<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 30, 1998.
REGISTRATION NO. 333-64367
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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AMENDMENT NO. 1
TO
FORM S-4
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REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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GOLDEN SKY SYSTEMS, INC.
(Exact Name of Registrant as Specified in Its Charter)
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DELAWARE 4841 43-1749060
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
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605 WEST 47TH STREET, SUITE 300
KANSAS CITY, MO 64112
(816) 753-5544
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
JO ELLEN LINN, ESQ.
SECRETARY AND GENERAL COUNSEL
GOLDEN SKY SYSTEMS, INC.
605 WEST 47TH STREET, SUITE 300
KANSAS CITY, MO 64112
(Name, Address, Including Zip Code, and Telephone Number, Including
Area Code, of Agent For Service)
Copy to:
KAREN C. WIEDEMANN, ESQ.
REBOUL, MACMURRAY, HEWITT, MAYNARD & KRISTOL
45 ROCKEFELLER PLAZA
NEW YORK, NY 10111
(212) 841-5700
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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SUBJECT TO COMPLETION, DATED NOVEMBER 30, 1998
PROSPECTUS
GOLDEN SKY SYSTEMS, INC.
OFFER TO EXCHANGE ITS
12 3/8% SENIOR SUBORDINATED NOTES DUE 2006, SERIES B,
FOR ANY AND ALL OF ITS OUTSTANDING
12 3/8% SENIOR SUBORDINATED NOTES DUE 2006, SERIES A
---------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
, 1998, UNLESS EXTENDED.
---------------------
Golden Sky Systems, Inc., a Delaware corporation ("GSS" or the "Company"),
hereby offers, upon the terms and subject to the conditions set forth in this
Prospectus and the accompanying Letter of Transmittal (which together constitute
the "Exchange Offer"), to exchange $1,000 principal amount of its 12 3/8% Senior
Subordinated Notes due 2006, Series B ("New Notes"), which will have been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
pursuant to a registration statement of which this Prospectus is a part, for
each $1,000 principal amount of its issued and outstanding 12 3/8% Senior
Subordinated Notes due 2006, Series A (the "Old Notes" and, collectively with
the New Notes, the "Notes"), of which $195,000,000 aggregate principal amount is
outstanding, from the holders thereof. The Company will not receive any proceeds
from the Exchange Offer and has agreed to pay all the expenses incident to the
Exchange Offer. The Company is a wholly-owned subsidiary of Golden Sky Holdings,
Inc., a Delaware corporation ("Holdings").
The terms of the New Notes are identical in all material respects
(including principal amount, interest rate and maturity) to the terms of the Old
Notes, except for certain transfer restrictions and registration rights relating
to the Old Notes. The Notes rank pari passu with all present and future senior
subordinated debt of the Company, and senior to all present and future
subordinated debt of the Company. As of September 30, 1998, the aggregate amount
of outstanding indebtedness (excluding the Notes) of the Company was
approximately $52.3 million. See "Description of the New Notes." Upon a Change
of Control (as defined herein), each holder of the New Notes may require the
Company to repurchase all or a portion of such holder's New Notes at a price
equal to 101% of the principal amount thereof, together with accrued and unpaid
interest, if any, to the date of repurchase. In the event of a Change of
Control, the Company may not have sufficient funds to satisfy its obligation to
repurchase the New Notes and other debt that may come due as a result thereof.
See "Description of the New Notes -- Change of Control."
The New Notes are being offered hereunder in order to satisfy certain
obligations of the Company contained in the registration rights agreement
relating to the Old Notes. Based on interpretations by the staff of the
Securities and Exchange Commission (the "Commission"), the Company believes that
the New Notes issued pursuant to the Exchange Offer in exchange for Old Notes
may be offered for resale, resold and otherwise transferred by a holder thereof
(other than any such holder that is an "affiliate" of the Company within the
meaning of Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that such New Notes are acquired in the ordinary course of such holder's
business, and such holder has no arrangement with any person to participate in
the distribution of such New Notes. Each broker-dealer that receives New Notes
for its own account pursuant to the Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale of such New Notes. The Letter
of Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of New Notes received in exchange for Old Notes where such Old
Notes were acquired by a broker-dealer as a result of market-making activities
or other trading activities. See "Plan of Distribution."
(Cover continued on next page)
SEE "RISK FACTORS" ON PAGE 15 FOR A DESCRIPTION OF CERTAIN RISKS TO BE
CONSIDERED BY HOLDERS WHO TENDER THEIR OLD NOTES IN THE EXCHANGE OFFER.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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The date of this Prospectus is , 1998.
<PAGE> 3
(Continued from cover page)
The Company will accept for exchange any and all Old Notes that are validly
tendered and not withdrawn on or prior to 5:00 p.m., New York City time, on the
date the Exchange Offer expires (the "Expiration Date"), which will be
, 1998 unless the Exchange Offer is extended. Tenders of Old Notes may
be withdrawn at any time prior to 5:00 p.m., New York City time, on the
Expiration Date. The Exchange Offer is not conditioned upon any minimum
principal amount of Old Notes being tendered for exchange. See "The Exchange
Offer."
Any Old Notes not tendered and accepted in the Exchange Offer will remain
outstanding and will be entitled to all the rights and will be subject to the
limitations applicable thereto under the Indenture (as defined herein).
Following consummation of the Exchange Offer, the holders of Old Notes will
continue to be subject to the existing restrictions upon transfer thereof, and
the Company will have no further obligation to such holders to provide for
registration under the Securities Act of the Old Notes held by them. To the
extent that Old Notes are tendered and accepted in the Exchange Offer, a
holder's ability to sell untendered Old Notes could be adversely affected. See
"Risk Factors -- Consequences of the Exchange Offer to Non-Tendering Holders of
the Old Notes" and "The Exchange Offer -- Terms of the Exchange Offer."
The New Notes will initially be available only in book-entry form. The
Company expects that the New Notes issued pursuant to the Exchange Offer will be
issued in the form of one or more Global Notes (as defined herein), which will
be deposited with, or on behalf of, The Depository Trust Company (the
"Depositary") and registered in its name or in the name of Cede & Co., its
nominee. Beneficial interests in a Global Note representing the New Notes will
be shown on, and transfers thereof will be effected through, records maintained
by the Depositary and its participants. After the initial issuance of the Global
Notes, a New Note in certificated form will be issued in exchange for a Global
Note only on the terms set forth in the Indenture. See "Description of the New
Notes -- Book Entry; Delivery and Form."
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THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION. HOLDERS OF OLD NOTES ARE URGED TO READ THIS PROSPECTUS AND THE
RELATED LETTER OF TRANSMITTAL CAREFULLY BEFORE DECIDING WHETHER TO TENDER THEIR
OLD NOTES PURSUANT TO THE EXCHANGE OFFER.
---------------------
This Prospectus, together with the Letter of Transmittal, is being sent to
all registered holders of Old Notes as of , 1998.
The Company will not receive any cash proceeds from the issuance of the New
Notes offered hereby. No dealer-manager is being used in connection with this
Exchange Offer. See "Use of Proceeds" and "Plan of Distribution."
The Exchange Offer is not being made to, nor will tenders be accepted from
or on behalf of, holders of the Old Notes in any jurisdiction in which the
making of the Exchange Offer or acceptance thereof would not be in compliance
with the laws of such jurisdiction or would otherwise not be in compliance with
any provision of any applicable security law.
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TABLE OF CONTENTS
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PAGE
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Additional Information...................................... 1
Forward-Looking Statements.................................. 2
Sources of Material Information............................. 2
Summary of the Prospectus................................... 4
Risk Factors................................................ 15
Use of Proceeds............................................. 26
The Exchange Offer.......................................... 26
Capitalization.............................................. 31
Pro Forma Financial Statements.............................. 32
Selected Consolidated Financial Data........................ 38
Management's Discussion and Analysis of Results of
Operations and Financial Condition........................ 39
Business.................................................... 48
Management.................................................. 62
Principal Stockholders...................................... 67
Certain Relationships and Related Transactions.............. 70
Description of Other Indebtedness........................... 72
Description of the New Notes................................ 75
Certain Federal Income Tax Considerations................... 105
Plan of Distribution........................................ 105
Legal Matters............................................... 106
Experts..................................................... 106
Index to Financial Statements............................... F-1
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ADDITIONAL INFORMATION
The Company has filed with the Commission a registration statement on Form
S-4 (the "Registration Statement") under the Securities Act with respect to the
New Notes. This Prospectus does not contain all the information set forth in the
Registration Statement and the exhibits and schedules thereto, to which
reference is hereby made. The Registration Statement and the exhibits and
schedules thereto may be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 and will also be available for inspection and
copying at the regional offices of the Commission located at 7 World Trade
Center, New York, New York 10048 and at Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material may
also be obtained from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The Commission
also maintains a Web site that contains reports, proxy statements and other
information regarding registrants, including the Company, that file such
information electronically with the Commission. The address of the Commission's
Web site is http://www.sec.gov.
As a result of the filing of the Registration Statement with the
Commission, the Company will become subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith will be required to file periodic reports and other
information with the Commission. The Company's obligation to file periodic
reports with the Commission pursuant to the Exchange Act may be suspended if the
New Notes are held of record by fewer than 300 holders at the beginning of any
fiscal year of the Company, other than the fiscal year in which such
registration statement or registered exchange offer for the New Notes becomes
effective. However, the indenture, dated as of July 31, 1998 (the "Indenture"),
by and among the Company, as issuer, Argos Support Services Company, as
guarantor, PrimeWatch, Inc., as guarantor, and State Street Bank and Trust
Company of Missouri, N.A., as trustee (the "Trustee"), provides that the Company
must file with the Commission and provide the holders of
<PAGE> 5
the Notes with copies of annual reports and other information, documents and
reports specified in Sections 13 and 15(d) of the Exchange Act as long as the
Notes are outstanding.
THIS PROSPECTUS INCORPORATES IMPORTANT BUSINESS AND FINANCIAL INFORMATION
ABOUT THE COMPANY THAT IS NOT INCLUDED IN, OR DELIVERED WITH, THE PROSPECTUS.
THIS INFORMATION IS AVAILABLE WITHOUT CHARGE TO SECURITY HOLDERS UPON WRITTEN OR
ORAL REQUEST TO THE COMPANY AT 605 WEST 47TH STREET, SUITE 300, KANSAS CITY,
MISSOURI 64112, ATTENTION: INVESTOR RELATIONS, (816) 753-5544. IN ORDER TO
OBTAIN TIMELY DELIVERY OF SUCH INFORMATION, SECURITY HOLDERS MUST REQUEST THE
INFORMATION NO LATER THAN FIVE BUSINESS DAYS PRIOR TO THE EXPIRATION DATE OF THE
EXCHANGE OFFER.
FORWARD-LOOKING STATEMENTS
This Prospectus contains forward-looking statements involving known and
unknown risks, uncertainties and other important factors that could cause the
actual results, performance or achievements of the Company, or industry results,
to differ materially from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such risks,
uncertainties and other factors include, among others: general economic and
business conditions and industry trends, including consolidation; the continued
growth of the direct-to-home television industry; uncertainties regarding
business strategies, including the Company's acquisition strategy; the ability
of the Company to obtain and retain subscribers; changes in the regulatory
environment affecting the Company; and actions of the Company's competitors. All
statements herein other than statements of historical fact, including, without
limitation, the statements under "Summary of the Prospectus," "Management's
Discussion and Analysis of Results of Operations and Financial Condition --
Liquidity and Capital Resources," and "Business" regarding the Company's
profitability, financial position, liquidity and capital requirements are
forward-looking statements. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, it can give no
assurances that those expectations will prove to have been correct. Certain
other important factors that could cause actual results to differ materially
from the Company's expectations ("Cautionary Statements") are disclosed in this
Prospectus, including, without limitation, under "Risk Factors." All written
forward-looking statements by or attributable to the Company or persons acting
on its behalf contained in this Prospectus are expressly qualified in their
entirety by the Cautionary Statements.
SOURCES OF MATERIAL INFORMATION
THIS PROSPECTUS CONTAINS INFORMATION OBTAINED FROM SOURCES OTHER THAN THE
COMPANY CONCERNING, AMONG OTHER THINGS, THE COMPANY'S INDUSTRY AND MARKETS, THE
COMPANY'S PRINCIPAL DIRECT AND INDIRECT SUPPLIERS OF SERVICES, DIRECTV, INC.
("DIRECTV"), THE NRTC (AS DEFINED HEREIN), THE RURAL DIRECTV MARKETS (AS DEFINED
HEREIN), AND THE NRTC'S RELATIONSHIP (CONTRACTUAL AND OTHERWISE) WITH DIRECTV.
SUCH INFORMATION IS MATERIAL TO UNDERSTANDING THE COMPANY'S BUSINESS AND
PROSPECTS. SPECIFICALLY, WHILE THE COMPANY'S SOLE BUSINESS IS THE OFFERING OF
DIRECTV SERVICES, THE COMPANY HAS NO DIRECT CONTRACTUAL RELATIONSHIP WITH
DIRECTV RELATING TO ITS PRINCIPAL MARKETS AND OBTAINS THOSE SERVICES THROUGH THE
NRTC. THE NRTC RECEIVES DIRECTV SERVICES PURSUANT TO ARRANGEMENTS WITH DIRECTV
THE TERMS OF WHICH HAVE BEEN KEPT CONFIDENTIAL BY THE NRTC. THE COMPANY RELIES
UPON THE NRTC TO HAVE ACCURATELY REPRESENTED THE SCOPE AND TERM OF ITS
ARRANGEMENTS WITH HUGHES (AS DEFINED HEREIN) AND DIRECTV. UNDER THE COMPANY'S
ARRANGEMENTS WITH THE NRTC, THE NRTC PROVIDES SUBSTANTIAL SERVICES TO THE
COMPANY, INCLUDING BILLING AND CUSTOMER AUTHORIZATION, AND THE COMPANY RELIES
UPON THE NRTC TO PROVIDE IT WITH ACCURATE AND COMPLETE INFORMATION CONCERNING
THE COMPANY'S CUSTOMERS. INFOR-
2
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MATION CONCERNING THE NRTC AND ITS ARRANGEMENTS WITH DIRECTV IS BASED UPON
INFORMATION THAT HAS BEEN MADE AVAILABLE TO THE COMPANY BY THE NRTC OR IS
OTHERWISE PUBLICLY AVAILABLE. EXCEPT WHERE OTHERWISE INDICATED, INFORMATION
REGARDING NUMBERS OF HOUSEHOLDS AND/OR SUBSCRIBERS IN RURAL DIRECTV MARKETS IS
BASED UPON INFORMATION COMPILED BY CLARITAS, INC., WHICH THE COMPANY HAS
SUPPLEMENTED WHERE NECESSARY WITH INFORMATION COMPILED BY THE U.S. POSTAL
SERVICE. OTHER INDUSTRY-RELATED INFORMATION HAS BEEN DERIVED FROM SKY REPORT AND
DBS DIGEST. WHILE THE COMPANY BELIEVES THESE AND OTHER THIRD-PARTY SOURCES OF
INFORMATION TO BE RELIABLE, IT HAS NOT INDEPENDENTLY VERIFIED SUCH INFORMATION
AND IS NOT IN A POSITION TO DO SO. SEE "RISK FACTORS -- RISKS RELATED TO
RELATIONSHIP WITH NRTC."
The following trademarks owned by third parties are used in this
Prospectus: DIRECTV(R), DSS(R), and USSB(R).
3
<PAGE> 7
SUMMARY OF THE PROSPECTUS
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information, including the risk factors
and consolidated financial statements and the notes thereto included elsewhere
in this Prospectus. As used herein, unless the context requires otherwise, the
term "Company" includes Golden Sky Systems, Inc. and its consolidated
subsidiaries. The term "NRTC" refers to the National Rural Telecommunications
Cooperative, an organization whose members are engaged in the distribution of
telecommunications and other services in rural America. The term "Rural DIRECTV
Markets" means those areas in the United States in which the NRTC and certain of
its members and affiliates (including the Company) have the exclusive right to
provide DIRECTV services to residential customers.
THE COMPANY
The Company is the second largest independent provider of DIRECTV, the
leading Direct Broadcast Satellite ("DBS") company serving the continental
United States. The Company markets and provides DIRECTV's programming package
("DIRECTV Programming") on an exclusive basis to residential customers in
certain Rural DIRECTV Markets and on a non-exclusive basis to residents of
multiple dwelling units ("MDUs") and commercial customers. The Company has
obtained the exclusive right to provide DIRECTV Programming to homes in its
Rural DIRECTV Markets under agreements between the Company and the NRTC. The
NRTC and its DBS members and affiliates (including the Company) provide DIRECTV
Programming in Rural DIRECTV Markets pursuant to an agreement between the NRTC
and Hughes Communications Galaxy, Inc. ("Hughes"), DIRECTV's
predecessor-in-interest. The Company estimates that the Rural DIRECTV Markets
comprise approximately 9.0 million households, or approximately 9% of total U.S.
television households, but account for approximately 900,000, or approximately
22%, of total DIRECTV customers.
Since its formation by management in June 1996, the Company has:
- acquired 43 Rural DIRECTV Markets in 22 states with approximately 1.7
million households and 124,000 subscribers at the dates of acquisition;
- increased its subscriber base in these markets by over 64% in aggregate,
to approximately 203,600 as of October 31, 1998, achieving a subscriber
penetration rate of approximately 11.8% through aggressive marketing and
a local service-driven approach to the customer;
- entered into a binding letter of intent to acquire one additional Rural
DIRECTV Market with approximately 5,000 households and 1,600 subscribers;
- commenced marketing and distributing DIRECTV Programming to approximately
3,100 commercial and MDU customers in six cities near its Rural DIRECTV
Markets, with rights to provide such services on a non-exclusive basis
nationwide; and
- together with its corporate parent, raised $87.4 million of equity
capital from several institutional venture capital firms and Company
management, and secured $150.0 million of senior bank financing.
Since inception, the Company's recurring revenue has increased rapidly due
to internal subscriber growth and a low average annual subscriber disconnect
("churn") rate of approximately 8%. The Company's net internal subscriber growth
in its Rural DIRECTV Markets for the first nine months of 1998 totaled
approximately 49,100. This represented approximately 6.5% of DIRECTV's net new
subscribers nationwide for the period, although total households in the
Company's Rural DIRECTV Markets represent approximately 1.5% of all television
households in the continental United States. Although the Company incurs
substantial costs to add subscribers, it has relatively low recurring costs to
service them. The Company believes these factors provide an opportunity to
increase operating leverage and provide strong growth in EBITDA (as defined
herein). The Company had EBITDA of negative $5.4 million for the year ended
December 31, 1997 and negative $10.5 million for the nine months ended September
30, 1998.
4
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The Company believes that its exclusive right to provide DIRECTV
Programming in its Rural DIRECTV Markets is attractive for the following
reasons:
- The Company believes that marketing DIRECTV, the country's leading DBS
provider, gives it a competitive advantage over providers of other
subscription multichannel television services.
- Competition from cable television providers in Rural DIRECTV Markets is
often limited.
- Local providers of DIRECTV Programming, such as the Company, are
supported by DIRECTV's national marketing campaigns and extensive retail
distribution network. Additionally, three major consumer electronics
manufacturers currently compete to provide customers with satellite
receivers and related equipment required to receive DIRECTV Programming
("DSS Equipment").
- Ownership of Rural DIRECTV Markets has historically been fragmented,
creating an opportunity for the Company to grow through acquisitions,
rationalize operations and create operating leverage.
The Company intends to leverage its competitive strengths by pursuing the
following strategies: (i) emphasizing direct sales and local customer service,
(ii) acquiring additional Rural DIRECTV Markets, and (iii) developing related
business opportunities.
In addition to its business in Rural DIRECTV Markets under agreements with
the NRTC, the Company has developed other business relationships with DIRECTV
and its affiliated companies. For example, the Company was chosen in January
1998 by DIRECTV as a Master System Operator to market and provide DIRECTV
Programming nationally to residents of MDUs and commercial establishments. In
February 1998, the Company began marketing and providing DIRECTV Programming to
residents of MDUs and commercial establishments in six major metropolitan areas
near its rural territories. The Company intends to focus its MDU and commercial
activities on high-growth urban areas near its Rural DIRECTV Markets to leverage
its fixed cost base over a larger universe of potential subscribers.
RISK FACTORS
Holders of the Old Notes should consider carefully all of the information
contained in the Prospectus prior to tendering their Old Notes in the Exchange
Offer. In particular, holders of Old Notes should consider the factors set forth
under "Risk Factors" beginning on page of this Prospectus. Those risk factors
include the following: "-- Net Losses and Negative EBITDA," "-- Substantial
Leverage," "-- Ability to Service Indebtedness," "-- Subordination of the New
Notes," "-- Asset Encumbrances," "-- Restrictions Imposed by Terms of
Indebtedness," "-- Substantial Capital Requirements," "-- Risks Attendant to
Acquisition Strategy," "-- Dependence Upon DIRECTV," "-- Reliance Upon the
NRTC," "-- Ability to Acquire DBS Services from NRTC and DIRECTV After
Expiration of NRTC Agreements," "-- Ability to Manage Growth Effectively,"
"-- Dependence on Key Personnel," "-- Competition and Technological Change,"
"-- Regulation; PrimeTime 24 Litigation," "-- Reliance on Satellite Transmission
Technology," "-- Risk of Signal Theft," "-- Dependence on Third Party
Programmers," "-- Limited Consumer Adoption of Satellite Television,"
"-- Certain Consequences of Escrow Account Related to Bankruptcy," "-- Absence
of Public Market for the New Notes," "-- Consequences of the Exchange Offer to
Non-Tendering Holders of the Old Notes" and "-- Year 2000 Compliance."
OWNERSHIP AND MANAGEMENT
The Company was formed by management on June 25, 1996 ("Inception") and
completed its first Rural DIRECTV Market acquisition in November 1996. To date,
the Company, together with its parent, has raised an aggregate $87.4 million of
equity capital in financings led by investment funds affiliated with Burr, Egan,
Deleage & Co./Alta Communications, Spectrum Equity Investors, L.P., BancBoston
Ventures Inc., Norwest Equity Partners and HarbourVest Partners LLC, including
an aggregate $2.5 million investment by management. Substantially all the
proceeds of such financings have been contributed to the Company.
5
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The Company has assembled an experienced management team to execute its
business strategy. Rodney A. Weary, the Company's Chief Executive Officer, has
over 27 years of experience in building, consolidating and expanding rural cable
television systems. Mr. Weary also helped found and take public Premiere Page,
Inc., a regional paging company. William J. Gerski, the Company's Vice
President, Sales and Marketing, has 26 years of experience building and leading
sales forces in the communications industry, including multi-channel
subscription television services. The Company's management team also includes
executives with long-term affiliations with the NRTC and DIRECTV, as well as
others experienced in other aspects of the telecommunications industry.
The Company's principal executive offices are located at 605 West 47th
Street, Suite 300, Kansas City, Missouri 64112, and its telephone number is
(816) 753-5544.
PENDING ACQUISITIONS
The Company is party to a binding letter of intent to purchase one
additional Rural DIRECTV Market for an aggregate cash purchase price of
approximately $2.6 million, which territory includes approximately 5,000
households and 1,600 subscribers. The Company is also negotiating to acquire one
other Rural DIRECTV Market, which territory includes approximately 35,000
households and 4,000 subscribers. There can be no assurance that these proposed
acquisitions will be consummated. The Company is continually evaluating
acquisition prospects and expects to continue to enter into acquisition
agreements and complete acquisitions of additional Rural DIRECTV Markets
consistent with its growth strategy.
6
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THE OFFERING OF THE OLD NOTES
Old Notes..................... The Old Notes were sold (the "Offering") by the
Company on July 31, 1998 to Merrill Lynch,
Pierce, Fenner & Smith Incorporated and
NationsBanc Montgomery Securities LLC (the
"Initial Purchasers") pursuant to a Purchase
Agreement, dated July 24, 1998 (the "Note
Purchase Agreement"). The Initial Purchasers
subsequently resold the Old Notes to qualified
Institutional buyers pursuant to Rule 144A
under the Securities Act and pursuant to offers
and sales that occurred outside the United
States within the meaning of Regulation S under
the Securities Act.
Registration Rights
Agreement..................... Pursuant to the Note Purchase Agreement, the
Company and the Initial Purchasers entered into
a Registration Rights Agreement, dated July 31,
1998 (the "Registration Rights Agreement"),
which grants the holders of the Old Notes
certain exchange and registration rights. The
Exchange Offer is intended to satisfy such
exchange rights, which terminate upon the
consummation of the Exchange Offer.
SUMMARY OF THE EXCHANGE OFFER
The Exchange Offer............ The Company is offering to exchange up to
$195,000,000 aggregate principal amount of its
12 3/8% Senior Subordinated Notes due 2006,
Series B, for a like amount of its 12 3/8%
Senior Subordinated Notes due 2006, Series A.
The terms of the New Notes are identical in all
material respects (including principal amount,
interest rate and maturity) to the terms of the
Old Notes, except for certain transfer
restrictions and registration rights relating
to the Old Notes. See "Description of the New
Notes." The issuance of the New Notes is
intended to satisfy obligations of the Company
contained in the Registration Rights Agreement
relating to the Old Notes.
Expiration Date; Withdrawal of
Tender...................... The Exchange Offer will expire at 5:00 p.m.,
New York City time, on , 1998, or
such later date and time to which it is
extended. The tender of Old Notes pursuant to
the Exchange Offer may be withdrawn at any time
prior to the Expiration Date.
Accrued Interest on the New
Notes and the Old Notes....... Each New Note will bear interest from the most
recent date to which interest has been paid or
duly provided for on the Old Note surrendered
in exchange for such New Note, or, if no
interest has been paid or duly provided for on
such Old Note, from July 31, 1998. Holders of
Old Notes whose Old Notes are accepted for
exchange will not receive accrued interest on
such Old Notes for any period from and after
the last date to which interest has been paid
or duly provided for on the Old Notes prior to
the original issue date of the New Notes, or,
if no such interest has been paid or duly
provided for, will not receive any accrued
interest on such Old Notes, and will be deemed
to have waived the right to receive any
interest on such Old Notes accrued from and
after the last date to which interest has been
paid or duly provided for on the Old Notes,
7
<PAGE> 11
or, if no such interest has been paid or duly
provided for, from and after July 31, 1998.
Procedures for Tendering...... Each holder of Old Notes wishing to accept the
Exchange Offer must complete, sign and date the
Letter of Transmittal, or a facsimile thereof,
in accordance with the instructions contained
herein and therein and mail or otherwise
deliver such Letter of Transmittal, or such
facsimile, together with any other required
documentation, to State Street Bank and Trust
Company of Missouri, N.A., as Exchange Agent,
at the address set forth herein and therein.
The Letter of Transmittal will contain a
representation by the tendering holder that,
among other things, (i) the New Notes to be
received pursuant to the Exchange Offer are
being acquired in the ordinary course of the
business of the person receiving such New
Notes, (ii) such holder has no arrangement with
another person to participate in the
distribution of such New Notes, (iii) such
holder is not an "affiliate" (as defined in
Rule 405 under the Securities Act) of the
Company, and (iv) if the tendering holder is a
broker or a dealer (as defined in the Exchange
Act), it acquired the Old Notes for its own
account as a result of market-making activities
or other trading activities, and that it has
not entered into any arrangement with the
Company or any "affiliate" of the Company to
distribute the New Notes to be received in the
Exchange Offer. In the case of a broker-dealer
that receives New Notes for its own account in
exchange for Old Notes that were acquired by it
as a result of market-making or other trading
activities, the Letter of Transmittal will also
include an acknowledgment that the
broker-dealer will deliver a copy of this
Prospectus in connection with the resale by it
of New Notes received pursuant to the Exchange
Offer. See "Plan of Distribution."
Guaranteed Delivery
Procedures.................... Holders who wish to accept the Exchange Offer
and cannot complete the procedures for
tendering on a timely basis may effect a tender
according to the guaranteed delivery procedures
set forth in "The Exchange Offer -- Procedures
for Tendering."
Federal Income Tax
Consequences.................. The exchange pursuant to the Exchange Offer
will not result in any income, gain or loss to
the holders of the Notes or the Company for
Federal income tax purposes. See "Certain
Federal Income Tax Considerations."
Exchange Agent................ State Street Bank and Trust Company of
Missouri, N.A. is serving as Exchange Agent in
connection with the Exchange Offer. The address
and telephone number of the Exchange Agent are
set forth in "The Exchange Offer -- Exchange
Agent."
Consequences of Exchanging Old
Notes Pursuant to the
Exchange Offer.............. Generally, based on interpretations by the
staff of the Commission, the Company believes
that holders of Old Notes (other than any
holder that is an "affiliate" of the Company
within the meaning of Rule 405 under the
Securities Act) who exchange their Old Notes
for New Notes pursuant to the Exchange Offer
may offer such New Notes for resale, resell
such New Notes, and otherwise
8
<PAGE> 12
transfer such New Notes without compliance with
the registration and prospectus-delivery
provisions of the Securities Act; provided that
such New Notes are acquired in the ordinary
course of such holders' business and such
holders have no arrangement with any person to
participate in the distribution of such New
Notes. Each broker-dealer that receives New
Notes for its own account pursuant to the
Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any
resale of such New Notes. See "Plan of
Distribution." To comply with the securities
laws of certain jurisdictions, it may be
necessary to qualify for sale or register the
New Notes prior to offering or selling such New
Notes. The Company does not currently intend to
register or qualify the sale of the New Notes
in any such jurisdictions.
Untendered Old Notes.......... Following the consummation of the Exchange
Offer, holders of Old Notes eligible to
participate but who do not tender their Old
Notes will not have any further exchange
rights, and such Old Notes will continue to be
subject to certain restrictions on transfer.
Accordingly, the liquidity of the market for
such Old Notes could be adversely affected.
Consequences of Failure to
Exchange.................... If a holder of Old Notes does not exchange such
Old Notes for New Notes pursuant to the
Exchange Offer, such Old Notes will continue to
be subject to the restrictions on transfer
contained in the legend thereon. In general,
the Old Notes may not be offered or sold unless
registered under the Securities Act, except
pursuant to an exemption from, or in a
transaction not subject to, the Securities Act
and applicable state securities laws. See "The
Exchange Offer -- Consequences of Failure to
Exchange."
9
<PAGE> 13
SUMMARY DESCRIPTION OF THE NEW NOTES
The form and terms of the New Notes are identical in all material respects
to the Old Notes, except for certain transfer restrictions and registration
rights relating to the Old Notes. The Old Notes will evidence the same debt as
the New Notes, and both series of Notes will be entitled to the benefits of the
Indenture and treated as a single class of debt securities thereunder. See
"Description of the New Notes."
Securities Offered............ $195,000,000 aggregate principal amount of
12 3/8% Senior Subordinated Notes due 2006,
Series B.
Maturity Date................. August 1, 2006.
Interest Payment Dates........ Interest on the New Notes will accrue at the
rate of 12 3/8% per annum and will be payable
semi-annually on each February 1 and August 1,
commencing February 1, 1999.
Escrow Account................ The Company has purchased certain Government
Securities (as defined herein), representing an
amount (the "Escrow Account") sufficient to
pay, together with interest received from the
investment thereof in Government Securities,
the first four semi-annual interest payments on
the Notes (estimated to be $45.2 million), as
security for repayment of the first four
scheduled interest payments on the Notes. The
Notes will be secured by a security interest in
the Escrow Account to the extent set forth
herein. The Escrow Account will be held by the
Escrow Agent (as defined herein) under the
Escrow Agreement (as defined herein) pending
disbursement. See "Description of the New
Notes -- Escrow Account."
Optional Redemption........... The New Notes will be redeemable, in whole or
in part, at the option of the Company on or
after August 1, 2003, at the redemption prices
set forth herein plus accrued and unpaid
interest, if any, to the date of redemption. In
addition, on or prior to August 1, 2001, the
Company may, at its option, redeem up to 35% of
the originally issued aggregate principal
amount of Notes, at a redemption price equal to
112.375% of the principal amount thereof, plus
accrued and unpaid interest thereon, if any, to
the date of redemption solely with the net
proceeds of a Public Equity Offering of the
Company or Holdings yielding gross proceeds of
at least $40 million and any subsequent Public
Equity Offerings (provided that, in the case of
any such sale or sales by Holdings, all the net
proceeds thereof are contributed to the
Company); provided, further, that immediately
after any such redemption the aggregate
principal amount of Notes outstanding must
equal at least 65% of the originally issued
aggregate principal amount of New Notes. See
"Description of the New Notes -- Redemption."
Change of Control............. Upon the occurrence of a Change of Control,
each holder of the Notes may require the
Company to repurchase all or a portion of such
holder's New Notes at a price equal to 101% of
their principal amount plus accrued and unpaid
interest, if any, to the date of repurchase.
See "Description of the New Notes -- Change of
Control."
Ranking....................... The Notes will be unsecured (except as
described under "-- Escrow Account") senior
subordinated obligations of the Company and
will be subordinated in right of payment to all
existing and
10
<PAGE> 14
future Senior Indebtedness (as defined herein).
As of September 30, 1998, on a pro forma basis
after giving effect to the Included
Acquisitions (as defined herein), the Company
would have had approximately $207.3 million of
outstanding indebtedness, of which
approximately $55.0 million was Senior
Indebtedness, and $17.3 million was
unsubordinated indebtedness that would not
constitute Senior Indebtedness.
Certain Covenants............. The Indenture imposes certain limitations on
the ability of the Company 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,
incur indebtedness that is subordinate in right
of payment to any Senior Indebtedness and
senior in right of payment to the Notes, incur
liens, permit restrictions on the ability of
subsidiaries to pay dividends or make certain
payments to the Company, merge or consolidate
with any other person or sell, assign,
transfer, lease, convey or otherwise dispose of
all or substantially all of the assets of the
Company. See "Description of the New
Notes -- Certain Covenants."
For additional information regarding the New Notes, see "Description of the
New Notes."
11
<PAGE> 15
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL AND OTHER DATA
The summary historical consolidated financial data for the periods ended
December 31, 1996 and 1997 and for the nine-month periods ended September 30,
1997 and 1998 were derived from the Consolidated Financial Statements of the
Company included elsewhere in this Prospectus, which, in the case of the
financial statements for the periods ended December 31, 1996 and 1997, are
audited. The summary consolidated financial statement data for the nine-month
periods ended September 30, 1997 and 1998 have been derived from unaudited
consolidated financial statements of the Company, which, in the opinion of
management, include all adjustments necessary for a fair presentation of such
data. The financial information for the Included Acquisitions has been derived
from the respective historical financial statements of the acquired entities.
As used herein, the "Pro Forma" financial and operating data reflect the
Company's acquisitions completed since Inception excluding four acquisitions
that are immaterial individually and in the aggregate (the "Completed
Acquisitions") and the Offering. Pro Forma revenues and expenses for the
Company's one pending acquisition (the "Pro Forma Pending Acquisition", together
with the Completed Acquisitions, the "Included Acquisitions") are excluded as
they are immaterial. The Pro Forma financial and operating data also excludes
the effects of one Rural DIRECTV Market the acquisition of which is under
negotiation but for which a binding letter of intent has not been executed. See
"Summary of Prospectus -- Pending Acquisitions." The Pro Forma information is
presented as if each of these events had occurred at the beginning of the period
presented with respect to the statement of operations data and as of September
30, 1998 with respect to the balance sheet data. The summary Pro Forma data do
not purport to be indicative of the results of operations that would have been
achieved had the Included Acquisitions and the borrowings under the Credit
Facility been consummated as of the assumed dates, nor are the results intended
to be indicative of the Company's future results of operations. The following
information should be read in conjunction with "Management's Discussion and
Analysis of Results of Operations and Financial Condition," the Company's
Consolidated Financial Statements and notes thereto, the Pro Forma Financial
Statements and notes thereto, and the individual financial statements and notes
thereto of certain acquired businesses appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997 NINE MONTHS ENDED SEPTEMBER 30,
INCEPTION TO --------------------- -----------------------------------
DECEMBER 31, PRO 1997 1998 1998
1996 HISTORICAL FORMA HISTORICAL HISTORICAL PRO FORMA
------------ ---------- -------- ---------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue
DBS services..................... $ 219 $ 16,452 $ 50,150 $ 8,462 $ 50,139 $ 61,857
Lease and other.................. 36 944 1,592 675 751 867
------- -------- -------- ------- -------- --------
Total revenue............ 255 17,396 51,742 9,137 50,890 62,724
Costs and Expenses
Cost of DBS services............. 130 9,304 29,983 4,868 29,764 37,233
System operations................ 26 3,796 12,370 2,076 7,317 9,118
Sales and marketing.............. 73 7,316 11,896 2,898 19,560 19,936
General and administrative....... 1,035 2,331 2,810 1,593 4,737 4,776
Depreciation and amortization.... 97 7,300 27,701 4,352 15,814 22,272
------- -------- -------- ------- -------- --------
Total cost and
expenses............... 1,361 30,047 84,760 15,787 77,192 93,335
------- -------- -------- ------- -------- --------
Operating loss..................... (1,106) (12,651) (33,018) (6,650) (26,302) (30,611)
Net interest expense............... (61) (3,133) (31,756) (1,368) (11,100) (23,075)
------- -------- -------- ------- -------- --------
Net loss before extraordinary
charge........................... $(1,167) $(15,784) $(64,774) $(8,018) $(37,402) $(53,686)
======= ======== ======== ======= ======== ========
</TABLE>
12
<PAGE> 16
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
----------------------
DECEMBER 31, 1997 HISTORICAL PRO FORMA
----------------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................... $ 13,632 $ 31,001 $ 5,001
Restricted cash......................................... -- 50,940 50,940
Working capital......................................... 3,827 70,448 44,499
Total assets............................................ 156,236 302,517 333,265
Total debt.............................................. 69,113 247,301 267,299
Stockholder's equity.................................... 70,449 30,470 40,670
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------
INCEPTION TO YEAR ENDED 1997 1998 1998
DECEMBER 31, 1996 DECEMBER 31, 1997 HISTORICAL HISTORICAL PRO FORMA
----------------- ----------------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT SUBSCRIBER AND HOUSEHOLD DATA)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
EBITDA(1)....................... $(1,009) $ (5,351) $ (2,298) $ (10,488) $ (8,339)
Capital expenditures............ 105 998 405 2,408 2,408
Aggregate purchase price of
acquisitions.................. $ 5,256 $ 129,725 $ 86,398 $ 69,674 $ 126,109
Households at end of
period(2)(3).................. 21,800 1,134,700 692,000 1,467,000 1,732,000
Subscribers acquired in
acquisitions(3)............... 2,975 65,706 40,000 33,500 56,800
Subscribers added in existing
territories(3)................ 229 22,014 7,600 49,100 49,100
Subscribers at end of
period(3)(4).................. 3,204 90,924 50,700 173,500 196,800
Subscriber acquisition costs,
per net subscriber added(3)... $ 319 $ 314 $ 384 $ 377 $ 406
Penetration at end of period.... 14.7% 8.0% 7.3% 11.8% 11.4%
Ratio of earnings to fixed
charges(5).................... -- -- -- --
OTHER FINANCIAL DATA:
Net cash provided by (used in)
operating activities.......... $ (790) $ (3,160) $ (2,788) $ (25,675)
Net cash provided by (used in)
investing activities.......... (3,231) (120,729) (81,633) (113,781)
Net cash provided by financing
activities.................... 4,500 137,042 85,784 156,825
</TABLE>
- ---------------
(1) EBITDA represents earnings before interest, taxes, depreciation and
amortization. Although EBITDA is not a measure of performance under
generally accepted accounting principles, EBITDA is commonly used in the
communications industry to analyze companies on the basis of operating
performance, leverage and liquidity. Additionally, EBITDA is the basis for
many of the Company's financial covenants. Nevertheless, EBITDA is not
intended to represent cash flows for the period, nor has it been presented
as an alternative to operating income as an indicator of operating
performance and should not be considered in isolation or as a substitute for
measures of performance determined in accordance with generally accepted
accounting principles. See the Company's Consolidated Financial Statements
contained elsewhere in this Prospectus.
(2) Household numbers are rounded to the nearest hundred. Pro Forma households
include households as of the later of September 30, 1998 or acquisition date
for Completed Acquisitions and households as of the most recent date for
which information is available for the Pending Pro Forma Acquisition.
(3) Household and subscriber data reflect 100% of the households or subscribers
comprising the Company's Rural DIRECTV Markets, including two Rural DIRECTV
Markets in which the Company acquired less than 100% ownership. The Company
receives 100% of the revenue generated by all subscribers in its Rural
DIRECTV Markets.
13
<PAGE> 17
(4) For Completed Acquisitions, subscriber data are as of the later of September
30, 1998 or acquisition date. For the Pending Pro Forma Acquisition,
subscriber data is as of the date of the most recent available information.
(5) The ratio of earnings to fixed charges is determined by dividing the sum of
net loss before interest expense and a portion of rent expense
representative of interest by the sum of interest expense and such portion
of rent expense. For the periods ended December 31, 1996 and 1997 and the
nine-month periods ending September 30, 1997 and 1998, the deficiency of
earnings to fixed charges was $1.2 million, $15.8 million, $8.0 million and
$40.9 million, respectively.
14
<PAGE> 18
RISK FACTORS
In addition to the other information in this Prospectus, prospective
investors should consider carefully the following risk factors before tendering
their Old Notes in the Exchange Offer.
NET LOSSES AND NEGATIVE EBITDA
The Company has had a limited operating history, during which time it has
generated net losses and negative EBITDA. This is due primarily to the costs
incurred to acquire Rural DIRECTV Markets, to integrate acquired operations and
to expand the Company's sales and marketing activities, including the creation
of a direct sales force. The Company reported net losses of approximately
$(15.8) million and $(40.0) million for the year ended December 31, 1997 and the
nine months ended September 30, 1998, respectively, and EBITDA of approximately
negative $5.4 million and negative $10.5 million for the year ended December 31,
1997 and nine months ended September 30, 1998, respectively. The extent to which
the Company actually experiences positive EBITDA in the future will depend upon
a number of factors, including the Company's ability to acquire new Rural
DIRECTV Markets, the time and expense required to integrate new operations and
implement adequate systems and controls and to train direct sales and other
personnel, the Company's ability to generate internal subscriber growth and
introduce new products and services, the degree of competition encountered by
the Company, the cost of programming services, and economic conditions
generally. There can be no assurance when or whether the Company will generate
or sustain positive EBITDA.
SUBSTANTIAL LEVERAGE
The Company is highly leveraged and is expected to increase its leverage as
it pursues further acquisitions by borrowing additional funds and by issuing
additional seller notes. At September 30, 1998, on a Pro Forma basis, the
Company's total consolidated long-term indebtedness, including the current
portion, would have approximated $267.3 million, representing approximately 87%
of the Company's total capitalization, and the Company's earnings would have
been insufficient to cover its fixed charges by approximately $57.1 million. On
such Pro Forma basis, assuming satisfaction of the conditions to borrowing
(including satisfaction of the subscriber borrowing base requirements and
financial maintenance covenants), the Company would have had the ability to
borrow an additional $75.1 million under the Credit Facility and expects to do
so principally to fund additional acquisitions of Rural DIRECTV Markets.
The degree to which the Company is leveraged could have adverse
consequences to holders of the New Notes, including, but not limited to, the
following: (i) the Company's ability to fund internally or obtain additional
debt or equity financing in the future for acquisitions, working capital,
operating losses, capital expenditures and other purposes could be impaired;
(ii) the Company's flexibility in planning for, or reacting to, changes to its
business and market conditions may be limited; (iii) the Company may be
constrained from competing with less highly leveraged competitors; and (iv) the
Company may be financially vulnerable in the event of a downturn in its business
or the economy generally. In addition, borrowings under the Credit Facility bear
interest at variable rates, which could further increase the Company's debt
service obligations in the event of an increase in interest rates generally. See
"Management's Discussion and Analysis of Results of Operations and Financial
Condition -- Liquidity and Capital Resources" and "Description of Other
Indebtedness -- Credit Facility."
ABILITY TO SERVICE INDEBTEDNESS
The ability of the Company to meet its debt service obligations, including
in respect of the New Notes, will be dependent upon the Company's future
operating performance. Such operating performance can be subject to many
factors, some of which will be beyond the Company's control, such as prevailing
economic conditions and relations with the NRTC. See "-- Reliance Upon the
NRTC." There can be no assurance that the Company will be able to generate
sufficient cash flow to service required interest and principal payments.
Borrowings under the revolving credit facility established pursuant to the
Credit Facility will be available to the Company until June 2004, but
commitments and borrowings are subject to quarterly reductions
15
<PAGE> 19
commencing June 30, 2000. Borrowings under the term loan facility established
pursuant thereto are required to be repaid in 16 consecutive quarterly
installments commencing June 30, 2001, with the balance due in March 2005. If
the Company does not have sufficient available resources to repay indebtedness
under the Credit Facility at such time, the Company may find it necessary to
refinance such indebtedness, and there can be no assurance that such refinancing
would be available, or available on reasonable terms. See "Management's
Discussion and Analysis of Results of Operations and Financial
Condition -- Liquidity and Capital Resources," "Description of Other
Indebtedness -- Credit Facility" and "Description of the New Notes."
SUBORDINATION OF THE NEW NOTES
The New Notes will be general unsecured (other than the first-priority
security interest in the Escrow Account) obligations of the Company and will be
subordinate in right of payment to all Senior Indebtedness, including
indebtedness under the Credit Facility. As of September 30, 1998, on a Pro Forma
basis, the Company would have had $55.0 million of Senior Indebtedness
outstanding and $75.1 million of availability under the Credit Facility. The
Company also had approximately $17.3 million of unsubordinated indebtedness,
representing the Seller Notes (as defined herein) and obligations under capital
leases, to which the New Notes will not be subordinated. The Indenture permits
the Company to incur additional indebtedness, which may take the form of Senior
Indebtedness, subject to certain limitations, and the Company expects from time
to time to incur additional Senior Indebtedness. By reason of the subordination
provisions of the Indenture, in the event of the insolvency, liquidation,
reorganization, dissolution or other winding-up of the Company, holders of
Senior Indebtedness must be paid in full before payment of amounts due on the
New Notes may be made. Accordingly, there may be insufficient assets remaining
after such payments of Senior Indebtedness to pay amounts due on the New Notes.
In addition, during the continuance of any default in payment in respect of
any Designated Senior Indebtedness (as defined herein), no payment (subject to
limited exceptions) may be made on account of the obligations with respect to
the Notes unless and until such default has been cured or waived or has ceased
to exist or such Designated Senior Indebtedness shall have been discharged or
paid in full in cash or cash equivalents. In addition, during the continuance of
any non-payment default with respect to any Designated Senior Indebtedness
pursuant to which the maturity thereof may immediately be accelerated and after
the receipt by the Trustee from the representatives of holders of such
Designated Senior Indebtedness of a written notice of such default, no payment
(subject to limited exceptions) may be made by the Company on account of the
Obligations (as defined herein) with respect to the Notes for a specified
period. If any Event of Default (as such term is defined in the Indenture)
occurs and is continuing, the Trustee or the holders of at least 25% in
principal amount of the then outstanding Notes may declare all the Notes to be
due and payable immediately. However, such a continuing Event of Default also
would permit the acceleration of all outstanding obligations under the Credit
Facility. In such an event, the subordination provisions of the Indenture would
prohibit any payments to holders of the Notes unless and until such obligations
(and any other accelerated Designated Senior Indebtedness) have been repaid in
full in cash or Cash Equivalents (as defined herein). See "Description of the
New Notes -- Subordination."
ASSET ENCUMBRANCES
The New Notes will not be secured by any assets of the Company other than
the Escrow Account that secures the first four interest payments on the Notes.
The obligations of the Company under the Credit Facility will be secured by
substantially all of its assets and those of its subsidiaries, including the
NRTC Agreements referred to below. If the Company becomes insolvent or is
liquidated, or if payment under the Credit Facility is accelerated, the lenders
under the Credit Facility would be entitled to exercise the remedies available
to a secured lender under applicable law and pursuant to the terms of the Credit
Facility. Accordingly, any claims of such lenders with respect to such assets
will be prior to any claim of the holders of the Notes with respect to such
assets. See "Description of Other Indebtedness -- Credit Facility."
The Company's valuable assets are comprised primarily of its rights under
the agreements between the NRTC and its members, pursuant to which the members
acquired the right to distribute DIRECTV Programming in the Rural DIRECTV
Markets (collectively, the "NRTC Agreements") and the Company's
16
<PAGE> 20
interest in its subscriber base. Because the NRTC Agreements are terminable upon
a bankruptcy or insolvency of the Company, and the nature of the Company's
interest in its subscriber base is the subject of uncertainty, there can be no
assurance as to the ability of creditors, including holders of Notes, to realize
upon these assets and to satisfy all or any part of their claims against the
Company. See "Reliance Upon the NRTC."
RESTRICTIONS IMPOSED BY TERMS OF INDEBTEDNESS
The Credit Facility and the Indenture contain numerous restrictive
covenants that limit the discretion of the Company's management with respect to
certain business matters. These covenants place significant restrictions on,
among other things, the ability of the Company to incur additional indebtedness,
to create liens or other encumbrances, to pay dividends or make certain other
payments, investments, loans and guarantees and to sell or otherwise dispose of
assets and merge or consolidate with another entity. The Credit Facility also
contains a number of financial covenants that will require the Company to meet
certain financial ratios and financial condition tests, and availability under
the revolving credit facility of the Credit Facility depends upon satisfaction
of these covenants as well as minimum subscriber base requirements. See
"Description of Other Indebtedness -- Credit Facility" and "Description of the
New Notes -- Certain Covenants." The Company's ability to meet these covenants
and requirements can be affected by events beyond its control, and, in any
event, there can be no assurance that the Company will meet such covenants and
requirements. A failure to comply with the obligations in the Credit Facility or
the Indenture could result in an event of default under the Credit Facility or
an Event of Default under the Indenture that, if not cured or waived, could
permit acceleration of the relevant indebtedness and acceleration of
indebtedness under other instruments that may contain cross-acceleration or
cross-default provisions. In the event of an event of default under the Credit
Facility or an Event of Default under the Indenture, the lenders thereunder
could elect to declare all amounts outstanding thereunder, together with accrued
and unpaid interest, to be immediately due and payable. If the indebtedness
under the Credit Facility were to be accelerated, there can be no assurance that
the assets of the Company would be sufficient to repay in full that indebtedness
and the other indebtedness of the Company, including the Notes. Other
indebtedness of the Company and its subsidiaries that may be incurred in the
future may contain financial or other covenants more restrictive than those
applicable to the Notes.
SUBSTANTIAL CAPITAL REQUIREMENTS
The Company's operations have required and will continue to require
substantial capital to finance acquisitions of Rural DIRECTV Markets and the
costs associated with integrating acquired operations and expanding the
Company's sales and marketing activities in new markets, as well as general
working capital requirements and operating expenses. No assurance can be given
that actual cash requirements will not materially exceed the Company's estimated
capital requirements and available capital. Moreover, because the Company's
ability to access the total availability of the Credit Facility is dependent on
maintaining certain specified financial and operating covenants, there can be no
assurance that the Company will be able to draw funds under the Credit Facility
sufficient to finance its planned acquisitions and the continued development of
its operations. The amount of capital the Company requires will depend upon a
number of factors, including costs of future acquisitions, capital expenditures
and negative cash flow generally. No assurance can be given that, in the event
the Company were to require additional financing, such additional financing
would be available on terms satisfactory to the Company or at all. See
"Management's Discussion and Analysis of Results of Operations and Financial
Condition -- Liquidity and Capital Resources" and "Description of Other
Indebtedness -- Credit Facility."
RISKS ATTENDANT TO ACQUISITION STRATEGY
An essential part of the Company's business strategy is to acquire
additional Rural DIRECTV Markets. Since November 1996, the Company has acquired
the right to provide DIRECTV Programming in 43 Rural DIRECTV Markets, and the
Company is continually identifying additional potential acquisition targets. The
Company is aware of at least one other DIRECTV Programming provider that is
currently pursuing an acquisition strategy targeted on Rural DIRECTV Markets
that is similar to the Company's. The prices paid in
17
<PAGE> 21
acquisitions by the Company are a function of numerous factors, including the
demographics of the particular Rural DIRECTV Market, the extent of penetration
by the prior operator and of other pay television operators in such market and
the extent of competition for the particular acquisition. Other acquirers of
Rural DIRECTV Markets may have greater financial resources than the Company.
Each of the Company's potential acquisitions is subject to the negotiation
of a definitive agreement and, among other conditions, the prior approval of
Hughes and the NRTC, which approval may be beyond the Company's control. See
"-- Reliance Upon the NRTC" for a discussion of the risks attendant to securing
NRTC approval of acquisitions. In addition, each acquisition is subject to
conditions typical in acquisitions of this nature, certain of which also may be
beyond the control of the Company. There can be no assurance that the
anticipated benefits of any of the acquisitions described herein or future
acquisitions will be realized. The process of integrating acquired operations
into the Company's operations may result in unforeseen operating difficulties,
could divert management attention and may require significant financial
resources that would otherwise be available for the ongoing development or
expansion of the Company's existing operations. There also can be no assurance
that the Company will be able to identify suitable acquisitions in the future
or, if identified, to arrive at favorable prices and terms. In addition,
possible future acquisitions by the Company could result in the incurrence of
additional debt and contingent liabilities which could materially adversely
affect the Company's financial condition and results of operations.
DEPENDENCE UPON DIRECTV
The Company obtains substantially all of its revenue through the
distribution of DIRECTV Programming and sales of related equipment. As a result,
the Company may be adversely affected by any material change in the assets,
financial condition, programming, technological capabilities or services of
DIRECTV or Hughes. Such adverse effects could result from possible electronic,
computer or other technical problems experienced by DIRECTV or DIRECTV's failure
to retain or renew its Federal Communications Commission ("FCC") licenses to
transmit radio frequency signals from the orbital slots occupied by its
satellites, at least some of which licenses expire and are subject to renewal in
December 1999. In addition, there can be no assurance that the satellites upon
which the Company relies will be replaced upon the expiration of their useful
orbital lives or that services will not be disrupted for any reason, including a
delay in launching a successor satellite. There can be no assurance that the
Company could continue to provide DBS services following any such event. While
the Company has not been provided access to the agreement between the NRTC and
Hughes (the "Hughes Agreement"), it is relying upon DIRECTV to continue to
provide programming services on a basis consistent with past practice. There can
be no assurance that any change in the manner in which DIRECTV performs its
obligations under the Hughes Agreement or otherwise provides services to the
NRTC would not materially adversely affect the Company. See "-- Reliance Upon
the NRTC" and "-- Ability to Acquire DBS Services from NRTC and DIRECTV after
Expiration of NRTC Agreements."
RELIANCE UPON THE NRTC
Rights Based Solely Upon NRTC Agreements. Virtually all of the Company's
business is comprised of the distribution of DIRECTV Programming to residential
households and commercial establishments in rural markets pursuant to the NRTC
Agreements. The NRTC has obtained such rights pursuant to the Hughes Agreement.
Under the NRTC Agreements, the NRTC has granted to the Company the exclusive
right to market, sell and retain revenue from DIRECTV Programming (other than
Non-Select Services (as defined herein)) transmitted over Hughes' 27 frequencies
from the 101 degrees W.L. orbital location to identified residences or
identified areas, as applicable. The Company does not have a direct contractual
arrangement with Hughes (except with respect to its Systems Operator and
commercial licenses, which have not generated material revenue to date), and the
NRTC has declined to make available to the Company a copy of the Hughes
Agreement. Accordingly, the Company relies upon the NRTC to have accurately
represented the scope and term of its rights and obligations and to diligently
perform all of its obligations under the Hughes Agreement, as well as pursue any
rights and remedies which it may have against Hughes. The NRTC Agreements
provide that, in general, upon a default or breach by the NRTC under the Hughes
Agreement,
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the Company would have the right to acquire DIRECTV Programming directly from
DIRECTV either, at Hughes' option, (i) by the assumption by Hughes of the NRTC's
obligations under the NRTC Agreements or (ii) under a new agreement between the
Company and Hughes on terms no less favorable to the Company than those in the
NRTC Agreements. There can be no assurance as to the actual scope of such right
under the Hughes Agreement (e.g., whether Hughes is obligated to exercise any
such option) or as to the Company's ability to timely and successfully exercise
such right. There can be no assurance that the NRTC will act or fail to act in a
manner that will preserve the Company's ability to offer DIRECTV Programming on
a basis consistent with past practice. While Hughes is an intended third party
beneficiary under the NRTC Agreements and is entitled to enforce the NRTC
Agreements against the Company, the Company is not a third party beneficiary
under the Hughes Agreement.
The Company would also be materially adversely affected by the termination
of the NRTC Agreements by the NRTC prior to the expiration of their respective
terms. Such agreements may be terminated by the NRTC (i) as a result of a
termination of the Hughes Agreement, with the NRTC remaining responsible for
paying to the Company its pro rata portion of any refunds that the NRTC receives
from Hughes under the Hughes Agreement, (ii) if the Company fails to make any
payment due to the NRTC or otherwise breaches a material obligation of the NRTC
Agreements and such failure or breach continues for more than 30 days after
written notice from the NRTC or (iii) if the Company fails to keep and maintain
any letter of credit required to be provided to the NRTC in full force and
effect or to adjust the amount of the letter of credit as required by the NRTC
Agreements. If the NRTC Agreements are terminated by the NRTC, the Company would
no longer have the right to provide DIRECTV Programming in the Rural DIRECTV
Markets. There can be no assurance that the Company would be able to obtain
similar DBS services from other sources.
The NRTC Agreements also require the Company to comply with policies of the
NRTC promulgated from time to time. The Company and other NRTC-affiliated
DIRECTV providers have disputed certain policies proposed by the NRTC in the
past that they believed did not comply with the NRTC Agreements and applicable
law. For example, in 1998, the NRTC proposed new conditions to securing its
approval of acquisitions that included changes to all of the NRTC Agreements
which, if adopted, could have had material adverse financial consequences to the
Company. The dispute was resolved without any modifications to the NRTC
Agreements and the Company's then pending acquisitions were approved. In
addition, the NRTC has adopted a policy regarding its own interests in the
subscriber information of affiliated DIRECTV providers. The NRTC Agreements
provide that NRTC affiliates, including the Company, have "substantial
proprietary interests" in and rights to the information and data with respect to
their subscribers. The NRTC and its affiliates, including the Company, have
differed over the import of these rights and interests, which may have
consequences in the event that the Company's rights to offer DIRECTV Programming
through the NRTC are terminated or expire.
Certain Services and Information. The NRTC Agreements provide that the NRTC
supply the Company with certain support services, including subscriber
authorization and data reporting capability, retail billing services and central
office subscriber services. In addition to the fees paid upon signing of the
NRTC Agreements, the Company is required to pay to the NRTC monthly operating
fees, monthly security services fees, monthly programming fees (based on
accepted cable industry rate cards) and a "reasonable margin" on the cost of
providing DBS services to the Company. If the NRTC is unable to provide these
services for whatever reason, the Company would be required to acquire the
services from other sources or provide them for themselves. There can be no
assurance that the cost to the Company of acquiring those services elsewhere or
providing them internally would not exceed the amounts payable to the NRTC under
the NRTC Agreements or, alternatively, that the Company would not be able to
secure such services on a more economic basis on its own but continue to be
required to obtain such services from the NRTC.
The NRTC Agreements do not provide for direct or complete access to or
control by the Company of the management information systems of the NRTC,
including certain management information systems data concerning individual
subscribers of the Company. Therefore, although the Company is entitled to
verify the accuracy of individual customer financial accounts, it must rely on
the NRTC to accurately provide detailed general demographic and other
information regarding its subscribers, which information is critical to the
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growth and development of the Company's ongoing marketing and sales strategy.
The Company must also rely upon the NRTC and DIRECTV to be Year 2000 compliant
on a timely basis.
Potential Divergence of Interests from the NRTC. The NRTC is a cooperative
whose members are engaged in the distribution of telecommunications and other
services in predominantly rural areas of the United States. The Company is not
an NRTC Member, but rather a non-voting affiliate. The interests of NRTC and its
affiliates, such as the Company, may conflict, and there can be no assurance
that the NRTC will act in the interest of the Company.
ABILITY TO ACQUIRE DBS SERVICES FROM NRTC AND DIRECTV AFTER EXPIRATION OF NRTC
AGREEMENTS
The DIRECTV Programming offered by the Company to its subscribers is
acquired pursuant to the NRTC Agreements. The NRTC, in turn, acquires the
services through the Hughes Agreement. The NRTC Agreements (and presumably the
Hughes Agreement) expire when Hughes removes its current satellite(s) from their
assigned orbital locations. Although, according to Hughes and United States
Satellite Broadcasting, Inc. ("USSB"), which owns five transponders on the first
DIRECTV satellite, the three DIRECTV satellites have estimated orbital lives of
approximately 15 years from their respective launches in December 1993, August
1994 and June 1995, there can be no assurance as to the longevity of the
satellites and thus no assurance as to how long the Company will be able to
obtain DBS services pursuant to the NRTC Agreements. The Company is not certain
whether the NRTC is entitled to services from all three DIRECTV satellites as a
contractual matter and, therefore, whether it will receive services for the life
of all three satellites. All of these uncertainties may render it more difficult
to refinance the Notes and other indebtedness, if necessary, and affect the
Company's ability to secure additional financing, if necessary or desirable.
The Company believes that the Hughes Agreement provides the NRTC with a
right of first refusal to obtain DBS services (other than programming services)
in substantially the same form as such DBS services are provided under the
existing Hughes Agreement in the event that Hughes elects to launch one or more
successor satellites upon the removal of the present satellites from their
assigned orbital locations. The NRTC Agreements do not expressly provide an
equivalent right of first refusal for the NRTC members to acquire DBS services
through the NRTC should the NRTC exercise any right of first refusal under the
Hughes Agreement. The NRTC is not obligated to exercise any right of first
refusal. There can be no assurance that, upon removal of the current satellites
from their orbital locations at the end of their useful lives (estimated to be
in 2008 or 2009), the Company would continue to have access to DIRECTV
Programming or the exclusive right to control or dispose of its interest in its
subscriber base. See "-- Reliance Upon the NRTC -- Rights Based Solely Upon NRTC
Agreements."
Any right of first refusal in the Hughes Agreement may not be available to
the NRTC if Hughes does not launch a successor satellite, which may be the case,
for example, if Hughes ceases to own the FCC licenses necessary to transmit from
its existing orbital locations. Such right of first refusal also may not be
available to the NRTC if the NRTC is in default under the Hughes Agreement or if
the NRTC is unable to raise sufficient funds from its then existing members or
others to purchase rights in any successor Hughes satellite. Whether or not a
right of first refusal exists, the terms and conditions, including the financial
terms, of any continuing relationship between the NRTC and Hughes following the
expiration of the NRTC Agreements cannot be predicted. Moreover, the terms and
conditions, including the financial terms under which the NRTC may make
available such rights to the Company and other NRTC members and affiliates is
unknown, which may impact the economics of the Company's business and its
ability to meet its obligations, including in respect of the Notes. In the event
the Company is unable to acquire DIRECTV Programming through Hughes and the NRTC
after the expiration of the NRTC Agreements, the Company would be required to
acquire such DBS services from others, or to attempt to sell its subscriber base
to one or more other DBS providers (which it may be unable to do for contractual
or other reasons) and cease or fundamentally change its business operations.
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ABILITY TO MANAGE GROWTH EFFECTIVELY
The Company has experienced a period of rapid growth, primarily as a result
of acquisitions. In order to achieve its business objectives, the Company
expects to continue to expand largely through acquisitions of additional Rural
DIRECTV Markets, which have placed and will continue to place a significant
strain on its management, operating systems and procedures, financial resources,
employees and other resources. This growth has affected the preparation of
financial and operating information, and the Company has hired additional
personnel and implemented additional accounting practices and procedures to
address this concern. The Company will need to continue to improve its
operational systems and procedures and to hire and retain additional qualified
personnel as the size of its operations grows. If the Company is unable to do
so, the Company's financial condition and results of operations could be
materially adversely affected.
DEPENDENCE ON KEY PERSONNEL
The Company's future success may depend to a significant extent upon the
performance of a number of the Company's key personnel, including Rodney A.
Weary, who is the Company's Chief Executive Officer. The Company has employment
and non-competition agreements with Mr. Weary and seven other executives. See
"Management." Although the Company maintains "key-man" insurance on the life of
Mr. Weary, the loss of Mr. Weary or other key management personnel or the
failure to recruit and retain additional qualified personnel could have a
material adverse effect on the Company's financial condition and results of
operations.
COMPETITION AND TECHNOLOGICAL CHANGE
The industry in which the Company operates is highly competitive, and the
Company expects to face intense competition from existing and future
competitors. The Company's competitors include a broad range of companies
engaged in the provision of communications and entertainment services, including
cable operators, other direct-to-home ("DTH") programming providers, wireless
cable operators, broadcast television networks and home video products
companies, as well as companies developing new technologies. Certain of these
competitors and potential competitors are well established companies and have
significantly greater financial and marketing resources than the Company. The
Company expects to compete primarily against providers of subscription
programming, such as cable and satellite operators. The Company also expects to
encounter a number of challenges in competing with cable television providers.
Cable operators generally have large installed customer bases, and many cable
television operators have significant investments in, and access to,
programming. The Company anticipates that many cable systems in the United
States will be upgraded to provide better quality programming and a better
signal than are currently available through cable, but that cable's programming
and signal will remain inferior to those available through DBS services. The
Company further believes that due to the expense of upgrading less densely
populated areas such as those within the Rural DIRECTV Markets, cable systems in
the Rural DIRECTV Markets in general will be upgraded more slowly (if at all)
than those in more densely populated areas. In order to substantially increase
its subscriber base, however, the Company may find it necessary to attract
customers who currently subscribe to cable.
The Company competes with companies offering programming through various
satellite broadcasting systems, although DIRECTV, USSB and EchoStar
Communications Corporation ("EchoStar") are the only current domestic DBS
operators. All other domestic DTH operators currently transmit from low power or
medium power satellites, which generally require the use of larger and, in the
case of low power DTH broadcasting, more expensive dishes. Several companies,
including medium power DTH operators, have announced plans to broadcast from DBS
satellites. Certain regional telephone operators have also expressed an interest
in becoming subscription television providers. The entry of these competitors
into the subscription television market would increase competition substantially
and could have a material adverse effect on the financial condition and results
of operations of the Company.
A variety of other technologies are under development that could result in
increased competition for the Company, including, among others, the expansion of
the Internet to include and use developing video and audio compression
technologies to develop the "information superhighway." There can be no
assurance that
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additional competitors will not enter the markets that the Company serves or
that the Company will be able to succeed against such competition. Moreover,
changes in technology could lower the cost of competitive services to a level
where the Company's services will become less competitive or where the Company
will need to reduce its service prices in order to remain competitive. See
"Business -- Competition."
REGULATION; PRIMETIME 24 LITIGATION
Unlike cable operators, DBS operators such as DIRECTV are free to set
prices and serve customers according to their business judgment, without rate of
return and other regulation. However, there are laws and regulations that affect
DIRECTV and, therefore indirectly, the Company. As an operator of a privately
owned United States satellite system, DIRECTV is subject to the regulatory
jurisdiction of the FCC, primarily with respect to (i) licensing of satellites,
(ii) avoidance of interference with other broadcasting signals and (iii)
compliance with rules that the FCC has established specifically for DBS
satellite licenses.
State and local authorities in some jurisdictions (including some
residential developments) restrict or prohibit the use of satellite dishes
pursuant to zoning and other regulations. The FCC has adopted new rules that
preempt state and local regulations that affect satellite dishes that are (i)
three feet or less in diameter in any area or (ii) six feet or less in diameter
in any area where commercial or industrial uses are generally permitted by local
land use regulation. As the DSS dishes are only 18 inches in diameter, the FCC's
rules are expected to ease local regulatory burdens on the use of such dishes.
See "Business -- Regulation."
The Satellite Home Viewer Act of 1994 (the "SHVA") establishes a
"compulsory" copyright license that allows a DTH operator, for a
statutorily-established fee, to retransmit network programming to subscribers
for private home viewing so long as that retransmission is limited to those
persons in unserved households. In general, an "unserved household" is one that
cannot receive, through the use of a conventional outdoor rooftop antenna, a
sufficient over-the-air network signal, and has not, within 90 days prior to
subscribing to the DTH service, subscribed to a cable service that provides that
network signal. Certain television broadcast networks and their affiliates have
commenced litigation against PrimeTime 24 Joint Venture ("PrimeTime 24"), a
satellite provider of network programming, regarding alleged violations of the
SHVA. PrimeTime 24 provides network programming to several satellite providers,
including DIRECTV (and its distributors, including NRTC DBS members and
affiliates such as the Company) and providers of programming for C-band
satellite services. On July 10, 1998, a Federal District Court in Florida
granted a preliminary injunction effectively prohibiting PrimeTime 24 from
providing CBS and Fox network programming to certain households in designated
geographic areas (based on Longley-Rice propagation maps recognized by the Court
as identifying those households that receive "a signal of at least Grade B
intensity" or past subscription to cable) and to any business. The preliminary
injunction further required the disconnection within 90 days of any such current
PrimeTime 24 customers for CBS or Fox programming that began receiving PrimeTime
24's network programming via satellite after March 11, 1997, unless the local
network affiliate consents or a signal-strength test proves that a certain
quality of off-air service is unavailable to the customer. The injunction also
imposed other obligations on PrimeTime 24 and its distributors with respect to
future sales of Fox and CBS programming nationwide. There can be no assurance as
to how long the preliminary injunction will remain in effect or as to what final
relief may ultimately be granted to the plaintiffs. On September 30, 1998, the
Florida court issued an order granting PrimeTime 24 until February 28, 1999 to
comply with the terms of the injunction. In addition, on July 16, 1998, a
Federal District Court in North Carolina issued an order holding that PrimeTime
24 had violated the copyright provisions and reporting obligations under the
SHVA with respect to ABC network programming in the Raleigh-Durham market. On
August 19, 1998, the court issued a permanent injunction restraining PrimeTime
24 (and its distributors) from providing retransmission of any television
station affiliated with ABC to any household located within 75 miles of the
transmission tower of WTVD, the ABC affiliate serving the Raleigh-Durham market.
Similar litigation brought by an NBC affiliate is also pending in Texas. It is
unclear whether PrimeTime 24, and its agents and distributors, will be subjected
to claims of damages or other judicially ordered relief through these or other
proceedings.
In November 1998, the FCC adopted a notice of proposed rulemaking to
consider whether and how it might redefine the standard for measuring a "Grade B
intensity" signal for purposes of the SHVA. The FCC has publicly stated that it
will attempt to complete this rulemaking prior to February 28, 1999. In
addition, in
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October 1998, EchoStar filed a lawsuit in the United States District Court of
Colorado seeking a declaratory ruling establishing a predictive model for
determining whether a household is "unserved" for purposes of the SHVA based on
a "Longley-Rice" predictive model that applies a criteria of 95% of the
locations receiving a Grade B signal 95% of the time with a 50% degree of
confidence. The lawsuit also asks the court to clarify the particular means
(e.g., antenna height and orientation) for measuring signal strength.
While the Company believes that it has complied to date with the SHVA in
providing network programming only to "unserved households" and the Company does
not believe that the interpretations of the SHVA applied by the Florida and
North Carolina federal courts will materially adversely affect the Company's
financial results or its ability to attract new subscribers, there can be no
assurance that the Company's inability to provide network services to certain
subscribers will not have such effects. In addition, should the Company elect to
continue to offer network services, there can be no assurance that the costs of
compliance with those interpretations will not be material. The inability of
DIRECTV and the Company to provide network programming to subscribers in Rural
DIRECTV Markets could adversely affect the Company's average programming revenue
per subscriber and subscriber growth. See "Business -- Regulation."
In October 1997, the United States Copyright Office recommended that the
compulsory copyright fees for the retransmission of television "superstations"
and broadcast network affiliates by satellite providers be increased. The new
rates took effect on January 1, 1998. Although an exact comparison between
copyright fees payable by cable operators and by satellite providers is not
possible, it has been estimated that the new rates would be approximately 300%
and 900% of the rates applicable to cable providers in their provision of the
superstation signals and network signals, respectively. While the Company is
aware of efforts to overturn this decision, there can be no assurance that it
will be overturned. Under the terms of the NRTC Agreements, the Company may
expect to have this cost passed along to it, unless the NRTC elects to absorb
all or a portion of the increased rate into the margin that it earns on the
provision of DIRECTV Programming.
RELIANCE ON SATELLITE TRANSMISSION TECHNOLOGY
There are numerous risks associated with satellite transmission technology,
in general, and DIRECTV's delivery of DBS services, in particular. Satellite
transmission of video, audio and other data is highly complex and requires the
manufacture and integration of diverse and advanced components that may not
function as expected. Although according to Hughes and USSB the DIRECTV
satellites used to provide the DBS services have estimated orbital lives of
approximately 15 years from their respective launches in December 1993, August
1994 and June 1995, there can be no assurance as to the longevity of the
satellites or that loss, damage or changes in the satellites as a result of acts
of war, anti-satellite devices, electrostatic storms or collisions with space
debris will not occur. While the Company does not believe that the loss of a
single satellite would adversely affect its operations, the loss of two or more
satellites could have a material adverse effect on DIRECTV and the Company.
Furthermore, the digital compression technology used by DBS providers is not
standardized and is undergoing rapid change. Such changes or other technological
changes or innovations may require modifications to ground station programming
uplink facilities, satellites and subscriber equipment, which modifications
could be costly. Such costs would likely be passed through by DIRECTV or the
NRTC to the Company, and would be borne by the Company to the extent it could
not pass such costs through to its subscribers in the form of higher fees.
RISK OF SIGNAL THEFT
The delivery of subscription programming requires the use of encryption
technology. Signal theft or "piracy" in the C-band DTH, cable television and
European DBS industries has been widely reported. There can be no assurance that
the encryption technology used in the DSS Equipment will remain totally
effective. If the DSS Equipment encryption technology is compromised in a manner
that is not promptly corrected, the Company's revenue could be adversely
affected.
DIRECTV and the Company are prohibited by law from providing DIRECTV
Programming outside the United States. Despite subscribers' assurances that they
receive programming within one of the Company's Rural DIRECTV Markets, a portion
of the Company's subscribers may, in fact, be receiving DIRECTV Programming
outside the Company's markets. If the Company must disconnect a significant
portion of its
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subscribers because they receive services outside the Company's Rural DIRECTV
Markets, the Company's financial condition and results of operations could be
adversely affected.
DEPENDENCE ON THIRD PARTY PROGRAMMERS
DIRECTV, and therefore the Company, is dependent on third parties to
provide high-quality programming that appeals to mass audiences. DIRECTV's
programming agreements have terms that expire on various dates with different
renewal and cancellation provisions. There can be no assurance that any such
agreements will be renewed or will not be canceled prior to expiration of their
original term. In the event any such agreements are not renewed or are canceled,
there is no assurance that DIRECTV would be able to obtain or develop substitute
programming, or that such substitute programming would be comparable in quality,
marketability or cost to the Company's existing programming. The ability of the
Company to compete successfully will depend on DIRECTV's ability to continue to
obtain desirable programming and attractively package it to its customers at
competitive prices. See "Business -- DIRECTV."
Pursuant to the Cable Television Consumer Protection and Competition Act of
1992 (the "Cable Act") and the FCC's rules, programming developed by vertically
integrated cable-affiliated programmers generally must be offered to all
multi-channel video programming distributors on nondiscriminatory terms and
conditions. The Cable Act and the FCC's rules also prohibit certain exclusive
programming contracts. The Company anticipates that DIRECTV will continue to
purchase a substantial percentage of its programming from cable-affiliated
programmers. Certain of the restrictions on cable-affiliated programmers will
expire in 2002 unless extended by the FCC or Congress. As a result, any
expiration of, amendment to, or interpretation of, the Cable Act and the FCC's
rules that permits the cable industry or programmers to discriminate in the sale
of programming against competing businesses, such as that of DIRECTV, could
adversely affect DIRECTV's ability, and therefore the Company's ability, to
acquire programming or acquire programming on a cost-effective basis.
LIMITED CONSUMER ADOPTION OF SATELLITE TELEVISION
The Company believes that one of the largest hurdles to the mass market
adoption of DBS has been the cost to the subscriber of purchasing the DSS
Equipment, currently ranging from $99 to $299 depending upon the level of
features desired and number of television sets to be connected. While the cost
of such equipment has decreased over time, and the Company believes that the
suppliers of the subscriber equipment have strong incentives to supply equipment
at affordable prices as the subscriber base expands and as competition increases
among equipment vendors, there can be no assurance that such costs will continue
to decrease. To the extent that the cost of the equipment remains an obstacle to
increased demand for satellite services offered by the Company, the growth of
the Company's subscriber base could be delayed, adversely affecting the
Company's financial condition and results of operations.
Another potential hurdle to widespread adoption of DBS is that subscribers
do not receive local news and sports in the DIRECTV Programming. In order to
make such programming available to its subscribers, the Company integrates an
off-air antenna into its equipment package upon request by the subscriber. While
all of the major DBS providers, including DIRECTV, offer broadcast network
channels on an a la carte or package basis, it is unclear whether FCC
regulations prohibit satellite providers from selling network programming to
households that can receive a signal from that network's local affiliate station
using traditional off-air antennae. Certain subscribers may not be willing to
purchase DBS because of this uncertainty. See "-- Regulation; PrimeTime 24
Litigation."
CERTAIN CONSEQUENCES OF ESCROW ACCOUNT RELATED TO BANKRUPTCY
The right of the Trustee under the Indenture and the Escrow Agent under the
Escrow Agreement to foreclose upon and sell collateral upon the occurrence of an
Event of Default is likely to be impaired significantly by applicable bankruptcy
law if a bankruptcy or reorganization case were to be commenced by or against
the Company or one or more of its subsidiaries. Under applicable bankruptcy law,
secured creditors such as the holders of the Notes are prohibited from
foreclosing upon or disposing of a debtor's property without prior bankruptcy
court approval. The Escrow Account is only pledged to secure the first four
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scheduled interest payments on the Notes, including amounts accruing following
the commencement of any bankruptcy or reorganization case. See "Description of
the New Notes -- Escrow Account."
ABSENCE OF PUBLIC MARKET FOR THE NEW NOTES
The New Notes are being offered to the holders of the Old Notes. The Old
Notes were sold to the Initial Purchasers on July 31, 1997 and then resold to
Qualified Institutional Buyers (as defined in Rule 144A under the Securities
Act) and pursuant to offers and sales outside the United States within the
meaning of Regulation S under the Securities Act and are eligible for trading in
the Private Offerings, Resale and Trading through Automated Linkages (PORTAL)
market. The New Notes are securities for which there currently is no market. If
the New Notes are traded, they may trade at a discount from their face value,
depending upon prevailing interest rates, the market for similar securities, and
other factors. The Company does not intend to apply for listing of the New Notes
on any securities exchange or the Nasdaq National Market. Accordingly, there can
be no assurance as to the development or liquidity of any trading market for the
New Notes.
CONSEQUENCES OF THE EXCHANGE OFFER TO NON-TENDERING HOLDERS OF THE OLD NOTES
In the event the Exchange Offer is consummated, the Company will not be
required to register the Old Notes. In such event, the New Notes would rank pari
passu with the Old Notes, and the holders of Old Notes seeking liquidity in
their investment would have to rely on exemptions from registration requirements
under the securities laws, including the Securities Act. A reduction of the
aggregate principal amount of the Old Notes outstanding as a result of the
consummation of the Exchange Offer may have an adverse effect on the ability of
holders of the Old Notes to transfer such Old Notes.
YEAR 2000 COMPLIANCE
Many existing computer systems and software products use only two character
fields to identify dates. These programs were designed and developed without
consideration of the upcoming turn of the century. Significant uncertainty
exists in the software industry concerning the potential consequences of the
Year 2000 phenomenon. If not corrected, these computer applications could fail
or create erroneous information from the Year 2000 date change. This issue
affects virtually all organizations and can be very costly and time consuming to
correct. There can be no assurance that the software products currently used by
the Company contain all necessary date code changes. Management is currently
conducting surveys of all of its vendors and other pertinent relationships to
assess their readiness for Year 2000 processing. The Company is significantly
reliant on contracted data processing services from the NRTC and DIRECTV for
customer service, billing and remittance processing pursuant to the Company's
contractual relationship with the NRTC. The NRTC has informed the Company that
the computer systems that provide such services are not currently Year 2000
compliant, but that such systems will be compliant by April 1999. The Company is
reliant on DIRECTV for distribution of its DBS programming services. DIRECTV has
informed the Company that it expects to establish Year 2000 compliance for its
satellite programming, subscriber databases, and customer billing systems by the
end of the first calendar quarter of 1999. In addition to the NRTC and DIRECTV,
the Company is significantly reliant on other parties (such as its suppliers of
DSS Equipment) for the successful conduct of its business. As previously
described, the Company is in the process of ascertaining the Year 2000 readiness
of these third-parties. If the Company's plan is not successful or is not
completed in a timely manner, the Year 2000 issue could significantly disrupt
the Company's ability to transact business with its customers and suppliers, and
could have a material impact on its operations. There can be no assurance that
the systems of the NRTC, DIRECTV and other companies with which the Company's
systems interact or depend will be compliant by the end of 1999, or that any
such third party failure would not have an adverse effect on the Company's
business or its operations. Any adverse impact on subscribers in the Company's
Rural DIRECTV Markets could also have a material adverse effect on the Company's
business, financial condition and results of operations. See "Management's
Discussion and Analysis of Results of Operations and Financial Condition -- Year
2000 Compliance."
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USE OF PROCEEDS
The Company will not receive any proceeds from the issuance of New Notes
pursuant to the Exchange Offer. The Offering resulted in net proceeds to the
Company of approximately $189.2 million (after payment of underwriting discounts
and other issuance costs aggregating approximately $5.8 million). Approximately
$45.2 million of the net proceeds of the Offering were placed in escrow to fund
the first four semi-annual interest payments (through August 1, 2000) on the
Notes. As of September 30, 1998, approximately $118.0 million of the remaining
net proceeds had been utilized ($83.3 million for the retirement of existing
indebtedness and related accrued interest, $15.0 million in acquisitions, $14.4
million for working capital purposes, and $5.3 million was placed in escrow to
cover a portion of the contingent reduction of the Company's availability under
the Credit Facility). The remaining $26.0 million in proceeds was utilized to
finance acquisitions in October, 1998. See "Management's Discussion and Analysis
of Operations and Financial Condition -- Liquidity and Capital Resources."
The Credit Facility currently provides for a $35.0 million term loan
facility and a $115.0 million revolving credit facility, with a $40.0 million
sublimit for letters of credit. Interest on both the term loan and the revolving
credit facility is, at the Company's option, at either the lenders' base rate
plus an applicable margin or LIBOR plus an applicable margin. On a pro forma
basis, as of September 30, 1998, indebtedness incurred under the Credit Facility
was comprised of $35.0 million borrowed under the term loan facility and $20.0
million borrowed under the revolving credit facility. Such borrowing was used,
together with funds from the Company's equity financings, to acquire the
exclusive rights to provide DIRECTV Programming in the Company's Rural DIRECTV
Markets, to cover operating losses and for general corporate purposes. See
"Description of Other Indebtedness -- Credit Facility."
THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER
The holders of the Old Notes currently are entitled to certain registration
rights under the Registration Rights Agreement. Pursuant thereto, the Company
became obligated to file with the Commission a registration statement covering
the offer by the Company to the holders of the Old Notes to exchange all of the
Old Notes for the New Notes. The Exchange Offer being made hereby, if
consummated, will satisfy the Company's obligations under the Registration
Rights Agreement.
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal, the Company will accept all Old
Notes properly tendered and not withdrawn prior to 5:00 p.m., New York City
time, on the Expiration Date. The Company will issue $1,000 principal amount of
New Notes in exchange for each $1,000 principal amount of outstanding Old Notes
accepted in the Exchange Offer. Holders may tender some or all of their Old
Notes pursuant to the Exchange Offer.
Based on an interpretation by the staff of the Commission set forth in
no-action letters issued to third parties, the Company believes that the New
Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be
offered for resale, resold and otherwise transferred by the holders thereof
(other than any such holder that is an "affiliate" of the Company within the
meaning of Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that such New Notes are acquired in the ordinary course of such holders'
business, and such holders have no arrangement with any person to participate in
the distribution of such New Notes. See Morgan Stanley & Co., Inc., SEC
No-Action Letter (available June 5, 1991), Exxon Capital Holdings Corporation,
SEC No-Action Letter (available May 13, 1988), and Shearman & Sterling, SEC
No-Action Letter (available July 2, 1993).
If any person were to be participating in the Exchange Offer for the
purposes of distributing securities in a manner not permitted by the
Commission's interpretation, such person (i) could not rely on the position of
the staff of the Commission enunciated in Exxon Capital Holdings Corporation or
similar interpretive letters and (ii) must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction.
26
<PAGE> 30
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. The Letter of Transmittal states
that by so acknowledging and by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from time
to time, may be used by a broker-dealer in connection with resales of New Notes
received in exchange for Old Notes where such Old Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities. See "Plan of Distribution."
As of the date of this Prospectus, there was $195,000,000 aggregate
principal amount of the Old Notes outstanding. This Prospectus, together with
the Letter of Transmittal, is being sent to all such registered holders as of
the date of this Prospectus.
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given written notice thereof to the Exchange
Agent. The Exchange Agent will act as agent for the tendering holders of Old
Notes for the purposes of receiving the New Notes from the Company and
delivering New Notes to such holders.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, certificates for any such unaccepted Old Notes will be returned,
without expense, to the tendering holder thereof as promptly as practicable
after the Expiration Date.
If Old Notes are not tendered, they shall remain outstanding and shall
continue to accrue interest from their date of issue, July 31, 1998, at a rate
of 12 3/8% per annum.
In the event the Exchange Offer is consummated, the Company will not be
required to register the Old Notes. In such event, holders of Old Notes seeking
liquidity in their investment would have to rely on exemptions to registration
requirements under the securities laws, including the Securities Act. See "Risk
Factors -- Consequences of the Exchange Offer to Non-Tendering Holders of the
Old Notes."
The term "Expiration Date" shall mean the expiration date set forth on the
cover page of this Prospectus, unless the Company, in its sole discretion,
extends the Exchange Offer, in which case the term "Expiration Date" shall mean
the latest date to which the Exchange Offer is extended.
In order to extend the Expiration Date, the Company will notify the
Exchange Agent of any extension by written notice and will mail to the record
holders of Old Notes an announcement thereof, each prior to 9:00 a.m., New York
City time, on the next business day after the previously scheduled Expiration
Date. Such announcement may state that the Company is extending the Exchange
Offer for a specified period of time.
In addition, the Company will issue notice of each such extension by press
release or other public announcement as contemplated by the provisions of Rule
14e-1 promulgated under the Exchange Act.
INTEREST ON THE NEW NOTES
The New Notes will bear interest from July 31, 1998, payable semiannually
on February 1 and August 1 of each year, commencing February 1, 1999, at a rate
of 12 3/8% per annum.
PROCEDURES FOR TENDERING
The tender to the Company of Old Notes by a holder thereof pursuant to one
of the procedures set forth below will constitute an agreement between such
holder and the Company in accordance with the terms and subject to the
conditions set forth herein and in the Letter of Transmittal.
A holder of Old Notes may tender the same by (i) properly completing and
signing the Letter of Transmittal or a facsimile thereof (all references in this
Prospectus to the Letter of Transmittal shall be deemed to include a facsimile
thereof) and delivering the same, together with the certificate or certificates
representing the Old Notes being tendered and any required signature guarantees,
to the Exchange Agent at its address set forth on the back cover of this
Prospectus on or prior to the Expiration Date (or complying with
27
<PAGE> 31
the procedure for book-entry transfer described below) or (ii) complying with
the guaranteed delivery procedures described below.
If tendered Old Notes are registered in the name of the signer of the
Letter of Transmittal and the New Notes to be issued in exchange therefor are to
be issued (and any untendered Old Notes are to be reissued) in the name of the
registered holder (which term, for the purposes described herein, shall include
any participant in The Depository Trust Company (also referred to as a
book-entry transfer facility) whose name appears on a security listing as the
owner of Old Notes), the signature of such signer need not be guaranteed. In any
other case, the tendered Old Notes must be endorsed or accompanied by written
instruments of transfer in form satisfactory to the Company and duly executed by
the registered holder, and the signature on the endorsement or instrument of
transfer must be guaranteed by a commercial bank or trust company located or
having an office or correspondent in the United States, or by a member firm of a
national securities exchange or of the National Association of Securities
Dealers, Inc., which firm must also be a member of or participant in the
Securities Transfer Agents Medallion Program, the New York Stock Exchange
Medallion Signature Program or the Stock Exchanges Medallion Program (any of the
foregoing being hereinafter referred to as an "Eligible Institution"). If the
New Notes and/or Old Notes not exchanged are to be delivered to an address other
than that of the registered holder appearing on the note register for the Notes,
the signature in the Letter of Transmittal must be guaranteed by an Eligible
Institution.
THE METHOD OF DELIVERY OF OLD NOTES AND ALL OTHER DOCUMENTS IS AT THE
ELECTION AND RISK OF THE HOLDER. IF SENT BY MAIL, IT IS RECOMMENDED THAT
REGISTERED MAIL, RETURN RECEIPT REQUESTED, BE USED, PROPER INSTANCE BE OBTAINED,
AND THE MAILING BE MADE SUFFICIENTLY FAR IN ADVANCE OF THE EXPIRATION DATE TO
PERMIT DELIVERY TO THE EXCHANGE AGENT ON OR BEFORE THE EXPIRATION DATE.
The Exchange Agent will make a request promptly after the date of this
Prospectus to establish accounts with respect to the Old Notes at the book-entry
transfer facility for the purpose of facilitating the Exchange Offer, and
subject to the establishment thereof, any financial institution, that is a
participant in the book-entry transfer facility's system may make book-entry
delivery of Old Notes by causing such book-entry transfer facility to transfer
such Old Notes into the Exchange Agent's account with respect to the Old Notes
in accordance with the book-entry transfer facility's procedures for such
transfer. Although delivery of Old Notes may be effected through book-entry
transfer into the Exchange Agent's accounts at the book-entry transfer facility,
an appropriate Letter of Transmittal with any required signature guarantee and
all other required documents must in each case be transmitted to and received or
confirmed by the Exchange Agent at its address set forth on the back cover page
of this Prospectus on or prior to the Expiration Date, or, if the guaranteed
delivery procedures described below are complied with, within the time period
provided under such procedures.
If a holder desires to accept the Exchange Offer, and time will not permit
a Letter of Transmittal or Old Notes to reach the Exchange Agent before the
Expiration Date, or the procedure for book-entry transfer cannot be completed on
a timely basis, a tender may be effected if the Exchange Agent has received at
its office listed on the back cover hereof on or prior to the Expiration Date a
letter, telegram or facsimile transmission from an Eligible Institution setting
forth the name and address of the tendering holder, the names in which the Old
Notes are registered and, if possible, the certificate numbers of the Old Notes
to be tendered, and stating that the tender is being made thereby and
guaranteeing that within five New York Stock Exchange trading days after the
date of execution of such letter, telegram or facsimile transmission by the
Eligible Institution, the Old Notes, in proper form for transfer (or a
confirmation of book-entry transfer of such Old Notes into the Exchange Agent's
account at the book-entry transfer facility), will be delivered by such Eligible
Institution together with a properly completed and duly executed Letter of
Transmittal (and any other required documents). Unless Old Notes being tendered
by the above-described method are deposited with the Exchange Agent within the
time period set forth above (accompanied or preceded by a properly completed
Letter of Transmittal and any other required documents), the Company may, at its
option, reject the tender. Copies of a Notice of Guaranteed Delivery which may
be used by Eligible Institutions for the purposes described in this paragraph
are available from the Exchange Agent.
28
<PAGE> 32
A tender will be deemed to have been received as of the date when (i) the
tendering holder's properly completed and duly signed Letter of Transmittal
accompanied by the Old Notes (or a confirmation of book-entry transfer of such
Old Notes into the Exchange Agent's account at the book-entry transfer facility)
is received by the Exchange Agent, or (ii) a Notice of Guaranteed Delivery or
letter, telegram or facsimile transmission to similar effect (as provided above)
from an Eligible Institution is received by the Exchange Agent. Issuances of New
Notes in exchange for Old Notes tendered pursuant to a Notice of Guaranteed
Delivery or letter, telegram or facsimile transmission to similar effect (as
provided above) by an Eligible Institution will be made only against deposit of
the Letter of Transmittal (and any other required documents) and the tendered
Old Notes.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for exchange of any tender of Old Notes will be
determined by the Company, whose determination will be final and binding. The
Company reserves the absolute right to reject any or all tenders not in proper
form or the acceptance for exchange of which may, in the opinion of the
Company's counsel, be unlawful. The Company also reserves the absolute right to
waive any of the conditions of the Exchange Offer or any defect or irregularity
in the tender of any Old Notes. None of the Company, the Exchange Agent or any
other person will be under any duty to give notification of any defects or
irregularities in tenders or incur any liability for failure to give such
notification.
By tendering, each holder will represent to the Company that, among other
things, (i) the New Notes acquired pursuant to the Exchange Offer are being
obtained in the ordinary course of such holder's business, (ii) such holder has
no arrangement with any person to participate in the distribution of such New
Notes, (iii) such holder is not an "affiliate," as defined under Rule 405 of the
Securities Act, of the Company, and (iv) if such holder is a broker or a dealer
(as defined in the Exchange Act), that it acquired the Old Notes for its own
account as a result of market-making activities on other trading activities and
that it has not entered into any arrangement or understanding with the Company
or any "affiliate" of the Company to distribute the New Notes received in the
Exchange Offer.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date.
To withdraw a tender of Old Notes in the Exchange Offer, a written
transmission notice of withdrawal via telegram, telex, facsimile transmission or
letter must be received by the Exchange Agent at its address set forth herein
prior to 5:00 p.m., New York City time, on the Expiration Date. Any such notice
of withdrawal must (i) specify the name of the person having deposited the Old
Notes to be withdrawn (the "Depositor"), (ii) identify the Old Notes to be
withdrawn (including the certificate number or numbers and principal amount of
such Old Notes), (iii) be signed by the Depositor in the same manner as the
original signature on the Letter of Transmittal by which such Old Notes were
tendered (including any required signature guarantees) or be accompanied by
documents of transfer sufficient to have the Trustee with respect to the Old
Notes register the transfer of such Old Notes into the name of the depositor
withdrawing the tender, and (iv) specify the name in which any such Old Notes
are to be registered, if different from that of the Depositor. All questions as
to the validity, form and eligibility (including time of receipt) of such
withdrawal notices will be determined by the Company, whose determination shall
be final and binding on all parties. Any Old Notes so withdrawn will be deemed
not to have been validly tendered for purposes of the Exchange Offer, and no New
Notes will be issued with respect thereto unless the Old Notes so withdrawn are
validly retendered. Any Old Notes that have been tendered but that are not
accepted for exchange will be returned to the holder thereof without cost to
such holder as soon as practicable after withdrawal, rejection of tender or
termination of the Exchange Offer. Properly withdrawn Old Notes may be
retendered by following one of the procedures described above under
"-- Procedures for Tendering" at any time prior to the Expiration Date.
29
<PAGE> 33
CONDITIONS
The Exchange Offer is not subject to any conditions other than that the
Exchange Offer does not violate applicable law or any applicable interpretation
of the staff of the Commission.
EXCHANGE AGENT
State Street Bank and Trust Company of Missouri, N.A. has been appointed as
Exchange Agent for the Exchange Offer. Questions and requests for assistance and
requests for additional copies of this Prospectus or of the Letter of
Transmittal and deliveries of completed Letters of Transmittal with tendered Old
Notes should be directed to the Exchange Agent addressed as follows:
<TABLE>
<S> <C> <C>
By Hand/Overnight Express: By Facsimile (for Eligible By Mail:
Institutions only): State Street Bank and
State Street Bank and Trust Company of Missouri,
Trust Company of Missouri, (617) 664-5290 N.A.
N.A. Attention: Corporate Trust Two International Place,
61 Broadway, 15th Floor Department 4th Floor
New York, NY 10016 Boston, MA 02110
Attention: Corporate Trust Confirm by telephone: Attention: Corporate Trust
Department Department
(617) 664-5587 Kellie Mullen
</TABLE>
FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by the Company. The principal solicitation for tenders pursuant to the
Exchange Offer is being made by mail. Additional solicitations may be made by
officers and regular employees of the Company and their affiliates in person, by
telegraph or telephone.
The Company will not make any payments to brokers, dealers, or other
persons soliciting acceptances of the Exchange Offer. The Company will, however,
pay the Exchange Agent reasonable and customary fees for its services and will
reimburse the Exchange Agent for its reasonable out-of-pocket expenses in
connection therewith. The Company may also pay brokerage houses and other
custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding copies of this Prospectus, Letters of Transmittal
and related documents to the beneficial owners of the Old Notes, and in handling
or forwarding tenders for exchange.
The expenses to be incurred in connection with the Exchange Offer,
including fees and expenses of the Exchange Agent and Trustee and accounting and
legal fees, but not including transfer taxes, if any, relating to the sale or
disposition of the Old Notes by a holder of the Old Notes, will be paid by the
Company, and are estimated in the aggregate to be $200,000.
30
<PAGE> 34
CAPITALIZATION
The following table sets forth the cash and the total capitalization of the
Company as of September 30, 1998 (i) on an historical basis, and (ii) on a Pro
Forma basis to give effect to the Included Acquisitions. The information set
forth below should be read in conjunction with the Company's Consolidated
Financial Statements and notes related thereto, the financial statements related
to certain of the acquisitions and the Pro Forma Financial Information included
elsewhere in this Prospectus. See "Description of Other Indebtedness -- Seller
Notes," "Description of Other Indebtedness -- Credit Facility," "Pro Forma
Financial Statements," "Use of Proceeds" and "Management's Discussion and
Analysis of Results of Operations and Financial Condition."
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998
------------------------
HISTORICAL PRO FORMA
----------- ----------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................... $ 31,001 $ 5,001
======== ========
Restricted cash(1).......................................... $ 50,940 $ 50,940
======== ========
Long-term debt (including current maturities):
Credit Facility........................................... $ 35,000 $ 54,998
Seller Notes.............................................. 16,407 16,407
Other..................................................... 894 894
Notes..................................................... 195,000 195,000
-------- --------
Total long-term debt.............................. 247,301 267,299
-------- --------
Stockholder's equity:
Common Stock, $.01 par value, 1,000 shares authorized,
issued and outstanding................................. -- --
-------- --------
Additional paid-in capital................................ 87,400 97,600
Accumulated deficit....................................... (56,930) (56,930)
-------- --------
Total stockholder's equity........................ 30,470 40,670
-------- --------
Total capitalization.............................. $277,771 $307,969
======== ========
</TABLE>
- ---------------
(1) Represents the amount of the Escrow Account to fund, together with the
interest received thereon, the first four scheduled interest payments on the
Notes, and $5.3 million deposited with the managing agent of the Credit
Facility to fund the contingent reduction of availability under the term
loan facility.
31
<PAGE> 35
PRO FORMA FINANCIAL STATEMENTS
GENERAL
The following pro forma financial statements reflect (i) the Company's
acquisitions completed since Inception excluding four acquisitions that are
immaterial individually and in the aggregate, and (ii) the Offering. The pro
forma financial statements also exclude revenues and expenses for the Pending
Acquisition and the pro forma effects of one potential acquisition, which is
under negotiation but for which a binding letter of intent has not been
executed. See "Summary of Prospectus -- Pending Acquisitions." The Pro Forma
information is presented as if each of these events had occurred at the
beginning of the period presented with respect to the Statement of Operations
data and as if they had occurred on September 30, 1998 with respect to the
Balance Sheet data.
Historical information for the Company for the year ended December 31, 1997
was derived from audited Consolidated Financial Statements of the Company
included elsewhere in this Prospectus. Historical information for the Company as
of September 30, 1998 and for the nine months then ended has been derived from
the unaudited condensed consolidated financial statements of the Company
presented elsewhere in this Prospectus, which, in the opinion of management,
include all adjustments, consisting of normal recurring adjustments, necessary
for a fair presentation of such data. The financial information for the Included
Acquisitions has been derived from the respective historical financial
statements of the acquired entities included elsewhere in this Prospectus. See
"Summary of the Prospectus -- Pending Acquisitions."
The Pro Forma financial statements and notes thereto are provided for
informational purposes only and do not purport to be indicative of actual or
future results had the Included Acquisitions, the borrowings under the Credit
Facility or the Offering been completed on the dates indicated.
32
<PAGE> 36
STATEMENTS OF OPERATIONS:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
----------------------------
ADJUSTED
INCLUDED PRO
HISTORICAL ACQUISITIONS(1) FORMA
---------- --------------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenue
DBS services..................................... $ 16,452 $ 33,698 $ 50,150
Lease and other.................................. 944 648 1,592
-------- -------- --------
Total revenue............................ 17,396 34,346 51,742
Costs and Expenses:
Cost of DBS services............................. 9,304 20,679 29,983
System operations................................ 3,796 8,574 12,370
Sales and marketing.............................. 7,316 4,580 11,896
General and administrative....................... 2,331 479 2,810
Depreciation and amortization.................... 7,300 20,401 27,701
-------- -------- --------
Total costs and expenses................. 30,047 54,713 84,760
-------- -------- --------
Operating loss..................................... (12,651) (20,367) (33,018)
Non-operating items:
Interest and investment income................... 40 -- 40
Interest expense................................. (3,173) (28,623) (31,796)
-------- -------- --------
Total non-operating items................ (3,133) (28,623) (31,756)
-------- -------- --------
Net loss before extraordinary charge............... (15,784) (48,990) (64,774)
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1998
---------------------------------------
ADJUSTED
INCLUDED PRO
HISTORICAL ACQUISITIONS(2) FORMA
---------- --------------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenue
DBS services..................................... $ 50,139 $ 11,718 $ 61,857
Lease and other.................................. 751 116 867
-------- -------- --------
Total revenue............................ 50,890 11,834 62,724
Costs and Expenses:
Cost of DBS services............................. 29,764 7,469 37,233
System operations................................ 7,317 1,801 9,118
Sales and marketing.............................. 19,560 376 19,936
General and administrative....................... 4,737 39 4,776
Depreciation and amortization.................... 15,814 6,458 22,272
-------- -------- --------
Total costs and expenses................. 77,192 16,143 93,335
-------- -------- --------
Operating loss..................................... (26,302) (4,309) (30,611)
Non-operating items:
Interest and investment income................... 866 -- 866
Interest expense................................. (11,966) (11,975) (23,941)
-------- -------- --------
Total non-operating items................ (11,100) (11,975) (23,075)
-------- -------- --------
Net loss before extraordinary charge............... (37,402) (16,284) (53,686)
======== ======== ========
</TABLE>
33
<PAGE> 37
BALANCE SHEET:
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1998
---------------------------------------
ADJUSTED
INCLUDED PRO
HISTORICAL ACQUISITIONS(3) FORMA
---------- --------------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Current assets
Cash and cash equivalents........................ $ 31,001 $(26,000) $ 5,001
Restricted cash.................................. 50,940 -- 50,940
Subscriber receivables........................... 6,526 601 7,127
Other receivables................................ 1,454 -- 1,454
Earnest deposits................................. 916 -- 916
Inventory........................................ 10,780 -- 10,780
Prepaid expenses................................. 846 -- 846
-------- -------- --------
Total current assets..................... 102,463 (25,399) 77,064
Property and equipment, net........................ 4,494 25 4,519
Intangible assets, net............................. 184,787 56,122 240,909
Deferred financing costs........................... 10,563 -- 10,563
Other assets....................................... 210 -- 210
-------- -------- --------
Total assets............................. $302,517 $ 30,748 $333,265
======== ======== ========
Current liabilities
Trade accounts payable........................... $ 11,731 $ -- $ 11,731
Current maturities of other notes payable and
obligations under capital leases.............. 9,903 -- 9,903
Payable to parent................................ 12 -- 12
Unearned revenue................................. 4,509 550 5,059
Interest payable................................. 4,683 -- 4,683
Accrued payroll and other liabilities............ 1,177 -- 1,177
-------- -------- --------
Total current liabilities................ 32,015 550 32,565
Long-term obligations, net of current portion:
Senior Notes..................................... 195,000 -- 195,000
Credit Facility.................................. 35,000 19,998 54,998
Credit Agreement................................. -- -- --
Other notes payable and obligations under capital
leases, net of current maturities............. 7,398 -- 7,398
Minority interest................................ 2,634 -- 2,634
-------- -------- --------
Total long-term obligations, net of
current
portion................................ 240,032 19,998 260,030
-------- -------- --------
Total liabilities........................ 272,047 20,548 292,595
Total stockholder's equity............... 30,470 10,200 40,670
-------- -------- --------
Total liabilities and stockholder's
equity................................. $302,517 $ 30,748 $333,265
======== ======== ========
</TABLE>
34
<PAGE> 38
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(1) The following represents the unaudited statements of operations and pro
forma adjustments for the Completed Acquisitions for the periods indicated:
<TABLE>
<CAPTION>
ACQUISITIONS COMPLETED IN 1997 ACQUISITIONS COMPLETED IN 1998
--------------------------------------- ---------------------------------------
JANUARY 1,
1997 THROUGH ADJUSTED
ACQUISITION PRO FORMA PRO 1998 PRO FORMA PRO INCLUDED
DATES ADJUSTMENTS FORMA ACQUISITIONS ADJUSTMENTS FORMA ACQUISITIONS
------------ ----------- -------- ------------ ----------- -------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue
DBS services............... $15,680 $ -- $ 15,680 $18,018 $ -- $ 18,018 $ 33,698
Lease and other............ 347 -- 347 301 -- 301 648
Other...................... 1,113 (1,113)(a) -- 256 (256)(a) -- --
------- -------- -------- ------- -------- -------- --------
Total revenue........ 17,140 (1,113) 16,027 18,575 (256) 18,319 34,346
Costs and Expenses
Cost of DBS services....... 9,677 -- 9,677 11,002 -- 11,002 20,679
Other cost of revenue...... 450 (450)(a) -- 134 (134)(a) -- --
System operations.......... 5,469 -- 5,469 3,105 -- 3,105 8,574
Sales and marketing........ 2,333 -- 2,333 2,247 -- 2,247 4,580
General and
administrative........... 258 258 221 -- 221 479
Depreciation and
amortization............. 1,329 (1,329)(b) 7,314 971 (971)(b) 13,087 20,401
7,314(c) 13,087(c)
------- -------- -------- ------- -------- -------- --------
Total costs and
expenses........... 19,516 5,535 25,051 17,680 11,982 29,662 54,713
------- -------- -------- ------- -------- -------- --------
Operating loss............... (2,376) (6,648) (9,024) 895 (12,238) (11,343) (20,367)
------- -------- -------- ------- -------- -------- --------
Non-operating items:
Interest and investment
income................... 209 (209)(d) -- 375 (375)(d) -- --
Interest expense........... (310) 310(d) (26,623) (245) 245(d) (2,000) (28,623)
(26,623)(e) (2,000)(e)
------- -------- -------- ------- -------- -------- --------
Total non-operating
items.............. (101) (26,522) (26,623) 130 (2,130) (2,000) (28,623)
------- -------- -------- ------- -------- -------- --------
Net loss before income taxes
and other.................. (2,477) (33,170) (35,647) 1,025 (14,368) (13,343) (48,990)
Gain on sale of wireless TV
rights................... -- -- -- 4,655 (4,655)(a) -- --
Net profit on asset
disposal................. 4,971 (4,971)(a) -- 173 (173)(a) -- --
------- -------- -------- ------- -------- -------- --------
Net loss before taxes........ 2,494 (38,141) (35,647) 5,853 (19,196) (13,343) (48,990)
------- -------- -------- ------- -------- -------- --------
Income taxes................. 159 (159)(f) -- (23) 23(f) -- --
------- -------- -------- ------- -------- -------- --------
Net loss..................... $ 2,653 $(38,300) $(35,647) $ 5,830 $(19,173) $(13,343) $(48,990)
======= ======== ======== ======= ======== ======== ========
</TABLE>
- ---------------
(a) To give effect to the elimination of other revenue and expense related to
operations not acquired.
(b) To give effect to the elimination of historical amortization of intangible
assets.
(c) To give effect to the amortization of goodwill and other intangible assets
recorded in purchase accounting. Goodwill and other intangible assets
consist of non-compete agreements, customer lists, and goodwill. The
non-compete agreements are amortized over the contract period (3 years)
while customer lists are amortized over 5 years. Goodwill is amortized over
the remaining useful life of the satellites (expiring in 2008), generally
10-12 years depending upon date of acquisition.
(d) To give effect to the elimination of interest income and expense related to
operations not acquired.
(e) To give effect to interest expense on borrowings under Seller Notes, the
Credit Facility and the Offering assumed to be incurred in connection with
the Included Acquisitions as if such borrowings had occurred at the
beginning of the period at their respective historical interest rates.
(f) To give effect to the elimination of historical income tax expense
(benefit).
35
<PAGE> 39
(2) The following represents the unaudited statements of operations and pro
forma adjustments for the Completed Acquisitions for the nine months ended
September 30, 1998:
<TABLE>
<CAPTION>
ACQUISITIONS COMPLETED
JANUARY 1, 1998 THROUGH ACQUISITIONS COMPLETED
SEPTEMBER 30, 1998 AFTER SEPTEMBER 30, 1998
------------------------------------- ------------------------------------------
JANUARY 1,
1998 THROUGH JANUARY 1, ADJUSTED
ACQUISITION PRO FORMA PRO 1998 THROUGH PRO FORMA PRO INCLUDED
DATES ADJUSTMENTS FORMA SEPTEMBER 30, 1998 ADJUSTMENTS FORMA ACQUISITIONS
------------ ----------- -------- ------------------ ----------- ------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
DBS services.............. $ 4,140 $ -- $ 4,140 $7,578 $ -- $ 7,578 $ 11,718
Lease and other........... 59 -- 59 57 -- 57 116
Other..................... 11 (11)(a) -- -- -- -- --
------- -------- -------- ------ ------- ------- --------
Total revenue....... 4,210 (11) 4,199 7,635 -- 7,635 11,834
Costs and Expenses:
Cost of DBS services...... 2,751 -- 2,751 4,718 -- 4,718 7,469
Other cost of revenue..... -- -- -- 2 (2)(a) -- --
System operations......... 733 -- 733 1,068 -- 1,068 1,801
Sales and marketing....... 250 -- 250 126 -- 126 376
General and
administrative.......... 18 -- 18 21 -- 21 39
Depreciation and
amortization............ 194 (194)(b) 1,955 286 (286)(b) 4,503 6,458
1,955(c) 4,503(c)
------- -------- -------- ------ ------- ------- --------
Total costs and
expenses.......... 3,946 1,761 5,707 6,221 4,215 10,436 16,143
------- -------- -------- ------ ------- ------- --------
Operating loss.............. 264 (1,772) (1,508) 1,414 (4,215) (2,801) (4,309)
------- -------- -------- ------ ------- ------- --------
Non-operating items:
Interest and investment
income.................. 42 (42)(d) -- 199 (199)(d) -- --
Interest expense.......... (55) 55(d) (10,475) (79) 79(d) (1,500) (11,975)
(10,475)(e) (1,500)(e)
------- -------- -------- ------ ------- ------- --------
Total non-operating
items............. (13) (10,462) (10,475) 120 (1,620) (1,500) (11,975)
------- -------- -------- ------ ------- ------- --------
Net loss before income taxes
and other................. 251 (12,234) (11,983) 1,534 (5,835) (4,301) (16,284)
Gain on sale of wireless
TV rights............... 1,956 (1,956)(a) -- -- -- -- --
Net profit on asset
disposal................ 8,421 (8,421)(a) -- -- -- -- --
------- -------- -------- ------ ------- ------- --------
Net loss before taxes....... 10,628 (22,611) (11,983) 1,534 (5,835) (4,301) (16,284)
------- -------- -------- ------ ------- ------- --------
Income taxes................ (3,045) 3,045(f) -- (37) 37(f) -- --
------- -------- -------- ------ ------- ------- --------
Net loss.................... $ 7,583 $(19,566) $(11,983) $1,497 $(5,798) $(4,301) $(16,284)
======= ======== ======== ====== ======= ======= ========
</TABLE>
- ---------------
(a) To give effect to the elimination of other revenue and expense related to
operations not acquired.
(b) To give effect to the elimination of historical amortization of intangible
assets.
(c) To give effect to the amortization of goodwill and other intangible assets
recorded in purchase accounting. Goodwill and other intangible assets
consist of non-compete agreements, customer lists, and goodwill. The
non-compete agreements are amortized over the contract period (3 years)
while customer lists are amortized over 5 years. Goodwill is amortized over
the remaining useful life of the satellites (expiring in 2008), generally
10-12 years depending upon date of acquisition.
(d) To give effect to the elimination of interest income and expense related to
operations not acquired.
(e) To give effect to interest expense on borrowings under Seller Notes, the
Credit Facility and the Offering assumed to be incurred in connection with
the Included Acquisitions as if such borrowings had occurred at the
beginning of the period at their respective historical interest rates.
(f) To give effect to the elimination of historical income tax expense
(benefit).
36
<PAGE> 40
(3) The following represents the unaudited balance sheet and pro forma
adjustments as of September 30, 1998, for the 1998 acquisitions completed
subsequent to September 30, 1998:
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998
-------------------------------------------
ADJUSTED
INCLUDED PRO FORMA INCLUDED
ACQUISITIONS ADJUSTMENTS ACQUISITIONS
------------ ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Current Assets
Cash and cash equivalents............................. $ 87 $ (87)(a) $(26,000)
(26,000)(e)
Subscriber receivables................................ 836 (235)(a) 601
Inventory............................................. 170 (170)(a) --
Prepaid expenses...................................... 3 (3)(a) --
------ -------- --------
Total current assets.......................... 1,096 (26,495) (25,399)
Property and equipment, net............................. 359 (334)(a) 25
Intangible assets, net.................................. 1,597 (1,597)(b) 56,122
56,122 (c)
Other assets............................................ 249 (249)(a) --
------ -------- --------
Total assets.................................. $3,301 $ 27,447 $ 30,748
====== ======== ========
Current liabilities
Trade accounts payable................................ $ 794 $ (794)(d) $ --
Unearned revenue...................................... 489 61 (d) 550
Accrued payroll and other liabilities................. 633 (633)(d) --
------ -------- --------
Total current liabilities..................... 1,916 (1,366) 550
Long-term obligations, net of current portion:
Credit facility....................................... -- 19,998 (e) 19,998
Notes payable and obligations under capital leases,
net of current maturities.......................... 1,491 (1,491)(d) --
------ -------- --------
Total long-term obligations, net of current
portion..................................... 1,491 18,507 19,998
------ -------- --------
Total liabilities............................. 3,407 17,141 20,548
Stockholder's equity.................................... (106) 106 (d) 10,200
10,200 (f)
------ -------- --------
Total liabilities and stockholder's equity.... $3,301 $ 27,447 $ 30,748
====== ======== ========
</TABLE>
- ---------------
(a) To give effect to assets not purchased.
(b) To give effect to the elimination of historical intangible assets.
(c) To give effect to intangible assets resulting from the Included
Acquisitions.
(d) To give effect to the elimination of liabilities not assumed and historical
equity.
(e) To give effect to cash utilized and new debt issued under the Credit
Facility in connection with the Acquisitions.
(f) To give effect to the issuance of preferred stock of the Company's parent
in connection with an Included Acquisition.
37
<PAGE> 41
SELECTED CONSOLIDATED FINANCIAL DATA
The selected historical consolidated financial data as of December 31, 1996
and 1997 and for the periods then ended and as of September 30, 1998 and for the
nine-month periods ended September 30, 1997 and 1998 were derived from the
consolidated financial statements of the Company included elsewhere in this
Prospectus, which, in the case of the financial statements for the periods ended
December 31, 1996 and 1997, are audited. The selected consolidated financial
statements data as of September 30, 1998 and for the nine-month periods ended
September 30, 1997 and 1998 have been derived from unaudited consolidated
statements of the Company, which, in the opinion of management, include all
adjustments necessary for a fair presentation of such data. The following
information should be read in conjunction with and "Management's Discussion and
Analysis of Results of Operations and Financial Condition" and the Company's
Consolidated Financial Statements and notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
INCEPTION TO YEAR ENDED SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, ------------------
1996 1997 1997 1998
------------ ------------ ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue
DBS services.................................. $ 219 $ 16,452 $ 8,462 $ 50,139
Lease and other............................... 36 944 675 751
------- -------- ------- --------
Total revenue................................... 255 17,396 9,137 50,890
Costs and Expenses
Cost of DBS services.......................... 130 9,304 4,868 29,764
System operations............................. 26 3,796 2,076 7,317
Sales and marketing........................... 73 7,316 2,898 19,560
General and administrative.................... 1,035 2,331 1,593 4,737
Depreciation and amortization................. 97 7,300 4,352 15,814
------- -------- ------- --------
Total costs and expenses........................ 1,361 30,047 15,787 77,192
------- -------- ------- --------
Operating loss.................................. (1,106) (12,651) (6,650) (26,302)
Net interest expense............................ (61) (3,133) (1,368) (11,100)
------- -------- ------- --------
Net loss before extraordinary charge............ $(1,167) $(15,784) $(8,018) $(37,402)
======= ======== ======= ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- SEPTEMBER 30,
1996 1997 1998
------- -------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 479 $ 13,632 $ 31,001
Restricted cash........................................... -- -- 50,940
Working capital (deficit)................................. (1,948) 3,827 70,448
Total assets.............................................. 6,383 156,236 302,517
Total debt................................................ 4,450 69,113 247,301
Stockholder's equity...................................... (1,166) 70,449 30,470
</TABLE>
38
<PAGE> 42
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following is a discussion of the historical consolidated results of
operations, liquidity and capital resources of the Company. This discussion
should be read in conjunction with the consolidated financial statements of the
Company and the notes related thereto appearing elsewhere in this Prospectus.
OVERVIEW
The Company was formed in June 1996 to acquire rights to distribute DIRECTV
Programming in Rural DIRECTV Markets. The Company is an affiliated associate
member of the NRTC. The Company acquired its first DIRECTV market territory in
November 1996. Since Inception, the Company has acquired 43 territories with
rights to provide DIRECTV Programming to approximately 1.7 million households.
The aggregate purchase price for the Completed Acquisitions totaled
approximately $247.3 million, or approximately $143 per household. Following
each Completed Acquisition, the Company has created a strong local presence in
such Rural DIRECTV Market. The Company has established, or is in the process of
establishing, 60 offices in its territories and has established dealer
relationships with over 350 local retailers of DSS Equipment.
The Company has a binding letter of intent relating to one Pending Pro
Forma Acquisition for a purchase price of approximately $2.6 million. See
"Summary of the Prospectus -- Pending Acquisitions." The Rural DIRECTV Market
being purchased includes approximately 5,000 households and 1,600 current
subscribers.
In addition to growth by acquisitions, the Company has increased its
subscriber base through increased penetration of its Rural DIRECTV Markets.
Management believes that there is a substantial opportunity to increase
penetration through local marketing. Most of the NRTC members from which the
Company acquires Rural DIRECTV Markets generally have not engaged in significant
marketing efforts, but rather have relied primarily on the consumer to take the
initiative to acquire service.
The Company has experienced net losses as well as negative EBITDA and
operating cash flows from operations since its inception. These operating
shortfalls are primarily the result of the Company's rapid subscriber growth and
acquisitions of Rural DIRECTV Markets. The Company intends to continue its focus
on acquisitions of Rural DIRECTV Markets and rapid subscriber growth in its
existing Rural DIRECTV Markets, which will negatively impact short-term
operating results. In addition, the Company has continued to incur increasing
monthly net losses with a corresponding decline in stockholder's equity.
In particular, the Company has incurred significant sales and marketing
expense in its effort to rapidly build its subscriber base. Many of these
expenses, which are expensed as incurred and include advertising and promotional
expenses, sales commissions and DSS Equipment and installation subsidies, are
incurred at or before the time a new subscriber is activated. As a result,
revenue attributable to new subscribers lags the expense incurred in acquiring
same. The impact of this lag generally increases with the rate at which the
Company adds subscribers. The Company's rapid subscriber growth and related
subscriber acquisition costs have been significant contributors to the Company's
net losses and negative EBITDA experienced to date, and will continue to
negatively affect operating results in the near term as the Company continues to
add new subscribers. However, as long as a subscriber remains in service, future
operating results benefit from a recurring monthly revenue stream with minimal
additional sales and marketing expense. Because the Company's churn rate has
historically averaged approximately 8% annually, the Company believes that its
investment in building its subscriber base rapidly will enhance EBITDA and
operating results in the longer term.
EBITDA represents earnings before interest, taxes, depreciation and
amortization. Although EBITDA is not a measure of performance under generally
accepted accounting principles, EBITDA is commonly used in the communications
industry to analyze companies on the basis of operating performance, leverage
and liquidity. Additionally, EBITDA is the basis for many of the Company's
financial covenants. Nevertheless, EBITDA is not intended to represent cash
flows for the period, nor has it been presented as an alternative to operating
income as an indicator of operating performance and should not be considered in
isolation or as a
39
<PAGE> 43
substitute for measures of performance determined in accordance with generally
accepted accounting principles. During the year ended December 31, 1997, the
Company used net cash of $3.2 million in operating activities, used net cash of
$120.7 million in investing activities, and provided net cash of $137.0 million
from financing activities. During the nine months ended September 30, 1998, the
Company used net cash of $25.7 million in operating activities, used net cash of
$113.8 million in investing activities, and provided net cash of $156.8 million
from financing activities.
The Company anticipates that its operating margins in the future may be
adversely affected by continued pressure on the retail prices of DSS Equipment
and related installation services, which have continued to decline as a result
of increased competition for DBS subscribers. Correspondingly, the Company
expects that its subscriber acquisition costs, on a per new activation basis,
may continue to increase as it attempts to increase subscriber penetration in
its Rural DIRECTV Markets. Furthermore, the Company believes that competition
from other consolidators of Rural DIRECTV Markets may result in higher costs
associated with the acquisition of additional Rural DIRECTV Markets. All of
these trends may negatively affect the Company's results of operations and
financial condition.
As a result of the Company's historical and anticipated significant growth
rate, the historical operating results of the Company may not be comparable from
period to period.
RESULTS OF OPERATIONS
The following table presents certain items from the Company's consolidated
statements of operations as a percentage of total revenue for the periods noted.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
INCEPTION TO YEAR ENDED SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, ---------------
1996 1997 1997 1998
------------ ------------ ----- -----
<S> <C> <C> <C> <C>
Revenue
DBS services..................................... 85.9% 94.6% 92.6% 98.5%
Lease and other.................................. 14.1 5.4 7.4 1.5
------ ----- ----- -----
Total revenue............................ 100.0% 100.0% 100.0% 100.0%
Costs and Expenses
Cost of DBS services............................. 51.0% 53.5% 53.3% 58.5%
System operations................................ 10.2 21.8 22.7 14.4
Sales and marketing.............................. 28.6 42.0 31.7 38.4
General and administrative....................... 405.9 13.4 17.5 9.3
Depreciation and amortization.................... 38.0 42.0 47.6 31.1
Net interest expense............................. 23.9 18.0 15.0 21.8
Other............................................ -- -- -- 5.1
------ ----- ----- -----
Total expenses........................... 557.6 190.7 187.8 178.6
------ ----- ----- -----
Net loss........................................... (457.6)% (90.7)% (87.8)% (78.6)%
====== ===== ===== =====
</TABLE>
Revenue. The Company earns revenue by providing DIRECTV Programming to
subscribers within the territories in which it has acquired distribution rights.
Revenue earned from subscribers includes programming revenue and equipment lease
revenue. DBS services revenue includes any combination of various monthly
program service plans, additional monthly premium channel program upgrades,
seasonal sports programming packages, one-time event programming on a
pay-per-view basis, and miscellaneous fee revenue related to providing
programming to subscribers. Lease and other revenue principally is comprised of
revenue from the rental of DSS Equipment to subscribers.
Cost of DBS Services. The Company's largest cost of providing service to
its subscribers is the wholesale cost of DIRECTV Programming and related
programming services. The principal components of program-
40
<PAGE> 44
ming costs include miscellaneous service fees and programming costs paid to the
NRTC and a 5% royalty based on programming revenue paid to DIRECTV.
System Operations. System operations expenses include costs of the
Company's central call center operations, field office operations and other
subscriber service expenses. The Company expects that these expenses will
increase as the Company continues to make acquisitions and open additional field
offices. However, many of these costs are fixed in nature, and the Company does
not expect that they will increase in direct proportion to revenue.
Sales and Marketing. Sales and marketing expense includes such costs as
advertising, promotional expenses, marketing personnel expenses, commission
expenses to Company employees and outside sales agents, net equipment and
installation costs, and other marketing overhead costs. The Company subsidizes
the cost to the consumer of DSS Equipment, as well as the cost of installation
of DSS Equipment. Equipment and installation revenues, and related expenses, are
recognized upon delivery and installation of DSS Equipment. Net transaction
costs associated with the sale and installation of DSS equipment are reported as
a component of sales and marketing expenses in the Company's statement of
operations. The Company invests significantly to develop its sales and
distribution systems and to acquire new subscribers. A large part of sales and
marketing expense is comprised of costs related to the addition of new
subscribers. Although the Company anticipates continuing to incur such costs as
it builds its subscriber base, these costs are not expected to increase in
direct proportion to revenue.
General and Administrative. General and administrative expenses include
corporate general office and administration expenses incurred primarily at the
Company's Kansas City corporate office. The Company expects that these expenses
will increase as the Company grows and continues to expand infrastructure.
However, since many of these expenses are fixed in nature, general and
administrative expenses are not expected to increase in direct proportion to
increases in subscribers and revenue.
Depreciation and Amortization. Depreciation and amortization includes
amortization of goodwill and other intangible assets associated with
acquisitions, and depreciation of property and equipment, equipment leased to
customers, and capital lease assets.
Income Taxes. The Company elected Subchapter S Corporation status in 1996.
As an S Corporation, the Company was generally not directly subject to income
taxation and recognized no income tax expense or benefit as an S corporation. On
February 12, 1997, the Company terminated its Subchapter S Corporation status,
and became subject to income taxation as a C Corporation under Subchapter C of
the Internal Revenue Code. The Company has recognized no income tax benefits in
any of the periods presented because it has incurred operating losses in all
periods, and realization of future tax benefits is uncertain.
Nine Months Ended September 30, 1998 Compared to the Nine Months Ended September
30, 1997.
Revenue. DBS services revenue for the nine months ended September 30, 1998
totaled $50.1 million, which represented a 493% increase as compared to the same
period in the prior year. This increase was principally attributable to the
increase in the number of subscribers. The average number of subscribers during
the nine-month period ended September 30, 1998 increased to approximately
136,400, compared to approximately 23,600 during the same period of 1997.
Average monthly programming revenue per subscriber approximated $41 and $40
during those same periods.
Cost of DBS Services. Cost of DBS services increased $24.9 million, or
511%, during the nine months ended September 30, 1998, to $29.8 million. This
increase is consistent with the increase in the average number of subscribers.
As a percentage of DBS services revenue, the cost of DBS services increased to
59% for the nine months ended September 30, 1998, compared to 58% in the nine
months ended September 30, 1997. This increase resulted largely from increased
programming costs, including increased costs associated with certain distant
broadcast network and superstation programming services.
System Operations. System operations costs totaled $7.3 million for the
nine months ended September 30, 1998, a $5.2 million increase (252%) over the
same period in 1997. These costs increased as a result of the increased number
of field offices and related activity resulting from the Company's continued
acquisition
41
<PAGE> 45
of additional Rural DIRECTV Markets, as well as from subscriber growth. As a
percentage of total revenue, system operation costs declined to 14% for the nine
months ended September 30, 1998, from 23% during the nine months ended September
30, 1997. The decrease in system operation costs as a percentage of total
revenues resulted from the increase in subscribers and revenues as previously
described.
Sales and Marketing. Sales and marketing expenses totaled $19.6 million
during the nine months ended September 30, 1998, an increase of $16.7 million
compared to the same period during the previous year. This increase principally
resulted from the increase in new subscriber activations (approximately 64,900
during the nine months ended September 30, 1998, as compared to approximately
10,200 during the same period of 1997). Sales and marketing costs per new
subscriber activation approximated $300 and $290 during the nine-month periods
ending September 30, 1998 and 1997, respectively. Advertising expenses totaled
$3.9 million during the nine months ended September 30, 1998, compared to
$675,000 during the same period in 1997. The increase of $3.2 million resulted
from the Company's increased size and marketing activities.
General and Administrative. During the nine months ended September 30,
1998, general and administrative expenses totaled $4.7 million, compared to $1.6
million during the same period in 1997. The increase in general and
administrative expenses resulted from the addition of administrative resources
necessary to support the Company's growth. As a percentage of total revenue,
general and administrative expenses decreased to 9% during the nine months ended
September 30, 1998, from 17% during the same period in 1997. This decrease
reflects the continued leveraging of these costs, which are partially fixed in
nature, over increased subscribers and revenues.
Earnings Before Interest, Taxes, Depreciation and Amortization. EBITDA for
the nine months ended September 30, 1998 totaled negative $10.5 million,
compared to negative EBITDA of $2.3 million during the same period in 1997. This
increase in negative EBITDA principally resulted from the increases in sales and
marketing activities and related new subscriber activations previously
described.
Depreciation and Amortization. Depreciation and amortization expenses
increased $11.4 million to $15.8 million during the nine months ended September
30, 1998, compared to $4.4 million during the nine months ended September 30,
1997. This increase resulted from higher goodwill and other intangible assets
balances, which have resulted from the Company's continued acquisitions of Rural
DIRECTV Markets.
Interest Expense. Interest expense totaled $12.0 million during the nine
months ended September 30, 1998 and $1.4 million during the comparable period in
1997. This increase primarily resulted from higher outstanding debt balances
and, to a lesser degree, from an increase in weighted-average interest costs.
Year Ended December 31, 1997 Compared to Period from Inception to December 31,
1996
Revenue. DBS Services revenue for the year ended December 31, 1997
increased to $16.5 million from $219,000 for the period from Inception to
December 31, 1996 (the "1996 Period"). Equipment lease revenue was $944,000 for
the year ended December 31, 1997 compared to $36,000 for the 1996 Period. During
1997, the Company acquired rights to provide DIRECTV Programming to
approximately 1.2 million households, which added approximately 64,000
subscribers. In addition, approximately 23,000 subscribers were added through
the Company's sales and marketing efforts. Accordingly, the increase in DBS
Services revenue is attributable to the subscribers acquired by the Company from
its 1997 acquisitions, the inclusion of a full year of revenue for the
subscribers initially acquired in 1996, and the net addition of subscribers in
1997 resulting from the Company's sales and marketing efforts within its
existing territories subsequent to their acquisition. Average monthly
programming revenue per subscriber during the year ended December 31, 1997 was
approximately $37.61, consistent with the approximate $35.44 average for the
1996 Period.
Cost of DBS Services. Costs were $9.3 million for the year ended December
31, 1997 compared to $130,000 for the 1996 Period. The increase in the cost of
DBS services corresponds to the large increase in subscribers added by the
Company in 1997. As a percentage of DBS services revenue, the cost of DBS
services increased to 57% for the year ended December 31, 1997, compared to 59%
for the 1996 Period. This decrease was primarily due to a change in subscriber
revenue mix toward packages with higher margins.
42
<PAGE> 46
System Operations. Systems operations expenses totaled $3.8 million for the
year ended December 31, 1997 and $26,000 for the 1996 Period. The Company opened
its first two field offices in November 1996 and had 36 field offices operating
at December 31, 1997. The increase in systems operations costs is comprised of
the costs from the addition of field offices and other operational support
required to sustain the high level of growth during 1997.
Sales and Marketing. Sales and marketing expenses totaled $7.3 million for
the year ended December 31, 1997 and $73,000 for the 1996 Period. Sales and
marketing expenses were primarily comprised of expenditures for advertising and
promotion, net DSS Equipment and installation subsidies, marketing personnel
costs, and sales commissions associated with the acquisition of new subscribers.
Advertising expenses increased $600,000 to $1.4 million for the year ended
December 31, 1997, compared to $813,000 during the 1996 Period. This increase
resulted from the increase in the size and scope of the Company's operations.
General and Administrative. General and administrative expenses were $2.3
million for the year ended December 31, 1997 and $1.0 million for the 1996
Period. The Company added accounting and administrative resources during 1997 to
support its growth. The decrease in general and administrative expenses as a
percentage of revenue from the 1996 Period to the year ended December 31, 1997
reflects the start-up costs incurred in 1996 and the leveraging of corporate
expenses, many of which are relatively fixed in nature, over increased revenue.
Depreciation and Amortization. Depreciation and amortization totaled $7.3
million for the year ended December 31, 1997 compared to $97,000 for the 1996
Period. The majority of these expenses consisted of the amortization of goodwill
and contract rights associated with acquisitions and depreciation of general
office and field operation assets. The increase for the year ended December 31,
1997 compared to the 1996 Period primarily reflects increased amortization of
goodwill and contract rights resulting from the Company's significant
acquisition activity during 1997.
Interest Expense. Interest expense amounted to $3.2 million for the year
ended December 31, 1997 and $62,000 for the 1996 Period. This increase resulted
primarily from increased borrowings. Borrowings under the Credit Agreement at
December 31, 1997 totaled approximately $60.0 million, and were incurred to fund
1997 acquisitions by the Company and, to a lesser extent, additional working
capital needs associated with the Company's significant growth during the year.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operations require substantial amounts of capital for (i) the
acquisition of additional Rural DIRECTV Markets, (ii) financing subscriber
growth (including subsidizing DSS Equipment and installation, marketing and
selling expenses), (iii) investments in, and maintenance of, field offices in
its Rural DIRECTV Markets, (iv) financing infrastructure development costs
necessary to support the growth of the Company's business, and (v) the funding
of start-up losses and other working capital requirements. The Company's capital
expenditures, inclusive of acquisitions of Rural DIRECTV Markets, totaled $61.9
million and $81.9 million during the nine-month periods ended September 30, 1998
and 1997, respectively, and $121.0 million and $2.9 million during 1997 and the
1996 Period, respectively. During those same periods, net cash flows used in
operations totaled $25.7 million and $2.8 million, respectively, and $3.2
million and $790,000, respectively.
To date, the Company's acquisitions, subscriber growth and operations have
been financed from the issuance of preferred stock, borrowings under its bank
credit facilities, the Offering, and, to a lesser extent, the issuance of
promissory notes to sellers of Rural DIRECTV Markets. During the nine months
ended September 30, 1998, net cash flows from financing activities totaled
$156.8 million, which was comprised of net proceeds of $189.2 million from the
Offering, net repayments of $25.0 million of outstanding borrowings under the
Company's bank credit facilities, deferred financing costs of $4.8 million, and
$2.6 million of repayments on the Company's other indebtedness. In 1997, net
cash flows from financing activities totaled $137.0 million, comprised of $81.2
million from the issuance of preferred stock, deferred financing costs of
43
<PAGE> 47
$3.4 million and $59.2 million of net borrowings under the Company's bank credit
facilities and other indebtedness.
Credit Agreements
During 1997, the Company entered into a credit agreement (the "Credit
Agreement") with a group of financial institutions, which provided for maximum
borrowings of $100.0 million. Loans outstanding under the Credit Agreement bore
interest at variable rates calculated on a base rate, such as the prime rate or
LIBOR, plus an applicable margin. As of December 31, 1997, the Company had
borrowed an aggregate of $60.0 million of term and revolving loans under the
Credit Agreement. During 1998, the Company borrowed an additional $28.0 million
under the Credit Agreement. As described below, during May 1998 all outstanding
borrowings under the Credit Agreement were repaid with borrowings under the
Credit Facility (as defined), and the Credit Agreement was retired. Upon
retirement of the Credit Agreement, the Company recognized a one-time,
extraordinary charge of approximately $2.6 million to write-off, as required by
generally accepted accounting principles, unamortized deferred financing costs
associated with the Credit Agreement.
In May 1998, the Company entered into the Credit Facility, which provides
for a $150.0 million line of credit to fund acquisitions and working capital
requirements. Of this amount, $35.0 million is in the form of term loan
availability and $115.0 million is in the form of revolving credit availability
(including a letter of credit sub-limit of $40.0 million). At September 30,
1998, the Company had fully utilized its term loan availability and had no
outstanding borrowings under the revolving credit line. In addition, at
September 30, 1998, the Company had utilized $19.9 million of the letter of
credit sub-limit. The term loan amortizes in specified quarterly installments
from June 20, 2001 through maturity on March 31, 2005. Availability under the
revolving credit facility reduces by specified amounts over the period from June
30, 2000 through maturity on June 30, 2004. Borrowings under the Credit Facility
bear interest at variable rates (approximately 9% at September 30, 1998)
calculated on a base rate, such as the prime rate or LIBOR, plus an applicable
margin. As of September 30, 1998, the Company's available borrowing capacity
under the Credit Facility approximated $95.1 million. See "Description of Other
Indebtedness."
The Credit Facility contains a number of significant covenants that, among
other things, limit the ability of the Company and its subsidiaries to incur
additional indebtedness and guaranty obligations, create liens and other
encumbrances, make certain payments, investments, loans and advances, pay
dividends or make other distributions in respect of its capital stock, sell or
otherwise dispose of assets, make capital expenditures, merge or consolidate
with another entity, create subsidiaries, make amendments to its organizational
documents or transact with affiliates.
The Credit Facility also contains a number of financial covenants that will
require the Company to meet certain financial ratios and financial condition
tests. These financial covenants, in certain instances, become effective at
different points in time and vary over time. The covenants include limitations
on indebtedness per subscriber ranging from $1,200 to $500, a limitation on net
subscriber acquisition costs of $400 as long as the indebtedness to EBITDA ratio
is 7.0 to 1 or higher, maintenance of a minimum fixed charge coverage ratio of
1.05 to 1, maintenance of a minimum interest coverage ratios ranging from 1.5 to
1 to 3.0 to 1, and limitations on indebtedness to Pro Forma EBITDA ratios
ranging from 12.0 to 1 to 2.0 to 1. Availability under the revolving credit
facility of the Credit Facility depends upon satisfaction of the various
covenants as well as minimum subscriber base requirements.
As of September 30, 1998, the Company was in compliance with all of its
covenants under the Credit Facility.
The Credit Facility provides the lenders with the right to reduce the
aggregate term loan and revolving loan commitments by 50% of the amount by which
the aggregate principal amount of senior subordinated debt issued by the Company
exceeds $150.0 million. As described below, the Offering resulted in net
proceeds to the Company of approximately $144.0 million (after payment of
underwriting discounts and other costs of approximately $5.8 million and
excluding the approximately $45.2 million of proceeds placed in the interest
escrow account). If the relevant provision of the Credit Facility is interpreted
to apply to the net proceeds of the Offering, the lenders would have no right to
reduce their commitments; if the provision is interpreted to
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apply to the gross proceeds of the Offering, the lenders would have such a
right. In an attempt to clarify the application of this provision, the Company
has requested a waiver from the lenders of their possible right to effect a
reduction in the total commitment amount of the Credit Facility. In the event
this waiver request is not granted by the lenders, the Credit Facility's
aggregate term loan and revolving loan commitments could be reduced by $22.5
million. Similarly, the aggregate amount of indebtedness permitted by the
Indenture could be reduced by a like amount. Any such reductions in the
Company's Credit Facility and maximum permitted indebtedness could adversely
affect its ability to finance potential future acquisitions of Rural DIRECTV
Markets and its operations. As a result, the Company may be required to obtain
additional equity or other financing. There can be no assurance that such equity
or other financing would be available on terms acceptable to the Company, or if
available, that the proceeds of such financing would be sufficient to enable the
Company to completely execute its business plan.
The Offering
On July 31, 1998, the Company consummated the Offering of the Notes.
Interest on the Notes is payable in cash semi-annually in arrears on February 1
and August 1 of each year, with the first interest payment due February 1, 1999.
The Notes mature on August 1, 2006. The Offering resulted in net proceeds to the
Company of approximately $189.2 million (after payment of underwriting discounts
and other issuance costs aggregating approximately $5.8 million). Approximately
$45.2 million of the net proceeds of the Offering were placed in the Interest
Reserve Account to fund the first four semi-annual interest payments (through
August 1, 2000) on the Notes. As of September 30, 1998, approximately $118.0
million of the remaining net proceeds had been utilized ($83.3 million for the
retirement of existing indebtedness and related accrued interest, $15.0 million
in acquisitions, $14.4 million for working capital purposes, and $5.3 million
was placed in escrow to cover a portion of the contingent reduction of the
Company's availability under the Credit Facility, as described above). As of
September 30, 1998, the remaining $26.0 million was held in short-term liquid
investments for use in funding future acquisitions of Rural DIRECTV Markets and
working capital requirements. In October 1998, these funds were fully utilized
and the Company began drawing on its availability under its revolving credit
facility, primarily for funding acquisitions and working capital purposes.
The Notes are unsecured senior subordinated obligations of the Company and
are subordinated in right of payment to all existing and future senior
indebtedness. The Notes rank pari passu in right of payment with all other
existing and future senior subordinated indebtedness, if any, of the Company and
senior in right of payment to all existing and future subordinated indebtedness,
if any, of the Company.
The Notes are redeemable, in whole or in part, at the option of the Company
on or after August 1, 2003, at redemption prices decreasing from 112% during the
year commencing August 1, 2003 to 108% on or after August 1, 2005, plus accrued
and unpaid interest, if any, to the date of redemption. In addition, on or prior
to August 1, 2001, the Company may, at its option, redeem up to 35% of the
originally issued aggregate principal amount of the Notes, at a redemption price
equal to 112.375% of the principal amount thereof, plus accrued and unpaid
interest thereon, if any, to the date of redemption solely with the net proceeds
of a public equity offering of the Company or Holdings yielding gross proceeds
of at least $40.0 million and any subsequent public equity offerings (provided
that, in the case of any such offering or offerings by Holdings, all the net
proceeds thereof are contributed to the Company); provided, further, that
immediately after any such redemption the aggregate principal amount of the
Notes outstanding must equal at least 65% of the originally issued aggregate
principal amount of the Notes.
The Indenture contains restrictive covenants that, among other things,
impose limitations on the ability of the Company to incur additional
indebtedness, pay dividends or make certain other restricted payments,
consummate certain asset sales, enter into certain transactions with affiliates,
incur indebtedness that is subordinate in right of payment to any senior
indebtedness and senior in right of payment to the Notes, incur liens, permit
restrictions on the ability of subsidiaries to pay dividends or make certain
payments to the Company, merge or consolidate with any other person or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially all
of the assets of the Company. In the event of a change of control, as defined in
the Indenture, each holder of the Notes will have the right to require the
Company to purchase all or a portion
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of such holder's Notes at a price equal to 101% of the principal amount thereof,
plus accrued and unpaid interest, if any, to the date of purchase. See
"Description of the New Notes."
Future Capital Requirements
The Company's future capital requirements will depend upon a number of
factors, including the extent of the Company's acquisition activities, the rate
of the Company's subscriber growth, and the working capital needs necessary to
accommodate the Company's anticipated growth. The Company expects that increased
investments in its administrative and computer systems will be necessary to
support the Company's increased size and continued growth. The Company currently
subsidizes a portion of the cost of DSS Equipment and subscriber installations.
The extent of such future subsidies may materially affect the Company's
liquidity and capital requirements. In addition, the Company's favorable working
capital position relies, in part, upon the existing terms of its agreements with
the NRTC and the timing for making required payments thereto. Excluding costs
associated with the acquisition of additional Rural DIRECTV Markets, the Company
anticipates that its total capital expenditures, primarily related to expanding
facilities and information systems for customer service operations and field
offices, will not exceed $3.0 million during the year ending December 31, 1998.
During the remainder of 1998 and throughout 1999, the Company expects to
continue its acquisitions of Rural DIRECTV Markets and to expand its marketing
efforts in its existing markets in order to increase its subscriber penetration.
Currently, the Company has a binding letter of intent to acquire one
additional Rural DIRECTV Market for consideration of approximately $2.6 million
(the "Pending Acquisition"). The Pending Acquisition represents approximately
5,000 television households and serves approximately 1,600 subscribers. The
Company is also negotiating to acquire one other Rural DIRECTV Market, which
territory includes approximately 35,000 households and 1,600 subscribers.
Completion of these acquisitions are subject to certain contingencies, such as
the satisfactory completion of due diligence, and other customary conditions to
closing, which may or may not be satisfied. There can be no assurance that these
acquisitions will be consummated.
The Company is highly leveraged and expects to increase its leverage as it
pursues further acquisitions of Rural DIRECTV Markets by borrowing additional
funds under the Credit Facility or otherwise, and by the issuance of other
acquisition-related notes payable. The approximately $16.4 million of Seller
Notes outstanding at September 30, 1998 mature as follows: $9.5 million in 1999,
$1.9 million in 2000, $2.0 million in 2001, $2.0 million in 2002 and $1.0
million in 2003. See "Description of Other Indebtedness." Additional financing
may be required to meet the Company's debt service requirements and, depending
upon the timing of the Company's acquisitions, additional sources of capital may
need to be secured to pursue acquisitions. There can be no assurance that such
additional financing would be available on terms acceptable to the Company, or
at all, and if available, that the proceeds of such financing would be
sufficient to enable the Company to meet its debt service requirements or
completely execute its business plan.
While the Company expects that its current borrowing capacity under the
Credit Facility is sufficient to finance its existing business (including the
Pending Acquisition), there may be a number of factors, some of which may be
beyond the Company's control or ability to predict, that could require the
Company to raise additional capital. These factors include possible acquisitions
of additional Rural DIRECTV Markets, increased costs associated with potential
future acquisitions of Rural DIRECTV Markets, unexpected increases in operating
costs and expenses, subscriber growth in excess of that currently expected, or
an increase in the cost of acquiring subscribers due to increased DSS Equipment
and subscriber installation subsidies, as well as from additional competition,
among other things. There can be no assurance that additional debt, equity or
other financing will be available on terms acceptable to the Company, or at all.
YEAR 2000 COMPLIANCE
The Company is in the process of assessing the impact of the Year 2000
issue on its computer systems and operations. Many existing computer systems and
applications currently use two-digit date fields to designate a year. Date
sensitive systems and applications may recognize the year 2000 as 1900 or not at
all.
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The inability to recognize or properly treat the Year 2000 issue may cause
computer systems and applications to fail to process critical financial and
operational information correctly. This issue affects virtually all
organizations and can be very costly and time consuming to correct.
The Company has reviewed Year 2000 compliance of its internal systems and
believes that such systems are Year 2000 compliant. However, there can be no
assurance that all of the software products currently used by the Company are in
fact Year 2000 compliant. The Company has engaged the services of a consultant
to assist in its assessment of the impact of the Year 2000 issue on its
computerized systems and operations. Additionally, the Company is in the process
of conducting surveys of all of its significant vendors and other pertinent
relationships to assess their readiness for Year 2000 processing.
The Company is significantly reliant on contracted data processing services
from the NRTC and DIRECTV for customer service, billing and remittance
processing pursuant to the Company's contractual relationship with the NRTC. The
NRTC has informed the Company that the computer systems that provide such
services are not currently Year 2000 compliant, but that such systems will be
compliant by April 1999. The Company is reliant on DIRECTV for distribution of
its DBS programming services. DIRECTV has informed the Company that it expects
to establish Year 2000 compliance for its satellite programming, subscriber
databases, and customer billing systems by the end of the first calendar quarter
of 1999. In addition to the NRTC and DIRECTV, the Company is significantly
reliant on other parties (such as its suppliers of DSS Equipment) for the
successful conduct of its business. As previously described, the Company is in
the process of ascertaining the Year 2000 readiness of these third-parties.
Currently, the Company believes its costs to successfully mitigate the Year
2000 issue will not be material to its financial position or results of
operations. If the Company's plan is not successful or is not completed in a
timely manner, the Year 2000 issue could significantly disrupt the Company's
ability to transact business with its customers and suppliers, and could have a
material impact on its operations. There can be no assurance that the systems of
the NRTC, DIRECTV and other companies with which the Company's systems interact
or depend will be compliant by the end of 1999, or that any such third party
failure would not have an adverse effect on the Company's business or its
operations.
To date, the Company has not implemented a Year 2000 contingency plan.
Contingency plans for mission critical systems primarily involve development and
testing of manual procedures or the use of alternate systems. Viable contingency
plans are difficult to develop for certain third party failures, especially in
high-technology industries such as the DBS industry, due to the lack of
alternate suppliers. However, the Company will continue to monitor the progress
of third party remediation efforts and contingency plans. Substantial completion
of the Company's Year 2000 contingency plan is expected in mid 1999. There can
be no assurance that such contingency plans will successfully mitigate any
adverse effects that the Year 2000 issue may have on the Company's operations.
RECENT ACCOUNTING DEVELOPMENTS
In 1997, the FASB issued SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information. This statement, which is effective for the
Company's 1998 annual report, modifies existing segment disclosure requirements.
The Company does not expect implementation to have a significant effect on the
Company's financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("FAS No. 133"). FAS No. 133 is effective
for fiscal years beginning after June 15, 1999. FAS No. 133 establishes
accounting and reporting standards for derivative instruments and for hedging
activities. Currently, Golden Sky has no derivative instruments or hedging
arrangements. Accordingly, adoption of FAS No. 133 is not expected to have a
material effect on the financial position or results of operations of the
Company.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities" ("SOP 98-5"). SOP 98-5, which is effective for fiscal years
beginning after December 15, 1998, defines costs related to start-up activities
and requires that such costs be expensed as incurred. As the Company previously
has expensed all such costs, the adoption of SOP 98-5 is not expected to have a
material effect on the Company's results of operations or financial position.
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BUSINESS
GENERAL
The Company is the second largest independent provider of programming by
DIRECTV, the leading DBS company serving the continental United States. The
Company markets and provides DIRECTV Programming on an exclusive basis to
residential customers in certain Rural DIRECTV Markets and on a non-exclusive
basis to residents of MDUs and commercial customers. The Company has obtained
the exclusive right to provide DIRECTV Programming to homes in its Rural DIRECTV
Markets under agreements between the Company and the NRTC. The NRTC and its DBS
members and affiliates (including the Company) provide DIRECTV Programming in
Rural DIRECTV Markets pursuant to an agreement between the NRTC and Hughes
Communications Galaxy, Inc., DIRECTV's predecessor-in-interest. The Company
estimates that the Rural DIRECTV Markets comprise approximately 9.0 million
households or approximately 9% of total U.S. television households, but account
for approximately 900,000, or approximately 22%, of total DIRECTV customers.
Since its formation by management in June 1996, the Company has:
- acquired 43 Rural DIRECTV Markets in 22 states with approximately 1.7
million households and 124,000 subscribers at the dates of acquisition;
- increased its subscriber base in these markets by over 64% in the
aggregate, to approximately 203,600 as of October 31, 1998, achieving a
subscriber penetration rate of approximately 11.8% through aggressive
marketing and a local service-driven approach to the customer;
- entered into contracts or binding letters of intent to acquire one
additional Rural DIRECTV Market with approximately 5,000 households and
1,600 subscribers.
- commenced marketing and distributing DIRECTV Programming to approximately
3,100 commercial and MDU customers in six cities near its Rural DIRECTV
Markets, with rights to provide such services on a non-exclusive basis
nationwide.
To date, the Company, together with its parent, has raised an aggregate
$87.4 million of equity capital in financings led by investment funds affiliated
with Burr, Egan, Deleage & Co./Alta Communications, Spectrum Equity Investors,
L.P., BancBoston Ventures Inc., Norwest Equity Partners and HarbourVest Partners
LLC. and including an aggregate $2.5 million investment by management. The
Company has also secured $150.0 million of senior bank financing. See
"Management's Discussion of Results of Operations and Financial
Condition -- Liquidity and Capital Resources" and "Certain Relationships and
Related Transactions."
Since inception, the Company's recurring revenue has increased rapidly due
to internal subscriber growth and a low average annual churn rate of
approximately 8%. The Company's net internal subscriber growth in its Rural
DIRECTV Markets for the first nine months of 1998 totaled approximately 49,100.
This represented approximately 6.5% of DIRECTV's net new subscribers nationwide
for the period, although total households in the Company's Rural DIRECTV Markets
represented approximately 1.5% of all television households in the continental
United States. Although the Company incurs substantial costs to add subscribers,
it has relatively low recurring costs to service them. The Company believes
these factors provide an opportunity to increase operating leverage and provide
strong growth in EBITDA. The Company had EBITDA of negative $5.4 million for the
year ended December 31, 1997 and negative $10.5 million for the nine months
ended September 30, 1998.
The Company believes that its exclusive right to provide DIRECTV
Programming in its Rural DIRECTV Markets is attractive for the following
reasons:
- DIRECTV Programming. The Company believes that marketing DIRECTV, the
country's leading DBS provider, gives it a competitive advantage over
providers of other subscription multichannel television services. DIRECTV
offers more channels than competing services at a comparable price,
including a wide variety of programming, exclusive sports packages (such
as NFL Sunday Ticket(TM))
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and a large selection of pay-per-view movies and events. The Company
capitalizes on the recognition of DIRECTV's brand name and on DIRECTV's
programming advantages to broaden the Company's subscriber base in its
Rural DIRECTV Markets. DIRECTV currently has over 50% of all DBS
subscribers nationwide.
- Limited Competition in Rural Markets. Competition from cable television
providers in Rural DIRECTV Markets is often limited. Many households in
rural markets are not passed by traditional cable systems or are served
by analog systems with a small channel capacity (i.e., less than 40
channels) and poor quality signal relative to DBS service. Given the
relatively low housing density in these markets, the build-out of new
systems or upgrade of existing systems may not be cost-effective. Other
entertainment options, such as theaters, movies and sporting events, may
also be limited. The Company believes that this market environment
contributes to a subscriber penetration rate within the Rural DIRECTV
Markets that is currently nearly three times the penetration rate for
DIRECTV in other U.S. markets.
- National Marketing, Distribution and Manufacturing Support. DIRECTV
supports local providers, such as the Company, with a national marketing
campaign, including television and print advertising, and through
alliances with strategic partners such as Southwestern Bell, Bell
Atlantic, GTE, and Home Shopping Network, Inc. DIRECTV also supports its
local providers with an extensive retail distribution network, offering
more channels of distribution and more retail distribution points than
competing services. Three major consumer electronics manufacturers
currently compete to provide customers with DSS Equipment. Management
believes that competition among DSS Equipment providers results in
greater availability, continued product innovation and lower equipment
costs compared to single-source DBS equipment required for some competing
services.
- Consolidation Opportunity. Ownership of Rural DIRECTV Markets has
historically been fragmented, creating an opportunity for the Company to
grow through acquisitions, rationalize operations and create operating
leverage. Because most of the operators from whom the Company has
acquired or may acquire Rural DIRECTV Markets have not engaged in
significant marketing efforts, the Company believes it has the potential
to increase subscriber penetration significantly following acquisition.
Pursuant to its agreements with the NRTC, the Company has the exclusive right to
provide DIRECTV Programming in its Rural DIRECTV Markets, and receives the
monthly service revenue from all DIRECTV subscribers in such markets regardless
of the subscribers' original point of purchase.
In addition to its business in Rural DIRECTV Markets under agreements with
the NRTC, the Company has developed other business relationships with DIRECTV
and its affiliated companies. For example, the Company was chosen in January
1998 by DIRECTV to market and provide DIRECTV Programming nationally to
residents of MDUs and commercial establishments as a Master System Operator. In
February 1998, the Company began marketing and providing DIRECTV Programming to
residents of MDUs and commercial establishments in six major metropolitan areas
near its rural territories. The Company intends to focus its MDU and commercial
activities on high-growth urban areas near its Rural DIRECTV Markets to leverage
its fixed cost base over a larger universe of potential subscribers.
STRATEGY
The Company intends to leverage its competitive strengths by pursuing the
following strategies:
- Emphasize Direct Sales and Local Customer Service. The Company believes a
commitment to a strong local presence generates rapid subscriber growth,
higher customer satisfaction and lower churn, and ultimately greater
revenue and EBITDA. The Company has created a highly decentralized
operating structure that permits managers to respond quickly and flexibly
to local needs. Management believes that local presence differentiates
the Company from other major DIRECTV and DBS providers and is a key
element in the Company's strategy for attracting and retaining
subscribers. Since
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inception, the Company has opened or is in the process of establishing a
total of 60 offices in its Rural DIRECTV Markets. The Company provides
sales, installation and customer service directly though these offices
and in conjunction with more than 350 local dealers. The Company believes
that focused local marketing significantly enhances the existing national
marketing efforts of DIRECTV and its national distribution partners, and
that local customer service increases customer satisfaction and is a
major contributor to the Company's low churn rate. The Company
complements its local presence from its headquarters in Kansas City,
Missouri with centralized sales, marketing, operational and
administrative support, including overflow and after-hours customer
support from a call center that operates 24 hours a day, seven days a
week.
- Acquire Additional Rural DIRECTV Markets. The Company is aggressively
pursuing the acquisition of additional Rural DIRECTV Markets held by
original NRTC licensees, a majority of which are owned by rural electric
and television cooperatives for whom offering DIRECTV Programming is an
ancillary business. The Company is continually evaluating acquisition
prospects and expects to continue to enter into acquisition agreements
and complete acquisitions of additional Rural DIRECTV Markets consistent
with its growth strategy. The Company is one of two companies actively
consolidating Rural DIRECTV Markets. The Company estimates that
approximately 100 Rural DIRECTV Markets, comprised of approximately 2.0
million households, are still owned by original NRTC members.
- Develop Related Business Opportunities. The Company plans to leverage its
local sales and support infrastructure by expanding its base of potential
customers and product offerings. The Company has commenced marketing to
MDUs and commercial establishments in six cities near its Rural DIRECTV
Markets, including Dallas/Ft. Worth, Texas; Denver, Colorado; Ft. Myers,
Florida; Kansas City, Missouri; Las Vegas, Nevada; and Savannah, Georgia.
As of September 30, 1998, the Company had access to approximately 23,000
MDUs via "right of entry" agreements, with approximately 2,700 active
subscribers. In addition, the Company is evaluating other
telecommunications products and services that could be offered to
customers using the Company's existing marketing and distribution
infrastructure. In May 1998, the Company commenced beta testing of
DirecPC, a satellite-based Internet access service provided by a
corporate affiliate of Hughes.
SALES AND DISTRIBUTION
The Company offers DIRECTV Programming to consumer and business segments in
its Rural DIRECTV Markets through two separate but complementary sales and
distribution channels.
Direct Sales Force
The Company has established direct sales forces in all but one of its Rural
DIRECTV Markets, and has Company-owned full service retail stores located in
substantially all its Rural DIRECTV Markets. The Company currently has
approximately 150 direct salespeople and supports its direct sales staff and its
local offices with an advertising campaign that the Company believes is both
creative and consistent. The Company also seeks to develop close relationships
with independent dealers of DBS equipment and provides marketing, subscriber
authorization, installation and customer service support to enhance subscriber
additions from such dealers. Wherever possible, the Company's arrangements with
dealers are exclusive. In connection with the sale of a DSS unit and a
subscription to DIRECTV Programming offered by the Company, a dealer retains the
proceeds from the sale of the equipment and earns a one-time commission paid by
the Company. The Company retains the ongoing monthly subscription revenue from
the subscriber. For certain equipment sold through the indirect dealer network,
the Company provides a subsidy, thus lowering the price of the equipment for the
consumer. The Company believes that it can increase penetration more rapidly
through its direct sales approach instead of relying, as some DTH providers
have, upon the consumer to take the initiative to purchase the product and
services.
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Other Distribution Channels
In addition to the Company's direct sales force, the Company utilizes other
distribution channels to offer DIRECTV Programming to potential subscribers in
the Company's Rural DIRECTV Markets by (i) national retailers selected by
DIRECTV, (ii) consumer electronics dealers authorized by DIRECTV to sell DIRECTV
Programming and (iii) satellite dealers and consumer electronics dealers
authorized by five regional sales management agents selected by DIRECTV. Similar
to the Company's indirect dealer network, the Company pays a one-time commission
to these distribution channels for the sale of DIRECTV Programming to a
subscriber located in the Company's Rural DIRECTV Markets and the Company
receives all monthly programming revenue associated therewith, regardless of
what outlet originally sold DIRECTV Programming to the subscriber.
MARKETING
Management believes that direct broadcast satellite services can compete
favorably with medium and low power DTH, cable and other subscription television
services on the basis of superior signal quality, channel capacity, programming
choice and price. The Company complements the extensive existing marketing
effort of DIRECTV and its other national distribution partners through focused
local marketing and sales, including local print and radio advertising to
promote general market acceptance of DIRECTV Programming. The Company believes
that, to date, there has been no significant local presence to drive such local
marketing and sales efforts. In 1998, DIRECTV budgeted to spend approximately
$150 million on its national advertising campaigns.
The Company also implements support advertising programs for its indirect
distribution channels. The Company's marketing efforts emphasize the value of
premium subscription plan offerings in order to maximize revenue per customer.
Specific promotions, such as offering new subscribers an initial month's service
at no charge, have been implemented to motivate customers to purchase such
plans, and the Company has incentive-based sales compensation for both the
direct and dealer sales forces to promote and sell premium subscription plans.
A key element of the Company's marketing strategy is to offer value-priced
DSS Equipment and installation through the use of subsidies on direct sales of
equipment and installations. The Company offers various types of DSS Equipment
and accessories through its direct sales force and retail locations. The Company
is able to take advantage of volume discounts in purchasing this equipment from
the NRTC and other vendors. In addition, dealers are motivated to lower the
prices at which they offer DSS Equipment and installation by the Company's
volume-based commission structure.
CUSTOMER SERVICE
The Company provides customer service from each of its local offices.
Offices are staffed from 10 a.m. to 7 p.m., six days a week. Local managers are
responsible for managing customer accounts receivable and churn. The Company
believes it can sustain its historical average churn rate of approximately 8%
annually by providing local customer service and aggressively managing
collections. Overflow and after hours assistance is provided 24 hours a day,
seven days a week, by the Company's call center located in Kansas City,
Missouri. The Company also provides professional installation services and
technical assistance in each of its offices.
OVERVIEW OF THE DTH INDUSTRY
DTH services encompass all types of television transmission from satellites
directly to the home. The FCC has authorized two types of satellite services for
transmission of television programming: Broadcast Satellite Services (commonly
referred to as "DBS"), which operates at high power (120 to 240 watts per
frequency channel) in the Ku-band, and Fixed Satellite Service (commonly
referred to as low power and medium power DTH), which includes low power
services transmitting in the C-band, as well as medium power (20 to 100 watts
per frequency channel) services transmitting in the Ku-band. Both DBS and medium
power DTH satellites are used for digital satellite television services. DBS
provides high quality video and audio signals and can be received by an 18-inch
dish. Medium and low power DTH signals require home
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satellite dishes of 27 inches to six feet in diameter (depending on the
geographical location of the dish and wattage per frequency channel). See
"-- DIRECTV." DIRECTV, USSB and EchoStar are the only current domestic providers
of DBS services. All other DTH domestic satellite television providers currently
provide medium or low power DTH services. See "-- Competition."
A DBS system consists of an uplink center, one or more orbiting satellites
and the subscribers' receiving equipment. The uplink center collects programming
from on-site video equipment and from the direct feeds of programmers. Through
antennae located at the uplink center, the operator transmits, or uplinks, the
programming to transponders located on its geostationary satellite. The
transponders receive and amplify the digital signal and transmit it to receiving
dishes within the area covered by the satellite. The digital signal is then
transmitted via coaxial cable to the subscribers' receiver, where it is
converted into an analog signal which allows it to be received by the
subscribers' televisions. System security is maintained through the use of
reprogrammable access cards that must be inserted into each subscriber's decoder
box to unscramble programming signals.
DBS providers are afforded technological and regulatory advantages over
medium and low power DTH services. The FCC requires the satellites used to
provide DBS services to be spaced at greater intervals than medium and low power
DTH satellites (nine degree orbital spacing over North America compared to two
degree orbital spacing). The greater orbital spacing is intended to ensure that
the signals transmitted by DBS providers can be received by a small dish, free
of interference from adjacent satellites. The closer medium and low power DTH
satellite orbital spacing requires the use of a larger, 27-inch to six foot dish
to eliminate interference from nearby satellites. See "-- Competition -- Other
DTH Providers." In addition, DBS satellites are allowed to broadcast with much
higher power levels than medium and low power DTH satellites. The combination of
greater orbital spacing and higher power enables providers of DBS services to
obtain a superior balance of small dish size, signal quality in adverse weather
conditions and increased channel capacity.
DIRECTV
DIRECTV is a multichannel DBS programming service initially introduced to
U.S. television households in 1994. DIRECTV currently offers in excess of 220
channels of near laser disc quality video and CD-quality audio programming, and
transmits via three high-power Ku band satellites (only two are needed to
support transmission of DIRECTV Programming), each containing 16 transponders.
As of October 31, 1998, there were approximately 4.2 million DIRECTV
subscribers.
The Company believes that DIRECTV services are superior to those provided
by other DTH service providers and that DIRECTV's extensive programming,
including up to 80 channels of pay-per-view movies and events, various sports
packages and the exclusive NFL Sunday Ticket(TM), will continue to contribute to
the growth of DIRECTV's subscriber base and DIRECTV's market share for DTH
services in the future. In addition, the Company believes that DIRECTV's
national marketing campaign provides the Company with significant marketing
advantages over other DTH competitors. DIRECTV's share of current DBS and medium
power DTH subscribers was approximately 41.4% as of September 30, 1998. DIRECTV
obtained approximately 50% of all new subscribers to DBS and medium-power DTH
services for each calendar quarter in 1996, despite the entry of two new
competitors in the DTH market. DIRECTV added approximately 1.2 million new
subscribers (net of churn) during the twelve months ended September 30, 1998,
which was a greater increase than any other DBS or medium power DTH provider and
accounted for approximately 50.2% of all new DBS subscribers. Although DIRECTV's
share of new subscribers can be expected to decline as existing and new DTH
providers aggressively compete for new subscribers, the Company expects DIRECTV
to remain the leading provider of DBS and medium power DTH services in an
expanding market.
The equipment required for reception of DIRECTV Programming (a DSS unit)
includes an 18-inch satellite antenna, a digital receiver approximately the size
of a standard VCR and a remote control, all of which are used with standard
television sets. Each DSS receiver includes a "smart card" that is uniquely
addressed to it. The smart card, which can be removed from the receiver,
prevents unauthorized reception of DIRECTV services and retains billing
information on pay-per-view usage, which information is sent at regular
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intervals from the DSS receiver telephonically to DIRECTV's authorization and
billing system. The small size of the dish makes it more acceptable to housing
communities and organizations that prohibit the installation of larger dishes
due to their appearance. The DSS receiver captures and translates the signal and
interfaces with an easy to use on-screen electronic program guide with a
parental locking/ratings control function.
DSS units also enable subscribers to receive USSB programming. USSB is a
DBS service providing 28 channels of video programming transmitted via five
transponders it owns on DIRECTV's first satellite. USSB primarily offers Time
Warner and Viacom premium satellite programming services, such as multiple
channels of HBO and Showtime, which are not available through DIRECTV but which
are generally complementary to DIRECTV Programming. As of September 30, 1998,
over 50% of DIRECTV's approximately 4.2 million subscribers received USSB
programming.
DSS Equipment is now produced by major manufacturers under brand names
including RCA, Sony, Hughes, and others. DSS Equipment is currently sold at
retail outlets throughout the U.S. for prices typically ranging from $99 to
$299, depending upon the generation of the equipment, the level of features and
the retail outlet. Prices for DSS Equipment have declined consistently since
introduction, further stimulating demand for DIRECTV services.
Programming
DIRECTV programming includes (i) cable networks, broadcast networks and
audio services available for purchase in tiers for a monthly subscription fee,
(ii) premium services available a la carte or in tiers for a monthly
subscription fee, (iii) sports programming (major professional league sports
packages, including the exclusive NFL Sunday Ticket(TM), regional sports
networks and seasonal college sports packages) available for a yearly, seasonal
or monthly subscription fee and (iv) movies from all major Hollywood studios and
special events available for purchase on a pay-per-view basis. Satellite and
premium services available a la carte or for a monthly subscription are priced
comparably to cable. Pay-per-view movies are generally $2.99 per movie.
Pay-per-view movies are generally available for viewing on multiple channels at
staggered starting times so that a viewer does not have to wait more than 30
minutes to view a particular pay-per-view movie. DIRECTV is constantly adjusting
its programming packages to provide the best channel mix possible at various
price points. The following is a summary of some of the more popular DIRECTV
Programming packages currently available from the Company:
Total Choice(TM): Package of 45 video channels, 31 CD audio channels,
two Disney channels, an in-market regional sports network and access to up
to 60 channels of pay per view movies and events, which retails for $29.99
per month. Total Choice(TM) is DIRECTV's most popular offering. Total
Choice(TM) Platinum, Gold, Silver and Plus Encore offer additional
programming at higher retail prices.
Economy or Select Choice: Two packages of 19 to 33 video channels and
access to up to 60 channels of pay per view movies and events, which retail
for between $18.99 and $20.99 per month. The Economy service is available
only in the Rural DIRECTV Markets.
Plus DIRECTV: Package of 16 video channels, 31 CD audio channels and
access to up to 60 channels of pay per view movies and events, which
retails for $14.99 per month. Plus DIRECTV consists of channels not
typically offered on most cable systems and is intended to be sold to
existing cable subscribers to augment their cable or other satellite
services.
NFL Sunday Ticket(TM): All out-of-market NFL Sunday games for $159.00
per season. NFL Sunday Ticket(TM) is exclusive to DIRECTV with respect to
small dish providers through at least the end of the 1999-2000 football
season.
Encore Multiplex: Seven theme movie services (Love Stories, Westerns,
Mystery, Action, True Stories, WAM! and Encore) for $4.00 per month.
Playboy: Adult service available monthly for $12.99.
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PrimeTime 24 Network Package: ABC (East and West), NBC (East and
West), CBS (East and West), Fox and PBS available individually for $1.21
per month or collectively for $6.67 per month (available only to
subscribers unable to receive networks over-the-air and who have not
subscribed to cable in the last 90 days). In accordance with a newly-issued
NRTC policy, the Company is not currently permitted to offer the PrimeTime
24 Network Package to new subscribers. See "-- Regulation."
Sports Choice: Package of 24 channels (including over 18 regional
sports networks) and five general sports networks (the Golf channel,
NewSport, Speedvision, Classic Sports Network and Outdoor Life) for $10.00
per month on a stand alone basis.
NBA League Pass(SM): Approximately 800 out-of-market NBA games for
$159.00 per season.
NHL Center Ice(SM): Approximately 500 out-of-market NHL games for
$129.00 per season.
MLB Extra Innings: Approximately 800 out-of-market major league
baseball games for $139.00 per season.
ESPN Full Court: Hundreds of college basketball games for $89.00 per
season.
ESPN Game Plan: Up to ten college football games every Saturday for
$89.00 per season.
Some of the popular channels provided in the Total Choice package include
HBO, HBO2, TBS, the Disney Channel, the Family Channel, TNT, Cinemax, the
Discovery Channel, TNN, ESPN, ESPN2 and AMC.
DIRECTV does not generally provide local broadcast programming via
satellite. However, seamless switching between satellite and broadcast
programming provided by other sources is possible with all DSS units. In
addition, DIRECTV provides programming from affiliates of the national broadcast
networks to subscribers who are unable to receive networks over the air and do
not subscribe to cable.
RELATIONSHIP WITH THE NRTC AND DIRECTV
The NRTC acquired the right to provide DIRECTV Programming to residential
households in 1992 and commercial establishments located in the Rural DIRECTV
Markets in 1994, pursuant to the Hughes Agreement. The NRTC subdivided its
rights to provide such services into approximately 250 geographically based
Rural DIRECTV Markets, then sold a portion of its rights to the individual Rural
DIRECTV Markets to NRTC members pursuant to the NRTC Agreements. The Company
acquired from the NRTC the exclusive right to provide DIRECTV Programming in
each of its Rural DIRECTV Markets pursuant to an NRTC Agreement, which is
assigned to the Company with the consent of the NRTC and DIRECTV when the
Company acquires such Rural DIRECTV Market.
Pursuant to the NRTC Agreements, the Company is obligated to promote,
market and sell DIRECTV Programming in accordance with NRTC procedures and to
take all reasonable steps to ensure that DIRECTV Programming is not received at
any unauthorized locations or in any unauthorized manner. The Company also
purchases customer authorization, billing services and centralized remittance
processing services from the NRTC pursuant to the NRTC Agreements. The NRTC
Agreements also contain customary provisions regarding payment terms, compliance
with laws and indemnification and provide that both the NRTC and DIRECTV must
consent prior to the assignment or transfer by the NRTC Member party thereto of
its rights or obligations under the NRTC Agreements, which consent shall not be
unreasonably withheld. The NRTC Agreements also contain termination provisions
which allow the NRTC to terminate such agreements (i) as a result of termination
of the Hughes Agreement, with the NRTC remaining responsible for paying to the
Company its pro rata portion of any refunds that the NRTC receives from Hughes
under the Hughes Agreement, (ii) if the Company fails to make any payment due to
the NRTC or otherwise breaches a material obligation of the NRTC Agreement and
such failure or breach continues for more than 30 days after written notice from
the NRTC or (iii) if the Company fails to keep and maintain any letter of credit
required to be provided to the NRTC in full force and effect or to adjust the
amount of the letter of credit as required by the NRTC Agreements. The NRTC
Agreements also require the Company to comply with policies of the
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NRTC promulgated from time to time. The Company and other NRTC-affiliated
DIRECTV providers have disputed certain policies proposed by the NRTC in the
past that they believed did not comply with the NRTC agreements and applicable
law. For example, in 1998, the NRTC proposed new conditions to securing its
approval of acquisitions that included changes to all of the NRTC Agreements
which, if adopted, could have had material adverse financial consequences to the
Company. The dispute was resolved without any modifications to the NRTC
Agreements and the Company's then pending acquisitions were approved. In
addition, the NRTC has adopted a policy regarding its own interests in the
subscriber information of NRTC members and affiliates. The NRTC Agreements
provide that NRTC members and affiliates, including the Company, have
"substantial proprietary interests" in and rights to the information and data
with respect to their subscribers. The NRTC and its affiliates, including the
Company, have differed over the import of these rights and interests, which may
have consequences in the event that the Company's rights to offer DIRECTV
Programming through the NRTC are terminated or expire.
Pursuant to the NRTC Agreements, the Company has obtained from the NRTC the
exclusive right in its Rural DIRECTV Markets to market, sell and retain all of
the revenue from subscribers derived from the sale of most programming
transmitted by the DIRECTV satellites over the 27 frequencies owned by Hughes.
The Company pays the NRTC for the wholesale cost of such programming and a fee
to DIRECTV based upon 5% of the programming revenue. The NRTC has the right to
choose to provide certain Non-Select Services, such as NFL Sunday Ticket(TM), as
DIRECTV and the content providers enter into new agreements. "Non-Select
Services" are services not generally included in the DIRECTV Programming
provided by the Company, because providers of such programming require minimum
subscriber guarantees, advance payments or other similar commitments, which the
NRTC declines to give. The Company retains 5% of the revenue from Non-Select
Services purchased by its subscribers and remits the balance to DIRECTV.
The NRTC Agreements (and presumably the Hughes Agreement) expire when
Hughes removes its current satellite(s) from their assigned orbital locations.
According to Hughes and USSB, the DIRECTV satellites have estimated orbital
lives of at least 15 years from their respective launches in December 1993 and
1994. The Company believes that the Hughes Agreement provides the NRTC with a
right of first refusal to obtain DBS Services (other than programming services)
in substantially the same form as such DBS Services are provided under the
existing Hughes Agreement in the event that Hughes elects to launch one or more
successor satellites upon the removal of the present satellites from their
assigned orbital locations. The NRTC Agreements do not expressly provide an
equivalent right of first refusal for the NRTC members to acquire DBS Services
through the NRTC should the NRTC exercise any right of first refusal under the
Hughes Agreement. The Company is an affiliate of the NRTC. See "Risk
Factors -- Ability to Acquire DBS Services from NRTC and DIRECTV after
Expiration of NRTC Agreements."
COMPETITION
The Company faces competition both for acquisitions of Rural DIRECTV
Markets from one other company, and within its exclusive Rural DIRECTV Markets
from a broad range of companies offering communications and entertainment
services, including cable operators, other satellite service providers, wireless
cable operators, telephone companies, television networks and home video product
companies. Many of the Company's competitors have greater financial and
marketing resources than the Company, and the business of providing subscription
and pay television programming is highly competitive. The Company believes that
quality and variety of programming, signal quality and service and cost will be
the key bases of competition. See "Risk Factors -- Competition and Technological
Change" and "Risk Factors -- Risks Attendant to Acquisition Strategy."
Competition for Acquisition of Rural DIRECTV Markets
The Company is aware that at least one other company, Pegasus
Communications Corporation ("Pegasus") is currently pursuing the same goal as
the Company of consolidating Rural DIRECTV Markets. Pegasus is currently the
largest independent provider of DIRECTV services and has substantially greater
financial resources than the Company. There can be no assurance that the
marketing and sales efforts or
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competing acquisition strategies of Pegasus or other competitors will not have
an adverse effect on the Company's ability to execute its acquisition strategy.
Competing Subscription Television Providers
Cable Television Providers
Cable operators in the United States serve approximately 64 million
subscribers, representing over 65% penetration of television households passed
by cable systems. Cable operators typically offer 25 to 78 channels of
programming at an average monthly subscription price of approximately $35. While
cable companies currently serve a majority of the U.S. television market, the
Company believes many may not be able to provide the quality and variety of
programming offered by DIRECTV until they significantly upgrade their coaxial
systems. Many cable television providers are in the process of upgrading their
systems, and other cable operators have announced their intentions to make
significant upgrades. Many proposed upgrades, such as conversion to digital
format, fiber optic cabling, advanced compression technology and other
technological improvements, when fully completed, will permit cable companies to
increase channel capacity, thereby increasing programming alternatives, and to
deliver a better quality signal. However, although cable systems with adequate
channel capacity may offer digital service without major rebuilds, the Company
believes that other cable systems that have limited channel capacity like those
in most of the Rural DIRECTV Markets will have to be upgraded to add bandwidth
in order to provide digital service. The Company believes that such upgrades
will require substantial investments of capital and time to complete
industry-wide. As a result, the Company believes that there will be a
substantial delay before cable systems in the Rural DIRECTV Markets can offer
programming services equivalent to digital DBS providers and that some cable
systems in those markets may never be upgraded, subject to advances in digital
compression technology currently under development.
The Company expects to encounter a number of challenges in competing with
cable television providers. First, cable operators have an entrenched position
in the marketplace. The Company believes that its current strategy of targeting
for acquisition Rural DIRECTV Markets which are not served by cable or are
underserved by cable partially offsets the cable industry's position in the
consumer marketplace. Second, the up-front costs to the consumer associated with
purchasing and installing DSS Equipment are higher than the up-front costs for
installation of cable television. However, prices for DSS Equipment have
declined consistently since introduction, and the Company believes that
competition among DSS Equipment vendors and technological improvements will
create continuing downward pressure on prices. Third, current DBS systems,
unlike cable, do not provide local broadcast programming via satellite, although
seamless switching between satellite and broadcast programming from other
sources is possible with all DSS units. In addition, DIRECTV provides
programming, from affiliates of the national broadcast networks to subscribers
who are unable to receive networks over the air and do not subscribe to cable.
The Company believes that the significant capital costs of upgrading cable
systems to provide similar services, combined with the marketing strength of DBS
providers such as DIRECTV, presents DBS providers with an opportunity to take
substantial market share for pay television services from cable in the Rural
DIRECTV Markets.
Other DTH Providers
EchoStar, the only other DBS provider, commenced national broadcasting of
programming in March 1996 and currently broadcasts over 120 video channels and
30 audio channels. EchoStar has 21 licensed channel frequencies at the 119
degrees W.L. full continental United States ("CONUS") orbital position and has
69 frequencies in other partial CONUS orbital locations. EchoStar reported
approximately 1.7 million subscribers as of October 31, 1998. The Company
believes that it can successfully compete with EchoStar in the DBS market
because of DIRECTV's brand name and its significantly larger distribution
networks and greater number of manufacturers of the equipment used to receive
DTH services.
PrimeStar, a medium-power DTH provider owned primarily by a consortium of
cable companies including TCI, launched the first digital DTH satellite
television service in 1994. As a result of the successful launch and operation
of a new satellite in early 1997, PrimeStar increased its programming services
to
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approximately 150 channels. This new satellite will potentially enable PrimeStar
to reduce its dish size to approximately 29 inches for most subscribers within
the continental United States. In addition, PrimeStar may have access to certain
(11 licensed frequencies) DBS capacity via Tempo Satellite's high-powered DBS
satellite at 119 degrees W.L., which is capable of providing full CONUS service.
This, however, is subject to FCC approval. PrimeStar has announced plans to use
such satellite to provide a mix of sports, multi-channel movie services,
pay-per-view services and popular cable networks to traditional broadcast
television, basic cable and other analog programming customers. As of October
31, 1998, PrimeStar had approximately 2.2 million subscribers.
An additional full CONUS location for high-powered DBS service at 110
degrees W.L. is licensed to News Corporation and MCI Telecommunications, Inc.
This full CONUS location is presently unoccupied but may offer significant
additional high-powered DTH competition in the future.
Low power C-band operators reported approximately 2.0 million subscribers
as of October 31, 1998. The C-band/TVRO market has been built primarily on
subscribers who live in markets not served by cable television. C-band
equipment, including the six- to eight-foot dish necessary to receive the low
power signal, currently costs approximately $2,000 and is distributed by local
TVRO satellite dealers. The Company believes that high and medium power DTH
services have significant advantages over low power C-band service in equipment
cost, dish size and range of programming packages. The number of C-band
subscribers declined by approximately 160,000 during the twelve months ended
April 30, 1998.
Other Competitors
Wireless cable systems (which are usually analog) typically offer only 20
to 40 channels of programming, which may include local programming. Wireless
cable requires a direct line of sight from the receiver to the transmitter,
which creates the potential for substantial interference from terrain, buildings
and foliage in the line of sight. However, while it is expected that most large
wireless operators (especially certain of those backed by local telephone
companies) will upgrade to digital technology over the next several years, such
upgrades will require the installation of new digital decoders in customers'
homes and modifications to transmission facilities, at a potentially significant
cost.
Certain regional telephone companies and other long distance companies
could become significant competitors in the future, as they have expressed an
interest in becoming subscription multichannel video programming distributors.
Furthermore, the Telecommunications Act of 1996 (the "1996 Act") removes
barriers to entry which previously inhibited local telephone companies from
competing, or made it more difficult for such telephone companies to compete, in
the provision of video programming and information services. Certain telephone
companies have received authorization to test market video and other services in
certain geographic areas using fiber optic cable and digital compression over
existing telephone lines. Estimates for the timing of wide-scale deployment of
such multi-channel video service vary, as several telephone companies have
pushed back or cancelled originally announced deployment schedules.
As more telephone companies begin to provide multichannel video programming
and other information and other communications services to their customers,
additional significant competition for subscribers will develop. Among other
things, telephone companies have an existing relationship with substantially
every household in their service area, substantial financial resources, and an
existing infrastructure and may be able to subsidize the delivery of programming
through their position as the sole source of local wireline telephone service to
the home.
Most areas of the U.S. are covered by traditional territorial over-the-air
VHF/UHF television broadcasters. Consumers can receive from three to ten
channels of over-the-air programming in most markets. These stations provide
local, network and syndicated programming free of charge, but each major market
is generally limited in the number of programming channels. On August 5, 1997,
Congress approved the release of additional digital spectra for use by VHF/UHF
broadcasters.
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REGULATION
Unlike a cable operator, DBS operators such as DIRECTV are free to set
prices and serve customers according to their business judgment, without rate of
return or other regulation or the obligation not to discriminate among
customers. However, there are laws and regulations that affect DIRECTV and,
therefore, affect the Company. As an operator of a privately owned United States
satellite system, DIRECTV is subject to the regulatory jurisdiction of the FCC,
primarily with respect to (i) the licensing of individual satellites (i.e., the
requirement that DIRECTV meet minimum financial, legal and technical standards),
(ii) avoidance of interference with radio stations and (iii) compliance with
rules that the FCC has established specifically for DBS satellite licenses. As a
distributor of television programming, DIRECTV is also affected by numerous
other laws and regulations. The Telecommunications Act of 1996 clarifies that
the FCC has exclusive jurisdiction over DTH satellite services and that criminal
penalties may be imposed for piracy of DTH satellite services. The
Telecommunications Act of 1996 also offers DTH operators relief from private and
local government-imposed restrictions on the placement of receiving antennae. In
some instances, DTH operators have been unable to serve areas due to laws,
zoning ordinances, homeowner association rules, or restrictive property
covenants banning the installation of antennae on or near homes. In August 1996,
the FCC promulgated rules designed to implement Congress' intent by prohibiting
any restriction, including zoning, land use or building regulation, or any
private covenant, homeowners' association rule, or similar restriction on
property within the exclusive use or control of the antenna user where the user
has a direct or indirect ownership interest in the property, to the extent it
impairs the installation, maintenance or use of a DBS receiving antenna that is
one meter or less in diameter or diagonal measurement, except where such
restriction is necessary to accomplish a clearly defined safety objective or to
preserve a recognized historic district. Local governments and associations may
apply to the FCC for a waiver of this rule based on local concerns of a highly
specialized or unusual nature. In November 1998, the FCC amended its rules to
extend these protections to rental property in those areas under the exclusive
use or control of the renter. The 1996 Act also preempted local (but not state)
governments from imposing taxes or fees on DTH services, including DBS. Finally,
the 1996 Act required that multi-channel video programming distributors such as
DTH operators fully scramble or block channels providing indecent or sexually
explicit adult programming. If a multi-channel video programming distributor
cannot fully scramble or block such programming, it must restrict transmission
to those hours of the day when children are unlikely to view the programming (as
determined by the FCC). On March 24, 1997, the U.S. Supreme Court let stand a
lower court ruling that allows enforcement of this provision pending a
constitutional challenge. In response to this ruling, the FCC declared its rules
implementing the scrambling provision effective as of May 18, 1997.
In addition to regulating pricing practices and competition within the
franchise cable television industry, the Cable Act was intended to establish and
support existing and new multi-channel video services, such as wireless cable
and DTH, to provide subscription television services. DIRECTV and the Company
have benefitted from the programming access provisions of the Cable Act and
implementing rules in that DIRECTV has been able to gain access to previously
unavailable programming services and, in some circumstances, has obtained
certain programming services at reduced cost. Any amendment to, or
interpretation of, the Cable Act or the FCC's rules that would permit cable
companies or entities affiliated with cable companies to discriminate against
competitors such as DIRECTV in making programming available (or to discriminate
in the terms and conditions of such programming) could adversely affect
DIRECTV's ability to acquire programming on a cost-effective basis, which would
have an adverse impact on the Company. Certain of the restrictions on
cable-affiliated programmers will expire in 2002 unless the FCC or Congress
extends such restrictions.
The Cable Act also requires the FCC to conduct a rule-making proceeding
that will impose public interest requirements for providing video programming on
DTH licensees. In November 1998, the FCC adopted rules requiring DTH licensees
to provide reasonable and non-discriminatory access by qualified candidates for
elective office. These rules also require DTH licensees to set aside four
percent of the licensee's channel capacity for non-commercial programming of an
educational or informational nature.
While DTH operators like DIRECTV currently are not subject to the "must
carry" requirements of the Cable Act, the cable and broadcast television
industries have argued that DTH operators should be subject to
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these requirements. In the event the "must carry" requirements of the Cable Act
are revised to include DTH operators, or to the extent that new legislation of a
similar nature is enacted, DIRECTV's future plans to provide local programming
will be adversely affected, and such must-carry requirements could cause the
displacement of possibly more attractive programming.
The SHVA establishes a "compulsory" copyright license that allows a DTH
operator, for a statutorily-established fee, to retransmit network programming
to subscribers for private home viewing so long as that retransmission is
limited to those persons in unserved households. In general, an "unserved
household" is one that cannot receive, through the use of a conventional outdoor
rooftop antenna, a sufficient over-the-air network signal, and has not, within
90 days prior to subscribing to the DTH service, subscribed to a cable service
that provides that network signal. Certain television broadcast networks and
their affiliates have commenced litigation against PrimeTime 24, a satellite
provider of network programming, regarding alleged violations of the SHVA.
PrimeTime 24 provides network programming to several satellite providers,
including DIRECTV (and its distributors, including NRTC DBS members and
affiliates such as the Company) and providers of programming for C-band
satellite services. On July 10, 1998, a Federal District Court in Florida
granted a preliminary injunction effectively prohibiting PrimeTime 24 from
providing CBS and Fox network programming to certain households in designated
geographic areas (based on Longley-Rice propagation maps recognized by the Court
as identifying those households that receive "a signal of at least Grade B
intensity" or past subscription to cable) and to any business. The preliminary
injunction further required the disconnection within 90 days of any such current
PrimeTime 24 customers for CBS or Fox programming that began receiving PrimeTime
24's network programming via satellite after March 11, 1997, unless the local
network affiliate consents or a signal-strength test proves that a certain
quality of off-air service is unavailable to the customer. The injunction also
imposed other obligations on PrimeTime 24 and its distributors with respect to
future sales of Fox and CBS programming nationwide. There can be no assurance as
to how long the preliminary injunction will remain in effect or as to what final
relief may ultimately be granted to the plaintiffs. On September 30, 1998, the
Florida court issued an order granting PrimeTime 24 until February 28, 1999 to
comply with the terms of the injunction. In addition, on July 16, 1998, a
Federal District Court in North Carolina issued an order holding that PrimeTime
24 had violated the copyright provisions and reporting obligations under the
SHVA with respect to ABC network programming in the Raleigh-Durham market. On
August 19, 1998, the court issued a permanent injunction restraining PrimeTime
24 (and its distributors) from providing retransmission of any television
station affiliated with ABC to any household located within 75 miles of the
transmission tower of WTVD, the ABC affiliate serving the Raleigh-Durham market.
Similar litigation brought by an NBC affiliate is also pending in Texas. It is
unclear whether PrimeTime 24, and its agents and distributors, will be subjected
to claims of damages or other judicially ordered relief through these or other
proceedings.
In November 1998, the FCC adopted a notice of proposed rulemaking to
consider whether and how it might redefine the standard for measuring a "Grade B
intensity" signal for purposes of the SHVA. The FCC has publicly stated that it
will attempt to complete this rulemaking prior to February 28, 1999. In
addition, in October 1998, EchoStar filed a lawsuit in the United States
District Court of Colorado seeking a declaratory ruling establishing a
predictive model for determining whether a household is "unserved" for purposes
of the SHVA based on a "Longley-Rice" predictive model that applies a criteria
of 95% of the locations receiving a Grade B signal 95% of the time with a 50%
degree of confidence. The lawsuit also asks the court to clarify the particular
means (e.g., antenna height and orientation) for measuring signal strength.
Approximately half of the Company's current subscribers receive some or all
of PrimeTime 24's network programming series. The Company believes, however,
that a material portion of such subscribers will be unaffected by the
preliminary injunction, either because they live in areas where the off-air
network signal strength falls below the standard applied by the court or because
they received PrimeTime 24's network programming prior to March 11, 1997. The
Company also believes that its local presence and trained technical personnel
will enable it to work with customers to develop appropriate alternative means
of receiving network programming. The Company has been advised by the NRTC that
a database is currently under development that will enable the Company to
determine which of its customers would be required to be disconnected under the
terms of the preliminary injunction, but such information is not currently
available. However, the court in
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the North Carolina litigation against PrimeTime 24 suggested that only sampling
signal strength could satisfy the requirements of the SHVA. The Company's
monthly revenue per subscriber for PrimeTime 24 network services (net associated
programming costs) varies from $.90 to $4.50, depending on how many of the seven
available networks the customer subscribes to. While the Company believes that
it has complied to date with the SHVA in providing network programming only to
"unserved households" and the Company does not believe that the interpretations
of the SHVA applied by the Florida and North Carolina federal courts will
materially adversely affect the Company's financial results or its ability to
attract new subscribers, there can be no assurance that the Company's inability
to provide network services to certain subscribers will not have such effects.
In addition, should the Company elect to continue to offer network services,
there can be no assurance that the costs of compliance with those
interpretations will not be material. The inability of DIRECTV and the Company
to provide network programming to subscribers in Rural DIRECTV Markets could
adversely affect the Company's average programming revenue per subscriber and
subscriber growth.
In October 1997, the United States Copyright Office recommended that the
compulsory copyright fees for the retransmission of television "superstations"
and broadcast network affiliates by satellite providers be increased. The new
rates took effect on January 1, 1998. Although an exact comparison between
copyright fees payable by cable operators and by satellite providers is not
possible, it has been estimated that the new rates would be approximately 300%
and 900% of the rates applicable to cable providers in their provision of the
superstation signals and network signals, respectively. While the Company is
aware of efforts to overturn this decision, there can be no assurance that it
will be overturned. Under the terms of the NRTC Agreements, the Company may
expect to have this cost passed along to it, unless the NRTC elects to absorb
all or a portion of the increased rate into the margin that it earns on the
provision of DIRECTV Programming.
YEAR 2000 COMPLIANCE
Many existing computer systems and software products use only two character
fields to identify dates. These programs were designed and developed without
consideration of the upcoming turn of the century. Significant uncertainty
exists in the software industry concerning the potential consequences of the
Year 2000 phenomenon. If not corrected, these computer applications could fail
or create erroneous information from the Year 2000 date change. This issue
affects virtually all organizations and can be very costly and time consuming to
correct. There can be no assurance that the software products currently used by
the Company contain all necessary date code changes. Management is currently
conducting surveys of all of its vendors and other pertinent relationships to
assess their readiness for Year 2000 processing. The Company is significantly
reliant on contracted data processing services from the NRTC and DIRECTV for
customer service, billing and remittance processing pursuant to the Company's
contractual relationship with the NRTC. The NRTC has informed the Company that
the computer systems that provide such services are not currently Year 2000
compliant, but that such systems will be compliant by April 1999. The Company is
reliant on DIRECTV for distribution of its DBS programming services. DIRECTV has
informed the Company that it expects to establish Year 2000 compliance for its
satellite programming, subscriber databases, and customer billing systems by the
end of the first calendar quarter of 1999. In addition to the NRTC and DIRECTV,
the Company is significantly reliant on other parties (such as its suppliers of
DSS Equipment) for the successful conduct of its business. As previously
described, the Company is in the process of ascertaining the Year 2000 readiness
of these third-parties. If the Company's plan is not successful or is not
completed in a timely manner, the Year 2000 issue could significantly disrupt
the Company's ability to transact business with its customers and suppliers, and
could have a material impact on its operations. There can be no assurance that
the systems of the NRTC, DIRECTV and other companies with which the Company's
systems interact or depend will be compliant by the end of 1999, or that any
such third party failure would not have an adverse effect on the Company's
business or its operations. Any adverse impact on subscribers in the Company's
Rural DIRECTV Markets could also have a material adverse effect on the Company's
business, financial condition and results of operations. See "Management's
Discussion and Analysis of Results of Operations and Financial Condition -- Year
2000 Compliance."
60
<PAGE> 64
FACILITIES
The Company is headquartered in leased space in Kansas City, Missouri and
has 59 existing or pending offices and operations in 22 states. The Company
expects these facilities to be adequate for its needs in the foreseeable future.
Management believes that the Company will be able to lease office and retail
space in its Rural DIRECTV Markets as needed on acceptable terms.
MANAGEMENT AND EMPLOYEES
The Company has assembled an experienced management team to execute its
business strategy. Certain members of the senior management team have
significant experience working together. The Company's executive team brings to
the Company extensive business acquisition experience in the telecommunications
industry, as well as experience in the sales and delivery of a full array of
communications services to customers in rural America. As of September 30, 1998,
the Company had approximately 650 employees. The Company is not a party to any
collective bargaining agreement and considers its relations with its employees
to be good.
LEGAL PROCEEDINGS
The Company is not currently party to any material legal proceedings.
61
<PAGE> 65
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information regarding the executive
officers and directors of the Company as of November 23, 1998.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Rodney A. Weary...................... 47 Chairman of the Board, Chief Executive Officer and
Director
John R. Hager........................ 36 Chief Financial Officer
William J. Gerski.................... 45 Vice President, Sales and Marketing
Laquita Allen........................ 60 Vice President, Affiliate Relations
Jo Ellen Linn........................ 36 Secretary and General Counsel
Robert F. Benbow(1).................. 62 Director
William O. Charman................... 35 Director
William P. Collatos(1)............... 44 Director
William A. Johnston(1)(2)............ 46 Director
Robert B. Liepold(2)................. 72 Director
Erik M. Torgerson(2)................. 33 Director
</TABLE>
- ---------------
(1) Member of the Compensation Committee of the Board of Directors.
(2) Member of the Audit Committee of the Board of Directors.
BACKGROUND OF EXECUTIVE OFFICERS
Rodney A. Weary. Mr. Weary founded the Company in June 1996 and has been
its Chief Executive Officer since Inception. Until 1995, he was President of
Cable Video Entertainment Inc., which Mr. Weary formed in 1986 by acquiring
traditional cable systems located in three states. From 1988 to December 1994,
Mr. Weary was a co-founder, officer and director of Premiere Page, a paging
company. From 1986 to 1992, he was a principal shareholder in W.K. Cellular,
Inc., which owned and operated cellular license R.S.A. 5 in Indiana. Mr. Weary
was involved in the formation of the Missouri Cable Television Association in
the 1970s, and has served in many capacities for both it and the four-state
Mid-America Cable Television Association.
John R. Hager. Mr. Hager has been Chief Financial Officer of the Company
since October, 1998. Mr. Hager joined the Company in August 1998 as Vice
President, Finance and Controller. From February 1997 until August 1998, Mr.
Hager was Vice President -- Controller of EchoStar Communications Corporation.
He was the Controller of American Telecasting, Inc. from August 1993 until
February 1997. Prior to joining American Telecasting in 1993, Mr. Hager was with
Ernst & Young, where he was an Audit Senior Manager.
William J. Gerski. Mr. Gerski has been Vice President, Sales and Marketing
of the Company since May 1997. From 1996 to 1997, Mr. Gerski was Regional
Director of Marketing and Sales at American Telecasting Incorporated. In 1996,
Mr. Gerski was Vice President of Marketing and Sales of Bell Atlantic Video
Services. From 1990 through 1995, Mr. Gerski was Corporate Director of Sales at
Adelphia Cable Communications. He has served on the Executive Board of Directors
of the Southern California Cable Association and the Los Angeles, Chicago, and
Cleveland Cable Co-ops.
Laquita Allen. Ms. Allen has been Vice President, Affiliate Relations of
the Company since May 1997. She previously spent five years with the NRTC, where
she was Regional Business Manager (from the inception of the DBS project). Prior
to joining the NRTC in 1992, Ms. Allen was General Manager of the first cellular
system in East Texas and was employed by United Telephone and its subsequent
owners, Centel Cellular (Centel Telephone) for five years.
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<PAGE> 66
Jo Ellen Linn. Ms. Linn has been Secretary and General Counsel of the
Company since Inception. From 1993 to 1996, Ms. Linn was General Counsel to
Cable Video Management, Inc., a communications management company and the former
Cable Video Enterprises, Inc., which owned and operated domestic cable
television systems. Ms. Linn was a contract negotiator in the network real
estate department of Sprint Communications from 1990 to 1992. From 1988 to 1990,
Ms. Linn was Vice President and General Counsel of the cable brokerage firm
Hardesty, Puckett & Company (now HPC Puckett & Company). Ms. Linn is licensed to
practice law in Kansas and Texas.
BACKGROUND OF DIRECTORS
Robert F. Benbow. Mr. Benbow has been a Director of the Company since
February 1997. He is a Vice President of Burr, Egan, Deleage & Co. and a General
Partner of Alta Communications VI, L.P. Prior to joining Burr, Egan Deleage &
Co. in 1990, Mr. Benbow spent 22 years with the Bank of New England N.A., where
he was Senior Vice President responsible for special industries lending in the
areas of media, project finance and energy. He serves as a Director of Teletrac,
Inc., a major metropolitan wireless provider of location and two way messaging
services for fleets of commercial vehicles, and Preferred Networks, Inc.
William O. Charman. Mr. Charman has been a Director of the Company since
March 1997. He has served as a Vice President of BancBoston Capital since 1995.
From 1993 to 1995, Mr. Charman was a Director and team leader for Bank of
Boston's Media & Communications Group in London. Mr. Charman was a Director in
Bank of Boston's Media & Communications Group in Boston from 1987 to 1993. Mr.
Charman is a Director of Cambridge Communications, MultiTechnology Services and
Prime Communications.
William P. Collatos. Mr. Collatos has been a Director of the Company since
March 1997. He is a Managing General Partner of Spectrum Equity Investors, which
he founded in 1993. Prior to the founding of Spectrum, he was an independent
consultant from 1991 to 1993. Mr. Collatos was an Associate and then General
Partner of funds managed by TA Associates from 1980 to 1990 and a founding
General Partner of Media/Communications Partners. Prior to joining TA
Associates, Mr. Collatos was in charge of the media lending group at Fleet
National Bank in Providence, Rhode Island. He is a Director of Galaxy Telecom
Systems, Inc., TSR Paging, Inc., Internet Network Services, Ltd., ITXC, Inc. and
CTC Communications Corporation.
William A. Johnston. Mr. Johnston has been a Director of the Company since
November 1997. He is a Managing Director of HarbourVest Partners, LLC and has
served in a variety of capacities for HarbourVest Partners, LLC and its
predecessor, Hancock Venture Partners, Inc., since 1983. He is a Director of
African Communications Group, Inc., Epoch Internet, Inc., Formus Communications,
Inc., The Marks Group, Inc. and V-I-A Internet, Inc.
Robert B. Liepold. Mr. Liepold has been a Director of the Company since
Inception. Mr. Liepold has been President and Chief Executive Officer of
KCWB-TV, an independent commercial television station operating in Kansas City,
Missouri, since 1994. Since 1983, Mr. Liepold also has been a consultant to the
telecommunications industry. From 1978 through 1983, he was Executive Vice
President of Sprint/United Telecom. He is a Director of KCWB-TV, Com-21 and W.K.
Communications.
Erik M. Torgerson. Mr. Torgerson has been a Director of the Company since
November 1997. He is an Investment Manager at Norwest Venture Capital. Prior to
joining Norwest Venture Capital in 1993, Mr. Torgerson was with Arthur Anderson
& Co.'s financial consulting and audit practice. Mr. Torgerson serves as a
director of Command Tooling Systems, LLC, Seasonal Specialties, LLC, TelcoPlus
Communications, Inc. and InSTEP, LLC.
Each Director of the Company has been elected pursuant to the terms of the
Stockholders' Agreement. See "Certain Relationships and Related
Transactions -- Stockholders' Agreement."
All directors are elected annually and hold office until the next annual
meeting of stockholders and until their successors are duly elected and
qualified. Directors do not receive an annual retainer or meeting attendance
fees. However, the Company reimburses non-management directors for expenses
incurred in attending meetings of the Board of Directors.
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<PAGE> 67
During 1997, the Board of Directors of the Company held 13 meetings. The
only standing committees of the Board of Directors are the Audit Committee and
the Compensation Committee. The current members of the Audit Committee are
Messrs. Liepold, Johnston and Torgerson. The Audit Committee periodically
consults with the Company's management and independent public accountants on
financial matters, including the Company's internal financial controls and
procedures. The Audit Committee was formed in February 1997. The current members
of the Compensation Committee are Messrs. Benbow, Collatos and Johnston. The
Compensation Committee approves compensation arrangements for the Company's
executive officers and administers the Company's Stock Option Plan. The
Compensation Committee was formed in February 1997.
EXECUTIVE COMPENSATION
The following table sets forth certain compensation information for the
fiscal year ended December 31, 1997 as to the Chief Executive Officer and the
three other highest paid executive officers of the Company whose total annual
salary and bonus exceeded $100,000 for such year:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
---------------
ANNUAL COMPENSATION SECURITIES
------------------------ UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS/SARS(#) COMPENSATION($)
- --------------------------- ---- ----------- ---------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Rodney A. Weary.............. 1997 $198,818.00 $50,000.00 21,884 --
Chief Executive Officer,
Chairman of the Board of
Directors
Robert B. Weaver............. 1997 $ 96,470.00 $45,000.00 12,505 $40,000(2)
Chief Financial Officer(1)
William J. Gerski............ 1997 $ 60,259.00 $50,000.00 12,182 --
Vice President, Sales and
Marketing
Jo Ellen Linn................ 1997 $ 80,926.00 $25,000.00 2,501 --
Secretary and General Counsel
</TABLE>
- ---------------
(1) Effective September 11, 1998, Mr. Weaver resigned as Chief Financial Officer
of the Company.
(2) The amount shown represents a relocation allowance.
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<PAGE> 68
OPTION GRANTS
The following table sets forth certain information concerning grants of
stock options to the named executive officers during the fiscal year ended
December 31, 1997:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------------- POTENTIAL
PERCENT OF REALIZABLE VALUE AT
TOTAL ASSUMED ANNUAL RATES
NUMBER OF OPTIONS/ OF STOCK PRICE
SECURITIES SARS GRANTED APPRECIATION FOR
UNDERLYING TO EMPLOYEES EXERCISE OF OPTION TERM
OPTION/SARS IN FISCAL BASE PRICE EXPIRATION ---------------------
NAME GRANTED(#) YEAR ($/SH) DATE 5%($) 10%($)
- ---- ----------- ------------ ----------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Rodney A. Weary............ 21,884 35.0% $1.00 10/8/07 $13,763 $34,877
Robert B. Weaver........... 12,505 20.0 $1.00 10/8/07 $ 7,864 $19,930
William J. Gerski.......... 12,182 19.5 $1.00 10/8/07 $ 7,661 $19,415
Jo Ellen Linn.............. 2,501 4.0 $1.00 10/8/07 $ 1,573 $ 3,986
</TABLE>
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS
YEAR-END(#) AT FISCAL YEAR-END($)
--------------------------- ---------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Rodney A. Weary............................... 3,039 18,845 -- --
Robert B. Weaver.............................. 1,737 10,768 -- --
William J. Gerski............................. 1,692 10,490 -- --
Jo Ellen Linn................................. 347 2,154 -- --
</TABLE>
EMPLOYMENT AGREEMENTS
In January 1997, the Company entered into substantially similar
non-competition agreements with Rodney A. Weary, Robert B. Weaver and Jo Ellen
Linn, the terms of which preclude each of them from competing with the Company
during their respective periods of employment and for two years thereafter in
any market in North America in which the Company operates or intends to operate.
In February 1997, the Company and Mr. Weary entered into an agreement
pursuant to which Mr. Weary agreed to serve as the President and Chief Executive
Officer of the Company through February 2000. Such agreement may be extended
according to its terms. Under the agreement, Mr. Weary is paid compensation in
an amount not less than $200,000 per year and is eligible to participate in the
Stock Option Plan.
In February 1997, the Company entered into substantially similar employment
agreements with Mr. Weaver and Ms. Linn, pursuant to which each of them agreed
to serve the Company in their present capacity through February 2000. Such
agreements may be extended according to their terms. Under the agreements, Mr.
Weaver was paid compensation in an amount not less than $80,000 per year and Ms.
Linn is paid compensation in an amount not less than $82,500 per year. Each was
also eligible to participate in the Stock Option Plan. On September 11, 1998,
Mr. Weaver resigned his position as Chief Financial Officer of the Company.
In November 1997, the Company entered into substantially similar employment
and non-competition agreements with Mr. Gerski and Ms. Allen, pursuant to which
each of them agreed to serve the Company in their present capacity through
November 2000. Such agreements may be extended according to their terms. Under
the agreements, Mr. Gerski is paid compensation in an amount not less than
$100,000 per year, and Ms. Allen is paid compensation in an amount not less than
$80,000 per year. Each is also eligible to participate in the Stock Option Plan.
65
<PAGE> 69
In August 1998, the Company entered into an employment agreement with Mr.
Hager. Pursuant to the employment agreement, Mr. Hager agreed to serve the
Company in his current capacity through August 2001. The employment agreement
may be extended in accordance with its terms. Mr. Hager is paid compensation
under the employment agreement in an amount not less than $120,000 per year and
is eligible to participate in the Stock Option Plan. The Company and Mr. Hager
also entered into a non-competition agreement and a confidentiality and
proprietary rights agreement in August 1998. The terms of the non-competition
agreement preclude Mr. Hager from competing with the Company during the term of
his employment and for one year thereafter in any market in the United States in
which the Company operates or intends to operate. The confidentiality and
proprietary rights agreement requires Mr. Hager to maintain the confidentiality
of the Company's proprietary information during the period of his employment and
thereafter.
STOCK OPTION PLAN
In July 1997, the Board of Directors of the Company adopted the Stock
Option Plan pursuant to which the Company may, at the direction of the
Compensation Committee of the Company's Board of Directors, grant incentive
stock options, non-qualified stock options or restricted stock options to
officers, directors and employees of the Company. The Stock Option Plan was
approved by the stockholders of the Company on July 24, 1997. The Stock Option
Plan was assumed by Holdings and approved by its stockholders effective
September 9, 1997.
401(K) PLAN
The Company maintains a 401(k) Savings Plan for its full-time employees
which permits employee contributions up to 15% of annual compensation to the
plan on a pre-tax basis. In addition, the Company may make contributions on a
discretionary basis as a percentage of each participating employee's annual
compensation. The Company may also make additional discretionary contributions
to the Plan in any plan year up to the annual 401(k) plan contribution limits as
defined in the Internal Revenue Code. The Plan is administered by the
Compensation Committee of the Board of Directors of the Company.
66
<PAGE> 70
PRINCIPAL STOCKHOLDERS
All of the issued and outstanding capital stock of the Company is owned by
Holdings. The following table sets forth certain information as of November 25,
1998, regarding the ownership of Holdings' Common Stock, Series A Convertible
Participating Preferred Stock, $.01 par value ("Series A Preferred Stock"),
Series B Convertible Participating Preferred Stock, $.01 par value ("Series B
Preferred Stock"), and Series C Senior Convertible Preferred Stock, $.01 par
value ("Series C Preferred Stock"), by (i) certain stockholders or groups of
related stockholders who, individually or as a group, are the beneficial owners
of 5% or more of any class of Holdings' capital stock and (ii) the executive
officers and directors of the Company. Because only 100 shares of Common Stock
are currently outstanding, beneficial ownership percentages of the Common Stock
presented below are significantly affected by the securities convertible into or
exercisable for Common Stock held by each stockholder. Except as required by
law, holders of the Common Stock do not vote as a separate class on matters
presented for stockholder approval.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
--------------------------------------------------------------------------------
SERIES A SERIES B SERIES C
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK COMMON STOCK FULLY-
------------------ ------------------ ----------------- ------------------ DILUTED
% OF % OF % OF % OF VOTING
NAME(1) SHARES CLASS SHARES CLASS SHARES CLASS SHARES(2) CLASS POWER(%)
- ------- ---------- ----- ---------- ----- --------- ----- ---------- ----- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRINCIPAL STOCKHOLDERS:
Alta Subordinated Debt Partners
III, L.P.(3)................... 55,532.00 13.3 11,125.24 4.9 -- -- 2,116.00 96.1 9.4
Alta Communications VI,
L.P.(3)........................ 92,365.00 22.1 18,504.38 8.1 -- -- 3,522.00 97.9 15.6
Alta-Comm S By S, LLC(3)......... 2,103.00 * 421.84 * -- -- 81.00 45.0 *
Spectrum Equity Investors
L.P.(4)........................ 50,000.00 12.0 -- -- -- -- 12.00 12.0 6.8
Spectrum Equity Investors II
L.P.(4)........................ 100,000.00 23.9 -- -- -- -- 25.00 25.0 13.6
BancBoston Ventures Inc.(5)...... 75,000.00 17.9 12,521.44 5.5 -- -- 19.00 19.0 11.9
Norwest Equity Partners VI,
LP(6).......................... -- -- 50,083.75 21.9 -- -- -- -- 6.8
Norwest Venture Partners VI,
LP(6).......................... -- -- 25,041.87 11.0 -- -- -- -- 3.4
HarbourVest Partners V-Direct
Fund L.P.(7)................... -- -- 75,125.62 32.9 -- -- -- -- 10.2
Lion Investments Limited(8)...... -- -- 5,010.76 2.2 -- -- -- -- *
Westpool Investment Trust
plc(8)......................... -- -- 15,031.27 6.6 -- -- -- -- 2.0
General Electric Capital
Corporation(9)................. -- -- 15,000.00 6.6 -- -- -- -- 2.0
Harold Poulsen(10)............... 1,000.00 * -- -- 19,154.02 37.0 19,154.02 99.5 2.7
Jack S. Ramirez and Carol H.
Ramirez(11).................... -- -- -- -- 8,134.89 12.6 8,134.89 98.8 1.1
Joyce Travis, Trustee of the
Travis Living Trust Dated the
5th day of March, 1998(12)..... -- -- -- -- 4,788.50 9.3 4,788.50 98.0 *
James and Constance R.
Hertz(13)...................... -- -- -- -- 4,880.94 6.3 4,880.94 98.0 *
Maxon R. and Kristina
Davis(14)...................... -- -- -- -- 3,037.52 5.9 3,037.52 96.8 *
Louise A. Davis(15).............. -- -- -- -- 2,968.26 5.7 2,968.26 96.7 *
Jay and Maria Downen(16)......... -- -- -- -- 2,770.37 5.4 2,770.37 96.5 *
Otis J. Downen as Trustee of the
Otis J. Downen, June 1992 Trust
and Frances Eileen Downen,
Trustee of the Frances Eileen
Downen June 1992 Trust as
Tenants in Common(17).......... -- -- -- -- 2,767.89 5.3 2,767.89 96.5 *
Chris J. Downen(18).............. -- -- -- -- 2,767.89 5.3 2,767.89 96.5 *
</TABLE>
67
<PAGE> 71
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
--------------------------------------------------------------------------------
SERIES A SERIES B SERIES C
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK COMMON STOCK FULLY-
------------------ ------------------ ----------------- ------------------ DILUTED
% OF % OF % OF % OF VOTING
NAME(1) SHARES CLASS SHARES CLASS SHARES CLASS SHARES(2) CLASS POWER(%)
- ------- ---------- ----- ---------- ----- --------- ----- ---------- ----- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS:
Rodney A. Weary(19)(20).......... 16,030.00 3.8 -- -- -- -- 10,946.00 99.1 3.7
John R. Hager(20)................ -- -- -- -- -- -- -- -- *
William J. Gerski(20)(21)........ -- -- -- -- -- -- 6,091.00 98.4 *
Laquita J. Allen(20)(22)......... -- -- -- -- -- -- 886.50 89.9 *
Jo Ellen Linn(20)(23)............ 430.00 * -- -- -- -- 1,250.50 92.6 *
Robert F. Benbow(24)............. 150,000.00 35.9 30,051.46 13.2 -- -- 5,719.00 98.9 25.3
William O. Charman(25)........... 75,000.00 17.9 12,521.44 5.5 -- -- 19.00 19.0 11.9
William P. Collatos(26).......... 150,000.00 35.9 -- -- -- -- 37.00 37.0 20.4
William A. Johnston(27).......... -- -- 75,125.62 32.9 -- -- -- -- 10.2
Robert B. Liepold(20)(28)........ 1,000.00 * -- -- -- -- 1,879.00 94.9 *
Erik M. Torgerson(29)............ -- -- 50,083.75 21.9 -- -- -- -- 6.8
All Executive Officers and
Directors as a group (11
persons)....................... 392,460.00 93.5 167,782.27 73.4 -- -- 26,828.00 100.0 36.5
</TABLE>
- ---------------
* Less than 1%
(1) Except as otherwise noted below, the persons named in the table have sole
voting power and investment power with respect to all shares set forth in
the table.
(2) Includes shares issuable upon exercise of warrants and options exercisable
within 60 days of the date hereof, as well as shares of Common Stock
issuable upon conversion of beneficially-owned shares of Series C Preferred
Stock.
(3) The address is c/o Alta Communications, Inc., One Embarcadero Center, Suite
4050, San Francisco, California 94111, Attn: Robert Benbow.
(4) The address is 125 High Street, Suite 2600, Boston, Massachusetts 02110,
Attn: William P. Collatos.
(5) The address is 175 Federal Street, 10th Floor, Boston, Massachusetts 02110,
Attn: William O. Charman.
(6) The address is c/o Norwest Venture Capital Management, Inc., 2800 Piper
Jaffray Tower, 222 South Ninth Street, Minneapolis, Minnesota 55402, Attn:
Erik M. Torgerson.
(7) The address is c/o HarbourVest Partners, LLC, One Financial Center, 44th
Floor, Boston, Massachusetts 02111, Attn: William A. Johnston.
(8) The address is c/o London Merchant Securities, Carlton House, 33 Robert
Adam Street, London WIM 5AH, England, Attn: Iain MacPhail.
(9) The address is 120 Long Ridge Road, 3rd Floor, Stamford, Connecticut 06927,
Attn: Peter Foley.
(10) The address is P.O. Box 1376, Great Falls, Montana 59403.
(11) The address is 2061 Norwich Ct., Glenview, Illinois 60025.
(12) The address is Escalon Avenue Apt. 2117, Sunnyvale, California 94086.
(13) The address is 7444 Molt Road, Billings, Montana 59106.
(14) The address is 163 Woodland Estates Rd., Great Falls, Montana 59404.
(15) The address is 242 East 87th Street, Apt. 1K, New York, New York 10128.
(16) The address is 511 Fortress Circle, Leesburg, Virginia 21075.
(17) The address is 2105 Noble Avenue, Springfield, Illinois 62704.
(18) The address is 1617 Outer Park, Springfield, Illinois 62704.
(19) 16,030 shares of Series A Preferred Stock and 4 shares of Common Stock are
held by the Rodney A. Weary Revocable Trust Dated 10/25/95 and may be
deemed to be beneficially owned by Mr. Weary. In addition, through the
Stock Option Plan, Mr. Weary beneficially owns 10,942.00 shares of Common
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<PAGE> 72
Stock as to which options have vested or will have vested within 60 days,
out of a pool of 21,884 shares available to him.
(20) The address is c/o Golden Sky Systems, Inc., 605 West 47th Street, Suite
300, Kansas City, Missouri 64112.
(21) Through the Stock Option Plan, Mr. Gerski beneficially owns 6,091.00 shares
of Common Stock as to which options have vested or will have vested within
60 days, out of a pool of 12,182 shares available to him.
(22) Through the Stock Option Plan, Ms. Allen beneficially owns 886.50 shares of
Common Stock as to which options have vested or will have vested within 60
days, out of a pool of 1,773 shares available to her.
(23) Ms. Linn beneficially owns 430 shares of Series A Preferred Stock. In
addition, through the Stock Option Plan, Ms. Linn beneficially owns
1,250.50 shares of Common Stock as to which options have vested or will
have vested within 60 days, out of a pool of 2,501 shares available to her.
(24) The address is c/o Alta Communications, Inc., One Embarcadero Center, Suite
4050, San Francisco, California 94111. Shares held by Alta Subordinated
Debt Partners III, L.P., Alta Communications VI, L.P. and Alta-Comm S By S,
LLC, which may be deemed to be beneficially owned by Mr. Benbow. In
addition, Alta Subordinated Debt Partners III, L.P., Alta Communications
VI, L.P. and Alta-Comm S By S, LLC own warrants to purchase 5,682 shares of
Common Stock, respectively. Mr. Benbow disclaims beneficial ownership of
such shares, except to the extent of his proportionate pecuniary interest,
if any.
(25) The address is c/o BancBoston Ventures, Inc., 175 Federal Street, 10th
Floor, Boston, Massachusetts 02110. Shares held by BancBoston Ventures
Inc., which may be deemed to be beneficially owned by Mr. Charman.
(26) The address is c/o Spectrum Equity Investors, 125 High Street, Suite 2600,
Boston, Massachusetts 02110. Shares held by Spectrum Equity Investors L.P.
and Spectrum Equity Investors II L.P., which may be deemed to be
beneficially owned by Mr. Collatos.
(27) The address is c/o HarbourVest Partners, LLC, One Financial Center, 44th
Floor, Boston, Massachusetts 02111. Shares held by HarbourVest Partners
V-Direct Fund L.P., which may be deemed to be beneficially owned by Mr.
Johnston.
(28) Mr. Liepold beneficially owns 1,000 shares of Series A Preferred Stock. In
addition, through the Stock Option Plan, Mr. Liepold beneficially owns
1,879.00 shares of Common Stock as to which options have vested or will
have vested within 60 days, out of a pool of 3,758 shares available to him.
(29) The address is c/o Norwest Equity Partners, 2800 Piper Jaffray Tower, 222
South Ninth Street, Minneapolis, Minnesota 55402-3388. Shares held by
Norwest Equity Partners VI, LP, which may be deemed to be beneficially
owned by Mr. Torgerson.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
STOCK PURCHASE AGREEMENTS
On February 12, 1997, pursuant to the Stock Purchase Agreement dated as of
such date by and among the Company, Rodney A. Weary, and the investors named
therein, the Company sold an aggregate 199,000 shares of Series A Preferred
Stock and 75 shares of Common Stock to such investors. At a subsequent closing
on February 28, 1997, the Company issued certain of such investors an additional
207,000 shares of Series A Preferred Stock and 25 shares of Common Stock in the
aggregate. Such transactions resulted in proceeds to the Company of
approximately $40.6 million in the aggregate. The Company subsequently sold an
aggregate 12,000 shares of Series A Preferred Stock to certain investors who had
not previously purchased either Series A Preferred Stock or Common Stock. Such
transactions resulted in proceeds to the Company of approximately $35.6 million,
in addition to conversion of approximately $2.4 million in stock subscriptions
and $3.8 million in short term borrowings.
Pursuant to an Agreement and Plan of Merger dated as of September 9, 1997
by and among the Company, GSS Mergersub Inc., a wholly-owned subsidiary of
Golden Sky Holdings, Inc. ("Holdings"), and Holdings, GSS Mergersub Inc. merged
with and into the Company, with the Company being the surviving corporation.
Upon the consummation of such merger, each share of Series A Preferred Stock of
the Company was converted into a share of Series A Preferred Stock of Holdings,
each share of Common Stock of the Company was converted into a share of Common
Stock of Holdings, and each share of capital stock of GSS Mergersub Inc. was
converted into a share of Common Stock of the Company, thereby causing the
Company to be a wholly-owned subsidiary of Holdings. Pursuant to a letter
agreement dated as of September 9, 1997 by and between Holdings and the Company,
the Company assigned and Holdings assumed all of the rights and obligations of
the Company under the Series A Stock Purchase Agreement.
Pursuant to a Note Purchase Agreement dated as of November 6, 1997 by and
among the Company and certain outside investors, the Company issued and sold to
such investors an aggregate $10.0 million principal amount of convertible
promissory notes of the Company ("Series B Convertible Notes"). Each Series B
Convertible Note (together with accrued interest thereon, if any) was
automatically convertible into a specified number of shares of Series B
Preferred Stock upon the consummation of a qualified Series B Preferred Stock
financing. On November 24, 1997, pursuant to the Stock Purchase Agreement dated
as of such date by and among Holdings, the Company, Rodney A. Weary and the
investors named therein, the Company issued an aggregate 228,442 shares of
Series B Preferred Stock at a purchase price of $200 per share to certain of
such investors upon conversion of the Series B Convertible Notes. Such Stock
Purchase Agreement provides that certain actions by the Company, including the
incurrence of indebtedness in excess of $1.0 million and the granting of liens
securing indebtedness in excess of $1.0 million, require the approval of a
supermajority of the members of the Company's Board of Directors.
Subject to certain exceptions, Holdings and its subsidiaries (including the
Company) are prohibited under the terms of each of the Stock Purchase Agreements
from paying any dividends or making any distributions of cash, property or
securities of Holdings or any subsidiary with respect to any shares of its
capital stock, or directly or indirectly redeeming, purchasing or otherwise
acquiring for consideration any shares of its capital stock. Such prohibitions
could have the effect of limiting the cash available for the Company to service
its indebtedness.
STOCKHOLDERS' AGREEMENT
Holdings and its stockholders have entered into a stockholders' agreement
dated as of November 24, 1997 (the "Stockholders' Agreement"). Under the
Stockholders' Agreement, Holdings and certain of its stockholders were granted a
right of first offer and a co-sale option with respect to shares of Holdings'
capital stock offered in transactions not otherwise expressly permitted under
the Stockholders' Agreement. In addition, certain of the holders of Series A and
Series B Preferred Stock were granted the right, upon the affirmative vote of
58% of the outstanding shares of each such class, to cause the other holders to
(i) dispose of all their shares of capital stock of Holdings in connection with
a sale of all outstanding shares of Holdings
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capital stock or (ii) vote for the merger or consolidation of Holdings with an
unaffiliated acquiring entity or the sale of all or substantially all the assets
of Holdings. Such rights shall terminate immediately upon an initial public
offering of Holdings' Common Stock meeting certain criteria or a sale of
Holdings. The election of directors is also established by the Stockholders'
Agreement. Under the Stockholders' Agreement, Holdings has agreed, subject to
certain conditions, to effect up to four demand registrations of the Common
Stock held by its stockholders for a sale to the public under applicable federal
and state securities laws. In addition, the stockholders have certain
"piggy-back" registration rights and rights to registration on Form S-3, subject
to certain conditions. In consideration for such registration rights, under the
Stockholders' Agreement the stockholders have agreed not to sell or otherwise
dispose of shares of the Company's Common Stock for 180 days following any
initial public offering by Holdings upon the request of Holdings or the
underwriter for such offering. The obligations of the Company to register shares
of its Common Stock under the Stockholders' Agreement will terminate as to any
party thereto (other than Holdings) seven years after an initial public offering
of the Company's securities, or, as to any party holding less than 2% of
Holdings' outstanding Common Stock, at such time after the first anniversary of
an initial public offering when all such shares can be legally transferred in a
three-month period under Rule 144 under the Securities Act (as reasonably
determined by Holdings).
FORMER CABLE-VIDEO MANAGEMENT, INC. ARRANGEMENT
On July 1, 1996, the Company entered into a management agreement with
Cable-Video Management, Inc. ("CVM"), which is owned by Rodney A. Weary, the
Company's Chief Executive Officer, to administer the Company's first
Acquisition. The management agreement was terminated effective September 30,
1996. During the term of the agreement, total management fees of $280,000 were
paid to CVM, and the Company reimbursed CVM for salaries and other miscellaneous
expenses totaling approximately $343,000. Upon termination of the management
agreement, the Company purchased the assets of CVM for $44,000.
CONSULTING ARRANGEMENT WITH ROBERT B. LIEPOLD
The Company has an oral consulting agreement with Robert B. Liepold, a vice
president and director of the Company, to provide expertise on an "as needed"
basis at the rate of $200 per hour in fiscal 1997 and at the rate of $7,000 per
month in 1998. In 1997, the Company paid an aggregate $77,000 to Mr. Liepold in
connection with such services. As of September 30, 1998, the Company had paid an
aggregate $63,000 to Mr. Liepold in 1998.
PAYMENTS TO AFFILIATES OF RODNEY A. WEARY
The Company utilizes the air transportation services of a company owned by
Rodney A. Weary, the Company's Chief Executive Officer. The Company paid
$109,000 in 1997 and $31,000 in 1996 in connection with such services. In
October 1997, the Company entered into an agreement to lease an aircraft from
Mr. Weary. The lease is cancelable with six months' notice and requires monthly
payments equal to the greater of $15,000 or a fixed hourly operating charge
based on prevailing market rates.
In 1997, Mr. Weary loaned $150,000 to the Company at an interest rate of
10% per annum. In 1996, Mr. Weary made a short-term loan in the principal amount
of $381,000 to the Company at an annual interest rate of 10%. All such amounts
were repaid by the Company prior to December 31, 1997.
Also in 1997, the Company paid $66,000 to a company affiliated with Mr.
Weary, which payment was reimbursement relating to consulting services rendered
to the Company.
In 1997, F.G. Weary, the father of Rodney A. Weary, loaned $215,000 to the
Company at an interest rate of 10% per annum. Such loan, together with accrued
interest, was repaid by the Company prior to December 31, 1997.
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DESCRIPTION OF OTHER INDEBTEDNESS
CREDIT FACILITY
The Amended and Restated Credit Agreement, dated as of July 7, 1997,
amended and restated as of May 8, 1998, among Holdings, the Company, the banks
party thereto from time to time, Paribas (formerly known as Banque Paribas), as
Syndication Agent, Fleet National Bank, as Administrative Agent, and General
Electric Capital Corporation, as Documentation Agent (the "Credit Facility"),
provides for a $35.0 million term loan facility and a $115.0 million revolving
credit facility, with a $40.0 million sublimit for letters of credit. Amounts
available under the term loan facility are subject to increase, and amounts
available under the revolving credit facility are subject to decrease, by up to
$15.0 million pending syndication of the Credit Facility by the agent banks. All
the proceeds of borrowings pursuant to the term loan facility ("Term Loans") and
up to $100.0 million of the proceeds of borrowings pursuant to the revolving
credit facility ("Revolving Loans") will be used to repay existing indebtedness
and for working capital purposes. The remaining proceeds of Revolving Loans may
be used to effect acquisitions of Rural DIRECTV Markets and for general
corporate, capital expenditure and working capital purposes. Capitalized terms
used in this section but not defined herein have the meaning ascribed to such
terms as the Credit Facility.
The term loan facility is to be repaid in 16 consecutive quarterly
installments commencing June 30, 2001 with the remaining balance due March 31,
2005. Each of the quarterly payments due from June 30, 2001 through March 31,
2003 shall be in the amount of $87,500; each of the quarterly installments due
from June 30, 2003 through March 31, 2004 shall be in the amount of $175,000;
the quarterly installment due on June 30, 2004 shall be in the amount of
$2,100,000; and each of the quarterly installments due from September 30, 2004
through March 31, 2005 shall be in the amount of $10,500,000. Borrowing under
the revolving credit facility will be available to the Company until June 30,
2004; however, the revolving loan commitment will be reduced quarterly
commencing June 30, 2000 by $4,312,500 at the end of each quarter from June 30,
2000 through March 31, 2001, by $5,750,000 at the end of each quarter from June
30, 2001 through March 31, 2002, by $7,187,500 at the end of each quarter from
June 30, 2002 through March 31, 2003, by $8,625,000 at the end of each quarter
from June 30, 2003 through March 31, 2004, and by $11,500,000 on June 30, 2004.
The making of each loan under the Credit Facility is subject to the satisfaction
of certain conditions, which include not exceeding a certain "borrowing base"
based on the number of paying subscribers within the Rural DIRECTV Markets
served by the Company and in Rural DIRECTV Markets to be acquired by the
Company. In addition, the Credit Facility provides that the Company will be
required to make mandatory repayments of the Credit Facility from, subject to
certain exceptions, the net proceeds of certain sales or other dispositions by
the Company or any of its subsidiaries of capital stock or material assets, and
with a percentage of any excess operating cash flow with respect to any fiscal
year equal to 75% or 50% in the event that there exists no default or event of
default (as such terms are used in the Credit Facility) and the ratio of
Consolidated Indebtedness to Annualized Consolidated EBITDA (the "Debt: Earnings
Ratio") for the preceding four fiscal quarters is equal to or less than 4:1.
Borrowings by the Company under the Credit Facility are unconditionally and
irrevocably guaranteed by Holdings and each of the Company's direct and indirect
subsidiaries (excluding South Plains DBS Limited Partnership and DCE Satellite
Entertainment, LLC), and such borrowings are secured by (i) an equal and ratable
pledge by Holdings of all of the capital stock of the Company, (ii) an equal and
ratable pledge of all of the capital stock of the Company's subsidiaries, (iii)
a first priority security interest in all of their assets, and (iv) a collateral
assignment of the Company's NRTC Agreements.
The Credit Facility provides that the Company may elect that all or a
portion of the borrowings under the Credit Facility bear interest at a rate per
annum equal to either (i) the Base Rate plus the Applicable Margin or (ii) the
Quoted Rate plus the Applicable Margin. When applying the Base Rate with respect
to Revolving Loans, the Applicable Margin will be 2.25% per annum, less the then
applicable Leverage Reduction Discount. When applying the Quoted Rate with
respect to Revolving Loans, the Applicable Margin will be 3.50% per annum, less
the then applicable Leverage Reduction Discount. When applying the Base Rate
with respect to Term Loans, the Applicable Margin will be 2.50% per annum, less
the then applicable Leverage Reduction Discount. When applying the Quoted Rate
with respect to Term Loans, the Applicable Margin will
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be 3.75% per annum, less the then applicable Leverage Reduction Discount. As
used herein, the "Base Rate" means the higher of (i) 0.50% in excess of the
Federal Funds rate and (ii) the prime lending rate. As used herein, the "Quoted
Rate" means (a) the quotation offered to the Administrative Agent in the New
York interbank Eurodollar market for U.S. dollar deposits of amounts in
immediately available funds comparable to the outstanding principal amount of
the loan of the Administrative Agent for which an interest rate is then being
determined with maturities comparable to the interest period applicable to such
loan as determined by the Administrative Agent's Treasury Funding Management on
the date which is two business days prior to the commencement of such interest
period, divided (and rounded upward to the next whole multiple of 1/16 of 1%) by
(b) a percentage equal to the remainder of 100% minus the then stated maximum
rate of all reserve requirements (including, without limitation, any marginal,
emergency, supplemental, special or other reserves) applicable to any member
bank of the Federal Reserve System in respect of Eurocurrency funding or
liabilities as defined in Regulation D of the Board of Governors of the Federal
Reserve System (or any successor category of liabilities under such Regulation
D). As used herein, the "Leverage Reduction Discount" has the following
meanings: (i) on the Restatement Effective Date (as defined in the Credit
Agreement) and during any period during which clause (ii) or (iii) below, as the
case may be, does not apply, the Leverage Reduction Discount is 0%; (ii) in the
case of Revolving Loans, from and after the Start Date to and including the End
Date (each as defined in the Credit Agreement) and subject to (iv) below, the
following percentage, to the extent but only to the extent that as of the last
day of the most recent fiscal quarter, when (w) the Debt:Earnings Ratio is less
than 7:1 but greater than or equal to 6:1, the Leverage Reduction Discount is
0.25%; (x) the Debt:Earnings Ratio is less than 6:1 but greater than or equal to
5:1, the Leverage Reduction Discount is 0.75%; (y) the Debt:Earnings Ratio is
less than 5:1 but greater than or equal to 4:1, the Leverage Reduction Discount
is 1.00%; and (z) the Debt:Earnings Ratio is less than 4:1, the Leverage
Reduction Discount is 1.50%; (iii) in the case of Term Loans, the Leverage
Reduction Discount is 0.75% when the Debt:Earnings Ratio at the end each of the
two most recent fiscal quarters has been less than or equal to 6:1; and (iv)
notwithstanding clauses (ii) and (iii) above, any time there exists a Default or
Event of Default or the Consolidated EBITDA for the most recent fiscal quarter
was less than or equal to zero, the Leverage Reduction Discount shall be 0%.
The Credit Facility contains a number of significant covenants that, among
other things, limit the ability of the Company and its subsidiaries to incur
additional indebtedness and guaranty obligations, create liens and other
encumbrances, make certain payments, investments, loans and advances, pay
dividends or make other distributions in respect of its capital stock, sell or
otherwise dispose of assets, make capital expenditures, merge or consolidate
with another entity, create subsidiaries, make amendments to its organizational
documents or transact with affiliates. In addition, the Credit Facility requires
the maintenance of certain specified financial and operating covenants,
including minimum interest coverage ratios and limits on general and
administrative expenses.
The Company will pay a commitment fee on the unused amounts under the
revolving loan commitments calculated at 0.5% per annum, payable quarterly in
arrears.
The Credit Facility provides the lenders with the right to reduce the
aggregate term loan and revolving loan commitments by 50% of the amount by which
the aggregate principal amount of senior subordinated debt issued by the Company
exceeds $150.0 million. As described below, the Offering resulted in net
proceeds to the Company of approximately $144.0 million (after payment of
underwriting discounts and other costs of approximately $5.8 million and
excluding the approximately $45.2 million of proceeds placed in the interest
escrow account). If the relevant provision of the Credit Facility is interpreted
to apply to the net proceeds of the Offering, the lenders would have no right to
reduce their commitments; if the provision is interpreted to apply to the gross
proceeds of the Offering, the lenders would have such a right. In an attempt to
clarify the application of this provision, the Company has requested a waiver
from the lenders of their possible right to effect a reduction in the total
commitment amount of the Credit Facility. In the event this waiver request is
not granted by the lenders, the Credit Facility's aggregate term loan and
revolving loan commitments could be reduced by $22.5 million. Similarly, the
aggregate amount of indebtedness permitted by the Indenture could be reduced by
a like amount. Any such reductions in the Company's Credit Facility and maximum
permitted indebtedness could adversely affect its ability to finance potential
future acquisitions of Rural DIRECTV
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Markets and its operations. As a result, the Company may be required to obtain
additional equity or other financing. There can be no assurance that such equity
or other financing would be available on terms acceptable to the Company, or if
available, that the proceeds of such financing would be sufficient to enable the
Company to completely execute its business plan.
Pursuant to a recent amendment to the NRTC Agreements, the Company and all
other NRTC members whose monthly obligations to the NRTC have exceeded $500,000
in the past six months are required to keep and maintain in full force and
effect a standby letter of credit in favor of the NRTC to secure their
respective payment obligations to the NRTC under the NRTC Agreements. The
initial amount of the letter of credit issued at the request of the Company
pursuant to the Credit Facility is equal to three times the Company's single
largest monthly invoice from the NRTC, and must be increased as the Company
makes additional acquisitions of Rural DIRECTV Markets and when the Company's
obligations to the NRTC exceed the amount of the original letter of credit by
67%.
SELLER NOTES
In connection with the acquisition of the Company's Rural DIRECTV Market in
Clark County, Nevada, the Company issued a promissory note (the "TEG-DBS Note")
in favor of TEG-DBS Services, Inc. Pursuant to the TEG-DBS Note, the Company is
obligated to pay to TEG-DBS the principal sum of $2,500,000, which amount is due
and payable on June 12, 1999, together with interest accrued on the unpaid
principal amount at the rate of 10% per annum, which interest is payable in
quarterly installments. The obligations of the Company pursuant to the TEG-DBS
Note are secured by assets of TEG-DBS acquired by the Company, as described in
the Security Agreement, dated June 12, 1997 between the Company and TEG-DBS. As
of March 31, 1998, the entire principal amount of the TEG-DBS Note was
outstanding. A failure by the Company to make a payment under the TEG-DBS Note
would entitle TEG-DBS, at its sole option to (i) a late payment penalty equal to
2% of the payment amount or (ii) to accelerate the payment by the Company of all
amounts due pursuant to the TEG-DBS Note.
In connection with the acquisition of the Company's Rural DIRECTV Market in
Missoula, Montana, the Company issued a note payable in favor of Western Montana
Entertainment Television, Inc. in the principal amount of $3.75 million, dated
December 22, 1997 (the "Western Montana Note"). The Western Montana Note bears
interest at an annual rate of 7%. Four annual installments of principal and
interest of $1,121,868 are payable commencing January 5, 1999. The Western
Montana Note is secured by a letter of credit.
In connection with the acquisition of the Company's Rural DIRECTV Market in
Enfield, North Carolina, the Company issued a note payable in favor of Halifax
Electric Membership Corporation in the principal amount of $5.0 million, dated
May 8, 1998 (the "Halifax Note"). The Halifax Note bears interest at an annual
rate of 7%. Interest is payable in quarterly installments. Principal is payable
in equal annual installments of $1.0 million on January 1 of each year,
commencing January 1, 1999. The Halifax Note is secured by a letter of credit.
In connection with the acquisition of the Company's Rural DIRECTV Market in
Summerdale, Alabama, the Company issued a note payable in favor of Baldwin
County Electric Membership Corporation in the principal amount of $5.16 million,
dated June 29, 1998 (the "Alabama Note"). The Alabama Note bears interest at an
annual rate of 8%. Principal and accrued interest is payable, in full, on
January 15, 1999. The Alabama Note is secured by a letter of credit.
The TEG-DBS Note, the Western Montana Note, the Halifax Note and the
Alabama Note are collectively referred to herein as the "Seller Notes."
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DESCRIPTION OF THE NEW NOTES
The New Notes will be issued under the Indenture, a copy of which will be
made available to holders of Old Notes upon request. The terms of the New Notes
include those stated in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act of 1939, as amended (the "Trust Indenture
Act"). The New Notes are subject to all such terms, and prospective holders of
New Notes are referred to the Indenture and the Trust Indenture Act for a
statement thereof. The following summary of certain provisions of the Indenture
does not purport to be complete and is subject to, and is qualified in its
entirety by reference to, the Trust Indenture Act, and to all of the provisions
of the Indenture, including the definitions of certain terms therein and those
terms made a part of the Indenture by reference to the Trust Indenture Act, as
in effect on the date of the Indenture. As used in this section, the "Company"
refers to Golden Sky Systems, Inc. only. The definitions of certain capitalized
terms used in the following summary are set forth below under "-- Certain
Definitions."
GENERAL
The New Notes will be general senior subordinated obligations of the
Company secured to the limited extent described under "-- Escrow Account." The
New Notes will be issued only in fully registered form without coupons, in
denominations of $1,000 principal amount and integral multiples thereof.
Principal of, premium, if any, and interest on the New Notes are payable, and
the New Notes are exchangeable and transferable, at the office or agency of the
Company in the City of New York maintained for such purposes (which initially
will be the corporate trust office of the Trustee). No service charge will be
made for any registration of transfer, exchange or redemption of the New Notes,
except in certain circumstances for any tax or other governmental charge that
may be imposed in connection therewith.
MATURITY, INTEREST AND PRINCIPAL
The New Notes are limited to $195,000,000 aggregate principal amount and
will mature on August 1, 2006. Interest on the New Notes will accrue at a rate
of 12 3/8% per annum and will be payable in cash semi-annually in arrears on
each February 1 and August 1 (each, an "Interest Payment Date"), commencing
February 1, 1999, to registered holders of New Notes on the January 15 or July
15, as the case may be, immediately preceding such Interest Payment Date.
Interest on the New Notes will accrue from the most recent Interest Payment Date
to which interest has been paid or duly provided for on the Old Note surrendered
in exchange for such New Note, or, if no interest has been paid or duly provided
for on such Old Note, from July 31, 1998. Interest will be computed on the basis
of a 360-day year of twelve 30-day months. If the Company defaults on any
payment in respect of the New Notes (whether upon redemption or otherwise),
interest on overdue principal and premium and, to the extent permitted by law,
on overdue installments of interest will accrue on the amount in default at the
rate of interest borne by the New Notes.
REDEMPTION
Optional Redemption. The New Notes will be redeemable, at the option of the
Company, in whole or in part, on or after August 1, 2003 upon not less than 30
nor more than 60 days' written notice at the redemption prices (expressed as
percentages of principal amount) set forth below, plus accrued and unpaid
interest thereon, if any, to the applicable redemption date, if redeemed during
the twelve-month period beginning on August 1 of each of the years indicated
below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---- ----------
<S> <C>
2003........................................................ 112%
2004........................................................ 110%
2005 and thereafter......................................... 108%
</TABLE>
Optional Redemption upon Public Equity Offerings. On or prior to August 1,
2001, the Company may, at its option, redeem up to 35% of the originally issued
aggregate principal amount of the New Notes, at a redemption price in cash equal
to 112.375% of the principal amount thereof, plus accrued and unpaid interest
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thereon, if any, to the date of redemption solely with the net proceeds of a
Public Equity Offering of the Company or Holdings yielding gross proceeds of at
least $40 million and any subsequent Public Equity Offerings (provided that, in
the case of any such Public Equity Offering or Public Equity Offerings by
Holdings, all the net proceeds thereof are contributed to the Company);
provided, further, that not less than 65% of the originally issued aggregate
principal amount of Notes is outstanding following such redemption. Notice of
any such redemption must be given not later than 60 days after the consummation
of any sale resulting in the requisite gross proceeds.
Mandatory Redemption. The Company will not be required to make any
mandatory sinking fund payments in respect of the New Notes. However, (i)
following the occurrence of a Change of Control, the Company will be required to
make an offer to purchase all outstanding New Notes at a price equal to 101% of
the principal amount thereof (determined at the date of purchase), plus accrued
interest thereon, if any, to the date of purchase and (ii) upon the occurrence
of an Asset Sale, the Company may be obligated to make an offer to purchase all
or a portion of the outstanding New Notes at a price equal to 100% of the
principal amount thereof (determined at the date of purchase), plus accrued and
unpaid interest, if any, to the date of purchase. See "-- Change of Control" and
"-- Certain Covenants -- Disposition of Proceeds of Asset Sales."
Selection; Effect of Redemption Notice. In the case of a partial
redemption, selection of the New Notes for redemption will be made pro rata, by
lot or such other method as the Trustee in its sole discretion deems appropriate
and just; provided that any redemption pursuant to the provisions relating to a
Public Equity Offering shall be made on a pro rata basis or on as nearly a pro
rata basis as practicable (subject to DTC procedures). No New Notes of a
principal amount of $1,000 or less shall be redeemed in part. Notice of
redemption shall be mailed by first-class mail at least 30 but not more than 60
days before the redemption date to each holder of New Notes to be redeemed at
its registered address. If any New Note is to be redeemed in part only, the
notice of redemption that relates to such New Note shall state the portion of
the principal amount thereof to be redeemed. A new New Note in a principal
amount equal to the unredeemed portion thereof will be issued in the name of the
holder thereof upon surrender for cancellation of the original New Note. Upon
giving of a redemption notice, interest on New Notes called for redemption will
cease to accrue from and after the date fixed for redemption (unless the Company
defaults in providing the funds for such redemption) and such New Notes will
cease to be outstanding.
ESCROW ACCOUNT
The New Notes will be collateralized, pending disbursement pursuant to the
Escrow Agreement, by a pledge of the Escrow Account (funds and investments held
from time to time in the Escrow Account are referred to as the "Escrow
Collateral"). The Escrow Account represents funds that, together with the
proceeds from the investment thereof, will be sufficient to pay interest on the
outstanding Notes for the first four scheduled interest payments (but not any
Additional Interest that may arise under the Registration Rights Agreement).
The Escrow Agreement provides for the grant by the Company to the Trustee,
for the benefit of the holders, of security interests in the Escrow Collateral.
All such security interests will collateralize the payment and performance when
due of the Company's secured obligations under the Indenture and the Notes, as
provided in the Escrow Agreement. The Liens created by the Escrow Agreement are
intended to be first priority security interests in the Escrow Collateral. The
ability of holders to realize upon any such funds or securities may be subject
to certain bankruptcy law limitations in the event of the bankruptcy of the
Company.
Pursuant to the Escrow Agreement, funds may be disbursed from the Escrow
Account only to pay interest on the Notes (or, if a portion of the Notes has
been retired by the Company, funds representing the lesser of (i) the excess of
the amount sufficient to pay interest through and including August 1, 2000 on
the Notes not so retired and (ii) the interest payments that have not previously
been made on such retired Notes for each Interest Payment Date through the
Interest Payment Date to occur on August 1, 2000 shall be paid to the Company if
no Default then exists under the Indenture).
The Escrow Agreement provides that Escrow Collateral contained in the
Escrow Account be held by the Escrow Agent, as directed by the Company, in the
form of cash and certain other permitted investments in
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which it will maintain a perfected security interest. Funds contained in the
Escrow Account have been invested in Government Securities, and interest earned
on Government Securities will be placed in the Escrow Account. Upon the
acceleration of the maturity of the Notes, the Escrow Agreement provides for the
foreclosure by the Trustee upon the net proceeds of the Escrow Account. Under
the terms of the Indenture, the proceeds of the Escrow Account shall be applied,
first, to amounts owing to the Trustee in respect of fees and expenses of the
Trustee and, second, to the secured obligations under the Notes and the
Indenture. Under the Escrow Agreement, assuming that the Company makes the first
four scheduled interest payments on the Notes in a timely manner with funds or
Government Securities held in the Escrow Account, all of the Government
Securities will be released from the Escrow Account.
CHANGE OF CONTROL
The Indenture provides that, following the occurrence of a Change of
Control (the date of such occurrence being the "Change of Control Date"), the
Company will be obligated, within 30 days after the Change of Control Date, to
make an offer to purchase (a "Change of Control Offer") on a business day not
later than the 60th day following the Change of Control Date (the "Change of
Control Payment Date") all of the then outstanding Notes at a purchase price
(the "Change of Control Purchase Price") in cash equal to 101% of the principal
amount thereof, plus accrued and unpaid interest thereon, if any, to the Change
of Control Payment Date. The Company will be required to purchase all Notes
properly tendered and not withdrawn pursuant to the Change of Control Offer.
The Indenture provides that, prior to the mailing of the notice referred to
below, but in any event within 30 days following any Change of Control, the
Company covenants to either (i) repay in full and terminate all commitments
under all Indebtedness under the Credit Facility and all other Senior
Indebtedness the terms of which require repayment upon a Change of Control or
offer to repay in full and terminate all commitments under all Indebtedness
under the Credit Facility and all other such Senior Indebtedness and to repay
the Indebtedness owed to each lender which has accepted such offer or (ii)
obtain the requisite consents under the Credit Facility and all other Senior
Debt to permit the repurchase of the Notes as provided below. The Company shall
first comply with the covenant in the immediately preceding sentence before it
shall be required to repurchase Notes pursuant to the provisions described
herein. The Company's failure to comply with the two immediately preceding
sentences shall constitute an Event of Default described in clause (iv) and not
in clause (ii) under "-- Events of Default."
In order to effect such Change of Control Offer, the Company will, not
later than the 30th day after the Change of Control Date, be obligated to mail
to each holder of Notes notice of the Change of Control Offer, which notice will
govern the terms of the Change of Control Offer and will state, among other
things, the procedures that holders must follow to accept the Change of Control
Offer. The Change of Control Offer will be required to be kept open for a period
of at least 20 business days.
If a Change of Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the purchase price for all
of the Notes that might be tendered by holders of Notes seeking to accept the
Change of Control Offer. If the Company fails to purchase all of the Notes
tendered for purchase, such failure will constitute an Event of Default under
the Indenture. See "-- Events of Default" below.
The Company shall comply, to the extent applicable, with the requirements
of Section 14(e) of the Exchange Act, and any other applicable securities laws
or regulations and any applicable requirements of any securities exchange on
which the Notes are listed, in connection with the repurchase of Notes pursuant
to a Change of Control Offer, and any violation of the provisions of the
Indenture relating to such Change of Control Offer occurring as a result of such
compliance shall not be deemed a Default or an Event of Default under the
Indenture.
SUBORDINATION
The payment of all Obligations on the New Notes will be subordinated in
right of payment, as described below, to the prior payment in full in cash or
Cash Equivalents of all Obligations with respect to Senior
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Indebtedness. To the extent holders of Notes realize upon Escrow Collateral
prior to the Release Date following an exercise of remedies under the Indenture,
the following subordination provisions will not apply.
The Indenture provides that in the event of any insolvency or bankruptcy
case or proceeding, or any receivership, liquidation, reorganization or other
similar case or proceeding in connection therewith, relating to the Company, or
any liquidation, dissolution or other winding-up of the Company, whether
voluntary or involuntary, or any assignment for the benefit of creditors or
other marshalling of assets or liabilities of the Company, all Obligations with
respect to Senior Indebtedness must be paid in cash or cash equivalents in full
before any payment or distribution (excluding any payment or distribution of
Permitted Junior Securities, payments from the Escrow Account and any payment
from the trust described under "-- Defeasance or Covenant Defeasance of
Indenture") is made on account of the Obligations with respect to the Notes or
for the acquisition, redemption or other purchase of any Obligations with
respect to the Notes for cash, property or otherwise.
During the continuance of any default in the payment of any Designated
Senior Indebtedness pursuant to which the maturity thereof may immediately be
accelerated beyond any applicable grace period and after receipt by the Trustee
from representatives of holders of such Designated Senior Indebtedness of
written notice of such default, no payment or distribution of any assets of any
kind or character shall be made by or on behalf of the Company or any other
Person on its behalf (excluding any payment or distribution of Permitted Junior
Securities, payments from the Escrow Account and any payment from the trust
described under "-- Defeasance or Covenant Defeasance of Indenture") shall be
made on account of the Obligations with respect to, or the purchase, redemption
or other acquisition of, the Notes unless and until such default has been cured
or waived or has ceased to exist or such Designated Senior Indebtedness shall
have been discharged or paid in full in cash or Cash Equivalents.
During the continuance of any non-payment default with respect to any
Designated Senior Indebtedness pursuant to which the maturity thereof may
immediately be accelerated (a "Non-payment Default") and after the receipt by
the Trustee and the Company from the representatives of holders of such
Designated Senior Indebtedness of a written notice of such Non-payment Default,
neither the Company nor any other Person on its behalf shall make any payment or
distribution of any kind or character (excluding any payment or distribution of
Permitted Junior Securities, payments from the Escrow Account and any payment
from the trust described under "-- Defeasance or Covenant Defeasance of
Indenture") may be made by the Company on account of the Obligations with
respect to, or the purchase, redemption or other acquisition of, the Notes for
the period specified below (the "Payment Blockage Period").
The Payment Blockage Period will commence upon the receipt of notice of a
Non-payment Default by the Trustee from the representatives of holders of
Designated Senior Indebtedness and will end on the earliest to occur of the
following events: (i) 179 days shall have elapsed since the receipt of such
notice of a Non-payment Default (provided such Designated Senior Indebtedness
shall not theretofore have been accelerated), (ii) such default is cured or
waived or ceases to exist or such Designated Senior Indebtedness is discharged
or (iii) such Payment Blockage Period shall have been terminated by written
notice to the Company or the Trustee from the representatives of holders of
Designated Senior Indebtedness initiating such Payment Blockage Period. After
the end of any Payment Blockage Period the Company shall promptly resume making
any and all required payments in respect of the Notes, including any missed
payments. Notwithstanding anything in the subordination provisions of the
Indenture or the Notes to the contrary, (x) in no event shall a Payment Blockage
Period extend beyond 179 days from the date of the receipt by the Trustee of the
notice initiating such Payment Blockage Period, (y) there shall be a period of
at least 181 consecutive days in each 360-day period when no Payment Blockage
Period is in effect and (z) not more than one Payment Blockage Period with
respect to the Notes may be commenced within any period of 360 consecutive days.
No Non-payment Event of Default with respect to Designated Senior Indebtedness
that existed or was continuing on the date of the commencement of any Payment
Blockage Period with respect to the Designated Senior Indebtedness initiating
such Payment Blockage Period may be, or be made, the basis for the commencement
of a second Payment Blockage Period, whether or not within a period of 360
consecutive days, unless such default has been cured or waived for a period of
not less than 90 consecutive days (it being acknowledged that any subsequent
action, or any breach of any financial covenants for a period commencing
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after the date of commencement of such Blockage Period based upon any new events
that, in either case, would give rise to an event of default pursuant to any
provisions under which an event of default previously existed or was continuing
shall constitute a new event of default for this purpose).
In the event that, notwithstanding the foregoing, the Company makes any
payment or distribution to the Trustee or any holder of any Note prohibited by
the subordination provision of the Indenture, then such payment or distribution
will be required to be paid over and delivered to the holders (or their
representative) of Designated Senior Indebtedness.
If the Company fails to make any payment on the Notes when due or within
any applicable grace period, whether or not on account of the subordination
provisions referred to above, such failure would constitute an Event of Default
under the Indenture and would enable the holders of the Notes to accelerate the
maturity thereof. See "-- Events of Default."
By reason of such subordination, in the event of liquidation or insolvency,
creditors of the Company who are holders of Senior Indebtedness may recover
more, ratably, than the holders of the Notes, and funds that would be otherwise
payable to the holders of the Notes will be paid to the holders of Senior
Indebtedness to the extent necessary to pay the Senior Indebtedness in full, and
the Company may be unable to meet its obligations fully with respect to the
Notes.
As of September 30, 1998, on a Pro Forma basis, the Company would have had
outstanding $55.0 million of Senior Indebtedness and $75.1 million of
availability under the Credit Facility. The Indenture limits, but does not
prohibit, the incurrence by the Company of additional Indebtedness that is
senior to the Notes, but prohibits the incurrence of any Indebtedness
contractually subordinated in right of payment to any other Indebtedness of the
Company and senior in right of payment to the Notes. See "Risk Factors --
Subordination of the Notes" and "Risk Factors -- Asset Encumbrances."
CERTAIN COVENANTS
Set forth below are certain covenants that are contained in the Indenture.
Limitation on Additional Indebtedness. The Indenture provides that the
Company will not, and will not permit any Restricted Subsidiary to, directly or
indirectly, Incur, contingently or otherwise, any Indebtedness (including any
Acquired Indebtedness), except for Permitted Indebtedness; provided that the
Company will be permitted to Incur Indebtedness, and any Restricted Subsidiary
will be able to Incur Acquired Indebtedness, if, at the time of and immediately
after giving pro forma effect to such Incurrence (including the application of
the net proceeds therefrom), the Debt to Operating Cash Flow Ratio of the
Company would be less than or equal to 6.5 to 1.0.
Limitation on Restricted Payments. The Indenture provides that the Company
will not, and will not permit any of the Restricted Subsidiaries to, directly or
indirectly, make any Restricted Payment unless:
(i) no Default shall have occurred and be continuing at the time of or
after giving effect to such Restricted Payment;
(ii) immediately after giving effect to such Restricted Payment, the
Company would be able to incur $1.00 of Indebtedness under the Debt to
Operating Cash Flow Ratio set forth in the covenant "Limitation on
Additional Indebtedness"; and
(iii) immediately after giving effect to such Restricted Payment, the
aggregate amount of all Restricted Payments and Designation Amounts
declared or made on or after the Issue Date does not exceed an amount equal
to the sum of, without duplication, (a) the difference between (x) the
Cumulative Operating Cash Flow determined for the period commencing on the
Issue Date and ending on the last day of the most recent fiscal quarter
immediately preceding the date of such Restricted Payment and (y) 150% of
Cumulative Consolidated Interest Expense determined for the period
commencing on the Issue Date and ending on the last day of the most recent
fiscal quarter immediately preceding the date of such Restricted Payment,
plus (b) the aggregate net cash proceeds received by the Company either (x)
as capital contributions to the Company after the Issue Date or (y) from
the issue
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and sale (other than to a Subsidiary of the Company) of its Qualified
Equity Interests after the Issue Date, plus (c) the aggregate net cash
proceeds received by the Company or any Restricted Subsidiary after the
Issue Date upon the conversion of, or exchange for, Indebtedness of the
Company or a Restricted Subsidiary that has been converted into or
exchanged for Qualified Equity Interests of the Company, plus (d) in the
case of the disposition or repayment of any Investment constituting a
Restricted Payment (other than an Investment made pursuant to clause (iv)
of the following paragraph) made after the Issue Date, an amount (to the
extent not included in the computation of Cumulative Operating Cash Flow)
equal to the lesser of: (i) the return of capital with respect to such
Investment and (ii) the amount of such Investment that was treated as a
Restricted Payment, plus (e) so long as the Designation thereof was treated
as a Restricted Payment made after the Issue Date, with respect to any
Unrestricted Subsidiary that has been redesignated as a Restricted
Subsidiary after the Issue Date in accordance with "-- Designation of
Unrestricted Subsidiaries" below, the Company's proportionate interest
equal to the Fair Market Value of any Unrestricted Subsidiary that has been
redesignated as a Restricted Subsidiary after the Issue Date in accordance
with "-- Designation of Unrestricted Subsidiaries" below not to exceed in
any case the Designation Amount with respect to such Restricted Subsidiary
upon its Designation, minus (f) the greater of (i) $0 and (ii) the
Designation Amount (measured as of the date of Designation) with respect to
any Subsidiary of the Company that has been Designated as an Unrestricted
Subsidiary after the Issue Date in accordance with "-- Designation of
Unrestricted Subsidiaries" below and minus (g) 50% of the aggregate
principal amount of outstanding Indebtedness included in the calculation of
clause (d) of the definition of Permitted Indebtedness at the time of such
Restricted Payment. For purposes of the preceding clauses (b) and (c) and
without duplication and for purposes of the definition of Total Incremental
Invested Equity, the value of the aggregate net cash proceeds received by
the Company upon the issuance of Qualified Equity Interests either upon the
conversion of convertible Indebtedness or in exchange for outstanding
Indebtedness or upon the exercise of options, warrants or rights will be
the net cash proceeds received upon the issuance of such Indebtedness,
options, warrants or rights plus the incremental cash received by the
Company upon the conversion, exchange or exercise thereof.
The provisions of this covenant shall not prohibit: (i) the payment of any
dividend or other distribution within 60 days after the date of declaration
thereof, if at such date of declaration such payment would comply with the
provisions of the Indenture; (ii) so long as no Default shall have occurred and
be continuing, the purchase, redemption, retirement or other acquisition of any
Equity Interests of the Company (A) in exchange for or conversion into or (B)
out of the net cash proceeds of the substantially concurrent issue and sale
(other than to a Subsidiary of the Company) of Equity Interests of the Company
(other than Disqualified Equity Interests); provided that any such net cash
proceeds pursuant to the immediately preceding subclause (B) are excluded from
clause (iii)(b) of the preceding paragraph; (iii) so long as no Default shall
have occurred and be continuing, the purchase, redemption, defeasance or other
acquisition or retirement for value of Subordinated Indebtedness made by
exchange for (including any such exchange pursuant to the exercise of a
conversion right or privilege in which cash is paid in lieu of fractional shares
or scrip), or out of the net cash proceeds of a substantially concurrent issue
or sale (other than to a Subsidiary of the Company) of, (A) Equity Interests
(other than Disqualified Equity Interests) of the Company; provided that any
such net cash proceeds, to the extent so used, are excluded from clause (iii) of
the preceding paragraph, and/or (B) other Subordinated Indebtedness, having a
Weighted Average Life to Maturity that is equal to or greater than the Weighted
Average Life to Maturity of the Subordinated Indebtedness being purchased,
redeemed, defeased or otherwise acquired or retired; (iv) Investments
constituting Restricted Payments in Persons engaged primarily in a Permitted
Business in an amount not to exceed $10.0 million outstanding at any time; (v)
the making of any Investment in or payment of any dividend or distribution to
Holdings for bona fide costs and operating expenses of Holdings directly related
to the operations of the Company and its Subsidiaries; and (vi) the payment of
any dividend or distribution to Holdings to enable it to purchase, redeem, or
otherwise acquire or retire for value Equity Interests of Holdings held by
employees or former employees of Holdings, the Company or any Subsidiary of
Holdings or the Company (or their estates or beneficiaries under their estates)
upon death, disability, retirement or termination of employment, not to exceed
$1.0 million in any year or $3.0 million in the aggregate since the Issue Date
plus, in each case, the amount of the net proceeds
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received by the Company, Holdings or any such Subsidiary from life insurance
policies on the life of the employee whose Equity Interests are being purchased,
redeemed or otherwise acquired or retired for value.
In no event shall a Restricted Payment made on the basis of consolidated
financial statements prepared in good faith in accordance with GAAP be subject
to rescission or constitute a Default by reason of any requisite subsequent
restatement of such financial statements which would have made such Restricted
Payment prohibited at the time that it was made.
In determining the amount of Restricted Payments permissible under this
covenant, amounts expended pursuant to clauses (i), (iv) and (vi) of the second
preceding paragraph shall be included as Restricted Payments and amounts
expended pursuant to clauses (ii), (iii) and (v) shall be excluded. The amount
of any non-cash Restricted Payment shall be deemed to be equal to the Fair
Market Value thereof at the date of the making of such Restricted Payment.
Limitation on Other Senior Subordinated Debt. The Indenture provides that
the Company will not, directly or indirectly, Incur, contingently or otherwise,
any Indebtedness that is both (i) subordinate in right of payment to any other
Indebtedness of the Company and (ii) senior in right of payment to the Notes.
Limitation on Liens. The Indenture provides that the Company will not, and
will not permit any Restricted Subsidiary to, create, incur, assume or suffer to
exist any Liens of any kind against or upon any property or assets of the
Company or any Restricted Subsidiary, whether now owned or hereafter acquired,
or any proceeds therefrom to secure any Indebtedness unless (i) in the case of
Liens securing Subordinated Indebtedness, the Notes are secured by a Lien on
such property, assets or proceeds that is senior in priority to such Liens and
(ii) in all other cases, contemporaneously therewith effective provision is made
to secure the Notes equally and ratably with such Indebtedness with a Lien on
the same properties and assets securing Indebtedness for as long as such
Indebtedness is secured by such Lien except for (i) Liens on property or assets
of the Company (other than the Escrow Account) securing any Senior Indebtedness
or on property or assets of Restricted Subsidiaries securing guarantees of
Senior Indebtedness or on any property or assets of the Company or any
Restricted Subsidiary securing any unsubordinated Indebtedness of any Restricted
Subsidiary, (ii) Permitted Liens on property or assets (other than the Escrow
Account) or (iii) Liens on the Escrow Account to secure the Notes.
Limitation on Dividends and Other Payment Restrictions Affecting Restricted
Subsidiaries. The Indenture provides that the Company will not, and will not
cause or permit any Restricted Subsidiary to, directly or indirectly, create or
otherwise cause or suffer to exist or become effective any encumbrance or
restriction on the ability of any Restricted Subsidiary to (a) pay dividends or
make any other distributions to the Company or any other Restricted Subsidiary
on its Equity Interests or with respect to any other interest or participation
in, or measured by, its profits, or pay any Indebtedness owed to the Company or
any other Restricted Subsidiary, (b) make loans or advances to, or guarantee any
Indebtedness or other obligations of, the Company or any other Restricted
Subsidiary, or (c) transfer any of its properties or assets to the Company or
any other Restricted Subsidiary, except for such encumbrances or restrictions
existing under or by reason of (i) the Credit Facility or any other agreement of
the Company or the Restricted Subsidiaries outstanding on the Issue Date, in
each case as in effect on the Issue Date, and amendments, restatements,
renewals, replacements or refinancings thereof; provided, however, that any such
amendment, restatement, renewal, replacement or refinancing is no more
restrictive in the aggregate with respect to such encumbrances or restrictions
than those contained in the Credit Facility or such other agreement on the Issue
Date; (ii) applicable law; (iii) any instrument governing Indebtedness or Equity
Interests of an Acquired Person acquired by the Company or any Restricted
Subsidiary as in effect at the time of such acquisition (except to the extent
such Indebtedness was incurred by such Acquired Person in connection with, as a
result of or in contemplation of such acquisition); provided, however, that such
encumbrances and restrictions are not applicable to the Company or any
Restricted Subsidiary, or the properties or assets of the Company or any
Restricted Subsidiary, other than the Acquired Person; (iv) customary
non-assignment provisions in leases and other contracts entered into in the
ordinary course of business and consistent with past practices (including,
without limitation, non-assignment provisions in agreements between the Company
or any Restricted Subsidiary and the NRTC with respect to DBS services); (v)
Purchase Money Indebtedness for
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property acquired in the ordinary course of business that only imposes
encumbrances and restrictions on the property so acquired; (vi) any agreement
for the sale or disposition of the Equity Interests or assets of any Restricted
Subsidiary; provided, however, that such encumbrances and restrictions described
in this clause (vi) are only applicable to such Restricted Subsidiary or assets,
as applicable, and any such sale or disposition is made in compliance with
"-- Disposition of Proceeds of Asset Sales" below to the extent applicable
thereto; or (vii) refinancing Indebtedness permitted under clause (h) of the
definition of Permitted Indebtedness; provided, however, that the encumbrances
and restrictions contained in the agreements governing such Indebtedness are no
more restrictive in the aggregate than those contained in the agreements
governing the Indebtedness being refinanced immediately prior to such
refinancing.
Disposition of Proceeds of Asset Sales. The Indenture provides that the
Company will not, and will not permit any Restricted Subsidiary to, make any
Asset Sale unless (a) the Company or such Restricted Subsidiary, as the case may
be, receives consideration at the time of such Asset Sale at least equal to the
Fair Market Value of the assets sold or otherwise disposed of and (b) at least
85% of such consideration consists of (A) cash or Cash Equivalents, (B)
properties and capital assets to be used in a Permitted Business and/or (C)
Equity Interests in one or more Persons that are primarily engaged in a
Permitted Business so long as upon the consummation of any sale in accordance
with this clause (C), such Person becomes a Wholly Owned Restricted Subsidiary;
provided, however, that, in the case of sales pursuant to clauses (B) and (C)
not involving solely an exchange of a Permitted Business and cash (if any), if
the Fair Market Value of the assets sold or otherwise disposed of in a single
transaction or series of transactions exceeds $5.0 million, the Company shall be
required to obtain the written opinion from an Independent Financial Advisor
(and file such opinion with the Trustee) stating that the terms of such Asset
Sale are fair, from a financial point of view, to the Company or the Restricted
Subsidiary involved in such Asset Sale. The amount of any (i) Indebtedness
(other than any Subordinated Indebtedness) of the Company or any Restricted
Subsidiary that is actually assumed by the transferee in such Asset Sale and
from which the Company and the Restricted Subsidiaries are fully released shall
be deemed to be cash for purposes of determining the percentage of cash
consideration received by the Company or the Restricted Subsidiaries and (ii)
notes or other similar obligations received by the Company or the Restricted
Subsidiaries from such transferee that are immediately converted, sold or
exchanged (or are converted, sold or exchanged within thirty days of the related
Asset Sale) by the Company or the Restricted Subsidiaries into cash shall be
deemed to be cash, in an amount equal to the net cash proceeds realized upon
such conversion, sale or exchange for purposes of determining the percentage of
cash consideration received by the Company or the Restricted Subsidiaries.
Notwithstanding the foregoing, during the term of the Notes, the Company and the
Restricted Subsidiaries may engage in Asset Sales involving $10.0 million or
more without complying with clause (b) of the first sentence of this paragraph.
Notwithstanding the foregoing, the Company or such Restricted Subsidiary,
as the case may be, may (i) apply the Net Cash Proceeds of any Asset Sale within
365 days of receipt thereof to repay Senior Indebtedness and permanently reduce
any related commitment, (ii) apply such Net Cash Proceeds to repay Specified
Indebtedness and, by written notice to the Trustee and the holders (the
"Permitted Debt Reduction"), elect to permanently reduce the amount of Specified
Indebtedness that may be incurred as Permitted Indebtedness under the covenant
"Limitation on Additional Indebtedness" by an amount equal to the amount of such
Net Cash Proceeds; or (iii) apply such Net Proceeds to acquire, construct or
improve properties and capital assets to be used on a Permitted Business within
365 days after the receipt thereof or (iv) any combination of the foregoing.
To the extent that all or part of the Net Cash Proceeds of any Asset Sale
are not applied within 365 days of such Asset Sale as described in clause (i),
(ii) or (iii) of the immediately preceding paragraph (such Net Cash Proceeds,
the "Unutilized Net Cash Proceeds"), the Company shall, within 20 days after
such 365th day, make an offer to purchase ("Offer to Purchase") all outstanding
Notes up to a maximum principal amount of Notes equal to the Note Pro Rata
Share, at a purchase price in cash equal to 100% of the principal amount of
Notes, plus accrued and unpaid interest (including Additional Interest, if any)
thereon, if any, to the Purchase Date; provided, however, that the Offer to
Purchase may be deferred until there are aggregate Unutilized Net Cash Proceeds
equal to or in excess of $10.0 million, at which time the entire amount of such
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Unutilized Net Cash Proceeds, and not just the amount in excess of $10.0
million, shall be applied as required pursuant to this paragraph.
In the event that the terms of any Other Pari Passu Indebtedness requires
that an offer to purchase be made to repurchase such Indebtedness upon the
consummation of any Asset Sale (the "Other Indebtedness"), the Company may use
the Unutilized Net Cash Proceeds otherwise required to be used to make an Offer
to Purchase to make an offer to purchase or to retire such Other Pari Passu
Indebtedness and to make an Offer to Purchase so long as the amount of such
Unutilized Net Cash Proceeds available to be applied to purchase the Notes is
not less than the Note Pro Rata Share. With respect to any Unutilized Net Cash
Proceeds, the Company shall make the Offer to Purchase in respect thereof at the
same time as the analogous offer to purchase is made under any Other
Indebtedness and the Purchase Date in respect thereof shall be the same under
the Indenture as the Purchase Date in respect thereof pursuant to any Other
Indebtedness.
With respect to any Offer to Purchase effected pursuant to this covenant,
to the extent that the principal amount of the Notes tendered pursuant to such
Offer to Purchase exceeds the Note Pro Rata Share to be applied to the purchase
thereof, such Notes shall be purchased pro rata based on the principal amount of
such Notes tendered by each holder.
In the event that the Company makes an Offer to Purchase the Notes, the
Company shall comply with any applicable securities laws and regulations,
including any applicable requirements of Section 14(e) of, and Rule 14e-1 under,
the Exchange Act, and any violation of the provisions of the Indenture relating
to such Offer to Purchase occurring as a result of such compliance shall not be
deemed an Event of Default or an event that with the passing of time or giving
of notice, or both, would constitute an Event of Default.
Each holder of Notes shall be entitled to tender all or any portion of the
Notes owned by such holder pursuant to the Offer to Purchase, subject to the
requirement that any portion of a Note tendered must be tendered in an integral
multiple of $1,000 principal face amount and subject to any proration among
tendering holders as described above.
Limitation on Issuances and Sales of Preferred Equity Interests by
Restricted Subsidiaries. The Indenture provides that the Company (i) will not
permit any Restricted Subsidiary to issue any Preferred Equity Interests (other
than to the Company or a Restricted Subsidiary) and (ii) will not permit any
Person (other than the Company or a Restricted Subsidiary) to own any Preferred
Equity Interests of any Restricted Subsidiary.
Limitations on Conduct of Business of the Company. The Company will not,
and will not permit any of the Restricted Subsidiaries to, be primarily engaged
in any business, except for a Permitted Business.
Limitation on Transactions with Affiliates. The Indenture provides that the
Company will not, and will not permit, cause or suffer any Restricted Subsidiary
to, conduct any business or enter into any transaction (or series of related
transactions that are similar or part of a common plan) with or for the benefit
of any of their respective Affiliates or any beneficial holder of 10% or more of
the Common Stock of the Company or any officer or director of the Company (each,
an "Affiliate Transaction"), unless the terms of the Affiliate Transaction are
set forth in writing, and are fair and reasonable to the Company or such
Restricted Subsidiary, as the case may be. Each Affiliate Transaction involving
aggregate payments or other Fair Market Value in excess of $5.0 million shall be
approved by a majority of the Board of Directors, such approval to be evidenced
by a board resolution stating that the Board has determined that such
transaction or transactions comply with the foregoing provisions. In addition to
the foregoing, each Affiliate Transaction involving aggregate consideration of
$10.0 million or more shall be approved by a majority of the Disinterested
Directors; provided that, in lieu of such approval by the Disinterested
Directors, the Company may obtain a written opinion from an Independent
Financial Advisor stating that the terms of such Affiliate Transaction to the
Company or the Restricted Subsidiary, as the case may be, are fair from a
financial point of view.
Notwithstanding the foregoing, the restrictions set forth in this covenant
shall not apply to (i) transactions with or among the Company and any Restricted
Subsidiary or between or among Restricted Subsidiaries; (ii) customary
directors' fees, indemnification and similar arrangements, consulting fees,
employee salaries, bonuses or employment agreements, compensation or employee
benefit arrangements and
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incentive arrangements with any officer, director or employee of the Company
entered into in the ordinary course of business (including customary benefits
thereunder) and payments under any indemnification arrangements permitted by
applicable law; (iii) any transactions undertaken pursuant to any other
contractual obligations in existence on the Issue Date (as in effect on the
Issue Date); (iv) any Restricted Payments made in compliance with "-- Limitation
on Restricted Payments" above; (v) loans, advances and reimbursements to
officers, directors and employees of the Company and the Restricted Subsidiaries
for travel, entertainment, moving and other relocation expenses, in each case
made in the ordinary course of business and consistent with past business
practices; (vi) the pledge of Equity Interests of Unrestricted Subsidiaries to
support the Indebtedness thereof; and (vii) the sale of products or property by
any Person to the Company or a Restricted Subsidiary, or by the Company or any
Restricted Subsidiary to any Person, in the ordinary course of business and
consistent with past practice and (viii) the issuance and sale by the Company of
Qualified Equity Interests.
Limitation on Guarantees by and Certain Indebtedness of Restricted
Subsidiaries. The Company will not permit any Restricted Subsidiary, directly or
indirectly, by way of the pledge of any intercompany note or otherwise, to
assume, guarantee or in any other manner become liable with respect to (x) any
Indebtedness of the Company or (y) any Indebtedness of any such Restricted
Subsidiary that is expressly subordinated in right of payment to any other
Indebtedness of such Restricted Subsidiary, except for Indebtedness incurred
under clause (f), (g) or (j) of the definition of "Permitted Indebtedness,"
unless, in either such case, (a) such Restricted Subsidiary executes and
delivers, or has executed and delivered, a supplemental indenture to the
Indenture providing a guarantee of payment of the Notes by such Restricted
Subsidiary in the form required by the Indenture (the "Guarantee") and (b) if
such assumption, guarantee or other liability of such Restricted Subsidiary is
provided in respect of Indebtedness that is expressly subordinated to the Notes,
the guarantee or other instrument provided by such Restricted Subsidiary in
respect of such subordinated Indebtedness shall be subordinated to the Guarantee
pursuant to subordination provisions not less favorable to the holders of the
Notes than those contained in the indenture or similar document governing such
subordinated Indebtedness. Any Restricted Subsidiary that has provided a
Guarantee is herein referred to as a "Guarantor." The Company may elect to cause
any Restricted Subsidiary to become a Guarantor. Any Guarantee shall contain
subordination provisions and definitions that are substantively the same as
those applicable to the Notes.
Notwithstanding the foregoing, any such Guarantee by a Restricted
Subsidiary of the Notes shall provide by its terms that it shall be
automatically and unconditionally released and discharged, without any further
action required on the part of the Trustee or any such Restricted Subsidiary,
upon: (i) the unconditional release of such Restricted Subsidiary from its
liability in respect of the Indebtedness in connection with which such Guarantee
was executed and delivered pursuant to the preceding paragraph or otherwise; or
(ii) any sale or other disposition (by merger or otherwise) to any Person which
is not a Restricted Subsidiary of the Company, of all of the Company's Equity
Interests in, or all or substantially all of the assets of, such Restricted
Subsidiary; provided, however, that (a) such sale or disposition of such Equity
Interests or assets is otherwise in compliance with the terms of the Indenture
and (b) such assumption, guarantee or other liability of such Restricted
Subsidiary has been released by the holders of the other Indebtedness so
guaranteed.
Reports. The Indenture provides that, whether or not the Company has a
class of securities registered under the Exchange Act, the Company shall furnish
without cost to each holder of Notes and file with the Trustee and, following
the effectiveness of any Exchange Offer Registration Statement or a Shelf
Registration Statement, file with the SEC (i) within the applicable time period
required under the Exchange Act, after the end of each fiscal year of the
Company, the information required by Form 10-K (or any successor form thereto)
under the Exchange Act with respect to such period, (ii) within the applicable
time period required under the Exchange Act after the end of each of the first
three fiscal quarters of each fiscal year of the Company, the information
required by Form 10-Q (or any successor form thereto) under the Exchange Act
with respect to such period and (iii) any current reports on Form 8-K (or any
successor forms) required to be filed under the Exchange Act.
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Designation of Unrestricted Subsidiaries. (a) The Company may designate
after the Issue Date any Subsidiary of the Company as an "Unrestricted
Subsidiary" under the Indenture (a "Designation") only if:
(i) no Default or Event of Default shall have occurred and be
continuing at the time of or after giving effect to such Designation;
(ii) at the time of and after giving effect to such Designation, the
Company could incur $1.00 of additional Indebtedness (other than Permitted
Indebtedness) under the proviso in "-- Limitation on Additional
Indebtedness" above; and
(iii) the Company would be permitted to make an Investment (other than
a Permitted Investment) at the time of Designation (assuming the
effectiveness of such Designation) pursuant to the first paragraph of or
subclause (iv) of the second paragraph "-- Limitation on Restricted
Payments" above in an amount (the "Designation Amount") equal to the Fair
Market Value of the Company's proportionate interest of the Company and the
Restricted Subsidiaries in such Subsidiary on such date.
Notwithstanding the above, no Subsidiary of the Company shall be designated
an Unrestricted Subsidiary if such Subsidiary distributes, directly or
indirectly, DIRECTV Services pursuant to an agreement with the NRTC or has any
right, title or interest in the revenue or profits in, or holds any Lien in
respect of, any such agreement.
Neither the Company nor any Restricted Subsidiary shall at any time (x)
provide credit support for, subject any of its property or assets (other than
the Equity Interests of any Unrestricted Subsidiary) to the satisfaction of, or
guarantee, any Indebtedness of any Unrestricted Subsidiary (including any
undertaking, agreement or instrument evidencing such Indebtedness), (y) be
directly or indirectly liable for any Indebtedness of any Unrestricted
Subsidiary, or (z) be directly or indirectly liable for any Indebtedness that
provides that the holder thereof may (upon notice, lapse of time or both)
declare a default thereon or cause the payment thereof to be accelerated or
payable prior to its final scheduled maturity upon the occurrence of a default
with respect to any Indebtedness of any Unrestricted Subsidiary, except, in the
case of clause (x) or (y), to the extent otherwise permitted under the terms of
the Indenture, including, without limitation, pursuant to "-- Limitation on
Restricted Payments" above and "-- Disposition of Proceeds of Asset Sales"
above.
(b) The Company may revoke any Designation of a Subsidiary as an
Unrestricted Subsidiary (a "Revocation") if:
(i) no Default or Event of Default shall have occurred and be
continuing at the time of and after giving effect to such Revocation; and
(ii) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately following such Revocation would, if incurred at
such time, have been permitted to be incurred for all purposes of the
Indenture.
All Designations and Revocations must be evidenced by resolutions of the
Board of Directors of the Company, delivered to the Trustee certifying
compliance with the foregoing provisions.
CONSOLIDATION, MERGER, SALE OF ASSETS, ETC.
The Company shall not consolidate with or merge with or into (whether or
not the Company is the Surviving Person) any other entity and the Company shall
not, and shall not cause or permit any Restricted Subsidiary to, sell, convey,
assign, transfer, lease or otherwise dispose of all or substantially all of the
Company's properties and assets (determined on a consolidated basis for the
Company and the Restricted Subsidiaries) to any entity in a single transaction
or series of related transactions, unless: (i) either (x) the Company shall be
the Surviving Person or (y) the Surviving Person (if other than the Company)
shall be a corporation, partnership or limited liability company organized and
validly existing under the laws of the United States of America or any State
thereof or the District of Columbia, and shall expressly assume by a
supplemental indenture the due and punctual payment of the principal of,
premium, if any, and interest on all
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the Notes and the performance and observance of every covenant of the Indenture,
the Escrow Agreement and the Registration Rights Agreement to be performed or
observed on the part of the Company; (ii) immediately thereafter, no Default
shall have occurred and be continuing; (iii) immediately after giving effect to
any such transaction involving the Incurrence by the Company or any Restricted
Subsidiary, directly or indirectly, of additional Indebtedness (and treating any
Indebtedness not previously an obligation of the Company or any Restricted
Subsidiary in connection with or as a result of such transaction as having been
Incurred at the time of such transaction), the Surviving Person could Incur, on
a pro forma basis after giving effect to such transaction as if it had occurred
at the beginning of the latest fiscal quarter for which consolidated financial
statements of the Company are available, at least $1.00 of additional
Indebtedness under the proviso in "-- Limitation on Additional Indebtedness"
above; and (iv) the Company has delivered to the Trustee an opinion of counsel
to the effect that the holders of the Notes will not recognize gain or loss for
federal income tax purposes as a result of such transaction.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all the properties and assets of one or more Restricted
Subsidiaries the Equity Interests of which constitute all or substantially all
the properties and assets of the Company shall be deemed to be the transfer of
all or substantially all the properties and assets of the Company.
In the event of any transaction (other than a lease) described in and
complying with the conditions listed above in which the Company is not the
Surviving Person and the Surviving Person is to assume all of the Obligations of
the Company under the Notes, the Indenture, the Escrow Agreement and the
Registration Rights Agreement pursuant to a supplemental indenture, such
Surviving Person shall succeed to, and be substituted for, and may exercise
every right and power of, the Company and the Company shall be discharged from
its Obligations under the Indenture, the Escrow Agreement, the Registration
Rights Agreement and the Notes.
The meaning of the phrase "all or substantially all" as used above varies
according to the facts and circumstances of the subject transaction, has no
clearly established meaning under relevant law and is subject to judicial
interpretation. Accordingly, in certain circumstances, there may be a degree of
uncertainty in ascertaining whether a particular transaction would involve a
disposition of "all or substantially all" of the assets of the Company, and
therefore it may be unclear whether the foregoing provisions are applicable.
EVENTS OF DEFAULT
The following are "Events of Default" under the Indenture:
(i) default in the payment of interest on the Notes issued thereunder
when it becomes due and payable and continuance of such default for a
period of 30 days or more (provided such 30 day grace period shall be
inapplicable for the first four interest payments due on the Notes); or
(ii) default in the payment of the principal of or premium, if any, on
the Notes when due (including the failure to make a payment to purchase
Notes pursuant to a Change of Control Offer); or
(iii) default in the performance, or breach, of any covenant described
under "Certain Covenants -- Disposition of Proceeds of Asset Sales" or
"-- Consolidation, Merger, Sale of Assets, Etc."; or
(iv) default in the performance, or breach, of any covenant in the
Indenture (other than defaults specified in clause (i), (ii) or (iii)
above) or the Escrow Agreement, and continuance of such default or breach
for a period of 30 days or more after written notice to the Company by the
Trustee or to the Company and the Trustee by the holders of at least 25% in
aggregate principal amount of the outstanding Notes (in each case, when
such notice is deemed received in accordance with the Indenture); or
(v) failure to perform any term, covenant, condition or provision of
one or more classes or issues of Indebtedness in an aggregate principal
amount of $15.0 million or more under which the Company or a Restricted
Subsidiary is obligated, and either (a) such Indebtedness is already due
and payable in full and has not been paid in full (and such failure
continues for a period of 30 days or more) or (b) such
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failure results in the acceleration of the final maturity of such
Indebtedness (which acceleration has not been rescinded or amended prior to
any declaration of acceleration of the Notes); or
(vi) the Company shall assert or acknowledge in writing that the
Escrow Agreement is invalid or unenforceable or any Guarantor shall assert
or acknowledge in writing the invalidity of its Guarantee.
(vii) one or more judgments, orders or decrees, not subject to appeal,
for the payment of money of $15.0 million or more, either individually or
in the aggregate (in all cases net of amounts covered by insurance for
which coverage is not being challenged or denied), shall be entered against
the Company or any of the Company's Significant Restricted Subsidiaries or
any of their respective properties and shall not be discharged, paid or
stayed within 60 days after the right of appeal has expired; or
(viii) certain events of bankruptcy, insolvency, reorganization,
administration or similar proceedings with respect to the Company, any
Guarantor or any of the Company's Significant Restricted Subsidiaries shall
have occurred.
If an Event of Default with respect to the Notes (other than an Event of
Default with respect to the Company described in clause (viii) of the preceding
paragraph) occurs and is continuing, the Trustee or the holders of at least 25%
in aggregate principal amount of the outstanding Notes by notice in writing to
the Company may declare the unpaid principal of (and premium, if any) and
accrued interest to the date of acceleration on all the outstanding Notes to be
due and payable immediately and, upon any such declaration, such principal
amount (and premium, if any) and accrued interest, notwithstanding anything
contained in the Indenture or the Notes to the contrary, but subject to the
provisions limiting payment described above under "-- Subordination," will
become immediately due and payable; provided, however, that if there are any
amounts or commitments outstanding under the Credit Facility if an Event of
Default shall have occurred and be continuing (other than an Event of Default
with respect to the Company described in clause (viii) of the preceding
paragraph), the Notes shall not become due and payable until the earlier to
occur of (x) five business days following delivery of written notice of such
acceleration of the Notes to the agent under the Credit Facility, but only if
such Event of Default is then continuing and (viii) the acceleration (ipso facto
or otherwise) of any Indebtedness under the Credit Facility. If an Event of
Default specified in clause (viii) of the preceding paragraph with respect to
the Company occurs under the Indenture, the outstanding Notes will ipso facto
become immediately due and payable without any declaration or other act on the
part of the Trustee or any holder of the Notes.
Notwithstanding the foregoing, in the event of a declaration of
acceleration in respect of the Notes because an Event of Default specified in
clause (v) above shall have occurred and be continuing, such declaration of
acceleration shall be automatically annulled if the Indebtedness that is the
subject of such Event of Default has been discharged or paid or such Event of
Default shall have been cured or waived by the holders of such Indebtedness and
written notice of such discharge, cure or waiver, as the case may be, shall have
been given to the Trustee by the Company or by the requisite holders of such
Indebtedness or a trustee, fiduciary or agent for such holders, within 30 days
after such declaration of acceleration in respect of the Notes and no other
Event of Default shall have occurred which has not been cured or waived during
such 30-day period.
Any such declaration with respect to the Notes may be annulled as to past
Events of Default and Defaults (except, unless theretofore cured, an Event of
Default or a Default in payment of principal of (and premium, if any) or
interest on the Notes) upon the conditions provided in the Indenture. For
information as to waiver of defaults, see "-- Amendment and Waivers" below.
The Indenture provides that the Trustee shall, within 30 days after the
occurrence of any Default or Event of Default with respect to the outstanding
Notes, give the holders of the Notes notice of all uncured Defaults or Events of
Default known to it; provided, however, that, except in the case of an Event of
Default in payment with respect to such Notes or a Default or Event of Default
in complying with "Consolidation, Merger, Sale of Assets, Etc." above, the
Trustee shall be protected in withholding such notice if and so long as a
committee of its trust officers in good faith determines that the withholding of
such notice is in the interest of the holders of the Notes.
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No holder of any Note will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder, unless such holder shall
have previously given to the Trustee written notice of a continuing Event of
Default thereunder and unless the holders of at least 25% of the aggregate
principal amount of the outstanding Notes under the Indenture shall have made
written request, and offered reasonable indemnity, to the Trustee to institute
such proceeding as Trustee, and the Trustee shall have not received from the
holders of a majority in aggregate principal amount of outstanding Notes a
direction inconsistent with such request and shall have failed to institute such
proceeding within 45 days. However, such limitations do not apply to a suit
instituted by a holder of a Note for enforcement of payment of the principal of
and premium, if any, or interest on such Note on or after the respective due
dates expressed in such Note.
The Company is required to furnish to the Trustee annually a statement as
to the performance by it of certain of its obligations under the Indenture and
as to any default in such performance.
DEFEASANCE
The Company may at any time terminate all of its obligations with respect
to the Notes ("defeasance"), except for certain obligations, including those
regarding any trust established for a defeasance and obligations to register the
transfer or exchange of the Notes, to replace mutilated, destroyed, lost or
stolen Notes as required by the Indenture and to maintain agencies in respect of
Notes. The Company may at any time terminate its obligations under certain
covenants set forth in the Indenture, some of which are described under
"-- Certain Covenants" above, and any omission to comply with such obligations
shall not constitute a Default with respect to the Notes ("covenant
defeasance"). To exercise either defeasance or covenant defeasance, the Company
must irrevocably deposit in trust, for the benefit of the holders of the Notes,
with the Trustee money (in United States dollars) or U.S. government obligations
(denominated in United States dollars), or a combination thereof, in such
amounts as will be sufficient to pay the principal of, and premium, if any, and
interest on the Notes to redemption or maturity and comply with certain other
conditions, including the delivery of a legal opinion as to certain tax matters.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of Notes)
as to all outstanding Notes when either (a) all such Notes theretofore
authenticated and delivered (except lost, stolen or destroyed Notes that have
been replaced or paid and Notes for whose payment money has theretofore been
deposited in trust or segregated and held in trust by the Company and thereafter
repaid to the Company or discharged from such trust) have been delivered to the
Trustee for cancellation; or (b) (i) all such Notes not theretofore delivered to
the Trustee for cancellation have become due and payable and the Company has
irrevocably deposited or caused to be deposited with the Trustee as trust funds
in trust for the purpose an amount of money sufficient to pay and discharge the
entire indebtedness on the Notes not theretofore delivered to the Trustee for
cancellation, for principal amount, premium, if any, and accrued interest to the
date of such deposit; (ii) the Company has paid all sums payable by it under the
Indenture; and (iii) the Company has delivered irrevocable instructions to the
Trustee to apply the deposited money toward the payment of the Notes at maturity
or on the redemption date, as the case may be. In addition, the Company must
deliver an officers' certificate and an opinion of counsel stating that all
conditions precedent to satisfaction and discharge have been complied with.
AMENDMENT AND WAIVERS
From time to time, the Company, when authorized by resolutions of the
Company's board of directors, and the Trustee, without the consent of the
holders of the Notes, may amend, waive or supplement the Indenture or the Notes
for certain specified purposes, including, among other things, curing
ambiguities, defects or inconsistencies, maintaining the qualification of the
Indenture under the Trust Indenture Act or making any change that does not
adversely affect the rights of any holder. Other amendments and modifications of
the Indenture and the Notes may be made by the Company and the Trustee by
supplemental indenture with the consent of the holders of not less than a
majority of the aggregate principal amount of the outstanding Notes; provided
that no such modification or amendment may, without the consent of the holder
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of each outstanding Note affected thereby, (i) reduce the principal amount of,
change the fixed maturity of, or alter the redemption provisions of, the Notes,
(ii) change the currency in which any Notes or amounts owing thereon are
payable, (iii) reduce the percentage of the aggregate principal amount
outstanding of Notes which must consent to an amendment, supplement or waiver or
consent to take any action under the Indenture or the Notes, (iv) impair the
right to institute suit for the enforcement of any payment on or with respect to
the Notes, (v) waive a default in payment with respect to the Notes, (vi) reduce
the rate or extend the time for payment of interest on the Notes, (vii)
following the occurrence of a Change of Control or an Asset Sale, alter the
Company's obligation to purchase the Notes in accordance with the Indenture or
waive any default in the performance thereof, (viii) affect the ranking of the
Notes in a manner adverse to the holder of the Notes, (ix) release any Guarantee
except in compliance with the terms of the Indenture or (x) release any Liens
created by the Escrow Agreement except in accordance with the terms of the
Escrow Agreement.
REGARDING THE TRUSTEE AND ESCROW AGENT
State Street Bank and Trust Company of Missouri, N.A. serves as Trustee
under the Indenture and Escrow Agent under the Escrow Agreement.
GOVERNING LAW
The Indenture and the Escrow Agreement provides that the Indenture and the
Notes and the Escrow Agreement, respectively, are governed by and construed in
accordance with laws of the State of New York without giving effect to
principles of conflicts of law.
CERTAIN DEFINITIONS
Set forth below is a summary of certain defined terms used in the Indenture
or the Escrow Agreement. Reference is made to the Indenture for the full
definition of all such terms, as well as any other capitalized terms used herein
for which no definition is provided.
"Acquired Indebtedness" means Indebtedness of a Person (a) assumed in
connection with an Acquisition from such Person or (b) existing at the time such
Person becomes a Restricted Subsidiary or is merged or consolidated with or into
the Company or any Restricted Subsidiary.
"Acquired Person" means, with respect to any specified Person, any other
Person that merges with or into or becomes a Subsidiary of such specified
Person.
"Acquisition" means (i) any capital contribution (by means of transfers of
cash or other property to others or payments for property or services for the
account or use of others, or otherwise) by the Company or any Restricted
Subsidiary to any other Person, or any acquisition or purchase of Equity
Interests of any other Person by the Company or any Restricted Subsidiary, in
either case pursuant to which such Person shall become a Restricted Subsidiary
or shall be consolidated or merged with or into the Company or any Restricted
Subsidiary or (ii) any acquisition by the Company or any Restricted Subsidiary
of the assets of any Person which constitute substantially all of an operating
unit or line of business of such Person or which is otherwise outside of the
ordinary course of business.
"Additional Interest" has the meaning provided in the Registration Rights
Agreement.
"Affiliate" means, with respect to any specified Person, any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For purposes of this definition,
"control" (including, with correlative meanings, the terms "controlling,"
"controlled by" and "under common control with"), as used with respect to any
Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of such Person,
whether through the ownership of voting securities, by agreement or otherwise;
provided, however, that (i) beneficial ownership of 10.0% or more of the voting
power of the then outstanding voting securities of a Person shall be deemed to
be control; and (ii) no individual, other than a director of the Company or an
officer of the Company with a policy making function, shall be deemed an
Affiliate of the Company or any of the
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Company's Subsidiaries solely by reason of such individual's employment,
position or responsibilities by or with respect to the Company or any of the
Company's Subsidiaries.
"Asset Sale" means any direct or indirect sale, conveyance, transfer, lease
(that has the effect of a disposition) or other disposition (including, without
limitation, any merger, consolidation or sale-leaseback transaction) to any
Person other than the Company or a Restricted Subsidiary, in one transaction or
a series of related transactions, of (i) any Equity Interest of any Restricted
Subsidiary; (ii) any material license, franchise or other authorization of the
Company or any Restricted Subsidiary; (iii) any assets of the Company or any
Restricted Subsidiary that constitute substantially all of an operating unit or
line of business of the Company or any Restricted Subsidiary; or (iv) any other
property or asset of the Company or any Restricted Subsidiary outside of the
ordinary course of business (including the receipt of proceeds paid on account
of the loss of or damage to any property or asset, except to the extent used to
repurchase or repair such property or asset, and awards of compensation for any
asset taken by condemnation, eminent domain or similar proceedings). The term
"Asset Sale" shall not include (a) any transaction consummated in compliance
with "-- Consolidation, Merger, Sale of Assets, Etc." above and the creation of
any Lien not prohibited by "-- Certain Covenants -- Limitation on Liens" above;
provided, however, that any transaction consummated in compliance with
"-- Consolidation, Merger, Sale of Assets, Etc." above involving a sale,
conveyance, assignment, transfer, lease or other disposal of less than all of
the properties or assets of the Company and the Restricted Subsidiaries shall be
deemed to be an Asset Sale with respect to the properties or assets of the
Company and Restricted Subsidiaries that are not so sold, conveyed, assigned,
transferred, leased or otherwise disposed of in such transaction; (b) sales of
property or equipment that has become worn out, obsolete or damaged or otherwise
unsuitable for use in connection with the business of the Company or any
Restricted Subsidiary, as the case may be; and (c) any transaction consummated
in compliance with "-- Certain Covenants -- Limitation on Restricted Payments"
above.
"Board of Directors" means (i) in the case of a Person that is a
corporation, the board of directors of such Person and (ii) in the case of any
other Person, the board of directors, board of managers, management committee or
similar governing body of such Person (or in the case of a limited partnership,
of such Person's general partner, or in the case of a limited liability company,
of such Person's manager), or any authorized committee thereof responsible for
the management of the business and affairs of such Person.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be so required to be capitalized on the balance sheet in accordance
with GAAP.
"Cash Equivalents" means (i) any evidence of Indebtedness (with, for
purposes of the covenant "Disposition of Proceeds of Asset Sales" only, a
maturity of 365 days or less) issued or directly and fully guaranteed or insured
by the United States or any agency or instrumentality thereof that (provided
that the full faith and credit of the United States is pledged in support
thereof or such Indebtedness constitutes a general obligation of such country)
have maturities of not more than six months from the date of acquisition; (ii)
time deposits, certificates of deposit or acceptances (with, for purposes of the
covenant "Disposition of Proceeds of Asset Sales" only, a maturity of 365 days
or less) of any financial institution that is a member of the Federal Reserve
System, in each case having combined capital and surplus and undivided profits
(or any similar capital concept) of not less than $200.0 million and whose
senior unsecured debt is rated at least "A-1" by S&P or "P-1" by Moody's; (iii)
commercial paper with a maturity of 365 days or less issued by a corporation
(other than an Affiliate of the Company) organized under the laws of the United
States or any State thereof and rated at least "A-1" by S&P or "P-1" by Moody's
and in each case maturing not more than six months after the date of
acquisition; (iv) repurchase obligations with a term of not more than seven days
for underlying securities of the types described in clause (i) above and entered
into with any bank meeting the qualifications specified in clause (ii) above;
and (v) money market funds that invest substantially all of their assets in
securities described in the preceding clauses (i) through (iv).
"Change of Control" is defined to mean the occurrence of any of the
following events: (a) any "person" or "group" (as such terms are used in
Sections 13(d) and 14(d) of the Exchange Act), excluding Permitted Holders, is
or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act,
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except that a person shall be deemed to have "beneficial ownership" of all
securities that such person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, of more than 50% of the total Voting Equity Interests of the
Company; or (b) the Company consolidates with, or merges with or into, another
person or sells, assigns, conveys, transfers, leases or otherwise disposes of
all or substantially all of its assets to any Person, or any Person consolidates
with, or merges with or into, the Company, in any such event pursuant to a
transaction in which the outstanding Voting Equity Interests of the Company are
converted into or exchanged for cash, securities or other property, other than
any such transaction where (i) the outstanding Voting Equity Interests of the
Company are converted into or exchanged for (1) Voting Equity Interests (other
than Disqualified Equity Interests) of the surviving or transferee corporation
or its parent corporation and/or (2) cash, securities and other property in an
amount that could be paid by the Company as a Restricted Payment under the
Indenture and (ii) immediately after such transaction no "person" or "group" (as
such terms are used in Sections 13(d) and 14(d) of the Exchange Act), excluding
the Permitted Holders, is the "beneficial owner" (as defined in Rules 13d-3 and
13d-5 under the Exchange Act, except that a person shall be deemed to have
"beneficial ownership" of all securities that such person has the right to
acquire, whether such right is exercisable immediately or only after the passage
of time), directly or indirectly, of more than 50% of the total Voting Equity
Interests of the surviving or transferee corporation or its parent corporation,
as applicable; or (c) during any consecutive two-year period, individuals who at
the beginning of such period constituted the Board of Directors (together with
any new directors whose election by the Board of Directors or whose nomination
for election by the stockholders of the Company was approved by a vote of a
majority of the directors then still in office who were either directors at the
beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason (other than by action of the
Permitted Holders) to constitute a majority of the Board of Directors then in
office; or (d) the approval by stockholders of the Company of any liquidation or
dissolution of the Company.
"Change of Control Date" has the meaning set forth under "-- Change of
Control" above.
"Common Stock" means, with respect to any Person, any and all shares,
interests or other participations in, and other equivalents (however designated
and whether voting or nonvoting) of, such Person's common stock whether
outstanding at the Issue Date, and includes, without limitation, all series and
classes of such common stock.
"Consolidated Income Tax Expense" means, with respect to the Company for
any period, the provision for federal, state, local and foreign income taxes
payable by the Company and the Restricted Subsidiaries for such period as
determined on a consolidated basis in accordance with GAAP.
"Consolidated Interest Expense" means, with respect to the Company for any
period, without duplication, the sum of (i) the interest expense of the Company
and the Restricted Subsidiaries for such period as determined on a consolidated
basis in accordance with GAAP, including, without limitation, (a) any
amortization of debt discount; (b) the net cost under Interest Rate Protection
Obligations (including any amortization of discounts); (c) the interest portion
of any deferred payment obligation; (d) all commissions, discounts and other
fees and charges owed with respect to letters of credit and bankers' acceptance
financing; and (e) all capitalized interest and all accrued interest; (ii) the
interest component of Capital Lease Obligations paid, accrued and/or scheduled
to be paid or accrued by the Company and the Restricted Subsidiaries during such
period as determined on a consolidated basis in accordance with GAAP; and (iii)
dividends and distributions in respect of Disqualified Equity Interests actually
paid in cash by the Company during such period as determined on a consolidated
basis in accordance with GAAP.
"Consolidated Net Income" means, with respect to any period, the net income
of the Company and the Restricted Subsidiaries for such period determined on a
consolidated basis in accordance with GAAP, adjusted, to the extent included in
calculating such net income, by excluding, without duplication, (a) all
extraordinary gains or losses and all gains and losses from the sales or other
dispositions of assets out of the ordinary course of business (net of taxes,
fees and expenses relating to the transaction giving rise thereto) for such
period; (b) that portion of such net income derived from or in respect of
investments in Persons other than Restricted Subsidiaries, except to the extent
actually received in cash by the Company or any Restricted
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Subsidiary (subject, in the case of any Restricted Subsidiary, to the provisions
of clause (e) of this definition); (c) the portion of such net income (or loss)
allocable to minority interests in any Person (other than a Restricted
Subsidiary) for such period, except to the extent actually received in cash by
the Company or any Restricted Subsidiary (subject, in the case of any Restricted
Subsidiary, to the provisions of clause (e) of this definition); (d) net income
(or loss) of any other Person combined with the Company or any Restricted
Subsidiary on a "pooling of interests" basis attributable to any period prior to
the date of combination; and (e) the net income of any Restricted Subsidiary to
the extent that the declaration of dividends or similar distributions by that
Restricted Subsidiary of that income is not at the time (regardless of any
waiver) permitted, directly or indirectly, by operation of the terms of its
charter or any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulations applicable to that Restricted Subsidiary or its Equity
Interest holders.
"Consolidated Operating Cash Flow" means, with respect to any period,
Consolidated Net Income for such period increased (without duplication) by the
sum of (a) Consolidated Income Tax Expense for such period to the extent
deducted in determining Consolidated Net Income for such period; (b)
Consolidated Interest Expense for such period to the extent deducted in
determining Consolidated Net Income for such period; (c) all dividends on
Preferred Equity Interests to the extent taken into account for computing
Consolidated Net Income for that period; and (d) depreciation, amortization and
any other non-cash items for such period to the extent deducted in determining
Consolidated Net Income for such period (other than any non-cash item that
requires the accrual of, or a reserve for, cash charges for any future period)
of the Company and the Restricted Subsidiaries, including, without limitation,
amortization of capitalized debt issuance costs for such period, all of the
foregoing determined on a consolidated basis in accordance with GAAP minus
non-cash items to the extent they increase Consolidated Net Income (including
the partial or entire reversal of reserves taken in prior periods, except to the
extent any such reserves were not permitted to be added back in the calculation
of Consolidated Operating Cash Flow for a prior period pursuant to clause (d)
above) for such period.
"Credit Facility" means the Amended and Restated Credit Agreement dated as
of July 7, 1997, amended and restated as of May 8, 1998, among Holdings, the
Company, the banks party thereto from time to time, Paribas (formerly known as
Banque Paribas), as Syndication Agent, Fleet National Bank, as Administrative
Agent, and General Electric Capital Corporation, as Documentation Agent,
including any deferrals, renewals, extensions, replacements, refinancings or
refundings thereof, or amendments, modifications or supplements thereto
(including, without limitation, any such deferrals, renewals, extensions,
replacements, refinancings, refundings, amendments, modifications or supplements
that increase the aggregate amount of commitments or borrowings thereunder or
add Subsidiaries of the Company as additional borrower or guarantor thereunder),
and any agreements providing therefor, whether by or with the same or any other
lender, creditor or group of lenders or creditors, and including related notes,
guarantees, security agreements, pledge agreements, mortgages, note agreements,
other collateral documents and note agreements and other instruments and
agreements executed in connection therewith.
"Cumulative Operating Cash Flow" means, as at any date of determination,
the positive cumulative Consolidated Operating Cash Flow realized during the
period commencing on the Issue Date and ending on the last day of the most
recent fiscal quarter immediately preceding the date of determination for which
consolidated financial information of the Company is available or, if such
cumulative Consolidated Operating Cash Flow for such period is negative, the
negative amount by which cumulative Consolidated Operating Cash Flow is less
than zero.
"DBS" means direct broadcast satellite.
"Debt to Operating Cash Flow Ratio" means the ratio of (a) an amount equal
to the Total Consolidated Indebtedness as of the date of calculation (the
"Determination Date") minus the amount of funds on deposit in the Escrow Account
as of the Determination Date to (b) four times the Consolidated Operating Cash
Flow for the latest fiscal quarter for which financial information is available
immediately preceding such Determination Date (the "Measurement Period"). For
purposes of calculating Consolidated Operating Cash Flow for the Measurement
Period immediately prior to the relevant Determination Date, (I) any Person that
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is a Restricted Subsidiary on the Determination Date (or would become a
Restricted Subsidiary on such Determination Date in connection with the
transaction that requires the determination of such Consolidated Operating Cash
Flow) will be deemed to have been a Restricted Subsidiary at all times during
such Measurement Period, (II) any Person that is not a Restricted Subsidiary on
such Determination Date (or would cease to be a Restricted Subsidiary on such
Determination Date in connection with the transaction that requires the
determination of such Consolidated Operating Cash Flow) will be deemed not to
have been a Restricted Subsidiary at any time during such Measurement Period,
and (III) if the Company or any Restricted Subsidiary shall have in any manner
(x) acquired (including through an Acquisition or the commencement of activities
constituting such operating business) or (y) disposed of (including by way of an
Asset Sale or the termination or discontinuance of activities constituting such
operating business) any operating business during such Measurement Period or
after the end of such period and on or prior to such Determination Date, such
calculation will be made on a pro forma basis in accordance with GAAP as if, in
the case of an Acquisition or the commencement of activities constituting such
operating business, all such transactions had been consummated on the first day
of such Measurement Period and, in the case of an Asset Sale or termination or
discontinuance of activities constituting such operating business, all such
transactions had been consummated prior to the first day of such Measurement
Period; provided, however, that such pro forma adjustment shall not give effect
to the Operating Cash Flow of any Acquired Person to the extent that such
Person's net income would be excluded pursuant to clause (e) of the definition
of Consolidated Net Income.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Designated Senior Indebtedness" means (a) any Indebtedness of the Company
outstanding under the Credit Facility (including guarantees) and (b) any other
Senior Indebtedness that, at the time of determination, has an aggregate
principal amount outstanding, together with any commitments to lend additional
amounts, of at least $50.0 million, if (in the case of Senior Indebtedness
described in this clause (b)) the instrument governing such Senior Indebtedness
expressly states that such Indebtedness is "Designated Senior Indebtedness" for
purposes of the Indenture, a Board Resolution setting forth such designation by
the Company has been filed with the Trustee and such designation is not
prohibited by the Credit Facility.
"Designation" has the meaning set forth in "-- Certain
Covenants -- Designation of Unrestricted Subsidiaries" above.
"Designation Amount" has the meaning set forth in "-- Certain
Covenants -- Designation of Unrestricted Subsidiaries" above.
"DIRECTV Services" means DBS television services and all other video,
audio, data packages, "a la carte" programming services and other services
offered by DIRECTV, Inc., the predecessor-in-interest of Hughes Communications
Galaxy, Inc., or its successors or assigns.
"Disinterested Director" means, with respect to any transaction or series
of related transactions, a member of the Company's Board of Directors other than
a director who (i) has any material direct or indirect financial interest in or
with respect to such transaction or series of related transactions or (ii) is an
employee or officer of the Company or an Affiliate that is itself a party to
such transaction or series of transactions or an Affiliate of a party to such
transactions or series of related transactions.
"Disposition" means, with respect to any Person, any merger, consolidation
or other business combination involving such Person (whether or not such Person
is the Surviving Person) or the sale, assignment, transfer, lease, conveyance or
other disposition of all or substantially all of such Person's assets.
"Disqualified Equity Interest" means any Equity Interest which, by its
terms (or by the terms of any security into which it is convertible or for which
it is exchangeable at the option of the holder thereof), or upon the happening
of any event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable, at the option of the holder thereof, in
whole or in part, or exchangeable into
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Indebtedness on or prior to the earlier of the maturity date of the Notes or the
date on which no Notes remain outstanding.
"Eligible Institution" means a commercial banking institution that has
combined capital and surplus of not less than $500.0 million or its equivalent
in foreign currency, whose debt is rated Investment Grade at the time as of
which any investment or rollover therein is made.
"Equity Interest" in any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) corporate stock or other equity
participations, including partnership interests, whether general or limited, or
member interests in such Person, including any Preferred Equity Interests.
"Escrow Account" shall mean the account established in the name of the
Escrow Agent and funded by the Company on the Closing Date pursuant to the
Indenture.
"Escrow Agent" means the Trustee (or any duly appointed successor thereto).
"Escrow Agreement" means the Escrow Agreement dated as of July 31, 1998
between the Company and the Trustee, as trustee and as escrow agent.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated by the SEC thereunder.
"Existing Indebtedness" means any Indebtedness of the Company and the
Restricted Subsidiaries in existence on the Issue Date until such amounts are
repaid.
"Fair Market Value" means, with respect to any asset, the price (after
taking into account any liabilities relating to such assets) that could be
negotiated in an arm's-length free market transaction, for cash, between a
willing seller and a willing and able buyer, neither of which is under any
compulsion to complete the transaction; provided, however, that the Fair Market
Value of any such asset or assets shall be determined conclusively by the Board
of Directors of the Company acting in good faith, and shall be evidenced by
resolutions of the Board of Directors of the Company delivered to the Trustee.
"GAAP" means, at any date of determination, generally accepted accounting
principles in effect in the United States that are applicable at the date of
determination and that are consistently applied for all applicable periods.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which guarantee
or obligations the full faith and credit of the United States are pledged.
"guarantee" means, as applied to any obligation, (i) a guarantee (other
than by endorsement of negotiable instruments for collection in the ordinary
course of business), direct or indirect, in any manner, of any part or all of
such obligation and (ii) an agreement, direct or indirect, contingent or
otherwise, the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of non-performance) of all or
any part of such obligation, including, without limiting the foregoing, the
payment of amounts drawn down by letters of credit. A guarantee shall include,
without limitation, any agreement to maintain or preserve any other Person's
financial condition or to cause any other Person to achieve certain levels of
operating results.
"High Power Satellite Transmission Business" means the business of the
acquisition, transmission or sale of programming in the high power DBS business
utilizing broadcast satellite service (including any provision of such services
to cable operators or other media providers), which may utilize all or part of
satellites owned by DIRECTV, Inc. and all other activities relating thereto or
arising therefrom.
"Holdings" means Golden Sky Holdings, Inc. or any successor or assign
thereof that owns 100% of the Equity Interests of the Company.
"Incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (including by conversion, exchange or
otherwise), assume, guarantee or otherwise become liable in respect of
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such Indebtedness or other obligation or the recording, as required pursuant to
GAAP or otherwise, of any such Indebtedness or other obligation on the balance
sheet of such Person (and "Incurrence," "Incurred" and "Incurring" shall have
meanings correlative to the foregoing).
"Indebtedness" means (without duplication), with respect to any Person,
whether recourse is to all or a portion of the assets of such Person and whether
or not contingent, (a) every obligation of such Person for money borrowed; (b)
every obligation of such Person evidenced by bonds, debentures, notes or other
similar instruments, including obligations incurred in connection with the
acquisition of property, assets or businesses; (c) every reimbursement
obligation of such Person with respect to letters of credit, bankers'
acceptances or similar facilities issued for the account of such Person; (d)
every obligation of such Person issued or assumed as the deferred purchase price
of property or services (but excluding trade accounts payable incurred in the
ordinary course of business and payable in accordance with industry practices,
or other accrued liabilities arising in the ordinary course of business that are
not overdue or that are being contested in good faith); (e) every Capital Lease
Obligation of such Person; (f) every net obligation under interest rate swap
agreements, interest rate cap agreements and interest rate collar agreements,
and other agreements or arrangements designed to protect such Person against
fluctuations in interest rates; (g) every obligation of the type referred to in
clauses (a) through (f) of another Person and all dividends of another Person
the payment of which, in either case, such Person has guaranteed or is
responsible or liable for, directly or indirectly, as obligor, guarantor or
otherwise; and (h) any and all deferrals, renewals, extensions and refundings
of, or amendments, modifications or supplements to, any liability of the kind
described in any of the preceding clauses (a) through (g) above. Indebtedness
(a) shall never be calculated taking into account any cash and Cash Equivalents
held by such Person; (b) shall not include obligations of any Person (x) arising
from the honoring by a bank or other financial institution of a check, draft or
similar instrument inadvertently drawn against insufficient funds in the
ordinary course of business, provided that such obligations are extinguished
within two Business Days of their incurrence unless covered by an overdraft
line, (y) resulting from the endorsement of negotiable instruments for
collection in the ordinary course of business and consistent with past business
practices and (z) under standby letters of credit to the extent collateralized
by cash or Cash Equivalents; (c) that provides that an amount less than the
principal amount thereof shall be due upon any declaration of acceleration
thereof shall be deemed to be incurred or outstanding in an amount equal to the
accreted value thereof at the date of determination; (d) shall include the
liquidation preference and any mandatory redemption payment obligations in
respect of any Disqualified Equity Interests of the Company or any Restricted
Subsidiary; and (e) shall not include obligations under performance bonds,
performance guarantees, surety bonds and appeal bonds, letters of credit or
similar obligations, Incurred in the ordinary course of business (including
standby letters of credit securing obligations to the NRTC Incurred in the
ordinary course of business that are not overdue or that are being contested in
good faith by appropriate proceedings) (other than obligations under or in
respect of any direct or indirect credit support for obligations of any
Unrestricted Subsidiary).
"Independent Financial Advisor" means a nationally recognized accounting,
appraisal or investment banking firm or consultant with experience advising DBS
businesses that is, in the judgment of the Company's Board of Directors,
qualified to perform the task for which it has been engaged (i) that does not,
and whose directors, officers and employees or Affiliates do not, have a direct
or indirect financial interest in the Company and (ii) that, in the judgment of
the Board of Directors of the Company, is otherwise independent and qualified to
perform the task for which it is to be engaged.
"Insolvency or Liquidation Proceeding" means, with respect to any Person,
any liquidation, dissolution or winding up of such Person, or any bankruptcy,
reorganization, insolvency, receivership or similar proceeding with respect to
such Person, whether voluntary or involuntary.
"interest" means, with respect to the Notes, the sum of any cash interest
and any Additional Interest on the Notes.
"Interest Rate Protection Obligations" means, with respect to any Person,
the Obligations of such Person under (i) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements, and (ii) other
agreements or arrangements designed to protect such Person against fluctuations
in interest rates.
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"Investment" means, with respect to any Person, any direct or indirect
loan, advance, guarantee or other extension of credit or capital contribution to
(by means of transfers of cash or other property or assets to others or payments
for property or services for the account or use of others, or otherwise), or
purchase or acquisition of capital stock, bonds, notes, debentures or other
securities or evidences of Indebtedness issued by, any other Person. In no event
will the issuance by the Company of Qualified Equity Interests of the Company in
exchange for any such capital stock, bonds, notes, debentures or other
securities or evidences of Indebtedness constitute an Investment. The amount of
any Investment shall be the original cost of such Investment, plus the cost of
all additions thereto, and minus the amount of any portion of such Investment
repaid to such Person in cash or other property or assets that would not
otherwise constitute an Investment as a repayment of principal or a return of
capital, as the case may be, but without any other adjustments for increases or
decreases in value, or write-ups, write-downs or write-offs with respect to such
Investment. In determining the amount of any Investment or any repayment in
respect of an Investment involving a transfer of any property or asset other
than cash, such property shall be valued at its Fair Market Value at the time of
such transfer, as determined in good faith by the Board of Directors (or
comparable body) of the Person making such transfer or receiving such repayment.
"Investment Grade" means, with respect to a security, that such security is
rated by at least two nationally recognized statistical rating organizations in
one of each such organization's four highest generic rating categories.
"Issue Date" means the original issue date of the Notes.
"Lien" means any lien, mortgage, charge, security interest, hypothecation,
assignment for security or encumbrance of any kind (including any conditional
sale or capital lease or other title retention agreement, any lease in the
nature thereof, and any agreement to give any security interest).
"Marketable Securities" means: (a) Government Securities; (b) any
certificate of deposit maturing not more than 365 days after the date of
acquisition issued by, or time deposit of, an Eligible Institution; (c)
commercial paper maturing not more than 365 days after the date of acquisition
issued by a corporation (other than an Affiliate of the Company) with an
Investment Grade rating, at the time as of which any investment therein is made,
issued or offered by an Eligible Institution; (d) any bankers' acceptances or
money market deposit accounts issued or offered by an Eligible Institution; and
(e) any fund investing substantially in investments of the types described in
clauses (a) through (d) above.
"Maturity Date" means the date, which is set forth on the face of the
Notes, on which the Notes will mature.
"Net Cash Proceeds" means the aggregate proceeds in the form of cash or
Cash Equivalents received by the Company or any Restricted Subsidiary in respect
of any Asset Sale, including all cash or Cash Equivalents received upon any
sale, liquidation or other exchange of proceeds of Asset Sales received in a
form other than cash or Cash Equivalents, net of (a) the direct costs relating
to such Asset Sale (including, without limitation, legal, accounting and
investment banking fees and sales commissions) and any relocation expenses
incurred as a result thereof; (b) taxes paid or payable as a result thereof
(after taking into account any available tax credits or deductions and any tax
sharing arrangements); (c) amounts required to be applied to the repayment of
Indebtedness secured by a Lien on the asset or assets that were the subject of
such Asset Sale; (d) amounts deemed, in good faith, appropriate by the Board of
Directors of the Company to be provided as a reserve, in accordance with GAAP,
against any liabilities associated with such assets that are the subject of such
Asset Sale (provided that the amount of any such reserves shall be deemed to
constitute Net Cash Proceeds at the time such reserves shall have been released
or are not otherwise required to be retained as a reserve); and (e) with respect
to Asset Sales by Restricted Subsidiaries, the portion of such cash payments
attributable to Persons holding a minority interest in such Restricted
Subsidiary.
"Non-Payment Event of Default" means any event (other than a Payment
Default) the occurrence of which entitles one or more Persons to immediately
accelerate the maturity of any Designated Senior Indebtedness.
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"Note Pro Rata Share" means the amount of the applicable Unutilized Net
Cash Proceeds obtained by multiplying the amount of such Unutilized Net Cash
Proceeds by a fraction, (i) the numerator of which is the aggregate principal
amount of Notes outstanding at the time of the applicable Asset Sale with
respect to which the Company is required to use Unutilized Net Cash Proceeds to
repay or make an Offer to Purchase or repay and (ii) the denominator of which is
the sum of (a) the aggregate accreted value and/or principal amount, as the case
may be, of all Other Pari Passu Debt outstanding at the time of the applicable
Asset Sale and (b) the aggregate principal amount of all Notes outstanding at
the time of the applicable Offer to Purchase with respect to which the Company
is required to use the applicable Unutilized Net Cash Proceeds to offer to repay
or make an Offer to Purchase or repay.
"NRTC" means the National Rural Telecommunications Cooperative and any
successor entity to it.
"Obligations" means any principal, interest (including, without limitation,
Post-Petition Interest), premium, penalties, fees, indemnifications,
reimbursement obligations, damages and other liabilities payable under the
documentation governing any Indebtedness, including the Notes.
"Offer" has the meaning set forth under "-- Certain
Covenants -- Disposition of Proceeds of Asset Sales."
"Other Pari Passu Debt" means Indebtedness of the Company or any Guarantor
that neither constitutes Senior Indebtedness nor Subordinated Indebtedness.
"Payment Default" means any default, after any requirement for the giving
of notice, the lapse of time or both, or any other condition to such default
becoming an event of default has occurred, in the payment of principal of (or
premium, if any) or interest on or any other amount payable in connection with
Designated Senior Indebtedness.
"Permitted Acquisition Deposits" means any advance or payment of funds,
whether as consideration for an option to purchase or as a deposit, binder or
earnest money, whether or not refundable, and whether or not made into escrow,
made pursuant to any written agreement, term sheet, letter of intent or other
instrument providing for the Acquisition of any High Power Satellite
Transmission Business.
"Permitted Business" means those businesses in which the Company and the
Restricted Subsidiaries are engaged on the Issue Date or business reasonably
related thereto (including, without limitation, the High Power Satellite
Transmission Business and the business of satellite data transmission).
"Permitted Holders" any of (i) means Burr, Egan, Deleage & Co., Spectrum
Equity Investors, L.P., BancBoston Ventures Inc., Norwest Equity Partners and
HarbourVest Partners, LLC and (ii) their respective Affiliates.
"Permitted Indebtedness" means the following Indebtedness (each of which
shall be given independent effect):
(a) Indebtedness under the Notes and the Indenture and other
Indebtedness of the Company, and any guarantee thereof by a Guarantor, so
long as the aggregate principal amount of such Indebtedness and of the
Notes does not exceed $195.0 million;
(b) Indebtedness of the Company and/or any Restricted Subsidiary
outstanding on the Issue Date;
(c) (1) Indebtedness under the Credit Facility of the Company, and,
without duplication, any guarantee thereof by a Guarantor, Incurred in an
aggregate principal amount at any one time outstanding not to exceed $150.0
million, which amount shall be reduced by (x) any permanent reduction of
commitments thereunder and (y) any other repayment accompanied by a
permanent reduction of commitments thereunder (other than in connection
with any refinancing thereof where the aggregate principal amount
outstanding and commitments thereunder immediately prior thereto are not
greater than such amounts immediately thereafter); and (2) Indebtedness of
the Company, and, without duplication, any guarantee thereof by a
Guarantor, incurred to fund Asset Acquisitions of Permitted Businesses,
Capital Lease Obligations, Investments permitted under the Indenture and
working capital to
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support a Permitted Business in an aggregate principal amount at any one
time outstanding not to exceed $65.0 million, which amount shall be reduced
by any permanent reduction of commitments thereunder;
(d) Indebtedness of the Company such that, at the time of and after
giving effect to the Incurrence thereof, the total aggregate principal
amount of Indebtedness Incurred under this clause (d) and any refinancing
thereof (whether initial or successive) Incurred pursuant to and otherwise
incurred in compliance with the Indenture would not exceed 200% of Total
Incremental Invested Equity;
(e) (x) Indebtedness of any Restricted Subsidiary owed to and held by
the Company or any Restricted Subsidiary and (y) Indebtedness of the
Company owed to and held by any Restricted Subsidiary that is unsecured and
subordinated in right of payment to the payment and performance of the
Company's obligations under any Senior Indebtedness, the Indenture and the
Notes (or pledged to secure any Senior Indebtedness); provided, however,
that an Incurrence of Indebtedness that is not permitted by this clause (e)
shall be deemed to have occurred upon (i) any sale or other disposition of
any Indebtedness of the Company or any Restricted Subsidiary referred to in
this clause (e) to a Person (other than the Company or any Restricted
Subsidiary) or (ii) the designation of a Restricted Subsidiary that holds
Indebtedness of the Company or any other Restricted Subsidiary as an
Unrestricted Subsidiary;
(f) Interest Rate Protection Obligations of the Company or any
Restricted Subsidiary relating to Indebtedness of the Company or such
Restricted Subsidiary (which Indebtedness (i) bears interest at fluctuating
interest rates and (ii) is otherwise permitted to be incurred under this
covenant) and guarantees by the Company or any Restricted Subsidiary of
such Interest Rate Protection Obligations; provided, however, that the
notional principal amount of such Interest Rate Protection Obligations does
not exceed the principal amount of the Indebtedness to which such Interest
Rate Protection Obligations relate;
(g) indemnification obligations of the Company or any Restricted
Subsidiary and guarantees thereof under agreements providing for the
disposition of assets or one or more businesses or Restricted Subsidiaries;
provided, however, that such obligations do not exceed at any time the Fair
Market Value of the gross proceeds received by the Company and the
Restricted Subsidiaries for such disposition;
(h) Indebtedness to the extent representing a replacement, renewal,
refinancing or extension (collectively, a "refinancing") of outstanding
Indebtedness Incurred in compliance with the Debt to Operating Cash Flow
Ratio of the covenant "Limitation on Additional Indebtedness" or clause
(a), (b), (c)(2), (i) or (k) of this definition; provided, however, that
(i) any such refinancing shall not exceed the sum of the principal amount
(or, if such Indebtedness provides for a lesser amount to be due and
payable upon a declaration of acceleration thereof at the time of such
refinancing, an amount no greater than such lesser amount) of the
Indebtedness being refinanced, plus the amount of accrued interest or
dividends thereon, plus the amount of an reasonably determined prepayment
premium necessary to accomplish such refinancing and such reasonable fees
and expenses incurred in connection therewith, (ii) Indebtedness
representing a refinancing of Indebtedness (other than Senior Indebtedness
and Guarantor Senior Indebtedness) shall have a Weighted Average Life to
Maturity equal to or greater than the Weighted Average Life to Maturity of
the Indebtedness being refinanced, (iii) Indebtedness that is pari passu
with the Notes or a Guarantee may only be refinanced with Indebtedness that
is made pari passu with or subordinate in right of payment to the Notes
(and supported by a guarantee that is pari passu or subordinate in right of
payment with such Guarantee), and Subordinated Indebtedness may only be
refinanced with Subordinated Indebtedness, (iv) with respect to any
refinancing of Indebtedness Incurred pursuant to subparagraph (i) or (k) of
this definition, such refinancing pursuant to this clause (h) shall also be
deemed to be Incurred pursuant to clause (i) or (k), as the case may be, of
this paragraph (for the avoidance of doubt, the result of which is that a
refinancing does not create new debt incurrence capacity under such
clauses) and (v) Indebtedness of the Company Incurred under clause (b) of
this definition may only be refinanced with Indebtedness of the Company;
(i) Indebtedness of the Company or any Restricted Subsidiary Incurred
to finance the acquisition of the exclusive right to distribute DIRECTV
Services within designated Rural DIRECTV Markets;
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provided, however, that such Indebtedness shall be Permitted Indebtedness
under this subparagraph (i) in an amount not greater than the face amount
of any letter of credit issued under the Credit Facility to support such
Indebtedness, it being understood that the issuance of such letter of
credit (but only for so long as such letter of credit remains outstanding)
constitutes a reduction in the amount of Permitted Indebtedness available
to be Incurred under clause (c) of this definition;
(j) Indebtedness in the form of Liens permitted under clause (b) of
the definition of Permitted Liens; and
(k) in addition to the items referred to in subparagraphs (a) through
(j) above, Indebtedness of the Company or any of the Restricted
Subsidiaries (including any Indebtedness under the Credit Facility that
utilizes this clause (k)) having an aggregate principal amount for the
Company and the Restricted Subsidiaries not to exceed $25.0 million at any
time outstanding.
Indebtedness of any Person or any of its Subsidiaries existing at the time
such Person becomes a Restricted Subsidiary (or is merged into or consolidated
with the Company or any Restricted Subsidiary), whether or not such Indebtedness
was Incurred in connection with, or in contemplation of, such Person becoming a
Restricted Subsidiary (or being merged into or consolidated with the Company or
any Restricted Subsidiary), shall be deemed Incurred at the time any such Person
becomes a Restricted Subsidiary or merges into or consolidates with the Company
or any Restricted Subsidiary.
"Permitted Investments" means (a) Cash Equivalents; (b) Investments by the
Company or any Restricted Subsidiary in any Person that is or will become
immediately after such Investment a Restricted Subsidiary or that will merge or
consolidate into the Company or a Restricted Subsidiary; (c) Investments in the
Company by any Restricted Subsidiary; (d) Investments in prepaid expenses,
negotiable instruments held for collection and lease, utility and workers'
compensation, performance and other similar deposits; (e) loans and advances to
employees made in the ordinary course of business not to exceed $1.0 million in
the aggregate at any one time outstanding; (f) Interest Rate Protection
Obligations; (g) bonds, notes, debentures or other securities received as a
result of Asset Sales permitted under "-- Certain Covenants -- Disposition of
Proceeds of Asset Sales" above not to exceed 25% of the total consideration for
such Asset Sales (determined and computed as set forth under "-- Certain
Covenants -- Disposition of Proceeds of Asset Sales"); (h) transactions with
officers, directors and employees of the Company or any Restricted Subsidiary
entered into in the ordinary course of business (including compensation or
employee benefit arrangements with any such director or employee) and consistent
with past business practices; (i) Investments existing as of the Issue Date and
any amendment, extension, renewal or modification thereof to the extent that any
such amendment, extension, renewal or modification does not require the Company
or any Restricted Subsidiary to make any additional cash or non-cash payments or
provide additional services in connection therewith; (j) Investments in
Marketable Securities by the Escrow Agent and held in the Escrow Account; and
(k) Permitted Acquisition Deposits.
"Permitted Junior Securities" means any securities of the Company or any
other Person that are (i) equity securities without special covenants or (ii)
subordinated in right of payment to all Senior Indebtedness that may at the time
be outstanding, to the same extent as, or to a greater extent than, the Notes
are subordinated as provided in the Indenture, in any event pursuant to a court
order so providing and as to which (a) the rate of interest on such securities
shall not exceed the effective rate of interest on the Notes on the date of the
Indenture, (b) such securities shall not be entitled to the benefits of
covenants or defaults materially more beneficial to the holders of such
securities than those in effect with respect to the Notes on the date of the
Indenture, (c) such securities shall not provide for amortization (including
sinking fund and mandatory prepayment provisions) commencing prior to the date
six months following the final scheduled maturity date of the Senior
Indebtedness (as modified by the plan of reorganization or readjustment pursuant
to which such securities are issued) and (d) the principal amount thereof shall
not exceed the principal amount and accrued and unpaid interest of the Notes in
respect of which such securities are issued.
"Permitted Liens" means (a) Liens on property of a Person existing at the
time such Person is merged into or consolidated with the Company or any
Restricted Subsidiary; provided, however, that such Liens were
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in existence prior to the contemplation of such merger or consolidation and do
not secure any property or assets of the Company or any Restricted Subsidiary
other than the property or assets subject to the Liens prior to such merger or
consolidation; (b) Liens imposed by law such as carriers', warehousemen's and
mechanics' Liens and other similar Liens arising in the ordinary course of
business that secure payment of obligations not more than 60 days past due or
that are being contested in good faith and by appropriate proceedings; (c) Liens
existing on the Issue Date; (d) Liens securing only the Notes; (e) Liens in
favor of the Company or any Restricted Subsidiary so long as held by the Company
or any Restricted Subsidiary; (f) Liens for taxes, assessments or governmental
charges or claims that are not yet delinquent or that are being contested in
good faith by appropriate proceedings promptly instituted and diligently
conducted; provided, however, that any reserve or other appropriate provision as
shall be required in conformity with GAAP shall have been made therefor; (g)
easements, reservation of rights of way, restrictions and other similar
easements, licenses, restrictions on the use of properties, or minor
imperfections of title that in the aggregate are not material in amount and do
not in any case materially detract from the properties subject thereto or
interfere with the ordinary conduct of the business of the Company and the
Restricted Subsidiaries; (h) Liens resulting front the deposit of cash or notes
in connection with contracts, Permitted Acquisition Deposits, tenders or
expropriation proceedings, or to secure workers' compensation, surety or appeal
bonds, costs of litigation when required by law and public and statutory
obligations or obligations under franchise arrangements and agreements with the
NRTC entered into in the ordinary course of business; (i) Liens securing
Indebtedness consisting of Capital Lease Obligations, Purchase Money
Indebtedness, mortgage financings, industrial revenue bonds or other monetary
obligations, in each case incurred solely for the purpose of financing all or
any part of the purchase price or cost of construction or installation of assets
used in the business of the Company or the Restricted Subsidiaries, or repairs,
additions or improvements to such assets; provided, however, that (I) such Liens
secure Indebtedness in an amount not in excess of the original purchase price or
the original cost of any such assets or repair, addition or improvement thereto
(plus an amount equal to the reasonable fees and expenses in connection with the
incurrence of such Indebtedness), (II) such Liens do not extend to any other
assets of the Company or the Restricted Subsidiaries (and, in the case of
repairs, additions or improvements to any such assets, such Lien extends only to
the assets (and improvements thereto or thereon) repaired, added to or
improved), (III) the Incurrence of such Indebtedness is permitted by "-- Certain
Covenants -- Limitation on Additional Indebtedness" above, and (IV) such Liens
attach within 90 days of such purchase, construction, installation, repair,
addition or improvement; (j) Liens to secure any refinancings, renewals,
extensions, modifications or replacements (collectively, "refinancing") (or
successive refinancings), in whole or in part, of any Indebtedness secured by
Liens referred to in the clauses above so long as such Lien does not extend to
any other property (other than improvements thereto); (k) Liens securing letters
of credit entered into in the ordinary course of business; (1) Liens on and
pledges of the Equity Interests of any Unrestricted Subsidiary securing any
Indebtedness of such Unrestricted Subsidiary; and (m) any calls or rights of
first refusal with respect to any partnership interests; and (n) Liens on the
proceeds of Indebtedness that are pledged (or any Investment made therewith are
pledged) to secure payments in respect of such Indebtedness.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, limited liability company, limited liability
limited partnership, trust, unincorporated organization or government or any
agency or political subdivision thereof.
"Post-Petition Interest" means, with respect to any Indebtedness of any
Person, all interest accrued or accruing on such Indebtedness after the
commencement of any Insolvency or Liquidation Proceeding with respect to such
Person in accordance with and at the contract rate (including, without
limitation, any rate applicable upon default) specified in the agreement or
instrument creating, evidencing or governing such Indebtedness, whether or not,
pursuant to applicable law or otherwise, the claim for such interest is allowed
as a claim in such Insolvency or Liquidation Proceeding.
"Preferred Equity Interest," in any Person, means an Equity Interest of any
class or classes (however designated) that is preferred as to the payment of
dividends or distributions, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such Person, over Equity
Interests of any other class in such Person.
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"principal" of a debt security means the principal of the security, plus,
when appropriate, the premium, if any, on the security.
"Public Equity Offering" means an underwritten public offering of Equity
Interests (other than Disqualified Equity Interests) of the Company made on a
primary basis by the Company pursuant to a registration statement filed with and
declared effective by the Commission in accordance with the Securities Act.
"Purchase Money Indebtedness" means Indebtedness of the Company or any
Restricted Subsidiary Incurred for the purpose of financing all or any part of
the purchase price or the cost of construction or improvement of any property;
provided, however, that the aggregate principal amount of such Indebtedness does
not exceed the lesser of the Fair Market Value of such property or such purchase
price or cost, including any refinancing of such Indebtedness that does not
increase the aggregate principal amount (or accreted amount, if less) thereof as
of the date of refinancing.
"Qualified Equity Interest" in any Person means any Equity Interest in such
Person other than any Disqualified Equity Interest.
"Restricted Payment" means any of the following: (i) the declaration or
payment of any dividend or any other distribution on Equity Interests of the
Company or any payment made to the direct or indirect holders (in their
capacities as such) of Equity Interests of the Company (other than dividends or
distributions payable solely in Equity Interests (other than Disqualified Equity
Interests) of the Company) or in options, warrants or other rights to purchase
Equity Interests (other than Disqualified Equity Interests) of the Company; (ii)
the purchase, redemption or other acquisition or retirement for value of any
Equity Interests of the Company (other than any such Equity Interests owned by
the Company or a Wholly Owned Restricted Subsidiary); (iii) the purchase,
redemption, defeasance or other acquisition or retirement for value prior to any
scheduled repayment, sinking fund or maturity of any Subordinated Indebtedness
(other than any Subordinated Indebtedness held by a Wholly Owned Restricted
Subsidiary); or (iv) the making by the Company or any Restricted Subsidiary of
any Investment (other than a Permitted Investment) in any Person.
"Restricted Subsidiary" means any Subsidiary of the Company that has not
been designated by the Board of Directors of the Company, by a resolution of the
Board of Directors of the Company delivered to the Trustee, as an Unrestricted
Subsidiary pursuant to "-- Certain Covenants -- Designation of Unrestricted
Subsidiaries" above. Any such designation may be revoked by a resolution of the
Board of Directors of the Company delivered to the Trustee, subject to the
provisions of such covenant.
"SEC" means the Securities and Exchange Commission.
"Seller Notes" means any promissory notes issued by the Company to any
Person selling any assets or properties to the Company or any Restricted
Subsidiary in an Asset Acquisition, including those outstanding on the Issue
Date.
"Senior Indebtedness" means, at any date, (a) all Obligations of the
Company under the Credit Facility; (b) all Interest Rate Protection Obligations
of the Company; (c) all Obligations of the Company under standby letters of
credit; and (d) all other Obligations relating to Indebtedness of the Company
for borrowed money, including principal, premium, if any, and interest
(including Post-Petition Interest) on such Indebtedness, unless the instrument
under which such Indebtedness of the Company for money borrowed is Incurred
expressly provides that such Indebtedness for money borrowed is not senior or
superior in right of payment to the Notes, and all renewals, extensions,
modifications, amendments or refinancings thereof. Notwithstanding the
foregoing, Senior Indebtedness shall not include (a) to the extent that it may
constitute Indebtedness, any Obligation for federal, state, local or other
taxes; (b) any Indebtedness among or between the Company and any Subsidiary of
the Company; (c) to the extent that it may constitute Indebtedness, any
Obligation in respect of any trade payable Incurred for the purchase of goods or
materials, or for services obtained, in the ordinary course of business; (d)
that portion of any Indebtedness that is Incurred in violation of the Indenture;
provided, however, that such Indebtedness shall be deemed not to have been
Incurred in violation of the Indenture for purposes of this clause (d) if (I)
the holder(s) of such Indebtedness or their representative or the Company shall
have furnished to the Trustee an opinion of independent legal counsel,
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unqualified in all material respects, addressed to the Trustee (which legal
counsel may, as to matters of fact, rely upon an officers' certificate of the
Company) to the effect that the Incurrence of such Indebtedness does not violate
the provisions of the Indenture or (II) in the case of any Obligations under the
Credit Facility, the holder(s) of such Obligations or their agent or
representative shall have received a representation from the Company to the
effect that the Incurrence of such Indebtedness does not violate the provisions
of the Indenture; (e) Indebtedness evidenced by the Notes; (f) Indebtedness of
the Company that is expressly subordinate or junior in right of payment to any
other Indebtedness of the Company; (g) Indebtedness represented by the Seller
Notes; (h) to the extent that it may constitute Indebtedness, any obligation
owing under leases (other than Capital Lease Obligations) or management
agreements; and (i) any obligation that by operation of law is subordinate to
any general unsecured obligations of the Company.
"Significant Restricted Subsidiary" means, at any date of determination,
(a) any Restricted Subsidiary that, together with its Subsidiaries that
constitute Restricted Subsidiaries, (i) for the most recent fiscal year of the
Company accounted for more than 5.0% of the consolidated revenues of the Company
and the Restricted Subsidiaries or (ii) as of the end of such fiscal year owned
more than 5.0% of the consolidated assets of the Company and the Restricted
Subsidiaries, all as set forth on the consolidated financial statements of the
Company and the Restricted Subsidiaries for such year prepared in conformity
with GAAP, and (b) any Restricted Subsidiary that, when aggregated with all
other Restricted Subsidiaries that are not otherwise Significant Restricted
Subsidiaries and as to which any event described in clause (v), (vii) or (viii)
of "-- Events of Default" above has occurred, would constitute a Significant
Restricted Subsidiary under clause (a) of this definition.
"Specified Indebtedness" means (i) any Senior Indebtedness, (ii) any
Guarantor Senior Indebtedness and (iii) any Indebtedness of any Restricted
Subsidiary (other than a Guarantor) that is not subordinated to any other
Indebtedness of such Restricted Subsidiary; provided that, to the extent such
Indebtedness has been guaranteed, it must have been guaranteed by a Guarantor on
a senior basis.
"Stated Maturity," when used with respect to any Note or any installment of
interest thereon, means the date specified in such Note as the fixed date on
which the principal of such Note or such installment of interest is due and
payable.
"Subordinated Indebtedness" means any Indebtedness of the Company or any
Guarantor that is expressly subordinated in right of payment to the Notes or any
Guarantees of such Guarantor, as applicable.
"Subsidiary" means, with respect to any Person, (a) any corporation of
which the outstanding Voting Equity Interests having at least a majority of the
votes entitled to be cast in the election of directors shall at the time be
owned, directly or indirectly, by such Person, or (b) any other Person of which
at least a majority of Voting Equity Interests are at the time, directly or
indirectly, owned by such first named Person.
"Total Consolidated Indebtedness" means, as at any date of determination,
an amount equal to the aggregate amount of all Indebtedness and Disqualified
Equity Interests of the Company and the Restricted Subsidiaries outstanding as
of such date of determination.
"Total Incremental Invested Equity" means, at any date of determination,
the sum of, without duplication, (a) the aggregate net cash proceeds received by
the Company either (x) as capital contributions to the Company after the Issue
Date or (y) from the issue and sale (other than to a Subsidiary of the Company
by the Company) of its Qualified Equity interests after the Issue Date, plus (b)
the aggregate net proceeds received by the Company or any Restricted Subsidiary
after the Issue Date from the issuance (other than to a Subsidiary of the
Company) of Qualified Equity Interests upon the conversion of, or in exchange
for, Indebtedness of the Company or a Restricted Subsidiary that has been
converted into or exchanged for Qualified Equity Interests of the Company, minus
(c) the aggregate amount of all Restricted Payments made on or after the Issue
Date and all Designation Amounts arising after the Issue Date, but only to the
extent the amount set forth in this clause (c) would exceed the amount
determined under subclause (a) of clause (iii) of the first paragraph under the
"Limitation on Restricted Payments" covenant, plus (d) in the case of the
disposition or repayment of any Investment which has been deducted pursuant to
clause (c) of this definition, an amount equal to the lesser of the return of
capital with respect to such Investment and the amount of such
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Investment which has been deducted pursuant to such clause (c), plus (e) in the
case of any Revocation with respect to any Subsidiary that was made the subject
of Designation after the Issue Date and as to which a Designation Amount has
been deducted pursuant to clause (c) of this definition, an amount equal to the
lesser of such Designation Amount or the Fair Market Value of the Investment of
the Company and the Restricted Subsidiaries in such Subsidiary at the time of
Revocation.
"Unrestricted Subsidiary" means any Subsidiary of the Company designated as
such pursuant to "-- Certain Covenants -- Designation of Unrestricted
Subsidiaries" above. Any such designation may be revoked by a resolution of the
Board of Directors of the Company delivered to the Trustee, subject to the
provisions of "-- Certain Covenants -- Designation of Unrestricted Subsidiaries"
above.
"Voting Equity Interests" means Equity Interests in a corporation or other
Person with voting power under ordinary circumstances entitling the holders
thereof to elect the Board of Directors or other governing body of such
corporation or such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the sum of the
products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required scheduled payment
of principal, including payment of final maturity, in respect thereof, by (ii)
the number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (b) the then outstanding
aggregate principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary all of
the outstanding Voting Equity Interests (other than directors' qualifying
shares) of which are owned, directly or indirectly, by the Company.
BOOK ENTRY; DELIVERY AND FORM
The Old Notes were initially issued in the form of a single, permanent
global certificate in definitive, fully registered form (the "Global Note"). The
Global Note was deposited on the date of the closing of the Old Notes Offering
with, or on behalf of, the DTC and registered in the name of Cede & Co., as
nominee of the DTC.
The Global Note. Pursuant to procedures established by DTC, (i) upon the
issuance of the Global Note, DTC or its custodian credited, on its internal
system, the principal amount of Old Notes of the individual beneficial interests
represented by such global securities to the respective accounts of persons who
have accounts with such depositary, and (ii) ownership of beneficial interests
in the Global Note is shown on, and the transfer of such ownership is effected
only through, records maintained by DTC or its nominee (with respect to
interests of participants) and the records of participants (with respect to
interests of persons other than participants). Such accounts initially were
designated by or on behalf of the Initial Purchasers and ownership of beneficial
interests in the Global Note were limited to persons who have accounts with DTC
("participants") or persons who hold interests through participants. QIBs may
hold their interests in the Global Note directly through DTC if they are
participants in such system, or directly through organizations which are
participants in such system.
So long as DTC, or its nominee, is the registered owner or holder of the
Notes, DTC or such nominee, as the case may be, will be considered the sole
owner or holder of the Notes represented by such Global Note for all purposes
under the Indenture. No beneficial owner of an interest in any of the Global
Notes will be able to transfer that interest except in accordance with DTC's
procedures, in addition to those provided for under the Indenture with respect
to the Notes.
Payments of the principal of, premium (if any) and interest (including
Additional Interest) on, the Global Note are made to DTC or its nominee, as the
case may be, as the registered owner thereof. None of the Company, the Trustee
or any Paying Agent has any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests in the Global Note or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interest.
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DTC or its nominee, upon receipt of any payment of principal, premium, if
any, or interest (including Additional Interest) in respect of the Global Note,
credits participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of the Global Note as
shown on the records of DTC or its nominee. Payments by participants to owners
of beneficial interests in the Global Note held through such participants are
governed by standing instructions and customary practice, as is now the case
with securities held for the accounts of customers registered in the names of
nominees for such customers. Such payments are the responsibility of such
participants.
Transfers between participants in DTC are effected in the ordinary way in
accordance with DTC rules and are settled in clearinghouse funds. If a holder
requires physical delivery of a Certificated Security for any reason, including
to sell Notes to persons in states which require physical delivery of the Notes,
or to pledge such securities, such holder must transfer its interest in the
Global Note, in accordance with the normal procedures of DTC and with the
procedures set forth in the Indenture.
DTC has advised the Company that it will take action permitted to be taken
by a holder of Notes (including the presentation of Notes for exchange as
described below) only at the direction of one or more participants to whose
account the DTC interests in the Global Note are credited and only in respect of
such portion of the aggregate principal amount of Notes as to which such
participant or participants has or have given such direction. However, if there
is an Event of Default under the Indenture, DTC will exchange the Global Note
for Certificated Securities, which it will distribute to its participants.
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "Clearing Agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its participants and facilitate the clearance and settlement of
securities transactions between participants through electronic book-entry
changes in accounts of its participants, thereby eliminating the need for
physical movement of certificates. Participants include securities brokers and
dealers, banks, trust companies and clearing corporations and certain other
organizations. Indirect access to the DTC system is available to others such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, either directly or indirectly
("indirect participants").
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Note among participants of DTC, it is under
no obligation to perform such procedures, and such procedures may be
discontinued at any time. Neither the Company nor the Trustee will have any
responsibility for the performance by DTC or its participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
Certificated Securities. If DTC is at any time unwilling or unable to
continue as a depositary for the Global Note and a successor depositary is not
appointed by the Company within 90 days, Certificated Securities will be issued
in exchange for the Global Note.
SAME-DAY SETTLEMENT AND PAYMENT
The Indenture requires that payments in respect of the Notes (including
principal, premium, if any, and interest) be made in immediately available
funds. Secondary trading in long-term notes and debentures of corporate issuers
is generally settled in clearing-house or next-day funds. In contrast, the New
Notes are expected to be eligible to trade in the PORTAL Market and to trade in
the Depositary's Same-Day Funds Settlement System, and any permitted secondary
market trading activity in the New Notes will therefore be required by the
Depositary to be settled in immediately available funds. No assurance can be
given as to the effect, if any, of such settlement arrangements on trading
activity in the New Notes.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange the New Notes in accordance with the
Indenture. The Registrar may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents, and to pay
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any taxes and fees required by law or permitted by the Indenture. The Registrar
is not required to transfer or exchange any New Note selected for redemption.
Also, the Registrar is not required to transfer or exchange any New Note for a
period of 15 days before a selection of the New Notes to be redeemed.
The registered holder of a New Note will be treated as the owner of it for
all purposes.
GOVERNING LAW
The Indenture and the New Notes are governed by and construed in accordance
with the laws of the State of New York.
THE TRUSTEE
The Trustee acts as trustee under the Indenture and may, from time to time,
act as depositary for funds of, make loans to, arid perform other services for,
the Company in the ordinary course of business.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following summary describes certain United States federal income tax
consequences of the exchange of Old Notes for New Notes as of the date hereof.
The discussion below is based upon the provisions of the Internal Revenue Code
of 1986, as amended (the "Code"), and regulations, rulings and judicial
decisions thereunder as of the date hereof, and such authorities may be
repealed, revoked or modified so as to result in federal income tax consequences
different from those discussed below. Persons considering the exchange of Old
Notes for New Notes should consult their own tax advisors concerning the federal
income tax consequences in light of their particular situations as well as any
consequences arising under the laws of any other taxing jurisdiction.
EXCHANGE OF NOTES
The exchange of Old Notes for New Notes pursuant to the Exchange Offer
should not be treated as an "exchange" for federal income tax purposes, because
the New Notes should not be considered to differ materially in kind or extent
from the Old Notes. Rather, the New Notes received by a holder of Old Notes
should be treated as a continuation of the Old Notes in the hands of such
holder. As a result, there will be no federal income tax consequences to a
holder exchanging Old Notes for New Notes pursuant to the Exchange Offer.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. The Company has agreed that, for a
period of 90 days after the Expiration Date, it will make this Prospectus
available to any broker-dealer for use in connection with any such resale. In
addition, for a period of 90 days after the Expiration Date, all dealers
effecting transactions in the New Notes may be required to deliver a Prospectus.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or at negotiated prices. Any such resale may be
made directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such New
105
<PAGE> 109
Notes. Any broker-dealer that resells New Notes that were received by it for its
own account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of New Notes may be deemed to be an "underwriter"
within the meaning of the Securities Act, and any profit on any such resale of
New Notes and any commissions or concessions received by any such person may be
deemed to be underwriting compensation under the Securities Act. The Letter of
Transmittal states that by acknowledging that it will deliver and by delivering
a prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. The Company has no
arrangement or understanding with any broker or dealer to distribute the New
Notes received in the Exchange Offer.
For a period of 90 days after the Expiration Date the Company will promptly
send additional copies of this Prospectus and any amendment or supplement to
this Prospectus to any broker-dealer that requests such documents in the Letter
of Transmittal.
LEGAL MATTERS
The validity of the New Notes will be passed upon for the Company by
Reboul, MacMurray, Hewitt, Maynard & Kristol, New York, New York.
EXPERTS
The (i) consolidated financial statements of the Company for the year ended
December 31, 1997 and for the period from Inception (June 25, 1996) to December
31, 1996, (ii) financial statements of Images DBS Kansas, L.C. for the years
ended December 31, 1996 and 1995, (iii) financial statements of Images DBS
Oklahoma, L.C. for the years ended December 31, 1996 and 1995, (iv) financial
statements of Total Communications, Inc. for the years ended December 31, 1996
and 1995, (v) financial statements of Thunderbolt Systems, Inc. for the years
ended December 31, 1996, 1995, and 1994, (vi) financial statements of JECTV for
the years ended December 31, 1996, 1995, and 1994, (vii) financial statements of
Cal-Ore Digital TV, Inc. for the year ended December 31, 1996, (viii) financial
statements of Direct Vision for the years ended December 31, 1996, 1995, and
1994, (ix) financial statements of Direct Broadcast Satellite (a segment of CTS
Communication Corporation) for the periods ended December 31, 1996, 1995, and
1994, (x) financial statements of Argos Support Services Company for the years
ended December 31, 1996 and 1995, (xi) financial statements of Satellite
Entertainment, Inc. for the years ended December 31, 1996, 1995 and 1994, (xii)
financial statements of GVEC Rural TV, Inc. for the years ended December 31,
1996, 1995 and 1994, and (xiii) financial statements of NRTC System No. 0093 for
the years ended December 31, 1996, 1995 and 1994 appearing in this Prospectus
have been audited by KPMG Peat Marwick LLP, independent auditors, as stated in
their reports, and are included herein in reliance upon the reports of such
firm.
The financial statements of (i) Triangle Communication System, Inc. for
each of the years in the three-year period ended December 31, 1997 and (ii)
Souris River Television, Inc. for each of the years in the two-year period ended
December 31, 1996 have been audited by Eide Helmeke PLLP, independent auditors,
as stated in their reports, and are included herein in reliance upon the reports
of such firm.
The financial statements of Western Montana DBS, Inc. dba Rocky Mountain
DBS for each of the years in the three-year period ended December 31, 1996 and
for the year ended December 31, 1997 have been audited by Loucks & Glassley,
pllp, independent auditors, as stated in their reports, and are included herein
in reliance upon the reports of such firm.
The financial statements of South Plains DBS Limited Partnership for each
of the years in the two-year period ended December 31, 1996 have been audited by
Bolinger, Segars, Gilbert & Moss, L.L.P., independent auditors, as stated in
their report, and are included herein in reliance upon the report of such firm.
The financial statements of Direct Broadcast Satellite (a segment of Nemont
Communications Inc.) for the year ended December 31, 1997 have been audited by
CHMS, P.C., independent auditors, as stated in their report, and are included
herein in reliance upon the report of such firm.
106
<PAGE> 110
The financial statements of Direct Broadcast Satellite (a segment of SCS
Communications & Security, Inc.) for each of the years in the two-year period
ended December 31, 1997 have been audited by Aldrich, Kilbride & Tatone LLP,
independent auditors, as stated in their report, and are included herein in
reliance upon the report of such firm.
The financial statements of PrimeWatch, Inc. for the year ended December
31, 1997 have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, and are included
herein in reliance upon the authority of said firm as experts in giving said
report.
The financial statements of Direct Broadcast Satellite (a division of
Baldwin County Electric Membership Corporation) for the year ended December 31,
1997 have been audited by Jackson Thornton & Co., P.C., independent auditors, as
stated in their report, and are included herein in reliance upon the report of
such firm.
The financial statements of Direct Broadcast Satellite (a segment of
Volcano Vision, Inc.) for the year ended December 31, 1997 have been audited by
Moss Adams LLP, independent auditors, as stated in their reports, and are
included herein in reliance upon the reports of such firm.
The financial statements of DBS Segment of Cumby Cellular, Inc. for the
year ended December 31, 1997 have been audited by Curtis Blakely & Co., P.C.,
independent auditors, as stated in their report, and are included herein in
reliance upon the report of such firm.
107
<PAGE> 111
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
GOLDEN SKY SYSTEMS, INC.
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
Condensed Consolidated Balance Sheets as of September 30,
1998 (unaudited) and December 31, 1997................. F-2
Condensed Consolidated Statements of Operations for the
nine-month periods ended September 30, 1998 and 1997
(unaudited)............................................ F-3
Condensed Consolidated Statements of Cash Flows for the
nine-month periods ended September 30, 1998 and 1997
(unaudited)............................................ F-4
Notes to Condensed Consolidated Financial Statements
(unaudited)............................................ F-5
FISCAL YEAR 1997 AND FOR THE PERIOD FROM INCEPTION (JUNE 25,
1996) THROUGH DECEMBER 31, 1996
Independent Auditors' Report.............................. F-10
Consolidated Balance Sheets as of December 31, 1997 and
1996................................................... F-11
Consolidated Statements of Operations for the year ended
December 31, 1997 and for the period from inception
(June 25, 1996) through December 31, 1996.............. F-12
Consolidated Statements of Stockholder's Equity (Deficit)
for the year ended December 31, 1997 and for the period
from inception (June 25, 1996) through December 31,
1996................................................... F-13
Consolidated Statements of Cash Flows for the year ended
December 31, 1997 and for the period from inception
(June 25, 1996) through December 31, 1996.............. F-14
Notes to Consolidated Financial Statements................ F-15
FINANCIAL STATEMENTS OF INCLUDED ACQUISITIONS
Triangle Communications System, Inc. ..................... F-25
Western Montana DBS, Inc. dba Rocky Mountain DBS
(unaudited)............................................ F-35
Western Montana DBS, Inc. dba Rocky Mountain DBS.......... F-42
South Plains DBS Limited Partnership...................... F-60
Souris River Television, Inc. ............................ F-70
Images DBS Kansas, L.C. .................................. F-79
Images DBS Oklahoma, L.C. ................................ F-88
Total Communications, Inc. ............................... F-97
Thunderbolt Systems, Inc. ................................ F-107
JECTV (a segment of Jackson Electric Cooperative)......... F-116
Cal-Ore Digital TV, Inc. ................................. F-126
Direct Vision (a segment of Mankato Citizens Telephone
Company)............................................... F-135
Direct Broadcast Satellite (a segment of CTS Communication
Corporation)........................................... F-143
Argos Support Services Company............................ F-151
Satellite Entertainment, Inc. (a wholly-owned subsidiary
of Ace Telephone Association).......................... F-160
GVEC Rural TV, Inc. ...................................... F-169
NRTC System No. 0093 (a segment of Cable and
Communications Corporation)............................ F-179
Direct Broadcast Satellite (a segment of Nemont
Communications Inc.)................................... F-188
Direct Broadcast Satellite (a segment of SCS
Communications & Security, Inc.)....................... F-197
PrimeWatch, Inc. ......................................... F-205
Direct Broadcast Satellite (a division of Baldwin County
Electric Membership Corporation)....................... F-215
Direct Broadcast Satellite (a segment of Volcano Vision,
Inc.) (unaudited)...................................... F-222
Direct Broadcast Satellite (a segment of Volcano Vision,
Inc.).................................................. F-229
DBS Segment of Cumby Cellular, Inc. ...................... F-238
</TABLE>
F-1
<PAGE> 112
GOLDEN SKY SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 31,001 $ 13,632
Restricted cash........................................... 50,940 --
Subscriber receivables.................................... 6,526 3,843
Other receivables......................................... 1,454 335
Earnest deposits.......................................... 916 --
Inventory................................................. 10,780 2,174
Prepaid expenses.......................................... 846 127
-------- --------
Total current assets.............................. 102,463 20,111
Property and equipment (net of accumulated depreciation of
$2,537 and $510, respectively)............................ 4,494 2,936
Intangible assets, net...................................... 184,787 129,896
Deferred financing costs.................................... 10,563 3,106
Other assets................................................ 210 187
-------- --------
Total assets...................................... $302,517 $156,236
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Trade accounts payable.................................... $ 11,731 $ 8,471
Current maturities of other notes payable and obligations
under capital leases................................... 9,903 2,538
Payable to parent......................................... 12 586
Unearned revenue.......................................... 4,509 2,630
Interest payable.......................................... 4,683 786
Accrued payroll and other liabilities..................... 1,177 1,273
-------- --------
Total current liabilities......................... 32,015 16,284
Long-term obligations, net of current portion:
Senior Notes.............................................. 195,000 --
Credit Facility........................................... 35,000 --
Credit Agreement.......................................... -- 60,000
Other notes payable and obligations under capital leases,
net of current maturities.............................. 7,398 6,575
Minority interest......................................... 2,634 2,928
-------- --------
Total long-term obligations, net of current
maturities...................................... 240,032 69,503
-------- --------
Total liabilities................................. 272,047 85,787
Commitments and contingencies............................... -- --
Stockholder's Equity:
Common stock, par value $.01; 1,000 shares authorized,
issued and outstanding................................. -- --
Additional paid-in capital................................ 87,400 87,400
Accumulated deficit....................................... (56,930) (16,951)
-------- --------
Total stockholder's equity........................ 30,470 70,449
-------- --------
Total liabilities and stockholder's equity........ $302,517 $156,236
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-2
<PAGE> 113
GOLDEN SKY SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1998 AND 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
-------- -------
<S> <C> <C>
Revenue:
DBS services.............................................. $ 50,139 $ 8,462
Lease and other........................................... 751 675
-------- -------
Total revenue..................................... 50,890 9,137
Costs and Expenses:
Cost of DBS services...................................... 29,764 4,868
System operations......................................... 7,317 2,076
Sales and marketing....................................... 19,560 2,898
General and administrative................................ 4,737 1,593
Depreciation and amortization............................. 15,814 4,352
-------- -------
Total costs and expenses.......................... 77,192 15,787
-------- -------
Operating loss.............................................. (26,302) (6,650)
Non-operating items:
Interest and investment income............................ 866 21
Interest expense.......................................... (11,966) (1,389)
-------- -------
Total non-operating items......................... (11,100) (1,368)
-------- -------
Net loss before income taxes................................ (37,402) (8,018)
Income taxes................................................ -- --
-------- -------
Net loss before extraordinary charge........................ (37,402) (8,018)
Extraordinary charge on early retirement of debt............ (2,577) --
-------- -------
Net loss.................................................... $(39,979) $(8,018)
======== =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-3
<PAGE> 114
GOLDEN SKY SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1998 AND 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Operating activities:
Net loss.................................................. $(39,979) $ (8,018)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization.......................... 15,814 4,352
Amortization of deferred financing costs............... 563 102
Extraordinary charge on early retirement of debt....... 2,577 --
Change in operating assets and liabilities, net of
acquisitions:
Subscriber receivables, net of unearned revenue...... (737) (143)
Other receivables.................................... (1,119) (356)
Inventory............................................ (8,538) (370)
Prepaid expenses and other assets.................... (707) (532)
Trade accounts payable............................... 3,260 1,446
Payable to parent.................................... (574) --
Interest payable..................................... 3,897 312
Accrued payroll and other liabilities................ (132) 419
-------- --------
Net cash used in operating activities....................... (25,675) (2,788)
Investing activities:
Acquisitions of Rural DIRECTV Markets..................... (59,517) (81,548)
Offering proceeds and investment earnings placed in
escrow................................................. (50,940) --
Release (payment) of earnest deposits..................... (916) 320
Purchases of property and equipment....................... (2,408) (405)
-------- --------
Net cash used in investing activities....................... (113,781) (81,633)
Financing activities:
Proceeds from issuance of notes payable................... -- 2,115
Principal payments on notes payable....................... (2,359) (2,815)
Proceeds from issuance of preferred stock................. -- 35,362
Borrowings under the Credit Facility...................... 30,000 --
Borrowings under the Credit Agreement..................... 28,000 54,000
Principal payments on the Credit Facility................. (83,000) --
Increase in deferred financing costs...................... (4,747) (2,875)
Net proceeds from issuance of Senior Notes................ 189,150 --
Principal payments on obligations under capital leases.... (219) (3)
-------- --------
Net cash provided by financing activities................... 156,825 85,784
-------- --------
Net increase in cash and cash equivalents................... 17,369 1,363
Cash and cash equivalents, beginning of period.............. 13,632 479
-------- --------
Cash and cash equivalents, end of period.................... $ 31,001 $ 1,842
======== ========
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest.................................... $ 7,506 $ 975
Retirement of Credit Agreement from borrowings under the
Credit Facility........................................ 88,000 --
Issuance of other notes payable in acquisitions........... 10,157 4,850
Conversion of note and subscriptions to preferred stock... -- 6,249
Property and equipment acquired under capitalized lease
obligations............................................ 609 312
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-4
<PAGE> 115
GOLDEN SKY SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
1. ORGANIZATION AND BUSINESS ACTIVITIES
Principal Business
Golden Sky Systems, Inc. ("Golden Sky" or the "Company") is a Delaware
corporation formed in June 1996 for the purpose of acquiring, owning and
operating rural direct broadcast satellite ("DBS") television markets throughout
the United States. Golden Sky is an affiliated associate member of the National
Rural Telecommunications Cooperative (the "NRTC"). The NRTC has contracted with
Hughes Communications Galaxy, Inc. ("Hughes") to provide exclusive marketing
rights for distribution of DIRECTV DBS programming services in certain U.S.
rural markets ("Rural DIRECTV Markets"). The aforementioned marketing rights
provide the owner thereof exclusive rights to distribute DIRECTV programming
services within the applicable contract area. As of September 30, 1998, the
Company had acquired the operating rights to 39 Rural DIRECTV Markets in 22
states (representing an aggregate of 1.5 million television households). As of
that same date, the Company had entered into contracts or binding letters of
intent to acquire the operating rights to an additional five Rural DIRECTV
Markets, representing an aggregate of approximately 266,000 television
households. As of September 30, 1998, Golden Sky provided DIRECTV programming
services to approximately 176,300 subscribers.
Golden Sky is a wholly-owned subsidiary of Golden Sky Holdings, Inc.
("GSH"). GSH is a Delaware corporation formed in September 1997 for the purpose
of holding all common and preferred stock of the Company. Upon formation of GSH,
all Golden Sky shareholders were issued equivalent shares of GSH's stock with
identical features to Golden Sky's common and preferred stock. GSH has no
significant operations, assets or liabilities other than its investment in
Golden Sky.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles and
with the instructions to Form 10-Q and Article 10 of Regulation S-X for interim
financial information. Accordingly, these statements do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring adjustments) considered necessary for a fair
presentation have been included. All significant intercompany accounts and
transactions have been eliminated in consolidation. Operating results for the
nine-month period ended September 30, 1998 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1998. For further
information, refer to the consolidated financial statements and footnotes
thereto included in Golden Sky's audited consolidated financial statements for
the year ended December 31, 1997.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses for each reporting
period. Actual results could differ from those estimates.
F-5
<PAGE> 116
GOLDEN SKY SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Advertising Costs
Advertising costs, which are expressed as incurred, aggregated $1.4 million
and $813,000 and $3.9 million and $675,000 during the three-month and nine-month
periods ended September 30, 1998 and 1997, respectively.
Effects of Recently Issued Accounting Pronouncements
Golden Sky adopted Statement of Financial Accounting Standards ("FAS") No.
130, "Reporting Comprehensive Income" ("FAS No. 130") during the first quarter
of 1998. FAS No. 130 established new rules for the reporting and display of
comprehensive income and its components, however it has no impact on net income
or stockholder's equity. Golden Sky has no components of comprehensive income
other than net loss and thus, adoption of FAS No. 130 had no effect on the
Company's financial statements.
In June 1998, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("FAS No. 133"). FAS No. 133 is effective for fiscal
years beginning after June 15, 1999. FAS No. 133 establishes accounting and
reporting standards for derivative instruments and for hedging activities.
Currently, Golden Sky has no derivative instruments or hedging arrangements.
Accordingly, adoption of FAS No. 133 is not expected to have a material effect
on the financial position or results of operations of the Company.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities" ("SOP 98-5"). SOP 98-5, which is effective for fiscal years
beginning after December 15, 1998, defines costs related to start-up activities
and requires that such costs be expensed as incurred. As the Company previously
has expensed all such costs, the adoption of SOP 98-5 is not expected to have a
material effect on the Company's results of operations or financial position.
3. ACQUISITIONS AND PENDING TRANSACTIONS
The Company continuously pursues opportunities to acquire additional Rural
DIRECTV Markets. During the nine-month period ended September 30, 1998, the
Company acquired the rights to 15 Rural DIRECTV Markets in 12 states (the "1998
Acquired Markets"). The 1998 Acquired Markets represent approximately 332,000
television households and served approximately 33,600 subscribers at the
respective acquisition dates. The acquisitions of the 1998 Acquired Markets were
accounted for using the purchase method. The aggregate purchase price (including
direct acquisition costs) for the 1998 Acquired Markets totaled $69.7 million
and was allocated as follows (dollars in thousands):
<TABLE>
<S> <C>
Goodwill.................................................... $63,928
Customer lists.............................................. 3,858
Non-compete agreements...................................... 1,637
Working capital, net........................................ 251
-------
$69,674
=======
</TABLE>
Subsequent to September 30, 1998, the Company acquired four additional
Rural DIRECTV Markets serving approximately 21,700 subscribers in six states.
The aggregate purchase price of these acquisitions, which represent
approximately 261,000 television households, totaled $53.8 million. Currently,
the Company has an agreement to acquire one additional Rural DIRECTV Market for
consideration of approximately $2.6 million (the "Pending Acquisition"). The
Pending Acquisition represents approximately 5,000 television households and
serves approximately 1,600 subscribers. Completion of the Pending Acquisition is
subject to certain contingencies, such as the satisfactory completion of due
diligence, and other customary conditions to
F-6
<PAGE> 117
GOLDEN SKY SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
closing, which may or may not be satisfied. There can be no assurance that the
Pending Acquisition will be consummated.
4. INTANGIBLE ASSETS
Intangible assets consist of the following (dollars in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
<S> <C> <C>
Goodwill.................................................... $185,713 $121,969
Customer lists.............................................. 13,761 9,903
Non-compete agreements...................................... 6,551 4,914
-------- --------
Total intangible assets..................................... 206,025 136,786
Accumulated amortization.................................... (21,238) (6,890)
-------- --------
Intangible assets, net.................................... $184,787 $129,896
======== ========
</TABLE>
5. SENIOR NOTES
On July 31, 1998, the Company consummated an offering (the "Senior Notes
Offering") of 12 3/8% Senior Subordinated Notes due 2006 (the "Senior Notes").
Interest on the Senior Notes is payable in cash semi-annually in arrears on
February 1 and August 1 of each year, with the first interest payment due
February 1, 1999. The Senior Notes mature on August 1, 2006. The Senior Notes
Offering resulted in net proceeds to the Company of approximately $189.2 million
(after payment of underwriting discounts and other issuance costs aggregating
approximately $5.8 million). Approximately $45.2 million of the net proceeds of
the Senior Notes Offering were placed in escrow to fund the first four
semi-annual interest payments (through August 1, 2000) on the Senior Notes. As
of September 30, 1998, approximately $118.0 million of the remaining net
proceeds had been utilized ($83.3 million for the retirement of existing
indebtedness and related accrued interest, $15.0 million in acquisitions, $14.4
million for working capital purposes, and as further described below -- see Note
6, $5.3 million was placed in escrow to cover a portion of the contingent
reduction of the Company's availability under the Credit Facility (as defined)).
The Senior Notes were issued in a private placement pursuant to Rule 144A
of the Securities Act of 1933, as amended (the "Securities Act"). The Company is
in the process of registering the exchange of the privately issued notes for
publicly registered notes with substantially identical terms (including
principal amount, interest rate, maturity, security and ranking). The Senior
Notes are unsecured senior subordinated obligations of the Company and are
subordinated in right of payment to all existing and future senior indebtedness.
The Senior Notes rank pari passu in right of payment with all other existing and
future senior subordinated indebtedness, if any, of the Company and senior in
right of payment to all existing and future subordinated indebtedness, if any,
of the Company.
The Senior Notes are redeemable, in whole or in part, at the option of the
Company on or after August 1, 2003, at redemption prices decreasing from 112%
during the year commencing August 1, 2003 to 108% on or after August 1, 2005,
plus accrued and unpaid interest, if any, to the date of redemption. In
addition, on or prior to August 1, 2001, the Company may, at its option, redeem
up to 35% of the originally issued aggregate principal amount of Notes, at a
redemption price equal to 112.375% of the principal amount thereof, plus accrued
and unpaid interest thereon, if any, to the date of redemption solely with the
net proceeds of a public equity offering of the Company or GSH yielding gross
proceeds of at least $40.0 million and any subsequent public equity offerings
(provided that, in the case of any such offering or offerings by GSH, all the
net proceeds thereof are contributed to the Company); provided, further that
immediately after any such redemption the aggregate principal amount of Notes
outstanding must equal at least 65% of the originally issued aggregate principal
amount of Notes.
F-7
<PAGE> 118
GOLDEN SKY SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The indenture related to the Senior Notes (the "Senior Notes Indenture")
contains restrictive covenants that, among other things, impose limitations on
the ability of the Company to incur additional indebtedness, pay dividends or
make certain other restricted payments, consummate certain asset sales, enter
into certain transactions with affiliates, incur indebtedness that is
subordinate in right of payment to any senior indebtedness and senior in right
of payment to the Senior Notes, incur liens, permit restrictions on the ability
of subsidiaries to pay dividends or make certain payments to the Company, merge
or consolidate with any other person or sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of the assets of the Company. In
the event of a change of control, as defined in the Senior Notes Indenture, each
holder of Senior Notes will have the right to require the Company to purchase
all or a portion of such holder's Senior Notes at a price equal to 101% of the
principal amount thereof, plus accrued and unpaid interest, if any, to the date
of purchase.
6. CREDIT FACILITY
During May 1998, the Company entered into a seven-year, $150.0 million
amended credit facility (the "Credit Facility") with a syndicate of lenders. The
Credit Facility provides for a term loan commitment of $35.0 million and a
revolving loan commitment of $115.0 million. Borrowings under the Credit
Facility bear interest at variable rates (approximately 9% at September 30,
1998) calculated on a base rate, such as the prime rate or LIBOR, plus an
applicable margin. As of September 30, 1998, no borrowings were outstanding
under the Credit Facility's revolving loan commitment. As of that same date,
outstanding borrowings under the Credit Facility's term loan commitment totaled
$35.0 million.
The Credit Facility provides the lenders with the right to reduce the
aggregate term loan and revolving loan commitments by 50% of the amount by which
the "aggregate principal amount" of senior subordinated debt issued by the
Company exceeds $150.0 million. As previously described, the Senior Notes
Offering resulted in net proceeds to the Company of approximately $144.0 million
(after consideration of the proceeds placed in the interest escrow account). If
the relevant provision of the Credit Agreement is interpreted to apply to the
net proceeds of the Senior Notes Offering, the lenders would have no right to
reduce their commitments; if the provision is interpreted to apply to the gross
proceeds of the Senior Notes Offering, the lenders would have such a right. In
an attempt to clarify the application of this provision, the Company has
requested a waiver from the lenders of their possible technical right to effect
a reduction in the total commitment amount of the Credit Facility. In the event
this waiver request is not granted by the lenders, the Credit Facility's
aggregate term loan and revolving loan commitments could be reduced by $22.5
million. Similarly, the aggregate amount of indebtedness permitted by the Senior
Notes Indenture would be reduced by a like amount. Any such reductions in the
Company's Credit Facility and maximum permitted indebtedness could adversely
affect its ability to finance potential future acquisitions of Rural DIRECTV
Markets and its operations. As a result, the Company may be required to obtain
additional equity or other financing. There can be no assurance that such equity
or other financing would be available on terms acceptable to the Company, or if
available, that the proceeds of such financing would be sufficient to enable the
Company to completely execute its business plan.
7. RECLASSIFICATIONS TO THE STATEMENTS OF OPERATIONS
Golden Sky subsidizes the cost to the consumer of DBS set-top boxes,
antennae and related equipment ("DBS Equipment") required to receive DIRECTV
programming services. Additionally, Golden Sky subsidizes the cost to the
consumer of installation of DBS Equipment. Net transaction costs associated with
the sale and installation of DBS equipment are expensed as incurred and reported
as a component of sales and marketing expenses in the accompanying statements of
operations. Previously, Golden Sky reflected revenues from equipment and
installation sales and related costs (to the extent of sales) as separate
components in its statements of operations. Certain other prior quarter and year
amounts have been reclassified to conform with the current period presentation.
The following reflects the Company's statements of operations for the
F-8
<PAGE> 119
GOLDEN SKY SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
quarterly periods ended March 31, 1998 and June 30, 1998, and for the six months
ended June 30, 1998, as revised to reflect the reclassifications described above
(dollars in thousands).
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------ SIX MONTHS ENDED
MARCH 31, 1998 JUNE 30, 1998 JUNE 30, 1998
-------------- ------------- ----------------
<S> <C> <C> <C>
Revenue:
DBS services.................................... $13,884 $ 16,582 $ 30,466
Lease and other................................. 245 267 512
------- -------- --------
Total revenue..................................... 14,129 16,849 30,978
Costs and Expenses:
Cost of DBS services............................ 8,250 9,676 17,926
System operations............................... 1,787 2,390 4,177
Sales and marketing............................. 4,670 6,617 11,287
General and administrative...................... 1,108 1,567 2,675
Depreciation and amortization................... 4,348 5,405 9,753
------- -------- --------
Total costs and expenses.......................... 20,163 25,655 45,818
Operating loss.................................... (6,034) (8,806) (14,840)
Non-operating items:
Interest and investment income.................. 28 1 29
Interest expense................................ (2,281) (2,956) (5,237)
------- -------- --------
Total non-operating items......................... (2,253) (2,955) (5,208)
------- -------- --------
Net loss before income taxes...................... (8,287) (11,761) (20,048)
Income taxes...................................... -- -- --
------- -------- --------
Net loss before extraordinary charge.............. (8,287) (11,761) (20,048)
Extraordinary charge on early retirement of
debt............................................ -- (2,577) (2,577)
------- -------- --------
Net loss.......................................... $(8,287) $(14,338) $(22,625)
======= ======== ========
</TABLE>
8. COMMITMENTS AND CONTINGENCIES
In November 1998 and 1999, certain meteoroid events will occur as the
earth's orbit passes through the particulate trail of Comet 55P (Tempel-Tuttle).
These meteoroid events pose a potential threat to all in-orbit geosynchronous
satellites, including DBS satellites. The Company is unable to determine the
impact, if any, these meteoroid events could have on the DBS satellites used by
Hughes for distribution of DIRECTV programming services. In the event the Hughes
DBS satellites were adversely affected by these meteoroid or other events, the
Company's business and results of operations could be adversely impacted.
F-9
<PAGE> 120
INDEPENDENT AUDITORS' REPORT
Board of Directors and Investors
Golden Sky Systems, Inc.:
We have audited the accompanying consolidated balance sheets of Golden Sky
Systems, Inc. as of December 31, 1997 and 1996 and the related consolidated
statements of operations, stockholder's equity (deficit) and cash flows for the
year ended December 31, 1997 and for the period from inception (June 25, 1996)
through December 31, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Golden Sky
Systems, Inc. as of December 31, 1997 and 1996 and the results of their
operations and their cash flows for the year ended December 31, 1997 and for the
period from inception (June 25, 1996) through December 31, 1996, in conformity
with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
April 24, 1998
Kansas City, Missouri
F-10
<PAGE> 121
GOLDEN SKY SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
1997 1996
-------- -------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 13,632 $ 479
Subscriber receivables (note 2)........................... 3,843 149
Other receivables......................................... 335 123
Earnest deposits.......................................... -- 320
Inventory................................................. 2,174 31
Prepaid expenses.......................................... 127 --
-------- -------
Total current assets.............................. 20,111 1,102
Equipment leased to customers (net of accumulated
depreciation of $612 and $9) (note 5)..................... 909 103
Furniture, fixtures and equipment (net of accumulated
depreciation of $449 and $7).............................. 2,027 90
Goodwill and other intangible assets (net of accumulated
amortization of $6,890 and $81) (notes 3 and 4)........... 129,896 5,071
Deferred financing costs (net of accumulated amortization of
$215)..................................................... 3,106 --
Other assets................................................ 187 17
-------- -------
Total assets...................................... $156,236 $ 6,383
======== =======
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Liabilities:
Current liabilities:
Current maturities of long-term debt and notes payable
(notes 3 and 7)....................................... $ 2,361 $ 2,450
Trade accounts payable................................. 8,471 372
Payable to Parent (note 8)............................. 586 --
Unearned revenue....................................... 2,630 136
Interest payable....................................... 786 53
Current maturities of obligations under capital leases
(note 6).............................................. 177 --
Accrued payroll and other liabilities.................. 1,273 39
-------- -------
Total current liabilities......................... 16,284 3,050
Minority interest in consolidated partnerships (note 3)... 2,928 --
Long-term debt and notes payable, less current maturities
(notes 3 and 7)........................................ 66,283 2,000
Obligations under capital leases, less current maturities
(note 6)............................................... 292 --
-------- -------
Total liabilities................................. 85,787 5,050
-------- -------
Commitments and contingencies (note 11)..................... -- --
Investors' subscription to purchase Series A convertible
participating redeemable preferred stock.................. -- 2,499
Stockholder's equity (deficit)
Common stock, par value $.01; 1,000 shares authorized,
issued and outstanding................................. -- --
Additional paid-in capital................................ 87,400 1
Accumulated deficit....................................... (16,951) (1,167)
-------- -------
Total stockholder's equity (deficit).............. 70,449 (1,166)
-------- -------
Total liabilities and stockholder's equity
(deficit)........................................ $156,236 $ 6,383
======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-11
<PAGE> 122
GOLDEN SKY SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR END DECEMBER 31, 1997 AND FOR THE PERIOD FROM
INCEPTION (JUNE 25, 1996) THROUGH DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
-------- -------
<S> <C> <C>
Revenue:
DBS services.............................................. $ 16,452 $ 219
Lease and other........................................... 944 36
-------- -------
Total revenue..................................... 17,396 255
-------- -------
Costs and Expenses:
Cost of DBS services...................................... 9,304 130
System operations......................................... 3,796 26
Sales and marketing....................................... 7,316 73
General and administrative................................ 2,331 1,035
Depreciation and amortization............................. 7,300 97
-------- -------
Total costs and expenses.......................... 30,047 1,361
-------- -------
Operating loss............................................ (12,651) (1,106)
-------- -------
Nonoperating items:
Interest and investment income............................ 40 1
Interest expense.......................................... (3,173) (62)
-------- -------
Total non-operating items......................... (3,133) (61)
-------- -------
Net loss before income taxes...................... (15,784) (1,167)
Income taxes (note 10)...................................... -- --
-------- -------
Net loss.......................................... $(15,784) $(1,167)
======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-12
<PAGE> 123
GOLDEN SKY SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT)
YEAR END DECEMBER 31, 1997 AND FOR THE PERIOD FROM
INCEPTION (JUNE 25, 1996) THROUGH DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN ACCUMULATED
STOCK CAPITAL DEFICIT TOTAL
------- ---------- ----------- --------
<S> <C> <C> <C> <C>
Balance at inception (June 25, 1996)................... $ -- $ -- $ -- $ --
Issuance of 1,000 shares of common stock............. -- 1 -- 1
Net loss............................................. -- -- (1,167) (1,167)
------- ------- -------- --------
Balance at December 31, 1996........................... -- 1 (1,167) (1,166)
Cancellation of originally issued common stock (note
9)................................................ -- (1) -- (1)
Issuance of 1,000 shares of new common stock (note
9)................................................ -- -- -- --
Contribution from Parent (note 9).................... -- 87,400 -- 87,400
Net loss............................................. -- -- (15,784) (15,784)
------- ------- -------- --------
Balance at December 31, 1997........................... $ -- $87,400 $(16,951) $ 70,449
======= ======= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-13
<PAGE> 124
GOLDEN SKY SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR END DECEMBER 31, 1997 AND FOR THE PERIOD FROM
INCEPTION (JUNE 25, 1996) THROUGH DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
--------- -------
<S> <C> <C>
Operating activities:
Net loss.................................................. $ (15,784) $(1,167)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization.......................... 7,300 97
Amortization of deferred financing costs............... 215 --
Change in operating assets and liabilities, net of
acquisitions:
Subscriber receivables, net of unearned revenue...... (2,501) (13)
Other receivables.................................... (161) (123)
Inventory............................................ (1,604) (31)
Prepaid expenses and other assets.................... (203) (17)
Payable to Parent.................................... 586 --
Trade accounts payable............................... 7,515 372
Interest payable..................................... 733 53
Accrued payroll and other liabilities................ 744 39
--------- -------
Net cash used in operating activities............. (3,160) (790)
--------- -------
Investing activities:
Acquisitions of rural direct broadcast satellite (DBS)
territories............................................ (120,051) (2,806)
Purchases of furniture, fixtures and equipment............ (998) (105)
Deposits.................................................. 320 (320)
--------- -------
Net cash used in investing activities............. (120,729) (3,231)
--------- -------
Financing activities:
Principal payments on notes payable....................... (17,818) (396)
Proceeds from issuance of notes payable................... 77,116 2,396
Financing costs........................................... (3,321) --
Proceeds from Investors' subscriptions to purchase
cumulative participating preferred stock............... -- 2,499
Proceeds from issuance of cumulative participating
preferred stock........................................ 35,550 --
Cash contributions from Parent............................ 45,600 --
Proceeds from issuance of common stock.................... -- 1
Principal payments on obligations under capital leases.... (85) --
--------- -------
Net cash provided by financing activities......... 137,042 4,500
--------- -------
Net increase in cash and cash equivalents......... 13,153 479
Cash and cash equivalents, beginning of period.............. 479 --
--------- -------
Cash and cash equivalents, end of period.................... $ 13,632 $ 479
========= =======
Supplemental disclosure of cash flow information:
Cash paid for interest.................................... $ 2,225 $ 9
========= =======
Supplemental disclosure of noncash investing and financing
activities:
Issuance of notes payable to seller for acquisitions of
rural DBS territories (note 7)......................... $ 8,600 $ 2,450
Conversion of notes payable and subscriptions to preferred
stock (note 7)......................................... $ 6,250 $ --
Capital lease obligations (note 6)........................ $ 554 $ --
</TABLE>
See accompanying notes to consolidated financial statements.
F-14
<PAGE> 125
GOLDEN SKY SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Nature of Operations
Golden Sky Systems, Inc. (GSS) is a Delaware corporation formed on June 25,
1996 for the purpose of acquiring, owning and operating rural direct broadcast
satellite (DBS) television territories throughout the United States. GSS is an
affiliated associate member of the National Rural Telecommunications Cooperative
(NRTC). The NRTC has contracted with Hughes Communications Galaxy, Inc. (Hughes)
to provide exclusive marketing rights for distribution of DirecTV satellite
television programming in rural territories of the United States. The marketing
rights give the owner exclusive rights to distribute DirecTV service within the
contract area. In 1994, Hughes launched the satellites that provide programming
for DirecTV. At December 31, 1997, GSS had the operating rights for certain
territories in sixteen states.
GSS is a wholly owned subsidiary of Golden Sky Holdings, Inc. (the Parent).
The Parent is a Delaware corporation formed on September 9, 1997 for the purpose
of holding all the common and preferred stock of GSS. Upon the formation of the
Parent, all the shareholders of the outstanding common and preferred stock of
GSS were issued equivalent shares of the Parent's stock with identical features
to GSS's common and preferred stock. The Parent has no significant assets or
liabilities other than its investment in GSS and intercompany accounts with GSS.
Principles of Consolidation
The 1997 consolidated financial statements include the accounts of GSS and
its affiliates (the Company). Affiliates include Argos (a wholly-owned
subsidiary of GSS) and two partnerships in which GSS has a controlling interest.
Significant intercompany transactions and balances have been eliminated.
Minority interest in consolidated partnerships represents the cumulative
earnings and losses, after capital contributions, attributable to minority
partners.
Revenue Recognition
Programming revenue is recognized in the month the service is provided to
the subscriber. Unearned revenue represents subscriber advance billings for one
or more months and is deferred until the service is provided.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments with original
maturities of three months or less to be cash equivalents. At December 31, 1997
and 1996, cash and cash equivalents include cash on hand, demand deposits and
money market accounts.
Inventory
Inventory is stated at the lower of cost (first-in, first-out) or market
and consists of receivers, satellite dishes and accessories ("DBS Equipment").
GSS subsidizes the cost to the consumer of such equipment, which is required to
receive DIRECTV programming services. Additionally, GSS subsidizes the cost to
the consumer of installation of DBS Equipment. Equipment and installation
revenues, and related expenses, are recognized upon delivery and installation of
DBS Equipment. Net transaction costs associated with the sale and installation
of DBS Equipment are reported as a component of sales and marketing expenses in
the accompanying statements of operations.
Earnest Deposits
Earnest deposits include amounts deposited in good faith for the purchase
of new DBS territories (note 3).
F-15
<PAGE> 126
GOLDEN SKY SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make a number of
estimates and assumptions which affect the reported amounts of assets and
liabilities, as well as the reported amounts of revenue and expenses during the
period. Actual results could differ from these estimates.
Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
Cash and cash equivalents and earnest deposits -- The carrying amounts
approximate fair value because of the short maturity of those instruments.
Receivables and payables -- These assets are carried at cost, which
approximates fair value, as a result of the short-term nature of the
instruments.
Long-term debt and notes payable -- The carrying value of these
financial instruments approximates fair value as interest rates are
variable or approximate market rates.
Long-lived Assets
Long-lived assets and certain identifiable intangibles held and used by the
Company are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets is measured by a comparison of the carrying amount of
an asset to future net cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceed the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell.
Goodwill
Goodwill, which represents the excess of purchase price over fair value of
net assets acquired, is amortized on a straight-line basis over the expected
periods to be benefited, generally eleven to twelve years. The Company assesses
the recoverability of intangible assets by determining whether the amortization
of the goodwill balances over their remaining lives can be recovered through
undiscounted future operating cash flows of the acquired operations. The amount
of goodwill impairment, if any, is measured based on projected discounted future
operating cash flows using a discount rate reflecting the Company's average cost
of funds.
Furniture, Fixtures and Equipment
Furniture, fixtures and equipment, consisting primarily of computer and
office equipment, is recorded at cost. Depreciation is over the estimated useful
lives which range from two to five years. Included in furniture, fixtures and
equipment at December 31, 1997 is $311,000 of unamortized computer software
costs.
Advertising Costs
Advertising costs, which are expensed as incurred, aggregated $1,440,000
and $33,000, respectively, for the periods ended December 31, 1997 and 1996.
F-16
<PAGE> 127
GOLDEN SKY SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Systems Operations Expense
Systems Operations expense includes payroll and other administrative costs
related to the Company's regional offices.
Revenue Rights
Prior to its acquisition, Argos sold revenue rights to investors. These
rights entitle investors to receive a percentage of any positive net programming
revenue less certain identified costs and administrative expenses from certain
territories. These rights are reported as a component of accrued payroll and
other liabilities in the accompanying consolidated financial statements. In
connection with the acquisition of Argos by GSS, Argos purchased a portion of
the outstanding revenue rights and has outstanding offers to purchase the
remaining rights for $582,000. Ultimate amounts paid, if any, could exceed this
amount.
Income Taxes
GSS elected to be taxed as an S Corporation for federal income tax purposes
in 1996. As an S Corporation, GSS was generally not directly subject to income
taxation. On February 12, 1997, GSS terminated its S Corporation status, and
will thereafter be subject to income taxation as a C Corporation under
Subchapter "C" of the Internal Revenue Code. Upon formation, the Parent elected
to be taxed as a C Corporation for federal income tax purposes. Pro forma income
taxes have not been presented because the Company has incurred operating losses
in all periods.
(2) SUBSCRIBER RECEIVABLES
Subscriber receivables consist primarily of amounts due from subscribers
for monthly programming fees and for receivables related to acquisitions.
Accounts receivable as of December 31, 1997 and 1996 are as follows (dollars in
thousands):
<TABLE>
<CAPTION>
1997 1996
------ ----
<S> <C> <C>
Accounts receivable:
Programming............................................... $3,934 $153
Equipment receivables..................................... 47 --
Allowances for doubtful accounts.......................... (138) (4)
------ ----
$3,843 $149
====== ====
</TABLE>
(3) ACQUISITIONS
Since inception, the Company has acquired the DirecTV distribution rights
and related assets from independent providers as follows:
- A territory in Tennessee was acquired on November 15, 1996. A portion of
the purchase price was paid in the form of a $650,000 note payable to the
seller.
- A territory in Tennessee was acquired on November 22, 1996. A portion of
the purchase price was paid in the form of a $1,800,000 note payable to
the seller.
- Territories in Kansas and Oklahoma were acquired on February 12, 1997.
- A territory in Texas was acquired on February 28, 1997.
- A territory in Missouri was acquired on March 11, 1997.
- A territory in Texas was acquired on April 11, 1997.
F-17
<PAGE> 128
GOLDEN SKY SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
- A territory in Colorado was acquired on May 1, 1997. As a portion of the
purchase price, the Company has a $2,350,000 note payable to the seller.
- A territory in Nevada was acquired on June 12, 1997. As a portion of the
purchase price, the Company has a $2,500,000 note payable to the seller.
- A territory in Texas was acquired on July 8, 1997.
- Territories in Minnesota and Michigan were acquired on July 14, 1997.
- A territory in Minnesota was acquired on July 15, 1997.
- Territories in Texas, Utah and Florida were acquired on August 8, 1997.
- A territory in Texas was acquired on August 26, 1997.
- A territory in Minnesota was acquired on September 2, 1997.
- A territory in Iowa was acquired on October 1, 1997.
- Territories in Iowa and Michigan were acquired on October 31, 1997.
- A territory in North Dakota was acquired on November 21, 1997.
- Territories in California and Oregon were acquired on December 9, 1997.
- A territory in Montana was acquired on December 17, 1997.
- A territory in Montana was acquired on December 22, 1997. As a portion of
the purchase price, the Company has a $3,750,000 note payable to the
seller.
- A territory in Oklahoma was acquired on December 24, 1997.
The Company accounts for its acquisitions under the purchase method. The
results of operations of the acquired territories have been included in the
consolidated financial statements since the dates of acquisition. Also in 1997,
the Company acquired controlling equity interests in two partnerships which own
and operate DBS territories in Wisconsin and Texas. The Company has recorded
minority interest obligations relating to these partnerships of $2,928,000 at
December 31, 1997, which represents the equity interest of minority partners.
The aggregate of the purchase prices, including direct costs, of the above
transactions was $129,725,000 and $5,256,000 for the periods ended December 31,
1997 and 1996, respectively. These amounts have been allocated based on the
estimated fair values of assets and liabilities acquired as follows (dollars in
thousands):
<TABLE>
<CAPTION>
1997 1996
-------- ------
<S> <C> <C>
Working capital, net........................................ $ (20) $ (31)
Investment in leases........................................ 1,400 112
Property and equipment...................................... 553 23
Minority interest........................................... (2,931) --
Noncompete agreements....................................... 4,879 35
Customer lists.............................................. 9,450 453
Goodwill.................................................... 116,394 4,664
-------- ------
$129,725 $5,256
======== ======
</TABLE>
F-18
<PAGE> 129
GOLDEN SKY SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table reflects unaudited pro forma results of operations of
the Company as if the acquisitions had taken place on June 25, 1996 (inception
date) (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Revenue..................................................... $ 39,937 $ 16,557
Net loss.................................................... $(26,654) $(13,291)
</TABLE>
In management's opinion, the unaudited pro forma results of operations are
not necessarily indicative of the actual results that would have occurred had
the acquisitions been consummated on June 25, 1996 or of future operations of
the Company.
In connection with the acquisitions noted above, the Company purchased
approximately 69,000 subscribers. Subscriber activity for the year ended
December 31, 1997 and the period from inception (June 25, 1996) through December
31, 1996 was as follows:
<TABLE>
<CAPTION>
1997 1996
------ -----
<S> <C> <C>
Gross subscribers, beginning of period...................... 3,204 --
Subscribers acquired in acquisition of territories.......... 65,706 2,975
New subscribers enrolled in existing territories............ 22,014 229
------ -----
Gross subscribers, end of period............................ 90,924 3,204
Less subscribers allocated to minority interest partners.... (3,792) --
------ -----
Net subscribers, end of period.............................. 87,132 3,204
====== =====
</TABLE>
From January 1, 1998 through April 24, 1998, the Company acquired seven
additional territories in Montana, Iowa, North Dakota, Oregon and Colorado. The
total cost of these DBS territories approximates $30,928,000. These acquisitions
were accounted for as purchases and resulted in goodwill and other intangibles
of approximately $31,088,000.
(4) GOODWILL AND OTHER INTANGIBLE ASSETS
Intangible assets which are amortized using the straight-line method over
the estimated useful lives consist of the following (dollars in thousands):
<TABLE>
<CAPTION>
ESTIMATED
1997 1996 USEFUL LIFE
-------- ------ -----------
<S> <C> <C> <C>
Goodwill............................................. $121,969 $4,664 11-12 years
Customer lists....................................... 9,903 453 5 years
Noncompete agreements................................ 4,914 35 3 years
Less: accumulated amortization....................... (6,890) (81)
-------- ------
$129,896 $5,071
======== ======
</TABLE>
(5) LEASING ARRANGEMENTS FOR SUBSCRIBER EQUIPMENT
In addition to selling satellite television equipment, the Company leases
equipment to customers. The majority of these leases are at fixed monthly rental
charges. The leases are either short-term in nature or are month-to-month leases
without a minimum lease term in which the customer may return the equipment at
any time. The leases are accounted for as operating leases and the equipment is
depreciated over a two-year period.
F-19
<PAGE> 130
GOLDEN SKY SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(6) OBLIGATIONS UNDER CAPITAL LEASES
In 1997, the Company entered into various noncancelable long-term leases
for automobiles, as well as telephone, computer and office equipment. These
leases are accounted for as capital leases and are included as part of
furniture, fixtures and equipment at December 31, 1997. Assets under capital
lease are as follows at December 31, 1997 (dollars in thousands):
<TABLE>
<S> <C>
Capital lease assets, at cost............................... $554
Less accumulated depreciation............................... (57)
----
Net capital lease asset..................................... $497
====
</TABLE>
At December 31, 1997, future minimum lease payments due under capital
leases are as follows (dollars in thousands):
<TABLE>
<S> <C>
1998........................................................ $ 270
1999........................................................ 231
2000........................................................ 120
-----
Total minimum lease payments...................... 621
Less executory costs........................................ (6)
Less amounts representing interest (at rates ranging from 5%
to 33%)................................................... (146)
Present value of net minimum lease payments................. 469
Less current maturities..................................... (177)
-----
Long-term obligations under capital leases........ $ 292
=====
</TABLE>
(7) LONG-TERM DEBT AND NOTES PAYABLE
Long-term debt and notes payable consist of the following at December 31,
1997 and 1996 (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Credit agreement -- term loans.............................. $36,000 $ --
Credit agreement -- revolving loans......................... 24,000 --
Seller notes payable........................................ 8,600 2,450
Miscellaneous notes payable on equipment.................... 44 --
Promissory note............................................. -- 2,000
------- -------
68,644 4,450
Less current maturities................................... (2,361) (2,450)
------- -------
Long-term debt and notes payable.................. $66,283 $ 2,000
======= =======
</TABLE>
The Company has a credit agreement (the Credit Agreement) with a group of
financial institutions which provides for borrowings of $100,000,000 consisting
of (i) a $36,000,000 term loan and (ii) a revolving credit facility with a
maximum commitment of $64,000,000. The loans outstanding under the Credit
Agreement can be designated, at the Company's option, as base rate loans or
eurodollar loans, and bear interest at a variable rate which is calculated on a
base rate, such as the prime rate or LIBOR, plus an applicable margin. At
December 31, 1997, the effective rates on these loans ranged from 9% to 11%.
The Credit Agreement has a maximum borrowing base which is computed based
on the number of active subscribers at any given time. At December 31, 1997, the
Company had approximately $25,000,000 in available credit which is net of
standby letters of credit of approximately $1,800,000 securing payment of
F-20
<PAGE> 131
GOLDEN SKY SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
wholesale programming costs. In anticipation of closing on three acquisitions in
January 1998, the Company borrowed $12,000,000 on December 29, 1997 under the
Credit Agreement, which is included in cash and cash equivalents at year-end.
The Credit Agreement requires a commitment fee of 1/2 of 1% per annum on the
available balance. In 1997, the Company incurred commitment fees of
approximately $117,000.
At December 31, 1997, the Company is not in compliance with a number of
financial covenants contained in the Credit Agreement. However, the Company has
obtained a waiver of these covenants through April 30, and expects to have a new
$150,000,000 credit agreement in place in early May 1998.
Scheduled maturities of the term loan are as follows: $3,600,000 in 2001,
$7,200,000 in 2002, $10,800,000 in 2003 and $14,400,000 in 2004. Availability
under the revolving credit facility reduces each quarter beginning in 1999 to
meet the following maximum commitments at December 31 of each year; $60,800,000
in 1999, $48,000,000 in 2000, $33,600,000 in 2001, $17,600,000 in 2002 and $0 by
June 30, 2003.
On November 19, 1996, the Company issued $2,000,000 in promissory notes to
a group of lenders under a Bridge Agreement. The notes had an interest rate of
10% and a maturity date of February 28, 1997. On February 12, 1997, these notes,
along with $1,750,000 in additional promissory notes issued on January 15, 1997,
were exchanged for Series A Convertible Participating Preferred Stock.
Under the Bridge Agreement, the Company issued warrants which are
exercisable for 5,682 shares of the Company's common stock at $.01 per share.
These warrants are immediately exercisable and have an expiration date of
February 12, 2007. At the date of issuance, the fair value of the warrants was
immaterial.
On November 6, 1997, in anticipation of the issuance of Series B
Convertible Participating Preferred Stock described in note 9, the Company
issued $10,000,000 in convertible promissory notes which had an interest rate of
14.5% and a maturity date of December 15, 1997. On November 24, 1997, these
notes, along with accrued interest of $73,000 and additional cash proceeds from
investors of $35,615,000, were converted into 228,442 shares of Series B
Convertible Participating Preferred Stock.
As described in note 3, the Company issued $2,450,000 10% seller notes in
connection with the 1996 acquisitions. These notes were paid in full in January
1997. The Company also issued three seller notes related to the 1997
acquisitions totaling $8,600,000. One of the notes is collateralized by an
outstanding letter of credit in the amount of $3,750,000. These notes bear
interest ranging from 7% to 15% and mature as follows: $2,350,000 in 1998,
$2,500,000 in 1999 and $3,750,000 in 2002.
Scheduled maturities of notes payable and long-term debt are as follows
(dollars in thousands):
<TABLE>
<S> <C>
1998........................................................ $ 2,361
1999........................................................ 3,348
2000........................................................ 917
2001........................................................ 4,581
2002........................................................ 14,637
Thereafter.................................................. 42,800
-------
Total debt........................................ $68,644
=======
</TABLE>
(8) RELATED PARTY TRANSACTIONS
The payable to Parent represents amounts due to the Parent for temporary
cash advancements.
Effective July 1, 1996, the Company entered into a management agreement
with Cable-Video Management, Inc. (CVM), which is owned by the Company's
president, to administrate the Company's initial acquisition. The agreement was
terminated effective September 30, 1996. In 1996, total management fees of
$280,000 were paid to CVM and are included in corporate expenses in the
accompanying consolidated
F-21
<PAGE> 132
GOLDEN SKY SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
statements of operations. Additionally, the Company reimbursed CVM for salaries
and other miscellaneous expenses in the amount of $343,000 in 1996. Subsequent
to the initial acquisition, the Company purchased the assets of CVM for $44,000,
which approximated book value.
The Company utilizes the air transportation services of a company which is
owned by the Company's president. The Company incurred costs of $109,000 in 1997
and $31,000 in 1996 associated with these services. In October 1997, the Company
entered into an agreement to lease an aircraft from the Company's president. The
lease is cancelable with six months notice and requires monthly payments equal
to the greater of $15,000 or a fixed hourly operating charge which is based on
prevailing market prices.
In 1997, the Company received a $150,000 short-term loan from the Company's
president bearing interest at 10%. The Company also received from a shareholder
a $215,000 short-term loan bearing interest at 10%. In 1996, the Company's
president provided a short-term loan for $381,000, bearing interest at 10%.
Prior to December 31, 1997, all of the above loans were repaid according to
their terms.
In 1997, the Company paid $66,000 to a company affiliated with the
president of the Company. This payment represented reimbursement of salary costs
for a consultant utilized by the Company.
A director of the Company, other than the president, provides consulting
services to the Company and was paid $77,000 in 1997 and $5,000 in 1996 for
these services.
(9) COMMON STOCK AND ADDITIONAL PAID-IN CAPITAL
During 1996, the Company issued 1,000 shares, par value $.01, for $1 per
share of common stock. In February 1997, the Company amended its certificate of
incorporation to cancel the original outstanding shares of common stock and
created new classes of common and preferred stock. The holder of the outstanding
shares of original common stock received ten shares of a Series A Convertible
Participating Preferred Stock (Series A CPPS).
During 1997, the Company issued a total of 418,000 shares of Series A CPPS
for $100 each. Upon the formation of the Parent in September 1997, all the
shareholders of the outstanding common stock and Series A CPPS of GSS were
issued equivalent shares of the Parent's stock with identical features to GSS's
common and preferred stock. In addition, in November 1997 the Parent issued
$45.6 million in Series B Convertible Participating Preferred Stock and remitted
the proceeds to the Company for the purpose of acquiring additional DBS
territories. These transactions are reflected as contributions of capital from
the Parent.
(10) INCOME TAXES
During the year ended December 31, 1997, the Company generated a net
operating loss for federal income tax purposes of approximately $12,182,000,
which is available to offset future taxable income through 2012.
F-22
<PAGE> 133
GOLDEN SKY SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Actual income tax expense (benefit) differs from expected expense (benefit)
computed by applying the statutory federal rate of 34% to pretax income for the
following reasons (dollars in thousands):
<TABLE>
<CAPTION>
PERIOD
ENDING
DECEMBER 31,
1997
-------------
<S> <C>
Computed expected expense (benefit)......................... $(4,868)
Amortization of goodwill.................................. 292
Other..................................................... 12
Valuation allowance....................................... 4,564
-------
Actual income taxes............................... $ --
=======
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1997 are presented below (dollars in thousands):
<TABLE>
<S> <C>
Deferred income tax assets:
Allowance for doubtful accounts........................... $ 52
Purchased intangibles..................................... 500
Other intangibles......................................... 205
Property, plant and equipment............................. 7
Net operating losses...................................... 5,254
-------
Total gross deferred tax assets................... 6,018
Valuation allowance......................................... (6,018)
-------
Net deferred tax assets........................... $ --
=======
</TABLE>
As a result of the purchase of Argos and the incorporation of the Parent,
the Company will file a consolidated federal income tax return for the taxable
period ended December 31, 1997. Prior to its acquisition, Argos filed a separate
corporate income tax return. During this period, Argos had cumulative federal
net operating losses of approximately $1,208,000 and $1,514,000 as of December
31, 1996 and August 8, 1997 (date of acquisition), respectively. These net
operating losses (which begin to expire in 2008) will be limited in their usage
to approximately $1,000,000 annually and will only be available to offset any
future taxable income of Argos.
(11) COMMITMENTS AND CONTINGENCIES
The Company has noncancelable operating leases for office space which
expire at various dates. Minimum lease payments are as follows (dollars in
thousands):
<TABLE>
<S> <C>
1998........................................................ $ 984
1999........................................................ 911
2000........................................................ 733
2001........................................................ 386
2002........................................................ 263
------
Total............................................. $3,277
======
</TABLE>
As described in note 1, at December 31, 1997, the Company has outstanding
offers to acquire revenue rights for $582,000.
F-23
<PAGE> 134
GOLDEN SKY SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(12) EMPLOYEE STOCK OPTIONS
Under the Golden Sky Systems, Inc. Stock Option and Restricted Stock
Purchase Plan (the Plan), certain employees, officers and directors of the
Company have been granted options to buy shares of Company stock at the
estimated market value of the stock on the date of grant, $1. The options are
exercisable during a period of up to ten years after grant. The stock options
granted under the Plan vest in three years.
Financial Accounting Standards Board issued Statement No. 123, "Accounting
for Stock-Based Compensation" (SFAS 123) which defines the "fair value method"
of accounting for employee stock options. It also allows accounting for such
options under the "intrinsic value method" in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB
25) and related interpretations. If a company elects to use the intrinsic value
method, pro forma disclosures of earnings and earnings per share are required as
if the fair value method of accounting was applied.
The Company has elected to account for stock options under the intrinsic
value method. The fair value method requires use of the Black-Scholes option
valuation model to value employee stock options. The Black-Scholes option
valuation model was not developed for use in valuing employee stock options.
Instead, this model was developed for use in estimating the fair value of traded
options which have no vesting restrictions and are fully transferable. In
addition, option valuation models require the input of highly subjective
assumptions including the expected stock price volatility. Under the intrinsic
value method, compensation expense is only recognized if the exercise price of
the employee stock option is less than the market price of the underlying stock
on the date of grant.
In accordance with SFAS 123, the fair value for the Company's employee
stock options was estimated at the date of grant using a Black-Scholes option
pricing model with the following weighted average assumptions for 1997:
<TABLE>
<CAPTION>
1997
----
<S> <C>
Risk-free interest rate..................................... 6.0%
Dividend yield.............................................. 0.0
Volatility factor........................................... 0.0
Weighted average expected life (in years)................... 10.0
</TABLE>
The options granted during the period ended December 31, 1997 had no net
value using the preceding assumptions, therefore, there is no pro forma effect
on net income.
A summary of stock option activity and related information for the year
ended December 31, 1997 follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
OPTIONS PRICE
------- --------
<S> <C> <C>
Outstanding at beginning of year............................ -- $ --
Granted..................................................... 62,525 1.00
Exercised................................................... -- --
Expired..................................................... -- --
------ -----
Outstanding at end of year.................................. 62,525 $1.00
------ -----
Exercisable at end of year.................................. 8,684 $1.00
====== =====
</TABLE>
F-24
<PAGE> 135
TRIANGLE COMMUNICATION SYSTEM, INC.
HAVRE, MONTANA
FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
F-25
<PAGE> 136
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Triangle Communication System, Inc.
Havre, Montana
We have audited the accompanying balance sheets of Triangle Communication
System, Inc. as of December 31, 1997, 1996, and 1995, and the related statements
of income, stockholder's equity, and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Triangle Communication
System, Inc. at December 31, 1997, 1996, and 1995, and the results of its
operations and its cash flows for the years then ended, in conformity with
generally accepted accounting principles.
EIDE HELMEKE PLLP
March 6, 1998
Sioux Falls, South Dakota
F-26
<PAGE> 137
TRIANGLE COMMUNICATION SYSTEM, INC.
HAVRE, MONTANA
BALANCE SHEETS
DECEMBER 31, 1997, 1996, AND 1995
ASSETS
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 175,917 $ 356,571 $ 234,152
Accounts receivable....................................... 22,466 7,298 520
Accounts receivable -- affiliate.......................... 9,889 -- --
Contract receivable....................................... 1,370 17,053 8,649
Inventory................................................. 45,193 42,228 74,539
Prepaid expenses.......................................... 192,095 67,611 2,824
---------- ---------- ----------
Total current assets.............................. 446,930 490,761 320,684
---------- ---------- ----------
Property and equipment (net of accumulated depreciation of
$379,281 in 1997; $310,553 in 1996, and $283,058 in
1995).................................................. 152,523 209,260 158,527
---------- ---------- ----------
Intangible assets (net of accumulated amortization of
$105,354 in 1997; $77,360 in 1996; and $49,367 in
1995).................................................. 321,926 349,920 377,913
---------- ---------- ----------
OTHER ASSETS:
Investments in marketable equity securities (Note 2)...... 1,851,588 1,433,695 1,485,128
Other investments (Note 3)................................ 777,982 517,050 186,719
---------- ---------- ----------
Total other assets................................ 2,629,570 1,950,745 1,671,847
---------- ---------- ----------
$3,550,949 $3,000,686 $2,528,971
========== ========== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 250,509 $ 135,875 $ 140,152
Accounts payable -- affiliate............................. 11,772 335,021 58,772
Unearned revenue.......................................... 214,848 219,569 17,807
Customer deposits......................................... 3,590 1,048 840
Accrued taxes............................................. 1,607 1,286 1,481
Other current liabilities................................. 1,157 -- --
---------- ---------- ----------
Total current liabilities......................... 483,483 692,799 219,052
---------- ---------- ----------
Deferred income taxes..................................... 656,859 432,702 451,835
---------- ---------- ----------
Total liabilities................................. 1,140,342 1,125,501 670,887
---------- ---------- ----------
SHAREHOLDER'S EQUITY:
Common stock, $100 par value, authorized 53,000 shares;
issued and outstanding; 1997 -- 10,595 shares, 1996 and
1995 -- 8,095 shares................................... 1,059,500 809,500 809,500
Additional paid-in capital................................ 315,000 315,000 315,000
Unrealized gain on equity securities...................... 1,108,891 915,155 947,455
Accumulated deficit....................................... (72,784) (164,470) (213,871)
---------- ---------- ----------
Total stockholder's equity........................ 2,410,607 1,875,185 1,858,084
---------- ---------- ----------
Total liabilities and shareholder's equity........ $3,550,949 $3,000,686 $2,528,971
========== ========== ==========
</TABLE>
The accompanying notes to the financial statements are an
integral part of these financial statements.
F-27
<PAGE> 138
TRIANGLE COMMUNICATION SYSTEM, INC.
HAVRE, MONTANA
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES:
CATV program revenues.................................. $ 55,695 $ 58,658 $ 60,928
DBS program revenue.................................... 2,255,440 1,312,525 501,767
Cellular revenue....................................... 129,529 62,800 --
Rural TV service revenue............................... 13,493 16,149 18,446
Equipment sales........................................ 170,863 188,802 449,343
Other.................................................. 50,241 52,030 28,384
---------- ---------- ----------
Total revenues................................. 2,675,261 1,690,964 1,058,868
---------- ---------- ----------
COST OF REVENUES:
CATV program costs..................................... 13,924 14,406 14,767
DBS program costs...................................... 1,263,995 785,954 277,497
Cellular program costs................................. 109,592 55,550 --
Rural TV program costs................................. 10,333 12,034 13,250
Equipment costs........................................ 229,404 195,796 459,655
Rebates and coupon costs............................... 469,207 162,154 61,437
---------- ---------- ----------
Total cost of revenues......................... 2,096,455 1,225,894 826,606
---------- ---------- ----------
Gross profit................................... 578,806 465,070 232,262
---------- ---------- ----------
EXPENSES:
Salaries, wages, and commissions....................... 180,134 129,063 81,954
Depreciation and amortization.......................... 96,721 55,489 49,692
Bad debt expense....................................... 12,808 13,262 4,810
Marketing.............................................. 75,111 84,097 103,695
Maintenance and installation........................... 26,709 34,059 19,341
Other selling, general, and administrative expenses.... 106,511 75,955 36,077
---------- ---------- ----------
Total expenses................................. 497,994 391,925 295,569
---------- ---------- ----------
NET INCOME BEFORE NONOPERATING INCOME AND TAXES.......... 80,812 73,145 (63,307)
---------- ---------- ----------
NONOPERATING INCOME (LOSS):
Interest income........................................ 6,470 5,463 1,432
Loss in equity earnings of affiliate................... (31,828) -- --
Gain on sale of cellular stock......................... -- -- 15,501
---------- ---------- ----------
Total nonoperating income (loss)............... (25,358) 5,463 16,933
---------- ---------- ----------
NET INCOME BEFORE TAXES........................ 55,454 78,608 (46,374)
PROVISION FOR (BENEFIT FROM) INCOME TAX (Note 6)......... (36,232) 29,207 (17,231)
---------- ---------- ----------
NET INCOME..................................... $ 91,686 $ 49,401 $ (29,143)
========== ========== ==========
</TABLE>
The accompanying notes to the financial statements are an
integral part of these financial statements.
F-28
<PAGE> 139
TRIANGLE COMMUNICATION SYSTEM, INC.
HAVRE, MONTANA
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
UNREALIZED
COMMON ADDITIONAL GAIN (LOSS)
STOCK $100 PAID-IN ON SECURITIES ACCUMULATED
PAR VALUE CAPITAL AVAILABLE FOR SALE DEFICIT TOTAL
---------- ---------- ------------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1995........... $ 569,500 $315,000 $ 951,493 $(184,728) $1,651,265
Net income....................... -- -- -- (29,143) (29,143)
Issuance of 2,400 shares of
stock......................... 240,000 -- -- -- 240,000
Change in unrealized gain on
securities
available-for-sale............ -- -- (4,038) -- (4,038)
---------- -------- ---------- --------- ----------
Balance, December 31, 1995......... 809,500 315,000 947,455 (213,971) 1,858,084
Net income....................... -- -- -- 49,401 49,401
Change in unrealized gain on
securities
available-for-sale............ -- -- (32,300) -- (32,300)
---------- -------- ---------- --------- ----------
Balance, December 31, 1996......... 809,500 315,000 915,155 (164,470) 1,875,185
Net income....................... -- -- -- 91,686 91,686
Issuance of 2,500 shares of
stock......................... 250,000 -- -- -- 250,000
Change in unrealized gain on
securities
available-for-sale............ -- -- 193,736 -- 193,736
---------- -------- ---------- --------- ----------
Balance, December 31, 1997......... $1,059,500 $315,000 $1,108,891 $ (72,784) $2,160,607
========== ======== ========== ========= ==========
</TABLE>
The accompanying notes to the financial statements are an
integral part of these financial statements.
F-29
<PAGE> 140
TRIANGLE COMMUNICATION SYSTEM, INC.
HAVRE, MONTANA
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.............................................. $ 91,686 $ 49,401 $ (29,143)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation and amortization........................ 96,721 55,489 49,692
Noncash equity loss in affiliate..................... 31,828 -- --
(Gain) on sale of investments........................ -- -- (15,501)
(Increase) decrease in assets:
Accounts receivable.................................. (25,057) (6,778) 1,119
Contracts receivable................................. 15,683 (8,404) (8,649)
Inventory............................................ (2,965) 32,311 10,476
Other assets......................................... (124,484) (64,787) 13,023
(Decrease) increase in liabilities:
Accounts payable..................................... 114,634 (4,277) 98,387
Accounts payable -- associated company............... (323,249) 276,249 23,039
Unearned revenue..................................... (4,721) 201,762 17,807
Customer deposits.................................... 2,542 208 (855)
Accrued taxes........................................ 321 (195) 1,481
Other current liabilities............................ 1,157 -- --
--------- --------- ---------
Net cash (used in) provided by operating
activities.................................... (125,904) 530,979 160,876
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment..................... (11,990) (78,229) (94,052)
Proceeds from the sale of investments................... -- -- 15,552
Deposit on PCS license.................................. -- (211,616) --
(Increase) in other investments......................... (292,760) (118,715) (182,643)
--------- --------- ---------
Net cash (used in) investing activities......... (304,750) (408,560) (261,143)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock................................ 250,000 -- 240,000
--------- --------- ---------
Net cash provided by financing activities....... 250,000 -- 240,000
--------- --------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS................... (180,654) 122,419 139,733
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD............ 356,571 234,152 94,419
--------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................. $ 175,917 $ 356,571 $ 234,152
========= ========= =========
</TABLE>
The accompanying notes to the financial statements are an integral part of these
financial statements.
F-30
<PAGE> 141
TRIANGLE COMMUNICATION SYSTEM, INC.
HAVRE, MONTANA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996, AND 1995
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Triangle Communication System, Inc. is a rural telecommunications provider,
whose purpose is to engage in the business of transmitting television impulses,
and installing and maintaining television equipment.
Triangle Communication System, Inc. is a wholly owned subsidiary of
Triangle Telephone Cooperative Association, Inc. which was incorporated under
Montana state statute in 1980.
The company has four areas, of primary interest which include cable
television operations, rural television programming service for large satellite
dish owners, and a Direct Broadcast Satellite (DBS) franchise, which allows the
company to receive a commission from all DBS programming sold to rural customers
located throughout their franchise area. The company also receives commissions
for the sales and service of cellular phones for Commnet Cellular.
Property and Equipment -- These assets are stated at cost. The cost of
additions to plant includes contracted work, direct labor and materials, and
allocable overheads. When units of property are retired, sold, or otherwise
disposed of in the ordinary of business, their average book cost less net
salvage is charged to accumulated depreciation. Repairs and the replacement and
renewal of items determined to be of less than units of property are charged to
maintenance.
Depreciation and Amortization -- Depreciation and amortization is computed
using the straight-line method based upon the estimated useful lives of the
various classes of property. Such provisions as a percentage of the average
balance of plant in service were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
CATV plant.................................................. 6.2% 6.2% 6.2%
Franchise................................................... 6.6% 6.6% 6.6%
</TABLE>
Investment Securities -- The company's investment securities are classified
as "available-for-sale." Accordingly, unrealized gains and losses and the
related deferred income tax effects are excluded for earnings and reported as a
separate component of stockholders' equity. Realized gains or losses are
computed based on specific identification of the securities sold.
All other investments are stated at cost.
Cash and Cash Equivalents -- For purposes of reporting cash flows, the
company considers all cash deposits, with maturities of less than three months,
to be cash and cash equivalents.
Inventories -- Inventories are stated at the lower of cost or market by
using the weighted average as cost.
Income Taxes -- The company generally provides for income taxes resulting
from timing differences between amounts reported for financial accounting and
income tax purposes. The deferred tax assets and liabilities represent the
future tax return consequences of those differences, which will either be
taxable or deductible when the assets and liabilities are received or settled.
Deferred taxes are also recognized for operating losses that are available to
offset future taxable income.
Accounting Estimates -- The preparation of the financial statements in
conformity with generally accepted accounting principals requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
F-31
<PAGE> 142
TRIANGLE COMMUNICATION SYSTEM, INC.
HAVRE, MONTANA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- INVESTMENT IN MARKETABLE EQUITY SECURITY
The cost and fair values of this marketable equity security
available-for-sale at December 3l, 1997, 1996, and 1995, were as follows:
<TABLE>
<CAPTION>
UNREALIZED 1997 1996 1995
COST GAIN FAIR VALUE FAIR VALUE FAIR VALUE
------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Commnet Cellular, Inc. --
stock.................... $85,838 $1,765,750 $1,851,588 $1,433,695 $1,485,128
======= ========== ========== ========== ==========
</TABLE>
The market value of the above security increased by $417,893 in 1997. As of
December 31, 1997, the unrealized gain of $1,765,750 is included with
stockholders equity net of deferred income taxes of $656,859.
NOTE 3 -- OTHER INVESTMENTS
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Patronage capital credits from affiliated
companies.......................................... $ 58,071 $ 38,025 $ 9,310
Memberships and deposits............................. 1,450 1,450 1,450
Cellular operating companies -- capital stock (at
cost).............................................. 959 959 959
Montana Advanced Information Network, Inc. -- capital
stock (at cost).................................... 365,000 15,000 150,000
Vision Net, Inc. -- capital stock (at cost).......... 250,000 250,000 25,000
Montana PCS Alliance LLC (at equity)................. 51,695 211,616 --
Skyland Technologies, Inc. (at equity)............... 50,807 -- --
-------- -------- --------
$777,982 $517,050 $186,719
======== ======== ========
</TABLE>
NOTE 4 -- FRANCHISE
The company purchased the Direct Broadcast System (DBS) franchise rights to
provide exclusive franchise rights for distribution of DirecTV satellite
television programming. The franchise rights give the company exclusive right to
the distribution of DirecTV service within the contract area, which includes
thirteen counties in Montana. The company began amortizing the franchise rights
in 1994 when programming service began.
<TABLE>
<CAPTION>
FRANCHISE ACCUMULATED
COST AMORTIZATION NET 1997 NET 1996 NET 1995
--------- ------------ -------- -------- --------
<S> <C> <C> <C> <C> <C>
Direct Broadcast System (DBS)...... $427,280 $105,354 $321,926 $349,920 $377,913
======== ======== ======== ======== ========
</TABLE>
F-32
<PAGE> 143
TRIANGLE COMMUNICATION SYSTEM, INC.
HAVRE, MONTANA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5 -- PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Support equipment........................................... $ 25,419 $ 24,089 $ 23,090
Cable television equipment.................................. 175,844 166,885 166,885
Towers, antennas, and dishes................................ 33,917 33,917 33,917
CATV -- cable............................................... 127,051 125,349 125,349
Cellular equipment.......................................... 169,573 169,573 --
-------- -------- --------
In service................................................ 531,804 519,813 349,241
Under construction........................................ -- -- 92,344
-------- -------- --------
531,804 519,813 441,585
Less accumulated depreciation............................... 379,281 310,553 283,058
-------- -------- --------
$152,523 $209,260 $158,527
======== ======== ========
</TABLE>
NOTE 6 -- INCOME TAXES
The company files a consolidated tax return with its parent company,
Triangle Telephone Cooperative Association, Inc.; income tax expense is computed
by individual company using the separate return method. Details of income tax
are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Provision for (benefit from) income taxes:
Federal tax at statutory rates............................ $ 27,599 $ 25,439 $(15,025)
State tax at statutory rates.............................. 4,870 3,768 (2,206)
Benefit of net operating loss carryforward used on
consolidated return with parent........................ (68,701) -- --
-------- -------- --------
Total (benefit from) provision for income taxes... $(36,232) $ 29,207 $(17,231)
======== ======== ========
The components of deferred tax (assets) and liabilities are
as follows:
Deferred tax liabilities:
Unrealized gain on securities available-for-sale....... $656,859 $501,403 $520,536
Deferred tax (assets):
Net operating loss carryforwards....................... -- (68,701) (68,701)
-------- -------- --------
Net deferred tax liability............................. $656,859 $432,702 $451,835
======== ======== ========
</TABLE>
NOTE 7 -- RELATED PARTY TRANSACTIONS
Triangle Telephone Cooperative Association, Inc. owns 100% of the issued
and outstanding shares of Triangle Communication System, Inc. At December 31,
1997, the company had a receivable of $9,889 from its parent, Triangle Telephone
Cooperative Association, Inc. At December 31, 1996 and 1995, the company had an
outstanding liability with Triangle Telephone Cooperative Association, Inc. of
$320,086 and $47,081, respectively.
Triangle Communication System, Inc. has an operation and maintenance
agreement with Hill County Electric Cooperative, Inc. The agreement provides
that the operations of the two companies are, insofar as is possible, to be
carried on jointly, and that Hill County Electric Cooperative, Inc. is to
operate and manage Triangle Communication System, Inc. Costs incurred in the
performance of services under the agreement that relate to joint operations are
to be apportioned and Triangle Communication System, Inc. is to reimburse Hill
County Electric Cooperative, Inc. at amounts specified in the agreement. Total
payments to Hill County
F-33
<PAGE> 144
TRIANGLE COMMUNICATION SYSTEM, INC.
HAVRE, MONTANA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Electric Cooperative, Inc. under this agreement in 1997 were approximately
$157,000. At December 31, 1997, 1996, and 1995, Triangle Communication System,
Inc. owed Hill County Electric Cooperative, Inc. $11,772, $14,935, and $11,691,
respectively.
The maintenance agreement may be terminated by either party by giving a six
month notice in writing to the other party.
NOTE 8 -- SUBSEQUENT EVENT
In January 1998 the company entered into an agreement to sell its Direct
Broadcast System (DBS) franchise rights to Golden Sky Systems, Inc. The sale for
approximately $9.3 million will yield a net gain of approximately $8.6 million
to the company in 1998.
F-34
<PAGE> 145
WESTERN MONTANA DBS, INC.
dba ROCKY MOUNTAIN DBS
FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
F-35
<PAGE> 146
WESTERN MONTANA DBS, INC.
dba ROCKY MOUNTAIN DBS
BALANCE SHEETS
AS OF SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Current Assets Cash and Equivalents......................... $ 4,521 $ 871,182
Trade Receivables, net of allowance for doubtful accounts
of $6,000
in 1998................................................ 226,549 163,191
Inventories............................................... 17,288 21,449
Due from Golden Sky Systems, Inc.......................... -- 2,496,875
---------- ----------
Total Current Assets.............................. 248,358 3,552,697
Furniture and Equipment
Furniture and Equipment................................... 82,431 40,174
Accumulated Depreciation.................................. (43,670) (23,505)
---------- ----------
Net Furniture and Equipment....................... 38,761 16,669
---------- ----------
Intangible Assets
Franchise Costs........................................... 1,046,171 1,046,171
Accumulated Amortization.................................. (462,069) (345,515)
---------- ----------
584,102 700,656
---------- ----------
Other Assets
Prepaid Expenses.......................................... -- 546
NRTC Patronage Capital.................................... 128,275 91,730
---------- ----------
128,275 92,276
---------- ----------
$ 999,496 $4,362,298
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Trade Payables............................................ $ 227,831 $ 272,362
Unearned Revenues......................................... 198,818 397,781
Accrued Salaries and Other................................ 2,832 8,972
---------- ----------
Total Current Liabilities......................... 429,481 679,115
---------- ----------
Stockholders' Equity
Common Stock, No Par Value, Authorized 50,000 Shares,
10,463 Shares Issued and Outstanding................... 1,124,739 1,124,739
Retained Earnings (Deficit)............................... (554,724) 2,558,444
---------- ----------
Total Stockholders' Equity........................ 570,015 3,683,183
---------- ----------
$ 999,496 $4,362,298
========== ==========
</TABLE>
See Selected Information.
F-36
<PAGE> 147
WESTERN MONTANA DBS, INC.
dba ROCKY MOUNTAIN DBS
INCOME STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
REVENUES
DSS Programming Revenues.................................. $3,168,112 $2,820,182
DSS Equipment Sales....................................... 110,314 78,494
Other DSS Sales........................................... 25,876 19,008
---------- ----------
3,304,302 2,917,684
---------- ----------
COST OF REVENUES
Programming Costs......................................... 1,775,655 1,187,346
DSS Equipment Costs....................................... 99,426 78,494
Other DSS Cost of Revenues................................ 18,812 11,861
Rebates................................................... -- 357,379
---------- ----------
1,893,893 1,635,080
---------- ----------
Gross Profit...................................... 1,410,409 1,282,604
---------- ----------
SELLING, GENERAL & ADMINISTRATIVE EXPENSES
Salaries, Wages and Commissions........................... 289,736 206,105
Amortization and Depreciation............................. 93,381 89,613
Bad Debt Expense.......................................... 21,146 27,140
Marketing and Advertising................................. 72,118 75,627
Other General and Administrative.......................... 156,785 102,656
---------- ----------
633,166 501,141
---------- ----------
Operating Income.................................. 777,243 781,463
---------- ----------
OTHER INCOME (EXPENSE)
Interest Income........................................... 159,122 163,541
Interest Expense.......................................... (1,458) (228)
Gain on Sale of Colorado Franchise Territories............ -- 4,654,996
---------- ----------
157,664 4,818,309
---------- ----------
NET INCOME.................................................. $ 934,907 $5,599,772
========== ==========
</TABLE>
See Selected Information.
F-37
<PAGE> 148
WESTERN MONTANA DBS, INC.
dba ROCKY MOUNTAIN DBS
STATEMENTS OF RETAINED EARNINGS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Balance, Beginning of Period................................ $ 2,171,945 $ (484,136)
Net Income................................................ 934,907 5,599,772
Dividends and Distributions............................... (3,661,576) (2,557,192)
----------- -----------
Balance, End of Period...................................... $ (554,724) $ 2,558,444
=========== ===========
</TABLE>
See Selected Information.
F-38
<PAGE> 149
WESTERN MONTANA DBS, INC.
dba ROCKY MOUNTAIN DBS
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Cash Flows from Operating Activities
Net income................................................ $ 934,907 $ 5,599,772
Adjustments to Reconcile Net Income to Net Cash Provided
by Operating Activities:
Depreciation and Amortization.......................... 93,381 89,613
Gain on Sale of Colorado Franchise Territories......... -- (4,654,996)
(Increase) decrease in:
Trade Accounts Receivable............................ (32,347) 114,638
Inventories.......................................... 5,154 (4,872)
Prepaids............................................. 1,559 874
Accrued Interest -- Golden Sky Systems............... 235,000 (146,875)
Increase (decrease) in:
Trade Accounts Payable............................... 43,159 (83,469)
Accrued Expenses..................................... (108,976) (16,301)
Unearned Revenues.................................... (52,035) (150,562)
----------- -----------
Net Cash Provided by Operating Activities......... 1,119,802 747,822
----------- -----------
Cash Flows from Investing Activities
Purchase of Property, Plant and Equipment................. (2,614) (5,288)
Proceeds from Sale of Franchise Territories............... 2,350,000 2,434,238
----------- -----------
Net Cash Provided by Investing Activities......... 2,347,386 2,428,950
----------- -----------
Cash Flows from Financing Activities
Distributions to Stockholders............................. (3,661,576) (2,557,192)
----------- -----------
Net Cash Used by Financing Activities............. (3,661,576) (2,557,192)
----------- -----------
Net Increase (Decrease) in Cash............................. (194,388) 619,580
Cash, Beginning of Period................................... 198,909 251,602
----------- -----------
Cash, End of Period......................................... $ 4,521 $ 871,182
=========== ===========
SUPPLEMENTAL DISCLOSURES:
Cash paid during the period for interest.................. $ 1,458 $ 228
=========== ===========
</TABLE>
See Selected Information.
F-39
<PAGE> 150
WESTERN MONTANA DBS, INC.
dba ROCKY MOUNTAIN DBS
SELECTED INFORMATION
SEPTEMBER 30, 1998 AND 1997
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Nature of Operations --
Western Montana DBS, Inc., dba Rocky Mountain DBS (the Company) was formed
in June 1993 for the purpose of acquiring and operating direct broadcast
satellite television operating rights. The Company is an affiliated associate
member of the National Rural Telecommunications Cooperative (NRTC). The NRTC has
contracted with Hughes Communications Galaxy, Inc. (Hughes), to provide
exclusive marketing rights for distribution of DirecTV satellite television
programming in the United States. The marketing rights give the owner exclusive
rights to distribution of Direct service within the contract area. In 1994,
Hughes launched the satellites that provided programming for DirecTV. At
December 31, 1997, the Company had the operating rights for five counties in
Montana and three counties in Idaho. The operating rights for three counties in
Colorado were sold in 1997.
Revenue Recognition --
Revenues are earned for monthly direct broadcast satellite services which
are billed to subscribers in advance. Subscribers may elect to prepay their
service charges for one or more months. Revenue is recognized in the month the
service is provided to the subscriber. Subscriber advance billings represent
unearned revenues and are deferred until the service is provided. Coupons issued
by NRTC may be used, with some restrictions, to pay a portion of a customer's
account receivable. No provision is made for the subsequent use of these
coupons.
Use of Estimates --
The presentation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
Fair Value of Financial Instruments --
Financial instruments consisting of receivables and accounts payable are
carried at cost, which approximates fair value, as a result of the short-term
nature of the instruments.
Intangible Assets --
The cost of acquiring the rights to provide DirecTV satellite services are
capitalized as intangible assets and are being amortized on a straight-line
basis over ten years, which is the expected useful life of the revenue stream of
those services.
Income Taxes --
Effective January 1, 1995, the Company elected to be taxed as a Subchapter
S Corporation. As such, any income tax is payable by the shareholders and not
the Company, therefore there is no income tax expense recorded.
F-40
<PAGE> 151
WESTERN MONTANA DBS, INC.
dba ROCKY MOUNTAIN DBS
SELECTED INFORMATION -- (CONTINUED)
Cash and Cash Equivalents --
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with and original maturity of three
months or less to be cash equivalents. There were no cash equivalents at
September 30, 1998 or 1997.
Major Suppliers/Economic Dependency --
The Company's sole supplier is the NRTC. In addition, NRTC provides all
computer services relative to customer service, accounts receivable billing, and
the determination of unearned revenue.
Discontinued Operations --
In May of 1997, the Company sold its Colorado subscribers to Golden Sky
Systems, Inc. for $4,700,000. The Company estimates these customers comprise
some 21% of the customer base and accounted for some 31% of total subscriber
revenues ($402,000 from January 1, 1997, to May 1, 1997).
Subsequent Event --
On October 2, 1998, the Company was acquired by Golden Sky Systems, Inc.
Company shareholders will receive both cash and shares in Golden Sky Holdings,
Inc. in this transaction.
F-41
<PAGE> 152
WESTERN MONTANA DBS, INC.
dba ROCKY MOUNTAIN DBS
FINANCIAL STATEMENTS
DECEMBER 31, 1997
F-42
<PAGE> 153
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Western Montana DBS, Inc.
dba Rocky Mountain DBS:
We have audited the accompanying balance sheet of Western Montana DBS, Inc.
dba Rocky Mountain DBS as of December 31, 1997, and the related statements of
income, retained earnings and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Western Montana DBS, Inc.
dba Rocky Mountain DBS as of December 31, 1997, and the results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
LOUCKS & GLASSLEY, PLLP
June 19, 1998
Great Falls, Montana
F-43
<PAGE> 154
WESTERN MONTANA DBS, INC.
dba ROCKY MOUNTAIN DBS
BALANCE SHEET
AS OF DECEMBER 31, 1997
ASSETS
<TABLE>
<S> <C>
CURRENT ASSETS
Cash and Equivalents (Note 4)............................. $ 198,909
Trade Receivables, net of allowance for doubtful accounts
of $6,000 (Note 3)..................................... 194,202
Inventories............................................... 22,442
Prepaid Expenses.......................................... 1,559
Due from Golden Sky Systems, Inc. (Note 2)................ 2,585,000
----------
Total Current Assets.............................. 3,002,112
----------
FURNITURE AND EQUIPMENT
Furniture and Equipment................................... 79,817
Accumulated Depreciation.................................. (28,751)
----------
Net Furniture and Equipment....................... 51,066
----------
INTANGIBLE ASSETS
Franchise Costs........................................... 1,046,171
Accumulated Amortization.................................. (383,606)
----------
662,565
OTHER ASSETS
NRTC Patronage Capital (Note 5)........................... 128,275
----------
128,275
----------
$3,844,018
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade Payables............................................ $ 184,672
Unearned Revenues......................................... 250,854
Accrued Salaries and Other................................ 111,808
----------
Total Current Liabilities......................... 547,334
----------
STOCKHOLDERS' EQUITY
Common Stock, No Par Value, Authorized 50,000 Shares,
10,463 Shares Issued and Outstanding................... 1,124,739
Retained Earnings......................................... 2,171,945
----------
Total Stockholders' Equity........................ 3,296,684
----------
$3,844,018
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-44
<PAGE> 155
WESTERN MONTANA DBS, INC.
dba ROCKY MOUNTAIN DBS
INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
Revenues
DSS programming revenues.................................. $3,943,940
DSS equipment sales....................................... 113,153
Other DSS sales........................................... 34,894
----------
4,091,987
Cost of revenues
Programming costs......................................... 2,242,450
DSS equipment costs....................................... 113,153
Other DSS cost of revenues................................ 13,970
Rebates................................................... 308,699
----------
2,678,272
----------
Gross profit...................................... 1,413,715
----------
Selling, general & administrative expenses
Salaries, wages and commissions........................... 449,121
Amortization and depreciation............................. 121,013
Bad debt expense.......................................... 28,024
Marketing and advertising................................. 181,469
Other selling, general and administrative................. 168,028
----------
947,655
----------
Operating income.................................. 466,060
----------
Other income (expenses)
Patronage income (Note 5)................................. 36,545
Interest income........................................... 255,889
Interest expense.......................................... (218)
Gain on sale of Colorado franchise territories (Note 2)... 4,654,996
----------
4,947,212
----------
Net income........................................ $5,413,272
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-45
<PAGE> 156
WESTERN MONTANA DBS, INC.
dba ROCKY MOUNTAIN DBS
STATEMENT OF RETAINED EARNINGS
AS OF DECEMBER 31, 1997
<TABLE>
<S> <C>
Balance, Beginning of Year.................................. $ (484,136)
Net Income (Loss)......................................... 5,413,272
Dividends and Distributions............................... (2,757,191)
-----------
Balance, End of Year........................................ $ 2,171,945
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-46
<PAGE> 157
WESTERN MONTANA DBS, INC.
dba ROCKY MOUNTAIN DBS
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
Cash Flows from Operating Activities
Net income................................................ $ 5,413,272
Adjustments to Reconcile Net Income to Net Cash Provided
by Operating Activities:
Depreciation and Amortization.......................... 121,013
Gain on Sale of Colorado Franchise Territories......... (4,654,996)
(Increase) decrease in:
Trade Accounts Receivable............................ 83,627
Inventories.......................................... (10,026)
Prepaids............................................. (139)
NRTC Patronage Capital............................... (36,545)
Accrued Interest -- Golden Sky Systems............... (235,000)
Increase (decrease) in:
Trade Accounts Payable............................... (171,159)
Accrued Expenses..................................... 86,535
Unearned Revenues.................................... (297,489)
-----------
Net Cash Provided by Operating Activities......... 299,093
-----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Property, Plant and Equipment................. (44,931)
Proceeds from Sale of Franchise Territories............... 2,450,336
-----------
Net Cash Provided by Investing Activities......... 2,405,405
-----------
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions to Stockholders............................. (2,757,191)
-----------
Net Cash Used by Financing Activities............. (2,757,191)
Net Decrease in Cash........................................ (52,693)
Cash, Beginning of Year..................................... 251,602
-----------
Cash, End of Year........................................... $ 198,909
===========
SUPPLEMENTAL DISCLOSURES:
Cash paid during the year for interest.................... $ 218
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-47
<PAGE> 158
WESTERN MONTANA DBS, INC.
dba ROCKY MOUNTAIN DBS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Nature of Operations
Western Montana DBS, Inc., dba Rocky Mountain DBS (the Company) was formed
in June 1993 for the purpose of acquiring and operating direct broadcast
satellite television operating rights. The Company is an affiliated associate
member of the National Rural Telecommunications Cooperative (NRTC). The NRTC has
contracted with Hughes Communications Galaxy, Inc. (Hughes), to provide
exclusive marketing rights for distribution of DirecTV satellite television
programming in the United States. The marketing rights give the owner exclusive
rights to distribution of DirecTV service within the contract area. In 1994,
Hughes launched the satellites that provide programming for DirecTV. At December
31, 1997, the Company had the operating rights for five counties in Montana and
three counties in Idaho. The operating rights for three counties in Colorado
were sold in 1997 (Note 2).
Revenue Recognition
Revenues are earned for monthly direct broadcast satellite services which
are billed to subscribers in advance. Subscribers may elect to prepay their
service charges for one or more months. Revenue is recognized in the month the
service is provided to the subscriber. Subscriber advance billings represent
unearned revenues and are deferred until the service is provided. Coupons issued
by NRTC may be used, with some restrictions, to pay a portion of a customer's
account receivable. No provision is made for the subsequent use of these
coupons.
Inventories
Inventories are stated at the lower of average cost or market and consist
of receivers, satellite dishes, and satellite TV accessories.
Use of Estimates
The presentation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
Fair Value of Financial Instruments
Financial instruments consisting of receivables and accounts payable are
carried at cost, which approximates fair value, as a result of the short-term
nature of the instruments.
Intangible Assets
The cost of acquiring the rights to provide DirecTV satellite services are
capitalized as intangible assets and are being amortized on a straight-line
basis over ten years, which is the expected useful life of the revenue stream of
those services.
F-48
<PAGE> 159
WESTERN MONTANA DBS, INC.
dba ROCKY MOUNTAIN DBS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Income Taxes
Effective January 1, 1995, the Company elected to be taxed as a Subchapter
S Corporation. As such, any income tax is payable by the shareholders and not
the Company, therefore there is no income tax expense recorded.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with and original maturity of three
months or less to be cash equivalents. There were no cash equivalents at
December 31, 1997.
Major Suppliers/Economic Dependency
The Company's sole supplier is the NRTC. In addition, NRTC provides all
computer services relative to customer service, accounts receivable billing, and
the determination of unearned revenue.
Property, Plant and Equipment
Property, plant and equipment consists principally of office equipment,
computer equipment and a vehicle. The assets are being depreciated over five to
seven years using accelerated depreciation methods. Depreciation expense for the
year ended December 31, 1997 is $9,475.
Marketing and Advertising
Advertising costs are charged to expense as incurred. The Company often
subsidizes the cost of equipment for new subscribers by providing such equipment
at a sales price below the Company's cost. The Company records the cost of the
equipment up to the amount of the sales price to the subscriber. Any excess cost
over sales price is recorded in sales and marketing expense.
NOTE 2 -- GAIN ON SALE OF COLORADO FRANCHISE TERRITORIES
In May of 1997, the Company contracted to sell its Colorado subscribers to
Golden Sky Systems, Inc. for $4,700,000. The Company estimates these customers
comprise some 21% of the customer base and account for some 31% of total
subscriber revenues ($402,000 from January 1, 1997, to May 1, 1997). Golden Sky
purchased the accounts receivable for the Colorado subscribers as well as
assuming the unearned revenue liability for those subscribers. Since the
unearned revenues exceeded the accounts receivable, there was an effective
increase in purchase price over the amount paid in cash. The Company had no
other assets related to the Colorado operations.
NOTE 3 -- ACCOUNTS RECEIVABLE
Trade receivables consist of amounts due from subscribers for monthly
programming fees. These unsecured receivables arise solely from customers in the
franchise territories listed in Note 1.
NOTE 4 -- CONCENTRATION OF CREDIT RISK
The Company maintains cash balances at various banks. Cash accounts at the
banks are insured by the FDIC for up to $100,000. Amounts in excess of the
insured limits were approximately $342,012 at December 31, 1997.
F-49
<PAGE> 160
WESTERN MONTANA DBS, INC.
dba ROCKY MOUNTAIN DBS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5 -- NRTC PATRONAGE CAPITAL
The Company is a non-voting affiliate of NRTC and receives annual patronage
capital credits which are recorded as income. These cumulative capital credits
are not marketable and the value is dependent on the future financial position
of NRTC.
NOTE 6 -- COMMITMENTS AND CONTINGENCIES
The Company occupies its offices on a month to month to month rental
arrangement. Rent expense was $9,923. A shareholder has sued the Company,
claiming a finders fee on the sale of the Colorado franchise territories to
Golden Sky Systems, Inc. Management is vigorously contesting this action both as
to liability and damages. No provision has been made in the financial statement
for this claim.
NOTE 7 -- SUBSEQUENT EVENT
The Company has signed a letter of intent to be acquired by Golden Sky
Systems, Inc. Company shareholders will receive both cash and shares in Golden
Sky Holdings, Inc. in this transaction.
F-50
<PAGE> 161
WESTERN MONTANA DBS, INC.
dba ROCKY MOUNTAIN DBS
FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
F-51
<PAGE> 162
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Western Montana DBS, Inc.
dba Rocky Mountain DBS:
We have audited the accompanying balance sheets of Western Montana DBS,
Inc. dba Rocky Mountain DBS as of December 31, 1996 and 1995 and the related
statements of earnings, accumulated deficit and cash flows for the years ended
December 31, 1996 and 1995 and 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Western Montana DBS, Inc.
dba Rocky Mountain DBS at December 31, 1996 and 1995 and the results of its
operations and its cash flows for the years ended December 31, 1996, 1995, and
1994, in conformity with generally accepted accounting principles.
LOUCKS & GLASSLEY, PLLP
September 12, 1997
Great Falls, Montana
F-52
<PAGE> 163
WESTERN MONTANA DBS, INC.
dba ROCKY MOUNTAIN DBS
BALANCE SHEETS
AS OF DECEMBER 31, 1996 AND 1995
ASSETS
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Current assets
Cash and Equivalents (Note 4)............................. $ 251,602 $ 107,722
Trade Receivables, net of allowance for doubtful accounts
of $6,000 (Note 2)..................................... 277,829 107,336
Inventories............................................... 12,416 5,496
---------- ----------
Total Current Assets.............................. 541,847 220,554
---------- ----------
Furniture and equipment, less accumulated depreciation...... 15,610 18,379
---------- ----------
Intangible assets
Franchise Costs........................................... 1,253,803 1,253,803
Accumulated Amortization.................................. (334,358) (208,977)
---------- ----------
919,445 1,044,826
---------- ----------
Other assets
Prepaid Expenses.......................................... 1,420 1,420
NRTC Patronage Capital (Note 5)........................... 91,730 47,420
---------- ----------
93,150 48,840
---------- ----------
Total Assets...................................... $1,570,052 $1,332,599
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Trade Payables............................................ $ 355,831 $ 190,717
Unearned Revenues......................................... 548,343 100,827
Accrued Salaries and Other................................ 25,273 4,078
---------- ----------
Total Current Liabilities......................... 929,447 295,622
---------- ----------
Stockholders' equity
Common Stock, No Par Value, Authorized 50,000 shares,
10,463 shares Issued and Outstanding................... 1,124,739 1,124,739
Accumulated Deficit....................................... (484,134) (87,762)
---------- ----------
Total Stockholders' Equity........................ 640,605 1,036,977
---------- ----------
Total Liabilities and Stockholders' Equity........ $1,570,052 $1,332,599
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-53
<PAGE> 164
WESTERN MONTANA DBS, INC.
dba ROCKY MOUNTAIN DBS
INCOME STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ---------
<S> <C> <C> <C>
REVENUES
DSS Programming Revenues............................... $2,588,681 $1,191,353 $ 62,544
DSS Equipment Sales.................................... 93,472 225,583 429,015
Other DSS Sales........................................ 31,362 33,120 --
---------- ---------- ---------
2,713,515 1,450,056 491,559
COST OF REVENUES
Programming Costs...................................... 1,763,043 771,093 40,479
Equipment Costs........................................ 66,930 205,200 391,056
Other DSS Cost of Revenues............................. 40,259 9,163 --
Rebates................................................ 274,529 23,546 --
---------- ---------- ---------
2,144,761 1,009,002 431,535
---------- ---------- ---------
Gross Profit................................... 568,754 441,054 60,024
---------- ---------- ---------
SELLING, GENERAL & ADMINISTRATIVE EXPENSES
Salaries, Wages and Commissions........................ 206,113 118,064 40,038
Amortization and Depreciation.......................... 131,654 133,411 88,147
Bad Debt Expense....................................... 16,202 12,512 --
Advertising............................................ 90,395 53,076 5,431
Other Selling, General and Administrative.............. 132,304 117,990 32,656
---------- ---------- ---------
576,668 435,053 166,272
---------- ---------- ---------
Net Operating Income (Loss).................... (7,914) 6,001 (106,248)
---------- ---------- ---------
OTHER INCOME (EXPENSES)
Patronage Income (Note 5).............................. 44,310 30,609 16,921
Interest Expense....................................... (1,268) (19,485) (15,589)
Interest Income........................................ 2,212 29 --
---------- ---------- ---------
45,254 11,153 1,332
---------- ---------- ---------
Net Income (Loss).............................. $ 37,340 $ 17,154 $(104,916)
========== ========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-54
<PAGE> 165
WESTERN MONTANA DBS, INC.
dba ROCKY MOUNTAIN DBS
STATEMENTS OF ACCUMULATED DEFICIT
AS OF DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Balance, Beginning of Year................................ $ (87,762) $(104,916) $ --
Net Income (Loss)....................................... 37,340 17,154 (104,916)
Dividends and Distributions............................. (433,712) -- --
--------- --------- ---------
Balance, End of Year...................................... $(484,134) $ (87,762) $(104,916)
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-55
<PAGE> 166
WESTERN MONTANA DBS, INC.
dba ROCKY MOUNTAIN DBS
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)...................................... $ 37,340 $ 17,154 $ (104,916)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and Amortization....................... 131,654 133,411 88,147
(Increase) decrease in:
Trade Accounts Receivable......................... (170,493) (37,643) (69,693)
Inventories....................................... (6,920) 69,871 (75,367)
Prepaids.......................................... -- (701) (719)
NRTC Patronage Capital............................ (44,310) (30,499) (16,921)
Increase (decrease) in:
Trade Accounts Payable............................ 165,114 26,357 164,360
Accrued Expenses.................................. 21,195 2,394 1,684
Unearned Revenues................................. 447,516 74,091 26,736
Net Cash Provided by Operating Activities...... 581,096 254,435 13,311
--------- --------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Property, Plant and Equipment.............. (3,504) (3,131) (27,829)
Investment in NRTC Marketing Rights.................... -- -- (1,253,803)
--------- --------- -----------
Net Cash Used by Investing Activities.......... (3,504) (3,131) (1,281,632)
--------- --------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Line of Credit Borrowings.............................. -- -- 487,534
Line of Credit Repayments.............................. -- (236,458) (251,076)
Borrowings from Stockholder............................ -- -- 33,499
Repayment on Stockholder Loan.......................... -- (33,499) --
Distributions to Stockholders.......................... (433,712) -- --
Issuance of Common Stock............................... -- -- 1,124,739
--------- --------- -----------
Net Cash Provided (Used) by Financing
Activities................................... (433,712) (269,957) 1,394,696
--------- --------- -----------
Net Increase (Decrease) in Cash.......................... 143,880 (18,653) 126,375
Cash, Beginning of Year.................................. 107,722 126,375 --
--------- --------- -----------
Cash, End of Year........................................ $ 251,602 $ 107,722 $ 126,375
--------- --------- -----------
SUPPLEMENTAL DISCLOSURES:
Cash paid during the year for interest................. $ 1,268 $ 19,485 $ 15,589
========= ========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-56
<PAGE> 167
WESTERN MONTANA DBS, INC.
dba ROCKY MOUNTAIN DBS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Nature of Operations --
Western Montana DBS, Inc., dba Rocky Mountain DBS (the Company) was formed
in June 1993 for the purpose of acquiring and operating direct broadcast
satellite television operating rights. The Company is an affiliated associate
member of the National Rural Telecommunications Cooperative (NRTC). The NRTC has
contracted with Hughes Communications Galaxy, Inc. (Hughes), to provide,
exclusive marketing rights for distribution of DirecTV satellite television
programming in the United States. The marketing rights give the owner exclusive
rights to distribution of DirecTV service within the contract area. In 1994,
Hughes launched the satellites that provide programming for DirecTV. At December
31, 1996, 1995 and 1994, the Company had the operating rights for five counties
in Montana, three counties in Idaho, and three counties in Colorado. The
Colorado operating rights were sold in 1997.
Revenue Recognition --
Revenues are earned for monthly direct broadcast satellite services which
are billed to subscribers in advance. Subscribers may elect to prepay their
service charges for one or more months. Revenue is recognized in the month the
service is provided to the subscriber. Subscriber advance billings represent
unearned revenues and are deferred until the service is provided. Coupons issued
by NRTC may be used, with some restrictions, to pay a portion of a customer's
account receivable. No provision is made for the subsequent use of these
coupons.
Inventories --
Inventories are stated at the lower of average cost or market and consist
of receivers, satellite dishes, and satellite TV accessories.
Use of Estimates --
The presentation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
Fair Value of Financial Instruments --
Financial instruments consisting of receivables and accounts payable are
carried at cost, which approximates fair value, as a result of the short-term
nature of the instruments.
Intangible Assets --
The cost of acquiring the rights to provide DirecTV satellite services are
capitalized as intangible assets and are being amortized on a straight-line
basis over ten years, which is the expected useful life of the revenue stream of
those services.
Income Taxes --
Effective January 1, 1995, the Company elected to be taxed as a Subchapter
S Corporation. As such, any income tax is payable by the shareholders and not
the Company, therefore there is no income tax expense
F-57
<PAGE> 168
WESTERN MONTANA DBS, INC.
dba ROCKY MOUNTAIN DBS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
recorded. For the five months ended December 31, 1994, the company incurred a
loss and no income taxes were due.
Cash and Cash Equivalents --
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with and original maturity of three
months or less to be cash equivalents. There were no cash equivalents at
December 31, 1995 or 1996.
Major Suppliers/Economic Dependency --
The Company's sole supplier is the NRTC. In addition, NRTC provides all
computer services relative to customer service, accounts receivable billing and
the determination of unearned revenue.
Property, Plant, and Equipment --
Property, plant and equipment consists principally of office equipment and
a vehicle. The assets are being depreciated over five to seven years using
accelerated depreciation methods.
Advertising --
Advertising costs are charged to expense as incurred.
NOTE 2 -- ACCOUNTS RECEIVABLE
Trade receivables consist of amounts due from subscribers for monthly
programming fees.
NOTE 3 -- RELATED PARTY TRANSACTIONS
During 1994, a shareholder advanced $33,499 to the Company. This advance
had no specific repayment terms and was repaid in 1995.
NOTE 4 -- CONCENTRATION OF CREDIT RISK
The company maintains cash balances at various banks. Cash accounts at the
banks are insured by the FDIC for up to $100,000. Amounts in excess of the
insured limits were approximately $73,370 at December 31, 1996.
NOTE 5 -- NRTC PATRONAGE CAPITAL
The company is a non-voting affiliate of NRTC and receives annual patronage
capital credits which are recorded as income. These cumulative capital credits
are not marketable and the value is dependent on the future financial position
of NRTC.
NOTE 6 -- COMMITMENTS AND CONTINGENCIES
The company occupies its offices on a month to month to month rental
arrangement. Rent expense was $3,224 in 1994, $12,090 in 1995, and $18,000 in
1996.
F-58
<PAGE> 169
WESTERN MONTANA DBS, INC.
dba ROCKY MOUNTAIN DBS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 -- SUBSEQUENT EVENT
In May of 1997, the Company contracted to sell its Colorado subscribers to
Golden Sky Systems, Inc. The Company estimates these customers comprise some 21%
of the customer base and account for some 31% of revenues.
F-59
<PAGE> 170
SOUTH PLAINS DBS LIMITED PARTNERSHIP
TAHOKA, TEXAS
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1995
AND
REPORT OF CERTIFIED PUBLIC ACCOUNTANTS
BOLINGER, SEGARS, GILBERT & MOSS, L.L.P.
CERTIFIED PUBLIC ACCOUNTANTS
LUBBOCK, TEXAS
F-60
<PAGE> 171
INDEPENDENT AUDITORS' REPORT
To the Partners
South Plains DBS Limited Partnership
Tahoka, Texas
We have audited the accompanying balance sheets of South Plains DBS Limited
Partnership as of December 31, 1996 and 1995, and the related statements of
income, changes in partners' capital, and cash flows for the years then ended.
These financial statements are the responsibility of the partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of South Plains DBS Limited
Partnership as of December 31, 1996 and 1995, and the results of its operations,
changes in partners' capital and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
BOLINGER, SEGARS, GILBERT & MOSS,
L.L.P.
Certified Public Accountants
Lubbock, Texas
February 28, 1997
F-61
<PAGE> 172
SOUTH PLAINS DBS LIMITED PARTNERSHIP
BALANCE SHEET
DECEMBER 31, 1996 AND 1995
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1995
---------- ----------
<S> <C> <C>
Current assets
Cash...................................................... $ 195,586 $ 175,287
Accounts Receivable (Less allowance for uncollectibles of
$2,875 in 1996 and $2,073 in 1995)..................... 54,216 53,770
Inventory................................................. 39,928 554,323
Prepaid Expenses.......................................... 5,905 5,937
---------- ----------
$ 295,635 $ 789,317
---------- ----------
Other assets
Investment in Associated Organizations.................... $ 61,084 $ 37,853
Franchise License (Less Accumulated Amortization of
$339,114 in 1996 and $198,791 in 1995)................. 1,064,115 1,204,438
Membership................................................ 1,000 1,000
Deposits.................................................. 1,617 1,617
---------- ----------
$1,127,816 $1,244,908
---------- ----------
Fixed assets
Office Furniture and Fixtures............................. $ 98,152 $ 99,119
Office Equipment.......................................... 22,439 22,439
Leased Equipment.......................................... 27,694 25,342
Leasehold Improvements.................................... 10,888 10,888
---------- ----------
$ 159,173 $ 157,788
Less: Accumulated Depreciation and Amortization........... 37,021 18,503
---------- ----------
$ 122,152 $ 139,285
---------- ----------
$1,545,603 $2,173,510
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities
Accounts Payable -- Operating Partner..................... $ 202,090 $ 311,760
Accounts Payable -- Trade................................. 20,504 96,042
Advance Billing........................................... 232,682 3,360
Equipment Deposits........................................ 2,210 62,014
Other Accrued Liabilities................................. 4,100 17,221
---------- ----------
$ 461,586 $ 490,397
---------- ----------
Noncurrent liabilities
Line of Credit Outstanding -- RTFC........................ $1,724,642 $1,484,642
---------- ----------
Partners' capital
Poka-Lambro Telecommunications, Inc....................... $ (152,149) $ 47,136
South Plains Development Corporation...................... (152,149) 47,136
S.P.A.C.E., Inc........................................... (152,149) 47,136
L. E. C. Development, Inc................................. (152,149) 47,136
Rural Vision Development Corporation...................... (32,029) 9,927
---------- ----------
$ (640,625) $ 198,471
---------- ----------
$1,545,603 $2,173,510
========== ==========
</TABLE>
See accompanying notes to financial statements
F-62
<PAGE> 173
SOUTH PLAINS DBS LIMITED PARTNERSHIP
STATEMENT OF INCOME (LOSS)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1995
---------- ----------
<S> <C> <C>
Operating Revenues
Satellite Service Revenue................................. $1,410,801 $ 740,420
Equipment Sales and Installation.......................... 379,520 553,388
Subscriber Activations.................................... 53,650 34,403
Miscellaneous Revenues.................................... 67,287 6,154
---------- ----------
$1,911,258 $1,334,365
---------- ----------
Cost of Sales and Services
Equipment Sales and Installation.......................... $ 622,157 $ 547,157
Wholesale Service Costs................................... 999,466 517,744
---------- ----------
$1,621,623 $1,064,901
---------- ----------
Gross Profit................................................ $ 289,635 $ 269,464
---------- ----------
Operating Expenses
Advertising............................................... $ 224,919 $ 319,592
Commercial Office Expenses................................ 249,694 136,045
Depreciation and Amortization............................. 159,442 154,140
General and Administrative................................ 69,290 61,924
Legal and Accounting...................................... 6,450 21,761
Management Expense........................................ 143,122 128,984
Office Supplies and Expenses.............................. 25,782 19,978
Property Tax.............................................. 16,046 6,862
Rent Expense.............................................. 32,982 31,675
Repair and Maintenance.................................... 16,072 22,649
Sales Commissions......................................... 55,455 33,785
Utilities and Telephone................................... 32,236 29,921
Interest.................................................. 102,975 75,689
Bad Debt Expense.......................................... 20,765 14,337
---------- ----------
$1,155,230 $1,057,342
---------- ----------
Net Operating Loss................................ $ (865,595) $ (787,878)
---------- ----------
Non Operating Income (Expenses)
Interest Income........................................... $ 6 $ --
Capital Credits........................................... 31,780 46,533
Loss on Disposal of Assets................................ (5,287) --
---------- ----------
Net Loss.......................................... $ (839,096) $ (741,345)
========== ==========
</TABLE>
See accompanying notes to financial statements
F-63
<PAGE> 174
SOUTH PLAINS DBS LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
POKA
LAMBRO SOUTH RURAL
TELECOM- PLAINS L.E.C. VISION
MUNICATIONS, DEVELOPMENT S.P.A.C.E. DEVELOPMENT, DEVELOPMENT
INC. CORPORATION INC. INC. CORPORATION TOTAL
------------ ----------- ---------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance -- January 1,
1995.................... $ 223,206 $ 223,206 $ 223,206 $ 223,206 $ 46,992 $ 939,816
Net Loss -- 1995........ (176,070) (176,070) (176,070) (176,070) (37,065) (741,345)
--------- --------- --------- --------- -------- ---------
Balance -- December 31,
1995.................... $ 47,136 $ 47,136 $ 47,136 $ 47,136 $ 9,927 $ 198,471
Net Loss -- 1996.......... (199,285) (199,285) (199,285) (199,285) (41,956) (839,096)
--------- --------- --------- --------- -------- ---------
Balance -- December 31,
1996.................... $(152,149) $(152,149) $(152,149) $(152,149) $(32,029) $(640,625)
========= ========= ========= ========= ======== =========
</TABLE>
See accompanying notes to financial statements
F-64
<PAGE> 175
SOUTH PLAINS DBS, LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1995
--------- ----------
<S> <C> <C>
Cash Flows From Operating Activities
Net Loss.................................................. $(839,096) $ (741,345)
Adjustments to Reconcile Net Loss to Net Cash
Used in Operating Activities
Depreciation and Amortization.......................... 159,442 154,140
Loss on Disposal of Assets............................. 5,287
Capital Credits -- Non-Cash............................ (31,780) (46,533)
Accounts Receivable.................................... (446) 11,712
Inventory.............................................. 514,395 226,129
Prepaid Expenses....................................... 32 (4,197)
Accounts Payable -- Trade.............................. (75,538) (505,314)
Equipment Deposits..................................... (59,804) (2,900)
Advanced Billing....................................... 229,322 43,111
Other Accrued Liabilities.............................. (13,120) 14,388
--------- ----------
Net Cash Used in Operating Activities............. $(111,306) $ (850,809)
--------- ----------
Cash Flows From Investing Activities
Additions to Fixed Assets................................. $ (7,274) $ (67,199)
Investments in Associated Organizations................... 8,549 8,680
--------- ----------
Net Cash Provided by (Used in) Investing
Activities...................................... $ 1,275 $ (58,519)
--------- ----------
Cash Flows From Financing Activities
Advances an Line-of-Credit -- RTFC........................ $ 240,000 $1,484,642
Accounts Payable -- General Partner....................... (109,670) (490,727)
--------- ----------
Net Cash Provided by Financing Activities......... $ 130,330 $ 993,915
--------- ----------
Increase in Cash............................................ $ 20,299 $ 84,587
--------- ----------
Cash -- Beginning of Year................................... 175,287 90,700
--------- ----------
Cash -- End of Year......................................... $ 195,586 $ 175,287
--------- ----------
Supplemental Disclosure of Cash Flow Information
Cash Paid During the Year for:
Interest.................................................. $ 102,975 $ 75,689
--------- ----------
Income Taxes.............................................. $ 0 $ 0
========= ==========
</TABLE>
See accompanying notes to financial statements
F-65
<PAGE> 176
SOUTH PLAINS DBS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
NOTE 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
South Plains DBS Limited Partnership is a partnership among Poka Lambro
Telecommunications, Inc., South Plains Development Corporation, S.P.A.C.E.,
Inc., L.E.C. Development, Inc., and Rural Vision Development Corporation. The
partnership interests are as follows:
<TABLE>
<S> <C>
Poka Lambro Telecommunications, Inc. (General).............. 23.75%
South Plains Development Corporation (General).............. 23.75%
S.P.A.C.E., Inc. (General).................................. 23.75%
L.E.C. Development, Inc. (General).......................... 23.75%
Rural Vision Development Corporation (Limited).............. 5.00%
</TABLE>
The partnership was formed on August 27, 1992 to fund, establish and
provide direct broadcast satellite services to its franchised TVGSA (TV
Geographical Service Area). Poka Lambro Telecommunications, Inc. (the
Corporation) serves as the operating partner.
Operating Partner Responsibilities
The operating partner is responsible for the books and records of the
partnership and the oversight of operations. Costs incurred by the operating
partner associated with partnership operations are to be periodically
reimbursed, at cost.
Allowance for Uncollectible Accounts
The partnership records a monthly allowance for bad debts associated with
equipment sales. Accruals are charged to bad debt expense and recoveries are
charged back to the allowance.
The direct write-off method is used for bad debts associated with satellite
service. This method does not produce results materially different from using
the reserve method.
Inventory
Inventory is stated at average unit cost and consists primarily of the
direct broadcast satellite receivers and the related installation kits and
supplies.
Patronage Capital Certificates
Patronage capital from associated organizations is recorded at the stated
amount of the certificates.
Accounts Payable -- Operating Partner, Related Party Transactions
Accounts payable -- general partner represents costs borne by the operating
partner of the partnership which are to be reimbursed periodically.
Recognition of Income
Direct broadcast satellite television programming revenues are billed in
advance and are recognized when earned. Unearned amounts are classified as
advance billing on the balance sheet. All other revenues are recognized at the
time of the sales and at the time a service is provided.
F-66
<PAGE> 177
SOUTH PLAINS DBS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Customer Billing and Collection of Digital Satellite TV (DSTV) Services
The National Rural Telecommunications Cooperative (NRTC), under contractual
arrangements with the partnership, performs the billing and collection for the
DSTV services provided to customers. The arrangements require NRTC to remit
monthly total revenue billed less applicable billing and service expenses and to
remit subsequent collection of this revenue. The sales revenue and the customer
receivables for the DSTV services, as reflected in the financial statements, are
recorded from the monthly billing and collection reports provided by NRTC.
Concentration of Credit Risk
The partnership maintains its cash balances in federally insured financial
institutions. At times during the year, these cash balances exceeded the
insurance limit of $100,000.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NOTE 2. ASSETS PLEDGED
All assets are pledged as security for the long-term debt due Rural
Telephone Finance Corporation.
NOTE 3. FRANCHISE LICENSE
The franchise license represents the cost paid to extend direct broadcast
satellite services to consumers located in the TVGSA. The partnership is
amortizing the cost over the term of the franchise, which is ten years.
Amortization of the license commenced during the calendar year ended December
31, 1994 as the satellite service began. Amortization for the years ended
December 31, 1996 and 1995 amounted to $140,323 and $140,323, respectively.
NOTE 4. FIXED ASSETS
Fixed assets are stated at the original purchase cost.
The major classes of fixed assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1995
-------- --------
<S> <C> <C>
Office Furniture and Fixtures............................... $ 98,152 $ 99,119
Office Equipment............................................ 22,439 22,439
Lease Equipment............................................. 27,694 25,342
Leasehold Improvements...................................... 10,888 10,888
-------- --------
$159,173 $157,788
======== ========
</TABLE>
Provision for the depreciation of fixed assets is computed using
straight-line rates as follows:
<TABLE>
<S> <C>
Office Furniture and Fixtures............................... 7.50%
Office Equipment............................................ 14.30%
Leased Equipment............................................ 14.30%
</TABLE>
F-67
<PAGE> 178
SOUTH PLAINS DBS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Depreciation expense on the office furniture, fixtures and equipment for
the years ended December 31, 1996 and 1995 was $14,767 and $9,331, respectively.
The leasehold improvements relate to improvements made at the partnership's
retail location and are being amortized over approximately a two year period.
Amortization of leasehold improvements for the years ended December 31, 1996 and
1995 amounted to $4,352 and $4,486, respectively.
NOTE 5. LINE OF CREDIT -- RTFC
In 1995, the partnership executed two line-of-credit agreements with the
Rural Telephone Finance Cooperative (RTFC). The partnership was approved for a
line of credit of $3,000,000 and $600,000 for DBS inventory purchases and
general operating expenses, respectively. For both loans the annual interest
rate is 6.9 percent. At December 31, 1996, the partnership had $1,649,642
outstanding on the inventory purchases loan and $75,000 outstanding on the
general operating expenses loan. Terms include quarterly interest payments at
6.9 percent, with the total principal outstanding due November 28, 1999. The
notes are secured by the assets of the partnership and are guaranteed by the
parent companies of the partners in proportion to each partner's ownership
percentage. Total interest expense for the years ended December 31, 1996 and
1995, was $102,975 and $75,689, respectively.
NOTE 6. EQUIPMENT DEPOSITS
Equipment deposits represent amounts collected from subscribers for the
purpose of reserving a satellite receiver. The deposits made by subscribers are
applied as down payments on the receivers when purchased. Upon request, deposits
are refunded and the reservations are withdrawn.
NOTE 7. PARTNERS' CAPITAL ACCOUNTS
Capital calls are recognized as receivables from the partner upon issuance
of the call. If participating, the partners are required to fund the calls
within the time frame specified in the calls. Requests for capital are issued as
required by the operating partner. The capital accounts have been adjusted for
each partner's proportionate share of the accumulated losses as reflected on the
statement of changes in partners' capital.
NOTE 8. COMMITMENTS AND CONTINGENCIES
The partnership is liable to Poka Lambro Telecommunications, Inc., for all
costs incurred by the corporation in its capacity as operating partner. If
additional capital is necessary for the satisfaction of these commitments, this
capital will be provided by the above referenced capital calls of each partner.
The partnership has executed a non-cancelable operating lease for the use
of retail office space in Lubbock, Texas. The lease term is for four years
commencing on August 1, 1994. The minimum monthly rent requirements escalate on
an annual basis over the term of the lease. Future minimum rental payments
required under the terms of this lease are as follows at December 31, 1996:
<TABLE>
<S> <C>
1997........................................................ $32,280
1998........................................................ $19,040
</TABLE>
Lease expense recognized under this lease for the year ended December 31,
1996 and 1995, amounted to $32,982 and $31,675, respectively.
The partnership also leases a copier and a fax machine for use in its daily
operations. The lease terms are for three years commencing on August 18, 1995.
Rental expense recognized under the terms noted above amounted to $2,830 and
$2,548 for the years ended December 31, 1996 and 1995, respectively.
F-68
<PAGE> 179
SOUTH PLAINS DBS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Amounts reflected in the financial statements related to revenues and
billings from the National Rural Telecommunications Cooperative (NRTC) system
may be subject to adjustment in a subsequent accounting period. Differences from
these adjustments, if any, will normally be recorded in that accounting period,
if not material.
NOTE 9. INCOME TAXES
The partnership is not a taxable entity and the results of its operations
are includable in the tax returns of the partners. Accordingly, income taxes are
not reflected in the accompanying financial statements.
F-69
<PAGE> 180
SOURIS RIVER TELEVISION, INC.
MINOT, NORTH DAKOTA
FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
F-70
<PAGE> 181
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Souris River Television, Inc.
Minot, North Dakota
We have audited the accompanying balance sheets of Souris River Television,
Inc. as of December 31, 1996, and 1995 and the related statements of earnings,
shareholder's equity and cash flows for the years ended December 31, 1996, and
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Acquisition, Inc. at
December 31, 1996, and 1995 and the results of its operations and its cash flows
for the years ended December 31, 1996, and 1995, in conformity with generally
accepted accounting principles.
EIDE HELMEKE PLLP
October 23, 1997
Sioux Falls, South Dakota
F-71
<PAGE> 182
SOURIS RIVER TELEVISION, INC.
MINOT, NORTH DAKOTA
BALANCE SHEETS
DECEMBER 31, 1996, AND 1995
ASSETS
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 67,573 $ 32,720
Accounts receivable, net of allowance (Note 2)............ 54,353 95,700
Accounts receivable -- associated company................. 377,704 26,124
Inventory................................................. 254,927 259,619
Notes receivable, current maturities (Note 3)............. 105,984 172,166
Other current assets...................................... 2,451
---------- ----------
Total current assets.............................. 862,992 586,329
Property and equipment (net of accumulated depreciation of
$1,186,886 in 1996 and $943,982 in 1995) (Note 4)...... 1,076,776 1,086,569
---------- ----------
Intangible assets (net of accumulated amortization of
$329,891 in 1996 and $206,182 in 1995)................. 907,205 1,030,914
---------- ----------
OTHER ASSETS:
Other investments......................................... 71,741 19,449
Deferred income taxes (Note 5)............................ 8,211
Notes receivable, less current maturities (Note 3)........ 176,117 273,771
---------- ----------
Total other assets................................ 247,858 301,431
---------- ----------
$3,094,831 $3,005,243
========== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 112,410 $ 66,962
Unearned revenue.......................................... 326,924 109,937
Customer deposits......................................... 85,500 58,300
Other current liabilities................................. 5,955 --
---------- ----------
Total current liabilities......................... 530,789 235,199
---------- ----------
Deferred income taxes (Note 5)............................ 74,223 --
---------- ----------
Total liabilities................................. 605,012 235,199
---------- ----------
SHAREHOLDER'S EQUITY:
Common stock, no par value, authorized 100,000 shares;
issued and outstanding 100 shares...................... 2,963,885 2,963,885
Accumulated deficit....................................... (474,066) (193,841)
---------- ----------
Total stockholder's equity........................ 2,489,819 2,770,044
---------- ----------
Total liabilities and shareholder's equity........ $3,094,831 $3,005,243
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-72
<PAGE> 183
SOURIS RIVER TELEVISION, INC.
MINOT, NORTH DAKOTA
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996, AND 1995
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
REVENUES:
CATV program revenues..................................... $ 253,708 $ 261,159
DBS program revenue....................................... 1,464,579 567,480
Satellite program revenue................................. 448,568 602,030
Equipment sales........................................... 549,432 819,901
Lease revenue............................................. 236,672 18,186
Other..................................................... 40,926 31,668
---------- ----------
Total revenues.................................... 2,993,885 2,300,424
---------- ----------
COST OF REVENUES:
CATV program costs........................................ 53,997 57,308
DBS program costs......................................... 866,008 324,845
Satellite program costs................................... 339,783 379,333
Equipment costs........................................... 483,894 535,149
Rebate expense............................................ 139,414 14,343
---------- ----------
Total cost of revenues............................ 1,883,096 1,310,978
---------- ----------
Gross Profit...................................... 1,110,789 989,446
---------- ----------
EXPENSES:
Salaries, wages and commissions........................... 789,334 710,009
Depreciation and amortization............................. 384,189 218,727
Bad debt expense.......................................... 35,967 50,899
Marketing................................................. 170,664 129,993
Maintenance and installation.............................. 70,066 81,723
Other selling, general and administrative expenses........ 161,073 166,073
---------- ----------
1,611,293 1,357,424
---------- ----------
NET LOSS BEFORE INTEREST AND TAXES................ (500,504) (367,978)
---------- ----------
INTEREST INCOME............................................. 41,119 50,206
---------- ----------
NET LOSS BEFORE TAXES............................. (459,385) (317,772)
INCOME TAX BENEFIT (Note 5)................................. 179,160 123,931
---------- ----------
NET LOSS.......................................... $ (280,225) $ (193,841)
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-73
<PAGE> 184
SOURIS RIVER TELEVISION, INC.
MINOT, NORTH DAKOTA
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, AND 1995
<TABLE>
<CAPTION>
COMMON ACCUMULATED
STOCK DEFICITS TOTAL
---------- ----------- ----------
<S> <C> <C> <C>
Balance, January 1, 1995................................. $ -- $ -- $ --
Issuance of common stock for property and franchise
rights.............................................. 2,963,885 -- 2,963,885
Net loss, 1995......................................... -- (193,841) (193,841)
---------- --------- ----------
Balance, December 31, 1995............................... 2,963,885 (193,841) 2,770,044
Net loss, 1996......................................... -- (280,225) (280,225)
---------- --------- ----------
Balance December 31, 1996................................ $2,963,885 $(474,066) $2,489,819
========== ========= ==========
</TABLE>
See accompanying notes to financial statements.
F-74
<PAGE> 185
SOURIS RIVER TELEVISION, INC.
MINOT, NORTH DAKOTA
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, AND 1995
<TABLE>
<CAPTION>
1996 1995
--------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $(280,225) $ (193,841)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization.......................... 384,189 218,727
Bad debt expense....................................... 35,967 50,899
Deferred income taxes.................................. 82,434 (8,211)
(Increase) decrease in assets:
Accounts receivable.................................... 41,347 (81,157)
Accounts receivable -- associated company.............. (351,580) (26,124)
Inventory.............................................. 4,692 (38,514)
Other assets........................................... (2,451) --
(Decrease) increase in liabilities:
Accounts payable....................................... 45,448 66,962
Unearned revenue....................................... 164,695 90,488
Customer deposits...................................... 27,200 57,650
Other liabilities...................................... 5,955 (1,498)
--------- -----------
Net cash provided by operating activities......... 157,671 135,381
--------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment....................... (250,687) (705,050)
Decrease (Increase) in notes receivable................... 127,869 (88,097)
Transfer of DBS franchise rights.......................... -- (1,154,623)
--------- -----------
Net cash (used in) investing activities........... (122,818) (1,947,770)
--------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt -- associated
company................................................ -- (1,118,776)
Issuance of common stock.................................. -- 2,963,885
--------- -----------
Net cash provided by financing activities......... -- 1,845,109
--------- -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS..................... 34,853 32,720
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.............. 32,720 --
--------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................... 67,573 32,720
========= ===========
</TABLE>
See accompanying notes to the financial statements.
F-75
<PAGE> 186
SOURIS RIVER TELEVISION, INC.
MINOT, NORTH DAKOTA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Nature of Operations -- Souris River Television, Inc. (the
Company) is a wholly-owned subsidiary of Souris River Telecommunications
Cooperative (the Parent). The Company was formed in December 1994 for the
purpose of owning and operating direct broadcast satellite (DBS) and cable
television systems previously purchased by the Parent. The Company is an
affiliated associate member of the National Rural Telecommunications Cooperative
(NRTC). The NRTC has contracted Hughes Communications Galaxy, Inc. (Hughes), to
provide exclusive marketing rights for distribution of DirecTV satellite
television programming in the United States. The marketing rights give the owner
exclusive right to distribution of DirecTV service within the contract area. In
1994, Hughes launched the satellite that provides programming for DirecTV. At
December 31, 1996, and 1995, the Company had the operating rights for sixteen
counties in North Dakota.
Revenue Recognition -- Revenues are earned for monthly DBS and cable
television and satellite services and are billed to subscribers in advance.
Subscribers may elect to prepay their service charges for one or more months.
Revenue is recognized in the month the service is provided to the subscriber.
Subscriber advance billings represent unearned revenues and are deferred until
the service is provided.
Inventory -- Inventory is stated at the lower of average cost or market and
consists of receivers, satellite dishes and satellite TV accessories.
Use of Estimates -- Management of the Company has made a number of
estimates and assumptions relating to the reporting of assets and liabilities to
prepare the balance sheets in conformity with generally accepted accounting
principles. Actual results could differ from these estimates.
Intangible Assets -- The cost of acquiring the rights to provide DirecTV
satellite services are capitalized as intangible assets and are being amortized
on a straight-line basis over ten years which is the expected useful life of the
revenue stream of those services.
Income Taxes -- The Company is not directly subjected to income taxes as
its net losses are consolidated with the Parent's operations for tax filing
purposes. The Company records a receivable from the Parent for the tax benefits
arising from the net losses of the Company. All tax benefits arise from losses
from continuing operations.
Investments and Other Assets -- Investments and other assets are stated at
cost.
Property and Equipment -- Property and equipment are stated at cost.
Depreciation is computed by the straight-line method over the following
estimated useful lives.
Cash and Cash Equivalents -- For purposes of reporting cash flows, the
company considers all deposits with a maturity of three months or less to be
cash equivalents.
F-76
<PAGE> 187
SOURIS RIVER TELEVISION, INC.
MINOT, NORTH DAKOTA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- ACCOUNTS RECEIVABLE
Trade receivables consist primarily of amounts due from subscribers for
monthly programming fees from cable television and direct broadcast satellite
services. Accounts receivables as of December 31, 1996, and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Accounts receivable:
Programming -- DBS........................................ $50,167 $88,695
Programming -- CATV....................................... 6,552 9,203
Less allowance for uncollectibles......................... (2,366) (2,198)
------- -------
$54,353 $95,700
======= =======
</TABLE>
NOTE 3 -- NOTES RECEIVABLE
Notes receivable consist primarily of amounts due from subscribers for DBS
and satellite equipment purchases financed by the Company, repayment of the
notes range from one to five years. Notes receivable as of December 31, 1996,
and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Notes receivable, net of allowance.......................... $282,101 $445,937
Less amount due in one year............................... 105,98 172,166
-------- --------
$176,117 $273,771
======== ========
</TABLE>
NOTE 4 -- PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
1996 1995
------------------------- -------------------------
PLANT DEPRECIATION PLANT DEPRECIATION
BALANCE RATE BALANCE RATE
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Land and support assets...................... $ 159,352 20.0% $ 178,083 20.0%
Towers and antennas.......................... 81,994 6.7% 81,994 6.7%
CATV equipment............................... 671,460 6.7% 669,505 6.7%
CATV cable................................... 397,957 6.7% 397,957 6.7%
Leased DBS equipment......................... 952,899 20.0% 703,012 20.0%
---------- ----------
Total plant in service............. 2,263,662 2,030,551
Less accumulated depreciation...... 1,186,886 943,982
---------- ----------
$1,076,776 $1,086,569
========== ==========
</TABLE>
NOTE 5 -- INCOME TAXES
The Company accounts for income taxes under the asset and liability method
whereby deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statements
carrying amounts of existing assets and liabilities and their respective tax
basis. Deferred tax assets and liabilities are measured using enacted tax rates
expected to be recovered or settled.
F-77
<PAGE> 188
SOURIS RIVER TELEVISION, INC.
MINOT, NORTH DAKOTA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Income tax benefit for the year ended December 31, 1996 and 1995, is
comprised of the following:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Current:
Federal................................................... $207,933 $131,712
State..................................................... 53,661 33,990
-------- --------
Total current tax benefit......................... 261,594 165,702
-------- --------
Deferred:
Federal................................................... (65,524) (33,203)
State..................................................... (16,910) (8,568)
-------- --------
Total deferred tax benefit........................ (82,434) (41,771)
-------- --------
Total income tax benefit.......................... $179,160 $123,931
======== ========
</TABLE>
The tax effects of temporary differences that result in tax assets and
liabilities at December 31, 1996 and 1995, are presented below. There are no
valuation allowances provided.
<TABLE>
<CAPTION>
1996 1995
--------- -------
<S> <C> <C>
Deferred income tax assets (liabilities):
Allowance for uncollectibles.............................. $ 31,790 $22,596
Depreciation.............................................. (106,013) (14,385)
--------- -------
Net deferred income tax assets (liabilities)...... $ (74,223) $ 8,211
========= =======
</TABLE>
NOTE 5 -- RELATED PARTY TRANSACTIONS
Souris River Telecommunications Cooperative owns 100% of the outstanding
shares of Souris River Television, Inc. Souris River Telecommunications
Cooperative provides certain management, customer service, billing and
collection, and other services to the company on a contractual basis. Payments
under this contract for the years ended December 31, 1996 and 1995, were
approximately $931,000 and $797,000 respectively.
Intercompany receivable balances arising from the various intercompany
transactions at December 31, 1996, and 1995 were $377,704, and $26,124,
respectively.
NOTE 6 -- SUBSEQUENT EVENT
On October 16, 1997, the Company contracted to sell 69% of their DBS
franchise area to Golden Sky Systems, Inc. The acquisition is expected to close
on November 21, 1997.
F-78
<PAGE> 189
IMAGES DBS KANSAS, L.C.
FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
F-79
<PAGE> 190
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Images DBS Kansas, L.C.:
We have audited the accompanying balance sheets of Images DBS Kansas, L.C.
as of December 31, 1996 and 1995 and the related statements of operations,
investors' capital and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Images DBS Kansas, L.C. at
December 31, 1996 and 1995 and the results of its operations and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
June 20, 1997
Kansas City, Missouri
F-80
<PAGE> 191
IMAGES DBS KANSAS L.C.
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
ASSETS
<TABLE>
<CAPTION>
1996 1995
----------- ---------
<S> <C> <C>
Current assets:
Cash...................................................... $ 42,806 $ 16,614
Accounts receivable:
Subscribers (net of allowance for doubtful accounts of
$38,480 and $8,686)................................... 238,422 327,119
Related parties........................................ 1,802 --
Prepaid expenses.......................................... 1,124 4,674
----------- ---------
Total current assets.............................. 284,154 348,407
Intangible assets (net of accumulated amortization of $3,517
and $2,062) (note 1)...................................... 3,762 5,217
Other assets................................................ 30,007 2,941
----------- ---------
Total assets...................................... $ 317,923 $ 356,565
=========== =========
LIABILITIES AND INVESTORS' CAPITAL
Current liabilities:
Accounts payable:
Vendors................................................ $ 128,132 $ 56,196
Related parties........................................ -- 5,078
Unearned revenue.......................................... 226,611 72,543
Other liabilities......................................... 150,509 39,845
----------- ---------
Total current liabilities......................... 505,252 173,662
----------- ---------
Long-term liabilities:
Notes payable............................................. 1,078,447 650,877
Other long-term liabilities............................... 47,181 11,330
----------- ---------
Total long-term liabilities....................... 1,125,628 662,207
----------- ---------
Investors' capital:
Contributed capital....................................... 556,968 406,968
----------- ---------
Accumulated deficit....................................... (1,869,925) (886,272)
----------- ---------
(1,312,957) (479,304)
----------- ---------
Total liabilities and investors' capital.......... $ 317,923 $ 356,565
=========== =========
</TABLE>
See accompanying notes to financial statements.
F-81
<PAGE> 192
IMAGES DBS KANSAS L.C.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---------- ---------
<S> <C> <C>
Revenues:
Programming revenue....................................... $ 775,165 $ 246,432
Equipment rental revenue.................................. 212,172 57,433
Other revenues............................................ 12,923 18,160
---------- ---------
Total revenues.................................... 1,000,260 322,025
---------- ---------
Cost of revenues:
Programming costs......................................... 678,105 213,679
Equipment rental costs.................................... 361,427 76,886
---------- ---------
Total cost of revenues............................ 1,039,532 290,565
---------- ---------
Gross profit (loss)............................... (39,272) 31,460
---------- ---------
Expenses:
Salaries and commissions.................................. 450,819 267,232
Advertising............................................... 117,347 181,879
Bad debt expense.......................................... 50,300 12,100
Other general and administrative expenses................. 267,690 222,932
Amortization expense...................................... 1,455 1,455
---------- ---------
887,611 685,598
---------- ---------
Net operating loss................................ (926,883) (654,138)
Interest expense............................................ (56,770) (30,877)
---------- ---------
Net loss.......................................... $ (983,653) $(685,015)
========== =========
</TABLE>
See accompanying notes to financial statements.
F-82
<PAGE> 193
IMAGES DBS KANSAS L.C.
STATEMENTS OF INVESTORS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
CONTRIBUTED ACCUMULATED TOTAL
CAPITAL DEFICIT CAPITAL
----------- ----------- -----------
<S> <C> <C> <C>
Balance at January 1, 1995.............................. $ 37,468 $ (201,257) $ (163,789)
Capital contributions................................. 369,500 -- 369,500
Net loss.............................................. -- (685,015) (685,015)
-------- ----------- -----------
Balance at December 31, 1995............................ 406,968 (886,272) (479,304)
Capital contributions................................. 150,000 -- 150,000
Net loss.............................................. -- (983,653) (983,653)
-------- ----------- -----------
Balance at December 31, 1996............................ $556,968 $(1,869,925) $(1,312,957)
======== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-83
<PAGE> 194
IMAGES DBS KANSAS L.C.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Operating activities:
Net loss.................................................. $(983,653) $(685,015)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Amortization........................................... 1,455 1,455
Bad debt expense....................................... 50,330 12,100
Change in:
Accounts receivable.................................... 36,595 (322,128)
Other assets........................................... (27,066) (626)
Accounts payable....................................... 66,858 21,532
Other liabilities...................................... 110,664 21,513
Intangible assets...................................... -- (6,672)
Other long-term liabilities............................ 35,851 11,330
Prepaid expenses....................................... 3,550 (3,885)
Unearned revenue....................................... 154,068 69,744
--------- ---------
Net cash used in operating activities............. (551,378) (880,652)
--------- ---------
Investing activities -- capital contributions............... 150,000 369,500
--------- ---------
Financing activities:
Payments on notes payable................................. (211,700) (82,500)
Proceeds from notes payable............................... 639,270 600,256
Net cash provided by financing activities......... 427,570 517,756
--------- ---------
Net change in cash................................ 26,192 6,604
Cash at beginning of period................................. 16,614 10,010
--------- ---------
Cash at end of period....................................... $ 42,806 $ 16,614
========= =========
</TABLE>
See accompanying notes to financial statements.
F-84
<PAGE> 195
IMAGES DBS KANSAS, L.C.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Nature of Operations
Images DBS Kansas, L.C. (Images-KS) is a limited-liability company which is
in the primary business of promoting, marketing and selling direct broadcast
satellite (DBS) television services in seven counties in southeastern Kansas.
Images-KS is owned by the employees, officers and directors of Totah Telephone
Company, Inc. (Totah) and its subsidiaries.
In 1994, the Hughes Communications Galaxy, Inc. (Hughes) launched two
satellites to provide satellite television services. The National Rural
Telecommunications Cooperative (NRTC) contracted with Hughes to distribute DBS
television services throughout the United States. Totah became an affiliated
member of NRTC in order to acquire exclusive distribution rights for DirecTV
service within certain contract areas. Totah purchased the rights in seven
southeastern Kansas counties and entered into an agreement with Images-KS to
license all of Totah's rights and obligations under the agreement with the NRTC
to Images-KS. In return for this, Totah received a ten-percent license and
royalty fee of net programming revenues. Effective January 1, 1996, Totah
contributed the licensing rights to Total Communications, Inc. (Total), a wholly
owned subsidiary. Subsequent to this date, the ten percent license and royalty
fee paid by Images-KS is paid to Total. Total is in the primary business of
providing DBS equipment to the customers of Images-KS.
Revenue Recognition
Programming revenue is recognized in the month the service is provided to
the subscriber. Unearned revenues represent subscriber advance billings and are
deferred until the service is provided.
Equipment Rental
Images-KS leases satellite television equipment from Total and in turn
leases this equipment to its DBS customers. The lease terms to customers are
based on prevailing market conditions. The lease terms with Total are based on a
fixed percentage of equipment value.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management of the Company to make a
number of estimates and assumptions which affect the reported amounts of assets
and liabilities, as well as the reported amounts of revenues and expenses during
the period. Actual results could differ from these estimates.
Long-Lived Assets
Long-lived assets and certain identifiable intangibles held and used by the
Company are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets is measured by a comparison of the carrying amount of
an asset to future net cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceed the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell.
F-85
<PAGE> 196
IMAGES DBS KANSAS, L.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NRTC Patronage Capital
The NRTC declares and the Company receives a yearly patronage dividend
based on the NRTC's profitability. Of the total dividend, 20% is received in
cash and 80% is distributed in the form of NRTC patronage capital certificates,
which will be redeemed in cash at a future date at the discretion of the NRTC.
The Company has recorded an asset and an offsetting deferred income liability
for the noncash portion of the patronage dividend. The deferred income will be
recognized as revenue when cash distributions are declared by the NRTC.
Fair Value of Financial Instruments
Financial instruments consisting of receivables and accounts payable are
carried at cost, which approximates fair value as a result of the short-term of
the instruments. The carrying value of notes payable approximates fair value as
they bear interest at market rates.
Income Taxes
Images-KS is a limited-liability company. All taxes are the responsibility
of Images-KS's unit holders.
Intangible Assets
The costs of acquiring the rights to provide DirecTV satellite services are
capitalized as intangible assets and are being amortized on a straight-line
basis, over a ten-year period, which is the expected useful life of the revenue
streams of those services.
Accounts Receivable Subscribers
Accounts receivables subscribers consist of amounts due from subscribers
for monthly programming fees and equipment purchases financed by Images-KS.
Images-KS finances equipment purchases at 12% over a period of two to three
years. Balances as of December 31, 1996 and 1995 were $238,422 and $327,119,
respectively.
(2) RELATED PARTY TRANSACTIONS
As described in note 1, Images-KS is owned by the employees, officers and
directors of Totah and its subsidiaries. As a result, certain general and
administrative expenses and payroll-related changes occur between Images-KS and
Totah and its subsidiaries.
Related party receivables and payables as of December 31, 1996 and 1995 are
as follows:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Related party receivables from:
Total..................................................... $58,580 $18,193
Images DBS Oklahoma, L.C.................................. -- 1,980
------- -------
58,580 20,173
------- -------
Related party payables to:
Total..................................................... 46,590 19,328
Images DBS Oklahoma, L.C.................................. 10,188 5,923
------- -------
56,778 25,251
------- -------
Net............................................... $ 1,802 $(5,078)
======= =======
</TABLE>
F-86
<PAGE> 197
IMAGES DBS KANSAS, L.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Related party notes payable and accrued interest as of December 31, 1996
and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
---------- --------
<S> <C> <C>
Total....................................................... $ 732,722 $494,616
Totah....................................................... 179,449 --
Other....................................................... 166,276 156,261
---------- --------
$1,078,447 $650,877
========== ========
</TABLE>
As a result of the acquisition of Images-KS (see note 3), all notes payable
were repaid on February 27, 1997.
(3) SUBSEQUENT EVENTS
In December 1996, Images-KS contracted to sell all of its DBS operations to
Golden Sky Systems, Inc. The effective date of the acquisition was December 12,
1996. The final closing was consummated on February 12, 1997.
F-87
<PAGE> 198
IMAGES DBS OKLAHOMA, L.C.
FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
F-88
<PAGE> 199
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Images DBS Oklahoma, L.C.:
We have audited the accompanying balance sheets of Images DBS Oklahoma,
L.C. as of December 31, 1996 and 1995 and the related statements of operations,
investors' capital and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Images DBS Oklahoma, L.C. at
December 31, 1996 and 1995 and the results of its operations and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
June 20, 1997
Kansas City, Missouri
F-89
<PAGE> 200
IMAGES DBS OKLAHOMA, L.C.
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
ASSETS
<TABLE>
<CAPTION>
1996 1995
----------- ---------
<S> <C> <C>
Current assets:
Cash...................................................... $ 47,362 $ 11,055
Accounts receivable:
Subscribers -- (net of allowance for doubtful accounts
of $29,785 and $11,888)............................... 240,589 336,278
Related parties........................................ 33,965 --
Prepaid expenses.......................................... 5,028 14,333
----------- ---------
Total current assets.............................. 326,944 361,666
Intangible assets (net of accumulated amortization of $3,517
and $2,062) (note 1)...................................... 3,762 5,217
Other assets................................................ 55,939 18,415
----------- ---------
Total assets...................................... $ 386,645 $ 385,298
=========== =========
LIABILITIES AND INVESTORS' CAPITAL
Current liabilities:
Accounts payable:
Vendors................................................ $ 147,830 $ 67,417
Related parties........................................ -- 4,688
Unearned revenue.......................................... 280,870 75,802
Other liabilities......................................... (155,053) 47,834
----------- ---------
Total current liabilities......................... 583,753 195,741
----------- ---------
Long-term debt:
Notes payable............................................. 746,895 495,613
Deferred payables......................................... 55,556 13,911
----------- ---------
Total long-term liabilities....................... 802,451 509,524
Investors' capital:
Contributed capital....................................... 559,966 409,966
Accumulated deficit....................................... (1,559,525) (729,933)
----------- ---------
Total investors' capital.......................... (999,559) (319,967)
----------- ---------
Total liabilities and investors' capital.......... $ 386,645 $ 385,298
=========== =========
</TABLE>
See accompanying notes to financial statements.
F-90
<PAGE> 201
IMAGES DBS OKLAHOMA, L.C.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---------- ---------
<S> <C> <C>
Revenues:
Programming revenue....................................... $ 902,967 $ 348,688
Equipment rental revenue.................................. 138,049 51,284
Other revenues............................................ 12,566 17,809
---------- ---------
Total revenues.................................... 1,053,582 417,781
---------- ---------
Cost of revenues:
Programming costs......................................... 780,879 269,704
Equipment rental costs.................................... 286,161 67,788
---------- ---------
Total cost of revenues............................ 1,067,040 337,492
---------- ---------
Gross profit (loss)............................... (13,458) 80,289
---------- ---------
Expenses:
Salaries and commissions.................................. 256,134 197,560
Advertising............................................... 189,933 174,567
Bad debt expense.......................................... 49,600 15,900
Other general and administrative expenses................. 279,631 208,574
Amortization expense...................................... 1,455 1,455
---------- ---------
776,753 598,056
---------- ---------
Net operating loss................................ (790,211) (517,767)
Interest expense............................................ (39,381) (26,340)
---------- ---------
Net loss.......................................... $ (829,592) $(544,107)
========== =========
</TABLE>
See accompanying notes to financial statements.
F-91
<PAGE> 202
IMAGES DBS OKLAHOMA, L.C.
STATEMENTS OF INVESTORS' CAPITAL
FOR THE YEARS ENDED TO DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
CONTRIBUTED ACCUMULATED TOTAL
CAPITAL DEFICIT CAPITAL
----------- ----------- ---------
<S> <C> <C> <C>
Balance at January 1, 1995............................... $ 40,466 $ (185,826) $(145,360)
Capital contributions.................................. 369,500 -- 369,500
Net loss............................................... -- (544,107) (544,107)
-------- ----------- ---------
Balance at December 31, 1995............................. 409,966 (729,933) (319,967)
Capital contributions.................................. 150,000 -- 150,000
Net loss............................................... -- (829,592) (829,592)
-------- ----------- ---------
Balance at December 31, 1996............................. $559,966 $(1,559,525) $(999,559)
======== =========== =========
</TABLE>
See accompanying notes to financial statements.
F-92
<PAGE> 203
IMAGES DBS OKLAHOMA, L.C.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Operating activities:
Net loss.................................................. $(829,592) $(544,107)
Adjustments to reconcile income:
Amortization........................................... 1,455 1,455
Bad debt expense....................................... 49,600 15,900
Change in:
Accounts receivable.................................... 12,124 (336,244)
Other assets........................................... (37,524) (17,100)
Accounts payable....................................... 75,725 48,418
Other liabilities...................................... 107,219 20,576
Intangibles............................................ -- (6,672)
Deferred payables...................................... 41,645 13,911
Prepaid expenses....................................... 9,305 (13,780)
Unearned revenue....................................... 205,068 66,975
--------- ---------
Net cash used in operating activities............. (364,975) (750,668)
--------- ---------
Investing activities:
Capital contributions..................................... 150,000 369,500
--------- ---------
Net cash provided by investing activities......... 150,000 369,500
--------- ---------
Financing activities:
Payments on notes payable................................. (227,695) (82,500)
Proceeds from notes payable............................... 478,977 461,318
--------- ---------
Net cash provided by financing activities......... 251,282 378,818
--------- ---------
Net change in cash................................ 36,307 (2,350)
Cash at beginning of period................................. 11,055 13,405
--------- ---------
Cash at end of period....................................... $ 47,362 $ 11,055
========= =========
</TABLE>
See accompanying notes to financial statements.
F-93
<PAGE> 204
IMAGES DBS OKLAHOMA, L.C.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Nature of Operations
Images DBS Oklahoma, L.C. (Images-OK) is a limited-liability company which
is in the primary business of promoting, marketing and selling direct broadcast
satellite (DBS) television services in four counties in northeastern Oklahoma.
Images-OK is owned by the employees, officers and directors of Totah Telephone
Company, Inc. (Totah) and its subsidiaries.
In 1994, the Hughes Communications Galaxy, Inc. (Hughes) launched two
satellites to provide satellite television services. The National Rural
Telecommunications Cooperative (NRTC) contracted with Hughes to distribute DBS
television services throughout the United States. Totah became an affiliated
member of NRTC in order to acquire exclusive distribution rights for DirecTV
service within certain contract areas. Totah purchased the rights in seven
southeastern Oklahoma counties and entered into an agreement with Images-OK to
license all of Totah's rights and obligations under the agreement with the NRTC
to Images-OK. In return for this, Totah received a ten-percent license and
royalty fee of net programming revenues. Effective January 1, 1996, Totah
contributed the licensing rights to Total Communications, Inc. (Total), a
wholly-owned subsidiary. Subsequent to this date, the ten percent license and
royalty fee paid by Images-OK is paid to Total. Total is in the primary business
of providing DBS equipment to the customers of Images-OK.
Revenue Recognition
Programming revenue is recognized in the month the service is provided to
the subscriber. Unearned revenues represents subscriber advance billings and is
deferred until the service is provided.
Equipment Rental
Images-OK leases satellite television equipment from Total and in turn
leases this equipment to its DBS customers. The lease terms with customers are
based on prevailing market conditions. The lease terms with Total are based on a
fixed percentage of equipment value.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management of the Company to make a
number of estimates and assumptions which affect the reported amounts of assets
and liabilities, as well as the reported amounts of revenues and expenses during
the period. Actual results could differ from these estimates.
Long-lived Assets
Long-lived assets and certain identifiable intangibles held and used by the
Company are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets is measured by a comparison of the carrying amount of
an asset to future net cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceed the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell.
F-94
<PAGE> 205
IMAGES DBS OKLAHOMA, L.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NRTC Patronage Capital
The NRTC declares and the Company receives a yearly patronage dividend
based on the NRTC's profitability. Of the total dividend, 20% is received in
cash and 80% is distributed in the form of NRTC patronage capital certificates,
which will be redeemed in cash at a future date at the discretion of the NRTC.
The Company has recorded an asset and an offsetting deferred income liability
for the noncash portion of the patronage dividend. The deferred income will be
recognized as revenue when cash distributions are declared by the NRTC.
Fair Value of Financial Instruments
Financial instruments consisting of receivables and accounts payable are
carried at cost, which approximates fair value as a result of the short-term of
the instruments. The carrying value of notes payable approximates fair value as
they bear interest at market rates.
Income Taxes
Images-OK is a limited-liability company. All taxes are the responsibility
of Images-OK's unit holders.
Intangible Assets
The costs of acquiring the rights to provide DirecTV satellite services are
capitalized as intangible assets and are being amortized on a straight-line
basis, over a ten-year period, which is the expected useful life of the revenue
stream of those services.
Accounts Receivable -- subscribers
Accounts receivable-subscribers consist of amounts due from subscribers for
(1) monthly programming fees and (2) equipment purchases financed by the
Company. The Company finances equipment purchases at 12% over a period of two to
three years. Trade receivables as of December 31, 1996 and 1995 were $240,589
and $366,278, respectively.
(2) RELATED PARTY TRANSACTIONS
As described in note 1, Images-OK is owned by the employees, officers and
directors of Totah and its subsidiaries. As a result, certain general and
administrative expenses and payroll-related charges occur between Images-OK and
Totah and its subsidiaries.
Related receivables and payables as of December 31, 1996 and 1995 are as
follows:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Related party receivables for:
Total..................................................... $62,605 $11,788
Images DBS Kansas, L.C.................................... 10,188 5,923
Other related party receivables........................... 9,723 2,768
------- -------
82,516 20,479
------- -------
Related party payables for:
Total..................................................... 48,551 23,187
Images DBS Kansas, L.C.................................... -- 1,980
------- -------
48,551 25,167
------- -------
Net............................................... $33,965 $(4,688)
======= =======
</TABLE>
F-95
<PAGE> 206
IMAGES DBS OKLAHOMA, L.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Related party notes payable plus accrued interest as of December 31, 1996
and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Total....................................................... $401,515 $362,265
Totah....................................................... 166,276 --
Other....................................................... 179,104 133,348
-------- --------
$746,895 $495,613
======== ========
</TABLE>
As a result of the acquisition of Images-OK (see note 3), all notes payable
were repaid on February 27, 1997.
(3) SUBSEQUENT EVENTS
In December 1996, Images-OK contracted to sell all of its DBS operations to
Golden Sky Systems, Inc. The effective date of the acquisition was December 12,
1996. The final closing was consummated on February 12, 1997.
F-96
<PAGE> 207
TOTAL COMMUNICATIONS, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
F-97
<PAGE> 208
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Total Communications, Inc.
We have audited the accompanying balance sheets of Total Communications,
Inc. as of December 31, 1996 and 1995 and the related statements of operations,
stockholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Total Communications, Inc.
at December 31, 1996 and 1995, the results of its operations and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
June 20, 1997
Kansas City, Missouri
F-98
<PAGE> 209
TOTAL COMMUNICATIONS, INC.
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
ASSETS
<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
Current assets:
Cash...................................................... $ 163,452 $ 22,384
Lease receivable (net of allowance for doubtful accounts
of $300,000 and $91,000)............................... 1,699,709 518,115
Accounts receivable -- related parties (net of allowance
for doubtful accounts of $108,314 and $32,207)......... 514,288 232,594
Inventory................................................. 363,010 853,528
----------- ----------
Total current assets.............................. 2,740,459 1,626,621
Property and equipment (net of accumulated depreciation of
$221,661 and $115,429) (note 2)........................... 386,910 409,166
Investment in affiliates.................................... (83,017) 73,551
Intangible assets (net of accumulated amortization of
$145,857 and $0) (note 1)................................. 1,106,081 --
Notes receivable -- related parties (note 4)................ 1,134,237 856,881
Other assets................................................ 123,476 101,972
----------- ----------
Total assets...................................... $ 5,408,146 $3,068,191
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable:
Other.................................................. $ 105,437 $ 54,660
Related parties........................................ 338,352 250,137
Notes payable (note 3).................................... 404,459 239,713
Customer deposits payable................................. 299,072 104,964
Other accrued expenses.................................... 52,301 26,486
Unearned revenue.......................................... 34,234 19,811
----------- ----------
Total current liabilities......................... 1,233,855 695,771
----------- ----------
Long-term liabilities:
Notes payable (note 3).................................... 4,007,462 2,653,607
Accrued interest payable.................................. 104,946 27,800
Other..................................................... 53,805 8,310
----------- ----------
Total long-term liabilities....................... 4,166,213 2,689,717
----------- ----------
Shareholders' Equity (deficit):
Common stock, $1 par value, 12,500 shares authorized,
10,000 shares issued and outstanding................... 10,000 10,000
Additional paid-in capital................................ 1,841,938 590,000
Accumulated deficit....................................... (1,843,860) (917,297)
----------- ----------
Total shareholders' equity (deficit).............. 8,078 (317,297)
----------- ----------
Total liabilities and shareholders' equity........ $ 5,408,146 $3,068,191
=========== ==========
</TABLE>
See accompanying notes to financial statements.
F-99
<PAGE> 210
TOTAL COMMUNICATIONS, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Revenues:
Equipment sales........................................... $2,615,634 $1,372,908
Rental income............................................. 351,158 74,892
---------- ----------
Total revenues.................................... 2,966,792 1,447,800
---------- ----------
Cost of revenues -- equipment costs......................... 2,174,598 1,052,902
---------- ----------
Gross profit...................................... 792,194 394,898
---------- ----------
Expenses:
Salaries and commissions.................................. 503,771 328,539
Depreciation and amortization............................. 258,464 115,429
Bad debt expense.......................................... 296,833 118,907
Loss on asset disposal.................................... 98,135 4,885
Equity in losses of unconsolidated affiliates............. 156,569 72,754
Other general and administrative expenses................. 272,986 153,303
---------- ----------
Total expenses.................................... 1,586,758 793,817
---------- ----------
Net operating loss................................ (794,564) (398,919)
Interest:
Interest income........................................... 98,323 64,496
Interest expense.......................................... (230,322) (143,073)
---------- ----------
Net interest expense.............................. (131,999) (78,577)
---------- ----------
Net loss.......................................... $ (926,563) $ (477,496)
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-100
<PAGE> 211
TOTAL COMMUNICATIONS, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN ACCUMULATED
STOCK CAPITAL DEFICIT TOTAL
------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Balance at January 1, 1995.................... $10,000 $ 590,000 $ (439,801) $ 160,199
Net loss.................................... -- -- (477,496) (477,496)
------- ---------- ----------- ----------
Balance at December 31, 1995.................. 10,000 590,000 (917,297) (317,297)
Noncash capital contributions (note 1)...... -- 1,251,938 -- 1,251,938
Net loss.................................... -- -- (926,563) (926,563)
------- ---------- ----------- ----------
Balance at December 31, 1996.................. $10,000 $1,841,938 $(1,843,860) $ 8,078
======= ========== =========== ==========
</TABLE>
See accompanying notes to financial statements.
F-101
<PAGE> 212
TOTAL COMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Operating activities:
Net loss.................................................. $ (926,563) $ (477,496)
Adjustments to reconcile income:
Depreciation and amortization.......................... 258,464 115,429
Bad debt expense....................................... 296,833 118,907
Change in:
Accounts receivable.................................... (369,527) (122,532)
Lease receivable....................................... (1,390,594) (586,303)
Inventory.............................................. 490,518 (535,999)
Other assets........................................... (21,504) (101,972)
Deferred payable....................................... 391,068 165,661
Accrued interest....................................... 77,146 27,800
Accounts payable....................................... 138,992 (11,140)
Other accrued expenses................................. 25,815 (2,195)
Customer deposits payable.............................. 194,108 104,964
Other long-term liabilities............................ 45,495 (143,125)
Unearned revenue....................................... 14,423 19,811
----------- -----------
Net cash used in operating activities............. (775,326) (1,428,190)
----------- -----------
Investing activities:
Investments-- Images DBS.................................. 156,568 72,754
Notes receivable.......................................... (277,356) (678,898)
Property and equipment.................................... (90,351) (224,853)
----------- -----------
Net cash used for investing activities............ (211,139) (830,997)
----------- -----------
Financing activities:
Payments on notes payable................................. (4,012) (50,152)
Proceeds from notes payable............................... 1,131,545 2,264,999
----------- -----------
Net cash provided by financing activities......... 1,127,533 2,214,847
----------- -----------
Net change in cash................................ 141,068 (44,340)
Cash at beginning of period................................. 22,384 66,724
----------- -----------
Cash at end of period....................................... $ 163,452 $ 22,384
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-102
<PAGE> 213
TOTAL COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Nature of Operations
Total Communications, Inc. (the Company) is in the primary business of
providing direct broadcast satellite television systems (DBS) equipment to the
customers of Images DBS Kansas, Inc. (Images-KS) and Images DBS Oklahoma, Inc.
(Images-OK). The Company had a 9% and 6%, respectively, equity interest in
Images-KS and Images-OK, at December 31, 1996. In 1993, the Hughes
Communications Galaxy, Inc. (Hughes), along with the National Rural
Telecommunications Cooperative (NRTC) launched two satellites which provide DBS
(DirecTV) in the United States. The Company's indirect parent, Totah Telephone
Company, Inc. (Totah), became an affiliated associate member of NRTC in order to
provide exclusive marketing rights for distribution of DirecTV service within
the contract area. The marketing rights give the license owner exclusive rights
to distribution of DirecTV service within the contract area. In 1996, Totah
transferred these marketing rights, which had a book value of $1,251,938, to the
Company. In 1997, for a 10% investment fee, the Company assigned these rights to
Images DBS Kansas, L. C. (Images-KS) and Images DBS Oklahoma, L. C. (Images-OK).
At December 31, 1996, the Company's assigned operating rights covered seven
counties in southeastern Kansas and four counties in northeastern Oklahoma.
Revenue Recognition
Equipment sales are recognized as revenue when the equipment is delivered
to the customer. Equipment lease revenue is recognized when earned.
Inventory
Inventory is stated at the lower of average cost or market and consists
entirely of Direct Satellite Systems which includes receivers, satellite dishes
and accessories.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management of the Company to make a
number of estimates and assumptions which affect the reported amounts of assets
and liabilities, as well as the reported amounts of revenues and expenses during
the period. Actual results could differ from these estimates.
Property, Plant and Equipment
Property, plant and equipment are carried at cost and depreciated on a
straight-line basis over their estimated useful lives.
Long-lived Assets
Long-lived assets and certain identifiable intangibles held and used by the
Company are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets is measured by a comparison of the carrying amount of
an asset to future net cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceed the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell.
F-103
<PAGE> 214
TOTAL COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Fair Value of Financial Instruments
Financial instruments consisting of receivables and accounts payable are
carried at cost, which approximates fair value as a result of the short-term of
the instruments. The carrying value of notes payable approximates fair value as
they bear interest at market rates.
Intangible Assets
The cost of acquiring the rights to provide DirecTV satellite services are
capitalized as intangible assets and are being amortized on a straight-line
basis over the expected useful life of the revenue stream of those services, ten
years. Intangible assets also include a one-time membership fee paid to the
NRTC, which is also being amortized on a straight-line basis over ten years.
Equipment Leases
The Company leases satellite television equipment to Images-KS and
Images-OK who in turn leases the equipment to DBS customers. The lease terms to
customers are based on prevailing market conditions, The lease terms between
Total and the Images' companies are based on a fixed percentage of equipment
value.
Income Taxes
The Company files consolidated income tax returns with its parent. No
income tax benefit has been provided in the accompanying statements of
operations as such benefits are not recoverable from the parent. Had the Company
filed separate tax returns, no tax benefit would have been recognized due to the
recurring losses of the Company. There are no significant differences between
book and tax basis which would result in deferred tax assets or liabilities.
(2) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31, 1996 and 1995 consists of
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Equipment................................................... $257,940 $226,589
Automobiles................................................. 143,494 120,028
Furniture and fixtures...................................... 87,554 61,283
Leasehold improvement....................................... 119,583 116,695
-------- --------
608,571 524,595
Less accumulated depreciation............................... 221,661 115,429
-------- --------
$386,910 $409,166
======== ========
</TABLE>
F-104
<PAGE> 215
TOTAL COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(3) NOTES PAYABLE
Notes payable consisted of the following at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Notes payable to Totah Telephone Company, bearing interest
at 6.15%, principal and interest payments due quarterly on
the first day of each January, April, July and October
Maturing November 19, 1998................................ $1,752,569 $ 861,740
Notes payable to Totah Telephone Company, bearing interest
at the Prevailing Bank Prime Rate plus 1.5%, guaranteed by
Total Customer Services, Inc., principal due on December
31, 1999. Interest payable quarterly on the first day of
each January, April, July and October..................... 1,500,000 1,500,000
Notes payable to Shidler, unsecured, bearing interest at 8%,
maturing with principal and interest due on December 31,
1998...................................................... 1,133,464 515,655
Notes payable to Bank IV, secured by automobile, bearing
interest at 9.75%, principal and interest due monthly,
maturing June 30, 1999.................................... 11,913 15,925
Note payable to Robertson, secured by automobile............ 13,975 --
---------- ----------
$4,411,921 $2,893,320
========== ==========
</TABLE>
As a result of the acquisition of Total (see note 5), all notes were repaid
on February 27, 1997.
(4) RELATED PARTY TRANSACTIONS
As described in note 1, Total is indirectly owned by Totah, The employees,
officers and directors of Totah and its subsidiaries own Images-KS and
Images-OK. As a result, certain general and administrative expenses and
payroll-related charges occur between Total, both the Images companies and other
subsidiaries of Totah.
Related party receivables and payables as of December 31, 1996 and 1995 are
as follows:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Related party receivables from:
Images-OK................................................. $ 48,551 $ 23,187
Images-KS................................................. 46,590 19,328
Other..................................................... 527,461 222,286
-------- --------
622,602 264,801
-------- --------
Less allowance.............................................. 108,314 32,207
-------- --------
514,288 232,594
-------- --------
Related party payables from:
Images-OK................................................. 62,605 11,788
Images-KS................................................. 58,580 18,193
Other..................................................... 217,167 220,156
-------- --------
338,352 250,137
-------- --------
Net receivable (payable).......................... $175,936 $(17,543)
======== ========
</TABLE>
F-105
<PAGE> 216
TOTAL COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Related party notes receivable as of December 31, 1996 and 1995 are as
follows:
<TABLE>
<CAPTION>
1996 1995
---------- --------
<S> <C> <C>
Images-OK................................................... $ 401,515 $362,265
Images-KS................................................... 732,722 494,616
---------- --------
$1,134,237 $856,881
========== ========
</TABLE>
As a result of the acquisition of Total (see note 5), all notes receivable
were collected on February 27, 1997.
(5) SUBSEQUENT EVENTS
In December 1996, the Company contracted to sell all of its DBS operations
to Golden Sky Systems, Inc. The effective date of the acquisition was December
12, 1996. The final closing was consummated on February 12, 1997.
F-106
<PAGE> 217
THUNDERBOLT SYSTEMS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF NORTH CENTRAL MISSOURI ELECTRIC COOPERATIVE)
FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
F-107
<PAGE> 218
INDEPENDENT AUDITORS' REPORT
The Board of Directors
North Central Missouri Electric Cooperative:
We have audited the accompanying balance sheets of Thunderbolt Systems,
Inc. (a wholly-owned subsidiary of North Central Missouri Electric Cooperative)
as of December 31, 1996 and 1995 and the related statements of operations,
shareholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Thunderbolt Systems, Inc. at
December 31, 1996 and 1995, and the results of its operations and its cash flows
for each of the years in the three-year period ended December 31, 1996, in
conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
August 14, 1997
Kansas City, Missouri
F-108
<PAGE> 219
THUNDERBOLT SYSTEMS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF NORTH CENTRAL MISSOURI ELECTRIC COOPERATIVE)
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
ASSETS
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Current assets:
Cash...................................................... $ 213,845 $ 176,212
Accounts receivable (note 2).............................. 258,480 182,881
Inventory................................................. 271,976 324,430
---------- ----------
Total current assets.............................. 744,301 683,523
Furniture, fixtures and equipment (net of accumulated
depreciation of $426,434 and $201,625) (note 3)........... 1,121,399 596,386
Intangible assets (net of accumulated amortization of
$335,207 and $196,501).................................... 1,051,857 1,190,563
Other assets................................................ 248,070 193,948
---------- ----------
Total assets...................................... $3,165,627 $2,664,420
========== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable (note 4)................................. $1,112,881 $ 793,029
Unearned revenue.......................................... 183,928 54,186
Accrued interest (note 4)................................. 387,372 301,376
Other liabilities (note 6)................................ 170,865 71,908
---------- ----------
Total current liabilities......................... 1,855,046 1,220,499
Notes payable (notes 4 and 5)............................... 2,166,775 1,946,287
---------- ----------
Total liabilities................................. 4,021,821 3,166,786
---------- ----------
Shareholder's equity:
Common stock (30,000 shares authorized, issued and
outstanding, $1 par value)............................. 30,000 30,000
Retained earnings......................................... (886,194) (532,366)
---------- ----------
Total shareholder's equity........................ (856,194) (502,366)
---------- ----------
Total liabilities and shareholder's equity........ $3,165,627 $2,664,420
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-109
<PAGE> 220
THUNDERBOLT SYSTEMS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF NORTH CENTRAL MISSOURI ELECTRIC COOPERATIVE)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- --------
<S> <C> <C> <C>
Revenues:
Program revenues........................................ $1,397,596 $ 505,175 $ 34,385
Equipment sales......................................... 101,290 211,070 202,707
Lease revenue (note 3).................................. 316,908 100,763 --
Other revenues.......................................... 257,578 409,953 477,823
---------- ---------- --------
Total revenues.................................. 2,073,372 1,226,961 714,915
---------- ---------- --------
Cost of revenues:
Program costs........................................... 951,587 334,488 24,648
Equipment costs......................................... 212,777 198,137 171,893
Rebate expense.......................................... 67,951 12,228 262
Other costs of revenues................................. 193,826 312,419 355,184
---------- ---------- --------
Total cost of revenues.......................... 1,426,141 857,272 551,987
---------- ---------- --------
Gross profit.................................... 647,231 369,689 162,928
---------- ---------- --------
Expenses:
Salaries, wages and commissions......................... 221,928 193,753 119,339
Amortization and depreciation........................... 363,516 205,509 76,405
Bad debt expense........................................ 66,244 71,806 8,855
Marketing............................................... 163,736 115,970 27,772
Other selling, general, and administrative expenses..... 15,909 19,055 7,881
---------- ---------- --------
831,333 606,093 240,252
---------- ---------- --------
Net operating loss.............................. (184,102) (236,404) (77,324)
Other income.............................................. 13,530 3,674 --
Interest income........................................... 6,624 15,001 25,174
Interest expense.......................................... (189,880) (141,350) (41,853)
---------- ---------- --------
Net loss........................................ $ (353,828) $ (359,079) $(94,003)
========== ========== ========
</TABLE>
See accompanying notes to financial statements.
F-110
<PAGE> 221
THUNDERBOLT SYSTEMS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF NORTH CENTRAL MISSOURI ELECTRIC COOPERATIVE)
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
COMMON RETAINED TOTAL
STOCK EARNINGS EQUITY
------- --------- ---------
<S> <C> <C> <C>
Balance at December 31, 1993................................ $30,000 $ (79,284) $ (49,294)
Net loss.................................................. -- (94,003) (93,993)
------- --------- ---------
Balance at December 31, 1994................................ 30,000 (173,287) (143,287)
Net loss.................................................. -- (359,079) (359,079)
------- --------- ---------
Balance at December 31, 1995................................ 30,000 (532,366) (502,366)
Net loss.................................................. -- (353,828) (353,828)
------- --------- ---------
Balance at December 31, 1996................................ $30,000 $(886,194) $(856,194)
======= ========= =========
</TABLE>
See accompanying notes to financial statements.
F-111
<PAGE> 222
THUNDERBOLT SYSTEMS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF NORTH CENTRAL MISSOURI ELECTRIC COOPERATIVE)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Operating activities Net loss............................. $(353,828) $(359,079) $ (94,003)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation and amortization........................ 363,516 205,509 76,405
Bad debt expense..................................... 66,244 71,806 8,855
Change in:
Accounts receivable................................ (141,843) (36,114) 54,374
Inventory.......................................... (300,381) 12,176 (175,975)
Other assets....................................... (54,122) (14,694) --
Accounts payable................................... 319,852 90,471 175,030
Unearned revenues.................................. 129,742 40,046 14,140
Accrued Interest................................... 85,996 111,429 91,854
Other liabilities.................................. 98,957 43,513 (89,567)
--------- --------- ---------
Net cash provided by operating activities....... (214,133) (165,063) 61,113
--------- --------- ---------
Cash flows from investing activities -- additions to
equipment............................................... (396,988) (624,034) (14,401)
Cash flows from financing activities:
Proceeds from notes payable............................. 390,991 620,346 --
Payments on notes to banks and others................... (170,503) (43,849) --
--------- --------- ---------
Net cash provided by financing activities....... 220,488 576,497 --
Net change in cash.............................. 37,633 117,526 46,712
Cash at beginning of period............................... 176,212 58,686 11,974
--------- --------- ---------
Cash at end of period..................................... $ 213,845 $ 176,212 $ 58,686
========= ========= =========
</TABLE>
See accompanying notes to financial statements.
F-112
<PAGE> 223
THUNDERBOLT SYSTEMS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF NORTH CENTRAL MISSOURI ELECTRIC COOPERATIVE)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Nature of Operations
Thunderbolt Systems, Inc. (the Company) is a wholly-owned subsidiary of
North Central Missouri Electric Cooperative (the Parent). The Company's primary
business is the ownership and operation of direct broadcast satellite (DBS)
television systems previously purchased by the Parent. The Company is an
affiliated associate member of the National Rural Telecommunications Cooperative
(NRTC). The NRTC has contracted with Hughes Communications Galaxy, Inc.
(Hughes), to provide exclusive marketing rights for distribution of DirecTV
satellite television programming in the United States. The marketing rights give
the owner exclusive rights to distribution of DirecTV service within the
contract area. In 1994, Hughes launched the satellite that provides programming
for DirecTV. At December 31, 1996, 1995 and 1994, the Company had the operating
rights for twenty counties in central Missouri.
Revenue Recognition
Programming revenue is recognized in the month the service is provided to
the subscribers. Unearned revenues represent subscriber advance billings for one
or more months and are deferred until the service is provided. Equipment sales
are recognized as revenue when the equipment is delivered to the customer.
Inventory
Inventory is stated at the lower of average cost or market and consists of
receivers, satellite dishes, and satellite TV accessories. The Company
wrote-down inventory in the amount of $103,500 and $37,832 in 1996 and 1995,
respectively, to reflect the decreasing fair value of the inventory.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make a number of estimates
and assumptions which affect the reported amounts of assets and liabilities, as
well as the reported amounts of revenues and expenses during the period. Actual
results could differ from these estimates.
Fair Value of Financial Instruments
Financial instruments consisting of receivables and accounts payable are
carried at cost, which approximates fair value, as a result of the short-term
nature of the instruments. The carrying value of notes payable approximates fair
value as they bear interest at market rates.
Intangible Assets
The cost of acquiring the rights to provide DirecTV satellite services are
capitalized as intangible assets and are being amortized on a straight-line
basis over ten years, which is the expected useful life of the revenue stream of
those services.
Long-lived Assets
Long-lived assets and certain identifiable intangibles held and used by the
Company are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets is measured by a comparison of the carrying amount of
an asset to future net cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the
F-113
<PAGE> 224
THUNDERBOLT SYSTEMS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF NORTH CENTRAL MISSOURI ELECTRIC COOPERATIVE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell.
Income Taxes
The Company is not directly subjected to income taxes as it's net losses
are consolidated with the Parent's operations for tax filing purposes.
(2) ACCOUNTS RECEIVABLE
Accounts receivable consist primarily of amounts due from subscribers for
monthly programming fees and for sales of satellite television equipment, as
well as other trade receivables relating to a coop store and C-Band satellite
services offered by the Company. Trade receivables as of December 31, 1996, and
1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Accounts receivable:
DBS programming........................................... $209,446 $ 98,849
DBS equipment sales....................................... 16,312 10,719
Other (net of allowance of $118,621 and $132,512)......... 32,722 73,313
-------- --------
$258,480 $182,881
======== ========
</TABLE>
(3) LEASES
In addition to selling satellite television equipment, the Company also
leases the equipment to customers at fixed monthly rental charges. These leases
are month-to-month leases without a minimum lease term in which the customer may
return the equipment at any time.
These leases qualify as operating leases and accordingly, the leased units
are either purchased directly or transferred from the Company's inventory of
existing units at average cost and included in furniture, fixtures and equipment
at cost. Leased units are depreciated on a straight line basis over a five year
period, which approximates the average length of the rental period. Rental
income is recognized in the month earned.
The carrying amount of leased equipment included in furniture, fixtures and
equipment at December 31, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
1996 1995
---------- --------
<S> <C> <C>
Cost........................................................ $1,364,173 $620,347
Accumulated depreciation.................................... (266,542) (53,397)
---------- --------
Net carrying cost................................. $1,097,631 $566,950
========== ========
</TABLE>
F-114
<PAGE> 225
THUNDERBOLT SYSTEMS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF NORTH CENTRAL MISSOURI ELECTRIC COOPERATIVE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(4) RELATED PARTY TRANSACTIONS
The Company is party to various intercompany transactions with the Parent
for payroll and administrative expenses. Accordingly, the financial statements
include the following intercompany liabilities at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Accounts payable............................................ $ 782,051 $ 682,324
Long-term debt.............................................. 1,369,790 1,369,790
Accrued interest............................................ 387,372 301,376
---------- ----------
$2,539,213 $2,353,490
========== ==========
</TABLE>
Long-term debt includes $1,280,790 due to the Parent for the purchase of
DBS franchise rights in 1994. This debt carries interest at a variable rate
which approximated 7% in 1996 and 1995.
(5) NOTES PAYABLE
In addition to the intercompany notes payable described above, the Company
is indebted to an outside credit leasing company for a series of notes totaling
$796,985 and $576,497 at December 31, 1996 and 1995, respectively. These notes
arose in connection with the acquisition of satellite television equipment. The
notes carry interest at fixed rates ranging from 8% to 10% and have terms of 60
to 63 months. In conjunction with the sale of the Company described in Note 7,
all outstanding notes payable and accrued interest were repaid in the second
quarter of 1997.
(6) NRTC PATRONAGE CAPITAL
The NRTC declares and the Company receives a yearly patronage dividend
based on the NRTC's profitability. Of the total dividend, 20% is received in
cash and 80% is distributed in the form of NRTC patronage capital certificates,
which will be redeemed in cash at a future date at the discretion of the NRTC.
The Company has recorded an asset and an offsetting deferred income liability
for the noncash portion of the patronage dividend. The deferred income will be
recognized as revenue when cash distributions are declared by the NRTC. Deferred
revenue included in other liabilities was $38,239 and $21,724 at December 31,
1996 and 1995, respectively.
(7) SUBSEQUENT EVENTS
On February 28, 1997, the Company contracted to sell its DBS programming
rights for sixteen of its twenty counties and the related DBS assets to Golden
Sky Systems, Inc. The acquisition closed on March 11, 1997.
F-115
<PAGE> 226
JECTV
(A SEGMENT OF JACKSON ELECTRIC COOPERATIVE)
FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
F-116
<PAGE> 227
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Jackson Electric Cooperative:
We have audited the accompanying balance sheets JECTV (the Segment) as of
December 31, 1996 and 1995 and the related statements of operations, segment
equity and cash flows for each of the years in the three-year period ended
December 31, 1996. These financial statements are the responsibility of the
Segment's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of JECTV as of December 31,
1996 and 1995, and the results of its operations and its cash flows for each of
the years in the three-year period ended December 31, 1996, in conformity with
generally accepted accounting principles.
KPMG PEAT MARWICK LLP
August 15, 1997, except at to
notes 6 and 7, which
are as of September 2 and
August 26, 1997 respectively
Kansas City, Missouri
F-117
<PAGE> 228
JECTV
(A SEGMENT OF JACKSON ELECTRIC COOPERATIVE)
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
ASSETS
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Current assets:
Cash...................................................... $ 429,507 $ 177,492
Accounts receivable (note 2).............................. 152,778 106,540
Inventory................................................. 187,612 445,896
Notes receivable (note 3)................................. 289,100 441,175
---------- ----------
Total current assets.............................. 1,058,997 1,171,103
Furniture, fixtures and equipment (net of accumulated
depreciation of $224,861 and $41,785) (note 5)............ 775,865 542,015
Intangible assets (net of accumulated amortization of
$179,455 and $107,673).................................... 538,366 610,148
Other assets (note 4)....................................... 75,488 17,731
---------- ----------
Total assets...................................... $2,448,716 $2,340,997
========== ==========
LIABILITIES AND SEGMENT EQUITY
Current liabilities:
Accounts payable (note 6)................................. $ 235,101 $ 118,865
Unearned revenue.......................................... 176,368 54,189
Accrued interest (note 6)................................. 155,807 50,526
Other (note 4)............................................ 80,383 22,871
Note payable (note 6)..................................... 1,451,796 1,340,630
---------- ----------
Total current liabilities......................... 2,099,455 1,587,081
Segment equity.............................................. 349,261 753,916
---------- ----------
Total liabilities and segment equity.............. $2,448,716 $2,340,997
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-118
<PAGE> 229
JECTV
(A SEGMENT OF JACKSON ELECTRIC COOPERATIVE)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ---------
<S> <C> <C> <C>
Revenues:
Programming revenues................................... $1,609,572 $ 723,437 $ 29,503
Equipment sales........................................ 359,579 644,505 469,865
Lease revenue (note 5)................................. 197,417 48,022 --
Other revenues......................................... 84,816 218,462 58,865
---------- ---------- ---------
Total revenues................................. 2,251,384 1,634,426 558,233
---------- ---------- ---------
Cost of revenues:
Programming costs...................................... 1,007,875 447,331 30,582
Equipment costs........................................ 421,622 604,891 395,433
Rebate expense......................................... 78,703 14,882 472
Other costs of revenues................................ 125,059 160,991 82,104
---------- ---------- ---------
Total cost of revenues......................... 1,633,259 1,228,095 508,591
---------- ---------- ---------
Gross profit................................... 618,125 406,331 49,642
---------- ---------- ---------
Expenses:
Salaries, wages and commissions........................ 225,449 179,332 76,991
Depreciation and amortization.......................... 256,858 105,566 39,435
Bad debt expense....................................... 161,383 165,236 11,607
Marketing.............................................. 104,850 190,631 12,124
Other selling, general and administrative expenses..... 48,636 43,059 16,687
---------- ---------- ---------
797,176 683,824 156,844
---------- ---------- ---------
Operating loss................................. (179,051) (277,493) (107,202)
Interest income.......................................... 40,867 31,437 --
Interest expense......................................... (105,281) (50,526) --
---------- ---------- ---------
Net loss....................................... $ (243,465) $ (296,582) $(107,202)
========== ========== =========
</TABLE>
See accompanying notes to financial statements.
F-119
<PAGE> 230
JECTV
(A SEGMENT OF JACKSON ELECTRIC COOPERATIVE)
STATEMENTS OF SEGMENT EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<S> <C>
Balance at December 31, 1993................................ $ 717,821
Additional investment by Jackson Electric................. 730,719
Net loss.................................................. (107,202)
----------
Balance at December 31, 1994................................ 1,341,338
Return of capital to Jackson Electric..................... (290,840)
Net loss.................................................. (296,582)
----------
Balance at December 31, 1995................................ 753,916
Return of capital to Jackson Electric..................... (161,190)
Net loss.................................................. (243,465)
----------
Balance at December 31, 1996................................ $ 349,261
==========
</TABLE>
See accompanying notes to financial statements.
F-120
<PAGE> 231
JECTV
(A SEGMENT OF JACKSON ELECTRIC COOPERATIVE)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
--------- ---------- ---------
<S> <C> <C> <C>
Cash from operating activities:
Net loss................................................ $(243,465) $ (296,582) $(107,202)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation and amortization........................ 256,858 105,566 39,435
Bad debt expense..................................... 161,383 165,236 11,607
Change in:
Accounts receivable.................................. (169,623) (87,112) (75,658)
Inventory............................................ (27,017) (703,393) (157,278)
Other assets......................................... (57,757) (17,731) --
Accounts payable..................................... 116,236 96,037 22,828
Unearned revenue..................................... 122,179 37,819 16,370
Accrued interest..................................... 105,281 50,526 --
Other liabilities.................................... 59,969 16,806 6,065
--------- ---------- ---------
Net cash provided by (used in) operating
activities.................................... 324,044 (632,828) (243,833)
--------- ---------- ---------
Cash flows from investing activities:
Additions to equipment.................................. (136,082) (129,711) (34,857)
Issuance of notes receivable............................ (79,957) (621,246) (174,863)
Payments on notes receivable............................ 194,034 216,594 17,727
--------- ---------- ---------
Net cash used in investment activities.......... (22,005) (534,363) (191,993)
--------- ---------- ---------
Cash flows from financing activities:
Cash invested by (returned to) Jackson Electric......... (161,190) (290,840) 730,719
Proceeds from issuance of debt.......................... 1,006,807 1,552,500 --
Payments on debt........................................ (895,641) (211,870) --
--------- ---------- ---------
Net cash provided by (used in) financing
activities.................................... (50,024) 1,049,790 730,719
--------- ---------- ---------
Net change in cash.............................. 252,015 (117,401) 294,893
Cash at beginning of period............................... 177,492 294,893 --
--------- ---------- ---------
Cash at end of period..................................... $ 429,507 $ 177,492 $ 294,893
========= ========== =========
</TABLE>
See accompanying notes to the financial statements.
F-121
<PAGE> 232
JECTV
(A SEGMENT OF JACKSON ELECTRIC COOPERATIVE)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Nature of Operations
JECTV (the Segment) is a segment of Jackson Electric Cooperative (the
Company). The Segment was formed for the purpose of operating direct broadcast
satellite (DBS) television systems purchased by the Company. The Company is an
affiliated associate member of the National Rural Telecommunications Cooperative
(NRTC). The NRTC has contracted with Hughes Communications Galaxy, Inc.
(Hughes), to provide exclusive marketing rights for distribution of DirecTV
satellite television programming in the United States. The marketing rights give
the owner exclusive rights to distribution of DirecTV service within the
contract area. Hughes controls the satellites that provide programming for
DirecTV. At December 31, 1996, 1995 and 1994, the Company had the operating
rights for seven counties in southeast Texas.
The Segment is not a separate subsidiary of the Company nor has it been
operated as a separate entity. The financial statements presented herein have
been derived from the records of the Company and have been prepared to present
the Segment's financial position, results of operations, and cash flows on a
stand-alone basis. Accordingly, the financial statements include certain costs
and expenses which have been allocated to the Segment by the Company. Such
allocated expenses may or may not be indicative of what such expenses would have
been had the Segment been operated as a separate entity.
Revenue Recognition
Revenues are earned for monthly direct broadcast satellite services which
are billed to subscribers in advance. Subscribers may elect to prepay their
service charges for one or more months. Revenue is recognized in the month the
service is provided to the subscriber. Subscriber advance billings represent
unearned revenues and are deferred until the service is provided. Equipment
sales are recognized as revenue when the equipment is delivered to the customer.
Inventory
Inventory is stated at the lower of average cost or market and consists of
satellite receivers, dishes, and accessories.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management of the company to make a
number of estimates and assumptions which affect the reported amounts of assets,
liabilities, revenues and expenses. Actual results could differ from these
estimates.
Fair Value of Financial Instruments
Financial instruments consisting of accounts receivable, notes receivable,
accounts payable, and long-term debt are carried at cost, which approximates
fair value.
Intangible Assets
The cost of acquiring the rights to provide DirecTV satellite services are
capitalized as intangible assets and are being amortized on a straight-line
basis over ten years, which is the expected useful life of the revenue stream of
those services.
F-122
<PAGE> 233
JECTV
(A SEGMENT OF JACKSON ELECTRIC COOPERATIVE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Long-lived Assets
Long-lived assets and certain identifiable intangibles held and used by the
Company are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets is measured by a comparison of the carrying amount of
an asset to future net cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceed the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell.
Income Taxes
The Company, and thus the Segment, is not considered a taxable entity for
federal and state income tax purposes, as it is a not-for-profit entity.
Accordingly, no provision for income taxes is included in the accompanying
financial statements.
(2) ACCOUNTS RECEIVABLE
Accounts receivable consists of amounts due from subscribers for monthly
programming fees and for sales of satellite television equipment which have been
delivered but not paid for. Accounts receivable as of December 31, 1996 and 1995
are as follows:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Accounts receivable:
Programming and leases (net of allowance of $7,700 and
$0).................................................... $124,839 $ 99,858
Equipment sales (net of allowance of $14,200 and $0)...... 27,939 6,682
-------- --------
$152,778 $106,540
======== ========
</TABLE>
(3) NOTES RECEIVABLE
The Segment provides customers the option of purchasing DBS equipment on
credit. These payment plans have terms of three years and carry interest at 7%
to 12%. Upon default by a customer, the Segment repossesses the equipment and
transfers the resale value of the equipment to inventory and records an
allowance for the balance of the unpaid note receivable.
At December 31, 1996 and 1995, the net notes receivable balance consists of
the following:
<TABLE>
<CAPTION>
1996 1995
-------- ---------
<S> <C> <C>
Notes receivable............................................ $447,711 $ 561,788
Less allowance.............................................. (158,611) (120,613)
-------- ---------
Notes receivable, net............................. $289,100 $ 441,175
======== =========
</TABLE>
(4) NRTC PATRONAGE CAPITAL
The NRTC declares and the Segment receives a yearly patronage dividend
based on the NRTC's profitability. Of the total dividend, 20% is received in
cash and 80% is distributed the form of NRTC patronage capital certificates,
which will redeemed in cash at a future date at the discretion of the NRTC. The
Segment has recorded an asset and an offsetting deferred income liability for
the noncash portion of the patronage dividend. The deferred income will be
recognized as revenue when cash distributions are declared
F-123
<PAGE> 234
JECTV
(A SEGMENT OF JACKSON ELECTRIC COOPERATIVE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
by the NRTC. Deferred revenue included in other liabilities at December 31, 1996
and 1995 was $75,488 and $17,731, respectively.
(5) LEASES
In addition to selling satellite television equipment, the Segment also
leases the equipment to customers at fixed monthly rental charges. These leases
have minimum lease terms of two years, which can be extended to up to seven
years at the lessee's option.
These leases qualify as operating leases and accordingly, the leased units
are transferred from the Segment's inventory of existing units and included in
furniture, fixtures and equipment at average cost along with related
installation costs. Leased units are depreciated on a straight line basis over a
five-year period, which approximates the average length of the rental term.
Rental income is recognized in the month earned.
The carrying amount of leased equipment included in furniture, fixtures and
equipment at December 1, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Cost........................................................ $936,701 $549,507
Accumulated depreciation.................................... (202,871) (30,845)
-------- --------
Net carrying cost................................. $733,830 $518,662
======== ========
</TABLE>
Future minimum lease payments to be received under the Segment's equipment
leases are approximately $113,000 in 1997 and $20,000 in 1998.
(6) RELATED PARTY TRANSACTIONS
The Segment is party to various intercompany transactions with the Company.
The Company purchased the DBS franchise rights under which the Segment provides
DBS programming for $717,821 prior to the commencement of DBS operations in
mid-1994.
The Company also has a revolving line of credit with a finance company
under which it borrows funds which are used primarily to operate the Segment. A
percentage of the outstanding debt and a percentage of the interest paid to the
finance company under the line of credit is allocated to the Segment. The line
of credit carries interest at a variable rate which ranged from 7% to 6% in 1996
and 1995. Interest expense allocated to the Segment was $105,281, $50,526, and
$0 for the years ended December 31, 1996, 1995 and 1994, respectively.
The Company also allocates certain salary costs associated with operating
the Segment to the Segment's expense accounts. All other expenses are paid
directly from the cash accounts of the Segment.
Intercompany liabilities included in the Segment's December 31, 1996 and
1995 balance sheets are as follows:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Accounts payable............................................ $ 34,494 $ --
Long-term debt.............................................. $1,451,796 $1,340,630
Accrued interest............................................ $ 155,807 $ 50,526
</TABLE>
The line of credit noted above was paid off September 2, 1997 in
conjunction with the sale of the Segment noted in note 5.
F-124
<PAGE> 235
JECTV
(A SEGMENT OF JACKSON ELECTRIC COOPERATIVE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(7) SUBSEQUENT EVENTS
On July 15, 1997, the Company contracted to sell substantially all of the
Segment's assets to Golden Sky Systems, Inc. The acquisition closed on August
26, 1997.
F-125
<PAGE> 236
CAL-ORE DIGITAL TV, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 1996
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
F-126
<PAGE> 237
INDEPENDENT AUDITORS' REPORT
Board of Directors and Investors Golden Sky Systems, Inc.:
We have audited the accompanying balance sheet of Cal-Ore Digital TV, Inc.
(the Company) as of December 31, 1996 and the related statements of operations,
shareholders' equity and cash flows for the year then ended. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Cal-Ore Digital TV, Inc. as
of December 31, 1996 and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
November 26, 1997, except as to
note 5, which is as of December 8, 1997.
F-127
<PAGE> 238
CAL-ORE DIGITAL TV, INC.
BALANCE SHEET
DECEMBER 31, 1996
ASSETS
<TABLE>
<S> <C>
Current assets:
Cash and cash equivalents................................. $ 108,471
Accounts receivable....................................... 65,388
Income taxes receivable (note 1).......................... 24,556
Inventory................................................. 11,956
Prepaid expenses.......................................... 1,860
---------
Total current assets.............................. 212,231
Land........................................................ 110,000
Furniture, fixtures and equipment (net of accumulated
depreciation of $68,798) (note 2)......................... 42,137
Intangible assets (net of accumulated amortization of
$73,670) (note 4)......................................... 294,681
Other assets (note 3)....................................... 17,323
---------
Total assets...................................... $ 676,372
=========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Current liabilities:
Trade accounts payable................................. 72,763
Payable to affiliate (note 4).......................... --
Unearned revenue....................................... 104,411
Interest payable....................................... --
Other liabilities (note 3)............................. 20,257
---------
Total current liabilities......................... 197,431
Shareholders' equity:
Common stock, par value $1, 10,000 shares authorized,
1,000 shares issued and outstanding.................... 1,000
Additional paid-in capital................................ 647,174
Accumulated deficit....................................... (169,233)
---------
Total shareholders' equity........................ 478,941
---------
Total liabilities and shareholders' equity........ $ 676,372
=========
</TABLE>
See accompanying notes to financial statements.
F-128
<PAGE> 239
CAL-ORE DIGITAL TV, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
Revenues:
Programming............................................... $563,573
Equipment and installation sales.......................... 97,173
Lease and other (note 2).................................. 42,835
--------
Total revenues.................................... 703,581
--------
Cost of revenues:
Programming costs......................................... 373,032
Equipment and installation costs.......................... 106,027
Rebate expense............................................ 61,848
--------
Total cost of revenues............................ 540,907
--------
Gross profit...................................... 162,674
--------
Expenses:
Selling, general and administrative....................... 134,352
Depreciation and amortization............................. 74,569
Marketing................................................. 22,744
Provision for doubtful accounts........................... 9,740
--------
241,405
--------
Operating loss.................................... (78,731)
Interest:
Interest and dividend income.............................. 2,749
Interest expense.......................................... (1,634)
--------
Net loss before income taxes...................... (77,616)
--------
Income tax expense (note 1)................................. (8,404)
--------
Net loss.......................................... $(86,020)
========
</TABLE>
See accompanying notes to financial statements.
F-129
<PAGE> 240
CAL-ORE DIGITAL TV, INC.
STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN ACCUMULATED SHAREHOLDERS'
STOCK CAPITAL DEFICIT EQUITY
------ ---------- ----------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1995..................... $1,000 $547,174 $ (83,213) $464,961
Additional cash contribution by Cal-Ore
Telecommunications Company.................. -- 100,000 -- 100,000
Net loss....................................... -- -- (86,020) (86,020)
------ -------- --------- --------
Balance at December 31, 1996..................... $1,000 $647,174 $(169,233) $478,941
====== ======== ========= ========
</TABLE>
See accompanying notes to financial statements.
F-130
<PAGE> 241
CAL-ORE DIGITAL TV, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
Operating activities:
Net loss.................................................. $ (86,020)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization.......................... 74,569
Provision for doubtful accounts........................ 9,740
Change in operating assets and liabilities:
Accounts receivable.................................. (37,551)
Income Tax Receivable................................ (6,336)
Inventory............................................ (307)
Prepaid expenses..................................... (980)
Trade accounts payable............................... 30,058
Unearned revenue..................................... 85,517
Interest payable..................................... (4,082)
Other liabilities.................................... (93)
---------
Net cash provided by operating activities......... 64,515
---------
Investing activities:
Purchases of furniture, fixtures, and equipment........... (4,065)
Purchase of land.......................................... (110,000)
---------
Net cash used in investing activities............. (114,065)
---------
Financing activities:
Cash contribution from parent............................. 100,000
Repayment of loan to parent............................... (100,000)
---------
Net cash provided by financing activities......... --
---------
Net decrease in cash.............................. (49,550)
Cash and cash equivalents, beginning of year................ 158,021
---------
Cash and cash equivalents, end of year...................... $ 108,471
=========
Supplemental disclosure of cash flow information:
Cash paid for interest.................................... $ 5,716
=========
</TABLE>
See accompanying notes to financial statements.
F-131
<PAGE> 242
CAL-ORE DIGITAL TV, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Nature of Operations
Cal-Ore Digital TV, Inc. (the Company) is a California corporation formed
in November 1993 for the purpose of acquiring, owning and operating direct
broadcast satellite (DBS) television systems. The Company is a wholly-owned
subsidiary of California Oregon Telecommunications Company (the Parent), who has
owned all 1,000 shares of the Company since the Company's inception. The Company
is an affiliated associate member of the National Rural Telecommunications
Cooperative (NRTC). The NRTC has contracted with Hughes Communications Galaxy,
Inc. (Hughes), to provide exclusive marketing rights for distribution of DirecTV
satellite television programming in the United States. The marketing rights give
the owner exclusive rights to distribution of DirecTV service within the
contract area. In 1994, Hughes launched the satellites that provide programming
for DirecTV. At December 31, 1996, the Company had the operating rights for
portions of four counties in California and Oregon. These rights were purchased
by the parent in 1993 and transferred to the Company as a contribution of
capital in 1994.
Revenue Recognition
Programming revenue is recognized in the month the service is provided to
the subscriber. Unearned revenues represent subscriber advance billings for one
or more months and are deferred until the service is provided. Equipment and
installation sales and related costs are recognized when the equipment is
delivered to the customer.
Inventory
Inventory is stated at the lower of average cost or market and consists of
receivers, satellite dishes, and satellite TV accessories.
Accounts Receivable
Accounts receivable consist primarily of amounts due from subscribers for
monthly programming and equipment lease billings.
Cash and Cash Equivalents
Cash and cash equivalents consists of cash in checking accounts and money
market checking accounts.
Intangible Assets
The cost of acquiring the rights to provide DirecTV satellite services are
capitalized as intangible assets and are being amortized on a straight-line
basis over fifteen years, which is the expected useful life of the satellites
providing DBS services.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make a number of estimates
and assumptions which affect the reported amounts of assets and liabilities, as
well as the reported amounts of revenues and expenses during the period. Actual
results could differ from these estimates.
F-132
<PAGE> 243
CAL-ORE DIGITAL TV, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which is practicable to estimate that
value:
Cash and Cash Equivalents -- The carrying amounts approximates fair
value because of the short maturity of those instruments.
Receivables and Accounts Payable -- These assets are carried at cost,
which approximates fair value, as a result of the short-term nature of the
instruments.
Long-lived Assets
Long-lived assets and certain identifiable intangibles held and used by the
Company are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets is measured by a comparison of the carrying amount of
an asset to future net cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceed the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell.
Furniture, Fixtures and Equipment
Furniture, fixtures and equipment, consisting primarily of computer and
office equipment and equipment leased to customers, is recorded at cost.
Depreciation expense is recorded over the estimated useful lives which range
from two to seven years.
Income Taxes
The Company is a C Corporation for federal and state income tax purposes
and files its taxes on a consolidated basis with the Parent and its other
wholly-owned subsidiaries. The Company's income tax expense or benefit is an
allocation of the Parent's consolidated income tax expense or benefit and is
recoverable from the Parent.
(2) LEASING ARRANGEMENTS FOR SUBSCRIBER EQUIPMENT
In addition to selling satellite television equipment, in 1995 the Company
began leasing the equipment to customers under operating lease arrangements.
These leases are at fixed monthly rental charges ranging from $15 to $19 per
month, and are month-to-month leases which can be terminated at any time upon
return of the DBS equipment to the Company. Accordingly, the Company accounts
for these leases as operating leases.
The cost of leased equipment is included as a component of furniture,
fixtures, and equipment and depreciated over a two-year period. The net amount
of leased equipment included in furniture, fixtures, and equipment at December
31, 1996 is as follows:
<TABLE>
<CAPTION>
1996
--------
<S> <C>
Cost........................................................ $ 77,051
Accumulated Depreciation.................................... (52,560)
--------
Net carrying value................................ $ 25,491
========
</TABLE>
Lease income under the above agreements is recognized billed to the
customer and totaled $25,464 in 1996.
F-133
<PAGE> 244
CAL-ORE DIGITAL TV, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(3) NRTC PATRONAGE DIVIDENDS
The NRTC declares and the Company receives a yearly patronage dividend
based on the NRTC's profitability. Of the total dividend, 20% is received in
cash and 80% is distributed in the form of NRTC patronage capital certificates,
which will redeemed in cash at a future date at the discretion of the NRTC. The
Company has recorded an asset and an offsetting deferred income liability for
the noncash portion of the patronage dividend. The deferred income will be
recognized as revenue when cash distributions are declared by the NRTC. Deferred
revenue included in other liabilities at December 31, 1996 was $17,323.
(4) RELATED-PARTY TRANSACTIONS
The Company was capitalized by the Parent in early 1994 through the
transfer of $26,000 in cash and franchise rights with a cost of $522,174. In
April 1994, the Company sold the franchise rights for a portion of one county in
California to Siskiyou Ruralvision, a related party which has a common board
member. These rights were sold at the Parent's cost of $153,823.
The Company also had a $100,000 account payable to the Parent at December
31, 1995, as the result of a short-term loan made in June 1995 for operating
cash needs. This payable carried interest at 7% and was repaid in full in 1996,
along with $5,716 in accrued interest.
Employees of the Parent provide various accounting and administrative
duties for the Company. Accordingly, the Company's financial statements include
allocated selling, general, and administrative expenses in the amount of
$21,391, in 1996.
(5) SUBSEQUENT EVENTS
On September 24, 1997, the Company entered into a letter agreement to sell
its franchise rights and related DBS assets and liabilities to Golden Sky
Systems, Inc. The acquisition closed on December 8, 1997.
F-134
<PAGE> 245
DIRECT VISION
(A SEGMENT OF MANKATO CITIZENS TELEPHONE COMPANY)
FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
F-135
<PAGE> 246
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Mankato Citizens Telephone Company:
We have audited the accompanying balance sheets of Direct Vision (the
Segment), a segment of Mankato Citizens Telephone Company, as of December 31,
1996 and 1995 and the related statements of operations, segment equity and cash
flows for the years ended December 31, 1996 and 1995 and the five-month period
ended December 31, 1994. These financial statements are the responsibility of
the Segment's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Direct Vision at December
31, 1996 and 1995 and the results of its operations and its cash flows for the
years ended December 31, 1996 and 1995 and the five-month period ended December
31, 1994, in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
May 30, 1997, except as to note 4,
which is as of July 15, 1997
Kansas City, Missouri
F-136
<PAGE> 247
DIRECT VISION
(A SEGMENT OF MANKATO CITIZENS TELEPHONE COMPANY)
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
ASSETS
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Current assets:
Inventory................................................. $ 59,336 $ 138,396
Accounts receivable -- subscribers (note 3)............... 122,860 33,964
---------- ----------
Total current assets.............................. 182,196 172,360
Intangible assets (net of accumulated amortization of
$278,419 and $163,211) (note 1)........................... 887,855 1,003,063
Other assets................................................ 11,870 11,563
---------- ----------
Total assets...................................... $1,081,921 $1,186,986
========== ==========
LIABILITIES AND SEGMENT EQUITY
Liabilities:
Accounts payable:
Intercompany (note 2).................................. $ 319,609 328,486
Vendors................................................ 51,503 22,876
Unearned revenue.......................................... 200,408 24,045
---------- ----------
Total liabilities................................. 571,520 375,407
Segment equity.............................................. 510,401 811,579
---------- ----------
Total liabilities and segment equity.............. $1,081,921 $1,186,986
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-137
<PAGE> 248
DIRECT VISION
(A SEGMENT OF MANKATO CITIZENS TELEPHONE COMPANY)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
AND THE FIVE-MONTH PERIOD ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Revenues:
Programming revenues.................................... $ 735,576 $ 273,712 $ 20,825
Equipment sales......................................... 157,031 148,931 63,980
Other revenues.......................................... 10,773 6,977 1,341
--------- --------- ---------
Total revenues.................................. 903,380 429,620 86,146
--------- --------- ---------
Cost of revenues:
Programming costs....................................... 446,900 170,592 12,894
Equipment costs......................................... 202,514 166,764 34,969
Rebate expense.......................................... 106,667 -- --
--------- --------- ---------
Total cost of revenues.......................... 756,081 337,356 47,863
--------- --------- ---------
Gross profit.................................... 147,299 92,264 38,283
--------- --------- ---------
Expenses:
Salaries and commissions................................ 197,840 165,493 50,894
Amortization............................................ 120,941 115,208 48,003
Marketing............................................... 100,508 49,591 40,734
Billing and other expenses.............................. 29,188 12,522 2,797
--------- --------- ---------
448,477 342,814 142,428
--------- --------- ---------
Net loss........................................ $(301,178) $(250,550) $(104,145)
========= ========= =========
</TABLE>
See accompanying notes to financial statements.
F-138
<PAGE> 249
DIRECT VISION
(A SEGMENT OF MANKATO CITIZENS TELEPHONE COMPANY)
STATEMENTS OF SEGMENT EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
AND THE FIVE-MONTH PERIOD ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
SEGMENT
EQUITY
----------
<S> <C>
Balance at August 1, 1994................................... $ --
Company contribution to segment........................... 1,166,274
1994 net loss............................................. (104,145)
----------
Balance at December 31, 1994................................ 1,062,129
1995 net loss............................................. (250,550)
----------
Balance at December 31, 1995................................ 811,579
1996 net loss............................................. (301,178)
----------
Balance at December 31, 1996................................ $ 510,401
==========
</TABLE>
See accompanying notes to financial statements.
F-139
<PAGE> 250
DIRECT VISION
(A SEGMENT OF MANKATO CITIZENS TELEPHONE COMPANY)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
AND THE FIVE-MONTH PERIOD ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- -----------
<S> <C> <C> <C>
Operating activities:
Net loss............................................... $(301,178) $(250,550) $ (104,145)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities -- amortization... 115,208 115,208 48,003
Change in:
Inventory........................................... 79,060 (74,660) (63,736)
Accounts receivable -- subscribers.................. (88,896) (22,008) (11,956)
Other assets........................................ (307) (7,230) (4,333)
Accounts payable -- vendor.......................... 28,627 17,077 5,799
Unearned revenue.................................... 176,363 13,924 10,121
--------- --------- -----------
Net cash provided by (used in) operating
activities................................... 8,877 (208,239) (120,247)
--------- --------- -----------
Investing activities -- purchase of DBS regions.......... -- -- (1,166,274)
--------- --------- -----------
Financing activities:
Capital contribution by parent......................... -- -- 1,166,274
Increase (decrease) in payable to parent............... (8,877) 208,239 120,247
--------- --------- -----------
Net cash provided by (used in) financing
activities................................... (8,877) 208,239 1,286,521
--------- --------- -----------
Net change in cash............................. -- -- --
Cash at beginning of period.............................. -- -- --
--------- --------- -----------
Cash at end of period.................................... $ -- $ -- $ --
========= ========= ===========
</TABLE>
See accompanying notes to financial statements.
F-140
<PAGE> 251
DIRECT VISION
(A SEGMENT OF MANKATO CITIZENS TELEPHONE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Nature of Operations
Direct Vision (the Segment) is a segment of Mankato Citizens Telephone
Company (the Company). The Company is a wholly-owned subsidiary of Hickory Tech
Corporation (the Parent). The Segment was formed in August 1994 for the purpose
of acquiring, owning and operating direct broadcast satellite (DBS) television
systems. The Company is an affiliated associate member of the National Rural
Telecommunications Cooperative (NRTC). The NRTC has contracted with Hughes
Communications Galaxy, Inc. (Hughes), to provide exclusive marketing rights for
distribution of DirecTV satellite television programming in the United States.
The marketing rights give the owner exclusive rights to distribution of DirecTV
service within the contract area. In 1994, Hughes launched the satellites that
provide programming for DirecTV. At December 31, 1996, 1995 and 1994, the
Company had the operating rights for seven counties in southern Minnesota.
The financial statements presented represent the financial position and
operations of the Segment, which operates as part of the Company. Accordingly,
the Company funds the operations of the Segment. Were the Segment an independent
entity, these funds would have to be obtained from other sources.
Presentation
The Segment is not a separate subsidiary of the Company nor has it been
operated as a separate entity. The financial statements presented herein have
been derived from the records of the Company and have been prepared to present
the Segment's financial position, results of operations and cash flows on a
stand-alone basis. Accordingly, the financial statements include certain costs
and expenses which have been allocated to the Segment by the Company. Such
allocated expenses may or may not be indicative of what such expenses would have
been had the Segment been operated as a separate entity.
Revenue Recognition
Revenues are earned for monthly direct broadcast satellite services which
are billed to subscribers in advance. Subscribers may elect to prepay their
service charges for one or more months. Revenue is recognized in the month the
service is provided to the subscriber. Subscriber advance billings represent
unearned revenues and are deferred until the service is provided. Equipment
sales are recognized as revenue when the equipment is delivered to the customer.
Inventory
Inventory is stated at the lower of average cost or market and consists
entirely of satellite receivers, dishes and accessories.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management of the Company to make a
number of estimates and assumptions which affect the reported amounts of assets,
liabilities, revenues and expenses. Actual results could differ from these
estimates.
Fair Value of Financial Instruments
Financial instruments consisting of receivables and accounts payable are
carried at cost, which approximates fair value, as a result of the short-term
nature of the instruments.
Intangible Assets
The cost of acquiring the rights to provide DirecTV satellite services are
capitalized as intangible assets and are being amortized on a straight-line
basis over ten years, which is the expected useful life of the revenue
F-141
<PAGE> 252
DIRECT VISION
(A SEGMENT OF MANKATO CITIZENS TELEPHONE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
stream of those services. Intangible assets also include a one-time membership
fee paid to the NRTC, which is also being amortized on a straight-line basis
over ten years.
Long-Lived Assets
Long-lived assets and certain identifiable intangibles held and used by the
Company are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets is measured by a comparison of the carrying amount of
an asset to future net cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceed the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell.
Income Taxes
The Segment is not directly subjected to income taxes as it's net losses
are consolidated with the Parent's operations for tax filing purposes. No income
tax benefit has been provided in the accompanying statements of operations as
such benefits are not recoverable from the Parent. There are no significant
differences between book and tax basis which would result in deferred tax assets
or liabilities.
(2) RELATED PARTY TRANSACTIONS
As described in note 1, the operations of the Segment are closely related
to those of the Company. As a result, substantially all cash transactions
relating to the Segment's operations are processed at the Company level.
Therefore, the Company is funding the cash operating losses and inventory
purchases of the Segment. The Company also absorbs certain immaterial overhead
costs such as rent and utilities.
Intercompany payables as of December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Intercompany payables for:
Cash operating losses..................................... $269,702 $190,847
Inventory purchases....................................... 59,336 138,396
Other..................................................... (9,429) (757)
-------- --------
$319,609 $328,486
======== ========
</TABLE>
(3) ACCOUNTS RECEIVABLE
Accounts receivable consist of amounts due from subscribers for monthly
programming fees and equipment purchases financed by the Segment. Accounts
receivable as of December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
-------- -------
<S> <C> <C>
Accounts receivable -- programming.......................... $115,113 $27,881
Accounts receivable -- financed equipment sales............. 7,747 6,083
-------- -------
$122,860 $33,964
======== =======
</TABLE>
(4) SUBSEQUENT EVENTS
On April 29, 1997, the Parent contracted to sell substantially all of the
Segment's assets and liabilities to Golden Sky Systems, Inc. The acquisition
closed on July 15, 1997.
F-142
<PAGE> 253
DIRECT BROADCAST SATELLITE
(A SEGMENT OF CTS COMMUNICATION CORPORATION)
FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
F-143
<PAGE> 254
INDEPENDENT AUDITORS' REPORT
The Board of Directors
CTS Communications Corporation:
We have audited the accompanying balance sheets of Direct Broadcast
Satellite (the Segment), a segment of CTS Communications Corporation, as of
December 31, 1996 and 1995 and the related statements of operations, segment
equity and cash flows for the years ended December 31, 1996 and 1995 and the
period from July 29, 1994 (inception) to December 31, 1994. These financial
statements are the responsibility of the Segment's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Direct Broadcast Satellite
at December 31, 1996 and 1995 and the results of its operations and its cash
flows for the years ended December 31, 1996 and 1995 and the period from July
29, 1994 (inception) to December 31, 1994, in conformity with generally accepted
accounting principles.
KPMG PEAT MARWICK LLP
October 10, 1997, except as to note 4,
which is as of November 7, 1997
Kansas City, Missouri
F-144
<PAGE> 255
DIRECT BROADCAST SATELLITE
(A SEGMENT OF CTS COMMUNICATION CORPORATION)
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
ASSETS
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Current assets:
Cash...................................................... $168,051 $ 66,616
Accounts receivable (note 2).............................. 67,287 25,328
Inventory................................................. 10,705 49,805
-------- --------
Total current assets.............................. 246,043 141,749
Equipment................................................. 42,321 42,321
Less, accumulated depreciation............................ 21,346 7,970
-------- --------
Equipment, net.................................... 20,975 34,351
Intangible assets (net of accumulated amortization of
$154,401 and $90,513) (note 1)............................ 484,484 548,372
Other assets -- NRTC patronage capital (note 3)............. 12,788 4,644
-------- --------
Total assets...................................... $764,290 $729,116
======== ========
LIABILITIES AND SEGMENT EQUITY
Current liabilities:
Accounts payable.......................................... $ 70,980 $ 34,377
Unearned revenue.......................................... 118,995 14,031
NRTC Patronage Capital.................................... 12,788 4,644
-------- --------
Total current liabilities......................... 202,763 53,052
Segment equity.............................................. 561,527 676,064
-------- --------
Total liabilities and segment equity.............. $764,290 $729,116
======== ========
</TABLE>
See accompanying notes to financial statements.
F-145
<PAGE> 256
DIRECT BROADCAST SATELLITE
(A SEGMENT OF CTS COMMUNICATION CORPORATION)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 AND THE
PERIOD FROM JULY 29, 1994 (INCEPTION) TO DECEMBER 31, 1994
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Revenues:
Programming revenues.................................... $ 520,940 $ 207,708 $ 14,094
Equipment sales......................................... 82,980 145,422 96,017
Other revenues.......................................... 280 152
--------- --------- ---------
Total revenues.................................. 604,200 353,282 110,111
--------- --------- ---------
Cost of revenues:
Programming costs....................................... 306,079 140,734 6,357
Equipment costs......................................... 116,614 133,867 82,435
Rebate expense.......................................... 56,538 5,413
--------- --------- ---------
Total cost of revenues.......................... 479,231 280,014 88,792
--------- --------- ---------
Gross profit.................................... 124,969 73,268 21,319
--------- --------- ---------
Expenses:
Salaries, wages and commissions......................... 116,459 98,247 12,281
Depreciation and amortization........................... 77,264 71,250 27,233
Bad debt expense........................................ 7,482 2,276 --
Marketing............................................... 43,061 44,202 88,409
--------- --------- ---------
Total expenses.................................. 244,266 215,975 127,923
--------- --------- ---------
Operating loss.................................. (119,297) (142,707) (106,604)
Other income.............................................. 2,036 1,161
--------- --------- ---------
Net loss........................................ $(117,261) $(141,546) $(106,604)
========= ========= =========
</TABLE>
See accompanying notes to financial statements.
F-146
<PAGE> 257
DIRECT BROADCAST SATELLITE
(A SEGMENT OF CTS COMMUNICATION CORPORATION)
STATEMENTS OF SEGMENT EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 AND THE
PERIOD FROM JULY 29, 1994 (INCEPTION) TO DECEMBER 31, 1994
<TABLE>
<CAPTION>
SEGMENT
EQUITY
---------
<S> <C>
Balance at July 1, 1994..................................... $ --
Company contribution to Segment........................... 818,328
1994 net loss............................................. (106,604)
---------
Balance at December 31, 1994................................ 711,724
Company contribution to Segment........................... 105,886
1995 net loss............................................. (141,546)
---------
Balance at December 31, 1995................................ 676,064
Company contribution to Segment........................... 2,724
1996 net loss............................................. (117,261)
---------
Balance at December 31, 1996................................ $ 561,527
=========
</TABLE>
See accompanying notes to financial statements.
F-147
<PAGE> 258
DIRECT BROADCAST SATELLITE
(A SEGMENT OF CTS COMMUNICATION CORPORATION)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 AND THE
PERIOD FROM JULY 29, 1994 (INCEPTION) TO DECEMBER 31, 1994
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Operating activities:
Net loss................................................ $(117,261) $(141,546) $(106,604)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation and amortization........................ 77,264 71,250 27,233
Bad debt expense..................................... 7,482 2,276 --
Changes in:
Accounts receivable.................................. (49,441) (19,051) (8,553)
Inventory............................................ 39,100 (4,693) (82,539)
Accounts payable..................................... 36,603 16,839 17,538
Unearned revenue..................................... 104,964 10,000 4,031
--------- --------- ---------
Net cash provided by (used in) operating
activities...................................... 98,711 (64,925) (148,894)
--------- --------- ---------
Investing activities:
Purchases of equipment.................................. -- -- (4,894)
Purchase of direct broadcast satellite contract areas... -- -- (638,885)
--------- --------- ---------
Net cash used for investing activities............. -- -- (643,779)
--------- --------- ---------
Financing activities -- cash investments by CTS
Communications Corporation.............................. 2,724 105,886 818,328
--------- --------- ---------
Net change in cash.............................. 101,435 40,961 25,655
Cash at beginning of year................................. 66,616 25,655 --
--------- --------- ---------
Cash at end of year....................................... $ 168,051 $ 66,616 $ 25,655
========= ========= =========
</TABLE>
See accompanying notes to financial statements.
F-148
<PAGE> 259
DIRECT BROADCAST SATELLITE
(A SEGMENT OF CTS COMMUNICATION CORPORATION)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Nature of Operations
Direct Broadcast Satellite (the Segment) is a segment of CTS Communication
Corporation (the Company). The Company is a wholly-owned subsidiary of Climax
Telephone Company (the Parent). The Segment was formed in July 1994 for the
purpose of acquiring, owning and operating direct broadcast satellite (DBS)
television systems. The Company is an affiliated associate member of the
National Rural Telecommunications Cooperative (NRTC). The NRTC has contracted
with Hughes Communications Galaxy, Inc. (Hughes), to provide exclusive marketing
rights for distribution of DirecTV satellite television programming in the
United States. The marketing rights give the owner exclusive rights to
distribution of DirecTV service within the contract area. In 1994, Hughes
launched the satellites that provide programming for DirecTV. At December 31,
1996, 1995 and 1994, the Company had the operating rights for portions of two
counties in southern Michigan.
The financial statements presented represent the financial position and
operations of the Segment, which operates as part of the Company. Accordingly,
the Company funds the operations of the Segment. Were the Segment an independent
entity, these funds would have to be obtained from other sources.
Presentation
The Segment is not a separate subsidiary of the Company nor has it been
operated as a separate entity. The financial statements presented herein have
been derived from the records of the Company and have been prepared to present
the Segment's financial position, results of operations and cash flows on a
stand-alone basis. Accordingly, the financial statements include certain costs
and expenses which have been allocated to the Segment by the Company. Such
allocated expenses may or may not be indicative of what such expenses would have
been had the Segment been operated as a separate entity.
Revenue Recognition
Programming revenue is recognized in the month the service is provided to
the subscriber. Unearned revenue represents subscriber advance billings and is
deferred until the service is provided. Equipment sales are recognized as
revenue when the equipment is delivered to the customer. The Company
periodically offers rebates and coupons to customers, principally in connection
with prepayment plans; rebates are recorded when they are utilized.
Inventory
Inventory is stated at the lower of average cost or market and consists
entirely of satellite receivers, dishes and accessories.
Equipment
Equipment has been recorded at cost and is depreciated over the estimated
useful lives using the straight-line method. Estimated useful lives range from
three to seven years.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management of the Segment to make a
number of estimates and assumptions which affect the reported amounts of assets,
liabilities, revenues and expenses. Actual results could differ from these
estimates.
F-149
<PAGE> 260
DIRECT BROADCAST SATELLITE
(A SEGMENT OF CTS COMMUNICATION CORPORATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Fair Value of Financial Instruments
Financial instruments consisting of receivables and accounts payable are
carried at cost, which approximates fair value, as a result of the short-term
nature of the instruments.
Intangible Assets
The cost of acquiring the rights to provide DirecTV satellite services are
capitalized as intangible assets and are being amortized on a straight-line
basis over ten years, which is the expected useful life of the revenue stream of
those services. Intangible assets also include a one-time membership fee paid to
the NRTC, which is also being amortized on a straight-line basis over ten years.
Long-lived Assets
Long-lived assets and certain identifiable intangibles held and used by the
Company are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of the
carrying amount of an asset to future net cash flows expected to be generated by
the asset. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the assets
exceed the fair value of the assets. Assets to be disposed of are reported at
the lower of the carrying amount of fair value less costs to sell.
Income Taxes
The Segment's operating results are consolidated with the Parent's
operations for tax filing purposes. No income tax benefit has been provided in
the accompanying statements of operations as such benefits are not recoverable
from the Parent. There are no significant differences between book and tax basis
which would result in deferred tax assets or liabilities.
(2) ACCOUNTS RECEIVABLE
Accounts receivable consist of amounts due from subscribers for monthly
programming fees.
(3) NRTC PATRONAGE CAPITAL
The NRTC declares and the Segment receives a yearly patronage dividend
based on the NRTC's profitability. Of the total dividend, 20% is received in
cash and 80% is distributed in the form of NRTC patronage capital certificates,
which will be redeemed in cash at a future date at the discretion of the NRTC.
The Segment has recorded an asset and an offsetting deferred income liability
for the noncash portion of the patronage dividend. The deferred income is
recognized as revenue when cash distributions are declared by the NRTC. Deferred
revenue included in other liabilities was $12,788 and $4,644 at December 31,
1996 and 1995, respectively.
(4) SUBSEQUENT EVENTS
On October 31, 1997, the Parent contracted to sell substantially all of the
Segment's assets and liabilities to Golden Sky Systems, Inc. The acquisition
closed on November 7, 1997.
F-150
<PAGE> 261
ARGOS SUPPORT SERVICES COMPANY
FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(WITH INDEPENDENT AUDITORS' REPORTS THEREON)
F-151
<PAGE> 262
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Argos Support Services Company:
We have audited the accompanying balance sheet of Argos Support Services
Company (the Company) as of December 31, 1996 and 1995 and the related
statements of operations, shareholder's deficit and cash flows for the years
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Argos Support Services
Company at December 31, 1996 and 1995, the results of its operations and its
cash flows for the years then ended, in conformity with generally accepted
accounting principles.
KPMG PEAT MARWICK LLP
August 8, 1997
Kansas City, Missouri
F-152
<PAGE> 263
ARGOS SUPPORT SERVICES COMPANY
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
ASSETS
<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 1,271,024 $ 227,358
Restricted cash (note 2).................................. 50,524 135,000
Trade receivables (net allowance of $3,732 and $0)........ 473,905 117,684
Inventory................................................. 79,994 84,478
----------- ----------
Total current assets.............................. 1,875,447 564,520
Furniture, fixtures and equipment (net of accumulated
depreciation of $45,777 and $15,680)...................... 91,681 44,783
Intangible assets (net of accumulated amortization of
$269,920 and $161,952).................................... 910,602 917,728
Other assets................................................ 55,806 13,419
----------- ----------
Total assets...................................... $ 2,933,536 $1,540,450
=========== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIT)
Liabilities:
Current liabilities:
Trade payables......................................... $ 417,615 $ 470,571
Unearned revenues...................................... 852,696 185,837
Notes payable -- current portion....................... 21,085 --
Line of credit (note 2)................................ 50,000 --
Other current liabilities (note 1)..................... 144,269 40,203
----------- ----------
Total current liabilities......................... 1,485,665 696,611
----------- ----------
Long-term liabilities:
Line of credit (note 2)................................ -- 125,000
Notes payable, less current portion (note 3)........... 10,883 11,577
Long-term debt (note 3)................................ 275,000 --
----------- ----------
Total long-term liabilities....................... 285,883 136,577
----------- ----------
Total liabilities................................. 1,771,548 833,188
----------- ----------
Minority interest (note 5).................................. 529,472 842,091
----------- ----------
Shareholder's equity (deficit):
Capital stock ($1 par value; 10,000 shares authorized,
5,800 shares issued and outstanding)................... 5,800 5,000
Additional paid-in capital................................ 1,968,018 608,818
Accumulated deficit....................................... (1,341,302) (748,647)
----------- ----------
Total shareholder's equity (deficit).............. 632,516 (134,829)
----------- ----------
Total liabilities and shareholder's equity
(deficit)....................................... $ 2,933,536 $1,540,450
=========== ==========
</TABLE>
See accompanying notes to financial statements.
F-153
<PAGE> 264
ARGOS SUPPORT SERVICES COMPANY
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Revenues:
Program revenues.......................................... $2,829,716 $ 836,634
Equipment sales........................................... 912,118 936,914
Other revenues............................................ 23,746 9,110
---------- ----------
Total revenues.................................... 3,765,580 1,782,658
---------- ----------
Cost of revenues:
Programming costs......................................... 1,725,812 556,652
Equipment costs........................................... 683,726 864,008
Rebate expense............................................ 408,958 16,875
Other cost of revenues.................................... 58,594 110
---------- ----------
Total cost of revenues............................ 2,877,090 1,437,645
---------- ----------
Gross profit...................................... 888,490 345,013
---------- ----------
Expenses:
Salaries and wages........................................ 788,020 405,125
Amortization and depreciation............................. 138,065 114,949
Marketing................................................. 82,282 62,771
Bad debt expense.......................................... 20,850 4,540
Professional fees......................................... 102,148 72,724
Other selling, general and administrative................. 361,576 333,355
---------- ----------
1,492,941 993,464
---------- ----------
Net loss before interest.......................... (604,451) (648,451)
Interest income and expense:
Interest income........................................... 36,971 7,511
Interest expense.......................................... (25,175) (8,725)
---------- ----------
Net loss.......................................... $ (592,655) $ (649,665)
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-154
<PAGE> 265
ARGOS SUPPORT SERVICE COMPANY
STATEMENTS OF SHAREHOLDER'S EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
------ --------------- ----------- ----------
<S> <C> <C> <C> <C>
Balance -- December 31, 1994.................. $5,000 $ 608,818 $ (98,982) $ 514,836
Net loss.................................... -- -- (649,665) (649,665)
------ ---------- ----------- ----------
Balance -- December 31, 1995.................. 5,000 608,818 (748,647) (134,829)
Sale of additional stock.................... 800 1,359,200 -- 1,360,000
Net loss.................................... -- -- (592,655) (592,655)
------ ---------- ----------- ----------
Balance -- December 31, 1996.................. $5,800 $1,968,018 $(1,341,302) $ 632,516
====== ========== =========== ==========
</TABLE>
See accompanying notes to financial statements.
F-155
<PAGE> 266
ARGOS SUPPORT SERVICES COMPANY
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---------- ---------
<S> <C> <C>
Cash flow from operating activities
Net loss.................................................. $ (592,655) $(649,665)
Adjustments to reconcile net income to net used in
operating activities:
Depreciation and amortization.......................... 138,065 114,949
Bad debt expense....................................... 20,850 4,540
Changes in:
Trade receivable....................................... (377,071) (122,224)
Inventory.............................................. 4,484 (70,763)
Other assets........................................... (42,387) (11,070)
Trade payables......................................... (52,956) 469,571
Unearned revenues...................................... 666,859 185,837
Other current liabilities.............................. 104,066 22,658
---------- ---------
Net cash used in operating activities............. (130,745) (56,167)
---------- ---------
Cash flows from investing activities:
Additions to equipment.................................... (76,995) (39,663)
Proceeds from maturities of restricted cash investments... 84,476 15,000
---------- ---------
Net cash provided by (used in) investing
activities...................................... 7,481 (24,663)
---------- ---------
Cash flows from financing activities:
Proceeds from issuance of line of credit.................. -- 125,000
Payments on line of credit................................ (75,000) (880,747)
Proceeds from issuance of debt and notes payable.......... 296,691 15,268
Payments on debt and notes payable........................ (1,300) (53,691)
Proceeds from issuance of stock........................... 1,360,000 --
Proceeds from sales of revenue sharing rights............. -- 842,091
Purchase of investor's revenue sharing rights............. (413,461) --
---------- ---------
Net cash provided by financing activities......... 1,166,930 47,921
---------- ---------
Net change in cash................................ 1,043,666 (32,909)
Beginning of year cash and cash equivalents balance......... 227,358 260,267
---------- ---------
End of year cash and cash equivalents balance............... $1,271,024 $ 277,358
========== =========
Cash paid for interest...................................... $ 21,165 $ 8,725
========== =========
</TABLE>
See accompanying notes to financial statements.
F-156
<PAGE> 267
ARGOS SUPPORT SERVICES COMPANY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Nature of Operations
Argos Support Services Company (the Company) was formed in March 1993 for
the purpose of acquiring, owning and operating direct broadcast satellite (DBS)
television systems. The Company is an affiliated associate member of the
National Rural Telecommunications Cooperative (NRTC). The NRTC has contracted
with the Company to provide exclusive marketing rights for distribution of
DirecTV satellite television programming in the United States. The marketing
rights give the license owner exclusive rights to distribution of DirecTV
service within the contract area. In 1994, Hughes launched the satellites that
provide programming for DirecTV. At December 31, 1996 and 1995, the Company has
the operating rights for territories in Texas, Florida and Utah.
Revenue Recognition
Programming revenue is recognized in the month the service is provided to
the subscriber. Unearned revenues represent subscriber advance billings and are
deferred until the service is provided. Equipment sales are recognized as
revenue when the equipment is delivered to the customer.
Inventory
Inventory is stated at the lower of average cost or market and consists
entirely of Direct Satellite Systems which includes receivers, satellite dishes
and accessories.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management of the Company to make a
number of estimates and assumptions which affect the reported amounts of assets,
liabilities, revenues and expenses during the period. Actual results could
differ from these estimates.
Fair Value of Financial Instruments
Financial instruments consisting of trade receivables, trade payables and
long-term liabilities are carried at cost, which approximates fair value, as a
result of the shortterm nature of the instruments.
Intangible Assets
The cost of acquiring the rights to provide DirecTV satellite services are
capitalized as intangible assets and are being amortized on a straight-line
basis over the expected useful life of the revenue stream of those services, ten
years.
Long-Lived Assets
Long-lived assets and certain identifiable intangibles held and used by the
Company are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets is measured by a comparison of the carrying amount of
an asset to future net cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceed the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell.
F-157
<PAGE> 268
ARGOS SUPPORT SERVICE COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NRTC Patronage Capital
The NRTC declares and the Company receives a yearly patronage dividend
based on the NRTC's profitability. Of the total dividend, 20% is received in
cash and 80% is distributed in the form of NRTC patronage capital certificates,
which will be redeemed in cash at a future date at the discretion of the NRTC.
The Company has recorded an asset and an offsetting deferred income liability
for the noncash portion of the patronage dividend. The deferred income will be
recognized as revenue when cash distributions are declared by the NRTC. Deferred
income included in other current liabilities was $48,107 and $10,804 at December
31, 1996 and 1995, respectively.
Trade Receivables
Trade receivables consist of amounts due from subscribers for monthly
programming fees.
Depreciation
Depreciation on furniture, fixtures and equipment is computed on a
straight-line basis over the estimated useful lives of the assets, which range
from five to seven years.
Cash and Cash Equivalents
Money market investments are classified as cash and cash equivalents for
balance sheet and statement of cash flow purposes.
(2) RESTRICTED CASH
The Company maintains a line of credit with a local bank for operating cash
needs. As of December 31, 1996 and 1995, the Company had drawn $50,000 and
$125,000, respectively, on this line of credit, which carries an interest rate
of 8.5%, has a final maturity date of March 23, 1997 and is secured by
certificates of deposit held by the bank.
(3) NOTES PAYABLE AND LONG-TERM DEBT
Debt consist primarily of a $275,000 debenture payable to the majority
shareholder of the Company. The debenture requires semiannual interest-only
payments at 8.75% until maturity at April 1, 1999, at which time the principal
is due in full. The Company also has two notes payable to banks totaling $31,968
at December 31, 1996.
Scheduled repayments of long-term debt and notes payable outstanding at
December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997........................................................ $ 21,085
1998........................................................ 3,543
1999........................................................ 278,856
2000........................................................ 3,484
--------
$306,968
========
</TABLE>
(4) INCOME TAXES
The Company accounts for income taxes under the asset and liability method
whereby deferred tax assets and liabilities are recognized for the future tax
consequences attributable to temporary differences between the financial
statement's carrying amounts of existing assets and liabilities and their
respective tax basis.
F-158
<PAGE> 269
ARGOS SUPPORT SERVICE COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Temporary differences, which relate primarily to allowances on receivables and
the carrying value of fixed assets, are not significant to the financial
statements.
The Company has not recorded current or deferred tax benefits related to
its taxable operating losses and temporary differences due to uncertainty as to
the likelihood that the results of future operations will generate sufficient
taxable income to realize net operating loss carryforwards and deferred tax
assets.
(5) MINORITY INTEREST
During 1995, the Company sold revenue rights to investors in return for a
cash investment of $842,091. These rights entitle investors to receive a
percentage of any positive net revenues on certain zip codes based on
programming revenues less programming costs related to the zip codes, less an
allocation of marketing and selling, general and administrative expenses. No
amounts were earned or paid on these revenue rights in 1995 or 1996.
As part of the pending sale of the Company described in note 6, the Company
has made offers to repurchase the revenue rights described above. Repurchase
amounts exceeding the original proceeds from the sale of the rights are recorded
as an intangible asset and amortized over the expected useful life of the
franchise. During 1996, the Company paid $413,461 to repurchase certain revenue
rights with a book value of $312,619. At December 31, 1996, the Company has
offered a total of $1,182,307 to buy back the revenue rights of the three
remaining investors having a book value of $529,472.
In August 1997, the Company purchased the rights of one of these investors
(book value of $250,000) for $600,000. As of August 9, 1997, the Company has
outstanding offers to purchase the rights of the remaining two investors for
$582,307. Ultimate amounts paid, if any, could exceed this amount.
(6) SUBSEQUENT EVENTS
On April 3, 1997, the Company's shareholders signed a letter of interest to
sell substantially all its outstanding common stock to Golden Sky Systems, Inc.
(GSS), which owned 20% of the outstanding common stock of the Company. The
acquisition closed on August 8, 1997.
F-159
<PAGE> 270
SATELLITE ENTERTAINMENT, INC.
(A WHOLLY-OWNED SUBSIDIARY OF ACE TELEPHONE ASSOCIATION)
FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
F-160
<PAGE> 271
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Ace Telephone Association:
We have audited the accompanying balance sheets of Satellite Entertainment,
Inc., a wholly-owned subsidiary of Ace Telephone Association, as of December 31,
1996 and 1995 and the related statements of operations, shareholder's equity and
cash flows for the years ended December 31, 1996 and 1995 and the five-month
period ended December 31, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Satellite Entertainment,
Inc. at December 31, 1996 and 1995 and the results of its operations and its
cash flows for the years ended December 31, 1996 and 1995 and the five-month
period ended December 31, 1994, in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
July 3, 1997, except as to note 6,
which is as of July 14, 1997.
Kansas City, Missouri
F-161
<PAGE> 272
SATELLITE ENTERTAINMENT, INC.
(A WHOLLY-OWNED SUBSIDIARY OF ACE TELEPHONE ASSOCIATION)
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
ASSETS
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Current assets:
Cash...................................................... $ 156,502 $ 120,187
Accounts receivable, net of allowance of $33,598 in 1996
(note 2)............................................... 257,995 263,198
Inventory................................................. 79,008 131,142
---------- ----------
Total current assets.............................. 493,505 514,527
Furniture, fixtures and equipment, net of accumulated
depreciation of $106,968 and $35,791 (note 5)............. 326,377 358,245
Intangible assets (net of accumulated amortization of
$278,851 and $163,464) (note 1)........................... 875,006 990,393
Other assets................................................ 39,404 22,189
---------- ----------
Total assets...................................... $1,734,292 $1,885,354
========== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable (note 4)................................. $ 105,288 $ 65,539
Unearned revenue.......................................... 158,493 35,581
Other liabilities......................................... 49,197 37,326
---------- ----------
Total current liabilities......................... 312,978 138,446
Long-term liabilities:
Notes payable (note 4).................................... 350,000 600,000
---------- ----------
Total liabilities................................. 662,978 738,446
========== ==========
Shareholder's equity:
Common stock ($1 par -- 50,000 shares issued and
outstanding)........................................... 50,000 50,000
Additional paid-in capital................................ 1,250,000 1,250,000
Accumulated deficit....................................... (228,686) (153,092)
---------- ----------
Total shareholder's equity........................ 1,071,314 1,146,908
---------- ----------
Total liabilities and shareholder's equity........ $1,734,292 $1,885,354
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-162
<PAGE> 273
SATELLITE ENTERTAINMENT, INC.
(A WHOLLY-OWNED SUBSIDIARY OF ACE TELEPHONE ASSOCIATION)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
AND THE FIVE-MONTH PERIOD ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- --------
<S> <C> <C> <C>
Revenues:
Program revenues........................................ $1,216,893 $ 542,511 $ 47,779
Equipment sales......................................... 231,025 378,892 317,902
Lease revenue (note 5).................................. 96,999 42,392 4,681
Other revenues.......................................... 138,594 82,838 58,004
---------- ---------- --------
Total revenues.................................. 1,683,511 1,046,633 428,366
---------- ---------- --------
Cost of revenues:
Programming costs....................................... 794,779 340,460 19,868
Equipment costs......................................... 213,005 322,617 258,964
Rebate expense.......................................... 85,675 14,909 724
Other costs of revenue.................................. 99,603 128,874 59,859
---------- ---------- --------
Total cost of revenues.......................... 1,193,062 806,860 339,415
---------- ---------- --------
Gross profit.................................... 490,449 239,773 88,951
---------- ---------- --------
Expenses:
Salaries and commissions................................ 139,261 76,904 3,855
Depreciation and amortization........................... 186,563 147,794 51,462
Bad debt expense........................................ 56,587 4,274 --
Marketing............................................... 97,044 111,068 38,060
Other................................................... 84,791 64,656 13,110
---------- ---------- --------
564,246 404,696 106,487
---------- ---------- --------
Operating loss.................................. (73,797) (164,923) (17,536)
Other income............................................ 4,129 5,431 --
Interest income......................................... 17,002 12,707 4,170
Interest expense........................................ (52,394) (64,989) (7,440)
---------- ---------- --------
Loss before tax benefit......................... (105,060) (211,774) (20,806)
Income tax benefit (note 3)............................... 29,466 70,964 8,524
---------- ---------- --------
Net loss........................................ $ (75,594) $ (140,810) $(12,282)
========== ========== ========
</TABLE>
See accompanying notes to financial statements.
F-163
<PAGE> 274
SATELLITE ENTERTAINMENT, INC.
(A WHOLLY-OWNED SUBSIDIARY OF ACE TELEPHONE ASSOCIATION)
STATEMENTS OF SHAREHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
AND THE FIVE-MONTH PERIOD ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED TOTAL
STOCK CAPITAL EARNINGS EQUITY
------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Balance at August 1, 1994....................... $ -- $ -- $ -- $ --
Sale of common stock.......................... 50,000 1,250,000 -- 1,300,000
Net loss...................................... -- -- (12,282) (12,282)
------- ---------- --------- ----------
Balance at December 31, 1994.................... 50,000 1,250,000 (12,282) 1,287,718
Net loss...................................... -- -- (140,810) (140,810)
------- ---------- --------- ----------
Balance at December 31, 1995.................... 50,000 1,250,000 (153,092) 1,146,908
Net loss...................................... -- -- (75,594) (75,594)
------- ---------- --------- ----------
Balance at December 31, 1996.................... $50,000 $1,250,000 $(228,686) $1,071,314
======= ========== ========= ==========
</TABLE>
See accompanying notes to financial statements.
F-164
<PAGE> 275
SATELLITE ENTERTAINMENT, INC.
(A WHOLLY-OWNED SUBSIDIARY OF ACE TELEPHONE ASSOCIATION)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
AND THE FIVE-MONTH PERIOD ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- -----------
<S> <C> <C> <C>
Operating activities:
Net loss............................................... $ (75,594) $(140,810) $ (12,282)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation and amortization....................... 186,563 147,794 51,462
Bad debt expense.................................... 56,587 4,274 --
Change in:
Accounts receivable................................. (51,384) (128,073) (139,399)
Inventory........................................... 52,134 298,286 (429,428)
Other assets........................................ (17,215) (22,189) --
Accounts payable.................................... 39,749 (121,284) 186,823
Unearned revenue.................................... 122,912 26,401 9,180
Other liabilities................................... 11,871 32,283 5,043
--------- --------- -----------
Net cash provided by (used in) operating
activities................................... 325,623 96,682 (328,601)
--------- --------- -----------
Investing activities:
Purchase of furniture, fixtures and equipment.......... (39,308) (255,942) (138,095)
Purchase of DBS regions................................ -- -- (1,153,857)
--------- --------- -----------
Net cash used in investing activities.......... (39,308) (255,942) (1,291,952)
--------- --------- -----------
Financing activities:
Sale of common stock................................... -- -- 1,300,000
Proceeds from issuance of notes payable................ -- -- 600,000
Payments on notes payable.............................. (250,000) -- --
--------- --------- -----------
Net cash provided by (used in) financing
activities................................... (250,000) -- 1,900,000
--------- --------- -----------
Net change in cash............................. 36,315 (159,260) 279,447
Cash at beginning of period.............................. 120,187 279,447 --
--------- --------- -----------
Cash at end of period.................................... $ 156,502 $ 120,187 $ 279,447
========= ========= ===========
Cash paid for interest................................... $ 62,528 $ 56,299 $ --
========= ========= ===========
</TABLE>
See accompanying notes to financial statements.
F-165
<PAGE> 276
SATELLITE ENTERTAINMENT, INC.
(A WHOLLY-OWNED SUBSIDIARY OF ACE TELEPHONE ASSOCIATION)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Nature of Operations
Satellite Entertainment, Inc. (the Company) is a wholly-owned subsidiary of
Ace Telephone Association (the Parent). The Company was formed in August 1994
for the purpose of owning and operating direct broadcast satellite (DBS)
television systems previously purchased by the Parent. The Company is an
affiliated associate member of the National Rural Telecommunications Cooperative
(NRTC). The NRTC has contracted with Hughes Communications Galaxy, Inc. (Hughes)
to provide exclusive marketing rights for distribution of DirecTV satellite
television programming in the United States. The marketing rights give the owner
exclusive rights to distribution of DirecTV service within the contract area. In
1994, Hughes launched the satellite that provides programming for DirecTV. At
December 31, 1996, 1995 and 1994, the Company had the operating rights for three
counties in Minnesota and five counties in Michigan.
Revenue Recognition
Programming revenue is recognized in the month the service is provided to
the subscriber. Unearned revenue represents subscriber advance billings for one
or more months and is deferred until the service is provided. Revenues for
equipment sales are recognized when the equipment is delivered to the customer.
Inventory
Inventory is stated at the lower of average cost or market and consists of
DBS receivers, satellite dishes and accessories as well as retail inventory at a
Radio Shack franchise owned and operated by the Company. Radio Shack inventory
had a carrying value at December 31, 1996 and 1995 of $30,079 and $31,139,
respectively.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management of the Company to make a
number of estimates and assumptions which affect the reported amounts of assets
and liabilities, as well as the reported amounts of revenues and expenses during
the period. Actual results could differ from these estimates.
Fair Value of Financial Instruments
Financial instruments consisting of receivables, accounts payable and notes
payable are carried at cost, which approximates fair value, as a result of the
short-term nature of the instruments.
Furniture, Fixtures and Equipment
Furniture, fixtures and equipment are carried at cost and depreciated on a
straight-line basis over their estimated useful lives, which range from five to
thirty years.
Intangible Assets
The cost of acquiring the rights to provide DirecTV satellite services are
capitalized as intangible assets and are being amortized on a straight-line
basis over a period of ten years, which is the expected useful life of the
revenue stream of those services.
F-166
<PAGE> 277
SATELLITE ENTERTAINMENT, INC.
(A WHOLLY-OWNED SUBSIDIARY OF ACE TELEPHONE ASSOCIATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Long-lived Assets
Long-lived assets and certain identifiable intangibles held and used by the
Company are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets is measured by a comparison of the carrying amount of
an asset to future net cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceed the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell.
Income Taxes
The Company is not directly subjected to income taxes as its net losses are
consolidated with the Parent's operations for tax filing purposes.
(2) ACCOUNTS RECEIVABLE
Trade receivables consist primarily of amounts due from subscribers for
monthly programming fees and equipment purchases financed by the Company. Trade
receivables as of December 31, 1996, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Accounts receivable:
Programming............................................... $121,727 $ 65,884
Financed equipment sales.................................. 133,913 195,454
Other..................................................... 2,355 1,860
-------- --------
$257,995 $263,198
======== ========
</TABLE>
(3) INCOME TAXES
The Company is not directly subjected to income taxes as it's net losses
are consolidated with the Parent's operations for tax filing purposes. The
Company records a receivable from the Parent for the tax benefits arising from
the net losses of the Company. All tax benefits arise from losses from
continuing operations. There are no significant differences between tax and book
basis resulting in deferred tax assets or liabilities.
Total income tax benefit differs from expected income tax benefit as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- ------
<S> <C> <C> <C>
Expected income tax benefit at 34%....................... $35,720 $72,003 $7,074
Difference due to income tax benefit allocation made by
Parent................................................. (6,254) (1,039) 1,450
------- ------- ------
Total income tax benefit....................... $29,466 $70,964 $8,524
======= ======= ======
</TABLE>
If the Company had filed income taxes on a separate return basis, any tax
benefit and net operating loss carry-forward would not be recognizable due to
the Company's recurring historical losses Pro forma net income would therefore
be as follows:
<TABLE>
<CAPTION>
1996 1995 1994
- ------- -------- -------
<S> <C> <C>
$88,545 $190,050 $20,806
======= ======== =======
</TABLE>
F-167
<PAGE> 278
SATELLITE ENTERTAINMENT, INC.
(A WHOLLY-OWNED SUBSIDIARY OF ACE TELEPHONE ASSOCIATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(4) RELATED PARTY TRANSACTIONS
The Company has a revolving line of credit with the Parent whereby the
Parent will loan the Company cash for operating purposes up to $1,000,000. These
borrowings carry interest at prime plus two percent and require quarterly
interest-only payments, with the unpaid principal balance due on April 27, 1999.
The unpaid balance of these borrowings totaled $350,000 and $600,000 at December
31, 1996 and 1995, respectively.
The Company is also party to various intercompany transactions with the
Parent and a subsidiary of the Parent, including interest accruals on the line
of credit noted above, intercompany cash receipts and tax benefits arising from
the Company's net losses. Net receivable balances due from the Parent offset
against accounts payable at December 31, 1996 and 1995 were $43,323 and $34,486,
respectively.
(5) LEASES
In addition to selling satellite television equipment, the Company also
leases the equipment to customers for a minimum one-year period at a fixed
monthly rental charge. After one year, the customer may continue to lease the
equipment on a month-to-month basis. All minimum rents due under such leases at
December 31, 1996, 1995 and 1994 are, therefore, due within the next calendar
year.
The above leases qualify for operating lease treatment and, accordingly,
the leased units are transferred from inventory to furniture, fixtures and
equipment at average cost when leased and depreciated on a straight-line basis
over a five-year period. Rental income is recognized in the month earned. The
carrying amount of leased equipment included in furniture, fixtures and
equipment at December 31, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Cost........................................................ $299,744 $286,104
Accumulated depreciation.................................... (92,261) (28,935)
-------- --------
Net carrying cost......................................... $207,483 $257,169
======== ========
</TABLE>
(6) NRTC PATRONAGE CAPITAL
The NRTC declares and the Company receives a yearly patronage dividend
based on the NRTC's profitability. Of the total dividend, 20% is received in
cash and 80% is distributed in the form of NRTC patronage capital certificates,
which will be redeemed in cash at a future date at the discretion of the NRTC.
The Company has recorded an asset and an offsetting-deferred income liability
for the noncash portion of the patronage dividend. The deferred income will be
recognized as revenue when cash distributions are declared by the NRTC. Deferred
revenue included in other liabilities was $38,239 and $21,724 at December 31,
1996 and 1995, respectively.
(7) SUBSEQUENT EVENTS
On March 21, 1997, the Company contracted to sell substantially all of its
assets to Golden Sky Systems, Inc. The sale closed on July 14, 1997.
F-168
<PAGE> 279
GVEC RURAL TV, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
F-169
<PAGE> 280
INDEPENDENT AUDITORS' REPORT
The Board of Directors
GVEC Rural TV, Inc.,
Guadalupe Valley Electric Cooperative and
Guadalupe Valley Development Corporation:
We have audited the accompanying balance sheets of GVEC Rural TV, Inc. as
of December 31, 1996 and 1995 and the related statements of operations,
investors' capital and cash flows for each of the years in the three-year period
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of GVEC Rural TV, Inc. at
December 31, 1996 and 1995 and the results of its operations and its cash flows
for each of the years in the three-year period ended December 31, 1996 in
conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
August 8, 1997
Kansas City, Missouri
F-170
<PAGE> 281
GVEC RURAL TV, INC.
BALANCE SHEETS
AS OF DECEMBER 31, 1996 AND 1995
ASSETS
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 563,055 $ --
Accounts receivable (notes 2 and 7)....................... 214,827 186,101
Inventory................................................. 47,348 286,718
Note receivable (note 3).................................. 50,000 50,000
---------- ----------
Total current assets.............................. 875,230 522,819
Intangible asset (net of accumulated amortization of
$149,760 and $93,600)..................................... 411,883 468,043
Other assets:
Lease receivable -- noncurrent (note 7)................... 492,593 558,065
Note receivable (note 3).................................. 30,000 80,000
NRTC patronage capital (note 5)........................... 41,515 18,848
Organizational costs...................................... 31,436 39,295
---------- ----------
Total assets...................................... $1,882,657 $1,687,070
========== ==========
LIABILITIES AND INVESTORS' CAPITAL
Current liabilities:
Accounts payable.......................................... $ 122,258 $ 45,604
Related party accounts payable (note 6)................... 16,707 --
Unearned revenue.......................................... 108,106 24,571
Other liabilities (note 5)................................ 43,164 18,848
---------- ----------
Total current liabilities......................... 290,235 89,023
---------- ----------
Investors' capital:
Common stock -- class A, $1 par value; 100,000 shares
authorized, 7,500 shares issued and outstanding........ 7,500 --
Common stock -- class B, $1 par value, 10,000 shares
authorized, 2,500 shares issued and outstanding........ 2,500 --
Additional paid-in capital................................ 1,638,047 --
Retained earnings......................................... (55,625) --
Segment equity............................................ -- 1,598,047
---------- ----------
Total investors' capital.......................... 1,592,422 1,598,047
---------- ----------
Total liabilities and investors' capital.......... $1,882,657 $1,687,070
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-171
<PAGE> 282
GVEC RURAL TV, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- --------
<S> <C> <C> <C>
Revenues:
Programming revenues.................................... $ 752,079 $ 336,503 $ 36,346
Equipment sales......................................... 294,455 740,161 411,023
Other revenues.......................................... 241,862 219,011 181,728
---------- ---------- --------
Total revenues.................................. 1,288,396 1,295,675 629,097
---------- ---------- --------
Cost of revenues:
Programming costs....................................... 431,058 210,394 23,649
Equipment costs......................................... 298,919 545,565 273,326
Rebate expense.......................................... 14,558 10,900 --
Other cost of revenues.................................. 150,407 132,625 175,066
---------- ---------- --------
Total cost of revenues.......................... 894,942 899,484 472,041
---------- ---------- --------
Gross profit.................................... 393,454 396,191 157,056
---------- ---------- --------
Expenses:
Salaries, wages and commissions......................... 213,107 259,808 112,910
Amortization............................................ 64,019 56,160 37,440
Bad debt expense........................................ 96,775 8,735 --
Other................................................... 90,704 112,988 10,911
---------- ---------- --------
Total expenses.................................. 464,605 437,691 161,261
---------- ---------- --------
Operating loss.................................. (71,151) (41,500) (4,205)
Gain on sale of wireless TV rights (note 3)............... -- 230,000 --
---------- ---------- --------
Income (loss) before interest................... (71,151) 188,500 (4,205)
Other income.............................................. 2,141 3,537 --
Interest income........................................... 13,385 8,537 --
---------- ---------- --------
Income (loss)................................... $ (55,625) $ 200,574 $ (4,205)
========== ========== ========
</TABLE>
See accompanying notes to financial statements.
F-172
<PAGE> 283
GVEC RURAL TV, INC.
STATEMENTS OF INVESTORS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
CLASS A CLASS B ADDITIONAL
COMMON COMMON PAID-IN RETAINED SEGMENT TOTAL
STOCK STOCK CAPITAL EARNINGS EQUITY EQUITY
------- ------- ---------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Beginning balance -- December 31,
1993........................... $ -- $ -- $ -- $ -- $ 561,643 $ 561,643
Cash investment by GVEC........ -- -- -- -- 359,195 359,195
Net loss....................... -- -- -- -- (4,205) (4,205)
------ ------ ---------- -------- ----------- ----------
Balance at December 31, 1994..... -- -- -- -- 916,633 916,633
Cash investment by GVEC........ -- -- -- -- 480,840 480,840
Net income..................... -- -- -- -- 200,574 200,574
------ ------ ---------- -------- ----------- ----------
Balance at December 31, 1995..... -- -- -- -- 1,598,047 1,598,047
Capitalization of GVEC Rural
TV, Inc. by GVEC in exchange
for 7,500 common shares..... 7,500 -- 1,590,547 -- (1,598,047) --
Sale of 2,500 common shares to
GVDC........................ -- 2,500 47,500 -- -- 50,000
1996 net loss.................. -- -- -- (55,625) -- (55,625)
------ ------ ---------- -------- ----------- ----------
Balance at December 31, 1996..... $7,500 $2,500 $1,638,047 $(55,625) $ -- $1,592,422
====== ====== ========== ======== =========== ==========
</TABLE>
See accompanying notes to financial statements.
F-173
<PAGE> 284
GVEC RURAL TV, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
-------- --------- ---------
<S> <C> <C> <C>
Operating activities:
Net income (loss)........................................ $(55,625) $ 200,574 $ (4,205)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Amortization.......................................... 64,019 56,160 37,440
Bad debt expense...................................... 96,775 8,735 --
Gain on sale of wireless TV rights.................... -- (230,000) --
Changes in:
Accounts and leases receivable........................ (60,029) (530,311) (222,590)
Inventory............................................. 239,370 (97,879) (188,839)
Other assets.......................................... -- (39,295) --
Accounts payable...................................... 88,661 34,243 11,361
Unearned revenues..................................... 83,535 16,933 7,638
Other liabilities..................................... 6,349 -- --
-------- --------- ---------
Net cash provided by (used in) operating
activities..................................... 463,055 (580,840) (359,195)
-------- --------- ---------
Investing activities:
Payments on notes receivable............................. 50,000 100,000 --
-------- --------- ---------
Net cash provided by investing activities........ 50,000 100,000 --
-------- --------- ---------
Financing activities:
Cash investments by GVEC................................. -- 480,840 359,195
Proceeds from issuance of stock.......................... 50,000 -- --
-------- --------- ---------
Net cash provided by financing activities........ 50,000 480,840 359,195
-------- --------- ---------
Net change in cash............................... 563,055 -- --
Cash at beginning of year.................................. -- -- --
-------- --------- ---------
Cash at end of year........................................ $563,055 $ -- $ --
======== ========= =========
</TABLE>
See accompanying notes to financial statements.
F-174
<PAGE> 285
GVEC RURAL TV, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Nature of Operations
GVEC Rural TV, Inc. (the Company) is a Texas Corporation organized for the
purpose of owning and operating direct broadcast services (DBS) television
systems to customers within its franchise areas which include four counties in
central Texas. The Company is an affiliated associate member of the National
Rural Television Cooperative (NRTC). The NRTC has contracted with Hughes
Communications Galaxy, Inc. (Hughes) to provide exclusive marketing rights for
distribution of DirecTV television programming in the United States. The
marketing rights give the owner exclusive rights to distribution of DirecTV
service within the contract area. In 1994, Hughes launched the satellites that
provide programming for DirecTV. The Company also provides C-Band satellite
television services.
The Company is owned by Guadalupe Valley Electric Cooperative (GVEC) and
Guadalupe Valley Development Corporation (GVDC).
Prior to January 1, 1996, the operations of the Company were reported as a
segment of GVEC. On January 1, 1996, GVEC incorporated its rural television
segment into a separate entity (the Company). This was achieved by GVEC's
contribution of certain assets in exchange for Company stock.
The financial statements presented as of and for the year ended December
31, 1996 present the financial position and operations of the Company. As of and
for the years ended December 31, 1995 and 1994, the financial statements
represent the financial position and operation of GVEC's rural television
segment. This segment was not a separate subsidiary of GVEC nor was it operated
as a separate entity in 1995 or 1994. The financial statements for 1995 and 1994
presented herein have been derived from the records of GVEC and have been
prepared to present the segment's financial position, results of operations and
cash flows on a stand-alone basis. Accordingly, the financial statements include
certain costs and expenses which were allocated to the segment by GVEC. Such
allocated expenses may or may not be indicative of what such expenses would have
been had the segment been operated as a separate entity.
Revenue Recognition
Programming revenue is recognized in the month the service is provided to
the subscriber. Unearned revenue represents subscriber advance billings and is
deferred until the service is provided. Equipment sales are recognized as
revenue when the equipment is delivered to the customer. Other revenues consist
primarily of the sale of C-Band equipment, G-Band program revenues and various
DBS maintenance revenue. These revenues are recognized in the same manner as DBS
programming and equipment sales.
Cash Equivalents
The Company considers all liquid investments purchased with a maturity of
ninety days or less to be cash equivalents.
Inventory
Inventory is stated at the lower of average cost or market and consists
primarily of receivers, satellite dishes and accessories.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make a number of estimates
and assumptions which affect the reported amounts of
F-175
<PAGE> 286
GVEC RURAL TV, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
assets and liabilities, as well as the reported amounts of revenues and expenses
during the period. Actual results could differ from these estimates.
Fair Value of Financial Instruments
Financial instruments consisting of receivables and accounts payable are
carried at cost, which approximates fair value as a result of the short-term
nature of the instruments.
Intangible Assets
The cost of acquiring the rights to provide DirecTV satellite services are
capitalized as intangible assets and are being amortized on a straight-line
basis over ten years, which is the expected useful life of the revenue stream of
those services.
Long-lived Assets
Long-lived assets and certain identifiable intangibles held and used by the
Company are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets is measured by a comparison of the carrying amount of
an asset to future net cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceed the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell.
Income Taxes
Income taxes are provided for the tax effects of transactions reported in
the financial statements and consist of taxes currently due plus deferred taxes
related primarily to differences between the financial reporting and tax basis
of certain assets.
Organizational Costs
The cost of legal and other professional fees associated with the formation
of GVEC Rural TV, Inc. on January 1, 1996 were capitalized and were being
amortized over a five-year period.
(2) ACCOUNTS RECEIVABLE
Accounts receivable consist primarily of amounts due from subscribers for
monthly programming fees and for rental charges on leased equipment. Accounts
receivable as of December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Programming (net of allowance of $3,418 and $0 at December
31, 1996 and 1995)........................................ $ 64,117 $ 42,784
Equipment leases -- current portion (note 7)................ 122,967 130,904
Other....................................................... 27,743 12,413
-------- --------
$214,827 $186,101
======== ========
</TABLE>
F-176
<PAGE> 287
GVEC RURAL TV, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(3) NOTE RECEIVABLE
In January 1995, the Company sold for $230,000 its rights to provide
certain wireless television services to an unrelated party. An initial payment
of $100,000 was received at the time of sale, and the buyer signed a note for
the remaining $130,000. The note was paid in full in March 1997.
(4) INCOME TAXES
The Company's deferred tax assets relate principally to nondeductible
reserves for bad debt and a net operating loss carryforward.
A summary of deferred tax assets at December 31, 1996 follows:
<TABLE>
<S> <C>
Deferred tax assets:
Temporary differences..................................... $ 2,056
Net operating loss carryforward........................... 7,552
-------
Total deferred tax assets......................... 9,608
Less asset valuation reserve................................ (9,608)
-------
Net deferred tax assets........................... $ --
=======
</TABLE>
Due to outstanding net operating loss carryforwards, no provision for
income taxes was recorded in 1996. The net operating loss for tax purposes of
$22,211 as of December 31, 1996 expires in 2011.
In 1995 and 1994, the Company was not directly subject to income taxes, as
it was operated as a segment of GVEC. GVEC did not allocate tax expense
(benefit) to the segment and, accordingly, no provision for income taxes has
been made in 1995 or 1994.
(5) NRTC PATRONAGE CAPITAL
The NRTC declares and the Company receives a yearly patronage dividend
based on the NRTC's profitability. Of the total dividend, 20% is received in
cash and 80% is distributed in the form of NRTC patronage capital certificates,
which will be redeemed in cash at a future date at the discretion of the NRTC.
The Company has recorded an asset and an offsetting deferred income liability
for the noncash portion of the patronage dividend. The deferred income will be
recognized as revenue when cash distributions are declared by the NRTC. Deferred
income of $41,515 and $18,848 was included in other liabilities at December 31,
1996 and 1995, respectively.
(6) RELATED PARTY TRANSACTIONS
On January 1, 1996, GVEC contributed all of its satellite television assets
to GVEC Rural TV, Inc. in exchange for 100% of the issued and outstanding 7,500
shares of Class A common stock. These assets were recorded at historical cost.
GVDC purchased 100% of the issued and outstanding 2,500 shares of Class B common
stock in January 1996. Class A and B common shares have identical features
except that dividends may be declared separately on each issue at the discretion
of the Board of Directors. GVEC and GVEC Rural TV, Inc. share the same Board of
Directors as GVDC.
GVEC continues to perform management and accounting functions for GVEC
Rural TV, Inc. and bills GVEC Rural TV, Inc. for such services. A related
payable to GVEC of $16,707 exists at December 31, 1996.
F-177
<PAGE> 288
GVEC RURAL TV, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(7) LEASES
In addition to selling satellite television equipment, the Company also
leases the equipment to customers for periods of three to seven years at a fixed
monthly rental charge. These leases qualify as sales-type capital leases and are
therefore recorded as sales of equipment.
Future minimum rental payments to be received, less a monthly handling fee
and an allowance for uncollectible accounts, are included in accounts
receivable. At December 31, 1996, 1995 and 1994, the net lease receivable was
$615,560, $688,969 and $202,500, respectively. The December 31, 1996 lease
receivable is to be received in subsequent years as follows:
<TABLE>
<S> <C>
1997........................................................ $122,967
1998........................................................ 122,967
1999........................................................ 122,967
2000........................................................ 122,967
2001........................................................ 114,689
Thereafter.................................................. 41,401
Less allowance.............................................. (32,398)
--------
Total............................................. $615,560
========
</TABLE>
Lease receivables due within one year are classified as current receivables
on the Company's balance sheets.
(8) SUBSEQUENT EVENT
On June 3, 1997, the Company contracted to sell certain of its DBS assets
to Golden Sky Systems, Inc. The acquisition closed on July 8, 1997.
F-178
<PAGE> 289
NRTC SYSTEM NO. 0093
A SEGMENT OF CABLE AND COMMUNICATIONS CORPORATION
FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
F-179
<PAGE> 290
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Cable and Communications Corporation:
We have audited the accompanying balance sheets of NRTC System No. 0093, a
segment of Cable and Communications Corporation, as of December 31, 1996 and
1995 and the related statements of operations, segment equity and cash flows for
each of the years in the three year period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of NRTC System No. 0093, a
segment of Cable and Communications Corporation, at December 31, 1996 and 1995
and the results of its operations and its cash flows for each of the years in
the three year period ended December 31, 1996 in conformity with generally
accepted accounting principles.
KPMG PEAT MARWICK LLP
November 14, 1997
Kansas City, Missouri
F-180
<PAGE> 291
NRTC SYSTEM NO. 0093
A SEGMENT OF CABLE AND COMMUNICATIONS CORPORATION
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
ASSETS
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 12,674 $ 18,023
Accounts receivable....................................... 86,951 37,820
Notes receivable, current portion (note 3)................ 79,150 54,044
Inventory................................................. 24,630 25,424
Total current assets.............................. 203,405 135,311
Franchise costs (net of accumulated amortization of $62,713
and $36,763 in 1996 and 1995, respectively)............... 196,737 222,687
Notes receivable, long-term portion (note 3)................ 89,231 99,895
-------- --------
Total assets...................................... $489,373 $457,893
======== ========
LIABILITIES AND SEGMENT EQUITY
Current liabilities:
Accounts payable.......................................... $ 44,204 $ 37,236
Due to related party (note 5)............................. 13,050 6,165
Unearned revenue.......................................... 60,324 14,033
Other liabilities......................................... 5,075 3,388
-------- --------
Total current liabilities......................... 122,653 60,822
Segment equity.............................................. 366,720 397,071
-------- --------
Commitments Total liabilities and segment equity............ $489,373 $457,893
======== ========
</TABLE>
See accompanying notes to financial statements.
F-181
<PAGE> 292
NRTC SYSTEM NO. 0093
A SEGMENT OF CABLE AND COMMUNICATIONS CORPORATION
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Programming revenues...................................... $553,123 $292,826 $ 21,057
Equipment sales........................................... 168,781 387,991 220,823
-------- -------- --------
Total revenues.................................... 721,904 680,817 241,880
-------- -------- --------
Cost of revenues:
Programming costs......................................... 391,977 186,048 13,000
Equipment costs........................................... 139,134 311,501 185,415
-------- -------- --------
Total cost of revenues............................ 531,111 497,549 198,415
-------- -------- --------
Gross profit................................................ 190,793 183,268 43,465
-------- -------- --------
Expenses:
Salaries, wages and benefits.............................. 86,274 56,561 16,533
Amortization.............................................. 25,950 25,950 10,813
Other general and administrative.......................... 63,523 53,035 1,977
-------- -------- --------
Total expenses.................................... 175,747 135,546 29,323
-------- -------- --------
Net income........................................ $ 15,046 $ 47,722 $ 14,142
======== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-182
<PAGE> 293
NRTC SYSTEM NO. 0093
A SEGMENT OF CABLE AND COMMUNICATIONS CORPORATION
STATEMENTS OF SEGMENT EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<S> <C>
Balance at December 31, 1993................................ $264,085
Net income................................................ 14,142
--------
Balance at December 31, 1994................................ 278,227
Investments by parent..................................... 71,122
Net income................................................ 47,722
--------
Balance at December 31, 1995................................ 397,071
Distributions to parent................................... (45,397)
Net income................................................ 15,046
--------
Balance at December 31, 1996................................ $366,720
========
</TABLE>
See accompanying notes to financial statements.
F-183
<PAGE> 294
NRTC SYSTEM NO. 0093
A SEGMENT OF CABLE AND COMMUNICATIONS CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
-------- --------- --------
<S> <C> <C> <C>
Operating activities:
Net income................................................ $ 15,046 $ 47,722 $ 14,142
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Bad debt expense....................................... 1,128 9,101 --
Amortization........................................... 25,950 25,950 10,813
Changes in:
Accounts receivable.................................. (49,131) (27,025) (10,795)
Notes receivable..................................... (15,570) (163,040) --
Inventory............................................ 794 7,682 (33,106)
Accounts payable..................................... 6,968 21,915 15,321
Due to related party................................. 6,885 (3,428) 14,228
Unearned revenues.................................... 46,291 7,562 6,471
Other liabilities.................................... 1,687 2,520 868
Customer deposits.................................... -- (7,989) 7,989
-------- --------- --------
Net cash provided by (used in) operating activities......... 40,048 (79,030) 25,931
-------- --------- --------
Cash flows from financing activities --
Cash investments (distributions) by Cable & Communications
Corporation............................................ (45,397) 71,122 --
-------- --------- --------
Net increase (decrease) in cash and cash equivalents........ (5,349) (7,908) 25,931
Cash and cash equivalents at beginning of year.............. 18,023 25,931 --
-------- --------- --------
Cash and cash equivalents at end of year.................... $ 12,674 $ 18,023 $ 25,931
======== ========= ========
</TABLE>
See accompanying notes to financial statements.
F-184
<PAGE> 295
NRTC SYSTEM NO. 0093
A SEGMENT OF CABLE AND COMMUNICATIONS CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Nature of Operations
The NRTC System No. 0093 is a segment (the Segment) of Cable and
Communications Corporation (C&CC) which provides rural direct broadcasting
satellite (DBS) television service to customers within its franchise areas which
includes fifteen counties in eastern Montana. C&CC is a wholly-owned subsidiary
of Mid-Rivers Telephone Cooperative, Inc. (MRTC). MRTC is an affiliated
associate member of the National Rural Telecommunications Cooperative (NRTC).
The NRTC has contracted with Hughes Communications Galaxy, Inc. (Hughes) to
provide exclusive marketing rights for distribution of DirecTV television
programming in the rural territories of the United States. The marketing rights
give the owner exclusive rights to distribution of DirecTV service within the
contract area. In 1994, Hughes launched the satellites that provide programming
for DirecTV.
The financial statements presented as of and for the years ended December
31, 1996, 1995 and 1994, represent the financial position and operation of the
Segment. The Segment was not operated as a separate entity or a separate
subsidiary of C&CC in 1996, 1995 or 1994. The financial statements presented
herein have been derived from the records of C&CC and have been prepared to
present the Segment's financial position, results of operations and cash flows
on a stand-alone basis. The financial statements do not include certain costs
and expenses which could be allocable to the segment by C&CC. Accordingly, costs
and expenses presented may or may not be indicative of what such expenses would
have been had the Segment been operated as a separate entity.
Revenue Recognition
Programming revenue is recognized in the month the service is provided to
the subscriber. Unearned revenue represents subscriber advance billings for one
or more months and is deferred until the service is provided. Equipment sales
are recognized as revenue when the equipment is delivered to the customer. Other
revenues consist primarily of various DBS service and maintenance revenue. These
revenues are recognized in the same manner as DBS programming and equipment
sales.
Cash Equivalents
The Segment considers all liquid investments purchased with a maturity of
ninety days or less to be cash equivalents.
Inventory
Inventory is stated at the lower of average cost (first-in, first-out) or
market and consists primarily of receivers, satellite dishes and accessories.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make a number of estimates
and assumptions which affect the reported amounts of assets and liabilities, as
well as the reported amounts of revenues and expenses during the period. Actual
results could differ from these estimates.
F-185
<PAGE> 296
NRTC SYSTEM NO. 0093
A SEGMENT OF CABLE AND COMMUNICATIONS CORPORATION
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
Fair Value of Financial Instruments
Financial instruments consisting of receivables and accounts payable are
carried at cost, which approximates fair value as a result of the short-term
nature of the instruments.
Intangible Assets
The cost of acquiring the rights to provide DirecTV satellite services are
capitalized as intangible assets and are being amortized on a straight-line
basis over ten years, which is the expected useful life of the revenue stream of
those services.
Long-lived Assets
Long-lived assets and certain identifiable intangibles held and used by the
Company are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets is measured by a comparison of the carrying amount of
an asset to future net cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceed the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell.
Income Taxes
The Segment is not directly subject to income taxes, as it is operated as a
segment of C&CC. C&CC did not allocate tax expense to the segment and,
accordingly, no provision for income taxes has been made.
(2) ACCOUNTS RECEIVABLE
Accounts receivable consist primarily of amounts due from subscribers for
monthly programming fees.
(3) NOTES RECEIVABLE
The Segment finances DBS equipment sales to customers. These sales
contracts are executed for periods varying from twelve to thirty-six months.
These notes are amortized through monthly payments. The contracts are
collateralized by security interests in the equipment purchased. Notes
receivable as of December 30, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Notes receivable (net of allowance of $10,229 and $9,101 in
1996 and 1995, respectively).............................. $168,381 $153,939
Less current portion........................................ 79,150 54,044
-------- --------
$ 89,231 $ 99,895
======== ========
</TABLE>
(4) NRTC PATRONAGE CAPITAL
The NRTC declares and the Segment receives a yearly patronage dividend
based on the NRTC's profitability. The patronage dividend can be either
qualified or nonqualified upon the election of the Segment. If qualified, 20% of
the dividend is received in cash while 80% is distributed in patronage capital
certificates, which can be redeemed in cash at a future date at the discretion
of the NRTC. Nonqualified dividends are distributed entirely as patronage
capital certificates, which will generally be redeemable only upon the
dissolution of the NRTC. The Segment has elected to receive the nonqualified
dividend. As such, the asset
F-186
<PAGE> 297
NRTC SYSTEM NO. 0093
A SEGMENT OF CABLE AND COMMUNICATIONS CORPORATION
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
and equally offsetting deferred income liability have not been recorded as there
is no financial statement impact.
(5) RELATED PARTY TRANSACTIONS
C&CC performs management and service and maintenance functions for the
Segment and allocates such labor and benefit Segment. A related payable to C&CC
of $13,050 and $6,165 exists at December 31, 1996, and 1995, respectively.
(6) SUBSEQUENT EVENT
The Segment contracted to sell certain of its DBS assets to Golden Sky
Systems, Inc. The acquisition closed on December 17, 1997.
F-187
<PAGE> 298
DIRECT BROADCAST SATELLITE
(A SEGMENT OF NEMONT COMMUNICATIONS INC.)
FINANCIAL STATEMENTS
DECEMBER 31, 1997
F-188
<PAGE> 299
INDEPENDENT AUDITORS' REPORT
The Board of Directors
We have audited the accompanying balance sheets of Direct Broadcast
Satellite (the Segment), a segment of Nemont Communications Inc. (NCI), as of
December 31, 1997, and the related statements of operations, segment equity, and
cash flows for the year then ended. The financial statements are the
responsibility of the Segment's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free from
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Direct Broadcast Satellite
at December 31, 1997, and the results of its operations and its cash flows for
the year ended December 31, 1997, in conformity with generally accepted
accounting principles.
CHMS, P.C.
Certified Public Accountants
Sidney, Montana
July 31, 1998
F-189
<PAGE> 300
DIRECT BROADCAST SATELLITE
(A SEGMENT OF NEMONT COMMUNICATIONS INC.)
BALANCE SHEET
DECEMBER 31, 1997
ASSETS
<TABLE>
<CAPTION>
1997
--------
<S> <C>
Current assets
Cash...................................................... $ 925
Accounts receivable -- Note B............................. 72,645
Inventory -- Note A....................................... 18,248
--------
Total current assets.............................. 91,818
Intangible equipment -- net of accumulated
amortization -- Note D.................................... 239,780
Other assets
Notes receivable -- Note E................................ 24,193
NRTC patronage capital -- Note C.......................... 47,249
--------
Total other assets................................ 71,442
--------
Total assets...................................... $403,040
========
LIABILITIES & SEGMENT EQUITY
Current liabilities
Accounts payable.......................................... $253,035
Unearned revenue.......................................... 95,171
Notes payable -- Note F................................... 23,225
--------
Total current liabilities......................... 371,431
Segment equity.............................................. 31,609
--------
Total liabilities and segment equity.............. $403,040
========
</TABLE>
See accompanying notes to financial statements.
F-190
<PAGE> 301
DIRECT BROADCAST SATELLITE.
(A SEGMENT OF NEMONT COMMUNICATIONS INC.)
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
1997
----------
<S> <C>
REVENUES
Programming revenues...................................... $1,636,584
Equipment sales........................................... 146,111
Other revenues............................................ 3,921
----------
TOTAL REVENUES.................................... 1,786,616
COST OF REVENUES
Programming costs......................................... 1,214,952
Equipment costs........................................... 170,007
Rebate expense............................................ 12,546
Commission expense........................................ 525,636
----------
TOTAL COST OF REVENUES............................ 1,923,141
----------
GROSS PROFIT.............................................. (136,525)
EXPENSES
Bad debt expense.......................................... 7,866
Amortization.............................................. 38,365
Marketing................................................. 34,365
Office expense -- general................................. 52,192
Salaries.................................................. 114,950
----------
TOTAL EXPENSES.................................... 247,738
----------
LOSS FROM OPERATIONS...................................... (384,263)
OTHER INCOME
Interest income........................................... 4,673
Dividend income........................................... 21,446
----------
26,119
----------
NET LOSS.......................................... $ (358,144)
==========
</TABLE>
See accompanying notes to financial statements.
F-191
<PAGE> 302
DIRECT BROADCAST SATELLITE.
(A SEGMENT OF NEMONT COMMUNICATIONS INC.)
STATEMENT OF SEGMENT EQUITY
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
1997
---------
<S> <C>
BALANCE AT JANUARY 1, 1997.................................. $ 280,411
Company contribution to Segment........................... 109,342
Net Loss.................................................. (358,144)
---------
BALANCE AT DECEMBER 31, 1997................................ $ 31,609
=========
</TABLE>
See accompanying notes to financial statements.
F-192
<PAGE> 303
DIRECT BROADCAST SATELLITE.
(A SEGMENT OF NEMONT COMMUNICATIONS INC.)
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
1997
---------
<S> <C>
CASH FLOWS FROM OPERATION ACTIVITIES
Net loss.................................................. $(358,144)
Adjustments to reconcile net income to net cash provided
by operating activities:
Amortization........................................... 38,365
Patronage capital allocation........................... (15,012)
Changes in operating assets and liabilities:
(increase) decrease in accounts receivable............. (47,408)
(increase) decrease in inventories..................... 2,336
Increase (decrease) in accounts payable................ 58,513
Increase (decrease) in unearned revenue................ 95,171
---------
NET CASH USED BY OPERATING ACTIVITIES............. (226,179)
CASH FLOWS FROM INVESTING ACTIVITIES
Collections on notes receivable........................... 38,402
CASH FLOWS FROM FINANCING ACTIVITIES
Cash investments by Nemont Communications, Inc............ 109,342
Payments on notes payable................................. (4,205)
---------
NET CASH PROVIDED BY FINANCING ACTIVITIES......... 105,137
---------
NET DECREASE IN CASH.............................. (82,640)
CASH AT BEGINNING OF YEAR................................... 83,565
---------
CASH AT END OF YEAR....................................... $ 925
=========
</TABLE>
See accompanying notes to financial statements.
F-193
<PAGE> 304
DIRECT BROADCAST SATELLITE.
(A SEGMENT OF NEMONT COMMUNICATIONS INC.)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Direct Broadcast Satellite (the Segment) is a segment of Nemont
Communications, Inc. (the Company). The Company is a wholly-owned subsidiary of
Nemont Telephone Cooperative (the Parent). The Segment was formed in 1994 for
the purpose of acquiring, owning and operating direct broadcast satellite (DBS)
television systems. The Company is an affiliated associate member of the
National Rural Telecommunications Cooperative (NRTC). The NRTC has contracted
with Hughes Communication Galaxy, Inc. (Hughes), to provide exclusive marketing
rights for distribution of DirecTV satellite television programming in the
United States. The marketing rights give the owner exclusive rights to
distribution of DirecTV service within the contract area. In 1994, Hughes
launched the satellites that provide programming for DirecTV. At December 31,
1997, the Company had the operating rights for portions of four counties in
northeastern Montana.
The financial statements presented represent the financial position and
operations of the Segment, which operates as part of the Company. Accordingly,
the Company funds the operations of the Segment. Were the Segment an independent
entity, these funds would have to be obtained from other sources.
Presentation
The Segment is not a separate subsidiary of the Company nor has it been
operated as a separate entity. The financial statements presented herein have
been derived from the records of the Company and have been prepared to present
the Segment's financial position, results of operations and cash flows on a
stand-alone basis. Accordingly, the financial statements include certain costs
and expenses which have been allocated to the Segment by the Company. Such
allocated expenses may or may not be indicative of what such expenses would have
been had the Segment been operated as a separate entity.
Revenue Recognition
Programming revenue is recognized in the month the service is provided to
the subscriber. Unearned revenue represents subscriber advances billings and is
deferred until the service is provided. Equipment sales are recognized as
revenue when the equipment is delivered to the customer. The Company
periodically offers rebates and coupons to customers, principally in connection
with prepayment plans, rebates are recorded when they are utilized.
Inventory
Inventory is stated at the lower of average cost or market and consists
entirely of satellite receivers, dishes and accessories.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management of the Segment to make a
number of estimates and assumptions which affect the reported amounts of assets,
liabilities, revenues and expenses. Actual results could differ from these
estimates.
Fair value of financial instruments
Financial instruments consisting of receivables and accounts payable are
carried at cost, which approximates fair value, as a result of the short-term
nature of the instruments.
F-194
<PAGE> 305
DIRECT BROADCAST SATELLITE.
(A SEGMENT OF NEMONT COMMUNICATIONS INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Intangible
The cost of acquiring the rights to provide DirecTV satellite services are
capitalized as intangible assets and are being amortized on a straight-line
basis over ten years, which is the expected useful life of the revenue stream of
those services. Intangible assets also include a one-time membership fee paid to
the NRTC, which is also being amortized on a straight-line basis over ten years.
Long-lived Asset
Long-lived assets and certain identifiable intangibles held and used by the
Company are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of the
carrying amount of an asset to future net cash flows expected to be generated by
the asset. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the assets
exceed the fair value of the assets. Assets to be disposed of are reported at
the lower of the carrying amount of fair value less costs to sell.
Income Taxes
The Segment's operating results are consolidated with the Parent's
operations for tax filing purposes. No income tax benefit has been provided in
the accompanying statements of operations as such benefits are not recoverable
from the Parent. There are no significant differences between book and tax basis
which would result in deferred tax assets or liabilities.
NOTE B -- ACCOUNTS RECEIVABLE
Accounts receivable consist of amounts due from subscribers for monthly
programming fees.
NOTE C -- NRTC PATRONAGE CAPITAL
The NRTC declares and the Segment receives a yearly patronage dividend
based on the NRTC's profitability. Of the total dividend, 20% is received in
cash and 80% is distributed in the form of NRTC patronage capital certificates,
which will be redeemed in cash at a future date at the discretion of the NRTC.
The Segment has recorded an asset for the noncash portion of the patronage
dividend.
NOTE D -- INTANGIBLE ASSETS
<TABLE>
<S> <C>
NRTC -- DBS Franchise Fee................................... $ 383,648
less accumulated amortization............................. (143,868)
---------
$ 239,780
=========
</TABLE>
NOTE E -- NOTES RECEIVABLE
Notes receivable consist of amounts due from customers financing the
purchase of DBS dishes. Interest is being charged at a rate of 12% per year, due
in monthly installments over a term of 36 months.
F-195
<PAGE> 306
DIRECT BROADCAST SATELLITE.
(A SEGMENT OF NEMONT COMMUNICATIONS INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE F -- NOTES PAYABLE
Non-interest bearing notes with associated companies are as follows:
<TABLE>
<S> <C>
Northern Electric Cooperative............................... $ 6,000
Yellowstone Valley Electric Cooperative................... 7,200
Sheridan Electric Cooperative............................. 10,025
-------
$23,225
=======
</TABLE>
NOTE G -- SUBSEQUENT EVENTS
During October 31, 1997, the Parent contracted to sell substantially all of
the Segment's assets and liabilities to Golden Sky Systems, Inc. The acquisition
closed in January 1998.
F-196
<PAGE> 307
DIRECT BROADCAST SATELLITE
(A SEGMENT OF SCS COMMUNICATIONS & SECURITY, INC.)
FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
F-197
<PAGE> 308
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
SCS Communications & Security, Inc.
Stayton, Oregon
We have audited the accompanying balance sheets of Direct Broadcast
Satellite (the Segment), a segment of SCS Communications & Security, Inc., as of
December 31, 1997 and 1996, and the related statements of operations, segment
equity, and cash flows for the years then ended. These financial statements are
the responsibility of the Segment's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion the financial statements referred to above present fairly,
in all material respects, the financial position of Direct Broadcast Satellite
as of December 31, 1997 and 1996, and the results of its operations and cash
flows for the years then ended, in conformity with generally accepted accounting
principles.
ALDRICH, KILBRIDE & TATONE LLP
July 26, 1998
Salem, Oregon
F-198
<PAGE> 309
DIRECT BROADCAST SATELLITE
(A SEGMENT OF SCS COMMUNICATIONS & SECURITY, INC.)
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
ASSETS
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Current assets:
Cash...................................................... $ 84,539 $ 28,556
Accounts receivable (Note 2).............................. 39,432 41,828
Inventory................................................. 3,914 27,662
Prepaid expenses.......................................... 4,471 5,329
-------- --------
Total current assets.............................. 132,356 103,375
-------- --------
Equipment................................................. 7,472 9,410
Less accumulated depreciation............................. 4,633 3,523
-------- --------
2,839 5,887
Intangible assets, net of accumulated amortization........ 202,209 221,734
NRTC patronage investment (Note 3)........................ 11,802 7,445
-------- --------
$349,206 $338,441
======== ========
LIABILITIES AND SEGMENT EQUITY
Current liabilities:
Accounts payable.......................................... $ 85,120 $ 52,566
Unearned revenue.......................................... 31,883 51,477
-------- --------
Total current liabilities......................... 117,003 104,043
Segment equity............................................ 232,203 234,398
-------- --------
$349,206 $338,441
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-199
<PAGE> 310
DIRECT BROADCAST SATELLITE
(A SEGMENT OF SCS COMMUNICATIONS & SECURITY, INC.)
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Revenues:
Basic services revenues................................... $411,265 $237,646
Pay-per-view revenues..................................... 70,981 48,102
Equipment sales........................................... 28,624 65,486
Magazine sales............................................ 536 414
-------- --------
Total revenues.................................... 511,406 351,648
======== ========
Cost of revenues:
Programming costs......................................... 243,583 154,084
Equipment costs........................................... 119,310 120,243
-------- --------
Total cost of revenues............................ 362,893 274,327
-------- --------
Gross profit......................................... 148,513 77,321
-------- --------
Expenses:
Customer operations expense............................... 43,779 19,136
Corporate operations expense.............................. 100,681 71,040
Depreciation and amortization expense..................... 21,268 21,204
-------- --------
Total expenses.................................... 165,728 111,380
-------- --------
Operating loss.................................... (17,215) (34,059)
Other income.............................................. 15,020 13,491
-------- --------
Net loss.......................................... $ (2,195) $(20,568)
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-200
<PAGE> 311
DIRECT BROADCAST SATELLITE
(A SEGMENT OF SCS COMMUNICATIONS & SECURITY, INC.)
STATEMENTS OF SEGMENT EQUITY
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<S> <C>
Balance at December 31, 1995................................ $254,966
Company contribution to Segment........................... --
1996 net loss............................................. (20,568)
Balance at December 31, 1996................................ 234,398
Company contribution to Segment........................... --
1997 net loss............................................. (2,195)
--------
Balance at December 31, 1997................................ $232,203
========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-201
<PAGE> 312
DIRECT BROADCAST SATELLITE
(A SEGMENT OF SCS COMMUNICATIONS & SECURITY, INC.)
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $ (2,195) $(20,568)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization.......................... 21,268 21,204
Patronage income....................................... (4,357) (5,425)
Loss on disposal of assets............................. 1,698 --
Changes in assets and liabilities:
Accounts receivable.................................... 2,396 (37,038)
Inventory.............................................. 23,748 20,751
Prepaid expenses....................................... 858 (3,061)
Accounts payable....................................... 32,554 22,990
Unearned revenue....................................... (19,594) 31,265
-------- --------
Net cash provided by operating activities......... 56,376 30,118
Cash flows from investing activities -- purchases of
equipment................................................. (393) (1,764)
-------- --------
Net increase in cash.............................. 55,983 28,354
Cash, beginning............................................. 28,556 202
-------- --------
Cash, ending................................................ $ 88,539 $ 28,556
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-202
<PAGE> 313
DIRECT BROADCAST SATELLITE
(A SEGMENT OF SCS COMMUNICATIONS & SECURITY, INC.)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Nature of Operations
Direct Broadcast Satellite (the Segment) is a segment of SCS Communications
and Security, Inc (the Company). The Company is a wholly-owned subsidiary of
Stayton Cooperative Telephone Company (the Parent). The Segment was formed for
the purpose of acquiring, owning and operating direct broadcast satellite (DBS)
systems. The Company is an affiliated associate member of the National Rural
Telecommunications Cooperative (NRTC). The NRTC has contracted with Hughes
Communications Galaxy, Inc. (Hughes) to provide exclusive marketing rights for
distribution of DirecTV satellite television programming in the United States.
The marketing rights give the owner exclusive rights to distribution of DirecTV
service within the contract area. In 1994 Hughes launched the satellites that
provide programming for DirecTV. At December 31, 1997 and 1996 the Company had
the operating rights for portions of two Oregon counties within and around the
cities of Stayton and Salem, Oregon.
The financial statements presented represent the financial position and
operations of the Segment, which operates as part of the Company. Accordingly,
the Company funds the operations of the Segment. Were the Segment an independent
entity, these funds would have to be obtained from other sources.
Presentation
The Segment is not a separate subsidiary of the Company nor has it been
operated as a separate entity. The financial statements presented herein have
been derived from the records of the Company and have been prepared to present
the Segment's financial position, results of operations and cash flows on a
stand-alone basis. Accordingly, the financial statements include certain costs
and expenses, which have been allocated to the Segment by the Company. Such
allocated expenses may or may not be indicative of what such expenses have been
had the Segment been operated is a separate entity.
Revenue Recognition
Programming revenue is recognized in the month the service is provided to
the subscriber. Unearned revenue represents subscriber advance billings and is
deferred until the service is provided. Equipment sales are recognized as
revenue when the equipment is delivered to the customer. The Segment
periodically offers rebates and coupons to customers, principally in connection
with prepayment plans, rebates are recorded when they are utilized.
Estimates
The Segment uses estimates and assumptions in preparing financial
statements in accordance with generally accepted accounting principles. Those
estimates and assumptions affect the reported amounts of assets, liabilities,
revenues and expenses. Actual results could differ from these estimates.
Inventory
Inventory is stated at the lower of cost or market and consists entirely of
satellite receivers, dishes and accessories.
Equipment
Equipment is recorded at cost and depreciated over the estimated useful
lives using the straight-line method of depreciation. Estimated useful lives are
five years.
F-203
<PAGE> 314
DIRECT BROADCAST SATELLITE
(A SEGMENT OF SCS COMMUNICATIONS & SECURITY, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Intangible Assets
The cost of acquiring the rights to provide Direct satellite services are
capitalized as intangible assets and are being amortized on a straight-line
basis over fifteen years, which is the expected useful life of the revenue
stream of those services. Intangible assets also include a one-time membership
fee paid to the NRTC, which is also being amortized on a straight-line basis
over fifteen years.
Income Taxes
The Segment's operating results are consolidated with the Parent's
operations for tax filing purposes. No income tax benefit has been provided in
the accompanying statements of operations as such benefits are not recoverable
from the Parent. There are no significant differences between book and tax basis
which would result in deferred tax assets or liabilities.
(2) ACCOUNTS RECEIVABLE
Accounts receivable consists of amounts due from subscribers for monthly
programming fees.
(3) NRTC PATRONAGE CAPITAL
The NRTC declares and the Segment receives a yearly patronage dividend
based on the NRTC's profitability. Of the total dividend, 20% is received in
cash and 80% is distributed in the form of NRTC patronage capital certificates,
which will be redeemed in cash at a future date at the discretion of the NRTC.
The Segment has recorded an asset for the noncash portion of the patronage
dividend. Non-cash patronage is recognized as revenue when the patronage
allocation is received.
(4)SUBSEQUENT EVENTS
In February 1998, the Parent contracted to sell substantially all of the
Segment's assets and liabilities to Golden Sky Systems, Inc. The transaction
closed in April, 1998.
F-204
<PAGE> 315
PRIMEWATCH, INC.
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1997
TOGETHER WITH REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
F-205
<PAGE> 316
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholder of
PrimeWatch, Inc.:
We have audited the accompanying balance sheet of PrimeWatch, Inc. (a North
Carolina corporation) as of December 31, 1997, and the related statements of
operations, stockholder's equity (deficit) and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of PrimeWatch, Inc. as of
December 31, 1997, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Raleigh, North Carolina,
March 30, 1998.
F-206
<PAGE> 317
PRIMEWATCH, INC.
BALANCE SHEET
DECEMBER 31, 1997
ASSETS
<TABLE>
<CAPTION>
1997
-----------
<S> <C>
Current assets:
Cash and cash equivalents................................. $ 60,813
Accounts receivable....................................... 217,208
Materials and supplies.................................... 62,495
Prepaid expenses.......................................... 25,388
Notes receivable.......................................... 25,553
-----------
391,457
-----------
Property and equipment...................................... 177,325
Less -- Accumulated depreciation.......................... (83,575)
-----------
93,750
-----------
Investments in associated organizations..................... 166,350
-----------
Other assets................................................ 645,406
-----------
$ 1,296,963
===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current portion of long-term debt......................... $ 185,412
Capital lease obligations................................. 0
Accounts payable and accrued expenses..................... 279,223
Deferred revenue.......................................... 139,893
-----------
604,528
Long-term debt.............................................. 1,252,333
-----------
Total liabilities................................. 1,856,861
-----------
Commitments and contingencies (Notes 1 and 8)
Stockholder's equity (deficit):
Common stock, $100 par value, authorized 100,000 shares,
8,900 shares issued and outstanding at December 31,
1997................................................... 890,000
Retained deficit............................................ (1,449,898)
-----------
Total stockholder's equity (deficit).............. (559,898)
-----------
$ 1,296,963
===========
</TABLE>
The accompanying notes to financial statements are an integral part of this
balance sheet.
F-207
<PAGE> 318
PRIMEWATCH, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
1997
----------
<S> <C>
Sales....................................................... $2,301,144
Cost of goods sold.......................................... 1,640,672
----------
Gross profit...................................... 660,472
Operating expenses.......................................... 586,163
Depreciation and amortization............................... 142,896
----------
Loss from operations.............................. (68,587)
Interest expense............................................ 102,847
Interest and other income................................... 6,481
----------
Net loss.......................................... $ (164,953)
==========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-208
<PAGE> 319
PRIMEWATCH, INC.
STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY (DEFICIT)
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK STOCKHOLDER'S
----------------- RETAINED EQUITY
SHARES AMOUNT DEFICIT (DEFICIT)
------ -------- ----------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1996..................... 7,150 $715,000 $(1,284,945) $(569,945)
Sale of stock.................................. 1,750 175,000 0 175,000
Net loss....................................... 0 0 (164,953) (164,953)
----- -------- ----------- ---------
Balance at December 31, 1997..................... 8,900 $890,000 $(1,449,898) $(559,898)
===== ======== =========== =========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-209
<PAGE> 320
PRIMEWATCH, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
1997
---------
<S> <C>
Cash flows from operating activities:
Net loss.................................................. $(164,953)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities --
Depreciation and amortization.......................... 142,896
Interest expense financed by long-term debt............ 0
Loss on sale of property............................... 14,254
Noncash capital credits................................ (13,037)
Amortization of rebate program......................... 78,016
Other, net............................................. 0
Changes in operating assets and liabilities:
Accounts receivable.................................. (89,716)
Materials and supplies............................... 28,367
Prepaid expenses..................................... (151)
Accounts payable and accrued expenses................ (34,751)
Deferred revenue..................................... (59,891)
---------
Net cash provided by (used in) operating
activities........................................ (98,966)
---------
Cash flows from investing activities:
Purchase of property and equipment........................ (19,027)
Proceeds from sale of property............................ 24,068
Decrease in notes receivable.............................. 15,268
---------
Net cash provided by (used in) investing
activities........................................ 20,309
---------
Cash flow from financing activities:
Proceeds from long-term debt.............................. 100,000
Repayment of capital lease obligations.................... (3,417)
Repayment of long-term debt............................... (174,357)
Proceeds from sale of stock............................... 175,000
---------
Net cash provided by (used in) financing
activities........................................ 97,226
---------
Net increase in cash and cash equivalents................... 18,569
Cash and cash equivalents, beginning of year................ 42,244
---------
Cash and cash equivalents, end of year...................... $ 60,813
=========
Supplemental disclosures of cash flow information:
Interest paid............................................. $ 115,829
=========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-210
<PAGE> 321
PRIMEWATCH, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. NATURE OF THE BUSINESS:
PrimeWatch, Inc. (the Company) was incorporated in the state of North
Carolina on November 1, 1992, and is a wholly owned subsidiary of Halifax
Electric Membership Corporation (Halifax). The Company's principal business
activities are the sale, lease and service of satellite and security systems and
the sale of C-Band and DBS system programming.
The Company sells and leases security and satellite systems and related
monitoring and programming, respectively, from its facilities located in
Enfield, North Carolina. The Company's customer base is primarily within
Halifax, Warren, Nash and Edgecomb Counties.
Halifax and the Company have entered into negotiations to sell the
outstanding common stock of the Company to an unrelated third party. No
definitive agreement has been reached. The Company has suffered recurring losses
and at December 31, 1997, had a retained deficit of $1,449,898. The Company has
obtained representations from Halifax to fund any operating deficit for fiscal
1998.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Revenue Recognition
Subscribers to monthly DBS and C-Band System programming are billed in
advance. Revenues are recognized in the month the service is provided to the
subscriber. Advance billings represent deferred revenue in the accompanying
balance sheets.
Cash and Cash Equivalents
The Company considers all temporary cash investments purchased with an
original maturity of three months or less to be cash equivalents.
Materials and Supplies
Materials and supplies are valued at the lower of average cost or market.
Notes Receivable
Notes receivable result from sales of satellite and security systems
financed by the Company. These notes bear interest ranging from 12% to 12.9% and
payments of principal and interest are required to be made monthly over periods
of two to five years. Notes receivable at December 31, 1997, of $25,553 were net
of an allowance for uncollectible accounts of $11,265.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed by
using the straight-line method over the following estimated useful lives:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE
------------
<S> <C>
Machinery and equipment..................................... 3 - 10 years
Security equipment.......................................... 3 - 5 years
Office equipment............................................ 5 - 10 years
Mobile phone equipment...................................... 5 years
Leased equipment............................................ 5 years
</TABLE>
F-211
<PAGE> 322
PRIMEWATCH, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Depreciation expense for the year ended December 31, 1997, was $42,466, of
which $3,191 related to amortization of capital lease obligations.
The Company leases some equipment to customers under terms which are
accounted for as operating leases. Rental revenues from these leases are
recognized ratably over the life of the lease and the related equipment is
depreciated over its estimated useful life. Until December 1995, all leases were
cancelable at any time. All new leases are noncancellable for 12 months. After
the initial term, the leases continue on a month-to-month basis until terminated
by either party.
At December 31, 1997, equipment rented to customers had a carrying value
(net of accumulated depreciation of $39,001) totaling $51,393.
Other Assets
Other assets are reflected on the accompanying balance sheets net of
accumulated amortization in the amount of $439,375 at December 31, 1997.
Amortization is computed using the straight-line method. Deferred assets
and their respective periods of amortization are detailed as follows:
<TABLE>
<CAPTION>
AMORTIZATION
1997 PERIOD
-------- ------------
<S> <C> <C>
DBS franchise............................................... $561,909 10 years
Deferred interest expense................................... 38,838 10 years
Goodwill.................................................... 28,751 20 years
CACT customer acquisition................................... 15,908 5 years
Organization costs.......................................... 0 5 years
--------
$645,406
========
</TABLE>
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. INCOME TAXES:
Due to a cumulative net operating loss incurred by the Company for income,
tax purposes in the amount of approximately $1,395,000 at December 31, 1997, no
provision for income taxes is included in the accompanying statements of income.
No deferred taxes have been recognized in these financial statements, due to the
uncertainty regarding the realization of the net deferred tax assets.
F-212
<PAGE> 323
PRIMEWATCH, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. INVESTMENTS IN ASSOCIATED ORGANIZATIONS:
Following is a comparative summary of investments in associated
organizations, as of December 31, 1997:
<TABLE>
<CAPTION>
1997
--------
<S> <C>
NRUFC patronage capital certificates........................ $121,800
National Rural Telecommunications Cooperative patronage
capital certificates...................................... 44,550
--------
$166,350
========
</TABLE>
The patronage capital certificates represent net margins of the respective
associated organizations which have been allocated to the Company. There is no
market for these investments.
5. LONG-TERM DEBT:
Long-term debt consisted of the following at December 31, 1997:
<TABLE>
<CAPTION>
1997
----------
<S> <C>
National Rural Utilities Cooperative Finance Corporation
(NRUCFC) DBS equipment loan, interest at variable rates
(6.35% at December 31, 1997), due September 1999 with
interest due quarterly until maturity..................... $ 500,000
NRUCFC DBS franchise rights and related interest loans,
interest at variable rates (6.2% at December 31, 1997),
due August 2004 and December 2004. Principal and interest
paid quarterly............................................ 937,746
----------
1,437,746
Less Current maturities..................................... 185,412
----------
$1,252,334
==========
</TABLE>
Annual maturities of debt are approximately as follows:
<TABLE>
<S> <C>
1998........................................................ $ 185,412
1999........................................................ 697,159
2000........................................................ 209,698
2001........................................................ 222,997
2002........................................................ 117,829
Thereafter.................................................. 4,651
----------
$1,437,746
==========
</TABLE>
6. PENSION PLAN:
All employees of the Company participate in the National Rural Electric
Cooperative Association (NRECA) Retirement and Security Program, a defined
benefit pension plan qualified under Section 401 and tax exempt under Section
501(a) of the Internal Revenue Code. From the Company's inception into the plan
through September 30, 1996, a moratorium prohibited contributions. The
moratorium resulted from the plan reaching its full funding limitation. In this
multiemployer plan, the accumulated benefits and plan assets are not determined
or allocated separately by individual employers.
F-213
<PAGE> 324
PRIMEWATCH, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The employees of the Company also participate in the NRECA SelectRe 401K
Plan. In this defined contribution plan, the Company makes contributions to the
plan equal in the amounts accrued for pension expense.
Pension expense for the year ended December 31, 1997, totaled $16,992.
7. RELATED-PARTY TRANSACTIONS:
The Company has an operations and maintenance agreement with Halifax to
provide personnel, equipment and facilities for operations. The Company
reimburses Halifax for all direct costs incurred on behalf of the Company. For
the year ended December 31, 1997, the Company reimbursed Halifax $34,289.
The balance owed to Halifax at December 31, 1997 as a result of the above
agreement was $31,176, and is included in accounts payable and accrued expenses
on the accompanying balance sheets.
In addition, the Company was owed $2,534 from Halifax at December 31, 1997.
This amount is included in accounts receivable on the accompanying balance
sheets.
8. COMMITMENTS AND CONTINGENCIES:
The Company leases certain equipment and facilities under operating leases
Future minimum rental payments required under operating leases are as follows:
<TABLE>
<S> <C>
1998........................................................ $26,670
1999........................................................ 12,920
2000........................................................ 2,420
-------
$42,010
=======
</TABLE>
Rental expense for operating leases was $33,915 for the year ended December
31, 1997.
F-214
<PAGE> 325
DIRECT BROADCAST SATELLITE
A DIVISION OF BALDWIN COUNTY ELECTRIC MEMBERSHIP CORPORATION
SUMMERDALE, ALABAMA
DECEMBER 31, 1997
F-215
<PAGE> 326
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Golden Sky Systems, Inc.
Kansas City, Missouri
We have audited the accompanying balance sheet of Direct Broadcast
Satellite, a division of Baldwin County Electric Membership Corporation as of
December 31, 1997 and the related statements of operations, division equity and
cash flows for the year then ended. These financial statements are the
responsibility of the Corporation's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Direct Broadcast Satellite,
a division of Baldwin County Electric Membership Corporation at December 31,
1997, and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.
JACKSON THORNTON & CO. P.C.
Montgomery, Alabama
July 24, 1998
F-216
<PAGE> 327
DIRECT BROADCAST SATELLITE
A DIVISION OF BALDWIN COUNTY ELECTRIC MEMBERSHIP CORPORATION
SUMMERDALE, ALABAMA
BALANCE SHEET AT DECEMBER 31, 1997
ASSETS
<TABLE>
<CAPTION>
1997
---------
<S> <C>
Current assets
Cash...................................................... $ 12,998
Accounts receivable....................................... 35,640
Inventory................................................. 26,886
---------
Total current assets.............................. 75,524
Property and equipment
DBS franchise............................................. 459,833
Total accumulated amortization............................ (157,112)
Leased equipment.......................................... 372,861
Total accumulated depreciation............................ (102,664)
---------
Total property and equipment...................... 572,918
---------
Total Assets...................................... $ 648,442
=========
LIABILITIES AND DIVISION EQUITY
Current liabilities
Accounts payable.......................................... $ 15,185
Due to Baldwin County Electric Membership Corporation..... 417,662
---------
Total current liabilities......................... 432,847
Division equity
Retained earnings......................................... 215,595
---------
Total division equity............................. 215,595
---------
Total liabilities and division equity............. $ 648,442
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-217
<PAGE> 328
DIRECT BROADCAST SATELLITE
A DIVISION OF BALDWIN COUNTY ELECTRIC MEMBERSHIP CORPORATION
SUMMERDALE, ALABAMA
STATEMENT OF OPERATIONS AND DIVISION EQUITY
FOR THE YEAR ENDED DECEMBER 31,1997
<TABLE>
<CAPTION>
1997
----------
<S> <C>
REVENUES
DSS programming revenues.................................. $1,302,828
Leased equipment revenues................................. 135,460
DSS equipment sales....................................... 116,309
Other DSS sales........................................... 64,943
----------
Total revenue..................................... 1,619,540
COST OF REVENUES
Programming costs......................................... 643,850
Equipment costs........................................... 290,274
Other DSS cost of revenues................................ 32,316
Rebates................................................... 307,570
----------
Total cost of revenue............................. 1,274,010
----------
Gross margins..................................... 345,530
SELLING, GENERAL & ADMINISTRATIVE EXPENSES
Salaries, wages and commissions........................... 8,186
Amortization and depreciation expense..................... 130,394
Maintenance............................................... 22,547
Other selling, general and administrative................. 120,605
----------
Total selling, general & administrative
expenses.......................................... 281,732
----------
Net operating margins.................................. 63,798
OTHER INCOME
Interest income........................................... 5,927
----------
NET MARGINS................................................. 69,725
DIVISION EQUITY AT JANUARY 1, 1997.......................... 145,870
----------
DIVISION EQUITY AT DECEMBER 31, 1997........................ $ 215,595
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-218
<PAGE> 329
DIRECT BROADCAST SATELLITE
A DIVISION OF BALDWIN COUNTY ELECTRIC MEMBERSHIP CORPORATION
SUMMERDALE, ALABAMA
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
1997
---------
<S> <C>
CASH FLOWS FROM (USED FOR) OPERATING ACTIVITIES:
Net margins............................................... $ 69,725
Adjustments to reconcile net margins to net cash provided
by operating activities:
Depreciation........................................... 84,410
Amortization........................................... 45,984
Decrease (increase) in operating assets and increase
(decrease) in operating liabilities:
Accounts receivable.................................. 83,770
Inventory............................................ 29,999
Accounts payable..................................... 15,185
---------
Net cash from operating activities................ 329,073
---------
CASH FLOWS FROM (USED FOR) INVESTING ACTIVITIES:
Purchase of equipment..................................... (39,774)
Proceeds from sale of equipment........................... 118,171
---------
Net cash from investing activities................ 78,397
---------
CASH FLOWS USED FOR FINANCING ACTIVITIES:
Due to Baldwin County Electric Membership Corporation..... (412,239)
---------
Net cash used for financing activities............ (412,239)
---------
NET DECREASE N CASH AND CASH EQUIVALENTS.................... (4,769)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.............. 17,767
---------
CASH AND CASH EQUIVALENTS AT END OF YEAR.................... $ 12,998
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-219
<PAGE> 330
DIRECT BROADCAST SATELLITE
A DIVISION OF BALDWIN COUNTY ELECTRIC MEMBERSHIP CORPORATION
SUMMERDALE, ALABAMA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization and nature of operations -- Direct Broadcast Satellite (the
Division) is a division of Baldwin County Electric Membership Corporation (the
Corporation). The Division was formed in September, 1992 for the purpose of
acquiring, owning and operating a direct broadcast satellite (DBS) television
systems franchise.
The Corporation is an affiliated associate member of the National Rural
Telecommunications Cooperative (NRTC). All programming is purchased through
NRTC. NRTC has contracted with Hughes Communications Galaxy, Inc. (Hughes), to
provide exclusive marketing rights for distribution of DirecTV satellite
television programming in the United States. The marketing rights give the owner
exclusive rights to distribution of DirecTV service within the contract area.
The Corporation owns the DBS franchise for portions of Baldwin County, Alabama.
The financial statements presented represent the financial position and
operations of the Division, which operates as part of the Corporation.
Accordingly, the Corporation funds the operations of the Division. Were the
Division an independent entity, these funds would have to be obtained from other
sources.
Presentation -- The Division is not a separate subsidiary of the
Corporation nor has it been operated as a separate entity. The financial
statements presented herein have been derived from the records of the
Corporation and have been prepared to present the Division's financial position,
results of operations and cash flows on a stand-alone basis. Accordingly, the
financial statements include certain costs and expenses which have been
allocated to the Division by the Corporation. Such allocated expenses may or may
not be indicative of what such expenses would have been had the Division been
operated as a separate entity.
Revenue recognition -- Programming revenue is recognized in the month the
service is provided to the subscriber. The Division extends credit to its
customers who are located primarily in Baldwin County.
Inventories -- Inventories are priced at average historical cost. Cost is
determined by the cumulative average of all costs on a first-in, first-out
(FIFO) basis.
Equipment -- Equipment has been recorded at cost and is depreciated over
the estimated useful lives using the straight-line method. Estimated useful
lives range from three to seven years.
Amortization -- Intangible assets are amortized on a straight-line basis
over ten years.
Use of estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
Income Taxes -- The Division's operating results are consolidated with the
Corporation's operations for tax filing purposes. The Corporation is exempt from
income taxes under Internal Revenue Code Section 501(c)(12).
NOTE 2 -- CASH:
The Division maintains its cash accounts in banks located in Alabama.
Accounts at each bank are guaranteed by the Federal Deposit Insurance
Corporation (FDIC) up to $100,000 per bank. At December 31, 1997, the Division
did not have a balance in excess of the $100,000 FDIC limit.
F-220
<PAGE> 331
DIRECT BROADCAST SATELLITE
A DIVISION OF BALDWIN COUNTY ELECTRIC MEMBERSHIP CORPORATION
SUMMERDALE, ALABAMA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- ACCOUNTS RECEIVABLE:
Accounts receivable consist of amounts due from subscribers for monthly
programming fees.
NOTE 4 -- RELATED PARTY TRANSACTIONS:
In the ordinary course of business, the Division makes and receives
advances to and from the Corporation. Because the Division's assets, including
cash, are owned by the Corporation, no effort is made to segregate those assets.
The net result of these shared assets between the Division and the Corporation
is reflected in the balance sheet as due to the Corporation.
NOTE 5 -- SUBSEQUENT EVENTS:
On June 29, 1998 the Corporation sold substantially all of the Division's
assets and liabilities to Golden Sky Systems, Inc.
F-221
<PAGE> 332
DIRECT BROADCAST SATELLITE
(A SEGMENT OF VOLCANO VISION, INC.)
PINE GROVE, CALIFORNIA
FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1998 AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
F-222
<PAGE> 333
DIRECT BROADCAST SATELLITE
(A SEGMENT OF VOLCANO VISION, INC.)
BALANCE SHEET
SEPTEMBER 30, 1998
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
1998
----------
<S> <C>
CURRENT ASSETS
Accounts receivable, less allowance for doubtful accounts
of $35,000............................................. $ 604,239
Inventory................................................. 152,512
Prepaid expenses.......................................... 2,753
----------
Total current assets.............................. 759,504
----------
NONCURRENT ASSETS
Property and equipment (net of accumulated depreciation of
$244,348).............................................. 288,667
Intangible assets (net of accumulated amortization of
$633,566).............................................. 857,177
NRTC patronage capital certificates....................... 119,323
----------
Net noncurrent assets............................. 1,265,167
----------
$2,024,671
==========
LIABILITIES AND SEGMENT DEFICIT
CURRENT LIABILITIES
Account payable -- trade.................................. $ 549,284
Payable to affiliates..................................... 613,226
Unearned revenue.......................................... 289,612
Customer deposits......................................... 7,319
----------
Total current liabilities......................... 1,459,441
----------
NOTE PAYABLE TO AFFILIATE................................... 1,490,743
----------
SEGMENT DEFICIT............................................. (925,513)
----------
$2,024,671
==========
</TABLE>
See accompanying notes.
F-223
<PAGE> 334
DIRECT BROADCAST SATELLITE
(A SEGMENT OF VOLCANO VISION, INC.)
STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
REVENUES
Programming............................................... $3,789,373 $2,578,499
Equipment and installation sales.......................... 172,680 130,389
Lease and other........................................... 56,615 69,123
---------- ----------
Total revenues.................................... 4,018,668 2,778,011
---------- ----------
COST OF REVENUES
Programming costs......................................... 2,568,911 1,766,200
Equipment and installation costs.......................... 212,297 193,389
Other costs............................................... 1,863 10,436
---------- ----------
Total cost of revenues............................ 2,783,071 1,970,025
---------- ----------
Gross profit...................................... 1,235,597 807,986
---------- ----------
EXPENSES
Salaries, wages, and commissions.......................... 256,199 190,388
Selling, general and administrative....................... 235,308 182,873
Depreciation and amortization............................. 172,037 178,373
Marketing................................................. 27,744 57,239
Bad debt expense.......................................... -- 19,894
---------- ----------
Total expenses.................................... 691,288 628,767
---------- ----------
OPERATING INCOME............................................ 544,309 179,219
---------- ----------
OTHER INCOME AND (EXPENSES)
Patronage dividends....................................... 40,134 43,052
Interest expense.......................................... (77,944) (78,478)
---------- ----------
Total other income and (expenses)................. (37,810) (35,426)
---------- ----------
NET INCOME........................................ $ 506,499 $ 143,793
========== ==========
</TABLE>
See accompanying notes.
F-224
<PAGE> 335
DIRECT BROADCAST SATELLITE
(A SEGMENT OF VOLCANO VISION, INC.)
STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
BALANCE BEGINNING........................................... $(535,541) $(269,359)
Segment contribution to the Company....................... (896,471) (447,773)
Net income................................................ 506,499 143,793
--------- ---------
BALANCE ENDING.............................................. $(925,513) $(573,339)
========= =========
</TABLE>
See accompanying notes.
F-225
<PAGE> 336
DIRECT BROADCAST SATELLITE
(A SEGMENT OF VOLCANO VISION, INC.)
STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income................................................ $ 506,499 $ 143,793
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation and amortization.......................... 172,037 178,373
Patronage dividend -- noncash.......................... (28,093) (30,137)
Increase (Decrease) in cash due to changes in assets
and liabilities:
Accounts receivable.................................. (262,120) 51,595
Inventory............................................ 21,450 8,295
Prepaid expenses..................................... 8,135 7,085
Accounts payable -- trade............................ 332,371 85,462
Unearned revenue..................................... (41,031) (126,862)
Customer deposits.................................... 5,614 1,280
--------- ---------
Net cash from operating activities................ 714,862 318,884
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Change in payable to affiliates........................... 182,876 77,461
Purchase of property and equipment........................ (1,267) (13,549)
Sale of property and equipment............................ -- 64,977
--------- ---------
Net cash from investing activities................ 181,609 128,889
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash contribution to Volcano Vision, Inc.................. (896,471) (447,773)
--------- ---------
Net cash from financing activities................ (896,471) (447,773)
--------- ---------
NET CHANGE IN CASH.......................................... -- --
CASH, beginning of year..................................... -- --
--------- ---------
CASH, end of year........................................... $ -- $ --
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest.................................... $ -- $ --
========= =========
</TABLE>
See accompanying notes.
F-226
<PAGE> 337
DIRECT BROADCAST SATELLITE
(A SEGMENT OF VOLCANO VISION, INC.)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
NOTE 1 -- BASIS OF PRESENTATION
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, the accompanying financial statements reflect all
adjustments (consisting of normal recurring adjustments) that are necessary for
a fair presentation of the changes in financial position, results of operations,
and cash flows for the interim periods reported.
The results of operations for the nine months ended September 30, 1998 and
1997, are not necessarily indicative of the results to be expected for the full
year.
NOTE 2 -- DESCRIPTION OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Description of Operations -- Direct Broadcast Satellite (the Segment) is a
segment of Volcano Vision, Inc. (the Company). The Company is a wholly-owned
subsidiary of Volcano Communications Company (the Parent). The Segment was
formed in August 1994 for the purpose of operating direct broadcast satellite
(DBS) television systems. The Company is an affiliated associate member of the
National Rural Telecommunications Cooperative (NRTC). The NRTC has contracted
with Hughes Communications Galaxy, Inc. (Hughes), to provide exclusive marketing
rights for distribution of Direct satellite television programming in the United
States. The marketing rights give the owner exclusive rights to distribution of
DirecTV service within the contract area. In 1994, Hughes launched the
satellites that provide programming for DirecTV. At December 31, 1997, the
Company had the operating rights for five counties in California and four
counties in Nevada.
The financial statements presented represent the financial position and
operations of the Segment, which operates as part of the Company.
Presentation -- The Segment is not a separate subsidiary of the Company,
nor has it been of operated as a separate entity. The financial statements
presented herein have been derived from the records of the Company and have been
prepared to present the Segment's financial position, results of operations, and
cash flows on a stand-alone basis. Accordingly, the financial statements include
certain cost and expenses that have been allocated to the Segment by the
Company. Such allocated expenses may or may not be indicative of what such
expenses would have been had the Segment been operated as a separate entity.
Revenue Recognition -- Programming revenue is recognized in the month the
service is provided to the subscriber. Unearned revenues represent subscriber
advance billing and are deferred until the service is provided. Equipment and
installation sales and related costs are recognized when the equipment is
delivered to the customer.
Inventory -- Inventory is stated at the lower of average cost or market and
consists of satellite receivers, dishes, and accessories.
Accounts Receivable -- Accounts receivable consist primarily of amounts due
from subscribers for monthly programming and equipment lease billings.
Customer Billing and Digital Satellite TV (DSTV) Services -- The National
Rural Telecommunications Cooperative (NRTC), under contractual arrangements with
the Company, performs the billing and national marketing functions for the DSTV
services provided to customers. The sales revenue and the customer receivables
for the DSTV services, as reflected in the financial statements, are recorded
from the monthly billing reports provided by NRTC.
F-227
<PAGE> 338
DIRECT BROADCAST SATELLITE
(A SEGMENT OF VOLCANO VISION, INC.)
NOTES TO UNAUDITED FINANCIAL STATEMENTS -- (CONTINUED)
Intangible Assets -- The cost of acquiring the rights to provide DirecTV
satellite services are capitalized as intangible assets and are being amortized
on a straight-line basis over ten years, which is the expected useful life of
the satellites providing DBS services.
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, as well as the reported amounts of revenues and expenses during the
period. Actual results could differ from those estimates.
Fair Value of Financial Instruments -- As a result of their short-term
nature, financial instruments consisting of receivables and accounts payable are
carried at cost, which approximates fair value.
Long-lived Assets -- Long-lived assets and certain identifiable intangibles
held and used by the Company are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets is measured by a comparison of the
carrying amount of an asset to future net cash flows expected to be generated by
that asset. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the assets
exceed the fair value of the assets. Assets to be disposed of are reported at
the lower of the carrying amount or fair value less costs to sell.
Property and Equipment -- Property and equipment is recorded at cost and is
depreciated over the estimated useful lives using the straight-line method.
Estimated useful lives range from 5 to 32 years.
Income taxes -- The Segment's operating results are included in the
Company's operations and consolidated with the Parent's return for tax filing
purposes. The Segment it is not directly subject to income taxes, as it is
operated as a segment of the Company. The Company did not allocate tax expense
to the Segment and, accordingly, no provision for income taxes has been made.
NOTE 3 -- SUBSEQUENT EVENTS
On July 10, 1998, the Company entered into an agreement to sell its
franchise rights and related DBS assets and liabilities to Golden Sky Systems,
The acquisition is expected to close no later than February 27, 1999.
F-228
<PAGE> 339
DIRECT BROADCAST SATELLITE
(A SEGMENT OF VOLCANO VISION, INC.)
PINE GROVE, CALIFORNIA
INDEPENDENT AUDITOR'S REPORT
AND
FINANCIAL STATEMENTS
DECEMBER 31, 1997
F-229
<PAGE> 340
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Volcano Vision, Inc.
We have audited the accompanying balance sheet of Direct Broadcast
Satellite (the Segment), a segment of Volcano Vision, Inc., as of December 31,
1997, and the related statements of income, segment deficit, and cash flows for
the year then ended. These financial statements are the responsibility of the
Segment's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Direct Broadcast Satellite
as of December 31, 1997, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
MOSS ADAMS LLP
Stockton, California
July 24, 1998
F-230
<PAGE> 341
DIRECT BROADCAST SATELLITE
(A SEGMENT OF VOLCANO VISION, INC.)
BALANCE SHEET
DECEMBER 31, 1997
ASSETS
<TABLE>
<S> <C>
CURRENT ASSETS
Accounts receivable, less allowance for doubtful accounts
of $35,000............................................. $ 342,119
Inventory................................................. 173,962
Prepaid expenses.......................................... 10,888
----------
Total current assets.............................. 526,969
----------
NONCURRENT ASSETS
Property and equipment (net of accumulated depreciation of
$184,117).............................................. 347,631
Intangible assets (net of accumulated amortization of
$521,760).............................................. 968,983
NRTC patronage capital certificates....................... 91,230
----------
Net noncurrent assets............................. 1,407,844
----------
$1,934,813
==========
LIABILITIES AND SEGMENT DEFICIT
CURRENT LIABILITIES
Account payable -- trade.................................. $ 216,913
Payable to affiliates..................................... 430,350
Unearned revenue.......................................... 330,643
Customer deposits......................................... 1,705
----------
Total current liabilities......................... 979,611
----------
NOTE PAYABLE TO AFFILIATE................................... 1,490,743
----------
SEGMENT DEFICIT............................................. (535,541)
----------
$1,934,813
==========
</TABLE>
See accompanying notes.
F-231
<PAGE> 342
DIRECT BROADCAST SATELLITE
(A SEGMENT OF VOLCANO VISION, INC.)
STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
REVENUES
Programming............................................... $3,650,208
Equipment and installation sales.......................... 274,240
Lease and other........................................... 112,915
----------
Total revenues.................................... 4,037,363
----------
COST OF REVENUES
Programming costs......................................... 2,544,709
Equipment and installation costs.......................... 355,139
Other costs............................................... 17,211
----------
Total cost of revenues.................................... 2,917,059
----------
Gross profit...................................... 1,120,304
----------
EXPENSES
Salaries, wages, and commissions.......................... 304,585
Selling, general, and administrative...................... 334,032
Depreciation and amortization............................. 229,015
Marketing................................................. 74,723
Bad debt expense.......................................... 62,472
----------
Total expenses.................................... 1,004,827
----------
OPERATING INCOME............................................ 115,477
----------
OTHER INCOME AND (EXPENSES)
Patronage dividends....................................... 43,052
Interest expense.......................................... (104,594)
----------
Total other income and (expenses)................. (61,542)
----------
NET INCOME........................................ $ 53,935
==========
</TABLE>
See accompanying notes.
F-232
<PAGE> 343
DIRECT BROADCAST SATELLITE
(A SEGMENT OF VOLCANO VISION, INC.)
STATEMENT OF SEGMENT DEFICIT
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
SEGMENT
DEFICIT
---------
<S> <C>
BALANCE AT DECEMBER 31, 1996................................ $(268,556)
Segment contribution to the Company....................... (320,920)
Net income................................................ 53,935
---------
BALANCE AT DECEMBER 31, 1997................................ $(535,541)
=========
</TABLE>
See accompanying notes.
F-233
<PAGE> 344
DIRECT BROADCAST SATELLITE
(A SEGMENT OF VOLCANO VISION, INC.)
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income................................................ $ 53,935
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation and amortization.......................... 229,015
Provision for doubtful accounts........................ 35,000
Patronage dividend -- noncash.......................... (30,137)
Increase (Decrease) in cash due to changes in assets
and liabilities:
Accounts receivable.................................. 10,189
Inventory............................................ 38,572
Prepaid expenses..................................... (3,803)
Accounts payable -- trade............................ (99,506)
Unearned revenue..................................... (196,887)
Customer deposits.................................... 1,625
---------
Net cash from operating activities................ 38,003
---------
CASH FLOWS FROM INVESTING ACTIVITIES
Change in payable to affiliates........................... 221,646
Purchase of property and equipment........................ (14,139)
Sale of property and equipment............................ 75,410
---------
Net cash from investing activities................ 282,917
---------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash contribution to Volcano Vision, Inc.................. (320,920)
---------
Net cash from financing activities................ (320,920)
---------
NET CHANGE IN CASH.......................................... --
CASH, beginning of year..................................... --
---------
CASH, end of year........................................... $ --
=========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest............................ $ --
=========
</TABLE>
See accompanying notes.
F-234
<PAGE> 345
DIRECT BROADCAST SATELLITE
(A SEGMENT OF VOLCANO VISION, INC.)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- DESCRIPTION OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Description of Operations -- Direct Broadcast Satellite (the Segment) is a
segment of Volcano Vision, Inc. (the Company). The Company is a wholly-owned
subsidiary of Volcano Communications Company (the Parent). The Segment was
formed in August 1994 for the purpose of operating direct broadcast satellite
(DBS) television systems. The Company is an affiliated associate member of the
National Rural Telecommunications Cooperative (NRTC). The NRTC has contracted
with Hughes Communications Galaxy, Inc. (Hughes), to provide exclusive marketing
rights for distribution of DirecTV satellite television programming in the
United States. The marketing rights give the owner exclusive rights to
distribution of DirecTV service within the contract area. In 1994, Hughes
launched the satellites that provide programming for DirecTV. At December 31,
1997, the Company had the operating rights for five counties in California and
four counties in Nevada.
The financial statements presented represent the financial position and
operations of the Segment, which operates as part of the Company.
Presentation -- The Segment is not a separate subsidiary of the Company,
nor has it been operated as a separate entity. The financial statements
presented herein have been derived from the records of the Company and have been
prepared to present the Segment's financial position, results of operations, and
cash flows on a stand-alone basis. Accordingly, the financial statements include
certain costs and expenses that have been allocated to the Segment by the
Company. Such allocated expenses may or may not be indicative of what such
expenses would have been had the Segment been operated as a separate entity.
Revenue Recognition -- Programming revenue is recognized in the month the
service is provided to the subscriber. Unearned revenues represent subscriber
advance billing and are deferred until the service is provided. Equipment and
installation sales and related costs are recognized when the equipment is
delivered to the customer.
Inventory -- Inventory is stated at the lower of average cost or market and
consists of satellite receivers, dishes, and accessories.
Accounts Receivable -- Accounts receivable consist primarily of amounts due
from subscribers for monthly programming and equipment lease billings.
Customer Billing and Digital Satellite TV (DSTV) Services -- The National
Rural Telecommunications Cooperative (NRTC), under contractual arrangements with
the Company, performs the billing and national marketing functions for the DSTV
service provided to customers. The sales revenue and the customer receivables
for the DSTV services, as reflected in the financial statements, are recorded
from the monthly billing reports provided by NRTC.
Intangible Assets -- The cost of acquiring the rights to provide DirecTV
satellite services are capitalized as intangible assets and are being amortized
on a straight-line basis over ten years, which is the expected useful life of
the satellites providing DBS services.
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, as well as the reported amounts of revenues and expenses during the
period. Actual results could differ from those estimates.
Fair Value of Financial Instruments -- As a result of their short-term
nature, financial instruments consisting of receivables and accounts payable are
carried at cost, which approximates fair value.
F-235
<PAGE> 346
DIRECT BROADCAST SATELLITE
(A SEGMENT OF VOLCANO VISION, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Long-lived Assets -- Long-lived assets and certain identifiable intangibles
held and used by the Company are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets is measured by a comparison of the
carrying amount of an asset to future net cash flows expected to be generated by
that asset. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the assets
exceed the fair value of the assets. Assets to be disposed of are reported at
the lower of the carrying amount or fair value, less costs to sell.
Property and Equipment -- Property and equipment is recorded at cost and is
depreciated over the estimated useful lives using the straight-line method.
Estimated useful lives range from 5 to 32 years.
Income taxes -- The Segment's operating results are included in the
Company's operations and consolidated with the Parent's return for tax filing
purposes. The Segment is not directly subject to income taxes, as it is operated
as a segment of the Company. The Company did not allocate tax expense to the
Segment and, accordingly, no provision for income taxes has been made.
NOTE 2 -- LEASING ARRANGEMENT FOR SUBSCRIBER EQUIPMENT
In addition to selling satellite television equipment, the Segment also
leases the equipment to customers at fixed monthly rental charges. These leases
are month-to-month without a minimum lease term in which the customer may return
the equipment at any time.
These leases qualify as operating leases and, accordingly, the leased units
are either purchased direct or transferred from the Segment's inventory of
existing units at average cost and included in property and equipment at cost.
Leased units are depreciated on a straight-line basis over a five-year period.
Rental income is recognized in the month earned.
The carrying amount of leased equipment included in property and equipment
at December 31, 1997, is as follows:
<TABLE>
<CAPTION>
1997
---------
<S> <C>
Cost........................................................ $ 295,364
Accumulated depreciation.................................... (137,805)
---------
$ 157,559
=========
</TABLE>
Lease income under the above arrangements is recognized when billed to the
customer, and totaled $76,202 in 1997.
NOTE 3 -- NRTC PATRONAGE DIVIDENDS
The NRTC declares and the Segment receives a yearly patronage dividend
based on the NRTC's profitability. Of the total dividend, 20% is received in
cash, and 80% is distributed in the form of NRTC patronage capital certificates,
which will be redeemed in cash at a future date at the discretion of the NRTC.
The Segment has recorded an asset and dividend income for the noncash portion of
the patronage dividend.
F-236
<PAGE> 347
DIRECT BROADCAST SATELLITE
(A SEGMENT OF VOLCANO VISION, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 -- RELATED-PARTY TRANSACTIONS
The Segment is party to various intercompany transactions with the Parent
and one of its subsidiaries, The Volcano Telephone Company, for payroll-related
charges and administrative expenses. Accordingly, the financial statements
include the following intercompany liabilities at December 31, 1997:
<TABLE>
<CAPTION>
1997
----------
<S> <C>
Accounts payable............................................ $ 117,294
Accrued interest............................................ 313,056
Long-term debt.............................................. 1,490,743
----------
$1,921,093
==========
</TABLE>
Long-term debt includes $1,490,743 due to the Parent for the purchase of
DBS franchise rights in 1994. This debt carries a fixed interest rate of 7%.
NOTE 5 -- SUBSEQUENT EVENTS
On July 10, 1998, the Company entered into an agreement to sell its
franchise rights and related DBS assets and liabilities to Golden Sky Systems,
Inc. The acquisition is expected to close no later than February 27, 1999.
F-237
<PAGE> 348
DBS SEGMENT OF CUMBY CELLULAR, INC.
CUMBY TEXAS
FINANCIAL STATEMENTS
AS OF JUNE 30, 1998 AND 1997
F-238
<PAGE> 349
DBS SEGMENT OF CUMBY CELLULAR, INC.
BALANCE SHEETS
JUNE 30
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Current Assets:
Cash and cash equivalents................................. $ 235,311 $ 181,141
Certificates of deposit................................... -- 102,497
Accounts receivable....................................... 107,110 140,159
Accounts receivable -- affiliates......................... 71,775 71,775
Inventory................................................. 21,115 30,085
Prepaid income taxes...................................... -- 22,144
---------- ----------
Total Current Assets.............................. 435,311 547,801
---------- ----------
Property, Plant and Equipment:
Plant in service.......................................... 16,250 15,515
Less: Accumulated depreciation............................ 7,943 4,730
---------- ----------
Net Property, Plant and Equipment................. 8,307 10,785
---------- ----------
DBS Franchise............................................... 537,321 629,433
NRTC and RTFC equity certificates........................... 115,007 133,058
---------- ----------
Total Assets...................................... $1,095,946 $1,321,077
========== ==========
LIABILITIES AND SEGMENT EQUITY
Current Liabilities:
Current maturities of long-term debt...................... $ 169,280 $ 145,175
Accounts payable.......................................... 81,372 123,285
Accounts payable -- affiliate............................. 49,290 95,250
Deferred revenue.......................................... 76,114 127,140
Accrued interest payable.................................. 3,985 4,767
Prepaid income taxes...................................... 16,802 --
---------- ----------
Total Current Liabilities......................... 396,843 495,617
---------- ----------
Long-Term Debt:
Note payable -- RTFC...................................... 570,798 740,078
Segment Equity.............................................. 128,305 85,382
---------- ----------
Total Liabilities and Segment Equity.............. $1,095,946 $1,321,077
========== ==========
</TABLE>
(See Selected Information.)
F-239
<PAGE> 350
DBS SEGMENT OF CUMBY CELLULAR, INC.
STATEMENTS OF INCOME AND SEGMENT EQUITY
FOR THE SIX MONTHS ENDED JUNE 30
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Operating Revenues:
Programming revenue....................................... $674,793 $450,912
Equipment sales revenue................................... 40,422 30,322
Installation revenue...................................... 5,730 4,117
Commission revenue........................................ 436 417
DSS repairs revenue....................................... 384 870
Miscellaneous revenue..................................... 6,522 4,601
Less: Uncollectible revenue............................... (11,572) (12,744)
-------- --------
Total Operating Revenues.......................... 716,715 478,495
-------- --------
Operating Expenses:
Programming cost.......................................... 438,833 331,988
Cost of sales............................................. 66,552 46,036
Amortization and depreciation............................. 47,681 47,242
Salaries.................................................. 36,834 43,597
Commissions............................................... 8,990 3,979
Telephone................................................. 5,675 14,180
Advertising............................................... 5,134 7,098
Accounting................................................ 4,952 4,581
Other general and administrative.......................... 3,801 6,349
DSS Installation costs.................................... 2,651 --
Training.................................................. -- 1,529
-------- --------
Total Operating Expenses.......................... 621,103 506,579
-------- --------
Operating Income (Loss)..................................... 95,612 (28,084)
Interest and Dividend Income................................ 3,297 7,336
-------- --------
Income (Loss) Before Interest and Taxes..................... 98,909 (20,748)
Income Tax (Expense) Benefit................................ (24,511) 17,500
Interest Expense............................................ (26,817) (30,723)
-------- --------
Net Income (Loss)........................................... 47,581 (33,971)
Segment Equity, Beginning................................... 80,724 119,353
-------- --------
Segment Equity, Ending...................................... $128,305 $ 85,382
======== ========
</TABLE>
(See Selected Information.)
F-240
<PAGE> 351
DBS SEGMENT OF CUMBY CELLULAR, INC.
STATEMENTS OF INCOME AND SEGMENT EQUITY
FOR THE SIX MONTHS ENDED JUNE 30
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income (loss)......................................... $ 47,581 $(33,971)
Adjustments to reconcile net income (loss) to net cash
provided by Operating activities:
Depreciation and amortization.......................... 47,681 47,242
Change in assets and liabilities:
Decrease in accounts receivable........................ 10,625 693
Decrease in inventory held for sale.................... 5,880 7,422
Decrease (increase) in prepaids........................ 7,709 (17,500)
(Decrease) increase in accounts payable and accruals... (42,427) 110,323
-------- --------
Total Adjustments................................. 29,468 148,180
-------- --------
Net Cash Provided by Operating Activities......... 77,049 114,209
-------- --------
Cash Flows from Investing Activities:
Capital expenditures...................................... -- (4,390)
Purchase of certificate of deposit........................ -- (1,616)
-------- --------
Net Cash Used in Investing Activities............. -- (6,006)
-------- --------
Cash Flows from Financial Activities:
Payments of long-tern debt................................ (73,859) (69,654)
Receipt of patronage refund............................... 24,142 --
Advances from affiliate................................... 36,814 43,362
-------- --------
Net Cash Used in Financing Activities............. (12,903) (26,292)
-------- --------
Net Increase in Cash and Cash Equivalents................... 64,146 81,911
Beginning Cash and Cash Equivalents......................... 171,165 99,230
-------- --------
Ending Cash and Cash Equivalents............................ $235,311 $181,141
======== ========
</TABLE>
(See Selected Information.)
F-241
<PAGE> 352
DBS SEGMENT OF CUMBY CELLULAR, INC.
SELECTED INFORMATION
JUNE 30, 1998
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization and Nature of Operations
DBS Segment of Cumby Cellular, Inc. (the Segment) is a Segment of Cumby
Cellular, Inc. (CCI). CCI is a wholly owned subsidiary of Cumby Telephone
Cooperative, Inc. (the Company). The Segment was formed for the purpose of
operating direct broadcast satellite (DBS) television systems purchased by the
Company. The Company is an affiliated associate member of the National Rural
Telecommunications Cooperation (NRTC). The NRTC has contracted with Hughes
Communications Galaxy, Inc. (Hughes) to provide exclusive marketing rights for
distribution of DirecTV satellite television programming in the United States.
The marketing rights give the owner exclusive rights to distribution of DirecTV
service within the contract area. Hughes controls the satellites that provide
programming for DirecTV. At June 30, 1998, the Company had the operating rights
for two counties In northeast Texas.
The Segment is not a separate subsidiary of the Company nor has it been
operated as a separate entity. The financial statements presented herein have
been derived from the records of CCI and have been prepared to present the
Segment's financial position, results of operations, and cash flows on a
stand-alone basis. Accordingly, the financial statements Include certain costs
and expenses which have been allocated to the Segment by the Company. Such
allocated expenses may or may not be indicative of what such expenses would have
been had the Segment been operated as a separate entity.
Revenue Recognition
Revenues are earned for monthly direct broadcast satellite services which
are billed to subscribers in advance. Subscribers may elect to prepay their
service charges for one or more months. Revenue is recognized in the month the
service is provided to the subscriber. Subscriber advance billings represent
unearned revenues and are deferred until the service is provided. Equipment
sales are recognized as revenue when the equipment is delivered to the customer.
Inventory
Inventory is stated at the lower of average cost or market and consists of
satellite receivers, dishes, and accessories.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management of the Segment to make a
number of estimates and assumptions which affect the reported amounts of assets,
liabilities, revenues and expenses. Actual results could differ from these
estimates.
Intangible Assets
The cost of acquiring the rights to provide DirecTV satellite services are
capitalized as intangible assets and are being amortized on a straight-line
basis over ten years, which is the expected useful life of the revenue stream of
those services.
Income Taxes
The Segment's operating results are consolidated with CCI's for tax filing
purposes. An income tax (expense) benefit has been provided in the accompanying
statement of operations for taxes (owed) recoverable (to) from CCI. There are no
significant differences between book and tax basis which would result in
deferred tax assets or liabilities.
F-242
<PAGE> 353
DBS SEGMENT OF CUMBY CELLULAR, INC.
SELECTED INFORMATION -- (CONTINUED)
NOTE 2 -- SUBSEQUENT EVENTS:
On June 10, 1998, the Company signed a letter of intent to sell
substantially all of the Segment's assets to a third party.
F-243
<PAGE> 354
DBS SEGMENT OF CUMBY CELLULAR, INC.
CUMBY, TEXAS
FINANCIAL STATEMENTS AND ADDITIONAL INFORMATION
AS OF DECEMBER 31, 1997
WITH INDEPENDENT AUDITOR'S REPORT
F-244
<PAGE> 355
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
of DBS Segment of Cumby Cellular, Inc.
We have audited the accompanying balance sheet of DBS Segment of Cumby
Cellular, Inc. (the Segment) as of December 31, 1997 and the related statement
of income, segment equity, and cash flows for the year then ended. These
financial statements are the responsibility of the Segment's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of DBS Segment of Cumby
Cellular, Inc. as of December 31, 1997, and the results of its operations and
its cash flows for the year then ended in conformity with generally accepted
accounting principles.
As discussed in Note 9 to the financial statements, on June 10, 1998, the
Segment signed a letter of intent to transfer its DirecTV Distribution Business
and to sell substantially all of its assets and operations to a third party.
Curtis Blakely & Co., P.C.
Longview, Texas
February 3, 1998
(except for Notes 8 and 9
as to which the date is July 23, 1998)
F-245
<PAGE> 356
DBS SEGMENT OF CUMBY CELLULAR, INC.
BALANCE SHEET
DECEMBER 31, 1997
ASSETS
<TABLE>
<S> <C>
Current Assets:
Cash and cash equivalents................................. $ 171,165
Accounts receivable -- customers.......................... 98,168
Notes receivable.......................................... 19,567
Accounts receivable -- affiliates......................... 71,775
Inventory................................................. 26,995
Prepaid income taxes...................................... 7,709
----------
Total Current Assets.............................. 395,379
----------
Property, Plant and Equipment:
Plant in service.......................................... 16,250
Less: Accumulated depreciation............................ 6,318
----------
Net Property, Plant and Equipment................. 9,932
----------
DBS Franchise............................................... 583,377
----------
NRTC and RTFC equity certificates........................... 139,149
----------
Total Assets...................................... $1,127,837
==========
LIABILITIES AND SEGMENT EQUITY
Current Liabilities:
Current maturities of long-term debt...................... $ 165,779
Accounts payable.......................................... 134,176
Accounts payable -- affiliate............................. 12,476
Deferred revenue.......................................... 81,995
Accrued Interest payable.................................. 4,529
----------
Total Current Liabilities......................... 398,955
----------
Long-Term Debt:
Note payable -- RTFC...................................... 648,157
----------
Segment Equity.............................................. 80,725
----------
Total Liabilities and Segment Equity.............. $1,127,837
==========
</TABLE>
(The accompanying notes are an integral part of these financial statements.)
F-246
<PAGE> 357
DBS SEGMENT OF CUMBY CELLULAR, INC.
STATEMENT OF INCOME AND SEGMENT EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
Operating Revenues:
Programming revenue....................................... $ 984,956
Equipment sales revenue................................... 83,679
Installation revenue...................................... 9,021
Commission revenue........................................ 11,128
DSS repairs revenue....................................... 3,493
Miscellaneous revenue..................................... 8,566
Less: Uncollectible revenue............................... (26,700)
----------
Total Operating Revenues.......................... 1,074,143
----------
Operating Expenses:
Programming cost.......................................... 681,395
Cost of sales............................................. 146,508
Salaries.................................................. 100,616
Amortization and depreciation............................. 94,886
Telephone................................................. 25,646
Advertising............................................... 12,702
Other general and administrative.......................... 12,408
Commissions............................................... 10,157
Accounting................................................ 9,234
DSS Installation costs.................................... 3,989
Training.................................................. 2,008
Taxes -- other than income taxes.......................... 151
----------
Total Operating Expenses.......................... 1,099,700
----------
Operating Loss.............................................. (25,557)
Interest and Dividend Income................................ 17,815
----------
Loss Before Interest and Taxes.................... (7,742)
Income Tax Benefit.......................................... 29,613
Interest Expense............................................ (60,500)
----------
Net Loss.......................................... (38,629)
Segment Equity, Beginning................................... 119,354
----------
Segment Equity, Ending...................................... $ 80,725
==========
</TABLE>
(The accompanying notes are an integral part of these financial statements.)
F-247
<PAGE> 358
DBS SEGMENT OF CUMBY CELLULAR, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
Cash Flows from Operating Activities:
Net loss.................................................. $(38,629)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization.......................... 94,886
Noncash patronage dividends............................ (6,092)
Change in assets and liabilities:
Decrease in accounts receivable........................ 23,127
Decrease in inventory held for sale.................... 10,513
Increase in accounts payable and accruals.............. 72,765
--------
Total Adjustments................................. 195,199
--------
Net Cash Provided by Operating Activities................... 156,570
--------
Cash Flows from Investing Activities:
Capital expenditures...................................... (5,133)
Proceeds from sale of certificates of deposit............. 100,881
--------
Net Cash Provided by Investing Activities................... 95,748
--------
Cash Flows from Financing Activities:
Payments of long-term debt................................ (140,971)
Advances to affiliate..................................... (39,412)
--------
Net Cash Used In Financing Activities....................... (180,383)
--------
Net Increase in Cash and Cash Equivalents................... 71,935
Cash and Cash Equivalents at Beginning of Year.............. 99,230
--------
Cash and Cash Equivalents at End of Year.................... $171,165
========
</TABLE>
(The accompanying notes are an integral part of these financial statements.)
F-248
<PAGE> 359
DBS SEGMENT OF CUMBY CELLULAR, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization and Nature of Operations
DBS Segment Cellular, Inc. (the Segment) is a Segment of Cumby Cellular,
Inc. (CCI). CCI is a wholly owned subsidiary of Cumby Telephone Cooperative,
Inc. (the Company). The Segment was formed for the purpose of operating direct
broadcast satellite (DBS) television systems purchased by the Company. The
Company is an affiliated member of the National Rural Telecommunications
Cooperative (NRTC). The NRTC has contracted with Hughes Communications Galaxy,
Inc. (Hughes) to provide exclusive marketing rights for distribution of DirecTV
satellite television programming in the United States. The marketing rights give
the owner exclusive rights to distribution of DirecTV service within the
contract area. Hughes controls the satellites that provide programming for
DirecTV. At December 31, 1997, the Company had the operating rights for two
counties in northeast Texas.
The Segment is not a separate subsidiary of the Company nor has it been
operated as a separate entity. The financial statements presented herein have
been derived from the records of CCI and have been prepared to present the
Segment's financial position, results of operations, and cash flows on a
stand-alone basis. Accordingly, the financial statements include certain costs
and expenses which have been allocated to the Segment by the Company. Such
allocated expenses may or may not be indicative of what such expenses would have
been had the Segment been operated as a separate entity.
Revenue Recognition
Revenues are earned for monthly direct broadcast satellite services which
are billed to subscribers in advance. Subscribers may elect to prepay their
service charges for one or more months. Revenue is recognized in the month the
service is provided to the subscriber. Subscriber advance billings represent
unearned revenues and are deferred until the service is provided. Equipment
sales are recognized as revenue when the equipment is delivered to the customer.
Inventory
Inventory is stated at the lower of average cost or market and consists of
satellite receivers, dishes, and accessories.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management of the Segment to make a
number of estimates and assumptions which affect the reported amounts of assets,
liabilities, revenues and expenses. Actual results could differ from these
estimates.
Intangible Assets
The cost of acquiring the rights to provide DirecTV satellite services are
capitalized as intangible assets and are being amortized on a straight-line
basis over ten years, which is the expected useful life of the revenue stream of
those services.
Income Taxes
The Segment's operating results are consolidated with CCI's for tax filing
purposes. An income tax benefit has been provided in the accompanying statement
of operations for taxes recoverable from CCI. There are no significant
differences between book and tax basis which would result in deferred tax assets
or liabilities.
F-249
<PAGE> 360
DBS SEGMENT OF CUMBY CELLULAR, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- ACCOUNTS RECEIVABLE:
Accounts receivable consists of amounts due from subscribers for monthly
programming fees and for sales of satellite television equipment which have been
delivered but not paid for. Accounts receivable as of December 31, 1997 are as
follows:
<TABLE>
<S> <C>
Accounts receivable:
Programming............................................... $88,196
Equipment sales........................................... 9,972
-------
$98,168
=======
</TABLE>
NOTE 3 -- NOTES RECEIVABLE:
The Segment provides customers the option of purchasing DBS equipment on
credit. These payment plans have terms of four years and carry interest at 15
percent. Upon default by a customer, the Segment repossesses the equipment,
transfers the resale value of the equipment to inventory, and records an
allowance for the balance of the unpaid note receivable.
NOTE 4 -- RTFC AND NRTC EQUITY CERTIFICATES:
The NRTC declares and the Segment receives a yearly patronage dividend
based on the NRTC's profitability. Of the total dividend, 20 percent is received
in cash and 80 percent is distributed in the form of NRTC patronage capital
certificates, which will be redeemed in cash at a future date at the discretion
of the NRTC. The Segment purchased an RTFC equity certificate as part of the
RTFC loan requirements. This certificate is refunded by RTFC so that it
maintains a balance equal to 10 percent of the loan balance. RTFC pays patronage
dividends to the Segment.
NOTE 5 -- DBS FRANCHISE:
The DBS franchise is being amortized over its 10 year life and is stated
net of accumulated amortization of $337,745.
NOTE 6 -- LONG-TERM DEBT.
The Segment is indebted to the Rural Telephone Finance Corporation as
follows:
<TABLE>
<S> <C>
Note payable with Interest at RTFC variable rate (6.9% at
December 31, 1997) due in quarterly installments through
August 2002............................................... $813,936
Current portion............................................. 165,779
--------
Long-Term Debt.................................... $648,157
========
</TABLE>
NOTE 7 -- ADDITIONAL CASH FLOW INFORMATION:
<TABLE>
<S> <C>
Cash paid during 1997 for:
Interest.................................................. $61,284
Income tax................................................ --
</TABLE>
NOTE 8 -- RELATED PARTY TRANSACTIONS:
The Segment is party to various intercompany transactions with the Company.
The Company purchased the DBS franchise rights under which the Segment provides
DBS programming for $921,122 prior to the
F-250
<PAGE> 361
DBS SEGMENT OF CUMBY CELLULAR, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
commencement of DBS operations in mid-1993. The franchise rights and debt were
transferred by the Company to the Segment in 1993.
The Company also allocates certain salary, benefits and overhead costs
associated with operating the Segment to the Segment's expense accounts. These
allocated costs totaled $100,810 for 1997. The Segment provided an income tax
benefit to the Company of $29,613 in 1997. All other expenses are paid directly
from the cash accounts of the Segment.
Intercompany assets and liabilities included in the Segment's December 31,
1997 balance sheet are as follows:
<TABLE>
<S> <C>
Accounts receivable......................................... $71,775
Accounts payable............................................ 12,476
</TABLE>
NOTE 9 -- SUBSEQUENT EVENTS:
On June 10, 1998, the Company signed a letter of intent to sell
substantially all of the Segment's assets to a third party.
F-251
<PAGE> 362
- ------------------------------------------------------
- ------------------------------------------------------
DEALER PROSPECTUS DELIVERY OBLIGATION
UNTIL , 1998, ALL DEALERS THAT EFFECT TRANSACTIONS IN
THESE SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS EXCHANGE OFFER, MAY BE
REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATION
TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
---------------------
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN AS CONTAINED IN THIS
PROSPECTUS OR THE ACCOMPANYING LETTER OF TRANSMITTAL, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. NEITHER THIS PROSPECTUS NOR THE ACCOMPANYING LETTER
OF TRANSMITTAL OR BOTH TOGETHER CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY ANY SECURITY OTHER THAN THE NEW NOTES OFFERED HEREBY, NOR DOES
IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE DELIVERY
OF THIS PROSPECTUS OR THE ACCOMPANYING LETTER OF TRANSMITTAL OR BOTH TOGETHER,
NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES IMPLY THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE
HEREOF.
---------------------
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER MAY BE CONTACTED AS FOLLOWS:
BY HAND/OVERNIGHT EXPRESS:
STATE STREET BANK AND TRUST COMPANY OF
MISSOURI, N.A.
61 BROADWAY, 15TH FLOOR
NEW YORK, NY 10016
ATTENTION: CORPORATE TRUST DEPARTMENT
BY MAIL:
STATE STREET BANK AND TRUST COMPANY OF
MISSOURI, N.A.
TWO INTERNATIONAL PLACE, 4TH FLOOR
BOSTON, MA 02110
ATTENTION: CORPORATE TRUST DEPARTMENT
BY FACSIMILE (FOR ELIGIBLE INSTITUTIONS ONLY):
(617) 664-5290
ATTENTION: CORPORATE TRUST DEPARTMENT
CONFIRM BY TELEPHONE: (617) 664-5587
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
[LOGO GRAPHIC TO COME]
GOLDEN SKY SYSTEMS, INC.
OFFER TO EXCHANGE ITS
12 3/8% SENIOR SUBORDINATED NOTES
DUE 2006, SERIES B,
FOR ANY AND ALL OF ITS OUTSTANDING
12 3/8% SENIOR SUBORDINATED NOTES
DUE 2006, SERIES A
---------------------------
PROSPECTUS
---------------------------
, 1998
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 363
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of the State of Delaware
("DGCL") empowers a Delaware corporation to indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of such corporation) by
reason of the fact that such person is or was a director, officer, employee or
agent of such corporation, or is or was serving at the request of such
corporation as a director, officer, employee or agent of another corporation or
enterprise. A corporation may indemnify such person against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. A Delaware corporation may indemnify officers and
directors in an action by or in the right of the corporation to procure a
judgment in its favor under the same conditions, except that no indemnification
is permitted without judicial approval if the officer or director is adjudged to
be liable to the corporation. Where an officer or director is successful on the
merits or otherwise in the defense of any action referred to above, the
corporation must indemnify him against the expenses (including attorneys' fees)
which he actually and reasonably incurred in connection therewith. The
indemnification provided is not deemed to be exclusive of any other rights to
which an officer or director may be entitled under any corporation's by-law,
agreement, vote or otherwise.
In accordance with Section 145 of the DGCL, the registrant has adopted a
by-law that provides that, to the fullest extent permitted by DGCL, the
registrant shall indemnify any person serving as a director or officer of the
registrant and every such director or officer serving at the request of the
registrant as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise for expenses incurred in
the defense of, or in connection with, any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative. Under Section 145 of the DGCL and the registrant's by-laws, such
indemnification shall not be deemed exclusive of any other rights to which those
seeking indemnification may be entitled under any by-law, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
The registrant has purchased and maintains insurance to protect persons
entitled to indemnification pursuant to its by-laws and the DGCL against
expenses, judgments, fines and amounts paid in settlement, to the fullest extent
permitted by the DGCL.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2.1 -- Stock Purchase Agreement, dated as of July 11, 1997,
among the registrant, Argos Support Services Company and
the several shareholders named therein.
2.2 -- Asset Purchase Agreement, dated as of July 10, 1998, by
and between the registrant and Volcano Vision, Inc.
2.3 -- Agreement and Plan of Merger, dated as of September 1,
1998, among Golden Sky Holdings, Inc., the registrant,
Western Montana DBS, Inc. d/b/a Rock Mountain DBS and the
stockholders of Western Montana DBS, Inc. named therein.
</TABLE>
II-1
<PAGE> 364
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
3.1 -- Second Amended and Restated Certificate of Incorporation
of the registrant.*
3.2 -- By-Laws of the registrant, adopted as of October 1,
1997.*
4.1 -- Indenture, dated as of July 31, 1998, by and among the
registrant, as issuer, Argos Support Services Company, as
guarantor, PrimeWatch, Inc., as guarantor, and State
Street Bank and Trust Company of Missouri, N.A., as
trustee, relating to the registrant's 12 3/8% Senior
Subordinated Notes due 2006, Series A and 12 3/8% Senior
Subordinated Notes due 2006, Series B.
4.2 -- Form of 12 3/8% Senior Subordinated Note due 2006, Series
B of the registrant (included in Exhibit 4.1).
4.3 -- Registration Rights Agreement, dated as of July 31, 1998,
by and among the registrant, Merrill Lynch, Pierce,
Fenner & Smith Incorporated and NationsBanc Montgomery
Securities LLC, as initial purchasers.*
4.4 -- Escrow Agreement, dated as of July 31, 1998, by and among
State Street Bank and Trust Company of Missouri, N.A., as
escrow Agent, and State Street Bank and Trust Company of
Missouri, N.A., as trustee under the Indenture, and the
registrant.*
4.5 -- Account Control Agreement, dated as of July 31, 1998, by
and among the registrant, State Street Bank and Trust
Company of Missouri, N.A., as escrow agent, and State
Street Bank and Trust Company, as custodian and
securities intermediary.*
5.1 -- Opinion of Reboul, MacMurray, Hewitt, Maynard & Kristol
as to the legality of the securities being registered.
10.1 -- Purchase Agreement, dated July 24, 1998, among the
registrant, Merrill Lynch, Pierce, Fenner & Smith
Incorporated and NationsBanc Montgomery Securities LLC,
relating to the issuance and sale of $195,000,000
aggregate principal amount of the registrant's 12 3/8%
Senior Subordinated Notes due 2006, Series A.*
10.2 -- Amended and Restated Credit Agreement, dated as of July
7, 1997, amended and restated as of May 8, 1998, among
Golden Sky Holdings, Inc., the registrant, various banks,
Paribas (formerly known as Banque Paribas), as
Syndication Agent, Fleet National Bank, as Administrative
Agent, and General Electric Capital Corporation, as
Documentation Agent.**
10.3 -- Form of NRTC/Member Agreement for Marketing and
Distribution of DBS Services, as amended.***
10.4 -- Intentionally omitted.
10.5 -- Intentionally omitted.
10.6 -- Employment Agreement, dated February 12, 1997, between
the registrant and Rodney A. Weary.*
10.7 -- Employment Agreement, dated February 12, 1997, between
the registrant and Jo Ellen Linn.*
10.8 -- Employment Agreement, dated as of November 3, 1997,
between the registrant and William J. Gerski.
10.9 -- Employment Agreement, dated as of November 3, 1997,
between the registrant and Laquita Allen.
10.10 -- Employment Agreement, dated August 24, 1998, between the
registrant and John R. Hager.
10.11 -- Non-Competition Agreement, between the registrant and
Rodney A. Weary.
</TABLE>
II-2
<PAGE> 365
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.12 -- Non-Competition Agreement, between the registrant and Jo
Ellen Linn.
10.13 -- Non-Competition Agreement, dated August 24, 1998, between
the registrant and John R. Hager.
10.14 -- Form of Director Indemnification Agreement, dated
February 12, 1997, between the registrant and each of the
members of the registrant's Board of Directors.
10.15 -- Confidentiality and Proprietary Rights Agreements, dated
August 24, 1998, between the registrant and John R.
Hager.
10.16 -- Exchange Agency Agreement, dated as of November 24, 1998,
between the registrant and State Street Bank and Trust
Company of Missouri, N.A., as Exchange Agent.
12.1 -- Statements re Computation of Ratios.*
21.1 -- Subsidiaries of the registrant.*
23.1 -- Consent of Reboul, MacMurray, Hewitt, Maynard & Kristol
(included in their opinion filed as Exhibit 5.1).
23.2 -- Consent of KPMG Peat Marwick LLP.
23.3 -- Consent of Eide Bailly LLP (formerly known as Eide
Helmeke PLLP).
23.4 -- Consent of Loucks & Glassley, pllp.
23.5 -- Consent of Bolinger, Segars, Gilbert & Moss, L.L.P.
23.6 -- Consent of CHMS, P.C.
23.7 -- Consent of Aldrich, Kilbride & Tatone LLP.
23.8 -- Consent of Arthur Andersen LLP.
23.9 -- Consent of Jackson Thornton & Co., P.C.
23.10 -- Consent of Moss Adams LLP.
23.11 -- Consent of Curtis Blakely & Co., P.C.
24.1 -- Power of Attorney of the members of the Board of
Directors of the registrant (included in the signature
pages).
25.1 -- Statement on Form T-1 of Eligibility of Trustee.
27.1 -- Financial Data Schedule.
99.1 -- Form of Letter of Transmittal.
99.2 -- Form of Notice of Guaranteed Delivery.
99.3 -- Stock Purchase Agreement, dated as of February 12, 1997,
among the registrant, Rodney A. Weary and the investors
named therein.*
99.4 -- Stock Purchase Agreement, dated as of November 24, 1997,
by and among Golden Sky Holdings, Inc., the registrant,
Rodney A. Weary, and the investors named therein.*
99.5 -- Stockholders Agreement, dated as of November 24, 1997, by
and among Golden Sky Holdings, Inc. and the investors and
other stockholders named therein.*
</TABLE>
- ---------------
* Previously filed.
** Certain information in this Exhibit is deleted pursuant to a request with
the Securities and Exchange Commission for confidential treatment.
*** To be filed by subsequent amendment.
II-3
<PAGE> 366
(b) Financial Statement Schedules.
Schedule II -- Valuation and Qualifying Accounts.
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) If the registrant is a foreign private issuer, to file a post-effective
amendment to the registration statement to include any financial statements
required by Rule 3-19 of this chapter at the start of any delayed offering or
throughout a continuous offering. Financial statements and information required
by Section 10(a)(3) of the Act need not be furnished, provided, that the
registrant includes in the prospectus, by means of a post-effective amendment,
financial statements required pursuant to this paragraph (a)(4) and other
information necessary to ensure that all other information in the prospectus is
at least as current as the date of those financial statements. Notwithstanding
the foregoing, with respect to registration statements on Form F-3, a
post-effective amendment need not be filed to include financial statements and
information required by Section 10(a)(3) of the Act or Rule 3-19 of this chapter
if such financial statements and information are contained in periodic reports
filed with or furnished to the Commission by the registrant pursuant to Section
13 or Section 15(d) of the Securities Exchange Act of 1934 that are incorporated
by reference in the Form F-3.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired therein, that was not the subject of and included in the
registration statement when it became effective.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise,
II-4
<PAGE> 367
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-5
<PAGE> 368
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Kansas City, state of
Missouri, on November 30, 1998.
GOLDEN SKY SYSTEMS, INC.
By: /s/ RODNEY A. WEARY
----------------------------------
Rodney A. Weary
Chairman of the Board of
Directors,
Chief Executive Officer, and
Director
The undersigned directors and officers of Golden Sky Systems, Inc., hereby
appoint Rodney A. Weary and John R. Hager, or either of them individually, as
attorney-in-fact for the undersigned, with full power of substitution for, and
in the name, place and stead of the undersigned, to sign and file with the
Securities and Exchange Commission under the Securities Act of 1933, as amended,
any and all amendments (including post-effective amendments) and exhibits to
this registration statement on Form S-4 and any and all applications and other
documents to be filed with the Securities and Exchange Commission pertaining to
the registration of the securities covered hereby, with full power and authority
to do and perform any and all acts and things whatsoever requisite and necessary
or desirable, hereby ratifying and confirming all that said attorney-in-fact, or
his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ RODNEY A. WEARY Chairman of the Board, Chief November 30, 1998
- ----------------------------------------------------- Executive Officer and Director
Rodney A. Weary (Principal Executive Officer)
/s/ JOHN R. HAGER Chief Financial Officer (Principal November 30, 1998
- ----------------------------------------------------- Financial and Accounting
John R. Hager Officer)
Director November 30, 1998
- -----------------------------------------------------
Robert F. Benbow
Director November 30, 1998
- -----------------------------------------------------
William O. Charman
* Director November 30, 1998
- -----------------------------------------------------
William P. Collatos
* Director November 30, 1998
- -----------------------------------------------------
William A. Johnston
</TABLE>
II-6
<PAGE> 369
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Director November 30, 1998
- -----------------------------------------------------
Robert B. Liepold
* Director November 30, 1998
- -----------------------------------------------------
Erik M. Torgerson
* By signing his name hereto, Rodney A. Weary is executing this document on behalf of the persons indicated
above pursuant to powers of attorney duly executed by such persons and filed with the Securities and
Exchange Commission.
/s/ RODNEY A. WEARY
- -----------------------------------------------------
Rodney A. Weary
Attorney-in-fact
</TABLE>
II-7
<PAGE> 370
SCHEDULE II
SCHEDULE OF
VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER DEDUCTIONS- END OF
OF PERIOD EXPENSES ACCOUNTS WRITE-OFFS PERIOD
---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1997
Allowance for doubtful accounts....... 4 414 -- (280) 138
Year Ended December 31, 1996
Allowance for doubtful accounts....... -- 7 -- (3) 4
</TABLE>
<PAGE> 371
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2.1 -- Stock Purchase Agreement, dated as of July 11, 1997,
among the registrant, Argos Support Services Company and
the several shareholders named therein.
2.2 -- Asset Purchase Agreement, dated as of July 10, 1998, by
and between the registrant and Volcano Vision, Inc.
2.3 -- Agreement and Plan of Merger, dated as of September 1,
1998, among Golden Sky Holdings, Inc., the registrant,
Western Montana DBS, Inc. d/b/a Rock Mountain DBS and the
stockholders of Western Montana DBS, Inc. named therein.
3.1 -- Second Amended and Restated Certificate of Incorporation
of the registrant.*
3.2 -- By-Laws of the registrant, adopted as of October 1,
1997.*
4.1 -- Indenture, dated as of July 31, 1998, by and among the
registrant, as issuer, Argos Support Services Company, as
guarantor, PrimeWatch, Inc., as guarantor, and State
Street Bank and Trust Company of Missouri, N.A., as
trustee, relating to the registrant's 12 3/8% Senior
Subordinated Notes due 2006, Series A and 12 3/8% Senior
Subordinated Notes due 2006, Series B.
4.2 -- Form of 12 3/8% Senior Subordinated Note due 2006, Series
B of the registrant (included in Exhibit 4.1).
4.3 -- Registration Rights Agreement, dated as of July 31, 1998,
by and among the registrant, Merrill Lynch, Pierce,
Fenner & Smith Incorporated and NationsBanc Montgomery
Securities LLC, as initial purchasers.*
4.4 -- Escrow Agreement, dated as of July 31, 1998, by and among
State Street Bank and Trust Company of Missouri, N.A., as
escrow Agent, and State Street Bank and Trust Company of
Missouri, N.A., as trustee under the Indenture, and the
registrant.*
4.5 -- Account Control Agreement, dated as of July 31, 1998, by
and among the registrant, State Street Bank and Trust
Company of Missouri, N.A., as escrow agent, and State
Street Bank and Trust Company, as custodian and
securities intermediary.*
5.1 -- Opinion of Reboul, MacMurray, Hewitt, Maynard & Kristol
as to the legality of the securities being registered.
10.1 -- Purchase Agreement, dated July 24, 1998, among the
registrant, Merrill Lynch, Pierce, Fenner & Smith
Incorporated and NationsBanc Montgomery Securities LLC,
relating to the issuance and sale of $195,000,000
aggregate principal amount of the registrant's 12 3/8%
Senior Subordinated Notes due 2006, Series A.*
10.2 -- Amended and Restated Credit Agreement, dated as of July
7, 1997, amended and restated as of May 8, 1998, among
Golden Sky Holdings, Inc., the registrant, various banks,
Paribas (formerly known as Banque Paribas), as
Syndication Agent, Fleet National Bank, as Administrative
Agent, and General Electric Capital Corporation, as
Documentation Agent.**
10.3 -- Form of NRTC/Member Agreement for Marketing and
Distribution of DBS Services, as amended.***
10.4 -- Intentionally omitted.
10.5 -- Intentionally omitted.
10.6 -- Employment Agreement, dated February 12, 1997, between
the registrant and Rodney A. Weary.*
</TABLE>
<PAGE> 372
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.7 -- Employment Agreement, dated February 12, 1997, between
the registrant and Jo Ellen Linn.*
10.8 -- Employment Agreement, dated as of November 3, 1997,
between the registrant and William J. Gerski.
10.9 -- Employment Agreement, dated as of November 3, 1997,
between the registrant and Laquita Allen.
10.10 -- Employment Agreement, dated August 24, 1998, between the
registrant and John R. Hager.
10.11 -- Non-Competition Agreement, between the registrant and
Rodney A. Weary.
10.12 -- Non-Competition Agreement, between the registrant and Jo
Ellen Linn.
10.13 -- Non-Competition Agreement, dated August 24, 1998, between
the registrant and John R. Hager.
10.14 -- Form of Director Indemnification Agreement, dated
February 12, 1997, between the registrant and each of the
members of the registrant's Board of Directors.
10.15 -- Confidentiality and Proprietary Rights Agreements, dated
August 24, 1998, between the registrant and John R.
Hager.
10.16 -- Exchange Agency Agreement, dated as of November 24, 1998,
between the registrant and State Street Bank and Trust
Company of Missouri, N.A., as Exchange Agent.
12.1 -- Statements re Computation of Ratios.*
21.1 -- Subsidiaries of the registrant.*
23.1 -- Consent of Reboul, MacMurray, Hewitt, Maynard & Kristol
(included in their opinion filed as Exhibit 5.1).
23.2 -- Consent of KPMG Peat Marwick LLP.
23.3 -- Consent of Eide Bailly LLP (formerly known as Eide
Helmeke PLLP).
23.4 -- Consent of Loucks & Glassley, pllp.
23.5 -- Consent of Bolinger, Segars, Gilbert & Moss, L.L.P.
23.6 -- Consent of CHMS, P.C.
23.7 -- Consent of Aldrich, Kilbride & Tatone LLP.
23.8 -- Consent of Arthur Andersen LLP.
23.9 -- Consent of Jackson Thornton & Co., P.C.
23.10 -- Consent of Moss Adams LLP.
23.11 -- Consent of Curtis Blakely & Co., P.C.
24.1 -- Power of Attorney of the members of the Board of
Directors of the registrant (included in the signature
pages).
25.1 -- Statement on Form T-1 of Eligibility of Trustee.
27.1 -- Financial Data Schedule.
99.1 -- Form of Letter of Transmittal.
99.2 -- Form of Notice of Guaranteed Delivery.
99.3 -- Stock Purchase Agreement, dated as of February 12, 1997,
among the registrant, Rodney A. Weary and the investors
named therein.*
</TABLE>
<PAGE> 373
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
99.4 -- Stock Purchase Agreement, dated as of November 24, 1997,
by and among Golden Sky Holdings, Inc., the registrant,
Rodney A. Weary, and the investors named therein.*
99.5 -- Stockholders Agreement, dated as of November 24, 1997, by
and among Golden Sky Holdings, Inc. and the investors and
other stockholders named therein.*
</TABLE>
- ---------------
* Previously filed.
** Certain information in this Exhibit is deleted pursuant to a request with
the Securities and Exchange Commission for confidential treatment.
*** To be filed by subsequent amendment.
(b) Financial Statement Schedules.
Schedule II -- Valuation and Qualifying Accounts.
<PAGE> 1
Exhibit 2.1
STOCK PURCHASE AGREEMENT
Among
GOLDEN SKY SYSTEMS, INC.,
ARGOS SUPPORT SERVICES COMPANY
and
THE SEVERAL SHAREHOLDERS LISTED ON SCHEDULE I HERETO
Dated as of July 11, 1997
<PAGE> 2
TABLE OF CONTENTS
Page
ARTICLE I. SALE AND TRANSFER OF THE SHARES;
CLOSING; PURCHASE PRICE
SECTION 1.01 Sale and Transfer of the Shares......................
SECTION 1.02 Purchase Price.......................................
SECTION 1.03 Delivery of Certificates and Payment.................
of Purchase Price..................................
SECTION 1.04 Deposit..............................................
SECTION 1.05 Closing..............................................
ARTICLE II. REPRESENTATIONS AND WARRANTIES OF
THE SELLING SHAREHOLDERS
SECTION 2.01 Organization, Qualifications and
Corporate Power; Subsidiaries......................
SECTION 2.02 Authorization of Agreements, Etc.....................
SECTION 2.03 Validity.............................................
SECTION 2.04 Capitalization.......................................
SECTION 2.05 Title to Shares......................................
SECTION 2.06 Financial Statements.................................
SECTION 2.07 Absence of Undisclosed Liabilities...................
SECTION 2.08 Absence of Certain Changes or Events.................
SECTION 2.09 Governmental Approvals...............................
SECTION 2.10 Title to Properties, Absence of......................
Liens and Encumbrances.............................
SECTION 2.11 List of Properties, Contracts and....................
Other Data.........................................
SECTION 2.12 Intangible Rights....................................
SECTION 2.13 Software.............................................
SECTION 2.14 Litigation, Etc......................................
SECTION 2.15 Taxes................................................
SECTION 2.16 Governmental Authorizations and......................
Regulations........................................
SECTION 2.17 Labor Matters........................................
SECTION 2.18 Insurance............................................
SECTION 2.19 Use of Real Property.................................
SECTION 2.20 Condition of Assets..................................
SECTION 2.21 Accounts Receivable..................................
SECTION 2.22 Books and Records....................................
SECTION 2.23 Employee Benefit Plans...............................
SECTION 2.24 Transactions with Affiliates.........................
<PAGE> 3
SECTION 2.25 Environmental Matters................................
SECTION 2.26 System Data..........................................
SECTION 2.27 Distribution Agreements..............................
SECTION 2.28 Offering of the Shares...............................
SECTION 2.29 Qualification of Representations and.................
Warranties of Certain Selling
Shareholders.......................................
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF
THE PURCHASER
SECTION 3.01 Organization, Power, Etc.............................
SECTION 3.02 Authorization of Agreements, Etc. ...................
SECTION 3.03 Validity.............................................
SECTION 3.04 Governmental Approvals...............................
SECTION 3.05 Litigation Relating to Transaction...................
SECTION 3.06 Investment Representation............................
ARTICLE IV. COVENANTS
SECTION 4.01 Certain Covenants of the Selling
Shareholders.......................................
SECTION 4.02 Certain Tax Matters..................................
SECTION 4.03 Consents.............................................
SECTION 4.04 Books and Records....................................
SECTION 4.05 License and Other Fees...............................
SECTION 4.06 Employment Matters...................................
SECTION 4.07 Termination of Distribution Agreements...............
ARTICLE V. CONDITIONS PRECEDENT
SECTION 5.01 Conditions Precedent to
the Obligations of the Purchaser...................
SECTION 5.02 Conditions Precedent to the
Obligations of the Selling
Shareholders.......................................
ARTICLE VI. INDEMNIFICATION
SECTION 6.01 Survival of Representations and
Warranties.........................................
SECTION 6.02 General Indemnity....................................
SECTION 6.03 Conditions of Indemnification........................
SECTION 6.04 Remedies Cumulative..................................
<PAGE> 4
ARTICLE VII. TERMINATION AND ABANDONMENT
SECTION 7.01 Termination..........................................
SECTION 7.02 Procedure and Effect of Termination..................
ARTICLE VIII. MISCELLANEOUS
SECTION 8.01 Expenses, Etc........................................
SECTION 8.02 Publicity............................................
SECTION 8.03 Execution in Counterparts............................
SECTION 8.04 Notices..............................................
SECTION 8.05 Waivers..............................................
SECTION 8.06 Amendments, Supplements, Etc.........................
SECTION 8.07 Entire Agreement.....................................
SECTION 8.08 Applicable Law.......................................
SECTION 8.09 Binding Effect; Benefits.............................
SECTION 8.10 Assignability........................................
TESTIMONIUM..............................................................
<PAGE> 5
INDEX TO EXHIBITS AND SCHEDULES
Exhibit Description
A Form of Employment Agreement
B Form of Opinion of Decker, Jones, McMackin,
McClane, Hall & Bates, P.C.
Schedule Description
I Selling Shareholders
2.04 Capitalization
2.07 Liabilities
2.08 Changes Since December 31, 1996
2.09 Governmental Approvals
2.10 Liens
2.11 List of Properties, Contracts, Etc.
2.12 Intangible Property Infringements
2.14 Litigation
2.15 Tax Matters
2.18 Insurance
2.21 Accounts Receivable
2.23 Employee Benefit Plans
2.24 Transactions with Affiliates
2.25 Environmental Matters
2.26 System Data
<PAGE> 6
STOCK PURCHASE AGREEMENT, dated as of July 11, 1997, among GOLDEN SKY
SYSTEMS, INC., a Delaware corporation (the "Purchaser"), ARGOS SUPPORT SERVICES
COMPANY, a Texas corporation (the "Company") and the several shareholders listed
on Schedule I hereto (each a "Selling Shareholder" and collectively the "Selling
Shareholders").
WHEREAS, the Selling Shareholders own an aggregate 4,625 shares (the
"Shares") of Common Stock, $1.00 par value ("Common Stock"), of the Company,
being all the issued and outstanding shares of capital stock of the Company not
currently owned of record and beneficially by the Purchaser;
WHEREAS, the Selling Shareholders severally desire to sell to the
Purchaser, and the Purchaser desires to purchase from the Selling Shareholders,
the Shares, all on the terms and subject to the conditions hereinafter set
forth, so that immediately after, and as a result of, the consummation of the
transactions contemplated by this Agreement, the Purchaser will own all of the
then issued and outstanding shares of capital stock of the Company;
WHEREAS, the Selling Shareholders and the Purchaser acknowledge that
the benefits and burdens of ownership of the Shares shall remain with the
Selling Shareholders until the closing occurs and that the benefits and burdens
of ownership of the Shares shall pass to Purchaser only on the "Closing Date"
(as defined herein), upon satisfaction of the terms and conditions hereinafter
set forth; and
WHEREAS, on the date hereof, certain of the Selling Shareholders have
entered into Subscription Agreements with the Purchaser (the "Subscription
Agreements), providing for the purchase by such Selling Shareholders of up to an
aggregate 10,000 shares (less the number of shares subject to the options
described in Section 4.06(b) hereof) of Series A Convertible Participating
Preferred Stock, $.01 par value, of the Purchaser ("Preferred Stock") at a price
of $100 per share, such purchase to occur within 45 days after, and expressly
conditioned upon, the closing of the transactions contemplated hereby;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereby agree as follows:
<PAGE> 7
I.
SALE AND TRANSFER OF THE SHARES;
CLOSING; PURCHASE PRICE
SECTION 1.01. Sale and Transfer of the Shares. Subject to the terms
and conditions set forth herein, on the Closing Date (as defined herein) each
Selling Shareholder shall severally sell to the Purchaser, and the Purchaser
shall purchase from each Selling Shareholder, the Shares owned by such Selling
Shareholder as set forth on Schedule I hereto.
SECTION 1.02. Purchase Price. The aggregate purchase price for the
Shares hereunder shall be $15,023,750 (the "Purchase Price").
SECTION 1.03. Delivery of Certificates and Payment of Purchase Price.
(a) On the Closing Date, each of the Selling Shareholders shall deliver to the
Purchaser certificates in definitive form, registered in the names of such
Selling Shareholders, evidencing the Shares being sold by such Selling
Shareholder hereunder, duly endorsed for transfer or accompanied by stock
transfer powers duly endorsed in blank.
(b) As payment in full of the Purchase Price for the Shares and
against delivery of the certificates evidencing the Shares as aforesaid, on the
Closing Date the Purchaser shall pay to each Selling Shareholder, by wire
transfer of immediately available funds to an account designated by such Selling
Shareholder, the sum set forth opposite the name of such Selling Shareholder on
Schedule I hereto under the heading "Payment by Purchaser at Closing."
SECTION 1.04. Deposit. Simultaneously with the execution of this
Agreement, the Purchaser has delivered to the Company the sum of $750,000 (the
"Deposit"), representing a portion of the Purchase Price. The Company, on behalf
of the Selling Shareholders, acknowledges receipt of the Deposit and agrees to
hold the Deposit in a separate account (the "Deposit Account") from all other
Company funds. Upon the closing of the transactions contemplated hereby, the
Company shall pay to each Selling Shareholder, from the Deposit Account, the sum
set forth opposite the name of such Selling Shareholder on Schedule I hereto
under the heading "Deposit Account Payment at Closing." If (i) the closing of
the transactions contemplated hereby has not occurred by August 31, 1997 or (ii)
this Agreement is terminated pursuant to Section 7.01 hereof, then the Company
shall promptly return the Deposit to the Purchaser, without offset or reduction.
SECTION 1.05. Closing. The closing of the transactions contemplated by
this Agreement shall take place at the offices of the Company at 10:00 a.m.
local time, on August 15, 1997, or at such other place or at such other date and
time as the parties hereto may mutually agree (such date and time of the closing
is herein referred to as the "Closing Date").
<PAGE> 8
II.
REPRESENTATIONS AND WARRANTIES OF
THE SELLING SHAREHOLDERS
Each Selling Shareholder, severally and not jointly (to the extent of
their respective percentage interests in the Company), represents and warrants
to the Purchaser as follows:
SECTION 2.01. Organization, Qualifications and Corporate Power;
Subsidiaries. (a) The Company is a corporation duly incorporated and validly
existing under the laws of the State of Texas and is duly licensed or qualified
as a foreign corporation and is in good standing in each other jurisdiction in
which it owns or leases any real property or in which the nature of the business
transacted by it makes such licensing or qualification necessary. The Company
has the corporate power and authority, and the legal right, to own and operate
its properties and to carry on its business as currently conducted.
(b) The Company does not own of record or beneficially or equitably,
directly or indirectly, (i) any shares of capital stock, or securities
convertible into or exchangeable for the capital stock, of any other corporation
or (ii) any participating interest in any association, partnership, joint
venture or other non-corporate business enterprise.
SECTION 2.02. Authorization of Agreements, Etc. (a) Such Selling
Shareholder has full legal capacity and unrestricted power to execute and
deliver this Agreement and to perform his or her obligations hereunder.
(b) The execution and delivery by such Selling Shareholder of this
Agreement, and the performance by such Selling Shareholder of his or her
obligations hereunder, will not (w) violate any provision of law, any order of
any court or other agency of government, the Articles of Incorporation or
By-laws of the Company, any judgment, award or decree or any provision of any
indenture, agreement or other instrument to which a Selling Shareholder or the
Company is a party, or by which a Selling Shareholder or the Company or any of
his, her or its assets is bound or affected; (x) conflict with, result in a
breach of or constitute (with due notice or lapse of time or both) a default
under any such indenture, agreement or other instrument; (y) result in the
creation or imposition of any lien, charge or encumbrance of any nature
whatsoever (collectively, "Liens") upon any of the properties or assets of such
Selling Shareholder or the Company; or (z) result in any suspension, revocation,
impairment, forfeiture or nonrenewal of any Governmental Permit (as hereinafter
defined).
SECTION 2.03. Validity. This Agreement has been duly executed and
delivered by such Selling Shareholder and constitutes the legal, valid and
binding obligation of such Selling Shareholder, enforceable against such Selling
Shareholder in accordance with its terms.
<PAGE> 9
SECTION 2.04. Capitalization. (a) The authorized capital stock of the
Company consists of 10,000 shares of Common Stock, of which 5,800 shares of
Common Stock (consisting solely of the Shares and 1,175 shares held of record by
Purchaser) are validly issued and outstanding, fully paid and nonassessable, and
no other shares of capital stock have ever been issued by the Company. None of
the Shares are subject to, nor were any of them issued in violation of, any
preemptive rights of shareholders of the Company or to any right of first
refusal or other similar right in favor of any person.
(b) Except for the obligations of the Selling Shareholders to the
Purchaser under this Agreement, (i) no subscription, warrant, option,
convertible security or other right (contingent or other) to purchase or acquire
any shares of any class of capital stock of the Company is authorized or
outstanding; (ii) there is not any commitment of the Company to issue any
shares, warrants, options or other such rights or to distribute to holders of
any class of its capital stock any evidences of indebtedness or assets; and
(iii) the Company has no obligation (contingent or other) to purchase, redeem or
otherwise acquire any shares of its capital stock or any interest therein or to
pay any dividend or make any other distribution in respect thereof.
SECTION 2.05. Title to Shares. Such Selling Shareholder is the lawful
holder of record and beneficial owner of the Shares listed opposite his or her
name on Schedule I hereto, free and clear of any and all Liens. The delivery by
the Selling Shareholders of certificates evidencing the Shares, duly endorsed
for transfer or accompanied by stock transfer powers duly endorsed in blank, to
the Purchaser pursuant to Section 1.03(a) above, against payment therefor
pursuant to Section 1.03(b) above, will transfer valid title to the Shares to
the Purchaser, free and clear of any and all Liens.
SECTION 2.06. Financial Statements. The Company has previously
delivered to the Purchaser (i) the unaudited balance sheet of the Company as of
December 31, 1996, and the related audited statements of operations,
stockholders' equity and cash flows for the year then ended, and (ii) the
unaudited balance sheet of the Company as of March 31, 1997 and the related
unaudited statements of operations, stockholders' equity and cash flows for the
three months then ended (collectively, the "Financial Statements"). The
Financial Statements were prepared from the books and records of the Company
and present fairly the financial position of the Company as of the respective
dates specified therein and results of operations of the Company for the
respective periods then ended, and were prepared in conformity with generally
accepted accounting principles applied on a consistent basis ("GAAP"), except
(a) as specified on Schedule 2.06 hereto and (b) that the Financial Statements
do not contain certain footnote disclosures and are subject to year-end audit
adjustments, which consist of normal recurring accruals.
SECTION 2.07. Absence of Undisclosed Liabilities. Except as and to the
extent (i) reflected in the Financial Statements, (ii) incurred since December
31, 1996 in the ordinary course of business and consistent with past practice,
or (iii) set forth on Schedule 2.07 hereto, the Company has no liabilities or
<PAGE> 10
obligations of any kind or nature, whether secured or unsecured (whether
absolute, accrued, contingent or otherwise, and whether due or to become due),
including without limitation any tax liabilities due or to become due.
SECTION 2.08. Absence of Certain Changes or Events. (a) Since December
31, 1996, except (x) as otherwise set forth on Schedule 2.08 hereto or (y) as
otherwise expressly referred to in this Agreement, the Company has not: (i)
changed or amended its Articles of Incorporation or By-laws; (ii) incurred any
obligation or liability (fixed or contingent), except normal trade or business
obligations incurred in the ordinary course of business and consistent with past
practice; (iii) mortgaged, pledged or subjected to any Lien any of its assets or
properties (other than Permitted Liens, as defined in Section 2.10 below); (iv)
transferred, leased or otherwise disposed of any of its material assets or
properties, except for fair consideration in the ordinary course of business and
consistent with past practice; (v) acquired any material assets or properties,
except in the ordinary course of business and consistent with past practice;
(vi) made any investment of a capital nature, whether by purchase of stock or
securities, contributions to capital, property transfers or otherwise, in any
other partnership, corporation or other entity; (vii) canceled or compromised
any debt or claim other than in the ordinary course of business consistent with
past practice; (viii) waived or released any rights of material value,
including, without limitation, any Intangible Rights (as defined in Section
2.11(b) below); (ix) transferred or granted any rights under or with respect to
any Intangible Rights, or permitted any license, permit or other form of
authorization relating to an Intangible Right to lapse; (x) suffered any
casualty loss or damage (whether or not such loss or damage shall have been
covered by insurance) which affects in any material respect its ability to
conduct its business; (xi) declared, set aside or paid any distribution (whether
in cash, stock or property or any combination thereof) in respect of its capital
stock, redeemed or otherwise acquired any of its capital stock, split, combined
or otherwise similarly changed its capital stock, or authorized the creation or
issuance of or issued or sold any capital stock or any securities or obligations
convertible into or exchangeable therefor, or gave any person any right to
acquire any of its capital stock; (xii) made or granted any wage or salary
increase or adopted or modified any severance arrangements applicable to any
group or classification of employees generally, entered into any employment
contract with, or made any loan to, or granted any severance benefits to, or
entered into any material transaction of any other nature with, any officer or
employee of the Company; or (xiii) entered into any agreement, contract or
commitment to take any of the actions set forth in clauses (i) through (xii)
above.
(b) Since December 31, 1996, there has been no material adverse change
in the business, operations, properties, prospects or condition (financial or
otherwise) of the Company.
SECTION 2.09. Governmental Approvals. No order, authorization,
approval or consent from, or filing with, any federal or state governmental or
public body or other authority having jurisdiction over any of the Selling
Shareholders or the Company is required for the execution, delivery and
performance of this Agreement by any of the Selling Shareholders, is necessary
in order to ensure the legality, validity, binding effect or enforceability of
this Agreement, or is necessary in order that the business of the Company can be
<PAGE> 11
conducted by the Purchaser immediately following the Closing Date substantially
in the same manner as heretofore conducted.
SECTION 2.10. Title to Properties, Absence of Liens and Encumbrances.
The Company has good and valid title to all its assets and properties, in each
case free and clear of all Liens, other than (w) the Liens described on Schedule
2.10 hereto, (x) liens for taxes not yet due, or (y) mechanic's, materialman's,
landlord's and similar statutory liens arising in the ordinary course of
business and which, in the aggregate, are not material in nature or amount and
could not materially detract from the value of or materially impair the use of
the property subject thereto or impair the operations or proposed operations of
the Company, or (z) security interests securing indebtedness not in default for
the purchase price of or lease rental payments on property purchased or leased
under capital lease arrangements in the ordinary course of business (the Liens
described in clauses (w), (x), (y) and (z) above being referred to herein as
"Permitted Liens").
SECTION 2.11. List of Properties, Contracts and Other Data. Annexed
hereto as Schedule 2.11 is a list setting forth the following:
(a) a description of all real property owned by the Company;
(b) a description of all leases of real or personal property to which
the Company is a party, either as lessee or lessor, including a description
of the parties to each such lease, the property to which each such lease
relates, the rental term and, in the case of real property leases, the
monthly (or other) rents payable under each such lease;
(c) (i) all patents, trademarks and trade names, trademark and trade
name registrations, logos, servicemark registrations, copyright and
copyright registrations, all applications pending on the date hereof for
patent or for trademark, trade name, service mark or copyright
registrations, and all other material proprietary rights (collectively, "In
tangible Rights") owned by the Company, and (ii) all licenses granted by or
to the Company and all other agreements to which the Company is a party
that relate, in whole or in part, to any such Intangible Rights or to other
proprietary rights reasonably necessary to the Company, whether owned by
any Selling Shareholder, the Company or otherwise;
(d) all collective bargaining agreements, employment and consulting
agreements, independent contractor agreements, executive compensation
plans, bonus plans, deferred compensation agreements, employee pension
plans or retirement plans, employee profit sharing plans, employee stock
purchase and stock option plans, group life insurance, hospitalization
insurance or other similar plans or arrangements maintained for or
providing benefits to employees of, or independent contractors or other
agents of the Company; and
(e) all contracts, including, without limitation, guarantees,
mortgages, indentures and loan agreements, to which the Company is a party,
or to which the
<PAGE> 12
Company or any of its assets or properties is subject and which are not
specifically referred to in clauses (b), (c), or (d) above; provided,
however, that there need not be listed on said Schedule 2.11 pursuant to
this clause (e) any sales contracts, contracts with suppliers and other
such contracts incurred in the ordinary course of business and consistent
with past practice, other than any such contract which (i) is a contract or
group of related contracts that exceeds $10,000 in amount, (ii) contains
warranties by the Company in excess of those customary in its business or
(iii) cannot be performed in the normal course within 12 months after the
Closing Date without breach or penalty.
True and complete copies of all documents and complete descriptions of
all binding oral commitments (if any) referred to in said Schedule 2.11 have
been provided to the Purchaser and its counsel. All material provisions of the
written contracts referred to in such Schedule are valid and enforceable
obligations of the Company and, to the best knowledge of such Selling
Shareholder, of the other parties thereto. Neither such Selling Shareholder nor
the Company has been notified of any claim that any written contract referred to
in such Schedule is not valid and enforceable in accordance with its terms for
the periods stated therein, or that there is under any such contract any
existing default or event of default or event which (with notice or lapse of
time or both) would constitute such a default. Except as set forth on Schedule
2.11, the consummation of the transactions contemplated hereby shall not (i)
constitute a default or an event which (with notice or lapse of time or both)
would constitute a default under any such written contract, (ii) give rise to a
right of termination thereunder, (iii) constitute a prohibited assignment
thereof or (iv) otherwise alter any of the Company's rights or obligations
thereunder.
SECTION 2.12. Intangible Rights. (a) The Intangible Rights constitute
all such proprietary rights that are necessary to the conduct of the Company's
business. The Company owns or has valid rights to use all the Intangible Rights
without conflict with the rights of others. Except as set forth on Schedule 2.12
hereto, no person has made or, to the best knowl edge of such Selling
Shareholder, threatened to make, any claims that the use by the Company of the
Intangible Rights or the operations of the Company's business are in violation
of or infringe upon any intellectual property rights or any other proprietary or
trade rights of any third party.
(b) The consummation of the transactions contemplated hereby will not
alter or impair any Intangible Rights.
(c) The Company has taken and is taking reasonable precautions to
protect any material trade secrets and other confidential information included
in the Intangible Rights. To the Selling Shareholders' best knowledge and
belief, no person is infringing on or violating the Intangible Rights, trade
secrets or know-how used by the Company.
SECTION 2.13. Software. (a) The Company holds valid licenses to all
copies of the operating and applications computer software programs and
databases (collectively, the "Software") used by it, other than any portion
thereof that was developed by or under contract with the Company (collectively,
<PAGE> 13
the "Proprietary Software"). The Company either owns outright, or has a
perpetual, royalty-free license to, the Proprietary Software used by it, and
such Company has not sold, licensed, leased or otherwise transferred or granted
any interest or rights to any thereof. To the Selling Shareholders' best
knowledge and belief, neither the Proprietary Software nor the use by the
Company of the Software infringes upon or violates any patent, copy right, trade
secret or other proprietary right of any other person and, to the best knowledge
of such Selling Shareholder, no claim with respect to any such infringement or
violation is threatened. The Company has taken all steps necessary to protect
its right, title and interest in and to the Software owned by it.
(b) Upon consummation of the transactions contemplated by this
Agreement, the Company will continue to own all the Proprietary Software, free
and clear of all Liens, and, with respect to all agreements for the lease or
license of Software that require consents or other actions as a result of the
consummation of the transactions contemplated hereby in order for the Company to
continue to use and operate such Software after the Closing Date, the Company
will have obtained such consents or taken such other actions so required.
SECTION 2.14. Litigation, Etc. (a) Schedule 2.14 hereto sets forth a
complete list and an accurate description of all claims, actions, suits,
proceedings and investigations pending or, to the best knowledge of such Selling
Shareholder, threatened, by or against the Company or any of its properties,
assets, rights or businesses. No such pending or threatened claims, actions,
suits, proceedings or investigations, if adversely determined, would,
individually or in the aggregate, have a material adverse effect on the
business, properties or condition (financial or other) of the Company. Such
Selling Shareholder knows of no basis for any other such claim, action, suit,
proceeding or investigation which, if adversely decided, would have such a
material adverse effect.
(b) There are no actions, suits, proceedings or claims pending before
or by any court, arbitrator, regulatory authority or government agency against
or affecting such Selling Shareholder or the Company that might enjoin or
prevent the consummation of the transactions contemplated by this Agreement.
SECTION 2.15. Taxes. (a) Except as set forth on Schedule 2.15 hereto,
the Company has duly and timely filed all returns, declarations, reports,
estimates, information returns and statements ("Returns") required to be filed
by it in respect of any Taxes (as hereinafter defined) for all years and periods
for which such Returns have become due, and all such Returns (including all
informational Returns) were correct and complete as filed and correctly reflect
the facts regarding the income, business, assets, operations, activities and
status of the Company as well as all Taxes required to be paid or collected by
the Company.
(b) The Company has paid all Taxes, or where payment is not yet due,
has established, or will establish, consistent with past practice, an adequate
reserve on its books and records for the payment of all Taxes with respect to
any taxable period ending on or prior to the Closing Date (or otherwise relating
<PAGE> 14
or attributable to periods up to and including the Closing Date). The Company
has complied with all applicable laws, rules and regulations relating to the
payment and withholding of Taxes and has timely withheld from employee wages and
paid over to the proper governmental authorities when due all amounts required
to be so withheld and paid over (including, without limitation, federal income
taxes, Federal Insurance Contribution Act ("FICA") taxes, state and local income
and wage taxes, payroll taxes, workers' compensation and unemployment
compensation taxes).
(c) Except as set forth on Schedule 2.15 hereto, to the best knowledge
and belief of the Selling Shareholders, the Company is not delinquent in the
payment of any Taxes and has not requested any extension of time within which to
file any Return, which Return has not since been filed on a timely basis. There
is no deficiency, claim, audit, action, suit, proceeding or investigation now
pending or, to the best knowledge and belief of the Selling Shareholders,
threatened against or with respect to the Company in respect of any Taxes. There
are no requests for rulings or determinations in respect of any Taxes pending
between the Company and any taxing authority, and no such rulings or
determinations have been received by the Company.
(d) Except as set forth on Schedule 2.15 hereto, the Company has not
executed or entered into (and will not enter into on or prior to the Closing
Date) with the Internal Revenue Service or any other taxing authority (i) any
agreement or other document extending or having the effect of extending the
period for assessment or collection of any Taxes for which the Company would be
liable or (ii) a closing agreement pursuant to Section 7121 of the Internal
Revenue Code of 1986, as amended (the "Code"), or any predecessor or successor
provision thereof or any similar provision of state, local or foreign Tax law
that relates to the assets or operations of the Company.
(e) The Company is not party to any agreement, contract or arrangement
that would result, by reason of the consummation of any of the transactions
contemplated hereby, separately or in the aggregate, in the payment of any
"excess parachute payment" within the meaning of Section 280G of the Code.
(f) For purposes of this Agreement, "Tax" (and with correlative
meaning, "Taxes") shall mean (i) any net income, gross income, gross receipts,
franchise, profits, license, sales, use, ad valorem, value added, property,
payroll, withholding, FICA, unemployment, excise, severance, transfer,
employment, alternative or add-on minimum, stamp, occupation, premium,
environmental or windfall profits taxes, customs duties or other taxes,
governmental fees or other like assessments or charges of any kind whatsoever,
together with any interest or any penalty, addition to tax or additional amount
imposed by any governmental authority responsible for the imposition of any such
taxes (domestic or foreign) or (ii) any liability of the Company for the payment
of any amounts of the type described in (i).
SECTION 2.16. Governmental Authorizations and Regulations. The Company
has all governmental licenses, franchises, permits and other governmental
authorizations ("Governmental Permits") necessary for the conduct of its
<PAGE> 15
business. To the Selling Shareholders' best knowledge and belief, the business
of the Company is being conducted in compliance in all material respects with
all applicable laws, ordinances, rules and regulations of all governmental
authorities relating to its properties or applicable to its business. Neither
the Company nor such Selling Shareholder has received any notice of any alleged
violation of any of the foregoing. Neither the Company nor any of the Company's
properties, operations or businesses is subject to any order, judgment,
injunction or decree.
SECTION 2.17. Labor Matters. Neither the Company nor such Selling
Shareholder has received notice of any claim that the Company has failed to
comply with any laws relating to employment, including any provisions thereof
relating to wages, hours, collective bargaining, the payment of social security
and other payroll or similar taxes, equal employment opportunity, employment
discrimination or harassment and employment safety, or that the Company is
liable for any arrears of wages or any taxes or penalties for failure to comply
with any of the foregoing.
SECTION 2.18. Insurance. All policies of fire, liability, workers'
compensation and other forms of insurance providing insurance coverage to or
for the Company are listed on Schedule 2.18 hereto. The Company is a named
insured under such policies, all premiums with respect thereto covering all
periods up to and including the Closing Date have been paid, and no notice of
cancellation or termination has been received with respect to any such policy.
All such policies are in full force and effect and will remain in full force and
effect to and including the Closing Date, and coverage will continue to be in
effect immediately after the Closing Date, without limit as to time, for
occurrences prior to the Closing Date. Neither such Selling Shareholder nor any
such insurer has any right of payment, whether by way of set-off, indemnity or
otherwise, of any nature whatsoever against the Company in respect of any
recovery by the Company under any such policy.
SECTION 2.19. Use of Real Property. The leased real properties listed
on Schedule 2.11 hereto are used and operated by the Company in material
compliance and conformity with all applicable leases. Neither the Company nor
such Selling Shareholder has received notice of any violation of any applicable
zoning or building regulation, ordinance or other law, order, regulation or
requirement relating to the real estate operations or assets of the Company
and, to the best knowledge of such Selling Shareholder, there are no such
violations.
SECTION 2.20. Condition of Assets. All tangible personal property,
fixtures and equipment comprising the assets of the Company are in a good state
of repair (ordinary wear and tear excepted) and operating condition and are
sufficient and adequate to conduct its business on the date hereof.
SECTION 2.21. Accounts Receivable. Except as set forth on Schedule
2.21 hereto, the accounts receivable reflected on the balance sheet of the
Company as of December 31, 1996, and all accounts receivable arising between
December 31, 1996 and the date hereof, arose from bona fide transactions in the
<PAGE> 16
ordinary course of business with unaffiliated third parties, and the goods and
services involved have been sold, delivered and performed to the account
obligors, and no further goods are required to be provided and no further
services are required to be rendered in order to complete the sales and fully
render the services and to entitle the Company to collect its accounts
receivable in full. To the best knowledge of such Selling Shareholder, there is
not any dispute as to the validity or collectibility of such accounts receivable
and, except as set forth on Schedule 2.21, neither any such account receivable
nor any note receivable has been assigned or pledged to any other person, firm
or corporation or is subject to any right of set-off in respect of any
obligations of the such Selling Shareholder or otherwise.
SECTION 2.22. Books and Records. The corporate minute books and stock
record books of the Company completely and accurately reflect in all material
respects the corporate proceedings of the Company and properly and accurately
record the issuance and transfer of all shares of capital stock of the Company.
SECTION 2.23. Employee Benefit Plans. (a) Schedule 2.23 attached
hereto lists each employee benefit plan within the meaning of Section 3(3) of
the Employee Retirement Income Security Act of 1974 ("ERISA") maintained by the
Company or to which the Company contributes or is required to contribute or in
which any employee of the Company participates (a "Plan"). The Company has
complied and currently is in compliance, both as to form and operation, with the
applicable provisions of ERISA and the Code applicable to each Plan.
(b) Each Plan that is intended to qualify under Section 401(a) of the
Code does so qualify and is exempt from taxation pursuant to Section 501(a) of
the Code.
(c) The Company has not maintained, contributed to or been required to
contribute to, nor do any of its employees participate in, a "multiemployer
plan" (as defined in Section 3(37) of ERISA) or a "defined benefit plan" (as
defined in Section 3(35) of ERISA). No amount is due or owing from the Company
on account of a multiemployer plan or on account of any withdrawal therefrom.
(d) The Company has not incurred any liability with respect to any
Plan under ERISA (including, without limitation, Title I or Title IV of ERISA),
the Code or other applicable law that has not been satisfied in full, and no
event has occurred, and there exists no condition or set of circumstances that
could result in the imposition of any liability under ERISA (including, without
limitation, Title I or Title IV of ERISA), the Code or other applicable law with
respect to any of the Plans.
(e) No Plan, other than a Plan that is an employee pension benefit
plan (within the meaning of Section 3(2)(A) of ERISA), provides benefits,
including, without limitation, death, health or medical benefits (whether or
not insured), with respect to current or former employees of the Company beyond
their retirement or other termination of service with the Company (other than
(i) coverage mandated by applicable law, (ii) deferred compensation benefits
<PAGE> 17
accrued as liabilities on the books of the Company or (iii) benefits the full
cost of which is borne by the current or former employee (or his beneficiary)).
(f) Except as set forth on Schedule 2.23 or as otherwise contemplated
by this Agreement, the consummation of the transactions contemplated by this
Agreement will not (i) entitle any current or former employee or officer of the
Company to severance pay, unemployment compensation or any other payment, or
(ii) accelerate the time of payment or vesting, or increase the amount, of
compensation due any such employee or officer.
(g) The Company has provided to the Purchaser for each Plan true and
complete copies of the following: (i) each Plan document and summary plan
descriptions; (ii) each trust agreement, insurance policy or other instrument
relating to the funding of such Plan; (iii) the most recent Annual Report (Form
5500 series) and accompanying schedule filed with the Internal Revenue Service
or United States Department of Labor; (iv) the most recent audited financial
statements; (v) the most recent actuarial report; and (vi) each policy of
fiduciary liability insurance (and agreements related thereto) maintained in
connection therewith.
SECTION 2.24. Transactions with Affiliates. Except for the contracts
set forth on Schedule 2.24 hereto, there are no agreements for the provision of
goods, properties or services to the Company by such Selling Shareholder or any
"affiliate" or "associate" (as defined in Rule 12b-2 under the Securities
Exchange Act of 1934, as amended) of such Selling Share holder.
SECTION 2.25. Environmental Matters. (a) For the purposes of this
Section 2.25, the following terms shall have the following meanings:
"Environmental Law" shall mean any federal, state, provincial or local
statute, law, ordinance, rule or regulation and any order to which the
Company is a party or is otherwise bound relating to pollution or
protection of the environment, including natural resources, or exposure of
persons, including employees, to Hazardous Substances;
"Hazardous Substances" shall mean any substance, whether liquid, solid
or gas, listed, identified or designated as hazardous or toxic under any
Environmental Law, which, applying criteria specified in any Environmental
Law, is hazardous or toxic, or the use or disposal of which is regulated
under any Environmental Law.
(b) No Hazardous Substances have been, or have been threatened to be,
discharged, released or emitted into the air, water, surface water, ground
water, land surface or subsurface strata or transported to or from the property
of the Company by the Company or, to the knowledge of such Selling Shareholder,
by any other person, except in accordance with all applicable Environmental Laws
and except for incidental releases of Hazardous Substances in amounts or
concentrations that would not reasonably be expected to give rise to any claims
or liabilities against the Company under any Environmental Law.
<PAGE> 18
(c) Neither such Selling Shareholder nor the Company has received any
notification from a governmental agency that there is any violation of any
Environmental Law with respect to the business and properties of the Company or
have received any notification from a governmental agency pursuant to Section
104, 106 or 107 of the Comprehensive Environmental Response Compensation and
Liability Act, as amended.
SECTION 2.26. System Data. The Company purchased from the National
Rural Television Cooperative ("NRTC") the right to provide DirecTV programming
services to approximately 53,438 Homes passed by cable television services and
approximately 18,218 Homes unpassed by cable television services as of 1992. As
used herein, "Homes" means single family residences and individual dwelling
units within any building containing multiple dwelling units. Schedule 2.26 sets
forth the Company's rates for satellite services, a breakdown of the channel
packages sold and a general description of marketing promotions and discounts
offered to subscribers since December 31, 1996 and those which may affect the
Company's business after the Closing Date.
SECTION 2.27. Distribution Agreements. The Company is party to three
"Agreements for Purchase of Direct Broadcast Satellite Services Area"
("Distribution Agreements"), with D. H. Braman, III, DBS Tele-Venture, Inc., and
Meridian, Inc. (collectively, the "Distributors"). The Company is not party to
any other Distribution Agreements or similar agreements, arrangements or
commitments. The Company has established a separate account of restricted cash
(the "Reserve Account") in the amount of $1,215,000, which shall be applied
solely to make payments to the Distributors in consideration of the cancellation
or renegotiation of the Distribution Agreements.
SECTION 2.28. Offering of the Shares. Neither such Selling Shareholder
nor any person authorized by the Company or such Selling Shareholder as agent,
broker, dealer or otherwise in connection with the offering or sale of the
Shares, or any similar securities of the Company, has taken or will take any
action (including without limitation any offer or sale of any securities under
circumstances which would require the integration under the Securities Act of
1933 (the "Securities Act"), or the rules and regulations of the Securities and
Exchange Commission thereunder, of such securities with the Shares being sold
by such Selling Shareholder hereunder) which would subject the transactions
contemplated hereby to the registration provisions of the Securities Act.
SECTION 2.29. Qualification of Representations and Warranties of
Certain Selling Shareholders. Solely with respect to D. H. Braman, Jr., the Kate
S. O'Connor Trust for Thomas Edward Braman, J. W. Braman and Barbara Murphy, the
representations and warranties set forth in Sections 2.01, 2.04, 2.06 through
2.23 inclusive and 2.25 through 2.27 inclusive are made by such Selling
Shareholders to the best of their knowledge and belief.
<PAGE> 19
III.
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser represents and warrants to the Selling Shareholders as
follows:
SECTION 3.01. Organization, Power, Etc. The Purchaser is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware. The Purchaser has full corporate power and authority to
execute and deliver this Agreement and to perform its obligations hereunder.
SECTION 3.02. Authorization of Agreements, Etc. The execution and
delivery by the Purchaser of this Agreement, and the performance by the
Purchaser of its obligations hereunder, have been duly authorized by all
requisite corporate action and will not (x) violate any provision of law, any
order of any court or other agency of government, the Certificate of
Incorporation or By-laws of the Purchaser, any judgment, award or decree or any
indenture, agreement or other instrument to which the Purchaser is a party, or
by which it or any of its properties or assets is bound or affected; (y)
conflict with, result in a breach of or constitute (with due notice or lapse of
time or both) a default under any such indenture, agreement or other instrument;
or (z) result in the creation or imposition of any lien, charge or encumbrance
of any nature whatsoever upon any of the properties or assets of the Purchaser.
SECTION 3.03. Validity. This Agreement has been duly executed and
delivered by the Purchaser and constitutes the legal, valid and binding
obligation of the Purchaser, enforceable against the Purchaser in accordance
with its terms.
SECTION 3.04. Governmental Approvals. Except for filings with the
Department of Justice and the Federal Trade Commission pursuant to the HSR Act,
no order, authorization, approval or consent from, or filing with, any federal
or state governmental or public body or other authority having jurisdiction over
the Purchaser is required for the execution, delivery and performance by the
Purchaser of this Agreement, or is necessary in order to ensure, with respect to
the Purchaser, the legality, validity, binding effect or enforceability of this
Agreement.
SECTION 3.05. Litigation Relating to Transaction. There are no
actions, suits, proceedings or claims pending before any court, arbitrator or
government agency against or affecting the Purchaser that might enjoin or
prevent the consummation of the transactions contemplated by this Agreement or
the Ancillary Agreements.
SECTION 3.06. Investment Representation. The Purchaser is acquiring
the Shares for its own account for the purpose of investment and not with a view
to or for sale in connection with any distribution thereof, and the Purchaser
has no present commitment or agreement providing for the distribution thereof.
<PAGE> 20
IV.
COVENANTS
SECTION 4.01. Certain Covenants of the Selling Shareholders. (a)
During the period from the date of this Agreement to the Closing Date, the
Selling Shareholders shall, to the extent they are legally entitled to do so,
cause the Company to conduct its business and operations according to its
ordinary course of business consistent with past practice and to use its best
efforts (i) to preserve its relationships with suppliers, customers, employees
and independent contractors, (ii) to maintain the contracts with its customers
in full force and effect in accordance with their terms and (iii) to ensure that
the Company will continue to provide its services to its customers. Without
limiting the generality of the foregoing, prior to the Closing Date, without the
prior written consent of the Purchaser, the Selling Shareholders shall, to the
extent they are legally entitled to do so, not permit the Company to (x) change
the rates charged for services from those listed on Schedule 2.26 unless
nationally advertised by DirecTV or unless the Company experiences a wholesale
cost increase greater than 10%, or (y) do any of the things listed in clauses
(i) through (xiii) of Section 2.08(a) above; provided, however, that the Company
may make the cash payments contemplated by Sections 4.06(b) and 4.07 hereof.
(b) Between the date hereof and the Closing Date, the Selling
Shareholders shall, and shall cause the Company to, provide access to the
Purchaser's representatives to the premises, key employees and financial,
accounting and legal records of the Company. Such activities shall be performed,
so far as is reasonably possible, in such a manner as to minimize disruption of
normal operations.
(c) Between the date hereof and the Closing Date, the Selling
Shareholders shall, to the extent they are entitled to do so, not permit the
Company, except as required by GAAP, (i) to use accounting principles different
from those used in the preparation of the Financial Statements, (ii) change in
any manner its method of maintaining its books of account and records from such
methods as in effect on December 31, 1996, or (iii) accelerate booking of
revenues or the deferral of expenses, other than as shall be consistent with
past practice and in the ordinary course of business.
(d) Between the date hereof and the Closing Date, the Selling
Shareholders (together with their affiliates and associates) shall not, and
shall, to the extent they are entitled to do so, cause the Company not to, enter
into any transaction, make any agreement or commitment, or take any action, that
would result in any of the representations, warranties or covenants of the
Selling Shareholders contained in this Agreement not being true and correct at
and as of the time immediately after the occurrence of such transaction, event
or action.
SECTION 4.02. Certain Tax Matters. (a) The Company shall (with the
reasonable cooperation of the Selling Shareholders) prepare and timely file (or
cause to be prepared and timely filed), at its expense, for all taxable periods
<PAGE> 21
ending on or before the Closing Date, all federal, state, local and foreign Tax
Returns required to be filed after the Closing Date with respect to which the
Company or the assets of the Company are liable or otherwise in any way subject.
SECTION 4.03. Consents. Each of the parties hereto shall use its best
efforts to obtain the written consents of all persons and governmental
authorities required to be obtained by each such party and necessary to the
consummation of the transactions contemplated by this Agreement, including,
without limitation, the consent of each person holding a Lien, restriction,
right, mortgage or charge of any kind on any real or personal property owned or
leased by the Company.
SECTION 4.04. Books and Records. The Selling Shareholders shall
deliver to the Purchaser or shall cause to be delivered to the principal office
or other office of the Company, all books and records used in the operation of
the business of the Company, and all files, documents, papers, agreements, books
of account, mailing lists, registration systems and other records pertaining to
the business of the Company, to the extent that such books, records, files and
other materials are not theretofore located at the office of the Company.
SECTION 4.05. License and Other Fees. The Selling Shareholders shall
pay all regulatory, license, assignment, transfer and other fees and costs
required to be paid to any regulatory authority (other than the filing fees
payable by the Purchaser under the HSR Act) or to any third-party supplier,
lessor, licensor or other entity in order to obtain any licenses, rights or
consents required to be obtained from such person or entity in connection with
the transactions contemplated hereby; provided, however, that the Purchaser
shall be responsible for and shall pay all NRTC fees associated with assignment
and transfer (or deemed transfer) of the Member Agreement for Marketing and
Distribution of DBS Services.
SECTION 4.06. Employment Matters. (a) Within forty-five days after the
Closing Date, the Purchaser shall cause the Company to pay the sum of $830,250
for the following purposes: (i) to pay to Andrew O'Pry the Non-Competition
Payment contemplated by the Employment Agreement (as defined herein), and (ii)
to establish a bonus pool for the employees of the Company. Prior to the Closing
Date, the directors of the Company shall allocate the bonus pool referred to in
clause (ii) above among the employees of the Company, and all payments from such
bonus pool shall be made within 45 days after the Closing Date.
(b) Prior to the Closing, the Purchaser shall establish an equity
compensation plan for employees of the Company, pursuant to which options to
purchase up to an aggregate 10,000 shares (less the aggregate number of shares
issuable pursuant to the Subscription Agreements) of Preferred Stock shall be
granted at the Closing to employees as set forth on Schedule 4.06 hereto (which
schedule may be modified from time to time up to the Closing Date as determined
by the Board of Directors of the Company). Such plan shall provide that such
options shall have an exercise price of $100 per share and shall be immediately
<PAGE> 22
exercisable upon grant, but shall lapse and terminate if not exercised within 10
days following payment of the bonus pool described in paragraph (a).
SECTION 4.07. Termination of Distribution Agreements. The Selling
Shareholders (to the extent they are legally entitled to do so) and the Company
shall use their respective best efforts to effect the termination of the
Distribution Agreements with each of the Distributors. To the extent that any
amounts in excess of the Reserve Account are expended to effect the termination
or renegotiation (on terms satisfactory to the Purchaser) of the Distribution
Agreements, any such amounts in excess of the Reserve Account shall be paid:
(i) One-half by the Purchaser and one-half by the shareholders of the
Company as of the date hereof other than Barbara Murphy (including, without
limitation, the Purchaser), to the extent any such expenditures occur
prior to the Closing Date; or
(ii) One-half by the Company and one-half by the shareholders of the
Company as of the date hereof other than Barbara Murphy (including, without
limitation, the Purchaser), to the extent any such expenditures occur on or
after the Closing Date;
provided, that the aggregate payment due from the shareholders of the Company as
of the date hereof (excluding the Purchaser) shall not exceed $920,000.
SECTION 4.08. Other Discussions. The Selling Shareholders shall, and
shall (to the extent they are legally entitled to do so) cause the Company to,
abide by the obligations set forth in Section 8 of the letter, dated as of April
3, 1997, between the Purchaser and the Selling Shareholders (without giving
effect to the time limitations set forth therein). Without limiting such
obligations, the Selling Shareholders shall promptly inform the Purchaser of any
inquiry, offer or proposal made by any party other than the Purchaser with
respect to any acquisition of the Shares or any acquisition, business
combination or purchase of all or any portion of the assets or partnership
interests of the Company.
V.
CONDITIONS PRECEDENT
SECTION 5.01. Conditions Precedent to the Obligations of the
Purchaser. The obligation of the Purchaser to consummate the transactions
contemplated by this Agreement is subject, at the option of the Purchaser, to
the satisfaction at or prior to the Closing Date of each of the following
conditions:
(a) Accuracy of Representations and Warranties. The representations
and warranties of the Selling Shareholders contained in this Agreement or in any
certificate delivered
<PAGE> 23
to the Purchaser pursuant hereto shall be true and correct on and as of the
Closing Date as though made at and as of that date, and the Selling Shareholders
shall have so certified to the Purchaser in writing; provided that such
certification may be made to the best of the Selling Shareholders' knowledge and
belief, to the extent contemplated by Section 2.29 hereof.
(b) Compliance with Covenants. Each Selling Shareholder shall have
performed and complied with all terms, agreements, covenants and conditions of
this Agreement to be performed or complied with by him or her at or prior to the
Closing Date, and the Selling Shareholders shall have so certified to the
Purchaser in writing.
(c) All Proceedings To Be Satisfactory. All proceedings to be taken by
the Selling Shareholders and the Company in connection with transactions
contemplated hereby and all documents incident thereto shall be reasonably
satisfactory in form and substance to the Purchaser and its counsel, and the
Purchaser and said counsel shall have received all such counterpart originals
or certified or other copies of such documents as they may reasonably request.
(d) Legal Actions or Proceedings. No legal action or proceeding shall
have been instituted by any party or threatened by any governmental department,
agency or authority, in either case seeking to restrain, prohibit, invalidate or
otherwise affect the consummation of the transactions contemplated hereby or
which would, if adversely decided, materially adversely affect the operation by
the Purchaser of the business of the Company.
(e) Employment Agreement. On or prior to the Closing Date, the Company
and Andrew O'Pry shall have executed and delivered an Employment Agreement and
Covenant Not to Compete in substantially the form attached hereto as Exhibit A
(the "Employment Agreement"), and the same shall be in full force and effect.
(f) Opinion of Counsel for the Selling Shareholders. The Purchaser
shall have received the opinion of Decker, Jones, McMackin, McClane, Hall &
Bates, P.C., special counsel for the Selling Shareholders, addressed to the
Purchaser and dated the Closing Date, satisfactory in form and substance to the
Purchaser and its counsel, to the effect set forth in Exhibit B hereto.
(g) Consents and Approvals. Any waiting period applicable to the
transactions contemplated hereby under the HSR Act shall have terminated or
expired, and all other authorizations, consents, waivers and approvals required
in connection with the execution, delivery and performance of this Agreement
(including without limitation any required consents from DirecTV and the NRTC)
shall have been duly obtained and shall be in form and substance satisfactory to
counsel for the Purchaser.
(h) No Material Adverse Change. Between the date of this Agreement and
the Closing Date, there shall have been no material adverse change in the
business, operations, properties, prospects or condition (financial or
otherwise) of the Company.
<PAGE> 24
(i) Revenues; Liabilities. The Company shall provide financial
statements, certified to be true and correct by the President of the Company,
which financial statements shall demonstrate that (i) between the date of this
Agreement and the Closing Date, the revenues of the Company (calculated in
accordance with GAAP) for any calendar month do not decrease by more than 15%
from the revenues for the prior month; and (ii) as of June 30, 1997, the total
liabilities of the Company (calculated in accordance with GAAP) do not exceed
$3,080,000.
(j) Cancellation of Options. The Company shall have repurchased and
canceled all outstanding warrants and options to acquire capital stock of the
Company, as more fully set forth on Schedule 2.04 hereto.
(k) Certain Resignations. All officers and members of the Board of
Directors of the Company shall have resigned from their respective offices or
from the Board of Directors, as the case may be, in writing and effective
immediately upon the Closing Date.
(l) Supporting Documents. On or prior to the Closing Date, the
Purchaser and its counsel shall have received copies of the following supporting
documents:
(i) (1) the charter documents of the Company, certified as of a
recent date by the Secretary of State of the State of Texas; and (2) a
certificate of the Secretary of State or other appropriate official of
the State of Texas as to the due incorporation and good standing of
the Company and listing all documents on file with said official;
(ii) a certificate of the Secretary or an Assistant Secretary of
the Company, dated the Closing Date and certifying (1) that attached
thereto is a true and complete copy of the By-laws of the Company as
in effect on the date of such certification; and (2) that the Articles
of Incorporation of such Company have not been amended since the date
of the last amendment referred to in the certificate delivered
pursuant to clause (i)(1) above; and
(iii) such additional supporting documents and other information
with respect to the operations and affairs of the Company as the
Purchaser or its counsel may reasonably request.
All such documents shall be satisfactory in form and substance to the
Purchaser and its counsel.
SECTION 5.02. Conditions Precedent to the Obligations of the Selling
Shareholders. The obligations of the Selling Shareholders under this Agreement
are subject, at the option of the Selling Shareholders, to the satisfaction at
or prior to the Closing Date of each of the following conditions:
(a) Accuracy of Representations and Warranties. The representations
and warranties of the Purchaser contained in this Agreement or in any agreement
<PAGE> 25
or other document delivered to the Selling Shareholders pursuant hereto shall
have been true and correct when made, and the Purchaser shall so certified to
the Selling Shareholders in writing.
(b) Compliance with Covenants. The Purchaser shall have performed and
complied with all terms, agreements, covenants and conditions of this Agreement
to be performed or complied with by it at or prior to the Closing Date, and the
Purchaser shall have so certified to the Selling Shareholders in writing.
(c) Legal Actions or Proceedings. No legal action or proceeding shall
have been instituted by any party or threatened by any governmental department,
agency or authority, in either case seeking to restrain, prohibit, invalidate or
otherwise affect the consummation of the transactions contemplated hereby.
(d) Payment of Purchase Price. The Purchase Price shall have been paid
to the Selling Shareholders in accordance with Section 1.03(b) hereof.
(e) Subscription Agreements. The Purchaser shall have issued shares of
Preferred Stock in accordance with the Subscription Agreements to the extent
payment has been received therefor. To the extent that (i) the aggregate number
of shares of Preferred Stock subject to the Subscription Agreements, plus (ii)
the aggregate number of shares of Preferred Stock issuable pursuant to options
granted as contemplated by Section 4.06(b), shall be less than 10,000, the
Purchaser shall have offered Andy O'Pry the right, pursuant to an additional
Subscription Agreement, to purchase an additional number of shares of Preferred
Stock equal to the excess of 10,000 over the sum of clauses (i) and (ii) above.
VI.
INDEMNIFICATION
SECTION 6.01. Survival of Representations and Warranties. All
representations and warranties made by any party hereto in this Agreement or
pursuant hereto shall survive the Closing Date and shall terminate at the close
of business on the second anniversary of the Closing Date, except for the
representations and warranties contained in Sections 2.04 and 2.05 (which shall
survive indefinitely) and in Section 2.15 (which shall survive for the
applicable statute of limitation periods, including any extensions or waivers
thereof).
SECTION 6.02. General Indemnity. (a) Subject to the terms and
conditions of this Article VI, each of the Selling Shareholders, severally and
not jointly, agrees to and shall indemnify, defend and hold the Purchaser, the
Company and their respective affiliates harmless from and against such Selling
Shareholder's percentage interest or share of all demands, claims, actions or
causes of action, assessments, Taxes, losses, damages, liabilities, costs and
<PAGE> 26
expenses, including without limitation interest, penalties and reasonable
attorneys' fees and expenses (hereinafter collectively called "Damages"),
asserted against, resulting to, imposed upon or incurred by the Purchaser, the
Company or their respective affiliates, by reason of, resulting from or arising
out of:
(i) a breach of any representation, warranty or covenant of such
Selling Shareholder contained in or made pursuant to this Agreement;
(ii) any liabilities or obligations of the Company (whether
absolute, accrued, contingent or otherwise) in respect of any action,
suit or proceeding relating to the conduct of the Company's business
and based upon an event occurring or a claim arising on or prior to
the Closing Date;
(iii) any liability in respect of any failure by the Company to
conduct its business in compliance with any Governmental Permit, law,
regulation or order prior to the Closing Date; and
(iv) any and all Taxes imposed on or incurred by the Company
(including, without limitation, any and all Taxes arising out of the
consummation of the transactions contemplated hereby, but excluding
any Taxes attributable to an election under Section 338 or to the
deduction by the Company of any amounts paid in connection with this
transaction, such as the amounts described in Section 4.06) for all
taxable years (or portions thereof) ending on or prior to the Closing
Date, except to the extent such Taxes have been paid or reserves have
been established for such Taxes on the Financial Statements.
(b) Notwithstanding anything in this Agreement to the contrary:
(i) the Selling Shareholders shall not be obligated to indemnify,
defend and hold harmless the Purchaser and/or the Company pursuant to
paragraph (a) above unless the aggregate amount of Damages claimed
thereunder exceeds $25,000; and
(ii) the Selling Shareholders' liability and obligation to
indemnify, defend and hold harmless the Purchaser and/or the Company
pursuant to paragraph (a) above shall in no event exceed the Purchase
Price in the aggregate for all claims.
(c) Subject to the terms and conditions of this Article VI, the
Purchaser agrees to and shall indemnify, defend and hold the Selling
Shareholders harmless from and against all Damages asserted against, resulting
to, imposed upon or incurred by them by reason of or resulting from or arising
out of:
(i) a breach of any representation, warranty or covenant of the
Purchaser contained in or made pursuant to this Agreement; and
<PAGE> 27
(ii) any liabilities or obligations of the Company (whether
absolute, accrued, contingent or otherwise) in respect of any action,
suit or proceeding relating to the conduct of the Company's business
and based upon an event occurring or a claim arising after the Closing
Date; and
(iii) any and all Taxes imposed on or incurred by the Company for
all taxable years and periods ending after the Closing Date (including
any short periods ending after the Closing Date).
SECTION 6.03. Conditions of Indemnification. The respective
obligations and liabilities of the Selling Shareholders, on the one hand, and
the Purchaser, on the other hand (herein sometimes called the "indemnifying
party"), to the other (herein sometimes called the "party to be indemnified")
under Section 6.02 hereof with respect to claims resulting from the assertion of
liability by third parties shall be subject to the following terms and
conditions:
(a) Within 20 days after receipt of notice of commencement of any
action or the assertion of any claim by a third party, the party to be
indemnified shall give the indemnifying party written notice thereof together
with a copy of such claim, process or other legal pleading (provided that
failure so to notify the indemnifying party of the assertion of a claim within
such period shall not affect its indemnity obligation hereunder except as and to
the extent that such failure shall adversely affect the defense of such claim),
and the indemnifying party shall have the right to undertake the defense thereof
by representatives of its own choosing.
(b) In the event that the indemnifying party, by the 30th day after
receipt of notice of any such claim (or, if earlier, by the tenth day preceding
the day on which an answer or other pleading must be served in order to prevent
judgment by default in favor of the person asserting such claim), does not elect
to defend against such claim, the party to be indemnified will (upon further
notice to the indemnifying party) have the right to undertake the defense,
compromise or settlement of such claim on behalf of and for the account and risk
of the indemnifying party, subject to the right of the indemnifying party to
assume the defense of such claim at any time prior to settlement, compromise or
final determination thereof.
(c) Except with the prior written consent of the indemnified party, no
indemnifying party, in the defense of such claim or litigation, shall consent to
entry of any judgment or order, interim or otherwise, or enter into any
settlement that provides for injunctive or other nonmonetary relief affecting
the indemnified party or that does not include as an unconditional term thereof
the giving by each claimant or plaintiff to such indemnified party of a release
from all liability with respect to such claim or litigation. In the event that
the indemnified party shall in good faith determine that the indemnified party
may have available to it one or more defenses or counterclaims that are
inconsistent with one or more of those that may be available to the indemnifying
party in respect of such claim or any litigation relating thereto, the
indemnified party shall have the right at all times to take over and assume
control over the defense, settlement, negotiations or litigation relating to
such claim at the sole cost of the indemnifying party;
<PAGE> 28
provided, however, that if the indemnified party does so take over and assume
control, the indemnified party shall not settle such claim or litigation without
the written consent of the indemnifying party, such consent not to be
unreasonably withheld.
(d) In connection with any such indemnification, the indemnified party
shall cooperate in all reasonable requests of the indemnifying party.
SECTION 6.04. Remedies Cumulative. Except as otherwise expressly
provided in this Article VI, the remedies provided herein shall be cumulative
and shall not preclude assertion by any party hereto of any other rights or the
seeking of any other remedies against any other party hereto.
VII.
TERMINATION AND ABANDONMENT
SECTION 7.01. Termination. This Agreement may be terminated at any
time prior to the Closing Date:
(a) by the mutual consent of the Selling Shareholders, on the one
hand, and the Purchaser, on the other hand; or
(b) by the Purchaser, on the one hand, or the Selling
Shareholders, on the other hand, if the closing shall not have
occurred on or before October 1, 1997 or such later date as may be
agreed upon in writing by the parties hereto; provided, however, that
the right to terminate this Agreement under this clause (b) shall not
be available to any party whose failure to fulfill any obligation
under this Agreement has been the cause of or resulted in the failure
of the closing to occur on or before such date.
SECTION 7.02 Procedure and Effect of Termination. In the event of
termination of this Agreement and abandonment of the transactions contemplated
hereby by any or all of the parties pursuant to Section 7.01 above, written
notice thereof shall forthwith be given to the other parties to this Agreement
and this Agreement shall terminate and the transactions contemplated hereby
shall be abandoned, without further action by any of the parties hereto. If this
Agreement is terminated as provided in Section 7.01 above, (i) each party hereto
shall promptly redeliver all documents, work papers and other material of any
other party relating to the transactions contemplated hereby, whether obtained
before or after the execution hereof, to the party furnishing the same; (ii) the
Selling Shareholders shall cause the Company to return the Deposit to the
Purchaser pursuant to Section 1.04 hereof; and (iii) no party shall have any
liability or further obligation to any other party to this Agreement pursuant to
this Agreement; provided, that nothing herein shall relieve any party from
liability for any breach hereof.
<PAGE> 29
VIII.
MISCELLANEOUS
SECTION 8.01. Expenses, Etc. Whether or not the transactions
contemplated by this Agreement are consummated, none of the parties hereto shall
have any obligation to pay any of the fees and expenses of any other party
incident to the negotiation, preparation and execution of this Agreement,
including the fees and expenses of counsel, accountants, investment bankers and
other experts. The Selling Shareholders, on the one hand, and the Purchaser, on
the other hand, shall indemnify the other and hold it harmless from and against
any claims for finders' fees or brokerage commissions in relation to or in
connection with such transactions as a result of any agreement or understanding
between such indemnifying party and any third party.
SECTION 8.02. Publicity. The parties hereto agree that no press
release or other public announcement concerning this Agreement or the
transactions contemplated hereby shall be issued prior to the Closing Date
without the prior written consent of each of the parties hereto. Each party
shall furnish to the other drafts of all press releases or announcements prior
to their release. Nothing contained herein shall prevent any party from at any
time furnishing any information required by any governmental authority or
required by any person whose consent or authorization is necessary to consummate
the transactions contemplated herein.
SECTION 8.03. Execution in Counterparts. For the convenience of the
parties, this Agreement may be executed in one or more counterparts, or by the
parties hereto on separate counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
SECTION 8.04. Notices. All notices which are required or may be given
pursuant to the terms of this Agreement shall be in writing and shall be
sufficient in all respects if (i) delivered personally, (ii) mailed by
registered or certified mail, return receipt requested and postage prepaid,
(iii) sent via a nationally recognized overnight courier service or (iv) sent
via facsimile confirmed in writing to the recipient, in each case as follows:
If to the Selling Shareholders, to them at:
c/o Argos Support Services Company
1550 N. Norwood, Suite 100
Hurst, Texas 76054
Facsimile No.: (817) 282-0559
With a copy to:
Decker, Jones, McMackin, McClane, Hall & Bates, P.C.
2400 City Center II
<PAGE> 30
301 Commerce Street
Fort Worth, Texas
Attention: Raymond B. Kelly, III, Esq.
Facsimile No.: (817) 332-3043
If to the Purchaser, at:
Golden Sky Systems, Inc.
605 West 47th Street
Suite 300
Kansas City, Missouri 64112
Facsimile No.: (816) 753-5595
Attention: Mr. Rodney A. Weary
with a copy to:
Reboul, MacMurray, Hewitt, Maynard & Kristol
45 Rockefeller Plaza
New York, New York 10111
Facsimile No.: (212) 841-5725
Attention: Karen C. Wiedemann, Esq.
or such other address or addresses as the Selling Shareholders, on the one hand,
or the Purchaser, on the other hand, shall have designated by notice in writing
to the other.
SECTION 8.05 Waivers. Either the Selling Shareholders, on the one
hand, or the Purchaser, on the other hand, may, by written notice to the other,
(i) extend the time for the performance of any of the obligations or other
actions of the other under this Agreement, (ii) waive any inaccuracies in the
representations or warranties of the other contained in this Agreement or in any
document delivered pursuant to this Agreement, (iii) waive compliance with any
of the conditions or covenants of the other contained in this Agreement, or (iv)
waive performance of any of the obligations of the other under this Agreement.
Except as provided in the preceding sentence, no action taken pursuant to this
Agreement, including without limitation any investigation by or on behalf of any
party, shall be deemed to constitute a waiver by the party taking such action of
compliance with any representations, warranties, covenants or agreements
contained in this Agreement. The waiver by any party hereto of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach.
SECTION 8.06 Amendments, Supplements, Etc. At any time this Agreement
may be amended or supplemented by such additional agreements, articles or
certificates, as may be determined by the parties hereto to be necessary,
desirable or expedient to further the purposes of this Agreement, or to clarify
the intention of the parties hereto, or to add to or modify the covenants, terms
<PAGE> 31
or conditions hereof or to effect or facilitate any governmental approval or
acceptance of this Agreement or to effect or facilitate the filing or recording
of this Agreement or the consummation of any of the transactions contemplated
hereby. Any such instrument must be in writing and signed by all parties hereto.
SECTION 8.07 Entire Agreement. This Agreement, its Exhibits and
Schedules, the other documents executed on the Closing Date in connection
herewith, constitute the entire agreement between the parties hereto with
respect to the subject matter hereof and supersede all prior agreements and
understandings, oral and written, between the parties hereto with respect to the
subject matter hereof.
SECTION 8.08 Applicable Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Texas, exclusive of the
conflicts of laws provisions thereof.
SECTION 8.09 Binding Effect; Benefits. This Agreement shall inure to
the benefit of and be binding upon the parties hereto and their respective
successors and permitted assigns. Not withstanding anything contained in this
Agreement to the contrary, nothing in this Agreement, expressed or implied, is
intended to confer on any person other than the parties hereto or their respec
tive successors and assigns, any rights, remedies, obligations or liabilities
under or by reason of this Agreement.
SECTION 8.10 Assignability. Neither this Agreement nor any of the
parties' rights hereunder shall be assignable by any party hereto without the
prior written consent of the other parties hereto.
<PAGE> 32
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the parties hereto as of the day and year first above written.
GOLDEN SKY SYSTEMS, INC.
By /s/ Rodney A. Weary
----------------------
Title: Chief Executive Officer
ARGOS SUPPORT SERVICES COMPANY
By /s/ Andrew W. O'Pry
----------------------
Title: President
SELLING SHAREHOLDERS:
/s/ D.H. Braman, Jr.
-------------------------
D. H. Braman, Jr.
KATE S. O'CONNOR TRUST FOR THOMAS
EDWARD BRAMAN
By /s/ D.H. Braman, Jr..
------------------------
Title: Trustee
/s/ J.W. Braman
---------------------------
J.W. Braman
/s/ Andrew W. O'Pry
----------------------------
Andrew O'Pry
/s/ Barbara Murphy
----------------------------
Barbara Murphy
<PAGE> 1
Exhibit 2.2
- --------------------------------------------------------------------------------
ASSET PURCHASE AGREEMENT
BY AND BETWEEN
GOLDEN SKY SYSTEMS, INC.
AND
VOLCANO VISION, INC.
DATED AS OF
JULY 10, 1998
- --------------------------------------------------------------------------------
<PAGE> 2
Table of Contents
Page
I. Sale and Transfer of Assets....................................
A. Subject Assets............................................
B. Purchase Price............................................
II. Closing Procedures and Exchange of Considerations..............
A. Closing ..................................................
B. Buyer's consideration.....................................
1. Buyer Deposit....................................
2. Base Purchase Price..............................
3. Adjustments to Base Purchase Price...............
4 Determination of Adjustments.....................
5. Allocation of Consideration......................
6 Assumed Liabilities..............................
C. Seller's Consideration....................................
1. Conveyance of Title; Liens and Encumbrances......
2. Excluded Assets..................................
III. Representations and Warranties of Seller.......................
A. Organization..............................................
B. Qualification.............................................
C. Authority and Validity....................................
D. No Breach or Violation....................................
E. Assets....................................................
F. Compliance with Laws......................................
G. Patents, Trademarks and Copyrights........................
H. Financial Data............................................
1. Legal Proceedings.........................................
J. Tax Liens and Obligations.................................
K. Employment Matters........................................
L. Subscribers...............................................
M. System Data...............................................
N. Finders and Brokers.......................................
O. Disclosure................................................
P. Seller Contracts..........................................
IV. Representations and Warranties of Buyer........................
A. Organization and Qualification ...........................
B. Authority and Validity....................................
-i-
<PAGE> 3
Table of Contents
Page
C. No Breach or Violation....................................
D. Disclosure................................................
E. Finders and Brokers.......................................
V. Additional Covenants...........................................
A. Access to Premises and Records............................
B. Continuity and Maintenance of Operations; Current
Financial Information..................................
C. Required Consents.........................................
D. No Shopping...............................................
E. Notification of Certain Matters...........................
F. Risk of Loss..............................................
G. Transfer Taxes............................................
H. Non-Competition Agreements................................
1. Updated Schedules.........................................
J. Use of Seller's Name......................................
K. Satisfaction of Conditions................................
L. Confidentiality...........................................
M. Transition................................................
VI. Conditions to Closing..........................................
A. Conditions to the Obligations of Buyer and Seller.........
B. Conditions to the Obligations of Buyer....................
C. Conditions to Obligations of Seller.......................
D. Waiver of Conditions......................................
VII. Termination....................................................
A. Events of Termination.....................................
B. Liabilities in Event of Termination.......................
C. Procedure Upon Termination................................
VIII. Survival of Representations and Warranties; Indemnification....
A. Survival of Representations and Warranties................
B. Indemnification by Seller.................................
C. Indemnification by Buyer..................................
D. Third Party Claims........................................
-ii-
<PAGE> 4
Table of Contents
Page
IX. Miscellaneous..................................................
A. Parties Obligated and Benefited...........................
B. Notices ................................................
C. Legal Remedies and Attorneys' Fees........................
D. Right to Specific Performance.............................
E. Waiver....................................................
F. Captions..................................................
G. Choice of Law.............................................
H. Rights Cumulative.........................................
I. Further Actions...........................................
J. Time......................................................
K. Counterparts..............................................
L. Entire Agreement..........................................
M. Severability..............................................
N. Construction..............................................
0. Late Payments.............................................
P. Expenses..................................................
List of Schedules..............................................
Schedule II.B.5 Allocation of Consideration..........
Schedule II.C. I Schedule of Assets..................
Schedule III.H Financial Data.......................
Schedule III.K Employee Listing.....................
Schedule III.M Schedule of Rates and Product
Description........................................
Schedule III.P Seller Contracts......................
Schedule V.C Required Consents.......................
Exhibit List...................................................
Exhibit A Earnest Money Escrow Agreement.............
Exhibit B Indemnity Escrow Agreement.................
Exhibit C Bill of Sale...............................
Exhibit D Assignment and Assumption of Contracts
Agreement..................................
Exhibit E Assignment and Assumption of Equipment
Financing Agreements and Customer
Equipment Lease Agreements.................
Exhibit F Seller Non-Competition Agreement...........
Exhibit G Opinion Letter of Seller's Counsel.........
-iii-
<PAGE> 5
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement ("Agreement") is made and entered into
as of this 10th day of July, 1998, by and between Golden Sky Systems, Inc., a
Delaware corporation, its successors or assigns (collectively, "Buyer"), and
Volcano Vision, Inc., a California corporation ("Seller"), hereinafter.
Recitals
Seller is engaged in the business of providing DIRECTV(R) programming
services to subscribers within the counties of Alpine, Amador, Calaveras, El
Dorado, and Tuolumne in the State of California and the counties of Carson City,
Douglas, Lyon and Storey in the State of Nevada (the "Service Area"). Seller
conducts such business in accordance with the terms of its NRTC/Member Agreement
for Marketing and Distribution of DBS Services (the "Member Agreement" in the
National Rural Telephone Cooperative ["NRTC"]). Buyer desires to purchase and
Seller desires to sell all of Seller's assets used or held for use in Seller's
DIRECTV(R) business as conducted within the Service Area.
Agreement
In consideration of the above recitals and the mutual agreements
stated in this Agreement, the parties intending to be legally bound, agree as
follows:
I. Sale and Transfer of Assets.
A. Subject Assets. Upon the terms and subject to the conditions set
forth in this Agreement, Seller will sell to Buyer, and Buyer will purchase from
Seller, all of Seller's rights, title, and interest in and to the assets which
comprise Seller's Direct Broadcast Satellite ("DBS") Business (the "Business").
Such assets (the "Assets") are described with particularity in Schedule II.C.1
to this Agreement.
B. Purchase Price. As consideration for purchase of the Assets, Buyer
will pay to Seller the sum of Thirty Million Dollars ($30,000,000), at the times
and in the manner hereinafter provided in this Agreement, and subject to
adjustments as also hereinafter provided.
II. Closing Procedures and Exchange of Considerations.
A. Closing. The Closing of this transaction shall occur on a date (the
"Closing Date") to be designated mutually by Buyer and Seller which will
coincide with the ending date of the NRTC billing cycle first occurring more
than 10 days following receipt of all the Required Consents hereinafter defined
in this Agreement, but in no event later than February 27, 1999, unless mutually
extended by the parties. The Closing will be held at the offices of Polsinelli,
<PAGE> 6
White, Vardeman & Shalton, P.C., 700 West 47th Street, Suite 1000, Kansas City,
Missouri, or at such other place as Buyer and Seller may agree.
B. Buyer's Consideration.
1. Buyer Deposit. Prior to or within 10 business days after
execution of this Agreement and subject to the terms of the
"Earnest Money Escrow Agreement," attached hereto as Exhibit A,
Buyer will deliver to Commerce Bank, N.A. (the "Escrow Agent")
the sum of Nine Hundred Thousand Dollars ($900,000) which,
together with all interest earned thereon, shall be referred to
herein as the "Buyer Deposit". The Buyer Deposit shall be held by
the Escrow Agent pursuant to the Earnest Money Escrow Agreement.
Following the Closing, the Buyer Deposit shall be returned to the
Buyer. In the event the transaction does not close for reasons
not related to fault of the Buyer, the Buyer Deposit shall be
returned to the Buyer.
2. Base Purchase Price. Buyer will pay to Seller the total
consideration of Thirty Million Dollars ($30,000,000) (the "Base
Purchase Price"), to be paid at the Closing as set forth below,
subject to adjustment as hereinafter provided, and Buyer will
assume certain obligations of Seller as further provided
hereinafter. At the Closing, Twenty-Nine Million One Hundred
Thousand Dollars ($29,100,000) of such amount (as adjusted
pursuant to the terms contained herein) will be paid to Seller
(or to such payees as Seller may designate) by one or more wire
transfers of immediately available funds, in such amounts and to
such Seller or payee accounts as shall be designated by Seller.
Buyer shall further deposit Nine Hundred Thousand Dollars
($900,000) into a new escrow account with the Escrow Agent in
accordance with the "Indemnity Escrow Agreement" attached hereto
as Exhibit B, to be entered into on the Closing Date by Seller,
Buyer and the Escrow Agent.
3. Adjustments to Base Purchase Price. The Base Purchase Price
will be adjusted on a pro rata basis as of the Closing Date for
all prepaid expenses (to the extent that such prepaid expenses
accrue to Buyer's benefit), prepaid revenues, accounts receivable
of active subscribers that are 60 days or less past due and tax
prorations, to reflect the principle that all expenses and income
attributable to the Business for the period through the Closing
Date are for the account of Seller and all expenses and income
attributable to the Business for the period after the Closing
Date are for the account of Buyer, all in accordance with
generally accepted accounting principles. Seller agrees to offer
advertising promotions and discounts to customers only if they
are economically feasible and commercially reasonable given the
nature of the Business (unless approved in writing by Buyer). For
purposes of calculating adjustments, the parties agree to utilize
the most current accounts receivable reporting information
available from the NRTC at the effective date of Closing. Buyer
<PAGE> 7
will assume responsibility for honoring all advance payments and
customer deposits as of the Closing Date. Buyer will receive,
credit therefor against the Base Purchase Price.
4. Determination of Adjustments. Preliminary and final
adjustments to the Base Purchase Price will be determined as
follows:
a. At least five (5) business days prior to the Closing
Date, Seller will deliver to Buyer a report (the
"Preliminary Adjustments Report") showing in detail the
preliminary determination of the above-enumerated
adjustments to the Base Purchase Price, calculated as of the
Closing Date. The Preliminary Adjustments Report will
include a schedule setting forth advance payments and
deposits made to or by Seller, as well as accounts
receivable information relating to the Business (showing
sums due and their respective aging as of the Closing Date).
Seller also will furnish to Buyer its billing report for the
most current NRTC billing cycle preceding the Closing Date.
The adjustments shown in the Preliminary Adjustments Report
will be reconciled either forward or backward, as the case
may be, from the most recent NRTC billing cycle.
b. Within 60 days after the Closing, Seller will deliver to
Buyer a report (the "Final Adjustments Report"), certified
by Seller, showing in detail the final determination of all
adjustments which were not calculated as of the Closing Date
and containing any corrections to the Preliminary
Adjustments Report, together with any documents
substantiating the adjustments proposed in the Final
Adjustments Report. Upon not less than 48 hours' notice,
Buyer will give Seller and its representatives full access
at reasonable times to all the premises and books and
records of the Business and to all the Assets which are
under the control of Buyer and which are necessary for
Seller to prepare the Final Adjustments Report or as
necessary to comply with any law, regulation, other
governmental requirement or any other reasonable business
purpose. Buyer agrees it, its officers and employees will
cooperate with and assist Seller in its reasonable requests
for information.
c. Within 30 days after receipt of the Final Adjustment
Report, Buyer will give Seller written notice of Buyer's
objections, if any, to the Final Adjustments Report. If
Buyer makes any such objections, the parties will agree on
the amount, if any, which is not in dispute within 30 days
after Seller's receipt of Buyer's notice of objections to
the Final Adjustments Report. Any undisputed amount will be
paid by Buyer to Seller, or paid by Seller to Buyer,
whichever the case may be, within 120 days after the Closing
Date or within three (3) business days after agreement on
the undisputed portion of the Final Adjustments Report, if
<PAGE> 8
later. Any disputed amounts will be determined in accordance
with this Agreement within 180 days after the Closing Date
by the accounting firm of Price Waterhouse, Kansas City,
Missouri, (or any other accounting firm acceptable to both
Buyer and Seller), whose determination (the "Final
Determination") will be conclusive. Seller and Buyer will
bear the fees and expenses payable to such firm in
connection with such determination in reverse proportion to
the manner in which the disputed amounts are allocated by
the accountants. The payment required by the Final
Determination will be made by the responsible party to the
other party within three (3) business days after the date on
which the Final Determination is issued.
5. Allocation of Consideration . The consideration payable by
Buyer under this Agreement will be allocated among the Assets as
set forth in Schedule II.B.5 hereto. Buyer and Seller agree to be
bound by the allocation and will not take any position
inconsistent with such allocations and will file all returns and
reports with respect to the transactions contemplated by this
Agreement, including all federal, state and local tax returns, on
the basis of such allocations, including, without limitation, IRS
Form 8594. The parties agree that Schedule II.B.5 shall be
negotiated and finalized on or prior to the Closing Date, unless
otherwise mutually agreed.
6. Assumed Liabilities. Seller will assign, and Buyer will assume
and perform only the Assumed Liabilities, which are defined as:
(a) Seller's Obligations to subscribers for refundable subscriber
deposits and subscriber advance payments credited as adjustments
to the Base Purchase Price and (b) Seller's obligations accruing
and relating to periods after the Closing Date under the Seller
Contracts set forth in Schedule III.P hereto. Buyer will not
assume, or have any responsibility for any liabilities or
obligations of Seller other than the Assumed Liabilities. Buyer
does not, pursuant to this Agreement or otherwise, agree to
perform, pay, discharge or indemnify Seller against, or otherwise
have any responsibility for, any liabilities or obligations of
Seller, fixed, contingent or otherwise, relating to or arising
out of the Seller's operation of the Business, except as
expressly set forth in this paragraph as an Assumed Liability. It
is expressly understood that the parties intend that the Buyer
shall not be considered a successor to Seller by reason of any
theory of law or equity or otherwise.
C. Seller's Consideration.
1. Conveyance of Title; Liens and Encumbrances. At the Closing,
Seller shall deliver to Buyer a Bill of Sale in the form set
forth in Exhibit C to this Agreement, together with such other
documents and instruments of conveyance as are necessary or
convenient to effectuate the transfer and conveyance of good and
marketable title to all of the Assets to Buyer. The Assets are
<PAGE> 9
described with particularity in Schedule II.C.1 to this
Agreement. Seller warrants that the assets set forth on such
schedule comprise all of the assets that Seller uses to conduct
its DBS business with the exception of (a) the real property
where the DBS business office is located and (b) assets used by
Seller jointly to conduct its DBS business and other businesses
that Seller is engaged in (e.g., vehicles use jointly for DBS
and cable TV service calls). Title to the Assets shall be
transferred free and clear of any and all mortgages, liens,
encumbrances, security interests or defects in title.
2. Excluded Assets. Seller will retain all right, title and
interest in and to the following assets (the "Excluded Assets")
associated with the Business: (a) all insurance policies and
rights and claims thereunder; (b) all bonds, letters of credit,
surety instruments and other similar items; (c) all cash and cash
equivalents; (d) all of Seller's rights under any agreement
governing or evidencing an obligation of Seller for borrowed
money; (e) all of Seller's rights under any contract, license,
authorization, agreement or commitment other than those listed as
Seller Contracts in Schedule III.P hereto or those creating or
evidencing Assumed Liabilities; (f) qualified patronage capital
certificates and any patronage dividends which may be due at
Closing; (g) the trade names "Volcano Vision" and "Volcano
Satellite"; (h) any assets used in the Business that are also
used in common by other business enterprises of Seller; and (i)
any fee interests in real property.
III. Representations and Warranties of Seller.
To induce Buyer to enter into this Agreement, Seller makes the
following representations and warranties to Buyer, as of the date of this
Agreement and as of the Closing:
A. Organization. Seller is a corporation duly organized, validly
existing and in good standing under the laws of the State of California, and is
authorized to do business and is in good standing in the State of Nevada.
B. Qualification. Seller has all requisite power and authority to own,
lease and use the Assets as they are currently owned, leased and used and to
conduct the Business as it is currently conducted.
C. Authority and Validity. Seller has all requisite corporate power
and authority to execute and deliver this Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated by this Agreement.
Seller's execution, delivery, performance and consummation of this Agreement
have been duly authorized by all requisite corporate action of Seller. This
Agreement is the valid and binding obligation of Seller, enforceable in
accordance with its terms.
D. No Breach or Violation. Subject to obtaining the Required Consents,
all of which are listed on Schedule VC hereto, the execution, delivery and
<PAGE> 10
performance of this Agreement by Seller will not (1) violate any provision of
its organization documents; (2) violate any requirement of law; (3) require any
consent, approval or authorization of, or any filing with or notice to, any
Person which has not been obtained; or (4) violate, conflict with or constitute
a breach of or default under any Seller Contract or any other instrument
evidencing any of the Assets or any instrument or other agreement to which
Seller is a party or by which Seller or any of its assets is bound or affected.
E. Assets. Seller has exclusive, good and marketable title to the
Assets. The Assets are all of the assets of Seller used or held for use in the
Business, other than the Excluded Assets, and are free and clear of all
encumbrances of any kind or nature. The tangible assets are in good and operable
condition and repair, ordinary wear and tear excepted, and are suitable and
adequate for continued use in the manner they are presently used. The Assets are
all the assets necessary to permit Buyer to conduct the Business substantially
as it is currently being conducted on the date of this Agreement.
F. Compliance with Laws. The ownership, leasing and use of the Assets
as they currently owned, leased and used by Seller and the conduct of the
Business as it is currently conducted do not violate any laws, the violation of
which, individually or in the aggregate, would have a material adverse effect on
the Business. Seller has not received any notice claiming a violation of law
with respect to the Business.
G. Patents, Trademarks and Copyrights. Other than the trade names
"Volcano Vision" and "Volcano Satellite," Seller does not possess any patent,
patent right, trademark or copyright relative to the Business, and there is no
application pending with any governmental authority for any of the foregoing.
Seller is not a party to any license or royalty agreement applicable to the
Business with respect to any patent, trademark or copyright, except for licenses
respecting general obligations of the Business under the Copyright Act of 1976.
The operations of the Business as currently conducted do not violate or infringe
upon any person's name, right of privacy, copyright, trademark, service mark,
license, patent, trade secret, or the like, and there are no suits, claims or
proceedings threatened or outstanding with respect to the same or any facts or
circumstances which could substantiate any of the foregoing.
H. Financial Data. Seller furnishes to Buyer the financial information
attached hereto as Schedule III.H. The data set forth on such schedule includes
the revenues of Seller's DBS Business for the year ended December 31, 1997, and
partial year data for 1998. The financial information set forth on such schedule
is true and correct and fairly presents those financial aspects of Seller's DBS
Business which it portrays. Seller will cause to be prepared, at Buyers'
expense, a statement of Seller's auditors verifying the accuracy of the
financial data on such schedule.
I. Legal Proceedings. There is no judgment or order outstanding, or
any action, suit, complaint, proceeding or investigation by or before any court
or legal authority or any arbitrator pending or threatened, involving or
<PAGE> 11
affecting all or any part of Seller's Assets of Business.
J. Tax Liens and Obligations. There are no outstanding tax liens,
charges or obligations relative to Seller's Assets, other than those that will
be prorated through the closing process as adjustments to the Base Purchase
Price.
K. Employment Matters. Schedule III.K hereto includes a complete and
correct list of the names and positions of all employees engaged in the Business
and their current hourly wages or monthly salaries. Seller has no employment
agreement of any kind, oral or written, express or implied, that would require
Buyer to employ any person after the Closing Date or to retain any person as an
independent contractor. Seller is in compliance with all federal and state laws
respecting employment and employment practices, terms and conditions of
employment and wages and hours. As soon as practicable as determined by both
Buyer and Seller, Buyer agrees to discuss individually with Seller's employees
the opportunities for employment with Buyer and the wages and benefits which
would be offered to such employees. Seller agrees to make such employees
reasonably available for discussions with Buyer about employment after Closing.
It is Buyer's intent at the execution of this Agreement to maintain a local
presence in the Service Area for such period of time as it is economically
feasible as determined by Buyer. Buyer will consider Seller's current employees
for such positions if such employees are individually willing to discuss the
possibilities of employment with Buyer, it being understood that Buyer has no
obligation to employ any employee of Seller after Closing. Buyer shall not
assume or be responsible for any COBRA or ERISA obligations of Seller. All
claims of any employee against Seller arising or incurred on or prior to the
date of Closing will remain the responsibility of Seller, whether or not the
respective employee is hired by Buyer on or after Closing.
L. Subscribers. Seller has not less than 10,000 active and current
subscribers (not more than 60 days past due) to "Programming Services," which is
defined as one or more tiers of subscription satellite programming for which a
subscriber pays a monthly fee.
M. System Data. As of October, 1992, Seller has the right to provide
Programming Services to approximately 129,820 homes, 21,936 of which do not have
access to a cable television provider(s) and 107,884 of which have access to a
cable television provider. Schedule III.M hereto sets forth rates charged by
Seller for satellite services, breakdown of the channel packages sold, and
general description of marketing promotions and discounts offered to subscribers
since January 1, 1998.
N. Finders and Brokers. Buyer will have no obligation for payment of
any finder's commission or similar fee to any financial advisor, broker or
finder retained by Seller in connection with the transactions contemplated by
this Agreement.
O. Disclosure. No representation or warranty made by Seller in this
Agreement or in any schedule or exhibit to this Agreement, or any statement,
list or certificate furnished or to be furnished by it pursuant to this
<PAGE> 12
Agreement, contains or will contain any untrue statement of material fact, or
omits or will omit any material fact required to be stated therein or necessary
to make the statements contained therein not misleading in light of the
circumstances in which made.
P. Seller Contracts. Schedule III.P hereto contains a complete and
accurate list of all "Seller Contracts." Except as set forth in such schedule:
(1) each Seller Contract is in full force and effect and is valid and
enforceable in accordance with its terms; (2) Seller is, and at all times has
been, in compliance with all material applicable terms and requirements of each
Seller Contract under which Seller has or had any obligation or liability or by
which Seller or any of the Assets is or was bound; (3) no event has occurred or
circumstance exists that (with or without notice or lapse of time) may
contravene, conflict with, or result in a material violation or breach of, or
give Seller or other person the right to declare a default or exercise any
remedy under, or to accelerate the maturity or performance of, or to cancel,
terminate, or modify, any Seller Contract; and (4) Seller has not given or
received from any other person, at any time any notice or other communication
(whether oral or written) regarding any actual, alleged, possible, or potential
material violation or breach of, or default under, any Seller Contract. Seller
currently holds the Member Agreement which gives Seller exclusive rights to
provide Programming Services to homes in the Service Area, and such agreement is
in full force and effect with no defaults thereunder.
IV. Representations and Warranties of Buyer.
To induce Seller to enter into this Agreement, Buyer represents and
warrants to Seller as of the date of this Agreement and as of the Closing, as
follows:
A. Organization and Qualification. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of Delaware and
has all requisite corporate power and authority to carry on its business as
currently conducted and to own, lease, use and operate its assets.
B. Authority and Validity. Buyer has all requisite corporate power and
authority to execute and deliver this Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated by this Agreement.
Buyer's execution, delivery, performance and consummation of this Agreement have
been duly authorized by all requisite corporate action of Buyer. This Agreement
is the valid and binding obligation of Buyer, enforceable in accordance with its
terms.
C. No Breach or Violation. Subject to obtaining the Required Consents,
all of which are listed on Schedule VC hereto, the execution, delivery and
performance of this Agreement by Buyer will not: (1) violate any provision of
the charter or bylaws of Buyer; (2) violate any legal requirement; (3) require
any consent, approval or authorization of, or any filing with or notice to, any
person, which has not been obtained or (4)(a) violate, conflict with or
constitute a breach of or default under (without regard to requirements of
<PAGE> 13
notice, passage of time or elections of any person), (b) permit or result in the
termination, suspension or modification of, (c) result in the acceleration of
(or give any person the right to accelerate) the performance of Buyer under, or
(d) result in the creation or imposition of any encumbrance under, any
instrument or other agreement to which Buyer is a party or by which Buyer or any
of its assets is bound or affected, except for purposes of this clause (4) such
violations, conflicts, breaches, defaults, terminations, suspensions,
modifications, and accelerations as would not, individually or in the aggregate
have a material adverse effect on Buyer or on the validity, binding effect or
enforceability of this Agreement.
D. Disclosure. No representation or warranty by Buyer in this
Agreement or in any exhibit to this Agreement, or any statement or certificate
furnished or to be furnished by Buyer pursuant to this Agreement, contains or
will contain any untrue statement of material fact, or omits or will omit any
material fact required to be stated therein or necessary to make the statements
contained therein not misleading in light of the circumstances in which made.
E. Finders and Brokers. Seller will have no obligation for payment of
any finder's commission or similar fee to any financial advisor, broker or
finder retained by Buyer in connection with the transactions contemplated by
this Agreement.
V. Additional Covenants.
A. Access to Premises and Records. Between the date of this Agreement
and the Closing Date, and upon not less than 48 hours' notice, Seller will give
Buyer and its representatives full access at reasonable times to the premises
and books and records of the Business and to all the Assets which are under the
control of Seller and will furnish to Buyer and its representatives such
information regarding the Business and the Assets as Buyer may from time to time
reasonably request. Seller, its officers and its employees will cooperate with
and assist Buyer in its reasonable requests for information.
B. Continuity and Maintenance of Operations: Current Financial
Information. Except as Buyer may otherwise agree in writing, until the Closing:
1. Seller will continue to operate its Business in the ordinary
course consistent with past practices and will use its best
efforts to keep available the services of its employees employed
in connection with the Business and to preserve any beneficial
business relationships with customers, suppliers and others
having business dealings with the Seller relating to the
Business. Without limiting the generality of the foregoing,
Seller will maintain the Assets in good condition and repair,
will maintain adequate inventories of equipment consistent with
past practice, will maintain insurance as in effect on the date
of this Agreement, and will keep all of its business books,
records and files in the ordinary course of business all in
<PAGE> 14
accordance with past practices. Seller will not itself, and nor
will it permit any of its officers, directors, shareholders,
agents or employees to, pay any of the subscriber accounts
receivable prior to the Closing Date. Seller will continue to
implement its procedures for disconnection and discontinuance of
service to subscribers whose accounts are delinquent in
accordance with those in effect on the date of this Agreement.
2. Seller agrees it will NOT: (a) make any material business
decisions which could adversely affect the Business or the
Assets; (b) change the rates charged for Programming Services
from those listed on Schedule III.M hereto; (c) sell, transfer or
assign any of the Assets (other than in the ordinary course of
business) or permit the creation of any material encumbrance on
any Asset; (d) permit the amendment or cancellation of any
license or Seller Contract or any other material contract or
agreement (other than those constituting Excluded Assets) which
affects or is applicable to the Business; (e) enter into any
contract or commitment or incur any indebtedness or other
liability or obligation of any kind relating to the Business
involving an expenditure which, in the aggregate, would exceed
$50,000, if such contract, commitment, indebtedness, liability or
obligation, by its terms, will survive the Closing; or (f) take
or omit to take any action that would cause Seller to be in
breach of any of its representations or warranties in this
Agreement. Notwithstanding the foregoing, Seller may, at any time
prior to or at the Closing, transfer, distribute, assign or sell
to any person, or retain for Seller's own account, any or all of
the Excluded Assets (none of which are to be transferred to Buyer
at the Closing).
3. Seller will deliver to Buyer copies of unaudited, monthly
statements of operating revenues of the Business and any internal
financial reports with respect to the operations of the Business
between the date of this Agreement and the Closing.
4. Following the Closing, Buyer may occupy the office premises
currently used by Seller to conduct the Business, free of rent,
for a period of 60 days. Seller will make such premises available
to Buyer after such 60-day period pursuant to commercially
reasonable lease terms to be negotiated by the parties. Seller
will further provide for Buyer to maintain Seller's current
arrangement with The Volcano Telephone Company for the provision
of customer order processing for pay-per-view and similar
services for a period of at least 60 days, with the charges for
such services to be paid by Buyer.
C. Required Consents. "Required Consents" are defined as all licenses,
authorizations, approvals and consents required under Seller Contracts or
otherwise for (1) Seller to transfer the Assets and the Business to Buyer, (2)
Buyer to conduct the Business and to own, lease, use and operate the Assets at
the places and in the manner in which the Business is conducted as of the date
of this Agreement and on the Closing Date, (3) Buyer to assume and perform
<PAGE> 15
the Seller Contracts, and (4) Buyer to collaterally assign the Assets to its
lenders as security for Buyer's indebtedness.
1. Within 10 business days after execution of this Agreement,
Buyer and Seller shall submit to the NRTC, and thereafter, as
required by the NRTC to DIRECTV, an application to transfer to
Buyer the Member Agreement. Each of the parties will take all
additional action that may be necessary, proper or advisable and
will furnish each other such necessary information and reasonable
assistance as the other may reasonably request in connection with
its preparation of filings or submissions required by either the
NRTC or DIRECTV.
2. Seller and Buyer agree to use their best efforts to obtain all
Required Consents, but Buyer will not be required to agree to any
material adverse changes in, or the imposition of any material
adverse condition upon the transfer to Buyer of any Seller
Contract as a condition to obtaining any Required Consent. Seller
will use its best efforts to obtain, at its expense, such
estoppel certificates or similar documents from lessors and
other persons who are parties to Seller Contracts as Buyer may
reasonably request.
3. Each party shall bear its own expenses in connection with
obtaining the Required Consents, except that (a) filing fees for
any governmental approval or review and (b) processing or
transfer fees in connection with NRTC and/or DIRECTV approvals to
transfer the Member Agreement shall be divided equally between
the parties.
D. No Shopping. Seller shall not, during the period commencing on the
date of this Agreement and ending with the earlier to occur of the Closing or
the termination of this Agreement, directly or indirectly (1) solicit or
initiate the submission of proposals or offers from any person for, (2)
participate in any discussions pertaining to, or (3) furnish any information to
any person other than Buyer relating to any direct or indirect acquisitions or
purchase of all or any portion of the Assets or the securities of Seller,
whether by purchase, merger or otherwise, or any such business combination. The
Seller shall cause its respective officers, employees, representatives, agents
and affiliates to refrain from doing any of the foregoing.
E. Notification of Certain Matters. Seller will promptly notify Buyer
of any material fact, event, circumstance or action (1) which, if known to
Seller on the date of this Agreement, would have been required to be disclosed
by Seller to Buyer pursuant to this Agreement, or (2) the existence or
occurrence of which would cause any of Seller's representations or warranties
under this Agreement not to be correct; and Buyer will promptly notify Seller of
any material fact, event, circumstance or action which, if known to Buyer on the
date of this Agreement, would have been required to be disclosed by Buyer to
Seller pursuant to this Agreement, or the existence or occurrence of which
<PAGE> 16
would cause any of Buyer's representations or warranties under this Agreement
not to be correct.
F. Risk of Loss. Seller will maintain up to and through the Closing
Date policies of insurance in adequate amounts covering the Assets. Seller will
bear the risk of any loss or damage to the Assets resulting from fire, theft or
other casualty (except reasonable wear and tear) at all times prior to the
Closing. If any such loss or damage is so substantial as to prevent normal
operation of any material portion of the Business or the replacement or
restoration of the lost or damaged property within 20 days after the occurrence
of the event resulting in such loss or damage, Seller will promptly notify
Buyer of that fact and Buyer, at any time within 10 days after receipt of such
notice, may elect by written notice to Seller either (1) to terminate this
Agreement, in which case, Buyer and Seller will be discharged of any and all
obligations hereunder and, in such case, Buyer shall be entitled to the Buyer
Deposit, or (2) to proceed to consummate the transactions contemplated by this
Agreement. If Buyer elects to consummate the transactions contemplated by this
Agreement notwithstanding such loss or damage and does so, there will be no
adjustment in the consideration payable to Seller on account of such loss or
damage, but all insurance proceeds payable as a result of the occurrence of the
event resulting in such loss or damage will be delivered by Seller to Buyer, or
the rights to such Proceeds will be assigned by Seller to Buyer if not yet paid
over to Seller.
G. Transfer Taxes. Seller will collect from Buyer all sales, use and
vehicle transfer taxes and fees payable with respect to transfer of the Assets
and will remit the same to the taxing authorities. In the event that any
governmental authority shall at any time impose or otherwise require or demand
payment by or from either Seller or Buyer of any other transfer, excise,
documentary or license taxes or fees with respect to the sale or transfer of the
Assets, Seller and Buyer shall equally divide such other taxes or fees.
H. Non-Competition Agreement. At the Closing, Seller shall sign and
deliver to Buyer a Non-Competition Agreement substantially in the form of
Exhibit F attached hereto and incorporated herein by reference. The
consideration for the Non-Competition Agreement executed by Seller shall be
allocated as part of the purchase price paid to Seller in accordance with
Section II.B.5 above.
I. Updated Schedules. Not less than five (5) business days prior to
Closing, Seller will deliver to Buyer revised copies of Schedules which shall
have been updated to show any changes occurring between the date of this
Agreement and the date of delivery; provided, however, that for purposes of
Seller's representations and warranties and covenants in this Agreement, all
references to the Schedules will mean the version of the Schedules attached to
this Agreement on the date of signing, and provided further that if the effect
of any such updates to Schedules is to disclose any one or more additional
properties, privileges, rights, interests or claims as Assets, or disclose
previously undisclosed liabilities, Buyer, at or before Closing, will have the
right (to be exercised by notice to Seller) to cause any one or more of such
items to be designated as and deemed to constitute Excluded Assets for all
<PAGE> 17
purposes under this Agreement. In the event any update to one or more Schedules
constitutes a material, adverse impact on the Business or the Assets, Buyer may,
at its option (1) proceed to consummate the transaction hereunder with a
corresponding reduction in the Purchase Price agreed to by the parties or (2)
refuse to consummate the transaction hereunder.
J. Use of Seller's Name. Buyer may continue to operate the Business
using Seller's trade names and all derivations and abbreviations of such name
and related marks for a period not to exceed 120 days after the Closing Date;
provided, however, that Buyer shall use its best efforts during such period to
communicate to customers and members of the public that Buyer is the new owner
of the Business, and Buyer shall not conduct any advertising utilizing Seller's
trade names.
K. Satisfaction of Conditions. Each party will use its reasonable best
efforts to satisfy, or to cause to be satisfied, the conditions to the
obligations of the other party to consummate the transactions contemplated by
this Agreement, provided that Buyer will not be required to agree to any
increase in the amount payable with respect to, or any modification that makes
more burdensome in any material respect any of the Assets or Assumed
Liabilities.
L. Confidentiality. No party, nor its respective officers, employees,
trustees, agents, representatives or affiliates, will issue any press release or
make any other public announcement regarding this Agreement or the transactions
contemplated hereby without the consent of the other party. Each party will
hold, and will cause its employees, consultants, advisors and agents to hold, in
confidence, the terms of this Agreement and any non-public information
concerning the other party obtained pursuant to this Agreement. Notwithstanding
the preceding, a party may disclose such information to the extent required by
any legal requirement (including disclosure requirements under federal and state
securities laws), but the party proposing to disclose such information will
first notify and consult with the other party concerning the proposed
disclosure, to the extent reasonably feasible. Each party also may disclose such
information to employees, consultants, advisors, agents and actual or potential
lenders whose knowledge is necessary to facilitate the consummation of the
transactions contemplated by this Agreement. Each party's obligation to hold
information in confidence will be satisfied if it exercises the same care with
respect to such information as it would exercise to preserve the confidentiality
of its own similar information.
M. Transition. Seller shall cooperate in good faith with Buyer to
assure a smooth transition and operation of the Business after Closing. In
connection with the foregoing, Seller agrees to continue to accept payment of
accounts receivable for the benefit of Buyer for a period of 90 days after
Closing.
VI. Conditions to Closing.
A. Conditions to the Obligations of Buyer and Seller. The obligations
of each party to consummate the transactions contemplated by this Agreement to
take place at the Closing are subject to the satisfaction or waiver of each of
the following conditions:
<PAGE> 18
1. No action, suit or proceeding is pending or threatened and no
legal requirement has been enacted or deemed to be applicable to
any of the transactions contemplated by this Agreement by a
governmental authority, which would (a) prohibit Buyer's
ownership of the Business or the Assets, (b) compel Buyer to
dispose of or hold separate all or a material portion of the
Business or the Assets, or (c) prevent or make illegal the
consummation of any transactions contemplated by this Agreement.
2. The applicable waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and the rules and
regulations promulgated thereunder, with respect to the
transaction contemplated by this Agreement shall have expired
without the receipt of any objection or threat of any litigation
by a governmental authority to restrain the consummation of the
transaction contemplated by this Agreement and all approvals of
governmental authorities required to consummate the transaction
contemplated by this Agreement shall have been obtained.
B. Conditions to the Obligations of Buyer. The obligations of Buyer to
consummate the transactions contemplated by this Agreement to take place at the
Closing are subject to the satisfaction or waiver by Buyer of each of the
following conditions:
1. All representations and warranties of Seller contained in this
Agreement are true in all material respects, in each case on and
as of the Closing Date with the same effect as if made on and as
of the Closing Date, except for changes specifically permitted or
contemplated by this Agreement.
2. Seller has performed and complied in all material respects
with each obligation, agreement, covenant and condition required
by this Agreement to be performed or complied with by Seller at
or prior to the Closing.
3. Seller has executed (or caused to be executed) and delivered
to Buyer each of the following items: (a) an opinion letter from
Seller's legal counsel dated the Closing Date substantially in
the form attached hereto as Exhibit G (the final opinion letter
must be approved by Buyer at least two (2) days prior to
Closing); (b) certificates of status for Seller from the
California and Nevada Secretaries of State; and (c) motor vehicle
title certificates and such other transfer instruments as Buyer
may reasonably deem necessary or advisable to transfer the Assets
to Buyer and to perfect Buyer's rights in the Assets.
4. Seller has delivered to Buyer: (a) evidence, in form and
substance satisfactory to Buyer, that all of the Required
Consents have been obtained or given on terms and conditions
reasonably acceptable to Buyer and are in full force and effect,
including, without limitation, approval of the transfer to Buyer
of the Member Agreement on terms and conditions acceptable to
Buyer in its sole discretion; (b) to the extent obtained by
Seller, the estoppel certificates or similar documents
<PAGE> 19
described in Section V.C.2; and (c) evidence, in form and
substance satisfactory to Buyer, from the NRTC that all invoices
due have been paid and that Seller is not in default with the
NRTC.
5. No action, proceeding or investigation has been instituted or
threatened prior to Closing by or before any court or
administrative agency which would, if determined adversely to
Buyer's interest, materially impair the ability of Buyer to
realize the benefits of the transactions contemplated by this
Agreement. Nothing in this Section shall be construed so as to
give Buyer any unfair option to delay or avoid closing on this
transaction. There must be a reasonable basis supported by fact
to invoke the protection of this provision.
6. Seller has delivered to Buyer: (a) a certificate, dated the
Closing Date, signed by Seller's chief executive officer, stating
that to the best of her knowledge in her corporate capacity the
conditions set forth in Sections VI.B.1 and VI.B.2 are satisfied;
(b) a copy of the resolutions of the board of directors and
shareholders of Seller authorizing the execution, delivery and
performance of this Agreement by Seller, and a certificate of
Seller, dated as of the Closing, that such resolutions were duly
adopted and are in full force and effect as of the date of
Closing; and (c) such other documents as Buyer may reasonably
request in connection with the transactions contemplated by this
Agreement.
7. Seller has not less than 10,000 active and current
subscribers (not more than 60 days past due) to Programming
Services pursuant to the NRTC Performance Indicator Report from
the last complete NRTC billing cycle preceding the Closing Date,
and Seller has delivered to Buyer a certificate in confirmation
thereof, signed for Seller by the president or the chief
financial officer of Seller.
C. Conditions to Obligations of Seller. The obligations of Seller to
consummate the transactions contemplated by this Agreement to take place at the
Closing are subject to the satisfaction or waiver by Seller of each of the
following conditions:
1. Buyer has paid the Base Purchase Price required to be paid at
the Closing, as adjusted in accordance with this Agreement.
2. All representations and warranties of Buyer contained in this
Agreement are true and correct in all material respects, in each
case on and as of the Closing Date with to the same effect as if
made on and as of the Closing Date, except for changes
specifically permitted or contemplated by this Agreement.
3. Buyer in all material respects has performed and complied with
each obligation, agreement, covenant and condition required by
this Agreement to be performed or complied with by Buyer at or
prior to the Closing.
4. Buyer has executed and delivered to Seller each of the
following items: (a) the Earnest Money Escrow Agreement; (b) the
Indemnity Escrow Agreement
<PAGE> 20
substantially in the form attached hereto as Exhibit B; (c) the
Assignment and Assumption of Contracts Agreement substantially in
the form attached hereto as Exhibit D; (d) the Assignment and
Assumption of Equipment Financing Agreements and Customer
Equipment Lease Agreements substantially in the form attached
hereto as Exhibit E; and (e) a Non-Competition Agreement
substantially in the form attached hereto as Exhibit F.
5. Buyer has delivered to Seller the following: (a) a
certificate, dated the Closing Date, signed by the chief
executive officer of Buyer, stating that to the best of his
knowledge in his corporate capacity, the conditions set forth in
Sections VI.C.2 and VI.C.3 are satisfied; (b) a copy of the
resolutions of the board of directors of Buyer authorizing the
execution, delivery and performance of this Agreement by Buyer,
and a certificate of Buyer, dated as of the Closing, that such
resolutions were duly adopted and are in full force and effect as
of the date of Closing; and (c) such other documents as Seller
may reasonably request in connection with the transactions
contemplated by this Agreement.
D. Waiver of Conditions. Either party may waive in writing any or all
of the conditions to its obligations under this Agreement.
VII. Termination.
A. Events of Termination. This Agreement may be terminated and the
transactions contemplated by this Agreement may be abandoned at any time prior
to the Closing:
1. by the mutual written consent of Buyer and Seller; or
2. Buyer or Seller, if the transactions contemplated by this
Agreement to take place at the Closing have not been consummated
on or before February 27, 1999, other than as extended by mutual
agreement of the parties, provided, however, that if the failure
to consummate the transactions is the result of (a) a breach or
default by such party in the performance of any of its
obligations under this Agreement or (b) the failure of any
representation or warranty of such party to be accurate, then the
termination of the Agreement shall not limit the right of the
other party to pursue its legal remedies resulting from such
breach or failure, except that Buyer and Seller will have no
liability in any event if, for any reason whatsoever, the NRTC or
DIRECTV do not approve transfer to Buyer of Seller's Member
Agreement.
B. Liabilities in Event of Termination. The termination of this
Agreement will in no way limit any obligation or liability of any party based on
or arising from a breach or default by such party with respect to any of its
representations, warranties, covenants or agreements contained in this
Agreement.
C. Procedure Upon Termination. In the event of the termination of this
Agreement by Buyer or Seller pursuant to this Section VII, notice of such
termination will promptly be given by the terminating party to the other.
<PAGE> 21
VIII. Survival of Representations and Warranties; Indemnification.
A. Survival of Representations and Warranties. The representations,
warranties, and covenants of Buyer and Seller in this Agreement and in the
documents and instruments to be delivered by Seller pursuant to this Agreement
will survive the Closing without limitation until the first anniversary of the
Closing Date.
B. Indemnification by Seller. Seller will indemnify, defend and hold
harmless Buyer and its shareholders and its and their respective affiliates, and
the shareholders, directors, officers, employees, agents, successors and assigns
of any of such persons, from and against:
1. all losses, damages, liabilities, deficiencies or obligations
of or to Buyer resulting from or arising out of (a) any breach of
any then surviving representation or warranty made by Seller in
this Agreement, (b) any breach o any covenant, agreement or
obligation of Seller contained in this Agreement, (c) any third
party claim with respect to any act or omission of Seller with
respect to Seller's operation of the Assets or Seller's conduct
of the Business, which act or omission occurred prior to or on
the Closing Date without regard to whether such third party claim
with respect to such act or omission is asserted before or after
the Closing Date, (d) any liability or obligation of Seller not
included in the Assumed Liabilities, (e) any claim that the
transactions contemplated by this Agreement violate any
fraudulent conveyance laws of any jurisdiction, (f) any liability
or obligation of Buyer relating to the parties non-compliance
with any applicable bulk sales laws, including, without
limitation, bulk sales laws under the Uniform Commercial Code.
2. all claims, actions, suits, proceedings, demands, judgments,
assessments, fines, interest, penalties, costs and expenses
(including, without limitation, settlement costs and reasonable
legal, accounting, experts' and other fees, costs and expenses)
incident or relating to or resulting from any of the foregoing.
C. Indemnification by Buyer. Buyer will indemnify, defend and hold
harmless Seller and its shareholders and its and their respective affiliates,
and the shareholders, directors, officers, employees, agents, successors and
assigns of any of such persons, from and against:
1. all losses, damages, liabilities, deficiencies or obligations
of or to Seller or any such other indemnified person resulting
from or arising out of (a) any breach of any representation or
warranty made by Buyer in this Agreement, (b) any breach of any
covenant, agreement or obligation of Buyer contained in this
Agreement, (c) the failure by Buyer to perform any of its
obligations in respect of the Assumed Liabilities and (d) any
third party
<PAGE> 22
claim with respect to any act or omission of Buyer with respect
to Buyer's operation of the Assets or Buyer's conduct of the
Business, which act or omission occurred after the Closing Date;
and
2. all claims, actions, suits, proceedings, demands, judgments,
assessments, fines, interest, penalties, costs and expenses
(including, without limitation, settlement costs and reasonable
legal, accounting, experts' and other fees, costs and expenses)
incident or relating to or resulting from any of the foregoing.
D. Third Party Claims. Promptly (and in any event within 30 days)
after the receipt by any party of notice if any claim, action, suit or
proceeding by any Person who is not a party to this Agreement (collectively, an
"Action"), which Action is subject to indemnification under this Agreement, such
patty (the "Indemnified Party") will give reasonable written notice to the party
from whom indemnification is claimed (the "Indemnifying Party"). The Indemnified
Party will be entitled, at the sole expense and liability of the Indemnifying
Party, to exercise full control of the defense, compromise or settlement of any
such Action unless the Indemnifying Party, within a reasonable time (and in any
event within 30 days) after the giving of such notice by the Indemnified Party,
(1) admits in writing to the Indemnified Party the Indemnifying Party's
liability to the Indemnified Party for such Action under the terms of this
Section VIII, (2) notifies the Indemnified Party in writing of the Indemnifying
Party's intention to assume such defense, (3) provides evidence reasonably
satisfactory to the Indemnified Party of the Indemnifying Party's ability to pay
the amount, if any, for which the Indemnified Party may be liable as a result of
such Action, and (4) retains legal counsel reasonably satisfactory to the
Indemnified Party to conduct the defense of such Action. The other party will
cooperate with the party assuming the defense, compromise or settlement of any
such Action in accordance with this Agreement in any reasonable manner. The
Indemnified Party will have the right to employ separate counsel and to
participate in (but not control) the defense, compromise or settlement of the
Action, but the fees and expenses of such counsel will be at the expense of the
Indemnified Party unless (1) the Indemnifying Party has agreed to pay such fees
and expenses, (2) any relief other than the payment of money damages is sought
against the Indemnified Party or (3) the Indemnified Party will have been
advised by its counsel that there may be one or more defenses available to it
which are different from or additional to those available to the Indemnifying
Party, and in any such case that portion of the fees and expenses of such
separate counsel that are reasonably related to matters covered by the indemnity
provided will be paid by the Indemnifying Party. No Indemnified Party will
settle or compromise any such Action for which it is entitled to indemnification
under this Agreement without prior written consent of the Indemnifying Party,
unless the Indemnifying Party has failed, after reasonable notice, to undertake
control of such Action in the manner provided in this Agreement. No Indemnifying
Party will settle or compromise any such Action (1) in which any relief other
than the payment of money damages is sought against any Indemnified Party or (2)
in the case of any Action relating to the Indemnified Party's liability
<PAGE> 23
for any tax, if the effect of such settlement would be an increase in the
liability of the Indemnified Party for the payment of any tax for any period
beginning after the Closing Date, unless the Indemnified Party consents in
writing to such compromise or settlement.
IX. Miscellaneous.
A. Parties Obligated and Benefited. Subject to the limitations set
forth below, this Agreement will be binding upon the parties and their
respective assigns and successors in interest and will inure solely to the
benefit of the parties and their respective assigns and successors in interest,
and no other Person will be entitled to any of the benefits conferred by this
Agreement. Without the prior written consent of the Buyer, Seller will not
assign any of its rights under this Agreement or delegate any of its duties
under this Agreement.
B. Notices. Any notice, request, demand, waiver or other communication
required or permitted to be given under this Agreement will be in writing and
will be deemed to have been duly given only if delivered in person or sent by
prepaid first class, or certified mail (return receipt requested), or delivered
by commercial courier (e.g., United Parcel Service or Federal Express) or, if
receipt is confirmed, by telecopier:
Escrow Agent: By Mail: By Courier or Express Delivery:
Commerce Bank, N.A. Commerce Bank, N.A.
Corporate Debt Dept., TBMZ-6 Corporate Debt Dept.
P.O. Box 419248 922 Walnut Street, 6th Floor
Kansas City, MO 64141-6248 Kansas City, MO 64106
Attention: Dane A. Lee Attention: Dane A. Lee
Telephone: (816) 234-2096
Facsimile: (816) 234-2562
Buyer: Golden Sky Systems, Inc.
605 West 47th Street, Suite 300
Kansas City, MO 64112
Attention: Rodney A. Weary, President and
Jo Ellen Linn, Corporate Counsel
Telephone: (816) 753-5544
Facsimile: (816) 753-5595
With a copy (which will not constitute notice) to:
<PAGE> 24
Polsinelli, White, Vardeman & Shalton, P.C.
700 W. 47th Street, Suite 1000
Kansas City, MO 64112
Attention: Gerald W. Brenneman, Esq. and
Edward N. Foster, Esq.
Telephone: (816) 753-1000
Facsimile: (816) 753-1536
Seller: Volcano Vision, Inc. P.O. Box 890
Pine Grove, CA 95665
Attention: Sharon J. Lundgren
Telephone: (209) 296-7502
Facsimile: (209) 296-1471
With a copy (which will not constitute notice) to:
Beck & Ackerman
Four Embarcadero Center, Suite 760
San Francisco, CA 94111
Attention: Karen Ackerman
Telephone: (415) 263-7310
Facsimile: (415) 263-7301
Any party may change the address to which notices are required to be
sent by giving notice of such change in the manner provided in this Section. All
notices will be deemed to have been received on the date of delivery or on the
third business day after mailing in accordance with this Section, except that
any notice of a change of address will be effective only upon actual receipt.
C. Legal Remedies and Attorneys' Fees. Any dispute or claim between
the parties to this Agreement that arises out of this Agreement or that in any
manner relates to the transactions under this Agreement shall be resolved
exclusively by binding arbitration before a single arbitrator, pursuant to the
rules and procedures of the American Arbitration Association pertaining to
commercial arbitrations. Judgment upon the award may be entered by any court
having jurisdiction thereof. The location of such arbitration proceedings shall
be (1) Kansas City, Missouri, in the event of an arbitration claim initiated by
Seller or (2) San Francisco, California, in the event of an arbitration claim
initiated by Buyer. The filing of a cross-claim shall not change the location
of the arbitration proceedings. The prevailing party in any such arbitration
shall be entitled to recover reasonable attorneys' fees and other costs from
the other party. In the event of litigation to enforce any arbitration award or
any other litigation related to this Agreement or the transactions, the
prevailing party shall be entitled to recover reasonable attorneys' fees and
other costs from the other party.
<PAGE> 25
D. Right to Specific Performance. The parties acknowledge that the
unique nature of the assets to be purchased and sold pursuant to this Agreement
and the limited number of parties interested in purchasing such assets render
money damages an inadequate remedy for the breach by either party of its
obligations under this Agreement. The parties agree that in the event of breach
and non-performance by one party of its obligations under this Agreement, the
other party will be entitled to a decree of specific performance of the
Agreement, to be issued in the arbitration proceeding specified in the preceding
section.
E. Waiver. This Agreement or any of its provisions may not be waived
except in writing. The failure of any party to enforce any right arising under
this Agreement on one or more occasions will not operate as a waiver of that or
any other right on that or any other occasion.
F. Captions. The article and section captions of this Agreement are
for convenience only and do not constitute a part of this Agreement.
G. Choice of Law. This Agreement and the rights of the parties under
it will be governed and construed in all respects in accordance with the laws of
the State of Missouri.
H. Rights Cumulative. All rights and remedies of each of the parties
under this Agreement will be cumulative, and the exercise of one or more rights
or remedies will not preclude the exercise of any other right or remedy
available under this Agreement or applicable law.
I. Further Actions. Seller and Buyer will execute and deliver to the
other, from time to time at or after the Closing, for no additional
consideration and at no additional cost to the requesting party, such further
assignments, certificates, instruments, records, or other documents, assurances
or things as may be reasonably necessary to give full effect to this Agreement
and to allow each party fully to enjoy and exercise the rights accorded and
acquired by it under this Agreement.
J. Time. If the last day permitted for the giving of any notice or the
performance of any act required or permitted under this Agreement falls on a day
which is not a business day, the time for the giving of such notice or the
performance of such act will be extended to the next succeeding business day.
K. Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original.
L. Entire Agreement. This Agreement (including the provisions and
contents of the Schedules and Exhibits referred to in this Agreement, which are
incorporated in and constitute a part of this Agreement) contains the entire
agreement of the parties and supersedes all prior oral or written agreements
and understandings with respect to the subject matter herein. In that regard,
<PAGE> 26
this Agreement is intended to and does supersede and replace entirely that
certain Acquisition Proposal and Negotiation Protocol Agreement between the
Buyer and Seller dated as of June 8, 1998. This Agreement may not be amended or
modified except by a writing signed by the parties.
M. Severability. Any term or provision of this Agreement which is
invalid or unenforceable will be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or enforceable the remaining rights
of the person intended to be benefited by such provision or any other provisions
of this Agreement.
N. Construction. This Agreement has been negotiated by Buyer and
Seller and its respective legal counsel, and legal or equitable principles that
might require the construction of this Agreement or any provision of this
Agreement against the party drafting this Agreement will not apply in any
construction or interpretation of this Agreement.
O. Late Payments. If either party fails to pay the other any amounts
when due under this Agreement, the amounts due will bear interest from the due
date to the date of payment at the annual rate publicly announced from time to
time by Citibank, N.A. as its prime rate plus 3%, adjusted as and when changes
in such prime rate are made, provided, however, that such interest rate shall
in no event exceed any applicable legal restriction of usury or similar laws.
P. Expenses. Except as otherwise expressly provided in this Agreement,
each party will pay all of its expenses, including attorneys' and accountants'
fees, in connection with the negotiation of this Agreement, the performance of
its obligations and the consummation of the transactions contemplated by this
Agreement.
The parties have executed this Agreement as of the day and year first
above written.
SELLER:
Volcano Vision, Inc.
By /s/ Sharon J.Lundgren
------------------------
Sharon J. Lundgren, President
<PAGE> 27
BUYER:
Golden Sky Systems, Inc.
By /s/ Rodney A. Weary
-------------------------
Rodney A. Weary, President
<PAGE> 1
Exhibit 2.3
AGREEMENT AND PLAN OF MERGER
among
GOLDEN SKY HOLDINGS, INC.,
GOLDEN SKY SYSTEMS, INC.,
WESTERN MONTANA DBS, INC.
d/b/a ROCKY MOUNTAIN DBS
and
THE STOCKHOLDERS OF WESTERN MONTANA DBS, INC.
NAMED ON THE SIGNATURE PAGES HEREOF
Dated as of September 1, 1998
<PAGE> 2
\ TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I.
THE MERGER
SECTION 1.01. The Merger.........................................................................................2
SECTION 1.02. Effect of the Merger...............................................................................2
SECTION 1.03. Consummation of the Merger.........................................................................2
SECTION 1.04. Charter; By-Laws; Directors and Officers...........................................................2
SECTION 1.05. Further Assurances.................................................................................2
ARTICLE II.
CONVERSION OF SECURITIES
SECTION 2.01. Conversion of Securities of the Company............................................................3
SECTION 2.02. Stock Options, Warrants, Etc.......................................................................3
Section 2.03. Surrender and Exchange of Shares and Payment.......................................................3
SECTION 2.04. Closing of Stock Transfer Books....................................................................4
SECTION 2.05. Dissenting Shares..................................................................................4
SECTION 2.06 Creation of the Escrow Fund........................................................................5
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY STOCKHOLDERS AND THE COMPANY
SECTION 3.01. Organization, Qualifications and Corporate Power; Subsidiaries.....................................6
SECTION 3.02. Authorization of Agreements, Validity, Etc.........................................................6
SECTION 3.03. Capitalization ....................................................................................7
SECTION 3.04. Financial Statements ..............................................................................7
SECTION 3.05. Absence of Certain Changes or Events ..............................................................8
SECTION 3.06. Governmental Approvals ............................................................................9
SECTION 3.07. Title to Properties, Absence of Liens and Encumbrances.............................................9
SECTION 3.08. List of Properties, Contracts and Other Data.......................................................9
SECTION 3.09. Intangible Rights ................................................................................10
SECTION 3.10. Software .........................................................................................11
SECTION 3.11. Litigation, Etc. .................................................................................11
SECTION 3.12. Taxes ............................................................................................12
SECTION 3.13. Governmental Authorizations and Regulations.......................................................14
SECTION 3.14. Labor Matters ....................................................................................14
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C> <C>
SECTION 3.15. Insurance.........................................................................................14
SECTION 3.16. Use of Real Property..............................................................................14
SECTION 3.17. Condition of Assets...............................................................................15
SECTION 3.18. Accounts Receivable...............................................................................15
SECTION 3.19. Books and Records.................................................................................15
SECTION 3.20. Employee Benefit Plans............................................................................15
SECTION 3.21. Transactions with Affiliates......................................................................16
SECTION 3.22. Environmental Matters.............................................................................17
SECTION 3.23. System Data.......................................................................................17
SECTION 3.24. Exclusive Rights..................................................................................18
SECTION 3.25. Offering of the Shares............................................................................18
SECTION 3.26. Share Transfer Restriction Agreement..............................................................18
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF THE
COMPANY STOCKHOLDERS AS TO THEMSELVES
SECTION 4.01. Authorization of Agreements, Validity, Etc........................................................18
SECTION 4.02. Title to Shares...................................................................................19
SECTION 4.03. Governmental Approvals............................................................................19
SECTION 4.04. Brokers' or Finders' Fees.........................................................................19
SECTION 4.05. Investment Representations........................................................................19
SECTION 4.06. Litigation, Etc...................................................................................20
SECTION 4.07. Offering of the Shares............................................................................20
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF GSS AND PARENT
SECTION 5.01. Organization, Qualifications and Corporate Power; Subsidiaries....................................21
SECTION 5.02. Authorization of Agreements, Validity, Etc........................................................21
SECTION 5.03. Capitalization....................................................................................21
SECTION 5.04. Financial Statements..............................................................................22
SECTION 5.05. Absence of Certain Changes or Events..............................................................23
SECTION 5.06. Governmental Approvals............................................................................24
SECTION 5.07. Litigation Relating to Transaction................................................................24
SECTION 5.08. Disclosure........................................................................................24
VI.
COVENANTS
SECTION 6.01. Certain Covenants of the Company Stockholders.....................................................24
SECTION 6.02. Certain Tax Matters. ............................................................................26
SECTION 6.03. Consents..........................................................................................26
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
<S> <C> <C>
SECTION 6.04. Books and Records.................................................................................27
SECTION 6.05. License and Other Fees............................................................................27
SECTION 6.06. Other Discussions.................................................................................27
VII.
CONDITIONS PRECEDENT
SECTION 7.01. Conditions Precedent to the Obligations of GSS and Parent.........................................28
SECTION 7.02. Conditions Precedent to the Obligations of the Company Stockholders and the Company...............29
ARTICLE VIII.
INDEMNIFICATION
SECTION 8.01. Survival of Representations and
Warranties........................................................................................30
SECTION 8.02. Tax Indemnity.....................................................................................31
SECTION 8.03. General Indemnity.................................................................................31
SECTION 8.04. Limitations on Indemnity..........................................................................32
SECTION 8.05. Conditions of Indemnification.....................................................................32
SECTION 8.06. Remedies Cumulative...............................................................................34
ARTICLE IX.
TERMINATION AND ABANDONMENT
SECTION 9.01. Termination.......................................................................................34
SECTION 9.02. Procedure and Effect of Termination...............................................................34
ARTICLE X.
MISCELLANEOUS
SECTION 10.01. Expenses, Etc.....................................................................................35
SECTION 10.02. Publicity.........................................................................................35
SECTION 10.03. Execution in Counterparts; Additional Parties.....................................................35
SECTION 10.04. Notices...........................................................................................35
SECTION 10.05. Waivers...........................................................................................36
SECTION 10.06. Amendments, Supplements, Etc......................................................................37
SECTION 10.07. Entire Agreement..................................................................................37
SECTION 10.08. Applicable Law....................................................................................37
SECTION 10.09. Binding Effect; Benefits..........................................................................37
SECTION 10.10. Assignability.....................................................................................37
</TABLE>
iii
<PAGE> 5
INDEX TO SCHEDULES AND EXHIBITS
Schedules Description
I Stockholders
3.08 List of Properties, Contracts and
Other Data
3.11 Actions Pending, Etc.
3.12 Taxes
3.15 Insurance
3.23 Rates for Satellite Services
3.24 Exclusive Territories
5.03 Securities of GSS and Parent
Exhibit Description
A Escrow Agreement
B Form of Certificate of Designations
C Form of Opinions of Counsel to the
Company Stockholders and the Company
D Form of Opinion of Counsel to GSS
and Parent
iv
<PAGE> 6
AGREEMENT AND PLAN OF MERGER, dated as of September 1, 1998,
among GOLDEN SKY HOLDINGS, INC., a Delaware corporation ("Parent"), GOLDEN SKY
SYSTEMS, INC., a Delaware corporation ("GSS"), WESTERN MONTANA DBS, Inc. d/b/a/
ROCKY MOUNTAIN DBS, a Montana corporation (the "Company"), and the stockholders
of the Company named on the signature pages hereof (the "Company Stockholders").
WHEREAS, the Company Stockholders are the holders of in excess
of 75% of the issued and outstanding capital stock of the Company and each
Company Stockholder owns the number of shares of the Company's common stock, no
par value (the "Company Common Stock"), set forth on Schedule I hereto under the
heading "Number of Shares of Company Common Stock";
WHEREAS, GSS is wholly-owned subsidiary of Parent;
WHEREAS, the parties hereto desire that the Company merge with
and into GSS (the "Merger"), upon the terms and conditions set forth herein and
in accordance with the General Corporation Law of the State of Delaware (the
"Delaware GCL") and the Montana Business Corporation Act (the "Montana BCA")
with the result that GSS shall continue as the surviving corporation and the
separate existence of the Company (except as it may be continued by operation of
law) shall cease;
WHEREAS, GSS and the Company desire that at the Effective Time
(as hereinafter defined) all outstanding shares of Company Common Stock be
converted into the right to receive (x) fully paid and nonassessable shares of
Parent's Series C Senior Convertible Preferred Stock, $.01 par value ("Series C
Preferred Stock"), (y) a cash payment and (z) a fractional interest in a fund
created by Parent (the "Escrow Fund") consisting initially of $1,000,000 in cash
to be held in escrow as security for certain contingent obligations, as
hereinafter provided;
WHEREAS, for Federal income tax purposes, it is intended that
the Merger qualify as a reorganization within the meaning of Section 368 of the
Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, the Boards of Directors of Parent, GSS and the
Company and the stockholders of GSS and the Company have approved the Merger;
NOW, THEREFORE, in consideration of the mutual
representations, warranties, covenants, agreements and conditions contained
herein, and in order to set forth the terms and conditions of the Merger and the
mode of carrying the same into effect, the parties hereto hereby agree as
follows:
<PAGE> 7
ARTICLE I.
THE MERGER
SECTION 1.01. The Merger. The Company shall be merged with and
into GSS at the Effective Time in accordance with this Agreement, the Delaware
GCL and the Montana BCA, the separate existence of the Company (except as it may
be continued by operation of law) shall cease, and GSS shall continue as the
surviving corporation.
SECTION 1.02. Effect of the Merger. At the Effective Time, GSS
shall succeed to and assume all the rights and obligations of the Company in
accordance with the Delaware GCL and the Montana BCA and the Merger shall
otherwise have the effects set forth in Section 259 of the Delaware GCL and
Section 35-1-817 of the Montana BCA.
SECTION 1.03. Consummation of the Merger. The parties hereto
will promptly cause the Merger to be consummated by filing with (x) the
Secretary of State of the State of Delaware a properly executed certificate of
merger in accordance with the Delaware GCL (the time of such filing being the
"Effective Time" and being sometimes referred to herein as the "Closing" and the
date of such filing being sometimes referred to herein as the "Closing Date")
and (y) the Secretary of State of the State of Montana properly executed
articles of merger in accordance with the Montana BCA.
SECTION 1.04. Charter; By-Laws; Directors and Officers. The
Certificate of Incorporation of GSS as in effect immediately prior to the
Effective Time will remain the Certificate of Incorporation of GSS without any
modification or amendment in the Merger, until thereafter amended in accordance
with the provisions thereof and as provided by the Delaware GCL. The By-Laws of
GSS as in effect immediately prior to the Effective Time will remain the By-Laws
of GSS without any modification or amendment in the Merger, until thereafter
amended in accordance with the provisions thereof and the Certificate of
Incorporation of GSS and as provided by the Delaware GCL. The directors and
officers of GSS immediately prior to the Effective Time will remain the
directors and officers of GSS, in each case until their removal or until their
respective successors are duly elected and qualified.
SECTION 1.05. Further Assurances. If at any time after the
Effective Time, GSS or Parent shall consider or be advised that any deeds, bills
of sale, assignments or assurances or any other acts or things are necessary,
desirable or proper (i) to vest, perfect or confirm, of record or otherwise, in
GSS, its right, title or interest in, to or under any of the rights, privileges,
powers, franchises, properties or assets of the
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Company, or (ii) otherwise to carry out the purposes of this Agreement, the
Company Stockholders shall execute and deliver, in the name and on behalf of the
Company, all such deeds, bills of sale, assignments and assurances and do, in
the name and on behalf of the Company, all such other acts and things necessary,
desirable or proper to vest, perfect or confirm its right, title or interest in,
to or under any of the rights, privileges, powers, franchises, properties or
assets of the Company and otherwise to carry out the purposes of this Agreement.
ARTICLE II.
CONVERSION OF SECURITIES
SECTION 2.01. Conversion of Securities of the Company. (a) By
virtue of the Merger and without any action on the part of the Company
Stockholders, at the Effective Time each share of Company Common Stock issued
and outstanding immediately prior to the Effective Time (other than any such
shares held in the treasury of the Company, which shall be canceled as provided
in paragraph (b) below, and "Dissenting Shares" as defined in Section 2.05
hereof) shall, subject to Section 6.01 hereof, be converted into the right to
receive:
(x) 4.874 shares of Series C Preferred Stock;
(y) $841.002 in cash; and
(z) a fractional interest, determined as set forth in Schedule I
hereto, in the Escrow Fund to be held in escrow as provided in
the Escrow Agreement substantially in the form of Exhibit A
hereto (the "Escrow Agreement").
(b) Treasury Stock. Each share of capital stock that is held
in the treasury of the Company shall be canceled and retired and no capital
stock of Parent or GSS, cash or other consideration shall be paid or delivered
in exchange therefor.
SECTION 2.02. Stock Options, Warrants, Etc. Each outstanding
stock option, warrant or other right to purchase shares of capital stock of the
Company shall, whether or not then exercisable or vested, be canceled, and no
capital stock of Parent or GSS, cash or other consideration shall be paid or
delivered in exchange therefor.
Section 2.03. Surrender and Exchange of Shares and Payment.
(a) At the Effective Time, upon the surrender by the Company Stockholders for
cancellation of the certificate or certificates representing all of the
outstanding shares of capital stock of the Company:
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(i) GSS shall deliver to each Company Stockholder a stock
certificate representing the number of shares of Series C Preferred
Stock set forth opposite such Company Stockholder's name on Schedule I
hereto under the heading "Number of Shares of Series C Preferred
Stock";
(ii) GSS shall pay to each Company Stockholder the amount of
cash set forth opposite such Company Stockholder's name on Schedule I
hereto under the heading "Net Cash Payment"; and
(iii) GSS shall deliver to each Company Stockholder a
certificate representing such Company Stockholder's fractional interest
in the Escrow Fund set forth opposite his or her name on Schedule I
hereto under the heading "Escrow Interest."
(b) If a certificate representing shares of the capital stock
of the Company has been lost, stolen or destroyed, the holder of such
certificate shall submit an affidavit describing the lost, stolen or destroyed
certificate, the number of shares evidenced thereby and affirming the status of
that certificate in lieu of surrendering such certificate to GSS, which shall
deem such certificate canceled; provided that GSS may require the holder of such
certificate to provide GSS with such indemnities and other undertakings as GSS
may direct as a condition to paying any consideration hereunder. Until so
surrendered, the outstanding certificates that, prior to the Effective Time,
represented shares of the capital stock of the Company that shall have been
converted as aforesaid shall be deemed for all corporate purposes, except as
hereinafter provided, to evidence the ownership of the consideration into which
such shares have been so converted.
SECTION 2.04. Closing of Stock Transfer Books. On and after
the Effective Time there shall be no transfers on the stock transfer books of
the Company of shares of capital stock of the Company that were issued and
outstanding immediately prior to the Effective Time.
SECTION 2.05. Dissenting Shares. Shares of Company Common
Stock ("Dissenting Shares") that are outstanding immediately prior to the
Effective Time and that are held by stockholders who have not voted such shares
in favor of the approval and adoption of this Agreement and who shall have
delivered a written demand for appraisal of such shares in the manner provided
in Sections 35-1-826 through 35-1-839, or their successors, of the Montana BCA
shall not be converted into the right to receive the merger consideration
provided in Section 2.01, and the holders of such shares shall be entitled to
payment for such shares only to the extent permitted by and in accordance with
the Montana BCA. Notwithstanding the foregoing, if, in
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accordance with such sections of the Montana BCA, any holder of Dissenting
Shares shall forfeit such right to payment of the fair value of such shares,
such shares shall thereupon be converted, as of the Effective Time, into the
right to receive the consideration provided in Section 2.01. In the event of
such a forfeiture, such holder of Dissenting Shares shall, as of the later of
the Effective Time and the occurrence of such event, deliver the certificate or
certificates representing such Dissenting Shares to Parent and, upon such
surrender, Parent will cause to be delivered to such stockholder the
consideration to which he is entitled pursuant to Section 2.01 hereof. The
Company shall give Parent prompt notice of any demands received by the Company
in respect of Dissenting Shares, and the Company shall not, except with the
written consent of Parent, make any payment with respect to, or settle or offer
to settle, any such demands.
SECTION 2.06 Creation of the Escrow Fund. (a) At the Effective
Time, Parent shall deposit with the escrow agent named in the Escrow Agreement
(the "Escrow Agent") $1,000,000 in cash to be held by the Escrow Agent upon the
terms and conditions set forth in the Escrow Agreement.
(b) Subject to the terms and conditions of this Section 2.06,
the amount held by the Escrow Agent in the Escrow Fund shall be reduced by an
amount, and such amount shall be paid to the Company or Parent, as Parent may
direct, in accordance with Section 3.02(a) of the Escrow Agreement, sufficient
to reimburse GSS, the Company or Parent, as the case may be, on a dollar for
dollar basis and without regard to the limitations set forth in Section 8.04
hereof, for all Damages (as defined in Section 8.03 hereof) asserted against,
resulting to, imposed upon or incurred by GSS, Parent, the Company or their
respective affiliates, by reason of, resulting from or arising out of any claim
by any person against any of the parties hereto for a finder's fee, brokerage
commission or similar payment (whether in connection with the transactions
contemplated hereby or otherwise), including, without limitation, any and all
claims made by Chris Downen against the Company in his lawsuit commenced against
the Company in the United States District Court for the Western District of
Missouri in May 1998 (the "Stockholder Litigation").
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY STOCKHOLDERS AND THE COMPANY
The Company and each Company Stockholder, severally and not
jointly, represents and warrants to GSS and Parent as follows:
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SECTION 3.01. Organization, Qualifications and Corporate
Power; Subsidiaries. (a) The Company is a corporation duly incorporated and
validly existing under the laws of the State of Montana and is duly licensed or
qualified as a foreign corporation and is in good standing in each other
jurisdiction in which it owns or leases any real property or in which the nature
of the business transacted by it makes such licensing or qualification
necessary, except where the failure to be so licensed or qualified would not
have a material adverse effect on the business, operations, properties,
prospects or condition (financial or other) of the Company. The Company has the
corporate power and authority, and the legal right, to own and operate its
properties and to carry on its business as currently conducted.
(b) The Company does not own of record or beneficially or
equitably, directly or indirectly, (i) any shares of capital stock, or
securities convertible into or exchangeable for the capital stock, of any other
corporation or (ii) any participating interest in any association, partnership,
joint venture or other non-corporate business enterprise.
SECTION 3.02. Authorization of Agreements, Validity, Etc. (a)
The Company has full legal capacity and unrestricted power to execute and
deliver this Agreement and to perform its obligations hereunder. The execution
and delivery of this Agreement by the Company, and the performance by the
Company of its obligations hereunder, have been duly authorized by all requisite
corporate action of the Company, subject to receipt of requisite stockholder
approval. This Agreement has been duly executed and delivered by the Company and
constitutes the legal, valid and binding obligation of the Company, enforceable
against it in accordance with its terms.
(b) The execution and delivery by the Company of this
Agreement, and the performance by the Company of its obligations hereunder, will
not (w) violate any provision of law, any order of any court or other agency of
government, the Articles of Incorporation or By-laws of the Company, any
judgment, award or decree or any provision of any indenture, agreement or other
instrument to which the Company is a party, or by which the Company or any of
its assets are bound or affected; (x) conflict with, result in a breach of,
create any right of acceleration or termination under or constitute (with due
notice or lapse of time or both) a default under any such indenture, agreement
or other instrument; (y) result in the creation or imposition of any lien,
charge or encumbrance of any nature whatsoever (collectively, "Liens") upon any
of the properties or assets of the Company; or (z) result in any suspension,
revocation, impairment, forfeiture or nonrenewal of any Governmental Permit (as
hereinafter defined).
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SECTION 3.03. Capitalization. (a) The authorized capital stock
of the Company consists of 50,000 shares of common stock, no par value (the
"Shares"), of which 10,463.71 shares of Company Common Stock are validly issued
and outstanding, fully paid and nonassessable, and no other shares of capital
stock have ever been issued by the Company. None of the Shares are subject to,
nor were any of them issued in violation of, any preemptive rights of
stockholders of the Company or to any right of first refusal or other similar
right in favor of any person.
(b) No subscription, warrant, option, convertible security or
other right (contingent or other) to purchase or acquire any shares of any class
of capital stock of the Company is authorized or outstanding. There is no
commitment of the Company to issue any shares, warrants, options or other such
rights or to distribute to holders of any class of its capital stock any
evidences of indebtedness or assets. The Company has no obligation (contingent
or other) to purchase, redeem or otherwise acquire any shares of its capital
stock or any interest therein or to pay any dividend or make any other
distribution in respect thereof.
SECTION 3.04. Financial Statements. The Company has previously
delivered to GSS and Parent the audited balance sheet of the Company as of
December 31, 1997 and 1996, and the related audited statements of operations,
stockholders' equity and cash flows for the years then ended, including the
notes thereto, certified by Loucks & Glassley, pllp, the independent certified
public accountants for the Company (the "Financial Statements"). The Financial
Statements were prepared from the books and records of the Company and present
fairly the financial position of the Company as of the respective dates
specified therein and results of operations and cash flows of the Company for
the respective periods then ended, all in conformity with generally accepted
accounting principles applied on a consistent basis ("GAAP"). Except as and to
the extent (i) reflected in the Financial Statements or (ii) incurred since
December 31, 1997 in the ordinary course of business and consistent with past
practice, the Company has no liabilities or obligations of any kind or nature,
whether secured or unsecured (whether absolute, accrued, contingent or
otherwise, and whether due or to become due), including without limitation any
tax liabilities due or to become due.
SECTION 3.05. Absence of Certain Changes or Events. (a) Since
December 31, 1997, except as otherwise expressly referred to in this Agreement,
the Company has not: (i) changed or amended its Articles of Incorporation or
By-laws; (ii) incurred any obligation or liability (fixed or contingent), except
normal trade or business obligations incurred in the ordinary course of business
and consistent with past practice; (iii) mortgaged, pledged or subjected to any
Lien any of its
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assets or properties (other than Permitted Liens, as defined in Section 3.07
below); (iv) transferred, leased or otherwise disposed of any of its material
assets or properties, except for fair consideration in the ordinary course of
business and consistent with past practice; (v) acquired any material assets or
properties, except in the ordinary course of business and consistent with past
practice; (vi) made any investment of a capital nature, whether by purchase of
stock or securities, contributions to capital, property transfers or otherwise,
in any other partnership, corporation or other entity; (vii) canceled or
compromised any debt or claim other than in the ordinary course of business
consistent with past practice; (viii) waived or released any rights of material
value, including, without limitation, any Intangible Rights (as defined in
Section 3.08(c) below); (ix) transferred or granted any rights under or with
respect to any Intangible Rights, or permitted any license, permit or other form
of authorization relating to an Intangible Right to lapse; (x) suffered any
casualty loss or damage (whether or not such loss or damage shall have been
covered by insurance) which affects in any material respect its ability to
conduct its business; (xi) declared, set aside or paid any distribution (whether
in cash, stock or property or any combination thereof) in respect of its capital
stock, redeemed or otherwise acquired any of its capital stock, split, combined
or otherwise similarly changed its capital stock, or authorized the creation or
issuance of or issued or sold any capital stock or any securities or obligations
convertible into or exchangeable therefor, or gave any person any right to
acquire any of its capital stock; (xii) made or granted any wage or salary
increase or adopted or modified any severance arrangements applicable to any
group or classification of employees generally, entered into any employment
contract with, or made any loan to, or granted any severance benefits to, or
entered into any material transaction of any other nature with, any officer or
employee of the Company; or (xiii) entered into any agreement, contract or
commitment to take any of the actions set forth in clauses (i) through (xii)
above.
(b) Since December 31, 1997, there has been no material
adverse change in the business, operations, properties, prospects or condition
(financial or otherwise) of the Company.
SECTION 3.06. Governmental Approvals. No order, authorization,
approval or consent from, or filing with, any federal or state governmental or
public body or other authority having jurisdiction over the Company is required
for the execution, delivery and performance of this Agreement by the Company,
is necessary in order to ensure the legality, validity, binding effect or
enforceability of this Agreement, or is necessary in order that the business of
the Company can be conducted by GSS immediately following the Closing Date
substantially in the same manner as heretofore conducted.
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SECTION 3.07. Title to Properties, Absence of Liens and
Encumbrances. The Company has good and valid title to all its assets and
properties, in each case free and clear of all Liens, other than (x) liens for
taxes not yet due, or (y) mechanic's, materialman's, landlord's and similar
statutory liens arising in the ordinary course of business and which, in the
aggregate, are not material in nature or amount and could not materially detract
from the value of or materially impair the use of the property subject thereto
or impair the operations or proposed operations of the Company, or (z) security
interests securing indebtedness not in default for the purchase price of or
lease rental payments on property purchased or leased under capital lease
arrangements in the ordinary course of business (the Liens described in clauses
(x), (y) and (z) above being referred to herein as "Permitted Liens").
SECTION 3.08. List of Properties, Contracts and Other Data.
Annexed hereto as Schedule 3.08 is a list setting forth the following:
(a) a description of all real property owned by the Company;
(b) a description of all leases of real or personal property
to which the Company is a party, either as lessee or lessor, including
a description of the parties to each such lease, the property to which
each such lease relates, the rental term and, in the case of real
property leases, the monthly (or other) rents payable under each such
lease;
(c) (i) all patents, trademarks and trade names, trademark and
trade name registrations, logos, servicemark registrations, copyright
and copyright registrations, all applications pending on the date
hereof for patent or for trademark, trade name, servicemark or
copyright registrations, and all other material proprietary rights
(collectively, "Intangible Rights") owned by the Company, and (ii) all
licenses granted by or to the Company and all other agreements to which
the Company is a party that relate, in whole or in part, to any such
Intangible Rights or to other proprietary rights reasonably necessary
to the Company;
(d) all collective bargaining agreements, employment and
consulting agreements, independent contractor agreements, executive
compensation plans, bonus plans, deferred compensation agreements,
employee pension plans or retirement plans, employee profit sharing
plans, employee stock purchase and stock option plans, group life
insurance, hospitalization insurance or other similar plans or arrange-
ments maintained for or providing benefits to employees of, or
independent contractors or other agents of the Company; and
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(e) all contracts, including, without limitation, guarantees,
mortgages, indentures and loan agreements, to which the Company is a
party, or to which the Company or any of its assets or properties is
subject and which are not specifically referred to in clauses (b), (c),
or (d) above; provided, however, that there need not be listed on said
Schedule 3.08 pursuant to this clause (e) any sales con tracts,
contracts with suppliers and other such contracts incurred in the
ordinary course of business and consistent with past practice, other
than any such contract which (i) is a contract or group of related
contracts that exceeds $10,000 in amount, (ii) contains warranties by
the Company in excess of those customary in its business or (iii)
cannot be performed in the normal course within 12 months after the
Closing Date without breach or penalty.
True and complete copies of all documents and complete
descriptions of all binding oral commitments (if any) referred to in said
Schedule 3.08 have been provided to GSS and its counsel. All material provisions
of the contracts referred to in such Schedule are valid and enforceable
obligations of the Company and of the other parties thereto. The Company has not
been notified of any claim that any contract referred to in such Schedule is not
valid and enforceable in accordance with its terms for the periods stated
therein, or that there is under any such contract any existing default or event
of default or event which (with notice or lapse of time or both) would
constitute such a default. Except as set forth on Schedule 3.08, the
consummation of the transactions contemplated hereby shall not (i) constitute a
default or an event which (with notice or lapse of time or both) would
constitute a default under any such contract, (ii) give rise to a right of
termination thereunder, (iii) constitute a prohibited assignment thereof or (iv)
otherwise alter any of the Company's rights or obligations thereunder.
SECTION 3.09. Intangible Rights. (a) The Intangible Rights
constitute all such proprietary rights that are necessary to the conduct of the
Company's business. The Company owns or has valid rights to use all the
Intangible Rights without conflict with the rights of others. No person has
made or, to the best knowledge of the Company, threatened to make, any claims
that the use by the Company of the Intangible Rights or the operations of the
Company's business are in violation of or infringe upon any intellectual
property rights or any other proprietary or trade rights of any third party.
(b) The consummation of the transactions contemplated hereby
will not alter or impair any Intangible Rights.
(c) The Company has taken and is taking reasonable precautions
to protect any material trade secrets and other confidential information
included in the Intangible Rights. No
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person is infringing on or violating the Intangible Rights, trade secrets or
know-how used by the Company.
SECTION 3.10. Software. (a) The Company holds valid licenses
to all copies of the operating and applications computer software programs and
databases (collectively, the "Software") used by it, other than any portion
thereof that was developed by or under contract with the Company (collectively,
the "Proprietary Software"). The Company either owns outright, or has a
perpetual, royalty-free license to, the Proprietary Software used by it, and
such Company has not sold, licensed, leased or other wise transferred or granted
any interest or rights to any there of. Neither the Proprietary Software nor the
use by the Company of the Software infringes upon or violates any patent,
copyright, trade secret or other proprietary right of any other person and, to
the best knowledge of the Company, no claim with respect to any such
infringement or violation is threatened. The Company has taken all steps
necessary to protect its right, title and interest in and to the Software owned
by it.
(b) Upon consummation of the transactions contemplated by this
Agreement, GSS will continue to own all the Proprietary Software, free and clear
of all Liens, and, with respect to all agreements for the lease or license of
Software that require consents or other actions as a result of the consummation
of the transactions contemplated hereby in order for GSS to continue to use and
operate such Software after the Closing Date, the Company will have obtained
such consents or taken such other actions so required.
SECTION 3.11. Litigation, Etc. (a) Schedule 3.11 hereto sets
forth a complete list and an accurate description of all claims, actions, suits,
proceedings and investigations pending or, to the best knowledge of the Company,
threatened, by or against the Company or any of its properties, assets, rights
or businesses. No such pending or threatened claims, actions, suits, proceedings
or investigations, if adversely determined, would, individually or in the
aggregate, have a material adverse effect on the business, properties, prospects
or condition (financial or other) of the Company. The Company does not know of
any basis for any other such claim, action, suit, proceeding or investigation
which, if adversely decided, would have such a material adverse effect.
(b) There are no actions, suits, proceedings or claims pending
before or by any court, arbitrator, regulatory authority or government agency
against or affecting the Company that might enjoin or prevent the consummation
of the transactions contemplated by this Agreement.
SECTION 3.12. Taxes. (a) Except as set forth on Schedule 3.12
hereto, the Company has duly and timely filed all
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returns, declarations, reports, estimates, information returns and statements
("Returns") required to be filed by it in respect of any Taxes (as hereinafter
defined) for all years and periods for which such Returns have become due, and
all such Returns (including all informational Returns) were correct and complete
as filed.
(b) The Company (and each Company Stockholder, if failure to
pay by such Company Stockholder would result in liability to the Company) has
paid all Taxes, or where payment is not yet due, has established, or will
establish, consistent with past practice, an adequate reserve on its books and
records for the payment of all Taxes with respect to any taxable period ending
on or prior to the Closing Date (or otherwise relating or attributable to
periods up to and including the Closing Date). The Company has complied with all
applicable laws, rules and regulations relating to the payment and withholding
of Taxes and has timely withheld from employee wages and paid over to the proper
governmental authorities when due all amounts required to be so withheld and
paid over (including, without limitation, federal income taxes, Federal
Insurance Contribution Act ("FICA") taxes, state and local income and wage
taxes, payroll taxes, workers' compensation and unemployment compensation
taxes).
(c) The Company (and each Company Stockholder, if failure to
pay by such Company Stockholder would result in liability to the Company) is not
delinquent in the payment of any Taxes and neither the Company nor any Company
Stockholder has requested any extension of time within which to file any Return,
which Return has not since been filed on a timely basis. There is no deficiency,
claim, audit, action, suit, proceeding or investigation now pending or
threatened against or with respect to the Company (or any Company Stockholder to
the extent related to the Company) in respect of any Taxes. There are no
requests for rulings or determinations in respect of any Taxes pending between
the Company or any Company Stockholder and any taxing authority, and no such
rulings or determinations have been received by the Company or any Company
Stockholder.
(d) Except as set forth on Schedule 3.12 hereto, neither the
Company nor any Company Stockholder has executed or entered into (and will not
enter into on or prior to the Closing Date) with the Internal Revenue Service or
any other taxing authority (i) any agreement or other document extending or
having the effect of extending the period for assessment or collection of any
Taxes for which the Company would be liable or (ii) a closing agreement pursuant
to Section 7121 of the Code, or any predecessor or successor provision thereof
or any similar provision of state, local or foreign Tax law that relates to the
assets or operations of the Company.
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(e) The Company is not party to any agreement, contract or
arrangement that would result, by reason of the consummation of any of the
transactions contemplated hereby, separately or in the aggregate, in the payment
of any "excess parachute payment" within the meaning of Section 280G of the
Code.
(f) The Company has timely filed a valid election to be
treated as an S corporation in accordance with the provisions of Section 1362(a)
of the Code, effective for its tax year beginning January 1, 1995 and at all
times subsequent thereto, and the Company has qualified and continues to qualify
as an S corporation for all years and periods thereafter through and including
the Closing Date. Schedule 3.12 hereto lists all the states and localities with
respect to which the Company is required to file any corporate, income and/or
franchise tax returns and sets forth whether the Company is treated as the
equivalent of an S corporation by or with respect to each such state and/or
locality. Except as set forth on Schedule 3.12 hereto, the Company does not hold
any asset which, if sold or otherwise disposed of by the Company, could give
rise to any taxable income pursuant to Section 1374 of the Code or any similar
provision of state or local law.
(g) For purposes of this Agreement, "Tax" (and with
correlative meaning, "Taxes") shall mean (i) any net income, gross income, gross
receipts, franchise, profits, license, sales, use, ad valorem, value added,
property, payroll, withholding, FICA, unemployment, excise, severance, transfer,
employment, alternative or add-on minimum, stamp, occupation, premium,
environmental or windfall profits taxes, customs duties or other taxes,
governmental fees or other like assessments or charges of any kind whatsoever,
together with any interest or any penalty, addition to tax or additional amount
imposed by any governmental authority responsible for the imposition of any such
taxes (domestic or foreign) or (ii) any liability of the Company for the payment
of any amounts of the type described in (i).
SECTION 3.13. Governmental Authorizations and Regulations.
The Company has all governmental licenses, franchises, permits and other
governmental authorizations ("Governmental Permits") necessary for the conduct
of its business. The business of the Company is being conducted in compliance
in all material respects with all applicable laws, ordinances, rules and
regulations of all governmental authorities relating to its properties or
applicable to its business. Neither the Company nor any Company Stockholder has
received any notice of any alleged violation of any of the foregoing. Neither
the Company nor any of the Company's properties, operations or businesses is
subject to any order, judgment, injunction or decree.
SECTION 3.14. Labor Matters. The Company has not received
notice of any claim that the Company has failed to comply
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with any laws relating to employment, including any provisions thereof relating
to wages, hours, collective bargaining, the payment of social security and other
payroll or similar taxes, equal employment opportunity, employment
discrimination or harassment and employment safety, or that the Company is
liable for any arrears of wages or any taxes or penalties for failure to comply
with any of the foregoing.
SECTION 3.15. Insurance. All policies of fire, liability,
workers' compensation and other forms of insurance providing insurance coverage
to or for the Company are listed on Schedule 3.15 hereto. The Company is a named
insured under such policies, all premiums with respect thereto covering all
periods up to and including the Closing Date have been paid, and no notice of
cancellation or termination has been received with respect to any such policy.
All such policies are in full force and effect and will remain in full force and
effect to and including the Closing Date, and coverage will continue to be in
effect immediately after the Closing Date, without limit as to time, for
occurrences prior to the Closing Date. Neither any Company Stockholder nor any
such insurer has any right of payment, whether by way of set-off, indemnity or
otherwise, of any nature whatsoever against the Company in respect of any
recovery by the Company under any such policy.
SECTION 3.16. Use of Real Property. The leased real properties
listed on Schedule 3.08 hereto are used and operated by the Company in material
compliance and conformity with all applicable leases. The Company has not
received notice of any violation of any applicable zoning or building
regulation, ordinance or other law, order, regulation or requirement relating to
the real estate operations or assets of the Company and, to the best knowledge
of the Company, there are no such violations.
SECTION 3.17. Condition of Assets. All tangible personal
property, fixtures and equipment comprising the assets of the Company are in a
good state of repair (ordinary wear and tear excepted) and operating condition
and are sufficient and adequate to conduct its business on the date hereof.
SECTION 3.18. Accounts Receivable. The accounts receivable
reflected on the balance sheet of the Company as of December 31, 1997, and all
accounts receivable arising between December 31, 1997 and the date hereof, arose
from bona fide transactions in the ordinary course of business with unaffiliated
third parties, and the goods and services involved have been sold, delivered and
performed to the account obligors, and no further goods are required to be
provided and no further services are required to be rendered in order to
complete the sales and fully render the services and to entitle the Company to
collect its accounts receivable in full. To the best knowledge of the Company,
there is not any dispute as to the validity or collecti-
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bility of such accounts receivable and, neither any such account receivable nor
any note receivable has been assigned or pledged to any other person, firm or
corporation or is subject to any right of set-off in respect of any obligations
of such unaffiliated third party or otherwise.
SECTION 3.19. Books and Records. The corporate minute books
and stock record books of the Company completely and accurately reflect in all
material respects the corporate proceedings of the Company and properly and
accurately record the issuance and transfer of all shares of capital stock of
the Company.
SECTION 3.20. Employee Benefit Plans. (a) The Company has
complied and currently is in compliance, both as to form and operation, with the
applicable provisions of the Employee Retirement Income Security Act of 1974
("ERISA") and the Code applicable to each employee benefit plan within the
meaning of Section 3(3) of ERISA maintained by the Company or to which the
Company contributes or is required to contribute or in which any employee of the
Company participates (a "Plan").
(b) Each Plan that is intended to qualify under Section 401(a)
of the Code does so qualify and is exempt from taxation pursuant to Section
501(a) of the Code.
(c) The Company has not maintained, contributed to or been
required to contribute to, nor do any of its employees participate in, a
"multiemployer plan" (as defined in Section 3(37) of ERISA) or a "defined
benefit plan" (as defined in Section 3(35) of ERISA). No amount is due or owing
from the Company on account of a multiemployer plan or on account of any
withdrawal therefrom.
(d) The Company has not incurred any liability with respect to
any Plan under ERISA (including, without limitation, Title I or Title IV of
ERISA), the Code or other applicable law that has not been satisfied in full,
and no event has occurred, and there exists no condition or set of circumstances
that could result in the imposition of any liability under ERISA (including,
without limitation, Title I or Title IV of ERISA), the Code or other applicable
law with respect to any of the Plans.
(e) No Plan, other than a Plan that is an employee pension
benefit plan (within the meaning of Section 3(2)(A) of ERISA), provides
benefits, including, without limitation, death, health or medical benefits
(whether or not insured), with respect to current or former employees of the
Company beyond their retirement or other termination of service with the Company
(other than (i) coverage mandated by applicable law, (ii) deferred compensation
benefits accrued as liabilities on the books of the Company or (iii) benefits
the full cost of which is borne by the current or former employee (or his
beneficiary)).
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(f) Except as set forth on Schedule 3.20, the consummation of
the transactions contemplated by this Agreement will not (i) entitle any current
or former employee or officer of the Company to severance pay, unemployment
compensation or any other payment, or (ii) accelerate the time of payment or
vesting, or increase the amount, of compensation due any such employee or
officer.
(g) The Company has provided to GSS for each Plan true and
complete copies of the following: (i) each Plan document and summary plan
descriptions; (ii) each trust agreement, insurance policy or other instrument
relating to the funding of such Plan; (iii) the most recent Annual Report (Form
5500 series) and accompanying schedule filed with the Internal Revenue Service
or United States Department of Labor; (iv) the most recent audited financial
statements; (v) the most recent actuarial report; and (vi) each policy of
fiduciary liability insurance (and agreements related thereto) maintained in
connection therewith.
SECTION 3.21. Transactions with Affiliates. There are no
agreements for the provision of goods, properties or services to the Company by
any of the Company Stockholders or any "affiliate" or "associate" (as defined
in Rule 12b-2 under the Securities Exchange Act of 1934, as amended) of any of
the Company Stockholders.
SECTION 3.22. Environmental Matters. (a) For the purposes of
this Section 3.22, the following terms shall have the following meanings:
"Environmental Law" shall mean any federal, state, provincial
or local statute, law, ordinance, rule or regulation and any order to
which the Company is a party or is otherwise bound relating to
pollution or protection of the environment, including natural
resources, or exposure of persons, including employees, to Hazardous
Substances;
"Hazardous Substances" shall mean any substance, whether
liquid, solid or gas, listed, identified or designated as hazardous or
toxic under any Environmental Law, which, applying criteria specified
in any Environmental Law, is hazardous or toxic, or the use or disposal
of which is regulated under any Environmental Law.
(b) No Hazardous Substances have been discharged, released or
emitted into the air, water, surface water, ground water, land surface or
subsurface strata or transported to or from the property of the Company except
in accordance with all applicable Environmental Laws and except for incidental
releases of Hazardous Substances in amounts or concentrations that would not
reasonably be expected to give rise to any claims or liabilities against the
Company under any Environmental Law.
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(c) The Company has not received any notification from a
governmental agency that there is any violation of any Environmental Law with
respect to the business and properties of the Company or have received any
notification from a governmental agency pursuant to Section 104, 106 or 107 of
the Comprehensive Environmental Response Compensation and Liability Act, as
amended.
SECTION 3.23. System Data. The Company purchased from the
National Rural Television Cooperative ("NRTC") the right to provide DIRECTV
programming services to approximately 16,615 Homes passed by cable television
services and approximately 14,388 Homes unpassed by cable television services as
of October 1992. As used herein, "Homes" means single family residences and
individual dwelling units within any building containing multiple dwelling
units. Schedule 3.23 sets forth the Company's rates for satellite services, a
breakdown of the channel packages sold and a general description marketing
promotions and discounts offered to subscribers since January 1, 1997 and those
which may affect the Company's business after the Closing Date.
SECTION 3.24. Exclusive Rights. The Company currently holds
the NRTC Member Agreement for Marketing and Distribution of DBS Programming
Services for the areas set forth on Schedule 3.24 hereto and any such agreement
is in full force and effect with no defaults thereunder.
SECTION 3.25. Offering of the Shares. The Company has not
authorized anyone in connection with the offering or sale of the Company Common
Stock, or any similar securities of the Company, nor has taken or will take any
action (including without limitation any offer or sale of any securities under
circumstances which would require the integration under the Securities Act of
1933 (the "Securities Act"), or the rules and regulations of the Securities and
Exchange Commission thereunder, of such securities with the Shares being sold by
the Company Stockholders hereunder) which would subject the transactions
contemplated hereby to the registration provisions of the Securities Act.
SECTION 3.26. Share Transfer Restriction Agreement. The
provisions of the Share Transfer Restriction Agreement dated July 30, 1993,
among the Company and the stockholders party thereto are inapplicable to the
transactions contemplated by this Agreement.
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ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF THE
COMPANY STOCKHOLDERS AS TO THEMSELVES
Each of the Company Stockholders, severally and not jointly,
represents and warrants to GSS and Parent as follows:
SECTION 4.01. Authorization of Agreements, Validity, Etc. (a)
Such Company Stockholder has full legal capacity and unrestricted power to
execute and deliver this Agreement and to perform his/her obligations hereunder.
This Agreement has been duly executed and delivered by such Company Stockholder
and constitutes the legal, valid and binding obligation of such Company
Stockholder, enforceable against him/her in accordance with its terms.
(b) The execution and delivery by such Company Stockholder of
this Agreement, and the performance by such Company Stockholder of his/her
obligations hereunder, will not (w) violate any provision of law, any order of
any court or other agency of government, the Articles of Incorporation or
By-laws of the Company, any judgment, award or decree or any provision of any
indenture, agreement or other instrument to which such Company Stockholder is a
party, or by which such Company Stockholder or any of his/her assets are bound
or affected; (x) conflict with, result in a breach of, create any right of
acceleration or termination under or constitute (with due notice or lapse of
time or both) a default under any such indenture, agreement or other instrument;
(y) result in the creation or imposition of any Liens upon any of the properties
or assets of such Company Stockholder; or (z) result in any suspension,
revocation, impairment, forfeiture or nonrenewal of any Governmental Permit.
SECTION 4.02. Title to Shares. Such Company Stockholder is
the lawful holder of record and beneficial owner of the Shares listed opposite
his/her name on Schedule I hereto, free and clear of any and all Liens.
SECTION 4.03. Governmental Approvals. No registration or
filing with, or consent or approval of, or other action by, any Federal, state
or other governmental agency or instrumentality is or will be necessary by such
Company Stockholder for the valid execution, delivery and performance of this
Agreement.
SECTION 4.04. Brokers' or Finders' Fees. All negotiations
relative to this Agreement and the transactions contemplated hereby have been
carried out by the Company Stockholders directly with GSS and Parent, without
the intervention of any person on behalf of the Company Stockholders in such
manner as to give rise to any claim by any person against
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any of the parties hereto for a finder's fee, brokerage commission or similar
payment.
SECTION 4.05. Investment Representations. (1) Such Company
Stockholder is acquiring the Series C Preferred Stock hereunder for his/her own
account, for investment, and not with a view toward the resale or distribution
thereof.
(2) Such Company Stockholder understands that he/she must bear
the economic risk of his/her investment for an indefinite period of time because
the shares of Series C Preferred Stock acquired hereunder are not registered
under the Securities Act or any applicable state securities laws, and may not be
resold unless subsequently registered under the Securities Act and such other
laws or unless an exemption from such registration is available. Such Company
Stockholder also understands that it is not contemplated that any registration
will be made under the Securities Act or that Parent will take steps which will
make the provisions of Rule 144 or Rule 144A under the Securities Act available
to permit resale of the Series C Preferred Stock. Such Company Stockholder
agrees not to pledge, transfer, convey or otherwise dispose of any of the Series
C Preferred Stock held by him/her, except in a transaction that is the subject
of either (i) an effective registration statement under the Securities Act and
any applicable state securities laws, or (ii) an opinion of counsel to the
effect that such registration is not required (which opinion and counsel shall
be reasonably satisfactory to Parent, it being agreed that Reboul, MacMurray,
Hewitt, Maynard & Kristol shall be satisfactory, and may be relied on by Parent
in making such determination).
(3) Such Company Stockholder is able to fend for
himself/herself in the transactions contemplated by this Agreement and he/she
has the ability to bear the economic risks of the investment in the Series C
Preferred Stock being acquired hereunder for an indefinite period of time.
(4) Such Company Stockholder represents that he/she has
carefully reviewed the Confidential Disclosure Memorandum dated May 1998
furnished by Parent to him/her in connection with the transactions contemplated
hereby (the "Memorandum"), has had an opportunity to discuss GSS's and Parent's
business, management and financial affairs with directors, officers and
management of GSS and Parent and has had the opportunity to investigate GSS's
and Parent's operations and facilities. Such Company Stockholder has such
knowledge and experience in financial and business matters that he/she is
capable of evaluating the merits and risks of his/her investment in the Series C
Preferred Stock. Such Company Stockholder further represents that he/she is an
"accredited investor" as such term is defined in Rule 501 of Regulation D of the
SEC under the Securities Act with respect to
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<PAGE> 25
such Company Stockholder's acquisition of Series C Preferred Stock hereunder.
SECTION 4.06. Litigation, Etc. There are no actions, suits,
proceedings or claims pending before or by any court, arbitration, regulatory
authority or government agency against or affecting such Company Stockholder
that might enjoin or prevent the consummation of the transactions contemplated
by this Agreement.
SECTION 4.07. Offering of the Shares. Such Company Stockholder
has not, nor has such Company Stockholder as agent, broker, dealer or otherwise
in connection with the offering or sale of the Company Common Stock, or any
similar securities of the Company, taken or will take any action (including
without limitation any offer or sale of any securities under circumstances
which would require the integration under the Securities Act, or the rules and
regulations of the Securities and Exchange Commission thereunder, of such
securities with the Shares being sold by such Company Stockholder hereunder)
which would subject the transactions contemplated hereby to the registration
provisions of the Securities Act.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF GSS AND PARENT
GSS and Parent represent and warrant to the Company
Stockholders as follows:
SECTION 5.01. Organization, Qualifications and Corporate
Power; Subsidiaries. GSS and Parent are corporations duly incorporated and
validly existing under the laws of the State of Delaware and are duly licensed
or qualified as a foreign corporations and are in good standing in each other
jurisdiction in which they own or lease any real property or in which the nature
of the business transacted by them makes such licensing or qualification
necessary. GSS and Parent each have the corporate power and authority, and the
legal right, to own and operate their properties and to carry on their business
as currently conducted.
SECTION 5.02. Authorization of Agreements, Validity, Etc. (a)
GSS and Parent have full legal capacity and corporate power to execute and
deliver this Agreement and to perform their respective obligations hereunder.
The execution and delivery of this Agreement by GSS and Parent, and the
performance by GSS and Parent of their respective obligations hereunder, have
been duly authorized by all requisite corporate action of GSS and Parent. This
Agreement has been duly executed and delivered by GSS and Parent and constitute
the legal, valid and binding obligation of
20
<PAGE> 26
GSS and Parent, enforceable against them in accordance with its terms.
(b) The execution and delivery by GSS and Parent of this
Agreement, and the performance by GSS and Parent of their respective obligations
hereunder, will not (w) violate any provision of law, any order of any court or
other agency of government, the Certificates of Incorporation or By-laws of GSS
or Parent, any judgment, award or decree or any provision of any indenture,
agreement or other instrument to which GSS or Parent is a party, or by which GSS
or Parent or any of their assets are bound or affected; (x) conflict with,
result in a breach of, create any right of acceleration or termination under or
constitute (with due notice or lapse of time or both) a default under any such
indenture, agreement or other instrument; (y) result in the creation or
imposition of any Liens upon any of the properties or assets of GSS or Parent;
or (z) result in any suspension, revocation, impairment, forfeiture or
nonrenewal of any Governmental Permit.
SECTION 5.03. Capitalization. (a) The authorized capital stock
of Parent consists of: (a) 1,000,000 shares of Common Stock, par value $.01, of
which 100 shares are duly and validly issued, outstanding, fully paid, and
nonassessable; (b) 1,344,000 shares of designated preferred stock, par value
$.01 per share, of which (i)418,000 shares have been designated as Series A
Convertible Participating Preferred Stock, all of which are duly and validly
issued, outstanding, fully paid, and nonassessable, (ii) 228,500 shares have
been designated as Series B Convertible Preferred Stock, all of which are duly
and validly issued, outstanding, fully paid, and nonassessable,(iii) 418,000
shares have been designated as Series A Redeemable Preferred Stock, none of
which are outstanding or will be outstanding as of the Closing,(iv) 228,500
shares have been designated as Series B Redeemable Preferred Stock, none of
which are outstanding or will be outstanding as of the Closing, and (v) 51,000
shares of Series C Preferred Stock, all of which will be, as of the Closing,
duly and validly issued, outstanding, fully paid and nonassessable; and
(c)249,000 shares of undesignated preferred stock, par value $.01 per share. The
Series C Preferred Stock has the powers, preferences and rights set forth in the
Certificate of Designations attached hereto as Exhibit B. The shares of Series C
Preferred Stock shall be initially convertible upon issuance into an aggregate
51,000 shares of Common Stock. None of the Series C Preferred Stock are subject
to, nor were any of them issued in violation of, any preemptive rights of
shareholders of GSS or Parent or to any right of first refusal or other similar
right in favor of any person. GSS and Parent believe that, as of the date
hereof, the shares of Series C Preferred Stock to be issued in the Merger have a
fair market value at least equal to the liquidation value thereof and GSS and
Parent will take that position for financial reporting and tax purposes.
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(b) Except as otherwise set forth on Schedule 5.03 hereto, (i)
no subscription, warrant, option, convertible security or other right
(contingent or other) to purchase or acquire any shares of any class of capital
stock of GSS or Parent is authorized or outstanding; (ii) there is not any
commitment of GSS or Parent to issue any shares, warrants, options or other such
rights or to distribute to holders of any class of its capital stock any
evidences of indebtedness or assets; and (iii) GSS and Parent have no obligation
(contingent or other) to purchase, redeem or otherwise acquire any shares of
their capital stock or any interest therein or to pay any dividend or make any
other distribution in respect thereof.
SECTION 5.04. Financial Statements. Parent has previously
delivered to the Company the consolidated audited balance sheet of Parent as of
December 31, 1997 and 1996, and the related audited statements of operations,
stockholders' equity and cash flows for the years then ended, including the
notes thereto, certified by KPMG Peat Marwick LLP, the independent certified
public accountants for Parent (the "Parent Financial Statements"). The Parent
Financial Statements were prepared from the books and records of Parent and
present fairly the financial position of Parent as of the respective dates
specified therein and results of operations and cash flows of Parent for the
respective periods then ended, all in conformity with GAAP. Except as and to the
extent (i) reflected in the Parent Financial Statements, (ii) incurred since
December 31, 1997 in the ordinary course of business and consistent with past
practice, or (iii) set forth in the Offering Memorandum of GSS dated July 24,
1998, Parent has no liabilities or obligations of any kind or nature, whether
secured or unsecured (whether absolute, accrued, contingent or otherwise, and
whether due or to become due), including without limitation any tax liabilities
due or to become due.
SECTION 5.05. Absence of Certain Changes or Events. (a) Since
December 31, 1997, except (x) as otherwise set forth in the Offering Memorandum
of GSS dated July 24, 1998 or (y) as otherwise expressly referred to in this
Agreement, neither GSS nor Parent has: (i) changed or amended their Certificates
of Incorporation or By-laws; (ii) incurred any obligation or liability (fixed or
contingent), except normal trade or business obligations incurred in the
ordinary course of business and consistent with past practice; (iii) mortgaged,
pledged or subjected to any Lien any of their assets or properties; (iv)
transferred, leased or otherwise disposed of any of their material assets or
properties, except for fair consideration in the ordinary course of business and
consistent with past practice; (v) acquired any material assets or properties,
except in the ordinary course of business and consistent with past practice;
(vi) made any investment of a capital nature, whether by purchase of stock or
securities, contributions to capital,
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property transfers or otherwise, in any other partnership, corporation or other
entity; (vii) canceled or compromised any debt or claim other than in the
ordinary course of business consistent with past practice; (viii) waived or
released any rights of material value, including, without limitation, any
Intangible Rights owned by GSS or Parent; (ix) transferred or granted any rights
under or with respect to any Intangible Rights owned by GSS or Parent, or
permitted any license, permit or other form of authorization relating to an
Intangible Right owned by GSS or Parent to lapse; (x) suffered any casualty loss
or damage (whether or not such loss or damage shall have been covered by
insurance) which affects in any material respect their ability to conduct their
business; (xi) declared, set aside or paid any distribution (whether in cash,
stock or property or any combination thereof) in respect of their capital
stock, redeemed or otherwise acquired any of their capital stock, split,
combined or otherwise similarly changed their capital stock, or authorized the
creation or issuance of or issued or sold any capital stock or any securities or
obligations convertible into or exchangeable therefor, or gave any person any
right to acquire any of their capital stock; (xii) made or granted any wage or
salary increase or adopted or modified any severance arrangements applicable to
any group or classification of employees generally, entered into any employment
contract with, or made any loan to, or granted any severance benefits to, or
entered into any material transaction of any other nature with, any officer or
employee of either GSS or Parent; or (xiii) entered into any agreement, contract
or commitment to take any of the actions set forth in clauses (i) through (xii)
above.
(b) Since December 31, 1997, there has been no material
adverse change in the business, operations, properties or condition (financial
or otherwise) of GSS or Parent.
SECTION 5.06. Governmental Approvals. No order, authorization,
approval or consent from, or filing with, any federal or state governmental or
public body or other authority having jurisdiction over GSS or Parent is
required for the execution, delivery and performance by either GSS or Parent of
this Agreement, or is necessary in order to ensure, with respect to GSS and
Parent, the legality, validity, binding effect or enforceability of this
Agreement.
SECTION 5.07. Litigation Relating to Transaction. There are no
actions, suits, proceedings or claims pending before any court, arbitrator or
government agency against or affecting GSS or Parent that might enjoin or
prevent the consummation of the transactions contemplated by this Agreement.
SECTION 5.08. Disclosure. The Memorandum furnished to the
stockholders of the Company in connection with the transactions contemplated
hereby does not contain any untrue
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statement of material fact or omit to state any fact necessary to make the
statements contained therein, in light of the circumstances in which they were
made, not misleading.
ARTICLE VI.
COVENANTS
SECTION 6.01. Certain Covenants of the Company Stockholders.
(a) During the period from the date of this Agreement to the Closing Date, the
Company Stockholders shall cause the Company to conduct its business and
operations according to its ordinary course of business consistent with past
practice and to use its best efforts (i) to preserve its relationships with
suppliers, customers, employees and independent contractors, (ii) to maintain
the contracts with its customers in full force and effect in accordance with
their terms and (iii) to ensure that the Company will continue to provide its
services to its customers. Without limiting the generality of the foregoing,
prior to the Closing Date, without the prior written consent of GSS, the Company
Stockholders shall not permit the Company to (x) change the rates charged for
services from those listed on Schedule 3.23 unless nationally advertised by
DIRECTV or unless the Company experiences a wholesale cost increase greater than
[10]%, or (y) do any of the things listed in clauses (i) through (xiii) of
Section 3.05(a) above; provided, that prior to the Closing Date the Company may
declare and pay out of the Company's cash reserves dividends to its stockholders
in an aggregate amount not exceeding the amount of cash on hand as of the
Closing after the payment of all trade payables in the ordinary course, less all
legal, accounting and other expenses related to this Agreement and the
transactions contemplated hereby (collectively, "Transaction Expenses") unpaid
as of the Closing, except that if the Transaction Expenses shall exceed such
cash amount, such excess shall be deducted from the cash otherwise payable to
the Company Stockholders pursuant to Section 2.01 hereof.
(b) Between the date hereof and the Closing Date, the Company
Stockholders shall, and shall cause the Company to, provide access to GSS's and
Parent's representatives to the premises, key employees and financial,
accounting and legal records of the Company. Such activities shall be performed,
so far as is reasonably possible, in such a manner as to minimize disruption of
normal operations.
(c) Between the date hereof and the Closing Date, the Company
Stockholders shall not permit the Company, except as required by GAAP, (i) to
use accounting principles different from those used in the preparation of the
Financial Statements, (ii) change in any manner its method of maintaining its
books of account and records from such methods as in effect on December
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31, 1997, or (iii) accelerate booking of revenues or the deferral of expenses,
other than as shall be consistent with past practice and in the ordinary course
of business.
(d) As promptly as practicable following the execution and
delivery of this Agreement, the Company and the Company Stockholders shall use
their best efforts to (i) call and hold a special meeting of the stockholders of
the Company for the purpose of approving this Agreement and the transactions
contemplated hereby, and (ii) secure such approval. Each of the Company
Stockholders hereby agrees to vote in favor of this Agreement and the
transactions contemplated hereby at such special meeting, and hereby grants to
Mr. Rodney A. Weary and Ms. Jo Ellen Linn a proxy (which proxy shall be deemed
coupled with an interest and irrevocable) to vote accordingly.
(e) Between the date hereof and the Closing Date, the Company
Stockholders (together with their affiliates and associates) shall not, and
shall cause the Company not to, enter into any transaction, make any agreement
or commitment, or take any action, that would result in any of the
representations, warranties or covenants of the Company Stockholders or the
Company contained in this Agreement not being true and correct at and as of the
time immediately after the occurrence of such transaction, event or action.
SECTION 6.02. Certain Tax Matters. (a) GSS and the Company
Stockholders shall jointly prepare and timely file (or cause to be prepared and
timely filed), for all taxable periods ending on or before the Closing Date, all
federal, state, local and foreign Returns required to be filed after the Closing
Date with respect to the Company; and the Company Stockholders shall be
responsible for (and shall pay) all Taxes shown to be due thereon. GSS shall
prepare and file (or cause to be filed) on a timely basis all separate federal,
state, local and foreign Returns of the Company for any taxable period beginning
before and ending after the Closing Date; and the Company Stockholders shall be
responsible for (and shall pay) the Taxes shown to be due thereon to the extent
attributable (determined on a closing of the books basis) to the portion of such
taxable period ending on and including the Closing Date and GSS shall be
responsible for the balance of the Taxes due thereon. All Returns of the Company
(or which include the results of operations of the Company) required to be filed
after the Closing Date with respect to any period ending before or including the
Closing Date shall be prepared in a manner consistent with the Returns filed
prior to the Closing Date.
(b) The parties hereto shall, for all Tax purposes, treat the
Merger, pursuant to the terms and conditions set forth herein, as constituting a
reorganization under Section 368(a)(2)(D) of the Code. However, it is understood
and agreed
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that none of GSS, Parent, or any of their respective affiliates is making any
representation or warranty to any person as to whether or not (i) the Merger,
pursuant to the terms and conditions set forth herein, will qualify as a
reorganization under Section 368(a)(2)(D) of the Code or (ii) the receipt of any
or all shares of Parent stock by any Company Stockholder will be free of income
tax to such Company Stockholder.
(c) All stamp, sales and transfer taxes incurred in connection
with this Agreement and the transactions contemplated hereby shall be borne by
the Company Stockholders, and the Company Stockholders shall, at their expense,
file all necessary tax returns and other documentation with respect to all such
transfer taxes.
SECTION 6.03. Consents. Each of the parties hereto shall use
its best efforts to obtain the written consents of all persons and governmental
authorities required to be obtained by each such party and necessary to the
consummation of the transactions contemplated by this Agreement, including,
without limitation, the consent of each person holding a Lien, restriction,
right, mortgage or charge of any kind on any real or personal property owned or
leased by the Company.
SECTION 6.04. Books and Records. The Company Stockholders
shall deliver to GSS or shall cause to be delivered to the principal office or
other office of the Company, all books and records used in the operation of the
business of the Company, and all files, documents, papers, agreements, books of
account, mailing lists, registration systems and other records pertaining to the
business of the Company, to the extent that such books, records, files and other
materials are not theretofore located at the office of the Company.
SECTION 6.05. License and Other Fees. The Company Stockholders
shall pay all regulatory, license, assignment, transfer and other fees and costs
required to be paid to any regulatory authority or to any third-party supplier,
lessor, licensor or other entity in order to obtain any licenses, rights or
consents required to be obtained from such person or entity in connection with
the transactions contemplated hereby; provided, however, that GSS shall be
responsible for and shall pay all NRTC fees associated with assignment and
transfer (or deemed transfer) of the Member Agreement for Marketing and
Distribution of DBS Services between the Company and the NRTC.
SECTION 6.06. Other Discussions. Neither the Company, the
Company Stockholders, nor any employee, agent or representative of the Company
or the Company Stockholders will, during the period commencing on the date of
this Agreement and ending with the earlier to occur of the Closing and the
termination of this Agreement in accordance with the terms of this Agreement,
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directly or indirectly (a) solicit or initiate the submission of proposals or
offers from any natural person, corporation, partnership, trust, unincorporated
organization, association, limited liability company or other entity
(collectively, a "Person") for, (b) participate in any discussions pertaining to
or (c) furnish any information to any Person other than GSS and Parent relating
to, any direct or indirect acquisition or purchase of all or any portion of the
assets or the securities of the Company, whether by purchase, merger or
otherwise. The Company shall cause their respective officers, employees,
representatives, agents and affiliates to refrain from doing any of the
foregoing.
ARTICLE VII.
CONDITIONS PRECEDENT
SECTION 7.01. Conditions Precedent to the Obligations of GSS
and Parent. The obligation of GSS and Parent to consummate the transactions
contemplated by this Agreement is subject, at the option of GSS and Parent, to
the satisfaction at or prior to the Closing Date of each of the following
conditions:
(a) Accuracy of Representations and Warranties. The
representations and warranties of the Company Stockholders and the Company
contained in this Agreement or in any certificate delivered to GSS and Parent
pursuant hereto shall be true and correct on and as of the Closing Date as
though made at and as of that date, and the Company Stockholders and the Company
shall have so certified to GSS and Parent in writing.
(b) Compliance with Covenants. Each Company Stockholder and
the Company shall have performed and complied with all terms, agreements,
covenants and conditions of this Agreement to be performed or complied with by
it, him or her, as the case may be, at or prior to the Closing Date and the
Company Stockholders and the Company shall have so certified to GSS and Parent
in writing.
(c) All Proceedings To Be Satisfactory. All proceedings to be
taken by the Company Stockholders and the Company in connection with
transactions contemplated hereby and all documents incident thereto shall be
reasonably satisfactory in form and substance to GSS, Parent and their counsel,
and GSS, Parent and said counsel shall have received all such counterpart origi-
nals or certified or other copies of such documents as they may reasonably
request.
(d) Legal Actions or Proceedings. No legal action or
proceeding shall have been instituted by any party or threatened by any
governmental department, agency or authority, in either
27
<PAGE> 33
case seeking to restrain, prohibit, invalidate or otherwise affect the
consummation of the transactions contemplated hereby or which would, if
adversely decided, materially adversely affect the operation by GSS of the
business of the Company.
(e) Opinion of Counsel for the Company Stockholders and the
Company. GSS and Parent shall have received opinions of Dorsey & Whitney LLP and
Davis, Hatley, Haffeman & Tighe, P.C., counsel for the Company Stockholders and
the Company, addressed to GSS and Parent and dated the Closing Date,
satisfactory in form and substance to GSS, Parent and its counsel, to the
effects set forth in Exhibit C hereto.
(f) Consents and Approvals. All authorizations, consents,
waivers and approvals required in connection with the execution, delivery and
performance of this Agreement (including without limitation any required
consents from DIRECTV and the NRTC) shall have been duly obtained and shall be
in form and substance satisfactory to counsel for GSS and Parent.
(g) No Material Adverse Change. Between the date of this
Agreement and the Closing Date, there shall have been no material adverse change
in the business, operations, properties, prospects or condition (financial or
otherwise) of the Company.
(h) Escrow Agreement. The Escrow Agreement shall have been
executed and delivered by the parties thereto and shall be in full force and
effect on and as of the Effective Time.
(i) Supporting Documents. On or prior to the Closing Date,
GSS, Parent and its counsel shall have received copies of the following
supporting documents:
(i) (1) the charter documents of the Company, certified as of
a recent date by the Secretary of State of the State of Montana; and
(2) a certificate of the Secretary of State or other appropriate
official of the State of Montana as to the due incorporation and good
standing of the Company and listing all documents on file with said
official;
(ii) a certificate of the Secretary or an Assistant Secretary
of the Company, dated the Closing Date and certifying (1) that
attached thereto is a true and complete copy of the By-laws of the
Company as in effect on the date of such certification; and (2) that
the Articles of Incorporation of such Company have not been amended
since the date of the last amendment referred to in the certificate
delivered pursuant to clause (i)(1) above; and
(iii) such additional supporting documents and other
information with respect to the operations and affairs of
28
<PAGE> 34
the Company as GSS, Parent or their counsel may reasonably request.
All such documents shall be satisfactory in form and substance
to GSS, Parent or their counsel.
SECTION 7.02. Conditions Precedent to the Obligations of the
Company Stockholders and the Company. The obligations of the Company
Stockholders and the Company under this Agreement are subject, at the option of
the Company and Company Stockholders holding at least two-thirds of the
outstanding Company Common Stock, to the satisfaction at or prior to the Closing
Date of each of the following conditions:
(a) Accuracy of Representations and Warranties. The
representations and warranties of GSS and Parent contained in this Agreement or
in any certificate delivered to the Company Stockholders pursuant hereto shall
be true and correct on and as of the Closing Date as though made at and as of
that date and the Purchaser shall so certified to the Company Stockholders in
writing.
(b) Compliance with Covenants. GSS and Parent shall have
performed and complied with all terms, agreements, covenants and conditions of
this Agreement to be performed or complied with by it at or prior to the Closing
Date, and GSS and Parent shall have so certified to the Company Stockholders in
writing.
(c) Legal Actions or Proceedings. No legal action or
proceeding shall have been instituted by any party or threatened by any
governmental department, agency or authority, in either case seeking to
restrain, prohibit, invalidate or otherwise affect the consummation of the
transactions contemplated hereby.
(d) Opinions of Counsel. The Company Stockholders shall have
received (i) the opinion of Reboul, MacMurray, Hewitt, Maynard & Kristol,
counsel for GSS and Parent, dated the Closing Date, satisfactory in form and
substance to the Company Stockholders and their counsel, to the effect set forth
in Exhibit D hereto and (ii) the opinion of Dorsey & Whitney LLP, special
counsel to the Company Stockholders and the Company, dated the Closing Date, to
the effect that the Merger will qualify as a "reorganization" within the meaning
of Section 368(a) of the Code.
(e) Escrow Agreement. The Escrow Agreement shall have been
executed and delivered by the parties thereto and shall be in full force and
effect on and as of the Effective Time.
29
<PAGE> 35
ARTICLE VIII.
INDEMNIFICATION
SECTION 8.01. Survival of Representations and Warranties. All
representations and warranties made by any party hereto in this Agreement or
pursuant hereto shall survive the Closing Date and shall terminate at the close
of business on the second anniversary of the Closing Date, except for the
representations and warranties contained in Sections 3.03, 3.23 and 3.24 and
4.02 (which shall survive indefinitely) and in Section 3.12 (which shall survive
for the applicable statute of limitation periods, including any extensions or
waivers thereof).
SECTION 8.02. Tax Indemnity. (a) Each of the Company
Stockholders, jointly and severally, agrees to and shall indemnify GSS, Parent,
the Company and their respective affiliates and hold each of them harmless from
and against (i) any and all Taxes imposed on or incurred by the Company
(including, without limitation, any and all Taxes arising out of the
consummation of the transactions contemplated hereby) for all taxable years and
periods ending on or prior to the Closing Date (including any short periods
ending on or prior to the Closing Date) and (ii) all reasonable legal fees and
expenses incurred by GSS, Parent, the Company or any such affiliate with respect
to such Taxes.
(b) For purposes of paragraph (a) above, any interest, penalty
or additional charge included in Taxes shall be deemed to be a Tax for the
period in which the item on which the interest, penalty or additional charge is
based occurs, and not a Tax for the periods during which the interest, penalty
or additional charge accrues.
(c) The indemnity provided for in this Section 8.02 shall be
independent of any other indemnity provision hereof and, anything in this
Agreement to the contrary notwithstanding shall survive until the expiration of
the applicable statutes of limitation, including any extensions thereof, for
the Taxes referred to herein. Any Taxes, legal fees and expenses subject to
indemnification under this Section 8.02 shall not be subject to indemnification
under Section 8.03.
SECTION 8.03. General Indemnity. (a) Subject to the terms and
conditions of this Article VIII, each of the Company Stockholders, severally and
not jointly, agrees to and shall indemnify, defend and hold GSS, Parent, the
Company and their respective affiliates harmless from and against all demands,
claims, actions or causes of action, assessments, losses, damages, liabilities,
costs and expenses, including without limitation interest, penalties and
reasonable attorneys' fees and expenses (hereinafter collectively called
"Damages"), asserted against, resulting to, imposed upon or incurred by GSS,
Parent, the
30
<PAGE> 36
Company or their respective affiliates, by reason of, resulting from or arising
out of:
(i) a breach of any representation, warranty or covenant of
such Company Stockholder or the Company contained in or made pursuant
to this Agreement;
(ii) any action, suit or proceeding relating to the conduct of
the Company's business and based upon an event occurring or a claim
arising on or prior to the Closing Date; and
(iii) any liability in respect of any failure by the Company
to conduct its business in compliance with any Governmental Permit,
law, regulation or order prior to the Closing Date.
(b) Subject to the terms and conditions of this Article VIII,
each of the Company Stockholders, severally and not jointly, agrees to and shall
indemnify, defend and hold GSS, Parent, the Company and their respective
affiliates harmless from and against all Damages asserted against, resulting to,
imposed upon or incurred by GSS, Parent, the Company or their respective
affiliates, by reason of, resulting from or arising out of the Stockholder
Litigation if and only to the extent that such Damages shall not be reimbursed
as provided in the Escrow Agreement.
(c) Subject to the terms and conditions of this Article VII,
GSS and Parent agree to and shall indemnify, defend and hold the Company
Stockholders harmless from and against all Damages asserted against, resulting
to, imposed upon or incurred by them by reason of or resulting from or arising
out of:
(i) a breach of any representation, warranty or covenant of
GSS or Parent contained in or made pursuant to this Agreement; and
(ii) any liabilities or obligations of the Company (whether
absolute, accrued, contingent or otherwise) in respect of any action,
suit or proceeding relating to the conduct of the Company's business
and based upon an event occurring or a claim arising after the Closing
Date.
SECTION 8.04. Limitations on Indemnity. Notwithstanding the
foregoing, no Company Stockholder shall be obligated to indemnify, defend and
hold harmless any other person under paragraph (a) of Section 8.03 hereof unless
the aggregate amount of Damages established by the person seeking such
indemnification shall exceed $200,000 (in which case all such Damages in excess
31
<PAGE> 37
of such amount shall be subject to indemnity hereunder); provided, however, that
such limitation on indemnity obligations of the Company Stockholders shall not
apply with respect to Section 3.26 hereof. In addition, the Company
Stockholders' obligation to indemnify and hold harmless Parent, GSS and the
Company hereunder shall in no event exceed $9,800,000 in the aggregate for all
claims made under Section 8.03.
SECTION 8.05. Conditions of Indemnification. The respective
obligations and liabilities of the Company Stockholders, on the one hand, and
GSS and Parent, on the other hand (herein sometimes called the "indemnifying
party"), to the other (herein sometimes called the "party to be indemnified")
under Section 8.03 hereof with respect to claims resulting from the assertion of
liability by third parties shall be subject to the following terms and
conditions:
(a) Within 20 days after receipt of notice of commencement of
any action or the assertion of any claim by a third party, the party to be
indemnified shall give the indemnifying party written notice thereof together
with a copy of such claim, process or other legal pleading (provided that
failure so to notify the indemnifying party of the assertion of a claim within
such period shall not affect its indemnity obligation hereunder except as and to
the extent that such failure shall adversely affect the defense of such claim),
and the indemnifying party shall have the right to undertake the defense thereof
by representatives of its own choosing.
(b) In the event that the indemnifying party, by the 30th day
after receipt of notice of any such claim (or, if earlier, by the tenth day
preceding the day on which an answer or other pleading must be served in order
to prevent judgment by default in favor of the person asserting such claim),
does not elect to defend against such claim, the party to be indemnified will
(upon further notice to the indemnifying party) have the right to undertake the
defense, compromise or settlement of such claim on behalf of and for the account
and risk of the indemnifying party, subject to the right of the indemnifying
party to assume the defense of such claim at any time prior to settlement,
compromise or final determination thereof.
(c) Except with the prior written consent of the indemnified
party, no indemnifying party, in the defense of such claim or litigation, shall
consent to entry of any judgment or order, interim or otherwise, or enter into
any settlement that provides for injunctive or other nonmonetary relief
affecting the indemnified party or that does not include as an unconditional
term thereof the giving by each claimant or plaintiff to such indemnified party
of a release from all liability with respect to such claim or litigation. In the
event that the indemnified party shall in good faith determine that the
indemnified party
32
<PAGE> 38
may have available to it one or more defenses or counterclaims that are
inconsistent with one or more of those that may be available to the indemnifying
party in respect of such claim or any litigation relating thereto, the
indemnified party shall have the right at all times to take over and assume
control over the defense, settlement, negotiations or litigation relating to
such claim at the sole cost of the indemnifying party; provided, however, that
if the indemnified party does so take over and assume control, the indemnified
party shall not settle such claim or litigation without the written consent of
the indemnifying party, such consent not to be unreasonably withheld.
(d) In connection with any such indemnification, the
indemnified party shall cooperate in all reasonable requests of the indemnifying
party.
SECTION 8.06. Remedies Cumulative. Except as otherwise
expressly provided in this Article VIII, the remedies provided herein shall be
cumulative and shall not preclude assertion by any party hereto of any other
rights or the seeking of any other remedies against any other party hereto.
ARTICLE IX.
TERMINATION AND ABANDONMENT
SECTION 9.01. Termination. This Agreement may be terminated at
any time prior to the Closing Date:
(a) by the mutual consent of Company Stockholders holding at
least two-thirds of the outstanding Company Common Stock, on the one
hand, and GSS and Parent, on the other hand; or
(b) by Company Stockholders holding at least two-thirds of the
outstanding Company Common Stock, on the one hand, or GSS and Parent,
on the other hand, if the Closing shall not have occurred on or before
October 31, 1998 or such later date as may be agreed upon in writing by
the parties hereto; provided, however, that the right to terminate this
Agreement under this clause (b) shall not be available to any party
whose failure to fulfill any obligation under this Agreement has been
the cause of or resulted in the failure of the closing to occur on or
before such date.
SECTION 9.02. Procedure and Effect of Termination. In the
event of termination of this Agreement and abandonment of the transactions
contemplated hereby by any or all of the parties pursuant to Section 9.01 above,
written notice thereof shall forthwith be given to the other parties to this
Agreement and
33
<PAGE> 39
this Agreement shall terminate and the transactions contemplated hereby shall be
abandoned, without further action by any of the parties hereto. If this
Agreement is terminated as provided in Section 9.01 above, (i) each party hereto
shall promptly redeliver all documents, work papers and other material of any
other party relating to the transactions contemplated hereby, whether obtained
before or after the execution hereof, to the party furnishing the same, and
(ii) no party shall have any liability or further obligation to any other party
to this Agreement pursuant to this Agreement; provided, that nothing herein
shall relieve any party from liability for any breach hereof.
ARTICLE X.
MISCELLANEOUS
SECTION 10.01. Expenses, Etc. Whether or not the transactions
contemplated by this Agreement are consummated, none of the parties hereto shall
have any obligation to pay any of the fees and expenses of any other party
incident to the negotiation, preparation and execution of this Agreement,
including the fees and expenses of counsel, accountants, investment bankers and
other experts, except that the Company Stockholders shall be responsible for the
Company's Transaction Expenses as provided in Section 6.01 hereof. Without
limiting the generality of the foregoing, the Company Stockholders, on the one
hand, and GSS and Parent, on the other hand, shall indemnify the other and hold
it harmless from and against any claims for finders' fees or brokerage
commissions in relation to or in connection with such transactions as a result
of any agreement or understanding between such indemnifying party and any third
party.
SECTION 10.02. Publicity. The parties hereto agree that no
press release or other public announcement concerning this Agreement or the
transactions contemplated hereby shall be issued prior to the Closing Date
without the prior written consent of each of the parties hereto. Each party
shall furnish to the other drafts of all press releases or announcements prior
to their release. Nothing contained herein shall prevent any party from at any
time furnishing any information required by any governmental authority or
required by any person whose consent or authorization is necessary to consummate
the transactions contemplated herein.
SECTION 10.03. Execution in Counterparts; Additional Parties.
For the convenience of the parties, this Agreement may be executed in one or
more counterparts, or by the parties hereto on separate counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument. Prior to the Closing additional stockholders of the
Company may become parties to this Agreement by executing and
34
<PAGE> 40
delivering a counterpart hereof, whereupon such stockholders shall be entitled
to all the rights and subject to all the obligations of the Company Stockholders
hereunder as if an original signatory hereof.
SECTION 10.04. Notices. All notices which are required or may
be given pursuant to the terms of this Agreement shall be in writing and shall
be sufficient in all respects if (i) delivered personally, (ii) mailed by
registered or certified mail, return receipt requested and postage prepaid,
(iii) sent via a nationally recognized overnight courier service or (iv) sent
via facsimile confirmed in writing to the recipient, in each case as follows:
If to the Company Stockholders, to them at such address
appearing on Schedule I hereto under the name of such Company Stockholder;
with a copy to:
Dorsey & Whitney LLP
507 Davidson Building
Great Falls, Montana 59403
Attention: John W. Manning, Esq.
Facsimile No.: (406) 727-3638
If to Parent or GSS, at:
Golden Sky Systems, Inc.
605 West 47th Street
Suite 300
Kansas City, Missouri 64112
Facsimile No.: (816) 753-5595
Attention: Mr. Rodney A. Weary
with a copy to:
Reboul, MacMurray, Hewitt, Maynard & Kristol
45 Rockefeller Plaza
New York, New York 10111
Facsimile No.: (212) 841-5725
Attention: Karen C. Wiedemann, Esq.
or such other address or addresses as the Company Stockholders, on the one hand,
or GSS and Parent, on the other hand, shall have designated by notice in writing
to the other.
SECTION 10.05. Waivers. Either Company Stockholders holding at
least two-thirds of the outstanding Company Common Stock, on the one hand, or
GSS and Parent, on the other hand, may, by written notice to the other, (i)
extend the time for the performance of any of the obligations or other actions
of the
35
<PAGE> 41
other under this Agreement, (ii) waive any inaccuracies in the representations
or warranties of the other contained in this Agreement or in any document
delivered pursuant to this Agreement, (iii) waive compliance with any of the
conditions or covenants of the other contained in this Agreement, or (iv) waive
performance of any of the obligations of the other under this Agreement. Except
as provided in the preceding sentence, no action taken pursuant to this
Agreement, including without limitation any investigation by or on behalf of
any party, shall be deemed to constitute a waiver by the party taking such
action of compliance with any representations, warranties, covenants or
agreements contained in this Agreement. The waiver by any party hereto of a
breach of any provision of this Agreement shall not operate or be construed as a
waiver of any subsequent breach.
SECTION 10.06. Amendments, Supplements, Etc. At any time this
Agreement may be amended or supplemented by such additional agreements,
articles or certificates, as may be determined by the parties hereto to be
necessary, desirable or expedient to further the purposes of this Agreement, or
to clarify the intention of the parties hereto, or to add to or modify the
covenants, terms or conditions hereof or to effect or facilitate any govern
mental approval or acceptance of this Agreement or to effect or facilitate the
filing or recording of this Agreement or the consummation of any of the
transactions contemplated hereby. Any such instrument must be in writing and
signed by GSS, Parent, the Company and Company Stockholders holding at least
two-thirds of the outstanding Company Common Stock.
SECTION 10.07. Entire Agreement. This Agreement, its Exhibits
and Schedules, and the other agreements or documents executed on the date hereof
or on the Closing Date in connection herewith, constitute the entire agreement
between the parties hereto with respect to the subject matter hereof and
supersede all prior agreements and understandings, oral and written, between the
parties hereto with respect to the subject matter hereof.
SECTION 10.08. APPLICABLE LAW. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE,
EXCLUSIVE OF THE CONFLICTS OF LAWS PROVISIONS THEREOF, AND, TO THE EXTENT
APPLICABLE, THE MONTANA BCA.
SECTION 10.09. Binding Effect; Benefits. This Agreement shall
inure to the benefit of and be binding upon the parties hereto and their
respective successors and permitted assigns. Notwithstanding anything contained
in this Agreement to the contrary, nothing in this Agreement, expressed or
implied, is intended to confer on any person other than the parties hereto or
their respective successors and assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
36
<PAGE> 42
SECTION 10.10. Assignability. Neither this Agreement nor any
of the parties' rights hereunder shall be assignable by any party hereto without
the prior written consent of the other parties hereto.
37
<PAGE> 43
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the parties hereto as of the day and year first above written.
GOLDEN SKY HOLDINGS, INC.
By: /s/ Rodney A. Weary
--------------------------------
Name: Rodney A. Weary
Title: Chief Executive Officer
GOLDEN SKY SYSTEMS, INC.
By: /s/ Rodney A. Weary
--------------------------------
Name: Rodney A. Weary
Title: Chief Executive Officer
WESTERN MONTANA DBS, INC.
d/b/a ROCKY MOUNTAIN DBS
By: Harold Poulsen
--------------------------------
Name: Harold Poulsen
Title: President
COMPANY STOCKHOLDERS:
/s/ Jack S. Ramirez
-----------------------------------
Jack S. Ramirez
/s/ Carol H. Ramirez
-----------------------------------
Carol H. Ramirez
<PAGE> 44
COMPANY STOCKHOLDERS:
/s/ James Hertz
-----------------------------------
James Hertz
<PAGE> 45
COMPANY STOCKHOLDERS:
/s/ Constance R. Hertz
-----------------------------------
Constance R. Hertz
<PAGE> 46
COMPANY STOCKHOLDERS:
/s/ Harold L. Poulsen
-----------------------------------
Harold L. Poulsen
<PAGE> 47
COMPANY STOCKHOLDERS:
/s/ Maxon R. Davis
-----------------------------------
Maxon R. Davis
<PAGE> 48
COMPANY STOCKHOLDERS:
/s/ Kristina A. Davis
-----------------------------------
Kristina A. Davis
<PAGE> 49
COMPANY STOCKHOLDERS:
/s/ Joyce Travis
-----------------------------------
Joyce Travis
<PAGE> 50
COMPANY STOCKHOLDERS:
/s/ Joseph D. Davis
-----------------------------------
Joseph D. Davis
<PAGE> 51
COMPANY STOCKHOLDERS:
/s/ Louise A. Davis
-----------------------------------
Louise A. Davis
<PAGE> 52
COMPANY STOCKHOLDERS:
/s/ Jay Downen
-----------------------------------
Jay Downen
/s/ Marla Downen
-----------------------------------
Marla Downen
/s/ Otis J. Downen
-----------------------------------
Otis J. Downen
/s/ Chris J. Downen
-----------------------------------
Chris J. Downen
<PAGE> 53
SCHEDULE I
<TABLE>
<CAPTION>
Number of Number of
Shares of Shares of
Company Series C Net Cash Escrow
Stockholders Common Stock Preferred Stock Payment Interest
- ------------ ------------ --------------- ------- --------
<S> <C> <C> <C> <C>
Jack S. Ramirez and
Carol H. Ramirez 1,315.50 6,411.73 $1,106,338.00 12.5%
James and Constance R. Hertz 657.75 3,205.87 553,169.00 6.29
Jack S. Ramirez 164.4375 801.47 138,292.25 1.57
Carol H. Ramirez 164.4375 801.47 138,292.25 1.57
Constance R. Hertz 164.4375 801.47 138,292.25 1.57
James Hertz 164.4375 801.47 138,292.25 1.57
Harold Poulsen 3,871.77 18,870.96 3,256,165.93 37.00
Joyce Travis 967.94 4,717.73 814,039.38 9.25
Max & Kristina Davis 614.00 2,992.63 516,375.17 5.87
Joseph D. Davis 100.00 487.40 84,100.19 0.96
Louise A. Davis 600.00 2,924.39 504,601.14 5.73
Jay and Marla Downen 560.00 2,729.43 470,961.07 5.35
Otis J. Downen 559.50 2,726.99 470,540.56 5.35
Chris J. Downen 559.50 2,726.99 470,540.56 5.35
--------- --------- ------------- -----
Total 10,463.71 51,000.00 $8,800,000.00 100.00%
========= ========= ============= ======
</TABLE>
<PAGE> 1
Exhibit 4.1
================================================================================
GOLDEN SKY SYSTEMS, INC., as Issuer,
ARGOS SUPPORT SERVICES COMPANY, as Guarantor,
PRIMEWATCH, INC., as Guarantor,
and
STATE STREET BANK AND TRUST COMPANY
OF MISSOURI, N.A., as Trustee
---------------------
INDENTURE
Dated as of July 31, 1998
--------------------
$195,000,000
12 3/8% Senior Subordinated Notes due 2006, Series A
12 3/8% Senior Subordinated Notes due 2006, Series B
================================================================================
<PAGE> 2
Trust Indenture Indenture
Act Section Section
Section 310(a)(1)........................................ 6.09
(a)(2)......................................... 6.09
(a)(3)......................................... Not Applicable
(a)(4)......................................... Not Applicable
(b)............................................ 6.08, 6.10
Section 311(a)........................................... 6.07
(b)............................................ 6.07
(c)............................................ Not Applicable
Section 312(a)........................................... 7.01
(b)............................................ 7.02
(c)............................................ 7.02
Section 313(a)........................................... 7.03
(b)............................................ 7.03
(c)............................................ 7.03
(d)............................................ 7.03
Section 314(a)........................................... 7.04, 10.09
(b)............................................ Not Applicable
(c)(1)......................................... 1.04, 4.04
(c)(2)......................................... 1.04, 4.04
(c)(3)......................................... Not Applicable
(d)............................................ Not Applicable
(e)............................................ 1.04
Section 315(a)........................................... 6.01(a)
(b)............................................ 6.02
(c)............................................ 6.01(b)
(d)............................................ 6.01(c)
(e)............................................ 5.14
Section 316(a)(last sentence)............................ 3.14
(a)(1)(A)...................................... 5.12
(a)(1)(B)...................................... 5.13
(a)(2)......................................... Not Applicable
(b)............................................ 5.08
Section 317(a)(1)........................................ 5.03
(a)(2)......................................... 5.04
(b)............................................ 10.03
Section 318(a)........................................... 1.08
Note: This Cross-Reference Table shall not, for any purpose, be deemed to
be a part of this Indenture.
<PAGE> 3
TABLE OF CONTENTS
Page
PARTIES........................................................................1
RECITALS.......................................................................1
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section 1.01. Definitions...................................................5
Section 1.02. Other Definitions.............................................5
Section 1.03. Rules of Construction.........................................5
Section 1.04. Form of Documents Delivered to Trustee........................5
Section 1.05. Acts of Holders...............................................5
Section 1.06. Notices, etc., to the Trustee and the Company.................5
Section 1.07. Notice to Holders; Waiver.....................................5
Section 1.08. Conflict with Trust Indenture Act.............................5
Section 1.09. Effect of Headings and Table of Contents......................5
Section 1.10. Successors and Assigns........................................5
Section 1.11. Separability Clause...........................................5
Section 1.12. Benefits of Indenture.........................................5
Section 1.13. GOVERNING LAW.................................................5
Section 1.14. No Recourse Against Others....................................5
Section 1.15. Independence of Covenants.....................................5
Section 1.16. Exhibits......................................................5
Section 1.17. Counterparts..................................................5
Section 1.18. Duplicate Originals...........................................5
ARTICLE TWO
SECURITY FORMS
Section 2.01. Form and Dating...............................................5
ARTICLE THREE
THE SECURITIES
Section 3.01. Title and Terms...............................................5
Section 3.02. Registrar and Paying Agent....................................5
-i-
<PAGE> 4
Page
Section 3.03. Execution and Authentication..................................5
Section 3.04. Temporary Securities..........................................5
Section 3.05. Transfer and Exchange.........................................5
Section 3.06. Mutilated, Destroyed, Lost and Stolen Securities..............5
Section 3.07. Payment of Interest; Interest Rights Preserved................5
Section 3.08. Persons Deemed Owners.........................................5
Section 3.09. Cancellation..................................................5
Section 3.10. Computation of Interest.......................................5
Section 3.11. Legal Holidays................................................5
Section 3.12. CUSIP Number..................................................5
Section 3.13. Paying Agent To Hold Money in Trust...........................5
Section 3.14. Treasury Securities...........................................5
Section 3.15. Deposits of Monies............................................5
Section 3.16. Book-Entry Provisions for Global Securities...................5
Section 3.17. Special Transfer Provisions...................................5
ARTICLE FOUR
DEFEASANCE OR COVENANT DEFEASANCE
Section 4.01. Company's Option To Effect Defeasance or Covenant Defeasance..5
Section 4.02. Defeasance and Discharge......................................5
Section 4.03. Covenant Defeasance...........................................5
Section 4.04. Conditions to Defeasance or Covenant Defeasance...............5
Section 4.05. Deposited Money and Government Securities To Be Held in
Trust; Other Miscellaneous Provisions......................5
Section 4.06. Reinstatement.................................................5
ARTICLE FIVE
REMEDIES
Section 5.01. Events of Default.............................................5
Section 5.02. Acceleration of Maturity; Rescission and Annulment............5
Section 5.03. Collection of Indebtedness and Suits for Enforcement
by Trustee.................................................5
Section 5.04. Trustee May File Proofs of Claims.............................5
Section 5.05. Trustee May Enforce Claims Without Possession of Securities...5
Section 5.06. Application of Money Collected................................5
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Page
Section 5.07. Limitation on Suits...........................................5
Section 5.08. Unconditional Right of Holders To Receive Principal,
Premium and Interest.......................................5
Section 5.09. Restoration of Rights and Remedies............................5
Section 5.10. Rights and Remedies Cumulative................................5
Section 5.11. Delay or Omission Not Waiver..................................5
Section 5.12. Control by Majority...........................................5
Section 5.13. Waiver of Past Defaults.......................................5
Section 5.14. Undertaking for Costs.........................................5
Section 5.15. Waiver of Stay, Extension or Usury Laws.......................5
Section 5.16. Unconditional Right of Holders To Institute Certain Suits.....5
ARTICLE SIX
THE TRUSTEE
Section 6.01. Certain Duties and Responsibilities...........................5
Section 6.02. Notice of Defaults............................................5
Section 6.03. Certain Rights of Trustee.....................................5
Section 6.04. Trustee Not Responsible for Recitals, Dispositions of
Securities or Application of Proceeds Thereof..............5
Section 6.05. Trustee and Agents May Hold Securities; Collections; Etc......5
Section 6.06. Money Held in Trust...........................................5
Section 6.07. Compensation and Indemnification of Trustee and Its
Prior Claim................................................5
Section 6.08. Conflicting Interests.........................................5
Section 6.09. Corporate Trustee Required; Eligibility.......................5
Section 6.10. Resignation and Removal; Appointment of Successor Trustee.....5
Section 6.11. Acceptance of Appointment by Successor........................5
Section 6.12. Merger, Conversion, Amalgamation, Consolidation or
Succession to Business.....................................5
Section 6.13. Trustee's Application for Instructions from the Company.......5
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Page
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
Section 7.01. Preservation of Information; Company To Furnish Trustee
Names and Addresses of Holders.............................5
Section 7.02. Communications of Holders.....................................5
Section 7.03. Reports by Trustee............................................5
ARTICLE EIGHT
CONSOLIDATION, MERGER, SALE OF
ASSETS, ETC.
Section 8.01. Company May Consolidate, etc., Only on Certain Terms..........5
Section 8.02. Successor Substituted.........................................5
ARTICLE NINE
SUPPLEMENTAL INDENTURES AND WAIVERS
Section 9.01. Supplemental Indentures, Agreements
and Waivers Without Consent of Holders.....................5
Section 9.02. Supplemental Indentures, Agreements and Waivers with
Consent of Holders.........................................5
Section 9.03. Execution of Supplemental Indentures, Agreements and Waivers..5
Section 9.04. Effect of Supplemental Indentures.............................5
Section 9.05. Conformity with Trust Indenture Act...........................5
Section 9.06. Reference in Securities to Supplemental Indentures............5
Section 9.07. Record Date...................................................5
Section 9.08. Revocation and Effect of Consents.............................5
ARTICLE TEN
COVENANTS
Section 10.01. Payment of Principal, Premium and Interest....................5
Section 10.02. Maintenance of Office or Agency...............................5
Section 10.03. Money for Security Payments To Be Held in Trust...............5
Section 10.04. Corporate Existence...........................................5
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Page
Section 10.05. Payment of Taxes and Other Claims.............................5
Section 10.06. Maintenance of Properties.....................................5
Section 10.07. Insurance.....................................................5
Section 10.08. Books and Records.............................................5
Section 10.09. Reports.......................................................5
Section 10.10. Change of Control.............................................5
Section 10.11. Limitation on Additional Indebtedness.........................5
Section 10.12. Statement by Officers as to Default...........................5
Section 10.13. Limitation on Liens...........................................5
Section 10.14. Designation of Unrestricted Subsidiaries......................5
Section 10.15. Limitation on Restricted Payments.............................5
Section 10.16. Limitation on Other Senior Subordinated Debt..................5
Section 10.17. Limitation on Dividends and Other Payment Restrictions
Affecting Restricted Subsidiaries..........................5
Section 10.18. Disposition of Proceeds of Asset Sales........................5
Section 10.19. Limitation on Issuances and Sales of Preferred Equity
Interests by Restricted Subsidiaries.......................5
Section 10.20. Limitations on Conduct of Business of the Company.............5
Section 10.21. Limitation on Transactions with Affiliates....................5
Section 10.22. Limitation on Guarantees by and Certain Indebtedness
of Restricted Subsidiaries.................................5
Section 10.23. Compliance Certificates and Opinions..........................5
Section 10.24. Escrow Account................................................5
ARTICLE ELEVEN
REDEMPTION OF SECURITIES
Section 11.01. Right of Redemption...........................................5
Section 11.02. Applicability of Article......................................5
Section 11.03. Election To Redeem; Notice to Trustee.........................5
Section 11.04. Selection by Trustee of Securities To Be Redeemed.............5
Section 11.05. Notice of Redemption..........................................5
Section 11.06. Deposit of Redemption Price...................................5
Section 11.07. Securities Payable on Redemption Date.........................5
Section 11.08. Securities Redeemed or Purchased in Part......................5
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Page
ARTICLE TWELVE
SUBORDINATION OF SECURITIES
Section 12.01. Securities Subordinate to Senior Indebtedness.................5
Section 12.02. Payment Over of Proceeds upon Dissolution, etc................5
Section 12.03. Suspension of Payment When Senior Indebtedness in Default.....5
Section 12.04. Trustee's Relation to Senior Indebtedness.....................5
Section 12.05. Subrogation to Rights of Holders of Senior Indebtedness.......5
Section 12.06. Provisions Solely To Define Relative Rights...................5
Section 12.07. Trustee To Effectuate Subordination...........................5
Section 12.08. No Waiver of Subordination Provisions.........................5
Section 12.09. Notice to Trustee.............................................5
Section 12.10. Reliance on Judicial Order or Certificate of
Liquidating Agent..........................................5
Section 12.11. Rights of Trustee as a Holder of Senior Indebtedness;
Preservation of Trustee's Rights...........................5
Section 12.12. Article Applicable to Paying Agents...........................5
Section 12.13. No Suspension of Remedies.....................................5
ARTICLE THIRTEEN
SATISFACTION AND DISCHARGE
Section 13.01. Satisfaction and Discharge of Indenture.......................5
Section 13.02. Application of Trust Money....................................5
ARTICLE FOURTEEN
COLLATERAL AND SECURITY
Section 14.01. Escrow Agreement..............................................5
Section 14.02. Recording and Opinions........................................5
Section 14.03. Release of Collateral.........................................5
Section 14.04. Certificates of the Company...................................5
Section 14.05. Authorization of Actions To Be Taken by the Trustee Under
the Escrow Agreement.......................................5
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Section 14.06. Authorization of Receipt of Funds by the Trustee
Under the Escrow Agreement.................................5
Section 14.07. Termination of Security Interest..............................5
ARTICLE FIFTEEN
GUARANTEE OF SECURITIES
Section 15.01. Unconditional Guarantee.......................................5
Section 15.02. Execution and Delivery of Guarantee...........................5
Section 15.03. Additional Guarantor..........................................5
Section 15.04. Guarantee Obligations Subordinated to Guarantor
Senior Indebtedness........................................5
Section 15.05. Payment over of Proceeds upon
Dissolution, etc. of a Guarantor...........................5
Section 15.06. Suspension of Guarantee Obligations When Guarantor Senior
Indebtedness in Default....................................5
Section 15.07. Release of a Guarantor........................................5
Section 15.08. Waiver of Subrogation.........................................5
Section 15.09. Guarantee Provisions Solely To Define Relative Rights.........5
Section 15.10. Trustee To Effectuate Subordination of Guarantee Obligations..5
Section 15.11. No Waiver of Guarantee Subordination Provisions...............5
Section 15.12. Guarantors To Give Notice to Trustee..........................5
Section 15.13. Reliance on Judicial Order or Certificate of Liquidating
Agent Regarding Dissolution, etc. of Guarantors.............5
Section 15.14. Rights of Trustee as a Holder of
Guarantor Senior Indebtedness;
Preservation of Trustee's Rights...........................5
Section 15.15. Article Fifteen Applicable to Paying Agents...................5
Section 15.16. No Suspension of Remedies.....................................5
Section 15.17. Trustee's Relation to Guarantor Senior Indebtedness...........5
Section 15.18. Limitation of Subsidiary Guarantor's Liability................5
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<PAGE> 10
Exhibit A-1 - Form of Initial Security
Exhibit A-2 - Form of Exchange Security
Exhibit B - Form of Legend for Book-Entry Securities
Exhibit C - Form of Certificate To Be Delivered in
Connection with Transfers to Non-QIB Accredited Investors
Exhibit D - Form of Certificate To Be Delivered in Connection with
Transfers Pursuant to Regulation S
Exhibit E - Form of Guarantee
-viii-
<PAGE> 11
INDENTURE, dated as of July 31, 1998, between Golden Sky Systems,
Inc., a corporation incorporated under the laws of the State of Delaware (the
"Company"), as issuer, Argos Support Services Company, a corporation
incorporated under the laws of Texas, as guarantor, Primewatch, Inc., a
corporation incorporated under the laws of North Carolina, as guarantor, and
State Street Bank and Trust Company of Missouri, N.A., a national banking
association, as trustee (the "Trustee").
RECITALS
The Company has duly authorized the creation of an issue of 12 3/8%
Senior Subordinated Notes due 2006, Series A, and 12 3/8% Senior Subordinated
Notes due 2006, Series B, to be issued in exchange for the 12 3/8% Senior
Subordinated Notes due 2006, Series A, pursuant to a Registration Rights
Agreement (as defined herein), and to provide therefor the Company has duly
authorized the execution and delivery of this Indenture.
All things necessary have been done to make the Securities (as defined
herein), when executed by the Company and authenticated and delivered hereunder
and duly issued by the Company, the valid obligations of the Company and to make
this Indenture a valid agreement of each of the Company and the Trustee in
accordance with the terms hereof.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the
Securities by the Holders thereof, it is mutually covenanted and agreed, for the
equal and proportionate benefit of all Holders (as hereinafter defined) of the
Securities, as follows:
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section 1.01. Definitions.
"Acquired Indebtedness" means Indebtedness of a Person (a) assumed in
connection with an Acquisition from such Person or (b) existing at the time such
Person becomes a Restricted Subsidiary or is merged or consolidated with or into
the Company or any Restricted Subsidiary.
<PAGE> 12
"Acquired Person" means, with respect to any specified Person, any
other Person that merges with or into or becomes a Subsidiary of such specified
Person.
"Acquisition" means (i) any capital contribution (by means of
transfers of cash or other property to others or payments for property or
services for the account or use of others, or otherwise) by the Company or any
Restricted Subsidiary to any other Person, or any acquisition or purchase of
Equity Interests of any other Person by the Company or any Restricted
Subsidiary, in either case pursuant to which such Person shall become a
Restricted Subsidiary or shall be consolidated or merged with or into the
Company or any Restricted Subsidiary or (ii) any acquisition by the Company or
any Restricted Subsidiary of the assets of any Person which constitute
substantially all of an operating unit or line of business of such Person or
which is otherwise outside of the ordinary course of business.
"Additional Interest" has the meaning provided in the Registration
Rights Agreement.
"Affiliate" means, with respect to any specified Person, any other
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person. For purposes of this
definition, "control" (including, with correlative meanings, the terms
"controlling," "controlled by" and "under common control with"), as used with
respect to any Person, shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of such
Person, whether through the ownership of voting securities, by agreement or
otherwise; provided, however, that (i) beneficial ownership of 10.0% or more of
the voting power of the then outstanding voting securities of a Person shall be
deemed to be control and (ii) no individual, other than a director of the
Company or an officer of the Company with a policy making function, shall be
deemed an Affiliate of the Company or any of the Company's Subsidiaries solely
by reason of such individual's employment, position or responsibilities by or
with respect to the Company or any of the Company's Subsidiaries.
"Asset Sale" means any direct or indirect sale, conveyance, transfer,
lease (that has the effect of a disposition) or other disposition (including,
without limitation, any merger, consolidation or sale-leaseback transaction) to
any Person other than the Company or a Restricted Subsidiary, in one transaction
or a series of related transactions, of (i) any Equity Interest of any
Restricted Subsidiary; (ii) any material license, franchise or other
<PAGE> 13
authorization of the Company or any Restricted Subsidiary; (iii) any assets of
the Company or any Restricted Subsidiary that constitute substantially all of an
operating unit or line of business of the Company or any Restricted Subsidiary;
or (iv) any other property or asset of the Company or any Restricted Subsidiary
outside of the ordinary course of business (including the receipt of proceeds
paid on account of the loss of or damage to any property or asset, except to the
extent used to repurchase or repair such property or asset, and awards of
compensation for any asset taken by condemnation, eminent domain or similar
proceedings). The term "Asset Sale" shall not include (a) any transaction
consummated in compliance with Article Eight and the creation of any Lien not
prohibited by Section 10.13; provided, however, that any transaction consummated
in compliance with Article Eight involving a sale, conveyance, assignment,
transfer, lease or other disposal of less than all of the properties or assets
of the Company and the Restricted Subsidiaries shall be deemed to be an Asset
Sale with respect to the properties or assets of the Company and Restricted
Subsidiaries that are not so sold, conveyed, assigned, transferred, leased or
otherwise disposed of in such transaction; (b) sales of property or equipment
that has become worn out, obsolete or damaged or otherwise unsuitable for use in
connection with the business of the Company or any Restricted Subsidiary, as the
case may be; and (c) any transaction consummated in compliance with Section
10.15.
"Bankruptcy Law" means Title 11, United States Code or any similar
federal or state law relating to bankruptcy, insolvency, receivership,
winding-up, liquidation, reorganization or relief of debtors or the law of any
other jurisdiction relating to bankruptcy, insolvency, receivership, winding-up,
liquidation, reorganization or relief of debtors or any amendment to, succession
to or change in any such law.
"Bankruptcy Order" means any court order made in a proceeding pursuant
to or within the meaning of any Bankruptcy Law, containing an adjudication of
bankruptcy or insolvency, or providing for liquidation, receivership,
winding-up, dissolution, "concordate" or reorganization, or appointing a
Custodian of a debtor or of all or any substantial part of a debtor's property,
or providing for the staying, arrangement, adjustment or composition of
indebtedness or other relief of a debtor.
"Board" means the Board of Directors of the Company.
"Board of Directors" means (i) in the case of a Person that is a
corporation, the board of directors of such Person and (ii) in the case of any
other Person, the board of directors, board of managers, management committee or
<PAGE> 14
similar governing body of such Person (or in the case of a limited partnership,
of such Person's general partner, or in the case of a limited liability company,
of such Person's manager), or any authorized committee thereof responsible for
the management of the business and affairs of such Person.
"Board Resolution" means a copy of a resolution delivered to the
Trustee and certified by the Secretary or an Assistant Secretary of the Company
to have been duly adopted by the Board and to be in full force and effect on the
date of such certification.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in The City of New York,
State of New York are authorized or obligated by law, regulation or executive
order to close.
"Capital Lease Obligation" means, at the time any determination
thereof is to be made, the amount of the liability in respect of a capital lease
that would at such time be so required to be capitalized on the balance sheet in
accordance with GAAP.
"Cash Equivalents" means (i) any evidence of Indebtedness (with, for
purposes of Section 10.18 only, a maturity of 365 days or less) issued or
directly and fully guaranteed or insured by the United States or any agency or
instrumentality thereof that (provided that the full faith and credit of the
United States is pledged in support thereof or such Indebtedness constitutes a
general obligation of such country) have maturities of not more than six months
from the date of acquisition; (ii) time deposits, certificates of deposit or
acceptances (with, for purposes of Section 10.18 only, a maturity of 365 days or
less) of any financial institution that is a member of the Federal Reserve
System, in each case having combined capital and surplus and undivided profits
(or any similar capital concept) of not less than $200.0 million and whose
senior unsecured debt is rated at least "A-1" by S&P or "P-1" by Moody's; (iii)
commercial paper with a maturity of 365 days or less issued by a corporation
(other than an Affiliate of the Company) organized under the laws of the United
States or any State thereof and rated at least "A-1" by S&P or "P-1" by Moody's
<PAGE> 15
and in each case maturing not more than six months after the date of
acquisition; (iv) repurchase obligations with a term of not more than seven days
for underlying securities of the types described in clause (i) above and entered
into with any bank meeting the qualifications specified in clause (ii) above;
and (v) money market funds that invest substantially all of their assets in
securities described in the preceding clauses (i) through (iv).
"Change of Control" is defined to mean the occurrence of any of the
following events: (a) any "person" or "group" (as such terms are used in
Sections 13(d) and 14(d) of the Exchange Act), excluding Permitted Holders, is
or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act, except that a person shall be deemed to have "beneficial
ownership" of all securities that such person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time),
directly or indirectly, of more than 50% of the total Voting Equity Interests of
the Company; or (b) the Company consolidates with, or merges with or into,
another person or sells, assigns, conveys, transfers, leases or otherwise
disposes of all or substantially all of its assets to any Person, or any Person
consolidates with, or merges with or into, the Company, in any such event
pursuant to a transaction in which the outstanding Voting Equity Interests of
the Company are converted into or exchanged for cash, securities or other
property, other than any such transaction where (i) the outstanding Voting
Equity Interests of the Company are converted into or exchanged for (1) Voting
Equity Interests (other than Disqualified Equity Interests) of the surviving or
transferee corporation or its parent corporation and/or (2) cash, securities and
other property in an amount that could be paid by the Company as a Restricted
Payment under this Indenture and (ii) immediately after such transaction no
"person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the
Exchange Act), excluding the Permitted Holders, is the "beneficial owner" (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a person
shall be deemed to have "beneficial ownership" of all securities that such
person has the right to acquire, whether such right is exercisable immediately
or only after the passage of time), directly or indirectly, of more than 50% of
the total Voting Equity Interests of the surviving or transferee corporation or
its parent corporation, as applicable; or (c) during any consecutive two-year
period, individuals who at the beginning of such period constituted the Board of
Directors (together with any new directors whose election by the Board of
Directors or whose nomination for election by the stockholders of the Company
was approved by a vote of a majority of the directors then still in office who
<PAGE> 16
were either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason (other
than by action of the Permitted Holders) to constitute a majority of the Board
of Directors then in office; or (d) the approval by stockholders of the Company
of any liquidation or dissolution of the Company.
"Collateral" shall have the meaning ascribed to such term in the
Escrow Agreement.
"Common Stock" means, with respect to any Person, any and all shares,
interests or other participations in, and other equivalents (however designated
and whether voting or nonvoting) of, such person's common stock whether
outstanding at the Issue Date, and includes, without limitation, all series and
classes of such common stock.
"Company" means the Person named as the "Company" in the first
paragraph of this Indenture, until a successor person shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor person.
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by any one of its Chairman of the Board, its
Vice-Chairman, its Chief Executive Officer, its President or a Vice President,
and by its Secretary or an Assistant Secretary or the Treasurer or an Assistant
Treasurer, and delivered to the Trustee.
"Consolidated Income Tax Expense" means, with respect to the Company
for any period, the provision for federal, state, local and foreign income taxes
payable by the Company and the Restricted Subsidiaries for such period as
determined on a consolidated basis in accordance with GAAP.
"Consolidated Interest Expense" means, with respect to the Company for
any period, without duplication, the sum of (i) the interest expense of the
Company and the Restricted Subsidiaries for such period as determined on a
consolidated basis in accordance with GAAP, including, without limitation, (a)
any amortization of debt discount; (b) the net cost under Interest Rate
Protection Obligations (including any amortization of discounts); (c) the
interest portion of any deferred payment obligation; (d) all commissions,
discounts and other fees and charges owed with respect to letters of credit and
bankers' acceptance financing; and (e) all capitalized interest and all accrued
interest; (ii) the interest component of Capital Lease Obligations paid, accrued
<PAGE> 17
and/or scheduled to be paid or accrued by the Company and the Restricted
Subsidiaries during such period as determined on a consolidated basis in
accordance with GAAP; and (iii) dividends and distributions in respect of
Disqualified Equity Interests actually paid in cash by the Company during such
period as determined on a consolidated basis in accordance with GAAP.
"Consolidated Net Income" means, with respect to any period, the net
income of the Company and the Restricted Subsidiaries for such period determined
on a consolidated basis in accordance with GAAP, adjusted, to the extent
included in calculating such net income, by excluding, without duplication, (a)
all extraordinary gains or losses and all gains and losses from the sales or
other dispositions of assets out of the ordinary course of business (net of
taxes, fees and expenses relating to the transaction giving rise thereto) for
such period; (b) that portion of such net income derived from or in respect of
investments in Persons other than Restricted Subsidiaries, except to the extent
actually received in cash by the Company or any Restricted Subsidiary (subject,
in the case of any Restricted Subsidiary, to the provisions of clause (e) of
this definition); (c) the portion of such net income (or loss) allocable to
minority interests in any Person (other than a Restricted Subsidiary) for such
period, except to the extent actually received in cash by the Company or any
Restricted Subsidiary (subject, in the case of any Restricted Subsidiary, to the
provisions of clause (e) of this definition); (d) net income (or loss) of any
other Person combined with the Company or any Restricted Subsidiary on a
"pooling of interests" basis attributable to any period prior to the date of
combination; and (e) the net income of any Restricted Subsidiary to the extent
that the declaration of dividends or similar distributions by that Restricted
Subsidiary of that income is not at the time (regardless of any waiver)
permitted, directly or indirectly, by operation of the terms of its charter or
any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulations applicable to that Restricted Subsidiary or its Equity
Interest holders.
"Consolidated Operating Cash Flow" means, with respect to any period,
Consolidated Net Income for such period increased (without duplication) by the
sum of (a) Consolidated Income Tax Expense for such period to the extent
deducted in determining Consolidated Net Income for such period; (b)
Consolidated Interest Expense for such period to the extent deducted in
determining Consolidated Net Income for such period; (c) all dividends on
Preferred Equity Interests to the extent taken into account for computing
Consolidated Net Income for that period; and (d) depreciation, amortization and
any other non-cash items for such period to the extent deducted in determining
Consolidated Net Income for such period (other than any non-cash item that
requires the accrual of, or a reserve for, cash charges for any future period)
<PAGE> 18
of the Company and the Restricted Subsidiaries, including, without limitation,
amortization of capitalized debt issuance costs for such period, all of the
foregoing determined on a consolidated basis in accordance with GAAP minus
non-cash items to the extent they increase Consolidated Net Income (including
the partial or entire reversal of reserves taken in prior periods, except to the
extent any such reserves were not permitted to be added back in the calculation
of Consolidated Operating Cash Flow for a prior period pursuant to clause (d)
above) for such period.
"control" means, with respect to any specified Person, the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of Voting Stock, by contract or otherwise; and the
terms "controlling" and "controlled" have meanings correlative to the foregoing.
"Corporate Trust Office" means the office of the Trustee at which at
any particular time its corporate trust business shall be principally
administered, which office at the date of execution of this Indenture is located
at 61 Broadway, 18th Floor, Corporate Trust Window, New York, NY 10006.
"Credit Facility" means the Amended and Restated Credit Agreement
dated as of July 7, 1997, amended and restated as of May 8, 1998, among
Holdings, the Company, the banks party thereto from time to time, Paribas
(formerly known as Banque Paribas), as Syndication Agent, Fleet National Bank,
as Administrative Agent, and General Electric Capital Corporation, as
Documentation Agent, including any deferrals, renewals, extensions,
replacements, refinancings or refundings thereof, or amendments, modifications
or supplements thereto (including, without limitation, any such deferrals,
renewals, extensions, replacements, refinancings, refundings, amendments,
modifications or supplements that increase the aggregate amount of commitments
or borrowings thereunder or add Subsidiaries of the Company as additional
borrower or guarantor thereunder), and any agreements providing therefor,
whether by or with the same or any other lender, creditor or group of lenders or
creditors, and including related notes, guarantees, security agreements, pledge
agreements, mortgages, note agreements, other collateral documents and note
agreements and other instruments and agreements executed in connection
therewith.
<PAGE> 19
"Cumulative Operating Cash Flow" means, as at any date of
determination, the positive cumulative Consolidated Operating Cash Flow realized
during the period commencing on the Issue Date and ending on the last day of the
most recent fiscal quarter immediately preceding the date of determination for
which consolidated financial information of the Company is available or, if such
cumulative Consolidated Operating Cash Flow for such period is negative, the
negative amount by which cumulative Consolidated Operating Cash Flow is less
than zero.
"Custodian" means any receiver, interim receiver, receiver and
manager, receiver-manager, trustee, assignee, liquidator, sequestrator or
similar official under any Bankruptcy Law or any other law respecting secured
creditors and the enforcement of their security or any other person with like
powers whether appointed judicially or out of court and whether pursuant to an
interim or final appointment.
"DBS" means direct broadcast satellite.
"Debt to Operating Cash Flow Ratio" means the ratio of (a) an amount
equal to the Total Consolidated Indebtedness as of the date of calculation (the
"Determination Date") minus the amount of funds on deposit in the Escrow Account
as of the Determination Date to (b) four times the Consolidated Operating Cash
Flow for the latest fiscal quarter for which financial information is available
immediately preceding such Determination Date (the "Measurement Period"). For
purposes of calculating Consolidated Operating Cash Flow for the Measurement
Period immediately prior to the relevant Determination Date, (I) any Person that
is a Restricted Subsidiary on the Determination Date (or would become a
Restricted Subsidiary on such Determination Date in connection with the
transaction that requires the determination of such Consolidated Operating Cash
Flow) will be deemed to have been a Restricted Subsidiary at all times during
such Measurement Period, (II) any Person that is not a Restricted Subsidiary on
such Determination Date (or would cease to be a Restricted Subsidiary on such
Determination Date in connection with the transaction that requires the
determination of such Consolidated Operating Cash Flow) will be deemed not to
have been a Restricted Subsidiary at any time during such Measurement Period,
and (III) if the Company or any Restricted Subsidiary shall have in any manner
(x) acquired (including through an Acquisition or the commencement of activities
<PAGE> 20
constituting such operating business) or (y) disposed of (including by way of an
Asset Sale or the termination or discontinuance of activities constituting such
operating business) any operating business during such Measurement Period or
after the end of such period and on or prior to such Determination Date, such
calculation will be made on a pro forma basis in accordance with GAAP as if, in
the case of an Acquisition or the commencement of activities constituting such
operating business, all such transactions had been consummated on the first day
of such Measurement Period and, in the case of an Asset Sale or termination or
discontinuance of activities constituting such operating business, all such
transactions had been consummated prior to the first day of such Measurement
Period; provided, however, that such pro forma adjustment shall not give effect
to the Operating Cash Flow of any Acquired Person to the extent that such
Person's net income would be excluded pursuant to clause (e) of the definition
of Consolidated Net Income.
"Default" means any event that is or with the passage of time or the
giving of notice or both would be an Event of Default.
"Depository" means The Depository Trust Company, its nominees and
successors.
"Designated Senior Indebtedness" means (a) any Indebtedness of the
Company outstanding under the Credit Facility (including guarantees) and (b) any
other Senior Indebtedness that, at the time of determination, has an aggregate
principal amount outstanding, together with any commitments to lend additional
amounts, of at least $50.0 million, if (in the case of Senior Indebtedness
described in this clause (b)) the instrument governing such Senior Indebtedness
expressly states that such Indebtedness is "Designated Senior Indebtedness" for
purposes of this Indenture, a Board Resolution setting forth such designation by
the Company has been filed with the Trustee and such designation is not
prohibited by the Credit Facility.
"DIRECTV Services" means DBS television services and all other video,
audio, data packages, "a la carte" programming services and other services
offered by DIRECTV, Inc., the predecessor-in-interest of Hughes Communications
Galaxy, Inc., or its successors or assigns.
"Disinterested Director" means, with respect to any transaction or
series of related transactions, a member of the Board other than a director who
(i) has any material direct or indirect financial interest in or with respect to
such transaction or series of related transactions or (ii) is an employee or
officer of the Company or an Affiliate that is itself a party to such
transaction or series of transactions or an Affiliate of a party to such
transactions or series of related transactions.
<PAGE> 21
"Disposition" means, with respect to any Person, any merger,
consolidation or other business combination involving such Person (whether or
not such Person is the Surviving Person) or the sale, assignment, transfer,
lease, conveyance or other disposition of all or substantially all of such
Person's assets.
"Disqualified Equity Interest" means any Equity Interest which, by its
terms (or by the terms of any security into which it is convertible or for which
it is exchangeable at the option of the holder thereof), or upon the happening
of any event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable, at the option of the holder thereof, in
whole or in part, or exchangeable into Indebtedness on or prior to the earlier
of the maturity date of the Securities or the date on which no Securities remain
outstanding.
"Eligible Institution" means a commercial banking institution that has
combined capital and surplus of not less than $500.0 million or its equivalent
in foreign currency, whose debt is rated Investment Grade at the time as of
which any investment or rollover therein is made.
"Equity Interest" in any Person means any and all shares, interests,
rights to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) corporate stock or other equity
participations, including partnership interests, whether general or limited, or
member interests in such Person, including any Preferred Equity Interests.
"Escrow Account" shall mean an account established in the name of the
Escrow Agent and funded by the Company on the Closing Date pursuant to this
Indenture.
"Escrow Agent" means the Trustee (or any duly appointed successor
thereto).
"Escrow Agreement" means the Escrow Agreement dated as of July 31,
1998 between the Company and the Trustee, as trustee and as escrow agent.
"Escrow Proceeds Offer" has the meaning ascribed to such term in
Section 10.24(b).
"Escrow Proceeds Offer Purchase Date" has the meaning ascribed to such
term in Section 10.24(b).
<PAGE> 22
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated by the SEC thereunder.
"Exchange Securities" means 12 3/8% Senior Subordinated Notes due
2006, Series B (the terms of which are identical to the Initial Securities
except that the Exchange Securities shall be registered under the Securities Act
and shall not contain the restrictive legend on the face of the form of Initial
Securities), issued pursuant to this Indenture.
"Existing Indebtedness" means any Indebtedness of the Company and the
Restricted Subsidiaries in existence on the Issue Date until such amounts are
repaid.
"Fair Market Value" means, with respect to any asset, the price (after
taking into account any liabilities relating to such assets) that could be
negotiated in an arm's-length free market transaction, for cash, between a
willing seller and a willing and able buyer, neither of which is under any
compulsion to complete the transaction; provided, however, that the Fair Market
Value of any such asset or assets shall be determined conclusively by the Board
acting in good faith, and shall be evidenced by resolutions of the Board
delivered to the Trustee.
"GAAP" means, at any date of determination, generally accepted
accounting principles in effect in the United States that are applicable at the
date of determination and that are consistently applied for all applicable
periods.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which guarantee
or obligations the full faith and credit of the United States of America are
pledged.
"guarantee" means, as applied to any obligation, (i) a guarantee
(other than by endorsement of negotiable instruments for collection in the
ordinary course of business), direct or indirect, in any manner, of any part or
all of such obligation and (ii) an agreement, direct or indirect, contingent or
otherwise, the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of non-performance) of all or
any part of such obligation, including, without limiting the foregoing, the
<PAGE> 23
payment of amounts drawn down by letters of credit. A guarantee shall include,
without limitation, any agreement to maintain or preserve any other Person's
financial condition or to cause any other Person to achieve certain levels of
operating results.
"Guarantors" means Argos Support Services Company, Primewatch, Inc.,
and any other Restricted Subsidiary that becomes a Guarantor in accordance with
this Indenture and Section 10.22.
"Guarantor Senior Indebtedness" means with respect to any Guarantor,
(i) the Obligations (including any interest accruing subsequent to the filing of
a petition of bankruptcy at the rate provided for in the documentation with
respect thereto, whether or not such interest is an allowed claim under
applicable law) on any Indebtedness of a Guarantor, whether outstanding on the
Issue Date or thereafter created, incurred or assumed, unless, in the case of
any particular Indebtedness, the instrument creating or evidencing the same or
pursuant to which the same is outstanding expressly provides that such
Indebtedness shall not be senior in right of payment to the Guarantee of such
Guarantor. Without limiting the generality of the foregoing, Guarantor Senior
Indebtedness shall also include the principal of, premium, if any, interest
(including any interest accruing subsequent to the filing of a petition of
bankruptcy at the rate provided for in the documentation with respect thereto,
whether or not such interest is an allowed claim under applicable law) on, and
all other amounts owing in respect of, (x) all Obligations (including guarantees
thereof) of every nature of such Guarantor under the Credit Facility, including,
without limitation, obligations to pay principal and interest, reimbursement
obligations under letters of credit, fees, expenses and indemnities, (y) all
Interest Rate Protection Obligations (including guarantees thereof) and (z) all
obligations (including guarantees thereof) under Currency Agreements, in each
case whether outstanding on the Issue Date or thereafter incurred.
Notwithstanding the foregoing, Guarantor Senior Indebtedness shall not include
(a) to the extent that it may constitute Indebtedness, any Obligation for
federal, state, local or other taxes; (b) any Indebtedness among or between the
Guarantor, the Company and any Subsidiary of the Company; (c) to the extent that
it may constitute Indebtedness, any Obligation in respect of any trade payable
Incurred for the purchase of goods or materials, or for services obtained, in
the ordinary course of business; (d) that portion of any Indebtedness that is
Incurred in violation of this Indenture; provided, however, that such
Indebtedness shall be deemed not to have been Incurred in violation of this
Indenture for purposes of this clause (d) if (I) the holder(s) of such
Indebtedness or their representative or the Company shall have furnished to the
Trustee an Opinion of Counsel, unqualified in all material respects, addressed
to the Trustee (which legal counsel may, as to matters of fact, rely upon an
Officers' Certificate of the Company) to the effect that the Incurrence of such
Indebtedness does not violate the provisions of this Indenture or (II) in the
case of any Obligations under the Credit Facility, the holder(s) of such
Obligations or their agent or representative shall have received a
representation from the Company to the effect that the Incurrence of such
Indebtedness does not violate the provisions of this Indenture; (e) Indebtedness
evidenced by the Securities or any guarantee thereof; (f) Indebtedness of such
Guarantor that is expressly subordinate or junior in right of payment to any
other Indebtedness of such Guarantor; (g) Indebtedness represented by the Seller
Notes; (h) to the extent that it may constitute Indebtedness, any obligation
owing under leases (other than Capital Lease Obligations) or management
agreements; and (i) any obligation that by operation of law is subordinate to
any general unsecured obligations of such Guarantor.
<PAGE> 24
"High Power Satellite Transmission Business" means the business of the
acquisition, transmission or sale of programming in the high power DBS business
utilizing broadcast satellite service (including any provision of such services
to cable operators or other media providers), which may utilize all or part of
satellites owned by DIRECTV, Inc. or Hughes Communications Galaxy, Inc., and all
other activities relating thereto or arising therefrom.
"Holder" means the Person in whose name a Security is registered on
the Registrar's books, as the context requires.
"Holdings" means Golden Sky Holdings, Inc. or any successor or assign
thereof that owns 100% of the Equity Interests of the Company.
"Incur" means, with respect to any Indebtedness or other obligation of
any Person, to create, issue, incur (including by conversion, exchange or
otherwise), assume, guarantee or otherwise become liable in respect of such
Indebtedness or other obligation or the recording, as required pursuant to GAAP
or otherwise, of any such Indebtedness or other obligation on the balance sheet
of such Person (and "Incurrence," "Incurred" and "Incurring" shall have meanings
correlative to the foregoing).
"Indebtedness" means (without duplication), with respect to any
Person, whether recourse is to all or a portion of the assets of such Person and
whether or not contingent, (a) every obligation of such Person for money
borrowed; (b) every obligation of such Person evidenced by bonds, debentures,
notes or other similar instruments, including obligations incurred in connection
with the acquisition of property, assets or businesses; (c) every reimbursement
obligation of such Person with respect to letters of credit, bankers'
acceptances or similar facilities issued for the account of such Person; (d)
every obligation of such Person issued or assumed as the deferred purchase price
of property or services (but excluding trade accounts payable incurred in the
ordinary course of business and payable in accordance with industry practices,
or other accrued liabilities arising in the ordinary course of business that are
not overdue or that are being contested in good faith); (e) every Capital Lease
Obligation of such Person; (f) every net obligation under Interest Rate
Protection Obligations; (g) every obligation of the type referred to in clauses
(a) through (f) of another Person and all dividends of another Person the
payment of which, in either case, such Person has guaranteed or is responsible
or liable for, directly or indirectly, as obligor, guarantor or otherwise; and
(h) any and all deferrals, renewals, extensions and refundings of, or
amendments, modifications or supplements to, any liability of the kind described
in any of the preceding clauses (a) through (g) above. Indebtedness (a) shall
never be calculated taking into account any cash and Cash Equivalents held by
such Person; (b) shall not include obligations of any Person (x) arising from
the honoring by a bank or other financial institution of a check, draft or
similar instrument inadvertently drawn against insufficient funds in the
ordinary course of business, provided that such obligations are extinguished
within two Business Days of their incurrence unless covered by an overdraft
line, (y) resulting from the endorsement of negotiable instruments for
collection in the ordinary course of business and consistent with past business
practices and (z) under standby letters of credit to the extent collateralized
by cash or Cash Equivalents; (c) that provides that an amount less than the
principal amount thereof shall be due upon any declaration of acceleration
thereof shall be deemed to be incurred or outstanding in an amount equal to the
accreted value thereof at the date of determination; (d) shall include the
liquidation preference and any mandatory redemption payment obligations in
respect of any Disqualified Equity Interests of the Company or any Restricted
Subsidiary; and (e) shall not include obligations under performance bonds,
performance guarantees, surety bonds and appeal bonds, letters of credit or
similar obligations Incurred in the ordinary course of business (including
standby letters of credit securing obligations to the NRTC Incurred in the
ordinary course of business that are not overdue or that are being contested in
good faith by appropriate proceedings) (other than obligations under or in
respect of any direct or indirect credit support for obligations of any
Unrestricted Subsidiary).
<PAGE> 25
"Indenture" means this instrument as originally executed (including
all exhibits and schedules hereto) and as it may from time to time be
supplemented or amended by one or more indentures supplemental hereto entered
into pursuant to the applicable provisions hereof.
"Indenture Obligations" means the obligations of the Company and any
other obligor under this Indenture, the Securities, the Registration Rights
Agreement or the Escrow Agreement to pay principal of, premium, if any, and
interest on the Securities when due and payable (including, without limitation,
Additional Interest), whether at maturity, by acceleration, call for redemption
or repurchase or otherwise, and all other amounts due or to become due under or
in connection with this Indenture or the Securities and the performance of all
other obligations to the Trustee (including, but not limited to, payment of all
amounts due the Trustee under Section 6.07 hereof), the Escrow Agent and the
Holders of the Securities under this Indenture, the Escrow Agreement and the
Securities, according to the terms thereof.
"Independent Financial Advisor" means a nationally recognized
accounting, appraisal or investment banking firm or consultant with experience
advising DBS businesses that is, in the judgment of the Board, qualified to
perform the task for which it has been engaged (i) that does not, and whose
directors, officers and employees or Affiliates do not, have a direct or
indirect financial interest in the Company and (ii) that, in the judgment of the
Board, is otherwise independent and qualified to perform the task for which it
is to be engaged.
"Initial Purchasers" means Merrill Lynch & Co., Merrill Lynch, Pierce,
Fenner & Smith Incorporated and NationsBanc, Montgomery Securities LLC.
<PAGE> 26
"Initial Securities" means the 12 3/8% Senior Subordinated Notes due
2006, Series A, for so long as such securities constitute Restricted Securities.
"Insolvency or Liquidation Proceeding" means, with respect to any
Person, any liquidation, dissolution or winding up of such Person, or any
bankruptcy, reorganization, insolvency, receivership or similar proceeding with
respect to such Person, whether voluntary or involuntary.
"Institutional Accredited Investor" means an institution that is an
"accredited investor" as that term is defined in Rule 501(a)(1), (2), (3) or (7)
under the Securities Act.
"interest" means, with respect to the Securities, the sum of any cash
interest and any Additional Interest on the Securities.
"Interest Payment Date" means, when used with respect to any Security,
the Stated Maturity of an installment of interest on such Security, as set forth
in such Security.
"Interest Rate Protection Obligations" means, with respect to any
Person, the Obligations of such Person under (i) interest rate swap agreements,
interest rate cap agreements and interest rate collar agreements, and (ii) other
agreements or arrangements designed to protect such Person against fluctuations
in interest rates.
"Investment" means, with respect to any Person, any direct or indirect
loan, advance, guarantee or other extension of credit or capital contribution to
(by means of transfers of cash or other property or assets to others or payments
for property or services for the account or use of others, or otherwise), or
purchase or acquisition of capital stock, bonds, notes, debentures or other
securities or evidences of Indebtedness issued by, any other Person. In no event
will the issuance by the Company of Qualified Equity Interests of the Company in
exchange for any such capital stock, bonds, notes, debentures or other
securities or evidences of Indebtedness constitute an Investment. The amount of
any Investment shall be the original cost of such Investment, plus the cost of
all additions thereto, and minus the amount of any portion of such Investment
repaid to such Person in cash or other property or assets that would not
otherwise constitute an Investment as a repayment of principal or a return of
capital, as the case may be, but without any other adjustments for increases or
decreases in value, or write-ups, write-downs or write-offs with respect to such
Investment. In determining the amount of any Investment or any repayment in
respect of an Investment involving a transfer of any property or asset other
than cash, such property shall be valued at its Fair Market Value at the time of
such transfer, as determined in good faith by the Board of Directors (or
comparable body) of the Person making such transfer or receiving such repayment.
<PAGE> 27
"Investment Grade" means, with respect to a security, that such
security is rated by at least two nationally recognized statistical rating
organizations in one of each such organization's four highest generic rating
categories.
"Issue Date" means the original issue date of the Securities.
"Lien" means any lien, mortgage, charge, security interest,
hypothecation, assignment for security or encumbrance of any kind (including any
conditional sale or capital lease or other title retention agreement, any lease
in the nature thereof, and any agreement to give any security interest).
"Marketable Securities" means: (a) Government Securities; (b) any
certificate of deposit maturing not more than 365 days after the date of
acquisition issued by, or time deposit of, an Eligible Institution; (c)
commercial paper maturing not more than 365 days after the date of acquisition
issued by a corporation (other than an Affiliate of the Company) with an
Investment Grade rating, at the time as of which any investment therein is made,
issued or offered by an Eligible Institution; (d) any bankers' acceptances or
money market deposit accounts issued or offered by an Eligible Institution; and
(e) any fund investing substantially in investments of the types described in
clauses (a) through (d) above.
"Maturity Date" means, with respect to any Security, the date on which
any principal of such Security becomes due and payable as therein or herein
provided, whether at the Stated Maturity with respect to such principal or by
declaration of acceleration, call for redemption or purchase or otherwise.
"Net Cash Proceeds" means the aggregate proceeds in the form of cash
or Cash Equivalents received by the Company or any Restricted Subsidiary in
respect of any Asset Sale, including all cash or Cash Equivalents received upon
any sale, liquidation or other exchange of proceeds of Asset Sales received in a
form other than cash or Cash Equivalents, net of (a) the direct costs relating
to such Asset Sale (including, without limitation, legal, accounting and
investment banking fees and sales commissions) and any relocation expenses
incurred as a result thereof; (b) taxes paid or payable as a result thereof
(after taking into account any available tax credits or deductions and any tax
sharing arrangements); (c) amounts required to be applied to the repayment of
Indebtedness secured by a Lien on the asset or assets that were the subject of
such Asset Sale; (d) amounts deemed, in good faith, appropriate by the Board of
Directors of the Company to be provided as a reserve, in accordance with GAAP,
<PAGE> 28
against any liabilities associated with such assets that are the subject of such
Asset Sale (provided that the amount of any such reserves shall be deemed to
constitute Net Cash Proceeds at the time such reserves shall have been released
or are not otherwise required to be retained as a reserve); and (e) with respect
to Asset Sales by Restricted Subsidiaries, the portion of such cash payments
attributable to Persons holding a minority interest in such Restricted
Subsidiary.
"Non-Payment Event of Default" means any event (other than a Payment
Default) the occurrence of which entitles one or more Persons to immediately
accelerate the maturity of any Designated Senior Indebtedness.
"Note Pro Rata Share" means the amount of the applicable Unutilized
Net Cash Proceeds obtained by multiplying the amount of such Unutilized Net Cash
Proceeds by a fraction, (i) the numerator of which is the aggregate principal
amount of Securities outstanding at the time of the applicable Asset Sale with
respect to which the Company is required to use Unutilized Net Cash Proceeds to
repay or make an Offer to Purchase or repay and (ii) the denominator of which is
the sum of (a) the aggregate accreted value and/or principal amount, as the case
may be, of all Other Pari Passu Debt outstanding at the time of the applicable
Asset Sale and (b) the aggregate principal amount of all Securities outstanding
at the time of the applicable Offer to Purchase with respect to which the
Company is required to use the applicable Unutilized Net Cash Proceeds to offer
to repay or make an Offer to Purchase or repay.
"NRTC" means the National Rural Telecommunications Cooperative and any
successor entity to it.
"Obligations" means any principal, interest (including, without
limitation, Post-Petition Interest), premium, penalties, fees, indemnifications,
reimbursement obligations, damages and other liabilities payable under the
documentation governing any Indebtedness.
"Offering Memorandum" means the Offering Memorandum dated July 24,
1998 pursuant to which the Initial Securities were offered, and any supplement
thereto.
<PAGE> 29
"Officer" means, with respect to the Company, the Chairman of the
Board, a Vice Chairman, the President, a Vice President, the Secretary, an
Assistant Secretary, the Treasurer or an Assistant Treasurer.
"Officers' Certificate" means a certificate signed by the Chairman of
the Board, a Vice Chairman, the President or a Vice President, and by the
Secretary, an Assistant Secretary, the Treasurer or an Assistant Treasurer, of
the Company and delivered to the Trustee.
"Opinion of Counsel" means a written opinion of counsel who may be
counsel for the Company or the Trustee, and who shall be reasonably acceptable
to the Trustee.
"Other Pari Passu Debt" means Indebtedness of the Company or any
Guarantor that neither constitutes Senior Indebtedness nor Subordinated
Indebtedness.
"Outstanding" means, as of the date of determination, all Securities
theretofore authenticated and delivered under this Indenture, except:
(i) Securities theretofore cancelled by the Trustee or delivered to
the Trustee for cancellation;
(ii) Securities, or portions thereof, for whose payment or redemption
money in the necessary amount has been theretofore deposited with the
Trustee or any Paying Agent (other than the Company or any Affiliate
thereof) in trust or set aside and segregated in trust by the Company or
any Affiliate thereof (if the Company or Affiliate shall act as Paying
Agent) for the Holders of such Securities; provided, however, that if such
Securities are to be redeemed, notice of such redemption has been duly
given pursuant to this Indenture or provision therefor satisfactory to the
Trustee has been made;
(iii) Securities with respect to which the Company has effected
defeasance or covenant defeasance as provided in Article Four, to the
extent provided in Sections 4.02 and 4.03; and
<PAGE> 30
(iv) Securities in exchange for or in lieu of which other Securities
have been authenticated and delivered pursuant to this Indenture, other
than any such Securities in respect of which there shall have been
presented to the Trustee proof satisfactory to it that such Securities are
held by a bona fide purchaser in whose hands the Securities are valid
obligations of the Company;
provided, however, that in determining whether the Holders of the requisite
principal amount of Outstanding Securities have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Securities owned
by the Company or any other obligor upon the Securities or any Affiliate of the
Company or such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be protected
in relying upon any such request, demand, authorization, direction, notice,
consent or waiver, only Securities that a Responsible Officer of the Trustee
actually knows to be so owned shall be so disregarded. The Company shall notify
the Trustee, in writing, when it repurchases or otherwise acquires Securities,
of the aggregate principal amount of such Securities so repurchased or otherwise
acquired. Securities so owned which have been pledged in good faith may be
regarded as Outstanding if the pledgee establishes to the satisfaction of the
Trustee the pledgee's right so to act with respect to such Securities and that
the pledgee is not the Company or any other obligor upon the Securities or any
Affiliate of the Company or such other obligor. If the Paying Agent holds, in
its capacity as such, on any Maturity Date or on any optional redemption date
money sufficient to pay all accrued interest and principal with respect to such
Securities payable on that date and is not prohibited from paying such money to
the Holders thereof pursuant to the terms of this Indenture, then on and after
that date such Securities cease to be Outstanding and interest on them ceases to
accrue. Securities may also cease to be outstanding to the extent expressly
provided in Article Eight.
"Payment Default" means any default, after any requirement for the
giving of notice, the lapse of time or both, or any other condition to such
default becoming an event of default has occurred, in the payment of principal
of (or premium, if any) or interest on or any other amount payable in connection
with Designated Senior Indebtedness.
"Permitted Acquisition Deposits" means any advance or payment of
funds, whether as consideration for an option to purchase or as a deposit,
binder or earnest money, whether or not refundable, and whether or not made into
escrow, made pursuant to any written agreement, term sheet, letter of intent or
other instrument providing for the Acquisition of any High Power Satellite
Transmission Business.
<PAGE> 31
"Permitted Business" means those businesses in which the Company and
the Restricted Subsidiaries are engaged on the Issue Date or business reasonably
related thereto (including, without limitation, the High Power Satellite
Transmission Business and the business of satellite data transmission).
"Permitted Holders" any of (i) means Burr, Egan, Deleage & Co.,
Spectrum Equity Investors, L.P., BancBoston Ventures Inc., Norwest Equity
Partners VI, LP, Northwest Venture Partners VI, LP and HarbourVest Partners, LLC
and (ii) their respective Affiliates.
"Permitted Indebtedness" means the following Indebtedness (each of
which shall be given independent effect):
(a) Indebtedness under the Securities and this Indenture and other
Indebtedness of the Company, and any guarantee thereof by a Guarantor, so
long as the aggregate principal amount of such Indebtedness and of the
Notes does not exceed $195.0 million;
(b) Indebtedness of the Company and/or any Restricted Subsidiary
outstanding on the Issue Date;
(c) (1) Indebtedness under the Credit Facility of the Company, and
without duplication, any guarantee thereof by a Guarantor, Incurred in an
aggregate principal amount at any one time outstanding not to exceed $150.0
million, which amount shall be reduced by (x) any permanent reduction of
commitments thereunder and (y) any other repayment accompanied by a
permanent reduction of commitments thereunder (other than in connection
with any refinancing thereof where the aggregate principal amount
outstanding and commitments thereunder immediately prior thereto are not
greater than such amounts immediately thereafter); and (2) Indebtedness of
the Company, and, without duplication, any guarantee thereof by a
Guarantor, incurred to fund Asset Acquisitions of Permitted Businesses,
Capital Lease Obligations, Investments permitted under this Indenture and
working capital to support a Permitted Business in an aggregate principal
amount at any one time outstanding not to exceed $65.0 million (including
any Indebtedness under the Credit Facility that utilizes this clause
<PAGE> 32
(c)(2)), which amount shall be reduced by any permanent reduction of
commitments thereunder (other than in connection with any refinancing
thereof where the aggregate principal amount outstanding and commitments
thereunder immediately prior thereto are not greater than such amounts
immediately thereafter);
(d) Indebtedness of the Company such that, at the time of and after
giving effect to the Incurrence thereof, the total aggregate principal
amount of Indebtedness Incurred under this clause (d) (and any refinancing
thereof (whether initial or successive) Incurred pursuant to and otherwise
incurred in compliance with this Indenture) would not exceed 200% of Total
Incremental Invested Equity;
(e) (x) Indebtedness of any Restricted Subsidiary owed to and held by
the Company or any Restricted Subsidiary and (y) Indebtedness of the
Company owed to and held by any Restricted Subsidiary that is unsecured and
subordinated in right of payment to the payment and performance of the
Company's obligations under any Senior Indebtedness, this Indenture and the
Securities (or pledged to secure any Senior Indebtedness); provided,
however, that an Incurrence of Indebtedness that is not permitted by this
clause (e) shall be deemed to have occurred upon (i) any sale or other
disposition of any Indebtedness of the Company or any Restricted Subsidiary
referred to in this clause (e) to a Person (other than the Company or any
Restricted Subsidiary) or (ii) the designation of a Restricted Subsidiary
that holds Indebtedness of the Company or any other Restricted Subsidiary
as an Unrestricted Subsidiary;
(f) Interest Rate Protection Obligations of the Company or any
Restricted Subsidiary relating to Indebtedness of the Company or such
Restricted Subsidiary (which Indebtedness (i) bears interest at fluctuating
interest rates and (ii) is otherwise permitted to be Incurred under this
covenant) and guarantees by the Company or any Restricted Subsidiary of
such Interest Rate Protection Obligations; provided, however, that the
notional principal amount of such Interest Rate Protection Obligations does
not exceed the principal amount of the Indebtedness to which such Interest
Rate Protection Obligations relate;
(g) indemnification obligations of the Company or any Restricted
Subsidiary and guarantees thereof under agreements providing for the
disposition of assets or one or more businesses or Restricted Subsidiaries;
provided, however, that such obligations do not exceed at any time the Fair
Market Value of the gross proceeds received by the Company and the
Restricted Subsidiaries for such disposition;
<PAGE> 33
(h) Indebtedness to the extent representing a replacement, renewal,
refinancing or extension (collectively, a "refinancing") of outstanding
Indebtedness Incurred in compliance with the Debt to Operating Cash Flow
Ratio of Section 10.11 or clause (a), (b), (c)(2), (i) or (k) of this
definition; provided, however, that (i) any such refinancing shall not
exceed the sum of the principal amount (or, if such Indebtedness provides
for a lesser amount to be due and payable upon a declaration of
acceleration thereof at the time of such refinancing, an amount no greater
than such lesser amount) of the Indebtedness being refinanced, plus the
amount of accrued interest or dividends thereon, plus the amount of any
reasonably determined prepayment premium necessary to accomplish such
refinancing and such reasonable fees and expenses incurred in connection
therewith, (ii) Indebtedness representing a refinancing of Indebtedness
(other than Senior Indebtedness and Guarantor Senior Indebtedness) shall
have a Weighted Average Life to Maturity equal to or greater than the
Weighted Average Life to Maturity of the Indebtedness being refinanced,
(iii) Indebtedness that is pari passu with the Securities or a Guarantee
may only be refinanced with Indebtedness that is made pari passu with or
subordinate in right of payment to the Securities (and supported by a
guarantee that is pari passu or subordinate in right of payment with such
Guarantee), and Subordinated Indebtedness may only be refinanced with
Subordinated Indebtedness, (iv) with respect to any refinancing of
Indebtedness Incurred pursuant to subparagraph (i) or (k) of this
definition, such refinancing pursuant to this clause (h) shall also be
deemed to be Incurred pursuant to clause (i) or (k), as the case may be, of
this paragraph (for the avoidance of doubt, the result of which is that a
refinancing does not create new debt incurrence capacity under such
clauses) and (v) Indebtedness of the Company Incurred under clause (b) of
this definition may only be refinanced with Indebtedness of the Company;
(i) Indebtedness of the Company or any Restricted Subsidiary Incurred
to finance the acquisition of the exclusive right to distribute DIRECTV
Services within designated Rural DIRECTV Markets; provided, however, that
such Indebtedness shall be Permitted Indebtedness under this subparagraph
(i) in an amount not greater than the face amount of any letter of credit
issued under the Credit Facility to support such Indebtedness, it being
understood that the issuance of such letter of credit (but only for so long
as such letter of credit remains outstanding) constitutes a reduction in
the amount of Permitted Indebtedness available to be Incurred under clause
(c) of this definition;
<PAGE> 34
(j) Indebtedness in the form of Liens permitted under clause (b) of
the definition of Permitted Liens; and
(k) in addition to the items referred to in subparagraphs (a) through
(j) above, Indebtedness of the Company or any of the Restricted
Subsidiaries (including any Indebtedness under the Credit Facility that
utilizes this clause (k)) having an aggregate principal amount for the
Company and the Restricted Subsidiaries not to exceed $25.0 million at any
time outstanding.
Indebtedness of any Person or any of its Subsidiaries existing at the
time such Person becomes a Restricted Subsidiary (or is merged into or
consolidated with the Company or any Restricted Subsidiary), whether or not such
Indebtedness was Incurred in connection with, or in contemplation of, such
Person becoming a Restricted Subsidiary (or being merged into or consolidated
with the Company or any Restricted Subsidiary), shall be deemed Incurred at the
time any such Person becomes a Restricted Subsidiary or merges into or
consolidates with the Company or any Restricted Subsidiary.
"Permitted Investments" means (a) Cash Equivalents; (b) Investments by
the Company or any Restricted Subsidiary in any Person that is or will become
immediately after such Investment a Restricted Subsidiary or that will merge or
consolidate into the Company or a Restricted Subsidiary; (c) Investments in the
Company by any Restricted Subsidiary; (d) Investments in prepaid expenses,
negotiable instruments held for collection and lease, utility and workers'
compensation, performance and other similar deposits; (e) loans and advances to
employees made in the ordinary course of business not to exceed $1.0 million in
the aggregate at any one time outstanding; (f) Interest Rate Protection
Obligations; (g) bonds, notes, debentures or other securities received as a
result of Asset Sales permitted under Section 10.18 not to exceed 25% of the
total consideration for such Asset Sales (determined and computed as set forth
under Section 10.18); (h) transactions with officers, directors and employees of
the Company or any Restricted Subsidiary entered into in the ordinary course of
business (including compensation or employee benefit arrangements with any such
director or employee) and consistent with past business practices; (i)
Investments existing as of the Issue Date and any amendment, extension, renewal
or modification thereof to the extent that any such amendment, extension,
renewal or modification does not require the Company or any Restricted
Subsidiary to make any additional cash or non-cash payments or provide
additional services in connection therewith; (j) Investments in Marketable
Securities by the Escrow Agent and held in the Escrow Account; and (k) Permitted
Acquisition Deposits.
<PAGE> 35
"Permitted Junior Securities" means any securities of the Company or
any other Person that are (i) equity securities without special covenants or
(ii) subordinated in right of payment to all Senior Indebtedness that may at the
time be outstanding, to the same extent as, or to a greater extent than, the
Securities are subordinated as provided in this Indenture, in any event pursuant
to a court order so providing and as to which (a) the rate of interest on such
securities shall not exceed the effective rate of interest on the Securities on
the date of this Indenture, (b) such securities shall not be entitled to the
benefits of covenants or defaults materially more beneficial to the holders of
such securities than those in effect with respect to the Securities on the date
of this Indenture, (c) such securities shall not provide for amortization
(including sinking fund and mandatory prepayment provisions) commencing prior to
the date six months following the final scheduled maturity date of the Senior
Indebtedness (as modified by the plan of reorganization or readjustment pursuant
to which such securities are issued) and (d) the principal amount thereof shall
not exceed the principal amount and accrued and unpaid interest of the
Securities in respect of which such securities are issued.
"Permitted Liens" means (a) Liens on property of a Person existing at
the time such Person is merged into or consolidated with the Company or any
Restricted Subsidiary; provided, however, that such Liens were in existence
prior to the contemplation of such merger or consolidation and do not secure any
property or assets of the Company or any Restricted Subsidiary other than the
property or assets subject to the Liens prior to such merger or consolidation;
(b) Liens imposed by law such as carriers', warehousemen's and mechanics' Liens
and other similar Liens arising in the ordinary course of business that secure
payment of obligations not more than 60 days past due or that are being
contested in good faith and by appropriate proceedings; (c) Liens existing on
the Issue Date; (d) Liens securing only the Securities; (e) Liens in favor of
the Company or any Restricted Subsidiary so long as held by the Company or any
Restricted Subsidiary; (f) Liens for taxes, assessments or governmental charges
or claims that are not yet delinquent or that are being contested in good faith
by appropriate proceedings promptly instituted and diligently conducted;
provided, however, that any reserve or other appropriate provision as shall be
required in conformity with GAAP shall have been made therefor; (g) easements,
reservation of rights of way, restrictions and other similar easements,
licenses, restrictions on the use of properties, or minor imperfections of title
that in the aggregate are not material in amount and do not in any case
materially detract from the properties subject thereto or interfere with the
ordinary conduct of the business of the Company and the Restricted Subsidiaries;
(h) Liens resulting front the deposit of cash or notes in connection with
contracts, Permitted Acquisition Deposits, tenders or expropriation proceedings,
or to secure workers' compensation, surety or appeal bonds, costs of litigation
when required by law and public and statutory obligations or obligations under
franchise arrangements and agreements with the NRTC entered into in the ordinary
course of business; (i) Liens securing Indebtedness consisting of Capital Lease
Obligations, Purchase Money Indebtedness, mortgage financings, industrial
revenue bonds or other monetary obligations, in each case incurred solely for
the purpose of financing all or any part of the purchase price or cost of
construction or installation of assets used in the business of the Company or
the Restricted Subsidiaries, or repairs, additions or improvements to such
assets; provided, however, that (I) such Liens secure Indebtedness in an amount
not in excess of the original purchase price or the original cost of any such
assets or repair, addition or improvement thereto (plus an amount equal to the
reasonable fees and expenses in connection with the incurrence of such
Indebtedness), (II) such Liens do not extend to any other assets of the Company
or the Restricted Subsidiaries (and, in the case of repairs, additions or
improvements to any such assets, such Lien extends only to the assets (and
improvements thereto or thereon) repaired, added to or improved), (III) the
Incurrence of such Indebtedness is permitted by Section 10.11, and (IV) such
Liens attach within 90 days of such purchase, construction, installation,
repair, addition or improvement; (j) Liens to secure any refinancings, renewals,
extensions, modifications or replacements (collectively, "refinancing") (or
successive refinancings), in whole or in part, of any Indebtedness secured by
Liens referred to in the clauses above so long as such Lien does not extend to
any other property (other than improvements thereto); (k) Liens securing letters
of credit entered into in the ordinary course of business; (1) Liens on and
pledges of the Equity Interests of any Unrestricted Subsidiary securing any
Indebtedness of such Unrestricted Subsidiary; and (m) any calls or rights of
first refusal with respect to any partnership interests; and (n) Liens on the
proceeds of Indebtedness that are pledged (or any Investment made therewith are
pledged) to secure payments in respect of such Indebtedness.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, limited liability company, limited
liability limited partnership, trust, unincorporated organization or government
or any agency or political subdivision thereof.
<PAGE> 36
"Post-Petition Interest" means, with respect to any Indebtedness of
any Person, all interest accrued or accruing on such Indebtedness after the
commencement of any Insolvency or Liquidation Proceeding with respect to such
Person in accordance with and at the contract rate (including, without
limitation, any rate applicable upon default) specified in the agreement or
instrument creating, evidencing or governing such Indebtedness, whether or not
pursuant to applicable law or otherwise, the claim for such interest is allowed
as a claim in such Insolvency or Liquidation Proceeding.
"Predecessor Security" means, with respect to any particular Security,
every previous Security evidencing all or a portion of the same debt as that
evidenced by such particular Security; and, for the purposes of this definition,
any Security authenticated and delivered under Section 3.06 hereof in exchange
for a mutilated Security or in lieu of a lost, destroyed or stolen Security
shall be deemed to evidence the same debt as the mutilated, lost, destroyed or
stolen Security.
"Preferred Equity Interest," in any Person, means an Equity Interest
of any class or classes (however designated) that is preferred as to the payment
of dividends or distributions, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such Person, over Equity
Interests of any other class in such Person.
"principal" of a debt security means the principal of the security,
plus, when appropriate, the premium, if any, on the security.
"Private Exchange Securities" shall have the meaning set forth in the
Registration Rights Agreement.
"Private Placement Legend" shall mean the first paragraph of the
legend initially set forth in the Securities in the form set forth on Exhibit
A-1.
<PAGE> 37
"Purchase Money Indebtedness" means Indebtedness of the Company or any
Restricted Subsidiary Incurred for the purpose of financing all or any part of
the purchase price or the cost of construction or improvement of any property;
provided, however, that the aggregate principal amount of such Indebtedness does
not exceed the lesser of the Fair Market Value of such property or such purchase
price or cost, including any refinancing of such Indebtedness that does not
increase the aggregate principal amount (or accreted amount, if less) thereof as
of the date of refinancing.
"Qualified Equity Interest" in any Person means any Equity Interest in
such Person other than any Disqualified Equity Interest.
"Qualified Institutional Buyer" or "QIB" shall have the meaning
specified in Rule 144A under the Securities Act.
"Redemption Date" means, with respect to any Security to be redeemed,
the date fixed by the Company for such redemption pursuant to this Indenture and
Securities.
"Redemption Price" means, with respect to any Security to be redeemed,
the price at which it is to be redeemed pursuant to this Indenture and the terms
of the Securities.
"Registered Exchange Offer" means the registration by the Company
under the Securities Act of all Exchange Securities pursuant to a registration
statement under which the Company offers each Holder of Initial Securities the
opportunity to exchange all Initial Securities held by such Holder for Exchange
Securities in an aggregate principal amount equal to the aggregate principal
amount of Initial Securities held by such Holder, all in accordance with the
terms and conditions of the Registration Rights Agreement.
"Registration Rights Agreement" means the Registration Rights
Agreement dated as of July 31, 1998 by and among the Company and the Initial
Purchasers, as the same may be amended, supplemented or otherwise modified from
time to time in accordance with the terms thereof.
<PAGE> 38
"Regular Record Date" means the Regular Record Date specified in the
Securities.
"Regulation S" means Regulation S under the Securities Act.
"Release Date" shall have the meaning ascribed to such term in the
Escrow Agreement.
"Responsible Officer" means, with respect to the Trustee, any vice
president, any assistant vice president, the secretary, any assistant secretary,
the treasurer, any assistant treasurer, any trust officer or assistant trust
officer, or any other officer of the Trustee customarily performing functions
similar to those performed by any of the above designated officers and also
means, with respect to a particular corporate trust matter, any other officer of
the Trustee to whom any corporate trust matter is referred because of his or her
knowledge of and familiarity with the particular subject.
"Restricted Payment" means any of the following: (i) the declaration
or payment of any dividend or any other distribution on Equity Interests of the
Company or any payment made to the direct or indirect holders (in their
capacities as such) of Equity Interests of the Company (other than dividends or
distributions payable solely in Equity Interests (other than Disqualified Equity
Interests) of the Company) or in options, warrants or other rights to purchase
Equity Interests (other than Disqualified Equity Interests) of the Company; (ii)
the purchase, redemption or other acquisition or retirement for value of any
Equity Interests of the Company (other than any such Equity Interests owned by
the Company or a Wholly Owned Restricted Subsidiary); (iii) the purchase,
redemption, defeasance or other acquisition or retirement for value prior to any
scheduled repayment, sinking fund or maturity of any Subordinated Indebtedness
(other than any Subordinated Indebtedness held by a Wholly Owned Restricted
Subsidiary); or (iv) the making by the Company or any Restricted Subsidiary of
any Investment (other than a Permitted Investment) in any Person.
"Restricted Security" shall have the meaning specified in Rule
144(a)(3) under the Securities Act; provided that the Trustee shall be entitled
to request and conclusively rely upon an Opinion of Counsel with respect to
whether a Security is a Restricted Security.
"Restricted Subsidiary" means any Subsidiary of the Company that has
not been designated by the Board, by a resolution of the Board delivered to the
Trustee, as an Unrestricted Subsidiary pursuant to Section 10.14. Any such
<PAGE> 39
designation may be revoked by a resolution of the Board delivered to the
Trustee, subject to the provisions of such covenant.
"Rule 144A" means Rule 144A under the Securities Act.
"SEC" means the Securities and Exchange Commission.
"Securities" means, collectively the Initial Securities, the Exchange
Securities and the Private Exchange Securities, if any, treated a single class
of securities, as amended or supplemented from time to time in accordance with
the terms of this Indenture, that are issued pursuant to this Indenture.
"Securities Act" means the Securities Act of 1933, as amended.
"Securityholder" means the Person in whose name a Security is
registered on the Registrar's books, as the context requires.
"Seller Notes" means any promissory notes issued by the Company to any
Person selling any assets or properties to the Company or any Restricted
Subsidiary in an Asset Acquisition, including those outstanding on the Issue
Date.
"Senior Indebtedness" means, at any date, (a) all Obligations of the
Company under the Credit Facility; (b) all Interest Rate Protection Obligations
of the Company; (c) all Obligations of the Company under standby letters of
credit; and (d) all other Obligations relating to Indebtedness of the Company
for borrowed money, including principal, premium, if any, and interest
(including Post-Petition Interest) on such Indebtedness, unless the instrument
under which such Indebtedness of the Company for money borrowed is Incurred
expressly provides that such Indebtedness for money borrowed is not senior or
superior in right of payment to the Securities, and all renewals, extensions,
modifications, amendments or refinancings thereof. Notwithstanding the
foregoing, Senior Indebtedness shall not include (a) to the extent that it may
constitute Indebtedness, any Obligation for federal, state, local or other
taxes; (b) any Indebtedness among or between the Company and any Subsidiary of
the Company; (c) to the extent that it may constitute Indebtedness, any
Obligation in respect of any trade payable Incurred for the purchase of goods or
materials, or for services obtained, in the ordinary course of business; (d)
that portion of any Indebtedness that is Incurred in violation of this
Indenture; provided, however, that such Indebtedness shall be deemed not to have
been Incurred in violation of this Indenture for purposes of this clause (d) if
(I) the holder(s) of such Indebtedness or their representative or the Company
shall have furnished to the Trustee an opinion of independent legal counsel,
<PAGE> 40
unqualified in all material respects, addressed to the Trustee (which legal
counsel may, as to matters of fact, rely upon an officers' certificate of the
Company) to the effect that the Incurrence of such Indebtedness does not violate
the provisions of this Indenture or (II) in the case of any Obligations under
the Credit Facility, the holder(s) of such Obligations or their agent or
representative shall have received a representation from the Company to the
effect that the Incurrence of such Indebtedness does not violate the provisions
of this Indenture; (e) Indebtedness evidenced by the Securities; (f)
Indebtedness of the Company that is expressly subordinate or junior in right of
payment to any other Indebtedness of the Company; (g) Indebtedness represented
by the Seller Notes; (h) to the extent that it may constitute Indebtedness, any
obligation owing under leases (other than Capital Lease Obligations) or
management agreements; and (i) any obligation that by operation of law is
subordinate to any general unsecured obligations of the Company.
"Senior Representative" means the agent under the Credit Facility or
other representatives designated in writing to the Trustee of the holders of any
class or issue of Designated Senior Indebtedness.
"Significant Restricted Subsidiary" means, at any date of
determination, (a) any Restricted Subsidiary that, together with its
Subsidiaries that constitute Restricted Subsidiaries, (i) for the most recent
fiscal year of the Company accounted for more than 5.0% of the consolidated
revenues of the Company and the Restricted Subsidiaries or (ii) as of the end of
such fiscal year owned more than 5.0% of the consolidated assets of the Company
and the Restricted Subsidiaries, all as set forth on the consolidated financial
statements of the Company and the Restricted Subsidiaries for such year prepared
in conformity with GAAP, and (b) any Restricted Subsidiary that, when aggregated
with all other Restricted Subsidiaries that are not otherwise Significant
Restricted Subsidiaries and as to which any event described in Section 5.01(v),
(vii), (viii), (ix) or (x) has occurred, would constitute a Significant
Restricted Subsidiary under clause (a) of this definition.
<PAGE> 41
"Special Record Date" means, with respect to the payment of any
Defaulted Interest, a date fixed by the Trustee pursuant to Section 3.07 hereof.
"Specified Indebtedness" means (i) any Senior Indebtedness, (ii) any
Guarantor Senior Indebtedness and (iii) any Indebtedness of any Restricted
Subsidiary (other than a Guarantor) that is not subordinated to any other
Indebtedness of such Restricted Subsidiary; provided that, to the extent such
Indebtedness has been guaranteed, it must have been guaranteed by a Guarantor on
a senior basis.
"Stated Maturity," when used with respect to any Note or any
installment of interest thereon, means the date specified in such Note as the
fixed date on which the principal of such Note or such installment of interest
is due and payable.
"Subordinated Indebtedness" means any Indebtedness of the Company or
any Guarantor that is expressly subordinated in right of payment to the
Securities or any Guarantees of such Guarantor, as applicable.
"Subsidiary" means, with respect to any Person, (a) any corporation of
which the outstanding Voting Equity Interests having at least a majority of the
votes entitled to be cast in the election of directors shall at the time be
owned, directly or indirectly, by such Person, or (b) any other Person of which
at least a majority of Voting Equity Interests are at the time, directly or
indirectly, owned by such first named Person.
"Total Consolidated Indebtedness" means, as at any date of
determination, an amount equal to the aggregate amount of all Indebtedness and
Disqualified Equity Interests of the Company and the Restricted Subsidiaries
outstanding as of such date of determination.
"Total Incremental Invested Equity" means, at any date of
determination, the sum of, without duplication, (a) the aggregate net cash
proceeds received by the Company either (x) as capital contributions to the
Company after the Issue Date of (y) from the issue and sale (other than to a
Subsidiary of the Company by the Company) of its Qualified Equity interests
after the Issue Date, plus (b) the aggregate net proceeds received by the
Company or any Restricted Subsidiary after the Issue Date from the issuance
(other than to a Subsidiary of the Company) of Qualified Equity Interests upon
the conversion of, or in exchange for, Indebtedness of the Company or a
Restricted Subsidiary that has been converted into or exchanged for Qualified
Equity Interests of the Company, minus (c) the aggregate amount of all
Restricted Payments made on or after the Issue Date and all Designation Amounts
arising after the Issue Date, but only to the extent the amount set forth in
<PAGE> 42
this clause (c) would exceed the amount determined under subclause (a) of clause
(iii) of the first paragraph under Section 10.15, plus (d) in the case of the
disposition or repayment of any Investment which has been deducted pursuant to
clause (c) of this definition, an amount equal to the lesser of the return of
capital with respect to such Investment and the amount of such Investment which
has been deducted pursuant to such clause (c), plus (e) in the case of any
Revocation with respect to any Subsidiary that was made the subject of
Designation after the Issue Date and as to which a Designation Amount has been
deducted pursuant to clause (c) of this definition, an amount equal to the
lesser of such Designation Amount or the Fair Market Value of the Investment of
the Company and the Restricted Subsidiaries in such Subsidiary at the time of
Revocation.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939,
as amended.
"Trustee" means the Person named as the "Trustee" in the first
paragraph of this Indenture, until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.
"Unrestricted Subsidiary" means any Subsidiary of the Company
designated as such pursuant to Section 10.14. Any such designation may be
revoked by a resolution of the Board of Directors of the Company delivered to
the Trustee, subject to the provisions of Section 10.14.
"Voting Equity Interests" means Equity Interests in a corporation or
other Person with voting power under ordinary circumstances entitling the
holders thereof to elect the Board of Directors or other governing body of such
corporation or such Person.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (a) the sum
of the products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required scheduled payment
of principal, including payment of final maturity, in respect thereof, by (ii)
the number of years (calculated to the nearest one-twelfth) that will elapse
<PAGE> 43
between such date and the making of such payment, by (b) the then outstanding
aggregate principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary
all of the outstanding Voting Equity Interests (other than directors' qualifying
shares) of which are owned, directly or indirectly, by the Company.
Section 1.02. Other Definitions.
Defined in
Term Section
"Act" 1.05
"Affiliate Transaction" 10.21
"Agent Member" 3.16
"Change of Control Date" 10.10
"Change of Control Offer" 10.10
"Change of Control Payment Date" 10.10
"Change of Control Purchase Price" 10.10
"covenant defeasance" 4.03
"Defaulted Interest" 3.07
"defeasance" 4.02
"Defeased Securities" 4.01
"Designation" 10.14
"Designation Amount" 10.14
"Global Security" 3.03
"Guarantee" 10.22
"insolvent person" 4.04
"Non-Global Purchasers" 3.03
"Offer to Purchase" 10.18
"Offshore Physical Securities" 3.03
"Other Indebtedness" 10.18
"Paying Agent" 3.02
"Payment Blockage Period" 12.03
"Permitted Debt Reduction" 10.18
"Physical Security" 3.03
"Security Register" 3.05
"Security Registrar" 3.02
"Surviving Entity" 8.01
"Unutilized Net Cash Proceeds" 10.18
Section 1.03. Rules of Construction.
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
<PAGE> 44
(a) the terms defined in this Article have the meanings assigned to
them in this Article, and include the plural as well as the singular;
(b) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein;
(c) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP;
(d) the words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision;
(e) all references to "$" or "dollars" shall refer to the lawful
currency of the United States of America; and
(f) the words "include," "included" and "including" as used herein
shall be deemed in each case to be followed by the phrase "without
limitation."
Section 1.04. Form of Documents Delivered to Trustee.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other Persons as to other matters, and any such Person may certify or
give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate or opinion may be based, insofar as it relates
to factual matters, upon a certificate or opinion of, or representations by, an
<PAGE> 45
officer or officers of the Company stating that the information with respect to
such factual matters is in the possession of the Company, unless such counsel
knows, or in the exercise of reasonable care should know, that the certificate
or opinion or representations with respect to such matters are erroneous.
Where any person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated, with
proper identification of each matter covered therein, and form one instrument.
Section 1.05. Acts of Holders.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by an agent duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee and, where it is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution (as provided below in
subsection (b) of this Section 1.05) of any such instrument or of a writing
appointing any such agent shall be sufficient for any purpose of this Indenture
and (subject to Section 6.01 hereof) conclusive in favor of the Trustee and the
Company, if made in the manner provided in this Section.
(b) The fact and date of the execution by any person of any such
instrument or writing may be proved in any reasonable manner which the Trustee
deems sufficient.
(c) The ownership of Securities shall be proved by the Security
Register.
(d) Any request, demand, authorization, direction, notice, consent,
waiver or other action by the Holder of any Security shall bind every future
Holder of the same Security or the Holder of every Security issued upon the
transfer thereof or in exchange therefor or in lieu thereof to the same extent
as the original Holder, in respect of anything done, suffered or omitted to be
done by the Trustee, any Paying Agent or the Company in reliance thereon,
whether or not notation of such action is made upon such Security.
<PAGE> 46
Section 1.06. Notices, etc., to the Trustee and the Company
Any request, demand, authorization, direction, notice, consent, waiver
or Act of Holders or other document provided or permitted by this Indenture to
be made upon, given or furnished to, or filed with:
(a) the Trustee by any Holder or by the Company shall be sufficient
for every purpose hereunder if made, given, furnished or filed, in writing,
to or with the Trustee at One Metropolitan Square, 39th Floor, 211 North
Broadway, St. Louis, MO 63102, Attention: Corporate Trust Division, or at
any other address previously furnished in writing to the Holders the
Company by the Trustee; or
(b) the Company or a Guarantor by the Trustee or by any Holder shall
be sufficient for every purpose (except as otherwise expressly provided
herein) hereunder if in writing and mailed, first-class postage prepaid, to
the Company or a Guarantor addressed to it c/o Golden Sky Systems, Inc.,
605 West 47th Street, Suite 300, Kansas City, Missouri 64112, Attention:
Chief Executive Officer, or at any other address previously furnished in
writing to the Trustee by the Company.
Section 1.07. Notice to Holders; Waiver.
Where this Indenture provides for notice to Holders of any event, such
notice shall be sufficiently given (unless otherwise expressly provided herein)
if in writing and mailed, first-class postage prepaid, to each Holder affected
by such event, at the address of such Holder as it appears in the Security
Register, not later than the latest date, and not earlier than the earliest
date, prescribed for the giving of such notice. In any case where notice to
Holders is given by mail, neither the failure to mail such notice, nor any
defect in any notice so mailed, to any particular Holder shall affect the
sufficiency of such notice with respect to other Holders. Any notice when mailed
to a Holder in the aforesaid manner shall be conclusively deemed to have been
received by such Holder whether or not actually received by such Holder. Where
this Indenture provides for notice in any manner, such notice may be waived in
writing by the person entitled to receive such notice, either before or after
the event, and such waiver shall be the equivalent of such notice. Waivers of
<PAGE> 47
notice by Holders shall be filed with the Trustee, but such filing shall not be
a condition precedent to the validity of any action taken in reliance upon such
waiver.
In case by reason of the suspension of regular mail service or by
reason of any other cause, it shall be impracticable to mail notice of any event
as required by any provision of this Indenture, then any method of giving such
notice as shall be satisfactory to the Trustee shall be deemed to be a
sufficient giving of such notice.
Section 1.08. Conflict with Trust Indenture Act.
If any provision hereof limits, qualifies or conflicts with any
provision of the Trust Indenture Act or another provision which is required or
deemed to be included in this Indenture by any of the provisions of the Trust
Indenture Act, such provision or requirement of the Trust Indenture Act shall
control.
If any provision of this Indenture modifies or excludes any provision
of the Trust Indenture Act that may be so modified or excluded, the latter
provision shall be deemed to apply to this Indenture as so modified or excluded,
as the case may be.
Section 1.09. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction hereof.
Section 1.10. Successors and Assigns.
All covenants and agreements in this Indenture by the Company shall
bind its respective successors and assigns, whether so expressed or not.
Section 1.11. Separability Clause.
In case any provision in this Indenture or in the Securities issued
pursuant hereto shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
<PAGE> 48
Section 1.12. Benefits of Indenture.
Nothing in this Indenture or in the Securities or issued pursuant
hereto, express or implied, shall give to any person (other than the parties
hereto and their successors hereunder, any Paying Agent and the Holders) any
benefit or any legal or equitable right, remedy or claim under this Indenture.
Section 1.13. GOVERNING LAW.
THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO
PRINCIPLES OF CONFLICTS OF LAW.
Section 1.14. No Recourse Against Others.
A director, officer, employee or stockholder, as such, of the Company
shall not have any liability for any obligations of the Company under the
Securities or this Indenture or for any claim based on, in respect of or by
reason of such obligations or their creation.
Section 1.15. Independence of Covenants.
All covenants and agreements in this Indenture shall be given
independent effect so that if a particular action or condition is not permitted
by any of such covenants, the fact that it would be permitted by an exception
to, or be otherwise within the limitations of, another covenant shall not avoid
the occurrence of a Default if such action is taken or condition exists.
Section 1.16. Exhibits.
All exhibits attached hereto are by this reference made a part hereof
with the same effect as if herein set forth in full.
Section 1.17. Counterparts.
This Indenture may be executed in any number of counterparts, each of
which shall be an original; but such counterparts shall together constitute but
one and the same instrument.
<PAGE> 49
Section 1.18. Duplicate Originals.
The parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together represent the same
agreement.
ARTICLE TWO
SECURITY FORMS
Section 2.01. Form and Dating.
The Initial Securities and the Exchange Securities and the Trustee's
certificate of authentication with respect thereto shall be in substantially the
forms set forth, or referenced, in Exhibit A-1 and Exhibit A-2, respectively,
annexed hereto, with such appropriate insertions, omissions, substitutions and
other variations as are required or permitted by this Indenture and may have
such letters, numbers or other marks of identification and such legends or
endorsements placed thereon as may be required to comply with any applicable law
or with the rules of the Depository, any clearing agency or any securities
exchange or as may, consistently herewith, be determined by the officers
executing such Securities, as evidenced by their execution thereof.
The definitive Securities shall be printed, typewritten, lithographed
or engraved or produced by any combination of these methods or may be produced
in any other manner permitted by the rules of any securities exchange on which
the Securities may be listed, all as determined by the officers executing such
Securities, as evidenced by their execution of such Securities.
Each Security shall be dated the date of its authentication. The terms
and provisions contained in the Securities shall constitute, and are expressly
made, a part of this Indenture.
<PAGE> 50
ARTICLE THREE
THE SECURITIES
Section 3.01. Title and Terms.
The aggregate principal amount of Securities which may be
authenticated and delivered under this Indenture is limited to $195,000,000 in
aggregate principal amount of Securities, except for Securities authenticated
and delivered upon registration of transfer of, or in exchange for, or in lieu
of, other Securities pursuant to Section 3.03, 3.04, 3.05, 3.06, 9.06, 10.10,
10.18 or 11.08.
The final Stated Maturity of the Securities shall be August 1, 2006,
and the Securities shall bear interest at the rate of 12 3/8% per annum from the
Issue Date or from the most recent Interest Payment Date to which interest has
been paid, as the case may be, payable on February 1, 1999 and semi-annually
thereafter on February 1 and August 1, in each year, until the principal thereof
is paid or duly provided for.
The Securities shall be redeemable as provided in Article Eleven and
as provided in the Securities.
At the election of the Company, the entire Indebtedness on the
Securities or certain of the Company's obligations and covenants and certain
Events of Default thereunder may be defeased as provided in Article Four.
Section 3.02. Registrar and Paying Agent.
The Company shall maintain an office or agency (which shall be located
in the Borough of Manhattan in The City of New York, State of New York) where
Securities may be presented for registration of transfer or for exchange (the
"Security Registrar"), an office or agency (which shall be located in the
Borough of Manhattan in The City of New York, State of New York) where
Securities may be presented for payment (the "Paying Agent") and an office or
agency where notices and demands to or upon the Company in respect of the
Securities and this Indenture may be served. The Registrar shall keep a register
of the Securities and of their transfer and exchange. The Company may have one
or more co-registrars and one or more additional paying agents. The term "Paying
<PAGE> 51
Agent" includes any additional paying agent. The Company may act as its own
Paying Agent, except for the purposes of payments on account of principal on the
Securities pursuant to Sections 10.10 and 10.18.
The Company shall enter into an appropriate agency agreement with any
Paying Agent not a party to this Indenture, which shall incorporate the
provisions of the Trust Indenture Act. The agreement shall implement the
provisions of this Indenture that relate to such Paying Agent. The Company shall
notify the Trustee of the name and address of any such Paying Agent. If the
Company fails to maintain a Security Registrar or Paying Agent, or fails to give
the foregoing notice, the Trustee shall act as such and shall be entitled to
appropriate compensation in accordance with Section 6.07 hereof.
The Company initially appoints the Trustee as the Security Registrar
and Paying Agent and agent for service of notices and demands in connection with
the Securities.
Section 3.03. Execution and Authentication.
Two Officers shall execute the Securities on behalf of the Company by
either manual or facsimile signature.
Securities bearing the manual or facsimile signature of individuals
who were at any time the proper Officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Securities or did not
hold such offices on the date of such Securities.
At any time and from time to time after the execution and delivery of
this Indenture, the Company many deliver Securities executed by the Company to
the Trustee for authentication, together with a Company Order for the
authentication and delivery of such Securities; and the Trustee in accordance
with such Company Order shall authenticate and deliver such Securities as
provided in this Indenture and not otherwise.
A Security shall not be entitled to any benefit under this Indenture
or be valid or obligatory for any purpose until the Trustee manually signs the
certificate of authentication on the Security. The Trustee's signature on such
certificate shall be conclusive evidence that the Security has been
authenticated under this Indenture.
The Trustee shall authenticate Initial Securities for original issue
in an aggregate principal amount not to exceed $195,000,000, upon receipt of a
Company Order. In addition, on or prior to the date of the Registered Exchange
Offer, the Trustee or an authenticating agent shall authenticate Exchange
Securities (including any Private Exchange Securities which will be in the form
of Exhibit A-2 but which shall have the restrictive legend contained in Exhibit
<PAGE> 52
A-1) to be issued at the time of the Registered Exchange Offer in the aggregate
principal amount of up to $195,000,000 upon receipt of a Company Order of the
Company. In each case, the Company Order shall specify the amount of Securities
to be authenticated, the names of the persons in which such Securities shall be
registered and the date on which such Securities are to be authenticated and
direct the Trustee to authenticate such Securities together with an Officer's
Certificate certifying that all conditions precedent to the issuance of such
Securities contained herein have been complied with. The aggregate principal
amount of Securities outstanding at any time may not exceed $195,000,000, except
as provided in Section 3.04 hereof.
The Trustee may appoint an authenticating agent reasonably acceptable
to the Company to authenticate Securities on behalf of the Trustee. Unless
limited by the terms of such appointment, an authenticating agent may
authenticate Securities whenever the Trustee may do so. Each reference in this
Indenture to authentication by the Trustee includes authentication by such
agent. Such authenticating agent shall have the same authenticating rights and
duties as the Trustee in any dealings hereunder with the Company or with any
Affiliate of the Company.
The certificates representing the Securities will be issued in fully
registered form, without coupons and only in denominations of $1,000 and any
integral multiple thereof. Except as described below, the Securities will be
deposited with, or on behalf of, the Depository, and registered in the name of
Cede & Co. as the Depository's nominee in the form of a global note certificate
substantially in the form of Exhibit A-1 (the "Global Security").
Securities purchased by or transferred to (i) Institutional Accredited
Investors who are not Qualified Institutional Buyers, (ii) except as described
below, persons outside the United States pursuant to sales in accordance with
Regulation S under the Securities Act or (iii) any other persons who are not
Qualified Institutional Buyers (collectively, "Non-Global Purchasers") will be
issued in registered form without coupons substantially in the form of Exhibit
<PAGE> 53
A-1 (the "U.S. Physical Securities"). Upon the transfer to a Qualified
Institutional Buyer of U.S. Physical Securities initially issued to a Non-Global
Purchaser, such U.S. Physical Security will be exchanged for an interest in the
Global Security or in the Securities in the custody of the Trustee representing
the principal amount of Securities being transferred.
Securities purchased by persons outside the United States pursuant to
sales in accordance with Regulation S under the Securities Act will be
represented upon issuance by a temporary global note certificate substantially
in the form of Exhibit A-1 (the "Offshore Physical Securities" and, together
with the U.S. Physical Securities, the "Physical Securities") which will not be
exchangeable for U.S. Physical Securities until the expiration of the "40-day
restricted period" within the meaning of Rule 903(c)(3) of Regulation S under
the Securities Act. The Offshore Physical Securities will be registered in the
name of, and be held by, an offshore physical security holder (the "Offshore
Physical Security Holder") until the expiration of such 40-day period, at which
time the Offshore Physical Securities will be delivered to the Trustee in
exchange for Securities registered in the names requested by the Offshore
Physical Security Holder. In addition, until the expiration of such 40-day
period, transfers of interests in the Offshore Physical Securities can only be
effected through the Offshore Physical Security Holder in accordance with the
requirements of Section 3.17 hereof.
Section 3.04. Temporary Securities.
Until definitive Securities are prepared and ready for delivery, the
Company may execute and upon a Company Order the Trustee shall authenticate and
deliver temporary Securities. Temporary Securities shall be substantially in the
form of definitive Securities, in any authorized denominations, but may have
variations that the Company reasonably considers appropriate for temporary
Securities as conclusively evidenced by the Company's execution of such
temporary Securities.
If temporary Securities are issued, the Company will cause definitive
Securities to be prepared without unreasonable delay but in no event later than
the date that the Registered Exchange Offer is consummated. After the
preparation of definitive Securities, the temporary Securities shall be
exchangeable for definitive Securities upon surrender of the temporary
Securities at the office or agency of the Company designated for such purpose
pursuant to Section 10.02, without charge to the Holder. Upon surrender for
cancellation of any one or more temporary Securities, the Company shall execute
<PAGE> 54
and the Trustee shall authenticate and deliver in exchange therefor a like
principal amount of definitive Securities of like tenor and of authorized
denominations. Until so exchanged the temporary Securities shall in all respects
be entitled to the same benefits under this Indenture as definitive Securities.
Section 3.05. Transfer and Exchange.
The Company shall cause to be kept at the Corporate Trust Office of
the Trustee a register (the register maintained in such office and in any other
office or agency designated pursuant to Section 10.02 being sometimes referred
to herein as the "Securities Register") in which, subject to such reasonable
regulations as the Securities Registrar may prescribe, the Company shall provide
for the registration of Securities and of transfers and exchanges of Securities.
The Trustee is hereby initially appointed Security Registrar for the purpose of
registering Securities and transfers of Securities as herein provided.
When Securities are presented to the Registrar or a co-Registrar with
a request from the Holder of such Securities to register the transfer or
exchange for an equal principal amount of Securities of other authorized
denominations, the Registrar shall register the transfer or make the exchange as
requested; provided that every Security presented or surrendered for
registration of transfer or exchange shall be duly endorsed or be accompanied by
a written instrument of transfer or exchange in form satisfactory to the Company
and the Registrar, duly executed by the Holder thereof or his attorney duly
authorized in writing. Whenever any Securities are so presented for exchange,
the Company shall execute, and the Trustee shall authenticate and deliver, the
Securities which the Holder making the exchange is entitled to receive. No
service charge shall be made to the Securityholder for any registration of
transfer or exchange. The Company may require from the Securityholder payment of
a sum sufficient to cover any transfer taxes or other governmental charge that
may be imposed in relation to a transfer or exchange, but this provision shall
not apply to any exchange pursuant to Section 3.09, 10.10 or 9.06 hereof (in
which events the Company will be responsible for the payment of all such taxes
which arise solely as a result of the transfer or exchange and do not depend on
the tax status of the Holder). The Trustee shall not be required to exchange or
register the transfer of any Security for a period of 15 days immediately
preceding the first mailing of notice of redemption of Securities to be redeemed
<PAGE> 55
or of any Security selected, called or being called for redemption except, in
the case of any Security where public notice has been given that such Security
is to be redeemed in part, the portion thereof not to be redeemed.
All Securities issued upon any registration of transfer or exchange of
Securities shall be the valid obligations of the Company, evidencing the same
Indebtedness, and entitled to the same benefits under this Indenture, as the
Securities surrendered upon such registration of transfer or exchange.
Section 3.06. Mutilated, Destroyed, Lost and Stolen Securities.
If a mutilated Security is surrendered to the Trustee or if the Holder
of a Security of any series claims that the Security has been lost, destroyed or
wrongfully taken, the Company shall execute and upon a Company Order, the
Trustee shall authenticate and deliver a replacement Security of like tenor and
principal amount, bearing a number not contemporaneously outstanding, if the
Holder of such Security furnishes to the Company and to the Trustee evidence
reasonably acceptable to them of the ownership and the destruction, loss or
theft of such Security and an indemnity bond shall be posted, sufficient in the
judgment of the Company or the Trustee, as the case may be, to protect the
Company, the Trustee or any Agent from any loss that any of them may suffer if
such Security is replaced. The Company may charge such Holder for the Company's
expenses in replacing such Security (including expenses of the Trustee charged
to the Company) and the Trustee may charge the Company for the Trustee's
expenses (including the reasonable fees and expenses of its agents and counsel)
in replacing such Security.
Every replacement Security issued pursuant to this Section in lieu of
any destroyed, lost or stolen Security shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Security shall be at any time enforceable by anyone, and shall be
entitled to all benefits of this Indenture equally and proportionately with any
and all other Securities duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Securities.
<PAGE> 56
Section 3.07. Payment of Interest; Interest Rights Preserved.
Interest on any Security which is payable, and is punctually paid or
duly provided for, on any Interest Payment Date shall be paid to the person in
whose name that Security (or one or more Predecessor Securities) is registered
at the close of business on the Regular Record Date for such interest.
Any interest on any Security which is payable, but is not punctually
paid or duly provided for, on any Interest Payment Date and interest on such
defaulted interest at the then applicable interest rate borne by the Securities,
to the extent lawful (such defaulted interest and interest thereon herein
collectively called "Defaulted Interest") shall forthwith cease to be payable to
the Holder on the Regular Record Date; and such Defaulted Interest may be paid
by the Company, at its election in each case, as provided in subsection (a) or
(b) below:
(a) The Company may elect to make payment of any Defaulted Interest to
the persons in whose names the Securities (or their respective Predecessor
Securities) are registered at the close of business on a Special Record
Date for the payment of such Defaulted Interest, which shall be fixed in
the following manner. The Company shall notify the Trustee in writing of
the amount of Defaulted Interest proposed to be paid on each Security and
the date of the proposed payment, and at the same time the Company shall
deposit with the Trustee an amount of money equal to the aggregate amount
proposed to be paid in respect of such Defaulted Interest or shall make
arrangements satisfactory to the Trustee for such deposit prior to the date
of the proposed payment, such money when deposited to be held in trust for
the benefit of the persons entitled to such Defaulted Interest as in this
subsection (a) provided. Thereupon the Trustee shall fix a Special Record
Date for the payment of such Defaulted Interest which shall be not more
than 15 days and not less than 10 days prior to the date of the proposed
payment and not less than 10 days after the actual receipt by a Responsible
Officer of the Trustee of the notice of the proposed payment. The Trustee
shall promptly notify the Company in writing of such Special Record Date.
In the name and at the expense of the Company, the Trustee shall cause
notice of the proposed payment of such Defaulted Interest and the Special
<PAGE> 57
Record Date therefor to be mailed, first-class postage prepaid, to each
Holder at its address as it appears in the Security Register, not less than
10 days prior to such Special Record Date. Notice of the proposed payment
of such Defaulted Interest and the Special Record Date therefor having been
so mailed, such Defaulted Interest shall be paid to the persons in whose
names the Securities (or their respective Predecessor Securities) are
registered on such Special Record Date and shall no longer be payable
pursuant to the following subsection (b).
(b) The Company may make payment of any Defaulted Interest in any
other lawful manner not inconsistent with the requirements of any
securities exchange on which the Securities may be listed, and upon such
notice as may be required by such exchange, if, after written notice given
by the Company to the Trustee of the proposed payment pursuant to this
subsection (b), such payment shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section, each Security
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Security shall carry the rights to interest accrued
and unpaid, and to accrue, which were carried by such other Security.
Section 3.08. Persons Deemed Owners.
Prior to and at the time of due presentment for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the person in whose name any Security is registered in the Security
Register as the owner of such Security for the purpose of receiving payment of
principal of, premium, if any, and (subject to Section 3.07) interest on such
Security and for all other purposes whatsoever, whether or not such Security
shall be overdue, and neither the Company, the Trustee nor any agent of the
Company or the Trustee shall be affected by notice to the contrary.
Section 3.09. Cancellation.
All Securities surrendered for payment, redemption, registration of
transfer or exchange shall be delivered to the Trustee and, if not already
cancelled, shall be promptly cancelled by it. The Company may at any time
deliver to the Trustee for cancellation any Securities previously authenticated
and delivered hereunder which the Company may have acquired in any manner
whatsoever, and all Securities so delivered shall be promptly cancelled by the
Trustee. The Registrar and the Paying Agent shall forward to the Trustee any
Securities surrendered to them for registration of transfer or exchange,
<PAGE> 58
redemption or payment. The Trustee and no one else shall cancel all Securities
surrendered for registration of transfer, exchange, payment, replacement or
cancellation. No Securities shall be authenticated in lieu of or in exchange for
any Securities cancelled as provided in this Section 3.09, except as expressly
permitted by this Indenture. All cancelled Securities held by the Trustee shall
be returned to the Company.
Section 3.10. Computation of Interest.
Interest on the Securities shall be computed on the basis of a 360-day
year of twelve 30-day months.
Section 3.11. Legal Holidays.
In any case where any Interest Payment Date, Redemption Date, date
established for the payment of Defaulted Interest or Stated Maturity of any
Security shall not be a Business Day, then (notwithstanding any other provision
of this Indenture or of the Securities) payment of principal, premium, if any,
or interest need not be made on such date, but may be made on the next
succeeding Business Day with the same force and effect as if made on the
Interest Payment Date, Redemption Date, date established for the payment of
Defaulted Interest or at the Stated Maturity, as the case may be, and no
interest shall accrue with respect to such payment for the period from and after
such Interest Payment Date, Redemption Date, date established for the payment of
Defaulted Interest or Stated Maturity, as the case may be, to the next
succeeding Business Day.
Section 3.12. CUSIP Number.
The Company in issuing the Securities may use a "CUSIP" number (if
then generally in use), and if so, the Trustee may use the CUSIP numbers in
notices of redemption or exchange as a convenience to Holders; provided,
however, that any such notice may state that no representation is made as to the
correctness or accuracy of the CUSIP number printed in the notice or on the
Securities, and that reliance may be placed only on the other identification
numbers printed on the Securities. The Company shall promptly notify the Trustee
in writing of any change in the CUSIP number of either series of Securities.
Section 3.13. Paying Agent To Hold Money in Trust.
Each Paying Agent shall hold in trust for the benefit of the
Securityholders or the Trustee all money held by the Paying Agent for the
payment of principal of, premium, if any, or interest on the Securities, and
shall notify the Trustee of any default by the Company in making any such
<PAGE> 59
payment. Money held in trust by the Paying Agent need not be segregated except
as required by law and in no event shall the Paying Agent be liable for any
interest on any money received by it hereunder. The Company at any time may
require the Paying Agent to pay all money held by it to the Trustee and account
for any funds disbursed and the Trustee may at any time during the continuance
of any Event of Default, upon a Company Order to the Paying Agent, require such
Paying Agent to pay forthwith all money so held by it to the Trustee and to
account for any funds disbursed. Upon making such payment, the Paying Agent
shall have no further liability for the money delivered to the Trustee.
Section 3.14. Treasury Securities.
In determining whether the Holders of the required aggregate principal
amount of Securities have concurred in any direction, waiver, consent or notice,
Securities owned by the Company or an Affiliate of the Company shall be
considered as though they are not outstanding, except that for the purposes of
determining whether the Trustee shall be protected in relying on any such
direction, waiver or consent, only Securities which a Responsible Officer of the
Trustee actually knows are so owned shall be so considered. The Company shall
notify the Trustee, in writing, when it or any of its Affiliates repurchases or
otherwise acquires Securities, of the aggregate principal amount of such
Securities so repurchased or otherwise acquired.
Section 3.15. Deposits of Monies.
Prior to 10:30 a.m. New York City time on each Interest Payment Date,
maturity date and Change of Control Purchase Date, the Company shall have
deposited with the Paying Agent in immediately available funds money sufficient
to make cash payments, if any, due on such Interest Payment Date, maturity date
and Change of Control Payment Date, as the case may be, in a timely manner which
permits the Paying Agent to remit payment to the Holders on such Interest
Payment Date, maturity date and Change of Control Payment Date, as the case may
be.
Section 3.16. Book-Entry Provisions for Global Securities.
(a) The Global Securities initially shall (i) be registered in the
name of the Depository or the nominee of such Depository, (ii) be delivered to
the Trustee as custodian for such Depository and (iii) bear legends as set forth
in Exhibit B.
<PAGE> 60
Members of, or participants in, the Depository ("Agent Members") shall
have no rights under this Indenture with respect to any Global Security held on
their behalf by the Depository, or the Trustee as its custodian, or under the
Global Security, and the Depository may be treated by the Company, the Trustee
and any agent of the Company or the Trustee as the absolute owner of the Global
Security for all purposes whatsoever. Notwithstanding the foregoing, nothing
herein shall prevent the Company, the Trustee or any agent of the Company or the
Trustee from giving effect to any written certification, proxy or other
authorization furnished by the Depository or impair, as between the Depository
and its Agent Members, the operation of customary practices governing the
exercise of the rights of a Holder of any Security.
(b) Transfers of Global Securities shall be limited to transfers in
whole, but not in part, to the Depository, its successors or their respective
nominees. Interests of beneficial owners in the Global Securities may be
transferred or exchanged for Physical Securities in accordance with the rules
and procedures of the Depository and the provisions of Section 3.17. In
addition, Physical Securities shall be transferred to all beneficial owners in
exchange for their beneficial interests in Global Securities if (i) the
Depository notifies the Company that it is unwilling or unable to continue as
Depository for any Global Security and a successor Depository is not appointed
by the Company within 90 days of such notice or (ii) an Event of Default has
occurred and is continuing and the Registrar has received a written request from
the Depository to issue Physical Securities.
(c) In connection with any transfer or exchange of a portion of the
beneficial interest in any Global Security to beneficial owners pursuant to
paragraph (b), the Registrar shall (if one or more Physical Securities are to be
issued) reflect on its books and records the date and a decrease in the
principal amount at maturity of the Global Security in an amount equal to the
principal amount of the beneficial interest in the Global Security to be
transferred, and the Company shall execute, and the Trustee shall authenticate
and deliver, one or more Physical Securities of like tenor and principal amount
of authorized denominations.
<PAGE> 61
(d) In connection with the transfer of Global Securities as an
entirety to beneficial owners pursuant to paragraph (b), the Global Securities
shall be deemed to be surrendered to the Trustee for cancellation, and the
Company shall execute, and the Trustee shall authenticate and deliver, to each
beneficial owner identified by the Depository in exchange for its beneficial
interest in the Global Securities, an equal aggregate principal amount at
maturity of Physical Securities of like tenor of authorized denominations.
(e) Any Physical Security constituting a Restricted Security delivered
in exchange for an interest in a Global Security pursuant to subparagraphs (b)
or (c) of this Section 3.16 shall, except as otherwise provided by paragraphs
(a)(l)(x) and (c) of Section 3.17, bear the legend regarding transfer
restrictions applicable to the Physical Securities set forth in Exhibit A-1.
(f) The Holder of any Global Security may grant proxies and otherwise
authorize any person, including Agent Members and persons that may hold
interests through Agent Members, to take any action which a Holder is entitled
to take under this Indenture or the Securities.
Section 3.17. Special Transfer Provisions.
(a) Transfers to Non-QIB Institutional Accredited Investors and
Non-U.S. persons. The following provisions shall apply with respect to the
registration of any proposed transfer of a Security constituting a Restricted
Security to any Institutional Accredited Investor which is not a QIB or to any
non-U.S. person:
(1) the Registrar shall register the transfer of any Security
constituting a Restricted Security, whether or not such Security bears the
Private Placement Legend, if (x) the requested transfer is not prior to the
date which is two years (or such shorter period as may be prescribed by
Rule 144(k) under the Securities Act or any successor provision thereunder)
after the later of the original Issue Date of such Security (or of any
Predecessor Security) or the last day on which the Company or any Affiliate
of the Company was the owner of such Security or any Predecessor Security
or (y) (1) in the case of a transfer to a person purporting to be an
Institutional Accredited Investor which is not a QIB (excluding non-U.S.
persons), the proposed transferee has delivered to the Registrar a
<PAGE> 62
certificate substantially in the form of Exhibit C hereto or (2) in the
case of a transfer to a person purporting to be a non-U.S. person, the
proposed transferee has delivered to the Registrar a certificate
substantially in the form of Exhibit D hereto; and
(2) if the proposed transferor is an Agent Member holding a beneficial
interest in a Global Security, upon receipt by the Registrar of (x) the
certificate, if any, required by paragraph (1) above and (y) instructions
given in accordance with the Depository's and the Registrar's procedures;
whereupon (a) the Registrar shall reflect on its books and records the date and
(if the transfer does not involve a transfer of Outstanding Physical Securities)
a decrease in the principal amount at maturity of a Global Security in an amount
equal to the principal amount at maturity of the beneficial interest in a Global
Security to be transferred, and (b) the Company shall execute and the Trustee
shall authenticate and deliver one or more Physical Securities of like tenor and
principal amount of authorized denominations.
(b) Transfers to QIBs. The following provisions shall apply with
respect to the registration of any proposed transfer of a Security constituting
a Restricted Security to a person purporting to be a QIB (excluding transfers to
non-U.S. persons):
(1) the Registrar shall register the transfer if such transfer is
being made by a proposed transferor who has checked the box provided for on
the form of Security stating, or has otherwise advised the Company and the
Registrar in writing, that the transfer has been made in compliance with
the exemption from registration under the Securities Act provided under
Rule 144A to a transferee who has signed the certification provided for on
the form of Security stating, or has otherwise advised the Company and the
Registrar in writing, that such transferee represents and warrants that it
is purchasing the Security for its own account or an account with respect
to which it exercises sole investment discretion and that it and any such
account is a QIB within the meaning of Rule 144A, and is aware that the
sale to it is being made in reliance on Rule 144A and acknowledges that it
has received such information regarding the Company as it has requested
pursuant to Rule 144A or has determined not to request such information and
<PAGE> 63
that it is aware that the transferor is relying upon its foregoing
representations in order to claim the exemption from registration provided
by Rule 144A; and
(2) if the proposed transferee is an Agent Member, and the Securities
to be transferred consist of Physical Securities which after transfer are
to be evidenced by an interest in the Global Security, upon receipt by the
Registrar of instructions given in accordance with the Depository's and the
Registrar's procedures, the Registrar shall reflect on the Security
Register the date and an increase in the principal amount at maturity of
the Global Security in an amount equal to the principal amount at maturity
of the Physical Securities to be transferred, and the Trustee shall cancel
the Physical Securities so transferred.
(c) Private Placement Legend. Upon the registration of transfer,
exchange or replacement of Securities not bearing the Private Placement Legend,
the Registrar shall deliver Securities that do not bear the Private Placement
Legend. Upon the registration of transfer, exchange or replacement of Securities
bearing the Private Placement Legend, the Registrar shall deliver only
Securities that bear the Private Placement Legend unless (i) the circumstances
contemplated by paragraph (a)(l)(x) of this Section 3.17 exist, (ii) there is
delivered to the Registrar an Opinion of Counsel satisfactory to the Company and
the Trustee to the effect that neither such legend nor the related restrictions
on transfer are required in order to maintain compliance with the provisions of
the Securities Act or (iii) such Security has been sold pursuant to an effective
registration statement under the Securities Act.
(d) Other Transfers. If a Holder proposes to transfer a Security
constituting a Restricted Security pursuant to any exemption from the
registration requirements of the Securities Act other than as provided for by
Section 3.17(a) and (b), the Registrar shall only register such transfer or
exchange if such transferor delivers an Opinion of Counsel satisfactory to the
Company and the Registrar that such transfer is in compliance with the
Securities Act and the terms of this Indenture; provided that the Company may,
based upon the opinion of its counsel, instruct the Registrar by a Company Order
not to register such transfer in any case where the proposed transferee is not a
QIB, non-U.S. person or Institutional Accredited Investor.
(e) General. By its acceptance of any Security bearing the Private
Placement Legend, each Holder of such a Security acknowledges the restrictions
<PAGE> 64
on transfer of such Security set forth in this Indenture and in the Private
Placement Legend and agrees that it will transfer such Security only as provided
in this Indenture.
The Registrar shall retain copies of all letters, notices and other
written communications received pursuant to Section 3.16 or this Section 3.17
for a period of two years at which time such letters, notices and other written
communications shall be delivered to the Company. The Company shall have the
right to inspect and make copies of all such letters, notices or other written
communications at any time during normal business hours upon the giving of
reasonable prior written notice to the Registrar.
ARTICLE FOUR
DEFEASANCE OR COVENANT DEFEASANCE
Section 4.01. Company's Option To Effect Defeasance or Covenant
Defeasance.
The Company may, at its option by Board Resolution, at any time, with
respect to the Securities, elect to have either Section 4.02 or Section 4.03 be
applied to all of the Outstanding Securities (the "Defeased Securities"), upon
compliance with the conditions set forth below in this Article Four.
Section 4.02. Defeasance and Discharge.
Upon the Company's exercise under Section 4.01 of the option
applicable to this Section 4.02, the Company shall be deemed to have been
discharged from its obligations with respect to the Defeased Securities on the
date the conditions set forth below are satisfied (hereinafter, "defeasance").
For this purpose, such defeasance means that the Company shall be deemed to have
paid and discharged the entire indebtedness represented by the Defeased
Securities, which shall thereafter be deemed to be "Outstanding" only for the
purposes of Section 4.05 and the other Sections of this Indenture referred to in
(a) and (b) below, and to have satisfied all its other Obligations under such
Securities and this Indenture insofar as such Securities are concerned (and the
<PAGE> 65
Trustee, at the expense of the Company and upon Company Request, shall execute
proper instruments acknowledging the same), except for the following, which
shall survive until otherwise terminated or discharged hereunder: (a) the rights
of Holders of Defeased Securities to receive, solely from the trust fund
described in Section 4.04 and as more fully set forth in such Section, payments
in respect of the principal of, premium, if any, and interest on such Securities
when such payments are due, (b) the Company's Obligations with respect to such
Defeased Securities under Sections 3.04, 3.05, 3.06, 10.02 and 10.03, (c) the
rights, powers, trusts, duties and immunities of the Trustee hereunder,
including, without limitation, the Trustee's rights under Section 6.07, and (d)
this Article Four. Subject to compliance with this Article Four, the Company may
exercise its option under this Section 4.02 notwithstanding the prior exercise
of its option under Section 4.03 with respect to the Securities.
Section 4.03. Covenant Defeasance.
Upon the Company's exercise under Section 4.01 of the option
applicable to this Section 4.03, the Company shall be released from its
obligations under any covenant or provision contained in Sections 10.06 through
10.22 and Sections 15.04 through 15.06 and 15.08 through 15.17 and the
provisions of Articles Eight, Eleven and Twelve shall not apply, with respect to
the Defeased Securities on and after the date the conditions set forth below are
satisfied (hereinafter, "covenant defeasance"), and the Defeased Securities
shall thereafter be deemed not to be "Outstanding" for the purposes of any
direction, waiver, consent or declaration or Act of Holders (and the
consequences of any thereof) in connection with such covenants, but shall
continue to be deemed "Outstanding" for all other purposes hereunder. For this
purpose, such covenant defeasance means that, with respect to the Defeased
Securities, the Company may omit to comply with and shall have no liability in
respect of any term, condition or limitation set forth in any such Section or
Article, whether directly or indirectly, by reason of any reference elsewhere
herein to any such Section or Article or by reason of any reference in any such
Section or Article to any other provision herein or in any other document and
such omission to comply shall not constitute a Default or an Event of Default
under Section 5.01(c) or (d), but, except as specified above, the remainder of
this Indenture and such Defeased Securities shall be unaffected thereby.
Section 4.04. Conditions to Defeasance or Covenant Defeasance.
The following shall be the conditions to application of either Section
4.02 or Section 4.03 to the Defeased Securities:
<PAGE> 66
(1) The Company shall irrevocably have deposited or caused to be
deposited with the Trustee (or another trustee satisfying the requirements
of Section 6.09 who shall agree to comply with the provisions of this
Article Four applicable to it) as trust funds in trust for the purpose of
making the following payments, specifically pledged as security for, and
dedicated solely to, the benefit of the Holders of such Securities, (a)
U.S. dollars in an amount, or (b) Government Securities which through the
scheduled payment of principal, premium, if any, and interest in respect
thereof in accordance with their terms will provide, not later than one day
before the due date of any payment, money in an amount, or (c) a
combination thereof, in any such case, sufficient, in the opinion of a
nationally recognized firm of independent public accountants expressed in a
written certification thereof delivered to the Trustee, to pay and
discharge and which shall be applied by the Trustee (or other qualifying
trustee) to pay and discharge, the principal of, premium, if any, and
interest on the Defeased Securities upon redemption or at the Stated
Maturity of such principal or installment of principal, premium, if any, or
interest; provided, however, that the Trustee shall have been irrevocably
instructed to apply such money or the proceeds of such Government
Securities to said payments with respect to the Securities;
(2) No Default shall have occurred and be continuing on the date of
such deposit;
(3) Neither the Company nor any Subsidiary of the Company is an
"insolvent person" within the meaning of any applicable Bankruptcy Law on
the date of such deposit or at any time during the period ending on the
ninety-first day after the date of such deposit (it being understood that
this condition shall not be deemed satisfied until the expiration of such
period);
(4) Such defeasance or covenant defeasance shall not cause the Trustee
to have a conflicting interest in violation of Section 6.08 and for
purposes of the Trust Indenture Act with respect to any securities of the
Company;
(5) Such defeasance or covenant defeasance shall not result in a
breach or violation of, or constitute a default under, this Indenture or
any other agreement or instrument to which the Company is a party or by
which it is bound;
<PAGE> 67
(6) In the case of an election under Section 4.02, the Company shall
have delivered to the Trustee an Opinion of Counsel stating that (x) the
Company has received from, or there has been published by, the Internal
Revenue Service a ruling or (y) since the date hereof, there has been a
change in the applicable Federal income tax law, in either case to the
effect that, and based thereon such opinion shall confirm that, the Holders
of the Outstanding Securities will not recognize income, gain or loss for
Federal income tax purposes as a result of such defeasance and will be
subject to Federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such defeasance had not
occurred;
(7) In the case of an election under Section 4.03, the Company shall
have delivered to the Trustee an Opinion of Counsel to the effect that the
Holders of the Outstanding Securities will not recognize income, gain or
loss for Federal income tax purposes as a result of such covenant
defeasance and will be subject to Federal income tax on the same amounts,
in the same manner and at the same times as would have been the case if
such covenant defeasance had not occurred;
(8) The Company shall have delivered to the Trustee, an Opinion of
Counsel to the effect that immediately following the ninety-first day after
the deposit, the trust funds established pursuant to this Article will not
be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally under
any applicable U.S. Federal or state law;
(9) The Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit made by the Company pursuant to its
election under Section 4.02 or 4.03 was not made by the Company with the
intent of preferring the Holders over the other creditors of the Company or
with the intent of defeating, hindering, delaying or defrauding creditors
of the Company or others; and
(10) The Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that (i) all conditions
precedent (other than conditions requiring the passage of time) provided
for relating to either the defeasance under Section 4.02 or the covenant
defeasance under Section 4.03 (as the case may be) have been complied with
as contemplated by this Section 4.04 and (ii) if any other Indebtedness of
<PAGE> 68
the Company shall then be outstanding or committed, such defeasance or
covenant defeasance will not violate the provisions of the agreements or
instruments evidencing such Indebtedness.
Opinions required to be delivered under this Section may have such
qualifications as are customary for opinions of the type required and acceptable
to the Trustee.
Section 4.05. Deposited Money and Government Securities To Be Held in
Trust; Other Miscellaneous Provisions.
Subject to the proviso of the last paragraph of Section 10.03, all
money and Government Securities (including the proceeds thereof) deposited with
the Trustee (or other qualifying trustee, collectively for purposes of this
Section 4.05, the "Trustee") pursuant to Section 4.04 in respect of the Defeased
Securities shall be held in trust and applied by the Trustee, in accordance with
the provisions of such Securities and this Indenture, to the payment, either
directly or through any Paying Agent (other than the Company) as the Trustee may
determine, to the Holders of such Securities of all sums due and to become due
thereon in respect of principal, premium, if any, and interest, but such money
need not be segregated from other funds except to the extent required by law.
The Company shall pay and indemnify the Trustee and hold it harmless
against any tax, fee or other charge imposed on or assessed against the
Government Securities deposited pursuant to Section 4.04 or the principal,
premium, if any, and interest received in respect thereof other than any such
tax, fee or other charge which by law is for the account of the Holders of the
Defeased Securities.
Anything in this Article Four to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon Company
Request any money or Government Securities held by it as provided in Section
4.04 which, in the opinion of an internationally recognized firm of independent
public accountants expressed in a written certification thereof delivered to a
Responsible Officer of the Trustee, are in excess of the amount thereof which
would then be required to be deposited to effect an equivalent defeasance or
covenant defeasance.
<PAGE> 69
Section 4.06. Reinstatement.
If the Trustee or Paying Agent is unable to apply any money or
Government Securities in accordance with Section 4.02 or 4.03, as the case may
be, by reason of any order or judgment of any court or governmental authority
enjoining, restraining or otherwise prohibiting such application, then the
obligations of the Company under this Indenture, the Securities shall be revived
and reinstated as though no deposit had occurred pursuant to Section 4.02 or
4.03, as the case may be, until such time as the Trustee or Paying Agent is
permitted to apply all such money and Government Securities in accordance with
Section 4.02 or 4.03, as the case may be; provided, however, that if the Company
makes any payment of principal, premium, if any, or interest on any Security
following the reinstatement of its obligations, the Company shall be subrogated
to the rights of the Holders of such Securities to receive such payment from the
money and Government Securities held by the Trustee or Paying Agent.
ARTICLE FIVE
REMEDIES
Section 5.01. Events of Default.
"Event of Default," wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
be voluntary or involuntary or be effected by operation of law or pursuant to
any judgment, decree or order of any court or any order, rule or regulation of
any administrative or governmental body):
(i) default in the payment of interest on the Securities issued
thereunder when it becomes due and payable and continuance of such default
for a period of 30 days or more (provided such 30-day grace period shall be
inapplicable for the first four interest payments due on the Securities);
or
(ii) default in the payment of the principal of or premium, if any, on
the Securities when due (including the failure to make a payment to
purchase Securities pursuant to a Change of Control Offer or an Escrow
Proceeds Offer); or
<PAGE> 70
(iii) default in the performance, or breach, of any covenant described
under Section 10.18 or Article Eight; or
(iv) default in the performance, or breach, of any covenant in this
Indenture (other than defaults specified in clause (i), (ii) or (iii)
above) or the Escrow Agreement, and continuance of such default or breach
for a period of 30 days or more after written notice to the Company by the
Trustee or to the Company and the Trustee by the Holders of at least 25% in
aggregate principal amount of the outstanding Securities (in each case,
when such notice is deemed received in accordance with this Indenture); or
(v) failure to perform any term, covenant, condition or provision of
one or more classes or issues of Indebtedness in an aggregate principal
amount of $15.0 million or more under which the Company or a Restricted
Subsidiary is obligated, and either (a) such Indebtedness is already due
and payable in full and has not been paid in full (and such failure
continues for a period of 30 days or more) or (b) such failure results in
the acceleration of the final maturity of such Indebtedness (which
acceleration has not been rescinded, annulled or otherwise cured within 30
days of receipt by the Company or such Restricted Subsidiary of notice of
such acceleration); or
(vi) the Company shall assert or acknowledge in writing that the
Escrow Agreement is invalid or unenforceable or any Guarantor shall assert
or acknowledge in writing the invalidity of its Guarantee.
(vii) one or more judgments, orders or decrees, not subject to appeal,
for the payment of money of $15.0 million or more, either individually or
in the aggregate (in all cases net of amounts covered by insurance for
which coverage is not being challenged or denied), shall be entered against
the Company or any of the Company's Significant Restricted Subsidiaries or
any of their respective properties and shall not be discharged, paid or
stayed within 60 days after the right of appeal has expired; or
(viii) the Company or any Significant Restricted Subsidiary of the
Company pursuant to or under or within the meaning of any Bankruptcy Law:
(a) commences a voluntary case or proceeding;
<PAGE> 71
(b) consents to the making of a Bankruptcy Order in an
involuntary case or proceeding or the commencement of any
case against it;
(c) consents to the appointment of a Custodian of it or
for any substantial part of its property;
(d) makes a general assignment for the benefit of its
creditors;
(e) files an answer or consent seeking reorganization
or relief;
(f) shall admit in writing its inability to pay its
debts generally; or
(g) consents to the filing of a petition in bankruptcy;
or
(ix) a court of competent jurisdiction in any involuntary case or
proceeding enters a Bankruptcy Order against the Company or any Significant
Restricted Subsidiary, and such Bankruptcy Order remains unstayed and in
effect for 60 consecutive days; or
(x) a Custodian shall be appointed out of court with respect to the
Company or any Significant Restricted Subsidiary or with respect to all or
any substantial part of the assets or properties of the Company or any
Significant Restricted Subsidiary.
Section 5.02. Acceleration of Maturity; Rescission and Annulment.
If an Event of Default with respect to the Securities (other than an
Event of Default with respect to the Company described in clause (viii), (ix) or
(x) of the preceding paragraph) occurs and is continuing, the Trustee or the
Holders of at least 25% in aggregate principal amount of the outstanding
Securities by notice in writing to the Company may declare the unpaid principal
of (and premium, if any) and accrued interest to the date of acceleration on all
the outstanding Securities to be due and payable immediately and, upon any such
declaration, such principal amount (and premium, if any) and accrued interest,
notwithstanding anything contained in this Indenture or the Securities to the
contrary, but subject to the provisions limiting payment described in Section
12.01, will become immediately due and payable; provided, however, that if there
are any amounts or commitments outstanding under the Credit Facility, if an
<PAGE> 72
Event of Default shall have occurred and be continuing (other than an Event of
Default with respect to the Company described in clause (viii), (ix) or (x) of
the preceding paragraph), the Securities shall not become due and payable until
the earlier to occur of (x) five Business Days following delivery of written
notice of such acceleration of the Securities to the agent under the Credit
Facility; provided that such Event of Default is then continuing and (y) the
acceleration (ipso facto or otherwise) of any Indebtedness under the Credit
Facility, but only if such Event of Default is then continuing. If an Event of
Default specified in clause (viii), (ix) or (x) of the preceding paragraph with
respect to the Company occurs under this Indenture, the outstanding Securities
will ipso facto become immediately due and payable without any declaration or
other act on the part of the Trustee or any Holder.
Notwithstanding the foregoing, in the event of a declaration of
acceleration in respect of the Securities because an Event of Default specified
in clause (v) above shall have occurred and be continuing, such declaration of
acceleration shall be automatically annulled if the Indebtedness that is the
subject of such Event of Default has been discharged or paid or such Event of
Default shall have been cured or waived by the holders of such Indebtedness and
written notice of such discharge, cure or waiver, as the case may be, shall have
been given to the Trustee by the Company or by the requisite holders of such
Indebtedness or a trustee, fiduciary or agent for such holders, within 30 days
after such declaration of acceleration in respect of the Securities, and no
other Event of Default shall have occurred which has not been cured or waived
during such 30-day period.
After a declaration of acceleration, the Holders of a majority in
aggregate principal amount of the outstanding Securities may, by notice to the
Trustee, rescind such declaration of acceleration if all existing Events of
Default have been cured or waived, other than nonpayment of principal of,
premium, if any, and accrued interest on the Securities that has become due
solely as a result of the acceleration thereof, and if the rescission of
acceleration would not conflict with any judgment or decree. Past defaults under
this Indenture (except a default in the payment of the principal of, premium, if
any, or interest on any Security issued thereunder or in respect of a covenant
or a provision which cannot be modified or amended without the consent of all
Holders of such Securities) may be waived by the Holders of a majority in
aggregate principal amount of the outstanding Securities.
<PAGE> 73
Section 5.03. Collection of Indebtedness and Suits for Enforcement by
Trustee.
The Company covenants that if an Event of Default specified in Section
5.01(i), 5.01(ii) or 5.01(iii) (to the extent relating to the payment required
by Section 10.18) shall have occurred and be continuing, the Company will, upon
demand of the Trustee, pay to the Trustee, for the benefit of the Holders, the
whole amount then due and payable on such Securities for principal, premium, if
any, and interest, with interest upon the overdue principal, premium, if any,
and, to the extent that payment of such interest shall be legally enforceable,
upon overdue installments of interest, at the rate then borne by the Securities;
and, in addition thereto, such further amount as shall be sufficient to cover
the costs and expenses of collection, including the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel.
If the Company fails to pay such amounts forthwith upon such demand,
the Trustee, in its own name and as trustee of an express trust, may, but is not
obligated under this paragraph to, at the expense of the Company, institute a
judicial proceeding for the collection of the sums so due and unpaid and may,
but is not obligated under this paragraph to, prosecute such proceeding to
judgment or final decree, and may, but is not obligated under this paragraph to,
enforce the same against the Company or any other obligor upon the Securities
and collect the moneys adjudged or decreed to be payable in the manner provided
by law out of the property of the Company or any other obligor upon the
Securities, wherever situated.
If an Event of Default occurs and is continuing, the Trustee may in
its discretion, but is not obligated under this paragraph to, (i) proceed to
protect and enforce its rights and the rights of the Holders under this
Indenture by such appropriate private or judicial proceedings as the Trustee
shall deem most effectual to protect and enforce such rights, whether for the
specific enforcement of any covenant or agreement contained in this Indenture or
in aid of the exercise of any power granted herein, or (ii) proceed to protect
and enforce any other proper remedy. No recovery of any such judgment upon any
property of the Company shall affect or impair any rights, powers or remedies of
the Trustee or the Holders.
<PAGE> 74
Section 5.04. Trustee May File Proofs of Claims.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or any other obligor upon the
Securities, including the property of the Company or of such other obligor or
their creditors, the Trustee (irrespective of whether the principal of the
Securities shall then be due and payable as therein expressed or by declaration
or otherwise and irrespective of whether the Trustee shall have made any demand
on the Company for the payment of overdue principal or interest) shall be
entitled and empowered, by intervention in such proceeding or otherwise,
(a) to file and prove a claim for the whole amount of principal,
premium, if any, and interest owing and unpaid in respect of the Securities
and to file such other papers or documents as may be necessary or advisable
in order to have the claims of the Trustee (including any claim for the
reasonable compensation, fees, expenses, disbursements and advances of the
Trustee, its agents and counsel) and of the Holders allowed in such
judicial proceeding, and
(b) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same;
and any Custodian in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay the
Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 6.07 hereof.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof, or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding.
<PAGE> 75
Section 5.05. Trustee May Enforce Claims Without Possession of
Securities.
All rights of action and claims under this Indenture, the Escrow
Agreement or the Securities may be prosecuted and enforced by the Trustee
without the possession of any of the Securities or the production thereof in any
proceeding relating thereto, and any such proceeding instituted by the Trustee
shall be brought in its own name and as trustee of an express trust, and any
recovery of judgment shall, after provision for the payment of the reasonable
compensation, fees, expenses, disbursements and advances of the Trustee, its
agents and counsel, be for the ratable benefit of the Holders in respect of
which such judgment has been recovered.
Section 5.06. Application of Money Collected.
Any money collected by the Trustee pursuant to this Article, including
such amounts held pursuant to the Escrow Agreement, shall be applied in the
following order, at the date or dates fixed by the Trustee and, in case of the
distribution of such money on account of principal, premium, if any, or
interest, upon presentation of the Securities and the notation thereon of the
payment if only partially paid and upon surrender thereof if fully paid:
First: to the Trustee for amounts due under Section 6.07;
Second: to Holders for interest accrued on the Securities,
ratably, without preference or priority of any kind, according to the
amounts due and payable on the Securities for interest;
Third: to Holders for principal and premium, if any, amounts
owing under the Securities, ratably, without preference or priority of
any kind, according to the amounts due and payable on the Securities
for principal and premium, if any; and
Fourth: the balance, if any, to the Company.
The Trustee, upon prior written notice to the Company, may fix a
record date and payment date for any payment to Securityholders pursuant to this
Section 5.06.
<PAGE> 76
Section 5.07. Limitation on Suits.
No Holder of any Security will have any right to institute any
proceeding with respect to this Indenture or for any remedy thereunder, unless
such Holder shall have previously given to the Trustee written notice of a
continuing Event of Default thereunder and unless the Holders of at least 25% of
the aggregate principal amount of the outstanding Securities under this
Indenture shall have made written request, and offered reasonable indemnity, to
the Trustee to institute such proceeding as Trustee, and the Trustee shall have
not received from the Holders of a majority in aggregate principal amount of
outstanding Securities a direction inconsistent with such request and shall have
failed to institute such proceeding within 45 days. However, such limitations do
not apply to a suit instituted by a holder of a Security for enforcement of
payment of the principal of and premium, if any, or interest on such Security on
or after the respective due dates expressed in such Security.
During the existence of an Event of Default under this Indenture, the
Trustee is required to exercise such rights and powers vested in it under this
Indenture and use the same degree of care and skill in its exercise thereof as a
prudent Person would exercise under the circumstances in the conduct of such
Person's own affairs. Subject to the provisions of this Indenture relating to
the duties of the Trustee, in case an Event of Default shall occur and be
continuing, the Trustee is not under any obligation to exercise any of its
rights or powers under this Indenture at the request or direction of any of the
Holders, unless such Holders shall have offered to such Trustee security or
indemnity satisfactory to it. Subject to certain provisions of this Indenture
concerning the rights of the Trustee, the Holders of a majority in aggregate
principal amount of the applicable issue of outstanding Securities have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee under this Indenture, or exercising any trust,
or power conferred on the Trustee.
It is understood and intended that no one or more Holders shall have
any right in any manner whatever by virtue of, or by availing of, any provision
of this Indenture or any Security to affect, disturb or prejudice the rights of
any other Holders, or to obtain or to seek to obtain priority or preference over
<PAGE> 77
any other Holders or to enforce any right under this Indenture or any Security,
except in the manner provided in this Indenture and for the equal and ratable
benefit of all the Holders.
Section 5.08. Unconditional Right of Holders To Receive Principal,
Premium and Interest.
Notwithstanding any other provision in this Indenture, the Holder of
any Security shall have the right, which is absolute and unconditional, to
receive cash payment of the principal of, premium, if any, and (subject to
Section 3.07 hereof) interest on such Security on the respective Stated
Maturities expressed in such Security (or, in the case of redemption, on the
respective Redemption Date) and to institute suit for the enforcement of any
such payment, and such rights shall not be impaired without the consent of such
Holder.
Section 5.09. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to enforce
any right or remedy under this Indenture or any Security and such proceeding has
been discontinued or abandoned for any reason, or has been determined adversely
to the Trustee or to such Holder, then and in every such case the Company, the
Trustee and the Holders shall, subject to any determination in such proceeding,
be restored severally and respectively to their former positions hereunder, and
thereafter all rights and remedies of the Trustee and the Holders shall continue
as though no such proceeding had been instituted.
Section 5.10. Rights and Remedies Cumulative.
Except as provided in Section 3.06, no right or remedy herein
conferred upon or reserved to the Trustee or to the Holders is intended to be
exclusive of any other right or remedy, and every right and remedy shall, to the
extent permitted by law, be cumulative and in addition to every other right and
remedy given hereunder or now or hereafter existing at law or in equity or
otherwise. The assertion or employment of any right or remedy hereunder, or
otherwise, shall not prevent the concurrent assertion or employment of any other
appropriate right or remedy.
Section 5.11. Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any Security
to exercise any right or remedy accruing upon any Event of Default shall impair
any such right or remedy or constitute a waiver of any such Event of Default or
an acquiescence therein. Every right and remedy given by this Article Five or by
law to the Trustee or to the Holders may be exercised from time to time, and as
often as may be deemed expedient, by the Trustee or by the Holders, as the case
may be.
Section 5.12. Control by Majority.
The Holders of a majority in aggregate principal amount of the
Outstanding Securities shall have the right to direct the time, method and place
of conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred on the Trustee, provided, however, that:
(a) such direction shall not be in conflict with any rule of law or
with this Indenture, the Escrow Agreement or any Security or expose the
Trustee to personal liability; and
(b) the Trustee may take any other action deemed proper by the Trustee
which is not inconsistent with such direction.
Section 5.13. Waiver of Past Defaults.
The Holders of not less than a majority in aggregate principal amount
of the Outstanding Securities may on behalf of the Holders of all the Securities
waive any past Default hereunder and its consequences, except a Default
(a) in the payment of the principal of, premium, if any, or interest
on any Security or
(b) in respect of a covenant or provision hereof which under Article
Nine cannot be modified or amended without the consent of the Holder of
each Outstanding Security affected.
Upon any such waiver, such Default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other Default or Event of Default or impair any right consequent thereon.
<PAGE> 78
Section 5.14. Undertaking for Costs.
All parties to this Indenture agree, and each Holder of any Security
by his acceptance thereof shall be deemed to have agreed, that any court may in
its discretion require, in any suit for the enforcement of any right or remedy
under this Indenture, or in any suit against the Trustee for any action taken,
suffered or omitted by it as Trustee, the filing by any party litigant in such
suit of an undertaking to pay the costs of such suit, and that such court may in
its discretion assess reasonable costs, including reasonable attorneys' fees and
expenses, against any party litigant in such suit, having due regard to the
merits and good faith of the claims or defenses made by such party litigant; but
the provisions of this Section shall not apply to any suit instituted by the
Trustee, to any suit instituted by any Holder, or group of Holders, holding in
the aggregate more than 10% in principal amount of the Outstanding Securities,
or to any suit instituted by any Holder for the enforcement of the payment of
the principal of, premium, if any, or interest on any Security on or after the
respective Stated Maturities expressed in such Security (or, in the case of
redemption, on or after the respective Redemption Dates).
Section 5.15. Waiver of Stay, Extension or Usury Laws.
The Company covenants (to the extent that it may lawfully do so) that
it will not at any time insist upon, or plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay or extension law or any usury or
other law wherever enacted, now or at any time hereafter in force, which would
prohibit or forgive the Company from paying all or any portion of the principal
of, premium, if any, or interest on the Securities contemplated herein or in the
Securities or which may affect the covenants or the performance of this
Indenture; and the Company (to the extent that it may lawfully do so) hereby
expressly waives all benefit or advantage of any such law, and covenants that it
will not hinder, delay or impede the execution of any power herein granted to
the Trustee, but will suffer and permit the execution of every such power as
though no such law had been enacted.
Section 5.16. Unconditional Right of Holders To Institute Certain
Suits.
Notwithstanding any other provision in this Indenture, the Escrow
Agreement and any other provision of any Security, the right of any Holder of
any Security to receive payment of the principal of, premium, if any, and
interest on such Security on or after the respective Stated Maturities (or the
<PAGE> 79
respective Redemption Dates, in the case of redemption) expressed in such
Security, or after such respective dates, shall not be impaired or affected
without the consent of such Holder.
ARTICLE SIX
THE TRUSTEE
Section 6.01. Certain Duties and Responsibilities.
(a) Except during the continuance of an Event of Default,
(1) the Trustee undertakes to perform such duties and only such duties
as are specifically set forth in this Indenture and the Escrow Agreement,
and no implied covenants or obligations shall be read into this Indenture
and the Escrow Agreement against the Trustee; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to
the Trustee and conforming to the requirements of this Indenture and the
Escrow Agreement; but in the case of any such certificates or opinions
which by provision hereof are specifically required to be furnished to the
Trustee, the Trustee shall be under a duty to examine the same to determine
whether or not they conform to the requirements of this Indenture and the
Escrow Agreement (but need not confirm or investigate the accuracy of
mathematical calculations or other facts stated therein).
(b) In case an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture and the Escrow Agreement, and use the same degree of care and skill in
their exercise, as a prudent person would exercise or use under the
circumstances in the conduct of such person's own affairs.
(c) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own gross negligent action, its own gross
negligent failure to act, or its own willful misconduct, except that no
provision of this Indenture and the Escrow Agreement shall require the Trustee
to expend or risk its own funds or otherwise incur any financial liability in
<PAGE> 80
the performance of any of its duties hereunder, or in the exercise of any of its
rights or powers, if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it.
(d) Whether or not therein expressly so provided, every provision of
this Indenture and the Escrow Agreement relating to the conduct or affecting the
liability of or affording protection to the Trustee shall be subject to the
provisions of this Section 6.01.
Section 6.02. Notice of Defaults.
Within 30 days after the occurrence of any Default or Event of Default
with respect to the outstanding Securities, the Trustee shall give the Holders
notice of all uncured Defaults or Events of Default known to it; provided,
however, that, except in the case of an Event of Default in payment with respect
to such Securities or a Default or Event of Default in complying with Article
Eight, the Trustee shall be protected in withholding such notice if and so long
as a committee of its trust officers in good faith determines that the
withholding of such notice is in the interest of the Holders.
Section 6.03. Certain Rights of Trustee.
Subject to Section 6.01 hereof and the provisions of Section 315 of
the Trust Indenture Act:
(a) the Trustee may conclusively rely and shall be fully protected in
acting or refraining from acting upon any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, debenture, note, other evidence of indebtedness or
other paper or document (whether in its original or facsimile form)
believed by it to be genuine and to have been signed or presented by the
proper party or parties;
(b) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order and any
resolution of the Board of Directors of the Company may be sufficiently
evidenced by a Board Resolution thereof;
<PAGE> 81
(c) the Trustee may consult with counsel of its selection and any
advice of such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or
omitted by it hereunder in good faith and in reliance thereon in accordance
with such advice or Opinion of Counsel;
(d) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture or the Escrow Agreement at
the request or direction of any of the Holders pursuant to this Indenture,
unless such Holders shall have offered to the Trustee security or indemnity
satisfactory to it against the costs, expenses and liabilities which might
be incurred by the Trustee in compliance with such request or direction;
(e) the Trustee shall not be liable for any action taken or omitted by
it in good faith and believed by it to be authorized or within the
discretion, rights or powers conferred upon it by this Indenture or the
Escrow Agreement other than any liabilities arising out of its own gross
negligence;
(f) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
approval, appraisal, bond, debenture, note, coupon, security, other
evidence of indebtedness or other paper or document unless requested in
writing so to do by the Holders of not less than a majority in aggregate
principal amount of the Securities then Outstanding; provided, however,
that, if the payment within a reasonable time to the Trustee of the costs,
expenses or liabilities likely to be incurred by it in the making of such
investigation is, in the opinion of the Trustee, not reasonably assured to
the Trustee by the security afforded to it by the terms of this Indenture,
the Trustee may require indemnity satisfactory to it against such expenses
or liabilities as a condition to proceeding; the reasonable expenses of
every such investigation shall be paid by the Company or, if paid by the
Trustee or any predecessor Trustee, shall be repaid by the Company upon
demand; provided, further, the Trustee in its discretion may make such
<PAGE> 82
further inquiry or investigation into such facts or matters as it may deem
fit, and, if the Trustee shall determine to make such further inquiry or
investigation, it shall be entitled to examine the books, records and
premises of the Company, personally or by agent or attorney at the sole
cost of the Company and shall incur no liability or additional liability of
any kind by reason of such inquiry or investigation; and
(g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by
it hereunder.
Section 6.04. Trustee Not Responsible for Recitals, Dispositions of
Securities or Application of Proceeds Thereof.
The recitals contained herein, in the Escrow Agreement and in the
Securities, except the Trustee's certificates of authentication, shall be taken
as the statements of the Company, and the Trustee assumes no responsibility for
their correctness. The Trustee makes no representations as to the validity or
sufficiency of this Indenture, the Escrow Agreement or of the Securities except
that the Trustee represents that it is duly authorized to execute and deliver
this Indenture, authenticate the Securities and perform its obligations
hereunder and that the statements made by it in a Statement of Eligibility and
Qualification on Form T-1, if any, to be supplied to the Company are true and
accurate subject to the qualifications set forth therein. The Trustee shall not
be accountable for the use or application by the Company of Securities or the
proceeds thereof.
Section 6.05. Trustee and Agents May Hold Securities; Collections;
Etc.
The Trustee, any Paying Agent, Security Registrar or any other agent
of the Company, in its individual or any other capacity, may become the owner or
pledgee of Securities, with the same rights it would have if it were not the
Trustee, Paying Agent, Security Registrar or such other agent and, subject to
Sections 6.08 and 6.13 hereof and Sections 310 and 311 of the Trust Indenture
Act, may otherwise deal with the Company and receive, collect, hold and retain
collections from the Company with the same rights it would have if it were not
the Trustee, Paying Agent, Security Registrar or such other agent.
<PAGE> 83
Section 6.06. Money Held in Trust.
All moneys received by the Trustee shall, until used or applied as
herein provided, be held in trust for the purposes for which they were received,
but need not be segregated from other funds except to the extent required herein
or by law. The Trustee shall not be under any liability for interest on any
moneys received by it hereunder.
Section 6.07. Compensation and Indemnification of Trustee and Its
Prior Claim.
The Company covenants and agrees: (a) to pay to the Trustee from time
to time, and the Trustee shall be entitled to, compensation for all services
rendered by it hereunder (which shall not be limited by any provision of law in
regard to the compensation of a trustee of an express trust) as the Company and
the Trustee shall, from time to time, agree in writing; (b) to reimburse the
Trustee and each predecessor Trustee upon its request for all reasonable
expenses, fees, disbursements and advances incurred or made by or on behalf of
it in accordance with any of the provisions of this Indenture (including the
reasonable compensation, fees, and the expenses and disbursements of its counsel
and of all agents and other persons not regularly in its employ), except any
such expense, disbursement or advance as may arise from its gross negligence,
bad faith or willful misconduct; and (c) to indemnify the Trustee and each
predecessor Trustee for, and to hold it harmless against, any and all loss,
liability, claim, damage, or expense (including taxes other than taxes based
upon the income of the Trustee) incurred without negligence, bad faith or
willful misconduct on its part, arising out of or in connection with the
acceptance or administration of this Indenture, the Escrow Agreement or the
trusts hereunder and its duties hereunder, including enforcement of this Section
6.07. The obligations of the Company under this Section to compensate and
indemnify the Trustee and each predecessor Trustee and to pay or reimburse the
Trustee and each predecessor Trustee for such expenses, fees, disbursements and
advances shall constitute an additional obligation hereunder and shall survive
the satisfaction and discharge of this Indenture. To secure the obligations of
the Company to the Trustee under this Section 6.07, the Trustee shall have a
prior Lien upon all property and funds held or collected by the Trustee as such,
except funds and property paid by the Company held in trust for the benefit of
the Holders of Securities.
Section 6.08. Conflicting Interests.
The Trustee shall be subject to and comply with the provisions of
Section 310(b) of the Trust Indenture Act.
Section 6.09. Corporate Trustee Required; Eligibility.
There shall at all times be a Trustee hereunder which shall be
eligible to act as Trustee under Trust Indenture Act Sections 310(a)(1) and (2)
and which shall have or be wholly owned by an entity having a combined capital
and surplus of at least $50,000,000, and have a Corporate Trust Office in the
Borough of Manhattan in The City of New York, State of New York. If such
corporation publishes reports of condition at least annually, pursuant to law or
to the requirements of any Federal, state, territorial or District of Columbia
supervising or examining authority, then for the purposes of this Section, the
combined capital and surplus of such corporation shall be deemed to be its
combined capital and surplus as set forth in its most recent report of condition
so published. If at any time the Trustee shall cease to be eligible in
accordance with the provisions of this Section, the Trustee shall resign
immediately in the manner and with the effect hereinafter specified in this
Article.
Section 6.10. Resignation and Removal; Appointment of Successor
Trustee.
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee under Section 6.11.
(b) The Trustee, or any trustee or trustees hereinafter appointed, may
at any time resign by giving written notice thereof to the Company at least 20
Business Days prior to the date of such proposed resignation. Upon receiving
such notice of resignation, the Company shall promptly appoint a successor
trustee by written instrument executed by authority of the Board of Directors of
the Company, a copy of which shall be delivered to the resigning Trustee and a
copy to the successor Trustee. If an instrument of acceptance by a successor
Trustee shall not have been delivered to the Trustee within 20 Business Days
after the giving of such notice of resignation, the resigning Trustee may, or
any Holder who has been a bona fide Holder of a Security for at least six months
<PAGE> 84
may, on behalf of himself and all others similarly situated, petition any court
of competent jurisdiction for the appointment of a successor Trustee. Such court
may thereupon, after such notice, if any, as it may deem proper, appoint a
successor Trustee.
(c) The Trustee may be removed at any time by an Act of the Holders of
a majority in principal amount of the Outstanding Securities, delivered to the
Trustee and to the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with the provisions of Section
310(b) of the Trust Indenture Act in accordance with Section 6.08 hereof
after written request therefor by the Company or by any Holder who has been
a bona fide Holder of a Security for at least six months, or
(2) the Trustee shall cease to be eligible under Section 6.09 hereof
and shall fail to resign after written request therefor by the Company or
by any such Holder, or
(3) the Trustee shall become incapable of acting or shall be adjudged
a bankrupt or insolvent, or a receiver of the Trustee or of its property
shall be appointed or any public officer shall take charge or control of
the Trustee or of its property or affairs for the purpose or
rehabilitation, conservation or liquidation,
then, in any case, (i) the Company by a Board Resolution may remove the Trustee,
or (ii) subject to Section 5.14, the Holder of any Security who has been a bona
fide Holder of a Security for at least six months may, on behalf of himself and
all others similarly situated, petition any court of competent jurisdiction for
the removal of the Trustee and the appointment of a successor Trustee. Such
court may thereupon, after such notice, if any, as it may deem proper and
prescribe, remove the Trustee and appoint a successor Trustee.
(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause, the
Company, by a Board Resolution of its Board of Directors, shall promptly appoint
a successor Trustee. If, within one year after such resignation, removal or
incapability, or the occurrence of such vacancy, a successor Trustee shall be
<PAGE> 85
appointed by Act of the Holders of a majority in principal amount of the
Outstanding Securities delivered to the Company and the retiring Trustee, the
successor Trustee so appointed shall, forthwith upon its acceptance of such
appointment, become the successor Trustee and supersede the successor Trustee
appointed by the Company. If no successor Trustee shall have been so appointed
by the Company or the Holders of the Securities and accepted appointment in the
manner hereinafter provided, the Holder of any Security who has been a bona fide
Holder for at least six months may, subject to Section 5.14, on behalf of
himself and all others similarly situated, petition any court of competent
jurisdiction for the appointment of a successor Trustee.
(f) The Company shall give notice of each resignation and each removal
of the Trustee and each appointment of a successor Trustee by mailing written
notice of such event by first-class mail, postage prepaid, to the Holders of
Securities as their names and addresses appear in the Security Register. Each
notice shall include the name of the successor Trustee and the address of its
Corporate Trust Office.
Section 6.11. Acceptance of Appointment by Successor.
Every successor Trustee appointed hereunder shall execute, acknowledge
and deliver to the Company and to the retiring Trustee an instrument accepting
such appointment, and thereupon the resignation or removal of the retiring
Trustee shall become effective and such successor Trustee, without any further
act, deed or conveyance, shall become vested with all the rights, powers, trusts
and duties of the retiring Trustee as if originally named as Trustee hereunder;
but, nevertheless, on the written request of the Company or the successor
Trustee, upon payment of any and all amounts due it pursuant to Section 6.07,
such retiring Trustee shall duly assign, transfer and deliver to the successor
Trustee all moneys and property at the time held by it hereunder and shall
execute and deliver an instrument transferring to such successor Trustee all the
rights, powers, duties and obligations of the retiring Trustee. Upon request of
any such successor Trustee, the Company shall execute any and all instruments
for more fully and certainly vesting in and confirming to such successor Trustee
all such rights and powers. Any Trustee ceasing to act shall, nevertheless,
retain a prior claim upon all property or funds held or collected by such
Trustee to secure any amounts then due it pursuant to the provisions of Section
6.07.
No successor Trustee with respect to the Securities shall accept
appointment as provided in this Section 6.11 unless at the time of such
<PAGE> 86
acceptance such successor Trustee shall be eligible to act as Trustee under this
Article.
Upon acceptance of appointment by any successor Trustee as provided in
this Section 6.11, the successor shall give notice thereof to the Holders of the
Securities, by mailing such notice to such Holders at their addresses as they
shall appear on the Security Register. If the acceptance of appointment is
substantially contemporaneous with the resignation, then the notice called for
by the preceding sentence may be combined with the notice called for by Section
6.10. If the Company fails to give such notice within 10 days after acceptance
of appointment by the successor Trustee, the successor Trustee shall cause such
notice to be given at the expense of the Company.
Section 6.12. Merger, Conversion, Amalgamation, Consolidation or
Succession to Business.
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated or amalgamated, or any corporation resulting
from any merger, conversion, amalgamation or consolidation to which the Trustee
shall be a party, or any corporation succeeding to all or substantially all of
the corporate trust business of the Trustee, shall be the successor of the
Trustee hereunder without the execution or filing of any paper or any further
act on the part of any of the parties hereto, provided such corporation shall be
eligible under this Article to serve as Trustee hereunder.
In case at the time such successor to the Trustee under this Section
6.12 shall succeed to the trusts created by this Indenture any of the Securities
shall have been authenticated but not delivered, any such successor to the
Trustee may adopt the certificate of authentication of any predecessor Trustee
and deliver such Securities so authenticated; and, in case at that time any of
the Securities shall not have been authenticated, any successor to the Trustee
under this Section 6.12 may authenticate such Securities either in the name of
any predecessor hereunder or in the name of the successor Trustee; and in all
such cases such certificate shall have the full force which it is anywhere in
the Securities or in this Indenture provided that the certificate of the Trustee
shall have been authenticated.
<PAGE> 87
Section 6.13. Trustee's Application for Instructions from the Company.
Any application by the Trustee for written instructions from the
Company may, at the option of the Trustee, set forth in writing any action
proposed to be taken or omitted by the Trustee under this Indenture and the date
on and/or after which such action shall be taken or such omission shall be
effective. The Trustee shall not be liable for any action taken by, or omission
of, the Trustee in accordance with a proposal included in such application on or
after the date specified in such application (which date shall not be less than
three Business Days after the date any officer of the Company actually receives
such application, unless any such officer shall have consented in writing to any
earlier date) unless prior to taking any such action (or the effective date in
the case of an omission), the Trustee shall have received written instructions
in response to such application concerning the action to be taken or omitted.
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
Section 7.01. Preservation of Information; Company To Furnish Trustee
Names and Addresses of Holders.
(a) The Trustee shall preserve the names and addresses of the
Securityholders and otherwise comply with Section 312(a) of the Trust Indenture
Act. If the Trustee is not the Registrar, the Company shall furnish or cause the
Registrar to furnish to the Trustee before each Interest Payment Date, and at
such other times as the Trustee may request in writing, a list in such form and
as of such date as the Trustee may reasonably require of the names and addresses
of the Securityholders. Neither the Company nor the Trustee shall be under any
responsibility with regard to the accuracy of such list.
(b) The Company will furnish or cause to be furnished to the Trustee:
(i) semi-annually, not more than 15 days after each Regular Record
Date, a list, in such form as the Trustee may reasonably require, of the
names and addresses of the Holders as of such Regular Record Date; and
<PAGE> 88
(ii) at such other times as the Trustee may request in writing, within
30 days after receipt by the Company of any such request, a list of similar
form and content as of a date not more than 15 days prior to the time such
list is furnished;
provided, however, that if and so long as the Trustee shall be the Security
Registrar, no such list need be furnished pursuant to this Subsection 7.01(b).
Section 7.02. Communications of Holders.
Holders may communicate with other Holders with respect to their
rights under this Indenture or under the Securities pursuant to Section 312(b)
of the Trust Indenture Act. The Company and the Trustee and any and all other
persons benefited by this Indenture shall have the protection afforded by
Section 312(c) of the Trust Indenture Act.
Section 7.03. Reports by Trustee.
Within 60 days after June 1 of each year commencing with the first
June 1 following the date of this Indenture, the Trustee shall mail to all
Holders, as their names and addresses appear in the Security Register, a brief
report dated as of such June 1, in accordance with, and to the extent required
under Section 313 of the Trust Indenture Act. At the time of its mailing to
Holders, a copy of each such report shall be filed by the Trustee with the
Company, the SEC and with each stock exchange on which the Securities are
listed. The Company shall notify the Trustee when the Securities are listed on
any stock exchange or delisted therefrom.
ARTICLE EIGHT
CONSOLIDATION, MERGER, SALE OF
ASSETS, ETC.
Section 8.01. Company May Consolidate, etc., Only on Certain Terms.
The Company shall not consolidate with or merge with or into (whether
or not the Company is the Surviving Person) any other entity and the Company
shall not, and shall not cause or permit any Restricted Subsidiary to, sell,
convey, assign, transfer, lease or otherwise dispose of all or substantially all
of the Company's properties and assets (determined on a consolidated basis for
the Company and the Restricted Subsidiaries) to any entity in a single
transaction or series of related transactions, unless: (i) either (x) the
Company shall be the Surviving Person or (y) the Surviving Person (if other than
the Company) shall be a corporation, partnership or limited liability company
organized and validly existing under the laws of the United States of America or
<PAGE> 89
any State thereof or the District of Columbia, and shall expressly assume by a
supplemental indenture the due and punctual payment of the principal of,
premium, if any, and interest on all the Securities and the performance and
observance of every covenant of this Indenture, the Escrow Agreement and the
Registration Rights Agreement to be performed or observed on the part of the
Company; (ii) immediately thereafter, no Default shall have occurred and be
continuing; (iii) immediately after giving effect to any such transaction
involving the Incurrence by the Company or any Restricted Subsidiary, directly
or indirectly, of additional Indebtedness (and treating any Indebtedness not
previously an obligation of the Company or any Restricted Subsidiary in
connection with or as a result of such transaction as having been Incurred at
the time of such transaction), the Surviving Person could Incur, on a pro forma
basis after giving effect to such transaction as if it had occurred at the
beginning of the latest fiscal quarter for which consolidated financial
statements of the Company are available, at least $1.00 of additional
Indebtedness under the proviso in Section 10.11; and (iv) the Company has
delivered to the Trustee an opinion of counsel to the effect that the Holders
will not recognize gain or loss for federal income tax purposes as a result of
such transaction.
For purposes of the foregoing, the transfer (by lease, assignment,
sale or otherwise, in a single transaction or series of transactions) of all or
substantially all the properties and assets of one or more Restricted
Subsidiaries the Equity Interests of which constitute all or substantially all
the properties and assets of the Company shall be deemed to be the transfer of
all or substantially all the properties and assets of the Company.
The meaning of the phrase "all or substantially all" as used above
varies according to the facts and circumstances of the subject transaction, has
no clearly established meaning under relevant law and is subject to judicial
interpretation. Accordingly, in certain circumstances, there may be a degree of
uncertainty in ascertaining whether a particular transaction would involve a
disposition of "all or substantially all" of the assets of the Company, and
therefore it may be unclear whether the foregoing provisions are applicable.
Section 8.02. Successor Substituted.
In the event of any transaction (other than a lease) described in and
complying with the conditions listed above in which the Company is not the
Surviving Person and the Surviving Person is to assume all of the Obligations of
the Company under the Securities, this Indenture, the Escrow Agreement and the
Registration Rights Agreement pursuant to a supplemental indenture, such
Surviving Person shall succeed to, and be substituted for, and may exercise
every right and power of, the Company and the Company shall be discharged from
its Obligations under this Indenture, the Escrow Agreement and the Securities.
For all purposes of this Indenture and the Securities (including the
provision of this Section 8.02 and the covenants described in Sections 10.11,
10.13 and 10.15), Subsidiaries of any Surviving Entity shall, upon such
transaction or series of related transactions, become Restricted Subsidiaries
unless and until designated as Unrestricted Subsidiaries pursuant to and in
accordance with Section 10.14.
ARTICLE NINE
SUPPLEMENTAL INDENTURES AND WAIVERS
Section 9.01. Supplemental Indentures, Agreements and Waivers Without
Consent of Holders.
Without the consent of any Holders, the Company, when authorized by a
Board Resolution, and the Trustee, at any time and from time to time, may enter
into one or more indentures supplemental hereto, in form and substance
satisfactory to the Trustee, or waiver for any of the following purposes:
(a) to evidence the succession of another person to the Company, and
the assumption by any such successor of the covenants of the Company herein
and in the Securities;
(b) to add to the covenants of the Company for the benefit of the
Holders, or to surrender any right or power herein conferred upon the
Company, as applicable, herein, in the Securities, as the case may be;
<PAGE> 90
(c) to cure any ambiguity, to correct or supplement any provision
herein, in the Securities which may be defective or inconsistent with any
other provision herein or to make any other provisions with respect to
matters or questions arising under this Indenture and the Securities;
provided, however, that, in each case, such provisions shall not materially
adversely affect the interests of the Holders;
(d) to comply with the requirements of the SEC in order to effect or
maintain the qualification of this Indenture under the Trust Indenture Act,
as contemplated by Section 9.05 hereof or otherwise;
(e) to evidence and provide the acceptance of the appointment of a
successor Trustee hereunder; or
(f) to mortgage, pledge, hypothecate or grant a security interest in
any property or assets in favor of the Trustee for the benefit of the
Holders as security for the payment and performance of this Indenture
Obligations or to amend, modify or supplement the Escrow Agreement to
insure a first priority perfected security interest on the Collateral in
favor of the Trustee;
provided, however, that the Company has delivered to the Trustee an Opinion of
Counsel stating that such change, agreement or waiver does not materially
adversely affect the interests or legal rights of any Holders.
Section 9.02. Supplemental Indentures, Agreements and Waivers with
Consent of Holders.
With the written consent of the Holders of not less than a majority in
aggregate principal amount of the Outstanding Securities delivered to the
Company and the Trustee, the Company, when authorized by a Board Resolution, and
the Trustee may enter into an indenture or indentures supplemental hereto
satisfactory to the Trustee for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of this Indenture or
the Securities or the Escrow Agreement, or of modifying in any manner the rights
of the Holders under this Indenture or the Securities or the Escrow Agreement.
The Holders of not less than a majority in aggregate principal amount of the
Outstanding Securities may waive compliance by the Company with any provision of
this Indenture or the Securities. However, no such supplemental indenture,
agreement or instrument, including any waiver pursuant to Section 5.13, shall,
<PAGE> 91
without the written consent or waiver of the Holder of each Outstanding Security
affected thereby:
(a) reduce the principal amount of, change the fixed maturity of, or
alter the redemption provisions of, the Securities;
(b) change the currency in which any Securities or amounts owing
thereon are payable;
(c) reduce the percentage of the aggregate principal amount
outstanding of Securities which must consent to an amendment, supplement or
waiver or consent to take any action under this Indenture or the
Securities;
(d) impair the right to institute suit for the enforcement of any
payment on or with respect to the Securities;
(e) waive a default in payment with respect to the Securities;
(f) reduce the rate or extend the time for payment of interest on the
Securities;
(g) following the occurrence of a Change of Control or an Asset Sale,
alter the Company's obligation to purchase the Securities in accordance
with this Indenture or waive any default in the performance thereof;
(h) affect the obligations of the Company to make an Escrow Proceeds
Offer or alter its obligation to purchase the Securities pursuant to an
Escrow Proceeds Offer in accordance with this Indenture or waive any
default in the performance thereof;
(i) affect the ranking of the Securities in a manner adverse to the
Holder;
(j) release any Guarantee except in compliance with the terms of this
Indenture; or
(k) release any Liens created by the Escrow Agreement except in
accordance with the terms of the Escrow Agreement.
Upon the written request of the Company accompanied by a copy of a
Board Resolution authorizing the execution of any such supplemental indenture or
other agreement, instrument or waiver, and upon the filing with the Trustee of
<PAGE> 92
evidence of the consent of Holders as aforesaid, the Trustee shall join with the
Company in the execution of such supplemental indenture or other agreement,
instrument or waiver.
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture or other
agreement, instrument or waiver, but it shall be sufficient if such Act shall
approve the substance thereof.
Section 9.03. Execution of Supplemental Indentures, Agreements and
Waivers.
In executing, or accepting the additional trusts created by, any
supplemental indenture, agreement, instrument or waiver permitted by this
Article Nine or the modifications thereby of the trusts created by this
Indenture, the Trustee shall be entitled to receive, and (subject to Section
6.01 hereof) shall be fully protected in relying upon, an Opinion of Counsel and
an Officers' Certificate from each obligor under the Securities entering into
such supplemental indenture, agreement, instrument or waiver, each stating that
the execution of such supplemental indenture, agreement, instrument or waiver
(a) is authorized or permitted by this Indenture and (b) does not violate the
provisions of any agreement or instrument evidencing any other Indebtedness of
the Company or any Subsidiary of the Company. The Trustee may, but shall not be
obligated to, enter into any such supplemental indenture, agreement, instrument
or waiver which affects the Trustee's own rights, duties or immunities under
this Indenture, the Securities or otherwise.
Section 9.04. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this Article
Nine, this Indenture and/or the Securities shall be modified in accordance
therewith, and such supplemental indenture shall form a part of this Indenture
and/or the Securities, as the case may be, for all purposes; and every Holder of
Securities theretofore or thereafter authenticated and delivered hereunder shall
be bound thereby.
<PAGE> 93
Section 9.05. Conformity with Trust Indenture Act.
Every supplemental indenture executed pursuant to this Article Nine
shall conform to the requirements of the Trust Indenture Act as then in effect.
Section 9.06. Reference in Securities to Supplemental Indentures.
Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Securities so modified as to conform, in the opinion of the Trustee and the
Board of Directors of the Company, to any such supplemental indenture may be
prepared and executed by the Company and authenticated and delivered by the
Trustee upon a Company Order in exchange for Outstanding Securities.
Section 9.07. Record Date.
The Company may, but shall not be obligated to, fix, a record date for
the purpose of determining the Holders entitled to consent to any supplemental
indenture, agreement or instrument or any waiver, and shall promptly notify the
Trustee of any such record date. If a record date is fixed those persons who
were Holders at such record date (or their duly designated proxies), and only
those persons, shall be entitled to consent to such supplemental indenture,
agreement or instrument or waiver or to revoke any consent previously given,
whether or not such persons continue to be Holders after such record date. No
such consent shall be valid or effective for more than 90 days after such record
date.
Section 9.08. Revocation and Effect of Consents.
Until an amendment or waiver becomes effective, a consent to it by a
Holder of a Security is a continuing consent by the Holder and every subsequent
Holder of a Security or portion of a Security that evidences the same debt as
the consenting Holder's Security, even if a notation of the consent is not made
on any Security. However, any such Holder, or subsequent Holder, may revoke the
consent as to his Security or portion of a Security if the Trustee receives the
notice of revocation before the date the amendment or waiver becomes effective.
An amendment or waiver shall become effective in accordance with its terms and
thereafter bind every Holder.
<PAGE> 94
ARTICLE TEN
COVENANTS
Section 10.01. Payment of Principal, Premium and Interest.
The Company will duly and punctually pay the principal of, premium, if
any, and interest on the Securities in accordance with the terms of the
Securities and this Indenture.
Section 10.02. Maintenance of Office or Agency.
The Company will maintain in the Borough of Manhattan in The City of
New York, State of New York, an office or agency where Securities may be
presented or surrendered for payment, where Securities may be surrendered for
registration of transfer or exchange and where notices and demands to or upon
the Company in respect of the Securities and this Indenture may be served. The
office of the Trustee at its Corporate Trust Office will be such office or
agency of the Company, unless the Company shall designate and maintain some
other office or agency for one or more of such purposes. The Company will give
prompt written notice to the Trustee of any change in the location of any such
office or agency. If at any time the Company shall fail to maintain any such
required office or agency or shall fail to furnish the Trustee with the address
thereof, such presentations, surrenders, notices and demands may be made or
served at the Corporate Trust Office of the Trustee, and the Company hereby
appoints the Trustee as its agent to receive all such presentations, surrenders,
notices and demands.
The Company may also from time to time designate one or more other
offices or agencies (in or outside of The City of New York, State of New York)
where the Securities may be presented or surrendered for any or all such
purposes, and may from time to time rescind such designation; provided, however,
that no such designation or rescission shall in any manner relieve the Company
of its obligation to maintain an office or agency in The City of New York, State
of New York for such purposes. The Company will give prompt written notice to
the Trustee of any such designation or rescission and any change in the location
of any such other office or agency.
<PAGE> 95
Section 10.03. Money for Security Payments To Be Held in Trust.
If the Company shall at any time act as its own Paying Agent, it will,
on or before each due date of the principal of, premium, if any, or interest on
any of the Securities, segregate and hold in trust for the benefit of the
Holders entitled thereto a sum sufficient to pay the principal, premium, if any,
or interest so becoming due until such sums shall be paid to such persons or
otherwise disposed of as herein provided, and will promptly notify the Trustee
of its action or failure so to act.
If the Company is not acting as Paying Agent, the Company will, on or
before each due date of the principal of, premium, if any, or interest on, any
Securities, deposit with a Paying Agent a sum in same day funds sufficient to
pay the principal, premium, if any, or interest so becoming due, such sum to be
held in trust for the benefit of the Holders entitled to such principal, premium
or interest, and (unless such Paying Agent is the Trustee) the Company will
promptly notify the Trustee of such action or any failure so to act.
If the Company is not acting as Paying Agent, the Company will cause
each Paying Agent other than the Trustee to execute and deliver to the Trustee
an instrument in which such Paying Agent will agree with the Trustee, subject to
the provisions of this Section 10.03, that such Paying Agent will:
(a) hold all sums held by it for the payment of the principal of,
premium, if any, or interest on Securities in trust for the benefit of the
Holders entitled thereto until such sums shall be paid to such Holders or
otherwise disposed of as herein provided;
(b) give the Trustee notice of any Default by the Company (or any
other obligor upon the Securities) in the making of any payment of
principal of, premium, if any, or interest on the Securities;
(c) at any time during the continuance of any such Default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so
held in trust by such Paying Agent; and
(d) acknowledge, accept and agree to comply in all aspects with the
provisions of this Indenture relating to the duties, rights and liabilities
of such Paying Agent.
<PAGE> 96
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent will be released from all further liability with respect to
such money.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of, premium, if any,
or interest on any Security and remaining unclaimed for two years after such
principal, premium, if any, or interest has become due and payable shall be paid
to the Company upon receipt of a Company Request therefor, or (if then held by
the Company) will be discharged from such trust; and the Holder of such Security
will thereafter, as an unsecured general creditor, look only to the Company for
payment thereof, and all liability of the Trustee or such Paying Agent with
respect to such trust money, and all liability of the Company as trustee
thereof, will thereupon cease; provided, however, that the Trustee or such
Paying Agent, before being required to make any such repayment, may at the
expense of the Company cause to be published once, in the New York Times and the
Wall Street Journal (national edition), notice that such money remains unclaimed
and that, after a date specified therein, which shall not be less than 30 days
from the date of such notification or publication, any unclaimed balance of such
money then remaining shall be repaid to the Company.
Section 10.04. Corporate Existence.
Subject to Article Eight, the Company will do or cause to be done all
things necessary to preserve and keep in full force and effect the corporate
existence, rights (charter and statutory), licenses and franchises of the
Company and each of the Restricted Subsidiaries; provided, however, that the
Company will not be required to preserve any such right, license or franchise if
the Board of Directors of the Company shall determine that the preservation
thereof is no longer desirable in the conduct of the business of the Company and
the Restricted Subsidiaries as a whole and that the loss thereof is not adverse
in any material respect to the Holders; provided, further, that the foregoing
will not prohibit a sale, transfer or conveyance of a Subsidiary of the Company
or any of its assets in compliance with the terms of this Indenture.
<PAGE> 97
Section 10.05. Payment of Taxes and Other Claims.
The Company will pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (a) all material taxes, assessments and
governmental charges levied or imposed (i) upon the Company or any of its
Subsidiaries or (ii) upon the income, profits or property of the Company or any
of the Restricted Subsidiaries and (b) all material lawful claims for labor,
materials and supplies, which, if unpaid, could reasonably be expected to become
a Lien upon the property of the Company or any of the Restricted Subsidiaries;
provided, however, that the Company will not be required to pay or discharge or
cause to be paid or discharged any such tax, assessment, charge or claim whose
amount, applicable or validity is being contested in good faith by appropriate
proceedings properly instituted and diligently conducted.
Section 10.06. Maintenance of Properties.
The Company will cause all material properties owned by the Company or
any of the Restricted Subsidiaries or used or held for use in the conduct of
their respective businesses to be maintained and kept in good condition, repair
and working order and supplied with all necessary equipment and will cause to be
made all necessary repairs, renewals, replacements, betterments and improvements
thereof, all as in the judgment of the Company may be necessary so that the
business carried on in connection therewith may be properly and advantageously
conducted at all times; provided, however, that nothing in this Section 10.06
will prevent the Company from discontinuing the maintenance of any of such
properties if such discontinuance is, in the judgment of the Company, desirable
in the conduct of its business or the business of any of the Restricted
Subsidiaries and is not disadvantageous in any material respect to the Holders.
Section 10.07. Insurance.
The Company will at all times keep all of its and the Restricted
Subsidiaries' properties which are of an insurable nature insured with insurers,
believed by the Company in good faith to be financially sound and responsible,
against loss or damage to the extent that property of similar character is
usually and customarily so insured by corporations similarly situated and owning
like properties.
<PAGE> 98
Section 10.08. Books and Records.
The Company will, and will cause each of the Restricted Subsidiaries
to, keep proper books of record and account, in which full and correct entries
will be made of all financial transactions and the assets and business of the
Company and each Restricted Subsidiary of the Company in accordance with GAAP.
Section 10.09. Reports.
Whether or not it has a class of securities registered under the
Exchange Act, the Company will furnish without cost to each Holder and file with
the Trustee and, following the effectiveness of any Exchange Offer Registration
Statement or a Shelf Registration Statement (each as defined in the Registration
Rights Agreement), file with the SEC (i) within the applicable time period
required under the Exchange Act, after the end of each fiscal year of the
Company, the information required by Form 10-K (or any successor form thereto)
under the Exchange Act with respect to such period, (ii) within the applicable
time period required under the Exchange Act after the end of each of the first
three fiscal quarters of each fiscal year of the Company, the information
required by Form 10-Q (or any successor form thereto) under the Exchange Act
with respect to such period and (iii) any current reports on Form 8-K (or any
successor forms) required to be filed under the Exchange Act.
Section 10.10. Change of Control.
In the event of a Change of Control (the date of such occurrence being
the "Change of Control Date"), the Company will notify the Holders in writing of
such occurrence and will make an offer to purchase (the "Change of Control
Offer"), on a Business Day (the "Change of Control Payment Date") not later than
60 days following the Change of Control Date, all Securities then outstanding at
a purchase price in cash equal to 101% of the principal amount thereof, plus
accrued and unpaid interest thereon, if any, to the Change of Control Payment
Date. Notice of a Change of Control Offer shall be mailed by the Company to the
Holders within 30 days after the Change of Control Date. The Change of Control
Offer is required to remain open for at least 20 business days and until the
close of business on the Change of Control Payment Date.
Prior to the mailing of the notice, but in any event within 30 days
following any Change of Control, the Company covenants to either (i) repay in
full and terminate all commitments under all Indebtedness under the Credit
Facility and all other Senior Indebtedness the terms of which require repayment
<PAGE> 99
upon a Change of Control or offer to repay in full and terminate all commitments
under all Indebtedness under the Credit Facility and all other such Senior
Indebtedness and to repay the Indebtedness owed to each lender which has
accepted such offer or (ii) obtain the requisite consents under the Credit
Facility and all other Senior Debt to permit the repurchase of the Securities.
The Company shall first comply with the covenant in the immediately preceding
sentence before it shall be required to repurchase Securities pursuant to the
provisions described in this Section 10.10. The Company's failure to comply with
the two immediately preceding sentences shall constitute an Event of Default
described in Section 5.01(iv) and not in Section 5.01(ii).
The notice, which shall govern the terms of the Change of Control
Offer, shall include such disclosures as are required by law and shall state:
(a) that the Change of Control Offer is being made pursuant to this
Section 10.10 and that all Securities tendered into the Change of Control
Offer will be accepted for payment;
(b) the purchase price (including the amount of accrued interest, if
any) for each Security, the Change of Control Purchase Date and the date on
which the Change of Control Offer expires;
(c) that any Security not tendered for payment will continue to accrue
interest in accordance with the terms thereof;
(d) that, unless the Company shall default in the payment of the
purchase price, any Security accepted for payment pursuant to the Change of
Control Offer shall cease to accrue interest after the Change of Control
Purchase Date;
(e) that Holders electing to have Securities purchased pursuant to a
Change of Control Offer will be required to surrender their Securities to
the Paying Agent at the address specified in the notice prior to 5:00 p.m.,
<PAGE> 100
New York City time, on the Change of Control Purchase Date and must
complete any form letter of transmittal proposed by the Company and
acceptable to the Trustee and the Paying Agent;
(f) that Holders of Securities will be entitled to withdraw their
election if the Paying Agent receives, not later than 5:00 p.m., New York
City time, on the Change of Control Purchase Date, a facsimile transmission
or letter setting forth the name of the Holders, the principal amount of
Securities the Holders delivered for purchase, the Security certificate
number (if any) and a statement that such Holder is withdrawing his
election to have such Securities purchased;
(g) that Holders whose Securities are purchased only in part will be
issued Securities of like tenor equal in principal amount to the
unpurchased portion of the Securities surrendered;
(h) the instructions that Holders must follow in order to tender their
Securities; and
(i) information concerning the business of the Company, the most
recent annual and quarterly reports of the Company filed with the SEC
pursuant to the Exchange Act (or, if the Company is not required to file
any such reports with the SEC, the comparable reports prepared pursuant to
Section 10.09), a description of material developments in the Company's
business, information with respect to pro forma historical financial
information after giving effect to such Change of Control and such other
information concerning the circumstances and relevant facts regarding such
Change of Control and Change of Control Offer as would, in the good faith
judgment of the Company, be material to a Holder of Securities in
connection with the decision of such Holder as to whether or not it should
tender Securities pursuant to the Change of Control Offer.
On the Change of Control Payment Date, the Company will (i) accept for
payment Securities or portions thereof tendered pursuant to the Change of
Control Offer, (ii) deposit with the Paying Agent money, in immediately
available funds, sufficient to pay the purchase price of all Securities or
portions thereof so tendered and accepted and (iii) deliver to the Trustee the
Securities so accepted together with an Officers' Certificate setting forth the
Securities or portions thereof tendered to and accepted for payment by the
Company. The Paying Agent will promptly mail or deliver to the Holders of
Securities so accepted payment in an amount equal to the purchase price, and the
Trustee shall promptly authenticate and mail or deliver to such Holders a new
<PAGE> 101
Security of like tenor equal in principal amount to any unpurchased portion of
the Security surrendered. Any Securities not so accepted shall be promptly
mailed or delivered by the Company to the Holder thereof. The Company will
publicly announce the results of the Change of Control Offer not later than the
first Business Day following the Change of Control Purchase Date.
The Company will comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act, and any other securities laws
or regulations in connection with the repurchase of Securities pursuant to a
Change of Control Offer. To the extent that the provisions of any securities
laws or regulations and any applicable requirements of any securities exchange
on which the Securities are listed conflict with the provisions of this Section
10.10, the Company will comply with the applicable securities laws and
regulations and requirements and shall not be deemed to have breached its
obligations under this Section 10.10 by virtue thereof.
Section 10.11. Limitation on Additional Indebtedness.
The Company will not, and will not permit any Restricted Subsidiary
to, directly or indirectly, Incur, contingently or otherwise, any Indebtedness
(including any Acquired Indebtedness), except for Permitted Indebtedness;
provided that the Company will be permitted to Incur Indebtedness, and any
Restricted Subsidiary will be able to Incur Acquired Indebtedness, if, at the
time of and immediately after giving pro forma effect to such Incurrence
(including the application of the net proceeds therefrom), the Debt to Operating
Cash Flow Ratio of the Company would be less than or equal to 6.5 to 1.0.
Section 10.12. Statement by Officers as to Default.
(a) The Company will deliver to the Trustee, within 95 days after the
end of each fiscal year of the Company ending after the date hereof, a written
statement signed by the chairman or a chief executive officer, the principal
financial officer or principal accounting officer of the Company, stating (i)
that a review of the activities of the Company during the preceding fiscal year
has been made under the supervision of the signing officers with a view to
<PAGE> 102
determining whether the Company has kept, observed, performed and fulfilled its
obligations under this Indenture and the Escrow Agreement, and (ii) that, to the
knowledge of each officer signing such certificate, the Company has kept,
observed, performed and fulfilled each and every covenant and condition
contained in this Indenture and the Escrow Agreement and is not in default in
the performance or observance of any of the terms, provisions, conditions and
covenants hereof (or, if a Default shall have occurred, describing all such
Defaults of which such officers may have knowledge, their status and what action
the Company is taking or proposes to take with respect thereto).
(b) When any Default under this Indenture or a default under the
Escrow Agreement has occurred and is continuing, or if the Trustee or any Holder
or the trustee for or the holder of any other evidence of Indebtedness of the
Company or any Restricted Subsidiary gives any notice or takes any other action
with respect to a claimed default (other than with respect to Indebtedness
(other than Indebtedness evidenced by the Securities) in the principal amount of
less than $5,000,000), the Company will promptly notify a Responsible Officer of
the Trustee of such Default, notice or action and will deliver to the Trustee by
registered or certified mail or by telegram, or facsimile transmission followed
by hard copy by registered or certified mail an Officers' Certificate specifying
such event, notice or other action within five Business Days after the Company
becomes aware of such occurrence and what action the Company is taking or
proposes to take with respect thereto.
Section 10.13. Limitation on Liens.
The Company will not, and will not permit any Restricted Subsidiary
to, create, incur, assume or suffer to exist any Liens of any kind against or
upon any property or assets of the Company or any Restricted Subsidiary, whether
now owned or hereafter acquired, or any proceeds therefrom to secure any
Indebtedness unless (i) in the case of Liens securing Subordinated Indebtedness,
the Securities are secured by a Lien on such property, assets or proceeds that
is senior in priority to such Liens and (ii) in all other cases,
contemporaneously therewith effective provision is made to secure the Securities
equally and ratably with such Indebtedness with a Lien on the same properties
and assets securing Indebtedness for as long as such Indebtedness is secured by
such Lien except for (i) Liens on property or assets of the Company (other than
the Escrow Account) securing any Senior Indebtedness or on property or assets of
Restricted Subsidiaries securing guarantees of Senior Indebtedness or on any
property or assets of the Company or any Restricted Subsidiary securing any
unsubordinated Indebtedness of any Restricted Subsidiary, (ii) Permitted Liens
on property or assets (other than the Escrow Account) or (iii) Liens on the
Escrow Account to secure the Securities.
Section 10.14. Designation of Unrestricted Subsidiaries.
(a) The Company may designate after the Issue Date any Subsidiary of
the Company as an "Unrestricted Subsidiary" under this Indenture (a
"Designation") only if:
(i) no Default or Event of Default shall have occurred and be
continuing at the time of or after giving effect to such Designation;
(ii) at the time of and after giving effect to such Designation, the
Company could incur $1.00 of additional Indebtedness (other than Permitted
Indebtedness) under the proviso in Section 10.11; and
(iii) the Company would be permitted to make an Investment (other than
a Permitted Investment) at the time of Designation (assuming the
effectiveness of such Designation) pursuant to the first paragraph of or
subclause (iv) of the second paragraph of Section 10.15 in an amount (the
"Designation Amount") equal to the Fair Market Value of the Company's
proportionate interest of the Company and the Restricted Subsidiaries in
such Subsidiary on such date.
Notwithstanding the above, no Subsidiary of the Company shall be
designated an Unrestricted Subsidiary if such Subsidiary distributes, directly
or indirectly, DIRECTV Services pursuant to an agreement with the NRTC or has
any right, title or interest in the revenue or profits in, or holds any Lien in
respect of, any such agreement.
Neither the Company nor any Restricted Subsidiary shall at any time
(x) provide credit support for, subject any of its property or assets (other
than the Equity Interests of any Unrestricted Subsidiary) to the satisfaction
of, or guarantee, any Indebtedness of any Unrestricted Subsidiary (including any
undertaking, agreement or instrument evidencing such Indebtedness), (y) be
directly or indirectly liable for any Indebtedness of any Unrestricted
Subsidiary, or (z) be directly or indirectly liable for any Indebtedness that
provides that the holder thereof may (upon notice, lapse of time or both)
declare a default thereon or cause the payment thereof to be accelerated or
payable prior to its final scheduled maturity upon the occurrence of a default
<PAGE> 103
with respect to any Indebtedness of any Unrestricted Subsidiary, except, in the
case of clause (x) or (y), to the extent otherwise permitted under the terms of
this Indenture, including, without limitation, pursuant to Section 10.15 and
Section 10.18.
(b) The Company may revoke any Designation of a Subsidiary as an
Unrestricted Subsidiary (a "Revocation") if:
(i) no Default or Event of Default shall have occurred and be
continuing at the time of and after giving effect to such Revocation; and
(ii) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately following such Revocation would, if incurred at
such time, have been permitted to be incurred for all purposes of this
Indenture.
All Designations and Revocations must be evidenced by a Board
Resolution, delivered to the Trustee, certifying compliance with the foregoing
provisions.
Section 10.15. Limitation on Restricted Payments.
The Company will not, and will not permit any of the Restricted
Subsidiaries to, directly or indirectly, make any Restricted Payment unless:
(i) no Default shall have occurred and be continuing at the time of or
after giving effect to such Restricted Payment;
(ii) immediately after giving effect to such Restricted Payment, the
Company would be able to incur $1.00 of Indebtedness under the Debt to
Operating Cash Flow Ratio set forth in Section 10.11; and
(iii) immediately after giving effect to such Restricted Payment, the
aggregate amount of all Restricted Payments and Designation Amounts
declared or made on or after the Issue Date does not exceed an amount equal
to the sum of, without duplication, (a) the difference between (x) the
Cumulative Operating Cash Flow determined for the period commencing on the
Issue Date and ending on the last day of the most recent fiscal quarter
immediately preceding the date of such Restricted Payment and (y) 150% of
Cumulative Consolidated Interest Expense determined for the period
commencing on the Issue Date and ending on the last day of the most recent
fiscal quarter immediately preceding the date of such Restricted Payment,
plus (b) the aggregate net cash proceeds received by the Company either (x)
<PAGE> 104
as capital contributions to the Company after the Issue Date or (y) from
the issue and sale (other than to a Subsidiary of the Company) of its
Qualified Equity Interests after the Issue Date, plus (c) the aggregate net
cash proceeds received by the Company or any Restricted Subsidiary after
the Issue Date upon the conversion of, or exchange for, Indebtedness of the
Company or a Restricted Subsidiary that has been converted into or
exchanged for Qualified Equity Interests of the Company, plus (d) in the
case of the disposition or repayment of any Investment constituting a
Restricted Payment (other than an Investment made pursuant to clause (iv)
of the following paragraph) made after the Issue Date, an amount (to the
extent not included in the computation of Cumulative Operating Cash Flow)
equal to the lesser of: (i) the return of capital with respect to such
Investment and (ii) the amount of such Investment that was treated as a
Restricted Payment, plus (e) so long as the Designation thereof was treated
as a Restricted Payment made after the Issue Date, with respect to any
Unrestricted Subsidiary that has been redesignated as a Restricted
Subsidiary after the Issue Date in accordance with Section 10.14, the
Company's proportionate interest equal to the Fair Market Value of any
Unrestricted Subsidiary that has been redesignated as a Restricted
Subsidiary after the Issue Date in accordance with Section 10.14 not to
exceed in any case the Designation Amount with respect to such Restricted
Subsidiary upon its Designation, minus (f) the greater of (i) $0 and (ii)
the Designation Amount (measured as of the date of Designation) with
respect to any Subsidiary of the Company that has been Designated as an
Unrestricted Subsidiary after the Issue Date in accordance with Section
10.14 and minus (g) 50% of the aggregate principal amount of outstanding
Indebtedness included in the calculation of clause (d) of the definition of
Permitted Indebtedness at the time of such Restricted Payment. For purposes
of the preceding clauses (b) and (c) and without duplication and for
purposes of the definition of Total Incremental Invested Equity, the value
of the aggregate net cash proceeds received by the Company upon the
issuance of Qualified Equity Interests either upon the conversion of
convertible Indebtedness or in exchange for outstanding Indebtedness or
upon the exercise of options, warrants or rights will be the net cash
proceeds received upon the issuance of such Indebtedness, options, warrants
or rights plus the incremental cash received by the Company upon the
conversion, exchange or exercise thereof.
<PAGE> 105
The provisions of this covenant shall not prohibit: (i) the payment of
any dividend or other distribution within 60 days after the date of declaration
thereof, if at such date of declaration such payment would comply with the
provisions of this Indenture; (ii) so long as no Default shall have occurred and
be continuing, the purchase, redemption, retirement or other acquisition of any
Equity Interests of the Company (A) in exchange for or conversion into or (B)
out of the net cash proceeds of the substantially concurrent issue and sale
(other than to a Subsidiary of the Company) of Equity Interests of the Company
(other than Disqualified Equity Interests); provided that any such net cash
proceeds pursuant to the immediately preceding subclause (B) are excluded from
clause (iii)(b) of the preceding paragraph; (iii) so long as no Default shall
have occurred and be continuing, the purchase, redemption, defeasance or other
acquisition or retirement for value of Subordinated Indebtedness made by
exchange for (including any such exchange pursuant to the exercise of a
conversion right or privilege in which cash is paid in lieu of fractional shares
or scrip), or out of the net cash proceeds of a substantially concurrent issue
or sale (other than to a Subsidiary of the Company) of, (A) Equity Interests
(other than Disqualified Equity Interests) of the Company; provided that any
such net cash proceeds, to the extent so used, are excluded from clause (iii) of
the preceding paragraph, and/or (B) other Subordinated Indebtedness, having a
Weighted Average Life to Maturity that is equal to or greater than the Weighted
Average Life to Maturity of the Subordinated Indebtedness being purchased,
redeemed, defeased or otherwise acquired or retired; (iv) Investments
constituting Restricted Payments in Persons engaged primarily in a Permitted
Business in an amount not to exceed $10.0 million outstanding at any time; (v)
the making of any Investment in or payment of any dividend or distribution to
Holdings for bona fide costs and operating expenses of Holdings directly related
to the operations of the Company and its Subsidiaries; and (vi) the payment of
any dividend or distribution to Holdings to enable it to purchase, redeem, or
otherwise acquire or retire for value Equity Interests of Holdings held by
employees or former employees of Holdings, the Company or any Subsidiary of
Holdings or the Company (or their estates or beneficiaries under their estates)
upon death, disability, retirement or termination of employment, not to exceed
$1.0 million in any year or $3.0 million in the aggregate since the Issue Date
plus, in each case, the amount of the net proceeds received by the Company,
Holdings or any such Subsidiary from life insurance policies on the life of the
employee whose Equity Interests are being purchased, redeemed or otherwise
acquired or retired for value.
<PAGE> 106
In no event shall a Restricted Payment made on the basis of
consolidated financial statements prepared in good faith in accordance with GAAP
be subject to rescission or constitute a Default by reason of any requisite
subsequent restatement of such financial statements which would have made such
Restricted Payment prohibited at the time that it was made.
In determining the amount of Restricted Payments permissible under
this covenant, amounts expended pursuant to clauses (i), (iv) and (vi) of the
second preceding paragraph shall be included as Restricted Payments and amounts
expended pursuant to clauses (ii), (iii) and (v) shall be excluded. The amount
of any non-cash Restricted Payment shall be deemed to be equal to the Fair
Market Value thereof at the date of the making of such Restricted Payment.
Section 10.16. Limitation on Other Senior Subordinated Debt.
The Company will not, directly or indirectly, Incur, contingently or
otherwise, any Indebtedness that is both (i) subordinate in right of payment to
any other Indebtedness of the Company and (ii) senior in right of payment to the
Securities.
Section 10.17. Limitation on Dividends and Other Payment Restrictions
Affecting Restricted Subsidiaries.
The Company will not, and will not cause or permit any Restricted
Subsidiary to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction on the ability of any
Restricted Subsidiary to (a) pay dividends or make any other distributions to
the Company or any other Restricted Subsidiary on its Equity Interests or with
respect to any other interest or participation in, or measured by, its profits,
or pay any Indebtedness owed to the Company or any other Restricted Subsidiary,
(b) make loans or advances to, or guarantee any Indebtedness or other
obligations of, the Company or any other Restricted Subsidiary, or (c) transfer
any of its properties or assets to the Company or any other Restricted
Subsidiary, except for such encumbrances or restrictions existing under or by
reason of (i) the Credit Facility or any other agreement of the Company or the
Restricted Subsidiaries outstanding on the Issue Date, in each case as in effect
on the Issue Date, and amendments, restatements, renewals, replacements or
refinancings thereof; provided, however, that any such amendment, restatement,
renewal, replacement or refinancing is no more restrictive in the aggregate with
respect to such encumbrances or restrictions than those contained in the Credit
Facility or such other agreement on the Issue Date; (ii) applicable law; (iii)
any instrument governing Indebtedness or Equity Interests of an Acquired Person
<PAGE> 107
acquired by the Company or any Restricted Subsidiary as in effect at the time of
such acquisition (except to the extent such Indebtedness was incurred by such
Acquired Person in connection with, as a result of or in contemplation of such
acquisition); provided, however, that such encumbrances and restrictions are not
applicable to the Company or any Restricted Subsidiary, or the properties or
assets of the Company or any Restricted Subsidiary, other than the Acquired
Person; (iv) customary non-assignment provisions in leases and other contracts
entered into in the ordinary course of business and consistent with past
practices (including, without limitation, non-assignment provisions in
agreements between the Company or any Restricted Subsidiary and the NRTC with
respect to DBS services); (v) Purchase Money Indebtedness for property acquired
in the ordinary course of business that only imposes encumbrances and
restrictions on the property so acquired; (vi) any agreement for the sale or
disposition of the Equity Interests or assets of any Restricted Subsidiary;
provided, however, that such encumbrances and restrictions described in this
clause (vi) are only applicable to such Restricted Subsidiary or assets, as
applicable, and any such sale or disposition is made in compliance with Section
10.18 to the extent applicable thereto; or (vii) refinancing Indebtedness
permitted under clause (h) of the definition of Permitted Indebtedness;
provided, however, that the encumbrances and restrictions contained in the
agreements governing such Indebtedness are no more restrictive in the aggregate
than those contained in the agreements governing the Indebtedness being
refinanced immediately prior to such refinancing.
Section 10.18. Disposition of Proceeds of Asset Sales.
The Company will not, and will not permit any Restricted Subsidiary
to, make any Asset Sale unless (a) the Company or such Restricted Subsidiary, as
the case may be, receives consideration at the time of such Asset Sale at least
equal to the Fair Market Value of the assets sold or otherwise disposed of and
(b) at least 85% of such consideration consists of (A) cash or Cash Equivalents,
(B) properties and capital assets to be used in a Permitted Business and/or (C)
Equity Interests in one or more Persons that are primarily engaged in a
Permitted Business so long as upon the consummation of any sale in accordance
with this clause (C), such Person becomes a Wholly Owned Restricted Subsidiary;
provided, however, that, in the case of sales pursuant to clauses (B) and (C)
not involving solely an exchange of a Permitted Business and cash (if any), if
the Fair Market Value of the assets sold or otherwise disposed of in a single
transaction or series of transactions exceeds $5.0 million, the Company shall be
required to obtain the written opinion from an Independent Financial Advisor
<PAGE> 108
(and file such opinion with the Trustee) stating that the terms of such Asset
Sale are fair, from a financial point of view, to the Company or the Restricted
Subsidiary involved in such Asset Sale. The amount of any (i) Indebtedness
(other than any Subordinated Indebtedness) of the Company or any Restricted
Subsidiary that is actually assumed by the transferee in such Asset Sale and
from which the Company and the Restricted Subsidiaries are fully released shall
be deemed to be cash for purposes of determining the percentage of cash
consideration received by the Company or the Restricted Subsidiaries and (ii)
notes or other similar obligations received by the Company or the Restricted
Subsidiaries from such transferee that are immediately converted, sold or
exchanged (or are converted, sold or exchanged within thirty days of the related
Asset Sale) by the Company or the Restricted Subsidiaries into cash shall be
deemed to be cash, in an amount equal to the net cash proceeds realized upon
such conversion, sale or exchange for purposes of determining the percentage of
cash consideration received by the Company or the Restricted Subsidiaries.
Notwithstanding the foregoing, during the term of the Securities, the Company
and the Restricted Subsidiaries may engage in Asset Sales involving $10.0
million or more without complying with clause (b) of the first sentence of this
paragraph.
Notwithstanding the foregoing, the Company or such Restricted
Subsidiary, as the case may be, may (i) apply the Net Cash Proceeds of any Asset
Sale within 365 days of receipt thereof to repay Senior Indebtedness and
permanently reduce any related commitment, (ii) apply such Net Cash Proceeds to
repay Specified Indebtedness and, by written notice to the Trustee and the
holders (the "Permitted Debt Reduction"), elect to permanently reduce the amount
of Specified Indebtedness that may be incurred as Permitted Indebtedness under
Section 10.11 by an amount equal to the amount of such Net Cash Proceeds, (iii)
apply such Net Proceeds to acquire, construct or improve properties and capital
assets to be used on a Permitted Business within 365 days after the receipt
thereof or (iv) any combination of the foregoing.
<PAGE> 109
To the extent that all or part of the Net Cash Proceeds of any Asset
Sale are not applied within 365 days of such Asset Sale as described in clause
(i), (ii) or (iii) of the immediately preceding paragraph (such Net Cash
Proceeds, the "Unutilized Net Cash Proceeds"), the Company shall, within 20 days
after such 365th day, make an offer to purchase ("Offer to Purchase") all
outstanding Securities up to a maximum principal amount of Securities equal to
the Note Pro Rata Share, at a purchase price in cash equal to 100% of the
principal amount of Securities, plus accrued and unpaid interest (including
Additional Interest, if any) thereon, if any, to the Purchase Date; provided,
however, that the Offer to Purchase may be deferred until there are aggregate
Unutilized Net Cash Proceeds equal to or in excess of $10.0 million, at which
time the entire amount of such Unutilized Net Cash Proceeds, and not just the
amount in excess of $10.0 million, shall be applied as required pursuant to this
paragraph.
In the event that the terms of any Other Pari Passu Indebtedness
requires that an offer to purchase be made to repurchase such Indebtedness upon
the consummation of any Asset Sale (the "Other Indebtedness"), the Company may
use the Unutilized Net Cash Proceeds otherwise required to be used to make an
Offer to Purchase or to retire such Other Pari Passu Indebtedness and to make an
Offer to Purchase so long as the amount of such Unutilized Net Cash Proceeds
available to be applied to purchase the Securities is not less than the Note Pro
Rata Share. With respect to any Unutilized Net Cash Proceeds, the Company shall
make the Offer to Purchase in respect thereof at the same time as the analogous
offer to purchase is made under any Other Indebtedness and the Purchase Date in
respect thereof shall be the same under this Indenture as the Purchase Date in
respect thereof pursuant to any Other Indebtedness.
With respect to any Offer to Purchase effected pursuant to this
covenant, to the extent that the principal amount of the Securities tendered
pursuant to such Offer to Purchase exceeds the Note Pro Rata Share to be applied
to the purchase thereof, such Securities shall be purchased pro rata based on
the principal amount of such Securities tendered by each holder.
The notice, which shall govern the terms of the Offer to Purchase,
shall include such disclosures as are required by law and shall state:
<PAGE> 110
1. (a) that the Offer to Purchase is being made pursuant to this
Section 10.18 and that all Securities tendered into the Offer to
Purchase will be accepted for payment;
2. (b) the purchase price (including the amount of accrued interest,
if any) for each Security, the Purchase Date and the date on which the
Offer to Purchase expires;
3. (c) that any Security not tendered for payment will continue to
accrue interest in accordance with the terms thereof;
4. (d) that, unless the Company shall default in the payment of the
purchase price, any Security accepted for payment pursuant to the
Offer to Purchase shall cease to accrue interest after the Purchase
Date;
5. (e) that Holders electing to have Securities purchased pursuant to
an Offer to Purchase will be required to surrender their Securities to
the Paying Agent at the address specified in the notice prior to 5:00
p.m., New York City time, on the Purchase Date and must complete any
form letter of transmittal proposed by the Company and acceptable to
the Trustee and the Paying Agent;
6. (f) that Holders of Securities will be entitled to withdraw their
election if the Paying Agent receives, not later than 5:00 p.m., New
York City time, on the Purchase Date, a facsimile transmission or
letter setting forth the name of the Holders, the principal amount of
Securities the Holders delivered for purchase, the Security
certificate number (if any) and a statement that such Holder is
withdrawing his election to have such Securities purchased;
7. (g) that Holders whose Securities are purchased only in part will
be issued Securities of like tenor equal in principal amount to the
unpurchased portion of the Securities surrendered; and
8. (h) the instructions that Holders must follow in order to tender
their Securities.
<PAGE> 111
On the Purchase Date, the Company will (i) accept for payment
Securities or portions thereof tendered pursuant to the Offer to Purchase, (ii)
deposit with the Paying Agent money, in immediately available funds, sufficient
to pay the purchase price of all Securities or portions thereof so tendered and
accepted and (iii) deliver to the Trustee the Securities so accepted together
with an Officers' Certificate setting forth the Securities or portions thereof
tendered to and accepted for payment by the Company. The Paying Agent will
promptly mail or deliver to the Holders of Securities so accepted payment in an
amount equal to the purchase price, and the Trustee shall promptly authenticate
and mail or deliver to such Holders a new Security of like tenor equal in
principal amount to any unpurchased portion of the Security surrendered. Any
Securities not so accepted shall be promptly mailed or delivered by the Company
to the Holder thereof. The Company will publicly announce the results of the
Offer to Purchase not later than the first Business Day following the Purchase
Date.
In the event that the Company makes an Offer to Purchase the
Securities, the Company shall comply with any applicable securities laws and
regulations, including any applicable requirements of Section 14(e) of, and Rule
14e-1 under, the Exchange Act, and any violation of the provisions of this
Indenture relating to such Offer to Purchase occurring as a result of such
compliance shall not be deemed an Event of Default or an event that with the
passing of time or giving of notice, or both, would constitute an Event of
Default.
Each Holder of Securities shall be entitled to tender all or any
portion of the Securities owned by such holder pursuant to the Offer to
Purchase, subject to the requirement that any portion of a Security tendered
must be tendered in an integral multiple of $1,000 principal face amount and
subject to any proration among tendering holders as described above.
Section 10.19. Limitation on Issuances and Sales of Preferred Equity
Interests by Restricted Subsidiaries.
The Company (i) will not permit any Restricted Subsidiary to issue any
Preferred Equity Interests (other than to the Company or a Restricted
Subsidiary) and (ii) will not permit any Person (other than the Company or a
Restricted Subsidiary) to own any Preferred Equity Interests of any Restricted
Subsidiary.
<PAGE> 112
Section 10.20. Limitations on Conduct of Business of the Company.
The Company will not, and will not permit any of the Restricted
Subsidiaries to, be primarily engaged in any business, except for a Permitted
Business.
Section 10.21. Limitation on Transactions with Affiliates.
The Company will not, and will not permit, cause or suffer any
Restricted Subsidiary to, conduct any business or enter into any transaction (or
series of related transactions that are similar or part of a common plan) with
or for the benefit of any of their respective Affiliates or any beneficial
holder of 10% or more of the Common Stock of the Company or any officer or
director of the Company (each, an "Affiliate Transaction"), unless the terms of
the Affiliate Transaction are set forth in writing, and are fair and reasonable
to the Company or such Restricted Subsidiary, as the case may be. Each Affiliate
Transaction involving aggregate payments or other Fair Market Value in excess of
$5.0 million shall be approved by a majority of the Board of Directors, such
approval to be evidenced by a board resolution stating that the Board has
determined that such transaction or transactions comply with the foregoing
provisions. In addition to the foregoing, each Affiliate Transaction involving
aggregate consideration of $10.0 million or more shall be approved by a majority
of the Disinterested Directors; provided that, in lieu of such approval by the
Disinterested Directors, the Company may obtain a written opinion from an
Independent Financial Advisor stating that the terms of such Affiliate
Transaction to the Company or the Restricted Subsidiary, as the case may be, are
fair from a financial point of view.
Notwithstanding the foregoing, the restrictions set forth in this
covenant shall not apply to (i) transactions with or among the Company and any
Restricted Subsidiary or between or among Restricted Subsidiaries; (ii)
customary directors' fees, indemnification and similar arrangements, consulting
fees, employee salaries, bonuses or employment agreements, compensation or
employee benefit arrangements and incentive arrangements with any officer,
director or employee of the Company entered into in the ordinary course of
business (including customary benefits thereunder) and payments under any
indemnification arrangements permitted by applicable law; (iii) any transactions
undertaken pursuant to any other contractual obligations in existence on the
Issue Date (as in effect on the Issue Date); (iv) any Restricted Payments made
<PAGE> 113
in compliance with Section 10.15; (v) loans, advances and reimbursements to
officers, directors and employees of the Company and the Restricted Subsidiaries
for travel, entertainment, moving and other relocation expenses, in each case
made in the ordinary course of business and consistent with past business
practices; (vi) the pledge of Equity Interests of Unrestricted Subsidiaries to
support the Indebtedness thereof; (vii) the sale of products or property by any
Person to the Company or a Restricted Subsidiary, or by the Company or any
Restricted Subsidiary to any Person, in the ordinary course of business and
consistent with past practice; and (viii) the issuance and sale by the Company
of Qualified Equity Interests.
Section 10.22. Limitation on Guarantees by and Certain Indebtedness of
Restricted Subsidiaries.
The Company will not permit any Restricted Subsidiary, directly or
indirectly, by way of the pledge of any intercompany note or otherwise, to
assume, guarantee or in any other manner become liable with respect to (x) any
Indebtedness of the Company or (y) any Indebtedness of any such Restricted
Subsidiary that is expressly subordinated in right of payment to any other
Indebtedness of such Restricted Subsidiary, except for Indebtedness incurred
under clauses (f), (g) or (j) of the definition of "Permitted Indebtedness,"
unless, in either such case, (a) such Restricted Subsidiary executes and
delivers, or has executed and delivered, a supplemental indenture to this
Indenture providing a guarantee of payment of the Securities by such Restricted
Subsidiary in the form required by this Indenture (the "Guarantee") and (b) if
such assumption, guarantee or other liability of such Restricted Subsidiary is
provided in respect of Indebtedness that is expressly subordinated to the
Securities, the guarantee or other instrument provided by such Restricted
Subsidiary in respect of such subordinated Indebtedness shall be subordinated to
the Guarantee pursuant to subordination provisions not less favorable to the
Holders than those contained in this Indenture or similar document governing
such subordinated Indebtedness. The Company may elect to cause any Restricted
Subsidiary to become a Guarantor by providing a Guarantee. Any Guarantee shall
contain subordination provisions and definitions that are substantively the same
as those applicable to the Securities.
Notwithstanding the foregoing, any such Guarantee by a Restricted
Subsidiary of the Securities shall provide by its terms that it shall be
automatically and unconditionally released and discharged, without any further
action required on the part of the Trustee or any other Person, upon: (i) the
unconditional release of such Restricted Subsidiary from its liability in
respect of the Indebtedness in connection with which such Guarantee was executed
and delivered pursuant to the preceding paragraph or otherwise; or (ii) any sale
<PAGE> 114
or other disposition (by merger or otherwise) to any Person which is not a
Restricted Subsidiary of the Company, of all of the Company's Equity Interests
in, or all or substantially all of the assets of, such Restricted Subsidiary;
provided, however, that (a) such sale or disposition of such Equity Interests or
assets is otherwise in compliance with the terms of this Indenture and (b) such
assumption, guarantee or other liability of such Restricted Subsidiary has been
released by the holders of the other Indebtedness so guaranteed.
Section 10.23. Compliance Certificates and Opinions.
Upon any application or request by the Company to the Trustee to take
any action under any provision of this Indenture, the Company and any other
obligor on the Securities will furnish to the Trustee an Officers' Certificate
stating that all conditions precedent, if any, provided for in this Indenture
(including any covenants compliance with which constitutes a condition
precedent) relating to the proposed action have been complied with, and an
Opinion of Counsel stating that in the opinion of such counsel all such
conditions precedent, if any, have been complied with, except that, in the case
of any such application or request as to which the furnishing of such documents,
certificates and/or opinions is specifically required by any provision of this
Indenture relating to such particular application or request, no additional
certificate or opinion need be furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture will include:
(i) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;
(ii) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
<PAGE> 115
(iii) a statement that, in the opinion of each such individual, he has
made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether such covenant or condition has
been complied with; and
(iv) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
Section 10.24. Escrow Account.
(a) The Company shall, on the date of this Indenture, enter into the
Escrow Agreement and, pursuant thereto, shall place the Initial Escrow Amount in
the Escrow Account held by the Escrow Agent for the benefit of the Holders and
the Trustee.
(b) In the event that on or before the Required Filing Date (as
defined in the Escrow Agreement), the Available Escrow Proceeds (as defined in
the Escrow Agreement) have not been released in accordance with the requirements
of Section 3A of the Escrow Agreement, the Company shall, within five Business
Days of the Required Filing Date, make an offer (an "Escrow Proceeds Offer") to
purchase all Outstanding Securities at a purchase price of 101% of the principal
amount thereof, plus accrued and unpaid interest, if any, to the purchase date
(the "Escrow Proceeds Offer Purchase Date"). The Company shall provide the
Escrow Agent with a notice of Escrow Proceeds Offer, which shall govern the
terms of the Escrow Proceeds Offer. Such notice shall include such disclosures
as are required by law and shall state:
(1) that the Escrow Proceeds Offer is being made pursuant to this
Section 10.24 and that all Securities tendered into the Escrow Proceeds
Offer will be accepted for payment;
(2) the purchase price (including the amount of accrued interest, if
any) for each Security, the Escrow Proceeds Offer Purchase Date and the
date on which the Escrow Proceeds Offer expires;
(3) that any Security not tendered for payment will continue to accrue
interest in accordance with the terms thereof;
<PAGE> 116
(4) that, unless the Company shall default in the payment of the
purchase price, any Security accepted for payment pursuant to the Escrow
Proceeds Offer shall cease to accrue interest after the Escrow Proceeds
Offer Purchase Date;
(5) that Holders electing to have Securities purchased pursuant to a
Escrow Proceeds Offer will be required to surrender their Securities to the
Paying Agent at the address specified in the notice prior to 5:00 p.m., New
York City time, on the Escrow Proceeds Offer Purchase Date and must
complete any form letter of transmittal proposed by the Company and
acceptable to the Trustee and the Paying Agent;
(6) that Holders of Securities will be entitled to withdraw their
election if the Paying Agent receives, not later than 5:00 p.m., New York
City time, on the Escrow Proceeds Offer Purchase Date, a facsimile
transmission or letter setting forth the name of the Holders, the principal
amount of Securities the Holders delivered for purchase, the Security
certificate number (if any) and a statement that such Holder is withdrawing
his election to have such Securities purchased;
(7) that Holders whose Securities are purchased only in part will be
issued Securities of like tenor equal in principal amount to the
unpurchased portion of the Securities surrendered; and
(8) the instructions that Holders must follow in order to tender their
Securities.
On the Escrow Proceeds Offer Purchase Date, the Company will (i)
accept for payment Securities or portions thereof tendered pursuant to the
Escrow Proceeds Offer, (ii) deposit with the Paying Agent money, in immediately
available funds, sufficient to pay the purchase price of all Securities or
portions thereof so tendered and accepted and (iii) deliver to the Trustee the
Securities so accepted together with an Officers' Certificate setting forth the
Securities or portions thereof tendered to and accepted for payment by the
Company. The Paying Agent will promptly mail or deliver to the Holders of
Securities so accepted payment in an amount equal to the purchase price, and the
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Trustee shall promptly authenticate and mail or deliver to such Holders a new
Security of like tenor equal in principal amount to any unpurchased portion of
the Security surrendered. Any Securities not so accepted shall be promptly
mailed or delivered by the Company to the Holder thereof. The Company will
publicly announce the results of the Escrow Proceeds Offer not later than the
first Business Day following the Escrow Proceeds Offer Purchase Date.
The Company will comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act, and any other securities laws
or regulations and any applicable requirements of any securities exchange in
which the Securities are listed, in connection with the repurchase of Securities
pursuant to a Escrow Proceeds Offer. To the extent that the provisions of any
securities laws or regulations conflict with the provisions of this Section
10.10, the Company will comply with the applicable securities laws and
regulations and requirements and shall not be deemed to have breached its
obligations under this Section 10.24 by virtue thereof.
ARTICLE ELEVEN
REDEMPTION OF SECURITIES
Section 11.01. Right of Redemption.
If the Company elects to redeem Securities pursuant to Paragraph 5 of
the Initial Notes or Paragraph 4 of the Exchange Notes, it shall notify the
Trustee of the Redemption Date and principal amount of Securities to be
redeemed.
Section 11.02. Applicability of Article.
Redemption of Securities at the election of the Company or otherwise,
as permitted or required by any provision of this Indenture, shall be made in
accordance with such provision and this Article.
Section 11.03. Election To Redeem; Notice to Trustee.
The election of the Company to redeem any Securities pursuant to
Section 11.01 shall be evidenced by a Board Resolution and an Officers'
Certificate. In case of any redemption at the election of the Company, the
Company shall, at least 60 days prior to the Redemption Date fixed by the
Company (unless a shorter notice period shall be satisfactory to the Trustee),
notify the Trustee in writing of such Redemption Date and of the principal
amount of Securities to be redeemed.
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Section 11.04. Selection by Trustee of Securities To Be Redeemed.
In the case of a partial redemption, selection of the Securities for
redemption will be made pro rata, by lot or such other method as the Trustee in
its sole discretion deems appropriate and just; provided that any redemption
pursuant to the provisions relating to a Public Equity Offering shall be made on
a pro rata basis or on as nearly a pro rata basis as practicable (subject to
procedures of the Depository). No Securities of a principal amount of $1,000 or
less shall be redeemed in part. Notice of redemption shall be mailed by
first-class mail at least 30 but not more than 60 days before the redemption
date to each Holder of Securities to be redeemed at its registered address. If
any Security is to be redeemed in part only, the notice of redemption that
relates to such Security shall state the portion of the principal amount thereof
to be redeemed. A new Security in a principal amount equal to the unredeemed
portion thereof will be issued in the name of the holder thereof upon surrender
for cancellation of the original Security. Upon giving of a redemption notice,
interest on Securities called for redemption will cease to accrue from and after
the date fixed for redemption (unless the Company defaults in providing the
funds for such redemption) and such Securities will cease to be outstanding.
The Trustee shall promptly notify the Company and each Security
Registrar in writing of the Securities selected for partial redemption and the
principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to redemption of Securities shall relate, in
the case of any Security redeemed or to be redeemed only in part, to the portion
of the principal amount of such Security which has been or is to be redeemed.
Section 11.05. Notice of Redemption.
Notice of redemption will be given by first-class mail, postage
prepaid, mailed not less than 30 nor more than 60 days prior to the Redemption
Date, to each Holder of Securities to be redeemed, at the address of such Holder
appearing in the Security Register.
All notices of redemption will fully identify the Securities and will
state:
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(i) the Redemption Date;
(ii) the Redemption Price;
(iii) if less than all Outstanding Securities are to be redeemed, the
identification of the particular Securities to be redeemed;
(iv) in the case of a Security to be redeemed in part, the principal
amount of such Security to be redeemed and that after the Redemption Date
upon surrender of such Security, a new Security or Securities in the
aggregate principal amount equal to the unredeemed portion thereof shall be
issued;
(v) that Securities called for redemption must be surrendered to the
Paying Agent to collect the Redemption Price;
(vi) that on the Redemption Date the Redemption Price shall become due
and payable upon each such Security or portion thereof, and that (unless
the Company shall default in payment of the Redemption Price) interest
thereon shall cease to accrue on and after said date;
(vii) the place or places where such Securities are to be surrendered
for payment of the Redemption Price;
(viii) the CUSIP number relating to such Securities; and
(ix) the paragraph of the Securities pursuant to which the Securities
are being redeemed.
Notice of redemption of Securities to be redeemed at the election of
the Company will be given by the Company or, at the Company's written request,
by the Trustee in the name and at the expense of the Company.
The notice if mailed in the manner herein provided will be
conclusively presumed to have been given, whether or not the Holder receives
such notice. In any case, failure to give such notice by mail or any defect in
the notice to the Holder of any Security designated for redemption as a whole or
in part will not affect the validity of the proceedings for the redemption of
any other Security.
<PAGE> 120
Section 11.06. Deposit of Redemption Price.
On or prior to any Redemption Date, the Company will deposit with the
Trustee or with a Paying Agent (or, if the Company is acting as its own Paying
Agent, segregate and hold in trust as provided in Section 10.03) an amount of
money in same day funds sufficient to pay the Redemption Price of, and accrued
interest on, all the Securities or portions thereof which are to be redeemed on
that date.
Section 11.07. Securities Payable on Redemption Date.
Notice of redemption having been given as aforesaid, the Securities so
to be redeemed will, on the Redemption Date, become due and payable at the
Redemption Price therein specified and from and after such date (unless the
Company shall default in the payment of the Redemption Price) such Securities
will cease to bear interest. Upon surrender of any such Security for redemption
in accordance with said notice, such Security will be paid by the Company at the
Redemption Price; provided, however, that installments of interest whose Stated
Maturity is on or prior to the Redemption Date will be payable to the Holders of
such Securities, or one or more Predecessor Securities, registered as such on
the relevant Regular Record Dates according to the terms and the provisions of
Section 3.07.
If any Security called for redemption shall not be so paid upon
surrender thereof for redemption, the principal and premium, if any, shall,
until paid, bear interest from the Redemption Date at the rate then borne by
such Security.
Section 11.08. Securities Redeemed or Purchased in Part.
Any Security which is to be redeemed or purchased only in part shall
be surrendered to the Paying Agent at the office or agency maintained for such
purpose pursuant to Section 10.02 (with, if the Company, the Security Registrar
or the Trustee so requires, due endorsement by, or a written instrument of
transfer in form satisfactory to, the Company, the Security Registrar or the
Trustee duly executed by the Holder thereof or such Holder's attorney duly
authorized in writing), and the Company shall execute, and the Trustee shall
authenticate and deliver to the Holder of such Security without service charge,
a new Security or Securities, of any authorized denomination as requested by
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such Holder in aggregate principal amount equal to, and in exchange for, the
unredeemed portion of the principal of the Security so surrendered that is not
redeemed or purchased.
ARTICLE TWELVE
SUBORDINATION OF SECURITIES
Section 12.01. Securities Subordinate to Senior Indebtedness.
The Company covenants and agrees, and each Holder, by his acceptance
of a Security, likewise covenants and agrees, that, to the extent and in the
manner hereinafter set forth in this Article Twelve, the Indebtedness
represented by the Securities and the payment of the Indenture Obligations are
hereby expressly made subordinate and subject in right of payment as provided in
this Article to the prior payment in full in cash or Cash Equivalents or, as
acceptable to the holders of Senior Indebtedness, in any other manner, of all
Senior Indebtedness. Without limiting the generality of the definition of Senior
Indebtedness, "Senior Indebtedness" shall include the payment of interest,
including interest that would accrue but for the filing of a petition initiating
any proceeding under any Bankruptcy Law, whether or not such claim is allowable
in such proceeding.
This Article Twelve shall constitute a continuing offer to all persons
who, in reliance upon such provisions, become holders of or continue to hold
Senior Indebtedness; and such provisions are made for the benefit of the holders
of Senior Indebtedness; and such holders are made obligees hereunder and they or
each of them may enforce such provisions.
To the extent Holders seek to realize upon Collateral prior to the
Release Date following an exercise of remedies under this Indenture or Available
Escrow Proceeds are required to be applied to fund an Escrow Proceeds Offer, the
subordination provisions contained in the Article Twelve will not apply to the
Collateral or the Available Escrow Proceeds or the funds represented thereby or
derived therefrom.
Section 12.02. Payment Over of Proceeds upon Dissolution, Etc.
In the event of (a) any insolvency or bankruptcy case or proceeding,
or any receivership, liquidation, reorganization or other similar case or
proceeding in connection therewith, relative to the Company or to its creditors,
as such, or to its assets, or (b) any liquidation, dissolution or other
winding-up of the Company, whether voluntary or involuntary and whether or not
<PAGE> 122
involving insolvency or bankruptcy, or (c) any assignment for the benefit of
creditors or any other marshalling of assets or liabilities of the Company, then
and in any such event:
(1) the holders of Senior Indebtedness shall be entitled to receive
payment in full in cash or Cash Equivalents or, as acceptable to the
holders of Senior Indebtedness, in any other manner, of all amounts due on
or in respect of all Senior Indebtedness, or provision shall be made for
such payment, before the Holders of the Securities are entitled to receive
any payment or distribution of any kind or character by or on behalf of the
Company (excluding Permitted Junior Securities) on account of the Indenture
Obligations or for the acquisition, redemption or other purchase of any
Indenture Obligations for cash, property or otherwise;
(2) any payment or distribution of assets of the Company of any kind
or character, whether in cash, property or securities (excluding Permitted
Junior Securities), by set-off or otherwise, to which the Holders or the
Trustee would be entitled but for the provisions of this Article shall be
paid by the liquidating trustee or agent or other person making such
payment or distribution, whether a trustee in bankruptcy, a receiver or
liquidating trustee or otherwise, directly to the holders of Senior
Indebtedness or their representative or representatives or to the trustee
or trustees under any indenture under which any instruments evidencing any
of such Senior Indebtedness may have been issued, ratably according to the
aggregate amounts remaining unpaid on account of the Senior Indebtedness
held or represented by each, to the extent necessary to make payment in
full in cash, Cash Equivalents or, as acceptable to the holders of Senior
Indebtedness, in any other manner, of all Senior Indebtedness remaining
unpaid, after giving effect to any concurrent payment or distribution to
the holders of such Senior Indebtedness; and
(3) in the event that, notwithstanding the foregoing provisions of
this Section 12.02, the Trustee or the Holder of any Security shall have
received any payment or distribution of assets of the Company of any kind
or character, whether in cash, property or securities, in respect of
principal, premium, if any, and interest on the Securities before all
Senior Indebtedness is paid in full in cash or Cash Equivalents, then and
in such event such payment or distribution (excluding Permitted Junior
Securities) shall be paid over or delivered forthwith to the trustee in
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bankruptcy, receiver, liquidating trustee, custodian, assignee, agent or
other person making payment or distribution of assets of the Company for
application to the payment of all Senior Indebtedness remaining unpaid, to
the extent necessary to pay all Senior Indebtedness in full in cash, Cash
Equivalents or, as acceptable to the holders of Senior Indebtedness, any
other manner, after giving effect to any concurrent payment or distribution
to or for the holders of Senior Indebtedness.
The consolidation of the Company with, or the merger of the Company
with or into, another person or the liquidation or dissolution of the Company
following the conveyance, transfer or lease of its properties and assets
substantially as an entirety to another person upon the terms and conditions set
forth in Article Eight hereof shall not be deemed a dissolution, winding-up,
liquidation, reorganization, assignment for the benefit of creditors or
marshalling of assets and liabilities of the Company for the purposes of this
Article if the person formed by such consolidation or the Surviving Entity of
such merger or the person which acquires by conveyance, transfer or lease such
properties and assets substantially as an entirety, as the case may be, shall,
as a part of such consolidation, merger, conveyance, transfer or lease, comply
with the conditions set forth in such Article Eight.
Section 12.03. Suspension of Payment When Senior Indebtedness in
Default.
(a) Unless Section 12.02 shall be applicable, upon (1) the occurrence
of a Payment Default and (2) receipt by the Trustee and the Company from the
Senior Representatives of written notice of such occurrence, then no payment or
distribution of any assets of the Company of any kind or character (excluding
Permitted Junior Securities) shall be made by or on behalf of the Company on
account of the Indenture Obligations or for the acquisition, redemption or other
purchase of any Indenture Obligations for cash, property or otherwise, unless
and until such Payment Default shall have been cured or waived or shall have
ceased to exist or such Senior Indebtedness shall have been discharged or paid
in full, after which the Company shall resume making any and all required
payments in respect of the Securities, including any missed payments.
<PAGE> 124
(b) Unless Section 12.02 shall be applicable, upon (1) the occurrence
of a Non-payment Default and (2) receipt by the Trustee and the Company from the
Senior Representatives of written notice of such occurrence, no payment or
distribution of any assets of the Company of any kind or character (excluding
Permitted Junior Securities payments from the Escrow Account, and payments from
any trust created pursuant to Section 4.04) shall be made by the Company on
account of the Indenture Obligations or on account of the purchase or redemption
or other acquisition of Indenture Obligations for a period ("Payment Blockage
Period") commencing on the date of receipt by the Trustee of such notice unless
and until the earliest to occur of the following events (subject to any blockage
of payments that may then be in effect under subsection (a) of this Section
12.03) (w) 179 days will have elapsed since receipt of such written notice by
the Trustee (provided such Designated Senior Indebtedness will not theretofore
have been accelerated), (x) such Non-payment Default is cured or waived or shall
have ceased to exist, (y) such Designated Senior Indebtedness is discharged or
paid in full or (z) such Payment Blockage Period will have been terminated by
written notice to the Company and the Trustee from the Senior Representatives of
holders of Designated Senior Indebtedness initiating such Payment Blockage
Period, or the holders of at least a majority in principal amount of such issue
of Designated Senior Indebtedness, after which, in the case of clause (w), (x),
(y) or (z), the Company shall resume making any and all required payments in
respect of the Securities, including any missed payments. Notwithstanding any
other provision of this Indenture, only one Payment Blockage Period may be
commenced within any consecutive 360-day period and no Non-payment Default with
respect to Designated Senior Indebtedness which existed or was continuing on the
date of the commencement of any Payment Blockage Period shall be, or be made,
the basis for the commencement of a second Payment Blockage Period unless such
event of default shall have been cured or waived for a period of not less than
90 consecutive days (it being acknowledged that any subsequent action, or any
breach of any financial covenants for a period commencing after the date of
commencement of such Blockage Period based upon any new events that, in either
case, would give rise to an event of default pursuant to any provisions under
which an event of default previously existed or was continuing shall constitute
a new event of default for this purpose). In no event shall a Payment Blockage
Period extend beyond 179 days from the date of the receipt of the notice
referred to in clause (2) hereof and there must be a 181 consecutive day period
in any 360 consecutive day period during which no Payment Blockage Period is in
effect.
<PAGE> 125
(c) In the event that, notwithstanding the foregoing, the Trustee or
the Holder of any Security shall have received any payment prohibited by the
foregoing provisions of this Section 12.03, then and in such event such payment
shall be paid over and delivered forthwith to the Holders (or their Senior
Representatives) or as a court of competent jurisdiction shall otherwise direct.
Section 12.04. Trustee's Relation to Senior Indebtedness.
With respect to the holders of Senior Indebtedness in cash or Cash
Equivalents, the Trustee undertakes to perform or to observe only such of its
covenants and obligations as are specifically set forth in this Article Twelve,
and no implied covenants or obligations with respect to the holders of Senior
Indebtedness shall be read into this Indenture against the Trustee. The Trustee
shall not be deemed to owe any fiduciary duty to the holders of Senior
Indebtedness and the Trustee shall not be liable to any holder of Senior
Indebtedness if it shall mistakenly pay over or deliver to Holders, the Company
or any other personal moneys or assets to which any holder of Senior
Indebtedness shall be entitled by virtue of this Article Twelve or otherwise.
Section 12.05. Subrogation to Rights of Holders of Senior
Indebtedness.
Upon the payment in full of all Senior Indebtedness in cash or Cash
Equivalents, the Holders of the Securities shall be subrogated to the rights of
the holders of such Senior Indebtedness to receive payments and distributions of
cash, property and securities applicable to the Senior Indebtedness until the
principal of, premium, if any, and interest on the Securities shall be paid in
full. For purposes of such subrogation, no payments or distributions to the
holders of Senior Indebtedness of any cash, property or securities to which the
Holders of the Securities or the Trustee would be entitled except for the
provisions of this Article Twelve, and no payments over pursuant to the
provisions of this Article Twelve to the holders of Senior Indebtedness by
Holders of the Securities or the Trustee, shall, as among the Company, its
creditors other than holders of Senior Indebtedness, and the Holders of the
Securities, be deemed to be a payment or distribution by the Company to or on
account of the Senior Indebtedness.
If any payment or distribution to which the Holders would otherwise
have been entitled but for the provisions of this Article Twelve shall have been
applied, pursuant to the provisions of this Article Twelve, to the payment of
all amounts payable under the Senior Indebtedness of the Company, then and in
<PAGE> 126
such case the Holders shall be entitled to receive from the holders of such
Senior Indebtedness at the time outstanding any payments or distributions
received by such holders of such Senior Indebtedness in excess of the amount
sufficient to pay all amounts payable under or in respect of such Senior
Indebtedness in full in cash or Cash Equivalents.
Section 12.06. Provisions Solely To Define Relative Rights.
The provisions of this Article Twelve are and are intended solely for
the purpose of defining the relative rights of the Holders of the Securities on
the one hand and the holders of Senior Indebtedness on the other hand. Nothing
contained in this Article Twelve or elsewhere in this Indenture or in the
Securities is intended to or shall (a) impair, as among the Company, its
creditors other than holders of Senior Indebtedness and the Holders of the
Securities, the obligation of the Company, which is absolute and unconditional,
to pay to the Holders of the Securities the principal of, premium, if any, and
interest on the Securities as and when the same shall become due and payable in
accordance with their terms; or (b) affect the relative rights against the
Company of the Holders of the Securities and creditors of the Company other than
the holders of Senior Indebtedness; or (c) prevent the Trustee or the Holder of
any Security from exercising all remedies otherwise permitted by applicable law
upon Default under this Indenture, subject to the rights, if any, under this
Article Twelve of the holders of Senior Indebtedness (1) in any case,
proceeding, dissolution, liquidation or other winding-up, assignment for the
benefit of creditors or other marshalling of assets and liabilities of the
Company referred to in Section 12.02, to receive, pursuant to and in accordance
with such Section, cash, property and securities otherwise payable or
deliverable to the Trustee or such Holder, or (2) under the conditions specified
in Section 12.03, to prevent any payment prohibited by such Section or enforce
their rights pursuant to Section 12.03(c).
The failure to make a payment on account of principal of, premium, if
any, or interest on the Securities by reason of any provision of this Article
Twelve shall not be construed as preventing the occurrence of a Default or an
Event of Default hereunder.
<PAGE> 127
Section 12.07. Trustee To Effectuate Subordination.
Each Holder of a Security by his acceptance thereof authorizes and
directs the Trustee on his behalf to take such action as may be necessary or
appropriate to effectuate the subordination provided in this Article Twelve and
appoints the Trustee his attorney-in-fact for any and all such purposes,
including, in the event of any dissolution, winding-up, liquidation or
reorganization of the Company whether in bankruptcy, insolvency, receivership
proceedings, or otherwise, the timely filing of a claim for the unpaid balance
of the indebtedness of the Company owing to such Holder in the form required in
such proceedings and the causing of such claim to be approved. If the Trustee
does not file such a claim prior to 30 days before the expiration of the time to
file such a claim, the holders of Senior Indebtedness, or any Senior
Representative, may file such a claim on behalf of Holders of the Securities.
Section 12.08. No Waiver of Subordination Provisions.
(a) No right of any present or future holder of any Senior
Indebtedness to enforce subordination as herein provided shall at any time in
any way be prejudiced or impaired by any act or failure to act on the part of
the Company or by any act or failure to act, in good faith, by any such holder,
or by any non-compliance by the Company with the terms, provisions and covenants
of this Indenture, regardless of any knowledge thereof any such holder may have
or be otherwise charged with.
(b) Without limiting the generality of subsection (a) of this Section
12.08, the holders of Senior Indebtedness may, at any time and from time to
time, without the consent of or notice to the Trustee or the Holders of the
Securities, without incurring responsibility to the Holders of the Securities
and without impairing or releasing the subordination provided in this Article
Twelve or the obligation hereunder of the Holders of the Securities to the
holders of Senior Indebtedness, do any one or more of the following: (1) change
the manner, place or terms of payment or extend the time of payment of, or renew
or alter, Senior Indebtedness or any instrument evidencing the same or any
agreement under which Senior Indebtedness is outstanding; (2) sell, exchange,
release or otherwise deal with any property pledged, mortgaged or otherwise
securing Senior Indebtedness; (3) release any person liable in any manner for
the collection or payment of Senior Indebtedness; and (4) exercise or refrain
from exercising any rights against the Company and any other person; provided,
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however, that in no event shall any such actions limit the right of the Holders
of the Securities to take any action to accelerate the maturity of the
Securities pursuant to Article Five hereof or to pursue any rights or remedies
hereunder or under applicable laws if the taking of such action does not
otherwise violate the terms of this Indenture.
Section 12.09. Notice to Trustee.
(a) The Company shall give prompt written notice to the Trustee of any
fact known to the Company which would prohibit the making of any payment to or
by the Trustee in respect of the Securities. Notwithstanding the provisions of
this Article Twelve or any other provision of this Indenture, the Trustee shall
not be charged with knowledge of the existence of any facts which would prohibit
the making of any payment to or by the Trustee in respect of the Securities,
unless and until the Trustee shall have received written notice thereof from the
Company or a holder of Senior Indebtedness or from any trustee, fiduciary or
agent therefor; and, prior to the receipt of any such written notice, the
Trustee, subject to the provisions of Section 12.09, shall be entitled in all
respects to assume that no such facts exist; provided, however, that if the
Trustee shall not have received the notice provided for in this Section 12.09 at
least two Business Days prior to the date upon which by the terms hereof any
money may become payable for any purpose under this Indenture (including,
without limitation, the payment of the principal of, premium, if any, or
interest on any Security), then, anything herein contained to the contrary
notwithstanding but without limiting the rights and remedies of the holders of
Senior Indebtedness or any trustee, fiduciary or agent thereof, the Trustee
shall have full power and authority to receive such money and to apply the same
to the purpose for which such money was received and shall not be affected by
any notice to the contrary which may be received by it within two Business Days
prior to such date; nor shall the Trustee be charged with knowledge of the
curing of any such default or the elimination of the act or condition preventing
any such payment unless and until the Trustee shall have received an Officers'
Certificate to such effect.
(b) Subject to the provisions of Section 6.01, the Trustee shall be
entitled to rely on the delivery to it of a written notice to the Trustee and
the Company by a person representing himself to be a holder of Senior
Indebtedness (or a trustee, fiduciary or agent therefor) to establish that such
notice has been given by a holder of Senior Indebtedness (or a trustee,
fiduciary or agent therefor); provided, however, that failure to give such
notice to the Company shall not affect in any way the ability of the Trustee to
rely on such notice. In the event that the Trustee determines in good faith that
further evidence is required with respect to the right of any person as a holder
of Senior Indebtedness to participate in any payment or distribution pursuant to
this Article Twelve, the Trustee may request such person to furnish evidence to
the reasonable satisfaction of the Trustee as to the amount of Senior
Indebtedness held by such person, the extent to which such person is entitled to
<PAGE> 129
participate in such payment or distribution and any other facts pertinent to the
rights of such person under this Article Twelve, and if such evidence is not
furnished, the Trustee may defer any payment to such person pending judicial
determination as to the right of such person to receive such payment.
Section 12.10. Reliance on Judicial Order or Certificate of
Liquidating Agent.
Upon any payment or distribution of assets of the Company referred to
in this Article Twelve, the Trustee, subject to the provisions of Section 6.0l
and the Holders, shall be entitled to rely upon any order or decree entered by
any court of competent jurisdiction in which such insolvency, bankruptcy,
receivership, liquidation, reorganization, dissolution, winding-up or similar
case or proceeding is pending, or a certificate of the trustee in bankruptcy,
receiver, liquidating trustee, custodian, assignee for the benefit of creditors,
agent or other person making such payment or distribution, delivered to the
Trustee or to the Holders, for the purpose of ascertaining the persons entitled
to participate in such payment or distribution, the holders of Senior
Indebtedness and other Indebtedness of the Company, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all other
facts pertinent thereto or to this Article; provided that the foregoing shall
apply only if such court has been fully apprised of the provisions of this
Article Twelve.
Section 12.11. Rights of Trustee as a Holder of Senior Indebtedness;
Preservation of Trustee's Rights.
The Trustee in its individual capacity shall be entitled to all the
rights set forth in this Article Twelve with respect to any Senior Indebtedness
which may at any time be held by it, to the same extent as any other holder of
Senior Indebtedness, and nothing in this Indenture shall deprive the Trustee of
<PAGE> 130
any of its rights as such holder. Nothing in this Article Twelve shall apply to
claims of, or payments to, the Trustee under or pursuant to Section 6.07.
Section 12.12. Article Applicable to Paying Agents.
In case at any time any Paying Agent other than the Trustee shall have
been appointed by the Company and be then acting hereunder, the term "Trustee"
as used in this Article Twelve shall in such case (unless the context otherwise
requires) be construed as extending to and including such Paying Agent within
its meaning as fully for all intents and purposes as if such Paying Agent were
named in this Article Twelve in addition to or in place of the Trustee;
provided, however, that Section 12.11 shall not apply to the Company or any
Affiliate of the Company if it or such Affiliate acts as Paying Agent.
Section 12.13. No Suspension of Remedies.
Nothing contained in this Article Twelve shall limit the right of the
Trustee or the Holders of Securities to take any action to accelerate the
maturity of the Securities pursuant to Article Five or to pursue any rights or
remedies hereunder or under applicable law, subject to the rights, if any, under
this Article Twelve of the holders, from time to time, of Senior indebtedness.
ARTICLE THIRTEEN
SATISFACTION AND DISCHARGE
Section 13.01. Satisfaction and Discharge of Indenture.
This Indenture shall cease to be of further effect (except as to
surviving rights or registration of transfer or exchange of Securities herein
expressly provided for) and the Trustee, on written demand of and at the expense
of the Company, shall execute proper instruments acknowledging satisfaction and
discharge of this Indenture, when either
(a) all Securities theretofore authenticated and delivered (other than
(A) Securities which have been destroyed, lost or stolen and which have
been replaced or paid as provided in Section 3.06 hereof and (B) Securities
for whose payment money has theretofore been deposited in trust or
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segregated and held in trust by the Company and thereafter repaid to the
Company or discharged from such trust, as provided in Section 10.03) have
been delivered to the Trustee for cancellation; or
(b) (i) all such Securities not theretofore delivered to the Trustee
for cancellation have become due and payable and the Company has
irrevocably deposited or caused to be deposited with the Trustee in trust
an amount of money in dollars sufficient to pay and discharge the entire
Indebtedness on such Securities not theretofore delivered to the Trustee
for cancellation, for the principal of, premium, if any, and interest to
the date of such deposit;
(ii) the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and
(iii) the Company has delivered to the Trustee (i) irrevocable
instructions to apply the deposited money toward payment of the Securities
at the Stated Maturities and the Redemption Dates thereof, and (ii) an
Officers' Certificate and an Opinion of Counsel each stating that all
conditions precedent herein provided for relating to the satisfaction and
discharge of this Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 6.07 and, if money shall
have been deposited with the Trustee pursuant to subclause (a)(ii) of this
Section 13.01, the obligations of the Trustee under Section 13.02 and the last
paragraph of Section 10.03 shall survive such satisfaction and discharge.
Section 13.02. Application of Trust Money.
Subject to the provisions of the last paragraph of Section 10.03, all
money deposited with the Trustee pursuant to Section 13.01 shall be held in
trust and applied by it, in accordance with the provisions of the Securities and
this Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the persons entitled thereto, of the principal of, premium, if
any, and interest on the Securities for whose payment such money has been
deposited with the Trustee.
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ARTICLE FOURTEEN
COLLATERAL AND SECURITY
Section 14.01. Escrow Agreement.
(a) Prior to the Release Date, all of the Company's Indenture
Obligations, and following the Release Date, only the due and punctual payment
of the interest on the Securities when and as the same shall be due and payable
on each of the first four Interest Payment Dates, at maturity or by
acceleration, and interest on the overdue principal of and interest (to the
extent permitted by law), if any, on the Securities, shall be secured as
provided in the Escrow Agreement which the Company, the Escrow Agent and the
Trustee have entered into simultaneously with the execution of this Indenture.
Each Holder, by its acceptance of a Security, consents and agrees to the terms
of the Escrow Agreement (including, without limitation, the provisions providing
for foreclosure and disbursement of Collateral) as the same may be in effect or
may be amended from time to time in accordance with its terms and authorizes and
directs the Escrow Agent and the Trustee to enter into the Escrow Agreement and
to perform its obligations and exercise its rights thereunder in accordance
therewith. The Company shall deliver to the Trustee copies of the Escrow
Agreement, and shall do or cause to be done all such acts and things as may be
necessary or proper, or as may be required by the provisions of the Escrow
Agreement, to assure and confirm to the Trustee the security interest in the
Collateral contemplated by the Escrow Agreement or any part thereof, as from
time to time constituted, so as to render the same available for the security
and benefit of this Indenture with respect to, and of, the Securities, according
to the intent and purposes expressed in the Escrow Agreement. The Company shall
take any and all actions reasonably required to cause the Escrow Agreement to
create and maintain (to the extent possible under applicable law), as security
for the obligations of the Company hereunder, a valid and enforceable perfected
first priority Lien in and on all the Collateral, in favor of the Trustee for
the benefit of the Trustee, predecessor trustees, and the Holders, superior to
and prior to the rights of all third persons and subject to no other Liens. The
Trustee shall have no responsibility for perfecting or maintaining the
perfection of the Trustee's security interest in the Collateral or for filing
any instrument, document or notice in any public office at any time or times.
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(b) The Escrow Agreement shall further provide that in the event a
portion of the Securities has been retired by the Company, depending upon the
amount available in the Escrow Account, funds representing the interest payments
which have not previously been made on such retired Securities shall, upon the
written request of the Company to the Escrow Agent and the Trustee, be paid to
the Company upon compliance with the release of collateral provisions of the TIA
and upon receipt of a notice relating thereto from the Trustee.
Section 14.02. Recording and Opinions.
(a) The Company shall furnish to the Trustee promptly after the
execution and delivery of this Indenture (but in no event later than five
Business Days after the Issue Date) an Opinion of Counsel either (i) stating
that in the opinion of such counsel all action has been taken with respect to
the recording, registering and filing of this Indenture, financing statements or
other instruments necessary to make effective the Lien intended to be created by
the Escrow Agreement and reciting with respect to the security interests in the
Collateral the details of such action, or (ii) stating that in the opinion of
such counsel no such action is necessary to make such Lien effective.
(b) The Company shall furnish to the Escrow Agent and the Trustee on
August 1, 1998, and on each August 1 thereafter until the date upon which the
balance of Available Funds (as defined in the Escrow Agreement) shall have been
reduced to zero, an Opinion of Counsel, dated as of such date, either (i)
stating that (A) in the opinion of such counsel, action has been taken with
respect to the recording, registering, filing, re-recording, re-registering and
refiling of all supplemental indentures, financing statements, continuation
statements and other instruments of further assurance as is necessary to
maintain the Lien of the Escrow Agreement and reciting with respect to the
security interests in the Collateral the details of such action or referring to
prior Opinions of Counsel in which such details are given and (B) based on
relevant laws as in effect on the date of such Opinion of Counsel, all financing
statements and continuation statements have been executed and filed that are
necessary as of such date and during the succeeding 12 months fully to preserve
and protect, to the extent such protection and preservation are possible by
filing, the rights of the Holders and the Trustee hereunder and under the Escrow
Agreement with respect to the security interests in the Collateral or (ii)
stating that, in the opinion of such counsel, no such action is necessary to
maintain such Lien and assignment.
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Section 14.03. Release of Collateral.
(a) Subject to subsections (b), (c) and (d) of this Section 14.03,
Collateral may be released from the Lien and security interest created by the
Escrow Agreement only in accordance with the provisions of the Escrow Agreement.
(b) No Collateral shall be released from the Lien and security
interest created by the Escrow Agreement pursuant to the provisions of the
Escrow Agreement, other than to the Holders pursuant to the terms thereof,
unless there shall have been delivered to the Trustee the certificate required
by Section 14.03(d) and Section 14.04.
(c) At any time when a Default shall have occurred and be continuing
and the maturity of the Securities issued on the Issue Date shall have been
accelerated (whether by declaration or otherwise), no Collateral shall be
released pursuant to the provisions of the Escrow Agreement, and no release of
Collateral in contravention of this Section 14.03(c) shall be effective as
against the Holders, except for the disbursement of all Available Funds (as
defined in the Escrow Agreement) to the Trustee pursuant to Section 3 of the
Escrow Agreement.
(d) To the extent applicable, the Company shall cause TIA Section
314(d) relating to the release of property or securities from the Lien and
security interest of the Escrow Agreement to be complied with. Any certificate
or opinion required by TIA Section 314(d) may be made by an Officer of the
Company except in cases where TIA Section 314(d) requires that such certificate
or opinion be made by an independent person, which person shall be an
independent engineer, appraiser or other expert selected or approved by the
Trustee in the exercise of reasonable care.
Section 14.04. Certificates of the Company.
The Company shall furnish to the Trustee, prior to any proposed
release of Collateral other than pursuant to the express terms of the Escrow
Agreement, (i) all documents required by TIA Section 314(d) and (ii) an Opinion
of Counsel, which may be rendered by internal counsel to the Company, to the
effect that such accompanying documents constitute all documents required by TIA
Section 314(d). The Trustee may, to the extent permitted by Section 6.01 and
Section 6.03, accept as conclusive evidence of compliance with the foregoing
provisions the appropriate statements contained in such documents and such
Opinion of Counsel.
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Section 14.05. Authorization of Actions To Be Taken by the Trustee
Under the Escrow Agreement.
Subject to the provisions of Section 6.01 and Section 6.03, the
Trustee may, without the consent of the Holders, on behalf of the Holders, take
all actions it deems necessary or appropriate in order to (a) enforce any of the
terms of the Escrow Agreement and (b) collect and receive any and all amounts
payable in respect of the obligations of the Company hereunder. The Trustee
shall have power to institute and maintain such suits and proceedings as it may
deem expedient to prevent any impairment of the Collateral by any acts that may
be unlawful or in violation of the Escrow Agreement or this Indenture, and such
suits and proceedings as the Trustee may deem expedient to preserve or protect
its interests and the interests of the Holders in the Collateral (including
power to institute and maintain suits or proceedings to restrain the enforcement
of or compliance with any legislative or other governmental enactment, rule or
order that may be unconstitutional or otherwise invalid if the enforcement of,
or compliance with, such enactment, rule or order would impair the security
interest hereunder or be prejudicial to the interests of the Holders or of the
Trustee).
Section 14.06. Authorization of Receipt of Funds by the Trustee Under
the Escrow Agreement.
The Trustee is authorized to receive any funds for the benefit of the
Holders disbursed under the Escrow Agreement, and to make further distributions
of such funds to the Holders according to the provisions of this Indenture.
Section 14.07. Termination of Security Interest.
Upon satisfaction of the conditions in the Escrow Agreement relating
to the release of the Collateral, the Trustee shall, at the written request of
the Company, release the Liens pursuant to this Indenture and the Escrow
Agreement upon the Company's compliance with the provisions of the TIA
pertaining to release of collateral.
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ARTICLE FIFTEEN
GUARANTEE OF SECURITIES
Section 15.01. Unconditional Guarantee.
Subject to the provisions of this Article Fifteen, each Guarantor
hereby jointly and severally unconditionally guarantees (such guarantee to be
referred to herein as a "Guarantee") to each Holder of a Security authenticated
and delivered by the Trustee and to the Trustee and its successors and assigns,
irrespective of the validity and enforceability of this Indenture, the
Securities or the obligations of the Company or any other Guarantor to the
Holders or the Trustee hereunder or thereunder, that: (a) the principal of,
premium, if any, and interest on the Securities will be duly and punctually paid
in full when due, whether at maturity, upon redemption at the option of the
Company pursuant to the provisions of the Securities relating thereto, by
acceleration or otherwise, and interest on the overdue principal and (to the
extent permitted by law) interest, if any, on the Securities and all other
obligations of the Company or the Guarantor to the Holders or the Trustee
hereunder or thereunder (including fees, expenses or other) and all other
Indenture Obligations will be promptly paid in full or performed, all in
accordance with the terms hereof and thereof; and (b) in case of any extension
of time of payment or renewal of any Securities or any of such other Indenture
Obligations, the same will be promptly paid in full when due or performed in
accordance with the terms of the extension or renewal, whether at Stated
Maturity, by acceleration or otherwise. Failing payment when due of any amount
so guaranteed, or failing performance of any other obligation of the Company to
the Holders, for whatever reason, each Guarantor shall be obligated to pay, or
to perform or cause the performance of, the same immediately. An Event of
Default under this Indenture or the Securities shall constitute an event of
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default under such Guarantor's Guarantee, and shall entitle the Holders to
accelerate the obligations of such Guarantor in the same manner and to the same
extent as the obligations of the Company. Each Guarantor hereby agrees that its
obligations hereunder shall be unconditional, irrespective of the validity,
regularity or enforceability of the Securities or this Indenture, the absence of
any action to enforce the same, any waiver or consent by any Holder of the
Securities with respect to any provisions hereof or thereof, any release of any
other Guarantor, the recovery of any judgment against the Company, any action to
enforce the same, whether or not a Guarantee is affixed to any particular
Security, or any other circumstance which might otherwise constitute a legal or
equitable discharge or defense of a guarantor. Each Guarantor hereby waives the
benefit of diligence, presentment, demand of payment, filing of claims with a
court in the event of insolvency or bankruptcy of the Company, any right to
require a proceeding first against the Company, protest, notice and all demands
whatsoever and covenants that its Guarantee shall not be discharged except by
complete performance of the obligations contained in the Securities, this
Indenture and this Guarantee. This Guarantee is a guarantee of payment and not
of collection. If any Holder or the Trustee is required by any court or
otherwise to return to the Company or to any Guarantor, or any custodian,
trustee, liquidator or other similar official acting in relation to the Company
or such Guarantor, any amount paid by the Company or such Guarantor to the
Trustee or such Holder, this Guarantee, to the extent theretofore discharged,
shall be reinstated in full force and effect. Each Guarantor further agrees
that, as between it, on the one hand, and the Holders of Securities and the
Trustee, on the other hand, (a) subject to this Article Fourteen, the maturity
of the obligations guaranteed hereby may be accelerated as provided in Article
Five hereof for the purposes of this Guarantee, notwithstanding any stay,
injunction or other prohibition preventing such acceleration in respect of the
obligations guaranteed hereby, and (b) in the event of any acceleration of such
obligations as provided in Article Five hereof, such obligations (whether or not
due and payable) shall forthwith become due and payable by the Guarantor for the
purpose of this Guarantee.
Section 15.02. Execution and Delivery of Guarantee.
To further evidence the Guarantee set forth in Section 15.01, each
Guarantor hereby agrees that a notation of such Guarantee shall be endorsed on
each Security authenticated and delivered by the Trustee and executed by either
manual or facsimile signature of an Officer of each Guarantor.
Each of the Guarantors hereby agrees that its Guarantee set forth in
Section 15.01 shall remain in full force and effect notwithstanding any failure
to endorse on each Security a notation of such Guarantee.
If an Officer of a Guarantor whose signature is on this Indenture or a
Guarantee no longer holds that office at the time the Trustee authenticates such
Security or at any time thereafter, such Guarantor's Guarantee of such Security
shall be valid nevertheless.
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The delivery of any Security by the Trustee, after the authentication
thereof hereunder, shall constitute due delivery of any Guarantee set forth in
this Indenture on behalf of each Guarantor.
Section 15.03. Additional Guarantor.
Any person that was not a Guarantor on the date of this Indenture may
become a Guarantor by executing and delivering to the Trustee (a) a supplemental
indenture in form and substance satisfactory to the Trustee, which subjects such
person to the provisions (including the representations and warranties) of this
Indenture as a Guarantor, (b) in the event that as of the date of such
supplemental indenture any Registrable Securities are outstanding, an instrument
in form and substance satisfactory to the Trustee which subjects such person to
the provisions of the Registration Rights Agreement with respect to such
outstanding Registrable Securities and (c) an Opinion of Counsel to the effect
that such supplemental indenture has been duly authorized and executed by such
person and constitutes the legal, valid, binding and enforceable obligation of
such person (subject to such customary exceptions concerning creditors' rights
and equitable principles as may be acceptable to the Trustee in its discretion).
Section 15.04. Guarantee Obligations Subordinated to Guarantor Senior
Indebtedness.
Each Guarantor covenants and agrees, and each Holder, by its
acceptance of a Security, likewise covenants and agrees, that all payments
pursuant to the Guarantee by such Guarantor are hereby expressly made
subordinate and subject in right of payment as provided in this Article Fifteen
to the prior payment in full in cash or Cash Equivalents or, as acceptable to
the holders of Guarantor Senior Indebtedness of such Guarantor, in any other
manner, of all Guarantor Senior Indebtedness of such Guarantor. Without limiting
the generality of the definition of Guarantor Senior Indebtedness, "Guarantor
Senior Indebtedness" shall include the payment of interest, including interest
that would accrue but for the filing of a petition initiating any proceeding
under any Bankruptcy Law, whether or not such claim is allowable in such
proceeding.
The following Sections 15.04 through 15.17 of this Article Fifteen
shall constitute a continuing offer to all persons who, in reliance upon such
provisions, become holders of, or continue to hold Guarantor Senior Indebtedness
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of any Guarantor; and such provisions are made for the benefit of the holders of
Guarantor Senior Indebtedness of each Guarantor; and such holders are made
obligees hereunder and they or each of them may enforce such provisions.
To the extent Holders seek to realize upon Collateral prior to the
Release Date following an exercise of remedies under this Indenture or Available
Escrow Proceeds are required to be applied to fund an Escrow Proceeds Offer, the
subordination provisions of this Article 15 will not apply to the Collateral or
the Available Escrow Proceeds or the funds represented thereby or derived
therefrom.
Section 15.05. Payment over of Proceeds upon Dissolution, Etc. of a
Guarantor.
In the event of (a) any insolvency or bankruptcy case or proceeding,
or any receivership, liquidation, reorganization or other similar case or
proceeding in connection therewith, relative to any Guarantor or to its
creditors, as such, or to its assets, or (b) any liquidation, dissolution or
other winding-up of any Guarantor, whether voluntary or involuntary and whether
or not involving insolvency or bankruptcy, or (c) any assignment for the benefit
of creditors or any other marshaling of assets or liabilities of any Guarantor,
then and in any such event:
(1) the holders of all Guarantor Senior Indebtedness of such Guarantor
shall be entitled to receive payment in full in cash or Cash Equivalents
or, as acceptable to the holders of such Guarantor Senior Indebtedness, in
any other manner, of all amounts due on or in respect of all such Guarantor
Senior Indebtedness, or provision shall be made for such payment, before
the Holders of the Securities are entitled to receive, pursuant to this
Guarantee, any payment or distribution of any kind or character by or on
behalf of such Guarantor (excluding Permitted Junior Securities) on account
of the Indenture Obligations or for the acquisition, redemption or other
purchase of any Indenture Obligations for cash, property or otherwise; and
(2) any payment or distribution of assets of such Guarantor of any
kind or character, whether in cash, property or securities (excluding
Permitted Junior Securities), by set-off or otherwise, to which the Holders
or the Trustee would be entitled but for the provisions of this Article
Fourteen shall be paid by the liquidating trustee or agent or other person
making such payment or distribution, whether a trustee in bankruptcy, a
receiver or liquidating trustee or otherwise, directly to the holders of
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Guarantor Senior Indebtedness of such Guarantor or their representative or
representatives or to the trustee or trustees under any indenture under
which any instruments evidencing any of such Guarantor Senior Indebtedness
may have been issued, ratably according to the aggregate amounts remaining
unpaid on account of such Guarantor Senior Indebtedness held or represented
by each, to the extent necessary to make payment in full in cash, Cash
Equivalents or, as acceptable to the holders of such Guarantor Senior
Indebtedness, in any other manner, of all such Guarantor Senior
Indebtedness remaining unpaid, after giving effect to any concurrent
payment or distribution to the holders of such Guarantor Senior
Indebtedness; and
(3) in the event that, notwithstanding the foregoing provisions of
this Section 15.05, the Trustee or the Holder of any Security shall have
received any payment or distribution of assets of such Guarantor of any
kind or character, whether in cash, property or securities, in respect of
any of the obligations of such Guarantor under this Guarantee before all
Guarantor Senior Indebtedness of such Guarantor is paid in full or payment
thereof provided for, then and in such event such payment or distribution
(excluding Permitted Junior Securities) shall be paid over or delivered
forthwith to the trustee in bankruptcy, receiver, liquidating trustee,
custodian, assignee, agent or other person making payment or distribution
of assets of such Guarantor for application to the payment of all such
Guarantor Senior Indebtedness remaining unpaid, to the extent necessary to
pay all of such Guarantor Senior Indebtedness in full in cash, Cash
Equivalents or, as acceptable to the holders of such Guarantor Senior
Indebtedness, any other manner, after giving effect to any concurrent
payment or distribution to or for the holders of such Guarantor Senior
Indebtedness.
The consolidation of a Guarantor with, or the merger of a Guarantor
with or into, another person or the liquidation or dissolution of a Guarantor
following the conveyance, transfer or lease of its properties and assets
substantially as an entirety to another person upon the terms and conditions set
forth in Article Eight hereof shall not be deemed a dissolution, winding-up,
liquidation, reorganization, assignment for the benefit of creditors or
marshaling of assets and liabilities of such Guarantor for the purposes of this
Article Fifteen if the person formed by such consolidation or the surviving
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entity of such merger or the person which acquires by conveyance, transfer or
lease such properties and assets substantially as an entirety, as the case may
be, shall, as a part of such consolidation, merger, conveyance, transfer or
lease, comply with the conditions set forth in Article Eight hereof.
Section 15.06. Suspension of Guarantee Obligations When Guarantor
Senior Indebtedness in Default.
(a) Unless Section 15.05 shall be applicable, upon (1) the occurrence
of a Payment Default with respect to any Senior Indebtedness guaranteed by a
Guarantor and (2) receipt by the Trustee, the Company and such Guarantor from
the Senior Representatives of written notice of such occurrence, then no payment
or distribution of any assets of such Guarantor of any kind or character
(excluding Permitted Junior Securities) shall be made by or on behalf of such
Guarantor on account of the Indenture Obligations or for the acquisition,
redemption or other purchase of any Indenture Obligations for cash, property or
otherwise or any of the obligations of such Guarantor under this Guarantee
unless and until such Payment Default shall have been cured or waived or shall
have ceased to exist or such Guarantor Senior Indebtedness shall have been
discharged or paid in full, after which such Guarantor shall resume making any
and all required payments in respect of its obligations under this Guarantee.
(b) Unless Section 15.05 shall be applicable, upon (1) the occurrence
of a Non-payment Default with respect to any Senior Indebtedness guaranteed by a
Guarantor and (2) receipt by the Trustee, the Company and such Guarantor from
the Senior Representatives of written notice of such occurrence, no payment or
distribution of any assets of such Guarantor of any kind or character (excluding
Permitted Junior Securities) shall be made by such Guarantor on account of
principal, premium, if any, or interest on the Securities or on account of the
purchase, redemption or other acquisition of Securities or on account of any of
the other obligations of such Guarantor under this Guarantee for a period
("Guarantor Payment Blockage Period") commencing on the date of receipt by the
Trustee of such notice unless and until the earlier to occur of the following
events (subject to any blockage of payments that may then be in effect under
subsection (a) of this Section 15.06) (w) 179 days shall have elapsed since
receipt of such written notice by the Trustee (provided such Guarantor Senior
Indebtedness shall theretofore not have been accelerated), (x) such Non-payment
Default shall have been cured or waived or shall have ceased to exist, (y) such
Guarantor Senior Indebtedness shall have been discharged or paid in full or (z)
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such Guarantor Payment Blockage Period shall have been terminated by written
notice to the Guarantor and the Trustee from the Senior Representative
initiating such Guarantor Payment Blockage Period, or the holders of at least a
majority in principal amount of such issue of such Guarantor Senior
Indebtedness, after which, in the case of clause (w), (x), (y) or (z), the
Guarantor shall resume making any and all required payments in respect of its
obligations under this Guarantee. Notwithstanding any other provision of this
Indenture, only one Guarantor Payment Blockage Period may be commenced within
any consecutive 360-day period and no Non-payment Default with respect to
Guarantor Senior Indebtedness of any Guarantor which existed or was continuing
on the date of the commencement of any Guarantor Payment Blockage Period shall
be, or be made, the basis for the commencement of a second Guarantor Payment
Blockage Period unless such event of default shall have been cured or waived for
a period of not less than 90 consecutive days (it being acknowledged that any
subsequent action, or any breach of any financial covenants for a period
commencing after the date of commencement of such Blockage Period based upon any
new events that, in either case, would give rise to an event of default pursuant
to any provisions under which an event of default previously existed or was
continuing shall constitute a new event of default for this purpose). In no
event shall a Guarantor Payment Blockage Period extend beyond 179 days from the
date of the receipt of the notice referred to in clause (2) hereof and there
must be a 181 consecutive day period in any 360 consecutive day period during
which no Guarantor Payment Blockage Period is in effect.
(c) In the event that, notwithstanding the foregoing, the Trustee or
the Holder of any Security shall have received any payment prohibited by the
foregoing provisions of this Section 15.06, then and in such event such payment
shall be paid over and delivered forthwith to the Senior Representatives or as a
court of competent jurisdiction shall otherwise direct.
Section 15.07. Release of a Guarantor.
Upon the sale or other disposition (by merger or otherwise), other
than a lease, of a Subsidiary of the Company that is a Guarantor of all of the
Capital Stock of such Subsidiary or all, or substantially all, the assets of
such Subsidiary, to any person that is not an Affiliate of the Company, and
which sale or other disposition is otherwise in compliance with the terms of
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this Indenture, such Guarantor shall be deemed automatically and unconditionally
released and discharged from all obligations under this Article Fourteen without
any further action required on the part of the Trustee or any Holder; provided,
however, that any such termination shall occur if and only to the extent that
all obligations of such Guarantor under all of its Guarantor Senior Indebtedness
shall also terminate upon such sale or other disposition. The Trustee shall
deliver an appropriate instrument evidencing such release upon receipt of a
request of the Company accompanied by an Officers' Certificate certifying as to
the compliance with this Section and the Company's rights of redemption in
accordance with the terms of the Securities in this Section 15.07. Any Guarantor
not so released will remain liable for the full amount of principal of, premium,
if any, and interest on the Securities as provided in this Article Fifteen.
Section 15.08. Waiver of Subrogation.
Until this Indenture is discharged and all of the Securities are
discharged and paid in full, each Guarantor hereby irrevocably waives and agrees
not to exercise any claim or other rights which it may now or hereafter acquire
against the Company that arise from the existence, payment, performance or
enforcement of the Company's obligations under the Securities or this Indenture
and such Guarantor's obligations under such Guarantor's Guarantee and this
Indenture, in any such instance including, without limitation, any right of
subrogation, reimbursement, exoneration, contribution, indemnification, and any
right to participate in any claim or remedy against the Company, whether or not
such claim, remedy or right arises in equity, or under contract, statute or
common law, including, without limitation, the right to take or receive from the
Company, directly or indirectly, in cash or other property or by set-off or in
any other manner, payment or security on account of such claim or other rights.
If any amount shall be paid to any Guarantor in violation of the preceding
sentence and any amounts owing to the Trustee or the Holders of Securities under
the Securities, this Indenture, or any other document or instrument delivered
under or in connection with such agreements or instruments, shall not have been
paid in full, such amount shall have been deemed to have been paid to such
Guarantor for the benefit of, and held in trust for the benefit of, the Holders
of the Securities, and shall, subject to the provisions of this Article Fifteen
and Article Twelve hereof, forthwith be paid to the Trustee for the benefit of
such Holders to be credited and applied to the Securities, whether matured or
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unmatured, in accordance with the terms of this Indenture. Each Guarantor
acknowledges that it will receive direct and indirect benefits from the
financing arrangements contemplated by this Indenture and that the waiver set
forth in this Section 15.08 is knowingly made in contemplation of such benefits.
Section 15.09. Guarantee Provisions Solely To Define Relative Rights.
The provisions of this Article Fifteen are and are intended solely for
the purpose of defining the relative rights of the Holders on the one hand and
the holders of Guarantor Senior Indebtedness of each Guarantor on the other
hand. Nothing contained in this Article or elsewhere in this Indenture or in the
Securities is intended to or shall (a) impair, as among each Guarantor, its
creditors other than holders of its Guarantor Senior Indebtedness and the
Holders of the Securities, the obligation of such Guarantor, which is absolute
and unconditional, to make payments to the Holders in respect of its obligations
under this Guarantee as and when the same shall become due and payable in
accordance with their terms; or (b) affect the relative rights against such
Guarantor of the Holders of the Securities and creditors of such Guarantor other
than the holders of the Guarantor Senior Indebtedness of such Guarantor; or (c)
prevent the Trustee or the Holder of any Security from exercising all remedies
otherwise permitted by applicable law upon Default under this Indenture, subject
to the rights, if any, under this Article of the holders of Guarantor Senior
Indebtedness of the Guarantors hereunder (1) in any case, proceeding,
dissolution, liquidation or other winding-up, assignment for the benefit of
creditors or other marshaling of assets and liabilities of the Company referred
to in Section 15.05, to receive, pursuant to and in accordance with such
Section, cash, property and securities otherwise payable or deliverable to the
Trustee or such Holder, or (2) under the conditions specified in Section 15.06,
to prevent any payment prohibited by such Section or enforce their rights
pursuant to Section 15.06(c).
The failure by any Guarantor to make payment in respect of its
obligations under this Guarantee by reason of any provision of this Article
shall not be construed as preventing the occurrence of a Default or an Event of
Default hereunder.
Section 15.10. Trustee To Effectuate Subordination of Guarantee
Obligations.
Each Holder by his acceptance of a Security authorizes and directs the
Trustee on his behalf to take such action as may be necessary or appropriate to
effectuate the subordination provided in this Article and appoints the Trustee
his attorney-in-fact for any and all such purposes, including, in the event of
any dissolution, winding-up, liquidation or reorganization of any Guarantor
whether in bankruptcy, insolvency, receivership proceedings, or otherwise, the
<PAGE> 145
timely filing of a claim for the unpaid balance of the indebtedness of such
Guarantor owing to such Holder in the form required in such proceedings and the
causing of such claim to be approved. If the Trustee does not file such a claim
prior to 30 days before the expiration of the time to file such a claim, the
holders of Senior Indebtedness, or any Senior Representative, may file such a
claim on behalf of Holders of the Securities.
Section 15.11. No Waiver of Guarantee Subordination Provisions.
(a) No right of any present or future holder of any Guarantor Senior
Indebtedness of any Guarantor to enforce subordination as herein provided shall
at any time in any way be prejudiced or impaired by any act or failure to act on
the part of such Guarantor or by any act or failure to act, in good faith, by
any such holder, or by any non-compliance by such Guarantor with the terms,
provisions and covenants of this Indenture, regardless of any knowledge thereof
any such holder may have or be otherwise charged with.
(b) Without limiting the generality of subsection (a) of this Section
15.11, the holders of Guarantor Senior Indebtedness of any Guarantor may, at any
time and from time to time, without the consent of or notice to the Trustee or
the Holders of the Securities, without incurring responsibility to the Holders
of the Securities and without impairing or releasing the subordination provided
in this Article Fifteen or the obligations hereunder of the Holders of the
Securities to the holders of such Guarantor Senior Indebtedness, do any one or
more of the following: (1) change the manner, place or terms of payment or
extend the time of payment of, or renew or alter, such Guarantor Senior
Indebtedness or any instrument evidencing the same or any agreement under which
such Guarantor Senior Indebtedness is outstanding; (2) sell, exchange, release
or otherwise deal with any property pledged, mortgaged or otherwise securing
such Guarantor Senior Indebtedness; (3) release any person liable in any manner
for the collection or payment of such Guarantor Senior Indebtedness; and (4)
<PAGE> 146
exercise or refrain from exercising any rights against such Guarantor and any
other person; provided, however, that in no event shall any such actions limit
the right of the Holders of the Securities to take any action to accelerate the
maturity of the Securities pursuant to Article Five hereof or to pursue any
rights or remedies hereunder or under applicable laws if the taking of such
action does not otherwise violate the terms of this Indenture.
Section 15.12. Guarantors To Give Notice to Trustee.
(a) Each Guarantor shall give prompt written notice to the Trustee of
any fact known to such Guarantor which would prohibit the making of any payment
to or by the Trustee in respect of the Securities. Notwithstanding the
provisions of this Article Fifteen or any other provision of this Indenture, the
Trustee shall not be charged with knowledge of the existence of any facts which
would prohibit the making of any payment to or by the Trustee in respect of the
Securities, unless and until the Trustee shall have received written notice
thereof from such Guarantor or a holder of its Guarantor Senior Indebtedness or
from any trustee, fiduciary or agent therefor; and, prior to the receipt of any
such written notice, the Trustee, subject to the provisions of this Section
15.12, shall be entitled in all respects to assume that no such facts exist;
provided, however, that if the Trustee shall not have received the notice
provided for in this Section 15.12 at least two Business Days prior to the date
upon which by the terms hereof any money may become payable for any purpose
under this Indenture (including, without limitation, the payment of the
principal of, premium, if any, or interest on any Security), then, anything
herein contained to the contrary notwithstanding but without limiting the rights
and remedies of the holders of such Guarantor Senior Indebtedness or any
trustee, fiduciary or agent thereof, the Trustee shall have full power and
authority to receive such money and to apply the same to the purpose for which
such money was received and shall not be affected by any notice to the contrary
which may be received by it within two Business Days prior to such date; nor
shall the Trustee be charged with knowledge of the curing of any such default or
the elimination of the act or condition preventing any such payment unless and
until the Trustee shall have received an Officers' Certificate from such
Guarantor to such effect.
(b) Subject to the provisions of Section 6.01, the Trustee shall be
entitled to rely on the delivery to it of a written notice to the Trustee and
the Company, by a person representing himself to be a holder of Guarantor Senior
Indebtedness of any Guarantor (or a trustee, fiduciary or agent therefor) to
establish that such notice has been given by a holder of such Guarantor Senior
Indebtedness (or a trustee, fiduciary or agent therefor); provided, however,
that a failure to give such notice to the Company shall not affect in any way
<PAGE> 147
the ability of the Trustee to rely on such notice. In the event that the Trustee
determines in good faith that further evidence is required with respect to the
right of any person as a holder of Guarantor Senior Indebtedness of any
Guarantor to participate in any payment or distribution pursuant to this Article
Fourteen, the Trustee may request such person to furnish evidence to the
reasonable satisfaction of the Trustee as to the amount of Guarantor Senior
Indebtedness of each Guarantor held by such person, the extent to which such
person is entitled to participate in such payment or distribution and any other
facts pertinent to the rights of such person under this Article Fifteen, and if
such evidence is not furnished, the Trustee may defer any payment to such person
pending judicial determination as to the right of such person to receive such
payment.
Section 15.13. Reliance on Judicial Order or Certificate of
Liquidating Agent Regarding Dissolution, Etc.
of Guarantors.
Upon any payment or distribution of assets of any Guarantor referred
to in this Article Fifteen, the Trustee, subject to the provisions of Section
6.01, and the Holders, shall be entitled to rely upon any order or decree
entered by any court of competent jurisdiction in which such insolvency,
bankruptcy, receivership, liquidation, reorganization, dissolution, winding-up
or similar case or proceeding is pending, or a certificate of the trustee in
bankruptcy, receiver, liquidating trustee, custodian, assignee for the benefit
of creditors, agent or other person making such payment or distribution,
delivered to the Trustee or to the Holders, for the purpose of ascertaining the
persons entitled to participate in such payment or distribution, the holders of
Guarantor Senior Indebtedness of such Guarantor and other Indebtedness of such
Guarantor, the amount thereof or payable thereon, the amount or amounts paid or
distributed thereon and all other facts pertinent thereto or to this Article
Fifteen; provided that the foregoing shall apply only if such court has been
fully apprised of the provisions of this Article Fifteen.
Section 15.14. Rights of Trustee as a Holder of Guarantor Senior
Indebtedness; Preservation of Trustee's Rights.
The Trustee in its individual capacity shall be entitled to all the
rights set forth in this Article Fifteen with respect to any Guarantor Senior
Indebtedness of any Guarantor which may at any time be held by the Trustee, to
the same extent as any other holder of such Guarantor Senior Indebtedness, and
<PAGE> 148
nothing in this Indenture shall deprive the Trustee of any of its rights as such
holder. Nothing in this Article Fifteen shall apply to claims of, or payments
to, the Trustee under or pursuant to Section 6.07.
Section 15.15. Article Fifteen Applicable to Paying Agents.
In case at any time any Paying Agent other than the Trustee shall have
been appointed by the Company and be then acting hereunder, the term "Trustee"
as used in this Article shall in such case (unless the context otherwise
requires) be construed as extending to and including such Paying Agent within
its meaning as fully for all intents and purposes as if such Paying Agent were
named in this Article Fifteen in addition to or in place of the Trustee;
provided, however, that Section 15.14 shall not apply to the Company or any
Affiliate of the Company if it or such Affiliate acts as Paying Agent.
Section 15.16. No Suspension of Remedies.
Nothing contained in this Article Fifteen shall limit the right of the
Trustee or the Holders of Securities to take any action to accelerate the
maturity of the Securities pursuant to Article Five or to pursue any rights or
remedies hereunder or under applicable law, subject to the rights, if any, under
this Article Fifteen of the holders, from time to time, of Guarantor Senior
Indebtedness of the Guarantors.
Section 15.17. Trustee's Relation to Guarantor Senior Indebtedness.
With respect to the holders of Guarantor Senior Indebtedness of any
Guarantor, the Trustee undertakes to perform or to observe only such of its
covenants and obligations as are specifically set forth in this Article Fifteen,
and no implied covenants or obligations with respect to the holders of Guarantor
Senior Indebtedness of any Guarantor shall be read into this Indenture against
the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the
holders of Guarantor Senior Indebtedness of any Guarantor and the Trustee shall
not be liable to any holder of Guarantor Senior Indebtedness of any Guarantor if
it shall mistakenly pay over or deliver to Holders, the Company or any other
person moneys or assets to which any holder of Guarantor Senior Indebtedness of
any Guarantor shall be entitled by virtue of this Article Fifteen or otherwise.
<PAGE> 149
Section 15.18. Limitation of Subsidiary Guarantor's Liability.
Each Guarantor that is a Subsidiary of the Company, and by its
acceptance hereof each Holder, hereby confirms that it is the intention of all
such parties that the Guarantee by such Guarantor pursuant to its Guarantee not
constitute a fraudulent transfer or conveyance for purposes of the Bankruptcy
Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act
or any similar Federal or state law. To effectuate the foregoing intention, the
Holders and such Guarantor hereby irrevocably agree that the obligations of such
Guarantor under this Guarantee shall be limited to the maximum amount as will,
after giving effect to all other contingent and fixed liabilities of such
Guarantor (including, but not limited to, the Guarantor Senior Indebtedness of
such Guarantor) and after giving effect to any collections from or payments made
by or on behalf of any other Guarantor in respect of the obligations of such
other Guarantor under its Guarantee, result in the obligations of such Guarantor
under the Guarantee not constituting such fraudulent transfer or conveyance.
[signatures on following pages]
<PAGE> 150
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed as of the day and year first above written.
GOLDEN SKY SYSTEMS, INC.
By:/s/ Rodney A. Weary
----------------------
Name: Rodney A. Weary
Title: Chief Executive Officer
By: /s/ Robert B. Weaver
----------------------
Name: Robert B. Weaver
Title: Chief Financial Officer
STATE STREET BANK AND TRUST
COMPANY OF MISSOURI, N.A.,
as Trustee
By: /s/ R. Clasquin
----------------------
Name: R. Clasquin
Title: Assistant Vice President
<PAGE> 151
ARGOS SUPPORT SERVICES COMPANY,
as Guarantor
By: /s/ Rodney A. Weary
---------------- ------
Name: Rodney A. Weary
Title: President
PRIMEWATCH, INC.,
as Guarantor
By: /s/ Rodney A. Weary
----------------------
Name: Rodney A. Weary
Title: President
<PAGE> 152
EXHIBIT A-1
[Form of Security]
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE OR OTHER
SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN
MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS THE TRANSACTION IS
EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF (1) REPRESENTS THAT
(A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT) OR (B) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN
AN "OFFSHORE TRANSACTION" PURSUANT TO REGULATION S, (2) AGREES THAT IT WILL NOT
PRIOR TO (X) THE DATE WHICH IS TWO YEARS (OR SUCH SHORTER PERIOD AS PERMITTED BY
RULE 144 UNDER THE SECURITIES ACT OR ANY SUCCESSOR PROVISION THEREUNDER) AFTER
THE LATER OF THE ORIGINAL ISSUE DATE HEREOF (OR OF ANY PREDECESSOR OF THIS
SECURITY) OR THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE OF THE COMPANY
WAS THE OWNER OF THIS SECURITY OR ANY PREDECESSOR OF THIS SECURITY OR (Y) SUCH
LATER DATE, IF ANY, AS MAY BE REQUIRED BY APPLICABLE LAWS (THE "RESALE
RESTRICTION TERMINATION DATE"), OFFER, SELL OR OTHERWISE TRANSFER THIS SECURITY
EXCEPT (A) TO THE ISSUER OR ANY SUBSIDIARY THEREOF, (B) PURSUANT TO A
REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES
ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE
144A, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT
OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN
THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS
AND SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE
MEANING OF REGULATION S UNDER THE SECURITIES ACT, PURSUANT TO RULE 904 OF
REGULATION S, (E) TO AN ACCREDITED INVESTOR THAT IS ACQUIRING THE SECURITIES FOR
ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN ACCREDITED INVESTOR, FOR
INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION
WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT OR (F) PURSUANT TO
ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS SECURITY IS
A-1-1
<PAGE> 153
TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. THIS LEGEND
WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION
TERMINATION DATE. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED
STATES" AND "U.S. PERSON" HAVE THE RESPECTIVE MEANINGS GIVEN TO THEM BY
REGULATION S UNDER THE SECURITIES ACT.
A-1-2
<PAGE> 154
GOLDEN SKY SYSTEMS, INC.
________________________
12 3/8% SENIOR SUBORDINATED NOTES DUE 2006
CUSIP No. __________
No. ___________ $
GOLDEN SKY SYSTEMS, INC., a corporation incorporated under the laws of
the State of Delaware (herein called the "Company," which term includes any
successor corporation under the Indenture hereinafter referred to), for value
received, hereby promises to pay to _______________ or registered assigns, the
principal sum of _______________ Dollars on August 1, 2006, at the office or
agency of the Company referred to below, and to pay interest thereon on February
1 and August 1 (each an "Interest Payment Date"), of each year, commencing on
February 1, 1999, accruing from the Issue Date or from the most recent Interest
Payment Date to which interest has been paid or duly provided for, at the rate
of 12-3/8% per annum, until the principal hereof is paid or duly provided for.
Interest shall be computed on the basis of a 360-day year of twelve 30-day
months.
The interest so payable, and punctually paid or duly provided for, on
any Interest Payment Date will, as provided in the Indenture referred to on the
reverse hereof, be paid to the person in whose name this Security (or one or
more Predecessor Securities) is registered at the close of business on January
15 or July 15 (each a "Regular Record Date"), whether or not a Business Day, as
the case may be, next preceding such Interest Payment Date. Any such interest
not so punctually paid, or duly provided for, and interest on such defaulted
interest at the then applicable interest rate borne by the Securities, to the
extent lawful, shall forthwith cease to be payable to the Holder on such Regular
Record Date, and may be paid to the person in whose name this Security (or one
or more Predecessor Securities) is registered at the close of business on a
Special Record Date for the payment of such defaulted interest to be fixed by
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<PAGE> 155
the Trustee, notice of which shall be given to Holders of Securities not less
than 10 days prior to such Special Record Date, or may be paid at any time in
any other lawful manner not inconsistent with the requirements of any securities
exchange on which the Securities may be listed, and upon such notice as may be
required by such exchange, all as more fully provided in such Indenture.
Payment of the principal of, premium, if any, and interest on this
Security will be made at the office or agency of the Company maintained for that
purpose in the Borough of Manhattan in The City of New York, State of New York,
or at such other office or agency of the Company as may be maintained for such
purpose, in such coin or currency of the United States of America as at the time
of payment is legal tender for payment of public and private debts; provided,
however, that payment of interest may be made at the option of the Company by
check mailed to the address of the person entitled thereto as such address shall
appear on the Security Register.
Reference is hereby made to the further provisions of this Security
set forth on the reverse hereof.
A-1-4
<PAGE> 156
Unless the certificate of authentication hereon has been duly executed
by the Trustee referred to on the reverse hereof by manual signature, this
Security shall not be entitled to any benefit under the Indenture, or be valid
or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.
Dated: July 31, 1998 GOLDEN SKY SYSTEMS, INC.
By:
Name:
Title:
By:
Name:
Title:
A-1-5
<PAGE> 157
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the 12-3/8% Senior Subordinated Notes due 2006, Series
A, referred to in the within-mentioned Indenture.
Dated: July 31, 1998 STATE STREET BANK AND TRUST
COMPANY OF MISSOURI, N.A.,
as Trustee
By:
Authorized Signatory
A-1-6
<PAGE> 158
[REVERSE OF SECURITY]
1. Indenture. This Security is one of a duly authorized issue of
Securities of the Company designated as its 12 3/8% Senior Subordinated Notes
due 2006, Series A (herein called the "Initial Securities"). The Securities are
limited (except as otherwise provided in the Indenture referred to below) in
aggregate principal amount to $195,000,000, which may be issued under an
indenture (herein called the "Indenture") dated as of July 31, 1998, by and
among the Company and State Street Bank and Trust Company of Missouri, N.A., as
trustee (herein called the "Trustee," which term includes any successor Trustee
under the Indenture), to which Indenture and all indentures supplemental thereto
reference is hereby made for a statement of the respective rights, limitations
of rights, duties, obligations and immunities thereunder of the Company, the
Trustee and the Holders of the Securities, and of the terms upon which the
Securities are, and are to be, authenticated and delivered. The Securities
include the Initial Securities, the Private Exchange Securities and the Exchange
Securities, issued in exchange for the Initial Securities pursuant to the
Registration Rights Agreement. The Initial Securities and the Exchange
Securities are treated as a single class of securities under the Indenture.
All capitalized terms used in this Security which are defined in the
Indenture and not otherwise defined herein shall have the meanings assigned to
them in the Indenture.
The terms of the Securities include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of 1939
(15 U.S.C. Sections 77aaa-77bbbb) (the "TIA"), as in effect on the date of the
Indenture. Notwithstanding anything to the contrary herein, the Securities are
subject to all such terms, and Holders of Securities are referred to the
Indenture and the TIA for a statement of such terms.
No reference herein to the Indenture and no provisions of this
Security or of the Indenture shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of, premium,
if any, and interest on this Security at the times, place, and rate, and in the
coin or currency, herein prescribed.
A-1-7
<PAGE> 159
2. Guarantees. This Security may be entitled to certain senior
subordinated Guarantees made for the benefit of the Holders. Reference is hereby
made to Article Fifteen and Section 10.22 of the Indenture for a statement of
the respective rights, limitations of rights, duties and obligations thereunder
of the Guarantors, the Trustee and the Holders.
3. Registration Rights. Pursuant to the Registration Rights Agreement
by and among the Company and the Initial Purchasers, the Company will be
obligated to consummate an exchange offer pursuant to which the Holder of this
Security shall have the right to exchange this Security for 12 3/8% Senior
Subordinated Notes due 2006, Series B, of the Company (herein called the
"Exchange Securities"), which have been registered under the Securities Act, in
like principal amount and having identical terms as the Securities (other than
as set forth in this paragraph). The Holders of Securities shall be entitled to
receive certain additional interest payments in the event such exchange offer is
not consummated and upon certain other conditions, all pursuant to and in
accordance with the terms of the Registration Rights Agreement.
4. Subordination. The Indebtedness evidenced by the Securities is, to
the extent and in the manner provided in the Indenture, subordinate and subject
in right of payment to the prior payment in full of all Senior Indebtedness
(including, without limitation, interest on such Senior Indebtedness that would
accrue but for the filing of a petition initiating any proceeding under any
Bankruptcy Law, whether or not such claim is allowable in such proceeding) as
defined in the Indenture, and this Series A Security is issued subject to such
provisions. Each Holder of this Series A Security, by accepting the same, (a)
agrees to and shall be bound by such provisions, (b) authorizes and directs the
Trustee, on behalf of such Holder, to take such action as may be necessary or
appropriate to effectuate the subordination as provided in the Indenture and (c)
appoints the Trustee attorney-in-fact of such Holder for such purpose; provided,
however, that the Indebtedness evidenced by this Series A Security shall cease
to be so subordinate and subject in right of payment upon any defeasance of this
Series A Security referred to below.
5. Redemption. (a) Optional Redemption. The Securities will be
redeemable, at the option of the Company, in whole or in part, on or after
August 1, 2003 upon not less than 30 nor more than 60 days' written notice at
A-1-8
<PAGE> 160
the redemption prices (expressed as percentages of principal amount) set forth
below, plus accrued and unpaid interest thereon, if any, to the applicable
redemption date, if redeemed during the twelve-month period beginning on August
1 of each of the years indicated below:
Year Percentage
---- ----------
2003............................................ 112%
2004............................................ 110%
2005 and thereafter............................. 108%
(b) Optional Redemption upon Public Equity Offerings. On or prior to
August 1, 2001, the Company may, at its option, redeem up to 35% of the
originally issued aggregate principal amount of the Securities, at a redemption
price in cash equal to 112.375% of the principal amount thereof, plus accrued
and unpaid interest thereon, if any, to the date of redemption solely with the
net proceeds of a Public Equity Offering of the Company or Holdings yielding
gross proceeds of at least $40 million and any subsequent Public Equity
Offerings (provided that, in the case of any such Public Equity Offering or
Public Equity Offerings by Holdings, all the net proceeds thereof are
contributed to the Company); provided, further, that not less than 65% of the
originally issued aggregate principal amount of the Securities is outstanding
following such redemption. Notice of any such redemption must be given not later
than 60 days after the consummation of any sale resulting in the requisite gross
proceeds.
(c) Mandatory Redemption. The Company will not be required to make any
mandatory sinking fund payments in respect of the Securities. However, (i)
following the occurrence of a Change of Control or the making of an Escrow
Proceeds Offer, the Company will be required to make an offer to purchase all
outstanding Securities at a price equal to 101% of the principal amount thereof
(determined at the date of purchase), plus accrued interest thereon, if any, to
the date of purchase and (ii) upon the occurrence of an Asset Sale, the Company
may be obligated to make an offer to purchase all or a portion of the
outstanding Securities at a price equal to 100% of the principal amount thereof
(determined at the date of purchase), plus accrued and unpaid interest, if any,
to the date of purchase.
(d) Interest Payments. In the case of any redemption of Series A
Securities, interest installments whose Stated Maturity is on or prior to the
Redemption Date will be payable to the Holders of such Securities, or one or
more Predecessor Securities, of record at the close of business on the relevant
A-1-9
<PAGE> 161
Record Date referred to on the face hereof. Securities (or portions thereof) for
whose redemption and payment provision is made in accordance with the Indenture
shall cease to bear interest from and after the Redemption Date.
(e) Partial Redemption. In the event of redemption of this Series A
Security in part only, a new Series A Security or Securities for the unredeemed
portion hereof shall be issued in the name of the Holder hereof upon the
cancellation hereof.
6. Offers to Purchase. Section 10.10 of the Indenture provides that
upon the occurrence of a Change of Control and Section 10.24 of the Indenture
provides that upon the occurrence of an Escrow Proceeds Offer, and subject to
certain conditions and limitations contained therein, the Company shall make an
offer to purchase all or a portion of the Securities in accordance with the
procedures set forth in the Indenture.
7. Defaults and Remedies. If an Event of Default occurs and is
continuing, the principal of all of the Outstanding Securities, plus all accrued
and unpaid interest, if any, to and including the date the Securities are paid,
may be declared due and payable in the manner and with the effect provided in
the Indenture.
8. Defeasance. The Indenture contains provisions (which provisions
apply to this Security) for defeasance at any time of (a) the entire
indebtedness of the Company and (b) certain restrictive covenants and related
Defaults and Events of Default, in each case upon compliance by the Company with
certain conditions set forth therein.
9. Amendments and Waivers. The Indenture permits, with certain
exceptions as provided therein, the amendment thereof and the modification of
the rights and obligations of the Company and the rights of the Holders under
the Indenture at any time by the Company and the Trustee with the consent of the
Holders of not less than a majority in aggregate principal amount of the
Securities at the time Outstanding. The Indenture also contains provisions
permitting the Holders of specified percentages in aggregate principal amount of
the Securities at the time Outstanding, on behalf of the Holders of all the
Securities, to waive compliance by the Company with certain provisions of the
A-1-10
<PAGE> 162
Indenture and certain past Defaults under the Indenture and this Security and
their consequences. Any such consent or waiver by or on behalf of the Holder of
this Security shall be conclusive and binding upon such Holder and upon all
future Holders of this Security and of any Security issued upon the registration
of transfer hereof or in exchange herefor or in lieu hereof whether or not
notation of such consent or waiver is made upon this Security.
10. Denominations, Transfer and Exchange. The Securities are issuable
only in registered form without coupons in denominations of $1,000 and any
integral multiple thereof. As provided in the Indenture and subject to certain
limitations therein set forth, the Securities are exchangeable for a like
aggregate principal amount of Securities of a different authorized denomination,
as requested by the Holder surrendering the same.
As provided in the Indenture and subject to certain limitations
therein set forth, the transfer of this Security is registrable on the Security
Register of the Company, upon surrender of this Security for registration of
transfer at the office or agency of the Company maintained for such purpose in
the Borough of Manhattan in The City of New York, State of New York, or at such
other office or agency of the Company as may be maintained for such purpose,
duly endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Company and the Registrar duly executed by, the Holder
hereof or his attorney duly authorized in writing, and thereupon one or more new
Securities, of authorized denominations and for the same aggregate principal
amount, will be issued to the designated transferee or transferees.
No service charge shall be made for any registration of transfer or
exchange or redemption of Securities, but the Company may require payment of a
sum sufficient to cover any tax or other governmental charge payable in
connection therewith.
11. Persons Deemed Owners. Prior to and at the time of due presentment
of this Security for registration of transfer, the Company, the Trustee and any
agent of the Company or the Trustee may treat the person in whose name this
Security is registered as the owner hereof for all purposes, whether or not this
Security shall be overdue, and neither the Company, the Trustee nor any agent
shall be affected by notice to the contrary.
12. GOVERNING LAW. THE INDENTURE AND THIS SECURITY SHALL BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT
A-1-11
<PAGE> 163
GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.
The Company will furnish to any Holder of a Security upon written
request and without charge a copy of the Indenture. Requests may be made to:
Golden Sky Systems, Inc., 605 West 47th Street, Suite 300, Kansas City, Missouri
64112.
A-1-12
<PAGE> 164
ASSIGNMENT FORM
If you the holder want to assign this Security, fill in the form below and have
your signature guaranteed:
I or we assign and transfer this Security to
- --------------------------------------------------------------------------------
(Insert assignee's social security or tax ID number)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code) and irrevocably appoint
- --------------------------------------------------------------------------------
agent to transfer this Security on the books of the Company. The agent may
substitute another to act for such agent.
In connection with any transfer of this Security occurring prior to
the date which is the earlier of (i) the date of the declaration by the SEC of
the effectiveness of a registration statement under the Securities Act of 1933,
as amended (the "Securities Act"), covering resales of this Security (which
effectiveness shall not have been suspended or terminated at the date of the
transfer) and (ii) the date two years (or such shorter period of time as
permitted by Rule 144 under the Securities Act or any successor provision
thereunder) after the later of the original issuance date appearing on the face
of this Security (or any Predecessor Security) or the last date on which the
Company or any Affiliate of the Company was the owner of this Security (or any
Predecessor Security), the undersigned confirms that it has not utilized any
general solicitation or general advertising in connection with the transfer and
that:
[Check One]
A-1-13
<PAGE> 165
[ ] (a) this Security is being transferred in compliance with
the exemption from registration under the Securities Act
provided by Rule 144A thereunder.
or
[ ] (b) this Security is being transferred other than in
accordance with (a) above and documents, including (i) a
transferee certificate substantially in the form of Exhibit C
to the Indenture in the case of a transfer to non-QIB
Accredited Investors or (ii) a transferor certificate
substantially in the form of Exhibit D to the Indenture in
the case of a transfer pursuant to Regulation S, are being
furnished which comply with the conditions of transfer set
forth in this Security and the Indenture.
If none of the foregoing boxes is checked and, in the case of (b) above, if the
appropriate document is not attached or otherwise furnished to the Trustee, the
Trustee or Registrar shall not be obligated to register this Security in the
name of any person other than the Holder hereof unless and until the conditions
to any such transfer of registration set forth herein and in Section 3.17 of the
Indenture shall have been satisfied.
________________________________________________________________________________
Date: ______________ Your signature: _________________________________________
(Sign exactly as your name
appears on the other side of
this Security)
By:
NOTICE: To be executed
by an executive officer
Signature Guarantee:____________________
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED
The undersigned represents and warrants that it is purchasing this
Security for its own account or an account with respect to which it exercises
sole investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act
and is aware that the sale to it is being made in reliance on Rule 144A and
A-1-14
<PAGE> 166
acknowledges that it has received such information regarding the Company as the
undersigned has requested pursuant to Rule 144A (including the information
specified in Rule 144A(d)(4)) or has determined not to request such information
and that it is aware that the transferor is relying upon the undersigned's
foregoing representations in order to claim the exemption from registration
provided by Rule 144A.
Dated:___________________
NOTICE: To be executed by
an executive officer
A-1-15
<PAGE> 167
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Security purchased by the Company pursuant to
Section 10.10 of the Indenture, check the appropriate box:
Section 10.10 [ ]
If you wish to have a portion of this Security purchased by the
Company pursuant to Section 10.10 of the Indenture, state the amount:
$
================
Date:______________ Your signature:___________________________________________
(Sign exactly as your name
appears on the other side of this
Security)
By:
NOTICE: To be executed
by an executive officer
Signature Guarantee:____________________
A-1-16
<PAGE> 168
Exhibit A-2
GOLDEN SKY SYSTEMS, INC.
________________________
12 3/8% SENIOR SUBORDINATED NOTES DUE 2006
CUSIP No. __________
No. ___________ $
GOLDEN SKY SYSTEMS, INC., a corporation incorporated under the laws of
the State of Delaware (herein called the "Company," which term includes any
successor corporation under the Indenture hereinafter referred to), for value
received, hereby promises to pay to _______________ or registered assigns, the
principal sum of _______________ Dollars on August 1, 2006, at the office or
agency of the Company referred to below, and to pay interest thereon on February
1 and August 1 (each an "Interest Payment Date"), of each year, commencing on
February 1, 1999, accruing from the Issue Date or from the most recent Interest
Payment Date to which interest has been paid or duly provided for, at the rate
of 12 3/8% per annum, until the principal hereof is paid or duly provided for.
Interest shall be computed on the basis of a 360-day year of twelve 30-day
months.
The interest so payable, and punctually paid or duly provided for, on
any Interest Payment Date will, as provided in the Indenture referred to on the
reverse hereof, be paid to the person in whose name this Security (or one or
more Predecessor Securities) is registered at the close of business on the
January 15 or July 15 (each a "Regular Record Date"), whether or not a Business
Day, as the case may be, next preceding such Interest Payment Date. Any such
interest not so punctually paid, or duly provided for, and interest on such
defaulted interest at the then applicable interest rate borne by the Securities,
to the extent lawful, shall forthwith cease to be payable to the Holder on such
Regular Record Date, and may be paid to the person in whose name this Security
(or one or more Predecessor Securities) is registered at the close of business
on a Special Record Date for the payment of such defaulted interest to be fixed
A-2-1
<PAGE> 169
by the Trustee, notice of which shall be given to Holders of Securities not less
than 10 days prior to such Special Record Date, or may be paid at any time in
any other lawful manner not inconsistent with the requirements of any securities
exchange on which the Securities may be listed, and upon such notice as may be
required by such exchange, all as more fully provided in such Indenture.
Payment of the principal of, premium, if any, and interest on this
Security will be made at the office or agency of the Company maintained for that
purpose in the Borough of Manhattan in The City of New York, State of New York,
or at such other office or agency of the Company as may be maintained for such
purpose, in such coin or currency of the United States of America as at the time
of payment is legal tender for payment of public and private debts; provided,
however, that payment of interest may be made at the option of the Company by
check mailed to the address of the person entitled thereto as such address shall
appear on the Security Register.
Reference is hereby made to the further provisions of this Security
set forth on the reverse hereof.
A-2-2
<PAGE> 170
Unless the certificate of authentication hereon has been duly executed
by the Trustee referred to on the reverse hereof by manual signature, this
Security shall not be entitled to any benefit under the Indenture, or be valid
or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.
Dated: July 31, 1998 GOLDEN SKY SYSTEMS, INC.
By:
Name:
Title:
By:
Name:
Title:
A-2-3
<PAGE> 171
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the 12 3/8% Senior Subordinated Notes due 2006, Series
B, referred to in the within-mentioned Indenture.
Dated: July 31, 1998 STATE STREET BANK AND TRUST
COMPANY OF MISSOURI, N.A.,
as Trustee
By:
Authorized Signatory
A-2-4
<PAGE> 172
REVERSE OF SECURITY
1. Indenture. This Security is one of a duly authorized issue of
Securities of the Company designated as its 12 3/8% Senior Subordinated Notes
due 2006, Series B (herein called the "Exchange Securities"). The Securities are
limited (except as otherwise provided in the Indenture referred to below) in
aggregate principal amount to $195,000,000, which may be issued under an
indenture (herein called the "Indenture") dated as of July 31, 1998, by and
among the Company and State Street Bank and Trust Company of Missouri, N.A., as
trustee (herein called the "Trustee," which term includes any successor Trustee
under the Indenture), to which Indenture and all indentures supplemental thereto
reference is hereby made for a statement of the respective rights, limitations
of rights, duties, obligations and immunities thereunder of the Company, the
Trustee and the Holders of the Securities, and of the terms upon which the
Securities are, and are to be, authenticated and delivered. The Securities
include the Initial Securities, the Private Exchange Securities and the Exchange
Securities, issued in exchange for the Initial Securities pursuant to the
Registration Rights Agreement. The Initial Securities and the Exchange
Securities are treated as a single class of securities under the Indenture.
All capitalized terms used in this Security which are defined in the
Indenture and not otherwise defined herein shall have the meanings assigned to
them in the Indenture.
The terms of the Securities include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of 1939
(15 U.S.C. Sections 77aaa-77bbbb) (the "TIA"), as in effect on the date of the
Indenture. Notwithstanding anything to the contrary herein, the Securities are
subject to all such terms, and Holders of Securities are referred to the
Indenture and the TIA for a statement of such terms.
No reference herein to the Indenture and no provisions of this
Security or of the Indenture shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of, premium,
if any, and interest on this Security at the times, place, and rate, and in the
coin or currency, herein prescribed.
A-2-5
<PAGE> 173
2. Guarantees. This Security may be entitled to certain senior
subordinated Guarantees made for the benefit of the Holders. Reference is hereby
made to Article Fifteen and Section 10.22 of the Indenture for a statement of
the respective rights, limitations of rights, duties and obligations thereunder
of the Guarantors, the Trustee and the Holders.
3. Subordination. The Indebtedness evidenced by the Securities is, to
the extent and in the manner provided in the Indenture, subordinate and subject
in right of payment to the prior payment in full of all Senior Indebtedness
(including, without limitation, interest on such Senior Indebtedness that would
accrue but for the filing of a petition initiating any proceeding under any
Bankruptcy Law, whether or not such claim is allowable in such proceeding) as
defined in the Indenture, and this Series B Security is issued subject to such
provisions. Each Holder of this Security, by accepting the same, (a) agrees to
and shall be bound by such provisions, (b) authorizes and directs the Trustee,
on behalf of such Holder, to take such action as may be necessary or appropriate
to effectuate the subordination as provided in the Indenture and (c) appoints
the Trustee attorney-in-fact of such Holder for such purpose; provided, however,
that the Indebtedness evidenced by this Series B Security shall cease to be so
subordinate and subject in right of payment upon any defeasance of this Series B
Security referred to below.
4. Redemption. (a) Optional Redemption. The Securities will be
redeemable, at the option of the Company, in whole or in part, on or after
August 1, 2003 upon not less than 30 nor more than 60 days' written notice at
the redemption prices (expressed as percentages of principal amount) set forth
below, plus accrued and unpaid interest thereon, if any, to the applicable
redemption date, if redeemed during the twelve-month period beginning on ______
of each of the years indicated below:
Year Percentage
---- ----------
2003.......................................... 112%
2004.......................................... 110%
2005 and thereafter........................... 108%
(b) Optional Redemption upon Public Equity Offerings. On or prior to
August 1, 2001, the Company may, at its option, redeem up to 35% of the
originally issued aggregate principal amount of the Securities, at a redemption
price in cash equal to 112.375% of the principal amount thereof, plus accrued
and unpaid interest thereon, if any, to date of redemption solely with the net
A-2-6
<PAGE> 174
proceeds of a Public Equity Offering of the Company or Holdings yielding gross
proceeds of at least $40 million and any subsequent Public Equity Offering
(provided that, in the case of any such sale or sales by Holdings, all the net
proceeds thereof are contributed to the Company); provided, further, that not
less than 65% of the originally issued aggregate principal amount of the
Securities is outstanding following such redemption. Notice of any such
redemption must be given not later than 60 days after the consummation of any
sale resulting in the requisite gross proceeds.
(c) Mandatory Redemption. The Company will not be required to make any
mandatory sinking fund payments in respect of the Securities. However, (i)
following the occurrence of a Change of Control or the making of an Escrow
Proceeds Offer, the Company will be required to make an offer to purchase all
outstanding Securities at a price equal to 101% of the principal amount thereof
(determined at the date of purchase), plus accrued interest thereon, if any, to
the date of purchase and (ii) upon the occurrence of an Asset Sale, the Company
may be obligated to make an offer to purchase all or a portion of the
outstanding Securities at a price equal to 100% of the principal amount thereof
(determined at the date of purchase), plus accrued and unpaid interest, if any,
to the date of purchase.
(d) Interest Payments. In the case of any redemption of Series B
Securities, interest installments whose Stated Maturity is on or prior to the
Redemption Date will be payable to the Holders of such Securities, or one or
more Predecessor Securities, of record at the close of business on the relevant
Record Date referred to on the face hereof. Securities (or portions thereof) for
whose redemption and payment provision is made in accordance with the Indenture
shall cease to bear interest from and after the Redemption Date.
(e) Partial Redemption. In the event of redemption of this Series B
Security in part only, a new Series B Security or Securities for the unredeemed
portion hereof shall be issued in the name of the Holder hereof upon the
cancellation hereof.
5. Offers to Purchase. Section 10.10 of the Indenture provides that
upon the occurrence of a Change of Control and Section 10.24 of the Indenture
provides that upon the occurrence of an Escrow Proceeds Offer, and subject to
certain conditions and limitations contained therein, the Company shall make an
A-2-7
<PAGE> 175
offer to purchase all or a portion of the Securities in accordance with the
procedures set forth in the Indenture.
6. Defaults and Remedies. If an Event of Default occurs and is
continuing, the principal of all of the Outstanding Securities, plus all accrued
and unpaid interest, if any, to and including the date the Securities are paid,
may be declared due and payable in the manner and with the effect provided in
the Indenture.
7. Defeasance. The Indenture contains provisions (which provisions
apply to this Security) for defeasance at any time of (a) the entire
indebtedness of the Company and (b) certain restrictive covenants and related
Defaults and Events of Default, in each case upon compliance by the Company with
certain conditions set forth therein.
8. Amendments and Waivers. The Indenture permits, with certain
exceptions as provided therein, the amendment thereof and the modification of
the rights and obligations of the Company and the rights of the Holders under
the Indenture at any time by the Company and the Trustee with the consent of the
Holders of not less than a majority in aggregate principal amount of the
Securities at the time Outstanding. The Indenture also contains provisions
permitting the Holders of specified percentages in aggregate principal amount of
the Securities at the time Outstanding, on behalf of the Holders of all the
Securities, to waive compliance by the Company with certain provisions of the
Indenture and certain past Defaults under the Indenture and this Security and
their consequences. Any such consent or waiver by or on behalf of the Holder of
this Security shall be conclusive and binding upon such Holder and upon all
future Holders of this Security and of any Security issued upon the registration
of transfer hereof or in exchange herefor or in lieu hereof whether or not
notation of such consent or waiver is made upon this Security.
9. Denominations, Transfer and Exchange. The Securities are issuable
only in registered form without coupons in denominations of $1,000 and any
integral multiple thereof. As provided in the Indenture and subject to certain
limitations therein set forth, the Securities are exchangeable for a like
aggregate principal amount of Securities of a different authorized denomination,
as requested by the Holder surrendering the same.
A-2-8
<PAGE> 176
As provided in the Indenture and subject to certain limitations
therein set forth, the transfer of this Security is registrable on the Security
Register of the Company, upon surrender of this Security for registration of
transfer at the office or agency of the Company maintained for such purpose in
the Borough of Manhattan in The City of New York, State of New York, or at such
other office or agency of the Company as may be maintained for such purpose,
duly endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Company and the Registrar duly executed by, the Holder
hereof or his attorney duly authorized in writing, and thereupon one or more new
Securities, of authorized denominations and for the same aggregate principal
amount, will be issued to the designated transferee or transferees.
No service charge shall be made for any registration of transfer or
exchange or redemption of Securities, but the Company may require payment of a
sum sufficient to cover any tax or other governmental charge payable in
connection therewith.
10. Persons Deemed Owners. Prior to and at the time of due presentment
of this Security for registration of transfer, the Company, the Trustee and any
agent of the Company or the Trustee may treat the person in whose name this
Security is registered as the owner hereof for all purposes, whether or not this
Security shall be overdue, and neither the Company, the Trustee nor any agent
shall be affected by notice to the contrary.
11. GOVERNING LAW. THE INDENTURE AND THIS SECURITY SHALL BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT
GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.
The Company will furnish to any Holder of a Security upon written
request and without charge a copy of the Indenture. Requests may be made to:
Golden Sky Systems, Inc., 605 West 47th Street, Suite 300, Kansas City, Missouri
64112.
A-2-9
<PAGE> 177
ASSIGNMENT FORM
If you the holder want to assign this Security, fill in the form below and have
your signature guaranteed:
I or we assign and transfer this Security to
- --------------------------------------------------------------------------------
(Insert assignee's social security or tax ID number)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code) and irrevocably appoint
- --------------------------------------------------------------------------------
agent to transfer this Security on the books of the Company. The agent may
substitute another to act for such agent.
Date: Your signature:
-------------- ------------------------------------------
(Sign exactly as your name
appears on the other side of
this Security)
By:
NOTICE: To be executed
by an executive officer
Signature Guarantee:
---------------------
A-2-10
<PAGE> 178
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Security purchased by the Company pursuant to
Section 10.10 of the Indenture, check the box: [ ]
If you wish to have a portion of this Security purchased by the
Company pursuant to Section 10.10 of the Indenture, state the amount:
$
=====================
Date:______________ Your signature:___________________________________________
(Sign exactly as your name
appears on the other side of
this Security)
By:
NOTICE: To be executed
by an executive officer
Signature Guarantee:____________________
A-2-11
<PAGE> 179
EXHIBIT B
FORM OF LEGEND FOR BOOK-ENTRY SECURITIES
Any Global Security authenticated and delivered hereunder shall bear a
legend (which would be in addition to any other legends required in the case of
a Restricted Security) in substantially the following form:
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A
NOMINEE OF A DEPOSITORY OR A SUCCESSOR DEPOSITORY. THIS SECURITY IS NOT
EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN
THE DEPOSITORY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED
IN THE INDENTURE, AND NO TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER
OF THIS SECURITY AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE
DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER
NOMINEE OF THE DEPOSITORY) MAY BE REGISTERED EXCEPT IN THE LIMITED
CIRCUMSTANCES DESCRIBED IN THE INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE
COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT,
AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN
SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND
ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED
BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS
THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
B-1
<PAGE> 180
EXHIBIT C
Form of Certificate To Be
Delivered in Connection with
Transfers to Non-QIB Accredited Investors
Golden Sky Systems, Inc.
605 West 47th Street, Suite 300
Kansas City, Missouri 64112
Ladies and Gentlemen:
In connection with our proposed purchase of $170,000,000 aggregate
principal amount of the _______% Senior Subordinated Notes due 2006 (the
"Securities") of Golden Sky Systems, Inc. (the "Company"), we confirm that:
1. We understand that the Securities have not been registered under
the Securities Act of 1933, as amended (the "Securities Act"), and, unless
so registered, may not be sold except as permitted in the following
sentence. We agree on our own behalf and on behalf of any investor account
for which we are purchasing Securities to offer, sell or otherwise transfer
such Securities prior to (x) the date which is two years (or such shorter
period of time as permitted by Rule 144 under the Securities Act) after the
later of the date of original issue of the Securities and (y) such later
date, if any, as may be required by any subsequent change in applicable law
(the "Resale Restriction Termination Date") only (a) to the Company, (b)
pursuant to a registration statement which has been declared effective
under the Securities Act, (c) so long as the Securities are eligible for
resale pursuant to Rule 144A under the Securities Act, to a person we
reasonably believe is a "qualified institutional buyer" under Rule 144A (a
"QIB") that purchases for its own account or for the account of a QIB and
to whom notice is given that the transfer is being made in reliance on Rule
144A, (d) pursuant to offers and sales that occur outside the United States
to "foreign purchasers" (as defined below) in offshore transactions meeting
the requirements of Rule 904 of Regulation S under the Securities Act, (e)
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<PAGE> 181
to an institutional "accredited investor" within the meaning of
subparagraph (a)(1), (2), (3) or (7) of Rule 501 under the Securities Act
(an "Accredited Investor") that is purchasing for its own account or for
the account of such an institutional "accredited investor," or (f) pursuant
to any other available exemption from the registration requirements of the
Securities Act, subject, in each of the foregoing cases, to any requirement
of law that the disposition of our property or the property of such
investor account or accounts be at all times within our or their control
and to compliance with any applicable state securities laws. The foregoing
restrictions on resale will not apply subsequent to the Resale Restriction
Termination Date. If any resale or other transfer of the Notes is proposed
to be made pursuant to clause (c) above prior to the Resale Restriction
Termination Date, the transferor shall deliver a letter from the transferee
substantially in the form of this letter to the Trustee, which shall
provide, among other things, that the transferee is an Accredited Investor
within the meaning of subparagraph (a)(1), (2), (3) or (7) of Rule 501
under the Securities Act and that it is acquiring such Securities for
investment purposes and not for distribution in violation of the Securities
Act. Each purchaser acknowledges that the Company, the Trustee and the
Transfer Agent and Registrar reserve the right prior to any offer, sale or
other transfer prior to the Resale Restriction Termination Date of the
Securities pursuant to clause (d), (e) or (f) above to require the delivery
of an opinion of counsel, certification and/or other information
satisfactory to the Company and the Trustee.
2. We are an Accredited Investor or a QIB purchasing Notes for our own
account or for the account of one or more Accredited Investors, and we are
acquiring the Securities for investment purposes and not with a view to, or
for offer or sale in connection with, any distribution in violation of the
Securities Act or the securities laws of any state of the United States and
we have such knowledge and experience in financial and business matters as
to be capable of evaluating the merits and risks of our investment in the
Securities, and we and any accounts for which we are acting are each able
to bear the economic risk of our or its investment in the Securities for an
indefinite period.
3. We are acquiring the Securities purchased by us for our own account
or for one or more accounts as to each of which we exercise sole investment
discretion and we and any such account are (a) a QIB, aware that the sale
is being made in reliance on Rule 144A under the Securities Act, (b) an
Accredited Investor, or (c) a person other than a U.S. person ("foreign
C-2
<PAGE> 182
purchasers"), which term shall include dealers or other professional
fiduciaries in the United States acting on a discretionary basis for
foreign beneficial owners (other than an estate or trust) in offshore
transactions meeting the requirements of Rules 903 and 904 of Regulation S
under the Securities Act.
4. We have received a copy of the Offering Memorandum and acknowledge
that we have had access to such financial and other information, and have
been afforded the opportunity to ask such questions of representatives of
the Company and receive answers thereto, as we deem necessary in order to
verify the information contained in the Offering Memorandum.
5. We are not purchasing the Securities for or on behalf of, and will
not transfer the Securities to, any pension or welfare plan (as defined in
Section 3 of ERISA), except as may be permitted under ERISA and as
described under "Notice to Investors" in the Offering Memorandum.
6. In the event that we purchase any Securities, we will acquire
Securities having an outstanding principal amount of at least $250,000 for
our own account and $250,000 for each account for which we are acting.
We understand that the Trustee and the Transfer Agent will not be
required to accept for registration of transfer any Securities acquired by us,
except upon presentation of evidence satisfactory to the Company and the Trustee
that the foregoing restrictions on transfer have been complied with. We further
understand that the Securities purchased by us will be in the form of definitive
physical certificates and that such certificates will bear a legend reflecting
the substance of this paragraph. We further agree to provide to any person
acquiring any of the Securities from us a notice advising such person that
transfers of such Securities are restricted as stated herein and that
certificates representing such Securities will bear a legend to that effect.
We represent that you, the Company, the Trustee and others are
entitled to rely upon the truth and accuracy of our acknowledgements,
representations and agreements set forth herein, and we agree to notify you
promptly in writing if any of our acknowledgements, representations or
C-4
<PAGE> 183
agreements herein cease to be accurate and complete. You are also irrevocably
authorized to produce this letter or a copy hereof to any interested party in
any administrative or legal proceeding or official inquiry with respect to the
matters covered hereby.
We represent to you that we have full power to make the foregoing
acknowledgements, representations and agreements on our own behalf and on behalf
of any investor account for which we are acting as fiduciary agent.
As used herein, the terms "offshore transaction," "United States" and
"U.S. person" have the respective meanings given to them in Regulation S under
the Securities Act.
THIS LETTER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK.
Very truly yours,
(Name of Purchaser)
By:________________________________
Date:______________________________
Upon transfer, the Securities would be registered in the name of the
new beneficial owner as follows:
Name:______________________________
Address:______________________________
C-4
<PAGE> 184
EXHIBIT D
Form of Certificate To Be Delivered
in Connection with Transfers
Pursuant to Regulation S
______________, ____
State Street Bank and Trust Company
of Missouri, N.A.
One Metropolitan Square, 39th Floor
211 North Broadway
St. Louis, MO 63102
Attention: Corporate Trust Trustee Administration
Re: Golden Sky Systems, Inc.
(the "Company") % Senior Subordinated
Notes due 2006 (the "Securities")
Ladies and Gentlemen:
In connection with our proposed sale of $170,000,000 aggregate
principal amount at maturity of the Securities, we confirm that such sale has
been effected pursuant to and in accordance with Regulation S under the U.S.
Securities Act of 1933, as amended (the "Securities Act"), and, accordingly, we
represent that:
(1) the offer of the Securities was not made to a person in the United
States;
(2) either (a) at the time the buy offer was originated, the
transferee was outside the United States or we and any person acting on our
behalf reasonably believed that the transferee was outside the United
States, or (b) the transaction was executed in, on or through the
facilities of a designated off-shore securities market and neither we nor
any person acting on our behalf knows that the transaction has been
pre-arranged with a buyer in the United States;
(3) no directed selling efforts have been made in the United States in
contravention of the requirements of Rule 903(b) or Rule 904(b) of
Regulation S, as applicable;
D-1
<PAGE> 185
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act;
(5) we have advised the transferee of the transfer restrictions
applicable to the Securities; and
(6) if the circumstances set forth in Rule 904(c) under the Securities
Act are applicable, we have complied with the additional conditions
therein, including (if applicable) sending a confirmation or other notice
stating that the Securities may be offered and sold during the restricted
period specified in Rule 903(c)(2) or (3), as applicable; in accordance
with the provisions of Regulation S; pursuant to registration of the
Securities under the Securities Act; or pursuant to an available exemption
from the registration requirements under the Securities Act.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby. Terms used in this certificate have the
meanings set forth in Regulation S.
Very truly yours,
[Name of Transferor]
By:____________________
Authorized Signature
D-2
<PAGE> 186
EXHIBIT E
FORM OF GUARANTEE
For value received, the undersigned hereby unconditionally guarantees
to the Holder of this Security the cash payments in United States dollars of
principal of, premium, if any, and interest on this Security in the amounts and
at the time when due and interest on the overdue principal, premium, if any, and
interest, if any, of this Security, if lawful, and the payment or performance of
all other obligations of the Company under the Indenture or the Securities, to
the Holder of this Security and the Trustee, all in accordance with and subject
to the terms and limitations of this Security, Article Fifteen of the Indenture
and this Guarantee. This Guarantee will become effective in accordance with
Article Fifteen of the Indenture and its terms shall be evidenced therein. The
validity and enforceability of any Guarantee shall not be affected by the fact
that it is not affixed to any particular Security. Capitalized terms used but
not defined herein shall have the meanings ascribed to them in the Indenture
dated as of July 31, 1998, among Golden Sky Systems, Inc., the undersigned and
State Street Bank and Trust Company of Missouri, N.A., as Trustee, as amended or
supplemented (the "Indenture").
The obligations of the undersigned to the Holders of Securities and to
the Trustee pursuant to the Guarantee and the Indenture are expressly set forth
in Article Fifteen of the Indenture and reference is hereby made to the
Indenture for the precise terms of the Guarantee and all of the other provisions
of the Indenture to which this Guarantee relates.
THIS GUARANTEE WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF
LAW. THE SUBSIDIARY GUARANTOR HEREUNDER AGREES TO SUBMIT TO THE NON-EXCLUSIVE
JURISDICTION OF THE STATE OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF
OR RELATING TO THE INDENTURE, THE SECURITIES OR THIS GUARANTEE.
This Guarantee is subject to release upon the terms set forth in the
Indenture.
Date:
[ ]
as Guarantor
By:______________________________
Name:
Title:
E-1
<PAGE> 1
EXHIBIT 5.1
[Letterhead of Reboul, MacMurray, Hewitt, Maynard & Kristol]
November 30, 1998
Golden Sky Systems, Inc.
605 West 47th Street, Suite 300
Kansas City, Missouri 64112
Golden Sky Systems, Inc.
Registration Statement on Form S-4
(Registration No. 333-64367)
Ladies and Gentlemen:
We have acted as counsel to Golden Sky Systems, Inc., a
Delaware corporation (the "Company"), in connection with its Registration
Statement on Form S-4 (the "Registration Statement"), filed under the Securities
Act of 1933, as amended (the "Act"), relating to the proposed offer by the
Company to exchange up to $195,000,000 aggregate principal amount of its 12 3/8%
Senior Subordinated Notes due 2006, Series B (the "New Notes"), for a like
principal amount of its outstanding 12 3/8% Senior Subordinated Notes due 2006,
Series A (the "Old Notes").
In that connection, we have examined originals, or copies
certified or otherwise identified to our satisfaction, of such documents,
corporate records and other instruments as we have deemed necessary or
appropriate for the purposes of this opinion, including the Second Amended and
Restated Certificate of Incorporation and By-laws of the Company.
Based upon the foregoing, we are of opinion that:
1. The Company has been duly organized and is validly existing
under the laws of the State of Delaware.
2. The New Notes have been duly and validly authorized by the
Company and, when issued under the Indenture in substantially the form
filed as Exhibit 4.1 to the
<PAGE> 2
2
Registration Statement in exchange for the Old Notes, upon the terms
and subject to the conditions contained in the Prospectus comprising
part of the Registration Statement and in the Letter of Transmittal
substantially in the form filed as Exhibit 99.1 to the Registration
Statement, will be valid and binding obligations of the Company.
We hereby consent to the use of this opinion as an exhibit to
the Registration Statement and to the reference to our firm under the caption
"Legal Matters" in the Prospectus comprising a part of the Registration
Statement. By giving the foregoing consent, we do not admit that we come within
the category of persons whose consent is required under Section 7 of the Act.
Very truly yours,
/s/ Reboul, MacMurray, Hewitt, Maynard & Kristol
<PAGE> 1
Exhibit 10.2
The Company has omitted from this Exhibit 10.2 a portion of the Schedules
hereto for which the Company has requested confidential treatment under Rule
406 under the Securities Act of 1933, as amended. The portion of this Agreement
for which confidential treatment has been requested is marked "[CONFIDENTIAL
TREATMENT REQUESTED]," and such confidential portion has been filed separately
with the Securities and Exchange Commission.
$150,000,000
AMENDED AND RESTATED
CREDIT AGREEMENT
among
GOLDEN SKY HOLDINGS, INC.,
GOLDEN SKY SYSTEMS, INC.,
VARIOUS BANKS,
BANQUE PARIBAS,
as Syndication Agent,
FLEET NATIONAL BANK,
as Administrative Agent,
and
GENERAL ELECTRIC CAPITAL
CORPORATION,
as Documentation Agent
----------------------------------------
Dated as of July 7, 1997
Amended and Restated as of May 8, 1998
----------------------------------------
<PAGE> 2
[CAPTION]
TABLE OF CONTENTS
Page
Section 1. Amount and Terms of Credit........................................
1.01 The Commitments................................................
1.02 Minimum Amount of Each Borrowing...............................
1.03 Notice of Borrowing............................................
1.04 Disbursement of Funds..........................................
1.05 Notes..........................................................
1.06 Conversions....................................................
1.07 Pro Rata Borrowings............................................
1.08 Interest.......................................................
1.09 Interest Periods...............................................
1.10 Increased Costs, Illegality, etc...............................
1.11 Compensation...................................................
1.12 Replacement of Banks...........................................
Section 1A. Letters of Credit................................................
1A.01 Letters of Credit.............................................
1A.02 Minimum Stated Amount.........................................
1A.03 Letter of Credit Requests.....................................
1A.04 Letter of Credit Participations...............................
1A.05 Agreement to Repay Letter of Credit Drawings..................
1A.06 Increased Costs...............................................
Section 2. Commitment Commission; Fees; Reductions of Commitment.............
2.01 Fees...........................................................
2.02 Voluntary Termination of Unutilized Commitments................
2.03 Mandatory Reduction of Commitments.............................
Section 3. Prepayments; Payments; Taxes......................................
3.01 Voluntary Prepayments..........................................
3.02 Mandatory Repayments and Commitment Reductions.................
3.03 Method and Place of Payment....................................
3.04 Net Payments...................................................
Section 4. Conditions Precedent to the Restatement Effective Date
and Loans on the Restatement Effective Date..........................
4.01 Execution of Agreement; Notes..................................
4.02 Officer's Certificate..........................................
4.03 Opinions of Counsel............................................
<PAGE> 3
Page
4.04 Corporate Documents; Proceedings...............................
4.05 Employee Benefit Plans; Shareholders' Agreements; Management
Agreements; Employment Agreements; Collective Bargaining
Agreements; Debt Agreements; Tax Sharing Agreements;
Affiliate Contracts and Material Contracts..................
4.06 Consummation of the Reorganization Transaction.................
4.07 Existing Credit Agreement......................................
4.08 Subsidiaries Guaranty..........................................
4.09 Holdings Pledge Agreement......................................
4.10 Security Document Acknowledgment; Pledge Agreements; Security
Agreement...................................................
4.11 Minimum Subscribers and Households.............................
4.12 Material Adverse Change, etc...................................
4.13 Litigation.....................................................
4.14 Fees, etc......................................................
4.15 Solvency Certificate; Insurance Analyses.......................
4.16 Approvals......................................................
4.17 Financial Statements; Projections; Management Letter Reports...
4.18 Consent Letter.................................................
4.19 Acquisitions...................................................
Section 5. Conditions Precedent to All Credit Events.........................
5.01 No Default; Representations and Warranties.....................
5.02 Notice of Borrowing; Letter of Credit Request..................
5.03 Permitted Acquisitions.........................................
5.04 Material Adverse Change, etc...................................
5.05 Litigation.....................................................
5.06 Borrowing Base Certificate.....................................
Section 6. Representations, Warranties and Agreements........................
6.01 Corporate Status...............................................
6.02 Corporate Power and Authority..................................
6.03 No Violation...................................................
6.04 Governmental Approvals.........................................
6.05 Financial Statements; Financial Condition; Undisclosed
Liabilities; Projections; etc...............................
6.06 Litigation.....................................................
6.07 True and Complete Disclosure...................................
6.08 Use of Proceeds; Margin Regulations............................
6.09 Tax Returns and Payments.......................................
6.10 Compliance with ERISA..........................................
6.11 The Security Documents.........................................
6.12 Material Contracts.............................................
6.13 Properties.....................................................
6.14 Capitalization.................................................
6.15 Subsidiaries...................................................
6.16 Compliance with Statutes, etc..................................
6.17 Investment Company Act.........................................
6.18 Public Utility Holding Company Act.............................
6.19 Environmental Matters..........................................
6.20 Labor Relations................................................
6.21 Patents, Licenses, Franchises and Formulas.....................
6.22 Indebtedness...................................................
6.23 Restrictions on or Relating to Subsidiaries....................
6.24 The Transaction and Permitted Acquisitions.....................
6.25 Year 2000 Reprogramming........................................
Section 7. Affirmative Covenants.............................................
7.01 Information Covenants..........................................
7.02 Books, Records and Inspections.................................
7.03 Maintenance of Property, Insurance.............................
7.04 Corporate Franchises...........................................
7.05 Compliance with Statutes, etc..................................
7.06 Compliance with Environmental Laws.............................
7.07 ERISA..........................................................
7.08 End of Fiscal Years; Fiscal Quarters...........................
7.09 Performance of Obligations.....................................
7.10 Payment of Taxes...............................................
7.11 Interest Rate Protection.......................................
7.12 Use of Proceeds................................................
7.13 Acceptable Subordinated Debt...................................
7.14 Intellectual Property Rights...................................
7.15 Permitted Acquisitions.........................................
7.16 Registry.......................................................
7.17 Additional Security; Further Assurances........................
7.18 Senior Seller Notes............................................
Section 8. Negative Covenants................................................
8.01 Liens..........................................................
8.02 Consolidation, Merger, Purchase or Sale of Assets, etc.........
8.03 Dividends......................................................
8.04 Indebtedness...................................................
8.05 Advances, Investments and Loans................................
8.06 Transactions with Affiliates...................................
8.07 Capital Expenditures...........................................
8.08 Net Adjusted Consolidated Indebtedness to Qualified Paying
Subscriber Ratio............................................
8.09 Adjusted Consolidated Senior Indebtedness to Qualified Paying
Subscriber Ratio............................................
8.10 Net Subscriber Acquisition Cost................................
8.11 Fixed Charge Coverage Ratio....................................
<PAGE> 4
Page
8.12 Annualized Adjusted Consolidated Interest Coverage Ratio.......
8.13 Consolidated Interest Coverage Ratio...........................
8.14 Net Adjusted Consolidated Indebtedness to Pro Forma Annualized
Adjusted Consolidated EBITDA................................
8.15 Adjusted Consolidated Senior Indebtedness to Pro Forma
Annualized Adjusted Consolidated EBITDA.....................
8.16 Net Adjusted Consolidated Indebtedness to Pro Forma Annualized
Consolidated EBITDA.........................................
8.17 Adjusted Consolidated Senior Indebtedness to Pro Forma
Annualized Consolidated EBITDA..............................
8.18 Limitation on Voluntary Payments and Modification of Existing
Indebtedness; Limitation on Modifications of Certificate of
Incorporation, By-Laws and Certain Other Agreements; etc....
8.19 Limitation on Certain Restrictions on Subsidiaries.............
8.20 Limitation on Issuance of Capital Stock........................
8.21 Business.......................................................
8.22 Limitation on Creation of Subsidiaries.........................
Section 9. Events of Default.................................................
9.01 Payments.......................................................
9.02 Representations, etc...........................................
9.03 Covenants......................................................
9.04 Default Under Other Agreements.................................
9.05 Bankruptcy, etc................................................
9.06 ERISA..........................................................
9.07 Security Documents.............................................
9.08 Guaranties.....................................................
9.09 Judgments......................................................
9.10 Change in Control..............................................
9.11 DBS Agreement; NRTC Agreements; FCC Licenses...................
Section 10. Definitions and Accounting Terms.................................
10.01 Defined Terms.................................................
Section 11. The Agents.......................................................
11.01 Appointment...................................................
11.02 Nature of Duties..............................................
11.03 Lack of Reliance on the Administrative Agent, the
Syndication Agent and the Documentation Agent..............
11.04 Certain Rights of the Administrative Agent and the
Syndication Agent..........................................
11.05 Reliance......................................................
11.06 Indemnification...............................................
11.07 The Administrative Agent and the Syndication Agent in Their
Individual Capacities.......................................
<PAGE> 5
Page
11.08 Holders.......................................................
11.09 Resignation by the Agents.....................................
Section 12. Miscellaneous....................................................
12.01 Payment of Expenses, Indemnities, etc.........................
12.02 Right of Setoff...............................................
12.03 Notices.......................................................
12.04 Benefit of Agreement..........................................
12.05 No Waiver; Remedies Cumulative................................
12.06 Payments Pro Rata.............................................
12.07 Calculations; Computations....................................
12.08 GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE;
WAIVER OF JURY TRIAL........................................
12.09 Counterparts..................................................
12.10 Effectiveness.................................................
12.11 Headings Descriptive..........................................
12.12 Amendment or Waiver...........................................
12.13 Survival......................................................
12.14 Domicile of Loans.............................................
12.15 Post-Closing Obligations......................................
12.16 Amendment and Restatement; Termination of Existing Credit
Agreement...................................................
12.17 Additions of New Banks; Conversion of Existing Loans of
Continuing Banks; Termination of Commitments of
Non-Continuing Banks........................................
12.18 Entire Agreement; Successors and Assigns......................
Section 13. Holdings Guaranty................................................
13.01 The Guaranty..................................................
13.02 Bankruptcy....................................................
13.03 Nature of Liability...........................................
13.04 Guaranty Absolute.............................................
13.05 Independent Obligation........................................
13.06 Authorization.................................................
13.07 Reliance......................................................
13.08 Subordination.................................................
13.09 Waiver........................................................
13.10 Binding Nature of Guaranty....................................
13.11 Judgments Binding.............................................
<PAGE> 6
SCHEDULE I Commitments
SCHEDULE II Existing Letters of Credit
SCHEDULE III Projections
SCHEDULE IV Tax Matters
SCHEDULE V ERISA
SCHEDULE VI Material Contracts
SCHEDULE VII Real Property
SCHEDULE VIII Capitalization
SCHEDULE IX Subsidiaries
SCHEDULE X Patents and Licenses
SCHEDULE XI Existing Indebtedness
SCHEDULE XII Insurance
SCHEDULE XIII Existing Liens
EXHIBIT A Notice of Borrowing
EXHIBIT B-1 Term Note
EXHIBIT B-2 Revolving Note
EXHIBIT C Notice of Conversion
EXHIBIT D Letter of Credit Request
EXHIBIT E Section 3.04(b)(ii) Certificate
EXHIBIT F Form of Opinion of Reboul, MacMurray, Hewitt, Maynard & Kristol
EXHIBIT G Officers' Certificate of Credit Parties
EXHIBIT H Subsidiaries Guaranty
EXHIBIT I-1 Holdings Pledge Agreement
EXHIBIT I-2 Partnership Pledge Agreement
EXHIBIT J Security Documents Acknowledgment
EXHIBIT K Solvency Certificate
EXHIBIT L Consent Letter
EXHIBIT M Borrowing Base Certificate
EXHIBIT N Bank Assignment and Assumption Agreement
<PAGE> 7
AMENDED AND RESTATED CREDIT AGREEMENT, dated as of July 7, 1997,
amended and restated as of May 8, 1998, among GOLDEN SKY HOLDINGS, INC., a
corporation organized and existing under the laws of the State of Delaware
("Holdings"), GOLDEN SKY SYSTEMS, INC., a corporation organized and existing
under the laws of the State of Delaware (the "Borrower"), the Banks party hereto
from time to time, BANQUE PARIBAS, as Syndication Agent, FLEET NATIONAL BANK, as
Administrative Agent, and GENERAL ELECTRIC CAPITAL CORPORATION, as Documentation
Agent. Unless otherwise defined herein, all capitalized terms used herein and
defined in Section 10 are used herein as therein defined.
W I T N E S S E T H:
WHEREAS, the Borrower, each of the Banks (excluding the New Banks),
the Syndication Agent and the Administrative Agent are party to a Credit
Agreement, dated as of July 7, 1997 (as the same has been amended, modified or
supplemented prior to, but not including, the Restatement Effective Date, the
"Existing Credit Agreement");
WHEREAS, the parties hereto wish to amend and restate the Existing
Credit Agreement as herein provided;
WHEREAS, the Borrower wishes to obtain a credit facility to (i)
refinance Existing Loans, (ii) repay the Rocky Mountain Note, (iii) effect
Permitted Acquisitions, (iv) pay Transaction Fees and Expenses, (v) provide for
general corporate, capital expenditure and working capital purposes and (vi)
issue Letters of Credit in an amount not to exceed the limits in Section
1A.01(c);
WHEREAS, subject to and upon the terms and conditions herein set
forth, the Banks are willing to make available to the Borrower the respective
credit facilities provided for herein;
NOW, THEREFORE, IT IS AGREED:
Section 1. Amount and Terms of Credit.
1.01 The Commitments. (a) Subject to and upon the terms and conditions
set forth herein, each Bank with a Term Loan Commitment severally agrees (A) in
the case of each Continuing Bank with a Term Loan Commitment, to convert into
Term Loans (each a "Term Loan Conversion," and together, the "Term Loan
Conversions"), on the Restatement Effective Date, Existing Term Loans made by
such Continuing Bank to the Borrower pursuant to the Existing Credit Agreement
and outstanding on the Restatement Effective Date and (B) in the case of New
Banks with a Term Loan Commitment and in the case of any Continuing Bank whose
Term Loan Commitment is greater than the aggregate outstanding principal amount
of Existing Term Loans made by such Continuing Bank to the Borrower pursuant to
the Existing Credit Agreement and outstanding on the Restatement Effective Date,
prior to the Restatement Effective Date, on the Restatement Effective Date, to
make a term loan (together with each Term Loan Conversion, each, a "Term Loan"
and, collectively, the "Term Loans") to the Borrower, which Term Loans (i)
shall, at the option of the Borrower, be Base Rate Loans or Eurodollar Loans;
<PAGE> 8
provided that (x) except as otherwise specifically provided in Section 1.10(b),
all Term Loans comprising the same Borrowing shall at all times be of the same
Type and (y) no Eurodollar Loans may be incurred prior to the Syndication
Termination Date, (ii) shall not exceed for any Bank, in initial aggregate
principal amount, that amount which equals the Term Loan Commitment of such Bank
on such date (before giving effect to any reductions thereto on such date
pursuant to Section 2.03(b)) and (iii) shall not exceed for all Banks at any
time an aggregate principal amount which, when added to the aggregate amount of
all outstanding Revolving Loans at such time, and all Letter of Credit
Outstandings at such time and the aggregate outstanding amount of all other Net
Adjusted Consolidated Indebtedness at such time, equals the Borrowing Base at
such time. Once repaid, Term Loans incurred hereunder may not be reborrowed. To
the extent that any Continuing Bank's Term Loan Commitment is less than the
amount of Existing Term Loans made by such Continuing Bank to the Borrower
pursuant to the Existing Credit Agreement and outstanding on the Restatement
Effective Date immediately prior to the Restatement Effective Date, the proceeds
of other Term Loans shall be used to repay such Continuing Bank the amount of
such Continuing Bank's Existing Term Loans which exceeds such Term Loan
Commitment.
(b) Subject to and upon the terms and conditions set forth herein,
each Bank with a Revolving Loan Commitment severally agrees (A) in the case of
each Continuing Bank with a Revolving Loan Commitment, to convert into Revolving
Loans (each a "Revolving Loan Conversion," and together, the "Revolving Loan
Conversions"), on the Restatement Effective Date, Existing Revolving Loans made
by such Continuing Bank to the Borrower pursuant to the Existing Credit
Agreement and outstanding on the Restatement Effective Date and (B) in the case
of New Banks with a Revolving Loan Commitment and in the case of any Continuing
Bank whose Revolving Loan Commitment is greater than the aggregate outstanding
principal amount of Revolving Loans made by such Continuing Bank to the Borrower
pursuant to the Existing Credit Agreement and outstanding on the Restatement
Effective Date, prior to the Restatement Effective Date, at any time and from
time to time on or after the Restatement Effective Date and prior to the
Revolving Loan Maturity Date, to make a loan or loans (together with each
Revolving Loan Conversion, each a "Revolving Loan" and, collectively, the
"Revolving Loans") to the Borrower, which Revolving Loans (i) shall, at the
option of the Borrower, be Base Rate Loans or Eurodollar Loans, provided that
(x) except as otherwise specifically provided in Section 1.10(b), all Revolving
Loans comprising the same Borrowing shall at all times be of the same Type and
(y) prior to the Syndication Termination Date, only Borrowings of Eurodollar
Loans with an Interest Period of one week may be incurred, (ii) may be repaid
and reborrowed in accordance with the provisions hereof, (iii) shall not exceed
<PAGE> 9
for any Bank at any time outstanding that aggregate principal amount which, when
added to the product of (x) such Bank's Percentage and (y) the aggregate amount
of all Letter of Credit Outstandings (exclusive of Unpaid Drawings which are
repaid with the proceeds of, and simultaneously with the incurrence of, the
respective incurrence of Revolving Loans), equals the Revolving Loan Commitment
of such Bank at such time and (iv) shall not exceed for all Banks at any time
that aggregate principal amount which, when added to the aggregate amount of all
Letter of Credit Outstandings at such time and all outstanding Term Loans at
such time and the aggregate outstanding amount of all other Net Adjusted
Consolidated Indebtedness at such time, equals the Borrowing Base at such time.
1.02 Minimum Amount of Each Borrowing. The aggregate principal amount
of each Borrowing hereunder shall not be less than the Minimum Borrowing Amount
and, if greater, shall be in integral multiples of $250,000 in the case of Base
Rate Loans and $500,000 in the case of Eurodollar Loans. More than one Borrowing
may occur on the same date, but at no time shall there be outstanding more than
eight (8) Borrowings of Eurodollar Loans.
1.03 Notice of Borrowing. (a) Whenever the Borrower desires to make a
Borrowing hereunder, it shall give the Administrative Agent at its Notice
Office, prior to 10:00 A.M. (New York time) at least one (1) Business Day's
prior written notice (or telephonic notice promptly confirmed in writing) of
each Borrowing of Base Rate Loans and at least three (3) Business Days' prior
written notice (or telephonic notice promptly confirmed in writing) of each
Borrowing of Eurodollar Loans. Each such notice (each a "Notice of Borrowing"),
except as otherwise expressly provided in Section 1.10, shall be irrevocable and
shall be given by the Borrower in the form of Exhibit A, appropriately completed
to specify (i) the aggregate principal amount of the Loans to be made pursuant
to such Borrowing, (ii) the date of such Borrowing (which shall be a Business
Day), (iii) whether the Loans being made pursuant to such Borrowing shall
constitute Term Loans or Revolving Loans, (iv) whether the Loans being made
pursuant to such Borrowing are to be initially maintained as Base Rate Loans or
Eurodollar Loans and, if Eurodollar Loans, the initial Interest Period to be
applicable thereto, and (v) the purposes for which the Loans being made pursuant
to such Borrowing are to be used (i.e., either Permitted Acquisitions, repayment
of Existing Indebtedness or working capital, capital expenditures or general
corporate purposes). Any notice received after 10:00 A.M. (New York time) shall
be deemed to be received on the next succeeding Business Day. The Administrative
Agent shall promptly give each Bank which is required to make Loans of the
Tranche specified in the respective Notice of Borrowing notice of such proposed
Borrowing, of such Bank's proportionate share thereof and of the other matters
specified in the Notice of Borrowing.
(b) Without in any way limiting the obligation of the Borrower to
confirm in writing any telephonic notice permitted to be given hereunder, the
Administrative Agent or the respective Issuing Bank (in the case of Letters of
Credit) may, prior to receipt of written confirmation, act without liability
upon the basis of telephonic notice believed by the Administrative Agent or the
respective Issuing Bank (in the case of Letters of Credit) in good faith to be
from the President, the Chief Executive Officer, Chief Financial Officer,
General Counsel or Controller of the Borrower. In each such case, the
Administrative Agent's or such Issuing Bank's record of the terms of such
telephonic notice shall be conclusive absent manifest error.
1.04 Disbursement of Funds. No later than 12:00 Noon (New York time)
on the date specified in each Notice of Borrowing, each Bank with a Commitment
of the respective Tranche will make available its pro rata portion (determined
in accordance with Section 1.07) of each such Borrowing requested to be made on
such date. All such amounts shall be made available in Dollars and in
immediately available funds at the Payment Office of the Administrative Agent,
and the Administrative Agent will make available to the Borrower at the Payment
Office the aggregate of the amounts so made available by the Banks. Unless the
Administrative Agent shall have been notified in writing by any Bank prior to
the date of Borrowing that such Bank does not intend to make available to the
Administrative Agent such Bank's portion of any Borrowing to be made on such
date, the Administrative Agent may assume that such Bank has made such amount
available to the Administrative Agent on such date of Borrowing and the
Administrative Agent may, in reliance upon such assumption, make available to
the Borrower a corresponding amount. If such corresponding amount is not in fact
<PAGE> 10
made available to the Administrative Agent by such Bank, the Administrative
Agent shall be entitled to recover such corresponding amount on demand from such
Bank. If such Bank does not pay such corresponding amount forthwith upon the
Administrative Agent's demand therefor, the Administrative Agent shall promptly
notify the Borrower, and the Borrower shall immediately pay such corresponding
amount to the Administrative Agent. The Administrative Agent shall also be
entitled to recover on demand from such Bank or the Borrower, as the case may
be, interest on such corresponding amount in respect of each day from the date
such corresponding amount was made available by the Administrative Agent to the
Borrower, until the date such corresponding amount is recovered by the
Administrative Agent, at a rate per annum equal to (i) if recovered from such
Bank, the cost to the Administrative Agent of acquiring overnight federal funds
and (ii) if recovered from the Borrower, the rate of interest applicable to the
respective Borrowing, as determined pursuant to Section 1.08. Nothing in this
Section 1.04 shall be deemed to relieve any Bank from its obligation to make
Loans hereunder or to prejudice any rights which the Borrower may have against
any Bank as a result of any failure by such Bank to make Loans hereunder.
1.05 Notes. (a) The Borrower's obligation to pay the principal of, and
interest on, the Loans made by each Bank shall be evidenced (i) if Term Loans,
by a promissory note duly executed and delivered by the Borrower substantially
in the form of Exhibit B-1 with blanks appropriately completed in conformity
herewith (each, a "Term Note" and, collectively, the "Term Notes") and (ii) if
Revolving Loans, by a promissory note duly executed and delivered by the
Borrower substantially in the form of Exhibit B-2, with blanks appropriately
completed in conformity herewith (each a "Revolving Note" and, collectively, the
"Revolving Notes").
(b) The Term Note issued to each Bank shall (i) be executed by the
Borrower, (ii) be payable to the order of such Bank and be dated the Restatement
Effective Date, (iii) be in a stated principal amount equal to the Term Loan
Commitment of such Bank and be payable in the principal amount of the Term Loans
evidenced thereby, (iv) mature on the Term Loan Maturity Date, (v) bear interest
as provided in the appropriate clause of Section 1.08 in respect of the Base
Rate Loans and Eurodollar Loans, as the case may be, evidenced thereby, (vi) be
subject to voluntary prepayment as provided in Section 3.01, and mandatory
repayment as provided in Section 3.02 and (vii) be entitled to the benefits of
this Agreement and the Guaranties and be secured by the Security Documents.
(c) The Revolving Note issued to each Bank with a Revolving Loan
Commitment shall (i) be executed by the Borrower, (ii) be payable to the order
of such Bank and be dated the Restatement Effective Date, (iii) be in a stated
principal amount equal to the Revolving Loan Commitment of such Bank and be
payable in the principal amount of the Revolving Loans evidenced thereby, (iv)
mature on the Revolving Loan Maturity Date, (v) bear interest as provided in the
<PAGE> 11
appropriate clause of Section 1.08 in respect of the Base Rate Loans and
Eurodollar Loans, as the case may be, evidenced thereby, (vi) be subject to
voluntary prepayment as provided in Section 3.01, and mandatory repayment as
provided in Section 3.02 and (vii) be entitled to the benefits of this Agreement
and the Guaranties and be secured by the Security Documents.
(d) Each Bank will note on its internal records the amount of each
Loan made by it and each payment in respect thereof and will prior to any
transfer of any of its Notes endorse on the reverse side thereof the outstanding
principal amount of Loans evidenced thereby. Failure to make any such notation
or the making of an incorrect notation shall not affect the Borrower's
obligations in respect of such Loans.
1.06 Conversions. The Borrower shall have the option to convert, on
any Business Day, all or a portion at least equal to the Minimum Borrowing
Amount of the outstanding principal amount of the Loans made pursuant to one or
more Borrowings (so long as of the same Tranche) of one Type of Loan into a
Borrowing or Borrowings (of the same Tranche) of the other Type of Loan;
provided that:
(i) except as otherwise provided in Section 1.10(b), Eurodollar
Loans may be converted into Base Rate Loans only on the last day of an
Interest Period applicable to the Loans being converted and no such
partial conversion of Eurodollar Loans shall reduce the outstanding
principal amount of such Eurodollar Loans made pursuant to a single
Borrowing to less than the Minimum Borrowing Amount applicable
thereto;
(ii) Base Rate Loans may only be converted into Eurodollar Loans
if no Default or Event of Default is in existence on the date of the
conversion;
(iii) no conversion pursuant to this Section 1.06 shall result in
a greater number of Borrowings than is permitted under Section 1.02;
and
(iv) prior to the Syndication Termination Date, Loans may be
converted into Eurodollar Loans that have a one-week Interest Period.
Each such conversion shall be effected by the Borrower by giving the
Administrative Agent at its Notice Office prior to 12:00 Noon (New York time) at
least three (3) Business Days' prior written notice (or telephonic notice
promptly confirmed in writing) (each a "Notice of Conversion") which notice
shall be in the form of Exhibit C, appropriately completed to specify the Loans
to be so converted, the Borrowing(s) pursuant to which such Loans were made and,
if to be converted into Eurodollar Loans, the Interest Period to be initially
applicable thereto. The Administrative Agent shall give each Bank prompt notice
of any such proposed conversion affecting any of its Loans.
1.07 Pro Rata Borrowings. All Borrowings of Loans under this Agreement
shall be incurred from the Banks pro rata on the basis of their respective Term
Loan Commitments or Revolving Loan Commitments, as the case may be. It is
understood that no Bank shall be responsible for any default by any other Bank
of its obligation to make Loans hereunder and that each Bank shall be obligated
to make the Loans provided to be made by it hereunder regardless of the failure
of any other Bank to make its Loans hereunder.
<PAGE> 12
1.08 Interest. (a) The Borrower agrees to pay interest in respect of
the unpaid principal amount of each Base Rate Loan made to it from the date of
the Borrowing thereof until the earlier of (i) the maturity thereof (whether by
acceleration or otherwise) of such Base Rate Loan and (ii) the conversion of
such Base Rate Loan to a Eurodollar Loan pursuant to Section 1.06, at a rate per
annum which shall at all times be equal to the sum of the Applicable Margin plus
the Base Rate in effect from time to time.
(b) The Borrower agrees to pay interest in respect of the unpaid
principal amount of each Eurodollar Loan made to it from the date of the
Borrowing thereof until the earlier of (i) the maturity (whether by acceleration
or otherwise) of such Eurodollar Loan and (ii) the conversion of such Eurodollar
Loan to a Base Rate Loan pursuant to Section 1.06, 1.09 or 1.10(b), as
applicable, at a rate per annum which shall, during each Interest Period
applicable thereto, be equal to the sum of the Applicable Margin plus the Quoted
Rate for such Interest Period.
(c) Following an Event of Default under Section 9.03 with respect to
Sections 8.08 through 8.14, inclusive, or Section 8.20, or a Default under
Section 9.01 or Section 9.05, the unpaid principal amount of each Loan shall
bear interest at a rate per annum equal to the greater of (x) 2% per annum in
excess of the rate otherwise applicable to the Base Rate Loans of the respective
Tranche of Loans from time to time and (y) the rate which is 2% in excess of the
rate borne by such Loans. In addition, overdue principal and, to the extent
permitted by law, overdue interest in respect of each Loan and any other overdue
amount payable hereunder shall, in each case, bear interest at a rate per annum
equal to the greater of (x) 2% per annum in excess of the rate otherwise
applicable to the Base Rate Loans of the respective Tranche of Loans from time
to time and (y) the rate which is 2% in excess of the rate borne by such Loans.
Interest which accrues under this Section 1.08(c) shall be payable on demand;
provided, however, in no event shall the increased interest rate specified in
the two preceding sentences be cumulative.
(d) Accrued (and theretofore unpaid) interest shall be payable (i) in
respect of each Base Rate Loan, quarterly in arrears on each Quarterly Payment
Day, (ii) in respect of each Eurodollar Loan on (x) the date of any prepayment
or repayment thereof (on the amount prepaid or repaid), (y) the date of any
conversion into a Base Rate Loan pursuant to Section 1.06, 1.09 or 1.10(b), as
applicable (on the amount converted) and (z) on the last day of each Interest
Period applicable thereto and, in the case of an Interest Period in excess of
three months, on each date occurring at three month intervals after the first
day of such Interest Period, (iii) in respect of each Loan, at maturity (whether
by acceleration or otherwise) and, after such maturity, on demand and (iv) in
respect of each Existing Loan, on the Restatement Effective Date.
(e) Upon each Interest Determination Date, the Administrative Agent
shall determine the Quoted Rate for the Interest Period applicable to Eurodollar
Loans and shall promptly notify the Borrower and the Banks thereof. Each such
determination shall, absent manifest error, be final and conclusive and binding
on all parties hereto.
(f) All computations of interest hereunder shall be made in accordance
with Section 12.07(b).
<PAGE> 13
1.09 Interest Periods. At the time it gives any Notice of Borrowing or
Notice of Conversion in respect of the making of, or conversion into, a
Eurodollar Loan (in the case of the initial Interest Period applicable thereto)
or prior to 10:00 A.M. (New York time) on the third Business Day prior to the
expiration of an Interest Period applicable to such Eurodollar Loan (in the case
of any subsequent Interest Period), the Borrower shall have the right to elect,
by giving the Administrative Agent notice thereof, the interest period (each an
"Interest Period") applicable to such Eurodollar Loan, which Interest Period
shall, at the option of the Borrower, be a one, two, three, six or, if available
to each of the Banks (as determined by each such Bank in its sole discretion
based on prevailing conditions in the interbank Eurodollar market on any date of
determination thereof), nine or twelve month period provided that prior to the
Syndication Termination Date, one week Interest Periods may be selected so long
as all Interest Periods end on the same date, such date to occur prior to the
Syndication Termination Date; provided that:
(i) all Eurodollar Loans comprising a single Borrowing shall at
all times have the same Interest Period;
(ii) the initial Interest Period for any Eurodollar Loan shall
commence on the date of Borrowing of such Loan (including the date of
any conversion thereto from a Borrowing of Base Rate Loans) and each
Interest Period occurring thereafter in respect of such Loan shall
commence on the day on which the next preceding Interest Period
applicable thereto expires;
(iii) if any Interest Period relating to a Eurodollar Loan begins
on a day for which there is no numerically corresponding day in the
calendar month at the end of such Interest Period, such Interest
Period shall end on the last Business Day of such calendar month;
(iv) if any Interest Period would otherwise expire on a day which
is not a Business Day, such Interest Period shall expire on the next
succeeding Business Day; provided, however, that if any Interest
Period for a Eurodollar Loan would otherwise expire on a day which is
not a Business Day but is a day of the month after which no further
Business Day occurs in such month, such Interest Period shall expire
on the next preceding Business Day;
(v) no Interest Period for a Borrowing under a Tranche shall be
selected which extends beyond the respective Maturity Date of such
Tranche;
(vi) no Interest Period may be selected at any time when any
Default or Event of Default is then in existence;
(vii) no Interest Period in respect of any Borrowing of Term
Loans shall be selected which extends beyond any date upon which a
mandatory repayment of such Term Loans will be required to be made
under Section 3.02(A)(c) if, after giving effect to the selection of
such Interest Period, the aggregate principal amount of such Term
Loans maintained as Eurodollar Loans which have Interest Periods
expiring after such date will be in excess of the aggregate principal
amount of such Term Loans then outstanding less the aggregate amount
of such required prepayment;
<PAGE> 14
(viii) no Interest Period in respect of any Borrowing of
Revolving Loans shall be selected which extends beyond any Scheduled
Revolving Loan Commitment Reduction Date if, after giving effect to
the selection of such Interest Period, the aggregate principal amount
of Revolving Loans maintained as Eurodollar Loans which have Interest
Periods expiring after such date will be in excess of the aggregate
principal amount of Revolving Loans then outstanding less the excess,
if any, of the amount of the Scheduled Revolving Loan Commitment
Reduction on such date over the Total Unutilized Revolving Loan
Commitment; and
(ix) no Interest Period (other than an Interest Period which is a
one (1) week period) may be selected prior to the Syndication
Termination Date.
If upon the expiration of any Interest Period applicable to a Borrowing of
Eurodollar Loans the Borrower has failed to elect a new Interest Period to be
applicable to such Eurodollar Loans as provided above or a Default or Event of
Default then exists, the Borrower shall be deemed to have elected to convert
such Eurodollar Loans into Base Rate Loans effective as of the expiration date
of such current Interest Period.
1.10 Increased Costs, Illegality, etc. (a) In the event that any Bank
shall have determined (which determination shall, absent manifest error, be
final and conclusive and binding upon all parties hereto but, with respect to
clause (i) below, may be made only by the Administrative Agent):
(i) on any Interest Determination Date that, by reason of any
changes arising after the date of this Agreement affecting the
interbank Eurodollar market, adequate and fair means do not exist for
ascertaining the applicable interest rate on the basis provided for in
the definition of Quoted Rate; or
(ii) at any time, that such Bank shall incur increased costs or
reductions in the amounts received or receivable hereunder with
respect to any Eurodollar Loan because of (x) any change since the
Original Effective Date in any applicable law or governmental rule,
regulation, order, guideline or request (whether or not having the
force of law) or in the interpretation or administration thereof and
including the introduction of any new law or governmental rule,
regulation, order, guideline or request, such as, for example, but not
limited to: (A) a change in the basis of taxation of payments to any
Bank of the principal of or interest on the Notes or any other amounts
payable hereunder (except for changes in the rate of tax on, or
determined by reference to, the net income or profits of such Bank
imposed by the jurisdiction in which its principal office or
applicable lending office is located) or (B) a change in official
reserve requirements (but, in all events, excluding reserves required
under Regulation D to the extent included in the computation of the
Quoted Rate) and/or (y) other circumstances since the Original
Effective Date affecting such Bank or the interbank Eurodollar market
or the position of such Bank in such market; or
(iii) at any time, that the making or continuance of any
Eurodollar Loan has been made (x) unlawful by any law or governmental
rule, regulation or order, (y) impossible by compliance by any Bank in
<PAGE> 15
good faith with any governmental request (whether or not having the
force of law) or (z) impracticable as a result of a contingency
occurring after the date of this Agreement which materially and
adversely affects the interbank Eurodollar market;
then, and in any such event, such Bank (or the Administrative Agent, in the case
of clause (i) above) shall promptly give notice (if by telephone, promptly
confirmed in writing) to the Borrower, and, except in the case of clause (i)
above, to the Administrative Agent of such determination (which notice the
Administrative Agent shall promptly transmit to each of the other Banks).
Thereafter (x) in the case of clause (i) above, Eurodollar Loans shall no longer
be available until such time as the Administrative Agent notifies the Borrower
and the Banks that the circumstances giving rise to such notice by the
Administrative Agent no longer exist, and any Notice of Borrowing or Notice of
Conversion given by the Borrower with respect to Eurodollar Loans which have not
yet been incurred (including by way of conversion) shall be deemed rescinded by
the Borrower, (y) in the case of clause (ii) above, the Borrower shall pay to
such Bank, upon written demand therefor, such additional amounts (in the form of
an increased rate of, or a different method of calculating, interest
or otherwise as such Bank in its sole discretion shall determine) as shall be
required to compensate such Bank for such increased costs or reductions in
amounts received or receivable hereunder (a written notice as to the additional
amounts owed to such Bank, showing in reasonable detail the basis for the
calculation thereof, submitted to the Borrower by such Bank shall, absent
manifest error, be final and conclusive and binding on all the parties hereto)
and (z) in the case of clause (iii) above, the Borrower shall take one of the
actions specified in Section 1.10(b) as promptly as possible and, in any event,
within the time period required by law.
(b) At any time that any Eurodollar Loan is affected by the
circumstances described in Section 1.10(a)(ii) or (iii), the Borrower may (and
in the case of a Eurodollar Loan affected by the circumstances described in
Section 1.10(a)(iii) shall) either (i) if the affected Eurodollar Loan is then
being made initially or pursuant to a conversion, by giving the Administrative
Agent telephonic notice (confirmed in writing) on the same date that the
Borrower was notified by the affected Bank or the Administrative Agent pursuant
to Section 1.10(a)(ii) or (iii), cancel the respective Borrowing or conversion,
or (ii) if the affected Eurodollar Loan is then outstanding, upon at least three
(3) Business Days' written notice to the Administrative Agent, require the
affected Bank to convert such Eurodollar Loan into a Base Rate Loan; provided
that if more than one Bank is affected at any time, then all affected Banks must
be treated the same pursuant to this Section 1.10(b).
(c) If at any time after the Original Effective Date hereof, any Bank
determines that the introduction of or any change in applicable law or
governmental rule, regulation, order, guideline or request (whether or not
having the force of law) concerning capital adequacy, or any change in
interpretation or administration thereof by any governmental authority, central
bank or comparable agency, will have the effect of increasing the amount of
capital required or expected to be maintained by such Bank or any corporation
controlling such Bank based on the existence of such Bank's Commitments
hereunder or its obligations hereunder, then the Borrower shall pay to such
Bank, upon its written demand therefor, such additional amounts as shall be
required to compensate such Bank for the increased cost to such Bank or such
other corporation or the reduction in the rate of return to such Bank or such
<PAGE> 16
other corporation as a result of such increase of capital. In determining such
additional amounts, each Bank will act reasonably and in good faith and will use
averaging and attribution methods which are reasonable; provided that such
Bank's determination of compensation owing under this Section 1.10(c) shall,
absent manifest error, be final and conclusive and binding on all the parties
hereto. Each Bank, upon determining that any additional amounts will be payable
pursuant to this Section 1.10(c), will give prompt written notice thereof to the
Borrower, which notice shall show in reasonable detail the basis for calculation
of such additional amounts, although the failure to give any such notice shall
not release or diminish any of the Borrower's obligations to pay additional
amounts pursuant to this Section 1.10(c).
1.11 Compensation. Holdings and the Borrower jointly and severally
agree to compensate each Bank, upon its written request (which request shall set
forth in reasonable detail the basis for requesting such compensation), for all
losses, expenses and liabilities (including, without limitation, any loss,
expense or liability incurred by reason of the liquidation or reemployment of
deposits or other funds required by such Bank to fund its Eurodollar Loans)
which such Bank may sustain: (i) if for any reason (other than a default by such
Bank or the Administrative Agent) a Borrowing of, or conversion from or into,
Eurodollar Loans does not occur on a date specified therefor in a Notice of
Borrowing or Notice of Conversion (whether or not withdrawn by the Borrower or
deemed withdrawn pursuant to Section 1.10(a)); (ii) if any repayment (including
any repayment made on the Restatement Effective Date or made pursuant to Section
3.02 or as a result of an acceleration of the Loans pursuant to Section 9) or
conversion of any of its Eurodollar Loans occurs on a date which is not the last
day of an Interest Period with respect thereto; (iii) if any prepayment of any
of its Eurodollar Loans is not made on any date specified in a notice of
prepayment given by the Borrower; or (iv) as a consequence of (x) any other
default by the Borrower to repay its Eurodollar Loans when required by the terms
of this Agreement or any Note held by such Bank or (y) any election made
pursuant to Section 1.10(b). A Bank's basis for requesting compensation pursuant
to this Section, and a Bank's calculations of the amount thereof, shall, absent
manifest error, be final and conclusive and binding on all the parties hereto.
1.12 Replacement of Banks. If any Bank becomes a Defaulting Bank then
the Borrower shall have the right, if no Default or Event of Default then
exists, to replace such Bank (the "Replaced Bank") with any other Bank or with
one or more Eligible Transferee or Transferees, none of whom shall constitute a
Defaulting Bank at the time of such replacement (collectively, the "Replacement
Bank") reasonably acceptable to the Agents and the Issuing Bank or, at the
option of the Borrower, to replace the Commitments (and Loans outstanding
pursuant thereto) of the Replaced Bank with identical Commitments (and Loans
outstanding pursuant thereto) provided by the Replacement Bank; provided that:
(i) at the time of any replacement pursuant to this Section 1.12,
the Replacement Bank shall enter into one or more assignment
agreements pursuant to Section 12.04(b) (and with all fees payable
pursuant to said Section 12.04(b) to be paid by the Replacement Bank)
pursuant to which the Replacement Bank shall acquire all of the
Commitments and outstanding Loans of the Replaced Bank and, in the
case of replacement of the Revolving Loan Commitment of the respective
Bank, participations in Letters of Credit by, the Replaced Bank and in
connection therewith, shall pay to (x) the Replaced Bank in respect
thereof an amount equal to the sum of (A) an amount equal to the
principal of, and all accrued interest on, all outstanding Loans and
(B) an amount equal to such Replaced Bank's Percentage of all Unpaid
Drawings that have been funded by (and not reimbursed to) such
Replaced Bank, together with all then unpaid interest with respect
thereto at such time and (C) an amount equal to all accrued, but
theretofore unpaid, Fees owing to the Replaced Bank pursuant to
Section 2.01 hereof, and (y) the Issuing Bank or Banks, an amount
equal to such Replaced Bank's Percentage of any Unpaid Drawing (which
at such time remains an Unpaid Drawing) with respect to a Letter of
Credit issued by such Issuing Bank to the extent such amount was not
theretofore funded by such Replaced Bank; and
<PAGE> 17
(ii) all obligations of the Borrower owing to the Replaced Bank
(other than those specifically described in clause (i) above in
respect of which the assignment purchase price has been, or is
concurrently being, paid) shall be paid in full by the Borrower to
such Replaced Bank concurrently with such replacement.
Upon the execution of the respective assignment documentation, the payment of
amounts referred to in clauses (i) and (ii) above, recordation of the assignment
on the Register by the Administrative Agent pursuant to Section 7.16 and, if so
requested by the Replacement Bank, delivery to the Replacement Bank of the
appropriate Note or Notes, executed by the Borrower, (x) the Replacement Bank
shall become a Bank hereunder and (y) the Replaced Bank shall cease to
constitute a Bank hereunder with respect to the Loans and Commitments so
transferred, except with respect to indemnification provisions under this
Agreement, which shall survive as to such Replaced Bank, and the Percentages of
the Banks shall be automatically adjusted at such time to give effect to such
replacement.
Section 1A. Letters of Credit.
1A.01 Letters of Credit. (a) Subject to and upon the terms and
conditions herein set forth, the Borrower may request any Issuing Bank at any
time and from time to time on and after the Restatement Effective Date and prior
to the third Business Day immediately preceding the Revolving Loan Maturity Date
to issue, for the account of the Borrower and for the benefit of any holder (or
any trustee, agent or other similar representative for any such holders) of L/C
Supportable Indebtedness, an irrevocable standby letter of credit in a form
customarily used by such Issuing Bank or in such other form as has been approved
by such Issuing Bank in support of said L/C Supportable Indebtedness (each such
letter of credit, a "Letter of Credit" and, collectively, the "Letters of
Credit"); provided that the Borrower may request any Issuing Bank after the
Restatement Effective Date to issue one or more Letters of Credit in support of
the NRTC L/C Obligation (collectively, the "NRTC Letter of Credit"). All Letters
of Credit shall be denominated in Dollars.
(b) Each Issuing Bank (other than Fleet) may agree in its sole
discretion and Fleet hereby agrees that it will (subject to the terms and
conditions contained herein), at any time and from time to time after the
Restatement Effective Date and prior to the Revolving Loan Maturity Date,
following its receipt of the respective Letter of Credit Request, issue for the
account of the Borrower one or more Letters of Credit in support of such L/C
Supportable Indebtedness as is permitted to remain outstanding without giving
rise to a Default or Event of Default hereunder; provided that the respective
Issuing Bank shall be under no obligation to issue any Letter of Credit if at
the time of such issuance:
<PAGE> 18
(i) any order, judgment or decree of any governmental authority
or arbitrator shall purport by its terms to enjoin or restrain such
Issuing Bank from issuing such Letter of Credit or any requirement of
law applicable to such Issuing Bank or any request or directive
(whether or not having the force of law) from any governmental
authority with jurisdiction over such Issuing Bank shall prohibit, or
request that such Issuing Bank refrain from, the issuance of letters
of credit generally or such Letter of Credit in particular or shall
impose upon such Issuing Bank with respect to such Letter of Credit
any restriction or reserve or capital requirement (for which such
Issuing Bank is not otherwise compensated) not in effect on the date
hereof, or any unreimbursed loss, cost or expense which was not
applicable, in effect or known to such Issuing Bank as of the date
hereof and which such Issuing Bank in good faith deems material to it;
(ii) such Issuing Bank shall have received a notice of the type
described in the second sentence of Section 1A.03(b) from any Bank
prior to the issuance of such Letter of Credit; or
(iii) a Bank Default exists, unless such Issuing Bank has entered
into arrangements satisfactory to it and the Borrower to eliminate
such Issuing Bank's risk with respect to the Bank which is the subject
of the Bank Default, including by cash collateralizing such Bank's
Percentage of the Letter of Credit Outstandings.
Schedule II attached hereto contains a description of all letters of credit
issued by an Issuing Bank pursuant to the Existing Credit Agreement and which
are to remain outstanding on the Restatement Effective Date. Each such letter of
credit, including any extension thereof (each an "Existing Letter of Credit")
shall constitute a "Letter of Credit" for all purposes of this Agreement. Each
Existing Letter of Credit shall be deemed issued for purposes of Sections 1A.04
and 2.01(b) through (d), inclusive, on the Restatement Effective Date.
(c) Notwithstanding the foregoing, (i) no Letter of Credit shall be
issued the Stated Amount of which, when added to the Letter of Credit
Outstandings (exclusive of Unpaid Drawings which are repaid on the date of,
prior to the issuance of, the respective Letter of Credit) at such time, would
exceed (x) $20,000,000 (or $40,000,000 at any time after the Borrower shall have
issued Acceptable Subordinated Debt), (y) when added to the aggregate principal
amount of all Revolving Loans then outstanding, the Total Revolving Loan
Commitment then in effect (after giving effect to any reductions to the Total
Revolving Loan Commitment on such date) or (z) when added to the aggregate
principal amount of all Revolving Loans then outstanding and the aggregate
principal amount of all Term Loans then outstanding and the aggregate
outstanding amount of all other Net Adjusted Consolidated Indebtedness at such
time, the Borrowing Base at such time and (ii) each Letter of Credit shall by
its terms terminate on or before the earlier of (x) the date which occurs twelve
(12) months after the date of the issuance thereof (although any such Letter of
Credit may be renewable for successive periods of up to twelve (12) months, but
not beyond the Revolving Loan Maturity Date, on terms acceptable to the Issuing
Bank) and (y) the third Business Day immediately preceding the Revolving Loan
Maturity Date.
<PAGE> 19
1A.02 Minimum Stated Amount. The Stated Amount of each Letter of
Credit shall be not less than $1,000,000 or such lesser amount as is acceptable
to the Issuing Bank.
1A.03 Letter of Credit Requests. (a) Whenever the Borrower desires
that a Letter of Credit be issued for its account, the Borrower shall give the
Administrative Agent and the respective Issuing Bank at least ten (10) Business
Days' (or such shorter period as is acceptable to the respective Issuing Bank in
any given case) written notice prior to the proposed date of issuance (which
shall be a Business Day). Each notice shall be in the form of Exhibit D (each a
"Letter of Credit Request"). The Issuing Bank shall promptly transmit copies of
each Letter of Credit Request to each Bank.
(b) The making of each Letter of Credit Request shall be deemed to be
a representation and warranty by the Borrower that such Letter of Credit may be
issued in accordance with, and will not violate the requirements of, Section
1A.01(c). Unless the Issuing Bank has received notice from any Bank before it
issues a Letter of Credit that one or more of the conditions specified in
Section 5 are not then satisfied, or that the issuance of such Letter of Credit
would violate Section 1A.01(c), then such Issuing Bank may issue the requested
Letter of Credit for the account of the Borrower in accordance with the Issuing
Bank's usual and customary practices.
1A.04 Letter of Credit Participations. (a) Immediately upon the
issuance by the respective Issuing Bank of any Letter of Credit or on the
Restatement Effective Date with respect to Existing Letters of Credit, such
Issuing Bank shall be deemed to have sold and transferred to each Bank with a
Revolving Loan Commitment, other than such Issuing Bank (each such Bank, in its
capacity under this Section 1A.04, a "Participant"), and each such Participant
shall be deemed irrevocably and unconditionally to have purchased and received
from such Issuing Bank, without recourse or warranty, an undivided interest and
participation, to the extent of such Participant's Percentage in such Letter of
Credit, each substitute letter of credit, each drawing made thereunder and the
obligations of the Borrower under this Agreement with respect thereto, and any
security therefor or guaranty pertaining thereto. Upon any change in the
Revolving Loan Commitments of the Banks pursuant to Section 12.04, it is hereby
agreed that, with respect to all outstanding Letters of Credit and Unpaid
Drawings, there shall be an automatic adjustment to the participations pursuant
to this Section 1A.04 to reflect the new Percentages of the assignor and
assignee Bank or of all Banks with Revolving Loan Commitments, as the case may
be.
(b) In determining whether to pay under any Letter of Credit, the
Issuing Bank shall not have any obligation relative to the other Banks other
than to confirm that any documents required to be delivered under such Letter of
Credit appear to have been delivered and that they appear to comply on their
face with the requirements of such Letter of Credit. Any action taken or omitted
to be taken by any Issuing Bank under or in connection with any Letter of Credit
if taken or omitted in the absence of gross negligence or willful misconduct,
shall not create for such Issuing Bank any resulting liability to the Borrower
or any Bank.
<PAGE> 20
(c) In the event that any Issuing Bank makes any payment under any
Letter of Credit and the Borrower shall not have reimbursed such amount in full
to the Issuing Bank pursuant to Section 1A.05(a), such Issuing Bank shall
promptly notify the Administrative Agent, which shall promptly notify each
Participant of such failure, and each Participant shall promptly and
unconditionally pay to the Administrative Agent for the account of such Issuing
Bank the amount of such Participant's Percentage of such unreimbursed payment in
Dollars and in same day funds. If the Administrative Agent so notifies, prior to
11:00 A.M. (New York time) on any Business Day, any Participant required to fund
a payment under a Letter of Credit, such Participant shall make available to the
Administrative Agent at the Payment Office of the Administrative Agent for the
account of such Issuing Bank in Dollars such Participant's Percentage of the
amount of such payment on such Business Day in same day funds. If and to the
extent such Participant shall not have so made its Percentage of the amount of
such payment available to the Administrative Agent for the account of such
Issuing Bank, such Participant agrees to pay to the Administrative Agent for the
account of such Issuing Bank, forthwith on demand such amount, together with
interest thereon, for each day from such date until the date such amount is paid
to the Administrative Agent for the account of such Issuing Bank at the
overnight Federal Funds Rate. The failure of any Participant to make available
to the Administrative Agent for the account of such Issuing Bank its Percentage
of any payment under any Letter of Credit shall not relieve any other
Participant of its obligation hereunder to make available to the Administrative
Agent for the account of such Issuing Bank its Percentage of any Letter of
Credit on the date required, as specified above, but no Participant shall be
responsible for the failure of any other Participant to make available to the
Administrative Agent for the account of such Issuing Bank such other
Participant's Percentage of any such payment.
(d) Whenever any Issuing Bank receives a payment of a reimbursement
obligation as to which the Administrative Agent has received for the account of
such Issuing Bank any payments from the Participants pursuant to clause (c)
above, such Issuing Bank shall pay to the Administrative Agent and the
Administrative Agent shall promptly pay each Participant which has paid its
Percentage thereof, in Dollars and in same day funds, an amount equal to such
Participant's share (based on the proportionate aggregate amount funded by such
Participant to the aggregate amount funded by all Participants) of the principal
amount of such reimbursement obligation and interest thereon accruing after the
purchase of the respective participations.
(e) The obligations of the Participants to make payments to the
Administrative Agent for the account of each Issuing Bank with respect to
Letters of Credit issued shall be irrevocable and not subject to any
qualification or exception whatsoever and shall be made in accordance with the
terms and conditions of this Agreement under all circumstances, including,
without limitation, any of the following circumstances:
(i) any lack of validity or enforceability of this Agreement or
any of the Credit Documents;
(ii) the existence of any claim, setoff, defense or other right
which the Borrower may have at any time against a beneficiary named in
a Letter of Credit, any transferee of any Letter of Credit (or any
Person for whom any such transferee may be acting), the Agents, any
Participant, or any other Person, whether in connection with this
<PAGE> 21
Agreement, any Letter of Credit, the transactions contemplated herein
or any unrelated transactions (including any underlying transaction
between the Borrower and the beneficiary named in any such Letter of
Credit);
(iii) any draft, certificate or any other document presented
under any Letter of Credit proving to be forged, fraudulent, invalid
or insufficient in any respect or any statement therein being untrue
or inaccurate in any respect;
(iv) the surrender or impairment of any security for the
performance or observance of any of the terms of any of the Credit
Documents; or
(v) the occurrence of any Default or Event of Default.
1A.05 Agreement to Repay Letter of Credit Drawings. (a) The Borrower
hereby agrees to reimburse the respective Issuing Bank, by making payment to the
Administrative Agent in immediately available funds at the Payment Office (or by
making the payment directly to such Issuing Bank at such location as may
otherwise have been agreed upon by the Borrower and such Issuing Bank), for any
payment or disbursement made by such Issuing Bank under any Letter of Credit
(each such amount so paid until reimbursed, an "Unpaid Drawing"), immediately
after, and in any event on the date of, such payment or disbursement, with
interest on the amount so paid or disbursed by such Issuing Bank, to the extent
not reimbursed prior to 12:00 Noon (New York time) on the date of such payment
or disbursement, from and including the date paid or disbursed to but excluding
the date such Issuing Bank is reimbursed by the Borrower therefor at a rate per
annum which shall be the Base Rate in effect from time to time plus 4 1/4%, in
each case with such interest to be payable on demand.
(b) The obligations of the Borrower under this Section 1A.05 to
reimburse the respective Issuing Bank with respect to Unpaid Drawings
(including, in each case, interest thereon) shall be absolute and unconditional
under any and all circumstances and irrespective of any setoff, counterclaim or
defense to payment which the Borrower may have or have had against any Bank
(including in its capacity as Issuing Bank or as Participant), including,
without limitation, any defense based upon the failure of any drawing under a
Letter of Credit (each a "Drawing") to conform to the terms of the Letter of
Credit or any nonapplication or misapplication by the beneficiary of the
proceeds of such Drawing; provided, however, that the Borrower shall not be
obligated to reimburse any Issuing Bank for any wrongful payment made by such
Issuing Bank under a Letter of Credit as a result of acts or omissions
constituting willful misconduct or gross negligence on the part of such Issuing
Bank.
1A.06 Increased Costs. If at any time after the Original Effective
Date hereof any Issuing Bank or any Participant determines that the introduction
of or any change in any applicable law, rule, regulation, order, guideline or
request or in the interpretation or administration thereof by any governmental
authority charged with the interpretation or administration thereof, or
compliance by such Issuing Bank or any Participant, or any corporation
<PAGE> 22
controlling such Person, with any request or directive by any such authority
(whether or not having the force of law), shall either (i) impose, modify or
make applicable any reserve, deposit, capital adequacy or similar requirement
against letters of credit issued by such Issuing Bank or participated in by any
Participant, or (ii) impose on such Issuing Bank or any Participant, or any
corporation controlling such Person, any other conditions relating, directly or
indirectly, to this Agreement or any Letter of Credit; and the result of any of
the foregoing is to increase the cost to such Issuing Bank or any Participant of
issuing, maintaining or participating in any Letter of Credit, or reduce the
amount of any sum received or receivable by such Issuing Bank or any Participant
hereunder or reduce the rate of return on its capital with respect to Letters of
Credit, then, upon demand to the Borrower by such Issuing Bank or any
Participant (a copy of which demand shall be sent by such Issuing Bank or such
Participant to the Administrative Agent), the Borrower shall pay to such Issuing
Bank or such Participant such additional amount or amounts as will compensate
such Bank for such increased cost or reduction in the amount receivable or
reduction on the rate of return on its capital. Such Issuing Bank or any
Participant, upon determining that any additional amounts will be payable
pursuant to this Section 1A.06, will give prompt written notice thereof to the
Borrower, which notice shall include a certificate submitted to the Borrower by
such Issuing Bank or such Participant (a copy of which certificate shall be sent
by such Issuing Bank or such Participant to the Administrative Agent), setting
forth in reasonable detail the basis for the calculation of such additional
amount or amounts necessary to compensate such Issuing Bank or such Participant,
although failure to give any such notice shall not release or diminish the
Borrower's obligations to pay additional amounts pursuant to this Section 1A.06.
The certificate required to be delivered pursuant to this Section 1A.06 shall,
absent manifest error, be final, conclusive and binding on the Borrower.
Section 2. Commitment Commission; Fees; Reductions of Commitment.
2.01 Fees. (a) The Borrower agrees to pay to the Administrative Agent
for distribution to each Bank with a Revolving Loan Commitment a commitment
commission (the "Commitment Commission") for the period from and including the
Restatement Effective Date to and excluding the Revolving Loan Maturity Date (or
such earlier date as the Total Commitment shall have been terminated) computed
at a rate for each day equal to 1/2 of 1% per annum on the daily Unutilized
Revolving Loan Commitment of such Bank. Accrued Commitment Commission shall be
due and payable quarterly in arrears on each Quarterly Payment Date and on the
Revolving Loan Maturity Date or such earlier date upon which the Total
Commitment is terminated.
(b) The Borrower agrees to pay to each Issuing Bank, for its own
account, a facing fee in respect of each Letter of Credit issued by such Issuing
Bank hereunder (the "Facing Fee"), for the period from and including the date of
issuance of such Letter of Credit (which in the case of the Existing Letters of
Credit shall be the Restatement Effective Date) to and including the date of
termination of such Letter of Credit, equal to 1/4 of 1% per annum of the daily
Stated Amount of such Letter of Credit; provided that in no event shall the
annual Facing Fee with respect to each Letter of Credit be less than $500.
<PAGE> 23
Accrued Facing Fees shall be due and payable in arrears to the Issuing Bank in
respect of each Letter of Credit issued by it on each Quarterly Payment Date and
the date of the termination of the Total Revolving Loan Commitment on which no
Letters of Credit remain outstanding.
(c) The Borrower agrees to pay to the Administrative Agent for
distribution to each Bank with a Revolving Loan Commitment a fee in respect of
each Letter of Credit issued hereunder (the "Letter of Credit Fee"), for the
period from and including the date of issuance of such Letter of Credit (which
in the case of the Existing Letters of Credit shall be the Restatement Effective
Date) to and including the date of termination of such Letter of Credit,
computed at a rate per annum equal to the product of (x) the Applicable
Eurodollar Rate Margin for Revolving Loans and (y) the daily Stated Amount of
such Letter of Credit. Letter of Credit Fees shall be distributed by the
Administrative Agent to the Banks on the basis of the respective Percentages as
in effect from time to time. Accrued Letter of Credit Fees shall be due and
payable quarterly in arrears on each Quarterly Payment Date and on the date of
the termination of the Total Revolving Loan Commitment on which no Letters of
Credit remain outstanding.
(d) The Borrower hereby agrees to pay in immediately available funds
directly to the Issuing Bank upon each issuance of, drawing under, and/or
amendment of, a Letter of Credit issued by the Issuing Bank such amount as shall
at the time of such issuance, drawing or amendment be the administrative charge
which the Issuing Bank is customarily charging for issuances of, drawings under
(including wire charges) or amendments of, letters of credit issued by it or
such alternative amounts as may have been agreed upon in writing by the Borrower
and the Issuing Bank.
(e) Notwithstanding anything to the contrary contained in this
Agreement or in the Existing Credit Agreement, all unpaid Fees under, and as
defined in, the Existing Credit Agreement (including, without limitation, all
Commitment Commission as defined in the Existing Credit Agreement) accrued to
the Restatement Effective Date (immediately prior to giving effect thereto)
shall be payable on the Restatement Effective Date.
(f) The Borrower shall pay to the Agents, for their accounts, such
other fees and other consideration as have been agreed to in writing by the
Borrower or any of its Subsidiaries and one or both of the Agents.
2.02 Voluntary Termination of Unutilized Commitments. Upon at least
three (3) Business Days' prior written notice (or telephonic notice promptly
confirmed in writing) to the Administrative Agent at its Notice Office (which
notice the Administrative Agent shall promptly transmit to each of the Banks),
the Borrower shall have the right, without premium or penalty, to terminate the
Total Unutilized Revolving Loan Commitment in whole or in part; provided that
(i) each such reduction shall apply proportionately to reduce the Revolving Loan
Commitment of each Bank with such a Commitment, (ii) any partial reduction
pursuant to this Section 2.02 shall be in integral multiples of at least
$1,000,000 in the case of reductions to the Total Unutilized Revolving Loan
Commitment, and (iii) any partial reduction of the Total Unutilized Revolving
Loan Commitment pursuant to this Section 2.02 shall apply to reduce the amount
of the then-remaining Scheduled Revolving Loan Commitment Reductions in inverse
order of maturity.
2.03 Mandatory Reduction of Commitments. (a) The Total Commitment (and
the Term Loan Commitment and the Revolving Loan Commitment of each Bank with
such a Commitment) shall terminate on May 15, 1998 unless the Restatement
Effective Date has occurred on or before such date.
(b) In addition to any other mandatory commitment reductions pursuant
to this Section 2.03, the Total Term Loan Commitment (and the Term Loan
Commitment of each Bank with such a Commitment) shall terminate in its entirety
on the Restatement Effective Date (after giving effect to the incurrence of Term
Loans on such date).
<PAGE> 24
(c) In addition to any other mandatory commitment reductions pursuant
to this Section 2.03, the Total Revolving Loan Commitment (and the Revolving
Loan Commitment of each Bank with such a Commitment) shall terminate in its
entirety on the Revolving Loan Maturity Date.
(d) In addition to any other mandatory commitment reductions pursuant
to this Section 2.03, the Total Revolving Loan Commitment (and the Revolving
Loan Commitment of each Bank with such a Commitment) shall be reduced at the
time any payment is required to be made on the principal amount of Revolving
Loans (or would be required to be made if Revolving Loans were then outstanding)
pursuant to Section 3.02(B)(a), by an amount equal to the maximum amount of
Revolving Loans that would be required to be repaid pursuant to Section
3.02(B)(a) assuming that Revolving Loans were outstanding in an aggregate
principal amount equal to the Total Revolving Loan Commitment. All reductions to
the Total Revolving Loan Commitment pursuant to this Section 2.03(d) shall be
applied to reduce the amount of then-remaining Scheduled Revolving Loan
Commitment Reductions in inverse order of maturity.
(e) In addition to any other mandatory commitment reductions pursuant
to this Section 2.03, on each date set forth below (each, a "Scheduled Revolving
Loan Commitment Reduction Date"), the Revolving Loan Commitment shall be
permanently reduced by the amount set forth opposite such date (each such
reduction, as such reduction may have been reduced pursuant to Section 2.02
and/or 2.03(d), a "Scheduled Revolving Loan Commitment Reduction"):
Scheduled Revolving Loan Commitment Reduction Amount Date
June 30, 2000 $4,312,500
September 30, 2000 $4,312,500
December 31, 2000 $4,312,500
March 31, 2001 $4,312,500
June 30, 2001 $5,750,000
September 30, 2001 $5,750,000
December 31, 2001 $5,750,000
March 31, 2002 $5,750,000
June 30, 2002 $7,187,500
September 30, 2002 $7,187,500
December 31, 2002 $7,187,500
March 31, 2003 $7,187,500
June 30, 2003 $8,625,000
September 30, 2003 $8,625,000
December 31, 2003 $8,625,000
March 31, 2004 $8,625,000
June 30, 2004 $11,500,000
<PAGE> 25
(f) Each reduction to the Total Revolving Loan Commitment pursuant to
this Section 2.03 shall be applied proportionately to reduce the Revolving Loan
Commitment of each Bank with such a Commitment.
Section 3. Prepayments; Payments; Taxes.
3.01 Voluntary Prepayments. The Borrower shall have the right to
prepay Loans, without premium or penalty, in whole or in part from time to time
on the following terms and conditions:
(i) the Borrower shall give the Administrative Agent prior to
10:00 A.M. (New York time) at its Notice Office at least three (3)
Business Days' prior written notice in the case of Eurodollar Loans
and one (1) Business Day's prior written notice in the case of Base
Rate Loans of its intent to prepay the Loans, whether Term Loans or
Revolving Loans shall be prepaid, the amount of such prepayment and
the Types of Loans to be prepaid and, in the case of Eurodollar Loans,
the specific Borrowing or Borrowings pursuant to which made, which
notice the Administrative Agent shall promptly transmit to each of the
Banks;
(ii) each prepayment shall be in an aggregate principal amount of
at least the applicable Minimum Borrowing Amount and, if greater, in
integral multiples of $500,000; provided that no partial prepayment of
Eurodollar Loans made pursuant to any Borrowing shall reduce the
outstanding Loans made pursuant to such Borrowing to an amount less
than the Minimum Borrowing Amount;
(iii) no prepayments of Eurodollar Loans made pursuant to this
Section 3.01 may be made on a day other than the last day of an
Interest Period applicable thereto;
(iv) each prepayment in respect of any Loans made pursuant to a
Borrowing shall be applied pro rata among such Loans; and
(v) each prepayment of Term Loans pursuant to this Section 3.01
shall be applied to reduce the then remaining Scheduled Repayments in
inverse order of maturity.
3.02 Mandatory Repayments and Commitment Reductions.
(A) Requirements:
(a) If any Borrowing Base Certificate shall disclose the existence of
a Borrowing Base Deficiency, the Borrower shall on the date of delivery of the
Borrowing Base Certificate in accordance with Section 5.06, repay the principal
of the Revolving Loans outstanding in an aggregate amount equal to the Borrowing
Base Deficiency and, to the extent such Revolving Loans have been repaid in
full, and, to the extent such Borrowing Base Deficiency continues to exist after
such repayment, the Borrower shall pay to the Administrative Agent at its
Payment Office an amount of cash or Cash Equivalents equal to such excess, such
cash or Cash Equivalents to be held as security for all Obligations of the
<PAGE> 26
Borrower hereunder with respect to the Letter of Credit Outstandings in a cash
collateral account established and maintained (including the investments made
pursuant thereto) by the Administrative Agent pursuant to a cash collateral
agreement in form and substance satisfactory to the Administrative Agent (the
"Letter of Credit Cash Collateral Account"). In the event that a Borrowing Base
Deficiency continues to exist after such repayment and cash collateralization,
the Borrower shall not be required to make any further repayments in connection
with such Borrowing Base Deficiency. In the event that cash and Cash Equivalents
held in the Letter of Credit Cash Collateral Account exceed the amount of the
Borrowing Base Deficiency, then, so long as there shall exist no Default or
Event of Default, such excess amount shall be returned to the Borrower.
(b) On any day on which the sum of the aggregate outstanding principal
amount of the Revolving Loans and Letter of Credit Outstandings at such time
exceeds the Total Revolving Loan Commitment as then in effect, the Borrower
shall prepay the principal of Revolving Loans in an amount equal to such excess.
If, after giving effect to the prepayment of all outstanding Revolving Loans,
the aggregate amount of the Letter of Credit Outstandings exceeds the Total
Revolving Loan Commitment as then in effect, the Borrower shall pay to the
Administrative Agent at its Payment Office on such date an amount of cash or
Cash Equivalents equal to the amount of such excess, such cash or Cash
Equivalents to be held as security for all Obligations of the Borrower hereunder
in the Letter of Credit Cash Collateral Account.
(c) In addition to any other mandatory repayments or commitment
reductions pursuant to this Section 3.02(A), the Borrower shall repay on each
date set forth below (provided that if any date set forth below is not a
Business Day then the repayment shall occur on the first Business Day
immediately succeeding such date set forth below) the principal amount of Term
Loans, to the extent then outstanding, set forth below opposite such date (each
such repayment as the same may be reduced as provided in Sections 3.01 and
3.02(B), a "Scheduled Repayment"):
Scheduled Term Loan Repayment Date Amount
June 30, 2001 $87,500
September 30, 2001 $87,500
December 31, 2001 $87,500
March 31, 2002 $87,500
June 30, 2002 $87,500
September 30, 2002 $87,500
December 31, 2002 $87,500
March 31, 2003 $87,500
June 30, 2003 $175,000
September 30, 2003 $175,000
December 31, 2003 $175,000
March 31, 2004 $175,000
June 30, 2004 $2,100,000
September 30, 2004 $10,500,000
December 31, 2004 $10,500,000
March 31, 2005 $10,500,000
<PAGE> 27
(d) In addition to any other mandatory repayments or commitment
reductions pursuant to this Section 3.02, on the date of the receipt thereof by
Holdings or any of its Subsidiaries, an amount equal to:
(i) 100% of the cash proceeds (net of underwriting discounts and
commissions and all other reasonable costs associated with such
transaction) from any sale or issuance after the Restatement Effective
Date of equity of Holdings or any Subsidiary of Holdings (other than
proceeds from issuances of Holdings Common Stock to shareholders,
directors and employees of Holdings and its Subsidiaries and other
individuals as a result, in each case, of the exercise of any options
or warrants of up to $500,000 in the aggregate in any fiscal year);
and
(ii) 100% of the cash proceeds (net of underwriting discounts and
commissions, loan fees and all other reasonable costs associated with
such transaction) from any incurrence of any Indebtedness by Holdings
or any Subsidiary of Holdings (other than Indebtedness permitted by
Sections 8.04(i) through (vi), inclusive, it being understood that
Indebtedness permitted pursuant to Section 8.04(vii) shall be required
to be applied as provided in Section 3.02(B) as said Sections are in
effect on the Restatement Effective Date), shall be applied as
provided in Section 3.02(B).
(e) In addition to any other mandatory repayments or commitment
reductions pursuant to this Section 3.02, on or prior to each Excess Cash Flow
Payment Date, an amount equal to the Excess Cash Flow Recapture Percentage of
Excess Cash Flow of Holdings and its Subsidiaries for the relevant Excess Cash
Flow Payment Period shall be applied as provided in Section 3.02(B).
(f) In addition to any other mandatory repayments or commitment
reductions pursuant to this Section 3.02, (A) on each date after the Restatement
Effective Date on which Holdings or any Subsidiary of Holdings receives cash
proceeds from any sale of assets (including capital stock and securities other
than capital stock) the proceeds from the sale of which is recaptured (or would
be recaptured except for the parenthetical continued therein) under Section
3.02(A)(d) but excluding (i) sales of inventory in the ordinary course of
business, (ii) sales of assets so long as the aggregate amount of Net Sale
Proceeds excluded pursuant to this clause (ii) does not exceed $100,000 in the
aggregate for all such asset sales in any fiscal year of Holdings and (iii)
Permitted Acquisition Cash Collateralized Amounts (so long as the aggregate
deposits in the Permitted Acquisition Cash Collateral Account from proceeds of
sales of assets shall not exceed an amount equal to $10,000,000 per year and
shall not exceed a maximum aggregate amount equal to $30,000,000 during any
rolling five-year period), an amount equal to 100% of the Net Sale Proceeds
thereof shall be applied as provided in Section 3.02(B); (B) on any date on
which there shall exist an Event of Default, all Permitted Acquisition Cash
Collateralized Amounts shall be applied as provided in Section 3.02(B) and (C)
on the 180th day after which amounts were deposited into the Permitted
Acquisition Cash Collateral Account, to the extent any such amounts have not
been utilized to effect a Permitted Acquisition in accordance with Section 7.15,
all such amounts held in such account shall be applied as provided in Section
3.02(B).
<PAGE> 28
(g) In addition to any other mandatory repayments or commitment
reductions pursuant to this Section 3.02, on each date after the Restatement
Effective Date of the receipt thereof by Holdings or any Subsidiary of Holdings,
an amount equal to 100% of the cash proceeds of any Recovery Event (net of
reasonable costs incurred in connection with such Recovery Event (including the
estimated marginal increase in income taxes which will be payable as a result of
such Recovery Event by Holdings or any Subsidiary of Holdings)) shall be applied
as provided in Section 3.02(B); provided that proceeds from Recovery Events not
in excess of $250,000 in the aggregate for all Recovery Events occurring on and
after the Restatement Effective Date, and prior to the date on which there are
no outstanding Obligations, shall not be required to be so applied on such date;
provided further, that proceeds from Recovery Events in excess of $250,000 in
the aggregate for all Recovery Events occurring on or after the Restatement
Effective Date and prior to the day on which there are no outstanding
Obligations, shall not be required to be so applied on such date to the extent
that the Borrower delivers a certificate to the Administrative Agent on or prior
to such date stating that such proceeds shall be used to replace or restore any
properties or assets in respect of which such proceeds were paid within a period
specified in such certificate not to exceed 180 days after the date of receipt
of such proceeds (which certificate shall set forth estimates of the proceeds to
be so expended); and provided further, that if all or any portion of such
proceeds not so applied pursuant to Section 3.02(B) are not so used within the
period specified in the proviso, such remaining portion shall be applied on the
last day of such specified period as provided in Section 3.02(B).
Notwithstanding the forgoing, so long as on the date of such Recovery Event and
during the period commencing on such date and ending on the date on which the
repurchase of Holdings Capital Stock referred to below is effected there shall
exist no Default or Event of Default, proceeds from a Recovery Event relating to
the Weary Key-Man Life Insurance, occurring on or after the Restatement
Effective Date and prior to the date on which there are no outstanding
Obligations shall not be required to be applied as provided in Section 3.02(B)
on such date to the extent that the Borrower delivers a certificate to the
Administrative Agent on or prior to such date stating that such proceeds shall
be used to (i) purchase all the Holdings Capital Stock previously owned by the
person in respect of whose life such insurance proceeds were paid and (ii)
appoint a replacement Chief Executive Officer of the Borrower, both within a
period not to exceed 180 days after the date of receipt of such proceeds (which
certificate shall set forth estimates of the proceeds to be so expended);
provided that if all or any portion of such proceeds not so applied pursuant to
Section 3.02(B) are not so used within such 180 day period, such remaining
portion shall be applied on the last day of such specified period as provided in
Section 3.02(B).
(h) In addition to any other mandatory repayments or commitment
reductions pursuant to this Section 3.02(A), on each date upon which Holdings or
any of its Subsidiaries receives cash proceeds pursuant to any agreement or
understanding relating to any Permitted Acquisition, including, without
limitation, indemnification or similar payments and post-closing adjustments,
but excluding in each case post-closing working capital adjustments and
reimbursement of out-of-pocket costs and expenses, an amount equal to 100% of
such proceeds (net of reasonable expenses incurred in connection with obtaining
such proceeds and the estimated marginal increase in income taxes payable in
respect thereof) shall be applied as provided in Section 3.02(B).
<PAGE> 29
(i) In addition to any other mandatory repayments or commitment
reductions pursuant to this Section 3.02(A), on the date of the receipt thereof
by Holdings or any of its Subsidiaries, an amount equal to 100% of the proceeds
of any Tax Refund (net of reasonable expenses incurred in connection with
obtaining same and the estimated marginal increase in income taxes payable as a
result thereof) shall be applied as provided in Section 3.02(B); provided that
any refunds of estimated taxes paid in the ordinary course of business in excess
of the actual amount of taxes owing shall not be required to be so applied.
(j) In addition to any other mandatory repayments or commitment
reductions pursuant to this Section 3.02(A), on the date of the receipt thereof
by Holdings or any of its Subsidiaries of a Pension Plan Refund, an amount equal
to 100% of such Pension Plan Refund (net of reasonable expenses incurred in
connection with obtaining same and the estimated marginal increase in income
taxes payable in respect thereof) shall be applied as provided in Section
3.02(B).
(k) Notwithstanding anything to the contrary contained elsewhere in
this Agreement, all then outstanding Loans of each respective Tranche shall be
repaid in full on the Maturity Date for such Tranche.
(B) Application:
(a) Each mandatory repayment of Loans pursuant to Sections
3.02(A)(d)(ii), (e) through (g), inclusive (other than in the case of proceeds
of a Recovery Event relating to the Weary Key-Man Life Insurance), and (i)
through (j), inclusive, shall be applied:
(i) first, to prepay the principal of outstanding Revolving Loans
(with a corresponding reduction to the Total Revolving Loan
Commitment) and Term Loans on a pro rata basis based on the aggregate
principal amount of all Term Loans outstanding at such time and the
then Total Revolving Loan Commitment;
(ii) second, to cash collateralize Letter of Credit Outstandings
by depositing cash into the Letter of Credit Cash Collateral Account
in an amount equal to such Letter of Credit Outstandings (with a
corresponding reduction to the Total Revolving Loan Commitment); and
(iii) third, to reduce the remaining (i.e., after giving effect
to all prior reductions thereto, including, without limitation, the
reductions theretofore effected pursuant to the preceding clauses (i)
and (ii)) Total Revolving Loan Commitment (it being understood and
agreed that the amount of such reductions shall be deemed to be an
application of proceeds for purposes of this Section 3.02(B)(a)(iii)
even though cash is not actually applied).
(b)(I) Each mandatory repayment of Loans pursuant to Section
3.02(A)(d)(i) shall be applied:
(i) until the first anniversary of the Restatement Effective Date
(and so long as there shall exist no Default or Event of Default, in
which case all such mandatory repayments shall be applied in
accordance with Section 3.02(B)(a)), to prepay the principal of
outstanding Revolving Loans (without a corresponding reduction to the
Total Revolving Loan Commitment), and second, to cash collateralize
Letter of Credit Outstandings by depositing cash into the Letter of
Credit Cash Collateral Account in an amount equal to such Letter of
Credit Outstandings (without a reduction to the Total Revolving Loan
Commitment) and to the extent no Revolving Loans are then outstanding
and there are no Letter of Credit Outstandings, the Borrower may
retain the proceeds which otherwise would have applied to such
Revolving Loans or Letter of Credit Outstandings; and
<PAGE> 30
(ii) after the first anniversary of the Restatement Effective
Date (and so long as there shall exist no Default or Event of Default,
in which case all such mandatory repayments shall be applied in
accordance with Section 3.02(B)(a)), 50% of the amount to be applied
shall be applied in the same manner as if such proceeds were to be
applied in accordance with Section 3.02(B)(a) and the remaining 50%
shall be applied in the same manner as it would be applied in
accordance with Section 3.02(B)(b)(i), except that to the extent
Revolving Loans in such amount are not outstanding and there are no
Letter of Credit Outstandings, such excess amounts shall be deposited
in the Permitted Acquisition Cash Collateral Account.
(II) Each mandatory repayment of Loans pursuant to Section
3.02(A)(d)(ii) arising from the receipt of proceeds of Indebtedness permitted by
Section 8.04(vii) shall be applied to prepay the principal of outstanding
Revolving Loans (without a corresponding reduction to the Total Revolving Loan
Commitment) and to the extent no Revolving Loans are then outstanding, the
Borrower may retain the proceeds which otherwise would have been applied to such
Revolving Loans; provided, however, to the extent that the aggregate principal
amount of Acceptable Subordinated Debt issued by the Borrower exceeds
$150,000,000, then 50% of such excess amount shall be applied in accordance with
Section 3.02(B)(a) with the remaining amount of such proceeds being applied in
accordance with this Section 3.02(B)(b)(II) (without giving effect to this
proviso).
(c) Each mandatory repayment of Loans pursuant to Section 3.02(A)(g)
arising from the receipt of proceeds of a Recovery Event relating to the Weary
Key-Man Life Insurance shall be applied: (i) the first $3,000,000 shall be
applied in the same manner as if such proceeds were to be applied in accordance
with Section 3.02(B)(a) and (ii) 50% of the remaining amount shall be applied in
the same manner as it would be applied in accordance with Section 3.02(B)(a) and
(so long as there shall exist no Default or Event of Default, in which case all
such mandatory repayments shall be applied in accordance with Section
3.02(B)(a)) the remaining 50% may be retained by the Borrower.
(d) Each mandatory repayment of Loans pursuant to Section 3.02(A)(h)
shall, so long as there shall exist no Default or Event of Default, in which
case all such mandatory repayments shall be applied in accordance with Section
3.02(B)(a), be applied to prepay the principal of outstanding Revolving Loans
(without a corresponding reduction to the Total Revolving Loan Commitment), and
second, to cash collateralize Letter of Credit Outstandings by depositing cash
into the Letter of Credit Cash Collateral Account in an amount equal to such
Letter of Credit Outstandings (without a reduction to the Total Revolving Loan
Commitment) and to the extent no Revolving Loans are then outstanding and there
are no Letter of Credit Outstandings, the Borrower may retain the proceeds which
otherwise would have applied to such Revolving Loans or Letter of Credit
Outstandings.
(e) All mandatory repayments of Revolving Loans pursuant to this
Section 3.02(B) (and mandatory reductions to the Total Revolving Loan
Commitment) shall be applied to reduce the then-remaining Scheduled Revolving
Loan Commitment Reductions in inverse order of maturity and all mandatory
repayments of Term Loans pursuant to this Section 3.02(B) shall be applied to
<PAGE> 31
reduce the then-remaining Scheduled Repayments in inverse order of maturity.
(f) Notwithstanding anything to the contrary contained in this Section
3.02 or elsewhere in this Agreement (including, without limitation, in Section
12.12), the Borrower shall have the option, in its sole discretion, to give the
Banks with outstanding Terms Loans the option to waive a mandatory repayment of
such Loans pursuant to Section 3.02, in each case, upon the terms and provisions
set forth in this Section 3.02. If the Borrower elects to exercise the option
referred to in the preceding sentence, the Borrower shall give to the
Administrative Agent written notice of its intention to give the Banks the right
to waive a mandatory repayment at least five (5) Business Days prior to such
repayment, which notice the Administrative Agent shall promptly forward to all
Banks with outstanding Term Loans (indicating in such notice the amount of such
repayment to be applied to each such Bank's outstanding Term Loans). The
Borrower's offer to permit such Banks to waive any such mandatory repayment may
apply to all or part of such repayment, provided that any offer to waive part of
such repayment must be made ratably to such Banks on the basis of their
outstanding Term Loans. In the event any such Bank desires to waive such Bank's
right to receive any such mandatory repayment, in whole or in part, such Bank
shall so advise the Administrative Agent no later than the close of business two
(2) Business Days after the date of such notice from the Administrative Agent,
which notice shall also include the amount such Bank desires to receive in
respect of such repayment. If any Bank does not reply to the Administrative
Agent within the two (2) Business Days, it will be deemed not to have waived any
part of such repayment. If any Bank does not specify an amount it wishes to
receive, it will be deemed to have accepted 100% of the total payment. In the
event that any such Bank waives all or part of such right to receive any such
mandatory repayment, the Administrative Agent shall apply 100% of the amount so
waived by such Bank to the Revolving Loans in accordance with Section 3.02(B).
(g) With respect to each repayment of Loans required by this Section
3.02, the Borrower may designate the Types of Loans which are to be repaid and,
in the case of Eurodollar Loans, the specific Borrowing or Borrowings of the
respective Tranche pursuant to which made; provided that: (i) repayments of
Eurodollar Loans pursuant to this Section 3.02 may only be made on the last day
of an Interest Period applicable thereto unless all Eurodollar Loans of the
respective Tranche with Interest Periods ending on such date of required
repayment and all Base Rate Loans of the respective Tranche have been paid in
full; (ii) if any repayment of Eurodollar Loans made pursuant to a single
Borrowing shall reduce the outstanding Eurodollar Loans made pursuant to such
Borrowing to an amount less than the applicable Minimum Borrowing Amount, such
Borrowing shall immediately be converted into Base Rate Loans; and (iii) each
repayment of any Loans made pursuant to a single Borrowing shall be applied pro
rata among such Loans. In the absence of a designation by such Borrower as
described in the preceding sentence, the Administrative Agent shall, subject to
the above, make such designation in its sole discretion.
<PAGE> 32
3.03 Method and Place of Payment. Except as otherwise specifically
provided herein, all payments under this Agreement or any Note shall be made to
the Administrative Agent for the account of the Bank or Banks entitled thereto
not later than 12:00 Noon (New York time) on the date when due and shall be made
in Dollars in immediately available funds at the Payment Office of the
Administrative Agent. Whenever any payment to be made hereunder or under any
Note shall be stated to be due on a day which is not a Business Day, the due
date thereof shall be extended to the next succeeding Business Day and, with
respect to payments of principal, interest shall be payable at the applicable
rate during such extension.
3.04 Net Payments. (a) All payments made by Holdings or the Borrower
hereunder or under any Note will be made without setoff, counterclaim or other
defense. Except as provided in Section 3.04(b), all such payments will be made
free and clear of, and without deduction or withholding for, any present or
future taxes, levies, imposts, duties, fees, assessments or other charges of
whatever nature now or hereafter imposed by any jurisdiction or by any political
subdivision or taxing authority thereof or therein with respect to such payments
(but excluding, except as provided in the second succeeding sentence, any tax
imposed on or measured by the net income or net profits of a Bank pursuant to
the laws of the jurisdiction in which it is organized or the jurisdiction in
which the principal office or applicable lending office of such Bank is located
or any political subdivision or taxing authority thereof or therein) and all
interest, penalties or similar liabilities with respect to such non-excluded
taxes, levies, imposts, duties, fees, assessments or other charges (all such
non-excluded taxes, levies, imposts, duties, fees, assessments or other charges
being referred to collectively as "Taxes"). If any Taxes are so levied or
imposed, Holdings and the Borrower jointly and severally agree to pay the full
amount of such Taxes, and such additional amounts as may be necessary so that
every payment of all amounts due hereunder or under any Note, after withholding
or deduction for or on account of any Taxes, will not be less than the amount
provided for herein or in such Note. If any amounts are payable in respect of
Taxes pursuant to the preceding sentence, Holdings and the Borrower jointly and
severally agree to reimburse each Bank, upon the written request of such Bank,
for taxes imposed on or measured by the net income or net profits of such Bank
pursuant to the laws of the jurisdiction or any political subdivision or taxing
authority thereof or therein in which such Bank is organized or in which the
principal office or applicable lending office of such Bank is located and for
any withholding of taxes as such Bank shall determine are payable by, or
withheld from, such Bank in respect of such amounts so paid to or on behalf of
such Bank pursuant to the preceding sentence and in respect of any amounts paid
to or on behalf of such Bank pursuant to this sentence. Holdings and the
Borrower jointly and severally will furnish to the Administrative Agent within
forty-five (45) days after the date of the payment of any Taxes due pursuant to
applicable law certified copies of tax receipts evidencing such payment by
Holdings and the Borrower jointly and severally. Holdings and the Borrower
jointly and severally agree to indemnify and hold harmless each Bank, and
reimburse such Bank upon its written request, for the amount of any Taxes so
levied or imposed and paid by such Bank.
(b) Each Bank that is not a United States person (as such term is
defined in Section 7701(a)(30) of the Code) agrees to deliver to the Borrower
and the Administrative Agent on or prior to the Restatement Effective Date, or
in the case of a Bank that is an assignee or transferee of an interest under
<PAGE> 33
this Agreement pursuant to Section 12.04 (unless the respective Bank was already
a Bank hereunder immediately prior to such assignment or transfer), on the date
of such assignment or transfer to such Bank, (i) two accurate and complete
original signed copies of Internal Revenue Service Form 4224 or 1001 (or
successor forms) certifying to such Bank's entitlement to a complete exemption
from United States withholding tax with respect to payments to be made under
this Agreement and under any Note, or (ii) if the Bank is not a "bank" within
the meaning of Section 881(c)(3)(A) of the Code and cannot deliver either
Internal Revenue Service Form 1001 or 4224 pursuant to clause (i) above, (x) a
certificate substantially in the form of Exhibit E (any such certificate, a
"Section 3.04(b)(ii) Certificate") and (y) two accurate and complete original
signed copies of Internal Revenue Service Form W-8 (or successor form)
certifying to such Bank's entitlement to a complete exemption from United States
withholding tax with respect to payments of interest to be made under this
Agreement and under any Note. In addition, each Bank agrees that from time to
time after the Restatement Effective Date, when a lapse in time or change in
circumstances renders the previous certification obsolete or inaccurate in any
material respect, it will deliver to the Borrower and the Administrative Agent
two new accurate and complete original signed copies of Internal Revenue Service
Form 4224 or 1001, or Form W-8 and a Section 3.04(b)(ii) Certificate, as the
case may be, and such other forms as may be required in order to confirm or
establish the entitlement of such Bank to a continued exemption from or
reduction in United States withholding tax with respect to payments under this
Agreement and any Note, or it shall immediately notify the Borrower and the
Administrative Agent of its inability to deliver any such form or certificate,
in which case such Bank shall not be required to deliver any such form or
certificate pursuant to this Section 3.04(b). Notwithstanding anything to the
contrary contained in Section 3.04(a), but subject to the immediately succeeding
sentence, (x) the Borrower shall be entitled, to the extent it is required to do
so by law, to deduct or withhold income or similar taxes imposed by the United
States (or any political subdivision or taxing authority thereof or therein)
from interest, fees or other amounts payable hereunder for the account of any
Bank which is not a United States person (as such term is defined in Section
7701(a)(30) of the Code) for U.S. Federal income tax purposes to the extent that
such Bank has not provided to the Borrower U.S. Internal Revenue Service Forms
that establish a complete exemption from such deduction or withholding and (y)
the Borrower shall not be obligated pursuant to Section 3.04(a) hereof to
gross-up payments to be made to a Bank in respect of income or similar taxes
imposed by the United States if (I) such Bank has not provided the Borrower the
Internal Revenue Service Forms required to be provided the Borrower pursuant to
this Section 3.04(b) or (II) in the case of a payment, other than interest, to a
Bank described in clause (ii) above, to the extent that such forms do not
establish a complete exemption from withholding of such taxes. Notwithstanding
anything to the contrary contained in the preceding sentence or elsewhere in
this Section 3.04, the Borrower agrees to pay additional amounts and to
indemnify each Bank in the manner set forth in Section 3.04(a) (without regard
to the identity of the jurisdiction requiring the deduction or withholding) in
respect of any Taxes deducted or withheld by it as described in the immediately
preceding sentence as a result of any changes after the Restatement Effective
Date in any applicable law, treaty, governmental rule, regulation, guideline or
order, or in the interpretation thereof, relating to the deducting or
withholding of such Taxes.
<PAGE> 34
Section 4. Conditions Precedent to the Restatement Effective Date and
Loans on the Restatement Effective Date. The obligation of each Bank to make
Loans on the Restatement Effective Date is subject at the time of such Loan to
the satisfaction of the following conditions unless any of such conditions are
waived by the Agents:
4.01 Execution of Agreement; Notes. On or prior to the Restatement
Effective Date (i) this Agreement shall have become effective as provided in
Section 12.10 and (ii) there shall have been delivered to the Administrative
Agent for the account of each of the Banks the appropriate Term Note or
Revolving Note executed by the Borrower, in each case in the amount, maturity
and as otherwise provided herein.
4.02 Officer's Certificate. On the Restatement Effective Date,
the Agents shall have received a certificate dated the Restatement Effective
Date signed on behalf of each Credit Party by the President, the Chief Financial
Officer, the General Counsel or any Vice President of such Credit Party and
which certificate, in the case of the Borrower, shall state that all of the
conditions in Sections 4.06, 4.07(iii) and (iv) (with respect to 4.07(iii)),
4.11, 4.12, 4.13, 4.14, 4.16, 4.19, 5.01, 5.03 (if a Permitted Acquisition will
be consummated on the Restatement Effective Date) and 5.04 have been satisfied
on such date; provided that the certificate shall not be required to certify as
to the acceptability of any items to the Agents and/or the Banks or as to
whether the Agents and/or the Banks are satisfied with any of the matters
described in said Sections.
4.03 Opinions of Counsel. On the Restatement Effective Date, the
Agents shall have received from Reboul, MacMurray, Hewitt, Maynard & Kristol,
counsel to the Borrower and its Subsidiaries, an opinion addressed to the
Agents, the Collateral Agent and each of the Banks and dated the Restatement
Effective Date covering the matters set forth in Exhibit F and such other
matters incident to the transactions contemplated herein as the Agents may
reasonably request.
4.04 Corporate Documents; Proceedings. (a) On the Restatement
Effective Date, the Agents shall have received a certificate, dated the
Restatement Effective Date, signed by the President or any Vice President of
each Credit Party, and attested to by the Secretary or any Assistant Secretary
of such Credit Party, in the form of Exhibit G with appropriate insertions,
together with copies of the Certificate of Incorporation, By-Laws or other
organizational documents of such Credit Party and the resolutions of such Credit
Party referred to in such certificate, and the foregoing shall be acceptable to
the Agents and the Required Banks in their sole discretion.
(b) On the Restatement Effective Date, all corporate and legal
proceedings and all instruments and agreements relating to the transactions
contemplated by this Agreement and the other Credit Documents shall be
satisfactory in form and substance to the Agents and the Required Banks, and the
Agents shall have received all information and copies of all documents and
papers, including records of corporate proceedings, governmental approvals, good
standing certificates and bring-down telegrams, if any, which the Agents or the
Required Banks may have requested in connection therewith, such documents and
<PAGE> 35
papers where appropriate to be certified by proper corporate or governmental
authorities.
4.05 Employee Benefit Plans; Shareholders' Agreements; Management
Agreements; Employment Agreements; Collective Bargaining Agreements; Debt
Agreements; Tax Sharing Agreements; Affiliate Contracts and Material Contracts.
To the extent that documents previously delivered to the Banks in connection
with Section 4.05 of the Existing Credit Agreement have undergone material
changes or that such documents have not been so delivered, on or prior to the
Restatement Effective Date, there shall have been delivered to the Banks true
and correct copies, certified as true and complete by an appropriate officer of
the Borrower of the following documents:
(i) all Plans (and for each Plan that is required to file an
annual report on Internal Revenue Service Form 5500-series, a copy of
the most recent such report (including, to the extent required, the
related financial and actuarial statements and opinions and other
supporting statements, certifications, schedules and information), and
for each Plan that is a "single-employer plan," as defined in Section
4001(a)(15) of ERISA, the most recently prepared actuarial valuation
therefor) and any other "employee benefit plans," as defined in
Section 3(3) of ERISA, and any other material agreements, plans or
arrangements, with or for the benefit of current or former employees
of the Borrower or any of its Subsidiaries or any ERISA Affiliate
(provided that the foregoing shall apply in the case of any
multiemployer plan, as defined in 4001(a)(3) of ERISA, only to the
extent that any document described therein is in the possession of the
Borrower or any Subsidiary of the Borrower or any ERISA Affiliate or
reasonably available thereto from the sponsor or trustee of any such
plan); and all other employee benefit plans, or any other similar
plans or arrangements for the benefit of employees of the Borrower or
any Subsidiary of the Borrower and any profit sharing plans and
deferred compensation plans of the Borrower or any Subsidiary of the
Borrower (collectively, the "Employee Benefit Plans");
(ii) all agreements entered into by the Borrower or any
Subsidiary of the Borrower governing the terms and relative rights of
its capital stock and any agreements entered into by shareholders
relating to any such entity with respect to their capital stock
(collectively, the "Shareholders' Agreements");
(iii) all agreements with members of, or with respect to the,
management of the Borrower or any Subsidiary of the Borrower other
than Employment Agreements (collectively, the "Management
Agreements");
(iv) any employment agreements entered into by the Borrower or
any Subsidiary of the Borrower (collectively, the "Employment
Agreements");
(v) all collective bargaining agreements applying or relating to
any employee of the Borrower or any Subsidiary of the Borrower
(collectively, the "Collective Bargaining Agreements");
(vi) all agreements evidencing or relating to Indebtedness of the
Borrower or any Subsidiary of the Borrower whether or not such
agreement is to remain outstanding after giving effect to the
incurrence of Loans on the Restatement Effective Date (collectively,
the "Debt Agreements");
<PAGE> 36
(vii) all tax sharing, tax allocation and other similar
agreements entered into by the Borrower or any Subsidiary of the
Borrower (collectively, the "Tax Sharing Agreements");
(viii) all contracts, agreements or understandings entered into
between the Borrower or any of its Subsidiaries on the one hand, and
any of its Affiliates, on the other hand (collectively, the "Affiliate
Contracts"); and
(ix) all material contracts and licenses of the Borrower or any
of its Subsidiaries that are to remain in effect after giving effect
to the consummation of the Transaction, including, without limitation,
all NRTC Agreements, all leases pursuant to which the Borrower or any
of its Subsidiaries are lessees and all agreements, letters of intent
and memoranda of understanding with respect to the acquisition or sale
by the Borrower of any assets which are unconsummated and in effect
(collectively, the "Material Contracts");
all of which Plans, Employee Benefit Plans, Shareholders' Agreements, Management
Agreements, Employment Agreements, Collective Bargaining Agreements, Debt
Agreements, Tax Sharing Agreements, Affiliate Contracts and Material Contracts
shall be in form and substance satisfactory to the Agents and the Required Banks
and shall be in full force and effect on the Restatement Effective Date.
4.06 Consummation of the Reorganization Transaction. On or prior to
the Restatement Effective Date, there shall have been delivered to the Agents
true and correct copies of all Reorganization Transaction Documents, and all
terms and provisions of such Reorganization Transaction Documents shall be in
form and substance satisfactory to the Agents. The Reorganization Transaction
shall have been consummated in accordance with all applicable law and the
Reorganization Transaction Documents.
4.07 Existing Credit Agreement. On the Restatement Effective Date, (i)
each Continuing Bank shall have converted its Existing Loans as contemplated by
Section 1.01, (ii) the Borrower shall have paid all interest and fees (including
commitment fees) owing under the Existing Credit Agreement through the
Restatement Effective Date, (iii) the Borrower shall have repaid to any
Continuing Bank and any Non-Continuing Bank all amounts owing to it, including
without limitation, all Existing Loans (not being converted in the case of
Continuing Banks), interest thereon, fees and expenses, if any, set forth in
Section 1.11 and (iv) the Agents shall have received evidence in form, scope and
substance satisfactory to them that the matters set forth in this Section 4.07
have been satisfied on the Restatement Effective Date.
4.08 Subsidiaries Guaranty. On the Restatement Effective Date, each
Subsidiary of the Borrower (excluding the South Plains DBS Limited Partnership
and DCE Satellite Entertainment, LLC, in each case so long as (i) neither such
partnership nor such limited liability company is a Wholly-Owned Subsidiary of
the Borrower and (ii) the Borrower does not own a sufficient equity interest in
such partnership or sufficient membership interests in such limited liability
company to require such partnership or limited liability company, as the case
may be, to act otherwise) shall have executed and delivered a guaranty
agreement, substantially in the form of Exhibit H (the "Subsidiaries Guaranty").
<PAGE> 37
4.09 Holdings Pledge Agreement. On the Restatement Effective Date,
Holdings (i) shall have executed and delivered a pledge agreement substantially
in the form of Exhibit I-1 (the "Holdings Pledge Agreement") and (ii) shall have
delivered to the Collateral Agent, as Pledgee thereunder, all of the Pledged
Securities referred to in the Holdings Pledge Agreement, then owned by Holdings,
together with executed and undated irrevocable stock powers with respect to the
Pledged Securities.
4.10 Security Document Acknowledgment; Pledge Agreements; Security
Agreement. (a) On the Restatement Effective Date, the Borrower and each
Subsidiary Guarantor shall have duly authorized, executed and delivered either
original Security Documents, if not previously executed by such party, or, if
such has been previously executed by such party, an assumption and
acknowledgment in the form of Exhibit J (the "Security Documents
Acknowledgment") with respect to the Borrower/Subsidiary Pledge Agreement, the
Security Agreement and the Collateral Assignment of Marketing and Distribution
Agreements, which assumption and acknowledgment, among other things, (i)
acknowledges and agrees that the "Obligations" (as defined in each of such
documents) include all of the Obligations under this Agreement after giving
effect to the Restatement Effective Date, (ii) acknowledges and agrees that,
after giving effect to the Restatement Effective Date, each of the Security
Documents shall remain in full force and effect in accordance with the
respective terms thereof and (iii) has confirmatory schedules attached thereto
with respect to all of the information required to be provided on the schedules
to the Security Documents, and each of the Borrower and each Subsidiary
Guarantor shall have taken all actions reasonably requested by the Collateral
Agent (including, without limitation, the obtaining of UCC-11's or equivalent
reports and the preparation, execution and delivery of UCC-1's, UCC-2's or
UCC-3's to be filed) in connection with the granting of liens pursuant to the
Security Documents.
(b) On the Restatement Effective Date, the Collateral Agent, as
pledgee shall have in its possession all of the Pledged Securities referred to
in the Holdings Pledge Agreement, endorsed in blank in the case of promissory
notes or accompanied by executed and undated stock powers in the case of capital
stock, and each Pledge Agreement shall be in full force and effect.
(c) On the Restatement Effective Date, (i) no filings, recordings,
registrations or other actions (other than as set forth in Section 4.10(a)(ii))
shall be necessary to maintain the perfection and priority of the security
interests granted pursuant to the Security Documents in the Collateral covered
thereby, and (ii) the Banks shall have received evidence that all other actions
necessary or, in the opinion of the Collateral Agent, desirable to perfect and
protect the security interests purported to be created by the Security Documents
have been taken.
4.11 Minimum Subscribers and Households. The Agents shall have
received evidence satisfactory to them that, on and as of the Restatement
Effective Date, the Borrower's franchise service area includes no less than (a)
117,000 subscribers and (b) 1,220,000 households.
4.12 Material Adverse Change, etc. Since December 31, 1997, nothing
shall have occurred (and the Banks shall have become aware of no facts or
conditions not previously known) which the Agents or the Required Banks shall
determine (a) could reasonably be expected to have a material adverse effect on
the rights or remedies of the Banks or the Agents, or on the ability of the
Borrower or any of its Subsidiaries to perform their obligations to the Agents
and the Banks under this Agreement or any other Credit Document, (b) could
<PAGE> 38
reasonably be expected to have a materially adverse effect on the performance,
business, assets, nature of assets, liabilities, operations, properties,
condition (financial or otherwise) or prospects of Holdings and its Subsidiaries
taken as a whole or (c) indicates the inaccuracy in any material respect of the
information previously provided to the Agents or the Banks (taken as a whole) in
connection with their analysis of the transactions contemplated hereby or
indicates that the information previously provided omitted to disclose any
material information.
4.13 Litigation. On the Restatement Effective Date, no litigation by
any entity (private or governmental) shall be pending or threatened with respect
to this Agreement, any other Document or any documentation executed in
connection herewith or with respect to the transactions contemplated hereby, or
which the Agents or Required Banks shall determine could reasonably be expected
to have a materially adverse effect on the Transaction or on the performance,
business, assets, nature of assets, liabilities, operations, properties,
condition (financial or otherwise) or prospects of the Borrower and its
Subsidiaries taken as a whole.
4.14 Fees, etc. On the Restatement Effective Date, the Borrower shall
have paid in full to the Agents and the Banks all costs, fees and expenses
(including, without limitation, all legal fees and expenses) payable to the
Agents and the Banks to the extent then due pursuant hereto or as otherwise
agreed between the Borrower and the Agents.
4.15 Solvency Certificate; Insurance Analyses. On the Restatement
Effective Date, the Borrower shall cause to be delivered to the Agents and the
Banks:
(i) a certificate from the Chief Financial Officer of the
Borrower, in the form of Exhibit K hereto, supporting the conclusions
that, after giving effect to the Transaction and the incurrence of all
financings contemplated herein, that each Credit Party, and all Credit
Parties taken as a whole, as the case may be, are not insolvent and
will not be rendered insolvent by the Indebtedness incurred in
connection therewith, will not be left with unreasonably small capital
with which to engage in Credit Party businesses and will not have
incurred debts beyond their ability to pay such debts as they mature;
and
(ii) evidence (including, without limitation, certificates with
respect to each insurance policy listed on Schedule XII) of insurance,
complying with the requirements of Section 7.03, with respect to the
executives, business and properties of the Borrower and its
Subsidiaries, in scope, form and substance satisfactory to the Agents
and the Required Banks and naming each of the Collateral Agent, the
Agents and the Banks as an additional insured and the Collateral Agent
as loss payee and stating that such insurance shall not be canceled or
revised without thirty (30) days' prior written notice by the insurer
to the Collateral Agent.
4.16 Approvals. All necessary governmental and third party approvals
in connection with the transactions contemplated by the Credit Documents and
otherwise referred to herein or therein (including, but not limited to, those
approvals required in respect of existing permits, landlord consents and
transfers of contract rights) shall have been obtained and remain in effect, and
all applicable waiting periods shall have expired without any action being taken
<PAGE> 39
by any competent authority which restrains, prevents or imposes, in the sole
judgment of the Agents or the Required Banks, adverse conditions upon the
consummation of the Transaction or the other transactions contemplated by the
Documents and otherwise referred to herein or therein. Additionally, there shall
not exist any judgment, order, injunction or other restraint issued or filed or
a hearing seeking injunction relief or other restraint pending or notified
prohibiting or imposing materially adverse conditions upon the consummation of
the Transaction, the transactions contemplated by the Documents, the making of
the Loans or the issuance of Letters of Credit.
4.17 Financial Statements; Projections; Management Letter Reports. (a)
On or prior to the Restatement Effective Date, the Banks shall have received:
(i) the consolidated balance sheet of the Borrower or Holdings,
as the case may be, as at December 31, 1996 and December 31, 1997 and
the related consolidated statements of earnings and stockholders'
equity and cash flows of such Person, as applicable for the fiscal
periods ended as of said dates, which statements have been examined by
KPMG Peat Marwick LLP, which is an independent certified public
accountant, which delivered unqualified opinions in respect thereto;
and
(ii) the pro forma (after giving effect to the Transaction)
consolidated balance sheet of Holdings as at February 28, 1998, all of
which financial statements referred to in clause (i) and (ii) shall be
prepared in accordance with generally accepted accounting principles
consistent with past practices and shall be in form and substance
satisfactory to the Agents and the Required Banks, and shall not
disclose any material adverse differences in the business, properties,
assets, liabilities, results of operations, condition (financial or
otherwise) or prospects of Holdings and its Subsidiaries taken as a
whole from that previously disclosed to the Agents and the Required
Banks.
(b) On the Restatement Effective Date, the Banks shall have received
detailed consolidated financial projections, certified by the Chief Financial
Officer of the Borrower, for Holdings and its Subsidiaries, which include the
projected consolidated results of Holdings, after giving effect to the
Transaction and the other transactions contemplated herein, for the period
commencing on the Restatement Effective Date and ending after the Term Loan
Maturity Date (the "Projections"), which Projections, and the supporting
assumptions and explanations thereto, and the accounting practices and
procedures to be utilized by Holdings following the Restatement Effective Date,
shall be satisfactory in form and substance to the Agents and the Required Banks
and shall be as set forth on Schedule III hereto.
(c) On or prior to the Restatement Effective Date, the Agents shall
have received a copy of any "management letter" received by Holdings or any of
its Subsidiaries from its certified public accountants since the Original
Effective Date.
4.18 Consent Letter. The Agents shall have received a letter from
Corporation Service Company, with offices on the date hereof at 80 State Street,
Albany, New York 12207, substantially in the form of Exhibit L hereto,
indicating its consent to its appointment by Holdings and its Subsidiaries as
their agent to receive service of process as specified in Section 12.08 of this
Agreement.
<PAGE> 40
4.19 Acquisitions. The Agents shall have received a schedule of all
acquisitions of DirecTV franchises since the Original Effective Date and shall
be satisfied that all such acquired entities (excluding the South Plains DBS
Limited Partnership and DCE Satellite Entertainment, LLC, in each case so long
as (i) neither such partnership nor such limited liability company is a
Wholly-Owned Subsidiary and (ii) the Borrower does not own a sufficient equity
interest in such partnership or sufficient membership interests in such limited
liability company to require such partnership or limited liability company, as
the case may be, to act otherwise) shall have executed and delivered the
appropriate Subsidiaries Guaranty and Security Documents and that the Collateral
Agent for the benefit of the Secured Creditors has a valid and perfected first
priority security interest in all assets and capital stock of such entities.
Section 5. Conditions Precedent to All Credit Events. The obligation
of each Bank to make Loans (including Loans made on the Restatement Effective
Date) and the obligation of an Issuing Bank to issue any Letter of Credit is
subject, at the time of each such Credit Event (except as hereinafter
indicated), to the satisfaction of the following conditions:
5.01 No Default; Representations and Warranties. At the time of each
such Credit Event and also after giving effect thereto (i) there shall exist no
Default or Event of Default and (ii) all representations and warranties
contained herein and in the other Credit Documents shall be true and correct in
all material respects with the same effect as though such representations and
warranties had been made on the date of the making of such Credit Event (except
to the extent such representations specifically relate to earlier dates in which
case such representations shall be correct in all material respects on and as of
such dates).
5.02 Notice of Borrowing; Letter of Credit Request. (a) Prior to the
making of each Loan, the Administrative Agent shall have received a Notice of
Borrowing meeting the requirements of Section 1.03.
(b) Prior to the issuance of each Letter of Credit, the Issuing Bank
shall have received a Letter of Credit Request meeting the requirements of
Section 1A.03.
5.03 Permitted Acquisitions. Prior to the making of each Revolving
Loan, the proceeds of which are to be utilized to effect, in whole or in part, a
Permitted Acquisition, (i) all conditions to such Permitted Acquisition set
forth in Section 7.15 and in the definition thereof shall have been satisfied
and the President or any other senior executive officer of the Borrower shall
have delivered an officer's certificate certifying that such conditions have
been met and (ii) the Total Unutilized Revolving Loan Commitment shall be at
least $15,000,000.
5.04 Material Adverse Change, etc. Nothing shall have occurred since
December 31, 1997 (and the Banks shall have become aware of no facts or
conditions not previously known) which the Agents or the Required Banks shall
determine (i) could reasonably be expected to have a material adverse effect on
the rights or remedies of the Banks or the Agents, or on the ability of the
<PAGE> 41
Borrower or any Subsidiary of the Borrower to perform its obligations to the
Banks under this Agreement or any other Credit Document or (ii) which could
reasonably be expected to have a materially adverse effect on the performance,
business, assets, nature of assets, liabilities, operations, properties,
condition (financial or otherwise) or prospects of Holdings and its Subsidiaries
taken as a whole.
5.05 Litigation. At the time of each such Credit Event and also after
giving effect thereto, no litigation by any entity (private or governmental)
shall be pending or threatened with respect to this Agreement or any other
Credit Document executed in connection herewith or the transactions contemplated
hereby or which the Required Banks shall determine could reasonably be expected
to have a materially adverse effect on the performance, business, assets, nature
of assets, liabilities, operations, properties, condition (financial or
otherwise) or prospects of Holdings and its Subsidiaries taken as a whole.
5.06 Borrowing Base Certificate. On the date of each Credit Event, the
Agents shall have received a borrowing base certificate of the Borrower in the
form of Exhibit M (each a "Borrowing Base Certificate"), with respect to the
Qualified Paying Subscribers and the Subscribers to be Acquired of the Borrower
and its Subsidiaries as of the last day of the immediately preceding month
(after giving effect to the Credit Events being contemplated and the
transactions contemplated hereby and by the other Credit Documents) certified by
the Chief Financial Officer of the Borrower.
The acceptance of the benefits of each Credit Event shall constitute a
representation and warranty by the Borrower to each of the Banks that all the
conditions specified in Section 4 and in this Section 5 and applicable to such
Credit Event exist as of that time; provided that such acceptance of benefits of
each Credit Event shall not constitute a representation and warranty by the
Borrower as to the acceptability of any items to the Agents and/or the Banks or
as to whether the Agents and/or the Banks are satisfied with any of the matters
described in such sections. All of the Notes, certificates, legal opinions and
other documents and papers referred to in Section 4 and in this Section 5,
unless otherwise specified, shall be delivered to the Administrative Agent at
the Notice Office for the account of each of the Banks and, except for the
Notes, in sufficient counterparts for each of the Banks and, unless otherwise
specified, shall be in form and substance satisfactory to the Banks.
Section 6. Representations, Warranties and Agreements. In order to
induce the Banks to enter into this Agreement on the Restatement Effective Date
and to make the Loans, and issue (or participate in) the Letters of Credit as
provided herein, each of Holdings and the Borrower makes the following
representations, warranties and agreements as to itself and as to each of its
Subsidiaries (to the extent applicable), as of the Restatement Effective Date
(both before and after giving effect to the Credit Events occurring on such
date, the Transaction and the other transactions contemplated by the Documents,
and all references to the Borrower herein and elsewhere in this Agreement,
shall, unless otherwise specifically indicated, be references to the Borrower
after giving effect to the Transaction) and as of the date of each subsequent
Credit Event which representations, warranties and agreements shall survive the
execution and delivery of this Agreement and the Notes and any subsequent Credit
Event, with the occurrence of each Credit Event on or after the Restatement
Effective Date being deemed to constitute a representation and warranty that the
<PAGE> 42
matters specified in this Section 6 are true and correct on and as of the
Restatement Effective Date and on the date of each such Credit Event (except to
the extent such representations specifically relate to earlier dates in which
case such representations shall be correct in all material respects on and as of
such dates):
6.01 Corporate Status. Each of Holdings and its Subsidiaries (i) is a
duly organized and validly existing corporation in good standing under the laws
of the jurisdiction of its organization, (ii) has the power and authority to own
its property and assets and to transact the business in which it is engaged and
presently proposes to engage and (iii) is duly qualified and is authorized to do
business and is in good standing in each jurisdiction where the ownership,
leasing or operation of property or the conduct of its business requires such
qualifications except for failures to be so qualified which, in the aggregate,
could not reasonably be expected to have a material adverse effect on the
performance, business, assets, nature of assets, liabilities, operations,
properties, condition (financial or otherwise) or prospects of Holdings and its
Subsidiaries taken as a whole.
6.02 Corporate Power and Authority. Each of Holdings and its
Subsidiaries has the corporate power to execute, deliver and perform the terms
and provisions of each of the Documents to which it is party and has taken all
necessary corporate action to authorize the execution, delivery and performance
by it of each of such Documents. Each of Holdings and its Subsidiaries has duly
executed and delivered each of the Documents to which it is party, and each of
such Documents constitutes its legal, valid and binding obligation enforceable
in accordance with its terms, except as the enforceability thereof may be
limited by bankruptcy, reorganization, moratorium or similar laws relating to or
limiting creditors' rights generally or by general equitable principles
(regardless of whether the issue of enforceability is considered in a proceeding
in equity or at law).
6.03 No Violation. Neither the execution, delivery or performance by
Holdings or any of its Subsidiaries of the Credit Documents to which it is a
party, nor compliance by it with the terms and provisions thereof, (i) will
contravene any provision of any applicable law, statute, rule or regulation or
any order, writ, injunction or decree of any court or governmental
instrumentality, (ii) will conflict with or result in any breach of any of the
terms, covenants, conditions or provisions of, or constitute a default under, or
result in the creation or imposition of (or the obligation to create or impose)
any Lien (except pursuant to the Security Documents) upon any of the property or
assets of Holdings or any of its Subsidiaries pursuant to the terms of any
indenture, mortgage, deed of trust, credit agreement or loan agreement, or any
other agreement, contract or instrument to which Holdings or its Subsidiaries is
a party or by which it or any of its property or assets is bound or to which it
may be subject or (iii) will violate any provision of the Certificate of
Incorporation or By-Laws (or similar organizational documents) of Holdings or
any of its Subsidiaries. Neither the execution, delivery or performance by
Holdings or any of its Subsidiaries of the Documents (other than the Credit
Documents) to which it is a party, nor compliance by it with the terms and
provisions thereof, (i) will contravene any provision of any applicable material
law, statute, rule or regulation or any material order, writ, injunction or
decree of any court or governmental instrumentality, (ii) will conflict with or
result in any breach of any of the terms, covenants, conditions or provisions
of, or constitute a default under, or result in the creation or imposition of
(or the obligation to create or impose) any Lien (except pursuant to the
Security Documents) upon any of the property or assets of Holdings or any of its
<PAGE> 43
Subsidiaries pursuant to the terms of any material indenture, mortgage, deed of
trust, credit agreement or loan agreement, or any other material agreement,
contract or instrument to which Holdings or its Subsidiaries is a party or by
which it or any of its property or assets is bound or to which it may be subject
or (iii) will violate any provision of the Certificate of Incorporation or
By-Laws (or similar organizational documents) of Holdings or any of its
Subsidiaries.
6.04 Governmental Approvals. No order, consent, approval, license,
authorization or validation of, or filing, recording or registration with
(except as have been obtained or made on or prior to the Restatement Effective
Date and are in full force and effect), or exemption by, any governmental or
public body or authority, or any subdivision thereof, is required to authorize,
or is required in connection with, (i) the execution, delivery and performance
of any Credit Document or (ii) the legality, validity, binding effect or
enforceability of any such Credit Document. No material order, consent,
approval, license, authorization or validation of, or material filing, recording
or registration with (except as have been obtained or made on or prior to the
Restatement Effective Date and are in full force and effect), or exemption by,
any governmental or public body or authority, or any subdivision thereof, is
required to authorize, or is required in connection with, (i) the execution,
delivery and performance of any Document (other than the Credit Documents) or
(ii) the legality, validity, binding effect or enforceability of any such
Document (other than the Credit Documents).
6.05 Financial Statements; Financial Condition; Undisclosed
Liabilities; Projections; etc. (a) The consolidated balance sheet of the
Borrower as at December 31, 1996 and Holdings as at December 31, 1997, and the
related statements of earnings and stockholders' equity and cash flows for the
fiscal period ended as of such date, in the case of the annual statements, have
been examined by KMPG Peat Marwick LLP, which is an independent certified public
accountant, which delivered unqualified opinions in respect thereto, copies of
all of which financial statements referred to in the preceding clause have
heretofore been furnished to each Bank, present fairly in all material respects
the financial position of the Borrower or Holdings, as the case may be, and
their respective Subsidiaries at the dates of said statements and the results of
operations for the period covered thereby. All such financial statements have
been prepared in accordance with generally accepted accounting principles and
practices consistently applied except to the extent provided in the notes to
said financial statements and with respect to interim financial statements,
subject to normal year end adjustments. Since December 31, 1997, there has been
no material adverse change in the performance, business, assets, nature of
assets, liabilities, operations, properties, condition (financial or otherwise)
or prospects of Holdings and its Subsidiaries as a whole.
(b) On and as of the Restatement Effective Date, on a pro forma basis
after giving effect to the Transaction and all other transactions contemplated
to take place on or prior to the Restatement Effective Date and to all
Indebtedness (including the Loans) being incurred in connection with the
Transaction, and Liens created, and to be created, by each Credit Party in
connection therewith: (a) the sum of the assets (including all intangible
assets), at a fair market valuation, of each Credit Party will exceed its debts;
(b) no Credit Party has incurred or intends to, or believes that it will, incur
debts beyond its ability to pay such debts as such debts mature; and (c) each
Credit Party will have sufficient capital with which to conduct its business.
For purposes of this Section 6.05(b) "debt" means any liability on a claim, and
"claim" means (i) right to payment, whether or not such a right is reduced to
<PAGE> 44
judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured,
disputed, undisputed, legal, equitable, secured, or unsecured or (ii) right to
an equitable remedy for breach of performance if such breach gives rise to a
payment, whether or not such right to an equitable remedy is reduced to
judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured
or unsecured.
(c) Except as fully reflected in the financial statements and the
notes related thereto described in Section 6.05(a) there were as of the
Restatement Effective Date (and after giving effect to the Transaction and the
other transactions contemplated hereby and by the Documents) no liabilities or
obligations with respect to Holdings or any of its Subsidiaries of any nature
whatsoever (whether absolute, accrued, contingent or otherwise and whether or
not due) which, either individually or in aggregate, could reasonably be
expected to have a materially adverse effect on the performance, business,
assets, nature of assets, liabilities, operations, properties, condition
(financial or otherwise) or prospects of Holdings and its Subsidiaries taken as
a whole. As of the Restatement Effective Date, neither Holdings nor any of its
Subsidiaries knows of any basis for the assertion against Holdings or any of its
Subsidiaries of any liability or obligation of any nature whatsoever that is not
fully reflected in the financial statements and the notes related thereto
described in Section 6.05(a) which, either individually or in the aggregate,
could reasonably be expected to be material to the Borrower and its Subsidiaries
taken as a whole. As of the Restatement Effective Date (and after giving effect
to the Transaction) none of Holdings or any of its Subsidiaries will have any
outstanding Indebtedness or preferred stock other than (i) the Loans, (ii) the
Existing Indebtedness and (iii) 418,000 shares of Series A Convertible
Participating Preferred Stock of Holdings and 228,500 shares of Series B
Convertible Participating Preferred Stock of Holdings.
(d) On and as of the Restatement Effective Date, the Projections have
been prepared in good faith by the Borrower and there are no statements or
conclusions in any of the Projections which are based upon or include
information known to the Borrower to be misleading or which fail to take into
account material information regarding the matters reported therein. On the
Restatement Effective Date, the Borrower believes that the Projections were
reasonable and attainable (although actual results may differ from the
Projections and no representation is made that the Projections will in fact be
attained).
6.06 Litigation. There are no actions, suits or proceedings pending
or, to the best knowledge of Holdings and its Subsidiaries, threatened (i) with
respect to any Document, or (ii) that are reasonably likely to materially and
adversely affect the performance, business, assets, nature of assets,
liabilities, operations, properties, condition (financial or otherwise) or
prospects of Holdings and its Subsidiaries taken as a whole.
6.07 True and Complete Disclosure. All factual information (taken as a
whole) heretofore or contemporaneously furnished by or on behalf of Holdings or
any of its Subsidiaries in writing to any Bank (including, without limitation,
all information contained in the Documents) for purposes of or in connection
with this Agreement or any transaction contemplated herein (including, without
limitation, in connection with the issuance of Acceptable Subordinated Debt) is,
and all other such factual information (taken as a whole with all information
previously furnished) hereafter furnished by or on behalf of Holdings or any of
its Subsidiaries in writing to any Bank will be, true and accurate in all
<PAGE> 45
material respects on the date as of which such information is dated or certified
and not incomplete by omitting to state any material fact.
6.08 Use of Proceeds; Margin Regulations. (a) All proceeds of the Term
Loans and up to $100,000,000 of the proceeds of Revolving Loans incurred by the
Borrower on the Restatement Effective Date shall be used by the Borrower to (i)
repay Existing Loans, accrued interest thereon, breakage costs and fees relating
thereto and relating to the Existing Letters of Credit, (ii) repay the Rocky
Mountain Note, (iii) pay Transaction Fees and Expenses and (iv) provide for
working capital purposes. Proceeds of Revolving Loans incurred after the
Restatement Effective Date shall be used by the Borrower only to effect
Permitted Acquisitions and for general corporate, capital expenditure and
working capital purposes.
(b) No part of the proceeds of any Loan will be used to purchase or
carry any Margin Stock or to extend credit for the purpose of purchasing or
carrying any Margin Stock. Neither the making of any Loan nor the use of the
proceeds thereof nor the occurrence of any other Credit Event will violate or be
inconsistent with the provisions of Regulation G, T, U or X of the Board of
Governors of the Federal Reserve System.
6.09 Tax Returns and Payments. Each of Holdings and each of its
Subsidiaries has timely filed or caused to be timely filed (including pursuant
to any valid extensions of time for filing) with the appropriate taxing
authority, all material returns, statements, forms and reports for taxes (the
"Returns") required to be filed by or with respect to the income, properties or
operations of Holdings and/or any of its Subsidiaries. The Returns accurately
reflect in all material respects all liability for taxes of Holdings and its
Subsidiaries for the periods covered thereby. Each of Holdings and each of its
Subsidiaries has paid, or have provided adequate reserves in accordance with
generally accepted accounting principles for all material taxes (including,
without limitation, all withholding taxes) payable by them which have become due
or will become due for the current fiscal year through the date hereof. There is
no material action, suit, proceeding, investigation, audit, or claim now pending
or, to the best knowledge of Holdings or any of its Subsidiaries, threatened by
any authority regarding any taxes relating to Holdings or any of its
Subsidiaries. Except as set forth on Schedule IV, as of the Restatement
Effective Date, neither Holdings nor any of its Subsidiaries has entered into an
agreement or waiver or been requested to enter into an agreement or waiver
extending any statute of limitations relating to the payment or collection of a
material amount of taxes of Holdings or any of its Subsidiaries, or is aware of
any circumstances that would cause the taxable years or other taxable periods of
the Borrower or any of its Subsidiaries not to be subject to the normally
applicable statute of limitations. Neither Holdings nor any of its Subsidiaries
has incurred, or will incur, any material tax liability in connection with the
Transaction or any other transactions contemplated hereby.
6.10 Compliance with ERISA. Schedule V sets forth each Plan;
each Plan (and each related trust, insurance contract or fund) is in substantial
compliance with its terms and with all applicable laws, including, without
<PAGE> 46
limitation, ERISA and the Code; each Plan (and each related trust, if any) which
is intended to be qualified under Section 401(a) of the Code has received a
determination letter from the Internal Revenue Service to the effect that it
meets the requirements of Sections 401(a) and 501(a) of the Code; no Reportable
Event has occurred; no Plan which is a multiemployer plan (as defined in Section
4001(a)(3) of ERISA) is insolvent or in reorganization; no Plan has an Unfunded
Current Liability; no Plan which is subject to Section 412 of the Code or
Section 302 of ERISA has an accumulated funding deficiency, within the meaning
of such sections of the Code or ERISA, or has applied for or received a waiver
of an accumulated funding deficiency or an extension of any amortization period,
within the meaning of Section 412 of the Code or Section 303 or 304 of ERISA;
all contributions required to be made with respect to a Plan have been timely
made; neither Holdings nor any of its Subsidiaries Holdings nor any ERISA
Affiliate has incurred any material liability (including any indirect,
contingent or secondary liability) to or on account of a Plan pursuant to
Section 409, 502(i), 502(l), 515, 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of
ERISA or Section 401(a)(29), 4971 or 4975 of the Code or expects to incur any
such liability under any of the foregoing sections with respect to any Plan; no
condition exists which presents a material risk to Holdings, any of its
Subsidiaries or any ERISA Affiliate of incurring a liability to or on account of
a Plan pursuant to the foregoing provisions of ERISA and the Code; no
proceedings have been instituted to terminate or appoint a trustee to administer
any Plan which is subject to Title IV of ERISA; no action, suit, proceeding,
hearing, audit or investigation with respect to the administration, operation or
the investment of assets of any Plan (other than routine claims for benefits) is
pending, expected or threatened; using actuarial assumptions and computation
methods consistent with Part 1 of subtitle E of Title IV of ERISA, there exist
no liabilities of Holdings, its Subsidiaries and/or its ERISA Affiliates to all
Plans which are multiemployer plans (as defined in Section 4001(a)(3) of ERISA)
in the event of a complete withdrawal therefrom, as of the close of the most
recent fiscal year of each such Plan ended prior to the date of the most recent
Credit Event; each group health plan (as defined in Section 607(1) of ERISA or
Section 4980B(g)(2) of the Code) which covers or has covered employees or former
employees of Holdings, its Subsidiaries, or any ERISA Affiliate has at all times
been operated in compliance with the provisions of Part 6 of subtitle B of Title
I of ERISA and Section 4980B of the Code; no lien imposed under the Code or
ERISA on the assets of Holdings, any of its Subsidiaries or any ERISA Affiliate
exists or is likely to arise on account of any Plan; and Holdings and its
Subsidiaries may cease contributions to or terminate any employee benefit plan
maintained by any of them without incurring any material liability.
6.11 The Security Documents. (a) The provisions of the Security
Documents (other than the Pledge Agreements) are effective to create in favor of
the Collateral Agent for the benefit of the Secured Creditors a legal, valid and
enforceable security interest in all right, title and interest of the respective
Credit Parties in the Collateral described therein and the Collateral Agent, for
the benefit of the Secured Creditors, has a fully perfected Lien on, and
security interest in, all right, title and interest of the respective Credit
Parties, in all of the Collateral described therein, subject to no other Liens
other than Permitted Liens. The recordation of the Security Agreement in the
United States Patent and Trademark Office together with filings on Form UCC-1
made pursuant to the Security Agreement will be effective, under federal and
state law, to perfect the security interest granted to the Collateral Agent in
the trademarks and patents covered by the Security Agreement and the filing of
the Security Agreement with the United States Copyright Office together with
filings on Form UCC-1 made pursuant to the Security Agreement will be effective
under federal and state law to perfect the security interest granted to the
Collateral Agent in the copyrights covered by the Security Agreement. Each of
the Credit Parties party to the Security Agreement has good and merchantable
title to all Collateral described therein, free and clear of all Liens except
those described above in this clause (a).
<PAGE> 47
(b) The security interests created in favor of the Collateral Agent,
as Pledgee for the benefit of the Secured Creditors, under the Pledge Agreements
constitute first perfected security interests in the Pledged Securities
described in the Pledge Agreements, subject to no security interests of any
other Person. No filings or recordings are required in order to perfect (or
maintain the perfection or priority of) the security interests created in the
Pledged Securities and the proceeds thereof under the Pledge Agreements.
6.12 Material Contracts. All Material Contracts of Holdings and each
of its Subsidiaries as of the Restatement Effective Date are listed on Schedule
VI.
6.13 Properties. Each of Holdings and each of its Subsidiaries has
good and merchantable title to all properties owned by them, including all
property reflected in the consolidated pro forma balance sheet (after giving
effect to the Transaction) referred to in Section 6.05(a) (except as sold or
otherwise disposed of since the date of such balance sheet in the ordinary
course of business or as permitted by Section 8.02), free and clear of all
Liens, other than (i) as referred to in the consolidated balance sheet or in the
notes thereto or in the pro forma balance sheet or (ii) otherwise permitted by
Section 8.01. Schedule VII contains a true and complete list of each parcel of
Real Property owned or leased by Holdings and each of its Subsidiaries on the
Restatement Effective Date, and the type of interest therein held by Holdings
and/or its Subsidiaries.
6.14 Capitalization. On the Restatement Effective Date, after giving
effect to the Transaction, the authorized capital stock of (a) Holdings consists
of (i) 1,000,000 shares of common stock, $.01 par value per share ("Holdings
Common Stock"), 100 of which shares are issued and outstanding, (ii) 1,293,800
shares of designated preferred stock, $.01 par value per share, of which (a)
418,000 shares have been designated as Series A Convertible Participating
Preferred stock ("Holdings Series A Convertible Preferred Stock"), all of which
are issued and outstanding, (b) 418,000 shares have been designated as Series A
Redeemable Preferred Stock ("Holdings Series A Redeemable Preferred Stock"),
none of which are issued, (c) 228,500 shares have been designated as Series B
Convertible Participating Preferred Stock ("Holdings Series B Convertible
Preferred Stock"), of which 228,442 shares are issued and outstanding, (d)
228,500 shares have been designated as Series B Redeemable Preferred Stock
("Holdings Series B Redeemable Preferred Stock"), none of which are issued, and
(iii) 300,000 shares of undesignated preferred stock, $.01 par value per share
("Holdings Undesignated Preferred Stock") and (b) the Borrower consists of 1,000
shares of common stock, $.01 par value per share ("Borrower Common Stock"), all
of which shares are issued and outstanding. Such Holdings Common Stock, Borrower
Common Stock, Holdings Series A Convertible Preferred Stock and Holdings Series
B Convertible Preferred Stock is owned in the amounts, and by the Persons, set
forth on Schedule VIII. Except as set forth in Schedule VIII, all of such
outstanding shares have been duly and validly issued, are fully paid and
nonassessable and are free of preemptive rights. Except as set forth in this
Section and on Part A of Schedule VIII, on the Restatement Effective Date,
neither Holdings, the Borrower nor any Subsidiary of the Borrower has
outstanding any securities convertible into or exchangeable for its capital
stock or outstanding any rights to subscribe for or to purchase, or any options
for the purchase of, or any agreements providing for the issuance (contingent or
otherwise) of, or any calls, commitments or claims of any character relating to,
its capital stock.
<PAGE> 48
6.15 Subsidiaries. Schedule IX hereto lists each Subsidiary of
Holdings, and the direct and indirect ownership interest of Holdings therein, in
each case existing on the Restatement Effective Date.
6.16 Compliance with Statutes, etc. Each of Holdings and its
Subsidiaries is in compliance with all applicable statutes, regulations and
orders of, and all applicable restrictions imposed by, all governmental bodies,
domestic or foreign, in respect of the conduct of its business and the ownership
of its property (including applicable statutes, regulations, orders and
restrictions relating to environmental standards and controls), except with
respect to each of the foregoing such noncompliance as could not, individually
or in the aggregate, reasonably be expected to have a material adverse effect on
the performance, business, assets, nature of assets, liabilities, operations,
properties, condition (financial or otherwise) or prospects of Holdings and its
Subsidiaries taken as a whole.
6.17 Investment Company Act. None of Holdings and any of its
Subsidiaries is an "investment company" or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940,
as amended.
6.18 Public Utility Holding Company Act. None of Holdings and any of
its Subsidiaries is a "holding company," or a "subsidiary company" of a "holding
company," or an "affiliate" of a "holding company" or of a "subsidiary company"
of a "holding company" within the meaning of the Public Utility Holding Company
Act of 1935, as amended.
6.19 Environmental Matters. (a) Holdings and each of its Subsidiaries
have complied with, and on the date of such Credit Event are in compliance with,
in all respects, all applicable Environmental Laws and the requirements of any
permits issued under such Environmental Laws except such noncompliances which,
in the aggregate, could not reasonably be expected to have a material adverse
effect on the performance, business, assets, nature of assets, liabilities,
operations, properties, condition (financial or otherwise) or prospects of
Holdings and its Subsidiaries taken as a whole. There are no past, pending or,
to the best knowledge of Holdings or any of its Subsidiaries, threatened
material Environmental Claims against Holdings or any of its Subsidiaries or any
Real Property currently owned or operated by Holdings or any of its
Subsidiaries. There are no facts, circumstances, conditions or occurrences
concerning the business or operations of Holdings or any of its Subsidiaries or
any Real Property owned or operated at any time by Holdings or any of its
Subsidiaries or, to the knowledge of Holdings or any of its Subsidiaries, any
property adjoining any such Real Property that could reasonably be expected (i)
to form the basis of an Environmental Claim against Holdings or any of its
Subsidiaries or any Real Property owned or operated by Holdings or any of its
Subsidiaries or (ii) to cause such Real Property to be subject to any
restrictions on the ownership, occupancy, use or transferability of such Real
Property under any Environmental Law except such Environmental Claims and
restrictions which individually or in the aggregate could not reasonably be
expected to have a material adverse effect on the performance, business, assets,
nature of assets, liabilities, operations, properties, condition (financial or
otherwise) or prospects of Holdings and its Subsidiaries taken as a whole.
<PAGE> 49
(b) Neither Holdings nor any of its Subsidiaries has, at any time,
generated, used, treated, stored, transported or released Hazardous Materials
on, to or from any Real Property at any time owned, leased or at any time
operated by Holdings or any of its Subsidiaries.
(c) There are no underground storage tanks located on any Real
Property owned or operated by Holdings or any of its Subsidiaries the existence
of which could reasonably be expected to have a material adverse effect on the
performance, business, assets, nature of assets, liabilities, operations,
properties, condition (financial or otherwise) or prospects of Holdings and its
Subsidiaries taken as a whole.
6.20 Labor Relations. None of Holdings and any of its Subsidiaries is
engaged in any unfair labor practice that could reasonably be expected to have a
material adverse effect on Holdings and its Subsidiaries taken as a whole. There
is (i) no significant unfair labor practice complaint pending against Holdings
or any of its Subsidiaries or, to the best knowledge of Holdings, threatened
against any of them, before the National Labor Relations Board, and no
significant grievance or significant arbitration proceeding arising out of or
under any collective bargaining agreement is so pending against Holdings or any
of its Subsidiaries or, to the best knowledge of Holdings, threatened against
any of them and (ii) no significant strike, labor dispute, slowdown or stoppage
pending against Holdings or any of its Subsidiaries or, to the best knowledge of
Holdings, threatened against Holdings or any of its Subsidiaries.
6.21 Patents, Licenses, Franchises and Formulas. (a) Except as set
forth in Schedule X, Holdings, together with its Subsidiaries, has a license to
use or otherwise has the right to use, free and clear of pending or threatened
Liens, all the material patents, patent applications, trademarks, service marks,
trade names, trade secrets, copyrights, proprietary information, computer
programs, data bases, licenses, franchises and formulas, or rights with respect
to the foregoing (collectively, "Intellectual Property"), and has obtained all
licenses and other rights of whatever nature, necessary for the present conduct
of its business, without any known conflict with the rights of others which, or
the failure to obtain which, as the case may be, could reasonably be expected to
have a material adverse effect on the performance, business, assets, nature of
assets, liabilities, operations, properties, condition (financial or otherwise)
or prospects of Holdings and its Subsidiaries taken as a whole.
(b) Neither Holdings nor any of its Subsidiaries has knowledge of any
claim by any third party contesting the validity, enforceability, use or
ownership of the Intellectual Property, or of any existing state of facts that
would support a claim that use by Holdings or any of its Subsidiaries of any
such Intellectual Property has infringed or otherwise violated any Intellectual
Property right of any other Person and, that to the best knowledge of Holdings
and its Subsidiaries, no claim is threatened except, in each case, for such
claims that could not individually or in the aggregate reasonably be expected to
have a material adverse affect on the performance, business, assets, nature of
assets, liabilities, operations, properties, condition (financial or otherwise)
or prospects of Holdings and its Subsidiaries taken as a whole.
6.22 Indebtedness. Schedule XI sets forth a true and complete list of
all Indebtedness and preferred stock (other than the Loans and Convertible
Preferred Stock) of Holdings and each of its Subsidiaries as of the Restatement
Effective Date after giving effect to the Transaction and the other transactions
<PAGE> 50
contemplated hereby (the "Existing Indebtedness"), in each case showing the
aggregate amount thereof and the name of the respective obligor and any other
entity which directly or indirectly guaranteed such debt. None of the Existing
Indebtedness was incurred in connection with, or in contemplation of, the
Transaction or the other transactions contemplated hereby.
6.23 Restrictions on or Relating to Subsidiaries. There does not exist
any encumbrance or restriction on the ability of (i) any Subsidiary of Holdings
to pay dividends or make any other distributions on its capital stock or any
other interest or participation in its profits owned by Holdings or any
Subsidiary of Holdings, or to pay any Indebtedness owed to Holdings or a
Subsidiary of Holdings, (ii) any Subsidiary of Holdings to make loans or
advances to Holdings or any of its Subsidiaries or (iii) any Subsidiary of
Holdings to transfer any of its properties or assets to Holdings or any
Subsidiary of Holdings, except for such encumbrances or restrictions existing
under or by reason of (x) applicable law, (y) this Agreement and the other
Credit Documents or (z) provisions restricting assignment of any contract by
which Holdings or a Subsidiary of Holdings is bound.
6.24 The Transaction and Permitted Acquisitions. All aspects of the
Transaction have been effected in accordance with the Documents and applicable
law except for such non-compliances as could not reasonably be expected to have
a material adverse effect on the performance, business, assets, nature of
assets, liabilities, operations, properties, condition (financial or otherwise)
or prospects of Holdings and its Subsidiaries taken as a whole. At the time of
the consummation thereof, each Permitted Acquisition and the issuance of the
Acceptable Subordinated Debt shall have been effected in accordance with the
documents relating to such Permitted Acquisition or issuance of Acceptable
Subordinated Debt, as the case may be, and all applicable law except for such
non-compliances as could not reasonably be expected to have a material adverse
effect on the performance, business, assets, nature of assets, liabilities,
operations, properties, condition (financial or otherwise) or prospects of
Holdings and its Subsidiaries taken as a whole. At the time of consummation
thereof, all consents and approvals of, and filings and registrations with, and
all other actions in respect of, all governmental agencies, authorities or
instrumentalities required in order to consummate the Transaction and any
Permitted Acquisition and the issuance of the Acceptable Subordinated Debt shall
have been obtained, given, filed or taken and are in full force and effect (or
effective judicial relief with respect thereto has been obtained) except for
such consents, approvals, filings, and registrations, or other actions the
failure to obtain, give, file or take as could not reasonably be expected to
have a material adverse effect on the performance, business, assets, nature of
assets, liabilities, operations, properties, condition (financial or otherwise)
or prospects of Holdings and its Subsidiaries taken as a whole. All applicable
waiting periods with respect thereto have or, prior to the time when required,
will have, expired without, in all such cases, any action being taken by any
competent authority which restrains, prevents or imposes material adverse
conditions upon the consummation of the Transaction or any Permitted Acquisition
or the issuance of the Acceptable Subordinated Debt. Additionally, at the time
of consummation thereof, there does not exist any judgment, order or injunction
prohibiting or imposing material adverse conditions upon the consummation of the
Transaction or any Permitted Acquisition.
<PAGE> 51
6.25 Year 2000 Reprogramming. Any reprogramming required to permit the
proper functioning, in and following the year 2000, of the Borrower's or any of
its Subsidiaries', or, to the knowledge of the Borrower, NRTC's or DirecTV's (i)
computer systems and (ii) equipment containing embedded microchips (including
systems and equipment supplied by others or with which the Borrower's, NRTC's or
DirecTV's systems interface) and the testing of all such systems and equipment,
as so reprogrammed, shall be completed by April 1, 1999. The costs to the
Borrower of such reprogramming and testing and of the reasonably foreseeable
consequences of year 2000 (including, without limitation, reprogramming errors
and the failure of others' systems or equipment) could not reasonably be
expected to have a material adverse effect on the performance, business, assets,
nature of assets, liabilities, operations, properties, condition (financial or
otherwise) or prospects of the Borrower and its Subsidiaries taken as a whole.
Except for such of the reprogramming referred to in the preceding sentence as
may be necessary, the computer and management information systems of the
Borrower and its Subsidiaries are, and to the knowledge of the Borrower, the
computer and management information systems of NRTC and DirecTV are, and with
ordinary course upgrading and maintenance will continue to be for the term of
this Agreement, sufficient to permit the Borrower and its Subsidiaries to
conduct its business without such conduct resulting in a material adverse effect
on the performance, business, assets, nature of assets, liabilities, operations,
properties, condition (financial or otherwise) or prospects of the Borrower and
its Subsidiaries taken as a whole.
Section 7. Affirmative Covenants. Each of Holdings and the Borrower
covenants and agrees that on and after the Restatement Effective Date and until
the Total Commitment and all Letters of Credit have terminated and the Loans and
Notes and Unpaid Drawings, together with interest, Fees and all other
obligations incurred hereunder and thereunder, are paid in full:
7.01 Information Covenants. Holdings will furnish to each Bank:
(a) Monthly Reports. Within fortyfive (45) days after the end of
each fiscal month other than the last such month of any fiscal quarter
of Holdings, the consolidated and consolidating balance sheets of
Holdings and its Subsidiaries as at the end of such month and for the
elapsed portion of the fiscal year ended with the last day of such
month and the related consolidated and consolidating statements of
income for such month and for the elapsed portion of the fiscal year
ended with the last day of such month and a statement of cash flows
for the elapsed portion of the fiscal year ended with the last day of
such month, in each case setting forth comparative figures for the
corresponding month and elapsed portion of such fiscal year for the
prior fiscal year and comparable budgeted figures for such period as
well as subscriber information (including, without limitation, with
respect to new subscribers and disconnected subscribers) and the
amount of MDU Investments (and a break-down thereof) for such period
and, upon request of either Agent, a management discussion and
analysis of such results, all of which shall be certified by the Chief
Financial Officer or Controller of Holdings, subject to normal
year-end audit adjustments.
(b) Quarterly Financial Statements. Within forty-five (45) days
after the close of each quarterly accounting period in each fiscal
year of Holdings, the consolidated and consolidating balance sheets of
Holdings and its Subsidiaries as at the end of such quarterly period
and the related consolidated and consolidating statements of income,
stockholders' equity and cash flows, in each case for such quarterly
period and for the elapsed portion of the fiscal year ended with the
last day of such quarterly period, in each case setting forth
<PAGE> 52
comparative figures for the related periods in the prior fiscal year
and comparable budgeted figures for such period as well as subscriber
information (including, without limitation, with respect to new
subscribers and disconnected subscribers) and the amount of MDU
Investments (and a break-down thereof) for such period and the period
commencing on the Restatement Effective Date and a management
discussion and analysis of such results, all of which shall be
certified by the Chief Financial Officer or Controller of Holdings,
subject to normal year-end audit adjustments.
(c) Annual Financial Statements. Within 120 days after the close
of each fiscal year of Holdings, the consolidated and consolidating
balance sheets of Holdings and its Subsidiaries as at the end of such
fiscal year and the related consolidated and consolidating statements
of income, stockholders' equity and cash flows for such fiscal year
and setting forth comparative figures for the preceding fiscal year
and comparable budgeted figures for such period as well as subscriber
information (including, without limitation, with respect to new
subscribers and disconnected subscribers) and the amount of MDU
Investments (and a break-down thereof) for such period and the period
commencing on the Restatement Effective Date and a management
discussion and analysis of such results, certified, (x) in the case of
the consolidating statements, by the chief financial officer or
controller of Holdings and (y) in the case of the consolidated
financial statements of Holdings and its Subsidiaries, by KMPG Peat
Marwick, LLP or any of the "big six" or other independent certified
public accountants of recognized national standing reasonably
acceptable to the Agents, together with a signed opinion of such
accounting firm (which opinion shall not be qualified as to the scope
of the audit or the status of Holdings or any Subsidiary of Holdings
as a going concern in any respect) stating that in the course of its
regular audit of the financial statements of Holdings which audit was
conducted in accordance with generally accepted auditing standards,
such accounting firm obtained no knowledge of any Default or Event of
Default which has occurred and is continuing or, if in the opinion of
such accounting firm such a Default or Event of Default has occurred
and is continuing, a statement as to the nature thereof.
(d) Management Letters. Promptly after the receipt thereof by
Holdings or any Subsidiary of Holdings, a copy of any "management
letter" received by Holdings or any Subsidiary of Holdings from its
certified public accountants.
(e) Budgets. As soon as available but in no event later than
thirty (30) days after the first day of each fiscal year of Holdings,
a budget for Holdings and its Subsidiaries in form customarily
prepared by Holdings (including budgeted statements of earnings and
sources and uses of cash and balance sheets and budgeted acquisitions
of franchises) prepared by Holdings for each calendar month of such
<PAGE> 53
fiscal year in reasonable detail with appropriate presentation and
discussion of the principal assumptions upon which such budgets are
based, accompanied by the statement of the Chief Financial Officer or
Controller of Holdings to the effect that, to the best of his
knowledge, the budget is a reasonable estimate for the period covered
thereby.
(f) Officer's Certificates. At the time of the delivery of the
financial statements provided for in Sections 7.01(a), (b) and (c), a
certificate of the Chief Financial Officer or Controller of Holdings
and the Borrower to the effect that no Default or Event of Default has
occurred and is continuing or, if any Default or Event of Default has
occurred and is continuing, specifying the nature and extent thereof,
which certificate, (x) in the case of certificates delivered pursuant
to Section 7.01(b) or (c), shall set forth the calculations required
to establish whether Holdings and the Borrower were in compliance with
the provisions of Sections 2.03, 3.02, 7.15, 8.02, 8.04, 8.05, 8.07,
8.08 through 8.17, inclusive, at the end of such fiscal quarter or
year, as the case may be, and (y) in the case of certificates
delivered pursuant to Section 7.01(c), the amount of Excess Cash Flow
for the relevant Excess Cash Flow Payment Period.
(g) Notice of Default or Litigation. Promptly, and in any event
within three (3) Business Days after an officer of Holdings or any of
its Subsidiaries obtains knowledge thereof, notice of (i) the
occurrence of any event which constitutes a Default or Event of
Default, (ii) any litigation or governmental investigation or
proceeding pending (x) against any of Holdings or its Subsidiaries
which could reasonably be expected to materially and adversely affect
the performance, business, assets, nature of assets, liabilities,
operations, properties, condition (financial or otherwise) or
prospects of Holdings and its Subsidiaries taken as a whole or (y)
with respect to any Document and (iii) any other event which could
reasonably be expected to materially and adversely affect the
performance, business, assets, nature of assets, liabilities,
operations, properties, condition (financial or otherwise) or
prospects of Holdings and its Subsidiaries taken as a whole.
(h) Other Reports and Filings. Promptly upon transmission
thereof, copies of any financial information, proxy materials and
other information and reports, if any, which Holdings or any of its
Subsidiaries (x) has filed with the Securities and Exchange Commission
or any successor thereto (the "SEC") or (y) has delivered to holders
of, or any agent or trustee with respect to, Indebtedness of Holdings
or any of its Subsidiaries in its capacity as such a holder, agent, or
trustee or (z) has delivered to any shareholder in its capacity as a
shareholder.
(i) Environmental Matters. Promptly upon, and in any event within
three (3) Business Days after an officer of Holdings or of any of its
Subsidiaries obtains knowledge thereof, notice of any of the following
environmental matters (i) any pending or threatened material
Environmental Claim against Holdings or any of its Subsidiaries or any
Real Property owned or operated at any time by Holdings or any of its
Subsidiaries; (ii) any condition or occurrence on or arising from any
Real Property owned or operated at any time by Holdings or any of its
Subsidiaries that (a) could reasonably be anticipated to result in a
material noncompliance by Holdings or any of its Subsidiaries with any
material applicable Environmental Law, or (b) could reasonably be
anticipated to form the basis of a material Environmental Claim
against Holdings or any of its Subsidiaries or any Real Property owned
or operated by Holdings or any of its Subsidiaries; (iii) any
condition or occurrence on any material Real Property owned or
operated by Holdings or any of its Subsidiaries that could reasonably
be anticipated to cause such Real Property to be subject to any
material restrictions on the ownership, occupancy, use or
transferability of such Real Property under any Environmental Law; and
(iv) the taking of any removal or remedial action in response to a
material Release or material threatened Release or the actual or
alleged presence of any Hazardous Material on or from any Real
<PAGE> 54
Property owned or operated at any time by Holdings or any of its
Subsidiaries in each case as required by any Environmental Law or any
governmental or other administrative agency. All such notices shall
describe in reasonable detail the nature of the claim, investigation,
condition, occurrence or removal or remedial action and Holdings' or
such Subsidiary's response thereto. In addition, Holdings will provide
the Banks with copies of all material communications with any
government or governmental agency relating to material Environmental
Claims, all material communications with any person relating to
material Environmental Claims, and such detailed reports of any
Environmental Claim as may reasonably be requested by the Required
Banks.
(j) Annual Meetings with Banks. Within 150 days after the close
of each fiscal year of the Borrower, the Borrower shall, at the
request of either Agent or Required Banks, hold a meeting (at a
mutually agreeable location and time) with all Banks who choose to
attend such meeting at which meeting shall be reviewed the financial
results of the previous fiscal year and the financial condition of
Holdings and its Subsidiaries and the budgets presented for the
current fiscal year of Holdings and its Subsidiaries.
(k) Other Information. From time to time, such other information
or documents (financial or otherwise) with respect to Holdings or any
of its Subsidiaries, as the Agents, or the Required Banks may
reasonably request.
7.02 Books, Records and Inspections. Holdings will, and will cause
each of its Subsidiaries to, keep proper books of record and account in which
full, true and correct entries, in conformity with United States generally
accepted accounting principles and all requirements of law, shall be made of all
dealings and transactions in relation to its business and activities. Holdings
will, and will cause each of its Subsidiaries to, permit officers and designated
representatives of the Agents or any Bank to visit and inspect, under guidance
of officers of Holdings or of such Subsidiary, any of the properties of the
Borrower or such Subsidiary, and to examine the books of account of Holdings or
such Subsidiary and discuss the affairs, finances and accounts of Holdings or of
such Subsidiary with, and be advised as to the same by, its and their officers,
all at such reasonable times and intervals and to such reasonable extent as the
Agents or such Bank may request.
7.03 Maintenance of Property, Insurance. (a) Schedule XII sets forth a
true and complete listing of all insurance maintained by Holdings and each of
its Subsidiaries as of the Restatement Effective Date. Holdings will, and will
cause each of its Subsidiaries to, (i) keep all material property useful and
necessary in its business in good working order and condition (ordinary wear and
tear excepted), (ii) maintain with financially sound and reputable insurance
companies key-man life insurance, liability insurance and insurance on all its
property in at least such amounts and against at least such risks as are
described on Schedule XII and (iii) furnish to the Administrative Agent, upon
written request, full information as to the insurance carried. The provisions of
this Section 7.03 shall be deemed to be supplemental to, but not duplicative of,
the provisions of any of the Security Documents that require the maintenance of
insurance.
<PAGE> 55
(b) Holdings will at all times keep, and will cause each of its
Subsidiaries to keep, its property insured in favor of the Collateral Agent, and
all policies (including mortgage policies) or certificates (or certified copies
thereof) with respect to such insurance (and any other insurance maintained by
Holdings or its Subsidiaries (other than employee benefit insurance)) (i) shall
be endorsed to the Collateral Agent's satisfaction for the benefit of the
Collateral Agent (including, without limitation, by naming the Collateral Agent
as loss payee and naming the Collateral Agent, the Agents and each Bank as an
additional insured) with respect to Collateral, (ii) shall state that such
insurance policies shall not be canceled or revised in a manner adverse to the
Banks without thirty (30) days' prior written notice thereof by the respective
insurer to the Collateral Agent, (iii) shall provide that the respective
insurers irrevocably waive any and all rights of subrogation with respect to the
Collateral Agent, (iv) shall contain the standard noncontributory mortgagee
clause endorsement in favor of the Collateral Agent with respect to hazard
insurance coverage, (v) shall provide that any losses shall be payable
notwithstanding (A) any act or neglect of Holdings or any of its Subsidiaries,
(B) the occupation or use of the properties for purposes more hazardous than
those permitted by the terms of the respective policy if such coverage is
obtainable at commercially reasonable rates and is of the kind from time to time
customarily insured against by Persons owning or using similar property and in
such amounts as are customary, (C) any foreclosure or other proceeding relating
to the insured properties or (D) any change in the title to or ownership or
possession of the insured properties and (vi) shall be deposited with the
Collateral Agent. If Holdings or any of its Subsidiaries shall fail to insure
its property in accordance with this Section 7.03, or if Holdings or any of its
Subsidiaries shall fail to endorse and deposit all policies or certificates with
respect thereto, the Collateral Agent shall have the right (but shall be under
no obligation) to procure such insurance and the Borrower jointly and severally
agrees, to reimburse the Collateral Agent for all costs and expenses of
procuring such insurance.
7.04 Corporate Franchises. Holdings will do, and will cause each of
its Subsidiaries to do or cause to be done, all things necessary to preserve and
keep in full force and effect its existence and its material rights, franchises
and authority to do business; provided, however, that nothing in this Section
7.04 shall prevent the withdrawal by Holdings or any Subsidiary of Holdings of
its qualification as a foreign corporation in any jurisdiction where such
withdrawal could not reasonably be expected to have a material adverse effect on
the performance, business, assets, nature of assets, liabilities, properties,
operations, condition (financial or otherwise) or prospects of Holdings and its
Subsidiaries taken as a whole.
7.05 Compliance with Statutes, etc. Holdings will, and will cause each
of its Subsidiaries to, comply with all applicable statutes, regulations and
orders of, and all applicable restrictions imposed by, all governmental bodies,
domestic or foreign, in respect of the conduct of its business and the ownership
of its property except such noncompliances as could not, individually or in the
aggregate, reasonably be expected to have a material adverse effect on the
performance, business, assets, nature of assets, liabilities, operations,
properties, condition (financial or otherwise) or prospects of Holdings and its
Subsidiaries taken as a whole.
7.06 Compliance with Environmental Laws. (a) Holdings will comply, and
will cause each of its Subsidiaries to comply, in all material respects with all
material Environmental Laws applicable to ownership or use of the Real Property,
will promptly pay or cause the Borrower to pay all costs and expenses incurred
in such compliance, and will keep or cause to be kept all such Real Properties
<PAGE> 56
free and clear of any Liens imposed pursuant to such Environmental Laws. None of
Holdings and any Subsidiary of Holdings will generate, use, treat, store,
release or dispose of, or permit the generation, use, treatment, storage,
Release or disposal of Hazardous Materials on any Real Property, or transport or
permit the transportation of Hazardous Materials to or from any Real Property,
other than in compliance in all material respects with applicable law.
(b) At the request of the Agents or the Required Banks at any time and
from time to time during the existence of this Agreement: (i) if an Event of
Default exists under this Agreement, (ii) upon the reasonable belief by the
Agents that Holdings or any of its Subsidiaries has breached any representation
or covenant herein with respect to any environmental matters and such breach is
continuing, or (iii) in the event notice is provided under Section 7.01(i)
herein, Holdings will cause the Borrower to, and the Borrower will, provide, at
its sole cost and expense (or will cause the relevant Subsidiary to provide at
its sole cost and expense), an environmental site assessment report reasonable
in scope concerning any Real Property of Holdings or its Subsidiaries, prepared
by an environmental consulting firm approved by the Agents and the Required
Banks, indicating the presence or Release of Hazardous Materials on or from any
of the Real Property and the potential cost of any removal or remedial action in
connection with any Hazardous Materials on such Real Property. If the Borrower
fails to provide the same after thirty (30) days' notice, the Agents may order
the same, and the Borrower shall grant and hereby grants to the Agents and the
Banks and their agents access to such Real Property and specifically grants the
Agents and the Banks an irrevocable non-exclusive license, subject to the rights
of tenants, to undertake such an assessment all at the Borrower' expense, which
assessments, if obtained, will be provided to the Borrower.
7.07 ERISA. As soon as possible and, in any event, within ten (10)
days after Holdings, any Subsidiary of Holdings or any ERISA Affiliate knows or
has reason to know of the occurrence of any of the following, Holdings will
cause the Borrower to, and the Borrower will, deliver to each of the Banks a
certificate of the chief financial officer of the Borrower setting forth the
full details as to such occurrence and the action, if any, that Holdings, such
Subsidiary of Holdings or such ERISA Affiliate is required or proposes to take,
together with any notices required or proposed to be given to or filed with or
by Holdings, such Subsidiary of Holdings, the ERISA Affiliate, the PBGC, a Plan
participant or the Plan administrator with respect thereto: that a Reportable
Event has occurred (except to the extent that Holdings, any Subsidiary of
Holdings or any ERISA Affiliate has previously delivered to the Banks a
certificate and notices (if any) concerning such event pursuant to the next
clause hereof); that a contributing sponsor (as defined in Section 4001(a)(13)
of ERISA) of a Plan subject to Title IV of ERISA is subject to the advance
reporting requirement of PBGC Regulation Section 4043.61 (without regard to
subparagraph (b)(1) thereof) and an event described in subsection .62, .63, .64,
.65, .66, .67 or .68 of PBGC Regulation Section 4043 is reasonably expected to
occur with respect to such Plan within the following thirty (30) days; that an
accumulated funding deficiency, within the meaning of Section 412 of the Code or
Section 302 of ERISA, has been incurred or an application may be or has been
made for a waiver or modification of the minimum funding standard (including any
required installment payments) or an extension of any amortization period under
<PAGE> 57
Section 412 of the Code or Section 303 or 304 of ERISA with respect to a Plan;
that any contribution required to be made with respect to a Plan has not been
timely made; that a Plan has been or may be terminated, reorganized, partitioned
or declared insolvent under Title IV of ERISA; that a Plan has an Unfunded
Current Liability; that proceedings may be or have been instituted to terminate
or appoint a trustee to administer a Plan which is subject to Title IV of ERISA;
that a proceeding has been instituted pursuant to Section 515 of ERISA to
collect a delinquent contribution to a Plan; that Holdings, any Subsidiary of
Holdings or any ERISA Affiliate will or may incur any liability (including any
indirect, contingent, or secondary liability) to or on account of the
termination of or withdrawal from a Plan under Section 4062, 4063, 4064, 4069,
4201, 4204 or 4212 of ERISA or with respect to a Plan under Section 401(a)(29),
4971, 4975 or 4980 of the Code or Section 409 or 502(i) or 502(l) of ERISA or
with respect to a group health plan (as defined in Section 607(1) of ERISA or
Section 4980B(g)(2) of the Code) under Section 4980B of the Code; or that
Holdings or any Subsidiary of Holdings may incur any material liability pursuant
to any employee welfare benefit plan (as defined in Section 3(1) of ERISA) that
provides benefits to retired employees or other former employees (other than as
required by Section 601 of ERISA) or any Plan. Holdings will cause the Borrower
to, and the Borrower will, deliver to each of the Banks (i) a complete copy of
the annual report (on Internal Revenue Service Form 5500-series) of each Plan
(including, to the extent required, the related financial and actuarial
statements and opinions and other supporting statements, certifications,
schedules and information) required to be filed with the Internal Revenue
Service and (ii) copies of any records, documents or other information that must
be furnished to the PBGC with respect to any Plan pursuant to Section 4010 of
ERISA. In addition to any certificates or notices delivered to the Banks
pursuant to the first sentence hereof, copies of annual reports and any records,
documents or other information required to be furnished to the PBGC, and any
material notices received by Holdings, any Subsidiary of Holdings or any ERISA
Affiliate with respect to any Plan shall be delivered to the Banks no later than
ten (10) days after the date such report has been filed with the Internal
Revenue Service or such records, documents and/or information has been furnished
to the PBGC or such notice has been received by Holdings, the Subsidiary or the
ERISA Affiliate, as applicable.
7.08 End of Fiscal Years; Fiscal Quarters. Holdings will cause its,
and each of its Subsidiaries', fiscal years to end on December 31 and each of
its, and each of its Subsidiaries', first three fiscal quarters to end on March
30, June 30 and September 30.
7.09 Performance of Obligations. The Borrower will, and will cause
each of its Subsidiaries to, perform all of its obligations under the terms of
each mortgage, indenture, security agreement and other debt instrument by which
it is bound, except such non- performances as could not, individually or in the
aggregate, reasonably be expected to have a material adverse effect on the
performance, business, assets, nature of assets, liabilities, operations,
properties, condition (financial or otherwise) or prospects of Holdings and its
Subsidiaries taken as a whole.
7.10 Payment of Taxes. Holdings will pay and discharge, and will cause
each of its Subsidiaries to pay and discharge, all taxes, assessments and
governmental charges or levies imposed upon it or upon its income or profits, or
upon any properties belonging to it, prior to the date on which penalties would
otherwise attach
<PAGE> 58
thereto, and all lawful claims which, if unpaid, might become a lien or charge
upon any properties of Holdings or any of its Subsidiaries not otherwise
permitted under Section 8.01; provided that neither Holdings nor any of its
Subsidiaries shall be required to pay any such tax, assessment, charge, levy or
claim which is being contested in good faith and by proper proceedings if it has
maintained adequate reserves with respect thereto in accordance with generally
accepted accounting principles.
7.11 Interest Rate Protection. Holdings will cause the Borrower to,
and the Borrower will, no later than 120 days following the Restatement
Effective Date, enter into arrangements acceptable to the Agents establishing a
fixed or maximum interest rate acceptable to the Agents for an aggregate
notional amount of at least an amount equal to 50% of Net Adjusted Consolidated
Indebtedness at any time, and from time to time, for a period of at least three
(3) years after the Restatement Effective Date; provided, however, that the
outstanding principal amount of Acceptable Subordinated Debt less the amount of
Cash Interest Reserves shall be counted as acceptable arrangements for
establishing a fixed interest rate acceptable to the Agents.
7.12 Use of Proceeds. All proceeds of the Loans shall be used as
provided in Section 6.08.
7.13 Acceptable Subordinated Debt. In connection with the issuance of
Acceptable Subordinated Debt, the Agents shall receive, as early as practicable
(but in any event not later than thirty (30) days prior to the printing of the
preliminary offering circular for such Acceptable Subordinated Debt), the
initial terms and conditions of such Acceptable Subordinated Debt and shall
receive on a regular basis after receipt of such initial terms and conditions,
all revisions thereto. The Agents and their counsel shall receive, prior to the
issuance of Acceptable Subordinated Debt, all drafts of the Acceptable
Subordinated Debt Documents which shall be in form and substance satisfactory to
the Agents. The Agents and Banks shall receive (i) certified final copies of all
of the Acceptable Subordinated Debt Documents, (ii) reliance letters with
respect to all legal opinions delivered by counsel to the Borrower in connection
with the issuance of the Acceptable Subordinated Debt and (iii) such other
opinions from counsel to the Borrower as shall be reasonably requested in
connection with such issuance. The Borrower shall cause the offering materials
for the Acceptable Subordinated Debt not to contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
therein not misleading.
7.14 Intellectual Property Rights. The Borrower will, and Holdings
will cause each of its other Subsidiaries to, maintain in full force and effect
all Intellectual Property rights necessary or appropriate to the business of
Holdings or any Subsidiary of Holdings and take no action (including, without
limitation, the licensing of Intellectual Property), or fail to take an action,
as the case may be, in connection with such Intellectual Property rights which
could reasonably be expected to result in a material adverse effect on the
performance, business, assets, nature of assets, liabilities, properties,
<PAGE> 59
operations, condition (financial or otherwise) or prospects of Holdings and its
Subsidiaries taken as a whole. The Borrower will, and Holdings will cause each
of its other Subsidiaries to, diligently prosecute all pending applications
filed in connection with seeking or seeking to perfect the Intellectual Property
rights and take all other reasonable actions necessary for the protection and
maintenance of the Intellectual Property rights necessary or appropriate to the
business of Holdings or any Subsidiary of Holdings at all times from and after
the Restatement Effective Date other than any such actions the failure of which,
in the aggregate, could not reasonably be expected to have a material adverse
effect on the performance, business, assets, nature of assets, liabilities,
operations, properties, condition (financial or otherwise) or prospects of
Holdings and its Subsidiaries taken as a whole.
7.15 Permitted Acquisitions. (a) Subject to the remaining provisions
of this Section 7.15 applicable thereto and the requirements contained in the
definition of Permitted Acquisition, the Borrower and its Subsidiaries may from
time to time on or after the Restatement Effective Date effect Permitted
Acquisitions, so long as with respect to each Permitted Acquisition:
(i) the Borrower demonstrates that no Default or Event of Default
is in existence at the time of the consummation of such Permitted
Acquisition or would exist after giving effect thereto and all
representations and warranties contained herein and in the other
Credit Documents shall be true and correct in all material respects
with the same effect as though such representations and warranties
were made on and as of the date of such Permitted Acquisition (both
before and after giving effect thereto);
(ii) the Borrower shall have given the Agents and the Banks at
least fifteen (15) days prior written notice of any such Permitted
Acquisition (each such notice, a "Permitted Acquisition Notice"),
which notice shall (s) contain the estimated date such Permitted
Acquisition is scheduled to be consummated, (t) attach a true and
correct copy of the draft purchase agreement, letter of intent,
description of material terms or similar agreement executed by the
Borrower and the seller in connection with such Permitted Acquisition,
(u) contain the estimated aggregate purchase price of such Permitted
Acquisition and the amount of related costs and expenses and the
intended method of financing thereof, (v) contain the estimated amount
of Loans required to effect such Permitted Acquisition and any amounts
to be withdrawn from the Permitted Acquisition Cash Collateral
Account, with respect thereto, (w) contain a description of the
Permitted Seller Notes, Holdings Common Stock or Seller Preferred
Stock to be issued by Holdings in connection with such Permitted
Acquisition, and (x) disclose the number of Subscribers to be Acquired
and the number of households in the acquired franchise area and the
purchase price per Subscriber to be Acquired and per household in the
acquired franchise area; provided, however, that if the estimated
aggregate purchase price of such Permitted Acquisition is less than
$3,000,000, such notice need not contain the documents described in
clause (t) above unless the Agents request such information; provided
further, however, in the event that after delivery of the
documentation described in clause (t) above any material economic
terms of the Permitted Acquisition shall be amended in any material
way, then promptly after such amendment the Borrower shall provide the
Agents and the Banks written notice of such changes;
(iii) the Borrower shall have given the Banks such other
information related to the Person or business, division or product
line being acquired and the Permitted Acquisition as the Agents shall
reasonably request;
(iv) (I) as soon as available but not later than the date of the
consummation of such Permitted Acquisition, a copy of the executed
purchase agreement and all related agreements, schedules and exhibits
with respect to such Permitted Acquisition and (II) at the time of
<PAGE> 60
delivery of the purchase agreement, a certification from the Borrower
as to the purchase price for the acquisition and the estimated amount
of all related costs, fees and expenses and that, except as described,
there are no other amounts which will be payable in connection with
the respective Permitted Acquisition;
(v) the Agents shall be satisfied in their reasonable discretion
that the proposed Permitted Acquisition will not reasonably likely
result in materially increased liabilities (contingent or otherwise)
of Holdings or any of its Subsidiaries other than Permitted Seller
Notes (including, without limitation, tax, ERISA or environmental
liabilities); provided that, so long as the Permitted Acquisition
Notice has been given as required above and so long as the Borrower
has furnished each Agent with all information with respect to
liabilities of the type described in this clause, if any Agent has not
notified the Borrower on or prior to the tenth day prior to the
consummation of the Permitted Acquisition that such Agent has not yet
been satisfied that the proposed Permitted Acquisition would not be
reasonably likely to result in materially increased liabilities of the
Borrower or any of its Subsidiaries, such Agent shall be deemed for
purposes of this clause (v) to be so satisfied;
(vi) recalculations are made by the Borrower of compliance with
the covenants contained in Sections 8.08 through 8.17, inclusive, for
the fiscal quarter most recently ended prior to the date of the
Permitted Acquisition (the "Calculation Period") annualized and on a
Pro Forma Basis, and such recalculations shall show that all such
covenants would have been complied with throughout the Calculation
Period on a Pro Forma Basis;
(vii) the Borrower in good faith believes that on a Pro Forma
Basis, the financial covenants contained in Sections 8.08 through
8.17, inclusive, will continue to be met following the date of the
consummation of the respective Permitted Acquisition and for the
remaining term of the Loans; provided, however, the Agents may, in
their reasonable discretion, request the Borrower to provide
calculations made by the Borrower with respect to compliance with such
covenants;
(viii) the consent of Hughes and the NRTC to such Permitted
Acquisition shall have been obtained; and
(ix) prior to the consummation of the respective Permitted
Acquisition, the Borrower shall furnish the Agents and the Banks an
officer's certificate executed by the Chief Financial Officer of the
Borrower, certifying as to compliance with the requirements of
preceding clauses (i) through (viii), inclusive, and containing the
calculations, if any, required by preceding clauses (v) through (vii),
inclusive. The consummation of each Permitted Acquisition shall be
deemed to be a representation and warranty by the Borrower that all
conditions thereto have been satisfied and that same is permitted in
accordance with the terms of this Agreement, which representation and
warranty shall be deemed to be a representation and warranty for all
purposes hereunder, including, without limitation, Sections 5 and 9;
provided that the consummation of each Permitted Acquisition shall not
be deemed to be a representation and warranty by the Borrower as to
the acceptability of any items to the Agents and/or the Banks or as to
whether the Agents and/or the Banks are satisfied with any of the
matters described in such sections.
<PAGE> 61
(b) At the time of each Permitted Acquisition involving the creation
or acquisition of a Subsidiary, not less than 100% of the capital stock of such
Subsidiary shall be directly owned by the Borrower or a Subsidiary Guarantor and
such 100% owned by the Borrower or such Subsidiary Guarantor shall be pledged
for the benefit of the Secured Creditors pursuant to the applicable Pledge
Agreement or pursuant to a similar agreement satisfactory to the Agents.
(c) The Borrower shall cause each Subsidiary which is formed to
effect, or is acquired pursuant to, a Permitted Acquisition to execute and
deliver, prior to or on the date of the respective Permitted Acquisition, the
Subsidiaries Guaranty (or by an amendment thereto pursuant to which it shall be
a party thereto) or a substantially similar guaranty, in either case with the
documentation to be in form and substance satisfactory to the Agents.
(d) The Borrower shall on the date of a Permitted Acquisition, in the
case of Permitted Acquisitions involving the acquisition of assets by the
Borrower, or, in the case of an acquisition by the respective Subsidiary, shall
cause the respective Subsidiary to, grant to the Collateral Agent, for the
benefit of the Secured Creditors, first priority perfected security interests in
all property of the Borrower or such Subsidiaries acquired in connection with
the Permitted Acquisition and to take, or cause such Subsidiary to take, all
actions requested by the Agents or the Required Banks (including, without
limitation, the obtaining of UCC-11's and the filing of UCC-1's) in connection
with the granting of such security interests. All security interests required to
be granted pursuant to this Section 7.15(d) shall be granted pursuant to such
security documentation (which shall be substantially similar to the analogous
Security Documents already executed and satisfactory in form and substance to
the Agents) and shall (except as otherwise consented to by the Agents and the
Required Banks) constitute valid and enforceable perfected security interests
prior to the rights of all third Persons and subject to no other Liens except
such Liens as are permitted by Section 8.01. The security documents and other
instruments related thereto shall be duly recorded or filed in such manner and
in such places as are required by law to establish, perfect, preserve and
protect the Liens, in favor of the Collateral Agent for the benefit of the
Secured Creditors, required to be granted pursuant to the respective Additional
Security Documents and all taxes, fees and other charges payable in connection
therewith shall be paid in full by the Borrower. At the time of the execution
and delivery of Additional Security Documents, the Borrower shall cause to be
delivered to the Collateral Agent such opinions of counsel, environmental
appraisals and other related documents as may be reasonably requested by the
Collateral Agent or the Required Banks to assure themselves that this Section
has been complied with. All actions required to be taken by this Section 7.15(d)
with respect to the Additional Collateral shall be completed no later than the
date on which the Permitted Acquisition is effected unless otherwise consented
to by the Agents.
7.16 Registry. The Borrower hereby designates the Administrative Agent
to serve as its agent, solely for purposes of this Section 7.16, to maintain a
register (the "Register") on which it will record the Commitments from time to
time of each of the Banks, the Loans made by each of the Banks and each
repayment in respect of the principal amount of the Loans of each Bank. Failure
to make any such recordation, or any error in such recordation shall not affect
the Borrower's obligations in respect of such Loans. With respect to any Bank,
the transfer of the Commitments of such Bank and the rights to the principal of,
and interest on, any Loan made pursuant to such Commitments shall not be
effective until such transfer is recorded on the Register maintained by the
Administrative Agent with respect to ownership of such Commitments and Loans and
<PAGE> 62
prior to such recordation all amounts owing to the transferor with respect to
such Commitments and Loans shall remain owing to the transferor. The
registration of an assignment or transfer of all or part of any Commitments and
Loans shall be recorded by the Administrative Agent on the Register only upon
the acceptance by the Administrative Agent of a properly executed and delivered
assignment and assumption agreement pursuant to Section 12.04(b). Coincident
with the delivery of such an assignment and assumption agreement to the
Administrative Agent for acceptance and registration of assignment or transfer
of all or part of a Loan, or as soon thereafter as practicable, the assigning or
transferor Bank shall surrender the Note evidencing such Loan, and thereupon one
or more new Notes in the same aggregate principal amount shall be issued to the
assigning or transferor Bank and/or the new Bank. The Borrower agrees to
indemnify the Administrative Agent from and against any and all losses, claims,
damages and liabilities of whatsoever nature which may be imposed on, asserted
against or incurred by the Administrative Agent in performing its duties under
this Section 7.16.
7.17 Additional Security; Further Assurances. (a) Each Credit Party
shall grant to the Collateral Agent, for the benefit of the Secured Creditors,
at the request of the Agents or the Required Banks, at any time, a security
interest in any Real Property or vehicles owned by any such Credit Party and any
other assets of such Credit Party and not already subject to a Security Document
and shall take all actions requested by the Agents or the Required Banks
(including, without limitation, the obtaining of mortgage policies, title
surveys and real estate appraisals satisfying the requirements of all applicable
laws) in connection with the granting of such security interest.
(b) The security interests required to be granted pursuant to clause
(a) above shall be granted pursuant to mortgages, deeds of trust and security
agreements, in each case satisfactory in form and substance to the Agents and
the Required Banks, which mortgages and security agreements shall create valid
and enforceable perfected security interests prior to the rights of all third
Persons and subject to no other Liens except such Liens as are permitted by
Section 8.01. The mortgages and other instruments related thereto and security
agreements shall be duly recorded or filed in such manner and in such places and
at such times as are required by law to establish, perfect, preserve and protect
the Liens, in favor of the Collateral Agent for the benefit of the Secured
Creditors, required to be granted pursuant to such documents and all taxes, fees
and other charges payable in connection therewith shall be paid in full by the
Borrower. At the time of the execution and delivery of the additional documents,
the Borrower shall cause to be delivered to the Collateral Agent such opinions
of counsel, mortgage policies, title surveys, real estate appraisals,
certificates of title and other related documents as may be reasonably requested
by the Agents or the Required Banks to assure themselves that this Section 7.17
has been complied with.
(c) Each Credit Party agrees that each action required by Section
7.17(a), or (b) shall be completed within sixty (60) days of the date such
action is requested to be taken.
7.18 Senior Seller Notes. The Borrower hereby covenants that, upon
maturity of the Senior Seller Notes described in the definition thereof, the
Collateral Agent shall automatically be granted, for the benefit of the Secured
Creditors, and without the requirement of any action on its part, (i) a first
<PAGE> 63
priority perfected security interest in all of the collateral securing such
Senior Secured Notes and (ii) a pledge of the Borrower's capital stock, if any,
in the franchises securing such Senior Seller Notes.
Section 8. Negative Covenants. Each of Holdings and the Borrower
hereby covenants that on and after the Restatement Effective Date and until the
Total Commitment and all Letters of Credit have terminated and the Loans and
Notes and all Unpaid Drawings, together with interest, Fees and all other
Obligations incurred hereunder and thereunder, are paid in full:
8.01 Liens. Holdings will not, and will not permit any of its
Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with
respect to any property or assets (real or personal, tangible or intangible) of
Holdings or any of its Subsidiaries, whether now owned or hereafter acquired, or
sell any such property or assets subject to an understanding or agreement,
contingent or otherwise, to repurchase such property or assets (including sales
of accounts receivable with recourse to Holdings or any of its Subsidiaries), or
assign any right to receive income or permit the filing of any financing
statement under the UCC or any other similar notice of Lien under any similar
recording or notice statute; provided that the provisions of this Section 8.01
shall not prevent Holdings or any of its Subsidiaries from creating, incurring,
assuming or permitting the existence of the following (liens described below are
herein referred to as "Permitted Liens"):
(i) inchoate Liens with respect to Holdings or any of its
Subsidiaries for taxes not yet due or Liens for taxes being contested
in good faith and by appropriate proceedings for which adequate
reserves have been established in accordance with generally accepted
accounting principles;
(ii) unperfected Liens in respect of property or assets of the
Borrower or any of its Subsidiaries imposed by law, which were
incurred in the ordinary course of business and do not secure
Indebtedness for borrowed money, such as carriers', warehousemen's,
materialmen's, mechanics' and landlords' liens and other similar Liens
arising in the ordinary course of business, and (x) which do not in
the aggregate materially detract from the value of the Borrower's or
any of its Subsidiaries' property or assets or materially impair the
use thereof in the operation of the business of the Borrower or its
Subsidiaries or (y) which are being contested in good faith by
appropriate proceedings, which proceedings have the effect of
preventing the forfeiture or sale of the property or assets subject to
any such Lien;
(iii) Liens of the Borrower or its Subsidiaries in existence on
the Restatement Effective Date which are listed, and the property
subject thereto described, on Schedule XIII, but only to the
respective date, if any, set forth in such Schedule XIII for the
removal and termination of any such Liens;
(iv) Liens created pursuant to the Security Documents;
(v) easements, rights-of-way, restrictions, encroachments and
other similar charges or encumbrances on the property of the Borrower
<PAGE> 64
or any of its Subsidiaries arising in the ordinary course of business
and not materially interfering with the conduct of the business of the
Borrower or any of its Subsidiaries;
(vi) Liens on property of the Borrower and its Subsidiaries
subject to, and securing only, Capitalized Lease Obligations to the
extent such Capitalized Lease Obligations are permitted by Section
8.04(iii); provided that such Liens only serve to secure the payment
of Indebtedness arising under such Capitalized Lease Obligation and
the Lien encumbering the asset giving rise to the Capitalized Lease
Obligation does not encumber any other asset of the Borrower or any of
its Subsidiaries;
(vii) Liens (other than any Lien imposed by ERISA) on property of
the Borrower or any of its Subsidiaries incurred or deposits made in
the ordinary course of business in connection with (x) workers'
compensation, unemployment insurance and other types of social
security or (y) to secure the performance of tenders, statutory
obligations, surety and appeal bonds, bids, leases, government
contracts, trade contracts, performance and return-of-money bonds and
other similar obligations (exclusive of obligations for the payment of
borrowed money); provided that the aggregate amount of cash and the
fair market value of the property encumbered by Liens described in
this clause (vii)(y) shall not exceed $500,000;
(viii) Liens placed upon equipment or machinery used in the
ordinary course of the business of the Borrower or any of its
Subsidiaries within sixty (60) days following the time of purchase
thereof by the Borrower or any of its Subsidiaries and improvements
and accretions thereto to secure Indebtedness incurred to pay all or a
portion of the purchase price thereof or any Indebtedness incurred to
refinance such Indebtedness, provided that (x) the aggregate principal
amount of all Indebtedness secured by Liens permitted by this clause
(viii) does not exceed at any one time outstanding, when aggregated
with the amount of Indebtedness permitted pursuant to Section
8.04(iii), $2,000,000 and (y) in all events, the Lien encumbering the
equipment or machinery so acquired and improvements and accretions
thereto does not encumber any other asset of the Borrower or any of
its Subsidiaries;
(ix) Liens arising from precautionary UCC-1 financing statement
filings regarding operating leases entered into by the Borrower or any
of its Subsidiaries in the ordinary course of business;
(x) inchoate Liens (where there has been no execution or levy and
no pledge or delivery of collateral) arising from and out of judgments
or decrees in existence at such time not constituting an Event of
Default; and
(xi) Liens for the benefit of the holders of the Acceptable
Subordinated Debt on the Cash Interest Reserves so long as the amount
of such Cash Interest Reserves and the terms and conditions of the
escrow arrangements and security interests with respect thereto are
satisfactory to the Agents.
<PAGE> 65
8.02 Consolidation, Merger, Purchase or Sale of Assets, etc. Holdings
will not, and will not permit any of its Subsidiaries to, wind up, liquidate or
dissolve its affairs or enter into any transaction of merger or consolidation,
or convey, sell, lease or otherwise dispose of (or agree to do any of the
foregoing at any future time) all or any part of its property or assets, or
enter into any partnerships, joint ventures or sale-leaseback transactions, or
purchase or otherwise acquire in one or a series of related transactions (or
agree to do any of the foregoing at any future time) any part of the property or
assets (other than purchases or other acquisitions by Holdings or any of its
Subsidiaries of inventory, materials and equipment in the ordinary course of
business) of any Person, except that:
(i) Capital Expenditures by the Borrower and its Subsidiaries
shall be permitted to the extent not in violation of Section 8.07;
(ii) each of the Borrower and its Subsidiaries may lease (as
lessee) real or personal property in the ordinary course of business
(so long as such lease does not create Capitalized Lease Obligations);
(iii) investments may be made to the extent permitted by Section
8.05;
(iv) the Transaction shall be permitted as contemplated by the
Documents;
(v) the Borrower may effect Permitted Acquisitions in accordance
with the requirements of Section 7.15 and may enter into agreements to
effect Permitted Acquisitions so long as at no time shall the Borrower
have outstanding an aggregate amount of nonrefundable deposits with
respect thereto in excess of the remainder of $2,000,000 over the
aggregate amount of nonrefundable deposits previously forfeited;
(vi) the Borrower may sell assets so long as the aggregate amount
of Net Sales Proceeds received from such sales does not exceed
$500,000 in the aggregate for all such asset sales in any fiscal year;
and
(vii) the Borrower and its Subsidiaries may sell, lease or rent
subscriber broadcast equipment to subscribers in the ordinary course
of business and consistent with past practice.
To the extent the Required Banks waive the provisions of this Section 8.02 with
respect to the sale of any Collateral (to the extent the Required Banks are
permitted to waive such provisions in accordance with Section 12.12), or any
Collateral is sold as permitted by this Section 8.02, such Collateral shall be
sold free and clear of the Liens created by the Security Documents, and the
Administrative Agent and Collateral Agent shall be authorized to take any
actions deemed appropriate in order to effect the foregoing.
8.03 Dividends. Holdings will not, nor will Holdings permit any of its
Subsidiaries to, declare or pay any Dividends with respect to Holdings or any of
its Subsidiaries except that (i) any Subsidiary of Holdings may pay Dividends to
Holdings or any Wholly-Owned Subsidiary of Holdings, (ii) Holdings may pay
Dividends to its stockholders in an aggregate amount not to exceed $500,000 for
the purpose of repurchasing stock held by such stockholders, (iii) proceeds from
the Weary Key-Man Insurance may be applied to purchase all of Holdings Capital
Stock owned by Mr. Weary at the time of his death so long as such proceeds are
<PAGE> 66
permitted to be used for such repurchase in accordance with Section 3.02(A)(g)
and are not required to be applied in accordance with Section 3.02(B), (iv)
Holdings may pay Dividends (x) to its employees in the form of options
convertible into Holdings Common Stock, (y) in the form of Seller Preferred
Stock payable in connection with a Permitted Acquisition and (z) so long as
there exists no Default or Event of Default, in the form of cash payable to any
Person holding a minority interest (in the form of stock, partnership interest,
membership interest or otherwise) in any Subsidiary of Holdings on or prior to
the Restatement Effective Date for the purpose of purchasing such minority
interest, and (v) holders of warrants shall be permitted to effect the cashless
exercise thereof.
8.04 Indebtedness. Holdings will not, and will not permit any of its
Subsidiaries to, contract, create, incur, assume or suffer to exist any
Indebtedness, except:
(i) Indebtedness incurred pursuant to this Agreement and the
other Credit Documents;
(ii) Indebtedness of the Borrower under any Interest Rate
Protection or Other Hedging Agreement or under any similar type of
agreement to the extent such is entered into to satisfy the
requirements of Section 7.11;
(iii) Indebtedness evidenced by Capitalized Lease Obligations to
the extent permitted pursuant to Section 8.07; provided that the
aggregate amount of Indebtedness evidenced by Capitalized Lease
Obligations under all Capital Leases outstanding under this clause
(iii) at any one time, when aggregated with the amount of Indebtedness
permitted pursuant to Section 8.04(v), shall not exceed $2,000,000;
(iv) Existing Indebtedness of the Borrower listed on Schedule XI
but without giving effect to any refinancings, renewals or increases
in the principal amount thereof;
(v) Indebtedness in amounts, and subject to Liens, permitted
under Section 8.01(viii);
(vi) Indebtedness of the Borrower evidenced by Permitted Seller
Notes;
(vii) Acceptable Subordinated Debt, provided that both before and
immediately after giving effect to the issuance thereof (with all
covenants being tested at the time of the issuance but using EBITDA
financial information relating to the fiscal quarter or four fiscal
quarters most recently ended prior to the date of issuance), there
shall exist no Default or Event of Default; and
(viii) Guarantees of the Acceptable Subordinated Debt by Holdings
and the Subsidiary Guarantors on a subordinated basis, provided that
the terms of such subordination and all other terms and conditions of
such guaranty shall be in form and substance satisfactory to the
Agents, including, without limitation, that such guaranty with respect
to Holdings or a particular Subsidiary of the Borrower shall be
released at any time that Holdings' guaranty under this Agreement or
the Subsidiaries Guaranty is released with respect to any such
Subsidiary, as the case may be.
<PAGE> 67
8.05 Advances, Investments and Loans. Holdings will not, and will not
permit any of its Subsidiaries to, directly or indirectly lend money or credit
or make advances to any Person, or purchase or acquire any stock, obligations or
securities of, or any other interest in, or make any capital contribution to,
any other Person, or purchase or own a futures contract or otherwise become
liable for the purchase or sale of currency or other commodities at a future
date in the nature of a futures contract, or hold any cash or Cash Equivalents,
except that the following shall be permitted:
(i) Cash Interest Reserves;
(ii) the Borrower and its Subsidiaries may acquire and hold
receivables owing to any of them, if created or acquired in the
ordinary course of business and payable or dischargeable in accordance
with customary terms;
(iii) the Borrower and its Subsidiaries may acquire and hold cash
and Cash Equivalents, provided that during any time that Revolving
Loans are outstanding, the aggregate amount of cash and Cash
Equivalents permitted to be held by the Borrower and its Subsidiaries
shall not exceed $5,000,000 for any period of five (5) consecutive
Business Days, provided further, that amounts on deposit in the Letter
of Credit Cash Collateral Account and the Permitted Acquisitions Cash
Collateral Account shall not be included in calculating such limit;
(iv) the Borrower may enter into interest rate protection
agreements to the extent such is entered into to satisfy the
requirements of Section 7.11;
(v) the Borrower and its Subsidiaries may make Capital
Expenditures to the extent permitted by Section 8.07;
(vi) the Borrower may effect Permitted Acquisitions to the extent
permitted by Section 7.15 and may enter into agreements to effect
Permitted Acquisitions so long as at no time shall the Borrower have
outstanding an aggregate amount of non-refundable deposits in excess
of the remainder of $2,000,000 over the aggregate amount of
non-refundable deposits previously forfeited;
(vii) the Borrower and its Subsidiaries may endorse negotiable
instruments for collection in the ordinary course of business;
(viii) other than Permitted Acquisitions, the Borrower may enter
into joint venture transactions relating directly to the DirecTV
business; provided that the total value of all capital or asset
contributions made by the Borrower in connection therewith shall not
exceed an aggregate amount equal to $1,000,000; and
(ix) the Borrower and its Subsidiaries may make loans and
advances in the ordinary course of business consistent with past
practices to their respective employees for moving, travel and
emergency expenses and other similar expenses, so long as the
<PAGE> 68
aggregate principal amount thereof at any one time outstanding
(determined without regard to any write-downs or write-offs of such
loans and advances) shall not exceed $500,000.
8.06 Transactions with Affiliates. Holdings will not, and will not
permit any of its Subsidiaries to, enter into any transaction or series of
related transactions, whether or not in the ordinary course of business, with
any Affiliate of Holdings or any Affiliate of any Subsidiary of Holdings, other
than transactions by the Borrower or any of its Subsidiaries with any such
Affiliates in the ordinary course of business unless such transaction or series
of related transactions is in writing and on terms that are no less favorable to
the Borrower or such Subsidiary, as the case may be, than those that would be
available in a comparable transaction in arm's-length dealings with an unrelated
third party; except that (i) the Borrower and its Subsidiaries may effect the
Transaction, (ii) loans and advances made in accordance with Section 8.05(ix)
shall be permitted and (iii) the Borrower and Holdings may pay customary fees to
non-officer directors of the Borrower. In no event may any management or similar
fees be paid or payable by Holdings or any of its Subsidiaries to any Person.
8.07 Capital Expenditures. (a) Holdings will not, and will not permit
any of its Subsidiaries to, make any expenditure for fixed or capital assets
(including, without limitation, expenditures for maintenance and repairs which
should be capitalized in accordance with generally accepted accounting
principles and including Capitalized Lease Obligations but excluding capitalized
Subscriber Acquisition Costs (collectively, "Capital Expenditures"), except that
the Borrower and its Subsidiaries may make Capital Expenditures (other than in
connection with Permitted Acquisitions) so long as the aggregate amount thereof
does not exceed during any fiscal year of the Borrower (i) $2,000,000 or (ii)
$3,000,000 in the event that the Borrower has issued Acceptable Subordinated
Debt.
(b) In addition to the Capital Expenditures permitted above, the
Borrower and its Subsidiaries may make Permitted Acquisitions in accordance with
Section 7.15 in an amount not to exceed the amounts permitted thereby.
(c) In addition to the Capital Expenditures permitted above, the
Borrower and its Subsidiaries may make Capital Expenditures in connection with
the MDU Business so long as the expenditures therefor do not exceed the amounts
permitted pursuant to Section 8.21.
8.08 Net Adjusted Consolidated Indebtedness to Qualified Paying
Subscriber Ratio. Holdings will cause the Borrower not to permit, and the
Borrower will not permit, the ratio of (x) Net Adjusted Consolidated
Indebtedness at the end of any fiscal quarter to (y) the number of Qualified
Paying Subscribers on the last day of such fiscal quarter to exceed the amount
set forth opposite such date set forth below:
<PAGE> 69
Fiscal Quarter
Ended Amount
-------------- ------
June 30, 1998 $1,200
September 30, 1998 $1,200
December 31, 1998 $1,200
March 31, 1999 $1,100
June 30, 1999 $1,000
September 30, 1999 $1,000
December 31, 1999 $1,000
March 31, 2000 $900
June 30, 2000 $900
September 30, 2000 $900
December 31, 2000 $900
March 31, 2001 $800
June 30, 2001 $800
September 30, 2001 $800
December 31, 2001 $800
March 31, 2002 and $700
thereafter
8.09 Adjusted Consolidated Senior Indebtedness to Qualified Paying
Subscriber Ratio. Holdings will cause the Borrower not to permit, and the
Borrower will not permit, the ratio of (x) Adjusted Consolidated Senior
Indebtedness at the end of any fiscal quarter to (y) the number of Qualified
Paying Subscribers on the last day of such fiscal quarter to exceed the amount
set forth opposite such date set forth below:
Fiscal Quarter
Ended Amount
-------------- ------
June 30, 1998 $1,000
September 30, 1998 $1,000
December 31, 1998 $1,000
March 31, 1999 $900
June 30, 1999 $800
September 30, 1999 $800
December 31, 1999 $800
March 31, 2000 $700
June 30, 2000 $700
September 30, 2000 $700
December 31, 2000 $700
March 31, 2001 $600
June 30, 2001 $600
September 30, 2001 $600
December 31, 2001 $600
March 31, 2002 and $500
thereafter
<PAGE> 70
8.10 Net Subscriber Acquisition Cost. Holdings will cause the Borrower
not to permit, and the Borrower will not permit, the Net Subscriber Acquisition
Cost for any fiscal quarter ending after March 31, 1998 to exceed an amount
equal to (a) $300 or (b) $400 in the event that the Borrower has issued
Acceptable Subordinated Debt. Notwithstanding the foregoing, the Borrower shall
not be required to comply with this Section 8.10 for any fiscal quarter ended on
and after June 30, 2000 so long as the ratio of (i) Net Adjusted Consolidated
Indebtedness as at the end of such fiscal quarter to (ii) Annualized
Consolidated EBITDA for such quarter and for the immediately preceding quarter
is less than 7.0:1.0.
8.11 Fixed Charge Coverage Ratio. Holdings will cause the Borrower not
to permit, and the Borrower will not permit, the Fixed Charge Coverage Ratio for
any period of four consecutive fiscal quarters ending on or after June 30, 2000,
in each case, taken as one accounting period, to be equal to or less than 1.05
to 1.0.
8.12 Annualized Adjusted Consolidated Interest Coverage Ratio.
Holdings will cause the Borrower not to permit, and the Borrower will not
permit, the ratio of Annualized Adjusted Consolidated EBITDA to Annualized
Adjusted Consolidated Interest Expense for any fiscal quarter ending on a date
set forth below to be less than the ratio set forth opposite such date:
Fiscal Quarter
Ended Ratio
September 30, 1998 1.00x
December 31, 1998 1.25x
March 31, 1999 1.50x
June 30, 1999 1.50x
September 30, 1999 1.50x
December 31, 1999 1.75x
March 31, 2000 2.00x
8.13 Consolidated Interest Coverage Ratio. Holdings will cause the
Borrower not to permit, and the Borrower will not permit, the ratio of
Consolidated EBITDA to Consolidated Interest Expense for any period of four
consecutive fiscal quarters, in each case taken as one accounting period, ending
on a date set forth below to be less than the ratio set forth opposite such
date:
<PAGE> 71
Fiscal Quarter
Ended Ratio
June 30, 2000 1.50x
September 30, 2000 1.50x
December 31, 2000 1.50x
March 31, 2001 1.50x
June 30, 2001 1.50x
September 30, 2001 1.50x
December 31, 2001 1.50x
March 31, 2002 1.75x
June 30, 2002 1.75x
September 30, 2002 2.00x
December 31, 2002 2.00x
March 31, 2003 2.25x
June 30, 2003 2.25x
September 30, 2003 2.50x
December 31, 2003 2.50x
March 31, 2004 and thereafter 3.00x
8.14 Net Adjusted Consolidated Indebtedness to Pro Forma Annualized
Adjusted Consolidated EBITDA. Holdings will cause the Borrower not to permit,
and the Borrower will not permit, the ratio of Net Adjusted Consolidated
Indebtedness as at the end of any fiscal quarter ended on a date set forth below
to Pro Forma Annualized Adjusted Consolidated EBITDA for such fiscal quarter to
be greater than (i) in the event that the Borrower has not issued Acceptable
Subordinated Debt, the ratio set forth opposite such date below:
Fiscal Quarter
Ended Ratio
September 30, 1998 10.00x
December 31, 1998 8.50x
March 31, 1999 7.50x
June 30, 1999 7.00x
September 30, 1999 6.50x
December 31, 1999 6.00x
March 31, 2000 5.50x
<PAGE> 72
or (ii) in the event that the Borrower has issued Acceptable Subordinated Debt,
the ratio set forth opposite such date below:
Fiscal Quarter
Ended Ratio
September 30, 1998 12.00x
December 31, 1998 11.00x
March 31, 1999 10.00x
June 30, 1999 9.00x
September 30, 1999 8.00x
December 31, 1999 8.00x
March 31, 2000 7.00x
8.15 Adjusted Consolidated Senior Indebtedness to Pro Forma
Annualized Adjusted Consolidated EBITDA. Holdings will cause the Borrower not to
permit, and the Borrower will not permit, the ratio of Adjusted Consolidated
Senior Indebtedness as at the end of any fiscal quarter ended on a date set
forth below to Pro Forma Annualized Adjusted Consolidated EBITDA for such fiscal
quarter to be greater than (i) in the event that the Borrower has not issued
Acceptable Subordinated Debt, the ratio set forth opposite such date below:
Fiscal Quarter
Ended Ratio
September 30, 1998 10.00x
December 31, 1998 8.50x
March 31, 1999 7.50x
June 30, 1999 7.00x
September 30, 1999 6.50x
December 31, 1999 6.00x
March 31, 2000 5.50x
or (ii) in the event that the Borrower has issued Acceptable Subordinated Debt,
the ratio set forth opposite such date below:
Fiscal Quarter
Ended Ratio
September 30, 1998 6.50x
December 31, 1998 6.50x
March 31, 1999 5.50x
June 30, 1999 5.25x
September 30, 1999 4.75x
December 31, 1999 4.75x
March 31, 2000 4.75x
8.16 Net Adjusted Consolidated Indebtedness to Pro Forma Annualized
Consolidated EBITDA. Holdings will cause the Borrower not to permit, and the
Borrower will not permit, the ratio of Net Adjusted Consolidated Indebtedness as
at the end of any fiscal quarter ended on a date set forth below to Pro Forma
Annualized Consolidated EBITDA for such fiscal quarter to be greater than (i) in
the event that the Borrower has not issued Acceptable Subordinated Debt, the
ratio set forth opposite such date below:
<PAGE> 73
Fiscal Quarter
Ended Ratio
June 30, 2000 6.50x
September 30, 2000 6.50x
December 31, 2000 6.50x
March 31, 2001 5.00x
June 30, 2001 5.00x
September 30, 2001 5.00x
December 31, 2001 5.00x
March 31, 2002 3.00x
June 30, 2002 3.00x
September 30, 2002 3.00x
December 31, 2002 3.00x
March 31, 2003 and thereafter 2.00x
or (ii) in the event that the Borrower has issued Acceptable Subordinated Debt,
the ratio set forth opposite such date below:
Fiscal Quarter
Ended Ratio
June 30, 2000 8.00x
September 30, 2000 8.00x
December 31, 2000 8.00x
March 31, 2001 7.00x
June 30, 2001 7.00x
September 30, 2001 7.00x
December 31, 2001 7.00x
March 31, 2002 5.50x
June 30, 2002 5.50x
September 30, 2002 5.50x
December 31, 2002 5.50x
March 31, 2003 4.50x
June 30, 2003 4.50x
September 30, 2003 4.50x
December 31, 2003 4.50x
March 31, 2004 and thereafter 4.00x
<PAGE> 74
8.17 Adjusted Consolidated Senior Indebtedness to Pro Forma
Annualized Consolidated EBITDA. Holdings will cause the Borrower not to permit,
and the Borrower will not permit, the ratio of Adjusted Consolidated Senior
Indebtedness as at the end of any fiscal quarter ended on a date set forth below
to Pro Forma Annualized Consolidated EBITDA for such fiscal quarter to be
greater than (i) in the event that the Borrower has not issued Acceptable
Subordinated Debt, the ratio set forth opposite such date below:
Fiscal Quarter
Ended Ratio
June 30, 2000 6.50x
September 30, 2000 6.50x
December 31, 2000 6.50x
March 31, 2001 5.00x
June 30, 2001 5.00x
September 30, 2001 5.00x
December 31, 2001 5.00x
March 31, 2002 3.00x
June 30, 2002 3.00x
September 30, 2002 3.00x
December 31, 2002 3.00x
March 31, 2003 and thereafter 2.00x
or (ii) in the event that the Borrower has issued Acceptable Subordinated Debt,
the ratio set forth opposite such date below:
Fiscal Quarter
Ended Ratio
June 30, 2000 5.00x
September 30, 2000 5.00x
December 31, 2000 5.00x
March 31, 2001 4.00x
June 30, 2001 4.00x
September 30, 2001 4.00x
December 31, 2001 4.00x
March 31, 2002 3.00x
June 30, 2002 3.00x
September 30, 2002 3.00x
December 31, 2002 3.00x
March 31, 2003 and thereafter 2.00x
8.18 Limitation on Voluntary Payments and Modification of Existing
Indebtedness; Limitation on Modifications of Certificate of Incorporation,
By-Laws and Certain Other Agreements; etc. Holdings will not, and will not
permit any of its Subsidiaries to:
<PAGE> 75
(i) make (or give any notice in respect of) any voluntary or optional
payment or prepayment on or redemption (including pursuant to any change of
control provision) or acquisition for value of (including, without
limitation, by way of depositing with the trustee with respect thereto
money or securities before due for the purpose of paying when due), any
Existing Indebtedness, any Indebtedness incurred pursuant to Section
8.04(vii) or Permitted Seller Notes (other than the Rocky Mountain Note);
(ii) amend or modify, or permit the amendment or modification of, any
provision of the Existing Indebtedness, the Permitted Seller Notes,
Indebtedness incurred pursuant to Section 8.04(vii) or the Documents or of
any agreement relating to any of the foregoing except for such amendments
or modifications of the Existing Indebtedness or of the Documents entered
into in connection with Permitted Acquisitions which, in the aggregate or
individually, could not reasonably be likely to be adverse to any Bank in
its capacity as such;
(iii) materially amend, modify or change its Certificate of
Incorporation (including, without limitation, by the filing or modification
of any certificate of designation) or By-Laws, in a manner adverse to the
Banks;
(iv) amend, modify or change, terminate, or enter into any new
Shareholders' Agreement or any other agreement with respect to its equity
interests, except for such amendments, modifications or changes which, in
the aggregate or individually could not reasonably be likely to be adverse
to any Bank in its capacity as such;
(v) amend, modify or change, terminate or enter into any new Tax
Sharing Agreement;
(vi) amend, modify or change the NRTC Agreements in any manner that is
deemed to be material by the Agents in their sole discretion; or
(vii) amend, modify or change, or enter into any new Management
Agreement, Employee Benefit Plan, Employment Agreement or Material Contract
(other than the NRTC Agreements and other than Material Contracts which
constitute one of the agreements or documents referred to in preceding
clauses (i) through (vi) of this Section 8.18) except if the aggregate cost
to Holdings and its Subsidiaries as a result of such amendments,
modifications, changes to such plans, agreements and contracts and new
plans, agreements and contracts are not reasonably likely to have a
material adverse effect on the performance, business, property, assets,
nature of assets, liabilities, condition (financial or otherwise) or
prospects of Holdings and its Subsidiaries taken as a whole.
8.19 Limitation on Certain Restrictions on Subsidiaries. Holdings will
not, and will not permit any of its Subsidiaries to, directly or indirectly,
create or otherwise cause or suffer to exist or become effective any encumbrance
or restriction on the ability of any Subsidiary of Holdings to (i) pay dividends
<PAGE> 76
or make any other distributions on its capital stock or any other interest or
participation in its profits owned by Holdings or any Subsidiary of Holdings, or
pay any Indebtedness owed to Holdings or a Subsidiary of Holdings, (ii) make
loans or advances to Holdings or any Subsidiaries of Holdings or (iii) transfer
any of its properties or assets to Holdings or the Borrower, except for such
encumbrances or restrictions existing under or by reason of (x) applicable law,
(y) this Agreement and the other Credit Documents and (z) customary provisions
restricting subletting or assignments of any lease governing a leasehold
interest of the Borrower or a Subsidiary of the Borrower.
8.20 Limitation on Issuance of Capital Stock. (a) Holdings will not
permit any of its Subsidiaries to issue any capital stock or other equity
interests (including, without limitation, partnership interests) (including by
way of sales of treasury stock) or any options or warrants to purchase, or
securities convertible into, capital stock, except (i) for transfers and
replacements of then outstanding shares, (ii) for stock splits, stock dividends
and similar issuances which do not decrease the percentage ownership of any
person in any class of the capital stock of the Borrower or such Subsidiary, and
(iii) upon the formation of any new Subsidiaries as permitted by Section 8.22.
Any stock issued as permitted by this Section 8.20, if owned by Holdings or any
of its Subsidiaries, shall be immediately pledged as Collateral and delivered
pursuant to the applicable Pledge Agreement.
(b) Holdings will not issue any capital stock or any options or
warrants to purchase, or securities convertible into, capital stock, except for
issuances of Holdings Capital Stock, options or warrants exercisable into
Holdings Common Stock where, after giving effect to such issuance, the proceeds
therefrom, if any, are applied in accordance with Section 3.02(A)(d) (or, in the
case of Seller Preferred Stock, issued as consideration to the sellers in a
Permitted Acquisition) and no Default or Event of Default will exist under
Section 9.10 (or, in the case of issuance of options, warrants, or convertible
securities, no Default or Event of Default would exist under Section 9.10 if
such options, warrants or convertible securities were to be exercised or
converted), provided that the terms and conditions of any preferred stock issued
in accordance with the foregoing shall be satisfactory to the Agents.
8.21 Business. Holdings, will not engage in any business and will hold
no assets other than common stock of the Borrower and Holdings, will not permit
any of its Subsidiaries, to engage (directly or indirectly) in any business
other than a Permitted Business and the MDU Business so long as, with respect to
engaging in the MDU Business, (i) the aggregate amount spent by the Borrower and
its Subsidiaries in connection with the MDU Business (whether capital
expenditures, operating expenses, Subscriber Acquisition Costs, call center
costs or any other amounts of any type and collectively referred to as "MDU
Investments") shall not exceed during the period commencing on the Restatement
Effective Date and ending on the date on which there shall be no remaining
Obligations or Commitments under this Agreement, (x) $5,000,000 or (y) if the
Acceptable Subordinated Debt has been issued, $10,000,000, without, in either
case, giving effect to any write-offs or write-downs with respect thereto and
(ii) at the time thereof and after giving effect thereto, there is no Default or
Event of Default.
<PAGE> 77
8.22 Limitation on Creation of Subsidiaries. Holdings will not, and
will not permit any of its Subsidiaries to, establish, create or acquire any new
Subsidiary, except that the Borrower may acquire or form a Subsidiary in
connection with Permitted Acquisitions to the extent otherwise permitted by this
Agreement, so long as (w) such new Subsidiary is a Wholly-Owned Subsidiary, (x)
such new Subsidiary executes and delivers a Subsidiaries Guaranty, (y) such new
Subsidiary executes and delivers counterparts to the applicable Pledge Agreement
and (z) such new Subsidiary executes and is made party to the applicable
Security Documents.
Section 9. Events of Default. Upon the occurrence of any of the
following specified events (each an "Event of Default"):
9.01 Payments. Holdings or the Borrower shall (i) default in the
payment when due of any principal of any Loan or any Note or Unpaid Drawing or
(ii) default, and such default shall continue unremedied for five (5) or more
days, in the payment when due of any interest on any Loan or Note or Unpaid
Drawing, or any Fees or any other amounts owing by it hereunder, thereunder or
under any interest rate protection agreements entered into by Holdings or the
Borrower pursuant to Section 7.11 hereof; or
9.02 Representations, etc. Any representation, warranty or statement
made by any Credit Party herein or in any other Credit Document or in any
certificate delivered pursuant hereto or thereto shall prove to be untrue in any
material respect on the date as of which made or deemed made; or
9.03 Covenants. Any Credit Party shall (i) default in the due
performance or observance by it of any term, covenant or agreement contained in
Section 7.01(g)(i), 7.08, 7.11, 7.13, 7.15, 7.17, 7.18 or 8 or (ii) default in
the due performance or observance by it of any other term, covenant or agreement
contained in any Credit Document and such default shall continue unremedied for
a period of fifteen (15) days after written notice to the Borrower by the
Administrative Agent or any Bank; or
9.04 Default Under Other Agreements. Holdings or any of its
Subsidiaries shall (i) default in any payment of any Indebtedness (other than
the Indebtedness referred to in Section 9.01) beyond the period of grace (not to
exceed ten (10) days), if any, provided in the instrument or agreement under
which such Indebtedness was created, (ii) default in the observance or
performance of any agreement or condition relating to any Indebtedness (other
than the Indebtedness referred to in Section 9.01) or contained in any
instrument or agreement evidencing, securing or relating thereto, or any other
event shall occur or condition exist, the effect of which default or other event
or condition is to cause, or to permit the holder or holders of such
Indebtedness (or a trustee or agent on behalf of such holder or holders) to
cause (determined without regard to whether any notice is required), such
Indebtedness to become due prior to its stated maturity and such default shall
not have been cured or waived, or (iii) any Indebtedness (other than the
Indebtedness referred to in Section 9.01) of Holdings or any of its Subsidiaries
shall be declared to be due and payable, or required to be prepaid other than by
<PAGE> 78
a regularly scheduled required prepayment, prior to the stated maturity thereof;
provided that it shall not constitute an Event of Default pursuant to this
Section 9.04 unless the aggregate amount of all Indebtedness referred to in the
preceding clauses (i) through (iii), inclusive, above exceeds $1,000,000 at any
one time; or
9.05 Bankruptcy, etc. Holdings or any of its Subsidiaries shall
commence a voluntary case concerning itself under Title 11 of the United States
Code entitled "Bankruptcy," as now or hereafter in effect, or any successor
thereto (the "Bankruptcy Code"); or an involuntary case is commenced against
Holdings or any of its Subsidiaries and the petition is not controverted within
ten (10) days, or is not dismissed or discharged, within sixty (60) days, after
commencement of the case; or a custodian (as defined in the Bankruptcy Code) is
appointed for, or takes charge of, all or substantially all of the property of
Holdings or any of its Subsidiaries, or Holdings or any of its Subsidiaries
commences any other proceeding under any reorganization, arrangement, adjustment
of debt, relief of debtors, dissolution, insolvency or liquidation or similar
law of any jurisdiction whether now or hereafter in effect relating to Holdings
or any of its Subsidiaries, or there is commenced against Holdings or any of its
Subsidiaries any such proceeding which remains undismissed or undischarged for a
period of sixty (60) days, or Holdings or any of its Subsidiaries is adjudicated
insolvent or bankrupt; or any order of relief or other order approving any such
case or proceeding is entered; or Holdings or any of its Subsidiaries suffers
any appointment of any custodian or the like for it or any substantial part of
its property to continue undischarged or unstayed for a period of sixty (60)
days; or Holdings or any of its Subsidiaries makes a general assignment for the
benefit of creditors; or any corporate action is taken by Holdings or any of its
Subsidiaries for the purpose of effecting any of the foregoing; or
9.06 ERISA. (a) Any Plan shall fail to satisfy the minimum funding
standard required for any plan year or part thereof under Section 412 of the
Code or Section 302 of ERISA or a waiver of such standard or extension of any
amortization period is sought or granted under Section 412 of the Code or
Section 303 or 304 of ERISA, a Reportable Event shall have occurred, a
contributing sponsor (as defined in Section 4001(a)(13) of ERISA) of a Plan
subject to Title IV of ERISA shall be subject to the advance reporting
requirement of PBGC Regulation Section 4043.61 (without regard to subparagraph
(b)(1) thereof) and an event described in subsection .62, .63, .64, .65, .66,
.67 or .68 of PBGC Regulation 4043 shall be reasonably expected to occur with
respect to such Plan within the following thirty (30) days, any Plan which is
subject to Title IV of ERISA shall have had or is likely to have a trustee
appointed to administer such Plan, any Plan which is subject to Title IV of
ERISA is, shall have been or is likely to be terminated or to be the subject of
termination proceedings under ERISA, any Plan shall have an Unfunded Current
Liability, a contribution required to be made with respect to a Plan has not
been timely made, Holdings or any Subsidiary of Holdings or any ERISA Affiliate
has incurred or is likely to incur any liability to or on account of a Plan
under Section 409, 502(i), 502(l), 515, 4062, 4063, 4064, 4069, 4201, 4204 or
4212 of ERISA or Section 401(a)(29), 4971 or 4975 of the Code or on account of a
group health plan (as defined in Section 607(1) of ERISA or Section 4980B(g)(2)
of the Code) under Section 4980B of the Code, or Holdings or any Subsidiary of
<PAGE> 79
Holdings has incurred or is likely to incur liabilities pursuant to one or more
employee welfare benefit plans (as defined in Section 3(1) of ERISA) that
provide benefits to retired employees or other former employees (other than as
required by Section 601 of ERISA) or Plans; (b) there shall result from any such
event or events the imposition of a lien, the granting of a security interest,
or a liability or a material risk of incurring a liability; and (c) such lien,
security interest or liability, individually, and/or in the aggregate, in the
opinion of the Required Banks, has had, or could reasonably be expected to have,
a material adverse effect upon the business, operations, condition (financial or
otherwise) or prospects of Holdings or any Subsidiary of Holdings; or
9.07 Security Documents. At any time after the execution and delivery
thereof, any of the Security Documents shall cease to be in full force and
effect or shall cease to give the Collateral Agent for the benefit of the
Secured Creditors the Liens, rights, powers and privileges purported to be
created thereby (including, without limitation, a perfected security interest
in, and Lien on, all of the Collateral), in favor of the Collateral Agent,
superior to and prior to the rights of all third Persons (except as permitted by
Section 6.11), and subject to no other Liens (except as permitted by Section
6.11), or any Credit Party shall default in the due performance or observance of
any term, covenant or agreement on its part to be performed or observed pursuant
to any of the Security Documents and such default shall continue beyond any
grace period specifically applicable thereto pursuant to the terms of such
Security Document; or
9.08 Guaranties. At any time after the execution and delivery thereof,
any Guaranty or any provision thereof shall cease to be in full force or effect
as to any Guarantor, or any Guarantor or any Person acting by or on behalf of
any Guarantor shall deny or disaffirm such Guarantor's obligations under the
respective Guaranty, or any Guarantor shall default in the due performance or
observance of any term, covenant or agreement on its part to be performed or
observed pursuant to the respective Guaranty and such default shall continue
beyond any grace period specifically applicable thereto; or
9.09 Judgments. One or more judgments or decrees shall be entered
against Holdings or any of its Subsidiaries involving in the aggregate for
Holdings and its Subsidiaries a liability (not paid or fully covered by a
reputable insurance company) of $1,000,000 or more and all such judgments or
decrees shall not be satisfied, vacated, discharged or stayed or bonded pending
appeal for any period of thirty (30) consecutive days; or
9.10 Change in Control. There shall be a Change in Control; or
9.11 DBS Agreement; NRTC Agreements; FCC Licenses. The DBS Agreement
or one or more of the NRTC Agreements shall have been terminated, expired or be
the subject of any dispute that, in each case, could reasonably be expected to
have a material adverse effect on Holdings or any of its Subsidiaries' right or
ability to engage in the Permitted Business or could otherwise be reasonably
expected to have a material adverse effect on the performance, business, assets,
<PAGE> 80
nature of assets, liabilities, operations, properties, condition (financial or
otherwise) or prospects of Holdings and its Subsidiaries taken as a whole or any
FCC Licenses (whether issued to Hughes, DirecTV, the NRTC or the Borrower or any
of its Subsidiaries) shall have terminated or expired or shall have been revoked
or canceled, which termination, expiry, revocation or cancellation could
reasonably be expected to have a material adverse effect on Holdings' or any of
its Subsidiaries' right or ability to engage in the Permitted Business or could
otherwise be reasonably expected to have a material adverse effect on the
performance, business, assets, nature of assets, liabilities, operations,
properties, condition (financial or otherwise) or prospects of Holdings and its
Subsidiaries taken as a whole; then, and in any such event, and at any time
thereafter, if any Event of Default shall then be continuing, the Administrative
Agent, upon the written request of the Required Banks, shall by written notice
to the Borrower, take any or all of the following actions, without prejudice to
the rights of the Agents, any Bank or the holder of any Note to enforce its
claims against any Credit Party (provided that, if an Event of Default specified
in Section 9.05 shall occur with respect to the Borrower, the result which would
occur upon the giving of written notice by the Administrative Agent to the
Borrower as specified in clauses (i) and (ii) below shall occur automatically
without the giving of any such notice): (i) declare the Total Commitment
terminated, whereupon all Commitments of each Bank shall forthwith terminate
immediately and any Fees shall forthwith become due and payable without any
other notice of any kind; (ii) declare the principal of and any accrued interest
in respect of all Loans and the Notes and all Obligations owing hereunder and
thereunder to be, whereupon the same shall become, forthwith due and payable
without presentment, demand, protest or other notice of any kind, all of which
are hereby waived by each Credit Party; (iii) exercise any rights or remedies
under any of the Guaranties; (iv) terminate any Letter of Credit which may be
terminated in accordance with its terms; (v) direct the Borrower to pay (and the
Borrower agrees that upon receipt of such notice, or upon the occurrence of an
Event of Default specified in Section 9.05, it will pay) to the Collateral Agent
at the Payment Office such additional amount of cash, to be held as security by
the Collateral Agent for the benefit of the Banks in a cash collateral account
established and maintained by the Collateral Agent pursuant to a cash collateral
agreement in form and substance satisfactory to the Collateral Agent, as is
equal to the aggregate Stated Amount of all Letters of Credit then outstanding;
and (vi) enforce, as Collateral Agent, all of the Liens and security interests
created pursuant to the Security Documents.
Section 10. Definitions and Accounting Terms.
10.01 Defined Terms. As used in this Agreement, the following terms
shall have the following meanings (such meanings to be equally applicable to
both the singular and plural forms of the terms defined):
"Acceptable Subordinated Debt" shall mean subordinated debt issued by
the Borrower on one date with respect to which the Borrower has received gross
proceeds in an amount not less than $125,000,000 and net proceeds (after
deduction for transaction costs and an interest reserve satisfactory to the
Agents and the Required Banks to cover at least two (2) years' interest on such
<PAGE> 81
Acceptable Subordinated Debt) of at least $100,000,000 on or prior to December
31, 1998, on terms and conditions (including, without limitation, interest
rates, redemption provisions, maturity date, subordination provisions, covenants
and events of default) acceptable to, and in form and substance satisfactory to,
the Agents.
"Acceptable Subordinated Debt Documents" shall mean the indenture or
similar document pursuant to which the Acceptable Subordinated Debt is issued
and all related documents, including, without limitation, the preliminary
offering memorandum, the final offering memorandum, the purchase agreement or
underwriting agreement with respect thereto, the registration rights agreement,
the escrow agreement for the Cash Interest Reserve and all related documents,
all of which shall be in form and substance satisfactory to the Agents.
"Additional Collateral" shall mean all property (whether real or
personal) in which security interests are granted (or purported to be granted)
(and continue to be in effect at the time of determination) pursuant to Section
7.15 or 7.17.
"Additional Security Documents" shall mean all mortgages, pledge
agreements, security agreements and other security documents entered into
pursuant to Section 7.15 or 7.17 with respect to Additional Collateral.
"Adjusted Consolidated EBITDA" shall mean for any period the amount of
Consolidated EBITDA for such period plus Subscriber Acquisition Costs during
such period.
"Adjusted Consolidated Indebtedness" shall mean, as of any date, the
remainder of Consolidated Indebtedness minus the sum of (i) the amount, if any,
by which (x) the aggregate amount of NRTC Letter of Credit Outstandings related
to NRTC Letters of Credit exceeds (y) the aggregate amount owed as at such date
by the Borrower and its Subsidiaries to the NRTC under the NRTC Agreements and
(ii) the aggregate amount of Indebtedness of Holdings or any of its Subsidiaries
supported by any Letter of Credit.
"Adjusted Consolidated Interest Expense" for any period shall mean the
remainder of Consolidated Interest Expense for such period minus the amount of
interest paid on the Acceptable Subordinated Debt from Cash Interest Reserves
during such period.
"Adjusted Consolidated Senior Indebtedness" shall mean, as of any
date, the remainder of (i) Adjusted Consolidated Indebtedness minus (ii) the
remainder of (x) the aggregate outstanding principal amount of the Acceptable
Subordinated Debt over (y) the amount of Cash Interest Reserves.
"Administrative Agent" shall mean Fleet in its capacity as
Administrative Agent for the Banks hereunder, and shall include any successor to
the Administrative Agent appointed pursuant to Section 11.09.
"Affiliate" shall mean, with respect to any Person, any other Person
directly or indirectly controlling (including, but not limited, to all directors
<PAGE> 82
and officers of such Person), controlled by, or under direct or indirect common
control with, such Person; provided, however, that for purposes of Section 8.06,
an Affiliate of Holdings shall include any Person that directly or indirectly
(including through limited partner or general partner interests) owns more than
5% of any class of the capital stock of Holdings and for all purposes of this
Agreement, neither the Agents, the Collateral Agent, any Bank or any of their
respective Affiliates, shall be considered an Affiliate of Holdings or any of
its Subsidiaries. A Person shall be deemed to control another Person if such
Person possesses, directly or indirectly, the power to direct or cause the
direction of the management and policies of such other Person, whether through
the ownership of voting securities, by contract or otherwise.
"Affiliate Contracts" shall have the meaning provided in Section
4.05(viii).
"Agents" shall mean each of the Administrative Agent and the
Syndication Agent.
"Agreement" shall mean this Amended and Restated Credit Agreement, as
modified, supplemented, amended, amended and restated, extended or renewed from
time to time.
"Annualized Adjusted Consolidated EBITDA" for any fiscal quarter shall
mean (i) Consolidated EBITDA for such fiscal quarter plus Non-Capitalized
Subscriber Acquisition Costs for such fiscal quarter times four; less (ii)
Consolidated EBITDA for such fiscal quarter plus the Non-Capitalized Subscriber
Acquisition Costs for such fiscal quarter, in each case, related to the MDU
Business times four.
"Annualized Adjusted Consolidated Interest Expense" shall mean for any
fiscal quarter the product of (i) Adjusted Consolidated Interest Expense for
such fiscal quarter and (ii) four.
"Annualized Consolidated EBITDA" shall mean for any fiscal quarter the
product of (i) Consolidated EBITDA for such fiscal quarter and (ii) four.
"Applicable Base Rate Margin" shall mean a percentage per annum equal
to (i) in the case of Revolving Loans, 2.25% and (ii) in the case of Term Loans,
2.50%, in each case less the then applicable Leverage Reduction Discount, if
any.
"Applicable Eurodollar Rate Margin" shall mean a percentage per annum
equal to (i) in the case of Revolving Loans, 3.50% and (ii) in the case of Term
Loans, 3.75%, in each case less the then applicable Leverage Reduction Discount,
if any.
"Applicable Margin" shall mean the Applicable Base Rate Margin or the
Applicable Eurodollar Rate Margin, as the case may be.
"BancBoston" shall mean BancBoston Capital, acting through BancBoston
Ventures, Inc.
<PAGE> 83
"Bank" shall mean each financial institution listed on Schedule I, as
well as any institution which becomes a "Bank" hereunder pursuant to Section
12.04.
"Bank Default" shall mean (i) the refusal (which has not been
retracted) of a Bank to make available its portion of any Borrowing or to fund
its portion of any unreimbursed payment under Section 1A.04(c) or (ii) a Bank
having notified in writing to the Borrower and/or the Administrative Agent that
it does not intend to comply with its obligations under Section 1.01, including
in either case as a result of any takeover of such Bank by any regulatory
authority or agency.
"Bankruptcy Code" shall have the meaning provided in Section 9.05.
"Banque Paribas" shall mean Banque Paribas, a French banking
organization acting through its New York branch.
"Base Rate" shall mean the higher of (i) 1/2 of 1% in excess of the
Federal Funds Rate and (ii) the Prime Lending Rate.
"Base Rate Loan" shall mean any Loan designated or deemed designated
as such by the Borrower at the time of the incurrence thereof or conversion
thereto.
"Borrower" shall have the meaning provided in the first paragraph of
this Agreement.
"Borrower Common Stock" shall have the meaning provided in Section
6.14.
"Borrower/Subsidiary Pledge Agreement" shall mean the
Borrower/Subsidiary Pledge Agreement, dated as of July 7, 1997, between the
Borrower and the Collateral Agent, as amended, modified or supplemented from
time to time, including, without limitation, as supplemented by the Security
Documents Acknowledgment.
"Borrowing" shall mean the borrowing of one Type of Loan of a single
Tranche from all the Banks having Commitments with respect to such Tranche on a
pro rata basis on a given date (or resulting from a conversion or conversions on
such date) having in the case of Eurodollar Loans the same Interest Period;
provided that Base Rate Loans incurred pursuant to Section 1.10(b) shall be
considered part of the related Borrowing of Eurodollar Loans.
"Borrowing Base" shall mean, as at any date on which the amount
thereof is being determined, an amount equal to the remainder of (I) the product
of (x) the sum of (i) Qualified Paying Subscribers and (ii) to the extent the
Borrowing Base is being determined in connection with a Loan being made to
finance a Permitted Acquisition, Subscribers to be Acquired in connection with
such acquisition and (y) $1,200 until and including December 31, 1998, and
$1,100 thereafter minus (II) $15,000,000 in the case of Borrowings of Loans
incurred to finance Permitted Acquisitions, each as determined from the
Borrowing Base Certificate most recently delivered pursuant to Section 5.06.
<PAGE> 84
"Borrowing Base Certificate" shall have the meaning provided in
Section 5.06.
"Borrowing Base Deficiency" shall mean, at any time, the amount, if
any, by which (A) the sum of (x) the aggregate principal amount of outstanding
Revolving Loans and Term Loans at such time, (y) the aggregate amount of Letter
of Credit Outstandings at such time, and (z) the aggregate outstanding amount of
all other Net Adjusted Consolidated Indebtedness at such time exceeds (B) the
Borrowing Base at such time.
"Burr Egan" shall mean Burr, Egan, Deleage & Co., acting through Alta
Subordinated Debt Partners III, L.P., Alta Communications VI, L.P. and Alta Comm
S By S, LLC.
"Business Day" shall mean (i) for all purposes other than as covered
by clause (ii) below, any day except Saturday, Sunday and any day which shall be
in New York City or the State of Massachusetts a legal holiday or a day on which
banking institutions are authorized or required by law or other government
action to close and (ii) with respect to all notices and determinations in
connection with, and payments of principal and interest on, Eurodollar Loans,
any day which is a Business Day described in clause (i) above and which is also
a day for trading by and between banks in the New York interbank Eurodollar
market.
"Calculation Period" shall have the meaning provided in Section
7.15(a)(vi).
"Capital Expenditures" shall have the meaning provided in Section
8.07.
"Capital Lease," as applied to any Person, shall mean any lease of any
property (whether real, personal or mixed) by that Person as lessee which, in
conformity with generally accepted accounting principles, is accounted for as a
capital lease on the balance sheet of that Person.
"Capitalized Lease Obligations" of any Person shall mean all rental
obligations under Capital Leases, in each case taken at the amount thereof
accounted for as Indebtedness in accordance with generally accepted accounting
principles.
"Cash Equivalents" shall mean, as to any Person, (i) securities issued
or directly and fully guaranteed or insured by the United States or any agency
or instrumentality thereof (provided that the full faith and credit of the
United States is pledged in support thereof) having maturities of not more than
six months from the date of acquisition, (ii) time deposits and certificates of
deposit of any commercial bank organized under the laws of the United States,
any State thereof or the District of Columbia having, or which is the principal
banking subsidiary of a bank holding company organized under the laws of the
United States, any State thereof, or the District of Columbia having, capital,
surplus and undivided profits aggregating in excess of $200,000,000 and having a
<PAGE> 85
long-term unsecured debt rating of at least "A-" or the equivalent thereof from
Standard & Poor's Ratings Services ("S&P") or "A3" or the equivalent thereof
from Moody's Investors Service, Inc. ("Moody's"), with maturities of not more
than six months from the date of acquisition by such Person, (iii) repurchase
obligations with a term of not more than seven days for underlying securities of
the types described in clause (i) above entered into with any bank meeting the
qualifications specified in clause (ii) above, (iv) commercial paper issued by
any Person incorporated in the United States rated at least A-1 or the
equivalent thereof by S&P or at least P-1 or the equivalent thereof by Moody's
and in each case maturing not more than six months after the date of acquisition
by such Person, and (v) investments in money market funds substantially all of
whose assets are comprised of securities of the types described in clauses (i)
through (iv), inclusive, above.
"Cash Interest Reserve" shall mean cash proceeds from Acceptable
Subordinated Debt deposited by the Borrower into an escrow account with an
escrow agent, and pursuant to terms and conditions, acceptable to the Agents, to
be used solely to make interest payments on the Acceptable Subordinated Debt for
the number of interest payments required by the Acceptable Subordinated Debt
Documents.
"CERCLA" shall mean the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as the same may be amended from time to
time, 42 U.S.C. ss. 9601 et seq.
"Change in Control" means the occurrence of one or more of the
following: (i) the Investor Group and their Affiliates shall cease to have the
power to elect a majority of the Board of Directors of Holdings, (ii) the
Investor Group and their Affiliates shall cease to have record and beneficial
ownership of at least 66 2/3% of (a) the voting stock of Holdings and (b) 66
2/3% of all capital stock of Holdings (in each case assuming conversion and
exercise of all options, warrants and similar securities held by Persons other
than the Investor Group and their Affiliates) or (iii) Holdings ceases to own
100% of the Borrower Common Stock.
"Claims" shall have the meaning provided in the definition of
"Environmental Claims."
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and the regulations promulgated and the rulings issued thereunder.
Section references to the Code are to the Code, as in effect at the date of this
Agreement, and to any subsequent provision of the Code, amendatory thereof,
supplemental thereto or substituted therefor.
"Collateral" shall mean all property (whether real or personal) with
respect to which any security interests have been granted (or purport to be
granted) pursuant to any Security Document, including, without limitation, all
Pledge Agreement Collateral, all Security Agreement Collateral, all Additional
Collateral and all cash and Cash Equivalents delivered as collateral pursuant to
this Agreement or any other Credit Document.
<PAGE> 86
"Collateral Agent" shall mean the Administrative Agent acting as
collateral agent for the Secured Creditors pursuant to the Security Documents.
"Collateral Assignment of Marketing and Distribution Agreements" shall
mean the Collateral Assignment of Marketing and Distribution Agreements, dated
as of July 7, 1997, between the Borrower and the Collateral Agent as
acknowledged and agreed to by the NRTC and Hughes as amended, modified or
supplemented from time to time, including, without limitation, as supplemented
by the Security Documents Acknowledgment.
"Collective Bargaining Agreements" shall have the meaning provided in
Section 4.05(v).
"Commitment" shall mean, with respect to each Bank, such Bank's Term
Loan Commitment and Revolving Loan Commitment, if any.
"Commitment Commission" shall have the meaning provided in Section
2.01(a).
"Consolidated EBIT" shall mean, for any period, the Consolidated Net
Income before interest income, Consolidated Interest Expense and provision for
taxes and without giving effect to any extraordinary gains or gains or losses
from sales of assets.
"Consolidated EBITDA" for any period shall mean Consolidated EBIT,
adjusted by adding thereto the amount of all amortization of intangibles and
depreciation that were deducted in arriving at Consolidated Net Income for such
period.
"Consolidated Indebtedness" shall mean, at any time, all Indebtedness
of Holdings and its Subsidiaries determined on a consolidated basis excluding
all Indebtedness of the type described in clause (vii) of the definition
thereof, except to the extent amounts are owing with respect thereto upon the
termination of the respective agreement constituting such Indebtedness, plus any
original issue discount attributable to such Indebtedness that would be payable
at such time if such Indebtedness were to be or become due and payable.
"Consolidated Interest Expense" shall mean, for any period, the total
consolidated interest expense of Holdings and its Subsidiaries for such period
(calculated without regard to any limitations on the payment thereof) payable
during such period in respect of all Indebtedness of Holdings and its
Subsidiaries, on a consolidated basis, for such period (including, without
duplication, that portion of Capitalized Lease Obligations of Holdings and its
Subsidiaries representing the interest factor for such period).
"Consolidated Net Income" shall mean, for any period, the net income
of Holdings and its Subsidiaries for such period determined on a consolidated
basis (after provision for taxes); provided, however, the net income of any
Person, which is not a Subsidiary of Holdings but whose income is included in
the consolidated financial results of Holdings in accordance with GAAP, shall
have its net income included in the consolidated Net Income of Holdings and its
Subsidiaries only to the extent of the net income which Holdings would report in
accordance with GAAP.
<PAGE> 87
"Contingent Obligation" shall mean, as to any Person, any obligation
of such Person guaranteeing or intended to guarantee any Indebtedness, leases,
dividends or other obligations ("primary obligations") of any other Person (the
"primary obligor") in any manner, whether directly or indirectly, including,
without limitation, any obligation of such Person, whether or not contingent,
(i) to purchase any such primary obligation or any property constituting direct
or indirect security therefor, (ii) to advance or supply funds (x) for the
purchase or payment of any such primary obligation or (y) to maintain working
capital or equity capital of the primary obligor or otherwise to maintain the
net worth or solvency of the primary obligor, (iii) to purchase property,
securities or services primarily for the purpose of assuring the owner of any
such primary obligation of the ability of the primary obligor to make payment of
such primary obligation or (iv) otherwise to assure or hold harmless the holder
of such primary obligation against loss in respect thereof; provided, however,
that the term Contingent Obligation should not include endorsements of
instruments for deposit or collection in the ordinary course of business. The
amount of any Contingent Obligation shall be deemed to be an amount equal to the
stated or determinable amount of the primary obligation in respect of which such
Contingent Obligation is made or, if not stated or determinable, the maximum
reasonably anticipated liability in respect thereof (assuming such Person is
required to perform thereunder) as determined by such Person in good faith.
"Continuing Bank" shall mean each Existing Bank with a Commitment
under this Agreement (immediately upon giving effect to this Agreement on the
Restatement Effective Date).
"Contributed Equity" shall mean, at any time, the aggregate amount of
capital contributions to, and purchases of Holdings Capital Stock from, Holdings
which as of the date hereof is an amount equal to $87,488,000.
"Convertible Preferred Stock" shall mean Holdings Series A Convertible
Preferred Stock and Holdings Series B Convertible Preferred Stock.
"Credit Documents" shall mean, collectively, this Agreement and, once
executed and delivered pursuant to the terms of this Agreement (or previously
executed in connection with the Existing Credit Agreement), each Note, each
Notice of Borrowing, each Notice of Conversion, each Letter of Credit, each
Letter of Credit Request, the Subsidiaries Guaranty, each Security Document and
any letter agreements or other documents executed or delivered in connection
with any of the above, as the same may be modified, amended, extended, restated
or supplemented from time to time, except as released prior to or in accordance
with the execution of this Agreement.
"Credit Event" shall mean the making of any Loan or the issuance of
any Letter of Credit.
<PAGE> 88
"Credit Party" shall mean Holdings, the Borrower and each of its
Subsidiaries party to a Subsidiaries Guaranty.
"DBS Agreement" shall mean the DBS Agreement between NRTC and Hughes.
"Debt Agreements" shall have the meaning provided in Section 4.05(vi).
"Default" shall mean any event, act or condition which with notice or
lapse of time, or both, would constitute an Event of Default.
"Defaulting Bank" shall mean any Bank with respect to which a Bank
Default is then in effect.
"DirecTV" shall mean the direct broadcast satellite and programming
service available from DirecTV, a California corporation.
"DirecTV Market" shall mean any exclusive marketing rights from the
NRTC to the Borrower or any of its Subsidiaries to distribute satellite
television services provided by DirecTV.
"Dividend" with respect to any Person shall mean that such Person has
declared or paid a dividend or returned any equity capital to its stockholders
(including, without limitation, its preferred stockholders) or authorized or
made any other distribution, payment or delivery of property (other than common
stock of such Person) or cash to its stockholders in their capacity as
stockholders, or redeemed, retired, purchased or otherwise acquired, directly or
indirectly, for a consideration any shares of any class of its capital stock
outstanding on or after the Restatement Effective Date (or any options or
warrants issued by such Person with respect to its capital stock), or set aside
any funds for any of the foregoing purposes, or shall have permitted any of its
Subsidiaries to purchase or otherwise acquire for a consideration any shares of
any class of the capital stock of such Person outstanding on or after the
Restatement Effective Date (or any options or warrants issued by such Person
with respect to its capital stock). Without limiting the foregoing, "Dividends"
with respect to any Person shall also include all cash payments made or required
to be made by such Person with respect to any stock appreciation rights, equity
incentive plans or any similar plans or setting aside of any funds for the
foregoing purposes.
"Documentation Agent" shall mean GECC in its capacity as Documentation
Agent for the Banks hereunder.
"Documents" shall mean the Credit Documents, the Acceptable
Subordinated Debt Documents, if any, and the material documents entered into in
connection with any Permitted Acquisition.
"Dollars" and the sign "$" shall each mean freely transferable lawful
money of the United States.
<PAGE> 89
"Drawing" shall have the meaning provided in Section 1A.05(b).
"Eligible Transferee" shall mean and include a commercial bank,
financial institution, other "accredited investor" (as defined in Regulation D
of the Securities Act) other than individuals, or a "qualified institutional
buyer" as defined in Rule 144A of the Securities Act.
"Employee Benefit Plans" shall have the meaning provided in Section
4.05(i).
"Employment Agreements" shall have the meaning provided in Section
4.05)(iv).
"Environmental Claims" shall mean any and all administrative,
regulatory or judicial actions, suits, demands, demand letters, claims, liens,
notices of noncompliance or violation, investigations or proceedings relating in
any way to any violation of, or liability under, any Environmental Law or any
permit issued, or any approval given, under any such Environmental Law
(hereafter, "Claims"), including, without limitation, (a) any and all Claims by
governmental or regulatory authorities for enforcement, cleanup, removal,
response, remedial or other actions or damages pursuant to any applicable
Environmental Law, and (b) any and all Claims by any third party seeking
damages, contribution, indemnification, cost recovery, compensation or
injunctive relief resulting from Hazardous Materials arising from alleged injury
or threat of injury to health, safety or the environment.
"Environmental Law" shall mean any Federal, state, foreign or local
statute, law, rule, regulation, ordinance, code, policy and rule of common law
now or hereafter in effect (including, without limitation, the EPA guidance on
asbestos abatement and removal) and in each case as amended, and any judicial or
administrative interpretation thereof, including any judicial or administrative
order, consent decree or judgment, relating to the environment, health, safety
or Hazardous Materials, including, without limitation, CERCLA; RCRA; the Federal
Water Pollution Control Act, as amended, 33 U.S.C. ss. 1251 et seq.; the Toxic
Substances Control Act, 15 U.S.C. ss. 7401 et seq.; the Clean Air Act, 42 U.S.C.
ss. 7401 et seq.; the Safe Drinking Water Act, 42 U.S.C. ss. 3803 et seq.; the
Oil Pollution Act of 1990, 33 U.S.C. ss. 2701 et seq.; the Occupational Safety
and Health Act, 29 U.S.C. ss. 651 et seq.; and any applicable state and local or
foreign counterparts or equivalents.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations promulgated and rulings
issued thereunder. Section references to ERISA are to ERISA, as in effect at the
date of this Agreement, and to any subsequent provisions of ERISA, amendatory
thereof, supplemental thereto or substituted therefor.
"ERISA Affiliate" shall mean each person (as defined in Section 3(9)
of ERISA) which together with the Borrower or a Subsidiary of the Borrower would
<PAGE> 90
be deemed to be a "single employer" (i) within the meaning of Section 414(b),
(c), (m) or (o) of the Code or (ii) as a result of the Borrower or a Subsidiary
of the Borrower being or having been a general partner of such person.
"Eurodollar Loan" shall mean each Loan designated as such by a
Borrower at the time of the incurrence thereof or conversion thereto.
"Event of Default" shall have the meaning provided in Section 9.
"Excess Cash Flow" shall mean, for any period, the remainder of (i)
the sum of (a) Consolidated EBITDA for such period, (b) the amount of all
extraordinary cash gains realized by Holdings and its Subsidiaries during such
period, and (c) the amount of all interest income realized by Holdings and its
Subsidiaries during such period, minus (ii) the sum of (a) the amount of all
cash payments for any taxes made by Holdings and its Subsidiaries during such
period, (b) the amount of cash Capital Expenditures (to the extent not financed
by Indebtedness but not in excess of the amounts permitted pursuant to Section
8.07) made by Holdings and its Subsidiaries on a consolidated basis during such
period, (c) the amount of all extraordinary cash losses realized by Holdings and
its Subsidiaries during such period, (d) the amount of all interest and fee
payments (including any letter of credit fees and facing fees) relating to the
Indebtedness of Holdings and its Subsidiaries paid during such period, (e) the
amount of permanent principal payments of Indebtedness for borrowed money of
Holdings and its Subsidiaries (other than repayments of Loans); provided that
repayments of Loans shall be deducted in determining Excess Cash Flow if such
repayments were applied to Scheduled Repayments or repayments of Revolving Loans
arising as a result of prepayment with internally generated funds (but in the
case of a voluntary prepayment of Revolving Loans, only to the extent
accompanied by a voluntary reduction to the Total Revolving Loan Commitment)
during such period, and (f) the amount of cash expended in respect of Permitted
Acquisitions and the MDU Business during such period (to the extent not financed
with Indebtedness).
"Excess Cash Flow Payment Date" shall mean the date occurring 120 days
after the last day of each fiscal year of Holdings (beginning with its fiscal
year ended in 2000).
"Excess Cash Flow Payment Period" shall mean with respect to the
repayment required on each Excess Cash Flow Payment Date, the immediately
preceding fiscal year of Holdings.
"Excess Cash Flow Recapture Percentage" shall mean a percentage equal
to 75% or 50% in the event that at the time of a mandatory repayment in
accordance with Section 3.02(A)(e) there exists no Default or Event of Default
and the ratio of Consolidated Indebtedness as of the last day of the applicable
Excess Cash Flow Payment Period to Consolidated EBITDA for the four fiscal
quarters ending on the last day of the applicable Excess Cash Flow Payment
Period is equal to or less than 4.0x.
"Existing Bank" shall mean a Bank with a Commitment pursuant to the
Existing Credit Agreement.
<PAGE> 91
"Existing Credit Agreement" shall have the meaning provided in the
first WHEREAS clause hereof.
"Existing Indebtedness" shall have the meaning provided in Section
6.22.
"Existing Letter of Credit" shall have the meaning provided in Section
1A.01(b).
"Existing Loans" shall mean the Existing Term Loans and Existing
Revolving Loans.
"Existing Revolving Loans" shall mean the Revolving Loans incurred by
the Borrower pursuant to the Existing Credit Agreement.
"Existing Term Loans" shall mean the Term Loans incurred by the
Borrower pursuant to the Existing Credit Agreement.
"Facing Fee" shall have the meaning provided in Section 2.01(b).
"FCC Licenses" shall mean licenses necessary for DirecTV transmission
and distribution, if any.
"Federal Funds Rate" shall mean for any period, a fluctuating interest
rate equal for each day during such period to the weighted average of the rates
on overnight Federal Funds transactions with members of the Federal Reserve
System arranged by Federal Funds brokers, as published for such day (or, if such
day is not a Business Day, for the next preceding Business Day) by the Federal
Reserve Bank of New York, or, if such rate is not so published for any day which
is a Business Day, the average of the quotations for such day on such
transactions received by the Administrative Agent from three Federal Funds
brokers of recognized standing selected by the Administrative Agent.
"Fees" shall mean all amounts payable pursuant to or referred to in
Section 2.01.
"Fixed Charge Coverage Ratio" for any period shall mean the ratio of
(x) Consolidated EBITDA less the amount of all cash Capital Expenditures of the
Borrower or any of its Subsidiaries for such period (exclusive of Permitted
Acquisitions and MDU Investments) to (y) Fixed Charges for such period.
"Fixed Charges" for any period shall mean the sum of (i) Consolidated
Interest Expense for such period, plus (ii) the aggregate principal amount of
all scheduled repayments of Indebtedness (including the principal portion of
rentals under Capitalized Lease Obligations and including principal payments
<PAGE> 92
with respect to the Senior Seller Notes), plus (iii) taxes paid by Holdings and
its Subsidiaries for such period (including taxes paid during such period by the
Person or business, division or product line acquired by the Borrower or any of
its Subsidiaries pursuant to a Permitted Acquisition during such period but
excluding any taxes paid by such acquired Person or business, division or
product line prior to the date of its acquisition by the Borrower or any of its
Subsidiaries), and minus (iv) interest paid on Acceptable Subordinated Debt with
the Cash Interest Reserves.
"Fleet" shall mean Fleet National Bank, a national banking
association.
"GECC" shall mean General Electric Capital Corporation, a company
organized under the laws of the State of New York.
"Guaranties" shall mean and include the guaranty issued by Holdings
pursuant to Section 13 and each of the Subsidiary Guaranties executed by the
Subsidiaries of the Borrower.
"Guarantor" shall mean Holdings and each Subsidiary of the Borrower.
"HarbourVest" shall mean Hancock Venture Partners V-Direct Fund L.P.
"Hazardous Materials" means (a) petroleum or petroleum products,
radioactive materials, asbestos in any form that is or could become friable,
urea formaldehyde foam insulation, transformers or other equipment that contain,
dielectric fluid containing levels of polychlorinated biphenyls, and radon gas;
(b) any chemicals, materials or substances defined as or included in the
definition of "hazardous substances," "hazardous waste," "hazardous materials,"
"extremely hazardous waste," "restricted hazardous waste," "toxic substances,"
"toxic pollutants," "contaminants," or "pollutants," or words of similar meaning
and regulatory effect, under any applicable Environmental Law; and (c) any other
chemical, material or substance, exposure to which is prohibited, limited or
regulated under applicable Environmental Laws.
"Holdings" shall have the meaning provided in the first paragraph of
this Agreement.
"Holdings Capital Stock" shall mean Holdings Common Stock, Convertible
Preferred Stock, Redeemable Preferred Stock and Holdings Undesignated Preferred
Stock.
"Holdings Common Stock" shall have the meaning provided in Section
6.14.
"Holdings Pledge Agreement" shall have the meaning provided in Section
4.09.
"Holdings Series A Convertible Preferred Stock" shall have the meaning
provided in Section 6.14.
<PAGE> 93
"Holdings Series A Redeemable Preferred Stock" shall have the meaning
provided in Section 6.14.
"Holdings Series B Convertible Preferred Stock" shall have the meaning
provided in Section 6.14.
"Holdings Series B Redeemable Preferred Stock" shall have the meaning
provided in Section 6.14.
"Holdings Undesignated Preferred Stock" shall have the meaning
provided in Section 6.14.
"Hughes" shall mean Hughes Communications Galaxy, Inc.
"Indebtedness" shall mean, as to any Person, without duplication, (i)
all indebtedness (including principal, interest, fees and charges) of such
Person for borrowed money or for the deferred purchase price of property or
services other than trade payables and accrued expenses arising in the ordinary
course of business, (ii) the maximum amount available to be drawn under all
letters of credit issued for the account of such Person and all unpaid drawings
in respect of such letters of credit, (iii) all Indebtedness of the types
described in clause (i), (ii), (iv), (v), (vi) or (vii) of this definition
secured by any Lien on any property owned by such Person, whether or not such
Indebtedness has been assumed by such Person, (iv) all Capitalized Lease
Obligations of such Person, (v) all obligations of such Person to pay a
specified purchase price for goods or services, whether or not delivered or
accepted, i.e., take-or-pay and similar obligations, (vi) all Contingent
Obligations of such Person, and (vii) all obligations under any Interest Rate
Protection or Other Hedging Agreement or under any similar type of agreement
entered into with a Person not a Bank.
"Indemnified Matters" shall have the meaning provided in Section
12.01.
"Indemnitees" shall have the meaning provided in Section 12.01.
"Intellectual Property" shall have the meaning provided in Section
6.21.
"Interest Determination Date" shall mean, with respect to any
Eurodollar Loan, the second Business Day prior to the commencement of any
Interest Period relating to such Eurodollar Loan.
"Interest Period" shall have the meaning provided in Section 1.09.
"Interest Rate Protection or Other Hedging Agreements" shall have the
meaning provided in the Security Documents.
"Investor Group" shall mean Burr Egan, Spectrum, BancBoston, Norwest
and HarbourVest.
<PAGE> 94
"Issuing Bank" shall mean Fleet and any Bank which at the request of
the Borrower agrees, in such Bank's sole discretion, to become an Issuing Bank
for the purpose of issuing Letters of Credit pursuant to Section 1A.
"L/C Supportable Indebtedness" shall mean (i) obligations of the
Borrower or any of its Subsidiaries incurred in the ordinary course of business
with respect to workers compensation, surety bonds and other similar statutory
obligations, (ii) the NRTC L/C Obligation, (iii) Permitted Seller Notes and (iv)
such other obligations of the Borrower or any of its Subsidiaries as are
reasonably acceptable to the Issuing Bank and otherwise permitted to exist
pursuant to the terms of this Agreement.
"Leaseholds" of any Person means all the right, title and interest of
such Person as lessee or licensee in, to and under leases or licenses of land,
improvements and/or fixtures.
"Letter of Credit" shall have the meaning provided in Section
1A.01(a).
"Letter of Credit Cash Collateral Account" shall have the meaning
provided in Section 3.02(A)(a).
"Letter of Credit Fee" shall have the meaning provided in Section
2.01(c).
"Letter of Credit Outstandings" shall mean, at any time, the sum of
(i) the aggregate Stated Amount of all outstanding Letters of Credit and (ii)
the amount of all Unpaid Drawings.
"Letter of Credit Request" shall have the meaning provided in Section
1A.03(a).
"Leverage Reduction Discount" shall mean as follows:
(i) on the Restatement Effective Date and during any period in which
clause (ii) or (iii) below, as the case may be, does not apply, the
Leverage Reduction Discount shall be 0%;
(ii) in the case of Revolving Loans, from and after the Start Date to
and including the End Date and subject to (iv) below, the following
percentage, to the extent but only to the extent that as of the last day of
the most recent fiscal quarter ending immediately prior to such Start Date
for which a certificate has been delivered to the Banks pursuant to the
next succeeding sentence hereinafter the ratio of Net Adjusted Consolidated
Indebtedness as of the most recent fiscal quarter ending immediately prior
to such Start Date to Annualized Consolidated EBITDA for such fiscal
quarter shall be as set forth below:
Net Adjusted
Consolidated Indebtedness to
Percentage Annualized Consolidated EBITDA
.25% less than 7:1 but greater than or equal to
6:1
.75% less than 6:1 but greater than or equal to
5:1
1.00% less than 5:1 but greater than or equal to
4:1
1.50% less than 4:1;
(iii) in the case of Term Loans, from and after the Start Date to and
including the End Date and subject to (iv) below, .75%, to the extent but
only to the extent that as of the last day of each of the two most recent
fiscal quarters ending immediately prior to such Start Date for which a
certificate has been delivered to the Banks pursuant to the next succeeding
sentence hereinafter the ratio of Net Adjusted Consolidated Indebtedness at
the end of each of such fiscal quarters to Annualized Consolidated EBITDA
for each of such two fiscal quarters (including the quarter with respect to
which the certificate referred to below is being delivered) shall be less
than or equal to 6:1; and
(iv) notwithstanding (ii) and (iii) above, if at any time (a) a
Default or Event of Default shall exist, or (b) the Consolidated EBITDA for
the most recent fiscal quarter shall be less than or equal to zero, the
Leverage Reduction Discount shall be 0%.
The Leverage Reduction Discount shall be determined by the delivery of a
certificate of the Borrower, certified by the Chief Financial Officer of the
Borrower, together with the financial statements required to be delivered
pursuant to Section 7.01(b) or (c), as the case may be, which certificate shall
set forth the Leverage Reduction Discount arising from the calculation of the
ratio of Net Adjusted Consolidated Indebtedness to Annualized Consolidated
EBITDA of the Borrower for the fiscal quarter or quarters, as the case may be,
ending with the fiscal quarter or fiscal year with respect to which such
certificate is being delivered and the basis for such calculations. The Leverage
Reduction Discount so determined shall apply, except as set forth above, to the
period beginning on the date such financial statements are delivered and ending
on the earlier of (the "End Date") (i) the next date of actual delivery of the
financial statements required to be delivered pursuant to Section 7.01(b) or (c)
or (ii) the date on which such financial statements are required to be delivered
(the day of delivery of such financial statements on which such period commences
being herein referred to as the "Start Date").
"Lien" shall mean any mortgage, pledge, hypothecation, assignment,
deposit arrangement, encumbrance, lien (statutory or other), preference,
priority or other security agreement of any kind or nature whatsoever
<PAGE> 95
(including, without limitation, any conditional sale or other title retention
agreement, any financing or similar statement or notice filed under the UCC or
any other similar recording or notice statute, and any lease having
substantially the same effect as any of the foregoing).
"Loan" shall mean each Term Loan and each Revolving Loan.
"Management Agreements" shall have the meaning provided in Section
4.05(iii).
"Managing Agent" shall mean each of Banque Paribas and Fleet in their
capacity as Managing Agents for the Banks hereunder.
"Margin Stock" shall have the meaning provided in Regulation U.
"Material Contracts" shall have the meaning provided in Section
4.05(ix).
"Maturity Date" with respect to a Tranche shall mean either the Term
Loan Maturity Date or the Revolving Loan Maturity Date, as the case may be.
"MDU Business" shall mean the business of the Borrower relating to the
installation of DirecTV services in multiple unit dwellings containing from four
(4) units to 200 units to the extent same is conducted outside of areas in which
the Borrower has exclusive NRTC franchises.
"MDU Investments" shall have the meaning provided in Section 8.21.
"Minimum Borrowing Amount" shall mean (i) for Term Loans, $5,000,000,
and (ii) for Revolving Loans, (a) $1,000,000 in the case of Eurodollar Loans and
(b) $500,000 in the case of Base Rate Loans.
"Moody's" shall have the meaning provided in the definition of "Cash
Equivalents."
"Net Adjusted Consolidated Indebtedness" shall mean the remainder of
Adjusted Consolidated Indebtedness minus Cash Interest Reserves.
"Net Sale Proceeds" shall mean for any sale of assets, the gross cash
proceeds (including any cash received by way of deferred payment pursuant to a
promissory note, receivable or otherwise, but only as and when received)
received from such sale, net of reasonable transaction costs (including, without
limitation, attorneys' fees), the amount of such gross cash proceeds required to
be used to permanently repay any Indebtedness which is secured by the respective
assets which were sold, and the estimated marginal increase in income taxes
which will be payable by the Borrower's consolidated group as a result of such
sale.
<PAGE> 96
"Net Subscriber Acquisition Cost" shall mean for any period the
product of (x) Subscriber Acquisition Costs for such period divided by (y) Net
Subscribers for such period.
"Net Subscribers" shall mean for any period the number of new DirecTV
subscribers of the Borrower or any of its Subsidiaries added (excluding DirecTV
subscribers acquired through Permitted Acquisitions and excluding subscribers to
the MDU Business) during such period less DirecTV subscribers of the Borrower or
any of its Subsidiaries disconnected during such period.
"New Banks" shall mean each of the Persons listed on Schedule I hereto
that is not a Continuing Bank.
"Non-Capitalized Subscriber Acquisition Costs" shall mean for any
period (I) Subscriber Acquisition Costs minus (II) the remainder of (X) the
amount of the Borrower's and its Subsidiaries' cost of equipment and products,
over (Y) the Borrower's and its Subsidiaries' equipment revenue, in each case
for such period.
"Non-Continuing Bank" shall mean each Existing Bank that is not a
Continuing Bank.
"Norwest" shall mean Norwest Equity Partners V.
"Note" shall mean each Term Note and each Revolving Note.
"Notice of Borrowing" shall have the meaning provided in Section
1.03(a).
"Notice of Conversion" shall have the meaning provided in Section
1.06.
"Notice Office" shall mean the office of the Administrative Agent
located at Mail Stop MA0FD03D, 1 Federal Street, Boston, MA 02110, Attention:
Christopher A. Swindell or such other office as the Administrative Agent may
hereafter designate in writing as such to the other parties hereto.
"NRTC" shall mean the National Rural Telecommunications Cooperative.
"NRTC Agreements" shall mean the agreements set forth on Schedule VI.
"NRTC L/C Obligation" shall mean the Borrower's obligation, from time
to time, to post one or more letters of credit for the benefit of the NRTC in an
amount equal to three times the Borrower's subscriber billings for the one month
during the six full months immediately preceding the date of the issuance of the
NRTC Letter of Credit in which such subscriber billings were greatest.
"NRTC Letter of Credit" shall have the meaning provided in Section
1A.01.
<PAGE> 97
"Obligations" shall mean all amounts owing to the Agents, the
Collateral Agent or any Bank pursuant to the terms of this Agreement or any
other Credit Document.
"Original Effective Date" shall mean the Effective Date under, and as
defined in, the Existing Credit Agreement.
"Participant" shall have the meaning provided in Section 1A.04(a).
"Partnership Pledge Agreement" shall have the meaning provided in
Section 4.09.
"Payment Office" shall mean the office of the Administrative Agent
located at Mail Stop MA0FD03D, 1 Federal Street, Boston, MA 02110, Attention:
Deborah Burke or such other office as the Administrative Agent may hereafter
designate in writing as such to the other parties hereto.
"PBGC" shall mean the Pension Benefit Guaranty Corporation established
pursuant to Section 4002 of ERISA, or any successor thereto.
"Pension Plan Refund" shall mean any cash payments received by the
Borrower or any of its Subsidiaries upon the termination of any Plan as a rebate
or refunding relating to any such Plan unless such payments are used to fund a
replacement plan in accordance with Section 4980 of the Code.
"Percentage" of any Bank at any time shall mean a fraction (expressed
as a percentage) the numerator of which is the Revolving Loan Commitment of such
Bank at such time and the denominator of which is the Total Revolving Loan
Commitment at such time; provided that if the Percentage of any Bank is to be
determined after the Total Revolving Loan Commitment has been terminated, then
the Percentages of the Banks shall be determined immediately prior (and without
giving effect) to such termination.
"Permitted Acquisition" shall mean the acquisition by the Borrower or
any of its Subsidiaries of DirecTV Markets (excluding franchises relating to the
MDU Business), although any such acquisition shall only be a Permitted
Acquisition so long as (A) the consideration therefor consists solely of the
proceeds of the Loans, proceeds of Acceptable Subordinated Debt, issuances of
Holdings Common Stock, Seller Preferred Stock, Permitted Seller Notes or amounts
in the Permitted Acquisition Cash Collateral Account and (B) the Agents shall be
satisfied that the aggregate purchase price for any single acquisition does not
exceed the greater of (x) $2,000 per Subscriber to be Acquired or (y) $150 per
household in the acquired franchise area. Notwithstanding anything to the
contrary contained in the immediately preceding sentence, an acquisition shall
be a Permitted Acquisition only if all requirements of Section 7.15 with respect
to Permitted Acquisitions are met with respect thereto.
<PAGE> 98
"Permitted Acquisition Cash Collateral Account" shall mean a cash
collateral account to be maintained with the Collateral Agent pursuant to a cash
collateral agreement in form and substance satisfactory to the Collateral Agent
into which, so long as at the time of any sale of assets by the Borrower or any
of its Subsidiaries or sale of equity there shall not exist a Default or Event
of Default, shall be deposited (i) cash proceeds from any such sale of assets
which shall be earmarked by the Borrower for a Permitted Acquisition to be made
in accordance with Section 7.15 and (ii) proceeds of equity issuances permitted
to be deposited in accordance with Section 3.02(B)(b)(ii).
"Permitted Acquisition Cash Collateralized Amounts" shall mean all
amounts held by the Collateral Agent in the Permitted Acquisition Cash
Collateral Account.
"Permitted Acquisition Notice" shall have the meaning provided in
Section 7.15(a)(ii).
"Permitted Business" shall mean the business of operating DirecTV
Franchises excluding the MDU Business.
"Permitted Liens" shall have the meaning provided in Section 8.01.
"Permitted Seller Notes" shall mean (i) Seller Notes supported by a
Letter of Credit and (ii) all other Seller Notes so long as the outstanding
aggregate principal amount of all such other Seller Notes issued after the
Restatement Effective Date does not exceed $5,000,000 at any time.
"Person" shall mean any individual, partnership, joint venture, firm,
corporation, association, trust or other enterprise or any government or
political subdivision or any agency, department or instrumentality thereof.
"Plan" shall mean any pension plan, as defined in Section 3(2) of
ERISA, which is maintained or contributed to by (or to which there is an
obligation to contribute of) the Borrower, a Subsidiary of the Borrower or an
ERISA Affiliate, and each such plan for the five year period immediately
following the latest date on which the Borrower, a Subsidiary of the Borrower or
an ERISA Affiliate maintained, contributed to or had an obligation to contribute
to such plan.
"Pledge Agreement Collateral" shall mean all "Collateral" as defined
in the Pledge Agreements.
"Pledge Agreements" shall mean the Holdings Pledge Agreement, the
Partnership Pledge Agreement and the Borrower/Subsidiary Pledge Agreement.
"Pledged Securities" shall have the meaning assigned that term in the
applicable Pledge Agreement.
<PAGE> 99
"Prime Lending Rate" shall mean the rate which Fleet announces from
time to time as its prime lending rate, the Prime Lending Rate to change when
and as such prime lending rate changes. The Prime Lending Rate is a reference
rate and does not necessarily represent the lowest or best rate actually charged
to any customer by Banque Paribas or Fleet, who may make commercial loans or
other loans at rates of interest at, above or below the Prime Lending Rate.
"Pro Forma Annualized Adjusted Consolidated EBITDA" for any fiscal
quarter shall mean (i) Consolidated EBITDA for such fiscal quarter calculated on
a Pro Forma Basis plus the non-capitalized Subscriber Acquisition Costs for such
fiscal quarter times four; less (ii) Consolidated EBITDA for such fiscal quarter
calculated on a Pro Forma Basis plus the non-capitalized Subscriber Acquisition
Costs for such fiscal quarter, in each case, related to the MDU Business times
four.
"Pro Forma Annualized Consolidated EBITDA" shall mean for any fiscal
quarter the product of (i) the Consolidated EBITDA for such fiscal quarter
calculated on a Pro Forma Basis and (ii) four.
"Pro Forma Basis" shall mean, (a) with respect to any Permitted
Acquisition, the calculation of the consolidated results of Holdings and its
Subsidiaries otherwise determined in accordance with this Agreement as if the
respective Permitted Acquisition (and all other Permitted Acquisitions
consummated during the respective Calculation Period or thereafter and prior to
the date of determination pursuant to Section 7.15 or other applicable provision
of this Agreement) had been effected on the first day of the respective
calculation period and (b) with respect to the determination of Consolidated
EBITDA calculated on a Pro Forma Basis, the calculation of the consolidated
results of Holdings and its Subsidiaries otherwise determined in accordance with
this Agreement as if all Permitted Acquisitions consummated during the period
for which Consolidated EBITDA calculated on a Pro Forma Basis is being
determined had been effected on the first day of the respective period; provided
that all calculations shall take into account the following assumptions:
(i) (x) with respect to the determinations made for Permitted
Acquisitions in accordance with clause (a) above, if any Indebtedness is
incurred pursuant to the respective Permitted Acquisition (or was incurred
in any other Permitted Acquisition which occurred during the relevant
Calculation Period or thereafter and prior to the date of determination)
then all such Indebtedness shall be deemed to have been outstanding from
the first day of the respective Calculation Period (and the interest
expense associated with such Indebtedness, shall be determined at the
actual rates applicable thereto or which would have been applicable had
such debt been outstanding for the whole such period and shall be included
in determining Consolidated Interest Expense on such Pro Forma Basis) and
all Indebtedness that was outstanding during the Calculation Period or
thereafter and prior to the date of the Permitted Acquisition but not
outstanding on the date of the Permitted Acquisition shall be deemed to
have been repaid in full on the first day of the Calculation Period and (y)
with respect to any determinations made of Consolidated EBITDA calculated
on a Pro Forma Basis in accordance with clause (b) above, the maximum
amount of Indebtedness outstanding during the two-week period
<PAGE> 100
immediately preceding the date of determination shall be deemed to be
outstanding from the first day of the relevant period (and the Interest
Expense associated with such Indebtedness shall be determined at the actual
rates applicable thereto or which would have been applicable had such debt
been outstanding for the whole such period and shall be included in
determining Adjusted Consolidated Interest Expense for such period on such
Pro Forma Basis); and
(ii) all calculations of Consolidated EBITDA (and the other components
of the definition of Consolidated EBITDA included therein) shall include
only the Consolidated EBITDA of Holdings and its Subsidiaries (and the
other components of the definition of Consolidated EBITDA included therein)
during the relevant Calculation Period or period, as the case may be, and
shall not include any Consolidated EBITDA (or other components) of the
Person or business, division or product line being acquired pursuant to the
Permitted Acquisition or acquired during the period of determination
(except for the Consolidated EBITDA of such Person or business, division or
product line generated after the date of such acquisition) unless either
(x) such Consolidated EBITDA of the Person or business, division or product
line being acquired has been audited for the entire Calculation Period (or
the period prior to acquisition) by any of the "big six" or (y) in the case
of calculations based on unaudited financial statements, the Agents shall
be reasonably satisfied with the amounts of Consolidated EBITDA (and the
other components) of such Person or business, division or product line
being acquired pursuant to the respective Permitted Acquisition (or
acquired during the period of determination).
"Projections" shall have the meaning provided in Section 4.17(b).
"Qualified Paying Subscribers" shall mean all subscribers (other than
subscribers to the MDU Business) of the Borrower or any of its Subsidiaries to
DirecTV that are located in the Borrower's and its Subsidiaries' DirecTV Market
areas and who have paid all amounts due to the Borrower or any of its
Subsidiaries within sixty (60) days of the initial due date thereof.
"Quarterly Payment Date" shall mean the last Business Day of each
March, June, September and December of each calendar year.
"Quoted Rate" shall mean (a) the quotation offered to the
Administrative Agent in the New York interbank Eurodollar market for U.S. dollar
deposits of amounts in immediately available funds comparable to the outstanding
principal amount of the Eurodollar Loan of the Administrative Agent for which an
interest rate is then being determined with maturities comparable to the
Interest Period applicable to such Eurodollar Loan as determined by the
Administrative Agent's Treasury Funding Management on the date which is two (2)
Business Days prior to the commencement of such Interest Period, divided (and
rounded upward to the next whole multiple of 1/16 of 1%) by (b) a percentage
equal to the remainder of 100% minus the then stated maximum rate of all reserve
requirements (including, without limitation, any marginal, emergency,
supplemental, special or other reserves) applicable to any member bank of the
<PAGE> 101
Federal Reserve System in respect of Eurocurrency funding or liabilities as
defined in Regulation D (or any successor category of liabilities under
Regulation D).
"RCRA" shall mean the Resource Conservation and Recovery Act, as the
same may be amended from time to time, 42 U.S.C. ss. 6901 et seq.
"Real Property" of any Person shall mean all the right, title and
interest of such Person in and to land, improvements and fixtures, including
Leaseholds.
"Recovery Event" shall mean the receipt by Holdings or any Subsidiary
of Holdings of any cash insurance proceeds from key-man life insurance or
liability insurance or insurance payable by reason of theft, physical
destruction or damage or any other similar event with respect to any properties
or assets of Holdings or any Subsidiary of Holdings (including, without
limitation, business interruption insurance).
"Redeemable Preferred Stock" shall mean Holdings Series A Redeemable
Preferred Stock and Holdings Series B Redeemable Preferred Stock.
"Register" shall have its meaning provided in Section 7.16.
"Regulation D" shall mean Regulation D of the Board of Governors of
the Federal Reserve System as from time to time in effect and any successor to
all or a portion thereof establishing reserve requirements.
"Regulation G" shall mean Regulation G of the Board of Governors of
the Federal Reserve System as from time to time in effect and any successor to
all or a portion thereof.
"Regulation T" shall mean Regulation T of the Board of Governors of
the Federal Reserve System as from time to time in effect and any successor to
all or a portion thereof.
"Regulation U" shall mean Regulation U of the Board of Governors of
the Federal Reserve System as from time to time in effect and any successor to
all or a portion thereof.
"Regulation X" shall mean Regulation X of the Board of Governors of
the Federal Reserve System as from time to time in effect and any successor to
all or a portion thereof.
"Related Fund" shall mean, with respect to any Bank that is a fund
that invests in Loans, any other fund that invests in Loans and is managed by
the same investment advisor as such Bank or by an Affiliate of such investment
advisor.
<PAGE> 102
"Release" means disposing, discharging, injecting, spilling, pumping,
leaking, leaching, dumping, emitting, escaping, emptying, seeping, placing,
pouring and the like, into or upon any land or water or air, or otherwise
entering into the environment.
"Reorganization Transaction" shall mean the reorganization transaction
of the Borrower pursuant to which all of the holders of capital stock of the
Borrower exchanged (whether by exchange agreement, merger or otherwise) their
interests in the Borrower for equivalent interests in Holdings, all of whose
assets consist of 100% of the capital stock of the Borrower.
"Reorganization Transaction Documents" shall mean (i) the Agreement
and Plan of Merger, dated September 9, 1997, between the Borrower, Holdings and
GSS Mergersub Inc., (ii) various consents of the shareholders and directors of
the Borrower, (iii) the unanimous written consent of the directors of Holdings,
(iv) the written consent of the sole director of GSS Mergersub Inc. and (v) all
other documents entered into or delivered in connection with said agreements or
the Reorganization Transaction.
"Replaced Bank" shall have the meaning provided in Section 1.12.
"Replacement Bank" shall have the meaning provided in Section 1.12.
"Reportable Event" shall mean an event described in Section 4043(c) of
ERISA with respect to a Plan that is subject to Title IV of ERISA other than
those events as to which the 30-day notice period is waived under subsection
.22, .23, .25, .27, or .28 of PBGC Regulation Section 4043.
"Required Banks" shall mean Banks the sum of whose outstanding Term
Loans and Revolving Loan Commitments (or after the termination thereof, the sum
of outstanding Revolving Loans and Letter of Credit Outstandings), represent an
amount equal to or greater than 66.6% of the sum of all outstanding Term Loans
and the Total Revolving Loan Commitment (or after the termination thereof, the
sum of the then total outstanding Revolving Loans and Letter of Credit
Outstandings).
"Required Revolving Banks" shall mean Banks, the sum of whose
outstanding Revolving Loan Commitments represent an amount greater than 66.6% of
the Total Revolving Loan Commitment or after termination of such Commitments,
Banks, the sum of whose outstanding Revolving Loans and Letter of Credit
Outstandings represent an amount greater than 66.6% of the total outstanding
Revolving Loans and Letter of Credit Outstandings.
"Required Term Banks" shall mean Banks the sum of whose outstanding
Term Loans represent an amount greater than 66.6% of all outstanding Term Loans
made by all Banks.
"Restatement Effective Date" shall have the meaning provided in
Section 12.10.
<PAGE> 103
"Returns" shall have the meaning provided in Section 6.09.
"Revolving Facility" shall mean the facility evidenced by the Total
Revolving Loan Commitment.
"Revolving Loan Commitment" shall mean, for each Bank, the amount set
forth opposite such Bank's name on Schedule I hereto directly below the column
entitled "Revolving Loan Commitment," as same may be (x) reduced or terminated
from time to time pursuant to Sections 2.02, 2.03, 3.02 and/or 9 or (y) adjusted
from time to time as a result of assignments to or from such Bank pursuant to
Section 1.12 or 12.04.
"Revolving Loan Conversion" shall have the meaning provided in Section
1.01(b).
"Revolving Loan Maturity Date" shall mean June 30, 2004
"Revolving Loans" shall have the meaning provided in Section 1.01(b).
"Revolving Note" shall have the meaning provided in Section
1.05(a)(ii).
"Rocky Mountain Note" shall mean the Promissory Note dated May 1,
1997, issued by the Borrower to Western Montana DBS, Inc. d/b/a Rocky Mountain
DBS in the amount of $2,350,000.
"S&P" shall have the meaning provided in the definition of "Cash
Equivalents."
"Scheduled Repayment" shall have the meaning provided in Section
3.02(A)(c).
"Scheduled Revolving Loan Commitment Reduction" shall have the meaning
provided in Section 2.03(e).
"Scheduled Revolving Loan Commitment Reduction Date" shall have the
meaning provided in Section 2.03(e).
"SEC" shall have the meaning provided in Section 7.01(h).
"Section 3.04(b)(ii) Certificate" shall have the meaning provided in
Section 3.04(b)(ii).
"Secured Creditors" shall mean (x) the Banks, the Agents, the
Collateral Agent and (y) any Bank which on the date hereof is, or subsequently
becomes, party to any Interest Rate Protection or Other Hedging Agreement.
"Securities Act" shall mean the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
<PAGE> 104
"Security Agreement" shall mean the Security Agreement, dated as of
July 7, 1997, between the Borrower and the Collateral Agent, as amended,
modified or supplemented from time to time, including as supplemented by the
Security Documents Acknowledgment.
"Security Agreement Collateral" shall mean all "Collateral" as defined
in the Security Agreement.
"Security Documents" shall mean the Pledge Agreements, the Security
Agreement, the Collateral Assignment of Marketing and Distribution Agreements,
each Additional Security Document, the Security Documents Acknowledgment and the
agreements relating to the Letter of Credit Cash Collateral Account and the
Permitted Acquisition Cash Collateral Account.
"Security Document Acknowledgment and Consent" shall have the meaning
provided in Section 4.10.
"Seller Notes" shall mean notes issued by Holdings to sellers of
DirecTV Markets in a Permitted Acquisition and issued in accordance with Section
7.15, which notes (other than those notes supported by a Letter of Credit) shall
be fully subordinated to the Obligations and obligations under Interest Rate
Protection or Other Hedging Agreements, and all such notes shall otherwise be in
form and substance satisfactory to the Agents.
"Seller Preferred Stock" shall mean preferred stock issued by Holdings
which preferred stock, so long as this Agreement (as the same may be amended,
modified, extended, renewed, replaced, restated, supplemented, restructured or
refinanced from time to time) remains outstanding, shall not permit mandatory
redemptions, shall not contain sinking fund or similar requirements, shall pay
no cash dividends and shall have no covenants that differ in any material
respect from the covenants contained in the Convertible Preferred Stock, and is
otherwise acceptable in all respects to the Agents.
"Senior Seller Notes" shall mean (i) the Rocky Mountain Note, (ii) the
TEG Note and (iii) the Western Montana Note.
"Shareholder" shall mean any holder of issued and outstanding Borrower
Capital Stock.
"Shareholders' Agreements" shall have the meaning provided in Section
4.05(ii).
"Spectrum" shall mean Spectrum Equity Investors, acting through
Spectrum Equity Investors L.P. and Spectrum Equity Investors II L.P.
"Start Date" shall have the meaning provided in the definition of
"Leverage Reduction Discount."
<PAGE> 105
"Stated Amount" of each Letter of Credit shall, at any time, mean the
maximum amount available to be drawn thereunder at such time (in each case
determined without regard to whether any conditions to drawing could then be
met).
"Subscriber Acquisition Costs" shall mean for any period the remainder
of (I) the sum of (a) the amount of all payroll expenses of Holdings and its
Subsidiaries for such period in respect of employees or agents engaged primarily
in sales and marketing, (b) the amount of all sales commissions paid by the
Borrower and its Subsidiaries during such period to employees or agents for
services and/or equipment sold, (c) the amount of all expenses paid by the
Borrower and its Subsidiaries during such period for marketing and promotional
activities conducted by the Borrower and its Subsidiaries to promote services
and products, and (d) the excess, if any, of (i) the sum of (x) the amount equal
to the Borrower's and its Subsidiaries' cost of equipment and products and (y)
the amount equal to the Borrower's and its Subsidiaries' expenses incurred in
generating installation revenue, minus (ii) the Borrower's and its Subsidiaries'
equipment and installation revenue for such period minus (II) Subscriber
Acquisition Costs relating to the MDU Business.
"Subscribers to be Acquired" shall mean, in connection with any
Permitted Acquisition, the number of subscribers to DirecTV service to be
acquired as such number shall be certified to the Banks in the Permitted
Acquisition Notice.
"Subsidiaries Guaranty" shall have the meaning provided in Section
4.08.
"Subsidiary" shall mean, as to any Person, (i) any corporation more
than 50% of whose stock of any class or classes having by the terms thereof
ordinary voting power to elect a majority of the directors of such corporation
(irrespective of whether or not at the time stock of any class or classes of
such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time owned by such Person and/or one or
more Subsidiaries of such Person, (ii) any partnership, association, joint
venture or other entity in which such Person and/or one or more Subsidiaries of
such Person has more than a 50% equity interest at the time and (iii) any
partnership or limited liability company in which such Person is the general
partner or manager.
"Subsidiary Guarantor" shall mean each Subsidiary (other than South
Plains DBS Limited Partnership and DCE Satellite Entertainment, LLC, in each
case so long as (i) neither such partnership nor such limited liability company
is a Wholly-Owned Subsidiary of the Borrower and (ii) the Borrower or one of its
Subsidiaries does not own a sufficient equity interest in such partnership or
sufficient membership interests in such limited liability company to require
such partnership or limited liability company, as the case may be, to act
otherwise) of the Borrower.
"Syndication Agent" shall mean Banque Paribas in its capacity as
Syndication Agent for the Banks hereunder, and shall include any successor to
the Syndication Agent appointed pursuant to Section 11.09.
<PAGE> 106
"Syndication Termination Date" shall mean the earlier of (x) 120 days
after the Restatement Effective Date or (y) the date on which the Agents and the
Documentation Agent, in their sole discretion, determines (and notifies the
Borrower and the other Banks) that the primary syndication (and the resultant
addition of institutions as Banks pursuant to Section 12.04) has been completed.
"Tax Refund" shall mean any cash payment received by Holdings or any
of its Subsidiaries as a rebate or refund relating to any federal, state or
local income taxes paid by Holdings or any of its Subsidiaries or with respect
to the assets or properties of Holdings or any of its Subsidiaries.
"Tax Sharing Agreements" shall have the meaning provided in Section
4.05(vii).
"Taxes" shall have the meaning provided in Section 3.04(a).
"TEG Note" shall mean the Promissory Note dated June 12, 1997, issued
by the Borrower to 59 TEG DBS Services, Inc. in the amount of $2,500,000.
"Term Facility" shall mean the facility evidenced by Total Term Loan
Commitment.
"Term Loan" shall have the meaning provided in Section 1.01(a).
"Term Loan Commitment" shall mean, with respect to each Bank, the
amount set forth opposite such Bank's name in Schedule I directly below the
column entitled "Term Loan Commitment," as the same may be terminated pursuant
to Section 2.03.
"Term Loan Conversion" shall have the meaning provided in Section
1.01(a).
"Term Loan Maturity Date" shall mean March 31, 2005.
"Term Note" shall have the meaning provided in Section 1.05(a)(i).
"Total Commitment" shall mean, at any time, the sum of the Commitments
of each of the Banks.
"Total Revolving Loan Commitment" shall mean, at any time, the sum of
the Revolving Loan Commitments of each of the Banks.
"Total Term Loan Commitment" shall mean, at any time, the sum of the
Term Loan Commitments of each of the Banks.
"Total Unutilized Revolving Loan Commitment" shall mean, at any time,
an amount equal to the remainder of (x) the then Total Revolving Loan
Commitment, less the sum of (y) the aggregate principal amount of Revolving
Loans then outstanding and (z) the then aggregate amount of Letter of Credit
Outstandings.
<PAGE> 107
"Tranche" shall mean the respective facility and commitments utilized
in making Loans hereunder, with there being two separate Tranches, i.e., whether
Term Loans or Revolving Loans.
"Transaction" shall mean collectively, (i) the incurrence and
continuation of Loans hereunder on the Restatement Effective Date and (ii) the
payment of the Transaction Fees and Expenses in connection therewith.
"Transaction Fees and Expenses" shall mean all fees and expenses
incurred in connection with and arising out of the transactions contemplated by
the Credit Documents; provided, however, that the aggregate amount of such fees
and expenses shall not exceed $2,000,000 in the aggregate.
"Type" shall mean the type of Loan determined with regard to the
interest option applicable thereto, i.e., whether a Base Rate Loan or a
Eurodollar Loan.
"UCC" shall mean the Uniform Commercial Code as from time to time in
effect in the relevant jurisdiction.
"Unfunded Current Liability" of any Plan shall mean the amount, if
any, by which the actuarial present value of the accumulated plan benefits under
the Plan as of the close of its most recent plan year, determined in accordance
with actuarial assumptions at such time consistent with Statement of Financial
Accounting Standards No. 87, exceeds the fair market value of the assets
allocable thereto.
"United States" and "U.S." shall each mean the United States of
America.
"Unpaid Drawing" shall have the meaning provided for in Section
1A.05(a).
"Unutilized Revolving Loan Commitment" for any Bank, at any time,
shall mean the Revolving Loan Commitment of such Bank at such time less the sum
of (i) the aggregate principal amount of Revolving Loans made by such Bank and
then outstanding and (ii) such Bank's Percentage of the Letter of Credit
Outstandings.
"Weary Key-Man Insurance" shall mean the key-man life insurance
maintained with respect to Mr. Rodney Weary.
"Western Montana Note" shall mean the Promissory Note dated December
22, 1997, issued by the Borrower to Western Montana Entertainment Television,
Inc. in the amount of $3,750,000.
"Wholly-Owned Subsidiary" shall mean, as to any Person, (i) any
corporation 100% of whose capital stock is at the time owned by such Person
<PAGE> 108
and/or one or more Wholly-Owned Subsidiaries of such Person and (ii) any
partnership, association, joint venture or other entity in which such Person
and/or one or more Wholly-Owned Subsidiaries of such Person has a 100% equity
interest at such time.
Section 11. The Agents.
11.01 Appointment. The Banks hereby designate Fleet as Administrative
Agent (for purposes of this Section 11, the term "Administrative Agent" shall
include Fleet in its capacity as Collateral Agent pursuant to the Security
Documents), Banque Paribas as Syndication Agent, and GECC, as Documentation
Agent, in each case to act as specified herein and in the other Credit
Documents. Each Bank hereby irrevocably authorizes, and each holder of any Note
by the acceptance of such Note shall be deemed irrevocably to authorize, the
Administrative Agent and the Syndication Agent to take such action on its behalf
under the provisions of this Agreement, the other Credit Documents and any other
instruments and agreements referred to herein or therein and to exercise such
powers and to perform such duties hereunder and thereunder as are specifically
delegated to or required of the Administrative Agent and the Syndication Agent
by the terms hereof and thereof and such other powers as are reasonably
incidental thereto. Each of the Administrative Agent and the Syndication Agent
may perform any of its duties hereunder by or through its officers, directors,
agents or employees.
11.02 Nature of Duties. The Administrative Agent shall have no duties
or responsibilities except those expressly set forth in this Agreement and the
Security Documents. The Syndication Agent and the Documentation Agent shall not
have any duties or responsibilities under this Agreement or any Security
Document or any other document or matter related thereto. None of the
Administrative Agent, the Syndication Agent, the Documentation Agent and any of
their respective officers, directors, agents or employees shall be liable for
any action taken or omitted by it or them hereunder or under any other Credit
Document or in connection herewith or therewith, unless caused by its or their
gross negligence or willful misconduct. The duties of the Administrative Agent
and the Syndication Agent shall be mechanical and administrative in nature; the
Administrative Agent, the Syndication Agent and the Documentation Agent shall
not have by reason of this Agreement or any other Credit Document a fiduciary
relationship in respect of any Bank or the holder of any Note; and nothing in
this Agreement or any other Credit Document, expressed or implied, is intended
to or shall be so construed as to impose upon the Administrative Agent, the
Syndication Agent or the Documentation Agent any obligations in respect of this
Agreement or any other Credit Document except as expressly set forth herein.
11.03 Lack of Reliance on the Administrative Agent, the Syndication
Agent and the Documentation Agent. Independently and without reliance upon the
Administrative Agent, the Syndication Agent and the Documentation Agent, each
Bank and the holder of each Note, to the extent it deems appropriate, has made
and shall continue to make (i) its own independent investigation of the
financial condition and affairs of Holdings and its Subsidiaries in connection
<PAGE> 109
with the making and the continuance of the Loans and the participation in
Letters of Credit and the taking or not taking of any action in connection
herewith and (ii) its own appraisal of the creditworthiness of Holdings and its
Subsidiaries and, except as expressly provided in this Agreement, the
Administrative Agent, the Syndication Agent and the Documentation Agent shall
have no duty or responsibility, either initially or on a continuing basis, to
provide any Bank or the holder of any Note with any credit or other information
with respect thereto, whether coming into its possession before the making of
the Loans, the participation in the Letters of Credit or at any time or times
thereafter. Neither the Administrative Agent, the Syndication Agent nor the
Documentation Agent shall be responsible to any Bank or the holder of any Note
for any recitals, statements, information, representations or warranties herein
or in any document, certificate or other writing delivered in connection
herewith or for the execution, effectiveness, genuineness, validity,
enforceability, perfection, priority or sufficiency of this Agreement or any
other Credit Document or the financial condition of Holdings or its Subsidiaries
or be required to make any inquiry concerning either the performance or
observance of any of the terms, provisions or conditions of this Agreement or
any other Credit Document, or the financial condition of Holdings or its
Subsidiaries or the existence or possible existence of any Default or Event of
Default.
11.04 Certain Rights of the Administrative Agent and the Syndication
Agent. If the Administrative Agent or the Syndication Agent shall request
instructions from the Required Banks with respect to any act or action
(including failure to act) in connection with this Agreement or any other Credit
Document, the Administrative Agent or the Syndication Agent, as the case may be,
shall be entitled to refrain from such act or taking such action unless and
until the Administrative Agent shall have received instructions from the
Required Banks; and the Administrative Agent or the Syndication Agent, as the
case may be, shall not incur liability to any Person by reason of so refraining.
Without limiting the foregoing, no Bank or the holder of any Note shall have any
right of action whatsoever against the Administrative Agent, the Syndication
Agent or the Documentation Agent as a result of the Administrative Agent acting
or refraining from acting hereunder or under any other Credit Document in
accordance with the instructions of the Required Banks.
11.05 Reliance. The Administrative Agent and the Syndication Agent
shall be entitled to rely, and shall be fully protected in relying, upon any
note, writing, resolution, notice, statement, certificate, telex, teletype or
facsimile message, cablegram, radiogram, order or other document or telephone
message signed, sent or made by any Person that the Administrative Agent or the
Syndication Agent believed to be the proper Person, and, with respect to all
legal matters pertaining to this Agreement and any other Credit Document and its
duties hereunder and thereunder, upon advice of counsel selected by the
Administrative Agent and the Syndication Agent (which may be counsel for the
Credit Parties).
11.06 Indemnification. (a) To the extent the Administrative Agent, the
Syndication Agent or the Documentation Agent is not reimbursed and indemnified
by the Borrower, the Banks will reimburse and indemnify the Administrative
Agent, the Syndication Agent or the Documentation Agent, as the case may be, in
proportion to its respective "percentages" as used in determining the Required
<PAGE> 110
Banks, for and against any and all liabilities, obligations, losses, damages,
penalties, claims, actions, judgments, suits, costs, expenses or disbursements
of whatsoever kind or nature which may be imposed on, asserted against or
incurred by the Administrative Agent, the Syndication Agent or the Documentation
Agent, as the case may be, in performing their respective duties hereunder or
under any other Credit Document, in any way relating to or arising out of this
Agreement or any other Credit Document; provided that no Bank shall be liable
for any portion of such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements resulting from the
Administrative Agent's, the Syndication Agent's or the Documentation Agent's
gross negligence or willful misconduct.
(b) The Administrative Agent, the Syndication Agent and the
Documentation Agent shall be fully justified in failing or refusing to take any
action hereunder and under any other Credit Document (except actions expressly
required to be taken by it hereunder or under the Credit Documents) unless it
shall first be indemnified to its satisfaction by the Banks pro rata against any
and all liability, cost and expense that it may incur by reason of taking or
continuing to take any such action.
11.07 The Administrative Agent and the Syndication Agent in Their
Individual Capacities. With respect to its obligation to make Loans under this
Agreement, each of the Administrative Agent, the Syndication Agent and the
Documentation Agent shall have the rights and powers specified herein for a
"Bank" and may exercise the same rights and powers as though it were not
performing the duties specified herein; and the term "Banks," "Required Banks,"
"holders of Notes" or any similar terms shall, unless the context clearly
otherwise indicates, include the Administrative Agent, the Syndication Agent and
the Documentation Agent in their individual capacities. Each of the
Administrative Agent, the Syndication Agent and the Documentation Agent may
accept deposits from, lend money to, and generally engage in any kind of
banking, trust or other business with any Credit Party or any Affiliate of any
Credit Party as if they were not performing the duties specified herein, and may
accept fees and other consideration from the Borrower or any other Credit Party
for services in connection with this Agreement and may purchase and hold equity
interests in the Borrower or any other Credit Party without having to account
for the same to the Banks and otherwise without having to account for the same
to the Banks.
11.08 Holders. The Administrative Agent may deem and treat the payee
of any Note as the owner thereof for all purposes hereof unless and until a
written notice of the assignment, transfer or endorsement thereof, as the case
may be, shall have been filed with the Administrative Agent. Any request,
authority or consent of any Person who, at the time of making such request or
giving such authority or consent, is the holder of any Note shall be conclusive
and binding on any subsequent holder, transferee, assignee or indorsee, as the
case may be, of such Note or of any Note or Notes issued in exchange therefor.
11.09 Resignation by the Agents. (a) The Administrative Agent may
resign from the performance of all its functions and duties hereunder and/or
under the other Credit Documents at any time by giving fifteen (15) Business
Days' prior written notice to the Borrower and the Banks. Such resignation shall
<PAGE> 111
take effect upon the appointment of a successor Administrative Agent pursuant to
clauses (b) and (c) below or as otherwise provided below.
(b) Upon any such notice of resignation, the Required Banks shall
appoint a successor Administrative Agent hereunder or thereunder who shall be a
commercial bank or trust company reasonably acceptable to the Borrower (it being
understood and agreed that any Bank is deemed to be acceptable to the Borrower).
(c) If a successor Administrative Agent shall not have been so
appointed within such fifteen (15) Business Day period, the Administrative
Agent, with the consent of the Borrower, shall then appoint a successor
Administrative Agent who shall serve as Administrative Agent hereunder or
thereunder until such time, if any, as the Banks appoint a successor
Administrative Agent as provided above.
(d) If no successor Administrative Agent has been appointed pursuant
to clause (b) or (c) above by the 30th Business Day after the date such notice
of resignation was given by the Administrative Agent, the Administrative Agent's
resignation shall become effective and the Banks shall thereafter perform all
the duties of the Administrative Agent hereunder and/or under any other Credit
Document until such time, if any, as the Banks appoint a successor
Administrative Agent as provided above.
(e) The Syndication Agent, as such, may resign at any time by giving
five (5) Business Days' prior written notice to the Banks. Such resignation
shall take effect at the end of such five (5) Business Day period.
<PAGE> 112
Section 12. Miscellaneous.
12.01 Payment of Expenses, Indemnities, etc. The Borrower, agrees to:
(i) whether or not the transactions herein contemplated are consummated, pay all
reasonable out-of-pocket costs and expenses of the Agents (including, without
limitation, the reasonable fees and disbursements of White & Case and local
counsel) in connection with the preparation, execution and delivery of this
Agreement and the other Credit Documents and the documents and instruments
referred to herein and therein and any amendment, waiver or consent relating
hereto or thereto, of the Agents in connection with its syndication efforts with
respect to this Agreement (including, without limitation, the reasonable fees
and disbursements of White & Case) and of the Agents and each of the Banks in
connection with the enforcement of this Agreement and the other Credit Documents
and the documents and instruments referred to herein and therein (including,
without limitation, the reasonable fees and disbursements of counsel for the
Agents and for each of the Banks); (ii) pay and hold each of the Banks harmless
from and against any and all present and future stamp, excise and other similar
taxes with respect to the foregoing matters and save each of the Banks harmless
from and against any and all liabilities with respect to or resulting from any
delay or omission (other than to the extent attributable to such Bank) to pay
such taxes; and (iii) defend, protect, indemnify and hold harmless the Agents
and each Bank, and each of their respective officers, directors, employees,
representatives, attorneys and agents (collectively called the "Indemnitees")
from and against any and all liabilities, obligations (including removal or
remedial actions), losses, damages (including foreseeable and unforeseeable
consequential damages and punitive damages), penalties, claims, actions,
judgments, suits, costs, expenses and disbursements (including reasonable
attorneys' and consultants fees and disbursements) of any kind or nature
whatsoever that may at any time be incurred by, imposed on or assessed against
the Indemnitees directly or indirectly based on, or arising or resulting from,
or in any way related to, or by reason of (a) any investigation, litigation or
other proceeding (whether or not any Agent, the Collateral Agent or any Bank is
a party thereto and whether or not any such investigation, litigation or other
proceeding is between or among any Agent, the Collateral Agent, any Bank, the
Borrower or any third person or otherwise) related to the entering into and/or
performance of this Agreement or any other Credit Document or the use of any
Letter of Credit or the proceeds of any Loans hereunder or the consummation of
any transactions contemplated herein (including, without limitation, the
Transaction) or in any other Credit Document or the exercise of any of their
rights or remedies provided herein or in the other Credit Documents; or, (b) the
actual or alleged generation, presence or Release of Hazardous Materials on or
from, or the transportation of Hazardous Materials to or from, any Real Property
owned or at any time operated by Holdings or any of its Subsidiaries or; (c) any
Environmental Claim relating to Holdings or any of its Subsidiaries or any Real
Property owned or at any time operated by Holdings or any of its Subsidiaries
or; (d) the exercise of the rights of any Agent and of any Bank under any of the
provisions of this Agreement or any other Credit Document or any Letter of
Credit or any Loans hereunder; or (e) the consummation of any transaction
contemplated herein (including, without limitation, the Transaction) or in any
other Credit Document (the "Indemnified Matters") regardless of when such
<PAGE> 113
Indemnified Matter arises, but excluding any such Indemnified Matter based the
gross negligence or willful misconduct of any Indemnitee.
12.02 Right of Setoff. In addition to any rights now or hereafter
granted under applicable law or otherwise, and not by way of limitation of any
such rights, upon the occurrence and during the continuance of an Event of
Default, each Bank is hereby authorized at any time or from time to time,
without presentment, demand, protest or other notice of any kind to any Credit
Party or to any other Person, any such notice being hereby expressly waived, to
set off and to appropriate and apply any and all deposits (general or special)
and any other Indebtedness at any time held or owing by such Bank (including,
without limitation, by branches and agencies of such Bank wherever located) to
or for the credit or the account of each Credit Party against and on account of
the Obligations and liabilities of such Credit Party to such Bank under this
Agreement or under any of the other Credit Documents, including, without
limitation, all interests in Obligations purchased by such Bank pursuant to
Section 12.06(b), and all other claims of any nature or description arising out
of or connected with this Agreement or any other Credit Document, irrespective
of whether or not such Bank shall have made any demand hereunder and although
said Obligations, liabilities or claims, or any of them, shall be contingent or
unmatured.
12.03 Notices. Except as otherwise expressly provided herein, all
notices and other communications provided for hereunder shall be in writing
(including telegraphic, telex, facsimile or cable communication) and mailed,
telegraphed, telexed, telecopied, cabled or delivered: if to Holdings or the
Borrower, at its address specified opposite its signature below; if to any Bank,
at its address specified opposite its name below; and if to the Administrative
Agent, at its Notice Office; or, as to any Credit Party or the Administrative
Agent, at such other address as shall be designated by such party in a written
notice to the other parties hereto and, as to each Bank, at such other address
as shall be designated by such Bank in a written notice to the Borrower and the
Administrative Agent. All such notices and communications shall, when mailed,
telegraphed, telexed, facsimilied, or cabled or sent by overnight courier, be
effective three (3) Business Days after deposited in the mails, certified,
return receipt requested, when delivered to the telegraph company, cable company
or one day following delivery to an overnight courier, as the case may be, or
sent by telex or facsimile device, except that notices and communications to the
Administrative Agent shall not be effective until received by the Administrative
Agent.
12.04 Benefit of Agreement. (a) This Agreement shall be binding upon
and inure to the benefit of and be enforceable by the respective successors and
assigns of the parties hereto; provided, however, neither Holdings nor any of
its Subsidiaries may assign or transfer any of its rights, obligations or
interest hereunder or under any other Credit Document without the prior written
consent of the Banks; and provided further, that although any Bank may transfer,
assign or grant participations in its rights hereunder, such Bank shall remain a
"Bank" for all purposes hereunder (and may not transfer or assign all or any
portion of its Commitments or Loans hereunder except as provided in Section
12.04(b)) and the transferee, assignee or participant, as the case may be, shall
not constitute a "Bank" hereunder; and provided further, that no Bank shall
<PAGE> 114
transfer or grant any participation under which the participant shall have
rights to approve any amendment to or waiver of this Agreement or any other
Credit Document except to the extent such amendment or waiver would (i) extend
the final scheduled maturity of any Loan, Note or Letter of Credit (unless such
Letter of Credit is not extended beyond the Revolving Loan Maturity Date) in
which such participant is participating, or reduce the rate or extend the time
of payment of interest or Fees thereon (except in connection with a waiver of
applicability of any post-default increase in interest rates) or reduce the
principal amount thereof, or increase the Commitments in which such participant
is participating over the amount thereof then in effect (it being understood
that a waiver of any Default or Event of Default or of a mandatory reduction in
the Total Commitment shall not constitute a change in the terms of any
Commitment, and that an increase in any Commitment shall be permitted without
the consent of any participant if the participant's participation is not
increased as a result thereof), (ii) consent to the assignment or transfer by
Holdings or any of its Subsidiaries of any of its rights and obligations under
this Agreement or (iii) release all or substantially all of the Collateral under
all of the Security Documents (except as expressly provided in the Credit
Documents) supporting the Loans hereunder in which such participant is
participating. In the case of any such participation, the participant shall not
have any rights under this Agreement or any of the other Credit Documents (the
participant's rights against such Bank in respect of such participation to be
those set forth in the agreement executed by such Bank in favor of the
participant relating thereto) and all amounts payable by the Borrower hereunder
shall be determined as if such Bank had not sold such participation.
(b) Notwithstanding the foregoing, any Bank (or any Bank together with
one or more other Banks) may (x) (A) pledge its Loans and/or Notes hereunder to
a Federal Reserve Bank in support of borrowings made by such Bank from such
Federal Reserve Bank or (B) assign all or a portion of its Loans or Commitments
and related outstanding Obligations hereunder to its parent company, principal
office and/or any Affiliate or Related Fund of such Bank or one or more other
Banks or (y) assign all or a portion equal to at least $5,000,000, of such Loans
or Commitments and related outstanding Obligations hereunder to one or more
Eligible Transferees each of which assignees shall become a party to this
Agreement as a Bank by execution of an assignment and assumption agreement
substantially in the form of Exhibit N (appropriately completed); provided that:
(i) at such time Schedule I shall be deemed modified to reflect the Commitments
of such new Bank and of the existing Banks; (ii) new Notes will be issued to
such new Bank and to the assigning Bank upon the request of such new Bank or
assigning Bank, such new Notes to be in conformity with the requirements of
Section 1.05 to the extent needed to reflect the revised Commitments; (iii) the
consent of the Agents shall be required in connection with any assignment; and
(iv) the Agents shall receive and share equally at the time of each such
assignment, from the assigning Bank, the payment of a non-refundable assignment
fee of $3,000. To the extent of any assignment pursuant to this Section
12.04(b), the assigning Bank shall be relieved of its obligations hereunder with
respect to its assigned Commitments. No transfer or assignment under this
Section 12.04(b) will be effective until recorded by the Administrative Agent on
the Register pursuant to Section 7.16. At the time of each assignment pursuant
<PAGE> 115
to this Section 12.04(b) to a Person which is not already a Bank hereunder and
which is not a United States person (as such term is defined in Section
7701(a)(30) of the Code) for Federal income tax purposes, the respective
assignee Bank shall provide to the Borrower, and the Administrative Agent the
appropriate Internal Revenue Service Forms (and, if applicable, a Section
3.04(b)(ii) Certificate) required by Section 3.04(b).
12.05 No Waiver; Remedies Cumulative. No failure or delay on the part
of either Agent or any Bank or any holder of any Note in exercising any right,
power or privilege hereunder or under any other Credit Document and no course of
dealing between the Borrower or any other Credit Party and the Agents or any
Bank or the holder of any Note shall operate as a waiver thereof; nor shall any
single or partial exercise of any right, power or privilege hereunder or under
any other Credit Document preclude any other or further exercise thereof or the
exercise of any other right, power or privilege hereunder or thereunder. The
rights, powers and remedies herein or in any other Credit Document expressly
provided are cumulative and not exclusive of any rights, powers or remedies
which the Agents or any Bank or the holder of any Note would otherwise have. No
notice to or demand on any Credit Party in any case shall entitle any Credit
Party to any other or further notice or demand in similar or other circumstances
or constitute a waiver of the rights of the Agents or any Bank or the holder of
any Note to any other or further action in any circumstances without notice or
demand.
12.06 Payments Pro Rata. (a) The Administrative Agent agrees that
promptly after its receipt of each payment from or on behalf of Holdings or the
Borrower in respect of any Obligations hereunder, it shall distribute such
payment to the Banks pro rata based upon their respective shares, if any, of the
Obligations with respect to which such payment was received.
(b) Each of the Banks agrees that, if it should receive any amount
hereunder (whether by voluntary payment, by realization upon security, by the
exercise of the right of setoff or banker's lien, by counterclaim or cross
action, by the enforcement of any right under the Credit Documents, or
otherwise), which is applicable to the payment of the principal of, or interest
on, the Loans, Unpaid Drawings or Fees, of a sum which with respect to the
related sum or sums received by other Banks is in a greater proportion than the
total of such Obligation then owed and due to such Bank bears to the total of
such Obligation then owed and due to all of the Banks immediately prior to such
receipt, then such Bank receiving such excess payment shall purchase for cash
without recourse or warranty from the other Banks an interest in the Obligations
of the respective Credit Party to such Banks in such amount as shall result in a
proportional participation by all the Banks in such amount; provided that if all
or any portion of such excess amount is thereafter recovered from such Bank,
such purchase shall be rescinded and the purchase price restored to the extent
of such recovery, but without interest.
12.07 Calculations; Computations. (a) The financial statements to be
furnished to the Banks pursuant hereto shall be made and prepared in accordance
with generally accepted accounting principles in the United States consistently
<PAGE> 116
applied throughout the periods involved (except as set forth in the notes
thereto or as otherwise disclosed in writing by the Borrower to the Banks);
provided that, except as otherwise specifically provided herein, all
computations of Excess Cash Flow and all computations determining compliance
with Sections 8.07 through 8.17, inclusive, including the definitions used
therein, shall utilize accounting principles and policies in conformity with
those used to prepare the historical financial statements for the fiscal year
ended December 31, 1997 delivered to the Banks pursuant to Section 6.05.
(b) All computations of interest and Fees hereunder shall be made on
the basis of a year of 360 days for the actual number of days (including the
first day but excluding the last day) occurring in the period for which such
interest or Fees are payable.
12.08 GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE; WAIVER OF JURY
TRIAL. (a) THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE CONSTRUED IN
ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK, WITHOUT
REGARD TO THE CONFLICT OF LAWS PROVISIONS THEREOF. ANY LEGAL ACTION OR
PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT MAY BE
BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES FOR THE
SOUTHERN DISTRICT OF NEW YORK, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT,
EACH OF HOLDINGS AND THE BORROWER HEREBY IRREVOCABLY ACCEPTS FOR ITSELF AND IN
RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE EXCLUSIVE
JURISDICTION OF THE AFORESAID COURTS. EACH OF HOLDINGS AND THE BORROWER HEREBY
IRREVOCABLY DESIGNATES, APPOINTS AND EMPOWERS CORPORATION SERVICE COMPANY WITH
OFFICES ON THE DATE HEREOF AT 80 STATE STREET, ALBANY, NEW YORK 12207 AS ITS
DESIGNEE, APPOINTEE AND AGENT TO RECEIVE, ACCEPT AND ACKNOWLEDGE FOR AND ON ITS
BEHALF, AND IN RESPECT OF ITS PROPERTY, SERVICE OF ANY AND ALL LEGAL PROCESS,
SUMMONS, NOTICES AND DOCUMENTS WHICH MAY BE SERVED IN ANY SUCH ACTION OR
PROCEEDING. IF FOR ANY REASON SUCH DESIGNEE, APPOINTEE AND AGENT SHALL CEASE TO
BE AVAILABLE TO ACT AS SUCH, EACH OF HOLDINGS AND THE BORROWER AGREES TO
DESIGNATE A NEW DESIGNEE, APPOINTEE AND AGENT ON THE TERMS AND FOR THE PURPOSES
OF THIS PROVISION SATISFACTORY TO THE ADMINISTRATIVE AGENT UNDER THIS AGREEMENT.
EACH OF HOLDINGS AND THE BORROWER FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF
PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING
BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE
PREPAID, TO HOLDINGS OR THE BORROWER AT, AS THE CASE MAY BE, ITS ADDRESS SET
FORTH OPPOSITE ITS SIGNATURE BELOW, SUCH SERVICE TO BECOME EFFECTIVE THIRTY (30)
DAYS AFTER SUCH MAILING. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE
ADMINISTRATIVE AGENT UNDER THIS AGREEMENT, ANY BANK OR THE HOLDER OF ANY NOTE TO
<PAGE> 117
SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL
PROCEEDINGS OR OTHERWISE PROCEED AGAINST ANY CREDIT PARTY IN ANY OTHER
JURISDICTION.
(b) EACH OF HOLDINGS AND THE BORROWER HEREBY IRREVOCABLY WAIVES ANY
OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF
THE AFORESAID ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS
AGREEMENT OR ANY OTHER CREDIT DOCUMENT BROUGHT IN THE COURTS REFERRED TO IN
CLAUSE (a) ABOVE AND HEREBY FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD
OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY
SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
(c) EACH OF THE PARTIES TO THIS AGREEMENT HEREBY IRREVOCABLY WAIVES
ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING
OUT OF OR RELATING TO THIS AGREEMENT, THE OTHER CREDIT DOCUMENTS OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
12.09 Counterparts. This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A set of counterparts
executed by all the parties hereto shall be lodged with the Borrower and the
Administrative Agent.
12.10 Effectiveness. (a) This Agreement shall become effective on the
date (the "Restatement Effective Date") on which all of the parties hereto shall
have signed a copy hereof (whether the same or different copies) and shall have
delivered the same to the Administrative Agent at its Notice Office or, in the
case of the Banks, shall have given to the Administrative Agent telephonic
notice (confirmed in writing), written or facsimile transmission notice
(actually received) in accordance with Section 12.03 at such office that the
same has been signed and mailed to it.
(b) On the Restatement Effective Date, each New Bank and each
Continuing Bank shall have delivered to the Administrative Agent for the account
of the Borrower an amount equal to (i) in the case of each New Bank, the Loans
to be made by such New Bank on the Restatement Effective Date and (ii) in the
case of each Continuing Bank, the amount by which the principal amount of Loans
to be made and/or converted by such Continuing Bank on the Restatement Effective
Date exceeds the amount of the Existing Loans of such Continuing Bank
outstanding on the Restatement Effective Date. Notwithstanding anything to the
contrary contained in this Section 12.10(b), in satisfying the foregoing
condition, unless the Administrative Agent shall have been notified by any Bank
prior to the occurrence of the Restatement Effective Date that such Bank does
not intend to make available to the Administrative Agent such Bank's Loans
<PAGE> 118
required to be made by it on such date, then the Administrative Agent may, in
reliance on such assumption, make available to the Borrower the corresponding
amounts in accordance with the provisions of Section 1.04, and the making
available by the Administrative Agent of such amounts shall satisfy the
condition contained in this Section 12.10(b).
12.11 Headings Descriptive. The headings of the several sections and
subsections of this Agreement are inserted for convenience only and shall not in
any way affect the meaning or construction of any provision of this Agreement.
12.12 Amendment or Waiver. (a) Neither this Agreement nor any other
Credit Document nor any terms hereof or thereof may be changed, waived,
discharged or terminated unless such change, waiver, discharge or termination is
in writing signed by the respective Credit Parties party thereto and the
Required Banks; provided that no such change, waiver, discharge or termination
shall, without the consent of each Bank (with Obligations of the respective
types being directly affected thereby): (i) extend the final scheduled maturity
of any Loan or Note beyond the applicable Maturity Date or extend the stated
maturity of any Letter of Credit beyond the Revolving Loan Maturity Date, or
reduce the rate or extend the time of payment of interest or Fees thereon
(except in connection with a waiver of applicability of any post-default
increase in interest rates), or reduce the principal amount thereof, or increase
the Commitments of any Bank over the amount thereof then in effect (it being
understood that a waiver of any Default or Event of Default or of a mandatory
reduction in the Total Commitment or a mandatory prepayment shall not constitute
an increase of the Commitment of any Bank, and that an increase in the available
portion of any Commitment of any Bank shall not constitute an increase in the
Commitment of such Bank); or (ii) release all or a substantial portion of the
Collateral (except for the release of Collateral (other than the release of all
or substantially all of the Collateral) in connection with asset dispositions
approved by the Required Banks); or (iii) amend, modify or waive any provision
of this Section 12.12; or (iv) reduce the percentage specified in, or otherwise
modify, the definition of Required Banks (it being understood that, with the
consent of the Required Banks, additional extensions of credit pursuant to this
Agreement may be included in the determination of the Required Banks on
substantially the same basis as the extensions of Term Loans, Term Loan
Commitments and Revolving Loan Commitments are included on the Restatement
Effective Date); or (v) modify the date of any Scheduled Repayment or of any
Scheduled Revolving Loan Commitment Reduction Date or the amount of any
Scheduled Repayment or Scheduled Revolving Loan Commitment Reduction; or (vi)
consent to the assignment or transfer by Holdings or the Borrower of any of its
rights and obligations under this Agreement; provided further, that no such
change, waiver, discharge or termination shall: (u) increase the Commitments of
any Bank over the amount thereof then in effect (it being understood that a
waiver of any conditions precedent, covenants, Defaults or Events of Default or
of a mandatory reduction in the Total Commitment or of a mandatory prepayment
shall not constitute an increase of the Commitment of any Bank, and that an
increase in the available portion of any Commitment of any Bank shall not
constitute an increase in the Commitment of such Bank) without the consent of
such Bank; or (v) without the consent of any Issuing Bank effected thereby,
amend, modify or waive any provision of Section 1A or alter its rights or
<PAGE> 119
obligations with respect to Letters of Credit; or (w) without the consent of
each Agent affected thereby, amend, modify or waive any provision of Section 11
as same applies to such Agent or any other provision relating to the rights or
obligations of such Agent; or (x) without the consent of the Collateral Agent,
amend, modify or waive any provision of Section 11 or any other provision
relating to the rights or obligations of the Collateral Agent; or (y) without
the consent of the Required Term Banks amend, modify or waive (A) Sections
3.01(v) or 3.02(B) to the extent that, in any such case, such amendment,
modification or waiver would alter the application of prepayments or repayments
as between the Term Facility and the Revolving Facility in a manner adverse to
the Term Loans or (B) Section 3.02(A)(c) or the definition of Required Term
Banks; or (z) without the consent of the Required Revolving Banks amend, modify
or waive (A) Section 3.02(B) to the extent that such amendment, modification or
waiver would alter the application of prepayments or repayments as between the
Term Facility and the Revolving Facility in a manner adverse to the Revolving
Loans or Revolving Loan Commitments or (B) Section 2.03(e) or the definition of
Required Revolving Banks.
(b) Notwithstanding anything to the contrary contained above in this
Section 12.12, the Collateral Agent may (i) enter into amendments to the
Subsidiaries Guaranty and the Security Documents for the purpose of adding
additional Subsidiaries of the Borrower (or other Credit Parties) as parties
thereto and (ii) enter into security documents to satisfy the requirements of
Sections 7.15 and 7.17, in each case without the consent of the Required Banks.
12.13 Survival. All indemnities set forth herein including, without
limitation, in Sections 1.10, 1.11, 1A.06, 3.04, 11.06 and 12.01 shall survive
the execution and delivery of this Agreement and the Notes and the making and
repayment of the Loans.
12.14 Domicile of Loans. Each Bank may transfer and carry its Loans
at, to or for the account of any office, Subsidiary or Affiliate of such Bank.
12.15 Post-Closing Obligations. (a) Notwithstanding anything to the
contrary contained in this Agreement or the other Credit Documents, the parties
hereto acknowledge and agree that (i) the UCC financing statements delivered by
the relevant Credit Party on the Restatement Effective Date shall be filed in
the appropriate governmental office and (ii) the UCC-11's or equivalent reports
required to be delivered to the Collateral Agent pursuant to Section 4.10 shall
be so delivered, in each case as early as practicable but in any event not later
than ten (10) Business Days after the Restatement Effective Date, and no
Borrowings (other than the Borrowings made on the Restatement Effective Date)
may be made under this Agreement until the conditions contained in this Section
12.15(a) have been determined by the Agents in their sole discretion to have
been satisfied. The representations and warranties made in each of the Credit
Documents with respect to the due filing or recording of such financing
statements and the perfection and priority of the security interests under the
Security Documents, and any defaults arising therefrom, shall be waived for such
ten (10) Business Day period.
<PAGE> 120
(b) The Borrower hereby acknowledges that in connection with certain
assignments hereof, the Agents or any of the Banks may be required to obtain a
rating of the Obligations and Commitments hereunder of the Borrower hereby
consents to such Agents or Banks providing to the respective rating agency such
information regarding the Obligations and creditworthiness of the Borrower as is
customary practice of such rating agency.
(c) Notwithstanding anything herein to the contrary, the Borrower
shall have as ten (10) Business Days after the Restatement Effective Date within
which to (i) obtain and deliver to the Agents the NRTC's and DirecTV's
acknowledgment of and agreement to the Security Documents Acknowledgment with
respect to the Collateral Assignment of Marketing and Distribution Agreements,
(ii) deliver to the Agents a true and correct copy of resolutions which have
been duly adopted by the Board of Directors of each of Holdings and the Borrower
ratifying the execution and delivery of each of the Documents and (iii) to the
extent not delivered on or prior to the Restatement Effective Date, deliver, and
cause each of Holdings and Argos to deliver, to the Agents good standing
certificates, including a statement as to the payment of all fees and taxes by
such Person, from the Secretary of State for the State of such Person's
incorporation and listing all charter documents on file with the Secretary of
State, and from each of the jurisdictions in which such Person is qualified to
do business. No Borrowings (other than the Borrowings made on the Restatement
Effective Date) may be made under this Agreement until all the conditions
contained in this Section 12.15(c) have been determined by the Agents in their
sole discretion to have been satisfied.
12.16 Amendment and Restatement; Termination of Existing Credit
Agreement. On the Restatement Effective Date, without further action by any
party, the Existing Credit Agreement shall be amended and restated to read in
full as set forth herein. Holdings, the Borrower and each of the Banks agrees
that the "Commitments" as defined in the Existing Credit Agreement shall be
terminated in their entirety on and as of the Restatement Effective Date.
12.17 Additions of New Banks; Conversion of Existing Loans of
Continuing Banks; Termination of Commitments of Non-Continuing Banks. (a) On and
as of the occurrence of the Restatement Effective Date in accordance with
Section 12.10, each New Bank shall become a "Bank" under, and for all purposes
of, this Agreement and the other Credit Documents.
(b) The parties hereto acknowledge that each Existing Bank has been
offered the opportunity to participate in this Agreement, after the occurrence
of the Restatement Effective Date, as a Continuing Bank hereunder, but that no
Existing Bank is obligated to be a Continuing Bank.
(c) Notwithstanding anything to the contrary contained in the Existing
Credit Agreement, this Agreement or any other Credit Document, Holdings, the
Borrower and each of the Banks hereby agree that on the Restatement Effective
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Date, (i) each Bank with a Commitment as set forth on Schedule I (after giving
effect to the Restatement Effective Date) shall make or maintain (including by
way of conversion) that principal amount of Term Loans and/or Revolving Loans to
the Borrower as is required by Section 1.01, provided that if the Existing Loans
of any Continuing Bank outstanding on the Restatement Effective Date
(immediately before giving effect thereto) exceed the aggregate principal amount
of Loans required to be made available by such Bank on such date (after giving
effect to the Restatement Effective Date), then Existing Loans of such
Continuing Bank in an amount equal to such excess shall be repaid on the
Restatement Effective Date to such Bank and (ii) in the case of each
Non-Continuing Bank, all of such Non-Continuing Bank's Existing Loans
outstanding on the Restatement Effective Date shall be repaid in full on such
date, together with interest thereon and all accrued Fees (and any other
amounts) owing to such Non-Continuing Bank, and the Commitment (under, and as
defined in, the Existing Credit Agreement) of such Non-Continuing Bank, if any,
shall be terminated, effective upon the occurrence of the Restatement Effective
Date. Notwithstanding anything to the contrary contained in the Existing Credit
Agreement, this Agreement or any other Credit Document, the parties hereto
hereby consent to the repayments and reductions required above, and agree that
in the event that any Existing Bank shall fail to execute a counterpart of this
Agreement prior to the occurrence of the Restatement Effective Date, such
Existing Bank shall be deemed to be a Non-Continuing Bank and, concurrently with
the occurrence of the Restatement Effective Date, the Commitment (under, and as
defined, in the Existing Credit Agreement) of such Existing Bank, if any, shall
be terminated, all Existing Loans of such Existing Bank outstanding on the
Restatement Effective Date shall be repaid in full, together with interest
thereon and all accrued Fees (and any other amounts) owing to such Existing
Bank, and concurrently with the occurrence of the Restatement Effective Date,
such Existing Bank shall no longer constitute a "Bank" under this Agreement and
the other Credit Documents, provided that all indemnities of the Credit Parties
under the Existing Credit Agreement and the other Credit Documents (as in effect
prior to the Restatement Effective Date) for the benefit of such Existing Bank
shall survive in accordance with the terms thereof.
12.18 Entire Agreement; Successors and Assigns. This Agreement and the
other Credit Documents constitute the entire agreement among Holdings, the
Borrower, the Agents and the Banks, supersedes any prior agreements among them
(other than the commitment letter, dated May 5, 1998, addressed to the Borrower
from Paribas, Fleet and GECC and the related fee letters), and shall bind and
benefit Holdings, the Borrower, the Agent and the Banks and their respective
successors and permitted assigns.
Section 13. Holdings Guaranty.
13.01 The Guaranty. In order to induce the Banks to enter into this
Agreement and to extend credit hereunder and in recognition of the direct
benefits to be received by Holdings from the proceeds of the Loans, Holdings
hereby agrees with the Secured Creditors as follows: Holdings hereby
unconditionally and irrevocably guarantees as primary obligor and not merely as
surety the full and prompt payment when due, whether upon maturity, by
acceleration or otherwise, of any and all indebtedness of the Borrower to
<PAGE> 122
the Banks under this Agreement and the other Credit Documents and under each
Interest Rate Protection or Other Hedging Agreement. If any or all of the
indebtedness of the Borrower to the Banks becomes due and payable hereunder or
under such other Credit Documents or Interest Rate Protection or Other Hedging
Agreements, Holdings unconditionally promises to pay such indebtedness to the
Secured Creditors, or order, on demand, together with any and all expenses which
may be incurred by the Agent or the Banks in collecting any of the indebtedness.
The word "indebtedness" is used in this Section 13 in its most comprehensive
sense and means any and all advances, debts, obligations and liabilities of the
Borrower arising in connection with this Agreement or any other Credit Documents
or under any Interest Rate Protection or Other Hedging Agreement, in each
case, heretofore, now, or hereafter made, incurred or created, whether
voluntarily or involuntarily, absolute or contingent, liquidated or
unliquidated, determined or undetermined, whether or not such indebtedness is
from time to time reduced, or extinguished and thereafter increased or incurred,
whether the Borrower may be liable individually or jointly with others, whether
or not recovery upon such indebtedness may be or hereafter become barred by any
statute of limitations, and whether or not such indebtedness may be or hereafter
become otherwise unenforceable.
13.02 Bankruptcy. Additionally, Holdings unconditionally and
irrevocably guarantees the payment of any and all indebtedness of the Borrower
to the Banks under this Agreement and the other Credit Documents and under each
Interest Rate Protection or Other Hedging Agreement, whether or not due or
payable by the Borrower upon the occurrence of any of the events specified in
Section 9.05, and unconditionally and irrevocably promises to pay such
indebtedness to the Banks, or order, on demand, in lawful money of the United
States.
13.03 Nature of Liability. The liability of Holdings hereunder is
exclusive and independent of any security for or other guaranty of the
indebtedness of the Borrower whether executed by Holdings, any other guarantor
or by any other party, and the liability of Holdings hereunder shall not be
affected or impaired by (a) any direction as to application of payment by the
Borrower or by any other party, or (b) any other continuing or other guaranty,
undertaking or maximum liability of a guarantor or of any other party as to the
indebtedness of the Borrower, or (c) any payment on or in reduction of any such
other guaranty or undertaking, or (d) any dissolution, termination or increase,
decrease or change in personnel by the Borrower, or (e) any payment made to the
Agents or the Banks on the indebtedness which the Agents or such Banks repay the
Borrower pursuant to court order in any bankruptcy, reorganization, arrangement,
moratorium or other debtor relief proceeding, and Holdings waives any right to
the deferral or modification of its obligations hereunder by reason of any such
proceeding.
13.04 Guaranty Absolute. No invalidity, irregularity or
unenforceability of all or any part of the indebtedness guaranteed hereby or of
any security therefor shall affect, impair or be a defense to this guaranty, and
this guaranty shall be primary, absolute and unconditional notwithstanding the
occurrence of any event or the existence of any other circumstances which might
constitute a legal or equitable discharge of a surety or guarantor except
payment in full of the indebtedness guaranteed herein.
<PAGE> 123
13.05 Independent Obligation. The obligations of Holdings hereunder
are independent of the obligations of any other guarantor or the Borrower, and a
separate action or actions may be brought and prosecuted against Holdings
whether or not action is brought against any other guarantor or the Borrower and
whether or not any other guarantor or the Borrower be joined in any such action
or actions. Holdings waives, to the fullest extent permitted by law, the benefit
of any statue of limitations affecting its liability hereunder or the
enforcement thereof. Any payment by the Borrower or other circumstance which
operates to toll any statute of limitations as to the Borrower shall operate to
toll the statute of limitations as to Holdings.
13.06 Authorization. Holdings authorizes the Agents, the Collateral
Agent and the Banks without notice or demand, and without affecting or impairing
its liability hereunder, from time to time to:
(a) change the manner, place or terms of payment of, and/or change or
extend the time of payment of, renew, increase, accelerate or alter, any of the
indebtedness (including any increase or decrease in the rate of interest
thereon), any security therefor, or any liability incurred directly or
indirectly in respect thereof, and the guaranty herein made shall apply to the
indebtedness as so changed, extended, renewed or altered;
(b) take and hold security for the payment of the indebtedness and
sell, exchange, release, surrender, realize upon or otherwise deal with in
any manner and in any order any property by whomsoever at any time pledged
or mortgaged to secure, or howsoever securing, the indebtedness or any
liabilities (including any of those hereunder) incurred directly or
indirectly in respect thereof or hereof, and/or any offset thereagainst;
(c) exercise or refrain from exercising any rights against the
Borrower or others or otherwise act or refrain from acting;
(d) release or substitute any one or more endorsers, guarantors, the
Borrower or other obligors;
(e) settle or compromise any of the indebtedness, any security
therefor or any liability (including any of those hereunder) incurred
directly or indirectly in respect thereof or hereof, and may subordinate
the payment of all or any part thereof to the payment of any liability
(whether due or not) of the Borrower to its creditors other than the Banks;
(f) apply any sums by whomsoever paid or howsoever realized to any
liability or liabilities of the Borrower to the Banks regardless of what
liability or liabilities of Holdings or the Borrower remain unpaid;
<PAGE> 124
(g) consent to or waive any breach of, or any act, omission or default
under, this Agreement or any of the instruments or agreements referred to
herein, or otherwise amend, modify or supplement this Agreement or any of
such other instruments or agreements; and/or
(h) take any other action which would, under otherwise applicable
principles of common law, give rise to a legal or equitable discharge of
Holdings from its liabilities under this Section 13.
13.07 Reliance. It is not necessary for the Agent or the Banks to
inquire into the capacity or powers of the Borrower or the Subsidiaries of the
Borrower or the officers, directors, partners or agents acting or purporting to
act on its behalf, and any indebtedness made or created in reliance upon the
professed exercise of such powers shall be guaranteed hereunder.
13.08 Subordination. Any indebtedness of the Borrower now or hereafter
held by Holdings is hereby subordinated to the indebtedness of the Borrower to
the Agents and the Banks; and such indebtedness of the Borrower to Holdings, if
the Agents (at the direction of the Required Banks), after an Event of Default
has occurred, so request, shall be collected, enforced and received by Holdings
as trustee for the Banks and be paid over to the Banks on account of the
indebtedness of the Borrower to the Banks, but without affecting or impairing in
any manner the liability of Holdings under the other provisions of this
guaranty. Prior to the transfer by Holdings of any note or negotiable instrument
evidencing any indebtedness of the Borrower to Holdings, Holdings shall mark
such note or negotiable instrument with a legend that the same is subject to
this subordination. Without limiting the generality of the foregoing, Holdings
hereby agrees with the Agents and the Banks that it will not exercise any right
of subrogation which it may at any time otherwise have as a result of this
guaranty (whether contractual, under Section 509 of the Bankruptcy Code, or
otherwise) until all guaranteed Obligations have been paid in full in cash.
13.09 Waiver. (a) Holdings waives any right to require the Agents or
the Banks to (i) proceed against the Borrower, any other guarantor or any other
party, (ii) proceed against or exhaust any security held from the Borrower, any
other guarantor or any other party or (iii) pursue any other remedy in the
Agents' or the Banks' power whatsoever. Holdings waives any defense based on or
arising out of any defense of the Borrower, any other guarantor or any other
party other than payment in full of the indebtedness, including, without
limitation, any defense based on or arising out of the disability of the
Borrower, any other guarantor or any other party, or the unenforceability of the
indebtedness or any part thereof from any cause, or the cessation from any cause
of the liability of the Borrower other than payment in full of the indebtedness.
The Agents and the Banks may, in accordance with the Credit Documents, at their
election, foreclose on any security held by the Agents, the Collateral Agent or
the Banks by one or more judicial or nonjudicial sales, whether or not every
aspect of any such sale is commercially reasonable (to the extent such sale is
permitted by applicable law), or exercise any other right or remedy the Agents
and the Banks may have against the Borrower or any other party, or any security,
<PAGE> 125
without affecting or impairing in any way the liability of Holdings hereunder
except to the extent the indebtedness has been paid. Holdings waives any defense
arising out of any such election by the Agents and the Banks, even though such
election operates to impair or extinguish any right of reimbursement or
subrogation or other right or remedy of Holdings against the Borrower or any
other party or any security.
(b) Holdings waives all presentments, demands for performance,
protests and notices, including, without limitation, notices of nonperformance,
notices of protest, notices of dishonor, notices of acceptance of this Guaranty,
and notices of the existence, creation or incurring of new or additional
indebtedness. Holdings assumes all responsibility for being and keeping itself
informed of the Borrower's financial condition and assets, and of all other
circumstances bearing upon the risk of non-payment of the indebtedness and the
nature, scope and extent of the risks which Holdings assumes and incurs
hereunder, and agrees that the Agents and the Banks shall have no duty to advise
Holdings of information known to them regarding such circumstances or risks.
13.10 Binding Nature of Guaranty. This guaranty shall be binding upon
Holdings and its successors and assigns and shall inure to the benefit of the
Banks and their successors and assigns.
13.11 Judgments Binding. If claim is ever made upon any Bank or any
subsequent holder of a Note for repayment or recovery of any amount or amounts
received in payment or on account of any of the indebtedness and any of the
aforesaid payees repays all or part of said amount by reason of (a) any
judgment, decree or order of any court or administrative body having
jurisdiction over such payee or any of its property, or (b) any settlement or
compromise of any such claim effected by such payee with any such claimant
(including the Borrower) then and in such event Holdings agrees that any such
judgment, decree, order, settlement or compromise shall be binding upon
Holdings, notwithstanding any revocation hereof or the cancellation of any Note,
or other instrument evidencing any liability of the Borrower, and Holdings shall
be and remain liable to the aforesaid payees hereunder for the amount so repaid
or recovered to the same extent as if such amount had never originally been
received by any such payee.
* * *
<PAGE> 126
IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized officers to execute and deliver this Agreement as of the date first
above written.
Address:
605 W. 47th Street GOLDEN SKY HOLDINGS, INC.
Suite 300
Kansas City, MO 64112
Attention: Robert B. Weaver By:/s/Robert B. Weaver
Telephone: (816) 753-5544 Name: Robert B. Weaver
Facsimile: (816) 753-5595 Title: Chief Financial Officer
<PAGE> 127
605 W. 47th Street GOLDEN SKY SYSTEMS, INC.
Suite 300
Kansas City, MO 64112
Attention: Robert B. Weaver By:/s/Robert B. Weaver
Telephone: (816) 753-5544 Name: Robert B. Weaver
Facsimile: (816) 753-5595 Title: Chief Financial Officer
787 Seventh Avenue BANQUE PARIBAS,
New York, New York 10019 Individually and as Syndication
Attention: William B. Schink Agent and Managing Agent
Telephone: (212) 841-2389
Facsimile: (212) 841-2369
By:/s/William B. Schink
Name: William B. Schink
Title: Director
By:/s/Errol R. Antzis
Name: Errol R. Antzis
Title: Managing Director,
Group Head
<PAGE> 128
Mail Stop MAOFDO3D FLEET NATIONAL BANK,
1 Federal Street Individually and as
Boston, MA 02110 Administrative Agent and
Attention: Christopher A. Swindell Managing Agent
Telephone: (617) 346-5579
Facsimile: (617) 346-4345 By:/s/Paula Lang
Name: Paula Lang
Title: Senior Vice President
Structured Finance Group GENERAL ELECTRIC CAPITAL
120 Long Ridge Road CORPORATION,
3rd Floor Individually and as
Stamford, CT 06927 Documentation Agent
Attention: Manager of
Portfolio Operations By:/s/Molly Fergusson
Telephone: (203) 357-4309 Name: Molly Fergusson
Facsimile: (203) 357-6868 Title: Manager, Operations
<PAGE> 129
SCHEDULE I
COMMITMENTS
<TABLE>
<CAPTION>
TERM LOAN REVOLVING LOAN
BANK COMMITMENT COMMITMENT
<S> <C> <C>
Banque Paribas $11,666,666.67 $38,333,333.33
Fleet National Bank $11,666,666.67 $38,333,333.33
General Electric Capital
Corporation $11,666,666,67 $38,333,333.33
-------------- --------------
$35,000,000.00 $115,000,000.00
</TABLE>
<PAGE> 130
SCHEDULE II
EXISTING LETTERS OF CREDIT
1. Western Montana Entertainment Television Inc.
#ms10890799
$3,750,000
Date 12/22/97
Exp. Date 12/17/98
2. The National Rural Telecommunications Cooperative
#ms1078657
$3,166,718
Date 10/16/97
Exp. Date 9/15/98
<PAGE> 131
SCHEDULE III
PROJECTIONS
[CONFIDENTIAL TREATMENT REQUESTED]
<PAGE> 132
SCHEDULE IV
TAX MATTERS
None
<PAGE> 133
SCHEDULE V
ERISA
I. 401(k) Plan
On file with White & Case LLP
<PAGE> 134
SCHEDULE VI
MATERIAL CONTRACTS
NRTC MEMBER AGREEMENTS:
NRTC/Member Agreement for Marketing and Distribution of DBS Services
between NRTC and TV Tennessee, Inc. (formerly Rural TV Tennessee, Inc.)
dated July 12, 1993, as amended, and assigned to the Borrower pursuant
to an Application for Assignment effective as of November 20, 1996.
NRTC/Member Agreement for Marketing and Distribution of DBS Services
between NRTC and TV Tennessee, Inc. (formerly Rural TV Tennessee, Inc.)
dated July 12, 1993, as amended, assigned to Aurora Cable TV, Inc.,
pursuant to an Application for Assignment effective as of June 30,
1996, and assigned to the Borrower pursuant to an Application for
Assignment effective as of November 15, 1996.
NRTC/Member Agreement for Marketing and Distribution of DBS Services
between NRTC and Totah Telephone Company, Inc. dated October 16, 1992,
as amended, assigned to Images DBS Kansas, LLC pursuant to an
Application for Assignment dated as of May 23, 1994, and assigned to
the Borrower pursuant to an Application for Assignment effective as of
February 12, 1997.
NRTC/Member Agreement for Marketing and Distribution of DBS Services
between NRTC and Totah Telephone Company, Inc. dated October 16, 1992,
as amended, assigned to Images DBS Oklahoma, LLC pursuant to an
Application for Assignment dated as of May 23, 1994, and assigned to
the Borrower pursuant to an Application for Assignment effective as of
February 12, 1997.
NRTC/Member Agreement for Marketing and Distribution of DBS Services
between NRTC and Direct Satellite TV, Limited dated June 3, 1993, as
amended, and assigned to the Borrower pursuant to an Application for
Assignment effective as of February 19, 1997.
NRTC/Member Agreement for Marketing and Distribution of DBS Services
between NRTC and Thunderbolt Systems, Inc. dated August 10, 1992, as
amended, and assigned to the Borrower pursuant to an Application for
Partial Assignment effective as of March 11, 1997.
NRTC/Member Agreement for Marketing and Distribution of DBS Services
between NRTC and Deep East Texas Telecommunications, Inc. dated April
30, 1993, as amended and assigned to the Borrower pursuant to an
Application for Assignment effective as of April 11, 1997.
<PAGE> 135
SCHEDULE VI
MATERIAL CONTRACTS
PAGE 2
NRTC/Member Agreement for Marketing and Distribution of DBS Services
between NRTC and Hickory Tech Corporation dated July 23, 1993, as
amended and assigned to the Borrower pursuant to an Application for
Assignment effective as of July 15, 1997.
NRTC/Member Agreement for Marketing and Distribution of DBS Services
between NRTC and Western Montana DBS, Inc., d/b/a Rocky Mountain DBS,
dated May 4, 1993, as amended, and assigned to the Borrower pursuant to
a Partial Application for Assignment effective as of May 1, 1997.
NRTC/Member Agreement for Marketing and Distribution of DBS Services
between NRTC and Coast Satellite TV dated December 16, 1992, as
amended, assigned to TEG-DBS Services, Inc. pursuant to an Application
for Assignment dated as of November 23, 1994 and assigned to the
Borrower pursuant to an Application for Assignment effective as of
June 12, 1997.
NRTC/Member Agreement for Marketing and Distribution of DBS Services
between NRTC and GVEC Rural; TV, Inc. dated August 16, 1992 , as
amended and assigned to the Borrower pursuant to an Application for
Assignment effective as of July 8, 1997.
NRTC/Member Agreements for Marketing and Distribution of DBS Services
between NRTC and Argos Support Services Company, formerly Argos Direct
Broadcast Satellite Services dated July 16, 1994 and October 20, 1994,
as amended and assigned to the Borrower pursuant to an Application for
Assignment effective as of August 8, 1997.
NRTC/Member Agreement for Marketing and Distribution of DBS Services
between NRTC and Satellite Entertainment, Inc. dated January 29, 1993,
as amended and assigned to the Borrower pursuant to an Application for
Assignment effective as of July 14, 1997.
NRTC/Member Agreement for Marketing and Distribution of DBS Services
between NRTC and Jackson Electric Cooperation, Inc. dated August 19,
1992, as amended, assigned to the Borrower pursuant to an Application
for Assignment effective as of August 26, 1997.
NRTC/Member Agreement for Marketing and Distribution of DBS Services
between NRTC and Gardonville Systems, Inc. d/b/a Lakes Area TV dated
September 30, 1992, as amended, assigned to the Borrower pursuant to an
Application for Assignment effective as of September 2, 1997.
NRTC/Member Agreement for Marketing and Distribution of DBS Services
between NRTC and DBS, LC dated July 13, 1993, as amended, assigned to
the Borrower pursuant to an Application for Assignment effective as of
November 17, 1997.
<PAGE> 136
SCHEDULE VI
MATERIAL CONTRACTS
PAGE 3
NRTC/Member Agreement for Marketing and Distribution of DBS Services
between NRTC and Dunn County Electric Cooperative, Inc. dated September
30, 1992, as amended, assigned to the DCE Satellite Entertainment, LLC
pursuant to an Application for Assignment effective as of October 14,
1997.
NRTC/Member Agreement for Marketing and Distribution of DBS Services
between NRTC and CTS Communications Corporation dated December 4, 1992,
as amended, assigned to the Borrower pursuant to an Application for
Assignment effective as of November 7, 1997.
NRTC/Member Agreement for Marketing and Distribution of DBS Services
between NRTC and Panora Telecommunications, Inc. dated September 24,
1992, as amended, assigned to the Borrower pursuant to an Application
for Assignment effective as of November 20, 1997.
NRTC/Member Agreement for Marketing and Distribution of DBS Services
between NRTC and Souris River Telecommunications Cooperative dated July
1, 1992, as amended, assigned to the Borrower pursuant to an
Application for Assignment effective as of November 21, 1997.
NRTC/Member Agreement for Marketing and Distribution of DBS Services
between NRTC and Cal-Ore Digital TV, Inc. dated July 29, 1993, as
amended, assigned to the Borrower pursuant to an Application for
Assignment effective as of December 9, 1997.
NRTC/Member Agreement for Marketing and Distribution of DBS Services
between NRTC and Cable & Communications Corporation and Mid-Rivers
Telephone Cooperative, Inc. dated June 3, 1992, as amended, assigned to
the Borrower pursuant to an Application for Assignment effective as of
December 24, 1997.
NRTC/Member Agreement for Marketing and Distribution of DBS Services
between NRTC and Missoula Electric Cooperative, Inc. dated November 17,
1992, as amended, assigned to the Borrower pursuant to an Application
for Assignment effective as of December 22, 1997.
NRTC/Member Agreement for Marketing and Distribution of DBS Services
between NRTC and Lakeland DBS, Inc. dated October 30, 1992, as amended,
assigned to the Borrower pursuant to an Application for Assignment
effective as of December 29, 1997.
NRTC/Member Agreement for Marketing and Distribution of DBS Services
between NRTC and Nemont Communications, Inc. dated July 6, 1992, as
amended, assigned to the Borrower pursuant to an Application for
Assignment effective as of January 14, 1998.
<PAGE> 137
SCHEDULE VI
MATERIAL CONTRACTS
PAGE 4
NRTC/Member Agreement for Marketing and Distribution of DBS Services
between NRTC and Triangle Communication System, Inc. dated June 8,
1992, as amended, assigned to the Borrower pursuant to an Application
for Assignment effective as of January 20, 1998.
NRTC/Member Agreement for Marketing and Distribution of DBS Services
between NRTC and Wyoming Mutual Telephone Company dated December 2,
1992, as amended, assigned to the Borrower pursuant to an Application
for Assignment effective as of January 21, 1998.
NRTC/Member Agreement for Marketing and Distribution of DBS Services
between NRTC and Northwest Communications Cooperative dated June 29,
1992, as amended, assigned to the Borrower pursuant to an Application
for Assignment effective as of March 6, 1998.
NRTC/Member Agreement for Marketing and Distribution of DBS Services
between NRTC and North Willamette Telecom, Inc. dated November 3, 1992,
as amended, assigned to the Borrower pursuant to an Application for
Assignment effective as of March 10, 1998.
NRTC/Member Agreement for Marketing and Distribution of DBS Services
between NRTC and Beulahland Communications, Inc. d/b/a Sangre De Cristo
DBS dated June 8, 1992, as amended, assigned to the Borrower pursuant
to an Application for Assignment effective as of March 19, 1998.
NRTC/Member Agreement for Marketing and Distribution of DBS Services
between NRTC and SCS Communications & Security, Inc. dated January 1,
1993, as amended, assigned to the Borrower pursuant to an Application
for Assignment effective as of April 21, 1998.
ACQUISITION AGREEMENTS
Asset Purchase Agreement between the Borrower, and TV Tennessee, Inc.
dated as of August 20, 1996, as amended.
Asset Purchase Agreement between the Borrower and Aurora Cable TV, Inc.
dated as of August 20, 1996, as amended.
Asset Purchase Agreement between the Borrower and Images DBS Kansas,
LLC, Images DBS Oklahoma, LLC and Total Communications dated as of
December 3, 1996, as amended.
<PAGE> 138
SCHEDULE VI
MATERIAL CONTRACTS
PAGE 5
Asset Purchase Agreement between the Borrower and Direct Satellite TV,
Limited dated as of January 22, 1997, as amended.
Asset Purchase Agreement between the Borrower and Deep East Texas
Telecommunications, Inc. dated as of February 11, 1997, as amended.
Stock Purchase Agreement between the Borrower and Gary Stone,
individually, for purchase of 175 shares of stock in Argos Support
Services Company.
Asset Purchase Agreement between the Borrower and Thunderbolt Systems,
Inc. dated as of February 28, 1997.
Asset Purchase Agreement between the Borrower and Hickory Tech
Corporation dated as of April 29, 1997, as amended.
Asset Purchase Agreement between the Borrower and Western Montana DBS,
Inc. d/b/a Rocky Mountain DBS dated as of May 1, 1997.
Asset Purchase Agreement between the Borrower and TEG-DBS Services,
Inc. dated as of May 16, 1997.
Asset Purchase Agreement among the Borrower, Satellite Entertainment,
Inc. and Ace Telephone Association dated as of May 30, 1997.
Asset Purchase Agreement between the Borrower and GVEC Rural TV Inc.
dated as of June 3, 1997.
Stock Purchase Agreement among the Borrower, Argos Support Services
Company and the Several Shareholders listed on Schedule I thereto dated
as of July 11, 1997 [supercedes the Letter of Interest between the
Borrower and Argos Support Services Company dated April 3, 1997].
Asset Purchase Agreement between the Borrower and Jackson Electric
Cooperative, Inc. dated as of July 15, 1997 [supercedes Letter
Agreement between the Borrower and Jackson Electric Cooperative, Inc.
dated May 8, 1997].
Asset Purchase Agreement among the Borrower, Gardonville Cooperative
Telephone Association and Gardonville Systems, Inc. d/b/a Lakes Area TV
dated as of August 15, 1997.
<PAGE> 139
SCHEDULE VI
MATERIAL CONTRACTS
PAGE 6
Asset Purchase Agreement between the Borrower and DBS, LC dated as of
October 1, 1997.
Operating Agreement among the Borrower, DCE Satellite Entertainment,
LLC and Dunn County Electric dated as of October 14, 1997.
Asset Purchase Agreement between the Borrower and CTS Communications
Corporation dated as of October 31, 1997.
Asset Purchase Agreement between the Borrower and Panora
Telecommunications, Inc. dated as of October 31, 1997.
Asset Purchase Agreement between the Borrower and Souris River
Telecommunications Cooperative dated as of November 21, 1997.
Asset Purchase Agreement between the Borrower and Cal-Ore Digital TV,
Inc. dated as of December 9, 1997.
Agreement to Purchase General Partnership Interest between the Borrower
and South Plains Advanced Communications & Electronics, Inc. dated as
of December 11, 1997.
Asset Purchase Agreement among the Borrower, Cable & Communications
Corporation and Mid-Rivers Telephone Cooperative, Inc. dated as of
December 17, 1997.
Asset Purchase Agreement among the Borrower, Missoula Electric
Cooperative, Inc. and Western Montana Entertainment Television, Inc.
dated as of December 22, 1997.
Agreement to Purchase General Partnership Interest and Limited
Partnership Interest between the Borrower and Poka Lambro
Telecommunications, Inc. dated as of December 23, 1997.
Asset Purchase Agreement between the Borrower and Lakeland D.B.S., Inc
dated as of December 24, 1997.
Asset Purchase Agreement between the Borrower and Nemont
Communications, Inc. dated as of January 13, 1998.
Asset Purchase Agreement between the Borrower and Computel, Inc. d/b/a
Radio Shack dated as of January 13, 1998.
<PAGE> 140
SCHEDULE VI
MATERIAL CONTRACTS
PAGE 7
Asset Purchase Agreement between the Borrower and Triangle
Communications, Inc. dated as of January 19, 1998.
Asset Purchase Agreement between the Borrower and Wyoming Mutual
Telephone Company dated as of January 21, 1998.
Asset Purchase Agreement between the Borrower and Northwest
Communications Cooperative dated as of February 27, 1998.
Asset Purchase Agreement between the Borrower and North Willamette
Telecom, Inc. dated as of March 10, 1998.
Asset Purchase Agreement between the Borrower and Beulahland
Communications, Inc. d/b/a Sangra De Cristo DBS dated as of February
17, 1998.
Letter Agreement between the Borrower and Frontier Communications - St
Croix, Inc. dated March 16, 1998.
Letter of Interest between the Borrower and Splitrock Telecom
Cooperative, Inc. dated March 30, 1998 out for signature.
Letter of Interest between the Borrower and Union Telephone Company
dated March 30, 1998 out for signature.
Letter of Interest between the Borrower and Baltic Telecom Cooperative
dated March 30, 1998 out for signature.
Letter of Interest between the Borrower and Breda Telephone Corporation
dated May 1, 1998 out for signature.
Asset Purchase Agreement between the Borrower and SCS Communications &
Security, Inc. dated as of April 16, 1998.
Asset Purchase Agreement between the Borrower and MegaTV, Inc. dated as
of April 16, 1997, as amended.
Letter of Interest between the Borrower and Semo Communications
Corporation, d/b/a Semo Satellite Systems dated April 16, 1998 out for
signature.
Letter Agreement between the Borrower and North Texas Communications
Company dated April 27, 1998.
<PAGE> 141
SCHEDULE VI
MATERIAL CONTRACTS
PAGE 8
EARNEST MONEY ESCROW AGREEMENTS:
Earnest Money Escrow Agreement among the Borrower, Images DBS Kansas,
L.C., Images DBS Oklahoma, L.C. and Total Communications, Inc. dated
December 12, 1996.
Earnest Money Escrow Agreement among the Borrower, Direct Satellite TV,
Limited and Commerce Bank, N.A. dated December 20, 1996.
Earnest Money Escrow Agreement among the Borrower, Hickory Tech
Corporation, and Commerce Bank, N.A. dated as of April 29, 1997.
Earnest Money Escrow Agreement among the Borrower, TEG-DBS Services,
Inc. and Commerce Bank, N.A. dated as of May 16, 1997.
Earnest Money Escrow Agreement among the Borrower, GVEC Rural TV, Inc.
and Commerce Bank dated as of June 3, 1997.
Earnest Money Escrow Agreement among the Borrower, Satellite
Entertainment, Inc. and Commerce Bank, N.A. dated as of March 21, 1997.
Earnest Money Escrow Agreement among the Borrower, Jackson Electric
Cooperative, Inc. and Norwest Bank Texas, South Central dated as of
July 15 1997.
Earnest Money Escrow Agreement among the Borrower, Gardonville Systems,
Inc. d/b/a Lakes Area TV and Commerce Bank, N.A. dated as of August 20,
1997.
Earnest Money Escrow Agreement among the Borrower, DBS, LC and Commerce
Bank, N.A. dated as of October 1, 1997.
Earnest Money Escrow Agreement among the Borrower, Cable &
Communications Corporation, Mid-Rivers Telephone Cooperative, Inc. and
Commerce Bank dated as of December 17, 1997.
Earnest Money Escrow Agreement among the Borrower, Beulahland
Communications, Inc. d/b/a Sangre De Cristo DBS and Commerce Bank, N.A.
dated as of February 17, 1998.
Earnest Money Escrow Agreement among the Borrower, MegaTV, Inc. and
Commerce Bank dated as of April 21, 1998.
<PAGE> 142
SCHEDULE VI
MATERIAL CONTRACTS
PAGE 9
INDEMNITY ESCROW AGREEMENTS:
Indemnity Escrow Agreement among the Borrower, TV Tennessee, Inc., and
First State Bank, Union City, Tennessee dated January 15, 1997.
Indemnity Escrow Agreement among the Borrower, Aurora Cable TV Company
and Bank of Camden, Camden, TN dated January 15, 1997.
Indemnity Escrow Agreement among the Borrower, Images DBS Kansas, L.C.,
Images DBS Oklahoma, L.C., Total Communications, Inc. and Commerce
Bank, N.A. dated February 10, 1997.
Indemnity Escrow Agreement among the Borrower, Direct Satellite TV,
Limited and Commerce Bank, N.A. dated February 19, 1997.
Indemnity Escrow Agreement between the Company Western Montana DBS,
Inc. d/b/a Rocky Mountain DBS dated May 1, 1997.
Indemnity Escrow Agreement among the Borrower, Thunderbolt Systems,
Inc. d/b/a Direct Broadcast Satellite of Missouri and Commerce Bank,
N.A. dated March 11, 1997.
Indemnity Escrow Agreement among the Borrower, Deep East Texas
Telecommunications, Inc. and Commerce Bank, N.A. dated April 11, 1997.
Indemnity Escrow Agreement among the Borrower, Hickory Tech
Corporation, and Commerce Bank, N.A. dated as of April 29, 1997.
Indemnity Escrow Agreement among the Borrower, Western Montana DBS,
Inc., d/b/a Rocky Mountain DBS, and Commerce Bank, N.A. dated as of
May 1, 1997.
Indemnity Escrow Agreement among the Borrower, TEG DBS Services, Inc.
and Commerce Bank, N.A. dated as of June 12, 1997.
Indemnity Escrow Agreement among the Borrower, GVEC Rural TV, Inc. and
Commerce Bank dated as of July 8, 1997.
Indemnity Escrow Agreement among the Borrower, Satellite Entertainment,
Inc. and Commerce Bank, N.A. dated as of July 14, 1997.
Indemnity Escrow Agreement among the Borrower, Jackson Electric
Cooperative, Inc. and Norwest Bank Texas, South Central dated as of
August 26, 1997.
<PAGE> 143
SCHEDULE VI
MATERIAL CONTRACTS
PAGE 10
Indemnity Escrow Agreement among the Borrower, Gardonville Systems,
Inc. d/b/a Lakes Area TV and Commerce Bank, N.A. dated as of September
2, 1997.
Indemnity Escrow Agreement among the Borrower, DBS, LC and Commerce
Bank, N.A. dated as of November 17, 1997.
Indemnity Escrow Agreement among the Borrower, CTS Communications
Corporation and Commerce Bank, N.A. dated as of November 7, 1997.
Indemnity Escrow Agreement among the Borrower, Panora
Telecommunications, Inc. and Commerce Bank, N.A. dated as of November
20, 1997.
Indemnity Escrow Agreement among the Borrower, Souris River
Telecommunications Cooperative and Commerce Bank dated as of November
21, 1997.
Indemnity Escrow Agreement among the Borrower, Cal-Ore Digital TV, Inc.
and Commerce Bank, N.A. dated as of December 9, 1997.
Indemnity Escrow Agreement among the Borrower, Cable & Communications
Corporation, Mid-Rivers Telephone Cooperative, Inc. and Commerce Bank
dated as of December 24, 1997.
Indemnity Escrow Agreement among the Borrower, Western Montana
Entertainment Television, Inc. and Commerce Bank, N.A. dated as of
December 22, 1997.
Indemnity Escrow Agreement among the Borrower, Lakeland DBS, Inc. and
Commerce Bank, N.A. dated as of December 29, 1997.
Indemnity Escrow Agreement among the Borrower, Nemont Communications,
Inc. and Commerce Bank, N.A. dated as of January 14, 1998.
Indemnity Escrow Agreement among the Borrower, Triangle Communication
System, Inc. and Rural Utilities Cooperative Finance Corporation dated
as of January 20, 1998.
Indemnity Escrow Agreement among the Borrower, Wyoming Mutual Telephone
Company and Commerce Bank, N.A dated as of January 21, 1998.
Indemnity Escrow Agreement among the Borrower, Northwest Communications
Cooperative and Commerce Bank, N.A. dated as of March 6, 1998.
<PAGE> 144
SCHEDULE VI
MATERIAL CONTRACTS
PAGE 11
Indemnity Escrow Agreement among the Borrower, North Willamette
Telecom, Inc. and Commerce Bank, N.A. dated as of March 10, 1998.
Indemnity Escrow Agreement among the Borrower, Beulahland
Communications, Inc. d/b/a Sangre De Cristo DBS and Commerce Bank, N.A.
dated as of March 19, 1998.
Escrow Agreement among the Borrower, SCS Communications & Security,
Inc. and Commerce Bank dated as of April 21, 1998.
ESCROW AGREEMENT
Escrow Agreement among the Borrower, Gilbert A. Collver and Loomis,
Ewert, Parlsey, Davis & Gotting, P.C. dated as of November 7, 1997.
NON COMPETITION AGREEMENTS:
Non-Competition Agreement between the Borrower and Aurora Cable TV,
Inc, and individually, with Michael White and Donna White, each dated
November 15, 1996.
Non-Competition Agreement between the Borrower and TV Tennessee, Inc.,
and individually, with David Critchlow, each dated November 20, 1996.
Non-Competition Agreement between the Borrower and Images DBS Kansas,
L.C., Images DBS Oklahoma L.C., Total Communications, Inc., Totah
Telephone Company, Incorporated, and individually with Ray League each
dated February 10, 1997.
Non-Competition Agreement between the Borrower and Direct Satellite TV,
Limited and individually, with James T. Dickens, each dated February
19, 1997.
Non-Competition Agreement between the Borrower and Thunderbolt Systems,
Inc., d/b/a Direct Broadcast Satellite of Missouri, and individually,
with Garold Scobee and Billy L. Reeves, each dated March 11, 1997.
Non-Competition Agreement between the Company and Deep East Texas
Telecommunications, Inc., and individually with Paul Spurgeon and Eric
Magee, each dated April 11, 1997.
Non-Competition Agreement between the Borrower and Western Montana DBS,
Inc., d/b/a Rocky Mountain DBS, and individually with Marti Bowland,
each dated as of May 1, 1997.
<PAGE> 145
SCHEDULE VI
MATERIAL CONTRACTS
PAGE 12
Non-Competition Agreement between the Company and TEG-DBS Services,
Inc., and individually with Jadwinder Singh and Kulwinder Singh each
dated June 12, 1997.
Non-Competition Agreement between the Borrower and GVEC Rural TV, Inc.,
and individually with Marcus W. Pridgeon, each dated as of July 8,
1997.
Non-Competition Agreement between the Borrower and Andrew W. O'Pry
dated as of July , 1997 in connection with the Purchase of Argos
Support Services Company.
Non-Competition Agreement between the Company and Satellite
Entertainment, Inc. and between the Company and Ace Telephone
Association each dated July 14, 1997.
Non-Competition Agreement between the Borrower and Hickory Tech
Corporation dated July 15, 1997.
Non-Competition Agreement between the Borrower and Jackson Electric
Cooperative, Inc., and individually with Mary Williamson, David Brent
Nance, Mark Cayce, Cindy Bures, Roy Dale Griffin and Everett Williams
each dated as of August 26, 1997.
Non-Competition Agreement between the Borrower and Gardonville Systems,
Inc. d/b/a Lakes Area TV, between the Borrower and Gardonville
Cooperative Telephone Association, and individually with Harold
Brethorst each dated September 2, 1997.
Non-Competition Agreement between the Borrower and DBS, LC dated as of
November 17, 1997.
Non-Competition Agreement between DCE Satellite Entertainment, LLC and
Dunn County Electric Cooperative, Inc., and individually James R.
Hathaway each dated as of October 14, 1997 and with Mark Hayden dated
as of October 15, 1997.
Non-Competition Agreements between the Borrower and Laquita Allen,
William J. Gerski, Eric Tucker and Dennis O'Hara dated as of November
3, 1997.
Non-Competition Agreement between the Borrower and CTS Communications
Corporation, and individually with Gilbert A. Collver each dated as of
November 7, 1997.
Non-Competition Agreement between the Borrower and Panora
Telecommunications, Inc., and individually with Dale J. Grotjohn each
dated as of November 20, 1997.
Non-Competition Agreement between the Borrower and Souris River
Telecommunications Cooperative dated as of November 21, 1997.
<PAGE> 146
SCHEDULE VI
MATERIAL CONTRACTS
PAGE 13
Non-Competition Agreement between the Borrower and Cal-Ore Digital TV,
Inc., and individually with Robert H. Edgar, Edward B. Ormsbee, Marc J.
Estep, Marion A. Edgar, Susan M. Graham, Robert W. Edgar, Brian H.
Edgar, Brian H. Edgar and Scott N. Edgar each dated as of December 5,
1997.
Non-Competition Agreement between the Borrower and Cable &
Communications Corporation and Mid-Rivers Telephone Cooperative, Inc.
each dated as of December 24, 1997.
Non-Competition Agreement between the Borrower and Western Montana
Entertainment Television, Inc. and Missoula Electric Cooperative, and
individually with Cindy Conley, Robert P. Walker, Terry W. Hoke, Daniel
B. Bailey, Raymond Cebulski each dated as of December 22, 1997.
Non-Competition Agreement between the Borrower and Poka Lambro
Telecommunications Inc. dated December 23, 1997
Non-Competition Agreement between the Borrower and Lakeland DBS, Inc.,
and individually with Orlean Smith each dated December 29, 1997.
Non-Competition Agreement between the Borrower and Nemont
Communications, Inc. dated as of January 14, 1998.
Non-Competition Agreement between the Borrower and Triangle
Communication System, Inc. dated as of January 20, 1998.
Non-Competition Agreement between the Borrower and Wyoming Mutual
Telephone Company, and individually with Darwin E. Betzer each dated as
of January 21, 1998.
Non-Competition Agreement between the Borrower and Northwest
Communications Cooperative dated as of March 6, 1998.
Non-Competition Agreement between the Borrower and North Willamette
Telecom, Inc. dated as of March 10, 1998.
Non-Competition Agreement between the Borrower and Beulahland
Communications, Inc. d/b/a Sangre De Cristo DBS and J.E.D. Entreprises,
Inc. d/b/a Pine Drive Telephone Company, each dated as of March 19,
1998.
<PAGE> 147
SCHEDULE VI
MATERIAL CONTRACTS
PAGE 14
Non-Competition Agreement between the Borrower and SCS Communications &
Security, Inc., and individually with Don Lawrence and Curt Thornton
each dated as of April 21, 1998.
BROKER AGREEMENTS:
Agreement between the Company and Daniels and Associates dated March
14, 1997 for brokerage services on NRTC member affiliate territories.
Verbal agreement with Nations Media Partners for brokerage services for
various deals on a case-by-case basis.
EQUIPMENT LEASES:
Equipment Lease Agreement between Financial Associates, Inc. DBA
Alliance Financial Group dated December 30, 1996.
EMPLOYMENT AGREEMENTS:
Employment Agreements dated February 12, 1997, between the Borrower and
Rodney A. Weary, Robert B. Weaver, Ron D. Foster and Jo Ellen Linn.
The Borrower executed an Employment Agreement with Andrew W. O'Pry
dated as of July 11, 1997 in connection with the purchase of Argos
Support Services Company.
Employment Agreements dated November 3, 1997, between the Borrower and
Laquita Allen, Eric Tucker, William J. Gerski and Dennis O'Hara.
MANAGEMENT AGREEMENTS:
GSS has a verbal consulting agreement with Mr. Robert Liepold, a Vice
President and Director of the Company, to provide expertise at a flat
monthly rate
GSS has a verbal consulting agreement with Mr. Richard Muller, a former
DirecTV Vice President involved in DirecTV's national MDU/SMATV
marketing program, utilizing his services on a month-to-month basis for
a fee of $15,000 per month.
GSS has a verbal arrangement with Q Network to provide E-Mail and
Intemet connectivity database training for employees at an estimated
cost of $15,000.
<PAGE> 148
SCHEDULE VI
MATERIAL CONTRACTS
PAGE 15
Consulting Agreement between the Borrower and Gilbert A. Collver dated
as of November 7, 1997.
Management Agreement between the Borrower and South Plains DBS Limited
Partnership dated as of December 24, 1997.
CONVERTIBLE STOCK PURCHASE DOCUMENTS:
All documents related to the consummation of the Transaction between
the Company and its Series A Convertible Participating Preferred Stock
investors on February 12, 1997.
MISCELLANEOUS CONTRACTS:
All documents related to the consummation of the Transaction between
the Borrower and its Series B Convertible Participating Preferred Stock
investors on November 24, 1997.
Collectively, all Equipment Rental Agreements and Equipment Financing
Agreements between Customers and the Company, both new and assumed in
connection with individual acquisitions.
Collectively, the Borrower has executed approximately 350 Dealer
Application and Agreements.
Distributorship Agreement between Borrower and Hughes Network Systems
for DIRECPC Equipment and Services dated April 30, 1998.
DIRECTV MOU System Operator Agreement between DIRECTV, Inc. and
Borrower dated July 28, 1997, as amended by the DIRECTV MOU Master
System Operator Agreement dated December 30, 1997.
DERECTV SMATV Affiliate Agreement between DIRECTV, Inc. and Borrower
dated July 29, 1997.
Agreement for Purchase of Direct Broadcast Satellite Services Area
between Argos Direct Broadcast Satellite Services and DBS TelaVenture,
Inc. dated as of July 16, 1994.
Agreement for Purchase of Direct Broadcast Satellite Services Area
between Argos Direct Broadcast Satellite Services and Meridian, Inc.
dated as of October 20, 1994.
SEE ALSO SCHEDULE XII (INSURANCE POLICIES); VII (REAL PROPERTY); VIII
(CAPITALIZATION) TO THE CREDIT AGREEMENT.
<PAGE> 149
SCHEDULE VII
REAL PROPERTY (1)
<TABLE>
<CAPTION>
PROPERTY LESSOR EXPIRES MONTHLY BASE
<S> <C> <C> <C>
CORPORATE OFFICE 605 W. 47th St. Investment Co. 10/31/1999 $5,642.75
605 W. 47th Street c/o Block & Co., Inc.
Kansas City, MO
Dept. 0578, P.O. Box 419263
K.C. MO 64193-0578
(Sublease) Month-to-month $2,466.25
Ellerbe Becket
605 West 47th St.
COLORADO OFFICE
Avon, CO Southwestern Eagle, L.L.C. 5/30/2002 $3,145.00
Eagle/Vail Business 1675 Larimer Street, Ste. 720
(Center) Park Denver, CO 80202
40814 U.S Highway 6
Avon, CO 81620
KANSAS OFFICES
Chanute, KS Chanute Realty, LLC 5/30/2002 $1,261.00
Wal-Mart Plaza Sandoe Building
2506 S. Santa Fe 2220 N. Meridian St.
Chanute, KS 66720 Indianapolis, IN 46208-5728
Coffeyville, KS Dale Apartments 3/01/1997 $ 300.00
206 W. 8th Street Joyce Miller, Mgr. Month-to-month
Coffeyville, KS 67337 206 W. 8th Street, Str. 707
Coffeyville, KS 67337
Coffeyville, KS Byron Bales 4/30/1999 $1,666.66
903-907 W. 11th Street 901 West 11th Street
Coffeyville, KS 67337 Coffeyville, KS 67337
</TABLE>
(1.) All real property is leased.
<PAGE> 150
<TABLE>
<CAPTION>
PROPERTY LESSOR EXPIRES MONTHLY BASE
<S> <C> <C> <C>
Independence, KS United Cities Gas Company 5/31/1999 $ 650.00
112 W. Myrtle Street 122 W. Myrtle Street
Independence, KS 67301 P.O. Box 347
Independence, KS 67301
Pittsburgh, KS Donald W. Hight 5/31/1998 $ 480.00
522 N. Broadway 771 S. 180th St.
Pittsburgh, KS 66782 Pittsburgh, KS 66762
MISSOURI OFFICES
Moberly, MO Furnell 8/31/1998 $3,800.00
1011 C North Morley 201 West 3rd Street
Moberly, MO 65270 Sedalia, MO 65301
Hannibal, MO Steven E. Anderson 10/31/2000 $1,000.00
102 Steamboat Bend Glimcher Development Corp.
Shopping Ctr. 20 South Third Street
Hannibal, MO Columbus, OH 43215
Hannibal, MO Glimcher Development LP. 10/31/2000 $1,000.00
102 Steamboat Bend Steamboat Bend
Shopping Ctr. #12 Lock Box 1342
Hannibal, MO Columbus, OH 43215
Corporate Apartment Rent The Locarno Month-to-month $ 995.00
Apt. 702 235 Ward Parkway
Kansas City, MO 64112
Richmond, MO Swafford's Ford Sales, Inc. 3/31/1999 $ 800.00
105 East Main 223 S. Thorton St.
Suite 1 Richmond, MO 64085-1755
Richmond, MO 64085
NEVADA OFFICES
Las Vegas, NV Galit Rozen 6/31/2000 $2,574,00
Rancho Santa Fe Center 4417 Zev Court
5081 N. Rainbow, Ste. 106 Las Vegas, NV 89121
Las Vegas, NV 89103
OKLAHOMA OFFICES
</TABLE>
<PAGE> 151
<TABLE>
<CAPTION>
PROPERTY LESSOR EXPIRES MONTHLY BASE
<S> <C> <C> <C>
Bartlesville, OK Eastland, Inc. 9/31/2000 $1,835.00
554 S.E. Washington c/o Steve Wells
546 S.E. Washington 12346 East Skelly Drive
Bartlesville, OK Tulsa, OK 74128
McAlester, OK Carole Cramer & G. Murphy 12/31/2000 $2,142.00
142 E Carl Albert Parkway Alstate Properties
Tandy Town Shopping Ctr 18033 Burbank Blvd.
McAlester, OK Encino, CA 91316
Claremore, OK Jeannie Orender Month to Month $ 500.00
514 North Lynn Riggs 512 North Lynn Riggs
U.S. Hwy 66 Claremore, OK 74017
Claremore, OK 74017
TENNESSEE OFFICES
Camden, TN Mark and Lori Ward 12/31/1998 $1,400.00
148 Highway 641 N 125 Lockhart St.
Camden, TN 38320 Camden, TN 38320
Martin, TN Bobby Bequette Month-to-month $ 550.00
643 N. Lindell St. 643 N. Lindell Street
Ste. A Martin, TN 38237
Martin, TN 38237
Martin, TN-Warehouse Gene Gifford Month-to-month $ 150.00
Jackson St. 162 Brooks Drive
Martin, TN 38237 Martin, TN 38237
Paris, TN Jimmy Caldwell Month-to-month $ 550.00
110 Fentress 220 Westwood Street
Paris, TN 38242 Paris, TN 38242
TEXAS OFFICES
Center, TX Real Estate Services 4/30/1998 $ 600.00
202 Tenaha Street 2711 North Haskell Ave.
Center, TX Dallas, TX 75204
Dallas, TX Wetwood Management Ltd. 3/8/1998 $ 730.00
11453 Newkirt Street 11518 Reeder Rd. Suite 105
Dallas, TX 75229 Dallas, TX 75229
Sequin Sagebitel Family Partnership 6/30/2000 $1,750.00
256 West Court 217 S. River
Sequin, TX 78155 Sequin, TX 78155
</TABLE>
<PAGE> 152
<TABLE>
<CAPTION>
PROPERTY LESSOR EXPIRES MONTHLY BASE
<S> <C> <C> <C>
Victoria, TX James Wayne Properties 8/31/2000 $2,500.00
6703 N. Navarro 2608 N. Laurent
Victoria, TX 77904 Victoria, TX 77901
Flower Mound, TX Harmony/FM 24499 Partners 4/30/2002 $2,916.67
Towne View Plaza 1235 Douglas Avenue (subject to
1900 Long Prairie Road Suite 805, LB-69 change)
Suite 148 Dallas, TX 75225
Flower Mound, TX 75028
Lubbock, TX North Kingsgate 7/31/2002 $2,346.67
4210 82nd Street P.O. Box 65207
Lubbock, TX 79423 Lubbock, TX 79464
Livingstone, TX Jennings Cove Development Month-to-month $600.00
2114 Hwy 190 West P.O. Box 987
Livingstone, TX 77351 Livingstone, TX 77351
Office Warehouse Commerce Business Park 3/31/2003 $2,732.00
Commerce Business Park 585 Commerce Street
Southlake, TX 76092
MINNESOTA OFFICES
Mankato, MN Madison East Properties LLC 7/31/1998 $ 1,402.96
1400 Madison Ave. c/o Fisher & Lidstrom
Suite 624 Commercial
Mankato, MN 56001 209 E. Second, Suite 400
Mankato, MN 65001
New Ulm, MN Nierengarten & Hippert, Ltd 10/14/2000 $ 800.00
1 South Minnesota Street 11 North Minnesota St
New Ulm, MN 56073 P.O. Box 214
New Ulm, MN 56073
Winona, MN L&M Enterprises 9/30/1998 $ 500.00
1157 Gilmore Ave. P.O. Box 30055
Winona, MN 55987 Winona, MN 559897
Alexandria, MN Bob Ruhr 12/1/1998 $ 800.00
1224 N. Nokomis N.E. Vacation Properties Network
Suite 111 Costum One Real Estate
Alexandria, MN 56308 1224 N. Nokomis, N.E.
Alexandria, MN 56308
</TABLE>
<PAGE> 153
<TABLE>
<CAPTION>
PROPERTY LESSOR EXPIRES MONTHLY BASE
<S> <C> <C> <C>
Houston, MN Satellite Entertainment, Inc. 6/30/1998 $ 600.00
113 S. Grant Street P.O. Box 360
Houston, MN 55943 Houston, MN 55943
MICHIGAN OFFICES
Battle Creek, MI Hinco, LLC 11/30/2002 $2,437.50
Capital Centre 535 South Burdick Street
2545 Capital Ave. Suite 1
Suite 120 P.O. Box 50751
Battle Creek, MI 49015 Kalamazoo, MI 49005-0751
Cadillac, MI Lakeland Square Associates 8/31/2002 $1,375.00
2124 N. Mitchell Drive 6960 Orchard Lake Rd.
Cadillac, MI 49601 Suite 300
West Bloomfield, MI 48322
Traverse City, MI Heatherlee Yorty-Gosnick 8/31/2000 $3,500.00
3289 W. South Airport Rd. 3295 Lee Point Rd.
Traverse City, MI 49684 Suttons Bay, MI 49682
FLORIDA OFFICES
Port Charlotte, FL Donald Brandt 9/9/2000 $2,568.00
2486 A Tamiami Trail P.O. Box 14366
Port Charlotte, FL 33952 Bradenton, FL 34280
Cape Coral, FL Caper's Plasa, Inc. 2/28/2001 $3,200.00
2126 Del Prado Blvd. 1840 SE 40th Street
Units 1,2,3&4 Cape Coral, FL 33904
Cape Coral, FL 33904
IOWA OFFICE
Marshalltown, IA Ray Osthus - Trial RA Trust 11/30/2001 $1,687.50
Marshalltown Retail Mercantila Bank Bldg
Center 123 West Main Street
3109 Center Street Unit 2 Marshalltown, IA 50158
Marshalltown, IA 50158
UTAH OFFICE
Park City, UT Utah-Pacific Partners, L.P. 3/31/2001 $2,746.33
1612 W. Ute Blvd. c/o Bruce Leidenberger
Suite 106 5333 Mission Center Rd.
Park City, UT 84098 Suite 360
San Diego, CA 92108
</TABLE>
<PAGE> 154
<TABLE>
<CAPTION>
PROPERTY LESSOR EXPIRES MONTHLY BASE
<S> <C> <C> <C>
OREGON OFFICE
Klamath Falls, OR B. Skillington & M. Stewart 12/31/2000 $2,330.00
2650 Washburn Way Tower Enterprises
Suite 140 1763 Washburn Way
Klamath Falls, OR 97603 Klamath Falls, OR 97603
NORTH DAKOTA OFFICE
Fargo, ND Wagner & Ohe and 1/1/2001 $1,466.67
3033 13th Ave. S.W. Associates
Fargo, ND 58103 1001 Center Ave., Suite D
Moorehead, MN 56560
WISCONSIN OFFICE
Menomonie, WI Broadway Plaza, Inc. 9/31/2002 $1,200.00
1400 N. Broadway Street 1400 N. Broadway Street
Menomonie, WI 54751 Menomonie, WI 54751
MONTANA OFFICES
Billings, MT Earnest Bahm & Anita Bahm 1/31/2000 $1,900.00
2219 Grand Avenue 1400 Poly Drive
Billings, MT 59102 P.O. Box 23508
Billings, MT 59104-3508
Havre, MT Ruby M. Worstell 12/31/2000 $1,538.00
437 First Street P.O. Box 2002
Havre, MT 59501 Havre, MT 59501
Missoula, MT Gateway Limited Partnership 2/28/2001 $3,200.00
Northgate Plaza 101 International Way
1900 Sherwood St. P.O. Box 8182
Suite 115 Missoula, MT 59807
Missoula, MT 59802
</TABLE>
<PAGE> 155
SCHEDULE VIII
CAPITALIZATION
1. In connection with the Convertible Stock Purchase transaction
consummated on February 12, 1997, Alta Subordinated Debt
Partners III, L.P., or its assigns, has a Common Stock
Purchase Warrant to purchase 2,103 shares of Common Stock in
Company on or before February 12, 2007; Alta-Comm S By S, LLC,
or its assigns, has a Common Stock Purchase Warrant to
purchase 80 shares of Common Stock in Company on or before
February 12, 2007; and Alta Communications VI, L.P., or its
assigns, has a Common Stock Purchase Warrant to purchase 3,499
shares of Common Stock in Company on or before February 12,
2007.
2. On October 8, 1997, Holdings entered into Non-Qualified Stock
Option Agreements with certain employees of the Borrower
pursuant to the Golden Sky Systems, Inc. Stock Option and
Restricted Stock Purchase Plan, granting options to acquire an
aggregate 62,525 shares of Holdings Common Stock for $1 per
share.
<PAGE> 156
SCHEDULE VIII
PAGE 2
Capitalization
Common Stock and Series A Preferred Stock
List of Investors
<TABLE>
<CAPTION>
INITIAL CLOSING
-------------------------------------------------------------------------------------------
ADDITIONAL CLOSING
NUMBER OF NUMBER AGGREGATE NUMBER OF AGGREGATE
SERIES A OF PURCHASE SERIES A NUMBER OF PURCHASE
PREFERRED COMMON PRICE FOR PREFERRED COMMON PRICE FOR
SHARES SHARES SHARES SHARES SHARES SHARES
NAME (Column 1) (Column 2) (Column 3) (Column 4) (Column 5) (Column 6)
- ---- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Alta Subordinated Debt Partners 31,246 13 $3,124,613 24,286 -- $2,248,600
III, L.P. 51,971 23 5,197,123 40,349 -- 4,039,400
Alta Communications VI, L.P. 1,183 1 118,301 920 -- 92,000
Alta-Comm S By S, LLC
c/o Alta Combinations, Inc.
One Embarcadero Center
Suite 4050
San Francisco CA 94111
Attn: Robert Benbow
Spectrum Equity Investors, L.P. 50,000 12 5,000,012 -- -- --
Spectrum Equity Investors II, -- -- 100,000 25 10,000,025
L.P.
125 High Street, Suite 2600
Boston, MA 02110
Attn: William Collatos
BancBoston Ventures Inc. 33,600 19 3,360,019 41,400 -- 4,140,000
175 Federal Street
Boston, MA 02110
Attn: William O. Charman
The Millenial Fund 500 -- 50,000 -- -- --
c/o G. Jackson Tankersley
The Centennial Funds
1428 15th Street
Denver, CO 80202
</TABLE>
<PAGE> 157
SCHEDULE VIII
PAGE 3
<TABLE>
<CAPTION>
NUMBER OF NUMBER AGGREGATE NUMBER OF AGGREGATE
SERIES A OF PURCHASE SERIES A NUMBER OF PURCHASE
PREFERRED COMMON PRICE FOR PREFERRED COMMON PRICE FOR
SHARES SHARES SHARES SHARES SHARES SHARES
<S> <C> <C> <C> <C> <C> <C>
Builder Investment Partnership 500 -- 50,000 -- -- --
Five Piedmont Center, Suite 700
Atlanta, GA 30305
Attn: Allen A. Builder
Rodney A. Weary Revocable 16,030 1 250,001 -- -- --
Trust Dated 10/25/95
300 West 90th Street
Prairie Village, KS 66207
F.G. Weary III Revocable Trust 2,500 -- 250,001 -- -- --
1508 S. Golf Club Drive
Richmond, MO 64085
Sarah Weary Revocable Trust 2,500 -- 250,001 -- -- --
1508 S. Golf Club Drive
Richmond, MO 64085
Robert B. Liepold 1,000 -- 100,000 -- -- --
6140 Mission Drive
Shawnee Mission, KS 66208
Ron D. Foster 900 -- 90,000 -- -- --
4613 N.E. Whispering Winds Dr.
Lees Summit, MO 64064
Jo Ellen Linn 430 -- 43,000 -- -- --
4613 N.E. Whispering Winds Dr.
Lees Summit, MO 64064
Robert Weaver 1,000 -- 100,000 -- -- --
6221 Belle Rive Dr.
Brentwood, TN 37027
Donald and Barbara Tucker 150 -- 15,000 -- -- --
109 Lord Ashley Drive
Greenville, NC 27858
Robert H. Weaver 350 -- 35,000 -- -- --
1509 Douglas Drive
Jackson, MS 39211
</TABLE>
<PAGE> 158
SCHEDULE VIII
PAGE 4
<TABLE>
<CAPTION>
NUMBER OF NUMBER AGGREGATE NUMBER OF AGGREGATE
SERIES A OF PURCHASE SERIES A NUMBER OF PURCHASE
PREFERRED COMMON PRICE FOR PREFERRED COMMON PRICE FOR
SHARES SHARES SHARES SHARES SHARES SHARES
<S> <C> <C> <C> <C> <C> <C>
Jeff K. or Rebecca D. Ramsey, 100 -- 10,000 -- -- --
Jt. Ten. w/ rights of Survivorship
P.O. Box 2293
Corrales, NM 87048
A Delaware Trust Arthur B. 20 -- 2,000 -- -- --
Ramsey, Trustee
1621 Sagebrush Trail S.E.
Albuquerque, NM 87123
Ramsey Trust Dated 12/14/95 20 -- 2,000 -- -- --
1621 Sagebrush Trail S.E.
Albuquerque, NM 87123
Paul Spurgeon 5,000 -- 5,001 -- -- --
3000 SW 19th Street
Topeka, KS 66604
TOTAL 199,000 75 $19,900,075 207,000 25 $20,700,025
======= == =========== ======= == ===========
</TABLE>
<PAGE> 159
SCHEDULE VIII
PAGE 5
Golden Sky Holdings, Inc.
<TABLE>
<CAPTION>
NAMES SERIES A PREFERRED SHARES
<S> <C>
Andy O'Pry 3,375
Jane O'Pry 250
Robert Wasert 500
Andy O'Pry, Jr. 250
Paul O'Pry 250
Timothy Dewhirst 200
Rick Nerby 200
Michael Buross 50
Cory Duffy 50
Ron Hageman 50
Eric Norgate 100
Shawn Richardson 50
Clinton L. Noren 75
Sandra D. Noren 75
Harold Poulsen 1,000
Carmen Poulsen 200
J. Mark Poulsen 200
Randy Robertson 100
Mark Robertson 100
Shirley Fjield 200
Jack S. Ramirez 200
David Garland O'Pry Irrevocable Trust 200
Andrew O'Pry, Sr. 300
J.W. Braman 1,000
D.H. Braman, Jr. 2,000
Kate S. O'Connor Trust for Thomas Edward Braham 1,000
Jacob Osborne 25
</TABLE>
<PAGE> 160
SCHEDULE VIII
PAGE 6
Series B
Preferred Stock
List of Investors
<TABLE>
<CAPTION>
PRINCIPAL NUMBER OF
AMOUNT OF SERIES B NUMBER OF TOTAL NUMBER
SERIES B CONVERTIBLE SERIES B OF SERIES B
CONVERTIBLE PREFERRED CONVERTIBLE CONVERTIBLE
NOTE SHARES PREFERRED AGGREGATE PREFERRED
PLUS ACCRUED ISSUABLE UPON SHARES PURCHASE SHARES
INTEREST CONVERSION PURCHASED PRICE ISSUABLE
(COLUMN 1) (COLUMN 2) (COLUMN 3) (COLUMN 4) (COLUMN 5)
---------- ---------- ---------- ---------- ----------
NAME
SERIES B OUTSIDE INVESTORS:
<S> <C> <C> <C> <C> <C>
Norwest Equity Partners V $ 3,473,276 17,367 57,758.62 $11,551,724 75,125.62
c/o Norwest Venture Capital
Management, Inc.
2800 Piper Jaffray Tower
222 South Ninth Street
Minneapolis, MN 55402
Attn: Erik Torgerson
Hancock Venture Partners $ 3,473,276 17,367 57,758.62 $11,551,724 75,125.62
V-Direct Fund L.P.
c/o HarbourVest Partners, LLC
One Financial Center
44th Floor
Boston, MA 02111
Attn: Bill Johnson
</TABLE>
<PAGE> 161
SCHEDULE VIII
PAGE 7
<TABLE>
<CAPTION>
PRINCIPAL NUMBER OF
AMOUNT OF SERIES B NUMBER OF TOTAL NUMBER
SERIES B CONVERTIBLE SERIES B OF SERIES B
CONVERTIBLE PREFERRED CONVERTIBLE CONVERTIBLE
NOTE SHARES PREFERRED AGGREGATE PREFERRED
PLUS ACCRUED ISSUABLE UPON SHARES PURCHASE SHARES
INTEREST CONVERSION PURCHASED PRICE ISSUABLE
(COLUMN 1) (COLUMN 2) (COLUMN 3) (COLUMN 4) (COLUMN 5)
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Alta Subordinated Debt $ 514,343.15 2,572 8,553.24 $ 1,710,648 11,125.24
Partners III, L.P.
Alta Communications VI, L.P. $ 855,493.69 4,278 14,226,375 $ 2,845,275 18,504,375
Alta-Comm S By S, LLC $ 19,473.16 98 323,835 $ 64,767 421,835
c/o Alta Combinations, Inc.
One Embarcadero Center
Suite 4050
San Francisco CA 94111
Attn: Robert Benbow
Lion Investments Limited $ 289,330.55 1,447 3,563.76 $ 712,752 5,010.76
Westpool Investment Trust plc $ 867,993.66 4,340 10,691.27 $ 2,138,254 15,031.27
c/o London Merchant
Securities
Carlton House
33 Robert Adam Street
London WIM 5AH
England
Attn: Iain MacPhail
Weber Family Trust $ 434.12 3 72,845 $ 14,569 75,845
dated 1/6/89
c/o Eugene M. Weber
50 California Street
Suite 3200
San Francisco, CA 94111
Attn: Eugene M. Weber
</TABLE>
<PAGE> 162
SCHEDULE VIII
PAGE 8
<TABLE>
<CAPTION>
PRINCIPAL NUMBER OF
AMOUNT OF SERIES B NUMBER OF TOTAL NUMBER
SERIES B CONVERTIBLE SERIES B OF SERIES B
CONVERTIBLE PREFERRED CONVERTIBLE CONVERTIBLE
NOTE SHARES PREFERRED AGGREGATE PREFERRED
PLUS ACCRUED ISSUABLE UPON SHARES PURCHASE SHARES
INTEREST CONVERSION PURCHASED PRICE ISSUABLE
(COLUMN 1) (COLUMN 2) (COLUMN 3) (COLUMN 4) (COLUMN 5)
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
BancBoston Ventures Inc. $578,879.67 2,895 9,626,435 $1,925,287 12,521,435
175 Federal Street
10th Floor
Boston, MA 02110
Attn: William Charman
General Electric Capital Corporation -- -- 15,000 $3,000,000 15,000
120 Long Ridge Road
3rd Floor
Stamford, CT 06927
Attn: Peter Foley
The Millennial Fund -- -- 250 $50,000 250
c/o G. Jackson Tankersley, Jr.
The Centennial Funds
1428 15th Street
Denver, CO 80202
Builder Investment -- -- 250 $50,000 250
Partnership
Five Piedmont Center
Suite 700
Atlanta, GA 30305
Attn: Allen A. Builder
</TABLE>
<PAGE> 163
SCHEDULE IX
SUBSIDIARIES
Golden Sky Holdings, Inc. owns 100% of Golden Sky Systems, Inc. (Borrower)
Golden Sky Systems, Inc. (Borrower) owns 100% of Argos Support Services Company
Golden Sky Systems, Inc. (Borrower) owns 100% of DCE Satellite Entertainment,
LLC
Golden Sky Systems, Inc. (Borrower) owns 70.25% of South Plains DBS Limited
Partnership
<PAGE> 164
SCHEDULE X
PATENTS AND LICENSES
None.
<PAGE> 165
SCHEDULE XI
EXISTING INDEBTEDNESS
1. Promissory Note and Security Agreement issued May 1, 1997 to Western
Montana DBS, Inc., d/b/a Rocky Mountain DBS in the amount of $2,350,000 which
matures May 1, 1999, paid in full on the Restatement Effective Date.
2. Promissory Note and Security Agreement issued June 12, 1997 to TEG
DBS Services, Inc. in the amount of $2,500,000 which matures June 12, 1999 with
quarterly interest payments.
3. Promissory Note issued December 22, 1997 to Western Montana
Entertainment Television, Inc. in the amount of $3,750,000 which matures June 1,
2002.
4. Other Permitted Indebtedness
See attached chart.
<PAGE> 166
Permitted Liens
<TABLE>
<CAPTION>
Name of Debtor State Office Secured Party/ Type of Number File Date
Plaintiff Filing
- ---------------------------------------- --------- --------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Golden Sky Systems, Inc. NV SOS TEG DBS Services Inc. UCC-1 9710408-U 16-Jun-97
Golden Sky Systems, Inc. MN SOS T&W Funding UCC-1 2017690 6-Mar-98
Company I, LLC
Golden Sky Systems, Inc. MO SOS Financial Associates UCC-1 2768049 17-Mar-97
Golden Sky Systems, Inc. MO SOS Commercial Capital UCC-1 2784168 28-Apr-97
Corporation
Golden Sky Systems, Inc. MO SOS Commercial Capital UCC-1 2797559 5-Jun-97
Corporation
Golden Sky Systems, Inc. MO SOS T&W UCC-1 2810205 14-Jul-97
Financial Corporation
Golden Sky Systems, Inc. MO SOS T&W UCC-1 2812910 23-Jul-97
Financial Corporation
Golden Sky Systems, Inc. MO SOS T&W UCC-1 2825625 26-Aug-97
Financial Corporation
Golden Sky Systems, Inc. MO SOS T&W UCC-1 2832790 19-Sep-97
Financial Corporation
Golden Sky Systems, Inc. MO SOS T&W UCC-1 2844339 24-Oct-97
Financial Corporation
Golden Sky Systems, Inc. MO SOS T&W UCC-1 2852885 18-Nov-97
Financial Corporation
Golden Sky Systems, Inc. MO SOS T&W UCC-1 2852886 18-Nov-97
Financial Corporation
Golden Sky Systems, Inc. MO SOS T&W UCC-1 2852887 18-Nov-97
Financial Corporation
Golden Sky Systems, Inc. MO SOS T&W Funding Company UCC-1 2858638 5-Dec-97
Golden Sky Systems, Inc. MO SOS T&W Funding Company UCC-1 2878313 9-Feb-98
Golden Sky Systems, Inc. MO SOS T&W Funding Company UCC-1 2878314 9-Feb-98
Golden Sky Systems, Inc. MO SOS T&W Funding Company UCC-1 2878315 9-Feb-98
Golden Sky Systems, Inc. MO SOS T&W Funding Company UCC-1 2879720 13-Feb-98
Golden Sky Systems, Inc. MO SOS T&W Funding Company UCC-1 2882272 24-Feb-98
Golden Sky Systems, Inc. MO SOS T&W Funding Company UCC-1 2887887 9-Mar-98
Golden Sky Systems, Inc. MO SOS T&W Funding Company UCC-1 2887890 9-Mar-98
Golden Sky Systems, Inc. MO SOS T&W Funding Company UCC-1 2887899 9-Mar-98
Golden Sky Systems, Inc. MO SOS T&W Funding Company UCC-1 2887915 9-Mar-98
Golden Sky Systems, Inc. MO SOS T&W Funding Company UCC-1 2904521 17-Apr-98
Golden Sky Systems, Inc. MI SOS T&W Funding Company UCC-1 D363501 17-Apr-98
</TABLE>
<PAGE> 167
SCHEDULE XII
INSURANCE
I. Insurance Policy Numbers
1. 37UUNEX5439
2. 37WBBB1970
3. 37MSEX4740 (computer policy)
4. 37HUEX7760 (umbrella policy)
Insurance Policies are on file with White & Case
II. Directors and Officers Liability Coverage
See attached document.
III. Certificate of Insurance
See attached document.
<PAGE> 168
WESTROPE & ASSOCIATES COVERNOTE OF INSURANCE
920 Baltimore Avenue
Kansas City, Mo 64105 No. NSP2421912
Telephone: (816) 842-8222
Fax: (816) 842-3081
Named Insured:
GOLDEN SKY HOLDINGS
605 W. 47TH STREET, STE 300
KANSAS CITY MO 64112
(913) 451-3900
MONTE GIDDINGS
CLINE-WOOD AGENCY, INC. Insurance described below has been effected
10901 LOWELL, #130 with the following company or companies:
OVERLAND PARK KS 66210 Name of insurer(s)
Great American Ins. Co. 100%
Effective: 04-20-98 to 04-20-99
Limits: $5,000,000 LIMIT OF LIABILITY Premium
$ 70,000.00
Coverage: DIRECTORS & OFFICERS LIABILITY
Deductible: $0 EA DIRECTOR/$0 ALL DIRECTORS/
$100,000 COMPANY REIMBURSEMENT TOTAL CHARGED $ 70,000.00
Endorsements and special conditions See attached Form DEF-0033
Minimum Earned Premium Regardless of Term: 25%
Premium is Minimum & Deposit.
30 Day Notice of Cancellation - 10 Day for Non-Payment.
CARRIER ADMITTED - NO TAX APPLIES
*SEE ATTACHED TERMS AND CONDITIONS*
If the Assured shall make any claim knowing the same
to be false or fraudulent, as regards amount or otherwise,
this certificate shall become void, and all claims thereunder
shall be forfeited.
COVER NOTE PROVISIONS
1. Cancellation of this Cover Notice shall be in accordance with
the provisions of the applicable policy.
2. This Cover Note shall be terminated by the issuance of the
policy by the Company and the premium shall be credited
thereon.
3. This insurance is further subject to the terms, conditions,
and limitations of the policy(ies) in current use by the above
mentioned Company(ies).
Signed at Kansas City, MO, on April 21, 1998
WESTROPE & ASSOCIATES
By___________________
SUPPLEMENTAL TERMS AND CONDITIONS
<PAGE> 169
WESTROPE & ASSOCIATES COVERNOTE OF INSURANCE
920 Baltimore Avenue
Kansas City, Mo 64105 No. NSP2421912
Telephone: (816) 842-8222
Fax: (816) 842-3081
Reference Number: NSP2421912 Date; April 20, 1998
Name Insured: GOLDEN SKY HOLDINGS
GREAT AMERICAN INSURANCE COMPANY - POLICY FORM D100A
CONDITIONS/ENDORSEMENTS/EXCLUSIONS:
Non-Profit Outside Directorship Liability Coverage
Non-Cancelable Policy except for Non-Payment of Premium with
60 days Notice of Non-Renewal
Spousal Extension
Nuclear Energy Exclusion
Prior and Pending Litigation Exclusion at Inception
Subsidiary Wrongful Acts Exclusion
Advancement of Defense Costs - all sides
100% Entity Coverage for Securities Claims (waiver of SEC
retention provided in endorsement)
Notice of Offering
Worldwide Coverage Endorsement
Addition to Section VIII Endorsement
Provides Pay on Behalf wording (all insuring clauses)
Allows for Notice of Circumstances during the
Discovery Period
Provides for Director and Officer "status" liability
coverage
Deletes "solely" from the definition of Wrongful Act
Amend the definition of Claim to include "written
coverage
Presumptive Indemnification amendment
Allows for Notice of Circumstances for up to 90 days
after the expiration date
Bilateral Discovery - 12 months at 75% of annual premium
Subsidiary Coverage
Non-Entity Employment Practices Liability coverage
Modification to Section IV Endorsement
Deletes Hostile Takeover Exclusion
Amends BI/PD Exclusions to "for" wording
Amend "profit or advantage" and "dishonesty"
exclusions from "in fact" wording to "final
adjudication" wording
Amends Insured vs Insured to provide for cross
claims/third party claims with: "Affiliate" word
deleted
Amendment to definition of Loss - Punitive Damages
where insurable
Addition to Section VII General Conditions to add
term general Partnerships
Outside Directorship coverage for Golden Eagle Gale
and Unicom
<PAGE> 170
WESTROPE & ASSOCIATES COVERNOTE OF INSURANCE
920 Baltimore Avenue
Kansas City, Mo 64105 No. NSP2421912
Telephone: (816) 842-8222
Fax: (816) 842-3081
***SUBJECT TO RECEIPT, REVIEW AND APPROVAL OF***
1. Original signed and dated Great American Insurance Companies
Proposal Form for Directors' and Officers' Liability
insurance.
2. Provide further details regarding the response(s) to
Question(s) No. 10 of the American International Companies
application.
3. The Outside Directorship coverage provided by Endorsement No.
D406 is subject to receipt, review and acceptance of the most
recent audited financial statements for Golden Eagle Gale.
4. Please provide details on partnerships in which the company
participates including disclosure of general and limited
partnerships as well as the latest audited financial
statements, if available.
NOTE:
This indication expires 30 days from the date referenced above. If between the
date of this indication and the effective Date of the policy there is a
significant adverse change in the condition of the Proposed Insured or an event
which could substantially change the underwriting evaluation of the Proposed
Insured, then at the company's option, this indication may be withdrawn.
In the event of any conflict or ambiguity between the proposed policy and any
statements made concerning this coverage, the proposed policy shall control.
<PAGE> 171
CERTIFICATE OF INSURANCE Date (mm/dd/yy)
05/05/98
<TABLE>
<S> <C> <C>
(301) 220-3200 THIS CERTIFICATE IS ISSUED AS A MATTER OF
Telcom Insurance Company INFORMATION ONLY AND CONFERS NO RIGHTS UPON
6301 Ivy Lane - Suite 506 THE CERTIFICATE HOLDER. THIS CERTIFICATE DOE
Greenbelt, MD 20770 NOT AMEND, EXTEND OR ALTER THIS COVERAGE
AFFORDED BY THE POLICIES BELOW.
COMPANIES AFFORDING COVERAGE
Company
A THE TRAVELERS INDEMNITY CO. OF IL
Company
B
South PlainsDBS L.P.
DBA Digital Satellite Television Company
C/O Poka-Lambro Telco, Inc. C
P.O. Box 1340, Hwy 87
Tahoka, TX 79373 Company
D
</TABLE>
COVERAGES
THIS IS TO CERTIFY THAT THE POLICIES OF INSURANCE LIMITED BELOW HAVE
BEEN ISSUED TO THE INSURED NAMED ABOVE FOR THE POLICY INDICATED.
NOTWITHSTANDING ANY REQUIREMENT, TERM OF CONDITION OF ANY CONTRACT OR
OTHER DOCUMENT WITH RESPECT TO WHICH THIS CERTIFICATE MAY BE ISSUED OR
MAY PERTAIN. THE INSURANCE AFFORDED BY THE POLICIES DESCRIBED HEREIN IS
SUBJECT TO ALL THE TERMS, EXCLUSIONS AND CONDITIONS OF SUCH POLICIES.
LIMITS SHOWN MAY HAVE BEEN REDUCED BY PAID CLAIMS.
<TABLE>
<CAPTION>
CO POLICY POLICY
LTR TYPE OF INSURANCE POLICY NUMBER EFFECTIVE EXPIRATION
DATE DATE LIMITS
<S> <C> <C> <C> <C> <C>
GENERAL LIABILITY UJ-660-190X6759-TIL-97 09/01/97 08/01/98 $ 2,000,000
$ 1,000,000
$ 1,000,000
$ 1,000,000
$ 50,000
$ 5,000
UJ-660-190X6759-TIL-97 08/01/97 08/01/98 $ 1,000,000
</TABLE>
<PAGE> 172
OTHER
DESCRIPTION OF OPERATIONS/LOCATIONS/VEHICLES/SPECIAL ITEMS
<TABLE>
<CAPTION>
CERTIFICATE HOLDERS CANCELLATION
<S> <C>
Fleet National Bank SHOULD ANY OF THE ABOVE DESCRIBED POLICIES BE CANCELLED
Attn: Mark Bernier BEFORE THE EXPIRATION DATE THEREOF, THE ISSUING COMPANY
1 Federal Street WILL ENDEAVOR TO MAIL 60 DAYS WRITTEN NOTICE TO THE
Boston, MA 02110 CERTIFICATE HOLDER NAMED TO THE LEFT, BUT FAILURE TO MAIL
SUCH NOTICE SHALL IMPOSE NO OBLIGATION OR LIABILITY OF ANY
KIND UPON THE COMPANY, ITS AGENTS OR REPRESENTATIVES.
</TABLE>
Authorized Representative
<PAGE> 173
SCHEDULE XIII
EXISTING LIENS
1. Promissory Note and Security Agreement issued June 12, 1997 to
TEG DBS Services, Inc. in the amount of $2,500,000 which
matures June 12, 1999 with quaterly interest payments.
2. Promissory Note issued December 22, 1997 to Western Montana
Entertainment Television, Inc. in the amount of $3,750,000
which matures June 1, 2002.
3. Other Permitted Indebtedness
See attached chart.
<PAGE> 174
Permitted Liens
<TABLE>
<CAPTION>
NAME OF DEBTOR State Office Secured Party/ Type of Number File Date
Plaintiff Filing
<S> <C> <C> <C> <C> <C> <C>
Golden Sky Systems, Inc. NV SOS TEG DBS Services Inc. UCC-1 9710408-U 16-Jun-97
Golden Sky Systems, Inc. MN SOS T&W Funding UCC-1 2017690 6-Mar-98
Company I, LLC
Golden Sky Systems, Inc. MO SOS Financial Associates UCC-1 2768049 17-Mar-97
Golden Sky Systems, Inc. MO SOS Commercial Capital UCC-1 2784168 28-Apr-97
Corporation
Golden Sky Systems, Inc. MO SOS Commercial Capital UCC-1 2797559 5-Jun-97
Corporation
Golden Sky Systems, Inc. MO SOS T&W Financial UCC-1 2810205 14-Jul-97
Corporation
Golden Sky Systems, Inc. MO SOS T&W Financial UCC-1 2812910 23-Jul-97
Corporation
Golden Sky Systems, Inc. MO SOS T&W Financial UCC-1 2825625 26-Aug-97
Corporation
Golden Sky Systems, Inc. MO SOS T&W Financial UCC-1 2832790 19-Sep-97
Corporation
Golden Sky Systems, Inc. MO SOS T&W Financial UCC-1 2844339 24-Oct-97
Corporation
Golden Sky Systems, Inc. MO SOS T&W Financial UCC-1 2852885 18-Nov-97
Corporation
Golden Sky Systems, Inc. MO SOS T&W Financial UCC-1 2852886 18-Nov-97
Corporation
Golden Sky Systems, Inc. MO SOS T&W Financial UCC-1 2852887 18-Nov-97
Corporation
Golden Sky Systems, Inc. MO SOS T&W Funding Company UCC-1 2858638 5-Dec-97
Golden Sky Systems, Inc. MO SOS T&W Funding Company UCC-1 2878313 9-Feb-98
Golden Sky Systems, Inc. MO SOS T&W Funding Company UCC-1 2878314 9-Feb-98
Golden Sky Systems, Inc. MO SOS T&W Funding Company UCC-1 2878315 9-Feb-98
Golden Sky Systems, Inc. MO SOS T&W Funding Company UCC-1 2879720 13-Feb-98
Golden Sky Systems, Inc. MO SOS T&W Funding Company UCC-1 2882272 24-Feb-98
Golden Sky Systems, Inc. MO SOS T&W Funding Company UCC-1 2887887 9-Mar-98
Golden Sky Systems, Inc. MO SOS T&W Funding Company UCC-1 2887890 9-Mar-98
Golden Sky Systems, Inc. MO SOS T&W Funding Company UCC-1 2887899 9-Mar-98
Golden Sky Systems, Inc. MO SOS T&W Funding Company UCC-1 2887915 9-Mar-98
Golden Sky Systems, Inc. MO SOS T&W Funding Company UCC-1 2904521 17-Apr-98
Golden Sky Systems, Inc. MI SOS T&W Funding Company UCC-1 D363501 17-Apr-98
</TABLE>
<PAGE> 175
EXHIBIT A
NOTICE OF BORROWING
[Date]
Fleet National Bank, as Administrative
Agent for the Banks party to the
Credit Agreement referred to below
Mail Stop MA0FD03D
I Federal Street
Boston, MA 02110
Attention: Christopher A. Swindell
Ladies and Gentlemen:
The undersigned, Golden Sky Systems, Inc. (the "Borrower"), refers to
the Amended and Restated Credit Agreement, dated as of July 7, 1997, amended and
restated as of May __, 1998 (as amended from time to time, the "Credit
Agreement," the terms defined therein being used herein as therein defined),
among Golden Sky Holdings, Inc., the Borrower, certain financial institutions
from time to time party thereto (the "Banks"), Banque Paribas, as Syndication
Agent, you, as Administrative Agent for such Banks, and General Electric Capital
Corporation, as Documentation Agent, and hereby gives you notice, irrevocably,
pursuant to Section 1.03 of the Credit Agreement, that the undersigned hereby
requests a Borrowing under the Credit Agreement, and in that connection sets
forth below the information relating to such Borrowing (the "Proposed
Borrowing") as required by Section 1.03 of the Credit Agreement:
(i) The Business Day of the Proposed Borrowing is ,
19__.(1)
(ii) The aggregate principal amount of the Proposed Borrowing
is $________ .
(iii) The Proposed Borrowing is to consist of [Term Loans]
[Revolving Loans].
- --------
(1) Shall be a Business Day at least one Business Day in the case
of Base Rate Loans and three Business Days in the case of
Eurodollar Loans, in each case, after the date hereof.
<PAGE> 176
EXHIBIT A
PAGE 2
(iv) The Loans to be made pursuant to the Proposed Borrowing
shall be initially maintained as [Base Rate Loans] [Eurodollar
Loans].(2)
[(v) The initial Interest Period for the Proposed Borrowing
shall be month(s).](3)
The Undersigned hereby certifies that the following statements are true
on the date hereof, and will be true on the date of the Proposed Borrowing:
(A) the representations and warranties contained in the Credit
Agreement and the other Credit Documents are and will be true and correct
in all material respects, before and after giving effect to the Proposed
Borrowing and to the application of the proceeds thereof (except for any
representation and warranty that speaks only as of a specific date, which
shall be true and correct in all material respects as of such date), as
though made on such date; [and]
(B) no Default or Event of Default has occurred and is continuing, or
would result from such Proposed Borrowing or from the application of the
proceeds thereof[.] [; and]
[(C), all of the conditions to the Proposed Borrowing contained in
Section 5.03 and 7.15 have been satisfied.(4)
Very truly yours,
GOLDEN SKY SYSTEMS, INC.
By________________________
Name:
Title:
- --------
(2) Eurodollar Loans may not be incurred prior to the Syndication
Termination Date.
(3) To be included for a Proposed Borrowing of Eurodollar Loans.
(4) To be included for a Proposed Borrowing of Loans, the proceeds
of which are to be utilized to effect, in whole or in part, a
Permitted Acquisition.
<PAGE> 177
EXHIBIT B-1
TERM NOTE
$_____________
New York, New York
May 8,1998
FOR VALUE RECEIVED, Golden Sky Systems, Inc., a Delaware corporation
(the "Borrower"), hereby promises to pay to the order of ___________ (the
"Bank"), in lawful money of the United States of America in immediately
available funds, at the office of Fleet National Bank (the "Administrative
Agent") located at Mail Stop MA0FD03D, 1 Federal Street, Boston, MA 02110 on the
Term Loan Maturity Date (as defined in the Agreement referred to below) the
principal sum of ($ ) or, if less, the then unpaid principal amount
of all Term Loans (as defined in the Agreement) made by the Bank pursuant to the
Agreement.
The Borrower promises also to pay interest on the unpaid
principal amount hereof in like money at said office from the date hereof until
paid at the rates and at the times provided in Section 1.08 of the Agreement
referred to below.
This Note is one of the Term Notes referred to in the Amended
and Restated Credit Agreement, dated as of July 7, 1997, amended and restated as
of May 8, 1998, among Golden Sky Holdings, Inc., the Borrower, the financial
institutions from time to time party thereto (including the Bank), Banque
Paribas, as Syndication Agent, Fleet National Bank, as Administrative Agent, and
General Electric Capital Corporation, as Documentation Agent (as from time to
time in effect, the "Agreement") and is entitled to the benefits thereof. This
Note is also entitled to the benefits of the Guaranties (as defined in the
Agreement) and is secured by and entitled to the benefits of the Security
Documents (as defined in the Agreement). As provided in the Agreement, this Note
is subject to voluntary prepayment and mandatory repayment prior to the Term
Loan Maturity Date, in whole or in part.
In case an Event of Default (as defined in the Agreement)
shall occur and be continuing, the principal of and accrued interest on this
Note may be declared to be due and payable in the manner and with the effect
provided in the Agreement.
The Borrower hereby waives presentment, demand, protest or
notice of any kind in connection with this Note.
<PAGE> 178
EXHIBIT B-1
PAGE 2
THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE
GOVERNED BY THE LAW OF THE STATE OF NEW YORK.
GOLDEN SKY SYSTEMS, INC.
By________________________
Name:
Title:
<PAGE> 179
EXHIBIT B-2
REVOLVING NOTE
$__________________ New York, New York
May 8,1998
FOR VALUE RECEIVED, Golden Sky Systems, Inc., a Delaware
corporation (the "Borrower"), hereby promises to pay to the order of (the
"Bank"), in lawful money of the United States of America in immediately
available funds, at the office of Fleet National Bank (the "Administrative
Agent") located at Mail Stop MA0FD03D, 1 Federal Street, Boston, MA 02110, the
Revolving Loan Maturity Date (as defined in the Agreement referred to below) the
principal sum of ($ ) or, if less, the then unpaid principal amount of
all Revolving Loans (as defined in the Agreement) made by the Bank pursuant to
the Agreement.
The Borrower promises also to pay interest on the unpaid
principal amount hereof in like money at said office from the date hereof until
paid at the rates and at the times provided in Section 1.08 of the Agreement
referred to below.
This Note is one of the Revolving Notes referred to in the
Amended and Restated Credit Agreement, dated as of July 7, 1997, amended and
restated as of May 8, 1998, among Golden Sky Holdings, Inc., the Borrower, the
financial institutions from time to time party thereto (including the Bank),
Banque Paribas, as Syndication Agent, Fleet National Bank, as Administrative
Agent, and General Electric Capital Corporation, as Documentation Agent (as from
time to time in effect, the "Agreement") and is entitled to the benefits
thereof. This Note is also entitled to the benefits of the Guaranties (as
defined in the Agreement) and is secured by and entitled to the benefits of the
Security Documents (as defined in the Agreement). As provided in the Agreement,
this Note is subject to voluntary prepayment and mandatory repayment prior to
the Revolving Loan Maturity Date, in whole or in part.
In case an Event of Default (as defined in the Agreement) shall occur
and be continuing, the principal of and accrued interest on this Note may be
declared to be due and payable in the manner and with the effect provided in the
Agreement.
The Borrower hereby waives presentment, demand, protest or notice of
any kind in connection with this Note.
<PAGE> 180
EXHIBIT B-2
PAGE 2
THE NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED
BY THE LAW OF THE STATE OF NEW YORK.
GOLDEN SKY SYSTEMS, INC.
By_________________________
Name:
Title:
<PAGE> 181
EXHIBIT C
NOTICE OF CONVERSION
[Date]
Fleet National Bank, as Administrative
Agent for the Banks party to the
Credit Agreement referred
to below
Mail Stop MA0FD03D
1 Federal Street
Boston, MA 02110
Attention: Christopher A. Swindell
Ladies and Gentlemen:
The undersigned, Golden Sky Systems, Inc. (the "Borrower"), refers to
the Amended and Restated Credit Agreement, dated as of July 7, 1997, amended and
restated as of May , 1998 (as amended from time to time, the "Credit
Agreement," the terms defined therein being used herein as therein defined),
among Golden Sky Holdings, Inc., the Borrower, certain financial institutions
from time to time party thereto (the "Banks"), Banque Paribas, as Syndication
Agent, you, as Administrative Agent for such Banks, and General Electric Capital
Corporation, as Documentation Agent, and hereby gives you notice, irrevocably,
pursuant to Section 1.06 of the Credit Agreement, that the undersigned hereby
requests a conversion of a Loan or Loans under the Credit Agreement, and in that
connection sets forth below the information relating to such Conversion (the
"Proposed Conversion") as required by Section 1.06 of the Credit Agreement:
(i) The Business Day of the Proposed Conversion is 199_.(1)
(ii) The aggregate principal amount of the Proposed Conversion is
$ .
(iii) The Loan[s] to be converted [is/are] [Term Loan[s]] and
[Revolving Loan[s]].
- ------------
(1) Shall be a Business Day at least three Business Days after the earlier
of (i) the date hereof and (ii) the date on which telephonic notice was
given (which telephonic notice was promptly confirmed in writing).
<PAGE> 182
EXHIBIT C
PAGE 2
(iv) The Borrowing[s] pursuant to which the Loan[s] in clause (iii)
were made [is/are] currently outstanding as [Base Rate/Eurodollar](2) Loans and
[is/are] hereby requested to be converted into [Eurodollar/Base Rate] Loans and
[was/were] made on , 19 .
[(v) The Loan[s] to be converted into Eurodollar Loans shall initially
have an Interest Period of .________________](3)
[The undersigned hereby certifies that on the date hereof, and on the
date of the Proposed Conversion, no Default or Event of Default has occurred and
is continuing, or would result from such Proposed Conversion or from the
application of the proceeds thereof.](2)
Very truly yours,
GOLDEN SKY SYSTEMS, INC.
By_____________________
Name:
Title:
- ------------
(2) Base Rate Loans may not be converted into Eurodollar Loans
prior to the Syndication Termination Date.
(3) To be included in the event the Loan is to be converted into a
Eurodollar Loan.
<PAGE> 183
EXHIBIT D
LETTER OF CREDIT REQUEST
No. (1) Dated (2)
Fleet National Bank, is Administrative Agent and as Issuing
Bank, under the Amended and Restated Credit Agreement
(as amended, modified or supplemented frozen time to
time, the "Credit Agreement"), dated as of July 7, 1997,
amended and restated as of May ___, 1998, among Golden
Sky Holdings, Inc., Golden Sky Systems, Inc., the
financial institutions from time to time party thereto,
Banque Paribas, as Syndication Agent, Fleet National
Bank, as Administrative Agent, and General Electric
Capital Corporation, as Documentation Agent
Mail Stop MA0FD03D
1 Federal Street
Boston, MA 02110
Attention: Christopher A. Swindell
[Issuing Bank if different from Fleet]
Ladies and Gentlemen:
We hereby request that the Issuing Bank referred to above issue a
standby Letter of Credit for the account of the undersigned on (3) (the "Date of
Issuance") in the aggregate stated amount of (4) .
______________________
(1) Letter of Credit Request Number.
(2) Date of Letter of Credit Request.
<PAGE> 184
EXHIBIT D
PAGE 2
For purposes of this Letter of Credit Request, unless
otherwise defined herein, all capitalized terms used herein which are defined in
the Credit Agreement shall have the respective meanings provided therein.
The beneficiary of the requested Letter of Credit will be (5),
and such Letter of Credit will be in support of (6) and will have a stated
expiration date of (7) .
We hereby certify that:
(A) The representations and warranties contained in the Credit
Agreement and the other Credit Documents will be true and correct in all
material respects, before and after giving effect to the issuance of the Letter
of Credit requested hereby (except for any representation and warranty that
speaks only as of a specific date, which shall be true and correct in all
material respects as of such date), on the Date of Issuance.
(B) No Default or Event of Default has occurred and is
continuing nor, after giving effect to the issuance of the Letter of Credit
requested hereby, would such a Default or Event of Default occur.
Copies of all documentation with respect to the supported
transaction are attached hereto.
GOLDEN SKY SYSTEMS, INC.
By_______________________
Name:
Title:
________________________
(... continued)
(3) Date of Issuance at least ten Business Days from the date indicated in
(2) above (or such shorter period as is acceptable to the Issuing Bank
in any given case).
(4) Aggregate initial stated amount of Letter of Credit.
(5) Insert name and address of beneficiary.
(6) Insert description of L/C Supportable Indebtedness and describe
obligation to which it relates.
(7) Insert last date upon which drafts may be presented which may not be
later than the earlier of 12 months after the Date of Issuance and the
third Business Day preceding the Revolving Loan Maturity Date.
<PAGE> 185
EXHIBIT E
Section 3.04(b)(ii) Certificate
Reference is hereby made to the Amended and Restated Credit
Agreement, dated as of July 7, 1997, amended and restated as of May ___, 1998
among Golden Sky Holdings, Inc., Golden Sky System, Inc., the financial
institutions from time to time party thereto, Banque Paribas, as Syndication
Agent, Fleet National Bank, as Administrative Agent, and General Electric
Capital Corporation, as Documentation Agent, as amended through the date hereof
(the "Credit Agreement"). Pursuant to the provisions of Section 3.04(b)(ii) of
the Credit Agreement, the undersigned hereby certifies that it is not a "bank"
as such term is used in Section 881(c)(3)(A)of the Internal Revenue Code of
1986, as amended.
[NAME OF BANK]
By____________________
Name:
Title:
Date:
<PAGE> 186
EXHIBIT F
[Letterhead of Reboul, MacMurray, Hewitt, Maynard & Kristol]
May 8, 1998
To the Agents, the Collateral Agent,
GECC and each of the Banks party to
the Credit Agreement referred to below
Ladies and Gentlemen:
We have acted as counsel to Golden Sky Holdings, Inc., a
Delaware corporation ("Holdings"), Golden Sky Systems, Inc., a Delaware
corporation (the "Borrower"), and Argos Support Services Company, a Texas
corporation ("Argos," and together with Holdings and the Borrower, the "Loan
Parties") in connection with the preparation, execution and delivery of the
Amended and Restated Credit Agreement, dated as of July 7, 1997 amended and
restated as of May 8, 1998 (the "Credit Agreement"), among Holdings, the
Borrower, the financial institutions party thereto from time to time (the
"Banks"), Banque Paribas, as Syndication Agent("Banque Paribas"), Fleet National
Bank, as Administrative Agent ("Fleet" and, together with Banque Paribas, the
"Agents"), and General Electric Capital Corporation, as Documentation Agent
("GECC"), and the transactions contemplated thereby. This opinion is delivered
to you pursuant to Section 4.03(i) of the Credit Agreement. Unless otherwise
defined herein, terms used herein shall have the respective meanings set forth
in the Credit Agreement.
For purposes of this opinion, we have examined originals or
copies, certified or otherwise identified to our satisfaction of, the following
documents (the documents referred to in paragraphs (a) through (j) below being
hereinafter referred to as the "Credit Documents"):
(1) the Credit Agreement, including schedules and exhibits
thereto;
<PAGE> 187
EXHIBIT F
Page 2
(2) the Notes;
(3) the Subsidiaries Guaranty;
(4) the Holdings Pledge Agreement, including annexes thereto;
(5) the Borrower/Subsidiary Pledge Agreement, including
annexes thereto;
(6) the Security Agreement, including annexes thereto;
(7) the Security Documents Acknowledgment, including schedules
thereto;
(8) the Collateral Assignment of Marketing and Distribution
Agreements;
(9) the Form UCC-1 financing statements in the form attached
hereto as Exhibit I (the "Financing Statements") to be
filed in respect of the Security Agreement in the Uniform
Commercial Code filing offices listed on Exhibit II hereto
(the "Filing Offices") located in the States (the "Foreign
Jurisdictions") set forth on said Exhibit, naming the
Borrower, as debtor, and the Collateral Agent, as secured
party;
(10) The Reorganization Transaction Documents.
We have also examined the originals, or copies certified or
otherwise identified to our satisfaction, of such other documents, corporate
records, certificates or comparable documents of public officials and of
officers and representatives of the Loan Parties and have made such inquiries of
such officers and representatives of the Loan Parties as we have deemed relevant
and necessary as a basis for the opinions expressed below.
In such examination, we have assumed the genuineness of all
signatures (other than those of the Loan Parties), the due authorization,
execution and delivery of each Credit Document by all parties to such document
other than the Loan Parties, the authenticity of all documents submitted to us
as original documents, the conformity to original documents of all documents
submitted to us as copies thereof and the legal capacity of individuals
executing documents in their individual capacity. As to all questions of fact
material to this opinion that have not been independently established, we have
relied upon certificates or comparable documents of officers and
representatives of the Loan Parties and upon the factual representations and
warranties of the Loan Parties contained in the Credit Documents.
References to:
<PAGE> 188
EXHIBIT F
Page 3
(i) the term "Applicable Laws" means (A) those laws,
rules and regulations of the United States of America
and of the State of New York which are customarily
applicable to transactions of the type contemplated
by the Credit Documents and (B) the General
Corporation Law of the State of Delaware;
(ii) the term "Governmental Authority" means (A) any
executive, legislative, judicial, administrative or
regulatory body of the United States of America or
the State of New York and (B) the Secretary of State
of the State of Delaware and the Recorder of Deeds of
the county in which the registered office of the
Borrower is located in the State of Delaware; and
(iii) the term "Governmental Approval" means any consent,
approval, license, authorization or validation of, or
filing, recording or registration with, any
Governmental Authority pursuant to Applicable Laws.
Furthermore, whenever used herein and with respect to any
matter, the words "to our knowledge" or words of similar purport refer to the
actual knowledge of the lawyers of this firm who have responsibility for our
representation of the Loan Parties in connection with the Credit Documents.
Based on the foregoing examination, and subject to the
assumptions, exceptions, limitations and qualifications herein stated, we are of
the following opinion:
1. Each of Holdings and the Borrower is a duly organized and
validly existing corporation in good standing under the laws of the State of
Delaware. Based solely on our review of certificates from the Secretary of State
of the State of Texas, Argos is a validly existing corporation in good standing
under the laws of the state of Texas. Each of the Loan Parties has the corporate
power and authority to own its property and assets and to transact the business
in which it is engaged. Based solely on our review of certificates from the
Secretary of State or other comparable governmental authority of the States
listed on Exhibit III hereto, each of the Loan Parties is duly qualified and is
authorized to do business in the States set forth opposite the name of such Loan
Party on said Exhibit III.
2. Each of the Loan Parties has the corporate power and
authority to execute, deliver and perform the terms and provisions of each of
the Credit Documents to which it is a party and has taken all necessary
corporate action to authorize the execution, delivery and performance of the
Credit Documents to which it is a party. Each of the Loan Parties has duly
executed and delivered each of the Credit Documents to which it is a party and
each of such Credit Documents constitutes the legal, valid and binding
obligation of such Loan Party enforceable against such Loan Party in accordance
with its terms.
<PAGE> 189
EXHIBIT F
Page 4
3. Neither the execution and delivery of the Credit Documents
to which it is party by each of the Loan Parties, nor compliance with any of the
provisions thereof, will (i) violate any provision of Applicable Law (including,
without limitation, Regulation G, T, U or X of the Board of Governors of the
Federal Reserve System), or any order or decree of any Governmental Authority to
which such Party is subject (and of which we have knowledge), (ii) conflict
with, or result in the breach of, or constitute a default under, any indenture,
mortgage, deed of trust, agreement or other instrument to which such Loan Party
is a signatory (and of which we have knowledge), (iii) to our knowledge, result
in the creation or imposition of any Lien upon any of the property of such Loan
Party (except in favor of the Collateral Agent) pursuant to agreements to which
such Loan Party is a signatory or (iv) violate any provision of the Certificate
(or Articles) of Incorporation or By-laws of such Loan Party.
4. Except as set forth in Exhibit IV hereto, to our knowledge
there is no pending or threatened action, suit or proceeding before any court,
governmental or regulatory authority, agency, commission or board of arbitration
against any of the Loan Parties which, if adversely determined, is reasonably
likely to result in a material adverse effect on the business, operations or
financial condition of such Loan Party or which purports to affect the legality,
validity or enforceability of any Credit Document or the performance thereof.
5. No action of, or filing with, any Governmental Authority is
required to authorize, or is otherwise required in connection with, the
execution, delivery and performance of the Credit Documents by any of the Loan
Parties (except that although not required to be made with a Governmental
Authority, we call your attention to the fact that financing statements and
other filings may be required under applicable provisions of the Uniform
Commercial Code as in effect in those jurisdictions whose laws govern perfection
of security interests in any of the Collateral).
6. None of the Loan Parties is an "investment company" or a
company "controlled" by an "investment company," within the meaning of the
Investment Company Act of 1940, as amended.
7. None of the Loan Parties is a "holding company," or a
"subsidiary company" of a "holding company," or an "affiliate" of a "holding
company" or of a "subsidiary company" of a "holding company" within the meaning
of the Public Utility Holding Company Act of 1935, as amended.
8. The authorized capital stock of Holdings consists of (i)
1,000,000 shares of common stock, $.01 par value per share, 100 of which shares
are issued and outstanding, (ii) 1,293,800 shares of designated preferred stock,
$.01 par value per share, of which (a) 418,000 shares have been designated as
Series A Convertible Participating Preferred Stock, all of which shares are
issued and outstanding and (b) 418,000 shares have been designated as Series A
Redeemable Preferred Stock, none of which is issued, (c) 228,500 shares of
Series B Convertible Participating Preferred Stock, 228,442 of which shares are
issued and outstanding, (d) 228,500 shares of Series
<PAGE> 190
EXHIBIT F
Page 5
B Redeemable Preferred Stock, none of which are issued, and (iii) 300,000 shares
of undesignated preferred stock, $.01 par value per share. All such outstanding
shares are owned of record in the amounts, and by the Persons, set forth on
Schedule VIII to the Credit Agreement. All of such outstanding shares have been
duly and validly issued and are fully paid and nonassessable. Except as set
forth on Schedule VIII to the Credit Agreement, to our knowledge, on the
Restatement Effective Date, Holdings has no outstanding securities convertible
into or exchangeable for its capital stock or outstanding any rights to
subscribe for or to purchase, or any options for the purchase of, or any
agreements providing for the issuance (contingent or otherwise) of, or any
calls, commitments or claims of any character relating to, its capital stock, or
any stock appreciation or similar right with respect thereto.
9. The authorized capital stock of the Borrower consists of
(i) 1,000 shares of common stock, $.01 par value per share, all of which shares
are issued and outstanding and are owned of record and beneficially by Holdings.
All of such outstanding shares have been duly and validly issued and are fully
paid and nonassessable. To our knowledge, on the Restatement Effective Date, the
Borrower has no outstanding securities convertible into or exchangeable for its
capital stock or outstanding any rights to subscribe for or to purchase, or any
options for the purchase of, or any agreements providing for the issuance
(contingent or otherwise) of, or any calls, commitments or claims of any
character relating to, its capital stock, or any stock appreciation or similar
right with respect thereto.
10. The authorized capital stock of Argos consists of 10,000
shares of common stock, $1.00 par value per share, 1,175 of which shares are
issued and outstanding. All such outstanding shares are owned of record and
beneficially by the Borrower. All of such outstanding shares have been duly and
validly issued and are fully paid and nonassessable. To our knowledge, on the
Restatement Effective Date, Argos has no outstanding securities convertible into
or exchangeable for its capital stock or outstanding any rights to subscribe for
or to purchase, or any options for the purchase of, or any agreements providing
for the issuance (contingent or otherwise) of, or any calls, commitments or
claims of any character relating to, its capital stock, or any stock
appreciation or similar right with respect thereto.
11. After giving effect to the making of the Loans on the
Restatement Effective Date under the Credit Agreement, the Holdings Pledge
Agreement will create in favor of the Collateral Agent for the benefit of the
Banks a valid security interest in the interests of Holdings in the shares of
capital stock of the Borrower listed on Annex A to the Holdings Pledge Agreement
(the "Holdings Pledged Shares") when the Collateral Agent acquires possession of
the stock certificate or certificates representing the Holdings Pledged Shares,
each accompanied by a stock power indorsed in blank. Further assuming delivery
in New York to, and continued possession in New York by, the Collateral Agent of
the stock certificates representing the Holdings Pledged Shares (accompanied by
such stock powers so indorsed), such security interest in the Holdings Pledged
Shares will constitute a perfected security interest in all right, title and
interest of Holdings in the
<PAGE> 191
EXHIBIT F
Page 6
Holdings Pledged Shares under the New York UCC, to the extent that the New York
UCC is applicable thereto.
12. After giving effect to the making of the Loans on the
Restatement Effective Date under the Credit Agreement, the security interest
granted by the Borrower pursuant to the Borrower/Subsidiary Pledge Agreement
remains, subject to such qualifications with respect thereto as are stated
herein and in our opinion (the "Original Opinion") delivered with respect to the
Existing Credit Agreement on July 7, 1997, in full force and effect on the date
hereof, assuming delivery in New York on the Effective Date, as such term is
defined in the Existing Credit Agreement to, and continuous possession in New
York by, the Collateral Agent of the stock certificates representing the
Borrower Pledged Shares, each accompanied by a stock power indorsed in blank,
such security interest in the Borrower Pledged Shares will constitute a
perfected security interest in all right, title and interest of the Borrower in
the Borrower Pledged Shares under the New York UCC, to the extent that the New
York UCC is applicable thereto.
13. After giving effect to the making of the Loans on the
Restatement Effective Date under the Credit Agreement, the security interest
granted by the Borrower pursuant to the Security Agreement remains, subject to
such qualifications with respect thereto as are stated herein and in our
Original Opinion, in full force and effect on the date hereof.
14. After giving effect to the making of the Loans on the
Restatement Effective Date under the Credit Agreement, the Security Agreement
creates in favor of the Collateral Agent, for the benefit of the Banks, a valid
security interest together with the Security Interest (as such term is defined
in the Original Opinion, the "Restatement Security Interest") in the interests
of Argos in the Collateral covered thereby to the extent that a security
interest can be created therein under Article 9 of the Uniform Commercial Code
as in effect in the State of New York (such Collateral being hereinafter called,
together with the Personal Property Collateral (as such term is defined in the
Original Opinion) the "Restatement Personal Property Collateral"), as security
for the payment of the obligations purported to be secured thereby.
15. Assuming that the Financing Statements were duly and
properly filed in the Filing Offices (as each such term is defined in the
Original Opinion) and assuming that the Financing Statements are duly and
properly filed in the Filing Offices (as such term is defined herein), and
further assuming, in connection therewith, that all required filing fees, taxes
and other fees, if any, were or have been tendered to all such filing offices)
the Restatement Security Interest in the interests of the Borrower and Argos in
the Restatement Personal Property Collateral covered by the Security Agreement
will be perfected to the extent that a security interest therein may be
perfected by the filing in the Foreign Jurisdictions of a Form UCC-1 financing
statement under Article 9 of the Uniform Commercial Code as in effect in the
Foreign Jurisdictions in which such filing offices are located (each, a "Foreign
Jurisdiction UCC"). Assuming that the representation made by each of the
Borrower and Argos in Section 2.4 of the Security Agreement with respect to the
location of its chief executive office is true and correct, the perfection of
the Restatement Security Interest in the
<PAGE> 192
EXHIBIT F
Page 7
Receivables, Contracts, Contract Rights and General Intangibles (as each such
term is defined in the Security Agreement) of the Borrower and Argos is, under
each Foreign Jurisdiction UCC, governed by the laws of the jurisdiction in which
the chief executive office of the Borrower or Argos, as the case may be, is
located to the extent that said Receivables, Contracts, Contract Rights and
General Intangibles consist of "accounts" and "general intangibles" as defined
in the Foreign Jurisdiction UCC of such Foreign Jurisdiction.
The foregoing opinions are subject to the following exceptions, qualifications
and limitations:
A. Our opinions set forth in paragraphs 2, 11, 12 and 14 above are
subject to (i) the effect of any applicable bankruptcy, insolvency,
reorganization, moratorium or similar law affecting creditors' rights generally,
including fraudulent transfer or conveyance laws; (ii) the effect of public
policy considerations or court decisions which may limit rights to obtain
indemnification; and (iii) with regard to the enforceability of any of the
parties' obligations, general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law) and the
qualification that certain remedial provisions of the Credit Documents are or
may be unenforceable in whole or in part under Applicable Laws, but the
inclusion of such provisions does not make the remedies afforded by such Credit
Documents inadequate for the practical realization of the rights and benefits
purported to be provided thereby except for the economic consequences resulting
from any delay imposed by, or procedures required by, Applicable Laws.
B. Except as expressly provided in paragraphs 12 and 15 hereof, we
express no opinion herein as to the perfection of any security interest, or
validity of any lien, in any of the Personal Property Collateral and we express
no opinion herein as to priority of any of the Security Interests in any of the
Collateral.
C. We express no opinion as to the creation, validity or the
enforceability of the Restatement Security Interests (i) in any part of the
Restatement Personal Property Collateral in which a security interest would not
be covered by the New York UCC by virtue of Section 9-102 or 9-104 thereof and
(ii) except as provided in Sections 9-104(g) and 9-306 of the New York UCC with
respect to insurance proceeds payable by reason of loss or damage to Collateral,
in any interest in or claim in or under policies of insurance, or in Collateral
that consists or will consist of deposit accounts. We call to your attention
that under certain circumstances described in Section 9-306 of the New York UCC,
comparable provisions of each Foreign Jurisdiction UCC and applicable Federal
bankruptcy law, the rights of a secured party to enforce a perfected security
interest in proceeds of collateral may be limited.
D. We express no opinion with respect to (i) any Loan Party's
right, title or interest in or to any Collateral, (ii) the creation, validity,
perfection, priority or enforceability of any security interest sought to be
created in any Patents, Trademarks or Copyrights (as such terms are defined in
the Security Agreement) to the extent a security interest therein is excluded
from the coverage of Article 9 of the New York UCC or any Foreign Jurisdiction
UCC, (iii) the perfection of any security
<PAGE> 193
EXHIBIT F
Page 8
interest in any Collateral consisting of fixtures, (iv) the adequacy or accuracy
of the descriptions of the Restatement Personal Property Collateral contained in
the Security Agreement, the Pledge Agreements or the Financing Statements, or
(v) the perfection of any security interest in any Collateral located in
jurisdictions other than the Foreign Jurisdictions.
E. In the case of the issuance or other distribution in respect of the
Holdings Pledged Shares or Borrower Pledged Shares of "investment property" (as
such term is defined in Article 9 of the New York UCC), the security interest of
the Collateral Agent therein will be perfected only if possession thereof,
accompanied by stock powers indorsed in blank, is obtained and continued in
accordance with the provisions of the applicable Pledge Agreement or perfection
otherwise occurs in a manner provided for in Section 9-115(4) of the New York
UCC.
F. Perfection of the security interests generally will be terminated
under the circumstances described in Sections 9-103, 9-402 and 9-403 of the New
York UCC, and the corresponding provisions of each Foreign Jurisdiction UCC,
unless appropriate action is taken as provided therein. We call your attention
to the fact that, without limitation (i) all financing statements filed must be
continued at prescribed intervals by the timely filing of continuation
statements and (ii) a new or amended financing statement may be required to be
filed to retain any perfected security interest in the event any debtor changes
its name, identity, corporate structure or location of its chief executive
office or chief place of business.
G. We express no opinion with regard to any matter which may be
governed by the law of any jurisdiction other than (i) the laws of the State of
New York, (ii) the Federal law of the United States of America, (iii) the
General Corporation Law of the State of Delaware and (iv) subject to the
limitations stated herein, each Foreign Jurisdiction UCC. Although we are not
admitted to practice in any of the Foreign Jurisdictions and have not obtained
opinions of counsel admitted in such jurisdiction with respect to the perfection
or the continued perfection of the security interests created by the Security
Agreement in the Collateral covered thereby, we have examined the applicable
provisions of each Foreign Jurisdiction UCC which we understand to be in effect
in such Foreign Jurisdiction on May 6, 1998 (as those provisions are available
through WESTLAW), and our opinions in paragraph 15, to the extent such opinions
involve conclusions as to perfection of such security interests under the laws
of the Foreign Jurisdictions, are based solely on such review. We also note that
Argos is a Texas corporation and we have, in rendering this opinion, with your
consent, assumed for the purposes hereof that the laws of the State of Texas are
identical in all respects to the laws of the State of New York.
H. We express no opinion (i) to the extent that the security interests
of the Collateral Agent for the benefit of the Banks may be affected by Section
552 of the United States Bankruptcy Code (under which a bankruptcy court has
discretion as to the extent to which post-petition proceeds may be subject to a
lien arising from a security agreement entered into by the debtor before the
<PAGE> 194
EXHIBIT F
Page 9
commencement of the case) and (ii) as to the applicability of Section 548 of the
United States Bankruptcy Code or of any provisions of any state fraudulent
conveyance or comparable foreign statute to the transactions contemplated by the
Credit Documents.
I. We express no opinion as to (i) the enforceability of any provisions
contained in the Credit Documents that purport to establish (or may be construed
to establish) evidentiary standards, (ii) the enforceability of any provisions
contained in the Credit Documents that constitute waivers which are prohibited
under the New York UCC or any Foreign Jurisdiction UCC prior to default or (iii)
the enforceability of forum selection clauses in the Federal courts.
<PAGE> 195
EXHIBIT F
Page 10
This opinion letter is solely for your benefit and for the
benefit of each Bank from time to time party to the Credit Agreement and for the
benefit of their participants and assigns. This opinion may not be relied upon
for any other purpose, or relied upon by any other person, firm or corporation
for any purpose, without our prior written consent.
Very truly yours,
/s/ Reboul, MacMurray, Hewitt, Maynard & Kristol
<PAGE> 196
EXHIBIT F
PAGE 11
EXHIBIT I
FINANCING STATEMENTS
On file with White & Case LLP.
<PAGE> 197
EXHIBIT F
PAGE 12
EXHIBIT II
FILING OFFICES
State County
- ----- ------
GOLDEN SKY SYSTEMS, INC.
- ------------------------
COLORADO Eagle
Secretary of State
IOWA Marshall
Secretary of State
KANSAS Montgomery
Secretary of State Neosho
Crawford
Cherokee
Labette
MICHIGAN Calhoun
Secretary of State Grand Traverse
Wexford
MINNESOTA Blue Earth
Secretary of State Brown
Douglas
Houston
Winona
MISSOURI Clay
Secretary of State Jackson
Ray
MONTANA Hill
Secretary of State Missoula
Valley
Yellowstone
NEVADA Clark
Secretary of State
<PAGE> 198
EXHIBIT F
PAGE 13
NORTH DAKOTA Cass
Secretary of State
OKLAHOMA Pittsburg
Secretary of State Rogers
Washington
OREGON Klamath
Secretary of State Marion
TEXAS Collin
Secretary of State Dallas
Denton
Guadalupe
Lubbock
Polk
Tarrant
Shelby
Victoria
WISCONSIN Dunn
Secretary of State
ARGOS SUPPORT SERVICES COMPANY
- ------------------------------
FLORIDA Charlotte
Secretary of State Lee
TEXAS Collin
Secretary of State Denton
Tarrant
UTAH Summit
Secretary of State
<PAGE> 199
EXHIBIT F
PAGE 14
EXHIBIT III
FOREIGN QUALIFICATIONS
Loan Parties States
- ------------ ------
Holdings Missouri
Borrower California
Colorado
Iowa
Kansas
Michigan
Minnesota
Missouri
Montana
Nevada
North Dakota
Oklahoma
Oregon
Texas
Utah
Wisconsin
Argos Florida
<PAGE> 200
EXHIBIT G
[NAME OF CREDIT PARTY]
Officers' Certificate
I, the undersigned, [President/Chief Financial Officer/General
Counsel/Vice President] of [Name of Credit Party], a corporation organized and
existing under the laws of the State of (the "Company"), do hereby
certify on behalf of the Company that:
1. This Certificate is furnished pursuant to the Amended and
Restated Credit Agreement, dated as of July 7, 1997, amended and restated as of
May , 1998, among Golden Sky Holdings, Inc., a corporation organized and
existing under the laws of the State of Delaware, Golden Sky Systems, Inc., a
corporation organized and existing under the laws of the State of Delaware, the
financial institutions from time to time party thereto, Banque Paribas, as
Syndication Agent, Fleet National Bank, as Administrative Agent, and General
Electric Capital Corporation, as Documentation Agent (such Credit Agreement, as
in effect on the date of this Certificate, being herein called the "Credit
Agreement"). Unless otherwise defined herein, capitalized terms used in this
Certificate shall have the meanings set forth in the Credit Agreement.
2. The following named individuals are elected officers of the
Company, each holds the office of the Company set forth opposite his name and
has held such office as of the date of the signing of any Credit Document. The
signature written opposite the name and title of each such officer is his
correct signature.
<TABLE>
<CAPTION>
Name(4) Office Signature
------- ------ ---------
<S> <C> <C>
----------------- ---------------- -------------------
----------------- ---------------- -------------------
----------------- ---------------- -------------------
----------------- ---------------- -------------------
</TABLE>
a. Attached hereto as Exhibit A is a certified copy of the
Certificate of Incorporation of the Company as filed in the Office of the
Secretary of State of the State of its incorporation, together with all
amendments thereto adopted through the date hereof.
3. Attached hereto as Exhibit B is a true and correct copy of
the By-Laws of the Company, together with all amendments thereto, which were
duly adopted and are in full force and effect on the date hereof.
- ------------------------
(4) Include name, office and signature of each officer who will
sign any Credit Document, including the officer who will sign the
certification at the end of this Certificate.
<PAGE> 201
EXHIBIT G
PAGE 2
4. Attached hereto as Exhibit C is a true and correct copy of
resolutions which were duly adopted on , 19 [by unanimous consent of
the Board of Directors of the Company] [by a meeting of the Board of Directors
of the Company at which a quorum was present and acting throughout], and said
resolutions have not been rescinded, amended or modified. Except as attached
hereto as Exhibit C, no resolutions have been adopted by the Board of Directors
of the Company which deal with the execution, delivery or performance of any of
the Documents to which the Company is party.
5. To the extent that such documents previously delivered to the
Banks in connection with Sect on 4.05 of the Existing Credit Agreement have
undergone material changes or that such documents have not been so delivered,
attached hereto as Exhibit D are true and correct copies of all Employee Benefit
Plans of the Company and its Subsidiaries.
6. To the extent that such documents previously delivered to the
Banks in connection with Section 4.05 of the Existing Credit Agreement have
undergone material changes or that such documents have not been so delivered,
attached hereto as Exhibit E are true and correct copies of all Shareholders'
Agreements of the Company and its Subsidiaries.
7. To the extent that such documents previously delivered to the
Banks in connection with Sect on 4.05 of the Existing Credit Agreement have
undergone Material changes or that such documents have not been so delivered,
attached hereto as Exhibit F are true and correct copies of all Management
Agreements of the Company and its Subsidiaries.
8. To the extent that such documents previously delivered to the
Banks in connection with Section 4.05 of the Existing Credit Agreement have
undergone material changes or that such documents have not been so delivered,
attached hereto as Exhibit G are true and correct copies of all Employment
Agreements of the Company and its Subsidiaries.
9. To the extent that such documents previously delivered to the
Banks in connection with Section 4.05 of the Existing Credit Agreement have
undergone material changes or that such documents have not been so delivered,
attached hereto as Exhibit H are true and correct copies of all Collective
Bargaining Agreements of the Company and its Subsidiaries.
10. To the extent that such documents previously delivered to the
Banks in connection with Section 4.05 of the Existing Credit Agreement have
undergone material changes or that such documents not been so delivered,
attached hereto as Exhibit I are true and correct copies of all Debt Agreements
of the Company and its Subsidiaries.
11. To the extent that such documents previously delivered to the
Banks in connection with Section 4.05 of the Existing Credit Agreement have
undergone material changes or that such documents have not been so delivered,
attached hereto as Exhibit J are true and correct copies of all Tax Sharing
Agreements entered into by the Company or any of its Subsidiaries.
<PAGE> 202
EXHIBIT G
PAGE 3
12. To the extent that such documents previously delivered to the
Banks in connection with Section 4.05 of the Existing Credit Agreement have
undergone material changes or that such documents have not been so delivered,
attached hereto as Exhibit K are true and correct copies of all Material
Contracts of the Company or any of its Subsidiaries.
13. To the extent that such documents previously delivered to the
Banks in connection with Section 4.05 of the Existing Credit Agreement have
undergone material changes or that such documents have not been so delivered,
attached hereto as Exhibit L are true and correct copies of all Affiliate
Contracts of the Company or any of its Subsidiaries.
14. To the extent that such documents previously delivered to the
Banks in connection with Section 4.05 of the Existing Credit Agreement have
undergone material changes or that such document, have not been so delivered,
attached hereto as Exhibit M are true and correct copies of the Projections.
15. To the extent that such documents previously delivered to the
Banks in connection with Section 4.05 of the Existing Credit Agreement have
undergone material changes or that such documents have not been so delivered,
attached hereto as Exhibit N are true and correct copies of the Stock Purchase
Documents.
16. On the date hereof, all of the conditions in Sections 4.06,
4.07 (iii) and (iv) (with respect to Section 4.07 (iii)), 4.11, 4.12, 4.13,
4.14, 4.16, 4.19, 5.01, 5.03 (if a Permitted Acquisition will be Consummated on
the Restatement Effective Date) and 5.04 have been satisfied (except to the
extent as to the acceptability of any items to the Agents and/or the Required
Banks or as to whether the Agents and/or the Required Banks are satisfied with
any of the matters described in said Sections).](5)
6. [18.] On the date hereof, the representations and warranties
contained in the Credit Agreement and in the other Credit Documents [with
respect to the Company](6) are true and correct in all material respects with
the same effect as though such representations and warranties had been made on
the date hereof, both before and after giving effect to each Credit Event to
occur on the date hereof and the application of the proceeds thereof.
7. [19.] On the date hereof, no Default or Event of Default has
occurred and is continuing or would result from any Credit Event as contemplated
in the Credit agreement on the date hereof or from the application of the
proceeds thereof.
- ------------------------
(5) Insert items 6-17 only in the certificate of the Borrower.
(6) To be inserted in the certificate of Credit Parties other than
Holdings and the Borrower.
<PAGE> 203
EXHIBIT G
PAGE 4
8. [20.] There is no proceeding for the dissolution or liquidation
of the Company or threatening its existence.
IN WITNESS WHEREOF, I have hereunto set my hand this day
of May, 1998.
[NAME OF CREDIT PARTY]
By:_____________________________________
Name:
Title:
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EXHIBIT G
PAGE 5
I, the undersigned, [Secretary/Assistant Secretary] of the Company, do hereby
certify that:
1. [Name of Person making above certifications] is the duly
elected and qualified [President/Chief Financial Officer/General Counsel/Vice
President] of the Company and the signature above is his genuine signature.
2. certifications made by [name of Person making above
certifications] in Items 2, 3, 4, 5, 6 [18], 7 [19] and 8 [20] above are true
and correct.
IN WITNESS WHEREOF, I have hereunto set my hand this day
of May, 1998.
[NAME OF CREDIT PARTY]
By:_____________________________________
Name:
Title:
<PAGE> 205
EXHIBIT H
[CONFORMED AS EXECUTED]
SUBSIDIARIES GUARANTY
SUBSIDIARIES GUARANTY, dated as of May 8, 1998, made by each of
the undersigned (each a "Guarantor" and collectively, the "Guarantors"). Except
as otherwise defined herein, terms used herein and defined in the Credit
Agreement (as hereinafter defined) shall be used herein as so defined.
WITNESSETH:
WHEREAS, Golden Sky Holdings, Inc., a Delaware corporation, Golden
Sky Systems, Inc., a Delaware corporation (the "Borrower"), various financial
institutions from time to time party thereto (the "Banks"), Banque Paribas, as
Syndication Agent ("Banque Paribas"), Fleet National Bank, as Administrative
Agent ("Fleet", and together with Banque Paribas, the "Agents"), and General
Electric Capital Corporation, as Documentation Agent, have entered into an
Amended and Restated Credit Agreement, dated as of July 7, 1997, amended and
restated as of May 8, 1998 (as modified, supplemented or amended from time to
time, the "Credit Agreement"), providing for the making of Loans to the Borrower
(the Banks and the Agents being herein called the "Bank Creditors");
WHEREAS, the Borrower may from time to time enter into, or
guaranty, one or more (i) interest rate protection agreements (including,
without limitation, interest rate swaps, caps, floors, collars and similar
agreements), (ii) foreign exchange contracts, currency swap agreements or other
similar agreements or arrangements designed to protect against the fluctuations
in currency values and/or (iii) other types of hedging agreements from time to
time (collectively, the "Interest Rate Protection or Other Hedging Agreements"),
with the Agents in their individual capacities, any Bank or a syndicate of
financial institutions organized by the Agents or any such Bank or an affiliate
of the Agents or such Bank (even if neither of the Agents or any such Bank
ceases to be a Bank under the Credit Agreement for any reason) and any such
institution that participates in such Interest Rate Protection or Other Hedging
Agreements and their subsequent assigns (collectively, the "Other Creditors"
and, together with the Bank Creditors, are herein called the "Creditors");
WHEREAS, each Guarantor is a direct or indirect Subsidiary of the
Borrower;
WHEREAS, it is a condition to the making of Loans and the issuance
of, and participation in, Letters of Credit under the Credit Agreement and to
the Other Creditors entering into the Interest Rate Protection or Other Hedging
Agreements that each Guarantor shall have executed and delivered this Guaranty;
and
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EXHIBIT H
PAGE 2
NOW, THEREFORE, in consideration of the foregoing and other
benefits accruing to each Guarantor, the receipt and sufficiency of which are
hereby acknowledged, each Guarantor hereby makes the following representations
and warranties to the Creditors and hereby covenants and agrees with each
Creditor as follows:
1. Each Guarantor irrevocably and unconditionally, and jointly and
severally, guarantees (i) the full and prompt payment when due (whether at the
stated maturity, by acceleration or otherwise) of (x) the principal of and
interest on the Notes issued by, and Loans made to, the Borrower under the
Credit Agreement and all reimbursement obligations and Unpaid Drawings with
respect to Letters of Credit issued under the Credit Agreement, and (y) all
other obligations (including obligations which, but for the automatic stay under
Section 362(a) of the Bankruptcy Code, would become due), indebtedness and
liabilities (including, without limitation, indemnities, Fees and interest
thereon) of the Borrower owing to the Bank Creditors now existing or hereafter
incurred under, arising out of or in connection with the Credit Agreement and
the other Credit Documents and the due performance and compliance by the
Borrower with the terms, conditions and agreements contained in the Credit
Documents (all such principal, interest, obligations and liabilities under this
clause (i), except to the extent consisting of obligations or liabilities with
respect to Interest Rate Protection or Other Hedging Agreements, being herein
collectively referred to as the "Credit Document Obligations") and (ii) the full
and prompt payment when due (whether at the stated maturity, by acceleration or
otherwise) of all obligations (including obligations, which, but for the
automatic stay under Section 362(a) of the Bankruptcy Code, would become due),
indebtedness and liabilities (including, without limitation, indemnities, fees
and interest thereon) owing by the Borrower to the Other Creditors under any
Interest Rate Protection or Other Hedging Agreement, whether such Interest Rate
Protection or Other Hedging Agreement is now in existence or hereafter arising,
and the due performance and compliance by the Borrower with the terms,
conditions and agreements contained therein (all such obligations and
indebtedness being herein collectively called the "Interest Rate Protection
Obligations"; and together with the Credit Document Obligations are herein
collectively called the "Guaranteed Obligations"). Subject to Section 21 of this
Agreement, each Guarantor understands, agrees and confirms that the Creditors
may enforce this Guaranty up to the full amount of the Guaranteed Obligations
against such Guarantor without proceeding against the Borrower, against any
security for the Guaranteed Obligations, against any other Guarantor, or against
any other guarantor under any other guaranty covering the Guaranteed
Obligations. This Guaranty shall constitute a guaranty of payment and not of
collection. All payments by each Guarantor under this Guaranty shall be made on
the same basis as payments by the Borrower under Sections 3.03 and 3.04 of the
Credit Agreement.
2. Additionally, each Guarantor, jointly and severally,
unconditionally and irrevocably, guarantees the payment of any and all
Guaranteed Obligations of the Borrower to the Creditors whether or not due or
payable by the Borrower upon the occurrence in respect of the Borrower of any of
the events specified in Section 9.05 of the Credit Agreement, and
unconditionally
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EXHIBIT H
PAGE 3
and irrevocably, jointly and severally, promises to pay such Guaranteed
Obligations to the Creditors, or order, on demand, in lawful money of the United
States.
3. The liability of each Guarantor hereunder is exclusive and
independent of any security for or other guaranty of the indebtedness of the
Borrower whether executed by such Guarantor, any other Guarantor, any other
guarantor or by any other party, and the liability of such Guarantor hereunder
shall not be affected or impaired by: (i) any direction as to application of
payment by the Borrower; (ii) any other continuing or other guaranty,
undertaking or maximum liability of a guarantor or of any other party as to the
indebtedness of the Borrower; (iii) any payment on or in reduction of any such
other guaranty or undertaking; (iv) any dissolution, termination or increase,
decrease or change in personnel by the Borrower; or (v) any payment made to any
Creditor on the indebtedness which any Creditor repays the Borrower pursuant to
court order in an bankruptcy, reorganization, arrangement, moratorium or other
debtor relief proceeding, and each Guarantor waives any right to the deferral or
modification of its obligations hereunder by reason of any such proceeding.
4. The obligations of each Guarantor hereunder are independent of
the obligations of any other Guarantor, any other guarantor or the Borrower, and
a separate action or actions may be brought and prosecuted against each
Guarantor whether or not action is brought against any other Guarantor, any
other guarantor or the Borrower, and whether or not any other Guarantor, any
other guarantor or the Borrower be joined in any such action or actions. Each
Guarantor waives, to the fullest extent permitted by law, the benefit of any
statute of limitations affecting its liability hereunder or the enforcement
thereof. Any payment by the Borrower or other circumstance which operates to
toll any statute of limitations as to the Borrower shall operate to toll the
statute of limitations as to each Guarantor.
5. Each Guarantor hereby waives notice of acceptance of this
Guaranty and notice of any liability to which it may apply, and waives
promptness, diligence, presentment, demand of payment, protest, notice of
dishonor or nonpayment of any such liabilities, suit or taking of other action
taken by the Agents or any other Creditors against, and any other notice to, any
party liable thereon (including such Guarantor or any other Guarantor or
guarantor).
6. Any Creditor may at any time and from time to time without the
consent of, or notice to, any Guarantor, without incurring responsibility to any
"Guarantor, without impairing or releasing the obligations of any Guarantor
hereunder, upon or without any terms or conditions and in whole or in part (and
each Guarantor hereby irrevocably waives any defenses it may now or hereafter
have in any way relating to any and all of the following):
(i) change the manner, place or terms of payment of, and/or change
or extend the time of payment of, renew or alter, any of the Guaranteed
Obligations, any security therefor, or any
3
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EXHIBIT H
PAGE 4
liability incurred directly or indirectly in respect thereof, and the guaranty
herein made shall apply to the Guaranteed Obligations as so changed, extended,
renewed or altered;
(ii) sell, exchange, release, surrender, realize upon or otherwise
deal with in any manner and in any order any property by whomsoever at any time
pledged or mortgaged to secure, or howsoever securing the Guaranteed Obligations
or any liabilities (including any of those hereunder) incurred directly or
indirectly in respect thereof or hereof, and/or any offset thereagainst;
(iii) exercise or refrain from exercising any rights against the
Borrower, any Guarantor or others or otherwise act or refrain from acting;
(iv) settle or compromise any of the Guaranteed Obligations, any
security therefor or any liability (including any of those hereunder) incurred
directly or indirectly in respect thereof or hereof, and may subordinate the
payment of all or any part thereof to the payment of any liability (whether due
or not) of the Borrower to creditors of the Borrower;
(v) apply any sums by whomsoever paid or howsoever realized to any
liability or liabilities of the Borrower to the Creditors regardless of what
liabilities of the Borrower remain unpaid;
(vi) consent to or waive any breach of, or any act, omission or
default under, any of the Interest Rate Protection or Other Hedging Agreements
or any of the Credit Documents or any of the instruments or agreements referred
to therein, or otherwise amend, modify or supplement any of the Interest Rate
Protection or Other Hedging Agreements or any of the Credit Documents or any of
such other instruments or agreements; and/or
(viii) act or fail to act in any manner permitted under this
guaranty which may deprive any Guarantor of its right to subrogation against the
Borrower to recover full indemnity for any payments made pursuant to this
Guaranty.
7. No invalidity, irregularity or unenforceability of all or any
part of the Guaranteed Obligations or of any security therefor shall affect,
impair or be a defense to this Guaranty, and this Guaranty shall be primary,
absolute and unconditional notwithstanding the occurrence of any event or the
existence of any other circumstances which might constitute a legal or equitable
discharge of a surety or guarantor except payment in full of the Guaranteed
Obligations.
8. This Guaranty is a continuing one and all liabilities to which
it applies or may apply under the terms hereof shall be conclusively presumed to
have been created in reliance hereon. No failure or delay on the part of any
Creditor in exercising any right, power or privilege hereunder and no course of
dealing between any Guarantor and any Creditor shall operate as a waiver
thereof; nor shall any single or partial exercise of any right, power or
privilege hereunder preclude any other
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<PAGE> 209
EXHIBIT H
PAGE 5
or further exercise thereof or the exercise of any other right, power or
privilege. The rights and remedies herein expressly specified are cumulative and
not exclusive of any rights or remedies which any Creditor would otherwise have.
No notice to or demand on any Guarantor in any case shall entitle such Guarantor
to any other further notice (in demand in similar or other circumstances or
constitute a waiver of the rights of any Creditor to any other or further action
in any circumstances without notice or demand. It is not necessary for any
Creditor to inquire into the capacity or powers of the Borrower or any of its
Subsidiaries or the officers, directors, partners or agents acting or purporting
to act on its behalf and any indebtedness made or created in reliance upon the
professed exercise of such powers shall be guaranteed hereunder.
9. Any indebtedness of the Borrower now or hereafter held by any
Guarantor is hereby subordinated to the indebtedness of the Borrower to the
Creditors; and such indebtedness of the Borrower to any Guarantor, if the
Administrative Agent, after an Event of Default has occurred, so requests, shall
be collected, enforced and received by, such Guarantor as trustee for the
Creditors and be paid over to the Creditors on account of the indebtedness of
the Borrower to the Creditors, but without affecting or impairing in any manner
the liability of such Guarantor under the other provisions of this Guaranty.
Prior to the transfer by such Guarantor of any note or negotiable instrument
evidencing any indebtedness of the Borrower to such Guarantor, such Guarantor
shall mark such note or negotiable instrument with a legend that the same is
subject to this subordination. Without limiting the generality of the foregoing,
each Guarantor hereby agrees with the Creditors that it will not exercise any
right of subrogation which it may at any time otherwise have as a result of this
Guaranty (whether contractual, under Section 509 of the Bankruptcy Code, or
otherwise) until all Guaranteed Obligations have been irrevocably paid in full
in cash.
10. (a) Each Guarantor waives any right (except as shall be
required by applicable statute and cannot be waived) to require the Creditors to
(i) proceed against the Borrower, any other Guarantor, any other guarantor or
any other party, (ii) proceed against or exhaust any security held from the
Borrower, any other Guarantor, any other guarantor or any other party or (iii)
pursue any other remedy in the Creditors' power whatsoever. Each Guarantor
waives any defense based on or arising out of any defense of the Borrower, any
other Guarantor, any other guarantor or any other party other than payment in
full of the Guaranteed Obligations, including, without limitation, any defense
based on or arising out of the disability of the Borrower, any other Guarantor,
any other guarantor or any other party, or the unenforceability of the
Guaranteed Obligations or any part thereof from any cause, or the cessation from
any cause of the liability of the Borrower other than payment in full of the
Guaranteed Obligations. The Creditors may, at their election, foreclose on any
security held by the Agents, the Collateral Agent or the other Creditors by one
or more judicial or nonjudicial sales, whether or not every aspect of any such
sale is commercially reasonable (to the extent such sale is permitted by
applicable law), or exercise any other right or remedy the Creditors may have
against the Borrower or any other party, or any security, without affecting or
impairing in any way the liability of any Guarantor hereunder except to the
extent the Guaranteed Obligations have been paid in full. Each Guarantor waives
any defense arising out of any such election by the
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EXHIBIT H
PAGE 6
Creditors, even though such election operates to impair or extinguish any right
of reimbursement or subrogation or other right or remedy of such Guarantor
against the Borrower or any other party or any security.
(b) Each Guarantor waives all presentments, demands for
performance, protests and notice, including without limitation notices of
nonperformance, notices of protest, notices of dishonor, notices of acceptance
of this Guaranty, and notices of the existence, creation or incurring of new or
additional indebtedness. Each Guarantor assumes all responsibility for being and
keeping itself informed of the Borrower's financial condition and assets, and of
all other circumstances bearing upon the risk of nonpayment of the Guaranteed
Obligations and the nature, scope and extent of the risks which such Guarantor
assumes and incurs hereunder, and agrees that the Creditors shall have no duty
to advise any Guarantor of information known them regarding such circumstances
or risks.
11. In order to induce the Banks to make Loans to the Borrower,
and to issue, and participate in, Letters of Credit for the account of the
Borrower pursuant to the Credit Agreement and to induce the Other Creditors to
execute, deliver and perform the Interest Rate Protection and Other Hedging
Agreements, each Guarantor hereby represents, warrants and covenants that:
(i) Such Guarantor and each of its Subsidiaries (x) is a duly
organized and validly existing corporation in good standing under the laws of
the jurisdiction of its incorporation, (y) has the corporate power and authority
to own its property and assets and to transact the business in which it is
engaged and presently proposes to engage and (z) is duly qualified and is
authorized to do business and is in good standing in each jurisdiction where the
ownership, leasing or operation of property or the conduct of its business
requires such qualification except for failures to be so qualified which, in the
aggregate, would not have a material adverse effect on the performance,
business, assets, nature of assets, liabilities, operations, properties,
condition (financial or otherwise) or prospects of such Guarantor or of such
Guarantor and its Subsidiaries taken as a whole.
(ii) Such Guarantor has the corporate power to execute, deliver
and perform the terms and provisions of this Guaranty and has taken all
necessary corporate action to authorize the execution, delivery and performance
by it of this Guaranty. Such Guarantor has duly executed and delivered this
Guaranty, and this Guaranty constitutes its legal valid and binding obligation
enforceable in accordance with its terms, except as the enforceability thereof
may be limited by bankruptcy, insolvency, reorganization, moratorium or similar
laws relating to or limiting creditors' rights generally or by general equitable
principles (regardless of whether the issue of enforceability is considered in a
proceeding in equity or at law).
(iii) Neither the execution, delivery or performance by such
Guarantor of this Guaranty, nor compliance by it with the terms and provisions
hereof, (x) will contravene any provision of any law, statute, rule or
regulation or any order, writ, injunction or decree of any court or governmental
instrumentality, (y) will conflict with or result in any breach of any of the
terms,
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EXHIBIT H
PAGE 7
covenants, conditions or provisions of, or constitute a default under, or result
in the creation or imposition of (or the obligation to create or impose) any
Lien (except pursuant to the Security Documents) upon any of the property or
assets of such Guarantor pursuant to the terms of any indenture, mortgage, deed
of trust, credit agreement or loan agreement, or any other agreement, contract
or instrument to which such Guarantor is a party or by which it or any of its
property or assets is bound or to which it may be subject or (z) will violate
any provision of the Certificate of Incorporation or By-Laws (or similar
organizational documents) of such Guarantor or any of its Subsidiaries.
(iv) No order, consent, approval, license, authorization or
validation of, or filing, recording or registration with (except as have been
obtained or made prior to the Initial Borrowing Date and are in full force and
effect), or exemption by, any governmental or public body or authority, or any
subdivision thereof, is required to authorize, or is required in connection
with, (x) the execution, delivery and performance of this Guaranty or (y) the
legality, validity, binding effect or enforceability of this Guaranty.
(v) There are no actions, suits or proceedings pending or, to the
best knowledge of any Guarantor, threatened (x) with respect to this Guaranty,
(y) with respect to any Indebtedness of the Guarantor or any of its Subsidiaries
or (z) that are reasonably likely to materially and adversely affect the
performance, business, assets, nature of assets, liabilities, operations,
properties, condition (financial or otherwise) or prospects of such Guarantor
and its Subsidiaries taken as a whole.
(vi) On the date hereof and after giving effect to the incurrence
by such Guarantor of the Contingent Obligations evidenced by this Guaranty, (x)
the assets of such Guarantor, at a fair valuation, will exceed its debts, (y)
the Guarantor will have sufficient capital to conduct its business and (z) such
Guarantor will not have incurred debts, and does not intend to incur debts,
beyond its ability to pay such debts as they mature. For purposes of this clause
(vi), "debt" means any liability on a claim, and "claim" means (x) right to
payment, whether or not such right is reduced to judgment, liquidated,
unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed,
legal, equitable, secured, or unsecured; or (y) right to an equitable remedy for
breach of performance if such breach gives rise to a payment, whether or not
such right to an equitable remedy is reduced to judgment, fixed, contingent,
matured, unmatured, disputed, undisputed, secured, or unsecured.
12. Each Guarantor covenants and agrees that on and after the date
hereof and until the Total Commitment and all Letters of Credit have terminated
and all Guaranteed Obligations have been paid in full, such Guarantor shall
take, or will refrain from taking, as the case may be, all actions that are
necessary to be taken or not taken so that no violation of any provision,
covenant or agreement contained in Section 7 or 8 of the Credit Agreement, and
so that no Default or Event of Default, is caused by the actions of such
Guarantor or any of its Subsidiaries.
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EXHIBIT H
PAGE 8
13. This Guaranty shall be binding upon each Guarantor and its
successors and assigns and shall inure to the benefit of the Creditors and their
successors and assigns.
14. Neither this Guaranty nor any provision hereof may be changed,
waived, discharged or terminated in any manner whatsoever unless in writing duly
signed by the Administrative Agent (with, except as provided in Section 12.12 of
the Credit Agreement, the consent of the Required Banks) and each Guarantor
directly affected thereby it being understood that the release or addition of
any Guarantor hereunder shall not constitute a change or waiver affecting any
Guarantor other than the Guarantor so released or added); provided however, that
any change, waiver, modification or variance affecting the rights and benefits
of a single Class (as defined below) of Creditors (and not all Creditors in a
like or similar manner) shall require the written consent of the Requisite
Creditors (as defined below) of such Class of Creditors. For the purpose of this
Guaranty, the term "Class" shall mean each class of Creditors, i.e., whether (x)
the Bank Creditors as holders of the Credit Document Obligations or (y) the
Creditors as holders of the Interest Rate Protection Obligations. For the
purpose of this Guaranty, the term "Requisite Creditors" of any Class shall mean
each of (x) with respect to the Credit Document Obligations, the Required Banks
and (y) with respect to the Interest Rate Protection Obligations, the holders of
at least a majority of all obligations outstanding from time to time under the
Interest Rate Protection or Other Hedging Agreements.
15. Each Guarantor acknowledges that an executed (or conformed)
copy of the Credit Agreement has been made available to its principal executive
officers and such officers are familiar with its contents.
16. In addition to any rights now or hereafter granted under
applicable law (including, without limitation, Section 151 of the New York
Debtor and Creditor Law) and not by way of limitation of any such rights, upon
the occurrence and during the continuance of an Event of Default (such term to
mean and include any "Event of Default" under, and as defined in, the Credit
Agreement or any payment default (after giving effect to any grace period
applicable thereto) under any Interest Rate Protection or Other Hedging
Agreement and shall in any event, include without limitation any payment default
on any of the Guaranteed Obligations after giving effect to any grace period
applicable thereto), each Creditor is hereby authorized at any time or from time
to time, without presentment, demand, protest or other notice of any kind to any
Guarantor or to any other Person, any such notice being hereby expressly waived,
to set off and to appropriate and apply any and all deposits (general or
special) and any other indebtedness at any time held or owing by such Creditor
(including, without limitation, by branches and agencies of such Creditor
wherever located) to or for the credit or the account of such Guarantor, against
and on account of the obligations and liabilities of such Guarantor to such
Creditor under this Guaranty, irrespective of whether or not such Creditor shall
have made any demand hereunder and although said obligations, liabilities,
deposits or claims, or any of them, shall be contingent or unmatured.
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EXHIBIT H
PAGE 9
17. All notices, requests, demands or other communications
pursuant hereto shall be deemed to have been duly given or made when delivered
to the Person to which such notice, request, demand or other communication is
required or permitted to be given or made under this Guarantor, addressed to
such party at (i) in the case of any Bank Creditor, as provided in the Credit
Agreement, (ii) in the case of any Guarantor, at its address set forth on its
signature page below, and (iii) in the case of any Other Creditor, as provided
in the Security Agreement; or in any case at such other address as any of the
Persons listed above may hereafter notify the others in writing.
18. If claim is ever made upon any Creditor for repayment or
recovery of any amount or amounts received in payment or on account of any of
the Guaranteed Obligations and any of the aforesaid payees repays all or part of
said amount by reason of (a) any judgment, decree or order of any court or
administrative body having jurisdiction over such payee or any of its property
or (b) any settlement or compromise of any such claim effected by such payee
with any such claimant (including the Borrower), then and in such event each
Guarantor agrees that any such judgment, decree, order, settlement or compromise
shall be binding upon it, notwithstanding any revocation hereof or the
cancellation of any Note or any Interest Rate Protection or Other Hedging
Agreement or other instrument evidencing any liability of the Borrower, and such
Guarantor shall be and remain liable to the aforesaid payees hereunder for the
amount so repaid or recovered to the same extent as if such amount had never
originally been received by any such payee.
19. Any acknowledgment or new promise, whether by payment of
principal or interest or otherwise and whether by the Borrower or other Persons
liable, in respect of the Guaranteed Obligations (including any Guarantor), with
respect to any of the Guaranteed Obligations shall, if the statute of
limitations in favor of any Guarantor against any Creditor shall have commenced
to run, toll the running of such statute of limitations, and if' the period of
such statute of limitations shall have expired, prevent the operation of such
statute of limitations.
20. (A) THIS GUARANTY AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW
OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE CONFLICT OF LAWS PROVISIONS
THEREOF. ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS GUARANTY MAY BE
BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES OF
AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK, AND, BY EXECUTION AND DELIVERY OF
THIS GUARANTY, EACH GUARANTOR HEREBY IRREVOCABLY ACCEPTS FOR ITSELF AND IN
RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE EXCLUSIVE
JURISDICTION OF THE AFORESAID COURTS WITH RESPECT TO SUCH ACTIONS OR
PROCEEDINGS. EACH GUARANTOR HEREBY IRREVOCABLY DESIGNATES, APPOINTS AND EMPOWERS
CORPORATION SERVICE COMPANY WITH ITS OFFICES ON THE DATE HEREOF AT 80 STATE
STREET, ALBANY, NEW YORK, 12207, AS ITS DESIGNEE, APPOINTEE AND AGENT TO
RECEIVE, ACCEPT AND
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EXHIBIT H
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ACKNOWLEDGE FOR AND ON ITS BEHALF, AND IN RESPECT OF IT'S PROPERTY, SERVICE OF
ANY AND ALL LEGAL PROCESS, SUMMONS, NOTICES AND DOCUMENTS WHICH MAY BE SERVED IN
ANY SUCH ACTION OR PROCEEDING. IF FOR ANY REASON SUCH DESIGNEE, APPOINTEE AND
AGENT SHALL CEASE TO BE AVAILABLE TO ACT AS SUCH, EACH GUARANTOR AGREES TO
DESIGNATE A NEW DESIGNEE, APPOINTEE AND AGENT ON THE TERMS AND FOR THE PURPOSES
OF THIS PROVISION SATISFACTORY TO THE ADMINISTRATION AGENT FOR THE BANKS UNDER
THIS GUARANTY. EACH GUARANTOR FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF
PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING
BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE
PREPAID, TO EACH GUARANTOR AT ITS ADDRESS SET FORTH OPPOSITE ITS SIGNATURE
BELOW, SUCH SERVICE TO BECOME EFFECTIVE 30 DAYS AFTER SUCH MAILING. NOTHING
HEREIN SHALL AFFECT THE RIGHT OF ANY OF THE CREDITORS TO SERVE PROCESS IN ANY
OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE
PROCEED AGAINST ANY GUARANTOR IN ANY OTHER JURISDICTION.
(B) EACH GUARANTOR HEREBY IRREVOCABLY WAIVES ANY OBJECTION WHICH
IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF THE AFORESAID
ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS GUARANTY OR ANY
OTHER CREDIT DOCUMENT BROUGHT IN THE COURTS REFERRED TO IN CLAUSE (A) ABOVE AND
HEREBY FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH
COURT THAT SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT
IN AN INCONVENIENT FORUM.
21. (a) Each Guarantor, in addition to the subrogation rights it
shall have against the Borrower under applicable law as a result of any payment
it makes hereunder, shall also have a right of Contribution against all other
Guarantors in respect of any such payment pro rata among same based on their
respective net fair value as enterprises, provided any such right of
contribution shall be subject and subordinate to the prior payment in full of
the Guaranteed Obligations (and such Guarantor's obligations in respect
thereof). It is the desire and intent of each Guarantor and the Creditors that
this Guaranty shall be enforced against each Guarantor to the fullest extent
permissible under the laws and public policies applied in each jurisdiction in
which enforcement is sought.
(b) If, however, and to the extent, that the obligations of any
Guarantor under this Guaranty would, in the absence of this sentence, be
adjudicated to be invalid or unenforceable for any reason (including, without
limitation, because of any applicable state or federal law relating to
fraudulent conveyances or transfers), then the amount of the Guaranteed
Obligations of such Guarantor (but not the Guaranteed Obligations of any other
Guarantor unless such other Guarantor or Guarantors are individually subject to
the circumstances covered by this Section 21) shall be
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EXHIBIT H
PAGE 11
deemed to be reduced ab initio to that maximum amount which would be permissible
under applicable law without causing such Guarantor's obligations hereunder to
be so invalidated.
22. The Creditors agree that this Guaranty may be enforced only by
the action of the Administrative Agent or the Collateral Agent, in each case
acting upon the instructions of the Required Banks land that no Creditor shall
have any right individually to seek to enforce or to enforce this Guaranty or to
realize upon the security to be granted by the Security Documents, it being
understood and agreed that such rights and remedies may be exercised by the
Administrative Agent or the Collateral Agent for the benefit of the Creditors
upon the terms of this Guaranty and the Security Documents.
23. This Guaranty may be executed in any number of counterparts
and by the different parties hereto on separate counterparts, each of which when
so executed and delivered shall be an original, but all of which shall together
constitute one and the same instrument. A set of counterparts executed by all
the parties hereto shall be lodged with the Borrower and the Administrative
Agent.
24. In the event that all of the capital stock of one or more
Guarantors is sold in connection with a sale permitted by Section 8.02 of the
Credit Agreement and the proceeds of such sale or sales are applied in
accordance with the provisions of Section 3.02 of the Credit Agreement, to the
extent applicable, each Guarantor (x) all of the capital stock of which is so
sold or (y) which is a Subsidiary of a Guarantor all of the capital stock of
which is so sold, shall be released from this Guaranty and this Guaranty shall,
as to each Guaranty or Guarantors, terminate, and have no further force or
effect.
25. EACH GUARANTOR HEREBY IRREVOCABLY WAIVES ALL RIGHTS TO A TRIAL
BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO
THIS GUARANTY, THE OTHER CREDIT DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED
HEREBY OR THEREBY.
26. All payments made by any Guarantor hereunder will be made
without setoff, counterclaim or other defense.
27. It is understood and agreed that any Subsidiary of the
Borrower that is required to execute, a counterpart of this Guaranty after the
date hereof pursuant to the Credit Agreement shall automatically become a
Guarantor hereunder by executing counterpart hereof and delivering the same to
the Administrative Agent.
* * *
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EXHIBIT H
PAGE 12
IN WITNESS WHEREOF, each Guarantor has caused this Guaranty to be
executed and delivered as of the date first above written.
ARGOS SUPPORT SERVICES COMPANY
By: /s/ Rodney A. Weary
------------------------------
Name: Rodney A. Weary
Title: President
FLEET NATIONAL BANK,
as Administrative Agent
By: /s/ Christopher A. Swindell
---------------------------------------
Name: Christopher A. Swindell
Title: Vice President
By: /s/ Vincent J. Rivers
---------------------------------------
Name: Vincent J. Rivers
Title: Assistant Vice President
<PAGE> 217
EXHIBIT I
[CONFORMED AS EXECUTED]
HOLDINGS PLEDGE AGREEMENT
HOLDINGS PLEDGE AGREEMENT, dated as of May 8, 1998 (as amended,
modified or supplemented from time to time, the "Agreement"), made by Golden Sky
Holdings, Inc. (the "Pledgor"), in favor of FLEET NATIONAL BANK, as
Administrative Agent (the "Pledgee"), for the benefit of (x) the Banks (as
defined below) and the Agents (as defined below) under, and any other lender
from time to time party to, the Credit Agreement hereinafter referred to (such
Banks, the Agents and the other lenders, if any, hereinafter being referred to
as the "Bank Creditors") and (y) if the Agents in their individual capacities,
any Bank or a syndicate of financial institutions organized by the Agents or any
such Bank or an affiliate of the Agents or such Bank enter into one or more (i)
interest rate protection agreements (including, without limitation, interest
rate swaps, caps, floors, collars and similar agreements), (ii) foreign exchange
contracts, currency swap agreements or other similar agreements or arrangements
designed to protect against the fluctuations in currency values and/or (iii)
other types of hedging agreements from time to time (collectively, the "Interest
Rate Protection or Other Hedging Agreements"), with, or guaranteed by, the
Borrower (as defined below) or any of its Subsidiaries, the Agents, any such
Bank or an affiliate of the Agents or such Bank (even if either of the Agents or
any such Bank ceases to be a Bank under the Credit Agreement for any reason) and
any such institution that participates in such Interest Rate Protection or Other
Hedging Agreements and their subsequent assigns (collectively, the "Other
Creditors" and, together with the Bank Creditors, are herein called the "Secure
Creditors"). Except as otherwise defined herein, terms used herein and defined
in the Credit Agreement shall be used herein as therein defined.
WITNESSETH:
WHEREAS, the Pledgor, Golden Sky Systems, Inc. (the "Borrower"),
the financial institutions from time to time party thereto (the "Banks"), Banque
Paribas, as Syndication Agent ("Banque Paribas"), Fleet National Bank, as
Administrative Agent (Fleet National Bank, to ether with Banque Paribas, the
"Agents"), and General Electric Capital Corporation, as Documentation Agent,
have entered into an Amended and Restated Credit Agreement, dated as of July 7.
1997, amended and restated May 8, 1998, providing for the making of Loans and
the issuance of, and participation in, Letters of Credit as contemplated therein
(as used herein , the term "Credit Agreement" means the Amended and Restated
Credit Agreement described above in this paragraph, as the same may be amended,
modified, extended, renewed, replaced, restated, supplemented, restructured or
refinanced from time to time, and including any agreement extending the maturity
of, refinancing or restructuring (including, but not limited to, the inclusion
of additional borrowers thereunder that are Subsidiaries of the Borrower and
whose obligations are guaranteed by the Borrower thereunder or any increase in
the amount borrowed) all or any portion of, the Indebtedness under such
agreement or any
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EXHIBIT I-1
PAGE 2
successor agreements; provided, that with respect to any agreement providing for
the refinancing of Indebtedness under the Credit Agreement, such agreement shall
only be treated as, or as part of, the Credit Agreement hereunder if (i) either
(A) all obligations under the Credit Agreement being refinanced shall be paid in
full at the time of such refinancing, and all commitments and letters of credit
issued pursuant to the refinanced Credit Agreement shall have terminated in
accordance with their terms or (B) the Required Banks shall have consented in
writing to the refinancing Indebtedness being treated, along with their
Indebtedness, as Indebtedness pursuant to the Credit Agreement, (ii) the
refinancing Indebtedness shall be permitted to be incurred under the Credit
Agreement being refinanced (if such Credit Agreement is to remain outstanding,)
and (iii) a notice to the effect that the refinancing Indebtedness shall be
treated as issued under the Credit Agreement shall be delivered by the Borrower
to the Collateral Agent);
WHEREAS, the Borrower desires to incur Loans and to have Letters
of Credit issued for its account pursuant to the Credit Agreement;
WHEREAS, the Borrower may at any time and from time to time enter
into one or more Interest Rate Protection or Other Hedging Agreements with one
or more Other Creditors;
WHEREAS, Holdings has executed the Credit Agreement to perform
certain obligations in connection with the incurrence of Loans by the Borrower
thereunder and to guarantee all of the obligations of the Borrower thereunder;
WHEREAS, it is a condition to each of the above-described
extensions of credit to the Borrower that the Pledgor shall have executed and
delivered this Agreement to the Pledgee; and
WHEREAS, the Borrower and the Pledgor will obtain benefits from
the incurrence of the Term Loan and Revolving Loans by, and the issuance of
Letters of Credit to, the Borrower under the Credit Agreement and the entering
into of the Interest Rate Protection or Other Hedging Agreements and,
accordingly, desires to execute this Agreement in order to satisfy the
conditions described in the preceding paragraph and to secure its obligations
under the Credit Agreement;
NOW, THEREFORE, in consideration of the benefits accruing to the
Pledgor, the receipt and sufficiency of which are hereby acknowledged, the
Pledgor hereby makes the following representations and warranties to the Pledgee
for the benefit of the Secured Creditors and hereby covenants and agrees with
the Pledgee for the benefit of the Secured Creditors as follows:
1. SECURITY FOR OBLIGATIONS. This Agreement is made by the Pledgor
for the benefit of the Secured Creditors to secure:
(i) the full and prompt payment when due (whether at the stated
maturity, by acceleration or otherwise) of all obligations and
indebtedness (including, without limitation,
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EXHIBIT I-1
PAGE 3
indemnitees, fees and interest thereon) of the Pledgor and the Borrower
owing to the Bank Creditors, now existing or hereafter incurred under,
arising out of or in connection with any Credit Document and the due
performance and compliance by the Pledgor an I the Borrower with the
terms of each such Credit Document (all such obligations and
liabilities under this clause (i), except to the extent consisting of
obligations or indebtedness with respect to Interest Rate Protection or
Other Hedging Agreement, being herein collectively called the "Credit
Document Obligations");
(ii) the full and prompt payment when due (whether at the stated
maturity, by acceleration or otherwise) of all obligations and
indebtedness (including, without limitation, indemnitees, fees and
interest thereon) of the Pledgor and the Borrower owing to the Other
Creditors, now existing or hereafter incurred under, arising out of or
in connection with any Interest Rate Protection or Other Hedging
Agreement (all such obligations and indebtedness under this clause (ii)
being herein collectively called the "Interest Rate Protection
Obligations");
(iii) any and all sums advanced by the Pledgee in accordance with
the terms of this Agreement in order to preserve the Collateral (as
defined in Section 3.4 herein) or preserve its security interest in the
Collateral;
(iv) in the event of any proceeding for the collection or
enforcement of any indebtedness obligations, or liabilities referred to
in clauses (i), (ii) and (iii) above, after an Event of Default (such
term, as used in this Agreement, shall mean any Event of Default under,
and as defined in, the Credit Agreement, or any payment default under
any Interest Rate Protection or Other Hedging Agreement after the
expiration of any applicable grace period and shall in any event
include, without limitation, any payment and default on any of the
Obligations (as hereinafter defined) after the expiration of any
applicable grace period) shall have occurred and be continuing, the
reasonable expenses of retaking, holding, preparing for sale or lease,
selling or otherwise disposing or realizing on the Collateral, or of
any exercise by the Pledgee of its rights hereunder, together with
reasonable attorneys' fees and court costs; and
(v) all amounts paid by any Indemnitee as to which such Indemnitee
has the right to reimbursement under Section 11 of this Agreement;
all such obligations, liabilities, sums and expenses set forth in clauses (i)
through (v) of this Section I being herein collectively called the
"Obligations"; provided, that it is acknowledged and agreed that the
"Obligations" shall include extensions of credit of the types described above,
whether outstanding on the date of this Agreement or extended from time to time
after the date of this Agreement.
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EXHIBIT I-1
PAGE 4
2. DEFINITION OF STOCK, NOTES, SECURITIES, ETC. As used herein,
the term "Stock" shall mean all of the issued and outstanding shares of capital
stock at any time owned by the Pledgor of any corporation and (ii) the term
"Notes" shall mean all promissory notes at any time issued to the Pledgor by any
of its Subsidiaries, Affiliates or any other Person. As used herein, the term
"Securities" shall mean all of the Stock and Notes. The Pledgor represents and
warrants, as to the Stock of corporations and promissory notes owned by the
Pledgor, that on the date hereof (a) the Stock consists of the number and type
of shares of the stock of the corp orations as described in Annex A hereto; (b)
such Stock constitutes that percentage of the issued and outstanding capital
stock of the issuing corporation as is set forth in Annex A hereto; (c) the
Notes consist of the promissory notes described in Annex B hereto; and (d) the
Pledgor is the holder of record and sole beneficial owner of the Stock and the
Notes and there exist no options or preemption rights in respect of any of the
Stock.
3. PLEDGE OF SECURITIES, ETC.
a. Pledge. To secure the Obligations and for the purposes set
forth in Section 1, the Pledgor hereby: (i) grants to the Pledgee a security
interest in all of the Collateral owned by the Pledgor; (ii) pledges and
deposits as security with the Pledgee the Securities owned by the Pledgor on the
date, hereof, and delivers to the Pledgee certificates or instruments therefor,
duly endorsed in blank in the case of Notes and accompanied by undated stock
powers duly executed in blank by the Pledgor in the case of Stock, or such other
instruments of transfer as are reasonably acceptable to the Pledgee; and (iii)
assigns, transfers, hypothecates, mortgages, charges and sets over to the
Pledgee all of the Pledgor's right, title and interest in and to such Securities
(and in and to all certificates or instruments evidencing such Securities), in
each case to be held by the Pledgee upon the terms and conditions set forth in
this Agreement.
b. Subsequently Acquired Securities. If the Pledgor shall acquire
(by purchase, stock dividend or Otherwise) any additional Securities at any time
or from time to time after the date hereof, the Pledgor will forthwith pledge
and deposit such Securities (or certificates or instruments representing such
Securities) as security with the Pledgee and deliver to the Pledgee certificates
therefor or instruments thereof, duly endorsed in blank in the case of Notes and
accompanied by updated stock powers duly executed in blank in the case of Stock,
or such other instruments of transfer as are reasonably acceptable to the
Pledgee, to secure the Obligations and for the purposes set forth in Section 1,
and will promptly thereafter deliver to the Pledgee a certificate executed by
any of the Chairman of the Board, the Chief Financial Officer, the President, a
Vice Chairman, any Vice President or the Treasurer of the Pledgor describing
such Securities and certifying that the same have been duly pledged with the
Pledgee hereunder.
c. Uncertificated Partnership Interests. Notwithstanding anything
to the contrary contained in Section 3.2, to the extent any of the Securities
(whether now owned or hereafter acquire) are uncertificated, the Pledgor shall
promptly notify the Pledgee thereof, and shall promptly
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<PAGE> 221
EXHIBIT I-1
PAGE 5
take all actions required to perfect the security interest of the Pledgee under
applicable law (including, in any event, under the provisions of Articles 8 and
9 of the New York UCC). The Pledgor further agrees to take such actions as the
Pledgee deems necessary or desirable, including, filing of appropriately
completed and executed Uniform Commercial Code financing statements with
appropriate governmental authorities, to effect the foregoing and to permit the
Pledgee to exercise any of its rights and remedies hereunder, and agrees to
provide an opinion of counsel reasonably satisfactory to the Pledgee with
respect to any such pledge of uncertificated Securities promptly upon request of
the Pledgee.
d. Definition of Pledged Stock; Pledged Notes, Pledged Securities
and Collateral . All Stock at any time pledged or required to be pledged
hereunder is hereinafter called the "Pledged Stock "' all Notes at any time
pledged or required to be pledged hereunder are hereinafter called the "Pledged
Notes," all of the Pledged Stock and Pledged Notes together are hereinafter
called the "Pledged Securities," which together with all proceeds thereof,
including any securities and moneys received and at the time held by the Pledgee
hereunder, is hereinafter called the "Collateral."
4. APPOINTMENT OF SUB-AGENTS; ENDORSEMENTS, ETC. The Pledgee shall
have the right to appoint one or more sub-agents for the purpose of retaining
physical possession of the Pledged Securities.
5. VOTING, ETC., WHILE NO EVENT OF DEFAULT. Unless and until (i)
an Event of Default shall have occurred and be continuing and (ii) written
notice thereof shall have been given by the Pledgee to the Pledgor (provided,
that if an Event of Default specified in Section 9.05 of the Credit Agreement
shall occur, no such notice shall be required), the Pledgor shall be entitled to
exercise any and all voting and other consensual right pertaining to the Pledged
Securities owned by it and to give consents, waivers or ratifications in respect
thereof, provided, that no note shall be cast or any consent, waivers or
ratification given or any action taken which would violate or be inconsistent
with any of the terms of this Agreement, any other Credit Document or any
Interest Rate Protection or Other Hedging Agreement (collectively, the "Secured
Debt Agreements"), or which would have the effect of impairing the position or
interests of the Pledgee or any Secured Creditor. All such rights of the Pledgor
to vote and to give consents, waivers and ratifications shall cease in case an
Event of Default shall occur and be continuing, and Section 7 hereof shall
become applicable.
6. DIVIDENDS AND OTHER DISTRIBUTIONS. Unless an Event of Default
shall have occurred and be continuing (or would occur as a result thereof), all
cash dividends payable in respect of the Pledged Stock and all payments in
respect of the Pledged Notes shall be paid to the Pledgor free and clear of the
securities interests created under this Agreement or any other Credit Document;
provided, that all cash dividends payable in respect of the Pledged Stock which
are reasonably determined by the Pledgee, in its sole discretion, to represent
in whole or in part an extraordinary, liquidating or other distribution in
return of capital shall be paid, to the extent so
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EXHIBIT I-1
PAGE 6
determined to represent an extraordinary, liquidating or other distribution in
return of capital, to the Pledgee and retained by it as part of the Collateral.
The Pledgee shall also be entitled to receive directly, and to retain as part of
the Collateral:
(i) all other or additional stock or other securities or property
(other than cash) paid or distributed by way of dividend or otherwise
in respect of the Pledged Stock;
(ii) all other or additional stock or other securities or property
(including cash) paid or distributed in respect of the Pledged Stock by
way of stock-split, spin-off, split-up, reclassification, combination
of shares or similar rearrangement; and,
(iii) all other or additional stock or other securities or
property (including cash) which may be paid in respect of the
Collateral by reason of any consolidation, merger, exchange or stock,
conveyance of assets, liquidation or similar corporate reorganization.
Nothing contained in this Section 6 shall limit or restrict in any way the
Pledgee's right to receive proceeds of the Collateral in any form in accordance
with Section 3 of this Agreement. All dividends, distributions or other payments
which are received by the Pledgor contrary to the provisions of this Section 6
and Section 7 shall be received in trust for the benefit of the Pledgee, shall
be segregated from other property or funds of the Pledgor and shall be Forthwith
paid over to the Pledgee as Collateral in the same form as so received (with any
necessary endorsement).
7. REMEDIES IN CASE OF EVENT OF DEFAULT. (a) In case an Event of
Default shall have occurred and be continuing, the Pledgee shall be entitled to
exercise all of the rights, powers and remedies (whether vested in it by this
Agreement or by any other Secured Debt Agreement or by law) for the protection
and enforcement of its rights in respect of the Collateral, and the Pledgee
shall be entitled, without limitation, to exercise the following rights, which
the Pledgor hereby agrees to be commercially reasonable:
(i) to receive all amounts payable in respect of the Collateral
payable to the Pledgor under Section 6;
(ii) to transfer all or any part of the Pledged Securities into
the Pledgee's name or the name of its nominee or nominees;
(iii) to accelerate any Pledged Note which may be accelerated in
accordance with its terms, and take any other action to collect upon
any Pledged Note (including, without limitation, to make any demand for
payment of amounts then due and payable thereon);
(iv) subject as set forth in section 5, to vote all or any part of
the Pledged Securities (whether or not transferred into the name of the
Pledgee) and give all consents,
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EXHIBIT I-1
PAGE 7
waivers and ratifications in respect of the Collateral and otherwise
act with respect thereto as though it were the outright owner thereof
(the Pledgor hereby irrevocably constituting and appointing the Pledgee
the proxy and attorney-in-fact of the Pledgor, with full power of
substitution to do so); and
(v) at any time or from time to time to sell, assign and deliver,
or grant options to purchase, all or any part of the Collateral, or any
interest therein, at any public or private sale, without demand of
performance, advertisement or notice of intention to sell or of the
time or place of sale or adjournment thereof or to redeem or otherwise
(all of which are hereby waived by the Pledgor to the extent permitted
by applicable law), for cash or credit or for other property, for
immediate or future delivery without any assumption of credit risk, and
for such price or prices and on such terms as the Pledgee may, in
compliance with any mandatory requirements of applicable law, determine
to be commercially reasonable; provided, that at least 10 days' notice
of the time and place of any such sale shall be given to the Pledgor.
The Pledgor hereby waives and releases to the fullest extent permitted
by law any right or equity of redemption with respect to the
Collateral, whether before or after sale hereunder, and all rights, if
any, of marshalling the Collateral and any other security for the
Obligations or otherwise. At any such sale, unless prohibited by
applicable law, the Pledgee on behalf of the Secured Creditors may bid
for and purchase all or any part of the Collateral so sold free from
any such right or equity of redemption. Neither the Pledgee nor any
Secured Creditor shall be liable for failure to collect or realize upon
any or all of the Collateral or for any delay in so doing nor shall any
of them be tender any obligation to take any action whatsoever with
regard thereto.
(b) In case the Pledgee shall have instituted any proceeding to
enforce any right, power or remedy under this Agreement by foreclosure, sale,
entry or otherwise, and such proceedings shall have been discontinued or
abandoned for any reason or shall have been determined adversely to the Pledgee,
then and in such case the Pledgor, the Pledgee and each holder of any of the
Obligations shall be restored to their former positions and rights hereunder
with respect to the Collateral subject to the security interests created under
this Agreement, and all rights, remedies and powers of the Pledgee shall
continue as if no such proceeding had been instituted.
8. REMEDIES, ETC., CUMULATIVE. Each right, power and remedy of the
Pledgee provided for in this Agreement or any other Secured Debt Agreement or
now or hereafter existing al law or in equity or by statute shall be cumulative
and concurrent and shall be in addition to every other such right, power or
remedy. The exercise or beginning of the exercise by the Pledgee or any Secured
Creditor of any one or more of the rights, powers or remedies provided for in
this Agreement or any other Secured Debt Agreement or now or hereafter existing
at law or in equity or by statute or otherwise shall not preclude the
simultaneous or later exercise by the Pledgee or any Secured Creditor of all
such other rights, powers or remedies, and no failure or delay on the part of
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EXHIBIT I-1
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the Pledgee or any Secured Creditor to exercise any such right, power or remedy
shall operate as a waiver thereof.
9. APPLICATION OF PROCEEDS. (a) All moneys collected by the
Pledgee upon any sale or other disposition of the Collateral pursuant to the
terms of this Agreement, together with all other moneys received by the Pledgee
hereunder shall be applied as follows:
(i) first, to the payment of all Obligations owing to the Pledgee
(or any Indemnitee, in the case of clause (v) of Section I of this
Agreement) of the type described in clauses (iii), (iv) and (v) of
Section I of this Agreement;
(ii) second, to the extent moneys remain after the application
pursuant to the preceding clause (i), an amount equal to the
outstanding Primary Obligations shall be paid to the Secured Creditors
as provided in Section 9(e), with each Secured Creditor receiving an
amount equal to its outstanding Primary Obligations or, if the proceeds
are insufficient to pay in full all such Primary Obligations, its Pro
Rata Share of the amount remaining to be distributed;
(iii) third, to the extent proceeds remain after the application
pursuant to the preceding clauses (i) and (ii), an amount equal to the
outstanding Secondary Obligations shall be paid to the Secured
Creditors as provided in Section 9(e), with each Secured Creditor
receiving an amount equal to its outstanding Secondary Obligations or,
if the proceeds are insufficient to pay in full all such Secondary
Obligations, its Pro Rata Share of the amount remaining to be
distributed; and
(iv) fourth, to the extent proceeds remain after the application
pursuant to the preceding clauses (i), (ii) and (iii), to the Pledgor
or as required by applicable law.
(2) For purposes of this Agreement (x) "Pro Rata Share" shall
mean, when calculating a Secured Creditor's portion of any distribution or
amount, that amount (expressed as a percentage) equal to a fraction the
numerator of which is the then unpaid amount of such Secured Creditor's Primary
Obligations or Secondary Obligations, as the case may be, and the denominator of
which is the then outstanding amount of all Primary Obligations or Secondary
Obligations, as the case may be, (y) "Primary Obligations" shall mean (i) in the
case of the Credit Document Obligations, all principal of, and interest on, all
Loans, all Unpaid Drawings theretofore made (together will all interest accrued
thereon), the aggregate Stated Amounts of all Letters of Credit issued under the
Credit Agreement, and all Fees and (ii) in the case of the Interest Rate
Protection Obligations, all amounts due under the Interest Rate Protection or
Other Hedging Agreements (other than indemnities, fees (including, without
limitation, Attorneys' fees) and similar obligations and liabilities) and (z)
"Secondary Obligations" shall mean all Obligations other than Primary
Obligations.
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EXHIBIT I-1
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(3) When payments to Secured Creditors are based upon their
respective Pro Rata Shares, the amounts received by such Secured Creditors
hereunder shall be applied (i) first, to their Primary Obligations and (ii)
second, to their Secondary Obligations. If any payment to any Secured Creditor
of its Pro Rata Share of any distribution would result in overpayment to such
Secured Creditor, such excess amount shall instead be distributed in respect of
the unpaid Primary Obligations or Secondary Obligations, as the case may be, of
the other Secured Creditors, with each Secured Creditor whose Primary
Obligations or Secondary Obligations, as the case may be, have not been paid in
full to receive an amount equal to such excess amount multiplied by a fraction
the numerator of which is the unpaid Primary Obligations or Secondary
Obligations, as the case may be, of such Secured Creditor and the denominator of
which is the unpaid Primary Obligations or Secondary Obligations, as the case
may be, of all Secured Creditors entitled to such distribution.
(4) Each of the Secured Creditors agrees and acknowledges that if
the Bank Creditors are to receive a distribution on account of undrawn amounts
with respect to Letters of Credit issued under the Credit Agreement (which shall
only occur after all outstanding Loans and Unpaid Drawings with respect to such
Letters of Credit have been paid in full), such amounts shall be paid to the
Administrative Agent under the Credit Agreement and held by it, for the equal
and ratable benefit of the Bank Creditors, as cash security for the repayment
Obligations owing to the Bank Creditors as such. If any amounts are held as cash
security pursuant to the immediately preceding sentence, then upon the
termination of all outstanding Letters of Credit, and after the application of
all such cash security to the repayment of all Obligations owing to the Bank
Creditors after giving effect to the termination of all such Letters of Credit,
if there remains any excess cash, such excess cash shall be returned by the
Administrative Agent to the Collateral Agent for distribution in accordance with
Section 9(a) hereof.
(5) Except as set forth in Section 9(d) hereof, all payments
required to be made hereunder shall be made (i) if to the Bank Creditors, to the
Administrative Agent under the Credit Agreement for the account of the Bank
Creditors, and (ii) if to the Other Creditors, to the trustee, paying agent or
other similar representative (each a "Representative") for the Other Creditors
or, in the absence of such a Representative, directly to the Other Creditors.
(6) For purposes of applying payments received in accordance with
this Section 9, the Collateral Agent shall be entitled to rely upon (i) the
Administrative Agent under the Credit Agreement and (ii) the Representative for
the Other Creditors or, in the absence of such a Representative, upon the Other
Creditors for a determination (which the Administrative Agent, each
Representative for any Secured Creditors and the Secured Creditors agree (or
shall agree) to provide upon request of the Collateral Agent) of the outstanding
Primary Obligations and Secondary Obligations owed to the Bank Creditors or the
Other Creditors, as the case may be. Unless it has actual knowledge (including
by way of written notice from a Bank Creditor or an Other Creditor to the
contrary, the Administrative Agent and each Representative, in furnishing
information pursuant to the preceding sentence, and the Collateral Agent, in
acting hereunder, shall be entitled to assume
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EXHIBIT I-1
PAGE 10
that no Secondary Obligations are outstanding. Unless it has actual knowledge
(including by way of written notice from an Other Creditor) to the contrary, the
Collateral Agent, in acting hereunder, shall be entitled to assume that no
Interest Rate Protection or Other Hedging Agreements are in existence.
(7) It is understood and agreed that the Pledgor shall remain
jointly and severally liable to the extent of any deficiency between the amount
of the proceeds of the Collateral hereunder I and the aggregate amount of the
sums referred to in clauses (i), (ii) and (iii) of Section 9(a).
10. PURCHASERS OF COLLATERAL. Upon any sale of the Collateral by
the Pledgee hereunder (whether by virtue of the power of sale herein granted,
pursuant to judicial process or otherwise, the receipt of the Pledgee or the
officer making the sale shall be a sufficient discharge to the purchaser or
purchasers of the Collateral so sold, and such purchaser or purchasers shall not
be obligated to see to the application of any part of the purchase money paid
over to the Pledged or such officer or be answerable in any way for the
misapplication or nonapplication thereof.
11. INDEMNITY.
a. Indemnity. (a) The Pledgor jointly and severally agrees to
indemnify, reimburse and hold the Pledgee, each Secured Creditor and their
respective successors, permitted assigns, employees, agents and servants
(hereinafter in this Section 11.1 referred to individually as "Indemnitee," and
collectively as "Indemnitees") harmless from any and all liabilities,
obligations, damages, injuries, penalties, claims, demands, actions, suits,
judgments and any and all costs, expenses or disbursements (including attorneys'
fees and expenses) (for the purposes of this Section 11.1 the foregoing are
collectively called "expenses") of whatsoever kind and nature imposed on,
asserted against -or incurred by any of the Indemnitees in any way relating to
or arising out of this Agreement, any other Secured Debt Agreement or any other
document executed in connection herewith and therewith or in any other way
connected with the administration of the transactions contemplated hereby and
thereby or the enforcement of any of the terms of, or the preservation of any
rights under any thereof, the violation of the laws of any country, state or
other governmental body or unit, any tort or contract claim; provided, that no
Indemnitee shall be indemnified pursuant to this Section 11.1 (a) for losses,
damages or liabilities to the extent caused by the gross negligence or willful
misconduct of such Indemnitee. In no event shall any Indemnitee be liable for
any matter or thing in connection with this Agreement other than to account
moneys actually received by it in connection with the terms hereof. The Pledgor
agrees that upon written notice by any Indemnitee of the assertion of such a
liability, obligation, damage injury, penalty, claims, demand, action, judgment
or suit, the Pledgor shall assume full responsibility for the defense thereof.
Each Indemnitee agrees to use its best efforts to promptly notify the Pledgor of
any such assertion of which such Indemnitee has knowledge.
(2) Without limiting the application of Section 11.1(a), the
Pledgor jointly and severally agrees to pay or reimburse the Pledgee for any and
all fees, costs and expenses of whatever
10
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EXHIBIT I-1
PAGE 11
kind or nature reasonably incurred in connection with the creation, preservation
or protection of the Pledgee's Liens on, and security interest in, the
Collateral, including, without limitation, all fees and taxes in connection with
the recording or filing of instruments and documents in public offices, payment
or discharge of any taxes or Liens upon or in respect of the Collateral (other
than Liens permitted under this Agreement or the Credit Agreement so long as no
Event of Default has occurred and is continuing) and all other reasonable fees,
costs and expenses in connection with protecting, maintaining or preserving the
Collateral and the Pledgee's interest therein, whether through judicial
proceedings or otherwise, or in defending or prosecuting any actions, suits or
proceedings arising out of or relating to the Collateral.
(3) If and to the extent that the obligations of the Pledgor under
this Section 11 are unenforceable for any reason, the Pledgor hereby agrees to
make the maximum contribution to the payment and satisfaction of such
obligations which is permissible under applicable law.
b. Indemnity Obligations Secured by Collateral, Survival. Any
amounts paid by any Indemnitee as to which such Indemnitee has the right to
reimbursement shall constitute Obligations secured by the Collateral. The
indemnity obligations of the Pledgor contained in this Section 11 shall continue
in full force and effect notwithstanding the full payment of all the Notes
issued under the Credit Agreement, the termination of all Letters of Credit and
all Interest Rate Protection or Other Hedging Agreements and the payment of all
other Obligations and notwithstanding the discharge thereof.
12. FURTHER ASSURANCES; POWER-OF-ATTORNEY. (a) The Pledgor agrees
that it will join with the Pledgee in executing and, at the Pledgor's own
expense, file and refile under the UCC such financing statements, continuation
statements and other documents in such offices as the Pledgee may deem necessary
or appropriate and wherever required or permitted by law in order to perfect and
preserve the Pledgee's security interest in the Collateral and hereby authorizes
the Pledgee to file financing statements and amendments thereto relative to all
or any part of the Collateral without the signature of the Pledgor where
permitted by law, and agrees to do such further acts and things and to execute
and deliver to the Pledgee such additional conveyances, assignments, agreements
and instruments as the Pledgee may reasonably require or deem advisable to carry
into effect the purposes of this Agreement or to further assure and confirm unto
the Pledgee its rights, powers and remedies hereunder.
(2) The Pledgor hereby appoints the Pledgee as its
attorney-in-fact, with full authority in the place and stead of the Pledgor and
in the name of the Pledgor or otherwise, from time to time after the occurrence
and during the continuance of an Event of Default, in the Pledgee's discretion
to take any action and to execute any instrument which the Pledgee may deem
necessary or advisable to accomplish the purposes of this Agreement.
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EXHIBIT I-1
PAGE 12
13. THE PLEDGEE AS AGENT. The Pledgee will hold in accordance with
this Agreement all items of the Collateral at any time received under this
Agreement. It is expressly understood and agreed by the parties hereto and each
Secured Creditor, by accepting the benefits of this Agreement, acknowledges and
agrees that the obligation of the Pledgee as holder of the Collateral and
interests therein and with respect to the disposition thereof, and otherwise
under this Agreement, are only those expressly set forth in this Agreement. The
Pledgee shall act hereunder on the terms and conditions set forth herein and in
Section 11 of the Credit Agreement.
14. TRANSFER BY PLEDGOR. The Pledgor will not sell or otherwise
dispose of, grant any option with respect to, or mortgage, pledge or otherwise
encumber any of the Collateral or any interest therein (except as may be
permitted in accordance with the terms of the Credit Agreement).
15. REPRESENTATIONS, WARRANTIES AND COVENANTS OF PLEDGOR. The
Pledgor represents, warrants and covenants that: (i) it is the legal, record and
beneficial owner of, and has good and marketable title to, all Securities
pledged by it hereunder, subject to no pledge, lien, mortgage, hypothecation,
security interest, charge, option or other encumbrance whatsoever, except the
liens and security interests created by the Credit Agreement and this Agreement;
(ii) it has the requisite corporate power, authority and legal right to pledge
all the Securities pledged by it pursuant to this Agreement; (iii) this
Agreement has been duly authorized, executed and delivered by the Pledgor and
constitutes a legally valid and binding obligation of the Pledgor enforceable in
accordance with its terms, except to the extent that the enforceability hereof
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or similar laws affecting creditors' rights generally and by equitable
principles (regardless of whether enforcement is sought in equity or at law);
(iv) no consent of any other party (including, without limitation, any
stockholder, limited or general partner or creditor of the Pledgor or any of its
Subsidiaries) and no consent, license, permit, approval or authorization of,
exemption by, notice or report to, or registration, filing or declaration with,
any governmental authority is required to be obtained by the Pledgor in
connection with the execution, delivery or performance of this Agreement, except
as obtained on or before the date hereof or as permitted to be obtained after
the date hereof by Section 3.1 of this Agreement; (v) the execution, delivery
and performance of this Agreement does not violate any provision of any
applicable law or regulation or of any order, judgment, writ, award or decree of
any court, arbitrator or governmental authority, domestic or foreign, applicable
to the Pledgor or of the certificate of incorporation or by-laws of the Pledgor
or of any securities issued by the Pledgor or any of its Subsidiaries, or of any
mortgage, indenture, lease, deed of trust, agreement, instrument or undertaking
to which the Pledgor or any of its Subsidiaries is a party or which purports to
be binding upon the Pledgor or any of its Subsidiaries or upon any of their
respective assets and will not result in the creation or imposition of any lien
or encumbrance on any of the assets of the Pledgor or any of its Subsidiaries
except as contemplated by this Agreement; (vi) all the shares of Stock have been
duly and validly issued, are fully paid and nonassessable; (vii) to the best
knowledge of Pledgor, each of its Pledged Notes, when executed by the obligor
thereof, will be the legal, valid and binding
12
<PAGE> 229
EXHIBIT I-1
PAGE 13
obligation of such obligor, enforceable in accordance with its terms, except to
the extent that the enforceability thereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
creditors' rights generally and by equitable principles (regardless of whether
enforcement is sought in equity or at law); and (viii) the pledge and assignment
of the Securities by it pursuant to this Agreement, together with the delivery
of the Securities by it pursuant to this Agreement, creates a valid and
perfected first priority security interest in such Securities and the proceeds
thereof (except to the extent further action may be required to maintain a
perfected security interest in proceeds after the actual receipt thereof by the
Pledgee), subject to no prior lien or encumbrance or to any agreement (other
than as may be created by any other Credit Document) purporting to grant to any
third party a lien or encumbrance on the property or assets of the Pledgor which
would include such Securities. The Pledgor covenants and agrees that it will
defend the Pledgee's right, title and security interest in and to the Securities
pledged by it pursuant to this Agreement and the proceeds thereof against the
claims and demands of all persons whomsoever, and the Pledgor covenants and
agrees that it will have like title to and right to pledge any other property at
any time hereafter pledged to the Pledgee as Collateral hereunder and will
likewise defend the right thereto and security interest therein of the Pledgee
and the Secured Creditors.
16. THE PLEDGOR'S OBLIGATIONS ABSOLUTE, ETC. (a) The obligations
of the Pledgor hereunder shall remain in full force and effect without regard
to, and shall not be impaired by:
(2) any bankruptcy, insolvency, reorganization, arrangement,
readjustment, composition, liquidation or the like of the Pledgor, except to the
extent that the enforceability thereof may be limited by such event; (b) any
exercise or non-exercise, or any waiver of, any right, remedy, power or
privilege under in respect of this Agreement, any other Credit Document or any
Interest Rate Protection or Other Hedging Agreement, except as specifically set
forth in a waiver granted pursuant to Section 20; or (c) any amendment to or
modification of any Credit Document, or any Interest Rate Protection or Other
Hedging Agreement or any security for any of the Obligations; whether or not the
Pledgor shall have notice or knowledge of any of the foregoing, except as
specifically set forth in an amendment or modification executed pursuant to
Section 20.
17. REGISTRATION, ETC. (a) If an Event of Default shall have
occurred and be continuing and the Pledgor shall have received from the Pledgee
a written request or requests that the Pledgor cause any registration,
qualification or compliance under any federal or state securities law or laws to
be effected with respect to all or any part of it, Pledged Stock, the Pledgor as
soon as practicable and at its expense shall cause such registration to be
effected (and be kept effective), and shall cause such qualification and
compliance to be effected (and be kept effective) as may be so requested and
shall permit or facilitate the sale and distribution of such Pledged Stock,
including, without limitation, registration under the Securities Act of 1933 as
then in effect (or any similar statute then in effect), appropriate
qualifications under applicable blue sky or other state securities laws and
appropriate compliance with any other government requirements; provided that the
Pledgee
13
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EXHIBIT I-1
PAGE 14
shall furnish to the Pledgor such information regarding the Pledgee as the
Pledgor may request in writing and as shall be required in connection with any
such registration, qualification or compliance. The Pledgor will cause the
Pledgee to be kept reasonably advised in writing as to the progress of each
such registration, qualification or compliance and as to the completion thereof,
will furnish to the Pledge - such number of prospectuses, offering circulars or
other documents incident thereto as the Pledgee from time to time may reasonably
request, and will indemnify the Pledgee and all others Participating in the
distribution of the Pledged Stock against all claims, losses, damages and
liabilities caused by any untrue statement (or alleged untrue statement) of a
material fact contained therein (or in any related registration statement,
notification or the like) or by any omission (or alleged omission) to state
therein (or in any related registration statement, notification or the like) a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as the same may have been caused by an
untrue statement or omission based upon information furnished in writing to the
Pledgor by the Pledgee expressly for use therein.
(2) If at any time when the Pledgee shall determine to exercise
its right to sell all or any part of the Pledged Securities pursuant to Section
7, such Pledged Securities or the part thereof to be sold shall not, for any
reason whatsoever, be effectively registered under the Securities Act of 1933,
as then in effect, the Pledgee may, in its sole and absolute discretion, sell
such Pledged Securities or part thereof by private sale in such manner and under
such circumstances as the Pledgee may deem necessary or advisable in order that
such sale may legally be effected without such registration. Without limiting
the generality of the foregoing, in any such event the Pledgee, in its sole and
absolute discretion: (i) may proceed to make such private sale notwithstanding
that a registration statement for the purpose of registering such Pledged
Securities or part thereof shall have been filed under such Securities Act; (ii)
may approach and negotiate with a single possible purchaser to effect such sale;
and (iii) may reflect such sale to a purchaser who will represent and agree that
such purchaser is purchasing for its own account, for investment, and not with a
view to the distribution or sale of such Pledged Securities or part thereof In
the event of any such sale, the Pledgee shall incur no responsibility or
liability for selling all or any I art of the Pledged Securities at a price
which the Pledgee, in its sole and absolute discretion, may in good faith deem
commercially reasonable under the circumstances, notwithstanding the possibility
that a substantially higher price might be realized if the sale were deferred
until after Registration of such Pledged Securities for public sale.
18. TERMINATION, RELEASE. (a) After the Termination Date (as
defined below), this Agreement shall terminate (provided that all indemnities
set forth herein including, without limitation, in Section 11 hereof shall
survive any such termination) and the Pledgee, at the request and expense of the
Pledgor, will promptly execute and deliver to the Pledgor such statements,
documents or other instruments as may be reasonably requested by the Pledgor
acknowledging the satisfaction and termination of this Agreement and the
security interests created hereby, and will duly assign, transfer and deliver to
the Pledgor (without recourse and without any representation or warranty) such
of the Collateral of the Pledgor as may be in the possession of the Pledgee and
as has
14
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EXHIBIT I-1
PAGE 15
not theretofore been sold or otherwise applied or released pursuant to this
Agreement. As used in this Agreement, "Termination Date" shall mean the date
upon which the Total Commitment and all Interest Rate Protection aid Other
Hedging Agreements have been terminated, no Note is outstanding (and all Loans
have been paid in full), all Letters of Credit have been terminated (or cash
collateralized to the Pledgee's satisfaction) and all other Obligations then
owing have been paid in full and there shall exist no unsatisfied claim for
reimbursement by any Indemnitee pursuant to Section 11.2.
(2) In the event that any part of the Collateral is sold in
connection with a sale permitted by the Credit Agreement or is otherwise
released at the direction of the Required Banks (or all the Banks if required by
Section 12.12 of the Credit Agreement), and the proceeds of such sale or sales
or from such release are applied in accordance with the terms of the Credit
Agreement, such Collateral will be sold free and clear of the Liens created by
this Agreement and the Pledgee, at the request and expense of the Pledgor, will
duly assign, transfer and deliver to the Pledgor (without recourse and without
any representation or warranty) such of the Collateral of the Pledgor as is then
being (or has been) so sold or released and as may be in possession of the
Pledgee and has not theretofore been released pursuant to this Agreement.
(3) At any time that the Pledgor desires that Collateral be
released as provided in the foregoing Section 18(a) or (b), it shall deliver to
the Pledgee a certificate signed by its chief financial officer or another
authorized senior officer stating that the release of the respective Collateral
is permitted pursuant to Section 18(a) or (b). If requested by the Pledgee
(although the Pledgee shall have no obligation to make any such request), the
Pledgor shall furnish appropriate legal opinions (from counsel, which may be in-
house counsel, reasonably acceptable to the Pledgee) to the effect set forth in
the immediately preceding sentence. The Pledgee shall have no liability
whatsoever to any Secured Creditor as the result of any release of Collateral by
it as permitted by this Section 18.
19. NOTICES, ETC. All notices and other communications hereunder
shall be in writing (including telegraphic, telex, facsimile transmission or
cable communication) and shall be delivered, mailed telegraphed, telexed,
facsimile transmitted or cabled, addressed:
(1) if to the Pledgor, at its address set forth opposite its
signature below;
(2) if to the Pledgee, at:
Fleet National Bank
Mail Stop MA0FD03D
1 Federal Street
Boston, MA 02110
Attention: Christopher A. Swindell
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<PAGE> 232
EXHIBIT I-1
PAGE 16
Telephone No.: (617) 346-5579
Facsimile No.: (617) 346-4345
(3) if to any Bank Creditor (other than the Pledgee), either (x)
to the Administrative Agent, at the address of the Administrative Agent
specified in the Credit Agreement or (y) at such address as such Bank Creditor
shall have specified in the Credit Agreement;
(4) if to any Other Creditor or to the Representative for the
Other Creditors, at such address as such Representative may have provided to the
Borrower and the Pledgee from time to time, or, in the absence of a
Representative, directly to the Other Creditors at such address as the Other
Creditors shall have specified in writing to the Borrower and the Pledgee;
or at such other address as shall have been furnished in writing by any Person
described above to the party required to give notice hereunder. All such notices
and communications shall, when mailed, telegraphed, telexed , facsimile
transmitted or cabled or sent by overnight courier, be effective on the third
Business Day following deposit in the mails, certified, return receipt
requested, when delivered to the telegraph company, cable company or on the day
following delivery to an overnight courier, as the case may be, or sent by telex
or facsimile device, except that notices and communications to the Collateral
Agent shall not be effective until received by the Collateral Agent.
20. WAIVER; AMENDMENT. None of the terms and conditions of this
Agreement may be amended, changed, waived, modified or varied in any manner
whatsoever unless in writing duly signed by the Pledgor and the Pledgee (with
the written consent of the Required Banks (or all the Banks if required by
Section 12.12 of the ("Credit Agreement)); provided, that any amendment, change,
waiver, modification or variance affecting the rights and benefits of a single
Class (as defined below) of Secured Creditors (and not all Secured Creditors in
a like or similar manner) shall require the written consent of the Requisite
Creditors (as defined below) of such Class. For the purpose of this Agreement,
the term "Class" shall mean each class of Secured Creditors, i.e., whether (i)
the Bank Creditors as holders of the Credit Document Obligations or (ii) :he
Other Creditors as holders of the Interest Rate Protection Obligations. For the
purpose of this Agreement, the term "Requisite Creditors" of any Class shall
mean each of (i) with respect to the Credit Document Obligations, the Required
Banks and (ii) with respect to the Interest Rate Protection Obligations, the
holders of at least a majority of all obligations outstanding from time to time
under the Interest Rate Protection or Other Hedging Agreements.
21. MISCELLANEOUS. (a) This Agreement shall be binding upon the
successors and assigns of the Pledgor and shall inure to the benefit of and by
enforceable by the Pledgee and each Secured Creditor and their respective
successors and assigns.
16
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EXHIBIT I-1
PAGE 17
(1) THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE
WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK.
(2) The headings in this Agreement are for purposes of reference
only and shall not limit or define the meaning hereof.
(3) This Agreement may be executed in any number of counterparts,
each of which shall be an original, but all of which shall constitute one
instrument.
22. SEVERABILITY. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
* * *
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EXHIBIT I-1
PAGE 18
IN WITNESS WHEREOF, each Pledgor and the Pledgee have caused this
Agreement to be executed by their duly elected officers duly authorized as of
the date first above written.
Address: GOLDEN SKY HOLDINGS, INC.
as Pledgor
605 West 47th Street
Suite 300 By: /s/ Robert B. Weaver
Kansas City, MO 64112 -------------------------------
Attention: Robert B, Weaver Name: Robert B. Weaver
Tel: (212) 593-7901 Title: Chief Financial Officer
Fax: (212) 754-6348
Mail Stop MA0FD03D FLEET NATIONAL BANK
1 Federal Street as Pledgee
Boston, MA 02110
Attention: Christopher A. Swindell By: /s/ Christopher A. Swindell
Telephone: (617) 346-5579 -------------------------------
Facsimile: (617) 346-4345 Name: Christopher A. Swindell
Title: Vice President
<PAGE> 235
EXHIBIT I-1
PAGE 19
LIST OF STOCK
<TABLE>
<CAPTION>
Pledgor Issuer Number/Type Percentage
- ------- ------ ----------- ----------
<S> <C> <C> <C>
Golden Sky Holding Inc. Golden Sky Systems, Inc. 1000 Shares 100%
Common Stock
</TABLE>
<PAGE> 236
EXHIBIT I-1
PAGE 20
ANNEX B
to
Pledge Agreement
LIST OF NOTES
<TABLE>
<CAPTION>
Maker Payee Amount
- ----- ----- ------
<S> <C> <C>
NONE
</TABLE>
<PAGE> 237
EXHIBIT I-2
PARTNERSHIP PLEDGE AGREEMENT
PARTNERSHIP PLEDGE AGREEMENT, dated as of May __, 1998 (as
amended, modified or supplemented from time to time, the "Agreement"), made by
the undersigned (the "Pledgor"), in favor of FLEET NATIONAL BANK, as
Administrative Agent (the "Pledgee"), for the benefit of (x) the Banks (as
defined below) and the Agents (as defined below) under, and any other lender
from time to time party to the Credit Agreement hereinafter referred to (such
Banks, the Agents and the other lenders, if any, are hereinafter called the
"Bank Creditors") and (y) if the Agents in their individual capacities, any Bank
or a syndicate of financial institutions organized by the Agents or any such
Bank or an affiliate of the Agents or such Bank enter into one or more (i)
interest rate protection agreements (including, without limitation, interest
rate swaps, caps, floors, collars and similar agreements), (ii) foreign exchange
contracts, currency swap agreements or other similar agreements or arrangements
designed to protect against the fluctuations in currency values and/or (iii)
other types of hedging agreements from time to time (collectively, the "Interest
Rate Protection or Other Hedging Agreements"), with, or guaranteed by, the
Borrower (as defined below), the Agents, any such Bank or an affiliate of the
Agents or such Bank (even if either of the Agents or any such Bank ceases to be
a Bank under the Credit Agreement for any reason) and any such institution that
participates in such Interest Rate Protection or Other Hedging Agreements and
their subsequent assigns (collectively, the "Other Creditors" and, together with
the Bank Creditors, are herein called the "Secured Creditors"). Except as
otherwise defined herein, terms used herein and defined in the Credit Agreement
shall be used herein as therein defined.
WITNESSETH:
WHEREAS, Golden Sky Holdings, Inc., Golden Sky Systems, Inc. (the
"Borrower"), various financial institutions from time to time party thereto (the
"Banks"), Banque Paribas, as Syndication Agent, Fleet National Bank, as
Administrative Agent (Fleet National Bank together with Banque Paribas, the
"Agents"), and General Electric Capital Corporation, as Documentation Agent,
have entered into an Amended and Restated Credit Agreement, dated as of July 7,
1997, amended and restated as of May _, 1998, providing for the making of Loans
to the Borrower and the issuance of, and participation in, Letters of Credit for
the account of the Borrower, all as contemplated therein (as used herein, the
term "Credit Agreement" means the Amended and Restated Credit Agreement
described above in this paragraph, as the same may be amended, modified,
extended, renewed, replaced, restated, supplemented, restructured or refinanced
from time to time, and including any agreement extending the maturity of,
refinancing or restructuring (including, but not limited to, the inclusion of
additional borrowers thereunder that are Subsidiaries of the Borrower and whose
obligations are guaranteed by the Borrower thereunder or any increase in the
amount borrowed)) all or any portion of, the Indebtedness under such agreement
or any successor agreements; provided, that with respect to any agreement
providing for the refinancing of Indebtedness under the Credit Agreement, such
agreement shall only be treated as, or as part of, the Credit Agreement
hereunder if (i) either (A) all obligations under the Credit Agreement being
refinanced shall be paid in full at the time of such refinancing, and all
commitments and Letters of Credit issued pursuant to the refinanced
<PAGE> 238
EXHIBIT I-2
PAGE 2
Credit Agreement shall have terminated in accordance with their terms or (B) the
Required Banks shall have consented in writing to the refinancing Indebtedness
being treated, along with their Indebtedness, as Indebtedness pursuant to the
Credit Agreement, (ii) the refinancing Indebtedness shall be permitted to be
incurred under the Credit Agreement being refinanced (if such Credit Agreement
is to remain outstanding) and (iii) a notice to the effect that the refinancing
Indebtedness shall be treated as issued under the Credit Agreement 'shall be
delivered by the Borrower to the Collateral Agent);
WHEREAS, pursuant to the Subsidiaries Guaranty, each Subsidiary of
the Borrower has jointly and severally guaranteed to the Secured Creditors the
payment when due of all obligations and liabilities of the Borrower under or
with respect to the Credit Documents and each Interest Rate Protection or Other
Hedging Agreement with one or more Other Creditors;
WHEREAS, the Pledgor is the owner of the partnership interests in
a certain limited partnership (the "Partnership") as set forth in Annex A
hereto, such Partnership being governed by an agreement of limited partnership
(the "Limited Partnership Agreement");
WHEREAS, the Pledgor desires to incur Loans and to have Letters of
Credit issued for its account pursuant to the Credit Agreement;
WHEREAS, the Pledgor may at any time and from time to time enter
into one or more Interest Rate Protection or Other Hedging Agreements with one
or more Other Creditors;
WHEREAS, it is a condition to each of the above-described
extensions of credit to the Pledgor that the Pledgor shall have executed and
delivered this Agreement o the Pledgee; and
WHEREAS, the Pledgor desires to execute this Agreement to satisfy
the conditions described in the preceding paragraph;
NOW, THEREFORE, in consideration of the benefits accruing to the
Pledgor, the receipt and sufficiency of which are hereby acknowledged, the
Pledgor hereby makes the following representations and warranties to the Pledgee
for the benefit of the Secured Creditors and hereby covenants and agrees with
the Pledgee for the benefit of the Secured Creditors as follows:
1. SECURITY FOR OBLIGATIONS. This Agreement is made by the Pledgor
for the benefit of the Secured Creditors to secure:
i) the full and prompt payment when due (whether at the stated
maturity, by acceleration or otherwise) of all obligations, indebtedness and
liabilities including, without limitation, indemnities, fees and interest
thereon and including obligations which, but for the automatic stay under
Section 362(a) of the Bankruptcy Code, would become due) of the Pledgor owing to
the Bank Creditors, now existing or hereafter incurred under, arising out of or
in connection with any Credit
<PAGE> 239
EXHIBIT I-2
PAGE 3
Document and the due performance and compliance by the Pledgor with the terms of
each such Credit Document (all such obligations and liabilities under this
clause (i), except to the extent consisting of obligations or indebtedness with
respect to Interest Rate Protection or Other Hedging Agreements, being herein
collectively called the "Credit Document Obligations");
ii) the full and prompt payment when due (whether at the stated
maturity, by ,acceleration or otherwise) of all obligations, indebtedness and
liabilities (including, without limitation, indemnities, fees and interest
thereon and including obligations which, but for the automatic stay under
Section 362(a) of the Bankruptcy Code, would become due) of the Pledgor owing to
the Other Creditors, now existing or hereafter incurred under, arising out of or
in connection with any Interest Rate Protection or Other Hedging Agreement
including, in the case of each Subsidiary Guarantor, all obligations under the
Subsidiaries Guaranty in respect of Interest Rate Protection or Other Hedging
Agreements (all such obligations and indebtedness under this clause (ii) being
herein collectively called the "Interest Rate Protection Obligations");
iii) any and all sums advanced by the Pledgee in order to preserve
the Collateral (as hereinafter defined) or preserve its security interest in the
Collateral;
iv) in the event of any proceeding for the collection or
enforcement of any indebtedness, obligations, or liabilities referred to in
clauses (i), (ii) and (iii) above, after an Event of Default (such term, as used
in this Agreement, shall mean any Event of Default under, and as defined in, the
Credit Agreement, or any payment default under any Interest Rate Protection or
Other Hedging Agreement and shall in any event include, without limitation, any
payment default on any of the Obligations (as hereinafter defined)) shall have
occurred and be continuing, the reasonable expenses of retaking, holding,
preparing for sale or lease, selling or otherwise disposing or realizing on the
Collateral, or of any exercise by the Pledgee of its rights hereunder, together
with reasonable attorneys' fees and court costs; and
v) all amounts paid by any Indemnities as to which such Indemnitee
has the right to reimbursement under Section 11 of this Agreement;
all such obligations, liabilities, sums and expenses set forth in clauses (i)
through (v) of this Section I being herein collectively called the
"Obligations"; provided, that it is acknowledged and agreed that the
"Obligations" shall include extensions of credit of the types described above,
whether outstanding on the date of this Agreement or extended from time to time
after the date of this Agreement.
2. DEFINITION OF PARTNERSHIP INTERESTS, ETC. As used herein, (i)
the term "Partnership Interest' shall mean the entire partnership interest at
any time owned by the Pledgor in any Partnership and (ii) the term "Pledged
Partnership Interest" shall mean each Partnership Interest pledged or required
to be pledged hereunder. The Pledgor represents and warrants that the
Partnership Interests held by the Pledgor constitute that percentage of the
entire partnership interest of the Partnership as set forth on Annex A hereto.
<PAGE> 240
EXHIBIT I-2
PAGE 4
3. GRANT OF SECURITY INTEREST, ETC.
a. Pledge. (a) To secure the Obligations and for the purposes set
forth in Section 1, the Pledgor hereby pledges and grants to the Pledgee a first
priority continuing security interest in, and as part of such grant and pledge,
hereby transfers and assigns to the Pledgee all of the following whether now
existing or hereafter acquired (the "Collateral"): the Pledgor's Partnership
Interest and all of the Pledgor's right, title and interest in such Partnership
including, without limitation:
i) all the capital thereof and its interest in all profits,
losses, Partnership Assets (as defined below) and other distributions to which
the Pledgor shall at any time be entitled in respect of the Partnership
Interest;
ii) all other payments due or to become due to the Pledgor in
respect of the Partnership Interest whether under the Limited Partnership
Agreement or any elated contract or otherwise, whether as contractual
obligations, damages, insurance proceeds otherwise;
iii) all of its claims, rights, powers, privileges, authority,
options, security interest, liens and remedies, if any, under the Limited
Partnership Agreement or any related contract or at law or otherwise in respect
of the Partnership Interest;
iv) all present and future claims, if any, of the Pledgor against
the Partnership for moneys loaned or advanced, for services rendered or
otherwise;
v) all of the Pledgor's rights under the Limited Partnership
Agreement relating to such partnership or at law to exercise and enforce every
right, power, remedy, authority, option and privilege of the Pledgor relating to
its Partnership Interest, including any power to terminate, cancel or modify the
Limited Partnership Agreement, to execute any instruments and to take any and
all other action on behalf of and in the name of the Pledgor in respect of the
Partnership Interest and the Partnership, to make determinations, to exercise
any election (including, but not limited to, election of remedies) or option or
to give or receive any notice, consent, amendment, waiver or approval, together
with full power and authority to demand, receive, enforce, collect or receipt
for any of the foregoing or for any Partnership Asset, to enforce or execute any
checks, or other instruments or orders, to file any claims and to take any
action in connection with any of the foregoing;
vi) all other property hereafter delivered in substitution for or
in addition to any of the foregoing, all certificates and instruments
representing or evidencing such other property and all cash, securities,
interest, dividends, rights and other properly at any time and from time to time
received, receivable or otherwise distributed in respect of or in exchange for
any or all thereof; and
vii) to the extent not otherwise included, all proceeds of any or
all of the foregoing.
<PAGE> 241
EXHIBIT I-2
PAGE 5
(b) As used herein, the term "Partnership Assets" shall mean all
assets, whether tangible or intangible and whether real, personal or mixed
(including, without limitation, all partnership capital and interests in other
partnerships), at any time owned or represented by the Partnership Interest.
b. Subsequently Acquired Partnership Interests. If the Pledgor
shall acquire (by purchase, distribution or otherwise) any additional
Partnership Interest at any time or from time to time after the date hereof, the
Pledgor shall forthwith pledge such Partnership Interest as security with the
Pledgee hereunder and, to the extent such Partnership Interest is certificated,
deliver to the Pledgee certificates therefor, accompanied by such instruments of
transfer as are acceptable to the Pledgee, and shall promptly thereafter deliver
to the Pledgee a certificate executed by any of the Chairman of the Board, the
Chief Financial Officer, the President, any Vice President or the Treasurer of
the Pledgor describing such Partnership Interest and certifying that the same
has been duly pledged with the Pledgee hereunder.
c. Certificated Partnership Interests. Notwithstanding anything to
the contrary contained in Section 3.2, to the extent the Partnership Interest of
the Pledgor (whether now owned or hereafter acquired) is certificated, the
Pledgor shall also deposit as security with the Pledgee the Partnership Interest
owned by the Pledgor on the date hereof, and deliver to the Pledgee certificates
or instruments therefor with corresponding instruments of transfer, executed in
blank, as are reasonably acceptable to the Pledgee.
d. Uncertificated Partnership Interests. Notwithstanding anything
to the contrary contained in Section 3.2, to the extent the Partnership Interest
of the Pledgor (whether now owned or hereafter acquired) is uncertificated, the
Pledgor shall promptly notify the Pledgee thereof, and shall promptly take all
actions required to perfect the security interest of the Pledgee under
applicable law (including, in any event, under the provisions of Articles 8 and
9 of the New York UCC). The Pledgor further agrees to take such actions as the
Pledgee deems necessary or desirable, including filing of appropriately
completed and executed Uniform commercial Code financing statements with
appropriate governmental authorities, to effect the foregoing and to permit the
Pledgee to exercise any of its rights and remedies hereunder, and agrees to
provide an opinion of counsel reasonably satisfactory to the Pledgee with
respect to any such pledge of uncertificated Partnership Interests promptly upon
request of the Pledgee.
4. APPOINTMENT OF SUB-AGENTS; ENDORSEMENTS, ETC. The Pledgee shall
have the right to appoint one or more sub-agents for the purpose of retaining
physical possession of the Collateral, which may be held (in the discretion of
the Pledgee) in the name of the Pledgor, endorsed or assigned in blank or in
favor of the Pledgee or any nominee or nominees of the Pledgee or a sub-agent
appointed by the Pledgee.
5. VOTING, ETC., WHILE NO EVENT OF DEFAULT. Unless and until an
Event of Default shall have occurred and be continuing, the Pledgor shall be
entitled to exercise any
<PAGE> 242
EXHIBIT I-2
PAGE 6
and all voting, consent, administration, management and other rights and
remedies under the Limited Partnership Agreement or otherwise with respect to
the Pledged Partnership Interest of the Pledgor; provided, that no action shall
be taken or omitted to be taken which would violate or be inconsistent with any
of the terms of this Agreement, any other Credit Document or any Interest Rate
Protection Agreement or Other Hedging Agreement (collectively, the "Secured Debt
Agreements"), or which would have the effect of impairing the position or
interests of the Pledgee or any Secured Creditor. All such rights of the Pledgor
or to vote and to take other actions with respect to its Pledged Partnership
Interest shall cease in case an Event of Default shall occur and be continuing
and Section 7 hereof shall become applicable.
6. DIVIDENDS AND OTHER DISTRIBUTIONS. Unless an Event of Default
shall have occurred and be continuing (or will occur as a result thereof)
distributions in respect of any Pledged Partnership Interest shall be paid to
the Pledgor. The Pledgee shall be entitled to receive directly, and to retain as
part of the Collateral to be held and applied in the manner set forth in this
Agreement:
i) all other property (other than cash) paid or distributed by way
of dividend or distribution, as the case may be, in respect of the Pledgor's
Pledged Partnership Interest; and
ii) all other property which may be paid in respect of the
Collateral by reason of any consolidation, merger, conveyance of assets,
liquidation or similar partnership reorganization.
7. REMEDIES IN CASE OF EVENT OF DEFAULT. In case an Event of
Default shall have occurred and be continuing, the Pledgee shall be entitled to
exercise all of the rights, powers and remedies (whether vested in it by this
Agreement or by any other Secured Debt Agreement or by law) for the protection
and enforcement of its rights in respect of the Collateral, and the Pledgee
shall be entitled, without limitation, to exercise the following rights:
i) to receive all amounts payable in respect of the Collateral
payable to the Pledgor under Section 6;
ii) to transfer all or any part of each Pledged Partnership
Interest into the Pledgee's name or the name of its nominee or nominees;
iii) to vote all or any part of each Pledged Partnership Interest
(whether or not transferred into the name of the Pledgee) and give all consents,
waivers and ratifications in respect of the Collateral and otherwise act with
respect thereto as though it were the outright owner thereof (the Pledgor hereby
irrevocably constituting and appointing the Pledgee the proxy and
attorney-in-fact of the Pledgor, with full power of substitution to do so); and
iv) at any time or from time to time to sell, assign and deliver,
or grant options to purchase, all or any part of the Collateral, or any interest
therein, at any public or private sale,
<PAGE> 243
EXHIBIT I-2
PAGE 7
without demand of performance, advertisement or notice of intention to sell
(except as set forth in the proviso below) or of the time or place of sale or
adjournment thereof or to redeem or otherwise (all of which are hereby waived by
the Pledgor), for cash, on credit or for other property, for immediate or future
delivery without any assumption of credit risk, and for such price or prices and
on such terms as the Pledgee in its absolute discretion may determine; provided,
that at least 10 days' notice of the time and place of any such sale shall be
given to the Pledgor. The Pledgor hereby waives and releases to the fullest
extent permitted by law any right or equity of redemption with respect to the
Collateral, whether before or after sale hereunder, and all rights, if any, of
marshaling the Collateral and any other security for the Obligations or
otherwise. At any Such sale, unless prohibited by applicable law, the Pledgee on
behalf of the Secured Creditors may bid for and purchase all or any part of the
Collateral so sold free from any such right or equity of redemption. To the
extent permitted by applicable law, neither the Pledgee nor any Secured Creditor
shall be liable for failure to collect or realize upon any or all of the
Collateral or for any delay in so doing nor shall any of them be under any
obligation to take any action whatsoever with regard thereto.
8. REMEDIES, ETC., CUMULATIVE. Each right, power and remedy of the
Pledgee provided for in this Agreement or any other Secured Debt Agreement or
now or hereafter existing at law or in equity or by statute shall be cumulative
and concurrent and shall be in addition to every other such right, power or
remedy. The exercise or beginning of the exercise by the Pledgee or any Secured
Creditor of any one or more of the rights, powers or remedies provided for in
this Agreement or any other Secured Debt Agreement or now or hereafter existing
at law or in equity or by statute or otherwise shall not preclude the
simultaneous or later exercise by the Pledgee or any Secured Creditor of all
such other rights, powers or remedies, and no failure or delay on the part of
the Pledgee or any Secured Creditor to exercise any such right, power or remedy
shall operate as a waiver thereof. The Secured Creditors agree that this
Agreement may be enforced only by the action of the Agents or the Pledgee, in
each case acting upon the instructions of the Required Banks (or, after the date
on which all credit Document Obligations have been paid in full, the holders of
at least the majority of the Outstanding Other Obligations) and that no other
Secured Creditor shall have any right individually to seek to enforce or to
enforce this Agreement or to realize upon the security to be granted hereby, it
being understood and agreed that such rights and remedies may be exercised by
the Agent or the Pledgee or the holders of at least a majority of the
outstanding Other Obligations, as the case may be, for the benefit of the
Secured Creditors upon the terms of this Agreement.
9. APPLICATION OF PROCEEDS. (a) All moneys collected by the
Pledgee upon any sale or other disposition of the Collateral pursuant to the
terms of this Agreement, together with all other moneys received by the Pledgee
hereunder, shall be applied in the manner provided in the Security Agreement
(with references to the Assignor and Assignee being deemed modified to read
Pledgor and Pledgee); and
(b) It is understood and agreed that the Pledgor shall remain
jointly and severally liable to the extent of any deficiency between the amount
of the proceeds of the Collateral hereunder and the aggregate amount of the
Obligations.
<PAGE> 244
EXHIBIT I-2
PAGE 8
10. PURCHASERS OF COLLATERAL. Upon any sale of the Collateral by
the Pledgee hereunder (whether by virtue of the power of sale herein granted,
pursuant to judicial process or otherwise), the receipt of the Pledgee or the
officer making the sale shall be a sufficient discharge to the purchaser or
purchasers of the Collateral so sold, and such purchaser or purchasers shall not
be obligated to see to the application of any part of the purchase money paid
over to the Pledgee or such officer or be answerable in any way for the
misapplication or nonapplication thereof
11. INDEMNITY.
a. Indemnity. (a) The Pledgor jointly and severally agrees to
indemnify, reimburse and hold the Pledgee, each Secured Creditor and their
respective successors, permitted assigns, employees, agents and servants
(hereinafter in this Section 11.1 referred to individually as "Indemnitee," and
collectively as "Indemnities") harmless from any and all liabilities,
obligations, damages, injuries, penalties, claims, demands, actions, suits,
judgments and any and all costs, expenses or disbursements (including reasonable
attorneys' fees and expenses) (for the purposes of this Section 11.1 the
foregoing are collectively called "expenses") of whatsoever kind and nature
imposed on, asserted against or incurred by any of the Indemnities in any way
relating to or arising out of this Agreement, any other Secured Debt Agreement
or any other document executed in connection herewith and therewith or in any
other way connected with the administration of the transactions contemplated
hereby and thereby or the enforcement of any of the terms of, or the
preservation of any rights under any thereof, the violation of the laws of any
country, state or other governmental body or unit, any tort or contract claim;
provided, that no Indemnitee shall be indemnified pursuant to this Section
11.1(a) for expenses to the extent caused by the gross negligence or willful
misconduct of such Indemnitee. In no event shall any Indemnitee be liable for
any matter or thing in connection with this Agreement other than to account for
moneys actually received by it in accordance with the terms hereof. The Pledgor
agrees that upon written notice by any Indemnitee of the assertion of such a
liability, obligation, damage, injury, penalty, claims, demand, action, judgment
or suit, the Pledgor shall, upon the request of the Pledgee, assume full
responsibility for the defense thereof.
(b) Without limiting the application of Section 11.1(a), the
Pledgor jointly and severally agrees to pay or reimburse the Pledgee for any and
all fees, costs and expenses of whatever kind or nature incurred in connection
with the creation, preservation or protection of the Pledgee's Liens on, and
security interest in, the Collateral, including, without limitation, all fees
and taxes in connection with the recording or filing of instruments and
documents in public offices, payment or discharge of any taxes or Liens upon or
in respect of the Collateral and all other fees, costs and expenses in
connection with protecting, maintaining or preserving the Collateral and the
Pledgee's interest therein, whether through judicial proceedings or otherwise,
or in defending or prosecuting any actions, suits or proceedings arising out of
or relating to the Collateral.
<PAGE> 245
EXHIBIT I-2
PAGE 9
(c) If and to the extent that the obligations of the Pledgor under
this Section 11 is unenforceable for any reason, the Pledgor hereby agrees to
make the maximum contribution to the payment and satisfaction of such
obligations which is permissible under applicable law.
b. Indemnity Obligations Secured by Collateral; Survival. Any
amounts paid by any Indemnitee as to which such Indemnitee has the right to
reimbursement shall constitute Obligations secured by the Collateral. The
indemnity obligations of the Pledgor contained in this Section 11 shall continue
in full force and effect notwithstanding the full payment of all the Notes
issued under the Credit Agreement, the termination of all Letters of Credit and
all Interest Rate Protection or Other Hedging Agreements and the payment of all
other Obligations and notwithstanding the discharge thereof.
12. PLEDGEE NOT BOUND. (a) Nothing herein shall be construed to
make the Pledgee or any other Secured Creditor liable as a general partner or
limited partner of any Partnership and the Pledgee or any other Secured Creditor
by virtue of this Agreement or otherwise (except as referred to in the following
sentence) shall not have any of the duties, obligations or liabilities of a
general partner or limited partner of any Partnership. The parties hereto
expressly agree that, unless the Pledgee shall become the absolute owner of any
Pledged Partnership Interest pursuant hereto, this Agreement shall not be
construed as creating a partnership or joint venture among the Pledgee, any
other Secured Creditor and or the Pledgor.
(b) Except as provided in the last sentence of paragraph (a) of
this Section, the Pledgee, by accepting this Agreement, did not intend to become
a general partner or limited partner of any Partnership or otherwise be deemed
to be a co-venturer with respect to the Pledgor or any Partnership either before
or after an Event of Default shall have occurred. The Pledgee shall have only
those powers set forth herein and shall assume none of the duties, obligations
or liabilities of a general partner or limited partner of any Partnership or of
the Pledgor.
(c) The Pledgee shall not be obligated to perform or discharge any
obligation of the Pledgor as a result of the collateral assignment hereby
effected.
(d) The acceptance by the Pledgee of this Agreement, with all the
rights, powers, privileges and authority so created, shall not at any time or in
any event obligate the Pledgee to appear in or defend any action or proceeding
relating to the Collateral to which it is not a party, or to take any action
hereunder or thereunder, or to expend any money or incur any expenses or perform
or discharge any obligation, duty or liability under the Collateral.
13. FURTHER ASSURANCES; POWER-OF-ATTORNEY. (a) The Pledgor agrees
that it will join with the Pledgee in executing and, at the Pledgor's own
expense, file and refile under the UCC such financing statements, continuation
statements and other documents in such offices as the Pledgee may deem necessary
or appropriate and whenever required or permitted by law in order to perfect and
preserve the Pledgee's security interest in the Collateral and hereby authorizes
<PAGE> 246
EXHIBIT I-2
PAGE 10
the Pledgee to file financing statements and amendments thereto relative to all
or any part of the Collateral without the signature of the Pledgor where
permitted by law, and agrees to do such further acts and things and to execute
and deliver to the Pledgee such additional conveyances, assignments, agreements
and instruments as the Pledgee may reasonably require or deem advisable to carry
into effect the purposes of this Agreement or to further assure and confirm unto
the Pledgee its rights, powers and remedies hereunder.
(b) The Pledgor hereby appoints the Pledgee as its
attorney-in-fact, with full authority in the place and stead of the Pledgor and
in the name of the Pledgor or otherwise, from time to time after the occurrence
and during the continuance of an Event of Default, in the Pledgee's discretion
to take any action and to execute any instrument which the Pledgee may
reasonably deem necessary or advisable to accomplish the purposes of this
Agreement.
14. THE PLEDGEE AS AGENT. The Pledgee will hold in accordance with
this Agreement all items of the Collateral at any time received under this
Agreement. It is expressly understood and agreed by the parties hereto and each
Secured Creditor, by accepting the benefits of this Agreement, acknowledges and
agrees that the obligations of the Pledgee as holder of the Collateral and
interests therein and with respect to the disposition thereof, and otherwise
under this Agreement, are only those expressly set forth in this Agreement. The
Pledgee shall act hereunder on the terms and conditions set forth herein and in
Section 11 of the Credit Agreement.
15. REPRESENTATIONS, WARRANTIES AND COVENANTS OF PLEDGOR. The
Pledgor represents, warrants and covenants that:
i) it will defend the Pledgee's right, title and interest in and
to its Pledged Partnership Interest and in and to the Collateral pledged by it
pursuant hereto or in which it has granted a security interest pursuant hereto
against the claims and demands of all other persons whomsoever, and the Pledgor
covenants and agrees that it will have like title to and right to pledge any
other property at any time hereafter pledged to the Pledgee as Collateral
hereunder and will likewise defend the right thereto and the security interest
therein of the Pledgee and the Secured Creditors.
ii) It is the legal and beneficial owner of and has good title to
its Pledged Partnership Interest and has good title to all of the other
Collateral pledged by it pursuant hereto or in which it has granted a security
interest pursuant hereto, free and clear of ill claims, pledges. liens,
encumbrances and security interests of every nature whatsoever, except such as
are created pursuant to this Agreement and Permitted Liens, and has the
unqualified right to pledge and grant a security interest in the same as herein
provided without the consent of any other Person, firm or entity which has not
been obtained.
iii) It has full power, authority and legal right to pledge the
Partnership Interest pledged by it pursuant to this Agreement. Such Pledged
Partnership Interest has been
<PAGE> 247
EXHIBIT I-2
PAGE 11
validly acquired and is fully paid for and is duly and validly pledged
hereunder.
iv) The Limited Partnership Agreement delivered to the Pledgee is
an original signed counterpart (or a copy thereof) of the complete and entire
such listed partnership agreement in effect on the date hereof.
v) The Limited Partnership Agreement constitutes a legal, valid
and binding obligation of the Pledgor, enforceable in accordance with its terms,
subject to applicable bankruptcy, insolvency, reorganization, moratorium and
similar laws affecting the enforcement or creditors' rights generally and
general equitable principles (whether enforcement is sought by proceedings in
equity or at law). The Pledgor is not in default in the payment of any portion
of any mandatory capital contribution, if any, required to be made under its
Limited Partnership Agreement, and the Pledgor is not in violation of any other
material provisions of its Limited Partnership Agreement, or otherwise in
default or violation thereunder. At no time in the past has the Pledgor been in
default for the payment of any portion of a mandatory capital contribution or in
violation of any other material provisions of its Limited Partnership Agreement
or otherwise in default or violation thereunder other than those which have been
cured or waived prior to the date of this Agreement. The Pledged Partnership
Interest is not subject to any defense, offset or counterclaim, nor have any of
the foregoing been asserted or alleged against the Pledgor by any Person with
respect thereto. As of the date hereof, there are no certificates, instruments,
documents or other writings (other than the Limited Partnership Agreement and
certificates delivered to the Collateral Agent) which evidence any Partnership
Interest of the Pledgor.
vi) It will not sell, assign, or otherwise dispose of, grant any
option with respect to, or mortgage, pledge, grant a security interest in or
otherwise encumber any of the Collateral or any interest therein, or suffer any
of the same to exist; and any sale, assignment, option, mortgage, pledge,
security interest or other encumbrance or disposition of any nature whatsoever
made in violation of this covenant shall be a nullity and of no force and
effect, and upon demand of the Pledgee, shall forthwith be canceled or satisfied
by an appropriate instrument in writing, except as permitted by the Credit
Agreement.
vii) The pledge and assignment of its Pledged Partnership Interest
pursuant to this Agreement, together with the relevant filings or recordings
(which filings and recordings have been made), create a valid, perfected and
continuing first priority security interest in such Partnership Interest and the
proceeds thereof, subject to no prior lien or encumbrance or to any agreement
purporting to grant to any third party a lien or encumbrance on the property or
assets of the Pledgor which would include the Collateral (other than Permitted
Liens).
viii) There are no currently effective financing statements under
the UCC covering any property which is now or hereafter may be included in the
Collateral and the Pledgor will not prior to the Termination Date, without the
prior written consent of the Pledgee, execute and, until the Termination Date,
there will not ever be on file in any public office, any enforceable financing
<PAGE> 248
EXHIBIT I-2
PAGE 12
statement or statements covering any or all of the Collateral, except financing
statements filed or to be filed in favor of the Pledgee as secured party.
ix) The Pledgor shall give the Pledgee prompt notice of any
written claim relating to the Collateral. The Pledgor shall deliver to the
Pledgee a copy of each other demand, notice or document received by it which may
adversely affect the Pledgee's interest in the Collateral promptly upon, but in
any event within 10 days after, the Pledgor's receipt thereof
x) The Pledgor shall not withdraw as a general partner of its
Partnership, or file or pursue or take any action which may, directly or
indirectly, cause a dissolution or liquidation of or with respect to its
Partnership or seek a partition of any property of its Partnership, except as
permitted by the Credit Agreement.
xi) A notice in the form set forth in Annex C attached hereto and
by this reference made a part hereof (such notice, the "Partnership Notice"),
appropriately completed, notifying its Partnership of the existence of this
Agreement and a certified copy of this Agreement have been delivered by the
Pledgor to its Partnership, and the Pledgor has received and delivered to the
Collateral Agent an acknowledgment in the form set forth in Annex 13 attached
hereto (such acknowledgement, the "Partnership Acknowledgement"), duly executed
by its Partnership.
xii) The chief executive office and principal place of business of
the Pledgor and the sole location where the records of the Pledgor with respect
to the Collateral are kept at the address set forth for the Pledgor on Annex B
hereto. The Pledgor shall not move its chief executive office, principal place
of business, or such location of records unless (x) it shall have given to the
Pledgee not less than 30 days' prior written notice of its intention so to do,
clearly describing such new location and providing such other information in
connection therewith as the Pledgee may reasonably request and (y) with respect
to such new location, it shall have taken all action, reasonably satisfactory to
the Pledgee, to maintain the security interest of the Pledgee in the Collateral
intended to be granted hereby at all times fully perfected and in full force and
effect.
xiii) As of the date hereof, it neither has or operates nor has
had or operated in any jurisdiction within the five year period preceding the
date of this Agreement under any name except its legal name as set forth on the
signature pages hereto. The Pledgor shall not change its legal name or assume or
operate in any jurisdiction under any trade, fictitious or other name unless (x)
it shall have given to the Pledgee not less than 30 days' prior written notice
of its intention so to do, clearly describing such new name and the
jurisdictions in which such new name shall be used and providing such other
information in connection therewith as the Pledgee may reasonably request and
(y) with respect to such new name, it shall have taken all action, reasonably
satisfactory to the Pledgee, to maintain the security interest of the Pledgee in
the Collateral intended to be granted hereby at all times fully perfected and in
full force and effect.
<PAGE> 249
EXHIBIT I-2
PAGE 13
16. PLEDGORS' OBLIGATIONS ABSOLUTE, ETC. The obligations of the
Pledgor under this Agreement shall be absolute and unconditional and shall
remain in full force and effect without regard to, and shall not be released,
suspended, discharged, terminated or otherwise affected by, any circumstance or
occurrence whatsoever, including, without limitation: (i) any renewal,
extension, amendment or modification of or addition or supplement to or deletion
from any Secured Debt Agreement or any other instrument or agreement referred to
therein, or any assignment or transfer of any thereof, (ii) any waiver, consent,
extension, indulgence or other action or inaction under or in respect of any
such agreement or instrument or this Agreement; (iii) any furnishing of any
additional security to the Pledgee or its assignee or any acceptance thereof or
any release of any security by the Pledgee or its assignee; (iv) any limitation
on any party's liability or obligations under any such instrument or agreement
or any invalidity or unenforceability, in whole or in part, of any such
instrument or agreement or any term thereof, or (v) any bankruptcy, insolvency,
reorganization, composition, adjustment, dissolution, liquidation or other like
proceeding relating to the Pledgor or any Subsidiary of the Pledgor, or any
action taken with respect to this Agreement by any trustee or receiver, or by
any court, in any such proceeding, whether or not the Pledgor shall have notice
or knowledge of any of the foregoing.
17. TRANSFER BY PLEDGORS. The Pledgor will not sell or otherwise
dispose of, grant any option with respect to, or mortgage, pledge or otherwise
encumber any of the Collateral or any interest therein (except as may be
permitted in accordance with the terms of the Credit Agreement).
18. REGISTRATION, ETC. (a) If an Event of Default shall have
occurred and be continuing and the Pledgor shall have received from the Pledgee
a written request or requests that the Pledgor cause any registration,
qualification or compliance under any Federal or state securities law or laws to
be effected with respect to all or any part of its Pledged Partnership Interest,
the Pledgor as soon as practicable and at its expense will use its best efforts
to cause such registration to be effected (and be kept effective) and will use
its best efforts to cause such qualification and compliance to be effected (and
be kept effective) as may be so requested and as would permit or facilitate the
sale and distribution of its Pledged Partnership Interest, including, without
limitation, registration under the Securities Act of 1933 as then in effect (or
any similar statute then in effect), appropriate qualifications under applicable
blue sky or other state securities laws and appropriate compliance with any
other government requirements; provided, that the Pledgee shall furnish to the
Pledgor such information regarding the Pledgee as the Pledgor may request in
writing and as shall be required in connection with any such registration,
qualification or compliance. The Pledgor will cause the Pledgee to be kept
reasonably advised in writing as to the progress of each such registration,
qualification or compliance and as to the completion thereof, will furnish to
the Pledgee such number of prospectuses, offering circulars or other documents
incident thereto as the Pledgee from time to time may reasonably request, and
will indemnify the Pledgee and all others participating in the distribution of
its Pledged Partnership Interest against all claims, losses, damages and
liabilities caused by any untrue statement (or alleged untrue statement) of a
material fact contained therein (or in any related registration statement,
notification or the like) or by any omission (or alleged omission)
<PAGE> 250
EXHIBIT I-2
PAGE 14
to state therein (or in any related registration statement, notification or the
like) a material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as the same may have been
caused by an untrue statement or omission based upon information furnished in
writing to the Pledgor by the Pledgee expressly for use therein.
(b) If at any time when the Pledgee shall determine to exercise
its right to sell all or any part of its Pledged Partnership Interest pursuant
to Section 7, such Pledged Partnership Interest or the part thereof to be sold
shall not, for any reason whatsoever, be effectively registered under the
Securities Act of 1933, as then in effect, the Pledgee may, in its sole and
absolute discretion, sell such Pledged Partnership Interest or part thereof by
private sale in such manner and under such circumstances as the Pledgee may deem
necessary or advisable in order that such sale may legally be effected without
such registration; provided, that at least 10 days' notice of the time and place
of any such sale shall be given to the Pledgor. Without limiting the generality
of the Foregoing, in any such event the Pledgee, in its sole and absolute
discretion: (i) may proceed to make such private sale notwithstanding that a
registration statement for the purpose of registering such Pledged Partnership
Interest or part thereof shall have been filed under such Securities Act; (ii)
may approach and negotiate with a single possible purchaser to effect such sale;
and (iii) may restrict such sale to a purchaser who will represent and agree
that such purchaser is purchasing for its own account, for investment, and not
with a view to the distribution or sale of such Pledged Partnership Interest or
part thereof. In the event of any such sale, the Pledgee shall incur no
responsibility or liability for selling all or any part of such Pledged
Partnership Interest at a price which the Pledgee, in its sole and absolute
discretion, may in good faith deem reasonable under the circumstances,
notwithstanding the possibility that a substantially higher price might be
realized if the sale were deferred until after registration as aforesaid.
19. TERMINATION, RELEASE. (a) After the Termination Date (as
defined below), this Agreement shall terminate (provided that all indemnities
set forth herein including, without limitation, in Section 11 hereof shall
survive such termination) and the Pledgee, at the request and expense of the
Pledgor, will promptly execute and deliver to the Pledgor a proper instrument or
instruments (including UCC termination statements on form UCC-3 or analogous
form) acknowledging the satisfaction and termination of this Agreement, and will
duly assign, transfer and deliver to the Pledgor (without recourse and without
any representation or warranty) such of the Collateral of the Pledgor as may be
in the possession of the Pledgee and as has not theretofore been sold or
otherwise applied or released pursuant to this Agreement. As used in this
Agreement, "Termination Date" shall mean the date upon which the Total
Commitment and all Interest Rate Protection Agreements and Other Hedging
Agreements have been terminated, no Note is outstanding (and all Loans have been
paid in full), all Letters of Credit have been terminated (or cash
collateralized to the Pledgee's satisfaction) and all other Obligations have
been paid in full.
(b) In the event that any part of the Collateral is sold in
connection with a sale permitted by Section 8.02 of the Credit Agreement or is
otherwise released at tie direction of the Required Banks (or all the Banks if
required by Section 12.12 of the Credit Agreement), and the
<PAGE> 251
EXHIBIT I-2
PAGE 15
proceeds of such sale or sales or from such release are applied in accordance
with the terms of the Credit Agreement to the extent required to be so applied,
the Pledgee, at the request and expense of the Pledgor, will duly assign,
transfer and deliver to the Pledgor (without recourse and without any
representation or warranty) such of the Collateral as is then being (or has
been) so sold or released and as may be in the possession of the Pledgee and has
not theretofore been released pursuant to this Agreement.
(c) At any time that the Pledgor desires that Collateral be
released as provided in the foregoing Section 19(a) or (b), it shall deliver to
the Pledgee a certificate signed by its chief financial officer or another
authorized senior officer stating that the release of the respective Collateral
is permitted pursuant to Section 19(a) or (b). If requested by the Pledgee
(although the Pledgee shall have no obligation to make any such request), the
Pledgor shall furnish appropriate legal opinions (from counsel, which may be
in-house counsel, reasonably acceptable to the Pledgee) to the effect set forth
in the immediately preceding sentence. The Pledgee shall have no liability
whatsoever to any Secured Creditor as the result of any release of Collateral by
it as permitted by this Section 19.
20. NOTICES, ETC. All notices and other communications hereunder
shall be in writing and shall be delivered or mailed by first class mail,
postage prepaid, addressed:
(a) if to the Pledgor, at its address set forth opposite its
signature below;
(b) if to the Pledgee, at:
Fleet National Bank
Mail Stop MA0FD03D
1 Federal Street
Boston, MA 02110
Attention: Christopher A. Swindell
Telephone No.: (617) 346-5579
Facsimile No.: (617) 346-4346
(c) if to any Bank (other than the Pledgee), at such address as
such Bank shall have specified in the Credit Agreement; and
(d) if to any Other Creditor directly to the Other Creditors al
such address as the Other Creditors shall have specified in writing to the
Pledgor and the Pledgee;
or at such other address as shall have been furnished in writing by any Person
described above to the party required to give notice hereunder.
21. WAIVER; AMENDMENT. None of the terms and conditions of this
Agreement may be changed, waived, modified or varied in any manner whatsoever
unless in writing
<PAGE> 252
EXHIBIT I-2
PAGE 16
duly signed by the Pledgor and the Pledgee (with the written consent of the
Required Banks (or all the Banks if required by Section 12.12 of the Credit
Agreement)); provided, that any change, waiver, modification or variance
affecting the rights and benefits of a single Class (as defined below) of
Secured Creditors (and not all Secured Creditors in a like or similar manner)
shall require the written consent of the Requisite Creditors (as defined below)
of such Class. For the purpose of this Agreement, the term "Class" shall mean
each class of Secured Creditors, i.e., whether (i) the Bank Creditors as holders
of the Credit Document Obligations or (ii) the Other Creditors as holders of the
Interest Rate Protection Obligations. For the purpose of this Agreement, the
term "Requisite Creditors" of any Class shall mean each of (i) with respect to
the Credit Document Obligations, the Required Banks and (ii) with respect to the
Interest Rate Protection Obligations, the holders of at least a majority of all
obligations outstanding from time to time under the Interest Rate Protection or
Other Hedging Agreements.
22. MISCELLANEOUS. This Agreement shall be binding upon the
successors and assigns of the Pledgor and shall inure to the benefit of and be
enforceable by the Pledgee and its successors and assigns. THIS AGREEMENT SHALL
BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE
STATE OF NEW YORK, WITHOUT REGARD TO THE CONFLICT OF LAWS PROVISIONS THEREOF.
The headings in this Agreement are for purposes of reference only and shall not
limit or define the meaning hereof. This Agreement may be executed in any number
of counterparts, each of which shall be an original, but all of which shall
constitute one instrument.
23. LIMITED OBLIGATIONS. It is the desire and intent of the
Pledgor, the Pledgee and the Secured Creditors that this Agreement shall be
enforced against the Pledgor to the fullest extent permissible under the laws
and public policies applied in each jurisdiction in which enforcement is sought.
If and to the extent that the obligations of the Pledgor under this Agreement
shall be adjudicated to be invalid or unenforceable for any reason (including,
without limitation, because of any applicable state or federal law relating to
fraudulent conveyances or transfers, which laws would determine the solvency of
the Pledgor by reference to the full amount of the Obligations at the time of
the execution and delivery of this Agreement), then the amount of the
Obligations of the Pledgor shall be deemed to be reduced and the Pledgor shall
pay the maximum amount of the Obligations which would be permissible under the
applicable law.
* * *
<PAGE> 253
EXHIBIT I-2
PAGE 17
IN WITNESS WHEREOF, the Pledgor and the Pledgee have caused this
Agreement to be executed by their duly elected officers duly authorized as of
the date first above written.
Address: GOLDEN SKY SYSTEMS, INC.,
605 W. 47th Street as Pledgor
Suite 300
Kansas City, MO 64112
Attention: Robert B. Weaver By: /s/ Rodney A. Weary
Tel: (816) 753-5544 -------------------------------
Fax: (816) 753-5044 Name:
Title:
Mail Stop MA0FD03D FLEET NATIONAL BANK,
1 Federal Street as Pledgee
Boston, MA 02110
Attention: Christopher A. Swindell
Tel: (617) 346-5579 By: /s/Christopher A. Swindell
Fax: (617) 346-4346 -------------------------------
Name:
Title:
<PAGE> 254
EXHIBIT I-2
PAGE 18
ANNEX A
to
PARTNERSHIP PLEDGE AGREEMENT
PARTNERSHIP INTERESTS
A. Pledgor
Type of
Percentage Partnership
Partnership Owned Interest
----------- ---------- -----------
<PAGE> 255
EXHIBIT I-2
PAGE 19
ANNEX B
to
PARTNERSHIP PLEDGE AGREEMENT
OFFICE LOCATIONS
A. Pledgor
Office Locations County
---------------- ------
<PAGE> 256
EXHIBIT I-2
PAGE 20
ANNEX C
to
PARTNERSHIP
PLEDGE AGREEMENT
FORM OF PARTNERSHIP NOTICE
[Letterhead of Pledgor]
[Date]
TO: [Name of Pledged Entity]
Notice is hereby given that, pursuant to the Partnership Pledge
Agreement (a true and correct copy of which is attached hereto), dated as of
____________ ___, _____ (as amended, modified, restated or supplemented from
time to time in accordance with the terms thereof, the "Partnership Pledge
Agreement"), between [NAME OF PLEDGOR] (the "Pledgor") and Fleet National Bank
(the "Pledgee") on behalf of the Secured Creditors described therein, the
Pledgor has pledged and assigned to the Pledgee for the benefit of the Secured
Creditors, and granted to the Pledgee for the benefit of the Secured Creditors a
continuing security interest in, all right, title and interest of the Pledgor,
whether now existing or hereafter arising or acquired, as a general partner in
[NAME OF PARTNERSHIP] (the "Partnership"), and in, to and under the [TITLE OF
APPLICABLE PARTNERSHIP AGREEMENT] (the "Limited Partnership Agreement"),
including, without limitation:
i) all the capital of the Partnership and the Pledgor's interest in all
profits, losses, Partnership Assets (as defined in the Partnership Pledge
Agreement) and other distributions to which the Pledgor shall at any time be
entitled in respect of such partnership interest;
ii) all other payments due or to become due to the Pledgor in respect
of such partnership interest, whether under the Limited Partnership Agreement or
any related contract or otherwise, whether as contractual obligations, damages,
insurance proceeds or otherwise;
iii) all of its claims, rights, powers, privileges, authority, options,
security interest, liens and remedies, if any, under the Limited Partnership
Agreement or any related contract or at law or otherwise in respect of such
partnership interest;
iv) all present and future claims, if any, of the Pledgor against the
Partnership for moneys loaned or advanced, for services rendered or otherwise;
<PAGE> 257
EXHIBIT I-2
PAGE 21
v) all of the Pledgor's rights under the Limited Partnership
Agreement relating to such partnership or at law to exercise and enforce every
right, power, remedy, authority, option and privilege of the Pledgor relating to
its Partnership Interest, including any power to terminate, cancel or modify the
Limited Partnership Agreement, to execute any instruments and to take any and
all other action on behalf of and in the name of the Pledgor in respect of the
Partnership Interest and the Partnership, to make determinations, to exercise
any election (including, but not limited to, election of remedies) or option or
to give or receive any notice, consent, amendment, waiver or approval, together
with full power and authority to demand, receive, enforce, collect or receipt
for any of the foregoing or for any Partnership Asset, to enforce or execute any
checks, or other instruments or orders, to file any claims and to take any
action in connection with any of the foregoing;
vi) all other property hereafter delivered in substitution for or in
addition to any of the foregoing, all certificates and instruments representing
or evidencing such other property and all cash, securities, interest, dividends,
rights and other property at any time and from time to time received, receivable
or otherwise distributed in respect of or in exchange for any or all thereof;
and
vii) to the extent not otherwise included, all proceeds of any or all
of the foregoing.
Pursuant to the Partnership Pledge Agreement, the Partnership is
hereby authorized and directed to register the Pledgor's pledge to the Pledgee
on behalf of the Secured Creditors of the interest of the Pledgor on the
Partnership's books.
* * *
<PAGE> 258
EXHIBIT I-2
PAGE 22
The Pledgor hereby requests the Partnership to indicate the
Partnership's acceptance of this Notice and consent to and confirmation of its
terms and provisions by signing a copy hereof where indicated on the attached
page and returning the same to the Pledgee on behalf of the Secured Creditors.
[NAME OF PLEDGOR]
By:_____________________
Name:
Title:
<PAGE> 259
EXHIBIT I-2
PAGE 23
ANNEX D
to
PARTNERSHIP
PLEDGE AGREEMENT
FORM OF ACKNOWLEDGMENT
[NAME OF PLEDGED ENTITY] (the "Partnership") hereby acknowledges
receipt of a copy of the assignment by [NAME OF PLEDGOR] (the "Pledgor") of its
interest under the [TITLE OF APPLICABLE PARTNERSHIP AGREEMENT] pursuant to the
terms of the Partnership Pledge Agreement, dated as of ____________ __, _____,
between the Pledgor and Fleet National Bank (the "Pledgee") on behalf of the
Secured Creditors described therein. The undersigned hereby further confirms the
registration of the Pledgor's pledge of its interest to the Pledgee on behalf of
the Secured Creditors on the Partnership's books.
Dated: __________ __, _____
[NAME OF PARTNERSHIP]
By:_____________________
Name:
Title:
<PAGE> 260
EXHIBIT J
Page 1
[CONFORMED AS EXECUTED]
SECURITY DOCUMENTS ACKNOWLEDGMENT
May 8, 1998
To the Agents and each of the Banks
party to the Credit Agreement
referred to below:
Ladies and Gentlemen:
Reference is made to (i) the Amended and Restated Credit Agreement, dated
as of July 7, 1997, amended and restated as of May 8, 1998, among Golden Sky
Holdings, Inc. ("Holdings"), Golden Sky Systems, Inc. (the "Borrower"), the
financial institutions party thereto, Banque Paribas, as Syndication Agent,
Fleet National Bank, as Administrative Agent, and General Electric Capital
Corporation, as Documentation Agent (as so amended and restated and as further
amended, modified or supplemented from time to time, the "Credit Agreement"),
pursuant to which, among other things, the Total Commitment was increased from
$100,000,000 to $150,000,000, (ii) the Borrower/Subsidiary Pledge Agreement,
dated as of July 7, 1997 (as amended, modified and supplemented from time to
time, including, without limitation, as modified hereby, the
"Borrower/Subsidiary Pledge Agreement"), made by the Pledgors under, and as
defined in, the Borrower/Subsidiary Pledge Agreement, in favor of Fleet National
Bank, as Collateral Agent and Pledgee for the benefit of the Secured Creditors
(as defined in the Borrower/Subsidiary Pledge Agreement), (iii) the Security
Agreement, dated as of July 7, 1997 (as amended, modified and supplemented from
time to time, including, without limitation, as modified hereby, the "Security
Agreement"), made by the Assignors under, and as defined in, the Security
Agreement, in favor of Fleet National Bank, as Collateral Agent and Assignee for
the benefit of the Secured Creditors (as defined in the Security Agreement) and
(iv) the Collateral Assignment of Marketing and Distribution Agreements, dated
as of July 7, 1997 (as amended, modified and supplemented from time to time,
including, without limitation, as modified hereby, the "Collateral Assignment of
Marketing and Distribution Agreements") made by the Borrower, as Assignor under,
and as defined in, the Collateral Assignment of Marketing and Distribution
Agreements, in favor of Fleet National Bank, as Collateral Agent and Assignee
for the benefit of the Secured Creditors (as defined in the Collateral
Assignment of Marketing and Distribution Agreements), as acknowledged and agreed
to by the NRTC and DirecTV, Inc. (DirecTV, Inc. together with the Borrower,
Fleet National Bank and the NRTC, the "Collateral Assignment Parties"). Unless
otherwise indicated herein, capitalized terms used but not defined herein shall
have the respective meanings set forth in the Credit Agreement.
I. BORROWER/SUBSIDIARY PLEDGE AGREEMENT ACKNOWLEDGMENT
<PAGE> 261
EXHIBIT J
Page 2
1. By executing this Security Documents Acknowledgment, Argos is
hereby made a party to the Borrower/Subsidiary Pledge Agreement (conformed as
executed and attached hereto as Exhibit A) and is a Pledgor (as defined in the
Borrower/Subsidiary Pledge Agreement) thereunder.
2. Each of the undersigned which is a party to the Borrower/Subsidiary
Pledge Agreement hereby acknowledges the Credit Agreement and the transactions
contemplated thereby.
3. Each such Pledgor hereby acknowledges and agrees, and represents
and warrants, that on and after the occurrence of, and after giving effect to,
the Restatement Effective Date, (i) it constitutes a "Pledgor" which is a party
to the Borrower/Subsidiary Pledge Agreement, (ii) the Borrower/Subsidiary Pledge
Agreement shall remain in full force and effect with respect to such Pledgor,
and (iii) the Credit Agreement and the Obligations under the Credit Agreement
shall constitute the "Credit Agreement" and the "Obligations," respectively, in
each case, under, and as defined in, the Borrower/Subsidiary Pledge Agreement
and shall continue to be entitled to the benefits of the Borrower/Subsidiary
Pledge Agreement. Each of the undersigned Pledgors which are party to the
Borrower/Subsidiary Pledge Agreement hereby makes in all material respects each
of the representations and warranties contained in the Borrower/Subsidiary
Pledge Agreement on the date hereof, both before and after giving effect to this
Acknowledgment, unless stated to relate to a specific earlier date in which case
such representations and warranties shall be true and correct in all material
respects as of such earlier date.
4. By executing and delivering this Acknowledgment, each of the
undersigned Pledgors party to the Borrower/Subsidiary Pledge Agreement hereby
further agrees to (a) update and attach Annexes A and B (replacing the existing
annexes if any of such annexes have been changed) to the Borrower/Subsidiary
Pledge Agreement (as described in Section 2 to the Borrower/Subsidiary Pledge
Agreement), (b) execute and deliver to the Pledgee such financing statements and
other documents, in the form acceptable to the Pledgee, and (c) take such other
actions, as the Pledgee may request or as are necessary or desirable in the
opinion of the Pledgee to establish and maintain a valid, enforceable, first
priority perfected security interest in the Collateral (as defined in the
Borrower/Subsidiary Pledge Agreement).
II. SECURITY AGREEMENT ACKNOWLEDGMENT
1. By executing this Security Documents Acknowledgment, Argos is
hereby made a party to the Security Agreement (conformed as executed and
attached hereto as Exhibit B) and is an Assignor (as defined in the Security
Agreement) thereunder.
2. Each of the undersigned which is a party to the Security Agreement
hereby acknowledges the Credit Agreement and the transactions contemplated
thereby.
3. Each Assignor hereby acknowledges and agrees, and represents and
warrants, that on and after the occurrence of, and after giving effect to, the
Restatement Effective Date, (i) it
<PAGE> 262
EXHIBIT J
Page 3
constitutes an "Assignor" which is a party to the Security Agreement, (ii) the
Security Agreement shall remain in full force and effect with respect to such
Assignor, and (iii) the Credit Agreement and the obligations under the Credit
Agreement shall constitute the "Credit Agreement" and the "Obligations,"
respectively, in each case, under, and as defined in, the Security Agreement and
shall continue to be entitled to the benefits of the Security Agreement. Each of
the undersigned Assignors hereby makes in all material respects each of the
representations and warranties contained in the Security Agreement on the date
hereof, both before and after giving effect to this Acknowledgment, unless
stated to relate to a specific earlier date in which case such representations
and warranties shall be true and correct in all material respects as of such
earlier date.
4. By executing and delivering this Acknowledgment, each of the
undersigned Assignors hereby further agrees to (a) update and attach Annexes A,
B, C, D, E, F and G (as described in Sections 2.4, 2.5, 2.6, 4.1 and 5.1 of the
Security Agreement) (replacing the existing annexes if any of such annexes have
been changed) to the Security Agreement and (b) execute and deliver to the
Assignee such financing statements and other documents, in the form acceptable
to the Assignee, and take such other actions, as the Assignee may request or as
are necessary or desirable in the opinion of the Assignee to establish and
maintain a valid, enforceable, first priority perfected security interest in the
Collateral (as defined in the Security Agreement).
III. COLLATERAL ASSIGNMENT OF MARKETING AND DISTRIBUTION AGREEMENTS
1. By executing the Collateral Assignment Acknowledgment (attached
hereto as Annex I), each of the Collateral Assignment Parties hereby
acknowledges the Credit Agreement and the transactions contemplated thereby.
2. By executing the Collateral Assignment Acknowledgment (attached
hereto as Annex I), each of the Collateral Assignment Parties hereby
acknowledges and agrees, and represents and warrants, that on and after the
occurrence of, and after giving effect to, the Restatement Effective Date, (i)
it remains party to the Collateral Assignment of Marketing and Distribution
Agreements (as executed and attached hereto as Exhibit C) and (ii) the
Collateral Assignment of Marketing and Distribution Agreements shall remain in
full force and effect with respect to each of the Collateral Assignment Parties.
IV. MISCELLANEOUS PROVISIONS
1. This Acknowledgment may be signed in any number of counterparts and
by the different parties hereto in separate counterparts, each of which
counterparts when executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument.
2. This Acknowledgment is limited as specified and shall not
constitute an acceptance, consent or waiver of any other provision of the
Borrower/Subsidiary Pledge Agreement,
<PAGE> 263
EXHIBIT J
Page 4
the Security Agreement, the Collateral Assignment of Marketing and Distribution
Agreements or any other Credit Document.
3. THIS ACKNOWLEDGMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
* * *
<PAGE> 264
EXHIBIT J
Page 5
IN WITNESS WHEREOF, each of the undersigned has caused this Collateral
Assignment Acknowledgment to be duly executed and delivered as of the date first
above written.
GOLDEN SKY SYSTEMS, INC.
By: /s/ Robert B. Weaver
-------------------------------
Name: Robert B. Weaver
Title: Chief Financial Officer
ARGOS SUPPORT SERVICES, INC.
By: /s/ Rodney A. Weary
------------------------------
Name: Rodney A. Weary
Title: President
ACKNOWLEDGED AND AGREED:
FLEET NATIONAL BANK,
as Collateral Agent
By: /s/ Christopher A. Swindell
------------------------------
Name: Christopher A. Swindell
Title: Vice President
<PAGE> 265
EXHIBIT J
Page 6
EXHIBIT A to the
Security Documents Acknowledgment
[CONFORMED AS EXECUTED]
BORROWER/SUBSIDIARY PLEDGE AGREEMENT
PLEDGE AGREEMENT, dated as of July 7, 1997 (as amended, modified or
supplemented from time to time, the "Agreement"), made by each of the
undersigned (each, a "Pledgor" and collectively the "Pledgors"), in favor of
FLEET NATIONAL BANK, as Collateral Agent (the "Pledgee"), for the benefit of (x)
the Banks (as defined below) and the Agents (as defined below) under, and any
other lender from time to time party to the Credit Agreement hereinafter
referred to (such Banks, the Agents and the other lenders, if any, are
hereinafter called the "Bank Creditors") and (y) if the Agents in their
individual capacity, any Bank or a syndicate of financial institutions organized
by the Agents or any such Bank or an affiliate of the Agents or such Bank enter
into one or more (i) interest rate protection agreements (including, without
limitation, interest rate swaps, caps, floors, collars and similar agreements),
(ii) foreign exchange contracts, currency swap agreements or other similar
agreements or arrangements designed to protect against the fluctuations in
currency values and/or (iii) other types of hedging agreements from time to time
(collectively, the "Interest Rate Protection or Other Hedging Agreements"),
with, or guaranteed by, the Borrower (as defined below) or any of its
Subsidiaries, the Agents, any such Bank or an affiliate of the Agents or such
Bank (even if either of the Agents or any such Bank ceases to be a Bank under
the Credit Agreement for any reason) and any such institution that participates
in such Interest Rate Protection or Other Hedging Agreements and their
subsequent assigns (collectively, the "Other Creditors" and, together with the
Bank Creditors, are herein called the "Secured Creditors"). Except as otherwise
defined herein, terms used herein and defined in the Credit Agreement shall be
used herein as therein defined.
W I T N E S S E T H :
WHEREAS, Golden Sky Systems, Inc. (the "Borrower"), the financial
institutions from time to time party thereto (the "Banks") and Banque Paribas,
as Syndication Agent and as Managing Agent ("Banque Paribas"), and Fleet
National Bank, as Administrative Agent and as Managing Agent ("Fleet", and
together with Banque Paribas, the "Agents"), have entered into a Credit
Agreement, dated as of July 7, 1997, providing for the making of Loans and the
issuance of, and participation in, Letters of Credit as contemplated therein (as
used herein, the term "Credit Agreement" means the Credit Agreement described
above in this paragraph, as the same may be amended, modified, extended,
renewed, replaced, restated, supplemented, restructured or refinanced from time
to time, and including any agreement extending the maturity of, refinancing or
restructuring
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(including, but not limited to, the inclusion of additional borrowers thereunder
that are Subsidiaries of the Borrower and whose obligations are guaranteed by
the Borrower thereunder or any increase in the amount borrowed) all or any
portion of, the Indebtedness under such agreement or any successor agreements;
provided, that with respect to any agreement providing for the refinancing of
Indebtedness under the Credit Agreement, such agreement shall only be treated
as, or as part of, the Credit Agreement hereunder if (i) either (A) all
obligations under the Credit Agreement being refinanced shall be paid in full at
the time of such refinancing, and all commitments and letters of credit issued
pursuant to the refinanced Credit Agreement shall have terminated in accordance
with their terms or (B) the Required Banks shall have consented in writing to
the refinancing Indebtedness being treated along with their Indebtedness, as
Indebtedness pursuant to the Credit Agreement, (ii) the refinancing Indebtedness
shall be permitted to be incurred under the Credit Agreement being refinanced
(if such Credit Agreement is to remain outstanding) and (iii) a notice to the
effect that the refinancing Indebtedness shall be treated as issued under the
Credit Agreement shall be delivered by the Borrower to the Collateral Agent);
WHEREAS, to the extent that the Borrower creates or acquires any
Subsidiary in accordance with the terms of the Credit Agreement, such Subsidiary
will enter into the Subsidiaries Guaranty pursuant to which such Subsidiary
shall from time to time jointly and severally guarantee to the Secured Creditors
the payment when due of all obligations and liabilities of the Borrower under or
with respect to the Credit Documents and each Interest Rate Protection Agreement
or Other Hedging Agreement with one or more Other Creditors;
WHEREAS, the Borrower desires to incur Loans and to have Letters of
Credit issued for its account pursuant to the Credit Agreement;
WHEREAS, the Borrower may at any time and from time to time enter into
one or more Interest Rate Protection or Other Hedging Agreements with one or
more Other Creditors;
WHEREAS, it is a condition to each of the above-described extensions
of credit to the Borrower that each Pledgor shall have executed and delivered
this Agreement to the Pledgee; and
WHEREAS, each Pledgor desires to execute this Agreement to satisfy the
conditions described in the preceding paragraph;
NOW, THEREFORE, in consideration of the benefits accruing to each
Pledgor, the receipt and sufficiency of which are hereby acknowledged, each
Pledgor hereby makes the following representations and warranties to the Pledgee
for the benefit of the Secured Creditors and hereby covenants and agrees with
the Pledgee for the benefit of the Secured Creditors as follows:
1. SECURITY FOR OBLIGATIONS. This Agreement is made by each Pledgor
for the benefit of the Secured Creditors to secure:
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i) the full and prompt payment when due (whether at the stated
maturity by acceleration or otherwise) of all obligations and
indebtedness (including, without limitation, indemnitees, fees and
interest thereon) of such Pledgor owing to the Bank Creditors, now
existing or hereafter incurred under, arising out of or in connection
with any Credit Document and the due performance and compliance by
such Pledgor with the terms of each such Credit Document (all such
obligations and liabilities under this clause (i), except to the
extent consisting of obligations or indebtedness with respect to
Interest Rate Protection or Other Hedging Agreements, being herein
collectively called the "Credit Document Obligations").
ii) the full and prompt payment when due (whether at the stated
maturity, by acceleration or otherwise) of all obligations and
indebtedness (including, without limitation, indemnitees, fees and
interest thereon) of such Pledgor owing to the Other Creditors, now
existing or hereafter incurred under, arising out of or in connection
with any Interest Rate Protection or Other Hedge Agreement (all such
obligations and indebtedness under this clause (ii) being herein
collectively called the "Interest Rate Protection Obligations");
iii) any and all sums advanced by the Pledgee in accordance with
the terms of this Agreement in order to preserve the Collateral (as
defined in Section 3.4 herein) or preserve its security interest in
the Collateral;
iv) in the event of any proceeding for the collection or
enforcement of any indebtedness, obligations, or liabilities referred
to in clauses (i), (ii) and (iii) above, after an Event of Default
(such term, as used in this Agreement, shall mean any Event of Default
under, and as defend in, the Credit Agreement, or any payment default
under any Interest Rate Protection or Other Hedging Agreement after
the expiration of any applicable grace period and shall in any event
include, without limitation, any payment default on any of the
Obligations (as hereinafter defined) after the expiration of any
applicable grace period) shall have occurred and be continuing, the
reasonable expenses of retaking, holding, preparing for sale or lease,
selling or otherwise disposing or realizing on the Collateral, or of
any exercise by the Pledgee of its rights hereunder, together with
reasonable attorneys' fees and court costs; and
v) all amounts paid by any Indemnitee as to which such Indemnitee
has the right to reimbursement under Section 11 of this Agreement;
all such obligations, liabilities, sums and expenses set forth in clauses (i)
through (v) of this Section 1 being herein collectively called the
"Obligations"; provided, that it is acknowledged and agreed that the
"Obligations" shall include extensions of credit of the types described above,
whether outstanding on the date of this Agreement or extended from time to time
after the date of this Agreement.
2. DEFINITION OF STOCK, NOTES, SECURITIES, ETC. As used herein, (i)
the term "Stock" shall mean all of the issued and outstanding shares of capital
stock at any time owned by the Pledgor of any corporation and (ii) the term
"Notes" shall mean all promissory notes
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at any time issued to the Pledgor by any of its Subsidiaries, Affiliates or any
other Person. As used herein, the term "Securities" shall mean all of the Stock
and Notes. The Pledgor represents and warrants, as to the Stock of corporations
and promissory notes owned by the Pledgor, that on the date hereof (a) the Stock
consists of the number and type of shares of the stock of the corporations as
described in Annex A hereto; (b) such Stock constitutes that percentage of the
issued and outstanding capital stock of the issuing corporation as is set forth
in Annex A hereto; (c) the Note; consist of the promissory notes described in
Annex B hereto; and (d) the Pledgor is the holder of record and sole beneficial
owner of the Stock and the Notes and there exist no options or preemption rights
in respect of any of the Stock.
3. PLEDGE OF SECURITIES, ETC.
a. Pledge. To secure the Obligations and for the purposes set forth in
Section 1, each Pledgor hereby: (i) grants to the Pledgee a security interest in
all of the Collateral owned by the Pledgor; (ii) pledges and deposits as
security with the Pledgee the Securities owned by such Pledgor on the date
hereof, and delivers to the Pledgee certificates or instruments therefor, duly
endorsed in blank in the case of Notes and accompanied by undated stock powers
duly executed in blank by such Pledgor in the case of Stock, or such other
instruments of transfer as are reasonably acceptable to the Pledgee; and (iii)
assigns, transfers, hypothecates, mortgages, charges and sets over to the
Pledgee all of such Pledgor's right, title and interest in and to such
Securities (and in and to all certificates or instruments evidencing such
Securities), in each case to be held by the Pledgee, upon the terms and
conditions set forth in this Agreement.
b. Subsequently Acquired Securities. If any Pledgor shall acquire (by
purchase, stock dividend or otherwise) any additional Securities at any time or
from time to time after the date hereof, the Pledgor will forthwith pledge and
deposit such Securities (or certificates or instruments representing such
Securities) as security with the Pledgee and deliver to the Pledgee certificates
therefor or instruments thereof, duly endorsed in blank in the case of Notes and
accompanied by undated stock powers duly executed in blank in the case of Stock,
or such other instruments of transfer as are reasonably acceptable to the
Pledgee, to secure the Obligations and for the purposes set forth in Section 1,
and will promptly thereafter deliver to the Pledgee a certificate executed by
any of the Chairman of the Board, the Chief Financial Officer, the President, a
Vice Chairman, any Vice President or the Treasurer of such Pledgor describing
such Securities and certifying that the same have been duly pledged with the
Pledgee hereunder.
c. Uncertificated Securities. Notwithstanding anything to the contrary
contained in Sections 3.1 and 3.2 (other than the last sentence of Section 3.2),
if any Securities (whether now owned or hereafter acquired) are uncertificated
securities, the respective Pledgor shall promptly notify the Pledgee thereof,
and shall promptly take all actions required to perfect the security interest of
the Pledgee under applicable law (including, in any event, under Sections 8-313
and 8-321 of the New York UCC, if applicable). Each Pledgor further agrees to
take such actions as the Pledgee reasonably deems necessary or desirable to
effect the foregoing and to permit the Pledgee to exercise any of its rights and
remedies hereunder, and agrees to provide an opinion of counsel satisfactory to
the Pledgee
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with respect to any such pledge of uncertificated Securities promptly upon
request of the Pledgee.
d. Definition of Pledged Stock, Pledged Notes, Pledged Securities and
Collateral. All Stock at any time pledged or required to be pledged hereunder is
hereinafter called the "Pledged Stock," all Notes at any time pledged or
required to be pledged hereunder are hereinafter called the "Pledged Notes," all
of the Pledged Stock and Pledged Notes together are hereinafter called the
"Pledged Securities," which together with all proceeds thereof, including any
securities and moneys received and at the time held by the Pledgee hereunder, is
hereinafter called the "Collateral."
4. APPOINTMENT OF SUB-AGENTS; ENDORSEMENTS, ETC. The Pledgee shall
have the right to appoint one or more sub-agents for the purpose of retaining
physical possession of the Pledged Securities.
5. VOTING, ETC., WHILE NO EVENT OF DEFAULT. Unless and until (i) an
Event of Default shall have occurred and be continuing and (ii) written notice
thereof shall have been given by the Pledgee to the relevant Pledgor (provided,
that if an Event of Default specified in Section 9.05 of the Credit Agreement
shall occur, no such notice shall be required), each Pledgor shall be entitled
to exercise any and all voting and other consensual rights pertaining to the
Pledged Securities owned by it and to give consents, waivers or ratifications in
respect thereof; provided, that no vote shall be cast or any consent, waiver or
ratification given or any action taken which would violate or be inconsistent
with any of the terms of this Agreement, any other Credit Document or any
Interest Rate Protection or Other Hedging Agreement (collectively, the "Secured
Debt Agreements"), or which would have the effect of impairing the position or
interests of the Pledgee or any Secured Creditor. All such rights of such
Pledgor to vote and to give consents, waivers and ratifications shall cease in
case an Event of Default shall occur and be continuing and Section 7 hereof
shall become applicable.
6. DIVIDENDS AND OTHER DISTRIBUTIONS. Unless an Event of Default shall
have occurred and be continuing (or would occur as a result thereof), all cash
dividends payable in respect of the Pledged Stock and all payments in respect of
the Pledged Notes shall be paid to the respective Pledgor free and clear of the
security interests created under this Agreement or any other Credit Document;
provided, that all cash dividends payable in respect of the Pledged Stock which
are reasonably determined by the Pledgee, in its sole discretion, to represent
in whole or in part an extraordinary, liquidating or other distribution in
return of capital shall be paid, to the extent so determined to represent an
extraordinary, liquidating or other distribution in return of capital, to the
Pledgee and retained by it as part of the Collateral. The Pledgee shall also be
entitled to receive directly, and to retain as part of the Collateral:
i) all other or additional stock or other securities or property
(other than cash) paid or distributed by way of dividend or otherwise
in respect of the Pledged Stock;
ii) all other or additional stock or other securities or property
(including cash) paid or distributed in respect of the Pledged Stock
by way of stock-split, spinoff, split-
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up, reclassification, combination of shares or similar rearrangement;
and
iii) all other or additional stock or other securities or
property (including cash) which may be paid in respect of the
Collateral by reason of any consolidation, merger, exchange of stock,
conveyance of assets, liquidation or similar corporate reorganization.
Nothing contained in this Section 6 shall limit or restrict in any way the
Pledgee's right to receive proceeds of the Collateral in any form in accordance
with Section 3 of this Agreement. All dividends, distributions or other payments
which are received by any Pledgor contrary to the provisions of this Section 6
and Section 7 shall be received in trust for the benefit of the Pledgee, shall
be segregated from other property of funds of such Pledgor and shall be
forthwith paid over to the Pledgee as Collateral in the same form as so received
(with any necessary endorsement).
7. REMEDIES IN CASE OF EVENT OF DEFAULT. (a) In case an Event of
Default shall have occurred and be continuing, the Pledgee shall be entitled to
exercise all of the rights, powers and remedies (whether vested in it by this
Agreement or by any other Secured Debt Agreement or by law) for the protection
and enforcement of its rights in respect of the Collateral, and the Pledgee
shall be entitled, without limitation, to exercise the following rights, which
each Pledgor hereby agrees to be commercially reasonable:
i) to receive all amounts payable in respect of the Collateral
payable to such Pledgor under Section 6;
ii) to transfer all or any part of the Pledged Securities into
the Pledgee's name or the name of its nominee or nominees;
iii) to accelerate any Pledged Note which may be accelerated in
accordance with its terms, and take any other action to collect upon
any Pledged Note (including, without limitation, to make any demand
for payment of amounts then due and payable thereon);
iv) to vote all or any part of the Pledged Securities (whether or
not transferred into the name of the Pledgee) and give all consents,
waivers and ratifications in respect of the Collateral and otherwise
act with respect thereto as though it were the outright owner thereof
(each Pledgor hereby irrevocably constituting and appointing the
Pledgee the proxy and attorney-in-fact of such Pledgor, with full
power of substitution to do so); and
v) at any time or from time to time to sell, assign and deliver,
or grant options to purchase, all or any part of the Collateral, or
any interest therein, at any public or private sale, without demand of
performance, advertisement or notice of intention to sell or of the
time or place of sale or adjournment thereof or to redeem or otherwise
(all of which are hereby waived by each Pledgor to the extent
permitted by applicable law), for cash, on credit or for other
property, for immediate or future delivery without any assumption of
credit risk, and for such price or prices and on such terms as the
Pledgee may, in compliance with any
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mandatory requirements of applicable law, determine to be commercially
reasonable; provided, that at least 10 days' notice of the time and
place of any such sale shall be given to such Pledgor. Each Pledgor
hereby waives and releases to the fullest extent permitted by law any
right or equity of redemption with respect to the Collateral, whether
before or after sale hereunder, and all rights, if any, of marshalling
the Collateral and any other security for the Obligations or
otherwise. At any such sale, unless prohibited by applicable law, the
Pledgee on behalf of the Secured Creditors may bid for and purchase
all or any part of the Collateral so sold free from any such right or
equity of redemption. Neither the Pledgee nor any Secured Creditor
shall be liable for failure to collect or realize upon any or all of
the Collateral or for any delay in so doing nor shall any of them be
under any obligation to take any action whatsoever with regard
thereto.
(b) In case the Pledgee shall have instituted any proceeding to
enforce any right, power or remedy under this Agreement by foreclosure, sale,
entry or otherwise, and such proceedings shall have been discontinued or
abandoned for any reason or shall have been determined adversely to the Pledgee,
then and in such case the relevant Pledgor, the Pledgee and each holder of any
of the Obligations shall be restored to their former positions and rights
hereunder with respect to the Collateral subject to the security interests
created under this Agreement, and all rights, remedies and powers of the Pledgee
shall continue as if no such proceeding, had been instituted.
8. REMEDIES, ETC., CUMULATIVE. Each right, power and remedy of the
Pledgee provided for in this Agreement or any other Secured Debt Agreement or
now or hereafter existing at law or in equity or by statute shall be cumulative
and concurrent and shall be in addition to every other such right, power or
remedy. The exercise or beginning of the exercise by the Pledgee or any Secured
Creditor of any one or more of the rights, powers or remedies provided for in
this Agreement or any other Secured Debt Agreement or now or hereafter existing
at law or in equity, or by statute or otherwise shall not preclude the
simultaneous or later exercise by the Pledgee or any Secured Creditor of all
such other rights, powers or remedies, and no failure or delay on the part of
the Pledgee or any Secured Creditor to exercise any such right, power or remedy
shall operate as a waiver thereof.
9. APPLICATION OF PROCEEDS. (a) All moneys collected by the Pledgee
upon any sale or other disposition of the Collateral pursuant to the terms of
this Agreement, together with all other moneys received by the Pledgee
hereunder, shall be applied as follows:
i) first, to the payment of all Obligations owing to the Pledgee
(or any Indemnitee, in the case of clause (v) of Section 1 of this
Agreement) of the type described in clauses (iii), (iv) and (v) of
Section 1 of this Agreement;
ii) second, to the extent moneys remain after the application
pursuant to the preceding clause (i), an amount equal to the
outstanding Primary Obligations shall be paid to the Secured Creditors
as provided in Section 9(e), with each Secured Creditor receiving an
amount equal to its outstanding Primary Obligations or, if the
proceeds are insufficient to pay
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in full all such Primary Obligations, its Pro Rata Share of the amount
remaining to be distributed;
iii) third, to the extent proceeds remain after the application
pursuant to the preceding clauses (i) and (ii), an amount equal to the
outstanding Secondary Obligations shall be paid to the Secured
Creditors as provided in Section 9(e), with each Secured Creditor
receiving an amount equal to its outstanding Secondary Obligations or,
if the proceeds are insufficient to pay in full all such Secondary
Obligations, its Pro Rata Share of the amount remaining to be
distributed; and
iv) fourth, to the extent proceeds remain after the application
pursuant to the preceding clauses (i), (ii) and (iii), to the relevant
Pledgor or as required by applicable law.
(2) For purposes of this Agreement (x) "Pro Rata Share" shall mean,
when calculating a Secured Creditor's portion of any distribution or amount,
that amount (expressed as a percentage) equal to a fraction the numerator of
which is the then unpaid amount of such Secured Creditor's Primary Obligations
or Secondary Obligations, as the case may be, and the denominator of which is
the then outstanding amount of all Primary Obligations or Secondary Obligations,
as the case may be, (y) "Primary Obligations" shall mean (i) in the case of the
Credit Document Obligations, all principal of, and interest on, all Loans, all
Unpaid Drawings theretofore made (together with all interest accrued thereon),
the aggregate Stated Amounts of all Letters of Credit issued under the Credit
Agreement, and all Fees and (ii) in the case of the Interest Rate Protection
Obligations, all amounts due under the Interest Rate Protection or Other Hedging
Agreements (other than indemnities, fees (including, without limitation,
attorneys' fees) and similar obligations and liabilities) and (z) "Secondary
Obligations" shall mean all Obligations other than Primary Obligations.
(3) When payments to Secured Creditors are based upon their respective
Pro Rata Shares, the amounts received by such Secured Creditors hereunder shall
be applied (i) first, to their Primary Obligations and (ii) second, to their
Secondary Obligations. If any payment to any Secured Creditor of its Pro Rata
Share of any distribution, would result in overpayment to such Secured Creditor,
such excess amount shall instead be distributed in respect of the unpaid Primary
Obligations or Secondary Obligations, as this case may be, of the other Secured
Creditors, with each Secured Creditor whose Primary Obligations or Secondary
Obligations, as the case may be, have not been paid in full to receive an amount
equal to such excess amount multiplied by a fraction the numerator of which is
the unpaid Primary Obligations or Secondary Obligations, as the case may be, of
such Secured Creditor and the denominator of which is the unpaid Primary
Obligations or Secondary Obligations, as the case may be, of all Secured
Creditors entitled to such distribution.
(4) Each of the Secured Creditors agrees and acknowledges that if the
Bank Creditors are to receive a distribution on account of undrawn amounts with
respect to Letters of Credit issued under the Credit Agreement (which shall only
occur after all outstanding Loans and Unpaid Drawings with respect to such
Letters of Credit have been paid in full), such amounts shall be paid to the
Administrative Agent under the Credit Agreement and held by it, for the equal
and
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ratable benefit of the Bank Creditors, as cash security for the repayment of
Obligations owing to the Bank Creditors as such. If any amounts are held as cash
security pursuant to the immediately preceding sentence, then upon the
termination of all outstanding Letters of Credit, and after the application of
all such cash security to the repayment of all Obligations owing to the Bank
Creditors after giving effect to the termination of all such Letters of Credit,
if there remains any excess cash, such excess cash shall be returned by the
Administrative Agent to the Collateral Agent for distribution in accordance with
Section 9(a) hereof.
(5) Except as set forth in Section 9(d) hereof, all payments required
to be made hereunder shall be made (i) if to the Bank Creditors, to the
Administrative Agent under the Credit Agreement for the account of the Bank
Creditors, and (ii) if to the Other Creditors, to the trustee, paying agent or
other similar representative (each a "Representative") for the Other Creditors
or, in the absence of such a Representative, directly to the Other Creditors.
(6) For purposes of applying payments received in accordance with this
Section 9, the Collateral Agent shall be entitled to rely upon (i) the
Administrative Agent under the Credit Agreement and (ii) the Representative for
the Other Creditors or, in the absence of such a Representative, upon the Other
Creditors for a determination (which the Administrative Agent, each
Representative for any Secured Creditors and the Secured Creditors agree (or
shall agree) to provide upon request of the Collateral Agent) of the outstanding
Primary Obligations and Secondary Obligations owed to the Bank Creditors or the
Other Creditors, as the case may be. Unless it has actual knowledge (including
by way of written notice from a Bank Creditor or an Other Creditor) to the
contrary, the Administrative Agent and each Representative, in furnishing
information pursuant to the preceding sentence, and the Collateral Agent, in
acting hereunder, shall be entitled to assume that no Secondary Obligations are
outstanding. Unless it has actual knowledge (including by way of written notice
from an Other Creditor) to the contrary, the Collateral Agent, in acting
hereunder, shall be entitled to assume that no Interest Rate Protection or Other
Hedging Agreements are in existence.
(7) It is understood and agreed that the Pledgors shall remain jointly
and severally liable to the extent of any deficiency between the amount of the
Proceeds of the Collateral hereunder and the aggregate amount of the sums
referred to in clauses (i), (ii) and (iii) of Section 9(a).
10. PURCHASERS OF COLLATERAL. Upon any sale of the Collateral by the
Pledgee hereunder (whether by virtue of the power of sale herein granted,
pursuant to judicial process or otherwise), the receipt of the Pledgee or the
officer making the sale shall be a sufficient discharge to the purchaser or
purchasers of the Collateral so sold, and such purchaser or purchasers shall not
be obligated to see to the application of any part of the purchase money paid
over to the Pledgee or such officer or be answerable in any way for the
misapplication or nonapplication thereof.
11. INDEMNITY.
a. Indemnity. (a) Each Pledgor jointly and severally agrees to
indemnify, reimburse and hold the Pledgee, each Secured Creditor and their
respective successors, permitted assigns,
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employees, agents and servants (hereinafter in this Section 11.1 referred to
individually as "Indemnitee," and collectively as "Indemnities") harmless from
any and all liabilities, obligations, damages, injuries, penalties, claims,
demands, actions, suits, judgments and any and all costs, expenses or
disbursements (including attorneys' fees and expenses) (for the purposes of this
Section 11.1 the foregoing are collectively called "expenses") of whatsoever
kind and nature imposed on, asserted against or incurred by any of the
Indemnities in any way relating to or arising out of this Agreement, any other
Secured Debt Agreement or any other document executed in connection herewith and
therewith or in any other way connected with the administration of the
transactions contemplated hereby and thereby or the enforcement of any of the
terms of, or the preservation of any rights under any thereof, the violation of
the laws of any country, state or other governmental body or unit, any tort or
contract claim; provided, that no Indemnitee shall be indemnified pursuant to
this Section 11.1(a) for losses, damages or liabilities to the extent caused by
the gross negligence or willful misconduct of such Indemnitee. In no event shall
any Indemnitee be liable for any matter or thing, in connection with this
Agreement other than to account for moneys actually received by it in connection
with the terms hereof. Each Pledgor agrees that upon written notice by any
Indemnitee of the assertion of such a liability, obligation, damage, injury,
penalty, claims, demand, action, judgment or suit, such Pledgor shall assume
full responsibility for the defense thereof. Each Indemnitee agrees to use its
best efforts to promptly notify the relevant Pledgor of any such assertion of
which such Indemnitee has knowledge.
(2) Without limiting the application of Section ll.l(a), each Pledgor
jointly and severally agrees to pay or reimburse the Pledgee for any and all
fees, costs and expenses of whatever kind or nature reasonably incurred in
connection with the creation, preservation or protection of the Pledgee's Liens
on, and security interest in, the Collateral, including, without limitation, all
fees and taxes in connection with the recording or filing of instruments and
documents in public offices, payment or discharge of any taxes or Liens upon or
in respect of the Collateral (other than Liens permitted under this Agreement or
the Credit Agreement so long as no Event of Default has occurred and is
continuing) and all other reasonable fees, costs and expenses in connection with
protecting, maintaining or preserving the Collateral and the Pledgee's interest
therein, whether through judicial proceedings or otherwise, or in defending or
prosecuting any actions, suits or proceedings arising out of or relating to the
Collateral.
(3) If and to the extent that the obligations of any Pledgor under
this Section 11 are unenforceable for any reason, such Pledgor hereby agrees to
make the maximum contribution to the payment and satisfaction of such
obligations which is permissible under applicable law.
b. Indemnity Obligations Secured by Collateral; Survival. Any amounts
paid by any Indemnitee as to which such Indemnitee has the right to
reimbursement shall constitute Obligations secured by the Collateral. The
indemnity obligations of each Pledgor contained in this Section 11 shall
continue in full force and effect notwithstanding the full payment of all the
Notes issued under the Credit Agreement, the termination of all Letters of
Credit and all Interest Rate Protection or Other Hedging Agreements and the
payment of all other Obligations and notwithstanding the
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discharge thereof.
12. FURTHER ASSURANCES; POWER-OF-ATTORNEY. (a) Each Pledgor agrees
that it will join with the Pledgee in executing and, at such Pledgor's own
expense, file and refile under the UCC such financing statements, continuation
statements and other documents in such offices as the Pledgee may deem necessary
or appropriate and wherever required or permitted by law in order to perfect and
preserve the Pledgee's security interest in the Collateral and hereby authorizes
the Pledgee to file financing statements and amendments thereto relative to all
or any part of the Collateral without the signature of such Pledgor where
permitted by law, and agrees to do such further acts and things and to execute
and deliver to the Pledgee such additional conveyances, assignments, agreements
and instruments as the Pledgee may reasonably require or deem advisable to carry
into effect the purposes of this Agreement or to further assure and confirm unto
the Pledgee its rights, powers and remedies hereunder.
(b) Each Pledgor hereby appoints the Pledgee as its attorney-in-fact,
with full authority in the place and stead of such Pledgor and in the name of
such Pledgor or otherwise, from time to time after the occurrence and during the
continuance of an Event of Default, in the Pledgee's discretion to take any
action and to execute any instrument which the Pledgee may deem necessary or
advisable to accomplish the purposes of this Agreement.
13. THE PLEDGEE AS AGENT. The Pledgee will hold in accordance with
this Agreement all items of the Collateral at any time received under this
Agreement. It is expressly understood and agreed by the parties hereto and each
Secured Creditor, by accepting the benefits of this Agreement, acknowledges and
agrees that the obligations of the Pledgee as holder of the Collateral and
interests therein and with respect to the disposition thereof, and otherwise
under this Agreement, are only those expressly set forth in this Agreement. The
Pledgee shall act hereunder on the terms and conditions set forth herein and in
Section 11 of the Credit Agreement.
14. TRANSFER BY PLEDGORS. No Pledgor will sell or otherwise dispose
of, grant any option with respect to, or mortgage, pledge or otherwise encumber
any of the Collateral or any interest therein (except as may be permitted in
accordance with the terms of the Credit Agreement).
15. REPRESENTATIONS, WARRANTIES AND COVENANTS OF PLEDGOR. Each Pledgor
represents, warrants and covenants that: (i) it is the legal, record and
beneficial owner of, and has good and marketable title to, all Securities
pledged by it hereunder, subject to no pledge, lien, mortgage, hypothecation,
security interest, charge, option or other encumbrance whatsoever, except the
liens and security interests created by the Credit Agreement and this Agreement;
(ii) it has the requisite corporate power, authority and legal right to pledge
all the Securities pledged by it pursuant to this Agreement; (iii) this
Agreement has been duly authorized, executed and delivered by such Pledgor and
constitutes a legal, valid and binding obligation of such Pledgor enforceable in
accordance with its terms, except to the extent that the enforceability hereof
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or similar laws
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EXHIBIT J
PAGE 17
affecting creditors' rights generally and by equitable principles (regardless of
whether enforcement is sought in equity or at law); (iv) no consent of any other
party (including, without limitation, any stockholder, limited or general
partner or creditor of such Pledgor or any of its Subsidiaries) and no consent,
license, permit, approval or authorization of, exemption by, notice or report
to, or registration, filing or declaration with, any governmental authority is
required to be obtained by such Pledgor in connection with the execution,
delivery or performance of this Agreement, except as obtained on or before the
date hereof or as permitted to be obtained after the date hereof by Section 3.1
of this Agreement; (v) the execution, delivery and performance of this Agreement
does not violate any provision of any applicable law or regulation or of any
order, judgment, writ, award or decree of any court, arbitrator or governmental
authority, domestic or foreign, applicable to such Pledgor or of the certificate
of incorporation or by-laws of such Pledgor or of any securities issued by such
Pledgor or any of its Subsidiaries, or of any mortgage, indenture, lease, deed
of trust, agreement, instrument or undertaking to which such Pledgor or any of
its Subsidiaries is a party or which purports to be binding upon such Pledgor or
any of its Subsidiaries or upon any of their respective assets and will not
result in the creation or imposition of any lien or encumbrance on any of the
assets of such Pledgor or any of its Subsidiaries except as contemplated by this
Agreement; (vi) all the shares of Stock have been duly and validly issued, are
fully paid and nonassessable; (vii) to the best knowledge of Pledgor, each of
its Pledged Notes, when executed by the obligor thereof, will be the legal,
valid and binding obligation of such obligor, enforceable in accordance with its
terms, except to the extent that the enforceability thereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting creditors' rights generally and by equitable principles (regardless of
whether enforcement is sought in equity or at law); and (viii) the pledge and
assignment of the Securities by it pursuant to this Agreement, together with the
delivery of the Securities by it pursuant to this Agreement, creates a valid and
perfected first priority security interest in such Securities and the proceeds
thereof (except to the extent further action may be required to maintain a
perfected security interest in proceeds after the actual receipt thereof by the
Pledgee), subject to no prior lien or encumbrance or to any agreement (other
than as may be created by any other Credit Document) purporting to grant to any
third party a lien or encumbrance on the property or assets of such Pledgor
which would include such Securities. Each Pledgor covenants and agrees that it
will defend the Pledgee's right, title and security interest in and to the
Securities pledged by it pursuant to this Agreement and the proceeds thereof
against the claims and demands of all persons whomsoever, and such Pledgor
covenants and agrees that it will have like title to and right to pledge any
other property at any time hereafter pledged to the Pledgee as Collateral
hereunder and will likewise defend the right thereto and security interest
therein of the Pledgee and the Secured Creditors.
16. PLEDGORS' OBLIGATIONS ABSOLUTE, ETC. The obligations of each
Pledgor hereunder shall remain in full force and effect without regard to, and
shall not be impaired by:
(a) any bankruptcy, insolvency, reorganization, arrangement,
readjustment, composition, liquidation or the like of such Pledgor, except to
the extent that the enforceability thereof may be limited by such event: (b) any
exercise or non-exercise, or any waiver of, any right,
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EXHIBIT J
PAGE 18
remedy, power or privilege under in respect of this Agreement, any other Credit
Document or any Interest Rate Protection or Other Hedging Agreement, except as
specifically set forth in a waiver granted pursuant to Section 20; or (c) any
amendment to or modification of any Credit Document, or any Interest Rate
Protection or Other Hedging Agreement or any security for any of the
Obligations; whether or not any Pledgor shall have notice or knowledge of any of
the foregoing, except as specifically set forth in an amendment or modification
executed pursuant to Section 20.
17. REGISTRATION, ETC. (a) If an Event of Default shall have occurred
and be continuing and any Pledgor shall have received from the Pledgee a written
request or requests that such Pledgor cause any registration, qualification or
compliance under any federal or state securities law or laws to be effected with
respect to all or any part of its Pledged Stock, such Pledgor as soon as
practicable and at its expense shall cause such registration to be effected (and
be kept effective), and shall cause such qualification and compliance to be
effected (and be kept effective) as may be so requested and shall permit or
facilitate the sale and distribution of such Pledged Stock, including, without
limitation, registration under the Securities Act of 1933 as then in effect or
any similar statute then in effect), appropriate qualifications under applicable
blue sky or other state securities laws and appropriate compliance with any
other government requirements; provided, that the Pledgee shall furnish to such
Pledgor such information regarding the Pledgee as such Pledgor may request in
writing and as shall be required in connection with any such registration,
qualification or compliance. Such Pledgor will cause the Pledgee to be kept
reasonably advised in writing as to the progress of each such registration,
qualification or compliance and as to the completion thereof, will furnish to
the Pledgee such number of prospectuses, offering circulars or other documents
incident thereto as the Pledgee from time to time may reasonably request, and
will indemnify the Pledgee, and all others participating in the distribution of
the Pledged Stock against all claims, losses, damages and liabilities caused by
any untrue statement (or alleged untrue statement) of a material fact contained
therein (or in any related registration statement, notification or the like) or
by any omission (or alleged omission) to state therein (or in any related
registration statement, notification or the like) a material fact required to be
stated therein or necessary to make the statements therein not misleading,,
except insofar as the same may have been caused by an untrue statement or
omission based upon information furnished in writing to such Pledgor by the
Pledgee expressly for use therein.
(b) If at any time when the Pledgee shall determine to exercise its
right to sell all or any part of the Pledged Securities pursuant to Section 7,
such Pledged Securities or the part thereof to be sold shall not, for any reason
whatsoever, be effectively registered under the Securities Act of 1933, as then
in effect, the Pledgee may, in its sole and absolute discretion, sell such
Pledged Securities or part thereof by private sale in such manner and under such
circumstances as the Pledgee may deem necessary or advisable in order that such
sale may legally be effected without such registration. Without limiting the
generality of the foregoing, in any such event the Pledgee, in its sole and
absolute discretion (i) may proceed to make such private sale notwithstanding
that a registration statement for the purpose of registering such Pledged
Securities or part thereof shall have been filed under such Securities Act; (ii)
may approach and negotiate with a single possible purchaser to effect such sale;
and (iii) may restrict such sale to a purchaser who will represent and agree
that such purchaser is purchasing for its own account, for investment, and not
with a view to the
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EXHIBIT J
PAGE 19
distribution or sale of such Pledged Securities or part thereof. In the event of
any such sale, the Pledgee shall incur no responsibility or liability for
selling all or any part of the Pledged Securities at a price which the Pledgee,
in its sole and absolute discretion, may in good faith deem commercially
reasonable under the circumstances, notwithstanding the possibility that a
substantially higher price might be realized if the sale were deferred until
after registration of such Pledged Securities for public sale.
18. TERMINATION, RELEASE. (a) After the Termination Date (as defined
below), this Agreement shall terminate (provided that all indemnities set forth
herein including, without limitation, in Section 11 hereof shall survive any
such termination) and the Pledgee, at the request and expense of the respective
Pledgor, will promptly execute and deliver to such Pledgor such statements,
documents or other instruments as may be reasonably requested by such Pledgor
acknowledging the satisfaction and termination of this Agreement and the
security interests created hereby, and will duly assign, transfer and deliver to
such Pledgor (without recourse and without any representation or warranty) such
of the Collateral of such Pledgor as may be in the possession of the Pledgee and
as has not theretofore been sold or otherwise applied or released pursuant to
this Agreement. As used in this Agreement, "Termination Date" shall mean the
date upon which the Total Commitment and all Interest Rate Protection and Other
Hedging Agreements have been terminated, no Note is outstanding (and all Loans
have been paid in full), all Letters of Credit have been terminated (or cash
collateralized to the Pledgee's satisfaction) and all other Obligations then
owing have been paid in full and there shall exist no unsatisfied claim for
reimbursement by any Indemnitee pursuant to Section 11.2.
(2) In the event that any part of the Collateral is sold in connection
with a sale permitted by the Credit Agreement or is otherwise released at the
direction of the Required Banks (or all the Banks if required by Section 12.12
of the Credit Agreement), and the proceeds of such sale or sales or from such
release are applied in accordance with the terms of the Credit Agreement, such
Collateral will be sold free and clear of the Liens created by this Agreement
and the Pledgee, at the request and expense of the respective Pledgor, will duly
assign, transfer and deliver to such Pledgor (without recourse and without any
representation or warranty) such of the Collateral of such Pledgor as is then
being (or has been) so sold or released and as may be in possession of the
Pledgee and has not theretofore been released pursuant to this Agreement.
(3) At any time that a Pledgor desires that Collateral be released as
provided in the foregoing Section 18(a) or (b), it shall deliver to the Pledgee
a certificate signed by its chief financial officer or another authorized senior
officer stating that the release of the respective Collateral is permitted
pursuant to Section 18(a) or (b). If requested by the Pledgee (although the
Pledgee shall have no obligation to make any such request), the relevant Pledgor
shall furnish appropriate legal opinions (from counsel, which may be in-house
counsel, reasonably acceptable to the Pledgee) to the effect set forth in the
immediately preceding sentence. The Pledgee shall have no liability whatsoever
to any Secured Creditor as the result of any release of Collateral by it as
permitted by this Section 18.
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PAGE 20
19. NOTICES, ETC. All notices and other communication hereunder shall
be in writing (including telegraphic, telex, facsimile transmission or cable
communication) and shall be delivered, mailed, telegraphed, telexed, facsimile
transmitted or cabled, addressed:
(a) if to any Pledgor, at its address set forth opposite its signature
below;
(b) if to the Pledgee, at:
Fleet National Bank
Mail Stop MA0FD03D
1 Federal Street
Boston, MA 02110
Attention: Mark Bernier
Telephone No.: (617) 346-4347
Facsimile No.: (617) 346-4345
(c) if to any Bank Creditor (other than the Pledgee), either (x) to
the Administrative Agent, at the address of the Administrative Agent
specified in the Credit Agreement or (y) at such address as such Bank
Creditor shall have specified in the Credit Agreement;
(d) if to any Other Creditor or to the Representative for the Other
Creditors, at such address as such Representative may have provided to the
Borrower and the Pledgee from time to time, or, in the absence of a
Representative, directly to the Other Creditors at such address as the
Other Creditors shall have specified in writing to the Borrower and the
Pledgee;
or at such other address as shall have been furnished in writing by any Person
described above to the party required to give notice hereunder. All such notices
and Communications shall, when mailed, telegraphed, telexed, facsimile
transmitted or cabled or sent by overnight courier, be effective on the third
Business Day following deposit in the mails, certified, return receipt
requested, when delivered to the telegraph company, cable company or on the day
following delivery to an overnight courier, as the case may be, or sent by telex
or facsimile device, except that notices and communications to the Collateral
Agent shall not be effective until received by the Collateral Agent.
20. WAIVER; AMENDMENT. None of the terms and conditions of this
Agreement may be amended, changed, waived, modified or varied in any manner
whatsoever unless in writing duly signed by each Pledgor and the Pledgee with
the written consent of the Required Banks (or all the Banks if required by
Section 12.12 of the Credit Agreement)); provided, that any amendment, change,
waiver, modification or variance affecting the rights and benefits of a single
Class (as defined below) of Secured Creditors (and not all Secured Creditors in
a like or similar manner) shall require the written consent of the Requisite
Creditors (as defined below) of such Class. For the purpose of this Agreement,
the term "Class" shall mean each class of Secured Creditors, i.e.,
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PAGE 21
whether (i) the Bank Creditors as holders of the Credit Document Obligations or
(ii) the Other Creditors as holders of the Interest Rate Protection Obligations.
For the purpose of this Agreement, the term "Requisite Creditors" of any Class
shall mean each of (i) with respect to the Credit Document Obligations, the
Required Banks and (ii) with respect to the Interest Rate Protection
Obligations, the holders of at least a majority of all obligations outstanding
from time to time under the Interest Rate Protection or Other Hedging
Agreements.
21. MISCELLANEOUS. (a) This Agreement shall be binding upon the
successors and assigns of each Pledgor and shall inure to the benefit of and be
enforceable by the Pledgee and each Secured Creditor and their respective
successors and assigns.
(b) THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH
AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK.
(c) The headings in this Agreement are for purposes of reference only
and shall not limit or define the meaning hereof.
(d) This Agreement may be executed in any number of counterparts, each
of which shall be an original, but all of which shall constitute one instrument.
22. SEVERABILITY. Any provision of this Agreement which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
* * *
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EXHIBIT J
PAGE 22
IN WITNESS WHEREOF, each Pledgor and the Pledgee have caused this
Agreement to be executed by their duly elected officers duly authorized as if
the date first above written.
Address:
605 West 47th Street GOLDEN SKY SYSTEMS, INC.
Suite 300 as a Pledgor
Kansas City, MO 64112
Attention: Robert B. Weaver
Tel: (212) 593-7900 By /s/ Rodney A. Weary
Fax: (212) 754-6348 ---------------------------
Name: Robert B. Weaver
Title: President
Mail Stop MA0FD03D FLEET NATIONAL BANK
1 Federal Street as Pledgee
Boston, MA 02110
Attention: Mark Bernier
Telephone: (617) 346-4347 By /s/ Paula H. Lang
Facsimile: (617) 346-4345 ---------------------------
Name: Paula P. Lang,
Title: Senior Vice President
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EXHIBIT J
PAGE 23
ANNEX A
to
Pledge Agreement
BORROWER PLEDGE AGREEMENT
PLEDGED STOCK
I. Issuer: Argos Support Services Company
Stock Certificate(s) representing 1,175 shares of Common Stock, $1 par
value, issued to Golden Sky Systems, Inc. - 100%
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EXHIBIT J
PAGE 24
ANNEX B
to
Pledge Agreement
LIST OF NOTES
Maker Payee Amount
NONE.
<PAGE> 284
EXHIBIT J
PAGE 25
EXHIBIT B to the
Security Documents Acknowledgment
[CONFORMED AS EXECUTED]
SECURITY AGREEMENT
among
GOLDEN SKY SYSTEMS, INC.
VARIOUS SUBSIDIARIES
and
FLEET NATIONAL BANK,
as Collateral Agent
Dated as of July 7, 1997
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EXHIBIT J
PAGE 26
TABLE OF CONTENTS
Page
Table of Contents will generate here
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EXHIBIT J
PAGE 27
SECURITY AGREEMENT
SECURITY AGREEMENT, dated as of July 7, 1997 (as amended, modified or
supplemented from time to time, the "Agreement"), among each of the undersigned
(each an "Assignor" and collectively, the "Assignors") and FLEET NATIONAL BANK,
as Collateral Agent (the "Collateral Agent"), for the benefit of (x) the Banks
(as defined below) and the Agents (as defined below) under, and any other lender
from time to time party to the Credit Agreement hereinafter referred to (such
Banks, the Agents and the other lenders, if any, are hereinafter called the
"Bank Creditors") and (y) if the Agents in their individual capacities, any Bank
or a syndicate of financial institutions organized by the Agents or any such
Bank or an affiliate of the Agents or such Bank enter into one or more (i)
interest rate protection agreements (including, without limitation, interest
rate swaps, caps, floors, collars and similar agreements), (ii) foreign exchange
contracts, currency swap agreements or other similar agreements or arrangements
designed to protect against the fluctuations in currency values and/or (iii)
other types of hedging agreements from time to time (collectively, the "Interest
Rate Protection or Other Hedging Agreements"), with, or guaranteed by, the
Borrower, the Agents, any such Bank or an affiliate of the Agents or such Bank
(even if the Agents or any such Bank ceases to be a Bank under the Credit
Agreement for any reason) and any such institution that participates in such
Interest Rate Protection or Other Hedging Agreements and their subsequent
assigns (collectively, the "Other Creditors" and, together with the Bank
Creditors, are herein called the "Secured Creditors"). Except as otherwise
defined herein, terms used herein and defined in the Credit Agreement shall be
used herein as therein defined.
W I T N E S S E T H:
WHEREAS, GOLDEN SKY SYSTEMS, INC. (the "Borrower"), various financial
institutions from time to time party thereto (the "Banks"), Banque Paribas, as
Syndication Agent and as Managing Agent ("Banque Paribas"), and Fleet National
Bank, as Administrative Agent and as Managing Agent ("Fleet", and together with
Banque Paribas, the "Agents"), have entered into a Credit Agreement, dated as of
July 7, 1997, providing for the making of Loans and the issuance of, and
participation in, Letters of Credit as contemplated therein (as used herein, the
term "Credit Agreement" means the Credit Agreement described above in this
paragraph, as the same may be amended, modified, extended, renewed, replaced,
restated, supplemented, restructured or refinanced from time to time, and
including any agreement extending the maturity of, refinancing or restructuring
(including, but not limited to, the inclusion of additional borrowers thereunder
that are Subsidiaries of the Borrower and whose obligations are guaranteed by
the Borrower thereunder or any increase in the amount borrowed) all or any
portion of, the Indebtedness under such agreement or any successor agreements;
provided, that with respect to any agreement providing for the refinancing of
Indebtedness under the Credit Agreement, such agreement shall only be treated
as, or as part of, the Credit Agreement hereunder if (i) either (A) all
obligations under the Credit Agreement being refinanced shall be paid in full at
the time of such refinancing and all commitments and letters of credit
<PAGE> 287
EXHIBIT J
Page 28
issued pursuant to the refinanced Credit Agreement shall have terminated in
accordance with their terms or (B) the Required Banks shall have consented in
writing to the refinancing Indebtedness being treated, along with their
Indebtedness, as Indebtedness pursuant to the Credit Agreement, (ii) the
refinancing Indebtedness shall be permitted to be incurred under the Credit
Agreement being refinanced (if such Credit Agreement is to remain outstanding)
and (iii) a notice to the effect that the refinancing Indebtedness shall be
treated as issued under the Credit Agreement shall be delivered by the Borrower
to the Collateral Agent);
WHEREAS, the Borrower desires to incur Loans and to have Letters of Credit
issued account pursuant to the Credit Agreement;
WHEREAS, the Borrower may at any time and from time time enter into one or
more Interest Rate Protection or Other Hedging Agreements with one or more Other
Creditors;
WHEREAS, it is a condition precedent to the above-described extensions of
credit that each of the Assignors shall have executed and delivered to the
Collateral Agent this Agreement; and
WHEREAS, each Assignor desires to execute this Agreement to satisfy the
condition described in the preceding paragraph;
NOW, THEREFORE, in consideration of the benefits accruing to each Assignor,
the receipt and sufficiency of which are hereby acknowledged, each Assignor
hereby makes the following representations and warranties to the Collateral
Agent and hereby covenants and agrees with the Collateral Agent as follows:
ARTICLE I.
SECURITY INTERESTS
A. Grant of Security Interests. (a) As security for the prompt and
complete payment and performance when due of all of the Obligations, each
Assignor does hereby assign and transfer unto the Collateral Agent, and does
hereby grant to the Collateral Agent for the benefit of the Secured Creditors, a
continuing security interest of first priority in, all of the right, title and
interest of such Assignor in, to and under all of the following, whether now
existing or hereafter from time to time acquired: (i) each and every Receivable,
(ii) all Contracts, together with all Contract Rights arising thereunder, (iii)
all Inventory, (iv) the Cash Collateral Account and any other cash collateral
account established for any Assignor and all moneys, securities and instruments
deposited or required to be deposited in such Cash Collateral Account and any
such other cash collateral account, (v) all Equipment, (vi) all Marks, together
with the registrations and right to all renewals thereof, and the goodwill of
the business of such Assignor symbolized by the Marks, (vii) all Patents and
Copyrights, (viii) all computer programs of such Assignor and all intellectual
property rights
<PAGE> 288
EXHIBIT J
Page 29
therein and all other proprietary information of such Assignor, including, but
not limited to, trade secrets, (ix) all other Goods, General Intangibles,
Chattel Paper, Documents and Instruments (other than the Pledged Securities) and
(x) all Proceeds and products of any and all of the foregoing (all of the above,
collectively, the "Collateral"), provided, however, that if any Contract
prohibits, or requires the consent for (in accordance with the terms thereof
after giving effect to any applicable laws), the granting of a security interest
therein, or in the event the granting of a security interest in any Contract
shall violate applicable law, then the security interest granted hereby shall be
limited to the extent (and only to the extent) necessary so that such Contract
may not be so violated or no such violation of law shall exist, as the case may
be.
(b) The security interest of the Collateral Agent under this Agreement
extends to all Collateral of the kind which is the subject of this Agreement
which any Assignor may acquire at any time during the continuation of this
Agreement.
B. Power of Attorney. Each Assignor hereby constitutes and appoints
the Collateral Agent its true and lawful attorney, irrevocably, with full power
after the occurrence of and during the continuance of an Event of Default (in
the name of such Assignor or otherwise) to act, require, demand, receive,
compound and give acquittance for any and all moneys and claims for moneys due
or to become due to such Assignor under or arising out of the Collateral, to
endorse any checks or other instruments or orders in connection therewith and to
file any claims or take any action or institute any proceedings which the
Collateral Agent may deem to be necessary or advisable to protect the interests
of the Secured Creditors, which appointment as attorney is coupled with an
interest.
ARTICLE II.
GENERAL REPRESENTATIONS, WARRANTIES AND COVENANTS
Each Assignor represents, warrants and covenants, which
representations, warranties and covenants shall survive execution and delivery
of this Agreement, as follows:
A. Necessary Filings. All filings, registrations and recordings
necessary or appropriate to create, preserve, protect and perfect the security
interest granted by such Assignor to the Collateral Agent hereby in respect of
the Collateral have been accomplished and the security interest granted to the
Collateral Agent pursuant to this Agreement in and to the Collateral constitutes
a perfected security interest therein prior to the rights of all other Persons
therein and subject to no other Liens (other than Permitted Liens) and is
entitled to all the rights, priorities and benefits afforded by the Uniform
Commercial Code or other relevant law as enacted in any relevant jurisdiction to
perfected security interests.
B. No Liens. Such Assignor is, and as to Collateral acquired by it
from time to time after the date hereof such Assignor will be, the owner of all
Collateral free from any Lien, security
<PAGE> 289
EXHIBIT J
Page 30
interest, encumbrance or other right, title or interest of any Person (other
than Permitted Liens), and such Assignor shall defend the Collateral against all
claims and demands of all Persons (other than Persons claiming by, through, or
under the Collateral Agent) at any time claiming the same or any interest
therein adverse to the Collateral Agent.
C. Other Financing Statements. There is no financing statement (or
similar statement or instrument of registration under the law of any
jurisdiction) covering or purporting to cover an interest of any kind in the
Collateral (other than Permitted Liens), and so long as the Total Commitment has
not been terminated or any Letter of Credit or Note remains outstanding or any
of the Obligations remain unpaid or any Interest Rate Protection or Other
Hedging Agreement remains in effect or any Obligations are owed with respect
thereto, such Assignor will not execute or authorize to be filed in any public
office any financing statement (or similar statement or instrument of
registration under the law of any jurisdiction) or statements relating to the
Collateral, except financing statements filed or to be filed in respect of and
covering the security interests granted hereby by such Assignor or as permitted
by the Credit Agreement.
D. Chief Executive Office; Records. The chief executive office of such
Assignor is located at the address or addresses indicated on Annex A hereto.
Such Assignor will not move its chief executive office except to such new
location as such Assignor may establish in accordance with the last sentence of
this Section 2.4. The originals of all documents evidencing all Receivables and
Contract Rights of such Assignor and the only original books of account and
records of such Assignor relating thereto are, and will continue to be, kept at
such chief executive office or at such other locations as are set forth on Annex
B hereto or at such other locations as such Assignor may establish in accordance
with the last sentence of this Section 2.4. All Receivables and Contract Rights
of such Assignor are, and will continue to be, maintained at, and controlled and
directed (including, without limitation, for general accounting purposes) from,
the office locations described above or such new location established in
accordance with the last sentence of this Section 2.4. No Assignor shall
establish new locations for such offices until (i) it shall have given to the
Collateral Agent not less than 30 days' prior written notice of its intention to
do so, clearly describing such new location and providing such other information
in connection therewith as the Collateral Agent may request, (ii) with respect
to such new location, it shall have taken all action, satisfactory to the
Collateral Agent, to maintain the security interest of the Collateral Agent in
the Collateral intended to be granted hereby at all times fully perfected and in
full force and effect, (iii) at the request of the Collateral Agent, it shall
have furnished an opinion of counsel acceptable to the Collateral Agent to the
effect that all financing or continuation statements and amendments or
supplements thereto have been filed in the appropriate filing office or offices,
and (iv) the Collateral Agent shall have received evidence that all other
actions (including, without limitation, the payment of all filing fees and
taxes, if any, payable in connection with such filings) have been taken, in
order to perfect (and maintain the perfection and priority of) the first
priority security interest granted hereby.
E. Location of Inventory and Equipment. All Inventory and Equipment
held on the date hereof by each Assignor is located at one of the locations
shown on Annex C hereto. Each Assignor agrees that all Inventory and Equipment
now held or subsequently acquired by it shall be
<PAGE> 290
EXHIBIT J
Page 31
kept at (or shall be in transport to) any one of the locations shown on Annex C
hereto or such new location as such Assignor may establish in accordance with
the last sentence of this Section 2.5. Any Assignor may establish a new location
for Inventory and Equipment only if (i) it shall have given to the Collateral
Agent not less than 30 days prior written notice of its intention so to do,
clearly describing such new location and providing such other information in
connection therewith as the Collateral Agent may request, (ii) with respect to
such new location, it shall have taken all action satisfactory to the Collateral
Agent to maintain the security interest of the Collateral Agent in the
Collateral intended to be granted hereby at all times fully perfected and in
full force and effect, (iii) at the request of the Collateral Agent, it shall
have furnished an opinion of counsel acceptable to the Collateral Agent to the
effect that all financing or continuation statements and amendments or
supplements thereto have been filed in the appropriate filing office or offices,
and (iv) the Collateral Agent shall have received evidence that all other
actions (including, without limitation, the payment of all filing fees and
taxes, if any, payable in connection with such filings) have been taken, in
order to perfect (and maintain the perfection and priority of) the first
priority security interest granted hereby.
F. Trade Names; Change of Name. No Assignor has or (operates in any
jurisdiction under, or previously has had or has operated in any jurisdiction
within the [five] year period preceding the date of this Agreement under, any
trade names, fictitious names or other names except its legal name and such
other trade or fictitious names as are listed on Annex D hereto. No Assignor
shall change its legal name or assume or operate in any jurisdiction under any
trade, fictitious or other name except those names listed on Annex D hereto and
new names established in accordance with the last sentence of this Section 2.6.
No Assignor shall assume or operate in any jurisdiction under any new trade,
fictitious or other name until (i) it shall have given to the Collateral Agent
not less than 30 days' prior written notice of its intention so to do, clearly
describing such new name and the jurisdictions in which such new name shall be
used and providing such other information in connection therewith as the
Collateral Agent may request, (ii) with respect to such new name, it shall have
taken all action requested by the Collateral Agent, to maintain the security
interest of the Collateral Agent in the Collateral intended to be granted hereby
at all times fully perfected and in full force and effect, (iii) at the request
of the Collateral Agent, it shall have furnished an opinion of counsel
acceptable to the Collateral Agent to the effect that all financing or
continuation statements and amendments or supplements thereto have been filed in
the appropriate filing office or offices, and (iv) the Collateral Agent shall
have received evidence that all other actions (including, without limitation,
the payment of all filing fees and taxes, if any, payable in connection with
such filings) have been taken, in order to perfect (and maintain the perfection
and priority of) the first priority security interest granted hereby.
G. Recourse. This Agreement is made with full recourse to the Assignor
and pursuant to and upon all the warranties, representations, covenants and
agreements on the part of such Assignor contained herein, in the other Credit
Documents, in the Interest Rate Protection or Other Hedging Agreements and
otherwise in writing in connection herewith or therewith.
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ARTICLE III.
SPECIAL PROVISIONS CONCERNING
RECEIVABLES; CONTRACT RIGHTS; INSTRUMENTS
A. Additional Representations and Warranties. As of the time when each
of its Receivables arises, the relevant Assignor shall be deemed to have
represented and warranted that such Receivable, and all records, papers and
documents relating thereto are genuine and in all respects what they purport to
be, and that all papers and documents relating thereto (i) will represent the
genuine, legal, valid and binding obligation of the account debtor evidencing
indebtedness unpaid and owed by the respective account debtor arising out of the
performance of labor or services or the sale or lease and delivery of the
inventory, materials, equipment or merchandise listed therein, or both, (ii)
will be the only original writings evidencing and embodying such obligation of
the account debtor named therein (other than copies created for general
accounting purposes), (iii) will evidence true and valid obligations,
enforceable in accordance with their respective terms, except to the extent that
the enforcement thereof may be limited by applicable bankruptcy, insolvency,
reorganization or other similar laws affecting creditors' rights generally and
by equity principles (regardless of whether enforcement is sought in equity or
at law), and (iv) will be in compliance in all material respects and will
conform with all applicable federal, state and local laws and applicable laws of
any relevant foreign jurisdiction.
B. Maintenance of Records. Each Assignor will keep and maintain at its
own cost and expense satisfactory and complete records of its Receivables and
Contracts, including, but not limited to, originals or copies of all
documentation (including each Contract) with respect thereto, records of all
payments received, all credits granted thereon, all merchandise returned and all
other dealings therewith, and such Assignor will make the same available on such
Assignor's premises to the Collateral Agent for inspection, at such Assignor's
own cost and expense, at any and all reasonable times during, so long as no
Event of Default has occurred and is continuing, normal business hours and so
long as no Event of Default has occurred or is continuing, upon prior notice to
the chief financial officer or other authorized officer of such Assignor. Upon
the occurrence and during the continuance of an Event of Default and at the
request of the Collateral Agent, such Assignor shall, at its own cost and
expense, deliver all tangible evidence of its Receivables and Contract Rights
(including, without limitation, all documents evidencing the Receivables and all
Contracts) and such books and records to the Collateral Agent or to its
representatives (copies of which evidence and books and records may be retained
by such Assignor) and, if the Collateral Agent so directs, such Assignor shall
legend, in form and manner satisfactory to the Collateral Agent, the Receivables
and the Contracts, as well as books, records and documents of such Assignor
evidencing or pertaining to such Receivables and Contracts with an appropriate
reference to the fact that such Receivables and Contracts have been assigned to
the Collateral Agent and that the Collateral Agent has a security interest
therein.
C. Direction to Account Debtors; Contracting Parties; etc. Upon the
occurrence and during the continuance of an Event of Default, and if the
Collateral Agent so directs any Assignor,
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to the extent permitted by applicable law, such Assignor agrees (x) to cause all
payments on account of the Receivables and Contracts to be made directly to the
Cash Collateral Account, (y) that the Collateral Agent may, at its option,
directly notify the obligors with respect to any Receivables and/or under any
Contracts to make payments with respect thereto as provided in preceding clause
(x), and (z) that the Collateral Agent may enforce collection of any such
Receivables and Contracts and may adjust, settle or compromise the amount of
payment thereof, in the same manner and to the same extent as such Assignor.
Without notice to or assent by any Assignor, the Collateral Agent may apply any
or all amounts then in, or thereafter deposited in, the Cash Collateral Account
which application shall be effected in the manner provided in Section 7.4 of
this Agreement. The costs and expenses (including attorneys' fees) of
collection, whether incurred by an Assignor or the Collateral Agent, shall be
borne by the Assignors.
D. Modification of Terms; etc. Upon the occurrence and during the
continuance of an Event of Default, no Assignor shall rescind or cancel any
indebtedness evidenced by any Receivable or under any Contract, or modify any
term thereof or make any adjustment with respect thereto, or extend or renew the
same, or compromise or settle any material dispute, claim, suit or legal
proceeding relating thereto, or sell any Receivable or Contract, or interest
therein, without the prior written consent of the Collateral Agent, except as
permitted by Section 3.5. Each Assignor will duly fulfill all obligations on its
part to be fulfilled under or in connection with the Receivables and Contracts
and will do nothing to impair the rights of the Collateral Agent in the
Receivables or Contracts, except as permitted by Section 3.5.
E. Collection. Each Assignor shall endeavor to cause to be collected
from the account debtor named in each of its Receivables or obligor under any of
its Contracts, as and when due (including, without limitation, amounts, services
or products which are delinquent, such amounts, services or products to be
collected in accordance with generally accepted lawful collection procedures)
any and all amounts, services or products owing under or on account of such
Receivable or Contract, and apply forthwith upon receipt thereof all such
amounts, services or products as are so collected to the outstanding balance of
such Receivable or under such Contract, except that, prior to the occurrence of
an Event of Default, any Assignor may allow in the ordinary course of business
as adjustments to amounts, services or products owing under its Receivables and
Contracts (i) an extension or renewal of the time or times of payment or
exchange, or settlement for less than the total unpaid balance, which such
Assignor finds appropriate in accordance with reasonable business judgment and
(ii) a refund or credit due as a result of returned or damaged merchandise or
improperly performed services. The costs and expenses (including, without
limitation, attorneys' fees) of collection, whether incurred by an Assignor or
the Collateral Agent, shall be borne by the Assignors.
F. Instruments. If any Assignor owns or acquires any Instrument
constituting Collateral, such Assignor will within 10 Business Days notify the
Collateral Agent thereof, and upon request by the Collateral Agent will promptly
deliver such Instrument to the Collateral Agent appropriately endorsed to the
order of the Collateral Agent as further security hereunder.
G. Further Actions. Each Assignor will, at its own expense, make,
execute, endorse,
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acknowledge, file and/or deliver to the Collateral Agent from time to time such
vouchers, invoices, schedules, confirmatory assignments, conveyances, financing
statements, transfer endorsements, powers of attorney, certificates, reports and
other assurances or instruments and take such further steps relating to its
Receivables, Contracts, Instruments and other property or rights covered by the
security interest hereby granted, as the Collateral Agent may reasonably
require.
ARTICLE IV.
SPECIAL PROVISIONS CONCERNING TRADEMARKS
A. Additional Representations and Warranties. Each Assignor represents
and warrants that it is the true and lawful owner of or otherwise has the right
to use the Marks listed in Annex E hereto and that said listed Marks constitute
all the Marks that such Assignor presently owns or uses in connection with its
business. Except as set forth on Annex E, each Assignor represents and warrants
that it owns, is licensed to use or otherwise has the right to use all Marks
that it uses. Other than as set forth on Annex E, each Assignor further warrants
that it has no knowledge as of the date hereof, of any third party claim that
any aspect of such Assignor's present or contemplated business operations
infringes or will infringe any rights in any trademark, service mark or
trademark. Each Assignor represents and warrants that it is the beneficial and
record owner of all U.S. and foreign trademark registrations and applications
listed in Annex E hereto and that said registrations are valid, subsisting, and
have not been canceled and that, such Assignor is not aware of any third-party
claim that any of said registration is invalid or unenforceable, or that there
is any reason that any of said applications will not pass to registration. Each
Assignor hereby grants to the Collateral Agent an absolute power of attorney to
sign, upon the occurrence and during the continuance of an Event of Default, any
document which may be required by the U.S. Patent and Trademark Office or
secretary of state or equivalent governmental agency of any State of the United
States or in any foreign jurisdiction in order to effect an absolute assignment
of all right, title and interest in each Mark, and record the same.
B. Licenses and Assignments. Each Assignor hereby agrees not to divest
itself of any right under any Mark absent prior written approval of the
Collateral Agent.
C. Infringements. Each Assignor agrees, promptly upon learning
thereof, to notify the Collateral Agent in writing of the name and address of,
and to furnish such pertinent information that may be available with respect to
(i) any party who such Assignor believes is infringing or diluting or otherwise
violating in any material respect any of such Assignor's rights in and to any
Mark, or (ii) any party claiming that such Assignor's use of any Mark violates
in any material respect any property right of that party. Each Assignor further
agrees, unless otherwise agreed by the Collateral Agent, diligently to prosecute
any Person infringing any material Mark.
D. Preservation of Marks. Each Assignor agrees to use its Marks in
interstate commerce during the time in which this Agreement is in effect,
sufficiently to preserve such Marks as valid and subsisting trademarks or
service marks under the laws of the United States, except if the
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failure to preserve such Marks could not reasonably be expected to have a
material adverse effect on the performance, business, assets, nature of assets,
liabilities, operations, properties, condition (financial or otherwise) or
prospects of the Borrower or its Subsidiaries taken as a whole.
E. Maintenance of Registration. Except as otherwise provided in
Section 4.4, each Assignor shall, at its own expense, diligently process all
documents required by the Trademark Act of 1946, as amended, 15 U.S.C.
Sections 1051 et seq. to maintain trademark registrations, including but
not limited to affidavits of continued use and applications for renewals of
registration in the United States Patent and Trademark Office for all of its
registered Marks pursuant to 15 U.S.C. Sections 1058, 1059 and 1065 and
any foreign equivalent thereof, and shall pay all fees and disbursements in
connection therewith and shall not abandon any such filing of affidavit of use
or any such application of renewal prior to the exhaustion of all administrative
and judicial remedies without prior written consent of the Collateral Agent.
Each Assignor agrees to notify the Collateral Agent three (3) months prior to
the dates on which the affidavits of continued use or the applications for
renewal registration are due with respect to any Mark that the affidavits of
continued use or the application for renewal is being processed.
F. Future Registered Marks. If any registration for any Mark issues
hereafter to any Assignor as a result of any application now or hereafter
pending before the United States Patent and Trademark Office or any equivalent
governmental agency in any foreign jurisdiction, within 30 days of receipt of
such certificate, such Assignor shall deliver to the Collateral Agent a copy of
such certificate, and an assignment for security in such Mark, to the Collateral
Acent and at the expense of such Assignor, confirming the assignment for
security in such Mark to the Collateral Agent hereunder, the form of such
security to be substantially the same as the form hereof or in such other form
as may be satisfactory to the Collateral Agent.
G. Remedies. If an Event of Default shall occur and be continuing, the
Collateral Agent may, by written notice, to the relevant Assignor, take any or
all of the following actions: (i) declare the entire right, title and interest
of such Assignor in and to each of the Marks, together with all trademark rights
and rights of protection to the same and the goodwill of such Assignor's
business symbolized by said Marks and the right to recover for past
infringements thereof, vested in the Collateral Agent for the benefit of the
Secured Creditors, in which event such rights, title and interest shall
immediately vest, in the Collateral Agent for the benefit of the Secured
Creditors, and the Collateral Agent shall be entitled to exercise the power of
attorney referred to in Section 4.1 to execute, cause to be acknowledged and
notarized and to record said absolute assignment with the applicable agency;
(ii) take and use or sell the Marks and the goodwill of such Assignor's business
symbolized by the Marks and the right to carry on the business and use the
assets of such Assignor in connection with which the Marks have been used; and
(iii) direct such Assignor to refrain, in which event such Assignor shall
refrain, from using the Marks in any manner whatsoever, directly or indirectly,
and, if requested by the Collateral Agent, change such Assignor's corporate name
to eliminate therefrom any use of any Mark and execute such other and further
documents that the Collateral Agent may request to further confirm this and to
transfer ownership of the Marks and registrations and any pending trademark
applications therefor in the United States Patent and
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Trademark Office or any equivalent governmental agency in any foreign
jurisdiction to the Collateral Agent.
ARTICLE V.
SPECIAL PROVISIONS CONCERNING
PATENTS, COPYRIGHTS AND TRADE SECRETS
A. Additional Representations and Warranties. Each Assignor represents
and warrants that it is the true and lawful owner of all rights in (i) all trade
secrets and proprietary information necessary to operate the business of such
Assignor (the "Trade Secret Rights"), (ii) the Patents listed in Annex F hereto
and (iii) the Copyrights listed in Annex G hereto, that said Patents constitute
all the patents and applications for patents that such Assignor now owns and
that such Copyrights constitute all registrations of copyrights and applications
for copyright registrations that such Assignor now owns. Each Assignor further
represents and warrants that it has the exclusive right to use and practice
under all such Patents and Copyrights that it owns, uses or practices under.
Each Assignor further warrants that it is aware of no claim that any aspect of
such Assignor's present or contemplated business operations infringes or will
infringe any rights of any third party in any patent or copyright or such
Assignor has misappropriated any trade secret or proprietary information. Each
Assignor hereby grants to the Collateral Agent an absolute power of attorney to
sign, upon the occurrence and during the continuance of any Event of Default,
any document which may be required by the U.S. Patent and Trademark Office or
equivalent governmental agency in any foreign jurisdiction or the U.S. Copyright
Office or equivalent governmental agency in any foreign jurisdiction in order to
effect an absolute assignment of all right, title and interest in each Patent
and Copyright, and to record the same.
B. Licenses and Assignments. Each Assignor hereby agrees not to divest
itself of any right under any Patent or Copyright absent prior written approval
of the Collateral Agent.
C. Infringements. Each Assignor agrees, promptly upon learning
thereof, to furnish the Collateral Agent in writing with all pertinent
information available to such Assignor with respect to infringement,
contributing infringement or active inducement to infringe in any Patent or
Copyright or to any claim that the practice of any Patent or the use of any
Copyright violates any property right of a third party, or with respect to any
misappropriation of any Trade Secret Right or any claim that practice of any
Trade Secret Right violates any property right of a third party. Each Assignor
further agrees, absent direction of the Collateral Agent to the contrary,
diligently to prosecute any Person infringing any material Patent or material
Copyright or any Person misappropriating any material Trade Secret Right.
D. Maintenance of Patents and Copyrights. At its own expense, each
Assignor shall make timely payment of all post-issuance fees required pursuant
to 35 U.S.C. Section 41 and any foreign equivalent thereof to maintain in full
force rights under each Patent, and to apply as permitted
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pursuant to applicable law for any renewal of each Copyright absent prior
written consent of the Collateral Agent.
E. Prosecution of Patent Application. At its own expense, each
Assignor shall diligently prosecute all applications for Patents listed in Annex
F hereto and shall not abandon any such application prior to exhaustion of all
administrative and judicial remedies, absent written consent of the Collateral
Agent.
F. Other Patents and Copyrights. Within 30 days of the acquisition or
issuance of a Patent or of a Copyright registration, or of filing of an
application for a Patent or Copyright registration, the relevant Assignor shall
deliver to the Collateral Agent a copy of said Copyright registration or Patent
or certificate or registration of, or application therefor, as the case may be,
with an assignment for security as to such Patent or Copyright, as the case may
be, to the Collateral Agent and at the expense of such Assignor confirming the
assignment for security, the form of such assignment for security to be
substantially the same as the form hereof or in such other form as may be
satisfactory to the Collateral Agent.
G. Remedies. If an Event of Default shall occur and be continuing, the
Collateral Agent may by written notice to the relevant Assignor, take any or all
of the following actions: (i) declare the entire right, title, and interest of
such Assignor in each of the Patents and Copyrights vested in the Collateral
Agent for the benefit of the Secured Creditors, in which event such right,
title, and interest shall immediately vest in the Collateral Agent for the
benefit of the Secured Creditors, in which case the Collateral Agent shall be
entitled to exercise the power of attorney referred to in Section 5.1 to
execute, cause to be acknowledged and notarized and to record said absolute
assignment with the applicable agency; (ii) take and practice or sell the
Patents and Copyrights and (iii) direct such Assignor to refrain, in which event
such Assignor shall refrain, from practicing the Patents and using the
Copyrights directly or indirectly, and such Assignor shall execute such other
and further documents as the Collateral Agent may request further to confirm
this and to transfer ownership of the Patents and Copyrights to the Collateral
Agent for the benefit of the Secured Creditors.
ARTICLE VI.
PROVISIONS CONCERNING ALL COLLATERAL
A. Protection of Collateral Agent's Security. Each Assignor will do
nothing to impair the rights of the Collateral Agent in the Collateral. Each
Assignor will at all times keep its Inventory and Equipment insured in favor of
the Collateral Agent, at such Assignor's own expense to the extent and in the
manner provided in the Credit Agreement; all policies or certificates with
respect to such insurance (and any other insurance (other than employee benefit
insurance) maintained by such Assignor): (i) shall be endorsed to the Collateral
Agent's satisfaction for the benefit of the Collateral Agent (including, without
limitation, by naming the Collateral Agent as loss payee and naming each
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of the Banks, the Agent and the Collateral Agent as additional insureds); and
(ii) shall state that such insurance policies shall not be cancelled or revised
without 30 days' prior written notice thereof by the insurer to the Collateral
Agent; and certified copies of such policies shall be deposited with the
Collateral Agent upon request by the Collateral Agent. If any Assignor shall
fail to insure its Inventory and Equipment in accordance with the preceding
sentence, or if any Assignor shall fail to so endorse and deposit all policies
with respect thereto, the Collateral Agent shall have the right (but shall be
under no obligation) to procure such insurance and such Assignor agrees to
promptly reimburse the Collateral Agent for all costs and expenses of procuring
such insurance. All proceeds of any insurance shall be deposited in the Cash
Collateral Account pending application thereof pursuant to the Credit Agreement
or pursuant hereto. The Collateral Agent shall, at the time such proceeds of
such insurance are distributed to the Secured Creditors, apply such proceeds in
accordance with Section 7.4. Each Assignor assumes all liability and
responsibility in connection with the Collateral acquired by it and the
liability of such Assignor to pay the Obligations shall in no way be affected or
diminished by reason of the fact that such Collateral may be lost, destroyed,
stolen, damaged or for any reason whatsoever unavailable to such Assignor.
B. Warehouse Receipts Non-negotiable. Each Assignor agrees that if any
warehouse receipt or receipt in the nature of a warehouse receipt is issued with
respect to any of its Inventory, such warehouse receipt or receipt in the nature
thereof shall not be "negotiable" (as such term is used in Section 7-104 of the
Uniform Commercial Code as in effect in any relevant jurisdiction or under other
relevant law).
C. Further Actions. Each Assignor will, at its own expense, make,
execute, endorse, acknowledge, file and/or deliver to the Collateral Agent from
time to time such lists, descriptions and designations of its Collateral,
warehouse receipts, receipts in the nature of warehouse receipts, bills of
lading, documents of title, vouchers, invoices, schedules, confirmatory
assignments, conveyances, financing statements, transfer endorsements, powers of
attorney, certificates, reports and other assurances or instruments and take
such further steps relating to the Collateral and other property or rights
covered by the security interest hereby granted, which the Collateral Agent
deems reasonably appropriate or advisable to perfect, preserve or protect its
security interest in the Collateral.
D. Financing Statements. Each Assignor agrees to execute and deliver
to the Collateral Agent such financing statements, in form reasonably acceptable
to the Collateral Agent, as the Collateral Agent may from time to time
reasonably request or as are necessary or desirable in the opinion of the
Collateral Agent to establish and maintain a valid, enforceable, first priority
perfected security interest in the Collateral as provided herein and the other
rights and security contemplated hereby all in accordance with the Uniform
Commercial Code as enacted in any and all relevant jurisdictions or any other
relevant law. Each Assignor will pay any applicable filing fees, recordation
taxes and related expenses relating to its Collateral. Each Assignor hereby
authorizes the Collateral Agent to file any such financing statements without
the signature of such Assignor where permitted by law.
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ARTICLE VII.
REMEDIES UPON OCCURRENCE OF EVENT OF DEFAULT
A. Remedies; Obtaining the Collateral Upon Default. Each Assignor
agrees that, if any Event of Default shall have occurred and be continuing, then
and in every such case, the Collateral Agent, in addition to any rights now or
hereafter existing under applicable law, shall have all rights as a secured
creditor under the Uniform Commercial Code in all relevant jurisdictions and
may:
a. personally, or by agents or attorneys, immediately take possession
of the Collateral or any part thereof, from such Assignor or any other
Person who then has possession of any part thereof with or without notice
or process of law, and for that purpose may enter upon such Assignor's
premises where any of the Collateral is located and remove the same and use
in connection with such removal any and all services, supplies, aids and
other facilities of such Assignor;
b. instruct the obligor or obligors on any agreement, instrument or
other obligation (including, without limitation, the Receivables and the
Contracts) constituting the Collateral to make any payment required by the
terms of such agreement, instrument or other obligation directly to the
Collateral Agent and may exercise any and all remedies of such Assignor in
respect of such Collateral;
c. withdraw all moneys, instruments and other securities in the Cash
Collateral Account and/or in any other cash collateral account for
application to the Obligations in accordance with Section 7.4;
d. sell, assign or otherwise liquidate any or all of the Collateral or
any part thereof in accordance with Section 7.2, or direct the relevant
Assignor to sell, assign or otherwise liquidate any or all of the
Collateral or any part thereof, and, in each case, take possession of the
proceeds of any such sale or liquidation;
e. take possession of the Collateral or any part thereof, by directing
the relevant Assignor in writing to deliver the same to the Collateral
Agent at any place or places designated by the Collateral Agent, in which
event such Assignor shall at its own expense:
(x) forthwith cause the same to be moved to the place or places
so designated by the Collateral Agent and there delivered to the
Collateral Agent;
(y) store and keep any Collateral so delivered to the Collateral
Agent at such place or places pending further action by the Collateral
Agent as provided in Section 7.2; and
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(z) while the Collateral shall be so stored and kept, provide
such guards and maintenance services as shall be necessary to protect
the same and to preserve and maintain them in good condition; and
(vi) license or sublicense, whether on an exclusive or nonexclusive
basis, any Marks, Patents or Copyrights included in the Collateral for such
term and on such conditions and in such manner as the Collateral Agent
shall in its sole judgment determine;
it being understood that each Assignor's obligation so to deliver the Collateral
is of the essence of this Agreement and that, accordingly, upon application to a
court of equity having jurisdiction, the Collateral Agent shall be entitled to a
decree requiring, specific performance by such Assignor of said obligation.
B. Remedies; Disposition of the Collateral. Any Collateral repossessed
by the Collateral Agent under or pursuant to Section 7.1 and any other
Collateral whether or not so repossessed by the Collateral Agent, may be sold,
assigned, leased or otherwise disposed of under one or more contracts or as an
entirety, and without the necessity of gathering at the place of sale the
property to be sold, and in general in such manner, at such time or times, at
such place or places and on such terms as the Collateral Agent may, in
compliance with any mandatory requirements of applicable law, determine to be
commercially reasonable. Any of the Collateral may be sold, leased or otherwise
disposed of, in the condition in which the same existed when taken by the
Collateral Agent or after any overhaul or repair at the expense of the relevant
Assignor which the Collateral Agent shall determine to be commercially
reasonable. Any such disposition which shall be a private sale or other private
proceedings permitted by such requirements shall be made upon not less than 10
days' written notice to the relevant Assignor specifying the time at which such
disposition is to be made and the intended sale price or other consideration
therefor, and shall be subject, for the 10 days after the giving of such notice,
to the right of the relevant Assignor or any nominee of such Assignor to acquire
the Collateral involved at a price or for such other consideration at least
equal to the intended sale price or other consideration so specified. Any such
disposition which shall be a public sale permitted by such requirements shall be
made upon not less than 10 days' written notice to the relevant Assignor
specifying the time and place of such sale and, in the absence of applicable
requirements of law, shall be by public auction (which may, at the Collateral
Agent's option, be subject to reserve), after publication of notice of such
auction not less than 10 days prior thereto in two newspapers in general
circulation in the City of New York. To the extent permitted by any such
requirement of law, the Collateral Agent may bid for and become the purchaser of
the Collateral or any item thereof, offered for sale in accordance with this
Section without accountability to the relevant Assignor. If, under mandatory
requirements of applicable law, the Collateral Agent shall be required to make
disposition of the Collateral within a period of time which does not permit the
giving of notice to the relevant Assignor as hereinabove specified, the
Collateral Agent need give such Assignor only such notice of disposition as
shall be reasonably practicable in view of such mandatory requirements of
applicable law. Each Assignor agrees to do or cause to be done all such other
acts and things as may be reasonably necessary to make such sale or sales of all
or any portion of the Collateral valid and binding and in compliance with any
and all applicable laws, regulations, orders,
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writs, injunctions, decrees or awards of any and all courts, arbitrators or
governmental instrumentalities, domestic or foreign, having jurisdiction over
any such sale or sales, all at such Assignor's expense.
C. Waiver of Claims. Except as otherwise expressly provided in this
Agreement, EACH ASSIGNOR HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE
LAW, NOTICE AND JUDICIAL HEARING IN CONNECTION WITH THE COLLATERAL AGENT'S
TAKING POSSESSION OR THE COLLATERAL AGENT'S DISPOSITION OF ANY OF THE
COLLATERAL, INCLUDING, WITHOUT LIMITATION, ANY AND ALL PRIOR NOTICE AND HEARING
FOR ANY PREJUDGMENT REMEDY OR REMEDIES AND ANY SUCH RIGHT WHICH SUCH ASSIGNOR
WOULD OTHERWISE HAVE UNDER THE CONSTITUTION OR ANY STATUTE OF THE UNITED STATES
OR OF ANY STATE, and the Assignor hereby further waives, to the extent permitted
by law:
a. all damages occasioned by such taking of possession except any
damages which are the direct result of the Collateral Agent's gross
negligence or willful misconduct;
b. all other requirements as to the time, place, and terms of
sale or other requirements with respect to the enforcement of the
Collateral Agent's rights hereunder; and
(iii) all rights of redemption, appraisement, valuation, stay,
extension or moratorium now, or hereafter in force under any
applicable law in order to prevent or delay the enforcement of this
Agreement or the absolute sale of the Collateral or any portion
thereof, and each Assignor, for itself and all who may claim under it,
insofar as it or they now or hereafter lawfully may, hereby waives the
benefit of all such laws.
Any sale of, or the grant of options to purchase, or any other realization upon,
any Collateral shall operate to divest all right, title, interest, claim and
demand, either at law or in equity, of the relevant Assignor therein and
thereto, and shall be a perpetual bar both at law and in equity against such
Assignor and against any and all Persons claiming or attempting to claim the
Collateral so sold, optioned or realized upon, or any part thereof, from,
through and under such Assignor.
D. Application of Proceeds. 1. All moneys collected by the Collateral
Agent (or, to the extent any other Security Document to which the Assignor is a
party requires proceeds of Collateral under such agreement to be applied in
accordance with the provisions of this Agreement, the Pledgee or Collateral
Agent under such other agreement) upon any sale or other disposition of the
Collateral, together with all other moneys received by the Collateral Agent
hereunder, shall be applied as follows:
a. first, to the payment of all Obligations owing the Collateral Agent
(or any other Indemnitee, in the case of clause (v) referenced below) of
the type provided in clauses (iii), (iv) and (v) of the definition of
Obligations;
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b. second, to the extent proceeds remain after the application
pursuant to the preceding clause (i), an amount equal to the outstanding
Primary Obligations shall be paid to the Secured Creditors as provided in
Section 7.4(e), with each Secured Creditor receiving an amount equal to its
outstanding Primary Obligations or, if the proceeds are insufficient to pay
in full all such Primary Obligations, its Pro Rata Share of the amount
remaining to be distributed;
c. third, to the extent proceeds remain after the application pursuant
to the preceding clauses (i) and (ii), an amount equal to the outstanding
Secondary Obligations shall be paid to the Secured Creditors as provided in
Section 7.4(e), with each Secured Creditor receiving an amount equal to its
outstanding Secondary Obligations or, if the proceeds are insufficient to
pay in full all such Secondary Obligations, its Pro Rata Share of the
amount remaining to be distributed; and
d. fourth, to the extent proceeds remain after the application
pursuant to the preceding clauses (i), (ii) and (iii) and following the
termination of this Agreement pursuant to Section 10.9 hereof, to the
relevant Assignor or as required by applicable law.
2. For purposes of this Agreement (x) "Pro Rata Share" shall mean,
when calculating a Secured Creditor's portion of any distribution or amount,
that amount (expressed as a percentage) equal to a fraction the numerator of
which is the then unpaid amount of such Secured Creditor's Primary Obligations
or Secondary Obligations, as the case may be, and the denominator of which is
the then outstanding amount of all Primary Obligations or Secondary Obligations,
as the case may be, (y) "Primary Obligations" shall mean (i) in the case of the
Credit Document Obligations, all principal of, and interest on, all Loans, all
Unpaid Drawings theretofore made (together with all interest accrued thereon)
the aggregate Stated Amounts of all Letters of Credit issued under the Credit
Agreement, and all Fees and (ii) in the case of the Interest Rate Protection
Obligations, all amounts due under the Interest Rate Protection or Other Hedging
Agreements (other than indemnities, fees (including, without limitation,
attorneys' fees) and similar obligations and liabilities) and (z) "Secondary
Obligations" shall mean all Obligations other than Primary Obligations.
3. When payments to Secured Creditors are based upon their respective
Pro Rata Shares, the amounts received by such Secured Creditors hereunder shall
be applied (for purposes of making determinations under this Section 7.4 only)
(i) first, to their Primary Obligations and (ii) second, to their Secondary
Obligations. If any payment to any Secured Creditor of its Pro Rata Share of any
distribution would result in overpayment to such Secured Creditor, such excess
amount shall instead be distributed in respect of the unpaid Primary Obligations
or Secondary Obligations, as the case may be, of the other Secured Creditors,
with each Secured Creditor whose Primary Obligations or Secondary Obligations,
as the case may be, have not been paid in full to receive an amount equal to
such excess amount multiplied by a fraction the numerator of which is the unpaid
Primary Obligations or Secondary Obligations, as the case may be, of such
Secured Creditor and the denominator of which is the unpaid Primary Obligations
or Secondary Obligations, as the case may be, of all Secured Creditors entitled
to such distribution.
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4. Each of the Secured Creditors agrees and acknowledges that if Bank
Creditors are to receive a distribution on account of undrawn amounts with
respect to Letters of Credit issued under the Credit Agreement (which shall only
occur after all outstanding Loans and Unpaid Drawings with respect to such
Letters of Credit have been paid in full), such amounts shall be paid to the
Administrative Agent under the Credit Agreement and held by it, for the equal
and ratable benefit of the Bank Creditors, as cash security for the repayment of
obligations owing to the Bank Creditors as such. If any amounts are held as cash
security pursuant to the immediately preceding sentence, then upon the
termination of all outstanding Letters of Credit, and after the application of
all such cash security to the repayment of all Obligations owing to the Bank
(creditors after giving effect to the termination of all such Letters of Credit,
if there remains any excess cash, such excess cash shall be returned to the
Administrative Agent to the Collateral Agent for distribution in accordance with
Section 7.04(a) hereof.
5. Except as set forth in Section 7.04(d) hereof, all payments
required to be made hereunder shall be made (i) if to the Bank Creditors, to the
Administrative Agent under the Credit Agreement for the account of the Bank
Creditors, and (ii) if to the Other Creditors, directly to the Other Creditors.
6. For purposes of applying payments received in accordance with this
Section 7.4, the Collateral Agent shall be entitled to rely upon (i) the
Administrative Agent under the Credit Agreement and (ii) upon the Other
Creditors for a determination (which the Administrative Agent and the Other
Creditors agree (or shall agree) to provide upon request of the Collateral
Agent) of the outstanding Primary Obligations and Secondary Obligations owed to
the Bank Creditors or the Other Creditors, as the case may be, unless it has
actual knowledge (including, by way of written notice from a Bank Creditor or an
Other Creditor) to the contrary, the Administrative Agent, in furnishing
information pursuant to the preceding sentence, and the Collateral Agent, in
acting hereunder, shall be entitled to assume that no Secondary Obligations are
outstanding. Unless it has actual knowledge (including by way of written notice
from any Other Creditor) to the contrary, the Collateral Agent, in acting
hereunder, shall be entitled to assume that no Interest Rate Protection or Other
Hedging Agreements are in existence.
7. It is understood that each Assignor shall remain liable to the
extent of any deficiency between the amount of the proceeds of the Collateral
and the aggregate amount of the sums referred to in clauses (i), (ii) and (iii)
of Section 7.4(a) with respect to the relevant Assignor.
E. Remedies Cumulative. Each and every right, power, and remedy hereby
specifically given to the Collateral Agent shall be in addition to every other
right, power and remedy specifically given under this Agreement, the Interest
Rate Protection or Other Hedging Agreements, the other Credit Documents now or
hereafter existing at law, in equity or by statute and each and every right,
power and remedy whether specifically herein given or otherwise existing, may be
exercised from time to time or simultaneously and as often and in such order as
may be deemed expedient by the Collateral Agent. All such rights, powers and
remedies shall be cumulative and the exercise or the beginning of the exercise
of one shall not be deemed a waiver of the right to exercise
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any other or others. No delay or omission of the Collateral Agent in the
exercise of any such right, power or remedy and no renewal or extension of any
of the Obligations shall impair any such right, power or remedy or shall be
construed to be a waiver of any Default or Event of Default or an acquiescence
therein. No notice to or demand on any Assignor in any case shall entitle it to
any other or further notice or demand in similar or other circumstances or
constitute a waiver of any of the rights of the Collateral Agent to any other or
further action in any circumstances without notice or demand. In the event that
the Collateral Agent shall bring any suit to enforce any of its rights hereunder
and shall be entitled to judgment, then in such suit the Collateral Agent may
recover reasonable expenses, including attorneys' fees, and the amounts thereof
shall be included in such judgment.
F. Discontinuance of Proceedings. In case the Collateral Agent shall
have instituted any proceeding to enforce any right, power or remedy under this
Agreement by foreclosure, sale, entry or otherwise, and such proceeding, shall
have been discontinued or abandoned for any reason or shall have been determined
adversely to the Collateral Agent, then and in every such case the relevant
Assignor, the Collateral Agent and each holder of any of the Obligations shall
be restored to their former positions and rights hereunder with respect to the
Collateral subject to the security interest created under this Agreement, and
all rights, remedies and powers of the Collateral Agent shall continue as if no
such proceeding had been instituted.
ARTICLE VIII.
INDEMNITY
A. Indemnity. 1. Each Assignor jointly and severally agrees to
indemnify, reimburse and hold the Collateral Agent, each Secured Creditor and
their respective successors, permitted assigns, employees, agents and servants
(hereinafter in this Section 8.1 referred to individually as "Indemnitee," and
collectively as "Indemnitees") harmless from any and all liabilities,
obligations, damages, injuries, penalties, claims, demands, actions, suits,
judgments and any and all reasonable costs, expenses or disbursements (including
reasonable attorneys' fees and expenses) (for the purposes of this Section 8.1
the foregoing are collectively called "expenses") of whatsoever kind and nature
imposed on, asserted against or incurred by any of the Indemnitees in any way
relating to or arising out of this Agreement, any Interest Rate Protection or
Other Hedging Agreement, any other Credit Document or any other document
executed in connection herewith or therewith or in any other way connected with
the administration of the transactions contemplated hereby or thereby or the
enforcement of any of the terms of, or the preservation of any rights under any
thereof, or in any way relating to or arising out of the manufacture, ownership,
ordering, purchase, delivery, control, acceptance, lease, financing, possession,
operation, condition, sale, return or other disposition, or use of the
Collateral (including, without limitation, latent or other defects, whether or
not discoverable), the violation of the laws of any country, state or other
governmental body or unit, any tort (including, without limitation, claims
arising or imposed under the doctrine of strict liability, or for or on account
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of injury to or the death of any Person (including any Indemnitee), or property
damage), or contract claim; provided that no Indemnitee shall be indemnified
pursuant to this Section 8.1(a) for losses, damages or liabilities to the extent
caused by the gross negligence or willful misconduct of such Indemnitee. Each
Assignor agrees that upon written notice by any Indemnitee of the assertion of
such a liability, obligation, damage, injury, penalty, claim, demand, action,
suit or judgment, the relevant Assignor shall assume full responsibility for the
defense thereof. Each Indemnitee agrees to use its best efforts to promptly
notify the relevant Assignor of any such assertion of which such Indemnitee has
knowledge.
2. Without limiting the application of Section 8.1(a), each Assignor
agrees, jointly and severally, to pay, or reimburse the Collateral Agent for any
and all reasonable fees, costs and expenses of whatever kind or nature incurred
in connection with the creation, preservation or protection of the Collateral
Agent's Liens on, and security interest in, the Collateral, including, without
limitation, all fees and taxes in connection with the recording or filing of
instruments and documents in public offices, payment or discharge of any taxes
or Liens upon or in respect of the Collateral, premiums for insurance with
respect to the Collateral and all other reasonable fees, costs and expenses in
connection with protecting, maintaining or preserving the Collateral and the
Collateral Agent's interest therein, whether through judicial proceedings or
otherwise, or in defending or prosecuting any actions, suits or proceedings
arising out of or relating to the Collateral,
3. Without limiting the application of Section 8.1(a) or (b),each
Assignor agrees, jointly and severally, to pay, indemnify and hold each
Indemnitee harmless from and against any loss, costs, damages and expenses which
such Indemnitee may suffer, expend or incur in consequence of or growing out of
any misrepresentation by any Assignor in this Agreement, any Interest Rate
Protection or Other Hedging Agreement, any other Credit Document or in any
writing contemplated by or made or delivered pursuant to or in connection with
this Agreement, any Interest Rate Protection or Other Hedging Agreement or any
other Credit Document.
4. If and to the extent that the obligations of any Assignor under
this Section 8.1 are unenforceable for any reason, such Assignor hereby agrees
to make the maximum contribution to the payment and satisfaction of such
obligations which is permissible under applicable law.
B. Indemnity Obligations Secured by Collateral; Survival. Any amounts
paid by any Indemnitee as to which such Indemnitee has the right to
reimbursement shall constitute Obligations secured by the Collateral. The
indemnity obligations of each Assignor contained in this Article VIII shall
continue in full force and effect notwithstanding the full payment of all the
Notes issued under the Credit Agreement, the termination of all Letters of
Credit and all Interest Rate Protection or Other Hedging Agreements and the
payment of all other Obligations and notwithstanding the discharge thereof.
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ARTICLE IX.
DEFINITIONS
The following terms shall have the meanings herein specified. Such
definitions shall be equally applicable to the singular and plural forms of the
terms defined.
"Agents" shall have the meaning provided in the recitals to this
Agreement.
"Agreement" shall have the meaning provided in the preamble to this
Agreement.
"Assignor" shall have the meaning provided in the preamble to this
Agreement.
"Bank Creditors" shall have the meaning provided in the preamble to
this Agreement.
"Banks" shall have the meaning provided in the recitals to this
Agreement.
"Cash Collateral Account" shall mean a non-interest bearing account
maintained with, and in the sole dominion and control of, the Collateral Agent
for the benefit of the Secured Creditors.
"Chattel Paper" shall have the meaning provided in the Uniform
Commercial Code as in effect on the date hereof in the State of New York.
"Class" shall have the meaning provided in Section 10.2.
"Collateral" shall have the meaning provided in Section 1.1(a).
"Collateral Agent" shall have the meaning provided in the preamble to
this Agreement.
"Contract Rights" shall mean all rights of any Assignor (including
without limitation all rights to payment) under each Contract.
"Contracts" shall mean all contracts between any Assignor and one or
more additional parties (including, without limitation, any Interest Rate
Protection or Other Hedging Agreements, all management contracts, all NRTC
Agreements and all contracts pursuant to which any Assignor provides DirecTV
services).
"Copyrights" shall mean any U.S. or foreign copyright owned by any
Assignor, including any registrations of any Copyrights, in the U.S. Copyright
Office or the equivalent thereof in any foreign jurisdiction, as well as any
application for a U.S. or foreign copyright registration now or hereafter made
with the U.S. Copyright Office or the equivalent thereof in any foreign
jurisdiction by any Assignor.
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"Credit Agreement" shall have the meaning provided in the recitals to
this Agreement.
"Credit Document Obligations" shall have the meaning provided in the
definition of "Obligations" in this Article IX.
"Default" shall mean any event which, with notice or lapse of time, or
both, would constitute an Event of Default.
"Documents" shall have the meaning provided in the Uniform Commercial
Code as in effect on the date hereof in the State of New York.
"Equipment" shall mean any "equipment," as such term is defined in the
Uniform Commercial Code as in effect on the date hereof in the State of New
York, now or hereafter owned by any Assignor and, in any event, shall include,
but shall not be limited to, all machinery, equipment, furnishings, movable
trade fixtures and vehicles now or hereafter owned by any Assignor and any and
all additions, substitutions and replacements of any of the foregoing, wherever
located, together with all attachments, components, parts, equipment and
accessories installed thereon or affixed thereto.
"Event of Default" shall mean any Event of Default under, and as
defined in, the Credit Agreement or any payment default under any Interest Rate
Protection or Other Hedging Agreement and shall in any event, without
limitation, include any payment default on any of the Obligations after the
expiration of any applicable grace period.
"General Intangibles" shall have the meaning provided in the Uniform
Commercial Code as in effect on the date hereof in the State of New York.
"Goods" shall have the meaning provided in the Uniform Commercial Code
as in effect on the date hereof in the State of New York.
"Indemnitee" shall have the meaning provided in Section 8.1.
"Instrument" shall have the meaning provided in the Uniform Commercial
Code as in effect on the date hereof in the State of New York.
"Interest Rate Protection Obligations" shall have the meaning provided
in the definition of "Obligations" in this Article IX.
"Interest Rate Protection or Other Hedging Agreements" shall have the
meaning provided in the preamble to this Agreement.
"Inventory" shall mean merchandise, inventory and goods, and all
additions, substitutions and replacements thereof, wherever located, together
with all goods, supplies, incidentals, packaging materials, labels, materials
and any other items used or usable in
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manufacturing, processing, packaging or shipping same; in all stages of
production -- from raw materials through work-in-process to finished goods --
and all products and proceeds of whatever sort and wherever located and any
portion thereof which may be returned, rejected, reclaimed or repossessed by the
Collateral Agent from any Assignor's customers, and shall specifically include
all "inventory" as such term is defined in the Uniform Commercial Code as in
effect on the date hereof in the State of New York, now or hereafter owned by
any Assignor.
"Liens" shall mean any security interest, mortgage, pledge, lien,
claim, charge, encumbrance, title retention, lessor's interest in a financing
lease or analogous instrument, in, of, or on any Assignor's property.
"Marks" shall mean all right, title and interest in and to any U.S. or
foreign trademarks, service marks and trade names now held or hereafter acquired
by any Assignor, including any registration or application for registration of
any trademarks and service marks in the United States Patent and Trademark
Office, or the equivalent thereof in any State of the United States or in any
foreign country, and any trade dress including logos and/or designs used by any
Assignor in the United States or any foreign country.
"Obligations" shall mean (i) the full and prompt payment when due
(whether at the stated maturity, by acceleration or otherwise) of all
obligations and indebtedness (including, without limitation, indemnities, fees
and interest thereon) of the Borrower and each Assignor owing, to the Bank
Creditors, now existing or hereafter incurred under, arising out of or in
connection with any Credit Document and the due performance and compliance by
the Borrower and each Assignor with the terms of each such Credit Document (all
such obligations and indebtedness under this clause (i), except to the extent
consisting of obligations or indebtedness with respect to Interest Rate
Protection or Other Hedging Agreements, being herein collectively called the
"Credit Document Obligations"); (ii) the full and prompt payment when due
(whether at the stated maturity, by acceleration or otherwise) of all
obligations and indebtedness (including, without limitation, indemnities, fees
and interest thereon) of the Borrower and each Assignor owing to the Other
Creditors now existing, or hereafter incurred under, arising out of or in
connection with any Interest Rate Protection or Other Hedging Agreement (all
such obligations and indebtedness under this clause (ii) being herein
collectively called the "Interest Rate Protection Obligations"); (iii) any and
all sums advanced by the Collateral Agent in order to preserve the Collateral or
preserve its security interest in the Collateral; (iv) in the event of any
proceeding for the collection or enforcement of any indebtedness, obligations,
or liabilities referred to in clauses (i), (ii) and (iii) above, after an Event
of Default shall have occurred and be continuing, the reasonable expenses of
re-taking, holding, preparing for sale or lease, selling or otherwise
disposition of or realizing on the Collateral, or of any exercise by the
Collateral Agent of its rights hereunder, together with reasonable attorneys'
fees and court costs; and (v) all amounts paid by any Indemnitee as to which
such Indemnitee has the right to reimbursement under Section 8.1 of this
Agreement.
"Other Creditors" shall have the meaning provided in the preamble to
this Agreement.
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"Patents" shall mean any U.S. or foreign patent to which any Assignor
now or hereafter has title and any divisions or continuations thereof, as well
as any application for a U.S. or foreign patent now or hereafter made by any
Assignor.
"Primary Obligation" shall have the meaning provided in Section
7.4(b).
"Pro Rata Share" shall have the meaning provided in Section 7.4(b).
"Proceeds" shall have the meaning provided in the Uniform Commercial
Code as in effect in the State of New York on the date hereof or under other
relevant law and, in any event, shall include, but not be limited to, (i) any
and all proceeds of any insurance, indemnity, warranty or guaranty payable to
the Collateral Agent or any Assignor from time to time with respect to any of
the Collateral, (ii) any and all payments (in any form whatsoever) made or due
and payable to any Assignor from time to time in connection with any
requisition, confiscation, condemnation, seizure or forfeiture of all or any
part of the Collateral by any governmental authority (or any person acting under
color of governmental authority) and (iii) any and all other amounts from time
to time paid or payable under or in connection with any of the Collateral.
"Receivables" shall mean any "account" as such term is defined in the
Uniform Commercial Code as in effect on the date hereof in the State of New
York, now or hereafter owned by any Assignor and, in any event, shall include,
but shall not be limited to, all of such Assignor's rights to payment for goods
sold or leased or services performed by such Assignor, including, without
limitation, all rights to payment under any of DirecTV service contracts,
whether now in existence or arising from time to time hereafter, including,
without limitation, rights evidenced by an account, note, contract, security
agreement, chattel paper, or other evidence of indebtedness or security,
together with (a) all security pledged, assigned, hypothecated or granted to or
held by such Assignor to secure the foregoing, (b) all of any Assignor's right,
title and interest in and to any goods or services, the sale of which gave rise
thereto, (c) all guarantees, endorsements and indemnifications on, or of, any of
the foregoing, (d) all powers of attorney for the execution of any evidence of
indebtedness or security or other writing in connection therewith, (a) all
books, records, ledger cards, and invoices relating thereto, (i) all evidences
of the filing of financing statements and other statements and the registration
of other instruments in connection therewith and amendments thereto, notices to
other creditors or secured parties, and certificates from filing or other
registration officers; (g) all credit information, reports and memoranda
relating thereto and (h) all other writings related in any way to the foregoing.
"Requisite Creditors" shall have the meaning provided in Section 10.2.
"Secondary Obligation" shall have the meaning provided in Section
7.4(b).
"Secured Creditors" shall have the meaning provided in the preamble to
this Agreement.
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"Termination Date" shall have the meaning provided in Section 10.9.
"Trade Secret Rights" shall have the meaning provided in Section 5.1.
ARTICLE X.
MISCELLANEOUS
A. Notices. Except as otherwise specified herein, all notices,
requests, demands or other communications to or upon the respective parties
hereto shall be in writing (including telegraphic, telex, facsimile transmission
or cable communication) and shall be delivered, mailed, telegraphed, telexed,
facsimile transmitted or cabled, addressed:
1. if to any Assignor, at its address set forth opposite its signature
below;
2. if to the Collateral Agent:
Fleet National Bank
Mail Stop MA0FD03D
1 Federal Plaza
Boston, MA 02110
Attention: Mark Bernier
Telephone No.: (617) 346-4347
Facsimile No.: (617) 346-4345;
3. if to any Bank Creditor, either (x) to the Administrative Agent, at
the address of the Administrative Agent specified in the Credit Agreement
or (y) at such address as such Bank Creditor shall have specified in the
Credit Agreement;
4. if to any Other Creditor, directly to the Other Creditors at such
address as the Other Creditors shall have specified in writing to the
Borrower and the Collateral Agent;
or at such other address as shall have been furnished in writing by any Person
described above to the party required to give notice hereunder. All such notices
and communications shall, when mailed, telegraphed, telexed, facsimile
transmitted or cabled or sent by overnight courier, be effective on the third
Business Day following deposit in the U.S. mails, certified, return receipt
requested, when delivered to the telegraph company, cable company or on the day
following delivery to an overnight courier, as the case may be, or sent by telex
or facsimile device, except that notices and communications to the Collateral
Agent shall not be effective until received by the Collateral Agent.
B. Waiver; Amendment. None of the terms and conditions of this
Agreement may be
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changed, waived, modified or varied in any manner whatsoever unless in writing
duly signed by each Assignor and the Collateral Agent (with the consent of the
Required Banks or, to the extent required by Section 12.12 of the Credit
Agreement, all of the Banks); provided, that any change, waiver, modification or
variance affecting the rights and benefits of a single Class (as defined below)
of Secured Creditors (and not all Secured Creditors in a like or similar manner)
shall require the written consent of the Requisite Creditors of such Class of
Secured Creditors. For the purpose of this Agreement the term "Class" shall mean
each class of Secured Creditors, i.e., whether (x) the Bank Creditors as holders
of the Credit Document Obligations or (y) the Other Creditors as the holders of
the Interest Rate Protection Obligations. For the purpose of this Agreement, the
term "Requisite Creditors" of any Class shall mean each of (x) with respect to
the Credit Document Obligations, the Required Banks and (y) with respect to the
Interest Rate Protection Obligations, the holders of at least a majority of all
obligations outstanding from time to time under the Interest Rate Protection or
Other Hedging Agreements.
C. Obligations Absolute. The obligations of each Assignor hereunder
shall remain in full force and effect without regard to, and shall not be
impaired by, (a) any bankruptcy, insolvency, reorganization, arrangement,
readjustment, composition, liquidation or the like of such Assignor, except to
the extent that the enforceability hereof may be limited by any such event, (b)
any exercise or non-exercise, or any waiver of, any right, remedy, power or
privilege under or in respect of this Agreement, any other Credit Document or
any Interest Rate Protection or Other Hedging Agreement, except as specifically
set forth in a waiver granted pursuant to Section 10.2; or (c) any amendment to
or modification of any Credit Document or any Interest Rate Protection or Other
Hedging Agreement or any security for any of the Obligations, whether or not any
Assignor shall have notice or knowledge of any of the foregoing, except as
specifically set forth in an amendment or modification executed pursuant to
Section 10.2.
D. Successors and Assigns. This Agreement shall be binding upon each
Assignor and its successors and assigns and shall inure to the benefit of the
Collateral Agent and each Secured Creditor and their respective successors and
assigns; provided, that no Assignor may transfer or assign any or all of its
rights or obligations hereunder without the prior written consent of the
Collateral Agent. All agreements, statements, representations and warranties
made by each Assignor herein or in any certificate or other instrument delivered
by such Assignor or on its behalf under this Agreement shall be considered to
have been relied upon by the Secured Creditors and shall survive the execution
and delivery of this Agreement, the other Credit Documents and the Interest Rate
Protection or Other Hedging Agreements regardless of any investigation made by
the Secured Creditors or on their behalf.
E. Headings Descriptive. The headings of the several sections of this
Agreement are inserted for convenience only and shall not in any way affect the
meaning or construction of any provision of this Agreement.
F. Severability. Any provision of this Agreement which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or
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unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
G. Governing Law. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE
LAW OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE CONFLICT OF LAWS PROVISIONS
THEREOF.
H. Assignor's Duties. It is expressly agreed, anything herein
contained to the contrary notwithstanding, that each Assignor shall remain
liable to perform all of the obligations, if any, assumed by it with respect to
the Collateral and the Collateral Agent shall not have any obligations or
liabilities with respect to any Collateral by reason of or arising out of this
Agreement, nor shall the Collateral Agent be required or obligated in any manner
to perform or fulfill any of the obligations of each Assignor under or with
respect to any Collateral.
I. Termination; Release. 1. After the Termination Date, this Agreement
shall terminate (provided that all indemnities set forth herein including,
without limitation, Section 8.1 hereof shall survive such termination) and the
Collateral Agent, at the request and expense of the respective Assignor, will
promptly execute and deliver to such Assignor a proper instrument or instruments
(including Uniform Commercial Code termination statements on form UCC-3)
acknowledging the satisfaction and termination of this Agreement, and will duly
assign, transfer and deliver to such Assignor (without recourse and without any
representation or warranty) such of its Collateral as may be in the possession
of the Collateral Agent and as has not theretofore been sold or otherwise
applied or released pursuant to this Agreement. As used in this Agreement,
"Termination Date" shall mean the date upon which the Total Commitment and all
Interest Rate Protection or Other Hedging Agreements have been terminated, no
Note is outstanding (and all Loans have been paid in full), all Letters of
Credit have been terminated (or cash collateralized to the Collateral Agent's
satisfaction) and all other Obligations then owing have been paid in full.
2. In the event that any part of the Collateral is sold in connection
with a sale permitted by the Credit Agreement or is otherwise released at the
direction of the Required Banks (or all the Banks if required by Section 12.12
of the Credit Agreement) and the proceeds of such sale or sales or from such
release are applied in accordance with the terms of the Credit Agreement, such
Collateral will be sold free and clear of the Liens created by this Agreement
and the Collateral Agent, at the request and expense of the respective Assignor,
will duly assign, transfer and deliver to such Assignor (without recourse and
without any representation or warranty) such of the Collateral of such Assignor
as is then being (or has been) so sold or released and as may be in the
possession of the Collateral Agent and has not theretofore been released
pursuant to this Agreement.
3. At any time that an Assignor desires that Collateral be released as
provided in the foregoing Section 10.9(a) or (b), it shall deliver to the
Collateral Agent a certificate signed by its chief financial officer or another
authorized senior officer stating that the release of the respective
<PAGE> 312
EXHIBIT J
Page 53
Collateral is permitted pursuant to Section 10.9(a) or (b). If requested by the
Collateral Agent (although the Collateral Agent shall have no obligation to make
any such request), the relevant Assignor shall furnish appropriate legal
opinions (from counsel, which may be in-house counsel, acceptable to the
Collateral Agent) to the effect set forth in the immediately preceding sentence.
The Collateral Agent shall have no liability whatsoever to any Secured Creditor
as the result of any release of Collateral by it as permitted by this Section
10.
J. Counterparts. This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A set of counterparts
executed by all the parties hereto shall be lodged with the Borrower and the
Collateral Agent.
K. The Collateral Agent. The Collateral Agent will hold in accordance
with this Agreement all items of the Collateral at any time received under this
Agreement. It is expressly understood and agreed by the parties hereto and each
Secured Creditor, by accepting the benefits of this Agreement, acknowledges and
agrees that the obligations of the Collateral Agent as holder of the Collateral
and interests therein and with respect to the disposition thereof, and otherwise
under this Agreement, are only those expressly set forth in this Agreement. The
Collateral Agent shall act hereunder on the terms and conditions set forth in
Section 11 of the Credit Agreement.
L. Limited Obligations. It is the desire and intent of each Assignor,
the Collateral Agent and the Secured Creditors that this Agreement shall be
enforced against each Assignor to the fullest extent permissible under the laws
and public policies applied in each jurisdiction in which enforcement is sought.
If and to the extent that the obligations of each Assignor under this Agreement
shall be adjudicated to be invalid of unenforceable for any reason (including,
without limitation, because of any applicable state or federal law relating to
fraudulent conveyances or transfers, which laws would determine the solvency of
any Assignor by reference to the full amount of the Obligations at the time of
the execution and delivery of this Agreement), then the amount of the
Obligations of such Assignor shall be deemed to be reduced and such Assignor
shall pay the maximum amount of the Obligations which would be permissible under
the applicable law.
M. Conflict. In the event of any conflict between any provision of
this Agreement and any provision of the Collateral Assignment of Marketing and
Distribution Agreements, dated as of July 7, 1997, between the Borrower and the
Collateral Agent, as acknowledged and agreed to by the NRTC and Hughes, the
relevant provision of this Agreement shall govern.
<PAGE> 313
EXHIBIT J
Page 54
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed and delivered by their duly authorized officers as of the date first
above written.
GOLDEN SKY SYSTEMS, INC.,
as an Assignor
605 West 47th Street
Suite 300
Kansas City, MO 64112
By /s/ Robert B. Weaver
------------------------------
Name: Robert B. Weaver
Title: President
Accepted and Agreed to:
FLEET NATIONAL BANK,
as Collateral Agent
By /s/ Paula H. Lang
------------------------------
Name: Paula H. Lang
Title: Senior Vice President
<PAGE> 314
EXHIBIT J
Page 55
ANNEX C
SCHEDULE OF INVENTORY
AND EQUIPMENT LOCATIONS
CORPORATE OFFICE
605 W. 47th Street
Kansas City, MO
COLORADO OFFICE
Avon, CO
Eagle/Vail Business
(Center) Park
40814 U.S Highway 6
Avon, CO 81620
KANSAS OFFICES
Chanute, KS
Wal-Mart Plaza
2506 S. Santa Fe
Chanute, KS 66720
Coffeyville, KS
206 W. 8th Street
Coffeyville, KS 67337
Coffeyville, KS
903-907 W. 11th Street
Coffeyville, KS 67337
Independence, KS
112 W. Myrtle Street
Independence, KS 67301
Pittsburgh, KS
522 N. Broadway
Pittsburgh, KS 66782
<PAGE> 315
EXHIBIT J
Page 56
MISSOURI OFFICES
Moberly, MO
1011 C North Morley
Moberly, MO 65270
Hannibal, MO
102 Steamboat Bend
Shopping Ctr.
Hannibal, MO
Hannibal, MO
102 Steamboat Bend #12
Shopping Ctr.
Hannibal, MO
Corporate Apartment Rent
Apt. 702
Richmond, MO
105 East Main
Suite 1
Richmond, MO 64085
NEVADA OFFICES
Las Vegas, NV
Rancho Santa Fe Center
5081 N. Rainbow, Ste. 106
Las Vegas, NV 89103
OKLAHOMA OFFICES
Bartlesville, OK
554 S.E. Washington
546 S.E. Washington
Bartlesville, OK
McAlester, OK
142 E Carl Albert Parkway
Tandy Town Shopping Ctr
McAlester, OK
<PAGE> 316
EXHIBIT J
Page 57
Claremore, OK
514 North Lynn Riggs
U.S. Hwy 66
Claremore, OK 74017
TENNESSEE OFFICES
Camden, TN
148 Highway 641 N
Camden, TN 38320
Martin, TN
643 N. Lindell St.
Ste. A
Martin, TN 38237
Martin, TN-Warehouse
Jackson St.
Martin, TN 38237
Paris, TN
110 Fentress
Paris, TN 38242
TEXAS OFFICES
Center, TX
202 Tenaha Street
Center, TX
Dallas, TX
11453 Newkirt Street
Dallas, TX 75229
Sequin
256 West Court
Sequin, TX 78155
Victoria, TX
6703 N. Navarro
Victoria, TX 77904
<PAGE> 317
EXHIBIT J
Page 58
Flower Mound, TX
Towne View Plaza
1900 Long Prairie Road
Suite 148
Flower Mound, TX 75028
Lubbock, TX
4210 82nd Street
Lubbock, TX 79423
Livingstone, TX
2114 Hwy 190 West
Livingstone, TX 77351
Office Warehouse
Commerce Business Park
MINNESOTA OFFICES
Mankato, MN
1400 Madison Ave.
Suite 624
Mankato, MN 56001
New Ulm, MN
1 South Minnesota Street
New Ulm, MN 56073
Winona, MN
1157 Gilmore Ave.
Winona, MN 55987
Alexandria, MN
1224 N. Nokomis N.E.
Suite 111
Alexandria, MN 56308
Houston, MN
113 S. Grant Street
Houston, MN 55943
<PAGE> 318
EXHIBIT J
Page 59
MICHIGAN OFFICES
Battle Creek, MI
Capital Centre
2545 Capital Ave.
Suite 120
Battle Creek, MI 49015
Cadillac, MI
2124 N. Mitchell Drive
Cadillac, MI 49601
Traverse City, MI
3289 W. South Airport Rd.
Traverse City, MI 49684
FLORIDA OFFICES
Port Charlotte, FL
2486 A Tamiami Trail
Port Charlotte, FL 33952
Cape Coral, FL
2126 Del Prado Blvd.
Units 1,2,3&4
Cape Coral, FL 33904
IOWA OFFICE
Marshalltown, IA
Marshalltown Retail Center
3109 S. Center Street
Unit 2
Marshalltown, IA 50158
UTAH OFFICE
Park City, UT
1612 W. Ute Blvd.
Suite 106
Park City, UT 84098
<PAGE> 319
EXHIBIT J
Page 60
OREGON OFFICE
Klamath Falls, OR
2650 Washburn Way
Suite 140
Klamath Falls, OR 97603
NORTH DAKOTA OFFICE
Fargo, ND
3033 13th Ave. S.W.
Fargo, ND 58103
WISCONSIN OFFICE
Menomonie, WI
1400 N. Broadway Street
Menomonie, WI 54751
MONTANA OFFICES
Billings, MT
2219 Grand Avenue
Billings, MT 59102
Havre, MT
437 First Street
Havre, MT 59501
Missoula, MT
Northgate Plaza
1900 Sherwood St.
Suite 115
Missoula, MT 59802
<PAGE> 320
EXHIBIT J
Page 61
ANNEX D
TRADE AND FICTITIOUS NAMES
None registered or filed. The Company utilizes for recognition the
abbreviation of the name Golden Sky Systems, Inc. as GSS.
<PAGE> 321
EXHIBIT J
Page 62
ANNEX E
LIST OF MARKS
None registered or filed. See attached for logo utilized in general
business use, marketing and various types of advertising.
<PAGE> 322
EXHIBIT J
Page 63
[GOLDEN SKY SYSTEMS, INC. LETTERHEAD]
<PAGE> 323
EXHIBIT J
Page 64
ANNEX F
LIST OF PATENTS AND APPLICATIONS
None.
<PAGE> 324
EXHIBIT J
Page 65
ANNEX G
to
SECURITY AGREEMENT
LIST OF COPYRIGHTS AND APPLICATIONS
A. GOLDEN SKY SYSTEMS, INC.
None.
<PAGE> 325
EXHIBIT J
Page 66
ANNEX H
to
SECURITY AGREEMENT
ASSIGNMENT OF SECURITY INTEREST IN
UNITED STATES TRADEMARKS AND PATENTS
FOR GOOD AND VALUABLE CONSIDERATION, receipt and sufficiency of which
are hereby acknowledged, [Assignor], a [ ] corporation (the "Assignor") with
principal offices at__________________________________, hereby assigns and
grants to Fleet National Bank, as Collateral Agent, with principal offices at
[ ] (the "Assignee"), a security interest in (i) all of the Assignor's
right, title and interest in and to the United States trademarks, trademark
registrations and trademark applications (the "Marks") set forth on Schedule A
attached hereto, (ii) all of the Assignor's right, title and interest in and to
the United States patents (the "Patents") set forth on Schedule B attached, in
each case together with (iii) all Proceeds (as such term is defined in the
Security Agreement referred to below) and products of the Marks and Patents,
(iv) the goodwill of the businesses symbolized by the Marks and (v) all causes
of action arising prior to or after the date hereof for infringement of any of
the Marks and Patents or unfair competition regarding the same.
THIS ASSIGNMENT is made to secure the full and prompt performance and
payment of all the Obligations of the Assignor, as such term is defined in the
Security Agreement between the Assignor and the Assignee, dated as of
____________, 1997 (as amended from time to time, the "Security Agreement").
Upon the occurrence of the Termination Date (as defined in the Security
Agreement), the Assignee shall, upon such satisfaction, execute, acknowledge,
and deliver to the Assignor an instrument in writing releasing the security
interest in the Marks and Patents acquired under this Assignment.
This Assignment has been granted in conjunction with the security
interest granted to the Assignee under the Security Agreement. The rights and
remedies of the Assignee with respect to the security interest granted herein
are without prejudice to, and are in addition to those set forth in the Security
Agreement, all terms and provisions of which are incorporated herein by
reference. In the event that any provisions of this Assignment are deemed to
conflict with the Security Agreement, the provisions of the Security Agreement
shall govern.
<PAGE> 326
EXHIBIT J
Page 67
ANNEX H
to
SECURITY AGREEMENT
IN WITNESS WHEREOF, the undersigned have executed this Assignment as
of the ____ day of _________, 1997.
[ASSIGNOR],
Assignor
By___________________________________
Name:
Title:
FLEET NATIONAL BANK, as
Collateral Agent, Assignee
By___________________________________
Name:
Title:
<PAGE> 327
EXHIBIT J
Page 68
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On this ___ day of __________, 1997, before me personally came
_______________________, who, being by me duly sworn, did state as follows: that
he is ________________ of [Assignor], that he is authorized to execute the
foregoing Assignment on behalf of said corporation and that he did so by
authority of the Board of Directors of said corporation.
____________________________
Notary Public
<PAGE> 328
EXHIBIT J
Page 69
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On this ___ day of __________, 1997, before me personally came
_______________________, who, being by me duly sworn, did state as follows: that
he is ________________ of Banque Paribas, that he is authorized to execute the
foregoing Assignment on behalf of said corporation and that he did so by
authority of the Board of Directors of said corporation.
____________________________
Notary Public
<PAGE> 329
EXHIBIT J
Page 70
SCHEDULE A
MARK REG. NO REG. DATE
<PAGE> 330
EXHIBIT J
Page 71
SCHEDULE B
PATENT PATENT NO. ISSUE DATE
<PAGE> 331
EXHIBIT J
Page 72
ANNEX I
to
SECURITY AGREEMENT
ASSIGNMENT OF SECURITY INTEREST
IN UNITED STATES COPYRIGHTS
WHEREAS, [ASSIGNOR], a [ ] corporation (the "Assignor"),having, is
chief executive office at , is the owner of all right, title
and interest in and to the United States copyrights and associated United States
copyright registrations and applications for registration set forth in Schedule
A attached hereto;
WHEREAS, FLEET NATIONAL BANK, as Collateral Agent, having its
principal offices at Mail Stop MA0FD03D, 1 Federal Street, Boston MA 02110 (the
"Assignee"), desires to acquire a security interest in, and lien on, said
copyrights and copyright registrations and applications therefor and the
goodwill of the business symbolized by said copyrights; and
WHEREAS, the Assignor is willing to assign to the Assignee, and to
grant to the Assignee a security interest in and lien upon the copyrights and
copyright registrations and applications therefor described above;
NOW, THEREFORE, for good and valuable consideration, the receipt of which is
hereby acknowledged, and subject to the terms and conditions of the Security
Agreement, dated as of July , 1997, between the Assignor and the Assignee(as
amended from time to time, the "Security Agreement"), the Assignor hereby
assigns to the Assignee, and grants to the Assignee a security interest in and a
lien upon, the copyrights and copyright registrations and applications therefor
set forth in Schedule A attached hereto and the goodwill of the business
symbolized by said copyrights.
This Assignment has been granted in conjunction with the security interest
granted to the Assignee under the Security Agreement. The rights and remedies of
the Assignee with respect to the security interest granted herein are without
prejudice to, and are in addition to those set forth in the Security Agreement,
all terms and provisions of which are incorporated herein by reference. In the
event that any provisions of this Assignment are deemed to conflict with the
Security Agreement, the provisions of the Security Agreement shall govern.
<PAGE> 332
EXHIBIT J
Page 73
Executed at New York, New York, the __ day of _________, 1997.
[ASSIGNOR],
Assignor
By____________________
Name:
Title:
FLEET NATIONAL BANK, as
Collateral Agent, Assignee
By_____________________
Name:
Title:
<PAGE> 333
EXHIBIT J
Page 74
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On this ___ day of __________, 1997, before me personally came
_______________________, who, being duly sworn, did depose and say that he is
________________ of [Assignor], that he is authorized to execute the foregoing
Assignment on behalf of said corporation and that he did so by authority of the
Board of Directors of said corporation.
____________________________
Notary Public
<PAGE> 334
EXHIBIT J
Page 75
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On this ___ day of __________, 1997, before me personally came
_______________________, who, being duly sworn, did depose and say that he is
________________ of [Assignor], that he is authorized to execute the foregoing
Assignment on behalf of said corporation and that he did so by authority of the
Board of Directors of said corporation.
____________________________
Notary Public
<PAGE> 335
EXHIBIT J
Page 76
SCHEDULE A
U.S. COPYRIGHTS
REGISTRATION PUBLICATION
NUMBERS DATE COPYRIGHT TITLE
<PAGE> 336
EXHIBIT J
Page 77
EXHIBIT C to the
Security Documents Acknowledgment
COLLATERAL ASSIGNMENT OF MARKETING
AND DISTRIBUTION AGREEMENT
THIS COLLATERAL ASSIGNMENT OF MARKETING AND DISTRIBUTION AGREEMENTS (the
"Agreement") is made as of this 7th day of July, 1997 by and between Golden Sky
Systems, Inc. (hereinafter referred to as "Borrower" or "Assignor"), and Fleet
National Bank, as Collateral Agent for the Banks party to the Credit Agreement
referred to below (hereinafter referred to "Assignee"), in accordance with the
following facts and understandings of the parties hereto.
(a) Assignor is in the business of providing direct broadcast services
and related equipment pursuant to those certain NRTC/Member Agreement for
Marketing and Distribution of DBS Services listed in Exhibit A hereto, with
their respective exhibits and any amendments thereto, the "NRTC Agreements") by
and between Assignor and the National Rural Telecommunications Cooperative
("NRTC").
(b) Pursuant to that certain Credit Agreement dated as of July 7,
1997, among Assignor, the financial institutions party thereto, Banque Paribas,
as Syndication Agent and as Managing Agent and Fleet National Bank, as
Administrative Agent and as Managing Agent (as such the "Credit Agreement" may
be amended, modified, extended, renewed, replaced, restated, supplemented,
restructured or refinanced from time to time), and in connection with the
closing of the transactions contemplated thereby, Assignor has assigned to
Assignee all of its rights in the NRTC Agreements, and NRTC and DIRECTV, INC.
("DIRECTV"), the successor rights holder to Hughes Communications Galaxy, Inc.
have consented to the assignment as set forth herein.
(c) In connection with the closing of the transactions contemplated by
the Credit Agreement and the assignment by Assignor to Assignee of the NRTC
Agreements, Assignor has entered and may enter into various Credit Documents and
Interest Rate Protection or Other Hedging Agreements (as such terms are defined
in the Credit Agreement).
(d) As a material inducement for the banks entering into the
Agreement, Assignor has agreed to secure its obligations under the Credit
Documents and Interest Rate Protection or Other Hedging Agreements by, among
other things, collaterally assigning its right, title and interest in and to the
NRTC Agreements with the consent of NRTC and DIRECTV.
<PAGE> 337
EXHIBIT J
Page 78
AGREEMENT
NOW, THEREFORE, in consideration of the mutual promises contained
herein and for such other good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, Assignor and Assignee do hereby agree
as follows:
(1) ASSIGNMENT. As security for Assignor's performance of its
obligations under the terms and provisions of the Credit Documents and the
Interest Rate Protection or Other Hedging Agreements, Assignor hereby assigns to
Assignee as collateral security, all of Assignor's right, title and interest in
and under the NRTC Agreements, including all warranties and guarantees of NRTC
under the NRTC Agreements, and all rights and interest of Assignor under any
payment issued in connection with or paid pursuant to the NRTC Agreements;
provided, however, that Assignee shall not exercise any rights under the NRTC
Agreements unless and until the occurrence of an "Event of Default" as defined
below, and until the occurrence of any such Event of Default, Assignor shall be
fully entitled to all rights and benefits thereunder.
(2) RIGHTS UPON DEFAULT. If an Event of Default (as that term is
defined in Section 3, below) shall occur, Assignee may, at its option by written
notice to Assignee and NRTC, succeed to Assignor's rights and obligations under
the NRTC Agreements. If Assignee shall elect to succeed to the rights and
obligations of Assignor under the NRTC Agreements, upon receipt of written
notice from Assignee to NRTC, NRTC and DIRECTV shall continue to perform their
obligations under the NRTC Agreements in favor of Assignee or Assignee's
designee (which designee shall be subject to the prior written consent of NRTC
and DIRECTV as provided for in the NRTC Agreements and meets NRTC's requirements
for affiliation or membership which are in effect at the time of such notice,
which consent shall not be unreasonably withheld) in the manner and by the dates
provided for in the NRTC Agreements in all respects, as if Assignee or
Assignee's designee were originally a party to the NRTC Agreements, NRTC and
DIRECTV may rely on written notice from Assignee as to the occurrence of an
Event of Default, and shall not be held liable to Assignor or Assignee for
actions taken in reliance thereon. Any designee of Assignee must submit an
application for affiliation or membership to the NRTC, to the extent such
designee is not already a NRTC affiliate or member, and have the application
approved in accordance with the requirements for affiliation or membership which
are then in effect prior to such designee becoming entitled to the benefits of
the NRTC Agreements as provided in this Section 2, to the extent required by the
NRTC at such time. In addition, Assignee's designee shall be required prior to,
or concurrent with, assumption of the rights and obligations of Assignor, to pay
in full all amounts then due and owing to NRTC pursuant to the NRTC Agreements.
(3) EVENT OF DEFAULT. As used in this Agreement, the term "Event of
Default" shall mean:
78
<PAGE> 338
EXHIBIT J
Page 79
3.1 NONPAYMENT. The failure of Assignor to pay principal,
interest (if applicable) or other amounts due or payable in accordance with the
terms of the Note when the same shall become due and payable, or to make any
other required payment under any other obligation of Assignor to Assignee, and
such failure remains unremedied within five (5) days following receipt by
Assignor of written notice from Assignee of such failure to pay;
3.2 NONPERFORMANCE. Except as set forth in any other provisions
of this Section 3, the breach of, or other failure of Assignor to duly perform
or observe any term, covenant or agreement set forth in this Agreement on its
part to be performed or observed and any such failure shall remain unremedied
for thirty (30) days following receipt by Assignor of written notice for
Assignee of such breach or other failure;
3.3 BANKRUPTCY. An adjudication of the Assignor as bankrupt or
insolvent; the institution by Assignor (by petition, application, answer,
consent or otherwise) of any bankruptcy, insolvency, reorganization,
arrangement, readjustment of debt, dissolution, liquidation, or similar
proceedings related to the Assignor under the laws of any jurisdiction; or the
institution of any such proceeding (by petition, application or otherwise)
against Assignor if such proceeding remains undismissed for a period of ninety
(90) days;
3.4 ADMISSION. The admission in writing of Assignor's inability
to pay any of its debts as the same mature;
3.5 ASSIGNMENT. The making of an assignment for the benefit of
Assignor's creditors;
3.6 RECEIVERSHIP, ETC. The application of Assignor for or consent
by Assignor to the appointment of a receiver, trustee or similar custodian for
Assignor, or for all or any substantial part of its property; or the appointment
of such receiver, trustee, or similar officer without the application or consent
of Assignor, as the case may be, and if such appointment continues undischarged
for a period of ninety (90) days;
3.7 SALE OR TRANSFER. The sale or transfer of substantially all
of Assignor's assets and properties, except as specifically provided for in the
Note or Security Agreement;
3.8 LEVY. The issuance or levy of any judgment, writ, warrant of
attachment or execution, or similar process in the amount of $40,000.00 or more,
against substantially all of the property of Assignor and if such judgment, writ
or similar process is not released, vacated or fully bonded within thirty (30)
days after its issue or levy; and
3.9 BREACH OF CREDIT DOCUMENTS. Any other act or event
constituting an event or default as set forth in the Credit Documents that shall
remain unremedied for a period in excess of the
79
<PAGE> 339
EXHIBIT J
Page 80
applicable cure period provided for in the Credit Documents and the Interest
Rate or Other Hedging Agreements for a period of thirty (30) days after receipt
of written notice by Assignor from Assignee of such event of default, whichever
is less.
(4) RIGHT TO CURE. NRTC agrees that it shall provide Assignor and
Assignee with copies of any written notice of default by Assignor in the
performance of its obligations under the NRTC Agreements. Assignee shall have
the right, but not the obligation, to cure Assignor's default under the NRTC
Agreements. Assignee shall have thirty (30) days following receipt of the
written notice of default of NRTC in which to cure, and NRTC agrees that it
shall not ??? the NRTC Agreements or take any other action which it may be
entitled to take as a result of such default unless Assignee and Assignor fail
to cure the default within such thirty (30) day period.
(5) NO OTHER ASSIGNMENT. Assignor hereby represents and warrants to
Assignee that Assignor has not assigned, pledged, granted an interest in, or
otherwise encumbered or transferred any interest in the NRTC Agreements to any
other party, and Assignor further agrees that from and after the date hereof,
except for the security interest in the NRTC Agreements granted to Assignee
under the Credit Documents, Assignor shall not assign, pledge, grant a security
interest in, or otherwise encumber or transfer any interest in the NRTC
Agreements to any other party without Assignee's (and NRTC's and DIRECTV's)
prior written consent.
(6) MISCELLANEOUS PROVISIONS.
6.1 BENEFITS OF AGREEMENT. Nothing contained in this Agreement,
in the Credit Documents or in the Interest Rate Protection or Other Hedging
Agreements, is intended or shall be construed or applied so as to confer upon
any person other than the parties herein and their respective heirs, personal
representatives, successors and assigns, any right, remedy, or claim under or by
reason of this Agreement, the Credit Documents or in the Interest Rate
Protection or Other Hedging Agreements, or any covenant, condition, or agreement
hereof. Covenants, conditions and agreements contained in this Agreement shall
??? to and shall be for the sole and exclusive benefit of the parties hereto and
their respective heirs, personal representatives, successors and assigns.
6.2 SUCCESSORS AND ASSIGNS. All of the covenants, conditions and
agreements contained in this Agreement by or on behalf of the parties hereto,
shall bind their respective heirs, personal representatives, successors and
assigns, whether ??? expressed or not.
6.3 NOTICE. All notices, requests, demands or other
communications under this agreement shall be in writing. Notice shall be
sufficiently given for all purposes as follows:
(a) PERSONAL DELIVERY. When personally delivered to the
recipient, Notice is effective on delivery.
80
<PAGE> 340
EXHIBIT J
Page 81
(b) CERTIFIED MAIL. When mailed certified mail, return receipt
requested, Notice is effective on receipt, if delivery is confirmed by a return
receipt.
(c) OVERNIGHT DELIVERY. When delivered by Federal Express,
Airborne, United Parcel Service, or DHL WorldWide Express, charges prepaid or
charged to the sender's account, Notice is effective on delivery, if delivery is
confirmed by the delivery service.
(d) TELEX OR FACSIMILE TRANSMISSION. When sent by telex or fax to
the last telex or fax number of the recipient known to the party giving notice,
Notice is effective of receipt, provided that (a) a duplicate copy of the notice
is promptly given by first-class or certified mail or by overnight delivery, or
(b) the receiving party delivers a written confirmation or receipt. Any notice
given by telex or fax shall be deemed received on the next business day if it is
received after 5:00 p.m. (recipient's time) or on a nonbusiness day.
Addresses for purpose of giving notice are as follows:
To NRTC National Rural Telecommunications Cooperative
2201 Cooperative Way, Suite 400
Homdon, VA 20171
Attention: Chief Executive Officer
co: Steven T. Berman
Senior Vice President, Business Affairs & General Counsel
Facsimile No.: (703) 787-3355
To DIRECTV: _____________________________________________
_____________________________________________
_____________________________________________
_____________________________________________
To Assignee: Fleet National Bank
Mail Stop MA0FD03D
1 Federal Plaza
Boston, MA 02110
Attention: Mark Bernier
To Assignor: _____________________________________________
_____________________________________________
_____________________________________________
_____________________________________________
81
<PAGE> 341
EXHIBIT J
Page 82
With copy (which, standing alone, shall not constitute notice)
to:
_____________________________________________
_____________________________________________
_____________________________________________
_____________________________________________
Any correctly addressed notice that is refused, unclaimed, or
undeliverable because of an act or omission of the party to be notified shall be
deemed effective as of the first date that said notice was refused, unclaimed,
or deemed undeliverable by the postal authorities, messenger, or overnight
delivery service.
Any party may change its address or telex or fax number by giving the
other party notice of the change in any manner permitted by this Agreement.
(6.4) ENTIRE AGREEMENT. This Agreement, the Credit Documents and
the Interest Rate Protection or Other Hedging Agreements, represent the entire
Agreement and understanding between Assignor and Assignee with respect to the
subject matter hereof and supersede all other prior agreements. In order to be
effective, any modification or amendment to this Agreement must be in writing
and signed by the parties to be charged.
(6.5) SEVERABILITY. Should one or more of the provisions
contained in this Agreement be held invalid, illegal or unenforceable in any
respect, the validity, legality or enforceability or the remaining provisions
contained herein shall not in any way be effected or impaired thereby.
(6.6) CHOICE OF LAW. This Agreement shall be construed in
accordance with and governed by the laws of the State of New York. Any dispute
that arises under or relates to this Agreement shall be resolved in the courts
of the State of New York or of the United States of the Southern District of New
York.
(6.7) COUNTERPARTS. This agreement may be signed in any number of
counterparts with the same effect as if the signatures of each counterpart were
upon the same instrument.
(6.8) ATTORNEY'S FEES. In the event of any dispute between the
parties out of or in connection with this Agreement, whether or not such
disputes result in litigation, the Borrower shall pay the reasonable attorney's
fees and costs incurred by the Assignee.
(6.9) TIME. Unless otherwise agreed, time is of the essence of
each and every provision of this Agreement.
82
<PAGE> 342
EXHIBIT J
Page 83
(6.10) WAIVER. No delay or omission in the exercise of any right
or remedy by any party shall be construed as a waiver, nor shall the waiver of
any term or condition contained in this Agreement by any party be construed as a
waiver of any subsequent breach or failure of the same term and condition or
waiver of any other term or condition contained in this Agreement.
(6.11) RECITALS/EXHIBITS. All recitals contained in the
introductory paragraphs in this Agreement and on exhibits hereto are
incorporated herein by this reference and made a part hereof.
(6.12) AMBIGUITIES. Each party and its counsel have participated
fully in the review and revision of this Agreement. Any rule of construction to
the effect that ambiguities are to be resolved against the drafting party shall
not apply in interpreting this Agreement.
This Agreement has been executed and delivered as of the date set
forth above.
ASSIGNOR: ASSIGNEE:
By:_________________________ By:_________________________
Name:_______________________ Name:_______________________
Its:________________________ Its:________________________
83
<PAGE> 343
EXHIBIT J
Page 84
Exhibit A
NRTC AGREEMENTS
1. NRTC/Member Agreement for Marketing and Distribution of DBS Services
between NRTC and TV Tennessee, Inc. (formerly Rural TV Tennessee,
Inc.), dated as of July 12, 1993, as amended (Contract No. 1035), as
assigned to Golden Sky Systems, Inc. ("GSS") pursuant to an Application
for Assignment, effective as of November 22, 1996.
2. NRTC/Member Agreement for Marketing and Distribution of DBS Services
between NRTC and TV Tennessee, Inc. (formerly Rural TV Tennessee,
Inc.), dated as of July 12, 1993, as amended (Contract No. 1035), as
assigned to Aurora Cable TV, Inc., pursuant to an Application for
Assignment, effective as of June 30, 1996, and as assigned to GSS
pursuant to an Application for Assignment effective as of November 16,
1996.
3. NRTC/Member Agreement for Marketing and Distribution of DBS Services
between NRTC and Total Telephone Company, Inc., dated as of October 16,
1992, as amended (Contract No. 0479), as assigned to Images DBS Kansas,
LLC, pursuant to an Application of Assignment, effective as of May 23,
1994, and as assigned to GSS pursuant to an Application of Assignment,
effective as of February 12, 1997.
4. NRTC/Member Agreement for Marketing and Distribution of DBS Services
between NRTC and Total Telephone Company, Inc., dated as of October 16,
1992, as amended (Contract No. 0075), as assigned to Images DBS
Oklahoma, LLS, pursuant to an Application of Assignment, effective as
of May 23, 1994, and as assigned to GSS pursuant to an Application of
Assignment, effective as of February 12, 1997.
5. NRTC/Member Agreement for Marketing and Distribution of DBS Services
between NRTC and Direct Satellite TV, Limited, dated as of June 3,
1993, as amended (Contract No. 1030), assigned to GSS pursuant to an
Application for Assignment, effective as of February 28, 1997.
6. NRTC/Member Agreement for Marketing and Distribution of DBS Services
between NRTC and Thunderbolt Systems, Inc., dated as of August 10,
1992, as amended (Contract No. 1078), assigned to GSS pursuant to an
Application for Partial Assignment, effective as of March 11, 1997.
7. NRTC/Member Agreement for Marketing and Distribution of DBS Services
between NRTC
84
<PAGE> 344
EXHIBIT J
PAGE 85
and Deep East Texas Telecommunications, Inc., dated as of April 30,
1993, as amended (Contract No. 1012), assigned to GSS pursuant to an
Application for Assignment, effective as of April 11, 1997.
8. NRTC/Member Agreement for Marketing and Distribution of DBS Services
between NRTC and Western Montana DBS, Inc., d/b/a Rocky Mountain DBS,
dated as of May 4, 1993, as amended (Contract No. 1079), assigned to
GSS pursuant to an Application for Partial Assignment, effective as of
May 1, 1997.
9. NRTC/Member Agreement for Marketing and Distribution of DBS Services
between NRTC and TEG-DBS Services, Inc., dated as of December 16, 1992,
as amended (Contract No. 1076), assigned to GSS pursuant to an
Application for Assignment effective as of November 23, 1994, and as
assigned to GSS pursuant to an Application for Assignment effective as
of June 12, 1997.
10. Any other agreement between the Assignor (or any of its subsidiaries or
any person acquired by the Assignor or any of its subsidiaries) and the
NRTC.
85
<PAGE> 345
EXHIBIT J
Page 86
The undersigned hereby acknowledge that they have read the foregoing
Collateral Assignment of Marketing and Distribution Agreements (the "Collateral
Assignment"), agree to be bound by the terms thereof, including but not limited
to the terms contained in Sections 1, 2, 4 and 6 of said Collateral Assignment,
and consent to the assignment by Assignor of its rights under the NRTC
Agreements, as provided in Section 1 of the Collateral Assignment. Each of the
undersigned further acknowledges that a security interest in the NRTC Agreements
has validly been granted to Assignor.
NRTC hereby confirms that, as of the date hereof, Assignor (i) is a
NRTC affiliate in good standing, (ii) is in full compliance with its payment and
other obligations under each of the NRTC Agreements and (iii) is not otherwise
in default under any of the NRTC Agreements.
The persons signing on behalf of each of the undersigned is a duly
authorized officer of the entity for which he or she is signing, and has the
power to execute this instrument on behalf of such entity.
NATIONAL RURAL DIRECTV, INC., the successor rights
TELECOMMUNICATIONS holder to Hughes Communications
COOPERATIVE Galaxy, Inc.
By:______________________________ By:______________________________
Name:____________________________ Name:____________________________
Title:___________________________ Title:___________________________
Date:______________________, 19__ Date:______________________, 19__
86
<PAGE> 346
EXHIBIT J
Page 87
ANNEX I
to Security Documents Acknowledgment
COLLATERAL ASSIGNMENT ACKNOWLEDGMENT
See attached.
<PAGE> 347
EXHIBIT J
Page 88
COLLATERAL ASSIGNMENT ACKNOWLEDGMENT
May 8, 1998
To the Agents and each of the Banks
party to the Credit Agreement
referred to below:
Ladies and Gentlemen:
Reference is made to (i) the Amended and Restated Credit Agreement,
dated as of July 7, 1997, amended and restated as of May 8, 1998, among Golden
Sky Holdings, Inc. ("Holdings"), Golden Sky Systems, Inc. (the "Borrower"), the
financial institutions party thereto, Banque Paribas, as Syndication Agent,
Fleet National Bank, as Administrative agent, and General Electric Capital
Corporation, as Documentation Agent (as so amended and restated and as further
amended, modified or supplemented from time to time, the "Credit Agreement"),
pursuant to which, among other things, the Total Commitment was increased from
$100,000,000 to $150,000,000 and (ii) the Collateral Assignment of Marketing and
Distribution Agreements, dated as of July 7, 1997 (as amended, modified and
supplemented from time to time, including, without limitation, as modified
hereby, the "Collateral Assignment of Marketing and Distribution Agreements")
made by the Borrower, as Assignor under, and as defined in, the Collateral
Assignment of Marketing and Distribution Agreements, in favor of Fleet National
Bank, as Collateral Agent and Assignee for the benefit of the Secured Creditors
(as defined in the Collateral Assignment of Marketing and Distribution
Agreements), as acknowledged and agreed to by the NRTC and DirecTV, Inc.
(DirecTV, Inc. together with the Borrower, Fleet National Bank and the NRTC, the
"Collateral Assignment Parties"). Unless otherwise indicated herein, capitalized
terms used but not defined herein shall have the respective meanings set forth
in the Credit Agreement.
I. COLLATERAL ASSIGNMENT OF MARKETING AND DISTRIBUTION AGREEMENTS
1. Each of the Collateral Assignment Parties hereby acknowledges the
Credit Agreement and the transactions contemplated thereby.
2. Each of the Collateral Assignment Parties hereby acknowledges and
agrees, and represents and warrants, that on and after the occurrence of, and
after giving effect to, the Restatement Effective Date, (i) it remains party to
the Collateral Assignment of Marketing and Distribution Agreements and (ii) the
Collateral Assignment of Marketing and Distribution Agreements shall remain in
full force and effect with respect to each of the Collateral Assignment Parties.
<PAGE> 348
EXHIBIT J
Page 89
II. MISCELLANEOUS PROVISIONS
1. This Collateral Assignment Acknowledgment may be signed in any
number of counterparts and by the different parties hereto in separate
counterparts, each of which counterparts when executed and delivered shall be an
original, but all of which shall together constitute one and the same
instrument.
2. This Collateral Assignment Acknowledgment is limited as specified
and shall not constitute an acceptance, consent or waiver of any other provision
of the Collateral Assignment of Marketing and Distribution Agreements or any
other Credit Document.
3. THIS ACKNOWLEDGMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
* * *
<PAGE> 349
EXHIBIT J
Page 90
IN WITNESS WHEREOF, each of the undersigned has caused this Collateral
Assignment Acknowledgment to be duly executed and delivered as of the date first
above written.
GOLDEN SKY SYSTEMS, INC.
By: /s/ Robert B. Weaver
-----------------------------------------
Name: Robert B. Weaver
Title: Chief Financial Officer
ACKNOWLEDGED AND AGREED:
FLEET NATIONAL BANK,
as Collateral Agent
By: /s/ Christopher A. Swindell
-----------------------------------------
Name: Christopher A. Swindell
Title: Vice President
<PAGE> 350
EXHIBIT J
Page 91
ACKNOWLEDGED AND AGREED:
NATIONAL RURAL
TELECOMMUNICATIONS
COOPERATIVE
By: /s/ Steven T. Berman
-----------------------------------------
Name: Steven T. Berman
Title: Senior Vice President, Business Affairs
and General Counsel
DIRECTV, INC., the successor rights
holder to Hughes Communications Galaxy, Inc.
By:
-----------------------------------------
Name:
Title:
<PAGE> 351
EXHIBIT K
OFFICER'S SOLVENCY CERTIFICATE
I, the undersigned, Chief Financial Officer of Golden Sky Systems,
Inc., do hereby certify on behalf of Golden Sky Systems, Inc. that:
1. This Certificate is furnished to the Banks pursuant to Section
4.15(a) of the Amended and Restated Credit Agreement, dated as of July 7, 1997,
amended and restated as of May __, 1998, among Golden Sky Holdings, Inc., Golden
Sky Systems, Inc., various financial institutions from time to time party
thereto (the "Banks"), Banque Paribas, as Syndication Agent, Fleet National
Bank, as Administrative Agent, and General Electric Capital Corporation, as
Documentation Agent (such Amended and Restated Credit Agreement, as in effect on
the date of this Certificate, being herein called the "Credit Agreement").
Unless otherwise defined herein, capitalized terms used in this Certificate
shall have the meanings set forth in the Credit Agreement.
2. For purposes of this Certificate, the terms below shall have the
following definitions:
(1) "Fair Value"
The amount at which the assets, in their entirety, of the Borrower
would change hands between a willing buyer and a willing seller, within
a commercially reasonable period of time, each having reasonable
knowledge of the relevant facts, with neither being under any
compulsion to act.
(2) "Present Fair Salable Value"
The amount that could be obtained by an independent willing seller from
an independent willing buyer if the assets of the Borrower are sold
with reasonable promptness under normal selling conditions in a current
market.
(3) "New Financing"
The Indebtedness incurred or to be incurred by the Borrower under the
Credit Documents (assuming the full utilization by the Borrower of the
Commitments) and the other Documents and all other financings
contemplated by the Documents, in each case after giving effect to the
Transaction and the incurrence of all financings contemplated
therewith.
(4) "Stated Liabilities"
The recorded liabilities (including contingent liabilities that would
be recorded in accordance with generally accepted accounting principles
("GAAP")) of the Borrower
<PAGE> 352
EXHIBIT K
Page 2
at May __, 1998 after giving effect to the Transaction, determined in
accordance with GAAP consistently applied, together with, without
duplication, the amount of all New Financing.
(5) "Identified Contingent Liabilities"
The maximum estimated amount of liabilities reasonably likely to result
from pending litigation, asserted claims and assessments, guaranties,
uninsured risks and other contingent liabilities of the Borrower after
giving effect to the Transaction (exclusive of such contingent
liabilities to the extent reflected in Stated Liabilities), as
identified and explained in terms of their nature and estimated
magnitude by an officer of the Borrower.
(6) "Will be able to pay its Stated Liabilities and Identified
Contingent Liabilities, as they mature"
For the period from the date hereof through the seventh anniversary of
the Restatement Effective Date, the Borrower will have sufficient
assets and cash flow to pay their respective Stated Liabilities and
Identified Contingent Liabilities as those liabilities mature or
otherwise become payable.
(7) "Does not have Unreasonably Small Capital"
For the period from the date hereof through the seventh anniversary of
the Restatement Effective Date, the Borrower after consummation of the
Transaction and all Indebtedness (including the Loans) being incurred
or assumed and Liens created by the Borrower in connection therewith,
is a going concern and has sufficient capital to ensure that it will
continue to be a going concern for such period and to remain a going
concern.
3. For purposes of this Certificate, I or officers of the Borrower
under my direction and supervision, have performed the following procedures as
of and for the periods set forth below.
(1) I have reviewed the financial statements referred to in Section
6.05(a) of the Credit Agreement.
(2) I have reviewed the unaudited pro forma consolidated balance sheet
of the Borrower and its Subsidiaries referred to in Section 6.05(a) of
the Credit Agreement.
(3) I have made inquiries of certain officers of the Borrower who have
responsibility for financial and accounting matters regarding (i) the
existence and amount of Identified Contingent Liabilities associated
with the business of the
<PAGE> 353
EXHIBIT K
Page 3
Borrower and its Subsidiaries, (ii) whether the unaudited pro forma
consolidated financial statements referred to in paragraph (b) above
are in conformity with GAAP applied on a basis substantially consistent
with that of the audited financial statements as at December 31, 1997
and (iii) whether omitted notes to the unaudited consolidated financial
statements delivered pursuant to Section 6.05(a) of the Credit
Agreement would have disclosed any new information, except to update
amounts included in the notes to the December 31, 1997 audited
consolidated financial statements.
(4) I have knowledge of and have reviewed to my satisfaction the Credit
Documents and the other Documents, and the respective Schedules and
Exhibits thereto.
(5) With respect to Identified Contingent Liabilities, I:
1. inquired of certain officials the Borrower who have
responsibility for legal, financial and accounting matters as
to the existence and estimated liability with respect to all
contingent liabilities known to them;
2. confirmed with officers the Borrower that, to the best of such
officers' knowledge, (i) all appropriate items were included
in Stated Liabilities or the listing of Identified Contingent
Liabilities and that (ii) the amounts relating thereto were
the maximum estimated amount of liabilities reasonably likely
to result therefrom as of the date hereof; and
3 I hereby certify that, to the best of my knowledge, all
material Identified Contingent Liabilities that may arise from
any pending litigation, asserted claims and assessments,
guarantees, uninsured risks and other Identified Contingent
Liabilities of the Borrower and its Subsidiaries (exclusive of
such Identified Contingent Liabilities to the extent reflected
in Stated Liabilities) have been considered in making the
certification set forth in paragraph 4 below, and with respect
to each such Identified Contingent Liability the estimable
maximum amount of liability with respect thereto was used in
making such certification.
(6) I have examined the Projections relating to the Borrower and its
Subsidiaries which have been previously delivered to the Banks, and
have re-examined the Projections on the date hereof and considered the
effect thereon of any changes since the date of the preparation thereof
on the results projected therein. After such review, I hereby certify
that in my opinion the Projections are reasonable and attainable
(although actual results may differ from the Projections and no
representation is made that the Projections will in fact be attained)
and the Projections support the conclusions contained in paragraph 4
below.
<PAGE> 354
EXHIBIT K
Page 4
(7) I have made inquiries of certain officers of the Borrower and their
Subsidiaries who have responsibility for financial reporting and
accounting matters regarding whether they were aware of any events or
conditions that, as of the date hereof, would cause the Borrower after
giving effect to the Transaction and the related financing transactions
(including the incurrence of the New Financing), to (i) have assets
with a Fair Value or Present Fair Salable Value that are less than the
sum of Stated Liabilities and Identified Contingent Liabilities; (ii)
have Unreasonably Small Capital; or (iii) not be able to pay its Stated
Liabilities and Identified Contingent Liabilities as they mature or
otherwise become payable.
4. Based on and subject to the foregoing, I hereby certify on behalf of
the Borrower and its Subsidiaries that, after giving effect to the Transaction
and the related financing transactions (including the incurrence of the New
Financing), it is my informed opinion that (i) the Fair Value and Present Fair
Salable Value of the assets of the Borrower and its Subsidiaries taken as a
whole (each on a consolidated basis), exceed its Stated Liabilities and
Identified Contingent Liabilities; (ii) the Borrower does not have Unreasonably
Small Capital; and (iii) the Borrower will be able to pay its Stated Liabilities
and Identified Contingent Liabilities, as they mature or otherwise become
payable.
* * *
<PAGE> 355
EXHIBIT K
PAGE 5
IN WITNESS WHEREOF, I have hereto set my hand this ___ day of May,
1998.
GOLDEN SKY SYSTEMS, INC.
By:
-------------------------------
Name: Robert B. Weaver
Title: Chief Financial Officer
<PAGE> 356
EXHIBIT L
FORM OF CONSENT LETTER
[Letterhead of Agent for Service of Process]
[Date]
To the Agents and the
Banks party to the
Credit Agreement referred to below:
Ladies and Gentlemen:
Reference is made to the Amended and Restated Credit Agreement, dated
as of July 7, 1997, amended and restated as of May __, 1998, among Golden Sky
Holdings, Inc. ("Holdings"), Golden Sky Systems, Inc. (the "Borrower"), the
Banks (the "Banks") party thereto from time to time, Banque Paribas, as
Syndication Agent ("Banque Paribas"), Fleet National Bank, as Administrative
Agent (Fleet National Bank together with Banque Paribas, the "Agents"), and
General Electric Capital Corporation, as Documentation Agent, (as such Amended
and Restated Credit Agreement may be modified, supplemented or amended from time
to time, the "Credit Agreement").
Pursuant to Section 12.08 of the Credit Agreement, each of Holdings and
the Borrower has irrevocably designated, appointed and empowered the
undersigned, Corporation Service Company, with offices currently located at 80
State Street, Albany, Nev York 12207, as its authorized designee, appointee and
agent to receive, accept and acknowledge for and on its behalf, and in respect
of its property, service of any and all legal process, summons, notices and
documents which may be served in any such action or proceeding with respect to
the Credit Agreement or any other Credit Document (as defined in the Credit
Agreement) brought in the courts of the State of New York or of the United
States of America for the Southern District of New York.
The undersigned hereby informs you that it irrevocably accepts such
appointment as agent as set forth in Section 12.08 of the Credit Agreement and
agrees with you that the undersigned (i) shall inform the Administrative Agent
promptly in writing of any change of its address in New York City, (ii) shall
perform its obligations as such process agent in accordance with the provisions
of Section 12.08 of the Credit Agreement and (iii) shall forward promptly to
Holdings or the Borrower, as the case may be, any legal process, summons,
notices and documents received by the undersigned in its capacity as process
agent.
As process agent, the undersigned, and its successor or successors,
agree to discharge
<PAGE> 357
EXHIBIT L
Page 2
the above-mentioned obligations and will not refuse fulfillment of such
obligations under Section 12.08 of the Credit Agreement.
Very truly yours,
CORPORATION SERVICE SYSTEM
By __________________________
Name:
Title
<PAGE> 358
EXHIBIT M
BORROWING BASE CERTIFICATE AS OF [DATE]
To: The Banks party to the Amended and Restated Credit
Agreement, dated as of July 7, 1997, amended and
restated as of May ____ , 1998, among Golden Sky
Holdings, Inc., Golden Sky Systems, Inc., the financial
institutions party thereto, Banque Paribas, as
Syndication Agent, Fleet National Bank, as
Administrative Agent, and General Electric Capital
Corporation, as Documentation Agent (the "Credit
Agreement")
1. Qualified Paying Subscribers Amount
All subscribers (other than subscribers to the MDU Business)
to DirecTV that are located in the Borrower's and its
Subsidiaries' DirecTV Franchise areas and who have paid all
amounts due within 60 days of the initial due date thereof.
2. Subscribers to be Acquired(7)
In connection with any Permitted Acquisition, the number of
subscribers to DirecTV service to be acquired as such number
shall be certified to the Banks in the Permitted Acquisition
Notice
3. Total Subscribers
(Sum of No. 1 and No. 2)
- --------
(7) Only if Borrowing Base is being determined in connection with
a Loan being made to finance a Permitted Acquisition. The
number of subscribers to be acquired listed herein shall be
as certified in the relevant Permitted Acquisition Notice.
<PAGE> 359
EXHIBIT M
Page 2
<TABLE>
<S> <C>
4. Borrowing Base
Sum of (i) the product of (x) No. 3 and (y) $1,200 if on or
before December 31, 1999 and $1,100 thereafter, plus (ii)
$15,000,000 in the case of a Borrowing of Loans incurred to
finance Permitted Acquisitions $
5. Outstanding Principal Amount of Term Loans and Revolving
Loans $
6. Letter of Credit Outstandings $
7. Outstanding Principal Amount of all other Net Adjusted
Consolidated Indebtedness $
8. Borrowing Base Surplus (Deficiency) (No. 4 minus the sum of
Nos. 5, 6 and 7) $
</TABLE>
The undersigned hereby certifies on behalf of the Borrower and not in
his or her individual capacity that all of the information provided above is
true and correct as of the date first above written.
* * *
<PAGE> 360
EXHIBIT M
Page 3
IN WITNESS WHEREOF, each of the undersigned has hereunto set his or her hand
this ___ day of ____________,___.
GOLDEN SKY SYSTEMS, INC.
By: ________________________________
Name:
Title:
<PAGE> 361
EXHIBIT N
BANK ASSIGNMENT AND ASSUMPTION AGREEMENT
Date ______________ , 19__
Reference is made to the Amended and Restated Credit Agreement
described in Item 2 of Annex I hereto (as such Credit Agreement may hereafter be
amended, supplemented or otherwise modified from time to time, the "Credit
Agreement"). Unless defined in Annex I hereto, terms defined in the Credit
Agreement are used herein as therein defined. __________________ (the
"Assignor") and ________________ (the "Assignee") hereby agree as follows:
1. The Assignor hereby sells and assigns to the Assignee without
recourse and without representation or warranty (other than as expressly
provided herein), and the Assignee hereby purchases and assumes from the
Assignor, that interest in and to all of the Assignor's rights and obligations
under the Credit Agreement as of the date hereof which represents the percentage
interest specified in Item 4 of Annex I hereto (the "Assigned Share") of all of
the outstanding rights and obligations under the Credit Agreement relating to
the facilities listed in Item 4 of Annex I hereto, including, without
limitation, (x) in the case of any assignment of all or any portion of the Total
Revolving Loan Commitment, all rights and obligations with respect to the
Assigned Share of such Total Revolving Loan Commitment and of the Revolving
Loans and Letters of Credit Outstandings relating thereto, (y) in the case of
any assignment of a Term Loan Commitment, all rights and obligations with
respect to the Assigned Share of such Total Term Loan Commitment, and (z) in the
case of any assignment of Term Loans, all rights and obligations with respect to
the Assigned Share of such Term Loans. After giving effect to such sale and
assignment, the Assignee's Revolving Loan Commitment, Term Loan Commitment and
the amount of the outstanding Term Loans owing to the Assignee will be as set
forth in Item 4 of Annex I hereto.
2. The Assignor (i) represents and warrants that it is the legal and
beneficial owner of the interest being assigned by it hereunder and that such
interest is free and clear of any adverse claim; (ii) makes no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with the Credit Agreement
or the other Credit Documents or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of the Credit Agreement or the
other Credit Documents or any other instrument or document furnished pursuant
thereto; and (iii) makes no representation or warranty and assumes no
responsibility with respect to the financial condition of any of the Credit
Parties or the performance or observance by the Credit Parties of any of their
obligations under the Credit Agreement or the other Credit Documents to which
they are a party or any other instrument or document furnished pursuant thereto.
3. The Assignee (i) confirms that it has received a copy of the Credit
Agreement and the other Credit Documents, together with copies of the financial
statements referred to therein and such other documents and information as it
has deemed appropriate to make its own credit
<PAGE> 362
EXHIBIT N
Page 2
analysis and decision to enter into this Assignment and Assumption Agreement;
(ii) agrees that it will, independently and without reliance upon the Agents,
the Assignor or any other Bank and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under the Credit Agreement; (iii) confirms that it
is an Eligible Transferee under the Credit Agreement; (iv) appoints and
authorizes the Administrative Agent and the Collateral Agent to take such action
as administrative agent and collateral agent on its behalf and to exercise such
powers under the Credit Agreement and the other Credit Documents as are
delegated to the Administrative Agent and the Collateral Agent by the terms
thereof, together with such powers as are reasonably incidental thereto; [and]
(v) agrees that it will perform in accordance with their terms all of the
obligations which by the terms of the Credit Agreement are required to be
performed by it as a Bank[; and (vi) to the extent legally entitled to do so,
attaches the forms described in Section 12.04(b) of the Credit Agreement].(1)
4. Following the execution of this Bank Assignment and Assumption
Agreement by the Assignor and the Assignee, an executed original hereof
(together with all attachments) will be delivered to the Administrative Agent.
The effective date of this Bank Assignment and Assumption Agreement shall be the
date of execution hereof by the Assignor and the Assignee and the receipt of the
consent of the Agents and the Borrower pursuant to Section 12.04(b) of the
Credit Agreement and receipt by the Agents of the assignment fee referred to in
such Section 12.04(b) (the "Settlement Date").
5. Upon the delivery of a fully executed original hereof to the
Administrative Agent, as of the Settlement Date, (i) the Assignee shall be a
party to the Credit Agreement and, to the extent provided in this Bank
Assignment and Assumption Agreement, have the rights and obligations of a Bank
thereunder and under the other Credit Documents and (ii) the Assignor shall, to
the extent provided in this Bank Assignment and Assumption Agreement, relinquish
its rights and be released from its obligations under the Credit Agreement and
the other Credit Documents.
6. It is agreed that the Assignee shall be entitled to (w) all interest
on the Assigned Share of the Loans at the rates specified in Item 6 of Annex I;
(x) all Commitment Commission (if applicable) on the Assigned Share of the
Aggregate Unutilized Commitment at the rate specified in Item 7 of Annex I
hereto; and (y) all Letter of Credit Fees (if applicable) on the Assignee's
participation in all Letters of Credit at the rate specified in Item 8 of Annex
I hereto, which, in each case, accrue on and after the Settlement Date, such
interest and, if applicable, Conunitment Commission and Letter of Credit Fees,
to be paid by the Administrative Agent directly to the Assignee. It is further
agreed that all payments of principal made on the Assigned Share of the Loans
which occur on and after the Settlement Date will be paid directly by the
Administrative Agent to the Assignee. Upon the Settlement Date, the Assignee
shall pay to the Assignor an amount specified by the Assignor in writing which
represents the Assigned Share of the principal amount of the respective Loans
made by the Assignor, and the Assignee's share of any Letter of Credit
- --------
(1) If the Assignee is organized under the laws of a jurisdiction outside the
United States.
<PAGE> 363
EXHIBIT N
Page 3
Outstandings incurred pursuant to the Credit Agreement which are outstanding on
the Settlement Date, net of any closing costs, and which are being assigned
hereunder. The Assignor and the Assignee shall make all appropriate adjustments
in payments under the Credit Agreement for periods prior to the Settlement Date
directly between themselves on the Settlement Date.
7. THIS BANK ASSIGNMENT AND ASSUMPTION AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
* * *
<PAGE> 364
EXHIBIT N
Page 4
IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized officers to execute and deliver this Bank Assignment and Assumption
Agreement, as of the date first above written, such execution also being made on
Annex I hereto.
Accepted this _____ day [NAME OF ASSIGNOR],
of _____________ , 19__ as Assignor
By: _________________________________
Name:
Title:
[NAME OF ASSIGNEE],
as Assignee
By: _________________________________
Name:
Title:
Acknowledged and Agreed:
BANQUE PARIBAS,
as Syndication Agent
By: ___________________________________
Name:
Title:
By: ___________________________________
Name:
Title:
<PAGE> 365
EXHIBIT N
Page 5
FLEET NATIONAL BANK,
as Administrative Agent
By: ___________________________________
Name:
Title:
GOLDEN SKY SYSTEMS, INC.
By: ___________________________________
Name:
Title:
<PAGE> 366
EXHIBIT N
Page 6
ANNEX I
ANNEX FOR BANK ASSIGNMENT AND ASSUMPTION AGREEMENT
1. Borrower: Golden Sky Systems, Inc.
2. Name and Date of Credit Agreement:
Amended and Restated Credit Agreement, dated as of July 7, 1997, amended and
restated as of May , 1998 (as modified, supplemented or amended from time to
time) among Golden Sky Holdings, Inc., Golden Sky Systems, Inc., the Banks from
time to time party thereto, Banque Paribas, as Syndication Agent, Fleet
National Bank, as Administrative Agent, and General Electric Capital
Corporation, as Documentation Agent.
3. Date of Assignment Agreement:
4. Amounts (as of date of item #3 above):
<TABLE>
<CAPTION>
Outstanding
Revolving Loan Term Loan Principal
Commitment Commitment of Term Loans
<S> <C> <C> <C>
a. Aggregate Amount $ $ $
for all Banks ----------------------- --------------------- ----------------
b. Assigned Share -----------------------% --------------------% ----------------%
c. Amount of Assigned Share $ $ $
----------------------- --------------------- -----------------
</TABLE>
5. Settlement Date:
<PAGE> 367
EXHIBIT N
Page 7
ANNEX I
6. Rate of Interest As set forth in Section 1.08 of the Credit
to the Assignee: Agreement (unless otherwise agreed to by the
Assignor and the Assignee)(1)
7. Commitment Commission As set forth in Section 2.01(a) of the Credit
to the Assignee: Agreement (unless otherwise agreed to by the
Assignor and the Assignee)(2)
8. Letter of Credit As set forth in Section 2.01(c) of the Credit
Fees to the Assignee: Agreement (unless otherwise agreed to by the
Assignor and the Assignee)(3)
9. Notice:
ASSIGNOR:
- --------
(1) The Borrower and the Administrative Agent shall direct the entire amount
of the interest to the Assignee at the rate set forth in Section 1.08 of
the Credit Agreement, with the Assignor and Assignee effecting the agreed
upon sharing of the interest through payments by the Assignee to the
Assignor.
(2) Insert "Not Applicable" in lieu of text if no portion of the Total
Revolving Loan Commitment or Total Term Loan Commitment is being assigned.
Otherwise, the Borrower and the Administrative Agent shall direct the
entire amount of the Commitment Commission to the Assignee at the rate set
forth in Section 2.01(a) of the Credit Agreement, with the Assignor and
the Assignee effecting the agreed upon sharing of Commitment Commission
through payment by the Assignee to the Assignor.
(3) Insert "Not Applicable" in lieu of text if no portion of the Total
Revolving Loan Commitment is being assigned. Otherwise, the Administrative
Agent shall direct the entire amount of the Letter of Credit Fees to the
Assignee at the rate set forth in Section 2.01(c) of the Credit Agreement,
with the Assignor and the Assignee effecting the agreed upon sharing of
Letter of Credit Fees through payment by the Assignee to the Assignor.
<PAGE> 368
EXHIBIT N
Page 8
ANNEX I
______________________________
______________________________
______________________________
______________________________
Attention:
Telephone:
Telecopier:
Reference:
ASSIGNEE:
______________________________
______________________________
______________________________
______________________________
Attention:
Telephone:
Telecopier:
Reference:
Payment Instructions:
ASSIGNOR:
______________________________
______________________________
______________________________
______________________________
Attention:
<PAGE> 369
EXHIBIT N
Page 9
ANNEX I
Reference:
ASSIGNEE:
______________________________
______________________________
______________________________
______________________________
Reference:
<PAGE> 370
EXHIBIT N
Page 10
ANNEX I
Accepted and Agreed:
[NAME OF ASSIGNEE] [NAME OF ASSIGNOR]
By __________________ By _____________________
___________________ _____________________
(Print Name and Title) (Print Name and Title)
<PAGE> 1
Exhibit 10.3
FORM OF
NRTC/MEMBER AGREEMENT
FOR MARKETING AND DISTRIBUTION
OF DBS SERVICES
This Agreement is made by and between the NATIONAL RURAL
TELECOMMUNICATIONS COOPERATIVE, a District of Columbia corporation ("NRTC"),
________________________ ("Member") on this ___ day of ______________, 199__.
Capitalized terms used herein and not otherwise defined shall have the meaning
given them in the Exhibits.
WHEREAS, Hughes Communications Galaxy, Inc. ("HCG") has obtained
authorization from the Federal Communication Commission ("FCC") to construct,
launch and operate one or more satellites and to transmit on 27 frequencies (the
"HCG Frequencies") from the 101(degree) W.L. orbital location to provide Ku-Band
Direct Broadcast Service ("DBS") to the Continental United States ("CONUS").
WHEREAS, NRTC has entered into an agreement with HCG (the "HCG
Agreement") in which NRTC has obtained the rights to distribute through its
members and others certain DBS Services to rural America;
WHEREAS, HCG intends to distribute sports, movies and other video
entertainment and information programming as its own DBS business ("DirecTv")
over the 101(degree) satellite(s) and to make such programming available to NRTC
for distribution through its members and others;
WHEREAS, NRTC wishes to provide Member with the right to distribute
such DBS Services to Subscribers, and Member wishes to become a distributor of
NRTC's DBS Services and HCG's DirecTv, if available, and to compensate NRTC for
these services;
NOW, THEREFORE, in consideration of the mutual promises set forth
below and for other good and valuable consideration, the adequacy and receipt of
which are hereby acknowledged, NRTC and Member hereby mutually agree as follows:
1. DBS SERVICES. The DBS Services to be provided by NRTC to Member for
distributing to Committed Member Residences as defined under this Agreement
shall consist of twenty (20) Cable Programming Services (the "Cable
Programming"); the satellite transponder capacity; telementry, tracking and
control ("TT&C") services to monitor the status of the satellite; service and
facilities necessary to uplink, transmit and process the signals to deliver the
Cable Programming access control services to control subscriber access to
<PAGE> 2
programming, including report-back information related to purchase data;
security services designed to prevent and/or respond to and remedy security
breaches; subscriber terminal equipment availability and NRTC support services,
all as set forth in Exhibit A. The Cable Programming shall be provided in
accordance with the terms and conditions set forth in Exhibit B. NRTC may also
provide Member, if available, distribution rights to serve commercial
establishments and to provide certain data and audio services under terms and
conditions to be later agreed to by Member and NRTC.
2. NRTC ROLE (a) Grant of Distribution Rights. NRTC grants to Member
the exclusive right to market and sell DBS Services transmitted over the HCG
Frequencies to Committed Member Residences as set forth in Exhibit C. Any
Committed Member Residence which subscriber to DBS Services shall be deemed a
"Subscriber" under this Agreement. Committed Member Residences shall be
determined by and limited to the specific residences listed or the specific
geographic area described in Exhibit C, as appropriate. To
the extent consistent with this Agreement and the terms of the Cable Programming
agreements, Member shall have the right to establish the terms and conditions
upon which it will market and sell DBS Services to Committed Member Residences
and subject to its payment to NRTC or HCG, as appropriate of all sums required
under this Agreement, shall be entitled to all revenues from such marketing and
sales; provided, however that any rights to distribute any of the Cable
Programming shall extend only to the extent and for the duration as may be
provided under the relevant Cable Programming agreements. Member acknowledges
that NRTC may be unable to obtain the right for Member to distribute Cable
Programming to residences that have cable television service available.
(b) DirecTv. NRTC grants to Member the non-exclusive right to market
and sell DirecTv to Committed Member Residences to the extent such rights are
granted to NRTC by HCG under the HCG Agreement. Member shall be compensated for
its marketing and sale of DirecTv as specified in Exhibit D and in accordance
with the terms and conditions contained in Exhibit D. The parties acknowledge
that HCG does not now have the right to distribute DirecTv programming and has
no obligation to NRTC or to Member to obtain such rights, but that HCG intends
to use reasonable efforts to obtain such rights. Member acknowledges that HCG,
on its own behalf, may market and sell DirecTv to residences, including
Committed Member Residences.
(c) Marketing. NRTC shall assist Member in marketing and promoting DBS
Services. NRTC shall develop marketing materials and other information to be
used by Member for national and local advertising and promotion of DBS Services.
Marketing materials shall be provided to Member at no cost or at NRTC's cost.
(d) Support Services. NRTC shall develop and provide Member with
<PAGE> 3
subscriber authorization and data reporting capability, retail billing services,
central office subscriber support services and other services related to the
provision of DBS Services.
(e) Subscriber Terminal Equipment Availability. NRTC at Member's
request shall contract with Thomson Consumer Electronics, Inc. ("TCE") to
deliver subscriber terminal equipment to Member in quantities and under terms to
be set forth in a separate agreement between Member and NRTC. TCE has
represented to NRTC that the subscriber terminal equipment will be available in
accordance with the terms and conditions set forth in Exhibit A.
3. MEMBER ROLE. (a) Marketing. Member shall at its own expenses, (i)
use best efforts to promote, market and sell DBS Services to Committed Member
Residences, (ii) participate in NRTC sponsored promotional and advertising
campaigns and cooperate with NRTC in marketing tests and research, as reasonably
requested by NRTC; (iii) respond promptly to all inquires about DBS Services;
and (iv) use print, electronic and other media to promote the sale of DBS
Services to the extent commercially practical. Member shall determine the
specific timing amount of funds expended in such promotion, marketing and sales.
(b) Subscriber Authorization. Member shall (i) authorize new
Subscribers through the Conditional Access Management Center ("CAMC") in
accordance with procedures established by NRTC and provide NRTC with the
Subscriber's name, address, zip code, descramble identification and such other
information as NRTC may reasonably request; (ii) maintain information regarding
the location of each Subscriber's descrambler; (iii) require all Subscribers to
notify Member in the event the location of any descrambler is changed; (iv)
promptly proved new descrambler location information and all updated Subscriber
information to NRTC; and (v) require Subscriber to agree to NRTC audit
procedures as necessary to maintain current information regarding the location
of descramblers. "Authorized Subscriber" means any and all Subscribers that are
authorized by the CAMC as of the 15th of any given billing month to receive any
and all DBS Services.
(c) Billing and Collection. Member shall at its own expense (i)
receive and process orders; (ii) bill and collect payment; (iii) service
subscribers accounts; (iv) keep accurate books of account covering all
transactions relating to its responsibilities under this Agreement; and (v)
provide NRTC with such records and account information as may be reasonably
requested by NRTC.
(d) Unauthorized Reception. Member shall take all reasonable steps
required to ensure that DBS Services are not received at any unauthorized
location or in any unauthorized manner. NRTC reserves the right to deny access
to DBS Services to Subscribers whose descramblers have been the subject of
unauthorized or inappropriate use as determined by NRTC. Member shall cooperate
<PAGE> 4
with NRTC and assist in implementing security measures designed to prevent
and/or respond to or remedy security breaches related to the DBS Services.
4. PAYMENT TERMS. (a) Committed Member Payment and NRTC Marketing and
Development Fee. Upon execution of this Agreement, Member shall pay NRTC on a
one-time basis the Committed Member Payment and the NRTC Marketing and
Development Fee in the amounts specified in Exhibit C.
(b) Monthly Operating Fees. Member shall pay NRTC monthly operating
fees ("Monthly Fees") on a per Authorized Subscriber basis in accordance with
the terms and conditions set forth in Exhibit E. NRTC shall notify Member at
least 30 days in advance of any adjustments to the Monthly Fees.
(c) Monthly Security Services Fees. Member shall pay NRTC a monthly
fee for security services on a per Authorized Subscriber basis ("Security Fee")
in accordance with the terms and conditions set forth in Exhibit F. Member shall
notify NRTC of any activities which could result in a Security Breach (as
defined in Exhibit G). If NRTC is notified of a Security Breach by HCG and such
breach has not been cured in accordance with the procedures outlined in Exhibit
G, NRTC shall notify Member and Member's Security Fee shall be suspended until
the Security Breach is cured; provided, however, that such suspension shall not
relieve Member of its obligation to pay NRTC the amount of any Security Fee due
and payable to NRTC for services provided prior to such notice nor relieve
Member of any other payment obligations under this Agreement.
(d) Monthly Programming Fees. Member shall pay NRTC on a monthly basis
all programming fees, compulsory copyright license fees and other fees required
for the Cable Programming on a per Authorized Subscriber basis. Programming fees
shall be based substantially on accepted cable industry rate cards. NRTC shall
provide Member with a rate card specifying applicable fees prior to the Service
Commencement Date, which shall be attached hereto as Exhibit H. In addition,
beginning in the fourth year of operation, if required under the Cable
Programming agreements, Member shall agree to pay the cost of programming fees
for minimum subscriber levels of up to five percent (5%) (based on Member's
total number of Committed Member Residences) and/or any fees, guarantees,
penalties or costs due under the programming agreements that are attributable to
Member's failure to provide the required minimum subscriber level.
(e) NRTC Margin. NRTC shall be entitled to charge Member and Member
shall pay NRTC a reasonable margin on the cost of providing DBS Services under
this Agreement, as determined by NRTC's Board of Directors consistent with the
exercise of good faith and sound business judgment.
(f) Invoices. Bills rendered by NRTC to Member under this Agreement
shall be due and payable within 15 days of the date of invoice. Member shall be
<PAGE> 5
liable to NRTC for payment of all charges regardless of whether Member actually
collects or receives payment from Subscribers. Any charges due are delinquent if
not paid fifteen (15) days after the date of the invoice. Interest at a rate of
1.5% per month will be paid by Member on any balance owed to NRTC which is not
paid when due. Should Member fail to pay in a timely manner any fees or other
amounts due NRTC, then NRTC shall have the right to offset such amounts against
and deduct such amounts from any fees of sums payable to Member for marketing or
sale of DirecTv or other services under this Agreement.
(g) Place of Payment. All payments by Member pursuant to this
Agreement shall be made to NRTC at the address provided in Section 23 and shall
be deemed received and made only upon actual receipt by NRTC.
(h) Suspension of Services for Non-Payment. (I) If NRTC does not
receive full and timely payment from Member of the fees described in this
Section 4, after written notice to Member and a 10 day period to cure, NRTC may
(i) suspend any and all DBS Services to Member or Subscribers; (ii) provide all
DBS Services to and receive payment directly from Subscriber; and/or (iii)
commence collection procedures or judicial action, at law or in equity, to
collect such sums, damages, costs, liabilities and expenses (including, without
limitation, court costs and reasonable attorneys' fee and other third party
fee(s), collectively "Expenses"). In addition, NRTC may at any time identify
member in writing to HCG. If NRTC identifies Member to HCG, HCG may, in its sole
discretion, after written notice to Member, followed by a 15 day period to cure,
(i) suspend any and all DBS Services to Member and/or Subscribers and/or (ii)
commence collection procedures or judicial action, at law and in equity to
collect such sums, damages, costs, liabilities and Expenses. If Member does not
pay NRTC (or HCG, as appropriate), then NRTC also may exercise its rights
pursuant to Section 14.
(II) If NRTC (i) has received full payment of fees due from
Member, but does not timely pay HCG all or any portion of such fees that are due
HCG by NRTC or (ii) fails to identify Member to HCG as delinquent, then under
the HCG Agreement HCG may not suspend DBS Services to Member or Subscribers but
may thereafter require Member to pay such fees directly to HCG rather than to
NRTC under this Agreement.
5. SERVICE COMMENCEMENT, SERVICE TERM. (a) Service Commencement Date.
The Service Commencement Date "shall mean the date on which HCG commences
provision of DBS Services. The scheduled Service Commencement Date under the HCG
Agreement is April 1, 1994. This date is based upon the scheduled launch of the
satellite in December of 1993. Member acknowledges that the schedule Service
Commencement Date is subject to change due to delays in launching the satellite
and implementation and development of the other elements of DBS Services. Member
acknowledges that the Services Commencement Date may occur earlier than April 1,
<PAGE> 6
1994.
(b) Late Commencement Payments. If the Service Commencement Date has
not occurred by December 31, 1994, the HCG Agreement has not otherwise been
cancelled or terminated, HCG is required to pay to NRTC for a maximum of 36
months a monthly Late Commencement Payment in an amount equal to 0.95 percent
of the aggregate Committed Member Payments actually paid to HCG by NRTC
pursuant to the HCG Agreement ("Late Commencement Payment"). Upon receipt of
any such Late Commencement Payment from HCG, NRTC shall pay Member on a
quarterly basis its pro rata share based on the Committed Member Payment made
by Member under this Agreement. Any Late Commencement Payment due to Member at
the end of a month in which the Service Commencement Date occurs shall be pro
rated. No Late Commencement Payment shall be due or payable if the failure or
delay in the performance by HCG of its obligations results from any acts or
omissions of NRTC, Member, other NRTC Members or their agents. If the Services
Commencement Day does not occur by December 31, 1997, NRTC or HCG may terminate
the HCG Agreement, and in such event this Agreement may be terminated pursuant
to Section 13 and Member shall be entitled to receive refunds pursuant to
Section 12.
(c) Service Term. Unless this Agreement is cancelled, terminated, or
expires earlier, it shall remain in effect until HCG removes the satellite from
its assigned orbital location (the "Satellite Expiration Date"). In the event
the Satellite Expiration Date occurs earlier than ten (10) years from the
Service Commencement Date, Member shall receive a refund of its Committed Member
Payment in accordance with Section 12.
6. CONTRACT DECISION PROCESS. (a) Conditions. If HCG has not met
certain conditions under the HCG Agreement related to development of DBS
Services and/or obtaining the necessary Cable Programming by December 1, 1992,
either NRTC or HCG may by December 11, 1992, terminate the HCG Agreement. If HCG
has not obtained the necessary Cable Programming but has met the other
conditions related to development of DBS Services, NRTC may elect not to
terminate the HCG Agreement and instead may attempt to obtain the Cable
Programming on its own behalf. If NRTC does not assume by March 1, 1993, the
obligation to obtain the Cable Programming, the HCG Agreement will terminate at
that time.
(b) Threshold Payment. If NRTC has not paid HCG at least $100 million
in aggregate Committed Member Payments on or before December 11, 1992, the HCG
Agreement may terminate.
(c) Escrow Account. All Committed Member Payments paid to NRTC prior
to December 1, 1992 (or March 1, 1993, applicable) shall be placed in an
interest-bearing Escrow Account. If the HCG Agreement is terminated as described
above, the escrowed Committed Member Payments plus accrued interest shall be
<PAGE> 7
released to NRTC. Upon receipt, NRTC shall refund to Member its Committed Member
Payment plus its pro-rata share of any occurred interest. If the HCG Agreement
is not terminated, then the Committed Member Payments in the Escrow Account,
plus any accrued interest, shall be released to HCG.
7. REPRESENTATIONS, WARRANTIES, AND COVENANTS. (a) Authority. NRTC and
Member each represent and warrant to the other that it has all requisite power
and authority (i) to execute, deliver and perform this Agreement and all
agreements, documents and instruments executed and delivered by each in
connection with this Agreement; (ii) to own, lease or operate its property and
assets; and (iii) to carry on its business as presently conducted.
(b) Litigation. NRTC and Member each represent and warrant to the
other that, to the best of its knowledge there is no outstanding or threatened
judgement, threatened or pending litigation or proceeding, involving or
affecting the transactions provided for in, or contemplated by, this Agreement,
except as has been previously disclosed in writing by either party to the other.
(c) Laws. NRTC and Member each shall comply with all FCC and other
governmental (whether international, federal, state, municipal, or otherwise)
statutes, laws, rules, regulations, ordinances, codes, directives and orders of
any such governmental agency, body, or court applicable to it regarding the
provision of DBS Services.
(d) Member. For purposes of this Agreement, the term "Member" shall
include both Members and Affiliates of NRTC as defined in the Bylaws or NRTC.
Member shall comply with and be bound by the provisions of the Articles of
Incorporation and Bylaws of NRTC and by such policies as it may adopt from time
to time.
8. INDEMNIFICATION. (a) Member shall indemnify and hold harmless NRTC,
its other Members, its affiliated companies, and its officers, directors,
employees and agents from all liabilities, claims, costs, damages and Expenses
arising out of any breach or claimed breach of any representations, warranties
or obligations of Member pursuant to this Agreement.
(b) Member shall indemnify and hold harmless NRTC, its other Members,
HCG and their affiliated companies, and its officers, directors, employees and
agents from all liabilities, claims, cost, damages and Expenses arising out of
any breach or claimed breach of any representation, warranties or obligations of
Member pursuant to this Agreement.
(c) If NRTC or HCG determines that its provisions of any programming
violates any applicable laws, NRTC or HCG may cease providing such programming
<PAGE> 8
to Member. Member agrees that NRTC, HCG or program providers may change,
black-out, terminate or discontinue at any time any Cable Programming being
delivered. NRTC reserves the right with the exercise of good faith and
reasonable business judgement, to substitute or to change programming or modify
the terms and conditions related to the programming offered. In such event, NRTC
shall use reasonable best efforts to claim and provide Member alternate
programming. Member shall indemnify and hold harmless NRTC, its other Members,
HCG and their respective affiliated companies, officers, directors, employees
and agents from and against any and all liabilities, claims, costs, damages and
Expenses caused by or resulting from the content of the Cable Programming or the
cessation of any DBS Services.
(d) Member recognizes that pursuant to the HCG Agreement, HCG may
deliberately preempt or interrupt the use of all or a portion of DBS Services in
unusual or abnormal situations to protect the overall performance of the
satellite and shall indemnify and hold harmless NRTC and HCG, and their
affiliated companies, officers, directors, employees and agents from and against
any and all liabilities, claims, costs, damages and Expenses resulting from such
cessation of any DBS Services.
9. TRADEMARKS AND LOGOS. Member may use NRTC's or HCG's trademarks,
services marks or logos only in accordance with any licensing arrangements
established by NRTC and/or HCG, as appropriate. NRTC also may make available
approved promotional material with the names, trademarks and/or logos of HCG or
the programming providers for Member's use in marketing, advertising and
promotion of DBS Services or DirecTv in accordance with guidelines furnished by
NRTC. Member may not otherwise use any trademark, servicemark or logo of NRTC,
HCG or any programming providers in any promotional, marketing or advertising
materials without the permission of the owner of same. Member shall contact NRTC
to obtain permission from HCG or the programming providers when necessary and
for any information and assistance pertaining to HCG or the programming
providers.
10. AVAILABILITY OF INFORMATION AND CERTIFICATE OF COMPLIANCE.
(a) Statements. Member shall provide within 30 days of a request by
NRTC a statement, certified by an appropriate officer of Member or in
independent billing service, setting forth the number of Subscribers receiving
DBS Services during the month specified in such request and stating to the best
of the officer's knowledge that DBS Services were provided and distributed
during such month in full compliance with all of the provisions of this
Agreement. At NRTC request, Member shall permit NRTC or its representatives at
reasonable times during normal business hours (or at any time if Member is in
default or breach of this Agreement) to review during the term of this Agreement
and for one (1) year thereafter, its Subscriber accounting system.
<PAGE> 9
(b) Accuracy of Information. If requested by NRTC, Member shall within
ninety (90) days following the end of Member's fiscal year, during any portion
of which this Agreement is in effect, provide a letter addressed to NRTC signed
by an appropriate officer of Member which attests to the completeness and
accuracy of all information supplied to NRTC by Member during the preceding
fiscal year. Member's obligation to supply letters of attention shall continue
after the termination of this Agreement until NRTC receives the letter with
respect to the last fiscal year during any portion of which this Agreement is in
effect.
11. OUTAGE CREDITS. In the event of the occurrence of outages in
portions of DBS Services, as generally described in Exhibit I, HCG is required
to provide certain credits to NRTC pursuant to the HCG Agreement, to be applied
toward fees for future services. NRTC shall make all such credits provided by
HCG available to Member on a prorated basis in consideration of the amount of
such credits and the number of Members entitled to receive a proration of such
credits.
12. REFUNDS TO MEMBER. Pursuant to the HCG Agreement, HCG is required
to provide refunds to NRTC as generally described in Exhibit J. NRTC shall make
all refunds it receives from HCG available to Member on a prorated basis in
consideration of the amount of the refunds, the amount of Member's Committed
Member Payment and the number of Members entitled to receive a portion of the
refunds. Member recognizes that refunds, if any, shall not include interest.
13. TERMINATION OF HCG AGREEMENT. In the event the HCG Agreement is
terminated, except as provided in Section 15, NRTC may terminate this Agreement
and neither party shall have any further obligations regarding the other except
as specifically provided in this Agreement; provided, however, that Member shall
receive refunds from NRTC as may be due and payable under Section 12 of this
Agreement.
14. BREACH BY MEMBER. If Member fails to make any and all payments due
to NRTC (or HCG, as appropriate) under this Agreement, or otherwise breaches or
fails to perform a material obligation under this Agreement, in addition to any
other remedies available in law or in equity, NRTC may in its sole discretion
and upon 30 days written notice to Member, including therein, a 10 day period
for Member to cure, (i) suspend all DBS Services to Member and/or Subscribers;
(ii) terminate this Agreement; and (iii) bring an action for and immediately
declare due and payable all sums due and owing NRTC (or HCG, as appropriate). In
addition, if HCG has suspended any or all of the DBS Services to Member and/or
Subscribers for sixty (60) or more days under Section 4(h), then NRTC may
terminate this Agreement immediately upon notice to Member, and HCG may bring an
action at law or in equity to collect from Member the sums due under Section 4
to NRTC (or HCG, as appropriate) and the liabilities, costs, damages and
<PAGE> 10
Expenses associated therewith. In the event of a termination under this Section,
neither NRTC nor HCG shall be responsible or liable to Member or others for any
damages, costs or Expenses arising therefrom; nor shall NRTC or HCG owe or be
required to provide Member any refund of amounts previously paid to NRTC or HCG
by Member. Upon such termination, Member shall have no further right to provide
DBS Services to any Subscribers and DBS Services may be provided to the
Subscribers directly by NRTC or any other distributor as NRTC may appoint.
15. NRTC BREACH OF HCG AGREEMENT. If the HCG Agreement is terminated
or cancelled as a result of a default or breach by NRTC, HCG is obligated to
NRTC under the HCG Agreement to continue to provide DBS Services to Member
(subject to Section 4(h)) either, at HCG's option, (i) by the assumption by HCG
of NRTC's rights and obligations under this Agreement (which assumption is
hereby expressly permitted upon written notice to Member) or (ii) under a new
agreement containing substantially the same terms or terms no less favorable
than those provided Member under this Agreement. This provision does not apply
in the case of a termination under Section 6.
16. LIMITATION OF LIABILITY. NOTWITHSTANDING ANY OTHER PROVISIONS IN
THIS AGREEMENT TO THE CONTRARY, NRTC SHALL NOT BE LIABLE TO MEMBER FOR ANY
INDIRECT, CONSEQUENTIAL OR INCIDENTAL DAMAGES, INCLUDING, WITHOUT LIMITATION,
LOSS OF REVENUE, LOSS OF CUSTOMERS OR CLIENTS, CLAIMS OF CUSTOMERS, LOSS OF
GOODWILL OR LOSS OF PROFITS OR MARGINS, ARISING IN ANY MANNER FROM THIS
AGREEMENT AND THE PERFORMANCE OR NON-PERFORMANCE OF ITS OBLIGATIONS. ANY AND ALL
EXPRESS AND IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR ANY PURPOSE OR USE, ARE EXPRESSLY EXCLUDED AND
DISCLAIMED BY NRTC EXCEPT TO THE EXTENT SPECIFICALLY AND EXPRESSLY PROVIDED FOR
HEREIN. IT EXPRESSLY IS AGREED THAT NRTC'S SOLE OBLIGATIONS AND LIABILITIES
RESULTING FROM A BREACH OF THIS AGREEMENT AND MEMBER'S EXCLUSIVE REMEDIES FOR
ANY CAUSE WHATSOEVER (INCLUDING, WITHOUT LIMITATION, LIABILITY ARISING FROM
NEGLIGENCE) ARISING OUT OF OR RELATING TO THIS AGREEMENT AND/OR THE TRANSACTIONS
<PAGE> 11
CONTEMPLATED HEREIN ARE THOSE SET FORTH IN SECTIONS 6, 11 AND 12 AND ALL OTHER
REMEDIES OF ANY KIND ARE EXPRESSLY EXCLUDED.
17. INJUNCTIVE RELIEF. NRTC and Member each shall have the right to
obtain injunctive relief, if necessary, in order to prevent the other party from
willfully breaching its obligations under this Agreement or to compel the other
party to perform its obligations under this Agreement. If either party should
bring an action against the other in order to enforce any provision of this
Agreement, the prevailing party shall be entitled to recover its reasonable
attorneys fees and costs in addition to any other remedy it may have.
18. FORCE MAJEURE. Any failure or delay of performance shall not be
deemed a breach of this Agreement by NRTC if such failure or delay results from
any acts of God, labor, dispute, breakdown of facilities, failure of equipment,
mechanical failure, weather, fire, flood, legal enactment, government order or
regulation, any act or omissions of Member or any similar cause beyond the
reasonable control of NRTC. Nothing in this Section shall be deemed to limit
Member's rights to receive Late Commencement Payments, release of escrowed
Committed Member Payment and any accrued interest, outage credit and refunds, if
applicable, pursuant to Sections 5, 6, 11 and 12 of this Agreement.
19. ASSIGNMENT AND TRANSFER. Member shall not assign or transfer,
directly or indirectly, in whole or in part, its rights or obligations under
this Agreement without the prior written consent of NRTC and HCG, which consent
shall be not unreasonably withheld , NRTC may transfer this Agreement in whole
to a successor of all or substantially all of its assets upon written notice to
Member.
20. CONFIDENTIALITY. (a) General. NRTC and Member shall hold in
confidence all provisions of this Agreement and all information provided by
either party to the other in connection with this Agreement. NRTC and Member
acknowledge and agree that all information related to this Agreement, not
otherwise known to the public, is confidential and proprietary and is not to be
disclosed to third persons (other than to affiliates, officers, directors,
employees and agents of NRTC and Member, each of whom is bound by this
provision) without the prior written consent of both Member and NRTC, except:
(i) at the written direction of the other party; (ii) to the extent necessary to
comply with law or valid court order of a court of competent jurisdiction, in
which event the party shall notify the other party as promptly as practicable
(and, if possible, prior to making any disclosure) and shall seek confidential
treatment of the information; (iii) as part of its normal reporting or review
procedures to its parent company, its auditors and its attorneys who agree to be
bound by this Section; (iv) in order to enforce any rights pursuant to this
Agreement (v) in order to comply with the provisions of any programming
agreements or copyright licensing requirements; (vi) to obtain appropriate
<PAGE> 12
insurance, provided the insurance company agrees in writing to be bound by this
Section; (vii) to obtain financing; provided that any person or entity providing
financing agrees in writing to be bound by this Section; (viii) to obtain
programming services; (ix) and to the extent NRTC may be permitted or required
to disclose information or provide this Agreement to HCG under the HCG
Agreement.
(b) Subscriber Information. NRTC acknowledges that Member has
substantial proprietary interests and rights to subscriber information and
agrees to maintain all subscriber information on a strictly confidential basis.
NRTC and Member each further covenant that except as provided in Section 4(h)
and Section 14 under no circumstances will use or allow others to use the
subscriber information for any reason other than to verify amounts due under the
terms of this Agreement and for purposes as are approved in advance and in
writing by the other party. In the event a Subscriber subscribes to both DBS
Services and DirecTv, NRTC and Member recognize that HCG shall also have
proprietary interests in the subscriber information.
(c) Confidentiality Survival. All provisions in this Agreement
relating to the confidentiality of information shall survive the termination,
expiration, cancellation or rescission of this Agreement for a period of five
(5) years.
21. CONSTRUCTION AND MODIFICATION OF AGREEMENT. The existence,
validity, construction, operation and effect of this Agreement and all Exhibits
shall be determined in accordance with and be governed by the laws of the
District of Columbia. The Agreement and Exhibits constitute the entire agreement
between the parties and supersede all previous understandings, commitments and
representations concerning the subject matter. Each party acknowledges that the
other party has not made any representations other than those that are contained
in this Agreement and Exhibits. This Agreement and Exhibits may not be amended
or modified in any way, except (i) as provided in the Agreement or Exhibits or
(ii) by a writing signed by an authorized officer of the party against whom the
amendment, modification or waiver is sought to be enforced. In addition, any
amendment or modification to this Agreement or the Exhibits is contingent on
HCG's prior written approval (which shall not be unreasonably withheld), except
the amounts due and payable to NRTC for Committed Member Payments, TT&C, Ground
Services and Security Services may be modified without HCG's prior approval to
the extent that such modified amounts are not less than those contained in the
HCG Agreement.
22. NO INFERENCE. No provision of this Agreement will be interpreted
against any party solely because the party or its legal representation drafted
the provision.
23. NOTICES. All notices and other communications from either party to
<PAGE> 13
the other under this Agreement shall be in writing and shall be deemed received
upon actual receipt or upon the expiration of the fifth business day after being
deposited in the United States' mails, postage prepaid, addressed to the other
party as follows:
TO NRTC: TO MEMBER:
National Rural Telecommunications
Cooperative
Woodland Park
Herndon, VA 22071
Attention: Chief Executive Officer
cc: Executive Director
24. SEVERABILITY. Nothing contained in this Agreement shall be
construed to require the commission of any act contrary to law. Wherever there
is any conflict between any provision of this Agreement and any law, the law
shall prevail and this Agreement shall be limited only to the extent necessary
to permit compliance with the minimum legal requirement. No other provisions of
this Agreement shall be affected and all other provisions shall continue in full
force and effect.
25. TAXES. Member shall be responsible for and shall pay all
applicable property, sales, use or similar taxes imposed by any local, state,
national or international, public or quasi-public governmental entity, in
respect to Member's marketing, sale, distribution or other activities related to
DBS Services.
26. INTENDED THIRD PARTY BENEFICIARY. The provisions of this Agreement
are for the benefit of the parties. It is expressly agreed and understood that
HCG is an intended third party beneficiary of this Agreement. No other persons
or parties are intended as beneficiaries of this Agreement and none shall have
rights to enforce or benefit from the provisions of this Agreement. NRTC and
Member acknowledge and agree that (a) HCG is not a party to this Agreement and
is not bound by or liable to NRTC or Member under the provisions of this
Agreement except to the extent that HCG assumes NRTC's rights and obligations
under this Agreement pursuant to Section 15, and (b) that Member is not a third
party beneficiary under the HCG Agreement.
27. NON WAIVER OF BREACH. Either party may specifically waive any
breach of this Agreement by the other party, provided that no waiver shall be
binding or effective unless in writing and no waiver shall constitute a
continuing waiver of similar or other breaches. A waiving party, at any time,
<PAGE> 14
and upon notice given in writing to the breaching party, may direct future
compliance with the waived term or terms of this Agreement, in which event the
breaching party shall comply as directed from that time forward.
28. EXHIBITS. Each and every Exhibit associated with this Agreement,
and the terms and conditions contained in the Exhibits, are incorporated into
and made a part of this Agreement. Certain Exhibits may be amended from time to
time, pursuant to Section 21.
29. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, and all counterparts
together shall constitute but one and the same document.
30. COOPERATION. Each party shall cooperate with the other and shall
execute additional documents as are reasonably necessary in order to carry out
the provisions of this Agreement.
<PAGE> 15
WHEREOF, each of the parties to this Agreement has duly executed and
delivered this Agreement as of the day and year indicated below.
National Rural Member Panora Telecommunications, Inc.
Telecommunications Cooperative
By: By: /s/ Dale C. Grotjohn
--------------------------- ---------------------------
Dale C. Grotjohn
Title: CEO Title: Manager/Secretary
--------------------------- ---------------------------
Date: Nov. 5, 1992 Date: 9-24-92
--------------------------- ---------------------------
<PAGE> 16
FORM OF
AMENDMENT TO
NRTC/MEMBER AGREEMENT FOR MARKETING
AND DISTRIBUTION OF DBS SERVICES
This Amendment ("Amendment") to that certain NRTC/Member Agreement For
The Marketing And Distribution of DBS Services, dated ______________, 199__
("Agreement"), is made by and between ___________________________ ("Member") and
NATIONAL RURAL TELECOMMUNICATIONS COOPERATIVE ("NRTC").
A. For other good and valuable consideration, the receipt and adequacy
of which is hereby acknowledged, the parties hereto amend the Agreement and
Exhibits as follows:
1. Section 1 of the Agreement is hereby deleted in its entirety and
the following is inserted in lieu thereof:
1. DBS SERVICES. The DBS Services to be provided by NRTC to Member for
distribution to Committed Member Residences and/or to Commercial Establishments
(as both are defined under and subject to the terms of this Agreement) shall
consist of twenty-two (22) cable programming services ("Cable Programming"); all
other video, audio, data packages, "a la carte" programming services and other
services which are transmitted by HCG over the HCG Frequencies to Committed
Member Residences and/or to Commercial Establishments to the extent HCG has
obtained such rights ("HCG DirecTv"); the satellite transponder capacity;
telemetry, tracking and control ("TT&C") services to monitor the status of the
satellite; services and facilities necessary to uplink, transmit and process the
signals to deliver Cable Programming; access control services to control
subscriber access to programming, including report-back information related to
purchase data; security services designed to prevent and/or respond to and
remedy security breaches; subscriber terminal equipment availability and NRTC
support services, all as set forth in Exhibit A. Cable Programming shall be
provided in accordance with the terms and conditions set forth in Exhibit B,
which exhibit may be amended by NRTC from time to time. Cable Programming and
HCG DirecTv are referred to in this Agreement collectively as "Programming".
2. NRTC ROLE. (a) Grant of Distribution Rights. NRTC grants to Member
the exclusive right to market, sell and retain revenue from Programming (except
Non Select Services as defined in Section 2(b)) transmitted over the HCG
Frequencies directly to Committed Member Residences as set forth in Exhibit C.
Programming and the terms and conditions with respect to Programming marketed
and sold to Committed Member Residences are set forth in Exhibit H, which
exhibit may be amended by NRTC from time to time. Any Committed Member Residence
and/or Commercial Establishment as applicable, which subscribes to Programming
shall be deemed a "Subscriber" under this Agreement.
<PAGE> 17
Committed Member Residences shall be determined by and limited to the specific
residences listed or the specific geographic area described in Exhibit C, as
appropriate. Member shall also have the right to market, sell and retain revenue
from the distribution of Programming (except Non Select Services) directly to
commercial establishments such as hotels, bars and similar establishments being
determined by and limited to those locations within counties or zip codes for
which Member has exercised Member Contract Options C-2, C-6, C-7, C-8 or C-9.
The Programming that is available to be marketed and sold to Commercial
Establishments shall be governed by the terms and conditions to be set forth in
Exhibit H-1, which exhibit may be amended by NRTC from time to time. To the
extent consistent with this Agreement and the terms of the Programming
agreements, Member shall have the right to establish the terms and conditions
upon which it will market and sell Programming (except Non Select Services) to
such Committed Member Residences and/or Commercial Establishments and, subject
to its payment to NRTC or HCG, as appropriate, of all sums required under this
Agreement, shall be entitled to all revenues from such marketing and sales to
Committed Member Residences and Commercial Establishments ("Member Revenues").
Any rights to distribute, market, sell and retain revenue from any of the
Programming shall be subject to Section 8 of this Agreement and shall extend
only to the extent and for the duration as may be provided under the relevant
Programming agreements. Member acknowledges that NRTC may be unable to obtain
the right for Member to distribute Programming to residences that have cable
television services available. With respect to Programming, NRTC shall pay to
Member on a pro rata basis all other net revenues that NRTC receives from HCG
which are directly attributable to Committed Member Residences and/or Commercial
Establishments. The parties acknowledge that HCG does not now have the right to
distribute all of the planned HCG DirecTv and has no obligation to NRTC or to
Member to obtain all of such rights, but that HCG intends to use reasonable
efforts to obtain all of such rights.
3. Section 2(b) of the Agreement is hereby deleted in its entirety and
the following is inserted in lieu thereof:
(b) Non Select Services. If a services or rights provider of HCG
DirecTv requires payment of minimum subscriber guarantees, advance payments or
other similar commitments (collectively, "Commitment"), and if and to the extent
NRTC requires Member to pay a pro rata share of such Commitment, NRTC shall
establish and notify Member of its share ("Member's Share"). If Member pays its
Member's Share, then such programming services shall be deemed Programming. If
Member is unwilling or unable to pay timely its Member's Share, or if NRTC
decides against such Commitment and does not establish a Member's Share, then
HCG shall become the exclusive distributor of such service(s) vis-a-vis NRTC and
Member ("Non Select Services") and, in such event, Member shall bill and collect
and pay to HCG or NRTC, as appropriate, the revenues for Non Select Services to
Committed Member Residences and/or Commercial Establishments, as applicable.
<PAGE> 18
Member may retain five percent (5%) of the gross revenues collected by Member
for the Non Select Services and shall remit to NRTC or HCG, as appropriate, the
amounts pursuant to Section 4(d)(iii).
4. Section 2(d) of the Agreement is hereby deleted in its entirety and
the following is inserted in lieu thereof:
(d) Support Services. NRTC shall develop and provide Member with
Subscriber authorization, retail billing and data, reporting services. With
respect to these support services. NRTC shall (i) provide and perform all
obligations necessary in connection with the DBS Billing and Authorization
System ("NRTC Billing System") described in the DBS Billing and Authorization
System Specifications (Section 7 of Exhibit A, "Specifications"), (ii) monitor
and control all subcontractors under agreement to provide specific portions of
the NRTC Billing System and (iii) request and manage any and all identified
change orders with subcontractors for NRTC Billing System improvements. From
time to time, NRTC may amend the Specifications, or any exhibits related to the
Specifications. NRTC shall provide further central office Subscriber support
services and other services related to the provisions of DBS Services as
circumstances dictate and shall notify Member of any amendments to the
Specifications as soon as reasonably possible.
5. Section 3(c) of the Agreement is hereby deleted in its entirety and
the following is inserted in lieu thereof:
(c) Billing and Collection. Member shall utilize the NRTC Billing
System according to procedural guidelines and requirements established and
amended by NRTC from time to time and shall perform Subscriber payment
processing described herein in a timely manner and on an accurate and efficient
basis. Member shall, at its own expense, (i) receive and process Subscriber
orders, (ii) bill Subscriber by and through the NRTC Billing System ("Member
Billing(s)") (iii) perform all obligations and adhere to all standards outlined
in the Specifications, (iv) service Subscriber accounts, (v) keep accurate books
of account covering all transactions relating to its responsibilities under this
Agreement and (vi) provide NRTC with such records and account information as may
be reasonably requested by NRTC. Member shall collect and process Subscriber
payments pursuant to Member Billings using the system ("NRTC Remittance System")
described in Exhibit K, which exhibit may be amended by NRTC from time to time,
unless Member elects to use the Member Remittance System described in Exhibit
K-1 by completing the election set forth in Exhibit K-1. Member may change to
NRTC at least 90 days prior to Member's requested effective date for the change
and (2) NRTC provides written approval of such change, which approval shall not
be unreasonably withheld.
6. Section 4(d) of the Agreement is hereby deleted in its entirety and
<PAGE> 19
the following is inserted in lieu thereof:
(d) Monthly Programming Fees. Member shall pay NRTC on a monthly basis
the following: (i) All applicable programming fees, compulsory copyright license
fees and other fees required for the Programming. Cable Programming fees shall
be based substantially on accepted cable industry rate cards, as appropriate.
Applicable fees for the Programming marketed and sold to Committed Member
Residences are listed on Exhibit H. Applicable fees for marketing the
Programming available to Commercial Establishments are to be set forth on
Exhibit H-1. In addition, beginning in the fourth year of operation, if required
under the Cable Programming agreements, Member shall agree to pay the cost of
programming fees for minimum subscriber levels of up to five percent (5%) (based
on Member's total number of Committed Member Residences) and/or any fees,
guarantees, penalties or costs due under the programming agreements that are
attributable to Member's failure to provide the required minimum subscriber
level.
(ii) A sum equal to five percent (5%) of the monthly Member Billing(s)
for Programming, excluding the following: Non Select Services; authorization
fees; late fees; taxes; and other fees or charges billed to Subscribers that are
not attributable to Programming.
(iii) Subject to Section 2(b), all gross revenues collected from Non
Select Services, except when such revenues are paid directly to HCG, as
appropriate.
7. Section 12 of the Agreement is hereby deleted in its entirety and
the following is inserted in lieu thereof:
12. REFUNDS. (a) Pursuant to the HCG Agreement, HCG is required to
provide refunds to NRTC as generally described in Exhibit J. NRTC shall make all
refunds its receives from HCG available to Member on a prorated basis in
consideration of the amount of the refunds, the amount of Member's Committed
Member Payment and the number of Members entitled to receive a portion of the
refunds. Member recognizes that refunds, if any, shall not include interest.
(b) Pursuant to the HCG Agreement, HCG is required to provide to NRTC
five percent (5%) of the Net Proceeds from any HCG Sale. The terms (a) "HCG
Sale" shall mean any sale or lease by HCG of any HCG Frequencies or associated
Transponder on either of the initial two DBS Satellites other than those
delivering Cable Programming and (b) "Net Proceeds" shall mean the proceeds net
of all NRTC and HCG expenses associated with an HCG Sale. NRTC shall pay all Net
Proceeds it receives from HCG to Member on a prorated basis in consideration of
the amount of the Net Proceeds, the amount of Member's Committed Member Payment
and the number of Members entitled to receive a portion of the Net Proceeds.
Member recognizes that Net Proceeds, if any, shall not include interest. HCG
<PAGE> 20
sale-leasebacks (or the like), public offerings or stock offerings,
inter-Affiliate transfers or restructures or other HCG sales or leases in which
NRTC continues to retain the distribution rights to Programming transmitted over
the capacity are specifically excluded from the definition of an HCG Sale. For
purposes of Section 13, the term "refunds" as used therein shall include Net
Proceeds, if applicable.
8. Section 20(b) of the Agreement is hereby deleted in its entirety
and the following is inserted in lieu thereof:
(b) Subscriber Information. NRTC acknowledges that Member has
substantial proprietary interests and rights to Subscriber information and
agrees to maintain all Subscriber information on a strictly confidential basis.
NRTC and Member each further covenant that except as provided in Section 4(h)
and Section 14 under no circumstances will it use or allow others to use the
Subscriber information for any reason other than to verify amounts due under the
terms of this Agreement and for purposes as are approved in advance and in
writing by the other party. In the event HCG distributes Non Select Services to
a Subscriber. NRTC and Member recognize that HCG shall also have proprietary
interests in such Subscriber's information.
9. Section 7 of Exhibit A to this Agreement is hereby deleted in its
entirety and replaced by the attached Section 7 dated February 14, 1994.
10. Exhibit D to this Agreement is hereby deleted in its entirety.
11. Exhibit E to this Agreement is hereby deleted in it entirety and
replaced by the attached Exhibit E dated February 14, 1994.
B. Except as specifically provided above, all terms and provisions of
the Agreement and Exhibits shall remain unmodified and in full force and effect.
C. This Amendment may be executed in counterparts, each of which shall
be deemed an original, and all such counterparts together shall constitute but
one and the same instrument.
<PAGE> 21
D. MEMBER SPECIFICALLY ACKNOWLEDGES THAT NRTC MUST MEET CERTAIN
REQUIREMENTS OF HCG BEFORE THIS AMENDMENT CAN BECOME LEGALLY BINDING. IF NRTC IS
SUCCESSFUL IN MEETING THESE REQUIREMENTS, NRTC SHALL EXECUTE THIS AMENDMENT. IF
NRTC IS UNSUCCESSFUL IN MEETING THESE REQUIREMENTS, THIS AMENDMENT SHALL BE NULL
AND VOID AND THE AGREEMENT SHALL CONTINUE IN FULL FORCE AND EFFECT UNMODIFIED BY
THE TERMS AND CONDITIONS OF THIS AMENDMENT.
IN WITNESS WHEREOF, the parties have executed this Amendment through
their duly authorized representatives effective as of the date signed by NRTC.
NATIONAL RURAL
TELECOMMUNICATIONS
COOPERATIVE
By: By:
----------------------- -------------------------
Date: Date:
Title: Title:
<PAGE> 22
SCHEDULE I
NRTC Member Agreements:
NRTC/Member Agreement for Marketing and Distribution of DBS Services
between NRTC and TV Tennessee, Inc. (formerly Rural TV Tennessee, Inc.)
dated July 12, 1993, as amended, and assigned to the Company pursuant
to an Application for Assignment effective as of November 20, 1996.
NRTC/Member Agreement for Marketing and Distribution of DBS Services
between NRTC and TV Tennessee, Inc. (formerly Rural TV Tennessee, Inc.)
dated July 12, 1993, as amended, assigned to Aurora Cable TV, Inc.,
pursuant to an Application for Assignment effective as of June 30,
1996, and assigned to the Company pursuant to an Application for
Assignment effective as of November 15, 1996.
NRTC/Member Agreement for Marketing and Distribution of DBS Services
between NRTC and Totah Telephone Company, Inc. dated October 16, 1992,
as amended, assigned to Images DBS Kansas, LLC pursuant to an
Application for Assignment dated as of May 23, 1994, and assigned to
the Company pursuant to an Application for Assignment effective as of
February 12, 1997.
NRTC/Member Agreement for Marketing and Distribution of DBS Services
between NRTC and Totah Telephone Company, Inc. dated October 16, 1992,
as amended, assigned to Images DBS Oklahoma, LLC pursuant to an
Application for Assignment dated as of May 23, 1994, and assigned to
the Company pursuant to an Application for Assignment effective as of
February 12, 1997.
NRTC/Member Agreement for Marketing and Distribution of DBS Services
between NRTC and Direct Satellite TV, Limited dated June 3, 1993, as
amended, and assigned to the Company pursuant to an Application for
Assignment effective as of February 19, 1997.
NRTC/Member Agreement for Marketing and Distribution of DBS Services
between NRTC and Thunderbolt Systems, Inc. dated August 10, 1992, as
amended, and assigned to the Company pursuant to an Application for
Partial Assignment effective as of March 11, 1997.
NRTC/Member Agreement for Marketing and Distribution of DBS Services
between NRTC and Deep East Texas Telecommunications, Inc. dated April
30, 1993, as amended and assigned to the Company pursuant to an
Application for Assignment effective as of April 11, 1997.
<PAGE> 23
NRTC/Member Agreement for Marketing and Distribution of DBS Services
between NRTC and Hickory Tech Corporation dated July 23, 1993, as
amended and assigned to the Company pursuant to an Application for
Assignment effective as of July 15, 1997.
NRTC/Member Agreement for Marketing and Distribution of DBS Services
between NRTC and Western Montana DBS, Inc., d/b/a Rocky Mountain DBS,
dated May 4, 1993, as amended, and assigned to the Company pursuant to
a Partial Application for Assignment effective as of May 1, 1997.
NRTC/Member Agreement for Marketing and Distribution of DBS Services
between NRTC and Coast Satellite TV dated December 16, 1992, as
amended, assigned to TEG - DBS Services, Inc. pursuant to an
Application for Assignment dated as of November 23, 1994 and assigned
to the Company pursuant to an Application for Assignment effective as
of June 12, 1997.
NRTC/Member Agreement for Marketing and Distribution of DBS Services
between NRTC and GVEC Rural; TV, Inc. dated July 8, 1997, as amended
and assigned to the Company pursuant to an Application for Assignment
effective as of July 8, 1997.
NRTC/Member Agreements for Marketing and Distribution of DBS Services
between NRTC and Argos Support Services Company, formerly Argos Direct
Broadcast Satellite Services dated July 16, 1994 and October 20, 1994,
as amended and assigned to the Company pursuant to an Application for
Assignment effective as of August 8, 1997.
NRTC/Member Agreement for Marketing and Distribution of DBS Services
between NRTC and Satellite Entertainment, Inc. dated January 29, 1993,
as amended and assigned to the Company pursuant to an Application for
Assignment effective as of July 14, 1997.
NRTC/Member Agreement for Marketing and Distribution of DBS Services
between NRTC and Jackson Electric Cooperation, Inc. dated August 19,
1992, as amended, assigned to the Company pursuant to an Application
for Assignment effective as of August 26, 1997.
NRTC/Member Agreement for Marketing and Distribution of DBS Services
between NRTC and Gardonville Systems, Inc. d/b/a Lakes Area TV dated
September 30, 1992, as amended, assigned to the Company pursuant to an
Application for Assignment effective as of September 2, 1997.
NRTC/Member Agreement for Marketing and Distribution of DBS Services
between NRTC and DBS, LC dated July 13, 1993, as amended, assigned to
the Company pursuant to an Application for Assignment effective as of
November 17, 1997.
<PAGE> 24
NRTC/Member Agreement for Marketing and Distribution of DBS Services
between NRTC and Dunn County Electric Cooperative, Inc. dated September
30, 1992, as amended, assigned to the DCE Satellite Entertainment, LLC
pursuant to an Application for Assignment effective as of October 14,
1997.
NRTC/Member Agreement for Marketing and Distribution of DBS Services
between NRTC and CTS Communications Corporation dated December 4, 1992,
as amended, assigned to the Company pursuant to an Application for
Assignment effective as of November 7, 1997.
NRTC/Member Agreement for Marketing and Distribution of DBS Services
between NRTC and Panora Telecommunications, Inc. dated September 24,
1992, as amended, assigned to the Company pursuant to an Application
for Assignment effective as of November 20, 1997.
NRTC/Member Agreement for Marketing and Distribution of DBS Services
between NRTC and Souris River Telecommunications Cooperative dated July
1, 1992, as amended, assigned to the Company pursuant to an Application
for Assignment effective as of November 21, 1997.
NRTC/Member Agreement for Marketing and Distribution of DBS Services
between NRTC and Cal-Ore Digital TV, Inc. dated July 29, 1993, as
amended, assigned to the Company pursuant to an Application for
Assignment effective as of December 9, 1997.
NRTC/Member Agreement for Marketing and Distribution of DBS Services
between NRTC and Cable & Communications Corporation and Mid-Rivers
Telephone Cooperative, Inc. dated June 3, 1992, as amended, assigned to
the Company pursuant to an Application for Assignment effective as of
December 24, 1997.
NRTC/Member Agreement for Marketing and Distribution of DBS Services
between NRTC and Missoula Electric Cooperative, Inc. dated November 17,
1992, as amended, assigned to the Company pursuant to an Application
for Assignment effective as of December 22, 1997.
NRTC/Member Agreement for Marketing and Distribution of DBS Services
between NRTC and Lakeland DBS, Inc. dated October 30, 1992, as amended,
assigned to the Company pursuant to an Application for Assignment
effective as of December 29, 1997.
NRTC/Member Agreement for Marketing and Distribution of DBS Services
between NRTC and Nemont Communications, Inc. dated July 6, 1992, as
amended, assigned to the Company pursuant to an Application for
Assignment effective as of January 14, 1998.
<PAGE> 25
NRTC/Member Agreement for Marketing and Distribution of DBS Services
between NRTC and Triangle Communication System, Inc. dated June 8,
1992, as amended, assigned to the Company pursuant to an Application
for Assignment effective as of January 20, 1998.
NRTC/Member Agreement for Marketing and Distribution of DBS Services
between NRTC and Wyoming Mutual Telephone Company dated December 2,
1992, as amended, assigned to the Company pursuant to an Application
for Assignment effective as of January 21, 1998.
NRTC/Member Agreement for Marketing and Distribution of DBS Services
between NRTC and Northwest Communications Cooperative dated June 29,
1992, as amended, assigned to the Company pursuant to an Application
for Assignment effective as of March 6, 1998.
NRTC/Member Agreement for Marketing and Distribution of DBS Services
between NRTC and North Willamette Telecom, Inc. dated November 3, 1992,
as amended, assigned to the Company pursuant to an Application for
Assignment effective as of March 10, 1998.
NRTC/Member Agreement for Marketing and Distribution of DBS Services
between NRTC and Beulahland Communications, Inc. d/b/a Sangre De Cristo
DBS dated June 8, 1992, as amended, assigned to the Company pursuant to
an Application for Assignment effective as of March 19, 1998.
NRTC/Member Agreement for Marketing and Distribution of DBS Services
between NRTC and SCS Communications & Security, Inc. dated January 1,
1993, as amended, assigned to the Company pursuant to an Application
for Assignment effective as of April 21, 1998.
<PAGE> 1
EXHIBIT 10.8
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT made and entered into as of the 3rd day of
November, 1997 by and between Golden Sky Systems, Inc., a Delaware corporation
(the "Company"), and William J. Gerski (the "Executive").
WHEREAS, the Executive is currently providing sales and managerial
services to the Company, and the Company desires to secure the continued
employment of the Executive in accordance herewith;
WHEREAS, the Executive is willing to commit himself to be employed by
the Company on the terms and conditions herein set forth and forego
opportunities elsewhere; and
WHEREAS, the parties desire to enter into this Agreement as of the
Effective Date (as hereinafter defined), setting forth the terms and conditions
for the employment relationship of the Executive with the Company during the
Employment Period (as hereinafter defined).
NOW, THEREFORE, IN CONSIDERATION of the mutual premises, covenants and
agreements set forth below, it is hereby agreed as follows:
1. Employment and Term.
(a) Employment. The Company agrees to employ the Executive, and the
Executive agrees to be employed by the Company, in accordance with the terms and
provisions of this Agreement during the Employment Period.
(b) Term and Extension. The term of this Agreement shall commence as of
the date hereof (the "Effective Date") and shall continue until the third
anniversary of the Effective Date (such term being referred to hereinafter as
the "Employment Period"). The Employment Period shall automatically be extended
for one year on the second anniversary of the Effective Date, and each
anniversary thereafter, unless either party gives the other written notice of
its intention not to extend the Employment Period at least 30 days prior to such
automatic extension, in which case no further extensions will occur.
(c) Non-Competition Agreement. As a condition precedent to the
execution of this Agreement by the Company, the Executive shall simultaneously
enter into a Non-Competition Agreement in form and substance satisfactory to the
Company (the "Non-Competition Agreement").
<PAGE> 2
2. Duties and Powers of Executive.
(a) Position; Location. During the Employment Period, the Executive
shall serve as Vice President, Marketing and Sales of the Company, and shall
provide such services as are from time to time requested by the Chief Executive
Officer of the Company. The title, authority, duties, and responsibilities of
the Executive may be increased from time to time, but only with the mutual
written agreement of the Executive and the Company. The Executive's services
shall be performed primarily at the Company's headquarters in the Kansas City
metropolitan area.
(b) Attention. During the Employment Period, and excluding any periods
of vacation and sick leave to which the Executive is entitled, the Executive
shall devote his full business time, best efforts and business judgment to the
business and affairs of the Company and, to the extent necessary to discharge
the responsibilities assigned to the Executive under this Agreement, use the
Executive's best efforts to carry out such responsibilities faithfully and
efficiently. The Executive shall not engage in any other business activity,
except as may be approved by the Board of Directors; provided, however, that
nothing herein shall prevent the Executive from:
(i) investing his assets in a manner not prohibited by the
Non-Competition Agreement, and in such form or manner as shall not require the
Executive to render any material services with respect to the operations or
affairs of any company or other entity in which such investments are made;
(ii) engaging in religious, charitable or other community or
non-profit activities which do not impair his ability to fulfill his duties and
responsibilities under this Agreement;
(iii) serving on the board of directors of any company, other than
the Company, in a manner not prohibited by the Non-Competition Agreement; or
(iv) engaging in any trade and/or industry organizations or
activities, provided that such activities do not impair his ability to fulfill
his duties and responsibilities under this Agreement.
3. Compensation. The Executive shall receive the following compensation
for his services hereunder to the Company:
(a) Salary. During the Employment Period, the Executive's annual base
salary (the "Annual Base Salary"), payable in accordance with the Company's
general payroll practices and subject to withholding for federal, state aid
local taxes, in effect from time to time, shall be at the annual rate
established by the Board, but in no event less than $100,000.00. The Board may
from time to time direct such upward adjustments in Annual Base Salary as the
Board deems to be necessary or desirable, including, without limitation,
adjustments in order to reflect increases in the cost of living. The Annual Base
Salary shall not be reduced after any increase thereof. Any
2
<PAGE> 3
increase in the Annual Base Salary shall not serve to limit or reduce any other
obligation of the Company under this Agreement.
(b) Incentive Compensation. During the Employment Period, the Executive
shall be entitled to participate in short-term incentive compensation plans and
long-term incentive compensation plans (the latter to consist of plans offering
stock options and other long-term incentive compensation providing him with the
opportunity to earn, on a year-by-year basis, short-term and long-term incentive
compensation (the "Incentive Compensation"). Specifically, the Executive shall
be entitled to participate in the Company's 1997 Stock Option and Restricted
Stock Purchase Plan at least to the extent agreed to by he company and the
Executive and reflected in the Notice of Grant issued by the Company pursuant to
such plan.
(c) Retirement, Incentive and Welfare Benefit Plans. During the
Employment Period and so long as the Executive is employed by the Company, he
shall be eligible to participate in all other incentive, stock option,
restricted stock, performance unit, savings, retirement and welfare plans,
practices, policies, and programs applicable generally to employees or executive
officers of the Company and its subsidiaries, except with respect to any
benefits under any plan, practice, policy, or program to which the Executive has
waived his rights in writing.
(d) Expenses. The Company shall reimburse the Executive for all
expenses, including those for travel and entertainment, properly incurred by him
in the performance of his duties hereunder in accordance with policies
established from time to time by the Board.
(e) Fringe Benefits. During the Employment Period and so long as the
Executive is employed by the Company, he shall be entitled to receive fringe
benefits in accordance with the plans, practices, programs and policies of the
Company from time to time in effect, commensurate with his position and at least
the same as those received by any executive officer of the Company.
4. Termination of Employment.
(a) Death or Disability, The Executive a employment shall terminate
automatically during the Employment Period upon the Executive's death or a
determination by a majority of the Board of Directors that, due to physical or
mental disability or illness, the Executive is unable to perform substantially
all of his duties and responsibilities under this Agreement.
(b) By the Company for Cause. The Company may terminate the Executive's
employment during the Employment Period for Cause without further liability on
the part of the Company effective immediately by a vote of a majority of tie
Board of Directors of the Company after written notice to tie Executive setting
forth in reasonable detail the nature of such Cause. For purposes of this
Agreement, "Cause" shall mean: (i) willfully, dishonest and material statements
or acts of the Executive with respect to the Company or any subsidiary thereof;
(ii) conviction of the Executive of a crime involving moral turpitude, deceit,
dishonesty or fraud; (iii)
3
<PAGE> 4
willful and substantial failure to perform his duties and obligations under this
Agreement, which failure continues after the Executive is given written notice
and a reasonable opportunity to cure; or (iv) material breach by the Executive
of any obligations hereunder or under this Non-Competition Agreement; provided,
however, that other than with respect to a material breach of the
Non-Competition Agreement, the Executive shall first be given written notice
from the Board of Directors of the breach and a reasonable opportunity to cure
such breach.
(c) By the Company without Cause. Notwithstanding any other provision
of this Agreement, the Company may terminate the Executive's employment other
than by a termination for Cause during the Employment Period.
(d) By the Executive for Good Reason. showing a Change of Control, the
Executive may terminate his employment during the Employment Period for Good
Reason. For purposes of this Agreement, "Good Reason" shall mean:
(i) the Company's failure to pay the Executive's Annual Base Salary
as specified in Section 3(a) of this Agreement or to fulfill any other material
obligations under this Agreement;
(ii) a material adverse change in the Executive's title, authority,
duties, or responsibilities as specified in Section 2(a) of this Agreement,
which such change constitutes a demotion; or
(iii) the Company's requiring the Executive, without his consent,
to be based at any office or location is beyond a reasonable commuting distance
from the Kansas City metropolitan area.
For purposes of this Agreement, a "Change in Control" shall be deemed to have
occurred if:
(A) any person, together with all "affiliates" and
"associates" (as such terms are defined in Rule 12b-2 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) of such person, becomes a
"beneficial owner" (as such term is defined in Rule 12d-3 under the Exchange
Act), directly or indirectly, of securities of the Company representing 50% or
more of the combined voting power of the Company's then outstanding securities;
or
(B) the persons who, as of the data hereof, were directors of
the Company (the "Incumbent Directors") cease for any reason, including, without
limitation, as a result of a tender offer, proxy contest, merger or similar
transaction, to constitute at least a majority of the Company's Board of
Directors; provided that any person becoming a director of the Company
subsequent to the date hereof whose election was approved by a vote of at least
a majority of the Incumbent Director shall, for purposes of this Agreement, be
considered an Incumbent Director; or
4
<PAGE> 5
(C) the stockholders of the Company shall approve (1) any
consolidation or merger of the Company where the stockholders of the Company,
immediately prior to the consolidation or merger, would not, immediately after
the consolidation or merger, beneficially own (as defined in the Exchange Act),
directly or indirectly, shares representing in the aggregate at least 50% of the
combined voting power of the outstanding securities of the combined entity, (2)
any sale, lease, exchange or other transfer (in one transaction or a series of
transactions) of all or substantially all of the assets of the Company, or (3)
any plan or proposal for the liquidation or dissolution of the Company.
(e) Notice of Termination. Any termination by the Company for Cause, or
by the Executive for Good Reason, shall be communicated by Notice of Termination
to the other party hereto given in accordance with Section 9(b) of this
Agreement. For purposes of this Agreement, a "Notice of Termination" means a
written notice indicating the specific termination provision in this Agreement
relied upon, to the extent applicable, setting forth in reasonable detail the
facts and circumstances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated, and if the Date of
Termination (as defined in Section 4(f)) is other than the date of receipt of
such notice, specifying the termination date (which date shall not he more than
30 days after the giving of such notice). The failure by the Executive or the
Company to set forth in the Notice of Termination any fact or circumstance that
contributes to a showing of Good Reason or Cause shall not waive any right of
the Executive or the Company hereunder or preclude the Executive or the Company
from asserting such fact or circumstance in enforcing the Executive's or the
Company's rights hereunder.
(f) Date of Termination. "Date of Termination" means, if the
Executive's employment is terminated by the Company for Cause or by the
Executive for Good Reason, the date of receipt of the Notice of Termination or
any later date specified therein, as the case may be. If the Executive's
employment is terminated by the Company other than for Cause, the Date of
Termination shall be the date on which the Company notifies the Executive of
such termination. if the Executive's employment is terminated by reason of death
or disability, the Date of Termination shall be the date of death or the date
the determination of disability is first made.
5. Obligations of the Company Upon Termination.
(a) Termination by Company other than for Cause or by the Executive for
Good Reason. If the Executive's employment with the Company is terminated (A) by
the Company for any reason other than for Cause or the Executive's death or
disability, or (B) by the Executive for Good Reason following a Change of
Control, the Executive shall be entitled to the following benefits:
(i) continued payment of the Executive's Annual Salary at the rate
in effect on the Date of Termination, said payments to be made for six (6)
months following the Date of Termination or, in the event of termination of the
Executive for Good Reason, for twelve (12)
5
<PAGE> 6
months following the Date of Termination, such payments to be made on the same
periodic dates as salary payments would have been made to the Executive had the
Executive not been terminated;
(ii) Continuation of group health plan benefits to the extent
authorized by the consistent with 29 U.S.C. Sections 1161 et seq. (commonly
known as "COBRA"), with the cost of such benefits shared in the same relative
proportion by the Company and the Executive as in effect on the Date of
Termination; and
(iii) A lump sum payment equal to such position of the Executive's
cash Incentive Compensation for the then current fiscal year as shall be
prorated for a partial year based on the period worked for the Company during
such year and the satisfaction of any applicable milestones or objectives prior
to the Date of Termination.
Except as otherwise specifically provided above or otherwise required
by law, all compensation and benefits to the Executive under this Agreement
shall terminate on the date of the termination.
(b) Termination by Reason of Death or Disability. During the Employment
Period, if the Executive's employment shall terminate by reason of death or
disability, the Company shall pay to the Executive or the Executive's estate, as
appropriate, a lump sum amount in cash equal to the sum of (i) the Executive's
Annual Base Salary through the Date of Termination to the extent not theretofore
paid, (ii) such position of the Executive's cash Incentive Compensation for the
then current fiscal year as shall be pro rated for a partial year based on the
period worked for the Company during such year and the satisfaction of any
applicable milestones or objectives prior to the Date of Termination, and (iii)
any compensation previously deferred by the Executive (together with any accrued
interest or earnings thereon) and any accrued vacation pay, in each case to the
extent theretofore paid.
(c) Termination by the Company for Cause or by the Executive other than
for Good Reason. If the Executive's employment shall be terminated for Cause
during the Employment Period, or if the Executive terminates employment during
the Employment Period other than for Good Reason, the Company shall have no
further obligations to the Executive under this Agreement other than the
obligation to pay to the Executive the Annual Base Salary through the Date of
Termination plus the amount of any compensation previously deferred by the
Executive together with any accrued interest or earnings thereon), in each case
to the extent theretofore unpaid.
6. Nonexclusivity of Rights. Nothing in this Agreement shall prevent or
limit the Executive's continuing or future participation in any benefit plan,
program, policy or practice provided by the Company and for which the Executive,
may qualify (except with respect to any benefit to which the Executive has
waived his rights in writing), nor shall anything herein limit or
6
<PAGE> 7
otherwise affect such rights as the Executive may leave under any other contract
or agreement entered into after the Effective Date with the Company. Amounts
that are vested benefits or that the Executive is otherwise entitled to receive
under any benefit plan, policy, practice or program of, or any agreement entered
into with, the Company shall be payable in accordance with such benefit plan,
policy, practice or program or agreement except as explicitly modified by this
Agreement.
7. Mitigation; Miscellaneous. The termination benefits set forth in
Section 5(a)(i) above shall he reduced by one-half of the amount of any cash
compensation received by the Executive from other employment during the period
that termination benefits are payable hereunder. The Executive shall inform the
Company of any such amounts of cash compensation from other employment and shall
refund to the Company any amounts which the Company has paid which exceed the
amounts due from the Company after application of the set-off provided for in
this paragraph, Notwithstanding the foregoing and any other provision of this
Agreement, nothing in this Section 7 shall be construed to (i) impose any
obligation on the Executive to seek or accept any Employment after termination
of employment with the Company for any reason, or (ii) affect the Executive's
right to receive COBRA benefits at his cost after the expiration of the benefits
provided for herein. Notwithstanding anything in this Agreement to the contrary,
if any portion of any payments to the Executive by the Company under this
Agreement and any other present or future benefit plan of the Company or other
present or future agreement between the Executive and the Company would not be
deductible by the Company for federal income tax purposes by reason of
application of section 162(m) of the Code, then payment of that portion to the
Executive may be deferred by the Company until the earliest date upon which
payment thereof can be made to the Executive without being non-deductible
pursuant to section 162(m) of the Code. In the event of such deferral, the
Company shall pay interest to the Executive on the deferred amount at 120% of
the applicable federal rate provided for in Section 1274(d)(2) of the Code.
8. Successors.
(a) Assignment by Executive. This Agreement is personal to the
Executive and without the prior written consent of the company shall not be
assignable by the Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be enforceable by
the Executive's legal representatives.
(b) Successors and Assigns of Company. This Agreement shall inure to
the benefit of and be binding upon the Company, its successors and assigns.
(c) Assumption. The Company shall require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Company to assume expressly
and agreed to perform this Agreement in the same manner and to the same extent
that the Company would be required to perform it if no such succession had taken
place. As used in this Agreement, "Company" shall. mean the Company, as
previously defined, and any successor to its businesses and/or assets as
aforesaid that assumes and agrees to perform this Agreement by operation of law,
or otherwise.
7
<PAGE> 8
9. Miscellaneous.
(a) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Missouri, without reference to its
principles of conflict of laws. The captions of this Agreement are not part of
the provisions hereof and shall have no force or effect. This Agreement may not
be amended, modified, repealed, waived, extended, or discharged except by an
agreement in writing signed by the party against whom enforcement of such
amendment, modification, repeal, waiver, extension or discharge is sought. No
person, other than pursuant to a resolution of the Board or the appropriate
committee thereof, shall have authority on behalf of the Company to agree to
amend, modify, repeal, waive, extend, or discharge any provision of this
Agreement or anything in reference thereto.
(b) Notices. All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed, in
either case, to the Company's headquarters or to such other address as either
party shall have stated to the other in writing in accordance herewith. Notice
and communications shall be effective when actually received by the addressee.
(c) Severability. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) Taxes. The Company may withhold from any amounts payable under this
Agreement such federal, state, or local taxes as shall be required to be
withheld pursuant to and applicable law or regulation.
(e) No Waiver. The Executive's or the Company's failure to insist upon
strict compliance with any provision hereof or any other provision of this
Agreement or the failure to assert any right the Executive or the Company may
have hereunder, including, without limitation, the right of the Executive to
terminate employment for Good Reason pursuant to Section 4(d) of this Agreement,
or the right of the Company to terminate the Executive's employment for Cause
pursuant to Section 4(b) of this Agreement shall not be deemed to be a waiver of
such provision or right or any other provision or right of this Agreement.
(f) Entire Agreement. This instrument, together with the
Non-Competition Agreement, contains the entire agreement of the Executive and
the Company with respect to the subject matter hereof, and all promises,
representations, understandings, arrangements and prior agreements are merged
herein and superseded hereby.
8
<PAGE> 9
IN WITNESS WHEREOF, the Executive and, pursuant to due authorization
from its Board of Directors, the Company, have caused this Agreement to be
executed as of the day and year first above written.
GOLDEN SKY SYSTEMS, INC.
/s/ Rodney A. Weary
-----------------------------------------
Name: Rodney A. Weary
Title: President
/s/ William J. Gerski
-----------------------------------------
William J. Gerski
9
<PAGE> 1
EXHIBIT 10.9
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT made and entered into as of the 3rd day of
November, 1997 by and between Golden Sky Systems, Inc., a Delaware corporation
(the "Company"), and Laquita Allen (the "Executive");
WHEREAS, the Executive is currently providing managerial services to
the Company, and the Company desires to secure the continued employment of the
Executive in accordance herewith;
WHEREAS, the Executive is willing to commit herself to be employed by
the Company on the terms and conditions herein set forth and forego
opportunities elsewhere; and
WHEREAS, the parties desire to enter into this Agreement as of the
Effective Date (as hereinafter defined), setting forth the terms and conditions
for the employment relationship of the Executive with the Company during the
Employment Period (as hereinafter defined).
NOW, THEREFORE, IN CONSIDERATION of the mutual premises, covenants and
agreements set forth below, it is hereby agreed as follows:
1. Employment and Term.
(a) Employment. The Company agrees to employ the Executive, and
the Executive agrees to be employed by the Company, in accordance with the terms
and provisions of this Agreement during the Employment Period.
(b) Term and Extension. The term of this Agreement shall commence
as of the date hereof (the "Effective Date") and shall continue until the third
anniversary of the Effective Date (such term being referred to hereinafter as
the "Employment Period"). The Employment Period shall automatically be extended
for one year on the second anniversary of the Effective Date, and each
anniversary thereafter, unless either party gives the other written notice of
its intention not to extend the Employment Period at least 30 days prior to such
automatic extension, in which case no further extensions will occur.
(c) Non-Competition Agreement. As a condition precedent to the
execution of this Agreement by the Company, the Executive shall simultaneously
enter into a Non-Competition Agreement in form and substance satisfactory to the
Company (the "Non-Competion Agreement").
<PAGE> 2
2. Duties and Powers of Executive.
(a) Position; Location. During the Employment Period, the
Executive shall serve as Vice President, Affiliate Relations of the Company, and
shall provide such services as are from time to time requested by the Chief
Executive Officer of the Company. The title, authority, duties, and
responsibilities of the Executive may be increased from time to time, but only
with the mutual written agreement of the Executive and the Company. The
Executive's services shall be performed primarily at the Company's headquarters
in the Kansas City metropolitan area.
(b) Attention. During the Employment Period, and excluding any
periods of vacation and sick leave to which the Executive is entitled, the
Executive shall devote in full business time, best efforts and business judgment
to the business and affairs of the Company and, to the extent necessary to
discharge the responsibilities assigned to the Executive under this Agreement,
use the Executive's best efforts to carry out such responsibilities faithfully
and efficiently. The Executive shall not engage in any other business activity,
except as may be approved by the Board of Directors; provided, however, that
nothing herein shall prevent the Executive from:
(i) investing his assets in a manner not prohibited by the
Non-Competition Agreement, and in such form or manner as shall
not require the Executive to render any material services with
respect to the operations or affairs of any company or other
entity in which such investments are made;
(ii) engaging in religious, charitable or other community or
non-profit activities which do not impair his ability to fulfill
his duties and responsibilities under this Agreement.
(iii) serving on the board of directors of any company,
other than the Company, in a manner not prohibited by the
Non-Competition Agreement; or
(iv) engaging in any trade and/or industry organizations or
activities, provided that such activities do not impair his
ability to fulfill his duties and responsibilities under this
Agreement.
3. Compensation. The Executive shall receive the following
compensation for his services hereunder to the Company:
(a) Salary. During the Employment Period, the Executive's annual
base salary (the "Annual Base Salary"), payable in accordance with the Company's
general payroll practices and subject to withholding for federal, state and
local taxes, in effect from time to time, shall be at the annual rate
established by the Board, but in no event less than $85,000. The Board may from
time to time direct such upward adjustments in Annual Base Salary as the Board
deems to be necessary or desirable, including, without limitation, adjustments
in order to reflect increases in the cost of living. The Annual Base Salary
shall not be reduced after any increase thereof. Any increase in the Annual Base
Salary shall not serve to limit or reduce any other obligation of the Company
under this Agreement.
<PAGE> 3
(b) Incentive Compensation. During the Employment Period, the
Executive shall be entitled to participate in short-term incentive compensation
plans and long-term incentive compensation plans (the latter to consist of plans
offering stock options and other long-term incentive compensation) providing her
with the opportunity to earn, on a year-by-year basis, short-term and long-term
incentive compensation (the "Incentive Compensation"). Specifically, the
Executive shall be entitled to participate in the Company's 1997 Stock Option
and Restricted Stock Purchase Plan at least to the extent agreed to by the
Company and the Executive and reflected in the Notice of Grant issued by the
Company pursuant to such plan.
(c) Retirement, Incentive and Welfare Benefit Plans. During the
Employment Period and so long as the Executive is employed by the Company, she
shall be eligible to participate in all other incentive, stock option,
restricted stock, performance unit, savings, retirement and welfare plans,
practices, policies, and programs applicable generally to employees or executive
officers of the Company and its subsidiaries, except with respect to any
benefits under any plan, practice, policy, or program to which the Executive has
waived his rights in writing.
(d) Expenses. The Company shall reimburse the Executive for all
expenses, including those for travel and entertainment, properly incurred by her
in the performance of his duties hereunder in accordance with policies
established from time to time by the Board.
(e) Fringe Benefits. During the Employment Period and so long as
the Executive is employed by the Company, she shall be entitled to receive
fringe benefits in accordance with the plans, practices, programs and policies
of the Company from time to time in effect, commensurate with his position and
at least the same as those received by any executive officer of the Company.
4. Termination of Employment.
(a) Death or Disability. The Executive's employment shall
terminate automatically during the Employment Period upon the Executive's death
or a determination by a majority of the Board of Directors that, due to physical
or mental disability or illness, the Executive is unable to perform
substantially all of his duties and responsibilities under this Agreement.
(b) By the Company for Cause. The Company may terminate the
Executive's employment during the Employment Period for Cause without further
liability on the part of the Company effective immediately by a vote of a
majority of the Board of Directors of the Company after written notice to the
Executive setting forth in reasonable detail the nature of such Cause. For
purposes of this Agreement, "Cause" shall mean: (i) willfully dishonest and
material statements or acts of the Executive with respect to the Company or any
subsidiary thereof; (ii) conviction of the Executive of a crime involving moral
turpitude, deceit, dishonesty or fraud; (iii) willful and substantial failure to
perform his duties and obligations under this Agreement, which failure continues
after the Executive is given written notice and a reasonable opportunity to
cure; (iv) material breach by the Executive of any obligations hereunder or
under the Non-Competition Agreement; provided, however, that other than with
respect to a material breach of the Non-Competition Agreement, the Executive
shall first be given written notice from the Board of Directors of the breach
<PAGE> 4
and a reasonable opportunity to cure such breach.
(c) By the Company without Cause. Notwithstanding any other
provision of this Agreement, the Company may terminate the Executive's
employment other than by a termination for Cause during the Employment Period.
(d) By the Executive for Good Reason. Following a Change of
Control, the Executive may terminate his employment during the Employment Period
for Good Reason. For purposes of this Agreement, "Good Reason" shall mean:
(i) the Company's failure to pay the Executive's Annual Base
Salary as specified in Section 3(a) of this Agreement or to
fulfill any other material obligations under this Agreement;
(ii) a material adverse change in the Executive's title,
authority, duties, or responsibilities as specified in Section
2(a) of this Agreement, which such change constitutes a demotion;
or
(iii) the Company's requiring the Executive, without his
consent, to be based at any office or location is beyond a
reasonable commuting distance from the Kansas City metropolitan
area.
For purposes of this Agreement, a "Change in Control" shall be deemed to have
occurred if:
(A) any person, together with all "affiliates" and
"associates" (as such terms are defined in Rule 12b-2 under
the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) of such person, becomes a "beneficial
owner" (as such term is defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the
Company representing 50% or more of the combined voting
power of the Company's then outstanding securities; or
(B) the persons who, as of the date hereof, were
directors of the Company (the "Incumbent Directors") cease
for any reason, including, without limitation, as a result
of a tender offer, proxy contest, merger or similar
transaction, to constitute at least a majority of the
Company's Board of Directors; provided that any person
<PAGE> 5
becoming a director of the Company subsequent to the date
hereof whose election was approved by a vote of at least a
majority of the Incumbent Directors shall, for purposes of
this Agreement, be considered an Incumbent Director; or
(C) the stockholders of the Company shall approve (1)
any consolidation or merger of the Company where the
stockholders of the Company, immediately prior to the
consolidation or merger, would not, immediately after the
consolidation or merger, beneficially own (as defined in the
Exchange Act), directly or indirectly, shares representing
in the aggregate at least 50% of the combined voting power
of the outstanding securities of the combined entity, (2)
any sale, lease, exchange or other transfer (in one
transaction or a series of transactions) of all or
substantially all of the assets of the Company, or (3) any
plan or proposal for the liquidation or dissolution of the
Company.
(e) Notice of Termination. Any termination by the Company for
Cause, or by the Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 9(b) of
this Agreement. For purposes of this Agreement, a "Notice of Termination" means
a written notice indicating the specific termination provision in this Agreement
relied upon, to the extent applicable, setting forth in reasonable detail the
facts and circumstances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated, and if the Date of
Termination (as defined in Section 4(f)) is other than the date of receipt of
such notice, specifying the termination date (which date shall not be more than
30 days after the giving of such notice). The failure by the Executive or the
Company to set forth in the Notice of Termination any fact or circumstance that
contributes to a showing of Good Reason or Cause shall not waive any right of
the Executive or the Company hereunder or preclude the Executive or the Company
from asserting such fact or circumstance in enforcing the Executive's or the
Company's rights hereunder.
(f) Date of Termination. "Date of Termination" means, if the
Executive's employment is terminated by the Company for Cause or by the
Executive for Good Reason, the date of receipt of the Notice of Termination or
any later date specified therein, as the case may be. If the Executive's
employment is terminated by the Company other than for Cause, the Date of
Termination shall be the date on which the Company notifies the Executive of
such termination. If the Executive's employment is terminated by reason of death
or disability, the Date of Termination shall be the date of death or the date
the determination of disability is first made.
5. Obligations of the Company Upon Termination.
(a) Termination by Company other than for Cause or by the
Executive for Good Reason. If the Executive's employment with the Company is
terminated (A) by the Company for any reason other than for Cause or the
Executive's death or disability, or (B) by the Executive for Good Reason
following a Change of Control, the Executive shall be entitled to the following
benefits:
<PAGE> 6
(i) Continued payment of the Executive's Annual Salary
at the rate in effect on the Date of Termination, said
payments to be made for six (6) months following the Date of
Termination or, in the event of termination of the Executive
for Good Reason, for twelve (12) months following the Date
of Termination, such payments to be made on the same
periodic dates as salary payments would have been made to
the Executive had the Executive not been terminated;
(ii) Continuation of group health plan benefits to the
extent authorized by the consistent with 29 U.S.C. ss.1161
et seq. (commonly known as "COBRA"), with the cost of such
benefits shared in the same relative proportion by the
Company and the Executive as in effect on the Date of
Termination; and
(iii) A lump sum payment equal to such portion of the
Executive's cash Incentive Compensation for the then current
fiscal year as shall be prorated for a partial year based on
the period worked for the Company during such year and the
satisfaction of any applicable milestones or objectives
prior to the Date of Termination.
Except as otherwise specifically provided above or otherwise required
by law, all compensation and benefits to the Executive under this Agreement
shall terminate on the date of the termination.
(b) Termination by Reason of Death or Disability. During the
Employment Period, if the Executive's employment shall terminate by reason of
death or disability, the Company shall pay to the Executive or the Executive's
estate, as appropriate, a lump sum amount in cash equal to the sum of (i) the
Executive's Annual Base Salary through the Date of Termination to the extent not
theretofore paid, (ii) such position of the Executive's cash Incentive
Compensation for the then current fiscal year as shall be pro rated for a
partial year based on the period worked for the Company during such year and the
satisfaction of any applicable milestones or objectives prior to the Date of
Termination, and (iii) any compensation previously deferred by the Executive
(together with any accrued interest or earnings thereon) and any accrued
vacation pay, in each case to the extent not theretofore paid.
(c) Termination by the Company for Cause or by the Executive
other than for Good Reason. If the Executive's employment shall be terminated
for Cause during the Employment Period, or if the Executive terminates
employment during the Employment Period other than for Good Reason, the Company
shall have no further obligations to the Executive under this Agreement other
than the obligation to pay to the Executive the Annual Base Salary through the
Date of Termination plus the amount of any compensation previously deferred by
the Executive (together with any accrued interest or earnings thereon), in each
case to the extent theretofore unpaid.
6. Nonexclusivity of Rights. Nothing in this Agreement shall prevent
or limit the Executive's continuing or future participation in any benefit plan,
<PAGE> 7
program, policy or practice provided by the Company and for which the Executive
may qualify (except with respect to any benefit to which the Executive has
waived his rights in writing), nor shall anything herein limit or otherwise
affect such rights as the Executive may have under any other contract or
agreement entered into after the Effective Date with the Company. Amounts that
are vested benefits or that the Executive is otherwise entitled to receive under
any benefit plan, policy, practice or program of, or any agreement entered into
with, the Company shall be payable in accordance with such benefit plan, policy,
practice or program or agreement except as explicitly modified by this
Agreement.
7. Mitigation; Miscellaneous. The termination benefits set forth in
Section 5(a)(i) above shall be reduced by one-half of the amount of any cash
compensation received by the Executive from other employment during the period
that termination benefits are payable hereunder. The Executive shall inform the
Company of any such amounts of cash compensation from other employment and shall
refund to the Company any amounts which the Company has paid which exceed the
amounts due from the Company after application of the set-off provided for in
this paragraph. Notwithstanding the foregoing and any other provision of this
Agreement, nothing in this Section 7 shall be construed to (i) impose any
obligation on the Executive to seek or accept any employment after termination
of employment with the Company for any reason, or (ii) affect the Executive's
right to receive COBRA benefits at his cost after the expiration of the benefits
provided for herein. Notwithstanding anything in this Agreement to the contrary,
if any portion of any payments to the Executive by the Company under this
Agreement and any other present or future benefit plan of the Company or other
present or future agreement between the Executive and the Company would not be
deductible by the Company for federal income tax purposes by reason of
application of section 162(m) of the Code, then payment of that portion to the
Executive may be deferred by the Company until the earliest date upon which
payment thereof can be made to the Executive without being non-deductible
pursuant to section 162(m) of the Code. In the event of such deferral, the
Company shall pay interest to the Executive on the deferred amount at 120% of
the applicable federal rate provided for in Section 1274(d)(2) of the Code.
8. Successors.
(a) Assignment by Executive. This Agreement is personal to the
Executive and without the prior written consent of the Company shall not be
assignable by the Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be enforceable by
the Executive's legal representatives.
(b) Successors and Assigns of Company. This Agreement shall inure
to the benefit of and be binding upon the Company, its successors and assigns.
(c) Assumption. The Company shall require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Company to assume expressly
and agree to perform this Agreement in the same manner and to the same extent
<PAGE> 8
that the Company would be required to perform it if no such succession had taken
place. As used in this Agreement, "Company" shall mean the Company, as
previously defined, and any successor to its businesses and/or assets as
aforesaid that assumes and agrees to perform this Agreement by operation of law,
or otherwise.
9. Miscellaneous.
(a) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Missouri, without
reference to its principles of conflict of laws. The captions of this Agreement
are not part of the provisions hereof and shall have no force or effect. This
Agreement may not be amended, modified, repealed, waived, extended, or
discharged except by an agreement in writing signed by the party against whom
enforcement of such amendment, modification, repeal, waiver, extension or
discharge is sought. No person, other than pursuant to a resolution of the Board
or the appropriate committee thereof, shall have authority on behalf of the
Company to agree to amend, modify, repeal, waive, extend, or discharge any
provision of this Agreement or anything in reference thereto.
(b) Notices. All notices and other communications hereunder shall
be in writing and shall be given by hand delivery to the other party or by
registered or certified mail, return-receipt requested, postage prepaid,
addressed, in either case, to the Company's headquarters or to such other
address as either party shall have stated to the other in writing in
accordance herewith. Notice and communications shall be effective when actually
received by the addressee.
(c) Severability. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.
(d) Taxes. The Company may withhold from any amounts payable
under this Agreement such federal, state, or local taxes as shall be required to
be withheld pursuant to any applicable law or regulation.
(e) No Waiver. The Executive's or the Company's failure to insist
upon strict compliance with any provision hereof or any other provision of this
Agreement or the failure to assert any right the Executive or the Company may
have hereunder, including, without limitation, the right of the Executive to
terminate employment for Good Reason pursuant to Section 4(d) of this Agreement,
or the right of the Company to terminate the Executive's employment for Cause
pursuant to Section 4(b) of this Agreement shall not be deemed to be a waiver of
such provision or right or any other provision or right of this Agreement.
(f) Entire Agreement. This instrument, together with the
Non-Competition Agreement, contains the entire agreement of the Executive and
the Company with respect to the subject matter hereof, and all promises,
representations, understandings, arrangements and prior agreements are merged
herein and superseded hereby.
<PAGE> 9
IN WITNESS WHEREOF, the Executive and, pursuant to due authorization
from its Board of Directors, the Company, have caused this Agreement to be
executed as of the day and year first above written.
GOLDEN SKY SYSTEMS, INC.
/s/ Rodney A. Weary
--------------------------------
Name: Rodney A. Weary
Title: ChiefExecutive Officer
/s/ Laquita Allen
--------------------------------
Laquita Allen
<PAGE> 1
EXHIBIT 10.10
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT made and entered into as of the 24th day of
August, 1998 by and between Golden Sky Systems, Inc., a Delaware corporation
(the "Company"), and John R. Hager (the "Executive");
WHEREAS, the Executive is currently providing managerial and technical
services to the Company, and the Company desires to secure the continued
employment of the Executive in accordance herewith;
WHEREAS, the Executive is willing to commit himself to be employed by
the Company on the terms and conditions herein set forth and forego
opportunities elsewhere; and
WHEREAS, the parties desire to enter into this Agreement as of the
Effective Date (as hereinafter defined), setting forth the terms and conditions
for the employment relationship of the Executive with the Company during the
Employment Period (as hereinafter defined).
NOW, THEREFORE, IN CONSIDERATION of the mutual premises, covenants and
agreements set forth below, it is hereby agreed as follows:
1. Employment and Term.
(a) Employment. The Company agrees to employ the Executive, and the
Executive agrees to be employed by the Company, in accordance with the terms and
provisions of this Agreement during the Employment Period.
(b) Term and Extension. The term of this Agreement shall commence as
of the date hereof (the "Effective Date") and shall continue until the third
annivesary of the Effective Date (such term being referred to hereinafter as the
"Emloyment Period"). The Employment Period shall automatically be extended for
one year on the second anniversary of the Effective Date, and each anniversary
of the Effective Date, and each anniversary thereafter, unless either party
gives the other written notice of its intention not to extend the Employment
Period at least 30 days prior to such automatic extension, in which case no
further extensions will occur.
(c) Non-Competition Agreement. As a condition precedent to the
execution of this Agreement by the Company, the Executive shall simultaneously
enter into a Non-Competition Agreement in form and subsance satisfactory to the
Company (the "Non-Competition Agreement".
<PAGE> 2
2. Duties and Powers of Executive.
(a) Position; Location. During the Employment Period, the Executive
shall provide such services as are from time to time requested by the Chief
Executive Officer of the Company. The title, authority, duties, and
responsibilities of the Executive may be increased from time to time, but only
with the mutual written agreement of the Executive and the Company. The
Executives services shall be performed primarily at the Company's headquarters
in the Kansas City metropolitan area.
(b) Attention. During the Employment Period, and excluding any periods
of vacation and sick leave to which the Executive is entitled, the Executive
shall devote in full business time, best efforts and business judgment to the
business and affairs of the Company and, to the extent necessary to discharge
the responsibilities assigned to the Executive under this Agreement, use the
Executive's best efforts to carry out such responsibilities faithfully and
efficiently. The Executive shall not engage in any other business activity,
except as may be approved by the Board of Directors; provided, however, that
nothing herein shall prevent the Executive from:
(i) investing his assets in a manner not prohibited by the
Non-Competition Agreement, and in such form or manner as shall not
require the Executive to render any material services with respect to
the operations or affairs of any company or other entity in which such
investments are made;
(ii) engaging in religious, charitable or other community or
non-profit activities which do not impair his ability to fulfill his
duties and responsibilities under this Agreement.
(iii) serving on the board of directors of any company, other
than the Company, in a manner not prohibited by the Non-Competition
Agreement; or
(iv) engaging in any trade and/or industry organizations or
activities, provided that such activities do not impair his ability to
fulfill his duties and responsibilities under this Agreement.
3. Compensation. The Executive shall receive the following compensation for
his services hereunder to the Company:
(a) Salary. During the Employment Period, the Executive's annual base
salary (the "Annual Base Salary"), payable in accordance with the Company's
general payroll practices and subject to withholding for federal, state and
local taxes, in effect from time to time, shall be at the annual rate
established by the Board, but in no event less than $120,000. The Board may from
time to time direct such upward adjustments in Annual Base Salary as the Board
deems to be necessary or desirable, including, without limitation, adjustments
in order to reflect increases in the cost of living. The Annual Base Salary
shall not be reduced after any increase thereof. Any increase in the Annual Base
Salary shall not serve to limit or reduce any other obligation of the Company
under this Agreement.
<PAGE> 3
(b) Incentive Compensation. During the Employment Period, the
Executive shall be entitled to participate in short-term incentive compensation
plans and long-term incentive compensation plans (the latter to consist of plans
offering stock options and other long-term incentive compensation) providing him
with the opportunity to earn, on a year-by-year basis, short-term and long-term
incentive compensation (the "Incentive Compensation"). Specifically, the
Executive shall be entitled to participate in the Company's 1997 Stock Option
and Restricted Stock Purchase Plan at least to the extent agreed to by the
Company and the Executive and reflected in the Notice of Grant issued by the
Company pursuant to such plan.
(c) Retirement, Incentive and Welfare Benefit Plans. During the
Employment Period and so long as the Executive is employed by the Company, he
shall be eligible to participate in all other incentive, stock option,
restricted stock, performance unit, savings, retirement and welfare plans,
practices, policies, and programs applicable generally to employees or executive
officers of the Company and its subsidiaries, except with respect to any
benefits under any plan, practice, policy, or program to which the Executive has
waived his rights in writing.
(d) Expenses. The Company shall reimburse the Executive for all
expenses, including those for travel and entertainment, properly incurred by him
in the performance of his duties hereunder in accordance with policies
established from time to time by the Board.
(e) Fringe Benefits. During the Employment Period and so long as the
Executive is employed by the Company, he shall be entitled to receive fringe
benefits in accordance with the plans, practices, programs and policies of the
Company from time to time in effect, commensurate with his position and at least
the same as those received by any executive officer of the Company.
4. Termination of Employment.
(a) Death or Disability. The Executive's employment shall terminate
automatically during the Employment Period upon the Executive's death or a
determination by a majority of the Board of Directors that, due to physical or
mental disability or illness, the Executive is unable to perform substantially
all of his duties and responsibilities under this Agreement.
(b) By the Company for Cause. The Company may terminate the
Executive's employment during the Employment Period for Cause without further
liability on the part of the Company effective immediately by a vote of a
majority of the Board of Directors of the Company after written notice to the
Executive setting forth in reasonable detail the nature of such Cause. For
purposes of this Agreement, "Cause" shall mean: (i) willfully dishonest and
material statements or acts of the Executive with respect to the Company or any
subsidiary thereof; (ii) conviction of the Executive of a crime involving moral
turpitude, deceit, dishonesty or fraud; (iii) willful and substantial failure to
perform his duties and obligations under this Agreement, which failure continues
after the Executive is given written notice and a reasonable opportunity to
cure; (iv) material breach by the Executive of any obligations hereunder or
under the Non-Competition Agreement; provided, however, that other than with
respect to a material breach of the Non-Competition Agreement, the Executive
shall first be given written notice from the Board of Directors of the breach
and a reasonable opportunity to cure such breach;
<PAGE> 4
(c) By the Company without Cause. Notwithstanding any other provision
of this Agreement, the Company may terminate the Executive's employment other
than by a termination for Cause during the Employment Period.
(d) By the Executive for Good Reason. Following a Change of Control,
the Executive may terminate his employment during the Employment Period for Good
Reason. For purposes of this Agreement, "Good Reason" shall mean:
(i) the Company's failure to pay the Executive's Annual Base
Salary as specified in Section 3(a) of this Agreement or to fulfill
any other material obligations under this Agreement;
(ii) a material adverse change in the Executive's title,
authority, duties, or responsibilities as specified in Section 2(a) of
this Agreement, which such change constitutes a demotion; or
(iii) the Company's requiring the Executive, without his consent,
to be based at any office or location is beyond a reasonable commuting
distance from the Kansas City metropolitan area.
For purposes of this Agreement, a "Change in Control" shall be deemed to have
occurred if:
(A) any person, together with all "affiliates" and
"associates" (as such terms are defined in Rule 12b-2 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"))
of such person, becomes a "beneficial owner" (as such term is
defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing 50% or more
of the combined voting power of the Company's then outstanding
securities; or
(B) the persons who, as of the date hereof, were directors
of the Company (the "Incumbent Directors") cease for any reason,
including, without limitation, as a result of a tender offer,
proxy contest, merger or similar transaction, to constitute at
least a majority of the Company's Board of Directors; provided
that any person becoming a director of the Company's subsequent
to the date hereof whose election was approved by a vote of at
least majority of the Incumbent Directors shall, for purposes of
this Agreement, be considered an Incumbent Director; or
(C) the stockholders of the Company shall approve (1) any
consolidation or merger of the Company where the stockholders of
the Company, immediately prior to the consolidation or merger,
would not, immediately after the consolidation or merger,
beneficially own (as defined in the Exchange Act), directly or
indirectly, shares representing in the aggregate at least 50% of
the combined voting power of the outstanding securities of the
combined entity, (2) any sale, lease, exchange or other transfer
(in one transaction or a series of transactions) of all or
substantially all of the assets of the Company, or (3) any plan
or proposal for the liquidation or dissolution of the Company.
<PAGE> 5
(e) Notice of Termination. Any termination by the Company for Cause,
or by the Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 9(b) of
this Agreement. For purposes of this Agreement, a "Notice of Termination" means
a written notice indicating the specific termination provision in this Agreement
relied upon, to the extent applicable, setting forth in reasonable detail the
facts and circumstances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated, and if the Date of
Termination (as defined in Section 4(f)) is other than the date of receipt of
such notice, specifying the termination date (which date shall not be more than
30 days after the giving of such notice). The failure by the Executive or the
Company to set forth in the Notice of Termination any fact or circumstances that
contributes to a showing of Good Reason or Cause shall not waive any right of
the Executive or the Company hereunder or preclude the Executive or the Company
from asserting such fact or circumstance in enforcing the Executive's or the
Company's rights hereunder.
(f) Date of Termination. "Date of Termination" means, if the
Executive's employment is terminated by the Company for Cause or by the
Executive for Good Reason, the date of receipt of the Notice of Termination or
any later date specified therein, as the case may be. If the Executive's
employment is terminated by the Company other than for Cause, the Date of
Termination shall be the date on which the Company notifies the Executive of
such termination. If the Executive's employment is terminated by reason of death
or disability, the Date of Termination shall be the date of death or the date
the determination of disability is first made.
5. Obligations of the Company Upon Termination.
(a) Termination by Company other than for Cause or by the Executive
for Good Reason. If the Executive's employment with the Company is terminated
(A) by the Company for any reason other than for Cause or the Executive's death
or disability, or (B) by the Executive for Good Reason following a Change of
Control, the Executive shall be entitled to the following benefits:
<PAGE> 6
(i) Continued payment of the Executive's Annual Salary at the
rate in effect on the Date of Termination, said payments to be made
for six (6) months following the Date of Termination or, in the event
of termination of the Executive for Good Reason, for twelve (12)
months following the Date of Termination, such payments to be made on
the same periodic dates as salary payments would have been made to the
Executive had the Executive not been terminated;
(ii) Continuation of group health plan benefits to the extent
authorized by the consistent with 29 U.S.C. Section 1161 et seq.
(commonly known as "COBRA"), with the cost of such benefits shared in
the same relative proportion by the Company and the Executive as in
effect on the Date of Termination; and
(iii) A lump sum payment equal to such portion of the Executive's
cash Incentive Compensation for the then current fiscal year as shall
be pro-rated for a partial year based on the period worked for the
Company during such year and the satisfaction of any applicable
milestones or objectives prior to the Date of Termination.
Except as otherwise specifically provided above or otherwise required
by law, all compensation and benefits to the Executive under this Agreement
shall terminate on the date of the termination.
(b) Termination by Reason of Death or Disability. During the
Employment Period, if the Executive's employment shall terminate by reason of
death or disability, the Company shall pay to the Executive or the Executive's
estate, as appropriate, a lump sum amount in cash equal to the sum of (i) the
Executive's Annual Base Salary through the Date of Termination to the extent not
theretofore paid, (ii) such position of the Executive's cash Incentive
Compensation for the then current fiscal year as shall be pro rated for a
partial year based on the period worked for the Company during such year and the
satisfaction of any applicable milestones or objectives prior to the Date of
Termination, and (iii) any compensation previously deferred by the Executive
(together with any accrued interest or earnings thereon) and any accrued
vacation pay, in each case to the extent not theretofore paid.
(c) Termination by the Company for Cause or by the Executive other
than for Good Reason. If the Executive's employment shall be terminated for
Cause during the Employment Period, or if the Executive terminates employment
during the Employment Period other than for Good Reason, the Company shall have
no further obligations to the Executive under this Agreement other than the
obligation to pay to the Executive the Annual Base Salary through the Date of
Termination plus the amount of any compensation previously deferred by the
Executive (together with any accrued interest or earnings thereon), in each case
to the extent theretofore unpaid.
6. Nonexclusivity of Rights. Nothing in this Agreement shall prevent or
limit the Executive's continuing or future participation in any benefit plan,
<PAGE> 7
program, policy or practice provided by the Company and for which the Executive
may qualify (except with respect to any benefit to which the Executive has
waived his rights in writing), nor shall anything herein limit or otherwise
affect such rights as the Executive may have under any other contract or
agreement entered into after the Effective Date with the Company. Amounts that
are vested benefits or that the Executive is otherwise entitled to receive under
any benefit plan, policy, practice or program of, or any agreement entered into
with, the Company shall be payable in accordance with such benefit plan, policy,
practice or program or agreement except as explicitly modified by this
Agreement.
7. Mitigation; Miscellaneous. The termination benefits set forth in Section
5(a)(i) above shall be reduced by one-half of the amount of any cash
compensation received by the Executive from other employment during the period
that termination benefits are payable hereunder. The Executive shall inform the
Company of any such amounts of cash compensation from other employment and shall
refund to the Company any amounts which the Company has paid which exceed the
amounts due from the Company after application of the set-off provided for in
this paragraph. Notwithstanding the foregoing and any other provision of this
Agreement, nothing in this Section 7 shall be construed to (i) impose any
obligation on the Executive to seek or accept any employment after termination
of employment with the Company for any reason, or (ii) affect the Executive's
right to receive COBRA benefits at his cost after the expiration of the benefits
provided for herein. Notwithstanding anything in this Agreement to the contrary,
if any portion of any payments to the Executive by the Company under this
Agreement and any other present or future benefit plan of the Company or other
present or future agreement between the Executive and the Company would not be
deductible by the Company for federal income tax purposes by reason of
application of section 162(m) of the Code, then payment of that portion to the
Executive may be deferred by the Company until the earliest date upon which
payment thereof can be made to the Executive without being non-deductible
pursuant to section 162(m) of the Code. In the event of such deferral, the
Company shall pay interest to the Executive on the deferred amount at 120% of
the applicable federal rate provided for in Section 1274(d)(2) of the Code.
8. Successors.
(a) Assignment by Executive. This Agreement is personal to the
Executive and without the prior written consent of the Company shall not be
assignable by the Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be enforceable by
the Executive's legal representatives.
(b) Successors and Assigns of Company. This Agreement shall inure to
the benefit of and be binding upon the Company, its successors and assigns.
(c) Assumption. The Company shall require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Company to assume expressly
and agree to perform this Agreement in the same manner and to the same extent
<PAGE> 8
that the Company would be required to perform it if no such succession had taken
place. As used in this Agreement, "Company" shall mean the Company, as
previously defined, and any successor to its businesses and/or assets as
aforesaid that assumes and agrees to perform this Agreement by operation of law,
or otherwise.
9. Miscellaneous.
(a) Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Missouri, without reference to its
principles of conflict of laws. The captions of this Agreement are not part of
the provisions hereof and shall have no force or effect. This Agreement may not
be amended, modified, repealed, waived, extended, or discharged except by an
agreement in writing signed by the party against whom enforcement of such
amendment, modification, repeal, waiver, extension or discharge is sought. No
person, other than pursuant to a resolution of the Board or the appropriate
committee thereof, shall have authority on behalf of the Company to agree to
amend, modify, repeal, waive, extend, or discharge any provision of this
Agreement or anything in reference thereto.
(b) Notices. All notices and other communications hereunder shall be
in writing and shall be given by hand delivery to the other party or by
registered or certified mail, return-receipt requested, postage prepaid,
addressed, in either case, to the Company's headquarters or to such other
address as either party shall have stated to the other in writing in accordance
herewith. Notice and communications shall be effective when actually received by
the addressee.
(c) Severability. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) Taxes. The Company may withhold from any amounts payable under
this Agreement such federal, state, or local taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(e) No Waiver. The Executive's or the Company's failure to insist upon
strict compliance with any provision hereof or any other provision of this
Agreement or the failure to assert any right the Executive or the Company may
have hereunder, including, without limitation, the right of the Executive to
terminate employment for Good Reason pursuant to Section 4(b) of this Agreement
shall not be deemed to be a waiver of such provision or right or any other
provision or right of this Agreement.
(f) Entire Agreement. This instrument, together with the
Non-Competition Agreement, contains the entire agreement of the Executive and
the Company with respect to the subject matter hereof, and all promises,
representations, understandings, arrangements and prior agreements are merged
herein and superseded hereby.
<PAGE> 9
IN WITNESS WHEREOF, the Executive and, pursuant to due authorization
from its Board of Directors, the Company, have caused this Agreement to be
executed as of the day and year first above written.
GOLDEN SKY SYSTEMS, INC.
/s/ Rodney A. Weary
---------------------------------
Name: Rodney A. Weary
Title: Chief Executive Officer
/s/ John R. Hager
---------------------------------
John R. Hager
<PAGE> 1
EXHIBIT 10.11
GOLDEN SKY SYSTEMS, INC.
NON-COMPETITION AGREEMENT
Employee Name: Rodney A. Weary
Date: January 14, 1997
In consideration of my employment by Golden Sky Systems, Inc. (the
"Company"), I, the above-named Employee, hereby agree with the Company as
follows:
1. Definitions.
(a) Proprietary Information. As used in this Agreement, "Proprietary
Information" means information which the Company possesses or to which the
Company has rights which has commercial value. Proprietary Information includes,
by way of example and without limitation, trade secrets, product ideas, designs,
configurations, processes, techniques, formulas, software, improvements,
inventions, data, know-how, copyrightable materials, marketing plans and
strategies, sales and financial reports and forecasts, and customer lists.
Proprietary Information includes information developed by me in the course of my
employment by the Company or otherwise relating to Inventions and Developments
(as hereinafter defined) which belong to the Company under Section 4 below, as
well as other information to which I may have access in connection with my
employment.
(b) Inventions and Developments. As used in this Agreement, "Inventions
and Developments" means any and all inventions, developments, creative works and
useful ideas of any description whatsoever, whether or not patentable.
Inventions and Developments include, by way of example and without limitation,
discoveries and improvements which consist of or relate to any form of
Proprietary Information.
(c) Company-Related Inventions and Developments. For purposes of this
Agreement, "Company-Related Inventions and Developments" means all Inventions
and Developments which either (a) relate at the time of conception or
development to the actual or demonstrably anticipated business of the Company or
to its actual or demonstrably anticipated research and development; (b) result
from or relate to any work performed for the Company, whether or not during
normal business hours; (c) are developed on Company time; or (d) are developed
through the use of the Company's Proprietary Information, equipment and
software, or other facilities or resources.
(d) Company. For purposes of this Agreement, all references to the
"Company" will be deemed to include the Company and its direct or indirect
subsidiaries and affiliates.
<PAGE> 2
2. Confidentiality. I understand and agree that my employment creates a
relationship of confidence and trust between me and the Company with respect to
(a) all proprietary Information, and (b) the confidential information of others
with which the Company has a business relationship. The information referred to
in clauses (a) and (b) of the preceding sentence is referred to in this
Agreement, collectively, as "Confidential Information." At all times, both
during my employment with the Company and after its termination, I will keep in
confidence and trust all such Confidential Information, and will not use or
disclose any such Confidential Information without the written consent of the
Company, except as may be necessary in the ordinary course of performing my
duties to the Company. The restrictions set forth in this Section 2 will not
apply to information which is generally known to the public or in the trade,
unless such knowledge results from an unauthorized disclosure by me, but this
exception will not affect the application of any other provision of this
Agreement to such information in accordance with the terms of such provision.
3. Documents, Records, etc. All documents, records, apparatus, equipment
and other physical property, whether or not pertaining, to Proprietary
Information, which are furnished to me by the Company or are produced by me in
connection with my employment will be and remain the sole property of the
Company. I will return to the Company all such materials and property as and
when requested by the Company. In any event, I will return all such materials
and property immediately upon termination of my employment for any reason. I
will not take with me any such material or property or any copies thereof upon
such termination.
4. Ownership of Inventions and Developments. I agree that all
Company-Related Inventions and Developments which I conceive or develop, in
whole or in part, either alone or jointly with others, during the term of my
employment with the Company will be the sole property of the Company. The
Company will be the sole owner of all patents, copyrights and other proprietary
rights in and with respect to such Company-Related Inventions and Developments.
To the fullest extent permitted by law, such Company-Related Inventions and
Developments will be deemed works made for hire. I hereby transfer and assign to
the Company any proprietary rights which I may have or acquire in any such
Company-Related Inventions and Developments, and I waive any moral rights or
other special rights which I may have or accrue therein. I agree to execute any
documents and take any actions that may be required to effect and confirm such
transfer and assignment and waiver. The provisions of this Section 4 will apply
to all Company-Related Inventions and Developments which are conceived or
developed during the term of my employment with the Company, whether before or
after the date of this Agreement, and whether or not further development or
reduction to practice may take place after termination of my employment, for
which purpose it will be presumed that any Company-Related Inventions and
Developments conceived by me which are reduced to practice within one year after
termination of my employment were conceived during the term of my employment
with the Company unless I am able to establish a later conception date by clear
and convincing evidence. The provisions of this Section 4 will not apply,
however, to any Inventions and Developments which may be disclosed in a separate
Schedule attached to this Agreement prior to its acceptance by the
2
<PAGE> 3
Company, representing Inventions and Developments made by me prior to my
employment by the Company.
5. Disclosure of Inventions and Developments. I agree promptly to disclose
to the Company, or any persons designated by it, all Company-Related Inventions
and Developments which are or may be subject to the provisions of Section 4.
6. Obtaining and Enforcing Proprietary Rights. I agree to assist the
Company, at the Company's request from time to time and at the Company's
expense, to obtain and enforce patents, copyrights or other proprietary rights
with respect to Company-Related Inventions and Developments in any and all
countries. I will execute all documents reasonably necessary or appropriate for
this purpose. This obligation will survive the termination of my employment,
provided that the Company will compensate me at a reasonable rate after such
termination for time actually spent by me at the Company's request on such
assistance. In the event that the Company is unable for any reason whatsoever to
secure my signature to any document reasonably necessary or appropriate for any
of the foregoing purposes (including renewals, extensions, continuations,
divisions or continuations in part), I hereby irrevocably designate and a point
the Company and its duly authorized officers and agents as my agents and
attorneys-in-fact to act for me and on my behalf, but only for the purpose of
executing and filing, any such document and doing all other lawfully permitted
acts to accomplish the foregoing purposes with the same legal force and effect
as if executed by me.
7. Competitive Activities. During the term of my employment with the
Company, and for a period of two years thereafter (the "Non-Competition
Period"), I will not, directly or indirectly, whether as owner, partner,
shareholder, consultant, agent, employee, co-venturer or otherwise, engage,
participate or invest in any business activity in any market in which the
Company then operates or intends to operate anywhere in North America which
develops, manufactures or markets products or performs services which are
competitive with or similar to the products or services of the Company, or
products or services which the Company has under development or which are the
subject of active planning at any time during the term of my employment. In
addition, and without limitation of the foregoing, I agree that during the
Non-Competition Period, I will not, directly or indirectly, either as principal,
or as agent or employee for any other person or entity, (a) hire, or solicit for
employment with any person other than the Company, any individual who is then an
employee of the Company or was an employee of the Company at any time within one
year prior to such hiring or solicitation; (b) solicit from any of the Company's
customers business of a kind now or at any time during my employment carried on
by the Company; or (c) offer to perform as an employee for such customers any
services now or at any time during my employment offered by the Company. I
understand that the restrictions set forth in this Section 7 are intended to
protect the Company's interest in its Proprietary Information and established
customer relationships and goodwill, and agree that such restrictions are
reasonable and appropriate for this purpose.
3
<PAGE> 4
8. Third-Party Agreements and Rights. I hereby confirm that I am not bound
by the terms of any agreement with any previous employer or other party which
restricts in any way my use or disclosure of information or my engagement in any
business, except as may be disclosed in a separate Schedule attached to this
Agreement prior to its acceptance by the Company. I have delivered to the
Company true and complete copies of any agreements listed on said Schedule. I
represent to the Company that my execution of this Agreement, my employment with
the Company and the performance of my proposed duties for the Company will not
violate any obligations I may have to any such previous employer or other party.
In my work for the Company, I will not disclose or make use of any information
in violation of any agreements with or rights of any such previous employer or
other party, and I will not bring to the premises of the Company any copies or
other tangible embodiments of non-public information belonging to or obtained
from any such previous employment or other party.
9. Injunction. I agree that it would be difficult to measure any damages
caused to the Company which might result from any breach by me of the promises
set forth in this Agreement, and that in any event money damages would be an
inadequate remedy for any such breach. Accordingly, I agree that if I breach, or
propose to breach, any portion of this Agreement, the Company shall be entitled,
in addition to all other remedies that it may have, to an injunction or other
appropriate equitable relief to restrain any such breach without showing or
province any actual damage to the Company.
10. Binding Effect. This Agreement will be binding upon me and my heirs,
executors, administrators and legal representatives and will inure to the
benefit of the Company, any subsidiary of the Company, and its and their
respective successors and assigns.
11. Enforceability. If any portion or provision of this Agreement is to any
extent declared illegal or unenforceable by a court of competent jurisdiction,
then the remainder of this Agreement, or the application of such portion or
provision in circumstances other than those as to which it is so declared
illegal or unenforceable, will not be affected thereby, and each portion and
provision of this Agreement shall be valid and enforceable to the fullest extent
permitted by law. In the event that any provision of this Agreement is
determined by any court of competent jurisdiction to be unenforceable by reason
of excessive scope as to geographic, temporal or functional coverage, such
provision will be deemed to extend only over the maximum geographic, temporal
and functional scope as to which it may be enforceable.
12. Entire Agreement. This Agreement constitutes the entire agreement
between the Company and myself with respect to the subject matter hereof, and
supersedes all prior representations and agreements with respect to such subject
matter. This Agreement may not be amended, modified or waived except by a
written instrument duly executed by the person against whom enforcement of such
amendment, modification or waiver is sought. The failure of any party to require
the performance of any term or obligation of this Agreement, or the waiver by
any party of any breach of this Agreement, in any particular case will not
prevent any subsequent
4
<PAGE> 5
enforcement of such term or obligation or to be deemed a waiver of any separate
or subsequent breach.
13. Notices. Any notices, requests, demands and other communications
provided for by this Agreement will be sufficient if in writing and delivered in
person or sent by registered or certified mail, postage prepaid, to me at the
last address which I have filed in writing with the Company or, in the case of
any notice to the Company, at its main offices, to the attention of its Chief
Executive Officer.
14. Governing Law. This is a Missouri contract and shall be construed under
and be governed in all respects by the laws of the State of Missouri.
I UNDERSTAND THAT THIS AGREEMENT AFFECTS IMPORTANT RIGHTS. I HAVE READ IT
CAREFULLY AND AM SATISFIED THAT I UNDERSTAND IT COMPLETELY.
/s/ Rodney A. Weary
--------------------------------
Signature of Employee
Accepted and Agreed to by
GOLDEN SKY SYSTEMS, INC.
By: /s/ Robert B. Weaver
------------------------------
Name: Robert B. Weaver
Title: Chief Financial Officer
Date: January 14, 1997
5
<PAGE> 6
SCHEDULE OF PRIOR INVENTIONS
Employee Name: Rodney A. Weary
Date: January 14, 1997
None.
/s/ Rodney A. Weary
--------------------------------
Employee Signature
Accepted by
GOLDEN SKY SYSTEMS, INC.
By: /s/ Robert B. Weaver
-------------------------------
Name: Robert B. Weaver
Title: Chief Financial Officer
6
<PAGE> 7
SCHEDULE OF THIRD-PARTY AGREEMENTS
Employee Name: Rodney A. Weary
Date: January 14, 1997
Non-competition Agreement between Rodney A. Weary and Universal Cable
Communications, Inc., dated June 30, 1995.
/s/ Rodney A. Weary
--------------------------------
Employee Signature
Accepted by
GOLDEN SKY SYSTEMS, INC.
By: /s/ Robert B. Weaver
--------------------------------
Name: Robert B. Weaver
Title: Chief Financial Officer
7
<PAGE> 1
EXHIBIT 10.12
GOLDEN SKY SYSTEMS, INC.
NON-COMPETITION AGREEMENT
Employee Name: Jo Ellen Linn
Date: January 14, 1998
In consideration of my employment by Golden Sky Systems, Inc. (the
"Company"), I, the above-named Employee, hereby agree with the Company as
follows:
1. Definitions.
(a) Proprietary Information. As used in this Agreement,
"Proprietary Information" means information which the Company possesses or to
which the Company has rights which has commercial value. Proprietary Information
includes, by way of example and without limitation, trade secrets, product
ideas, designs, configurations, processes, techniques, formulas, software,
improvements, inventions, data, know-how, copyrightable materials, marketing
plans and strategies, sales and financial reports and forecasts, and customer
lists. Proprietary Information includes information developed by me in the
course of my employment by the Company or otherwise relating to Inventions and
Developments (as hereinafter defined) which belong to the Company under Section
4 below, as well as other information to which I may have access in connection
with my employment.
(b) Inventions and Developments. As used in this Agreement,
"Inventions and Developments" means any and all inventions, developments,
creative works and useful ideas of any description whatsoever, whether or not
patentable. Inventions and Developments include, by way of example and without
limitation, discoveries and improvements which consist of or relate to any form
of Proprietary Information.
(c) Company-Related Inventions and Developments. For purposes
of this Agreement, "Company-Related Inventions and Developments" means all
Inventions and Developments which either (a) relate at the time of conception or
development to the actual or demonstrably anticipated business of the Company or
to its actual or demonstrably anticipated research and development; (b) result
from or relate to any work performed for the Company, whether or not during
normal business hours; (c) are developed on Company time; or (d) are developed
through the use of the Company's Proprietary Information, equipment and
software, or other facilities or resources.
(d) Company. For purposes of this Agreement, all references to
the "Company" will be deemed to include the Company and its direct or indirect
subsidiaries and affiliates.
<PAGE> 2
2. Confidentiality. I understand and agree that my employment creates a
relationship of confidence and trust between me and the Company with respect to
(a) all proprietary Information, and (b) the confidential information of others
with which the Company has a business relationship. The information referred to
in clauses (a) and (b) of the preceding sentence is referred to in this
Agreement, collectively, as "Confidential Information." At all times, both
during my employment with the Company and after its termination, I will keep in
confidence and trust all such Confidential Information, and will not use or
disclose any such Confidential Information without the written consent of the
Company, except as may be necessary in the ordinary course of performing my
duties to the Company. The restrictions set forth in this Section 2 will not
apply to information which is generally known to the public or in the trade,
unless such knowledge results from an unauthorized disclosure by me, but this
exception will not affect the application of any other provision of this
Agreement to such information in accordance with the terms of such provision.
3. Documents, Records, etc. All documents, records, apparatus,
equipment and other physical property, whether or not pertaining, to Proprietary
Information, which are furnished to me by the Company or are produced by me in
connection with my employment will be and remain the sole property of the
Company. I will return to the Company all such materials and property as and
when requested by the Company. In any event, I will return all such materials
and property immediately upon termination of my employment for any reason. I
will not take with me any such material or property or any copies thereof upon
such termination.
4. Ownership of Inventions and Developments. I agree that all
Company-Related Inventions and Developments which I conceive or develop, in
whole or in part, either alone or jointly with others, during the term of my
employment with the Company will be the sole property of the Company. The
Company will be the sole owner of all patents, copyrights and other proprietary
rights in and with respect to such Company-Related Inventions and Developments.
To the fullest extent permitted by law, such Company-Related Inventions and
Developments will be deemed works made for hire. I hereby transfer and assign to
the Company any proprietary rights which I may have or acquire in any such
Company-Related Inventions and Developments, and I waive any moral rights or
other special rights which I may have or accrue therein. I agree to execute any
documents and take any actions that may be required to effect and confirm such
transfer and assignment and waiver. The provisions of this Section 4 will apply
to all Company-Related Inventions and Developments which are conceived or
developed during the term of my employment with the Company, whether before or
after the date of this Agreement, and whether or not further development or
reduction to practice may take place after termination of my employment, for
which purpose it will be presumed that any Company-Related Inventions and
Developments conceived by me which are reduced to practice within one year after
termination of my employment were conceived during the term of my employment
with the Company unless I am able to establish a later conception date by clear
and convincing evidence. The provisions of this Section 4 will not apply,
however, to any Inventions and Developments which may be disclosed in a separate
Schedule attached to this Agreement prior to its acceptance by the Company,
representing Inventions and Developments made by me prior to my employment by
the Company.
2
<PAGE> 3
5. Disclosure of Inventions and Developments. I agree promptly to
disclose to the Company, or any persons designated by it, all Company-Related
Inventions and Developments which are or may be subject to the provisions of
Section 4.
6. Obtaining and Enforcing Proprietary Rights. I agree to assist the
Company, at the Company's request from time to time and at the Company's
expense, to obtain and enforce patents, copyrights or other proprietary rights
with respect to Company-Related Inventions and Developments in any and all
countries. I will execute all documents reasonably necessary or appropriate for
this purpose. This obligation will survive the termination of my employment,
provided that the Company will compensate me at a reasonable rate after such
termination for time actually spent by me at the Company's request on such
assistance. In the event that the Company is unable for any reason whatsoever to
secure my signature to any document reasonably necessary or appropriate for any
of the foregoing purposes (including renewals, extensions, continuations,
divisions or continuations in part), I hereby irrevocably designate and a point
the Company and its duly authorized officers and agents as my agents and
attorneys-in-fact to act for me and on my behalf, but only for the purpose of
executing and filing, any such document and doing all other lawfully permitted
acts to accomplish the foregoing purposes with the same legal force and effect
as if executed by me.
7. Competitive Activities. During the term of my employment with the
Company, and for a period of two years thereafter (the "Non-Competition
Period"), I will not, directly or indirectly, whether as owner, partner,
shareholder, consultant, agent, employee, co-venturer or otherwise, engage,
participate or invest in any business activity in any market in which the
Company then operates or intends to operate anywhere in North America which
develops, manufactures or markets products or performs services which are
competitive with or similar to the products or services of the Company, or
products or services which the Company has under development or which are the
subject of active planning at any time during the term of my employment. In
addition, and without limitation of the foregoing, I agree that during the
Non-Competition Period, I will not, directly or indirectly, either as principal,
or as agent or employee for any other person or entity, (a) hire, or solicit for
employment with any person other than the Company, any individual who is then an
employee of the Company or was an employee of the Company at any time within one
year prior to such hiring or solicitation; (b) solicit from any of the Company's
customers business of a kind now or at any time during my employment carried on
by the Company; or (c) offer to perform as an employee for such customers any
services now or at any time during my employment offered by the Company. I
understand that the restrictions set forth in this Section 7 are intended to
protect the Company's interest in its Proprietary Information and established
customer relationships and goodwill, and agree that such restrictions are
reasonable and appropriate for this purpose.
3
<PAGE> 4
8. Third-Party Agreements and Rights. I hereby confirm that I am not
bound by the terms of any agreement with any previous employer or other party
which restricts in any way my use or disclosure of information or my engagement
in any business, except as may be disclosed in a separate Schedule attached to
this Agreement prior to its acceptance by the Company. I have delivered to the
Company true and complete copies of any agreements listed on said Schedule. I
represent to the Company that my execution of this Agreement, my employment with
the Company and the performance of my proposed duties for the Company will not
violate any obligations I may have to any such previous employer or other party.
In my work for the Company, I will not disclose or make use of any information
in violation of any agreements with or rights of any such previous employer or
other party, and I will not bring to the premises of the Company any copies or
other tangible embodiments of non-public information belonging to or obtained
from any such previous employment or other party.
9. Injunction. I agree that it would be difficult to measure any
damages caused to the Company which might result from any breach by me of the
promises set forth in this Agreement, and that in any event money damages would
be an inadequate remedy for any such breach. Accordingly, I agree that if I
breach, or propose to breach, any portion of this Agreement, the Company shall
be entitled, in addition to all other remedies that it may have, to an
injunction or other appropriate equitable relief to restrain any such breach
without showing or province any actual damage to the Company.
10. Binding Effect. This Agreement will be binding upon me and my
heirs, executors, administrators and legal representatives and will inure to the
benefit of the Company, any subsidiary of the Company, and its and their
respective successors and assigns.
11. Enforceability. If any portion or provision of this Agreement is to
any extent declared illegal or unenforceable by a court of competent
jurisdiction, then the remainder of this Agreement, or the application of such
portion or provision in circumstances other than those as to which it is so
declared illegal or unenforceable, will not be affected thereby, and each
portion and provision of this Agreement shall be valid and enforceable to the
fullest extent permitted by law. In the event that any provision of this
Agreement is determined by any court of competent jurisdiction to be
unenforceable by reason of excessive scope as to geographic, temporal or
functional coverage, such provision will be deemed to extend only over the
maximum geographic, temporal and functional scope as to which it may be
enforceable.
12. Entire Agreement. This Agreement constitutes the entire agreement
between the Company and myself with respect to the subject matter hereof, and
supersedes all prior representations and agreements with respect to such subject
matter. This Agreement may not be amended, modified or waived except by a
written instrument duly executed by the person against whom enforcement of such
amendment, modification or waiver is sought. The failure of any party to require
the performance of any term or obligation of this Agreement, or the waiver by
any party of any breach of this Agreement, in any particular case will not
prevent any subsequent enforcement of such term or obligation or to be deemed a
waiver of any separate or subsequent breach.
4
<PAGE> 5
13. Notices. Any notices, requests, demands and other communications
provided for by this Agreement will be sufficient if in writing and delivered in
person or sent by registered or certified mail, postage prepaid, to me at the
last address which I have filed in writing with the Company or, in the case of
any notice to the Company, at its main offices, to the attention of its Chief
Executive Officer.
14. Governing Law. This is a Missouri contract and shall be construed
under and be governed in all respects by the laws of the State of Missouri.
I UNDERSTAND THAT THIS AGREEMENT AFFECTS IMPORTANT RIGHTS. I HAVE READ
IT CAREFULLY AND AM SATISFIED THAT I UNDERSTAND IT COMPLETELY.
/s/ JO ELLEN LINN
------------------------------
Signature of Employee
Accepted and Agreed to by
GOLDEN SKY SYSTEMS, INC.
By: /s/ Rodney A. Weary
--------------------------------
Name: Rodney A. Weary
Title: President
Date: January 14, 1997
5
<PAGE> 6
SCHEDULE OF PRIOR INVENTIONS
Employee Name: Jo Ellen Linn
Date: January 14, 1997
None.
/s/ Jo Ellen Linn
-------------------------
Employee Signature
Accepted by
GOLDEN SKY SYSTEMS, INC.
By: /s/ Rodney A. Weary
--------------------------------
Name: Rodney A. Weary
Title: President
6
<PAGE> 7
SCHEDULE OF THIRD-PARTY AGREEMENTS
Employee Name: Jo Ellen Linn
Date: January 14, 1997
None.
/s/ Jo Ellen Linn
----------------------
Employee Signature
Accepted by
GOLDEN SKY SYSTEMS, INC.
By: /s/ Rodney A. Weary
--------------------------
Name: Rodney A. Weary
Title: President
7
<PAGE> 1
EXHIBIT 10.13
GOLDEN SKY SYSTEMS, INC.
NON-COMPETITION AGREEMENT
Employee Name: John R. Hager
Date: August 24, 1998
In consideration of my employment by Golden Sky Systems, Inc. (the
"Company"), I, the above-named Employee, hereby agree with the Company as
follows:
1. Definitions.
(a) Proprietary Information. As used in this Agreement, "Proprietary
Information" means information which the Company possesses or to which the
Company has rights which has commercial value. Proprietary Information includes,
by way of example and without limitation, trade secrets, product ideas, designs,
configurations, processes, techniques, formulas, software, improvements,
inventions, data, know-how, copyrightable materials, marketing plans and
strategies, sales and financial reports and forecasts, and customer lists.
Proprietary Information includes information developed by me in the course of my
employment by the Company or otherwise relating to Inventions which belong to
the Company under Section 4 below, as well as other information to which I may
have access in connection with my employment.
(b) Inventions and Developments. As used in this Agreement,
"Inventions and Developments" means any and all inventions, developments,
creative works and useful ideas of any description whatsoever, whether or not
patentable. Inventions and Developments include, by way of example and without
limitation, discoveries and improvements which consist of or relate to any form
of Proprietary Information.
(c) Company-Related Inventions and Developments. For purposes of this
Agreement, "Company-Related Inventions and Developments" means all Inventions
and Developments which either (a) relate at the time of conception or
development to the actual or demonstrably anticipated business of the Company or
to its actual or demonstrably anticipated research and development; (b) result
from or relate to any work performed for the Company, whether or not during
normal business hours; (c) are developed on Company time; or (d) are developed
through the use of the Company's Proprietary Information, equipment and
software, or other facilities or resources.
(d) Company. For purposes of this Agreement, all references to the
"Company" will be deemed to include the Company and its direct or indirect
subsidiaries and affiliates.
2. Confidentiality. I understand and agree that my employment creates
a relationship of confidence and trust between me and the Company with respect
to (a) all Proprietary Information, and (b) the confidential information of
others with which the Company has a business relationship. The information
<PAGE> 2
referred to in clauses (a) and (b) of the preceding sentence is referred to in
this Agreement, collectively, as "Confidential Information." At all times, both
during my employment with the Company and after its termination, I will keep in
confidence and trust all such Confidential Information, and will not use or
disclose any such Confidential Information without the written consent of the
Company, except as may be necessary in the ordinary course of performing my
duties to the Company. The restrictions set forth in this Section 2 will not
apply to information which is generally known to the public or in the trade,
unless such knowledge results from an unauthorized disclosure by me, but this
exception will not affect the application of any other provision of this
Agreement to such information in accordance with the terms of such provision.
3. Documents, Records, etc. All documents, records, apparatus,
equipment and other physical property, whether or not pertaining to Proprietary
Information, which are furnished to me by the Company or are produced by me in
connection with my employment will be and remain the sole property of the
Company. I will return to the Company all such materials and property as and
when requested by the Company. In any event, I will return all such materials
and property immediately upon termination of my employment for any reason. I
will not take with me any such material or property or any copies thereof upon
such termination.
4. Ownership of Inventions and Developments. I agree that all
Company-Related Inventions and Developments which I conceive or develop, in
whole or in part, either alone or jointly with others, during the term of my
employment with the Company will be the sole property of the Company. The
Company will be the sole owner of all patents, copyrights and other proprietary
rights in and with respect to such Company-Related Inventions and Developments.
To the fullest extent permitted by law, such Company-Related Inventions and
Developments will be deemed works made for hire. I hereby transfer and assign to
the Company any proprietary rights which I may have or acquire in any such
Company-Related Inventions and Developments, and I waive any moral rights or
other special rights which I may have or accrue therein. I agree to execute any
documents and take any actions that may be required to effect and confirm such
transfer and assignment and waiver. The provisions of this Section 4 will apply
to all Company-Related Inventions and Developments which are conceived or
developed during the term of my employment with the Company, whether before or
after the date of this Agreement, and whether or not further development or
reduction to practice may take place after termination of my employment, for
which purpose it will be presumed that any Company-Related Inventions and
Developments conceived by me which are reduced to practice within one year after
termination of my employment were conceived during the term of my employment
with the Company unless I am able to establish a later conception date by clear
and convincing evidence. The provisions of this Section 4 will not apply,
however, to any Inventions and Developments which may be disclosed in a separate
<PAGE> 3
Schedule attached to this Agreement prior to its acceptance by the Company,
representing Inventions and Developments made by me prior to my employment by
the Company.
5. Disclosure of Inventions and Developments. I agree promptly to
disclose to the Company, or any persons designated by it, all Company-Related
Inventions and Developments which are or may be subject to the provisions of
Section 4.
6. Obtaining and Enforcing Proprietary Rights. I agree to assist the
Company, at the Company's request from time to time and at the Company's
expense, to obtain and enforce patents, copyrights or other proprietary rights
with respect to Company-Related Inventions and Developments in any and all
countries. I will execute all documents reasonably necessary or appropriate for
this purpose. This obligation will survive the termination of my employment,
provided that the Company will compensate me at a reasonable rate after such
termination for time actually spent by me at the Company's request on such
assistance. In the event that the Company is unable for any reason whatsoever to
secure my signature to any document reasonably necessary or appropriate for any
of the foregoing purposes (including renewals, extensions, continuations,
divisions or continuations in part), I hereby irrevocably designate and appoint
the Company and its duly authorized officers and agents as my agents and
attorneys-in-fact to act for me and on my behalf, but only for the purpose of
executing and filing any such document and doing all other lawfully permitted
acts to accomplish the foregoing purposes with the same legal force and effect
as if executed by me.
7. Competitive Activities. During the term of my employment with the
Company, and for a period of two years thereafter (the "Non-Competition
Period"), I will not, directly or indirectly, whether as owner, partner,
shareholder, consultant, agent, employee, co-venturer or otherwise, engage,
participate or invest in any business activity in any market in which the
Company then operates or intends to operate anywhere in North America which
develops, manufactures or markets products or performs services which are
competitive with or similar to the products or services of the Company, or
products or services which the Company has under development or which are the
subject of active planning at any time during the term of my employment. In
addition, and without limitation of the foregoing, I agree that during the
Non-Competition Period, I will not, directly or indirectly, either as principal,
or as agent or employee for any other person or entity, (a) hire, or solicit for
employment with any person other than the Company, any individual who is then an
employee of the Company or was an employee of the Company at any time within one
year prior to such hiring or solicitation; (b) solicit from any of the Company's
customers business of a kind now or at any time during my employment carried on
by the Company; or (c) offer to perform as an employee for such customers any
services now or at any time during my employment offered by the Company. I
understand that the restrictions set forth in this Section 7 are intended to
protect the Company's interest in its Proprietary Information and established
customer relationships and goodwill, and agree that such restrictions are
reasonable and appropriate for this purpose.
<PAGE> 4
8. Third-Party Agreements and Rights. I represent to the Company that
my execution of this Agreement, my employment with the Company and the
performance of my proposed duties for the Company will not violate any
obligations I may have to any previous employer or other party. In my work for
the Company, I will not disclose or make use of any information in violation of
any agreements with or rights of any previous employer or other party, and I
will not bring to the premises of the Company any copies or other tangible
embodiments of non-public information belonging to or obtained from any such
previous employment or other party.
9. Injunction. I agree that it would be difficult to measure any
damages caused to the Company which might result from any breach by me of the
promises set forth in this Agreement, and that in any event money damages would
be an inadequate remedy for any such breach. Accordingly, I agree that if I
breach, or propose to breach, any portion of this Agreement, the Company shall
be entitled, in addition to all other remedies that it may have, to an
injunction or other appropriate equitable relief to restrain any such breach
without showing or proving any actual damage to the Company.
10. Binding Effect. This Agreement will be binding upon me and my
heirs, executors, administrators and legal representatives and will inure to the
benefit of the Company, any subsidiary of the Company, and its and their
respective successors and assigns.
11. Enforceability. If any portion or provision of this Agreement is
to any extent declared illegal or unenforceable by a court of competent
jurisdiction, then the remainder of this Agreement, or the application of such
portion or provision in circumstances other than those as to which it is so
declared illegal or unenforceable, will not be affected thereby, and each
portion and provision of this Agreement shall be valid and enforceable to the
fullest extent permitted by law. In the event that any provision of this
Agreement is determined by any court of competent jurisdiction to be
unenforceable by reason of excessive scope as to geographic, temporal or
functional coverage, such provision will be deemed to extend only over the
maximum geographic, temporal and functional scope as to which it may be
enforceable.
12. Entire Agreement. This Agreement constitutes the entire agreement
between the Company and myself with respect to the subject matter hereof, and
supersedes all prior representations and agreements with respect to such subject
matter. This Agreement may not be amended, modified or waived except by a
written instrument duly executed by the person against whom enforcement of such
amendment, modification or waiver is sought. The failure of any party to require
the performance of any term or obligation of this Agreement, or the waiver by
any party of any breach of this Agreement, in any particular case will not
<PAGE> 5
prevent any subsequent enforcement of such term or obligation or to be deemed a
waiver of any separate or subsequent breach.
13. Notices. Any notices, requests, demands and other communications
provided for by this Agreement will be sufficient if in writing and delivered in
person or sent by registered or certified mail, postage prepaid, to me at the
last address which I have filed in writing with the Company or, in the case of
any notice to the Company, at its main offices, to the attention of its Chief
Executive Officer.
14. Governing Law. This is a Missouri contract and shall be construed
under and be governed in all respects by the laws of the State of Missouri.
I UNDERSTAND THAT THIS AGREEMENT AFFECTS IMPORTANT RIGHTS. I HAVE READ
IT CAREFULLY AND AM SATISFIED THAT I UNDERSTAND IT COMPLETELY.
Signature of Employee
/s/ John R. Hager
----------------------------
John R. Hager
Accepted and Agreed to by
GOLDEN SKY SYSTEMS, INC.
By: /s/ Rodney A. Weary
-------------------------------------
Name: Rodney A. Weary
Title: President
Date: August 24, 1998
<PAGE> 6
SCHEDULE OF PRIOR INVENTIONS
Employee Name: John R. Hager
Date: August 24, 1998
NONE
/s/ John R. Hager
----------------------------
John R. Hager
Accepted by
GOLDEN SKY SYSTEMS, INC.
By: /s/ Rodney A. Weary
-------------------------------------
Name: Rodney A. Weary
Title: President
<PAGE> 7
SCHEDULE OF THIRD-PARTY AGREEMENTS
Employee Name: John R. Hager
Date: August 24, 1998
SEE ATTACHED AGREEMENT WITH ECHOSTAR
/s/ John R. Hager
----------------------------
John R. Hager
Accepted by
GOLDEN SKY SYSTEMS, INC.
By: /s/ Rodney A. Weary
-------------------------------------
Name: Rodney A. Weary
Title: President
<PAGE> 1
EXHIBIT 10.14
DIRECTOR INDEMNIFICATION AGREEMENT
This Indemnification Agreement is made and entered into this 12th day
of February, 1997 (the "Agreement"), by and between Golden Sky Systems, Inc., a
Delaware corporation (together with any successor or successors thereto, the
"Company"), and ________________ ("Indemnitee").
WHEREAS, it is essential to the Company that the Company be able to
retain and attract as directors the most capable persons available;
WHEREAS, increased corporate litigation has subjected directors to
litigation risks and expenses and the limitations on the availability of
directors and officers liability insurance have made it increasingly difficult
for the Company to attract and retain such persons;
WHEREAS, the Company's by-laws require the Company to indemnify its
directors to the fullest extent permitted by law and permit the Company to make
other indemnification arrangements and agreements;
WHEREAS, the Company desires to provide Indemnitee with specific
contractual assurance of Indemnitee's rights to full indemnification against
litigation risks and expenses (regardless, among other things, of any amendment
to or revocation of such by-laws or any change in the ownership of the Company
or the composition of its Board of Directors), which indemnification is intended
to be greater than that which is afforded by the Company's certificate of
incorporation, by-laws and, to the extent insurance is available, the coverage
of Indemnitee under the Company's directors and officers liability insurance
policies; and
WHEREAS, Indemnitee is relying upon the rights afforded under this
Agreement in initially becoming and continuing in Indemnitee's position as a
director of the Company:
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Company and Indemnitee do hereby covenant and agree as
follows:
1. Definitions.
(a) "Corporate Status" describes the status of a person
who is serving or has served (i) as a director of the
Company, (ii) in any capacity with respect to any
employee benefit plan of the Company, or (iii) as a
director, partner, member, trustee, officer, employee
or agent of any other Entity at the request of the
Company.
(b) "Entity" shall mean any corporation, partnership,
limited liability company, joint venture, trust,
foundation, association, organization or
<PAGE> 2
other legal entity and any group or division of the
Company or any of its Subsidiaries.
(c) "Expenses" shall mean all reasonable fees, costs and
expenses incurred in connection with any Proceeding
(as defined below), including, without limitation,
attorneys' fees, disbursements and retainers
(including, without limitation, any such fees,
disbursements and retainers incurred by Indemnitee
pursuant to Section 10 of this Agreement), fees and
disbursements of expert witnesses, private
investigators and professional advisors (including,
without limitation, accountants and investment
bankers), court costs, transcript costs, fees of
experts, travel expenses, duplicating, printing and
binding costs, telephone and fax transmission
charges, postage, delivery services, secretarial
services, and other disbursements and expenses.
(d) "Indemnifiable Expenses," "Indemnifiable Liabilities"
and "Indemnifiable Amounts" shall have the meanings
ascribed to those terms in Section 3(a) below.
(e) "Liabilities" shall mean judgments, damages,
liabilities, losses, penalties, excise taxes, fines
and amounts paid in settlement.
(f) "Proceeding" shall mean any threatened, pending or
completed claim, action, suit, arbitration, alternate
dispute resolution process, investigation,
administrative hearing, appeal, or any other
proceeding, whether civil, criminal, administrative
or investigative, whether formal or informal,
including a proceeding initiated by Indemnitee
pursuant to Section 10 of this Agreement to enforce
Indemnitee's rights hereunder.
(g) "Subsidiary" shall mean any Entity that is directly
or indirectly wholly-owned or controlled by the
Company.
2. Services of Indemnitee. In consideration of the Company's
covenants and commitments hereunder, Indemnitee agrees to serve or continue to
serve as a director of the Company. However, this Agreement shall not impose any
obligation on Indemnitee or the Company to continue Indemnitee's service to the
Company or any other Entity beyond any period otherwise required by law or by
other agreements or commitments of the parties, if any, and subject to the
foregoing, Indemnitee shall be free to resign from any position he or she holds
at any time.
2
<PAGE> 3
3. Agreement to Indemnify. Subject to the requirements of
applicable law, the Company agrees to indemnify Indemnitee as follows:
(a) Subject to the exceptions contained in Section 4(a)
below, if Indemnitee was or is a party or is
threatened to be made a party to any Proceeding
(other than an action by or in the right of the
Company) by reason of Indemnitee's Corporate Status,
Indemnitee shall be indemnified by the Company
against all Expenses and Liabilities incurred or paid
by Indemnitee in connection with such Proceeding
(referred to herein as "Indemnifiable Expenses" and
"Indemnifiable Liabilities," respectively, and
collectively as "Indemnifiable Amounts").
(b) Subject to the exceptions contained in Section 4(b)
below, if Indemnitee was or is a party or is
threatened to be made a party to any Proceeding by or
in the right of the Company to procure a judgment in
its favor by reason of Indemnitee's Corporate Status,
Indemnitee shall be indemnified by the Company
against all Indemnifiable Expenses.
4. Exceptions and Limitations to Indemnification.
(a) Exceptions. Indemnitee shall be entitled to
indemnification under Sections 3(a) and 3(b) above in
all circumstances other than the following:
(i) If indemnification is requested under
Section 3(a) and it has been adjudicated
finally by a court of competent jurisdiction
that, in connection with the subject of the
Proceeding out of which the claim for
indemnification has arisen, Indemnitee
failed to act in good faith and in a manner
Indemnitee reasonably believed to be in or
not opposed to the best interests of the
Company or, with respect to any criminal
action or proceeding, Indemnitee had
reasonable cause to believe that
Indemnitee's conduct was unlawful,
Indemnitee shall not be entitled to payment
of Indemnifiable Amounts hereunder.
(ii) If indemnification is requested under
Section 3(b) and
(A) it has been adjudicated
finally by a court of
competent jurisdiction
that, in connection with
the subject of the
Proceeding out of which the
claim for indemnification
has arisen, Indemnitee
failed to act in good faith
and in a manner Indemnitee
reasonably believed to be
in or not opposed to the
3
<PAGE> 4
best interests of the
Company, Indemnitee shall
not be entitled to payment
of Indemnifiable Expenses
hereunder; or
(B) it has been adjudicated
finally by a court of
competent jurisdiction that
Indemnitee is liable to the
Company with respect to any
claim, issue or matter
involved in the Proceeding
out of which the claim for
indemnification has arisen,
including, without
limitation, a claim that
Indemnitee received an
improper personal benefit,
no Indemnifiable Expenses
shall be paid with respect
to such claim, issue or
matter unless the Court of
Chancery or another court
in which such Proceeding
was brought shall determine
upon application that,
despite the adjudication of
liability, but in view of
all the circumstances of
the case, Indemnitee is
fairly and reasonably
entitled to indemnity for
such Indemnifiable Expenses
which such court shall deem
proper.
(b) Limitations. In the event Indemnitee has requested
indemnification by the Company for Indemnifiable
Amounts as a result of Indemnitee's Corporate Status
as described in Section 1(a)(iii), then the Company
shall indemnify the Indemnitee for Indemnifiable
Amounts to the extent the Indemnitee is not otherwise
indemnified for such Indemnifiable Amounts by such
other Entity.
5. Procedure for Payment of Indemnifiable Amounts. Indemnitee
shall submit to the Company a written request specifying the Indemnifiable
Amounts for which Indemnitee seeks payment under Section 3 of this Agreement and
the basis for the claim. The Company shall pay such Indemnifiable Amounts to
Indemnitee within twenty (20) calendar days of receipt of the request. At the
request of the Company, Indemnitee shall furnish such documentation and
information as are reasonably available to Indemnitee and necessary to establish
that Indemnitee is entitled to indemnification hereunder.
6. Indemnification for Expenses of a Party Who is Wholly or
Partly Successful. Notwithstanding any other provision of this Agreement, and
without limiting any such provision, to the extent that Indemnitee is, by reason
of Indemnitee's Corporate Status, a party to and is successful, on the merits or
otherwise, in any Proceeding, Indemnitee shall be indemnified against all
Expenses reasonably incurred by Indemnitee or on Indemnitee's behalf in
connection therewith. If Indemnitee is not wholly successful in such Proceeding
but is successful, on the merits or otherwise, as to one or more but less than
all claims, issues or
<PAGE> 5
matters in such Proceeding, the Company shall indemnify Indemnitee against all
Expenses reasonably incurred by Indemnitee or on Indemnitee's behalf in
connection with each successfully resolved claim, issue or matter. For purposes
of this Agreement, the termination of any claim, issue or matter in such a
Proceeding by dismissal, with prejudice, shall be deemed to be a successful
result as to such claim, issue or matter.
7. Effect of Certain Resolutions. Neither the settlement or
termination of any Proceeding nor the failure of the Company to award
indemnification or to determine that indemnification is payable shall create an
adverse presumption that Indemnitee is not entitled to indemnification
hereunder. In addition, the termination of any proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent
shall not create a presumption that Indemnitee did not act in good faith and in
a manner which Indemnitee reasonably believed to be in or not opposed to the
best interests of the Company or, with respect to any criminal action or
proceeding, had reasonable cause to believe that Indemnitee's action was
unlawful.
8. Agreement to Advance Interim Expenses; Conditions. The Company
shall pay to Indemnitee all Indemnifiable Expenses incurred by Indemnitee in
connection with any Proceeding, including a Proceeding by or in the right of the
Company, in advance of the final disposition of such Proceeding, if Indemnitee
furnishes the Company with a written undertaking to repay the amount of such
Indemnifiable Expenses advanced to Indemnitee if it is finally determined by a
court of competent jurisdiction that Indemnitee is not entitled under this
Agreement to indemnification with respect to such Expenses. Such undertaking
shall be an unlimited general obligation of Indemnitee, shall be accepted by the
Company without regard to the financial ability of Indemnitee to make repayment,
and in no event shall be required to be secured.
9. Procedure for Payment of Interim Expenses. Indemnitee shall
submit to the Company a written request specifying the Indemnifiable Expenses
for which Indemnitee seeks an advancement under Section 8 of this Agreement,
together with documentation evidencing that Indemnitee has incurred such
Indemnifiable Expenses. Payment of Indemnifiable Expenses under Section 8 shall
be made no later than twenty (20) calendar days after the Company's receipt of
such request and the undertaking required by Section 8.
10. Remedies of Indemnitee.
(a) Right to Petition Court. In the event that Indemnitee
makes a request for payment of Indemnifiable Amounts
under Sections 3 and 5 above or a request for an
advancement of Indemnifiable Expenses under Sections
8 and 9 above and the Company fails to make such
payment or advancement in a timely manner pursuant to
the terms of this Agreement, Indemnitee may petition
the appropriate judicial authority to enforce the
Company's obligations under this Agreement.
5
<PAGE> 6
(b) Burden of Proof. In any judicial proceeding brought
under Section 10(a) above, the Company shall have the
burden of proving that Indemnitee is not entitled to
payment of Indemnifiable Amounts hereunder.
(c) Expenses. In the event that the Indemnitee prevails
on the merits for any claims brought under this
Section 10(a), the Company agrees to reimburse
Indemnitee in full for any Expenses incurred by
Indemnitee in connection with investigating,
preparing for, litigating, defending or settling any
action brought by Indemnitee under Section 10(a)
above, or in connection with any claim or
counterclaim brought by the Company in connection
therewith.
(d) Validity of Agreement. The Company shall be precluded
from asserting in any Proceeding, including, without
limitation, an action under Section 10(a) above, that
the provisions of this Agreement are not valid,
binding and enforceable or that there is insufficient
consideration for this Agreement and shall stipulate
in court that the Company is bound by all the
provisions of this Agreement.
(e) Failure to Act Not a Defense. The failure of the
Company (including its Board of Directors or any
committee thereof, independent legal counsel, or
stockholders) to make a determination concerning the
permissibility of the payment of Indemnifiable
Amounts or the advancement of Indemnifiable Expenses
under this Agreement shall not be a defense in any
action brought under Section 10(a) above, and shall
not create a presumption that such payment or
advancement is not permissible.
11. Representations and Warranties of the Company. The Company
hereby represents and warrants to Indemnitee as follows:
(a) Authority. The Company has all necessary power and
authority to enter into, and be bound by the terms
of, this Agreement, and the execution, delivery and
performance of the undertakings contemplated by this
Agreement have been duly authorized by the Company.
(b) Enforceability. This Agreement, when executed and
delivered by the Company in accordance with the
provisions hereof, shall be a legal, valid and
binding obligation of the Company, enforceable
against the Company in accordance with its terms,
except as such enforceability may be limited by
applicable bankruptcy, insolvency, moratorium,
reorganization or similar laws affecting the
enforcement of creditors' rights generally.
6
<PAGE> 7
12. Insurance. The Company will use its commercially reasonable
efforts to obtain and maintain a policy or policies of insurance with reputable
insurance companies providing the Indemnitee with coverage for losses from
wrongful acts, and to ensure the Company's performance of its indemnification
obligations under this Agreement. In all policies of director and officer
liability insurance, Indemnitee shall be named as an insured in such a manner as
to provide Indemnitee at least the same rights and benefits as are accorded to
the most favorably insured of the Company's officers and directors.
Notwithstanding the foregoing, if the Company, after employing commercially
reasonable efforts as provided in this section, determines in good faith that
such insurance is not reasonably available, if the premium costs for such
insurance are disproportionate to the amount of coverage provided, or if the
coverage provided by such insurance is limited by exclusions so as to provide an
insufficient benefit, the Company shall use its commercially reasonable efforts
to obtain and maintain a policy or policies of insurance with coverage having
features as similar as practicable to those described above.
13. Contract Rights Not Exclusive. The rights to payment of
Indemnifiable Amounts and advancement of Indemnifiable Expenses provided by this
Agreement shall be in addition to, but not exclusive of, any other rights which
Indemnitee may have at any time under applicable law, the Company's by-laws or
certificate of incorporation, or any other agreement, vote of stockholders or
directors, or otherwise, both as to action in Indemnitee's official capacity and
as to action in any other capacity as a result of Indemnitee's serving as a
director of the Company.
14. Successors. This Agreement shall be (a) binding upon all
successors and assigns of the Company (including any transferee of all or a
substantial portion of the business, stock and/or assets of the Company and any
direct or indirect successor by merger or consolidation or otherwise by
operation of law) and (b) binding on and shall inure to the benefit of the
heirs, personal representatives, executors and administrators of Indemnitee.
This Agreement shall continue for the benefit of Indemnitee and such heirs,
personal representatives, executors and administrators after Indemnitee has
ceased to have Corporate Status.
15. Subrogation. In the event of any payment of Indemnifiable
Amounts under this Agreement, the Company shall be subrogated to the extent of
such payment to all of the rights of contribution or recovery of Indemnitee
against other persons, and Indemnitee shall take, at the request of the Company,
all reasonable action necessary to secure such rights, including the execution
of such documents as are necessary to enable the Company to bring suit to
enforce such rights.
16. Change in Law. To the extent that a change in applicable law
(whether by statute or judicial decision) shall permit broader indemnification
than is provided under the terms of the by-laws of the Company and this
Agreement, Indemnitee shall be entitled to such broader indemnification and this
Agreement shall be deemed to be amended to such extent.
7
<PAGE> 8
17. Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such a manner as to be effective and valid
under applicable law, but if any provision of this Agreement, or any clause
thereof, shall be determined by a court of competent jurisdiction to be illegal,
invalid or unenforceable, in whole or in part, such provision or clause shall be
limited or modified in its application to the minimum extent necessary to make
such provision or clause valid, legal and enforceable, and the remaining
provisions and clauses of this Agreement shall remain fully enforceable and
binding on the parties.
18. Indemnitee as Plaintiff. Except as provided in Section 10(c)
of this Agreement and in the next sentence, Indemnitee shall not be entitled to
payment of Indemnifiable Amounts or advancement of Indemnifiable Expenses with
respect to any Proceeding brought by Indemnitee against the Company, any Entity
which it controls, any director or officer thereof, or any third party, unless
the Company has consented to the initiation of such Proceeding. This Section
shall not apply to counterclaims or affirmative defenses asserted by Indemnitee
in an action brought against Indemnitee.
19. Modifications and Waiver. Except as provided in Section 16
above with respect to changes in applicable law which broaden the right of
Indemnitee to be indemnified by the Company, no supplement, modification or
amendment of this Agreement shall be binding unless executed in writing by each
of the parties hereto. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provisions of this
Agreement (whether or not similar), nor shall such waiver constitute a
continuing waiver.
20. General Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given (a) when delivered by hand, (b) when transmitted by facsimile and
receipt is acknowledged, or (c) if mailed by certified or registered mail with
postage prepaid, on the third business day after the date on which it is so
mailed:
(i) If to Indemnitee, at the mailing address as
shown on the signature page hereto, or at
any other address designated by Indemnitee.
(ii) If to the Company, to:
Golden Sky Systems, Inc.
605 W. 47th Street, Suite 300
Kansas City, MO 64112
Fax: (816) 753-5595
Attn: President
or to such other address as may have been furnished in the same manner by any
party to the others.
8
<PAGE> 9
21. Governing Law. This Agreement shall be governed by and
construed and enforced under the laws of the jurisdiction in which the Company
or its successor or successors are incorporated from time to time (the
"Jurisdiction") without giving effect to the provisions thereof relating to
conflicts of law.
22. Consent to Jurisdiction. The Company hereby irrevocably and
unconditionally consents to the jurisdiction of the courts of the Jurisdiction
and the United States District Court in the Jurisdiction. The Company hereby
irrevocably and unconditionally waives any objection to the laying of venue of
any Proceeding arising out of or relating to this Agreement in the courts of the
Jurisdiction or the United States District Court in the Jurisdiction, and hereby
irrevocably and unconditionally waives and agrees not to plead or claim that any
such Proceeding brought in any such court has been brought in an inconvenient
forum.
23. Agreement Governs. This Agreement is to be deemed consistent
wherever possible with relevant provisions of the Company's by-laws and
certificate of incorporation; however, in the event of a conflict between this
Agreement and such provisions, the provisions of this Agreement shall control.
[Remainder of Page Intentionally Left Blank]
9
<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have executed this Director
Indemnification Agreement as of the day and year first written above.
GOLDEN SKY SYSTEMS, INC.
By:
-----------------------------------
Name:
Title:
INDEMNITEE
--------------------------------------
Name:
Address:
Telephone:
Facsimile:
10
<PAGE> 11
Schedule of Director Indemnification Agreements
o Director Indemnification Agreement by and between Golden Sky Systems,
Inc. and Rodney A. Weary, dated as of February 12, 1997
o Director Indemnification Agreement by and between Golden Sky Systems,
Inc. and Robert B. Liepold, dated as of February 12, 1997
o Director Indemnification Agreement by and between Golden Sky Systems,
Inc. and Robert F. Benbow, dated as of February 12, 1997
o Director Indemnification Agreement by and between Golden Sky Systems,
Inc. and William P. Collatos, dated as of February 12, 1997
o Director Indemnification Agreement by and between Golden Sky Systems,
Inc. and William O. Chairman, dated as of February 12, 1997
11
<PAGE> 1
EXHIBIT 10.15
GOLDEN SKY SYSTEMS, INC.
CONFIDENTIALITY AND PROPRIETARY RIGHTS AGREEMENT
Employee Name: John R. Hager
Date: August 24, 1998
In consideration of my employment by Golden Sky Systems, Inc. (the
"Company"), I, the above-named Employee, hereby agree with the Company as
follows.
1. Definitions
(a) Proprietary Information. As used in this Agreement,
"Proprietary Information" means information which the Company possesses or to
which the Company has rights which has commercial value. Proprietary Information
includes, by way of example and without limitation, trade secrets, product
ideas, designs, configurations, processes, techniques, formulas, software,
improvements, inventions, data, know-how, copyrightable materials, marketing
plans and strategies, sales and financial reports and forecasts, and customer
lists. Proprietary Information includes information developed by me in the
course of my employment by the Company or otherwise relating to Inventions which
belong to the Company under Section 4 below, as well as other information to
which I may have access in connection with my employment.
(b) Inventions and Developments. As used in this Agreement,
"Inventions and Developments" means any and all inventions, developments,
creative works and useful ideas of any description whatsoever, whether or not
patentable. Inventions and improvements which consist of or relate to any form
of Proprietary Information.
(c) Company-Related Inventions and Developments. For
purposes of this Agreement, "Company-Related Inventions and Developments" means
all Inventions and Developments which either (a) relate at the time of
conception or development to the actual or demonstrably anticipated business of
the Company or to its actual or demonstrably anticipated research and
development; (b) result from or relate to any work performed for the Company,
whether or not during normal business hours; (c) are developed on Company time;
or (d) are developed through the use of the Company's Proprietary Information,
equipment and software, or other facilities or resources.
(d) Company. For purposes of this Agreement, all references
to the "Company" will be deemed to include the Company and its direct or
indirect subsidiaries and affiliates.
<PAGE> 2
2. Confidentiality. I understand and agree that my employment creates
a relationship of confidence and trust between me and the Company with respect
to (a) all Proprietary Information, and (b) the confidential information of
others with which the Company has a business relationship. The information
referred to in clauses (a) and (b) of the preceeding sentence is referred to in
this Agreement, collectively, as "Confidential Information." At all times, both
during my employment with the Company and after its termination, I will keep in
confidence and trust all such Confidential Information, and will not use or
disclose any such Confidential Information without the written consent of the
Company, except as may be necessary in the ordinary course of performing my
duties to the Company. The restrictions set forth in this Section 2 will not
apply to information which is generally known to the public or in the trade,
unless such knowledge results from an unauthorized disclosure by me, but this
exception will not affect the application of any other provision of this
Agreement to such information in accordance with the terms of such provision.
3. Documents, Records, etc. All documents, records, apparatus,
equipment and other physical property, whether or not pertaining to Proprietary
Information, which are furnished to me by the Company or produced by me in
connection with my employment will be and remain the sole property of the
Company. I will return to the Company all such materials and property as and
when requested by the Company. In any event, I will return all such materials
and property immediately upon termination of my employment for any reason. I
will not take with me any such material or property or any copies thereof upon
such termination.
4. Ownership of Inventions and Developments. I agree that all
Company-Related Inventions and Developments which I conceive or develop, in
whole or in part, either alone or jointly with others, during the term of my
employment with the Company will be the sole property of the Company. The
Company will be the sole owner of all patents, copyrights and other proprietary
rights in and with respect to such Company-Related Inventions and Developments.
To the fullest extent permitted by law, such Company-Related Inventions and
Developments will be deemed works made for hire. I hereby transfer and assign to
the Company any proprietary rights which I may have or acquire in any such
Company-Related Inventions and Developments, and I waive any moral rights or
other special rights which I may have or accrue therein. I agree to execute any
documents and take any actions that may be required to effect and confirm such
transfer and assignment and waiver. The provisions of this Section 4 will apply
to all Company-Related Inventions and Developments which are conceived or
developed during the term of my employment with the Company, whether before or
after the date of this Agreement, and whether or not further development or
reduction to practice may take place after termination of my employment, for
which purpose it will be presumed that any Company-Related Inventions and
Developments conceived by me which are reduced to practice within one year after
termination of my employment were conceived during the term of my employment
with the Company unless I am able to establish a later conception date by clear
and convincing evidence. The provisions of this Section 4 will not apply,
however, to any Inventions and Developments which may be disclosed in a separate
Schedule attached to this Agreement prior to its acceptance by the Company,
representing Inventions and Developments made by me prior to my employment by
the Company.
<PAGE> 3
5. Disclosure of Inventions and Developments. I agree promptly to
disclose to the Company, or any persons designated by it, all Company-Related
Inventions and Developments which are or may be subject to the provisions of
Section 4.
6. Obtaining and Enforcing Proprietary Rights. I agree to assist the
Company, at the Company's request from time to time and at the Company's
expense, to obtain and enforce patents, copyrights or other proprietary rights
with respect to Company-Related Inventions and Developments in any and all
countries. I will execute all documents reasonably necessary or appropriate for
this purpose. This obligation will survive the termination of my employment,
provided that the Company will compensate me at a reasonable rate after such
termination for time actually spent by me at the Company's request on such
assistance. In the event that the Company is unable for any reason whatsoever to
secure my signature to any document reasonably necessary or appropriate for any
of the foregoing purposes (including renewals, extensions, continuations,
divisions or continuations in part), I hereby irrevocably designate and appoint
the Company and its duly authorized officers and agents as my agents and
attorneys-in-fact to act for me and on my behalf, but only for the purpose of
executing and filing any such document and doing all other lawfully permitted
acts to accomplish the foregoing purposes with the same legal force and effect
as if executed by me.
7. Third-Party Agreements and Rights. I represent to the Company that
my execution of this Agreement, my employment with the Company and the
performance of my proposed duties for the Company will violate any obligations I
may have to any previous employer or other party. In my work for the Company, I
will not disclose or make use of any information in violation of any agreements
with or rights of any previous employer or other party, and I will not bring to
the premises of the Company any copies of other tangible embodiments of
non-public information belonging to or obtained from any such previous
employment or other party.
8. Injunction. I agree that it would be difficult to measure any
damages caused to the Company which might result from any breach by me of the
promises set forth in this Agreement, and that in any event money damages would
be an adequate remedy for any such breach. Accordingly, I agree that if I
breach, or propose to breach, any portion of this Agreement, the Company shall
be entitled, in addition to all other remedies that it may have, to an
injunction or other appropriate equitable relief to restrain any such breach
without showing or proving any actual damage to the Company.
9. Binding Effect. This Agreement will be binding upon me and my
heirs, executors, administrators and legal representatives and will inure to the
benefit of the Company, and any subsidiary of the Company, and its and their
respective successors and assigns.
<PAGE> 4
10. Enforceability. If any portion or provision of this Agreement is
to any extent declared illegal or unenforceable by a court of competent
jurisdiction, then the remainder of this Agreement, or the application of such
portion or provision in circumstances other than those as to which it is so
declared illegal or unenforceable, will not be affected thereby, and each
portion and provision of this Agreement shall be valid and enforceable to the
fullest extent permitted by law. In the event that any provision of this
Agreement is determined by any court of competent jurisdiction to be
unenforceable by reason of excessive scope as to geographic, temporal or
functional coverage, such provision will be deemed to extend only over the
maximum geographic, temporal and functional scope as to which it may be
enforceable.
11. Entire Agreement. This Agreement constitutes the entire agreement
between the Company and myself with respect to the subject matter hereof, and
supersedes all prior representations and agreements with respect to such subject
matter. This Agreement may not be amended, modified or waived except by a
written instrument duly executed by the person against whom enforcement of such
amendment, modification or waiver is sought. The failure of any party to require
the performance of any term or obligation of this Agreement, or the waiver by
any party of any breach of this Agreement, in any particular case will not
prevent any subsequent enforcement of such term or obligation or to be deemed a
waiver of any separate or subsequent breach.
12. Notices. Any notices, requests, demands and other communications
provided for by this Agreement will be sufficient if in writing and delivered in
person or sent by registered or certified mail, postage prepaid, to me at the
last address which I have filed in writing with the Company or, in the case of
any notice to the Company, at its main offices, to the attention of its Chief
Executive Officer.
13. Governing Law. This is a Missouri contract and shall be construed
under and be governed in all respects by the laws of the State of Missouri.
<PAGE> 5
I UNDERSTAND THAT THIS AGREEMENT AFFECTS IMPORTANT RIGHTS. I HAVE READ
IT CAREFULLY AND AM SATISFIED THAT I UNDERSTAND IT COMPLETELY.
/s/ John R. Hager
------------------------------
John R. Hager
ACCEPTED AND AGREED TO BY
GOLDEN SKY SYSTEMS, INC.
By: /s/ Rodney A. Weary
- ------------------------------
Name: Rodney A. Weary
Title: President
Date: August 24, 1998
<PAGE> 6
SCHEDULE OF PRIOR INVENTIONS
Employee Name: John R. Hager
Date: August 24, 1998
NONE
/s/ John R. Hager
------------------------------
John R. Hager
ACCEPTED BY
GOLDEN SKY SYSTEMS, INC.
By: Rodney A. Weary
- ------------------------------
Name: Rodney A. Weary
Title: President
<PAGE> 7
SCHEDULE OF THIRD-PARTY AGREEMENTS
Employee Name: John R. Hager
Date: August 24, 1998
SEE ATTACHED AGREEMENT WITH ECHOSTAR
/s/ John R. Hager
------------------------------
Signature of Employee
ACCEPTED BY
GOLDEN SKY SYSTEMS, INC.
By: /s/ Rodney A. Weary
------------------------------
Name: Rodney A. Weary
Title: President
<PAGE> 1
Exhibit 10.16
Exchange Agency Agreement
November 24, 1998
State Street Bank and Trust Company
of Missouri, N.A.
Corporate Trust Department
211 North Broadway, Suite 3900
St. Louis, MO 63102
Ladies and Gentlemen:
Golden Sky Systems, Inc., a Delaware Corporation (the "Company") is offering to
exchange (the "Exchange Offer"), upon the terms and subject to the conditions
set forth in the Prospectus dated (the "Prospectus"), and the
accompanying Letter of Transmittal and instructions thereto (the "Letter of
Transmittal"), its 12 3/8% Senior Subordinated Notes Due 2006 (the "New Notes")
for all of its outstanding Senior Subordinated Notes Due 2006 (the "Old Notes")
of the Company of which $195,000,000 principal amount is outstanding. The New
Notes and the Old Note are together referred to herein as the "Notes".
Capitalized terms used herein but not otherwise defined herein shall have the
meanings ascribed to them in the Prospectus or Letter of Transmittal.
You are hereby appointed and authorized to act as agent (the "Exchange Agent")
to effectuate the exchange of Old Notes for New Notes, on the terms and subject
to the conditions of this agreement (the "Agreement"). In that connection, the
following documents have been delivered to you:
(i) Prospectus;
(ii) the Letter of Transmittal accompanying the Prospectus, to be
used by the holders of Old Notes ("Old Noteholders") in
tendering their Old Notes; and
(iii) the Notice of Guaranteed Delivery to be used by Old
Noteholders whose Old Notes are not immediately available or
who cannot deliver their Old Notes, the Letter of Transmittal
or any other required documents to you prior to the expiration
of the Exchange Offer.
The Exchange Offer will expire at the time and on the date specified in the
Prospectus (the "Expiration Date") unless the Exchange Offer is extended by the
Company, in which case the term "Expiration Date" shall mean the latest date to
which the Exchange Offer is extended.
You are hereby requested, and you hereby agree, to act as follows:
1. You are to accept Old Notes which are accompanied by the appropriate
Letter of Transmittal or facsimile thereof, properly completed and duly
executed in accordance with
<PAGE> 2
the instructions thereon and any requisite collateral documents (or, in
the case of Old Notes tendered by book-entry transfer, an Agent's
Message in lieu of the Letter of Transmittal, and all other instruments
and communications submitted to you in connection with the Exchange
Offer and to hold the same upon the terms and conditions set forth in
this Agreement.
2. You are to examine the Letters of Transmittal, or Agent's Message in
lieu thereof, Old Notes and other documents delivered or mailed to you
by or for Old Noteholders to ascertain whether (i) the Letters of
Transmittal are properly completed and duly executed in accordance with
the instructions set forth therein, (ii) the other documents are
properly completed and duly executed, and (iii) the Old Notes have
otherwise been properly tendered. You need not pass on the legal
sufficiency of any signature or verify any signature guarantee.
3. In the event any Letter of Transmittal or other document has been
improperly executed or completed or any of the certificates are not in
proper form or have been improperly tendered or any book-entry delivery
of Old Notes has been improperly made, or if some other irregularity in
connection with the delivery of Old Notes by a holder thereof exists,
you are authorized, upon consultation with the Company or one of its
representatives, to request from any person tendering Old Notes such
additional documents or undertakings as you may deem appropriate. All
questions as to the form of all documents and the validity, eligibility
(including time of receipt) and acceptance of tendered Old Notes will
be determined by the Company, in its sole discretion, whose
determination will be final and binding. The Company reserves the
absolute right to reject any or all tenders of any particular Old
Notes, which would, in the opinion of the Company's counsel, be
unlawful. The Company also reserves the absolute right to waive any of
the conditions of the Exchange Offer or any defect or irregularity in
the tender of any Old Notes, and the Company's interpretation of the
terms and conditions of the Exchange Offer (including the Letter of
Transmittal and the instructions set forth therein) will be final. No
tender of Old Notes will be deemed to have been properly made until all
defects and irregularities have been cured or waived.
4. Tenders of Old Notes may be made only as set forth in the Prospectus
and Letter of Transmittal, and Old Notes shall be considered properly
tendered to you only when:
(a) a properly completed and duly executed Letter of Transmittal,
with any required signature guarantee and any other required
documents as set forth in the Letter of Transmittal, is
received by you at your address set forth in the Prospectus
and Letter of Transmittal, and Old Notes are received by you
at such addresses or a timely confirmation of a book-entry
transfer of such Old Notes, along with an Agent's Message is
received by you at or prior to the Expiration Date at your
address set forth in the Prospectus and Letter of Transmittal;
or a properly completed and duly executed Notice of Guaranteed
Delivery substantially in the form provided by the Company,
with an appropriate guarantee of signature and delivery from
an Eligible Institution, is received by you at or prior to the
<PAGE> 3
Expiration Date and Old Notes (in respect of which there have
been delivered to you prior to the Expiration Date a properly
completed and duly executed Notice of Guaranteed Delivery) in
proper form for transfer together with a properly completed
and duly executed Letter of Transmittal (or facsimile thereof)
or Agent's Message, and any other required documents as set
forth in the Letter of Transmittal, are received by you within
five New York Stock Exchange trading days, and
(b) the adequacy of the items relating to Old Notes, the Letter of
Transmittal therefor and any Notice of Guaranteed Delivery has
been favorably passed upon as above provided.
Notwithstanding the provisions of the preceding paragraph, Old Notes which the
Company shall approve as having been properly tendered shall be considered to be
properly tendered.
5. Holders of Old Notes may make book-entry delivery of their securities.
You will establish in your name or the name of your nominee an account
with respect to the Old Notes at Depository Trust Company ("DTC") for
purpose of the Exchange Offer to permit book-entry transfers. Except as
otherwise provided below, Old Notes, or any book-entry transfer into
your account at DTC of Old Notes tendered electronically, as well as a
properly completed and duly executed copy of the Letter of Transmittal
or Agent's Message, and any other documents required by the Letter of
Transmittal, must be received by you or, in the case of tenders of
book-entry, confirmed to you by transfer to your account on or prior to
the Expiration Date.
6. a. A tendering Old Noteholder may withdraw tendered Old Notes in
accordance with the procedures set forth in the Prospectus and
Letter of Transmittal, in which event, except as may be
otherwise specified in the Old Noteholder's notice of
withdrawal, all items in your possession which shall have been
received from the Old Noteholder with respect to those Old
Notes shall be promptly returned to or upon the order of the
Old Noteholder and the Old Notes covered by those items shall
no longer be considered to be properly tendered.
b. A withdrawal may not be rescinded. Withdrawn Old Notes may,
however, be tendered at anytime on or prior to the Expiration
Date.
7. You are to record and to hold all tenders received by you and to
promptly notify by telephone or facsimile, after the close of business
on each business day, the following person as to the total number of
Old Notes tendered on such day and the cumulative numbers with respect
to the Old Notes received through the time of such call or facsimile:
Executive Vice President, Treasurer and Chief Financial Officer of the
Company.
Each daily report should identify: the number and principal amount of
Old Notes represented by (i) certificates, and (ii) Notices of
Guaranteed Delivery actually received by
<PAGE> 4
you through the time of the report. In addition, you will also provide,
and cooperate in making available to the Company or the Company's
counsel such other information as the Company or the Company's counsel
may reasonably request upon oral request made from time to time. Your
cooperation shall include, without limitation, the granting by you to
the Company, and such other persons as it may reasonably request, of
access to those persons on your staff who are responsible for receiving
tenders of Old Notes in order to insure that immediately prior to the
Expiration Date, the Company shall have received information in
sufficient detail to enable it to decide whether to extend the Exchange
Offer.
8. Letters of Transmittal, Notices of Guaranteed Delivery and telegrams,
facsimile transmissions and letters submitted in lieu thereof pursuant
to the Exchange Offer shall be stamped by you as to the date and time
of receipt and shall be retained in your possession until the
Expiration Date. As promptly as practicable after the Expiration Date,
you will deliver those items, together with all properly tendered Old
Notes to the Company.
9. You are to follow up and to act upon any amendments, modifications or
supplements to these instructions mutually satisfactory to you, ind the
Company, and upon any further information in connection with the terms
of the Exchange Offer, any of which may be given to you by the Company,
including instructions with respect to (i) any extension or other
modification of the Exchange Offer, (ii) the amount or manner of
payment for any Old Notes exchanged, and (iii) the cancellation of the
Exchange Offer.
10. If under the conditions set forth in the Prospectus and Letter of
Transmittal, the Company becomes obligated to accept Old Notes
tendered, it will, as promptly as practicable thereafter, deposit with
you certificates representing New Notes in the amount determined
according to the ratio prescribed in the Prospectus and Letter of
Transmittal. Unless otherwise indicated under any Special Issuance
Instructions or any Special Delivery Instructions set forth in any
Letter of Transmittal, you shall in mail the certificates representing
the New Notes and the certificates for any Old Notes submitted but not
tendered for exchange to the registered owner of the securities at the
address shown in the Letter of Transmittal. In the event that either or
both of the Special Issuance Instructions or any Special Delivery
Instructions are completed, you shall mail all certificates
representing New Notes (or Old Notes to be returned, if any) to the
person or persons so indicated in the Letter of Transmittal.
Certificates shall be post-marked by you within a reasonable period of
time after certificates have been provided to you.
11. No exchange shall be made as to any Old Notes unless and until such Old
Notes have been properly tendered as provided in Section 4 of this
Agreement.
12. For performing your services hereunder, you shall be entitled to
receive from the Company a fee of $3,000.00. You shall also be
reimbursed by the Company for all reasonable expenses, including
counsel fees, if any, and mailing costs you may incur in connection
with the performance of your duties.
<PAGE> 5
13. As Exchange Agent hereunder you:
(a) shall not have duties or obligations other than those
specifically set forth or as may subsequently be agreed to by
you and the Company;
(b) shall not be obligated to take any legal action hereunder
which might in your judgment involve any expense or liability
unless you have been furnished with reasonable
indemnification;
(c) may rely on and shall be protected in acting upon any
certificate, instrument, opinion, notice, letter, telegram or
other document or security delivered to you and believed by
you to be genuine and to have been signed by the proper party
or parties.
(d) may rely on and shall be protected in acting or refraining
from acting up n the written instructions of the Company;
(e) may consult counsel satisfactory to you (including counsel to
the Company), and the opinion of such counsel shall be full
and complete authorization and protection with respect to any
act on taken. suffered, or omitted by you hereunder in good
faith and in accordance with the opinion of such counsel; and
(f) you shall not be deemed to have notice of any fact, claim or
demand with respect hereto unless actually known by an officer
charged with responsibility for administering this Agreement
or unless in writing received by you and making specific
reference to this Agreement.
14. You undertake the duties and obligations imposed herein upon the
following additional terms and conditions:
(a) you shall perform your duties and obligations hereunder with
due care;
(b) you shall not be under any responsibility in respect of the
validity or sufficiency (not only as to genuineness, but also
as to its due execution, the genuineness or signatures
appearing thereon and as to the trust and accuracy of any
information therein contained) of and Letter of Transmittal,
certificate representing Old Notes, book-entry transfer of Old
Notes or Notice of Guaranteed Delivery; and
(c) neither you nor any of your directors, officers or employees
shall be liable to anyone for any error of judgment, or for
any act done or step taken or omitted to be taken by you or
any of your directors, officers or employees, of for any
mistake of fact or law, or for anything which you or any of
your directors, officers or employees, may do or refrain from
doing in connection with or in the administration of the
Agreement, unless and except to the extent the same
constitutes gross negligence or willful misconduct on your
part.
<PAGE> 6
15. You are not authorized to make any recommendation on behalf of the
Company as to whether a holder of Old Notes should or should not tender
his, her or its Old Notes.
16. All certificates representing New Notes shall be forwarded by (i)
first-class mail under a blanket surety bond protecting you and the
Company from loss or liability arising out of the non-receipt or
non-delivery of such certificates or (ii) registered mail, insured
separately for the replacement value of such certificates.
17. You are authorized to cooperate with and furnish information to any
organization (and its representatives) designated from time to time by
the Company, in any manner reasonably requested by any of them and
acceptable to you in connection with the Exchange Offer.
18. The Company covenants and agrees to reimburse, indemnify and hold you
harmless against any costs, expenses (including reasonable expenses of
your legal counsel), losses or damages which, without negligence.
misconduct or bad faith on your part may be paid, incurred or suffered
by you or to which you may become subject by reason of or as a result
of the administration of your duties hereunder or by reason of or as
result of Your compliance with the instructions set forth herein or
with any written or oral instructions delivered to you pursuant hereto,
including any claims against you by any Old Noteholder. The Company
shall be entitled to participate at its own expense in the defense, and
if the Company so elects at any time after receipt of such notice, the
Company shall assume the defense of any suit brought to enforce any
such claim. In the event that the Company assumes the defense of any
such suit, the Company shall not be liable for the fees and expenses of
any additional counsel thereafter retained by you, unless in your
judgment, which must be reasonable, it is advisable for you to be
represented by separate counsel. In no case shall the Company be liable
under this indemnity with respect to any claim or action against you,
unless the Company shall be notified by you, by letter or by cable or
by telecopy confirmed by letter, of the written assertion of a claim
against you or of any action commenced against you, promptly after you
shall have received any such written assertion of a claim or shall have
been served with a summons or other first legal process giving
information as to the nature and basis of an action, but failure so to
notify the Company shall not relieve the Company from any liability
which it may have otherwise than on account of this indemnity.
19. You hereby acknowledge receipt of each of the documents listed in items
(i) through (iii) of the introduction to this Agreement and further
acknowledge that you have examined the same. Any inconsistency between
this Agreement on the one hand and the documents listed in items (i)
through (iii) of the introduction of this Agreement, as they may from
time to time be amended, on the other, shall be resolved in favor of
the latter, except with respect to the duties, liabilities and
indemnification of you as Exchange Agent.
20. All notices statements and other communications hereunder shall be in
writing, signed by a duly authorized officer of the party sending such
notices, and shall be deemed given when delivered by hand or certified
mail, postage prepaid, addressed as follows:
<PAGE> 7
To the Company:
Golden Sky Systems, Inc.
605 West 47th Street, Suite 300
Kansai City, MO 64112
Attention: Randall Duncan
Facsimile: 816/753-5044
Telephone: 816/753-5544
To the Exchange Agent:
State Street Bank and Trust Company
Corporate Trust Department
211 North Broadway, Suite 3900
St. Louis, MO 63102
Attention: Robert A. Clasquin
Facsimile: 314/206-3016
Telephone: 314/206-3054
or to such other address as either party may furnish hereunder by
notice; provided that notice of change of address shall be deemed given
only when received.
21. This Agreement shall be construed and enforced in accordance with the
law of the State of Missouri applicable to agreements made and to be
performed in the State of Missouri and shall inure to the benefit of,
and the obligations created hereby shall be binding upon, the
successors and assigns of the parties hereto.
22. These instructions may be reasonably modified or supplemented by the
Company of by any officer thereof authorized to give notice, approval
or waiver on its behalf.
23. As used herein, "business day" shall mean any day other than a Saturday
or Sunday, or any other day on which you are authorized or required to
be closed for business.
<PAGE> 8
Please acknowledge receipt of this letter and confirm the arrangements herein
provided by signing and returning the enclosed copy.
Very truly yours,
GOLDEN SKY SYSTEMS, INC.
By: /s/ RODNEY A. WEARY
-----------------------
Name: Rodney A. Weary
Title: Chief Executive Officer
ACCEPTED AS OF NOVEMBER 24, 1998
STATE STREET BANK AND TRUST COMPANY
OF MISSOURI, N.A.
As Exchange Agent
By: /s/ ROBERT A. CLASQUIN
-----------------------
Name: Robert A. Clasquin
Title: Assistant Vice President
<PAGE> 1
Ex. 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the use of our reports included herein and to the reference to our
firm under the heading "Experts" in the Registration Statement.
/s/ KPMG Peat Marwick LLP
November 25, 1998
Kansas City, Missouri
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANT
As independent public accountants, we hereby consent to the use of our reports
and to all references to our firm included in or made part of the Registration
Statement on Form S-4 of Golden Sky Systems, Inc. (File No. 333-64367) of which
this Exhibit forms a part.
/s/ Eide Bailly LLP
November 25, 1998
Sioux Falls, South Dakota
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
and to all references to our firm included in or made part of the Registration
Statement on Form S-4 of Golden Sky Systems, Inc. (File No. 333-64367) of which
this Exhibit forms a part.
/s/ LOUCKS & GLASSLEY, pllp
Great Falls, Montana
November 24, 1998
<PAGE> 1
EXHIBIT 23.5
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
and to all references to our firm included in or made part of the Registration
Statement on Form S-4 of Golden Sky Systems, Inc. of which this Exhibit forms a
part.
/s/ BOLINGLER, SEGARS, GILBERT & MOSS, L.L.P.
Certified Public Accountants
Lubbock, Texas
November 25, 1998
<PAGE> 1
EXHIBIT 23.6
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
and to all references to our firm included in or made part of the Registration
Statement on Form S-4 of Golden Sky Systems, Inc. of which this Exhibit forms a
part.
CHMS, P.C.
By: /s/ Rocky L. Torgeson
Sidney, Montana
11/25/98
<PAGE> 1
EXHIBIT 23.7
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
and to all references to our firm included in or made part of the Registration
Statement on Form S-4 of Golden Sky Systems, Inc. (File No. 333-64367) of which
this Exhibit forms a part.
/s/ Aldrich, Kilbride & Tatone LLP
Salem, OR
November 25, 1998
<PAGE> 1
EXHIBIT 23.8
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated March 30, 1998, for PrimeWatch, Inc. (and to all references to our firm)
included in or made part of the Registration Statement on Form S-4 of Golden Sky
Systems, Inc. (Registration File No. 333-64367 Amendment No. 1 dated
November __, 1998).
/s/ Arthur Andersen LLP
Raleigh, North Carolina,
November 25, 1998.
<PAGE> 1
EXHIBIT 23.9
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation on Form S-4 (File No. 333-64367) of our report
relating to the audited financial statements of Direct Broadcast Satellite, a
division of Baldwin County Electric Membership Corporation as of December 31,
1997. We also consent to the reference to us under the heading "Experts" in the
Prospectus, which is part of the Registration Statement.
/s/ Jackson Thornton & Co., P.C.
Montgomery, Alabama
November 25, 1998
<PAGE> 1
EXHIBIT 23.10
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports and to all references to our firm included in or made part of the
Registration Statement on Form S-4 of Golden Sky Systems, Inc., of which this
Exhibit forms a part.
/s/ Moss Adams LLP
Stockton, California
November 25, 1998
<PAGE> 1
EXHIBIT 23.11
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
and to all references to our firm included in or made part of the Registration
Statement on form S-4 of Golden Sky Systems, Inc. (File No. 333-64367) of which
this Exhibit forms a part.
CURTIS BLAKELY & CO., P.C.
/s/ Curtis Blakely & Co., P.C.
----------------------------------------
Longview, Texas
November 25, 1998
<PAGE> 1
Exhibit 25.1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
STATEMENT OF ELIGIBILITY UNDER THE
TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
Check if an Application to Determine Eligibility
of a Trustee Pursuant to Section 305(b)(2)
STATE STREET BANK AND TRUST COMPANY OF MISSOURI, N.A.
(Exact name of trustee as specified in its charter)
U.S. national bank 43-1745664
(Jurisdiction of incorporation or (I.R.S. Employer
organization if not a U.S. national bank) Identification No.)
127 West 10th Street, Kansas City, Missouri 64105
(Address of principal executive offices) (Zip Code)
Susan James, Vice President
State Street Bank and Trust Company of Missouri, N.A.
211 North Broadway, Suite 3900
St. Louis, Missouri 63102
(314) 206-3016
(Name, address and telephone number of agent for service)
--------------
GOLDEN SKY SYSTEMS, INC.
(Exact name of obligor as specified in its charter)
Delaware 43-1749060
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
605 W. 47th Street, Suite 300
Kansas City, MO 64112
(Address of principal executive offices) (Zip Code)
-------------------------
12 3/8% Senior Subordinated Notes due 2006
(Title of indenture securities)
<PAGE> 2
GENERAL
ITEM 1. General Information.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervisory
authority to which it is subject.
Comptroller of the Currency of the United States, Washington,
D.C.
Item 2. Affiliations with Obligor.
If the Obligor is an affiliate of the trustee, describe each
such affiliation.
The obligor is not an affiliate of the trustee or of its
parent, State Street Bank and Trust Company. (See note on page
2.)
Item 3. through Item 15. Not applicable.
Item 16. List of Exhibits.
List below all exhibits filed as part of this statement of
eligibility.
1. A copy of the articles of association of the trustee as now
in effect.
A copy of the articles of association of the Trustee, as now
in effect, is attached hereto as Exhibit 1 and made a part
hereof
2. A copy of the certificate of authority of the trustee to
commence business, if not contained in the articles of
association.
A copy of the certificate of the Comptroller of the Currently
authorizing the trustee to commence the business of banking as
a national banking association is attached hereto as Exhibit 2
and made a part hereof.
3. A copy of the authorization of the trustee to exercise
corporate trust powers, if such authorization is not contained
in the documents specified it paragraph (1) or (2), above.
A copy of the certificate of the Comptroller of the Currency
dated September 15, 1995 authorizing the trustee to exercise
corporate trust powers is attached hereto as Exhibit 3 and
made a part hereof.
<PAGE> 3
4. A copy of the existing by-laws of the trustee, or
instruments corresponding thereto.
A copy of the existing amended and restated by-laws of the
trustee is attached hereto as Exhibit 4.
5. A copy of each indenture referred to in Item 4. if the
obligor is in default.
Not applicable.
6. The consents of United States institutional trustees
required by Section 321(b) of the Act.
The consent of the trustee required by Section 321(b) of the
Act is annexed hereto as Exhibit 6 and made a part hereof
7. A copy of the latest report of condition of the trustee
published pursuant to law or the requirements of its
supervising or examining authority.
A copy of the latest report of condition of the trustee
published pursuant to law or the requirements of its
supervising or examining authority is annexed hereto Exhibit 7
and made a part hereof.
NOTES
In answering any item of this Statement of Eligibility and
Qualification which relates to matters peculiarly within the knowledge of the
obligor or any underwriter for the obligor, the trustee has relied upon
information furnished to it by the obligor and the underwriters, and the trustee
disclaims responsibility for the accuracy or completeness of such information.
The answer furnished to Item 2. of this statement will be amended, if
necessary, to reflect any facts which differ from those stated and which would
have been require (to be stated if known at the date hereof.
<PAGE> 4
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, State Street Bank and Trust Company of Missouri N.A., a
national banking association existing under the laws of the United States of
America, has duly caused this statement of eligibility and qualification to be
signed on its be half by the undersigned, thereunto duly authorized, all in the
City of St. Louis and the State of Missouri, on the 21st day of October, 1998.
STATE STREET BANK AND TRUST COMPANY
OF MISSOURI, N.A.
By: /S/ ROBERT A. CLASQUIN
Robert A. Clasquin
Assistant Vice President
<PAGE> 5
EXHIBIT 1
ARTICLES OF ASSOCIATION
OF
STATE STREET BANK AND TRUST COMPANY OF MISSOURI,
NATIONAL ASSOCIATION
For the purpose of organizing an Association to carry on the business
of a limited purpose trust company under the laws of the United States, the
undersigned do enter into the following Articles of Association:
FIRST. The title of this Association shall be State Street Bank and
Trust Company of Missouri, National Association.
SECOND. The Main Office of the Association shall be in the City of
Kansas City, County of Jackson, State of Missouri. The business of the
Association will be limited to the operations of a national trust company and to
support activities incidental thereto. The Association will not expand or alter
its business beyond that stated in this Article Second without the prior
approval of the Comptroller of the Currency.
THIRD. The Board of Directors of this Association shall consist of not
less than five nor more than twenty-five shareholders, the exact number to be
fixed and determined from time to time by resolution of a majority of the full
Board of Directors or by resolution of the shareholders at any annual or special
meeting thereof. Each Director, during the full term of his or her directorship,
shall own a minimum of $1,000 aggregate par value of stock of this Association
or a minimum par, market value or equity interest of $1,000 of stock in the bank
holding company controlling this Association.
Any vacancy in the Board of Directors may be filled by action of the
Board of Directors; provided, however, that a majority of the full Board of
Directors may not increase the number of Directors to a number which: (1)
exceeds by more than two the number of Directors last elected by shareholders
where the number was 15 or less; and (2) exceeds by more than four the number of
Directors last elected by shareholders where the number was 16 or more, but in
no event shall the number of directors exceed 25.
Terms of Directors, including Directors selected to fill vacancies,
shall expire at the next regular meeting of shareholders at which Directors are
elected, unless the Directors resign or are removed from office. Despite the
expiration of a Director's term, the Director shall continue to serve until his
or her successor is elected and qualifies or until there is a decrease in the
number of Directors and his or her position is eliminated.
FOURTH. There shall be an annual meeting of the shareholders to elect
Directors and transact whatever other business may be brought before the
meeting. It shall be held at the main office or any other convenient place as
the Board of Directors may designate, on the day of each year specified
therefore in the By-laws, but if no election is held on that day, it may be held
on any subsequent day according to such lawful rules as may be prescribed by the
Board of Directors.
<PAGE> 6
Nominations for election to the Board of Directors may be made by the
Board of Directors or by any shareholder of any outstanding class of capital
stock of this Association entitled to vote for election of Directors.
Nominations other than those made by or on behalf of the existing management
shall be made in writing and be delivered or mailed to the president of this
Association and to the Comptroller of the Currency, Washington, D.C., not less
than 14 days nor more than 50 days prior to any meeting of shareholders called
for the election of Directors; provided, however, that if less than 21 days
notice of the meeting is given to the shareholders, such nominations shall be
mailed or delivered to the president of this Association and to the Comptroller
of the Currency no later than the close of business on the seventh day following
the day on which the notice of meeting was mailed. Such notification shall
contain the following information to the extent known to the notifying
shareholder: the name and address of each proposed nominee; the principal
occupation of each proposed nominee; the total number of shares of capital stock
of this Association that will be voted for each proposed nominee; the name and
residence address of the notifying shareholder; and the number of shares of
capital stock of this Association owned by the notifying shareholder.
Nominations not in made in accordance herewith may, in his or her discretion, be
disregarded by the chairperson of the meeting, and upon his or her instructions,
the vote tellers may disregard all votes cast for each such nominee.
FIFTH. The authorized amount of capital stock of this Association shall
be 1,000,000 shares of common stock of the par value of one dollar ($1) each;
but said capital stock may be increased or decreased from time to time, in
accordance with the provisions of the laws of the United States.
No holder of shares of the capital stock of any class of this
Association shall have any preemptive or preferential right of subscription to
any shares of any class of stock of this Association, whether now or hereafter
authorized, or to any obligations Convertible into stock of this Association,
issued, or sold, nor any right of subscription to any thereof other than such,
if any, as the Board of Directors in its discretion may from time to time
determine and at such price as the Board of Directors may from time to time fix.
Transfers of the Association's capital stock are subject to the prior
approval of a federal depository institution regulatory agency. If no other
agency approval is required, the Comptroller of the Currency's approval shall be
obtained prior to the transfers. In such cases where the Comptroller of the
Currency approval is required, the Comptroller of the Currency will apply the
definitions and standards set forth in the Change in Bank Control Act and the
Comptroller of the Currency's implementing regulation (12 U.S.C. 1817(j) and 12
C.F.R. 5.50) to ownership changes in the Association.
This Association, at any time and from time to time, may authorize and
issue debt obligations, whether or not subordinated, without the approval of the
shareholders.
SIXTH. The Board of Directors shall appoint one of its members
President of this Association, who shall be Chairperson of the Board, unless the
Board appoints another Director to be the Chairperson. The Board of Directors
shall have the power to appoint one or more Vice Presidents; and to appoint a
Cashier and such other officers and employees as may be required to
<PAGE> 7
transact the business of this Association.
The Board of Directors shall have the power to define the duties of the
officers and employees of this Association; to fix the salaries to be paid to
the officers and employees; to dismiss officers and employees; to require bonds
from officers and employees and to fix the penalty thereof, to regulate the
manner in which my increase of the capital of this Association shall be made; to
manage and administer the business and affairs of this Association; to make all
By-laws that it may be lawful for the Board of Directors to make; and generally
to do and perform all acts that it may be legal for a Board of Directors to do
and perform.
SEVENTH. The Board of Directors shall have the power to change the
location of the main office to any other place within the limits of the City of
Kansas City, with out the approval of the shareholders, and shall have the power
to establish or change the location of any branch or branches of this
Association to am. other location, without the approval of the shareholders.
EIGHTH. The corporate existence of this Association shall continue
until terminated in accordance with the laws of the United States.
NINTH. The Board of Directors of this Association, or any shareholder
owning, in the aggregate, not less than ten percent of the stock of this
Association, may call a special meeting of shareholders at any time. Unless
otherwise provided by the laws of the United States, a notice of the time,
place, and purpose of every annual and special meeting of the shareholders shall
be given by first-class mail, postage prepaid, mailed at least ten days prior to
the date of such meeting to each shareholder of record at his address as shown
upon the books of this Association.
TENTH. This association shall to the fullest extent legally permissible
indemnify each person who is or was a director, officer, employee or other agent
of this Association and each person who is or was serving at the request of this
Association as a director, trustee, officer, employee or other agent of another
organization or of any partnership, joint venture, trust, employee benefit plan
or other enterprise or organization against all liabilities, costs and expenses,
including but not limited to amounts paid in satisfaction of judgments, in
settlement or as fines and penalties, and counsel fees and disbursements,
reasonably incurred by him in connection with the defense or disposition of or
otherwise in connection with or resulting from any action, suit or other
proceeding, whether civil, criminal, administrative or investigative, before any
court or administrative or legislative or investigative body in which he may be
or may have been involved as a party or otherwise or with which he may be or may
have been threatened, while in office or thereafter, by reason of his being or
having been such a director, officer, employee, agent or trustee, or by reason
of any action taken or not taken in any such capacity, except with respect to
any matter as to which he shall have been finally adjudicated by a court of
competent jurisdiction not to have acted in good faith in the reasonable belief
that his action was in the best interests of the corporation (any person serving
another organization in one or more of the indicated capacities at the request
of this Association who shall not have been adjudicated in any proceeding not to
have acted in good faith in the reasonable belief that his action was in the
best interest of such other organization shall be deemed so to have acted in
good faith with respect to the National Trust Company) or to the extent that
such matter relates to service with respect to an
<PAGE> 8
employee benefit plan, in the best interest of the participants or beneficiaries
of such employee benefit plan. Expenses, including but not limited to counsel
fees and disbursements, so incurred by any such person in defending any such
action, suit or proceeding, shall be paid from time to time by this Association
in advance of the final disposition of such action, suit or proceeding upon
receipt of an undertaking by or on behalf of the person indemnified to repay the
amounts so paid if it shall ultimately be determined that indemnification of
such expenses is not authorized hereunder.
As to any matter disposed of by settlement by any such person, pursuant
to a consent decree or otherwise, no such indemnification either for the amount
of such settlement or for any other expenses shall be provided unless such
settlement shall be approved as in the best interests of the National Trust
Company, after notice that it involves such indemnification, (a) by a vote of a
majority of the disinterested directors then in office (even though the
disinterested directors be less than a quorum), or (b) by any disinterested
person or persons to whom the question may be referred by vote of a majority of
such disinterested directors, or (c) by vote of the holders of a majority of the
outstanding stock at the time entitled to vote for directors, voting as a single
class, exclusive of any stock owned by any interested person, or (d) by any
disinterested person or persons to whom the question may be referred by vote of
the holders of a majority of such stock. No such approval shall prevent the
recovery from any such director, officer, employee, agent or trustee of any
amounts paid to him or on his behalf as indemnification in accordance with the
preceding sentence if such person is subsequently adjudicated by a court of
competent jurisdiction not to have acted in good faith in the reasonable belief
that his action was in the best interests of this Association. The right of
indemnification hereby provided shall not be exclusive of or affect any other
rights to which any director, officer, employee, agent or trustee may be
entitled or which may lawfully be granted to him. As used herein, the terms
"director", "officer", "employee", "agent", and "trustee", include their
respective executors, administrators and other legal representatives, an
"interested" person is one against whom the action, suit or other proceeding in
question or another action, suit or other proceeding on the same or similar
grounds is then or had been pending or threatened, and a "disinterested" person
is a person against whom no such action, suit or other proceeding is then or had
been pending or threatened. By action of the board of directors, notwithstanding
any interest of the directors in such action, this Association may purchase and
maintain insurance, in such amounts as the board of directors may from time to
time deem appropriate, on behalf of any person who is or was a director,
officer, employee or other agent of this Association, or is or was serving at
the request of this Association as a director, trustee, officer, employee or
other agent of another organization or any partnership, joint venture, trust,
employee benefit plan or other enterprise or organization against any liability
incurred by him in any such capacity, or arising out of his status as such,
whether or not this Association would have the power to indemnify him against
such liability.
Nothing contained in this Article Tenth shall be construed to (i) allow
the indemnification of or insurance coverage for a director, trustee, officer,
employee or agent of this Association against expenses, penalties or other
payments incurred in an administrative action instituted by an appropriate bank
regulatory agency which results in a final order assessing civil money penalties
or requires the payments of money to the Association, or (ii) exceed the
provisions of Massachusetts General Laws, Chapter 156B, Section 67, as in effect
from time to time.
<PAGE> 9
ELEVENTH. These Articles of Association may be amended at any regular
or special meeting of the shareholders by the affirmative vote of the holders of
a majority of the stock of this Association, unless the vote of the holders of a
greater amount of stock is required by law, and in that case by the vote of the
holders of such greater amount.
TWELFTH. This Association may be a partner in any business or
enterprise which this Association would have power to conduct by itself.
IN WITNESS WHEREOF, we have hereunto set our hands this 27th day of
April, 1995.
/s/ MARSHALL N. CARTER
------------------------------------
Marshall N. Carter
/s/ DAVID A. SPINA
------------------------------------
David A. Spina
/s/ A. EDWARD ALLINSON
------------------------------------
A. Edward Allinson
/s/ RONALD E. LOGUE
------------------------------------
Ronald E. Logue
/s/ JOHN R. TOWERS
------------------------------------
John R. Towers
<PAGE> 10
EXHIBIT 2
[COMPTROLLER OF THE CURRENCY TREASURY DEPARTMENT LOGO]
Washington, D.C.
WHEREAS, satisfactory evidence has been presented to the Comptroller of
the Currency that STATE STREET BANK AND TRUST COMPANY OF MISSOURI, NATIONAL
ASSOCIATION located in KANSAS CITY State of MISSOURI has complied with all
provisions of the statutes of the United States required to be complied with
before being authorized to commence the business of banking as a National
Banking Association;
NOW, THEREFORE, I hereby certify that the above-named association is
authorized to commence the business of banking as a National Banking
Association.
IN TESTIMONY WHEREOF, witness my signature and seal of office
this FIFTEENTH day of SEPTEMBER 1995.
/s/ DAVID A. BOMGAARS
___________________________
District Administrator
Comptroller of the Currency
Charter No. 22874
<PAGE> 11
EXHIBIT 3
[LOGO]
Comptroller of the Currency
Administrator of National Banks
Northeastern District
1114 Avenue of the Americas, Suite 3900
New York, New York 10036
TRUST PERMIT
WHEREAS, STATE STREET BANK AND TRUST COMPANY OF MISSOURI, NATIONAL ASSOCIATION,
located in KANSAS CITY, State of MISSOURI, being a National Banking Association,
organized under the statutes of the United States, has made application for
authority to act as fiduciary;
AND WHEREAS, applicable provisions of the statutes of the United States
authorize the grant of such authority;
NOW THEREFORE, I hereby certify that the said association is authorized to act
in all fiduciary capacities permitted by such statutes.
IN TESTIMONY WHEREOF, witness my signature and seal of Office this 15TH day of
SEPTEMBER, 1995.
CHARTER NO. 22874
/s/ DAVID A. BOMGAARS
---------------------
David A. Bomgaars
District Administrator
**OCC SEAL**
<PAGE> 12
EXHIBIT 4
STATE STREET BANK AND TRUST COMPANY OF MISSOURI,
NATIONAL ASSOCIATION
AMENDED AND RESTATED
BY-LAWS
ARTICLE I
Meetings of Shareholders
Section 1.1. Annual Meeting. The regular annual meeting of the
shareholders to elect directors and transact whatever other business may
properly come before the meeting, shall be held at the Main Office of the
National Trust Company, in the City of Kansas City, State of Missouri or such
other places as the Board of Directors may designate, at 10 o'clock, on the
fourth Wednesday of April of each year. Notice of such meeting shall be mailed,
postage prepaid, at least ten days prior to the date thereof, addressed to each
shareholder at his/her address appearing on the books of the National Trust
Company. If for any cause, an election of directors is not made on that day, the
Board of Directors shall order the election to be held on some subsequent day,
as soon thereafter as practicable, according to the provisions of law; and
notice thereof shall be given in the manner herein provided for the annual
meeting.
Section 1.2. Special Meetings. Except as otherwise specifically
provided by statute, special meetings of the shareholders may be called for any
purpose at any time by the Board of Directors or by any shareholder owning, in
the aggregate, not less than 10 percent of the stock of the National Trust
Company. Every such special meeting, unless otherwise provided by law, shall be
called by mailing, postage prepaid, not less than ten days prior to the date
fixed for such meeting, to each shareholder at his address appearing on the
books of the National Trust Company a notice stating the purpose of the meeting.
Section 1.3. Nominations for Director. Nominations for election to the
Board of Directors may be made by the Board of Directors or by any shareholder
of any outstanding class of capital stock of the National Trust Company entitled
to vote for the election of directors. Nominations, other than those made by or
on behalf of the existing management of the National Trust Company, shall be
made in writing and shall be delivered or mailed to the President of the
National Trust Company and to the Comptroller of the Currency, Washington, D.C.,
not less than 14 days nor more than 50 days prior to any meeting of shareholders
called for the election of directors, provided however, that if less than 21
days' notice of the meeting is given to shareholders, such nomination shall be
mailed or delivered to the President of the National Trust Company and to the
Comptroller of the Currency not later than the close of business on the seventh
day following the day on which the notice of meeting was mailed. Such
notification shall contain the following information to the extent known to the
notifying shareholder: (a) the name and address of each proposed nominee; (b)
the principal occupation of each proposed nominee; (c) the total number of
shares of capital stock of the National Trust Company that will be voted for
each proposed nominee; (d) the name and residence address of the notifying
shareholder; and
<PAGE> 13
(e) the number of shares of capital stock of the National Trust Company owned by
the notifying shareholder. Nominations not made in accordance herewith may, in
his/her discretion, be disregarded by the Chairperson of the meeting, and upon
his/her instructions, the vote tellers may disregard all votes cast for each
such nominee.
Section 1.4. Proxies. Shareholders may vote at any meeting of the
shareholders by proxies duly authorized in writing, but no officer or employee
of this National Trust Company shall act as proxy. Proxies shall be valid only
for one meeting, to be specified therein, and any adjournments of such meeting.
Proxies hall be dated and shall be filed with the records of the meeting.
Section 1.5. Quorum. A majority of the outstanding capital stock,
represented in person or by proxy, shall constitute a quorum at any meeting of
shareholders, unless otherwise provided by law; but less than a quorum may
adjourn any meeting, from time to time, and the meeting may be held, as
adjourned, without further notice. A majority of the votes cast shall decide
every question or matter submitted to the shareholders at any meeting, unless
otherwise provided by law or by the Articles of Association.
ARTICLE II
Directors
Section 2.1. Board of Directors. The Board of Directors shall have the
power to manage and administer the business and affairs of the National Trust
Company. Except as expressly limited by law, all corporate powers of the
National Trust Company shall be vested in and may be exercised by the Board of
Directors.
Section 2.2. Number. The Board of Directors shall consist of not less
than five nor more than twenty-five shareholders, the exact number within such
minimum and maximum limits to be fixed and determined from time to time by
resolution of a majority of the full Board or by resolution of the shareholders
at any meeting thereof.
Section 2.3. Organization Meeting. The Cashier, upon receiving the
results of any election, shall notify the directors-elect of their election and
of the time at which they are required to meet at the Main Office of the
National Trust Company to organize the new Board and elect and appoint officers
of the National Trust Company for the succeeding year. Such meeting shall be
held on the day of the election or as soon thereafter as practicable, and, in
any event, within thirty days thereof. If, at the time fixed for such meeting,
there shall not be a quorum present, the Directors present may adjourn the
meeting, from time to time, until a quorum is obtained.
Section 2.4. Regular Meetings. Regular Meetings of the Board of
Directors shall be held, without notice, at least once in each quarter on such
days and at such hours as the Directors may from time to time determine. When
any regular meeting of the Board falls upon a holiday, the meeting shall be held
on the next banking business day unless the Board shall designate some other
day. (Amended 1/1/97)
<PAGE> 14
Section 2.5. Special Meetings. Special meetings of the Board of
Directors may be called by the Chairman of the Board of the National Trust
Company, or at the request of three or more directors. Each member of the Board
of Directors shall be given notice stating the time and place, by telegram,
letter, or in person of each such special meeting.
Section 2.6. Quorum. A majority of the directors shall constitute a
quorum at any meeting, except when otherwise provided by law; but a less number
may adjourn any meeting, from time to time, and the meeting may be held, as
adjourned, without further notice.
Section 2.7. Vacancies. When any vacancy occurs among the directors,
the remaining members of the Board, in accordance with the laws of the United
States, may appoint a director to fill such vacancy at any regular meeting of
the Board, or at a special meeting called for that purpose in conformance with
Section 2.2 of this Article.
Section 2.8. Action Without a Meeting. Any action required or permitted
to be taken at any meeting of the Directors may be taken without a meeting if
all the Directors consent to the action in writing and the written consents are
filed with the records of the meetings of the Directors. Such consents shall be
treated for all purposes as a vote at a meeting.
Section 2.9. Meeting by Telecommunications. Members of the Board of
Directors or any committee elected thereby may participate in a meeting of such
Board or committee by means of a conference telephone or similar communications
equipment by means of which all persons participating in a meeting can hear each
other at the time and participation by such means shall constitute presence in
person at the meeting.
ARTICLE III
Committees of the Board
Section 3.1. Investment Committee. There shall be an Investment
Committee composed of not less than two Directors, appointed by the Board
annually or more often. The Investment Committee shall have the power to insure
adherence to Investment Policy, to recommend amendments thereto, to purchase and
sell securities to exercise authority regarding investments and to exercise,
when this Board is not in session, all other powers of the Board regarding
investment securities that may be lawfully delegated. The Investment Committee
shall keep minutes of its meetings, and such minutes shall be submitted at the
next regular meeting of the Board of Directors at which a quorum is present, and
any action taken by the Board with respect thereto shall be entered in the
minutes of the Board.
Section 3.2. Examining Committee. There shall be an Examining Committee
composed of not less than two directors, exclusive of any active officers,
appointed by the Board annually or more often, whose duty it shall be to make an
examination at least once during each calendar year into the affairs of the
National Trust Company or cause suitable examinations to be made by auditors
responsible only to the Board of Directors and to report the result of such
examination in writing to the Board at the next regular meeting thereafter. Such
report shall state whether the
<PAGE> 15
National Trust Company is in a sound condition, and whether adequate internal
controls and procedures are being maintained shall commend to the Board of
Directors such changes in the manner of conducting the affairs of the National
Trust Company as shall be deemed advisable. (Amended 8/5/97)
Section 3.3. Other Committees. The Board of Directors may appoint, from
time to time, from its own members, other committees of one or more persons, for
such purposes and with such powers as the Board may determine. However, a
committee may not authorize distribution of assets or dividends; approve action
required to be approved by shareholders; fill vacancies on the board of
directors or any of its committees; amend articles of association; adopt, amend
or repeal by-laws; or authorize or approve issuance or sale or contract for sale
of shares, or determine the designation and relative rights, preferences and
limitations of a class or series of shares.
ARTICLE IV
Officers and Employees
Section 4.1. Chairperson of the Board. The Board of Directors shall
appoint one of its members to be Chairperson of the Board to serve at its
pleasure. Such person shall preside at all meetings of the Board of Directors.
The Chairperson of the Board shall supervise the carrying out of the policies
adopted or approved by the Board; shall have general executive powers, as well
as the specific powers conferred by these Bylaws; and shall also have and may
exercise such further powers and duties as from time to time may be conferred
upon, or assigned by the Board of Directors.
Section 4.2. President. The Board of Directors shall appoint one of its
members to be President of the National Trust Company. In the absence of the
Chairperson, the President shall preside at any meeting of the Board. The
President shall have general executive powers, and shall have and may exercise
any and all other powers and duties pertaining by law, regulations, or practice,
to the Office of President, or imposed by these Bylaws. The President shall also
have and may exercise such further powers and duties as from time to time may be
conferred, or assigned by the Board of Directors.
Section 4.3. Vice President. The Board of Directors may appoint one or
more Vice Presidents. Each Vice President shall have such powers and duties as
may be assigned by the Board of Directors. One Vice President shall be
designated by the Board of Directors, in the absence of the President, to
perform all the duties of the President.
Section 4.4. Secretary. The Board of Directors shall appoint a
Secretary, Cashier, or other designated officer who shall be Secretary of the
Board and of the National Trust Company, and shall keep accurate minutes of all
meetings. The Secretary shall attend to the giving of all notices required by
these Bylaws to be given; shall be custodian of the corporate seal, records,
documents and papers of the National Trust Company; shall provide for the
keeping of proper records of all transactions of the National Trust Company;
shall have and may exercise any and all
<PAGE> 16
other powers and duties pertaining by law, regulation or practice, to the Office
of Cashier, or imposed by these Bylaws; and shall also perform such other duties
as may be assigned from time to time, by the Board of Directors.
Section 4.5. Other Officers. The Board of Directors may appoint one or
more Executive Vice Presidents, Senior Vice Presidents, Assistant Vice
Presidents, one or more Assistant Secretaries, one or more Assistant Cashiers,
one or more Managers and Assistant Managers of offices and such other officers
and attorneys in fact as from time to time may appear to the Board of Directors
to be required or desirable to transact the business of the National Trust
Company. Such officers shall respectively exercise such powers and perform such
duties as pertain to the several offices, or as may be conferred upon, or
assigned to, them by the Board of Directors, the Chairperson of the Board, or
the President. The Board of Directors may authorize an officer to appoint one or
more officers or assistant officers.
Section 4.6. Tenure of Office. The President and all other officers
shall hold office for the current year for which the Board was elected, unless
they shall resign, become disqualified, or be removed; and any vacancy occurring
in the Office of President shall be filled promptly by the Board of Directors.
Section 4.7. Resignation. An officer may resign at any time by
delivering notice to the National Trust Company. A resignation is effective when
the notice is given unless the notice specifies a later effective date.
ARTICLE V
Fiduciary Activities
Section 5.1. Trust Department. There shall be a department of the
National Trust Company known as the Trust Department that shall perform the
fiduciary responsibilities of the National Trust Company.
Section 5.2. Trust Officer. There shall be a Trust Officer of this
National Trust Company whose duties shall be to manage, supervise and direct all
the activities of the Trust Department. Such persons shall do or cause to be
done all things necessary or proper in carrying on the business of the Trust
Department according to provisions of law and applicable regulations; and shall
act pursuant to opinion of counsel where such opinion is deemed necessary.
Opinions of counsel shall be retained on file in connection with all important
matters pertaining to fiduciary activities. The Trust Officer shall be
responsible for all assets and documents held by the National Trust Company in
connection with fiduciary matters.
The Board of Directors may appoint other trust officers of the Trust
Department, as it may deem necessary, with such duties as may be assigned.
Section 5.3. Trust Investment Committee. There shall be a Trust
Investment Committee of this National Trust Company composed of not less than
two members, who shall be capable
<PAGE> 17
and experienced officers or directors of the National Trust Company. All
investments of funds held in a fiduciary capacity shall be made, retained or
disposed of only with the approval of the Trust Investment Committee, and the
Committee shall keep minutes of all its meetings, showing the disposition of all
matters considered and passed upon by it. The Committee shall, promptly after
the acceptance of an account for which the National Trust Company has investment
responsibilities, review the assets thereof, to determine the advisability of
retaining or disposing of such assets. The Committee shall conduct a similar
review at least once during each calendar year thereafter and within 15 months
of the last such review. A report of all such reviews, together with the action
taken as a result thereof, shall be noted in the minutes of the Committee.
Section 5.4. Trust Audit Committee. The Board of Directors shall
appoint a committee of not less than two directors, exclusive of any active
officer of the National Trust Company, which shall, at least once during each
calendar year make suitable audits of the Trust Department or cause suitable
audits to be made by auditors responsible only to the Board of Directors, and at
such time shall ascertain whether the Department has been administered according
to law, Part 9 of the Regulations of the Comptroller of the Currency, and sound
fiduciary principles. (Amended 8/5/97)
Section 5.5. Fiduciary Files. There shall be maintained in the Trust
Department files all fiduciary records necessary to assure that its fiduciary
responsibilities have been properly undertaken and discharged.
Section 5.6. Trust Investments. Funds held in a fiduciary capacity
shall be invested according to the instrument establishing the fiduciary
relationship and local law. Where such instrument does not specify the character
and class of investments to be made and does not vest in the National Trust
Company a discretion in the matter, funds held pursuant to such instrument shall
be invested in investments in which corporate fiduciaries may invest under local
law.
ARTICLE VI
Stock and Stock Certificates
Section 6.1 Transfers, Shares of stock shall be transferable on the
books of the National Trust Company, and a transfer book shall be kept in which
all transfers of stock shall be recorded. Every person becoming a shareholder by
such transfer shall, in proportion to his shares, succeed to all rights of the
pr or holder of such shares.
Section 6.2. Stock Certificates. Certificates of stock shall bear the
signature of the President (which may be engraved, printed or impressed), and
shall be signed manually or by facsimile process by the Secretary, Assistant
Secretary, Cashier, Assistant Cashier, or any other officer appointed by the
Board of Director, for that purpose, to be known as an Authorized Officer, and
the seal of the National Trust Company shall be engraved thereon. Each
certificate shall recite on its face that the stock represented thereby is
transferable only upon the books of the National Trust Company properly
endorsed.
<PAGE> 18
ARTICLE VII
Corporate Seal
The President, the Cashier, the Secretary or any Assistant Cashier or
Assistant Secretary, or other officer thereunto designated by the Board of
Directors, shall have authority to affix the corporate seal to any document
requiring such seal, and to attest the same. Such seal shall be substantially in
the following form:
ARTICLE VIII
Miscellaneous Provisions
Section 8.1. Fiscal Year. The Fiscal Year of the National Trust Company
shall be the calendar year.
Section 8.2. Execution of Instruments. All agreements, indentures,
mortgages, deeds, conveyances, transfers, certificates, declarations, receipts,
discharges, releases, satisfactions, settlements, petitions, schedules,
accounts, affidavits, bonds, undertakings, proxies and other instruments or
documents may be signed, executed, acknowledged, verified, delivered or accepted
in behalf of the National Trust Company by the Chairperson of the Board, or the
President, or any Executive Vice President, or any Vice President, or the
Secretary, or the Cashier. Any such instruments may also be executed,
acknowledged, verified, delivered or accepted in behalf of the National Trust
Company in such other manner and by such other officers as the Board of
Directors may from time to time direct. The provisions of this Section 8.2. are
supplementary to any other provision of these Bylaws.
Section 8.3. Records. The Articles of Association, the By-laws and the
proceedings of all meetings of the shareholders, the Board of Directors, and
standing committees of the Board, shall be recorded in appropriate minute books
provided for the purpose. The minutes of each meeting shall be signed by the
Secretary, Cashier or other Officer appointed to act as Secretary of the
meeting.
ARTICLE IX
By-laws
Section 9.1. Inspection. A copy of the By-laws, with all amendments
thereto, shall at all times be kept in a convenient place at the Main Office of
the National Trust Company, and shall be open for inspection to all
shareholders, during banking hours.
Section 9.2. Amendments. The By-laws may be amended, altered or
repealed, at any regular meeting of the Board of Directors, by a vote of a
majority of the total number of the Directors.
<PAGE> 19
EXHIBIT 6
CONSENT OF THE TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture
Act of 1939, as amended, in connection with the proposed issuance by Golden Sky
Systems, Inc. of its 12 3/8% Senior Subordinated Notes due 2006, we hereby
consent that reports of examination by Federal, State, Territorial or District
authorities may be furnished by such authorities to the Securities and Exchange
Commission upon request therefor.
STATE STREET BANK AND TRUST COMPANY
OF MISSOURI, N.A.
By: /s/ ROBERT A. CLASQUIN
-------------------------
Robert A. Clasquin
Assistant Vice President
Dated: October 21, 1998
<PAGE> 20
STATE STREET BANK AND TRUST COMPANY OF MISSOURI, N.A.
CONSOLIDATED STATEMENT OF CONDITION
SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
ASSETS SEPT. 1998
<S> <C>
Cash and Due from Bank $ 1,071,395.82
Total Investment Securities 292,500.00
Total Premises and Equipment 212,289.90
Accrued Income receivable 645,768.94
Other Assets 5,731.03
Goodwill Net 8,004,387.21
-----------------
TOTAL ASSETS $ 10,232,072.90
-----------------
LIABILITIES
Accrued Tax and Other 148,139.16
Unearned Revenue 261,389.40
-----------------
TOTAL LIABILITIES $ 409,528.56
-----------------
STOCKHOLDERS EQUITY
Common Stock 500,000.00
Paid in Surplus 9,250,000.00
Retained Earning 72,544.34
-----------------
TOTAL STOCKHOLDERS EQUITY $ 9,822,544.34
-----------------
TOTAL LIABILITIES AND
STOCKHOLDERS EQUITY $ 10,232,072.90
=================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM COMPANY'S
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 81,941
<SECURITIES> 0
<RECEIVABLES> 7,980
<ALLOWANCES> 0
<INVENTORY> 10,780
<CURRENT-ASSETS> 102,463
<PP&E> 7,031
<DEPRECIATION> (2,537)
<TOTAL-ASSETS> 302,517
<CURRENT-LIABILITIES> 32,015
<BONDS> 247,301
0
0
<COMMON> 0
<OTHER-SE> 30,470
<TOTAL-LIABILITY-AND-EQUITY> (302,517)
<SALES> 50,890
<TOTAL-REVENUES> 50,890
<CGS> 29,764
<TOTAL-COSTS> 77,192
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,966
<INCOME-PRETAX> (37,402)
<INCOME-TAX> 0
<INCOME-CONTINUING> (37,402)
<DISCONTINUED> 0
<EXTRAORDINARY> (2,577)
<CHANGES> 0
<NET-INCOME> (39,979)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<PAGE> 1
EXHIBIT 99.1
LETTER OF TRANSMITTAL
TO TENDER FOR EXCHANGE
12 3/8% SENIOR SUBORDINATED NOTES DUE 2006, SERIES A
OF
GOLDEN SKY SYSTEMS, INC.
PURSUANT TO THE PROSPECTUS DATED , 1998
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON , 1998 (THE "EXPIRATION DATE"), UNLESS THE EXCHANGE OFFER IS
EXTENDED BY THE COMPANY IN ITS SOLE DISCRETION, IN WHICH CASE THE TERM
"EXPIRATION DATE" SHALL MEAN THE LATEST DATE AND TIME TO WHICH THE EXCHANGE
OFFER IS EXTENDED. TENDERS MAY BE WITHDRAWN AT ANY TIME PRIOR TO 5:00 P.M., NEW
YORK CITY TIME, ON THE EXPIRATION DATE.
THE EXCHANGE AGENT IS:
STATE STREET BANK AND TRUST COMPANY OF MISSOURI, N.A.
By Registered or Certified Mail: By Hand or Overnight Courier:
State Street Bank and Trust Company State Street Bank and Trust Company
Of Missouri, N.A. Of Missouri, N.A.
Two International Place, 4th Floor 61 Broadway, 15th Floor
Boston, MA 02110 New York, NY 10016
Attention: Corporate Trust Department Attention: Corporate Trust Department
Kellie Mullen
By Facsimile (for Eligible Institutions only):
(617) 664-5290
Attention: Corporate Trust Department
Confirm Receipt of Notice of Guaranteed Delivery by Telephone:
(617) 664-5587
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE ONE LISTED
ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS SET FORTH IN THIS
LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL
IS COMPLETED.
<PAGE> 2
The undersigned acknowledges receipt of the Prospectus dated
, 1998 (the "Prospectus"), of Golden Sky Systems, Inc., a Delaware
corporation (the "Company"), and this Letter of Transmittal (the "Letter of
Transmittal"), which together with the Prospectus constitutes the Company's
offer (the "Exchange Offer") to exchange $1,000 principal amount of its 12 3/8%
Senior Subordinated Notes due 2006, Series B (the "New Notes"), for each $1,000
principal amount of its outstanding 12 3/8% Senior Subordinated Notes due 2006,
Series A (the "Old Notes"). Recipients of the Prospectus should read the
requirements described in such Prospectus with respect to eligibility to
participate in the Exchange Offer. Capitalized terms used but not defined herein
have the meaning given to them in the Prospectus.
The undersigned hereby tenders the Old Notes described under
"Description of Old Notes" below pursuant to the terms and conditions described
in the Prospectus and this Letter of Transmittal. The undersigned is the
registered owner of all the Old Notes, and the undersigned represents that it
has received from each beneficial owner of Old Notes ("Beneficial Owners") a
duly completed and executed form of "Instruction to Registered Holder from
Beneficiary Owner" accompanying this Letter of Transmittal, instructing the
undersigned to take the action described in this Letter of Transmittal.
This Letter of Transmittal is to be used by a holder of Old
Notes (i) if certificates representing Old Notes are to be forwarded herewith,
(ii) if delivery of Old Notes is to be made by book-entry transfer to the
Exchange Agent's account at The Depository Trust Company ("DTC"), pursuant to
the procedures set forth in the section of the Prospectus entitled "The Exchange
Offer," or (iii) if a tender is made pursuant to the guaranteed delivery
procedures in the section of the Prospectus entitled "The Exchange Offer."
The undersigned hereby represents and warrants that the
information received from the beneficial owners is accurately reflected in the
boxes entitled "Beneficial Owner(s) -- Purchaser Status" and "Beneficial
Owner(s) Residence."
Any beneficial owner whose Old Notes are registered in the
name of a broker, dealer, commercial bank, trust company or other nominee and
who wishes to tender should contact such registered holder of Old Notes promptly
and instruct such registered holder of Old Notes to tender on behalf of the
beneficial owner. If such beneficial owner wishes to tender on its own behalf,
such beneficial owner must, prior to completing and executing this Letter of
Transmittal and delivering its Old Notes, either make appropriate arrangements
to register ownership of the Old Notes in such beneficial owner's name or obtain
a properly completed bond power from the registered holder of Old Notes. The
transfer of record ownership may take considerable time.
In order to properly complete this Letter of Transmittal, a
holder of Old Notes must (i) complete the box entitled "Description of Old
Notes," (ii) complete the boxes entitled "Beneficial owner(s) -- Purchaser
Status" and "Beneficial Owner(s) -- Residence," (iii) if appropriate, check and
complete the boxes relating to book-entry transfer, guaranteed delivery, Special
Issuance Instructions and Special Delivery Instructions, (iv) sign the Letter of
Transmittal by completing the box entitled "Sign Here" and (v) complete the
Substitute Form W-9. Each holder of Old Notes should carefully read the detailed
instructions below prior to completing the Letter of Transmittal.
<PAGE> 3
Holders of Old Notes who desire to tender their Old Notes for
exchange and (i) whose Old Notes are not immediately available or (ii) who
cannot deliver their Old Notes, this Letter of Transmittal and all other
documents required hereby to the Exchange Agent on or prior to the Expiration
Date, must tender the Old Notes pursuant to the guaranteed delivery procedures
set forth in the section of the Prospectus entitled "The Exchange Offer." See
Instruction 2.
Holders of Old Notes who wish to tender their Old Notes for
exchange must complete columns (1) through (3) in the box below entitled
"Description of Old Notes," complete the boxes entitled and sign the box below
entitled "Sign Here." If only those columns are completed, such holder of Old
Notes will have tendered for exchange all Old Notes listed in column (3) below.
If the holder of Old Notes wishes to tender for exchange less than all of such
Old Notes, column (4) must be completed in full. In such case, such holder of
Old Notes should refer to Instruction 5.
DESCRIPTION OF OLD NOTES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
NAME(S) AND PRIVATE NOTE AGGREGATE AGGREGATE
ADDRESS(ES) OF NUMBERS (ATTACH PRINCIPAL AMOUNT PRINCIPAL AMOUNT
REGISTERED SIGNED LIST, IF REPRESENTED BY TENDERED FOR
HOLDER(S) OF OLD NECESSARY) CERTIFICATES (1) EXCHANGE MUST BE
NOTE(S), EXACTLY IN INTEGRAL
AS NAME(S) MULTIPLES OF $1,000
APPEAR(S) ON OLD (2)
NOTE(S)
CERTIFICATE(S)
(PLEASE FILL IN, IF
BLANK):
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL PRINCIPAL AMOUNT OF NOTES TENDERED:
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
1. Unless indicated in the column "Principal Amount Tendered For
Exchange," any tendering Holder of 12 3/8% Senior Subordinated Notes
due 2006, Series A, will be deemed to have tendered the entire
aggregate principal amount represented by the column labeled "Aggregate
Principal Amount Represented by Certificate(s)."
2. The minimum permitted tender is $1,000 in principal amount of 12 3/8%
Senior Subordinated Notes due 2006, Series A. All other tenders must be
in integral multiples of $1,000.
- --------------------------------------------------------------------------------
[ ] CHECK HERE IF TENDERED OLD NOTES ARE ENCLOSED HEREWITH.
<PAGE> 4
[ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK- ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH DTC
AND COMPLETE THE FOLLOWING (FOR USE BY ELIGIBLE INSTITUTIONS (AS
HEREINAFTER DEFINED) ONLY):
Name of Tendering Institution:
-----------------------------------------
Account Number:
--------------------------------------------------------
Transaction Code Number:
-----------------------------------------------
[ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY ENCLOSED HEREWITH AND COMPLETE THE
FOLLOWING (FOR USE BY ELIGIBLE INSTITUTIONS ONLY):
Name of Registered Holder of Private Note(s):
--------------------------
Date of Execution of Notice of Guaranteed Delivery:
--------------------
Window Ticket Number (if available):
-----------------------------------
Name of Institution that Guaranteed Delivery:
--------------------------
Account Number (if delivered by book-entry transfer):
------------------
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name:
------------------------------------------------------------------
Address:
---------------------------------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------
<PAGE> 5
SPECIAL PAYMENT INSTRUCTIONS
(SEE INSTRUCTIONS 1, 6, 7 AND 8)
To be completed ONLY (i) if the New Notes issued in exchange
for Old Notes, certificates for Old Notes in a principal amount not exchanged
for New Notes, or Old Notes (if any) not tendered for exchange, are to be issued
in the name of someone other than the undersigned or (ii) if Old Notes tendered
by book-entry transfer which are not exchanged are to be returned by credit to
an account maintained at DTC.
Issue to:
Name:
------------------------------------------------------------------
(PLEASE TYPE OR PRINT)
Address:
---------------------------------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------
(INCLUDE ZIP CODE)
-----------------------------------------------------------------------
(TAX IDENTIFICATION OR SOCIAL SECURITY NO.)
Credit Old Notes not exchanged and delivered by book-entry transfer to DTC
account set forth below:
-----------------------------------------------------------------------
(ACCOUNT NUMBER)
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 6, 7 AND 8)
To be completed ONLY if the New Notes issued in exchange for
Old Notes, certificates for Old Notes in a principal amount not exchanged for
New Notes, or Old Notes (if any) not tendered for exchange, are to be mailed or
delivered (i) to someone other than the undersigned or (ii) to the undersigned
at an address other than the address shown below the undersigned's signature.
Mail or deliver to:
Name:
---------------------------------------------------------------------------
(PLEASE TYPE OR PRINT)
Address:
------------------------------------------------------------------------
<PAGE> 6
-----------------------------------------------------------------------
(INCLUDE ZIP CODE)
-----------------------------------------------------------------------
(TAX IDENTIFICATION OR SOCIAL SECURITY NO.)
BENEFICIAL OWNER(S) -- RESIDENCE
- ---------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
STATE OF DOMICILE/PRINCIPAL PLACE PRINCIPAL AMOUNT OF PRIVATE
OF BUSINESS OF EACH BENEFICIAL NOTES HELD FOR ACCOUNT OF
OWNER OF OLD NOTES BENEFICIAL OWNER(S)
- -------------------------------------------------------------------------
<S> <C>
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
BENEFICIAL OWNER(S) -- PURCHASER STATUS
- --------------------------------------------------------------------------------
The beneficial owner of each of the Old Notes described herein is (check the box
that applies):
[ ] A "Qualified Institutional Buyer" (as defined in Rule 144A under the
Securities Act)
[ ] An "Institutional Accredited Investor" (as defined in Rule 501(a)(1),
(2), (3) or (7) under the Securities Act)
[ ] A non "U.S. person" (as defined in Regulation S of the Securities Act)
that purchased the Old Notes outside the United States in accordance
with Rule 904 of the Securities Act
[ ] Other (describe):
------------------------------------------------------
- --------------------------------------------------------------------------------
SIGNATURES MUST BE PROVIDED BELOW.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY.
<PAGE> 7
Ladies and Gentlemen:
Pursuant to the offer by Golden Sky Systems, Inc., a Delaware
corporation (the "Company"), upon the terms and subject to the conditions set
forth in the Prospectus dated , 1998 (the "Prospectus") and this Letter of
Transmittal (the "Letter of Transmittal"), which together with the Prospectus
constitutes the Company's offer (the "Exchange Offer") to exchange $1,000
principal amount of its 12 3/8% Senior Subordinated Notes due 2006, Series B
(the "New Notes"), for each $1,000 principal amount of its outstanding 12 3/8%
Senior Subordinated Notes due 2006, Series A (the "Old Notes"), the undersigned
hereby tenders to the Company for exchange the Old Notes indicated above.
By executing this Letter of Transmittal and subject to and
effective upon acceptance for exchange of the Old Notes tendered for exchange
herewith, the undersigned will have irrevocably sold, assigned, transferred an
exchanged, to the Company, all right, title and interest in, to and under all of
the Old Notes tendered for exchange hereby, and hereby will have appointed the
Exchange Agent as the true and lawful agent and attorney-in-fact (with full
knowledge that the Exchange Agent also acts as agent of the Company) of such
holder of Old Notes with respect to such Old Notes, with full power of
substitution to (i) deliver certificates representing such Old Notes, or
transfer ownership of such Old Notes on the account books maintained by DTC
(together, in any such case, with all accompanying evidences of transfer and
authenticity), to the Company, (ii) present and deliver such Old Notes for
transfer on the books of the Company and (iii) receive all benefits and
otherwise exercise all rights and incidents of beneficial ownership with respect
to such Old Notes, in accordance with the terms of the Exchange offer. The power
of attorney granted in this paragraph shall be deemed to be irrevocable and
complete with an interest.
The undersigned hereby represents and warrants that (i) the
undersigned is the owner; (ii) has a net long position within the meaning of
Rule 14e-4 under the Securities Exchange Act as amended ("Rule 14e-4") equal to
or greater than the principal amount of Old Notes tendered hereby; (iii) the
tender of such Old Notes complies with Rule 14e-4 (to the extent that Rule 14e-4
is applicable to such exchange); (iv) the undersigned has full power and
authority to tender, exchange, assign and transfer the Old Notes and (v) that
when such Old Notes are accepted for exchange by the Company, the Company will
acquire good and marketable title thereto, free and clear of all liens,
restrictions, charges and encumbrances and not subject to any adverse claims.
The undersigned will, upon receipt, execute and deliver any additional documents
deemed by the Exchange Agent or the Company to be necessary or desirable to
complete the exchange, assignment and transfer of the Old Notes tendered for
exchange hereby.
By tendering, the undersigned hereby further represents to the
Company that (i) the New Notes to be acquired by the undersigned in exchange for
the Old Notes tendered hereby and any beneficial owner(s) of such Old Notes in
connection with the Exchange Offer will be acquired by the undersigned and such
beneficial owner(s) in the ordinary course of business of the undersigned, (ii)
the undersigned have no arrangement or understanding with any person to
participate in the distribution of the New Notes, (iii) the undersigned and each
beneficial owner acknowledge and agree that any person who is a broker-dealer
registered under the Exchange Act or is participating in the Exchange Offer for
the purpose of distributing the New Notes must comply with the registration and
<PAGE> 8
prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction of the New Notes acquired by such person and cannot
rely on the position of the staff of the Commission set forth in certain
no-action letters, (iv) the undersigned and each beneficial owner understand
that a secondary resale transaction described in clause (iii) above and any
resales of New Notes obtained by the undersigned in exchange for the Old Notes
acquired by the undersigned directly from the Company should be covered by an
effective registration statement Containing the selling securityholder
information, required by Item 507 or Item 508, as applicable, of Regulation S-K
of the Commission and (vi) neither the undersigned nor any beneficial owner is
an "affiliate," as defined under Rule 405 under the Securities Act, of the
Company. If the undersigned is a broker-dealer that will receive New Notes for
its own account in exchange for Old Notes that were acquired as a result of
market-making activities or other trading activities, it acknowledges that it
will deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such New Notes; however, by so acknowledging and
by delivering a prospectus, the undersigned will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act.
For purposes of the Exchange Offer, the Company will be deemed
to have accepted for exchange, and to have exchanged, validly tendered Old
Notes, if, as and when the Company gives oral or written notice thereof to the
Exchange Agent. Tenders of Old Notes for exchange may be withdrawn at any time
prior to 5:00 p.m., New York City time, on the Expiration Date. See "The
Exchange Offer -- Withdrawal of Tenders" in the Prospectus. Any Old Notes
tendered by the undersigned and not accepted for exchange will be returned to
the undersigned at the address set forth above unless otherwise indicated in the
box above entitled "Special Delivery Instructions" as promptly as practicable
after the Expiration Date.
The undersigned acknowledges that the Company's acceptance of
Old Notes validly tendered for exchange pursuant to any one of the procedures
described in the section of the Prospectus entitled "The Exchange Offer" and in
the instructions hereto will constitute a binding agreement between the
undersigned and the Company upon the terms and subject to the conditions of the
Exchange Offer.
Unless otherwise indicated in the box entitled "Special
Issuance Instructions," please return any Old Notes not entered for exchange in
the name(s) of the undersigned. Similarly, unless otherwise indicated in the box
entitled "Special Delivery Instructions," please mail any certificates for Old
Notes not tendered or exchanged (and accompanying documents, as appropriate) to
the undersigned at the address shown below the undersigned's signature(s). In
the event that both "Special Issuance Instructions" and "Special Delivery
Instructions" are completed, please issue the certificates representing the New
Notes issued in exchange for the Old Notes accepted for exchange in the name(s)
of, and return any Old Notes not tendered for exchange or not exchanged to, the
person(s) so indicated. The undersigned recognizes that the Company has no
obligation pursuant to the "Special Issuance Instructions" and "Special Delivery
Instructions" to transfer any Old Notes from the name of the holder thereof if
the Company does not accept for exchange any of the Old Notes so tendered for
exchange or if such transfer would not be in compliance with any transfer
restrictions applicable to such Old Notes.
<PAGE> 9
IN ORDER TO VALIDLY TENDER OLD NOTES FOR EXCHANGE, HOLDERS
OF OLD NOTES MUST COMPLETE, EXECUTE, AND DELIVER THIS LETTER OF
TRANSMITTAL.
Except as stated in the Prospectus, all authority herein
conferred or agreed to be conferred shall survive the death, incapacity, or
dissolution of the undersigned, and any obligation of the undersigned hereunder
shall be binding upon the heirs, personal representatives, successors and
assigns of the undersigned. Except as otherwise stated in the Prospectus, this
tender for exchange of Old Notes is irrevocable.
TENDERING HOLDERS SIGN HERE
- --------------------------------------------------------------------------------
Signature(s) of Owner(s)
Dated:
--------------
Must be signed by the registered holder(s) of Old Notes exactly as name(s)
appear(s) on certificates) representing the Old Notes or on a security position
listing or by person(s) authorized to become registered Old Note holder(s) by
certificates and documents transmitted herewith. If signature is by trustees,
executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, please
provide the following information. (See Instruction 6).
Name(s):
------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT)
Capacity (full title):
----------------------------------------------------------
Address:
------------------------------------------------------------------------
(INCLUDE ZIP CODE)
Principal place of business (if different from address listed above):
-----------
- --------------------------------------------------------------------------------
(INCLUDE ZIP CODE)
Area Code and Telephone No.: ( )
--- ---------------------
Tax Identification or Social Security Nos.:
-------------------------------
PLEASE COMPLETE SUBSTITUTE FORM W-9
<PAGE> 10
GUARANTEE OF SIGNATURE(S)
(Signature(s) must be guaranteed if required by instruction 1)
Authorized Signature:
-----------------------------------------------------------
Dated:
--------------------------------------------------------------------------
Name and Title:
-----------------------------------------------------------------
(PLEASE PRINT)
Name and Title:
-----------------------------------------------------------------
<PAGE> 11
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. GUARANTEE OF SIGNATURES. Except as otherwise provided below, all
signatures on this Letter of Transmittal must be guaranteed by an institution
that is (1) a member firm of a registered national securities exchange or of the
National Association of Securities Dealers, Inc., (2) a commercial bank or trust
company having an office or correspondent in the United States, or (3) an
"eligible guarantor institution" within the meaning of Rule 17Ad-15 under the
Securities Exchange Act of 1934 which is a member of one of the following
recognized Signature Guarantee Programs (an "Eligible Institution"):
a. The Securities Transfer Agents Medallion Program (STAMP)
b. The New York Stock Exchange Medallion Signature Program (MSP)
c. The Stock Exchange Medallion Program (SEMP)
Signatures on this Letter of Transmittal need not be guaranteed (i) if this
Letter of Transmittal is signed by the registered holder(s) of the Old Notes
tendered herewith and such registered holder(s) have not completed the box
entitled "Special Issuance Instructions" or the box entitled "Special Delivery
Instructions" on this Letter of Transmittal or (ii) if such Old Notes are
tendered for the account of an Eligible Institution. IN ALL OTHER CASES, ALL
SIGNATURES MUST BE GUARANTEED BY AN ELIGIBLE INSTITUTION.
2. DELIVERY OF THIS LETTER OF TRANSMITTAL AND Old Notes; GUARANTEED
DELIVERY PROCEDURES. This Letter of Transmittal is to be completed by holders of
Old Notes (i) if certificates are to be forwarded herewith or (ii) if tenders
are to be made pursuant to the procedures for tender by book-entry transfer or
guaranteed delivery set forth in the section of the Prospectus entitled "The
Exchange Offer." Certificates for all physically tendered Old Notes or any
timely confirmation of a book-entry transfer (a "Book-Entry Confirmation"), as
well as a properly completed and duly executed copy of this Letter of
Transmittal or facsimile hereof, and an other documents required by this Letter
of Transmittal, must be received by the Exchange Agent at its address set forth
on the cover of this Letter of Transmittal prior to 5:00 p.m., New York City
time, on the Expiration Date. Holders of Old Notes who elect to tender Old Notes
and (i) whose Old Notes are not immediately available or (ii) who cannot deliver
the Old Notes, this Letter of Transmittal or other required documents to the
Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration Date,
must tender their Old Notes according to the guaranteed delivery of procedures
set forth in the Prospectus. Holders may have such tender elected if: (a) such
tender is made through an Eligible Institution; (b) prior to 5:00 p.m., New York
City time, on the Expiration Date, the Exchange Agent has received from such
Eligible Institution a properly completed and duly executed Notice of Guaranteed
Delivery, setting forth the name and address of the holder of such Old Notes,
the certificate numbers(s) of such Old Notes and the principal amount of Old
Notes tendered for exchange, stating that tender is being made thereby and
guaranteeing that, within five New York Stock Exchange trading days after the
Expiration Date, this Letter of Transmittal (or a facsimile
<PAGE> 12
thereof, together with the certificates) representing such Old Notes (or a
Book-Entry Confirmation), in proper form for transfer, and any other documents
required by this Letter of Transmittal, will be deposited by such Eligible
Institution with the Exchange Agent; and (c) a properly executed Letter of
Transmittal (or a facsimile hereof), as well as the certificates) for all
tendered Old Notes in proper form for transfer or a Book-Entry Confirmation,
together with any other documents required by this Letter of Transmittal, are
received by the Exchange Agent within five New York Stock Exchange trading days
after the Expiration Date.
THE METHOD OF DELIVERY OF OLD NOTES, THIS LETTER OF
TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE
ELECTION AND RISK OF THE HOLDER. EXCEPT AS OTHERWISE PROVIDED BELOW, THE
DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED OR CONFIRMED BY THE
EXCHANGE AGENT. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE
AN OVERNIGHT OR HAND DELIVERY SERVICE, PROPERLY INSURED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT
BEFORE THE EXPIRATION DATE. NEITHER THIS LETTER OF TRANSMITTAL NOR ANY OLD NOTES
SHOULD BE SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS,
DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE
TRANSACTIONS FOR SUCH HOLDERS.
No alternative, conditional or contingent tenders will be
accepted. All tendering holders of Old Notes, by execution of this Letter of
Transmittal (or facsimile hereof, if applicable), waive any right to receive
notice of the acceptance of their Old Notes for exchange.
3. INADEQUATE SPACE. If the space provided in the box entitled
"Description of Old Notes" above is inadequate, the certificate numbers and
principal amounts of the Old Notes being tendered should be listed on a separate
signed schedule affixed hereto.
4. WITHDRAWALS. A tender of Old Notes may be withdrawn at any time
prior to 5:00 p.m., New York City time, on the Expiration Date by delivery of
written or facsimile notice of withdrawal to the Exchange Agent at the address
set forth on the cover of this Letter of Transmittal. To be effective, a notice
of withdrawal of Old Notes must (i) specify the name of the person who tendered
the Old Notes to be withdrawn (the "Depositor"), (ii) identify the Old Notes to
be withdrawn (including the certificate number or numbers and aggregate
principal amount of such Old Notes), and (iii) be signed by the holder of Old
Notes in the same manner as the original signature on the Letter of Transmittal
by which such Old Notes were tendered (including any required signature
Guarantees). All questions as to the validity, form and eligibility (including
time of receipt) of such notices will be determined by the Company in its sole
discretion, whose determination shall be final and binding on all parties. Any
Old Notes so withdrawn will thereafter be deemed not validly tendered for
purposes of the Exchange Offer and no New Notes will be issued with respect
thereto unless the Old Notes so withdrawn are validly retendered. Properly
withdrawn Old Notes may be retendered by following one of the procedures
described in the section of the Prospectus entitled "The Exchange Offer --
Procedures for Tendering" at any time prior to 5:00 p.m., New York City time, on
the Expiration Date.
<PAGE> 13
5. PARTIAL TENDERS. Tenders of Old Notes will be accepted only in
integral multiples of $1,000 principal amount. If a tender for exchange is to be
made with respect to less than the entire principal amount of an Old Notes, fill
in the principal amount of Old Notes which are tendered for exchange in column
(4) of the box entitled "Description of Old Notes," as more fully described in
the footnotes thereto. In case of a partial tender for exchange, a new
certificate, in fully registered form, for the remainder of the principal amount
of the Old Notes, will be sent to the holders of Old Notes unless otherwise
indicated in the appropriate box on this Letter of Transmittal as promptly as
practicable after the expiration or termination of the Exchange Offer.
6. SIGNATURES ON THIS LETTER OF TRANSMITTAL, ASSIGNMENT AND
ENDORSEMENTS.
(a) The signature(s) of the holder of Old Notes on this Letter of
Transmittal must correspond with the name(s) as written on the face of the Old
Notes without alteration, enlargement or any change whatsoever.
(b) If tendered Old Notes are owned of record by two or more joint
owners, all such owners must sign this Letter of Transmittal.
(c) If any tendered Old Notes are registered in different names on
several certificates, it will be necessary to complete, sign and submit as many
separate copies of this Letter of Transmittal and any necessary or required
documents as there are different registrations or certificates.
(d) When this Letter of Transmittal is signed by the holder of the Old
Notes listed and transmitted hereby, no endorsements of Old Notes or bond powers
are required. If, however, Old Notes not tendered or not accepted are to be
issued or returned in the name of a person other than the holder of Old Notes,
then the Old Notes transmitted hereby must be endorsed or accompanied by a
properly completed bond power, in a form satisfactory to the Company, in either
case signed exactly as the name(s) of the holder of Old Notes appear(s) on the
Old Notes. Signatures on such Old Notes or bond powers must be guaranteed by an
Eligible Institution (unless signed by an Eligible Institution).
(e) If this Letter of Transmittal or Old Notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and unless waived by the
Company, evidence satisfactory to the Company of their authority to so act must
be submitted with this Letter of Transmittal.
(f) If this Letter of Transmittal is signed by a person other than the
registered holder of Old Notes listed, the Old Notes must be endorsed or
accompanied by a properly completed bond power, in either case signed by such
registered holder exactly as the name(s) of the registered holder of Old Notes
appear(s) on the certificates. Signatures on such Old Notes or bond powers must
be guaranteed by an Eligible Institution (unless signed by an Eligible
Institution).
<PAGE> 14
7. TRANSFER TAXES. Except as set forth in this Instruction 7, the
Company will pay all transfer taxes, if any, applicable to the exchange of Old
Notes pursuant to the Exchange offer. If, however, a transfer tax is imposed for
any reason other than the exchange of the Old Notes pursuant to the Exchange
Offer, then the amount of any such transfer taxes (whether imposed on the
registered holder or any other persons) will be payable by the tendering holder.
If satisfactory evidence of payment of such taxes or exemptions therefrom is not
submitted with this Letter of Transmittal, the amount of such transfer taxes
will be billed directly to such tendering holder.
8. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. If the New Notes are to
be issued, or if any Old Notes not tendered for exchange are to be issued or
sent to someone other than the holder of Old Notes or to an address other than
that shown above, the appropriate boxes on this Letter of Transmittal should be
completed. Holders of Old Notes tendering Old Notes by book-entry transfer may
request that Old Notes not accepted be credited to such account maintained at
DTC as such holder of Old Notes may designate.
9. IRREGULARITIES. All questions as to the validity, form, eligibility
(including time of receipt), compliance with conditions, acceptance and
withdrawal of tendered Old Notes will be determined by the Company in its sole
discretion, which determination will be final and binding. The Company reserves
the absolute right to reject any and all Old Notes not properly tendered or any
Old Notes the Company's acceptance of which would, in the opinion of counsel for
the Company, be unlawful. The Company also reserves the right to waive any
defects, irregularities or conditions of tender as to particular Old Notes. The
Company's interpretation of the terms and conditions of the Exchange Offer
(including the instructions in the Letter of Transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Old Notes must be cured within such time as the
Company shall determine. Although the Company intends to notify holders of
defects or irregularities with respect to tenders of Old Notes, neither the
Company, the Exchange Agent nor any other person shall incur any liability for
failure to give such notification. Tenders of Old Notes will not be deemed to
have been made until such defects or irregularities have been cured or waived.
Any Old Notes received by the Exchange Agent that are not properly tendered and
as to which the defects or irregularities have not been cured or waived will be
returned by the Exchange Agent to the tendering holders, unless otherwise
provided in this Letter of Transmittal, as soon as practicable following the
Expiration Date.
10. WAIVER OF CONDITIONS. The Company reserves the absolute right to
waive, amend or modify certain of the specified conditions as described under
"The Exchange Offer -- Conditions" in the Prospectus in the case of any Old
Notes tendered (except as otherwise provided in the Prospectus).
11. REQUESTS FOR INFORMATION OR ADDITIONAL COPIES. Requests for
information or for additional copies of the Prospectus and this Letter of
Transmittal may be directed to the Exchange Agent at the address or telephone
number set forth on the cover of this Letter of Transmittal.
<PAGE> 15
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR A FACSIMILE THERE-
OF, IF APPLICABLE) TOGETHER WITH CERTIFICATES, OR CONFIRMATION OF BOOK- ENTRY OR
THE NOTICE OF GUARANTEED DELIVERY, AND ALL OTHER REQUIRED DOCUMENTS MUST BE
RECEIVED BY THE EXCHANGE AGENT PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE
EXPIRATION DATE.
IMPORTANT TAX INFORMATION
Under current federal income tax law, a holder of Old Notes
whose tendered Old Notes are accepted for exchange may be subject to backup
withholding unless the holder provides the Company (as payor), through the
Exchange Agent, with either (i) such holder's correct taxpayer identification
number ("TIN") on Substitute Form W-9 attached hereto, certifying that the TIN
provided on Substitute Form W-9 is correct (or that such holder of Old Notes is
awaiting a TIN) and that (A) the holder of Old Notes has not been notified by
the Internal Revenue Service that he or she is subject to backup withholding as
a result of a failure to report all interest or dividends or (B) the Internal
Revenue Service has notified the holder of Old Notes that he or she is no longer
subject to backup withholding; or (ii) an adequate basis for exemption from
backup withholding. If such holder of Old Notes is an individual, the TIN is
such holder's social security number. If the Exchange Agent is not provided with
the correct taxpayer identification number, the holder of Old Notes may be
subject to certain penalties imposed by the Internal Revenue Service.
Certain holders of Old Notes (including, among others, all
corporations and certain foreign individuals) are not subject to these backup
withholding and reporting requirements. Exempt holders of Old Notes should
indicate their exempt status on Substitute Form W-9. A foreign individual may
qualify as an exempt recipient by submitting to the Exchange Agent a properly
completed Internal Revenue Service Form W-8 (which the Exchange Agent will
provide upon request) signed under penalty of perjury, attesting to the holder's
exempt status. See the enclosed Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9 (the "Guidelines") for additional
instructions.
If backup withholding applies, the Company is required to
withhold 31% of amy payment made to the holder of Old Notes or other payee.
Backup withholding is not an additional federal income tax. Rather, the federal
income tax liability of persons subject to backup withholding will be reduced by
the amount of tax withheld. If withholding results in an overpayment of taxes, a
refund may be obtained from the Internal Revenue Service.
The holder of Old Notes is required to give the Exchange Agent
the TIN (e.g., social security number or employer identification number) of the
record owner of the Old Notes. If the Old Notes are held in more than one name
or are not held in the name of the actual owner, consult the enclosed Guidelines
for additional guidance regarding which number to report.
<PAGE> 16
INSTRUCTION TO REGISTERED HOLDER
FROM BENEFICIAL OWNER
OF 12 3/8% SENIOR SUBORDINATED NOTES DUE 2006, SERIES A
OF GOLDEN SKY SYSTEMS, INC.
The undersigned hereby acknowledges receipt of the Prospectus
dated , 1998 (the "Prospectus") of Golden Sky Systems, Inc., a Delaware
corporation (the "Company"), and the accompanying Letter of Transmittal (the
"Letter of Transmittal"), which together constitute the Company's offer (the
"Exchange Offer"). Capitalized terms used but not defined herein have the
meanings ascribed to them in the Prospectus.
This will instruct you, the registered holder, as to the
action to be taken by you relating to the Exchange Offer with respect to the 12
3/8% Senior Subordinated Notes due 2006, Series A (the "Old Notes"), held by you
for the account of the undersigned.
The aggregate face amount of the Old Notes held by you for the
account of the undersigned is (fill in amount): $_______________ of the Old
Notes.
With respect to the Exchange offer, the undersigned hereby
instructs you (check appropriate box):
[ ] To TENDER the following Old Notes held by you for the account of the
undersigned (insert principal amount of Old Notes to be tendered, if
any):
$_______________ of the Old Notes.
[ ] NOT to TENDER any Old Notes held by you for the account of the
undersigned.
If the undersigned instructs you to tender the Old Notes held
by you for the account of the undersigned, it is understood that you are
authorized (a) to make, on behalf of the undersigned (and the undersigned, by
its signature below, hereby makes to you), the representations and warranties
contained in the Letter of Transmittal that are to be made with respect to the
undersigned as a beneficial owner of the Old Notes, including but not limited to
the representations that (i) the undersigned's principal residence is in the
state of (fill in state)________________, (ii) the undersigned is acquiring the
New Notes in the ordinary course of business of the undersigned, (iii) the
undersigned has no arrangement or understanding with any person to participate
in the distribution of New Notes, (iv) the undersigned acknowledges that any
person who is a broker-dealer registered under the Exchange Act or is
participating in the Exchange Offer for the purpose of distributing the New
Notes must comply with the registration and prospectus delivery requirements of
the Securities Act of 1933, as amended, in connection with a secondary resale
transaction of the New Notes acquired by such person and cannot rely on the
position of the Staff of the Securities and Exchange Commission set forth in
certain no-action letters (See the section of the Prospectus entitled "The
Exchange Offer -- Resale of the New Notes"), (v) the undersigned understands
that a secondary resale transaction described in clause (iv) above and any
resales of New Notes obtained be the undersigned in exchange for the Old Notes
acquired by the undersigned directly from the Company
<PAGE> 17
should be covered by an effective registration statement containing the selling
securityholder information required by Item 507 or Item 508, if applicable, of
Regulation S-K of the Commission, (vi) the undersigned is not an "affiliate," as
defined in Rule 405 under the Securities Act, of the Company, and (vii) if the
undersigned is a broker-dealer that will receive New Notes for its own account
in exchange for Old Notes that were acquired as a result of market-making
activities or other trading activities, it acknowledges that it will deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resale of such New Notes; however, by so acknowledging and by delivering a
prospectus, the undersigned will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act; (b) to agree, on behalf
of the undersigned, as set forth in the Letter of Transmittal; and (c) to take
such other action as necessary under the Prospectus or the Letter of Transmittal
to effect the valid tender of Old Notes.
The purchaser status of the undersigned is (check the box that applies):
[ ] A "Qualified Institutional Buyer" (as defined in Rule 144A under the
Securities Act)
[ ] An "Institutional Accredited Investor" (as defined in Rule 501(a)(1),
(2), (3) or (7) under the Securities Act)
[ ] A non "U.S. person" (as defined in Regulation S of the Securities Act)
that purchased the Old Notes outside the United States in accordance
with Rule 904 of the Securities Act
[ ] Other (describe)
SIGN HERE
Name of Beneficial Owner(s):
----------------------------------------------------
Signature(s):
-------------------------------------------------------------------
Name(s) (please print):
---------------------------------------------------------
Address:
------------------------------------------------------------------------
Principal place of business (if different from address listed above):
-----------
Telephone Number(s):
------------------------------------------------------------
Taxpayer Identification or Social Security Number(s):
---------------------------
Date:
---------------------------------------------------------------------------
<PAGE> 18
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
PAYER'S NAME:
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
SUBSTITUTE PART I - Social Security Number
FORM W-9
PLEASE PROVIDE YOUR TIN
DEPARTMENT OF THE IN THE BOX AT RIGHT AND ------------------------
TREASURY CERTIFY BY SIGNING AND OR
DATING BELOW.
INTERNAL REVENUE Employer Identification Number
SERVICE
------------------------
PAYER'S REQUEST FOR
TAXPAYER IDENTIFICATION
NUMBER (TIN)
- ----------------------------------------------------------------------------------------------
</TABLE>
PART II -- CERTIFICATIONS -- Under penalties of perjury, I certify that:
(1) The number shown on this form is my current taxpayer identification
number (or I am waiting for a number to be issued to me) and
(2) I am not subject to backup withholding either because I have not been
notified by the Internal Revenue Service (the "IRS") that I am subject
to backup withholding as a result of a failure to report all interest
or dividends, or the IRS has notified me that I am no longer subject to
backup withholding.
CERTIFICATION INSTRUCTION -- You must cross out item (2) in Part 2 above if you
have been notified by the IRS that you are subject to backup withholding because
of underreporting interest or dividends on your tax return. However, if after
being notified y the IRS that you are subject to backup withholding you receive
another notification from the IRS stating that you are no longer subject to
backup withholding, do not cross out item (2).
PART III -- Awaiting TIN [ ]
Name:
---------------------------------------------------------------------------
(Please Print)
Address:
------------------------------------------------------------------------
(Including Zip Code)
Signature Date
-------------------------------------------------- ----------------
- --------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT
IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENT MADE TO YOU PURSUANT TO THE EXCHANGE
OFFER. PLEASE REVIEW THE ENCLOSED "GUIDELINES FOR
<PAGE> 19
CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W- 91" FOR
ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU
CHECK THE BOX IN PART 3 OF SUBSTITUTE FORM W-9
- --------------------------------------------------------------------------------
PAYOR'S NAME: STATE STREET BANK AND TRUST COMPANY OF MISSOURI, N.A.
- --------------------------------------------------------------------------------
<PAGE> 20
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a Taxpayer
Identification Number has not been issued to me, and either (a) I have mailed or
delivered an application to receive a Taxpayer Identification Number to the
appropriate Internal Revenue Service Center or Social Security Administration
Office or (b) I intend to mail or deliver such an application in the near
future. I understand that if I do not provide a Taxpayer Identification Number
with sixty (60) days, 31% of all reportable payments made to me thereafter will
be withheld until I provide such a number.
SIGNATURE DATE
------------------------------------------- -----------------------
<PAGE> 1
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
WITH RESPECT TO
12 3/8% SENIOR SUBORDINATED NOTES DUE 2006, SERIES A
OF
GOLDEN SKY SYSTEMS, INC.
THIS FORM, OR ONE SUBSTANTIALLY EQUIVALENT HERETO, MUST BE USED BY ANY HOLDER OF
12 3/8% SENIOR SUBORDINATED NOTES DUE 2006, SERIES A (THE "OLD NOTES"), OF
GOLDEN SKY SYSTEMS, INC., A DELAWARE CORPORATION (THE "COMPANY"), WHO WISHES TO
TENDER OLD NOTES PURSUANT TO THE COMPANY'S EXCHANGE OFFER, AS DEFINED IN THE
PROSPECTUS DATED , 1998 (THE "PROSPECTUS") AND (I) WHOSE OLD NOTES ARE NOT
IMMEDIATELY AVAILABLE OR (II) WHO CANNOT DELIVER SUCH OLD NOTES OR ANY OTHER
DOCUMENTS REQUIRED BY THE LETTER OF TRANSMITTAL ON OR BEFORE THE EXPIRATION DATE
(AS DEFINED IN THE PROSPECTUS) OR (III) WHO CANNOT COMPLY WITH THE BOOKENTRY
TRANSFER PROCEDURE ON A TIMELY BASIS. SUCH FORM MAY BE DELIVERED BY FACSIMILE
TRANSMISSION, MAIL OR HAND DELIVERY TO THE EXCHANGE AGENT. SEE "THE EXCHANGE
OFFER" IN THE PROSPECTUS.
GOLDEN SKY SYSTEMS, INC.
NOTICE OF GUARANTEED DELIVERY
TO: STATE STREET BANK AND TRUST COMPANY OF MISSOURI, N.A.
<TABLE>
<S> <C>
By Registered or Certified Mail: By Hand or Overnight Courier:
State Street Bank and Trust Company State Street Bank and Trust Company
of Missouri, N.A. of Missouri, N.A.
Two International Place, 4th Floor 61 Broadway, 15th Floor
Boston, MA 02110 New York, NY 10016
Attention: Corporate Trust Department Attention: Corporate Trust Department
Kellie Mullen
</TABLE>
By Facsimile (for Eligible Institutions only):
(617) 664-5290
Attention: Corporate Trust Department
Confirm Receipt of Notice of Guaranteed Delivery by Telephone:
(617) 664-5587
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION VIA A FACSIMILE NUMBER OTHER THAN AS SET FORTH ABOVE
WILL NOT CONSTITUTE A VALID DELIVERY.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY.
<PAGE> 2
LADIES AND GENTLEMEN:
The undersigned hereby tenders to the Company upon the terms and
subject to the conditions set forth in the Prospectus and the related Letter of
Transmittal, receipt of which is hereby acknowledged, the principal amount of
Old Notes specified below pursuant to the guaranteed delivery procedures set
forth under "The Exchange Offer" in the Prospectus. By so tendering, the
undersigned does hereby make, at and as of the date hereof, the representations
and warranties of a tendering Holder of Old Notes set forth in the Letter or
Transmittal. The undersigned hereby tenders the Old Notes listed below:
- -------------------------------------------------------------------------------
CERTIFICATE NUMBERS (IF AVAILABLE) PRINCIPAL AMOUNT TENDERED
- -------------------------------------------------------------------------------
- ------------------------------------ ------------------------------------
<PAGE> 3
All authority herein conferred or agreed to be conferred shall survive
the death, incapacity, or dissolution of the undersigned, and every obligation
of the undersigned hereunder shall be binding upon the heirs, personal
representatives, successors and assigns of the undersigned.
If Old Notes will be tendered by SIGN HERE
book-entry transfer:
Name of Tendering Institution: -------------------------------
- ---------------------------------- -------------------------------
SIGNATURE(S)
The Depository Trust Company -------------------------------
Account No.: NAME (PLEASE PRINT)
- ---------------------------------- -------------------------------
-------------------------------
ADDRESS (INCLUDE ZIP CODE)
DATE: -------------------------------
----------------------------- AREA CODE AND TELEPHONE NO.
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a participant in a Recognized Signature Guarantee
Medallion Program, guarantees deposit with the Exchange Agent of the Letter of
Transmittal (or facsimile thereof), together with the Old Notes tendered hereby
in proper form for transfer, or confirmation of the book-entry transfer of such
Old Notes into the Exchange Agent's account at the Depository Trust Company,
pursuant to the procedure for book-entry transfer set forth in the Prospectus,
and any other required documents, all by 5:00 p.m., New York City time, on the
fifth New York Stock Exchange trading day following the Expiration Date (as
defined in the Prospectus).
Name of Firm: SIGN HERE
- ---------------------------------- ------------------------------
AUTHORIZED SIGNATURE
------------------------------
NAME (PLEASE PRINT)
------------------------------
------------------------------
ADDRESS (INCLUDE ZIP CODE)
DATE:
----------------------------- ------------------------------
AREA CODE AND TELEPHONE NO.
<PAGE> 4
DO NOT SEND CERTIFICATES FOR OLD NOTES WITH THIS FORM. ACTUAL
SURRENDER OF CERTIFICATES FOR OLD NOTES MUST BE MADE PURSUANT TO,
AND BE ACCOMPANIED BY, A COPY OF THE PREVIOUSLY EXECUTED LETTER OF
TRANSMITTAL.
INSTRUCTIONS
1. DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY. A properly completed
and duly executed copy of this Notice of Guaranteed Delivery and any other
documents required by this Notice of Guaranteed Delivery must be received by the
Exchange Agent at one of its addresses set forth on the cover hereof prior to
the Expiration Date. The method of delivery of this Notice of Guaranteed
Delivery and all other required documents to the Exchange Agent is at the
election and risk of the holder but, except as otherwise provided below, the
delivery will be deemed made only when actually received by the Exchange Agent.
Instead of delivery by mail, it is recommended that holders use an overnight or
hand delivery service, properly insured. If such delivery is by mail, it is
recommended that the holder use properly insured, registered mail with return
receipt requested. For a full description of the guaranteed delivery procedures,
see the Prospectus under "The Exchange Offer." In all cases, sufficient time
should be allowed to assure timely delivery.
No Notice of Guaranteed Delivery should be sent to the Company.
2. SIGNATURE ON THIS NOTICE OF GUARANTEED DELIVERY; GUARANTEE OF
SIGNATURES. If this Notice of Guaranteed Delivery is signed by the registered
holder(s) of the Old Notes referred to herein , then the signature must
correspond with the name(s) as written on the face of the Old Notes without
alteration, enlargement or any change whatsoever.
If this Notice of Guaranteed Delivery is signed by a person other than
the registered holder(s) of any Old Notes listed, this Notice of Guaranteed
Delivery must be accompanied by a properly completed bond power signed as the
name of the registered holder(s) appear(s) on the face of the Old Notes without
alteration, enlargement or any change whatsoever.
If this Notice of Guaranteed Delivery is signed by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation or other
person acting in a fiduciary or representative capacity, such person should so
indicate when signing and, unless waived by the Company, evidence satisfactory
to the Company of their authority so to act must be submitted with this Notice
of Guaranteed Delivery.
3. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions relating to
the Exchange Offer or the procedure for consenting and tendering as well as
requests for assistance or for additional copies of the Prospectus, the Letter
of Transmittal and this Notice of Guaranteed Delivery, may be directed to the
Exchange Agent at the address set forth on the cover hereof or to your broker,
dealer, commercial bank or trust company.
