<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended June 30, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from__________ to __________
Commission File Number 0-21389
PEGASUS COMMUNICATIONS CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 51-0374669
- ------------------------------- -------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
c/o Pegasus Communications Management Company;
5 Radnor Corporate Center, Suite 454, Radnor, PA 19087
- ------------------------------------------------ -----
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (888) 438-7488
--------------
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes __X__ No _____
Number of shares of each class of the registrant's common stock outstanding as
of August 7, 1998:
Class A, Common Stock, $0.01 par value 11,315,809
Class B, Common Stock, $0.01 par value 4,581,900
<PAGE>
PEGASUS COMMUNICATIONS CORPORATION
Form 10-Q
Table of Contents
For the Quarterly Period Ended June 30, 1998
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C>
Part I. Financial Information
Item 1 Consolidated Financial Statements
Consolidated Balance Sheets
December 31, 1997 and June 30, 1998 3
Consolidated Statements of Operations
Three months ended June 30, 1997 and 1998 4
Consolidated Statements of Operations
Six months ended June 30, 1997 and 1998 5
Consolidated Statements of Cash Flows
Six months ended June 30, 1997 and 1998 6
Notes to Consolidated Financial Statements 7
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 14
Item 3 Quantitative and Qualitative Disclosures About
Market Risk 21
Part II. Other Information
Item 2 Changes in Securities and Use of Proceeds 22
Item 4 Submission of Matters to a Vote of Security Holders 22
Item 5 Other Information 22
Item 6 Exhibits and Reports on Form 8-K 23
Signature 24
</TABLE>
2
<PAGE>
Pegasus Communications Corporation
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
-------------- --------------
ASSETS (unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 44,049,097 $ 37,218,433
Restricted cash 1,220,056 20,475,000
Accounts receivable, less allowance for doubtful
accounts of $319,000 and $405,000, respectively 13,819,571 17,192,509
Program rights 2,059,346 1,457,256
Inventory 974,920 2,481,545
Deferred taxes 2,602,453 2,602,453
Prepaid expenses and other 788,669 1,418,878
------------- -------------
Total current assets 65,514,112 82,846,074
Restricted cash, net of current portion 8,666,621
Property and equipment, net 27,686,646 31,369,405
Intangible assets, net 284,774,027 668,205,825
Program rights 2,262,299 1,612,299
Deferred taxes 13,296,554
Deposits and other 624,629 624,629
------------- -------------
Total assets $ 380,861,713 $ 806,621,407
============= =============
LIABILITIES AND TOTAL EQUITY
Current liabilities:
Current portion of long-term debt $ 6,357,320 $ 13,601,883
Accounts payable 4,151,226 9,427,108
Accrued interest 8,177,261 16,870,926
Accrued satellite programming and fees 6,089,389 8,045,255
Accrued expenses 6,973,297 11,695,617
Current portion of program rights payable 1,418,581 808,761
------------- -------------
Total current liabilities 33,167,074 60,449,550
Long-term debt, net of current portion 201,997,811 443,978,071
Program rights payable 1,416,446 801,446
Deferred taxes 2,652,454 69,651,954
------------- -------------
Total liabilities 239,233,785 574,881,021
------------- -------------
Commitments and contingent liabilities -- --
Minority interest 3,000,000 3,000,000
------------- -------------
Series A preferred stock 111,264,424 118,418,130
------------- -------------
Common stockholders' equity:
Class A common stock 57,399 113,142
Class B common stock 45,819 45,819
Additional paid-in capital 64,034,687 178,524,222
Deficit (36,774,401) (68,360,927)
------------- -------------
Total common stockholders' equity 27,363,504 110,322,256
------------- -------------
Total liabilities and stockholders' equity $ 380,861,713 $ 806,621,407
============= =============
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE>
Pegasus Communications Corporation
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Three Months Ended June 30,
------------------------------------
1997 1998
------------ ------------
(unaudited)
<S> <C> <C>
Revenues:
Basic and satellite service $ 10,797,191 $ 31,793,303
Premium services 1,009,904 4,263,247
Broadcasting revenue,
net of agency commissions 6,168,318 6,809,541
Barter programming revenue 1,603,500 1,787,200
Other 227,890 2,086,066
------------ ------------
Total revenues 19,806,803 46,739,357
Operating expenses:
Programming 5,227,494 17,142,089
Barter programming expense 1,603,500 1,787,200
Technical and operations 903,526 1,001,120
Marketing and selling 2,507,011 9,662,340
General and administrative 2,984,004 7,939,859
Incentive compensation 241,155 620,372
Corporate expenses 497,214 796,176
Depreciation and amortization 5,955,962 16,667,645
------------ ------------
Loss from operations (113,063) (8,877,444)
Interest expense (2,869,286) (10,339,353)
Interest income 243,918 374,543
Other expenses, net (294,188) (334,665)
------------ ------------
Loss before income taxes (3,032,619) (19,176,919)
Provision for income taxes 50,000 50,000
------------ ------------
Net loss (3,082,619) (19,226,919)
Preferred dividends 3,187,500 3,576,853
------------ ------------
Net loss applicable to common shares ($ 6,270,119) ($22,803,772)
============ ============
Basic and diluted earnings per common share:
Net loss ($ 0.64) ($ 1.59)
============ ============
Weighted average shares outstanding 9,801,057 14,310,075
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE>
Pegasus Communications Corporation
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Six Months Ended June 30,
------------------------------------
1997 1998
------------ ------------
(unaudited)
<S> <C> <C>
Revenues:
Basic and satellite service $ 18,588,844 $ 49,819,774
Premium services 1,933,269 7,072,013
Broadcasting revenue,
net of agency commissions 11,445,422 12,151,659
Barter programming revenue 3,054,300 3,246,700
Other 587,729 3,232,903
------------ ------------
Total revenues 35,609,564 75,523,049
Operating expenses:
Programming 9,155,913 27,353,345
Barter programming expense 3,054,300 3,246,700
Technical and operations 1,858,667 2,064,241
Marketing and selling 4,454,658 16,049,139
General and administrative 5,286,048 12,879,982
Incentive compensation 521,006 1,029,577
Corporate expenses 903,675 1,481,442
Depreciation and amortization 10,854,293 26,598,229
------------ ------------
Loss from operations (478,996) (15,179,606)
Interest expense (6,023,752) (16,315,091)
Interest income 691,353 720,290
Other expenses, net (239,765) (687,119)
Gain on sale of cable system 4,451,320 --
------------ ------------
Loss before income taxes (1,599,840) (31,461,526)
Provision for income taxes 50,000 125,000
------------ ------------
Net loss (1,649,840) (31,586,526)
Preferred stock dividends 5,312,500 7,153,706
------------ ------------
Net loss applicable to common shares ($ 6,962,340) ($38,740,232)
============ ============
Basic and diluted earnings per common share:
Net loss ($ 0.71) ($ 3.14)
============ ============
Weighted average shares outstanding 9,773,933 12,332,244
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE>
Pegasus Communications Corporation
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Six Months Ended June 30,
--------------------------------------
1997 1998
------------- -------------
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss ($ 1,649,840) ($ 31,586,526)
Adjustments to reconcile net loss
to net cash provided by operating activities:
Depreciation and amortization 10,854,293 26,598,229
Program rights amortization 781,125 1,251,490
Accretion on discount of bonds and seller notes 196,872 535,955
Gain on sale of cable system (4,451,320) --
Bad debt expense 412,284 794,882
Change in assets and liabilities:
Accounts receivable (901,085) (1,005,976)
Inventory 96,477 (161,357)
Prepaid expenses and other (575,556) (424,267)
Accounts payable and accrued expenses 925,613 4,783,190
Accrued interest 178,438 3,777,383
Capitalized subscriber acquisition costs (2,729,471) --
Deposits and other (32,906) --
------------- -------------
Net cash provided by operating activities 3,104,924 4,563,003
------------- -------------
Cash flows from investing activities:
Acquisitions, net of cash acquired (56,586,989) (42,252,899)
Cash acquired from acquisitions 164,221 3,112,482
Capital expenditures (5,232,692) (3,647,790)
Purchase of intangible assets (2,157,575) (7,608,821)
Payments of programming rights (1,287,725) (1,224,220)
Proceeds from sale of cable system 6,945,270 --
------------- -------------
Net cash used for investing activities (58,155,490) (51,621,248)
------------- -------------
Cash flows from financing activities:
Repayments of long-term debt (164,267) (5,404,660)
Borrowings on bank credit facilities 526,250 46,000,000
Repayments of bank credit facilities (30,126,250) --
Restricted cash (6,892,256) (121,176)
Capital lease repayments (169,091) (246,583)
Proceeds from issuance of Series A preferred stock 100,000,000 --
Underwriting and preferred offering costs (4,187,920) --
------------- -------------
Net cash provided by financing activities 58,986,466 40,227,581
------------- -------------
Net increase (decrease) in cash and cash equivalents 3,935,900 (6,830,664)
Cash and cash equivalents, beginning of year 8,582,369 44,049,097
------------- -------------
Cash and cash equivalents, end of period $ 12,518,269 $ 37,218,433
============= =============
</TABLE>
See accompanying notes to consolidated financial statements
6
<PAGE>
PEGASUS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The Company:
Pegasus Communications Corporation ("Pegasus" or together with its
subsidiaries stated below, the "Company"), is a diversified media and
communications company incorporated under the laws of the State of Delaware in
May 1996, and is a direct subsidiary of Pegasus Communications Holdings, Inc.
("PCH" or the "Parent"). Pegasus' direct subsidiaries are Pegasus Media &
Communications, Inc. ("PM&C"), Digital Television Services, Inc. ("DTS"),
Pegasus Development Corporation ("PDC"), Pegasus Towers, Inc. ("Towers") and
Pegasus Communications Management Company ("PCMC").
PM&C is a diversified media and communications company whose
subsidiaries provide direct broadcast satellite television ("DBS") services to
customers in certain rural areas of the US, provide capital for various
satellite initiatives such as subscriber acquisitions costs, own and operate
cable television ("Cable") systems that provide service to individual and
commercial subscribers in New England and Puerto Rico, own and operate broadcast
television ("TV") stations affiliated with the Fox Broadcasting Company ("Fox")
and operate, pursuant to local marketing agreements, stations affiliated with
United Paramount Network ("UPN") and The WB Television Network ("WB").
DTS, which was acquired by the Company on April 27, 1998 (see footnote
7 - Acquisitions), provides DBS services to customers in certain rural areas of
the US. PDC provides capital for various satellite initiatives such as
subscriber acquisitions costs. Towers owns and operates transmitting towers
located in Pennsylvania and Tennessee. PCMC provides certain management and
accounting services for the Company.
2. Basis of Presentation:
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements. The financial statements include
the accounts of Pegasus and all of its subsidiaries. All intercompany
transactions and balances have been eliminated.
The unaudited consolidated financial statements reflect all adjustments
consisting of normal recurring items which are, in the opinion of management,
necessary for a fair presentation, in all material respects, of the financial
position of the Company and the results of its operations and its cash flows for
the interim period. For further information, refer to the consolidated financial
statements and footnotes thereto for the year ended December 31, 1997 included
in the Company's Annual Report on Form 10-K/A for the year then ended.
7
<PAGE>
PEGASUS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
3. Common Stock:
At December 31, 1997 common stock consists of the following:
<TABLE>
<CAPTION>
<S> <C>
Pegasus Class A common stock, $0.01 par value; 30.0 million shares
authorized; 5,739,842 issued and outstanding ................... $ 57,399
Pegasus Class B common stock, $0.01 par value; 15.0 million shares
authorized; 4,581,900 issued and outstanding ................... 45,819
--------
Total common stock ............................................. $103,218
========
At June 30, 1998 common stock consists of the following:
Pegasus Class A common stock, $0.01 par value; 30.0 million shares
authorized; 11,314,177 issued and outstanding .................. $113,142
Pegasus Class B common stock, $0.01 par value; 15.0 million shares
authorized; 4,581,900 issued and outstanding .................. 45,819
--------
Total common stock ............................................. $158,961
========
</TABLE>
The Company's ability to pay dividends on its Common Stock is subject
to certain restrictions (see footnote 4 - Redeemable Preferred Stock and
footnote 5 - Long-Term Debt).
4. Redeemable Preferred Stock:
In January 1997, Pegasus completed a unit offering (the "Unit
Offering") in which it sold 100,000 shares of 12.75% Series A Cumulative
Exchangeable Preferred Stock (the "Series A Preferred Stock") and warrants to
purchase 193,600 shares of Class A Common Stock at an exercise price of $15 per
share to the public at a price of $1,000 per unit, resulting in net proceeds to
the Company of $95.8 million.
As a result of the Unit Offering and dividends subsequently declared on
the Series A Preferred Stock, the Company had outstanding, at December 31, 1997
and June 30, 1998, 105,490 and 112,215 shares of Series A Preferred Stock,
respectively, authorized, issued and outstanding. Each whole share of Series A
Preferred Stock has a liquidation preference of $1,000 per share (the
"Liquidation Preference"). Cumulative dividends, at a rate of 12.75% are payable
semi-annually on January 1 and July 1. Dividends may be paid, occurring on or
prior to January 1, 2002, at the option of the Company, either in cash or by the
issuance of additional shares of Series A Preferred Stock. Subject to certain
conditions, the Series A Preferred Stock is exchangeable in whole, but not in
part, at the option of the Company, for Pegasus' 12.75% Senior Subordinated
Exchange Notes due 2007 (the "Exchange Notes"). The Exchange Notes would contain
substantially the same redemption provisions, restrictions and other terms as
the Series A Preferred Stock. Pegasus is required to redeem all of the Series A
Preferred Stock outstanding on January 1, 2007 at a redemption price equal to
the Liquidation Preference thereof, plus accrued dividends.
The carrying amount of the Series A Preferred Stock is periodically
increased by amounts representing dividends not currently declared or paid but
which will be payable under the mandatory redemption features. The increase in
carrying amount is effected by charges against retained earnings, or in the
absence of retained earnings, by charges against paid-in capital.
Under the terms of the Series A Preferred Stock, Pegasus' ability to
pay dividends on its Common Stock is subject to certain restrictions.
8
<PAGE>
PEGASUS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
4. Redeemable Preferred Stock (continued):
Basic earnings per share amounts are based on net income after
deducting preferred stock dividend requirements divided by the weighted average
number of Class A and Class B Common shares outstanding during the period.
5. Long-Term Debt:
<TABLE>
<CAPTION>
Long-term debt consists of the following : December 31, June 30,
1997 1998
---------------- ----------------
<S> <C> <C>
Series B Notes payable by PM&C, due 2005, interest at 12.5%, payable
semi-annually in arrears on January 1 and July 1, net of unamortized
discount of $3,018,003 and $2,820,179 as of December 31, 1997 and June 30,
1998, respectively ....................................................... $ 81,981,997 $ 82,179,821
Series B Notes payable by DTS, due 2007, interest at 12.5%,
payable semi-annually in arrears on February 1 and
August 1, net of unamortized discount of $1,943,598 as
of June 30, 1998 ......................................................... -- 153,056,402
Series B Senior Notes payable by Pegasus, due 2005, interest
at 9.625%, payable semi-annually in arrears on April 15
and October 15, commencing on April 15, 1998 ............................. 115,000,000 115,000,000
Senior six-year $180.0 million revolving credit facility,
payable by PM&C, interest at PM&C's option at either the bank's base rate
plus an applicable margin or LIBOR plus an applicable margin ............. -- 46,000,000
Senior six-year $70.0 million revolving credit facility,
payable by DTS, interest at DTS' option at either the
bank's base rate or the Eurodollar Rate .................................. -- 9,500,000
Senior six-year $20.0 million term loan facility, payable by
DTS, interest at DTS' option at either the bank's base
rate or the Eurodollar Rate .............................................. -- 20,000,000
Mortgage payable, due 2000, interest at 8.75% ................................ 477,664 464,664
Note payable, due 1998, interest at 10% ...................................... 3,050,000 --
Sellers' notes, various maturities and interest rates ........................ 7,171,621 30,683,832
Capital leases and other ..................................................... 673,849 695,235
------------ ------------
208,355,131 457,579,954
Less current maturities ...................................................... 6,357,320 13,601,883
------------ ------------
Long-term debt ............................................................... $201,997,811 $443,978,071
============ ============
</TABLE>
9
<PAGE>
PEGASUS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
5. Long-Term Debt (continued):
In December 1997, PM&C entered into a $180.0 million six-year senior
revolving credit facility (the "New Credit Facility"), which is collateralized
by substantially all of the assets of PM&C and its subsidiaries. Interest on the
New Credit Facility is, at PM&C's option, at either the bank's base rate plus an
applicable margin or LIBOR plus an applicable margin. The New Credit Facility is
subject to certain financial covenants as defined in the loan agreement,
including a debt to adjusted cash flow covenant. The New Credit Facility will be
used to finance future acquisitions and for working capital, capital
expenditures and general corporate purposes.
In October 1997, Pegasus completed an offering of senior notes (the
"Senior Notes Offering") in which it sold $115.0 million of its 9.625% Series A
Senior Notes due 2005 (the "9.625% Series A Senior Notes"), resulting in net
proceeds to the Company of approximately $111.0 million. A portion of the
proceeds from the Senior Notes Offering were used to retire an existing $130.0
million credit facility.
In February 1998, pursuant to a registered exchange offer, Pegasus
exchanged all $115.0 million of its 9.625% Series A Notes for $115.0 million of
its 9.625% Series B Senior Notes due 2005 (the "9.625% Series B Senior Notes",
and together with the 9.625% Series A Senior Notes, the "Senior Notes"). The
9.625% Series B Senior Notes have substantially the same terms and provisions as
the 9.625% Series A Senior Notes. No gain or loss was recorded in connection
with the exchange of the notes.
In July 1997, DTS entered into an amended and restated $70.0 million
six-year senior revolving credit facility and a $20.0 million six-year senior
term facility (collectively, the "DTS Credit Facility"), which is collateralized
by substantially all of the assets of DTS and its subsidiaries. Interest on the
DTS Credit Facility is, at DTS' option, at either the bank's base rate or the
Eurodollar Rate. The DTS Credit Facility is subject to certain financial
covenants as defined in the loan agreement, including a debt to adjusted cash
flow covenant. The DTS Credit Facility may be used to refinance certain existing
indebtedness, finance future acquisitions and for working capital, capital
expenditures and general corporate purposes.
In July 1997, DTS completed a senior subordinated notes offering (the
"DTS Notes Offering") in which it sold $155.0 million of its 12.5% Series A
Senior Subordinated Notes due 2007 (the "DTS Series A Notes"), resulting in net
proceeds to DTS of approximately $146.0 million. DTS used the net proceeds to
fund an interest escrow account, which is included in restricted cash on the
Company's consolidated balance sheets, for the first four semi-annual interest
payments on the notes and to repay outstanding indebtedness under the DTS Credit
Facility.
In January 1998, DTS exchanged its DTS Series A Notes for its 12.5%
Series B Senior Subordinated Notes due 2007 (the "DTS Series B Notes", and
together with the DTS Series A Notes, the "DTS Notes"). The DTS Series B Notes
have substantially the same terms and provisions as the DTS Series A Notes. The
DTS Series B Notes are guaranteed on a full, unconditional, senior subordinated
basis, jointly and severally by all direct and indirect subsidiaries of DTS,
except DTS Capital, which is a co-issuer of the DTS Notes and currently has
nominal assets and does not conduct any operations.
The Company's indebtedness contain certain financial and operating
covenants, including restrictions on the Company's ability to incur additional
indebtedness, create liens and pay dividends.
10
<PAGE>
PEGASUS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
6. Net Loss Per Common Share:
Calculation of Basic and Diluted Earnings Per Common Share:
The following table sets forth the computation of the number of shares used
in the computation of basic and diluted earnings per common share:
<TABLE>
<CAPTION>
Three Months Ended June 30,
------------------------------------
1997 1998
---- ----
<S> <C> <C>
Net loss applicable to common shares ($ 6,270,119) ($22,803,772)
============ ============
Weighted average common shares outstanding 9,801,057 14,310,075
============ ============
Six Months Ended June 30,
------------------------------------
1997 1998
---- ----
Net loss applicable to common shares ($ 6,962,340) ($38,740,232)
============ ============
Weighted average common shares outstanding 9,773,933 12,332,244
============ ============
</TABLE>
For the three and six months ended June 30, 1997 and 1998, net loss per
common share was determined by dividing net loss, as adjusted by the aggregate
amount of dividends on the Company's Series A Preferred Stock, approximately
$3.2 million, $5.3 million, $3.6 million and $7.2 million, respectively, by
applicable shares outstanding. The total shares used for the calculation of
diluted net loss per common share were not adjusted for securities that have not
been issued as they are antidulitive.
7. Acquisitions:
As of January 7, 1998, the Company acquired, from an independent
DIRECTV(R) ("DIRECTV") provider, the rights to provide DIRECTV programming in
certain rural areas of Minnesota and the related assets in exchange for total
consideration of approximately $1.9 million, which consisted of $1.8 million in
cash and $32,000 in assumed liabilities.
As of March 9, 1998, the Company acquired, from two independent DIRECTV
providers, the rights to provide DIRECTV programming in certain rural areas of
Nebraska and Texas and the related assets in exchange for total consideration of
approximately $15.6 million, which consisted of $5.9 million in cash, $105,000
in assumed liabilities, a $9.4 million note, payable over four years; and
$75,000 in cash and a $150,000 obligation, payable over two years, for
consultancy and non-compete agreements.
As of April 9, 1998, the Company acquired, from two independent DIRECTV
providers, the rights to provide DIRECTV programming in certain rural areas of
New Mexico and Texas and the related assets in exchange for total consideration
of approximately $14.3 million, which consisted of $13.1 million in cash,
$298,000 in assumed liabilities and 37,304 shares of the Company's Class A
Common Stock (amounting to $900,000 at the time of issuance).
11
<PAGE>
PEGASUS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
7. Acquisitions (continued):
On April 27, 1998, the Company acquired, from DTS, which holds the
rights to provide DIRECTV programming in certain rural areas of California,
Colorado, Georgia, Indiana, Kansas, Kentucky, New Hampshire, New Mexico, New
York, South Carolina and Vermont, the related assets and liabilities in exchange
for total consideration of approximately $345.2 million, which consisted of
approximately 5.5 million shares of the Company's Class A Common Stock
(amounting to $119.4 million at a price of $21.71 per share), approximately
$158.9 million of assumed net liabilities and approximately $66.9 million of a
deferred tax liability.
As of May 11, 1998, the Company acquired, from three independent
DIRECTV providers, the rights to provide DIRECTV programming in certain rural
areas of Idaho and Oregon and the related assets in exchange for total
consideration of approximately $9.3 million, which consisted of $9.2 million in
cash and $140,000 in assumed liabilities.
As of June 10, 1998, the Company acquired, from four independent
DIRECTV providers, the rights to provide DIRECTV programming in certain rural
areas of Idaho, South Dakota and Texas and the related assets in exchange for
total consideration of approximately $12.5 million, which consisted of $12.2
million in cash, $154,000 in assumed liabilities; and a $120,000 obligation,
payable over three years, for a non-compete agreement.
The following unaudited summary, prepared on a pro forma basis,
combines the results of operations as if the above DBS territories had been
acquired as of the beginning of the periods presented, after including the
impact of certain adjustments, such as the Company's payments to related
parties, amortization of intangibles, interest expense, preferred stock
dividends and related income tax effects. The pro forma information does not
purport to be indicative of what would have occurred had the acquisitions been
made on those dates or of results which may occur in the future. This pro forma
information does not include any acquisitions that occurred subsequent to June
30, 1998.
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
(in thousands, except per share data) (unaudited)
1997 1998
---- ----
<S> <C> <C>
Net revenues ....................................... $77,754 $102,675
-------- ---------
Operating loss...................................... ($38,532) ($40,867)
-------- ---------
Net loss............................................ ($48,269) ($58,714)
Less: Preferred stock dividends..................... (7,154) (7,154)
========= =========
Net loss applicable to common shares................ ($55,423) ($65,868)
========= =========
Net loss per common share.......................... ($3.53) ($4.15)
========= =========
</TABLE>
8. Supplemental Cash Flow Information:
The Company incurred significant non-cash investing and financing
activities in connection with the April 27, 1998 acquisition of DTS, (see
footnote 7 - Acquisitions). The acquisition of DTS was accounted for using the
purchase method of accounting. The purchase price of $345.2 million consisted of
the issuance of approximately 5.5 million shares of Pegasus Class A Common
Stock, valued at $21.71 per share ($119.4 million), to the shareholders of DTS
and the assumption of net liabilities amounting to approximately $158.9 million
(total assets of $216.4 million less intangibles of $161.0 million less total
liabilities of $214.3 million). The Company also recorded a net deferred tax
liability, primarily as a result of non-deductible amortization, of
approximately $66.9 million of which $53.6 million was allocated to DBS rights
and $13.3 million was recorded as a deferred tax asset.
12
<PAGE>
PEGASUS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
9. Commitments and Contingent Liabilities:
Legal Matters:
From time to time the Company is involved with claims that arise in the
normal course of business. In the opinion of management, the ultimate liability
with respect to these claims will not have a material adverse effect on the
consolidated operations, liquidity, cash flows or financial position of the
Company.
10. Other Events:
On June 17, 1998 the Board of Directors declared a dividend on the
Series A Preferred Stock in the aggregate of approximately 7,154 shares of
Series A Preferred Stock, payable on July 1, 1998 to shareholders of record on
June 15, 1998.
Effective July 1, 1998, the Company sold substantially all the assets
of its remaining New England cable systems to Avalon Cable of New England, LLC
for approximately $30 million in cash. The Company expects to recognize a
nonrecurring gain of approximately $26 million in the third quarter of 1998
relating to this transaction.
As of July 10, 1998, the Company acquired, from three independent
DIRECTV providers, the rights to provide DIRECTV programming in certain rural
areas of Alabama, Nebraska and South Dakota and the related assets in exchange
for total consideration of approximately $17.9 million, which consisted of $17.8
million in cash; and a $125,000 obligation, payable over one year, for
consultancy and non-compete agreements.
On July 23, 1998, the Company entered into an agreement to purchase a
cable system serving Aguadilla, Puerto Rico and neighboring communities for a
purchase price of approximately $42 million in cash. The Aguadilla cable system
serves approximately 21,500 subscribers and passes approximately 81,000 of the
90,000 homes in the franchise area. The Aquadilla cable system is contiguous to
the Company's existing Puerto Rico cable system and, upon completion of the
purchase, the Company intends to consolidate the Aquadilla cable system with its
existing cable system. The closing of this acquisition is subject to regulatory
and other approvals, as well as customary conditions, and the Company expects
this transaction to close in the fourth quarter of 1998 or the first quarter of
1999.
In July 1998, Pegasus commenced operations of TV station WFXU, which
simulcasts the signal of WTLH, a TV station owned by the Company which is
affiliated with Fox. WFXU is in the Tallahassee, Florida Designated Market Area
("DMA") and is being operated under a local marketing agreement ("LMA").
13
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
This Report contains certain forward-looking statements (as such term
is defined in the Private Securities Litigation Reform Act of 1995) and
information relating to the Company that are based on the beliefs of the
management of the Company, as well as assumptions made by and information
currently available to the Company's management. When used in this Report, the
words "estimate," "project," "believe," "anticipate," "intend," "expect" and
similar expressions are intended to identify forward-looking statements. Such
statements reflect the current views of the Company with respect to future
events and are subject to risks and uncertainties that could cause actual
results to differ materially from those contemplated in such forward-looking
statements. For a discussion of such risks, see the information contained in the
section captioned "Risk Factors" (pages 12-21) of Pegasus' Proxy
Statement/Prospectus dated April 14, 1998, filed as part of Pegasus'
Registration Statement in Form S-4, File No. 333-44929 (the "Proxy
Statement/Prospectus"), which section is incorporated by reference herein.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as the date hereof. The Company does not undertake
any obligation to publicly release any revisions to these forward-looking
statements to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events. Unless otherwise defined, all
defined terms used herein have the same meaning as in the footnotes to the
Consolidated Financial Statements included herein.
General
The Company is a diversified company operating in growing segments of
the media and communications industries: multichannel television and broadcast
television. Pegasus Multichannel Television includes DBS and cable businesses.
As of June 30, 1998, the Company's DBS operations consisted of providing DIRECTV
services to approximately 329,000 subscribers in certain rural areas of
thirty-five states in which the Company holds the exclusive right to provide
such services. Its cable operations consist of a system in Puerto Rico. The
Company sold its New Hampshire cable system effective January 31, 1997. The
Company sold its remaining New England cable systems (Connecticut and
Massachusetts) effective July 1, 1998. Pegasus Broadcast Television owns and
operates six TV stations affiliated with Fox and operates one affiliated with
UPN and another affiliated with WB. It has entered into an agreement to operate
two additional TV stations, which will be affiliated with WB and will commence
operations in the second half of 1998.
On April 27, 1998, the Company acquired (the "DTS Acquisition") Digital
Television Services, Inc. (DTS). Upon completion of the DTS Acquisition, DTS
became a wholly owned subsidiary of Pegasus. As of June 30, 1998, DTS'
operations consisted of providing DIRECTV services to approximately 150,000
subscribers in certain rural areas of eleven states in which DTS holds the
exclusive right to provide such services.
Multichannel revenues are derived from monthly customer subscriptions,
pay-per-view services, subscriber equipment rentals, home shopping commissions,
advertising time sales and installation charges. Broadcast revenues are derived
from the sale of broadcast airtime to local and national advertisers.
The Company's location operating expenses consist of (i) programming
expenses, (ii) marketing and selling costs, including advertising and promotion
expenses, local sales commissions and ratings and research expenditures, (iii)
technical and operations costs, (iv) general and administrative expenses, and
(v) expensed subscriber acquisition costs. Multichannel programming expenses
consist of amounts paid to program suppliers, digital satellite system or DSS(R)
("DSS") authorization charges and satellite control fees, each of which is paid
on a per subscriber basis, and DIRECTV royalties which are equal to 5% of DBS
program service revenues. Broadcast programming expenses include the
amortization of long-term program rights purchases, music license costs and
"barter" programming expenses which represent the value of broadcast air time
provided to television program suppliers in lieu of cash.
14
<PAGE>
The Company no longer requires new DBS customers to sign a one-year
programming contract and, as a result, subscriber acquisition costs ("SAC"),
which were being capitalized and amortized over a twelve-month period, are
currently being charged to operations in the period incurred. This change became
effective October 1, 1997. Subscriber acquisition costs charged to operations
are excluded from pre-marketing location operating expenses.
Results of Operations
Three months ended June 30, 1998 compared to three months ended June 30, 1997
The Company's net revenues increased by approximately $27.0 million or
136% for the three months ended June 30, 1998 as compared to the same period in
1997. Multichannel Television net revenues increased approximately $26.1 million
or 219% and Broadcast Television net revenues increased $824,000 or 10%. The net
revenues increased as a result of (i) a $25.6 million or 327% increase in DBS
revenues of which $2.1 million or 8% was due to the increased number of DBS
subscribers in territories owned at the beginning of 1997 and $23.6 million or
92% resulted from acquisitions made in 1997 and 1998, (ii) a $473,000 or 12%
increase in Cable revenues which was due primarily to same system rate increases
and increased subscriber levels, (iii) a $816,000 or 10% increase in TV revenues
which was the result of a $409,000 or 5% increase in same station revenues due
primarily to increases in local advertising sales and a $407,000 increase due to
the two new stations launched in August 1997 and October 1997, and (iv) a $8,000
increase in Tower rental income.
The Company's total pre-marketing location operating expenses, as
described above (before DBS subscriber acquisition costs), increased by
approximately $18.2 million or 144% for the three months ended June 30, 1998 as
compared to the same period in 1997. Multichannel Television pre-marketing
location operating expenses increased approximately $17.5 million or 232% and
Broadcast Television location operating expenses increased $676,000 or 13%. The
pre-marketing location operating expenses increased as a result of (i) a $17.4
million or 328% increase in operating expenses of the Company's DBS operations
due to a same territory increase in programming and other operating costs
totaling $1.1 million (resulting from the increased number of DBS subscribers in
territories owned at the beginning of 1997) and a $16.3 million increase
attributable to territories acquired in 1997 and 1998, (ii) a $94,000 or 4%
increase in Cable operating expenses due primarily to increases in same system
programming costs, and (iii) a $676,000 or 13% increase in TV operating expenses
as the result of a $184,000 or 4% increase in same station operating expenses
and a $492,000 increase attributable to the two new stations launched in August
1997 and October 1997.
DBS subscriber acquisition costs, which consist of regional sales
costs, advertising and promotion, and commissions and subsidies, totaled
approximately $6.7 million or $276 per gross subscriber addition for the three
months ended June 30, 1998 as compared to approximately $2.1 million or $384 per
gross subscriber addition for the same period in 1997.
Incentive compensation, which is calculated from increases in pro forma
Location Cash Flow, increased by $381,000 or 158% for the three months ended
June 30, 1998 as compared to the same period in 1997.
Corporate expenses increased by $298,000 or 60% for the three months
ended June 30, 1998 as compared to the same period in 1997 primarily due to
increased staffing as a result of internal and acquisition related growth,
enhanced public relations activities and additional public reporting
requirements for the Company.
Depreciation and amortization expense increased by approximately $10.7
million or 180% for the three months ended June 30, 1998 as compared to the same
period in 1997 as the Company increased its fixed and intangible asset base as a
result of twenty-five completed acquisitions during 1997 and thirteen completed
acquisitions in the first half of 1998.
15
<PAGE>
As a result of these factors, the Company's loss from operations
increased by approximately $8.8 million for the three months ended June 30, 1998
as compared to the same period in 1997.
Interest expense increased by approximately $7.5 million or 260% for
the three months ended June 30, 1998 as compared to the same period in 1997 as a
result of an increase in debt associated with the Company's acquisitions.
The Company reported a net loss of approximately $19.2 million for the
three months ended June 30, 1998 as compared to a net loss of approximately $3.1
million for the same period in 1997. The $16.1 million change was the net result
of an increase in the loss from operations of approximately $8.8 million, an
increase in interest expense of approximately $7.5 million and a decrease in
other expenses of $90,000.
The Company's preferred stock dividends, payable by issuing additional
shares of Series A Preferred Stock, increased $390,000 for the three months
ended June 30, 1998 as compared to the same period in 1997.
Six months ended June 30, 1998 compared to six months ended June 30, 1997
The Company's net revenues increased by approximately $39.9 million or
112% for the six months ended June 30, 1998 as compared to the same period in
1997. Multichannel Television net revenues increased approximately $39.0 million
or 187% and Broadcast Television net revenues increased $918,000 or 6%. The net
revenues increased as a result of (i) a $38.2 million or 299% increase in DBS
revenues of which $4.0 million or 11% was due to the increased number of DBS
subscribers in territories owned at the beginning of 1997 and $34.1 million or
89% resulted from acquisitions made in 1997 and 1998, (ii) a $839,000 or 10%
increase in Cable revenues which was the net result of a $972,000 or 12%
increase in same system revenues due primarily to rate increases and increased
subscriber levels, and a $133,000 reduction due to the sale of the Company's New
Hampshire cable system effective January 31, 1997, (iii) a $902,000 or 6%
increase in TV revenues which was the result of a $179,000 or 1% increase in
same station revenues due primarily to increases in local advertising sales and
a $723,000 increase due to the two new stations launched in August 1997 and
October 1997, and (iv) a $16,000 increase in Tower rental income.
The Company's total pre-marketing location operating expenses, as
described above (before DBS subscriber acquisition costs), increased by
approximately $27.9 million or 122% for the six months ended June 30, 1998 as
compared to the same period in 1997. Multichannel Television pre-marketing
location operating expenses increased approximately $26.6 million or 202% and
Broadcast Television location operating expenses increased approximately $1.3
million or 14%. The pre-marketing location operating expenses increased as a
result of (i) a $26.2 million or 299% increase in operating expenses of the
Company's DBS operations due to a same territory increase in programming and
other operating costs totaling $2.4 million (resulting from the increased number
of DBS subscribers in territories owned at the beginning of 1997) and a $23.8
million increase attributable to territories acquired in 1997 and 1998, (ii) a
$362,000 or 8% increase in Cable operating expenses as the net result of a
$428,000 or 10% increase in same system operating expenses due primarily to
increases in programming costs and a $66,000 reduction due to the sale of the
Company's New Hampshire cable system effective January 31, 1997, (iii) a $1.3
million or 14% increase in TV operating expenses as the result of a $290,000 or
3% increase in same station operating expenses and a $1.0 million increase
attributable to the two new stations launched in August 1997 and October 1997,
and (iv) a $3,000 reduction in Tower administrative expenses.
DBS subscriber acquisition costs, which consist of regional sales
costs, advertising and promotion, and commissions and subsidies, totaled
approximately $10.9 million or $279 per gross subscriber addition for the six
months ended June 30, 1998 as compared to approximately $3.7 million or $355 per
gross subscriber addition for the same period in 1997.
16
<PAGE>
Incentive compensation, which is calculated from increases in pro forma
Location Cash Flow, increased by $510,000 or 98% for the six months ended June
30, 1998 as compared to the same period in 1997.
Corporate expenses increased by $577,000 or 64% for the six months
ended June 30, 1998 as compared to the same period in 1997 primarily due to
increased staffing as a result of internal and acquisition related growth,
enhanced public relations activities and additional public reporting
requirements for the Company.
Depreciation and amortization expense increased by approximately $15.7
million or 145% for the six months ended June 30, 1998 as compared to the same
period in 1997 as the Company increased its fixed and intangible asset base as a
result of twenty-five completed acquisitions during 1997 and thirteen completed
acquisitions in the first half of 1998.
As a result of these factors, the Company's loss from operations
increased by approximately $14.7 million for the six months ended June 30, 1998
as compared to the same period in 1997.
Interest expense increased by approximately $10.3 million or 171% for
the six months ended June 30, 1998 as compared to the same period in 1997 as a
result of an increase in debt associated with the Company's acquisitions.
The Company reported a net loss of approximately $31.6 million for the
six months ended June 30, 1998 as compared to a net loss of approximately $1.7
million for the same period in 1997. The $29.9 million change was the net result
of an increase in the loss from operations of approximately $14.7 million, an
increase in interest expense of approximately $10.3 million, an increase in the
provision for income taxes of $75,000, an increase in other expenses of $418,000
and a nonrecurring gain on the sale of the New Hampshire cable system of
approximately $4.5 million during the first quarter of 1997.
The Company's preferred stock dividends, payable by issuing additional
shares of Series A Preferred Stock, increased approximately $1.8 million for the
six months ended June 30, 1998 as compared to the same period in 1997.
Liquidity and Capital Resources
The Company's primary sources of liquidity have been the net cash
provided by its TV and cable operations, credit available under its credit
facilities and proceeds from public and private offerings. The Company's
principal use of its cash has been to fund acquisitions, to meet debt service
obligations, to fund investment in its TV and cable technical facilities and to
fund DBS subscriber acquisition costs.
Pre-Marketing Location Cash Flow increased by approximately $8.7
million or 122% for the three months ended June 30, 1998 as compared to the same
period in 1997. Multichannel Television Pre-Marketing Location Cash Flow
increased approximately $8.6 million or 195% and Broadcast Television Location
Cash Flow increased $148,000 or 5%. Pre-Marketing Location Cash Flow increased
as a result of (i) a $8.2 million or 326% increase in DBS Pre-Marketing Location
Cash Flow of which $951,000 or 12% was due to an increase in same territory
Pre-Marketing Location Cash Flow and $7.2 million or 88% was attributable to
territories acquired in 1997 and 1998, (ii) a $379,000 or 20% increase in same
system Cable Location Cash Flow, (iii) a $140,000 or 5% increase in TV Location
Cash Flow as the net result of a $225,000 or 8% increase in same station
Location Cash Flow and a $85,000 decrease attributable to the two new stations
launched in August 1997 and October 1997, and (iv) a $8,000 increase in Tower
Location Cash Flow.
17
<PAGE>
Pre-Marketing Location Cash Flow increased by approximately $12.0
million or 94% for the six months ended June 30, 1998 as compared to the same
period in 1997. Multichannel Television Pre-Marketing Location Cash Flow
increased approximately $12.4 million or 160% and Broadcast Television Location
Cash Flow decreased $404,000 or 8%. Pre-Marketing Location Cash Flow increased
as a result of (i) a $12.0 million or 298% increase in DBS Pre-Marketing
Location Cash Flow of which $1.6 million or 13% was due to an increase in same
territory Pre-Marketing Location Cash Flow and $10.4 million or 87% was
attributable to territories acquired in 1997 and 1998, (ii) a $477,000 or 13%
increase in Cable Location Cash Flow which was the net result of a $544,000 or
15% increase in same system Location Cash Flow and a $67,000 reduction due to
the sale of the Company's New Hampshire cable system effective January 31, 1997,
(iii) a $423,000 or 9% decrease in TV Location Cash Flow as a result of a
$111,000 or 2% decrease in same station Location Cash Flow, primarily as a
result of the cash flow generated by the Super Bowl in the first quarter of
1997, and a $312,000 decrease attributable to the two new stations launched in
August 1997 and October 1997, and (iv) a $19,000 increase in Tower Location Cash
Flow.
During the six months ended June 30, 1998, net cash provided by
operating activities was approximately $4.6 million which, together with $44.0
million of cash on hand, $3.1 million of cash acquired from the DTS Acquisition
and $40.2 million of net cash provided by the Company's financing activities,
was used to fund other investing activities of $54.7 million. Investing
activities, net of cash acquired from the DTS Acquisition, consisted of (i) the
acquisition of DBS assets from three independent DIRECTV providers during the
first quarter of 1998 for approximately $7.8 million, (ii) the acquisition of
DBS assets from nine independent DIRECTV providers during the second quarter of
1998 for approximately $34.5 million, (iii) broadcast television transmitter,
tower and facility upgrades totaling approximately $2.2 million, (iv) payments
of programming rights amounting to $1.2 million, (v) capitalized costs relating
to the DTS Acquisition of $4.3 million, and (vi) maintenance and other capital
expenditures and intangibles totaling approximately $4.8 million. Financing
activities consisted of (i) the repayment of approximately $5.7 million of
long-term debt and capital leases, (ii) borrowings on bank credit facilities
totaling $46.0 million, and (iii) the net placing of $121,000 in restricted cash
to collateralize letters of credit. As of June 30, 1998, the Company's cash on
hand approximated $37.2 million.
As defined in the Certificate of Designation, Preferences and Relative,
Participating, Optional and Other Special Rights thereof (the "Certificate of
Designation") governing the Series A Preferred Stock and the indenture governing
the Senior Notes (the "Senior Indenture"), the Company is required to provide
Adjusted Operating Cash Flow data for Pegasus and its Restricted Subsidiaries on
a consolidated basis, where Adjusted Operating Cash Flow is defined as "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 (Satellite Segment Operating Cash Flow) for the most recent
four-quarter period, plus DBS Cash Flow for the most recent quarterly period
multiplied by four." Operating Cash Flow is income from operations before income
taxes, depreciation and amortization, interest expense, extraordinary items and
non-cash charges. Although Adjusted Operating Cash Flow is not a measure of
performance under generally accepted accounting principles, the Company believes
that Location Cash Flow, Operating Cash Flow and Adjusted Operating Cash Flow
are accepted within the Company's business segments as generally recognized
measures of performance and are used by analysts who report publicly on the
performance of companies operating in such segments. Restricted Subsidiaries
carries the same meaning as in the Certificate of Designation. Pro forma for the
twelve completed DBS acquisitions occurring in the fist half of 1998, as if such
acquisitions occurred on January 1, 1998, Adjusted Operating Cash Flow would
have been approximately $41.5 million, as follows:
18
<PAGE>
<TABLE>
<CAPTION>
Four Quarters
Ended
(in thousands) June 30, 1998
------------------
<S> <C>
Revenues $137,241
Direct operating expenses, excluding depreciation,
amortization and other non-cash charges 92,874
-------------
Income from operations before incentive compensation,
corporate expenses, depreciation, amortization and
other non-cash charges 44,367
Corporate expenses 2,833
-------------
Adjusted operating cash flow $41,534
=============
</TABLE>
The Company is restricted by the Senior Notes Indenture from paying
dividends on the Series A Preferred Stock in cash prior to July 1, 2002. The
indenture governing the PM&C Notes (the "PM&C Notes Indenture") and the New
Credit Facility contain certain financial and operating covenants, including
restrictions on PM&C's ability to incur additional indebtedness, create liens
and pay dividends. The indenture governing the DTS Notes (the "DTS Notes
Indenture") and the DTS Credit Facility contain certain financial and operating
covenants, including restrictions on DTS' ability to incur additional
indebtedness, create liens and pay dividends.
Pre-Marketing Location Cash Flow is defined as net revenues less
location operating expenses before subscriber acquisition costs. Location Cash
Flow is defined as net revenues less location operating expenses. Although
Pre-Marketing Location Cash Flow and Location Cash Flow are not measures of
performance under generally accepted accounting principles, the Company believes
that Pre-Marketing Location Cash Flow and Location Cash Flow are accepted within
the Company's business segments as generally recognized measures of performance
and are used by analysts who report publicly on the performance of companies
operating in such segments. Nevertheless, these measures should not be
considered in isolation or as a substitute for income from operations, net
income, net cash provided by operating activities or any other measures for
determining the Company's operating performance or liquidity which is calculated
in accordance with generally accepted accounting principles.
The Company believes that it has adequate resources to meet its working
capital, maintenance capital expenditure and debt service obligations. The
Company engages in discussions with respect to acquisition opportunities in
media and communications businesses on a regular basis. The Company believes
that cash on hand, together with available borrowings under the New Credit
Facility and the DTS Credit Facility and future indebtedness which may be
incurred by the Company and its subsidiaries will give the Company the ability
to fund acquisitions and other capital requirements in the future. However,
there can be no assurance that the future cash flows of the Company will be
sufficient to meet all of the Company's obligations and commitments.
The Company closely monitors conditions in the capital markets to
identify opportunities for the effective and prudent use of financial leverage.
In financing its future expansion and acquisition requirements, the Company
would expect to avail itself of such opportunities and thereby increase its
indebtedness, which could result in increased debt service requirements. There
can be no assurance that such debt financing can be completed on terms
satisfactory to the Company or at all. The Company may also issue additional
equity to fund its future expansion and acquisition requirements.
19
<PAGE>
Capital Expenditures
The Company's capital expenditures aggregated $9.9 million in 1997. The
Company expects recurring renewal and refurbishment capital expenditures to
total approximately $2.0 million per year. In addition to these maintenance
capital expenditures, the Company's 1998 capital projects include (i) DBS
facility upgrades of approximately $500,000 and (ii) approximately $2.6 million
of TV expenditures for broadcast television transmitter, tower and facility
constructions and upgrades. The Company commenced the programming of three new
TV stations, WPME in August 1997, WGFL in October 1997 and WFXU in July 1998 and
its plans are to commence programming of two additional stations in the second
half of 1998. There can be no assurance that the Company's capital expenditure
plans will not change in the future.
Effective October 1, 1997, the Company no longer requires new DBS
customers to sign a one-year programming contract and, as a result, subscriber
acquisition costs, which were being capitalized through September 30, 1997 and
amortized over a twelve-month period, will be charged to operations in the
period incurred. The Company's policy is to capitalize subscriber acquisition
costs directly related to new subscribers, such as commissions and equipment
subsidies, who sign a programming contract. These costs are amortized over the
life of the contract. The Company expenses its subscriber acquisition costs when
no new contract is obtained. The Company currently does not require new DBS
customers to sign programming contracts and, as a result, subscriber acquisition
costs are currently being charged to operations in the period incurred.
Other
The Company has reviewed all of its systems as to the Year 2000 issue.
The Company has in the past three years replaced or upgraded, or is in the
process of replacing or upgrading, all of its TV traffic systems, cable billing
systems and corporate accounting systems. All of these new systems will be in
place by the third quarter of 1998. The Company relies on outside vendors for
the operation of its DBS satellite control and billing systems, including
DIRECTV, the NRTC and their respective vendors. The Company has established a
policy to ensure that its vendors are currently in compliance with the Year 2000
issue or have a plan in place to be in compliance with the Year 2000 issue by
the first quarter of 1999. Costs to be incurred beyond June 30, 1998 relating to
the Year 2000 issue are not expected to be significant.
On April 27, 1998, the Company acquired Digital Television Services,
Inc. (DTS) for total consideration of approximately $345.2 million, which
consisted of approximately 5.5 million shares of the Company's Class A Common
Stock (amounting to $119.4 million at a price of $21.71 per share),
approximately $158.9 million of assumed net liabilities and approximately $66.9
million of a deferred tax liability. Upon completion of the DTS Aquisition, DTS
became a wholly owned subsidiary of Pegasus. As of June 30, 1998, DTS'
operations consisted of providing DIRECTV services to approximately 150,000
subscribers in certain rural areas of eleven states in which DTS holds the
exclusive right to provide such services.
Effective July 1, 1998, the Company sold substantially all the assets
of its remaining New England cable systems to Avalon Cable of New England, LLC
for approximately $30 million in cash. The Company expects to recognize a
nonrecurring gain of approximately $26 million in the third quarter of 1998
relating to this transaction.
On July 23, 1998, the Company entered into an agreement to purchase a
cable system serving Aguadilla, Puerto Rico and neighboring communities for a
purchase price of approximately $42 million in cash. As of June 30, 1998, the
Aguadilla cable system serves approximately 21,500 subscribers and passes
approximately 81,000 of the 90,000 homes in the franchise area. The Company
expects this transaction to close in the fourth quarter of 1998 or the first
quarter of 1999. The closing of the acquisition is subject to regulatory and
other approvals, as well as customary conditions, and the Company expects this
transaction to close in the fourth quarter of 1998 or the first quarter of 1999.
20
<PAGE>
As a holding company, Pegasus' ability to pay dividends is dependent
upon the receipt of dividends from its direct and indirect subsidiaries. Under
the terms of the indenture governing PM&C's Series B Senior Subordinated Notes
due 2005 (the "PM&C Notes Indenture"), PM&C is prohibited from paying dividends
prior to July 1, 1998. Under the terms of the New Credit Facility, PM&C is
restricted from paying dividends. Under the terms of the DTS Notes Indenture and
the DTS Credit Facility, DTS is restricted from paying dividends. In addition,
Pegasus' ability to pay dividends and Pegasus' and its subsidiaries' ability to
incur indebtedness are subject to certain restrictions contained in the Senior
Notes Indenture and the Certificate of Designation governing the Series A
Preferred Stock.
PM&C's ability to incur additional indebtedness is limited under the
terms of the PM&C Notes Indenture and the New Credit Facility. These limitations
take the form of certain leverage ratios and are dependent upon certain measures
of operating profitability. Under the terms of the New Credit Facility, capital
expenditures and business acquisitions in excess of certain agreed upon levels
will require lender consent.
DTS' ability to incur additional indebtedness is limited under the
terms of the DTS Notes Indenture and the DTS Credit Facility. These limitations
take the form of certain leverage ratios and are dependent upon certain measures
of operating profitability and not exceeding a certain "borrowing base" based on
the number of paying subscribers and households in DTS' territories. The terms
of the DTS Credit Facility contain a number of other significant covenants that,
among other things, limit DTS' ability to make capital expenditures and business
acquisitions.
The Company's revenues vary throughout the year. As is typical in the
broadcast television industry, the Company's first quarter generally produces
the lowest revenues for the year and the fourth quarter generally produces the
highest revenues for the year. The Company's operating results in any period may
be affected by the incurrence of advertising and promotion expenses that do not
necessarily produce commensurate revenues in the short-term until the impact of
such advertising and promotion is realized in future periods.
The Company believes that inflation has not been a material factor
affecting the Company's business. In general, the Company's revenues and
expenses are impacted to the same extent by inflation. Substantially all of the
Company's indebtedness bears interest at a fixed rate.
In February 1998, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 132, "Employers
Disclosures about Pensions and Other Postretirement Benefits". In June 1998, the
FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities". Management has reviewed the provisions of SFAS No. 132 and SFAS
No.133 and the implementation of these standards is not expected to have any
significant impact on its consolidated financial statements.
Item 3: Quantitative and Qualitative Disclosures About Market Risk
Not Applicable
21
<PAGE>
Part II. Other Information
Item 2: Changes in Securities and Use of Proceeds
On April 28,1998, Pegasus issued 37,304 shares of its Class A Common
Stock as partial consideration for the acquisition of DIRECTV rights and related
assets from an independent provider of DIRECTV in certain rural areas of Texas.
In issuing these shares, Pegasus relied upon the exemption from registration set
forth in Section 4(2) of the Securities Act of 1933, as amended.
Item 4: Submission of Matters to a Vote of Security Holders
April 27, 1998 Special Meeting. On April 27, 1998, Pegasus held a
special meeting of its stockholders to approve the merger agreement relating to
the acquisition of DTS, proposals to amend certain of Pegasus' employee benefit
plans, and proposals to amend certain provisions of the Certificate of
Designation governing the Series A Preferred Stock and, if issued, the Exchange
Notes. Information regarding the April 27, 1998 special meeting has been
"previously reported" within the meaning of Rule 12b-2 of the Securities
Exchange Act of 1934, as amended, under Part II, Item 5 of Pegasus' Form 10-Q
for the quarterly period ended March 31, 1998.
June 17, 1998 Annual Meeting. The 1998 Annual Meeting of Stockholders
of Pegasus was held on June 17, 1998. At this meeting, Marshall W. Pagon,
Michael C. Brooks, Harry F. Hopper, III, James J. McEntee, III, Mary C. Metzger,
William B. Phoenix, Riordon B. Smith, Robert N. Verdecchio, and Donald W. Weber
were elected to Pegasus' Board of Directors. In such election, 52,072,288 votes
were cast for each director, 750 votes were held in abstention with respect to
each director, and no votes were cast against any director.
At the 1998 Annual Meeting, 52,073,038 shares were voted for
ratification of the appointment of Coopers & Lybrand L.L.P. (now
PricewaterhouseCoopers LLP) as Pegasus' independent accountants for 1998 and no
votes were held in abstention or cast against ratification of the appointment.
Item 5: Other Information
New England Cable Sale. Effective July 1, 1998, Pegasus sold
substantially all of the assets of its remaining New England cable systems to
Avalon Cable of New England, LLC for approximately $30 million in cash. Pegasus
expects to recognize a nonrecurring gain of approximately $26 million in the
third quarter of 1998 relating to this sale.
Puerto Rico Cable Acquisition. On July 23, 1998, a subsidiary of
Pegasus entered into a definitive agreement to purchase a cable system serving
Aguadilla, Puerto Rico and neighboring communities for a purchase price of
approximately $42 million in cash. The Aguadilla system services approximately
21,500 subscribers and passes approximately 81,000 of the 90,000 homes in the
franchised area. The Aguadilla system is contiguous to the Company's existing
Puerto Rico cable system and, upon completion of the purchase, the Company
intends to consolidate the Aquadilla cable system with its existing cable
system. The closing of the acquisition is subject to regulatory and other
approvals, as well as customary conditions, and the Company expects this
transaction to close in the fourth quarter of 1998 or the first quarter of 1999.
Tracking Stock. On July 28, 1997, Pegasus announced that it intends to
create a new class of common stock to track the results of its Puerto Rico
operations. Under the terms of the proposed tracking stock, the entire economic
interest in the Puerto Rico operations would be represented by shares of the
tracking stock. Holders of tracking stock shares would be exclusively entitled
to receive the net proceeds of any disposition of all or substantially all of
the Puerto Rico assets. Upon issuance of the tracking stock, existing shares of
Pegasus common stock would thereafter represent an economic interest in Pegasus'
DBS and TV operations. The creation of the tracking stock is subject to
stockholder approval.
22
<PAGE>
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits
2.1 Asset Purchase Agreement made as of July 23, 1998 by and among
Pegasus Cable Television, Inc., Cable Systems USA, Partners, J&J
Cable Partners, Inc., and PS&G Cable Partners, Inc. (Appendices have
been omitted but will be provided upon request to the SEC).
3.1 Certificate of Designation, Preferences and Relative, Participating,
Optional and Other Special Rights of Preferred Stock and
Qualifications, Limitations and Restrictions Thereof of 12.75% Series
A Cumulative Exchangeable Preferred Stock, as amended by Certificate
of Amendment.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
On May 11, 1998, Pegasus filed a Current Report on Form 8-K dated April
27, 1998 reporting under Item 5 the following events: (i) the results of the
April 27, 1998 special meeting of Pegasus' stockholders and (ii) the merger (the
"Merger") of DTS into a wholly-owned subsidiary of Pegasus on April 27, 1998,
which resulted in DTS becoming a wholly-owned subsidiary of Pegasus, the
issuance of 5,471,296 shares of Pegasus' Class A Common Stock, and the election
of three directors to Pegasus' Board of Directors as the designees of certain of
DTS' former stockholders under a voting agreement that Pegasus had entered into
in connection with the Merger.
23
<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
Date August 13, 1998 By /s/ Robert N. Verdecchio
- -------------------- ---------------------------
Robert N. Verdecchio
Senior Vice President,
Chief Financial Officer, Assistant
Secretary and Director
(Principal Financial and Accounting Officer)
24
<PAGE>
EXHIBIT INDEX
2.1 Asset Purchase Agreement made as of July 23, 1998 by and among
Pegasus Cable Television, Inc., Cable Systems USA, Partners, J&J
Cable Partners, Inc., and PS&G Cable Partners, Inc. (Appendices have
been omitted but will be provided upon request to the SEC).
3.1 Certificate of Designation, Preferences and Relative, Participating,
Optional and Other Special Rights of Preferred Stock and
Qualifications, Limitations and Restrictions Thereof of 12.75% Series
A Cumulative Exchangeable Preferred Stock, as amended by Certificate
of Amendment.
27.1 Financial Data Schedule.
<PAGE>
ASSET PURCHASE AGREEMENT
PEGASUS CABLE TELEVISION, INC.
and
CABLE SYSTEMS USA, PARTNERS
J&J CABLE PARTNERS, INC.
PS&G CABLE PARTNERS, INC.
--------------------------------
Dated July 23, 1998
--------------------------------
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
ARTICLE I DEFINITIONS.............................................................................................1
1.1 Defined Terms........................................................................................1
ARTICLE II BASIC TRANSACTION.....................................................................................11
2.1 Purchase and Sale of Assets.........................................................................11
2.2 Purchase Price......................................................................................11
2.3 Adjustments to the Purchase Price...................................................................11
2.4 Escrow Arrangements.................................................................................12
2.5 Allocation of Purchase Price........................................................................12
2.6 Closing.............................................................................................13
ARTICLE III ASSUMED LIABILITIES AND EXCLUDED ASSETS..............................................................13
3.1 Assignment and Assumption...........................................................................13
3.2 Excluded Assets.....................................................................................13
ARTICLE IV REPRESENTATIONS AND WARRANTIES........................................................................14
4.1 Representations and Warranties of Seller and the Partners...........................................14
4.2 Repesentations and Warranties of Buyer..............................................................30
ARTICLE V PRE-CLOSING COVENANTS..................................................................................31
5.1 Due Diligence Investigation.........................................................................31
5.2 Exclusivity.........................................................................................32
5.3 Corporate Matters...................................................................................32
5.4 Continuity and Maintenance of Operations; Financial Statements......................................32
5.5 Employee Matters....................................................................................34
5.6 Required Consents...................................................................................34
5.7 Projects in Progress................................................................................35
5.8 Notification of Certain Matters.....................................................................35
5.9 Risk of Loss; Condemnation..........................................................................35
5.10 Transfer Taxes......................................................................................36
5.11 Distant Broadcast Signals...........................................................................36
5.12 Programmers.........................................................................................36
5.13 Updated Disclosure Schedule.........................................................................37
5.14 CRIM ...............................................................................................37
5.15 Fondo del Seguro....................................................................................37
ARTICLE VI CONDITIONS PRECEDENT..................................................................................37
6.1 Conditions to the Obligations of Buyer..............................................................37
6.2 Conditions to Obligations of Seller and Partners....................................................40
6.3 Waiver of Conditions................................................................................41
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
(continued)
Page
<S> <C>
ARTICLE VII POST-CLOSING COVENANTS...............................................................................42
7.1 Litigation Support..................................................................................42
7.2 Transition..........................................................................................42
ARTICLE VIII TERMINATION.........................................................................................42
8.1 Events of Termination...............................................................................42
8.2 Liabilities in Event of Termination.................................................................43
8.3 Procedure Upon Termination..........................................................................43
ARTICLE IX REMEDIES FOR BREACH OF THIS AGREEMENT.................................................................43
9.1 Survival of Representations and Warranties..........................................................43
9.2 Indemnification Provisions for Benefit of Buyer.....................................................44
9.3 Indemnification Provisions for Benefit of Seller....................................................44
9.4 Matters Involving Third Parties.....................................................................45
9.5 Determination of Adverse Consequences...............................................................46
9.6 Escrow Deposit and Indemnification Fund............................................................46
9.7 Limitations.........................................................................................46
ARTICLE X MISCELLANEOUS..........................................................................................47
10.1 Press Releases and Public Announcements.............................................................47
10.2 Parties Obligated and Benefited.....................................................................47
10.3 Notices.............................................................................................47
10.4 Attorneys' Fees.....................................................................................48
10.5 Waiver..............................................................................................49
10.6 Headings............................................................................................49
10.7 Choice of Law.......................................................................................49
10.8 Rights Cumulative...................................................................................49
10.9 Further Actions.....................................................................................49
10.10 Time ...............................................................................................49
10.11 Late Payments.......................................................................................49
10.12 Counterparts........................................................................................49
10.13 Entire Agreement....................................................................................49
10.14 Amendments and Waivers..............................................................................50
10.15 Severability........................................................................................50
10.16 Construction........................................................................................50
10.17 Expenses............................................................................................50
</TABLE>
ii
<PAGE>
Appendices
1 Form of Escrow Agreement
2 Purchase Price Allocation
3 Excluded Assets
4 Encumbrances To Be Discharged
5 Proof of Performance Tests and Cumulative Leakage Index Reports
6 Form of Bill of Sale
7 Form of Non-Competition Agreement
8 Form of FIRPTA Affidavit
9 Form of Opinion of Baer Marks & Upham LLP
10 Form of Opinion of Cole, Raywid & Braverman, L.L.P.
11 Form of Assumption Agreement
12 Form of Opinion of Drinker Biddle & Reath LLP
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<PAGE>
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT ("Agreement") is made this 23rd day of
July, 1998, by and among PEGASUS CABLE TELEVISION, INC., a Massachusetts
corporation ("Buyer"); and CABLE SYSTEMS USA, PARTNERS, a Delaware general
partnership doing business as Cable TV Del Noroeste ("Seller"), J&J CABLE
PARTNERS, INC., a Delaware corporation ("J&J"), and PS&G CABLE PARTNERS, INC., a
Delaware corporation ("PS&G"). J&J and PS&G are collectively referred to herein
as the "Partners." Buyer, Seller and the Partners are collectively referred to
herein as the "Parties."
RECITALS:
WHEREAS, Seller owns and operates the System and holds a franchise
therefor issued by the Telecommunications Regulatory Board; and
WHEREAS, subject to the terms, conditions and provisions hereof, Buyer
wishes to acquire from Seller, and Seller wishes to sell to Buyer, substantially
all of the Assets of the Business for the Purchase Price stipulated herein.
NOW, THEREFORE, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties
and covenants herein contained, and intending to be legally bound hereby, the
Parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.1 Defined Terms. The following terms shall have the following
meanings for purposes of this Agreement:
"Accountant" means Coopers & Lybrand L.L.P.
"Accounts Receivable" means all subscriber, trade and other
accounts receivable arising from Seller's operation of the System.
"Adverse Consequences" means all actions, suits, proceedings,
hearings, investigations, charges, complaints, claims, demands, injunctions,
judgments, orders, decrees, rulings, damages, assessments, dues, penalties,
fines, interest, costs, amounts paid in settlement, Liabilities, obligations,
Taxes, liens, losses, expenses and fees (including court costs, settlement
costs, reasonable legal, reasonable accounting, experts' and other reasonable
fees, costs and reasonable expenses).
<PAGE>
"Affiliate" means, with respect to any Person: (a) any Person
directly or indirectly owning, controlling, or holding with power to vote 10% or
more of the outstanding voting securities of such other Person; (b) any Person
10% or more of whose outstanding voting securities are directly or indirectly
owned, controlled, or held with power to vote, by such other Person; (c) any
Person directly or indirectly controlling, controlled by, or under common
control with such other Person; (d) any officer, director or partner of such
other Person; and (e) if such other person is an officer, director or partner,
any Person for which such person acts in any such capacity. "Control" for the
foregoing purposes shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities or voting interests,
by contract or otherwise.
"Assets" means all properties, assets, privileges, powers,
rights, interests and claims, real and personal, tangible and intangible, of
every type and description that are owned, leased, held, used or useful in the
Business in which Seller or either of the Partners has any right, title or
interest or in which Seller or either of the Partners acquires any right, title
or interest on or before the Closing Date, wherever located, whether known or
unknown, and whether or not now or on the Closing Date on the books and records
of Seller, including Accounts Receivable, Books and Records, Business Radio
Licenses, Equipment, Intangibles, Intellectual Property, Inventory, Real
Property and Seller Contracts listed in Section 4.1(r) of the Disclosure
Schedule, but excluding any Excluded Assets.
"Assumed Liabilities" means and is limited to:
(a) Seller's obligations to subscribers of the Business for: (i)
subscriber deposits held by Seller as of the Closing Date and which are
refundable, in the amount for which Buyer receives credit under Section 2.3;
(ii) subscriber advance payments held by Seller as of the Closing Date for
services to be rendered by the System after the Closing Date, in the amount for
which Buyer receives credit under Section 2.3; (iii) the delivery of cable
television service to subscribers of the Business after the Closing Date; and
(b) obligations accruing and relating to periods on and after the
Closing Date with respect to the Business, including but not limited to
obligations under Governmental Permits and Seller Contracts (other than Seller
Contracts constituting Excluded Assets);
provided, however, that the Assumed Liabilities shall not include: (i) any
Liability of Seller or any of its Affiliates for income, transfer, sales, use
and other Taxes arising in connection with the consummation of the transactions
contemplated hereby, except as expressly provided herein; (ii) any Liability of
Seller or any of its Affiliates for the unpaid Taxes of any Person under
Treasury Regulation Section 1.1502-6 (or any similar provision of state, local
or foreign law) as a transferee or successor, by contract or otherwise; (iii)
any obligation of Seller or any of its Affiliates to indemnify any Person
(including Seller) by reason of the fact that such Person was an officer,
director, shareholder, employee or agent of Seller or was serving at the request
of Seller as a partner, trustee, director, officer, employee or agent of another
entity (whether such indemnification is for judgments, damages, penalties,
fines, costs, amounts paid in settlement, losses, expenses or otherwise and
whether such indemnification is pursuant to any statute, charter
- 2 -
<PAGE>
document, by-law, agreement or otherwise); (iv) any Liability of Seller or any
of its Affiliates for costs and expenses incurred in connection with this
Agreement or the transactions contemplated hereby; (v) any Liability or
obligation of Seller or any of its Affiliates for underaccrued property taxes
with respect to any of the Assets owed to the Commonwealth of Puerto Rico; (vi)
any Liability or obligation of Seller or any of its Affiliates under this
Agreement or any agreement executed and delivered in connection herewith; (vii)
any Liability or obligation to Taxing Authorities, Fondo del Seguro, any other
Governmental Authorities or programmers relating to any periods prior to the
Closing Date; (viii) any Liability or obligation of Seller or any of its
Affiliates to Pole Attachment Authorities relating to any periods prior to
Closing; (ix) any obligation to employees, agents or independent contractors of
Seller or any of its Affiliates relating to any periods prior to Closing; or (x)
any liability relating to civil, criminal and/or administrative cases or
proceedings, or awards of arbitration tribunals, relating to periods prior to
Closing.
"Basic Services" means the group of cable television program
services sold to subscribers as a package and described in Section 4.1(q) of the
Disclosure Schedule, including broadcast and satellite service programming for
which a subscriber pays a fixed monthly fee to Seller, but not including Pay TV.
"Basis" means any past or present fact, situation,
circumstance, status, condition, activity, practice, plan, occurrence, event,
incident, action, failure to act or transaction that forms or could form the
basis for any specified consequence.
"Books and Records" means all books and records relating to
the Business or the System, including purchase and sale order files, subscriber
lists, mailing lists, sales materials and records, personnel files, media
materials and plates, blueprints, strand maps, as-built maps, other technical
data and records, all correspondence with and documents pertaining to
subscribers, suppliers, Governmental Authorities and other third parties, all
records relating to the System and program carriage, all reports filed with
governmental Authorities, all statements of account filed with the United States
Copyright Office, and all records evidencing the Accounts Receivable and a
schedule of accounts receivable aging.
"Business" means the cable television business conducted by
Seller on the date of this Agreement through the System in and around the
Service Area.
"Business Day" means any day other than Saturday, Sunday or a
day on which banking institutions in San Juan, Puerto Rico, or New York, New
York, are required or authorized to be closed.
"Business Radio Licenses" means Business Radio Licenses
described in Section 4.(i) of the Disclosure Schedule.
"Cash" means cash and cash equivalents (including marketable
securities and short term investments) calculated in accordance with GAAP
applied on a basis consistent with the preparation of the Financial Statements.
- 3 -
<PAGE>
"Code" means the Internal Revenue Code of 1986, as amended.
"CRIM" means the Centro de Recaudacion de Ingresos Municipales
of the Commonwealth of Puerto Rico.
"EBITDA" means net income adjusted, without duplication, by
(i) adding (to the extent deducted in arriving at net income) expense items in
respect of interest, taxes on or measured by income, depreciation and
amortization, and (ii) eliminating (a) expenses attributable to Seller's office
in Crown, Pennsylvania, and (b) items of revenue, expense, gain and loss that
are both nonrecurring and unrelated to the operation of the System, whether or
not classified as extraordinary items. All determinations under this definition
shall be made in accordance with GAAP without regard to any materiality
threshold otherwise applicable under GAAP.
"Effective Competition Order" means the Memorandum Opinion and
Order of the Acting Chief, Cable Services Bureau of the FCC, in In the Matter of
Cable TV Del Noroeste, No. DA 98-1269 adopted June 26, 1998, and released June
30, 1998.
"Employee Benefit Plan" means any: (a) nonqualified deferred
compensation or retirement plan or arrangement that is an Employee Pension
Benefit Plan; (b) qualified defined contribution retirement plan or arrangement
that is an Employee Pension Benefit Plan; (c) qualified defined benefit
retirement plan or arrangement that is an Employee Pension Benefit Plan
(including any Multiemployer Plan); or (d) Employee Welfare Benefit Plan or
material fringe benefit plan or program.
"Employee Pension Benefit Plan" has the meaning set forth in
ERISA Section 3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in
ERISA Section 3(l).
"Encumbrance" means any mortgage, pledge, lien, encumbrance,
charge, security interest, security agreement, conditional sale or other title
retention agreement, limitation, option, assessment, restrictive agreement,
restriction, adverse interest, restriction on transfer or any exception to or
defect in title or other ownership interest (including reservations, rights of
way, possibilities of reverter, encroachments, easements, rights of entry,
restrictive covenants, leases and licenses).
"Environmental Law" means any Legal Requirement (including,
without limitation, the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, the Resource Conservation and Recovery Act of 1976 and
the Occupational Safety and Health Act of 1970, as amended), relating to or
concerning pollution or protection of public health, safety or welfare or the
environment, including those relating to emissions, discharges, releases or
threatened releases of Hazardous Substances into the environment (including
ambient air, surface water, ground water or land), or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Substances.
- 4 -
<PAGE>
"Equipment" means all electronic devices, trunk, distribution
and drop coaxial and optical fiber cable and distribution plant, amplifiers,
power supplies, transformers, conduit, vaults and pedestals, towers, antennas,
grounding and pole hardware, housedrops (including disconnected housedrops),
subscribers devices (including converters, encoders, decoders, transformers
behind television sets and fittings), headend hardware (including origination,
earth stations, transmission and distribution system), test equipment,
computers, vehicles (including trucks, tractors and trailers), machinery, office
equipment, furnishings, inventories and supplies, spare parts, new and used
testing equipment and tools (including those normally used for installation,
construction and maintenance) and other tangible personal property owned,
leased, used or held for use in the Business, other than any such property
listed as an Excluded Asset.
"Equivalent Basic Subscribers" means the number of active
subscribers equal to the quotient of (1) the aggregate revenues, excluding
taxes, earned by the System for Basic Services provided by the System during the
month last ended before the Closing Date from (a) billings to hotels, motels, or
other nonresidential customers (each a "Commercial Account"), (b) billings to
residential multiple dwelling units (each a "MDU"), and (c) billings to other
subscribers that are billed for such service on a bulk basis, divided by (2) the
System's regular monthly subscription rate for Full Basic Services (as described
in Section 4.1(q) of the Disclosure Schedule) for such month. For purposes of
the foregoing, there will be excluded: (i) any subscriber who is 45 days or more
past due in the payment of any amount payable to Seller, excluding late charges,
disconnect fees, and any amount that is the subject of a bona fide dispute; (ii)
any subscriber who has not paid at least two full months' payment for Basic
Services and all installation charges owed and due; (iii) any subscriber whose
service is pending disconnection for any reason; and (iv) any subscriber who was
solicited to purchase such services by any promotions or by offers of discounts
not described in Section 1.1(a) of the Disclosure Schedule. For purposes of this
Agreement, payments on account of monthly billings to a subscriber of the System
will be deemed to be due on the first day of the month during which the service
to which such billings relate is provided.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"Escrow Agent" means First Union National Bank.
"Escrow Agreement" means the Escrow Agreement to be executed
and delivered concurrently with the execution hereof by the Escrow Agent, Buyer,
Seller and the Partners, substantially in the form of Appendix 1 hereto.
"FCC" means the United States Federal Communications
Commission.
"Fiduciary" has the meaning set forth in ERISA Section 3(21).
"Final Order" means action by the FCC or the
Telecommunications Regulatory Board, as applicable, as to which (i) no request
for stay by the FCC or the Telecommunications Regulatory Board, as applicable,
of the action is pending, no such stay is in effect, and, if any deadline for
filing any such request is designated by statute or regulation, such deadline
has
- 5 -
<PAGE>
passed; (ii) no petition for rehearing or reconsideration of the action is
pending before the FCC or the Telecommunications Regulatory Board, as
applicable, and the time for filing any such petition has passed; (iii) the FCC
or the Telecommunications Regulatory Board, as applicable, does not have the
action under reconsideration on its own motion and the time for such
reconsideration has passed; and (iv) no appeal to a court, or request for stay
by a court, of the FCC's action or the Telecommunications Regulatory Board, as
applicable, is pending or in effect, and, if any deadline for filing any such
appeal or request is designated by statute or rule, it has passed.
"Fondo del Seguro" means the Puerto Rico Fondo del Seguro del
Estado.
"Franchise" means the existing or any future authorizations of
the Telecommunications Regulatory Board to construct and/or operate the System.
"GAAP" means United States generally accepted accounting
principles as in effect from time to time.
"Governmental Authority" means: (i) the United States of
America; (ii) any state, commonwealth, territory or possession of the United
States of America and any political subdivision thereof (including the
Commonwealth of Puerto Rico and including counties, municipalities and the
like); (iii) any foreign (as to the United States of America) sovereign entity
and any political subdivision thereof; or (iv) any agency, authority or
instrumentality of any of the foregoing, including any court, tribunal,
department, bureau, commission or board.
"Governmental Permits" means the Franchise and all approvals,
authorizations, permits, consents, licenses, certificates of compliance,
easements, registrations, qualifications, leases, variances and similar rights
held by Seller from any Governmental Authority and necessary or useful for the
operation of the System as now operated.
"Hacienda" means the Treasury Department of the Commonwealth
of Puerto Rico.
"Hazardous Substances" means any pollutant, contaminant,
chemical, industrial, toxic, hazardous or noxious substance or waste that is
regulated by any Governmental Authority, including: (a) any petroleum or
petroleum compounds (refined or crude), flammable substances, explosives,
radioactive materials or any other materials or pollutants that pose a hazard or
potential hazard to the Real Property or to Persons in or about the Real
Property or cause the Real Property to be in violation of any Environmental
Laws; (b) asbestos or any asbestos-containing material of any kind or character;
(c) polychlorinated biphenyls ("PCBs"), as regulated by the Toxic Substances
Control Act, 15 U.S.C. Section 2601 et seq.; (d) any materials or substances
designated as "hazardous substances" pursuant to the Clean Water Act, 33 U.S.C.
Section 1251 et seq.; (e) any "economic poison," as defined in the Federal
Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. Section 135 et seq.; (f)
any "chemical substance," "new chemical substance" or "hazardous chemical
substance or mixture" pursuant to the Toxic Substances Control Act, 15 U.S.C.
Section 2601 et seq.; (g) any "hazardous substances" pursuant to the
Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C.
Section 9601 et seq.; (h) any "hazardous waste" pursuant to the Resource
Conservation and Recovery Act, 42 U.S.C.
- 6 -
<PAGE>
Section 6901 et seq.; and (i) any "extremely hazardous substance" pursuant to
Section 202 of the Emergency Planning and Community Right-to-Know Act of 1986,
as amended.
"HSR Act" means the Hart-Scott-Rodino antitrust Improvements
Act of 1976.
"Individual Subscriber" means any active single household
subscriber of the System that pays Seller for Basic Services, excluding (i) any
subscriber who is 45 days or more past due in the payment of any amount payable
to Seller, excluding late charges, disconnect fees, and any amount that is the
subject of a bona fide dispute; (ii) any subscriber who has not paid at least
two full months' payment for Basic Services and all installation charges owed
and due; (iii) any subscriber whose service is pending disconnection for any
reason; and (iv) any subscriber who was solicited to purchase such service by
any promotions or by offers or discounts not described in Section 1.1(a) of the
Disclosure Schedule. For purposes of this Agreement, payments on account of
monthly billings will be deemed to be due on the first day of the month during
which the service to which such billings relate is provided.
"Intangibles" mean all accounts, notes and other receivables,
claims, deposits, prepayments, refunds, causes of action, choses in action,
rights of recovery, rights of set-off, rights of recoupment and other intangible
assets owned, used or held for use in the Business (excluding any of the
Excluded Assets).
"Intellectual Property" means all: (a) patents, patent
applications and patent disclosures, together with all reissuances,
continuations, continuations-in-part, revisions and extensions thereof; (b)
trademarks, service marks, trade dress, logos, trade names and corporate names
(including the name "Cable TV Del Noroeste" and any variation thereof), together
with all translations, adaptations, derivations and combinations thereof and
including all goodwill associated therewith, and all applications, registrations
and renewals in connection therewith; (c) all copyrightable works, all
copyrights and all applications, registrations and renewals in connection
therewith; (d) trade secrets and confidential business information (including
ideas, research and development, know-how, formulas, compositions, manufacturing
and production processes and techniques, technical data, designs, drawings,
specifications, customer and supplier lists, pricing and cost information and
business and marketing plans and proposals); (e) all computer software
(including data and related documentation); (f) all other proprietary rights;
and (g) all copies and tangible embodiments thereof (in whatever form or
medium).
"Inventory" has the meaning given to that term in the Uniform
Commercial Code.
"Legal Requirement" means any statute, ordinance, law, rule,
regulation, code, plan, injunction, judgment, order, decree, ruling, charge or
other requirement, standard or procedure enacted, adopted or applied by any
Governmental Authority, including judicial decisions applying common law or
interpreting any other Legal Requirement.
"Liability" means any liability (whether known or unknown,
whether asserted or unasserted, whether absolute or contingent, whether accrued
or unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
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"Material Consents" means the Required Consents listed under
the caption "Material Consents" on Section 4.1(c) of the Disclosure Schedule.
"Multiemployer Plan" has the meaning set forth in ERISA
Section 3(37).
"Ordinary Course" means the ordinary course of business of the
Business, consistent with past custom and practice (including with respect to
quantity and frequency).
"Normal Qualifications" means bankruptcy, insolvency and other
laws affecting creditors' rights generally, and general principles of equity.
"Pay TV" means premium programming services selected by and
sold to subscribers on a package or an a la carte basis for monthly fees in
addition to the fee for Basic Services.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Permitted Encumbrances" mean the following Encumbrances: (a)
zoning laws and ordinances; (b) rights reserved to any Governmental Authority to
regulate the affected property; and (c) as to Real Property interests, any
easements, covenants, conditions, rights-of-way, servitudes, permits,
restrictions and minor imperfections or irregularities in title that do not
individually or in the aggregate materially and adversely interfere with the
conduct of the Business or the right or ability to own, use or operate the Real
Property or to convey good, marketable and indefeasible title to such Real
Property.
"Person" means any natural person, corporation, partnership,
trust, unincorporated organization, association, limited liability company,
Governmental Authority or other entity.
"Pole Attachment Authorities" means the Puerto Rico Telephone
Company and the Puerto Rico Electric Power Authority.
"Prohibited Transaction" has the meaning set forth in ERISA
Section 406 and Code Section 4975.
"Real Property" means all Assets consisting of realty or
interests therein, including appurtenances, improvements and fixtures located on
such realty, and any other interests in real property, including ownership
interests in Seller's offices and headend sites, leasehold interests, easements,
permits, rights-of-way and other similar rights and privileges used or held for
use in connection with the ownership and operation of the Business, other than
any such interests relating to Seller's office located in Crown, Pennsylvania.
"Reportable Event" has the meaning set forth in ERISA Section
4043.
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"Required Consents" means all franchises, licenses,
authorizations, approvals and consents required under Governmental Permits,
Seller Contracts or otherwise for: (a) Seller to transfer the Assets to Buyer;
(b) Buyer to conduct the Business and to own, lease, use and operate the Assets
at the places and in the manner in which the Business is conducted as of the
date of this Agreement and on the Closing Date; and (c) Buyer to assume and
perform the Governmental Permits and Seller Contracts.
"Seller Contracts" means all contracts and agreements of
whatsoever kind or nature, other than Governmental Permits, pertaining to the
ownership, operation and maintenance of the Assets or the Business or used or
held for use in the Business, including all leases and installment sale and
other financing arrangements relating to vehicles used in the Business (whether
or not listed in Appendix 4 and required to be discharged at the Closing).
"Seller's or Partner's knowledge," or words of similar import,
means with respect to the fact, issue or subject that is the subject thereof,
(i) the actual knowledge of Peter Graf, Jan Fuellhart, Vivian J. Smith, Yvan
Rosa, Hiram Rodriguez, Carmen Hernandez, Lillian Roman, and Donna Rathfon and
(ii) unless expressly stated otherwise, the knowledge that such persons could
obtain by making inquiries that would be made by a reasonable person in the
cable television business for the purpose of ascertaining the relevant facts.
"Service Area" means the area in which Seller operates the
Business, specifically in and around the communities of Aguadilla, Aguada, Moca,
Isabela and Quebradillas, Puerto Rico, and all areas included in the
municipalities in which such communities lie.
"System" means the complete cable television reception and
distribution facilities used or useful in the conduct of the Business,
consisting of one headend, subscriber drops and associated electronic and other
equipment, and that is, or is capable of being without modification, operated as
an independent system without interconnections to other systems. Any systems
that are interconnected or that are served in total or in part by a common
headend will be considered a single System.
"Tax" means any federal, state, Commonwealth of Puerto Rico,
local or foreign income, gross receipts, license, payroll, employment, excise,
severance, stamp, occupation, premium, windfall profits, environmental, customs
duties, capital stock, franchise, profits, withholding, social security (or
similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated or other tax of any kind whatsoever, including any interest,
penalties, fees, deficiencies, assessments, additions or other charges of any
nature with respect thereto, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for
refund or information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof.
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"Taxing Authority" means any Governmental Authority that
collects Taxes, including, but not limited to, the following Puerto Rico
Governmental Authorities: CRIM and Hacienda.
"Telecommunications Regulatory Board" means the Junta
Reglamentadora de Telecomunicaciones de Puerto Rico.
"Termination Date" means December 31, 1998 or a mutually
agreeable earlier date.
1.2 Other Definitions. The following terms are defined in the Sections
or other places indicated:
Term Section
- ---- -------
"Adjusted Final Adjustment Certificate"....................................2.3
"Adjustment Objection Period"..............................................2.3
"Buyer"...............................................................Preamble
"Closing"..................................................................2.6
"Closing Balance Sheet".................................................2.3(a)
"Closing Date".............................................................2.6
"Communications Act"....................................................4.1(i)
"Confidentiality Agreement".............................................4.1(u)
"Copyright Statements"....................................................5.14
"Current Items Amount".....................................................2.3
"Disclosure Schedule"......................................................4.1
"Eligible Accounts Receivable".............................................2.3
"Escrow Deposit"...........................................................2.4
"Escrow Funds".............................................................9.6
"Excluded Assets"..........................................................3.2
"Expenses".................................................................2.3
"Extended Termination Date"................................................2.6
"FAA"......................................................................4.1
"Final Adjustment Certificate".............................................2.3
"Final Adjustment Objection Period"........................................2.3
"Final Adjustments Report"..............................................2.3(b)
"Financial Statements"..................................................4.1(j)
"Indemnification Fund".....................................................2.4
"Most Recent Financial Statements"......................................4.1(j)
"Most Recent Fiscal Month End"..........................................4.1(j)
"Most Recent Fiscal Year End"...........................................4.1(j)
"Operating Adjustments".................................................2.3(a)
"Partners"............................................................Preamble
"Phase I Audit".........................................................6.1(k)
"Pole Attachment Agreements"............................................4.1(i)
"Purchase Price"...........................................................2.2
"Seller"..............................................................Preamble
"Survival Period"..........................................................9.1
"Taking"................................................................5.9(b)
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ARTICLE II
BASIC TRANSACTION
2.1 Purchase and Sale of Assets. On and subject to the terms and conditions
of this Agreement, Buyer agrees to purchase from Seller and Seller agrees to
sell, transfer, convey and deliver to Buyer, all of Seller's right, title and
interest in, to and under the Assets at Closing, free and clear of all
Encumbrances (other than Permitted Encumbrances), for the consideration
specified below. Except as otherwise specifically provided in this Agreement,
all of the Assets are intended to be transferred to Buyer, whether or not
described in the Disclosure Schedule.
2.2 Purchase Price. Buyer will pay to Seller at Closing cash in the
amount of $42 million ("Purchase Price"), subject to the adjustments set forth
in Section 2.3 and the escrow arrangements set forth in Section 2.4, in
accordance with Seller's wire transfer delivery instructions.
2.3 Adjustments to the Purchase Price. (a) The Purchase Price will be
adjusted by the net amount of the credits and prorations made pursuant to this
Section 2.3 (the "Current Items Amount").
i. Except for the adjustment described in Section 5.11(b),
adjustments and prorations shall be made to reflect the principle that all
liabilities, expenses and income of a recurring nature attributable to the
Business and the Assets for the period on and prior to the close of business on
the Closing are for the account of Seller, and all liabilities, expenses and
income attributable to the Business and the Assets for the period subsequent to
the close of business on the Closing Date are for the account of Buyer, all as
determined in accordance with GAAP (without regard to any materiality threshold
otherwise applicable under GAAP). Items to be prorated shall include, but shall
not be limited to, prepaid assets for which Buyer will receive a benefit
following Closing, pole rents, franchise fees, taxes (other than income taxes or
those based on income, and other than corporate or partnership franchise taxes),
copyright royalty payments, fees and payments under cable service agreements,
power and utility fees and deposits, rentals and other payments under leases.
The amount of such adjustment to which Buyer or Seller is entitled shall be
deducted from or added to the amount payable to Seller pursuant to Section 2.2.
ii. Additionally, the Purchase Price shall be (A) increased by
an amount equal to the face amount of all Accounts Receivable no portion of
which is more than 60 days past due ("past due" being measured, for this
purpose, from the first day of the period for which the respective services
being billed were provided) and (B) reduced by (1) an amount equal to the sum of
all obligations and liabilities in respect to customers (including, without
limitation, prepayments, credit balances and deposits) which constitute Assumed
Liabilities and (2) any liabilities or other obligations of Seller relating to
the Business which constitute Assumed Liabilities which have matured or are
accrued on or prior to the Closing Date.
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(b) The Current Items Amount will be estimated in good faith by Seller
and will be set forth in a certificate (the "Initial Adjustment Certificate"),
together with a detailed statement of the calculation thereof, both reasonably
satisfactory to Buyer, delivered to Buyer not later than three business days
prior to the Closing Date. The Initial Adjustment Certificate shall constitute
the basis on which the Current Items Amount paid at Closing is calculated. On or
before ninety (90) days after the Closing Date, Buyer shall deliver to Seller a
final calculation of the Current Items Amount calculated as of the Closing Date,
together with such supporting documentation as Seller may reasonably request, in
a certificate (the "Final Adjustment Certificate"), which shall evidence in
reasonable detail the nature and extent of each adjustment. If Seller does not
object to the Final Adjustment Certificate by delivering to Buyer a reasonably
detailed written explanation of its objections thereto within twenty (20) days
after the Final Adjustment Certificate is delivered (the "Final Adjustment
Objection Period"), Seller or Buyer, as appropriate, shall pay to the other an
amount equal to the amount by which the Current Items Amount as set forth in the
Final Adjustment Certificate differs from the Current Items Amount as estimated
in the Initial Adjustment Certificate. If Seller timely objects to the Final
Adjustment Certificate within the Final Adjustment Objection Period, Seller and
Buyer shall attempt in good faith to resolve such objections within twenty (20)
days after Buyer's receipt of Seller's written objections, failing which the
parties shall appoint a mutually agreeable independent accounting firm
knowledgeable in the cable television business to review the Final Adjustment
Certificate and Seller's written objections thereto, and make adjustments to the
Final Adjustment Certificate (the "Adjusted Final Adjustment Certificate")
within thirty (30) days after its appointment. The fees and expenses of such
firm shall be shared equally by the Parties. The Adjusted Final Adjustment
Certificate shall be final and binding. Seller or Buyer, as appropriate, shall
pay to the other within five (5) days after resolving Seller's objections or
after delivery of the Adjusted Final Adjustment Certificate, as the case may be,
an amount equal to the amount by which the Current Items Amount as finally
agreed upon by the parties or as set forth in the Adjusted Final Adjustment
Certificate, as the case may be, differs from the Current Items Amount as
estimated in the Initial Adjustment Certificate.
2.4 Escrow Arrangements. Not later than the second Business Day after
the date of this Agreement, Buyer will deposit the sum of $1,000,000 (the
"Escrow Deposit") with the Escrow Agent. At the Closing, the amount of the
Escrow Deposit, together with interest and income thereon, will be credited
against the Purchase Price, but $1,000,000 thereof (the "Indemnification Fund")
will be retained by the Escrow Agent. The Escrow Deposit will secure Buyer's
obligation hereunder to complete the Closing, and the Indemnification Fund will
secure the obligations of Seller and the Partners under Section 9.2 in
accordance with Section 9.6. The Escrow Deposit and the Indemnification Fund
will be held in escrow pursuant to the terms and conditions of the Escrow
Agreement.
2.5 Allocation of Purchase Price. The Purchase Price will be allocated
among the Assets as set forth in Appendix 2. Buyer, Seller and the Partners
agree to be bound by the allocation and will not take any position inconsistent
with such allocation and will file all returns and reports with respect to the
transactions contemplated by this Agreement, including all federal, state,
Commonwealth of Puerto Rico and local Tax Returns, on the basis of such
allocations.
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2.6 Closing. The closing of the transactions contemplated by this
Agreement ("Closing") shall take place at the offices of Drinker Biddle & Reath
LLP, Philadelphia, Pennsylvania, or such other location as the Parties may
agree, on the fifth Business Day following the satisfaction or waiver of the
conditions to the obligations of the Parties to consummate the transactions
contemplated hereby (other than those conditions with respect to actions the
respective Parties will take at the Closing itself), or such other date as the
Parties may mutually determine. The day on which the Closing actually occurs is
referred to herein as the "Closing Date," but unless the Closing Date is the
last day of a calendar month, the Parties will treat the Closing as having
occurred at the opening of business on the first day of the calendar month in
which the Closing occurs (both for purposes of Section 2.3 and for all other
purposes), and references to the "Closing Date" shall be construed accordingly.
The Closing Date shall be no later than the Termination Date; provided, that if
the Closing shall not have occurred by the Termination Date due solely to the
failure to obtain the consent of the assignment of the Franchise through no
fault of any of the Parties, the Termination Date shall be extended to March 31,
1999 (the "Extended Termination Date").
ARTICLE III
ASSUMED LIABILITIES AND EXCLUDED ASSETS
3.1 Assignment and Assumption. On and subject to the terms and
conditions of this Agreement, Buyer agrees to assume and become responsible for
all of the Assumed Liabilities at Closing. Buyer will not assume, nor will it be
deemed to have assumed, and will not pay, perform, discharge or be liable in any
manner whatsoever for, and will have no responsibility with respect to: (i) any
obligation or Liability of the Business, the System, Seller or any of its
Affiliates not included within the definition of Assumed Liabilities; or (ii)
any Liabilities or obligations associated with the Excluded Assets (including
Seller Contracts that are Excluded Assets), in either case whether arising
before, at or after the Closing Date, whether arising out of any written or oral
agreement or understanding or otherwise.
3.2 Excluded Assets. The Excluded Assets, which will be retained by
Seller, will consist of the following: (a) Cash; (b)(i) Seller's copies of tax
returns and other documents relating to the Business which Seller is required by
law to keep in its possession, for four full fiscal years immediately preceding
the Closing, copies of which will be furnished by Seller to and at the
reasonable request of the Buyer for a period of four years after the Closing
Date, (ii) all books or records of Seller (including those which pertain to the
accounting and tax aspects of the Seller or Partners prior to the Closing Date),
which do not relate to the operation of the Business, (iii) certificates of
deposit with various banking institutions, (iv) all documents relating to the
legal existence of Seller or Partners, (v) all agreements other than those
constituting an Assumed Liability, (vi) all assets, properties and rights of
Seller or Partners not related to the Business, (vii) cash equivalents, (viii)
insurance policies, bonds, letters of credit, or other similar items, and any
cash surrender value in regard thereto, (ix) any and all claims, rights and
interests in and to any refunds for federal, state or local franchise, income or
other taxes or fees of any nature whatsoever for any period prior to the Closing
Date (unless there shall be an increase in the Purchase Price on
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account of such item under Section 2.3), (x) any chose in action owned by Seller
not related to any of the Assets, (xi) the names or trade names "Cable Systems
USA", and any related trade names, trademarks, service marks or logo and any
derivation thereof, and (xii) all assets of Seller located at Seller's office in
Crown, Pennsylvania, other than the Books and Records (Seller and the Partners
hereby representing and warranting that no asset located in Crown, Pennsylvania
(other than the Books and Records), is necessary for the conduct of the Business
as now conducted); and (c) the assets described in Appendix 3.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 Representations and Warranties of Seller and the Partners. Seller
and the Partners jointly and severally represent and warrant to Buyer that the
statements contained in this Section 4.1 are correct and complete as of the date
of this Agreement (or, to the extent that any such statement expressly refers to
an earlier date, such statement was correct and complete as of such date),
except as set forth in the disclosure schedule accompanying this Agreement and
initialed by the Parties (the "Disclosure Schedule"). The Disclosure Schedule
will be arranged in paragraphs corresponding to the lettered and numbered
paragraphs contained in this Section 4.1.
(a) Organization and Qualification; Ownership of Seller.
Seller is a general partnership duly organized, validly existing and in good
standing under the laws of the State of Delaware, with all requisite partnership
power and authority to own, lease and use the Assets as they are currently
owned, leased and used and to conduct the Business as it is currently conducted.
Each of the Partners is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware, with all requisite
corporate power and authority to own its interest in Seller and to conduct its
business as currently conducted. Seller is, and each of the Partners is, duly
qualified or licensed to do business under the laws of the Commonwealth of
Puerto Rico to the extent required and in each other jurisdiction in which the
character of the properties owned, leased or operated by it or the nature of the
activities conducted by it make such qualification necessary, except any such
jurisdiction where the failure to be so qualified or licensed will not have an
adverse effect on Seller, the Partners, the Assets or the Business or on the
validity, binding effect or enforceability of this Agreement. The Partners are
the only partners in Seller, and no other Person has any right, contingent or
otherwise, to acquire an ownership interest in Seller. J&J has the right to less
than 50 percent of the profits of Seller and less than 50 percent of the assets
of Seller upon liquidation. No stockholder of PS&G (or group of stockholders of
PS&G that would be included in the same "person," within the meaning of the HSR
Act and the rules, regulations and interpretations thereunder) owns 50 percent
or more of the "voting securities" (within the meaning of the HSR Act and the
rules, regulations and interpretations thereunder) of PS&G or has the
contractual power presently to designate 50% or more of the directors of PS&G.
(b) Authority and Validity. Seller has, and each of the
Partners has, all requisite corporate or partnership power and authority, as the
case may be, to execute and deliver,
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to perform its obligations under, and to consummate the transactions
contemplated by, this Agreement. The execution and delivery by Seller and the
Partners of, the performance by them of their obligations under, and the
consummation by them of the transactions contemplated by, this Agreement have
been duly authorized by all requisite partnership and corporate action of Seller
and the Partners respectively. This Agreement has been duly executed and
delivered by Seller and the Partners and is the valid and binding obligation of
Seller and the Partners, enforceable against each of them in accordance with its
terms, except insofar as enforceability may be affected by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws now or
hereafter in effect affecting creditors' rights generally or by principles
governing the availability of equitable remedies.
(c) No Breach or Violation. Subject to obtaining the Required
Consents (including Required Consents relating to Governmental Permits), all of
which are listed on Section 4.1 (c) of the Disclosure Schedule, and subject to
compliance with the HSR Act, the execution, delivery and performance of this
Agreement by Seller and the Partners will not: (i) violate any provision of the
partnership agreement of Seller or the certificate of incorporation or by-laws
of either of the Partners; (ii) violate any Legal Requirement; (iii) require any
consent, approval or authorization of, or any filing with or notice to, any
Person; or (iv)(A) violate, conflict with or constitute a breach of or default
under, (B) permit or result in the termination, suspension or modification of,
(C) result in the acceleration of (or give any Person the right to accelerate)
the performance of Seller or either of the Partners under, or (D) result in the
creation or imposition of any Encumbrance under, any Seller Contract or any
other instrument evidencing any of the Assets or any instrument or other
agreement to which Seller or either of the Partners is a party or by which
Seller or either of the Partners or any of the assets of Seller or either of the
Partners is bound or affected, except for purposes of this clause (iv) such
violations, conflicts, breaches, defaults, terminations, suspensions,
modifications and accelerations as would not, individually or in the aggregate,
have a material adverse effect on the System, the Business, Seller or the
Partners.
(d) Title to Real Property Assets. Seller has, and on the
Closing Date Seller will have, exclusive, good and marketable title to, or a
valid leasehold interest in, the Real Property Assets, free and clear of any and
all Encumbrances of any kind or nature, except those set forth on Appendix 4,
all of which will be discharged prior to Closing and except for Permitted
Encumbrances.
(e) Equipment and Other Tangible Assets. All of the Assets
consisting of Equipment and other tangible Assets with a book value of $5,000 or
more are described in Section 4.1(e) of the Disclosure Schedule. Seller has, and
on the Closing Date Seller will have, exclusive, good and marketable title to
such tangible Assets, all of which are free and clear of all Encumbrances of any
kind or nature, except for those Encumbrances set forth on Appendix 4, all of
which shall be discharged prior to Closing, and except for Permitted
Encumbrances. None of the Equipment and other tangible Assets are leased by
Seller from any other Person except under Seller Contracts described in Section
4.1(e) of the Disclosure Schedule. The Equipment and other tangible Assets
constitute all of the tangible assets necessary to permit Buyer to conduct the
Business substantially as it is being conducted on the date of this Agreement in
compliance with all Legal Requirements and Governmental Permits and to perform
all the Assumed Liabilities.
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Attached as Appendix 5 are copies of the latest proof of performance tests and
cumulative leakage index reports for the System. All Equipment and other
tangible Assets are suitable and adequate for continued use in the manner in
which they are currently used.
(f) Real Property.
i. Section 4.1(f)(i) of the Disclosure Schedule lists
and describes briefly all Real Property that Seller owns. With respect to each
such parcel of owned Real Property:
(A) Seller has, and on the Closing Date
Seller will have, good, marketable and valid title in pleno dominio to the
parcel of Real Property, free and clear of any and all Encumbrances of any kind
or nature, other than Permitted Encumbrances, and the valid and enforceable
right to use and possess such parcel of Real Property;
(B) there are no pending or, to Seller's or
the Partners' best knowledge, threatened condemnation proceedings, lawsuits, or
administrative actions relating to the Real Property or other matters affecting
materially and adversely the current use, occupancy or value thereof;
(C) the legal description of the parcel
contained in the deed therefor describes such parcel; the buildings and
improvements are located within the boundary lines of the described parcels of
land to the best of Seller's and the Partners' knowledge, are not in violation
of applicable setback requirements, zoning laws and ordinances (and none of the
properties or buildings or improvements thereon are subject to "permitted
non-conforming structure" classifications), and, to the best of Seller's and the
Partners' knowledge, do not encroach on any easement that may burden the land,
and the land does not serve any adjoining property for any purpose inconsistent
with the use of the land; and the property is not located within any flood plain
or subject to any similar type restriction for which any permits or licenses
necessary to the use thereof have not been obtained;
(D) all facilities have received all
approvals of Governmental Authorities (including licenses and permits) required
in connection with the ownership or operation thereof and have been operated and
maintained in all material respects in accordance with applicable Legal
Requirements and all restrictive covenants, if any, or other Encumbrances
affecting all or part thereof;
(E) except as set forth in Section 4.1(f)(i)
of the Disclosure Schedule, there are no leases, subleases, licenses,
concessions or other agreements, written or oral, granting to any party or
parties the right of use or occupancy of any portion of the parcel of Real
Property;
(F) there are no outstanding options or
rights of first refusal to purchase the parcel of Real Property, or any portion
thereof or interest therein;
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(G) there are no parties (other than Seller)
in possession of the parcel of Real Property, other than tenants under any
leases disclosed in Section 4.1(f)(i) of the Disclosure Schedule who are in
possession of space to which they are entitled; and
(H) all facilities located on the parcel of
Real Property are supplied with utilities and other services necessary for the
operation of such facilities such as electricity, water, telephone, sanitary
sewer or septic tank, all of which services comply in all material respects with
all applicable Legal Requirements.
ii. Seller does not lease, rent or otherwise use or
have the right to use (pursuant to easements, rights-of-way, licenses or the
like) any Real Property that it does not own.
(g) Environmental Matters.
i. The Real Property currently complies in all
material respects with and, to the best of Seller's and the Partners' knowledge,
has previously been operated in compliance with, all Environmental Laws; neither
Seller nor either of the Partners has generated, released, stored, used,
treated, handled, discharged or disposed of any Hazardous Substances at, on,
under, in or about, or in any other manner affecting, the Real Property in
violation of any Environmental Law, transported any Hazardous Substances to or
from the Real Property or discharged any Hazardous Substances from the Real
Property into any body of water, directly or indirectly, in violation of any
Environmental Law, and, to the best of Seller's and the Partners' knowledge, no
other present or previous owner, tenant, occupant or user of the Real Property
or any other Person has committed or suffered any of the foregoing. To the best
of Seller's and the Partners' knowledge, no release of Hazardous Substances
outside the Real Property has entered or threatens to enter the Real Property,
nor is there any pending or threatened claim based on Environmental Laws that
arises from any condition of the land surrounding the Real Property. No claim or
investigation based on Environmental Laws that relates to the Real Property or
any operations on it (A) has been asserted or conducted in the past or is
currently pending against or with respect to Seller or either of the Partners;
(B) to Seller's and the Partners' best knowledge, has been asserted or conducted
in the past or is currently pending against or with respect to any other Person;
or (C) to Seller's and the Partners' best knowledge, is threatened or
contemplated.
ii. To Seller's and the Partners' best knowledge: (A)
no underground storage tanks are currently or have been located on the Real
Property; and (B) the Real Property has not been used at any time as a gasoline
service station or any other facility for storing, pumping, dispensing or
producing gasoline or any other petroleum products or wastes. There are no
incinerators or cesspools on the Real Property and all waste is discharged into
septic tanks that have been designed, built and operated in accordance with all
applicable Legal Requirements.
iii. Seller has provided Buyer with complete and
correct copies of (A) all studies, reports, surveys or other materials in
Seller's or either of the Partners' possession relating to the presence or
alleged presence of Hazardous Substances at, on or affecting the Real Property;
(B) all notices or other materials in Seller's or either of the Partners'
possession that were received from any Governmental Authority having the power
to administer or enforce any
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Environmental Laws relating to current or past ownership, use or operation of
the Real Property or activities at the Real Property; and (C) all materials in
Seller's or either of the Partners' possession relating to any claim, allegation
or action by any private third party under any Environmental Law.
(h) Intellectual Property.
i. Seller owns or has the right to use, and on the
Closing Date Seller will own or have the right to use, pursuant to license,
sublicense, agreement or permission, all Intellectual Property necessary for the
operation of the Business as currently conducted. Provided any necessary consent
is obtained, each item of Intellectual Property owned or used by Seller
immediately prior to the Closing hereunder will be owned or available for use by
Buyer on identical terms and conditions immediately subsequent to the Closing
hereunder. Seller has taken all necessary and desirable action to maintain and
protect each item of Intellectual Property that it owns or uses in the Business.
ii. To the best of Seller's and the Partners'
knowledge, neither Seller nor either of the Partners has interfered with,
infringed upon, misappropriated or otherwise come into conflict with, and the
operation of the Business as currently conducted does not, to the best knowledge
of Seller and the Partners, violate or infringe upon, any Intellectual Property
rights of third parties, and neither Seller nor either of the Partners has ever
received any charge, complaint, claim, demand or notice alleging any such
interference, infringement, misappropriation or violation (including any claim
that either Seller or either of the Partners must license or refrain from using
any Intellectual Property rights of any third party). To the best knowledge of
Seller and the Partners, no third party has interfered with, infringed upon,
appropriated or otherwise come into conflict with any Intellectual Property
rights of Seller.
iii. Seller does not possess any patent, patent
right, registered trademark or copyright and is not a party to any license or
royalty agreement with respect to any patent, trademark or copyright except for
licenses respecting program material and obligations under the Copyright Act of
1976 applicable to cable television systems generally. Seller has made all
required filings with, and all required payments to, the United States Copyright
Office, and is otherwise in material compliance with all applicable rules and
regulations of the United States Copyright Office. Seller has delivered to Buyer
complete and correct copies of all statements of account, correspondence and
other filings for the past three and one-half years, made or filed pursuant to
copyright rules and regulations with respect to the Business.
iv. Section 4.1(h)(iv) of the Disclosure Schedule
identifies each license, agreement or other permission that Seller has granted
to any third party with respect to any of its Intellectual Property (together
with any exceptions). Seller has delivered to Buyer correct and complete copies
of all such licenses, agreements and permissions (as amended to date). Section
4.1(h)(iv) of the Disclosure Schedule also identifies each trade name or
unregistered trademark used by Seller in connection with the Business. With
respect to each item of Intellectual Property required to be identified in
Section 4.1(h)(iv) of the Disclosure Schedule:
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(A) Seller possesses all right, title and
interest in and to the item, free and clear any and all Encumbrances of any kind
or nature other than Permitted Encumbrances;
(B) to the best knowledge of Seller and the
Partners, the item is not subject to any outstanding injunction, judgment,
order, decree, ruling or charge;
(C) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim or demand is pending or, to the best of
Seller's and the Partners' knowledge, is threatened that challenges the
legality, validity, enforceability, use or ownership of the item; and
(D) neither Seller nor either of the
Partners has ever agreed to indemnify any Person for or against any
interference, infringement, misappropriation or other conflict with respect to
the item, except as set forth in the applicable agreement relating to such item.
v. Section 4.1(h)(v) of the Disclosure Schedule
identifies each item of Intellectual Property that any third party owns and that
Seller uses pursuant to license, sublicense, agreement or permission. Seller has
delivered to Buyer correct and complete copies of all such licenses,
sublicenses, agreements and permissions (as amended to date). With respect to
each item of Intellectual Property required to be identified in Section
4.1(h)(v) of the disclosure Schedule:
(A) the license, sublicense, agreement or
permission covering the item is legal, valid, binding, enforceable and in full
force and effect, subject to the Normal Qualifications;
(B) subject to obtaining any Required
Consent, the license, sublicense, agreement or permission will continue to be
legal, valid, binding, enforceable and in full force and effect following the
consummation of the transaction contemplated hereby (subject to the Normal
Qualifications);
(C) to the best of Seller's and the
Partners' knowledge, no party to the license, sublicense, agreement or
permission is in breach or default, and to the best of Seller's and the
Partners' knowledge, no event has occurred which with notice or lapse of time
would constitute a breach or default or permit termination, modification or
acceleration thereunder;
(D) to the best of Seller's and the
Partners' knowledge, no party to the license, sublicense, agreement or
permission has repudiated any material provision thereof;
(E) with respect to each sublicense, the
representations and warranties set forth in subsections (A) through (D) above
are true and correct with respect to the underlying license, to the best of
Seller's and the Partners' knowledge;
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(F) to the best of Seller's and the
Partners' knowledge, the underlying item of Intellectual Property is not subject
to any outstanding injunction, judgment, order, decree, ruling or charge;
(G) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim or demand is pending or, to the best of
Seller's and the Partners' knowledge, is threatened that challenges the
legality, validity or enforceability of the underlying item of Intellectual
Property; and
(H) neither Seller nor either of the
Partners has granted any sublicense or similar right with respect to the
license, sublicense, agreement or permission.
vi. To the best of Seller's and the Partners'
knowledge, neither Seller nor either of the Partners will interfere with,
infringe upon, misappropriate, or otherwise come into conflict with, any
Intellectual Property rights of third parties as a result of Seller's continued
operation of the Business until the Closing Date as currently conducted and as
currently proposed to be conducted.
(i) Compliance.
i. Except as set forth in Section 4.1(i) of the
Disclosure Schedule, Seller and the Partners have complied in all material
respects with all Legal Requirements of all Governmental Authorities (including
the Communications Act of 1934, as amended, and the FCC rules and regulations
promulgated thereunder) and no action, suit, proceeding, hearing, investigation,
charge, complaint, claim, demand or notice has been filed, commenced or, to the
best of Seller's and the Partners' knowledge, threatened against Seller or
either of the Partners alleging any failure to so comply, and, to the best of
Seller's and the Partners' knowledge, without independent investigation, there
is no Basis for any claim that such a failure to comply exists, except as set
forth in Section 4.1(i) of the Disclosure Schedule.
ii. Complete and correct copies of the Governmental
Permits currently in effect, all of which are listed in Section 4.l(i) of the
Disclosure Schedule, have been delivered by Seller to Buyer. Except as set forth
in Section 4.1(i) of the Disclosure Schedule, the Governmental Permits are the
only franchises, licenses and authorizations necessary for Seller and the
Partners to operate the System lawfully and in the manner in which it is
presently being operated. Seller and the Partners have timely filed with the
appropriate Governmental Authorities all appropriate requests for renewal under
the Communications Act of 1934. Each of Governmental Permits is currently in
full force and effect and constitutes the valid and binding obligation of the
respective Governmental Authority, and is legally enforceable against such
Governmental Authority in accordance with its terms, subject to Normal
Qualifications. Except as set forth in Section 4.1(i) of the Disclosure
Schedule, neither Seller nor either of the Partners has received any notice of
any legal action, governmental proceeding or investigation, pending or
threatened, to terminate, suspend or modify any Governmental Permit, and, to the
best of Seller's and the Partners' knowledge, without independent investigation,
there is no Basis for any of the foregoing.
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iii. Section 4.1(i) of the Disclosure Schedule sets
forth a true and complete list of the current channel alignment (including all
broadcast stations and satellite services carried, cable channel assignment,
frequencies utilized and pilot frequencies) for the System.
iv. Seller has filed offset notifications for or
obtained appropriate waivers for all aeronautical frequencies in use by the
System. Seller's use of such aeronautical frequencies is in material compliance
with all applicable FCC rules, regulations and requirements. The System is
presently carrying channels and is providing reception on all such channels in
material compliance with the technical standards set forth in all applicable FCC
rules, regulations and requirements. Section 4.1(i) of the Disclosure Schedule
sets forth a true and complete list of such frequencies, the geographic
coordinates of the approximate center of the System's service areas and the
authorized radius of the System.
v. Except as set forth in Section 4.1(i) of the
Disclosure Schedule, all material royalties, fees, reports, schedules and
returns relating to the System which are required to be filed by Seller or
either of the Partners with and paid to any Governmental Authority or any
utility have been filed and paid.
vi. All necessary Federal Aviation Administration
("FAA") and FCC approvals, registrations and filings with respect to the
System's towers have been obtained, and the towers have been maintained in
material compliance with the rules, policies and regulations of the FAA and the
FCC. Section 4.1(i) of the Disclosure Schedule contains a true and complete list
of each of the System's towers and copies of all relevant FAA determinations
with respect thereto.
vii. Except as set forth in Section 4.1(i) of the
Disclosure Schedule, Seller is, and each of the Partners is, in material
compliance with the rules and regulations of the FCC, the rules and regulations
of the United States Copyright Office, the Copyright Act and the Communications
Act of 1934, as amended by the Cable Communications Policy Act of 1984 and by
the Cable Television Consumer Protection and Competition Act of 1992 and the
1996 Telecommunications Act (collectively, the "Communications Act"). Seller and
the Partners have provided appropriate notices to subscribers of their right to
privacy in accordance with the requirements of the Communications Act. Except as
set forth in Section 4.1(i) of the Disclosure Schedule, Seller and the Partners
are currently in material compliance with 47 C.F.R. Sections 76.92 and 76.151
with respect to network non-duplication protection and syndicated exclusivity,
and Seller and the Partners are not aware of any complaint filed with the FCC
alleging Seller's non-compliance with such regulations.
viii. All of the communities to which Seller provides
service have been registered with the FCC. Section 4.1(i) of the Disclosure
Schedule contains a true and complete list of each such community and its
corresponding community unit identification number. Each employment unit
operated by Seller, including headquarters offices, is currently and has been in
compliance with the equal employment opportunity requirements of Section 554 of
the Communications Act and the FCC's implementing rules and regulations, and
(except as disclosed
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in Section 4.1(i) of the Disclosure Schedule) the FCC has not for any employment
period failed to certify an employment unit.
ix. Except as set forth in Section 4.1(i) of the
Disclosure Schedule hereto, all broadcast television station signals carried on
the System, excluding superstations carried pursuant to 47 C.F.R. Section 76.64,
are being carried pursuant to a must carry election, and no broadcast television
signals are being carried pursuant to retransmission consent agreements. Except
as set forth in Section 4.1(i) of the Disclosure Schedule, there is no dispute
pending or, to Seller's or the Partners' knowledge, threatened with respect to
the carriage or channel position of any broadcast station.
x. Section 4.1(i) of the Disclosure Schedule sets
forth all of the pole attachment authorizations and agreements and the
respective current attachment fees (the "Pole Attachment Agreements") presently
held by Seller and the public utility, municipality or other authority which has
granted such authorizations. True, complete and correct copies of each written
agreement, ordinance, resolution, license and permit granting such Pole
Attachment Agreements have been furnished by Seller to Buyer, and Section 4.1(i)
of the Disclosure Schedule contains an accurate and complete description of any
of the foregoing that are not in writing. Except as set forth in Section 4.1(i)
of the Disclosure Schedule, all of the Pole Attachment Agreements are validly
existing, legally enforceable obligations of the parties thereto, subject to the
Normal Qualifications, and Seller is validly and lawfully operating the System
under the Pole Attachment Agreements. Except as set forth in Section 4.1(i) of
the Disclosure Schedule, Seller has duly complied with all of the terms and
conditions of the Pole Attachment Agreements in all material respects and has
not done or performed any act which would invalidate or materially impair its
rights under the Pole Attachment Agreements. There is no pending assertion or
claim made against Seller or either of the Partners that operations pursuant to
any Pole Attachment Agreement have been improperly conducted or maintained.
Except as set forth in Section 4.1(i) of the Disclosure Schedule, there is no
claim or action, either pending or, to the best knowledge of Seller and the
Partners, threatened against Seller or either of the Partners by any Pole
Attachment Authority, or any third party, which would materially and adversely
affect the rights of Seller, or materially increase the costs of Seller, under
the Pole Attachment Agreements. The Pole Attachment Agreements cover all pole
attachments currently used by the System. Except as described in Section 4.1(i)
of the Disclosure Schedule, all rearrangement work on the poles and all pole
changeout work requested of Seller prior to the date hereof by any Pole
Attachment Authority has been completed or will be completed on or before the
Closing Date.
(j) Financial Statements. Section 4.1(j) of the Disclosure
Schedule contains the following financial statements (collectively, "Financial
Statements"): (i) Seller's audited balance sheet and statements of operations,
changes in partners' deficit and cash flows as of and for the fiscal years ended
December 31, 1995 through December 31, 1997 (the latter herein called the "Most
Recent Fiscal Year End"); and (ii) Seller's unaudited balance sheet and
statements of income, operations, changes in partners' deficit and cash flows
(the "Most Recent Financial Statements") as of and for the three months ended
March 31, 1998 (the "Most Recent Fiscal Month End"). The Financial Statements
(including the notes thereto) have been prepared in accordance with GAAP applied
on a consistent basis throughout the periods covered thereby and
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<PAGE>
fairly present Seller's financial position, results of operations and cash flows
as of the dates and for the periods indicated, subject in the case of the
unaudited Financial Statements only to normal year-end adjustments (none of
which will be material in amount) and the absence of footnotes.
(k) Events Subsequent to Most Recent Fiscal Year End. Since
the Most Recent Fiscal Year End and except as disclosed in Section 4.1(k) of the
Disclosure Schedule, there has not been any material, adverse change in the
business, condition (financial or otherwise) operations, results of operations
or prospects of Seller or the Business, other than changes affecting the cable
television industry generally. Without limiting the generality of the foregoing,
since that date: (i) Seller has not sold, leased, transferred or assigned any
assets of Seller or the Business, tangible or intangible except in the Ordinary
Course; (ii) Seller has not entered into any agreement, contract, lease or
license (or series of related agreements, contracts, leases and licenses) either
involving more than $7,500 or outside the Ordinary Course; (iii) no third party
has accelerated, terminated, modified or canceled any agreement, contract, lease
or license (or series of related agreements, contracts, leases and licenses)
involving more than $7,500 to which Seller is a party or by which Seller is
bound; (iv) Seller has not imposed any Encumbrance upon any assets of the
Business, tangible or intangible; (v) Seller has not made any capital
expenditure (or series of related expenditures) either involving more than
$7,500 or outside the Ordinary Course; (vi) Seller has not made any capital
investment in, any loan to, or any acquisition of the securities or assets of,
any other Person (or series of related capital investments, loans or
acquisitions) either involving more than $7,500 or outside the Ordinary Course;
(vii) Seller has not issued any note, bond or other debt security or created,
incurred, assumed or guaranteed any indebtedness for borrowed money or
capitalized lease obligations either involving more than $7,500 singly or
$12,500 in the aggregate; (viii) Seller has not delayed or postponed the payment
of accounts payable and other Liabilities outside the Ordinary Course; (ix)
Seller has not canceled, compromised, waived or released any right or claim (or
series of related rights and claims) either involving more than $7,500 or
outside the Ordinary Course; (x) Seller has not granted any license or
sublicense of any rights under or with respect to any Intellectual Property;
(xi) there has been no change made or authorized in the partnership agreement of
Seller or the certificate of incorporation or by-laws of either Partner; (xii)
Seller has not issued, sold or otherwise disposed of any of its partnership
interest or granted any options, warrants, or other rights to purchase or obtain
any interest therein; (xiii) Seller has not set aside or paid any distribution
to its partners or redeemed, purchased or otherwise acquired any of its
partnership interests from any of its partners; (xiv) Seller has not experienced
any damage, destruction or loss (whether or not covered by insurance) to any
property of the Business; (xv) Seller has not made any loans to, or entered into
any other transaction with, any employees of the Business or any of Seller's
current or former officers or partners; (xvi) Seller has not entered into any
employment contract or collective bargaining agreement, written or oral, nor
modified the terms of any existing contract or agreement with any employees of
the Business; (xvii) Seller has not granted any increase in the base
compensation of any employees of the Business outside the Ordinary Course;
(xviii) Seller has not adopted, amended, modified or terminated any bonus,
profit-sharing, incentive, severance or other plan, contract or commitment for
the benefit of employees of the Business (or taken any such action with respect
to any other Employee Benefit Plan); (xix) Seller has not made any other change
in employment terms for any employees of the Business outside the Ordinary
Course; (xx) Seller has not paid any amount to any third party with respect to
any Liability or obligation (including any costs and expenses Seller or either
of the
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Partners has incurred or may incur in connection with this Agreement and the
transactions contemplated hereby) that would not constitute an Assumed Liability
if in existence as of the Closing; (xxi) Seller has not changed the rates
charged for Basic Services; (xxii) Seller has not made or pledged to make any
charitable or other capital contribution outside the Ordinary Course; (xxiii)
there has not been any other material occurrence, event, incident, action,
failure to act or transaction outside the Ordinary Course involving the Business
or Seller; and (xxiv) Seller has not committed to any of the foregoing. Since
the Most Recent Financial Statements, there has been no material adverse change
in, and no event has occurred which is likely, individually or in the aggregate,
to result in any material adverse change in, the business, operations, assets,
prospects or condition (financial or otherwise) of the Business.
(l) Undisclosed Liabilities. Except as set forth in Schedule
4.(l) of the Disclosure Schedule, Seller does not have, and on the Closing Date
Seller will not have, any Liability and, to the best of Seller's and the
Partners' knowledge, without independent investigation, there is no Basis for
any present or future action, suit, proceeding, hearing, investigation, charge,
complaint, claim or demand against Seller or either of the Partners giving rise
to any Liability, except for: (i) Liabilities set forth on the face of the
balance sheet in the Most Recent Financial Statements (rather than in any notes
thereto); and (ii) Liabilities that have arisen after the Most Recent Financial
Statements in the Ordinary Course (none of which results from, arises out of,
relates to, is in the nature of, or was caused by any breach of contract, breach
of warranty, tort, infringement or violation of any Legal Requirement).
(m) Legal Proceedings. Except as set forth in Section 4.1(m)
of the Disclosure Schedule, there are no outstanding judgments against or
otherwise affecting Seller, either of the Partners, the System, the Business or
the Assets other than those affecting the cable television industry generally.
There is no order of any Governmental Authority and no action, suit, complaint,
proceeding or investigation, judicial, administrative or otherwise, that is
pending or, to the best knowledge of Seller and the Partners, threatened and
which, if adversely determined, might materially and adversely affect the
System, the Business or the Assets (other than those affecting the cable
television industry generally) or which challenges the validity or propriety of
any of the transactions contemplated by this Agreement. To the best of Seller's
and the Partners' knowledge, without independent investigation, there is no
Basis upon which any such action, suit, proceeding or investigation could be
brought or initiated.
(n) Tax Returns; Other Reports. Seller and the Partners have
duly and timely filed in proper form all Tax Returns for all Taxes required to
be filed with the appropriate Governmental Authority. Except as set forth in
Section 4.1(n) of the Disclosure Schedule, all Taxes due and payable by Seller
(or claimed to be due and payable) have been paid (regardless whether Tax
Returns relating to such Taxes have been duly and timely filed or if filed,
regardless whether such Tax Returns are deficient), except such amounts as are
being contested diligently and in good faith and are not in the aggregate
material and for which Seller has adequately reserved on the Most Recent
Financial Statements. If any Tax Return for any period has been examined, all
additional Taxes, if any, assessed as a result of such examination have been
paid. To the extent any of such Tax Returns have not been examined and settled,
there are no outstanding agreements or waivers extending the statutory period of
limitations applicable thereto
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<PAGE>
for any period. There are no pending audits, claims or proceedings relating to,
or asserted for, Taxes against Seller, except as listed in Section 4.1(n) of the
Disclosure Schedule.
(o) Employees.
i. Section 4.1(o)(i) of the Disclosure Schedule
contains a complete and correct list of names and positions of all employees of
Seller engaged in the Business and their current hourly wages or monthly
salaries and other compensation. Except as disclosed in Section 4.1(o)(i) of the
Disclosure Schedule, there are no other employees or material forms of
compensation paid by Seller to any of its employees. Except as disclosed in
Section 4.1(o)(i) of the Disclosure Schedule, no employee, officer, partner or
Affiliate of Seller has any material financial interest, direct or indirect, in
any supplier or other outside business which has significant transactions with
the System or the Business.
ii. Seller has complied in all material respects with
all Legal Requirements relating to the employment of labor, including ERISA,
continuation coverage requirements with respect to group health plans, and those
relating to wages, hours, collective bargaining, unemployment compensation,
worker's compensation, equal employment opportunity, age and disability
discrimination, immigration control and the payment and withholding of social
security and other Taxes, and neither the System nor the Business is liable for
any material arrearages of wages or any Taxes for failure to comply with any of
the foregoing.
iii. Seller is not a party to or bound by any
collective bargaining agreement, nor has Seller experienced any strikes,
grievances, claims of unfair labor practices or other collective bargaining
disputes. Seller has not committed any unfair labor practices. Seller has not
recognized or agreed to recognize and is not required to recognize any union or
other collective bargaining unit. Except as described in Section 4.1(o) of the
Disclosure schedule, no union or other collective bargaining unit has been
certified as representing any of its employees, nor has Seller received any
requests from any party for recognition as a representative of employees for
collective bargaining purposes. To Seller's and the Partners' best knowledge, no
employees of the Business are engaged in any organizing activity with respect to
any labor organization. Neither Seller nor either of the Partners has employment
agreements of any kind, oral or written, express or implied, that would require
Buyer to employ any Person after the Closing Date.
(p) Employee Benefits. Seller does not have, maintain or
contribute to, nor is Seller required to contribute to, any Employee Pension
Benefit Plans of any kind or nature (including Multiemployer Plans). Except as
disclosed in Section 4.1(p) of the Disclosure Schedule, Seller does not have,
maintain or contribute to, nor is Seller required to contribute to, any Employee
Welfare Benefit Plans providing medical, health or life insurance or other
welfare-type benefits for current or future retired or terminated employees or
their spouses or their dependents. There has been no material violation of the
"continuation coverage requirements" of "group health plans" as set forth in
Section 4980B of the Code and Part 6 of Subtitle B of Title I of ERISA with
respect to any Employee Benefit Plan maintained by the Seller.
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(q) System Information. No Person other than Seller has been
granted or, to the Seller's and the Partners' knowledge, has applied for a cable
television franchise in any portion of the Service Area. Section 4.1(q) of the
Disclosure Schedule sets forth a true and accurate description of the following
information:
i. The approximate number of miles of plant that are
included in the System, the approximate number of homes in the Service Area, and
the approximate number of homes passed by the System's existing plant.
ii. A general description of Basic Services available
from the System and the rates charged by Seller for such services.
iii. The stations and signals carried by the System
and the channel position of each such station and signal.
iv. The megahertz capacity of the System.
v. The channel capacity of the System.
vi. The principal marketing, promotional and
advertising programs currently in effect for the System and any other such
program that was in effect at any time since January 1, 1997.
vii. Seller's procedures and policies for
disconnection and discontinuance of services to subscribers whose accounts are
delinquent.
(r) Seller Contracts. Section 4.1(r) of the Disclosure
Schedule lists the following contracts and other agreements to which Seller is a
party, or to which either Partner is a party and that relates to the System
(including contracts and other agreements that constitute Excluded Assets and
are listed on Appendix 3 and contracts and other agreements that relate to liens
that are to be discharged at the closing and are described on Appendix 4):
i. each Pole Attachment Agreement, programming
agreement, multiple dwelling unit agreement and retransmission consent
agreement;
ii. any agreement (or group of related agreements)
for the lease of personal property to or from any Person providing for lease
payments in excess of $2,500 per annum;
iii. any agreement (or group of related agreements)
for the purchase or sale of raw materials, commodities, supplies, products or
other personal property, or for the furnishing or receipt of services, the
performance of which will extend over a period of more than one year, result in
a loss to Seller or involve consideration in excess of $2,500.
iv. any agreement concerning a partnership or joint
venture;
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v. any agreement (or group of related agreements)
under which Seller has created, incurred, assumed or guaranteed any indebtedness
for borrowed money, or any capitalized lease obligation, in excess of $6,500 or
under which Seller has imposed an Encumbrance on any of its or his assets,
tangible or intangible;
vi. any agreement concerning confidentiality or
non-competition;
vii. any agreement involving any employee, officer,
partner or Affiliate of Seller;
viii. any agreement for the employment of any
individual on a full-time, part-time, consulting or other basis providing annual
compensation in excess of $10,000 or providing severance benefits;
ix. any agreement relating to the services of
independent contractors, including sales representatives;
x. any agreement under which Seller or either of the
Partners has advanced or lent any amount to any System or Business employees or
under which Seller has advanced or lent any amount to any of Seller's current or
former partners, officers or Affiliates; and
xi. any other agreement (or group of related
agreements) the performance of which involves consideration in excess of $7,500.
Seller has delivered to the Buyer a correct and complete copy
of each written agreement listed in Section 4.1(r) of the Disclosure Schedule
(as amended to date) and a written summary setting forth the terms and
conditions of each oral agreement referred to in Section 4.l(r) of the
Disclosure Schedule. With respect to each such agreement: (A) the agreement is
legal, valid, binding and enforceable, subject to the Normal Qualifications, and
in full force and effect; (B) in the case of each agreement that is to be
assigned to and assumed by the Buyer, assuming any applicable Required Consent
is obtained, the agreement will continue to be legal, valid, binding and
enforceable, subject to the Normal Qualifications, and in full force and effect
following the consummation of the transactions contemplated hereby (including
the assignments and assumptions referred to in Article III above); (C) Seller
has not, and to the best of Seller's and the Partners' knowledge, without
independent investigation, no other party is in breach or default in any
material respect, and no event has occurred which with notice or lapse of time
would constitute a breach or default in any material respect, or permit
termination, modification or acceleration, under the agreement; and (D) neither
the Seller nor, to the best of Seller's and the Partners' knowledge, any other
party has repudiated any provision of the agreement.
(s) Books and Records; Accounts Receivable. Section 4.1(s) of
the Disclosure Schedule briefly describes all the material Books and Records.
All notes and accounts receivable
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of the Business are reflected properly in all material respects on such Books
and Records and are valid receivables subject to no setoffs or counterclaims.
(t) Powers of Attorney. There are no outstanding powers of
attorney executed on behalf of Seller.
(u) Outstanding Rights. Except for this Agreement and the
confidentiality agreement dated April 28, 1998, and the confidentiality
provisions of the confidentiality and exclusivity agreement dated April 28,
1998, each between Buyer and Seller (collectively, the "Confidentiality
Agreement"), there is no agreement to which Seller or either of the Partners is
a party or is otherwise bound relating to the sale of all or substantially all
the Assets, the transfer of the System franchise, a merger or consolidation of
Seller or either Partner with or into any entity or the sale of all or any part
of Seller's partnership interest or other ownership interests.
(v) Projects in Progress. There are no projects in progress or
which have been committed to third parties or to the Telecommunications
Regulatory Board, for construction or otherwise, except for ongoing subscriber
installations being made in the Ordinary Course and except those listed in
Section 4.1(v) of the Disclosure Schedule. Except as set forth in Section 4.1(v)
of the Disclosure Schedule, neither Seller nor either of the Partners has
received notice from the Telecommunications Regulatory Board relating to line
extensions or unbuilt areas.
(w) Insurance. Section 4.1(w) of the Disclosure Schedule sets
forth the following information with respect to each insurance policy (including
policies providing property, casualty, liability and workers' compensation
coverage and bond and surety arrangements) to which Seller has been a party, a
named insured, or otherwise the beneficiary of coverage at any time since the
beginning of Seller's operation of the Business, or to which either of the
Partners has been a party, a named insured, or otherwise the beneficiary of
coverage at any such time and that relates to the Business:
i. the name, address, and telephone number of the
agent;
ii. the name of the insurer, the name of the
policyholder and the name of each covered insured;
iii. the policy number and the period of coverage;
iv. the scope (including an indication of whether the
coverage was on a claims made, occurrence or other basis) and amount (including
a description of how deductibles and ceilings are calculated and operate) of
coverage; and
v. a description of any retroactive premium
adjustments or other loss-sharing arrangements.
Section 4.1(w) of the Disclosure Schedule also sets forth each
insurance claim made or loss incurred in connection with the Business pursuant
to property, casualty, liability, workers'
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compensation and bond and surety policies since 1995 in excess of $25,000, and
except as indicated therein, no such claim is outstanding.
(x) Holding Period. Neither Seller nor either of the Partners
will violate nor be subject to any requirement to obtain a waiver under the
anti-trafficking provisions of the Cable Television Consumer Protection and
Competition Act of 1992 and the FCC rules promulgated thereunder as a result of
the transfer of the System contemplated under this Agreement.
(y) Partners' Interest in Assets. Neither of the Partners and
none of their Affiliates owns or otherwise has any interest in any of the
Assets, except by reason of its ownership of its partnership interest in Seller.
(z) Disclosure. No representation or warranty of Seller or
either of the Partners in this Agreement and no statement in any certificate,
report, instrument, list or other document furnished or to be furnished by
Seller or either of the Partners pursuant to this Agreement or in connection
with the transactions contemplated hereby, contained, contains or will contain
on the date of this Agreement or of such certificate, report, instrument, list
or other document, any untrue statement of a material fact, or omitted or will
omit on such date to state any material fact necessary in order to make the
statements made, in the light of the circumstances under which they were made,
not misleading, nor will any such representation or warranty or statement
contain on the Closing Date any untrue statement of a material fact or omit on
the Closing Date to state any material fact necessary in order to make the
statements made, in the light of the circumstances under which they were made,
not misleading. There is no fact known to Seller or either of the Partners that
is not applicable to or known by the cable television industry generally and
which adversely affects, or which in the future may materially or adversely
affect, the System, the Business or the Assets that has not been disclosed in
this Agreement.
(aa) Finders and Brokers. Except for Charles S. James and his
Affiliates, all negotiations relating to this Agreement and the transactions
contemplated herein have been carried on by Seller and the Partners directly
with Buyer and without the intervention of any other person as a result of any
act of Seller or either of the Partners (and, to the best of and Seller's and
the Partners' knowledge, without the intervention of any other Person) in such a
manner as to give rise to any valid claim against any of the Parties hereto for
a brokerage commission, finder's fee, financial advisor's fee or other like
payment. Seller will pay and discharge promptly when due all amounts payable to
Charles S. James and his Affiliates, for fees to which the latter will be
entitled as a result of the execution of this Agreement or the completion of the
Closing.
(bb) Independent Contractors. Section 4.1(bb) of the
Disclosure Schedule contains a complete and correct list of the names of
independent contractors (including, but not limited to, sales representatives)
performing services for the Business during the last three years and their dates
of service and compensation. Except as disclosed in Section 4.1(bb) of the
Disclosure Schedule: (i) Seller has complied in all material respects with all
Legal Requirements relating to the engagement of independent contractors; (ii)
all Persons listed in Section 4.1(bb) of the Disclosure Schedule have been and
are properly treated as independent contractors under applicable Legal
Requirements and are not employees under applicable Legal Requirements; and
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(iii) neither the System nor the Business is liable for any incorrect treatment
by Seller of employees as independent contractors. Seller has no agreements of
any kind, oral or written, express or implied, that would require Buyer to
engage any Person as an independent contractor.
4.2 Representations and Warranties of Buyer. Buyer represents and
warrants to Seller and the Partners that the statements contained in this
Section 4.2 are correct and complete as of the date of this Agreement.
(a) Organization and Qualification. Buyer is a corporation
duly organized, validly existing and in good standing under the laws of the
Commonwealth of Massachusetts and has all requisite corporate power to carry on
its business as currently conducted and to own, lease, use and operate its
assets. As of the Closing Date, Buyer or its permitted assignee will be duly
qualified or licensed to do business and will be in good standing under the laws
of the Commonwealth of Puerto Rico and each other jurisdiction in which the
character of the properties owned, leased or operated by it or the nature of the
activities conducted by it makes such qualification necessary, except any such
jurisdiction where the failure to be so qualified or licensed and in good
standing would not have a material adverse effect on Buyer or its permitted
assignee, as the case may be, or on the validity, binding effect or
enforceability of this Agreement.
(b) Authority and Validity. Buyer has all requisite power and
authority to execute and deliver, to perform its obligations under, and to
consummate the transactions contemplated by, this Agreement. The execution and
delivery by Buyer of, the performance by Buyer of its obligations under, and the
consummation by Buyer of the transactions contemplated by, this Agreement have
been duly authorized by all requisite action of Buyer, and this Agreement
constitutes the valid and binding obligation of Buyer, enforceable in accordance
with its terms, except insofar as enforceability may be limited or affected by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
now or hereafter in effect affecting creditors' rights generally or by
principles governing the availability of equitable remedies.
(c) No Breach or Violation. Subject to obtaining the Required
Consents listed in Section 4.1(c) of the Disclosure Schedule, and subject to
compliance with the HSR Act, and subject to Buyer's obtaining any required
consent under any agreement relating to debt financing provided to Buyer or any
of its Affiliates, the execution, delivery and performance of this Agreement by
Buyer will not: (i) violate any provision of Buyer's certificate of
incorporation or bylaws; (ii) violate any Legal Requirement; (iii) require any
consent, approval or authorization of, or any filing with or notice to, any
Person except notifications to lenders and filings under the Securities Exchange
Act of 1934, as amended; or (iv) (A) violate, conflict with or constitute a
breach of or default under (without regard to requirements of notice, passage of
time or elections of any Person), (B) permit or result in the termination,
suspension, modification of, (C) result in the acceleration of (or give any
Person the right to accelerate) the performance of Buyer under, or (D) result in
the creation or imposition of any Encumbrance under, any instrument or other
agreement to which Buyer is a party or by which Buyer or any of its assets is
bound or affected, except for purposes of this subclause (iv) such violations,
conflicts, breaches, defaults, terminations, suspensions, modifications and
accelerations as would not, individually or in the aggregate, have a material
adverse effect on Buyer or its assignee (provided such assignee is a
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permitted assignee under the terms of Section 10.2), as the case may be, or on
the validity, binding effect or enforceability of this Agreement.
(d) No Judgment or Litigation Pending. There is no action,
suit, proceeding or investigation, judicial, administrative or otherwise, of
which Buyer has knowledge, that is pending or threatened against Buyer, or that
challenges the validity or propriety of any of the transactions contemplated by
this Agreement.
(e) Finders and Brokers. Except for Charles S. James and his
Affiliates, whose fees will be paid by Seller and the Partners, all negotiations
relative to this Agreement have been carried on by Buyer directly with Seller
without the intervention of any person as the result of any act by Buyer (and,
to Buyer's best knowledge, without the intervention of any other Person) in such
manner as to give rise to any valid claim against any of the Parties hereto for
a brokerage commission, finder's fee or like payment.
(f) Qualification. Buyer knows of no facts which would, under
present law and present rules, regulations and policies of the applicable
Governmental Authorities, disqualify Buyer with respect to the assignment or
transfer of the Governmental Permits and other agreements contemplated to be
assigned to it by Seller pursuant hereto or that would prevent the
Telecommunications Regulatory Board's consenting to the assignment of the
Franchise to Buyer. Should Buyer become aware of any such facts, it will
promptly notify the Seller in writing thereof and use its best efforts to
prevent any such disqualification.
ARTICLE V
PRE-CLOSING COVENANTS
The Parties covenant and agree as follows:
5.1 Due Diligence Investigation. From and after the execution and
delivery of this Agreement to and including the Closing Date, Seller and the
Partners will give to Buyer and its counsel, accountants and other authorized
representatives, full access to all the Assets and all the premises and books,
contracts, documents and records of the Business and shall furnish Buyer with
all such information concerning the Business and the Assets as Buyer may
reasonably request in order that Buyer may have full opportunity to make
reasonable investigations of the Assets and the affairs of the Business for the
purpose of verifying the performance of and compliance with Seller's and the
Partners' representations, warranties, covenants and conditions contained herein
or for other purposes related thereto. Seller and the Partners will take all
action reasonably necessary to enable Buyer, its counsel, accountants and other
representatives to discuss the Assets, affairs, System operations and records of
the Business at such times and as often as Buyer may reasonably request with
executives, independent accountants, engineers and counsel of the System and the
Business. Without limiting the generality of the foregoing, Buyer will be
entitled to conduct a full physical and engineering inspection of the Assets and
an examination of the Books and Records
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and to approach and negotiate with Governmental Authorities and Pole Attachment
Authorities and suppliers of goods and services to the Business for or on behalf
of the Business. Buyer will not approach the Telecommunications Regulatory Board
without first obtaining Seller's approval, which will not be unreasonably
withheld, and will permit Seller to participate in any communications with the
Telecommunications Regulatory Board if Seller so requests. Notwithstanding any
investigation that Buyer may conduct of the Business and the Assets, Buyer may
fully rely on Seller's and the Partners' representations, warranties, covenants
and indemnities, which will not be waived or affected by or as a result of such
investigation.
5.2 Exclusivity. Neither Seller nor either of the Partners will, nor
will any of them permit any of its representatives or Affiliates to: (a)
solicit, initiate or encourage the submission of any proposal or offer from any
Person relating to the acquisition of any of Seller's partnership interests or
other ownership interests, or any substantial portion of Seller's assets
(including any acquisition structured as a merger, consolidation, or equity
exchange); or (b) participate in any discussions or negotiations regarding,
furnish any information with respect to, assist or participate in or facilitate
in any other manner any effort or attempt by any Person to do or seek any of the
foregoing. Seller and the Partners will notify Buyer immediately if any Person
makes any proposal, offer, inquiry or contact with respect to any of the
foregoing.
5.3 Corporate Matters. Pending Closing, Seller and the Partners will
maintain Seller's existence at all times as a general partnership duly
organized, validly existing and in good standing under the laws of the State of
Delaware, and will make no change to Seller's partnership agreement. Subsequent
to the date hereof and until the Closing, neither Seller nor either Partner
will: (a) sell or deliver any partnership interest or other ownership interest
in Seller to any Person or enter into any agreement to do so; (b) issue any
options, warrants or other rights calling for or permitting the issue, transfer,
sale or delivery of any partnership interest or other ownership interest in
Seller or enter into any agreement to do so; or (c) declare, set aside or pay
any in-kind dividend or distribution to the Partners of any Assets or enter into
any agreement to do so.
5.4 Continuity and Maintenance of Operations; Financial Statements.
Until Closing:
(a) Seller and the Partners will duly comply with all Legal
Requirements, will fulfill all of their respective obligations under and
maintain in full force and effect all contracts, commitments, agreements,
insurance policies, licenses, and authorizations, including the Franchise and
all other Governmental Permits and Seller Contracts, and will not, without
Buyer's prior written consent, alter, modify or amend any of the foregoing.
Seller and the Partners will continue to operate the Business in the Ordinary
Course, consistent with past practices, subject to the restrictions contained in
this Agreement. Seller and the Partners will use reasonable efforts to preserve
the Business and its relationships with its present employees and to preserve
for Buyer the goodwill of its suppliers, customers and others having business
relations with it, and will promptly notify Buyer of any material change in
business or prospects, financial or otherwise, of the Business. Without limiting
the generality of the foregoing, Seller and the Partners will maintain the
Assets, will maintain adequate inventories of spare Equipment consistent with
past practice, will maintain insurance as in effect on the date of this
Agreement and will keep all the books, records and files of the Business in the
Ordinary Course. Neither Seller nor either of the
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Partners will itself pay or credit in any way any subscriber accounts receivable
prior to the Closing Date, and will not permit any of its or his respective
agents or employees, to do so either. Seller and the Partners will continue to
implement Seller's procedures and policies for disconnection and discontinuance
of service to subscribers whose accounts are delinquent in accordance with those
in effect for the period preceding the date of this Agreement, which procedures
and policies are described in Section 4.1(q) of the Disclosure Schedule.
(b) Neither Seller nor either of the Partners will, without
the prior written consent of Buyer: (i) change the rate charged for Basic
Services or Pay TV or add or delete any program services or alter the System's
channel line-up; (ii) sell, lease, transfer, convey or assign any of the Assets
(or enter into any contract to do any of the foregoing) other than in the
Ordinary Course or permit the creation of any Encumbrance on any Asset; (iii)
permit the amendment or cancellation of any of the Governmental Permits, Seller
Contracts or any other contract or agreement (other than those constituting
Excluded Assets) which affects or is applicable to the System or the Business
other than in the Ordinary Course; or (iv) enter into any contract or commitment
or incur any indebtedness or other liability or obligation of any kind relating
to the System or the Business involving an expenditure in excess of $20,000;
(c) Neither Seller nor either of the Partners will take or
omit to take any action that would cause Seller or either of the Partners to be
in breach of any of its representations or warranties in this Agreement.
(d) Seller and the Partners will provide the Accountant with
access to Vega Palau & Co., the independent accounting firm engaged by Seller to
perform audits of Seller's financial statements for the most Recent Fiscal Year
End. Seller and the Partners will cause Vega Palau & Co. to provide to the
Accountant access to all work papers and other documents used by that firm in
performing its audits of Seller. In addition, Seller and the Partners will
provide to the Accountant access to Seller's management and accounting personnel
and other financial information and documents of Seller, but shall not be
required to provide any such information with respect to the Partners.
(e) Seller has delivered or will deliver to Buyer correct and
complete copies of monthly and quarterly financial statements and operating
reports for the Business and any reports with respect to the operations of the
System prepared by or for Seller at any time for the period March 31, 1998
through Closing. All financial statements so delivered will be prepared in
accordance with GAAP on a basis consistent with the Financial Statements
referred to in Section 4.1(j). Seller will also deliver to Buyer not later than
July 31, 1998, a 1999 fiscal year operating and capital budget for the Business.
(f) Seller will not enter into any agreement with either of
its Partners or with any Affiliate of Seller or of either of the Partners.
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5.5 Employee Matters.
(a) Neither Seller nor either of the Partners will, without
Buyer's prior written consent, enter into any fixed term employment or similar
contract with any employee of the Business or any person providing services to
the Business. Seller will pay to employees employed in the Business all
compensation, including salaries, commissions, bonuses, deferred compensation,
severance, insurance, pensions, profit sharing, vacation, sick pay and other
compensation or benefits to which they are entitled for periods prior to
Closing. Other than as required by applicable law (prompt notice of which shall
be given to Seller), neither Seller nor either of the Partners will pay or
obligate itself to pay any pension, retirement, insurance, death or other fringe
benefit or other form of incentive or special compensation to any employee of
the Business, except pursuant to plans and arrangements in effect on the date of
this Agreement, or change or terminate any pension or other such plans in effect
on the date of this Agreement, or make any material increase in rates of pay or
salaries of any employees or officers of the Business except pursuant to
contracts or agreements in effect on the date of this Agreement. Buyer will have
no obligation to offer employment to any of the current employees of Seller or
either of the Partners.
(b) Seller and the Partners will be responsible for
maintenance and distribution of benefits accrued under any Employee Benefit Plan
maintained by Seller or either of the Partners pursuant to the provisions of
such plans. Buyer will assume neither any liability for any such accrued
benefits nor any fiduciary or administrative responsibility to account for or
dispose of any such accrued benefits under any Employee Benefit Plans maintained
by Seller or either of the Partners.
(c) All claims and obligations under, pursuant to or in
connection with any welfare, medical, insurance, disability or other Employee
Benefit Plans of Seller or either of the Partners or arising under any Legal
Requirement affecting employees of Seller, either of the Partners, the System or
the Business incurred on or before the Closing Date or resulting or arising from
events or occurrences occurring or commencing on or prior to the Closing Date
will remain the responsibility of Seller and the Partners, whether or not such
employees are hired by Buyer after Closing. Buyer will have and assume no
obligation or liability under or in connection with any such plan and will
assume no obligation with respect to any preexisting condition of any employee
who is hired as an employee of Buyer.
5.6 Required Consents. Subject to the provisions of this Section 5.6,
Seller, the Partners and Buyer will use their respective best efforts to
consummate the transactions contemplated by this Agreement and will use
reasonable efforts to obtain, as soon as possible and at their expense, all the
Required Consents, in form and substance reasonably satisfactory to Buyer.
Without limiting the generality of the foregoing provision, promptly, and in any
event within 20 days, after the delivery of the Escrow Deposit to the Escrow
Agent, Seller and the Partners will, with Buyer's full cooperation, make all
filings, applications, statements and reports to all Governmental Authorities
that are required to be made prior to the Closing Date by them or on their
behalf pursuant to any statute, rule or regulation in connection with the
transactions contemplated by this Agreement, including, without limitation, and
all applications necessary to
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transfer the Franchise to Buyer. Buyer will fully cooperate with Seller and the
Partners to obtain all Required Consents, but Buyer will not be required to
agree to any changes in, or the imposition of any condition to the transfer to
Buyer of, any Seller Contract or Governmental Permit as a condition to obtaining
any Material Consent, if the change or imposition would cause the condition
precedent stated in Section 6.1(c) not to be satisfied. If any Required Consent
is not obtained at the time of the Closing, Seller and the Partners will
continue to cooperate with Buyer following the Closing Date in obtaining such
Required Consent.
5.7 Projects in Progress. With respect to ongoing subscriber
installations and the projects in progress listed on Section 4.1(v) of the
Disclosure Schedule, Seller will proceed with all such projects without material
undue delay or interruption. From the date hereof until Closing, Seller and the
Partners will permit Buyer reasonable opportunity for inspection of System
construction, which will be in accordance with FCC standards in all material
respects. Seller will also keep Buyer informed of all opportunities known to it
to pursue or obtain agreements with developers, builders or businesses, provided
that Buyer will have the final right of approval of all contracts that may be
entered into by Seller (other than contracts entered into in the Ordinary
Course) by or on behalf of the System or the Business with such entities or
persons.
5.8 Notification of Certain Matters. Seller and the Partners will
promptly notify Buyer of any fact, event, circumstance or action: (a) that, if
known on the date of this Agreement, would have been required to be disclosed to
Buyer pursuant to this Agreement; or (b) the existence or occurrence of which
would cause any of Seller's or the Partners' representations or warranties under
this Agreement not to be correct and complete. In addition, each Party will give
prompt written notice to the other Party of any material adverse development
causing a breach of any of its own representations and warranties in Section 4.1
and Section 4.2 above. No disclosure by any Party pursuant to this Section 5.8,
however, shall be deemed to amend or supplement the Disclosure Schedule or to
prevent or cure any misrepresentation, breach of warranty, or breach of
covenant.
5.9 Risk of Loss; Condemnation.
(a) Seller will bear the risk of any loss or damage to the
Assets resulting from fire, theft or other casualty (except reasonable wear and
tear) at all times prior to Closing. If any such loss or damage is so
substantial as to prevent normal operation of any material portion of the System
or the replacement or restoration of the lost or damaged property within 60 days
after the occurrence of the event resulting in such loss or damage, Seller will
immediately notify Buyer of that fact and Buyer, at any time within 10 days
after receipt of such notice, may elect by written notice to Seller either: (i)
to waive such defect and proceed toward consummation of the acquisition of the
Assets in accordance with terms of this Agreement; or (ii) terminate this
Agreement. If Buyer elects so to terminate this Agreement, the Parties will be
discharged of any and all obligations hereunder. If Buyer elects to consummate
the transactions contemplated by this Agreement notwithstanding such loss or
damage and does so, there will be no adjustment in the consideration payable to
Seller on account of such loss or damage but all insurance proceeds payable as a
result of the occurrence of the event resulting in such loss or damage will be
delivered
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by Seller and/or the Partners to Buyer, or the rights to such proceeds will be
assigned by Seller and/or the Partners to Buyer if not yet paid over to Seller
and/or the Partners. If, however, prior to Closing Seller and/or the Partners
correct all such loss or damage to the Assets to the reasonable satisfaction of
Buyer, there will be no remitting or assignment of insurance proceeds to Buyer
and no adjustment to the Purchase Price.
(b) If, prior to Closing, any part of or interest in the
Assets is taken or condemned as a result of the exercise of the power of eminent
domain, or if a Governmental Authority having such power informs Seller, either
of the Partners or Buyer that it intends to condemn all or any part of the
Assets (such event being called in either case, a "Taking"), and if the Taking
is of the Real Property, the headend equipment of the System, or property the
Taking of which could have a material adverse effect on Buyer's ability to
operate the Business, as now conducted, after the Closing, then Buyer may
terminate this Agreement. If Buyer does not elect to terminate this Agreement,
then: (i) there will be no adjustment to the Purchase Price on account of the
Taking: (ii) Buyer will have the sole right, in the names of Seller and the
Partners, if Buyer so elects, to negotiate for, claim, contest and receive all
damages with respect to the Taking; (iii) Seller will be relieved of its
obligation to convey to Buyer the Assets or interests that are the subject of
the Taking; (iv) at Closing, Seller and/or the Partners will assign to Buyer all
of Seller's and the Partners' rights to all damages payable with respect to such
Taking and will pay to Buyer all damages previously paid to Seller and/or the
Partners with respect to the Taking; and (v) following Closing, Seller and the
Partners will give Buyer such further assurances of such rights and assignment
with respect to the Taking as may from time to time be reasonably required to
effectuate the foregoing.
5.10 Transfer Taxes. Seller will pay the Puerto Rico documentary tax on
the original of the deed conveying the Real Property and the notarial tariff
relating to such conveyance. Buyer will pay the Puerto Rico documentary tax on
the certified copy of such deed and the recording tax relating to such
conveyance. Seller and Buyer will share equally in the payment of any other
sales, use, transfer, excise, documentary or license taxes or fees or any other
charge (including filing fees) imposed by any Governmental Authority with
respect to the transfer of any of the Assets pursuant to this Agreement.
5.11 Distant Broadcast Signals. If the Closing shall not have occurred
on or before December 31, 1998, either (a) Seller will cease carrying WGN on the
System on or before December 31, 1998, or (b) the adjustment described in
Section 2.3(a)(i) will include a reduction in the Purchase Price equal to the
entire amount of the copyright royalty directly associated with carriage of WGN
on Seller's independent System, without regard to any other cable facility, for
the copyright period beginning January 1, 1999. If Seller elects to cease
carrying WGN under clause (a), and if Seller replaces WGN with WOR beginning on
or after January 1, 1999, the amount of copyright royalty for WOR for the
copyright period beginning January 1, 1999, will be prorated based on the
Closing Date pursuant to Section 2.3(a)(i).
5.12 Programmers. Seller will pay all obligations owed to programmers
at or before Closing. Any amounts invoiced by programmers after Closing relating
to the operation of the
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Business prior to Closing will be paid promptly by Seller and/or the Partners
directly to such programmers.
5.13 Updated Disclosure Schedule. Not less than five days prior to
Closing, Seller and the Partners will deliver to Buyer a revised copy of the
Disclosure Schedule, which shall have been updated to show any changes occurring
between the date of this Agreement and the date of delivery; provided, however,
that for purposes of Seller's and the Partners' representations and warranties
and covenants in this Agreement, all references to the Disclosure Schedule will
mean the version of the Disclosure Schedule attached to this Agreement on the
date of signing, and provided further that if the effect of any such updates to
the Disclosure Schedule is to disclose any one or more additional properties,
privileges, rights, interests or claims as Assets, Buyer, at or before Closing,
will have the right (to be exercised by written notice to Seller) to cause any
one or more of such items to be designated as and deemed to constitute Excluded
Assets for all purposes under this Agreement.
5.14 CRIM. At least 10 days prior to Closing, Seller will obtain from
CRIM invoices (and furnish copies thereof to Buyer) for any deficiencies
assessed by CRIM, and Seller will pay all such invoices prior to the Closing
Date. In addition, prior to Closing, Seller will obtain from CRIM and deliver to
Buyer a certification, in form reasonably satisfactory to Buyer, that there are
no taxes due to CRIM with respect to the Assets or System other than the
assessed deficiencies.
5.15 Fondo del Seguro. At least 10 days prior to Closing, Seller will
obtain from Fondo del Seguro invoices (and furnish copies thereof to Buyer) for
any deficiencies assessed by Fondo del Seguro, and Seller will pay all such
invoices prior to the Closing Date. Prior to Closing, Seller will obtain from
Fondo del Seguro and deliver to Buyer a certification, in form reasonably
satisfactory to Buyer, that there are no amounts due to Fondo del Seguro other
than the assessed deficiencies.
ARTICLE VI
CONDITIONS PRECEDENT
6.1 Conditions to the Obligations of Buyer. All obligations of Buyer
under this Agreement shall be subject to the fulfillment at or prior to Closing
of each of the following conditions, it being understood that Buyer may, in its
sole discretion, to the extent permitted by applicable Legal Requirements, waive
any or all of such conditions in whole or in part:
(a) All representations and warranties of Seller and the
Partners contained in this Agreement shall be, if specifically qualified by
materiality, true in all respects and, if not so qualified, shall be true in all
material respects, in each case on and as of the Closing Date with the same
effect as if made on and as, of the Closing Date.
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(b) Seller and the Partners shall, in all material respects,
have performed and complied with each of the covenants, obligations, conditions
and agreements contained in this Agreement that are to be performed or complied
with by each of them at or prior to Closing.
(c) Seller shall have procured all Material Consents without
any change in the terms thereof or the imposition of any condition thereon that
is materially more burdensome to Buyer than those now in effect and shall have
delivered to Buyer copies thereof or other evidence, in form and substance
reasonably satisfactory to Buyer, that all of such Material Consents have been
obtained or given as provided herein and are in full force and effect. In the
case of the consent of the Telecommunications Regulatory Board to the assignment
of the Franchise, such consent shall have become a Final Order. In the event
that the Material Consents are not obtained for assignment of the Pole
Attachment Agreements and Buyer is required to enter into new pole attachment
agreements, Buyer shall have entered into new pole attachment agreements
sufficient to operate the System as now operated. Buyer acknowledges and agrees
that notwithstanding anything to the contrary contained in this Agreement, terms
and conditions materially more burdensome to Buyer shall not be deemed to have
occurred and the foregoing condition shall be deemed satisfied with respect to
Material Consents involving Pole Attachment Agreements, if any changes,
concessions or modifications are required by the pole attachment company or
Buyer is required to enter into new Pole Attachment Agreements, provided such
changes, concessions or modifications or new agreement contain terms and
conditions not materially different from those then prevailing in Puerto Rico.
(d) The Telecommunications Regulatory Board shall have
extended the term of the System franchise until not earlier than May 5, 2008,
and such action shall have become a Final Order.
(e) There shall have been no material adverse change in the
Assets, or in the condition (financial or otherwise) of the System or the
Business since the date hereof. On the Closing Date the System will not fail in
any material respect to meet or exceed the performance standards met by the
System as shown in the proof of performance tests and cumulative leakage index
reports appearing in Appendix 5.
(f) No action, suit or proceeding shall be pending or
threatened by or before any Governmental Authority and no Legal Requirement
shall have been enacted, promulgated or issued or deemed applicable to any of
the transactions contemplated by this Agreement, that would: (i) prohibit or
materially adversely affect Buyer's ownership or operation of all or a material
portion of the System, the Business or the Assets or otherwise materially impair
the ability of Buyer to realize the benefits of the transactions contemplated by
this Agreement; (ii) compel Buyer to dispose of or hold separate all or a
material portion of the System, the Business or the Assets as a result of any of
the transactions contemplated by this Agreement; (iii) prevent or make illegal
the consummation of any transactions contemplated by this Agreement; or (iv)
cause any of the transactions contemplated by this Agreement to be rescinded
following consummation.
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(g) As of the Closing Date, the System shall have total
Individual Subscribers and Equivalent Basic Subscribers of not less than 20,750,
and Buyer shall have received a certificate signed by Seller, dated the Closing
Date, to that effect.
(h) Seller shall have delivered financial statements and other
documentation reasonably satisfactory to Buyer that Seller's revenues and EBITDA
for the 12 months ending on the last day of the second month before the Closing
Date were not less than $9,250,000 and $4,800,000, respectively. Such financial
statements will be prepared in accordance with GAAP on a basis consistent with
the Financial Statements referred to in Section 4.1(j) and will be reviewed by
the Accountant.
(i) There shall be an adequate supply of cable inventory and
spare equipment for the System as of the Closing Date to ensure no interruption
of the daily operations of the System for a period of one month.
(j) Buyer, at its own expense and upon prior notice to Seller,
may engage an environmental engineering firm of national reputation to perform a
Phase I environmental audit of the Real Property in accordance with ASTM
standards ("Phase I Audit"), and either (i) such environmental audit and
accompanying report shall reflect the satisfactory environmental condition of
the Real Property without any recommendation by such firm of additional
environmental testing, or (ii) the results of any additional environmental
testing recommended in such report (which Buyer will obtain promptly at its
expense) shall reflect that there are no conditions existing on, at or under
such Real Property that are reasonably likely to result in material liability to
the owner or operator of such Real Property under the Environmental Laws..
(k) As of the Closing Date, (i) the Effective Competition
Order shall have become a Final Order or (ii) the Telecommunications Regulatory
Board shall have withdrawn its certification to regulate rates.
(l) Seller and the Partners shall have delivered to Buyer: (i)
a certificate, dated the Closing Date, stating that the conditions set forth in
Sections 6.1(a) through (l) have been satisfied; and (ii) such other documents
as Buyer may reasonably request in connection with the transactions contemplated
by this Agreement.
(m) Seller shall have delivered to Buyer certificates of
compliance, statements of account and/or other documentation reasonably
satisfactory to Buyer evidencing that Seller is not delinquent or deficient with
respect to filings with and payments to (i) the Telecommunications Regulatory
Board, (ii) the FCC, (iii) Fondo del Seguro, (iv) the United States Copyright
Office (v) Hacienda, (vi) CRIM, and (vii) municipalities having jurisdiction to
collect the Municipal License Tax.
(n) Seller shall have paid all amounts due to Charles S. James
and his Affiliates for fees to which the latter will be entitled at the time of
Closing.
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(o) Seller shall have executed (or caused to be executed) and
delivered to Buyer each of the following items:
i. a Bill of Sale and Assignment in the form attached
as Appendix 6;
ii. a deed of purchase and sale conveying the owned
Real Estate in accordance with the terms hereof, in form reasonably acceptable
to Buyer and Seller;
iii. Non-Competition Agreement signed by Seller, each
of the Partners, and each of their respective Affiliates in the form attached as
Appendix 7;
iv. an affidavit of Seller that Seller is not a
"foreign person" (as defined in the Foreign Investment in Real Property Tax Act
and applicable regulations) and that Buyer is not required to withhold any
portion of the consideration payable under this Agreement under the provisions
of such Act in the form attached as Appendix 8.
v. motor vehicle title certificates and such other
transfer instruments as Buyer may reasonably deem necessary or advisable to
transfer the Assets to Buyer and to perfect Buyer's rights in the Assets;
vi. certified copies of Seller's partnership
agreement and of each of the Partners' certificate of incorporation and by-laws,
together with good standing certificates from such jurisdictions as Buyer may
reasonably specify, and certified resolutions of the boards of directors of the
Partners authorizing this Agreement and the transactions contemplated hereby;
and
vii. documents required to be delivered pursuant to
Article V.
(p) Buyer shall have received the opinions of Baer, Marks &
Upham LLP, dated the Closing Date, in substantially the form set forth in
Appendix 9 and the opinion of Cole, Raywid & Braverman, L.L.P.. in substantially
the form set forth in Appendix 10. Such opinions shall expressly allow reliance
thereon by any party providing debt financing to Buyer or any of its Affiliates.
(q) Seller shall have delivered releases, in form satisfactory
to Buyer, of all Encumbrances affecting any of the Assets (other than Permitted
Encumbrances).
(r) Seller shall have terminated all contracts with
independent contractors.
(s) Seller shall have fewer than three decertifications with
respect to equal employment opportunity compliance under the Communications Act
during the period 1987-1997.
6.2 Conditions to Obligations of Seller and Partners. All obligations
of Seller and the Partners under this Agreement shall be subject to the
fulfillment at or prior to Closing of the following conditions, it being
understood that Seller and the Partners may, in their sole discretion,
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to the extent permitted by applicable Legal Requirements, waive any or all of
such conditions in whole or in part.
(a) All representations and warranties of Buyer contained in
this Agreement shall be, if specifically qualified by materiality, true and
correct in all respects and, if not so qualified, shall be true and correct in
all material respects, in each case on and as of the Closing Date with the same
effect as if made on and as of the Closing Date.
(b) Buyer shall, in all material respects, have performed and
complied with each obligation, agreement, covenant and condition contained in
this Agreement and required by this Agreement to be performed or complied with
by Buyer at or prior to Closing.
(c) No action, suit or proceeding shall be pending or
threatened by or before any Governmental Authority and no Legal Requirement
shall have been enacted, promulgated or issued or deemed applicable to any of
the transactions contemplated by this Agreement by any Governmental Authority,
that would: (i) prevent or make illegal consummation of any of the transactions
contemplated by this Agreement; or (ii) cause any of the transactions
contemplated by this Agreement to be rescinded following consummation.
(d) Buyer shall have delivered to Seller: (i) a certificate to
the effect that each of the conditions specified above in Section 6.2(a) through
(d) is satisfied in all respects; and (iii) such other documents as Seller may
reasonably request in connection with the transactions contemplated by this
Agreement.
(e) Buyer shall have executed and delivered to Seller an
Assumption Agreement in the form attached as Appendix 11.
(f) Buyer shall have paid the Purchase Price (as adjusted in
accordance with this Agreement).
(g) Seller shall have received the opinion of Drinker Biddle &
Reath LLP dated the Closing Date, in substantially the form set forth in
Appendix 12.
(h) All Material Consents shall have been obtained.
(i) Seller shall have received certified copies of Buyer's
articles of incorporation and by-laws, and certified copies of resolutions of
the board of directors of Buyer and of Pegasus Communications Corporation,
Buyer's parent company, authorizing this Agreement and the transactions
contemplated hereby.
6.3 Waiver of Conditions. Any Party may waive in writing any or all of
the conditions to its obligations under this Agreement to the extent permitted
by applicable Legal Requirements.
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ARTICLE VII
POST-CLOSING COVENANTS
The Parties agree as follows with respect to the period following
Closing:
7.1 Litigation Support. If and for so long as any Party actively is
contesting or defending against any action, suit, proceeding, hearing,
investigation, charge, complaint, claim or demand in connection with: (a) any
transaction contemplated under this Agreement; or (b) any fact, situation,
circumstance, status, condition, activity, practice, plan, occurrence, event,
incident, action, failure to act or transaction on or prior to the Closing Date
involving Seller, the Partners or the Business, the other Party will cooperate
with the contesting or defending Party and his or its counsel in the contest or
defense, make available his or its personnel and provide such testimony and
access to his or its books and records as shall be reasonably necessary in
connection with the contest or defense, all at the sole cost and expense of the
contesting or defending Party (unless the contesting or defending Party is
entitled to indemnification therefor under Article IX below).
7.2 Transition. Neither Seller nor either Partner will take any action that
is designed or intended to have the effect of discouraging any lessor, licensor,
customer, supplier or other business associate of Seller, either of the
Partners, the System or the Business from maintaining the same business
relationships with Buyer after Closing as it maintained with Seller and/or the
Partners prior to Closing. Seller and the Partners will refer all customer
inquiries relating to the Business or the System to Buyer from and after
Closing.
ARTICLE VIII
TERMINATION
8.1 Events of Termination. This Agreement may be terminated and the
transactions contemplated by this Agreement may be abandoned at any time prior
to Closing as provided below or elsewhere in this Agreement:
(a) Buyer, Seller and the Partners may terminate this
Agreement by mutual written consent at any time prior to Closing.
(b) Buyer may terminate this Agreement by giving written
notice to Seller at any time prior to Closing:
i. if Seller and/or either of the Partners has
breached any representation, warranty or covenant contained in this Agreement
applicable to them in any material respect, Buyer has notified Seller of the
breach, and the breach has continued without cure for a period of 30 days after
the notice of breach; or
ii. if Closing shall not have occurred on or before
the Termination Date by reason of the failure of any condition precedent under
Section 6.1 hereof (unless the failure
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results primarily from Buyer itself breaching any representation, warranty or
covenant contained in this Agreement).
(c) Seller and the Partners may jointly terminate this
Agreement by giving written notice to Buyer at any time prior to Closing:
i. if Buyer has breached any representation, warranty
or covenant contained in this Agreement in any material respect, Seller has
notified the Buyer of the breach, and the breach has continued without cure for
a period of 30 days after the notice of breach; or
ii. if Closing shall not have occurred on or before
the Termination Date by reason of the failure of any condition precedent under
Section 6.2 hereof (unless the failure results primarily from Seller and/or
either of the Partners itself breaching any representation, warranty or covenant
contained in this Agreement applicable to them).
(d) If the Telecommunications Regulatory Board makes a timely
request to the FCC for reconsideration of, or takes a timely appeal from, the
Effective Competition Order, and if Buyer does not waive in writing the
condition precedent stated in Section 6.1(k) within 42 days thereafter, Seller
and the Partners may jointly terminate this Agreement by written notice to
Buyer.
8.2 Liabilities in Event of Termination. The termination of this
Agreement will in no way limit any obligation or liability of any Party based on
or arising from a breach or default by such Party with respect to any of its
representations, warranties, covenants or agreements contained in this
Agreement. Notwithstanding the foregoing, if Seller and the Partners terminate
this Agreement pursuant to Section 8.1(c)(i), or if the Closing does not occur
as a result of Buyer's breach of any representation, warranty or covenant
contained in this Agreement in any material respect, the liability of Buyer
shall be limited to, and shall be satisfied solely out of, the Escrow Funds.
8.3 Procedure Upon Termination. If this Agreement is terminated by
Buyer or Seller pursuant to this Article VIII, notice of such termination will
promptly be given by the terminating Party to the other.
ARTICLE IX
REMEDIES FOR BREACH OF THIS AGREEMENT
9.1 Survival of Representations and Warranties. All of the
representations and warranties of Buyer, Seller and the Partners contained in
this Agreement shall survive Closing (even if the damaged Party knew or had
reason to know of any misrepresentation or breach of warranty at the time of
Closing) and continue in full force and effect for a period of one year
thereafter, except that the representations and warranties in Section 4.1(a),
(b), (c), (d), (g), (n) and (p) and in Section 4.2(a), (b) and (c) shall survive
until the expiration of the applicable statute of limitation. The period of
survival of the representations and warranties prescribed by this Section
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9.1 is referred to as the "Survival Period." The liabilities of Buyer, Seller
and the Partners under their respective representations and warranties will
expire as of the expiration of the applicable Survival Period; provided,
however, that such expiration will not include, extend or apply to any
representation or warranty, the breach of which has been asserted by either
Party in a written notice to the other before such expiration or about which
either Party has given the other written notice before such expiration
indicating that facts or conditions exist that, with the passage of time or
otherwise, can reasonably be expected to result in a breach (and describing such
potential breach in reasonable detail). The covenants and agreements of Buyer,
Seller and the Partners in Article II and Sections 5.5, 5.6 (last sentence),
5.9, 5.10, 5.12 and 10.9 of this Agreement and in the Non-Competition Agreement,
the Bill of Sale and the Assumption Agreement, and rights to indemnification
under Sections 9.2 and 9.3 relating to such covenants and agreements, shall
survive Closing and will continue in full force and effect.
9.2 Indemnification Provisions for Benefit of Buyer. Subject to Section
9.7, Seller and the Partners, jointly and severally, agree to indemnify Buyer
and its Affiliates, and the shareholders, directors, officers, employees,
agents, successors and assigns of any of such Persons, from and against the
entirety of any Adverse Consequences that any such Person may suffer resulting
from, arising out of, relating to, in the nature of, or caused by any of the
following: (i) any breach of any covenant, agreement or obligation of Seller
and/or the Partners contained in this Agreement; (ii) any act or omission of
Seller and/or either of the Partners with respect to, or any event or
circumstance related to, the ownership or operation of the Assets or the conduct
of the Business, which act, omission, event or circumstance occurred or existed
prior to the Closing Date, without regard to whether a claim with respect such
matter is asserted before or after the Closing Date, including any matter
described in the Disclosure Schedule; (iii) any Real Property title defect
(other than Permitted Encumbrances) not waived by Buyer at or before the Closing
that Seller or the Partners fail to eliminate as an exception from a title
insurance commitment; (iv) any claim that the transactions contemplated by this
Agreement violate the Worker Adjustment and Retraining Notification Act, as
amended, or any similar state, Commonwealth of Puerto Rico or local law; (v) any
Liability of Seller, any Affiliate of Seller, the System or the Business that is
not an Assumed Liability; (vi) any Liability of Buyer arising by operation of
law (including under any bulk transfer law of any jurisdiction or under any
common law doctrine of de facto merger or successor liability or under any
fraudulent conveyance law of any jurisdiction) that is not an Assumed Liability,
including Liabilities for Taxes and Liabilities in respect of Employee Benefit
Plans; (vii) the presence, generation, removal or transportation of a Hazardous
Substance on or from any of the Real Property prior to the Closing Date,
including the costs of removal or clean-up of such Hazardous Substance and other
compliance with the provisions of any Environmental Laws (whether such costs are
incurred before or after Closing); (viii) any rate refund ordered by a
Governmental Authority for periods prior to the Closing Date; and (ix) any
breach (or breach alleged by any third party) by Seller or either Partner of any
of its respective representations and warranties contained in this Agreement;
provided, that, with respect to any claim for indemnification pursuant to this
Section 9.2, Buyer shall have made a written claim for indemnification to Seller
and/or either of the Partners (as the case may be) within the applicable
Survival Period specified in Section 9.1. Seller's and the Partners' obligations
under this Section 9.2 shall expire at the end of the applicable Survival
Period.
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9.3 Indemnification Provisions for Benefit of Seller. Buyer agrees to
indemnify, defend and hold harmless Seller, the Partners and their respective
Affiliates, and the shareholders, directors, officers, employees, agents,
successors and assigns of each such Person, from and against the entirety of any
Adverse Consequences that any such Person may suffer resulting from, arising out
of, relating to or caused by any of the following: (i) any breach (or breach
alleged by any third party) of any covenant, agreement or obligation of Buyer
contained in this Agreement; (ii) any act or omission of Buyer with respect to,
or any event or circumstances related to, the ownership or operation of the
Assets or the conduct of the Business, which act, omission, event or
circumstance occurs or exists on or after the Closing Date; (iii) any obligation
or Liability resulting from, arising out of or related to any of the Assumed
Liabilities, and (iv) any breach by Buyer of any of its representations or
warranties contained herein; provided, that, with respect to any claim for
indemnification pursuant to Section 9.3, Seller shall have made a written claim
for indemnification to Buyer within the applicable Survival Period specified in
Section 9.1.
9.4 Matters Involving Third Parties.
(a) If any third party shall notify either Buyer, Seller or
either of the Partners (the "Indemnified Party") with respect to any matter (a
"Third Party Claim") that may give rise to a claim for indemnification against
the other (the "Indemnifying Party") under this Article IX, then the Indemnified
Party shall promptly notify the Indemnifying Party thereof in writing; provided,
however, that no delay on the part of the Indemnified Party in notifying any
Indemnifying Party shall relieve the Indemnifying Party from any obligation
hereunder unless (and then solely to the extent) the Indemnifying Party thereby
is prejudiced.
(b) Any Indemnifying Party will have the right to defend the
Indemnified Party against the Third Party Claim with counsel of its choice
reasonably satisfactory to the Indemnified Party so long as: (i) the
Indemnifying Party notifies the Indemnified Party in writing within 15 days
after the Indemnified Party has given notice of the Third Party Claim that the
Indemnifying Party will indemnify the Indemnified Party from and against the
entirety of any Adverse Consequences the Indemnified Party may suffer resulting
from, arising out of, relating to, in the nature of or caused by the Third Party
Claim; (ii) the Indemnifying Party provides the Indemnified Party with evidence
acceptable to the Indemnified Party that the Indemnifying Party will have the
financial resources to defend against the Third Party Claim and fulfill its
indemnification obligations hereunder; (iii) the Third Party Claim involves only
money damages and does not seek an injunction or other equitable relief; (iv)
settlement of, or an adverse judgment with respect to, the Third Party Claim is
not, in the good faith judgment of the Indemnified Party, likely to establish a
precedential custom or practice adverse to the continuing business interests of
the Indemnified Party; and (v) the Indemnifying Party conducts the defense of
the Third Party Claim actively and diligently.
(c) So long as the Indemnifying Party is conducting the
defense of the Third Party Claim in accordance with Section 9.4(b) above: (i)
the Indemnified Party may retain separate co-counsel at its sole cost and
expense and participate in the defense of the Third Party Claim; (ii) the
Indemnified Party will not consent to the entry of any judgment or enter into
any settlement with respect to the Third Party Claim without the prior written
consent of the Indemnifying Party
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(not to be withheld unreasonably); and (iii) the Indemnifying Party will not
consent to the entry of any judgment or enter into any settlement with respect
to the Third Party Claim without the prior written consent of the Indemnified
Party (not to be withheld unreasonably).
(d) If any of the conditions in Section 9.4(b) above is or
becomes unsatisfied, however: (i) the Indemnified Party may defend against, and
consent to the entry of any judgment or enter into any settlement with respect
to, the Third Party Claim in any manner it reasonably may deem appropriate (and
the Indemnified Party need not consult with, or obtain any consent from, any
Indemnifying Party in connection therewith); (ii) the Indemnifying Party will
reimburse the Indemnified Party promptly and periodically for the costs of
defending against the Third Party Claim (including attorneys' fees and
expenses); and (iii) the Indemnifying Party will remain responsible for any
Adverse Consequences the Indemnified Party may suffer resulting from, arising
out of, relating to, in the nature of or caused by the Third Party Claim to the
fullest extent provided in this Article IX.
9.5 Determination of Adverse Consequences. All indemnification payments
under this Article IX shall be net of insurance proceeds related to such
payments and shall be deemed adjustments to the Purchase Price.
9.6 Escrow Deposit and Indemnification Fund.
(a) Escrow Deposit. Upon any termination of this Agreement,
other than under Section 8.1(c)(i), Buyer shall be entitled to receive the
Escrow Deposit and all earnings thereon. Upon any termination of this Agreement
under Section 8.1(c)(i), Seller shall be entitled to receive the Escrow Deposit
and any earnings thereon as liquidated damages.
(b) Indemnification Fund. The Indemnification Fund will
provide a fund for, and will secure Seller's and the Partners' obligation to
make, payment of claims for which Buyer shall be entitled to indemnification
under this Article IX. On the day which is one year after the Closing Date,
Sellers shall be entitled to return of the Indemnification Fund and all interest
and other earnings accrued thereon; provided, that if on such date Buyer has any
indemnification claims pending, the Escrow Agent shall retain an amount
sufficient to satisfy such claims and shall remit only the remaining balance to
Seller. After all claims for indemnification are settled and paid, Seller shall
be entitled to the immediate return of the difference between the amounts paid
and the balance then remaining in the Indemnification Fund.
(c) Other Remedies. The disbursement of the Indemnification
Fund to Buyer shall not preclude Buyer from exercising any other rights or
remedies provided for in this Agreement or at law or equity in the event of a
breach by Seller or either of the Partners of its obligations under this
Agreement, including the right to seek damages for Adverse Consequences in
excess of the Indemnification Fund.
(d) Instructions to Escrow Agent. To the extent there is no
dispute between the Parties concerning the disposition of the Escrow Deposit or
the Indemnification Fund, or to the extent the Parties have resolved any such
dispute, they will promptly give the Escrow Agent joint
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directions to disburse funds held by the Escrow Agent in accordance with this
Agreement or the resolution of such dispute.
9.7 Limitations. Notwithstanding anything to the contrary contained
herein, no indemnification shall be required to be made by Seller or Partners
until the aggregate amount of Buyer's claims exceeds $50,000. Any written notice
delivered by Buyer pursuant to this Article IX with respect to a claim for
indemnification shall set forth with reasonable specificity the basis of the
claim for Buyer's Adverse Consequences and an estimate of the amount thereof. In
no event shall Buyer's right to indemnification for Buyer's Adverse Consequences
or otherwise in connection with the transactions contemplated hereby exceed the
amount of the Purchase Price actually paid by Buyer.
ARTICLE X
MISCELLANEOUS
10.1 Press Releases and Public Announcements. No party shall issue any
press release or make any public announcement relating to the subject matter of
this Agreement prior to Closing without the prior written approval of the other
Party; provided, however, that any Party may make any public disclosure it
believes in good faith is required by applicable law (in which case the
disclosing Party will use its best efforts to advise the other Party prior to
making the disclosure).
10.2 Parties Obligated and Benefited. Subject to the limitations set
forth below, this Agreement will be binding upon the Parties and their
respective assigns and successors in interest and will inure solely to the
benefit of the Parties and their respective assigns and successors in interest,
and no other Person will be entitled to any of the benefits conferred by this
Agreement. Without the prior written consent of the other Party, no Party may
assign this Agreement or any of its rights or interests or delegate any of its
duties under this Agreement; except that (i) subject to any required consent of
the Telecommunications Regulatory Board, Buyer may assign this Agreement or any
of its rights or interests or delegate any of its duties hereunder to an
Affiliate(s), provided, however, that no such assignment may be made after
application has been made to the Telecommunications Regulatory Board for its
consent to the assignment of the Franchises; and (ii) Buyer or such Affiliate(s)
may collaterally assign its rights under this Agreement to any Persons providing
debt financing to Buyer or any of its Affiliates.
10.3 Notices. Any notices and other communications required or
permitted hereunder shall be in writing and shall be effective upon delivery by
hand or upon receipt if sent by certified or registered mail (postage prepaid
and return receipt requested) or by a nationally recognized overnight courier
service (appropriately marked for overnight delivery) or upon transmission if
sent by telex or facsimile (with request for immediate confirmation of receipt
in a manner customary for communications of such respective type and with
physical delivery of the communication being made by one or the other means
specified in this Section 10.3 as promptly as practicable thereafter). Notices
shall be addressed as follows:
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(a) If to Buyer to:
Pegasus Cable Television, Inc.
c/o Pegasus Communications Management Company
5 Radnor Corporate Center
100 Matsonford Road, Suite 454
Radnor, Pennsylvania 19087
Attn: Ted S. Lodge, Esq.
Telecopy: 610-341-1835
with a copy to:
Michael B. Jordan, Esq.
Drinker Biddle & Reath LLP
1345 Chestnut Street
Philadelphia, PA 19107-3496
Telecopy: 215-988-2757
(b) If to Seller or either of the Partners:
Cable Systems USA, Partners
Route 66 North
Crown, Pennsylvania 16220
Attn: Jan Fuellhart
Telecopy: 814-744-8324
with a copy to:
Leslie J. Levinson, Esq.
Baer Marks & Upham LLP
805 Third Avenue
New York, New York 10022
Telecopy: 212-702-5835 or 5941
Any Party may change the address to which notices are required to be sent by
giving notice of such change in the manner provided in this Section 10.3.
10.4 Attorneys' Fees. In the event of any action or suit based upon or
arising out of any alleged breach by any Party of any representation, warranty,
covenant or agreement contained in this Agreement, the prevailing Party will be
entitled to recover reasonable attorneys' fees and other costs of such action or
suit from the other Party.
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10.5 Waiver. This Agreement or any of its provisions may not be waived
except in writing. The failure of any Party to enforce any right arising under
this Agreement on one or more occasions will not operate as a waiver of that or
any other right on that or any other occasion.
10.6 Headings. The Article and Section headings of this Agreement are
for convenience only and shall not constitute a part of this Agreement or in any
way affect the meaning or interpretation thereof.
10.7 Choice of Law. This Agreement and the rights of the parties under
it will be governed by and construed in all respects in accordance with the laws
of the State of New York, without giving effect to any choice of law provision
or rule (whether of the State of New York or any other jurisdiction) that would
cause the application of the laws of any jurisdiction other than the State of
New York.
10.8 Rights Cumulative. All rights and remedies of each of the Parties
under this Agreement will be cumulative, and the exercise of one or more rights
or remedies will not preclude the exercise of any other right or remedy
available under this Agreement or applicable law.
10.9 Further Actions. The Parties will execute and deliver to the
other, from time to time at or after Closing, for no additional consideration
and at no additional cost to the requesting Party, such further assignments,
certificates, instruments, records, or other documents, assurances or things as
may be reasonably necessary to give full effect to this Agreement and to allow
each Party fully to enjoy and exercise the rights accorded and acquired by it
under this Agreement.
10.10 Time. If the last day permitted for the giving of any notice or
the performance of any act required or permitted under this Agreement falls on a
day which is not a Business Day, the time for the giving of such notice or the
performance of such act will be extended to the next succeeding Business Day.
10.11 Late Payments. If either Party fails to pay the other any amounts
when due under this Agreement, the amounts due will bear interest from the due
date to the date of payment at the Applicable Rate.
10.12 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10.13 Entire Agreement. This Agreement (including the Disclosure
Schedule and the other agreements and documents executed in connection herewith,
which are incorporated in and constitute a part of this Agreement) and the
Confidentiality Agreement contain the entire agreement of the Parties and
supersede all prior oral or written agreements, understandings and
representations to the extent that they relate in any way to the subject matter
hereof or thereof.
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10.14 Amendments and Waivers. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by
Buyer, Seller and the Partners. No waiver by any Party of any default,
misrepresentation or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation or breach of warranty or covenant hereunder or affect
in any way any rights arising by virtue of any prior or subsequent such
occurrence.
10.15 Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
10.16 Construction. The Parties have participated jointly in the
negotiation and drafting of this Agreement. If an ambiguity or question of
intent or interpretation arises, this Agreement shall be construed as if drafted
jointly by the Parties and no presumption or burden of proof shall arise
favoring or disfavoring any Party by virtue of the authorship of any of the
provisions of this Agreement. Any reference to any federal, state, Commonwealth,
local, or foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation. The Parties intend
that each representation, warranty, covenant and condition precedent contained
herein shall have independent significance. If any Party has breached any
representation, warranty or covenant contained herein in any respect, the fact
that there exists another representation, warranty or covenant relating to the
same subject matter (regardless of the relative levels of specificity) which the
Party has not breached shall not detract from or mitigate the fact that the
Party is in breach of the first representation, warranty or covenant.
10.17 Expenses. If Buyer elects to purchase insurance to protect itself
from the consequence of the breach of Seller's and the Partner's representations
and warranties contained herein, Seller will pay the lesser of one-half of the
premium for such insurance or $40,000. Otherwise, each Party will bear his or
its own costs and expenses (including legal fees and expenses and accountants'
fees and expenses) incurred in connection with the negotiation of this
Agreement, the performance of its obligations and the consummation of the
transactions contemplated hereby.
IN WITNESS WHEREOF, the Parties hereto have duly executed this
Agreement as of the day and year first above written.
PEGASUS CABLE TELEVISION, INC.
By: /s/ Ted S. Lodge
-----------------------------------
Ted S. Lodge, Senior Vice President
- 50 -
<PAGE>
CABLE SYSTEMS USA, PARTNERS
By J & J CABLE PARTNERS, INC.,
general partner
By:/s/ Janice Fuellhart
-----------------------------------
Name:
Title:
And by P S & G CABLE PARTNERS, INC.
By:/s/ Peter Graf
-----------------------------------
Name: Peter Graf
Title: President
J & J CABLE PARTNERS, INC.
By:/s/ Janice Fuellhart
-----------------------------------
Name:
Title:
P S & G CABLE PARTNERS, INC.
By:/s/ Peter Graf
-----------------------------------
Name: Peter Graf
Title: President
- 51 -
<PAGE>
CERTIFICATE OF DESIGNATION, PREFERENCES
AND RELATIVE, PARTICIPATING, OPTIONAL AND
OTHER SPECIAL RIGHTS OF PREFERRED
STOCK AND QUALIFICATIONS, LIMITATIONS
AND RESTRICTIONS THEREOF
OF
12.75% SERIES A CUMULATIVE EXCHANGEABLE
PREFERRED STOCK
OF
PEGASUS COMMUNICATIONS CORPORATION
-------------------------
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
-------------------------
Pegasus Communications Corporation (the "Company"), a
corporation organized and existing under the General Corporation Law of the
State of Delaware, certifies that pursuant to the authority contained in Article
Fourth of its Amended and Restated Certificate of Incorporation (the
"Certificate of Incorporation") and in accordance with the provisions of Section
151 of the General Corporation Law of the State of Delaware, a duly constituted
committee of the Board of Directors of the Company, acting within the scope of
the authority delegated to it by the Board of Directors, by unanimous written
consent dated January 22, 1997 duly approved and adopted the following
resolution (this "Certificate of Designation") which resolution remains in full
force and effect on the date hereof:
RESOLVED, that pursuant to the authority vested in the Pricing
Committee of the Board of Directors by resolutions duly adopted by the Board of
Directors on November 21, 1996, the Pricing Committee of the Board of Directors
does hereby designate, create, authorize and provide for the issue of 12.75%
Series A Cumulative Exchangeable Preferred Stock due January 1, 2007 (the
"Series A Preferred Stock"), par value $0.01 per share, with a liquidation
preference of $1,000 per share, consisting of 100,000 shares, having the
following voting powers, preferences and relative, participating, optional and
other special rights, and qualifications, limitations and restrictions thereof
as follows:
1. Certain Definitions.
Unless the context otherwise requires, the terms defined in
this Section 1 shall have, for all purposes of this resolution, the meanings
herein specified (with terms defined in the singular having comparable meanings
when used in the plural).
"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
<PAGE>
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 asset 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 that beneficial ownership of 10% or more of the voting securities of a
Person shall be deemed to be control.
"Affiliate Transaction" has the meaning set forth in Section
8(d) below.
"Applicable Redemption Price" means a price per share equal to
the following redemption prices specified below (expressed as percentages of the
Liquidation Preference thereof), in each case, together with accumulated and
unpaid dividends, if any, to the date of redemption if redeemed during the
12-month period commencing on January 1 of each of the years set forth below:
2002.........................................106.375%
2003.........................................104.250%
2004.........................................102.125%
2005 and thereafter..........................100.000%
"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 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 8(a) hereof.
"Asset Swap" means an exchange of assets by the Company or a
Restricted Subsidiary of the Company for one or more Permitted Businesses or for
a controlling equity interest in any Person whose assets consist primarily of
one or more Permitted Businesses.
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<PAGE>
"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.
"Basket Period" has the meaning set forth in Section 8(a)
below.
"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.
"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, partnership
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 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 million and a Thompson Bank
Watch Rating of "B" or better, (iv) repurchase obligations with a term of not
more than seven days or on demand 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 and (v)
commercial paper having the highest rating at acquisition obtainable from
Moody's Investors Service, Inc. or Standard & Poor's Corporation and in each
case maturing within six months after the date of acquisition.
"Certificated Securities" has the meaning set forth in Section
14(d) below.
"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
3
<PAGE>
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 Class A Common Stock of the Company than is
beneficially owned (as defined above) at such time 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 are not Continuing Directors.
"Change of Control Offer" has the meaning set forth in Section
7(a) below.
"Change of Control Payment" has the meaning set forth in
Section 7(a) below.
"Change of Control Payment Date" has the meaning set forth in
Section 7(d)(ii) below.
"Class A Common Stock" means the Class A Common Stock, par
value $.01 per share, of the Company.
"Closing Date" means the date on which shares of Series A
Preferred Stock are first issued.
"Commission" means the Securities and Exchange Commission.
"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.
"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
Unrestricted Subsidiary of the Company or any Unrestricted Subsidiary of any
Wholly Owned Restricted Subsidiary of the Company to the extent that such
dividends are not included
4
<PAGE>
in the calculation of permitted Restricted Payments under Section 8(a)(i)(3)
hereof by virtue of clause (C) of such section.
"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 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.
"Depositary" has the meaning set forth in Section 14(a) below.
"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.
"DGCL" has the meaning set forth in Section 2(b) below.
"Disqualified Stock" means any Capital Stock (other than the
Series A Preferred 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 mandatory redemption date of
the Series A Preferred Stock set forth in this Certificate of Designation
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 of Section 8(a) hereof.
"Dividend Payment Date" has the meaning set forth in Section
2(a) below.
"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).
"Event of Default" means any Event of Default under the
Exchange Note Indenture.
"Exchange Act" means the Securities and Exchange Act of 1934,
as amended.
"Exchange Date" has the meaning set forth in Section 5(b)
below.
"Exchange Notes" means the Company's 12.75% Senior
Subordinated Exchange Notes due 2007 issuable in exchange for the Company's
Series A Preferred Stock.
"Exchange Note Indenture" means that certain indenture under
which the Exchange Notes would be issued and which shall be substantially in the
form attached as Annex A hereto.
5
<PAGE>
"Exchange Note Trustee" means the trustee under the Exchange
Note Indenture.
"Executive Officer" means any officer of the Company that
would be deemed to be an "executive officer" within meaning of the rules and
regulations of the Commission.
"Existing Indebtedness" means all Indebtedness of the Company
and its Subsidiaries 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 (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 independent
appraisal firm with experience in the valuation of the classes and types of
assets in question; provided that the fair market value of the assets purchased
in an arms'-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
of 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 Shares" has the meaning set forth in Section 14(a)
below.
"Global Share Holder" has the meaning set forth in Section
14(a) below.
"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 the record holder of one or more shares of
Series A Preferred Stock, as shown on the books and records of the Transfer
Agent.
"incur" has the meaning set forth in Section 8(b) below.
6
<PAGE>
"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.
"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 (other than Qualified Subsidiary Stock) of the
Restricted Subsidiaries of such Person as of such date (excluding 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
(ii) 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.
"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.
"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.
"Junior Securities" has the meaning set forth in Section 2(c)
below.
7
<PAGE>
"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.
"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).
"Liquidation Preference" means $1,000 per share of Series A
Preferred Stock.
"Mandatory Redemption Date" has the meaning set forth in
Section 4(a) below.
"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.
"Non-Cash Incentive Compensation" means incentive compensation
paid to any officer, employee or director 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
Communications Restricted Stock Plan and the Pegasus Communications 1996 Stock
Option Plan.
"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
8
<PAGE>
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.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"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 or any 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 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,
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).
"Parity Securities" means any class or series of Capital Stock
of the Company of the Company ranking on a parity with the Series A Preferred
Stock.
"Paying Agent" has the meaning set forth in Section 9(c)
below.
"Payment Default" has the meaning set forth in Section 6(b)
below.
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<PAGE>
"Permitted Businesses" means (a) 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 (b) any business reasonably
related or ancillary to any of the foregoing businesses.
"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; and
(d) other Investments (measured as of the time made and without giving effect to
subsequent changes in value) that do not exceed an amount equal to $5.0 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 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 such Permitted Refinancing Debt does
not exceed the principal amount of 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
would, if the Exchange Notes were outstanding at such time, be subordinated in
right of payment to the Exchange Notes, such Permitted Refinancing Debt has a
final maturity date later than January 1, 2007 and would, if the Exchange Notes
were outstanding at such time, be subordinated in right of payment to the
Exchange Notes on terms at least as favorable to the holders of such Exchange
Notes as those contained in the documentation governing the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded; and (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.
"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).
"Principal" means Marshall W. Pagon.
"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
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January 1, 2008 (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 the provisions of Section 8(a) 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 a Voting
Rights Triggering Event and (ii) January 1, 2006, (c) has no voting or remedial
rights and (d) does not permit the payment of cash dividends prior to January 1,
2007 (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
the provisions of Section 8(a) hereof).
"Record Date" has the meaning set forth in Section 2(a) below.
"Redemption Date" has the meaning set forth in Section 4(d)
below.
"reduction or decrease in capital stock" has the meaning set
forth in Section 3 below.
"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." 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.
"Restricted Investment" means an Investment other than a
Permitted Investment.
"Restricted Payment" has the meaning set forth in Section 8(a)
below.
"Restricted Subsidiary" of a Person means any Subsidiary of
the referent Person that is not an Unrestricted Subsidiary.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Securities" means any class or series of capital stock
of the Company ranking senior to the Series A Preferred Stock.
"Separation Date" means the earliest to occur of (i) April 3,
1997, (ii) in the event of a Change of Control, the date the Company mails
notice thereof and (iii) such other date as may be designated by CIBC Wood Gundy
Securities Corp.
"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 Closing Date.
"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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"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 that Person (or a
combination thereof) and (ii) any partnership (a) the sole general partner or
the managing general partner of which is such Person or a Subsidiary of such
Person or (b) the only general partners of which are such Person or of one or
more Subsidiaries of such Person (or any combination thereof).
"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
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 and non-cash dividend payments during such period
on any series of preferred stock of a Restricted Subsidiary of such Person.
"Transfer Agent" means the entity designated from time to time
by the Company to act as the registrar and transfer agent for the Series A
Preferred Stock.
"Trust Indenture Act" means the Trust Indenture Act of 1939,
as amended.
"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. 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
Certificate of Designation 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
the provisions of Section 8(b)(i) hereof (treating such Subsidiary as a
Restricted Subsidiary for such purpose for the period relevant
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to such covenant set forth in Section 8(b)(i) hereof), the Company shall be in
default of such covenant); provided, however, that in the event an Unrestricted
Subsidiary 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 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 8(b)(i) hereof (treating such Subsidiary as a
Restricted Subsidiary for such purpose for the period relevant to such covenant
set forth in Section 8(b)(i) hereof) and (ii) no Voting Rights Triggering Event
would be in existence following such designation.
"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.
"Voting Rights Triggering Event" has the meaning set forth in
Section 6(b) below.
"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.
2. Dividends.
(a) The Holders of shares of the Series A Preferred Stock
shall be entitled to receive, when, as and if dividends are declared by the
Board of Directors out of funds of the Company legally available therefor,
cumulative preferential dividends from the issue date of the Series A Preferred
Stock accruing at the rate of 12.75% per annum, payable semi-annually in arrears
on each January 1 and July 1 or, if any such date is not a Business Day, on the
next succeeding Business Day (each, a "Dividend Payment Date"), to the Holders
of record as of the next preceding December 15 and June 15 (each, a "Record
Date"). Dividends shall be payable in cash, except that on each Dividend Payment
Date occurring on or prior to January 1, 2002, dividends may be paid, at the
Company's option, by the issuance of additional shares of Series A Preferred
Stock (including fractional shares) having an aggregate Liquidation Preference
equal to the amount of such dividends. The issuance of such additional shares of
Series A Preferred Stock shall constitute "payment" of the related dividend for
all purposes of this Certificate of Designation. The first dividend payment
shall be payable on July 1, 1997. Dividends payable on the Series A Preferred
Stock shall be computed on the basis of a 360-day year consisting of twelve
30-day months and shall be deemed to accumulate on a daily basis.
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(b) Dividends on the Series A Preferred Stock shall accumulate
whether or not the Company has earnings or profits, whether or not there are
funds legally available for the payment of such dividends and whether or not
dividends are declared. Dividends shall accumulate to the extent they are not
paid on the Dividend Payment Date for the period to which they relate.
Accumulated unpaid dividends shall bear interest at a per annum rate 200 basis
points in excess of the annual dividend rate on the Series A Preferred Stock.
The Company shall take all actions required or permitted under the Delaware
General Corporation Law (the "DGCL") to permit the payment of dividends on the
Series A Preferred Stock, including, without limitation, through the revaluation
of its assets in accordance with the DGCL, to make or keep funds legally
available for the payment of dividends.
(c) No dividend whatsoever shall be declared or paid upon, or
any sum set apart for the payment of dividends upon, any outstanding share of
the Series A Preferred Stock with respect to any dividend period unless all
dividends for all preceding dividend periods have been declared and paid, or
declared and a sufficient sum set apart for the payment of such dividend, upon
all outstanding shares of Series A Preferred Stock. Unless full cumulative
dividends on all outstanding shares of Series A Preferred Stock for all past
dividend periods shall have been declared and paid, or declared and a sufficient
sum for the payment thereof set apart, then: (i) no dividend (other than a
dividend payable solely in shares of any class of stock ranking junior to the
Series A Preferred Stock as to the payment of dividends and as to rights in
liquidation, dissolution or winding up of the affairs of the Company ("Junior
Securities") shall be declared or paid upon, or any sum set apart for the
payment of dividends upon, any shares of Junior Securities; (ii) no other
distribution shall be declared or made upon, or any sum set apart for the
payment of any distribution upon, any shares of Junior Securities, other than a
distribution consisting solely of Junior Securities; (iii) no shares of Junior
Securities shall be purchased, redeemed or otherwise acquired or retired for
value (excluding an exchange for shares of other Junior Securities) by the
Company or any of its Subsidiaries; and (iv) no monies shall be paid into or set
apart or made available for a sinking or other like fund for the purchase,
redemption or other acquisition or retirement for value of any shares of Junior
Securities by the Company or any of its Subsidiaries. Holders of the Series A
Preferred Stock shall not be entitled to any dividends, whether payable in cash,
property or stock, in excess of the full cumulative dividends as herein
described.
3. Distributions Upon Liquidation, Dissolution or Winding Up.
Upon any voluntary or involuntary liquidation, dissolution or winding
up of the affairs of the Company or reduction or decrease in its capital stock
resulting in a distribution of assets to the holders of any class or series of
the Company's capital stock (a "reduction or decrease in capital stock"), each
Holder of shares of the Series A Preferred Stock shall be entitled to payment
out of the assets of the Company available for distribution of an amount equal
to the Liquidation Preference per share of Series A Preferred Stock held by such
Holder, plus accumulated and unpaid dividends, if any, to the date fixed for
liquidation, dissolution, winding up or reduction or decrease in capital stock,
before any distribution is made on any Junior Securities, including, without
limitation, common stock of the Company. After payment in full of the
Liquidation Preference and all accumulated dividends, if any, to which Holders
of Series A Preferred Stock are entitled, such Holders shall not be entitled to
any further participation in any distribution of assets of the Company. However,
neither the voluntary sale, conveyance, exchange or transfer (for cash, shares
of stock, securities or other consideration) of all or substantially all of the
property or assets of the Company nor the consolidation or merger of the Company
with or into one or more corporations shall be deemed to be a voluntary or
involuntary liquidation, dissolution or winding up of the Company or reduction
or decrease in capital stock, unless such sale, conveyance, exchange or
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transfer shall be in connection with a liquidation, dissolution or winding up of
the business of the Company or reduction or decrease in capital stock.
4. Redemption by the Company
(a) On January 1, 2007 (the "Mandatory Redemption Date"), the
Company shall be required to redeem (subject to the legal availability of funds
therefor) all outstanding shares of Series A Preferred Stock at a price in cash
equal to the Liquidation Preference thereof, plus accumulated and unpaid
dividends, if any, to the date of redemption. The Company shall not be required
to make sinking fund payments with respect to the Series A Preferred Stock. The
Company shall take all actions required or permitted under the DGCL to permit
such redemption.
(b) The Series A Preferred Stock may not be redeemed at the
option of the Company prior to January 1, 2002. The Series A Preferred Stock may
be redeemed, in whole or in part, at the option of the Company on or after
January 1, 2002, at the Applicable Redemption Price. Notwithstanding the
foregoing sentence, 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 Class A Common Stock to redeem up to 25% of the shares of
Series A Preferred Stock then outstanding (whether initially issued or issued in
lieu of cash dividends) at a redemption price of 112.750% of the Liquidation
Preference thereof plus, without duplication, accumulated and unpaid dividends
to the date of redemption; provided that, after any such redemption, at least
$75.0 million in aggregate Liquidation Preference of Series A Preferred Stock
remains outstanding; and provided further, that any such redemption shall occur
within 90 days of the date of closing of such offering of Class A Common Stock
of the Company.
(c) In case of redemption of less than all of the shares of
Series A Preferred Stock at the time outstanding, the shares to be redeemed
shall be selected pro rata or by lot as determined by the Company in its sole
discretion.
(d) Notice of any redemption shall be sent by or on behalf of
the Company not less than 30 nor more than 60 days prior to the date specified
for redemption in such notice (including the Mandatory Redemption Date, the
"Redemption Date"), by first class mail, postage prepaid, to all Holders of
record of the Series A Preferred Stock at their last addresses as they shall
appear on the books of the Company; provided, however, that no failure to give
such notice or any defect therein or in the mailing thereof shall affect the
validity of the proceedings for the redemption of any shares of Series A
Preferred Stock except as to the Holder to whom the Company has failed to give
notice or except as to the Holder to whom notice was defective. In addition to
any information required by law or by the applicable rules of any exchange upon
which Series A Preferred Stock may be listed or admitted to trading, such notice
shall state: (i) whether such redemption is being made pursuant to the optional
or the mandatory redemption provisions hereof; (ii) the Redemption Date; (iii)
the Applicable Redemption Price; (iv) the number of shares of Series A Preferred
Stock to be redeemed and, if less than all shares held by such Holder are to be
redeemed, the number of such shares to be redeemed; (v) the place or places
where certificates for such shares are to be surrendered for payment of the
Applicable Redemption Price, including any procedures applicable to redemptions
to be accomplished through book-entry transfers; and (vi) that dividends on the
shares to be redeemed will cease to accumulate on the Redemption Date. Upon the
mailing of any such notice of redemption, the Company shall become obligated to
redeem at the time of redemption specified thereon all shares called for
redemption.
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(e) If notice has been mailed in accordance with Section 4(d)
above and provided that on or before the Redemption Date specified in such
notice, all funds necessary for such redemption shall have been set aside by the
Company, separate and apart from its other funds in trust for the pro rata
benefit of the Holders of the shares so called for redemption, so as to be, and
to continue to be available therefor, then, from and after the Redemption Date,
dividends on the shares of the Series A Preferred Stock so called for redemption
shall cease to accumulate, and said shares shall no longer be deemed to be
outstanding and shall not have the status of shares of Series A Preferred Stock,
and all rights of the Holders thereof as stockholders of the Company (except the
right to receive from the Company the Applicable Redemption Price) shall cease.
Upon surrender, in accordance with said notice, of the certificates for any
shares so redeemed (properly endorsed or assigned for transfer, if the Company
shall so require and the notice shall so state), such shares shall be redeemed
by the Company at the Applicable Redemption Price. In case fewer than all the
shares represented by any such certificate are redeemed, a new certificate or
certificates shall be issued representing the unredeemed shares without cost to
the Holder thereof.
(f) Any funds deposited with a bank or trust company for the
purpose of redeeming Series A Preferred Stock shall be irrevocable except that:
(i) the Company shall be entitled to receive from
such bank or trust company the interest or other earnings, if any,
earned on any money so deposited in trust, and the Holders of any
shares redeemed shall have no claim to such interest or other earnings;
and
(ii) any balance of monies so deposited by the
Company and unclaimed by the Holders of the Series A Preferred Stock
entitled thereto at the expiration of two years from the applicable
Redemption Date shall be repaid, together with any interest or other
earnings earned thereon, to the Company, and after any such repayment,
the Holders of the shares entitled to the funds so repaid to the
Company shall look only to the Company for payment without interest or
other earnings.
(g) No Series A Preferred Stock may be redeemed except with
funds legally available for the purpose. The Company shall take all actions
required or permitted under the DGCL to permit any such redemption.
(h) Notwithstanding the foregoing provisions of this Section
4, unless the full cumulative dividends on all outstanding shares of Series A
Preferred Stock shall have been paid or contemporaneously are declared and paid
for all past dividend periods, none of the shares of Series A Preferred Stock
shall be redeemed unless all outstanding shares of Series A Preferred Stock are
simultaneously redeemed.
(i) All shares of Series A Preferred Stock redeemed pursuant
to this Section 4 shall be restored to the status of authorized and unissued
shares of preferred stock, without designation as to series and may thereafter
be reissued as shares of any series of preferred stock other than shares of
Series A Preferred Stock.
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5. Exchange.
(a) The Company may, at its option, on any Dividend Payment
Date occurring after the Separation Date, exchange, in whole, but not in part,
the then outstanding shares of Series A Preferred Stock for Exchange Notes;
provided, that (i) on the date of such exchange there are no accumulated and
unpaid dividends on the Series A Preferred Stock (including the dividend payable
on such date) or other contractual impediments to such exchange; (ii) there
shall be legally available funds sufficient therefor; (iii) no Voting Rights
Triggering Event has occurred and is continuing at the time of such exchange;
(iv) immediately after giving effect to such exchange, no Default or Event of
Default (each as defined in the Exchange Note Indenture) would exist under the
Exchange Note Indenture and no default or event of default would exist under any
material instrument governing Indebtedness outstanding at the time, in either
case, would be caused thereby; (v) the Exchange Note Indenture has been
qualified under the Trust Indenture Act, if such qualification is required at
the time of exchange; and (vi) the Company shall have delivered a written
opinion to the Exchange Note Trustee to the effect that all conditions to be
satisfied prior to such exchange have been satisfied.
(b) The Exchange Notes shall be issuable in principal amounts
of $1,000 and integral multiples thereof to the extent possible, and shall also
be issuable in principal amounts less than $1,000 so that each Holder of Series
A Preferred Stock will receive certificates representing the entire amount of
Exchange Notes to which such Holder's shares of Series A Preferred Stock entitle
such Holder; provided that the Company may pay cash in lieu of issuing an
Exchange Note having a principal amount less than $1,000. Notice of the
intention to exchange shall be sent by or on behalf of the Company not more than
60 days nor less than 30 days prior to the date fixed for the exchange (the
"Exchange Date"), by first class mail, postage prepaid, to each Holder of record
of Series A Preferred Stock at its registered address. In addition to any
information required by law or by the applicable rules of any exchange upon
which the Series A Preferred Stock may be listed or admitted to trading, such
notice shall state: (i) the Exchange Date; (ii) the place or places where
certificates for such shares are to be surrendered for exchange, including any
procedures applicable to exchanges to be accomplished through book-entry
transfers; and (iii) that dividends on the shares of Series A Preferred Stock to
be exchanged will cease to accumulate on the Exchange Date.
(c) A Holder delivering Series A Preferred Stock for exchange
shall not be required to pay any taxes or duties in respect of the issue or
delivery of Exchange Notes on exchange but shall be required to pay any tax or
duty that may be payable in respect of any transfer involved in the issue or
delivery of the Exchange Notes in a name other than that of the Holder of the
Series A Preferred Stock. Certificates representing Exchange Notes shall not be
issued or delivered unless all taxes and duties, if any, payable by the Holder
have been paid.
(d) If notice of any exchange has been properly given, and if
on or before the Exchange Date the Exchange Notes have been duly executed and
authenticated and an amount in cash or additional shares of Series A Preferred
Stock (as applicable) equal to all accumulated and unpaid dividends, if any,
thereon to the Exchange Date has been deposited with the Transfer Agent, then on
and after the close of business on the Exchange Date, the shares of Series A
Preferred Stock to be exchanged shall no longer be deemed to be outstanding and
may thereafter be issued in the same manner as the other authorized but unissued
preferred stock, but not as Series A Preferred Stock, and all rights of the
Holders thereof as stockholders of the Company shall cease, except the right of
the Holders to receive upon
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surrender of their certificates the Exchange Notes and all accumulated and
unpaid dividends, if any, thereon to the Exchange Date.
(e) As a condition to the exercise of the exchange rights
described in this Section 5, the Company shall deliver an opinion to the
Exchange Note Trustee as to the due authorization, execution, delivery and
enforceability of both the Exchange Notes and the Exchange Note Indenture and as
to the compliance by the Company with the provisions hereof.
6. Voting Rights.
(a) The Holders of record of shares of the Series A Preferred
Stock shall have no voting rights, except as required by law and as hereinafter
provided in this Section 6.
(b) Upon:
(i) the accumulation of accumulated and unpaid
dividends on the outstanding Series A Preferred Stock in an amount
equal to three (3) full semi-annual dividends (whether or not
consecutive);
(ii) the failure of the Company to satisfy any
mandatory redemption or repurchase obligation (including, without
limitation, pursuant to any required Change of Control Offer) with
respect to the Series A Preferred Stock;
(iii) the failure of the Company to make a Change of
Control Offer on the terms and in accordance with the provisions
described below in Section 7 hereof;
(iv) the failure of the Company to comply with any of
the other covenants or agreements set forth in this Certificate of
Designation and the continuance of such failure for 60 consecutive days
or more; or
(v) 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 Subsidiaries (or the payment of which is guaranteed by
the Company or any of its Subsidiaries) whether such Indebtedness or
Guarantee now exists, or is created after the Closing Date, which
default (1) 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 (2) results in the acceleration of such
Indebtedness prior to its express maturity and, in each case, the
principal amount of any 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 (each of the events described in
clauses (i), (ii), (iii), (iv) and (v) being referred to herein as a
"Voting Rights Triggering Event");
then the number of members of the Company's Board of Directors shall be
immediately and automatically increased by two, and the Holders of a majority of
the outstanding shares of Series A Preferred Stock, voting as a separate class,
shall be entitled to elect two members to the Board of Directors of the Company.
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(c) Whenever such voting right shall have vested, such right
may be exercised initially either at a special meeting of the Holders of Series
A Preferred Stock, called as hereinafter provided, or at any annual meeting of
stockholders held for the purpose of electing directors, and thereafter at such
annual meetings or by the written consent of the Holders of Series A Preferred
Stock. Such right of the Holders of Series A Preferred Stock to elect directors
may be exercised until (i) all dividends in arrears shall have been paid in full
and (ii) all other Voting Rights Triggering Events have been cured or waived, at
which time the right of the Holders of Series A Preferred Stock to elect such
number of directors shall cease, the term of such directors previously elected
shall thereupon terminate, and the authorized number of directors of the Company
shall thereupon return to the number of authorized directors otherwise in
effect, but subject always to the same provisions for the renewal and divestment
of such special voting rights in the case of any such future dividend arrearage
or defaults or any such failure to make redemption payments.
(d) At any time when such voting right shall have vested in
the Holders of Series A Preferred Stock and if such right shall not already have
been initially exercised, a proper officer of the Company shall, upon the
written request of Holders of record of 10% or more of the Series A Preferred
Stock then outstanding, addressed to the Secretary of the Company, call a
special meeting of Holders of Series A Preferred Stock. Such meeting shall be
held at the earliest practicable date upon the notice required for annual
meetings of stockholders at the place for holding annual meetings of
stockholders of the Company or, if none, at a place designated by the Secretary
of the Company. If such meeting shall not be called by the proper officers of
the Company within 30 days after the personal service of such written request
upon the Secretary of the Company, or within 30 days after mailing the same
within the United States, by registered mail, addressed to the Secretary of the
Company at its principal office (such mailing to be evidenced by the registry
receipt issued by the postal authorities), then the Holders of record of 10% of
the shares of Series A Preferred Stock then outstanding may designate in writing
a Holder of Series A Preferred Stock to call such meeting at the expense of the
Company, and such meeting may be called by such person so designated upon the
notice required for annual meetings of stockholders and shall be held at the
place for holding annual meetings of the Company or, if none, at a place
designated by such Holder. Any Holder of Series A Preferred Stock that would be
entitled to vote at such meeting shall have access to the stock books of the
Company for the purpose of causing a meeting of stockholders to be called
pursuant to the provisions of this Section. Notwithstanding the provisions of
this paragraph, however, no such special meeting shall be called if any such
request is received less than 90 days before the date fixed for the next ensuing
annual or special meeting of stockholders.
(e) If any director so elected by the Holders of Series A
Preferred Stock shall cease to serve as a director before his term shall expire,
the Holders of Series A Preferred Stock then outstanding may, at a special
meeting of the Holders called as provided above, elect a successor to hold
office for the unexpired term of the director whose place shall be vacant.
(f) The Company shall not, without the affirmative vote or
consent of the Holders of a majority of the shares of Series A Preferred Stock
then outstanding (with shares held by the Company or any of its Affiliates not
being considered to be outstanding for this purpose):
(i) authorize, create (by way of reclassification or
otherwise) or issue any Parity Securities or any Obligation or security
convertible into or evidencing the right to purchase any Parity
Securities;
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(ii) amend or otherwise alter its Certificate of
Incorporation in any manner that adversely affects the rights of
Holders of Series A Preferred Stock;
(iii) amend or otherwise alter this Certificate of
Designation (including the provisions of Section 7 hereof) in any
manner; or
(iv) waive any existing Voting Rights Triggering
Event or compliance with any provision of this Certificate of
Designation.
(g) Without the consent of each Holder affected, an amendment
or waiver of the Company's Certificate of Incorporation or of this Certificate
of Designation may not (with respect to any shares of Series A Preferred Stock
held by a non-consenting Holder):
(i) alter the voting rights with respect to the
Series A Preferred Stock or reduce the number of shares of Series A
Preferred Stock whose Holders must consent to an amendment, supplement
or waiver;
(ii) reduce the Liquidation Preference of or change
the Mandatory Redemption Date of any share of Series A Preferred Stock
or alter the provisions with respect to the redemption of the Series A
Preferred Stock (except as provided above with respect to Section 7
hereof);
(iii) reduce the rate of or change the time for
payment of dividends on any share of Series A Preferred Stock;
(iv) waive the consequences of any failure to pay
dividends on the Series A Preferred Stock;
(v) make any share of Series A Preferred Stock
payable in any form other than that stated in this Certificate of
Designation;
(vi) make any change in the provisions of this
Certificate of Designation relating to waivers of the rights of Holders
of Series A Preferred Stock to receive the Liquidation Preference and
dividends on the Series A Preferred Stock;
(vii) waive a redemption payment with respect to any
share of Series A Preferred Stock (except as provided above with
respect to Section 7 hereof); or
(viii) make any change in the foregoing amendment and
waiver provisions.
(h) The Company shall not, without the consent of at least
two-thirds of the then outstanding shares of Series A Preferred Stock (with
shares held by the Company or its Affiliates not being considered to be
outstanding for this purpose), authorize, create (by way of reclassification or
otherwise) or issue any Senior Securities or any Obligation or security
convertible into or evidencing a right to purchase any Senior Securities.
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(i) The Company in its sole discretion may without the vote or
consent of any Holders of the Series A Preferred Stock amend or supplement this
Certificate of Designation:
(i) to cure any ambiguity, defect or inconsistency;
(ii) to provide for uncertificated Series A Preferred
Stock in addition to or in place of certificated Series A Preferred
Stock; or
(iii) to make any change that would provide any
additional rights or benefits to the Holders of the Series A Preferred
Stock or that does not adversely affect the legal rights under this
Certificate of Designation of any such Holder.
7. Change of Control.
(a) Upon the occurrence of a Change of Control, each Holder of
shares of Series A Preferred Stock 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 shares of Series A Preferred Stock held
by such Holder, any fractional shares) of such Holder's Series A Preferred Stock
pursuant to the offer described below (the "Change of Control Offer") at an
offer price in cash equal to 101% of the aggregate Liquidation Preference
thereof plus accumulated and unpaid dividends, if any, thereon to the date of
purchase (the "Change of Control Payment").
(b) The Change of Control Offer shall include all instructions
and materials necessary to enable Holders to tender their shares of Series A
Preferred Stock.
(c) The Company shall 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 Series A Preferred Stock as a result of a Change of
Control.
(d) Within 30 days following any Change of Control, the
Company shall mail a notice to each Holder stating:
(i) that the Change of Control Offer is being made
pursuant to this Section 7 and that all shares of Series A Preferred
Stock tendered will be accepted for payment;
(ii) the purchase price and the purchase date, which
shall be no earlier than 30 days nor later than 60 days from the date
such notice is mailed (the "Change of Control Payment Date");
(iii) that any share of Series A Preferred Stock not
tendered will continue to accumulate dividends;
(iv) that, unless the Company fails to pay the Change
of Control Payment, all shares of Series A Preferred Stock accepted for
payment pursuant to the Change of Control Offer shall cease to
accumulate dividends after the Change of Control Payment Date;
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(v) that Holders electing to have any shares of
Series A Preferred Stock purchased pursuant to a Change of Control
Offer will be required to surrender the shares of Series A Preferred
Stock, with the form entitled "Option of Holder to Elect Purchase"
which shall be included with the Notice of Change of Control 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;
(vi) that Holders will 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 number of shares of Series A
Preferred Stock delivered for purchase, and a statement that such
Holder is withdrawing his election to have such shares purchased; and
(vii) the circumstances and relevant facts regarding
such Change of Control (including, but not limited to, information with
respect to pro forma historical financial information after giving
effect to such Change of Control and information regarding the Person
or Persons acquiring control).
(e) On the Change of Control Payment Date, the Company shall,
to the extent lawful, (i) accept for payment all shares of Series A Preferred
Stock or portions thereof properly tendered pursuant to the Change of Control
Offer, (ii) deposit with the Paying Agent an amount equal to the Change of
Control Payment in respect of all shares of Series A Preferred Stock or portions
thereof so tendered and (iii) deliver or cause to be delivered to the Transfer
Agent the shares of Series A Preferred Stock so accepted together with an
Officers' Certificate stating the aggregate Liquidation Preference of the shares
of Series A Preferred Stock or portions thereof being purchased by the Company.
The Paying Agent shall promptly mail to each Holder of Series A Preferred Stock
so tendered the Change of Control Payment for such Series A Preferred Stock, and
the Transfer Agent shall promptly authenticate and mail (or cause to be
transferred by book entry) to each Holder a new certificate representing the
shares of Series A Preferred Stock equal in Liquidation Preference amount to any
unpurchased portion of the shares of Series A Preferred Stock surrendered, if
any. The Company shall publicly announce the results of the Change of Control
Offer on or as soon as practicable after the Change of Control Payment Date.
(f) Prior to complying with the provisions of this Section 7,
but in any event within 90 days following a Change of Control, the Company shall
either repay all outstanding Indebtedness or obtain the requisite consents, if
any, under all agreements governing outstanding Indebtedness to permit the
repurchase of Series A Preferred Stock required by this Section 7.
(g) 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 7 applicable to a Change of Control Offer
made by the Company and purchases all shares of Series A Preferred Stock validly
tendered and not withdrawn under such Change of Control Offer.
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8. Certain Covenants.
(a) Restricted Payments.
(i) The Company shall not, and shall not permit any
of its Restricted Subsidiaries to, directly or indirectly, (a) declare
or pay any dividend or make any payment or distribution on account of
the Company's Parity Securities or Junior Securities (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 to or for the
benefit of the direct or indirect holders of the Company's Parity
Securities or Junior Securities 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); (b) purchase, redeem or otherwise
acquire or retire for value any Parity Securities or Junior Securities
of the Company or any direct or indirect parent of the Company or other
Affiliate of the Company (other than any such Equity Interests owned by
the Company or any of its Restricted Subsidiaries and other than the
acquisition of Equity Interests in Subsidiaries of the Company solely
in exchange for Equity Interests (other than Disqualified Stock) of the
Company); (c) make any payment on, or purchase, redeem, defease or
otherwise acquire or retire for value any Junior Securities, except
payments of the Liquidation Preference thereof at final maturity; (d)
make any loan, advance, capital contribution to or other investment in,
or guarantee any obligation of, any Affiliate of the Company other than
a Permitted Investment; (e) forgive any loan or advance to or other
obligation of any Affiliate of the Company (other than a loan or
advance to or other obligation of a Wholly Owned Restricted Subsidiary)
which at the time it was made was not a Restricted Payment that was
permitted to be made; or (f) make any Restricted Investment (all such
payments and other actions set forth in clauses (a) through (f) above
being collectively referred to as "Restricted Payments"), unless, at
the time of and immediately after giving effect to such Restricted
Payment:
(1) no Voting Rights Triggering Event shall
have occurred and be continuing or would occur as a
consequence thereof; and
(2) 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
8(b)(i) hereof; and
(3) such Restricted Payment, together with
the aggregate of all other Restricted Payments made by the
Company and its Restricted Subsidiaries after the Closing
Date, is less than the sum of (A) 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 (B) 100% of the aggregate net cash proceeds and,
in the case of proceeds consisting of assets constituting or
used in a Permitted Business, 100% of the fair market value of
the aggregate net proceeds other than cash received since the
Closing Date (i) by the Company as capital contributions to
the Company (other than from a Subsidiary) or (ii) from the
sale by the Company (other
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than to a Subsidiary) of its Equity Interests (other than
Disqualified Stock), plus (C) without duplication, 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 of such Restricted Investment, plus (D) without
duplication, 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 (E) $2.5 million.
(ii) The foregoing Section 8(a)(i) 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 Certificate of Designation;
(2) the redemption, repurchase, retirement or other acquisition of any
Equity Interests 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 (3)(B) of the preceding paragraph (i); (3) 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; (4) 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 $3.0 million; (5) the payment of dividends on
the Series A Preferred Stock in accordance with the terms thereof as in
effect on the Closing Date; (6) the issuance of Exchange Notes in
exchange for shares of the Series A Preferred Stock; provided that such
issuance is permitted by Section 8(b) hereof; and (7) in the event that
the Company elects to issue Exchange Notes in exchange for Series A
Preferred Stock, cash payments made in lieu of the issuance of Exchange
Notes having a face amount less than $1,000 and any cash payments
representing accumulated and unpaid dividends in respect thereof, not
to exceed $100,000 in the aggregate in any fiscal year.
(iii) 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) proposed to be transferred 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 Board of Directors an Officers'
Certificate stating that such Restricted Payment is permitted by the
terms hereof and setting forth the basis upon which the calculations
required by this Section 8(a) were computed, which calculations may be
based upon the Company's latest available financial statements.
(iv) The Board of Directors may designate any
Restricted Subsidiary to be an Unrestricted Subsidiary if such
designation would not cause a Voting Rights Triggering Event. 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 8(a)(i) 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 be
permitted only if such Restricted
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Payment would be permitted at such time and if such Restricted
Subsidiary would otherwise meet the definition of an Unrestricted
Subsidiary.
(b) Incurrence of Indebtedness and Issuance of Preferred
Stock.
(i) 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 issue any
Disqualified Stock and shall not permit any of its Subsidiaries to
issue any shares of preferred stock (other than Qualified Subsidiary
Stock); provided, however, that (a) the Company may incur Indebtedness
(including Acquired Debt) or issue shares of Disqualified Stock and (b)
a Restricted Subsidiary of the Company may incur Indebtedness
(including Acquired Debt) or issue shares of preferred stock (including
Disqualified Stock) if, in each case, the Company's Indebtedness to
Adjusted Operating Cash Flow Ratio as of the date on which such
Indebtedness is incurred or such Disqualified Stock or preferred 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.
The foregoing provisions shall not apply to:
(1) 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;
(2) the incurrence by the Company or any of
its Restricted Subsidiaries of Indebtedness pursuant to one or
more Bank Facilities, so long as the aggregate principal
amount of all Indebtedness outstanding under all Bank
Facilities does not, at the time of incurrence, exceed an
amount equal to $50.0 million;
(3) the incurrence by the Company and its
Restricted Subsidiaries of the Existing Indebtedness;
(4) the incurrence by the Company of
Indebtedness under the Exchange Notes;
(5) 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 (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
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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;
(6) 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 $5.0 million at any time
outstanding;
(7) 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
that was permitted by this Certificate of Designation to be
incurred; and
(8) 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 not
to exceed $5.0 million.
(ii) If an item of Indebtedness is permitted to be
incurred on the basis of the first paragraph of Section 8(b)(i) hereof
and also on the basis of one or more of clauses (1) through (8) of
Section 8(b)(i) hereof, or is permitted to be incurred on the basis of
two or more of clauses (1) through (8) of Section 8(b)(i) hereof, then
the Company shall classify the basis on which such item of Indebtedness
is incurred. If an item of Indebtedness is repaid with the proceeds of
an incurrence of other Indebtedness (whether from the same or a
different creditor), the Company may classify such other Indebtedness
as having been incurred on the same basis as the Indebtedness being
repaid or on a different basis permitted under this covenant. For
purposes of this Section 8(b)(ii), "Indebtedness" includes Disqualified
Stock and preferred stock of Subsidiaries. Accrued interest and
accreted discount will not be deemed incurrence of Indebtedness for
purposes of this Section 8(b).
(c) 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
Series A Preferred Stock shall be converted into or exchanged for and shall
become shares of such successor, transferee or resulting Person, having in
respect of such successor, transferee or resulting Person the same powers,
preferences and relative participating, optional or other special rights and the
qualifications, limitations or restrictions thereon, that the Series A Preferred
Stock had with respect to the Company immediately prior to such transaction;
(iii) immediately after such transaction no Voting Rights Triggering Event
exists; and (iv) the Company or the entity or
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<PAGE>
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 8(b)(i) hereof.
(d) 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 (1) 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 (2) 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 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 (A) 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, (B) transactions between or among the Company and/or its Restricted
Subsidiaries, (C) the payment of any dividend on, or the issuance of the
Exchange Notes in exchange for, the Series A Preferred Stock, provided that such
dividends are paid on a pro rata basis and the Exchange Notes are issued in
accordance with this Certificate of Designation, and (D) transactions permitted
by the provisions of Section 8(a) hereof, in each case, shall not be deemed
Affiliate Transactions.
(e) 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)(1) pay dividends or make any other distributions to
the Company or any of its Restricted Subsidiaries (A) on its Capital Stock or
(B) with respect to any other interest or participation in, or measured by, its
profits, or (2) 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 (1) the terms of any Indebtedness
permitted by this Certificate of Designation to be incurred by any Subsidiary of
the Company, (2) Existing Indebtedness as in effect on the Closing Date, (3)
applicable law, (4) 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
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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 or (5) 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.
(f) Limitation on Issuance 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 (other than Qualified
Subsidiary 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 such transfer, conveyance, sale, lease or other disposition
is of all the Capital Stock of such Wholly Owned Restricted Subsidiary and (ii)
shall not permit any Wholly Owned Restricted Subsidiary of the Company to issue
any of its Equity Interests (other than Qualified Subsidiary Stock and, 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.
(g) Reports.
(i) Whether or not required by the rules and
regulations of the Commission, so long as any shares of Series A
Preferred Stock are outstanding, the Company shall furnish to the
Holders of Series A Preferred Stock (1) all quarterly and annual
financial information that would be required to be contained in a
filing with the Commission 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 (2) all current reports
that would be required to be filed with the Commission on Form 8-K if
the Company were required to file such reports. In addition, whether or
not required by the rules and regulations of the Commission, the
Company shall file a copy of all such information and reports with the
Commission for public availability (unless the Commission shall 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.
(i) The Company shall deliver to the Holders, 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
28
<PAGE>
and fulfilled its obligations under this Certificate of Designation 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
Certificate of Designation and is not in default in the performance or
observance of any of the terms, provisions and conditions of this
Certificate of Designation (or, if any such default shall have
occurred, describing all such defaults 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 Liquidation Preference of or dividends, if any, on
the Series A Preferred Stock 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.
(ii) The Company shall, so long as any of the shares
of Series A Preferred Stock are outstanding, deliver to the Holders,
forthwith upon any Executive Officer of the Company becoming aware of
any default under this Certificate of Designation, an Officers'
Certificate specifying such default and what action the Company is
taking or proposes to take with respect thereto.
(h) Conflicts with By-laws. If any provisions of the Company's
By-laws conflict in any way with this Certificate of Designation, the Company
shall, so long as any of the shares of Series A Preferred Stock are outstanding,
take all necessary actions to amend such By-laws and thereby resolve the
conflict.
9. Payment.
(a) All amounts payable in cash with respect to the Series A
Preferred Stock shall be payable in United States dollars at the office or
agency of the Company maintained for such purpose within the City and State of
New York or, at the option of the Company, payment of dividends (if any) may be
made by check mailed to the Holders of the Series A Preferred Stock at their
respective addresses set forth in the register of Holders of Series A Preferred
Stock maintained by the Transfer Agent, provided that all cash payments with
respect to the Global Shares (as defined below) and shares of Series A Preferred
Stock the Holders of which have given wire transfer instructions to the Company
shall be required to be made by wire transfer of immediately available funds to
the accounts specified by the Holders thereof.
(b) Any payment on the Series A Preferred Stock due on any day
that is not a Business Day need not be made on such day, but may be made on the
next succeeding Business Day with the same force and effect as if made on such
due date.
(c) The Company has initially appointed the Transfer Agent to
act as the "Paying Agent." The Company may at any time terminate the appointment
of any Paying Agent and appoint additional or other Paying Agents, provided that
until the Series A Preferred Stock has been delivered to the Company for
cancellation, or moneys sufficient to pay the Liquidation Preference and
accumulated dividends on the Series A Preferred Stock have been made available
for payment and either paid or returned to the Company as provided in this
Certificate of Designation, it shall maintain an office or agency in the Borough
of Manhattan, The City of New York for surrender of Series A Preferred Stock for
conversion.
29
<PAGE>
(d) Dividends payable on the Series A Preferred Stock on any
redemption date or repurchase date that is a Dividend Payment Date shall be paid
to the Holders of record as of the immediately preceding Record Date.
(e) All moneys and shares of Series A Preferred Stock
deposited with any Paying Agent or then held by the Company in trust for the
payment of the Liquidation Preference and dividends on any shares of Series A
Preferred Stock which remain unclaimed at the end of two years after such
payment has become due and payable shall be repaid to the Company, and the
Holder of such shares of Series A Preferred Stock shall thereafter look only to
Company for payment thereof.
10. Officers' Certificate.
Each Officers' Certificate provided for in this Certificate of
Designation shall include:
(a) a statement that the officer 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 officer, 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
officer, such condition or covenant has been satisfied.
11. Exclusion of Other Rights.
Except as may otherwise be required by law, the shares of
Series A Preferred Stock shall not have any voting powers, preferences and
relative, participating, optional or other special rights, other than those
specifically set forth in this Certificate of Designation (as such Certificate
of Designation may be amended from time to time) and in the Certificate of
Incorporation. The shares of Series A Preferred Stock shall have no preemptive
or subscription rights.
12. Headings of Subdivisions.
The headings of the various subdivisions hereof are for
convenience of reference only and shall not affect the interpretation of any of
the provisions hereof.
13. Severability of Provisions.
If any voting powers, preferences and relative, participating,
optional and other special rights of the Series A Preferred Stock and
qualifications, limitations and restrictions thereof set forth in this
Certificate of Designation (as it may be amended from time to time) is invalid,
unlawful or incapable of being enforced by reason of any rule of law or public
policy, all other voting powers, preferences and relative, participating,
optional and other special rights of Series A Preferred Stock and
qualifications,
30
<PAGE>
limitations and restrictions thereof set forth in this Certificate of
Designation (as so amended) which can be given effect without the invalid,
unlawful or unenforceable voting powers, preferences and relative,
participating, optional and other special rights of Series A Preferred Stock and
qualifications, limitations and restrictions thereof shall, nevertheless, remain
in full force and effect, and no voting powers, preferences and relative,
participating, optional or other special rights of Series A Preferred Stock and
qualifications, limitations and restrictions thereof herein set forth shall be
deemed dependent upon any other such voting powers, preferences and relative,
participating, optional or other special rights of Series A Preferred Stock and
qualifications, limitations and restrictions thereof unless so expressed herein.
14. Form of Securities.
(a) The Series A Preferred Stock shall initially be issued in
the form of one or more Global Preferred Shares (the "Global Shares"). The
Global Shares shall be deposited on the Closing Date with, or on behalf of, The
Depository Trust Company (the "Depositary") and registered in the name of Cede &
Co., as nominee of the Depositary (such nominee being referred to as the "Global
Share Holder").
(b) So long as the Global Share Holder is the registered owner
of any Series A Preferred Stock, the Global Share Holder will be considered the
sole Holder under this Certificate of Designation of any shares of Series A
Preferred Stock evidenced by the Global Shares. Beneficial owners of shares of
Series A Preferred Stock evidenced by the Global Shares shall not be considered
the owners or Holders thereof under this Certificate of Designation for any
purpose. The Company shall not have any responsibility or liability for any
aspect of the records of the Depositary relating to the Series A Preferred
Stock.
(c) Payments in respect of the Liquidation Preference,
dividends on any Series A Preferred Stock registered in the name of the Global
Share Holder on the applicable record date shall be payable by the Company to or
at the direction of the Global Share Holder in its capacity as the registered
Holder under this Certificate of Designation. The Company may treat the persons
in whose names Series A Preferred Stock, including the Global Shares, are
registered as the owners thereof for the purpose of receiving such payments. The
Company does not and will not have any responsibility or liability for the
payments of such amounts to beneficial holders of Series A Preferred Stock.
(d) Any person having a beneficial interest in a Global Share
may, upon request to the Company, exchange such beneficial interest for Series A
Preferred Stock in the form of registered definitive certificates ("Certificated
Securities"). Upon any such issuance, the Company shall register such
Certificated Securities in the name of, and cause the same to be delivered to,
such person or persons (or the nominee of any thereof). If (i) the Company
notifies the Holders in writing that the Depositary is no longer willing or able
to act as a depositary and the Company is unable to locate a qualified successor
within 90 days or (ii) the Company, at its option, notifies the Holders in
writing that it elects to cause the issuance of Series A Preferred Stock in the
form of Certificated Securities, then, upon surrender by the Global Share Holder
of its Global Shares, Series A Preferred Stock in such form will be issued to
each person that the Global Share Holder and the Depositary identify as being
the beneficial owner of the related Series A Preferred Stock.
31
<PAGE>
IN WITNESS WHEREOF, the Company has caused this certificate to
be duly executed by Robert N. Verdecchio, Chief Financial Officer, and attested
by Ted S. Lodge, its assistant secretary, this 27th day of January, 1997.
PEGASUS COMMUNICATIONS CORPORATION
By: /s/ Robert N. Verdecchio
------------------------------
Robert N. Verdecchio
Chief Financial Officer
ATTEST:
By: /s/ Ted S. Lodge
----------------------
Ted S. Lodge
Assistant Secretary
<PAGE>
Annex A
- --------------------------------------------------------------------------------
PEGASUS COMMUNICATIONS CORPORATION
12.75% SENIOR SUBORDINATED EXCHANGE NOTES DUE 2007
-----------------
INDENTURE
Dated as of ________________
____________________
_________________
FIRST UNION NATIONAL BANK
as Trustee
-----------------
- --------------------------------------------------------------------------------
<PAGE>
CROSS-REFERENCE TABLE*
Trust Indenture
Act Section Indenture Section
310 (a)(1)............................................... 7.10
(a)(2).............................................. 7.10
(a)(3) ............................................. N.A.
(a)(4).............................................. N.A.
(a)(5).............................................. 7.10
(b) ................................................ 7.03;7.10
(c) ................................................ N.A.
311 (a) ................................................. 7.11
(b) ................................................ 7.11
(c) ................................................ N.A.
312 (a).................................................. 2.05
(b)................................................. 11.03
(c) ................................................ 11.03
313 (a).................................................. 7.06
(b)(1) ............................................. N.A.
(b)(2) ............................................. 7.06;7.07
(c) ................................................ 7.06;11.02
(d)................................................. 7.06
314 (a) ................................................. 4.03;11.05
(b) ................................................ N.A
(c)(1) ............................................. . 11.04
(c)(2) ............................................. 11.04
(c)(3) ............................................. N.A.
(d)................................................. N.A.
(e) ............................................... 11.05
(f)................................................. N.A.
315 (a).................................................. 7.01
(b)................................................. 7.05,11.02
(c) ............................................... 7.01
(d)................................................. 7.01
(e)................................................. 6.11
316 (a)(last sentence) .................................. 2.09
(a)(1)(A)........................................... 6.05
(a)(1)(B) .......................................... 6.04
(a)(2) ............................................. N.A.
(b) ................................................ 6.07
(c) ................................................ N.A.
317 (a)(1) .............................................. 6.08
(a)(2).............................................. 6.09
(b) ................................................ 2.04
318 (a).................................................. 11.01
(b)................................................. N.A.
(c)................................................. 11.01
N.A. means not applicable.
*This Cross-Reference Table is not part of the Indenture.
<PAGE>
TABLE OF CONTENTS
Page No.
--------
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
Section 1.01. Definitions............................................... 1
Section 1.02. Other Definitions......................................... 12
Section 1.03. Incorporation by Reference of Trust Indenture Act......... 13
Section 1.04. Rules of Construction..................................... 13
ARTICLE 2
THE EXCHANGE NOTES
Section 2.01. Form and Dating........................................... 14
Section 2.02. Execution and Authentication.............................. 14
Section 2.03. Registrar and Paying Agent................................ 14
Section 2.04. Paying Agent to Hold Money in Trust....................... 15
Section 2.05. Holder Lists.............................................. 15
Section 2.06. Transfer and Exchange..................................... 15
Section 2.07. Replacement Exchange Notes................................ 16
Section 2.08. Outstanding Exchange Notes................................ 16
Section 2.09. Treasury Exchange Notes................................... 16
Section 2.10. Temporary Exchange Notes.................................. 17
Section 2.11. Cancellation.............................................. 17
Section 2.12. Defaulted Interest........................................ 17
ARTICLE 3
REDEMPTION AND PREPAYMENT
Section 3.01. Notices to Trustee........................................ 18
Section 3.02. Selection of Exchange Notes to Be Redeemed................ 18
Section 3.03. Notice of Redemption...................................... 18
Section 3.04. Effect of Notice of Redemption............................ 19
Section 3.05. Deposit of Redemption or Purchase Price................... 19
Section 3.06. Exchange Notes Redeemed or Purchased in Part.............. 20
Section 3.07. Optional Redemption....................................... 20
Section 3.08. Mandatory Redemption...................................... 20
Section 3.09. Offer to Purchase by Application of Excess Proceeds....... 20
ARTICLE 4
COVENANTS
Section 4.01. Payment of Exchange Notes................................. 22
Section 4.02. Maintenance of Office or Agency........................... 23
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Section 4.03. Reports....................................................... 23
Section 4.04. Compliance Certificate........................................ 24
Section 4.05. Taxes......................................................... 24
Section 4.06. Stay, Extension and Usury Laws................................ 24
Section 4.07. Restricted Payments........................................... 25
Section 4.08. Dividend and Other Payment Restrictions Affecting
Subsidiaries.................................................. 26
Section 4.09. Incurrence of Indebtedness and Issuance of Preferred Stock.... 27
Section 4.10. Asset Sales................................................... 29
Section 4.11. Transactions with Affiliates.................................. 30
Section 4.12. Liens......................................................... 30
Section 4.13. Offer to Repurchase Upon Change of Control.................... 31
Section 4.14. Continued Existence........................................... 32
Section 4.15. Limitation on Layering........................................ 32
Section 4.16. Limitation on Issuances and Sales of Capital Stock of Wholly
Owned Restricted Subsidiaries................................. 32
ARTICLE 5
SUCCESSORS
Section 5.01. Merger, Consolidation, or Sale of Assets...................... 33
Section 5.02. Successor Corporation Substituted............................. 33
ARTICLE 6
DEFAULTS AND REMEDIES
Section 6.01. Events of Default............................................. 33
Section 6.02. Acceleration.................................................. 36
Section 6.03. Other Remedies................................................ 36
Section 6.04. Waiver of Past Defaults....................................... 36
Section 6.05. Control by Majority........................................... 36
Section 6.06. Limitation on Suits........................................... 37
Section 6.07. Rights of Holders of Exchange Notes to Receive Payment........ 37
Section 6.08. Collection Suit by Trustee.................................... 37
Section 6.09. Trustee May File Proofs of Claim.............................. 37
Section 6.10. Priorities.................................................... 38
Section 6.11. Undertaking for Costs..........................................38
ARTICLE 7
TRUSTEE
Section 7.01. Duties of Trustee............................................. 39
Section 7.02. Rights of Trustee............................................. 40
Section 7.03. Individual Rights of Trustee.................................. 40
Section 7.04. Trustee's Disclaimer.......................................... 40
Section 7.05. Notice of Defaults............................................ 41
Section 7.06. Reports by Trustee to Holders of the Exchange Notes........... 41
Section 7.07. Compensation and Indemnity.................................... 41
Section 7.08. Replacement of Trustee........................................ 42
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<PAGE>
Section 7.09. Successor Trustee by Merger, etc...............................43
Section 7.10. Eligibility; Disqualification................................. 43
Section 7.11. Preferential Collection of Claims Against Company............. 43
ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Section 8.01. Option to Effect Legal Defeasance or Covenant Defeasance...... 43
Section 8.02. Legal Defeasance and Discharge................................ 43
Section 8.03. Covenant Defeasance........................................... 44
Section 8.04. Conditions to Legal or Covenant Defeasance.................... 44
Section 8.05. Deposited Money and Government Securities to be Held in
Trust; Other Miscellaneous Provisions......................... 45
Section 8.06. Repayment to Company.......................................... 46
Section 8.07. Reinstatement................................................. 46
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
Section 9.01. Without Consent of Holders of Exchange Notes.................. 47
Section 9.02. With Consent of Holders of Exchange Notes..................... 47
Section 9.03. Compliance with Trust Indenture Act........................... 49
Section 9.04. Revocation and Effect of Consents............................. 49
Section 9.05. Notation on or Exchange of Exchange Notes..................... 49
Section 9.06. Trustee to Sign Amendments, etc............................... 49
ARTICLE 10
SUBORDINATION
Section 10.01. Agreement to Subordinate......................................49
Section 10.02. Certain Definitions...........................................50
Section 10.03. Liquidation; Dissolution; Bankruptcy..........................50
Section 10.04. Default on Designated Senior Debt.............................50
Section 10.05. Acceleration of Exchange Notes................................51
Section 10.06. When Distribution Must Be Paid Over...........................51
Section 10.07. Notice by Company.............................................52
Section 10.08. Subrogation...................................................52
Section 10.09. Relative Rights...............................................52
Section 10.10. Subordination May Not Be Impaired by Company..................53
Section 10.11. Distribution or Notice to Representative......................53
Section 10.12. Rights of Trustee and Paying Agent............................53
Section 10.13. Authorization to Effect Subordination.........................53
Section 10.14. Amendments....................................................53
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ARTICLE 11
MISCELLANEOUS
Section 11.01. Trust Indenture Act Controls............................... 54
Section 11.02. Notices.................................................... 54
Section 11.03. Communication by Holders of Exchange Notes with
Other Holders of Exchange Notes............................ 55
Section 11.04. Certificate and Opinion as to Conditions Precedent......... 55
Section 11.05. Statements Required in Certificate or Opinion.............. 55
Section 11.06. Rules by Trustee and Agents................................ 56
Section 11.07. No Personal Liability of Directors, Officers, Employees
and Stockholders........................................... 56
Section 11.08. Governing Law.............................................. 56
Section 11.09. No Adverse Interpretation of Other Agreements.............. 56
Section 11.10. Successors................................................. 56
Section 11.11. Severability............................................... 56
Section 11.12. Counterpart Originals...................................... 56
Section 11.13. Table of Contents, Headings, etc........................... 57
Exhibit A..................................................................A-1
iv
<PAGE>
INDENTURE dated as of __________________ 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 12.75% Senior
Subordinated Exchange Notes due 2007 of the Company:
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
SECTION 1.01. DEFINITIONS.
"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 asset 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 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.
"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 4.13 hereof and/or
the provisions described in Section 5.01 hereof and not by the provision 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
<PAGE>
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 one or more Permitted Businesses or for a
controlling equity interest in any Person whose assets consist primarily of one
or more Permitted Businesses.
"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.
"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, partnership 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 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 million and a Thompson Bank Watch
Rating of "B" or better, (iv) repurchase obligations with a term of not more
than seven days or on demand 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 and (v) commercial paper
having the highest rating at acquisition obtainable from Moody's Investors
Service, Inc. or Standard & Poor's Corporation and in each case maturing within
six months after the date of acquisition.
"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 setting
forth the terms of the Series A Preferred Stock.
2
<PAGE>
"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 Class A Common Stock of the Company than is
beneficially owned (as defined above) at such time 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 are not Continuing Directors.
"Class A Common Stock" means the Company's Class A Common Stock, par
value $.01 per share.
"Closing Date" means the date on which shares of Series A Preferred
Stock are first issued.
"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.
"Company" means Pegasus Communications Corporation, a Delaware
corporation.
"Continuing Directors" means, as of any date of determination, any
member of the Board of Directors 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 first address of
the Trustee specified in Section 11.02 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
3
<PAGE>
Subsidiary of the Company from any Unrestricted Subsidiary of the Company or any
Unrestricted Subsidiary of any 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) hereof 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 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.
"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.
"Depositary" means, with respect to the Exchange 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 Exchange Notes, until a successor
shall have been appointed and become such pursuant to the applicable provision
of this Indenture, and, thereafter, "Depositary" shall mean or include such
successor.
"Disqualified Stock" means any Capital Stock (other than the Series A
Preferred 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 mandatory redemption date of the Series A
Preferred Stock set forth in the Certificate of Designations 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
of Section 4.07 hereof.
"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).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Notes" means the Company's 12.75% Senior Subordinated Exchange
Notes due 2007 issuable in exchange for the Company's Series A Preferred Stock.
"Existing Indebtedness" means all Indebtedness of the Company and its
Subsidiaries 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 (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
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such assets or proceeds as determined by an independent appraisal firm with
experience in the valuation of the classes and types of assets in question;
provided that the fair market value of the assets purchased in an arms'-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 of 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.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States for the payment of which guarantee or
obligations the full faith and credit of the United States is pledged.
"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 an Exchange Note is registered.
"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.
"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
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Restricted Subsidiaries as of such date on a consolidated basis, plus the
aggregate liquidation preference of all outstanding preferred stock (other than
Qualified Subsidiary Stock) of the Restricted Subsidiaries of such Person as of
such date (excluding 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 (ii) 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.
"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.
"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
for the intervening period.
"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).
"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).
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"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.
"Non-Cash Incentive Compensation" means incentive compensation paid to
any officer, employee or director 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 Communications Restricted
Stock Plan and the Pegasus Communications 1996 Stock Option Plan.
"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.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"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 11.05 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, commissions,
discounts
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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 11.05
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 subordinated Indebtedness of the Company
permitted by Section 4.09 hereof, other than the Exchange Notes, which is pari
passu in right of payment with the Exchange Notes.
"Permitted Businesses" means (a) 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 (b) any business reasonably related or
ancillary to any of the foregoing businesses.
"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 the provisions of Section 4.10 hereof; and (e) other
Investments (measured as of the time made and without giving effect to
subsequent changes in value) that do not exceed an amount equal to $5.0 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 Senior Debt; (ii) Liens
securing 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 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 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
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Indebtedness represented by Capital Lease Obligations, mortgage financings or
purchase money obligations permitted by clause (vi) 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 Subsidiary of the Company with respect to obligations that do
not exceed $1.0 million at any one time outstanding and (x) Liens on assets of
or Equity Interests in Unrestricted Subsidiaries that secure Non-Recourse Debt
of Unrestricted Subsidiaries.
"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 such Permitted Refinancing Debt does not exceed the
principal amount of 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 Exchange Notes, such Permitted Refinancing Debt has a final
maturity date later than the final maturity date of the Exchange Notes, and is
subordinated in right of payment to the Exchange Notes on terms at least as
favorable to the Holders of Exchange Notes as those contained in the
documentation governing the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; and (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.
"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).
"Preferred Stock," of any Person, means Capital Stock of such Person of
any class or series (however designated) that ranks prior, as to payment of
dividends or as to the distribution of assets upon any voluntary or involuntary
liquidation, dissolution or winding up of such Person, to shares of Capital
Stock of any other class or series of such Person.
"Principal" means Marshall W. Pagon.
"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
January 1, 2008 (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 the provisions of 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) January 1, 2006, (c) has
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no voting or remedial rights and (d) does not permit the payment of cash
dividends prior to January 1, 2007 (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 the provisions of Section 4.07 hereof).
"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 in this Section 1.01. 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
authorized 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 Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"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.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Series A Preferred Stock" means the Company's 12.75% Series A
Cumulative Exchangeable Preferred Stock.
"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 Closing Date.
"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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"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 that Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof).
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sections
77aaa-77bbbb) as amended as in effect on the date of this Indenture.
"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
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 and non-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 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 Exchange 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 the provisions of
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
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permitted to be incurred as of such date under the provisions of 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
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 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.
"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.
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"................... 4.13
"Change of Control Payment"................. 4.13
"Change of Control Payment Date"............ 4.13
"Covenant Defeasance"....................... 8.03
"Custodian"................................. 6.01
"Designated Senior Debt".................... 10.02
"distribution".............................. 10.02
"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
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"outstanding"............................... 8.02
"Paying Agent".............................. 2.03
"Payment Blockage Notice"................... 10.04
"Payment Default"........................... 6.01
"Purchase Date" ............................ 3.09
"Registrar"................................. 2.03
"Representative" ........................... 10.02
"Restricted Payments"....................... 4.07
"Senior Bank Debt".......................... 10.02
"Senior Debt"............................... 10.02
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 Exchange Notes;
"indenture security Holder" means a Holder of an Exchange Note;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee;
"obligor" on the Exchange Notes means the Company and any successor
obligor upon the Exchange Notes.
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.
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ARTICLE 2
THE EXCHANGE NOTES
SECTION 2.01. FORM AND DATING.
The Exchange Notes and the Trustee's certificate of authentication shall
be substantially in the form of Exhibit A hereto. The Exchange Notes may have
notations, legends or endorsements required by law, stock exchange rule or
usage. Each Exchange Note shall be dated the date of its authentication. The
Exchange Notes shall be in all appropriate denominations.
The terms and provisions contained in the Exchange 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.
SECTION 2.02. EXECUTION AND AUTHENTICATION.
Two Officers shall sign the Exchange Notes for the Company by manual or
facsimile signature.
If an Officer whose signature is on an Exchange Note no longer holds
that office at the time an Exchange Note is authenticated, the Exchange Note
shall nevertheless be valid.
An Exchange Note shall not be valid until authenticated by the manual
signature of the Trustee. The signature shall be conclusive evidence that the
Exchange Note has been authenticated under this Indenture.
The Trustee shall, upon a written order of the Company signed by two
Officers, authenticate Exchange Notes for original issue up to the aggregate
principal amount stated in paragraph 4 of the Exchange Notes. The aggregate
principal amount of Exchange 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 the Exchange Notes. An authenticating agent may
authenticate Exchange 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 the
Company or an Affiliate of the Company.
SECTION 2.03. REGISTRAR AND PAYING AGENT.
The Company shall maintain an office or agency where Exchange Notes may
be presented for registration of transfer or for exchange ("Registrar") and an
office or agency where Exchange Notes may be presented for payment ("Paying
Agent"). The Registrar shall keep a register of the Exchange Notes and of their
transfer and exchange. 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
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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 may act as Paying Agent or Registrar.
The Company initially appoints The Depository Trust Company ("DTC") to
act as Depositary with respect to the Exchange Notes.
The Company initially appoints the Trustee to act as the Registrar and
Paying Agent.
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, if any, or interest on the Exchange 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 Exchange 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 ss. 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
Exchange Notes and the Company shall otherwise comply with TIA ss. 312(a).
SECTION 2.06. TRANSFER AND EXCHANGE.
When Exchange Notes are presented by a Holder to the Registrar with a
request to register, transfer or exchange them for an equal principal amount of
Exchange Notes of other denominations, the Registrar shall register the transfer
or make the exchange if its requirements for such transactions are met;
provided, however, that any Exchange Note presented or surrendered for
registration of transfer or exchange shall be duly endorsed or accompanied by a
written instruction of transfer in form satisfactory to the Registrar and the
Trustee duly executed by the Holder thereof or by his attorney duly authorized
in writing. To permit registrations of transfer and exchanges, the Company shall
issue and the Trustee shall authenticate Exchange Notes at the Registrar's
request, subject to such rules as the Trustee may reasonably require.
Neither the Company nor the Registrar shall be required (i) to issue or
register the transfer or exchange of Exchange Notes during a period beginning at
the opening of business on a Business Day fifteen (15) Business Days before the
day of any selection of Exchange Notes for redemption under Section 3.02 hereof
and ending at the close of business on the day of selection, (ii) to register
the transfer of or exchange any Exchange Notes so selected for redemption, in
whole or in part, except the
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unredeemed portion of any Exchange Note being redeemed in part or (iii) to
register the transfer or exchange of an Exchange Note between a record date and
the next succeeding interest payment date.
No service charge shall be made to any Holder for any registration of
transfer or exchange (except as otherwise expressly permitted herein), 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 such
transfer tax or similar governmental charge payable upon exchanges pursuant to
Sections 2.10, 3.06 or 9.05 hereof, which shall be paid by the Company).
Prior to due presentment for registration of transfer of any Exchange
Note, the Trustee, any Agent and the Company may deem and treat the Person in
whose name any Exchange Note is registered as the absolute owner of such
Exchange Note for the purpose of receiving payment of principal of, premium, if
any, and interest on such Exchange Note and for all other purposes whatsoever,
whether or not such Exchange Note is overdue, and neither the Trustee, any
Agent, nor the Company shall be affected by notice to the contrary.
SECTION 2.07. REPLACEMENT EXCHANGE NOTES.
If any mutilated Exchange 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 Exchange Note, the Company shall issue and the
Trustee, upon the written order of the Company signed by two Officers of the
Company, shall authenticate a replacement Exchange 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 an Exchange
Note is replaced. The Company may charge for its expenses in replacing an
Exchange Note.
Every replacement Exchange 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 Exchange Notes duly issued hereunder.
SECTION 2.08. OUTSTANDING EXCHANGE NOTES.
The Exchange Notes outstanding at any time are all the Exchange Notes
authenticated by the Trustee except for those cancelled by it, those delivered
to it for cancellation and those described in this Section 2.08 as not
outstanding. Except as set forth in Section 2.09 hereof, an Exchange Note does
not cease to be outstanding because the Company or an Affiliate of the Company
holds the Exchange Note.
If an Exchange 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 Exchange Note is held by a bona fide purchaser.
If the principal amount of any Exchange 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, by 10:00 a.m. Eastern Time on a redemption date
or maturity date, money sufficient to pay the Exchange Notes payable on that
date, then on and after that date such Exchange Notes shall be deemed to be no
longer outstanding and shall cease to accrue interest, if any.
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SECTION 2.09. TREASURY EXCHANGE NOTES.
In determining whether the Holders of the required principal amount of
Exchange Notes have concurred in any direction, waiver or consent, Exchange
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 Exchange Notes that the Trustee knows are so
owned shall be so disregarded. In connection with any such determination, the
Company agrees to notify the Trustee of the existence of any Exchange Notes
owned by the Company or any Person directly or indirectly controlling or
controlled by or under direct or indirect common control with the Company.
SECTION 2.10. TEMPORARY EXCHANGE NOTES.
Until definitive Exchange Notes are ready for delivery, the Company may
prepare and the Trustee shall authenticate temporary Exchange Notes upon a
written order of the Company signed by two Officers of the Company. Temporary
Exchange Notes shall be substantially in the form of Exchange Notes but may have
variations that the Company considers appropriate for temporary Exchange Notes
and as shall be reasonably acceptable to the Trustee. Without unreasonable
delay, the Company shall prepare and the Trustee shall authenticate Exchange
Notes in exchange for temporary Exchange Notes.
Holders of temporary Exchange Notes shall be entitled to all of the
benefits of this Indenture.
SECTION 2.11. CANCELLATION.
The Company at any time may deliver Exchange Notes to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Exchange Notes surrendered to them for registration of transfer, exchange or
payment. The Trustee and no one else shall cancel all Exchange Notes surrendered
for registration of transfer, exchange, payment, replacement or cancellation and
shall destroy cancelled Exchange Notes (subject to the record retention
requirement of the Exchange Act). Certification of the destruction of all
cancelled Exchange Notes shall be delivered to the Company unless the Company
directs the Trustee to return the Exchange Notes to the Company upon written
order signed by two Officers of the Company. The Company may not issue new
Exchange Notes to replace Exchange Notes that have been 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 Exchange Notes,
they 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 Exchange 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 Exchange 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. Notwithstanding the
foregoing, such interest may be paid at any time in any other lawful manner not
inconsistent with the requirements
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of any securities exchange on which the Exchange Notes may be listed, and upon
such notice as may be required by such exchange.
ARTICLE 3
REDEMPTION AND PREPAYMENT
SECTION 3.01. NOTICES TO TRUSTEE.
If the Company elects to redeem Exchange Notes pursuant to the optional
redemption provisions of Section 3.07 hereof, it shall furnish to the Trustee,
at least 45 days (unless a shorter period may be satisfactory to the Trustee)
but not more than 60 days before a redemption date, an Officers' Certificate
setting forth (i) the clause of this Indenture pursuant to which the redemption
shall occur, (ii) the redemption date, (iii) the principal amount of Exchange
Notes to be redeemed and (iv) the redemption price.
If the Company is required to make an offer to purchase Exchange Notes
pursuant to the provisions of Section 4.13 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 Exchange 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 4.13 hereof have been satisfied, as applicable.
SECTION 3.02. SELECTION OF EXCHANGE NOTES TO BE REDEEMED.
If less than all of the Exchange Notes are to be redeemed at any time,
the Trustee shall select the Exchange Notes to be redeemed among the Holders of
the Exchange Notes in compliance with the requirements of the principal national
securities exchange, if any, on which the Exchange Notes are listed or, if the
Exchange Notes are not so listed, to be redeemed among the Holders of Exchange
Notes on a pro rata basis, by lot or by such method as the Trustee deems fair
and appropriate. In the event of partial redemption by lot, the particular
Exchange 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 Exchange Notes not previously called for
redemption.
The Trustee shall promptly notify the Company in writing of the Exchange
Notes selected for redemption and, in the case of any Exchange Note selected for
partial redemption, the principal amount thereof to be redeemed. Exchange Notes
and portions of Exchange Notes selected shall be in amounts of $1,000 or whole
multiples of $1,000; except that if all of the Exchange Notes of a Holder are to
be redeemed, the entire outstanding amount of Exchange Notes held by such
Holder, even if not a multiple of $1,000, shall be redeemed. A new Exchange 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 Exchange Note.
On and after the redemption date, interest ceases to accrue on Exchange Notes or
portions of them called for redemption. Except as provided in this Section 3.02,
provisions of this Indenture that apply to Exchange Notes called for redemption
also apply to portions of Exchange 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
Exchange Notes are to be redeemed at its registered address.
The notice shall identify the Exchange Notes to be redeemed and shall
state:
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(a) the redemption date;
(b) the redemption price;
(c) if any Exchange Note is being redeemed in part, the portion of
the principal amount of such Exchange Note to be redeemed and that, after
the redemption date upon surrender of such Exchange Note, a new Exchange
Note or Exchange Notes in principal amount equal to the unredeemed portion
shall be issued upon cancellation of the original Exchange Note;
(d) the name and address of the Paying Agent;
(e) that Exchange 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 Exchange Notes called for redemption ceases to accrue
on and after the redemption date;
(g) the paragraph of the Exchange Notes and/or Section of this
Indenture pursuant to which the Exchange 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
Exchange 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, Exchange 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 Exchange 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 Exchange Notes to be redeemed or
purchased.
If Exchange 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 Exchange Notes to be redeemed or
purchased, on and after the applicable redemption or purchase date, interest, if
any, ceases to accrue on the Exchange Notes or the portions of Exchange Notes
called for redemption or tendered and not withdrawn in a Change of Control Offer
(regardless of whether certificates for such Exchange Notes are
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actually surrendered). If an Exchange 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 Exchange Note was registered at the close of business on such
record date. If any Exchange 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
Exchange Notes and in Section 4.01 hereof.
SECTION 3.06. EXCHANGE NOTES REDEEMED OR PURCHASED IN PART.
Upon surrender of an Exchange 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
Exchange Note equal in principal amount to the unredeemed or unpurchased portion
of the Exchange Note surrendered.
SECTION 3.07. OPTIONAL REDEMPTION.
(a) The Exchange Notes are not redeemable, in whole or in part, at the
Company's option prior to January 1, 2002. The Exchange Notes may be redeemed,
in whole or in part, at the option of the Company on or after January 1, 2002,
at the redemption prices specified below (expressed as a percentage of the
principal amount thereof), in each case, together with accrued and unpaid
interest, if any, thereon to the date of redemption, upon not less than 30 nor
more than 60 days' notice, if redeemed during the 12-month period beginning on
January 1 of the years indicated below: Redemption Year Rate ---- ----
2002...................................................... 106.375%
2003...................................................... 104.250%
2004...................................................... 102.125%
2005 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 Class A Common Stock to redeem up to
25% of the aggregate principal amount of the Exchange Notes (whether issued in
exchange for Series A Preferred Stock or in lieu of cash interest payments) at
the redemption price of 112.750% of the principal amount thereof, plus accrued
and unpaid interest to the date of redemption; provided that, after any such
redemption, the aggregate principal amount of the Exchange Notes outstanding
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
Class A Common Stock of the Company.
SECTION 3.08. MANDATORY REDEMPTION.
Except as set forth under Sections 4.10 and 4.13 hereof, the Company
shall not be required to make mandatory redemption or sinking fund payments with
respect to the Exchange Notes.
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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 Exchange 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 Exchange 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 Exchange Notes tendered
in response to the Asset Sale Offer. Payment for any Exchange 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 Exchange
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, 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 an Exchange Note is registered at the
close of business on such record date, and no additional interest shall be
payable to Holders who tender Exchange 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 Exchange 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;
(iii) that any Exchange Note not tendered or accepted for
payment shall continue to accrue interest;
(iv) that, unless the Company defaults in making such payment,
any Exchange 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 an Exchange Note purchased
pursuant to an Asset Sale Offer may only elect to have all of such
Exchange Note purchased and may not elect to have only a portion of such
Exchange Note purchased;
(vi) that Holders electing to have an Exchange Note purchased
pursuant to any Asset Sale Offer shall be required to surrender the
Exchange Note, with the form entitled "Option of Holder
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to Elect Purchase" on the reverse of the Exchange 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 forth the name of the
Holder, the principal amount of the Exchange Note the Holder delivered for
purchase and a statement that such Holder is withdrawing his election to
have such Exchange Note purchased;
(viii) that, if the aggregate principal amount of Exchange Notes
surrendered by Holders exceeds the Offer Amount, the Company shall select
the Exchange Notes to be purchased on a pro rata basis (with such
adjustments as may be deemed appropriate by the Company so that only
Exchange Notes in denominations of $1,000, or integral multiples thereof,
shall be purchased, other than in the case of Holders whose Exchange Notes
were purchased in whole); and
(ix) that Holders whose Exchange Notes were purchased only in
part shall be issued new Exchange Notes equal in principal amount to the
unpurchased portion of the Exchange 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 Exchange Notes or portions thereof tendered pursuant to the
Asset Sale Offer, or if less than the Offer Amount has been tendered, all
Exchange Notes tendered, and shall deliver to the Trustee an Officers'
Certificate stating that such Exchange 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 Exchange Notes an amount equal to the
purchase price of the Exchange Notes tendered by such Holder of Exchange Notes
and accepted by the Company for purchase, and the Company shall promptly issue a
new Exchange Note and the Trustee, upon written request from the Company shall
authenticate and mail or deliver such new Exchange Note to such Holder of
Exchange Notes in a principal amount equal to any unpurchased portion of the
Exchange Note surrendered. Any Exchange Note not so accepted shall be promptly
mailed or delivered by the Company to the Holder of Exchange 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 Exchange Notes under this
Section 3.09 shall be deemed to be a redemption of Exchange Notes.
ARTICLE 4
COVENANTS
SECTION 4.01. PAYMENT OF EXCHANGE NOTES.
The Company shall pay or cause to be paid the principal of, premium, if
any, and interest on the Exchange Notes on the dates and in the manner provided
in the Exchange Notes. Principal, premium, if any, and interest shall be
considered paid on the date due if the Paying Agent, if other than the Company,
a Subsidiary or an Affiliate of any thereof, holds as of 10:00 a.m. Eastern Time
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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 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 Exchange
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 (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 Exchange 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 Exchange 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 Exchange 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
hereof. The Trustee may resign such agency at any time by giving written notice
to the Company no later than 30 days prior to the effective date of such
resignation.
SECTION 4.03. REPORTS.
Whether or not required by the rules and regulations of the SEC, so long
as any Exchange Notes are outstanding, the Company shall furnish to the Trustee
and to the Holders of Notes (a) 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 a
"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 (b) 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 addition, 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 (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
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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.
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
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 Exchange 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 Exchange 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 Exchange 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
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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 payment or distribution on account of the Company's Equity Interests
(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 capacity as such (other than dividends or distributions payable in Equity
Interests (other than Disqualified Stock) of the Company); (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 or other Affiliate of the Company
(other than such Equity Interests owned by the Company or any of its Restricted
Subsidiaries and other than the acquisition of Equity Interests in Subsidiaries
of the Company solely in exchange for Equity Interests (other than Disqualified
Stock) of the Company); (iii) make any payment on, or purchase, redeem, defease
or otherwise acquire or retire for value any Indebtedness that is subordinated
to the Exchange Notes, except at final maturity; (iv) make any loan, advance,
capital contribution to or other investment in, or guarantee any obligation of,
any Affiliate of the Company other than a Permitted Investment; (v) forgive any
loan or advance to or other obligation of any Affiliate of the Company (other
than a loan or advance to or other obligation of a Wholly Owned Restricted
Subsidiary) which at the time it was made was not a Restricted Payment that was
permitted to be made; or (vi) make any Restricted Investment (all such payments
and other actions set forth in clauses (i) through (vi) 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 set forth 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 clause
(iii) of Section 4.07(b)), is less than the sum of (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, 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 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 (iii) without duplication,
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
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received by the Company or a Wholly Owned Restricted Subsidiary of the
Company upon the sale of such Restricted Investment, plus (iv) without
duplication, 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 (v)
$2.5 million.
(b) The foregoing provisions shall not prohibit (i) 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; (ii) the redemption, repurchase, retirement or other acquisition of
any Equity Interests 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; (iii) 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; (iv) 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; (v) 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 $3.0 million and (vi) cash
payments made in lieu of the issuance of additional Exchange 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) proposed
to be transferred 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.
(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 will be deemed to be Restricted Payments at the time of such
designation (valued as set forth below) and will reduce the amount available for
Restricted Payments under the first paragraph of this Section 4.07. All such
outstanding Investments will 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 will only be permitted only if such Restricted
Payment would be permitted at such time and if such Restricted Subsidiary
otherwise meets 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
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Subsidiaries, except for such encumbrances or restrictions existing under or by
reasons of (a) the terms of any Indebtedness permitted by this Indenture to be
incurred by any Subsidiary of the Company, (b) Existing Indebtedness as in
effect on the Closing Date, (c) this Indenture and the Exchange Notes, (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 anticipation 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 or (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.
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 the
Company shall not issue any Disqualified Stock and shall not permit any of its
Subsidiaries to issue any shares of preferred stock (other than Qualified
Subsidiary Stock); provided, however, that (i) the Company may incur
Indebtedness (including Acquired Debt) or issue shares of Disqualified Stock and
(ii) a Restricted Subsidiary of the Company may incur Indebtedness (including
Acquired Debt) or issue shares of preferred stock (including Disqualified Stock)
if, in each case, the Company's Indebtedness to Adjusted Operating Cash Flow
Ratio as of the date on which such Indebtedness is incurred or such Disqualified
Stock or preferred 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.
(b) The foregoing provisions shall not apply to:
(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, so long as
the aggregate principal amount of all Indebtedness outstanding under all Bank
Facilities does not, at the time of incurrence, exceed an amount equal to $50.0
million;
(iii) the incurrence by the Company or any of its Restricted
Subsidiaries of the Existing Indebtedness;
(iv) Indebtedness under the Exchange Notes (including any Exchange
Notes issued to pay interest on outstanding Exchange Notes);
(v) 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;
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provided, however, that (A) if the Company 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 Exchange Notes and (B)(1) 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 (2) 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;
(vi) 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 $5.0 million at any
time outstanding;
(vii) 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 that was permitted by this Indenture to be incurred; and
(viii) 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 not to exceed $5.0 million.
If an item of Indebtedness is permitted to be incurred on the basis of
Section 4.09(a) and also on the basis of one or more of clauses (i) through
(viii) above, or is permitted to be incurred on the basis of two or more of
clauses (i) through (viii) above, then the Company shall classify the basis on
which such item of Indebtedness is incurred. If an item of Indebtedness is
repaid with the proceeds of an incurrence of other Indebtedness (whether from
the same of a different creditor), the Company may classify such other
Indebtedness as having been incurred on the same basis as the Indebtedness being
repaid or on a different basis permitted under this Section 4.09. For purposes
of this Section 4.09(b), "Indebtedness" includes Disqualified Stock and
preferred stock of Subsidiaries. Accrued interest and accreted discount will not
be deemed 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, engage in 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 the notes thereto), of the Company
or any Restricted Subsidiary (other than liabilities that are by their terms
subordinated to the Exchange Notes or any guarantee thereof) that are assumed by
the transferee of any such assets and (y) any notes or other obligations
received by the Company or any such Restricted Subsidiary from such transferee
that are immediately 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 Senior Debt (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 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 the applicable Restricted Subsidiary enters into
a binding agreement 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 90 days of such termination, or within 180 days of such Asset Sale,
whichever is later, 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. 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(c). Any Net Proceeds from
Asset Sales that are not applied or invested as provided in the first sentence
of this paragraph 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 shall be required to make an
offer to all Holders of Exchange 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 Exchange 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 thereon, if any, to the date of purchase, in
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accordance with the procedures set forth in Section 3.09 hereof 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 similar to this Section 4.10.
(e) To the extent that the aggregate amount of Exchange 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 Exchange Notes and Pari Passu
Debt surrendered by Holders thereof exceeds the amount of Excess Proceeds, the
Trustee shall select the Exchange 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 (a) 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 (b) the Company delivers to
the Trustee, on behalf of the Holders, (i) 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 (a) 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 Independent Directors and (ii) 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 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
and (y) transactions permitted by the provisions of 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.
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SECTION 4.13. OFFER TO REPURCHASE UPON CHANGE OF CONTROL.
(a) Upon the occurrence of a Change of Control, each Holder of Exchange
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 Exchange Notes held by such Holder, any Exchange Note in principal
amount less than $1,000) of such Holder's Exchange Notes pursuant to the offer
described below (the "Change of Control Offer") at an offer price in cash equal
to 101% of the principal amount thereof plus accrued and unpaid interest, if
any, thereon to the date of purchase (the "Change of Control Payment").
(b) Within 10 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 4.13 and that all Exchange 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 Exchange Note not tendered shall continue to accrue
interest; (5) that, unless the Company defaults in the payment of the Change of
Control Payment, all Exchange 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 Exchange Notes purchased
pursuant to a Change of Control Offer shall be required to surrender the
Exchange Notes, with the form entitled "Option of Holder to Elect Purchase" on
the reverse of the Exchange 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 Exchange Notes delivered for
purchase, and a statement that such Holder is withdrawing his election to have
the Exchange Notes purchased; and (8) that Holders whose Exchange Notes are
being purchased only in part shall be issued new Exchange Notes equal in
principal amount to the unpurchased portion of the Exchange Notes surrendered,
which unpurchased portion must be equal to $1,000 in principal amount or an
integral multiple thereof. The Company shall 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 Exchange Notes in connection with a Change of Control.
(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 Exchange 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 Exchange Notes or portions thereof
so tendered and (3) deliver or cause to be delivered to the Trustee the Exchange
Notes so accepted together with an Officers' Certificate stating the aggregate
principal amount of Exchange Notes or portions thereof being purchased by the
Company. The Paying Agent shall promptly mail to each Holder of Exchange Notes
so tendered the Change of Control Payment for such Exchange Notes, and the
Trustee shall promptly authenticate and mail (or cause to be transferred by book
entry) to each Holder a new Exchange Note equal in principal amount to any
unpurchased portion of the Exchange Notes surrendered, if any. Prior to
complying with the provisions of this Section 4.13, but in any event within 90
days following a Change of Control, the Company shall either repay all
outstanding Senior Debt or obtain the requisite consents, if any, under all
agreements governing outstanding Senior Debt to permit the repurchase of
Exchange Notes required by this Section 4.13. The Company shall publicly
announce the results of the Change of Control Offer on or as soon as practicable
after the Change of Control Payment Date.
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(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 Indenture applicable to a Change of Control Offer made by the
Company, and purchases all Exchange Notes validly tendered and not withdrawn
under such Change of Control Offer.
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 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 Exchange
Notes.
SECTION 4.15. LIMITATION ON LAYERING.
Notwithstanding the provisions of Section 4.09 hereof, the Company shall
not incur, create, issue, assume, guarantee or otherwise become liable for any
Indebtedness that is subordinate or junior in right of payment to any Senior
Debt and senior in any respect in right of payment to the Exchange Notes.
SECTION 4.16. LIMITATION ON ISSUANCES AND SALES OF CAPITAL STOCK OF WHOLLY OWNED
RESTRICTED SUBSIDIARIES.
The Company (a) shall not, and shall not permit any Wholly Owned
Restricted Subsidiary of the Company to, transfer, convey, sell, lease or
otherwise dispose of any Capital Stock (other than Qualified Subsidiary 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
(i) such transfer, conveyance, sale, lease or other disposition is of all the
Capital Stock of such Wholly Owned Restricted Subsidiary and (ii) the cash Net
Proceeds from such transfer, conveyance, sale, lease or other disposition are
applied in accordance with Section 4.10 hereof and (b) shall not permit any
Wholly Owned Restricted Subsidiary of the Company to issue any of its Equity
Interests (other than, Qualified Subsidiary Stock and, 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.
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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 (a) 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; (b) 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 Exchange Notes
and this Indenture pursuant to a supplemental indenture in a form reasonably
satisfactory to the Trustee; (c) immediately after such transaction no Default
or Event of Default exists; (d) 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 shall, 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.
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 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 (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 Exchange 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.
Each of the following constitutes an "Event of Default":
(i) a Default by the Company in the payment of interest on the
Exchange Notes when the same becomes due and payable and the Default
continues for a period of 30 days (whether or not such payment is
prohibited by Article 10 of this Indenture);
(ii) default by the Company in the payment of the principal of
or premium, if any, on the Exchange Notes when the same becomes due
and payable at maturity, upon redemption or otherwise (whether or not
such payment is prohibited by Article 10 of this Indenture);
(iii) failure by the Company to comply with the provisions
described under Sections 3.09, 4.07, 4.09, 4.10, 4.13 or Article 5
hereof;
(iv) failure by the Company for 60 days after notice to comply
with any of its other agreements in this Indenture or the Exchange
Notes;
(v) 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;
(vi) 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;
(vii) 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 pursuant to or within the meaning of Bankruptcy Law:
(a) commences a voluntary case,
(b) consents to the entry of an order for relief against
it in an involuntary case,
(c) consents to the appointment of a Custodian of it or
for all or substantially all of its property,
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(d) makes a general assignment for the benefit of its
creditors, or
(e) generally is not paying its debts as they become due;
or
(viii) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that:
(a) is for relief against 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 in an involuntary case;
(b) appoints a Custodian of 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 or for all or substantially
all of the property of 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; or
(c) orders the liquidation of the Company, any of
Restricted Subsidiary that would constitute a Significant
Subsidiary or any group of Restricted Subsidiaries that, taken
together, would constitute a Significant Subsidiary;
and the order or decree remains unstayed and in effect for 60
consecutive days.
The term "Custodian" 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
(iii), (v) or (vi) 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 (iv) 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 Exchange 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."
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 Exchange 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 Exchange Notes, anything in
this Indenture or in the Exchange 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 Exchange Notes so notify the Trustee. If an Event
of Default occurs prior to January 1, 2002 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 Exchange Notes prior to January
1, 2002, 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
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would otherwise be due but for the provisions of this sentence, plus accrued
interest, if any, to the date of payment:
Year Percentage
---- ----------
1997................................................... 117.000%
1998................................................... 114.875%
1999................................................... 112.750%
2000................................................... 110.625%
2001................................................... 108.500%
SECTION 6.02. ACCELERATION.
If any Event of Default (other than an Event of Default specified in
clause (vii) or (viii) of Section 6.01 hereof) occurs and is continuing, the
Trustee by notice to the Company, or the Holders of at least 25% in principal
amount of the then outstanding Exchange Notes by written notice to the Company
and the Trustee may declare all the Exchange Notes to be due and payable
immediately. Upon any such declaration, the Exchange Notes shall become due and
payable immediately. Notwithstanding the foregoing, if an Event of Default
specified in clause (vii) or (viii) of Section 6.01 hereof occurs 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 occurs, such an amount shall ipso facto
become and be immediately due and payable without any declaration or other act
on the part of the Trustee or any Holder. The Holders of a majority in principal
amount of the then outstanding Exchange Notes by written notice to the Trustee
may rescind an acceleration and its consequences if the rescission would not
conflict with any judgment or decree and if all existing Events of Default
(except nonpayment of principal or interest that has become due solely because
of the acceleration) have been cured or waived.
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 Exchange Notes or to enforce the performance of any provision of
the Exchange Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any of
the Exchange Notes or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Holder of an Exchange 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 Exchange Notes by notice to the Trustee may on behalf of the
Holders of all of the Exchange 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
Exchange 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 Exchange 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
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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
Exchange 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 Exchange Notes or
that may involve the Trustee in personal liability.
SECTION 6.06. LIMITATION ON SUITS.
A Holder of an Exchange Note may pursue a remedy with respect to this
Indenture or the Exchange Notes only if:
(a) the Holder of an Exchange Note gives to the Trustee written notice
of a continuing Event of Default;
(b) the Holders of at least 25% in principal amount of the then
outstanding Exchange Notes make a written request to the Trustee to pursue the
remedy;
(c) such Holder of an Exchange Note or Holders of Exchange 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 Exchange Notes do not give the Trustee a
direction inconsistent with the request.
A Holder of an Exchange Note may not use this Indenture to prejudice the rights
of another Holder of an Exchange Note or to obtain a preference or priority over
another Holder of an Exchange Note.
SECTION 6.07. RIGHTS OF HOLDERS OF EXCHANGE NOTES TO RECEIVE PAYMENT.
Notwithstanding any other provision of this Indenture, the right of any
Holder of an Exchange Note to receive payment of principal, premium, if any, and
interest on the Exchange Note, on or after the respective due dates expressed in
the Exchange 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(i) or (ii) 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 Exchange
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.
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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 Exchange Notes allowed in any judicial proceedings relative to
the Company (or any other obligor upon the Exchange 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 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 Exchange
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 Exchange Notes for amounts due and unpaid on the
Exchange 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 Exchange 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 Exchange 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 an
Exchange Note
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pursuant to Section 6.07 hereof, or a suit by Holders of more than 10% in
principal amount of the then outstanding Exchange Notes.
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 man would
exercise or use under the circumstances in the conduct of his 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 Exchange 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.
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 Exchange Notes, it shall
not be accountable for the Company's use of the proceeds from the Exchange 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 Exchange Notes or any other document in connection with the
sale of the Exchange Notes or pursuant to this Indenture other than its
certificate of authentication.
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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 Exchange 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 Exchange Notes.
SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS OF THE EXCHANGE NOTES.
Within 60 days after each May 15 beginning with the May 15 following the
date of this Indenture, and for so long as Exchange Notes remain outstanding,
the Trustee shall mail to the Holders of the Exchange 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
Exchange Notes shall be mailed to the Company and filed with the SEC and each
stock exchange on which the Exchange Notes are listed in accordance with TIA
Section 313(d). The Company shall promptly notify the Trustee when the Exchange
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.
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.
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To secure the Company's payment obligations in this Section, the Trustee
shall have a Lien prior to the Exchange Notes on all money or property held or
collected by the Trustee, except that held in trust to pay principal and
interest on particular Exchange 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(vii) or (viii) 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 Exchange 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;
(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 Exchange 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 Exchange
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 an Exchange Note
who has been a Holder of an Exchange Note for at least six months, fails to
comply with Section 7.10, such Holder of an Exchange 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 Exchange Notes.
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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.
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) 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 Exchange 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 Exchange 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 Exchange 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 Exchange 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
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survive until otherwise terminated or discharged hereunder: (a) the rights of
Holders of outstanding Exchange 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, if any,
on such Exchange Notes when such payments are due, (b) the Company's obligations
with respect to such Exchange 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.
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 and 5.01 hereof with respect to the
outstanding Exchange Notes on and after the date the conditions set forth below
are satisfied (hereinafter, "Covenant Defeasance"), and the Exchange 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
Exchange Notes shall not be deemed outstanding for accounting purposes). For
this purpose, Covenant Defeasance means that, with respect to the "outstanding"
Exchange 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
Exchange 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(iv) through 6.01(viii) 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 Exchange 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 Exchange 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, premium, if any, and interest
on the outstanding Exchange Notes on the stated maturity or on the
applicable redemption date, as the case may be, and the Company must
specify whether the Exchange 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
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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 Exchange Notes will not
recognize 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 Exchange 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(vii) or (viii) 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 Exchange 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 Exchange 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 Exchange 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.
SECTION 8.05. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST;
OTHER MISCELLANEOUS PROVISIONS.
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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
Exchange Notes shall be held in trust and applied by the Trustee, in accordance
with the provisions of such Exchange 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 Exchange
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
Exchange 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, if any,
or interest on any Exchange 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 Exchange 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.
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
Exchange 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, if any, or interest on any Exchange Note
following the reinstatement of its obligations, the Company shall be subrogated
to the rights of the Holders of such Exchange Notes to receive such payment from
the money held by the Trustee or Paying Agent.
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ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
SECTION 9.01. WITHOUT CONSENT OF HOLDERS OF EXCHANGE NOTES.
Notwithstanding Section 9.02 of this Indenture, the Company and the
Trustee may amend or supplement this Indenture or the Exchange Notes without the
consent of any Holder of an Exchange Note:
(a) to cure any ambiguity, defect or inconsistency;
(b) to provide for uncertificated Exchange Notes in addition to or in
place of certificated Exchange Notes;
(c) to provide for the assumption of the Company's obligations to
Holders of Exchange 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 Exchange 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.
Upon the request of the Company accompanied by a resolution of the Board
of Directors of the Company 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 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 that affects its
own rights, duties or immunities under this Indenture or otherwise.
SECTION 9.02. WITH CONSENT OF HOLDERS OF EXCHANGE NOTES.
Except as provided below in this Section 9.02, the Company and the
Trustee may amend or supplement this Indenture and the Exchange Notes may be
amended or supplemented with the consent of the Holders of at least a majority
in principal amount of the Exchange Notes then outstanding (including, without
limitation, consents obtained in connection with a purchase of, or tender offer
or exchange offer for, Exchange 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, if any, or interest on
the Exchange Notes) or compliance with any provision of this Indenture or the
Exchange Notes may be waived with the consent of the Holders of a majority in
principal amount of the then outstanding Exchange Notes (including consents
obtained in connection with a purchase of, or tender offer or exchange offer for
the Exchange 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 Exchange Notes then outstanding
if such amendment would adversely affect the rights of Holders of Exchange
Notes.
Upon the request of the Company accompanied by a resolution of the Board
of Directors of the Company 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 Exchange Notes as
aforesaid, and upon receipt by the Trustee of the documents described in Section
7.02 hereof, the
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Trustee shall join with the Company 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 Exchange
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 Exchange 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 Exchange Notes then
outstanding may waive compliance in a particular instance by the Company with
any provision of this Indenture or the Exchange Notes. However, without the
consent of each Holder affected, an amendment or waiver may not (with respect to
any Exchange Notes held by a non-consenting Holder):
(a) reduce the principal amount of Exchange Notes whose Holders
must consent to an amendment, supplement or waiver;
(b) reduce the principal of or change the fixed maturity of any
Exchange Note or alter the provisions with respect to the redemption
of the Exchange Notes (other than provisions relating to Sections
3.09, 4.10 and 4.13 hereof);
(c) reduce the rate of or change the time for payment of
interest, including default interest, on any Exchange Note;
(d) waive a Default or Event of Default in the payment of
principal of or premium, if any, or interest on the Exchange Notes
(except a rescission of acceleration of the Exchange Notes by the
Holders of a majority in aggregate principal amount of the Exchange
Notes and a waiver of the payment default that resulted from such
acceleration);
(e) make any Exchange Note payable in money other than that
stated in the Exchange Notes;
(f) make any change in the provisions of this Indenture relating
to waivers of past Defaults or the rights of Holders of Exchange
Notes to receive payments of principal of or premium, if any, or
interest on the Exchange Notes;
(g) waive a redemption payment with respect to any Exchange Note
(other than a payment required by the provisions of Section 3.09,
4.10 or 4.13 hereof); or
(h) make any change in Section 6.04 or 6.07 hereof or in the
foregoing amendment and waiver provisions.
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SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT.
Every amendment or supplement to this Indenture or the Exchange Notes
shall be set forth in a 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 an Exchange Note is a continuing consent by the Holder of an
Exchange Note and every subsequent Holder of an Exchange Note or portion of an
Exchange Note that evidences the same debt as the consenting Holder's Exchange
Notes, even if notation of the consent is not made on any Exchange Notes.
However, any such Holder of an Exchange Note or subsequent Holder of an Exchange
Note may revoke the consent as to its Exchange 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 EXCHANGE NOTES.
The Trustee may place an appropriate notation about an amendment,
supplement or waiver on any Exchange Notes thereafter authenticated. The Company
in exchange for all Exchange Notes may issue and the Trustee shall authenticate
new Exchange Notes that reflect the amendment, supplement or waiver.
Failure to make the appropriate notation or to issue a new Exchange
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.
ARTICLE 10
SUBORDINATION
SECTION 10.01. AGREEMENT TO SUBORDINATE.
The Company agrees, and each Holder by accepting an Exchange Note
agrees, that the Indebtedness evidenced by the Exchange Notes is subordinated in
right of payment, to the extent and in the manner provided in this Article 10,
to the prior payment in full of all Senior Debt, whether outstanding on the date
hereof or hereafter created, incurred, assumed or guaranteed, and that the
subordination is for the benefit of the holders of Senior Debt.
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SECTION 10.02. CERTAIN DEFINITIONS.
"Designated Senior Debt" means any Senior Debt permitted under this
Indenture, the principal amount of which is $10.0 million or more and that has
been designated by the Company as "Designated Senior Debt."
A "distribution" may consist of cash, securities or other property, by
set-off or otherwise.
"Representative" means the indenture trustee or other trustee, agent or
representative for any Senior Debt.
"Senior Bank Debt" means any Indebtedness of the Company (including
letters of credit) outstanding under, and any other Obligations of the Company
with respect to, Bank Facilities, to the extent that any such Indebtedness and
other Obligations are permitted by this Indenture to be incurred.
"Senior Debt" means (a) the Senior Bank Debt (to the extent it
constitutes Indebtedness of the Company) and (b) any other Indebtedness of the
Company that is permitted to be incurred by the Company under this Indenture,
unless the instrument under which such Indebtedness is incurred expressly
provides that it is on a parity with or subordinated in right of payment to the
Exchange Notes. Notwithstanding anything to the contrary in the foregoing,
Senior Debt will not include (i) any liability for federal, state, local or
other taxes owed or owing by the Company, (ii) any Indebtedness of the Company
to any of its Subsidiaries or other Affiliates, (iii) any trade payables or (iv)
any Indebtedness that is incurred in violation of this Indenture.
SECTION 10.03. LIQUIDATION; DISSOLUTION; BANKRUPTCY.
Upon any distribution to creditors of the Company in a liquidation or
dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or its property, or
in an assignment for the benefit of creditors or any marshalling of the
Company's assets and liabilities:
(1) holders of Senior Debt shall be entitled to receive payment in full
of all Obligations due in respect of such Senior Debt (including interest
after the commencement of any such proceeding at the rate specified in the
applicable Senior Debt, whether or not an allowable claim) before the
Holders shall be entitled to receive any payment with respect to the
Exchange Notes (except that Holders may receive (i) securities that are
subordinated at least to the same extent as the Exchange Notes to (a)
Senior Debt and (b) any securities issued in exchange for Senior Debt and
(ii) payments made from any defeasance trust created pursuant to Section
8.01 hereof); and
(2) until all Obligations with respect to Senior Debt (as provided in
subsection (1) above) are paid in full, any distribution to which the
Holders would be entitled but for this Article 10 shall be made to holders
of Senior Debt (except that Holders may receive (i) securities that are
subordinated at least to the same extent as the Exchange Notes to (a)
Senior Debt and (b) any securities issued in exchange for Senior Debt and
(ii) payments made from any defeasance trust created pursuant to Section
8.01 hereof), as their interests may appear.
SECTION 10.04. DEFAULT ON DESIGNATED SENIOR DEBT.
(a) The Company may not make any payment or distribution upon or in
respect of the Exchange Notes (other than (1) securities that are subordinated
at least to the same extent as the Exchange Notes
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to (A) Senior Debt and (B) any securities issued in exchange for Senior Debt and
(2) payments made from any defeasance trust created pursuant to Section 8.01
hereof) until all principal and other Obligations with respect to the Senior
Debt have been paid in full if:
(i) a default in the payment of the principal of, premium, if any, or
interest on Designated Senior Debt occurs and is continuing beyond any
applicable grace period in the agreement, indenture or other document
governing such Designated Senior Debt; or
(ii) a default, other than a default specified in Section 10.04(a)(i)
hereof, on Designated Senior Debt occurs and is continuing with respect to
Designated Senior Debt that then permits holders of the Designated Senior
Debt as to which such default relates to accelerate its maturity and the
Trustee receives a notice of such default (a "Payment Blockage Notice")
from the Company or the holders of any Designated Senior Debt who may give
it pursuant to Section 10.12 hereof. If the Trustee receives any such
Payment Blockage Notice, no subsequent Payment Blockage Notice shall be
effective for purposes of this Section 10.04 unless and until (I) at least
360 days shall have elapsed since the effectiveness of the immediately
prior Payment Blockage Notice and (II) all scheduled payments of
principal, premium, if any, and interest on the Exchange Notes that have
come due (other than by reason of acceleration) have been paid in full in
cash. No default described in this paragraph (ii) that existed or was
continuing on the date of delivery of any Payment Blockage Notice to the
Trustee shall be, or be made, the basis for a subsequent Payment Blockage
Notice.
(b) The Company may and shall resume payments on the Exchange Notes
(i) in the case of a default described in Section 10.04(a)(i) hereof,
upon the date on which the default is cured or waived and
(ii) in the case of a default referred to in Section 10.04(a)(ii)
hereof, the earlier of (A) the date on which such default is cured or
waived or (B) 179 days after the date on which the applicable Payment
Blockage Notice is received, unless the maturity of any Designated Senior
Debt has been accelerated
if this Article 10 otherwise permits the payment, distribution or acquisition at
the time of such payment or acquisition.
SECTION 10.05. ACCELERATION OF EXCHANGE NOTES.
If payment of the Exchange Notes is accelerated because of an Event of
Default, the Company shall promptly notify holders of Senior Debt of the
acceleration.
SECTION 10.06. WHEN DISTRIBUTION MUST BE PAID OVER.
In the event that the Trustee or any Holder receives any payment of any
Obligations with respect to the Exchange Notes at a time when a Responsible
Officer of the Trustee or such Holder, as applicable, has actual knowledge that
such payment is prohibited by Section 10.04 hereof, such payment shall be held
by the Trustee or such Holder, in trust for the benefit of, and shall be paid
forthwith over and delivered, upon written request, to, the holders of Senior
Debt as their interests may appear or their Representative under the indenture
or other agreement (if any) pursuant to which Senior Debt may have been issued,
as their respective interests may appear, for application to the payment of all
Obligations with respect to Senior Debt remaining unpaid to the extent necessary
to pay such Obligations in full in accordance with
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their terms, after giving effect to any concurrent payment or distribution to or
for the holders of Senior Debt.
With respect to the holders of Senior Debt, the Trustee undertakes to
perform only such obligations on the part of the Trustee as are specifically set
forth in this Article 10, and no implied covenants or obligations with respect
to the holders of Senior Debt shall be read into this Indenture against the
Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the
holders of Senior Debt, and shall not be liable to any such holders if the
Trustee shall pay over or distribute to or on behalf of Holders or the Company
or any other Person money or assets to which any holders of Senior Debt shall be
entitled by virtue of this Article 10, except if such payment is made as a
result of the willful misconduct or gross negligence of the Trustee.
SECTION 10.07. NOTICE BY COMPANY.
The Company shall promptly notify the Trustee and the Paying Agent of
any facts known to the Company that would cause a payment of any Obligations
with respect to the Exchange Notes to violate this Article 10, but failure to
give such notice shall not affect the subordination of the Exchange Notes to the
Senior Debt as provided in this Article 10.
SECTION 10.08. SUBROGATION.
After all Senior Debt is paid in full and until the Exchange Notes are
paid in full, Holders shall be subrogated (equally and ratably with all other
Pari Passu Debt) to the rights of holders of Senior Debt to receive
distributions applicable to Senior Debt to the extent that distributions
otherwise payable to the Holders have been applied to the payment of Senior
Debt. A distribution made under this Article to holders of Senior Debt that
otherwise would have been made to Holders is not, as between the Company and
Holders, a payment by the Company on the Senior Debt.
SECTION 10.09. RELATIVE RIGHTS.
This Article defines the relative rights of Holders and holders of
Senior Debt. Nothing in this Indenture shall:
(1) impair, as between the Company and Holders, the obligation of the
Company, which is absolute and unconditional, to pay principal of and
interest on the Exchange Notes in accordance with their terms;
(2) affect the relative rights of Holders and creditors of the Company
other than their rights in relation to holders of Senior Debt; or
(3) prevent the Trustee or any Holder from exercising its available
remedies upon a Default or Event of Default, subject to the rights of
holders and owners of Senior Debt to receive distributions and payments
otherwise payable to Holders.
If the Company fails because of this Article to pay principal of or
interest on an Exchange Note on the due date, the failure is still a Default or
Event of Default.
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SECTION 10.10. SUBORDINATION MAY NOT BE IMPAIRED BY COMPANY.
No right of any holder of Senior Debt to enforce the subordination of
the Indebtedness evidenced by the Exchange Notes shall be impaired by any act or
failure to act by the Company or any Holder or by the failure of the Company or
any Holder to comply with this Indenture.
SECTION 10.11. DISTRIBUTION OR NOTICE TO REPRESENTATIVE.
Whenever a distribution is to be made or a notice given to holders of
Senior Debt, the distribution may be made and the notice given to their
Representative.
Upon any payment or distribution of assets of the Company referred to in
this Article 10, the Trustee and the Holders shall be entitled to rely upon any
order or decree made by any court of competent jurisdiction or upon any
certificate of such Representative or of the liquidating trustee or agent or
other Person making any distribution to the Trustee or to the Holders for the
purpose of ascertaining the Persons entitled to participate in such
distribution, the holders of the Senior Debt and other Indebtedness of the
Company, the amount thereof or payable thereon, the amount or amounts paid or
distributed thereon and all other facts pertinent thereto or to this Article 10.
SECTION 10.12. RIGHTS OF TRUSTEE AND PAYING AGENT.
Notwithstanding the provisions of this Article 10 or any other provision
of this Indenture, the Trustee shall not be charged with knowledge of the
existence of any facts that would prohibit the making of any payment or
distribution by the Trustee, and the Trustee and the Paying Agent may continue
to make payments on the Exchange Notes, unless the Trustee shall have received
at its Corporate Trust Office at least five Business Days prior to the date of
such payment written notice of facts that would cause the payment of any
Obligations with respect to the Exchange Notes to violate this Article. Only the
Company or a Representative may give the notice. Nothing in this Article 10
shall impair the claims of, or payments to, the Trustee under or pursuant to
Section 7.07 hereof.
The Trustee in its individual or any other capacity may hold Senior Debt
with the same rights it would have if it were not Trustee. Any Agent may do the
same with like rights.
SECTION 10.13. AUTHORIZATION TO EFFECT SUBORDINATION.
Each Holder of an Exchange Note by the Holder's acceptance thereof
authorizes and directs the Trustee on the Holder's behalf to take such action as
may be necessary or appropriate to effectuate the subordination as provided in
this Article 10, and appoints the Trustee to act as the Holder's
attorney-in-fact for any and all such purposes.
SECTION 10.14. AMENDMENTS.
The provisions of this Article 10 shall not be amended or modified
without the written consent of the holders of all Senior Debt.
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ARTICLE 11
MISCELLANEOUS
SECTION 11.01. 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 11.02. 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
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 of North Carolina
230 S. Tryon Street
Charlotte, NC 28288-1153
Telecopier No.: (704) 374-6114
Attention: Client Service Group
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
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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 11.03. COMMUNICATION BY HOLDERS OF EXCHANGE NOTES WITH OTHER HOLDERS OF
EXCHANGE NOTES.
Holders may communicate pursuant to TIA Section 312(b) with other
Holders with respect to their rights under this Indenture or the Exchange Notes.
The Company, the Trustee, the Registrar and anyone else shall have the
protection of TIA Section 312(c).
SECTION 11.04. 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 11.05 hereof) stating that, in the 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
11.05 hereof) stating that, in the opinion of such counsel, all such
conditions precedent and covenants have been satisfied.
SECTION 11.05. 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:
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(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 11.06. 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 11.07. 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 Exchange Notes, this Indenture or for any
claim based on, in respect of, or by reason of, such obligations or their
creation. Each Holder of Exchange Notes by accepting an Exchange Note waives and
releases all such liability. The waiver and release are part of the
consideration for issuance of the Exchange Notes.
SECTION 11.08. GOVERNING LAW.
THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO
CONSTRUE THIS INDENTURE AND THE EXCHANGE NOTES.
SECTION 11.09. 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 11.10. SUCCESSORS.
All agreements of the Company in this Indenture and the Exchange Notes
shall bind its respective successors. All agreements of the Trustee in this
Indenture shall bind its successors.
SECTION 11.11. SEVERABILITY.
In case any provision in this Indenture or in the Exchange 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.
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SECTION 11.12. 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 11.13. 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.
[Signatures on following page]
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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: ________________________________
Name:
Title:
FIRST UNION NATIONAL BANK
By: _______________________________
Name:
Title:
<PAGE>
EXHIBIT A
(Face of Note)
12.75% Senior Subordinated Exchange Notes due 2007
CUSIP:
No. $______________
Pegasus Communications Corporation
promises to pay to ________________ or registered assigns, the principal sum of
__________________ Dollars on January 1, 2007.
Interest Payment Dates: January 1 and July 1
Record Dates: December 15 and June 15
Dated:
PEGASUS COMMUNICATIONS CORPORATION
By:______________________________
Name:
Title:
This is one of the Exchange
Notes referred to in the
within-mentioned Indenture:
FIRST UNION NATIONAL BANK,
as Trustee
By: __________________________________
Authorized Officer
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<PAGE>
(Back of Note)
121.75% Senior Subordinated Exchange Notes due 2007
Capitalized terms used herein shall have the meanings assigned to them in
the Indenture referred to below unless otherwise indicated. The terms of the
Exchange Notes set forth below are not complete and are qualified in their
entirety by reference to the Indenture.
1. INTEREST. Pegasus Communications Corporation, a Delaware corporation
(the "Company") promises to pay interest on the principal amount of this
Exchange Note at 12.75% per annum from the date hereof until maturity. The
Company will pay interest semi-annually on January 1 and July 1 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 will be payable in cash, except that on
each Interest Payment Date occurring on or prior to January 1, 2002, interest
may be paid, at the Company's option, by the issuance of additional Exchange
Notes having an aggregate principal amount equal to the amount of such interest.
The issuance of such additional Exchange Notes will constitute "payment" of the
related interest for all purposes of the Indenture. Interest on the Exchange
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 Exchange 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. 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 (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 Exchange Notes
(except defaulted interest) to the Persons who are registered Holders of
Exchange Notes at the close of business on the December 15 or June 15 next
preceding the Interest Payment Date, even if such Exchange Notes are cancelled
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.
Any such interest installment not punctually paid or duly provided for shall
forthwith cease to be payable to the registered Holders on such Interest Payment
Date, and may be paid to the registered Holders at the close of business on a
special interest payment date to be fixed by the Company for the payment of such
defaulted interest, notice whereof shall be given to the registered Holders not
less than 15 days prior to such special interest payment date, or may be paid at
any time in any other lawful manner not inconsistent with the requirements of
any securities exchange on which the Exchange Notes may be listed, and upon such
notice as may be required by such exchange, all as more fully provided in the
Indenture. The Exchange Notes will be payable as to principal, premium,
interest, if any, 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, if any, 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 and premium, if any, on, all global
Exchange Notes and all other Exchange 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.
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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.
4. INDENTURE. The Company issued the Exchange Notes under an Indenture
dated as of ______________ (the "Indenture") between the Company and the
Trustee. The terms of the Exchange 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 Exchange
Notes are subject to all such terms, and Holders are referred to the Indenture
and the TIA for a statement of such terms. The Exchange Notes are general
obligations of the Company limited to $100,000,000 in aggregate principal
amount, on outstanding Exchange Notes as set forth in Paragraph 2 hereof.
5. OPTIONAL REDEMPTION.
The Exchange Notes are not redeemable at the Company's option prior to
January 1, 2002. Thereafter, the Exchange Notes will be subject to redemption at
the option of the Company, in whole or in part, upon not less than 30 nor more
than 60 days' notice, at the redemption prices (expressed as percentages of
principal amount) set forth below plus accrued and unpaid interest, if any,
thereon to the applicable redemption date, if redeemed during the twelve-month
period beginning on January 1 of the years indicated below:
Year Redemption Rate
---- ---------------
2002...................................................... 106.375%
2003...................................................... 104.250%
2004...................................................... 102.125%
2005 and thereafter........................................ 100.00%
(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 Class A Common Stock to redeem up to
25% of the aggregate principal amount of the Exchange Notes (whether issued in
exchange for Series A Preferred Stock or in lieu of cash interest payments) at
the redemption price of 112.750% of the principal amount thereof, plus accrued
and unpaid interest to the date of redemption; provided that, after any such
redemption, the aggregate principal amount of the Exchange Notes outstanding
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
Class A Common Stock of the Company.
6. MANDATORY REDEMPTION. Except as set forth in Paragraph 7 below, the
Company shall not be required to make mandatory redemption or sinking fund
payments with respect to the Exchange Notes.
7. REPURCHASE AT OPTION OF HOLDER.
(a) Upon the occurrence of a Change of Control, each Holder of
Exchange 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 Exchange Notes held by such Holder, any Exchange Note in
principal amount less than $1,000) of such Holder's Exchange Notes pursuant to
an offer (the "Change of Control Offer") at an offer price equal to 101% of the
aggregate principal amount thereof plus accrued and unpaid interest, if any,
thereon to the date of purchase (the "Change of Control
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<PAGE>
Payment"). Within 10 days following any Change of Control, the Company shall
mail a notice to each Holder setting forth the procedures governing the Change
of Control Offer as required by the Indenture.
(b) If the Company or any 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 make an offer to all Holders
of Exchange 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 Exchange 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
thereon, if any, to the date of purchase, in accordance with the procedures set
forth in Section 3.09 of 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. To the extent that the aggregate amount of Exchange
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. If the aggregate principal amount of Exchange Notes
and Pari Passu Debt surrendered exceeds the amount of Excess Proceeds, the
Trustee shall select the Exchange Notes and Pari Passu Debt to be purchased on a
pro rata basis, based upon the principal amount thereof tendered in such Asset
Sale Offer. Upon completion of such offer to purchase, the amount of Excess
Proceeds shall be reset at zero. Holders of Notes that are the subject of an
Asset Sale Offer will receive notice of the Asset Sale Offer from the Company
prior to any related purchase date setting forth the procedures relating to the
offer as required by the Indenture and may elect to have such Notes purchased by
completing the form entitled "Option of Holder to Elect Purchase" on the reverse
of the Exchange 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
Exchange Notes are to be redeemed at its registered address. Exchange Notes in
denominations larger than $1,000 may be redeemed in part but only in whole
multiples of $1,000, unless all of the Exchange Notes held by a Holder are to be
redeemed. On and after the redemption date interest ceases to accrue on Exchange
Notes or portions thereof called for redemption.
9. SUBORDINATION. Each Holder by accepting an Exchange Note agrees that
the payment of principal of, premium, if any, and interest on the Exchange Notes
is subordinated in right of payment, to the extent and in the manner provided in
Article 10 of the Indenture, to the prior payment in full of all Senior Debt
(whether outstanding on the date of the Indenture or thereafter incurred), and
that the subordination is for the benefit of the holders of Senior Debt.
10. DENOMINATIONS, TRANSFER, EXCHANGE. The Exchange Notes are in
registered form without coupons in all appropriate denominations. The transfer
of Exchange Notes may be registered and Exchange 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
Exchange Note selected for redemption, except for the unredeemed portion of any
Exchange Note being redeemed in part. Also, it need not transfer or exchange any
Exchange Note for a period of 15 Business Days before a selection of Exchange
Notes to be redeemed or during the period between a record date and the
corresponding Interest Payment Date.
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<PAGE>
11. PERSONS DEEMED OWNERS. The registered Holder of an Exchange Note may
be treated as its owner for all purposes.
12. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions, the
Indenture or the Exchange Notes may be amended or supplemented with the consent
of the Holders of at least a majority in principal amount of the then
outstanding Exchange Notes, and, subject to Sections 6.04 and 6.07 of the
Indenture, any existing default or compliance with any provision of the
Indenture or the Exchange Notes may be waived with the consent of the Holders of
a majority in principal amount of the then outstanding Exchange Notes. Without
the consent of any Holder of an Exchange Note, the Indenture or the Exchange
Notes may be amended or supplemented to cure any ambiguity, defect or
inconsistency, to provide for uncertificated Exchange Notes in addition to or in
place of certificated Exchange Notes, to provide for the assumption of the
Company's obligations to Holders of the Exchange 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 Exchange 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. Any amendment to the provisions of Article 10 of the
Indenture including, the related definitions will require the consent of the
Holders of at least 75% in aggregate principal amount of the Exchange Notes then
outstanding if such amendment would adversely affect the rights of Holders of
Exchange Notes.
13. DEFAULTS AND REMEDIES. Events of Default include: (i) a default by the
Company in the payment of interest on the Exchange Notes when the same becomes
due and payable and the Default continues for a period of 30 days (whether or
not such payment is prohibited by Article 10 of the Indenture); (ii) default by
the Company in the payment of the principal of or premium, if any, on the
Exchange Notes when the same becomes due and payable at maturity, upon
redemption or otherwise (whether or not such payment is prohibited by Article 10
of the Indenture); (iii) failure by the Company to comply with the provisions
described under Sections 3.09, 4.07, 4.09, 4.10, 4.13 or Article 5 of the
Indenture; (iv) failure by the Company for 60 days after notice to comply with
any of its other agreements in the Indenture or the Exchange Notes; (v) 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; (vi) 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; (vii) 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. If any Event of
Default occurs and is continuing, the Trustee or the Holders of at least 25% in
principal amount of the then outstanding Exchange Notes may declare all the
Exchange 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, all outstanding Exchange Notes will become due and payable without
further action or notice. Holders may not enforce the Indenture or the Exchange
Notes except as provided in the Indenture. Subject to certain limitations,
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<PAGE>
Holders of a majority in principal amount of the then outstanding Exchange Notes
may direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from Holders of the Exchange 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) if it determines that withholding notice is in their
interest. The Holders of a majority in aggregate principal amount of the
Exchange Notes then outstanding by notice to the Trustee may on behalf of the
Holders of all of the Exchange 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 interest and premium, if any, on, or the
principal of, the Exchange 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.
15. TRUSTEE DEALINGS WITH THE COMPANY. Subject to Section 7.03 of the
Indenture, the Trustee, in its individual or any other capacity, may become the
owner or pledgee of Exchange 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.
16. NO RECOURSE AGAINST OTHERS. 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 Exchange Notes,
the Indenture or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder of Exchange Notes by accepting an
Exchange Note waives and releases all such liability. The waiver and release are
part of the consideration for the issuance of the Exchange Notes.
17. AUTHENTICATION. This Exchange Note shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating agent.
18. 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).
19. 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 Exchange 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 numbers either as printed on the Exchange
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: Marshall W. Pagon
A-6
<PAGE>
ASSIGNMENT FORM
To assign this Exchange Note, fill in the form below: (I) or (we) assign
and transfer this Exchange 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 Exchange 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 Exchange Note)
Signature Guarantee:___________________________
A-7
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Exchange Note purchased by the
Company pursuant to Section 4.10 or 4.13 of the Indenture, check the box below:
[ ] Section 4.10 [ ] Section 4.13
If you want to elect to have only part of the Exchange 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
Exchange Note)
Tax Identification No.:____________________
Signature Guarantee:_______________________
A-8
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF DESIGNATION, PREFERENCES
AND RELATIVE, PARTICIPATING, OPTIONAL AND
OTHER SPECIAL RIGHTS OF PREFERRED
STOCK AND QUALIFICATIONS, LIMITATIONS
AND RESTRICTIONS THEREOF
OF
12.75% SERIES A CUMULATIVE EXCHANGEABLE
PREFERRED STOCK
OF
PEGASUS COMMUNICATIONS CORPORATION
-------------------------
Pegasus Communications Corporation (the "Company"), a
corporation organized and existing under the General Corporation Law of the
State of Delaware (the "DGCL"),
DOES HEREBY CERTIFY THAT:
FIRST: Pursuant to the authority vested in the Pricing
Committee of the Board of Directors by resolutions duly adopted by the Board of
Directors on November 21, 1996, the Pricing Committee of the Board of Directors
designated, created, authorized and provided for the issuance of 12.75% Series A
Cumulative Exchangeable Preferred Stock due January 1, 2007 (the "Series A
Preferred Stock"), par value $0.01 per share, having the voting powers,
preferences and relative, participating, optional and other special rights, and
qualifications, limitations and restrictions as more fully described in the
Certificate of Designation, Preferences and Relative, Participating, Optional
and Other Special Rights of Preferred Stock and Qualifications, Limitations and
Restrictions Thereof of 12.75% Series A Cumulative Exchangeable Preferred Stock
of Pegasus Communications Corporation (the "Certificate of Designation").
SECOND: Pursuant to the authority contained in Article Fourth
of the Company's Amended and Restated Certificate of Incorporation (the
"Certificate of Incorporation") and in accordance with the provisions of Section
151 of the DGCL, the Pricing Committee of the Board of Directors of the Company,
acting within the scope of the authority delegated to it by the Board of
Directors, by unanimous written consent dated January 22, 1997 duly approved and
adopted the foregoing designation of the Series A Preferred Stock, and in
connection therewith, the Company filed the Certificate of Designation with the
Secretary of State of the State of Delaware on January 24, 1997.
THIRD: Pursuant to the authority conferred upon the Board of
Directors by the Certificate of Incorporation, and pursuant to the provisions of
Section 242 of the DGCL, the Board of Directors adopted the following
resolutions providing for the amendment to the Certificate of Designation (the
"Amendment") at a meeting held on February 17, 1998:
<PAGE>
RESOLVED, that the definition of "Change of Control" in
Section 1, Certain Definitions, of the Certificate of Designation,
Preferences and Relative, Participating, Optional and Other Special
Rights of Preferred Stock and Qualifications, Limitations and
Restrictions Thereof of 12.75% Series A Cumulative Exchangeable
Preferred Stock of Pegasus Communications Corporation ("Certificate of
Designation"), and the amendment to the definition of "Change of
Control" in Section 1.01, Definitions, of the form of Indenture
attached as Annex A to the Certificate or Designation, to read in their
entirety as follows, are hereby proposed and declared to be advisable
and in the best interests of the Company:
"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 beneficially owned (as defined
above) at such time 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 are
not Continuing Directors.
FURTHER RESOLVED, that the amendment to Section 8(b)(i)(2) of
the Certificate of Designation, and the amendment to Section
4.09(b)(ii) of the form of Indenture attached as Annex A to the
Certificate of Designation, to read in their entirety as follows, are
hereby proposed and declared to be advisable and in the best interests
of the Company:
(2) the incurrence by the Company or any of its
Restricted Subsidiaries of Indebtedness pursuant to one or
more Bank Facilities, so long as the aggregate principal
amount at any time outstanding of Indebtedness incurred
pursuant to this clause (2) ["clause (ii)", in the case of the
form of Indenture attached as Annex A to the Certificate of
Designation] does not exceed $50.0 million;
FOURTH: The holders of the Company's Class A and Class B
Common Stock having a majority of the voting power of all shares of Class A and
Class B Common Stock, at a special meeting of the Common Stockholders held on
April 27, 1998, duly adopted the Amendment in accordance with the provisions of
the DGCL.
<PAGE>
FIFTH: The holders of a majority of the Series A Preferred
Stock duly adopted the Amendment by written consent in accordance with the
provisions of the DGCL.
SIXTH: The Amendment has been duly adopted in accordance with
the provisions of Section 242 of the DGCL.
IN WITNESS WHEREOF, the Company has caused this certificate to
be duly executed by Ted S. Lodge, its Senior Vice President, and attested by
Michael B. Jordan, its Assistant Secretary, this 20th day of May, 1998.
PEGASUS COMMUNICATIONS CORPORATION
By: /s/ Ted S. Lodge
---------------------
Ted S. Lodge,
Senior Vice President
ATTEST:
By: /s/ Michael B. Jordan
-----------------------------
Michael B. Jordan,
Assistant Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS OF PEGASUS COMMUNICATION CORPORATION AS OF DECEMBER
31, 1997 AND JUNE 30, 1998 (UNAUDITED) AND THE RELATED CONSOLIDATED STATEMENTS
OF OPERATIONS AND CASH FLOWS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED) AND JUNE 30, 1998 (UNAUDITED). THIS INFORMATION IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001015629
<NAME> PEGASUS COMMUNICATION CORPORATION
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLAR
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-END> JUN-30-1998 JUN-30-1998
<EXCHANGE-RATE> 1 1
<CASH> 37,218,433 37,218,433
<SECURITIES> 0 0
<RECEIVABLES> 17,597,509 17,597,509
<ALLOWANCES> 405,000 405,000
<INVENTORY> 2,481,545 2,481,545
<CURRENT-ASSETS> 82,846,074 82,846,074
<PP&E> 59,963,040 59,963,040
<DEPRECIATION> 28,593,635 28,593,635
<TOTAL-ASSETS> 806,621,407 806,621,407
<CURRENT-LIABILITIES> 60,449,550 60,449,550
<BONDS> 350,236,223 350,236,223
118,418,130 118,418,130
3,000,000 3,000,000
<COMMON> 158,961 158,961
<OTHER-SE> 110,163,295 110,163,295
<TOTAL-LIABILITY-AND-EQUITY> 806,621,407 806,621,407
<SALES> 46,739,357 75,523,049
<TOTAL-REVENUES> 46,739,357 75,523,049
<CGS> 0 0
<TOTAL-COSTS> 55,616,801 90,702,655
<OTHER-EXPENSES> (39,878) (33,171)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 10,339,353 16,315,091
<INCOME-PRETAX> (19,176,919) (31,461,526)
<INCOME-TAX> 50,000 125,000
<INCOME-CONTINUING> (19,226,919) (31,586,526)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (19,226,919) (31,586,526)
<EPS-PRIMARY> (1.59) (3.14)
<EPS-DILUTED> (1.59) (3.14)
</TABLE>
