<PAGE>
United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
[_] 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 333-56365
MJD COMMUNICATIONS, INC.
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(Exact Name of Registrant as Specified in Its Charter)
Delaware 13-3725229
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(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
521 East Morehead Street, Suite 250
Charlotte, North Carolina 28202
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (704) 344-8150
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 ___ No X
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As of October 31, 1998, the registrant had outstanding 1,810,147 shares of
common stock.
<PAGE>
MJD COMMUNICATIONS, INC.
QUARTERLY REPORT FOR THE PERIOD ENDED SEPTEMBER 30, 1998
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
Item 1. Financial Statements. Page
<S> <C>
Condensed Consolidated Balance Sheets as of September 30, 1998 and December 31, 1997......... 3
Condensed Consolidated Statements of Operations for the three months and
the nine months ended September 30, 1998 and 1997............................................ 4
Condensed Consolidated Statements of Cash Flows for the nine months
ended September 30, 1998 and 1997 ............................................................ 5
Notes to Condensed Consolidated Financial Statements ......................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................................. 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................................................. 17
Item 5. Other Information................................................................. 17
Item 6. Exhibits and Reports on Form 8-K.................................................. 17
</TABLE>
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<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MJD Communications, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------------------
ASSETS September 30, December 31,
1998 1997
- - ---------------------------------------------------------------------------------------------------------------------
(unaudited)
<S>
Current Assets: <C> <C>
Cash and cash equivalents $ 14,112,457 6,822,462
Accounts receivable and other 24,769,410 10,318,406
- - ---------------------------------------------------------------------------------------------------------------------
Total current assets 38,881,867 17,140,868
- - ---------------------------------------------------------------------------------------------------------------------
Property, plant and equipment, net 119,835,637 61,206,890
- - ---------------------------------------------------------------------------------------------------------------------
Other assets:
Investments 33,452,502 11,423,521
Goodwill, net of accumulated amortization 158,616,023 50,432,932
Deferred charges and other assets 17,853,355 4,408,568
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Total other assets 209,921,880 66,265,021
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Total assets $ 368,639,384 144,612,779
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LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
- - ---------------------------------------------------------------------------------------------------------------------
Current Liabilities:
Accounts payable $ 7,496,451 4,999,714
Current portion of long-term debt, capital lease and other 2,310,713 5,721,039
Demand notes payable 814,500 879,000
Accrued interest payable 7,979,889 2,818,769
Other accrued liabilities 4,299,520 2,614,646
- - ---------------------------------------------------------------------------------------------------------------------
Total current liabilities 22,901,073 17,033,168
- - ---------------------------------------------------------------------------------------------------------------------
Long-term liabilities:
Long-term debt, net of current portion 94,935,747 126,502,779
Subordinated debt 200,000,000 109,246
Put warrant obligation 3,881,198 3,455,500
Deferred credits and other long-term liabilities 29,507,010 7,960,599
- - ---------------------------------------------------------------------------------------------------------------------
Total long-term liabilities 328,323,955 138,028,124
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Minority interest 428,182 360,101
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Redeemable preferred stock -- 130,164
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Stockholders' equity (deficit):
Common stock 18,110 8,810
Additional paid-in capital 48,730,963 16,902,521
Retained deficit (31,762,899) (27,850,109)
- - ---------------------------------------------------------------------------------------------------------------------
Total stockholders' equity (deficit) 16,986,174 (10,938,778)
- - ---------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity (deficit) $ 368,639,384 144,612,779
- - ---------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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MJD Communications, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
1998 1997 1998 1997
- - ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating revenues:
Switched services $ 19,800,341 10,526,236 49,285,853 27,067,834
Other 4,054,026 776,966 9,830,358 2,122,797
- - ---------------------------------------------------------------------------------------------------------
Total operating revenues 23,854,367 11,303,202 59,116,211 29,190,631
- - ---------------------------------------------------------------------------------------------------------
Operating expenses:
Plant operations 4,035,801 2,710,014 9,766,848 4,987,115
Corporate and customer service 5,545,852 1,664,093 14,308,121 6,196,565
Depreciation and amortization 6,112,487 2,089,061 13,412,396 6,098,899
Other 3,441,827 938,488 7,368,422 2,218,133
- - ---------------------------------------------------------------------------------------------------------
Total operating expenses 19,135,967 7,401,656 44,855,787 19,500,712
- - ---------------------------------------------------------------------------------------------------------
Income from operations 4,718,400 3,901,546 14,260,424 9,689,919
- - ---------------------------------------------------------------------------------------------------------
Other income (expense):
Net gain on sale of investments 270,791 - 660,484 -
Interest income 146,684 52,853 273,155 155,763
Dividend income 70,000 - 114,895 -
Interest expense (7,912,569) (2,356,011) (17,619,298) (6,354,394)
Other, net 103,339 (23,219) 301,542 323
- - ---------------------------------------------------------------------------------------------------------
Total other expense (7,321,755) (2,326,377) (16,269,222) (6,198,308)
- - ---------------------------------------------------------------------------------------------------------
Earnings (loss) before
income taxes and
extraordinary item (2,603,355) 1,575,169 (2,008,798) 3,491,611
Income tax (expense) benefit 1,086,365 (812,685) 697,213 (1,651,787)
- - ---------------------------------------------------------------------------------------------------------
Earnings (loss) before
extraordinary item (1,516,990) 762,484 (1,311,585) 1,839,824
Extraordinary item net of tax _ (3,611,624) (2,520,943) (3,611,624)
- - ---------------------------------------------------------------------------------------------------------
Earnings (loss) before
minority interest (1,516,990) (2,849,140) (3,832,528) (1,771,800)
Minority interest in income
of subsidiaries (31,449) (2,649) (67,972) (25,103)
- - ---------------------------------------------------------------------------------------------------------
Net earnings (loss) $ (1,548,439) (2,851,789) (3,900,500) (1,796,903)
- - ---------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE>
MJD Communications, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine months ended
September 30,
1998 1997
Cash flows from operating activities:
<S> <C> <C>
Net loss $ (3,900,500) (1,796,903)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 14,140,565 6,360,794
Other non cash expenses (income) (626,673) 310,191
Loss on early retirement of debt 2,896,599 1,128,677
Changes in assets and liabilities arising from operations, net of
acquisitions:
Accounts receivable 1,879,646 (1,018,729)
Accounts payable and accrued expenses 2,822,878 1,146,739
Minority interest 67,972 21,367
Income taxes recoverable (2,870,945) 442,263
- - -----------------------------------------------------------------------------------------------------------------
Total adjustments 18,310,042 8,391,302
- - -----------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 14,409,542 6,594,399
- - -----------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Net capital additions (6,672,081) (5,149,691)
Acquisitions of telephone properties (171,701,416) (27,794,199)
Other, net 2,862,290 540,200
- - -----------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (175,511,207) (32,403,690)
- - -----------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Loan origination costs (16,196,941) (1,261,917)
Proceeds from issuance of long-term debt 451,000,000 62,785,000
Repayment of long-term debt (298,054,890) (15,743,697)
Net proceeds from the issuance of common stock 31,837,741 14,364,827
Dividends paid to stockholders (12,289) (279,394)
Repurchase of stock and warrants (141,564) (31,487,339)
Other, net (40,397) (32,274)
- - -----------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 168,391,660 28,345,206
- - -----------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 7,289,995 2,535,915
Cash and cash equivalents, beginning of period 6,822,462 4,252,735
- - -----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 14,112,457 6,788,650
- - -----------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE>
MJD COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(1) BASIS OF FINANCIAL REPORTING
Certain information and footnote disclosure normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to rules and regulations
of the Securities and Exchange Commission; however, the Company believes
the disclosures which are made are adequate to make the information
presented not misleading.
The condensed consolidated balance sheet of MJD Communications, Inc. and
its Subsidiaries (the "Company") at December 31,1997, was derived from the
Company's audited balance sheet as of that date. The financial information
as of September 30, 1998, for the three months and nine months ended
September 30, 1998 and 1997 is unaudited; however, in the opinion of
management, such financial information includes all adjustments (consisting
only of normal recurring adjustments) necessary for a fair presentation of
financial position, results of operations, and cash flows for the three
month and nine month periods have been included therein in accordance with
generally accepted accounting principles. The results of operations for the
interim periods are not necessarily indicative of the results of
operations, which might be expected for the entire year. The condensed
consolidated financial statements should be read in conjunction with the
Company's 1997 annual financial statements contained in its registration
statement which was declared effective on October 1, 1998.
(2) CREDIT FACILITY
On March 30, 1998, the Company entered into a $315 million senior secured
credit facility (the "New Credit Facility") which committed $75 million of
term debt (tranche C) amortized over nine years, $155 million of term debt
(tranche B) amortized over eight years and an $85 million reducing
revolving credit facility with a term of 6.5 years. Borrowings under the
New Credit Facility bear interest at a rate based, at the option of the
Company, on the participating banks' prime rate or Euro dollar rate, plus
an incremental rate of 3.0%, 2.75% and 2.5% for the Euro dollar margin and
2.0%,1.75% and 1.50% for the prime rate margins for the tranche C, tranche
B and revolver facility, respectively. The New Credit Facility is secured
by a perfected first priority pledge of the stock of all the subsidiaries
of the Company as well as the promissory notes evidencing intercompany
advances. The New Credit Facility is also guaranteed by the Company's four
intermediary holding companies, subject to contractual or regulatory
restrictions. The Company pays fees of one half of one percent per annum on
the aggregate unused portion of the revolver and tranche B commitment, in
addition to an annual agent's fee. Pursuant to the New Credit Facility, the
Company is required to enter into and has entered into, interest hedging
agreements that result in the fixing of the interest rate on no less than
50% of the principal amount of total outstanding debt, including any
subordinated debt.
Total proceeds from the New Credit Facility in the amount of $195 million
were utilized to repay all of the Company's outstanding long-term debt from
CoBank, ACB and Rural Telephone Finance Cooperative, pay related
transaction expenses and finance certain business acquisitions. On March
30, 1998, the Company recognized an extraordinary loss of approximately
$4.3 million ($2.5 million net of income taxes) resulting from a prepayment
penalty of approximately $1.4 million and the write-off of unamortized loan
origination costs of approximately $2.9 million related to the refinanced
debt.
The Company's ability to make additional borrowings under the New Credit
Facility is subject to compliance with certain financial ratios and other
conditions set forth in the New Credit Facility. These
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<PAGE>
conditions limit the ability of the Company and certain of its subsidiaries
to, among other things, incur additional indebtedness, pay dividends or
make certain other restricted payments, consummate certain asset sales,
enter into certain transactions with affiliates, merge or consolidate with
another company or change the business conducted.
(3) ACQUISITIONS
On March 30, 1998, the Company acquired 100% of the outstanding common
stock of Taconic Telephone Corp. and subsidiaries for a purchase price of
$67.5 million. Acquisition costs were approximately $450,000. On April 30,
1998, the Company acquired 100% of the outstanding common stock of
Ellensburg Telephone Company for a purchase price of approximately $91.0
million. Acquisition costs were approximately $265,000. On June 1, 1998,
the Company acquired 100% of the outstanding common stock of Chouteau
Telephone Company for a purchase price of $18.6 million. Acquisition costs
were approximately $127,000.
These acquisitions have been accounted for as purchases and accordingly,
the acquired assets and liabilities have been recorded at their estimated
fair values at the dates of acquisition, and the results of operations have
been included in the accompanying consolidated financial statements since
the dates of acquisition. Not all purchase price allocations have been
finalized, however, due to the existence of certain pre-acquisition
contingencies. Consequently, adjustments to the preliminary allocations of
purchase price may emerge, as contingencies are resolved, but not more than
twelve months from the acquisition date. Goodwill recognized on these
acquisitions was approximately $102.6 million and will be amortized over an
estimated useful life of 40 years.
In the first quarter of 1998, the Company entered into a letter of intent
to acquire Utilities, Inc. (excluding its subsidiaries, Seacoast Cellular
and Western Maine Cellular). The acquisition was consummated on November 6,
1998 for a total purchase price of approximately $52.3 million. The
acquisition will be accounted for using the purchase method. The Company
financed this acquisition primarily with long-term debt.
In the fourth quarter of 1998, the Company has entered into agreements to
acquire three other unrelated rural local exchange carriers ("RLECs"). The
acquisitions are not expected to close; however, until the first or second
quarter of 1999. The aggregate purchase price for the acquisitions is
expected to be approximately $24.1 million and will be financed through
existing debt facilities. Each of the acquisitions will be accounted for
using the purchase method of accounting.
The following unaudited pro forma information presents the combined results
of operations of the Company as though the acquisitions in 1998 and 1997,
occurred on January 1, 1997. The anticipated acquisitions of three
unrelated RLECs in the first or second quarter of 1999 have been omitted
from the following pro-forma information because they would not have a
significant effect on the pro-forma information. These results include
certain adjustments, including amortization of goodwill, increased interest
expense on debt related to the acquisitions and related income tax effects.
The pro forma financial information does not necessarily reflect the
results of operations that would have been achieved had the acquisitions
been consummated as of the assumed dates, nor are the results necessarily
indicative of the Company's future results of operations.
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<PAGE>
PRO FORMA NINE MONTHS ENDED SEPTEMBER 30,
1998 1997
(UNAUDITED)
Revenues ......................... $81,809,845 76,373,727
Net loss ......................... (5,466,178) (2,728,858)
(4) ISSUANCE OF LONG-TERM NOTES
On May 5, 1998, the Company issued $125.0 million of 9 1/2% senior
subordinated notes due 2008 (the "Fixed Rate Notes"), and $75.0 million of
floating rate callable securities due 2008 (the "Floating Rate Notes," and
collectively with the Fixed Rate Notes, the "Notes"). Proceeds were used to
reduce existing bank indebtedness under the New Credit Facility. The Notes
are general unsecured obligations of the Company, subordinated in right of
payment to all existing and future senior debt of the Company, and
effectively subordinated to all existing and future debt and other
liabilities (including trade payables and accrued liabilities) of the
Company's subsidiaries. Interest on the Notes is payable semi-annually.
Interest on the Fixed Rate Notes is fixed at 9 1/2% and interest on the
Floating Rate Notes is equal to a rate per annum of LIBOR plus 418.75 basis
points (10% at May 5, 1998).
(5) STOCK OPTION PLAN
In August 1998, the Board of Directors of the Company approved the MJD
Communications, Inc. Stock Incentive Plan (the "Plan"). The Plan provides
for grants of up to 256,220 nonqualified stock options to executives and
members of management, at the discretion of the compensation committee of
the Board of Directors. Options vest in 25% increments after the second,
third, fourth and fifth anniversaries of an individual grant. In the event
of a change in control, outstanding options will vest immediately.
In October 1998, the compensation committee of the Board of Directors
approved a grant of 233,200 options at an exercise price of $34.25 per
share. Pursuant to the terms of the grant, options become exercisable only
in the event that the Company is sold, or an initial public offering of the
Company's common stock or other change in control occur, as defined in the
grant agreements. The number of options that may ultimately become
exercisable also depends upon the extent to which the price per share
obtained from a sale of the Company exceeds a minimum hurdle price of
$85.63 per share. Options have a term of ten years from an effective grant
date of May 1998.
(6) SUBSEQUENT EVENTS
On July 1, 1998 the Company issued notice of its intent to exercise its
call right with respect to certain warrants held by unaffiliated parties.
These warrants are included in the Company's long term liabilities at a
value of approximately $3.9 million at September 30, 1998. The Company
expects to close the purchase of the warrants on or before July 1, 1999,
for a purchase price, which is currently being negotiated.
On October 5, 1998, the Board of Directors of the Company approved a ten
for one stock split to stockholders of record on September 1, 1998. The
stock split has been given retroactive effect in the
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<PAGE>
accompanying condensed consolidated financial statements.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
THE FOLLOWING DISCUSSION AND ANALYSIS PROVIDES INFORMATION THAT
MANAGEMENT BELIEVES IS RELEVANT TO AN ASSESSMENT AND UNDERSTANDING OF THE
CONSOLIDATED RESULTS OF OPERATIONS AND FINANCIAL CONDITION OF MJD
COMMUNICATIONS, INC. AND ITS SUBSIDIARIES (COLLECTIVELY, THE "COMPANY"). THE
DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE INTERIM CONSOLIDATED FINANCIAL
STATEMENTS AND NOTES THERETO AND THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1997, FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION ON FORM S-4 ON JUNE 9, 1998, AS AMENDED ON OCTOBER 1, 1998.
CERTAIN STATEMENTS INCLUDED IN THIS DOCUMENT ARE FORWARD-LOOKING, SUCH
AS STATEMENTS RELATING TO ESTIMATES OF OPERATING AND CAPITAL EXPENDITURE
REQUIREMENTS, FUTURE REVENUE AND OPERATING INCOME, AND CASH FLOW AND LIQUIDITY.
SUCH FORWARD-LOOKING STATEMENTS ARE BASED ON THE COMPANY'S CURRENT EXPECTATIONS
AND ARE SUBJECT TO A NUMBER OF RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL
RESULTS IN THE FUTURE TO DIFFER SIGNIFICANTLY FROM RESULTS EXPRESSED OR IMPLIED
IN ANY FORWARD-LOOKING STATEMENTS MADE BY, OR ON BEHALF OF, THE COMPANY. THESE
RISKS AND UNCERTAINTIES INCLUDE, BUT ARE NOT LIMITED TO, UNCERTAINTIES RELATING
TO ECONOMIC AND BUSINESS CONDITIONS, GOVERNMENTAL AND REGULATORY POLICIES, AND
THE COMPETITIVE ENVIRONMENT IN WHICH THE COMPANY OPERATES. THESE AND OTHER RISKS
ARE DETAILED BELOW AS WELL AS IN OTHER DOCUMENTS FILED BY THE COMPANY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
OVERVIEW
MJD Communications, Inc. was founded in 1991 to participate in the
consolidation opportunities that exist in the highly fragmented, independent,
largely family-owned and operated, rural segment of the telecommunications
industry. As of September 30, 1998, the Company owned and operated fourteen
rural local exchange carriers ("RLECs") with 105,794 access lines in rural
locations in ten states.
The operations of the RLECs owned by the Company for more than twelve
months have been characterized by stable growth and cash flow. The primary
reason for the growth in the Company's cash flow has been the acquisition of
additional RLECs. In addition, the RLECs owned by the Company have realized
access line growth and increases in minutes of use ("MOU"). Although new access
line growth is correlated with general economic activity, economic downturns
typically have not significantly impacted the Company's established base of
access lines or MOU.
REVENUES: The Company generates revenue primarily through: (i) the
provision of basic local telephone service to customers within its service areas
(including federal and state Universal Service Support Fund ("USSF") revenues,
which accounted for approximately 13.1% of 1997 revenue); (ii) the provision of
network access to inter-exchange carriers ("IXCs") for origination and
termination of interstate and intrastate long distance telephone calls; and
(iii) the provision of ancillary services such as billing and collection, long
distance resale, enhanced services, wireless services, cable services, Internet
services and customer premises equipment sales. The revenues listed in clauses
(i) and (ii) above are classified by the Company as "Switched Revenue." The
revenues listed in clause (iii) above are classified by the Company as "Other
Revenue."
The Company's historically stable revenues for operations owned by the
Company for more than twelve months are the result of the basic utility of
telecommunications services, the highly regulated nature of the
telecommunications industry and underlying cost recovery settlement and support
mechanisms. The Company's subscribers are predominantly residential. Basic local
service allows the user to place unlimited calls within a defined local calling
area. USSF revenues are a subsidy paid to the Company to support the high cost
of its operations in rural markets. Access revenues are generated by providing
IXCs access to the Company's local network and its customers. Other service
revenue is generated from the ancillary services described above.
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<PAGE>
OPERATING EXPENSES: The Company's operating expenses are categorized as
plant operations, corporate and customer service, other expenses and
depreciation and amortization. Year to year changes in such expenses are
typically influenced by access line growth and general business inflationary
adjustments. Plant operations expenses consist of expenses incurred by the
Company in connection with the operation of its central offices and outside
plant facilities and related operations. Corporate and customer service expenses
consist of expenses generated by the Company's general management, accounting,
engineering, marketing and customer service functional groups. Other expenses
consist of miscellaneous expenses such as operating taxes.
OTHER (INCOME) EXPENSES: The Company's other income includes interest
income, dividends, gain or loss on sale of assets and other miscellaneous,
non-operating income. The Company's other expenses consist primarily of interest
on the Company's debt and other non-operating expenses.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED WITH THREE MONTHS ENDED
SEPTEMBER 30, 1997
OPERATING REVENUE. Net revenue increased $12.6 million to $23.9 million for
the three months ended September 30, 1998 from $11.3 million for the three
months ended September 30, 1997. RLECs acquired after the second quarter 1997
contributed $11.3 million to the quarter to quarter increase in revenues. For
RLECs owned and operated for a comparable period, operating revenue improved
approximately $1.3 million or 12.9% to $11.4 million from $10.1 million in 1997.
Basic local service revenue increased $3.1 million to $5.2 million for the
three months ended September 30, 1998 from $2.1 million for the three months
ended September 30, 1997. This revenue increase is primarily attributable to an
increase in access lines. The inclusion of access lines from the RLECs acquired
by the Company after the second quarter 1997 provided an increase of 55,280
access lines and internal growth in RLECs owned and operated by the Company
prior to the third quarter 1997 provided an increase of 2,723 access lines.
Revenue contribution from the RLECs acquired after the second quarter
1997 provided approximately $2.9 million of the increase in basic local service
revenue for the three months ended September 30, 1998. For the RLECs owned and
operated for a comparable period, basic local service revenues increased by $0.2
million to $1.9 million for the three months ended September 30, 1998 from $1.7
million for the three months ended September 30, 1997.
USSF revenues were approximately $1.3 million and $1.1 million in each of
the three month periods ended September 30, 1998 and September 30, 1997,
respectively.
Interstate and intrastate revenues increased $6.0 million to $13.3 million
for the three months ended September 30, 1998 from $7.3 million for the three
months ended September 30, 1997. This revenue increase is attributable to an
increase in access lines and MOUs and an increase in interstate and intrastate
settlement revenues administered by the National Exchange Carriers Association
("NECA") or a respective state's settlement administrator. Revenue contribution
from the RLECs acquired by the Company after the second quarter 1997 provided
approximately $5.6 million of the increase in interstate and intrastate revenues
for the three months ended September 30, 1998. For the RLECs owned and operated
for a comparable period, interstate and intrastate revenues increased by $0.4
million to $7.1 million for the three months ended September 30, 1998 from $6.7
million for the three months ended September 30, 1997.
Other services revenue increased $3.3 million to $4.1 million for the three
months ended September 30,
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<PAGE>
1998 from $0.8 million for the three months ended September 30, 1997. Other
services revenues consist of directory advertising, billing and collection for
inter-exchange carriers ("IXCs") and other related telephone services. Revenue
contribution from RLECs acquired by the Company after the second quarter 1997
provided $2.4 million of the increase in other services revenues for the three
months ended September 30, 1998. For RLEC's owned and operated for a comparable
period, other services revenues increased by $0.8 million to $1.3 million for
the three months ended September 30, 1998 from $0.5 million for the three months
ended September 30, 1997.
OPERATING EXPENSES. Operating expenses, which include plant operations,
corporate and customer service, other operating expenses, and depreciation and
amortization increased $11.7 million to $19.1 million for the three months ended
September 30, 1998 from $7.4 million for the three months ended September 30,
1997. The increase was primarily due to the inclusion of operating expenses from
the RLECs acquired by the Company after the second quarter 1997 which
contributed approximately $9.2 million for the three months ended September 30,
1998. For RLECs owned and operated for a comparable period, operating expenses
increased approximately $2.5 million or 38.4% to $9.0 million in 1998 from $6.5
million in 1997. The operating expense increase was due to an increase in
corporate and customer service expense driven by the Company's substantial
increase in access lines from its acquisitions completed during the first three
quarters of 1998. The Company has grown the number of its access lines by
approximately 100% since December 31, 1997, as a result of its acquisition of
over 54,000 access lines. To support its expanded operations, the Company
increased corporate staff in areas such as accounting, finance and human
resources. Additionally, expense increases were attributable to operating
expenses of the Company's new competitive local exchange carrier ("CLEC")
subsidiary and to an increase in depreciation .
INCOME FROM OPERATIONS. As a result of the factors described above, income
from operations increased $0.9 million or 20.9% to $4.7 million for the three
months ended September 30, 1998 from $3.8 million for the three months ended
September 30, 1997. The increase was primarily due to income from operations for
RLECs acquired after the second quarter 1997, which provided approximately $2.1
million of this increase for the three months ended September 30, 1998. For
RLECs owned and operated for a comparable period, income from operations
decreased $1.2 million to $2.4 million in 1998 from $3.6 million in 1997 and the
income from operations margin was 9.9% in 1998 compared to 31.7% in 1997. The
decrease in income from operations and its margin as a percent of revenues was
related to the increase in operating expenses, as described above.
OTHER INCOME (EXPENSE). Other expense increased $5.0 million to $7.3
million for the three months ended September 30, 1998 from $2.3 million for the
three months ended September 30, 1997. The increase was primarily due to an
increase in interest expense caused by the additional debt borrowed to complete
acquisitions during 1997 and 1998 and to effect the Company's recapitalization
in July 1997.
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED WITH NINE MONTHS ENDED SEPTEMBER
30, 1997
OPERATING REVENUE. Net revenue increased $29.9 million or 102.5% to $59.1
million for the nine months ended September 30, 1998 from $29.2 million for the
nine months ended September 30, 1997. Revenue contribution from the RLECs
acquired by the Company after the fiscal year ending December 31, 1996 ("FYE
1996") provided approximately $26.5 million of this increase. For RLECs owned
and operated for a comparable period, operating revenue improved approximately
$3.5 million or 12.8% to $30.9 million from $27.4 million in 1997.
Basic local service revenue increased $6.7 million to $12.0 million for the
nine months ended September 30, 1998 from $5.3 million for the same period in
1997. This revenue increase is primarily attributable to an
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<PAGE>
increase in access lines. The Company's access lines increased by 58,003 from
47,791 access lines at September 30, 1997 to 105,794 access lines at September
30, 1998. The inclusion of access lines from the RLECs acquired by the Company
after January 1, 1997 provided an increase of 55,280 access lines and internal
growth by RLECs owned and operated by the Company. provided an increase of 2,723
access lines. Revenue contribution from the RLECs acquired after FYE 1996
provided approximately $6.4 million of the increase in basic local service
revenue for the nine months ended September 30, 1998. For the RLECs owned and
operated for a comparable period, basic local service revenues increased by $0.4
million to $5.1 million for the nine months ended September 30, 1998 from $4.7
million for the nine months ended September 30, 1997.
USSF revenues were approximately $3.7 million and $3.2 million in the nine
month periods ended September 30, 1998 and September 30, 1997, respectively.
Interstate and intrastate revenues increased $15.0 million to $33.6 million
for the nine months ended September 30, 1998 from $18.6 million for the nine
months ended September 30, 1997. This revenue increase is attributable to an
increase in access lines and MOUs and an increase in interstate and intrastate
settlement revenues administered by NECA or a respective state's settlement
administrator. Revenue contribution from the RLECs acquired by the Company after
FYE 1996 provided approximately $13.7 million of the increase in interstate and
intrastate revenues for the nine months ended September 30, 1998. For the RLECs
owned and operated for a comparable period, interstate and intrastate revenues
increased by $1.3 million to $19.1 million for the nine months ended September
30, 1998 from $17.8 million for the nine months ended September 30, 1997.
Other services revenues increased $7.7 million to $9.8 million for the nine
months ended September 30, 1998 from $2.1 million for the nine months ended
September 30, 1997. Other services revenues consist of directory advertising,
billing and collection for IXCs and other related telephone services. Revenue
contribution from RLECs acquired by the Company after FYE 1996 provided $6.0
million of the increase in other services revenues for the nine months ended
September 30, 1998. For RLEC's owned and operated for a comparable period by the
Company, other services revenues increased by $1.7 million to $3.5 million for
the nine months ended September 30, 1998 from $1.8 million for the nine months
ended September 30, 1997.
OPERATING EXPENSES. Operating expenses, which include plant operations,
corporate and customer service, other operating expenses, and depreciation and
amortization increased $25.4 million to $44.9 million for the nine months ended
September 30, 1998 from $19.5 million for the nine months ended September 30,
1997. The increase was primarily due to the inclusion of operating expenses from
the RLECs acquired by the Company after FYE 1996 which contributed approximately
$20.2 million for the nine months ended September 30, 1998. For RLECs owned and
operated for a comparable period, operating expenses increased approximately
$5.2 million or 28.3% to $23.5 million in 1998 from $18.3 million in 1997. The
operating expense increase was primarily due to an increase in corporate and
customer service expense driven by the Company's acquisition and financing
activities during the first three quarters of 1998. The Company has grown the
number of its access lines by approximately 100% since December 31, 1997, as a
result of its acquisition of over 54,000 access lines. To support its expanded
operations, the Company increased corporate staff in areas such as accounting,
finance, MIS, and human resources. Additionally, operating expense increases
were attributable to operating expenses of the Company's new competitive local
exchange carrier ("CLEC") subsidiary and to an increase in depreciation and
amortization expense
INCOME FROM OPERATIONS. As a result of the factors described above, income
from operations increased $4.6 million or 47.2% to $14.3 million for the nine
months ended September 30, 1998 from $9.7 million for the nine months ended
September 30, 1997. The increase was primarily due to the income from operations
for RLECs acquired after FYE 1996 provided approximately $6.3 million of this
increase for the nine months ended September 30, 1998. The income from
operations margin was 24.1% in the nine months ended
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<PAGE>
September 30, 1998 as compared to 33.2% in the nine months ended September 30,
1997. For RLECs owned and operated for a comparable period income from
operations decreased $1.7 million to $7.4 million in 1998 from $9.1 million in
1997 and the income from operations margin was 24.0% in the nine months ended
September 30, 1998 compared to 31.2% in the nine months ended September 30,
1997. The decrease in income from operations and its margin as a percent of
revenues was related to the increase in operating expenses, as described above.
OTHER INCOME (EXPENSE). Other expense increased $10.0 million or 162.1% to
$16.2 million for the nine months ended September 30, 1998 from $6.2 million for
the nine months ended September 30, 1997. The increase was primarily due to an
increase in interest expense caused by the additional debt borrowed to complete
acquisitions during 1997, to effect the Company's recapitalization in July 1997
and to complete acquisitions in the nine months ended September 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
Implementation of the Company's acquisition strategy has required a
significant portion of the Company's capital resources. The Company historically
has used the proceeds of bank debt and private equity offerings, supplemented by
the Company's available cash flow, to fund the implementation of the Company's
acquisition strategy.
On March 30, 1998, the Company closed a $315.0 million senior secured
credit facility (the "New Credit Facility") which included (i) $75.0 million of
term debt (Tranche C) amortized over nine years, (ii) $155.0 million of term
debt (Tranche B) amortized over eight years and (iii) an $85.0 million reducing
revolving credit facility (the "Revolver") with a term of six and one-half
years. All obligations of the Company under the New Credit Facility are
guaranteed by four of the intermediary subsidiaries of the Company; ST
Enterprises, LTD., MJD Holdings Corp., MJD Services Corp. and MJD Ventures, Inc.
The ability of such subsidiaries to guarantee the obligations of the Company
under certain circumstances may be restricted. The Company is obligated to
comply with certain financial ratios and tests, including the following (which
ratios became less restrictive as a result of the Company achieving a ratio of
senior debt to annualized EBITDA ratio of less than 4.0 to 1.0): (i) maintain a
ratio of annualized EBITDA to interest expense of 1.5 to 1.0; (ii) maintain a
ratio of debt to annualized EBITDA of not more than 6.5 to 1.0; and (iii)
maintain a ratio of senior debt to annualized EBITDA of not more than 4.0 to
1.0. The Company is currently in compliance with all covenants under the New
Credit Facility.
On May 5, 1998, the Company consummated its debt offering consisting of
$125 million in aggregate principal amount of 9 1/2% Senior Subordinated Notes
due 2008 (the "Fixed Rate Notes"), and $75 million in aggregate
principal amount of Floating Rate Callable Securities due 2008 (the "Floating
Rate Notes") (together with the Fixed Rate Notes, "the Notes").
Proceeds were used to reduce the tranche A and tranche B debt outstanding under
the New Credit Facility. The Notes are general unsecured obligations of the
Company, subordinated in right of payment to all existing and future senior debt
(as defined in the Indenture relating to the Notes) of the Company, and
effectively subordinated to all existing and future debt and other liabilities
(including trade payables and accrued liabilities) of the Company's
subsidiaries. Interest on the Notes is payable semi-annually. Interest on the
Fixed Rate Notes is fixed at 9 1/2% and interest on the Floating Rate
Notes is equal to a rate per annum at LIBOR (as defined in the
Indenture) plus 418.75 basis points. On November 2, 1998, the Company
consummated an exchange offer by exchanging its 9 1/2% Senior Subordinated Notes
due 2008, Series B (the "Fixed Rate Exchange Notes") and Floating Rate Callable
Securities due 2008, Series B (the " Floating Rate Exchange Notes") which have
been registered under the Securities Act of 1933, as amended, for like principal
amounts of the Fixed Rate Notes and the Floating Rate Notes,
respectively.
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Certain funds managed by Kelso & Company and certain funds managed by
Carousel Capital Corp. (collectively the "Equity Investors")invested an
additional $16.3 million on March 30, 1998 to finance the acquisition of Taconic
Telephone Corp. and an additional $15.0 million on April 30, 1998 to finance the
acquisition of Ellensburg Telephone Company, resulting in a total of $47.8
million of equity capital invested in MJD through September 30, 1998.
In addition to debt service, the Company's principal liquidity requirements
are expected to be for general corporate purposes, capital expenditures and to
consumate the Company's pending acquisitions. The Company believes that the
proceeds from the New Credit Facility and the Notes provide sufficient resources
to fund the pending acquisitions. The Company's annual capital expenditures for
existing operations have historically been significant. Because existing
regulations allow the Company to recover its operating and capital costs, plus a
reasonable return on its invested capital in regulated telephone assets, capital
expenditures constitute an attractive use of the Company's cash flow. The
Company has historically generated sufficient cash flow from operations to meet
all of its capital expenditure requirements for existing operations. In 1996 and
1997, the Company spent approximately $8.4 million and $8.2 million on capital
expenditures, respectively. The Company expects capital expenditures in 1998 for
all existing operations and the completed acquisitions to be approximately $15.0
million.
Management evaluates potential acquisitions on an ongoing basis and has
had, and continues to have, preliminary discussions concerning the purchase of
additional RLECs and other telecommunications properties. The Company may
require additional financing for future acquisitions, if any, and there can be
no assurance that it will be able to obtain such financing on favorable terms,
if at all.
The Company's plan to enter additional markets as a CLEC is expected to
result in the Company's incurring initial operating losses followed by
significant capital expenditures. The Company currently estimates that it will
invest approximately $5.0 million and $15.0 million in 1998 and 1999,
respectively, related to the planned rollout of nine CLEC markets in 1998 and
fifteen CLEC markets in 1999. In addition, the Company anticipates building
facilities to migrate CLEC customers to the Company's existing networks, which
will require substantially more capital expenditures in 1999 and 2000. The New
Credit Facility limits the funding of such losses and capital expenditures to
(i) $5.0 million per year so long as the senior debt leverage ratio exceeds 4.0x
and (ii) $15.0 million per year whenever such leverage ratio is under 4.0x. The
terms of the Notes also impose certain restrictions on the Company's ability to
fund its CLEC expansion. If the CLEC plan proves to be successful, the Company
believes it will be able to raise separate financing for future CLEC capital
requirements as permitted under the New Credit Facility and the Indenture for
the Notes.
Net cash provided by operating activities was $14.4 million and $6.6
million for the nine months ended September 30, 1998 and 1997, respectively. Net
cash used in investing activities was $175.5 million and $32.4 million for the
nine months ended September 30, 1998 and 1997, respectively. These cash flows
primarily reflect expenditures relating to acquisitions of RLECs of $171.7
million and $27.8 million for the nine months ended September 30, 1998 and 1997,
respectively, and capital expenditures of $6.7 million and $5.1 million for the
nine months ended September 30, 1998 and 1997, respectively.
Net cash provided by financing activities was $168.4 million and $28.3
million for the nine months ended September 30, 1998 and 1997, respectively.
These cash flows primarily represent borrowings, the proceeds of which were
$71.1 million in 1997 and $451.0 million in the first nine months of 1998 and
proceeds from the issuance of common stock of $15.9 million in 1997 and $31.8
million in the first nine months of 1998. A majority of the 1997 proceeds were
utilized to repay long-term debt of $22.1 million and repurchase preferred stock
and warrants for an aggregate amount of $31.5 million. A majority of the 1998
proceeds were utilized to repay long-term debt of $298.1 million and to purchase
RLECs. On July 31, 1997, a recapitalization (the
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<PAGE>
"Recapitalization") of the Company was completed. The Company (i) issued 437,940
shares of the Company's Class A voting common stock for proceeds of $15.0
million in the aggregate to the Equity Investors and (ii) issued 4,400 shares to
members of management for proceeds of $150,705. Proceeds from the
Recapitalization and related borrowings of $39.2 million from CoBank, ACB were
utilized to (i) retire certain subordinated notes issued by ST Enterprises,
LTD., a wholly-owned subsidiary of the Company; (ii) repurchase all of the
outstanding shares of preferred stock of the Company not owned by management;
and (iii) repurchase certain common stock purchase warrants that were owned by
Fleet Equity Partners and its affiliates. In October 1997, the Company issued an
additional 43,790 shares of common stock to Kelso and Carousel for an aggregate
amount of approximately $1.5 million. The proceeds of this stock issuance were
utilized to finance the acquisition of C-R Communications, Inc.
The Company may secure additional funding through the sale of public or
private debt and equity securities or enter into another bank credit facility to
fund future acquisitions. If the Company's growth occurs more rapidly than is
currently anticipated or if its operating results are below expectations, there
can be no assurance that the Company will be successful in raising sufficient
additional capital on terms that it will consider acceptable, or that the
Company's operations will produce positive cash flow in sufficient amounts to
meet its debt obligations. The Company's failure to raise and generate
sufficient funds may require it to delay or abandon some of its planned future
growth or expenditures, which could have a material adverse effect on the
Company's growth and its ability to compete in the telecommunications industry.
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<PAGE>
NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement No.
131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131"), which establishes standards for the way that public business
enterprises report information regarding their operating segments in annual
financial statements and requires that those enterprises report selected
information regarding their operating segments in interim financial reports
issued to shareholders. It also establishes standards for related disclosures
regarding products and services, geographic areas, and major customers. SFAS 131
is effective for fiscal years beginning after December 15, 1997. The Company
believes that adopting this accounting pronouncement in 1998 will not have a
significant effect on the level of disclosures in its consolidated financial
statements.
In February 1998, the Financial Accounting Standards Board issued Statement
No. 132, "Employers' Disclosures about Pensions and other Post-Retirement
Benefits" ("SFAS 132"), which is effective for fiscal years beginning after
December 15, 1997. SFAS 132 revises disclosure requirements for pension and
other post-retirement benefits plans. The Company believes that adopting this
accounting pronouncement in 1998 will not have a significant effect on the level
of disclosures in its consolidated financial statements.
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"), which establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. SFAS 133 is effective for
all fiscal quarters of fiscal years beginning after June 15, 1999. The Company
anticipates adopting this accounting pronouncement in 2000; however, management
believes it will not have a significant impact on the Company's consolidated
financial statements.
YEAR 2000
The year 2000 issue involves the risk that computer systems using two-digit date
fields will fail to recognize properly the year 2000, resulting in computer
failures for businesses, government agencies, service providers, vendors and
customers. The Company has assessed its systems and believes them to be year
2000 compliant. In addition, the Company has received assurance from its major
software vendors that the products used by the Company are or will be compliant
by early 1999. If the systems of other companies on whose services the Company
depends or with whom the Company's systems interface are not year 2000
compliant, it could have a material adverse effect on the Company. The Company
has budgeted $100,000 to review the year 2000 issue during 1998 and will
continue its year 2000 issue assessment and, if it comes to the attention of
management that any of its systems, or the systems of those on whom the Company
relies, are not year 2000 compliant, the Company expects to develop an action
plan and devote the resources to address such problem. There can be no assurance
that devoting further resources of the Company to the year 2000 issue, if the
need should arise, would not have a material adverse effect on the Company.
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<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company currently and from time to time is involved in litigation and
regulatory proceedings incidental to the conduct of its business, but the
Company is not a party to any lawsuit or proceeding which, in the opinion of the
Company, is likely to have a material adverse effect on the Company.
On April 6, 1998, Latin World Communications, Inc. ("LWC") and Debra A.
Boudrot, LWC's principal (collectively, "Plaintiffs") sued B. Stephen May
("May"), who is a former officer of ST Long Distance (a subsidiary of the
Company), Siesta Telecom, Inc. ("Siesta"), which is a company controlled by May,
and ST Long Distance in the Circuit Court for the Twelfth Judicial Circuit,
Sarasota County, Florida. From March 1997 through early 1998, ST Long Distance
provided long distance services to Plaintiffs in connection with the Plaintiffs'
prepaid telephone card distribution business. On June 26, 1998, Plaintiffs filed
an Amended Complaint. Plaintiffs assert claims against May, Siesta and ST Long
Distance for breach of contract, fraud, misappropriation of trade secrets,
overpayments to May, interference with business relationships, deceptive trade
practices and trade slander. Plaintiffs seek approximately $1 million in damages
plus an unspecified amount of damages related to these claims as well as
injunctive relief relating to certain other matters. The Company timely answered
the Plaintiffs' Complaint and Amended Complaint, denied Plaintiffs' claims,
asserted counterclaims against Plaintiffs, asserted cross-claims against May,
and filed a Third Party Complaint against David Dwiggins ("Dwiggins"), a
business partner of May. The Company intends to vigorously contest all of the
Plaintiffs' claims, believes that it has no liability to the Plaintiffs and will
actively pursue its claims against Plaintiffs, May and Dwiggins. While the
outcome of such litigation cannot be predicted, the Company does not believe
that such litigation, even if determined adversely to the Company, would have a
material adverse effect on its financial condition or results of operations.
Item 5. Other Information
RECENT AND PENDING ACQUISITIONS
The Company has recently completed the following RLEC acquisition:
UTILITIES, INC. On November 6, 1998, the Company acquired Utilities, Inc.
("Utilities"). Utilities is headquartered in Standish, Maine, approximately 15
miles west of Portland. Utilities operates approximately 22,200 access lines in
central and southern Maine, most of which are located in exchanges adjacent to
exchanges operated by subsidiaries of the Company. The Company purchased the
stock of Utilities for approximately $52.3 million and assumed approximately $12
million of debt of Utilities. In the year ended December 31, 1997, Utilities had
revenues of $16.2 million (which excludes the revenues of certain cellular
businesses of Utilities that were not acquired by the Company).
In the fourth quarter of 1998, the Company has entered into agreements to
acquire three other unrelated RLECs. The acquisitions are not expected to close,
however, until the first or second quarter of 1999. The aggregate purchase price
for the acquisitions is expected to be approximately $21.7 million and will be
financed through existing debt facilities. Each of the acquisitions will be
accounted for using the purchase method of accounting.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Purchase Agreement and Subordination Agreement between Bankers
Trust Company and the Company.
27.1 Financial Data Schedule.
(b) Reports on Form 8K
The Company did not file any current reports on Form 8-K during
the quarter ended September 30, 1998
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<PAGE>
SIGNATURES
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.
MJD Communications, Inc.
Date: November 13, 1998 By: /s/ Walter E. Leach, Jr.
---------------------------
Walter E. Leach, Jr.
Senior Vice President, Chief
Financial Officer and Secretary
(Duly Authorized Officer and
Principal Financial Officer)
<PAGE>
EXHIBIT 10.1
PURCHASE AGREEMENT AND SUBORDINATION AGREEMENT
----------------------------------------------
This Purchase Agreement and Subordination Agreement (this "Agreement")
---------
made as of the ____ day of October, 1998 by MJD Communications, Inc., a Delaware
corporation, ("MJD") and Bankers Trust Company, a New York banking corporation
---
("BT")
--
W I T N E S S E T H
= = = = = = = = = =
WHEREAS, BT has made a loan (the "Bergstein Loan") to Daniel G.
--------------
Bergstein ("Bergstein") in the principal amount of up to $2,000,000 pursuant to
---------
four (4) separate Time Promissory Notes each dated as of the date hereof and
each evidencing the principal amount of $500,000 (as same may be amended or
extended, the "Bergstein Notes"); and
---------------
WHEREAS, BT has also made a loan (the "Haberman Loan"; the Bergstein
-------------
Loan and the Haberman Loan herein, collectively, the "Loans") to Meyer Haberman
-----
("Haberman"; Bergstein, Haberman and JED (hereinafter defined) herein,
--------
collectively, the "Obligors") in the aggregate principal amount of up to
--------
$1,000,000 pursuant to two (2) separate Time Promissory Notes each dated as of
the date hereof and each evidencing the principal amount of $500,000 (as same
may be amended or extended, the "Haberman Notes"; the Bergstein Notes and the
--------------
Haberman Notes herein, collectively, the "Notes"); and
-----
WHEREAS, the collateral pledged to BT as security for the Bergstein
Loan pursuant to four (4) separate Pledge Agreements dated as of the date hereof
made by JED Communications Associates, Inc. ("JED") to BT (as same may be
---
amended, the "Bergstein Pledge Agreements") consists of shares of stock in MJD,
---------------------------
and the collateral pledged to BT as security for the Haberman Loan pursuant to
two (2) separate Pledge Agreements dated as of the date hereof made by Haberman
to BT (as same may be amended, the "Haberman Pledge Agreements"; the Bergstein
--------------------------
Pledge Agreements and the Haberman Pledge Agreements herein, collectively, the
"Pledge Agreements") consists of shares of stock in MJD (all shares of stock of
-----------------
MJD pledged to BT pursuant to the Pledge Agreements is herein referred to as the
"MJD Stock", and together with any other collateral which may be pledged by
---------
Obligors as security for the Loans, the "Collateral"); and
----------
WHEREAS, MJD desires to have the rights granted pursuant hereto with
respect to the MJD Stock in the event of foreclosure by BT thereon and BT
desires to assure some liquidity of the MJD Stock in the event of such a
foreclosure,
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and legal sufficiency of which is hereby
acknowledged, MJD hereby covenants and agrees with BT as follows:
<PAGE>
1. (a) BT and MJD agree that, subject to the terms and conditions
hereof, BT, prior to foreclosure on MJD Stock after the occurrence of an Event
of Default under any Note (as defined in such Note), shall, and shall be
obligated to, sell and assign to MJD (without recourse, warranty or
representation, express or implied, except for such warranties and
representations as are expressly contained in this Agreement) and MJD, on the
date and as otherwise hereinafter provided, shall, and shall be obligated to,
purchase BT's right, title and interest in such Note or Notes, the Pledge
Agreement or Pledge Agreements related thereto, the Collateral pledged under
such Pledge Agreement or Pledge Agreements and all other instruments and
documents, if any, relating, thereto (collectively, the "Purchase Documents").
------------------
The purchase of the Purchase Documents shall occur on the date specified in a
written notice from BT to MJD (the "Purchase Notice") which date shall be no
---------------
earlier than thirty (30) days after the date of the Purchase Notice (such date,
the "Purchase Date"). If, prior to the Purchase Date, the Note or Notes to be
-------------
sold to MJD are "indefeasibly paid" (hereinafter defined) in full, the
obligation to purchase the Purchase Documents relating thereto shall cease and
terminate and neither party shall have any further rights or obligations
hereunder with respect to such Note or Notes but each party's rights and
obligations with respect to any other unpaid Notes shall remain in effect until
this Agreement shall terminate as provided in Paragraph 14 hereof. In no event
shall BT be under any obligation to sell any Purchase Documents to MJD if MJD
shall fail to purchase such Purchase Documents on the Purchase Date in
accordance herewith nor shall BT have any obligation thereafter to sell any
other Note (and related Purchase Documents and Collateral) to MJD in the event
of any such default by MJD. The foregoing provisions of this Paragraph 1(a)
shall be applicable upon each and every occurrence prior to BT's foreclosure on
MJD Stock as a result of an Event of Default under any Note. The terms
"indefeasibly paid" as used in this Paragraph 1(a) and "indefeasible repayment"
as used in Paragraph 14 mean that one (1) year has elapsed after such payment
with no intervening bankruptcy or like proceeding having occurred with respect
to the Obligor making such payment.
(b) The purchase price ("Purchase Price") for any Purchase Documents
--------------
shall be the lesser of (A) (i) one hundred percent (100%) of the then
outstanding principal amount of the Note or Notes to be sold to MJD plus (ii)
----
accrued and unpaid interest payable in respect thereof to the date on which the
Purchase Price is paid to BT as provided in subparagraph (d) hereof plus (iii)
----
all other obligations which are then owing to BT with respect to the Purchase
Documents related thereto or (B) an aggregate of $2,000,000 in the case of the
Bergstein Loan and all Purchase Documents related thereto, plus an aggregate of
$1,000,000, in the case of the Haberman Loan and all Purchase Documents related
thereto.
(c) Anything herein to the contrary notwithstanding in no event shall
MJD be obligated to pay more than an aggregate of $1,000,000 on account of the
Purchase Price for Purchase Documents or, as provided in clause (g) below, the
MJD Stock in any calendar year, it being understood and agreed that BT shall
have the continuing right (and, prior to foreclosing on any MJD Stock, the
obligation) at the beginning of any subsequent calendar year to require MJD to
purchase any Note or Notes (and the related Purchase Documents) under which an
Event of Default has occurred and is continuing or, as provided in clause (g)
below, the MJD Stock subject to the foregoing $1,000,000 limitation for each
such subsequent calendar year and the other terms and provisions hereof. BT
shall have the sole right to select which of the Notes or, as provided in clause
(g) below, the MJD Stock to sell to MJD in the event there is an Event of
Default under Notes having an aggregate Purchase Price in excess of $1,000,000
in any one
2
<PAGE>
calendar year. If BT shall continue to hold any of the Notes at the same time
that MJD is also holding a Note, then the provisions of Paragraph 8 below shall
be applicable. At such time as MJD is no longer restricted from purchasing
Purchase Documents or MJD Stock, as the case may be, having an aggregate
Purchase Price exceeding $1,000,000 (as such restriction is more fully described
in Paragraph 13(a)(vi) hereof), then this Paragraph 1(c) shall no longer be of
any force or effect. MJD agrees not to redeem or purchase other of its shares if
the effect thereof would adversely affect its obligations to pay up to
$1,000,000 on account of the Purchase Price in each calendar year as herein
provided.
(d) Payment of any Purchase Price shall be made on the Purchase Date,
in immediately available funds at BT's office at 280 Park Avenue, New York, New
York 10017, Attention: The Private Bank.
(e) Upon payment of the Purchase Price for Purchase Documents, BT
will sell and assign to MJD, all of BT's right, title and interest in and to
such Purchase Documents (including the Collateral related thereto) and BT will
deliver to MJD the original of the applicable Note or Notes to be sold (or, if
necessary, an Affidavit of Lost Note reasonably acceptable to MJD) and originals
or certified copies of such other Purchase Documents relating thereto then in
BT's possession. Notwithstanding anything to the contrary in this Agreement, the
obligation of MJD to purchase the Purchase Documents or, as provided in clause
(g) below, the MJD Stock shall be conditioned upon delivery to MJD of not fewer
than (x) 5840 shares of MJD Stock (subject to adjustment as reasonably
determined by BT upon the occurrence of an Adjustment Event (hereinafter
defined)) issued to JED in the event MJD purchases all of the Bergstein Notes
and related Purchase Documents (or a pro rata share thereof if MJD purchases
--- ----
less than all of the Bergstein Notes) and (y) 2920 shares of MJD Stock (subject
to adjustment as aforesaid) issued to Haberman in the event MJD purchases both
of the Haberman Notes and related Purchase Documents (or 1460 shares thereof
(subject to adjustment as aforesaid) if MJD purchases only one of the Haberman
Notes), together with, in any case, the blank stock power or powers for the MJD
Stock being delivered to MJD executed by the applicable Obligor at the time of
the making of the applicable Loan. Any sale and assignment of Purchase Documents
shall be pursuant to an endorsement of the applicable Note or Notes, an
assignment of the applicable Pledge Agreement or Pledge Agreements and any other
related Purchase Document then in effect (if any) and delivery of such MJD Stock
and blank stock powers as and to the extent set forth above together with such
other Collateral as may then be in BT's possession which secures the Note or
Notes being sold to MJD. The sale and assignment of any Purchase Documents shall
be without any recourse, representation or warranty expressed or implied by BT,
except that BT shall represent and warrant the unpaid principal amount evidenced
by the applicable Note or Notes, and that it has not sold or assigned or
encumbered the related Purchase Documents (including the MJD Stock being
delivered and other Collateral, if any), or any interest therein. "Adjustment
----------
Event" shall mean that the MJD Stock has been subject to any one or more of the
- - ------
following: subdivision by stock split, stock dividend or otherwise; combination
by reverse stock split or otherwise; recapitalization; reclassification;
exchange; substitution; reorganization or other like event having substantially
the same economic effect.
(f) Except as set forth in Paragraph 1(e), BT shall make no
representations or warranties, express or implied, to MJD. In no event shall BT
have any responsibility in respect of the genuineness, validity or
enforceability of the Purchase Documents or any of the
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instruments or documents referred to therein or herein, or any obligation to
make any inquiry in respect of any thereof, as to all of which MJD shall have
satisfied itself. MJD has reviewed the Purchase Documents which consist, as of
the date hereof, of the Notes, the Pledge Agreements, the MJD Stock and blank
stock powers.
(g) (A) At MJD's option to be exercised by written notice to BT no
later than ten (10) days after the date of any Purchase Notice, MJD may elect
not to purchase the Purchase Documents which it is otherwise obligated to
purchase but instead elect to purchase the MJD Stock securing such Purchase
Documents in which event BT agrees, subject to clause (g)(C) below, to exercise
BT's remedies under such Purchase Documents to foreclose on the MJD Stock
delivered to secure such Purchase Documents subject to the following conditions:
(i) BT shall have, and at all times during any such foreclosure
shall continue to have, the right to exercise its remedies under such Purchase
Documents and applicable law;
(ii) MJD shall pay all costs and expenses incurred by BT in
connection with any such foreclosure and exercise by BT of its remedies under
the Purchase Documents and indemnify and hold BT harmless from and against any
loss, liability, cost, damage or claim arising by reason of the exercise of such
remedies unless due to BT's gross negligence or willful misconduct; and
(iii) without limiting clause (ii) above, any interest on the
Note or Notes then being foreclosed at the rate in effect prior to a default
thereunder which is not paid to BT (or if paid on other than the scheduled
payment date under the Note or Notes, interest on such interest (to the extent
permitted by law) at such rate until the date of payment) shall be paid by MJD
to BT except that MJD shall not be obligated to pay any interest accruing from
the date of the Purchase Notice to the date which is thirty (30) days
thereafter.
(B) At any foreclosure sale BT agrees to "bid in" the amount of
the principal, interest and other amounts owed to it under the Note or Notes and
related Purchase Documents being foreclosed. If BT shall be the successful
bidder at any such foreclosure sale, BT agrees to sell its interest in the MJD
Stock so foreclosed upon to MJD (without any representation or recourse
whatsoever, express or implied) for the Purchase Price applicable to such
Purchase Documents and related MJD Stock plus such additional amounts for which
MJD is obligated to pay pursuant to clauses (ii) and (iii) above. The limitation
set forth in Paragraph 1(c) shall be applicable to the Purchase Price (but not
the amounts owed under clause (ii) and (iii)) which MJD is obligated to pay
under this Paragraph 1(g). BT shall have the sole right to select which Note or
Notes and related Purchase Documents are to be foreclosed upon in the event
there is an Event of Default under Notes having an aggregate Purchase Price in
excess of $1,000,000 and shall also have the sole right to direct and control
the foreclosure proceeding and other remedial action but BT agrees to act in a
commercially reasonable manner with respect thereto. In any event and regardless
of whether MJD shall have the right to require BT to exercise its remedies as
set forth in this Paragraph 1(g), BT shall give notice to MJD of any foreclosure
on MJD Stock at the same time that BT is required to give such notice to the
applicable Obligor. If MJD shall default in its obligations under this Paragraph
1(g), then the rights of MJD under this Paragraph 1(g) shall no longer be
applicable. MJD hereby releases BT
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<PAGE>
from any claim, loss, cost or damage, including any right to purchase the
affected Note or Notes, Purchase Documents and related Collateral thereunder, if
(A) BT is not the successful bidder at any such foreclosure sale, and (B) as a
result of any of the conditions, limitations, circumstances or events set forth
in Paragraphs 1(f), 2, 3 or 4 hereof, BT fails or is unable to foreclose on any
MJD Stock.
(C) In lieu of foreclosing on MJD Stock as set forth above in clause
(B) of this Paragraph 1(g), BT shall have the right in its sole and absolute
discretion to require the applicable Obligor to sell such MJD Stock to MJD at a
per share price of $342.50 (subject to adjustment as reasonably determined by BT
upon the occurrence of an Adjustment Event, as defined in Paragraph 1(e) above),
the proceeds of which shall be applied, and accepted, as payment in full in
respect of the principal and interest due under the applicable Note or Notes
secured by such MJD Stock. The Obligors so agree to sell and MJD so agrees to
buy such MJD Stock. At the time of receipt of such payment by BT, BT shall
release its lien on the MJD Stock so sold. BT agrees to exercise this right by
written notice to MJD and the applicable Obligor within thirty (30) days after
BT's receipt of the notice from MJD referred to in the first sentence of this
Paragraph 1(g).
(h) The obligations of MJD under this Paragraph 1 are herein called
the "Obligations".
-----------
2. No irregularity, invalidity or unenforceability of all or any part
of any Purchase Document or any of the other instruments or documents referred
to therein or herein shall affect, impair or be a defense to MJD's Obligations
hereunder. Except as otherwise provided in this Agreement, MJD's Obligations
shall be absolute and unconditional, without regard (i) to the regularity,
validity or unenforceability of any Purchase Document, or the instruments or
documents referred to therein or herein or any other circumstance, similar or
dissimilar, including, without limitation, liens, charges, encumbrances, taxes,
assessments, agreements, violations of law, or similar or dissimilar
circumstances affecting any Purchase Document or any Collateral; (ii) to the
existence or good standing or priority of any lien or security interest securing
any Note, any failure or defect in recording any such lien or security interest
or any assignment of lien or security interest or perfecting such lien or
security interest; (iii) to any default by any Obligor under any Purchase
Document, this Agreement or any of the instruments or documents referred to
herein or therein, or any insolvency event related to or the disaffirmance of
any of such person's or entity's obligations in connection therewith, or any
failure by BT to enforce or require compliance with the obligations of any
Obligor or any other person under any Purchase Document or any of the
instruments or documents referred to herein or therein, or any failure by BT to
take any action permitted or required to be taken by it under any Purchase
Document, or any setoff, counterclaim, deduction or other right which, for any
reason whatsoever, MJD or any other person may have against BT, or any act or
circumstance that may constitute failure of consideration, commercial
frustration of purpose or impossibility of performance of this Agreement or any
other circumstance or cause whatsoever.
3. MJD hereby consents that from time to time, before or after any default
by any Obligor, with or without notice to or assent from MJD:
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<PAGE>
(a) any security (including the Collateral) at any time held by or
available to BT for any obligation of any Obligor under the Purchase Documents,
or any security at any time held by or available to BT for any obligation of any
other person or party primarily, secondarily or otherwise liable for all or any
portion of the indebtedness evidenced by any Note and/or any other obligations
of any Obligor or any other person or party, other than BT, under any of the
Purchase Documents, may be accelerated, settled, exchanged, surrendered or
released and BT may fail to set off and may release, in whole or in part, any
balance of any deposit account or credit on its books in favor of any Obligor,
or of any such other person or party;
(b) any obligation of the Obligors under the Purchase Documents, or
of any such other person or party, may be changed, altered, renewed, extended,
continued, accelerated, surrendered, compromised, settled, waived or released in
whole or in part, or any default with respect thereto waived; and
(c) BT may extend further credit in any manner whatsoever to the
Obligors, and generally deal with the Obligors or any of the above-mentioned
security (including the Collateral), deposit account, credit on its books or the
Obligors as BT may see fit;
and MJD shall remain bound in all respects under this Agreement, without any
loss of any rights by BT and without affecting the Obligations, notwithstanding
any such exchange, surrender, release, change, alteration, renewal, extension,
continuance, compromise, waiver, inaction, extension of further credit or other
dealing. Notwithstanding anything herein to the contrary, BT shall not, without
the prior written consent of MJD, agree to any waiver or amendment of the
Purchase Documents that would (i) reduce the interest rate payable with respect
to the Notes, or (ii) release shares of the MJD Stock below the amount required
to be delivered by BT to MJD pursuant to Paragraph 1(e) hereof or (iii) extend
the maturity date set forth in any of the Notes for final repayment thereof.
4. MJD confirms that its decision to enter into this Agreement is based
on its own investigation and judgment with respect to (i) the creditworthiness
of the Obligors and any other person or entity, (ii) the economic value of the
Collateral, (iii) the value, extent and adequacy of the Collateral, (iv) the
adequacy and enforceability of the Purchase Documents, (v) the desirability of
purchasing the Purchase Documents, and (vi) all other aspects of the transaction
contemplated under the Purchase Documents and hereunder. MJD agrees and
confirms that the Obligations shall be and are irrevocable and unconditional and
there are no conditions which must be satisfied, or documents which must be
executed or delivered prior to MJD's obligation to purchase any Purchase
Documents as provided herein, except as otherwise provided in this Agreement.
5. MJD acknowledges and confirms to BT that MJD has not been induced to
execute and deliver this Agreement as a result of, and is not relying upon, any
representations, warranties, agreements or conditions, whether express or
implied or written or oral, by BT, or any other person or entity provided that
the foregoing shall not limit, waive or otherwise derogate from any
indemnification agreements made by any of the Obligors to MJD. Without limiting
the generality of the foregoing or any other provisions of this Agreement,
insofar as MJD is concerned:
6
<PAGE>
(a) BT is not obligated to give or to continue any financial
accommodations to the Obligors or any other person or entity or to change or
extend the time of payment of, or renew or alter, any liability of the Obligors
or any other person or entity, any security therefor or any liability incurred
directly or indirectly in respect thereof;
(b) no person or entity, including, without limitation, BT, has made
any representations to MJD as to any matter which may affect or in any way
relate to the financial condition, relationships or transactions of the Obligors
or any other person, including, without limitation, the business, assets,
liabilities, type or value of any security therefor, financial condition,
management or control of the Obligors or any other person or entity;
(c) BT is not obligated to notify MJD or any other person or entity
of any change in the business, assets, liabilities, type or value of any
security therefor, financial condition, management or control of the Obligors or
of any other person or entity, and none of such changes shall release or
otherwise impair any of the rights of BT against MJD, but BT agrees to use good
faith efforts to notify MJD of any "Event of Default" as defined and provided in
the Notes and, as set forth in Paragraph 1 hereof, shall notify MJD prior to any
foreclosure on the MJD Stock;
(d) no failure by BT to obtain, perfect, protect, insure or realize
upon any security for any of the liabilities of the Obligors or of any other
person or entity and no other act or failure to act by BT shall release or
otherwise impair any of the obligations of MJD hereunder.
6. MJD shall reimburse and save BT harmless against liability for the
payment of all costs and expenses arising in connection with the enforcement of
or preservation of any of BT's rights under this Agreement, including, without
limitation, the reasonable fees and expenses of BT's counsel.
7. MJD hereby waives notice of acceptance of this Agreement and of the
making of the Loan or any advance thereof by BT to any Obligor and any demand
under this Agreement, except as specifically provided herein. MJD further
waives any right to require that any action be brought against any Obligor or
any other person or party or to require that resort be had to any security,
Collateral or to any balance of any deposit account or credit on the books of BT
in favor of either Obligor or any other person or party prior to a demand of MJD
hereunder.
8. (a) So long as BT shall continue to hold any Note while MJD
shall also hold any Note (any such Note, the Purchase Documents related thereto
and the portion of the Loans, all interest thereon and all other amounts owed in
connection therewith which are held by MJD, the "Subordinate Loan"), each
----------------
Obligor and MJD hereby agree that the Subordinate Loan and all terms and
provisions thereof and the rights of MJD to the Collateral securing the
Subordinate Loan (the "Subordinate Collateral") are expressly subordinate and
----------------------
junior in right of payment (as defined in clause (b) below) to the Loans and to
the terms and provisions thereof and the rights of BT to the Collateral.
(b) "Subordinate and junior in right of payment" shall mean that:
(i) MJD shall not, without the express prior written consent of BT in
each instance which may be given or withheld in the sole discretion of BT, take,
demand or
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<PAGE>
receive from any Obligor, and, anything in any document or instrument
evidencing, or agreement with respect to, the Subordinate Loan to the contrary
notwithstanding, no Obligor will make, give or permit, directly or indirectly,
by set-off, redemption, purchase or in any other manner, any payment, prepayment
or security for the whole or any part of the Subordinate Loan (including,
without limitation, the scheduled repayments set forth in Section 2.3 of each
Note), unless and until this Agreement shall terminate as provided in Paragraph
14 hereof; and
(ii) MJD shall not enforce or take any action to enforce or
collect the Subordinate Loan or make any claim whatsoever against the
Subordinate Collateral or any portion thereof, accelerate the scheduled
maturities of any amount owing under the Subordinate Loan and/or enforce any
lien or security interest securing the Subordinate Loan, and/or exercise any of
its claims, rights, remedies or powers, for payment of money or otherwise with
respect to the Subordinate Loan and/or exercise any other right or remedy MJD
may have, without the prior written consent of BT in each instance which may be
given or withheld in the sole discretion of BT.
(c) In furtherance of the foregoing subordination, MJD hereby assigns
to BT all payments of principal, interest, fees, expenses and other amounts
("Proceeds") that may become due and payable to MJD in respect of the
--------
Subordinate Loan or the Subordinate Collateral. In the event that any Proceeds
are made payable to MJD in violation of clauses (a) and (b) above despite such
direction, MJD hereby irrevocably appoints BT as its attorney-in-fact to endorse
the name of MJD on any check or other instrument representing Proceeds that may
be payable to MJD.
(d) MJD will not, without the prior written consent of BT in each
instance, which may be given or withheld in the sole discretion of BT, transfer,
sell or assign the Subordinate Loan or any interest therein, whether absolutely
or as collateral security.
(e) MJD hereby covenants that it will not commence, or join with any
other creditor in commencing, any bankruptcy, reorganization, readjustment of
debt or any dissolution, receivership, liquidation or insolvency proceedings
with respect to any Obligor prior to payment in full of the applicable Loan. In
the event of any dissolution, winding up, liquidation, readjustment,
reorganization or other similar proceedings relating to any Obligor or to their
property (whether voluntary or involuntary, partial or complete, and whether in
bankruptcy, insolvency or receivership, or upon an assignment for the benefit of
creditors, or any other marshalling of the assets and liabilities of any
Obligor, or any sale of all or substantially all of the assets of any Obligor,
or otherwise), (x) the Loan shall first be paid in full before MJD shall be
entitled to receive or retain any payment or distribution in respect of the
Subordinate Loan of any kind or character, whether in cash, property or
securities and (y) MJD authorizes BT in the name of MJD or otherwise, to demand,
sue for, collect, receive and give receipt for any and all payments or
distributions of any kind or character, whether in cash, property or securities,
in respect of the Subordinate Loan to which MJD would be entitled if the
Subordinate Loan were not subordinated pursuant to this Agreement, and file all
claims, proofs of debt, petitions and other documents in the form required in
such statutory or nonstatutory proceedings for the full outstanding amount of
the Subordinate Loan and prove, and vote or consent in any such proceedings with
respect to, any and all such claims of MJD relating to the Subordinate Loan as
BT may deem advisable. Under the circumstances set forth in this Paragraph, MJD
agrees duly
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and promptly to take such action as may be requested at any time and from time
to time by BT, to file appropriate proofs of claim in respect of the Subordinate
Loan, and to execute and deliver such powers of attorney, assignments or proofs
of claim or other instruments as may be requested by BT, in order to enable BT
to enforce any and all claims upon or in respect of the Subordinate Loan and to
collect and receive any and all payments or distributions which may be payable
or deliverable at any time upon or in respect of the Subordinate Loan.
9. Each reference herein to BT shall be deemed to include its
successors and assigns, who shall be bound by and in whose favor the provisions
of this Agreement shall also inure. Each reference herein to MJD shall be deemed
to include the successors and assigns of MJD, each of whom shall be bound by and
in whose favor the provisions of this Agreement shall also inure, provided,
however, that MJD shall in no event nor under any circumstance have the right,
without obtaining the prior written consent of BT, to assign or transfer MJD's
obligations and liabilities under this Agreement, in whole or in part, to any
other person, party or entity. Without limiting the foregoing, the agreements
and obligations on the part of MJD herein contained shall remain in force and
application notwithstanding the merger, consolidation, reorganization or
absorption thereof, and the term "MJD" shall include such new entity, but the
old entity shall not thereby be released from any obligations or liabilities
hereunder.
10. No delay on the part of BT in exercising any right or remedy
under this Agreement or failure to exercise the same shall operate as a waiver
in whole or in part of any such right or remedy. No notice to or demand on MJD
shall be deemed to be a waiver of the obligations of MJD or of the right of BT
to take further action without notice or demand as provided in this Agreement.
No course of dealing between MJD and BT shall change, modify or discharge, in
whole or in part, this Agreement or any obligations of MJD hereunder.
11. This Agreement may only be modified, amended, changed or
terminated by an agreement in writing signed by the party to be charged
therewith. No waiver of any term, covenant or provision of this Agreement shall
be effective unless given in writing by the party entitled to the benefit of
such term, covenant or provision and if so given shall only be effective in the
specific instance in which given.
12. This Agreement sets forth the entire agreement and understanding
of BT and MJD with respect to the matters covered by this Agreement and MJD and
BT acknowledge that no oral or other agreements, understandings, representations
or warranties exist with respect to this Agreement or with respect to the
obligations of MJD or BT under this Agreement, except those specifically set
forth in this Agreement.
13. (a) Each of MJD and BT represents and warrants to the other (as
applicable) that:
(i) this Agreement constitutes the legal, valid and biding
obligation of MJD or BT, as the case may be, enforceable against such party in
accordance with its terms except as such enforcement may be limited by
bankruptcy, insolvency or other similar laws and subject to general principles
of equity;
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(ii) MJD is duly organized, validly existing and in good
standing as a corporation under the law of the State of Delaware;
(iii) BT is duly organized, validly existing and in good
standing as a corporation under the laws of the State of New York;
(iv) neither the execution or delivery of this Agreement
nor the consummation by MJD or BT, as the case may be, of the transactions
contemplated hereby nor compliance with the terms and provisions hereof by such
party will violate, contravene or cause a default under its constituent
documents or any applicable provision of law or any applicable regulation or
other manifestation of governmental action or any agreement or document to which
such party may be bound;
(v) all necessary approvals, consents, licenses,
registrations and validations of any governmental regulatory body, including,
without limitation, approvals required to permit MJD or BT, as the case may be,
to execute and carry out the provisions of this Agreement, for the validity of
the obligations of such party hereunder and for the making of any payment or
remittance of any funds required to be made by such party under this Agreement,
have been obtained and are in full force and effect;
(vi) MJD represents and warrants to BT that pursuant to a
loan agreement to which it is subject, MJD is, and pursuant to an indenture to
which it is subject MJD may be, required to limit its aggregate Purchase Price
for MJD Stock in any calendar year to $1,000,000 and MJD shall promptly advise
BT at such time as MJD is no longer so restricted; and
(vii) MJD and each Obligor represents and warrants to BT
that there is no restriction or limitation on the assignment of the MJD Stock to
BT pursuant to the Pledge Agreements, or to any foreclosure thereon or
subsequent sale thereof, which has not been waived arising by reason of the
constituent documents of MJD or any agreement to which MJD or any Obligor is a
party or to which any of such parties is bound or to which any of such parties
otherwise has knowledge except that any party taking title to the MJD Stock
shall be subject to a certain stockholders' agreement dated as of July 31, 1997
among, inter alia, MJD and the Obligors (as it may be amended, the
----- ----
"Stockholders' Agreement") provided that if MJD is unwilling or unable to
-----------------------
perform its obligation to purchase the Purchase Documents or the MJD Stock, as
the case may be, pursuant to Paragraph 1 hereof then MJD's rights to repurchase
the MJD Stock pursuant to Section 5 of the Stockholders' Agreement shall be
deemed forever waived as to the MJD Stock with respect to which MJD is unwilling
or unable to perform.
(b) MJD and the Obligors agree that:
(i) Upon notice to MJD that an Event of Default has occurred
under any Note, BT shall be entitled to exercise the voting and other rights of
the applicable Obligor with respect to the MJD Stock securing such Note as and
to the extent set forth in Section 5(a) of the Pledge Agreements;
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(ii) All dividends, distributions and other payments on the MJD
Stock, and copies of all notices, communications and other information with
respect to the MJD Stock otherwise forwarded to the record holder thereof shall
also be forwarded to BT at:
Bankers Trust Company
One Bankers Trust Plaza, 14/th/ Floor
Loan Center Mail Stop 2144
New York, New York 10006
Attn: Errol Harris, Vice President
(c) BT acknowledges and agrees that the MJD Stock is subject to
the Stockholders' Agreement, certain provisions of which have been waived or
modified pursuant to a waiver and consent dated on or about the date hereof
among the stockholders in MJD.
14. So long as BT has made no demand on MJD hereunder at such time,
this Agreement and MJD's Obligations shall terminate six (6) months after the
final, indefeasible repayment of all Loans and other amounts owed to BT in
connection therewith and the termination of any right of any Obligor to borrow
under their respective Notes. In the event any Loan is not paid when due, BT
agrees to use commercially reasonable efforts to obtain such payment so long as
MJD is not in default of its obligations hereunder.
15. Any notice, request or demand given or made under this Agreement
shall be in writing and shall be hand delivered or sent by Federal Express or
other reputable courier service or by postage prepaid registered or certified
mail, return receipt requested or by facsimile, and shall be deemed given (a)
when received at the following addresses if hand delivered or if sent by Federal
Express or other reputable courier service, and (b) three (3) business days
after being postmarked and addressed as follows if sent by registered or
certified mail, return receipt requested and (c) when sent if by facsimile at
the number set forth below:
If to BT:
Bankers Trust Company
280 Park Avenue, 6 West
New York, New York 10017
Attn: The Private Bank
Ned Kane, Principal
Fax No. (212) 454-4740
If to MJD:
MJD Communications Inc.
521 E. Morehead Street, Suite 250
Charlotte, NC 28202
Attn: Walter E. Leach, Jr.
Fax No. (704) 344-8121
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With a copy of any demand for payment or notice of default to:
Paul, Hastings, Janofsky & Walker LLP
399 Park Avenue
New York, New York 10022
Attn: Neil A. Torpey, Esq.
Fax No. (212) 319-4090
If to Bergstein:
800 Fifth Avenue, #14C
New York, New York 10021
Fax No. (212) 319-4090
If to JED:
c/o Paul, Hastings, Janofsky & Walker LLP
399 Park Avenue
New York, New York 10022
Attn: Daniel Bergstein
Fax No. (212) 319-4090
If to Haberman:
54 Nassau Drive
Great Neck, New York 11021
Each party to this Agreement may designate a change of address by notice given,
as herein provided, to the other party fifteen (15) days prior to the date such
change of address is to become effective.
16. THIS AGREEMENT IS, AND SHALL BE DEEMED TO BE, A CONTRACT ENTERED
INTO UNDER AND PURSUANT TO THE LAWS OF THE STATE OF NEW YORK AND SHALL BE IN ALL
RESPECTS GOVERNED, CONSTRUED, APPLIED AND ENFORCED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS.
17. Each party hereto agrees to submit to personal jurisdiction in
the State of New York in any action or proceeding arising out of this Agreement.
In furtherance of such agreement, each party hereto agrees and consents that
without limiting other methods of obtaining jurisdiction, personal jurisdiction
over such party in any such action or proceeding may be obtained within or
without the jurisdiction of any court located in New York and that any process
or notice of motion or other application to any such court in connection with
any such action or proceeding may be served upon such party by registered or
certified mail to, or by personal service at, the last known address of such
party, whether such address be within or without the jurisdiction of any such
court.
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18. MJD acknowledges that this Agreement and the Obligations are and
shall at all times continue to be absolute, irrevocable and unconditional in all
respects except as otherwise specifically provided herein, and shall at all
times be valid and enforceable irrespective of any other agreements or
circumstances of any nature whatsoever which might otherwise constitute a
defense to this Agreement, the Obligations or the obligations of any other
person or party relating to this Agreement or with respect to the indebtedness
evidenced by any Note, including, but not limited to, a foreclosure of any
security interest in the Collateral, or the filing of a petition under Title 11
of the United States Code with regard to any Obligor, and MJD absolutely,
unconditionally and irrevocably waives any and all right to assert or interpose
any defense, setoff, counterclaim or crossclaim of any nature whatsoever with
respect to this Agreement or the Obligations (provided, however, that the
foregoing shall not be deemed a waiver of the right of MJD to raise any defense
or assert any compulsory counterclaim maintained in a court of the United
States, or of the State of New York if such defense is inextricably linked to
the subject action or if such counterclaim is compelled under local law or rule
of procedure, nor shall the foregoing be deemed a waiver of the right of MJD to
bring any separate action or proceeding asserting any claim of any nature
whatsoever against BT which would otherwise have constituted a defense, setoff,
counterclaim or crossclaim, other than a defense, setoff, counterclaim or
crossclaim existing on or before the date hereof all of which having been
irrevocably waived).
19. This Agreement may be executed in one or more counterparts
by some or all of the parties hereto, each of which counterparts shall be an
original and all of which together shall constitute a single agreement. The
failure of any party listed below to execute this Agreement, or any counterpart
hereof, or the ineffectiveness for any reason of any such execution, shall not
relieve the other signatories from their obligations hereunder.
20. MJD HEREBYIRREVOCABLY AND UNCONDITIONALLY WAIVES, AND BT BY
ITS ACCEPTANCE OF THIS AGREEMENT IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE
EXTENT PERMITTED BY LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT
OR COUNTERCLAIM ARISING IN CONNECTION WITH, OUT OF OR OTHERWISE RELATING TO THIS
AGREEMENT.
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IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement the day and year first above set forth.
MJD COMMUNICATIONS, INC.
By:_______________________
Name:
Title
AGREED AND CONSENTED TO:
BANKERS TRUST COMPANY
By:__________________________
Name
Title:
ACKNOWLEDGED AND AGREED TO:
__________________________________________
Meyer Haberman
JED COMMUNICATIONS ASSOCIATES, INC.
By:______________________________________
Name:
Title:
_________________________________________
Daniel G. Bergstein
<PAGE>
STATE OF
) ss.:
COUNTY OF
On the ____ day of October, 1998, before me personally came
__________________ , to me known, who, being by me duly sworn, did depose and
say: that he resides at _______________________________________________ that he
is the ______________ [title] of MJD Communications, Inc., the corporation
described in the foregoing instrument; and that he signed his name thereto by
order of the board of directors of said corporation.
_________________________________
Notary Public
STATE OF ) ss.:
COUNTY OF
On the ____ day of October, 1998, before me personally came
__________________ , to me known, who, being by me duly sworn, did depose and
say: that he resides at _______________________________________________ that he
is the ______________ [title] of JED Communications Associates, Inc., the
corporation described in the foregoing instrument; and that he signed his name
thereto by order of the board of directors of said corporation.
_________________________________
Notary Public
STATE OF _________ )
) ss.:
COUNTY OF ________ )
On the _______ day of October, 1998 before me personally came Meyer
Haberman, to me known and known to me to be the individual described in and who
executed the foregoing instrument and acknowledged to me that he executed the
same.
_________________________
Notary Public
<PAGE>
STATE OF _____________ )
) ss.:
COUNTY OF ___________ )
On the _______ day of October, 1998 before me personally came Daniel
G. Bergstein, to me known and known to me to be the individual described in and
who executed the foregoing instrument and acknowledged to me that he executed
the same.
_________________________
Notary Public
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<PAGE>
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<PERIOD-START> JAN-01-1997 JAN-01-1998
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130,164 0
0 0
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