<PAGE>
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
FORM 8-K/A
Amendment No. 1
Current Report
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): September 8, 1997
PEGASUS COMMUNICATIONS CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
Delaware 0-21389 51-0374669
- ----------------- -------------- --------------------
(State or other (Commission (I.R.S. Employer
jurisdiction of File Number) Identification No.)
incorporation)
c/o Pegasus Communications Management Company, 100 Matsonford Road,
5 Radnor Corporate Center, Suite 454, Radnor, Pennsylvania 19087
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 610-341-1801
Not Applicable
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report.)
===============================================================================
<PAGE>
Item 5. Other Events.
(a) Completed DBS Acquisitions. From January 1, 1997 to an effective date
as of October 8, 1997, Pegasus Communications Corporation ("Pegasus" and
together with its direct and indirect subsidiaries, the "Company") acquired from
21 independent DIRECTV(R) ("DIRECTV") providers the rights to provide DIRECTV
programming in certain rural areas of 22 states and related assets (the
"Completed DBS Acquisitions"). Total consideration for the acquisitions was
approximately $142.0 million, which, depending upon the particular transaction,
consisted of cash, promissory notes, shares of Class A Common Stock, warrants to
purchase Class A Common Stock, preferred stock of a subsidiary and/or assumed
liabilities.
(b) Senior Notes Offering. On October 21, 1997, the Company consummated a
private offering (the "Senior Notes Offering") of $115.0 million aggregate
principal amount of senior notes, bearing interest at 9 5/8% per annum (the
"Senior Notes"). The Senior Notes Offering was made in reliance on Rule 144A and
other registration exemptions under the Securities Act of 1933, as amended (the
"Act"). The Company used the net proceeds of the Senior Notes Offering to repay
in full and terminate all commitments under the existing credit facility of
Pegasus Satellite Holdings, Inc. ("PSH"). The Company anticipates using the
remaining net proceeds of approximately $17.1 million to finance direct
broadcast satellite television ("DBS") acquisitions. The entire text of the
Company's press releases, dated October 8, 1997 and October 17, 1997, relating
to the Senior Notes, are incorporated by reference herein and a copy of each
press release has been filed as an exhibit to this report.
(c) Pending DBS Acquisitions. As of October 20, 1997, the Company had
entered into letters of intent or definitive agreements to acquire DIRECTV
distribution rights and related assets from eight independent providers of
DIRECTV services (the "Pending DBS Acquisitions"), which have exclusive DIRECTV
service territories in certain rural areas of Georgia, Illinois, Minnesota,
Nebraska, Texas, Utah and Wyoming and whose territories include, in the
aggregate, approximately 278,500 television households (including 13,300
seasonal residences), 29,400 business locations and 17,900 subscribers. The
Pending DBS Acquisitions range in consideration from $500,000 to $13.1 million.
In the aggregate, the consideration for the Pending DBS Acquisitions is $36.1
million and consists of $28.4 million of cash, $975,000 in promissory notes and
$6.7 million in shares of Class A Common Stock. When negotiating the price of
the Pending DBS Acquisitions, the Company takes into account such factors as the
number of subscribers, the mix between cabled and uncabled households in the
service territory, competition, current DBS penetration rates, the structure of
the acquisition, and the form of consideration. The cash portion of certain of
the Pending DBS Acquisitions will be paid from proceeds of the Senior Notes
Offering.
The largest Pending DBS Acquisition involves the acquisition of territories
and related assets from an entity controlled by Donald W. Weber, a director of
Pegasus. The total consideration for this acquisition will be approximately
$13.1 million (subject to certain adjustments) and will consist of approximately
$6.4 million in cash and $6.7 million in shares of Class A Common Stock. As of
August 31, 1997, the territories to be acquired in this acquisition consisted of
approximately 115,700 television households (including 2,700 seasonal
residences), 11,000 business locations and 5,800 subscribers.
Each of the Pending DBS Acquisitions for which there is only a letter of
intent is subject to negotiation of a definitive agreement, and all of the
Pending DBS Acquisitions are subject, if not already obtained, to the prior
approval of Hughes Electronics Corporation or one of its subsidiaries ("Hughes")
and the National Rural Telecommunications Cooperative ("NRTC"). In addition to
these conditions, each of the Pending DBS Acquisitions will be subject to
conditions typical in acquisitions of this nature, certain of which conditions,
like the Hughes and NRTC consents, may be beyond the Company's control. There
can be no assurance that definitive agreements will be entered into with respect
to all of the Pending DBS Acquisitions or, if entered into, that all or any of
the Pending DBS Acquisitions will be completed.
(d) Subsidiaries Combination. Prior to October 21, 1997, the Company had
two principal operating subsidiaries: Pegasus Media & Communications, Inc.
("PM&C") and PSH. Upon consummation of the Senior Notes Offering, PM&C acquired
the assets of PSH (the "Subsidiaries Combination"), which assets consisted of
the stock of its subsidiaries that hold the rights to all of the Company's DBS
territories. As a result of the Subsidiaries Combination, PM&C is the direct or
indirect parent of all of the Company's subsidiaries that operate the Company's
TV, DBS and cable businesses.
2
<PAGE>
(e) New Credit Facility. By the end of 1997, PM&C will enter into a $180.0
million six-year, secured, reducing revolving credit facility (the "New Credit
Facility"). Borrowings under the New Credit Facility are available for
acquisitions, subject to the approval of the lenders in certain circumstances,
working capital and general corporate purposes. Concurrently with the closing of
the New Credit Facility, PM&C's existing credit facility will be repaid in full
and the commitments thereunder will be terminated.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements of Acquired or to be Acquired Businesses.
Historical financial statements for the following acquired or to be
acquired businesses are attached hereto:
<TABLE>
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<S> <C>
(i) Clearvision, Inc. (an acquired business)
Report of Poole Cunningham & Reitano, P.A. ....................................... F-1
Balance Sheet as of January 16, 1997 ............................................. F-2
Statement of Operations for the fiscal year ended January 16, 1997 ............... F-3
Statement of Stockholders' Equity for the fiscal year ended January 16, 1997 ...... F-4
Statement of Cash Flows for the fiscal year ended January 16, 1997 ............... F-5
Notes to Financial Statements ................................................... F-6
(ii) Southeastern Communication Systems, Inc. (an acquired business)
Report of Greenway, Smith & Haisten, P.C. ....................................... F-8
Statements of Net Assets to be Sold as of December 31, 1996 and March 31, 1997
(unaudited)....................................................................... F-9
Statements of Operations of Assets to be Sold for the year ended December 31, 1996
and the three months ended March 31, 1996 (unaudited) and 1997 (unaudited) ...... F-10
Statements of Cash Flows for the year ended December 31, 1996 and the three months
ended March 31, 1996 (unaudited) and 1997 (unaudited) ............................ F-11
Notes to Financial Statements ................................................... F-12
(iii) Northern Electric Service Corporation (an acquired business)
Report of Larson, Allen, Weishair & Co., LLP .................................... F-14
Balance Sheets as of December 31, 1996 and June 30, 1997 (unaudited) ............ F-15
Statements of Operations and Accumulated Deficit for the year ended December 31,
1996 and the six months ended June 30, 1996 (unaudited) and 1997 (unaudited) ..... F-16
Statements of Cash Flows for the year ended December 31, 1996 and the six months
ended June 30, 1996 (unaudited) and 1997 (unaudited) ............................ F-17
Notes to Financial Statements ................................................... F-18
(iv) Direct Broadcast Satellites (an acquired business)
Report of Ernst & Young LLP ...................................................... F-22
Balance Sheets as of December 31, 1996 and June 30, 1997 (unaudited) ............ F-23
Statements of Operations for the year ended December 31, 1996 and the six months
ended June 30, 1996 (unaudited) and 1997 (unaudited) ............................. F-24
Statement of Changes in Division Equity for the year ended December 31, 1996 and
the six months ended June 30, 1997 (unaudited) ................................. F-25
Statements of Cash Flows for the year ended December 31, 1996 and the six months
ended June 30, 1996 (unaudited) and 1997 (unaudited) ............................ F-26
Notes to Financial Statements ................................................... F-27
(v) Suwannee Valley Satellite, Inc. (an acquired business)
Report of Bolinger, Segars, Gilbert & Moss, L.L.P. .............................. F-30
Balance Sheets as of December 31, 1996 and April 30, 1997 (unaudited) ............ F-31
Statements of Income and Retained Earnings for the year ended December 31, 1996 and
the four months ended April 30, 1996 (unaudited) and 1997 (unaudited) .......... F-32
Statements of Cash Flows for the year ended December 31, 1996 and the four months
ended April 30, 1996 (unaudited) and 1997 (unaudited) ............................ F-33
Notes to Financial Statements ................................................... F-34
</TABLE>
3
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<TABLE>
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<S> <C>
(vi) View Star Entertainment Services, Inc. (a proposed acquisition)
Report of Arthur Andersen, LLP ................................................... F-37
Balance Sheets as of December 31, 1996 and June 30, 1997 (unaudited) ............ F-38
Statements of Operations for the year ended December 31, 1996 and the six months
ended June 30, 1996 (unaudited) and 1997 (unaudited) ............................ F-39
Statement of Stockholders' Equity for the year ended December 31, 1996 and the six
months ended June 30, 1997 (unaudited) ........................................... F-40
Statements of Cash Flows for the year ended December 31, 1996 and the six months
ended June 30, 1996 (unaudited) and 1997 (unaudited) ............................ F-41
Notes to Financial Statements ................................................... F-42
(vii) Midwest Minnesota DBS, LLC (an acquired business)
Report of Bradley R. Helmeke, Ltd................................................... F-51
Statements of Net Assets to be Sold as of December 31, 1996 and June 30, 1996
(unaudited) and 1997 (unaudited) ................................................. F-52
Statements of Operations of Assets to be Sold for the year ended December 31, 1996
and the six months ended June 30, 1996 (unaudited) and 1997 (unaudited) ......... F-53
Statements of Cash Flows for the year ended December 31, 1996 and the six months
ended June 30, 1996 (unaudited) and 1997 (unaudited) ............................ F-54
Notes to Financial Statements ................................................... F-55
(viii) DBS Operations of Turner-Vision, Inc. (an acquired business)
Report of Grigoraci, Trainer, Wright & Paterno .................................... F-57
Statement of Net Assets to be Sold as of December 31, 1996 ........................ F-58
Statement of Operations for the year ended December 31, 1996 ..................... F-59
Statement of Cash Flows for the year ended December 31, 1996 ..................... F-60
Notes to Financial Statements ................................................... F-61
(ix) DBS Operations of Pioneer Services Corporation (a proposed acquisition)
Report of Jackson, Thornton & Co., P.C. .......................................... F-64
Balance Sheets as of September 30, 1996 and June 30, 1997 (unaudited) ............ F-65
Statements of Operations and Division Deficiency for the fiscal year ended
September 30, 1996 and the nine months ended June 30, 1996 (unaudited) and 1997
(unaudited) ...................................................................... F-66
Statements of Cash Flows for the fiscal year ended September 30, 1996 and the nine
months ended June 30, 1996 (unaudited) and 1997 (unaudited) ...................... F-67
Notes to Financial Statements ................................................... F-68
</TABLE>
<TABLE>
<CAPTION>
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<S> <C>
(b) Pro Forma Consolidated Financial Information.
(i) Basis of Presentation ............................................................ F-71
(ii) Pro Forma Consolidated Balance Sheet ........................................... F-72
(iii) Pro Forma Consolidated Statement of Operations for the Year Ended December 31,
1996............................................................................. F-73
(iv) Pro Forma Consolidated Statement of Operations for the Six Months Ended June 30,
1997............................................................................. F-74
(v) Pro Forma Consolidated Statement of Operations for the Twelve Months Ended June 30,
1997 ............................................................................ F-75
(vi) Notes to Pro Forma Consolidated Statements of Operations ........................ F-76
</TABLE>
(c) Exhibits.
4.1 Indenture, dated as of October 21, 1997, by and between Pegasus and
First Union National Bank, as trustee, relating to the Senior Notes.
4.2 Registration Rights Agreement, dated as of October 21, 1997, by and
between Pegasus and CIBC Wood Gundy Securities Corp.
99.1 Press release dated October 8, 1997
99.2 Press release dated October 17, 1997
4
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PEGASUS COMMUNICATIONS CORPORATION
By /s/ Robert N. Verdecchio
------------------------------------
Robert N. Verdecchio,
Senior Vice President and
Chief Financial Officer
October 29, 1997
5
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Stockholders of
ClearVision, Inc.:
We have audited the accompanying balance sheet of ClearVision, Inc. as of
January 16, 1997, and the related statements of operations, stockholders'
equity, and cash flows for the year 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 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 financial position of ClearVision, Inc. as of January
16, 1997, and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The accompanying supplementary data is presented
for purposes of additional analysis and is not a required part of the basic
financial statements. Such information has been subjected to the auditing
procedures applied in the audit of the basic financial statements, and, in our
opinion, is fairly stated in all material respects in relation to the financial
statements taken as a whole.
Poole Cunningham & Reitano, P.A.
Jackson, Mississippi
March 20, 1997
F-1
<PAGE>
CLEARVISION, INC.
Balance Sheet
January 16, 1997
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash ........................................................................... $ 62,971
Accounts receivable, net of $10,283 allowance ................................. 332,488
Notes receivable, net of $200,112 allowance .................................... 1,026,783
Inventories .................................................................. 99,282
Prepaid assets ............................................................... 8,012
----------
Total current assets ...................................................... 1,529,536
----------
Property and equipment ............................................................ 150,877
Less: accumulated depreciation ................................................ (45,563)
----------
Property and equipment, net ................................................ 105,314
----------
Other assets:
TV rights, net ............................................................... 1,251,596
Organization costs, net ...................................................... 599
----------
Total other assets, net ................................................... 1,252,195
----------
$2,887,045
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Current liabilities:
Accounts payable -- trade ................................................... $ 192,130
Accrued expenses ............................................................ 46,031
Line of credit with bank ...................................................... 1,041,356
Deferred revenue ............................................................ 226,427
----------
Total current liabilities ................................................... 1,505,944
Long-term liabilities --
Loans from stockholders ...................................................... 750,000
----------
Total liabilities ......................................................... 2,255,944
Stockholders' equity:
Common stock-$1 par value, authorized 1,500,000 shares; 900,000 shares issued and
outstanding .................................................................. 900,000
Accumulated deficit ............................................................ (268,899)
----------
Total stockholders' equity ................................................ 631,101
----------
$2,887,045
==========
</TABLE>
See accompanying notes to financial statements.
F-2
<PAGE>
CLEARVISION, INC.
Statement of Operations
For the Year Ended January 16, 1997
Revenue:
Programming ............................................... $3,352,207
Hardware .................................................. 940,077
Installation ............................................... 337,901
----------
Total revenue ............................................ 4,630,185
----------
Cost of sales:
Programming ............................................... 2,160,202
Hardware .................................................. 882,379
Installation ............................................... 159,506
----------
Total cost of sales ...................................... 3,202,087
----------
Gross profit ......................................... 1,428,098
General and administrative expenses .......................... 1,730,546
----------
Operating loss ...................................... (302,448)
Other income (expense):
Interest income ............................................ 331,616
Other income ............................................... 39,071
----------
Total other income (expense) ............................. 370,687
----------
Net earnings ......................................... $ 68,239
==========
See accompanying notes to financial statements.
F-3
<PAGE>
CLEARVISION, INC.
Statement of Stockholders' Equity
For the Year Ended January 16, 1997
<TABLE>
<CAPTION>
Common Accumulated
Stock Deficit Total
---------- ------------ ---------
<S> <C> <C> <C>
Stockholders' Equity -- January 17, 1996 ...... $900,000 $(337,138) $562,862
Net earnings .................................... -- 68,239 68,239
--------- ---------- ---------
Stockholders' Equity -- January 16, 1997 ...... $900,000 $(268,899) $631,101
========= ========== =========
</TABLE>
See accompanying notes to financial statements
F-4
<PAGE>
CLEARVISION, INC.
Statement of Cash Flows
For the Year Ended January 16, 1997
Cash flows used in operating activities:
Net earnings .......................................... $ 68,239
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization ..................... 179,797
Increase in accounts receivable .................. (262,245)
Increase in prepaid expenses ..................... (3,507)
Decrease in inventories ........................... 205,093
Decrease in deposits .............................. 320
Decrease in accounts payable ..................... (195,854)
Decrease in accrued expenses ..................... (39,622)
Decrease in deferred revenues ..................... (161,390)
----------
Total adjustments .............................. (277,408)
----------
Net cash used in operating activities ......... (209,169)
Cash flows used in investing activities:
Purchase of property and equipment ............... (60,286)
----------
Cash flows used in financing activities:
Increase in notes receivable ..................... 494,705
Decrease in line of credit with bank ............... (201,061)
Repayment of loans to stockholders ............... (150,000)
----------
Net cash provided by financing activities ...... 143,644
----------
Net decrease in cash and cash equivalents ......... (125,811)
Cash and cash equivalents at January 17, 1996 ......... 188,782
----------
Cash and cash equivalents at January 16, 1997 ......... $ 62,971
==========
Supplemental disclosures of cash flow information:
Cash paid during the year for interest ............ $ 101,295
==========
See accompanying notes to financial statements.
F-5
<PAGE>
CLEARVISION, INC.
Notes to Financial Statements
January 16, 1997
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ClearVision, Inc. (the Company) was organized as an S corporation formed
under the laws of Mississippi on September 2, 1993. It is located in Madison,
Mississippi. The Company offers satellite programming services to certain cities
and counties in Mississippi.
(a) Basis of Accounting
The financial statements have been prepared using the accrual method of
accounting in accordance with generally accepted accounting principles.
(b) Year End
The company operates on a 52-53 week fiscal year with a year end date at
or near January 16.
(c) Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
short-term investments maturing within the normal operating cycle to be
cash equivalents.
(d) Concentration of Credit Risk
The Company has two sources of revenue: programming services and equipment
sales. Receivables are primarily due from residents in ClearVision's
territory. Customers' services are disconnected upon past due over sixty
days. Receivables from equipment sales result from customers financing the
purchase price of their equipment. Receivables are secured by a lien on
the equipment sold to the customers.
(e) Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market (net realizable value).
(f) Property and Equipment
Property and equipment are stated at cost. Capital additions, improvements
and major renewals which increase asset values or extend useful lives, are
capitalized as property and equipment. Maintenance and repairs are charged
to operations as incurred. The Company generally provides for depreciation
of its assets under the straight-line method for financial reporting
purposes and on the modified accelerated cost recovery system for income
tax purposes.
(g) Intangibles
The Company amortizes TV rights using the straight-line method over the
estimated economic life of the satellite which is projected to be twelve
years. Organizational costs are being amortized over sixty months using
the straight-line method. Total amortization for TV rights and
organizational costs for the period ended January 16, 1997, were $151,159
and $382, respectively.
(h) Revenue Recognition
The Company derives revenue primarily from programming services, sales of
equipment and installations. Programming revenue is received monthly based
on the date service originated. Interest on financed equipment sales is
recognized when earned.
(i) Income Taxes
The Company, with the consent of its stockholders, has elected under the
Internal Revenue Code to be taxed as an S corporation. In lieu of
corporation income taxes, the stockholders of an S corporation are taxed
on their proportionate share of the Company's taxable income. Therefore,
no provision or liability for Federal income taxes has been included in
the financial statements.
(2) NOTES RECEIVABLE
Notes receivable consist of customer financing of satellite systems through
various repayment plans. At January 16, 1997, the net notes receivable balance
was $1,226,985. Deferred revenue represents unearned
F-6
<PAGE>
CLEARVISION, INC.
Notes to Financial Statements -- (Continued)
January 16, 1997
(2) NOTES RECEIVABLE -- (Continued)
interest on the uncollected notes receivable balance. The balance of deferred
revenue at January 16, 1997 was $226,427. Management's allowances for doubtful
accounts are based upon collection practices of ClearVision, Inc. Results may
vary significantly should Pegasus (see note 7) employ collection practices
different from ClearVision, Inc.
(3) PROPERTY AND EQUIPMENT
A summary of property and equipment follows:
Depreciable
Description Lives Amount
----------- ----- ------
Vehicles 5 yrs $ 72,773
Leasehold improvements 3 yrs 27,889
Furniture and fixtures 3 - 7 yrs 50,215
---------
Property and equipment 150,877
Less accumulated depreciation (45,563)
---------
Property and equipment, net $ 105,314
=========
(4) ACCRUED LIABILITIES
The following is an analysis of accrued liabilities:
Description Amount
----------- --------
Accrued payroll taxes ............... $ 7,579
Accrued sales tax ..................... 22,887
Other accrued expenses ............... 15,565
--------
Total .............................. $46,031
========
(5) SHORT-TERM BORROWINGS -- LINE-OF-CREDIT
The Company has entered into a line-of-credit agreement with Deposit
Guaranty National Bank whereby funds may be advanced to the Company up to a
maximum of $1,600,000. Interest on the line-of-credit is at the bank's current
prime rate plus one-half percent ( 1/2%). This line-of-credit is collateralized
by accounts receivable, inventories and company notes receivable. At January 16,
1997, there were $1,041,356 of advances outstanding under the agreement.
(6) LONG-TERM DEBT
The Company has non-interest bearing notes payable due to the stockholders
at January 16, 1997, in the amount of $750,000.
(7) SUBSEQUENT EVENT
The Company sold substantially all of its assets to Pegasus Communications
Corporation on February 14, 1997, pursuant to an asset purchase agreement dated
January 25, 1997.
F-7
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To Southeastern Communication Systems, Inc.
We have audited the accompanying statement of net assets to be sold of
Southeastern Communication Systems, Inc. (an "S" Corporation) as of December 31,
1996 and the related statements of operations and cash flows for the year then
ended. These statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these 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 statements referred to above are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statements. An audit also includes assessing
the accounting principles used and significant estimates made by management as
well as evaluating the overall presentation of the statements. We believe that
our audit provide a reasonable basis for our opinion.
The accompanying statement of net assets to be sold was prepared to present the
net assets of Southeastern Communication Systems, Inc. to be acquired by Pegasus
Communications Corporation pursuant to the purchase agreement described in Note
4, and is not intended to be a complete presentation of Southeastern
Communication Systems, Inc. assets and liabilities.
In our opinion, the statements referred to above present fairly, in all material
respects, the net assets to be sold of Southeastern Communication System, Inc.
as of December 31, 1996 and the results of operations and cash flows for the
year then ended pursuant to the purchase agreement referred to in Note 4, in
conformity with generally accepted accounting principles.
Greenway, Smith & Haisten, P.C.
Griffin, Georgia
September 25, 1997
F-8
<PAGE>
SOUTHEASTERN COMMUNICATION SYSTEMS, INC.
STATEMENTS OF NET ASSETS TO BE SOLD
<TABLE>
<CAPTION>
December 31, March 31,
1996 1997
-------------- ------------
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Subscriber accounts receivable, less allowance for doubtful accounts of $3,314 at
December 31, 1996 and March 31, 1997 .......................................... $ 62,960 $ 65,985
---------- ---------
Total current assets ......................................................... 62,960 65,985
---------- ---------
DIRECT BROADCAST SATELLITE FRANCHISE, NET OF
ACCUMULATED AMORTIZATION ...................................................... 178,429 171,738
---------- ---------
Total assets .................................................................. 241,389 237,723
---------- ---------
CURRENT LIABILITIES:
Unearned revenue ............................................................... 128,567 164,184
---------- ---------
Total current liabilities ................................................... 128,567 164,184
---------- ---------
NET ASSETS TO BE SOLD ......................................................... $ 112,822 $ 73,539
========== =========
</TABLE>
See Independent Auditor's Report and accompanying footnotes.
F-9
<PAGE>
SOUTHEASTERN COMMUNICATION SYSTEMS, INC.
STATEMENTS OF OPERATIONS OF ASSETS TO BE SOLD
<TABLE>
<CAPTION>
Three months ended
Year ended ---------------------------
December 31, March 31, March 31,
1996 1996 1997
-------------- ------------- ------------
(unaudited) (unaudited)
<S> <C> <C> <C>
Operating Revenues
Subscriber revenue (Programming) ...... $ 552,386 $112,381 $204,463
---------- -------- ---------
Total Operating Revenue ............... 552,386 112,381 204,463
---------- -------- ---------
Operating Expenses
Programming ........................... 377,851 62,161 130,430
Payroll and related expenses ......... 155,244 43,017 35,287
Advertising ........................... 1,985 548 134
Amortization ........................... 26,764 6,691 6,691
Commissions ........................... 30,087 2,258 8,208
Legal and Professional ............... 213 -- --
Miscellaneous ........................ 81 13 --
Rent ................................. 1,340 256 16
Supplies .............................. 4,278 919 373
Travel ................................. 3,359 784 457
Utilities and Telephone ............... 8,250 2,250 2,385
---------- -------- ---------
Total Operating Expenses ............ 609,452 118,897 183,981
---------- -------- ---------
Operating Income (Loss) ............ ($ 57,066) ($ 6,516) $ 20,482
========== ======== =========
</TABLE>
See Independent Auditor's Report and accompanying footnotes.
F-10
<PAGE>
SOUTHEASTERN COMMUNICATION SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three months ended
----------------------------
December 31, March 31, March 31,
1996 1996 1997
-------------- ------------- ------------
(unaudited) (unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Operating income (loss) ................................. ($ 57,066) ($ 6,516) $ 20,482
Adjustments to reconcile operating income (loss) to net cash
provided by operating activities:
Amortization ............................................. 26,764 6,691 6,691
Change in assets and liabilities:
(Increase) decrease in accounts receivable ............... (37,646) (3,854) (3,025)
Increase (decrease) in unearned revenue .................. 99,553 (6,474) 35,617
--------- --------- ---------
Net cash provided (used) by operating activities ......... 31,605 (10,153) 59,765
--------- --------- ---------
Net increase (decrease) in shareholders' equity ............ (31,605) 10,153 (59,765)
--------- --------- ---------
Net change in cash ....................................... -- -- --
Cash at beginning of period .............................. -- -- --
--------- --------- ---------
Cash at end of period .................................... $ -- $ -- $ --
========= ========= =========
</TABLE>
See Independent Auditor's Report and accompanying footnotes.
F-11
<PAGE>
SOUTHEASTERN COMMUNICATION SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of operations
Southeastern Communication Systems, Inc. markets and distributes direct
broadcast satellite (DBS) services to cable and noncable television subscribers
residing within Henry County, Georgia. Southeastern Communication System, Inc.
obtained these exclusive rights to its service territory by investment with the
National Rural Telecommunications Cooperative (NRTC).
Accounts Receivable
Subscriber accounts receivable represents amounts due from customers for
satellite television services and includes amounts billed, but unearned at
year-end.
Revenue Recognition
Southeastern Communication Systems, Inc. recognizes revenues monthly for
DBS services which have been earned through the end of the month. The unearned
portion of billed services is recorded as unearned revenue.
Advertising Costs
Advertising costs are expensed as incurred.
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 statement and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Income Taxes
Southeastern Communication Systems, Inc. has made the election to be
treated as a "Small Business Corporation" for income tax purposes. S
Corporations are generally exempt from federal and state income tax. The
shareholders of an S Corporation are taxed on their proportionate share of the
Company's taxable income. Therefore, no provision or liability for federal or
state income taxes has been included in the financial statements.
Concentrations of Credit Risk
Financial instruments that potentially subject Southeastern Communication
Systems, Inc. to concentrations of credit risk consist principally of trade
accounts receivable. The risk is limited due to the large number of individuals
comprising the Southeastern Communication Systems, Inc. customer base. Exposure
to losses on receivables is principally dependent on each customer's financial
condition. Southeastern Communication Systems, Inc. monitors the exposure for
credit losses and maintains an allowance for anticipated losses.
F-12
<PAGE>
SOUTHEASTERN COMMUNICATION SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
AS OF DECEMBER 31, 1996
(2) DIRECT BROADCAST SATELLITE FRANCHISE
In September of 1993 and 1994 Southeastern Communication System, Inc.
invested $253,685 with NRTC acquiring exclusive franchise right to market direct
broadcast satellite service to cable and noncable television subscribers
residing within the Henry County area. This investment is in an agreement with
NRTC for the rights to provide broadcast services to this service territory for
a period of approximately ten years, which is the expected life of the
satellite. The satellite was launched in late 1993 and became available for use
by Southeastern Communication System, Inc. in 1994. Amortization expense for
these rights for the year ended December 31, 1996 was $26,764.
(3) CONTINGENCY
Southeastern Communication Systems, Inc. relies on NRTC as its sole
provider of programming via Direct broadcast satellite services.
(4) SUBSEQUENT EVENTS
On March 28, 1997, Pegasus entered into an Asset Purchase Agreement with
Southeastern Communication Systems, Inc. Pursuant to the terms of the agreement,
Pegasus purchased certain net assets of Southeastern Communication Systems, Inc.
for $3,900,000 minus certain current liabilities and adjustments on April 9,
1997.
F-13
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Northern Electric Service Corporation
DBA: Northern Horizons
(A wholly owned subsidiary Of
Northern Electric Cooperative Association)
Virginia, Minnesota
We have audited the accompanying balance sheet of Northern Electric Service
Corporation, DBA: Northern Horizons (a wholly owned subsidiary Of Northern
Electric Cooperative Association) as of December 31, 1996, and the related
statements of operations and retained deficit and cash flows for the year 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 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 financial position of Northern Electric Service
Corporation, DBA: Northern Horizons (a wholly owned subsidiary Of Northern
Electric Cooperative Association) as of December 31, 1996, and the results of
its operations and its cash flows for the year then ended, in conformity with
generally accepted accounting principles.
LARSON, ALLEN, WEISHAIR & CO., LLP
Brainerd, Minnesota
August 5, 1997
F-14
<PAGE>
NORTHERN ELECTRIC SERVICE CORPORATION
DBA: NORTHERN HORIZONS
(A WHOLLY OWNED SUBSIDIARY OF
NORTHERN ELECTRIC COOPERATIVE ASSOCIATION)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
1996 1997
-------------- ------------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents .......................................... $ -- $ 54,648
Accounts Receivable ................................................ 137,869 103,853
Inventory ......................................................... 90,598 3,168
Prepaid Expenses ................................................... 1,004 109
---------- ----------
Total Current Assets .......................................... 229,471 161,778
---------- ----------
PROPERTY AND EQUIPMENT (At Cost)
Furniture and Equipment ............................................. 15,139 15,139
Less: Accumulated Depreciation .................................... (4,163) (5,777)
---------- ----------
Total Property and Equipment (At Depreciated Cost) ............ 10,976 9,362
---------- ----------
OTHER ASSETS
Franchise Fees, Net of Accumulated Amortization of $96,917 and
$117,902 at December 31, 1996 and June 30, 1997, respectively ...... 532,649 511,664
Investments in Associated Organizations ........................... 13,481 30,057
Organization Costs, Net of Accumulated Amortizations of $1,452 and
$1,767 at December 31, 1996 and June 30, 1997, respectively......... 7,981 7,666
---------- ----------
Total Other Assets ............................................. 554,111 549,387
---------- ----------
Total Assets ................................................... $ 794,558 $ 720,527
========== ==========
LIABILITIES AND STOCKHOLDER'S DEFICIT
CURRENT LIABILITIES
Current Portion of Long-Term Debt ................................. $ 568,860 $ 538,257
Checks Written in Excess of Bank ................................. 3,916 --
Accounts Payable ................................................... 50,962 163,596
Unearned Revenue ................................................... 211,237 182,252
Taxes Payable Other Than Income Taxes .............................. 34,969 4,868
Other Current Liabilities .......................................... 34,298 18,462
---------- ----------
Total Current Liabilities ....................................... 904,242 907,435
---------- ----------
LONG-TERM DEBT (Net of Current Portion Shown Above) .................. 150,476 134,246
---------- ----------
Total Liabilities ................................................ 1,054,718 1,041,681
---------- ----------
STOCKHOLDER'S DEFICIT
Common Stock -- $1.00 Par Value 100,000 and 250,000 Shares Authorized
at December 31, 1996 and June 30, 1997, respectively;
100,000 Shares Issued and Outstanding ........................... 100,000 100,000
Additional Paid-In Capital .......................................... 9,433 9,433
Accumulated Deficit ................................................ (369,593) (430,587)
---------- ----------
Total Stockholder's Deficit .................................... (260,160) (321,154)
---------- ----------
Total Liabilities and Stockholder's Deficit ..................... $ 794,558 $ 720,527
========== ==========
</TABLE>
See accompanying Notes to Financial Statements.
F-15
<PAGE>
NORTHERN ELECTRIC SERVICE CORPORATION
DBA: NORTHERN HORIZONS
(A WHOLLY OWNED SUBSIDIARY OF
NORTHEN ELECTRIC COOPERATIVE ASSOCIATION)
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
Six months ended
Year ended ----------------------------
December 31, June 30, June 30,
1996 1996 1997
-------------- ------------- ------------
(unaudited) (unaudited)
<S> <C> <C> <C>
REVENUES
Merchandising Sales ........................... $ 339,948 $ 148,777 $ 81,399
Television Programming Sales .................. 958,551 359,910 616,174
---------- ---------- ----------
Total Operating Revenues .................. 1,298,499 508,687 697,573
---------- ---------- ----------
COST OF SALES
Cost of Merchandising Sales .................. 338,456 147,278 84,428
Cost of Television Programming Sales ......... 623,532 225,822 396,342
---------- ---------- ----------
Total Cost of Sales ........................ 961,988 373,100 480,770
---------- ---------- ----------
GROSS PROFIT .................................... 336,511 135,587 216,803
---------- ---------- ----------
OPERATING EXPENSES
Management Services ........................... 76,258 36,000 36,000
Advertising and Promotion ..................... 194,326 26,672 82,521
Other Administrative and General Expense ...... 27,066 801 2,392
Depreciation and Amortization Expense ......... 48,167 22,958 22,814
Interest ....................................... 44,582 19,481 26,019
Bad Debts .................................... 8,316 1,573 2,562
Billing and Collections ........................ 22,239 12,297 16,712
Postage ....................................... 10,204 2,160 3,415
Outside Services .............................. 14,720 13,870 1,741
Meetings ....................................... 11,332 6,452 20,831
Security System Labor ........................ 97,266 33,229 70,573
Pension ....................................... 6,620 2,172 8,027
Telephone .................................... 44,930 19,796 7,871
---------- ---------- ----------
Total Operating Expenses .................. 606,026 197,461 301,478
---------- ---------- ----------
OPERATING LOSS .................................... (269,515) (61,874) (84,675)
OTHER INCOME
Capital Credit Income ........................ 14,987 14,987 23,681
---------- ---------- ----------
NET LOSS .......................................... (254,528) (46,887) (60,994)
---------- ---------- ----------
ACCUMULATED DEFICIT, BEGINNING .................. (115,065) (115,065) (369,593)
---------- ---------- ----------
ACCUMULATED DEFICIT, ENDING ..................... $ (369,593) $ (161,952) $(430,587)
========== ========== ==========
</TABLE>
See accompanying Notes to Financial Statements.
F-16
<PAGE>
NORTHERN ELECTRIC SERVICE CORPORATION
DBA: NORTHERN HORIZONS
(A WHOLLY OWNED SUBSIDIARY OF
NORTHEN ELECTRIC COOPERATIVE ASSOCIATION)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the six months ended
---------------------------
December 31, June 30, June 30,
1996 1996 1997
-------------- ------------- ------------
(unaudited) (unaudited)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash Received from Customers ........................... $ 1,350,053 $ 494,941 $ 702,605
Cash Paid to Suppliers and Employees ..................... (1,436,120) (541,974) (587,442)
Interest Paid .......................................... (54,453) (29,352) (16,870)
------------ ---------- ----------
Net Cash Provided (Used) by Operating Activities ...... (140,520) (76,385) 98,293
------------ ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of Furniture and Equipment .................. (6,251) (5,357) --
Proceeds from Sale of Fixed Assets ..................... -- 627 --
Proceeds from Investments in Association Organizations ... 2,997 2,997 7,104
------------ ---------- ----------
Net Cash Provided (Used) by Investing Activities ...... (3,254) (1,733) 7,104
------------ ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in Checks Written in Excess of Cash ............ 3,216 -- (3,916)
Proceeds from Issuance of Long-Term Debt ............... 180,000 100,000 --
Principal Payments on Long-Term Debt ..................... (90,664) (45,239) (46,833)
------------ ---------- ----------
Net Cash Provided (Used) by Financing Activities ...... 92,552 54,761 (50,749)
------------ ---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS ................................................ (51,222) (23,357) 54,648
CASH AND CASH EQUIVALENTS -- BEGINNING ..................... 51,222 51,222 --
------------ ---------- ----------
CASH AND CASH EQUIVALENTS -- ENDING ........................ $ -- $ 27,865 $ 54,648
============ ========== ==========
RECONCILIATON OF NET LOSS TO CASH FLOWS FROM
OPERATING ACTIVITIES
Net Loss ................................................ $ (222,128) $ (46,887) $ (60,994)
Adjustments to Reconcile Net Loss to Net Cash Provided by
Operating Activities:
Depreciation and Amortization ........................... 48,167 22,958 22,914
Gain on Sale of Fixed Assets ........................... -- (285) --
Capital Credit Income ................................. (14,987) (14,987) (23,681)
(Increase) Decrease in Accounts Receivable ............ (99,069) (23,696) 34,016
(Increase) Decrease in Resale Merchandise ............... (43,013) (554) 87,431
(Increase) Decrease in Prepayments ..................... (638) (415) 896
Increase (Decrease) in Accounts Payable ............... (11,234) (4,392) 118,294
Increase (Decrease) in Unearned Revenue ............... 185,423 9,950 (28,984)
Increase (Decrease) in Other Current Liabilities ...... 16,959 (18,077) (51,599)
------------ ---------- ----------
Net Cash Provided (Used) by Operating Activities ...... $ (140,520) $ (76,385) $ 98,293
============ ========== ==========
</TABLE>
See accompanying Notes to Financial Statements.
F-17
<PAGE>
NORTHERN ELECTRIC SERVICE CORPORATION
DBA: NORTHERN HORIZONS
(A WHOLLY OWNED SUBSIDIARY OF
NORTHERN ELECTRIC COOPERATIVE ASSOCIATION)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
In October 1994, Northern Electric Service Corporation (NESCO) was
established as a separate legal entity from Northern Electric Cooperative
Association (the Parent). NESCO, d.b.a. Northern Horizons, is a for-profit
Minnesota corporation. The Corporation is governed by a nine member board of
directors elected by the shareholders to serve three year terms. Northern
Electric Cooperative Association is the sole shareholder and is the only voting
member of the corporation. As the sole shareholder the Cooperative owns 100,000
shares of NESCO stock at $1.00 per share. The Cooperative established the
Corporation for the purpose of promoting the sale of Direct Broadcast Service
systems and programming to members of the parent cooperative and non-members in
the NESCO franchise area, which generally coincides with the parent
cooperative's electric distribution territory.
Basis of Accounting
The Corporation prepares its financial statements on the accrual method of
accounting, recognizing income when earned and expenses when incurred.
Cash and Cash Equivalents
Cash and cash equivalents consist of deposits held primarily in two
financial institutions, as well as investments with maturities of less than
three months.
Concentration of Credit Risk
The Company's programming services are provided primarily to customers in
the geographical area covered by the parent cooperative's electric service
territory. The Company does not perform credit evaluations of its customers and
does not require collateral on the accounts. The Company does follow the
practice of disconnecting service to those customers with balances more than
forty-five days old. Historically, credit losses have not been significant;
therefore, currently, no allowance for doubtful accounts is deemed necessary by
management.
Furniture and Equipment
Furniture and equipment are recorded at original cost. Maintenance and
repairs are expensed, and additions, improvements or major renewals are
capitalized. Depreciation expense for 1996 was $2,346.
Depreciation is computed using the straight-line method over its estimated
useful life as follows:
Furniture and Equipment 5 - 10 Years
Inventories
Inventories are stated at the lower of moving average cost or market.
Advertising
Advertising costs are charged to operations when incurred. Advertising
expense was $52,141 for the year ended December 31, 1996.
F-18
<PAGE>
NORTHERN ELECTRIC SERVICE CORPORATION
DBA: NORTHERN HORIZONS
(A WHOLLY OWNED SUBSIDIARY OF
NORTHERN ELECTRIC COOPERATIVE ASSOCIATION)
NOTES TO FINANCIAL STATEMENTS -- (Continued)
DECEMBER 31, 1996
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
Income Taxes
Northern Electric Service Corporation files a corporate tax return
including only it own operating activity. The Parent is organized under the IRS
rules allowing tax-exempt cooperatives and therefore is a non-taxable entity.
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes.
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.
Financial Instruments
The carrying amounts for all financial instruments approximate fair values.
The carrying amounts for cash and cash equivalents, investments, receivables,
accounts payable and accrued liabilities approximate fair value because of the
short maturity of these instruments. The fair value of long-term debt is based
on current rates at which the Company could borrow funds with similar remaining
maturities.
Interim Financial Data
The interim financial data is unaudited; however, in management's opinion,
the interim data includes all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of results for the interim
periods.
NOTE 2 -- OTHER ASSETS
Franchise Fee
During 1994, the Corporation began participating, through National Rural
Telecommunications Cooperative (NRTC), in Direct Broadcast Service (DBS), a
program to sell direct TV programming. This technology allows subscribers to
receive television programming on a small satellite dish. The franchise
agreement required the Corporation to pay NRTC a committed member payment of
thirty-eight dollars for each non-cabled residence and nine dollars for each
cabled residence in the counties served by Northern Electric Cooperative
Association (the Parent) for a total of $629,566. The franchise fees are being
amortized on a straight-line basis over a fifteen year period. Accumulated
amortization totaled $96,917 at December 31, 1996.
Intangible Assets
The Corporation incurred costs related to incorporation during its
formation. The Corporation is accounting for these costs as intangible assets
and is amortizing them over a fifteen year period from the date the DBS program
was officially in place. Organization costs and accumulated amortization were
$9,433 and $1,452, respectively, at December 31, 1996.
F-19
<PAGE>
NORTHERN ELECTRIC SERVICE CORPORATION
DBA: NORTHERN HORIZONS
(A WHOLLY OWNED SUBSIDIARY OF
NORTHERN ELECTRIC COOPERATIVE ASSOCIATION)
NOTES TO FINANCIAL STATEMENTS -- (Continued)
DECEMBER 31, 1996
NOTE 2 -- OTHER ASSETS -- (Continued)
Investments in Associated Organizations
The Company is a member of NRTC, which obtained the rights to distribute
Direct Broadcast Service (DBS) through its members. The members or owners share
margins realized by NRTC, on the cooperative principle, based on programming
purchased. A summary of investments in associated organizations at December 31,
1996, is as follows:
Membership Investment in NRTC ............ $ 1,000
Patronage Capital Allocation in NRTC ...... 12,481
--------
Total Investment in NRTC ............... $13,481
--------
NOTE 3 -- LONG-TERM DEBT
<TABLE>
<CAPTION>
Description Secured By 1996
- ----------------------------------------- ------------------------------------- ---------
<S> <C> <C>
Note Payable -- National Cooperative All Personal Property, Tangible and $539,336
Services Corporation, variable interest Intangible, including Inventory,
currently at 6.25%, quarterly principal Receivables and Equipment
and interest payments of approximately Guaranteed by Parent.
$23,000; due December 2001
Note Payable -- Northern Electric Furniture, Fixtures, Equipment, 180,000
Cooperative Association (Parent), Inventory, Accounts Receivble,
variable interest at prime rate plus Contract Rights, General
2%, monthly principal and interest Intangibles, and Motor Vehicles.
payments of approximately $3,780;
due December 2001.
Total Long-Term Debt ................................................... $719,336
Current Maturities ...................................................... 568,860
---------
Long-Term Debt -- Net of Current Maturities .............................. $150,476
=========
</TABLE>
Maturity requirements by year on long-term debt are as follows:
Years Ending December 31, Amount
------------------------- ---------
1997 ................................... $568,860
1998 ................................... 32,460
1999 ................................... 35,680
2000 ................................... 39,220
2001 ................................... 43,116
---------
Total ................................... $719,336
---------
F-20
<PAGE>
NORTHERN ELECTRIC SERVICE CORPORATION
DBA: NORTHERN HORIZONS
(A WHOLLY OWNED SUBSIDIARY OF
NORTHERN ELECTRIC COOPERATIVE ASSOCIATION)
NOTES TO FINANCIAL STATEMENTS -- (Continued)
DECEMBER 31, 1996
NOTE 4 -- INCOME TAXES
The Company has available at December 31, 1996, approximately $366,350 of
unused operating loss carryforwards that may be applied against future taxable
income and that will expire in various years from 2009 to 2011. The $114,360
deferred tax asset that would have been recognized related to the net operating
loss carryforward has been fully offset by a valuation allowance to reflect the
estimated amount of deferred tax benefits which may not be utilized due to the
expiration of the Company's net operating loss carryforwards. The valuation
allowance increased approximately $85,800 during 1996 as the result of net
operating losses generated during 1996 which may not be utilized.
NOTE 5 -- RELATED PARTY TRANSACTIONS
The Company paid its parent, Northern Electric Cooperative Association,
$72,000 in management fees for 1996. The Company also leased a vehicle from the
Parent on a month-to-month lease for $679 per month, for a total paid during
1996 of approximately $5,575.
NOTE 6 -- SUBSEQUENT EVENTS
At the date of the report on these financial statements, the Company's
Board of Directors has voted to accept an offer to purchase the stock of the
Company.
As a result of this sale, the Company's general manager will receive a
severance payment of $100,000 at the termination of his employment contract.
F-21
<PAGE>
Report of Independent Auditors
Management
Advanced Tel-Com Systems Corporation
We have audited the accompanying balance sheet of Direct Broadcast Satellites (a
division of Advanced Tel-Com Systems Corporation) (DBS) as of December 31, 1996,
and the related statements of operations, changes in division equity, and cash
flows for the year then ended. These financial statements are the responsibility
of DBS' 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 financial position of Direct Broadcast Satellites at
December 31, 1996, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
Ernst & Young LLP
San Antonio, Texas
July 16, 1997
F-22
<PAGE>
Direct Broadcast Satellites
(A Division of Advanced Tel-Com Systems Corporation)
Balance Sheets
<TABLE>
<CAPTION>
December 31, June 30,
1996 1997
-------------- ------------
(unaudited)
<S> <C> <C>
Assets
Current assets:
Cash .................................................................. $ 22,238 $ 46,390
Accounts receivable, net of allowance of $10,000 at December 31, 1996 and
June 30, 1997, respectively .......................................... 349,473 303,030
Inventory ............................................................ 111,279 5,959
Customer acquisition costs ............................................. 192,369 231,119
----------- -----------
Total current assets ...................................................... 675,359 586,498
Equipment, at cost ...................................................... 541,836 534,790
Less accumulated depreciation ............................................. 85,969 138,842
----------- -----------
455,867 395,948
Contract costs, net of accumulated amortization of $303,917 and $364,700 at
December 31, 1996 and June 30, 1997, respectively ........................ 911,750 850,967
Patronage dividend receivable ............................................. 47,789 80,408
Deferred federal income taxes, net ....................................... 29,788 38,033
Deferred charge, net ...................................................... 2,630 2,067
----------- -----------
991,957 971,475
----------- -----------
Total assets ............................................................ $2,123,183 $1,953,921
=========== ===========
Liabilities and Division Equity
Current liabilities:
Current maturities of long-term debt ................................. $ 183,333 $ 183,333
Accounts payable ...................................................... 395,510 470,741
Accrued taxes ......................................................... 39,704 34,635
Accrued interest ...................................................... 8,259 5,423
Advance billings ...................................................... 406,450 431,397
Deferred federal income taxes .......................................... 65,405 78,506
----------- -----------
Total current liabilities ................................................ 1,098,661 1,204,035
Long-term debt, net of current maturities ................................. 366,667 183,334
Division equity ......................................................... 657,855 566,552
----------- -----------
Total liabilities and division equity .................................... $2,123,183 $1,953,921
=========== ===========
</TABLE>
See accompanying notes.
F-23
<PAGE>
Direct Broadcast Satellites
(A Division of Advanced Tel-Com Systems Corporation)
Statements of Operations
<TABLE>
<CAPTION>
Six months ended
Year ended ----------------------------
December 31, June 30, June 30,
1996 1996 1997
-------------- ------------- ------------
(unaudited) (unaudited)
<S> <C> <C> <C>
Operating revenues:
Lease and maintenance revenue ............... $ 117,358 $ 46,164 $ 66,136
Satellite sales and installation ............ 473,642 140,314 329,485
Programming ................................. 2,444,796 1,021,162 1,670,696
Uncollectible revenues ..................... (76,201) (23,855) (25,958)
---------- ---------- ----------
Total operating revenues ........................ 2,959,595 1,183,785 2,040,359
Operating expenses:
Cost of goods sold ........................... 408,238 126,506 275,435
Plant-specific operations .................. 20,938 6,966 8,097
Plant-nonspecific operations ............... 250,274 102,964 153,288
Customer operations ........................ 537,940 188,508 575,032
Corporate operations ........................ 112,624 53,568 66,739
Programming ................................. 1,557,993 611,933 1,086,092
Operating taxes .............................. 2,180 -- 3,000
---------- ---------- ----------
Total operating expenses ........................ 2,890,187 1,090,445 2,167,683
---------- ---------- ----------
Income (loss) from operations .................. 69,408 93,340 (127,324)
Other expenses (income):
Interest expense ........................... 50,676 27,652 19,937
Other, net ................................. (39,787) (46,268) (46,328)
---------- ---------- ----------
Income (loss) before federal income taxes ...... 58,519 111,956 (100,933)
Federal income tax provision (benefit):
Current .................................... (36,386) 38,059 (39,173)
Deferred .................................... 56,282 -- 4,856
---------- ---------- ----------
19,896 38,059 (34,317)
---------- ---------- ----------
Net income (loss) ........................... $ 38,623 $ 73,897 $ (66,616)
========== ========== ==========
</TABLE>
See accompanying notes.
F-24
<PAGE>
Direct Broadcast Satellites
(A Division of Advanced Tel-Com Systems Corporation)
Statement of Changes in Division Equity
Balance at December 31, 1995 ................................. $ 552,864
Net income ................................................ 38,623
Equity contributions, net ................................. 66,368
---------
Balance at December 31, 1996 ................................. 657,855
Net loss (unaudited) ....................................... (66,616)
Return of equity, net (unaudited) ........................... (24,687)
---------
Balance at June 30, 1997 (unaudited) ........................... $ 566,552
=========
See accompanying notes.
F-25
<PAGE>
Direct Broadcast Satellites
(A Division of Advanced Tel-Com Systems Corporation)
Statements of Cash Flows
<TABLE>
<CAPTION>
Six months ended
Year ended ----------------------------
December 31, June 30, June 30,
1996 1996 1997
-------------- ------------- ------------
(unaudited) (unaudited)
<S> <C> <C> <C>
Operating Activities
Net income (loss) .......................................... $ 38,623 $ 73,897 $ (66,616)
Adjustments to reconcile net income to net cash provided
by operating activities:
Loss on sale of equipment .............................. -- -- 7,420
Depreciation and amortization ........................... 194,811 89,743 319,185
Deferred federal income tax provision .................. 56,282 -- 4,856
Provision for bad debts ................................. 76,201 -- 25,958
Changes in current assets and current liabilities ...... 91,084 30,683 (26,201)
Changes in other assets ................................. (35,662) (36,789) (32,056)
---------- ---------- ----------
Net cash provided by operating activities .................. 421,339 157,534 232,546
Investing Activities
Cash proceeds from sale of equipment ........................ -- -- 2,679
Additions to equipment, net .............................. (333,965) (167,742) (3,053)
---------- ---------- ----------
Net cash used in investing activities ..................... (333,965) (167,742) (374)
Financing Activities
Payments on long-term debt ................................. (183,333) (183,333) (183,333)
Equity contributions (return), net ........................ 66,368 189,714 (24,687)
---------- ---------- ----------
Net cash provided by (used in) financing activities ...... (116,965) 6,381 (208,020)
---------- ---------- ----------
Net increase (decrease) in cash ........................... (29,591) (3,827) 24,152
Cash at beginning of period .............................. 51,829 51,829 22,238
---------- ---------- ----------
Cash at end of period .................................... $ 22,238 $ 48,002 $ 46,390
========== ========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest ................................................ $ 53,400 $ 30,531 $ 22,773
Income taxes .......................................... 34,200 17,117 --
</TABLE>
See accompanying notes.
F-26
<PAGE>
Direct Broadcast Satellites
(A Division of Advanced Tel-Com Systems Corporation)
Notes to Financial Statements
December 31, 1996
1. Organization and Significant Accounting Policies
Basis of Presentation
Direct Broadcast Satellites (DBS) is an operating division of Advanced
Tel-Com Systems Corporation (Advanced), a Texas corporation. Advanced is a
wholly owned subsidiary of Kerrville Communications Corporation, Inc.
(Communications). DBS provides direct broadcast satellite television services in
Kerrville, Texas and its surrounding area.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Equipment
Equipment consists primarily of satellite equipment available for leasing.
These satellites are depreciated using the straight-line method over the
satellites' estimated useful lives of five years. These satellites are leased to
customers on a month-to-month basis.
Inventory
Inventory consists primarily of satellite equipment and is carried at the
lower of cost or market, with costs determined on an average cost method.
Customer Acquisition Costs
DBS incurs certain costs to obtain new subscribers to its direct satellite
television system. These costs are commissions paid to agents and employees for
acquiring new customers and selling equipment, and promotional coupons redeemed
by customers. The deferred costs are amortized over a one-year period.
Advertising Costs
DBS expenses advertising costs as incurred. Advertising expense was
approximately $107,000 for 1996.
Contract Costs
Contract costs consist of the amount paid to the National Rural Telephone
Cooperative, Inc. (NRTC) for DBS' participation in NRTC's program to provide
satellite feed television programming. Under the terms of the NRTC contract, DBS
acquired the rights to distribute such television services to 16 rural Texas
counties. The services began in July 1994, at which time these contract costs
began to be amortized over the agreement's term of ten years.
Federal Income Taxes
Advanced is a member of an affiliated group electing to file on a
consolidated basis as defined by federal income tax regulations and, as such,
the taxable income of Advanced is included in the consolidated tax return of
Communications. Under an informal tax sharing agreement, members of the
Communications consolidated group with taxable income are charged with the
amount of income taxes as if they filed separate federal income tax returns, and
members providing deductions and credits which result in income tax savings are
allocated credits for such savings. These financial statements include DBS'
share of the Advanced federal income taxes allocated based on DBS' operating
results.
F-27
<PAGE>
Direct Broadcast Satellites
(A Division of Advanced Tel-Com Systems Corporation)
Notes to Financial Statements -- (Continued)
December 31, 1996
1. Organization and Significant Accounting Policies -- (Continued)
Federal Income Taxes -- (continued):
The provision for federal income taxes includes taxes currently payable and
those deferred due to temporary differences between the financial statement and
tax bases of assets and liabilities. These differences result from the use of
different accounting methods for financial and tax reporting purposes with
respect principally to depreciation and amortization of intangibles.
Statement of Cash Flows
In order to determine net cash provided by operating activities, net income
has been adjusted by, among other things, changes in current assets and current
liabilities, excluding changes in cash and current maturities of long-term debt.
Those changes, shown as an (increase) decrease in current assets and an increase
(decrease) in current liabilities for the year ended December 31, 1996, are as
follows:
Receivables ............................................. $ (248,341)
Inventory ............................................. 36,381
Payables and accrued liabilities ........................ 184,413
Advance billings ....................................... 311,000
Customer acquisition costs .............................. (192,369)
-----------
Changes in current assets and current liabilities ...... $ 91,084
===========
2. Related Party Transactions
Advanced and Kerrville Telephone Company (Kerrville), a wholly owned
subsidiary of Communications, have a service agreement whereby Kerrville
provides general management, financial, selling, maintenance, installation, and
other services to Advanced. Charges under this agreement allocated to DBS were
approximately $313,200 during 1996.
3. Long-Term Debt
Long-term debt of Advanced relating to DBS at December 31, 1996 is
summarized below:
<TABLE>
<S> <C>
Note payable due Norwest Bank, 8.19%, due in annual principal installments of $183,333
and quarterly interest payments to April 1999, secured by property, equipment, future
contracts, and accounts receivable related thereto ................................. $ 550,000
Less current maturities ............................................................ 183,333
----------
Long-term debt, net of current maturities .......................................... $ 366,667
==========
</TABLE>
Scheduled maturities of long-term debt for the years ending December 31,
1997 through 1999 are $183,333 annually.
Under its loan agreements, Advanced is restricted from paying cash
dividends in excess of 50% of prior year's net income. The agreements also
contain covenants restricting additional borrowings, mergers, transfer of stock,
transactions with affiliates, and sale or transfer of substantial parts of its
assets.
F-28
<PAGE>
Direct Broadcast Satellites
(A Division of Advanced Tel-Com Systems Corporation)
Notes to Financial Statements -- (Continued)
December 31, 1996
4. Income Taxes
The components of DBS' net deferred tax liability are as follows at
December 31, 1996:
Gross deferred tax liabilities ............................... $ 70,059
Gross deferred tax assets ..................................... 34,442
---------
Net deferred tax liability .................................. $ 35,617
=========
5. Principal Supplier
The NRTC is the principal supplier of satellite programming services and
equipment.
6. Subsequent Event
In July 1997, Communications sold the assets of DBS to Pegasus
Communications Corporation for approximately $14.9 million in cash.
F-29
<PAGE>
INDEPENDENT AUDITORS'REPORT
Board of Trustees
Suwannee Valley Satellite, Inc.
Live Oak, Florida
We have audited the accompanying balance sheet of Suwannee Valley Satellite,
Inc. as of December 31, 1996, and the related statements of income and retained
earnings, and cash flows for the year 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 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 financial position of Suwannee Valley Satellite, Inc.
as of December 31, 1996, and the results of its operations and its cash flows
for the year then ended, in conformity with generally accepted accounting
principles.
The accompanying balance sheet of Suwannee Valley Satellite, Inc. as of April
30, 1997, and the related statements of income and retained earnings, and cash
flows for the four months ended April 30, 1997, and April 30, 1996, were not
audited by us and, accordingly, we do not express an opinion on them.
Bolinger, Segars, Gilbert & Moss, L.L.P.
Certified Public Accountants
Lubbock, Texas
February 7, 1997
F-30
<PAGE>
SUWANNEE VALLEY SATELLITE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, April 30,
1996 1997
-------------- ------------
(unaudited)
<S> <C> <C>
ASSETS
PLANT AT COST
Property, Plant, & Equipment .............................. $ 78,056 $ 76,739
----------- ----------
78,056 76,739
Less: Accumulated Provision for Depreciation ............... 41,664 44,444
----------- ----------
36,392 32,295
----------- ----------
OTHER PROPERTY AND INVESTMENTS - AT COST OR STATED VALUE
Patronage Capital From Associated Coop. .................. 29,262 29,262
Start Up & Organizational Cost (Net of Amortization) ...... 64,042 55,779
Franchise Costs (Net of Amortization) ..................... 563,585 544,629
----------- ----------
656,889 629,670
----------- ----------
CURRENT ASSETS
Cash - General ............................................. 152,170 131,582
Accounts Receivable ....................................... 99,350 85,967
Materials and Supplies .................................... 81,246 25,518
Other Current and Accrued Assets ........................... 429 787
----------- ----------
333,195 243,854
----------- ----------
DEFERRED CHARGES ............................................. 24,383 30,217
----------- ----------
$ 1,050,859 $ 936,036
=========== ==========
EQUITIES AND LIABILITIES
EQUITIES
Common Stock ............................................. $ 1,000 $ 1,000
Retained Earnings .......................................... (209,603) (282,957)
----------- ----------
(208,603) (281,957)
----------- ----------
LONG-TERM DEBT
Notes Payable - SVEC ....................................... 800,000 --
Notes Payable - CoBank .................................... -- 825,104
----------- ----------
800,000 825,104
----------- ----------
POSTRETIREMENT BENEFIT OBLIGATION ........................... 1,900 1,644
----------- ----------
CURRENT LIABILITIES
Accounts Payable - SVEC .................................... 107,132 124,236
Accounts Payable - Other ................................. 131,281 84,496
Accrued Interest .......................................... 41,419 14,896
Consumer Deposits .......................................... 2,250 3,750
Other Current Liabilities ................................. 42,415 32,315
Accrued Employee Compensated Absences ..................... 10,553 1,344
----------- ----------
335,050 261,037
----------- ----------
DEFERRED CREDITS ............................................. 122,512 130,208
----------- ----------
$ 1,050,859 $ 936,036
=========== ==========
</TABLE>
See accompanying notes to financial statements.
F-31
<PAGE>
SUWANNEE VALLEY SATELLITE, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
Four months ended
Year ended ----------------------------
December 31, April 30, April 30,
1996 1996 1997
-------------- ------------- ------------
(unaudited) (unaudited)
<S> <C> <C> <C>
OPERATING REVENUES
Sales of Programming .............................. $ 1,108,563 $ 302,814 $ 470,941
Sales of Dishes and Installation Fees ............ 90,235 59,743 45,071
Sales of Materials & Magazines ..................... 25,874 8,599 8,567
Service Fees ....................................... 3,600 -- 1,305
Other Satellite Revenue ........................... 2,711 -- 1,391
----------- ---------- ----------
Total Operating Revenue ........................ 1,230,983 371,156 527,275
----------- ---------- ----------
COST OF SALES
Cost of Programming .............................. 555,334 140,184 240,225
Cost of Dishes and Installations .................. 141,612 56,921 90,869
Cost of Materials & Magazines ..................... 19,467 6,699 6,797
Cost of Service Calls .............................. 4,902 482 650
----------- ---------- ----------
Total Cost of Sales ........................... 721,315 204,286 338,541
----------- ---------- ----------
GROSS PROFIT .......................................... 509,668 166,870 188,734
----------- ---------- ----------
OPERATING EXPENSES
Operations ....................................... 10,045 4,135 4,885
Consumer Accounts ................................. 223,631 37,059 113,703
Selling Expense .................................... 46,838 18,983 14,586
Administrative and General ........................ 98,887 19,088 62,063
Depreciation and Amortization ..................... 94,022 30,856 30,602
Taxes ............................................. 2,662 -- 6,411
Other Interest .................................... 27 -- --
----------- ---------- ----------
Total Operating Expenses ........................ 476,112 110,121 232,250
----------- ---------- ----------
OPERATING MARGINS - BEFORE FIXED CHARGES ............ 33,556 56,749 (43,516)
FIXED CHARGES
Interest on Long-Term Debt ........................ 41,419 -- 29,345
----------- ---------- ----------
OPERATING MARGINS (DEFICIT) - AFTER FIXED CHARGES (7,863) 56,749 (72,861)
Capital Credits .................................... 20,795 -- --
----------- ---------- ----------
NET OPERATING MARGINS ................................. 12,932 56,749 (72,861)
----------- ---------- ----------
NONOPERATING MARGINS
Gain (Loss) from Disposition of Property ......... (192) -- (493)
----------- ---------- ----------
NET MARGINS .......................................... 12,740 56,749 (73,354)
RETAINED EARNINGS (DEFICIT) - BEGINNING OF PERIOD . (222,343) (222,343) (209,603)
----------- ---------- ----------
RETAINED EARNINGS (DEFICIT) - END OF PERIOD ............ $ (209,603) $ (165,594) $(282,957)
=========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-32
<PAGE>
SUWANNEE VALLEY SATELLITE, INC
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Four months ended
Year ended ----------------------------
December 31, April 30, April 30,
1996 1996 1997
-------------- ------------- ------------
(unaudited) (unaudited)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Margins ............................................. $ 12,740 $ 56,749 $ (73,354)
Adjustments to Reconcile Net Income (Loss) to Net Cash
Provided by Operating Activities
Depreciation and Amortization ........................ 97,230 33,845 30,602
Capital Credits - Non-cash ........................... (20,795) -- --
Accounts Receivable ................................. (43,545) (19,863) 13,383
Materials and Supplies .............................. (7,443) 54,340 55,728
Other Current Assets ................................. 26 260 (358)
Deferred Charges .................................... (23,101) 1,282 (5,834)
Accounts Payable and Other Current Liabilities ...... 267,033 17,109 (74,013)
Accumulated Provision - Pensions & Benefits ......... 1,900 -- (1,352)
Deferred Credits .................................... 86,305 19,828 7,696
------------ ---------- ----------
Net Cash Provided (Used) by Operating Activities .... 370,350 163,550 (47,502)
------------ ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to Utility Plant .............................. (10,621) 1,030 1,317
Salvage Value of Retirements and Other Credits ......... 400 -- --
Net Loss on Retirement of Plant ........................ 193 -- 493
Other Property and Investments ........................... 4,159 -- --
------------ ---------- ----------
Net Cash Provided by (Used in) Investing Activities (5,869) 1,030 1,810
------------ ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Advances on Line of Credit .............................. 800,000 -- (800,000)
Proceeds From Long-Term Debt, Net ........................ -- -- 825,104
Other Equities .......................................... (1,144,713) (185,264) --
------------ ---------- ----------
Net Cash Provided by (Used in) Financing Activities (344,713) (185,264) 25,104
------------ ---------- ----------
INCREASE (DECREASE) IN CASH ................................. 19,768 (20,684) (20,588)
CASH - BEGINNING OF PERIOD ................................. 132,402 132,402 152,170
------------ ---------- ----------
CASH - END OF PERIOD ....................................... $ 152,170 $ 111,718 $ 131,582
============ ========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest on Long-Term Debt ........................... $ 0 $ 0 $ 55,868
============ ========== ==========
Income Taxes .......................................... $ 0 $ 0 $ 0
============ ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-33
<PAGE>
SUWANNEE VALLEY SATELLITE, INC.
NOTES TO FINANCIAL STATEMENTS
1. Nature of Operations and Summary of Significant Accounting Policies
Nature of Operations
Suwannee Valley Satellite, Inc. (SVS), is a for-profit corporation which
distributes direct broadcast television services to subscribers in its
franchised television geographical service area in north central Florida,
headquartered in Live Oak, Florida.
Suwannee Valley Electric Cooperative, Inc. owns all the issued and
outstanding stock of the company.
Inventories
Materials and supplies inventories are valued at average unit cost.
Recognition of Income
Direct television programming revenues are billed in advance and are
recognized when earned. Unearned amounts are classified as deferred credits in
these financial statements.
Group Concentration of Credit Risk
The company's headquarters facility is located in Live Oak, Florida. The
service area includes members located in an area which extends around the city
of Live Oak, Florida. SVS records a receivable for revenues as billed on a
monthly basis. SVS requires a deposit from most of its members, which is applied
to unpaid bills and fees in the event of default. The deposit accrues interest
and is returned periodically. As of December 31, 1996, deposits on hand totaled
$2,250.
The cash balances maintained by the company are insured by the Federal
Deposit Insurance Corporation up to $100,000 per each banking institution where
deposits are held. At December 31, 1996, the cash balances exceeded insured
limits.
Patronage Capital Certificates
Patronage capital from associated companies are recorded at the stated
amount of the certificate.
Income Taxes
SVS is a for-profit taxable corporation. Due to net operating loss
carryforwards, the current provision for income taxes is $0. Tax assets or
liabilities are not significant.
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 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.
2. Assets Pledged
All assets are pledged as security for the long-term debt due RUS and the
National Rural Utilities Cooperative Finance Corporation (CFC).
F-34
<PAGE>
SUWANNEE VALLEY SATELLITE, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
3. Property and Equipment
The major classes of plant in service are as follows:
Structures and Improvements $ 34,627
Computer Equipment 7,064
Transportation Equipment 16,487
Communication Equipment 19,878
---------
$ 78,056
=========
Provision for depreciation on nonelectric plant, property and equipment is
computed using the double-declining balance method as follows:
Structures and Improvements 5 years
Computer Equipment 7 years
Transportation Equipment 5 years
Communication Equipment 7 years
Depreciation for the year ended December 31, 1996 was $15,572, of which
$12,364 was charged to depreciation expense, and $3,208 allocated to other
accounts.
4. Other Property and Investments
Other property and investments consisted of the following at December 31,
1996:
Investments in Associated Organizations
NRTC - Patronage Capital $ 29,262
----------
Start Up and Organizational Cost
Original Cost $ 123,953
Amortization (59,911)
----------
$ 64,042
----------
Franchise Cost
Original Cost $ 701,014
Amortization (137,429)
----------
$ 563,585
----------
$ 656,889
==========
The company expensed amortization costs of $81,658 in 1996.
5. Deferred Charges
Deferred charges consist of installation rebates totaling $24,383 at
December 31, 1996.
6. Deferred Credits
Deferred credits represent direct television revenues billed in advance
totaling $122,512 at December 31, 1996.
7. Pension Benefits
Pension benefits for substantially all employees of the company are
provided through the National Rural Electric Cooperative Association (NRECA)
Retirement and Security Program, a defined benefit plan qualified under section
401 and tax-exempt under section 501(a) of the Internal Revenue Code.
F-35
<PAGE>
SUWANNEE VALLEY SATELLITE, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
7. Pension Benefits -- (Continued)
The company makes contributions to the plan equal to the amounts accrued
for pension expense. In this multi-employer plan, which is available to all
member cooperatives of NRECA, the accumulated benefits and plan assets are not
determined or allocated separately by individual employers. Effective, July 1,
1987, NRECA declared a moratorium which suspended employer contributions due to
the plan's funding limitations. In November, 1994, the moratorium was lifted and
contributions were required to April 1995 when the moratorium was reinstated.
The moratorium was once again lifted in October 1996.
The NRECA Savings Plan, a defined contribution plan, has also been made
available to employees of the company. Contributions by the company match
employee contributions up to 3 percent.
The cost to the company for these plans for the year ended December 31,
1996 was $502.
8. Benefits to Retirees
Retirees between the age of 62 and 65 are allowed to continue in the
company's group health insurance plan and are required to reimburse the company
for one-half of the premium. Upon reaching age 65, retirees are responsible for
the entire premium if they continue to participate in the plan.
Effective in 1995, the company adopted FASB Statement No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pension." Adoption of this
statement does not materially affect the financial statements. Statement 106
requires that the cost of postretirement medical benefits be recognized on the
accrual basis as employees render service to earn the benefit. The company
elected to recognize the net transition obligation of $1,600 in 1995.
Annual service and interest cost for 1996 was $300.
9. Related Party Transactions
During 1996, the company executed a note payable to Suwannee Valley
Electric Cooperative, Inc. totaling $800,000 payable upon demand. The note bears
interest at a variable rate based on the National Rural Utilities Cooperative
Finance Corporation's 30-day commercial paper rates. This rate was 5.55% at
December 31, 1996. The company intends to refinance the note with CoBank in
1997.
F-36
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
ViewStar Entertainment Services, Inc.:
We have audited the accompanying balance sheet of VIEWSTAR ENTERTAINMENT
SERVICES, INC. (a Georgia corporation) as of December 31, 1996 and the related
statements of operations, stockholders' equity, and cash flows for the year 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 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 financial position of ViewStar Entertainment
Services, Inc. as of December 31, 1996 and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
Atlanta, Georgia
April 18, 1997 (except with respect
to Note 10, as to which the date is
September 15, 1997)
F-37
<PAGE>
VIEWSTAR ENTERTAINMENT SERVICES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
1996 1997
-------------- ---------------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .................................... $ 182,181 $ 186,960
Accounts receivable:
Trade, net of allowance for doubtful accounts of $8,666 and
$7,496 at December 31, 1996 and June 30, 1997, respectively . 207,800 185,370
Other ......................................................... 11,987 7,860
Deferred promotional costs .................................... 68,984 104,804
Prepaid expenses and other .................................... 51,530 9,077
Inventory ...................................................... 27,938 55,604
------------ ------------
Total current assets ....................................... 550,420 549,675
------------ ------------
PROPERTY AND EQUIPMENT, at cost:
Furniture and equipment ....................................... 129,478 131,717
Rental satellite systems equipment ........................... 42,651 40,092
Service vehicles ............................................. 28,913 28,913
Leasehold improvements ....................................... 17,260 17,260
------------ ------------
218,302 217,982
Less accumulated depreciation ................................. (99,102) (128,073)
------------ ------------
Property and equipment, net ................................. 119,200 89,909
------------ ------------
CONTRACT RIGHTS AND OTHER ASSETS (Note 2) ........................ 1,512,298 1,453,142
------------ ------------
Total assets ................................................ $ 2,181,918 $ 2,092,726
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable ................................................ $ 493,963 $ 434,061
Accounts payable ............................................. 166,420 254,020
Accrued liabilities .......................................... 147,714 104,640
Unearned revenue ............................................. 299,505 330,685
Other ......................................................... 88,844 40,498
------------ ------------
Total liabilities .......................................... 1,196,446 1,163,904
------------ ------------
DEFERRED CREDITS ................................................ 43,007 67,291
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 7)
STOCKHOLDERS' EQUITY:
Common stock, no par value; 1,000,000 shares authorized and
641,680 shares issued and outstanding ........................ 2,037,525 2,037,525
Retained deficit ................................................ (1,095,060) (1,175,994)
------------ ------------
Total stockholders' equity ................................. 942,465 861,531
------------ ------------
Total liabilities and stockholders' equity .................. $ 2,181,918 $ 2,092,726
============ ============
</TABLE>
The accompanying notes are an integral part of this balance sheet.
F-38
<PAGE>
VIEWSTAR ENTERTAINMENT SERVICES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six months ended
Year ended ----------------------------
December 31, June 30, June 30,
1996 1996 1997
-------------- ------------- ------------
(unaudited) (unaudited)
<S> <C> <C> <C>
REVENUES:
Programming ........................ $ 2,100,927 $ 939,128 $1,372,248
Equipment and installation ......... 308,082 160,059 151,702
Other .............................. 14,779 11,081 2,684
----------- ---------- ----------
Total revenues .................. 2,423,788 1,110,268 1,526,634
----------- ---------- ----------
COST OF REVENUES:
Programming ........................ 987,379 416,209 614,872
Equipment and installation ......... 250,347 124,360 143,660
Service fees ........................ 280,771 139,395 183,718
----------- ---------- ----------
Total cost of revenues ......... 1,518,497 679,964 942,250
----------- ---------- ----------
GROSS PROFIT ........................... 905,291 430,304 584,384
----------- ---------- ----------
OPERATING EXPENSES:
General and administrative ......... 694,718 309,450 240,323
Sales and marketing ............... 255,540 81,407 297,227
Depreciation and amortization ...... 226,963 112,160 112,411
----------- ---------- ----------
Total operating expenses ......... 1,177,221 503,017 649,961
----------- ---------- ----------
OPERATING LOSS ........................ (271,930) (72,713) (65,577)
----------- ---------- ----------
OTHER INCOME (EXPENSE):
Interest expense .................. (76,848) (39,784) (24,750)
Loss on sale of rental units ...... (36,339) -- (1,281)
Other .............................. 9,246 37,615 10,674
----------- ---------- ----------
(103,941) (2,169) (15,357)
----------- ---------- ----------
NET LOSS .............................. $ (375,871) $ (74,882) $ (80,934)
=========== ========== ==========
</TABLE>
The accompanying notes are an integral part of this statement.
F-39
<PAGE>
VIEWSTAR ENTERTAINMENT SERVICES, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
------------------------ Retained
Shares Amount Earnings Total
--------- ------------ --------------- -------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1995 ............... 508,340 $1,537,525 $ (719,189) $ 818,336
Conversion of note (Note 3) ............ 133,340 500,000 0 500,000
Net loss .............................. 0 0 (375,871) (375,871)
-------- ----------- ------------ ----------
BALANCE, December 31, 1996 ............... 641,680 2,037,525 (1,095,060) 942,465
Net loss (unaudited) .................. 0 0 (80,934) (80,934)
-------- ----------- ------------ ----------
BALANCE, June 30, 1997 (unaudited) ...... 641,680 $2,037,525 $ (1,175,994) $ 861,531
======== =========== ============ ==========
</TABLE>
The accompanying notes are an integral part of this statement.
F-40
<PAGE>
VIEWSTAR ENTERTAINMENT SERVICES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six months ended
Year ended ----------------------------
December 31, June 30, June 30,
1996 1996 1997
-------------- ------------- ------------
(unaudited) (unaudited)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ......................................................... $ (375,871) $ (74,882) $ (80,934)
---------- --------- ---------
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization ................................. 226,963 112,160 112,411
Loss on sale of rental units ................................. 36,339 -- 1,281
Changes in operating assets and liabilities:
Accounts receivable, net .................................... (103,090) (43,556) 22,430
Inventory ................................................... 96,767 80,463 (27,666)
Other current assets .......................................... (46,371) 4,818 10,760
Accounts payable ............................................. 135,759 41,742 87,600
Accrued liabilities and other ................................. (6,329) (23,977) (93,342)
Unearned revenue ............................................. 199,405 3,667 31,180
---------- --------- ---------
Total adjustments .......................................... 539,443 175,317 144,654
---------- --------- ---------
Net cash provided by operating activities .................. 163,572 100,435 63,720
---------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment .............................. (44,485) (30,135) 961
---------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long term debt .................................... (17,464) -- (59,902)
---------- --------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS ........................ 101,623 70,300 4,779
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD ......................................................... 80,558 80,558 182,181
---------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ........................ $ 182,181 $ 150,858 $ 186,960
========== ========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest .......................................... $ 51,308 $ 27,901 $ 25,831
========== ========= =========
Cash paid for taxes ............................................. $ 500 $ 500 $ 750
========== ========= =========
NONCASH TRANSACTIONS:
Conversion of note (Note 3) .................................... $ 500,000 $ -- $ --
========== ========= =========
Noncash patronage dividend (Note 2) .............................. $ 29,856 $ 29,856 $ 24,284
========== ========= =========
</TABLE>
The accompanying notes are an integral part of this statement.
F-41
<PAGE>
VIEWSTAR ENTERTAINMENT SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. THE COMPANY
ViewStar Entertainment Services, Inc. ("ViewStar" or the "Company") is a
full-service provider of direct broadcast satellite ("DBS") service to
approximately 4,900 customers in eight counties in North Georgia. The Company
was incorporated in Georgia on August 12, 1993 and began marketing its services
in July 1994. Through a contracted agreement with the National Rural
Telecommunications Cooperative ("NRTC"), ViewStar has the exclusive right to
market and distribute DirecTv's (a subsidiary of Hughes Aircraft) satellite
programming services to the eight-county area for a period of ten years or the
life of the DirecTv satellite, whichever is longer. The life of the satellite is
currently estimated to be 15 years.
The Company has experienced operating losses since its inception as a
result of efforts to build its customer base and develop its operations. The
Company expects to continue to focus on developing its operations while
continuing to expand its market penetration. While the Company has achieved
positive cash flows from operations during 1996, there are risks associated with
the Company's growth plans and its ability to continue to generate positive cash
flows from operations and achieve or sustain profitability.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Estimates and Assumptions
The preparation of financial statements in accordance 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.
Source of Supplies
As a distributor of DirecTv services, the Company relies on DirecTv for
programming services. Further, the NRTC provides its members certain services,
such as billing, centralized payment processing, and promotions. Any disruption
of these services could have an adverse effect on the operating results of the
Company.
Concentration of Credit Risk
Concentration of credit risk with respect to accounts receivable is limited
due to the large number of subscribers comprising the customer base. The
Company's risk of loss is also limited due to advance billings to customers for
monthly programming services. As a result, at December 31, 1996, management does
not believe that any significant concentration of credit risk exists.
Inventories
The Company maintains inventories consisting of Digital Satellite Systems
("DSS(R)") equipment and related accessories. The inventories are stated at the
lower of cost or market, determined generally by the average cost method, which
approximates the first-in, first-out ("FIFO") method.
Deferred Promotional Costs
Deferred promotional costs consist of costs related to a subscriber rebate
program sponsored by DirecTv. Effective September 1, 1996, DirecTv introduced a
national marketing program offering new purchasers of DSS(R) equipment a $200
cash rebate, called the cash back offer rebate. To be eligible, a buyer must
subscribe to and pay for one year's worth of programming in advance. The Company
has elected to defer these costs and is amortizing these expenses over the life
of the buyer's one-year contract.
F-42
<PAGE>
VIEWSTAR ENTERTAINMENT SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
DECEMBER 31, 1996
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
Deferred Promotional Costs (continued)
ViewStar had 407 of these customers, with gross rebate costs of $81,400, of
which $12,416 was amortized during the year. In addition, as a part of this
program, ViewStar receives $1 per month for up to five years from the NRTC for
each subscriber whose account remains active. These amounts are included as a
reduction of sales and marketing expense in the accompanying statement of
operations when earned.
Property and Equipment
Property and equipment are stated at cost. ViewStar capitalizes major
property additions and expenses maintenance and repairs which do not extend the
useful lives of these assets. Depreciation for property and equipment is
provided using the straight-line method over the estimated useful lives of the
respective assets, ranging from three to five years. Depreciation expense for
the year was $59,893. Upon retirement or disposal of assets, the cost and
related accumulated depreciation are removed from the balance sheet and any gain
or loss is reflected in current earnings.
Depreciation is computed for financial reporting purposes based on the
following lives:
Furniture and equipment Three to five years
Rental satellite systems equipment Five years
Service vehicles Three years
Leasehold improvements Three years
Contract Rights and Other Assets
Contract rights and other assets consist of the following at December 31,
1996:
Contract rights ............... $1,573,409
Organization costs ............ 309,930
----------
1,883,339
Accumulated amortization ...... (417,200)
----------
1,466,139
NRTC patronage capital ......... 43,007
Other ........................ 3,152
----------
$1,512,298
==========
Contract Rights
In 1993, the Company acquired from the NRTC the exclusive right to market
and distribute DirecTv services to households and commercial establishments in
the following eight counties located in northern Georgia: Banks, Bartow, Dawson,
Gordon, Hall, Habersham, Lumpkin, and Pickens. The Company acquired these rights
for a purchase price of $1,573,409 and for a period of ten years or the life of
the current satellite, whichever is longer. Contract rights are being amortized
over 15 years, the estimated useful life of the satellite (Note 1) operated by
DirecTv which provides service under the related contracts. Amortization
expense, included in depreciation and amortization in the accompanying statement
of operations, for the year ended December 31, 1996 was $104,894.
Organization Costs
All costs incurred prior to the commencement of operations on July 1, 1994
have been capitalized on the balance sheet as organization costs and are being
amortized over five years. Amortization expense, included in depreciation and
amortization in the accompanying statement of operations, for the year ended
December 31, 1996 was $62,176.
F-43
<PAGE>
VIEWSTAR ENTERTAINMENT SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
DECEMBER 31, 1996
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
NRTC Patronage Capital
ViewStar is an affiliate member of the NRTC (Note 9). While affiliate
members have no vote, they do have an ownership interest in the NRTC in
proportion to their prior patronage. NRTC patronage capital represents the
noncash portion of NRTC patronage income. Under its bylaws, the NRTC declares a
patronage dividend of its excess of revenues over expenses each year. Of the
total patronage dividend, 20% is paid in cash and the remaining 80% is
distributed in the form of noncash patronage capital, which will be redeemed in
cash only at the discretion of the NRTC. Noncash patronage capital is included
in other assets. The Company has also deferred the recognition of income from
the noncash portion of the patronage dividend until it is realized. Accordingly,
this amount is recorded in deferred credits in the accompanying balance sheet.
Long-Lived Assets
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
requires that long-lived assets and certain identifiable intangibles to be held
and used by an entity be reviewed whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. Management
believes that the long-lived assets in the accompanying balance sheet are
appropriately valued.
Income Taxes
Deferred income taxes are recorded using enacted tax laws and rates for the
years in which the taxes are expected to be paid. Deferred income taxes are
provided for items when there is a temporary difference in recording such items
for financial reporting and income tax reporting.
Stock-Based Compensation Plans
The Company accounts for its stock-based compensation plans under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB No. 25"). In 1996, the Company adopted the disclosure option
of Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS No. 123"). SFAS No. 123 requires that
companies which do not choose to account for stock-based compensation as
prescribed by this statement shall disclose the pro forma effects on earnings
and earnings per share as if SFAS No. 123 had been adopted. Additionally,
certain other disclosures are required with respect to stock compensation and
the assumptions used to determine the pro forma effects of SFAS No. 123.
Advertising Costs
The Company expenses all advertising costs as incurred.
Revenue Recognition
ViewStar earns programming revenue by providing DirecTv services to its
subscribers. Programming revenue includes DirecTv services purchased by
subscribers in monthly or annual subscriptions; additional premium programming
available on an a la carte basis; sports programming available under monthly,
annual, or seasonal subscriptions; and movies and events programming available
on a pay-per-view basis. Programming purchased on a monthly, annual, or seasonal
basis, including premium programming, is billed in advance and is recorded as
unearned revenue. All programming revenue is recognized when earned.
Equipment and installation revenues primarily consist of the sale of DSS(R)
equipment and accessories and related installation charges. Equipment sales
revenue is recognized upon delivery of the equipment to the customer.
Installation revenue is recognized when the equipment is installed.
F-44
<PAGE>
VIEWSTAR ENTERTAINMENT SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
DECEMBER 31, 1996
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
Cost of Revenues
Cost of revenues includes the cost associated with providing DirecTv
services to the Company's subscribers. These costs include the direct wholesale
cost of purchasing related programming from DirecTv through the NRTC, the
royalty fee paid to DirecTv, and monthly subscriber maintenance fees charged by
DirecTv, such as security fees, ground service fees, system authorization fees,
and fees for subscriber billings. Cost of equipment and installation includes
the wholesale cost of the equipment, fees paid to independent contractor
installers, and service department costs.
3. STOCKHOLDERS' EQUITY
The Company has authorized 1,000,000 shares of no par value common stock.
On August 24, 1993, the Company issued 18,750 shares of common stock for total
proceeds of $1,037,500 to the following three individuals: Donald W.
Weber--15,000 shares (80%) (the "majority stockholder"), Steven D. Weber--1,875
shares (10%), and Woodrow W. Griffin, Jr.--1,875 shares (10%). Under a
stockholder agreement dated August 24, 1993, the majority stockholder or the
Company possesses the right of first refusal to purchase shares owned by
minority stockholders before any transfer of these shares may occur.
On March 30, 1994, the Company issued 6,667 shares of common stock at $75
per share to ITC Holding Company for total proceeds of $500,025. Under a
stockholder agreement dated March 30, 1994, the majority stockholder or the
Company possesses the right of first refusal to purchase shares owned by ITC
Holding Company before any transfer of these shares may occur.
On March 30, 1994, the board of directors and stockholders approved a
restatement of the $500,000 note payable to Donald W. Weber to include the
option to convert the note to common stock at a rate of $75 per share. On
December 31, 1996, this note was converted to 133,340 shares of common stock.
Interest of $88,844 accrued on the note during the period that it was
outstanding but has not been paid.
On June 30, 1995, the board of directors and stockholders approved a
20-for-1 stock split by way of a 19-share dividend or 482,923 shares to current
stockholders on a pro rata basis.
The following table summarizes stock ownership as of December 31, 1996:
Number Percentage Total
of of Consideration
Shares Shares Paid
--------- ------------ --------------
Donald W. Weber ............... 433,340 67.54% $1,500,000
ITC Holding Company ......... 133,340 20.78 500,025
Woodrow W. Griffin, Jr. ...... 37,500 5.84 18,750
Steven D. Weber ............... 37,500 5.84 18,750
-------- -----------
Total ........................ 641,680 $2,037,525
======== ===========
4. STOCK-BASED COMPENSATION PLANS
Employee Stock Option Plan
Under the Company's 1995 stock option plan (the "Stock Option Plan"), as
adopted by the board of directors and approved by the stockholders on June 30,
1995, 75,000 shares of common stock are reserved and authorized for issuance
over a nine-year period. All permanent employees of the Company are eligible to
receive options under the Stock Option Plan. The Stock Option Plan is
administered by the board of directors. The plan is intended to provide for
incentive stock options ("ISOs") under Section 422 of the Internal
F-45
<PAGE>
VIEWSTAR ENTERTAINMENT SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
DECEMBER 31, 1996
4. STOCK-BASED COMPENSATION PLANS -- (Continued)
Employee Stock Option Plan (continued)
Revenue Code of 1986, as amended, and for options which do not qualify as ISOs.
Options were granted at an exercise price of at least 100% of the estimated fair
value of the common stock at the dates of grant, as determined by the board of
directors based on previous equity transactions, historical financial condition
and results of operations, and other analyses.
Options are generally granted at a price (established by the board of
directors) equal to at least 100% of the estimated fair market value of the
common stock on the option grant date. Options granted become exercisable pro
rata over four years from the date of grant. The options expire on December 31,
2004.
Statement of Financial Accounting Standards No. 123
During 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock-Based Compensation," which defines a fair value-based
method of accounting for an employee stock option or similar equity instrument
and which encourages all entities to adopt that method of accounting for all of
their employee stock compensation plans. However, it also allows an entity to
continue to measure compensation cost for those plans using the method of
accounting prescribed by APB No. 25, "Accounting for Stock Issued to Employees."
Entities electing to remain with the accounting methodology required by APB No.
25 must make pro forma disclosures of net income as if the fair value-based
method of accounting defined in SFAS No. 123 was used.
The Company has elected to account for its Stock Option Plan under APB No.
25; however, the Company has computed for pro forma disclosure purposes the
value of all options granted during 1995 and 1996 using the minimum value option
pricing model as prescribed by SFAS No. 123 using the following assumptions:
1995 1996
------------ --------------
Risk-free interest rate ...... 5.95% 6.5%
Expected dividend yield ...... 0 0
Expected lives ............... Five years Five years
Volatility .................. 0 % 0 %
Using these assumptions, the total fair value of the stock options granted
in 1996 and 1995 is $45,920 and $31,322, respectively, which would be amortized
as compensation expense over the four-year vesting period of the options. Had
compensation cost been determined consistent with the provisions of SFAS No.
123, the Company's net loss and pro forma net loss per share for 1996 would have
been as follows:
As Pro
Reported Forma
-------------- ------------
Net loss ............... $ (375,871) $387,844
Net loss per share ...... $ (.59) $ (.60)
F-46
<PAGE>
VIEWSTAR ENTERTAINMENT SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
DECEMBER 31, 1996
4. STOCK-BASED COMPENSATION PLANS -- (Continued)
The following table summarizes stock option transactions under the Stock
Option Plan during 1996 and 1995:
Weighted
Number Average
of Price
Shares Per Share
----------- ----------
Granted .............................. 20,800 $ 6.00
Forfeited ........................... (1,000) 6.00
-------
Outstanding at December 31, 1995 ...... 19,800 6.00
Granted .............................. 21,250 8.00
Forfeited ........................... (2,500) 8.00
-------
Outstanding at December 31, 1996 ...... 38,550 6.97
=======
The following table sets forth the exercise price range, number of shares,
weighted average exercise price, and remaining contractual lives by groups of
similar price and grant date:
Number Weighted
Outstanding Average Weighted
Actual at Remaining Average
Exercise December 31, Contractual Exercise
Prices 1996 Life Price
- ------------------- -------------- ------------- ---------
$6.00 19,800 2.50 $ 6.00
8.00 18,750 3.42 8.00
------ ---- -------
38,550 2.96 6.97
======
There were 4,950 options exercisable at a weighted average exercise price
of $6 per share at December 31, 1996.
5. RELATED-PARTY TRANSACTIONS
During 1996, the Company shared administrative, executive, and accounting
functions and incurred certain costs on behalf of DBS Depot, a company which is
owned by certain common stockholders of the Company. The Company was reimbursed
by DBS Depot for all expenses at full cost. The amount due from DBS Depot as of
December 31, 1996 was $4,165.
As of December 31, 1996, the Company had outstanding a demand note payable
in the amount of $100,000 and an equipment loan payable in the amount of $14,061
due to the principal stockholder. See Note 6 for discussion of notes payable
terms.
6. DEBT
The Company's debt obligations at December 31, 1996 are as follows:
<TABLE>
<S> <C>
Note payable to First Community Bank of Dawsonville, due March 31, 1997, interest at
prime plus 2%, secured by certain assets of the Company ........................ $375,000
Note payable to majority stockholder, due on demand, interest at prime plus 2% ... 100,000
Equipment loans from majority stockholder, due on demand, interest at 5% ......... 14,061
---------
Total outstanding ............................................................ $489,061
=========
</TABLE>
F-47
<PAGE>
VIEWSTAR ENTERTAINMENT SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
DECEMBER 31, 1996
6. DEBT -- (Continued)
As all of the Company's debt at December 31, 1996 matures in 1997 or is due
on demand, these amounts are classified as current in the accompanying balance
sheet.
7. COMMITMENTS AND CONTINGENCIES
Leases
ViewStar leases office space and equipment. Rent expense for the year ended
December 31, 1996 was $53,878. The operating leases expire at various dates
through 2000.
At December 31, 1996, the Company's minimum rental commitments under
noncancelable operating leases with initial or remaining terms of more than one
year were as follows:
1997 ....................................... $50,000
1998 ....................................... 24,000
1999 ....................................... 5,000
2000 ....................................... 5,000
--------
Total future minimum lease payments ...... $84,000
========
Legal Proceedings
The Company is subject to legal proceedings and claims which arise in the
ordinary course of business. There are no pending legal proceedings to which the
Company is a party.
8. INCOME TAXES
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The significant
components of the Company's deferred tax assets and liabilities as of December
31, 1996 are as follows:
Deferred tax assets:
Net operating loss carryforwards ............... $ 288,000
Unearned revenue ................................. 110,000
Accrued interest ................................. 34,000
Depreciation .................................... 15,000
----------
Total deferred tax assets ..................... 447,000
Deferred tax liabilities:
Other .......................................... (3,000)
----------
Net deferred tax assets ........................ 444,000
Valuation allowance for deferred tax assets ...... (444,000)
----------
Net deferred taxes ........................... $ 0
==========
The Company's net operating loss carryforwards will expire between 2008 and
2011 unless utilized. Due to the fact that the Company has incurred losses since
inception, the Company has not recognized the income tax benefit of the net
operating loss carryforwards. Management has provided a 100% valuation reserve
against its net deferred tax asset, consisting primarily of net operating loss
carryforwards. In addition, the Company's ability to recognize the benefit from
the net operating loss carryforwards could be limited under Section 382 of the
Internal Revenue Code if ownership of the Company changes by more than 50%, as
defined.
F-48
<PAGE>
VIEWSTAR ENTERTAINMENT SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
DECEMBER 31, 1996
8. INCOME TAXES -- (Continued)
A reconciliation of the income tax provision computed at statutory tax
rates to the income tax provision for the year ended December 31, 1996 is as
follows:
Income tax benefit at statutory rate ............ 34%
State income taxes, net of federal benefit ...... 4
Deferred tax asset valuation allowance ......... (38)
Effective tax rate .............................. 0%
9. RELIANCE ON DIRECTV AND THE NRTC AND OTHER MATTERS
The NRTC has contracted with third parties to provide the NRTC members with
certain services, including billing services and centralized remittance
processing services. The NRTC bills the Company for these services on a monthly
basis. These fees are recorded as service fees in the accompanying statement of
operations. The NRTC also sells DSS(R) equipment to its members.
Because the Company is, through the NRTC, a distributor of DirecTv
Services, the Company would be adversely affected by any material adverse
changes in the assets, financial condition, programming, technological
capabilities, or services of DirecTv or its parent corporation, Hughes
Communication Galaxy, Inc. ("Hughes"), including DirecTv's failure to retain or
renew its Federal Communications Commission ("FCC") licenses to transmit radio
frequency signals from the orbital slots occupied by its satellites.
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 an agreement between the NRTC and Hughes
(the "Hughes Agreement") and the NRTC Member Agreements, participating NRTC
members acquired the exclusive rights to provide DirecTv services to residential
and commercial subscribers in certain rural DirecTv markets. In general, upon
default by the NRTC under the Hughes Agreement, the Company would have the right
to acquire DirecTv Services directly from DirecTv. The NRTC has contracted with
third parties to provide the NRTC members with certain services, including
billing services and centralized remittance processing services. If the NRTC is
unable to provide these services for whatever reason, the Company would be
required to acquire the services from other sources. There can be no assurance
that the cost to the Company to obtain these services elsewhere would not exceed
the amounts currently payable to the NRTC.
The Company would also be adversely affected by the termination of the NRTC
Member Agreements by the NRTC prior to the expiration of their respective terms.
If the NRTC Member Agreements are terminated by the NRTC, the Company would no
longer have the right to provide DirecTv Services. There can be no assurance
that the Company would be able to obtain similar DBS services from other
sources.
Both the Hughes Agreement and the NRTC Member Agreements expire when Hughes
removes its current satellites from their assigned orbital locations. Although,
according to Hughes, the three DirecTv satellites have estimated orbital lives
of approximately 15 years from their respective launches in December 1993 and
1994, there can be no assurance as to the longevity of the satellites and thus
no assurance as to how long the Company will be able to continue to acquire DBS
services pursuant to the NRTC Member Agreements.
While the Company believes it will have access to DirecTv Services
following the expiration of the current Hughes Agreement by virtue of the NRTC's
right of first refusal in the Hughes Agreement and the Company's existing
contractual and membership relationship with the NRTC, there can be no assurance
that such services will be available to the Company from Hughes or the NRTC, and
if available, there can be no assurance with regard to the financial and other
terms under which the Company could acquire the services.
F-49
<PAGE>
VIEWSTAR ENTERTAINMENT SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
DECEMBER 31, 1996
9. RELIANCE ON DIRECTV AND THE NRTC AND OTHER MATTERS -- (Continued)
The Company's DBS business is a new business with a limited operating
history. There are numerous risks associated with satellite transmission
technology. There can be no assurance as to the longevity of the satellites or
that loss, damage, or changes in the satellites will not occur and have a
material adverse effect on DirecTv and the Company's DBS business.
DirecTv and, therefore, the Company are dependent on third parties to
provide high-quality programming that appeals to mass audiences. DirecTv's
programming agreements have terms which expire on various dates and have
different renewal and cancellation provisions. There can be no assurance that
any such agreements will be renewed or will not be canceled prior to expiration
of their original terms.
DBS operators, such as DirecTv, are free to set prices and serve
subscribers according to their business judgment without rate of return and
other regulation. However, DirecTv is subject to the regulatory jurisdiction of
the FCC.
10. SUBSEQUENT EVENT
In September 1997, the Company entered into a non-binding letter of intent
with Pegagus Communications Corporation ("Pegasus") to sell the stock of the
Company to Pegasus in exchange for a combination of cash and stock.
F-50
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Members
Midwest Minnesota DBS, LLC
Perham, Minnesota
I have audited the accompanying statement of net assets to be sold of Midwest
Minnesota DBS, LLC, as of December 31, 1996, and the related statements of
operations and cash flows for the year then ended. These financial statements
are the responsibility of the Company's management. My responsibility is to
express an opinion on these financial statements based on my audit.
I conducted my audits in accordance with generally accepted auditing standards.
Those standards require that I 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.
I believe that my audit provides a reasonable basis for my opinion.
The accompanying statement of net assets to be sold was prepared to present the
net assets of Midwest Minnesota DBS, LLC to be acquired by Pegasus
Communications Corporation pursuant to the purchase agreement described in Note
5, and is not intended to be a complete presentation of Midwest Minnesota DBS,
LLC's assets and liabilities.
In my opinion, the statements referred to above present fairly, in all material
respects, the net assets to be sold of Midwest Minnesota DBS, LLC, as of
December 31, 1996 and the results of operations and cash flows for the year then
ended pursuant to the purchase agreement referred to in Note 6, in conformity
with generally accepted accounting principles.
Bradley R. Helmeke, Ltd.
Perham, Minnesota
July 18, 1997
F-51
<PAGE>
MIDWEST MINNESOTA DBS, LLC
STATEMENTS OF NETS ASSETS TO BE SOLD
December 31, June 30,
1996 1997
-------------- ------------
(unaudited)
ASSETS
CURRENT ASSETS
Accounts Receivable .................. $135,270 $102,495
Inventory ........................... 31,255 56,916
--------- ---------
TOTAL CURRENT ASSETS ..................... 166,525 159,411
--------- ---------
PROPERTY AND EQUIPMENT .................. 36,953 31,833
--------- ---------
OTHER ASSETS
Investment in NRTC .................. 37,705 51,058
Franchise Cost ........................ 472,810 441,292
Organization and Start-up Costs ...... 7,635 6,108
Cashback and Access Cards ............ 72,847 97,941
--------- ---------
TOTAL OTHER ASSETS ..................... 590,997 596,399
--------- ---------
TOTAL ASSETS ........................... 794,475 787,643
CURRENT LIABILITIES
Customer Deposits ..................... 1,140 1,960
Deferred Revenue ..................... 177,270 140,156
--------- ---------
TOTAL CURRENT LIABILITIES ............... 178,410 142,116
--------- ---------
NET ASSETS TO BE SOLD ..................... $616,065 $645,527
========= =========
See accompanying notes to the financial statements.
F-52
<PAGE>
MIDWEST MINNESOTA DBS, LLC
STATEMENTS OF OPERATIONS OF ASSETS TO BE SOLD
<TABLE>
<CAPTION>
Six months ended
Year ended ---------------------------
December 31, June 30, June 30,
1996 1996 1997
-------------- ------------- ------------
(unaudited) (unaudited)
<S> <C> <C> <C>
REVENUE
Programming Revenue ..................... $ 833,231 $ 348,714 $ 597,408
Equipment Sales ........................ 426,169 179,169 103,052
---------- --------- ---------
TOTAL REVENUE ........................ 1,259,400 527,883 700,460
COST OF REVENUE
Programming Costs ..................... 400,231 165,354 266,783
Programming Fees ..................... 131,313 53,461 86,627
Equipment Costs ........................ 345,412 146,275 93,997
Selling Commissions .................. 131,316 38,540 55,542
Installation Costs .................. 29,027 10,335 18,070
Patronage Dividend ..................... (21,956) (21,956) (19,077)
---------- --------- ---------
TOTAL COSTS OF REVENUE .................. 1,015,343 392,009 501,942
---------- --------- ---------
GROSS PROFIT ........................... 244,057 135,874 198,518
---------- --------- ---------
OPERATING EXPENSES
Salaries and Wages ..................... 84,652 44,113 46,790
Employee Benefits and Taxes ............ 9,604 4,742 7,788
Insurance ........................... 3,032 1,478 1,817
Advertising ........................... 15,992 8,226 12,725
Marketing .............................. 14,071 7,527 4,364
Depreciation and Amortization ......... 88,600 41,199 61,179
Travel and Entertainment ............... 4,853 2,092 901
Training and Development ............ 3,979 1,949 2,104
Rent ................................. 5,400 2,700 2,700
Telephone ........................... 22,300 9,782 14,055
Supplies .............................. 5,737 3,688 2,081
Postage .............................. 5,550 2,169 3,357
Accounting and Legal .................. 910 850 6,928
Bank and Finance Charges ............ 3,697 1,884 933
Bad Debts .............................. 11,484 3,591 4,441
Miscellaneous Expenses ............... 4,792 2,045 4,738
---------- --------- ---------
284,653 138,035 176,901
NET INCOME (LOSS) FROM OPERATIONS ...... $ (40,596) $ (2,161) $ 21,617
========== ========= =========
</TABLE>
See accompanying notes to the financial statements.
F-53
<PAGE>
MIDWEST MINNESOTA DBS, LLC
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six months ended
Year ended ---------------------------
December 31, June 30, June 30,
1996 1996 1997
-------------- ------------- ------------
(unaudited) (unaudited)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) from Operations .............................. $ (40,596) $ (2,161) $ 21,617
Adjustments to Reconcile Net Income (Loss) from Operations to Net
Cash Provided by Operating Activities:
Depreciation and Amortization ................................. 88,600 41,199 61,179
Changes in:
Accounts Receivable .......................................... (56,833) 2,506 32,775
Inventory ................................................... 20,421 17,636 25,661
Customer Deposits .......................................... (160) (140) 820
Deferred Revenue ............................................. 153,172 8,414 (37,114)
---------- --------- ---------
Net Cash Provided by Operating Activities ..................... 164,604 67,454 104,938
---------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of Property and Equipment ........................... (20,122) (4,404) (23,198)
Purchases of Cash Back Offer ................................. (74,200) -- (25,000)
Purchases of Access Card Changeouts ........................... (4,110) -- --
Equity from NRTC Patronage .................................... (17,565) (17,565) (13,353)
Proceeds from Sale of Property and Equipment .................. 6,740 -- --
---------- --------- ---------
Net Cash Used in Investing Activities ........................... (109,257) (21,969) (61,551)
---------- --------- ---------
NET DECREASE IN MEMBERS' EQUITY ................................. (55,347) (45,485) (43,387)
NET CHANGE IN CASH ............................................. -- -- --
CASH -- BEGINNING OF PERIOD .................................... -- -- --
---------- --------- ---------
CASH -- END OF PERIOD .......................................... $ -- $ -- $ --
========== ========= =========
</TABLE>
See accompanying notes to the financial statements.
F-54
<PAGE>
MIDWEST MINNESOTA DBS, LLC
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
This summary of significant accounting policies of Midwest Minnesota DBS,
LLC is presented to assist in understanding the Company's financial statements.
The financial statements and notes are representations of the Company's
management, who is responsible for their integrity and objectivity. The
accounting policies conform to generally accepted accounting principles and have
been consistently applied in the preparation of the financial statements.
Business Activity -- The Company is primarily engaged in the programming
service of Direct TV via satellite. They also retail satellite dish systems to
the general public.
Property and Equipment -- Property and equipment are carried at cost.
Depreciation is calculated on the straight-line or accelerated methods over the
estimated useful lives of the assets.
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.
Inventories -- Inventories consist primarily of digital satellite systems
(DSS) and are stated at the lower of cost (first-in, first-out) or market value.
Amortization of Other Assets -- The cost of organizing, starting up,
acquiring franchises, and selling DSS systems is being amortized over 5-15 years
on a straight line basis.
Income Taxes -- The Company is organized as an LLC partnership and all
respective income and loss items are taxed to the respective partners.
NOTE 2 -- PROPERTY AND EQUIPMENT
Property and equipment are summarized by major classifications as follows:
Computer Equipment .................. $ 17,708
Demo Equipment ..................... 22,136
Vehicle .............................. 18,293
Leasehold Improvements ............ 2,276
---------
60,413
Less Accumulated Depreciation ...... (23,460)
---------
$ 36,953
=========
NOTE 3 -- OTHER ASSETS
Other assets are summarized by major classifications as follows:
Investment in NRTC .................. $ 37,705
Franchise Cost ..................... 630,400
Marketing and Development ......... 72,905
Organization Costs .................. 2,163
Start-Up Costs ..................... 15,274
Cash Back Offer ..................... 74,200
Access Card Change-Out ............ 4,110
----------
836,757
Less Accumulated Amortization ...... (245,760)
----------
$ 590,997
==========
F-55
<PAGE>
MIDWEST MINNESOTA DBS, LLC
NOTES TO FINANCIAL STATEMENTS -- (Continued)
December 31, 1996
NOTE 3 -- OTHER ASSETS -- (Continued)
The Company co-operates with NRTC in administering the DSS programming
services. The investment in NRTC is this Company's equity in NRTC from their
participation with them for the years 1994 and 1995. This investment is not
being amortized. The remaining other assets are being amortized according to
their estimated years of value.
NOTE 4 -- TRANSACTIONS WITH RELATED PARTIES
The Company leases office space from a company that is substantially owned
by a partner of Midwest Minnesota DBS, LLC. The lease is a five-year lease
starting on August 1, 1995. The lease calls for payments of $450 per month.
Total lease payments for the year ended December 31, 1996, were $5,400.
NOTE 5 -- SEP PENSION PLAN
The Company sponsors a simplified employee pension plan (SEP) for all of
its employees. The Company will match contributions by its employees of 50% of
their contribution, up to 4%. The Company's pension contribution for the year
ended December 31, 1996, was $1,472. The Company raised the matching percentage
up to 6% at January 1, 1997.
NOTE 6 -- SUBSEQUENT EVENT
The Company has entered into an agreement to sell all of the assets and
business operations to an unrelated party. The sale is scheduled to close on
August 8, 1997.
F-56
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Shareholders
Turner-Vision, Inc.
Bluefield, West Virginia
We have audited the accompanying statement of net assets to be sold of
Turner-Vision, Inc. (an S-Corporation) DBS Operations as of December 31, 1996
and the related statements of operations and cash flows for the year 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 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.
The accompanying statement of net assets to be sold was prepared to present
the net assets of Turner-Vision, Inc. DBS Operations to be acquired by Pegasus
Communications Corporation (Pegasus) pursuant to the purchase agreement
described in Note 7, and is not intended to be a complete presentation of the
assets and liabilities of Turner-Vision, Inc. and its DBS Operation.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the net assets to be sold of Turner-Vision, Inc. DBS
Operations as of December 31, 1996 and the results of operations and cash flows
for the year then ended pursuant to the purchase agreement referred to in Note
7, in conformity with generally accepted accounting principles.
Grigoraci, Trainer, Wright & Paterno
Charleston, West Virginia
June 6, 1997
F-57
<PAGE>
TURNER-VISION, INC.
(AN S-CORPORATION)
DBS OPERATIONS
STATEMENT OF NET ASSETS TO BE SOLD
AS OF DECEMBER 31, 1996
<TABLE>
<S> <C>
CURRENT ASSETS:
Subscriber accounts receivable, less allowance for doubtful accounts of $3,813 $ 171,265
Equipment held for resale ................................................... 92,574
---------
TOTAL CURRENT ASSETS ...................................................... 263,839
---------
DIRECT BROADCAST SATELLITE FRANCHISE, net of accumulated amortization ......... 623,179
---------
PROPERTY AND EQUIPMENT, at cost:
Property and equipment ...................................................... 1,855
Less: accumulated depreciation ............................................. (719)
---------
PROPERTY AND EQUIPMENT, NET ................................................ 1,136
---------
TOTAL ASSETS ............................................................... 888,154
---------
CURRENT LIABILITIES:
Accrued liabilities ......................................................... 84,372
Customer advance payments ................................................... 15,076
Unearned revenue ............................................................ 176,139
---------
TOTAL CURRENT LIABILITIES ................................................ 275,587
---------
NET ASSETS TO BE SOLD ...................................................... $ 612,567
=========
</TABLE>
The accompanying notes are an integral part of the financial statements
F-58
<PAGE>
TURNER-VISION, INC.
(AN S-CORPORATION)
DBS OPERATIONS
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
OPERATING REVENUES:
Programming and equipment sales, net ........................ $ 2,368,081
Uncollectible operating revenues ........................... (26,570)
Other operating revenues .................................... 16,934
-----------
TOTAL OPERATING REVENUES ................................. 2,358,445
-----------
OPERATING EXPENSES:
Programming ................................................ 1,074,320
Cost of equipment sold .................................... 997,545
Payroll and payroll related expenses ........................ 183,854
Advertising, maintenance and other operating expenses ...... 762,505
Depreciation and amortization .............................. 85,576
Allocated costs (Note 5) .................................... 103,360
-----------
TOTAL OPERATING EXPENSES ................................. 3,207,160
-----------
OPERATING LOSS .......................................... $ (848,715)
===========
</TABLE>
The accompanying notes are an integral part of the financial statements
F-59
<PAGE>
TURNER-VISION, INC.
(AN S-CORPORATION)
DBS OPERATIONS
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Operating loss ....................................... $ (848,715)
ADJUSTMENT TO RECONCILE OPERATING LOSS TO NET CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Depreciation and amortization ........................ 85,576
Change in assets and liabilities:
Increase in accounts receivable ..................... (95,656)
Decrease in equipment held for resale ............... 68,793
Increase in accounts payable ........................ 159,327
Increase in accrued liabilities ..................... 45,282
Increase in customer advance payments ............... 8,286
Increase in unearned revenue ........................ 124,354
Increase in amount due to Turner-Vision, Inc. ...... 537,585
-----------
Total adjustments ................................. 933,547
-----------
NET CASH PROVIDED BY OPERATING ACTIVITIES ......... 84,832
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ................................. (2,226)
-----------
NET CHANGE IN CASH ................................. $ 82,606
===========
The accompanying notes are an integral part of the financial statements
F-60
<PAGE>
TURNER-VISION, INC.
(AN S-CORPORATION)
DBS OPERATIONS
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1996
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Turner-Vision, Inc. (the Company), through its DBS operations, markets and
distributes direct broadcast satellite services to cable and noncable television
subscribers residing within a five county area in southern West Virginia and
southwestern Virginia. The Company obtained these exclusive rights to its
service territory by investment with the National Rural Telecommunications
Cooperative (NRTC).
Subscriber Accounts Receivable
Subscriber accounts receivable represents amounts due from customers for
satellite television services and includes amounts billed, but unearned at each
year-end.
Equipment Held for Resale
The Company's DBS operations sells direct broadcast satellite receivers and
dishes, and supplies and materials commonly used for satellite installations. At
December 31, 1996, the equipment is carried at the lower of cost or market, on a
specific identification method.
Property and Equipment
Property and equipment are stated at original cost and include display
equipment and various tools, equipment and supplies for installation and
maintenance of DirectTV systems. Depreciation expense for the year ended
December 31, 1996 was $3,398.
Subsequent to December 31, 1996, the Company's DBS operations acquired five
vehicles from another company controlled by the Company's shareholders. Since
the vehicles were not acquired until after December 31, 1996, they are not
included in the accompanying financial statements. The vehicles were included in
the personal property sold to Pegasus under a Contribution Agreement between
Pegasus and the Company, dated March 10, 1997.
Revenue Recognition
The Company's DBS operations recognizes revenues monthly for DBS services
which have been earned through the end of the month. The unearned portion of
billed services is recorded as unearned revenue. The Company's DBS operations
recognized revenues from DBS equipment sales at the time of sale.
Advertising Costs
Advertising costs are expensed as incurred.
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 statements
and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
F-61
<PAGE>
TURNER-VISION, INC.
(AN S-CORPORATION)
DBS OPERATIONS
NOTES TO FINANCIAL STATEMENTS -- (Continued)
AS OF DECEMBER 31, 1996
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
Concentration of Credit Risk
Financial instruments that potentially subject the Company's DBS operations
to concentration of credit risk consist principally of trade accounts
receivable. The risk is limited due to the large number of individuals
comprising the Company's DBS customer base. Exposure to losses on receivables is
principally dependent on each customer's financial condition. The Company's DBS
operations monitors the exposure for credit losses and maintains an allowance
for anticipated losses.
NOTE 2 -- DIRECT BROADCAST SATELLITE FRANCHISE
During 1993, the Company invested $821,775 with NRTC, acquiring exclusive
franchise rights to market direct broadcast satellite services to cable and
noncable television subscribers residing within a five county area in southern
West Virginia and southwestern Virginia. This investment is in an agreement with
NRTC for the rights to provide broadcast services to this service territory for
a period of approximately ten years, which is the expected life of the
satellite. The satellite was launched in late 1993 and became available for use
by the Company in July 1994. Amortization expense for these rights for the year
ended December 31, 1996 was $82,178.
NOTE 3 -- INCOME TAXES
Effective July 1, 1988, the Company elected by unanimous consent of its
shareholders to be taxed under the provision of Subchapter S of the Internal
Revenue Code. Under such election, the Company's federal and state income or
loss is passed through to the individual shareholders. Therefore, no provision
or liability for income tax has been included in these financial statements.
NOTE 4 -- CONTINGENCY
The Company's DBS operations relies on NRTC as its sole provider of
programming via direct broadcast satellite services.
NOTE 5 -- ALLOCATED COSTS
The accompanying statements of operations include costs allocated from the
Company to the Company's DBS operations for use of common property and services.
The costs were allocated on a proportional cost basis. The Company's management
believes its method of allocation is reasonable.
NOTE 6 -- RELATED PARTY TRANSACTIONS
The Company's DBS operations purchased customer satellite installation
services from another company that is controlled by the Company's shareholders.
For the year ended December 31, 1996, charges paid by the Company's DBS
operations for installation services totaled $425,310.
NOTE 7 -- SUBSEQUENT EVENTS
Acquisition of DBS Operations
Pegasus Communications Corporation entered into a Contribution Agreement
with the Company. The effective closing date of this transaction was March 10,
1997. Pursuant to the terms of the agreement, Pegasus purchased certain net
assets of the Company's DBS operations for $7 million, plus $1,400 for each
excess subscriber over 4,800 subscribers plus or minus, as applicable, the
estimated operating adjustments. The total cash consideration paid to the
Company by Pegasus at the closing totaled $8,189,267. In addition, Pegasus
issued to the Company 3,000 shares of Pegasus Satellite Television of Virginia,
Inc., Series A preferred stock,
F-62
<PAGE>
TURNER-VISION, INC.
(AN S-CORPORATION)
DBS OPERATIONS
NOTES TO FINANCIAL STATEMENTS -- (Continued)
AS OF DECEMBER 31, 1996
NOTE 7 -- SUBSEQUENT EVENTS -- (Continued)
and assigned and transferred to the Company Pegasus warrants to purchase 283,969
shares of Pegasus Communications Corporation, Class A Common Stock. The Series A
preferred stock has a stated price of $1,000 per share and is subject to certain
transfer restrictions. The warrants have an exercise price of $11.81 per share.
The historic statements herein include the net assets to be sold and the related
results of operations and cash flows for the Company's DBS operations as of and
for the year ended December 31, 1996.
The Company was notified by Pegasus by a letter dated May 28, 1997
asserting indemnification claims pursuant to the Contribution Agreement, dated
as of March 10, 1997 for an alleged overstatement in the number of active
DirectTV subscribers. Pegasus has asked for damages in the amount of $459,200.
Outside counsel for the Company has advised that at this stage no opinion can be
offered as to the probable outcome or the amount or range of potential loss.
F-63
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Pioneer Services Corporation
Greenville, Alabama
We have audited the accompanying balance sheet of the DBS Operations of
Pioneer Services Corporation (operating division of Pioneer Services Corporation
as more fully described in Note 1 to financial statements) (the Division) as of
September 30, 1996 and the related statements of operations and retained
earnings, and cash flows for the year then ended. These financial statements are
the responsibility of the Division's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
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 financial position of the DBS Operations of
Pioneer Services Corporation as of September 30, 1996 and the results of its
operations and its cash flows for the year 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
Division been unaffiliated with Pioneer Services Corporation. As discussed in
Notes 1 and 6 to the financial statements, Pioneer Services Corporation provides
financing and certain general and administrative and other corporate services to
the Division.
Jackson Thornton & Co., P.C.
Montgomery, Alabama
January 14, 1997, except for
Note 7 as to which the
date is September 26, 1997
F-64
<PAGE>
DBS OPERATIONS OF PIONEER SERVICES CORPORATION
GREENVILLE, ALABAMA
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
September 30, June 30,
1996 1997
--------------- ------------
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash ............................................................... $ 25,907 $ 26,347
Accounts receivable:
Customers, less provision for doubtful accounts of $20,000 at Sep-
tember 30, 1996 and June 30, 1997 338,500 340,699
Inventories ......................................................... 330,551 163,145
------------ ------------
Total current assets ............................................. 694,958 530,191
------------ ------------
EQUIPMENT:
Leased property (net of accumulated depreciation of $210,964 and
$624,124 at September 30, 1996 and June 30, 1997, respectively)...... 3,026,009 2,622,700
------------ ------------
OTHER ASSETS:
Deferred charges ...................................................... 1,884 2,656
------------ ------------
Total assets ................................................... $ 3,722,851 $ 3,155,547
============ ============
LIABILITIES AND DIVISION DEFICIENCY
CURRENT LIABILITIES:
Accounts payable ..................................................... $ 161,257 $ 217,302
Accrued liabilities .................................................. 34,758 --
Deferred credits ..................................................... 195,065 232,417
------------ ------------
Total current liabilities ...................................... 391,080 449,719
------------ ------------
LONG-TERM DEBT:
Notes payable ........................................................ 5,057,051 4,722,867
------------ ------------
Total liabilities ............................................... 5,448,131 5,172,586
------------ ------------
EQUITY:
Division deficiency .................................................. (1,725,280) (2,017,039)
------------ ------------
Total liabilities and division deficiency ....................... $ 3,722,851 $ 3,155,547
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-65
<PAGE>
DBS OPERATIONS OF PIONEER SERVICES CORPORATION
STATEMENTS OF OPERATIONS AND DIVISION DEFICIENCY
<TABLE>
<CAPTION>
Nine months ended
Year ended -----------------------------------
September 30, June 30, June 30,
1996 1996 1997
--------------- ----------------- ---------------
(unaudited) (unaudited)
<S> <C> <C> <C>
OPERATING REVENUES ........................ $ 3,027,960 $ 1,966,721 $ 3,912,923
OPERATING EXPENSES ........................ (2,843,580) (2,182,553) (3,922,294)
------------- ------------- -------------
INCOME (LOSS) FROM OPERATIONS ............ 184,380 (215,832) (9,371)
INTEREST EXPENSE ........................... (215,147) (156,990) (282,388)
------------- ------------- -------------
NET INCOME (LOSS) ........................ (30,767) (372,822) (291,759)
DIVISION DEFICIENCY AT BEGINNING OF PERIOD . (1,694,513) (1,694,513) (1,725,280)
------------- ------------- -------------
DIVISION DEFICIENCY AT END OF PERIOD ...... $ (1,725,280) $ (2,067,335) $ (2,017,039)
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-66
<PAGE>
DBS OPERATIONS OF PIONEER SERVICES CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine months ended
Year ended --------------------------------
September 30, June 30, June 30,
1996 1996 1997
--------------- -------------- ---------------
(unaudited) (unaudited)
<S> <C> <C> <C>
CASH FLOWS FROM (USED FOR) OPERATING
ACTIVITIES:
Net loss ............................................. $ (30,767) $ (372,822) $ (291,759)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization ........................ 203,739 126,614 413,160
Provision for losses on notes and accounts receivable 105,417 79,063 152,092
Decrease (increase) in operating assets and increase
(decrease) in operating liabilities:
Accounts receivable .............................. (489,836) (218,779) (154,291)
Inventories ....................................... (24,869) (182,696) 167,406
Accounts payable ................................. (69,393) 214,025 56,045
Accrued liabilities .............................. (8,050) 8,816 (34,758)
Deferred credits ................................. 138,563 58,875 37,352
------------ ------------ -----------
Net cash from (used for) operating activities (175,196) (286,904) 345,247
------------ ------------ -----------
CASH FLOWS USED FOR INVESTING ACTIVITIES:
Capital expenditures ................................. (2,796,178) (2,096,623) (9,851)
Net change in deferred assets ........................ (8,406) (1,357) (772)
------------ ------------ -----------
Net cash used for investing activities ......... (2,804,584) (2,097,980) (10,623)
------------ ------------ -----------
CASH FLOWS FROM (USED FOR) FINANCING
ACTIVITIES:
Proceeds from long-term debt ........................... 2,983,181 2,377,490 (334,184)
------------ ------------ -----------
Net cash from (used for) financing activities 2,983,181 2,377,490 (334,184)
------------ ------------ -----------
NET INCREASE (DECREASE) IN CASH ........................ 3,401 (7,394) 440
CASH AT BEGINNING OF PERIOD ........................... 22,506 22,506 25,907
------------ ------------ -----------
CASH AT END OF PERIOD ................................. $ 25,907 $ 15,112 $ 26,347
============ ============ ===========
SUPPLEMENTAL INFORMATION:
Cash paid for interest on long-term debt ............... $ 52,896 $ 41,550 $ 270,150
============ ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-67
<PAGE>
DBS OPERATIONS OF PIONEER SERVICES CORPORATION
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
NOTE 1 - PRESENTATION AND NATURE OF BUSINESS:
Basis of presentation - The DBS operations of Pioneer Services Corporation
(the Division) are comprised of the assets and liabilities of the division of
Pioneer Services Corporation (Pioneer) which provides direct broadcast satellite
(DBS) services. Pioneer intends to sell these assets pursuant to an agreement
with Pegasus Communications Holdings, Inc. (see Note 7). This division has no
separate legal existence apart from Pioneer.
The historical financial statements of the DBS operations of Pioneer do not
necessarily reflect the results of operations or financial position that would
have existed if the DBS operations were an independent company. Pioneer provides
certain general and administrative and other corporate services to the Division
(see Note 6).
Nature of business - The Corporation sells direct broadcast satellite
equipment and programming for television to consumers in rural central Alabama
franchised by the National Rural Telecommunication Cooperative (NRTC). While
this franchise is exclusive as it relates to programming provided through NRTC,
other programming providers may offer DBS services within the Division's market.
Under the franchise agreement, NRTC leases satellite capacity through which
programming is transmitted. The NRTC provides certain billing functions for the
Division.
The Division extends credit to its customers who are primarily in the State
of Alabama.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Inventories - Inventories are stated at the lower of cost (first-in,
first-out (FIFO) method) or market.
Equipment - Equipment is stated at cost. Depreciation of equipment is
computed on a straight-line basis over the useful lives of the assets. The
useful life of equipment held at the balance sheet date was determined to be
from five to seven years. The useful life of direct broadcast satellite
equipment is estimated to be seven years. Depreciation expense on all equipment
totaled $195,958 in 1996. Leased property is leased to customers on a monthly
basis.
In 1993, the Division borrowed $1,400,520 to acquire the franchise for the
DBS service areas which it now serves. This loan was secured by the franchise
for satellite television service. This note was satisfied in full on September
30, 1995 when Pioneer Services Corporation transferred the franchise for
satellite television service to Pioneer Electric Cooperative.
Deferred credits - Deferred credits include programming charges which have
been collected in advance from the consumer. These charges are brought into
income as the service is provided to the consumer.
Revenue recognition - Revenue in connection with programming services and
associated costs are recognized when such services are provided. Revenue in
connection with the sale of equipment and installation and associated costs are
recognized when the equipment is installed.
Income taxes - Pioneer is established as a not-for-profit organization
under the laws of the State of Alabama. Pioneer is subject to federal income
tax. The Division is included in the tax return of Pioneer. Accordingly income
taxes have been presented in these financial statements as though the Division
filed a separate federal income tax return. The Division accounts 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 certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
Supplier - The Division purchases all of its programming from NRTC. The
cost of programming was $1,022,400 for 1996.
F-68
<PAGE>
DBS OPERATIONS OF PIONEER SERVICES CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (Continued)
SEPTEMBER 30, 1996
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: -- (Continued)
Unaudited data - The balance sheet as of June 30, 1997 and the statements
of operations and division deficiency and cash flows for the nine months ended
June 30, 1996 and 1997 have been prepared by the Division's management and have
not been audited. The data as of June 30, 1997 and for the nine months ended
June 30, 1996 and 1997 has not subjected to any auditing procedures and,
accordingly, we do not express an opinion on the data. The results of operations
for the nine months ended June 30, 1996 and 1997 are not necessarily indicative
of operating results for the full year.
NOTE 3 - CASH AND CASH EQUIVALENTS:
The Division maintains its cash accounts in a bank located in Ohio. The
account at this bank is guaranteed by the Federal Deposit Insurance Corporation
(FDIC) for up to $100,000. At September 30, 1996, all of the Division's cash was
insured.
NOTE 4 - LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<S> <C>
NRUCFC - variable interest rate, currently 6.20%; secured
by all assets of Pioneer; note matures April 17, 2000....... $ 2,760,551
Pioneer Electric Cooperative - interest rate of 6.75%;
unsecured; note matures December 19, 1997................... 2,296,500
-----------
Totals ................................................. $ 5,057,051
===========
</TABLE>
Annual maturities on long-term debt are as follows:
September 30, 1998 .................................. $ 2,296,500
September 30, 2000 .................................. 2,760,551
------------
Total ........................................... $ 5,057,051
============
NOTE 5 - INCOME TAXES:
Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes (SFAS 109) requires companies to record deferred tax assets or liabilities
for the deferred tax consequences of all temporary differences. The Statement
requires that deferred tax balances be adjusted to reflect new tax rates when
they are enacted into law. Also, SFAS 109 requires the establishment of an asset
and/or liability to recognize the cumulative effect of deferred tax activity.
The provision for income taxes consists of an amount for taxes currently
payable and a provision for tax consequences deferred to future periods.
Deferred income taxes are provided for certain temporary differences principally
due to the use of accelerated depreciation for income tax purposes. Such
deferred taxes are credited to income as the related temporary differences
reverse.
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.
F-69
<PAGE>
DBS OPERATIONS OF PIONEER SERVICES CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (Continued)
SEPTEMBER 30, 1996
NOTE 5 - INCOME TAXES: -- (Continued)
Significant items comprising the Division's deferred tax assets and
liabilities at September 30, 1996 are as follows:
<TABLE>
<S> <C>
Net deferred income tax asset:
Deferred tax asset:
Benefit from net operating loss carryforwards expiring
through the year 2012 .............................. $ 194,400
Deferred tax liability:
Depreciation expense ................................. (61,560)
----------
Net deferred tax asset ................................. 132,840
Valuation allowance .................................... (132,840)
----------
Net deferred tax balance ........................... $ 0
==========
</TABLE>
NOTE 6 - RELATED PARTIES:
Some of the Pioneer Services Corporation's directors also serve as
directors of Pioneer Electric Cooperative (PEC). Pioneer Services Corporation is
managed in accordance with a management contract between Pioneer Services
Corporation and PEC.
At September 30, 1996, PEC is the guarantor of the long-term debt payable
to NRUCFC.
As disclosed in Note 4, the Division has notes payable to PEC for capital
expenditures and working capital deficiencies. Interest expense on PEC loans for
the year ended September 30, 1996 includes $60,719. Interest paid to PEC for the
year ended September 30, 1996 was $52,896.
Accrued interest payable at September 30, 1996 includes $35,507 due to PEC.
NOTE 7 - SUBSEQUENT EVENT:
Subsequent to January 14, 1997, Pioneer 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
Pioneer. Under the present understanding of the terms of the negotiations as of
September 26, 1997, Pioneer would sell to Pegasus its operating assets along
with its subscribers list for the Division for a negotiated price. Although the
Division believes that this transaction will be consummated, there can be no
assurances that it will occur.
F-70
<PAGE>
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
Basis of Presentation
Pro forma consolidated statement of operations and other data for the year
ended December 31, 1996, the six months ended June 30, 1997 and the twelve
months ended June 30, 1997 give effect to (i) the Portland, Maine TV
acquisition, which closed on January 29, 1996, and the Tallahassee, Florida TV
acquisition, which closed on March 8, 1996, (ii) the acquisition of a Puerto
Rico cable system, which closed on August 29, 1996, (iii) the Completed DBS
Acquisitions, (iv) the Pending DBS Acquisitions, (v) the sale of the New
Hampshire cable system (the "New Hampshire Cable Sale"), which closed on January
31, 1997, (vi) Pegasus' initial public offering of 3,000,000 shares of Class A
Common Stock (the "Initial Public Offering"), which was consummated on October
8, 1996, and Pegasus' public offering of 100,000 shares of 12 3/4% Series A
Cumulative Exchangeable Preferred Stock and warrants to purchase 193,600 shares
of Class A Common Stock (the "Unit Offering"), which was consummated on January
27, 1997, and (vii) the Senior Notes Offering, all as if such events had
occurred at the beginning of each period.
The pro forma condensed consolidated balance sheet as of June 30, 1997
gives effect to (i) payments in connection with the Completed DBS Acquisitions,
(ii) the Pending DBS Acquisitions and the New Credit Facility, which, if not
completed prior to the consummation of the Senior Notes Offering, are
anticipated to occur in the fourth quarter of 1997, (iii) the closing of an
existing credit facility and the payment of accrued interest to holders of the
PM&C 12 1/2% Series B Senior Subordinated Notes due 2005 ("PM&C Notes"), and
(iv) the Senior Notes Offerring and the proceeds thereof, as if such events had
occurred on such date.
The 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
consolidated financial information should be read in conjunction with the Notes
to Pro Forma Consolidated Statements of Operation, as well as the financial
statements and notes thereto of the acquisitions, included elsewhere in this
report. The pro forma consolidated financial information is not necessarily
indicative of the Company's future results of operations. There can be no
assurance whether or when the Pending DBS Acquisitions will be consummated.
F-71
<PAGE>
Pro Forma Consolidated Balance Sheet
As of June 30, 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
Completed Pending
DBS DBS
Actual Acquisitions(a) Acquisitions(b)
------------ ----------------- -----------------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents ......... $ 12,518 ($ 802) ($ 7,419)
Restricted cash ..................... 6,892
Accounts receivable, net ............ 10,482
Inventory ........................... 721
Prepaid expenses and other current
assets .............................. 4,779
Property and equipment, net ......... 25,500
Intangibles, net .................. 192,873 $73,720 36,075
Other assets ........................ 2,147
---------- ------- --------
Total assets ..................... $ 255,912 $72,918 $28,656
========== ======= ========
LIABILITIES AND EQUITY
Current liabilities ............... $ 10,440
Accrued interest .................. 5,771
Current portion of long-term debt ... 3,884
Current portion of program rights
payable ........................... 1,102
Long-term debt, net ............... 83,061 $2,218 $ 975
PSH Credit Facility ............... $70,700 21,000
New Credit Facility ..................
Senior Notes ........................
Program rights payable ............ 1,542
Other long term liabilities ......... 1,389
Preferred Stock ..................... 105,313
Minority Interest .................. 3,000
Class A Common Stock ............... 53 3
Class B Common Stock ............... 46
Additional paid in capital ......... 59,463 6,678
Retained earnings .................. (19,152)
---------- ------- --------
Total liabilities and equity ...... $ 255,912 $72,918 $28,656
========== ======= ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
The
Senior
Notes
Other(c) Subtotal Offering(d) Pro Forma
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents ......... $25,479 $ 29,776 ($ 6,650) $ 23,126
Restricted cash ..................... (6,892) --
Accounts receivable, net ............ 10,482 10,482
Inventory ........................... 721 721
Prepaid expenses and other current
assets .............................. 4,779 4,779
Property and equipment, net ......... 25,500 25,500
Intangibles, net .................. 302,668 6,050 308,718
Other assets ........................ 2,147 2,147
-------- ---------- ---------- ----------
Total assets ..................... $18,587 $ 376,073 ($ 600) $ 375,473
======== ========== ========== ==========
LIABILITIES AND EQUITY
Current liabilities ............... $ 10,440 $ 10,440
Accrued interest .................. ($ 5,313) 458 458
Current portion of long-term debt ... 3,884 3,884
Current portion of program rights
payable ........................... 1,102 1,102
Long-term debt, net ............... 86,254 86,254
PSH Credit Facility ............... 23,900 115,600 ($ 115,600) --
New Credit Facility .................. --
Senior Notes ........................ 115,000 115,000
Program rights payable ............ 1,542 1,542
Other long term liabilities ......... 1,389 1,389
Preferred Stock ..................... 105,313 105,313
Minority Interest .................. 3,000 3,000
Class A Common Stock ............... 56 56
Class B Common Stock ............... 46 46
Additional paid in capital ......... 66,141 66,141
Retained earnings .................. (19,152) (19,152)
-------- ---------- ---------- ----------
Total liabilities and equity ...... $18,587 $ 376,073 ($ 600) $ 375,473
======== ========== ========== ==========
</TABLE>
- ------------
(a) To record 12 Completed DBS Acquisitions which occurred after June 30, 1997.
(b) To record eight Pending DBS Acquisitions.
(c) To record additional borrowings under an existing credit facility and the
payment of interest on July 1, 1997 to holders of the PM&C Notes.
(d) To record the proceeds from the Senior Notes Offering and the uses of such
proceeds and the use of cash to finance the Pending DBS Acquisitions and to
record costs in connection with the New Credit Facility.
F-72
<PAGE>
Pro Forma Consolidated Statement of Operations
Year Ended December 31, 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
Acquisitions
------------------------------------------------------------
Completed Pending
DBS DBS
Actual TV(a) Cable(b) Acquisitions(c) Acquisitions(d)
Income Statement Data: ------------ ---------- ---------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
Net Revenues:
TV .................. $ 28,488 $ 651
DBS .................. 5,829 $27,930 $6,125
Cable ............... 13,496 $4,056
Other ............... 116
---------- ------ ------ -------- -------
Total net revenues . 47,929 651 4,056 27,930 6,125
---------- ------ ------ -------- -------
Location operating
expenses:
TV .................. 18,726 537
DBS .................. 4,958 27,599 5,367
Cable ............... 7,192 2,448
Other ............... 28
Incentive
compensation ......... 985
Corporate expenses ... 1,429 33 88 1,429 85
Depreciation and
amortization ........... 12,061 17 365 1,983 783
---------- ------ ------ -------- -------
Income (loss) from
operations ......... 2,550 64 1,155 (3,081) (110)
Interest expense ...... (12,455) (585) (482) (1,269) (126)
Other income (expense),
net .................. 61 3 563 20
Provision (benefit) for
income taxes ......... (120) 35 20 (79) 6
Dividends on Series A
Preferred Stock ......
---------- ------ ------ -------- -------
Income (loss) applicable
to common shares
before extraordinary
items .................. ($ 9,724) ($ 553) $ 653 ($ 3,708) ($ 222)
========== ====== ====== ======== =======
Other Data:
Location Cash Flow(r) . $ 17,025 $ 114 $1,608 $ 331 $ 757
Operating Cash Flow(r) 15,596 81 1,520 (1,098) 672
Capital Expenditures ... 6,294 96 5,095 445
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
The
NH Senior
Cable Previous Sub- Notes Pro
Adjustments Sale(e) Offerings(f) total Offering Forma
Income Statement Data: ----------------- ------------ -------------- ------------ ----------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net Revenues:
TV .................. $ 17(g) $ 29,156 $ 29,156
DBS .................. 39,884 39,884
Cable ............... ($ 1,688) 15,864 15,864
Other ............... 116 116
------------- -------- --------- ---------
Total net revenues . 17 (1,688) 85,020 85,020
------------- -------- --------- ---------
Location operating
expenses:
TV .................. (43)(h) 19,220 19,220
DBS .................. (7,121)(i) 30,803 30,803
Cable ............... (249)(j) (918) 8,473 8,473
Other ............... 28 28
Incentive
compensation ......... (75) 910 910
Corporate expenses ... (1,635)(k) 1,429 1,429
Depreciation and
amortization ........... 16,137 (l) (618) $ 97 30,825 $ 800 (p) 31,625
------------- -------- ---------- --------- ------------ ---------
Income (loss) from
operations ......... (7,072) (77) (97) (6,668) (800) (7,468)
Interest expense ...... (16,342)(m) 11,330 (19,929) (2,307)(q) (22,236)
Other income (expense),
net .................. (586)(n) 61 61
Provision (benefit) for
income taxes ......... 18 (o) (120) (120)
Dividends on Series A
Preferred Stock ...... (12,750) (12,750) (12,750)
------------- -------- ---------- --------- ------------ ---------
Income (loss) applicable
to common shares
before extraordinary
items .................. ($ 24,018) ($ 77) ($ 1,517) ($ 39,166) ($ 3,107) ($42,273)
============= ======== ========== ========= ============ =========
Other Data:
Location Cash Flow(r) . $ 7,430 ($ 770) $ 26,496 $26,496
Operating Cash Flow(r) 9,065 (770) 25,067 25,067
Capital Expenditures ... (204) 11,726 11,726
</TABLE>
F-73
<PAGE>
Pro Forma Consolidated Statement of Operations
Six Months Ended June 30, 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
Completed Pending
DBS DBS
Actual Acquisitions(c) Acquisitions(d) Adjustments
Income Statement Data: ------------- ----------------- ----------------- ------------------
<S> <C> <C> <C> <C>
Net Revenues:
TV ........................ $ 14,636
DBS ........................ 12,771 $11,247 $4,024
Cable ..................... 8,133
Other ..................... 70
--------- -------- ------- -----------
Total net revenues ......... 35,610 11,247 4,024
--------- -------- ------- -----------
Location operating expenses:
TV ........................ 9,694
DBS ........................ 9,738 11,050 3,284 ($ 2,918)(i)
Cable ..................... 4,365
Other ..................... 13
Incentive compensation ...... 521
Corporate expenses ......... 904 631 45 (676)(k)
Depreciation and
amortization ............... 10,854 719 420 4,705 (l)
--------- -------- ------- -----------
Income (loss) from
operations ............... (479) (1,153) 275 (1,111)
Interest expense ............ (6,024) (363) (71) (7,105)(m)
Other income (expense), net 452 80 10 (90)(n)
Provision (benefit) for income
taxes ..................... 50 (19) 5 14 (o)
Dividends on Series A
Preferred Stock ............ (5,313)
--------- -------- ------- -----------
Income (loss) applicable to
common shares before
extraordinary items ......... ($ 11,414) ($ 1,417) $ 209 ($ 8,320)
========= ======== ======= ===========
Other Data:
Location Cash Flow(r) ...... $ 11,800 $ 197 $ 740 $ 2,918
Operating Cash Flow(r) ...... 10,896 (434) 695 3,594
Capital Expenditures ......... 5,233 2,327 610
The
NH Senior
Cable Previous Sub- Notes Pro
Sale(e) Offerings(f) total Offering Forma
Income Statement Data: ------------ -------------- ------------- ----------------- -----------
Net Revenues:
TV ........................ $ 14,636 $14,636
DBS ........................ 28,042 28,042
Cable ..................... ($ 135) 7,998 7,998
Other ..................... 70 70
------- --------- --------- ------------ ---------
Total net revenues ......... (135) 50,746 50,746
------- --------- --------- ------------ ---------
Location operating expenses:
TV ........................ 9,694 9,694
DBS ........................ 21,154 21,154
Cable ..................... (68) 4,297 4,297
Other ..................... 13 13
Incentive compensation ...... 521 521
Corporate expenses ......... 904 904
Depreciation and
amortization ............... (52) 16,646 $ 400(p) 17,046
------- --------- --------- ------------ ---------
Income (loss) from
operations ............... (15) (2,483) (400) (2,883)
Interest expense ............ $ 3,600 (9,963) (1,154)(q) (11,117)
Other income (expense), net 452 452
Provision (benefit) for income
taxes ..................... 50 50
Dividends on Series A
Preferred Stock ............ (1,062) (6,375) (6,375)
------- --------- --------- ------------ ---------
Income (loss) applicable to
common shares before
extraordinary items ......... ($ 15) $ 2,538 ($ 18,419) ($ 1,554) ($ 19,973)
======= ========= ========= ============ =========
Other Data:
Location Cash Flow(r) ...... ($ 67) $ 15,588 $ 15,588
Operating Cash Flow(r) ...... (67) 14,684 14,684
Capital Expenditures ......... (5) 8,165 8,165
</TABLE>
F-74
<PAGE>
Pro Forma Consolidated Statement of Operations
Twelve Months Ended June 30, 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
Acquisitions
------------------------------------------------
Completed Pending
DBS DBS
Actual Cable(b) Acquisitions(c) Acquisitions(d)
Income Statement Data: ------------ ---------- ----------------- -----------------
<S> <C> <C> <C> <C>
Net Revenues:
TV ..................... $ 31,192
DBS ..................... 17,032 $26,616 $ 7,406
Cable .................. 16,003 $ 866
Other .................. 130
--------- ------- -------- -------
Total net revenues . 64,357 866 26,616 7,406
--------- ------- -------- -------
Location operating
expenses:
TV ..................... 20,149
DBS ..................... 13,435 26,745 6,441
Cable .................. 8,470 637
Other .................. 32
Incentive
compensation ............ 1,076
Corporate expenses ...... 1,624 88 1,399 90
Depreciation and
amortization ............. 18,010 164 1,661 832
--------- ------- -------- -------
Income (loss) from
operations ............ 1,561 (23) (3,189) 43
Interest expense ......... (12,909) (69) (937) (136)
Other income (expense),
net ..................... 424 252 13
Provision (benefit) for
income taxes ............ 63 (313) (135) 5
Dividends on Series A
Preferred Stock ......... (5,313)
--------- ------- -------- -------
Income (loss) applicable
to common shares
before extraordinary
items .................. ($ 16,300) $ 221 ($ 3,739) ($ 85)
========= ======= ======== =======
Other Data:
Location Cash Flow(r) . $ 22,271 $ 229 ($ 129) $ 965
Operating Cash Flow(r) 20,647 141 (1,528) 875
Adjusted Operating Cash
Flow(s) ..................
Capital Expenditures ... 8,779 3,899 1,024
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
The
NH Senior
Cable Previous Sub- Notes Pro
Adjustments Sale(e) Offerings(f) total Offering Forma
Income Statement Data: ------------------ ------------ -------------- ------------ ----------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net Revenues:
TV ..................... $ 31,192 $ 31,192
DBS ..................... 51,054 51,054
Cable .................. ($ 1,039) 15,830 15,830
Other .................. 130 130
--------- ---------
Total net revenues . (1,039) 98,206 98,206
-------- --------- ---------
Location operating
expenses:
TV ..................... 20,149 20,149
DBS ..................... ($ 7,335)(i) 39,286 39,286
Cable .................. (83)(j) (552) 8,472 8,472
Other .................. 32 32
Incentive
compensation ............ (66) 1,010 1,010
Corporate expenses ...... (1,577)(k) 1,624 1,624
Depreciation and
amortization ............. 12,678 (l) (358) $ 32 33,019 $ 800 (p) 33,819
------------- -------- --------- --------- ------------ ---------
Income (loss) from
operations ............ (3,683) (63) (32) (5,386) (800) (6,186)
Interest expense ......... (17,314)(m) 11,330 (20,035) (2,201)(q) (22,236)
Other income (expense),
net ..................... (286)(n) 403 403
Provision (benefit) for
income taxes ............ 443 (o) 63 63
Dividends on Series A
Preferred Stock ......... (7,437) (12,750) (12,750)
------------- -------- --------- --------- ------------ ---------
Income (loss) applicable
to common shares
before extraordinary
items .................. ($ 21,726) ($ 63) $ 3,861 ($ 37,831) ($ 3,001) ($40,832)
============= ======== ========= ========= ============ =========
Other Data:
Location Cash Flow(r) . $ 7,418 ($ 487) $ 30,267 $30,267
Operating Cash Flow(r) 8,995 (487) 28,643 28,643
Adjusted Operating Cash
Flow(s) .................. 30,372
Capital Expenditures ... (62) 13,640 13,640
</TABLE>
F-75
<PAGE>
Notes to Pro Forma Consolidated Statements of Operations
(a) Financial results of Portland Broadcasting, Inc. and WTLH, Inc. for the
beginning of the period to the date of acquisition by the Company.
(b) Financial results of Dom's Tele Cable, Inc. for the beginning of the period
to the date of acquisition by the Company.
(c) Represents the combined financial results of the Completed DBS Acquisitions
for the beginning of the period to the date of acquisition by the Company or
the end of the period.
(d) Represents the combined financial results of the Pending DBS Acquisitions
for the period presented.
(e) Financial results of the New Hampshire operations of Pegasus Cable
Television.
(f) To remove interest expense on the debt retired with the proceeds of the
Initial Public Offering and the Unit Offering, to eliminate amortization of
deferred costs related to an old credit facility, to record amortization of
costs incurred in connection with an existing credit facility and to record
dividends on Pegasus' Series A Preferred Stock.
(g) To reduce the commissions paid by WPXT and WTLH to their national
advertising sales representative to conform to the Company's contract.
(h) To eliminate payroll expense related to staff reductions and rent expenses
incurred from prior acquisitions.
(i) Represents elimination of costs associated with 32 call centers that were
not acquired and to conform accounting policies with respect to subscriber
acquisition costs, net of the Company adding additional customer service
representatives.
(j) To reflect expense reductions, such as redundant staff, rent, professional
fees and utilities implemented in connection with acquisitions and
interconnection of its Puerto Rico cable systems
(k) To eliminate corporate expenses charged by prior owners. (l) To record
additional depreciation and amortization resulting from the purchase
accounting treatment of the acquisitions and to conform accounting policies
with respect to subscriber acquisition costs. 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.
(m) To record the increase in net interest expense associated with the
borrowings incurred in connection with the acquisitions described above.
(n) 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.
(o) To eliminate the net tax benefit in connection with the acquisitions. (p) To
record additional amortization resulting from the Senior Notes Offering
and the New Credit Facility.
(q) Interest expense is adjusted for the Senior Notes Offering and the use of
proceeds therefrom and gives effect to the Completed DBS Acquisitions, the
New Hampshire Cable Sale, the Unit Offering, the Pending DBS Acquisitions,
the Subsidiaries Combination and the New Credit Facility (Dollars in
thousands):
<TABLE>
<CAPTION>
Six Months Twelve Months
Year Ended Ended Ended
12/31/96 6/30/97 6/30/97
------------ ------------ --------------
<S> <C> <C> <C>
Interest expense:
PM&C Notes .............................. $10,625 $ 5,313 $10,625
Senior Notes ........................... 11,069 5,534 11,069
Other debt .............................. 542 270 542
-------- -------- --------
Total ................................. 22,236 11,117 22,236
Interest expense previously recorded ...... 19,929 9,963 20,035
-------- -------- --------
Adjustment ................................. $ 2,307 $ 1,154 $ 2,201
======== ======== ========
</TABLE>
<PAGE>
(r) 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. Operating Cash Flow is defined as income (loss) from
operations plus (i) depreciation and amortization and (ii) non-cash
incentive compensation. The difference between Location Cash Flow and
Operating Cash Flow is that Operating Cash Flow includes cash incentive
compensation and corporate expenses. Although Location Cash Flow and
Operating Cash Flow are not measures of performance under generally accepted
accounting principles, the Company believes that Location Cash Flow and
Operating Cash Flow are accepted within the Company's businesses as
generally recognized measures of performance and are used by analysts who
report publicly on the performance of companies operating in such
businesses. 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.
(s) Adjusted Operating Cash Flow is defined as Operating Cash Flow for the four
most recent fiscal quarters less DBS cash flow for the most recent
four-quarter period plus DBS cash flow for the most recent quarterly period
multiplied by four.
F-76
<PAGE>
EXHIBIT INDEX
Exhibit Description
- ---------- -----------
4.1 Indenture, dated as of October 21, 1997, by and between Pegasus and
First Union National Bank, as trustee, relating to the Senior Notes
4.2 Registration Rights Agreement, dated as of October 21, 1997, by and
between the Pegasus and CIBC Wood Gund Securities Corp.
99.1 Press release dated October 8, 1997
99.2 Press release dated October 17, 1997
<PAGE>
Execution Copy
- --------------------------------------------------------------------------------
PEGASUS COMMUNICATION CORPORATION
9 5/8% SENIOR NOTES DUE 2005
---------------------
INDENTURE
Dated as of October 21, 1997
---------------------
---------------------
FIRST UNION NATIONAL BANK
as Trustee
---------------------
- -------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C> <C>
ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE..............................................................1
Section 1.01 Definitions.................................................................................1
Section 1.02 Other Definitions..........................................................................19
Section 1.03 Incorporation by Reference of Trust Indenture Act..........................................19
Section 1.04 Rules of Construction......................................................................20
ARTICLE 2 THE NOTES..............................................................................................20
Section 2.01 Form and Dating............................................................................20
Section 2.02 Execution and Authentication...............................................................21
Section 2.03 Registrar and Paying Agent.................................................................21
Section 2.04 Paying Agent to Hold Money in Trust........................................................22
Section 2.05 Holder Lists...............................................................................22
Section 2.06 Transfer and Exchange......................................................................22
Section 2.07 Replacement Notes..........................................................................36
Section 2.08 Outstanding Notes..........................................................................36
Section 2.09 Treasury Notes.............................................................................37
Section 2.10 Temporary Notes............................................................................37
Section 2.11 Cancellation...............................................................................37
Section 2.12 Defaulted Interest.........................................................................37
ARTICLE 3 REDEMPTION AND PREPAYMENT..............................................................................39
Section 3.01 Notices to Trustee.........................................................................39
Section 3.02 Selection of Notes to Be Redeemed..........................................................39
Section 3.03 Notice of Redemption.......................................................................39
Section 3.04 Effect of Notice of Redemption.............................................................40
Section 3.05 Deposit of Redemption or Purchase Price....................................................40
Section 3.06 Notes Redeemed or Purchased in Part........................................................41
Section 3.07 Optional Redemption........................................................................41
Section 3.08 Mandatory Redemption.......................................................................42
Section 3.09 Offer to Purchase by Application of Excess Proceeds........................................42
ARTICLE 4 COVENANTS..............................................................................................45
Section 4.01 Payment of Notes...........................................................................45
Section 4.02 Maintenance of Office or Agency............................................................45
Section 4.03 Reports....................................................................................46
Section 4.04 Compliance Certificate.....................................................................46
Section 4.05 Taxes......................................................................................47
Section 4.06 Stay, Extension and Usury Laws.............................................................47
Section 4.07 Restricted Payments........................................................................47
Section 4.08 Dividend and Other Payment Restrictions Affecting Subsidiaries............................50
Section 4.09 Incurrence of Indebtedness and Issuance of Preferred Stock.................................50
Section 4.10 Asset Sales................................................................................53
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Section 4.11 Transactions with Affiliates...............................................................54
Section 4.12 Liens......................................................................................55
Section 4.13 Limitation of Certain Subsidiary Indebtedness and Preferred Stock.........................55
Section 4.14 Continued Existence........................................................................55
Section 4.15 Offer to Repurchase Upon Change of Control.................................................56
Section 4.16 Limitation on Issuances and Sales of Capital Stock of Wholly Owned Restricted
Subsidiaries...............................................................................57
Section 4.17 Limitation on Issuance of Subsidiary Guarantee.............................................57
Section 4.18 No amendment of subordination provisions...................................................58
ARTICLE 5 SUCCESSORS.............................................................................................60
Section 5.01 Merger, Consolidation, or Sale of Assets...................................................60
Section 5.02 Successor Corporation Substituted..........................................................60
ARTICLE 6 DEFAULTS AND REMEDIES..................................................................................61
Section 6.01 events of default..........................................................................61
Section 6.02 Acceleration...............................................................................63
Section 6.03 Other Remedies.............................................................................64
Section 6.04 Waiver of Past Defaults....................................................................64
Section 6.05 Control by Majority........................................................................64
Section 6.06 Limitation on Suits........................................................................64
Section 6.07 Rights of Holders of Notes to Receive Payment..............................................65
Section 6.08 Collection Suit by Trustee.................................................................65
Section 6.09 Trustee May File Proofs of Claim...........................................................65
Section 6.10 Priorities.................................................................................66
Section 6.11 Undertaking for Costs......................................................................66
ARTICLE 7 TRUSTEE ...............................................................................................67
Section 7.01 Duties of Trustee..........................................................................67
Section 7.02 Rights of Trustee..........................................................................68
Section 7.03 Individual Rights of Trustee...............................................................68
Section 7.04 Trustee's Disclaimer.......................................................................69
Section 7.05 Notice of Defaults.........................................................................69
Section 7.06 Reports by Trustee to Holders of the Notes.................................................69
Section 7.07 Compensation and Indemnity.................................................................69
Section 7.08 Replacement of Trustee.....................................................................70
Section 7.09 Successor Trustee by Merger, etc...........................................................71
Section 7.10 Eligibility; Disqualification..............................................................71
Section 7.11 Preferential Collection of Claims Against Company..........................................72
ARTICLE 8 LEGAL DEFEASANCE AND COVENANT DEFEASANCE...............................................................72
Section 8.01 Option to Effect Legal Defeasance or Covenant Defeasance...................................72
Section 8.02 Legal Defeasance and Discharge.............................................................72
Section 8.03 Covenant Defeasance........................................................................73
Section 8.04 Conditions to Legal or Covenant Defeasance.................................................73
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Section 8.05 Deposited Money and Government Securities to be Held in Trust; Other
Miscellaneous Provisions...................................................................75
Section 8.06 Repayment to Company.......................................................................75
Section 8.07 Reinstatement..............................................................................76
ARTICLE 9 AMENDMENT, SUPPLEMENT AND WAIVER.......................................................................76
Section 9.01 Without Consent of Holders of Notes........................................................76
Section 9.02 With Consent of Holders of Notes...........................................................77
Section 9.03 Compliance with Trust Indenture Act........................................................78
Section 9.04 Revocation and Effect of Consents..........................................................78
Section 9.05 Notation on or Exchange of Notes...........................................................79
Section 9.06 Trustee to Sign Amendments, etc............................................................79
ARTICLE 10 MISCELLANEOUS.........................................................................................79
Section 10.01 Trust Indenture Act Controls...............................................................79
Section 10.02 Notices....................................................................................79
Section 10.03 Communication by Holders of Notes with Other Holders of Notes..............................80
Section.10.04 Certificate and Opinion as to Conditions Precedent.........................................80
Section 10.05 Statements Required in Certificate or Opinion..............................................81
Section 10.06 Rules by Trustee and Agents................................................................81
Section 10.07 No Personal Liability of Directors, Officers, Employees and Stockholders...................81
Section 10.08 Governing Law..............................................................................81
Section 10.09 No Adverse Interpretation of Other Agreements..............................................82
Section 10.10 Successors.................................................................................82
Section 10.11 Severability...............................................................................82
Section 10.12 Counterpart Originals......................................................................82
Section 10.13 Table of Contents, Headings, etc...........................................................82
</TABLE>
<PAGE>
INDENTURE dated as of October 21, 1997 between Pegasus
Communications Corporation, a Delaware corporation (the "Company"), and First
Union National Bank, a national banking association, as Trustee (the "Trustee").
The Company and the Trustee agree as follows for the benefit
of each other and for the equal and ratable benefit of the Holders of the 9 5/8%
Series A Senior Notes due 2005 (the "Series A Notes") and the 9 5/8% Series B
Senior Notes due 2005 (the "Series B Notes" and, together with the Series A
Notes, the "Notes"):
ARTICLE 1.
DEFINITIONS AND INCORPORATION
BY REFERENCE
SECTION 1.01. DEFINITIONS.
"144A Global Note" means a Global Note in the form of Exhibit
A hereto bearing the Global Note Legend and the Private Placement Legend and
deposited with or on behalf of, and registered in the name of, the Depositary or
its nominee that will be issued in a denomination equal to the outstanding
principal amount of the Notes sold in reliance on Rule 144A.
"Acquired Debt" means, with respect to any specified Person,
(i) Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person and (ii) Indebtedness secured by a Lien
encumbering any assets acquired by such specified Person.
"Adjusted Operating Cash Flow" means, for the four most recent
fiscal quarters for which internal financial statements are available, Operating
Cash Flow of such Person and its Restricted Subsidiaries less DBS Cash Flow for
the most recent four-quarter period plus DBS Cash Flow for the most recent
quarterly period, multiplied by four.
"Affiliate" of any specified Person means any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For purposes of this definition,
"control" (including, with correlative meanings, the terms "controlling,"
"controlled by" and "under common control with"), as used with respect to any
Person, shall mean 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, however, that beneficial ownership of 10% or more of the voting
securities of a Person shall be deemed to be control.
"Agent" means any Registrar, Paying Agent or co-Registrar.
1
<PAGE>
"Applicable Procedures" means, with respect to any transfer or
exchange of or for beneficial interests in any Global Note, the rules and
procedures of the Depositary, Euroclear and Cedel that apply to such transfer or
exchange.
"Asset Sale" means (i) the sale, lease, conveyance or other
disposition of any assets (including, without limitation, by way of a sale and
leaseback) other than in the ordinary course of business consistent with past
practices (provided that the sale, lease, conveyance or other disposition of all
or substantially all of the assets of the Company and its Subsidiaries taken as
a whole will be governed by the provisions described in Section 4.15 hereof
and/or the provisions described in Section 5.01 hereof and not by the provisions
of Section 4.10 hereof and (ii) the issue or sale by the Company or any of its
Restricted Subsidiaries of Equity Interests of any of the Company's Restricted
Subsidiaries, in the case of either clause (i) or (ii), whether in a single
transaction or a series of related transactions (a) that have a fair market
value in excess of $1.0 million or (b) for net proceeds in excess of $1.0
million. Notwithstanding the foregoing, the following transactions will not be
deemed to be Asset Sales: (i) a transfer of assets by the Company to a Wholly
Owned Restricted Subsidiary of the Company or by a Wholly Owned Restricted
Subsidiary of the Company to the Company or to another Wholly Owned Restricted
Subsidiary of the Company, (ii) an issuance of Equity Interests by a Wholly
Owned Restricted Subsidiary of the Company to the Company or to another Wholly
Owned Restricted Subsidiary of the Company and (iii) a Restricted Payment that
is permitted by the provisions of Section 4.07 hereof.
"Asset Swap" means an exchange of assets by the Company or a
Restricted Subsidiary of the Company for (i) one or more Permitted Businesses,
(ii) a controlling equity interest in any Person whose assets consist primarily
of one or more Permitted Businesses and/or (iii) long-term assets that are used
in a Permitted Business in a like-kind exchange pursuant to Section 1031 of the
Code or any similar or successor provision of the Code.
"Bank Facilities" means, with respect to the Company or any
of its Restricted Subsidiaries, one or more debt facilities or commercial paper
facilities with banks or other institutional lenders providing for revolving
credit loans, term loans, receivables financing (including through the sale of
receivables to such lenders or to special purpose entities formed to borrow from
such lenders against such receivables) or letters of credit, in each case, as
amended, restated, modified, renewed, refunded, replaced or refinanced in whole
or in part from time to time.
"Bankruptcy Law" means Title 11, U.S. Code or any similar
federal or state law for the relief of debtors.
"Board" or "Board of Directors" means the Board of Directors
of the Company or any authorized committee of the Board of Directors.
"Business Day" means any day other than a Legal Holiday.
2
<PAGE>
"Capital Lease Obligation" means, at the time any
determination thereof is to be made, the amount of the liability in respect of a
capital lease that would at such time be required to be capitalized on a balance
sheet in accordance with GAAP.
"Capital Stock" means (i) in the case of a corporation,
corporate stock, (ii) in the case of an association or business entity, any and
all shares, interests, participations, rights or other equivalents (however
designated) of corporate stock, (iii) in the case of a partnership or limited
liability company, partnership or membership interests (whether general or
limited) and (iv) any other interest or participation that confers on a Person
the right to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii)
securities issued or directly and fully guaranteed or insured by the full faith
and credit of the United States government or any agency or instrumentality
thereof having maturities of not more than six months from the date of
acquisition, (iii) certificates of deposit and eurodollar time deposits with
maturities of six months or less from the date of acquisition, bankers'
acceptances with maturities not exceeding six months and overnight bank
deposits, in each case with any domestic commercial bank having capital and
surplus in excess of $500.0 million and a Thompson Bank Watch Rating of "B" or
better, (iv) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (ii) and (iii) above
entered into with any financial institution meeting the qualifications specified
in clause (iii) above, (v) commercial paper having the highest rating obtainable
from either Moody's Investors Service, Inc. or Standard & Poor's Corporation
and, in each case, maturing within six months after the date of acquisition and
(vi) money market funds at least 95% of the assets of which constitute Cash
Equivalents of the kinds described in clauses (i) through (v) of this
definition.
"Cedel" means Cedel Bank, SA.
"Certificate of Designation" means the Certificate of
Designation, Preferences and Relative, Participating, Optional and Other Special
Rights of Preferred Stock and Qualifications, Limitations and Restrictions
Thereof of 12 3/4% Series A Cumulative Exchangeable Preferred Stock of Pegasus
Communications Corporation.
"Change of 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 and its
Restricted Subsidiaries taken as a whole 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 (A) 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), directly or indirectly, of more of the Voting Stock of the Company
(measured by voting power rather than number of shares) than is at the time
beneficially owned (as defined above) by the Principal and his Related Parties
in the aggregate, (B) the Principal and his Related Parties collectively cease
to beneficially own (as defined above) Voting Stock of the Company having at
least 30% of the combined voting power of all classes of Voting Stock of the
Company then outstanding or (C) the Principal and his Affiliates acquire, in the
aggregate, beneficial ownership (as defined above) of more than 66 2/3% of the
shares of Class A Common Stock at the time outstanding or (iv) the first day on
which a majority of the members of the Board of Directors of the Company are not
Continuing Directors.
3
<PAGE>
"Class A Common Stock" means the Company's Class A Common
Stock, par value $.01 per share.
"Closing Date" means the original date of issuance of the
Notes.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" means Pegasus Communications Corporation, a Delaware
corporation and any and all successors thereto.
"Consolidated Net Income" means, with respect to any Person
for any period, the aggregate of the Net Income of such Person and its
Restricted Subsidiaries for such period, on a consolidated basis, determined in
accordance with GAAP; provided that (i) the Net Income (but not loss) of any
Person that is not a Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid in cash to the referent Person or a Wholly Owned Restricted
Subsidiary thereof, (ii) the Net Income of any Person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition shall
be excluded, (iii) the cumulative effect of a change in accounting principles
shall be excluded and (iv) the Net Income of any Unrestricted Subsidiary shall
be excluded, whether or not distributed to the Company or one of its
Subsidiaries.
"Continuing Directors" means, as of any date of determination,
any member of the Board of Directors of the Company who (i) was a member of such
Board of Directors on the Closing Date or (ii) was nominated for election or
elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board at the time of such
nomination or election.
"Corporate Trust Office of the Trustee" shall be at the
address of the Trustee specified in Section 10.02 hereof or such other address
as to which the Trustee may give notice to the Company.
"Cumulative Operating Cash Flow" means, as of any date of
determination, Operating Cash Flow for the Company and its Restricted
Subsidiaries for the period (taken as one accounting period) from the beginning
of the first full month commencing after the Closing Date to the end of the most
recently ended fiscal quarter for which internal financial statements are
available at such date of determination, plus all cash dividends received by the
Company or a Wholly Owned Restricted Subsidiary of the Company from any
4
<PAGE>
Unrestricted Subsidiary of the Company or Wholly Owned Restricted Subsidiary of
the Company to the extent that such dividends are not included in the
calculation of permitted Restricted Payments under paragraph (C) of Section 4.07
(a) by virtue of clause (iii) of such paragraph.
"Cumulative Total Interest Expense" means, with respect to the
Company and its Restricted Subsidiaries, as of any date of determination, Total
Interest Expense for the period (taken as one accounting period) from the
beginning of the first full fiscal month commencing after the Closing Date to
the end of the most recently ended fiscal quarter for which internal financial
statements are available at such date of determination.
"Custodian" means the Trustee, as custodian with respect to
the Notes in global form, or any successor entity thereto.
"DBS Cash Flow" means income from operations (before
depreciation, amortization and Non-Cash Incentive Compensation to the extent
deducted in arriving at income from operations) for the Satellite Segment
determined on a basis consistent with the segment data contained in the
Company's consolidated audited financial statements.
"Default" means any event that is or with the passage of time
or the giving of notice or both would be an Event of Default.
"Definitive Note" means a certificated Note registered in the
name of the Holder thereof and issued in accordance with Section 2.06 hereof, in
the form of Exhibit A hereto except that such Note shall not bear the Global
Note Legend and shall not have the "Schedule of Exchanges of Interests in the
Global Note" attached thereto.
"Depositary" means, with respect to the Notes issuable or
issued in whole or in part in global form, the Person specified in Section 2.03
hereof as the Depositary with respect to the Notes, and any and all successors
thereto appointed as depositary hereunder and having become such pursuant to the
applicable provision of this Indenture.
"Disqualified Stock" means any Capital Stock that, by its
terms (or by the terms of any security into which it is convertible or for which
it is exchangeable), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
redeemable at the option of the Holder thereof, in whole or in part, on or prior
to the date that is 91 days after the date on which the Notes mature unless, in
any such case, the issuer's obligation to pay, purchase or redeem such Capital
Stock is expressly conditioned on its ability to do so in compliance with the
provisions in Section 4.07 hereof.
"Eligible Indebtedness" means any Indebtedness other than (i)
Indebtedness in the form of, or represented by, bonds or other securities or any
guarantee thereof and (ii) Indebtedness which is, or may be, quoted, listed or
ordinarily purchased and sold on any stock exchange, automated trading system or
over-the-counter or other securities market (including, without prejudice to the
5
<PAGE>
generality of the foregoing, the market for securities eligible for resale
pursuant to Rule 144A under the Securities Act).
"Equity Interests" means Capital Stock and all warrants,
options or other rights to acquire Capital Stock (but excluding any debt
security that is convertible into, or exchangeable for, Capital Stock).
"Euroclear" means Morgan Guaranty Trust Company of New York,
Brussels office, as operator of the Euroclear system.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exchange Offer" has the meaning set forth in the Registration
Rights Agreement.
"Exchange Offer Registration Statement" has the meaning set
forth in the Registration Rights Agreement.
"Existing Indebtedness" means all Indebtedness of the Company
and its Subsidiaries (other than Indebtedness under the New Credit Agreement) in
existence on the Closing Date, until such amounts are repaid.
"fair market value" means, with respect to assets or aggregate
net proceeds having a fair market value (a) of less than $5.0 million, the fair
market value of such assets or proceeds determined in good faith by the Board of
Directors of the Company (including a majority of the Independent Directors
thereof) and evidenced by a board resolution and (b) equal to or in excess of
$5.0 million, the fair market value of such assets or proceeds as determined by
an investment banking firm of national standing; provided that the fair market
value of the assets purchased in an arm's-length transaction by an Affiliate of
the Company (other than a Subsidiary) from a third party that is not also an
Affiliate of the Company or such purchaser and contributed to the Company within
five Business Days of the consummation of the acquisition of such assets by such
Affiliate shall be deemed to be the aggregate consideration paid by such
Affiliate (which may include the fair market value of any non-cash consideration
to the extent that the valuation requirements of this definition are complied
with as to any such non-cash consideration).
"GAAP" means 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 in such other
statements by such other entity as have been approved by a significant segment
of the accounting profession, which are in effect on the Closing Date.
"Global Notes" means, individually and collectively, each of
the Restricted Global Notes and the Unrestricted Global Notes, in the form of
Exhibit A hereto issued in accordance with Sections 2.01, 2.06(b)(iv),
2.06(d)(ii) or 2.06(f) hereof.
6
<PAGE>
"Global Note Legend" means the legend which is required to be
placed on all Global Notes issued under this Indenture.
"Government Securities" means direct obligations of, or
obligations guaranteed by, the United States of America, and the payment for
which the United States pledges its full faith and credit.
"guarantee" means a guarantee (other than by endorsement of
negotiable instruments for collection in the ordinary course of business),
direct or indirect, in any manner (including, without limitation, co-borrowing
arrangements, letters of credit and reimbursement agreements in respect
thereof), of all or any part of any Indebtedness.
"Hedging Obligations" means, with respect to any Person, the
obligations of such Person under (i) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements and (ii) other
agreements or arrangements designed to protect such Person against fluctuations
in interest rates.
"Holder" means a Person in whose name a Note is registered.
"IAI Global Note" means the Global Note in the form of Exhibit
A hereto bearing the Global Note Legend and the Private Placement Legend and
deposited with or on behalf of and registered in the name of the Depositary or
its nominee that will be issued in a denomination equal to the outstanding
principal amount of the Notes sold to Institutional Accredited Investors.
"Indebtedness" means, with respect to any Person, any
indebtedness of such Person, whether or not contingent, in respect of borrowed
money or evidenced by bonds, notes, debentures or similar instruments or letters
of credit (or reimbursement agreements in respect thereof) or banker's
acceptances or representing any Capital Lease Obligations or the balance
deferred and unpaid of the purchase price of any property or representing any
Hedging Obligations, except any such balance that constitutes an accrued expense
or trade payable, if and to the extent any of the foregoing indebtedness (other
than letters of credit and Hedging Obligations) would appear as a liability upon
a balance sheet of such Person prepared in accordance with GAAP, as well as all
indebtedness of others secured by a Lien on any asset of such Person (whether or
not such indebtedness is assumed by such Person) and, to the extent not
otherwise included, the guarantee by such Person of any indebtedness of any
other Person. The amount of Indebtedness of any Person at any date shall be the
outstanding balance at such date of all unconditional obligations as described
above and the maximum liability, upon the occurrence of the contingency giving
rise to the obligation, of any contingent obligations at such date; provided
that the amount outstanding at any time of any Indebtedness issued with original
issue discount is the full amount of such Indebtedness less the remaining
unamortized portion of the original issue discount of such Indebtedness at such
time as determined in conformity with GAAP. The amount of any Indebtedness
outstanding as of any date shall be (i) the accreted value thereof, in the case
of any Indebtedness issued with original issue discount and (ii) the principal
amount thereof, together with any interest thereon that is more than 30 days
past due, in the case of any other Indebtedness.
7
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"Indebtedness to Adjusted Operating Cash Flow Ratio" means, as
of any date of determination, the ratio of (a) the aggregate principal amount of
all outstanding Indebtedness of a Person and its Restricted Subsidiaries as of
such date on a consolidated basis, plus the aggregate liquidation preference of
all outstanding preferred stock of the Restricted Subsidiaries of such Person as
of such date (excluding Qualified Subsidiary Stock and any such preferred stock
held by such Person or a Wholly Owned Restricted Subsidiary of such Person),
plus the aggregate liquidation preference or redemption amount of all
Disqualified Stock of such Person (excluding any Disqualified Stock held by such
Person or a Wholly Owned Restricted Subsidiary of such Person) as of such date
to (b) Adjusted Operating Cash Flow of such Person and its Restricted
Subsidiaries for the most recent four-quarter period for which internal
financial statements are available determined on a pro forma basis after giving
effect to all acquisitions and dispositions of assets (notwithstanding clause
(iii) of the definition of "Consolidated Net Income") (including, without
limitation, Asset Swaps) made by such Person and its Restricted Subsidiaries
since the beginning of such four-quarter period through such date as if such
acquisitions and dispositions had occurred at the beginning of such four-quarter
period.
"Indenture" means this Indenture, as amended or supplemented
from time to time.
"Indirect Participant" means a Person who holds a beneficial
interest in a Global Note through a Participant.
"Independent Director" means a member of the Board of
Directors who is neither an officer nor an employee of the Company or any of its
Affiliates.
"Initial Purchaser" means CIBC Wood Gundy Securities Corp.
"Investments" means, with respect to any Person, all
investments by such Person in other Persons (including Affiliates) in the forms
of direct or indirect loans (including guarantees of Indebtedness or other
obligations), advances or capital contributions (excluding commission, travel
and similar advances to officers and employees made in the ordinary course of
business), purchases or other acquisitions for consideration of Indebtedness,
Equity Interests or other securities and all other items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP;
provided that an acquisition of assets, Equity Interests or other securities by
the Company for consideration consisting of common equity securities, or
preferred stock which is not Disqualified Stock, of the Company shall not be
deemed to be an Investment.
"Legal Holiday" means a Saturday, a Sunday or a day on which
banking institutions in the City of New York or at a place of payment are
authorized by law, regulation or executive order to remain closed. If a payment
date is a Legal Holiday at a place of payment, payment may be made at that place
on the next succeeding day that is not a Legal Holiday, and no interest shall
accrue on such payment for the intervening period.
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"Letter of Transmittal" means the letter of transmittal to be
prepared by the Company and sent to all Holders of Notes for use by such Holders
in connection with the Exchange Offer.
"Lien" means, with respect to any asset, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect of such
asset, whether or not filed, recorded or otherwise perfected under applicable
law (including any conditional sale or other title retention agreement, any
lease in the nature thereof, any option or other agreement to sell or give a
security interest in and any filing of or agreement to give any financing
statement under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
"Liquidated Damages" means all liquidated damages then owing
pursuant to Section 5 of the Registration Rights Agreement.
"Net Income" means, with respect to any Person, the net income
(loss) of such Person, determined in accordance with GAAP and before any
reduction in respect of preferred stock dividends, excluding, however, (i) any
gain (but not loss), together with any related provision for taxes on such gain
(but not loss), realized in connection with (a) any Asset Sale (including,
without limitation, dispositions pursuant to sale and leaseback transactions) or
(b) the disposition of any securities by such Person or any of its Restricted
Subsidiaries or the extinguishment of any Indebtedness of such Person or any of
its Restricted Subsidiaries, and (ii) any extraordinary or nonrecurring gain
(but not loss), together with any related provision for taxes on such
extraordinary or nonrecurring gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by
the Company or any of its Restricted Subsidiaries in respect of any Asset Sale
(including, without limitation, any cash received upon the sale or other
disposition of any non-cash consideration received in any Asset Sale), net of
the direct costs relating to such Asset Sale (including, without limitation,
legal, accounting, investment banking fees, and sales commissions) and any
relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements), amounts required to be applied to
the repayment of Indebtedness in connection with such Asset Sale and any reserve
for adjustment in respect of the sale price of such asset or assets established
in accordance with GAAP.
"New Credit Facility" means that certain credit facility, to
be entered into by and among the lenders thereunder, PM&C and certain of PM&C's
subsidiaries, providing for up to $180.0 million of revolving credit borrowings,
with terms substantially similar to the terms described in the Offering
Memorandum under the caption "Description of Certain Indebtedness--New Credit
Facility" including any related notes, guarantees, collateral documents,
instruments and agreements executed in connection therewith.
"Non-Cash Incentive Compensation" means incentive compensation
paid to any officer of the Company or any of its Subsidiaries in the form of
Class A Common Stock of the Company or options to purchase Class A Common Stock
of the Company pursuant to the Pegasus Restricted Stock Plan and the Pegasus
1996 Stock Option Plan.
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"Non-Recourse Debt" means Indebtedness (i) as to which neither
the Company nor any of its Restricted Subsidiaries (a) provides credit support
of any kind (including any undertaking, agreement or instrument that would
constitute Indebtedness), (b) is directly or indirectly liable (as a guarantor
or otherwise) or (c) constitutes the lender; and (ii) no default with respect to
which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of the
Company or any of its Restricted Subsidiaries to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its stated maturity; and (iii) as to which the lenders have been notified in
writing that they will not have any recourse to the stock or assets of the
Company or any of its Restricted Subsidiaries.
"Non-U.S. Person" means a Person who is not a U.S. Person.
"Notes" has the meaning assigned to it in the preamble to this
Indenture.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Offering" means the offering of the Notes by the Company.
"Offering Memorandum" means the Offering Memorandum, dated
October 15, 1997, relating to the Offering.
"Officer" means, with respect to any Person, the Chairman of
the Board, the Chief Executive Officer, the President, the Chief Operating
Officer, the Chief Financial Officer, the Treasurer, any Assistant Treasurer,
the Controller, the Secretary , any Assistant Secretary, any Vice-President or
any Assistant Vice President of such Person.
"Officers' Certificate" means a certificate signed on behalf
of the Company by two Officers of the Company, one of whom must be the principal
executive officer, the principal financial officer, the treasurer or the
principal accounting officer of the Company, that meets the requirements of
Section 10.05 hereof.
"Operating Cash Flow" means, with respect to any Person for
any period, the Consolidated Net Income of such Person for such period, (A) plus
(i) extraordinary net losses and net losses on sales of assets outside the
ordinary course of business during such period, to the extent such losses were
deducted in computing such Consolidated Net Income, plus (ii) provision for
taxes based on income or profits, to the extent such provision for taxes was
included in computing such Consolidated Net Income, and any provision for taxes
utilized in computing the net losses under clause (i) hereof, plus (iii)
consolidated interest expense of such Person and its Subsidiaries for such
period, whether paid or accrued and whether or not capitalized (including,
without limitation, amortization of original issue discount, non-cash interest
payments, the interest component of any deferred payment obligations, the
interest component of all payments associated with Capital Lease Obligations,
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commissions, discounts and other fees and charges incurred in respect of letter
of credit or bankers' acceptance financings, and net payments (if any) pursuant
to Hedging Obligations), to the extent that any such expense was deducted in
computing such Consolidated Net Income, plus (iv) depreciation, amortization
(including amortization of goodwill and other intangibles but excluding
amortization of prepaid cash expenses that were paid in a prior period) and
other non-cash charges (excluding any such non-cash charge to the extent that it
represents an accrual of or reserve for cash charges in any future period or
amortization of a prepaid cash expense that was paid in a prior period) of such
Person and its Subsidiaries for such period to the extent that such
depreciation, amortization and other non-cash charges were deducted in computing
such Consolidated Net Income, plus (v) Non-Cash Incentive Compensation to the
extent such compensation expense was deducted in computing such Consolidated Net
Income and to the extent not included in clause (iv) of this definition and (B)
less all non-cash income for such period (excluding any such non-cash income to
the extent it represents an accrual of cash income in any future period or
amortization of cash income received in a prior period).
"Opinion of Counsel" means an opinion from legal counsel who
is not unsatisfactory to the Trustee, that meets the requirements of Section
10.05 hereof. The counsel may be an employee of or counsel to the Company, any
Subsidiary of the Company or the Trustee.
"Pari Passu Debt" means senior Indebtedness of the Company or
any Subsidiary Guarantor permitted by Section 4.09 hereof, which is pari passu
in right of payment with the Notes or any Subsidiary Guarantee.
"Participant" means, with respect to the Depositary, Euroclear
or Cedel, a Person who has an account with the Depositary, Euroclear or Cedel,
respectively (and, with respect to The Depository Trust Company, shall include
Euroclear and Cedel).
"Participating Broker-Dealer" has the meaning set forth in the
Registration Rights Agreement.
"Pegasus 1996 Stock Option Plan" means the Pegasus
Communications 1996 Stock Option Plan, approved by the Company's stockholders
and adopted by the Company in September 1996.
"Pegasus Restricted Stock Plan" means the Pegasus Restricted
Stock Plan, approved by the Company's stockholders and adopted by the Company in
September 1996.
"Permitted Businesses" means (i) any media or communications
business, including but not limited to, any broadcast television station, cable
franchise or other business in the television broadcasting, cable or
direct-to-home satellite television industries and (ii) any business reasonably
related or ancillary to any of the foregoing businesses.
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<PAGE>
"Permitted Investments" means (a) any Investments in the
Company or in a Wholly Owned Restricted Subsidiary of the Company; (b) any
Investments in Cash Equivalents; (c) Investments by the Company or any
Restricted Subsidiary of the Company in a Person, if as a result of such
Investment (i) such Person becomes a Wholly Owned Restricted Subsidiary of the
Company or (ii) such Person is merged, consolidated or amalgamated with or into,
or transfers or conveys substantially all of its assets to, or is liquidated
into, the Company or a Wholly Owned Restricted Subsidiary of the Company; (d)
Investments made as a result of the receipt of non-cash consideration from an
Asset Sale that was made pursuant to and in compliance with Section 4.10 hereof;
and (e) other Investments made since the date of this Indenture (measured as of
the time made and without giving effect to subsequent changes in value) that do
not exceed an amount equal to $15.0 million plus, to the extent any such
Investments are sold for cash or are otherwise liquidated or repaid for cash,
any gains less any losses realized on the disposition of such Investments.
"Permitted Liens" means (i) Liens securing term loans,
revolving borrowings, letters of credit or other Obligations under any Bank
Facility; (ii) Liens securing Eligible Indebtedness of a Subsidiary that was
permitted to be incurred under this Indenture, (iii) Liens on property of a
Person existing at the time such Person is merged into or consolidated with the
Company or any Restricted Subsidiary of the Company; provided that such Liens
were not created in contemplation of such merger or consolidation and do not
extend to any assets other than those of the Person merged into or consolidated
with the Company or any Restricted Subsidiary of the Company; (iv) Liens on
property existing at the time of acquisition thereof by the Company or any
Restricted Subsidiary of the Company; provided that such Liens were not created
in contemplation of such acquisition; (v) Liens to secure the performance of
statutory obligations, surety or appeal bonds, performance bonds or other
obligations of a like nature incurred in the ordinary course of business; (vi)
Liens existing on the Closing Date; (vii) Liens to secure Indebtedness
represented by Capital Lease Obligations, mortgage financings or purchase money
obligations permitted by clause (vii) of Section 4.09(b) hereof, covering only
the assets acquired with such Indebtedness; (viii) Liens for taxes, assessments
or governmental charges or claims that are not yet delinquent or that are being
contested in good faith by appropriate proceedings promptly instituted and
diligently concluded; provided that any reserve or other appropriate provision
as shall be required in conformity with GAAP shall have been made therefor; (ix)
Liens incurred in the ordinary course of business of the Company or any
Restricted Subsidiary of the Company with respect to obligations that do not
exceed $1.5 million at any one time outstanding; (x) Liens on deposits or Cash
Equivalents made pursuant to legally binding agreements or non-binding letters
of intent to acquire assets (or the Capital Stock of Persons owning such
assets), in an amount not to exceed 10% of the purchase price of such assets or
Capital Stock; provided that the assets to be acquired (or the Capital Stock of
Persons owning such assets) will be owned by the Company or a Restricted
Subsidiary of the Company upon consummation of the contemplated acquisition;
(xi) Liens encumbering deposits or Cash Equivalents made to secure obligations
of the Company to repurchase Capital Stock of the Company pledged to secure
obligations of employees of the Company in an aggregate amount not to exceed
$5.0 million at any time outstanding and (xii) Liens on assets of or Equity
Interests in Unrestricted Subsidiaries that secure Non-Recourse Debt of
Unrestricted Subsidiaries.
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"Permitted Refinancing Debt" means any Indebtedness of the
Company or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Company or any of its Restricted Subsidiaries;
provided that (i) the principal amount of (or accreted value, if applicable)
such Permitted Refinancing Debt does not exceed the principal amount of (or
accreted value, if applicable), plus accrued interest on, the Indebtedness so
extended, refinanced, renewed, replaced, defeased or refunded (plus (a) the
amount of reasonable expenses incurred in connection therewith and (b) the
amount of any premium required to be paid in connection with such refinancing
pursuant to the terms of such refinancing or deemed by the Company or such
Restricted Subsidiary necessary to be paid in order to effectuate such
refinancing); (ii) such Permitted Refinancing Debt has a final maturity date not
earlier than the final maturity date of, and has a Weighted Average Life to
Maturity equal to or greater than the Weighted Average Life to Maturity of, the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; (iii) if the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded is subordinated in right of payment to the Notes,
such Permitted Refinancing Debt has a final maturity date later than the final
maturity date of the Notes, and is subordinated in right of payment to the Notes
on terms at least as favorable to the Holders of Notes as those contained in the
documentation governing the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; (iv) such Indebtedness is incurred either by the
Company or by the Restricted Subsidiary who is the obligor on the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded; and (v) if
such Permitted Refinancing Debt is incurred by a Restricted Subsidiary that is
not a Subsidiary Guarantor, such Permitted Refinancing Debt constitutes Eligible
Indebtedness.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or
government or agency or political subdivision thereof (including any subdivision
or ongoing business of any such entity or substantially all of the assets of any
such entity, subdivision or business).
"PM&C" means Pegasus Media & Communications, Inc., a Delaware
corporation and a direct Subsidiary of the Company.
"PM&C Notes" means PM&C's 12 1/2% Series B Senior Subordinated
Notes due 2005.
"Principal" means Marshall W. Pagon.
"Private Placement Legend" means the legend set forth in
Section 2.06(g)(i) to be placed on all Notes issued under this Indenture except
where otherwise permitted by the provisions of this Indenture.
"PSTV Preferred Stock" means the Series A Preferred Stock, par
value $1.00 per share, of Pegasus Satellite Television of Virginia, Inc.
"QIB" means a "qualified institutional buyer" as defined in
Rule 144A.
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"Qualified Subsidiary Stock" means Capital Stock of a
Subsidiary of the Company which by its terms (a) does not mature, or is not
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, and
is not redeemable at the option of the Holder thereof, in whole or in part,
prior to October 15, 2006 (in each case, whether automatically or upon the
happening of any event) (unless, in any such case, the issuer's obligation to
pay, purchase or redeem such Capital Stock is expressly conditioned on its
ability to do so in compliance with Section 4.07 hereof), (b) is automatically
exchangeable into shares of Capital Stock of the Company that is not
Disqualified Stock upon the earlier to occur of (i) the occurrence of an Event
of Default and (ii) October 15, 2004, (c) has no voting or remedial rights and
(d) does not permit the payment of cash dividends prior to October 15, 2005
(unless, in the case of this clause (d), the issuer's ability to pay cash
dividends is expressly conditioned on its ability to do so in compliance with
Section 4.07 hereof). Notwithstanding the foregoing, for all purposes under this
Indenture, "Qualified Subsidiary Stock" shall be deemed to include the PSTV
Preferred Stock.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of October 21, 1997, between the Company and CIBC Wood Gundy
Securities Corp., as such agreement may be amended, modified or supplemented
from time to time.
"Regulation S" means Regulation S promulgated under the
Securities Act.
"Regulation S Global Note" means a Global Note bearing the
Private Placement Legend and deposited with or on behalf of the Depositary and
registered in the name of the Depositary or its nominee, issued in a
denomination equal to the outstanding principal amount of the Notes initially
sold in reliance on Rule 903 of Regulation S.
"Related Party" with respect to the Principal 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"
has the meaning specified in the definition of "Affiliate" contained herein. 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.
"Responsible Officer" when used with respect to the Trustee,
means any officer within the Corporate Trust Administration department of the
Trustee (or any successor group of the Trustee) or any other officer of the
Trustee customarily performing functions similar to those performed by any of
the above designated officers and also means, with respect to a particular
corporate trust matter, any other officer to whom such matter is referred
because of his knowledge of and familiarity with the particular subject.
"Restricted Definitive Note" means a Definitive Note bearing
the Private Placement Legend.
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"Restricted Global Note" means a Global Note bearing the
Private Placement Legend.
"Restricted Investment" means any Investment other than a
Permitted Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of
the referent Person that is not an Unrestricted Subsidiary.
"Rule 144" means Rule 144 promulgated under the Securities
Act.
"Rule 144A" means Rule 144A promulgated under the Securities
Act.
"Rule 903" means Rule 903 promulgated under the Securities
Act.
"Rule 904" means Rule 904 promulgated the Securities Act.
"SEC" means the Securities and Exchange Commission.
"Satellite Segment" means the business involved in the
marketing of video and audio programming and data information services through
transmission media consisting of space-based satellite broadcasting services,
the assets related to the conduct of such business held by the Company and its
Restricted Subsidiaries on the Closing Date, plus all other assets acquired by
the Company or any of its Restricted Subsidiaries that are directly related to
such business (excluding, without limitation, the terrestrial television
broadcasting business and the assets related thereto and the cable television
business and the assets related thereto); provided that any assets acquired by
the Company or any of its Restricted Subsidiaries after the Closing Date that
are not directly related to such business shall not be included for purposes of
this definition.
"Securities Act" means the Securities Act of 1933, as amended.
"Series A Preferred Stock" means the Company's 12 3/4% Series
A Cumulative Exchangeable Preferred Stock.
"Series A Notes" has the meaning assigned to it in the
preamble to this Indenture.
"Series B Notes" has the meaning assigned to it in the
preamble to this Indenture.
"Shelf Registration Statement" means the Shelf Registration
Statement as defined in the Registration Rights Agreement.
"Significant Subsidiary" means any Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the date of this Indenture.
"Split Dollar Agreement" means the Split Dollar Agreement
between the Company and Nicholas A. Pagon, Holly T. Pagon and Michael B. Jordan,
as trustees of an insurance trust established by Marshall W. Pagon, as in effect
on the Closing Date.
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"Stated Maturity" means, with respect to any interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Subordinated Exchange Note Indenture" means the Indenture
filed as an exhibit to the Certificate of Designations which would govern the
Subordinated Exchange Notes, if issued, as the same may be amended, but without
giving effect to any amendment that materially alters the economic terms
thereof.
"Subordinated Exchange Notes" means the Company's 12 3/4%
Senior Subordinated Exchange Notes due 2007 issuable pursuant to the
Subordinated Exchange Note Indenture in exchange for the Company's Series A
Preferred Stock.
"Subsidiary" means, with respect to any Person, (i) any
corporation, association or other business entity of which more than 50% of the
total voting power of shares of Capital Stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers or
trustees thereof is at the time owned or controlled, directly or indirectly, by
such Person or one or more of the other Subsidiaries (of such Person or a
combination thereof) and (ii) any partnership (a) the sole general partner or
the managing general partner of which is such a Person or a Subsidiary of such
Person or (b) the only general partners of which are such Person or one or more
Subsidiaries of such Person (or any combination thereof.)
"Subsidiary Guarantee" means the Subsidiary Guarantee by each
Subsidiary Guarantor of the Company's payment obligations under this Indenture
and the Notes, executed pursuant to the provisions of this Indenture.
"Subsidiary Guarantor" means any Restricted Subsidiary that
shall have guaranteed, pursuant to a supplemental indenture and the requirements
therefor set forth in this Indenture, the payment of all principal of, and
interest and premium, if any, on, the Notes and all other amounts payable under
the Notes or this Indenture, which guarantee shall be pari passu with or senior
to all Indebtedness of such Restricted Subsidiary.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C.
Sections 77aaa-77bbbb as amended) as in effect on the date on which this
Indenture is qualified under the TIA.
"Total Interest Expense" means, with respect to any Person for
any period, the sum of (i) the consolidated interest expense of such Person and
its Restricted Subsidiaries for such period, whether paid or accrued (including,
without limitation, amortization of original issue discount, non-cash interest
payments, the interest component of any deferred payment obligations, the
interest component of all payments associated with Capital Lease Obligations,
commissions, discounts and other fees and charges incurred in respect of letter
of credit or bankers' acceptance financings, and net payments (if any) pursuant
to Hedging Obligations) and (ii) the consolidated interest expense of such
Person and its Restricted Subsidiaries that was capitalized during such period,
to the extent such amounts are not included in clause (i) of this definition,
and (iii) any interest expense for such period on Indebtedness of another Person
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<PAGE>
that is guaranteed by such Person or one of its Restricted Subsidiaries or
secured by a Lien on assets (other than Equity Interests in Unrestricted
Subsidiaries securing Indebtedness of Unrestricted Subsidiaries) of such Person
or one of its Restricted Subsidiaries (whether or not such guarantee or Lien is
called upon) and (iv) all cash dividend payments during such period on any
series of preferred stock of a Restricted Subsidiary of such Person.
"Trustee" means the party named as such above until a
successor replaces it in accordance with the applicable provisions of this
Indenture and thereafter means the successor serving hereunder.
"Unrestricted Global Note" means a permanent Global Note in
the form of Exhibit A attached hereto that bears the Global Note Legend and that
has the "Schedule of Exchanges of Interests in the Global Note" attached
thereto, and that is deposited with or on behalf of and registered in the name
of the Depositary, representing a series of Notes that do not bear the Private
Placement Legend.
"Unrestricted Definitive Note" means one or more Definitive
Notes that do not bear and are not required to bear the Private Placement
Legend.
"Unrestricted Subsidiary" means any Subsidiary that is
designated by the Board of Directors as an Unrestricted Subsidiary pursuant to a
Board Resolution; but only to the extent that such Subsidiary (a) has no
Indebtedness other than Non-Recourse Debt; (b) is not party to any agreement,
contract, arrangement or understanding with the Company or any Restricted
Subsidiary of the Company unless the terms of any such agreement, contract,
arrangement or understanding are no less favorable to the Company or such
Restricted Subsidiary than those that might be obtained at the time from Persons
who are not Affiliates of the Company; (c) is a Person with respect to which
neither the Company nor any of its Restricted Subsidiaries has any direct or
indirect obligation (x) to subscribe for additional Equity Interests or (y) to
maintain or preserve such Person's financial condition or to cause such Person
to achieve any specified levels of operating results; (d) has not guaranteed or
otherwise directly or indirectly provided credit support for any Indebtedness of
the Company or any of its Restricted Subsidiaries; and (e) has at least one
executive officer that is not a director or executive officer of the Company or
any of its Restricted Subsidiaries. Any such designation made by the Board of
Directors at a time when any Notes are outstanding shall be evidenced to the
Trustee by filing with the Trustee a certified copy of the Board Resolution
giving effect to such designation and an Officers' Certificate certifying that
such designation complied with the foregoing conditions and was permitted by
Section 4.07 hereof. If, at any time, any Unrestricted Subsidiary would fail to
meet the foregoing requirements as an Unrestricted Subsidiary, it shall
thereafter cease to be an Unrestricted Subsidiary for purposes of this Indenture
and any Indebtedness of such Subsidiary shall be deemed to be incurred by a
Restricted Subsidiary of the Company as of such date (and, if such Indebtedness
is not permitted to be incurred as of such date under Section 4.09 hereof
(treating such Subsidiary as a Restricted Subsidiary for such purpose for the
period relevant to such covenant), the Company shall be in default of such
covenant); provided, however, that in the event an Unrestricted Subsidiary
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<PAGE>
ceases to meet the requirement set forth in clause (e) of this definition, such
Unrestricted Subsidiary shall have 60 days to meet such requirement before such
Unrestricted Subsidiary shall cease to be an Unrestricted Subsidiary. The Board
of Directors of the Company may at any time designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; provided that such designation shall
be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of the
Company of any outstanding Indebtedness of such Unrestricted Subsidiary and such
designation shall be permitted only if (i) such Indebtedness is permitted under
Section 4.09 hereof (treating such Subsidiary as a Restricted Subsidiary for
such purpose for the period relevant to such covenant) and (ii) no Default or
Event of Default would be in existence following such designation.
"U.S. Person" means a U.S. person as defined in Rule 902(o)
under the Securities Act.
"Voting Stock" means with respect to any specified Person,
Capital Stock with voting power, under ordinary circumstances and without regard
to the occurrence of any contingency, to elect the directors or other managers
or trustees of such Person.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the sum
of the products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a
Restricted Subsidiary of such Person all of the outstanding Capital Stock (other
than Qualified Subsidiary Stock) or other ownership interests of which (other
than directors' qualifying shares) shall at the time be owned by such Person
and/or by one or more Wholly Owned Restricted Subsidiaries of such Person.
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SECTION 1.02. OTHER DEFINITIONS.
Defined in
Term Section
"Affiliate Transaction"................................................4.11
"Asset Sale Offer".....................................................4.10
"Basket Period"........................................................4.07
"Change of Control Offer"..............................................4.15
"Change of Control Payment"............................................4.15
"Change of Control Payment Date".......................................4.15
"Covenant Defeasance"..................................................8.03
"custodian"............................................................6.01
"DTC"..................................................................2.03
"Event of Default".....................................................6.01
"Excess Proceeds"......................................................4.10
"incur"................................................................4.09
"Legal Defeasance".....................................................8.02
"Notice of Default"....................................................6.01
"Offer Amount".........................................................3.09
"Offer Period..........................................................3.09
"outstanding"..........................................................8.02
"Paying Agent".........................................................2.03
"Payment Default"......................................................6.01
"Purchase Date"........................................................3.09
"Registrar"............................................................2.03
"Restricted Payments"..................................................4.07
SECTION 1.03. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the
following meanings:
"indenture securities" means the Notes and the Subsidiary
Guarantees;
"indenture security Holder" means a Holder of a Note;
"indenture to be qualified" means this Indenture;
"indenture Trustee" or "institutional Trustee" means the
Trustee;
"obligor" on the Notes means the Company and any successor
obligor upon the Notes.
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All other terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by SEC rule under
the TIA have the meanings so assigned to them.
SECTION 1.04. RULES OF CONSTRUCTION
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in the
plural include the singular;
(5) provisions apply to successive events and transactions;
and
(6) references to sections of or rules under the Securities
Act shall be deemed to include substitute, replacement of successor sections or
rules adopted by the SEC from time to time.
ARTICLE 2.
THE NOTES
SECTION 2.01. FORM AND DATING.
(a) General. The Notes and the Trustee's certificate of authentication
shall be substantially in the form of Exhibit A hereto. The Notes may have
notations, legends or endorsements required by law, stock exchange rule or
usage. Each Note shall be dated the date of its authentication. The Notes shall
be in denominations of $1,000 and integral multiples thereof.
The terms and provisions contained in the Notes shall
constitute, and are hereby expressly made, a part of this Indenture and the
Company and the Trustee, by their execution and delivery of this Indenture,
expressly agree to such terms and provisions and to be bound thereby. However,
to the extent any provision of any Note conflicts with the express provisions of
this Indenture, the provisions of this Indenture shall govern and be
controlling.
(b) Global Notes. Notes issued in global form shall be substantially in
the form of Exhibit A attached hereto (including the Global Note Legend thereon
and the "Schedule of Exchanges of Interests in the Global Note" attached
thereto). Notes issued in definitive form shall be substantially in the form of
Exhibit A attached hereto (but without the Global Note Legend thereon and
without the "Schedule of Exchanges of Interests in the Global Note" attached
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thereto). Each Global Note shall represent such of the outstanding Notes as
shall be specified therein and each shall provide that it shall represent the
aggregate principal amount of outstanding Notes from time to time endorsed
thereon and that the aggregate principal amount of outstanding Notes represented
thereby may from time to time be reduced or increased, as appropriate, to
reflect exchanges and redemptions. Any endorsement of a Global Note to reflect
the amount of any increase or decrease in the aggregate principal amount of
outstanding Notes represented thereby shall be made by the Trustee or the
Custodian, at the direction of the Trustee, in accordance with instructions
given by the Holder thereof as required by Section 2.06 hereof.
(c) Euroclear and Cedel Procedures Applicable. The provisions of the
"Operating Procedures of the Euroclear System" and "Terms and Conditions
Governing Use of Euroclear" and the "General Terms and Conditions of Cedel Bank"
and "Customer Handbook" of Cedel Bank shall be applicable to transfers of
beneficial interests in Global Notes that are held by Participants through
Euroclear or Cedel Bank.
SECTION 2.02. EXECUTION AND AUTHENTICATION.
An Officer shall sign the Notes for the Company by manual or
facsimile signature.
If an Officer whose signature is on a Note no longer holds
that office at the time a Note is authenticated, the Note shall nevertheless be
valid.
A Note shall not be valid until authenticated by the manual
signature of the Trustee. The signature shall be conclusive evidence that the
Note has been authenticated under this Indenture.
The Trustee shall, upon a written order of the Company signed
by an Officer (an "Authentication Order"), authenticate Notes for original issue
up to the aggregate principal amount stated in paragraph 4 of the Notes. The
aggregate principal amount of Notes outstanding at any time may not exceed such
amount except as provided in Section 2.07 hereof.
The Trustee may appoint an authenticating agent acceptable to
the Company to authenticate Notes. An authenticating agent may authenticate
Notes whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as an Agent to deal with Holders or an
Affiliate of the Company.
SECTION 2.03. REGISTRAR AND PAYING AGENT.
The Company shall maintain an office or agency where Notes may
be presented for registration of transfer or for exchange ("Registrar") and an
office or agency where Notes may be presented for payment ("Paying Agent"). The
Registrar shall keep a register of the Notes and of their transfer and exchange.
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The Company may appoint one or more co-registrars and one or more additional
paying agents. The term "Registrar" includes any co-registrar and the term
"Paying Agent" includes any additional paying agent. The Company may change any
Paying Agent or Registrar without notice to any Holder. The Company shall notify
the Trustee in writing of the name and address of any Agent not a party to this
Indenture. If the Company fails to appoint or maintain another entity as
Registrar or Paying Agent, the Trustee shall act as such. The Company or any of
its Subsidiaries may act as Paying Agent or Registrar.
The Company initially appoints The Depository Trust Company
("DTC") to act as Depositary with respect to the Global Notes.
The Company initially appoints the Trustee to act as the
Registrar and Paying Agent and to act as Custodian with respect to the Global
Notes.
SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST.
The Company shall require each Paying Agent other than the
Trustee to agree in writing that the Paying Agent will hold in trust for the
benefit of Holders or the Trustee all money held by the Paying Agent for the
payment of principal, premium or Liquidated Damages, if any, or interest on the
Notes, and will notify the Trustee of any default by the Company in making any
such payment. While any such default continues, the Trustee may require a Paying
Agent to pay all money held by it to the Trustee. The Company at any time may
require a Paying Agent to pay all money held by it to the Trustee. Upon payment
over to the Trustee, the Paying Agent (if other than the Company or a
Subsidiary) shall have no further liability for the money. If the Company or a
Subsidiary acts as Paying Agent, it shall segregate and hold in a separate trust
fund for the benefit of the Holders all money held by it as Paying Agent. Upon
any bankruptcy or reorganization proceedings relating to the Company, the
Trustee shall serve as Paying Agent for the Notes.
SECTION 2.05. HOLDER LISTS.
The Trustee shall preserve in as current a form as is
reasonably practicable the most recent list available to it of the names and
addresses of all Holders and shall otherwise comply with TIA Section 312(a). If
the Trustee is not the Registrar, the Company shall furnish to the Trustee at
least seven Business Days before each interest payment date and at such other
times as the Trustee may request in writing, a list in such form and as of such
date as the Trustee may reasonably require of the names and addresses of the
Holders of Notes and the Company shall otherwise comply with TIA Section 312(a).
SECTION 2.06. TRANSFER AND EXCHANGE.
(a) Transfer and Exchange of Global Notes. A Global Note may not be
transferred as a whole except by the Depositary to a nominee of the Depositary,
by a nominee of the Depositary to the Depositary or to another nominee of the
Depositary, by the Depositary or any such nominee to a successor Depositary or a
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nominee of such successor Depositary. All Global Notes will be exchanged by the
Company for Definitive Notes if (i) the Company delivers to the Trustee notice
from the Depositary that it is unwilling or unable to continue to act as
Depositary or that it is no longer a clearing agency registered under the
Exchange Act and, in either case, a successor Depositary is not appointed by the
Company within 120 days after the date of such notice from the Depositary, (ii)
the Company in its sole discretion determines that the Global Notes (in whole
but not in part) should be exchanged for Definitive Notes and delivers a written
notice to such effect to the Trustee or (iii) there shall have occurred and be
continuing a Default or Event of Default with respect to the Notes. Upon the
occurrence of any of the preceding events in (i), (ii) or (iii) above,
Definitive Notes shall be issued in such names and denominations as the
Depositary shall instruct the Trustee. Global Notes also may be exchanged or
replaced, in whole or in part, as provided in Sections 2.07 and 2.10 hereof.
Every Note authenticated and delivered in exchange for, or in lieu of, a Global
Note or any portion thereof, pursuant to this Section 2.06 or Section 2.07 or
2.10 hereof, shall be authenticated and delivered in the form of, and shall be,
a Global Note. A Global Note may not be exchanged for another Note other than as
provided in this Section 2.06(a), however, beneficial interests in a Global Note
may be transferred and exchanged as provided in Section 2.06(b),(c) or (f)
hereof.
(b) Transfer and Exchange of Beneficial Interests in the Global Notes.
The transfer and exchange of beneficial interests in the Global Notes shall be
effected through the Depositary, in accordance with the provisions of this
Indenture and the Applicable Procedures. Beneficial interests in the Restricted
Global Notes shall be subject to restrictions on transfer comparable to those
set forth herein to the extent required by the Securities Act. Transfers of
beneficial interests in the Global Notes also shall require compliance with
either subparagraph (i) or (ii) below, as applicable, as well as one or more of
the other following subparagraphs, as applicable:
(i) Transfer of Beneficial Interests in the Same Global Note.
Beneficial interests in any Restricted Global Note may be transferred
to Persons who take delivery thereof in the form of a beneficial
interest in the same Restricted Global Note in accordance with the
transfer restrictions set forth in the Private Placement Legend;
provided, however, that prior to the expiration of the Restricted
Period, transfers of beneficial interests in the Regulation S Global
Note may not be made to a U.S. Person or for the account or benefit of
a U.S. Person (other than the Initial Purchaser). Beneficial interests
in any Unrestricted Global Note may be transferred to Persons who take
delivery thereof in the form of a beneficial interest in an
Unrestricted Global Note. No written orders or instructions shall be
required to be delivered to the Registrar to effect the transfers
described in this Section 2.06(b)(i).
(ii) All Other Transfers and Exchanges of Beneficial Interests
in Global Notes. In connection with all transfers and exchanges of
beneficial interests that are not subject to Section 2.06(b)(i) above,
the transferor of such beneficial interest must deliver to the
Registrar either (A) (1) a written order from a Participant or an
Indirect Participant given to the Depositary in accordance with the
Applicable Procedures directing the Depositary to credit or cause to be
credited a beneficial interest in another Global Note in an amount
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equal to the beneficial interest to be transferred or exchanged and (2)
instructions given in accordance with the Applicable Procedures
containing information regarding the Participant account to be credited
with such increase or (B) (1) a written order from a Participant or an
Indirect Participant given to the Depositary in accordance with the
Applicable Procedures directing the Depositary to cause to be issued a
Definitive Note in an amount equal to the beneficial interest to be
transferred or exchanged and (2) instructions given by the Depositary
to the Registrar containing information regarding the Person in whose
name such Definitive Note shall be registered to effect the transfer or
exchange referred to in (1) above. Upon consummation of an Exchange
Offer by the Company in accordance with Section 2.06(f) hereof, the
requirements of this Section 2.06(b)(ii) shall be deemed to have been
satisfied upon receipt by the Registrar of the instructions contained
in the Letter of Transmittal delivered by the Holder of such beneficial
interests in the Restricted Global Notes. Upon satisfaction of all of
the requirements for transfer or exchange of beneficial interests in
Global Notes contained in this Indenture and the Notes or otherwise
applicable under the Securities Act, the Trustee shall adjust the
principal amount of the relevant Global Note(s) pursuant to Section
2.06(h) hereof.
(iii) Transfer of Beneficial Interests to Another Restricted
Global Note. A beneficial interest in any Restricted Global Note may be
transferred to a Person who takes delivery thereof in the form of a
beneficial interest in another Restricted Global Note if the transfer
complies with the requirements of Section 2.06(b)(ii) above and the
Registrar receives the following:
(A) if the transferee will take delivery in the form
of a beneficial interest in the 144A Global Note, then the
transferor must deliver a certificate in the form of Exhibit B
hereto, including the certifications in item (1) thereof;
(B) if the transferee will take delivery in the form
of a beneficial interest in the Regulation S Global Note, then
the transferor must deliver a certificate in the form of
Exhibit B hereto, including the certifications in item (2)
thereof; and
(C) if the transferee will take delivery in the form
of a beneficial interest in the IAI Global Note, then the
transferor must deliver a certificate in the form of Exhibit B
hereto, including the certifications and certificates and
Opinion of Counsel required by item (3) thereof, if
applicable.
(iv) Transfer and Exchange of Beneficial Interests in a
Restricted Global Note for Beneficial Interests in the Unrestricted
Global Note. A beneficial interest in any Restricted Global Note may be
exchanged by any holder thereof for a beneficial interest in an
Unrestricted Global Note or transferred to a Person who takes delivery
thereof in the form of a beneficial interest in an Unrestricted Global
Note if the exchange or transfer complies with the requirements of
Section 2.06(b)(ii) above and:
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(A) such exchange or transfer is effected pursuant to
the Exchange Offer in accordance with the Registration Rights
Agreement and the holder of the beneficial interest to be
transferred, in the case of an exchange, or the transferee, in
the case of a transfer, certifies in the applicable Letter of
Transmittal that it is not (1) a broker-dealer, (2) a Person
participating in the distribution of the Series B Notes or (3)
a Person who is an affiliate (as defined in Rule 144) of the
Company;
(B) such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration
Rights Agreement;
(C) such transfer is effected by a Participating
Broker-Dealer pursuant to the Exchange Offer Registration
Statement in accordance with the Registration Rights
Agreement; or
(D) the Registrar receives the following:
(1) if the holder of such beneficial
interest in a Restricted Global Note proposes to exchange such
beneficial interest for a beneficial interest in an Unrestricted Global
Note, a certificate from such holder in the form of Exhibit C hereto,
including the certifications in item (1)(a) thereof; or
(2) if the holder of such beneficial
interest in a Restricted Global Note proposes to transfer such
beneficial interest to a Person who shall take delivery thereof in the
form of a beneficial interest in an Unrestricted Global Note, a
certificate from such holder in the form of Exhibit B hereto, including
the certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (D), if the
Registrar so requests or if the Applicable Procedures so require, an
Opinion of Counsel in form reasonably acceptable to the Registrar to
the effect that such exchange or transfer is in compliance with the
Securities Act and that the restrictions on transfer contained herein
and in the Private Placement Legend are no longer required in order to
maintain compliance with the Securities Act.
If any such transfer is effected pursuant to subparagraph (B)
or (D) above at a time when an Unrestricted Global Note has not yet been issued,
the Company shall issue and, upon receipt of an Authentication Order in
accordance with Section 2.02 hereof, the Trustee shall authenticate one or more
Unrestricted Global Notes in an aggregate principal amount equal to the
aggregate principal amount of beneficial interests transferred pursuant to
subparagraph (B) or (D) above.
Beneficial interests in an Unrestricted Global Note cannot be
exchanged for, or transferred to Persons who take delivery thereof in the form
of, a beneficial interest in a Restricted Global Note.
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(c) Transfer or Exchange of Beneficial Interests for Definitive Notes.
(i) Beneficial Interests in Restricted Global Notes to
Restricted Definitive Notes. If any holder of a beneficial interest in
a Restricted Global Note proposes to exchange such beneficial interest
for a Restricted Definitive Note or to transfer such beneficial
interest to a Person who takes delivery thereof in the form of a
Restricted Definitive Note, then, upon receipt by the Registrar of the
following documentation:
(A) if the holder of such beneficial interest in a
Restricted Global Note proposes to exchange such beneficial
interest for a Restricted Definitive Note, a certificate from
such holder in the form of Exhibit C hereto, including the
certifications in item (2)(a) thereof;
(B) if such beneficial interest is being transferred
to a QIB in accordance with Rule 144A under the Securities
Act, a certificate to the effect set forth in Exhibit B
hereto, including the certifications in item (1) thereof;
(C) if such beneficial interest is being transferred
to a Non-U.S. Person in an offshore transaction in accordance
with Rule 903 or Rule 904 under the Securities Act, a
certificate to the effect set forth in Exhibit B hereto,
including the certifications in item (2) thereof;
(D) if such beneficial interest is being transferred
pursuant to an exemption from the registration requirements of
the Securities Act in accordance with Rule 144 under the
Securities Act, a certificate to the effect set forth in
Exhibit B hereto, including the certifications in item (3)(a)
thereof;
(E) if such beneficial interest is being transferred
to an Institutional Accredited Investor in reliance on an
exemption from the registration requirements of the Securities
Act other than those listed in subparagraphs (B) through (D)
above, a certificate to the effect set forth in Exhibit B
hereto, including the certifications, certificates and Opinion
of Counsel required by item (3) thereof, if applicable;
(F) if such beneficial interest is being transferred
to the Company or any of its Subsidiaries, a certificate to
the effect set forth in Exhibit B hereto, including the
certifications in item (3)(b) thereof; or
(G) if such beneficial interest is being transferred
pursuant to an effective registration statement under the
Securities Act, a certificate to the effect set forth in
Exhibit B hereto, including the certifications in item (3)(c)
thereof,
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the Trustee shall cause the aggregate principal amount of the
applicable Global Note to be reduced accordingly pursuant to Section
2.06(h) hereof, and the Company shall execute and the Trustee shall
authenticate and deliver to the Person designated in the instructions a
Definitive Note in the appropriate principal amount. Any Definitive
Note issued in exchange for a beneficial interest in a Restricted
Global Note pursuant to this Section 2.06(c) shall be registered in
such name or names and in such authorized denomination or denominations
as the holder of such beneficial interest shall instruct the Registrar
through instructions from the Depositary and the Participant or
Indirect Participant. The Trustee shall deliver such Definitive Notes
to the Persons in whose names such Notes are so registered. Any
Definitive Note issued in exchange for a beneficial interest in a
Restricted Global Note pursuant to this Section 2.06(c)(i) shall bear
the Private Placement Legend and shall be subject to all restrictions
on transfer contained therein.
(ii) Beneficial Interests in Restricted Global Notes to
Unrestricted Definitive Notes. A holder of a beneficial interest in a
Restricted Global Note may exchange such beneficial interest for an
Unrestricted Definitive Note or may transfer such beneficial interest
to a Person who takes delivery thereof in the form of an Unrestricted
Definitive Note only if:
(A) such exchange or transfer is effected pursuant to
the Exchange Offer in accordance with the Registration Rights
Agreement and the holder of such beneficial interest, in the
case of an exchange, or the transferee, in the case of a
transfer, certifies in the applicable Letter of Transmittal
that it is not (1) a broker-dealer, (2) a Person participating
in the distribution of the Series B Notes or (3) a Person who
is an affiliate (as defined in Rule 144) of the Company;
(B) such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration
Rights Agreement;
(C) such transfer is effected by a Participating
Broker-Dealer pursuant to the Exchange Offer Registration
Statement in accordance with the Registration Rights
Agreement; or
(D) the Registrar receives the following:
(1) if the holder of such beneficial
interest in a Restricted Global Note proposes to exchange such
beneficial interest for a Definitive Note that does not bear the
Private Placement Legend, a certificate from such holder in the form of
Exhibit C hereto, including the certifications in item (1)(b) thereof;
or
(2) if the holder of such beneficial
interest in a Restricted Global Note proposes to transfer such
beneficial interest to a Person who shall take delivery thereof in the
form of a Definitive Note that does not bear the Private Placement
Legend, a certificate from such holder in the form of Exhibit B hereto,
including the certifications in item (4) thereof;
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and, in each such case set forth in this subparagraph (D), if the
Registrar so requests or if the Applicable Procedures so require, an
Opinion of Counsel in form reasonably acceptable to the Registrar to
the effect that such exchange or transfer is in compliance with the
Securities Act and that the restrictions on transfer contained herein
and in the Private Placement Legend are no longer required in order to
maintain compliance with the Securities Act.
(iii) Beneficial Interests in Unrestricted Global Notes to
Unrestricted Definitive Notes. If any holder of a beneficial interest
in an Unrestricted Global Note proposes to exchange such beneficial
interest for a Definitive Note or to transfer such beneficial interest
to a Person who takes delivery thereof in the form of a Definitive
Note, then, upon satisfaction of the conditions set forth in Section
2.06(b)(ii) hereof, the Trustee shall cause the aggregate principal
amount of the applicable Global Note to be reduced accordingly pursuant
to Section 2.06(h) hereof, and the Company shall execute and the
Trustee shall authenticate and deliver to the Person designated in the
instructions a Definitive Note in the appropriate principal amount. Any
Definitive Note issued in exchange for a beneficial interest pursuant
to this Section 2.06(c)(iii) shall be registered in such name or names
and in such authorized denomination or denominations as the holder of
such beneficial interest shall instruct the Registrar through
instructions from the Depositary and the Participant or Indirect
Participant. The Trustee shall deliver such Definitive Notes to the
Persons in whose names such Notes are so registered. Any Definitive
Note issued in exchange for a beneficial interest pursuant to this
Section 2.06(c)(iii) shall not bear the Private Placement Legend.
(d) Transfer and Exchange of Definitive Notes for Beneficial
Interests.
(i) Restricted Definitive Notes to Beneficial Interests in
Restricted Global Notes. If any Holder of a Restricted Definitive Note
proposes to exchange such Note for a beneficial interest in a
Restricted Global Note or to transfer such Restricted Definitive Notes
to a Person who takes delivery thereof in the form of a beneficial
interest in a Restricted Global Note, then, upon receipt by the
Registrar of the following documentation:
(A) if the Holder of such Restricted Definitive Note
proposes to exchange such Note for a beneficial interest in a
Restricted Global Note, a certificate from such Holder in the
form of Exhibit C hereto, including the certifications in item
(2)(b) thereof;
(B) if such Restricted Definitive Note is being
transferred to a QIB in accordance with Rule 144A under the
Securities Act, a certificate to the effect set forth in
Exhibit B hereto, including the certifications in item (1)
thereof;
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(C) if such Restricted Definitive Note is being
transferred to a Non-U.S. Person in an offshore transaction in
accordance with Rule 903 or Rule 904 under the Securities Act,
a certificate to the effect set forth in Exhibit B hereto,
including the certifications in item (2) thereof;
(D) if such Restricted Definitive Note is being
transferred pursuant to an exemption from the registration
requirements of the Securities Act in accordance with Rule 144
under the Securities Act, a certificate to the effect set
forth in Exhibit B hereto, including the certifications in
item (3)(a) thereof;
(E) if such Restricted Definitive Note is being
transferred to an Institutional Accredited Investor in
reliance on an exemption from the registration requirements of
the Securities Act other than those listed in subparagraphs
(B) through (D) above, a certificate to the effect set forth
in Exhibit B hereto, including the certifications,
certificates and Opinion of Counsel required by item (3)
thereof, if applicable;
(F) if such Restricted Definitive Note is being
transferred to the Company or any of its Subsidiaries, a
certificate to the effect set forth in Exhibit B hereto,
including the certifications in item (3)(b) thereof; or
(G) if such Restricted Definitive Note is being
transferred pursuant to an effective registration statement
under the Securities Act, a certificate to the effect set
forth in Exhibit B hereto, including the certifications in
item (3)(c) thereof,
the Trustee shall cancel the Restricted Definitive Note, increase or
cause to be increased the aggregate principal amount of, in the case of
clause (A) above, the appropriate Restricted Global Note, in the case
of clause (B) above, the 144A Global Note, in the case of clause (c)
above, the Regulation S Global Note, and in all other cases, the IAI
Global Note.
(ii) Restricted Definitive Notes to Beneficial Interests in
Unrestricted Global Notes. A Holder of a Restricted Definitive Note may
exchange such Note for a beneficial interest in an Unrestricted Global
Note or transfer such Restricted Definitive Note to a Person who takes
delivery thereof in the form of a beneficial interest in an
Unrestricted Global Note only if:
(A) such exchange or transfer is effected pursuant to
the Exchange Offer in accordance with the Registration Rights
Agreement and the Holder, in the case of an exchange, or the
transferee, in the case of a transfer, certifies in the
applicable Letter of Transmittal that it is not (1) a
broker-dealer, (2) a Person participating in the distribution
of the Series B Notes or (3) a Person who is an affiliate (as
defined in Rule 144) of the Company;
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(B) such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration
Rights Agreement;
(C) such transfer is effected by a Participating
Broker-Dealer pursuant to the Exchange Offer Registration
Statement in accordance with the Registration Rights
Agreement; or
(D) the Registrar receives the following:
(1) if the Holder of such Definitive Notes
proposes to exchange such Notes for a beneficial interest in the
Unrestricted Global Note, a certificate from such Holder in the form of
Exhibit C hereto, including the certifications in item (1)(c) thereof;
or
(2) if the Holder of such Definitive Notes
proposes to transfer such Notes to a Person who shall take delivery
thereof in the form of a beneficial interest in the Unrestricted Global
Note, a certificate from such Holder in the form of Exhibit B hereto,
including the certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (D), if the
Registrar so requests or if the Applicable Procedures so require, an
Opinion of Counsel in form reasonably acceptable to the Registrar to
the effect that such exchange or transfer is in compliance with the
Securities Act and that the restrictions on transfer contained herein
and in the Private Placement Legend are no longer required in order to
maintain compliance with the Securities Act.
Upon satisfaction of the conditions of any of the subparagraphs in this
Section 2.06(d)(ii), the Trustee shall cancel the Definitive Notes and
increase or cause to be increased the aggregate principal amount of the
Unrestricted Global Note.
(iii) Unrestricted Definitive Notes to Beneficial Interests in
Unrestricted Global Notes. A Holder of an Unrestricted Definitive Note
may exchange such Note for a beneficial interest in an Unrestricted
Global Note or transfer such Definitive Notes to a Person who takes
delivery thereof in the form of a beneficial interest in an
Unrestricted Global Note at any time. Upon receipt of a request for
such an exchange or transfer, the Trustee shall cancel the applicable
Unrestricted Definitive Note and increase or cause to be increased the
aggregate principal amount of one of the Unrestricted Global Notes.
If any such exchange or transfer from a Definitive Note to a
beneficial interest is effected pursuant to subparagraphs (ii)(B), (ii)(D) or
(iii) above at a time when an Unrestricted Global Note has not yet been issued,
the Company shall issue and, upon receipt of an Authentication Order in
accordance with Section 2.02 hereof, the Trustee shall authenticate one or more
Unrestricted Global Notes in an aggregate principal amount equal to the
principal amount of Definitive Notes so transferred.
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(e) Transfer and Exchange of Definitive Notes for Definitive Notes.
Upon request by a Holder of Definitive Notes and such Holder's compliance with
the provisions of this Section 2.06(e), the Registrar shall register the
transfer or exchange of Definitive Notes. Prior to such registration of transfer
or exchange, the requesting Holder shall present or surrender to the Registrar
the Definitive Notes duly endorsed or accompanied by a written instruction of
transfer in form satisfactory to the Registrar duly executed by such Holder or
by his attorney, duly authorized in writing. In addition, the requesting Holder
shall provide any additional certifications, documents and information, as
applicable, required pursuant to the following provisions of this Section
2.06(e).
(i) Restricted Definitive Notes to Restricted Definitive
Notes. Any Restricted Definitive Note may be transferred to and
registered in the name of Persons who take delivery thereof in the form
of a Restricted Definitive Note if the Registrar receives the
following:
(A) if the transfer will be made pursuant to Rule
144A under the Securities Act, then the transferor must
deliver a certificate in the form of Exhibit B hereto,
including the certifications in item (1) thereof;
(B) if the transfer will be made pursuant to Rule 903
or Rule 904, then the transferor must deliver a certificate in
the form of Exhibit B hereto, including the certifications in
item (2) thereof; and
(C) if the transfer will be made pursuant to any
other exemption from the registration requirements of the
Securities Act, then the transferor must deliver a certificate
in the form of Exhibit B hereto, including the certifications,
certificates and Opinion of Counsel required by item (3)
thereof, if applicable.
(ii) Restricted Definitive Notes to Unrestricted Definitive
Notes. Any Restricted Definitive Note may be exchanged by the Holder
thereof for an Unrestricted Definitive Note or transferred to a Person
or Persons who take delivery thereof in the form of an Unrestricted
Definitive Note if:
(A) such exchange or transfer is effected pursuant to
the Exchange Offer in accordance with the Registration Rights
Agreement and the Holder, in the case of an exchange, or the
transferee, in the case of a transfer, certifies in the
applicable Letter of Transmittal that it is not (1) a
broker-dealer, (2) a Person participating in the distribution
of the Series B Notes or (3) a Person who is an affiliate (as
defined in Rule 144) of the Company;
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(B) any such transfer is effected pursuant to the
Shelf Registration Statement in accordance with the
Registration Rights Agreement;
(C) any such transfer is effected by a Participating
Broker-Dealer pursuant to the Exchange Offer Registration
Statement in accordance with the Registration Rights
Agreement; or
(D) the Registrar receives the following:
(1) if the Holder of such Restricted
Definitive Notes proposes to exchange such Notes for an Unrestricted
Definitive Note, a certificate from such Holder in the form of Exhibit
C hereto, including the certifications in item (1)(d) thereof; or
(2) if the Holder of such Restricted
Definitive Notes proposes to transfer such Notes to a Person who shall
take delivery thereof in the form of an Unrestricted Definitive Note, a
certificate from such Holder in the form of Exhibit B hereto, including
the certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (D), if the
Registrar so requests, an Opinion of Counsel in form reasonably
acceptable to the Company to the effect that such exchange or transfer
is in compliance with the Securities Act and that the restrictions on
transfer contained herein and in the Private Placement Legend are no
longer required in order to maintain compliance with the Securities
Act.
(iii) Unrestricted Definitive Notes to Unrestricted Definitive
Notes. A Holder of Unrestricted Definitive Notes may transfer such
Notes to a Person who takes delivery thereof in the form of an
Unrestricted Definitive Note. Upon receipt of a request to register
such a transfer, the Registrar shall register the Unrestricted
Definitive Notes pursuant to the instructions from the Holder thereof.
(f) Exchange Offer. Upon the occurrence of the Exchange Offer in
accordance with the Registration Rights Agreement, the Company shall issue and,
upon receipt of an Authentication Order in accordance with Section 2.02, the
Trustee shall authenticate (i) one or more Unrestricted Global Notes in an
aggregate principal amount equal to the principal amount of the beneficial
interests in the Restricted Global Notes tendered for acceptance by Persons that
certify in the applicable Letters of Transmittal that (x) they are not
broker-dealers, (y) they are not participating in a distribution of the Series B
Notes and (z) they are not affiliates (as defined in Rule 144) of the Company,
and accepted for exchange in the Exchange Offer and (ii) Definitive Notes in an
aggregate principal amount equal to the principal amount of the Restricted
Definitive Notes accepted for exchange in the Exchange Offer. Concurrently with
the issuance of such Notes, the Trustee shall cause the aggregate principal
amount of the applicable Restricted Global Notes to be reduced accordingly, and
the Company shall execute and the Trustee shall authenticate and deliver to the
Persons designated by the Holders of Definitive Notes so accepted Definitive
Notes in the appropriate principal amount.
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(g) Legends. The following legends shall appear on the face of all
Global Notes and Definitive Notes issued under this Indenture unless
specifically stated otherwise in the applicable provisions of this Indenture.
(i) Private Placement Legend.
(A) Except as permitted by subparagraph (B) below,
each Global Note and each Definitive Note (and all Notes
issued in exchange therefor or substitution thereof) shall
bear the legend in substantially the following form:
THIS SENIOR NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT
OF 1933, AS AMENDED (THE "ACT") AND, ACCORDINGLY, MAY NOT BE OFFERED OR
SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF,
U.S. PERSONS, EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF, THE
HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER"
(AS DEFINED IN RULE 144A UNDER THE ACT) OR (B) IT IS AN "ACCREDITED
INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) UNDER THE ACT)
(AN "ACCREDITED INVESTOR"), OR (C) IT IS NOT A U.S. PERSON AND IS
ACQUIRING THIS SENIOR NOTE IN AN OFFSHORE TRANSACTION, (2) AGREES THAT
IT WILL NOT RESELL OR OTHERWISE TRANSFER THIS SENIOR NOTE EXCEPT (A) TO
THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT, (C) INSIDE THE UNITED STATES TO A
QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE
ACT, (D) INSIDE THE UNITED STATES TO AN ACCREDITED INVESTOR THAT, PRIOR
TO SUCH TRANSFER, FURNISHED (OR HAS FURNISHED ON ITS BEHALF BY A U.S.
BROKER-DEALER) TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER
OF THIS SENIOR NOTE (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE
TRUSTEE), (E) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN
COMPLIANCE WITH RULE 904 UNDER THE ACT, (F) PURSUANT TO THE EXEMPTION
FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE ACT (IF AVAILABLE) OR
(G) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM REGISTRATION UNDER
THE ACT AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS
SENIOR NOTE IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS
LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS SENIOR NOTE PURSUANT TO
CLAUSES (D), (F) AND (G) ABOVE, THE HOLDER MUST, PRIOR TO SUCH
TRANSFER, FURNISH TO THE TRUSTEE AND THE COMPANY SUCH CERTIFICATES,
LEGAL OPINIONS OR OTHER INFORMATION AS ANY OF THEM MAY REASONABLY
REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN
EXEMPTION FROM OR IN A TRANSACTION NOT SUBJECT TO THE REGISTRATION
REQUIREMENTS OF THE ACT. AS USED HEREIN, THE TERMS "OFFSHORE
TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANING GIVEN
TO THEM BY REGULATION S UNDER THE ACT.
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(B) Notwithstanding the foregoing, any Global Note or
Definitive Note issued pursuant to subparagraphs (b)(iv),
(c)(ii), (c)(iii), (d)(ii), (d)(iii), (e)(ii), (e)(iii) or (f)
to this Section 2.06 (and all Notes issued in exchange
therefor or substitution thereof) shall not bear the Private
Placement Legend.
(ii) Global Note Legend. Each Global Note shall bear a legend
in substantially the following form:
"THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE
INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE
BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY
PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY MAKE
SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.07 OF
THE INDENTURE, (II) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT
IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE, (III) THIS GLOBAL
NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO
SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE
TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF
THE COMPANY."
(h) Cancellation and/or Adjustment of Global Notes. At such time as all
beneficial interests in a particular Global Note have been exchanged for
Definitive Notes or a particular Global Note has been redeemed, repurchased or
canceled in whole and not in part, each such Global Note shall be returned to or
retained and canceled by the Trustee in accordance with Section 2.11 hereof. At
any time prior to such cancellation, if any beneficial interest in a Global Note
is exchanged for or transferred to a Person who will take delivery thereof in
the form of a beneficial interest in another Global Note or for Definitive
Notes, the principal amount of Notes represented by such Global Note shall be
reduced accordingly and an endorsement shall be made on such Global Note by the
Trustee or by the Depositary at the direction of the Trustee to reflect such
reduction; and if the beneficial interest is being exchanged for or transferred
to a Person who will take delivery thereof in the form of a beneficial interest
in another Global Note, such other Global Note shall be increased accordingly
and an endorsement shall be made on such Global Note by the Trustee or by the
Depositary at the direction of the Trustee to reflect such increase.
(i) General Provisions Relating to Transfers and Exchanges.
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(i) To permit registrations of transfers and exchanges, the
Company shall execute and the Trustee shall authenticate Global Notes
and Definitive Notes upon the Company's order or at the Registrar's
request.
(ii) No service charge shall be made to a holder of a
beneficial interest in a Global Note or to a Holder of a Definitive
Note for any registration of transfer or exchange, but the Company may
require payment of a sum sufficient to cover any transfer tax or
similar governmental charge payable in connection therewith (other than
any such transfer taxes or similar governmental charge payable upon
exchange or transfer pursuant to Sections 2.10, 3.06, 3.09, 4.10, 4.15
and 9.05 hereof).
(iii) The Registrar shall not be required to register the
transfer of or exchange any Note selected for redemption in whole or in
part, except the unredeemed portion of any Note being redeemed in part.
(iv) All Global Notes and Definitive Notes issued upon any
registration of transfer or exchange of Global Notes or Definitive
Notes shall be the valid obligations of the Company, evidencing the
same debt, and entitled to the same benefits under this Indenture, as
the Global Notes or Definitive Notes surrendered upon such registration
of transfer or exchange.
(v) The Company shall not be required (A) to issue, to
register the transfer of or to exchange any Notes during a period
beginning at the opening of business 15 days before the day of any
selection of Notes for redemption under Section 3.02 hereof and ending
at the close of business on the day of selection, (B) to register the
transfer of or to exchange any Note so selected for redemption in whole
or in part, except the unredeemed portion of any Note being redeemed in
part or (c) to register the transfer of or to exchange a Note between a
record date and the next succeeding Interest Payment Date.
(vi) Prior to due presentment for the registration of a
transfer of any Note, the Trustee, any Agent and the Company may deem
and treat the Person in whose name any Note is registered as the
absolute owner of such Note for the purpose of receiving payment of
principal of and interest on such Notes and for all other purposes, and
none of the Trustee, any Agent or the Company shall be affected by
notice to the contrary.
(vii) The Trustee shall authenticate Global Notes and
Definitive Notes in accordance with the provisions of Section 2.02
hereof.
(viii) All certifications, certificates and Opinions of
Counsel required to be submitted to the Registrar pursuant to this
Section 2.06 to effect a registration of transfer or exchange may be
submitted by facsimile.
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SECTION 2.07. REPLACEMENT NOTES
If any mutilated Note is surrendered to the Trustee or the
Company and the Trustee receives evidence to its satisfaction of the
destruction, loss or theft of any Note, the Company shall issue and the Trustee,
upon receipt of an Authentication Order, shall authenticate a replacement Note
if the Trustee's requirements are met. If required by the Trustee or the
Company, an indemnity bond must be supplied by the Holder that is sufficient in
the judgment of the Trustee and the Company to protect the Company, the Trustee,
any Agent and any authenticating agent from any loss that any of them may suffer
if a Note is replaced. The Company may charge for its expenses in replacing a
Note.
Every replacement Note is an additional obligation of the
Company and shall be entitled to all of the benefits of this Indenture equally
and proportionately with all other Notes duly issued hereunder.
SECTION 2.08. OUTSTANDING NOTES.
The Notes outstanding at any time are all the Notes
authenticated by the Trustee except for those canceled by it, those delivered to
it for cancellation, those reductions in the interest in a Global Note effected
by the Trustee in accordance with the provisions hereof, and those described in
this Section as not outstanding. Except as set forth in Section 2.09 hereof, a
Note does not cease to be outstanding because the Company or an Affiliate of the
Company holds the Note; however, Notes held by the Company or a Subsidiary of
the Company shall not be deemed to be outstanding for purposes of Section
3.07(b) hereof.
If a Note is replaced pursuant to Section 2.07 hereof, it
ceases to be outstanding unless the Trustee receives proof satisfactory to it
that the replaced Note is held by a bona fide purchaser.
If the principal amount of any Note is considered paid under
Section 4.01 hereof, it ceases to be outstanding and interest on it ceases to
accrue.
If the Paying Agent (other than the Company, a Subsidiary or
an Affiliate of any thereof) holds, on a redemption date or maturity date, money
sufficient to pay Notes payable on that date, then on and after that date such
Notes shall be deemed to be no longer outstanding and shall cease to accrue
interest.
SECTION 2.09. TREASURY NOTES.
In determining whether the Holders of the required principal
amount of Notes have concurred in any direction, waiver or consent, Notes owned
by the Company, or by any Person directly or indirectly controlling or
controlled by or under direct or indirect common control with the Company, shall
be considered as though not outstanding, except that for the purposes of
determining whether the Trustee shall be protected in relying on any such
direction, waiver or consent, only Notes that the Trustee knows are so owned
shall be so disregarded.
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SECTION 2.10. TEMPORARY NOTES.
Until certificates representing Notes are ready for delivery,
the Company may prepare and the Trustee, upon receipt of an Authentication
Order, shall authenticate temporary Notes. Temporary Notes shall be
substantially in the form of certificated Notes but may have variations that the
Company considers appropriate for temporary Notes and as shall be reasonably
acceptable to the Trustee. Without unreasonable delay, the Company shall prepare
and the Trustee shall authenticate definitive Notes in exchange for temporary
Notes.
Holders of temporary Notes shall be entitled to all of the
benefits of this Indenture.
SECTION 2.11. CANCELLATION.
The Company at any time may deliver Notes to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Notes surrendered to them for registration of transfer, exchange or payment. The
Trustee and no one else shall cancel all Notes surrendered for registration of
transfer, exchange, payment, replacement or cancellation and shall destroy
canceled Notes (subject to the record retention requirement of the Exchange
Act). Certification of the destruction of all canceled Notes shall be delivered
to the Company. The Company may not issue new Notes to replace Notes that it has
paid or that have been delivered to the Trustee for cancellation.
SECTION 2.12. DEFAULTED INTEREST.
If the Company defaults in a payment of interest on the Notes,
it shall pay the defaulted interest in any lawful manner plus, to the extent
lawful, interest payable on the defaulted interest, to the Persons who are
Holders on a subsequent special record date, in each case at the rate provided
in the Notes and in Section 4.01 hereof. The Company shall notify the Trustee in
writing of the amount of defaulted interest proposed to be paid on each Note and
the date of the proposed payment. The Company shall fix or cause to be fixed
each such special record date and payment date, provided that no such special
record date shall be less than 10 days prior to the related payment date for
such defaulted interest. At least 15 days before the special record date, the
Company (or, upon the written request of the Company, the Trustee in the name
and at the expense of the Company) shall mail or cause to be mailed to Holders a
notice that states the special record date, the related payment date and the
amount of such interest to be paid.
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ARTICLE 3.
REDEMPTION AND PREPAYMENT
SECTION 3.01. NOTICES TO TRUSTEE.
If the Company is required to make an offer to purchase Notes
pursuant to the provisions of Section 3.09 hereof, it shall furnish to the
Trustee an Officers' Certificate setting forth (i) the Section of this Indenture
pursuant to which the purchase shall occur, (ii) the purchase date, (iii) the
principal amount of Notes to be purchased, (iv) the purchase price and (v) a
statement to the effect that a Change of Control has occurred and the conditions
set forth in Section 3.09 hereof have been satisfied, as applicable.
SECTION 3.02. SELECTION OF NOTES TO BE REDEEMED.
If less than all of the Notes are to be redeemed at any time,
the Trustee shall select the Notes to be redeemed among the Holders of the Notes
in compliance with the requirements of the principal national securities
exchange, if any, on which the Notes are listed or, if the Notes are not so
listed, to be redeemed among the Holders of Notes on a pro rata basis, by lot or
by such method as the Trustee deems fair and appropriate; provided that no Notes
of $1,000 or less shall be redeemed in part. In the event of partial redemption
by lot, the particular Notes to be redeemed shall be selected, unless otherwise
provided herein, not less than 30 nor more than 60 days prior to the redemption
date by the Trustee from the outstanding Notes not previously called for
redemption.
The Trustee shall promptly notify the Company in writing of
the Notes selected for redemption and, in the case of any Note selected for
partial redemption, the principal amount thereof to be redeemed. Notes and
portions of Notes selected shall be in amounts of $1,000 or whole multiples of
$1,000; except that if all of the Notes of a Holder are to be redeemed, the
entire outstanding amount of Notes held by such Holder, even if not a multiple
of $1,000, shall be redeemed. A new Note in principal amount equal to the
unredeemed portion thereof will be issued in the name of the Holder thereof upon
cancellation of the original Note. Notes called for redemption shall become due
on the redemption date. On and after the redemption date, interest ceases to
accrue on Notes or portions of them called for redemption. Except as provided in
this Section 3.02, provisions of this Indenture that apply to Notes called for
redemption also apply to portions of Notes called for redemption.
SECTION 3.03. NOTICE OF REDEMPTION.
Subject to the provisions of Section 3.09 hereof, at least 30
days but not more than 60 days before a redemption date, the Company shall mail
or cause to be mailed, by first class mail, a notice of redemption to each
Holder whose Notes are to be redeemed at its registered address.
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The notice shall identify the Notes to be redeemed and shall
state:
(a) the redemption date;
(b) the redemption price;
(c) if any Note is being redeemed in part, the portion of the principal
amount of such Note to be redeemed and that, after the redemption date upon
surrender of such Note, a new Note or Notes in principal amount equal to the
unredeemed portion shall be issued upon cancellation of the original;
(d) the name and address of the Paying Agent;
(e) that Notes called for redemption must be surrendered to the Paying
Agent to collect the redemption price;
(f) that, unless the Company defaults in making such redemption
payment, interest on Notes called for redemption ceases to accrue on and after
the redemption date;
(g) the paragraph of the Notes and/or Section of this Indenture
pursuant to which the Notes called for redemption are being redeemed; and
(h) that no representation is made as to the correctness or accuracy of
the CUSIP number, if any, listed in such notice or printed on the Notes.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at its expense; provided, however, that the
Company shall have delivered to the Trustee, at least 30 days prior to the
redemption date, an Officers' Certificate requesting that the Trustee give such
notice and setting forth the information to be stated in such notice as provided
in the preceding paragraph.
SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION.
Once notice of redemption is mailed in accordance with Section
3.03 hereof, Notes called for redemption become irrevocably due and payable on
the redemption date at the redemption price. A notice of redemption may not be
conditional.
SECTION 3.05. DEPOSIT OF REDEMPTION OR PURCHASE PRICE.
One Business Day prior to 10:00 a.m. Eastern Time on the
redemption date, the Company shall deposit with the Trustee or with the Paying
Agent money in immediately available funds sufficient to pay the redemption or
purchase price of and accrued interest, if any, on all Notes to be redeemed or
purchased on that date. The Trustee or the Paying Agent shall promptly return to
the Company any money deposited with the Trustee or the Paying Agent by the
Company in excess of the amounts necessary to pay the redemption or purchase
price of, and accrued interest on, all Notes to be redeemed or purchased.
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If Notes called for redemption or tendered in a Change of
Control Offer are paid or if the Company has deposited with the Trustee or
Paying Agent money sufficient to pay the redemption or purchase price of, and
unpaid and accrued interest, if any, on all Notes to be redeemed or purchased,
on and after the applicable redemption or purchase date, interest, if any,
ceases to accrue on the Notes or the portions of Notes called for redemption or
tendered and not withdrawn in a Change of Control Offer (regardless of whether
certificates for such Notes are actually surrendered). If a Note is redeemed or
purchased on or after an interest record date but on or prior to the related
interest payment date, then any accrued and unpaid interest, if any, shall be
paid to the Person in whose name such Note was registered at the close of
business on such record date. If any Note called for redemption or subject to a
Change of Control Offer shall not be so paid upon surrender for redemption or
purchase because of the failure of the Company to comply with the preceding
paragraph, interest shall be paid on the unpaid principal, from the redemption
or purchase date until such principal is paid, and to the extent lawful on any
interest not paid on such unpaid principal, in each case, at the rate provided
in the Notes and in Section 4.01 hereof.
SECTION 3.06. NOTES REDEEMED OR PURCHASED IN PART.
Upon surrender of a Note that is redeemed or purchased in
part, the Company shall issue and, upon the Company's written request, the
Trustee shall authenticate for the Holder at the expense of the Company a new
Note equal in principal amount to the unredeemed or unpurchased portion of the
Note surrendered.
SECTION 3.07. OPTIONAL REDEMPTION.
(a) The Notes shall not be redeemable at the Company's option prior to
October 15, 2001. The Notes may be redeemed, in whole or in part, at the option
of the Company on or after October 15, 2001, at the redemption prices specified
below (expressed as percentages of the principal amount thereof), in each case,
together with accrued and unpaid interest and Liquidated Damages, if any,
thereon to the date of redemption, upon not less than 30 nor more than 60 days
notice, if redeemed during the twelve-month period beginning on October 15 of
the years indicated below:
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Redemption
Year Price
- ---- ----------
2001 104.813%
2002 102.407%
2003 and thereafter 100.000%
(b) Notwithstanding the foregoing, during the first 36 months after the
Closing Date, the Company may, on any one or more occasions, use the net
proceeds of one or more offerings of its Capital Stock to redeem up to 35% of
the aggregate principal amount of the Notes at a redemption price of 109.625% of
the principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages, if any, to the date of redemption; provided that, after any such
redemption, the aggregate principal amount of the Notes outstanding (excluding
Notes held by the Company and its subsidiaries) must equal at least $75.0
million; and provided further, that any such redemption shall occur within 90
days of the date of closing of such offering of Capital Stock of the Company.
(c) Any redemption pursuant to this Section 3.07 shall be made pursuant
to the provisions of Section 3.01 through 3.06 hereof.
SECTION 3.08. MANDATORY REDEMPTION.
The Company shall not be required to make mandatory redemption
or sinking fund payments with respect to the Notes.
SECTION 3.09. OFFER TO PURCHASE BY APPLICATION OF EXCESS PROCEEDS.
(a) In the event that, pursuant to Section 4.10 hereof, the Company
shall be required to commence an Asset Sale Offer, it shall follow the
procedures specified below with respect to the Holders of Notes.
(b) The Asset Sale Offer shall remain open for a period of 20 Business
Days following its commencement and no longer, except to the extent that a
longer period is required by applicable law (the "Offer Period"). No later than
five Business Days after the termination of the Offer Period (the "Purchase
Date"), the Company shall purchase the principal amount of Notes required to be
purchased pursuant to Section 4.10 hereof (the "Offer Amount") or, if less than
the Offer Amount has been tendered, all Notes tendered in response to the Asset
Sale Offer. Payment for any Notes so purchased shall be made in the same manner
as interest payments are made.
(c) The Company shall comply with any tender offer rules under the
Exchange Act which may then be applicable, including Rule 14e-1, in connection
with any offer required to be made by the Company to repurchase the Notes as a
result of an Asset Sale Offer. To the extent that the provisions of any
securities laws or regulations conflict with provisions of this Section 3.09,
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the Company shall comply with the applicable securities laws or regulations and
shall not be deemed to have breached its obligations hereunder by virtue
thereof.
(d) If the Purchase Date is on or after an interest record date and on
or before the related interest payment date, any accrued and unpaid interest
shall be paid to the Person in whose name a Note is registered at the close of
business on such record date, and no additional interest shall be payable to
Holders who tender Notes pursuant to the Asset Sale Offer.
(e) Upon the commencement of an Asset Sale Offer, the Company shall
send, by first class mail, a notice to the Trustee and each of the Holders, with
a copy to the Trustee. The notice shall contain all instructions and materials
necessary to enable such Holders to tender Notes pursuant to the Asset Sale
Offer. The Asset Sale Offer shall be made to all Holders. The notice, which
shall govern the terms of the Asset Sale Offer, shall state:
(i) that the Asset Sale Offer is being made pursuant to this
Section 3.09 and Section 4.10 hereof and the length of time the Asset
Sale Offer shall remain open;
(ii) the Offer Amount, the purchase price and the Purchase
Date and, if any Restricted Subsidiary is required to and does make an
offer to holders of its Indebtedness pursuant to a requirement similar
to that contained in Section 4.10 and this Section, the notice shall
state that fact, that the Offer Amount will be reduced by the amount of
Indebtedness required to be purchased pursuant to such other offer, and
that the amount of such reduction will not be known until the
expiration of such other offer, which shall not be later than the
expiration of the Offer Period;
(iii) that any Note not tendered or accepted for payment shall
continue to accrue interest;
(iv) that, unless the Company defaults in making such payment,
any Note accepted for payment pursuant to the Asset Sale Offer shall
cease to accrue interest after the Purchase Date;
(v) that Holders electing to have a Note purchased pursuant to
an Asset Sale Offer may only elect to have all of such Note purchased
and may not elect to have only a portion of such Note purchased;
(vi) that Holders electing to have a Note purchased pursuant
to any Asset Sale Offer shall be required to surrender the Note, with
the form entitled "Option of Holder to Elect Purchase" on the reverse
of the Note completed, or transfer by book-entry transfer, to the
Company, a depositary, if appointed by the Company, or a Paying Agent
at the address specified in the notice at least three days before the
Purchase Date;
(vii) that Holders shall be entitled to withdraw their
election if the Company, the Depositary or the Paying Agent, as the
case may be, receives, not later than the expiration of the Offer
Period, a telegram, telex, facsimile transmission or letter setting
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forth the name of the Holder, the principal amount of the Note the
Holder delivered for purchase and a statement that such Holder is
withdrawing his election to have such Note purchased;
(viii) that, if the aggregate principal amount of Notes
surrendered by Holders exceeds the Offer Amount, the Company shall
select the Notes to be purchased on a pro rata basis (with such
adjustments as may be deemed appropriate by the Company so that only
Notes in denominations of $1,000, or integral multiples thereof, shall
be purchased, other than in the case of Holders whose Notes were
purchased in whole); and
(ix) that Holders whose Notes were purchased only in part
shall be issued new Notes equal in principal amount to the unpurchased
portion of the Notes surrendered (or transferred by book-entry
transfer).
(f) On or before the Purchase Date, the Company shall, to the extent
lawful, accept for payment, on a pro rata basis to the extent necessary, the
Offer Amount of Notes or portions thereof tendered pursuant to the Asset Sale
Offer, or if less than the Offer Amount has been tendered, all Notes tendered,
and shall deliver to the Trustee an Officers' Certificate stating that such
Notes or portions thereof were accepted for payment by the Company in accordance
with the terms of this Section 3.09. The Company, the Depositary or the Paying
Agent, as the case may be, shall promptly (but in any case not later than five
days after the Purchase Date) mail or deliver to each tendering Holder of Notes
an amount equal to the purchase price of the Notes tendered by such Holder of
Notes and accepted by the Company for purchase, and the Company shall promptly
issue a new Note and the Trustee, upon written request from the Company shall
authenticate and mail or deliver such new Note to such Holder of Notes in a
principal amount equal to any unpurchased portion of the Note surrendered. Any
Note not so accepted shall be promptly mailed or delivered by the Company to the
Holder of Notes thereof. The Company shall publicly announce the results of the
Asset Sale Offer on the Purchase Date.
(g) Other than as specifically provided in this Section 3.09, any
purchase pursuant to this Section 3.09 shall be made pursuant to the provisions
of Sections 3.01 through 3.06 hereof. No repurchase of Notes under this Section
3.09 shall be deemed to be a redemption of Notes.
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ARTICLE 4.
COVENANTS
SECTION 4.01. PAYMENT OF NOTES.
The Company shall pay or cause to be paid the principal of,
premium, if any, and interest on the Notes on the dates and in the manner
provided in the Notes. Principal, premium, if any, and interest shall be
considered paid on the date due if the Paying Agent, if other than the Company
or a Subsidiary thereof, holds as of 10:00 a.m. Eastern Time on the due date
money deposited by the Company in immediately available funds and designated for
and sufficient to pay all principal, premium, if any, and interest then due. The
Company shall pay all Liquidated Damages, if any, in the same manner on the
dates and in the amounts set forth in the Registration Rights Agreement.
The Company shall pay interest (including post-petition
interest in any proceeding under any Bankruptcy Law) on overdue principal at the
rate equal to 1% per annum in excess of the then applicable interest rate on the
Notes to the extent lawful; it shall pay interest (including post-petition
interest in any proceeding under any Bankruptcy Law) on overdue installments of
interest and Liquidated Damages (without regard to any applicable grace period)
at the same rate to the extent lawful.
SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY.
The Company shall maintain in the Borough of Manhattan, the
City of New York, an office or agency (which may be an office of the Trustee or
an affiliate of the Trustee, Registrar or co-Registrar) where Notes may be
surrendered for registration of transfer or for exchange and where notices and
demands to or upon the Company in respect of the Notes and this Indenture may be
served. The Company shall give prompt written notice to the Trustee of the
location, and any change in the location, of such office or agency. If at any
time the Company shall fail to maintain any such required office or agency or
shall fail to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the Corporate Trust
Office of the Trustee.
The Company may also from time to time designate one or more
other offices or agencies where the Notes may be presented or surrendered for
any or all such purposes and may from time to time rescind such designations;
provided, however, that no such designation or rescission shall in any manner
relieve the Company of its obligation to maintain an office or agency in the
Borough of Manhattan, the City of New York for such purposes. The Company shall
give prompt written notice to the Trustee of any such designation or rescission
and of any change in the location of any such other office or agency.
The Company hereby designates the Corporate Trust Office of
the Trustee as one such office or agency of the Company in accordance with
Section 2.03.
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SECTION 4.03. REPORTS.
(a) Whether or not required by the rules and regulations of the SEC, so
long as any Notes are outstanding, the Company shall furnish to the Holders of
Notes (i) all quarterly and annual financial information that would be required
to be contained in a filing with the SEC on Forms 10-Q and 10-K if the Company
were required to file such Forms, including "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and, with respect to
the annual information only, a report thereon by the Company's certified
independent accountants and (ii) all current reports that would be required to
be filed with the SEC on Form 8-K if the Company were required to file such
reports, in each case within the time periods specified in the SEC's rules and
regulations. In addition, following consummation of the Exchange Offer
contemplated by the Registration Rights Agreement, whether or not required by
the rules and regulations of the SEC, the Company shall file a copy of all such
information and reports with the SEC for public availability within the time
periods set forth in the SEC's rules and regulations (unless the SEC will not
accept such a filing) and make such information available to securities analysts
and prospective investors upon request. In addition to the financial information
required by the Exchange Act, each such quarterly and annual report shall be
required to contain "summarized financial information" (as defined in Rule
1-02(aa)(1) of Regulation S-X under the Exchange Act) showing Adjusted Operating
Cash Flow for the Company and its Restricted Subsidiaries, on a consolidated
basis, where Adjusted Operating Cash Flow for the Company is calculated in a
manner consistent with the manner described under the definition of "Adjusted
Operating Cash Flow" contained herein. The summarized financial information
required pursuant to the preceding sentence may, at the election of the Company,
be included in the footnotes to audited consolidated financial statements or
unaudited quarterly financial statements of the Company and shall be as of the
same dates and for the same periods as the consolidated financial statements of
the Company and its Subsidiaries required pursuant to the Exchange Act.
(b) In addition, the Company has agreed that, for so long as any Notes
remain outstanding, it will furnish to the holders and to securities analysts
and prospective investors, upon their request, the information required to be
delivered pursuant to rule 144A(d)(4) under the Securities Act.
SECTION 4.04. COMPLIANCE CERTIFICATE.
(a) The Company shall deliver to the Trustee, within 90 days after the
end of each fiscal year, an Officers' Certificate stating that a review of the
activities of the Company and its Subsidiaries during the preceding fiscal year
has been made under the supervision of the signing Officers with a view to
determining whether the Company has kept, observed, performed and fulfilled its
obligations under this Indenture, and further stating, as to each such Officer
signing such certificate, that to the best of his or her knowledge the Company
has kept, observed, performed and fulfilled each and every covenant contained in
this Indenture and is not in default in the performance or observance of any of
the terms, provisions and conditions of this Indenture (or, if a Default or
Event of Default shall have occurred, describing all such Defaults or Events of
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Default of which he or she may have knowledge and what action the Company is
taking or proposes to take with respect thereto) and that to the best of his or
her knowledge no event has occurred and remains in existence by reason of which
payments on account of the principal of or interest on the Notes is prohibited
or if such event has occurred, a description of the event and what action the
Company is taking or proposes to take with respect thereto.
(b) So long as not contrary to the then current recommendations of the
American Institute of Certified Public Accountants, the year-end financial
statements delivered pursuant to Section 4.03 above shall be accompanied by a
written statement of the Company's independent public accountants (who shall be
a firm of established national reputation) that in making the examination
necessary for certification of such financial statements, nothing has come to
their attention that would lead them to believe that the Company has violated
any provisions of Article Four or Article Five hereof or, if any such violation
has occurred, specifying the nature and period of existence thereof, it being
understood that such accountants shall not be liable directly or indirectly to
any Person for any failure to obtain knowledge of any such violation.
(c) The Company shall, so long as any of the Notes are outstanding,
deliver to the Trustee, forthwith upon any Officer of the Company becoming aware
of any Default or Event of Default, an Officers' Certificate specifying such
Default or Event of Default and what action the Company is taking or proposes to
take with respect thereto.
SECTION 4.05. TAXES.
The Company shall pay, and shall cause each of its
Subsidiaries to pay, prior to delinquency, all material taxes, assessments, and
governmental levies except such as are contested in good faith and by
appropriate proceedings or where the failure to effect such payment is not
adverse in any material respect to the Holders of the Notes.
SECTION 4.06. STAY, EXTENSION AND USURY LAWS.
The Company covenants (to the extent that it may lawfully do
so) that it shall not at any time insist upon, plead, or in any manner
whatsoever claim or take the benefit or advantage of, any stay, extension or
usury law wherever enacted, now or at any time hereafter in force, that may
affect the covenants or the performance of this Indenture; and the Company (to
the extent that it may lawfully do so) hereby expressly waives all benefit or
advantage of any such law, and covenants that it shall not, by resort to any
such law, hinder, delay or impede the execution of any power herein granted to
the Trustee, but shall suffer and permit the execution of every such power as
though no such law has been enacted.
SECTION 4.07. RESTRICTED PAYMENTS.
(a) The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, (i) declare or pay any dividend or make
any other payment or distribution on account of the Company's Equity Interests
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(including, without limitation, any payment in connection with any merger or
consolidation involving the Company) or on account of any Qualified Subsidiary
Stock or make any payment or distribution (other than compensation paid to, or
reimbursement of expenses of, employees in the ordinary course of business) to
or for the benefit of the direct or indirect holders of the Company's Equity
Interests or the direct or indirect holders of any Qualified Subsidiary Stock in
their capacities as such (other than dividends or distributions payable in
Equity Interests (other than Disqualified Stock) of the Company or additional
shares of such Qualified Subsidiary Stock); (ii) purchase, redeem or otherwise
acquire or retire for value any Equity Interests of the Company or any direct or
indirect parent of the Company (other than any such Equity Interests owned by
the Company or any of its Restricted Subsidiaries); (iii) make any payment on or
with respect to, or purchase, redeem, defease or otherwise acquire or retire for
value any Indebtedness that is subordinated to the Notes, except a payment of
interest or principal at Stated Maturity; (iv) forgive any loan or advance to or
other obligation of any Affiliate of the Company (other than a loan or advance
to or other obligations of a Wholly Owned Restricted Subsidiary of the Company)
which at the time it was made was not a Restricted Payment; or (v) make any
Restricted Investment (all such payments and other actions set forth in clauses
(i) through (v) above being collectively referred to as "Restricted Payments"),
unless, at the time of and immediately after giving effect to such Restricted
Payment:
(A) no Default or Event of Default shall have
occurred and be continuing or would occur as a consequence
thereof; and
(B) the Company would be permitted to incur $1.00 of
additional Indebtedness pursuant to the Indebtedness to
Adjusted Operating Cash Flow Ratio described in Section
4.09(a) hereof; and
(C) such Restricted Payment, together with the
aggregate of all other Restricted Payments made by the Company
and its Restricted Subsidiaries after the Closing Date
(excluding Restricted Payments permitted by clauses (2) and
(3) of Section 4.07(b)), is less than the sum of, without
duplication, (i) an amount equal to the Cumulative Operating
Cash Flow for the period (taken as one accounting period) from
the beginning of the first full month commencing after the
Closing Date to the end of the Company's most recently ended
fiscal quarter for which internal financial statements are
available at the time of such Restricted Payment (the "Basket
Period") less 1.4 times the Company's Cumulative Total
Interest Expense for the Basket Period, plus (ii) 100% of the
aggregate net cash proceeds and, in the case of proceeds
consisting of assets constituting or used in a Permitted
Business, plus (iii) 100% of the fair market value of the
aggregate net proceeds other than cash received since the
Closing Date (1) by the Company as capital contributions to
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the Company (other than from a Subsidiary) or (2) from the
sale by the Company (other than to a Subsidiary) of its Equity
Interests (other than Disqualified Stock), plus (iv) to the
extent that any Restricted Investment that was made after the
Closing Date is sold for cash or otherwise liquidated or
repaid for cash, the Net Proceeds received by the Company or a
Wholly Owned Restricted Subsidiary of the Company upon the
sale, liquidation or repayment of such Restricted Investment,
plus (v) to the extent that any Unrestricted Subsidiary is
designated by the Company as a Restricted Subsidiary, an
amount equal to the fair market value of such Investment at
the time of such designation, plus (vi) 100% of any cash
dividends and other cash distributions received by the Company
from an Unrestricted Subsidiary, plus (vii) $2.5 million.
(b) The foregoing provisions shall not prohibit (1) the payment of any
dividend within 60 days after the date of declaration thereof, if at said date
of declaration such payment would have complied with the provisions of this
Indenture; (2) the redemption, repurchase, retirement or other acquisition of
any Equity Interests or subordinated Indebtedness of the Company in exchange
for, or out of the net proceeds of, the substantially concurrent sale (other
than to a Subsidiary of the Company) of other Equity Interests of the Company
(other than any Disqualified Stock); provided that the amount of any such net
proceeds that are utilized for any such redemption, repurchase, retirement or
other acquisition shall be excluded from clause (C)(ii) of the preceding
paragraph; (3) the defeasance, redemption or repurchase of Indebtedness with the
proceeds of a substantially concurrent issuance of Permitted Refinancing Debt in
accordance with the provisions of Section 4.09 hereof; (4) the payment by the
Company of advances under the Split Dollar Agreement in an amount not to exceed
$250,000 in any four-quarter period; (5) the repurchase or redemption from
employees of the Company and its Subsidiaries (other than the Principal) of
Capital Stock of the Company in an amount not to exceed an aggregate of $5.0
million since the date of this Indenture; (6) the payment of dividends on the
Series A Preferred Stock in accordance with the terms thereof as in effect on
the Closing Date; provided, however, that cash dividends may not be paid on the
Series A Preferred Stock pursuant to this clause (6) prior to July 1, 2002; (7)
the issuance of Subordinated Notes in exchange for shares of the Series A
Preferred Stock; provided that such issuance is permitted by Section 4.09
hereof; (8) in the event that the Company elects to issue Subordinated Notes in
exchange for Series A Preferred Stock, cash payments made in lieu of the
issuance of Subordinated Notes having a face amount less than $1,000 and any
cash payments representing accrued and unpaid dividends in respect thereof, not
to exceed $100,000 in the aggregate in any fiscal year; and (9) cash payments
made in lieu of the issuance of additional Subordinated Notes having a face
amount less than $1,000 and any cash payments representing accrued and unpaid
interest in respect thereof, not to exceed $100,000 in the aggregate in any
fiscal year.
(c) The amount of all Restricted Payments (other than cash) shall be
the fair market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued by the Company or the applicable
Restricted Subsidiary, as the case may be, net of any liabilities proposed to be
assumed by the transferee and novated pursuant to a written agreement releasing
the Company and its Subsidiaries. Not later than the date of making any
Restricted Payment, the Company shall deliver to the Trustee an Officers'
Certificate stating that such Restricted Payment is permitted and setting forth
the basis upon which the calculations required by this covenant were computed,
which calculations may be based upon the Company's latest available financial
statements.
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(d) The Board of Directors may designate any Restricted Subsidiary to
be an Unrestricted Subsidiary if such designation would not cause a Default or
an Event of Default. For purposes of making such determination, all outstanding
Investments by the Company and its Restricted Subsidiaries in the Subsidiary so
designated shall be deemed to be Restricted Payments at the time of such
designation (valued as set forth below) and shall reduce the amount available
for Restricted Payments under Section 4.07(a) hereof. All such outstanding
Investments shall be deemed to constitute Investments in an amount equal to the
fair market value of such Investments at the time of such designation. Such
designation shall only be permitted if such Restricted Payment would be
permitted at such time and if such Restricted Subsidiary would otherwise meet
the definition of an Unrestricted Subsidiary.
SECTION 4.08. DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES.
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or
suffer to exist or become effective any encumbrance or restriction on the
ability of any Restricted Subsidiary to (i)(a) pay dividends or make any other
distributions to the Company or any of its Restricted Subsidiaries (1) on its
Capital Stock or (2) with respect to any other interest or participation in, or
measured by, its profits, or (b) pay any Indebtedness owed to the Company or any
of its Restricted Subsidiaries, (ii) make loans or advances to the Company or
any of its Restricted Subsidiaries or (iii) transfer any of its properties or
assets to the Company or any of its Restricted Subsidiaries, except for such
encumbrances or restrictions existing under or by reason of (a) the terms of any
Indebtedness permitted by this Indenture to be incurred by any Subsidiary of the
Company; provided, that, any such Indebtedness permits the payment of cash
dividends to the Company in an amount sufficient to enable the Company to make
payments of (A) interest required to be paid in respect of the Notes and (B)
after July 1, 2002, dividends required to be paid in respect of the Series A
Preferred Stock and interest required to be paid in respect of the Notes, if
issued, in each case, in accordance with the terms thereof (except during the
continuance of a default or event of default under such other Indebtedness), (b)
Existing Indebtedness as in effect on the Closing Date, (c) this Indenture, the
Notes and the Subsidiary Guarantees, (d) applicable law, (e) any instrument
governing Indebtedness or Capital Stock of a Person acquired by the Company or
any of its Restricted Subsidiaries as in effect at the time of such acquisition
(except to the extent such Indebtedness was incurred in connection with or in
contemplation of such acquisition), which encumbrance or restriction is not
applicable to any Person, or the properties or assets of any Person, other than
the Person and its Subsidiaries, or the property or assets of the Person and its
Subsidiaries, so acquired, (f) by reason of customary non-assignment provisions
in leases and other contracts entered into in the ordinary course of business
and consistent with past practices or (g) any agreement for the sale of any
Subsidiary or its assets that restricts distributions by that Subsidiary pending
its sale.
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SECTION 4.09. INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK.
(a) The Company shall not, and shall not permit any of its Subsidiaries
to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise
become directly or indirectly liable, contingently or otherwise, with respect to
(collectively, "incur") any Indebtedness (including Acquired Debt) and shall
not, and shall not permit any Subsidiary Guarantor to, issue any Disqualified
Stock and shall not permit any of its Restricted Subsidiaries that are not
Subsidiary Guarantors to issue any shares of preferred stock (other than
Qualified Subsidiary Stock); provided, however, that the Company or any
Restricted Subsidiary may incur Indebtedness (including Acquired Debt) or issue
shares of preferred stock (including Disqualified Stock) if, in each case, (1)
the Company's Indebtedness to Adjusted Operating Cash Flow Ratio as of the date
on which such Indebtedness is incurred or such preferred stock or Disqualified
Stock is issued would have been 7.0 to 1 or less, determined on a pro forma
basis (including a pro forma application of the net proceeds therefrom), as if
the additional Indebtedness had been incurred, or the Disqualified Stock or
preferred stock had been issued, as the case may be, as of the date of such
calculation and (2) no Default or Event of Default would occur as a consequence
thereof.
The Company shall not, and shall not permit any Subsidiary
Guarantor to, incur any Indebtedness that is contractually subordinated to any
other Indebtedness of the Company or of such Subsidiary Guarantor, as the case
may be, unless such Indebtedness is also contractually subordinated to the Notes
or the Subsidiary Guarantee of such Subsidiary Guarantor, as the case may be, on
substantially identical terms; provided, however, that no Indebtedness shall be
deemed to be contractually subordinated to any other Indebtedness solely by
virtue of being unsecured.
(b) The foregoing provisions shall not apply to (collectively,
"Permitted Debt"):
(i) the incurrence by the Company's Unrestricted Subsidiaries
of Non-Recourse Debt or the issuance by such Unrestricted Subsidiaries
of preferred stock; provided, however, that if any such Indebtedness
ceases to be Non-Recourse Debt of an Unrestricted Subsidiary or any
such preferred stock becomes preferred stock (other than Qualified
Subsidiary Stock) of a Restricted Subsidiary, as the case may be, such
event shall be deemed to constitute an incurrence of Indebtedness by,
or an issuance of preferred stock (other than Qualified Subsidiary
Stock) of, as the case may be, a Restricted Subsidiary of the Company;
(ii) the incurrence by the Company or any of its Restricted
Subsidiaries of Indebtedness pursuant to one or more Bank Facilities if
the aggregate principal amount at any time outstanding incurred
pursuant to this clause (ii) does not exceed $50.0 million;
(iii) the incurrence by the Company and its Restricted
Subsidiaries of the Existing Indebtedness;
(iv) the incurrence by the Company of Indebtedness under the
Subordinated Exchange Notes to pay interest on outstanding Subordinated
Notes;
(v) Indebtedness under the Notes and the Subsidiary
Guarantees;
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(vi) the incurrence by the Company or any of its Restricted
Subsidiaries of intercompany Indebtedness between or among the Company
and any of its Wholly Owned Restricted Subsidiaries; provided, however,
that (1) if the Company or a Subsidiary Guarantor is the obligor on
such Indebtedness, such Indebtedness is expressly subordinated to the
prior payment in full in cash of all obligations with respect to the
Notes or the Subsidiary Guarantee of such Subsidiary Guarantor, as the
case may be, and (2)(A) any subsequent issuance or transfer of Equity
Interests that result in any such Indebtedness being held by a Person
other than the Company or a Wholly Owned Restricted Subsidiary of the
Company and (B) any sale or other transfer of such Indebtedness to a
Person that is not either the Company or a Wholly Owned Restricted
Subsidiary of the Company shall be deemed, in each case, to constitute
an incurrence of such Indebtedness by the Company or such Restricted
Subsidiary, as the case may be;
(vii) the incurrence by the Company or any of its Restricted
Subsidiaries of Indebtedness represented by Capital Lease Obligations,
mortgage financings or purchase money obligations, in each case
incurred for the purpose of financing all or any part of the purchase
price or cost of construction or improvement of property used in the
business of the Company or such Restricted Subsidiary, in an aggregate
principal amount not to exceed $7.5 million at any time outstanding,
including all Permitted Refinancing Debt incurred pursuant to clause
(viii) below to refund, replace or refinance any Indebtedness incurred
pursuant to this clause (vii);
(viii) the incurrence by the Company or any of its Restricted
Subsidiaries of Permitted Refinancing Debt in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace,
defease or refund, Indebtedness (other than intercompany Indebtedness)
that was permitted by this Indenture to be incurred;
(ix) the incurrence by the Company or any of its Restricted
Subsidiaries of Indebtedness (in addition to Indebtedness permitted by
any other clause of this paragraph) in an aggregate principal amount at
any time outstanding, including all Permitted Refinancing Debt incurred
pursuant to clause (viii) above to refund, replace or refinance any
Indebtedness incurred pursuant to this clause (ix), not to exceed $7.5
million; and
(x) the guarantee by the Company or any Restricted Subsidiary
of the Company of Indebtedness of the Company or a Subsidiary of the
Company that was permitted to be incurred by another provision of this
Section 4.09.
For purposes of determining compliance with this Section 4.09,
in the event that an item of Indebtedness meets the criteria of more than one of
the categories of Permitted Debt described in clauses (i) through (x) above or
is permitted to be incurred pursuant to Section 4.09(a) hereof and also meets
the criteria of one or more of the categories of Permitted Debt described in
clauses (i) through (x) above, the Company shall, in its sole discretion,
classify such item of Indebtedness in any manner that complies with this Section
4.09 and may from time to time reclassify such item of Indebtedness in any
manner in which such item could be incurred at the time of such
reclassification. For purposes of this paragraph, "Indebtedness" includes
Disqualified Stock and preferred stock of Subsidiaries. Accrual of interest and
the accretion of accreted value will not be deemed to be an incurrence of
Indebtedness for purposes of this Section 4.09.
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SECTION 4.10. ASSET SALES.
(a) The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, consummate an Asset Sale unless (i) the Company (or the
Restricted Subsidiary, as the case may be) receives consideration at the time of
such Asset Sale at least equal to the fair value (evidenced by a resolution of
the Board of Directors set forth in an Officers' Certificate delivered to the
Trustee) of the assets or Equity Interests issued or sold or otherwise disposed
of and (ii) at least 85% of the consideration therefor received by the Company
or such Restricted Subsidiary is in the form of cash; provided that the amount
of (x) any liabilities (as shown on the Company's or such Restricted
Subsidiary's most recent balance sheet or in notes thereto), of the Company or
any Restricted Subsidiary (other than liabilities that are by their terms
subordinated to the Notes or any guarantee thereof) that are assumed by the
transferee of any such assets and (y) any securities, notes or other obligations
received by the Company or any such Restricted Subsidiary from such transferee
that are contemporaneously (subject to ordinary settlement periods) converted by
the Company or such Restricted Subsidiary into cash (to the extent of the cash
received), shall be deemed to be cash for purposes of this provision.
(b) Notwithstanding the foregoing, the Company and its Restricted
Subsidiaries may engage in Asset Swaps (which shall not be deemed to be Asset
Sales for purposes of this Section 4.10); provided that, immediately after
giving effect to such Asset Swap, the Company would be permitted to incur at
least $1.00 of additional Indebtedness pursuant to the Indebtedness to Adjusted
Operating Cash Flow Ratio set forth in Section 4.09(a) hereof.
(c) Within 180 days after the receipt of any Net Proceeds from an Asset
Sale, the Company or the applicable Restricted Subsidiary may, at its option,
apply such Net Proceeds (i) to permanently reduce Indebtedness outstanding
pursuant to any Bank Facility (and to permanently reduce the commitments
thereunder by a corresponding amount), (ii) to permanently reduce Indebtedness
of any of the Company's Restricted Subsidiaries or (iii) to the acquisition by
the Company or any of its Restricted Subsidiaries of another business, the
making of a capital expenditure or the acquisition of other long-term assets, in
each case, in a Permitted Business; provided, however, that if the Company or
any Restricted Subsidiary enters into a legally binding agreement with an entity
that is not an Affiliate of the Company to reinvest such Net Proceeds in
accordance with this clause (iii) within 180 days after the receipt thereof, the
provisions of this Section 4.10 will be satisfied so long as such binding
agreement is consummated within one year after the receipt of such Net Proceeds.
If any such legally binding agreement to reinvest such Net Proceeds is
terminated, then the Company may, within 360 days of such Asset Sale, apply such
Net Proceeds as provided in clauses (i), (ii) or (iii) above (without regard to
the proviso contained in clause (iii) above). Pending the final application of
any such Net Proceeds, the Company or the applicable Restricted Subsidiary may
temporarily reduce Indebtedness pursuant to any Bank Facility or otherwise
invest such Net Proceeds in any manner that is not prohibited by this Indenture.
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A reduction of Indebtedness pursuant to any Bank Facility is not "permanent" for
purposes of clause (i) of this Section 4.10(c) if an amount equal to the amount
of such reduction is reborrowed and used to make an acquisition described in
clause (iii) of this Section 4.10(c) within the time period specified in this
Section 4.10. Any Net Proceeds from Asset Sales that are not applied or invested
as provided in the first sentence of this Section 4.10(c) will be deemed to
constitute "Excess Proceeds."
(d) Within five days of each date on which the aggregate amount of
Excess Proceeds exceeds $10.0 million, the Company will be required to make an
offer to all Holders of Notes and the Holders of Pari Passu Debt, to the extent
required by the terms thereof (an "Asset Sale Offer") to purchase the maximum
principal amount of Notes and Pari Passu Debt that may be purchased out of the
Excess Proceeds, at an offer price in cash in an amount equal to 100% of the
principal amount thereof plus, in each case, accrued and unpaid interest and
Liquidated Damages, if any, to the date of purchase, in accordance with the
procedures set forth in Section 3.09 or the agreements governing Pari Passu
Debt, as applicable; provided, however, that the Company may only purchase Pari
Passu Debt in an Asset Sale Offer that was issued pursuant to an indenture
having a provision substantially similar to this Section 4.10.
(e) To the extent that the aggregate amount of Notes and Pari Passu
Debt tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds,
the Company may use any remaining Excess Proceeds for general corporate
purposes.
(f) If the aggregate principal amount of Notes and Pari Passu Debt
surrendered exceeds the amount of Excess Proceeds, the Trustee shall select the
Notes and Pari Passu Debt to be purchased on a pro rata basis, based upon the
principal amount thereof surrendered in such Asset Sale Offer.
(g) Upon completion of such offer to purchase, the amount of Excess
Proceeds shall be reset at zero.
SECTION 4.11. TRANSACTIONS WITH AFFILIATES.
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, sell, lease, transfer or otherwise dispose of any of
its properties or assets to, or purchase any property or assets from, or enter
into or make any contract, agreement, understanding, loan, advance or guarantee
with, or for the benefit of, any Affiliate (each of the foregoing, an "Affiliate
Transaction"), unless (i) such Affiliate Transaction is on terms that are no
less favorable to the Company or the relevant Restricted Subsidiary than those
that would have been obtained in a comparable transaction by the Company or such
Restricted Subsidiary with an unrelated Person and (ii) the Company delivers to
the Holders (a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of $1.0
million, a resolution of the Board of Directors set forth in an Officers'
Certificate certifying that such Affiliate Transaction complies with clause (i)
above and that such Affiliate Transaction has been approved by a majority of the
disinterested members of the Board of Directors and a majority of the
Independent Directors and (b) with respect to any Affiliate Transaction or
series of related Affiliate Transactions involving aggregate consideration in
excess of $5.0 million, an opinion as to the fairness to the Company or such
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Restricted Subsidiary of such Affiliate Transaction from a financial point of
view issued by an investment banking firm of national standing; provided that
the Company shall not, and shall not permit any of its Restricted Subsidiaries
to, engage in any Affiliate Transaction involving aggregate consideration in
excess of $1.0 million at any time that there is not at least one Independent
Director on the Company's Board of Directors; and provided further that (w) any
employment agreement entered into by the Company or any of its Restricted
Subsidiaries in the ordinary course of business and consistent with the past
practice of the Company or such Restricted Subsidiary, (x) transactions between
or among the Company and/or its Restricted Subsidiaries, (y) the payment of any
dividend on, or the issuance of additional Subordinated Notes in exchange for,
the Series A Preferred Stock, provided that such dividends are paid on a pro
rata basis and the additional Subordinated Notes are issued in accordance with
the Certificate of Designation, and (z) transactions permitted by Section 4.07
hereof, in each case, shall not be deemed Affiliate Transactions.
SECTION 4.12. LIENS.
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly create, incur, assume or
suffer to exist any Lien on any asset now owned or hereafter acquired, or any
income or profits therefrom or assign or convey any right to receive income
therefrom, except Permitted Liens.
SECTION 4.13. LIMITATION OF CERTAIN SUBSIDIARY INDEBTEDNESS AND PREFERRED STOCK
Notwithstanding any other provision of this Indenture to the
contrary, the Company will not permit any of its Restricted Subsidiaries to
incur any Indebtedness (other than Eligible Indebtedness) or to issue any
Disqualified Stock; provided that any Restricted Subsidiary that is a Subsidiary
Guarantor may incur Indebtedness (whether or not such Indebtedness is Eligible
Indebtedness) or issue Disqualified Stock if such incurrence or issuance is
permitted under Section 4.09 hereof, provide further that notwithstanding the
immediately preceding proviso, in no event shall the Company permit any of its
Restricted Subsidiaries to incur any Indebtedness represented by senior secured
bonds or other senior secured securities, unless such Subsidiary is a Subsidiary
Guarantor and its Subsidiary Guarantee is secured on an equal and ratable basis
with other such other senior secured bonds or other senior secured securities.
SECTION 4.14. CONTINUED EXISTENCE.
Subject to Article 5 hereof, the Company shall do or cause to
be done all things necessary to preserve and keep in full force and effect (i)
its corporate existence, and the corporate, partnership or other existence of
each of its Restricted Subsidiaries, in accordance with the respective
organizational documents (as the same may be amended from time to time) of the
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Company or any such Restricted Subsidiary and (ii) the rights (charter and
statutory), licenses and franchises of the Company and any of its Restrictive
Subsidiaries; provided, however, that the Company shall not be required to
preserve any such right, license or franchise, or the corporate, partnership or
other existence of any of its Restricted Subsidiaries, if the Board of Directors
shall determine that the preservation thereof is no longer desirable in the
conduct of the business of the Company and its Restricted Subsidiaries, taken as
a whole, and that the loss thereof is not adverse in any material respect to the
Holders of the Notes.
SECTION 4.15. OFFER TO REPURCHASE UPON CHANGE OF CONTROL.
(a) Upon the occurrence of a Change of Control, each Holder of Notes
shall have the right to require the Company to repurchase all or any part (but
not, in the case of any Holder requiring the Company to purchase less than all
of the Notes held by such Holder, any Note in principal amount less than $1,000)
of such Holder's Notes pursuant to the offer described below (the "Change of
Control Offer") at an offer price in cash equal to 101% of the aggregate
principal amount thereof plus accrued and unpaid interest and liquidated
damages, if any, thereon to the date of purchase (the "Change of Control
payment").
(b) Within ten days following any Change of Control, the Company shall
mail a notice to each Holder, with a copy to the Trustee, stating: (1) a
description of the transaction or transactions that constitute the Change of
Control; (2) that the Change of Control Offer is being made pursuant to this
Section 4.15 and that all Notes tendered shall be accepted for payment; (3) the
purchase price and the purchase date, which shall be no later than 30 Business
Days from the date such notice is mailed (the "Change of Control Payment Date");
(4) that any Note not tendered shall continue to accrue interest; (5) that,
unless the Company defaults in the payment of the Change of Control Payment, all
Notes accepted for payment pursuant to the Change of Control Offer shall cease
to accrue interest after the Change of Control Payment Date; (6) that Holders
electing to have any Notes purchased pursuant to a Change of Control Offer shall
be required to surrender the Notes, with the form entitled "Option of Holder to
Elect Purchase" on the reverse of the Notes completed, to the Paying Agent at
the address specified in the notice prior to the close of business on the third
Business Day preceding the Change of Control Payment Date; (7) that Holders
shall be entitled to withdraw their election if the Paying Agent receives, not
later than the close of business on the second Business Day preceding the Change
of Control Payment Date, a telegram, telex, facsimile, transmission or letter
setting forth the name of the Holder, the principal amount of Notes delivered
for purchase, and a statement that such Holder is withdrawing his election to
have the Notes purchased; and (8) that Holders whose Notes are being purchased
only in part shall be issued new Notes equal in principal amount to the
unpurchased portion of the Notes surrendered, which unpurchased portion must be
equal to $1,000 in principal amount or an integral multiple thereof. The Company
will comply with the requirements of Rule 14e-1 under the Exchange Act and any
other securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the repurchase of the Notes as a
result of a Change of Control.
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(c) On or prior to 10:00 a.m. Eastern Time on the Change of Control
Payment Date, the Company shall, to the extent lawful, (1) accept for payment
all Notes or portions thereof properly tendered pursuant to the Change of
Control Offer, (2) deposit with the Paying Agent an amount equal to the Change
of Control Payment in respect of all Notes or portions thereof so tendered and
(3) deliver or cause to be delivered to the Trustee the Notes so accepted
together with an Officers' Certificate stating the aggregate principal amount of
Notes or portions thereof being purchased by the Company. The Paying Agent will
promptly mail to each Holder of Notes so tendered the Change of Control Payment
for such Notes, and the Trustee will promptly authenticate and mail (or cause to
be transferred by book entry) to each Holder a new Note equal in principal
amount to any unpurchased portion of the Notes surrendered, if any. The Company
will publicly announce the results of the Change of Control Offer on or as soon
as practicable after the Change of Control Payment Date.
(d) The Company shall not be required to make a Change of Control Offer
upon a Change of Control if a third party makes the Change of Control Offer in
the manner, at the times and otherwise in compliance with the requirements set
forth in this Section 4.15 and purchases all Notes validly tendered and not
withdrawn under such Change of Control Offer.
SECTION 4.16. LIMITATION ON ISSUANCES AND SALES OF CAPITAL STOCK OF WHOLLY
OWNED RESTRICTED SUBSIDIARIES.
The Company (i) shall not, and shall not permit any Wholly
Owned Restricted Subsidiary of the Company to, transfer, convey, sell or
otherwise dispose of any Capital Stock of any Wholly Owned Restricted Subsidiary
of the Company to any Person (other than the Company or a Wholly Owned
Restricted Subsidiary of the Company), unless (a) such transfer, conveyance,
sale, lease or other disposition is of all the Capital Stock of such Wholly
Owned Restricted Subsidiary and (b) the cash Net Proceeds from such transfer,
conveyance, sale, lease or other disposition are applied in accordance with
Section 4.10 hereof and (ii) shall not permit any Wholly Owned Restricted
Subsidiary of the Company to issue any of its Equity Interests (other than, if
necessary, shares of its Capital Stock constituting directors' qualifying
shares) to any Person other than to the Company or a Wholly Owned Restricted
Subsidiary of the Company.
SECTION 4.17. LIMITATION ON ISSUANCE OF SUBSIDIARY GUARANTEE
(a) The Company shall not permit any Restricted Subsidiary to guarantee
the payment of any Indebtedness of the Company or any Indebtedness of any
Subsidiary Guarantor (in each case, the "Guaranteed Debt;" the Company or the
Subsidiary Guarantor that is primarily liable on the Guaranteed Debt being the
"Obligor") unless (i) if such Restricted Subsidiary is not a Subsidiary
Guarantor, such Restricted Subsidiary simultaneously executes and delivers a
supplemental indenture to this Indenture in form attached hereto as Exhibit E
providing for a guarantee (a "Subsidiary Guarantee") of payment of the Notes by
such Restricted Subsidiary, (ii) if the Guaranteed Debt is by its express terms
subordinated in right of payment to the Notes or the Subsidiary Guarantee of
such Obligor, any such guarantee of such Subsidiary Guarantor with respect to
the Guaranteed Debt shall be subordinated in right of payment to such Subsidiary
Guarantor's Subsidiary Guarantee with respect to the Notes substantially to the
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same extent as the Guaranteed Debt is subordinated to the Notes or the
Subsidiary Guarantee of such Obligor, (iii) such Restricted Subsidiary waives
and will not in any manner whatsoever claim or take the benefit or advantage of,
any rights of reimbursement indemnity or subrogation or any other rights against
the Company or any other Restricted Subsidiary as a result of any payment by
such Restricted Subsidiary under its Subsidiary Guarantee and (iv) such
Restricted Subsidiary shall deliver to the Trustee an opinion of counsel to the
effect that (A) such Subsidiary Guarantee of the Notes has been duly executed
and authorized and (B) such Subsidiary Guarantee of the Notes constitutes a
valid, binding and enforceable obligation of such Restricted Subsidiary, except
insofar as enforcement thereof may be limited by bankruptcy, insolvency or
similar laws (including, without limitation, all laws relating to fraudulent
transfers) and except insofar as enforcement thereof is subject to general
principles of equity.
(b) No Subsidiary Guarantor may consolidate with or merge with or into
(whether or not such Subsidiary Guarantor is the surviving Person), another
corporation, Person or entity whether or not affiliated with such Subsidiary
Guarantor unless (i) subject to the provisions of Section 4.17(c) hereof, the
Person formed by or surviving any such consolidation or merger (if other than
such Subsidiary Guarantor) assumes all the obligations of such Subsidiary
Guarantor pursuant to a supplemental indenture in the form attached hereto as
Exhibit E, under the Notes, the Indenture and the Registration Rights Agreement;
(ii) immediately after giving effect to such transaction no Default or Event of
Default exists; and (iii) the Company would be permitted to incur $1.00 of
additional Indebtedness pursuant to the Indebtedness to Adjusted Operating Cash
Flow Ratio described in Section 4.09(a) hereof.
(c) In the event of a sale or other disposition of all of the assets of
any Subsidiary Guarantor, by way of merger, consolidation or otherwise, or a
sale or other disposition of all of the capital stock of any Subsidiary
Guarantor, then such Subsidiary Guarantor (in the event of a sale or other
disposition, by way of such a merger, consolidation or otherwise, of all the
capital stock of such Subsidiary Guarantor) or the corporation acquiring the
property (in the event of a sale or other disposition of all of the assets of
such Subsidiary Guarantor) will be released and relieved of any obligation under
its Subsidiary Guarantee; provided that the Net Proceeds of such sale or other
disposition shall be applied in accordance with Section 4.10 hereof.
(d) Any Subsidiary Guarantor that is designated as an Unrestricted
Subsidiary in accordance with the terms of this Indenture will be released and
relieved of its obligations under its Subsidiary Guarantee for so long as such
Subsidiary is so designated.
SECTION 4.18. NO AMENDMENT OF SUBORDINATION PROVISIONS.
Without the consent of each Holder of Notes outstanding, the
Company shall not amend, modify or alter the Subordinated Exchange Note
Indenture in any way that will (i) increase the rate of or change the time for
payment of interest on any Subordinated Exchange Notes, (ii) increase the
principal of, advance the final maturity date of or shorten the Weighted Average
Life to Maturity of any Subordinated Exchange Notes, (iii) alter the redemption
provisions or the price or terms at which the Company is required to offer to
purchase such Subordinated Exchange Notes in a manner that would be adverse to
any Holder of Notes or (iv) amend the provisions of Article 10 of the
Subordinated Exchange Note Indenture (which relate to subordination).
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ARTICLE 5.
SUCCESSORS
SECTION 5.01. MERGER, CONSOLIDATION, OR SALE OF ASSETS.
The Company shall not consolidate or merge with or into
(whether or not the Company is the surviving corporation), or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of its
properties or assets in one or more related transactions, to another
corporation, Person or entity unless (i) the Company is the surviving
corporation or the entity or the Person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made is a corporation organized or existing under the laws of the United States,
any state thereof or the District of Columbia; (ii) the entity or Person formed
by or surviving any such consolidation or merger (if other than the Company) or
the entity or Person to which such sale, assignment, transfer, lease, conveyance
or other disposition shall have been made assumes all the Obligations of the
Company under the Notes, this Indenture and the Registration Rights Agreement
pursuant to a supplemental indenture in a form reasonably satisfactory to the
Trustee; (iii) immediately after such transaction no Default or Event of Default
exists; (iv) the Company or the entity or Person formed by or surviving any such
consolidation or merger (if other than the Company), or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made will, at the time of such transaction and after giving pro forma effect
thereto as if such transaction had occurred at the beginning of the applicable
four-quarter period, be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Indebtedness to Adjusted Operating Cash Flow Ratio
set forth in Section 4.09(a) hereof and (v) each Subsidiary Guarantor, if any,
unless it is the other party to the transactions described above, shall have by
supplemental indenture confirmed that its Subsidiary Guarantee shall apply to
such Person's obligations under the Indenture and the Notes.
SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED.
Upon any consolidation or merger, or any sale, assignment,
transfer, lease, conveyance or other disposition of all or substantially all of
the assets of the Company in accordance with Section 5.01 hereof, the successor
corporation formed by such consolidation or into or with which the Company is
merged or to which such sale, assignment, transfer, lease, conveyance or other
disposition is made shall succeed to, and be substituted for (so that from and
after the date of such consolidation, merger, sale, lease, conveyance or other
disposition, the provisions of this Indenture referring to the "Company" shall
refer instead to the successor corporation and not to the Company), and may
exercise every right and power of the Company under this Indenture with the same
effect as if such successor Person had been named as the Company herein;
provided, however, that the predecessor Company shall not be relieved from the
obligation to pay the principal of and interest on the Notes except in the case
of a sale of all of the Company's assets that meets the requirements of Section
5.01 hereof.
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ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.01. EVENTS OF DEFAULT
An "Event of Default" occurs if:
(a) the Company Defaults in the payment when due of interest on, or
Liquidated Damages, if any, with respect to, the Notes and such Default
continues for a period of 30 days;
(b) the Company defaults in the payment when due of principal of or
premium, if any, on the Notes when the same becomes due and payable at maturity,
upon redemption or otherwise;
(c) the Company fails to comply with any of the provisions of section
4.07, 4.09, 4.10, 4.15 or 5.01 hereof;
(d) the Company or any Subsidiary fails to observe or perform any other
covenant, representation, warranty or other agreement in this Indenture, the
Notes for 60 days after notice to comply;
(e) a default occurs under any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any of its Restricted
Subsidiaries (on the payment of which is guaranteed by the Company or any of its
Restricted Subsidiaries), whether such Indebtedness or guarantee now exists, or
is created after the date of this Indenture, which default (i) is caused by a
failure to pay principal of or premium, if any, or interest on such Indebtedness
prior to the expiration of the grace period provided in such Indebtedness on the
date of such default (a "Payment Default") or (ii) results in the acceleration
of such Indebtedness prior to its express maturity and, in each case, the
principal amount of such Indebtedness, together with the principal amount of any
other such Indebtedness under which there has been a Payment Default or the
maturity of which has been so accelerated, aggregates $5.0 million or more;
(f) a final judgment or final judgments for the payment of money are
entered by a court or courts of competent jurisdiction against the Company or
any Restricted Subsidiary that would be a Significant Subsidiary and such
judgment or judgments remain unpaid, undischarged, or unstayed for a period of
60 days, provided that the aggregate of all such undischarged judgments exceeds
$5.0 million;
(g) the Company or any of its Restricted Subsidiaries or any group of
Restricted Subsidiaries that, taken as a whole, would constitute a Significant
Subsidiary pursuant to or within the meaning of Bankruptcy Law:
(i) commences a voluntary case,
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(ii) consents to the entry of an order for relief against it
in an involuntary case,
(iii) consents to the appointment of a custodian of it or for
all or substantially all of its property,
(iv) makes a general assignment for the benefit of its
creditors, or
(v) generally is not paying its debts as they become due; or
(h) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that:
(i) is for relief against the Company or any of its Restricted
Subsidiaries or any group of Restricted Subsidiaries that, taken as a
whole, would constitute a Significant Subsidiary in an involuntary
case;
(ii) appoints a custodian of the Company or any of its
Restricted Subsidiaries or any group of Restricted Subsidiaries that,
taken as a whole, would constitute a Significant Subsidiary or for all
or substantially all of the property of the Company or any of its
Restricted Subsidiaries or any group of Restricted Subsidiaries that,
taken as a whole, would constitute a Significant Subsidiary; or
(iii) orders the liquidation of the Company or any of its
Restricted Subsidiaries or any group of Restricted Subsidiaries that,
taken as a whole, would constitute a Significant Subsidiary;
and the order or decree remains unstayed and in effect for 60 consecutive days;
or
(i) the termination of any Subsidiary Guarantee for any reason not
permitted by this Indenture, or the denial by any Subsidiary Guarantor or any
Person acting on behalf of any Subsidiary Guarantor of such Subsidiary
Guarantor's obligations under its respective Subsidiary Guarantee.
The term "custodian" as used in this Article VI means any
receiver, trustee, assignee, liquidator or similar official under any Bankruptcy
Law.
An Event of Default shall not be deemed to have occurred under
clause (c), (e) or (f) until the Trustee shall have received at the Corporate
Trust Office of the Trustee written notice from the Company or any of the
Holders or unless a Responsible Officer shall have actual knowledge of such
Event of Default. A Default under clause (e) is not an Event of Default until
the Trustee notifies the Company, or the Holders of at least 25% in principal
amount of the then outstanding Notes notify the Company and the Trustee, of the
Default and the Company does not cure the Default within 60 days after receipt
of the notice. The notice must specify the Default, demand that it be remedied
and state that the notice is a "Notice of Default."
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In the case of any Event of Default pursuant to the provisions
of this Section 6.01 occurring by reason of any action (or inaction) willfully
taken (or not taken) by or on behalf of the Company with the intention of
avoiding payment of the premium that the Company would have had to pay if the
Company then had elected to redeem the Notes pursuant to Section 3.07 hereof, an
equivalent premium shall also become and be immediately due and payable to the
extent permitted by law upon the acceleration of the Notes, anything in this
Indenture or in the Notes to the contrary notwithstanding; provided that the
Trustee shall not be under any duty to collect such premium on behalf of the
Holders until such time as Holders of at least 10% in principal amount of the
then outstanding Notes so notify the Trustee. If an Event of Default occurs
prior to October 15, 2001 by reason of any willful action (or inaction) taken
(or not taken) by or on behalf of the Company with the intention of avoiding the
prohibition on redemption of the Notes prior to October 15, 2001, then the
premium payable for purposes of this paragraph for each of the years beginning
on January 1 of the years set forth below shall be as set forth in the following
table expressed as a percentage of the amount that would otherwise be due but
for the provisions of this sentence, plus accrued interest, if any, to the date
of payment:
Year Percentage
1997............................................................ 114.439%
1998............................................................ 112.033%
1999............................................................ 109.626%
2000............................................................ 107.220%
SECTION 6.02. ACCELERATION.
If any Event of Default (other than an Event of Default
specified in clause (g) or (h) of Section 6.01 hereof) occurs and is continuing,
the Trustee or the Holders of at least 25% in principal amount of the then
outstanding Notes may declare all the Notes to be due and payable immediately.
Upon any such declaration, the principal of, premium, if any, and accrued and
unpaid interest and Liquidated Damages, if any, on the Notes shall become due
and payable immediately. Notwithstanding the foregoing, if an Event of Default
specified in clause (g) or (h) of Section 6.01 hereof occurs with respect to the
Company, any of its Restricted Subsidiaries that would constitute a Significant
Subsidiary, or any group of Restricted Subsidiaries that, taken as a whole,
would constitute a Significant Subsidiary, all outstanding Notes shall be due
and payable immediately without further action or notice. Holders of the Notes
may not enforce this Indenture or the Notes except as provided in this
Indenture. Subject to certain limitations, Holders of a majority in principal
amount of the then outstanding Notes may direct the Trustee in its exercise of
any trust or power. The Trustee may withhold from Holders of the Notes notice of
any continuing Default or Event of Default (except a Default or Event of Default
relating to the payment of principal or interest or Liquidated Damages, if any)
if it determines that withholding notice is in their interest.
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SECTION 6.03. OTHER REMEDIES.
If an Event of Default occurs and is continuing, the Trustee
may pursue any available remedy to collect the payment of principal, premium, if
any, and interest on the Notes or to enforce the performance of any provision of
the Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not
possess any of the Notes or does not produce any of them in the proceeding. A
delay or omission by the Trustee or any Holder of a Note in exercising any right
or remedy accruing upon an Event of Default shall not impair the right or remedy
or constitute a waiver of or acquiescence in the Event of Default. All remedies
are cumulative to the extent permitted by law.
SECTION 6.04. WAIVER OF PAST DEFAULTS.
Holders of not less than a majority in aggregate principal
amount of the then outstanding Notes by notice to the Trustee may on behalf of
the Holders of all of the Notes waive an existing Default or Event of Default
and its consequences hereunder, except a continuing Default or Event of Default
in the payment of the principal of, premium, if any, or interest on, the Notes
(including in connection with an offer to purchase) (provided, however, that the
Holders of a majority in aggregate principal amount of the then outstanding
Notes may rescind an acceleration and its consequences, including any related
payment default that resulted from such acceleration). Upon any such waiver,
such Default shall cease to exist, and any Event of Default arising therefrom
shall be deemed to have been cured for every purpose of this Indenture; but no
such waiver shall extend to any subsequent or other Default or impair any right
consequent thereon.
SECTION 6.05. CONTROL BY MAJORITY.
Holders of a majority in principal amount of the then
outstanding Notes may direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee or exercising any
trust or power conferred on it. However, the Trustee may refuse to follow any
direction that conflicts with law or this Indenture that the Trustee determines
may be unduly prejudicial to the rights of other Holders of Notes or that may
involve the Trustee in personal liability.
SECTION 6.06. LIMITATION ON SUITS.
A Holder of a Note may pursue a remedy with respect to this
Indenture or the Notes only if:
(a) the Holder of a Note gives to the Trustee written notice of a
continuing Event of Default;
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(b) the Holders of at least 25% in principal amount of the then
outstanding Notes make a written request to the Trustee to pursue the remedy;
(c) such Holder of a Note or Holders of Notes offer and, if requested,
provide to the Trustee indemnity satisfactory to the Trustee against any loss,
liability or expense;
(d) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer and, if requested, the provision of
indemnity; and
(e) during such 60-day period the Holders of a majority in principal
amount of the then outstanding Notes do not give the Trustee a direction
inconsistent with the request.
A Holder of a Note may not use this Indenture to prejudice the
rights of another Holder of a Note or to obtain a preference or priority over
another Holder of a Note.
SECTION 6.07. RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT.
Notwithstanding any other provision of this Indenture, the
right of any Holder of a Note to receive payment of principal, premium, if any,
and interest on the Note, on or after the respective due dates expressed in the
Note (including in connection with an offer to purchase), or to bring suit for
the enforcement of any such payment on or after such respective dates, shall not
be impaired or affected without the consent of such Holder.
SECTION 6.08. COLLECTION SUIT BY TRUSTEE.
If an Event of Default specified in Section 6.01(a) or (b)
occurs and is continuing, the Trustee is authorized to recover judgment in its
own name and as Trustee of an express trust against the Company for the whole
amount of principal of, premium, if any, and interest remaining unpaid on the
Notes and interest on overdue principal and, to the extent lawful, interest and
such further amount as shall be sufficient to cover the costs and expenses of
collection, including the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel.
SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM.
The Trustee is authorized to file such proofs of claim and
other papers or documents as may be necessary or advisable in order to have the
claims of the Trustee (including any claim for the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel) and
the Holders of the Notes allowed in any judicial proceedings relative to the
Company (or any other obligor upon the Notes), its creditors or its property and
shall be entitled and empowered to collect, receive and distribute any money or
other property payable or deliverable on any such claims and any custodian in
any such judicial proceeding is hereby authorized by each Holder to make such
payments to the Trustee, and in the event that the
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Trustee shall consent to the making of such payments directly to the Holders, to
pay to the Trustee any amount due to it for the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel, and
any other amounts due the Trustee under Section 7.07 hereof. To the extent that
the payment of any such compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 7.07 hereof out of the estate in any such proceeding, shall be denied
for any reason, payment of the same shall be secured by a Lien on, and shall be
paid out of, any and all distributions, dividends, money, securities and other
properties that the Holders may be entitled to receive in such proceeding
whether in liquidation or under any plan of reorganization or arrangement or
otherwise. Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Notes or
the rights of any Holder, or to authorize the Trustee to vote in respect of the
claim of any Holder in any such proceeding.
SECTION 6.10. PRIORITIES.
If the Trustee collects any money pursuant to this Article, it
shall pay out the money in the following order:
First: to the Trustee, its agents and attorneys for amounts
due under Section 7.07 hereof, including payment of all compensation, expense
and liabilities incurred, and all advances made, by the Trustee and the costs
and expenses of collection;
Second: to Holders of Notes for amounts due and unpaid on the
Notes for principal, premium, if any, and interest, ratably, without preference
or priority of any kind, according to the amounts due and payable on the Notes
for principal, premium, if any, and interest, respectively; and
Third: to the Company or to such party as a court of competent
jurisdiction shall direct.
The Trustee may fix a record date and payment date for any
payment to Holders of Notes pursuant to this Section 6.10.
SECTION 6.11. UNDERTAKING FOR COSTS.
In any suit for the enforcement of any right or remedy under
this Indenture or in any suit against the Trustee for any action taken or
omitted by it as a Trustee, a court in its discretion may require the filing by
any party litigant in the suit of an undertaking to pay the costs of the suit,
and the court in its discretion may assess reasonable costs, including
reasonable attorneys' fees, against any party litigant in the suit, having due
regard to the merits and good faith of the claims or defenses made by the party
litigant. This Section does not apply to a suit by the Trustee, a suit by a
Holder of a Note pursuant to Section 6.07 hereof, or a suit by Holders of more
than 10% in principal amount of the then outstanding Notes.
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ARTICLE 7.
TRUSTEE
SECTION 7.01. DUTIES OF TRUSTEE.
(a) If an Event of Default has occurred and is continuing, the Trustee
shall exercise such of the rights and powers vested in it by this Indenture, and
use the same degree of care and skill in its exercise, as a prudent person would
exercise or use under the circumstances in the conduct of its own affairs.
(b) Except during the continuance of an Event of Default:
(i) the duties of the Trustee shall be determined solely by
the express provisions of this Indenture and the Trustee need perform
only those duties that are specifically set forth in this Indenture and
no others, and no implied covenants or obligations shall be read into
this Indenture against the Trustee; and
(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements of
this Indenture. However, the Trustee shall examine the certificates and
opinions to determine whether or not they conform to the requirements
of this Indenture.
(c) The Trustee may not be relieved from liabilities for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of paragraph (b)
of this Section;
(ii) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer, unless it is proven that
the Trustee was negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 6.05 hereof.
(d) Whether or not therein expressly so provided, every provision of
this Indenture that in any way relates to the Trustee is subject to paragraphs
(a), (b), and (c) of this Section.
(e) No provision of this Indenture shall require the Trustee to expend
or risk its own funds or incur any liability. The Trustee shall be under no
obligation to exercise any of its rights and powers under this Indenture at the
request of any Holders, unless such Holders shall have offered to the Trustee
security and indemnity satisfactory to it against any loss, liability or
expense.
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(f) The Trustee shall not be liable for interest on any money received
by it except as the Trustee may agree in writing with the Company. Money held in
trust by the Trustee need not be segregated from other funds except to the
extent required by law.
SECTION 7.02. RIGHTS OF TRUSTEE.
(a) The Trustee may conclusively rely upon any document believed by it
to be genuine and to have been signed or presented by the proper Person. The
Trustee need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require an
Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not be
liable for any action it takes or omits to take in good faith in reliance on
such Officers' Certificate or Opinion of Counsel. The Trustee may consult with
counsel and the written advice of such counsel or any Opinion of Counsel shall
be full and complete authorization and protection from liability in respect of
any action taken, suffered or omitted by it hereunder in good faith and in
reliance thereon.
(c) The Trustee may act through its attorneys and agents and shall not
be responsible for the misconduct or negligence of any agent appointed with due
care.
(d) The Trustee shall not be liable for any action it takes or omits to
take in good faith that it believes to be authorized or within the rights or
powers conferred upon it by this Indenture.
(e) Unless otherwise specifically provided in this Indenture, any
demand, request, direction or notice from the Company shall be sufficient if
signed by an Officer of the Company.
(f) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction of
any of the Holders unless such Holders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
that might be incurred by it in compliance with such request or direction.
SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE.
The Trustee in its individual or any other capacity may become
the owner or pledgee of Notes and may otherwise deal with the Company or any
Affiliate of the Company with the same rights it would have if it were not
Trustee. However, in the event that the Trustee acquires any conflicting
interest it must eliminate such conflict within 90 days, apply to the SEC for
permission to continue as trustee or resign. Any Agent may do the same with like
rights and duties. The Trustee is also subject to Sections 7.10 and 7.11 hereof.
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SECTION 7.04. TRUSTEE'S DISCLAIMER.
The Trustee shall not be responsible for and makes no
representation as to the validity or adequacy of this Indenture or the Notes, it
shall not be accountable for the Company's use of the proceeds from the Notes or
any money paid to the Company or upon the Company's direction under any
provision of this Indenture, it shall not be responsible for the use or
application of any money received by any Paying Agent other than the Trustee,
and it shall not be responsible for any statement or recital herein or any
statement in the Notes or any other document in connection with the sale of the
Notes or pursuant to this Indenture other than its certificate of
authentication.
SECTION 7.05. NOTICE OF DEFAULTS.
If a Default or Event of Default occurs and is continuing and
if a Responsible Officer of the Trustee has actual knowledge of such Default or
Event of Default, the Trustee shall mail to Holders of Notes a notice of the
Default or Event of Default within 90 days after it occurs. Except in the case
of a Default or Event of Default in payment of principal of, or interest on, any
Note, the Trustee may withhold the notice if and so long as a committee of its
Responsible Officers in good faith determines that withholding the notice is in
the interests of the Holders of the Notes.
SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS OF THE NOTES.
Within 60 days after each May 15 beginning with the May 15
following the date of this Indenture, and for so long as Notes remain
outstanding, the Trustee shall mail to the Holders of the Notes a brief report
dated as of such reporting date that complies with TIA Section 313(a) (but if no
event described in TIA Section 313(a) has occurred within the twelve months
preceding the reporting date, no report need be transmitted). The Trustee also
shall comply with TIA Section 313(b)(2). The Trustee shall also transmit by mail
all reports as required by TIA Section 313(c). A copy of each report at the time
of its mailing to the Holders of Notes shall be mailed to the Company and filed
with the SEC and each stock exchange on which the Notes are listed in accordance
with TIA Section 313(d). The Company shall promptly notify the Trustee when the
Notes are listed on any stock exchange.
SECTION 7.07. COMPENSATION AND INDEMNITY.
The Company shall pay to the Trustee from time to time such
compensation for its acceptance of this Indenture and services hereunder as the
Company and Trustee have separately agreed. The Trustee's compensation shall not
be limited by any law on compensation of a trustee of an express trust. The
Company shall reimburse the Trustee promptly upon request for all reasonable
disbursements, advances and expenses incurred or made by it in addition to the
compensation for its services. Such expenses shall include the reasonable
compensation, disbursements and expenses of the Trustee's agents and counsel.
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The Company shall indemnify the Trustee against any and all
losses, liabilities or expenses incurred by it arising out of or in connection
with the acceptance or administration of its duties under this Indenture,
including the costs and expenses of enforcing this Indenture against the Company
(including this Section 7.07) and defending itself against any claim (whether
asserted by the Company or any Holder or any other person) or liability in
connection with the exercise or performance of any of its powers or duties
hereunder, except to the extent any such loss, liability or expense may be
attributable to its negligence or bad faith. The Trustee shall notify the
Company promptly of any claim for which it may seek indemnity. Failure by the
Trustee to so notify the Company shall not relieve the Company of its
obligations hereunder. The Company shall defend the claim and the Trustee shall
cooperate in the defense. The Trustee may have separate counsel and the Company
shall pay the reasonable fees and expenses of such counsel. The Company need not
pay for any settlement made without its consent, which consent shall not be
unreasonably withheld.
The obligations of the Company under this Section 7.07 shall
survive the satisfaction and discharge of this Indenture.
To secure the Company's payment obligations in this Section,
the Trustee shall have a Lien prior to the Notes on all money or property held
or collected by the Trustee, except that held in trust to pay principal and
interest on particular Notes. Such Lien shall survive the satisfaction and
discharge of this Indenture.
When the Trustee incurs expenses or renders services after an
Event of Default specified in Section 6.01(g) or (h) hereof occurs, the expenses
and the compensation for the services (including the fees and expenses of its
agents and counsel) are intended to constitute expenses of administration under
any Bankruptcy Law.
The Trustee shall comply with the provisions of TIA Section
313(b)(2) to the extent applicable.
SECTION 7.08. REPLACEMENT OF TRUSTEE.
A resignation or removal of the Trustee and appointment of a
successor Trustee shall become effective only upon the successor Trustee's
acceptance of appointment as provided in this Section.
The Trustee may resign in writing at any time and be
discharged from the trust hereby created by so notifying the Company. The
Holders of a majority in principal amount of the then outstanding Notes may
remove the Trustee by so notifying the Trustee and the Company in writing. The
Company may remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10 hereof;
(b) the Trustee is adjudged a bankrupt or an insolvent or an order for
relief is entered with respect to the Trustee under any Bankruptcy Law;
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(c) a custodian or public officer takes charge of the Trustee or its
property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in
the office of Trustee for any reason, the Company shall promptly appoint a
successor Trustee. Within one year after the successor Trustee takes office, the
Holders of a majority in principal amount of the then outstanding Notes may
appoint a successor Trustee to replace the successor Trustee appointed by the
Company.
If a successor Trustee does not take office within 60 days
after the retiring Trustee resigns or is removed, the retiring Trustee, the
Company, or the Holders of at least 10% in principal amount of the then
outstanding Notes may petition any court of competent jurisdiction for the
appointment of a successor Trustee.
If the Trustee, after written request by any Holder of a Note
who has been a Holder of a Note for at least six months, fails to comply with
Section 7.10, such Holder of a Note may petition any court of competent
jurisdiction for the removal of the Trustee and the appointment of a successor
Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Holders of the Notes. The retiring Trustee shall promptly transfer
all property held by it as Trustee to the successor Trustee, provided all sums
owing to the Trustee hereunder have been paid and subject to the Lien provided
for in Section 7.07 hereof. Notwithstanding replacement of the Trustee pursuant
to this Section 7.08, the Company's obligations under Section 7.07 hereof shall
continue for the benefit of the retiring Trustee.
SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC.
If the Trustee consolidates, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation, the successor corporation without any further act shall be the
successor Trustee.
SECTION 7.10. ELIGIBILITY; DISQUALIFICATION.
There shall at all times be a Trustee hereunder that is a
corporation organized and doing business under the laws of the United States of
America or of any state thereof that is authorized under such laws to exercise
corporate trustee power, that is subject to supervision or examination by
federal or state authorities and that has a combined capital and surplus of at
least $100 million as set forth in its most recent published annual report of
condition.
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This Indenture shall always have a Trustee who satisfies the
requirements of TIA Section 310(a)(1), (2) and (5). The Trustee is subject to
TIA Section 310(b).
SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
The Trustee is subject to TIA Section 311(a), excluding any
creditor relationship listed in TIA Section 311(b). A Trustee who has resigned
or been removed shall be subject to TIA Section 311(a) Section 7.01. to the
extent indicated therein.
ARTICLE 8.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SECTION 8.01. OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE.
The Company may, at the option of its Board of Directors
evidenced by a resolution set forth in an Officers' Certificate, at any time,
elect to have either Section 8.02 or 8.03 hereof be applied to all outstanding
Notes upon compliance with the conditions set forth below in this Article 8.
SECTION 8.02. LEGAL DEFEASANCE AND DISCHARGE.
Upon the Company's exercise under Section 8.01 hereof of the
option applicable to this Section 8.02, the Company shall, subject to the
satisfaction of the conditions set forth in Section 8.04 hereof, be deemed to
have been discharged from its obligations with respect to all outstanding Notes
on the date the conditions set forth below are satisfied (hereinafter, "Legal
Defeasance"). For this purpose, Legal Defeasance means that the Company shall be
deemed to have paid and discharged the entire Indebtedness represented by the
outstanding Notes, which shall thereafter be deemed to be "outstanding" only for
the purposes of Section 8.05 hereof and the other Sections of this Indenture
referred to in (a) and (b) below, and to have satisfied all of its other
Obligations under such Notes and this Indenture (and the Trustee, on demand of
and at the expense of the Company, shall execute proper instruments
acknowledging the same), except for the following provisions which shall survive
until otherwise terminated or discharged hereunder: (a) the rights of Holders of
outstanding Notes to receive solely from the trust fund described in Section
8.04 hereof, and as more fully set forth in such Section, payments in respect of
the principal of, premium, if any, and interest and Liquidated Damages, if any,
on such Notes when such payments are due, (b) the Company's obligations with
respect to such Notes under Article 2 and Section 4.02 hereof, (c) the rights,
powers, trusts, duties and immunities of the Trustee hereunder, and the
Company's obligations in connection therewith and (d) this Article 8. Subject to
compliance with this Article 8, the Company may exercise its option under this
Section 8.02 notwithstanding the prior exercise of its option under Section 8.03
hereof.
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SECTION 8.03. COVENANT DEFEASANCE.
Upon the Company's exercise under Section 8.01 hereof of the
option applicable to this Section 8.03, the Company shall, subject to the
satisfaction of the conditions set forth in Section 8.04 hereof, be released
from its obligations under the covenants contained in Sections 3.09, 4.07, 4.08,
4.09, 4.10, 4.11, 4.12, 4.13, 4.15, 4.16, 4.17, 4.18 and 5.01 hereof with
respect to the outstanding Notes on and after the date the conditions set forth
below are satisfied (hereinafter, "Covenant Defeasance"), and the Notes shall
thereafter be deemed not "outstanding" for the purposes of any direction,
waiver, consent or declaration or act of Holders (and the consequences of any
thereof) in connection with such covenants, but shall continue to be deemed
"outstanding" for all other purposes hereunder (it being understood that such
Notes shall not be deemed outstanding for accounting purposes). For this
purpose, Covenant Defeasance means that, with respect to the "outstanding"
Notes, the Company may omit to comply with and shall have no liability in
respect of any term, condition or limitation set forth in any such covenant,
whether directly or indirectly, by reason of any reference elsewhere herein to
any such covenant or by reason of any reference in any such covenant to any
other provision herein or in any other document and such omission to comply
shall not constitute a Default or an Event of Default under Section 6.01 hereof,
but, except as specified above, the remainder of this Indenture and such Notes
shall be unaffected thereby. In addition, upon the Company's exercise under
Section 8.01 hereof of the option applicable to this Section 8.03, subject to
the satisfaction of the conditions set forth in Section 8.04 hereof, Sections
6.01(d) through 6.01(f) hereof shall not constitute Events of Default.
SECTION 8.04. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE.
The following shall be the conditions to the application of
either Section 8.02 or 8.03 hereof to the outstanding Notes:
In order to exercise either Legal Defeasance or Covenant
Defeasance:
(a) the Company must irrevocably deposit with the Trustee, in trust,
for the benefit of the Holders of the Notes, cash in United States dollars,
non-callable Government Securities, or a combination thereof, in such amounts as
will be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of, interest and premium
and Liquidated Damages, if any, on the outstanding Notes on the stated maturity
or on the applicable redemption date, as the case may be, and the Company must
specify whether the Notes are being defeased to maturity or to a particular
redemption date;
(b) in the case of an election under Section 8.02 hereof, the Company
shall have delivered to the Trustee an Opinion of Counsel in the United States
reasonably acceptable to the Trustee confirming that (i) the Company has
received from, or there has been published by, the Internal Revenue Service a
ruling or (ii) since the date of this Indenture, there has been a change in the
applicable federal income tax law, in either case to the effect that, and based
thereon such Opinion of Counsel shall confirm that, the Holders of the
outstanding Notes will not recognize
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income, gain or loss for federal income tax purposes as a result of such Legal
Defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such Legal
Defeasance had not occurred;
(c) in the case of an election under Section 8.03 hereof, the Company
shall have delivered to the Trustee an Opinion of Counsel in the United States
reasonably acceptable to the Trustee confirming that the Holders of the
outstanding Notes will not recognize income, gain or loss for federal income tax
purposes as a result of such Covenant Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such Covenant Defeasance had not occurred;
(d) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of Default
resulting from the borrowing of funds to be applied to such deposit) or insofar
as Sections 6.01(g) or (h) hereof are concerned, at any time in the period
ending on the 91st day after the date of deposit (or greater period of time in
which any such deposit of trust funds may remain subject to bankruptcy or
insolvency laws insofar as those apply to the deposit by the Company);
(e) such Legal Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a default under any material agreement or
instrument (other than this Indenture) to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries is
bound;
(f) the Company shall have delivered to the Trustee an Opinion of
Counsel to the effect that, as of the date of such opinion, (i) the trust funds
will not be subject to the rights of holders of Indebtedness other than the
Notes and (ii) assuming no intervening bankruptcy of the Company between the
date of deposit and the 91st day (or greater period of time in which any such
deposit of trust funds may remain subject to bankruptcy or insolvency laws
insofar as those apply to the deposit by the Company) following the deposit and
assuming no Holder of Notes is an insider of the Company, after the 91st day (or
later date until which any such deposit of trust funds may remain subject to
bankruptcy or insolvency laws insofar as those apply to the deposit by the
Company) following the deposit, the trust funds will not be subject to the
effects of any applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally under any applicable United States or
state law;
(g) the Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the intent
of preferring the Holders of Notes over the other creditors of the Company or
with the intent of defeating, hindering, delaying or defrauding creditors of the
Company or others; and
(h) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for or relating to the Legal Defeasance or the Covenant
Defeasance have been complied with.
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SECTION 8.05. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST;
OTHER MISCELLANEOUS PROVISIONS.
Subject to Section 8.06 hereof, all money and non-callable
Government Securities (including the proceeds thereof) deposited with the
Trustee (or other qualifying trustee, collectively for purposes of this Section
8.05, the "Trustee") pursuant to Section 8.04 hereof in respect of the
outstanding Notes shall be held in trust and applied by the Trustee, in
accordance with the provisions of such Notes and this Indenture, to the payment,
either directly or through any Paying Agent (including the Company acting as
Paying Agent) as the Trustee may determine, to the Holders of such Notes of all
sums due and to become due thereon in respect of principal, premium, if any, and
interest, but such money need not be segregated from other funds except to the
extent required by law.
The Company shall pay and indemnify the Trustee against any
tax, fee or other charge imposed on or assessed against the cash or non-callable
Government Securities deposited pursuant to Section 8.04 hereof or the principal
and interest received in respect thereof other than any such tax, fee or other
charge which by law is for the account of the Holders of the outstanding Notes.
Anything in this Article 8 to the contrary notwithstanding,
the Trustee shall deliver or pay to the Company from time to time upon the
request of the Company any money or non-callable Government Securities held by
it as provided in Section 8.04 hereof which, in the opinion of a nationally
recognized firm of independent public accountants expressed in a written
certification thereof delivered to the Trustee (which may be the opinion
delivered under Section 8.04(a) hereof), are in excess of the amount thereof
that would then be required to be deposited to effect an equivalent Legal
Defeasance or Covenant Defeasance.
SECTION 8.06. REPAYMENT TO COMPANY.
Any money deposited with the Trustee or any Paying Agent, or
then held by the Company, in trust for the payment of the principal of, premium
or interest or Liquidated Damages, if any, on any Note and remaining unclaimed
for two years after such principal, and premium, if any, or interest has become
due and payable shall be paid to the Company on its request or (if then held by
the Company) shall be discharged from such trust; and the Holder of such Note
shall thereafter, as a secured creditor, look only to the Company for payment
thereof, and all liability of the Trustee or such Paying Agent with respect to
such trust money, and all liability of the Company as trustee thereof, shall
thereupon cease; provided, however, that the Trustee or such Paying Agent,
before being required to make any such repayment, may at the expense of the
Company cause to be published once, in the New York Times and The Wall Street
Journal (national edition), notice that such money remains unclaimed and that,
after a date specified therein, which shall not be less than 30 days from the
date of such notification or publication, any unclaimed balance of such money
then remaining will be repaid to the Company.
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SECTION 8.07. REINSTATEMENT.
If the Trustee or Paying Agent is unable to apply any United
States dollars or non-callable Government Securities in accordance with Section
8.02 or 8.03 hereof, as the case may be, by reason of any order or judgment of
any court or governmental authority enjoining, restraining or otherwise
prohibiting such application, then the obligations of the Company under this
Indenture and the Notes shall be revived and reinstated as though no deposit had
occurred pursuant to Section 8.02 or 8.03 hereof until such time as the Trustee
or Paying Agent is permitted to apply all such money in accordance with Section
8.02 or 8.03 hereof, as the case may be; provided, however, that, if the Company
makes any payment of principal of, premium or interest or Liquidated Damages, if
any, on any Note following the reinstatement of its obligations, the Company
shall be subrogated to the rights of the Holders of such Notes to receive such
payment from the money held by the Trustee or Paying Agent.
ARTICLE 9.
AMENDMENT, SUPPLEMENT AND WAIVER
SECTION 9.01. WITHOUT CONSENT OF HOLDERS OF NOTES.
Notwithstanding Section 9.02 of this Indenture, the Company, a
Subsidiary Guarantor (with respect to a Subsidiary Guarantee or the Indenture to
which it is a party) and the Trustee may amend or supplement this Indenture, the
Notes or the Subsidiary Guarantees without the consent of any Holder of a Note:
(a) to cure any ambiguity, defect or inconsistency;
(b) to provide for uncertificated Notes in addition to or in place of
certificated Notes;
(c) to provide for the assumption of the Company's or any Subsidiary
Guarantor's obligations to Holders of Notes in the case of a merger or
consolidation pursuant to Article 5 hereof, as applicable;
(d) to make any change that would provide any additional rights or
benefits to the Holders of Notes or that does not adversely affect the legal
rights hereunder of any such Holder; or
(e) to comply with the requirements of the SEC in order to effect or
maintain the qualification of this Indenture under the TIA or to allow any
Subsidiary Guarantor to guarantee the Notes.
Upon the request of the Company accompanied by a resolution of
the Board of Directors of the Company or a Subsidiary Guarantor, as applicable,
authorizing the execution of any such amended or supplemental Indenture, and
upon receipt by the Trustee of the documents described in Section 7.02 hereof,
the Trustee shall join with the Company or such Subsidiary
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Guarantor in the execution of any amended or supplemental Indenture authorized
or permitted by the terms of this Indenture and to make any further appropriate
agreements and stipulations that may be therein contained, but the Trustee shall
not be obligated to enter into such amended or supplemental Indenture or
Subsidiary Guarantee that affects its own rights, duties or immunities under
this Indenture or otherwise.
SECTION 9.02. WITH CONSENT OF HOLDERS OF NOTES.
Except as provided below in this Section 9.02, the Company, a
Subsidiary Guarantor (with respect to a Subsidiary Guarantee or the Indenture to
which it is a party) and the Trustee may amend or supplement this Indenture, the
Notes or the Subsidiary Guarantees may be amended or supplemented with the
consent of the Holders of at least a majority in principal amount of the Notes
then outstanding (including, without limitation, consents obtained in connection
with a purchase of, or tender offer or exchange offer for, Notes), and, subject
to Sections 6.04 and 6.07 hereof, any existing Default or Event of Default
(other than a Default or Event of Default in the payment of the principal of,
premium or interest or Liquidated Damages, if any, on the Notes) or compliance
with any provision of this Indenture or the Notes may be waived with the consent
of the Holders of a majority in principal amount of the then outstanding Notes
(including, without limitation, consents obtained in connection with a purchase
of, or tender offer or exchange offer for the Notes). Any amendment to the
provisions of Article 10 hereof including the related definitions will require
the consent of the Holders of at least 75% in aggregate principal amount of the
Notes then outstanding if such amendment would adversely affect the rights of
Holders of Notes.
Upon the request of the Company accompanied by a resolution of
the Board of Directors of the Company or a Subsidiary Guarantor, as applicable,
authorizing the execution of any such amended or supplemental Indenture, and
upon the filing with the Trustee of evidence satisfactory to the Trustee of the
consent of the Holders of Notes as aforesaid, and upon receipt by the Trustee of
the documents described in Section 7.02 hereof, the Trustee shall join with the
Company or such Subsidiary Guarantor in the execution of such amended or
supplemental Indenture unless such amended or supplemental Indenture affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise, in
which case the Trustee may in its discretion, but shall not be obligated to,
enter into such amended or supplemental Indenture.
It shall not be necessary for the consent of the Holders of
Notes under this Section 9.02 to approve the particular form of any proposed
amendment or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment, supplement or waiver under this Section
9.02 becomes effective, the Company shall mail to the Holders of Notes affected
thereby a notice briefly describing the amendment, supplement or waiver. Any
failure of the Company to mail such notice, or any defect therein, shall not,
however, in any way impair or affect the validity of any such amended or
supplemental Indenture or waiver. Subject to Sections 6.04 and 6.07 hereof, the
Holders of a majority in aggregate principal amount of the Notes then
outstanding may waive
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compliance in a particular instance by the Company with any provision of this
Indenture or the Notes. However, without the consent of each Holder affected, an
amendment or waiver may not (with respect to any Notes held by a non-consenting
Holder):
(a) reduce the principal amount of Notes whose Holders must consent to
an amendment, supplement or waiver;
(b) reduce the principal of or change the fixed maturity of any Note or
alter the provisions with respect to the redemption of the Notes (other than
provisions relating to Sections 3.09, 4.10 and 4.15 hereof);
(c) reduce the rate of or change the time for payment of interest,
including default interest, on any Note;
(d) waive a Default or Event of Default in the payment of principal of
or interest or premium or Liquidated Damages, if any, on the Notes (except a
rescission of acceleration of the Notes by the Holders of a majority in
aggregate principal amount of the Notes and a waiver of the payment default that
resulted from such acceleration);
(e) make any Note payable in money other than that stated in the Notes;
(f) make any change in the provisions of this Indenture relating to
waivers of past Defaults or the rights of Holders of Notes to receive payments
of principal of or interest or premium or Liquidated Damages, if any, on the
Notes;
(g) waive a redemption payment with respect to any Note (other than a
payment required by the provisions of Section 3.09, 4.10 or 4.15 hereof);
(h) make any change in Section 6.04 or 6.07 hereof or in the foregoing
amendment and waiver provisions; or
(i) except as provided in Article 8 hereof or otherwise in accordance
with the terms of this Indenture or any Subsidiary Guarantee, release a
Subsidiary Guarantor from its obligations under its Subsidiary Guarantee or make
any change in a Subsidiary Guarantee that would adversely affect the Holders of
the Notes.
SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT.
Every amendment or supplement to this Indenture or the Notes
shall be set forth in an amended or supplemental Indenture that complies with
the TIA as then in effect.
SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS.
Until an amendment, supplement or waiver becomes effective, a
consent to it by a Holder of a Note is a continuing consent by the Holder of a
Note and every subsequent Holder of
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a Note or portion of a Note that evidences the same debt as the consenting
Holder's Notes, even if notation of the consent is not made on any Notes.
However, any such Holder of a Note or subsequent Holder of a Note may revoke the
consent as to its Notes if the Trustee receives written notice of revocation
before the date the waiver, supplement or amendment becomes effective. An
amendment, supplement or waiver becomes effective in accordance with its terms
and thereafter binds every Holder.
SECTION 9.05. NOTATION ON OR EXCHANGE OF NOTES.
The Trustee may place an appropriate notation about an
amendment, supplement or waiver on any Notes thereafter authenticated. The
Company in exchange for all Notes may issue and the Trustee shall authenticate
new Notes that reflect the amendment, supplement or waiver.
Failure to make the appropriate notation or to issue new Notes
shall not affect the validity and effect of such amendment, supplement or
waiver.
SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC.
The Trustee shall sign any amendment or supplemental Indenture
authorized pursuant to this Article 9 if the amendment or supplement does not
adversely affect the rights, duties, liabilities or immunities of the Trustee.
The Company may not sign an amendment or supplemental Indenture until its Board
of Directors approves it. If it does, the Trustee may, but need not, sign it. In
signing or refusing to sign such amendment or supplemental Indenture, the
Trustee shall be entitled to receive and, subject to Section 7.01 hereof, shall
be fully protected in relying upon, an Officers' Certificate and an Opinion of
Counsel as conclusive evidence that such amendment or supplemental Indenture is
authorized or permitted by this Indenture, that it is not inconsistent herewith,
and that it will be valid and binding upon the Company in accordance with its
terms.
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ARTICLE 10.
MISCELLANEOUS
SECTION 10.01. TRUST INDENTURE ACT CONTROLS.
If any provision of this Indenture limits, qualifies or
conflicts with the duties imposed by TIA Section 318(c), the imposed duties
shall control.
SECTION 10.02. NOTICES.
Any notice or communication by the Company or the Trustee to
the others is duly given if in writing and delivered in Person or mailed by
first class mail (registered or certified, return receipt requested), telex,
telecopier or overnight air courier guaranteeing next day delivery, to the
others' address:
If to the Company:
Pegasus Communications Corporation
c/o Pegasus Communications Management Company
5 Radnor Corporate Center, Suite 454
100 Matsonford Road
Radnor, PA 19087
Telecopier No.: (610) 341-1835
Attention: Marshall W. Pagon
With a copy to:
Drinker Biddle & Reath LLP
PNB Building, 11th Floor
1345 Chestnut Street
Philadelphia, PA 19107
Telecopier No.: (215) 988-2757
Attention: Michael B. Jordan, Esq.
If to the Trustee:
First Union National Bank
230 S. Tryon Street
Charlotte, NC 28288-1153
Telecopier No.: (704) 374-6114
Attention: Client Service Group
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With a copy to:
First Union National Bank
123 South Broad Street
PA 1249
Philadelphia, PA 19109
Telecopier No.: (215) 985-7290
Attention: Corporate Trust Administration
The Company or the Trustee, by notice to the others may
designate additional or different addresses for subsequent notices or
communications.
All notices and communications (other than those sent to
Holders) shall be deemed to have been duly given: at the time delivered by hand,
if personally delivered; five Business Days after being deposited in the mail,
postage prepaid, if mailed; when answered back, if telexed; when receipt
acknowledged, if telecopied; and the next Business Day after timely delivery to
the courier, if sent by overnight air courier guaranteeing next day delivery.
Any notice or communication to a Holder shall be mailed by
first class mail, certified or registered, return receipt requested, or by
overnight air courier guaranteeing next day delivery to its address shown on the
register kept by the Registrar. Any notice or communication shall also be so
mailed to any Person described in TIA Section 313(c), to the extent required by
the TIA. Failure to mail a notice or communication to a Holder or any defect in
it shall not affect its sufficiency with respect to other Holders.
If a notice or communication is mailed in the manner provided
above within the time prescribed, it is duly given, whether or not the addressee
receives it.
If the Company mails a notice or communication to Holders, it
shall mail a copy to the Trustee and each Agent at the same time.
SECTION 10.03. COMMUNICATION BY HOLDERS OF NOTES WITH OTHER HOLDERS OF NOTES.
Holders may communicate pursuant to TIA Section 312(b) with
other Holders with respect to their rights under this Indenture or the Notes.
The Company, the Trustee, the Registrar and anyone else shall have the
protection of TIA Section 312(c).
SECTION.10.04 CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
Upon any request or application by the Company to the Trustee
to take any action under this Indenture, the Company shall furnish to the
Trustee:
(a) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth in
Section 10.05 hereof) stating that, in the
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opinion of the signers, all conditions precedent and covenants, if any, provided
for in this Indenture relating to the proposed action have been satisfied; and
(b) an Opinion of Counsel in form and substance reasonably satisfactory
to the Trustee (which shall include the statements set forth in Section 10.05
hereof) stating that, in the opinion of such counsel, all such conditions
precedent and covenants have been satisfied.
SECTION 10.05 STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than a certificate
provided pursuant to TIA Section 314(a)(4)) shall comply with the provisions of
TIA Section 314(e) and shall include:
(a) a statement that the Person making such certificate or opinion has
read such covenant or condition;
(b) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement that, in the opinion of such Person, he or she has made
such examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
satisfied; and
(d) a statement as to whether or not, in the opinion of such Person,
such condition or covenant has been satisfied.
SECTION 10.06 RULES BY TRUSTEE AND AGENTS.
The Trustee may make reasonable rules for action by or at a
meeting of Holders. The Registrar or Paying Agent may make reasonable rules and
set reasonable requirements for its functions.
SECTION 10.07. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND
STOCKHOLDERS.
No past, present or future director, officer, employee,
incorporator or stockholder of the Company, as such, shall have any liability
for any obligations of the Company under the Notes, this Indenture or for any
claim based on, in respect of, or by reason of, such obligations or their
creation. Each Holder of Notes by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for issuance of
the Notes.
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SECTION 10.08. GOVERNING LAW.
THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE
USED TO CONSTRUE THIS INDENTURE AND THE NOTES.
SECTION 10.09. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Indenture may not be used to interpret any other
indenture, loan or debt agreement of the Company or its Subsidiaries or of any
other Person. Any such indenture, loan or debt agreement may not be used to
interpret this Indenture.
SECTION 10.10. SUCCESSORS.
All agreements of the Company in this Indenture and the Notes
shall bind its respective successors. All agreements of the Trustee in this
Indenture shall bind its successors.
SECTION 10.11. SEVERABILITY.
In case any provision in this Indenture or in the Notes shall
be invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
SECTION 10.12 COUNTERPART ORIGINALS.
The parties may sign any number of copies of this Indenture.
Each signed copy shall be an original, but all of them together represent the
same agreement.
SECTION 10.13. TABLE OF CONTENTS, HEADINGS, ETC.
The Table of Contents, Cross-Reference Table and Headings of
the Articles and Sections of this Indenture have been inserted for convenience
of reference only, are not to be considered a part of this Indenture and shall
in no way modify or restrict any of the terms or provisions hereof.
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SIGNATURES
IN WITNESS WHEREOF, the parties have executed this Indenture
as of the date first written above.
Very truly yours,
PEGASUS COMMUNICATIONS CORPORATION
By: /s/ Marshall W. Pagon
--------------------------------
Name: Marshall W. Pagon
Title: President
FIRST UNION NATIONAL BANK
By: /s/ Alan G. Finn
- ---------------------------------
Name: Alan G. Finn
Title: Assistant Vice President
<PAGE>
EXHIBIT A
(Face of Note)
9-5/8% Senior Notes due 2005
[Insert the Global Note Legend, if applicable pursuant to the provisions of the
Indenture]
[Insert the Private Placement Legend, if applicable pursuant to the provisions
of the Indenture]
CUSIP:
No: $______________
Pegasus Communications Corporation
promises to pay to ______________ or registered assigns, the principal sum
of ______________
Dollars on October 15, 2005.
Interest Payment Dates: April 15 and October 15.
Record Dates: April 1 and October 1.
Dated:
PEGASUS COMMUNICATIONS CORPORATION
By:______________________________
Name:
Title:
This is one of the Notes referred to in the within-mentioned Indenture:
FIRST UNION NATIONAL BANK,
as Trustee
By: __________________________________
Authorized Officer
A-1
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(Back of Note)
9-5/8% [Series A] [Series B] Senior Notes due 2005
Capitalized terms used herein shall have the meanings assigned
to them in the Indenture referred to below unless otherwise indicated.
1. INTEREST. Pegasus Communications Corporation, a Delaware
corporation (the "Company"), promises to pay interest on the principal amount of
this Note at 9-5/8% per annum from October 21, 1997 until maturity and shall pay
the Liquidated Damages payable pursuant to Section 5 of the Registration Rights
Agreement referred to below. The Company will pay interest and Liquidated
Damages semi-annually on April 15 and October 15 of each year, or if any such
day is not a Business Day, on the next succeeding Business Day (each an
"Interest Payment Date"). Interest on the Notes will accrue from the most recent
date to which interest has been paid or, if no interest has been paid, from the
date of issuance; provided that if there is no existing Default in the payment
of interest, and if this Note is authenticated between a record date referred to
on the face hereof and the next succeeding Interest Payment Date, interest shall
accrue from such next succeeding Interest Payment Date; provided, further, that
the first Interest Payment Date shall be April 15, 1998. The Company shall pay
interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue principal and premium, if any, from time to time on
demand at a rate that is 1% per annum in excess of the rate then in effect; it
shall pay interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue installments of interest and Liquidated Damages
(without regard to any applicable grace periods) from time to time on demand at
the same rate to the extent lawful. Interest will be computed on the basis of a
360-day year of twelve 30-day months.
2. METHOD OF PAYMENT. The Company will pay interest on the
Notes (except defaulted interest) and Liquidated Damages to the Persons who are
registered Holders of Notes at the close of business on the April 1 or October 1
next preceding the Interest Payment Date, even if such Notes are canceled after
such record date and on or before such Interest Payment Date, except as provided
in Section 2.12 of the Indenture with respect to defaulted interest. The Notes
will be payable as to principal, premium and Liquidated Damages, if any, and
interest at the office or agency of the Company maintained for such purpose
within or without the City and State of New York, or, at the option of the
Company, payment of interest and Liquidated Damages may be made by check mailed
to the Holders at their addresses set forth in the register of Holders, and
provided that payment by wire transfer of immediately available funds will be
required with respect to principal of and interest, premium and Liquidated
Damages on, all Global Notes and all other Notes the Holders of which shall have
provided wire transfer instructions to the Company or the Paying Agent. Such
payment shall be in such coin or currency of the United States of America as at
the time of payment is legal tender for payment of public and private debts.
3. PAYING AGENT AND REGISTRAR. Initially, First Union National
Bank, the Trustee under the Indenture, will act as Paying Agent and Registrar.
The Company may change any Paying Agent or Registrar without notice to any
Holder. The Company may act in any such capacity.
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4. INDENTURE. The Company issued the Notes under an Indenture
dated as of October 21, 1997 (the "Indenture") between the Company and the
Trustee. The terms of the Notes include those stated in the Indenture and those
made part of the Indenture by reference to the Trust Indenture Act of 1939, as
amended (15 U.S. Code Sections 77aaa-77bbbb) (the "TIA"). The Notes are subject
to all such terms, and Holders are referred to the Indenture and the TIA for a
statement of such terms. The Notes are general obligations of the Company
limited to $115,000,000 in aggregate principal amount.
5. OPTIONAL REDEMPTION.
(a) The Notes will not be redeemable at the Company's option
prior to October 15, 2001. The Notes may be redeemed, in whole or in part, at
the option of the Company on or after October 15, 2001, at the redemption prices
specified below (expressed as percentages of the principal amount thereof), in
each case, together with accrued and unpaid interest and Liquidated Damages, if
any, thereon to the date of redemption, upon not less than 30 nor more than 60
days' notice, if redeemed during the twelve-month period beginning on October 15
of the years indicated below:
Redemption
Year Price
- ---- -----
2001 104.813%
2002 102.407%
2003 and thereafter 100.000%
(b) Notwithstanding the foregoing, during the first 36 months
after the Closing Date, the Company may, on any one or more occasions, use the
net proceeds of one or more offerings of its Capital Stock to redeem up to 35%
of the aggregate principal amount of the Notes at a redemption price of 109.625%
of the principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages, if any, to the date of redemption; provided that, after any such
redemption, the aggregate principal amount of the Notes outstanding (excluding
Notes held by the Company and its Subsidiaries) must equal at least $75.0
million; and provided further, that any such redemption shall occur within 90
days of the date of closing of such offering of Capital Stock of the Company.
6. MANDATORY REDEMPTION. The Company shall not be required to
make mandatory redemption or sinking fund payments with respect to the Notes.
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7. REPURCHASE AT OPTION OF HOLDER.
(a) Upon the occurrence of a Change of Control the Company
shall be obligated to make an offer (a "Change in Control Offer") to each Holder
of Notes to repurchase all or any part (equal to $1,000 or an integral multiple
thereof) of such Holder's Notes at an offer price in cash equal to 101% of the
aggregate principal amount thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the date of purchase (the "Change of
Control Payment"). Within ten days following any Change of Control, the Company
shall mail a notice to each Holder describing the transaction or transactions
that constitute the Change of Control and offering to repurchase Notes pursuant
to the procedures required by the Indenture and described in such notice.
(b) If the Company or a Restricted Subsidiary consummates any
Asset Sale, within five days of each date on which the aggregate amount of
Excess Proceeds exceeds $10.0 million, the Company shall commence an offer to
all Holders of Notes and the holders of Pari Passu Debt, to the extent required
by the terms thereof (an "Asset Sale Offer") to purchase the maximum principal
amount of Notes and Pari Passu Debt that may be purchased out of the Excess
Proceeds, at an offer price in cash in an amount equal to 100% of the principal
amount thereof plus, in each case, accrued and unpaid interest and Liquidated
Damages, if any, to the date of purchase, in accordance with the procedures set
forth in the Indenture or the agreements governing Pari Passu Debt, as
applicable; provided, however, that the Company may only purchase Pari Passu
Debt in an Asset Sale Offer that was issued pursuant to an indenture having a
provision substantially similar to the Asset Sale Offer provision contained in
the Indenture. If the aggregate principal amount of Notes and Pari Passu Debt
surrendered exceeds the amount of Excess Proceeds, the Trustee shall select the
Notes and Pari Passu Debt to be purchased on a pro rata basis, based upon the
principal amount thereof surrendered in such Asset Sale Offer. Holders of Notes
that are the subject of an offer to purchase will receive an Asset Sale Offer
from the Company prior to any related purchase date and may elect to have such
Notes purchased by completing the form entitled "Option of Holder to Elect
Purchase" on the reverse of the Notes.
8. NOTICE OF REDEMPTION. Notice of Redemption will be mailed
at least 30 days but not more than 60 days before the redemption date to each
Holder whose Notes are to be redeemed at its registered address. Notes in
denominations larger than $1,000 may be redeemed in part but only in whole
multiples of $1,000, unless all of the Notes held by a Holder are to be
redeemed. On and after the redemption date interest ceases to accrue on Notes or
portions thereof called for redemption.
9. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in
registered form without coupons in all appropriate denominations. The transfer
of Notes may be registered and Notes may be exchanged as provided in the
Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Company need not transfer or exchange any Note
selected for redemption, except for the unredeemed portion of any Note being
redeemed in part. Also, it need not transfer or exchange any Note for a period
of 15 Business Days before a selection of Notes to be redeemed or during the
period between a record date and the corresponding Interest Payment Date.
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10. PERSONS DEEMED OWNERS. The registered Holder of a Note may
be treated as its owner for all purposes.
11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain
exceptions, the Indenture, the Notes or the Subsidiary Guarantees may be amended
or supplemented with the consent of the Holders of at least a majority in
principal amount of the then outstanding Notes, and any existing default or
compliance with any provision of the Indenture, the Notes or the Subsidiary
Guarantees may be waived with the consent of the Holders of a majority in
principal amount of the then outstanding Notes. Without the consent of any
Holder of a Note, the Indenture, the Notes or the Subsidiary Guarantees may be
amended or supplemented to cure any ambiguity, defect or inconsistency, to
provide for uncertificated Notes in addition to or in place of certificated
Notes, to provide for the assumption of the Company's or any Subsidiary
Guarantor's obligations to Holders of the Notes in case of a merger or
consolidation, to make any change that would provide any additional rights or
benefits to the Holders of the Notes or that does not adversely affect the legal
rights under the Indenture of any such Holder, or to comply with the
requirements of the SEC in order to effect or maintain the qualification of the
Indenture under the TIA or to allow any Subsidiary Guarantor to guarantee the
Notes.
12. DEFAULTS AND REMEDIES. Each of the following constitutes
an Event of Default: (i) default by the Company in the payment of interest and
Liquidated Damages, if any, on the Notes when the same becomes due and payable
and the Default continues for a period of 30 days; (ii) default by the Company
in the payment of the principal of or premium, if any, on the Notes when the
same becomes due and payable at maturity, upon redemption or otherwise; (3)
failure by the Company or any Subsidiary to comply with Sections 4.07, 4.09,
4.10, 4.15, or 5.01 of the Indenture; (4) failure by the Company or any
Subsidiary for 60 days after notice to comply with any of its other agreements
in the Indenture or the Notes; (5) default under any mortgage, indenture or
instrument under which there may be issued or by which there may be secured or
evidenced any Indebtedness for money borrowed by the Company or any of its
Restricted Subsidiaries (or the payment of which is guaranteed by the Company or
any of its Restricted Subsidiaries), whether such Indebtedness or guarantee now
exists, or shall be created hereafter, which default (a) is caused by a failure
to pay principal of or premium, if any, or interest on such Indebtedness prior
to the expiration of the grace period provided in such Indebtedness on the date
of such default (a "Payment Default") or (b) results in the acceleration of such
Indebtedness prior to its express maturity and, in each case, the principal
amount of such Indebtedness, together with the principal amount of any other
such Indebtedness under which there has been a Payment Default or the maturity
of which has been so accelerated, aggregates $5.0 million or more; (6) a final
judgment or final judgments for the payment of money are entered by a court or
courts of competent jurisdiction against the Company or any Restricted
Subsidiary that would be a Significant Subsidiary and such judgment or judgments
remain unpaid, undischarged or unstayed for a period of 60 days, provided that
the aggregate of all such undischarged judgments exceeds $5.0 million; (7)
certain events of bankruptcy or insolvency with respect to the Company, any
Restricted Subsidiary that would constitute a Significant Subsidiary or any
group of Restricted Subsidiaries that, taken together, would constitute a
Significant Subsidiary and (8) the termination of any Subsidiary Guarantee for
any reason not permitted by the Indenture, or the denial by any Subsidiary
Guarantor or any Person acting on behalf of any Subsidiary Guarantor of such
Subsidiary Guarantor's obligations under its respective Subsidiary Guarantee. If
any Event of
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Default occurs and is continuing, the Trustee or the Holders of at least 25% in
principal amount of the then outstanding Notes may declare all the Notes to be
due and payable immediately. Notwithstanding the foregoing, in the case of an
Event of Default arising from certain events of bankruptcy or insolvency with
respect to the Company, any Restricted Subsidiary that would constitute a
Significant Subsidiary or any group of Restricted Subsidiaries that, taken
together, would constitute a Significant Subsidiary, all outstanding Notes will
become due and payable without further action or notice. Holders of the Notes
may not enforce the Indenture or the Notes except as provided in the Indenture.
Subject to certain limitations, Holders of a majority in principal amount of the
then outstanding Notes may direct the Trustee in its exercise of any trust or
power. The Trustee may withhold from Holders of the Notes notice of any
continuing Default or Event of Default (except a Default or Event of Default
relating to the payment of principal or interest or Liquidated Damages, if any)
if it determines that withholding notice is in their interest. The Holders of a
majority in aggregate principal amount of the Notes then outstanding by notice
to the Trustee may on behalf of the Holders of all of the Notes waive any
existing Default or Event of Default and its consequences under the Indenture
except a continuing Default or Event of Default in the payment of principal,
interest or premium or Liquidated Damages, if any, on the Notes. The Company is
required to deliver to the Trustee annually a statement regarding compliance
with the Indenture, and the Company is required upon becoming aware of any
Default or Event of Default, to deliver to the Trustee a statement specifying
such Default or Event of Default.
13. TRUSTEE DEALINGS WITH THE COMPANY. The Trustee, in its
individual or any other capacity, may make loans to, accept deposits from, and
perform services for the Company or its Affiliates, and may otherwise deal with
the Company or its Affiliates, as if it were not the Trustee.
14. NO RECOURSE AGAINST OTHERS. No director, officer,
employee, incorporator or stockholder of the Company or any Subsidiary Guarantor
as such, shall have any liability for any obligations of the Company or the
Subsidiary Guarantors under the Notes, the Subsidiary Guarantees or the
Indenture or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder of Notes by accepting a Note waives
and releases all such liability. The waiver and release are part of the
consideration for the issuance of the Notes.
15. AUTHENTICATION. This Note shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating agent.
16. ABBREVIATIONS. Customary abbreviations may be used in the
name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT
(= tenants by the entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (=
Uniform Gifts to Minors Act).
17. CUSIP NUMBERS. Pursuant to a recommendation promulgated by
the Committee on Uniform Security Identification Procedures, the Company has
caused CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP
numbers in notices of redemption as a convenience to Holders. No representation
is made as to the accuracy of such
A-6
<PAGE>
numbers either as printed on the Notes or as contained in any notice of
redemption and reliance may be placed only on the other identification numbers
placed thereon.
The Company will furnish to any Holder upon written request and without
charge a copy of the Indenture. Requests may be made to:
Pegasus Communications Corporation
c/o Pegasus Communications Management Company
5 Radnor Corporate Center
Suite 454
100 Matsonford Road
Radnor, Pennsylvania 19087
Attention: Chief Financial Officer
A-7
<PAGE>
ASSIGNMENT FORM
To assign this Note, fill in the form below: (I) or (we) assign and transfer
this Note to
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint ___________________________________________________
to transfer this Note on the books of the Company. The agent may substitute
another to act for him.
- -------------------------------------------------------------------------------
Date: ________________
Your Signature:__________________
(Sign exactly as your name appears on the
face of this Note)
Signature Guarantee.
A-8
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the
Company pursuant to Section 4.10 or 4.15 of the Indenture, check the box below:
[ ] Section 4.10 [ ] Section 4.15
If you want to elect to have only part of the Note purchased
by the Company pursuant to Section 4.10 or Section 4.13 of the Indenture, state
the amount you elect to have purchased: $___________
Date:___________________ Your Signature:___________________
(Sign exactly as your name appears on the Note)
Tax Identification No.:___________________
Signature Guarantee:_____________________
A-9
<PAGE>
SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE(1)
The following exchanges of a part of this Global Note for an
interest in another Global Note or for a Definitive Note, or exchanges of a part
of another Global Note or Definitive Note for an interest in this Global Note,
have been made:
<TABLE>
<CAPTION>
Amount of increase Principal Amount of
in Principal this Global Note Signature of
Amount of decrease Amount following such authorized officer
in Principal Amount of decrease (or of Trustee or
Date of Exchange of this Global Note this Global Note increase) Note Custodian
---------------- ------------------- ---------------- ------------------ -----------------
<S> <C> <C> <C> <C>
</TABLE>
- -------------------
(1) This should be included only if the Debenture is issued in global form.
A-10
<PAGE>
EXHIBIT B
FORM OF CERTIFICATE OF TRANSFER
Pegasus Communications Corporation
c/o Pegasus Communications Management Company
5 Radnor Corporate Center, Suite 454
100 Matsonford Road
Radnor, PA 19087
First Union National Bank
230 S. Tyron Street
Charlotte, NC 28288-1153
Re: 9-5/8% Senior Notes due 2005
Reference is hereby made to the Indenture, dated as of October
21, 1997 (the "Indenture"), between Pegasus Communications Corporation, as
issuer (the "Company"), and First Union National Bank, as trustee. Capitalized
terms used but not defined herein shall have the meanings given to them in the
Indenture.
______________, (the "Transferor") owns and proposes to
transfer the Note[s] or interest in such Note[s] specified in Annex A hereto, in
the principal amount of $___________ in such Note[s] or interests (the
"Transfer"), to __________ (the "Transferee"), as further specified in Annex A
hereto. In connection with the Transfer, the Transferor hereby certifies that:
[CHECK ALL THAT APPLY]
1. |_| Check if Transferee will take delivery of a beneficial interest in the
144A Global Note or a Definitive Note Pursuant to Rule 144A. The Transfer is
being effected pursuant to and in accordance with Rule 144A under the United
States Securities Act of 1933, as amended (the "Securities Act"), and,
accordingly, the Transferor hereby further certifies that the beneficial
interest or Definitive Note is being transferred to a Person that the Transferor
reasonably believed and believes is purchasing the beneficial interest or
Definitive Note for its own account, or for one or more accounts with respect to
which such Person exercises sole investment discretion, and such Person and each
such account is a "qualified institutional buyer" within the meaning of Rule
144A in a transaction meeting the requirements of Rule 144A and such Transfer is
in compliance with any applicable blue sky securities laws of any state of the
United States. Upon consummation of the proposed Transfer in accordance with the
terms of the Indenture, the transferred beneficial interest or Definitive Note
will be subject to the restrictions on transfer enumerated in the Private
Placement Legend printed on the 144A Global Note and/or the Definitive Note and
in the Indenture and the Securities Act.
B-1
<PAGE>
2. |_| Check if Transferee will take delivery of a beneficial interest in the
Regulation S Global Note or a Definitive Note pursuant to Regulation S. The
Transfer is being effected pursuant to and in accordance with Rule 903 or Rule
904 under the Securities Act and, accordingly, the Transferor hereby further
certifies that (i) the Transfer is not being made to a person in the United
States and (x) at the time the buy order was originated, the Transferee was
outside the United States or such Transferor and any Person acting on its behalf
reasonably believed and believes that the Transferee was outside the United
States or (y) the transaction was executed in, on or through the facilities of a
designated offshore securities market and neither such Transferor nor any Person
acting on its behalf knows that the transaction was prearranged with a buyer in
the United States, (ii) no directed selling efforts have been made in
contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation S
under the Securities Act, (iii) the transaction is not part of a plan or scheme
to evade the registration requirements of the Securities Act, and (iv) if the
proposed transfer is being made prior to the expiration of the Restricted
Period, the transfer is not being made to a U.S. Person or for the account or
benefit of a U.S. Person (other than an Initial Purchaser. Upon consummation of
the proposed transfer in accordance with the terms of the Indenture, the
transferred beneficial interest or Definitive Note will be subject to the
restrictions on Transfer enumerated in the Private Placement Legend printed on
the Regulation S Global Note and/or the Definitive Note and in the Indenture and
the Securities Act.
3. |_| Check and complete if Transferee will take delivery of a beneficial
interest in the IAI Global Note or a Definitive Note pursuant to any provision
of the Securities Act other than Rule 144A or Regulation S. The Transfer is
being effected in compliance with the transfer restrictions applicable to
beneficial interests in Restricted Global Notes and Restricted Definitive Notes
and pursuant to and in accordance with the Securities Act and any applicable
blue sky securities laws of any state of the United States, and accordingly the
Transferor hereby further certifies that (check one):
(a) |_| such Transfer is being effected pursuant to and in
accordance with Rule 144 under the Securities Act;
or
(b) |_| such Transfer is being effected to the Company or a
subsidiary thereof;
or
(c) |_| such Transfer is being effected pursuant to an
effective registration statement under the Securities Act and in compliance with
the prospectus delivery requirements of the Securities Act;
or
(d) |_| such Transfer is being effected to an Institutional
Accredited Investor and pursuant to an exemption from the registration
requirements of the Securities Act other than Rule 144A, Rule 144 or Rule 904,
and the Transferor hereby further certifies that it has not
B-2
<PAGE>
engaged in any general solicitation within the meaning of Regulation D under the
Securities Act and the Transfer complies with the transfer restrictions
applicable to beneficial interests in a Restricted Global Note or Restricted
Definitive Notes and the requirements of the exemption claimed, which
certification is supported by (1) a certificate executed by the Transferee in
the form of Exhibit D to the Indenture and (2) if such Transfer is in respect of
a principal amount of Notes at the time of transfer of less than $250,000, an
Opinion of Counsel provided by the Transferor or the Transferee (a copy of which
the Transferor has attached to this certification), to the effect that such
Transfer is in compliance with the Securities Act. Upon consummation of the
proposed transfer in accordance with the terms of the Indenture, the transferred
beneficial interest or Definitive Note will be subject to the restrictions on
transfer enumerated in the Private Placement Legend printed on the IAI Global
Note and/or the Definitive Notes and in the Indenture and the Securities Act.
4. |_| Check if Transferee will take delivery of a beneficial interest in an
Unrestricted Global Note or of an Unrestricted Definitive Note.
(a) |_| Check if Transfer is pursuant to Rule 144. (i) The
Transfer is being effected pursuant to and in accordance with Rule 144 under the
Securities Act and in compliance with the transfer restrictions contained in the
Indenture and any applicable blue sky securities laws of any state of the United
States and (ii) the restrictions on transfer contained in the Indenture and the
Private Placement Legend are not required in order to maintain compliance with
the Securities Act. Upon consummation of the proposed Transfer in accordance
with the terms of the Indenture, the transferred beneficial interest or
Definitive Note will no longer be subject to the restrictions on transfer
enumerated in the Private Placement Legend printed on the Restricted Global
Notes, on Restricted Definitive Notes and in the Indenture.
(b) |_| Check if Transfer is Pursuant to Regulation S. (i) The
Transfer is being effected pursuant to and in accordance with Rule 903 or Rule
904 under the Securities Act and in compliance with the transfer restrictions
contained in the Indenture and any applicable blue sky securities laws of any
state of the United States and (ii) the restrictions on transfer contained in
the Indenture and the Private Placement Legend are not required in order to
maintain compliance with the Securities Act. Upon consummation of the proposed
Transfer in accordance with the terms of the Indenture, the transferred
beneficial interest or Definitive Note will no longer be subject to the
restrictions on transfer enumerated in the Private Placement Legend printed on
the Restricted Global Notes, on Restricted Definitive Notes and in the
Indenture.
(c) |_| Check if Transfer is Pursuant to Other Exemption. (i)
The Transfer is being effected pursuant to and in compliance with an exemption
from the registration requirements of the Securities Act other than Rule 144,
Rule 903 or Rule 904 and in compliance with the transfer restrictions contained
in the Indenture and any applicable blue sky securities laws of any State of the
United States and (ii) the restrictions on transfer contained in the Indenture
and the Private Placement Legend are not required in order to maintain
compliance with the Securities Act. Upon consummation of the proposed Transfer
in accordance with the terms of the Indenture, the transferred beneficial
interest or Definitive Note will not be subject to the
B-3
<PAGE>
restrictions on transfer enumerated in the Private Placement Legend printed on
the Restricted Global Notes or Restricted Definitive Notes and in the Indenture.
This certificate and the statements contained herein are made
for your benefit and the benefit of the Company.
[Insert Name of Transferor]
By:
-------------------------------
Name:
Title:
Dated:____________ , ______
B-4
<PAGE>
ANNEX A TO CERTIFICATE OF TRANSFER
1. The Transferor owns and proposes to transfer the following:
[CHECK ONE OF (a) OR (b)]
(a) |_| a beneficial interest in the:
(i) |_| 144A Global Note (CUSIP ), or
(ii) |_| Regulation S Global Note (CUSIP ), or
(iii) |_| IAI Global Note (CUSIP ); or
(b) |_| a Restricted Definitive Note.
2. After the Transfer the Transferee will hold:
[CHECK ONE]
(a) |_| a beneficial interest in the:
(i) |_| 144A Global Note (CUSIP ), or
(ii) |_| Regulation S Global Note (CUSIP ), or
(iii) |_| IAI Global Note (CUSIP ); or
(iv) |_| Unrestricted Global Note (CUSIP ); or
(b) |_| a Restricted Definitive Note; or
(c) |_| an Unrestricted Definitive Note,
in accordance with the terms of the Indenture.
B-5
<PAGE>
EXHIBIT C
FORM OF CERTIFICATE OF EXCHANGE
(CUSIP______________)
Pegasus Communications Corporation
c/o Pegasus Communications Management Company
5 Radnor Corporate Center, Suite 454
100 Matsonford Road
Radnor, PA 19087
First Union National Bank
230 S. Tyron Street
Charlotte, NC 28288-1153
Re: 9-5/8% Senior Notes due 2005
Reference is hereby made to the Indenture, dated as of October
21, 1997 (the "Indenture"), between Pegasus Communications Corporation, as
issuer (the "Company"), and First Union National Bank, as trustee. Capitalized
terms used but not defined herein shall have the meanings given to them in the
Indenture.
____________, (the "Owner") owns and proposes to exchange the
Note[s] or interest in such Note[s] specified herein, in the principal amount of
$____________ in such Note[s] or interests (the "Exchange"). In connection with
the Exchange, the Owner hereby certifies that:
1. Exchange of Restricted Definitive Notes or Beneficial Interests in a
Restricted Global Note for Unrestricted Definitive Notes or Beneficial Interests
in an Unrestricted Global Note
(a) |_| Check if Exchange is from beneficial interest in a
Restricted Global Note to beneficial interest in an Unrestricted Global Note. In
connection with the Exchange of the Owner's beneficial interest in a Restricted
Global Note for a beneficial interest in an Unrestricted Global Note in an equal
principal amount, the Owner hereby certifies (i) the beneficial interest is
being acquired for the Owner's own account without transfer, (ii) such Exchange
has been effected in compliance with the transfer restrictions applicable to the
Global Notes and pursuant to and in accordance with the United States Securities
Act of 1933, as amended (the "Securities Act"), (iii) the restrictions on
transfer contained in the Indenture and the Private Placement Legend are not
required in order to maintain compliance with the Securities Act and (iv) the
beneficial interest in an Unrestricted Global Note is being acquired in
compliance with any applicable blue sky securities laws of any state of the
United States.
C-1
<PAGE>
(b) |_| Check if Exchange is from beneficial interest in a
Restricted Global Note to Unrestricted Definitive Note. In connection with the
Exchange of the Owner's beneficial interest in a Restricted Global Note for an
Unrestricted Definitive Note, the Owner hereby certifies (i) the Definitive Note
is being acquired for the Owner's own account without transfer, (ii) such
Exchange has been effected in compliance with the transfer restrictions
applicable to the Restricted Global Notes and pursuant to and in accordance with
the Securities Act, (iii) the restrictions on transfer contained in the
Indenture and the Private Placement Legend are not required in order to maintain
compliance with the Securities Act and (iv) the Definitive Note is being
acquired in compliance with any applicable blue sky securities laws of any state
of the United States.
(c) |_| Check if Exchange is from Restricted Definitive Note
to beneficial interest in an Unrestricted Global Note. In connection with the
Owner's Exchange of a Restricted Definitive Note for a beneficial interest in an
Unrestricted Global Note, the Owner hereby certifies (i) the beneficial interest
is being acquired for the Owner's own account without transfer, (ii) such
Exchange has been effected in compliance with the transfer restrictions
applicable to Restricted Definitive Notes and pursuant to and in accordance with
the Securities Act, (iii) the restrictions on transfer contained in the
Indenture and the Private Placement Legend are not required in order to maintain
compliance with the Securities Act and (iv) the beneficial interest is being
acquired in compliance with any applicable blue sky securities laws of any state
of the United States.
(d) |_| Check if Exchange is from Restricted Definitive Note
to Unrestricted Definitive Note. In connection with the Owner's Exchange of a
Restricted Definitive Note for an Unrestricted Definitive Note, the Owner hereby
certifies (i) the Unrestricted Definitive Note is being acquired for the Owner's
own account without transfer, (ii) such Exchange has been effected in compliance
with the transfer restrictions applicable to Restricted Definitive Notes and
pursuant to and in accordance with the Securities Act, (iii) the restrictions on
transfer contained in the Indenture and the Private Placement Legend are not
required in order to maintain compliance with the Securities Act and (iv) the
Unrestricted Definitive Note is being acquired in compliance with any applicable
blue sky securities laws of any state of the United States.
2. Exchange of Restricted Definitive Notes or Beneficial Interests in Restricted
Global Notes for Restricted Definitive Notes or Beneficial Interests in
Restricted Global Notes
(a) |_| Check if Exchange is from beneficial interest in a
Restricted Global Note to Restricted Definitive Note. In connection with the
Exchange of the Owner's beneficial interest in a Restricted Global Note for a
Restricted Definitive Note with an equal principal amount, the Owner hereby
certifies that the Restricted Definitive Note is being acquired for the Owner's
own account without transfer. Upon consummation of the proposed Exchange in
accordance with the terms of the Indenture, the Restricted Definitive Note
issued will continue to be subject to the restrictions on transfer enumerated in
the Private Placement Legend printed on the Restricted Definitive Note and in
the Indenture and the Securities Act.
C-2
<PAGE>
(b) |_| Check if Exchange is from Restricted Definitive Note
to beneficial interest in a Restricted Global Note. In connection with the
Exchange of the Owner's Restricted Definitive Note for a beneficial interest in
the [CHECK ONE] 144A Global Note, Regulation S Global Note, IAI Global Note with
an equal principal amount, the Owner hereby certifies (i) the beneficial
interest is being acquired for the Owner's own account without transfer and (ii)
such Exchange has been effected in compliance with the transfer restrictions
applicable to the Restricted Global Notes and pursuant to and in accordance with
the Securities Act, and in compliance with any applicable blue sky securities
laws of any state of the United States. Upon consummation of the proposed
Exchange in accordance with the terms of the Indenture, the beneficial interest
issued will be subject to the restrictions on transfer enumerated in the Private
Placement Legend printed on the relevant Restricted Global Note and in the
Indenture and the Securities Act.
This certificate and the statements contained herein are made
for your benefit and the benefit of the Company.
-----------------------------------
[Insert Name of Owner]
By: _______________________________
Name:
Title:
Dated: ________________, ____
C-3
<PAGE>
EXHIBIT D
FORM OF CERTIFICATE FROM
ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR
Pegasus Communications Corporation
c/o Pegasus Communications Management Corporation
5 Radnor Corporate Center, Suite 454
100 Matsonford Road
Radnor, PA 19087
First Union National Bank
230 S. Tyron Street
Charlotte, NC 28288-1153
Re: __% Senior Notes due 2005
Reference is hereby made to the Indenture, dated as of October
21, 1997 (the "Indenture"), between Pegasus Communications Corporation, as
issuer (the "Company"), and First Union National Bank, as trustee. Capitalized
terms used but not defined herein shall have the meanings given to them in the
Indenture.
In connection with our proposed purchase of $____________ aggregate principal
amount of:
(a) |_| a beneficial interest in a Global Note, or
(b) |_| a Definitive Note,
we confirm that:
1. We understand that any subsequent transfer of the Notes or
any interest therein is subject to certain restrictions and conditions set forth
in the Indenture and the undersigned agrees to be bound by, and not to resell,
pledge or otherwise transfer the Notes or any interest therein except in
compliance with, such restrictions and conditions and the United States
Securities Act of 1933, as amended (the "Securities Act").
2. We understand that the offer and sale of the Notes have not
been registered under the Securities Act, and that the Notes and any interest
therein may not be offered or sold except as permitted in the following
sentence. We agree, on our own behalf and on behalf of any accounts for which we
are acting as hereinafter stated, that if we should sell the Notes or any
interest therein, we will do so only (A) to the Company or any subsidiary
thereof, (B) in accordance with Rule 144A under the Securities Act to a
"qualified institutional buyer" (as defined therein), (c) to an institutional
"accredited investor" (as defined below) that, prior to such
D-1
<PAGE>
transfer, furnishes (or has furnished on its behalf by a U.S. broker-dealer) to
you and to the Company a signed letter substantially in the form of this letter
and an Opinion of Counsel in form reasonably acceptable to the Company to the
effect that such transfer is in compliance with the Securities Act, (D) outside
the United States in accordance with Rule 904 of Regulation S under the
Securities Act, (E) pursuant to the provisions of Rule 144(k) under the
Securities Act or (F) pursuant to an effective registration statement under the
Securities Act, and we further agree to provide to any person purchasing the
Definitive Note or beneficial interest in a Global Note from us in a transaction
meeting the requirements of clauses (A) through (E) of this paragraph a notice
advising such purchaser that resales thereof are restricted as stated herein.
3. We understand that, on any proposed resale of the Notes or
beneficial interest therein, we will be required to furnish to you and the
Company such certifications, legal opinions and other information as you and the
Company may reasonably require to confirm that the proposed sale complies with
the foregoing restrictions. We further understand that the Notes purchased by us
will bear a legend to the foregoing effect. We further understand that any
subsequent transfer by us of the Notes or beneficial interest therein acquired
by us must be effected through one of the Placement Agents.
4. We are an institutional "accredited investor" (as defined
in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and
have such knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risks of our investment in the Notes, and
we and any accounts for which we are acting are each able to bear the economic
risk of our or its investment.
5. We are acquiring the Notes or beneficial interest therein
purchased by us for our own account or for one or more accounts (each of which
is an institutional "accredited investor") as to each of which we exercise sole
investment discretion.
You and the Company are entitled to rely upon this letter and
are irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceedings or official inquiry
with respect to the matters covered hereby.
------------------------------------
[Insert Name of Accredited Investor]
By: _________________________________
Name:
Title:
Dated: __________________, ____
D-2
<PAGE>
EXHIBIT E
FORM OF SUPPLEMENTAL INDENTURE TO BE
DELIVERED BY SUBSIDIARY GUARANTORS
SUPPLEMENTAL INDENTURE (this "Supplemental Indenture") dated
as of ____________________, between _____________________ (the "Subsidiary
Guarantor"), a subsidiary of Pegasus Communications Corporation (or its
successor), a company incorporated under the laws of the State of Delaware (the
"Company"), and First Union National Bank, as trustee under the indenture
referred to below (the "Trustee").
W I T N E S E T H
WHEREAS, the Company has heretofore executed and delivered to
the Trustee an indenture (the "Indenture"), dated as of October 21, 1997,
providing for the issuance of an aggregate principal amount of $115,000,000 of
9-5/8% Senior Notes due 2005 (the "Notes");
WHEREAS, Section 4.17 of the Indenture provides that, under
certain circumstances, the Company is required to cause the Subsidiary Guarantor
to execute and deliver to the Trustee a Subsidiary Guarantee on the terms and
conditions set forth herein; and
WHEREAS, pursuant to Section 9.01 of the Indenture, the
Trustee is authorized to execute and deliver this Supplemental Indenture.
NOW, THEREFORE, in consideration of the foregoing and for
other good and valuable consideration, the receipt of which is hereby
acknowledged, the Subsidiary Guarantor and the Trustee mutually covenant and
agree for the equal and ratable benefit of the Holders of the Notes as follows:
1. CAPITALIZED TERMS. Capitalized terms used herein without
definition shall have the meanings assigned to them in the Indenture.
2. INDENTURE PROVISION PURSUANT TO WHICH GUARANTEE IS GIVEN.
This Supplemental Indenture is being executed and delivered pursuant to Section
4.17 of the Indenture.
3. AGREEMENTS TO GUARANTEE. The Subsidiary Guarantor hereby
agrees as follows:
(a) The Subsidiary Guarantor, jointly and severally with
all other Subsidiary Guarantors, if any, unconditionally guarantees to each
Holder of a Note authenticated and delivered by the Trustee and to the Trustee
and its successors and assigns, regardless of the validity and enforceability of
the Indenture, the Notes and the obligations of the Company under the Indenture
and the Notes, that:
E-1
<PAGE>
(i) the principal of, premium, if any, and interest on
the Notes shall be promptly paid in full when due, whether at maturity, by
acceleration, redemption or otherwise, and interest on the overdue principal of,
premium, if any, and interest on the Notes, to the extent lawful, and all other
obligations of the Company to the Holders or the Trustee thereunder shall be
promptly paid in full, all in accordance with the terms thereof; and
(ii) in case of any extension of time for payment or
renewal of any Notes or any of such other obligations, that the same shall be
promptly paid in full when due in accordance with the terms of the extension or
renewal, whether at stated maturity, by acceleration or otherwise.
Notwithstanding the foregoing, in the event that this
Subsidiary Guarantee would constitute or result in a violation of any applicable
fraudulent conveyance or similar law of any relevant jurisdiction, the liability
of the Subsidiary Guarantor under this Supplemental Indenture and its Subsidiary
Guarantee shall be limited to such amount as will not, after giving effect
thereto, and to all other liabilities of the Subsidiary Guarantor, result in
such amount constituting a fraudulent transfer or conveyance.
4. EXECUTION AND DELIVERY OF SUBSIDIARY GUARANTEES.
(a) To evidence its Subsidiary Guarantee set forth in this
Supplemental Indenture, the Subsidiary Guarantor hereby agrees that a notation
of such Subsidiary Guarantee substantially in the form of Annex A hereto shall
be endorsed by an officer of such Subsidiary Guarantor on each Note
authenticated and delivered by the Trustee after the date hereof.
(b) Notwithstanding the foregoing, the Subsidiary
Guarantor hereby agrees that its Subsidiary Guarantee set forth herein shall
remain in full force and effect notwithstanding any failure to endorse on each
Note a notation of such Subsidiary Guarantee.
(c) If an officer whose signature is on this Supplemental
Indenture or on the Subsidiary Guarantee no longer holds that office at the time
the Trustee authenticates the Note on which a Subsidiary Guarantee is endorsed,
the Subsidiary Guarantee shall be valid nevertheless.
(d) The delivery of the Note by the Trustee, after the
authentication thereof under the Indenture, shall constitute due delivery of the
Subsidiary Guarantee set forth in this Supplemental Indenture on behalf of the
Subsidiary Guarantor.
(e) The Subsidiary Guarantor hereby agrees that its
obligations hereof shall be unconditional, regardless of the validity,
regularity or enforceability of the Notes or the Indenture, the absence of any
action to enforce the same, any waiver or consent by any Holder of the Notes
with respect to any provisions hereof or thereof, the recovery of any judgment
against the Company, any action to enforce the same or any other circumstance
which might otherwise constitute a legal or equitable discharge or defense of a
guarantor.
(f) The Subsidiary Guarantor hereby waives diligence,
presentment, demand of payment, filing of claims with a court in the event of
insolvency or bankruptcy of the
E-2
<PAGE>
Company, any right to require a proceeding first against the Company, protest,
notice and all demands whatsoever and covenants that its Subsidiary Guarantee
made pursuant to this Supplemental Indenture will not be discharged except by
complete performance of the obligations contained in the Notes and the Indenture
or pursuant to Section 5(b) of this Supplemental Indenture.
(g) If the Trustee or any Holder has instituted any
proceeding to enforce any right or remedy under this Supplemental Indenture and
such proceeding has been discontinued or abandoned for any reason, or has been
determined adversely to the Trustee or to such Holder, then, and in every such
case, subject to any determination in such proceeding, the Subsidiary Guarantor,
the Trustee and the Holders shall be restored severally and respectively to
their former positions hereof and thereafter all rights and remedies of the
Subsidiary Guarantor, the Trustee and the Holders shall continue as though no
such proceeding had been instituted.
(h) The Subsidiary Guarantor hereby waives and will not in
any manner whatsoever claim or take the benefit or advantage of, any rights of
reimbursement, indemnity or subrogation or any other rights against the Company
or any other Subsidiary Guarantor as a result of any payment by such Subsidiary
Guarantor under its Subsidiary Guarantee. The Subsidiary Guarantor further
agrees that, as between the Subsidiary Guarantors, on the one hand, and the
Holders and the Trustee, on the other hand:
(i) the maturity of the obligations guaranteed hereby
may be accelerated as provided in Article Six of the Indenture for the purposes
of the Subsidiary Guarantee made pursuant to this Supplemental Indenture,
notwithstanding any stay, injunction or other prohibition preventing such
acceleration in respect of the obligations guaranteed hereby; and
(ii) in the event of any declaration of acceleration of
such obligations as provided in Article Six, such obligations (whether or not
due and payable) shall forthwith become due and payable by the Subsidiary
Guarantor for the purpose of the Subsidiary Guarantee made pursuant to this
Supplemental Indenture.
(i) The Subsidiary Guarantor shall have the right to seek
contribution from any other non-paying Subsidiary Guarantor, if any, so long as
the exercise of such right does not impair the rights of the Holders under the
Subsidiary Guarantee made pursuant to this Supplemental Indenture.
(j) The Subsidiary Guarantor covenants (to the extent that
it may lawfully do so) that it will not at any time insist upon, or plead, or in
any manner whatsoever claim or take the benefit or advantage of, any stay,
extension or usury law wherever enacted, now or at any time hereafter in force,
which may affect the covenants or the performance of the Indenture or this
Subsidiary Guarantee; and the Subsidiary Guarantor (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
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<PAGE>
5. SUBSIDIARY GUARANTOR MAY CONSOLIDATE, ETC. ON CERTAIN TERMS
(a) Except as set forth in Articles Four and Five of the
Indenture, nothing contained in the Indenture, this Supplemental Indenture or in
the Notes shall prevent any consolidation or merger of the Subsidiary Guarantor
with or into the Company or any other Subsidiary Guarantor or shall prevent any
transfer, sale or conveyance of the property of the Subsidiary Guarantor as an
entirety or substantially as an entirety, to the Company or any other Subsidiary
Guarantor.
(b) Except as set forth in Article Four and Five of the
Indenture, upon the sale or disposition of all of the assets of any Subsidiary
Guarantor, by way of merger, consolidation or otherwise, or a sale or other
disposition of all of the capital stock of any Subsidiary Guarantor, then such
Subsidiary Guarantor (in the even of a sale or other disposition, by way of such
a merger, consolidation or otherwise, of all the capital stock of such
Subsidiary Guarantor) or the corporation acquiring the property (in the event of
a sale or other disposition of all of the assets of such Subsidiary Guarantor)
will be released and relieved of any obligation under its Subsidiary Guarantee;
provided that the Net Proceeds of such sale or other disposition are applied in
accordance with Section 4.10 of the Indenture. Except with respect to
transactions set forth in the preceding sentence, the Company and the Subsidiary
Guarantor covenant and agree that upon any such merger, consolidation or sale of
assets, the performance of all covenants and conditions of this Supplemental
Indenture to be performed by such Subsidiary Guarantor shall be expressly
assumed by supplemental indenture satisfactory in form to the Trustee, by the
corporation formed by such consolidation, or into which the Subsidiary Guarantor
shall have merged, or by the corporation which shall have acquired such
property. Upon receipt of an Officers' Certificate of the Company or the
Subsidiary Guarantor, as the case may be, to the effect that the Company or such
Subsidiary Guarantor has complied with the first sentence of this Section 5(b),
the Trustee shall execute any documents reasonably requested by the Company or
the Subsidiary Guarantor, at the cost of the Company or such Subsidiary
Guarantor, as the case may be, in order to evidence the release of such
Subsidiary Guarantor from its obligations under its Guarantee endorsed on the
Notes and under the Indenture and this Supplemental Indenture.
6. RELEASES UPON RELEASE OF GUARANTEE OF GUARANTEED
INDEBTEDNESS. Concurrently with the release or discharge of the Subsidiary
Guarantor's guarantee of the payment of [describe indebtedness the guarantee of
which gave rise to the delivery of this Supplemental Indenture] ("Guaranteed
Debt") (other than a release or discharge by or as a result of payment under
such guarantee of Guaranteed Indebtedness), the Subsidiary Guarantor shall be
automatically and unconditionally released and relieved of its obligations under
this Supplemental Indenture and its Subsidiary Guarantee made pursuant to
Section 4 of this Supplemental Indenture. Upon delivery by the Company to the
Trustee of an Officer's Certificate to the effect that such release or discharge
has occurred, the Trustee shall execute any documents reasonably required in
order to evidence the release of the Subsidiary Guarantor from its obligations
under this Supplemental Indenture and its Subsidiary Guarantee made pursuant
hereto; provided such documents shall not affect or impair the rights of the
Trustee and Paying Agent under Section 7.07 of the Indenture.
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<PAGE>
7. NEW YORK LAW TO GOVERN. The internal law of the State of
New York shall govern and be used to construe this Supplemental Indenture.
8. COUNTERPARTS. The parties may sign any number of copies of
this Supplemental Indenture. Each signed copy shall be an original, but all of
them together represent the same agreement.
9. EFFECT OF HEADINGS. The Section headings herein are for
convenience only and shall not effect the construction hereof.
[Signatures on following page]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Supplemental Indenture to be duly executed and attested, all as of the date
first above written.
Dated:_____________ , _____ [Subsidiary Guarantor]
By:_________________________
Name:
Title:
Dated:_____________ , _____
as Trustee
By:_________________________
Name:
Title:
E-6
<PAGE>
ANNEX A TO SUPPLEMENTAL INDENTURE
FORM OF NOTATION OF SUBSIDIARY GUARANTEE ON NOTE
Each Subsidiary Guarantor (as defined in the Indenture) has
jointly and severally unconditionally guaranteed (a) the due and punctual
payment of the principal of, premium, if any, and interest on the Notes, whether
at stated maturity or an Interest Payment Date, by acceleration, call for
redemption or otherwise, (b) the due and punctual payment of interest on the
overdue principal and premium of, and interest, to the extent lawful, on the
Notes and (c) that in case of any extension of time of payment or renewal of any
Notes or any of such other obligations, the same will be promptly paid in full
when due in accordance with the terms of the extension of renewal, whether at
stated maturity, by acceleration or otherwise.
Notwithstanding the foregoing, in the event that the
Subsidiary Guarantee would constitute or result in a violation of any applicable
fraudulent conveyance or similar law of any relevant jurisdiction, the liability
of the Subsidiary Guarantor under its Subsidiary Guarantee shall be limited to
such amount as will not, after giving effect thereto, and to all other
liabilities of the Subsidiary Guarantor, result in such amount constituting a
fraudulent transfer or conveyance.
The Subsidiary Guarantee shall not be valid or obligatory for
any purpose until the certificate of authentication on the Note upon which the
Subsidiary Guarantee is noted shall have been executed by the Trustee under the
Indenture by the manual or facsimile signature of one of its authorized
officers.
Dated:_______________________________ [Subsidiary Guarantor]
By:________________________________
Name:
Title:
E-7
<PAGE>
EXECUTION COPY
===============================================================================
REGISTRATION RIGHTS AGREEMENT
Dated as of October 21, 1997
between
PEGASUS COMMUNICATIONS CORPORATION
and
CIBC WOOD GUNDY SECURITIES CORP.
===============================================================================
<PAGE>
This Registration Rights Agreement (this "Agreement") is made and
entered into as of October 21, 1997 between Pegasus Communications Corporation,
a Delaware corporation (the "Company") and CIBC Wood Gundy Securities Corp. (the
"Initial Purchaser"), who has agreed to purchase $115,000,000 in aggregate
principal amount of 9 5/8% Series A Senior Notes due 2005 (the "Series A Notes")
pursuant to the Purchase Agreement (as defined below).
This Agreement is made pursuant to the Purchase Agreement, dated
October 10, 1997 (the "Purchase Agreement"), by and among the Company, each of
its subsidiaries and the Initial Purchaser. In order to induce the Initial
Purchaser to purchase the Series A Notes, the Company has agreed to provide the
registration rights set forth in this Agreement. The execution and delivery of
this Agreement is a condition to the obligations of the Initial Purchaser set
forth in Section 5 of the Purchase Agreement.
The parties hereby agree as follows:
SECTION 1. DEFINITIONS
Terms used but not defined herein shall have the meaning given to
such terms in the Indenture. As used in this Agreement, the following
capitalized terms shall have the following meanings:
Act: The Securities Act of 1933, as amended.
Broker-Dealer: Any broker or dealer registered under the Exchange
Act.
Closing Date: The date of this Agreement.
Commission: The Securities and Exchange Commission.
Consummate: A Registered Exchange Offer shall be deemed "Consummated"
for purposes of this Agreement upon the occurrence of (i) the filing and
effectiveness under the Act of the Exchange Offer Registration Statement
relating to the Series B Notes to be issued in the Exchange Offer, (ii) the
maintenance of such Registration Statement continuously effective and the
keeping of the Exchange Offer open for a period not less than the minimum period
required pursuant to Section 3(b) hereof, and (iii) the delivery by the Company
to the Registrar under the Indenture of Series B Notes in the same aggregate
principal amount as the aggregate principal amount of Series A Notes that were
tendered by Holders thereof pursuant to the Exchange Offer.
Damages Payment Date: With respect to the Series A Notes, each
Interest Payment Date.
Effectiveness Target Date: As defined in Section 5.
Exchange Act: The Securities Exchange Act of 1934, as amended.
Exchange Offer: The registration by the Company under the Act of the
Series B Notes pursuant to a Registration Statement pursuant to which the
Company offers the Holders of all outstanding Transfer Restricted Securities the
opportunity to exchange all such outstanding Transfer Restricted Securities held
by such Holders for Series B Notes in an aggregate principal amount equal to the
aggregate principal amount of the Transfer Restricted Securities tendered in
such exchange offer by such Holders.
<PAGE>
Exchange Offer Registration Statement: The Registration Statement
relating to the Exchange Offer, including the related Prospectus.
Exempt Resales: The transactions in which the Initial Purchaser
proposes to sell the Series A Notes to certain "qualified institutional buyers,"
as such term is defined in Rule 144A under the Act, and to certain persons
outside the United States in offshore transactions in reliance on Regulation S
under the Act.
Holders: As defined in Section 2(b) hereof.
Indemnified Holder: As defined in Section 8(a) hereof.
Indenture: The Indenture, dated as of October 21, 1997, between the
Company and First Union National Bank, as trustee (the "Trustee"), pursuant to
which the Notes are to be issued, as such Indenture is amended or supplemented
from time to time in accordance with the terms thereof.
Initial Purchaser: As defined in the preamble hereto.
Interest Payment Date: As defined in the Indenture and the Notes.
NASD: National Association of Securities Dealers, Inc.
Notes: The Series A Notes and the Series B Notes.
Person: An individual, partnership, corporation, trust or
unincorporated organization, or a government or agency or political subdivision
thereof.
Prospectus: The prospectus included in a Registration Statement, as
amended or supplemented by any prospectus supplement and by all other amendments
thereto, including post-effective amendments, and all material incorporated by
reference into such Prospectus.
Record Holder: With respect to any Damages Payment Date relating to
Notes, each Person who is a Holder of Notes on the record date with respect to
the Interest Payment Date on which such Damages Payment Date shall occur.
Registration Default: As defined in Section 5 hereof.
Registration Statement: Any registration statement of the Company
relating to (a) an offering of Series B Notes pursuant to an Exchange Offer or
(b) the registration for resale of Transfer Restricted Securities pursuant to
the Shelf Registration Statement, which is filed pursuant to the provisions of
this Agreement, in each case, including the Prospectus included therein, all
amendments and supplements thereto (including post-effective amendments) and all
exhibits and material incorporated by reference therein.
Series B Notes: The Company's 9 5/8% Series B Senior Notes due 2005
to be issued pursuant to the Indenture in the Exchange Offer.
Shelf Filing Deadline: As defined in Section 4 hereof.
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<PAGE>
Shelf Registration Statement: As defined in Section 4 hereof.
TIA: The Trust Indenture Act of 1939 (15 U.S.C. Section 77aaa-77bbbb)
as in effect on the date of the Indenture.
Transfer Restricted Securities: Each Note, until the earliest to
occur of (a) the date on which such Note is exchanged by a person other than a
Broker-Dealer for a Series B Note in the Exchange Offer, (b) following the
exchange by a Broker-Dealer in the Exchange Offer of a Series A Note for a
Series B Note, the date on which such Series B Note is sold to a purchaser who
receives from such Broker-Dealer on or prior to the date of such sale a copy of
the Prospectus contained in the Exchange Offer Registration Statement, (c) the
date on which such Note has been effectively registered under the Act and
disposed of in accordance with a Shelf Registration Statement or (d) the date on
which such Note is distributed to the public pursuant to Rule 144 under the Act.
Underwritten Registration or Underwritten Offering: A registration in
which securities of the Company are sold to an underwriter for reoffering to the
public.
SECTION 2. SECURITIES SUBJECT TO THIS AGREEMENT
(a) Transfer Restricted Securities. The securities entitled to the
benefits of this Agreement are the Transfer Restricted Securities.
(b) Holders of Transfer Restricted Securities. A Person is deemed to
be a holder of Transfer Restricted Securities (each, a "Holder") whenever such
Person owns Transfer Restricted Securities.
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<PAGE>
SECTION 3. REGISTERED EXCHANGE OFFER
(a) The Company shall (i) cause to be filed with the Commission as
soon as practicable after the Closing Date, but in no event later than 30 days
after the Closing Date, a Registration Statement under the Act relating to the
Series B Notes and the Exchange Offer, (ii) use its reasonable best efforts to
cause such Registration Statement to become effective at the earliest possible
time, but in no event later than 90 days after the Closing Date, (iii) in
connection with the foregoing, file (A) all pre-effective amendments to such
Registration Statement as may be necessary in order to cause such Registration
Statement to become effective and (B) if applicable, a post-effective amendment
to such Registration Statement pursuant to Rule 430A under the Act, (iv) cause
all necessary filings in connection with the registration and qualification of
the Series B Notes to be made under the Blue Sky laws of such jurisdictions
within the United States as are necessary to permit Consummation of the Exchange
Offer and (v) unless the Exchange Offer shall not be permissible under
applicable law or Commission policy (after the procedures set forth in Section
6(a) below have been complied with), commence the Exchange Offer and use its
reasonable best efforts to issue on or prior to 30 business days after the date
on which the Exchange Offer Registration Statement was declared effective by the
Commission, Series B Notes in exchange for all Series A Notes properly tendered
prior thereto in accordance with the terms of the Exchange Offer. The Exchange
Offer shall be on the appropriate form permitting registration of the Series B
Notes to be offered in exchange for the Transfer Restricted Securities and to
permit resales of Notes held by Broker-Dealers as contemplated by Section 3(c)
below.
(b) The Company shall cause the Exchange Offer Registration Statement
to be effective continuously and shall keep the Exchange Offer open for a period
of not less than the minimum period required under applicable federal and state
securities laws to Consummate the Exchange Offer; provided, however, that in no
event shall such period be less than 20 business days. The Company shall cause
the Exchange Offer to comply with all applicable federal and state securities
laws. No securities other than the Notes shall be included in the Exchange Offer
Registration Statement.
(c) The Company shall indicate in a "Plan of Distribution" section
contained in the Prospectus contained in the Exchange Offer Registration
Statement that any Broker-Dealer who holds Series A Notes that are Transfer
Restricted Securities and that were acquired for its own account as a result of
market-making activities or other trading activities (other than Transfer
Restricted Securities acquired directly from the Company), may exchange such
Series A Notes pursuant to the Exchange Offer; however, such Broker-Dealer may
be deemed to be an "underwriter" within the meaning of the Act and must,
therefore, deliver a prospectus meeting the requirements of the Act in
connection with any resales of the Series B Notes received by such Broker-Dealer
in the Exchange Offer, which prospectus delivery requirement may be satisfied by
the delivery by such Broker-Dealer of the Prospectus contained in the Exchange
Offer Registration Statement. Such "Plan of Distribution" section shall also
contain all other information with respect to such resales by Broker-Dealers
that the Commission may require in order to permit such resales pursuant
thereto, but such "Plan of Distribution" shall not name any such Broker-Dealer
or disclose the amount of Notes held by any such Broker-Dealer except to the
extent required by the Commission as a result of a change in policy after the
date of this Agreement.
The Company shall use its reasonable best efforts to keep the
Exchange Offer Registration Statement continuously effective, supplemented and
amended as required by the provisions of Section 6(c) below to the extent
necessary to ensure that it is available for resales of Notes acquired by
Broker-Dealers for their own accounts as a result of market-making activities or
other trading activities, and to ensure
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<PAGE>
that it conforms with the requirements of this Agreement, the Act and the
policies, rules and regulations of the Commission as announced from time to
time, for a period of one year from the date on which the Exchange Offer
Registration Statement is declared effective.
The Company shall provide sufficient copies of the latest version of
such Prospectus to Broker-Dealers promptly upon request at any time, subject to
Section 6(c)(i) hereof, during such one-year period in order to facilitate such
resales.
SECTION 4. SHELF REGISTRATION
(a) Shelf Registration. If (i) the Company is not required to file an
Exchange Offer Registration Statement or to consummate the Exchange Offer
because the Exchange Offer is not permitted by applicable law or Commission
policy (after the procedures set forth in Section 6(a) below have been complied
with) or (ii) if any Holder of Transfer Restricted Securities notifies the
Company within 20 business days after the Consummation of the Exchange Offer (A)
that such Holder is prohibited by applicable law or Commission policy from
participating in the Exchange Offer, or (B) that such Holder may not resell the
Series B Notes acquired by it in the Exchange Offer to the public without
delivering a prospectus and that the Prospectus contained in the Exchange Offer
Registration Statement is not legally available for such resales by such Holder
or (C) that such Holder is a Broker-Dealer and owns Series A Notes acquired
directly from the Company or an affiliate of the Company, then the Company
shall:
(x) cause to be filed a shelf registration statement pursuant to
Rule 415 under the Act, which may be an amendment to the Exchange Offer
Registration Statement (in either event, the "Shelf Registration
Statement") on or prior to the earliest to occur of (1) the 60th day after
the date on which the Company determines that it is not required to file
the Exchange Offer Registration Statement, (2) the 60th day after the date
on which the Company receives notice from a Holder of Transfer Restricted
Securities as contemplated by clause (ii) above, and (3) the 120th day
after the Closing Date (such earliest date being the "Shelf Filing
Deadline"), which Shelf Registration Statement shall provide for resales
of all Transfer Restricted Securities the Holders of which shall have
provided the information required pursuant to Section 4(b) hereof; and
(y) use its reasonable best efforts to cause such Shelf
Registration Statement to be declared effective by the Commission on or
before the 30th day after the Shelf Filing Deadline.
The Company shall use its best efforts to keep such Shelf Registration Statement
continuously effective, supplemented and amended as required by the provisions
of Sections 6(b) and (c) hereof to the extent necessary to ensure that it is
available for resales of Notes by the Holders of Transfer Restricted Securities
entitled to the benefit of this Section 4(a), and to ensure that it conforms
with the requirements of this Agreement, the Act and the policies, rules and
regulations of the Commission as announced from time to time, for a period of at
least three years (as extended pursuant to Section 6(c)(i)) following the
Closing Date or such shorter period that will terminate when all Transfer
Restricted Securities covered by the Shelf Registration Statement have been sold
pursuant to the Shelf Registration Statement.
(b) Provision by Holders of Certain Information in Connection with
the Shelf Registration Statement. No Holder of Transfer Restricted Securities
may include any of its Transfer Restricted
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<PAGE>
Securities in any Shelf Registration Statement pursuant to this Agreement unless
and until such Holder furnishes to the Company in writing, within 20 business
days after receipt of a request therefor, such information as the Company may
reasonably request for use in connection with any Shelf Registration Statement
or Prospectus or preliminary Prospectus included therein. No Holder of Transfer
Restricted Securities shall be entitled to liquidated damages pursuant to
Section 5 hereof unless and until such Holder shall have used its best efforts
to provide all such reasonably requested information. Each Holder as to which
any Shelf Registration Statement is being effected agrees to furnish promptly to
the Company all information required to be disclosed in order to make the
information previously furnished to the Company by such Holder not materially
misleading.
SECTION 5. LIQUIDATED DAMAGES
If (i) any of the Registration Statements required by this Agreement
is not filed with the Commission on or prior to the date specified for such
filing in this Agreement, (ii) any of such Registration Statements has not been
declared effective by the Commission on or prior to the date specified for such
effectiveness in this Agreement (the "Effectiveness Target Date"), (iii) the
Exchange Offer has not been Consummated within 30 business days after the
Effectiveness Target Date with respect to the Exchange Offer Registration
Statement or (iv) subject to the provisions of Section 6(c)(i) below, the Shelf
Registration Statement or the Exchange Offer Registration Statement is declared
effective but thereafter ceases to be effective or legally available for use in
connection with resales of Transfer Restricted Securities during the periods
specified in this Agreement without being succeeded immediately by a
post-effective amendment to such Registration Statement that cures such failure
and that is itself immediately declared effective (each such event referred to
in clauses (i) through (iv), a "Registration Default"), the Company agrees to
pay liquidated damages to each Holder of Transfer Restricted Securities with
respect to the first 90-day period immediately following the occurrence of such
Registration Default, in an amount equal to $.05 per week per $1,000 of
aggregate principal amount of Series A Notes held by such Holder for each week
or portion thereof that the Registration Default continues. The amount of the
liquidated damages shall increase by an additional $.05 per week per $1,000 of
aggregate principal amount of Series A Notes with respect to each subsequent
90-day period until all Registration Defaults have been cured, up to a maximum
amount of liquidated damages of $.30 per week per $1,000 of aggregate principal
amount of Series A Notes. All accrued liquidated damages shall be paid by the
Company on each Damages Payment Date to the holder of the Global Notes by wire
transfer of immediately available funds or by federal funds check and to holders
of Certificated Notes by wire transfer to the accounts specified by them or by
mailing checks to their registered addresses if no such accounts have been
specified. Following the cure of all Registration Defaults relating to any
particular Transfer Restricted Securities, the accrual of liquidated damages
with respect to such Transfer Restricted Securities will cease.
All obligations of the Company set forth in the preceding paragraph
that are outstanding with respect to any Transfer Restricted Security at the
time such security ceases to be a Transfer Restricted Security shall survive
until such time as all such obligations with respect to such Security shall have
been satisfied in full.
SECTION 6. REGISTRATION PROCEDURES
(a) Exchange Offer Registration Statement. In connection with the
Exchange Offer, the Company shall comply with all of the provisions of Section
6(c) below, shall use its best efforts to effect
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<PAGE>
such exchange and to permit the sale of Transfer Restricted Securities being
sold in accordance with the intended method or methods of distribution thereof,
and shall comply with all of the following provisions:
(i) If in the reasonable opinion of counsel to the Company there
is a question as to whether the Exchange Offer is permitted by applicable
law, the Company hereby agrees to seek a no-action letter or other
favorable decision from the Commission allowing the Company to Consummate
an Exchange Offer for such Series A Notes. The Company hereby agrees to
pursue the issuance of such a decision to the Commission staff level but
shall not be required to take commercially unreasonable action to effect a
change of Commission policy. The Company hereby agrees, however, to (A)
participate in telephonic conferences with the Commission, (B) deliver to
the Commission staff an analysis prepared by counsel to the Company
setting forth the legal bases, if any, upon which such counsel has
concluded that such an Exchange Offer should be permitted and (C)
diligently pursue a resolution (which need not be favorable) by the
Commission staff of such submission.
(ii) As a condition to its participation in the Exchange Offer
pursuant to the terms of this Agreement, each Holder of Transfer
Restricted Securities shall furnish, upon the request of the Company,
prior to the Consummation thereof, a written representation to the Company
(which may be contained in the letter of transmittal contemplated by the
Exchange Offer Registration Statement) to the effect that (A) it is not an
affiliate of the Company, (B) it is not engaged in, and does not intend to
engage in, and has no arrangement or understanding with any person to
participate in, a distribution of the Series B Notes to be issued in the
Exchange Offer and (C) it is acquiring the Series B Notes in its ordinary
course of business. In addition, all such Holders of Transfer Restricted
Securities shall otherwise cooperate in the Company's preparations for the
Exchange Offer. Each Holder hereby acknowledges and agrees that any
Broker-Dealer and any such Holder using the Exchange Offer to participate
in a distribution of the securities to be acquired in the Exchange Offer
(1) could not under Commission policy as in effect on the date of this
Agreement rely on the position of the Commission enunciated in Morgan
Stanley and Co., Inc. (available June 5, 1991) and Exxon Capital Holdings
Corporation (available May 13, 1988), as interpreted in the Commission's
letter to Shearman & Sterling dated July 2, 1993, and similar no-action
letters (including any no-action letter obtained pursuant to clause (i)
above), and (2) must comply with the registration and prospectus delivery
requirements of the Act in connection with a secondary resale transaction
and that such a secondary resale transaction should be covered by an
effective registration statement containing the selling security holder
information required by Item 507 or 508, as applicable, of Regulation S-K
if the resales are of Series B Notes obtained by such Holder in exchange
for Series A Notes acquired by such Holder directly from the Company.
(iii) Prior to effectiveness of the Exchange Offer Registration
Statement, the Company shall provide a supplemental letter to the
Commission (A) stating that the Company is registering the Exchange Offer
in reliance on the position of the Commission enunciated in Exxon Capital
Holdings Corporation (available May 13, 1988), Morgan Stanley and Co.,
Inc. (available June 5, 1991) and, if applicable, any no-action letter
obtained pursuant to clause (i) above and (B) including a representation
that the Company has not entered into any arrangement or understanding
with any Person to distribute the Series B Notes to be received in the
Exchange Offer and that, to the best of the Company's information and
belief, each Holder participating in the Exchange Offer is acquiring
the Series B Notes in its ordinary course of business and has no
arrangement or understanding with any Person to participate in the
distribution of the Series B Notes received in the Exchange Offer.
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<PAGE>
(b) Shelf Registration Statement. In connection with the Shelf
Registration Statement, the Company shall comply with all the provisions of
Section 6(c) below and shall use its best efforts to effect such registration to
permit the sale of the Transfer Restricted Securities being sold in accordance
with the intended method or methods of distribution thereof, and pursuant
thereto the Company will as expeditiously as possible prepare and file with the
Commission a Registration Statement relating to the registration on any
appropriate form under the Act, which form shall be available for the sale of
the Transfer Restricted Securities in accordance with the intended method or
methods of distribution thereof.
(c) General Provisions. In connection with any Registration Statement
and any Prospectus required by this Agreement to permit the sale or resale of
Transfer Restricted Securities (including, without limitation, any Exchange
Offer Registration Statement and the related Prospectus to the extent that the
same are required to permit resales of Notes by Broker-Dealers), the Company
shall:
(i) use its reasonable best efforts to keep such Registration
Statement continuously effective and provide all requisite financial
statements (including, if required by the Act or any regulation
thereunder, financial statements of any of its subsidiaries) for the
period specified in Section 3 or 4 of this Agreement, as applicable; upon
the occurrence of any event that would cause any such Registration
Statement or the Prospectus contained therein (A) to contain a material
misstatement or omission or (B) not to be effective and legally available
for use in connection with the resale of Transfer Restricted Securities
during the period required by this Agreement, the Company shall file
promptly an appropriate amendment to such Registration Statement, in the
case of clause (A), correcting any such misstatement or omission, and, in
the case of either clause (A) or (B), use its reasonable best efforts to
cause such amendment to be declared effective and such Registration
Statement and the related Prospectus to become usable for their intended
purpose(s) as soon as practicable thereafter. Notwithstanding the
foregoing, if the Board of Directors of the Company determines in good
faith that it is in the best interests of the Company not to disclose the
existence of or facts surrounding any proposed or pending material
corporate transaction involving the Company, the Company may allow the
Shelf Registration Statement or the Exchange Offer Registration Statement
to fail to be effective and usable as a result of such nondisclosure for
up to 90 days during the three year period of effectiveness required by
Section 4 hereof, but in no event for any period in excess of 45
consecutive days, provided, that in the event the Exchange Offer is
Consummated, the Company shall not allow the Exchange Offer Registration
Statement to fail to be effective and usable for a period in excess of 30
days during the one year period of effectiveness required by Section 3(c)
hereof;
(ii) prepare and file with the Commission such amendments and
post-effective amendments to the Registration Statement as may be
necessary to keep the Registration Statement effective for the applicable
period set forth in Section 3 or 4 hereof, as applicable, or such shorter
period as will terminate when all Transfer Restricted Securities covered
by such Registration Statement have been sold; cause the Prospectus to be
supplemented by any required Prospectus supplement, and as so supplemented
to be filed pursuant to Rule 424 under the Act, and to comply fully with
the applicable provisions of Rules 424 and 430A under the Act in a timely
manner; and comply with the provisions of the Act with respect to the
disposition of all securities covered by such Registration Statement
during the applicable period in accordance with the intended method or
methods of distribution by the sellers thereof set forth in such
Registration Statement or supplement to the Prospectus;
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<PAGE>
(iii) advise the underwriter(s), if any, and selling Holders
promptly and, if requested by such Persons, to confirm such advice in
writing, (A) when the Prospectus or any Prospectus supplement or
post-effective amendment has been filed, and, with respect to any
Registration Statement or any post-effective amendment thereto, when the
same has become effective, (B) of any request by the Commission for
amendments to the Registration Statement or amendments or supplements to
the Prospectus or for additional information relating thereto, (C) of the
issuance by the Commission of any stop order suspending the effectiveness
of the Registration Statement under the Act or of the suspension by any
state securities commission of the qualification of the Transfer
Restricted Securities for offering or sale in any jurisdiction, or the
initiation of any proceeding for any of the preceding purposes, (D) of the
existence of any fact or the happening of any event that makes any
statement of a material fact made in the Registration Statement, the
Prospectus, any amendment or supplement thereto, or any document
incorporated by reference therein untrue, or that requires the making of
any additions to or changes in the Registration Statement or the
Prospectus in order to make the statements therein not misleading,
including, without limitation, under circumstances described in Section
6(c)(i) above. If at any time the Commission shall issue any stop order
suspending the effectiveness of the Registration Statement, or any state
securities commission or other regulatory authority shall issue an order
suspending the qualification or exemption from qualification of the
Transfer Restricted Securities under state securities or Blue Sky laws,
the Company shall use its reasonable best efforts to obtain the withdrawal
or lifting of such order at the earliest possible time;
(iv) furnish to each of the selling Holders and each of the
underwriter(s), if any, before filing with the Commission, copies of any
Registration Statement or any Prospectus included therein or any
amendments or supplements to any such Registration Statement or Prospectus
(including all documents incorporated by reference after the initial
filing of such Registration Statement), which documents will be subject to
the review of such Holders and underwriter(s), if any, for a period of at
least five business days, and the Company will not file any such
Registration Statement or Prospectus or any amendment or supplement to any
such Registration Statement or Prospectus (including all such documents
incorporated by reference) to which selling Holders holding at least 20%
in the aggregate principal amount of the outstanding Transfer Restricted
Securities covered by such Registration Statement or the underwriter(s),
if any, shall reasonably object within five business days after the
receipt thereof. A selling Holder or underwriter, if any, shall be deemed
to have reasonably objected to such filing if such Registration Statement,
amendment, Prospectus or supplement, as applicable, as proposed to be
filed, contains a material misstatement or omission;
(v) make available at reasonable times for inspection by the
selling Holders, any underwriter participating in any disposition pursuant
to such Registration Statement, and any attorney or accountant retained by
such selling Holders or any of the underwriter(s), all financial and other
records, pertinent corporate documents and properties of the Company and
each of its subsidiaries and cause the Company's and each of its
subsidiaries' officers, directors and employees to supply all information
reasonably requested by any such Holder, underwriter, attorney or
accountant in connection with such Registration Statement subsequent to
the filing thereof and prior to its effectiveness;
(vi) if requested by any selling Holders or the underwriter(s),
if any, promptly incorporate in any Registration Statement or Prospectus,
pursuant to a supplement or post-effective amendment if necessary, such
information as such selling Holders and underwriter(s), if any, may
reasonably request to have included therein, including, without
limitation, information relating to the "Plan of
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Distribution" of the Transfer Restricted Securities, information with
respect to the principal amount of Transfer Restricted Securities being
sold to such underwriter(s), the purchase price being paid therefor and
any other terms of the offering of the Transfer Restricted Securities to
be sold in such offering; and make all required filings of such Prospectus
supplement or post-effective amendment as soon as practicable after the
Company is notified of the matters to be incorporated in such Prospectus
supplement or post-effective amendment;
(vii) cause the Transfer Restricted Securities covered by the
Registration Statement to be rated with the appropriate rating agencies,
if so requested by the Holders of a majority in aggregate principal amount
of Notes covered thereby or the underwriter(s), if any;
(viii) furnish to each selling Holder and each of the
underwriter(s), if any, without charge, at least one copy of the
Registration Statement, as first filed with the Commission, and of each
amendment thereto, including all documents incorporated by reference
therein and all exhibits (including exhibits incorporated therein by
reference), subject to any confidentiality agreements;
(ix) deliver to each selling Holder and each of the
underwriter(s), if any, without charge, as many copies of the Prospectus
(including each preliminary prospectus) and any amendment or supplement
thereto as such Persons reasonably may request; the Company hereby
consents to the use of the Prospectus and any amendment or supplement
thereto by each of the selling Holders and each of the underwriter(s), if
any, in connection with the offering and the sale of the Transfer
Restricted Securities covered by the Prospectus or any amendment or
supplement thereto;
(x) enter into, and cause each of its subsidiaries to enter
into, such agreements (including an underwriting agreement), and make, and
cause each of its subsidiaries to make, such representations and
warranties, and take all such other actions in connection therewith in
order to expedite or facilitate the disposition of the Transfer Restricted
Securities pursuant to any Registration Statement contemplated by this
Agreement, all to such extent as may be reasonably requested by any Holder
of Transfer Restricted Securities or underwriter in connection with any
sale or resale pursuant to any Registration Statement contemplated by this
Agreement; and whether or not an underwriting agreement is entered into
and whether or not the registration is an Underwritten Registration, the
Company shall use its best efforts to:
(A) furnish to each selling Holder and each underwriter, if any,
in such substance and scope as they may request and as are
customarily made by issuers to underwriters in primary underwritten
offerings, upon the date of the Consummation of the Exchange Offer
and, if applicable, the effectiveness of the Shelf Registration
Statement:
(1) a certificate, dated the date of Consummation of the
Exchange Offer or the date of effectiveness of the Shelf
Registration Statement, as the case may be, signed by (y) the
President or any Vice President and (z) a principal financial or
accounting officer of the Company and each of its subsidiaries,
confirming, as of the date thereof, the matters set
forth in paragraphs (j)(i), (ii), (iii) and (iv) of Section 8 of
the Purchase Agreement and such other matters as such parties
may reasonably request;
(2) an opinion, dated the date of Consummation of the
Exchange Offer or the date of effectiveness of the Shelf
Registration Statement, as the case may be, of counsel for the
Company, covering the matters set forth in paragraph (a) of
Section 8 of the Purchase
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Agreement and such other matter as such parties may reasonably
request, and in any event including a statement to the effect
that such counsel has participated in conferences with officers
and other representatives of the Company and representatives of
the independent public accountants for the Company in connection
with the preparation of such Registration Statement and the
related Prospectus and have considered the matters required to
be stated therein and the statements contained therein, although
such counsel has not independently verified the accuracy,
completeness or fairness of such statements; and that such
counsel advises that, on the basis of the foregoing (relying as
to materiality to a large extent upon facts provided to such
counsel by officers and other representatives of the Company and
without independent check or verification), such counsel does
not believe that the applicable Registration Statement, at the
time such Registration Statement or any post-effective amendment
thereto became effective, and, in the case of the Exchange Offer
Registration Statement, as of the date of Consummation,
contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary
to make the statements therein not misleading, or that the
Prospectus contained in such Registration Statement as of its
date and, in the case of the opinion dated the date of
Consummation of the Exchange Offer, as of the date of
Consummation, contained an untrue statement of a material fact
or omitted to state a material fact necessary in order to make
the statements therein, in light of the circumstances under
which they were made, not misleading. Without limiting the
foregoing, such counsel may state further that such counsel
assumes no responsibility for, and has not independently
verified, the accuracy, completeness or fairness of the
financial and statistical statements, notes and schedules and
other financial data included in any Registration Statement
contemplated by this Agreement or the related Prospectus; and
(3) a customary comfort letter, dated as of the date of
Consummation of the Exchange Offer or the date of effectiveness
of the Shelf Registration Statement, as the case may be, from
the Company's independent accountants, in the customary form and
covering matters of the type customarily covered in comfort
letters by underwriters in connection with primary underwritten
offerings, and affirming the matters set forth in the comfort
letters delivered pursuant to Section 8(g) of the Purchase
Agreement, without exception, provided, however, that if such
registration is not an Underwritten Registration and the
customary comfort letter referred to above cannot be delivered,
the Company shall use its reasonable best efforts to cause its
independent accountants to deliver the highest level of comfort
permitted to be given by such accountants under the then
applicable standards of the American Institute of Certified
Public Accountants with respect to such registration statement;
(B) set forth in full or incorporate by reference in the
underwriting agreement, if any, the indemnification provisions and
procedures of Section 8 hereof with respect to all parties to be
indemnified pursuant to said Section; and
(C) deliver such other documents and certificates as may be
reasonably requested by such parties to evidence compliance with
clause (A) above and with any customary conditions contained in the
underwriting agreement or other agreement entered into by the Company
pursuant to this clause (xi), if any.
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If at any time the representations and warranties of the Company or
any of its subsidiaries contemplated in clause (A)(1) above cease to be
true and correct, the Company shall so advise the Initial Purchaser and
the underwriter(s), if any, and each selling Holder promptly and, if
requested by such Persons, shall confirm such advice in writing;
(xi) prior to any public offering of Transfer Restricted
Securities, cooperate with, and cause each of its subsidiaries to
cooperate with, the selling Holders, the underwriter(s), if any, and their
respective counsel in connection with the registration and qualification
of the Transfer Restricted Securities under the securities or Blue Sky
laws of such jurisdictions as the selling Holders or underwriter(s) may
request and do any and all other acts or things necessary or advisable to
enable the disposition in such jurisdictions of the Transfer Restricted
Securities covered by the Shelf Registration Statement; provided, however,
that neither the Company nor any of its subsidiaries shall be required to
register or qualify as a foreign corporation where it is not now so
qualified or to take any action that would subject it to the service of
process in suits or to taxation, other than as to matters and transactions
relating to the Registration Statement, in any jurisdiction where it is
not now so subject;
(xii) shall issue, upon the request of any Holder of Series A
Notes covered by the Shelf Registration Statement, Series B Notes, having
an aggregate principal amount equal to the aggregate principal amount of
Series A Notes surrendered to the Company by such Holder in exchange
therefor or being sold by such Holder; such Series B Notes to be
registered in the name of such Holder or in the name of the purchaser(s)
of such Notes, as the case may be; in return, the Series A Notes held by
such Holder shall be surrendered to the Company for cancellation;
(xiii) cooperate with, and cause each of its subsidiaries to
cooperate with, the selling Holders and the underwriter(s), if any, to
facilitate the timely preparation and delivery of certificates
representing Transfer Restricted Securities to be sold and not bearing any
restrictive legends; and enable such Transfer Restricted Securities to be
in such denominations and registered in such names as the Holders or the
underwriter(s), if any, may request at least two business days prior to
any sale of Transfer Restricted Securities made by such underwriter(s);
(xiv) use its reasonable best efforts to cause the Transfer
Restricted Securities covered by the Registration Statement to be
registered with or approved by such other governmental agencies or
authorities as may be necessary to enable the seller or sellers thereof or
the underwriter(s), if any, to consummate the disposition of such Transfer
Restricted Securities, subject to the proviso contained in clause (xii)
above;
(xv) subject to Section 6(c)(i), if any fact or event
contemplated by clause (c)(iii)(D) above shall exist or have occurred,
prepare a supplement or post-effective amendment to the Registration
Statement or related Prospectus or any document incorporated therein by
reference or file any other required document so that, as thereafter
delivered to the purchasers of Transfer Restricted Securities, the
Prospectus will not contain an untrue statement of a material fact or omit
to state any material fact necessary to make the statements therein not
misleading;
(xvi) provide a CUSIP number for all Transfer Restricted
Securities not later than the effective date of the Registration Statement
and provide the Trustee under the Indenture with printed certificates for
the Transfer Restricted Securities which are in a form eligible for
deposit with the Depository Trust Company;
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(xvii) cooperate and assist in any filings required to be made
with the NASD and in the performance of any due diligence investigation by
any underwriter (including any "qualified independent underwriter") that
is required to be retained in accordance with the rules and regulations of
the NASD, and use its reasonable best efforts to cause such Registration
Statement to become effective and approved by such governmental agencies
or authorities as may be necessary to enable the Holders selling Transfer
Restricted Securities to consummate the disposition of such Transfer
Restricted Securities;
(xviii) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make generally
available to its security holders, as soon as practicable, a consolidated
earnings statement meeting the requirements of Rule 158 (which need not be
audited) for the twelve-month period (A) commencing at the end of any
fiscal quarter in which Transfer Restricted Securities are sold to
underwriters in a firm or best efforts Underwritten Offering or (B) if not
sold to underwriters in such an offering, beginning with the first month
of the Company's first fiscal quarter commencing after the effective date
of the Registration Statement;
(xix) cause the Indenture to be qualified under the TIA not
later than the effective date of the first Registration Statement required
by this Agreement, and, in connection therewith, cooperate with the
Trustee and the Holders of Notes to effect such changes to the Indenture
as may be required for such Indenture to be so qualified in accordance
with the terms of the TIA; and execute and use its reasonable best efforts
to cause the Trustee to execute, all documents that may be required to
effect such changes and all other forms and documents required to be filed
with the Commission to enable such Indenture to be so qualified in a
timely manner;
(xx) cause all Transfer Restricted Securities covered by the
Registration Statement to be listed on each securities exchange on which
similar securities issued by the Company are then listed if requested by
the Holders of a majority in aggregate principal amount of Series A Notes
or the managing underwriter(s), if any; and
(xxi) provide promptly to each Holder upon request each document
filed with the Commission pursuant to the requirements of Section 13 and
Section 15 of the Exchange Act.
Each Holder agrees by acquisition of a Transfer Restricted Security
that, upon receipt of any notice from the Company of the existence of any fact
of the kind described in Section 6(c)(iii)(D) hereof, such Holder will forthwith
discontinue disposition of Transfer Restricted Securities pursuant to the
applicable Registration Statement until such Holder's receipt of the copies of
the supplemented or amended Prospectus contemplated by Section 6(c)(xv) hereof,
or until it is advised in writing (the "Advice") by the Company that the use of
the Prospectus may be resumed, and has received copies of any additional or
supplemental filings that are incorporated by reference in the Prospectus. If so
directed by the Company, each Holder will deliver to the Company (at the
Company's expense) all copies, other than permanent file copies then in such
Holder's possession, of the Prospectus covering such Transfer Restricted
Securities that was current at the time of receipt of such notice. In the event
the Company shall give any such notice, the time period regarding the
effectiveness of such Registration Statement set forth in Section 3 or 4 hereof,
as applicable, shall be extended by the number of days during the period from
and including the date of the giving of such notice pursuant to Section
6(c)(iii)(D) hereof to and including the date when each selling Holder covered
by such Registration Statement shall have received the copies of the
supplemented or amended Prospectus contemplated by Section 6(c)(xv) hereof or
shall have received the Advice.
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SECTION 7. REGISTRATION EXPENSES
(a) All expenses incident to the Company's or any of its subsidiary's
performance of or compliance with this Agreement will be borne by the Company
regardless of whether a Registration Statement becomes effective, including
without limitation: (i) all registration and filing fees and expenses (including
filings made by the Initial Purchaser or Holder with the NASD (and, if
applicable, the fees and expenses of any "qualified independent underwriter" and
its counsel that may be required by the rules and regulations of the NASD));
(ii) all fees and expenses of compliance with federal securities and state Blue
Sky or securities laws; (iii) all expenses of printing (including printing
certificates for the Series B Notes to be issued in the Exchange Offer and
printing of Prospectuses), messenger and delivery services and telephone; (iv)
all fees and disbursements of counsel for the Company, its subsidiaries and,
subject to Section 7(b) below, the Holders of Transfer Restricted Securities;
(v) all application and filing fees in connection with listing Notes on a
national securities exchange or automated quotation system pursuant to the
requirements hereof; and (vi) all fees and disbursements of independent
certified public accountants of the Company and its subsidiaries (including the
expenses of any special audit and comfort letters required by or incident to
such performance).
The Company will, in any event, bear its and each of its
subsidiaries' internal expenses (including, without limitation, all salaries and
expenses of its officers and employees performing legal or accounting duties),
the expenses of any annual audit and the fees and expenses of any Person,
including special experts, retained by the Company.
(b) In connection with any Shelf Registration Statement required by
this Agreement, the Company will reimburse the Holders of Transfer Restricted
Securities being registered pursuant to the Shelf Registration Statement for the
reasonable fees and disbursements of not more than one counsel chosen by the
Holders of a majority in principal amount of the Transfer Restricted Securities;
provided, however, that in no event shall the aggregate amount payable by the
Company pursuant to this Section 7(b) exceed $25,000.
SECTION 8. INDEMNIFICATION
(a) The Company agrees to indemnify and hold harmless (i) each
Holder, (ii) each person, if any, who controls any Holder within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act and (iii) the
respective officers, directors, partners, employees, representatives and agents
of any Holder or any controlling person (any person referred to in clause (i),
(ii) or (iii) may hereinafter be referred to as an "Indemnified Holder"),
against any losses, claims, damages or liabilities to which such Underwriter or
such controlling person may become subject under the Securities Act, the
Exchange Act or otherwise, insofar as any such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon:
(1) any untrue statement or alleged untrue statement of any material
fact contained in (A) the Registration Statement or the Prospectus or any
amendment or supplement thereto or (B) any application or other document,
or any amendment or supplement thereto, executed by the Company or based
upon written information furnished by or on behalf of the Company filed in
any jurisdiction in order to qualify the Securities under the securities
or "Blue Sky" laws thereof or filed with the Commission or any securities
association or securities exchange (each an "Application"); or
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(2) the omission or alleged omission to state in (A) the Registration
Statement or any amendment thereto or any Application, a material fact
required to be stated therein or necessary to make the statements therein
not misleading or (B) in any Prospectus or any amendment or supplement
thereto, a material fact required to be stated therein or necessary to
make the statement therein, in the light of the circumstances under which
they were made, not misleading;
and will reimburse, as incurred, each Indemnified Holder for any legal or other
expenses reasonably incurred by such Indemnified Holder in connection with
investigating, defending against or appearing as a third-party witness in
connection with any such loss, claim, damage, liability or action; provided,
however, that the Company will not be liable in any such case to an Indemnified
Holder to the extent that any such loss, claim, damage or liability arises out
of or is based upon any untrue statement or alleged untrue statement or omission
or alleged omission made in the Registration Statement or any amendment thereto,
any Prospectus or any amendment or supplement thereto, or any Application in
reliance upon and in conformity with written information furnished to the
Company by or on behalf of such Indemnified Holder specifically for use therein.
This indemnity agreement will be in addition to any liability that the
Company may otherwise have to the Indemnified Holders. The Company will not,
without the prior written consent of the Indemnified Holders, settle or
compromise or consent to the entry of any judgment in any pending or threatened
claim, action, suit or proceeding in respect of which indemnification by the
Indemnified Holders may be sought hereunder (whether or not any Indemnified
Holder is a party to such claim, action, suit or proceeding), unless such
settlement, compromise or consent includes an unconditional release of all
Indemnified Holders from all liability arising out of such claim, action, suit
or proceeding.
(b) Each Holder of Transfer Restricted Securities will severally and
not jointly indemnify and hold harmless the Company, its directors, officers who
signed the Registration Statement and each person, if any, who controls the
Company within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act against any losses, claims, damages or liabilities to which the
Company or any such director, officer or controlling person may become subject
under the Securities Act, the Exchange Act, or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement or any amendment thereto,
any Prospectus or any amendment or supplement thereto or any Application, in
each case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement was made in reliance upon and in conformity with
written information furnished to the Company by or on behalf of the Holders of
Transfer Restricted Securities specifically for use therein; and, subject to the
limitation set forth immediately preceding this clause, will reimburse, as
incurred, any legal or other expenses reasonably incurred by the Company or any
such director, officer or controlling person in connection with investigating or
defending against or appearing as a third-party witness in connection with any
such loss, claim, damage, liability or action in respect thereof. This indemnity
agreement will be in addition to any liability that the Holders of Transfer
Restricted Securities may otherwise have to the indemnified parties. The Holders
of Transfer Restricted Securities will not, without the prior written consent of
the Company, settle or compromise or consent to the entry of any judgment in any
pending or threatened claim, action, suit or proceeding in respect of which
indemnification by the Company may be sought hereunder (whether or not the
Company or any person who controls the Company within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act is a party to such
claim, action, suit or proceeding), unless such settlement, compromise or
consent includes an unconditional release of the Company and each such
controlling person from all liability arising out of such claim, action, suit or
proceeding or otherwise with the consent of the Company.
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(c) Promptly after receipt by an indemnified party under this Section
8 of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section 8, notify the indemnifying party of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve it from any
liability that it may have to any indemnified party except to the extent that
such omission results in the forfeiture by the indemnifying party of substantial
rights and defenses. In case any such action is brought against any indemnified
party, and such indemnified party notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate
therein and, to the extent that it may wish, jointly with any other indemnifying
party similarly notified, to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party; provided, however, that if the named
parties in any such action (including any impleaded parties) include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be one or more legal defenses available
to it and/or other indemnified parties that are different from or additional to
those available to any such indemnifying party, then the indemnifying parties
shall not have the right to direct the defense of such action on behalf of such
indemnified party or parties and such indemnified party or parties shall have
the right to select separate counsel to defend such action on behalf of such
indemnified party or parties. After notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof and approval
by such indemnified party of counsel appointed to defend such action, the
indemnifying party will not be liable to such indemnified party under this
Section 8 for any legal or other expenses, other than reasonable and documented
out-of-pocket costs of investigation, subsequently incurred by such indemnified
party in connection with the defense thereof, unless (i) the indemnified party
shall have employed separate counsel in accordance with the proviso to the
immediately preceding sentence (it being understood, however, that in connection
with such action the indemnifying party shall not be liable for the expenses of
more than one separate counsel (in addition to local counsel) in any one action
or separate but substantially similar actions in the same jurisdiction arising
out of the same general allegations or circumstances, designated by the
Indemnified Holders in the case of paragraph (a) of this Section 8 or the
Company in the case of paragraph (b) of this Section 8, representing the
indemnified parties under such paragraph (a) or paragraph (b), as the case may
be, who are parties to such action or actions); (ii) the indemnifying party has
authorized in writing the employment of counsel for the indemnified party at the
expense of the indemnifying parties; or (iii) the indemnifying party shall have
failed to assume the defense or retain counsel reasonably satisfactory to the
indemnified party. After such notice from the indemnifying parties to such
indemnified party (so long as the indemnified party shall have informed the
indemnifying parties of such action in accordance with this Section 8 on a
timely basis prior to the indemnified party seeking indemnification hereunder),
the indemnifying parties will not be liable under this Section 8 for the costs
and expenses of any settlement of such action effected by such indemnified party
without the consent of the indemnifying party, unless such indemnified party
waived its rights under this Section 8, in which case the indemnified party may
effect such a settlement without such consent.
(d) In circumstances in which the indemnity agreement provided for in
the preceding paragraphs of this Section 8 is unavailable or insufficient to
hold harmless an indemnified party in respect of any losses, claims, damages or
liabilities (or actions in respect thereof), each indemnifying party, in order
to provide for just and equitable contribution, shall contribute to the amount
paid or payable by such indemnified party as a result of such losses, claims,
damages or liabilities (or actions in respect thereof) in such proportion as is
appropriate to reflect (i) the relative benefits received by the Company
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on the one hand and the Holders from their sale of Transfer Restricted
Securities on the other or (ii) if the allocation provided by the foregoing
clause (i) is not permitted by applicable law, not only such relative benefits
but also the relative fault of the Company on the one hand and the Holders on
the other in connection with the actions, statements or omissions or alleged
actions, statements or omissions that resulted in such losses, claims, damages
or liabilities (or actions in respect thereof). The relative fault of the
parties shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
on the one hand, or the Holders on the other, the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission, and any other equitable considerations appropriate in the
circumstances. The Company and the Holders agree that it would not be equitable
if the amount of such contribution were determined by pro rata or per capita
allocation (even if the Company on the one hand and the Holders on the other
hand were treated as one entity for such purpose) or by any other method of
allocation that does not take into account the equitable considerations referred
to in the first sentence of this paragraph (d). Notwithstanding any other
provision of this paragraph (d), the Holders shall not be obligated to make
contributions hereunder that in the aggregate exceed the dollar amount of
proceeds received by such Holder upon sale of Transfer Restricted Securities
under this Agreement, less the aggregate amount of any damages that the Holders
have otherwise been required to pay by reason of the untrue or alleged untrue
statements, and 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. For purposes of this paragraph (d), each person, if any, who
controls any of the Holders within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act shall have the same rights to contribution
as the Holders, and each director of the Company, each officer of the Company
who signed the Registration Statement and each person, if any, who controls any
of the Company within the meaning of Section 15 of the Securities Act or Section
20 of the Exchange Act, shall have the same rights to contribution as the
Company.
SECTION 9. RULE 144A
The Company hereby agrees with each Holder, for so long as any
Transfer Restricted Securities remain outstanding, to make available to any
Holder or beneficial owner of Transfer Restricted Securities in connection with
any sale thereof and any prospective purchaser of such Transfer Restricted
Securities from such Holder or beneficial owner, the information required by
Rule 144A(d)(4) under the Act in order to permit resales of such Transfer
Restricted Securities pursuant to Rule 144A.
SECTION 10. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS
No Holder may participate in any Underwritten Registration hereunder
unless such Holder (a) agrees to sell such Holder's Transfer Restricted
Securities on the basis provided in any underwriting arrangements approved by
the Persons entitled hereunder to approve such arrangements and (b) completes
and executes all reasonable questionnaires, powers of attorney, indemnities,
underwriting agreements, lock-up letters and other documents required under the
terms of such underwriting arrangements.
The Company shall not be required to participate in an Underwritten
Registration unless Holders of at least $10,000,000 in aggregate principal
amount of Transfer Restricted Securities so request, nor
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shall the Company be required to participate in more than two Underwritten
Registrations; provided that, this paragraph in no way alters the Company's
other obligations with respect to this Agreement.
SECTION 11. SELECTION OF UNDERWRITERS
The Holders of Transfer Restricted Securities covered by the Shelf
Registration Statement who desire to do so may sell such Transfer Restricted
Securities in an Underwritten Offering. In any such Underwritten Offering, the
investment banker or investment bankers and manager or managers that will
administer the offering will be selected by the Holders of a majority in
aggregate principal amount of the Transfer Restricted Securities included in
such offering; provided, however, that such investment bankers and managers must
be reasonably satisfactory to the Company.
SECTION 12. MISCELLANEOUS
(a) Remedies. The Company agrees that monetary damages (including the
liquidated damages contemplated hereby) would not be adequate compensation for
any loss incurred by reason of a breach by it of the provisions of this
Agreement and hereby agree to waive the defense in any action for specific
performance that a remedy at law would be adequate.
(b) No Inconsistent Agreements. The Company will not on or after the
date of this Agreement enter into any agreement with respect to its securities
that is inconsistent with the rights granted to the Holders in this Agreement or
otherwise conflicts with the provisions hereof. The rights granted to the
Holders hereunder do not in any way conflict with and are not inconsistent with
the rights granted to the holders of the Company's securities under any
agreement in effect on the date hereof.
(c) Adjustments Affecting the Notes. The Company will not take any
action, or permit any change to occur, with respect to the Notes that would
materially and adversely affect the ability of the Holders to Consummate any
Exchange Offer.
(d) Amendments and Waivers. The provisions of this Agreement may not
be amended, modified or supplemented, and waivers or consents to or departures
from the provisions hereof may not be given, unless the Company has obtained the
written consent of Holders of a majority of the outstanding principal amount of
Transfer Restricted Securities. Notwithstanding the foregoing, a waiver or
consent to departure from the provisions hereof that relates exclusively to the
rights of Holders whose securities are being tendered pursuant to the Exchange
Offer and that does not affect directly or indirectly the rights of other
Holders whose securities are not being tendered pursuant to such Exchange Offer
may be given by the Holders of a majority of the outstanding principal amount of
Transfer Restricted Securities being tendered or registered.
(e) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telex, telecopier, or air
courier guaranteeing overnight delivery:
(i) if to a Holder, at the address set forth on the records of
the Registrar under the Indenture, with a copy to the Registrar under the
Indenture; and
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(ii) if to the Company:
Pegasus Communications Corporation
c/o Pegasus Communications Management Company
5 Radnor Corporate Center, Suite 454
100 Matsonford Road
Radnor, Pennsylvania 19087
Telecopier No.: (610) 341-1835
Attention: Ted S. Lodge, Esq.
With a copy to:
Drinker Biddle & Reath LLP
PNB Building, 11th Floor
1345 Chestnut Street
Philadelphia, PA 19107
Telecopier No.: (215) 988-2757
Attention: Michael B. Jordan, Esq.
All such notices and communications shall be deemed to have been duly
given at the time delivered by hand, if personally delivered; five business days
after being deposited in the mail, postage prepaid, if mailed; when answered
back, if telexed; when receipt acknowledged, if telecopied; and on the next
business day, if timely delivered to an air courier guaranteeing overnight
delivery.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address specified in the Indenture.
(f) Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the successors and assigns of each of the parties,
including without limitation and without the need for an express assignment,
subsequent Holders of Transfer Restricted Securities; provided, however, that
this Agreement shall not inure to the benefit of or be binding upon a successor
or assign of a Holder unless and to the extent such successor or assign acquired
Transfer Restricted Securities from such Holder.
(g) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE
CONFLICT OF LAW RULES THEREOF.
(j) Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and
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<PAGE>
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.
(k) Entire Agreement. This Agreement together with the other
Operative Documents (as defined in the Purchase Agreement) is intended by the
parties as a final expression of their agreement and intended to be a complete
and exclusive statement of the agreement and understanding of the parties hereto
in respect of the subject matter contained herein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein with respect to the registration rights granted by the Company with
respect to the Transfer Restricted Securities. This Agreement supersedes all
prior agreements and understandings between the parties with respect to such
subject matter.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first written above.
PEGASUS COMMUNICATIONS CORPORATION
By: /s/ Marshall W. Pagon
-------------------------------------
Name: Marshall W. Pagon
Title: President
CIBC WOOD GUNDY SECURITIES CORP.
By: /s/ William Phoenix
---------------------------------
Name: William Phoenix
Title: Managing Director
21
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FOR IMMEDIATE RELEASE
- ---------------------
PEGASUS COMMUNICATIONS CORPORATION
ANNOUNCES PRIVATE OFFERING OF $100 MILLION OF SENIOR NOTES
RADNOR, PA October 8, 1997 -- Pegasus Communications Corporation
(Nasdaq: PGTV) announced today that it is privately offering approximately $100
million of senior notes. The Company commenced the offering today and
anticipates using the proceeds of the offering to finance DBS acquisitions and
repay borrowings under an existing credit facility. The terms of the offering
have not been finalized. The securities being offered in the private offering
will not be and have not been registered under the Securities Act of 1933 and
may not be offered or sold in the United States without registration or an
applicable exemption from registration requirements.
In connection with the offering, Pegasus would reorganize its DBS
operating subsidiaries as subsidiaries of Pegasus Media & Communications, Inc.,
a wholly-owned subsidiary of Pegasus, and would consolidate its existing credit
facilities into a new single $180 million credit facility.
Pegasus Communications Corporation operates in two growing areas of
television - direct broadcast satellite television (DBS) and broadcast televison
(TV). In DBS, Pegasus Satellite Television is the largest independent provider
of DIRECTV services in the US. Pegasus owns the exclusive right to provide
DIRECTV to approximately 2.3 million households in 27 states and serves
approximately 126,000 DBS subscribers, giving effect to pending acquisitions.
Pegasus Broadcast Television operates eight TV stations serving approximately
1.9 million households in six TV markets, giving effect to the pending launch of
two TV stations. Pegasus' TV stations are affiliated with FOX, UPN and WB.
Pegasus also serves approximately 42,000 cable subscribers in New England and
Puerto Rico.
This press release contains information about pending transactions,and
there can be no assurance that these transactions will be completed.
###
For further information, contact: Robert N. Verdecchio, CFO
- --------------------------------- Pegasus Communications Corporation
610-341-1801
<PAGE>
[LOGO]
FOR IMMEDIATE RELEASE
- ---------------------
PEGASUS COMMUNICATIONS CORPORATION
ANNOUNCES TERMS OF PRIVATE OFFERING OF SENIOR NOTES
RADNOR, PA, October 17, 1997 -- Pegasus Communications Corporation
(Nasdaq: PGTV) announced today that it increased its previously announced
private offering of senior notes to $115 million. The notes will bear interest
at a rate of 9 5/8% per annum and will mature in 2005. The offering is scheduled
to close on October 21, 1997. The Company anticipates using the proceeds of the
offering to finance DBS acquisitions and repay borrowings under an existing
credit facility. The securities being offered in the private offering will not
be and have not been registered under the Securities Act of 1933 and may not be
offered or sold in the United States without registration or an applicable
exemption from registration requirements.
###
For further information, contact: Robert N. Verdecchio, CFO
Pegasus Communications Corporation
610-341-1801
