto, or in any Blue Sky
Application any material fact required to be stated therein or
necessary to make the statements therein not misleading or in any
Preliminary Prospectus or the Prospectus, or in any amendment or
supplement thereto, any material facts required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading, but in each case only to
the extent that the untrue statement or alleged untrue statement or
omission or alleged omission was made in reliance upon and in
conformity with written information concerning such Underwriter
furnished to the Company through the Representatives by or on behalf of
that Underwriter specifically for inclusion therein, and shall
reimburse the Company and any such director, officer or controlling
person for any legal or other expenses reasonably incurred by the
Company or any such director, officer or controlling person in
connection with investigating or defending or preparing to defend
against any such loss, claim, damage, liability or action as such
expenses are incurred. The foregoing indemnity agreement is in addition
to any liability which any Underwriter may otherwise have to the
Company or any such director, officer, employee or controlling person.
No Underwriter shall be required to make any reimbursements pursuant to
this Section 8(b) in excess of the amount by which the underwriting
discounts and commissions received by such Underwriter on the Shares
underwritten by it and distributed to the public exceeds the amount of
such damages which such Underwriter has otherwise paid or become liable
to pay under this Section 8.
(c) Promptly after receipt by an indemnified party under this
Section 8 of notice of any claim or the commencement of any action, the
indemnified party shall, if a claim in respect thereof is to be made
against the indemnifying party under this Section 8, notify the
indemnifying party in writing of the claim or the commencement of that
action; provided, however, that the failure to notify the indemnifying
party shall not relieve it from any liability which it may have under
this Section 8 except to the extent it has been materially prejudiced
by such failure and, provided further, that the failure to notify the
indemnifying party shall not relieve it from any liability which it may
have to an indemnified party otherwise than under this Section 8. If
any such claim or action shall be brought against an indemnified party,
and it shall notify the indemnifying party thereof, the indemnifying
party shall be entitled to participate therein and, to the extent that
it wishes, jointly with any other similarly notified indemnifying
party, to assume the defense thereof with counsel reasonably
satisfactory to the indemnified party. After notice from the
indemnifying party to the indemnified party of its election to assume
the defense of such claim or action, the indemnifying party shall not
be liable to the indemnified party under this Section 8 for any legal
or other expenses subsequently incurred by the indemnified party in
connection with the defense thereof other than reasonable costs of
investigation; provided, however, that the Representatives shall have
the right to employ counsel to represent jointly the Representatives
and those other Underwriters and their respective officers, employees
and
28
<PAGE>
controlling persons who may be subject to liability arising out of any
claim in respect of which indemnity may be sought by the Underwriters
against the Company or the Subsidiaries under this Section 8 if, in the
reasonable judgment of the Representatives, it is advisable for the
Representatives and those Underwriters, officers, employees and
controlling persons to be jointly represented by separate counsel, and
in that event the fees and expenses of such separate counsel shall be
paid by the Company or the Subsidiaries. No indemnifying party shall
(i) without the prior written consent of the indemnified parties (which
consent shall not be unreasonably withheld), settle or compromise or
consent to the entry of any judgment with respect to any pending or
threatened claim, action, suit or proceeding in respect of which
indemnification or contribution may be sought hereunder (whether or not
the indemnified parties are actual or potential parties to such claim
or action) unless such settlement, compromise or consent includes an
unconditional release of each indemnified party from all liability
arising out of such claim, action, suit or proceeding, or (ii) be
liable for any settlement of any such action effected without its
written consent (which consent shall not be unreasonably withheld), but
if settled with the consent of the indemnifying party or if there be a
final judgment of the plaintiff in any such action, the indemnifying
party agrees to indemnify and hold harmless any indemnified party from
and against any loss or liability by reason of such settlement or
judgment.
(d) If the indemnification provided for in this Section 8
shall for any reason be unavailable to or insufficient to hold harmless
an indemnified party under Section 8(a) or 8(b) above in respect of any
loss, claim, damage or liability, or any action in respect thereof,
referred to therein, then each indemnifying party shall, in lieu of
indemnifying such indemnified party, contribute to the amount paid or
payable by such indemnified party as a result of such loss, claim,
damage or liability, or action in respect thereof, (i) in such
proportion as shall be appropriate to reflect the relative benefits
received by the Company and the Subsidiaries, on the one hand, and the
Underwriters, on the other hand, from the offering of the Shares or
(ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the
relative fault of the Company and the Subsidiaries, on the one hand,
and the Underwriters, on the other hand, with respect to the statements
or omissions which resulted in such loss, claim, damage or liability,
or action in respect thereof, as well as any other relevant equitable
considerations. The relative benefits received by the Company and the
Subsidiaries on the one hand and the Underwriters on the other with
respect to such offering shall be deemed to be in the same proportion
as the total net proceeds from the offering of the Shares purchased
under this Agreement (before deducting expenses) received by the
Company, on the one hand, and the total underwriting discounts and
commissions received by the Underwriters with respect to the shares of
the Shares purchased under this Agreement, on the other hand, bear to
the total gross proceeds from the offering of the Shares under this
Agreement, in each case as set forth in the table on the cover page of
the Prospectus. The relative fault shall be determined by reference to
whether the untrue or alleged untrue statement of a material fact or
omission or alleged omission to state a material fact relates to
information supplied by the Company, the Subsidiaries or the
Underwriters, the intent of the parties and their relative knowledge,
access to information and opportunity to correct or prevent such
statement or omission. For purposes of the preceding two sentences, the
net proceeds deemed to be received by the Company shall be deemed to be
also for the benefit of the Subsidiaries and information supplied by
the Company shall also be deemed to have been supplied by the
Subsidiaries. The Company, the Subsidiaries and the Underwriters agree
that it would not be just and equitable if contributions pursuant to
this Section 8 were to be determined by pro rata allocation (even if
the Underwriters were treated as one entity for such purpose) or by any
other method of allocation which does not take into account the
equitable
29
<PAGE>
considerations referred to herein. The amount paid or payable by an
indemnified party as a result of the loss, claim, damage or liability,
or action in respect thereof, referred to above in this Section 8 shall
be deemed to include, for purposes of this Section 8(d), any legal or
other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 8(d), no Underwriter
shall be required to contribute any amount in excess of the amount by
which the underwriting discounts and commissions received by such
Underwriter on the Shares underwritten by it and distributed to the
public was offered to the public exceeds the amount of any damages
which such Underwriter has otherwise paid or become liable to pay under
this Section 8. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be
entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations to
contribute as provided in this Section 8(d) are several in proportion
to their respective underwriting obligations and not joint.
(e) The Underwriters severally confirm and the Company and the
Subsidiaries acknowledge that the statements with respect to the public
offering of the Shares by the Underwriters set forth on the cover page
of, the legend concerning over-allotments on the inside front cover
page of and the concession and reallowance figures appearing under the
caption "Underwriting" in, the Prospectus are correct and constitute
the only information concerning such Underwriters furnished in writing
to the Company or the Subsidiaries by or on behalf of the Underwriters
specifically for inclusion in the Registration Statement and the
Prospectus.
9. Defaulting Underwriters.
(a) If, on any Delivery Date, any Underwriter defaults in its
obligation to purchase the Shares which it has agreed to purchase
hereunder, the remaining non-defaulting Underwriters may in their
discretion arrange for the non-defaulting Underwriters or another party
or other parties to purchase the Shares on the terms contained herein.
If the aggregate number of Shares as to which Underwriters default is
more than 9.09% of the aggregate number of Shares to be purchased on
such Delivery Date and within 36 hours after such default by any
Underwriter the non-defaulting Underwriters do not arrange for the
purchase of such Shares, then the Company shall be entitled to a
further period of 36 hours within which to procure another party or
other parties satisfactory to the Representatives to purchase such
Shares on such terms. In the event that, within the respective
prescribed periods, the non-defaulting Underwriters notify the Company
that they have arranged for the purchase of such Shares, or the Company
notifies the Representatives that it has so arranged for the purchase
of such Shares, either the Representatives or the Company shall have
the right to postpone the Delivery Date for up to seven full Business
Days in order to effect any changes that in the opinion of counsel for
the Company or counsel for the Underwriters may be necessary in the
Registration Statement, the Prospectus or in any other document or
arrangement. As used in this Agreement, the term "Underwriter"
includes, for all purposes of this Agreement, unless the context
requires otherwise, any party not listed in Schedule 1 hereto who,
pursuant to this Section 9, purchases Shares which a defaulting
Underwriter agreed but failed to purchase.
(b) If, after giving effect to any arrangements for the
purchase of the Shares of such defaulting Underwriter or Underwriters
by the non-defaulting Underwriters or the Company or both as provided
in subsection (a) above, the aggregate number of such Shares that
remain unpurchased does not exceed 9.09% of the total number of Shares
to be purchased on such Delivery Date, then the remaining
non-defaulting Underwriters shall be obligated to purchase (i)
30
<PAGE>
the number of Shares which each Underwriter agreed to purchase
hereunder and, in addition, (ii) the number of Shares which the
defaulting Underwriter or Underwriters agreed but failed to purchase on
such Delivery Date in the respective proportions which the number of
Firm Shares set opposite the name of each remaining non-defaulting
Underwriter in Schedule 1 hereto bears to the total number of Firm
Shares set opposite the names of all the remaining non-defaulting
Underwriters in Schedule 1 hereto.
(c) If, after giving effect to any arrangements for the
purchase of the Shares of a defaulting Underwriter or Underwriters by
the non-defaulting Underwriters or the Company as provided in
subsection (a) above, the aggregate number of such Shares that remain
unpurchased exceeds 9.09% of the aggregate number of the total number
of Shares to be purchased on such Delivery Date, this Agreement (or,
with respect to the Option Delivery Date, the obligation of the
Underwriters to purchase, and of the Company to sell, the Option
Shares) shall terminate without liability on the part of any
non-defaulting Underwriters or the Company, except that the Company
will continue to be liable for the payment of expenses to the extent
set forth in Sections 6 and 11 hereof. Nothing contained herein shall
relieve a defaulting Underwriter of any liability it may have to the
Company for damages caused by its default.
10. Termination. This Agreement shall be subject to
termination in the absolute discretion of the Representatives, by notice given
to the Company prior to delivery of and payment for the Shares, if prior to such
time any of the following shall have occurred: (i) the Company or any of the
Subsidiaries shall have failed, refused or been unable to perform in any
material respect any agreement on its part to be performed hereunder; (ii) any
other condition of the obligations of the Underwriters hereunder as provided in
Section 7 hereof is not fulfilled when and as required in any material respect;
(iii) trading in securities generally on the New York or American Stock
Exchanges or in the Nasdaq National Market shall have been suspended or
materially limited, or minimum prices shall have been established on such
exchange by the Commission, or by such exchange or other regulatory body or
governmental authority having jurisdiction; (iv) a general moratorium on
commercial banking activities declared by either Federal or New York State
authorities; (v) the outbreak or escalation of hostilities involving the United
States, declaration by the United States of a national emergency or war or other
calamity or crisis, if the effect of any such event specified in this clause (v)
in the reasonable judgment of the Representatives makes it impracticable or
inadvisable to proceed with the offering or delivery of the Shares being
delivered at such Delivery Date on the terms and in the manner contemplated in
the Prospectus; or (vi) the occurrence of any material adverse change in the
existing financial, political or economic conditions in the United States or
elsewhere that in the reasonable judgment of the Representatives, would
materially and adversely affect the financial markets or the market for the
Shares.
11. Reimbursement of Underwriters' Expenses. If the Company
shall fail to tender the Shares for delivery to the Underwriters by reason of
any failure, refusal or inability on the part of the Company or the Subsidiaries
to perform any agreement on their part to be performed, or because any other
condition of the Underwriters' obligations hereunder required to be fulfilled by
the Company or the Subsidiaries is not fulfilled, the Company and the
Subsidiaries will reimburse the Underwriters for all reasonable out-of-pocket
expenses (including fees and disbursements of counsel) incurred by the
Underwriters in connection with this Agreement and the proposed purchase of the
Shares, and upon demand the Company and the Subsidiaries shall pay the full
amount thereof to the Representatives. If this Agreement is terminated pursuant
to Section 9 hereof by reason of the default of one or more Underwriters, the
Company and the Subsidiaries shall not be obligated to reimburse any defaulting
Underwriter on account of those expenses.
31
<PAGE>
12. Notices, etc. All statements, requests, notices and
agreements hereunder shall be in writing, and:
(a) if to the Underwriters, shall be delivered or sent by
mail, telex or facsimile transmission to Lehman Brothers Inc., Three
World Financial Center, New York, New York 10285, Attention: Syndicate
Department (Fax: 212-526-6588), with a copy to Latham & Watkins, 885
Third Avenue, Suite 1000, New York, New York 10022, Attention: Kirk A.
Davenport, Esq. and, in the case of any notice pursuant to Section
8(c), an additional copy to the Director of Litigation, Office of the
General Counsel, Lehman Brothers Inc., 3 World Financial Center, 10th
Floor, New York, NY 10285;
(b) if to the Company shall be delivered or sent by mail,
telex or facsimile transmission to the address of the Company set forth
in the Registration Statement, Attention: Chief Financial Officer (Fax:
(610) 341-1835), with a copy to Drinker Biddle & Reath, 1345 Chestnut
Street, Suite 1100, Philadelphia, Pennsylvania 19107, Attention:
Michael B. Jordan, Esq.;
provided, however, that any notice to an Underwriter pursuant to Section 8(c)
hereof shall be delivered or sent by mail, telex or facsimile transmission to
such Underwriter at its address set forth in its acceptance telex to the
Representatives, which address will be supplied to any other party hereto by the
Representatives upon request. Any such statements, requests, notices or
agreements shall take effect at the time of receipt thereof. The Company shall
be entitled to act and rely upon any request, consent, notice or agreement given
or made on behalf of the Underwriters by Lehman Brothers Inc. on behalf of the
Representatives.
13. Persons Entitled to Benefit of this Agreement. This
Agreement shall inure to the benefit of and be binding upon the Underwriters,
the Company, the Subsidiaries, and their respective successors. This Agreement
and the terms and provisions hereof are for the sole benefit of only those
persons, except that (A) the representations, warranties, indemnities and
agreements of the Company and the Subsidiaries contained in this Agreement shall
also be deemed to be for the benefit of the person or persons, if any, who
control any Underwriter within the meaning of Section 15 of the Securities Act
and (B) the indemnity agreement of the Underwriters contained in Section 8(b) of
this Agreement shall be deemed to be for the benefit of directors of the
Company, officers of the Company who have signed the Registration Statement and
any person controlling the Company within the meaning of Section 15 of the
Securities Act. Nothing in this Agreement is intended or shall be construed to
give any person, other than the persons referred to in this Section 13, any
legal or equitable right, remedy or claim under or in respect of this Agreement
or any provision contained herein.
14. Survival. The respective indemnities, representations,
warranties and agreements of the Company, the Subsidiaries and the Underwriters
contained in this Agreement or made by or on behalf on them, respectively,
pursuant to this Agreement, shall survive the delivery of and payment for the
Shares and shall remain in full force and effect, regardless of any
investigation made by or on behalf of any of them or any person controlling any
of them.
15. Definition of the Term "Business Day." For purposes of
this Agreement, "Business Day" means any day on which the New York Stock
Exchange, Inc. is open for trading.
16. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of New York.
32
<PAGE>
17. Counterparts. This Agreement may be executed in one or
more counterparts and, if executed in more than one counterpart, the executed
counterparts shall each be deemed to be an original but all such counterparts
shall together constitute one and the same instrument.
18. Headings. The 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.
33
<PAGE>
If the foregoing correctly sets forth the agreement among the
Company, the Subsidiaries and the Underwriters, please indicate your acceptance
in the space provided for that purpose below.
Very truly yours,
PEGASUS COMMUNICATIONS CORPORATION (the
"Company)
MCT CABLEVISION, LTD. ("MCT LTD")
PEGASUS ANASCO HOLDINGS, INC. ("PAH")
PEGASUS BROADCAST TELEVISION, INC. ("PBT")
PEGASUS CABLE TELEVISION, INC. ("PCT INC")
PEGASUS CABLE TELEVISION OF ANASCO, INC. ("PCT
ANASCO")
PEGASUS CABLE TELEVISION OF CONNECTICUT, INC.
("PCT CONN")
PEGASUS CABLE TELEVISION OF SAN GERMAN, INC.
("PCT SG")
PEGASUS MEDIA & COMMUNICATIONS, INC. ("PM&C")
PEGASUS SATELLITE TELEVISION, INC. ("PST")
PORTLAND BROADCASTING, INC. ("PBI")
WDBD LICENSE CORP. ("WDBD")
WDSI LICENSE CORP. ("WDSI")
WILF INC. ("WILF")
WOLF LICENSE CORP. ("WOLF")
WTLH, INC. ("WTLH INC")
WTLH LICENSE CORP. ("WTLH")
By: _______________________________________
Marshall W. Pagon, President of each of the
Company, MCT LTD, PAH, PBT, PCT INC,
PCT ANASCO, PCT CONN, PCT SG, PM&C,
PST, PBI,WDBD, WDSI, WILF, WOLF,
WTLH INC and WTLH.
<PAGE>
MCT CABLEVISION, LIMITED PARTNERSHIP ("MCT LP")
By: MCT CABLEVISION, LTD., General Partner
By:
------------------------------------------------
Marshall W. Pagon, President
PEGASUS BROADCAST ASSOCIATES, L.P. ("PBA LP")
By: WILF, INC., General Partner
By:
------------------------------------------------
Marshall W. Pagon, President
<PAGE>
LEHMAN BROTHERS INC.
BT SECURITIES CORPORATION
CIBC WOOD GUNDY SECURITIES CORP.
PAINEWEBBER INCORPORATED
For themselves and as Representatives
of the several Underwriters named
in Schedule 1 hereto
By: LEHMAN BROTHERS INC.
By:
-----------------------------------------------
Name:
Title:
By: BT SECURITIES CORPORATION
By:
-----------------------------------------------
Name:
Title:
By: CIBC WOOD GUNDY SECURITIES CORP.
By:
-----------------------------------------------
Name:
Title:
By: PAINEWEBBER INCORPORATED
By:
-----------------------------------------------
Name:
Title:
<PAGE>
Schedule 1
The Underwriters
Number of Firm Shares
Underwriter to be Purchased
- ----------- ---------------------
Lehman Brothers, Inc.
BT Securities Corporation
CIBC Wood Gundy Securities Corp.
PaineWebber Incorporated
=====================
Total
<PAGE>
Schedule 2
The Subsidiaries
MCT Cablevision, Limited Partnership
MCT Cablevision, Ltd.
Pegasus Anasco Holdings, Inc.
Pegasus Broadcast Associates, L.P.
Pegasus Broadcast Television, Inc.
Pegasus Cable Television, Inc.
Pegasus Cable Television of Anasco, Inc.
Pegasus Cable Television of Connecticut, Inc.
Pegasus Cable Television of San German, Inc.
Pegasus Media & Communications, Inc.
Pegasus Satellite Television, Inc.
Portland Broadcasting, Inc.
WBDB License Corp.
WDSI License Corp.
WILF, Inc.
WOLF License Corp.
WTLH, Inc.
WTLH License Corp.
<PAGE>
Appendix A
Form of Opinion of Vorys, Sater, Seymour and Pease.
Vorys, Sater, Seymour and Pease shall have furnished to the
Representatives its written opinion, as special regulatory counsel for the
Company and MCT Cablevision, Ltd., Pegasus Cable Television, Inc., ____________
and Pegasus Satellite Television (the "Vorys Affiliates"), addressed to the
Underwriters and dated such Delivery Date, to the effect that:
(i) There are no FCC licenses, authorizations, consents or permits required
by the FCC as necessary in connection with the conduct of the Company
and the Vorys Affiliates with respect to the operation of the systems
owned and operated by Company and the Vorys Affiliates (the "Systems")
as presently conducted.
(ii) Such "Registrations" or "Certificates of Compliance" as are required by
the FCC are on file with the FCC. Carriage of the commercial television
broadcast signals presently offered by the Systems are, as of this
date, consistent with the FCC's regulations and are carried pursuant to
retransmission consent or pursuant to request for carriage by the
applicable station.
(iii) All commercial and non-commercial television broadcast stations that
have requested carriage are being carried pursuant to the terms and
conditions of their request.
(iv) All current FCC reports and filings required to be filed for the
Systems have been filed.
(v) All required FCC Forms 320 have been filed for the Systems and reflect
compliance with the FCC's cumulative leakage index ("CLI") and signal
leakage requirements.
(vi) The Systems are in substantial compliance with the FCC's rules and
regulations with regard to equal employment opportunity.
(vii) No consent, approval, or authorization of, or filing with the FCC is
necessary to issue and sell the Shares.
(viii) No consent, approval, or authorization of, or filing with the FCC is
necessary for the execution and delivery of the this Agreement or the
Operative Documents in accordance with their terms.
(ix) The execution and delivery of the Operative Documents, and the
performance, on the Delivery Date, by the Company and the Vorys
Affiliates of the obligations required under the Operative Documents,
will not violate the Telecommunications Act of 1996, the Communications
Act of 1934 or the rules of the FCC, provided, however that no interest
in any license issued by the FCC may be transferred or assigned without
prior FCC consent.
(x) The statements set forth in the Registration Statement and the
Prospectus under the caption "Business - Legislation and Regulation -
Cable," fairly present the information
<PAGE>
contained under such caption insofar as such statements constitute a
summary, with respect to the federal regulation of cable television, of
material (i) statements of law, (ii) statutes, rules or regulations, or
(iii) legal conclusions.
(xi) All relevant Statements of Account (as defined by the Copy Right Act of
1976) required by Section 111 of the Copyright Act of 1976, as amended
(the "Copyright Act"), and royalty payments accompanying said
Statements of Account, have been submitted to the Licensing Division of
the United States Copyright Office with respect to the Systems. There
have been no inquiries received from the United States Copyright Office
or any other party which would have a material adverse impact upon the
operation of the Company and the Vorys Affiliates and which questions
the Statements of Account or any copyright payments made by the Company
and the Vorys Affiliates with respect to the Systems, nor are we aware
of any claim, action, or demand for copyright infringement or for
non-payment of royalties pending or threatened against the Company and
the Vorys Affiliates with respect to the Systems' compliance with
former Section 111(d)(1) of the Copyright Act with regard to the
requirement to file initial notices of identity and signal carriage
complement in view of the elimination of this requirement.
(xii) There is no FCC judgment, decree or order which has been issued against
any System or the Company, or Vorys Affiliates with respect to the
Systems, other than rule makings which are applicable to the cable
industry generally, nor is there any FCC action, proceeding, or
investigation pending, or, to the best of our knowledge, threatened by
the FCC against any system, the Company, or the Vorys Affiliates with
respect to the Systems.
(xiii) A review of the FCC files indicates that the basic rates for all
communities in Massachusetts and Connecticut and the cable program
service tiers of the communities listed on Attachment 1 are subject to
rate regulation by the local franchise authority or the FCC.
(xiv) The FCC has rendered no adverse rate finding with respect to Company,
the Vorys Affiliates, or the Systems.
<PAGE>
Appendix B
Form of Opinion of Fisher Wayland Cooper Leader & Zaragoza L.L.P.
Fisher Wayland Cooper Leader & Zaragoza L.L.P. shall have furnished to
the Representatives its written opinion, as special regulatory counsel for the
Company and Pegasus Broadcast Associates, L.P., Pegasus Broadcast Television,
Inc. WBDB License Corp., WDSI License Corp., WILF, Inc., ____________ and WOLF
License Corp. (the "Wayland Affiliates"), addressed to the Underwriters and
dated such Delivery Date, to the effect that:
1. The statements set forth in the Registration Statement and the
Prospectus under the caption "Business - Legislation and Regulation -
TV," insofar as such statements constitute a summary with respect to
FCC matters of material (i) statements of law, (ii) statutes, rules, or
regulations, or (iii) legal conclusions, fairly present the information
contained under such caption.
2. The execution, delivery, and performance in accordance with their terms
of the Operative Documents by the Company and the Wayland Affiliates
that is a party thereto does not require any authorization, consent, or
approval of the FCC not previously obtained, and does not violate the
Communications Acts of 1934, as amended, and the published rules,
regulations and policies promulgated thereunder by the FCC.
<PAGE>
Appendix C
Form of Opinion of Murtha, Cullina, Richter and Pinney
Murtha, Cullina, Richter and Pinney shall have furnished to the
Representatives its written opinion, as special regulatory counsel for Pegasus
Cable Television, Inc., __________ and Pegasus Cable Television of Connecticut,
Inc. (the "Murtha Affiliates"), addressed to the Underwriters and dated such
Delivery Date, to the effect that there are no facts that causes such counsel to
believe that the Registration Statement or the Prospectus, either at October __,
1996 or the Delivery Date, contained or contains any untrue statement of a
material fact or omitted or omits to state a material fact required to be stated
therein or necessary to make the statement therein not misleading with respect
to the Murtha Affiliates' cable television operations and activities in
Connecticut and Massachusetts.
<PAGE>
AMENDMENT NO. 2 TO
CONTRIBUTION AND EXCHANGE AGREEMENT
This AMENDMENT NO. 2 ("Amendment") made and entered into as of the 3rd
day of September, 1996, by and between PEGASUS COMMUNICATIONS HOLDINGS, INC.
("Pegasus"), a Delaware corporation, and HARRON COMMUNICATIONS CORP. ("Harron"),
a New York corporation. Pegasus and Harron are collectively referred to herein
as the "Parties."
R E C I T A L S:
WHEREAS, the Parties have entered into that certain Contribution and
Exchange Agreement dated as of May 30, 1996, as amended by Amendment No. 1 dated
as of August 19, 1996 ("Agreement"); and
WHEREAS, the Parties wish to amend the Agreement as provided herein.
NOW, THEREFORE, in consideration of the premises and mutual promises
made herein and in the Agreement, and in consideration of the representations,
warranties and covenants contained herein and in the Agreement, and intending to
be legally bound hereby, the Parties agree that Section 2.2 of the Agreement
shall be amended in its entirety as follows:
Section 2.2. Consideration. In exchange for Harron's
contribution of the Assets to PCC, Pegasus shall cause PCC to pay to
Harron the following consideration ("Consideration"):
(a) Cash in an amount equal to $17,894,319 minus the
amount of the Current Liabilities ("Cash Consideration"),
subject to the Operating Adjustment.
(b) The number of shares of Unregistered Class A
Common Stock that could be purchased for $11,929,546 at the
price at which the Registered Class A Common Stock is first
sold to the public in the IPO ("Stock Consideration").
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have duly executed this
Amendment as of the day and year first above written.
PEGASUS COMMUNICATIONS HOLDINGS, INC.
By: /s/ Ted S. Lodge
---------------------------------------
Ted S. Lodge, Senior Vice President
HARRON COMMUNICATIONS CORP.
By: /s/ John F. Quigley, III
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John F. Quigley, III, Vice President
and Chief Financial Officer
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CERTIFICATE OF INCORPORATION
OF
PEGASUS COMMUNICATIONS AND MEDIA CORPORATION
THE UNDERSIGNED, for the purpose of forming a corporation pursuant to
the provisions of the Delaware General Corporation Law, does hereby certify as
follows:
FIRST: The name of the Corporation is PEGASUS COMMUNICATIONS
AND MEDIA CORPORATION (the "Corporation").
SECOND: The address of the Corporation's registered office in the State
of Delaware is 103 Springer Building, 3411 Silverside Road, Wilmington,
Delaware, 19810. The name of the Corporation's registered agent at such address
is Organization Services, Inc., in the County of New Castle.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the Delaware General
Corporation Law.
FOURTH: The total number of shares of stock which the Corporation shall
have authority to issue is 5,000 shares, divided into 3,000 shares of Class A
Common Stock par value $0.01 per share, 1,500 shares of Class B Common Stock,
par value $0.01 per share and 500 shares of Preferred Stock, par value $0.01 per
share.
No stockholder shall have any preemptive right to subscribe to or
purchase any issue of stock or other securities of the Corporation, or any
treasury stock or other treasury securities.
The powers, designations, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights are as follows:
I. PREFERRED STOCK
1. General. The Board of Directors shall have authority, by resolution,
to divide any or all of the shares of Preferred Stock into, and to authorize the
issue of, one or more series, and with respect to each such series to establish
and, prior to the issue thereof, to fix and determine:
(a) a distinguishing designation for such series and the
number of shares comprised by such series, which number may (except as otherwise
provided by the
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Board of Directors in creating such series) be increased or decreased
from time to time (but not below the number of shares then outstanding)
by action of the Board of Directors;
(b) the rate and times at which and the other conditions on
which dividends, if any, on the shares may be declared and paid or set
aside for payment; whether the shares shall be entitled to any
participating or other dividends in addition to dividends at the rate
so determined and, if so, on what terms; and whether dividends shall be
cumulative and, if so, from what date or dates and on what terms;
(c) whether or not the shares shall have voting rights, in
addition to the voting rights provided by law and, if so, the terms and
conditions thereof;
(d) whether the shares shall be convertible or exchangeable,
at the option of either the holder or the Corporation or upon the
happening of a specified event, and, if so, the terms and conditions of
such conversion or exchange, including provisions for any adjustment of
the conversion or exchange rate;
(e) whether or not the shares shall be redeemable and, if so,
the terms and conditions, if any, upon which they may be redeemed,
including the date or dates or event or events upon or after which they
shall be redeemable, the cash, property or rights (including securities
of the Corporation and of a corporation or corporations other than the
Corporation) for which they may be redeemed, whether they shall be
redeemable at the option of the holder or the Corporation, or both, or
upon the happening of a specified event or events and the amount or
rate of cash, property or rights (including securities of the
Corporation and of a corporation or corporations other than the
Corporation) per share payable in case of redemption, which amount may
vary under different conditions and at different redemption dates,
including provisions for any adjustment of the redemption prices or
rates;
(f) whether any shares shall be redeemed through sinking fund
payments and, if so, on what terms;
(g) the amounts payable upon shares in the event of voluntary
or involuntary liquidation, dissolution, winding up or distribution of
the assets of the Corporation; and
(h) the subject to the provisions of the next succeeding
paragraph of this Section 1 of Part I, any other relative powers,
preferences and rights and qualifications, limitations and restrictions
of such series.
In the resolution establishing a new series of Preferred Stock, the
Board of Directors may provide for such additional rights, and with respect to
rights as to dividends, redemption and liquidation, such relative preferences
between shares of different series, as are not
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inconsistent with the rights of any outstanding shares of previously established
series, and not inconsistent with any other provision of this Article FOURTH,
but in the resolution creating a new series of Preferred Stock the Board of
Directors may provide that such series shall have a preference over outstanding
shares of any previously created series of Preferred Stock with respect to
rights as to dividends, redemption and liquidation only to the extent that the
resolutions of the Board of Directors authorizing such previously created series
expressly so permit.
All shares of Preferred Stock of all series shall be identical except
as to the above mentioned rights and preferences which the Board of Directors is
authorized as aforesaid to fix and determine. Except to the extent that the
resolution of the Board of Directors establishing a particular series shall
otherwise provide: (i) in case the stated dividends are not paid in full, all
shares of Preferred Stock of all series shall participate ratably in the payment
of dividends, including accumulated but unpaid dividends, in accordance with the
sums which would be payable thereon if all dividends thereon were declared and
paid in full, and (ii) in case amounts payable upon liquidation of all series
are not paid in full, all shares of Preferred Stock of all series having a
liquidation preference on a parity with one another shall participate ratably in
any distribution of assets other than by way of dividends, in accordance with
the sums which would be payable on such distribution if all sums payable thereon
to holders of all shares of Preferred Stock were discharged in full.
2. Dividends. When and as declared by the Board of Directors, in its
discretion or upon the occurrence of conditions specified in the resolution of
the Board of Directors authorizing a particular series of Preferred Stock
(including, without limitation, the sole specified condition that funds for the
payment of any dividend be legally available for the payment of dividends under
the laws of the State of Delaware as in effect at the time any periodic dividend
is declared or payable, in which event the Board of Directors, in considering
the payment of a dividend on such a series of Preferred Stock, shall not
exercise any element of discretion which it might otherwise exercise in
determining whether a dividend should be declared and paid), the holders of the
shares of Preferred Stock shall be entitled to receive out of any funds of the
Corporation lawfully available for dividends under the laws of the State of
Delaware, dividends at such fixed rate, if any (or, if participating, such
participating rate and such fixed rate, if any), per share for each particular
series, and no more, payable with such frequency and on such dates, and payable
in cash, in property or in rights (including securities of the Corporation or of
one or more corporations or other legal entities other than the Corporation), or
a combination thereof, in each case as the Board of Directors may determine in
fixing and determining the rights and preferences of such series as above
provided. Except to the extent that the resolution of the Board of Directors
establishing a particular series shall provide that dividends on shares of such
series shall not be cumulative or shall otherwise provide, such dividends on the
Preferred Stock shall be cumulative from the dates as follows:
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(a) in the case of shares issued prior to the record date for
the initial dividend on shares of the series of which such shares shall
constitute a part, then from the date of issuance of such shares;
(b) in the case of shares issued during the period commencing
immediately after the record date for a dividend on shares of such
series and terminating at the close of the payment date for such
dividend, then from such dividend payment date; and
(c) otherwise, from the dividend payment date next preceding
the date of issuance of such shares.
Accrued but undeclared or unpaid dividends on any shares of Preferred
Stock shall not bear interest.
Further restrictions with respect to dividends and distributions on,
and acquisitions for value of, shares of Preferred Stock and shares of Class A
Common Stock and Class B Common Stock are set forth in Section 6 of this Part 1.
3. Redemption of Preferred Stock. Except as otherwise provided in
Section 6 of this Part 1, and except to the extent that the resolution of the
Board of Directors establishing a particular series shall provide that shares of
such series (a) shall not be redeemable by the Corporation or (b) shall be
redeemable by the Corporation only after a specified date or period or subject
to any other condition or conditions or (c) shall be redeemable in another
manner, the Corporation may redeem all or any of the outstanding shares of
Preferred Stock, or all or any shares of any series thereof, at any time or from
time to time, upon payment in respect of the shares so redeemed of the amount
payable upon redemption thereof fixed as aforesaid by the Board of Directors in
respect of the series of which such shares shall constitute a part, together in
each case, to the extent that such shares have cumulative dividend rights, with
an amount equal to all accumulated and unpaid dividends accrued thereon to the
date of redemption, whether or not such dividends shall have been earned or
declared (such price, including such amount equal to such accumulated and unpaid
dividends, and whether payable in cash, property or rights or a combination
thereof, as hereinafter provided, being hereinafter called the "redemption
price"). In fixing the redemption price for shares of Preferred Stock of a
particular series as aforesaid, the Board of Directors shall specify whether
such redemption price shall be paid in cash, in property or in rights (including
securities of the Corporation or of one or more legal entities other than the
Corporation), or a combination thereof. If the redemption price of shares of a
particular series may be paid in whole or in part in property or rights, the
resolution fixing the redemption price shall specify the method to be followed
in valuing the property or rights which may be used to make such payment.
Any redemption by the Corporation shall be in such amount, at such
place and in such manner as the Board of Directors shall determine. Except to
the extent that the
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resolution of the Board of Directors authorizing a particular series of
Preferred Stock shall otherwise provide, in the case of a redemption by the
Corporation of less than all the outstanding shares of Preferred Stock of any
series, the particular shares to be redeemed shall be selected by lot in such
manner as the Board of Directors shall determine. Unless otherwise waived in
writing by the holder thereof, notice of every redemption shall be mailed at
least 30 days (or such shorter period as shall be specified in the resolutions
of the Board of Directors establishing the particular series) prior to the date
fixed for such redemption to the holders of record of the shares so to be
redeemed at their respective addresses as the same shall appear on the books of
the Corporation.
From and after the date fixed in any such notice as the date of
redemption by the Corporation, unless default shall be made by the Corporation
in providing the redemption price at the time and place specified for the
payment thereof pursuant to said notice, all dividends on the shares of
Preferred Stock thereby called for redemption shall cease to accrue and all
rights of the holders thereof as stockholders in the Corporation, except the
right to receive the redemption price upon surrender of their share
certificates, shall cease and terminate, and such shares shall not be deemed
outstanding for any purpose.
The Corporation may, however, give or irrevocably authorize the
Depositary hereinafter mentioned forthwith to give written notice (in the manner
as the notice of redemption is required to be given as aforesaid) to the holders
of all the shares of Preferred Stock selected for redemption by the Corporation
that the redemption price has been or will on a date specified be deposited with
a designated bank, bank and trust company, or private bank, which shall have an
office in Wilmington, Delaware, Philadelphia, Pennsylvania, or New York, New
York, and shall have a capital and surplus of not less than $25,000,000
(hereinafter called the "Depositary"), in trust for the account of the holders
of such shares of Preferred Stock, and that such holders may receive the
redemption price of such shares of Preferred Stock from such Depositary on or
after the date of such deposit upon the surrender of their share certificates
without awaiting the date fixed for redemption. In such event, if the redemption
price shall have been so deposited by the Corporation with such Depositary, all
rights as stockholders in the Corporation of the holders of the shares so
called, except the right to receive the redemption price from such Depositary
upon such surrender, shall cease and terminate upon the date of such deposit or
the date of the giving of such notice or authority, whichever be later, and such
shares of Preferred Stock shall thereafter not be deemed to be outstanding for
any purpose; but if any shares so called for redemption shall at that time be
convertible, the conversion privilege may be exercised in accordance with its
terms, but not later than the close of business on the day prior to the date
fixed for redemption. Any portion of the redemption price so deposited which
represents the redemption price of convertible shares which are actually
converted shall promptly be repaid by the Depository to the Corporation. Any
remaining portion of the redemption price so deposited which shall remain
unclaimed by the holders of such shares of Preferred Stock at the end of two
years after the date so fixed for redemption shall be paid by such Depositary to
the Corporation, after which the holders of such shares of Preferred Stock shall
look only to the Corporation for payment of the redemption price thereof.
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Shares of Preferred Stock of any series redeemed, purchased or
otherwise acquired may be cancelled by the Board of Directors and thereupon
restored to the status of authorized but unissued shares of Preferred Stock
undesignated as to series.
4. Liquidation or Dissolution. Except to the extent that the resolution
of the Board of Directors establishing a particular series, shall otherwise
provide with respect to shares of such series, on any voluntary or involuntary
liquidation or dissolution of the Corporation, before any payment or
distribution shall be made to the holders of any Common Stock, the holders of
the shares of Preferred Stock shall be entitled to be paid the amounts, if any,
respectively fixed therefor as aforesaid by the Board of Directors in respect of
each outstanding series of Preferred Stock, together in each case, to the extent
such shares have cumulative dividend rights, with an amount equal to all
accumulated and unpaid dividends thereon to the date of such payment, whether or
not such dividends shall have been earned or declared.
After such payment shall have been made in full to the holders of
shares of Preferred Stock, they shall be entitled to no further payment or
distribution, and the holders of Common Stock and Class A Common Stock shall be
entitled to share ratably in all remaining assets of the Corporation.
A consolidation with or merger with or into any other corporation or
corporations shall not be deemed a liquidation or dissolution of the Corporation
within the meaning of this Section 4 of Part I.
5. Voting Rights. Except to the extent that the resolution of the Board
of Directors establishing a particular series shall otherwise provide, and
except as otherwise provided herein or by law, at each meeting of stockholders
of the Corporation, each holder of shares of Preferred Stock shall be entitled
to one vote for each such share standing in his or her name on the books of the
Corporation on each matter to come before the meeting.
The resolution of the Board of Directors establishing a particular
series may confer on holders of the shares of such series, voting separately or
with holders of shares of Preferred Stock of other series, the right to elect a
member or members of the Board of Directors at any time or from time to time.
6. Restrictions on Dividends and Purchase of Shares of Preferred and
Common Stock.
(a) So long as any shares of Preferred Stock shall be outstanding, no
dividend (other than dividends payable in shares of Class A Common Stock or
Class B Common Stock) shall be paid or distribution shall be made on the shares
of Class A Common Stock or Class B Common Stock, nor shall any shares of Class A
Common Stock or Class B Common Stock be purchased, retired or otherwise acquired
by the Corporation, unless in each such case:
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(1) all accumulated and unpaid dividends, if any, on all
outstanding shares of Preferred Stock for all past dividend periods
shall have been paid and full dividends, if any, on all shares of
Preferred Stock for the then current dividend period declared and a sum
sufficient for the payment thereof set apart; and
(2) the Corporation shall not be in arrears in respect of any
sinking fund obligation or obligations of a similar nature in respect
of any series of Preferred Stock.
(b) The resolutions of the Board of Directors establishing a particular
series of Preferred Stock may provide that the payment of any dividend or the
making of any distribution on, or the redemption, purchase or other acquisition
(for sinking fund purposes or otherwise) by the Corporation of, shares of that
series or any other series of Preferred Stock (but, in the case of any other
series established before the series in question, only if the resolution of the
Board of Directors establishing such other series so permits) shall be
conditioned on:
(1) the payment of all accumulated and unpaid dividends, if
any, on all outstanding shares of Preferred Stock of one or more
specified series and the declaration of full dividends, if any, on all
shares of Preferred Stock of one or more specified series for the then
current dividend period and the setting apart of a sum sufficient for
the payments thereof;
(2) the absence of any arrearage in respect of any sinking
fund obligation or obligations of a similar mature in respect of one or
more specified series of Preferred Stock; or
(3) any other condition specified in such resolution.
7. Certain Matters Requiring Consent of Holders of Two-Thirds of
Preferred Stock. So long as any shares of Preferred Stock shall be outstanding,
and subject to the provisions of the last sentence of this Section 7 of Part I,
the Corporation shall not, without the consent of the holders of at least
two-thirds of the shares of Preferred Stock at the time outstanding, voting as a
single class and not separately by series, given in person or by proxy, either
in writing or at a meeting called for the purpose:
(a) adopt or effect any amendment to the Corporation's
Certificate of Incorporation, including any amendment to the terms of
any previously created series of Preferred Stock, other than an
amendment of the nature described under Section 8 of this Part I, which
would adversely affect the powers, preferences or special rights of the
Preferred Stock; but if any such amendment shall adversely affect the
powers, preferences or special rights of one or more, but not all, of
the several series of Preferred Stock at the time outstanding, the
consent of the holders of at least two-thirds of the shares then
outstanding of those series adversely affected, voting together
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and not by series, shall be required in lieu of the consent of the
holders of two-thirds of the Preferred Stock; or
(b) authorize any new class of stock which is senior to the
Preferred Stock with respect to the payment of dividends or
distributions on liquidation or dissolution.
Notwithstanding the foregoing provisions, the resolution of the Board of
Directors creating a particular series may provide that the consent of the
holders of the outstanding shares of such series shall not be required with
respect to some or all of the foregoing matters and, to the extent so provided,
such shares shall not be deemed outstanding for the purpose of applying the
provisions of this Section 7 of Part I.
8. Certain Matters Requiring Consent of Holders of Majority of All
Outstanding Shares. The Corporation may increase the authorized number of shares
of Preferred Stock, or authorize any new class of stock which is on a parity
with the Preferred Stock with respect to the payment of dividends or
distributions on liquidation or dissolution, by obtaining the affirmative vote,
given in person or by proxy, of the holders of at least a majority of the then
outstanding Class A Common Stock, Class B Common Stock and Preferred Stock,
voting together and not by class.
II. CLASS A COMMON STOCK AND CLASS B COMMON STOCK
1. Dividends.
(a) Subject to the rights of the holders of Preferred Stock, and
subject to any other provisions of this Certificate of Incorporation, as amended
from time to time, the holders of Class A Common Stock and the holders of Class
B Common Stock shall be entitled to receive such dividends and other
distributions in cash or property of the Corporation, or, subject to subsection
(b), securities or obligations of the Corporation, as may be declared thereon by
the Board of Directors from time to time out of assets or funds of the
Corporation legally available therefor; but except as provided in subsection
(b), a dividend may be declared and paid on shares of either the Class A Common
Stock or the Class B Common Stock only if an identical dividend shall be
simultaneously declared and paid on each share of the other class.
(b) In the case of dividends or other distributions payable on the
Class A Common Stock or the Class B Common Stock, including distributions
pursuant to stock splits or divisions of the Class A Common Stock or the Class B
Common Stock, (1) only Class A Common Stock shall be paid or distributed on the
Class A Common Stock, and only Class B Common Stock shall be paid or distributed
on the Class B Common Stock, and (2) any such payment or distribution on either
class may be made only if parallel action is simultaneously taken in respect of
the other class, so that the number of shares of each class outstanding
immediately following such stock dividend, stock split or stock division shall
bear the same
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relationship to each other as the number of shares of each class outstanding
immediately before such stock dividend, stock split or stock division.
(c) In the case of any decrease in the number of outstanding shares of
the Class A Common Stock or the Class B Common Stock resulting from a
combination or consolidation of shares or other capital reclassification,
parallel action shall be simultaneously taken in respect of the other class so
that the number of shares of each class outstanding immediately following such
combination, consolidation or capital reclassification shall bear the same
relationship to each other as the number of shares of each class outstanding
immediately before such combination, consolidation or capital reclassification.
2. Voting.
(a) At every meeting of stockholders and in respect of each action by
consent in writing of the holders, every holder of Class A Common Stock shall be
entitled to one (1) vote in person or by proxy for each share of Class A Common
Stock standing in his or her name on the transfer books of the Corporation, and
every holder of Class B Common Stock shall be entitled to ten (10) votes in
person or by proxy for each share of Class B Common Stock standing in his or her
name on the transfer books of the Corporation.
(b) Except as may be otherwise required by law or by Section 2(c) of
this Part II, the holders of Class A Common Stock and Class B Common Stock shall
vote together as a single class on all matters with respect to which a vote of
the shareholders of the Corporation is required or permitted under applicable
law, including, without limitation, any amendment of this Certificate of
Incorporation, subject to any voting rights that may be granted to holders of
Preferred Stock.
(c) Notwithstanding Section 2(b) of this Part II, but subject to any
voting rights that may be granted to holders of Preferred Stock, any amendment
to this Certificate of Incorporation that has any of the following effects may
be authorized only by the vote of the holders of a majority of the outstanding
shares of the Class A Common Stock and a majority of the outstanding shares of
the Class B Common Stock, voting as separate classes:
(1) any decrease in the voting rights per share of the Class A
Common Stock or any increase in the voting rights per share of the
Class B Common Stock;
(2) any increase in the number of shares of Class A Common
Stock into which shares of Class B Common Stock are convertible, as
provided herein;
(3) any relaxation on the restrictions on transfer of the
Class B Common Stock, as provided herein;
(4) the authorization or issuance (other than issuances that
comply with Section 1(b)(2) of this Part II) of additional shares of
Class B Common Stock after the
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closing date of the Corporation's initial public offering of shares of
Class A Common Stock registered under the Securities Act of 1933; or
(5) any change in the powers, preferences or special rights of
the Class A Common Stock or the Class B Common Stock adversely
affecting the holders of the Class A Common Stock.
3. Transfer.
(a) No person holding shares of Class B Common Stock of record
(hereinafter called "Class B Holder") may transfer, and the Corporation shall
not register the transfer of, such shares of Class B Common Stock, whether by
sale, assignment, gift, bequest, appointment, operation of law or otherwise,
except to a Permitted Transferee. "Permitted Transferee" means:
(1) Marshall W. Pagon or any immediate family member of his;
or
(2) any trust (including a voting trust), corporation,
partnership or other entity, more than 50% of the voting equity
interests of which are owned directly or indirectly by (or, in the case
of a trust not having voting equity interests, which is more than 50%
for the benefit of) and which is controlled by, one or more persons
referred to in Section 3(a)(1) of this Part II; or
(3) the estate of any person referred to in Section 3(a)(1) of
this Part II until such time as the property of such estate is
distributed in accordance with his will or applicable law.
For purposes of the definition of "Permitted Transferee": (A) "immediate family
member" means (i) the spouse or any parent of Marshall W. Pagon, (ii) any lineal
descendant of a parent of Marshall W. Pagon, and (iii) the spouse of any such
lineal descendant (parentage and descent in each case to include adoptive and
step relationships); and (B) "control" of a trust, corporation or other entity
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management or policies of the trust, corporation or other
entity, whether through the ownership of voting securities, by agreement or
otherwise.
(b) Notwithstanding anything to the contrary set forth herein, any
Class B Holder may pledge such Holder's shares of Class B Common Stock to a
pledgee pursuant to a bona fide pledge of such shares as collateral security for
indebtedness due to the pledgee, provided that such shares shall not be
transferred to or registered in the name of the pledgee and shall remain subject
to the provisions of this Section 3. In the event of foreclosure or other
similar action by the pledgee, such pledged shares of Class B Common Stock may
be transferred only to a Permitted Transferee or may be converted into shares of
Class A Common Stock, as the pledgee may elect.
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(c) The following events shall result in the conversion of the
applicable shares of Class B Common Stock into shares of Class A Common Stock:
(1) a Class B Holder shall transfer Class B Common Stock to a
person or entity not a Permitted Transferee;
(2) a Class B Holder shall transfer to any person or entity
not a Permitted Transferee, including, without limitation, a pledgee,
the right to vote any Class B Common Stock, whether by agreement,
voting trust or otherwise; or
(3) a trust, corporation, partnership or other entity holding
Class B Common Stock ceases to meet the description contained in
Section 3(a)(2) of this Part II.
If any of the foregoing events shall occur, all shares of Class B Common Stock
subject to such transfer or then held by such trust, corporation, partnership or
other entity, whichever is applicable, shall, without further act on anyone's
part, be converted into shares of Class A Common Stock effective upon the date
such event occurs, and stock certificates formerly representing such shares of
Class B Common Stock shall thereupon and thereafter be deemed to represent the
like number of shares of Class A Common Stock. The Corporation may, in
connection with preparing a list of shareholders entitled to vote at any meeting
of shareholders, or as a condition to the transfer or the registration of shares
of Class B Common Stock on the Corporation's books, require the furnishing of
such affidavits, documents or other proof as it deems necessary to establish
that any person is a Permitted Transferee or to ascertain that none of the
events described in this subsection (c) has occurred.
(d) Shares of Class B Common Stock shall be registered in the names of
a beneficial owner thereof and not in "street" or "nominee" name. For this
purpose, a "beneficial owner" of any shares of Class B Common Stock means a
person or entity that possesses the power, either singly or jointly, to direct
the voting or disposition of such shares. The Corporation shall note on the
certificates for shares of Class B Common Stock the existence of the
restrictions on transfer imposed by this Section 3.
4. Conversion Rights.
(a) Subject to the terms and conditions of this Section 4, each share
of Class B Common Stock shall be convertible at any time or from time to time,
at the option of the respective holder thereof, at the office of any transfer
agent for Class B Common Stock, and at such other place or places, if any, as
the Board of Directors may designate, or, if the Board of Directors shall fail
so to designate, at the principal office of the Corporation, into one (1) fully
paid and nonassessable share of Class A Common Stock. Upon conversion, the
Corporation shall make no payment or adjustment on account of dividends accrued
or in arrears on Class B Common Stock surrendered for conversion or on account
of any dividends
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on the Class A Common Stock issuable on such conversion. Before any holder of
Class B Common Stock shall be entitled to convert the same into Class A Common
Stock, he shall surrender the certificate or certificates for such Class B
Common Stock at the office of said transfer agent (or other place as provided
above), which certificate or certificates, if the Corporation shall so request,
shall be duly endorsed to the Corporation in blank or be accompanied by proper
instruments of transfer to the Corporation in blank (such endorsements or
instruments of transfer to be in form satisfactory to the Corporation), and
shall give written notice to the Corporation at said office that he elects so to
convert said Class B Common Stock in accordance with the terms of this Section 4
and shall state in writing therein the name or names in which he wishes the
certificate or certificates for Class A Common Stock to be issued. The
Corporation will as soon as practicable after such deposit of a certificate or
certificates for Class B Common Stock, accompanied by the written notice and the
statement above prescribed, issue and deliver at the office of said transfer
agent (or other place as provided above) to the person for whose account such
Class B Common Stock was so surrendered, or to his nominee or nominees, a
certificate or certificates for the number of full shares of Class A Common
Stock to which he or she shall be entitled as aforesaid. Subject to the
provisions of subsection (c) of this Section 4, such conversion shall be deemed
to have been made as of the date of such surrender of the Class B Common Stock
to be converted; and the person or persons entitled to receive the Class A
Common Stock issuable upon conversion of such Class B Common Stock shall be
treated for all purposes as the record holder of holder of such Class A Common
Stock on such date.
(b) The issuance of certificates for shares of Class A Common Stock
upon conversion of shares of Class B Common Stock shall be made without charge
for any stamp or other similar tax in respect of such issuance. However, if any
such certificate is to be issued in a name other than that of the holder of the
share or shares of Class B Common Stock converted, the person or persons
requesting the issuance thereof shall pay to the Corporation the amount of any
tax which may be payable in respect of any transfer involved in such issuance or
shall establish to the satisfaction of the Corporation that such tax has been
paid.
(c) The Corporation shall not be required to convert Class B Common
Stock, and no surrender of Class B Common Stock shall be effective for that
purpose, while the stock transfer books of Class A Common Stock or Class B
Common Stock are closed for any purpose; but the surrender of Class B Common
Stock for conversion during any period while such books are so closed shall
become effective for conversion immediately upon the reopening of such books, as
if the conversion had been made on the date such Class B Common Stock was
surrendered.
(d) The Corporation covenants that it will at all times reserve and
keep available, solely for the purpose of issuance upon conversion of the
outstanding shares of Class B Common Stock, such number of shares of Class A
Common Stock as shall be issuable upon the conversion of all such outstanding
shares, but nothing contained herein shall be
-12-
<PAGE>
construed to preclude the Corporation from satisfying its obligations in respect
of the conversion of the outstanding shares of Class B Common Stock by delivery
of shares of Class A Common Stock held in the treasury of the Corporation. The
Corporation covenants that if any shares of Class A Common Stock, required to be
reserved for purposes of conversion hereunder, require registration with or
approval of any governmental authority under any federal or state law before
such shares of Class A Common Stock may be issued upon conversion, the
Corporation will use its best efforts to cause such shares to be duly registered
or approved, as the case may be. The Corporation will endeavor to list the
shares of Class A Common Stock required to be delivered upon conversion prior to
such delivery upon each national securities exchange, if any, upon which the
outstanding Class A Common Stock is listed at the time of such delivery. The
Corporation covenants that all shares of Class A Common Stock which shall be
issued upon conversion of the shares of Class B Common Stock, will, upon
issuance, be fully paid and nonassessable and not entitled to an preemptive
rights.
(e) Shares of Class A Common Stock, including shares originally issued
upon conversion of Class B Common Stock, shall not be convertible into Class B
Common Stock or any other class of stock.
5. Subscription and Related Rights; Mergers and Other Transactions. In
the event that rights to subscribe to Class A Common Stock, options or warrants
to purchase Class A Common Stock, or any securities convertible into Class A
Common Stock are offered or granted to all holders of Class A Common Stock or
Class B Common Stock, parallel action shall be simultaneously taken in respect
of the other class, so that the number of shares of each class that would be
outstanding immediately after the exercise in full of such rights, options or
warrants or the conversion of such convertible securities shall bear the same
relationship to each other as the number of shares of each class outstanding
immediately before the offer or grant of such rights, options, warrants or
convertible securities. Except as provided in the following sentence, if there
should be any merger, consolidation, purchase or acquisition of property or
stock, separation, reorganization or liquidation of the Corporation, the holders
of Class A Common Stock and the holders of Class B Common Stock shall receive
the shares of stock, securities or other assets as would be issuable or payable
upon such merger, consolidation, purchase or acquisition of such property or
stock, separation, reorganization or liquidation as if the Class A Common Stock
and the Class B Common Stock were one and the same class of stock.
Notwithstanding the foregoing, in the event of a merger or consolidation which,
by its terms, contemplates that the holders of Class B Common Stock will
receive, in exchange for their Class B Common Stock, capital stock of the
surviving corporation, the holders of Class B Common Stock shall be entitled (to
the extent provided for in the terms of such merger or consolidation) to
receive, in exchange for their Class B Common Stock, shares of stock of the
surviving corporation having substantially similar relative designations,
preferences, qualification, privileges, limitations, restrictions (including,
without limitation, restrictions on transferability) and rights as the relative
designations, preferences, qualifications, privileges, limitations, restrictions
and rights of the Class B Common Stock.
-13-
<PAGE>
6. Liquidation Rights. In the event of any dissolution, liquidation or
winding up of the affairs of the Corporation, whether voluntary or involuntary,
after payment or provision for payment of the debts and other liabilities of the
Corporation, and after payment in full of amounts, if any, required to be paid
to the holders of shares of stock having preferential liquidation rights,
including without limitation the holders of Preferred Stock, the remaining
assets of the Corporation shall be divided among and distributed ratably to the
holders of Class A Common Stock and Class B Common Stock (including those
persons who shall become holders of Class A Common Stock by reason of converting
their shares of Class B Common Stock), with no distinction between the Class A
Common Stock and the Class B Common Stock. A merger or consolidation of the
Corporation with or into any corporation or other entity or a sale of all or any
part of the assets of the Corporation (which shall not in fact result in the
liquidation of the Corporation and the distribution of its assets to
stockholders) shall not be deemed to be a dissolution, liquidation or winding up
of the affairs of the Corporation within the meaning of this Section 6.
7. Other Rights. Except as expressly set forth in this Article FOURTH,
each share of Class A Common Stock shall entitle the holder thereof to rights
that are in all respects identical to the rights of a holder of Class B Common
Stock.
FIFTH: The name and mailing address of the incorporator is as follows:
Name Mailing Address
----- ---------------
Michael B. Jordan Drinker Biddle & Reath
Philadelphia National Bank Building
1345 Chestnut Street
Philadelphia, PA 19107-3496
SIXTH: In furtherance and not in limitation of the general powers
conferred by the laws of the State of Delaware, the Board of Directors is
expressly authorized to make, alter or repeal the bylaws of the Corporation,
except as specifically otherwise provided therein.
SEVENTH: A director of the Corporation shall have no personal liability
to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director except to the extent that Section 102(b)(7) (or any
successor provision) of the Delaware General Corporation Law, as amended from
time to time, expressly provides that the liability of a director may not be
eliminated or limited. No amendment or repeal of this Article SEVENTH shall
apply to or affect the liability or alleged liability of any director of the
Corporation for or in respect of any act or omission of such director occurring
before such amendment or repeal.
-14-
<PAGE>
IN WITNESS WHEREOF, the undersigned, being the incorporator
hereinabove named, does hereby execute this Certificate of Incorporation this
30th day of May 1996.
/s/ Michael B. Jordan
-------------------------
Michael B. Jordan
Incorporator
-15-
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
PEGASUS COMMUNICATIONS AND MEDIA CORPORATION
----------------
Pegasus Communications and Media Corporation (the "Corporation"), a
corporation organized and existing under and by virtue of the General
Corporation Law of the State of Delaware, does hereby certify:
1. That the Board of Directors of this Corporation, by unanimous
written consent of all of its members, adopted the following resolutions to
amend its Certificate of Incorporation:
RESOLVED, that Article First of the Certificate of Incorporation of
this Corporation be amended to read in its entirety as follows:
1. The name of the Corporation is PEGASUS
COMMUNICATIONS CORPORATION (the "Corporation").
RESOLVED, that Article Fourth, Part II, Section 2(c) of the Certificate
of Incorporation of this Corporation be amended to read in its entirety
as follows:
(c) Notwithstanding Section 2(b) of this Part II, but subject
to any voting rights that may be granted to holders of
Preferred Stock, the following matters may be authorized only
by the vote of the holders of a majority of the outstanding
shares of the Class A Common Stock and a majority of the
outstanding shares of the Class B Common Stock, voting as
separate classes:
(i) the authorization or issuance (other than issuances that
comply with Section 1(b)(2) of this Part II) of additional
shares of Class B Common Stock after the closing date of the
Corporation's initial public offering of shares of Class A
Common Stock under the Securities Act of 1933; and
<PAGE>
(ii) any amendment to this certificate of
Incorporation that has any of the following
effects:
(1) any decrease in the voting rights per share of
Class A Common Stock or any increase in the voting
rights per share of the Class B Common Stock;
(2) any increase in the number of shares of Class A
Common Stock into which shares of Class B Common
Stock are convertible, as provided herein;
(3) any relaxation on the restrictions on transfer
of the Class B Common Stock, as provided herein; or
(4) any change in the powers, preferences or special
rights of the Class A Common Stock or the Class B
Common Stock adversely affecting the holders of the
Class A Common Stock.
2. That the aforesaid amendment was consented to and authorized by all
of the Stockholders entitled to vote of this Corporation by unanimous written
consent given in accordance with Section 228 of the General Corporation Law of
the State of Delaware.
3. That the aforesaid amendment was duly adopted in
accordance with Sections 242 and 228 of the General Corporation
Law of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be signed by Michael B. Jordan, the Assistant Secretary of the
Corporation, this 3rd day of July, 1996.
/s/ Michael B. Jordan
----------------------------
Michael B. Jordan
Assistant Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
PEGASUS COMMUNICATIONS CORPORATION
----------------
PEGASUS COMMUNICATIONS CORPORATION, a corporation organized and
existing under and by virtue of the Delaware General Corporation Law, as amended
(the "Company"),
DOES HEREBY CERTIFY THAT:
FIRST: The Board of Directors of the Company has, by unanimous written
consent of its directors, adopted the following resolution proposing and
declaring advisable the following amendment to the Certificate of Incorporation
of the Company (the "Amendment"):
RESOLVED, that the first sentence of Article FOURTH
of the Company's Certificate of Incorporation, as amended, be
amended to read as follows (the "Amendment") and is hereby
proposed and declared to be advisable and in the best
interests of the Company:
"FOURTH: The total number of shares of stock
which the Corporation shall have authority to issue
is 50,000,000 shares, divided into 30,000,000 shares
of Class A Common Stock, par value $0.01 per share,
15,000,000 shares of Class B Common Stock, par value
$0.01 per share and 5,000,000 shares of Preferred
Stock, par value $0.01 per share."
SECOND: Thereafter, pursuant to resolution of its Board of Directors,
in lieu of a meeting and vote of stockholders, the sole stockholder of the
common stock of the Company entitled to vote thereon has given a written consent
to the Amendment in accordance with the provisions of the Delaware General
Corporation Law, as amended.
THIRD: The Amendment has been duly adopted in accordance with the
provisions of Sections 242 and 228 of the Delaware General Corporation Law, as
amended.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this certificate to be
signed by its Senior Vice President, General Counsel, Chief Administrative
Officer and Assistant Secretary, this 11th day of September 1996.
/s/ Ted Lodge
-------------------------------
Ted S. Lodge
Senior Vice President, General
Counsel, Chief Administrative
Officer and Assistant Secretary
-2-
<PAGE>
Exhibit 5.1
DRINKER BIDDLE & REATH
Philadelphia National Bank Building
1345 Chestnut Street
Philadelphia, PA 19107-3496
Telephone: (215) 988-2700
Fax: (215) 988-2757
September 30, 1996
Pegasus Communications Corporation
c/o Pegasus Communications Management Company
100 Matsonford Road
Suite 454, 5 Radnor Corporate Center
Radnor, PA 19087
Re: Registration Statement on Form S-1
Ladies and Gentlemen:
As counsel to Pegasus Communications Corporation, a Delaware
corporation (the "Company"), we have assisted in the preparation and filing of
the Company's Registration Statement on Form S-1, File No. 333-05057 (the
"Registration Statement") filed with the Securities and Exchange Commission
under the Securities Act of 1933, as amended (the "Securities Act"), covering
(i) 3,000,000 shares of the Company's Class A common stock, par value $.01 per
share (the "Class A Common Stock") which are being sold by the Company and (ii)
up to 450,000 shares of Class A Common Stock which the Underwriters will have an
option to purchase from the Company solely for the purpose of covering
over-allotments, if any, pursuant to the terms of an underwriting agreement (the
"Underwriting Agreement"). All of the shares of Class A Common Stock will be
sold by the underwriters for whom Lehman Brothers Inc., B.T. Securities
Corporation, CIBC Wood Gundy Securities Corp. and PaineWebber Incorporated are
acting as representatives (collectively, the "Underwriters").
In this connection, we have examined the originals or copies,
certified or otherwise identified to our satisfaction, of the Certificate of
Incorporation and By-laws of the Company, as amended, minutes and resolutions of
the Company's Board of Directors and such other documents and corporate records
relating to the Company and the issuance of the Class A Common Stock as we have
deemed appropriate for the purpose of rendering this opinion. We express no
opinion concerning the laws of any jurisdiction other than the federal law of
the United States and the General Corporation Law of the State of Delaware.
In all examinations of documents, instruments and other
papers, we have assumed the genuineness of all signatures on
<PAGE>
Pegasus Communications Corporation
September 30, 1996
Page 2
original and certified documents and the conformity with original and certified
documents of all copies submitted to us as conformed, photostatic or other
copies. As to matters of fact which have not been independently established, we
have relied upon representations of officers of the Company.
On the basis of the foregoing, it is our opinion that (i)
appropriate corporate action has been taken to authorize the sale and issuance
of up to 3,450,000 shares of Class A Common Stock to be sold by the Company to
the Underwriters (including up to 450,000 shares to be issued pursuant to the
over-allotment option), and (ii) when issued and sold pursuant to the terms of
the Underwriting Agreement, such shares of Class A Common Stock will be legally
issued, fully paid and nonassessable.
We hereby consent to the reference to our firm under the
caption "Legal Matters" in the prospectus included in the Registration Statement
and to the filing of this opinion as an exhibit to the Registration Statement.
This does not constitute a consent under Section 7 of the Securities Act as we
have not certified any part of the Registration Statement and do not otherwise
come within the categories of persons whose consent is required under Section 7
or the rules and regulations of the Securities and Exchange Commission.
Very truly yours,
/s/DRINKER BIDDLE & REATH
DRINKER BIDDLE & REATH
<PAGE>
Exhibit 10/27
CREDIT AGREEMENT
among
PEGASUS MEDIA & COMMUNICATIONS, INC.
THE SEVERAL LENDERS FROM
TIME TO TIME PARTIES HERETO
- and -
CANADIAN IMPERIAL BANK OF COMMERCE,
NEW YORK AGENCY
as Agent
Dated as of August 29, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE NO.
<S> <C> <C>
RECITALS ...................................................................... 1
I. GENERAL TERMS.................................................................... 1
1.01 Reducing Revolver Facilities.......................................... 1
1.02 Revolving Lines of Credit............................................. 2
1.03 Interest on the Notes................................................. 3
1.04 Requests for Advances; Type of Loan................................... 6
1.05 Loan Disbursements.................................................... 7
1.06 Payments, Prepayments and Termination or Reduction of the
Commitments........................................................... 7
1.07 Fees.................................................................. 11
1.08 Requirements of Law................................................... 11
1.09 Limitations on LIBOR Loans; Illegality................................ 12
1.10 Taxes................................................................. 13
1.11 Indemnification....................................................... 14
1.12 Payments Under the Notes.............................................. 14
1.13 Set-Off, Etc.......................................................... 15
1.14 Pro Rata Treatment; Sharing........................................... 16
1.15 Non-Receipt of Funds by the Agent..................................... 16
1.16 Replacement of Notes.................................................. 17
II. SECURITY; SUBORDINATION; USE OF PROCEEDS......................................... 17
2.01 Security for the Obligations; Subordination; Etc...................... 17
2.02 Use of Proceeds....................................................... 18
III. CONDITIONS OF MAKING THE LOANS................................................... 18
3.01 Conditions to the First Advances...................................... 18
3.02 Acquisition Loans..................................................... 21
3.03 All Loans............................................................. 23
3.04 Lender Approvals...................................................... 23
IV. REPRESENTATIONS AND WARRANTIES................................................... 23
4.01 Financial Statements.................................................. 23
4.02 Organization, Qualification, Etc...................................... 24
4.03 Authorization; Compliance; Etc........................................ 24
4.04 Governmental and Other Consents, Etc.................................. 24
4.05 Litigation............................................................ 25
4.06 Compliance with Laws and Agreements................................... 25
4.07 Franchises; Licenses, Etc............................................. 25
4.08 The Systems........................................................... 26
4.09 Rate Regulation....................................................... 28
4.10 The Stations.......................................................... 28
4.11 DBS Rights............................................................ 29
4.12 Title to Properties; Condition of Properties.......................... 29
4.13 Interests in Other Businesses......................................... 29
4.14 Solvency.............................................................. 29
4.15 Full Disclosure....................................................... 30
4.16 Margin Stock.......................................................... 30
4.17 Tax Returns........................................................... 30
4.18 Pension Plans, Etc.................................................... 30
4.19 Material Agreements................................................... 30
4.20 Projections........................................................... 31
4.21 Brokers, Etc.......................................................... 31
4.22 Capitalization........................................................ 31
4.23 Environmental Compliance.............................................. 31
4.24 Investment Company Act................................................ 32
4.25 Labor Matters......................................................... 32
4.26 Senior Debt........................................................... 32
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
V. FINANCIAL COVENANTS.............................................................. 32
5.01 Leverage.............................................................. 33
5.02 Interest Coverage..................................................... 33
5.03 Fixed Charges......................................................... 34
5.04 Pro Forma Debt Service Coverage....................................... 34
5.05 Capital Expenditures.................................................. 34
5.06 Restricted Payments................................................... 35
VI. AFFIRMATIVE COVENANTS............................................................ 35
6.01 Preservation of Assets; Compliance with Laws, Etc..................... 35
6.02 Insurance............................................................. 36
6.03 Taxes, Etc............................................................ 36
6.04 Notice of Proceedings, Defaults, Adverse Change, Etc.................. 37
6.05 Financial Statements and Reports...................................... 37
6.06 Inspection............................................................ 40
6.07 Accounting System..................................................... 40
6.08 Appraisals............................................................ 40
6.09 Additional Assurances................................................. 40
6.10 Completion of Improvements............................................ 41
6.11 Renewal of Franchises................................................. 41
6.12 Compliance with Environmental Laws.................................... 41
6.13 Interest Rate Protection.............................................. 42
VII. NEGATIVE COVENANTS............................................................... 42
7.01 Indebtedness.......................................................... 42
7.02 Liens................................................................. 43
7.03 Disposition of Assets; etc............................................ 44
7.04 Fundamental Changes; Acquisitions..................................... 44
7.05 Local Marketing Agreements, Etc....................................... 45
7.06 Management............................................................ 45
7.07 Sale and Leaseback.................................................... 45
7.08 Investments........................................................... 45
7.09 Change in Business.................................................... 45
7.10 Accounts Receivable................................................... 45
7.11 Transactions with Affiliates.......................................... 45
7.12 Amendment of Certain Agreements, Etc.................................. 45
7.13 ERISA................................................................. 46
7.14 Margin Stock.......................................................... 46
7.15 Negative Pledges, etc................................................. 46
VIII. DEFAULTS ...................................................................... 46
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
IX. REMEDIES ON DEFAULT, ETC......................................................... 49
X. THE AGENT ...................................................................... 49
10.01 Appointment, Powers and Immunities.................................... 49
10.02 Reliance by Agent..................................................... 50
10.03 Events of Default..................................................... 50
10.04 Rights as a Lender.................................................... 50
10.05 Indemnification....................................................... 50
10.06 Non-Reliance on Agent and Other Lenders............................... 51
10.07 Failure to Act........................................................ 51
10.08 Resignation or Removal of Agent....................................... 51
10.09 Cooperation of Lenders................................................ 51
XI. DEFINITIONS...................................................................... 52
XII. ENTIRE AGREEMENT; AMENDMENTS AND WAIVERS;
SEPARATE ACTIONS BY THE LENDERS.................................................. 69
XIII. BENEFIT OF AGREEMENT; ASSIGNMENTS AND
PARTICIPATIONS................................................................... 70
XIV. MISCELLANEOUS.................................................................... 72
14.01 Survival.............................................................. 72
14.02 Fees and Expenses; Indemnity; Etc..................................... 72
14.03 Notice................................................................ 73
14.04 Governing Law......................................................... 74
14.05 CONSENT TO JURISDICTION, WAIVER OF
JURY TRIAL............................................................ 74
14.06 Severability.......................................................... 74
14.07 Section Headings, Etc................................................. 75
14.08 Several Nature of Lenders' Obligations................................ 75
14.09 Counterparts.......................................................... 75
14.10 Knowledge and Discovery............................................... 75
14.11 Amendment of Other Agreements......................................... 75
14.12 FCC and Municipal Approvals........................................... 75
14.13 Disclaimer of Reliance................................................ 76
14.14 Environmental Indemnification......................................... 76
14.15 Designation of Senior Debt............................................ 76
</TABLE>
iii
<PAGE>
INDEX OF SCHEDULES
Schedule 1.01(a) Allocation of Loans and Commitments
Schedule 1.01(c) Form of Reducing Revolving Credit Note
Schedule 1.02 Form of Revolving Credit Note
Schedule 1.04(a) Request for Advances
Schedule 1.04(d) Interest Rate Option Notice
Schedule 2.01 Exceptions to Security
Schedule 2.02 Sources and Uses of Proceeds
Schedule 4.01(a) Financial Statements
Schedule 4.01(b) Opening Balance Sheet
Schedule 4.01(c) Parent's Indebtedness
Schedule 4.02 Organization, Etc.
Schedule 4.04 Governmental and Other Consents
Schedule 4.05 Litigation
Schedule 4.07(a) Franchises
Schedule 4.07(b) Licenses
Schedule 4.09 Rate Regulation
Schedule 4.10 Stations
Schedule 4.11 DBS Agreements
Schedule 4.12 Head-End and Tower Site Leases, Etc.
Schedule 4.13 Interests in Other Businesses
Schedule 4.18 Pension Plans
Schedule 4.19 Material Agreements
Schedule 4.20 Projections
Schedule 4.22 Capitalization
Schedule 4.23 Environmental Compliance
Schedule 4.26 Senior Debt
Schedule 6.05 Compliance Certificate
Schedule 7.01 Indebtedness
Schedule 7.02 Liens
Schedule 13(b)(iv) Form of Assignment and Acceptance
Schedule 13(b)(v) Form of Notice of Assignment and
Acceptance
<PAGE>
CREDIT AGREEMENT
AGREEMENT dated as of August 29, 1996, by and among CIBC INC. ("CIBC")
and the various other financial institutions which are now, or in accordance
with Article XIII hereafter become, parties hereto by execution of the signature
pages to this Agreement (collectively, the "Lenders" and each individually, a
"Lender"); CANADIAN IMPERIAL BANK OF COMMERCE, NEW YORK AGENCY, as agent for the
Lenders (in such capacity, together with its successors and assigns in such
capacity, the "Agent"); and PEGASUS MEDIA & COMMUNICATIONS, INC., a Delaware
corporation (the "Borrower"), a subsidiary of Pegasus Communications Holdings,
Inc., a Delaware corporation ("Holdings"). Certain capitalized terms used herein
without definition are defined in Article XI of this Agreement.
RECITALS
A. The Borrower's various direct and indirect Subsidiaries own and
operate (1 ) cable television systems located in Connecticut, Massachusetts, New
Hampshire and Puerto Rico, (2) broadcast television stations located in Florida,
Maine, Mississippi, Pennsylvania and Tennessee and (3) rights to deliver direct
broadcast satellite ("DBS") service in portions of Connecticut, Massachusetts,
New Hampshire and New York. Certain special purpose subsidiaries of the Borrower
or Holdings, referred to herein as the License Subsidiaries, own the licenses
for each broadcast television station.
B. Holdings and Dominica Padilla Acosta (a/k/a Dominick Padilla), Maria
del Carmen Padilla Lopez, Dom's Tele-Cable, Inc. and Domar, Inc. (collectively,
the "San German Sellers") are parties to an Asset Purchase Agreement dated as of
March 21, 1996, as amended as of May 31, 1996, July 1, 1996, (the "San German
Acquisition Agreement"), providing for the purchase of certain additional cable
television systems in Puerto Rico (the "San German Systems") by Holdings or its
designee (the "San German Acquisition").
C. The Borrower desires to obtain additional funds (1) to retire the
Borrower's existing indebtedness to IBJ Schroder Bank and Trust Company, (2) for
working capital and Capital Expenditures, (3) to finance the San German
Acquisition and (4) subject to availability, to finance Permitted Acquisitions.
D. The Lenders are willing to provide such funds, all subject to the
terms and conditions of this Agreement.
NOW THEREFORE, the parties hereto, intending to be legally bound, and in
consideration of the foregoing and the mutual covenants contained herein, hereby
agree as follows:
I. GENERAL TERMS
Section 1.01. Reducing Revolver Facilities.
(a) On the Closing Date, subject to the terms and conditions contained in
this Agreement, the Lenders agree to establish in favor of the Borrower reducing
revolving credit facilities (the "Reducing Revolvers") in the aggregate
principal amount of (i) $40,000,000, allocated among the Lenders as set forth in
Schedule 1.01(a) (collectively, in either case, as reduced pursuant to Section
1.06, the "Reducing Revolver Commitments" and, with respect to each Lender's
allocation of the Reducing Revolvers, its "Reducing Revolver Commitment"), which
shall expire on June 30, 2003 (such date, or such earlier date as the Reducing
<PAGE>
Revolver Commitments shall be terminated hereunder, being referred to herein as
the "Expiration Date").
(b) Borrowings under the Reducing Revolver Commitments shall be limited
to $28,000,000, until such time, if any, as CIBC assigns at least $12,000,000 of
the Reducing Revolver Commitments to one or more lenders unaffiliated with CIBC.
For purposes of this Agreement, the term "Available Reducing Revolver
Commitments" shall mean, at any time, the aggregate amount of the Reducing
Revolver Commitments specified in the second table set forth in Section 1.06(b)
(and reduced as otherwise provided in Section 1.06), until the completion of the
assignment(s) referred to above. In the event that, as contemplated by Section
1.06(e), the Borrower shall prepay the Reducing Revolver Notes from the proceeds
of a Disposition, then an amount of the Available Reducing Revolver Commitments
equal to the amount of such prepayment (the "Reserved Commitment Amount") shall
be reserved and shall not be available for borrowings hereunder except and to
the extent that the proceeds of such borrowings are to be applied to make
Permitted Acquisitions consummated within the time periods applicable to
reinvestments under Section 1.06(e)(y). The Borrower agrees, upon the occasion
of any borrowing hereunder made for the purpose of utilizing all or any portion
of the Reserved Commitment Amount, to advise the Agent in writing of such fact
at the time of such borrowing, identifying (i) the amount of such borrowing to
be so applied, (ii) the Permitted Acquisition in respect of which the proceeds
of such borrowing are to be applied and (iii) the reduced Reserved Commitment
Amount to be in effect after giving effect to such borrowing.
(c) Loans made under the Reducing Revolvers are hereinafter sometimes
referred to collectively as the "Reducing Revolver Advances". The aggregate
principal amount of Reducing Revolver Advances made by the Lenders as requested
in any Request for Advances shall be (i) at least $1,000,000 and, if more, a
multiple of $100,000 in the case of LIBOR Loans, and $500,000, and, if more, a
multiple of $100,000, in the case of Prime Rate Loans or (ii) such lesser amount
as equals the then unadvanced portion of the aggregate Available Reducing
Revolver Commitments. From the Closing Date to and including the Expiration Date
and within the limits of the aggregate Available Reducing Revolver Commitments,
the Borrower may borrow, repay and reborrow under this Section 1.01.
(d) The borrowings under this Section 1.01 shall be evidenced by the
Borrower's Reducing Revolving Credit Notes, each in the form attached hereto as
Schedule 1.01(c) (together with any additional Reducing Revolving Credit Notes
issued to any assignee(s) of the Reducing Revolver Commitments under Article
XIII or otherwise issued in substitution therefor, the "Reducing Revolver
Notes"). The Reducing Revolver Notes are hereby incorporated by reference herein
and made a part hereof.
(e) The parties hereby expressly acknowledge and agree that (i) the
initial allocation of $40,000,000 of the Reducing Revolver Commitments to CIBC
in Schedule 1.01(a) has been effected for the sole purpose of eliminating the
need to revise this Agreement, if and when one or more other lenders
unaffiliated with CIBC subsequently become parties hereto and assume at least
$12,000,000 of such Reducing Revolver Commitments, and (ii) in no event shall
CIBC have any liability under any circumstances to advance more than $28,000,000
(such maximum amount to be reduced from time to time as provided in Section
1.06) under the Reducing Revolver Commitments or to arrange for other lenders to
advance the balance of the Reducing Revolver Commitments.
Section 1.02. Revolving Lines of Credit.
(a) On the Closing Date, subject to the terms and conditions contained in
this Agreement, the Lenders agree to establish in favor of the Borrower
revolving lines of credit (the "Revolving Lines of Credit") in the aggregate
principal amount of $10,000,000, allocated among the Lenders as set forth in
Schedule 1.01(a) (collectively, as reduced pursuant to Section 1.06, the
-2-
<PAGE>
"Revolving Credit Commitments" and, with respect to each Lender's allocation of
the Revolving Lines of Credit, its "Revolving Credit Commitment") which shall
expire on the Expiration Date.
(b) Borrowings under the Revolving Credit Commitments shall be limited to
an aggregate amount of $7,000,000 until such time, if any, as CIBC assigns at
least $3,000,000 of the Revolving Credit Commitments to one or more lenders
unaffiliated with CIBC (as so limited, the "Available Revolving Credit
Commitments").
(c) Loans made under the Revolving Lines of Credit are hereinafter
sometimes referred to collectively as the "Revolving Credit Advances" and,
together with the Reducing Revolver Advances, the "Advances"). The aggregate
principal amount of Revolving Credit Advances made by the Lenders as requested
in any Request for Advances shall be (i) at least $1,000,000 and, if more, a
multiple of $100,000, in the case of LIBOR Loans, and $500,000 and, if more, a
multiple of $100,000, in the case of Prime Rate Loans, or (ii) such lesser
amount as equals the then unadvanced portion of the aggregate Available
Revolving Credit Commitments. From the date hereof to and including the
Expiration Date and within the limits of the aggregate Available Revolving
Credit Commitments, the Borrower may borrow, repay and reborrow under this
Section 1.02.
(d) The borrowings under this Section 1.02 shall be evidenced by the
Borrower's Revolving Credit Notes, each in the form attached hereto as Schedule
1.02 (together with any additional Revolving Credit Notes issued to any
assignee(s) of the Revolving Credit Commitments under Article XIII or otherwise
issued in substitution therefor, the "Revolving Credit Notes" and, collectively
with the Reducing Revolver Notes, the "Notes"). The Revolving Credit Notes are
hereby incorporated by reference herein and made a part hereof.
(e) The parties hereby expressly acknowledge and agree that (i) the
initial allocation of $10,000,000 of the Revolving Credit Commitments to CIBC in
Schedule 1.01(a) has been effected for the sole purpose of eliminating the need
to revise this Agreement if and when one or more other Lenders unaffiliated with
CIBC subsequently become parties hereto and assume at least $3,000,000 of such
Revolving Credit Commitments, and (ii) in no event shall CIBC have any liability
under any circumstances to advance more than $7,000,000) (such maximum amount to
be reduced from time to time as provided in Section 1.06) under the Revolving
Credit Commitments or to arrange for other Lenders to advance the balance of the
Revolving Credit Commitments.
Section 1.03. Interest on the Notes.
(a) Interest Rate . Subject to the terms and conditions set forth in this
Section 1.03, including without limitation paragraph (b) (iii) below, the
Borrower may elect an interest rate for the outstanding principal balances from
time to time of the Notes, or any portion thereof, based on either the Prime
Rate or the applicable LIBOR Rate and determined as follows:
(i) the rate for any Prime Rate Loan shall be the Prime Rate
plus the Applicable Margin for Prime Rate Loans then in effect; and
(ii) the rate for any LIBOR Loan shall be the applicable LIBOR
Rate plus the Applicable Margin for LIBOR Loans in effect on the first
day of the applicable Interest Period.
-3-
<PAGE>
(b) Applicable Margin. The "Applicable Margin" shall be determined as
follows:
(i) from and after the Closing Date until the first Interest Adjustment
Date, the Applicable Margin for Prime Rate Loans shall be 1.75% and the
Applicable Margin for LIBOR Loans shall be 3.00%;
(ii) from and after the first Interest Adjustment Date until the next
Interest Adjustment Date and each subsequent Interest Adjustment Date until the
next Interest Adjustment Date, subject to the provisions of subparagraph (v)
below, the Applicable Margin shall be determined as provided in this Section
1.03(b), from the following table based upon the ratio of Total Funded Debt on
the Quarterly Date immediately preceding the applicable Interest Adjustment Date
, to Adjusted Operating Cash Flow for the Interest Adjustment Period ended on
such Quarterly Date (the "Leverage Ratio"), provided that, if the Leverage Ratio
shall exceed 6.50:1.00, the provisions of paragraph (iii) below shall govern:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Applicable Margin
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Ratio of Total Funded
Debt to Adjusted
Operating Cash Flow Prime Rate Loans LIBOR Loans
- --------------------------------------------------------------------------------------------------------------------
Less than or equal to 6.50:1.00 but
greater than or equal to 5.50:1.00 1.75% 3.00%
- --------------------------------------------------------------------------------------------------------------------
Less than 5.50:1.00 but greater than
or equal to 5.00:1.00 1.50% 2.75%
- --------------------------------------------------------------------------------------------------------------------
Less than 5.00:1.00 but greater than
or equal to 4.50:1.00 1.25% 2.50%
- --------------------------------------------------------------------------------------------------------------------
Less than 4.50:1.00 but greater than
or equal to 4.00:1.00 1.00% 2.25%
- --------------------------------------------------------------------------------------------------------------------
Less than 4.00:1.00 .75% 2.00%
- ------------------------------------------------------------------------------ -------------------------------------
</TABLE>
(iii) If, with respect to any Interest Adjustment Period, the Leverage
Ratio exceeds 6.50:1.00, then from and after the Closing Date until the first
Interest Adjustment Date or from and after any subsequent Interest Adjustment
Date until the next Interest Adjustment Date, as applicable, (x) that portion of
the aggregate outstanding principal balances of the Notes other than the
Enhanced Yield Balances shall bear interest, as elected by the Borrower in
accordance with Section 1.04, at either (A) the Prime Rate plus 1.75% or (B) the
applicable LIBOR Rate plus 3.00%; and (y) the Enhanced Yield Balances of the
Notes shall bear interest, as elected by the Borrower in accordance with Section
1.04, at either (A) the Prime Rate plus 3.75% or (B) the applicable LIBOR Rate
plus 5.00%. As used herein, the term "Enhanced Yield Balances" shall mean, as of
any Quarterly Date, the portion of the aggregate outstanding principal balances
of the Notes which, if repaid, would cause the applicable Leverage Ratio to be
less than or equal to 6.50:1.00. For purposes of this clause (iii), the Enhanced
Yield Balances as of the Closing Date shall be deemed to be $11,500,000.
(iv) Nothing in paragraph (a) above or in this Section 1.03(b) shall be
deemed to constitute a waiver of the requirements of Section 5.01, default under
which will result in an Event of Default and the application of the default rate
of interest specified in Section 1.03(e).
-4-
<PAGE>
(v) As used in this Section 1.03, the term "Interest Adjustment Date"
shall mean the first day of the first month after the date on which the Lenders
have received all of the unaudited financial statements and compliance
certificates required to be delivered under Section 6.05(b) and (d) (the
"Required Financial Statements") with respect to any period of four (4)
consecutive fiscal quarters (each an "Interest Adjustment Period"), commencing
with the Interest Adjustment Period ending September 30, 1996, in each case
together with a certificate of the chief executive officer or chief financial
officer of the Borrower as to the ratio of Total Funded Debt to Adjusted
Operating Cash Flow.
(vi) The determination of the Applicable Margin under this Section 1.03
as of any Interest Adjustment Date shall be based on unaudited quarterly
financial statements as provided above. Notwithstanding the preceding sentence,
in the event of any discrepancy between the computation based on unaudited
financial statements upon which the Applicable Margin shall have been increased
or decreased and the related audited financial statements furnished pursuant to
Section 6.05(a) (the "Audited Financial Statements"), the computation based upon
the Audited Financial Statements shall govern retroactive to the first day of
the first month following the month in which the event giving rise to such
discrepancy occurred, if such event and the date of the occurrence thereof is
readily and objectively identifiable, or, if such event or the date of the
occurrence thereof is not so identifiable, then retroactive to the Interest
Adjustment Date as of which the Applicable Margin was adjusted based on such
unaudited financial statements. In the event of a retroactive correction in the
determination of the Applicable Margin in favor of the Borrower, the amount of
interest thereby refundable to the Borrower shall be applied on the date of such
retroactive correction, to prepay interest payable on the Notes. In the event of
a retroactive correction in the determination of the Applicable Margin in favor
of the Lenders, the amount of interest thereby due and payable by the Borrower
shall be paid to the Agent (without additional penalty thereon), for the ratable
account of the Lenders, within three (3) Business Days after the Agent gives
notice to the Borrower of such retroactive correction.
(c) Interest Payment Dates. Interest on the Loans shall be payable in
arrears, without setoff, deduction or counterclaim, as follows:
(i) Interest on each Prime Rate Loan shall be due and payable on the last
Business Day of March, June, September and December of each year (the "Quarterly
Dates"), commencing September 30, 1996, and at maturity, whether by reason of
acceleration, prepayment, payment or otherwise, provided that interest accrued
on any Prime Rate Loan which is converted to a LIBOR Loan shall be paid on the
Quarterly Date following the date of such conversion (or, if accrued on a Prime
Rate Loan which is so converted on a Quarterly Date, on such Quarterly Date).
The interest rate on Prime Rate Loans shall change on the date of any change in
the applicable Prime Rate.
(ii) Interest on each LIBOR Loan shall be due and payable on the last day
of the Interest Period applicable to such Loan and, if such Interest Period
exceeds three (3) months, every three (3) months after the beginning thereof,
until and at maturity, whether by reason of acceleration, prepayment, payment or
otherwise.
(d) Computations. Interest on Prime Rate Loans shall be computed on the
basis of the actual number of days elapsed over a 365 or 366-day year, as
applicable. Interest on LIBOR Loans shall be computed on the basis of the actual
number of days elapsed over a 360-day year.
-5-
<PAGE>
(e) Effect of Defaults, Etc.
(i) Notwithstanding the foregoing, no downward adjustment of the
Applicable Margin hereunder shall be permitted (A) unless the financial
statements for the relevant fiscal period delivered to the Agent are accompanied
(or followed before the applicable Interest Adjustment Date) by a written
request by the Borrower for such adjustment or (B) during the existence of any
Default.
(ii) During the existence of any Event of Default, the outstanding
principal under the Notes and, to the extent permitted by applicable law,
overdue interest, fees or other amounts payable hereunder or under the other
Loan Documents shall bear interest, from and including the date such Event of
Default occurred until such Event of Default is waived in writing as provided
herein, at a rate per annum (computed on the basis of the actual number of days
elapsed over a 360-day year) equal to two percent (2.00%) above (a) the interest
rate or rates then applicable to Prime Rate Loans and overdue interest, fees and
other expenses, or (b) with respect to any LIBOR Loans then in effect (and only
until the end of the Interest Period applicable to such LIBOR Loans) the
interest rate or rates then applicable to such LIBOR Loans.
(iii) Nothing in this Section 1.03(e) shall affect the rights of the
Agent or the Lenders to exercise any rights or remedies under the Loan Documents
or applicable law arising upon the occurrence of an Event of Default.
Section 1.04. Requests for Advances; Type of Loan.
(a) Requests for Advances. Each request by the Borrower for Advances
under the Reducing Revolvers or the Revolving Lines of Credit (other than the
initial Advances, if made concurrently herewith) shall be made not later than
(i) 11:00 A.M. (New York time) on the Business Day prior to the proposed
Borrowing Date, if such Advances are Prime Rate Loans, or (ii) 11:00 A.M. (New
York time) on the third Business Day prior to the proposed Borrowing Date, if
any of such Advances are LIBOR Loans, by a written Request for Advances, in the
form of Schedule 1.04(a) (each, a "Request for Advances"), signed by a duly
authorized representative of the Borrower and indicating (i) the date of such
Advances, (ii) whether such Advances shall be Prime Rate Loans or LIBOR Loans
and, if so, the Interest Period therefor, and (iii) the use of proceeds thereof,
to the extent any such proceeds are not being used for working capital purposes.
The Agent shall promptly notify the Lenders of such Request for Advances and the
information contained therein. Such Request for Advances shall be irrevocable
and binding on the Borrower.
(b) Conversion to a Different Type of Loan. The Borrower may elect from
time to time to convert any outstanding Advances to Prime Rate Loans or LIBOR
Loans, as the case may be, provided that (i) with respect to any such conversion
of LIBOR Loans to Prime Rate Loans, the Borrower shall provide the appropriate
Interest Rate Option Notice by 11:00 A.M. (New York time) on the date of such
proposed conversion; (ii) with respect to any such conversion of Prime Rate
Loans to LIBOR Loans, the Borrower shall provide the appropriate Interest Rate
Option Notice by 11:00 A.M. (New York time ) at least three Business Days' prior
to the date of such proposed conversion; (iii) with respect to any such
conversion of LIBOR Loans into Prime Rate Loans, such conversion shall only be
made on the last day of the related Interest Period; (iv) no Loans may be
converted into LIBOR Loans when any Default has occurred and is continuing; (v)
the Borrower may have no more than six (6) LIBOR Loans outstanding at any time;
(vi) any conversion of less than all of the outstanding Prime Rate Loans into
LIBOR Loans shall be in a minimum aggregate principal amount of $1,000,000 and,
if greater, an integral multiple of $500,000; and (vii) any conversion of less
than all of the
-6-
<PAGE>
outstanding LIBOR Loans into Prime Rate Loans shall be in a minimum aggregate
principal amount of $1,000,000 and, if greater, an integral multiple of
$100,000. The Agent shall promptly notify the Lenders of such Interest Rate
Option Notice and the information contained therein.
(c) Continuance of an Interest Rate Option. The Borrower may continue any
LIBOR Loans as such upon the expiration of the related Interest Period by
providing to the Agent (i) an Interest Rate Option Notice in compliance with the
notice provisions set forth in Section 1.04(b) or (ii) standing written
instructions authorizing the automatic continuation of such Loans, which
instructions shall be effective until notice to the Agent by the Borrower
revoking the same (such notice to take effect no sooner than three Business Days
after receipt by the Agent); provided that no LIBOR Loans may be continued when
any Default has occurred and is continuing, but shall be automatically converted
to Prime Rate Loans on the last day of the first applicable Interest Period
which ends during the continuance of such Default. Prime Rate Loans shall be
deemed to continue as such until receipt of an Interest Rate Option Notice
requesting conversion thereof to LIBOR Loans.
(d) Form of Notice. Each Interest Rate Option Notice shall be
substantially in the form of Schedule 1.04(d) and shall specify: (i) the
aggregate principal amount of Loans to be continued or converted; (ii) the
proposed date thereof; (iii) the Interest Period for such LIBOR Loans; and (iv)
whether such Loans shall be LIBOR Loans or Prime Rate Loans.
Section 1.05. Loan Disbursements. The Advances shall be made by the
Lenders pro rata as provided in Section 1.14. Not later than 12:00 noon (New
York time), in the case of LIBOR Loans, or 2:00 P.M. (New York time), in the
case of Prime Rate Loans, on the date specified for any Advances, each Lender
shall make available to the Agent the portion of the Advances to be made by it
on such date, in immediately available funds, for the account of the Borrower.
The amount so received by the Agent shall, subject to the terms and conditions
of this Agreement, be made available to the Borrower by depositing the same in
immediately available funds in the appropriate account or accounts of the
Borrower and by disbursing such funds as indicated in writing in the related
Request for Advances prior to the date such Advances are proposed to be made.
Section 1.06. Payments, Prepayments and Termination or Reduction of the
Commitments.
(a) Voluntary Reductions and Related Prepayments. At any time prior to
the Expiration Date, upon at least three (3) Business Days' written notice to
the Agent (each, a "Commitment Reduction Notice"), the Borrower may permanently
terminate or permanently reduce any of the Commitments, provided as follows:
(i) any such reduction shall be in an aggregate amount of not less than
$1,000,000 or, if greater, an integral multiple thereof;
(ii) any such reduction shall apply to each Lender's Reducing Revolver
Commitment or Revolving Credit Commitment, as the case may be, pro rata as
provided in Section 1.14;
(iii) each such reduction of the Reducing Revolver Commitments shall
apply to subsequent scheduled automatic reductions thereof under Section 1.06(b)
in the order in which they first occur, but only to the extent that the
aggregate amount so applied does not exceed the aggregate amount of reductions
so scheduled during the twelve (12) month period commencing on the applicable
Commitment Reduction Date, with any excess amount to be applied to each of the
next following scheduled automatic reductions under Section 1.06(b);
-7-
<PAGE>
(iv) simultaneously with each such reduction, the Borrower (A) shall pay
to the Agent, for the ratable account of each Lender, any then accrued unpaid
Commitment Fee on the terminated or reduced portion of the respective
Commitments, (B) shall repay such amount of the aggregate principal amount of
the respective Notes as shall cause the outstanding principal balance thereunder
to be less than or equal to the aggregate Reducing Revolver Commitments or the
aggregate Available Revolving Credit Commitments, as the case may be, after
giving effect to such reduction, and (C) shall pay any indemnification payments
due in accordance with Section 1.11 in respect of LIBOR Loans so prepaid,
provided that any such prepayment shall be an aggregate amount of not less than
$1,000,000 or, if greater, an integral multiple of $250,000, in the case of
LIBOR Loans, or $250,000 or, if greater, integral multiples thereof, with
respect to Prime Rate Loans.
Each Commitment Reduction Notice shall specify the date fixed for such
termination or reduction, the aggregate principal amount thereof and the
aggregate principal amount of the applicable Notes required to be repaid
hereunder on such date.
(b) Mandatory Scheduled Reductions of Reducing Revolver Commitments. The
Reducing Revolver Commitments (i) shall be automatically permanently reduced on
March 31, 1998 and each Quarterly Date thereafter, on each of which dates the
Borrower shall repay such amount of the aggregate Reducing Revolver Notes as
shall cause the outstanding principal balance thereunder to be less than or
equal to the Available Reducing Revolver Commitments, as so reduced, and (ii)
shall expire on the Expiration Date, when all outstanding principal and accrued
interest on the Reducing Revolving Notes shall be due and payable in full. Such
quarterly reductions of the Reducing Revolver Commitments shall be in such
amount as is necessary to cause the Reducing Revolver Commitments to equal the
following levels before giving effect to any other mandatory or optional
Commitment reductions:
<TABLE>
<CAPTION>
Maximum Level if Maximum Level if
$12,000,000 of $12,000,000 of
Commitments Have Not Commitments Have Been
Quarterly Date Been Assigned by CIBC Assigned by CIBC
-------------- ---------------------- ---------------------
<S> <C> <C>
December 31, 1997 $28,000,000 $40,000,000
March 31, 1998 $27,125,000 $38,750,000
June 30, 1998 $26,250,000 $37,500,000
September 30, 1998 $25,375,000 $36,250,000
December 31, 1998 $24,500,000 $35,000,000
March 31, 1999 $23,450,000 $33,500,000
June 30, 1999 $22,400,000 $32,000,000
September 30, 1999 $21,350,000 $30,500,000
December 31, 1999 $20,300,000 $29,000,000
March 31, 2000 $19,075,000 $27,250,000
June 30, 2000 $17,850,000 $25,500,000
September 30, 2000 $16,625,000 $23,750,000
December 31, 2000 $15,400,000 $22,000,000
March 31, 2001 $14,000,000 $20,000,000
June 30, 2001 $12,600,000 $18,000,000
September 30, 2001 $11,200,000 $16,000,000
December 31, 2001 $ 9,800,000 $14,000,000
March 31, 2002 $ 8,225,000 $11,750,000
June 30, 2002 $ 6,650,000 $ 9,500,000
September 30, 2002 $ 5,075,000 $ 7,250,000
December 31, 2002 $ 3,500,000 $ 5,000,000
March 31, 2003 $ 1,750,000 $ 2,500,000
June 30, 2003 - 0- - 0-
</TABLE>
-8-
<PAGE>
(c) Casualty Events. Within one hundred eighty (180) days following the
receipt by the Borrower or any of the Operating Companies of the proceeds of
insurance, condemnation award or other compensation in respect of any Casualty
Event (or upon such earlier date as the Borrower or any Operating Company shall
have determined not to repair or replace the asset or property affected by such
Casualty Event), which proceeds, together with all other such proceeds
theretofore received in respect of Casualty Events, exceed $500,000 in the
aggregate, the Borrower shall prepay the Notes, and the Commitments shall be
automatically reduced, as provided in Section 1.06(f), in an aggregate amount,
if any, equal to the aggregate amount of such proceeds not theretofore applied
to the repair or replacement of such asset or property under Section 6.02(b).
Nothing in this Section 1.06(c) shall be deemed (i) to limit any obligation of
the Companies pursuant to the Security Agreement to remit to the Collateral
Account the proceeds of insurance, condemnation award or other compensation
received in respect of any Casualty Event, (ii) to obligate the Agent to release
any of such proceeds from the Collateral Account to the Borrower or any
Operating Company during the existence of any Default or (iii) to apply to
temporary prepayments of the Notes from insurance proceeds pending completion of
repairs and restoration within the one hundred eighty (180) day period referred
to above.
(d) Excess Cash Flow. On or before May 1 of each year, commencing May 1,
1999, the Borrower shall prepay the Notes, and the Commitments shall be
automatically reduced, in an aggregate amount equal to fifty percent (50%) of
Excess Cash Flow for the immediately preceding fiscal year, as provided in
Section 1.06(f).
(e) Dispositions of Assets. Without limiting the obligation of the
Borrower under Section 7.03 to obtain the consent of the Required Lenders to any
Disposition not otherwise permitted hereunder, the Borrower agrees (i) two (2)
Business Days prior to the occurrence of any disposition of assets or properties
other than pursuant to Section 7.03(a), to deliver to the Agent (in sufficient
copies for each Lender) a statement, certified by the chief executive officer or
chief financial officer of the Borrower and in reasonable detail, of the
estimated amount of the Net Cash Proceeds of such Disposition and (ii) that in
the event such Disposition is completed, the Borrower will prepay the Notes, and
the Commitments will be subject to automatic reduction, as follows:
(A) on the date of such Disposition, in an aggregate amount
equal to 100% of the Net Cash Proceeds of such Disposition received by
the Borrower or any of the Operating Companies on the date of such
Disposition; and
(B) thereafter, quarterly, on the date of the delivery to the
Agent pursuant to Section 6.05 hereof of the financial statements for
each fiscal quarter or (if earlier) the date which is forty-five (45)
days after the end of such fiscal quarter, to the extent the Borrower or
any Operating Company shall receive Net Cash Proceeds during such fiscal
quarter under deferred payment arrangements or investments entered into
or received in connection with any Disposition, an amount equal to 100%
of the aggregate amount of such Net Cash Proceeds, provided that if,
prior to the date upon which the Borrower would otherwise be required to
make a prepayment under this paragraph (B) with respect to any fiscal
quarter, all such Net Cash Proceeds received in cash shall aggregate an
amount that will require a prepayment of $250,000 or more under this
paragraph (B) with respect to such fiscal quarter, then the Borrower
shall immediately make a prepayment under this paragraph (B) in an
amount equal to such required prepayment.
Notwithstanding the foregoing, the Borrower shall not be required to make a
prepayment pursuant to this Section 1.06(e) with respect to the Net Cash
Proceeds from any such Disposition (1) to the extent that the aggregate Net Cash
Proceeds of such Disposition and all prior Dispositions do not exceed
$5,000,000, or (2) in the event that the Borrower advises the Agent at the time
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<PAGE>
the Net Cash Proceeds from such Disposition are received that it intends to
reinvest such Net Cash Proceeds in replacement assets pursuant to a Permitted
Acquisition, so long as:
(x) such Net Cash Proceeds are (i) held by the Agent in the
Collateral Account pending such reinvestment, in which event the Agent
need not release such Net Cash Proceeds except upon presentation of
evidence satisfactory to it that such Net Cash Proceeds are to be so
reinvested in compliance with the provisions of this Agreement, (ii)
applied by the Borrower to the prepayment of the Reducing Revolver Notes
(in which event the Borrower agrees to advise the Agent in writing at
the time of such prepayment of Reducing Revolver Notes that such
prepayment is being made from the proceeds of a Disposition and that, as
contemplated by Section 1.01, a portion of the Reducing Revolving
Commitments hereunder equal to the amount of such prepayment gives rise
to a Reserved Commitment Amount that shall be available hereunder only
for the purposes of making Permitted Acquisitions) or (iii) held and
applied in any combination of clauses (i) and (ii) above; and
(y) the Net Cash Proceeds from any such Disposition are in fact
so reinvested prior to the earlier to occur of (i) 270 days following
said Disposition or (ii) 180 days following the date of such
Disposition, except to the extent a definitive agreement with respect to
a Permitted Acquisition utilizing Net Cash Proceeds shall have been
entered into, it being understood that, in the event Net Cash Proceeds
from more than one Disposition are paid into the Collateral Account or
applied to the prepayment of the Reducing Revolving Notes as provided in
paragraph (x) above, such Net Cash Proceeds shall be deemed to be
released (or, as the case may be, Loans utilizing the Reserved
Commitment Amount shall be deemed to be made) in the same order in which
such Dispositions occurred.
Accordingly, (1) any such Net Available Proceeds so held for more than the 180
or 270 day period referred to in paragraph (y) above shall be forthwith applied
to the prepayment of the Notes and the reduction of the Commitments as provided
above and (2) any Reserved Commitment Amount that remains unutilized for more
than such 180 or 270 day period, as the case may be, shall be automatically
terminated and the aggregate Commitments shall be permanently reduced in such
amount, as provided in Section 1.06(f) below.
Nothing in this Section 1.06 shall be deemed to obligate the Agent to
release any of such proceeds from the Collateral Account to the Borrower or any
Operating Company for purposes of reinvestment as aforesaid during the existence
of any Default.
(f) Application of Reductions. Upon the occurrence of any of the events
described in the above paragraphs of this Section 1.06, the amount of the
proposed or required reduction shall be applied to the reduction of the
Commitments on a pro rata basis, as provided in Section 1.14. Each such
reduction of the Commitments shall be applied as follows:
(i) in the case of reductions made out of Excess Cash Flow under
Section 1.06(d), first, to subsequent scheduled automatic reductions of
the Reducing Revolver Commitments under Section 1.06(b) in the inverse
order in which they appear, and second, to the Revolving Credit
Commitments; and
(ii) in the case of reductions from the proceeds of Dispositions
and Casualty Events under Sections 1.06(c) and (e), first, to reduce the
dollar levels of each of the Reducing Revolver Commitments shown in the
Table of scheduled automatic reductions Section 1.06(b) for reduction
dates occurring after the date of the reduction under Sections 1.06(c)
or (e), and second, to the Revolving Credit Commitments.
-10-
<PAGE>
(g) Applications of Prepayments. All prepayments of the Notes under this
Section 1.06 shall be made without set-off, deduction or counterclaim, (ii)
shall (unless otherwise determined by the Lenders) be applied to the Lenders'
Notes pro rata as provided in Section 1.14 and (iii) unless otherwise specified
in this Section 1.06, shall be applied first, to overdue interest, fees and
expenses hereunder, second, to pay principal of the Reducing Revolver Notes, and
third, to pay principal of the Revolving Credit Notes, provided that
applications of prepayments to principal shall be made first to Prime Rate Loans
and then to LIBOR Loans, and provided further that, so long as no Default then
exists, the Borrower may, at or prior to the time said payment is made, elect to
allocate all or any portion of the application of voluntary prepayments of
principal pursuant to Section 1.06(a) to the Revolving Credit Notes.
Section 1.07. Fees.
(a) Commitment Fee. The Borrower shall pay to the Agent, for the ratable
account of each Lender, a non-refundable fee (the "Commitment Fee") on the
aggregate daily unused portion of the Available Commitments from the Closing
Date hereof to and including the earlier of the termination of the Commitments
or the Expiration Date, at the rate of one-half of one percent (1/2%) (computed
on the basis of the actual number of days elapsed over a 365-366 day year),
payable quarterly on each Quarterly Date, without setoff, deduction or
counterclaim, with a final payment at the maturity of the Notes, whether by
payment, prepayment, acceleration or otherwise.
(b) Facility Fees. The Borrower shall pay CIBC a non-refundable facility
fee in the amount specified in the Fee Letter (the "Facility Fee").
(c) Agency Fee. The Borrower shall pay the Agent a non-refundable agency
fee in the amount specified in the Fee Letter.
Section l.08. Requirements of Law.
(a) In the event that any Regulatory Change shall:
(i) change the basis of taxation of any amounts payable to any
Lender under this Agreement or the Notes in respect of any Loans,
including without limitation LIBOR Loans (other than taxes imposed on
the overall net income of such Lender);
(ii) impose or modify any reserve, compulsory loan assessment,
special deposit or similar requirement relating to any extensions of
credit or other assets of, or any deposits with or other liabilities
of, any office of such Lender (including any of such Loans or any
deposits referred to in the definition of "LIBOR Base Rate" in Article
XI); or
(iii) impose any other conditions affecting this Agreement in
respect of Loans, including without limitation LIBOR Loans (or any of
such extensions of credit, assets, deposits or liabilities);
and the result of any of the foregoing shall be to increase such Lender's costs
of making or maintaining any Loans, including without limitation LIBOR Loans or
any Commitment, or to reduce any amount receivable by such Lender hereunder in
respect of any of its LIBOR Loans or any Commitment, in each case only to the
extent that such additional amounts are not included in the LIBOR Base Rate or
Prime Rate applicable to such Loans, then the Borrower shall pay on demand to
such Lender, through the Agent, and from time to time as specified by such
Lender, such additional amounts as such Lender shall reasonably determine are
sufficient to compensate such Lender for such increased cost or reduced amount
receivable.
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(b) If at any time after the date of this Agreement any Lender shall
have determined that the applicability of any law, rule, regulation or guideline
adopted pursuant to or arising out of the July 1988 report of the Basle
Committee on Lending Regulations and Supervisory Practices entitled
"International Convergence of Capital Measurement and Capital Standards", or the
adoption or implementation of any Regulatory Change regarding capital adequacy,
or any change therein, or any change in the interpretation or administration
thereof by any Governmental Authority, central bank or comparable agency charged
with the interpretation or administration thereof (whether or not having the
force of law), has or will have the effect of reducing the rate of return on
such Lender's capital or on the capital of such Lender's holding company, if
any, as a consequence of the existence of its obligations hereunder to a level
below that which such Lender or its holding company could have achieved but for
such adoption, change or compliance (taking into consideration such Lender's
policies with respect to capital adequacy) by an amount reasonably deemed by
such Lender to be material, then from time to time following written notice by
such Lender to the Borrower as provided in paragraph (c) of this Section, within
fifteen (15) days after demand by such Lender, the Borrower shall pay to such
Lender, through the Agent, such additional amount or amounts as such Lender
shall reasonably determine will compensate such Lender or such corporation, as
the case may be, for such reduction, provided that to the extent that any or all
of the Borrower's liability under this Section arises following the date of the
adoption of any such Regulatory Change (the "Effective Date"), such compensation
shall be payable only with respect to that portion of such liability arising
after notice of such Regulatory Change is given by such Lender to the Borrower
(unless such notice is given within sixty (60) days after the Effective Date, in
which case such compensation shall be payable in full).
(c) If any Lender becomes entitled to claim any additional amounts
pursuant to this Section, it shall promptly notify the Borrower of the event by
reason of which it has become so entitled. A certificate setting forth in
reasonable detail the computation of any additional amounts payable pursuant to
this Section submitted by such Lender to the Borrower shall be delivered to the
Borrower and the other Lenders promptly after the initial incurrence of such
additional amounts and shall be conclusive in the absence of manifest error. The
covenants contained in this Section shall survive for six months following the
termination of this Agreement and the payment of the outstanding Notes. No
failure on the part of any Lender to demand compensation under paragraph (a) or
(b) above on any one occasion shall constitute a waiver of its rights to demand
compensation on any other occasion. The protection of this Section shall be
available to each Lender regardless of any possible contention of the invalidity
or inapplicability of any law, regulation or other condition which shall give
rise to any demand by such Lender for compensation thereunder.
Section 1.09. Limitations on LIBOR Loans; Illegality.
(a) Anything herein to the contrary notwithstanding, if, on or prior to
the determination of an interest rate for any LIBOR Loans for any applicable
Interest Period, the Agent shall determine (which determination shall be
conclusive absent manifest error) that:
(i) by reason of any event affecting United States money
markets or the London interbank market, quotations of interest rates for
the relevant deposits are not being provided in the relevant amounts or
for the relevant maturities for purposes of determining the rate of
interest for such Loans under this Agreement; or
(ii) the rates of interest referred to in the definition of "LIBOR Base
Rate" in Article XI, on the basis of which the rate of interest on any LIBOR
Loans for such period is determined, do not accurately reflect the cost to the
Lenders of making or maintaining such LIBOR Loans for such period; then the
Agent shall give the Borrower prompt notice thereof (and shall thereafter give
the Borrower prompt notice of the cessation, if any, of such condition), and so
long as such condition remains in effect, the Lenders shall be under no
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obligation to make LIBOR Loans or to convert Prime Rate Loans into LIBOR Loans
and the Borrower shall, on the last day(s) of the then current Interest
Period(s) for any outstanding LIBOR Loans, either prepay such LIBOR Loans in
accordance with Sections 1.01, 1.02 and 1.06 or convert such Loans into Prime
Rate Loans in accordance with Section 1.04.
(b) Notwithstanding any other provision herein, if for any reason a
Lender shall be unable to make or maintain LIBOR Loans as contemplated by this
Agreement, such Lender shall provide prompt written notice to the Borrower and
(i) such Lender's commitment hereunder to make LIBOR Loans, continue LIBOR Loans
as such and convert Prime Rate Loans to LIBOR Loans shall thereupon terminate
and (ii) such Lender's Loans then outstanding as LIBOR Loans, if any, shall be
converted automatically to Prime Rate Loans on the respective last days of the
then current Interest Periods with respect to such Loans or within such earlier
period as required by law. If any such conversion of a LIBOR Loan occurs on a
day which is not the last day of the then current Interest Period with respect
thereto, and if the reason for such Lender's inability to make or maintain LIBOR
Loans as contemplated by this Agreement is a Regulatory Change, then the
Borrower shall pay to such Lender such amounts, if any, as may be required
pursuant to Section 1.11.
Section 1.10. Taxes.
(a) All payments made by the Borrower under this Agreement and the
Notes shall be made free and clear of, and without deduction or withholding for
or on account of, any present or future income, stamp or other taxes, levies,
imposts, duties, charges, fees, deductions or withholdings, now or hereafter
imposed, levied, collected, withheld or assessed by any Governmental Authority
(all such taxes, levies, imposts, duties, charges, fees, deductions and
withholdings being hereinafter called "Taxes"); provided, however, that the term
"Taxes" shall not include net income taxes, franchise taxes (imposed in lieu of
net income taxes) and general intangibles taxes (such as those imposed by the
State of Florida) imposed on the Agent or any Lender, as the case may be, as a
result of a present or former connection or nexus between the jurisdiction of
the government or taxing authority imposing such tax (or any political
subdivision or taxing authority thereof or therein) and the Agent or such Lender
other than that arising solely from the Agent or such Lender having executed,
delivered or performed its obligations or received a payment under, or enforced,
this Agreement, the Notes or any of the Security Documents. If any Taxes are
required to be withheld from any amounts payable to the Agent or any Lender
hereunder or under the Notes, the amounts so payable to the Agent or such Lender
shall be increased to the extent necessary to yield to the Agent or such Lender
(after payment of all Taxes) interest or any such other amounts payable
hereunder at the rates or in the amounts specified in this Agreement and the
Notes. Whenever any Taxes are payable by the Borrower in respect of this
Agreement or the Notes, as promptly as possible thereafter the Borrower shall
send to the Agent for its own account or for the account of such Lender, as the
case may be, a certified copy of an original official receipt received by the
Borrower showing payment thereof. If the Borrower fails to pay any Taxes when
due to the appropriate taxing authority or fails to remit to the Agent the
required receipts or other required documentary evidence, the Borrower shall
indemnify the Agent and the Lenders for any incremental taxes, interest or
penalties that may become payable by the Agent or any Lender as a result of any
such failure. If, after any payment of Taxes by the Borrower under this Section,
any part of any Tax paid by the Agent or any Lender is subsequently recovered by
the Agent or such Lender, the Agent or such Lender shall reimburse the Borrower
to the extent of the amount so recovered. A certificate of an officer of the
Agent or such Lender setting forth the amount of such recovery and the basis
therefor shall, in the absence of manifest error, be conclusive. The Agent and
the Lenders shall use reasonable efforts to notify the Borrower of their
attempts, if any, to obtain abatements of any such Taxes and the receipt by the
Agent or the Lenders of any funds in connection therewith. The agreements in
this subsection shall survive the termination of this Agreement and the payment
of the Notes and all other amounts payable hereunder.
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(b) Each Lender, if any, that is not incorporated under the laws of the
United States or a state thereof agrees that prior to the date any payment is
required to be made to it hereunder it will deliver to the Borrower and the
Agent (i) two duly completed copies of United States Internal Revenue Service
Form 1001 or 4224 or successor applicable form, as the case may be, and (ii) an
Internal Revenue Service Form W-8 or W-9 or successor applicable form. Each such
Lender also agrees to deliver to the Borrower and the Agent two further copies
of the said Form 1001 or 4224 and Form W-8 or W-9, or successor applicable forms
or other manner of certification, as the case may be, on or before the date that
any such form expires or becomes obsolete or after the occurrence of any event
requiring a change in the most recent form previously delivered by it to the
Borrower, and such extensions or renewals thereof as may reasonably be requested
by the Borrower or the Agent, unless in any such case an event (including,
without limitation, any change in treaty, law or regulation) has occurred prior
to the date on which any such delivery would otherwise be required which renders
all such forms inapplicable or which would prevent such Lender from duly
completing and delivering any such form with respect to it and such Lender so
advises the Borrower and the Agent. Such Lender shall certify (x) in the case of
a Form 1001 or 4224, that it is entitled to receive payments under this
Agreement without deduction or withholding of any United States federal income
taxes and (y) in the case of a Form W-8 or W-9, that it is entitled to an
exemption from United States backup withholding tax.
Section 1.11. Indemnification. The Borrower shall pay to the Agent, for
the account of each Lender, upon the request of such Lender delivered to the
Agent and thereafter delivered by the Agent to the Borrower, such amount or
amounts as shall compensate such Lender for any loss (including, in the case of
LIBOR Loans, loss of profit), cost or expense incurred by such Lender (as
reasonably determined by such Lender) as a result of:
(a) any payment or prepayment or conversion of any LIBOR Loan held
by such Lender on a date other than the last day of the
Interest Period for such LIBOR Loan (including without
limitation any such payment, prepayment or conversion required
under Section 1.04 or 1.06); or
(b) any failure by the Borrower to borrow, convert into or
continue a LIBOR Loan on the date for such borrowing specified
in the relevant Request for Advances or Interest Rate Option
Notice under Section 1.04 or otherwise.
Such indemnification may include an amount equal to the excess, if any, of (i)
the amount of interest which would have accrued on the amount so prepaid, or not
so borrowed, converted or continued, for the period from the date of such
prepayment or of such failure to borrow, convert or continue to the last day of
such Interest Period (or, in the case of a failure to borrow, convert or
continue, the Interest Period that would have commenced on the date of such
failure) in each case at the applicable rate of interest for such Loans provided
for herein (excluding, however, the Applicable Margin included therein, if any)
over (ii) the amount of interest (as reasonably determined by such Lender) which
would have accrued to such Lender on such amount by placing such amount on
deposit for a comparable period with leading banks in the interbank eurodollar
market. This covenant shall survive the termination of this Agreement and the
payment of the Loans and all other amounts payable hereunder. The determination
by each such Lender of the amount of any such loss or expense, when set forth in
a written notice delivered to the Agent (and thereafter delivered by the Agent
to the Borrower), containing such Lender's calculation thereof in reasonable
detail, shall be presumed correct in the absence of manifest error.
Section 1.12. Payments Under the Notes. All payments and prepayments
made by the Borrower of principal of, and interest on, the Notes and other sums
and charges payable under this Agreement, including without limitation the
Commitment Fee and any payments under Sections 1.08, 1.10 and 1.11, shall be
made in immediately available funds to the Agent (as specified in Section 14.03)
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for the accounts of the Lenders as provided in Section 1.14 and otherwise herein
or in the Fee Letter, not later than 2:00 P.M. (New York Time), on the date on
which such payment shall become due. The failure by the Borrower to make any
such payment by such hour shall not constitute a default hereunder so long as
payment is received later that day, provided that any such payment made after
2:00 P.M. (New York Time), on such due date shall be deemed to have been made on
the next Business Day for the purpose of calculating interest on amounts
outstanding on the Notes. The Borrower shall, at the time of making each payment
under this Agreement or the Notes, specify to the Agent the Notes or amounts
payable by the Borrower hereunder to which such payment is to be applied (and in
the event that it fails to so specify, or if an Event of Default has occurred
and is continuing, the Agent may distribute such payments in such manner as the
Required Lenders may direct or, absent such direction, as it determines to be
appropriate, subject to the provisions of Section 1.14). Except as otherwise
provided in the definition of "Interest Period" with respect to LIBOR Loans, if
any payment hereunder or under the Notes shall be due and payable on a day which
is not a Business Day, such payment shall be deemed due on the next following
Business Day and interest shall be payable at the applicable rate specified
herein through such extension period. The Agent, or any Lender for whose account
any such payment is made, may (but shall not be obligated to) debit the amount
of any such payment which is not made by such time to any deposit account of the
Borrower with the Agent or such Lender, as the case may be. Each payment
received by the Agent under this Agreement or any Note for the account of a
Lender shall be paid promptly to such Lender, in immediately available funds,
for the account of such Lender for the Note in respect to which such payment is
made.
Section 1.13. Set-Off, Etc. The Borrower agrees that, in addition to
(and without limitation of) any right of set-off, bankers' lien or counterclaim
a Lender may otherwise have, each Lender shall be entitled, at its option, to
offset balances held by it for the account of the Borrower at any of its
offices, in Dollars or in any other currency, against any principal of or
interest on the Notes held by such Lender or other fees or charges owed to such
Lender hereunder which are not paid when due (regardless of whether such
balances are then due to the Borrower), in which case it shall promptly notify
the Borrower and the Agent thereof, provided that such Lender's failure to give
such notice shall not affect the validity thereof and (as security for any
Indebtedness hereunder) the Borrower hereby grants to the Agent and the Lenders
a continuing security interest in any and all balances, credit, deposits,
accounts or moneys of the Borrower maintained with the Agent and any Lender now
or hereafter. If a Lender shall obtain payment of any principal, interest or
other amounts payable under this Agreement through the exercise of any right of
set-off, banker's lien or counterclaim or otherwise, it shall promptly purchase
from the other Lenders participations in (or, if and to the extent specified by
such Lender, direct interests in) the Note(s) held by the other Lenders in such
amounts, and make such other adjustments from time to time as shall be
equitable, to the end that all the Lenders shall share the benefit of such
payment (net of any expenses which may be incurred by such Lender in obtaining
or preserving such benefit) pro rata in accordance with the unpaid principal
amounts of and interest on the Note(s) held by each of them. To such end, the
Lenders shall make appropriate adjustments among themselves (by the resale of
participations sold or otherwise) if such payment is rescinded or must otherwise
be restored. The Borrower agrees that any Lender or any other Person which
purchases a participation (or direct interest) in the Note(s) held by any or all
of the Lenders (each being hereinafter referred to as a "Participant") may
exercise all rights of set-off, bankers' lien, counterclaim or similar rights
with respect to such participation as fully as if such Participant were a direct
holder of Notes in the amount of such participation, provided that the Borrower
was notified of such purchase. Nothing contained herein shall be deemed to
require any Participant to exercise any such right or shall affect the right of
any Participant to exercise, and retain the benefits of exercising, any such
right with respect to any indebtedness or obligation of the Borrower, other than
the Borrower's indebtedness and obligations under this Agreement.
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Section 1.14. Pro Rata Treatment; Sharing.
(a) Except to the extent otherwise provided herein and in the Fee
Letter or as otherwise agreed by the Lenders: (i) each borrowing from the
Lenders under the Commitments shall be made from the Lenders and each payment of
the Commitment Fee under Section 1.07 shall be made to the Lenders pro rata
according to the amounts of their respective unused Commitments; (ii) the
principal amount of LIBOR Loans made by each Lender shall be determined on a pro
rata basis in accordance with its respective Commitment (when making Advances)
or the outstanding principal amounts of the Loans owed to such Lender (in the
case of conversions to or continuations of Loans as LIBOR Loans); (iii) each
payment and prepayment of principal of the Notes shall be made to the Lenders
pro rata in accordance with the respective unpaid principal amounts of the
respective Notes held by the Lenders; (iv) each payment of interest on the Notes
shall be made for the accounts of the Lenders and each payment of any other sums
and charges payable under this Agreement (except for the Agency Fee and the
Facility Fees, which are payable in accordance with the Fee Letter) shall be
made to the Lenders pro rata in accordance with the respective unpaid principal
amounts of, and interest on, the Loans made by each of them; (v) each payment
under Section 1.08, 1.10 or 1.12 shall be made to each Lender in the amount
required to be paid to such Lender to adequately indemnify or compensate such
Lender for losses suffered or costs incurred by such Lender as provided in such
Section; and (vi) each distribution of cash, property, securities or other value
received by any Lender, directly or indirectly, in respect of the Borrower's
Indebtedness hereunder, whether pursuant to any attachment, garnishment,
execution or other proceedings for the collection thereof or pursuant to any
bankruptcy, reorganization, liquidation or other similar proceeding, after
payment of collection and other expenses as provided herein and in the Security
Documents, shall be apportioned among the Lenders pro rata in accordance with
the respective unpaid principal amounts of and interest on the Notes held by
each of them.
(b) Notwithstanding the foregoing, if any Lender (a "Recovering Party")
shall receive any such distribution (a "Recovery") in respect thereof, such
Recovering Party shall pay to the Agent for distribution to the Lenders as set
forth herein their respective pro rata shares of such Recovery, as set forth
herein, unless the Recovering Party is legally required to return any Recovery,
in which case each party receiving a portion of such Recovery shall return to
the Recovering Party its pro rata share of the sum required to be returned
without interest. For purposes of this Agreement, calculations of the amount of
the pro rata share of each Lender shall be rounded to the nearest whole dollar.
(c) The Borrower acknowledges and agrees that, if any Recovering Party
shall be obligated to pay to the other Lenders a portion of any Recovery
pursuant to Section 1.17(b) and shall make such recovery payment, the Borrower
shall be deemed to have satisfied its obligations in respect of Indebtedness
held by such Recovering Party only to the extent of the Recovery actually
retained by such Recovering Party after giving effect to the pro rata payments
by such Recovering Party to the other Lenders. The obligations of the Borrower
in respect of Indebtedness held by each other Lender shall be deemed to have
been satisfied to the extent of the amount of the Recovery distributed to each
such other Lender by the Recovering Party.
Section 1.15. Non-Receipt of Funds by the Agent. Unless the Agent shall
have been notified in writing by a Lender or the Borrower prior to the date on
which such Lender or the Borrower is scheduled to make payment to the Agent of
(in the case of a Lender) the proceeds of a Loan to be made by it hereunder or
(in the case of the Borrower) a payment to the Agent for the account of any or
all of the Lenders hereunder (such payment being herein referred to as a
"Required Payment"), which notice shall be effective upon actual receipt, that
it does not intend to make such Required Payment to the Agent, the Agent may
(but shall not be required to) assume that the Required Payment has been made
and may (but shall not be required to), in reliance upon such assumption, make
the amount thereof available to the intended recipient(s) on such date and, if
such Lender or the Borrower (as the case may be) has not in fact made the
Required Payment to the Agent, the recipient(s) of such payment shall, on
demand, or with respect to payment received by the Borrower, within three (3)
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Business Days after such receipt repay to the Agent for the Agent's own account
the amount so made available together with interest thereon in respect of each
day during the period commencing on the date such amount was so made available
by the Agent until the date the Agent recovers such amount at a rate per annum
equal to (a) the Federal Funds Rate for such day, with respect to interest paid
by such Lender, or (b) the applicable rate provided under Section 1.03, with
respect to interest paid by the Borrower.
Section 1.16. Replacement of Notes. Upon receipt of evidence reasonably
satisfactory to the Borrower of the loss, theft, destruction or mutilation of
any Note and, in the case of any such loss, theft or destruction, upon delivery
of an indemnity agreement reasonably satisfactory to the Borrower, or in the
case of any such mutilation, upon the surrender of such Note for cancellation,
the Borrower will execute and deliver, in lieu of such lost, stolen, destroyed,
or mutilated Note, a new Note of like tenor.
II. SECURITY; SUBORDINATION; USE OF PROCEEDS
Section 2.01. Security for the Obligations; Subordination; Etc.
(a) Except as specified in Schedule 2.01 attached hereto, the Borrower's
obligations hereunder, under the Notes and in respect of any Rate Hedging
Obligations entered into with any of the Lenders or any Affiliates of any of the
Lenders shall be secured at all times by:
(i) the unconditional guaranty of each of the Operating
Companies and the Parent (provided that the Parent's guaranty shall be
non-recourse except to the extent of any Collateral required to be
provided by the Parent);
(ii) a first priority perfected security interest in and lien
upon all presently owned and hereafter acquired tangible and intangible
personal property and fixtures of each of the Borrower and the Operating
Companies (except for licenses and permits issued by the FCC and local
franchising authorities, to the extent it is unlawful to grant a security
interest in such licenses and permits), including the PCT-CONN Note
Documents, the MCT Note Documents and any other intercompany notes,
obligations or agreements, subject only to any prior Liens expressly
permitted under this Agreement;
(iii) first mortgages on all presently owned and hereafter
acquired real estate owned by each of the Borrower and the Operating
Companies, subject only to any prior Liens expressly permitted under this
Agreement, together with mortgagee's title insurance policies acceptable
to the Lenders;
(iv) first priority perfected collateral assignments of or
leasehold mortgages on all real estate leases in which any of the
Borrower and the Operating Companies (other than PCT-CONN and MCT, to the
extent provided in Schedule 2.01) now has or may in the future have an
interest and such third party consents, lien waivers, non-disturbance
agreements and estoppel certificates as the Agent shall reasonably
require, together with mortgagee's title insurance policies acceptable to
the Agent;
(v) a first priority perfected collateral assignment and/or
pledge of all of the issued and outstanding ownership interests of each
of the Borrower (other than the Borrower's now outstanding shares of its
Class B Common Stock) and the Operating Companies and all warrants,
options and other rights to purchase such ownership interests;
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(vi) first priority perfected collateral assignments of all such
franchises, pole attachment agreements, construction contracts,
management agreements, programming agreements, network affiliation
agreements, satellite broadcasting distribution agreements and other
licenses, permits and authorizations (except for licenses and permits
issued by the FCC and local franchising authorities, to the extent it is
unlawful to grant a security interest in such licenses and permits) and
other agreements as the Agent shall reasonably deem necessary to protect
the interests of the Lenders, together with such third party consents,
lien waivers and estoppel certificates as the Agent shall reasonably
require.
(b) Subordination. To the extent requested by the Required Lenders, all
existing and hereafter arising indebtedness of the Borrower and the Operating
Companies to the Manager, Pegasus Towers, L.P., the Unrestricted Subsidiaries
and any other Affiliates of the Companies shall be subordinated to any
Indebtedness of the Companies to the Lenders pursuant to subordination
agreements satisfactory in form and substance to the Required Lenders and to the
Agent's counsel (the "Affiliate Subordination Agreements").
(c) Security Documents. All agreements and instruments described or
contemplated in this Section 2.01, together with any and all other agreements
and instruments heretofore or hereafter securing the Notes and the Borrower's
obligations hereunder or otherwise executed in connection with this Agreement,
are sometimes hereinafter referred to collectively as the "Security Documents"
and each individually as a "Security Document". The Borrower agrees to take such
action as the Lenders may reasonably request from time to time in order to cause
the Agent and the Lenders to be secured at all times as described in this
Section.
Section 2.02. Use of Proceeds.
(a) The proceeds of the Reducing Revolver Advances shall be applied (i)
to retire the Borrower's existing indebtedness to IBJ Schroder in the principal
amount not exceeding $9,000,000, (ii) to finance a portion of the San German
Acquisition, (iii) to finance Permitted Acquisitions, (iv) to finance Capital
Expenditures permitted under this Agreement, and (v) for working capital
purposes of the Borrower and the Restricted Subsidiaries, including Transaction
Costs. Attached as Schedule 2.02 hereto is the Borrower's current projection, as
of the date hereof, of its sources and uses of proceeds as of the Closing Date.
(b) The proceeds of the Revolving Credit Advances shall be applied (i) to
finance the balance of the San German Acquisition, (ii) to finance Capital
Expenditures permitted under this Agreement and (ii) for working capital
purposes of the Borrower and the Restricted Subsidiaries, including Transaction
Costs.
III. CONDITIONS OF MAKING THE LOANS
Section 3.01. Conditions to the First Advances. The obligations of the
Lenders to enter into this Agreement and to make Advances to the Borrower on the
Closing Date are subject to the following conditions:
(a) Representations and Warranties. The representations and warranties of
the Borrower and its Affiliates set forth in this Agreement and in the Loan
Documents shall be true and correct in all material respects on and as of the
date hereof and on the Closing Date and the Borrower shall have performed all
obligations which were to have been performed by it hereunder prior to the
Borrowing Date of such Advances.
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(b) Loan Documents and Organizational Documents. The Borrower shall have
executed and/or delivered to the Agent (or shall have caused to be executed and
delivered to the Agent by the appropriate Persons), the following:
(i) The Notes;
(ii) All of the Security Documents, including without limitation
all Uniform Commercial Code Financing Statements and Termination
Statements and all mortgages, deeds of trusts and amendments thereto,
lessor consents and waivers and related title insurance policies required
by the Agent or its counsel in connection with the Borrower's compliance
with the provisions of Section 2.01;
(iii) Certified copies of the resolutions of the Board of
Directors of each Company, or of each Company's partners and/or corporate
general partner, as the case may be, authorizing the execution and
delivery of the Loan Documents to which it is a party;
(iv) A copy of the Certificate or Articles of Incorporation of
each corporate Company and each corporate general partner of a
partnership Company, with any amendments thereto, certified by the
appropriate Secretary of State and by the Secretary or an Assistant
Secretary of such Company or general partner;
(v) A copy of the limited partnership agreement of each
partnership Company, with any amendments thereto, certified by the
Secretary or an Assistant Secretary of such Company's corporate general
partner;
(vi) For each Company, certificates of legal existence and good
standing (both as to corporation law, if applicable, and, if available,
tax matters) issued as of a reasonably recent date by such Company's
state of organization and any other state in which such Company is
authorized or qualified to transact business;
(vii) No later than three (3) Business Days prior to the
Closing Date, to the extent requested by the Agent, true and correct
copies of all Franchises, Licenses and DBS Agreements, all other material
governmental licenses, franchises and permits, all material franchiser
and other third party consents and all other material leases, contracts,
agreements, instruments and other documents specified in Schedules 4.04,
4.07(a), 4.07(b), 4.11, 4.12, 4.18 and 4.19;
(viii) Such Uniform Commercial Code, Federal tax lien and
judgment searches with respect to the Companies, any Seller being paid
with the proceeds of any Advances (and the assets to be acquired under
the related Acquisition Agreement) and any other third parties as the
Agent shall require, the results thereof to be satisfactory to the Agent;
(ix) The Opening Balance Sheet;
(x) The Environmental Site Assessments and completed
Environmental Questionnaires referred to in Section 4.23;
(xi) Certificates of insurance evidencing the insurance
coverage and policy provisions required in this Agreement; and
(xii) Such other supporting documents and certificates as the
Agent or the Lenders may reasonably request from time to time.
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(c) Subordinated Indenture, Etc. The Borrower shall have delivered to the
Agent true and complete copies of the Subordinated Debt Documents, certified as
such by an executive officer of the Borrower.
(d) Officer's Certificates as to Compliance, Solvency, Documents, Etc.
The Borrower shall have provided to the Agent one or more compliance and other
closing certificates, in forms satisfactory to the Agent, executed on behalf of
the Borrower by its chief executive officer or chief financial officer,
certifying as to satisfaction by the Borrower of the conditions to lending set
forth in this Section 3.01 and in Sections 3.02 and 3.03, as applicable, and,
specifically, as to certain matters specified therein.
(e) Company Counsel Opinions. The Agent shall have received:
(i) the favorable written opinion of Drinker Biddle & Reath,
counsel to the Companies dated as of the date hereof, addressed to the
Agent and the Lenders and reasonably satisfactory to the Agent in scope
and substance;
(ii) the favorable written opinions of Drinker Biddle & Reath
and special local counsel to the Companies, for each State or
Commonwealth in which the Companies do business other than
Massachusetts, New Hampshire and New York, each dated as of the date
hereof, addressed to the Agent and the Lenders and reasonably
satisfactory to the Agent in scope and substance; and
(iii) the favorable written opinion(s) of special communications
counsel to the Companies dated as of the date hereof and addressed to
the Agent and the Lenders, with respect to FCC (both cable and
broadcast) and related matters, which opinion(s) shall be reasonably
satisfactory to the Lenders in scope and substance.
(f) Repayment of Existing Indebtedness. As of the Closing Date, the Agent
shall have received evidence that (i) the principal of and interest on, and all
other amounts owing in respect of, Indebtedness indicated on Schedule 2.02 which
is to be repaid on the date of the first Advances hereunder shall have been (or
shall simultaneously be) paid in full in cash, (ii) any commitments to extend
credit under the agreements or instruments relating to such Indebtedness have
been terminated or canceled and (iii) all guaranties in respect of, and liens
securing, any such Indebtedness have been released (or arrangements for such
releases made to the reasonable satisfaction of the Agent), which requirement
shall include receipt by the Agent of all such executed pay-off letters, Uniform
Commercial Code termination statements, mortgage releases and other instruments
as the Agent shall have requested to release and terminate of record any such
liens.
(g) Adjusted Operating Cash Flow. After giving effect to the San German
Acquisition, Adjusted Operating Cash Flow for the period of twelve (12)
consecutive months ending July 31, 1996 shall equal or exceed $16,300,000 and
the Agent shall have received satisfactory evidence to such effect.
(h) No Material Adverse Change. As of the date hereof and as of the
Closing Date, and since December 31, 1995, no event or circumstance shall have
occurred which could have a Material Adverse Effect.
(i) Legal and Other Fees. As of the date hereof and as of the Closing
Date, all fees owed to the Agent and the Lenders under the Fee Letter and all
legal fees and expenses of counsel to the Agent incurred through such date shall
have been paid in full.
(j) Review by Agent's Counsel. All legal matters incident to the
transactions hereby contemplated shall be reasonably satisfactory to counsel for
the Agent.
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Section 3.02. Acquisition Loans. Without in any way limiting the
discretion of the Required Lenders to approve or withhold approval of any
Acquisition or to impose additional conditions upon their consent to such
Acquisitions, the obligations of the Lenders to make any Advances to finance any
Permitted Acquisition are subject to the following conditions:
(a) Acquisition Closings.
(i) The transactions contemplated by the applicable Acquisition
Agreement shall have been consummated (except for the payment of that
portion of the purchase price thereunder being paid with the proceeds of
Advances) substantially in accordance with the terms thereof and, in any
event, in a manner reasonably satisfactory to Agent, including without
limitation (A) the repayment in full in cash (simultaneously with, and
from the proceeds of, Advances, or otherwise) of all Indebtedness of the
applicable Sellers not being assumed by the Borrower or a Restricted
Subsidiary (other than, in the case of the San German Acquisition, the
liabilities referred to in Sections 5.17 and 5.24 of Amendment No. 1 to
the San German Acquisition Agreement) and (B) the valid assumption by
the Borrower or such Restricted Subsidiary of all other liabilities of
the applicable Sellers in respect of the assets and properties
transferred under such Acquisition Agreement.
(ii) The Agent shall have received evidence of the receipt of
all licenses, permits, approvals and consents, if any, required with
respect to such Acquisition and any other related transaction
contemplated by this Agreement (including without limitation the
consents of municipal franchising authorities and the FCC to the sale
contemplated by such Acquisition Agreement and to the collateral
assignment of any related franchises or other material agreements or
licenses to the Agent, on behalf of the Lenders, and any other consents
or filings of or with applicable governmental authorities or other third
parties.
(iii) The applicable Sellers shall have consented to the
collateral assignment to the Agent of the rights of the Borrower or the
applicable Restricted Subsidiary under the Acquisition Agreement and any
other agreements executed thereunder, as required under Section 2.01(a).
(iv) The Agent shall have received copies of the legal opinions
delivered by the Seller(s) pursuant to the applicable Acquisition
Agreement in connection with the Acquisition, together with a letter from
each Person delivering an opinion (or authorization within the opinion)
authorizing reliance thereon by the Agent and the Lenders.
(v) Any other conditions imposed by the Required Lenders in
giving their consent to such Permitted Acquisition shall have been
satisfied.
(b) Due Diligence. The Agent and its counsel shall have completed their
due diligence review with respect to the proposed Acquisition, including a
review of all of the Franchises, DBS Agreements, Tower Site Leases, Headend Site
Leases and other material agreements and shall be satisfied with the results of
such review.
(c) Officer's Certificates as to Compliance, Solvency, Documents, Etc.
The Borrower shall have provided to the Agent one or more compliance and other
closing certificates, in forms satisfactory to the Agent, executed on behalf of
the Borrower by its chief executive officer or chief financial officer,
certifying as to satisfaction by the Borrower of the conditions to lending set
forth in this Section 3.02 and in Section 3.03 and, specifically, as to certain
matters specified therein.
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(d) Compliance Certificate. The Borrower shall have executed and
delivered (or caused to be executed and delivered by the appropriate Operating
Companies) to the Agent a certificate of representations, warranties and
compliance satisfactory in form and substance to the Agent, together with
updated versions of Schedules to this Agreement and of the applicable Officer's
Certificates delivered pursuant to the Security and Pledge Agreements, and
otherwise adjusting the Companies' representations and warranties contained
herein and therein, to the extent appropriate in connection with such
Acquisition and approved by the Required Lenders in writing in their sole
discretion (which certificate, if so approved, shall be deemed an amendment of
this Agreement and such Security Documents and shall be incorporated by
reference herein and therein).
(e) Other Deliveries. The Companies shall have executed and/or delivered
to the Agent (or shall have caused to be executed and delivered to the Agent by
the appropriate persons), the following:
(i) With respect to the assets to be acquired pursuant to such
Acquisition, and the applicable Seller(s), all Uniform Commercial Code
Financing Statements and Termination Statements and all mortgages, deeds
of trusts and amendments thereto and related title insurance policies
required by the Agent or its counsel in connection with the Borrower's
compliance with the provisions of Section 2.01;
(ii) Certified copies of the resolutions of the Board of
Directors or partners of each applicable Company authorizing such
Acquisition;
(iii) Such certificates of public officials and copies of
material consents, agreements and other documents and such other
supporting documents and information as the Agent shall reasonably
request;
(iv) If requested by the Agent, Environmental Site Assessments,
Environmental Questionnaires and other information with respect to owned
and leased real properties, which shall be reasonably satisfactory in all
respects to the Required Lenders;
(v) Such Uniform Commercial Code, Federal tax lien and judgment
searches as the Agent shall reasonably require, the results thereof to
disclose no liens except liens permitted by this Agreement and liens to
be discharged upon completion of the Acquisition;
(vi) A combined balance sheet for the Companies, pro forma for
the Acquisition and the proposed Advances;
(vii) Certificates of insurance evidencing the additional
insurance coverage and policy provisions required in this Agreement; and
(ix) Such other supporting documents and certificates as the
Agent or the Lenders may reasonably request.
(f) General and Local Counsel Opinions. The Agent shall have received the
favorable written opinions of regular and local counsel to the Companies dated
the date of such Loans and addressed to the Agent and the Lenders, reasonably
satisfactory to the Agent in scope and substance.
(g) FCC Opinions. The Agent shall have received the favorable written
opinion of special communications counsel to the Companies dated the date of
such Loans and addressed to the Agent and the Lenders, with respect to FCC and
related matters, which opinion shall be reasonably satisfactory to the Lenders
in scope and substance.
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(h) Legal Fees. All legal fees and expenses of counsel to the Agent
incurred through the date of such Loans shall have been paid in full.
(i) Review by Agent's Counsel. All legal matters incident to the
transactions hereby contemplated shall be reasonably satisfactory to counsel for
the Agent.
Section 3.03. All Loans. The obligations of the Lenders to make any Loans
(including the Advances made on the Closing Date and in respect of Acquisitions
consummated thereafter) are subject to the following conditions:
(a) All warranties and representations set forth in this Agreement shall
be true and correct in all material respects as of the date such Loans are made
(except to the extent they expressly relate to an earlier specified date or are
affected by transactions or events occurring after the Closing Date and
permitted or not prohibited hereunder).
(b) After giving effect to such Loans (both as of the proposed date
thereof and, on a pro forma basis, the last day of the most recent month for
which financial statements have been delivered to the Lenders under Section
6.05), no Default shall have occurred and be continuing. Each telephonic or
written request for such Loans shall constitute a representation to such effect
as of the date of such request and as of the date of such borrowing.
(c) The Agent shall have received a properly completed Request for
Advances, together with all such financial and other information as the Agent
shall require to substantiate the current and pro forma certifications of no
Default contained therein.
(d) The Agent shall have received such other supporting documents and
certificates as the Agent and the Required Lenders may reasonably request.
Section 3.04. Lender Approvals. For purposes of determining compliance
with the conditions precedent referred to in Sections 3.01, 3.02 and 3.03, on
the date of the first Advances hereunder, each of the Lenders shall be deemed to
have consented to, approved or accepted or be satisfied with each document or
other matter which is the subject of such Lender's consideration under any of
the provisions of such Sections, unless an officer of the Agent responsible for
the transactions contemplated by the Loan Documents shall have received notice
from such Lender prior to the first Advances hereunder specifying its objection
thereto and such Lender shall have failed to make available to the Agent such
Lender's ratable share of the first Advances.
IV. REPRESENTATIONS AND WARRANTIES. The Borrower represents and warrants
to the Lenders (which representations and warranties shall give effect to the
consummation of all of the transactions referred to in Section 3.01 and shall
survive the delivery of the Notes and the making of the Loans) that:
Section 4.01. Financial Statements. The Borrower has heretofore
furnished to the Lenders:
(a) the audited and unaudited balance sheets and related statements of
operations, stockholders' equity and cash flow of the Borrower and its
Subsidiaries attached as Schedule 4.01(a) (the "Financial Statements"); and
(b) the June 30, 1996 balance sheet of the Borrower and the Operating
Companies showing their pro forma financial condition after the consummation of
any and all transactions contemplated to have occurred as of the Closing Date,
as if they had occurred on June 30, 1996, attached as Schedule 4.01(b) (the
"Opening Balance Sheet").
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The Financial Statements have been prepared in accordance with GAAP.
Since December 31, 1995, there has been no material adverse change in the
assets, properties, business or condition (financial or otherwise) of any of the
Companies and no dividends or distributions have been declared or paid by any of
the Companies. None of the Companies has any contingent obligations, liabilities
for taxes or unusual forward or long-term commitments except as specified in
such Financial Statements. The Opening Balance fairly represents the pro forma
financial condition of the Borrower and the Operating Companies as of its date.
All financial projections submitted to the Lenders by the Borrower (including
all projections set forth in the Budget) are believed by the Borrower to be
reasonable in light of all information presently known by the Borrower. Except
as set forth on Schedule 4.01(c), as of the date of this Agreement, the Parent
has no Indebtedness.
Section 4.02. Organization, Qualification, Etc. Each of the Companies (a)
is a corporation or limited partnership duly organized or formed, as the case
may be, validly existing and in good standing under the laws of its state of
organization or formation, all as specified in Schedule 4.02, (b) has the power
and authority to own its properties and to carry on its business as now being
conducted and as presently contemplated, (c) has the power and authority to
execute and deliver, and perform its respective obligations under, this
Agreement, the Notes and the Security Documents and all other agreements and
instruments contemplated hereby and (d) is duly qualified to transact business
in the jurisdictions specified in such Schedule 4.02 and in each other
jurisdiction where the nature of its activities requires such qualification. As
of the date of this Agreement none of the Companies has any Subsidiaries, except
as described in Schedule 4.22.
Section 4.03. Authorization; Compliance; Etc. The execution and delivery
of, and performance by the Companies of their respective obligations under, this
Agreement, the Notes, the Security Documents, the Registration Statement, the
Acquisition Agreements and the other agreements and instruments relating thereto
(all of the foregoing being hereinafter referred to collectively as the
"Transaction Documents") have been duly authorized by all requisite corporate
and partnership action and will not violate any provision of law, any order,
judgment or decree of any court or other agency of government, including without
limitation the FCC, the charter documents or by-laws of any corporate Company,
the limited partnership agreement or certificate of limited partnership of any
partnership Company or any indenture, agreement or other instrument to which any
Company is a party, or by which any Company is bound, or be in conflict with,
result in a breach of, or constitute (with due notice or lapse of time or both)
a default under, or except as may be permitted under this Agreement, result in
the creation or imposition of any lien, charge or encumbrance of any nature
whatsoever upon any of the property or assets of any Company pursuant to, any
such indenture, agreement or instrument. Each of the Transaction Documents
constitutes the valid and binding obligation of each of the Companies and their
Affiliates party thereto, enforceable against such party in accordance with its
terms, subject, however to bankruptcy, insolvency, reorganization, moratorium
and similar laws affecting the rights and remedies of creditors generally or the
application of principles of equity, whether in any action in law or proceeding
in equity, and subject to the availability of the remedy of specific performance
or of any other equitable remedy or relief to enforce any right under any such
agreement.
Section 4.04. Governmental and Other Consents, Etc.
(a) Except for filings and recording required under Section 2.01 and the
Security Documents and except as set forth in Schedule 4.04, none of the
Companies is required to obtain any consent, approval or authorization from, to
file any declaration or statement with or to give any notice to, any
Governmental Authority (including without limitation the Commonwealth of Puerto
Rico, the State of Connecticut, the FCC, the Copyright Office and the
communities included in the Franchise Areas), or any other Person (including,
without limitation, any notices required under the applicable bulk sales law) in
connection with or as a condition to the execution, delivery or performance of
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any of the Transaction Documents. Except as set forth in such Schedule 4.04, all
consents, approvals and authorizations described in such Schedule have been duly
granted and are in full force and effect on the date hereof and all filings
described in such Schedule have been properly and timely made.
(b) Notwithstanding the foregoing, (i) from time to time, the Companies
may be required to obtain certain authorizations of or to make certain filings
with the FCC and local franchising authorities which are required in the
ordinary course of business, (ii) copies of certain documents, including without
limitation certain Transaction Documents, may be required to be filed with the
FCC pursuant to 47 C.F.R. Section 73.3613 and with local franchising
authorities, (iii) the FCC must be notified of the consummation of any
assignments or transfers of control of FCC authorizations for any television
broadcast stations and ownership reports are required to be filed with the FCC
after such consummation pursuant to 47 C.F.R. Section 73.3615, and similar
requirements of local franchising authorities exist under state and local law,
and (iv) prior to the exercise of certain rights or remedies under the Loan
Documents by the Agent or the Lenders, FCC consents and notifications and
similar actions with respect to local franchising authorities with respect to
such exercise may be required to be timely obtained or made.
Section 4.05. Litigation. Except as specified in Schedule 4.05, there is
no action, suit or proceeding at law or in equity or by or before any
governmental instrumentality or other agency (including without limitation the
FCC), now pending or, to the knowledge of the Borrower, threatened (nor is any
basis therefor known to the Borrower), (a) which questions the validity of any
of the Transaction Documents, or any action taken or to be taken pursuant hereto
or thereto, in a manner or to an extent which would have a Material Adverse
Effect, or (b) against or affecting any Company which, if adversely determined,
either in any case or in the aggregate, would have a Material Adverse Effect.
Section 4.06. Compliance with Laws and Agreements. Except as disclosed in
this Agreement, none of the Companies is a party to any agreement or instrument
or subject to any partnership or other restriction which could have a Material
Adverse Effect. None of the Companies is in violation of any provision of its
corporate charter or by-laws or partnership agreement, as the case may be, or of
any material indenture, agreement or instrument to which it is a party or by
which it is bound or, to the best of the Borrower's knowledge and belief, of any
provision of law, the violation of which could have a Material Adverse Effect,
or any order, judgment or decree of any court or other agency of government
(including without limitation the Commonwealth of Puerto Rico, the State of
Connecticut, the FCC, the FAA, the Copyright Office and the communities included
in the Franchise Areas).
Section 4.07. Franchises; Licenses, Etc.
(a) (i) Schedule 4.07(a) sets forth a complete and correct list of all
Franchises (identified by issuing authority, Franchise Area, franchisee and
expiration date) granted, issued or assigned to any Company as of the Closing
Date. The Companies possess all such Franchises and all copyrights, licenses,
trademarks, service marks, trade names and other contract rights, including
licenses and permits granted by the FCC, agreements with public utilities and
microwave transmission companies, pole or conduit attachment, use, access or
rental agreements, utility easements and agreements the delivery of pay
programming to subscribers that are necessary for the operation and planned
expansion of the Systems, except to the extent the absence thereof could not
reasonably be expected to have a Material Adverse Effect. Each of such
Franchises, copyrights, licenses, patents, trademarks, service marks, trade
names and other rights and agreements is in full force and effect and no
material default has occurred and is continuing thereunder.
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(ii) No approval, application, filing, registration, consent or other
action of any Governmental Authority (including the Commonwealth of Puerto Rico,
the State of Connecticut, the FCC, the Copyright Office and the communities
included in the Franchise Areas) is required to enable any Company to take
advantage of the rights and privileges intended to be conferred by the
Franchises, except for approvals, applications, filings, registrations, consents
or other actions that (if not made or obtained) could not reasonably be expected
to have a Material Adverse Effect. None of the Companies has received any notice
with respect to any breach of any covenant under, or any default with respect
to, any Franchise. Complete and correct copies of all Franchises have heretofore
been delivered to the Agent.
(b) Schedule 4.07(b) accurately and completely lists all Licenses
(identified by issuing authority, licensee, Station call letters and expiration
date) granted, issued or assigned to any Company as of the Closing Date. The
Companies possess all such Licenses and all copyrights, licenses, trademarks,
service marks, trade names and other contract rights, including agreements with
public utilities, use, access or rental agreements, utility easements, network
affiliation agreements, film rental agreements and talent employment agreements
that are necessary for the operation of the Stations, except to the extent the
absence thereof could not reasonably be expected to have a Material Adverse
Effect. Each of such Licenses, copyrights, licenses, patents, trademarks,
service marks, trade names and other rights and agreements is in full force and
effect and no material default has occurred and is continuing thereunder. None
of the FCC Licenses held by any Company is the subject of a pending license
renewal application and the Borrower has no reason to believe that any of such
FCC Licenses will be revoked or will not be renewed in the ordinary course.
Section 4.08. The Systems.
(a) Each of the Companies and the Systems are in compliance with all
applicable federal, state and local laws, rules and regulations, including
without limitation the Telecommunications Act of 1996, the Communications Act of
1934, as amended, the Cable Communications Policy Act of 1984, the Cable
Television Consumer Protection and Competition Act of 1992, the Copyright
Revisions Act of 1976, and the rules and policies of the FCC, the FAA and the
Copyright Office, including without limitation rules and laws governing system
registration, use of aeronautical frequencies and signal carriage, equal
employment opportunity, cumulative leakage index testing and reporting, signal
leakage and subscriber privacy, except to the extent that the failure to so
comply could not (either individually or in the aggregate) reasonably be
expected to have a Material Adverse Effect. Without limiting the generality of
the foregoing (except to the extent that the failure to comply with any of the
following could not, either individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect):
(i) the communities included in the Franchise Areas have
been registered with the FCC;
(ii) all of the annual performance tests on the Systems
required under the rules and policies of the FCC have been performed
and the results of such tests demonstrate satisfactory compliance with
the applicable requirements being tested in all material respects;
(iii) the Companies have filed all material reports and other
submissions required to be filed with the FCC with respect to the
Systems and their operations;
(iv) the Systems currently meet or exceed the technical
standards set forth in the rules and policies of the FCC, including,
without limitation, the leakage limits contained in 47 C.F.R.
Section 76.605(a)(11);
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(v) the channel capacities of the New England Systems are 36,
50 and 62 channels, representing approximately 45%, 22% and 33% of New
England cable subscribers; the MCT Systems have a capacity of
60-channels; the San German System has a capacity of 50-channels; and
each System is fully addressable or capable thereof and delivers
picture quality that complies in all material respects with applicable
FCC requirements and the requirements of the applicable Franchises;
(vi) the Systems are being operated in compliance with the
provisions of 47 C.F.R. Sections 76.610 through 76.619 (mid-band and
super-band signal carriage), including 47 C.F.R. Section 76.611
(compliance with the cumulative signal leakage index);
(vii) the Systems are being operated in compliance with the
requirements of the applicable Franchises;
(viii) where required, appropriate authorizations from the FCC
have been obtained for the use of all aeronautical frequencies in use
in the Systems and the Systems are presently being operated in
compliance with such authorizations;
(ix) all of the existing towers used in the operation of the
Systems are obstruction-marked and lighted to the extent required by,
and in accordance with, the rules and regulations of the FAA and
appropriate notification to the FAA has been filed for each such tower
where required by the Rules and policies of the FCC, and all other
required certificates, permits and clearances from Governmental
Authorities, including the FAA, with respect to all towers, earth
stations, business radios and frequencies utilized and carried by the
Systems have been obtained; and
(x) all notices to subscribers of the Systems required by the
rules and policies of the FCC have been provided.
(b) All notices, statements of account, supplements and other documents
required under Section 111 of the Copyright Act of 1976 and under the rules of
the Copyright Office with respect to the carriage of off-air signals by the
Systems have been duly filed, and the proper amount of copyright fees have been
paid on a timely basis, and each System qualifies for the compulsory license
under Section 111 of the Copyright Act of 1976, except to the extent that the
failure to so file or pay could not (either individually or in the aggregate)
reasonably be expected to have a Material Adverse Effect.
(c) The carriage of all off-air signals by the Systems to be owned by
the Companies is permitted by valid transmission consent agreements or by
must-carry elections by broadcasters, except to the extent the failure to obtain
any of the foregoing could not (either individually or in the aggregate)
reasonably by expected to have a Material Adverse Effect.
(d) Each of the Companies and, to the Borrower's best knowledge, the
San German Sellers, have complied with their respective obligations with regard
to protecting the privacy rights of any past or present customers of the
Systems, except to the extent that the failure to so comply could not (either
individually or in the aggregate) reasonably be expected to have a Material
Adverse Effect.
(e) None of the Companies which owns the Systems has been denied EEO
certification by the FCC, and no FCC proceedings against any such Company in
respect of EEO violation are pending or, to the Borrower's best knowledge,
threatened, which, if resolved adversely to the Companies, could reasonably be
expected (either individually or in the aggregate) to have a Material Adverse
Effect.
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(f) The assets of the Systems are adequate and sufficient in all
material respects for all of the current operations of the Systems.
Section 4.09. Rate Regulation. Each of the Companies has reviewed and
evaluated in detail the FCC rules currently in effect (the "Rate Regulation
Rules") implementing the rate regulation provisions of the Cable Television
Consumer Protection and Competition Act of 1992 as amended by the
Telecommunications Act of 1996 (as so amended, the "Rate Regulation Act"). Based
upon such review and completion by the Companies of all applicable worksheets
contemplated by the Rate Regulation Rules for each System, and except as set
forth in Schedule 4.09:
(a) The Systems are in material compliance with the Rate Regulation Act
and the Rate Regulation Rules applicable to them; and
(b) The Systems are owned by Companies which are "small cable
operators" as defined by the Telecommunications Act of 1996. As such, the Cable
Programming Services Tier rates of the Systems with Basic-only rates have
likewise been deregulated. Schedule 4.09 lists all pending rate proceedings
before the FCC and any local franchising authorities that have jurisdiction over
the Company. Schedule 4.09 also sets forth FCC and local franchising authority
orders approving the Companies' rates.
Section 4.10. The Stations.
(a) Each of the Companies and the Stations is in compliance with all
applicable federal, state and local laws, rules and regulations, including
without limitation, the Telecommunications Act of 1996, the Communications Act
of 1934, as amended, and the rules and policies of the FCC, including without
limitation rules and laws governing, equal employment opportunity, except to the
extent that the failure to so comply could not (either individually or in the
aggregate) reasonably be expected to have a Material Adverse Effect. Without
limiting the generality of the foregoing (except to the extent that the failure
to comply with any of the following could not, either individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect):
(i) the Companies have filed all material reports and other
submissions required to be filed with the FCC by the Companies with
respect to the Stations and their operations;
(ii) the operation of the Stations is in compliance in all
material respects with ANSI Standards C95.1-1982 to the extent required
under applicable rules and regulations;
(iii) all of the existing towers used in the operation of the
Stations are obstruction-marked and lighted to the extent required by,
and in accordance with, the rules and regulations of the FAA and
appropriate notification to the FAA has been filed for each such tower
where required by the rules and policies of the FCC; and
(iv) the Stations are being operated in compliance with the
applicable Licenses.
(b) No material FCC proceedings against any of the Companies in respect
of EEO violations are pending or, to the Borrower's best knowledge, threatened.
(c) The assets of the Stations are adequate and sufficient in all
material respects for all of the current operations of the Stations.
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Section 4.11. DBS Rights. Schedule 4.11 accurately and completely lists
all DBS Agreements to which PST is a party as of the Closing Date. PST possesses
all such DBS Agreements, and all exclusive DBS Rights and other rights and
agreements as are necessary for the operation of its DBS business in accordance
with the Projections, except to the extent that the absence thereof could not
reasonably be expected to have a Material Adverse Effect. Each of such DBS
Agreements and other rights and agreements is in full force and effect.
Section 4.12. Title to Properties; Condition of Properties.
(a) Except as set forth on Schedule 4.12, the Companies have good title
to all of their properties and assets (including all of the Systems and
Stations) free and clear of all mortgages, security interests, restrictions
(other than FCC restrictions on the transfer of capital stock or FCC
authorizations), liens and encumbrances of any kind, including without
limitation liens or encumbrances in respect of unpaid taxes (collectively,
"Liens"), except liens and encumbrances permitted under this Agreement. Such
Schedule 4.12 also sets forth a description of all real properties owned by the
Companies.
(b) Schedule 4.12 accurately and completely lists, and sets forth a
description of, all agreements between any Company and any Person relating to
the location of (i) Headend sites used in the operation of the Systems (the
"Headend Site Leases"), (ii) tower and transmitter sites used in the operation
of the Stations (the "Tower Site Leases") and (iii) offices, studios and other
facilities, and the same constitute the only Headend Site Leases, Tower Site
Leases and other leases necessary in connection with the conduct by the
Companies of their businesses as presently conducted. Each of the Companies
enjoys quiet possession under all leases (including without limitation the
Headend Site Leases and the Tower Site Leases) to which it is a party as lessee,
and all of such leases are valid, subsisting and in full force and effect. None
of such leases contains any provision restricting the incurrence of indebtedness
by the lessee.
(c) Except as specified in such Schedule 4.12, none of the real property
owned by any Company is located within any federal, state or municipal flood
plain zone.
Section 4.13. Interests in Other Businesses. Except as reflected in
Schedule 4.13 or Schedule 4.22 hereto, neither the Borrower nor any Operating
Company holds or owns any of the issued and outstanding capital stock,
partnership interests or similar equity interests, or any rights to acquire the
same, of any corporation, partnership, firm or entity other than as specified or
permitted in this Agreement.
Section 4.14. Solvency.
(a) The aggregate amount of the full salable value of the assets and
properties of each Company exceeds the amount that will be required to be paid
on or in respect of such Company's existing debts and other liabilities
(including contingent liabilities) as they mature.
(b) No Company's assets and properties constitute unreasonably small
capital for such Company to carry out its business as now conducted and as
proposed to be conducted, including such Company's capital needs, taking into
the account the particular capital requirements of such Company's business and
the projected capital requirements and capital availability thereof.
(c) The Companies do not intend to, nor will the Companies, incur debts
beyond their ability to pay such debts as they mature, taking into account the
timing and amounts of cash reasonably anticipated to be received by each Company
and the amounts of cash reasonably anticipated to be payable on or in respect of
each Company's obligations. The Companies' aggregate cash flow, after taking
into account all anticipated sources and uses of cash, will at all times be
sufficient to pay all such amounts on or in respect of their indebtedness when
such amounts are required to be paid.
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(d) The Borrower believes that no reasonably anticipated final judgment
in a pending action or, to its knowledge, any threatened actions for money
damages will be rendered at a time when, or in an amount such that, any Company
will be unable to satisfy such judgments promptly in accordance with their terms
(taking into account the maximum reasonable amount thereof and the earliest
reasonable time at which such judgments might be rendered). The cash available
to each Company, after taking into account all other anticipated uses of cash
(including the payment of all such Company's indebtedness) is anticipated to be
sufficient to pay any such judgments promptly in accordance with their terms.
(e) No Company is contemplating either the filing of a petition by it
under any state or federal bankruptcy or insolvency laws or the liquidating of
all or a substantial portion of its property, and the Borrower has no knowledge
of any Person contemplating the filing of any such petition against any Company.
Section 4.15 Full Disclosure. No statement of fact made by or on behalf
of any Person other than the Lenders in this Agreement, the Security Documents
or in any certificate or schedule furnished to the Lenders pursuant hereto or
thereto contains any untrue statement of a material fact or omits to state any
material fact necessary to make statements contained therein or herein not
misleading. There is no fact presently known to the Borrower which has not been
disclosed to the Lenders in writing which materially affects adversely, or, as
far as the Borrower can reasonably foresee, could have a Material Adverse
Effect, other than facts and circumstances generally known within the cable
television or broadcast television industry.
Section 4.16. Margin Stock. The Companies do not own or have any present
intention of acquiring any "margin stock" within the meaning of Regulation U (12
CFR Part 221), of the Board of Governors of the Federal Reserve System (herein
called "Margin Stock").
Section 4.17. Tax Returns. Each of the Companies has filed all federal,
state and local tax and information returns required to be filed, and has paid
or made adequate provision for the payment of all material federal, state and
local taxes, franchise fees, charges and assessments shown thereon.
Section 4.18. Pension Plans, Etc.
(a) Except as described in Schedule 4.18, neither the Borrower nor any
member of the Controlled Group has any pension, profit sharing or other similar
plan providing for a program of deferred compensation to any employee.
(b) Neither the Borrower nor any member of the Controlled Group has any
material liability (i) under Section 412 of the Code for failure to satisfy the
minimum funding requirements for pension plans, (ii) as the result of the
termination of a defined benefit plan under Title IV of ERISA, (iii) under
Section 4201 of ERISA for withdrawal or partial withdrawal from a multiemployer
plan, or (iv) for participation in a prohibited transaction with an employee
benefit plan as described in Section 406 of ERISA and Section 4975 of the Code.
Section 4.19. Material Agreements. Except for matters disclosed in
Schedules 4.07(a), 4.07(b) , 4.09, 4.10, 4.11 and 4.12, Schedule 4.19 hereto
accurately and completely lists all agreements, if any, among the stockholders
or partners of the Borrower or any of the Operating Companies and all material
construction, engineering, management, consulting and other agreements, if any,
which are in effect on the date hereof in connection with the conduct of the
business of the Borrower and the Operating Companies, including without
limitation the acquisition, construction, extension and/or operation of the
Systems and the Stations, or for the distribution of satellite broadcasting
service.
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Section 4.20. Projections. Attached as Schedule 4.20 are projections of
the operation of the Companies' businesses through December 31, 2003 (the
"Projections").
Section 4.21. Brokers, Etc. None of the Companies has dealt with any
broker, finder, commission agent or other similar Person in connection with the
Loans or the transactions contemplated by this Agreement or is under any
obligation to pay any broker's fee, finder's fee or commission in connection
with such transactions.
Section 4.22. Capitalization. Attached as Schedule 4.22 is a schematic
diagram of the ownership relationships among the Companies, showing accurate
ownership percentages of the stockholders of record and accompanied by a
statement of authorized and issued equity securities for each such entity as of
the date hereof. Such Schedule 4.22 also includes a narrative indicating, as of
the date hereof (a) which securities, if any, carry preemptive rights; (b) to
the best of the Borrower's knowledge whether there are any outstanding
subscriptions, warrants or options to purchase any securities; (c) whether any
Company is obligated to redeem or repurchase any of its securities, and the
details of any such committed redemption or repurchase; and (d) any other
agreement, arrangement or plan to which any Company is a party or participant or
of which any Company has knowledge which will directly or indirectly affect the
capital structure of the Companies. All such equity securities of the Companies
are validly issued and fully paid and non-assessable, and owned as set forth on
such Schedule 4.22. All such equity securities of the Companies are owned,
legally and beneficially, free of any assignment, pledge, lien, security
interest, charge, option or other encumbrance, except for liens and security
interests granted to the Agent or the Lenders or permitted under Section 7.02
and restrictions on transfer imposed by applicable securities laws, indicated on
the certificates evidencing such shares or as may be imposed by the FCC or local
franchising authorities.
Section 4.23. Environmental Compliance.
(a) To the best of the Borrower's knowledge, all real property leased,
owned, controlled or operated by the Companies (the "Properties") and their
existing and, to the best of the Borrower's knowledge, prior uses and activities
thereon, including, but not limited to, the use, maintenance and operation of
each of the Properties and all activities in conduct of business related thereto
comply and have at all times complied in all material respects with all
Environmental Laws.
(b) None of the Companies, and to the best of the Borrower's knowledge,
no previous owner, tenant, occupant or user of any of the Properties or any
other Person, has engaged in or permitted any operations or activities upon any
of the Properties for the purpose of or in any way involving the handling,
manufacture, treatment, storage, use, generation, release, discharge, refining,
dumping or disposal of a material amount of any Hazardous Materials the removal
of which is required or the maintenance of which is prohibited or penalized.
(c) To the best of the Borrower's knowledge, no Hazardous Material has
been or is currently located in, on, under or about any of the Properties in a
manner which materially violates any Environmental Law or which requires cleanup
or corrective action of any kind under any Environmental Law.
(d) No notice of violation, lien, complaint, suit, order or other notice
or communication concerning any alleged violation of any Environmental Law in,
on, under or about any of the Properties has been received by any Company or, to
the best of the Borrower's knowledge, any prior owner or occupant of any of the
Properties which has not been fully satisfied and complied with in a timely
fashion so as to bring such Property into full compliance with all Environmental
Laws.
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(e) The Companies have all permits and licenses required under any
Environmental Law to be issued to them by any Governmental Authority on account
of any or all of its activities on any of the Properties, except to the extent
that the absence of any such permit or license could have a Material Adverse
Effect, and are in material compliance with the terms and conditions of such
permits and licenses. To the best of the Borrower's knowledge, no change in the
facts or circumstances reported or assumed in the application for or granting of
such permits or licenses exist, and such permits and licenses are in full force
and effect.
(f) No portion of any of the Properties has been listed, designated or
identified in the National Priorities List (NPL) or the CERCLA information
system (CERCLIS), both as published by the United States Environmental
Protection Agency, or any similar list of sites published by any Federal, state
or local authority proposed for or requiring cleanup, or remedial or corrective
action under any Environmental Law.
(g) The Borrower, at its expense, has provided to the Agent and the
Lenders a "Phase One" site assessment for each of the Properties designated by
the Lenders, including all owned Properties (collectively the "Environmental
Site Assessments"), prepared by an environmental consulting firm of national
reputation satisfactory to the Lenders. Each of the Environmental Site
Assessments is, to the best of the Borrower's knowledge, true and accurate in
all material respects. In addition, the Borrower has provided to the Agent and
the Lenders true and accurate responses to the Agent's Environmental
Questionnaire as to each of the other Properties.
Section 4.24. Investment Company Act. None of the Companies is an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended, or a "holding company," or a "subsidiary company" of a "holding
company," or an "affiliate" of a "holding company," or of a "subsidiary company"
of a "holding company," within the meaning of the Public Utility Holding Company
Act of 1935, as amended.
Section 4.25. Labor Matters. No Company is experiencing any strike, labor
dispute, slow down or work stoppage due to labor disagreements which could
reasonably be expected to have a Material Adverse Effect; there is no such
strike, dispute, slow down or work stoppage threatened against any Company; none
of the Companies is subject to any collective bargaining or similar
arrangements.
Section 4.26. Senior Debt. All of the Obligations constitute "Senior
Debt" and, with the exception of Rate Hedging Obligations owed to the Lenders,
"Designated Senior Debt" under the Subordinated Indenture. As of the date
hereof, the Calculation of Leverage Ratio attached hereto as Schedule 4.26
correctly applies the provisions of the Subordinated Indenture to the
appropriate financial statements and books and records of the Borrower and
accurately calculates the Indebtedness to Adjusted Operating Cash Flow Ratio (as
defined in the Subordinated Indenture). After giving effect to the initial
requested Advance of $22,250,000 on the date hereof, including the uses of the
proceeds thereof, the Indebtedness to Adjusted Operating Cash Flow Ratio will
not exceed 6.50 to 1.00, and the Borrower will be in full compliance with
Section 4.09 of the Subordinated Indenture. After giving effect to the
subsequent requested Advances of $5,750,000 and $3,600,000 on the date hereof,
the Borrower will be in full compliance with Section 4.09 of the Subordinated
Indenture.
V. FINANCIAL COVENANTS. The Borrower covenants and agrees that, so long
as any Lender has any obligation to extend credit to the Borrower hereunder, and
for so long thereafter as there remains outstanding any portion of the principal
of, or interest on, any Note or any other Obligations, whether now existing or
arising hereafter, the Borrower and the Operating Companies will (on a
consolidated or combined basis, as applicable):
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Section 5.01. Leverage
(a) At all times during each period indicated below, maintain a ratio of
(i) Total Funded Debt to (ii) Adjusted Operating Cash Flow for the most recently
ended period of four (4) consecutive fiscal quarters of not more than the
following:
<TABLE>
<CAPTION>
Maximum Ratio of Total Funded Debt
Period to Adjusted Operating Cash Flow
------ -----------------------------------
<S> <C>
Closing Date through December 30, 1996 7.20:1.00
December 31, 1996 through March 30, 1997 6.60:1.00
March 31, 1997 through December 30, 1997 6.50:1.00
December 31, 1997 through June 29, 1998 6.25:1.00
June 30, 1998 through September 29, 1998 6.00:1.00
September 30, 1998 through December 30, 1998 5.75:1.00
December 31, 1998 through June 29, 1999 5.25:1.00
June 30, 1999 through December 30, 1999 4.75:1.00
December 31, 1999 through June 29, 2000 4.25:1.00
June 30, 2000 and thereafter 4.00:1.00
</TABLE>
(b) At all times during each period indicated below, maintain a ratio of
(i) Senior Funded Debt to (ii) Adjusted Operating Cash Flow for the most
recently ended period of four (4) consecutive fiscal quarters of not more than
the following:
<TABLE>
<CAPTION>
Maximum Ratio of Senior Funded Debt
Period to Adjusted Operating Cash Flow
------ ------------------------------------
<S> <C>
The Closing Date through June 29, 2000 2.50:1.00
June 30, 2000 and thereafter 2.00:1.00
</TABLE>
Section 5.02. Interest Coverage. For each period of four (4) consecutive
fiscal quarters ending on the Quarterly Dates indicated below, maintain a ratio
of Operating Cash Flow to Total Interest Expense of at least the following:
<TABLE>
<CAPTION>
Minimum Ratio of Operating
Quarterly Dates Cash Flow to Total Interest Expense
----------------- -------------------------------------
<S> <C>
September 30, 1996 1.05:1.00
December 31, 1996 1.10:1.00
March 31, 1997 through December 31, 1997 1.20:1.00
March 31, 1998 through September 30, 1999 1.50:1.00
December 31, 1999 through September 30, 2000 2.00:1.00
December 31, 2000 and each Quarterly Date thereafter 2.50:1.00
</TABLE>
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Section 5.03. Fixed Charges. For each period of four (4) consecutive
fiscal quarters ending on the Quarterly Dates indicated below, maintain a ratio
of Operating Cash Flow to Fixed Charges for such period of at least the
following:
<TABLE>
<CAPTION>
Minimum Ratio of Operating
Quarterly Dates Cash Flow to Fixed Charges
--------------- ---------------------------
<S> <C>
December 31, 1997 through June 30, 1998 1.00:1.00
September 30, 1998 and
each Quarterly Date thereafter 1.10:1.00
</TABLE>
Section 5.04. Pro Forma Debt Service Coverage. As of each Quarterly Date
indicated below, maintain a ratio of Adjusted Operating Cash Flow to Pro Forma
Debt Service for the immediately succeeding period of four (4) consecutive
fiscal quarters of at least the following:
<TABLE>
<CAPTION>
Minimum Ratio of Adjusted
Operating Cash Flow to
Quarterly Date Pro Forma Debt Service Coverage
-------------- -------------------------------
<S> <C>
September 30, 1996 through December 31, 1996 1.00:1.00
March 31, 1997 through December 31, 1997 1.10:1.00
March 31, 1998 and
each Quarterly Date thereafter 1.25:1.00
</TABLE>
For purposes of this Section 5.04 only, and only as of March 31, 1997, June
30, 1997, September 30, 1997 and December 31, 1997, the above ratios will be
computed by adding to Adjusted Operating Cash Flow the lesser of (i) the unused
borrowing availability under the Available Reducing Revolver Commitments as of
the applicable Quarterly Date or (ii) the sum of $3,050,000.
Section 5.05. Capital Expenditures. Not make or incur Capital
Expenditures in any of the following periods in excess of the respective
aggregate amounts for all of the Operating Companies indicated below:
Fiscal Year Maximum
Ending December 31 Capital Expenditures
------------------ --------------------
December 31, 1996 $12,700,000
December 31, 1997 $ 5,500,000
December 31, 1998
and each December 31 thereafter $ 4,500,000
provided, however, that so long as no Event of Default shall then exist, Capital
Expenditures permitted, but not made, in any such fiscal year (or portion
thereof) as provided under the foregoing table may be deferred and made in the
subsequent fiscal year in addition to permitted Capital Expenditures for such
subsequent fiscal year specified above, provided that no such deferred Capital
Expenditures may be further deferred.
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Section 5.06. Restricted Payments. Not directly or indirectly declare,
order, pay or make any Restricted Payment or set aside any sum or property
therefor except as follows:
(a) The Operating Companies may pay (i) monthly Management Fees to the
Manager and (ii) lease payments to Pegasus Towers, L.P. in respect of the tower
leases in effect on the date hereof, and any renewals thereof; provided that
(aa) such payments shall be subject to the applicable Affiliate Subordination
Agreement, (bb) no Default shall exist as of the date of any such proposed
payment and after giving effect thereto, and (cc) such payments shall not
exceed, during any period of twelve (12) consecutive months, the lesser of
$1,750,000 or the actual cost of providing management and administrative support
services to the Operating Companies for such period.
(b) The Borrower may make regularly scheduled payments of interest under
the Subordinated Notes unless an Event of Default shall have occurred and be
continuing.
(c) Subject to the provisions of the Affiliate Subordination Agreements
and provided that no Default shall exist as of the date of the proposed payment
or after giving effect thereto (i) the Restricted Subsidiaries may pay dividends
and make distributions to the Borrower or other Restricted Subsidiaries holding
equity interests in the payor, (ii) the Operating Companies may repay
indebtedness owed to the Borrower or to Restricted Subsidiaries other than
PCT-CONN, MCT and MCT Cablevision, Ltd. and (iii) the Operating Companies and
the Borrower may make intercompany loans to one another subject to the
limitations set forth in Section 7.01.
VI. AFFIRMATIVE COVENANTS. The Borrower hereby covenants and agrees to
and with each of the Lenders that, so long as any Lender has any obligation to
extend credit to the Borrower hereunder, and for so long thereafter as there
remains outstanding any portion of any Obligation, whether now existing or
hereafter arising, the Borrower and each of the Operating Companies shall:
Section 6.01. Preservation of Assets; Compliance with Laws, Etc.
(a) Do or cause to be done all things necessary to preserve, renew and
keep in full force and effect its corporate or partnership existence, as the
case may be, all material rights, licenses, permits and franchises (including
all Licenses, Franchises and DBS Agreements) and comply in every material
respect with all laws and regulations applicable to it (including without
limitation the Communications Act of 1934, as amended, the Copyright Act of
1976, as amended, the Rate Regulation Act, the Rate Regulation Rules and all
other rules, regulations, administrative orders and policies of the FCC) and all
material agreements to which it is a party, including without limitation all
network affiliation agreements and all agreements with its stockholders or
partners, as the case may be, the violation of which could have a Material
Adverse Effect;
(b) at all times maintain, preserve and protect all material trade names
and proprietary rights; and
(c) preserve all the remainder of its material property used or useful in
the conduct of its business and keep the same in good repair, working order and
condition (reasonable wear and tear and damage by fire or other casualty
excepted), and from time to time, make or cause to be made all needful and
proper repairs, renewals, replacements, betterments and improvements thereto, so
that the business carried on in connection therewith may be conducted at all
times in the ordinary course in a manner substantially consistent with past
practices.
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Section 6.02. Insurance.
(a) Keep all of its insurable properties now or hereafter owned
adequately insured at all times against loss or damage by fire or other casualty
to the extent customary with respect to like properties of companies conducting
similar businesses; maintain public liability, business interruption,
broadcasters' liability and workers' compensation insurance insuring such
Company to the extent customary with respect to companies conducting similar
businesses, all by financially sound and reputable insurers and furnish to the
Lenders satisfactory evidence of the same (including certification by the chief
executive officer of the Borrower of timely renewal of, and timely payment of
all insurance premiums payable under, all such policies, which certification
shall be included in the next succeeding certificate delivered pursuant to
Section 6.05(d)); notify each of the Lenders of any material change in the
insurance maintained on its properties after the date hereof and furnish each of
the Lenders satisfactory evidence of any such change; maintain insurance with
respect to its headend, tower, transmission and studio facilities and related
equipment in an amount equal to the full replacement cost thereof; provide that
each insurance policy pertaining to any of its insurable properties shall: (i)
name the Agent, on behalf of the Lenders, as loss payee pursuant to a so-called
"standard mortgagee clause" or "Lender's loss payable endorsement", or as
additional insured (as appropriate), (ii) provide that no action of any Company
shall void such policy as to the Agent or the Lenders, and (iii) provide that
the insurer(s) shall notify the Agent of any proposed cancellation of such
policy at least thirty (30) days in advance thereof (unless such proposed
cancellation arises by reason of non-payment of insurance premiums in which case
such notice shall be given at least ten (10) days in advance thereof) and that
the Agent or the Lenders will have the opportunity to correct any deficiencies
justifying such proposed cancellation.
(b) In the event of a casualty loss, the Lenders will deliver to such
Company the proceeds of any insurance thereon, subject to the provisions of
Section 1.06(c), provided that (i) such Company shall use such proceeds for the
restoration or replacement of the property or asset which was the subject of
such loss within 180 days after the receipt thereof, (ii) such Company shall
have demonstrated to the reasonable satisfaction of the Lenders that such
property or asset will be restored to substantially its previous condition or
will be replaced by substantially identical property or assets, and (iii) if the
Agent, on behalf of the Lenders, had a security interest in and lien upon the
property or asset which was the subject of such loss, the Lenders shall have
received, at their request, a favorable opinion from the Borrower's counsel, in
form and substance satisfactory to the Agent, as to the perfection of the
Agent's security interest in and lien upon such restored or replaced property or
asset and such evidence satisfactory to the Agent as to the priority of such
security interest and liens. Notwithstanding the foregoing, and subject to
Section 1.06(c), if a casualty loss results in the Agent's receipt of insurance
proceeds aggregating $500,000.00 or more, then in lieu of delivering such
proceeds to a Company, the Lenders shall have the right to retain such proceeds
for the purpose of making disbursement thereof jointly to such Company and any
contractors, subcontractors and materialmen to whom payment is owed in
connection with such restoration.
(c) To the extent, if any, that the real property (whether owned or
leased) of the Companies is situated in a flood zone designated as type "A" or
"B" by the U.S. Department of Housing and Urban Development, obtain and maintain
flood insurance in coverage and amount satisfactory to the Required Lenders.
Section 6.03. Taxes, Etc. Pay and discharge or cause to be paid and
discharged all taxes, assessments and governmental charges or levies imposed
upon it or upon its income and profits or upon any of its property, real,
personal or mixed, or upon any part thereof, before the same shall become in
default, as well as all lawful claims for labor, materials and supplies or
otherwise, which, if unpaid, might become a lien or charge upon such properties
or any part thereof; provided that no Company shall be required to pay and
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discharge or cause to be paid and discharged any such tax, assessment, charge,
levy or claim so long as the validity thereof shall be contested in good faith
by appropriate proceedings and it shall have set aside on its books adequate
reserves with respect to any such tax, assessment, charge, levy or claim, so
contested; and provided, further that, in any event, payment of any such tax,
assessment, charge, levy or claim shall be made before any of its property shall
be seized or sold in satisfaction thereof.
Section 6.04. Notice of Proceedings, Defaults, Adverse Change, Etc.
Promptly (and in any event within five (5) days after the discovery by the
Borrower thereof) give written notice to each of the Lenders of (a) any
proceedings instituted or threatened against it by or in any federal, state or
local court or before any commission or other regulatory body, whether federal,
state or local, including without limitation the FCC, which, if adversely
determined, could have a Material Adverse Effect; (b) any notices of default
received by any Company (together with copies thereof, if requested by any
Lender) with respect to (i) any alleged default under or violation of any of its
material licenses, permits or franchises (including the Franchises and the
Licenses), any Headend Site Lease or Tower Site Lease, any DBS Agreement or any
other material agreement to which it is a party, or (ii) any alleged default
with respect to, or acceleration or other action under, the Subordinated Debt
Documents or any other evidence of material Indebtedness of any Company or any
mortgage, indenture or other agreement relating thereto; (c) (i) any notice of
any material violation or administrative or judicial complaint or order filed or
to be filed against any Company and/or any real property owned or leased by it
alleging any violations of any law, ordinance and/or regulation or requiring it
to take any action in connection with the release and/or clean-up of any
Hazardous Materials, or (ii) any notice from any governmental body or other
Person alleging that any Company is or may be liable for costs associated with a
release or clean-up of any Hazardous Materials or any damages resulting from
such release; (d) any change in the condition, financial or otherwise, of any
Company which could have a Material Adverse Effect; or (e) the occurrence of any
Default or the occurrence of any event which, upon notice or lapse of time or
both, would constitute such a Default.
Section 6.05. Financial Statements and Reports. Furnish to the Agent
(with multiple copies for each of the Lenders):
(a) Within one hundred twenty (120) days after the end of each fiscal
year, the consolidated and consolidating (or, if applicable, combined and
combining) balance sheets and statements of income, stockholders' or partners'
equity (as applicable) and cash flows of the Borrower, all of its Subsidiaries
and the Parent Subsidiaries, together with supporting schedules in form and
substance satisfactory to the Lenders, audited by independent certified public
accountants selected by the Borrower and reasonably acceptable to the Required
Lenders (the "Accountants"), the form of opinion to be also reasonably
satisfactory to the Required Lenders, showing the financial condition of the
Borrower, all of its subsidiaries and the Parent Subsidiaries at the close of
such fiscal year and the results of operations during such year, and containing
a statement to the effect that the Accountants have examined the provisions of
this Agreement and that, to the best of their knowledge, no Event of Default,
nor any event which upon notice or lapse of time or both would constitute an
Event of Default, has occurred under Article V or otherwise (or, if such an
event has occurred, a statement explaining its nature and extent), including
without limitation any Subordinated Indenture Default; provided, however, that
in issuing such statement, the Accountants shall not be required to exceed the
scope of normal auditing procedures conducted in connection with their opinion
referred to above;
(b) Within forty-five (45) days after the end of each quarter in each
fiscal year, the consolidated (or, if applicable, combined) balance sheets and
statements of income, stockholders' or partners' equity (as applicable) and cash
flows of the Borrower, all of its Subsidiaries and the Parent Subsidiaries,
together with supporting schedules, setting forth in each case in comparative
form the corresponding figures from the preceding fiscal period of the same
duration, prepared by the Borrower in accordance with GAAP (except for the
absence of notes) and certified by the Borrower's chief financial officer, such
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balance sheets to be as of the close of such quarter, and such statements of
income, stockholders' equity and cash flow to be for the quarter then ended and
the period from the beginning of the then current fiscal year to the end of such
quarter (in each case subject to normal audit and year-end adjustments) and to
include (i) a comparison of actual results to results for the comparable period
of the preceding fiscal year and projected results set forth in the Budget for
such period and (ii) a breakdown of revenues, expenses and Operating Cash Flow
for each division and each Station;
(c) Within forty-five (45) days after the end of each month, consolidated
(or, if applicable, combined) balance sheets and statements of income of the
Borrower, all of its Subsidiaries and the Parent Subsidiaries, together with
supporting schedules, prepared by the Borrower in accordance with GAAP (except
for the absence of notes) and certified by an authorized representative of the
Borrower, such balance sheets to be as of the end of such month and such income
statements to be for the period from the beginning of the then current fiscal
year to the end of such month (subject to normal audit and year-end adjustments)
and to include a comparison of actual results to results for the comparable
period of the preceding fiscal year and projected results set forth in the
Budget for such period and (ii) a breakdown of revenues, expenses and Operating
Cash Flow for each division and each Station;
(d) Concurrently with the delivery of any annual financial statements
required by Section 6.05(a) and any quarterly financial statements required by
Section 6.05(b), a certificate in the form of Schedule 6.05 attached hereto (or
otherwise in a form satisfactory to the Agent) signed on behalf of the Borrower
by the chief financial officer or chief executive officer of the Borrower,
setting forth the calculations contemplated in Article V of this Agreement and
certifying as to the fact that such Person has examined the provisions of this
Agreement and that no Event of Default nor any event which upon notice or lapse
of time, or both, would constitute such an Event of Default, including without
limitation any Subordinated Indenture Default, has occurred and is continuing
(or, if such event has occurred, a statement explaining its nature and extent)
which certificate shall also provide detailed reconciliations breaking out the
results of any Subsidiaries included in such financial statements and shall be
delivered together with a certification of compliance with Section 4.09 (and all
other provisions) of the Subordinated Indenture and the absence of any
Subordinated Indenture Default, including an updated Calculation of Leverage
Ratio in the form attached as Schedule 4.26, in reasonable detail and reasonably
satisfactory to the Required Lenders;
(e) (i) On or before February 15 of each fiscal year, an updated monthly
cost budget approved by the Board of Directors of the Parent, including planned
Capital Expenditures other Improvements and projected borrowings for such fiscal
year, with updated Projections showing financial covenant compliance
(collectively, the "Budget"), for the operation of the Companies' businesses
during the current fiscal year, setting forth in detail reasonably satisfactory
to the Lenders the projected results of operations of the Companies and stating
underlying assumptions, and (ii) within five (5) days after the effective date
thereof, notice of any material changes or modifications in the Budget (which
shall not include changes resulting from unmaterial adjustments to the timing of
any proposed borrowings);
(f) As soon as reasonably possible and in any event within thirty (30)
days after the end of each month, a certificate of a responsible officer of PCT,
setting forth in reasonable detail, as to each of the Systems, (i) the miles of
activated plant and number of homes passed, (ii) the numbers of basic
subscribers, the numbers of pay television units as at the end of such month,
(iii) changes in numbers of each such category of subscribers (including numbers
of disconnects and connects within each such category), (iv) the average monthly
aggregate basic and pay
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service revenues per subscriber as at the end of such month (excluding revenues
in respect of home shopping services, connects, disconnects, repair calls or
other related services), (v) rate changes, if any, (vi) changes in wattage,
channel capacity and addressability, and (vii) the numbers of subscribers more
than forty-five (45) days delinquent measured from the date of original billing;
(g) As soon as reasonably possible and in any event within thirty (30)
days after the end of each month, a certificate of a responsible officer of PST
(together with the report referred to in paragraph (f) above, the "Monthly
Subscriber Reports"), setting forth in reasonable detail, (i) the numbers of DBS
subscribers as at the end of the most recent monthly cut off, (iii) changes in
numbers of subscribers, (ii) the average monthly aggregate revenues per
subscriber as at the end of such month, (iii) rate changes, if any, and (iii)
the number of subscribers more than forty-five (45) days delinquent measured
from the date of original billing;
(h) Promptly upon their becoming available, and in any event within ten
(10) Business Days after receipt thereof, all Nielsen and other rating reports,
if any, received by any Company;
(i) Promptly, and in any event within five (5) days, after the Borrower
or any member of the Controlled Group (i) is notified by the Internal Revenue
Service of its liability for the tax imposed by Section 4971 of the Code, for
failure to make required contributions to a pension, or Section 4975 of the
Code, for engaging in a prohibited transaction, (ii) notifies the PBGC of the
termination of a defined benefit pension plan, if there are or may not be
sufficient assets to convert the plan's benefit liabilities as required by
Section 4041 of ERISA, (iii) is notified by the PBGC of the institution of
pension plan termination proceedings under Section 4042 of ERISA or that it has
a material liability under Section 4063 of ERISA, or (iv) withdraws from a
multiemployer pension plan and is notified that it has withdrawal liability
under Section 4202 of ERISA which is material, copies of the notice or other
communication given or sent;
(j) Promptly upon receipt or issuance thereof, and in any event within
five (5) Business Days after such receipt, copies of all audit reports submitted
to any Company by its accountants in connection with each yearly, interim or
special audit of the books of any Company made by such accountants, including
any material related correspondence between such accountants and the Borrower's
management;
(k) Promptly upon circulation thereof, and in any event within five (5)
Business Days after such circulation, copies of any material written reports
issued by the Borrower or any Operating Company to any of its stockholders,
partners or material creditors relating to the Notes or any material change in
any Company's financial condition;
(l) Within ten (10) days after the receipt or filing thereof by any
Company, as applicable, copies of any periodic or special reports filed by any
Company with the FCC or any state or local governmental body having jurisdiction
over any System, Station, Franchise or License, and copies of any material
notices and other material communications from the FCC or any such state or
local governmental body which specifically relate to any Company, any System or
Station or any Franchise or License, but in each case only if such reports or
communications indicate any material adverse change in such Company's standing
before the FCC, in the Franchise Areas or in respect of any Franchise or License
or if copies thereof are requested by the Agent;
(m) Within ten (10) days after the receipt or filing thereof by the
Parent or any other Affiliate of the Borrower, copies of (i) any registration
statements, prospectuses and any amendments and supplements thereto, and any
regular and periodic reports (including without limitation reports on Form 10-K,
Form 10-Q or Form 8-K), if any, filed by the Parent or such Affiliate with any
securities exchange or with the United States Securities and Exchange Commission
(the "SEC"); and (ii) any letters of comment or correspondence with respect to
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filings or compliance matters sent to the Parent or such Affiliate by any such
securities commission or the SEC in relation to the Parent or such Affiliate and
its respective affairs; and
(n) As soon as reasonably possible after request therefor, such other
information regarding its operations, assets, business, affairs and financial
condition or regarding any of the Companies or (to the extent available to the
Borrower without undue effort and expense) their stockholders, partners or other
Affiliates as the Lenders may reasonably request, including copies of any and
all material agreements to which any Company is a party from time to time.
Section 6.06. Inspection. Permit employees, agents and representatives of
the Lenders to inspect, during normal business hours, its premises and its books
and records (and those of the Unrestricted Subsidiaries) and to make abstracts
or reproductions thereof. In connection with any such inspections, the Lenders
will use reasonable efforts to avoid an unreasonable disruption of the
Companies' businesses and, to the extent possible or appropriate absent any
Default, will give reasonable notice thereof.
Section 6.07. Accounting System. Maintain a system of accounting in
accordance with generally accepted accounting principles and maintain a fiscal
year ending December 31 for each of the Companies (other than Bride
Communications, Inc., HMW, Inc., Portland Broadcasting, Inc. and BT Satellite,
Inc., until such time as it is reasonably practicable to amend each such
corporations fiscal year to conform to that of the other Companies).
Section 6.08. Appraisals. If any Lender determines in good faith that it
is required, by applicable law or by the Comptroller of Currency or any other
Governmental Authority, to obtain appraisals as to the market value of any real
property constituting Collateral, obtain such appraisals, at the sole cost and
expense of the Borrower and in conformity with all requirements of applicable
law, as from time to time in effect.
Section 6.09. Additional Assurances. From time to time hereafter:
(a) execute and deliver or cause to be executed and delivered, such
additional instruments, certificates and documents, and take all such actions,
as the Agent or the Lenders shall reasonably request for the purpose of
implementing or effectuating the provisions of this Agreement and the other Loan
Documents, including without limitation (i) the items set forth in Schedule 2.01
which require action after the Closing Date, as stated in such Schedule, and
(ii) the execution and delivery to the Agent of a mortgage or deed of trust or
collateral assignment of lease or leasehold mortgage in form and substance
satisfactory to the Agent (in a recordable form and in such number of copies as
the Agent shall have requested) covering any real property interests acquired
(by ownership or lease) by the Borrower or any of the Operating Companies,
together with any necessary consents relating thereto;
(b) upon the exercise by the Agent or the Lenders of any power, right,
privilege or remedy pursuant to this Agreement or any other Loan Document which
requires any consent, approval, registration, qualification or authorization of
any Governmental Authority, execute and deliver all applications,
certifications, instruments and other documents and papers that the Lenders may
be so required to obtain; and
(c) use reasonable efforts to obtain any consents from any Governmental
Authorities and other Persons necessary to create and perfect a valid and
enforceable first priority lien on the Franchises and any other applicable
contract and agreement not so encumbered as of the Closing Date as specified in
Schedule 4.04, so that, to the maximum extent practicable, the lien of the Agent
and the Lenders created therein pursuant to the Security Documents will be a
valid and enforceable first priority lien on all Franchises and other contracts
and agreements of the Companies.
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Nothing contained in this Section 6.09 shall constitute a waiver of any Event of
Default arising from the Borrower's failure to locate, deliver and/or file or
record any Security Document, any consent of any Governmental Authority or other
Person or any other document required under Section 2.01 or otherwise under this
Agreement, after giving effect to the Post-Closing Obligations Agreement of even
date herewith between the Borrower and the Agent, as amended from time to time.
Section 6.10. Completion of Improvements. Complete all Improvements by
such date as may be necessary to comply with applicable Franchise and other
regulatory or contractual requirements, and, within thirty (30) days thereafter,
supply the Lenders with such documentation as the Lenders shall reasonably
request evidencing such completion.
Section 6.11. Renewal of Franchises. Comply with the provisions of all
applicable federal and local laws relating to the renewal of Significant
Franchises, including without limitation pursuing proceedings for the renewal of
such Significant Franchises in accordance with those procedures customarily
followed by holders of similar franchises. Without limiting the foregoing, the
Companies will seek renewal of all Significant Franchises within the time
periods prescribed by, and otherwise in compliance with, Section 546 of the
Cable Communications Policy Act of 1984 (47 U.S.C. Section 546).
Section 6.12. Compliance with Environmental Laws.
(a) Comply, and cause all tenants or other occupants of any of the
Properties to comply in all material respects with all Environmental Laws and
not generate, store, handle, process, dispose of or otherwise use and not permit
any tenant or other occupant of any of the Properties to generate, store,
handle, process, dispose of or otherwise use Hazardous Materials in, on, under
or about the Property in a manner that could lead or potentially lead to
imposition on any Company or the Agent or any Lender or any of the Properties of
any liability or lien of any nature whatsoever under any Environmental Law.
(b) Notify the Agent promptly in the event of any spill or other release
of any Hazardous Material in, on, under or about any of the Properties which is
required to be reported to a Governmental Authority under any Environmental Law,
promptly forward to the Agent copies of any notices received by any Company
relating to any alleged violation of any Environmental Law and promptly pay when
due any fine or assessment against the Lenders, any Company or any of the
Properties relating to any Environmental Law.
(c) If at any time it is determined that the operation or use of any of
the Properties violates any applicable Environmental Law or that there is any
Hazardous Material located in, on, under or about the Properties which under any
Environmental Law requires special handling in collection, treatment, storage or
disposal or any other form of cleanup or remedial or corrective action, then,
within thirty (30) days after receipt of notice thereof from a Governmental
Authority (or such other time period as may be specified in the notice sent by
such Governmental Authority) or from the Lenders, take, at its sole cost and
expense, such actions as may be necessary to fully comply in all respects with
all Environmental Laws, provided, however, that if such compliance cannot
reasonably be completed within such thirty (30) day period, the Borrower shall
commence such necessary action within such thirty (30) day period and shall
thereafter diligently and expeditiously proceed to fully comply in all respects
and in a timely fashion with all Environmental Laws. Nothing herein shall
prohibit the Borrower from asserting any good faith defenses against the
government in any governmental demands.
(d) If a lien is filed against any of the Properties by any Governmental
Authority resulting from the need to expend or the actual expending of monies
arising from an action or omission, whether intentional or unintentional, of any
Company or for which any Company is responsible, resulting in the releasing,
spilling, leaking, leaching, pumping, emitting, pouring, emptying or dumping of
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any Hazardous Material, then, within thirty (30) days from the date that such
Company is first given notice such lien has been placed against the Properties,
either (i) pay the claim and remove the lien or (ii) furnish a cash deposit,
bond or such other security with respect thereto as is satisfactory in all
respects to the Lenders and is sufficient to effect a complete discharge of such
lien on the Properties.
(e) Perform any and all Remedial Work necessary under all Environmental
Laws applicable (now or in the future) to the Companies or their businesses.
Section 6.13. Interest Rate Protection.
(a) Within ninety (90) days after the date of the first Advances under
the Reducing Revolving Commitments, enter into, and, thereafter, maintain in
full force and effect, one or more Rate Hedging Agreements containing terms and
conditions reasonably satisfactory to the Required Lenders and generally
prevailing at such time and sufficient to ensure that at least fifty percent
(50%) of the aggregate principal amount of the Reducing Revolver Advances then
outstanding is protected at all times against increases in the applicable Prime
Rate or LIBOR Rate for a term extending for at least two (2) years.
(b) (i) Within fifteen (15) days prior to the expiration of the Rate
Hedging Agreement(s) entered into as required under Section 6.13(a) and each
subsequent Rate Hedging Agreement executed by the Borrower hereunder, enter into
and thereafter maintain one or more Rate Hedging Agreements containing terms and
conditions reasonably satisfactory to the Required Lenders and covering at least
fifty percent (50%) of the aggregate principal amount of the Reducing Revolver
Advances then outstanding.
(c) Deliver to the Agent copies of each such Rate Hedging Agreement,
including any and all amendments thereto and substitutions thereof, and such
other documentation relating thereto as the Agent or the Lenders may from time
to time request.
VII. NEGATIVE COVENANTS. The Borrower covenants and agrees that, so long
as any Lender has any obligation to extend credit to the Borrower hereunder, and
for so long thereafter as there remains outstanding any portion of any
Obligation, whether now existing or arising hereafter, unless the Required
Lenders shall otherwise consent in writing in accordance with the terms of
Article XII, none of the Borrower, the Operating Companies or the Unrestricted
Subsidiaries will, directly or indirectly:
Section 7.01. Indebtedness. Incur, create, assume, become or be liable,
directly, indirectly or contingently, in any manner with respect to, or permit
to exist, any Indebtedness or liability, except:
(a) Indebtedness of the Borrower to the Lenders hereunder and under the
Notes;
(b) the guaranties of the Operating Companies and the Parent required
under Section 2.01;
(c) any Rate Hedging Obligation incurred in accordance with Section 6.13;
(d) Indebtedness existing on the date hereof and described in Schedule
7.01; provided however, that the terms of such indebtedness shall not be
modified or amended in any material respect, nor shall payment thereof be
extended, without the prior written consent of the Required Lenders;
(e) Indebtedness in respect of endorsements of negotiable instruments for
collection in the ordinary course of business;
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(f) Indebtedness under Capital Leases and purchase money Indebtedness
relating to the purchase price of real estate and equipment to be used in the
Companies' businesses, in the aggregate principal amount (including any such
amounts set forth on Schedule 7.01 attached hereto) of not more than $2,000,000
outstanding at any time;
(g) Indebtedness to the Subordinated Noteholders under the Subordinated
Debt Documents;
(h) Indebtedness among the Borrower and the Operating Companies
(including Indebtedness under the PCT-CONN Note Documents and the MCT Note
Documents), provided, (i) that not more than $400,000 in additional loans to PCT
- -CONN and (ii) $1,000,000 in aggregate amount of additional loans to Pegasus San
German and MCT shall be permitted under this Section 7.01;
(i) the WTLH Debt; and
(j) Unsecured Indebtedness of the Borrower and the Operating Companies of
a type not covered by any of the other provisions of this Section 7.01 and which
does not at any time exceed $1,000,000 in aggregate amount as to the Borrower
and all Operating Companies as a group.
Section 7.02. Liens. Create, incur, assume, suffer or permit to exist any
mortgage, pledge, lien, charge or other encumbrance of any nature whatsoever on
any of its assets or ownership interests, now or hereafter owned, other than:
(a) liens securing the payment of taxes, either not yet due or the
validity of which is being contested in good faith by appropriate proceedings,
and as to which it shall have set aside on its books adequate reserves;
(b) deposits under workers' compensation, unemployment insurance and
social security laws, or to secure the performance of bids, tenders, contracts
(other than for the repayment of borrowed money) or leases, or to secure
statutory obligations or surety or appeal bonds, or to secure indemnity,
performance or other similar bonds arising in the ordinary course of business;
(c) liens existing on the date hereof and described on Schedule 7.02
attached hereto;
(d) liens against the Companies imposed by law, such as vendors',
carriers', lessors', warehouser's or mechanics' liens, incurred by it in good
faith in the ordinary course of business;
(e) liens arising out of a prejudgment attachment, a judgment or award
against it with respect to which it shall currently be prosecuting an appeal, a
stay of execution pending such appeal having been secured, except any such lien
arising in connection with a judgment, attachment or proceeding which gives rise
to an Event of Default under paragraph (k) or (l) of Article VIII;
(f) liens in favor of the Agent or the Lenders securing the Notes or the
other obligations of the Companies to the Lenders hereunder or under Rate
Hedging Obligations entered into with any Lender or any Lender's Affiliate;
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(g) liens against the Companies arising under or securing Capital Leases
and liens or mortgages securing purchase money Indebtedness described in Section
7.01(f), provided that the obligation secured by any such lien shall not exceed
one hundred percent (100%) of the lesser of cost or fair market value as of the
time of the acquisition of the property covered thereby and that each such lien
or mortgage shall at all times be limited solely to the item or items of
property so acquired; and
(h) restrictions, easements and minor irregularities in title which do
not and will not interfere with the occupation, use and enjoyment by any Company
of such properties and assets in the normal course of its business as presently
conducted or materially impair the value of such properties and assets for the
purpose of such business.
Section 7.03. Disposition of Assets; etc. Sell, lease, transfer or
otherwise dispose of its properties, assets, rights, licenses and franchises to
any Person (including without limitation dispositions in exchange for similar
assets and properties and commonly referred to as "asset swaps") (all of the
foregoing being referred to herein as a "Disposition"), except for:
(a) Dispositions made in the ordinary course of business (including the
Disposition, without replacement, of equipment which is obsolete or no longer
needed by the Companies in the conduct of their businesses and the replacement
of equipment with other equipment of at least equal utility and value (provided
that the Agent's or the Lenders' lien upon such newly acquired equipment shall
have the same priority as the Agent's or the Lenders' lien upon the replaced
equipment subject to any prior liens permitted by Sections 7.01(f) and 7.02(g));
and
(b) the Disposition of the Operating Companies' existing cable television
systems in Connecticut, Massachusetts and New Hampshire prior to March 31, 1998
and the Disposition of other assets having a fair market value of not more than
$5,000,000 in the aggregate for all such other assets ( all of which
dispositions may be made free from the liens of the Security Documents);
provided, however, that (i) the Operating Companies shall have received payment
in cash or cash equivalents of at least eighty-five percent (85%) of both gross
and net proceeds from any such disposition of assets (other than like-kind
exchanges under Section 1031 of the Internal Revenue Code) and (ii) the Borrower
shall have complied with the provisions of Section 1.06(e). The Companies may
dispose of additional properties made outside the ordinary course of business
with the prior written consent of the Required Lenders, in their sole and
absolute discretion, which consent, if given, shall in any event be contingent
upon satisfaction of the threshold conditions set forth in clauses (i) and (ii)
above.
Section 7.04. Fundamental Changes; Acquisitions.
(a) (i) Form any subsidiary or otherwise change the corporate structure
or organization of the Borrower or the Operating Companies from that set forth
in Schedule 4.22, except in connection with any Permitted Acquisition and as
expressly contemplated in the Registration Statement in connection with the
consummation of the Offering; (ii) permit any of the Inactive Subsidiaries to
engage in any activities, other than the dissolution thereof; (iii) permit or
suffer any amendment of its charter or partnership documents which could have a
Material Adverse Effect (it being expressly agreed that the inclusion in any
such charter documents of any provision similar to those set forth in Section
102(b)(2) of Title 8 of the Delaware Code is prohibited under this Section);
(iv) dissolve, liquidate, consolidate with or merge with, or otherwise acquire
any Station, System or DBS Rights or all or any substantial portion of the
ownership interests or assets or properties of any corporation, partnership or
other entity or any other material assets, other than pursuant to (A) Permitted
Acquisitions and Capital Expenditures permitted hereunder (B) purchases of
inventory and supplies in the ordinary course of business; (v) repurchase any
shares of capital stock or partnership interests; or (vi) issue any additional
shares of capital stock or partnership interests, except for securities (A) in
respect of which the issuing Company has no obligation to redeem or to pay cash
distributions or dividends, (B) the issuance of which does not result in an
Event of Default and (C) which shall have been collaterally assigned or pledged
to the Agent as required hereunder.
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(b) Notwithstanding the foregoing, (i) the Borrower and one or more
Restricted Subsidiaries may merge or consolidate with each other if the
surviving or resulting corporation is either the Borrower or a Restricted
Subsidiary and if all actions required by Section 2.01 shall have been taken and
(ii) the Parent may transfer to the Borrower and the Borrower may transfer to
one or more Restricted Subsidiaries the outstanding capital stock of Bride
Communications, Inc., HMW, Inc. and BT Satellite, Inc.
Section 7.05. Local Marketing Agreements, Etc. Enter into any LMA or
other similar arrangement, other than Permitted LMAs.
Section 7.06. Management. Turn over the management of its properties,
assets, rights, licenses and franchises to any Person other than the Manager or
a full-time employee of the Companies.
Section 7.07. Sale and Leaseback. Enter into any arrangements, directly
or indirectly, with any Person whereby it shall sell or transfer any property,
real, personal or mixed, used or useful in its business, whether now owned or
hereafter acquired, and thereafter rent or lease such property; provided,
however, that the Borrower and the Operating Companies may engage in such
transactions to the extent structured as Capital Leases and subject to the
limitations in Section 7.01(f).
Section 7.08. Investments. Except for Permitted Investments, purchase,
invest in or otherwise acquire or hold securities, including, without
limitation, capital stock and evidences of indebtedness of, or make loans or
advances to, or enter into any arrangement for the purpose of providing funds or
credit to, any other Person.
Section 7.09. Change in Business. Engage, directly or indirectly, in any
business other than the businesses in which it is currently engaged.
Section 7.10. Accounts Receivable. Sell, assign, discount or dispose in
any way of any accounts receivable, promissory notes or trade acceptances held
by any Company, with or without recourse, except for collection (including
endorsements) in the ordinary course of business.
Section 7.11. Transactions with Affiliates. Except for transactions
contemplated by the Management Agreement and the License Agreements, enter into
any transaction, including, without limitation, the purchase, sale or exchange
of property or assets or the rendering or accepting of any service with or to
any Affiliate of any Company, except in the ordinary course of business and
pursuant to the reasonable requirements of its business and upon terms not less
favorable to such Company than it could obtain in a comparable arm's-length
transaction with a third party other than such Affiliate.
Section 7.12. Amendment of Certain Agreements, Etc. (a) Amend, modify or
terminate any Franchise or License, the PCT-CONN Note Documents, the MCT Note
Documents, any DBS Agreement, any agreement or instrument evidencing
Subordinated Debt or any material agreement to which any Company is a party, or
enter into any material agreement, in each case, if the effect thereof would be
to increase materially the obligations of any Company thereunder or to confer
additional rights upon the other parties thereto which could have a Material
Adverse Effect or (b), in any event, subject to applicable law, elect to
terminate or amend any License Agreement.
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Section 7.13. ERISA. (a) Fail to make contributions to pension plans
required by Section 412 of the Code, (b) fail to make payments required by Title
IV of ERISA as the result of the termination of a single employer pension plan
or withdrawal or partial withdrawal from a multiemployer pension plan, or (c)
fail to correct a prohibited transaction with an employee benefit plan with
respect to which it is liable for the tax imposed by Section 4975 of the Code.
Section 7.14. Margin Stock. Use or permit the use of any of the proceeds
of the Loans, directly or indirectly, for the purpose of purchasing or carrying,
or for the purpose of reducing or retiring any indebtedness which was originally
incurred to purchase or carry, any Margin Stock or for any other purpose which
might constitute the transactions contemplated hereby a "purpose credit" within
the meaning of Regulation U (12 CFR Part 221) of the Board of Governors of the
Federal Reserve System, or cause any Loan, the application of proceeds thereof
or this Agreement to violate Regulation G, Regulation U, Regulation T or
Regulation X of the Board of Governors of the Federal Reserve System or any
other regulation of such Board or the Securities Exchange Act of 1934, as
amended, or any rules or regulations promulgated under such statutes.
Section 7.15. Negative Pledges, etc. Enter into any agreement (excluding
this Agreement or any other Transaction Document) prohibiting (a) any Company
from amending or otherwise modifying this Agreement or any other Transaction
Document, or (b) the creation or assumption of any lien upon the properties,
revenues or assets of any Company, whether now owned or hereafter acquired.
VIII. DEFAULTS. In each case of happening of any of the following events
(each of which is herein sometimes called an "Event of Default"):
(a) any representation or warranty made by or on behalf of any Company or
any of its Affiliates in this Agreement or the Security Documents, or in any
report, certificate, financial statement or other instrument furnished in
connection with this Agreement, or the borrowing hereunder, shall prove to be
false or misleading in any material respect when made or reconfirmed;
(b) default in the payment or mandatory prepayment of any installment of
the principal of any Note or any payment of any installment of the principal of
any other indebtedness of any Company to the Agent or any Lender, or any payment
in respect of any Rate Hedging Obligations entered into with the Agent or any
Lender, when the same shall become due and payable, whether at the due date
thereof or at a date fixed for prepayment or by acceleration or otherwise;
(c) default in the payment of any installment of any interest on any
Note, or any premium or fee or any other indebtedness of any Company to the
Agent or any Lender for more than five (5) Business Days after the date when the
same shall become due and payable, whether at the due date thereof or at a date
fixed for prepayment or by acceleration or otherwise;
(d) default in the due observance or performance by, or compliance with,
any Person other than the Agent or any Lender of any covenant or agreement
contained in Article III or V, Sections 6.02, 6.03 (but only if the same
involves any seizure or property), 6.05, 6.06, 6.07 and 6.11 or Article VII of
this Agreement, provided, however, that a default in the delivery of financial
or other information under paragraphs (b) through (e) of Section 6.05 shall not
constitute an Event of Default unless and until the same continues unremedied
for thirty (30) days after the earlier to occur of (i) the Borrower's discovery
thereof or (ii) written notice thereof from the Agent or any Lender to the
Borrower (provided that such thirty (30) day period shall be available for the
remedy of any such default only once in any period of twelve (12) consecutive
months and three (3) times during the term of this Agreement;
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(e) default in the due observance or performance of, or compliance with,
any other covenant, condition or agreement, on the part of any Person other than
the Agent or any Lender to be observed or performed pursuant to the terms of
this Agreement or pursuant to the terms of any Security Document or any Rate
Hedging Obligation entered into with the Agent or any Lender, which default is
not referred to in paragraphs (a) through (d), inclusive, of this Article VIII
and which default shall continue unremedied for thirty (30) days after the
earlier to occur of (i) the Borrower's discovery of such default, or (ii)
written notice thereof from the Agent or any Lender to the Borrower, provided,
however, that if any such default cannot be remedied, then such default shall be
deemed to be an Event of Default as of the date of the occurrence thereof;
(f) any Subordinated Indenture Default or any other default under the
Subordinated Debt Documents or with respect to any other evidence of
Indebtedness of the Borrower or any Operating Company (other than to the Lenders
hereunder) for borrowed money, or default under any agreement giving rise to
monetary remedies, in each case which, when aggregated with all other such
defaults of the Borrower or the Operating Companies, exceeds $2,000,000, if the
effect of such default is to permit the holder of such Indebtedness to
accelerate the maturity of such Indebtedness, unless such holder shall have
permanently waived the right to accelerate the maturity of such Indebtedness on
account of such default;
(g) (i) the Borrower or any Operating Company shall lose, fail to keep in
force, suffer the termination, suspension or revocation of or terminate, forfeit
or suffer a material adverse amendment to any Franchise at any time held by it,
the loss, termination, suspension, revocation or amendment of which could
adversely affect the Borrower's ability to perform its obligations under this
Agreement or the Notes, including without limitation the obligations set forth
in Section 5.01 (a "Significant Franchise") or any material FCC License held by
a License Subsidiary; (ii) any governmental regulatory authority shall conduct a
hearing on the renewal of any Significant Franchise or any material FCC License
and the result thereof is reasonably likely to be the termination, revocation,
suspension or material adverse amendment of such Franchise or FCC License; (iii)
any governmental regulatory authority shall commence an action or proceeding
seeking the termination, suspension, revocation or material adverse amendment of
any Significant Franchise or any material FCC License and the result thereof is
likely to be the termination, suspension, revocation or material adverse
amendment of such Significant Franchise or FCC License; or (iv) any material DBS
Agreement shall be terminated or amended in a manner reasonably likely to have a
Material Adverse Effect;
(h) the cable television operations of any System(s) served pursuant to
one or more Significant Franchises or the on-the-air television operation of any
Stations(s) shall be interrupted at any time for more than (x) seventy-two (72)
consecutive hours, unless such interruption occurs by reasons of force majeure,
or (y) in the event of force majeure, fourteen (14) days, in each case, unless
(and only so long as) all damages, liabilities and other effects of such
interruption of service (including any adverse effect on the Borrower's ability
to perform its obligations under this Agreement and the Notes) are fully covered
by business interruption insurance;
(i) any Company shall (i) discontinue its business, (ii) apply for or
consent to the appointment of a receiver, trustee, custodian or liquidator of it
or any of its property, (iii) admit in writing its inability to pay its debts as
they mature, (iv) make a general assignment for the benefit of creditors, (v) be
adjudicated a bankrupt or insolvent or be the subject of an order for relief
under Title 11 of the United States Code or (vi) file a voluntary petition in
bankruptcy, or a petition or an answer seeking reorganization or an arrangement
with creditors or to take advantage of any bankruptcy, reorganization,
insolvency, readjustment of debt, dissolution or liquidation law or statute, or
an answer admitting the material allegations of a petition filed against it in
any proceeding under any such law or corporate action shall be taken for the
purpose of effecting any of the foregoing;
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(j) there shall be filed against any Company an involuntary petition
seeking reorganization of such company or the appointment of a receiver,
trustee, custodian or liquidator of such company or a substantial part of its
assets, or an involuntary petition under any bankruptcy, reorganization or
insolvency law of any jurisdiction, whether now or hereafter in effect and such
involuntary petition shall not have been dismissed within sixty (60) days
thereof;
(k) final judgment for the payment of money which, when aggregated with
all other outstanding judgments against the Companies, exceeds $1,000,000
(exclusive of amounts covered by insurance or actually contributed in cash by
third party obligors with respect to such judgments) shall be rendered against
any Company, and the same shall remain undischarged (unless fully bonded upon
terms satisfactory to the Required Lenders) for a period of thirty (30)
consecutive days, during which execution shall not be effectively stayed;
(l) the occurrence of any attachment of any deposits or other property of
any Company in the hands or possession of the Agent or any of the Lenders, or
the occurrence of any attachment of any other property of any Company in an
amount which, when aggregated with all other attachments against the Companies,
exceeds $1,000,000 and which shall not be discharged within sixty (60) days of
the date of such attachment;
(m) for any reason, (i) the Borrower shall cease to own all of the issued
and outstanding capital stock of each of PBT, PST and PCT; (ii) PBT shall cease
to own directly or indirectly all of the issued and outstanding capital stock or
other equity interests of each of the License Subsidiaries (except that all the
issued and outstanding capital stock of HMW, Inc., may be owned directly or
indirectly by the Parent until it is transferred to the Borrower and
re-transferred by the Borrower to PBT); (iii) PCT shall cease to own directly or
indirectly all of the issued and outstanding capital stock or other equity
interest of each of PCT-CONN, MCT and Pegasus San German or (iii) Marshall W.
Pagon shall cease to control the Companies;
(n) for any reason, the Parent shall cease to own all of the issued and
outstanding capital stock of the Borrower (other than the shares of the
Borrower's Class B Common Stock outstanding on the date of this Agreement);
(o) for any reason, PCT-CONN shall retain more than $250,000 in cash
balances, after the payment of all operating expenses and the distribution or
advance of excess cash to PCT; or
(p) for any reason (other than the gross negligence of the Agent or the
Lenders, it being nonetheless understood and agreed that the Borrower shall have
the primary responsibility for filing continuation statements under the Uniform
Commercial Code and making other conforming amendments to the Security Documents
to reflect changed circumstances and assure continued compliance therewith and
with Section 2.01), any material Security Document shall not be in full force
and effect in all material respects or shall not be enforceable in all material
respects in accordance with its terms, or any security interest(s) or lien(s)
granted pursuant thereto which is, or are in the aggregate, material shall fail
to be perfected, or any party thereto other than the Agent or the Lenders shall
contest the validity of any material lien(s) granted under, or shall disaffirm
its obligations under, any material Security Document; then and upon every such
Event of Default and at any time thereafter during the continuance of such Event
of Default, at the election of the Required Lenders as provided in Article XII,
the Commitments shall terminate and the Notes and any and all other Indebtedness
of the Borrower to the Lenders shall immediately become due and payable, both as
to principal and interest, without presentment, demand, prior notice, or
protest, all of which are hereby expressly waived, anything contained herein or
in the Notes or other evidence of such indebtedness to the contrary
notwithstanding (except in the case of an Event of Default under paragraph (i)
or (j) of this Article VIII which, under applicable law, would result in the
automatic acceleration of the Borrower's Indebtedness, in which event the
Commitments shall automatically terminate and such Indebtedness shall
automatically become due and payable).
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IX. REMEDIES ON DEFAULT, ETC. In case any one or more Events of Default
shall occur and be continuing, the Agent and the Lenders may proceed to protect
and enforce their rights by an action at law, suit in equity or other
appropriate proceeding, whether for the specific performance of any agreement
contained in this Agreement, any Security Document or the Notes, or for an
injunction against a violation of any of the terms hereof or thereof or in and
of the exercise of any power granted hereby or thereby or by law, all subject to
the provisions of Article XII. In the event that the Agent shall apply for the
appointment of, or taking possession by, a trustee, receiver or liquidator of
the Borrower or any Operating Company or of any other similar official, to hold
or liquidate all or any substantial part of the properties or assets of the
Borrower or such Operating Company following the occurrence of a default in
payment of any amount owed to the Agent or any Lender hereunder, the Borrower,
for itself and on behalf of the Operating Companies (with all due and proper
authorization of the Boards of Directors and partners, as the case may be of the
Operating Companies), hereby jointly and severally consent to such appointment
and taking of possession and agree to execute and deliver any and all documents
requested by the Agent relating thereto (whether by joining in a petition for
the voluntary appointment of, or entering no contest to a petition for the
appointment of, such an official or otherwise, as appropriate under applicable
law). No right conferred upon the Agent or the Lenders hereby or by any Security
Document or the Notes shall be exclusive of any other right referred to herein
or therein or now or hereafter available at law, in equity, by statute or
otherwise.
X. THE AGENT.
Section 10.01. Appointment, Powers and Immunities. Each Lender hereby
irrevocably (subject to Section 10.08) designates and appoints Canadian Imperial
Bank of Commerce, New York Agency, which designation and appointment is coupled
with an interest, as the Agent of such Lender under this Agreement and the other
Transaction Documents, and each such Lender irrevocably authorizes Canadian
Imperial Bank of Commerce, New York Agency, as the Agent of such Lender, to take
such action on its behalf under the provisions of this Agreement and the other
Transaction Documents and to exercise such powers and perform such duties as are
expressly delegated to the Agent by the terms of this Agreement and the other
Transaction Documents, together with such other powers as are reasonably
incidental thereto. The Agent (which term as used in this sentence and in
Section 10.05 and such first sentence of Section 10.06 hereof shall include
reference to its affiliates and its own and such affiliates' officers,
directors, employees and agents) shall not: (a) have any duties or
responsibilities to be a trustee for any Lender; (b) be responsible to the
Lenders for any recitals, statements, representations or warranties contained in
this Agreement, or in any certificate or other document referred to or provided
for in, or received by either of them under, this Agreement, or for the value,
validity, effectiveness, genuineness, enforceability, perfection or sufficiency
of this Agreement, any Note, any Security Document or any other document
referred to or provided for herein or for any failure by any Company or any
other Person to perform any of its obligations hereunder or thereunder; (c) be
required to initiate or conduct any litigation or collection proceedings
hereunder except to the extent requested by the Required Lenders; and (d) be
responsible for any action taken or omitted to be taken by it hereunder or under
any other document or instrument referred to or provided for herein or in
connection herewith, except for its own gross negligence or willful misconduct.
The Agent may employ agents and attorneys-in-fact and shall not be responsible
for the negligence or misconduct of any such agents or attorneys-in-fact it
selects with reasonable care. Subject to the foregoing, to Article XII and to
the provisions of any intercreditor agreement among the Lenders in effect from
time to time, the Agent shall, on behalf of the Lenders, (a) hold and apply any
and all Collateral, and the proceeds thereof, at any time received by it, in
accordance with the provisions of the Security Documents and this Agreement; (b)
exercise any and all rights, powers and remedies of the Lenders under this
Agreement or any of the Security Documents, including the giving of any consent
or waiver or the entering into of any amendment, subject to the provisions of
Article XII; (c) execute, deliver and file UCC Financing Statements, mortgages,
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deeds of trust, lease assignments and other such agreements, and possess
instruments on behalf of any or all of the Lenders; and (d) in the event of
acceleration of the Borrower's Indebtedness hereunder, sell or otherwise
liquidate or dispose of any portion of the Collateral held by it and otherwise
exercise the rights of the Lenders hereunder and under the Security Documents.
Section 10.02. Reliance by Agent. The Agent shall be entitled to rely
upon any certification, notice or other communication (including any
communication by telephone, telex, telegram or cable) believed by it to be
genuine and correct and to have been signed or sent by or on behalf of the
proper Person or Persons, and upon advice and statements of legal counsel,
independent accountants and other experts selected by the Agent. As to any
matters not expressly provided for by this Agreement, the Agent shall in all
cases be fully protected in acting, or in refraining from acting, hereunder in
accordance with instructions signed by the Required Lenders or the Lenders, as
the case may be, and such instructions and any action taken or failure to act
pursuant thereto shall be binding on the Lenders.
Section 10.03. Events of Default. The Agent shall not be deemed to have
knowledge of the occurrence of an Event of Default (other than the non-payment
of principal of or interest on the Notes) unless such Agent has received written
notice from any Lender or the Borrower specifying such Event of Default and
stating that such notice is a "Notice of Default". In the event that the Agent
receives such a notice of the occurrence of an Event of Default, the Agent shall
give prompt notice thereof to the Lenders (and shall give each Lender prompt
notice of each such non-payment). The Agent shall (subject to Section 10.07)
take such action with respect to such Event of Default as shall be directed by
the Required Lenders, as provided under Article XII, provided that, unless and
until the Agent shall have received such directions, the Agent may (but shall
not be obligated to) take such action on behalf of the Lenders, or refrain from
taking such action, with respect to such Event of Default as it shall deem
advisable in the best interest of the Lenders.
Section 10.04. Rights as a Lender. With respect to its Commitment and the
Advances made by CIBC hereunder, CIBC shall have the same rights and powers
hereunder as any other Lenders and may exercise the same as though its
Affiliate, Canadian Imperial Bank of Commerce, New York Agency, were not acting
as the Agent. The Agent and its affiliates (including CIBC) may, without having
to account therefor to the Lenders and without giving rise to any fiduciary or
other similar duty to any Lender, accept deposits from, lend money to and
generally engage in any kind of banking, trust or other business with the
Borrower and any of their Affiliates as if it were not acting as an Agent and as
if CIBC were not a Lender, and the Agent may accept fees and other consideration
from any Company for services in connection with this Agreement or otherwise
without having to account for the same to the Lenders.
Section 10.05. Indemnification. The Lenders agree to indemnify the Agent
(to the extent not reimbursed under Section l4.02, but without limiting the
obligations of the Borrower under such Section l4.02), ratably in accordance
with the aggregate principal amount of the Notes held by the Lenders (or, if no
such principal or interest is at the time outstanding, ratably in accordance
with their respective Commitments), for any and all liabilities, obligations,
losses, damages, penalties, action, judgments, suits, costs, expenses or
disbursements of any kind and nature whatsoever which may be imposed on,
incurred by or asserted against the Agent in any way relating to or arising out
of this Agreement or any Security Document or any other document contemplated by
or referred to herein or the transactions contemplated by or referred to herein
or therein (including, without limitation, the costs and expenses which the
Borrower is obligated to pay under Section 14.02) or the enforcement of any of
the terms of this Agreement or of any Security Document or of any such other
documents, provided that no Lender shall be liable for any of the foregoing to
the extent they arise from the gross negligence or willful misconduct of the
party to be indemnified.
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Section 10.06. Non-Reliance on Agent and other Lenders. Each Lender
agrees that it has, independently and without reliance on the Agent or any other
Lenders, and based on such documents and information as it has deemed
appropriate, made its own credit analysis of the Companies and its own decision
to enter into this Agreement and that it will, independently and without
reliance upon the Agent or any other Lenders, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
analysis and decisions in taking or not taking action under this Agreement. The
Agent shall not be required to keep itself informed as to the performance or
observance by the Companies of this Agreement or any other document referred to
or provided for herein or to inspect the properties or books of the Companies.
Except for notices, reports and other documents and information expressly
required to be furnished to the Lenders by the Agent hereunder, the Agent shall
have no duty or responsibility to provide any Lender with any credit or other
information concerning the affairs, financial condition or businesses of the
Companies (or any of their Affiliates) which may come into the possession of the
Agent or any of its Affiliates. Notwithstanding the foregoing, the Agent will
provide to the Lenders any and all information reasonably requested by them and
reasonably available to the Agent promptly upon such request.
Section 10.07. Failure to Act. Except for action expressly required of
the Agent hereunder, the Agent shall in all cases be fully justified in failing
or refusing to act hereunder unless it shall be indemnified to its satisfaction
by the Lenders against any and all liability and expense which may be incurred
by it by reason of taking or continuing to take any such action.
Section 10.08. Resignation or Removal of Agent. Canadian Imperial Bank of
Commerce, New York Agency (or any other Agent hereunder), may resign as the
Agent at any time by giving ten (10) days' prior written notice thereof to the
Lenders and the Borrower. Any such resignation shall take effect at the end of
such ten (10) day period or upon the earlier appointment of a successor Agent by
the Required Lenders as provided below. Upon any resignation of Canadian
Imperial Bank of Commerce, New York Agency (or any other Agent hereunder), and
subject to the Borrower's approval (which approval shall not be unreasonably
withheld or delayed and shall not be required with respect to any such
appointment made during the existence of any Event of Default) the Required
Lenders shall appoint a successor agent from among the Lenders or, if such
appointment is deemed inadvisable or impractical by the Required Lenders,
another financial institution with a combined capital and surplus of at least
$500,000,000. Upon the acceptance of any appointment as Agent hereunder by such
successor Agent, such successor Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring Agent.
After the effective date of the resignation of an Agent hereunder, the retiring
Agent shall be discharged from its duties and obligations hereunder, provided
that the provisions of this Article X shall continue in effect for its benefit
in respect of any actions taken or omitted to be taken by it while it was acting
as the Agent. In the event that there shall not be a duly appointed and acting
Agent, the Borrower agrees to make each payment due to the Agent hereunder and
under the Notes, if any, directly to each Lender entitled thereto, pursuant to
written instructions provided by the retiring Agent, and to provide copies of
each certificate or other document required to be furnished to the Agent
hereunder, if any, directly to each Lender.
Section 10.09. Cooperation of Lenders. Each Lender shall (a) promptly
notify the other Lenders and the Agent of any Event of Default known to such
Lender under this Agreement and not reasonably believed to have been previously
disclosed to the other Lenders; (b) provide the other Lenders and the Agent with
such information and documentation as such other Lenders or the Agent shall
reasonably request in the performance of their respective duties hereunder,
including, without limitation, all information relative to the outstanding
balance of principal, interest and other sums owed to such Lender by the
Borrower; and (c) cooperate with the Agent with respect to any and all
collections and/or foreclosure procedures at any time commenced against the
Borrower or otherwise in respect of the Collateral by the Agent in the name and
on behalf of the Lenders.
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XI. DEFINITIONS
As used herein the following terms have the following respective
meanings:
Accountants. See Section 6.05.
Acquisition. The San German Acquisition, the Harron Acquisition and any
Permitted Acquisition.
Acquisition Agreements. (a) With respect to San German Acquisition, the
San German Acquisition Agreement and (b) with respect to any Permitted
Acquisition, the respective acquisition, purchase or other agreement
which sets forth the terms and conditions of such acquisition.
Adjusted Operating Cash Flow. For any period of twelve (12) consecutive
months or four (4) consecutive fiscal quarters, Operating Cash Flow for
such period, adjusted as follows:
(a) to reflect any Disposition or Acquisition permitted under Section
7.03 or 7.04, as the case may be, by an amount determined by the Required
Lenders and the Borrower to be appropriate to reflect the effect of all
such Dispositions and Acquisitions during such period, provided that (i)
Operating Cash Flow shall be determined on a pro forma basis for such
period as if any such Dispositions and Acquisitions were consummated on
the first day of such period and (ii) adjustments for acquisitions will
include the addition of non-recurring expenses deducted in computing
Operating Cash Flow, subject to the approval of the Required Lenders, in
their sole and absolute discretion; and
(b) by calculating that portion of Operating Cash Flow attributable to
DBS operations (including the pro forma results of acquired DBS rights)
based on the most recently ended three (3) month period or fiscal
quarter, as the case may be, multiplied by four (4).
Advance(s). See Section 1.02(c).
Affiliate(s). Any Person that directly or indirectly controls, or is
under common control with, or is controlled by, the Borrower and, if such
Person is an individual, any member of the immediate family (including
parents, spouse, children and siblings) of such individual and any trust
whose principal beneficiary is such individual or one or more members of
such immediate family and any Person who is controlled by any such member
or trust. As used in this definition, "control", including, its
correlative meanings, "controlled by" and "under common control with",
shall mean possession, directly or indirectly, of power to direct or
cause the direction of management or policies (whether through ownership
or securities or partnership or other ownership interests, by contract or
otherwise), provided that, in any event, any Person that owns directly or
indirectly securities having ten percent (10%) or more of the voting
power for the election of directors or other governing body of a
corporation or ten percent (10%) or more of the partnership or other
ownership interests of any other Person (other than as a limited partner
of such other Person) will be deemed to control such corporation or other
Person. Notwithstanding the foregoing, no individual shall be an
Affiliate solely by reason of his or her being a director, officer or
employee of the Borrower or any Subsidiary.
Affiliate Subordination Agreements. See Section 2.01(b).
Agent. See the Preamble.
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Applicable Margin. See Section 1.03.
Assignment and Acceptance. See Article XIII.
Audited Financial Statements. See Section 1.03.
Available Commitments. The aggregate Available Reducing Revolver
Commitments and Available Revolving Credit Commitments.
Available Reducing Revolver Commitments. See Section 1.01(b).
Available Revolving Credit Commitments. See Section 1.02(b).
Borrower. See the Preamble.
Borrowing Date. With respect to any Advances requested hereunder, the
date such Advances are to be made.
Budget. See Section 6.05(e).
Business Day. (a) For all purposes other than as provided in clause (b)
below, any day other than a Saturday, Sunday or legal holiday on which
banks in New York, New York are open for the transaction of a substantial
part of their commercial banking business; and (b) with respect to all
notices and determinations in connection with, and payments of principal
and interest on, LIBOR Loans, any day that is a Business Day described in
clause (a) and that is also a day for trading by and between banks in
U.S. Dollar deposits in the London interbank market.
Capital Expenditures. For any period, expenditures, (including, without
duplication, the aggregate amount of Capital Lease Obligations incurred
during such period) made by the Borrower and the Restricted Subsidiaries
to acquire or construct fixed assets, plant or equipment (including
renewals, improvements and replacements, but excluding repairs and
acquisitions permitted hereunder) during such period, computed in
accordance with GAAP.
Capital Lease. Any lease of property (real, personal or mixed) which, in
accordance with GAAP and Statement No. 13 of the Financial Accounting
Standards Board, would be permitted or required to be capitalized on the
lessee's balance sheet.
Capital Lease Obligations. All obligations of the Borrower and the
Restricted Subsidiaries to pay rent or other amounts under a lease of (or
other agreement conveying the right to use) property (real, personal or
mixed) to the extent such obligations are required to be classified and
accounted for as a capital lease on any such Company's balance sheet
under GAAP, and, for purposes of this Agreement, the amount of such
obligations shall be the capitalized amount thereof, determined in
accordance with GAAP.
Casualty Event. Any loss of, or damages to, or any condemnation or other
taking of any assets or property of the Borrower or any Operating Company
for which the Borrower or any Operating Company receives insurance
proceeds, proceeds of a condemnation award or other compensation.
CERCLA. The Comprehensive Environmental Response, Compensation and
Liability Act of 1989 (42 USC 9601, et. seq.).
CIBC. See the Preamble.
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Closing Date. The date on which this Agreement becomes effective and the
first Advances are made.
Code. The Internal Revenue Code of 1986, as amended, and the rules and
regulations promulgated thereunder.
Collateral. Collectively, any and all collateral referred to herein and
in the Security Documents.
Collateral Account. The "Collateral Account", as defined in the Security
Agreement.
Commitment Reduction Notice. See Section 1.06.
Commitment Fee. See Section 1.08.
Commitments. Collectively, the Reducing Revolver Commitments and the
Revolving Credit Commitments.
Companies. Collectively, the Borrower, the Operating Companies, the
Unrestricted Subsidiaries and the Parent.
Contemplated DBS Acquisition. The acquisition by the Parent or a
Subsidiary of the Parent (other than the Borrower or any of the Operating
Companies) of direct broadcast satellite rights pursuant to the Harron
Acquisition or the Horizon Acquisition for cash using the proceeds of the
Offering and using no funds or credit of the Borrower or any Operating
Company and the subsequent contribution of the acquired assets (or all of
the capital stock of the purchasing entity, provided that such entity has
no Indebtedness after giving effect to said contribution) to the Borrower
such that all of such purchased direct broadcast satellite rights and
related assets are held by one or more of the Restricted Subsidiaries.
Controlled Group. All trades or businesses (whether or not incorporated)
under common control that, together with the Borrower, are treated as a
single employer under Section 414(b) or 414(c) of the Code or Section
40001 of ERISA.
Copyright Office. The United States Copyright and Trademark Office or any
other federal government agency which may hereafter perform its
functions.
DBS Agreements. The DIRECTV Agreements, the Dealer Agreement and any and
all other agreements entered into by the Borrower or any of the Operating
Companies from time to time, with the Lenders' consent, if required under
this Agreement, to license the right to deliver direct broadcast service.
DBS Rights. Any and all rights owned by the Borrower or any of the
Operating Companies to market, sell, deliver and retain revenues from
direct broadcast television programming initially transmitted over
satellite frequencies, including without limitation PST's rights under
the DIRECTV Agreements.
Dealer Agreement. The Dealer Agreement between Hughes Communications
Galaxy, Inc. and PST, as originally executed and delivered and as amended
in accordance with Section 7.12.
Default. An Event of Default or event or condition that, but for the
requirement that time elapse or notice be given, or both, would
constitute an Event of Default.
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DIRECTV. The video, audio and data services provided over satellite
frequencies by DIRECTV Enterprises, Inc., an affiliate of Hughes
Communications Galaxy, Inc.
DIRECTV Agreements. The NRTC/Member Agreement for Marketing and
Distribution of DBS Services between PST, as assignee of Pegasus Cable
Associates, Ltd., and the National Rural Telecommunications Cooperative,
a District of Columbia corporation, dated as of June 24, 1993, as amended
through the date hereof, providing for the delivery of direct broadcast
service by PST to certain households in the Counties or Metropolitan
Statistical Areas of Dutchess, New York; Berkshire, Barnstable, Dukes,
Franklin, Hampshire and Worcester, Massachusetts; Belknap, Carroll,
Grafton and Merrimack, New Hampshire; and Litchfield, Connecticut; as
originally executed and delivered and as amended in accordance with
Section 7.12, pursuant to which PST holds the exclusive rights to provide
cable programming services and all other video, audio and data packages
transmitted by Hughes Communications Galaxy, Inc. over the HCG
frequencies (as defined therein) to residential and commercial
subscribers in specified service areas.
Disposition. See Section 7.03.
Dollars and $. Lawful money of the United States of America.
Enhanced Yield Balances. See Section 1.03.
Environmental Laws. Any and all present and future Federal, state, local
and foreign laws, rules or regulations, and any orders or decrees, in
each case as now or hereafter in effect, relating to the regulation or
protection of human health, safety or the environment or to emissions,
discharges, releases or threatened releases of pollutants, contaminants,
chemicals or toxic or hazardous substances or wastes into the indoor or
outdoor environment, including, without limitation, ambient air, soil,
surface water, ground water, wetlands, land or subsurface strata, or
otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of pollutants,
contaminants, chemicals or toxic or hazardous substances or wastes.
Environmental Site Assessments. See Section 4.23.
ERISA. The Employee Retirement Security Act of 1974, as amended.
Excess Cash Flow. For any period, Operating Cash Flow for such period
minus (a) the lesser of actual or permitted Fixed Charges (other than
Capital Expenditures) for such period, (b) Capital Expenditures permitted
for such period under Section 5.05, without regard to the amount of
permitted Capital Expenditures carried over from the prior year, and (c)
voluntary prepayments of the Notes made in connection with voluntary
reductions of the Commitments during such period, as provided in Section
1.06(a).
Expiration Date. See Section 1.01.
Event of Default. See Article VIII.
FAA. The Federal Aviation Administration or any other federal
governmental agency which may hereafter perform its functions.
FCC. The Federal Communications Commission or any other federal
governmental agency which may hereafter perform its functions.
FCC Licenses. Any Licenses issued by the FCC.
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Federal Funds Rate. For any period, a fluctuating interest rate per annum
(based on a 365 or 366 day year, as the case may be) equal for each day
during such period to the weighted average of the rates of interest
charged on overnight federal funds transactions with member banks of the
Federal Reserve System arranged by Federal funds brokers on such day, as
published for any day which is a Business Day by the Federal Reserve Bank
of New York (or, in the absence of such publication, as reasonably
determined by the Agent).
Fee Letter. The letter agreement dated as of the date of this Agreement
between the Borrower, CIBC and the Agent with respect to the payment of
certain fees.
Financial Statements. See Section 4.01.
Fixed Charges. For any fiscal period, the sum of (a) Total Debt Service
for such period; (b) Capital Expenditures made by the Borrower, the
Operating Companies and the Unrestricted Subsidiaries during such period;
and (c) taxes paid or payable by the Borrower, the Operating Companies
and the Unrestricted Subsidiaries during such period in respect of income
and profits (other than taxes in respect of gains excluded from Net
Income in the calculation of Operating Cash Flow).
Franchises. All franchises, licenses, authorizations or rights by
contract or otherwise to construct, own, operate, promote, extend and/or
otherwise exploit any System operated or granted by any state, county,
city, town, village or other local or state government authority or by
the FCC. The term "Franchise" shall include each of the Franchises set
forth on Schedule 4.07(a).
Franchise Areas. The communities listed in Schedule 4.07(a).
GAAP. Generally accepted accounting principles set forth in the opinions
and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or such other
entity as may be approved by a significant segment of the accounting
profession, as in effect on December 31, 1995, applied on a basis
consistent with (a) the application of the same in prior fiscal periods,
(b) that employed by the Accountants in preparing the financial
statements referred to in Section 6.05(a) and (c) the accounting
principles generally utilized in the broadcast radio, television industry
or cable television, as the case may be.
Governmental Authority. Any nation or government, any state or other
political subdivision thereof and any entity exercising any executive,
legislative, judicial, regulatory or administrative functions of, or
pertaining to, government.
Harron Acquisition. The acquisition of the rights as exclusive provider
of DIRECTV services in certain rural areas of Texas and Michigan pursuant
to the Harron Acquisition Agreement.
Harron Acquisition Agreement. The Contribution and Exchange Agreement
dated as of May 30, 1996 between Holdings and the Harron Seller.
Harron Seller. Harron Communications Corp., a New York corporation.
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Hazardous Materials. (a) any petroleum or petroleum products, flammable
materials, explosives, radioactive materials, asbestos, urea formaldehyde
foam insulation, and transformers or other equipment that contain
polychlorinated biphenyls ("PCB's"), (b) any chemicals or other materials
or substances that are now or hereafter become defined as or included in
the definition of "hazardous substances", "hazardous wasters", "hazardous
materials", "extremely hazardous wastes", "restricted Hazardous wastes",
"toxic substances", "toxic pollutants", "contaminants", "pollutants" or
words of similar import under any Environmental Law and (c) any other
chemical or other material or substance, exposure to which is now or
hereafter prohibited, limited or regulated under any Environmental Law.
Headend Site Leases. See Section 4.12.
Holdings. See the Preamble.
Horizon Acquisition. The acquisition of direct broadcast satellite rights
and related assets in Ohio from Horizon Infotech, Inc. pursuant to a
Letter of Intent dated July 8, 1996, as amended as of August 20, 1996.
IBJ Schroder. IBJ Schroder Bank and Trust Company.
Improvements. Any construction of plant or other improvements relating to
the Systems.
Inactive Subsidiaries. Pegasus Cable Television of Anasco, Inc., Pegasus
Anasco Holdings, Inc. and PP Broadcast, Inc.
Indebtedness or indebtedness. As applied to any Person, (a) all items
(except items of capital stock, capital or paid-in surplus or of retained
earnings) which, in accordance with GAAP, would be included in
determining total liabilities as shown on the liability side of a balance
sheet of such Person as at the date as of which Indebtedness is to be
determined, including Capital Lease Obligations but excluding
Indebtedness of the Companies with respect to trade obligations and other
normal accruals in the ordinary course of business not yet due and
payable or not more than ninety (90) days in arrears measured from the
date of billing; (b) all indebtedness secured by any mortgage, pledge,
lien or conditional sale or other title retention agreement to which any
property or asset owned or held by such Person is subject, whether or not
the indebtedness secured thereby shall have been assumed; and (c) all
indebtedness of others which such Person has directly or indirectly
guaranteed, endorsed (otherwise than for collection or deposit in the
ordinary course of business), discounted or sold with recourse or agreed
(contingently or otherwise) to purchase or repurchase or otherwise
acquire, or in respect of which such Person has agreed to supply or
advance funds (whether by way of loan, stock or equity purchase, capital
contribution, makewell or otherwise) or otherwise to become directly or
indirectly liable.
Interest Adjustment Date. See Section 1.03.
Interest Adjustment Period. See Section 1.03.
Interest Expense. For any period, the aggregate amount (determined on a
consolidated or combined basis, as appropriate, after eliminating
intercompany items, in accordance with GAAP) of interest accrued (whether
or not paid) during such period (including the interest component of
Capital Lease Obligations but excluding interest in respect of overdue
trade payables) by the Companies in respect of all Indebtedness for
borrowed money.
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Interest Period. With respect to each LIBOR Loan, the period commencing
on the date such Loan is made or converted from a Prime Rate Loan, or the
last day of the immediately preceding Interest Period, as to LIBOR Loans
being continued as such, and ending one (1), two (2), three (3) or six
(6) months thereafter, as the Borrower may elect in the applicable
Request for Advances or Interest Rate Option Notice, provided that:
(i) any Interest Period (other than an Interest Period
determined pursuant to clause (iv) below) that would otherwise end on a
day that is not a Business Day shall be extended to the next succeeding
Business Day unless such Business Day falls in the next calendar month,
in which case such Interest Period shall end on the immediately preceding
Business Day;
(ii) if the Borrower shall fail to give notice as provided in
Section 1.04, the Borrower shall be deemed to have requested a conversion
of the affected LIBOR Loan to a Prime Rate Loan on the last day of the
then current Interest Period with respect thereto;
(iii) any Interest Period relating to a LIBOR Loan that begins
on the last Business Day of a calendar month (or on a day for which there
is no numerically corresponding day in the calendar month at the end of
such Interest Period) shall, subject to clause (iv) below, end on the
last Business Day of a calendar month;
(iv) any Interest Period related to a LIBOR Loan that would
otherwise end after the final maturity date of the Loans shall end on
such final maturity date;
(v) no Interest Period shall include a principal repayment date
for the Loans unless an aggregate principal amount of Loans at least
equal to the principal amount due on such principal repayment date shall
be Prime Rate Loans or LIBOR Loans having Interest Periods ending on or
before such date; and
(vi) notwithstanding clauses (iv) and (v) above, no Interest
Period shall have a duration of less than one (1) month.
Interest Rate Option Notice. A notice given by the Borrower to the Agent
of the Borrower's election to convert Loans to a different type or
continue Loans as the same type, in accordance with Section 1.04(a).
Lenders. See the Preamble.
LIBOR Base Rate. With respect to each day during each Interest Period
pertaining to any LIBOR Loans, the interest rate per annum (rounded
upward, if necessary, to the nearest 1/16th of 1%) at which the Agent is
offered deposits in U.S. Dollars at or about 11:00 A.M. (London Time),
two (2) Business Days prior to the beginning of such Interest Period in
the London interbank market for delivery on the first day of such
Interest Period, for the number of days comprised therein and in an
amount comparable to the amount of the LIBOR Loans to be outstanding
during such Interest Period.
LIBOR Loans. Loans bearing interest at a rate determined on the basis of
the LIBOR Rate.
LIBOR Rate. With respect to each day during each Interest Period
pertaining to a LIBOR Loan, a rate per annum determined for such day in
accordance with the following formula (rounded upward, if necessary, to
the nearest 1/16th of 1%):
LIBOR Base Rate
1.00 - LIBOR Reserve Requirements
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LIBOR Reserve Requirements. For any day as applied to a LIBOR Loan, the
aggregate (without duplication) of the rates (expressed as a decimal
fraction) of reserve requirements in effect on such day (including
without limitation basic, supplemental, marginal and emergency reserves)
under any regulations of the Board of Governors of the Federal Reserve
System (or other Governmental Authority having jurisdiction with respect
thereto) prescribed for eurocurrency funding (currently referred to as
"Eurocurrency Liabilities" in Regulation D of such Board) maintained by a
member bank of the Federal Reserve System.
License Agreements. The several Operating Agreements dated as of October
31, 1994 between PBT and each of the License Subsidiaries, as the same
are in effect as of the date hereof.
Licenses. A license, authorization or permit to construct, own or operate
any Station granted by the FCC or any other Governmental Authority. The
term "License" shall include each of the Licenses set forth on Schedule
4.07(b).
License Subsidiaries. WDBD License Corp., WDSI License Corp., Pegasus
Broadcast Associates, L.P., and WOLF License Corp., each a Subsidiary of
PBT formed for the sole purpose of owning one or more FCC Licenses, and
HMW, Inc., a Subsidiary of the Parent formed solely for such purpose.
Liens. See Section 4.12.
LMA. A local marketing agreement, program service agreement or time
brokerage agreement between a broadcaster and a television station
licensee pursuant to which the broadcaster provides programming to, and
retains the advertising revenues of, such station in exchange for fees
paid to licensee.
Loan Documents. This Agreement, the Notes, the Security Documents and all
other agreements, instruments and certificates contemplated hereby and
thereby, including without limitation any Rate Hedging Agreements entered
into with any of the Lenders or their Affiliates.
Loans. The Advances.
Management Agreement. The Management Agreement dated July 7, 1995,
between the Manager and the Borrower, as originally executed and
delivered and as amended in compliance with Section 7.12.
Management Fees. Amounts due and payable to the Manager in accordance
with the provisions of Section 3 of the Management Agreement.
Manager. BDI Associates L.P., a Delaware limited partnership.
Margin Stock. See Section 4.16.
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Material Adverse Effect. Any circumstance or event which, individually or
in the aggregate with other such circumstances or events, (i) has had, or
could reasonably be expected to have, an adverse effect on the validity
or enforceability of this Agreement or the other Loan Documents in any
material respect, (ii) has had, or could reasonably be expected to have,
an adverse effect on the condition (financial or other), business,
results of operations, prospects or properties of the Borrower and the
Operating Companies, taken as a whole, in any material respect or (iii)
has impaired, or could reasonably be expected to impair, the ability of
the Companies to fulfill their obligations under this Agreement or any
other Loan Document to which any Company is a party, in any material
respect.
MCT. MCT Cablevision Limited Partnership, a Delaware limited
partnership.
MCT Note Documents. The $15,000,000 Second Amended and Restated
Promissory Note dated March 12, 1993, issued to Philips Credit
Corporation by MCT; endorsed by Philips to Borrower and by Borrower to
CIBC; the $9,074,135.13 Second Amended and Restated Promissory Note dated
March 12, 1993, issued to Philips Credit Corporation by MCT, endorsed by
Philips to Borrower and by Borrower to CIBC; and any and all other
instruments,documents, certificates and agreements executed and delivered
in connection therewith.
MCT Systems. The Systems serving Mayaguez, Puerto Rico and certain
contiguous communities and owned and operated by MCT.
Monthly Subscriber Reports. See Section 6.05(g).
Net Cash Proceeds. With respect to any Disposition, the aggregate amount
of all cash payments received by (a) any Company or (b) any Qualified
Intermediary, as defined in the United States Treasury Regulations
promulgated under Section 1031 of the Code and as used in connection with
a like-kind exchange under such Section 1031, directly or indirectly, in
connection with such Disposition, whether at the time thereof or after
such Disposition under deferred payment arrangements or investments
entered into or received in connection with such Disposition, minus the
aggregate amount of any legal, accounting, regulatory, title and
recording tax expenses, commissions and other fees and expenses paid by
any Company in connection with such Disposition, and minus any income
taxes payable by any Company in connection with such Disposition.
New England Systems. The Systems located in Connecticut, Massachusetts
and New Hampshire.
Net Income. For any period, net income of the Borrower and the Operating
Companies from their respective operations, after deducting all operating
expenses, provisions for all taxes and reserves (including reserves for
deferred income taxes) and all other proper deductions (including
Interest Expense), all determined on a consolidated or combined basis, as
applicable, after eliminating intercompany items, in accordance with
GAAP, but excluding Trades.
Notes. See Section 1.02.
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Obligations. The Loans and the other obligations of the Companies under
this Agreement and the other Loan Documents, including without limitation
any and all future loans, advances, debts, liabilities, obligations,
covenants and duties owing by the Companies to the Agent and the Lenders,
or any of them, of any kind or nature, whether or not evidenced by any
note, mortgage or other instrument, whether arising by reason of an
extension of credit, loan, guarantee, indemnification or in any other
manner, whether direct or indirect (including those acquired by
assignment), absolute or contingent, due or to become due, now existing
or hereafter arising and however acquired. The term "Obligations" also
includes, without limitation, all interest, charges, expenses, fees
(including attorneys', accountants', appraisers', consultants' and other
fees) and any other sums chargeable to the Companies under this Agreement
or any other Loan Documents.
Offering. The transactions in which (a) PCC offers and sells to the
public shares of its Class A Common Stock substantially as described in
the Registration Statement and (b) simultaneously with or immediately
prior to the consummation of such sale of Class A. Common Stock, Holdings
contributes all of its capital stock in the Borrower to PCC, as a result
of which the Borrower becomes a subsidiary of PCC.
Opening Balance Sheet. See Section 4.01.
Operating Cash Flow. For any period, Net Income for such period, minus
(i) actual cash payments made in respect of film and other broadcast
contract rights and (ii) any extraordinary or unusual gains and gains
derived from any sales of assets made during each period to the extent
such gains are properly includable in the determination of Net Income for
said period, but after restoring thereto amounts deducted for (a)
depreciation; (b) amortization; (c) taxes in respect of income and
profits paid during such period; (d) Interest Expense; (e) losses derived
from any sales of assets made during such period; (f) other non-cash
expenses (including without limitation the recognition of expenses
related to the amortization of program license and rental fees); (g)
Transaction Costs; and (h) extraordinary or unusual expenses incurred
during such period, but only to the extent such expenses are properly
includable in the determination of Net Income for such period; all
determined on a consolidated or combined basis, as applicable, after
eliminating intercompany items, in accordance with GAAP.
Operating Companies. Collectively, the Restricted Subsidiaries and the
Parent Subsidiaries.
Parent. (a) Holdings, until the consummation of the Offering, and (b)
thereafter, PCC.
Parent Subsidiaries. Bride Communications, Inc., a Delaware corporation,
HMW, Inc. a Maine corporation, and BT Satellite, Inc., a Maine
corporation, each a subsidiary of the Parent.
PBT. Pegasus Broadcast Television, Inc., a Pennsylvania corporation.
PCC. Pegasus Communications Corporation, a Delaware corporation and the
wholly owned subsidiary of Holdings as of the date of this Agreement.
PCT. Pegasus Cable Television, Inc., a Massachusetts corporation.
PCT-CONN. Pegasus Cable Television of Connecticut, Inc., a Connecticut
corporation.
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PCT-CONN Note Documents. The following documents, each dated as of
February 18, 1993 and amended as of August 29, 1996, between PCT and
PCT-CONN: Promissory Note and Loan Agreement, Security Agreement;
Mortgage Deed and Collateral Assignment of Tenant's Interest in Leases of
Real Property.
Pegasus San German. Pegasus Cable Television of San German, Inc., a
Delaware corporation.
Permitted Acquisitions. The acquisition by the Borrower or any Restricted
Subsidiary, whether by way of the purchase of assets or stock, by merger
or consolidation or otherwise, of substantially all of the assets of or
ownership interest in a television broadcast property, cable television
property, or exclusive DBS Rights, which acquisition either constitutes a
Contemplated DBS Acquisition or shall have been approved in writing by
the Required Lenders in their sole and absolute discretion. Without in
any way limiting the discretion of the Required Lenders, at a minimum,
all Permitted Acquisitions (including Contemplated DBS Acquisitions) will
be subject to the fulfillment of the following conditions:
(a) If such acquisition involves the purchase of stock or other ownership
interest, the same shall be effected in such a manner as to assure that
the acquired entity becomes a wholly owned Restricted Subsidiary of the
Borrower;
(b) No later than (1) thirty (30) days prior to the consummation of any
such acquisition or, if earlier, ten (10) business days after the
execution and delivery of the related Acquisition Agreement, the Borrower
shall have delivered to the Agent (in sufficient copies for all the
Lenders) copies of executed counterparts of such Acquisition Agreement,
together with all Schedules thereto, the forms of any additional
agreements or instruments to be executed at the closing thereunder (to
the extent available), and all applicable financial information,
including new Projections, updated to reflect such acquisition and any
related transactions, (2) promptly following a request therefor, copies
of such other information or documents relating to such acquisition as
any Lender shall have reasonably requested, and (3) promptly following
the consummation of such acquisition, certified copies of the agreements,
instruments and documents referred to above to the extent the same has
been executed and delivered at the closing under such Acquisition
Agreement;
(c) The aggregate amount of all consideration payable by the Borrower or
any Restricted Subsidiary or Subsidiaries in connection with such
acquisition (other than earn-outs and customary post-closing adjustments,
escrows, holdbacks and indemnities and indebtedness permitted under
Section 7.01) shall be payable on the date of such acquisition;
(d) Neither the Borrower nor any Restricted Subsidiary shall, in
connection with any such acquisition, assume or remain liable with
respect to any indebtedness (including any material tax or ERISA
liability) of the related seller, except (i) to the extent permitted
under Section 7.01 and (ii) obligations of the Seller incurred in the
ordinary course of business and necessary or desirable to the continued
operation of the underlying properties, and any other such liabilities or
obligations not permitted to be assumed or otherwise supported by any of
the Companies hereunder shall be paid in full or released as to the
assets being so acquired on or before the consummation of such
acquisition;
(e) All other assets and properties acquired in connection with any such
acquisition shall be free and clear of any liens, charges and other
encumbrances other than permitted under Section 7.02;
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(f) The Borrower shall have complied as applicable with all of the
provisions in Section 2.01, including the execution and delivery of such
additional agreements, instruments, certificates, documents, consents,
environmental site assessments, opinions and other papers as the Required
Lenders may require;
(g) Immediately prior to any such acquisition and after giving effect
thereto no Default shall have occurred or be continued; and
(h) Without limiting the generality of the foregoing, after giving effect
to such acquisition the Borrower shall be in compliance with the
provisions of Article V, (i) calculated on a pro forma basis as of the
end of and for the period of twelve (12) consecutive months most recently
ended prior to the date of such acquisition for which financial
statements are required to be provided (and have been so delivered) under
Section 6.05 and (ii) under the Borrower's updated Projections referred
to above. The Borrower shall provide to the Agent a certificate signed on
behalf of the Borrower by its Chief Financial Officer demonstrating such
compliance in reasonable detail.
Permitted Investments. (a) Investments in property to be used by the
Restricted Subsidiaries in the ordinary course of business; (b) current
assets arising from the sale of goods and services in the ordinary course
of business; (c) investments (of one year or less) in direct or
guaranteed obligations of the United States, or any agency thereof; (d)
investments (of 90 days or less) in certificates of deposit of the
Lenders or any other domestic commercial bank of recognized standing
having capital, surplus and undivided profits in excess of $100,000,000,
membership in the Federal Deposit Insurance Corporation ("FDIC") and
senior debt rated carrying one of the two highest ratings of Standard &
Poor's Ratings Service, A Division of McGraw Hill, Inc., or Moody's
Investors Service, Inc. (an "Approved Institution"); (e) investments (of
90 days or less) in commercial paper given one of the two highest ratings
by Standard and Poor's Ratings Service, A Division of McGraw Hill, Inc.,
or by Moody's Investors Service, Inc.; (f) investments redeemable at any
time without penalty in money market instruments placed through the
Lenders or Approved Institutions; (g) existing investments by the
Companies in Subsidiaries; (h) repurchase agreements fully collateralized
by United States government securities; (i) deposits fully insured by the
FDIC; (j) short-term loans to employees and advances to employees in the
ordinary course of business for the payment of bona fide, properly
documented, business expenses to be incurred on behalf of the Companies,
provided that the aggregate outstanding amount of all such loans and
advances shall not exceed $50,000 in the aggregate at any time; (k)
investments made in connection with acquisitions permitted hereunder; and
(l) investments in Unrestricted Subsidiaries formed after the date of
this Agreement, provided that (i) such investments do not exceed $500,000
in aggregate amount as to all Unrestricted Subsidiaries as a group, (ii)
at the time any such investment is made and after giving effect thereto,
there exists no Default, (iii) after giving effect to all such
investments, the ratio of Total Funded Debt as of the date of such
investment to Adjusted Operating Cash Flow for the then most recently
ended period of four (4) consecutive fiscal quarters is less than
6.50:1.00, and (iv) notwithstanding the satisfaction of all of the
foregoing criteria, the Required Lenders have consented thereto in
writing, in their sole and absolute discretion.
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Permitted LMA. An LMA which meets the following criteria:
(a) The LMA is entered into between a Restricted Subsidiary formed for
the sole purpose of executing, and operating under, the LMA.
(b) The maximum amount of scheduled payments under the LMA which are made
(or required to be made) or guaranteed by the Borrower or any Restricted
Subsidiary shall not exceed $500,000 in any fiscal year.
(c) No further payments, such as revenue sharing distributions, shall be
permitted under any LMA unless, after giving effect to such proposed
payment, each of the Restricted Subsidiaries bound under an LMA has
demonstrated positive Operating Cash Flow for the period of twelve (12)
consecutive months ending on the last day of the month for which
financial statements are required to be delivered (and have been so
delivered) under Section 6.05.
(d) Excess Cash Flow of each such Restricted Subsidiary shall be
dividended to the Borrower on a periodic basis as reasonably required by
the Agent, but, in any event, at least once in each fiscal year.
(e) No LMA shall bind any Company to purchase the broadcast station or
assets subject thereto (unless such acquisition is otherwise permitted
hereunder) or to incur any other material liability or obligation other
than scheduled any customary payments referred to in paragraphs (b) and
(c) above.
(f) No LMA shall be permitted other than with respect to broadcast
properties located in markets in which one or more of the Restricted
Subsidiaries already owns broadcast properties.
(g) The Borrower will provide to the Agent at least ten (10) Business
Days' notice prior to the execution and delivery of any LMA entered into
after the date hereof, together with updated Projections showing
calculations of covenant ratios and demonstrating compliance therewith,
and any other information or documents reasonably requested by the Agent
or any Lender.
Person or person. Any individual, corporation, partnership, joint
venture, trust, business unit, unincorporated organization, or other
organization, whether or not a legal entity, or any government or any
agency or political subdivision thereof.
Prime Rate. As of any date, the fluctuating interest rate per annum equal
to the greater of (a) the rate established by Canadian Imperial Bank of
Commerce from time to time at its office in New York City as its "Base
Rate" for commercial loans in United States Dollars, and (b) the Federal
Funds Rate plus 1.00%; in each case, including any applicable adjustments
for reserves or Federal Deposit Insurance Corporation requirements. The
Prime Rate is not necessarily intended to be the lowest rate of interest
determined by Canadian Imperial Bank of Commerce in connection with
extensions of credit.
Prime Rate Loans. Loans bearing interest at a rate determined on the
basis of the Prime Rate.
Pro Forma Debt Service. For any period, Total Debt Service for such
period, provided that (a) the interest rate or rates applicable to any
Indebtedness shall be determined based upon the rate or rates in effect
on the date of such computation and (b) for purposes of calculating Total
Debt Service for any period commencing after June 30, 2002, the principal
balance of the Revolving Credit Notes during such period shall be
excluded.
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Projections. See Section 4.20.
Properties. See Section 4.23.
PST. Pegasus Satellite Television, Inc., a Delaware corporation.
Quarterly Dates. See Section 1.03.
Rate Hedging Agreements. Any written agreements evidencing Rate Hedging
Obligations, including without limitation the LIBOR provisions of this
Agreement.
Rate Hedging Obligations. Any and all obligations of the Borrower,
whether direct or indirect and whether absolute or contingent, at any
time created, arising, evidenced or acquired (including all renewals,
extensions, modifications and amendments thereof and all substitutions
therefor), in respect of: (a) any and all agreements, arrangements,
devices and instruments designed or intended to protect at least one of
the parties thereto from the fluctuations of interest rates, exchange
rates or forward rates applicable to such party's assets, liabilities or
exchange transactions, including without limitation dollar-denominated or
cross currency interest rate exchange agreements, forward currency
exchange agreements, interest rate cap or collar protection agreements,
forward rate currency or interest rate options, puts and warrants and
so-called "rate swap" agreements; and (b) any and all cancellations,
buy-backs, reversals, terminations or assignments of any of the
foregoing.
Rate Regulation Act. See Section 4.09.
Rate Regulation Rules. See Section 4.09.
Reducing Revolvers. See Section 1.01.
Reducing Revolving Commitments. See Section 1.01.
Reducing Revolver Notes. See Section 1.01.
Registration Statement. PCC's registration statement (No. 333-5057) under
the Securities Act of 1933 relating to the Offering, as heretofore
amended and hereafter amended from time to time in a manner reasonably
satisfactory to the Required Lenders or in a manner which does not
materially alter the terms or nature of the contemplated offering.
Regulatory Change. With respect to any Lender, any change after the date
of this Agreement in any law, rule or regulation (including without
limitation Regulation D) of the United States, any state or any other
nation or political subdivision thereof, including without limitation the
issuance of any final regulations or guidelines, or the adoption or
making after the date of this Agreement of any interpretation, directive
or request, applying to a class of banks in which such Lender is included
under any such law, rule or regulation (whether or not having the force
of law and whether or not failure to comply therewith would be unlawful)
by any court or governmental or monetary authority charged with the
interpretation thereof.
Regulation D. Regulation D of the Board of Governors of the Federal
Reserve System, as the same may be amended or supplemented from time to
time.
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Remedial Work. All activities, including, without limitation, cleanup
design and implementation, removal activities, investigation, field and
laboratory testing and analysis, monitoring and other remedial and
response actions, taken or to be taken, arising out of or in connection
with Hazardous Materials, including without limitation all activities
included within the meaning of the terms "removal," "remedial action" or
"response," as defined in 42 U.S.C. Section 9601(23), (24) and (25).
Request for Advances. See Section 1.04.
Required Financial Statements. See Section 1.03.
Required Lenders. Lenders holding at least two-thirds of the sum of (a)
the aggregate outstanding principal amount of the Loans and (b) the
aggregate amount of the unused Commitments; provided, however, that, so
long as the number of Lenders does not exceed two (2) the "Required
Lenders" shall mean both Lenders.
Reserved Commitment Amount. See Section 1.01(b).
Restricted Payment. Any distribution or payment of cash or property, or
both, directly or indirectly (a) in respect of any Subordinated Debt, (b)
to any Unrestricted Subsidiary or (c) to any partner or stockholder of
any of the Companies or of any of their respective Affiliates for any
reason whatsoever, including without limitation, salaries, loans, debt
repayment, consulting fees, Management Fees, expense reimbursements and
dividends, distributions, put, call or redemption payments and any other
payments in respect of capital stock or partnership interests; provided,
however, that Restricted Payments shall not include:
(i) payments made to the WTLH License Companies to retire the WTLH Debt,
but only if, concurrently therewith, the WTLH License Companies become
Operating Companies hereunder and Restricted Subsidiaries under the
Subordinated Indenture;
(ii) reasonable Transaction Costs;
(iii) payments under the Tax Sharing Agreement;
(iv) transactions that comply with Section 7.12; and
(v) any Permitted Investments described in clause (l) of the definition
thereof set forth above.
Restricted Subsidiaries. At any time, all of the Borrower's Subsidiaries
other than the Unrestricted Subsidiaries.
Revolving Lines of Credit. See Section 1.02.
Revolving Credit Commitments. See Section 1.02.
Revolving Credit Notes. See Section 1.02.
San German Acquisition. See the Recitals.
San German Acquisition Agreement. See the Recitals.
San German Sellers. See the Recitals.
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San German Systems. See the Recitals.
Scheduled Principal Payments. For any fiscal period, (a) the aggregate
principal amount of Advances outstanding on the first day of such period
minus (b) the aggregate Commitments at the close of business on the first
Business Day following the end of such period, as reduced as provided
under Section 1.06(b), but in no event less than -0-.
SEC. See Section 6.05.
Security Agreement. The Security and Pledge Agreement signed by each of
the Borrower and the Operating Companies as of the Closing Date.
Security Document(s). See Section 2.01(c).
Seller. (a) With respect to the Harron Acquisition, the Harron Seller,
(b) with respect to the San German Acquisition, the San German Sellers
and (c) with respect to any acquisition permitted hereunder, the owner of
the stock (or other ownership interest) to be acquired, or the entity the
assets and properties of which are to be acquired by the related
respective Company pursuant to such acquisition.
Senior Funded Debt. At any time, all outstanding Indebtedness of the
Borrower, the Operating Companies and the Unrestricted Subsidiaries for
borrowed money, for the purchase of property and under Capital Leases,
other than Subordinated Debt.
Significant Franchise. See paragraph (f) of Article VIII.
Stations. All of the television stations owned or managed by the Borrower
and the Operating Companies, where each such station consists of all of
the properties and operating rights constituting a complete, fully
integrated system for transmitting broadcast television signals from a
transmitter licensed by the FCC, together with any subsystem ancillary
thereto, without payment of any fee by the Persons receiving such
signals.
Subordinated Debt. (a) Indebtedness of the Borrower and any of its
Subsidiaries to the Subordinated Noteholders under the Subordinated
Indenture and (b) any Indebtedness which is subject to an Affiliate
Subordination Agreement.
Subordinated Debt Documents. The Subordinated Indenture, the Subordinated
Notes, the Subsidiary Guarantees executed as required under the
Subordinated Indenture, the Stockholders Agreement executed by the
Subordinated Noteholders in connection with the issuance to them of 8,500
shares of the Borrower's Class B Common Stock and any and all other
agreements and instruments executed pursuant thereto.
Subordinated Indenture. The Indenture dated as of July 7, 1995 among the
Borrower, as Issuer, the Restricted Subsidiaries, as Guarantors, and
First Union National Bank (successor to First Fidelity Bank, National
Association), as Trustee, providing for the issuance of the Subordinated
Notes.
Subordinated Indenture Default. Any "Event of Default", as defined in the
Subordinated Indenture.
Subordinated Notes. The 12 1/2% Series B Senior Subordinated Notes due
2005 of the Borrower, in the aggregate principal amount of $85,000,000,
issued to the Subordinated Noteholders under the Subordinated Indenture
on November 14, 1995, in exchange for the 12 1/2% Series A Senior
Subordinated Note due 2005 of the Borrower in the same aggregate
principal amount issued under the Subordinated Indenture on July 7, 1995.
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Subordinated Noteholders. The registered holders from time to time of the
Subordinated Notes.
Subsidiary. (a) Any corporation, association, joint stock company,
business trust or other similar organization of which more than 50% of
the ordinary voting power for the election of a majority of the members
of the board of directors or other governing body of such entity is held
or controlled by the Borrower or a Subsidiary of the Borrower; (b) any
other such organization the management of which is directly or indirectly
controlled by the Borrower or a Subsidiary of the Borrower through the
exercise of voting power or otherwise; or (c) any joint venture,
association, partnership or other entity in which the Borrower or a
Subsidiary of the Borrower has a 50% equity interest. All of the
Borrower's Subsidiaries as of the date hereof are listed on Schedule
4.02.
Systems. All of the cable television systems owned or managed by the
Borrower and the Operating Companies, where each such system consists of
a cable distribution system that receives broadcast signals by antennae,
microwave transmissions, satellite transmission or any other form of
transmission and that amplifies such signals and distributes them to
Persons who pay to receive such signals.
Tax Sharing Agreement. The Tax Sharing Agreement dated as of July 7,
1995, among Holdings and its Subsidiaries.
Taxes. See Section 1.11.
Total Debt Service. For any period, the aggregate amount (determined on a
combined or consolidated basis, as appropriate after eliminating
intercompany items, in accordance with GAAP) of principal and premium, if
any, and cash interest, commitment fees and agency fees and other amounts
required to be paid during such period in respect of Total Funded Debt.
For purposes of this definition, the aggregate amount of all principal
required to be paid in respect of the Advances shall be limited to
Scheduled Principal Payments.
Total Funded Debt. At any time, all outstanding Indebtedness of the
Borrower the Operating Companies and the Unrestricted Subsidiaries for
borrowed money, for the purchase of property and under Capital Leases,
determined on a consolidated or combined basis, as applicable, after
eliminating intercompany items, in accordance with GAAP.
Total Interest Expense. For any period, Interest Expense for such period
which is payable, or currently paid, in cash.
Tower Site Leases. See Section 4.12.
Trades. Those items of income and expense of the Companies which do not
represent the right to receive payment in cash or the obligation to make
payment in cash and which arise pursuant to so-called trade or barter
transactions.
Transaction Costs. For any period, nonrecurring out-of-pocket expenses
(including attorneys' fees, investment banking fees and facility fees)
accrued by (or by the Parent on behalf of) the Borrower and the Operating
Companies to Persons who are not Affiliates of any Company during such
period in connection with the closing of the transactions under this
Agreement, any Permitted Acquisition and any other transactions occurring
after the Closing Date which are consented to by the Required Lenders.
Transaction Documents. See Section 4.03.
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Unrestricted Subsidiaries. The WTLH License Subsidiaries and all other
Subsidiaries, if any, formed after the date of this Agreement as
permitted hereunder (a) if and so long as each such Subsidiary is an
"Unrestricted Subsidiary" under the terms of the Subordinated Indenture
and (b) provided that the Agent has received written notice from the
Borrower of each such Subsidiary's designation as an Unrestricted
Subsidiary.
WTLH License Companies. WTLH, Inc. and WTLH License Corp., but only so
long as (a) they remain "Unrestricted Subsidiaries" under the terms of
the Subordinated Indenture and (b) their existing Indebtedness to General
Management Consultants, Inc. and its Affiliates in the approximate
principal amount of $3,050,000 remains outstanding.
WTLH Debt. See the definition of WTLH Companies.
XII. ENTIRE AGREEMENT; AMENDMENTS AND WAIVERS; SEPARATE ACTIONS BY THE
LENDERS.
(a) This Agreement (including the Schedules hereto) and the other Loan
Documents constitute the entire agreement of the parties herein and supersede
any and all prior agreements, written or oral, as to the matters contained
herein, and no modification or waiver of any provision hereof or of the Notes or
any other Loan Document, nor consent to the departure by any Company therefrom,
shall be effective unless the same is in writing, and then such waiver or
consent shall be effective only in the specific instance, and for the purpose,
for which given. Except as hereafter provided, the consent of the Required
Lenders shall be required and sufficient (i) to amend, with the consent of the
Borrower, any term of this Agreement, the Notes or any other Loan Document or to
waive the observance of any such term (either generally or in a particular
instance or either retroactively or prospectively); (ii) to take or refrain from
taking any action under this Agreement, the Notes, any other Loan Document or
applicable law, including, without limitation, (A) the acceleration of the
payment of the Notes, (B) the termination of the Commitments, (C) the exercise
of the Agent's and the Lenders' remedies hereunder and under the Security
Documents and (D) the giving of any approvals, consents, directions or
instructions required under this Agreement or the Security Documents; provided
that no such amendment, waiver or consent shall, without the prior written
consent of all of the Lenders or the holders of all of the Notes at the time
outstanding, (1) extend the fixed maturity or reduce the principal amount of, or
reduce the amount or extend the time of payment of any principal of, or interest
on, any Note (other than mandatory prepayments of the Notes out of Excess Cash
Flow required under Section 1.06(d)), (2) increase or extend any Commitment of
any Lender or extend the Expiration Date (it being understood that waivers or
modifications of conditions precedent, covenants, Defaults or Events of Default
shall not constitute any such increase or extension), (3) release any guaranties
or any Collateral, unless such release of Collateral is in connection with a
sale of Collateral to which any required consent of the Required Lenders has
been given and substantially all of the Net Cash Proceeds of such sale are used
to repay the Borrower's indebtedness to the Lenders hereunder or otherwise used
in a manner permitted hereunder, (4) change the percentage referred to in the
definition of "Required Lenders" contained in Article XI, or (5) amend the
provisions of this Article XII; and provided, further, that neither notice to,
nor the consent of, the Borrower shall be required for any modification,
amendment or waiver of the provisions of this Article XII governing the number
of Lenders required to consent to any act or omission under the Loan Documents
or, subject to Article XIII, of the definition of "Required Lenders".
(b) Any amendment or waiver effected in accordance with this Article XII
shall be binding upon each holder of any Note at the time outstanding, each
future holder of any Note and the Borrower. The Lenders' failure to insist
(directly or through the Agent) upon the strict performance of any term,
condition or other provision of this Agreement, any Note, or any of the Security
Documents, or to exercise any right or remedy hereunder or thereunder, shall not
constitute a waiver by the Lenders of any such term, condition or other
provision or default or Event of Default in connection therewith, nor shall a
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single or partial exercise of any such right or remedy preclude any other or
future exercise, or the exercise of any other right or remedy; and any waiver of
any such term condition or other provision or of any such default or Event of
Default shall not affect or alter this Agreement, any Note or any of the
Security Documents, and each and every term, condition and other provision of
this Agreement, the Notes and the Security Documents shall, in such event,
continue in full force and effect and shall be operative with respect to any
other then existing or subsequent default or Event of Default in connection
therewith. An Event of Default hereunder and a default under any Note or under
any of the Security Documents shall be deemed to be continuing unless and until
cured or waived in writing by the Required Lenders or all of the Lenders, as
provided in paragraph (a) above.
XIII. BENEFIT OF AGREEMENT; ASSIGNMENTS AND PARTICIPATIONS
(a) This Agreement shall be binding upon and inure to the benefit of the
Borrower, the Lenders and the Agent and their respective successors and assigns,
and all subsequent holders of any of the Notes or any portion hereof.
(b) Each Lender may assign its rights and interests under this Agreement,
the Notes and the Security Documents and/or delegate its obligations hereunder
and thereunder, in whole or in part, and sell participations in the Notes and
the Security Documents as security therefor, provided as follows:
(i) No Lender shall make any assignment, other than to a
separately organized branch or an Affiliate of the same Lender, if, after
giving effect thereto, such Lender would hold less than $5,000,000 of the
then aggregate outstanding principal amount of the Notes.
(ii) Any such assignment made other than to a separately
organized branch, or an Affiliate of, a Lender shall reflect an
assignment of such assigning Lender's Notes and Commitments which is in
an aggregate principal amount of at least $5,000,000, and if greater,
shall be an integral multiple of $1,000,000.
(iii) Notwithstanding any provision of this Agreement to the
contrary, each Lender may at any time assign all or any portion of its
rights under this Agreement and each of the other Loan Documents,
including, without limitation, the Notes held by such Lender, to a
Federal Reserve Bank (or equivalent thereof in the case of Lenders
chartered outside of the United States); provided that no such assignment
shall release a Lender from any of its obligations and liabilities under
the Loan Documents. Any Federal Reserve Bank (or equivalent thereof)
which receives such an assignment from any Lender may make further
assignments of such rights in accordance with the provisions of this
Section.
(iv) Any assignments and/or delegations made hereunder shall be
pursuant to an instrument of assignment and acceptance (the "Assignment
and Acceptance") substantially in the form of Schedule 13(b)(iv) and the
parties to each such assignment shall execute and deliver to the Agent
for its acceptance the Assignment and Acceptance together with any Note
or Notes subject thereto. Upon such execution and delivery, from and
after the effective date specified in each Assignment and Acceptance,
which effective date shall be at least five (5) Business Days after the
execution thereof, (A) the assignee thereunder shall become a party
hereto and, to the extent provided in such Assignment and Acceptance,
have the rights and obligations of a Lender hereunder with Commitments as
set forth therein and (B) the assigning Lender thereunder shall, to the
extent provided in such
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assignment, be released from its obligations under this Agreement as to
that portion of its obligation being so assigned and delegated. The
Assignment and Acceptance shall be deemed to amend this Agreement to the
extent, and only to the extent, necessary to reflect the addition of the
assignee as a Lender and the resulting adjustment of Commitments arising
from the purchase by and delegation to such assignee of all or a portion
of the rights and obligations of such assigning Lender under this
Agreement.
(v) Upon its receipt of an Assignment and Acceptance executed by
an assigning Lender and the assignee together with the Note or Notes
subject to such assignment and payment by the assignee to the Agent of a
registration and processing fee of $3,000, the Agent shall accept such
Assignment and Acceptance. Promptly upon delivering such Assignment and
Acceptance to the Agent, the assigning Lender shall give notice thereof
to the Borrower and the other Lenders pursuant to a Notice of Assignment
and Acceptance substantially in the form of Schedule 13(b)(v). Within
five (5) Business Days after receipt of such notice, the Borrower shall
execute and deliver to the Agent in exchange for each such surrendered
Note a new Note payable to the order of such assignee in an amount equal
to the portion of the applicable Commitment(s) assumed by such assignee
pursuant to such Assignment and Acceptance and a new Note payable to the
order of the assigning Lender in an amount equal to the portion of the
applicable Commitment(s) retained by it hereunder. Such new Notes shall
be dated the effective date of such Assignment and Acceptance and shall
otherwise be in substantially the form provided in Section 1.01. Canceled
Notes shall be returned to the Borrower upon the execution and delivery
of such new Notes.
(vi) Each Lender may sell participations in all or a portion of
its rights and obligations under this Agreement (including, without
limitation, all or a portion of its Commitment and the Notes held by it);
provided, however, that, (A) the selling Lender shall remain obligated
under this Agreement to the extent as it would if it had not sold such
participation, (B) the selling Lender shall remain solely responsible to
the other parties hereto for the performance of such obligations, (C) at
no time shall the selling Lender agree with such participant to take or
refrain from taking any action hereunder or under any other Loan
Document, except that the selling Lender may agree not to consent,
without such participant's consent, to any of the actions referred to
Article XII, to the extent that the same require the consent of each
Lender hereunder, (D) all amounts payable by the Borrower hereunder shall
be determined as if such Lender had not sold such participation and no
participant shall be entitled to receive any greater amount pursuant to
this Agreement than the selling Lender would have been entitled to
receive in respect of the amount of the participation transferred by such
Lender to such participant had no such transfer occurred, and (E) the
Borrower, the Agent and the other Lenders shall continue to deal solely
and directly with the selling Lender in connection with such Lender's
rights and obligations under this Agreement.
(vii) Except for an assignment made to a separately organized
branch or an Affiliate of a Lender, no assignment or participation
referred to above shall be permitted without the prior written consent of
the Agent, which consent shall not be unreasonably withheld or delayed.
(viii) The Borrower may not assign any of its rights or delegate
any of its duties or obligations hereunder.
(ix) Any Lender may, in connection with any assignment or
participation pursuant to this Section, disclose to the assignee or
participant any information relating to the Companies furnished to such
Lender by or on behalf of the Borrower and such assignee or participant
shall treat such information as confidential.
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XIV. MISCELLANEOUS
Section 14.01. Survival. This Agreement and all covenants, agreements,
representations and warranties made herein and in the certificates delivered
pursuant hereto, shall survive the making by the Lenders of the Loans and shall
continue in full force and effect so long as any Obligation is outstanding and
unpaid or any Lender has any obligation to advance funds to the Borrower
hereunder.
Section 14.02. Fees and Expenses; Indemnity; Etc. The Borrower agrees (a)
to pay or reimburse the Agent for all its reasonable out-of-pocket costs and
expenses incurred in connection with the development, preparation, negotiation,
interpretation and execution of, and any amendment, supplement or modification
to, this Agreement, the Notes and any other Loan Documents and the consummation
and administration of the transactions contemplated hereby, including without
limitation the reasonable fees and disbursements of (i) counsel to the Agent,
and (ii) such agents of the Agent not regularly in its employ, and accountants,
other auditing services, consultants and appraisers engaged by or on behalf of
the Agent or by the Borrower at the request of the Agent (collectively, "Third
Parties"); (b) to pay or reimburse the Agent for all its reasonable costs and
expenses incurred in connection with the enforcement or preservation of any
rights under this Agreement, the Notes and any other Loan Documents, including,
without limitation, the reasonable fees and disbursements of (i) counsel to the
Agent and (ii) Third Parties; (c) following the occurrence of an Event of
Default hereunder, to pay or reimburse the Lenders for the reasonable fees and
disbursements of counsel for the respective Lenders engaged for the preservation
or enforcement of such Lender's rights under this Agreement or any other Loan
Documents relating to such Event of Default; (d) to pay, indemnify, and hold
each Lender and the Agent harmless from, any and all recording and filing fees
and taxes, lien discharge fees and taxes, intangible taxes and any and all
liabilities with respect to, or resulting from any delay in paying, stamp,
excise and other taxes, if any, which may be payable or determined to be payable
in connection with the execution and delivery of, or consummation or
administration of any of the transactions contemplated by, or any amendment,
supplement or modification of, or any waiver or consent under or in respect of,
this Agreement, the Notes and any other Loan Documents; and (e) to pay,
indemnify, and hold each Lender and the Agent (and their respective directors,
officers, employees and agents) harmless from and against any and all other
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever with respect
to the execution, delivery, enforcement, performance and administration of, or
any transaction contemplated by, any Loan Document or the use or proposed use of
the proceeds of the Loans or the refinancing or restructuring of the credit
arrangement provided under this Agreement in the nature of a "work-out" or any
proceedings with respect to the bankruptcy, reorganization, insolvency,
readjustment of debt, dissolution or liquidation of any Company or any other
party other than the Lender or Agent to any Loan Document (all the foregoing in
this clause (e), collectively, the "indemnified liabilities"), provided, that
the Borrower shall have no obligation hereunder to the Agent or any Lender with
respect to indemnified liabilities arising from the gross negligence or willful
misconduct of the Agent or any such Lender. The agreements in this Section shall
survive repayment of the Notes and all other amounts payable hereunder.
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Section 14.03. Notice.
(a) All notices, requests, demands and other communications provided for
hereunder (including without limitation Requests for Advances) shall be in
writing (including telecopied communication) and mailed or telecopied or
delivered to the applicable party at the addresses indicated below.
If to the Agent:
Canadian Imperial Bank of Commerce, New York Agency
425 Lexington Avenue
New York, New York 10017
Attention: Syndications
Telecopy No.: (212) 856-3799
and if to any Lender, at the address set forth on the appropriate signature page
hereto or, with respect to any assignee of the Notes under Article XIII, at the
address designated by such assignee in a written notice to the other parties
hereto.;
in each case (except for routine communications), with a copy to:
Elizabeth H. Munnell, Esquire
Edwards & Angell
101 Federal Street
Boston, Massachusetts 02110
Telecopy No.: (617) 439-4170
If to the Borrower:
Marshall W. Pagon
Pegasus Communications
5 Radnor Corporate Center
Suite 454
100 Matsonford Road
Radnor, Pennsylvania 19087
Telecopy No.: (610) 341-1835
with a copy (except for routine communications) to:
Michael B. Jordan, Esq.
Drinker Biddle & Reath
Philadelphia National Bank Building
1345 Chestnut Street
Philadelphia, Pennsylvania 19107-3496
Telecopy: (215) 988-2757
or, as to each party, at such other address as shall be designated by
such parties in a written notice to the other party complying as to delivery
with the terms of this Section. All such notices, requests, demands and other
communication shall be deemed given upon receipt by the party to whom such
notice is directed.
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(b) The address of the Agent for payment hereunder is as follows:
Morgan Guaranty Trust Company
60 Wall Street
New York, New York 10260
ABA: 021000238
Attention: For the Account of Canadian Imperial Bank
of Commerce, New York Agency
Account No.: 630-00-480
For further credit to Agented Loans,
Account No.: 0709611
Re: Pegasus Media & Communications
Telecopy No.: (212) 856-3799
Section 14.04. Governing Law. This Agreement and the Notes shall be
construed in accordance with and governed by the internal laws of the State of
New York.
Section 14.05. CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL.
(a) THE BORROWER, TO THE EXTENT THAT IT MAY LAWFULLY DO SO, HEREBY
CONSENTS TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK
AND THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, AS
WELL AS TO THE JURISDICTION OF ALL COURTS TO WHICH AN APPEAL MAY BE TAKEN FROM
SUCH COURTS, FOR THE PURPOSE OF ANY SUIT, ACTION OR OTHER PROCEEDING ARISING OUT
OF ANY OF ITS OBLIGATIONS ARISING HEREUNDER OR UNDER THE NOTES OR THE SECURITY
DOCUMENTS OR WITH RESPECT TO THE TRANSACTIONS CONTEMPLATED HEREBY, AND EXPRESSLY
WAIVES ANY AND ALL OBJECTIONS IT MAY HAVE AS TO VENUE, INCLUDING, WITHOUT
LIMITATION, THE INCONVENIENCE OF SUCH FORUM, IN ANY OF SUCH COURTS. IN ADDITION,
TO THE EXTENT THAT IT MAY LAWFULLY DO SO, THE BORROWER CONSENTS TO THE SERVICE
OF PROCESS BY PERSONAL SERVICE OR U.S. CERTIFIED OR REGISTERED MAIL, RETURN
RECEIPT REQUESTED, ADDRESSED TO THE BORROWER AT THE ADDRESS PROVIDED HEREIN. TO
THE EXTENT THAT THE BORROWER HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM
JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR
NOTICE, ATTACHMENT PRIOR TO JUDGMENT ATTACHMENT IN AID OF EXECUTION OR
OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, THE BORROWER HEREBY
IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS.
(b) WAIVER OF JURY TRIAL. THE BORROWER HEREBY VOLUNTARILY AND IRREVOCABLY
WAIVES TRIAL BY JURY IN ANY ACTION BROUGHT ON OR WITH RESPECT TO THIS AGREEMENT,
THE NOTES, THE SECURITY DOCUMENTS OR ANY OTHER AGREEMENTS EXECUTED IN CONNECTION
HEREWITH.
Section 14.06. Severability. Any provision of this Agreement, the Notes
or any of the Security Documents which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof or affecting the validity or enforceability of such provision
in any other jurisdiction.
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Section 14.07. Section Headings, Etc. Any Article and Section headings in
this Agreement are included herein for convenience of reference only and shall
not constitute a part of this Agreement for any other purpose.
Section 14.08. Several Nature of Lenders' Obligations. Notwithstanding
anything in this Agreement, the Notes or any of the Security Documents to the
contrary, all obligations of the Lenders hereunder shall be several and not
joint in nature, and in the event any Lender fails to perform any of its
obligations hereunder, the Borrower shall have no recourse against any other
Lender(s) who has (have) performed its (their) obligations hereunder. The
amounts payable at any time hereunder to each Lender shall be a separate and
independent debt, and each Lender shall be entitled to protect and enforce its
rights arising out of this Agreement, subject to the provisions of Article XII,
and it shall not be necessary for any other Lender to be joined as an additional
party in any proceeding for such purpose.
Section 14.09. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be an original and all of which shall
constitute one and the same Agreement.
Section l4.10. Knowledge and Discovery. All references in this Agreement
to "knowledge" of, or "discovery" by, the Borrower shall be deemed to include,
without limitation, any such knowledge of, or discovery by, the Borrower or any
executive officer of the Borrower.
Section 14.11. Amendment of Other Agreements. All references in this
Agreement to other documents and agreements to which the Lenders are not parties
(including without limitation the Acquisition Agreements, the Subordinated Debt
Documents, the Management Agreement, the DBS Agreements and the Operating
Agreements) shall be deemed to refer to such documents and agreements as
presently constituted and, except for any amendments and modifications not
prohibited under Section 7.12, not as hereafter amended or modified unless the
Lenders shall have expressly consented in writing to such amendment(s) or
modification(s).
Section 14.12. FCC and Municipal Approvals. Notwithstanding anything
herein or in any of the Security Documents to the contrary, but without limiting
or waiving in any way the Borrower's obligations under Section 2.01, the Agent's
and the Lenders' rights hereunder and under the Security Documents are subject
to all applicable rules and regulations of the FCC and all municipal ordinances
and state law by which any Franchise is created or granted. The Agent and the
Lenders will not take any action pursuant to this Agreement or the Security
Documents which would constitute or result in any assignment or transfer control
of an y FCC License, whether de jure or de facto, if such assignment or transfer
of control would require under then existing law (including the written rules
and regulations promulgated by the FCC), the prior approval of the FCC, without
first obtaining such approval. The Agent and the Lenders specifically agree that
(a) voting rights in the capital stock of the Companies will remain with the
holders thereof even in an Event of Default unless any required prior consent of
the FCC shall be obtained to the transfer of such voting rights; (b) in an Event
of Default, there will be either a private or public sale of the capital stock
of the Companies; and (c) prior to the exercise of stockholder or other
equityholder rights by a purchaser at such sale, the prior consent of the FCC,
pursuant to 47 U.S.C. ss. 310(d), in each case only if required, will be
obtained prior to such exercise. The Borrower agrees to take any action which
the Agent or any Lender may reasonably request in order to obtain and enjoy the
full rights and benefits granted to the Agent and the Lenders by this Agreement
and the Security Documents, including specifically, at the cost and expense of
the Borrower, the use of its best efforts to assist in obtaining approval of the
FCC or any state or municipality or other governmental authority for any action
or transaction contemplated by this Agreement or any Security Document which is
then required by law, and specifically, without limitation, upon request
following an Event of Default, to prepare, sign and file (or cause to be filed)
with the FCC or such state or municipality or other governmental authority the
assignor's, transferor's or controlling person's portion of any application or
applications for consent to (i) the assignment of any FCC License or Franchise
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or transfer of control thereof, (ii) any sale or sales of property constituting
any Collateral by or on behalf of the Lenders or (iii) any assumption by the
Agent or the Lenders or their designees of voting rights or management rights in
property constituting any Collateral effected in accordance with the terms of
this Agreement.
Section 14.13. Disclaimer of Reliance. The Borrower has not relied on any
oral representations concerning any of the terms or conditions of the Loans, the
Notes, this Agreement or any of the Security Documents in entering into the
same. The Borrower acknowledges and agrees that none of the officers of the
Agent or any Lender has made any representations that are inconsistent with the
terms and provisions of this Agreement, the Notes and the Security Documents,
and neither the Borrower nor any of its Affiliates has relied on any oral
promises or representations in connection therewith.
Section 14.14. Environmental Indemnification. Without limiting the
generality of Section 14.02, in consideration of the execution and delivery of
this Agreement by the Lenders and the making of the Loans, the Borrower hereby
indemnifies, exonerates and holds the Lenders and each of their respective
officers, directors, employees and agents (collectively, the "Indemnified
Parties") free and harmless from and against any and all actions, causes of
action, suits, losses, costs, liabilities and damages, and expenses incurred in
connection therewith (irrespective of whether any such Indemnified Party is a
party to the action for which indemnification hereunder is sought), including
reasonable attorneys' fees and disbursements (collectively, the "Indemnified
Liabilities"), incurred by the Indemnified Parties or any of them as a result
of, or arising out of, or relating to:
(a) any investigation, litigation or proceeding related to any
environmental cleanup, audit, compliance or other matter relating to the
protection of the environment or the release by any Company of any Hazardous
Material; or
(b) the presence on or under, or the escape, seepage, leakage, spillage,
discharge, emission, discharging or releases from, any real property owned or
operated by any Company of any Hazardous Material (including any losses,
liabilities, damages, injuries, costs, expense or claims asserted or arising
under any Environmental Law), regardless of whether caused by, or within the
control of, any Company; except for any such Indemnified Liabilities arising for
the account of a particular Indemnified Party by reason of the relevant
Indemnified Party's negligence or misconduct, and if and to the extent that the
foregoing undertaking may be unenforceable for any reason, the Borrower agrees
to make the maximum contribution to the payment and satisfaction of each of the
Indemnified Liabilities which is permissible under applicable law.
Notwithstanding anything to the contrary herein contained, the obligations and
liabilities under this Section shall survive and continue in full force and
effect and shall not be terminated, discharged or released in whole or in part
irrespective of whether all the Obligations have been paid in full or the
Commitments have been terminated and irrespective of any foreclosure of any
mortgage, deed of trust or collateral assignment on any real property or
acceptance by any Lender of a deed or assignment in lieu of foreclosure.
Section 14.15. Designation of Senior Debt. The Borrower hereby designates
all of the Obligations as Designated Senior Debt, as such term is defined in the
Subordinated Indenture, and in accordance with the terms thereof.
-76-
<PAGE>
IN WITNESS WHEREOF, the Agent, the Lenders and the Borrower have caused
this Agreement to be duly executed by their duly authorized representatives, as
a sealed instrument, all as of the day and year first above written.
BORROWER:
PEGASUS MEDIA & COMMUNICATIONS, INC.
By
-----------------------------------------
Its:
-----------------------------------
AGENT:
CANADIAN IMPERIAL BANK OF
COMMERCE, NEW YORK AGENCY
By
-------------------------------------------
Harold F. Birk, Director, CIBC Wood Gundy
Securities Corp., as agent
LENDER:
CIBC INC.
By:
------------------------------------------
Harold F. Birk, Director, CIBC Wood Gundy
Securities Corp., as agent
Address for Notices to CIBC Inc.:
CIBC Inc.
425 Lexington Avenue
New York, New York 10017
Telecopy: (212) 856-3558
Attention: Harold F. Birk, Director
<PAGE>
REDUCING REVOLVING CREDIT NOTE
New York, New York
$_____________ ____ _____, 1996
FOR VALUE RECEIVED, the undersigned, PEGASUS MEDIA & COMMUNICATIONS, INC.
(the "Maker"), hereby promises to pay to the order of _______, having an address
at ________________________ (the "Bank"), the principal sum of _________
_______________ Dollars ($__________) or, if less, the aggregate unpaid
principal amount of Advances hereunder made by the Bank to the Maker pursuant to
that certain Credit Agreement dated as of _______, 1996, as the same may be
amended, supplemented, replaced or otherwise modified from time to time
hereafter (the "Credit Agreement"), by and among the Maker, the Bank, the other
Lenders referred to therein, Canadian Imperial Bank of Commerce, New York
Agency, as Agent for the Lenders (with its successors and assigns in such
capacity, the "Agent"), together with interest on any and all principal
remaining unpaid hereunder from the date hereof until payment in full, payable
on the dates and at the interest rate or rates specified in the Credit
Agreement. Capitalized terms used in this Note without definition have the
meanings assigned to them in the Credit Agreement.
The aggregate principal amount outstanding hereunder shall be payable as
provided in the Credit Agreement. This Note may be prepaid in accordance with
the terms and provisions of the Credit Agreement without penalty or premium
(other than certain indemnification payments under Section 1.11 of the Credit
Agreement). This Note is also subject to mandatory prepayment in certain
circumstances as provided in the Credit Agreement.
All principal and interest hereunder are payable in lawful money of the
United States of America to the Agent at its address specified in the Credit
Agreement in immediately available funds as provided in the Credit Agreement on
the date on which such payment shall become due. Payments of principal and
interest hereunder which are not made by such date may be made by debiting any
deposit account(s), if any, in the name of the Maker with the Agent. The Maker
hereby irrevocably authorizes the Agent to so debit such deposit account(s).
The Maker, for itself and its legal representatives, successors and
assigns, to the extent it may lawfully do so, hereby expressly waives
presentment, demand, protest, notice of protest, presentment for the purpose of
accelerating maturity, diligence in collection, and the benefit of any exemption
under the homestead exemption laws, if any, or any other exemption or insolvency
laws, and consents that the Agent or the Lenders may release or surrender,
exchange or substitute any personal property or other collateral security now
held or which may hereafter be held as security for the payment of this Note,
and may extend the time for payment or otherwise modify the terms of payment of
any part or the whole of the debt evidenced hereby to the extent provided in the
Credit Agreement without in any way affecting the liability of the Maker;
provided that such modifications do not increase the obligations hereunder.
This Note is one of the "Reducing Revolving Credit Notes" or "Notes"
referred to in and is entitled to the benefits of the Credit Agreement
(including Schedules thereto) and all other instruments and agreements
evidencing and/or securing the indebtedness hereunder, which Credit Agreement
and other instruments and agreements are hereby made part of this Note and are
deemed incorporated herein in full. The occurrence or existence of an Event of
Default shall constitute a default under this Note and shall, subject to the
provisions of the Credit Agreement, entitle the Bank to accelerate the entire
indebtedness hereunder and to take such other action as may be provided for in
the Credit Agreement or any other instrument or agreement evidencing and/or
securing this Note, all in accordance with the terms of the Credit Agreement.
-2-
<PAGE>
All agreements between or among the Maker, the Agent and any Lender are
hereby expressly limited so that in no contingency or event whatsoever, whether
by reason of acceleration of maturity of the indebtedness or otherwise, shall
the amount paid or agreed to be paid for the use or forbearance of the
indebtedness evidenced hereby exceed the maximum amount which the Bank or any
Lender is permitted to receive under applicable law. If, from any circumstances
whatsoever, fulfillment of any provision hereof or of the Credit Agreement, at
the time performance of such provision shall be due, shall involve exceeding
such amount, then the obligation to be fulfilled shall automatically be reduced
to the limit of such validity and if, from any circumstances, the Bank or any
Lender should ever receive as interest an amount which would exceed such maximum
amount, such amount which would be excessive interest shall be applied to the
reduction of the principal balance evidenced hereby and not to the payment of
interest. As used herein, the term "applicable law" shall mean the law in effect
as of the date hereof, provided, however, that in the event there is a change in
the law which results in a higher permissible rate of interest, then this Note
shall be governed by such new law as of its effective date. This provision shall
control every other provision of all agreements between or among the Maker, the
Agents and any Lender.
This Note and all transactions hereunder and/or evidenced herein shall be
governed by, and construed and enforced in accordance with, the laws of The
State of New York.
If this Note shall not be paid when due and shall be placed by the holder
hereof in the hands of any attorney for collection, through legal proceedings or
otherwise, the Maker will pay reasonable attorneys' fees to the holder hereof
together with reasonable costs and expenses of collection, including, without
limitation, any such attorneys' fees, costs and expenses relating to any
proceedings with respect to the bankruptcy, reorganization, insolvency,
readjustment of debt, dissolution or liquidation of any of the Maker or any
party (other than the Bank or any other Lender) to any instrument or agreement
securing this Note.
IN WITNESS WHEREOF, the Maker has caused this Note to be executed under
seal by its duly authorized representative as of the date first above written.
PEGASUS MEDIA & COMMUNICATIONS, INC.
By
--------------------------------------
Its:
--------------------------------
-3-
<PAGE>
REVOLVING CREDIT NOTE
New York, New York
$_____________ _________, 1996
FOR VALUE RECEIVED, the undersigned, PEGASUS MEDIA & COMMUNICATIONS, INC.
(the "Maker"), hereby promises to pay to the order of _______, having an address
at ________________________ (the "Bank"), the principal sum of _________
_______________ Dollars ($__________) or, if less, the aggregate unpaid
principal amount of Advances hereunder made by the Bank to the Maker pursuant to
that certain Credit Agreement dated as of _______, 1996, as the same may be
amended, supplemented, replaced or otherwise modified from time to time
hereafter (the "Credit Agreement"), by and among the Maker, the Bank, the other
Lenders referred to therein, Canadian Imperial Bank of Commerce, New York
Agency, as Agent for the Lenders (with its successors and assigns in such
capacity, the "Agent"), together with interest on any and all principal
remaining unpaid hereunder from the date hereof until payment in full, payable
on the dates and at the interest rate or rates specified in the Credit
Agreement. Capitalized terms used in this Note without definition have the
meanings assigned to them in the Credit Agreement.
The aggregate principal amount outstanding hereunder shall be payable as
provided in the Credit Agreement. This Note may be prepaid in accordance with
the terms and provisions of the Credit Agreement without penalty or premium
(other than certain indemnification payments under Section 1.11 of the Credit
Agreement). This Note is also subject to mandatory prepayment in certain
circumstances as provided in the Credit Agreement.
All principal and interest hereunder are payable in lawful money of the
United States of America to the Agent at its address specified in the Credit
Agreement in immediately available funds as provided in the Credit Agreement on
the date on which such payment shall become due. Payments of principal and
interest hereunder which are not made by such date may be made by debiting any
deposit account(s), if any, in the name of the Maker with the Agent. The Maker
hereby irrevocably authorizes the Agent to so debit such deposit account(s).
The Maker, for itself and its legal representatives, successors and
assigns, to the extent it may lawfully do so, hereby expressly waives
presentment, demand, protest, notice of protest, presentment for the purpose of
accelerating maturity, diligence in collection, and the benefit of any exemption
under the homestead exemption laws, if any, or any other exemption or insolvency
laws, and consents that the Agent or the Lenders may release or surrender,
exchange or substitute any personal property or other collateral security now
held or which may hereafter be held as security for the payment of this Note,
and may extend the time for payment or otherwise modify the terms of payment of
any part or the whole of the debt evidenced hereby to the extent provided in the
Credit Agreement without in any way affecting the liability of the Maker;
provided that such modifications do not increase the obligations hereunder.
This Note is one of the "Revolving Credit Notes" or "Notes" referred to
in and is entitled to the benefits of the Credit Agreement (including Schedules
thereto) and all other instruments and agreements evidencing and/or securing the
indebtedness hereunder, which Credit Agreement and other instruments and
agreements are hereby made part of this Note and are deemed incorporated herein
in full. The occurrence or existence of an Event of Default shall constitute a
default under this Note and shall, subject to the provisions of the Credit
Agreement, entitle the Bank to accelerate the entire indebtedness hereunder and
<PAGE>
to take such other action as may be provided for in the Credit Agreement or any
other instrument or agreement evidencing and/or securing this Note, all in
accordance with the terms of the Credit Agreement.
All agreements between or among the Maker, the Agent and any Lender are
hereby expressly limited so that in no contingency or event whatsoever, whether
by reason of acceleration of maturity of the indebtedness or otherwise, shall
the amount paid or agreed to be paid for the use or forbearance of the
indebtedness evidenced hereby exceed the maximum amount which the Bank or any
Lender is permitted to receive under applicable law. If, from any circumstances
whatsoever, fulfillment of any provision hereof or of the Credit Agreement, at
the time performance of such provision shall be due, shall involve exceeding
such amount, then the obligation to be fulfilled shall automatically be reduced
to the limit of such validity and if, from any circumstances, the Bank or any
Lender should ever receive as interest an amount which would exceed such maximum
amount, such amount which would be excessive interest shall be applied to the
reduction of the principal balance evidenced hereby and not to the payment of
interest. As used herein, the term "applicable law" shall mean the law in effect
as of the date hereof, provided, however, that in the event there is a change in
the law which results in a higher permissible rate of interest, then this Note
shall be governed by such new law as of its effective date. This provision shall
control every other provision of all agreements between or among the Maker, the
Agents and any Lender.
This Note and all transactions hereunder and/or evidenced herein shall be
governed by, and construed and enforced in accordance with, the laws of The
State of New York.
If this Note shall not be paid when due and shall be placed by the holder
hereof in the hands of any attorney for collection, through legal proceedings or
otherwise, the Maker will pay reasonable attorneys' fees to the holder hereof
together with reasonable costs and expenses of collection, including, without
limitation, any such attorneys' fees, costs and expenses relating to any
proceedings with respect to the bankruptcy, reorganization, insolvency,
readjustment of debt, dissolution or liquidation of any of the Maker or any
party (other than the Bank or any other Lender) to any instrument or agreement
securing this Note.
IN WITNESS WHEREOF, the Maker has caused this Note to be executed under
seal by its duly authorized representative as of the date first above written.
PEGASUS MEDIA & COMMUNICATIONS, INC.
By
---------------------------------
Its:
---------------------------
-2-
<PAGE>
Schedule 1.04(a)
REQUEST FOR ADVANCES
_________, __199__
Canadian Imperial Bank of Commerce,
New York Agency, as Agent
425 Lexington Avenue
New York, New York 10017
Attention: Syndications
Re: Request for Advances under Credit Agreement dated as of
August 29, 1996 (the "Credit Agreement")
Ladies and Gentlemen:
This letter shall serve as a Request for Advances to be made by the
Lenders in the aggregate principal amount of $_____ , which Advances shall be
[LIBOR/Prime Rate] Loans [with an Interest Period commencing__________________
______ and ending___________]. The Borrowing Date of such Advances should
be _____________. Capitalized terms used herein shall have the meanings
assigned to them in the Credit Agreement.
The undersigned hereby certifies that such Advances, to the extent not
applied for working capital purposes of the Borrower, will be used for the
following purposes:
[ ]
The undersigned hereby further certifies as follows:
1. The representations and warranties contained in the Credit Agreement
are or will be, if qualified by a reference to materiality, true and correct in
all material respects as of the Borrowing Date of such Advances, and if not so
qualified, are or will be true and correct in all respects as of the Borrowing
Date with the same effect as if made at and as of such time, except as may have
been disclosed to the Lenders by the Borrower and to which the Lenders have
consented and to the extent that (a) such representations and warranties
expressly relate to an earlier specified date or (b) the facts upon which such
representations and warranties are based may in the ordinary course be changed
by transactions or events permitted the Credit Agreement.
2. Since the date of the Credit Agreement, there has been no change in
the business condition, performance, prospects, properties or financial
condition of the Companies that, individually or in the aggregate, has had or
reasonably could be expected to have a Material Adverse Effect.
<PAGE>
3. The Borrower has performed and complied in all material respects
with all terms and conditions herein required to be performed or complied with
by it prior to or on the Borrowing Date, and on the Borrowing Date, after giving
effect to the proposed Advances on the Borrowing Date and, on a pro forma basis,
as of the last day of the most recently ended month for which financial
statements are available, there exists no Event of Default or condition which
would, with notice or the lapse of time or both, result in an Event of Default.
4. All of the Obligations constitute "Senior Debt" and, with the
exception of Rate Hedging Obligations to the Lenders, "Designated Senior Debt"
under the Subordinated Indenture.
5. The Calculation of Leverage Ratio attached hereto as Exhibit A
correctly applies the provisions of the Subordinated Indenture to the
appropriate financial statements and books and records of the Borrower and its
Subsidiaries and accurately calculates the Indebtedness to Adjusted Operating
Cash Flow Ratio (as defined in the Subordinated Indenture) as of the Borrowing
Date. After giving effect to the requested Advances, including the uses of the
proceeds thereof, the Indebtedness to Adjusted Operating Cash Flow Ratio will
not exceed 6.50 to 1.00, and the Borrower will be in full compliance with
Section 4.09 of the Subordinated Indenture.
Very truly yours,
PEGASUS MEDIA & COMMUNICATIONS, INC.
By
-----------------------------------
Its:
-----------------------------
Borrower will use form comparable to Schedule 4.26 and otherwise satisfactory to
the Lenders.
<PAGE>
Schedule 1.04(d)
INTEREST RATE OPTION NOTICE
________, 19__
Canadian Imperial Bank of Commerce,
New York Agency, as Agent
425 Lexington Avenue
New York, New York 10017
Attention: Harold F. Birk
Re: Credit Agreement dated as of ______ 1996 (the "Credit Agreement")
Ladies and Gentlemen:
Pursuant to Section 1.04 of the Credit Agreement, the Borrower hereby
[confirms its request made on [ ] to have] [request that] the interest rate on
the outstanding [LIBOR/Prime Rate] Loans made on [ ] in the amount of $[ ] be
[converted to/continued at] the [Prime/LIBOR] Rate plus the Applicable Margin.
[The Borrower hereby further [confirms its request] [requests] that the Interest
Period beginning on such date and applicable to such LIBOR Loan end [ ] months
thereafter or earlier, if otherwise required by the Credit Agreement.]
The undersigned hereby certifies that (a) the representations and
warranties contained in the Credit Agreement are true and accurate on and as of
the effective date of such Loans as though made at and as of such date (except
to the extent that such representations and warranties expressly relate to an
earlier date); and (b) there exists no Event of Default or condition which
would, with notice or the lapse of time or both, result in an Event of Default,
nor would any such Event of Default result from such conversion or continuance.
Very truly yours,
PEGASUS MEDIA & COMMUNICATIONS, INC.
By
-----------------------------------
Its:
-----------------------------
<PAGE>
Schedule 13(b)(iii)
ASSIGNMENT AND ACCEPTANCE
THIS ASSIGNMENT AND ACCEPTANCE ("this Agreement") is made this day ____
of_______, ______,
by and between ("Assignor"), and __________________ ("Assignee").
1. Recitals. (a) Assignor is a party to the Credit Agreement dated as of
_______, 1996 (which, as the same has been and may from time to time be amended,
modified, renewed, extended or restated, is hereinafter called the "Credit
Agreement") among PEGASUS MEDIA & COMMUNICATIONS, INC. (the "Borrower"), certain
persons named therein as "Lenders" and CANADIAN IMPERIAL BANK OF COMMERCE, NEW
YORK AGENCY, as Agent for the Lenders (the "Agent").
(b) Capitalized terms used herein and not otherwise defined herein shall
have the meanings assigned to such terms in the Credit Agreement.
(c) Immediately prior to the assignment and assumption provided herein,
Assignor's Commitments and its outstanding Loans are as specified in Schedule A
attached hereto. Assignor desires to assign and delegate to Assignee, and
Assignee desires to acquire and assume from Assignor, a portion (the "Purchased
Percentage") of Assignor's [Reducing Revolving Commitment/ Revolving Credit
Commitment/ outstanding Loans] and all related claims for interest and fees
after the Effective Date (as defined below).
2. Assignment. For and in consideration of the assumption of obligations
by Assignee set forth in Section 3 hereof and the other consideration set forth
herein, and effective as of_______, which date is at least five (5) Business
Days following the execution hereof (the "Effective Date"), Assignor does hereby
sell, assign, transfer and convey all of its right, title and interest in and
to, and does hereby delegate its obligations in respect of, the Purchased
Percentage of the [Reducing Revolver Commitment/ Revolving Credit Commitment] of
Assignor (as in effect on the Effective Date) and all Loans made by Assignor and
outstanding on the Effective Date and the Credit Agreement and the other
Transaction Documents. Pursuant to Article XII of the Credit Agreement, on and
after the Effective Date, Assignee shall have the rights, benefits and
obligations of a Lender under the Loan Documents with respect to the Purchased
Percentage of the Loan Documents. After giving effect to the assignment and
delegation provided herein, the respective Commitments and outstanding Loans of
the parties hereto shall be as set forth on Schedule A hereto, which Schedule
also contains certain additional information with respect to Assignee.
3. Assumption. For and in consideration of the assignment of rights by
Assignor set forth in Section 2 hereof and the other consideration set forth
herein, and effective as of the Effective Date, Assignee does hereby accept the
foregoing assignment of rights and delegation of obligations, and does hereby
assume and covenant and agree fully, completely and timely to perform, comply
with and discharge, each and all of the obligations, duties and liabilities of
Assignor under the Credit Agreement, which are assigned to Assignee hereunder,
which assumption includes, without limitation, the obligation to fund the
unfunded portion of the Purchased Percentage of the Assignor's Commitments in
accordance with the provisions set forth in the Credit Agreement. Assignee
agrees to be bound by all provisions relating to the Lenders under, and as
defined in, the Credit Agreement, including, without limitation, provisions
relating to the dissemination of information and the payment of indemnification.
<PAGE>
From and after the Effective Date, Assignor is released from Assignor's
obligations with the respect to the Purchased Percentage.
4. Fees; Etc. Assignor and Assignee have made arrangements with respect
to (a) the portion, if any, to be paid, and the date or dates for payment, by
Assignor to Assignee of any fees heretofore received by Assignor pursuant to the
Credit Agreement prior to the Effective Date and (b) the portion, if any, to be
paid, and the date or dates for payment, by Assignee to Assignor of fees or
interest received by Assignee pursuant to the Credit Agreement from and after
the Effective Date.
5. Payment Obligations. On and after the Effective Date, Assignee shall be
entitled to receive from Agent all payments of principal, interest and fees with
respect to the Purchased Percentage of Assignor's Commitments and Loans.
Assignee shall advance funds directly to the Agent with respect to all Loans
made on or after the Effective Date. In consideration for the sale and
assignment of Loans hereunder, (i) on the date of execution hereof, Assignee
shall pay to the Agent the registration and processing fee referred to in
paragraph (b)(iv) of Article XII of the Credit Agreement, and (ii) on the
Effective Date, Assignee shall pay Assignor an amount equal to the Purchased
Percentage of all Loans made by Assignor outstanding on the Effective Date or
such other purchase price for the Purchased Percentage agreed to by Assignor and
Assignee. On and after the Effective Date, Assignee will also remit to Assignor
any amounts of interest on Loans and fees received from Agent which relate to
the Purchased Percentage of Loans made by Assignor accrued for periods prior to
the Effective Date. In the event that either party hereto receives any payment
to which the other party hereto is entitled under this Agreement, then the party
receiving such amount shall promptly remit it to the other party hereto.
6. Representations and Certain Agreements.
(a) Assignee's Representations, Warranties and Agreements. Assignee
represents, warrants and agrees to
and with Assignor as follows:
(i) Assignee has full power and authority, and has taken all
action necessary, to execute and deliver this Agreement and to fulfill
its obligations under, and consummate the transactions contemplated by,
this Agreement;
(ii) the making and performance by Assignee of this Agreement and
all documents required to be executed and delivered by it hereunder do
not and will not violate any law or regulation of the jurisdiction of its
organization or any other law or regulation applicable to it;
(iii) this Agreement has been duly executed and delivered by it
and constitutes the legal, valid and binding obligations of the Assignee,
enforceable against it in accordance with its terms;
(iv) all approvals and authorizations of, all filings with and all
actions by any governmental or other administrative or judicial authority
necessary for the validity or enforceability of Assignee's obligations
under this Agreement have been obtained;
(v) Assignee has received a copy of the Credit Agreement and the
other Loan Documents, together with copies of the most recent financial
statements delivered pursuant to Sections 6.06(a), (b) and (c) thereof
and such other documents and information as it has deemed appropriate to
make its own credit analysis and decision to enter into this Agreement;
-2-
<PAGE>
(vi) Assignee appoints and authorizes Agent to take such action as
agent on its behalf and to exercise such powers under the Credit
Agreement and the other Loan Documents as are delegated to Agent by the
terms thereof, together with such powers as are reasonably incidental
thereto; and
(vii) Assignee agrees that it will perform in accordance with
their terms all the obligations which by the terms of the Credit
Agreement are required to be performed by it as a Lender, including,
without limitation, obligations to make Loans to the full amount of the
portion of the Commitments acquired by Assignee.
(b) Assignor's Representations and Warranties. Assignor
represents and warrants to Assignee as follows:
(i) Assignor has full power and authority, and has taken all
action necessary, to execute and deliver this Agreement and to fulfill
its obligations under, and consummate the transactions contemplated by,
this Agreement;
(ii) the making and performance by Assignor of this Agreement and
all documents required to be executed and delivered by it hereunder do
not and will not violate any law or regulation of the jurisdiction of its
organization or any other law or regulation applicable to it;
(iii) this Agreement has been duly executed and delivered by it
and constitutes the legal, valid and binding obligations of Assignor,
enforceable against it in accordance with its terms;
(iv) all approvals and authorizations of, all filings with and all
actions by any governmental or other administrative or judicial authority
necessary for the validity or enforceability of Assignor's obligations
under this Agreement have been obtained;
(v) the amounts of Assignor's respective Commitments and the
aggregate outstanding principal amount of the Loans held by the Assignor
are, on and as of the date of this Agreement (immediately prior to giving
effect to the sale, assignment and transfer contemplated by Section 2),
correctly set forth in Schedule A hereto; and
(vi) immediately prior to giving effect to the sale, assignment
and transfer contemplated by Section 2, the Assignor has good title to,
and is the sole legal and beneficial owner of, the Purchased Percentage,
free and clear of all liens, security interests, participations and other
encumbrances.
7. Credit Determination; Limitations on Assignor's Liability. It
is understood and agreed that Assignee has independently made its own
credit determinations and analysis based upon such information as
Assignee deems sufficient to enter into the transaction contemplated
hereby and not based on any statements or representations by Assignor and
that it will, independently and without reliance upon Assignor, any other
Lender or Agent and based on such documents and information as it shall
deem appropriate at the time, continue to make its own credit decisions
in taking or not taking action under the Credit Agreement. It is
understood and agreed that the assignment and assumption hereunder are
made WITHOUT RECOURSE to Assignor and that Assignor makes no
representation or warranty of any kind to Assignee (except as set forth
in Section 5(b) above) and shall not be responsible for (i) the due
execution, legality, validity, enforceability, genuineness, sufficiency,
value or collectibility of the Credit Agreement or any other Loan
Document, including without limitation, documents granting the Assignor
-3-
<PAGE>
and other Lenders a security interest in assets of the Borrower , any of
its Subsidiaries or the Parent, (ii) any representation, warranty or
statement made in or in connection with any of the Loan Documents, (iii)
the financial condition or creditworthiness of the Borrower, any of its
Subsidiaries or the Parent, (iv) the performance or compliance with any
of the terms or provisions of any of the Loan Documents, (v) inspecting
any of the property, books or records of the Borrower or (vi) the
validity, enforceability, perfection, priority, condition, value or
sufficiency of any collateral securing or purporting to secure the Loans.
Neither Assignor nor any of its officers, directors, employees, agents or
attorneys shall be liable for any mistake, error of judgment, or action
taken or omitted to be taken in connection with the Loans or the Loan
Documents, except for its or their own gross negligence or willful
misconduct.
8. Indemnity. Assignee agrees to indemnify and to hold harmless
Assignor from and against any and all losses, costs, damages, expenses
(including, without limitation, reasonable attorneys' fees) and
liabilities incurred by Assignor in connection with or arising in any
manner from Assignee's performance or nonperformance of obligations
assumed under this Agreement.
9. Subsequent Assignments. After the Effective Date, Assignee
shall have the right to assign the rights which are assigned to Assignee
hereunder to any entity or person, provided that (a) any such subsequent
assignment does not violate any of the terms and conditions of the Loan
Documents or any law, rule, regulation, order, writ, judgment, injunction
or decree and that any consent required under the terms of the Loan
Documents has been obtained and (b) Assignee is not thereby released from
any of its obligations to Assignor hereunder.
10. Governing Law. This Agreement shall be governed by the
internal law, and not the law of conflicts, of the State of New York.
11. Notices. Notices shall be given under this Agreement in the
manner set forth in the Credit Agreement. For the purpose hereof, the
addresses of the parties hereto (until notice of a change is delivered)
shall be the addresses set forth under the parties' respective name(s) on
the signature pages hereto.
12. Further Assurances. Assignor and Assignee hereby agree to
execute and deliver such other instruments, and take such other actions,
as either party may reasonably request in connection with the transaction
contemplated by this Agreement.
13. Expenses. Each party hereto shall bear its own expenses in
connection with the execution, delivery and performance of this
Agreement.
14. Amendment, Modification or Waiver. No provision of this
Agreement may be amended, modified or waived except by an instrument in
writing signed by Assignor and Assignee.
15. Jurisdiction; Venue. Each of the parties hereto hereby submits
to the nonexclusive jurisdiction of the United States District Court for
the Southern District of New York and of any New York state court for the
purposes of all legal proceedings arising out of or relating to this
Agreement or the transactions contemplated hereby. Each of the parties
hereto hereby irrevocably waives, to the fullest extent permitted by law,
any objective which it may now or hereafter have to the laying of the
venue of any such proceeding brought in such a court and any claim that
any such proceeding brought in such a court has been brought in an
inconvenient forum.
-4-
<PAGE>
16. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY AND ALL
RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING
TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
17. Counterparts. This Agreement may be executed in counterparts,
each of which shall be identical and all of which, taken together, shall
constitute one instrument.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement by their duly authorized officers as of the date first above
written.
---------------------------------
By:
------------------------------
Title:
---------------------------
Address:
Telephone:
Telecopy:
---------------------------------
By:
------------------------------
Title:
---------------------------
Address:
Telephone:
Telecopy:
ACCEPTED:
CANADIAN IMPERIAL BANK OF COMMERCE,
NEW YORK AGENCY, AS AGENT
By:
----------------------------------------
Title:
-------------------------------------
-5-
<PAGE>
SCHEDULE A
TO ASSIGNMENT AND
ACCEPTANCE AGREEMENT
LIST OF LENDING OFFICES, ADDRESSES
FOR NOTICES AND COMMITMENT AND LOAN AMOUNTS
ASSIGNOR:
[Insert Name of Assignor]
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Reducing Revolver Revolving Credit
Loans Commitment Commitment
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Original Amount $__________ $__________ $__________
Original Percentage ______% ______% _____%
- ----------------------------------------------------------------------------------------------------------
</TABLE>
Following assignment of the Purchased Percentage, Assignor's portions of
the Commitment and outstanding Loans will be as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Reducing Revolver Revolving Credit
Loans Commitment Commitment
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revised Amount $__________ $__________ $__________
Revised Percentage ______% ______% _____%
- ----------------------------------------------------------------------------------------------------------
</TABLE>
ASSIGNEE:
[Insert Name of Assignee]
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Reducing Revolver Revolving Credit
Loans Commitment Commitment
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Original $__________ $__________ $__________
Amount, if any
Original
Percentage, if any $__________ $__________ $__________
______% _____% ______%
- ----------------------------------------------------------------------------------------------------------
</TABLE>
Following assignment of the Purchased Percentage, Assignee's portions of
the Commitments and outstanding Loans will be as follows:
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Reducing Revolver Revolving Credit
Loans Commitment Commitment
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
New Amount $__________ $__________ $__________
New Percentage ______% _____% ______%
- ----------------------------------------------------------------------------------------------------------
</TABLE>
Address for Notices:
[Address]
Attention:_______________
Telephone:_______________
Telecopy:________________
Telephone:_______________
Confirmation:____________
LIBOR/Eurodollar Lending Office:
_____________
_____________
_____________
Domestic Lending Office:
_____________
_____________
_____________
-2-
<PAGE>
Schedule 13(b)(iv)
NOTICE OF ASSIGNMENT
AND ACCEPTANCE
To: Pegasus Media & Communications, Inc.
5 Radnor Corporate Center, Suite 454
100 Matsonford Road
Radnor, Pennsylvania 19087
Attention: Marshall W. Pagon
[List Lenders and addresses]
From: [Name of Assignor] ("Assignor")
[Name of Assignee] ("Assignee")
______ , __
1. We refer to the Credit Agreement, dated as of ______, 1996, as it may
be amended, modified, renewed or extended from time to time, is herein called
the "Credit Agreement") among PEGASUS MEDIA & COMMUNICATIONS, INC. ( the
"Borrower"), certain banks party thereto (each a "Lender" and collectively the
"Lenders"), the above-referenced Assignor and CANADIAN IMPERIAL BANK OF
COMMERCE, NEW YORK AGENCY, in its separate capacity as Agent for the Lenders.
Capitalized terms used herein without definition have the meanings assigned to
them in the Credit Agreement.
2. This Notice of Assignment and Acceptance (this "Notice") is given and
delivered to the Borrower, the Lenders and the Agent pursuant to Article XII of
the Credit Agreement.
3.Assignor and the above-referenced Assignee have entered into an
Assignment and Acceptance, dated as of_______,__ (the "Assignment Agreement"),
pursuant to which, among other things, Assignor has sold, assigned, delegated
and transferred to Assignee, and Assignee has purchased, accepted and assumed
from Assignor, a portion of Assignor's rights and obligations under the Credit
Agreement and the other Loan Documents such that Assignee's percentage of the
aggregate Commitments and the outstanding Loans shall be as set forth in
Schedule A to the Assignment Agreement enclosed herewith (which Schedule also
sets forth Assignor's percentage of the Commitments and outstanding Loans prior
to such transfer), effective as of the Effective Date. The Effective Date shall
be______, ___, provided that the Effective Date shall not occur if any condition
precedent explicitly agreed to in writing by Assignor and Assignee has not been
satisfied.
4. Assignor and Assignee hereby give to the Borrower, the other Lenders
and the Agent notice of the assignment and delegation referred to herein [ must
be at least one (1) Business Day's notice] and enclose a fully executed
counterpart of the Assignment Agreement. Assignor will confer with the Agent
before_____, __ to determine if the assignment will become effective on such
date pursuant to Section 3 hereof, and will confer with the Agent to determine
the Effective Date pursuant to Section 3 hereof if it occurs thereafter.
Assignor shall notify the Agent if the assignment does not become effective on
any proposed Effective Date as a result of the failure to satisfy the conditions
precedent explicitly agreed to in writing by Assignor and Assignee. At the
request of the Agent, Assignor will give the Agent written confirmation of the
occurrence of the Effective Date.
<PAGE>
5. Assignee hereby confirms its acceptance and assumption of the
assignment and delegation referred to herein and agrees as of the Effective Date
(a) to perform fully all of the obligations under the Credit Agreement which it
has assumed pursuant to the Assignment Agreement and (b) to be bound by the
terms and conditions of the Credit Agreement as a "Lender".
6. Assignor and Assignee request and agree that any payments to be made
by the Agent to Assignor on and after the Effective Date shall, to the extent of
the assignment referred to herein, be made entirely to Assignee, it being
understood that Assignor and Assignee shall make between themselves any desired
allocations.
7. Assignor hereby agrees to deliver to the Agent on or before the
Effective Date its original Note[s] subject to the assignment contemplated by
the Assignment Agreement. Assignor and Assignee hereby request that the Borrower
deliver to the Agent on or before the Effective Date the following new Notes
payable in accordance with paragraph (b)(iv) of Article XII of the Credit
Agreement.
[Describe each new Note for Assignor and Assignee with principal amount
and payee.]
8. Assignee advises the Agent and the other Lenders that its address for
notice purposes, as well as certain other relevant information, is set forth in
Schedule A to the Assignment Agreement.
[Assignor] [Assignee]
By: By:
--------------------------------- ---------------------------------
Title: Title:
----------------------------- -----------------------------
<PAGE>
PEGASUS COMMUNICATIONS
RESTRICTED STOCK PLAN
(Effective September 30, 1996)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1 - Purpose.................................................................................... 1
SECTION 2 - Definitions................................................................................ 1
(a) "Awards"............................................................................. 1
(b) "Award Agreement".................................................................... 1
(c) "Board".............................................................................. 1
(d) "Business Unit Location Cash Flow"................................................... 1
(e) "Code"............................................................................... 1
(f) "Committee".......................................................................... 1
(g) "Common Stock"....................................................................... 1
(h) "Company Matching Contributions"..................................................... 1
(i) "Company-Wide Location Cash Flow".................................................... 1
(j) "Disability"......................................................................... 2
(k) "Excess Awards"...................................................................... 2
(l) "Fair Market Value".................................................................. 2
(m) "Grantee"............................................................................ 2
(n) "Management Committee"............................................................... 2
(o) "Officers"........................................................................... 2
(p) "PCC"................................................................................ 2
(q) "Pegasus"............................................................................ 2
(r) "Plan"............................................................................... 2
(s) "Plan Administrator"................................................................. 2
(t) "Profit-Sharing Awards".............................................................. 3
(u) "Rollover Matching Contributions".................................................... 3
(v) "Salary"............................................................................. 3
(w) "Savings Plan"....................................................................... 3
(x) "Special Recognition Awards"......................................................... 3
(y) "Year Over Year Increase in Business Unit Location Cash Flow"........................ 3
(z) "Year Over Year Increase in Company-Wide Location Cash Flow"......................... 3
(aa) "Years of Vesting Service"........................................................... 4
SECTION 3 - Administration............................................................................. 4
(a) Special Recognition Awards to Officers............................................... 4
(b) All Other Awards..................................................................... 4
(c) In General........................................................................... 5
SECTION 4 - Eligibility................................................................................ 5
(a) Special Recognition Awards........................................................... 5
(b) Profit-Sharing Awards................................................................ 6
(c) Excess Awards........................................................................ 6
SECTION 5 - Stock...................................................................................... 6
SECTION 6 - Amount of Award............................................................................ 7
(a) Special Recognition Awards........................................................... 7
(b) Profit-Sharing Awards................................................................ 7
(c) Excess Awards........................................................................ 8
SECTION 7 - Vesting.................................................................................... 9
(a) Death; Disability.................................................................... 9
(b) Vesting Schedule..................................................................... 9
(c) Forfeiture........................................................................... 9
SECTION 8 - Capital Adjustments........................................................................ 9
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 9 - Amendment or Discontinuance of the Plan.................................................... 10
SECTION 10 - Termination of Plan....................................................................... 10
SECTION 11 - Shareholder Approval...................................................................... 11
SECTION 12 - Miscellaneous............................................................................. 11
(a) Issuance and Delivery of Certificates................................................ 11
(b) Rights as a Shareholder.............................................................. 12
(c) Award Agreement...................................................................... 12
(d) Governing Law........................................................................ 12
(e) Rights............................................................................... 12
(f) Non-Transferability.................................................................. 13
(g) Listing and Registration of Shares................................................... 13
(h) Withholding and Use of Shares to Satisfy Tax Obligations............................. 13
(i) Indemnification of Board and Plan Administrator...................................... 14
</TABLE>
ii
<PAGE>
PEGASUS COMMUNICATIONS
RESTRICTED STOCK PLAN
SECTION 1
Purpose
This Pegasus Communications Restricted Stock Plan is intended
to provide a means whereby PCC may, through the grant of stock subject to
vesting requirements to employees of Pegasus, attract and retain such
individuals and motivate them to exercise their best efforts on behalf of
Pegasus.
SECTION 2
Definitions
Whenever the following terms are used in this Plan, they shall
have the meanings specified below, unless the context clearly indicates to the
contrary:
(a) "Awards" shall mean Special Recognition Awards, Profit-
Sharing Awards and Excess Awards.
(b) "Award Agreement" shall mean the written document
described in Section 12(c) evidencing Awards made pursuant to the Plan.
(c) "Board" shall mean the Board of Directors of PCC.
(d) "Business Unit Location Cash Flow" shall mean income from
the business unit's operations before management fees, depreciation,
amortization (other than amortization of film contracts), and incentive
compensation (including contributions under the Plan and the Savings Plan).
(e) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(f) "Committee" shall mean the administrator of the Plan with
respect to Special Recognition Awards to Officers, which shall be a committee of
the Board or the Board, in accordance with Section 3(a).
(g) "Common Stock" shall mean Class A common stock of PCC.
(h) "Company Matching Contributions" shall have the meaning
set forth in Section 1.15 (or any successor thereto) of the Savings Plan.
(i) "Company-Wide Location Cash Flow" shall mean income from
Pegasus operations before management fees, depreciation, amortization (other
<PAGE>
than amortization of film contracts), and incentive compensation (including
contributions under the Plan and the Savings Plan).
(j) "Disability" shall have the meaning set forth in Section
1.16 (or any successor thereto) of the Savings Plan.
(k) "Excess Awards" shall mean the formula awards described in
Section 6(c).
(l) "Fair Market Value" shall mean the closing price of the
Common Stock on a registered securities exchange or on an over-the-counter
market on the last business day prior to the date of grant on which Common Stock
traded.
(m) "Grantee" shall mean an individual who has received an
Award under the Plan.
(n) "Management Committee" shall mean the committee authorized
by the Board to administer the Plan with respect to all Awards other than
Special Recognition Awards to Officers.
(o) "Officers" shall mean employees who are officers, within
the meaning of Rule 16a-1(f) under the Securities Exchange Act of 1934, or any
successor thereto.
(p) "PCC" shall mean Pegasus Communications Corporation.
(q) "Pegasus" shall mean Pegasus Communications Holdings, Inc.
and its direct and indirect subsidiaries, whether in corporate, partnership or
any other form.
(r) "Plan" shall mean the Pegasus Communications Restricted
Stock Plan, as set forth in this document and as it may be amended from time to
time.
(s) "Plan Administrator" shall mean --
(1) With respect to Special Recognition Awards to
Officers, the Committee; and
(2) With respect to all other Awards, the Management
Committee.
-2-
<PAGE>
(t) "Profit-Sharing Awards" shall mean the formula awards
described in Section 6(b).
(u) "Rollover Matching Contributions" shall have the meaning
set forth in Section 1.40 (or any successor thereto) of the Savings Plan.
(v) "Salary" shall have the meaning set forth in Section 1.41
(or any successor thereto) of the Savings Plan.
(w) "Savings Plan" shall mean the Pegasus Communications
Savings Plan, effective January 1, 1996, and as it may be amended from time to
time.
(x) "Special Recognition Awards" shall mean the discretionary
awards described in Section 6(a).
(y) "Year Over Year Increase in Business Unit Location Cash
Flow" shall mean, with respect to any year, the excess of the Business Unit
Location Cash Flow for such year over the Business Unit Location Cash Flow for
the preceding year, determined on a pro forma basis by the Board of Directors or
a committee thereof. For purposes of determining the excess of the Business Unit
Location Cash Flow in the first calendar year in which a business unit becomes a
business unit of Pegasus ("Year 1") over the Business Unit Location Cash Flow
for the preceding year ("Year 0"), the Business Unit Location Cash Flow
attributable to the period in Year 1 during which the business unit was a
business unit of Pegasus shall be compared to the business unit's income --
before management fees, depreciation, amortization (other than amortization of
film contracts), and incentive compensation (including contributions under any
qualified or nonqualified plan) -- from non-Pegasus operations during the same
period in Year 0. For purposes of determining the excess of the Business Unit
Location Cash Flow for the succeeding year ("Year 2") over the Business Unit
Location Cash Flow for Year 1, the Business Unit Location Cash Flow attributable
to the period in Year 1 during which the business unit was a business unit of
Pegasus shall be compared to the Business Unit Location Cash Flow during the
same period in Year 2.
(z) "Year Over Year Increase in Company-Wide Location Cash
Flow" shall have the meaning set forth in Section 1.51 (or any successor
thereto) of the Savings Plan.
-3-
<PAGE>
(aa) "Years of Vesting Service" shall have the meaning set
forth in Section 1.50 (or any successor thereto) of the Savings Plan.
SECTION 3
Administration
The Plan shall be administered as follows:
(a) Special Recognition Awards to Officers. With respect to
Special Recognition Awards to Officers, the Plan shall be administered:
(1) By a committee, which shall consist of not fewer
than two non-employee directors (within the meaning of Rule 16b-3(b)(3)
(or any successor thereto) under the Securities Exchange Act of 1934)
of PCC who shall be appointed by, and shall serve at the pleasure of,
the Board, or
(2) In the event a committee has not been established
in accordance with paragraph 1, by the entire Board; provided, however,
that a member of the Board shall not participate in a vote approving an
Award to himself or herself to the extent provided under the laws of
the State of Delaware governing corporate self-dealing.
The Plan Administrator with respect to Special Recognition Awards to Officers
shall hereinafter be referred to as the "Committee." Each member of the
Committee, while serving as such, shall be deemed to be acting in his capacity
as a director of PCC.
The Committee shall have full authority, upon consideration of
recommendations by the Management Committee and subject to the terms of the
Plan, to select the Officers to be granted Special Recognition Awards under the
Plan, to grant Special Recognition Awards to Officers on behalf of PCC, and to
set the date of grant and the other terms of such Awards.
(b) All Other Awards. With respect to all Awards other than
Special Recognition Awards to Officers, the Plan shall be administered by the
Management Committee. With respect to Special Recognition Awards to employees
who are not Officers, the Management Committee shall have full authority,
subject to the terms of the Plan, to select the employees to be granted Special
Recognition Awards under the Plan, to grant Special Recognition Awards
-4-
<PAGE>
on behalf of PCC, and to set the date of grant and the other terms of such
Awards.
The terms and conditions of Profit-Sharing Awards and Excess
Awards are intended to be fixed in advance. Consequently, Profit-Sharing Awards
and Excess Awards shall be as set forth in Sections 6(b) and 6(c), respectively,
of the Plan, and the Management Committee shall not have any discretionary
authority with respect thereto.
(c) In General. The Plan Administrator may correct any defect,
supply any omission and reconcile any inconsistency in the Plan and in any Award
granted hereunder to the extent it shall deem desirable. The Plan Administrator
also shall have the authority to establish such rules and regulations, not
inconsistent with the provisions of the Plan, for the proper administration of
the Plan, and to amend, modify, or rescind any such rules and regulations, and
to make such determinations, and interpretations under, or in connection with,
the Plan, as it deems necessary or advisable. All such rules, regulations,
determinations, and interpretations shall be binding and conclusive upon PCC,
its stockholders and all employees, and upon their respective legal
representatives, beneficiaries, successors, and assigns and upon all other
persons claiming under or through any of them.
No member of the Board, the Committee or the Management
Committee shall be liable for any action or determination made in good faith
with respect to the Plan or any Award granted under it.
SECTION 4
Eligibility
More than one Award may be granted to an employee who is
eligible to receive an Award under the Plan. Employees shall be eligible to
receive Awards as follows:
(a) Special Recognition Awards. All employees of Pegasus,
other than the Chief Executive Officer of Pegasus Communications Holdings, Inc.,
shall be eligible to receive Special Recognition Awards.
-5-
<PAGE>
(b) Profit-Sharing Awards. A General Manager, Department
Manager or Corporate Manager shall be eligible to receive a Profit-Sharing
Award with respect to a year if:
(1) He is not an Officer on the date the Award is
made; and
(2) He is employed by Pegasus as a Manager on:
(A) June 30 of the year for which the
Profit-Sharing Award is made; and
(B) The date the Profit-Sharing Award is
made.
(c) Excess Awards. A Participant in the Savings Plan shall be
eligible to receive an Excess Award if contributions on his behalf under the
Savings Plan are limited by certain limitations imposed by the Code, as
described in Section 6(c), and he is employed by Pegasus on the date the Excess
Award is made.
Special Recognition Awards and Profit-Sharing Awards shall be
made as soon as practicable after the financial information necessary for
determining the amount of the Award is available (absent extraordinary
circumstances, on or before the March 31 following the year for which the Award
is made). Excess Awards shall be made as soon as practicable after the
availability of the information required to determine whether contributions
under the Savings Plan on behalf of a Participant with respect to a year are
limited (absent extraordinary circumstances, on or before the March 15 following
the Savings Plan year for which such contribution is limited).
SECTION 5
Stock
The number of shares of Common Stock that may be subject to
Awards under the Plan shall be 270,000 shares, subject to adjustment as
hereinafter provided. Common Stock issuable under the Plan may be authorized but
unissued shares or reacquired shares, and PCC may purchase shares required for
this purpose, from time to time, if it deems such purchase to be advisable.
-6-
<PAGE>
Any Common Stock subject to an Award which is forfeited shall
continue to be available for the granting of Awards under the Plan.
SECTION 6
Amount of Award
(a) Special Recognition Awards. The Plan Administrator, in its
sole discretion, shall determine the amount of the annual Special Recognition
Award, if any, to be made on behalf of an eligible employee described in Section
4(a); provided, however, that the Fair Market Value of the Common Stock covered
by the annual Special Recognition Awards for any year to all employees in the
aggregate, determined as of the date the Awards are granted, shall not exceed
the sum of (1) five percent of the Year Over Year Increase in Company-Wide
Location Cash Flow, plus (2) the Year Over Year Increase in Company-Wide
Location Cash Flow which could have been awarded as a Special Recognition Award
in the preceding year, and was not. Special Recognition Awards may be granted
for consistency (awarded to a team of employees), initiative (a team or
individual award), problem solving (a team or individual award), and individual
excellence.
(b) Profit-Sharing Awards. An annual Profit-Sharing Award of
Common Stock shall be made to each eligible employee described in Section 4(b).
The number of shares of Common Stock covered by an annual Profit-Sharing Award
shall be determined as follows --
(1) General Managers. The number of shares of Common
Stock covered by the annual Profit-Sharing Award to each eligible
employee who is a General Manager shall equal the quotient of (A) six
percent of the Year Over Year Increase in Business Unit Location Cash
Flow of the General Manager's business unit, divided by (B) the Fair
Market Value of a share of Common Stock.
(2) Department Managers. The number of shares of
Common Stock covered by an annual Profit-Sharing Award to Department
Managers in a business unit in the aggregate shall equal the quotient
of (A) six percent of the Year Over Year Increase in Business Unit
Location Cash
-7-
<PAGE>
Flow of the Department Manager's business unit, divided by (B) the Fair
Market Value of a share of Common Stock. Such shares shall be
allocated, per capita, to each eligible employee who is a Department
Manager in the business unit; provided, however, that the shares
allocated to any Department Manager pursuant to an annual
Profit-Sharing Award shall not exceed the shares that would have been
allocated to the Department Manager if all Department Manager positions
in the business unit were filled on June 30 of the year for which the
Profit-Sharing Award is being made and the date the Profit-Sharing
Award is made. Any shares that may not be allocated on account of the
limitation set forth in the previous sentence shall not be subject to
the annual Profit-Sharing Award for the year in which such limitation
applies.
(3) Corporate Managers. The number of shares of
Common Stock covered by an annual Profit-Sharing Award to eligible
employees who are Corporate Managers in the aggregate shall equal the
quotient of (A) three percent of the Year Over Year Increase in
Company-Wide Location Cash Flow, divided by (B) the Fair Market Value
of a share of Common Stock. Such shares shall be allocated to each
eligible employee who is a Corporate Manager in the same proportion
that such Corporate Manager's Salary for such year bears to the total
Salary of all Corporate Managers entitled to a Profit-Sharing Award for
such year.
(c) Excess Awards. The number of shares of Common Stock
covered by an Excess Award made on behalf of an eligible employee described in
Section 4(c) with respect to any year shall equal the quotient of --
(1) The sum of --
(A) Company Matching Contributions which
were not contributed to the Savings Plan on the eligible
employee's behalf for such year because of the limitation on
such contributions contained in section 401(m)(2) of the Code,
plus
(B) Rollover Matching Contributions which
were not contributed to the Savings Plan on the eligible
employee's behalf
-8-
<PAGE>
for such year (i) solely because the eligible employee was a
Highly Compensated Employee (as defined in Section 4.1(o) (or
any successor thereto) of the Savings Plan), and/or (ii) the
limitations on contributions contained in section 415 of the
Code; divided by
(2) The Fair Market Value of a share of Common Stock.
SECTION 7
Vesting
(a) Death; Disability. A Grantee shall be 100% vested in his
Awards under the Plan when he --
(1) Incurs a Disability; or
(2) Dies.
(b) Vesting Schedule. Except as otherwise provided in
subsection (a), a Grantee shall be 100% vested in his Awards under the Plan in
accordance with the following schedule --
Percentage of Shares
Subject to Awards
Years of Vesting Service That Are 100% Vested
------------------------ --------------------
Fewer than 2 0
2 but fewer than 3 34
3 but fewer than 4 67
4 or more 100
(c) Forfeiture. Any shares of Common Stock covered by a
Grantee's Awards that are not vested pursuant to subsection (a) or subsection
(b) shall be immediately forfeited upon the Grantee's voluntary or involuntary
termination of employment by Pegasus.
SECTION 8
Capital Adjustments
The number of shares which may be issued under the Plan, and
the number of shares of Common Stock issuable upon the vesting of outstanding
Awards shall, subject to the provisions of section 424(a) of the Code, be
adjusted, to reflect any stock dividend, stock split, share combination, or
similar change in the capitalization of PCC. In the event any such change in
-9-
<PAGE>
capitalization cannot be reflected in a straight mathematical adjustment of the
number of shares issuable upon the vesting of outstanding Awards, the Plan
Administrator shall make such adjustments as are appropriate to reflect most
nearly such straight mathematical adjustment. Such adjustments shall be made
only as necessary to maintain the proportionate interests of Grantees and
preserve, without exceeding, the value of Awards.
In the event of a corporate transaction (as that term is
described in section 424(a) of the Code and the Treasury Regulations issued
thereunder as, for example, a merger, consolidation, acquisition of property or
stock, separation, reorganization, or liquidation), each outstanding Award shall
be assumed by the surviving or successor corporation.
SECTION 9
Amendment or Discontinuance of the Plan
At any time and from time to time, the Board may suspend or
terminate the Plan or amend it, and the Plan Administrator may amend any
outstanding Awards, in any respect whatsoever, except that the following
amendments shall require the approval of shareholders (given in the manner set
forth in Section 11):
(a) Any amendment which would increase the number of shares of
Common Stock authorized under the Plan; and
(b) Any amendment for which shareholder approval is required
under the rules of an exchange on which Common Stock is listed.
Notwithstanding the foregoing, no such suspension,
discontinuance or amendment shall materially impair the rights of any holder of
an outstanding Award without the consent of such holder.
SECTION 10
Termination of Plan
Unless earlier terminated as provided in the Plan, the Plan
and all authority granted hereunder shall terminate absolutely at 12:00 midnight
on September 29, 2006, and no Awards hereunder shall be granted thereafter.
Nothing contained in this Section 10, however, shall terminate or affect the
-10-
<PAGE>
continued existence of rights created under Awards issued hereunder and
outstanding on September 29, 2006 which by their terms extend beyond such date.
SECTION 11
Shareholder Approval
This Plan shall become effective on September 30, 1996 (the
date the Plan was adopted by the Board); provided, however, that if the Plan is
not approved (i) by the written consent of the holders of at least a majority of
the shares of PCC entitled to vote, or (ii) by the affirmative vote of the
holders of at least a majority of the shares present, or represented, and
entitled to vote at a duly held meeting of the shareholders of PCC, no later
than the date of the first annual meeting of shareholders on or after September
30, 1996, all Awards granted hereunder shall be null and void.
SECTION 12
Miscellaneous
(a) Issuance and Delivery of Certificates. Upon the granting
of an Award, (i) PCC shall issue certificates in the name of the Grantee (or the
Grantee and the Grantee's spouse -- see subsection (f)) representing the Common
Stock subject to the Award. Any shares of Common Stock in which the Grantee is
not vested on the date the Award is granted shall bear a legend indicating that
they are subject to the terms of the Plan and the Award Agreement and that they
may not be sold, exchanged, transferred, pledged, hypothecated or otherwise
disposed of except in accordance with the terms of the Plan and the Award
Agreement. Upon issuance of such certificates, the Grantee shall immediately
execute a stock power or other instrument of transfer, appropriately endorsed in
blank, to be held with the certificates by PCC pursuant to the terms of the Plan
and the Award Agreement with respect to shares of Common Stock in which the
Grantee is not vested on the date the Award is granted. Only full shares shall
be issued, and any fractional shares which might otherwise be issuable pursuant
to an Award shall be forfeited.
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<PAGE>
(b) Rights as a Shareholder. With respect to any shares of
Common Stock in which the Grantee is not vested on the date the Award is
granted, the Grantee shall be entitled to receive dividends paid on such shares,
shall have the right to vote such shares, and shall have all other shareholder's
rights with respect to such shares, except that (i) the Grantee will not be
entitled to delivery of the stock certificate, (ii) PCC will retain custody of
the Common Stock, and (iii) the shares subject to Awards will revert to PCC in
accordance with Section 7(c) to the extent not vested on the Grantee's voluntary
or involuntary termination of employment by Pegasus.
(c) Award Agreement. Awards under the Plan shall be evidenced
by written documents in such form as the Plan Administrator shall, from time to
time, approve, which Award Agreements shall contain such provisions, not
inconsistent with the provisions of the Plan, as the Plan Administrator shall
deem advisable. Each Grantee shall enter into, and be bound by the terms of, the
Award Agreement.
(d) Governing Law. The Plan, and the Award Agreements entered
into and Awards granted thereunder, shall be governed by the Code provisions to
the extent applicable. Otherwise, the operation of, and the rights of eligible
individuals under, the Plan, the Award Agreements, and the Awards shall be
governed by applicable federal law and otherwise by the laws of the State of
Delaware.
(e) Rights. Neither the adoption of the Plan nor any action of
the Board or the Plan Administrator shall be deemed to give any individual any
right to be granted an Award, or any other right hereunder, unless and until the
Plan Administrator shall have granted such individual an Award, and then his
rights shall be only such as are provided by the Plan and the Award Agreement.
Further, notwithstanding any provisions of the Plan or any
Award Agreement with a Grantee, but subject to any employment agreement, Pegasus
shall have the right, in its discretion, to retire an employee at any time
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pursuant to its retirement rules or otherwise to terminate his employment at
any time for any reason whatsoever.
(f) Non-Transferability. Except as otherwise provided in any
Award Agreement, Awards which have not vested shall not be assignable or
transferable by the Grantee otherwise than by will or by the laws of descent and
distribution. If a Grantee is married on the date an Award is granted, and if
the Grantee so requests, the certificate or certificates issued shall be
registered in the name of the Grantee and the Grantee's spouse, jointly, with
right of survivorship.
(g) Listing and Registration of Shares. Each Award shall be
subject to the requirement that, if at any time the Plan Administrator shall
determine, in its discretion, that the listing, registration, or qualification
of the Common Stock covered thereby upon any securities exchange or under any
state or federal law, or the consent or approval of any governmental regulatory
body, is necessary or desirable as a condition of, or in connection with, the
granting of such Award or the vesting of Common Stock thereunder, or that action
by PCC or by the Grantee should be taken in order to obtain an exemption from
any such requirement, no shares of Common Stock shall be received pursuant to an
Award, unless and until such listing, registration, qualification, consent,
approval, or action shall have been effected, obtained, or taken under
conditions acceptable to the Plan Administrator. Without limiting the generality
of the foregoing, each Grantee or his legal representative or beneficiary may
also be required to give satisfactory assurance that shares received pursuant to
an Award will be held as an investment and not with a view to distribution, and
certificates representing such shares may be legended accordingly.
(h) Withholding and Use of Shares to Satisfy Tax Obligations.
The obligation of PCC to deliver Common Stock pursuant to any Award shall be
subject to applicable federal, state and local tax withholding requirements.
If the vesting of any Award is subject to the withholding
requirements of applicable federal tax law, the Plan Administrator, in its
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discretion, may permit or require the Grantee to satisfy the federal, state and
local withholding tax, in whole or in part, by electing to have PCC withhold
shares of Common Stock subject to the Award (or by returning previously acquired
shares of Common Stock to PCC). PCC may not withhold shares in excess of the
number necessary to satisfy the minimum federal, state and local income tax
withholding requirements. Shares of Common Stock shall be valued, for purposes
of this paragraph, at their Fair Market Value, but as of the date the amount
attributable to the vesting of the Award is includable in income by the Grantee
under section 83 of the Code (the "Determination Date").
If shares of Common Stock acquired by the exercise of an
incentive stock option (within the meaning of section 422 of the Code, or any
successor thereto) are used to satisfy the withholding requirement described
above, such shares of Common Stock must have been held by the Grantee for a
period of not less than the holding period described in section 422(a)(1) of the
Code as of the Determination Date.
The Plan Administrator shall adopt such withholding rules as
it deems necessary to carry out the provisions of this paragraph.
(i) Indemnification of Board and Plan Administrator. Without
limiting any other rights of indemnification which they may have from Pegasus,
the members of the Board, the Committee and the Management Committee shall be
indemnified by PCC against all costs and expenses reasonably incurred by them in
connection with any claim, action, suit, or proceeding to which they or any of
them may be a party by reason of any action taken or failure to act under, or in
connection with, the Plan, or any Award granted thereunder, and against all
amounts paid by them in settlement thereof (provided such settlement is approved
by legal counsel selected by PCC) or paid by them in satisfaction of a judgment
in any such action, suit, or proceeding, except a judgment based upon a finding
of willful misconduct or recklessness on their part. Upon the making or
institution of any such claim, action, suit, or proceeding, the Board, Committee
or Management Committee member shall notify PCC in writing,
giving PCC an opportunity, at its own expense, to handle and defend the same
before such Board, Committee or Management Committee member undertakes to handle
it on his own behalf.
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<PAGE>
Exhibit 10.29
NEITHER THIS OPTION NOR THE SECURITIES ISSUABLE UPON
EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES
LAW, AND THEY MAY NOT BE SOLD, ASSIGNED, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT IN
COMPLIANCE WITH APPLICABLE FEDERAL AND STATE
SECURITIES LAWS AND THE OTHER RESTRICTIONS ON
TRANSFER SET FORTH HEREIN.
---------------------------
Date: April 1, 1996
PEGASUS MEDIA & COMMUNICATIONS, INC.
OPTION
TO PURCHASE COMMON STOCK
Void after the Expiration Time, as provided herein.
THIS CERTIFIES that the Company hereby grants Donald W. Weber
(the "Option Holder") a nonqualified stock option (the "Option") to purchase all
or any part of an aggregate of 150 fully paid and nonassessable shares of Common
Stock at any time during the period commencing on April 1, 1996 and ending on
the Effective Date. At any time during the period commencing on the Effective
Date and ending at the Expiration Time, this Option entitles the Option Holder
to purchase fully paid and nonassessable shares of Public Common Stock, the
number of which is determined by multiplying (a) 150 minus the number of Option
Shares purchased prior to the Effective Date, by (b) the Conversion Ratio.
1. Definitions. For the purpose of this Option:
"Affiliate" means Pegasus Media & Communications,
Inc., and any person or entity that directly or indirectly, through one or more
intermediaries, controls or is controlled by, or is under common control with,
Pegasus Media & Communications, Inc.
"Business Day" means any day on which the New York
Stock Exchange is open for trading.
"Common Stock" means Class B Common Stock of
Pegasus Media & Communications, Inc.
"Company" means --
<PAGE>
(1) Prior to the Effective Date, Pegasus
Media & Communications, Inc., a Delaware corporation; and
(2) On and after the Effective Date, the
Affiliate whose common stock is offered in the Qualifying Equity Offering.
"Conversion Ratio" means the ratio that will
result in the Option Holder holding options to purchase the same percentage of
the common equity securities of the Affiliate issuing securities in the
Qualifying Equity Offering as the Option Holder holds in Pegasus Media &
Communications, Inc. immediately before the completion of the Qualifying Equity
Offering before giving effect to the issuance of the Public Common Stock to the
public in the Qualifying Equity Offering or to any other issuance of securities
related to the Qualifying Equity Offering (other than issuances to holders of
common equity securities of Pegasus Media & Communications, Inc. in exchange for
such securities).
"Effective Date" means the effective date of the
registration statement relating to the Qualifying Equity
Offering.
"Exercise Price" means --
(1) With respect to exercise of the Option
before the Effective Date, $471.00 per share of Common Stock; and
(2) With respect to exercise of the Option
on and after the Effective Date, the Exercise Price per share of Public Common
Stock shall equal $471.00 divided by the Conversion Ratio.
"Expiration Time" means 5:00 p.m. (Philadelphia
time) on October 30, 2000.
"Fair Market Value" means --
(1) With respect to Public Common Stock:
(a) The mean between the highest and lowest
quoted selling price, if there is a market for the Option Shares on a registered
securities exchange or in an over the counter market, on the date of exercise;
or
(b) The weighted average of the means
between the highest and lowest sales on the nearest date before and the nearest
date after the date of exercise, if there are no sales on the date of exercise
but there are sales on dates within a reasonable period both before and after
the date of exercise.
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Where the fair market value of the Option Shares is determined under (b) above,
the average of the means between the highest and lowest sales on the nearest
date before and the nearest date after the exercise date is to be weighted
inversely by the respective numbers of trading days between the selling dates
and the exercise date, in accordance with Treas. Reg. Section 20.2031-2(b)(1).
(2) With respect to Common Stock, the fair market
value of a share of Common Stock as determined by a qualified independent
appraiser appointed by the Company on the valuation date immediately preceding,
or coincident with, the exercise date.
"Option Shares" means the shares of Common Stock
and/or Public Common Stock issued or issuable upon exercise of
the Option.
"Public Common Stock" means the class or series of
the common stock of an Affiliate that is offered in the Qualifying Equity
Offering.
"Qualifying Equity Offering" means the first public
offering of common stock of any Affiliate for cash pursuant to a registration
statement filed and declared effective under the Securities Act, other than a
registration statement on Form S-4 or S-8, or any similar or successor form.
"Securities Act" means the Securities Act of 1933, as
amended.
2. Exercise of Option; Notice of Effective Date.
(a) This Option may be exercised in whole or in
part (but not as to fractional shares) on any Business Day on or after April 1,
1996 and until the Expiration Time by the presentation and surrender of this
Option, with the Purchase Agreement attached hereto as Annex A properly
completed and duly executed, to the Company at its principal office at 5 Radnor
Corporate Center, Suite 454, 100 Matsonford Road, Radnor, PA 19087 (or at such
other address as the Company may hereafter notify the Option Holder in writing)
and upon payment to the Company of the Exercise Price for the shares to be
purchased upon such exercise. The Exercise Price shall be payable in cash or its
equivalent, in Option Shares newly acquired by the Option Holder upon exercise
of such Option, or in a combination of cash (or its equivalent) and Option
Shares. In the event the Exercise Price is paid, in whole or in part, with
Option Shares, the portion of the Exercise Price so paid shall be equal to the
Fair Market Value of the Option Shares surrendered in payment of such Exercise
Price on the exercise date. The Option Holder shall be treated for all purposes
as the holder of the shares so purchased
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as of the close of business on the date of exercise and certificates for the
shares of stock so purchased shall be delivered to the Option Holder within a
reasonable time, not exceeding thirty (30) days, after such exercise.
Certificates representing shares issued upon exercise of this Option shall bear
a legend referring to the restrictions on transfer set forth herein.
(b) Pegasus Media & Communications, Inc. shall
provide written notice of the Effective Date to the Option Holder within 5 days
thereafter and shall include in such notice a copy of the prospectus issued in
connection with the Qualifying Equity Offering.
3. Common Stock Converted Into Public Common Stock. Within 30
days after the Effective Date, the Option Holder shall present all Common Stock
(if any) purchased pursuant to this Option to the Company and shall receive in
lieu thereof shares of Public Common Stock, in an amount determined by
multiplying (a) the number of shares of Common Stock so presented, by (b) the
Conversion Ratio.
4. Option Share Transfer to Comply with the Securities Laws.
Neither the Option Shares, nor any interest in the Option Shares, may be sold,
assigned, pledged, hypothecated, encumbered or in any other manner transferred
or disposed of, in whole or in part, except in compliance with applicable United
States federal and state securities or Blue Sky laws and the terms and
conditions hereof. Each certificate for Option Shares shall bear an appropriate
legend calling attention to such restrictions unless, in the opinion of counsel
for the Company, the Option Shares need no longer be subject to the restriction
contained herein.
5. Non-Transferability of Option. This Option is not
assignable or transferable, in whole or in part, by the Option Holder. This
Option shall be exercisable only by the Option Holder or, in the event of his
disability, by his guardian or legal representative.
6. Qualifying Equity Offering By Affiliate. If the Qualifying
Equity Offering shall be made by an Affiliate other than Pegasus Media &
Communications, Inc., this Option shall be assumed by such Affiliate.
7. Certain Covenants of the Company. The Company covenants and
agrees that all shares which may be issued upon the exercise of this Option,
will, upon issuance, be duly and validly issued, fully paid and nonassessable
and free from all taxes, liens and charges with respect to the issue thereof.
The Company further covenants and agrees that during the period within which
this Option may be exercised, the Company will at all times have
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authorized, and reserved for the purpose of issue upon exercise of the purchase
rights evidenced by this Option, a sufficient number of shares of Common Stock
(prior to the Effective Date) or Public Common Stock (on and after the Effective
Date), to provide for the exercise of the rights represented by this Option.
8. Adjustment of Purchase Price and Number of Shares. This
Section 8 shall not apply to the adjustments provided for in this Option which
automatically occur as a result of the Qualifying Equity Offering, including,
but not limited to, the common stock subject to this Option, the number of
shares of common stock subject to this Option, and the decrease in the Exercise
Price. The number and kind of securities purchasable upon the exercise of this
Option and the Exercise Price shall be subject to adjustment from time to time
upon the happening of certain events as follows:
(a) Reclassification, Consolidation or Merger. In
case of any consolidation or merger of the Company with or into another
corporation (other than a merger with another corporation in which the Company
is a continuing corporation and which does not result in any reclassification or
change, other than a change in par value, or from par value to no par value, or
from no par value to par value, or as a result of a subdivision or combination
of outstanding securities issuable upon the exercise of this Option), or in the
case of any sale or transfer to another corporation of the property of the
Company as an entirety or substantially as an entirety, the Company, or such
successor or purchasing corporation, as the case may be, shall, without payment
of any additional consideration therefor, execute a new Option providing that
the Option Holder shall have the right to exercise such new Option (upon terms
not less favorable to the Option Holder than those then applicable to this
Option) and to receive upon such exercise, in lieu of each share of Common Stock
(prior to the Effective Date) or Public Common Stock (on and after the Effective
Date), theretofore issuable upon exercise of this Option, the kind and amount of
shares of stock, other securities, money or property receivable upon such
reclassification, change, consolidation, merger, sale or transfer by the holder
of one share of Common Stock ( prior to the Effective Date) or Public Common
Stock (on and after the Effective Date), issuable upon exercise of this Option
had it been exercised immediately prior to such reclassification, change,
consolidation, merger, sale or transfer. Such new Option shall provide for
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 8. The provisions of this Subsection
8(a) shall similarly apply to successive reclassifications, changes,
consolidations, mergers, sales and transfers.
(b) Subdivision or Combination of Shares. If the
Company, at any time prior to the Expiration Time, shall
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subdivide or combine the Common Stock (prior to the Effective Date) or Public
Common Stock (on and after the Effective Date), the Exercise Price shall be
proportionately reduced, in case of subdivision of such shares, as of the
effective date of such subdivision, or, if the Company shall take a record of
holders of its Common Stock (prior to the Effective Date) or Public Common Stock
(on and after the Effective Date), for the purpose of so subdividing, as of such
record date, whichever is earlier, or shall be proportionately increased, in the
case of combination of such shares, as of the effective date of such
combination, or, if the Company shall take a record of holders of its Common
Stock (prior to the Effective Date) or Public Common Stock (on and after the
Effective Date), for the purpose of so combining, as of such record date,
whichever is earlier.
(c) Stock Dividends. If the Company, at any time
prior to the Expiration Time, shall pay a dividend in shares of, or make other
distribution of shares of, the Common Stock (prior to the Effective Date) or
Public Common Stock (on and after the Effective Date), then the Exercise Price
shall be adjusted, as of the date the Company shall take a record of the holders
of the Common Stock (prior to the Effective Date) or Public Common Stock (on and
after the Effective Date), for the purpose of receiving such dividend or other
distribution (or if no such record is taken, as at the date of such payment or
other distribution), to that price determined by multiplying the Exercise Price
in effect immediately prior to such payment or other distribution by a fraction
(i) the numerator of which shall be the total number of shares of Common Stock
(prior to the Effective Date) or Public Common Stock (on and after the Effective
Date), outstanding immediately prior to such dividend or distribution, and (ii)
the denominator of which shall be the total number of shares of Common Stock
(prior to the Effective Date) or Public Common Stock (on and after the Effective
Date), outstanding immediately after such dividend or distribution. The
provisions of this Subsection 8(c) shall not apply under any of the
circumstances for which an adjustment is provided in Subsections 8(a) or 8(b).
9. Amendments and Waivers. No amendment or waiver of any
provision of this Option shall be effective unless and until it shall be set
forth in writing and signed by the Company and the Option Holder.
10. Notice. Any notice or other communication hereunder shall
be deemed satisfactorily given if in writing and delivered by hand, mailed
(registered or certified mail), telecopied or sent by reputable overnight
courier service, charges prepaid, to the address set forth below, or such other
address as may be given in accordance herewith:
If to the Company:
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Pegasus Media & Communications, Inc.
5 Radnor Corporate Center, Suite 454
100 Matsonford Road
Radnor, Pennsylvania 19087
Fax: 610-341-1835
Attention: Chief Financial Officer
If to the Option Holder:
Mr. Donald W. Weber
Chief Executive Officer
Viewstar Entertainment Services
Suite 203, 400 Dawson Center
Dawsonville, GA 30534
Fax: 706-216-1205
Any notice shall be deemed delivered and received (i) on the
date delivered to any employee of the party to whom such notice or communication
is made at the proper address in accordance herewith, if hand delivered, (ii)
four days after being sent, if sent by registered or certified mail to the
proper address in accordance herewith, (iii) one day after being telecopied, if
sent by telecopier to the proper telecopier number in accordance herewith, and
(iv) the first Business Day after sent by reputable overnight courier service to
the proper address in accordance herewith.
11. No Rights as Shareholder. Prior to the exercise of this
Option, the Option Holder shall not be entitled to any rights of a shareholder
of the Company or any Affiliate, including, without limitation, the right to
vote, the right to receive dividends and the right to receive other
distributions.
12. Fractional Shares. No fractional shares of Common Stock or
Public Common Stock will be issued in connection with any exercise of this
Option, but in lieu of such fractional shares, the Company shall make a cash
payment therefor equal in amount to the product of the applicable fraction
multiplied by the Exercise Price per share paid by the holder for its Option
Shares upon such exercise.
13. Governing Law. This Option shall be construed in
accordance with and governed by the laws of the State of Delaware.
14. Headings. The descriptive headings of the several
paragraphs of this Option are inserted for convenience only and do not
constitute a part of this Option.
IN WITNESS WHEREOF, Pegasus Media & Communications, Inc. has
caused this Option to be signed by its duly authorized officer under its
corporate seal, attested by its duly authorized officer, on the date of this
Option.
Attest: PEGASUS MEDIA &
COMMUNICATIONS, INC.
__________________________ By: _______________________________
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Annex A
PURCHASE AGREEMENT
I hereby exercise the option granted to me pursuant to the
Option to Purchase Common Stock dated as of April 1, 1996 (the "Option") by
Pegasus Media & Communications, Inc., with respect to the following number of
shares of Common Stock or Public Common Stock (as defined in the Option)
("Shares") covered by said option:
Number of Shares to be purchased ___________________
Option price per Share $__________________
Total option price $__________________
_____ A. Enclosed is cash or my check, bank draft or postal
or express money order in the amount of
$__________ in full payment for such Shares.
_____ B. Enclosed is/are _________ Share(s) with a total
fair market value of $__________ on the date
hereof in full payment for such Shares.
_____ C. Enclosed is cash or my check, bank draft or postal
or express money order in the amount of $_________
and_______________ Share(s) with a total fair
market value of $__________ on the date hereof
in full payment for such Shares.
Please have the certificate or certificates representing the purchased
Shares registered in my name and sent to:
_______________________________________________ .
DATED: __________________ , 19__.
___________________________________
Donald W. Weber
<PAGE>
Exhibit 10.30
PEGASUS COMMUNICATIONS 1996
STOCK OPTION PLAN
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
<S> <C> <C>
1. Purpose....................................................................................... 1
2. Administration................................................................................ 1
3. Eligibility................................................................................... 3
4. Stock......................................................................................... 3
5. Granting of Options........................................................................... 4
6. Annual Limit.................................................................................. 4
7. Terms and Conditions of Options............................................................... 5
8. Option Agreements -- Other Provisions......................................................... 11
9. Capital Adjustments........................................................................... 11
10. Certain Corporate Transactions................................................................ 12
11. Change in Control............................................................................. 13
12. Amendment or Termination of the Plan.......................................................... 14
13. Absence of Rights............................................................................. 15
14. Indemnification of Board and Committee........................................................ 15
15. Application of Funds.......................................................................... 16
16. Shareholder Approval.......................................................................... 16
17. No Obligation to Exercise Option.............................................................. 16
18. Termination of Plan........................................................................... 16
19. Governing Law................................................................................. 17
</TABLE>
<PAGE>
PEGASUS COMMUNICATIONS 1996
STOCK OPTION PLAN
WHEREAS, Pegasus Communications Corporation, a Delaware
corporation, desires to award incentive and nonqualified stock options to
certain of its officers and directors who are not officers;
NOW THEREFORE, effective September 30, 1996, the Pegasus
Communications 1996 Stock Option Plan is hereby adopted under the following
terms and conditions:
1. Purpose. This Pegasus Communications 1996 Stock Option Plan (the
"Plan") is intended to provide a means whereby Pegasus Communications
Corporation (the "Company") may, through the grant of incentive stock options
and nonqualified stock options (collectively, the "Options") to Key Employees
and Non-employee Directors (as defined in Section 3), attract and retain such
Key Employees and Non-employee Directors and motivate them to exercise their
best efforts on behalf of the Company and of any Related Company.
For purposes of granting incentive stock options under the
Plan, a "Related Company" shall mean either a "subsidiary corporation" of the
Company, as defined in section 424(f) of the Internal Revenue Code of 1986, as
amended (the "Code"), or the "parent corporation" of the Company, as defined in
section 424(e) of the Code. For purposes of granting non-qualified stock options
under the Plan, a "Related Company" shall mean Pegasus Communications Holdings,
Inc. or any of its direct or indirect subsidiaries, whether in corporate,
partnership or any other form.
Further, as used in the Plan, (i) the term "ISO" shall mean an
option which, at the time such option is granted, qualifies as an incentive
stock option within the meaning of section 422 of the Code and is designated as
an ISO in the "Option Agreement" (as defined in Section 8 hereof); and (ii) the
term "NQSO" shall mean an option which, at the time such option is granted, does
not qualify as an ISO, and is designated as a nonqualified stock option in the
Option Agreement (as defined in Section 8 hereof).
2. Administration. The Plan shall be administered:
<PAGE>
(a) By a committee, which shall consist of not fewer than two
non-employee directors (within the meaning of Rule 16b-3(b)(3) under the
Securities Exchange Act of 1934 (the "Exchange Act"), or any successor thereto)
of the Company who are also outside directors (within the meaning of Treas. Reg.
ss.1.162-27(e)(3), or any successor thereto) of the Company, who shall be
appointed by, and shall serve at the pleasure of, the Board of Directors of the
Company (the "Board"); or
(b) In the event a committee has not been established in
accordance with subsection (a), or cannot be constituted to vote on the grant of
an Option (for example, because of state laws governing corporate self-dealing),
by the entire Board;
provided, however, that a member of the Board shall not participate in a vote
approving the grant of an Option to himself or herself to the extent provided
under the laws of the State of Delaware governing corporate self-dealing.
The administrator of the Plan shall hereinafter be referred to
as the "Committee." Each member of the Committee, while serving as such, shall
be deemed to be acting in his capacity as a director of the Company.
The Committee shall have full authority, subject to the terms
of the Plan, to select the Key Employees and Non-employee Directors to be
granted Options under the Plan, to grant Options on behalf of the Company, and
to set the date of grant and the other terms of such Options; provided, however,
that Non-employee Directors shall not be eligible to receive ISOs under the
Plan. The Committee may correct any defect, supply any omission and reconcile
any inconsistency in this Plan and in any Option granted hereunder in the manner
and to the extent it deems desirable. The Committee also shall have the
authority to establish such rules and regulations, not inconsistent with the
provisions of the Plan, for the proper administration of the Plan, to amend,
modify, or rescind any such rules and regulations, and to make such
determinations, and interpretations under, or in connection with, the Plan, as
it deems necessary or advisable. All such rules, regulations, determinations,
and interpretations shall be binding and conclusive upon the Company, its
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shareholders and all Key Employees and Non-employee Directors, upon their
respective legal representatives, beneficiaries, successors, and assigns, and
upon all other persons claiming under or through any of them.
No member of the Board or the Committee shall be liable for
any action or determination made in good faith with respect to the Plan or any
Option granted under it.
3. Eligibility. The class of employees who shall be eligible to receive
Options under the Plan shall be the executive officers of the Company or a
Related Company (including any directors who also are officers) ("Key
Employees"). Directors of the Company or a Related Company who are not employees
("Non-employee Directors") shall be eligible to receive NQSOs (and not ISOs)
under the Plan. More than one Option may be granted to a Key Employee or a
Non-employee Director under the Plan. A Key Employee or Non-employee Director
who has been granted an Option under the Plan shall hereinafter be referred to
as an "Optionee."
4. Stock. Options may be granted under the Plan to purchase up to a
maximum of 450,000 shares of Class A common stock of the Company ("Common
Stock"); provided, however, that no Key Employee shall receive Options for more
than 275,000 shares of the Company's Common Stock over the life of the Plan.
However, both limits in the preceding sentence shall be subject to adjustment as
hereinafter provided. Shares issuable under the Plan may be authorized but
unissued shares or reacquired shares, and the Company may purchase shares
required for this purpose, from time to time, if it deems such purchase to be
advisable.
If any Option granted under the Plan expires or otherwise
terminates for any reason whatsoever (including, without limitation, the
Optionee's surrender thereof) without having been exercised, the shares subject
to the unexercised portion of the Option shall continue to be available for the
granting of Options under the Plan as fully as if the shares had never been
subject to an Option; provided, however, that (i) if an Option is cancelled, the
shares of Common Stock covered by the cancelled Option shall
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<PAGE>
be counted against the maximum number of shares specified above for which
Options may be granted to single Key Employee, and (ii) if the exercise price of
an Option is reduced after the date of grant, the transaction shall be treated
as a cancellation of the original Option and the grant of a new Option for
purposes of such maximum.
5. Granting of Options. From time to time until the expiration or
earlier suspension or discontinuance of the Plan, the Committee may, on behalf
of the Company, grant to Key Employees and Non-employee Directors under the Plan
such Options as it determines are warranted; provided, however, that grants of
ISOs and NQSOs shall be separate and not in tandem, and further provided that
Non-employee Directors shall not be eligible to receive ISOs under the Plan. In
making any determination as to whether a Key Employee or a Non-employee Director
shall be granted an Option, the type of Option to be granted to a Key Employee,
the number of shares to be covered by the Option, and other terms of the Option,
the Committee shall take into account the duties of the Key Employee or the
Non-employee Director, his present and potential contributions to the success of
the Company or a Related Company, the tax implications to the Company and the
Key Employee of any Option granted, and such other factors as the Committee
shall deem relevant in accomplishing the purposes of the Plan. Moreover, the
Committee may provide in the Option that said Option may be exercised only if
certain conditions, as determined by the Committee, are fulfilled.
6. Annual Limit
(a) ISOs. The aggregate fair market value (determined under
Section 7(b) hereof as of the date the ISO is granted) of the Common Stock with
respect to which ISOs are exercisable for the first time by a Key Employee
during any calendar year (counting ISOs under this Plan and incentive stock
options under any other stock option plan of the Company or a Related Company)
shall not exceed $100,000. If an Option intended as an ISO is granted to a Key
Employee and the Option may not be treated in whole or in part as an ISO
pursuant to the $100,000 limitation, the Option shall be treated as an ISO to
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the extent it may be so treated under the limitation and as an NQSO as to the
remainder. For purposes of determining whether an ISO would cause the limitation
to be exceeded, ISOs shall be taken into account in the order granted.
(b) NQSOs. The annual limits set forth above for ISOs shall
not apply to NQSOs.
7. Terms and Conditions of Options. Options granted pursuant to the
Plan shall include expressly or by reference the following terms and conditions,
as well as such other provisions not inconsistent with the provisions of this
Plan and, for ISOs granted under this Plan, the provisions of section 422(b) of
the Code, as the Committee shall deem desirable --
(a) Number of Shares. The Option shall state the number of
shares of Common Stock to which the Option pertains.
(b) Price. The Option shall state the Option price which shall
be determined and fixed by the Committee in its discretion but shall not be less
than the higher of 100 percent (110 percent in the case of an ISO granted to a
more-than-10-percent shareholder, as provided in paragraph (j) below) of the
fair market value of the optioned shares of Common Stock on the date the Option
is granted, or the par value thereof.
The fair market value of a share of Common Stock shall be the
closing price of the Common Stock on a registered securities exchange or on an
over-the-counter market on the last business day prior to the date of grant on
which Common Stock traded.
(c) Term
(1) ISOs. Subject to earlier termination as provided
in paragraphs (e), (f), and (g) below and in Section 10 hereof, the term of each
ISO shall be not more than 10 years (five years in the case of a more-than-10-
percent shareholder, as discussed in paragraph (j) below) from the date of
grant.
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<PAGE>
(2) NQSOs. Subject to earlier termination as provided
in paragraphs (e), (f), and (g) below and in Section 10 hereof, the term of each
NQSO shall be not more than ten years from the date of grant.
(d) Exercise. Options shall be exercisable in such
installments and on such dates, as the Committee may specify. The Committee may
accelerate the exercise date of any outstanding Options, in its discretion, if
it deems such acceleration to be desirable.
Any exercisable Options may be exercised at any time up to the
expiration or termination of the Option. Exercisable Options may be exercised,
in whole or in part and from time to time, by giving written notice of exercise
to the Company at its principal office, specifying the number of shares to be
purchased and accompanied by payment in full of the aggregate Option exercise
price for such shares. Only full shares shall be issued under the Plan, and any
fractional share which might otherwise be issuable upon exercise of an Option
granted hereunder shall be forfeited.
The Option price shall be payable --
(1) in cash or its equivalent;
(2) in the case of an ISO, if the Committee in its
discretion causes the Option Agreement so to provide, and in the case of an
NQSO, if the Committee in its discretion so determines at or prior to the time
of exercise, then --
(A) in shares of Common Stock previously
acquired by the Optionee; provided that if such shares of Common Stock were
acquired through the exercise of an ISO and are used to pay the Option price for
ISOs, such shares have been held by the Key Employee for a period of not less
than the holding period described in section 422(a)(1) of the Code on the date
of exercise;
(B) in Company Common Stock newly acquired
by the Optionee upon exercise of such Option (which shall constitute a
disqualifying disposition in the case of an Option which is an ISO);
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(C) by delivering a properly executed notice
of exercise of the Option to the Company and a broker, with irrevocable
instructions to the broker promptly to deliver to the Company the amount of sale
or loan proceeds necessary to pay the exercise price of the Option;
(D) if the Optionee is designated as an
"eligible participant," and if the Optionee thereafter so requests, (i) the
Company will loan the Optionee the money required to pay the exercise price of
the Option; (ii) any such loan to an Optionee shall be made only at the time the
Option is exercised; and (iii) the loan will be made on the Optionee's personal
negotiable demand promissory note, bearing interest at the lowest rate which
will avoid imputation of interest under section 7872 of the Code, and including
such other terms as the Committee prescribes; or
(E) in any combination of subparagraphs (1),
(2)(A), (2)(B), (2)(C) and (2)(D) above.
In the event the Option price is paid, in whole or in part,
with shares of Common Stock, the portion of the Option price so paid shall be
equal to the aggregate fair market value (determined under paragraph (b) above,
but as of the date of exercise of the Option, rather than the date of grant) of
the Common Stock so surrendered in payment of the Option price.
(e) Termination of Employment or Board Membership. If a Key
Employee's employment by the Company (and Related Companies) or a Non-employee
Director's membership on the Board is terminated by either party prior to the
expiration date fixed for his Option for any reason other than death or
disability, such Option may be exercised, to the extent of the number of shares
with respect to which the Optionee could have exercised it on the date of such
termination, or to any greater extent permitted by the Committee, by the
Optionee at any time prior to the earlier of (i) the expiration date specified
in such Option, or (ii) an accelerated expiration date determined by the
Committee, in its discretion, and set forth in the Option Agreement; except
that, subject to Section 10 hereof, such accelerated expiration date shall not
be earlier than the date of the termination of the Key Employee's
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employment or the Non-employee Director's Board membership, and in the case of
ISOs, such accelerated expiration date shall not be later than three months
after such termination of employment.
(f) Exercise upon Disability of Optionee. If an Optionee
becomes disabled (within the meaning of section 22(e)(3) of the Code) during his
employment or membership on the Board and, prior to the expiration date fixed
for his Option, his employment or membership on the Board is terminated as a
consequence of such disability, such Option may be exercised, to the extent of
the number of shares with respect to which the Optionee could have exercised it
on the date of such termination, or to any greater extent permitted by the
Committee, by the Optionee at any time prior to the earlier of (i) the
expiration date specified in such Option, or (ii) an accelerated termination
date determined by the Committee, in its discretion, and set forth in the Option
Agreement; except that, subject to Section 10 hereof, such accelerated
termination date shall not be earlier than the date of the Optionee's
termination of employment or Board Membership by reason of disability, and in
the case of ISOs, such accelerated termination date shall not be later than one
year after such termination of employment. In the event of the Optionee's legal
disability, such Option may be exercised by the Optionee's legal representative.
(g) Exercise upon Death of Optionee. If an Optionee dies
during his employment or Board Membership, and prior to the expiration date
fixed for his Option, or if an Optionee whose employment or Board membership is
terminated for any reason, dies following his termination of employment or Board
membership but prior to the earliest of (i) the expiration date fixed for his
Option, (ii) the expiration of the period determined under paragraphs (e) and
(f) above, or (iii) in the case of an ISO, three months following termination of
employment, such Option may be exercised, to the extent of the number of shares
with respect to which the Optionee could have exercised it on the date of his
death, or to any greater extent permitted by the Committee, by the Optionee's
estate, personal representative or beneficiary who acquired the
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<PAGE>
right to exercise such Option by bequest or inheritance or by reason of the
death of the Optionee. Such post-death exercise may occur at any time prior to
the earlier of (i) the expiration date specified in such Option or (ii) an
accelerated termination date determined by the Committee, in its discretion, and
set forth in the Option Agreement; except that, subject to Section 10 hereof,
such accelerated termination date shall not be later than three years after the
date of death.
(h) Non-Transferability. No ISO and (except as otherwise
provided in any Option Agreement) no NQSO shall be assignable or transferable by
the Optionee other than by will or by the laws of descent and distribution, and
during the lifetime of the Optionee, shall be exercisable only by him or by his
guardian or legal representative. If the Optionee is married at the time of
exercise and if the Optionee so requests at the time of exercise, the
certificate or certificates shall be registered in the name of the Optionee and
the Optionee's spouse, jointly, with right of survivorship.
(i) Rights as a Shareholder. An Optionee shall have no rights
as a shareholder with respect to any shares covered by his Option until the
issuance of a stock certificate to him for such shares.
(j) Ten Percent Shareholder. If the Key Employee owns more
than 10 percent of the total combined voting power of all shares of stock of the
Company or of a Related Company at the time an ISO is granted to him, the Option
price for the ISO shall be not less than 110 percent of the fair market value
(as determined under paragraph (b) above) of the optioned shares of Common Stock
on the date the ISO is granted, and such ISO, by its terms, shall not be
exercisable after the expiration of five years from the date the ISO is granted.
The conditions set forth in this paragraph shall not apply to NQSOs.
(k) Listing and Registration of Shares. Each Option shall be
subject to the requirement that, if at any time the Committee shall determine,
in its discretion, that the listing, registration, or qualification of the
shares of Common Stock covered thereby upon any securities exchange or under any
state or federal law, or the consent or approval of any governmental
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<PAGE>
regulatory body, is necessary or desirable as a condition of, or in connection
with, the granting of such Option or the purchase of shares of Common Stock
thereunder, or that action by the Company or by the Optionee should be taken in
order to obtain an exemption from any such requirement, no such Option may be
exercised, in whole or in part, unless and until such listing, registration,
qualification, consent, approval, or action shall have been effected, obtained,
or taken under conditions acceptable to the Committee. Without limiting the
generality of the foregoing, each Optionee or his legal representative or
beneficiary may also be required to give satisfactory assurance that shares
purchased upon exercise of an Option are being purchased for investment and not
with a view to distribution, and certificates representing such shares may be
legended accordingly.
(l) Withholding and Use of Shares to Satisfy Tax Obligations.
The obligation of the Company to deliver shares of Common Stock upon the
exercise of any Option shall be subject to applicable federal, state and local
tax withholding requirements.
If the exercise of any Option is subject to the withholding
requirements of applicable federal tax law, the Committee, in its discretion,
may permit or require the Key Employee to satisfy the federal, state and local
withholding tax, in whole or in part, by electing to have the Company withhold
shares of Common Stock subject to the exercise (or by returning previously
acquired shares of Common Stock to the Company). The Company may not withhold
shares in excess of the number necessary to satisfy the minimum federal, state
and local income tax withholding requirements. Shares of Common Stock shall be
valued, for purposes of this paragraph, at their fair market value under
paragraph (b) above, but as of the date the amount attributable to the exercise
of the Option is includable in income by the Key Employee under section 83 of
the Code (the "Determination Date").
If shares of Common Stock acquired by the exercise of an ISO
are used to satisfy the withholding requirement described above, such shares of
Common Stock must have been held by the Key Employee for a period of not less
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<PAGE>
than the holding period described in section 422(a)(1) of the Code as of the
Determination Date.
The Committee shall adopt such withholding rules as it deems
necessary to carry out the provisions of this paragraph.
(m) Loans. If an Optionee is designated as an "eligible
participant" by the Committee at the date of grant in the case of an ISO, or at
or after the date of grant in the case of an NQSO, and if the Optionee
thereafter so requests, the Company will loan the Optionee the money required to
satisfy any regular income tax obligations (as opposed to alternative minimum
tax obligations) resulting from the exercise of any Options. Any loan or loans
to an Optionee shall be made only at the time any such tax resulting from such
exercise is due. The Committee, in its discretion, may require an affidavit from
the Optionee specifying the amount of the tax required to be paid and the date
when such tax must be paid. The loan will be made on the Optionee's personal,
negotiable, demand promissory note, bearing interest at the lowest rate which
will avoid imputation of interest under section 7872 of the Code, and including
such other terms as the Committee prescribes.
8. Option Agreements -- Other Provisions. Options granted under the
Plan shall be evidenced by written documents ("Option Agreements") in such form
as the Committee shall from time to time approve, and containing such provisions
not inconsistent with the provisions of the Plan (and, for ISOs granted pursuant
to the Plan, not inconsistent with section 422(b) of the Code), as the Committee
shall deem advisable. The Option Agreements shall specify whether the Option is
an ISO or NQSO. Each Optionee shall enter into, and be bound by, an Option
Agreement as soon as practicable after the grant of an Option.
9. Capital Adjustments. The number of shares which may be issued under
the Plan, the maximum number of shares with respect to which Options may be
granted to any Optionee under the Plan, as stated in Section 4 hereof, and the
number of shares issuable upon exercise of outstanding Options under the Plan
(as well as the Option price per share under such outstanding Options)
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<PAGE>
shall, subject to the provisions of section 424(a) of the Code, be adjusted, as
may be deemed appropriate by the Committee, to reflect any stock dividend, stock
split, share combination, or similar change in the capitalization of the
Company. In the event any such change in capitalization cannot be reflected in a
straight mathematical adjustment of the number of shares issuable upon the
exercise of outstanding Options (and a straight mathematical adjustment of the
exercise price thereof), the Committee shall make such adjustments as are
appropriate to reflect most nearly such straight mathematical adjustment. Such
adjustments shall be made only as necessary to maintain the proportionate
interest of Optionees, and preserve, without exceeding, the value of Options.
10. Certain Corporate Transactions. In the event of a corporate
transaction (as that term is described in section 424(a) of the Code and the
Treasury Regulations issued thereunder as, for example, a merger, consolidation,
acquisition of property or stock, separation, reorganization, or liquidation),
each outstanding Option shall be assumed by the surviving or successor
corporation; provided, however, that, in the event of a proposed corporate
transaction, the Committee may terminate all or a portion of the outstanding
Options if it determines that such termination is in the best interests of the
Company. If the Committee decides to terminate outstanding Options, the
Committee shall give each Optionee holding an Option to be terminated not less
than seven days' notice prior to any such termination, and any Option which is
to be so terminated may be exercised (if and only to the extent that it is then
exercisable) up to, and including the date immediately preceding such
termination. Further, as provided in Section 7(d) hereof, the Committee, in its
discretion, may accelerate, in whole or in part, the date on which any or all
Options become exercisable.
The Committee also may, in its discretion, change the terms of
any outstanding Option to reflect any such corporate transaction, provided that,
in the case of ISOs, such change would not constitute a "modification" under
section 424(h) of the Code, unless the Option holder consents to the change.
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<PAGE>
11. Change in Control.
(a) Full Vesting. Notwithstanding any other provision of this
Plan, all outstanding Options shall become fully vested and exercisable upon a
Change in Control.
(b) Definitions. The following definitions shall apply for
purposes of this Section --
(1) "Change in Control" means the occurrence of any
of the following: (i) the sale, lease, transfer, conveyance or other disposition
(other than by way of merger or consolidation), in one or a series of related
transactions, of all or substantially all of the assets of the Company to any
"person" (as such term is used in section 13(d)(3) of the Exchange Act) other
than the Principal or his Related Parties, (ii) the adoption of a plan relating
to the liquidation or dissolution of the Company, (iii) the consummation of any
transaction (including, without limitation, any merger or consolidation) the
result of which is that any "person" (as defined above) becomes the "beneficial
owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange
Act, except that a Person shall be deemed to have "beneficial ownership" of all
securities that such Person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time, upon the happening of
an event or otherwise), of more of the voting stock of the Company than is
"beneficially owned" (as defined above) at such time by the Principal and his
Related Parties, or (iv) the first day on which a majority of the members of the
Board are not Continuing Directors.
(2) "Continuing Directors" means, as of any date of
determination, any member of the Board who (i) was a member of the Board on
September 30, 1996, or (ii) was nominated for election or elected to the Board
with approval of a majority of the Continuing Directors who were members of the
Board at the time of such nomination or election.
(3) "Person" shall have the meaning set forth in the
indenture dated July 7, 1995, by and among Pegasus Media & Communications, Inc.,
certain of its subsidiaries, and First Union National Bank and Trustee.
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<PAGE>
(4) "Principal" means Marshall W. Pagon.
(5) "Related Party" means (A) any immediate family
member of the Principal or (B) any trust, corporation, partnership or other
entity, more than 50% of the voting equity interests of which are owned directly
or indirectly by, and which is controlled by, the Principal and/or such other
Persons referred to in the immediately preceding clause (A). For purposes of
this definition, (i) "immediate family member" means spouse, parent, step-
parent, child, sibling or step-sibling, and (ii) "control," as used with respect
to any Person, means the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of such Person,
whether through the ownership of voting securities, by agreement or otherwise;
provided that beneficial ownership of 10% or more of the voting securities of a
Person shall be deemed to be control. In addition, the Principal's estate shall
be deemed to be a Related Party until such time as such estate is distributed in
accordance with the Principal's will or applicable state law.
12. Amendment or Termination of the Plan
(a) In General. The Board, pursuant to a written resolution,
from time to time may suspend or terminate the Plan or amend it, and the
Committee may amend any outstanding Options in any respect whatsoever; except
that, without the approval of the shareholders (given in the manner set forth
in paragraph (b) below) --
(1) the class of employees eligible to receive ISOs
shall not be changed;
(2) the maximum number of shares of Common Stock with
respect to which Options may be granted under the Plan shall not be increased,
except as permitted under Section 9 hereof;
(3) the duration of the Plan under Section 18 hereof
with respect to any ISOs granted hereunder shall not be extended; and
(4) no amendment requiring shareholder approval
pursuant to Treas. Reg. Section 1.162-27(e)(4)(vi) or any successor thereto may
be made.
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<PAGE>
Notwithstanding the foregoing, no such suspension,
discontinuance or amendment shall materially impair the rights of any holder of
an outstanding Option without the consent of such holder.
(b) Manner of Shareholder Approval. The approval of
shareholders must be effected --
(1) By a method and in a degree that would be treated
as adequate under applicable state law in the case of an action requiring
shareholder approval (i.e., an action on which shareholders would be entitled to
vote if the action were taken at a duly held shareholders' meeting); or
(2) By a majority of the votes cast at a duly held
shareholders' meeting at which a quorum representing a majority of all
outstanding voting stock is, either in person or by proxy, present and voting on
the Plan.
13. Absence of Rights. Neither the adoption of the Plan nor any action
of the Board or the Committee shall be deemed to give any individual any right
to be granted an Option, or any other right hereunder, unless and until the
Committee shall have granted such individual an Option, and then his rights
shall be only such as are provided by the Option Agreement.
Any Option under the Plan shall not entitle the holder thereof
to any rights as a stockholder of the Company prior to the exercise of such
Option and the issuance of the shares pursuant thereto. Further, notwithstanding
any provisions of the Plan or the Option Agreement with a Key Employee, the
Company and any Related Company shall have the right, in its discretion but
subject to any employment contract entered into with the Key Employee, to retire
the Key Employee at any time pursuant to its retirement rules or otherwise to
terminate his employment at any time for any reason whatsoever.
14. Indemnification of Board and Committee. Without limiting any
other rights of indemnification which they may have from the Company and any
Related Company, the members of the Board and the members of the Committee
shall be indemnified by the Company against all costs and expenses reasonably
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<PAGE>
incurred by them in connection with any claim, action, suit, or proceeding to
which they or any of them may be a party by reason of any action taken or
failure to act under, or in connection with, the Plan, or any Option granted
thereunder, and against all amounts paid by them in settlement thereof (provided
such settlement is approved by legal counsel selected by the Company) or paid by
them in satisfaction of a judgment in any such action, suit, or proceeding,
except a judgment based upon a finding of willful misconduct or recklessness on
their part. Upon the making or institution of any such claim, action, suit, or
proceeding, the Board or Committee member shall notify the Company in writing,
giving the Company an opportunity, at its own expense, to handle and defend the
same before such Board or Committee member undertakes to handle it on his own
behalf. The provisions of this Section shall not give members of the Board or
the Committee greater rights than they would have under the Company's by-laws or
Delaware law.
15. Application of Funds. The proceeds received by the Company from the
sale of Common Stock pursuant to Options granted under the Plan shall be used
for general corporate purposes. Any cash received in payment for shares upon
exercise of an Option shall be added to the general funds of the Company and
shall be used for its corporate purposes. Any Common Stock received in payment
for shares upon exercise of an Option shall become treasury stock.
16. Shareholder Approval. This Plan shall become effective on September
30, 1996 (the date the Plan was adopted by the Board); provided, however, that
if the Plan is not approved by the shareholders, in the manner described in
Section 12(b) hereof, within 12 months before or after the date the Plan was
adopted by the Board, ISOs granted hereunder shall be null and void and no
additional Options shall be granted hereunder.
17. No Obligation to Exercise Option. The granting of an Option shall
impose no obligation upon an Optionee to exercise such Option.
18. Termination of Plan. Unless earlier terminated as provided in the
Plan, the Plan and all authority granted hereunder shall terminate absolutely
at 12:00 midnight on September 29, 2006, which date is within 10 years after
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<PAGE>
the date the Plan was adopted by the Board, or the date the Plan was approved by
the shareholders of the Company, whichever is earlier, and no Options hereunder
shall be granted thereafter. Nothing contained in this Section, however, shall
terminate or affect the continued existence of rights created under Options
issued hereunder, and outstanding on the date set forth in the preceding
sentence, which by their terms extend beyond such date.
19. Governing Law. The Plan shall be governed by the applicable Code
provisions to the maximum extent possible. Otherwise, the laws of the State
of Delaware shall govern the operation of, and the rights of Key Employees and
Non-employee Directors under, the Plan and Options granted thereunder.
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<PAGE>
EXHIBIT 21.1
Subsidiary Jurisdiction
- ---------- ------------
Bride Communications, Inc. Delaware
HMW, Inc. Maine
MCT Cablevision, Limited Partnership Delaware
MCT Cablevision, Ltd. Pennsylvania
PCT SG, Inc. Puerto Rico
Pegasus Anasco Holdings, Inc. Delaware
Pegasus Broadcast Associates, L.P. Pennsylvania
Pegasus Broadcast Television, Inc. Pennsylvania
Pegasus Cable Television, Inc. Massachusetts
Pegasus Cable Television of Anasco, Inc. Puerto Rico
Pegasus Cable Television Connecticut, Inc. Connecticut
Pegasus Cable Television of San German, Inc. Delaware
Pegasus Media & Communications, Inc. Delaware
Pegasus Satellite Television, Inc. Delaware
Portland Broadcasting, Inc. Maine
PP Broadcast, Inc. Delaware
WDBD License Corp. Delaware
WDSI License Corp. Delaware
WILF, Inc. Delaware
WOLF License Corp. Delaware
WTLH, Inc. Delaware
WTLH License Corp. Delaware
PHTRANS:131894_1.WP5
<PAGE>
HERBEIN + COMPANY INC.
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the reference to our firm under the captions "Experts"
and "Selected Historical and Pro Forma Combined Financial Data" in the Form
S-1 Registration Statement of Pegasus Communications Corporation filed with
the Securities and Exchange Commission for the initial registration of Class
A Common Stock, and to the inclusion therein of our reports dated March 4,
1994 with respect to the 1993 combined financial statements and financial
statement schedule of Pegasus Communications Corporation.
/s/ HERBEIN + COMPANY, INC.
- ------------------------------
HERBEIN + COMPANY, INC.
Reading, Pennsylvania
October 1, 1996
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1
(File No. 333-05057) of our report dated May 31, 1996 except as to Note 14
for which the date is September 3, 1996, on our audits of the combined
financial statements and financial statement schedule of Pegasus
Communications Corporation. We also consent to the reference to our firm
under the caption "Experts" and "Selected Historical and Pro Forma Combined
Financial Data."
/s/ Coopers & Lybrand L.L.P.
- -----------------------------
Coopers & Lybrand L.L.P.
Philadelphia, Pennsylvania
October 1, 1996
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1
(File No. 333-05057) of our report dated March 8, 1996 on our audits of the
financial statements of WTLH, Inc.
/s/ Coopers & Lybrand L.L.P.
- -----------------------------
Coopers & Lybrand L.L.P.
Jacksonville, Florida
October 1, 1996
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1
(File No. 333-05057) of our report, which includes an explanatory paragraph
regarding the restatement of depreciation expense, dated August 9, 1996 on
our audits of the financial statements of Dom's Tele-Cable, Inc.
/s/ Coopers & Lybrand L.L.P.
- -----------------------------
Coopers & Lybrand L.L.P.
San Juan, Puerto Rico
October 1, 1996
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report on the balance sheets of Portland Broadcasting, Inc. as
of September 25, 1994 and September 24, 1995 and the related statements of
operations, deficiency in assets, and cash flows for each of the three fiscal
years in the period ended September 24, 1995, dated October 27, 1995, in the
Registration Statement Form S-1 and related Prospectus of Pegasus
Communications Corporation.
/s/ Ernst & Young LLP
- -------------------------------
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
October 1, 1996
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 2 to Registration Statement (No.
333-05057) of Pegasus Communications Corporation on Form S-1 of our report dated
April 26, 1996, except for Note 9 as to which the date is September 3, 1996, on
the DBS Operations of Harron Communications Corp. appearing in this Registration
Statement, and to the reference to us under the heading "Experts" in such
prospectus.
/s/ Deloitte & Touche LLP
- ---------------------------
DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
October 1, 1996
