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As filed with the Securities and Exchange Commission on September 25, 1998.
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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)
KAREN C. WIEDEMANN, ESQ.
REBOUL, MACMURRAY, HEWITT, MAYNARD & KRISTOL
45 ROCKEFELLER PLAZA
NEW YORK, NY 10111
(212) 841-5700
(Name, Address, Including Zip Code, and Telephone Number, Including
Area Code, of Agent For Service)
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. / /
CALCULATION OF REGISTRATION FEE
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Title Of Each Proposed Maximum Proposed Maximum
Class Of Securities To Amount To Be Offering Aggregate Amount Of
Be Registered Registered Price Per Note(1) Offering Price(1) Registration Fee
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12 3/8% Senior Subordinated
Notes due 2006, Series B $195,000,000 100% $195,000,000 $57,525
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(1) Estimated solely for the purpose of calculating the registration fee.
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 September 25, 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 August 31, 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."
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."
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.
SEE "RISK FACTORS" ON PAGE 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.
The date of this Prospectus is , 1998.
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TABLE OF CONTENTS
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Page
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Additional Information ............................................................................... 2
Forward-Looking Statements ........................................................................... 3
Sources of Material Information ...................................................................... 3
Summary of the Prospectus ............................................................................ 5
Risk Factors ......................................................................................... 16
Use of Proceeds ...................................................................................... 27
The Exchange Offer ................................................................................... 28
Capitalization ....................................................................................... 33
Pro Forma Financial Statements ....................................................................... 34
Selected Consolidated Financial Data ................................................................. 39
Management's Discussion and Analysis of Results of Operations and Financial Condition ................ 40
Business ............................................................................................. 48
Management ........................................................................................... 62
Principal Stockholders ............................................................................... 66
Certain Relationships and Related Transactions ....................................................... 68
Description of Other Indebtedness .................................................................... 70
Description of the New Notes ......................................................................... 73
Certain Federal Income Tax Considerations ............................................................ 101
Plan of Distribution ................................................................................. 101
Legal Matters ........................................................................................ 103
Experts............................................................................................... 103
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 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.
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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" within
the meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act. Such forward-looking statements involve 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. INFORMATION
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
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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. THE
COMPANY MAKES NO REPRESENTATION AS TO THE ACCURACY OR COMPLETENESS OF SUCH
INFORMATION. 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).
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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 814,000, or approximately
22%, of total DIRECTV customers.
Since its formation by management in June 1996, the Company has:
- acquired 38 Rural DIRECTV Markets in 22 states with
approximately 1.5 million households and 100,000 subscribers
at the dates of acquisition;
- increased its subscriber base in these markets by over 65% in
aggregate, to approximately 166,000 as of August 31, 1998,
achieving a subscriber penetration rate of approximately 11.3%
through aggressive marketing and a local service-driven
approach to the customer;
- entered into contracts or binding letters of intent to acquire
five additional Rural DIRECTV Markets with approximately
265,000 households and 22,000 subscribers, representing a
current subscriber penetration rate of approximately 8.5%;
- commenced marketing and distributing DIRECTV Programming to
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 eight months of
1998 totaled approximately 42,000. This represented over 7.5% of DIRECTV's net
new subscribers nationwide for the period, although total households in the
Company's Rural DIRECTV Markets represent less than 1.4% 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
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strong growth in EBITDA (as defined herein). The Company had EBITDA of $(5.4)
million for the year ended December 31, 1997 and $(7.7) million for the six
months ended June 30, 1998. EBITDA adjusted to exclude subscriber acquisition
costs would have been $2.0 million and $4.1 million, respectively, for such
periods.
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
exclusive sports packages and a large selection of
pay-per-view movies and events. 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
low 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 almost 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. DIRECTV also supports its local providers with an
extensive retail distribution network, offering more channels
of distribution and more distribution points than competing
services. Three major consumer electronics manufacturers
currently compete to provide customers with satellite
receivers and related equipment required to receive DIRECTV
Programming ("DSS Equipment"). Management believes that
competition among DSS Equipment providers results in greater
availability, continued product innovation and lower equipment
costs.
- 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.
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.
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
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ultimately greater revenue and EBITDA. 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.
The Company has established a direct sales force and one or
more Company-owned stores in substantially all of its Rural
DIRECTV Markets to provide sales, installation and customer
service on a local basis. 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 one of two companies actively
consolidating Rural DIRECTV Markets. The Company estimates
that approximately 125 Rural DIRECTV Markets, comprised of
approximately 2.5 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. 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.
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.
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 AND RECENT EVENTS
The Company is party to contracts or binding letters of intent
to purchase five additional Rural DIRECTV Markets for an aggregate cash purchase
price of approximately $54.2 million, which territories include approximately
265,000 households and 22,000 subscribers. These proposed acquisitions include a
Rural DIRECTV Market in California and Nevada from Volcano Vision, Inc.
("Volcano") for $30.0 million in cash that is more fully described below (the
"Volcano Acquisition"). Each of these proposed acquisitions, except one
immaterial pending acquisition,
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is included in the Pro Forma Financial Statements contained elsewhere in this
Prospectus. The Company is also negotiating to acquire one other Rural DIRECTV
Markets for a purchase price of approximately $8.0 million, 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.
In July 1998, the Company entered into an Asset Purchase
Agreement (the "Volcano Purchase Agreement") with Volcano. Pursuant to the
Volcano Purchase Agreement, Volcano will sell and the Company will purchase the
assets comprising a Rural DIRECTV Market in California and Nevada covering
approximately 168,000 households and 11,000 subscribers for a cash purchase
price of $30.0 million, subject to certain post-closing adjustments. The Rural
DIRECTV Market subject to the Volcano Purchase Agreement had approximate
revenues, EBITDA and operating income of $4.0 million, $388,000 and $115,000,
respectively, for the year ended December 31, 1997 and $2.6 million, $556,000
and $401,000, respectively, for the six months ended June 30, 1998. The closing
of the transactions contemplated by the Volcano Purchase Agreement is subject to
certain conditions, including receipt of requisite NRTC and DIRECTV approvals,
the expiration of the applicable waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1986, and Volcano having a minimum of 10,000
subscribers at the time of closing. In connection with the execution of the
Volcano Purchase Agreement, the Company deposited $900,000 in escrow as earnest
money, which sum will be returned to the Company upon the closing of the Volcano
Acquisition. The Company currently anticipates that the Volcano Acquisition will
be consummated in the fourth quarter of 1998, although there can be no assurance
that the conditions to closing will be satisfied or that the acquisition will
ultimately be consummated. The Company has been afforded a limited opportunity
to conduct due diligence to date and there can be no assurance that before or
following acquisition the Company will not discover material adverse information
not previously disclosed to it.
8
<PAGE> 10
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, or, if
no such interest has been paid or
9
<PAGE> 11
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
transfer such New Notes without
10
<PAGE> 12
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."
11
<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."
12
<PAGE> 14
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 future Senior Indebtedness
(as defined herein). As of June 30, 1998, on
a pro forma basis after giving effect to the
Included Acquisitions (as defined herein)
and the Offering, the Company would have had
approximately $247.3 million of outstanding
indebtedness, of which approximately $35.0
million would have been Senior Indebtedness,
and $17.3 million would have been
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."
RISK FACTORS
Holders of the Old Notes should consider carefully all of the
information contained in this Prospectus prior to tendering their Old Notes in
the Exchange Offer. In particular, holders of Old Notes should consider the
factors set for under "Risk Factors" beginning on page of this Prospectus.
13
<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 six-month periods ended
June 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 six-month
periods ended June 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 (i) the Company's acquisitions completed since Inception excluding three
acquisitions that are immaterial individually and in the aggregate (the
"Completed Acquisitions"); (ii) four pending acquisitions for which the Company
has entered into binding letters of intent or contracts (the "Pending Pro Forma
Acquisitions" and, together with the Completed Acquisitions, the "Included
Acquisitions"); and (iii) the Offering. The Pro Forma information does not
reflect one immaterial pending acquisition with a purchase price of less than
$500,000. See "Summary of the Prospectus -- Pending Acquisitions and Recent
Events." 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 June 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,
borrowings under the Credit Facility and the Offering 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 SIX MONTHS ENDED JUNE 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
Programming ......................... $ 219 $ 16,452 $ 50,150 $ 3,289 $ 30,466 $ 39,390
Equipment sales and installation ....... 57 3,824 8,134 517 5,560 6,040
Equipment lease ........................ 36 944 1,592 214 512 608
-------- -------- -------- -------- -------- --------
Total revenue ................ 312 21,220 59,876 4,020 36,538 46,038
Cost of Revenue
Programming ......................... 130 9,304 29,983 1,830 17,926 23,721
Equipment and installation .......... 60 4,265 9,603 551 5,886 6,521
-------- -------- -------- -------- -------- --------
Total cost of revenue ........ 190 13,569 39,586 2,381 23,812 30,242
-------- -------- -------- -------- -------- --------
Gross profit ................. 122 7,651 20,290 1,639 12,726 15,796
Expenses
System operations ................... 26 3,796 12,370 502 4,177 5,544
Sales and marketing ................. 70 6,875 10,427 980 10,961 11,116
Corporate ........................... 1,028 1,917 1,917 854 1,769 1,769
Depreciation and amortization ....... 97 7,515 28,240 1,929 10,019 15,009
Net interest expense ................ 61 2,918 26,754 126 4,942 13,282
Other ............................... 7 414 893 106 3,483 3,510
-------- -------- -------- -------- -------- --------
Total expenses ............... 1,289 23,435 80,601 4,497 35,351 50,230
-------- -------- -------- -------- -------- --------
Net loss ............................... $ (1,167) $(15,784) $(60,311) $ (2,858) $(22,625) $(34,434)
======== ======== ======== ======== ======== ========
</TABLE>
14
<PAGE> 16
<TABLE>
<CAPTION>
June 30, 1998
-------------------------------
December 31, 1997 Historical Pro Forma
----------------- ------------ ---------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents .... $ 13,632 $ 856 $ 1,433
Restricted cash .............. -- -- 50,445
Working capital (deficit) .... 3,827 (11,613) (10,674)
Total assets ................. 156,236 196,728 323,062
Total debt ................... 69,113 131,293 247,293
Stockholder's equity ......... 70,449 47,824 57,824
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended June 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) $ (803) $ (7,664) $ (6,143)
Pre-SAC EBITDA(2) ................. (936) 1,965 211 4,121 5,968
Pre-SAC system cash flow(3) ....... 92 3,882 1,065 5,890 7,737
Capital expenditures .............. 105 998 13 1,360 1,360
Aggregate purchase price of
acquisitions .................... $ 5,256 $ 129,725 $ 33,045 $ 54,688 $ 122,500
Households at end of period(4)(5).. 21,800 1,134,600 300,200 1,394,600 1,729,700
Subscribers acquired in
acquisitions(5).................. 2,975 64,400 16,368 26,893 54,633
Subscribers added in existing
territories(5)................... 229 23,320 992 32,146 31,776
Subscribers at end of period(5)(6). 3,204 90,924 20,564 149,963 177,333
Subscriber acquisition costs,
per net subscriber added(5)...... $ 319 $ 314 $ 1,022 $ 371 $ 381
Penetration at end of period ...... 14.7% 8.0% 6.9% 10.7% 10.3%
Ratio of earnings to
fixed charges(7) ................ -- -- -- -- --
</TABLE>
(1) EBITDA is earnings before interest expense, income taxes, and
depreciation and amortization. EBITDA should not be considered as an
alternative measure of the Company's net income, operating performance,
cash flow, liquidity or other measures of performance or financial
condition prepared in accordance with generally accepted accounting
principles. EBITDA is provided solely as supplemental disclosure.
(2) EBITDA before subscriber acquisition costs ("SAC"). SAC includes sales
and marketing expenses, equipment revenue, equipment costs,
installation revenue, and installation and other costs.
(3) Pre-SAC EBITDA before corporate expenses.
(4) Household numbers are rounded to the nearest hundred. Pro Forma
households include households as of the later of June 30, 1998 or
acquisition date for Completed Acquisitions and households as of the
most recent date for which information is available for Pending Pro
Forma Acquisitions.
(5) 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.
(6) For Completed Acquisitions, subscriber data are as of the later of June
30, 1998 or acquisition date. For Pending Pro Forma Acquisitions,
subscriber data are as of the date of the most recent available
information.
(7) 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 six-month periods ending June 30, 1997 and 1998, the
deficiency of earnings to fixed charges was $1.2 million, $15.8
million, $2.9 million and $22.7 million, respectively.
15
<PAGE> 17
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.
LIMITED OPERATING HISTORY; 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 $(22.6) million for the year ended December
31, 1997 and the six months ended June 30, 1998, respectively, and EBITDA of
approximately $(5.4) million and $(7.7) million for the year ended December 31,
1997 and six months ended June 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 AND ABILITY TO SERVICE INDEBTEDNESS
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 June 30, 1998, on a Pro Forma basis,
the Company's total consolidated long-term indebtedness, including the current
portion, would have approximated $247.3 million, representing approximately 81%
of the Company's total capitalization, and the Company's earnings would have
been insufficient to cover its fixed charges by approximately $34.5 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 $95.1 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.
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 "--
Risks Related to Relationship with 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 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
16
<PAGE> 18
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; ASSET ENCUMBRANCES
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 June 30, 1998, on a Pro
Forma basis, the Company would have had $35.0 million of Senior Indebtedness
outstanding and $95.1 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."
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 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 "-- Risks Related to Relationship with the NRTC."
17
<PAGE> 19
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 38 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 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.
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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 "-- Risks Related to Relationship with 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 "-- Risks Related to Relationship with the NRTC" and "-- Ability to Acquire
DBS Services from NRTC and DIRECTV after Expiration of NRTC Agreements."
RISKS RELATED TO RELATIONSHIP WITH 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, 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
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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.
Reliance Upon NRTC for 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 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 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.
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<PAGE> 22
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 "-- Risks Related to Relationship with 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.
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
is hiring additional personnel and implementing 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.
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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 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
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<PAGE> 24
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 off-air signal strength of television stations
affiliated with those networks or past subscription to cable) and to any
business. The preliminary injunction further requires 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. Absent other judicial, administrative or legislative action, the
preliminary injunction is expected to remain in effect until the disposition of
the matter on the merits, which the Company has been advised is expected to
occur in the Fall of 1998. In response to the injunction, the NRTC issued a
policy prohibiting its DBS members and affiliates, including the Company, from
making new sales of any PrimeTime 24 network programming (including ABC, NBC and
PBS programming, which are not subject to the preliminary injunction, as well as
CBS and Fox). There can be no assurance as to how long the preliminary
injunction or the NRTC's policy will remain in effect or as to what final relief
may ultimately be granted to the plaintiffs. 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. 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 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
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<PAGE> 25
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 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."
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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 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.
25
<PAGE> 27
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 purchase, billing and remittance processing
pursuant to the NRTC Agreements. The NRTC has informed the Company that the
computer systems that provide such services are not currently Year 2000
compliant, but that they will be Year 2000 compliant by April 1999. In addition,
there can be no assurance that such systems do not contain undetected errors or
defects associated with the Year 2000 date functions that may result in material
costs to the Company. 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.
26
<PAGE> 28
USE OF PROCEEDS
The Company will not receive any proceeds from the issuance of
New Notes pursuant to the Exchange Offer. The net proceeds to the Company from
the Offering were approximately $188.2 million, after deducting the Initial
Purchasers' discount and estimated expenses of the Offering. The Company placed
all of such net proceeds in the Escrow Account pending disbursement pursuant to
the terms of the Escrow Agreement. On August 5, 1998, upon the satisfaction of
certain conditions in the Escrow Agreement, approximately $143.0 million of such
net proceeds was released to the Company. The Company used such amount (i) to
repay approximately $83.3 million of outstanding indebtedness under the Credit
Facility (which may be reborrowed for permitted purposes, including to finance
the acquisition of Rural DIRECTV Markets), (ii) to finance the acquisition of
Rural DIRECTV Markets and related costs and expenses, and (iii) for general
corporate purposes and working capital needs of the Company. Approximately $45.2
million of the net proceeds of the Offering was retained in the Escrow Account
and invested in Government Securities and will be used to fund, together with
interest received from the investment thereon, the first four scheduled interest
payments on the outstanding Notes.
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 June 30, 1998, indebtedness incurred under the Credit
Facility was comprised of $35.0 million borrowed under the term loan 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."
27
<PAGE> 29
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.
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.
28
<PAGE> 30
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 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.
29
<PAGE> 31
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.
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
30
<PAGE> 32
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.
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:
By Hand/Overnight Express: By Mail:
State Street Bank and Trust State Street Bank and Trust
Company of Missouri, N.A. Company of Missouri, N.A.
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.
31
<PAGE> 33
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 $__________ .
32
<PAGE> 34
CAPITALIZATION
The following table sets forth the cash and the total
capitalization of the Company as of June 30, 1998 (i) on an historical basis,
and (ii) on a Pro Forma basis to give effect to the Included Acquisitions and
the Offering. See "Summary of the Prospectus -- Pending Acquisitions and Recent
Events." 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," "Use of Proceeds" and "Management's Discussion and Analysis of
Results of Operations and Financial Condition."
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
-----------------------
HISTORICAL PRO FORMA
---------- ---------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents ........................ $ 856 $ 1,433
========= =========
Restricted cash(1) ............................... $ -- $ 50,445
========= =========
Long-term debt (including current maturities):
Credit Facility ................................ $ 114,000 $ 35,000
Seller Notes ................................... 16,407 16,407
Other .......................................... 886 886
Notes .......................................... -- 195,000
--------- ---------
Total long-term debt ................... 131,293 247,293
--------- ---------
Stockholder's equity:
Common Stock, $.01 par value, 1,000 shares
authorized, issued and outstanding .......... -- --
--------- ---------
Additional paid-in capital ..................... 87,400 97,400
Accumulated deficit ............................ (39,576) (39,576)
--------- ---------
Total stockholder's equity ............. 47,824 57,824
--------- ---------
Total capitalization .............. $ 179,117 $ 305,117
========= =========
</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 optional prepayment of borrowings under the
term loan facility.
33
<PAGE> 35
PRO FORMA FINANCIAL STATEMENTS
GENERAL
The following Pro Forma financial statements reflect (i) the
Company's Completed Acquisitions; (ii) the Pending Pro Forma Acquisitions, for
which the Company has entered into binding letters of intent or contracts; (iii)
borrowings under the Credit Facility; and (iv) the Offering. 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 June 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 June 30, 1998 and for the six 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. The Pro Forma financial
statements in this Prospectus do not reflect one immaterial pending acquisition
with a purchase price less than $500,000, but do reflect unaudited financial
information with respect to the other businesses to be acquired. See "Summary of
the Prospectus -- Pending Acquisitions and Recent Events."
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 and the Offering been completed on the dates indicated.
34
<PAGE> 36
STATEMENTS OF OPERATIONS:
<TABLE>
<CAPTION>
Year ended December 31, 1997
-----------------------------
Included The Pro
Historical Acquisitions(1) Offering(2) Forma
---------- --------------- ----------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenue
Programming ............................ $ 16,452 $ 33,698 $ -- $ 50,150
Equipment sales and installation ....... 3,824 4,310 -- 8,134
Equipment lease ........................ 944 648 -- 1,592
-------- -------- -------- --------
Total revenue ....................... 21,220 38,656 -- 59,876
Cost of Revenue
Programming ............................ 9,304 20,679 -- 29,983
Equipment, installation and other ...... 4,265 5,338 -- 9,603
-------- -------- -------- --------
Total cost of revenue ............... 13,569 26,017 -- 39,586
-------- -------- -------- --------
Gross profit ................... 7,651 12,639 -- 20,290
-------- -------- -------- --------
Expenses
Systems operations ..................... 3,796 8,574 -- 12,370
Sales and marketing .................... 6,875 3,552 -- 10,427
Corporate .............................. 1,917 -- -- 1,917
Depreciation and amortization .......... 7,515 19,869 856 28,240
Interest expense, net .................. 2,918 15,534 (20,638) 26,754
28,940
Other .................................. 414 479 -- 893
-------- -------- -------- --------
Total expenses ...................... 23,435 48,008 9,158 80,601
-------- -------- -------- --------
Net loss ................................. $(15,784) $(35,369) $ (9,158) $(60,311)
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Six months ended June 30, 1998
------------------------------
Included The Pro
Historical Acquisitions(3) Offering(2) Forma
---------- --------------- ----------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenue
Programming ............................ $ 30,466 $ 8,924 $ -- $ 39,390
Equipment sales and installation ....... 5,560 480 -- 6,040
Equipment lease ........................ 512 96 -- 608
-------- -------- -------- --------
Total revenue ....................... 36,538 9,500 -- 46,038
Cost of revenue
Programming ............................ 17,926 5,795 -- 23,721
Equipment, installation and other ...... 5,886 635 -- 6,521
-------- -------- -------- --------
Total cost of revenue ............... 23,812 6,430 -- 30,242
-------- -------- -------- --------
Gross profit ................... 12,726 3,070 -- 15,796
-------- -------- -------- --------
Expenses
Systems operations ..................... 4,177 1,367 -- 5,544
Sales and marketing .................... 10,961 155 -- 11,116
Corporate .............................. 1,769 -- -- 1,769
Depreciation and amortization .......... 10,019 4,562 428 15,009
Write-off of deferred financing cost ... 2,577 -- -- 2,577
Interest expense, net .................. 4,942 4,335 (10,525) 13,282
14,530
Other .................................. 906 27 -- 933
-------- -------- -------- --------
Total expenses ...................... 35,351 10,446 4,433 50,230
-------- -------- -------- --------
Net loss ................................. $(22,625) $ (7,376) $ (4,433) $(34,434)
======== ======== ======== ========
</TABLE>
35
<PAGE> 37
BALANCE SHEET:
<TABLE>
<CAPTION>
As of June 30, 1998
-----------------------------
Included The Pro
Historical Acquisitions(4) Offering(5) Forma
---------- --------------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Current assets
Cash and cash equivalents ............. $ 856 $ -- $ 577 $ 1,433
Subscriber and other receivables ....... 8,752 663 -- 9,415
Inventory .............................. 2,888 33 -- 2,921
Prepaid expenses ....................... 783 -- -- 783
--------- --------- --------- ---------
Total current assets ........... 13,279 696 577 14,552
Restricted cash .......................... -- -- 50,445 50,445
Property, plant and equipment ............ 3,991 -- -- 3,991
Goodwill and other intangible assets,
net .................................... 175,502 67,766 -- 243,268
Deferred financing costs ................. 3,757 -- 6,850 10,607
Other assets ............................. 199 -- -- 199
--------- --------- --------- ---------
Total assets ................... $ 196,728 $ 68,462 $ 57,872 $ 323,062
========= ========= ========= =========
Current liabilities
Current maturities of long-term
debt and notes payable .............. $ 9,750 $ -- $ -- $ 9,750
Accounts payable ....................... 9,127 -- -- 9,127
Unearned revenue ....................... 3,794 634 -- 4,428
Current maturities of obligations
under capital leases ................ 289 -- -- 289
Other .................................. 1,932 -- (300) 1,632
--------- --------- --------- ---------
Total current liabilities ...... 24,892 634 (300) 25,226
--------- --------- --------- ---------
Long-term debt and notes payable,
less current maturities ................ 120,701 57,828 (136,828) 236,701
195,000
Obligations under capital leases,
less current maturities ................ 553 -- -- 553
Other long-term liabilities .............. 2,758 -- -- 2,758
--------- --------- --------- ---------
Total liabilities .............. 148,904 58,462 57,872 265,238
Stockholder's equity ..................... 47,824 10,000 -- 57,824
--------- --------- --------- ---------
Total liabilities and
stockholder's equity ......... $ 196,728 $ 68,462 $ 57,872 $ 323,062
========= ========= ========= =========
</TABLE>
36
<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 and Pending
Acquisitions for the year ended December 31, 1997:
<TABLE>
<CAPTION>
Acquisitions Completed in 1997
----------------------------------------------
JANUARY 1,
1997 THROUGH
ACQUISITION PRO FORMA PRO 1998
DATES ADJUSTMENTS FORMA ACQUISITIONS
------------- ----------- --------- ------------
(In thousands)
<S> <C> <C> <C> <C>
Revenue
Programming ..................... $15,680 $ -- $ 15,680 $ 10,176
Equipment sales
and installation ............. 2,801 -- 2,801 1,087
Equipment lease ................. 347 -- 347 188
Other ........................... 1,113 (1,113)(a) -- 256
------- -------- -------- --------
Total revenue ................. 19,941 (1,113) 18,828 11,707
Cost of revenue
Programming ..................... 9,677 -- 9,677 6,056
Equipment,
installation and
other ......................... 3,216 -- 3,216 1,618
Other ........................... 450 (450)(a) -- 134
------- -------- -------- --------
Total cost of revenue ..... 13,343 (450) 12,893 7,808
------- -------- -------- --------
Gross profit .................. 6,598 (663) 5,935 3,899
------- -------- -------- --------
Expenses
Systems operations .............. 5,469 -- 5,469 1,839
Sales and marketing ............. 1,918 -- 1,918 1,058
Depreciation and
amortization ................. 1,329 (1,329)(b) 7,314 593
7,314 (c)
Interest expense, net ........... 101 (101)(d) 9,751 100
9,751 (e)
Other ........................... 258 -- 258 131
------- -------- -------- --------
Total expenses ................ 9,075 15,635 24,710 3,721
------- -------- -------- --------
Net loss before
income taxes and
other ....................... (2,477) (16,298) (18,775) 178
------- -------- -------- --------
Gain on sale of
wireless TV rights .............. -- -- -- --
Net profit on asset
disposal ........................ 4,971 (4,971)(a) -- --
------- -------- -------- --------
Net income (loss)
before income
taxes ....................... 2,494 (21,269) (18,775) 178
Income taxes ...................... 159 (159)(f) -- 36
------- -------- -------- --------
Net income (loss) ............. $ 2,653 $(21,428) $(18,775) $ 214
======= ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Acquisitions Completed in 1998 and
Pending Acquisitions
----------------------------------
PENDING PRO FORMA PRO INCLUDED
ACQUISITIONS ADJUSTMENTS FORMA ACQUISITIONS
------------ ----------- --------- ------------
<S> <C> <C> <C> <C>
Revenue
Programming ..................... $ 7842 $ -- $ 18,018 $ 33,698
Equipment sales
and installation ............. 422 -- 1,509 4,310
Equipment lease ................. 113 -- 301 648
Other ........................... -- (256)(a) -- --
-------- -------- -------- ---------
Total revenue ................. 8,377 (256) 19,828 38,656
Cost of revenue
Programming ..................... 4,946 -- 11,002 20,679
Equipment,
installation and
other ......................... 504 -- 2,122 5,338
Other ........................... 0 (134)(a) -- --
-------- -------- -------- ---------
Total cost of revenue ..... 5,450 (134) 13,124 26,017
-------- -------- -------- ---------
Gross profit .................. 2,927 (122) 6,704 12,639
-------- -------- -------- ---------
Expenses
Systems operations .............. 1,266 -- 3,105 8,574
Sales and marketing ............. 576 -- 1,634 3,552
Depreciation and
amortization ................. 378 (971)(b) 12,555 19,869
12,555 (c)
Interest expense, net ........... (230) 130 (d) 5,783 15,534
5,783 (e)
Other ........................... 90 -- 221 479
-------- -------- -------- ---------
Total expenses ................ 2,080 17,497 23,298 48,008
-------- -------- -------- ---------
Net loss before
income taxes and
other ....................... 847 (17,619) (16,594) (35,369)
-------- -------- -------- ---------
Gain on sale of
wireless TV rights .............. 4,655 (4,655)(a) -- --
Net profit on asset
disposal ........................ 173 (173)(a) -- --
-------- -------- -------- ---------
Net income (loss)
before income
taxes ....................... 5,675 (22,447) (16,594) (35,369)
Income taxes ...................... (88) 52 -- --
-------- -------- -------- ---------
Net income (loss) ............. $ 5,587 $(22,395) $ (16,594) $(35,369)
======== ======== ======== =========
</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.
(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 the
Credit Facility assumed to be issued in connection with the
Acquisitions.
(f) To give effect to the elimination of historical income tax
expense (benefit).
(2) To give effect to (i) additional interest expense, (ii) interest income
of $2,146,000 for the year ended December 31, 1997 and $1,219,000 for
the six months ended June 30, 1998 earned on the Escrow Account, which
is invested in Government Securities at an assumed interest rate of
5.36%, and (iii) amortization of deferred financing costs associated
with the Offering.
37
<PAGE> 39
(3) The following represents the unaudited statements of operations and pro
forma adjustments for the Completed Acquisitions and Pending
Acquisitions for the six months ended June 30, 1998:
<TABLE>
<CAPTION>
Acquisitions Completed Acquisitions Completed
January 1, 1998 through June 30, 1998 After June 30, 1998 and Pending Acquisitions
------------------------------------- ----------------------------------------------------
January 1,
1998 Through January 1,
Acquisition Pro forma Pro 1998 through Pending Pro forma Pro Included
Dates Adjustments forma June 30, 1998 Acquisitions Adjustments forma Acquisitions
------------ ----------- -------- ------------- ------------ ----------- -------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue
Programming ......... $ 2,597 $ -- $ 2,597 $ 1,254 $ 5,073 $ -- $ 6,327 $ 8,924
Equipment sales
and installation ... 131 -- 131 117 232 -- 349 480
Equipment lease ...... 53 -- 53 5 38 -- 43 96
Other ................ 2 (2)(a) -- -- 0 -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Total revenue .... 2,783 (2) 2,781 1,376 5,343 -- 6,719 9,500
Cost of revenue
Programming ......... 1,722 -- 1,722 837 3,236 -- 4,073 5,795
Equipment,
installation and
other ............ 326 -- 326 101 208 -- 309 635
Other ............... -- -- -- 0 -- -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Total cost
of revenue ..... 2,048 -- 2,048 938 3,444 -- 4,382 6,430
-------- -------- -------- -------- -------- -------- -------- --------
Gross profit ..... 735 (2) 733 438 1,899 -- 2,337 3,070
-------- -------- -------- -------- -------- -------- -------- --------
Expenses
Systems operations .. 557 -- 557 144 666 -- 810 1,367
Sales and
marketing .......... 39 -- 39 17 99 -- 116 155
Depreciation and
amortization ....... 99 (99)(b) 1,049 79 195 (274)(b) 3,513 4,562
1,049 (c) 3,513 (c)
Interest expense,
net ................ 22 (22) 1,444 25 (131) 106 (d) 2,891 4,335
1,444 (e) 2,891
Other ................ (7) -- (7) 20 14 -- 34 27
-------- -------- -------- -------- -------- -------- -------- --------
Total expenses ..... 710 2,372 3,082 285 843 6,236 7,364 10,446
-------- -------- -------- -------- -------- -------- -------- --------
Net loss before
income taxes
and other ......... 25 (2,374) (2,349) 153 1,056 (6,236) (5,027) (7,376)
-------- -------- -------- -------- -------- -------- -------- --------
Gain on sale of
wireless TV rights .... 1,956 (1,956) -- -- -- -- -- --
Net profit on asset
disposal .......... 8,421 (8,421) -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Net income
(loss) before
income taxes ..... 10,402 (12,751) (2,349) 153 1,056 (6,236) (5,027) (7,376)
-------- -------- -------- -------- -------- -------- -------- --------
Income taxes ......... (3,000) 3,000 (f) -- (24) (45) 69 (f) -- --
-------- -------- -------- -------- -------- -------- -------- --------
Net income
(loss) .......... $ 7,402 $ (9,751) $ (2,349) $ 129 $ 1,011 $ (6,167) $ (5,027) $ (7,376)
======== ======== ======== ======== ======== ======== ======== ========
</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.
(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 the
Credit Facility assumed to be issued in connection with the
Acquisitions.
(f) To give effect to the elimination of historical income tax
expense.
38
<PAGE> 40
(4) The following represents the unaudited balance sheet and pro forma
adjustments as of June 30, 1998, for the 1998 acquisitions completed
subsequent to June 30, 1998 and Pending Acquisitions:
<TABLE>
<CAPTION>
As of June 30, 1998
----------------------------------------------
Completed Pending Pro forma Included
Acquisitions Acquisitions Adjustments Acquisitions
------------ ------------ -------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Current Assets
Cash and cash equivalents ...................... $ 270 $ 478 $ (748) (a) $ --
Subscriber and other receivables ............... 242 575 (154) (a) 663
Inventory ...................................... 49 188 (204) (a) 33
Prepaid expenses ............................... 25 2 (27) (a) --
-------- -------- -------- --------
Total current assets .................... 586 1,243 (1,133) 696
Property, plant and equipment .................... 34 383 (417) (a) --
Goodwill and other intangible assets, net ........ 699 1,667 (2,366) (b) 67,766
67,766 (c)
Other assets ..................................... 151 250 (401) (a) --
-------- -------- -------- --------
Total assets ............................ $ 1,470 $ 3,543 $ 63,449 $ 68,462
======== ======== ======== ========
Current liabilities
Current maturities of long-term debt
and notes payable ........................... 169 -- (169) (e) --
Accounts payable ............................... 124 734 (858) (d) --
Unearned revenue ............................... 76 480 78 (d) 634
Other .......................................... 75 260 (335) (d) --
-------- -------- -------- --------
Total current liabilities ............... 444 1,474 (1,284) 634
-------- -------- -------- --------
Long-term debt and notes payable, less
current maturities ............................. 651 1,491 (2,142) (d) 57,828
57,828 (e)
-------- -------- -------- --------
Total liabilities ....................... 1,095 2,965 54,402 58,462
Stockholder's equity (deficit) ................... 375 578 (953) (d) 10,000
10,000 (f)
Total liabilities and stockholder's
equity (deficit) ...................... $ 1,470 $ 3,543 $ 63,449 $ 68,462
======== ======== ======== ========
</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
Acquisitions.
(d) To give effect to the elimination of liabilities not assumed
and historical equity.
(e) To give effect to new debt issued in connection with the
Acquisitions.
(f) To give effect to the contribution of acquired net assets of a
pending acquisition from the Company's parent.
(5) To give effect to proceeds from the Offering. The proceeds of the
Offering to the Company were $144.0 million ($195.0 million gross
proceeds less $45.2 million to fund the Interest Reserve Amount in the
Escrow Account and $5.8 million in closing costs). The balance of the
net proceeds were used to repay $83.3 million of borrowings and accrued
interest under the Credit Facility, and the remaining $60.7 million
will be used for future acquisitions and general corporate purposes and
working capital needs. See "Use of Proceeds."
39
<PAGE> 41
SELECTED CONSOLIDATED FINANCIAL DATA
The selected historical consolidated financial data for the
periods ended December 31, 1996 and 1997 and for the six-month periods ended
June 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 for the six-month
periods ended June 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>
INCEPTION TO YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31, JUNE 30,
1996 1997 1997 1998
------------ ----------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue
Programming ......................... $ 219 $ 16,452 $ 3,289 $ 30,466
Equipment sales and installation ....... 57 3,824 517 5,560
Equipment lease ........................ 36 944 214 512
-------- -------- -------- --------
Total revenue ................ 312 21,220 4,020 36,538
Cost of Revenue
Programming ......................... 130 9,304 1,830 17,926
Equipment and installation .......... 60 4,265 551 5,886
-------- -------- -------- --------
Total cost of revenue ........ 190 13,569 2,381 23,812
-------- -------- -------- --------
Gross profit ................. 122 7,651 1,639 12,726
Expenses
System operations ................... 26 3,796 502 4,177
Sales and marketing ................. 70 6,875 980 10,961
Corporate ........................... 1,028 1,917 854 1,769
Depreciation and amortization ....... 97 7,515 1,929 10,019
Net interest expense ................ 61 2,918 126 4,942
Other ............................... 7 414 106 3,483
-------- -------- -------- --------
Total expenses ............... 1,289 23,435 4,497 35,351
-------- -------- -------- --------
Net loss ............................... $ (1,167) $(15,784) $ (2,858) $(22,625)
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
December 31,
--------------------------
1996 1997 June 30, 1998
--------- --------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents .... $ 479 $ 13,632 $ 856
Restricted cash .............. -- -- --
Working capital (deficit) .... (1,948) 3,827 (11,613)
Total assets ................. 6,383 156,236 196,728
Total debt ................... 4,450 69,113 131,293
Stockholder's equity ......... (1,166) 70,449 47,824
</TABLE>
40
<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 38
territories with rights to provide DIRECTV Programming to approximately 1.5
million households. The aggregate purchase price for the Completed Acquisitions
totaled approximately $195.2 million, or approximately $133 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, 59 offices in its territories and has established
dealer relationships with over 350 local retailers of DSS Equipment.
The Company has contracts or binding letters of intent
relating to the five Pending Pro Forma Acquisitions for an aggregate purchase
price of approximately $54.2 million. See "Summary of the Prospectus -- Pending
Acquisitions and Recent Events." The Rural DIRECTV Markets being purchased
include, in the aggregate, approximately 265,000 households and 22,000 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 following table summarizes growth in subscribers following
acquisition for all Rural DIRECTV Markets acquired prior to June 30, 1998:
<TABLE>
<CAPTION>
At Acquisition AT AUGUST 31, 1998 SUBSCRIBER
------------------------------------------ ---------------------------
Households Subscribers Penetration Subscribers Penetration Growth
<S> <C> <C> <C> <C> <C> <C>
Fourth Quarter 1996 21,800 2,975 13.6% 6,797 31.2% 128.5%
First Quarter 1997 184,400 13,270 7.2% 24,831 13.5% 87.1%
Second Quarter 1997 94,000 3,098 3.3% 7,201 7.7% 132.4%
Third Quarter 1997 405,000 22,914 5.7% 50,452 12.5% 120.2%
Fourth Quarter 1997 429,500 25,118 5.8% 39,303 9.2% 56.5%
First Quarter 1998 92,000 16,218 17.6% 18,884 20.5% 16.4%
Second Quarter 1998 168,000 10,675 6.4% 12,220 7.3% 14.5%
</TABLE>
Since Inception, the Company has generated net losses as well
as negative EBITDA and operating cash flows, primarily due to (i) expenditures
in creating its sales and administrative infrastructure and other start-up
costs, (ii) marketing costs incurred in adding new subscribers, and (iii) debt
service costs from financing its rapid acquisition activity. The Company intends
to continue its focus on acquisitions and adding subscribers in its existing
territories, 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. Most of
this expense, including advertising and promotional expenses, sales force and
dealer commissions and equipment subsidies, are incurred at or before the time a
new subscriber is added to the system. As a result, revenue attributable to new
subscribers lags the expense incurred in acquiring them. The impact of this lag
generally increases with the rate at which the Company adds subscribers. Sales
and marketing expense has been a
41
<PAGE> 43
significant contributor to the Company's net losses and negative EBITDA
experienced to date and may continue to negatively affect operating results in
the future 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.
The Company anticipates that its operating margins in the
future may be adversely affected by continued pressure on the retail prices of
DSS Equipment, which have historically declined and may not be accompanied by
reductions in wholesale cost, and by the potential need to increase marketing
efforts to continue to increase penetration of its markets. In addition, the
Company believes that competition from other consolidators of Rural DIRECTV
Markets may result in increased acquisition costs per subscriber in the future.
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 revenue for the periods
noted.
<TABLE>
<CAPTION>
Inception to Year ended Six months Ended
December 31, December 31, June 30,
1996 1997 1997 1998
------------ ------------ ----- -----
<S> <C> <C> <C> <C>
Revenue
Programming .......................... 70.2% 77.5% 81.8% 83.4%
Equipment sales and installation ..... 18.3 18.0 12.9 15.2
Equipment lease ...................... 11.5 4.5 5.3 1.4
----- ----- ----- -----
Total revenue ................. 100.0% 100.0% 100.0% 100.0%
Cost of revenue
Programming .......................... 41.7% 43.8% 45.5% 49.1%
Equipment and installation ........... 19.2 20.1 13.7 16.1
----- ----- ----- -----
Total cost of revenue ......... 60.9 63.9 59.2 65.2
----- ----- ----- -----
Gross profit .................. 39.1 36.1 40.8 34.8
Expenses
System operations .................... 8.3 17.9 12.5 11.4
Sales and marketing .................. 22.4 32.4 24.4 30.0
Corporate ............................ 329.5 9.0 21.2 4.8
Depreciation and amortization ........ 31.1 35.4 48.0 27.4
Net interest expense ................. 19.6 13.8 3.1 13.5
Other ................................ 2.2 2.0 2.7 9.6
----- ----- ----- -----
Total expenses ................ 413.1 110.5 111.9 96.7
----- ----- ----- -----
Net loss ............................... (374.0)% (74.4)% (71.1)% (61.9)%
===== ===== ----- -----
</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, equipment sales, installation revenue, and equipment lease revenue.
Programming 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.
Equipment sales and installation revenue includes revenue from the sale, lease,
and installation of DSS Equipment necessary for subscribers to receive DIRECTV
Programming. Equipment lease revenue is comprised of revenue from the rental of
DSS Equipment to subscribers.
42
<PAGE> 44
Costs of Revenue. The Company's largest cost of providing
service to its subscribers is the wholesale cost of the DIRECTV Programming and
related programming services. The principal components of programming costs
include miscellaneous service fees and programming costs paid to the NRTC and a
5% royalty based on programming revenue paid to DIRECTV. Costs of revenue also
include the cost, up to an amount not exceeding the sales price to the
subscriber, of the DSS Equipment sold to subscribers and the salaries and other
costs incurred for the installation of DSS Equipment by Company employees or
outside contractors. The Company often subsidizes the cost of DSS Equipment to
subscribers by providing such equipment at a sales price below the Company's
cost. The Company records the cost of DSS Equipment up to the amount of the
subscribers' sales price in cost of revenues. Any excess of cost over sales
price is recorded in sales and marketing expense.
System Operations Expense. 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 Expense. Sales and marketing expense
includes such costs as advertising, promotional expenses, marketing personnel
expenses, commission expenses to Company employees and outside sales agents, the
cost to the Company of DSS Equipment subsidies, and other marketing overhead
costs. 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.
Corporate Expense. Corporate 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, amortization of deferred finance costs and depreciation of
property, plant 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.
Six Months Ended June 30, 1998 Compared to Six Months Ended June 30, 1997
Programming revenue for the six months ended June 30, 1998
totaled $30,466,000, compared to $3,289,000 for the six months ended June 30,
1997. Equipment lease revenue amounted to $512,000, up from $214,000 for the
same period a year ago. The increase in programming and equipment lease revenue
is the result of the addition of subscribers from acquisitions and internal
growth. For the six months ended June 30, 1998, the Company had an average of
120,946 subscribers, compared to 13,530 average subscribers for the six months
ended June 30, 1997. Average monthly programming revenue per subscriber
approximated $41.98 and $40.51 for the same periods, respectively.
43
<PAGE> 45
Equipment sales and installation revenue amounted to
$5,560,000 for the six months ended June 30, 1998, compared to $517,000 for the
six months ended June 30, 1997. This revenue is associated with the addition of
new subscribers.
Programming costs were $17,926,000 for the six months ended
June 30, 1998, up from $1,830,000 for the same period a year ago. This increase
is commensurate with the increase in subscribers between the periods. For the
six months ended June 30, 1998, programming margin totaled $12,540,000, 41.1% of
programming revenue, compared to $1,459,000 for the six months ended June 30,
1997, 44.3% of programming revenue. The decline in gross margin percentage is
due to an increase in certain copyright costs effective January 1998 related to
network and superstation programming and a change in mix toward lower-margin
programing.
Costs related to equipment and installation totaled $5,886,000
for the six months ended June 30, 1998 and $551,000 for the six months ended
June 30, 1997. The Company typically provides equipment and installation at or
below its cost. The negative gross profit on equipment and installation for both
periods reflects the subsidization of installation costs by the Company.
System operations costs amounted to $4,177,000 for the six
months ended June 30, 1998 and $502,000 for the same period a year ago. The
increase in these costs corresponds with the addition of field offices and other
operations resources as the Company aggressively acquired additional markets in
1997. As a percentage of revenue, system operations costs declined to 13.7% for
the six months ended June 30, 1998 from 15.3% for the six months ended June 30,
1997.
Sales and marketing expenses totaled $10,961,000 for the six
months ended June 30, 1998, up from $980,000 for the same period the previous
year. The increase in sales and marketing expenses is mainly comprised of
increased advertising and promotion, DSS Equipment subsidies, sales commissions
and marketing personnel costs as the Company focused efforts on subscriber
growth in its expanding number of territories.
Corporate expenses were $1,769,000 for the six months ended
June 30, 1998 and $854,000 for the six months ended June 30, 1997. The increase
in corporate expenses is due to the addition of administrative resources to
support the increase the Company's growth. As a percentage of revenue, corporate
expenses decreased to 4.8% for the six months ended June 30, 1998 from 21.2% for
the same period a year ago. This decrease reflects the continued leveraging of
these costs, which are relatively fixed in nature, over increased revenue.
Depreciation and amortization amounted to $10,019,000 for the
six months ended June 30, 1998 and $1,929,000 for the six months ended June 30,
1997. This increase primarily results from increased amortization of goodwill
and other intangible assets resulting from the Company's acquisition activity
during the last three quarters of 1997 and first two quarters of 1998.
Interest expense totaled $4,971,000 for the six months ended
June 30, 1998 and $128,000 for the same period in 1997. The increase constitutes
the interest on borrowings under the Old Credit Facility and the Credit
Facility. Borrowings under the Credit Facility at June 30, 1998 amounted to
$114.0 million and were incurred to fund acquisitions and the operating losses
and working capital needs associated with the Company's growth.
Year Ended December 31, 1997 Compared to Period from Inception to December 31,
1996
Programming revenue for the year ended December 31, 1997
increased to $16,452,000 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 programming 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
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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.
Equipment sales and installation revenue totaled $3,824,000
for the year ended December 31, 1997 compared to $57,000 for the 1996 Period.
The increase in equipment sales and installation revenue was driven by the
number of new subscribers added in 1997 as discussed above.
Programming costs were $9,304,000 for the year ended December
31, 1997 compared to $130,000 for the 1996 Period. The increase in programming
costs corresponds to the large increase in subscribers added by the Company in
1997. For the year ended December 31, 1997, programming gross profit totaled
$7,148,000, 43.4% of programming revenue, compared to $89,000 for the 1996
Period, 40.6% of programming revenue. The increase in programming gross profit
margin percentage for the year ended December 31, 1997 is primarily due to a
change in subscriber revenue mix toward packages with higher margins.
For the year ended December 31, 1997, equipment and
installation costs amounted to $4,265,000 compared to $60,000 for the 1996
Period. Gross profit (loss) on equipment sales and installation was $(441,000)
for the year ended December 31, 1998 and $(3,000) for the 1996 Period. The
negative gross profit on equipment and installation for both periods reflects
the subsidization of installation costs by the Company.
Systems operations costs totaled $3,796,000 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 expenses totaled $6,875,000 for the year
ended December 31, 1997 and $70,000 for the 1996 Period. Sales and marketing
expenses were primarily comprised of expenditures for advertising and promotion,
DSS Equipment subsidies, marketing personnel costs, and sales commissions to
Company employees and independent dealers associated with the acquisition of new
subscribers.
Corporate expenses were $1,917,000 for the year ended December
31, 1997 and $1,028,000 for the 1996 Period. The Company added accounting and
administrative resources during 1997 to support its growth. The decrease in
corporate 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 totaled $7,515,000 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 amounted to $2,958,000 for the year ended
December 31, 1997 and $62,000 for the 1996 Period. This increase resulted
primarily from borrowings under the Old Credit Facility. Borrowings under the
Old Credit Facility at December 31, 1997 were 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.
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LIQUIDITY AND CAPITAL RESOURCES
The Company's principal capital requirements are for funding
the acquisition of new Rural DIRECTV Markets and the costs associated with
integrating acquired operations and expanding the Company's sales and marketing
activities in new and existing markets. From Inception through June 30, 1998,
the aggregate cash purchase price of Rural DIRECTV Markets was approximately
$167.4 million, and net cash used in operating activities was approximately
$18.2 million. To date, the Company has obtained the capital necessary to fund
its acquisitions and operations 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. In 1997, cash
flows from financing activities totaled $137.0 million, comprised of $81.2
million from the issuance of preferred stock and $56.0 million of net borrowings
under the Company's bank credit facilities.
In May 1998, the Company entered into the Credit Facility,
which provides for lines of credit to fund acquisitions and working capital
requirements totaling $150.0 million, of which $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 sublimit of $40.0 million). 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. At
June 30, 1998, the Company had fully utilized its term loan facility and utilize
$98.9 million of its revolving credit facility, reflecting borrowings of $79.0
million and utilization of $19.9 million of the letter of credit sublimit. These
borrowings under the revolving credit facility were repaid in August 1998 from a
portion of the proceeds of the Offering.
In the Offering, on July 31, 1998, the Company issued an
aggregate principal amount of $195.0 million of senior subordinated notes
bearing interest at the rate of 12 3/8% per annum, which Old Notes mature August
1, 2006. The Company realized proceeds of approximately $189.2 million from the
Offering. Approximately $45.2 million of the net proceeds were placed in an
escrow account to fund the first four semi-annual interest payments on the Old
Notes when due. A portion of the approximately $144.0 million proceeds remaining
were used to repay the $83.3 million of outstanding borrowings under the
revolving credit facility. Approximately $3.0 million of the proceeds were used
to complete one pending acquisition of a Rural DIRECTV Market. The remaining net
proceeds, approximately $57.7 million, is held in short-term liquid investments,
for use in funding future acquisitions and working capital requirements of the
Company. The Company expects to re-borrow amounts under the revolving credit
facility in the future, principally to fund additional acquisitions of Rural
DIRECTV Markets.
The Company's future capital requirements will depend upon a
number of factors, particularly the extent of the Company's acquisition
activities, the rate of the Company's subscriber growth, marketing costs
required to secure additional subscribers, and working capital necessary to
accommodate the Company's anticipated growth, including to invest in new systems
and operations to support the Company's increased size. The Company currently
subsidizes a portion of the cost of subscriber equipment, and the extent of that
subsidy at any point 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 the NRTC Agreements and the timing
for making required payments to the NRTC. The Company anticipates total capital
expenditures of approximately $2.0 million for each of 1998 and 1999, primarily
related to expanding facilities and information systems for customer service
operations and field operation offices. In 1998 and 1999, the Company expects to
continue its acquisitions of Rural DIRECTV Markets and to step up its marketing
efforts in existing territories in order to increase penetration.
The Company is highly leveraged and is expected to increase
its leverage as it pursues further acquisitions by borrowing additional funds
under the Credit Facility or otherwise and by issuing additional seller notes.
Future capital may also 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. 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
June 30, 2004; borrowings under the revolving credit facility mature on June 30,
2004. The approximately $13.8 million of
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Seller Notes mature as follows: $2.4 million in 1998, $8.5 million in 1999, $0.9
million in 2000, $1.0 million in 2001 and $1.0 million in 2002. See "Description
of Other Indebtedness."
YEAR 2000 COMPLIANCE
The Company has reviewed the Year 2000 compliance of its
internal systems and believes that such systems are Year 2000 compliant. The
Company therefore believes that it does not require additional technology and
that it has sufficient resources in order for its internal systems to be Year
2000 compliant. However, there can be no assurance that additional expenditures
will not be required in connection with the Year 2000 compliance of the
Company's systems. See "Risk Factors -- Year 2000 Compliance" and "Business --
Year 2000 Compliance."
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.
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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 814,000, or approximately 22%, of total DIRECTV
customers.
Since its formation by management in June 1996, the Company has:
- acquired 38 Rural DIRECTV Markets in 22 states with
approximately 1.5 million households and 100,000 subscribers
at the dates of acquisition;
- increased its subscriber base in these markets by over 65% in
the aggregate, to approximately 166,000 as of August 31, 1998,
achieving a subscriber penetration rate of approximately 11.3%
through aggressive marketing and a local service-driven
approach to the customer;
- entered into contracts or binding letters of intent to acquire
five additional Rural DIRECTV Markets with approximately
265,000 households and 22,000 subscribers, representing a
current subscriber penetration rate of approximately 8.5%; and
- commenced marketing and distributing DIRECTV Programming to
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 eight months of 1998 totaled approximately 42,000.
This represented over 7.5% of DIRECTV's net new subscribers nationwide for the
period, although total households in the Company's Rural DIRECTV Markets
represented less than 1.4% 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 $(5.4) million for the year
ended December 31, 1997 and $(7.7) million for the six months ended June 30,
1998. EBITDA adjusted to exclude subscriber acquisition costs would have been
$2.0 million and $4.1 million, respectively, for such periods.
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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:
- 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)) 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.
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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 inception, the Company has opened
or is in the process of establishing a total of 59 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 125
Rural DIRECTV Markets, comprised of approximately 2.5 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 May 31, 1998, the Company had
access to approximately 6,000 MDUs via "right of entry"
agreements, with approximately 900 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 a creative,
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consistent advertising campaign. 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.
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.
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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 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 August 31, 1998, there were approximately 3.9 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 40.1% as of June 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 1.1
million new subscribers (net of churn) during the twelve months ended April 30,
1998, which was a greater increase than any other DBS or medium power DTH
provider and accounted for approximately 49.4%
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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
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 August 31, 1998, over
50% of DIRECTV's approximately 3.9 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
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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.
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.
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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 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."
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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 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
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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 1.6 million subscribers at August 31,
1998, representing a 14% market share of high-and medium-power DTH subscribers.
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 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 significant DBS capacity via TSAT's DBS satellite, which is
capable of providing full-CONUS service, but the availability of such full-CONUS
DBS satellite to PrimeStar is subject to intense scrutiny by the U.S. Department
of Justice and the FCC. 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 August 31, 1998, PrimeStar had
approximately 2.1 million subscribers.
Low power C-band operators reported approximately 2.0 million
subscribers representing 22.8% of the total market for DTH satellite services at
April 30, 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.
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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.
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. The FCC also issued a further notice of proposed
rule-making seeking comment on whether the 1996 Act applies to restrictions on
property not within the exclusive use or control of the viewer and in which the
viewer has no direct or indirect property interest. 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
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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, including, at a minimum, reasonable and
non-discriminatory access by qualified candidates for elective office and the
obligation to set aside four to seven percent of the licensee's channel capacity
for non-commercial programming of an educational or informational nature. Within
this set-aside requirement, DTH providers must make capacity available to
"national educational programming suppliers" at below-cost rates. The FCC is
conducting a rule-making proceeding to implement this statutory provision.
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 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 off-air signal strength of television station
affiliated with those networks or past subscription to cable) and to any
business. The preliminary injunction further requires 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. Absent other judicial, administrative or legislative action, the
preliminary injunction is expected to remain in effect until the disposition of
the matter on the merits, which the Company has been advised is expected to
occur in the Fall of 1998. In response to the injunction, the NRTC issued a
policy prohibiting its DBS participants, including the Company, from making new
sales of any PrimeTime 24 network programming (including ABC, NBC and PBS
programming, which are not subject to the preliminary injunction, as well as CBS
and Fox). There can be no assurance as to how long the preliminary injunction or
the NRTC's policy will remain in effect or as to what final relief may
ultimately be granted to the plaintiffs. 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.
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
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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 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 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 purchase, billing and remittance processing
pursuant to the NRTC Member Agreements. The NRTC has informed the Company that
the computer systems that provide such services are not currently Year 2000
compliant, but that they will be Year 2000 compliant by April 1999. In addition,
there can be no assurance that such systems do not contain undetected errors or
defects associated with the Year 2000 date functions that may result in material
costs to the Company. 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 "Risk Factors --
Year 2000 Compliance."
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.
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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 August 31, 1998,
the Company had approximately 600 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.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information regarding the
executive officers and directors of the Company as of September 18, 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 Vice President, Finance and Controller
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. 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
formed Cable Video Entertainment, Inc. in 1986 by acquiring traditional cable
systems located in three states. He served as President of Cable Video
Entertainment, Inc. until it was sold in 1995. 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 Vice President, Finance and
Controller of the Company since August 1998. 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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Jo Ellen Linn. Ms. Linn has been Secretary and General Counsel of
the Company since Inception. Ms. Linn was previously 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. 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.
Prior to the founding of Spectrum, he 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 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> 65
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 $100,000 for such year:
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
--------------
ANNUAL COMPENSATION SECURITIES ALL OTHER
----------------------------- UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS/SARS(#) ($)
- ------------------------------------- ----- -------- ----------- -------------- ------------
<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
Chief Financial Officer(1) 1997 $ 96,470.00 $ 45,000.00 12,505 $40,000(2)
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.
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:
<TABLE>
<CAPTION>
Individual Grants
---------------------------------------------------------------
POTENTIAL
REALIZABLE VALUE AT
Percent of ASSUMED ANNUAL
Total RATES OF STOCK
Number of Options/ PRICE APPRECIATION
Securities SARs Granted FOR OPTION TERM
Underlying to Employees Exercise of ----------------------------
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>
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<PAGE> 66
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.
In September 1998, the Company entered into an employment and
non-competition agreement with Mr. Hager.
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.
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<PAGE> 67
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
September 25, 1998, regarding the ownership of Holdings' Common Stock, Series A
Convertible Participating Preferred Stock, $.01 par value ("Series A Preferred
Stock"), and Series B Convertible Participating Preferred Stock, $.01 par value
("Series B 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
Preferred Stock PREFERRED STOCK
------------------------------- ----------------------------------
Percent Percent
NAME(1) Shares of Class Shares of Class
- ------------------------------------------------- ----------- ----------------- ------------- -----------------
<S> <C> <C> <C> <C>
PRINCIPAL STOCKHOLDERS:
Alta Subordinated Debt Partners
III, L.P.(3)................................. 55,532.00 13.3 11,125.24 4.9
Alta Communications VI, L.P.(3)................ 92,365.00 22.1 18,504.38 8.1
Alta-Comm S By S, LLC(3)....................... 2,103.00 * 421.84 *
Spectrum Equity Investors L.P.(4).............. 50,000.00 12.0 -- --
Spectrum Equity Investors II L.P.(4)........... 100,000.00 23.9 -- --
BancBoston Ventures Inc.(5).................... 75,000.00 17.9 12,521.44 5.5
Norwest Equity Partners VI, LP(6).............. -- -- 50,083.75 21.9
Norwest Venture Partners VI, LP(6)............. -- -- 25,041.87 11.0
HarbourVest Partners V-Direct Fund
L.P.(7)...................................... -- -- 75,125.62 32.9
Lion Investments Limited(8).................... -- -- 5,010.76 2.2
Westpool Investment Trust plc(8)............... -- -- 15,031.27 6.6
General Electric Capital Corporation(9)........ -- -- 15,000.00 6.6
EXECUTIVE OFFICERS AND DIRECTORS:
Rodney A. Weary(10)............................ 16,030.00 3.8 -- --
John R. Hager.................................. -- -- -- --
William J. Gerski(11).......................... -- -- -- --
Laquita J. Allen(12)........................... -- -- -- --
Jo Ellen Linn(13).............................. 430.00 * -- --
Robert F. Benbow(14)........................... 150,000.00 35.9 30,051.46 13.2
William O. Charman(15)......................... 75,000.00 17.9 12,521.44 5.5
William P. Collatos(16)........................ 150,000.00 35.9 -- --
William A. Johnston(17)........................ -- -- 75,125.62 32.9
Robert B. Liepold(18).......................... 1,000.00 * -- --
Erik M. Torgerson(19).......................... -- -- 50,083.75 21.9
All Executive Officers and
Directors as a group (11 persons)............ 392,460.00 93.5 167,782.27 73.4
</TABLE>
<TABLE>
<CAPTION>
Shares Beneficially Owned
---------------------------------
COMMON STOCK
---------------------------------
Percent
NAME(1) Shares(2) of Class
- ------------------------------------------------- --------------- -------------
<S> <C> <C>
PRINCIPAL STOCKHOLDERS:
Alta Subordinated Debt Partners
III, L.P.(3)................................. 2,116.00 96.1
Alta Communications VI, L.P.(3)................ 3,522.00 97.9
Alta-Comm S By S, LLC(3)....................... 81.00 45.0
Spectrum Equity Investors L.P.(4).............. 12.00 12.0
Spectrum Equity Investors II L.P.(4)........... 25.00 25.0
BancBoston Ventures Inc.(5).................... 19.00 19.0
Norwest Equity Partners VI, LP(6).............. -- --
Norwest Venture Partners VI, LP(6)............. -- --
HarbourVest Partners V-Direct Fund
L.P.(7)...................................... -- --
Lion Investments Limited(8).................... -- --
Westpool Investment Trust plc(8)............... -- --
General Electric Capital Corporation(9)........ -- --
EXECUTIVE OFFICERS AND DIRECTORS:
Rodney A. Weary(10)............................ 9,726.22 99.6
John R. Hager.................................. -- --
William J. Gerski(11).......................... 5,414.22 98.2
Laquita J. Allen(12)........................... 788.00 88.7
Jo Ellen Linn(13).............................. 1,111.58 93.9
Robert F. Benbow(14)........................... 5,719.00 98.9
William O. Charman(15)......................... 19.00 19.0
William P. Collatos(16)........................ 37.00 37.0
William A. Johnston(17)........................ -- --
Robert B. Liepold(18).......................... 1,670.22 96.4
Erik M. Torgerson(19).......................... -- --
All Executive Officers and
Directors as a group (11 persons)............ 24,485.24 100.0
</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.
(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, MA 02110, Attn:
William P. Collatos.
66
<PAGE> 68
(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) 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
9,726.22 shares of Common 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.
(11) Through the Stock Option Plan, Mr. Gerski beneficially owns 5,414.22
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.
(12) Through the Stock Option Plan, Ms. Allen beneficially owns 788.00
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.
(13) Ms. Linn beneficially owns 430 shares of Series A Preferred Stock.
In addition, through the Stock Option Plan, Ms. Linn beneficially
owns 1,111.58 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.
(14) 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.
(15) Shares held by BancBoston Ventures Inc., which may be deemed to be
beneficially owned by Mr. Charman.
(16) 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.
(17) Shares held by HarbourVest Partners V-Direct Fund L.P., which may be
deemed to be beneficially owned by Mr. Johnston.
(18) Mr. Liepold beneficially owns 1,000 shares of Series A Preferred
Stock. In addition, through the Stock Option Plan, Mr. Liepold
beneficially owns 1,670.22 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.
(19) Shares held by Norwest Equity Partners VI, LP, which may be deemed
to be beneficially owned by Mr. Torgerson.
In connection with a binding letter of intent for a Pending Pro
Forma Acquisition, it is contemplated that the Company will issue 51,000 shares
of Series C Senior Convertible Preferred Stock, $.01 par value ("Series C
Preferred Stock"). Such shares of Series C Preferred Stock are expected to vote
on a common equivalents basis together with the outstanding shares of Series A
Preferred Stock, Series B Preferred Stock and Common Stock and are expected to
be initially convertible into Common Stock on a one-to-one basis.
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<PAGE> 69
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 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
68
<PAGE> 70
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 August 31, 1998, the Company had
paid an aggregate $56,000 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.
69
<PAGE> 71
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 be 3.75% per annum,
less the then applicable Leverage
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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.
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,
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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:
YEAR Percentage
2003 112%
2004 110%
2005 and thereafter 108%
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 thereon, if any, to
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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 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
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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 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
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(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 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."
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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 June 30, 1998, on a Pro Forma basis, the Company would have had
outstanding $35.0 million of Senior Indebtedness and $95.1 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; 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 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
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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 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
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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 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
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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 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.
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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 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
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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.
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.
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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 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
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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 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
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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.
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
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majority of the aggregate principal amount of the outstanding Notes; provided
that no such modification or amendment may, without the consent of the holder 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
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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
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, 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,
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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 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.
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"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
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.
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"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 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.
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"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 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
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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.
"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).
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"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.
"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.
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"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
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
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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;
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
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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 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.
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"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.
"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
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<PAGE> 99
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, 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
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<PAGE> 100
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 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.
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<PAGE> 101
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.
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.
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<PAGE> 102
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 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 should 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 resole, 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 Notes. Any broker-dealer
that resells New Notes that were
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<PAGE> 103
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.
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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 the six-month periods ended June 30, 1998 and 1997 have been
compiled by Loucks & Glassley, pllp, Certified Public Accountants, as stated in
their report, and are included herein in reliance upon the report 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.
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.
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The financial statements of Direct Broadcast Satellite (a segment of
Volcano Vision, Inc.) for the six-month periods ended June 30, 1998 and 1997
have been compiled by Moss Adams L.L.P., Certified Public Accountants, 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
six-month periods ended June 30, 1998 and 1997 have been compiled by Curtis
Blakely & Co., P.C., Certified Public Accountants, as stated in their report,
and are included herein in reliance upon the report 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.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
GOLDEN SKY SYSTEMS, INC.
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
Condensed Consolidated Balance Sheets as of June 30, 1998 (unaudited) and December 31, 1997............... F-2
Condensed Consolidated Statements of Operations for the six-month periods ended June 30, 1998
and 1997 (unaudited)................................................................................... F-3
Condensed Consolidated Statements of Cash Flows for the six-month periods ended June 30, 1998
and 1997 (unaudited)................................................................................... F-4
Notes to unaudited condensed consolidated financial statements for the six-month periods ended
June 30, 1998 and 1997................................................................................. F-5
FISCAL YEAR 1997 AND FOR THE PERIOD FROM INCEPTION (JUNE 25, 1996) THROUGH DECEMBER 31, 1996
Independent Auditors' Report.............................................................................. F-7
Consolidated Balance Sheets as of December 31, 1997 and 1996.............................................. F-8
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-9
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-10
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-11
Notes to Consolidated Financial Statements................................................................ F-12
FINANCIAL STATEMENTS OF INCLUDED ACQUISITIONS
Triangle Communications System, Inc....................................................................... F-22
Western Montana DBS, Inc. dba Rocky Mountain DBS (unaudited).............................................. F-32
Western Montana DBS, Inc. dba Rocky Mountain DBS.......................................................... F-39
South Plains DBS Limited Partnership...................................................................... F-57
Souris River Television, Inc.............................................................................. F-67
Images DBS Kansas, L.C.................................................................................... F-76
Images DBS Oklahoma, L.C.................................................................................. F-85
Total Communications, Inc................................................................................. F-94
Thunderbolt Systems, Inc.................................................................................. F-104
JECTV (a segment of Jackson Electric Cooperative)......................................................... F-113
Cal-Ore Digital TV, Inc................................................................................... F-123
Direct Vision (a segment of Mankato Citizens Telephone Company)........................................... F-132
Direct Broadcast Satellite (a segment of CTS Communication Corporation)................................... F-141
Argos Support Services Company............................................................................ F-150
Satellite Entertainment, Inc. (a wholly-owned subsidiary of Ace Telephone Association).................... F-159
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-230
DBS Segment of Cumby Cellular, Inc. (unaudited)........................................................... F-240
DBS Segment of Cumby Cellular, Inc........................................................................ F-247
</TABLE>
Financial statements of the Company's parent consolidated with the
Company and its subsidiaries have been omitted, as (1) the Parent's only
subsidiary is the Company, (2) the Parent has no operations of its own, and (3)
management of the Parent is also management of the Company.
F-1
<PAGE> 107
GOLDEN SKY SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 1998 AND DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
--------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents ................................................. $ 856 13,632
Subscriber receivables .................................................... 7,075 3,843
Other receivables ......................................................... 987 335
Earnest Deposits .......................................................... 690 --
Inventory ................................................................. 2,888 2,174
Prepaid expenses .......................................................... 783 127
--------- --------
Total current assets ................................................... 13,279 20,111
Equipment leased to customers (net of accumulated depreciation of $983 and
$612) ..................................................................... 569 909
Furniture, fixtures and equipment (net of accumulated depreciation of $961
and $449) ................................................................. 3,422 2,027
Goodwill and other intangible assets (net of accumulated authorization of
$15,772 and $6,890) (note 2) .............................................. 175,502 129,896
Deferred financing costs (net of accumulated authorization of $211 and $215) . 3,757 3,106
Other assets ................................................................. 199 187
--------- --------
Total assets ........................................................... $ 196,728 156,236
========= ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Current Liabilities:
Current maturities of long-term debt and notes payable ................. $ 9,750 2,361
Trade accounts payable ................................................. 9,115 8,471
Payable to parent ...................................................... 12 586
Unearned revenue ....................................................... 3,794 2,630
Interest payable ....................................................... 768 786
Current maturities of obligations under capital leases ................. 289 177
Accrued payroll and other liabilities .................................. 1,164 1,273
--------- --------
Total current liabilities ........................................... 24,892 16,284
Minority interest in consolidated partnerships ............................ 2,758 2,928
Long-term debt and notes payable, less current maturities ................. 120,701 66,283
Obligations under capital leases, less current maturities ................. 553 292
--------- --------
Total liabilities ................................................... 148,904 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 ...................................................... (39,576) (16,951)
--------- --------
Total stockholder's equity .......................................... 47,824 70,449
--------- --------
Total liabilities and stockholder's equity .......................... $ 196,728 156,236
========= ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-2
<PAGE> 108
GOLDEN SKY SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
SIX-MONTH PERIODS ENDED JUNE 30, 1998 AND 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
-------- ------
<S> <C> <C>
Revenue:
Programming ......................... $ 30,466 3,289
Equipment sales ..................... 4,550 409
Installation ........................ 1,010 108
Equipment lease ..................... 512 214
-------- ------
Total revenue .................. 36,538 4,020
-------- ------
Cost of revenue:
Programming costs ................... 17,926 1,830
Equipment costs ..................... 4,395 378
Installation and other .............. 1,491 173
-------- ------
Total cost of revenue .......... 23,812 2,381
-------- ------
Gross profit ................... 12,726 1,639
-------- ------
Expenses:
Systems operations .................. 4,177 502
Sales and marketing ................. 10,961 980
Corporate ........................... 1,769 854
Depreciation and amortization ....... 10,019 1,929
Provision for doubtful accounts ..... 906 106
-------- ------
Total expenses ................. 27,832 4,371
Operating loss ................. (15,106) (2,732)
Nonoperating items:
Write off of deferred financing costs (2,577) --
Interest and investment income ...... 29 2
Interest expense .................... (4,971) (128)
-------- ------
Net loss before income tax ..... (22,625) (2,858)
Income taxes ........................... -- --
-------- ------
Net loss ....................... $(22,625) (2,858)
======== ======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-3
<PAGE> 109
GOLDEN SKY SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX-MONTH PERIODS ENDED JUNE 30, 1998 AND 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Operating activities:
Net loss .................................................................. $(22,625) (2,858)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization .......................................... 10,019 1,929
Provision for doubtful accounts ........................................ 906 106
Write off of deferred financing costs .................................. 2,577 --
Change in operating assets and liabilities, net of acquisitions:
Subscriber receivables, net of unearned revenue ..................... (2,941) (1,124)
Other receivables ................................................... (652) (265)
Inventory ........................................................... (679) (391)
Prepaid expenses and other assets ................................... (633) (189)
Trade accounts payable .............................................. 644 1,138
Payable to Parent ................................................... (574) --
Accrued interest payable ............................................ (18) (20)
Accrued payroll and other accrued liabilities ....................... (263) 182
-------- --------
Net cash used in operating activities ............................ (14,239) (1,492)
-------- --------
Investing activities:
Acquisitions of rural DBS territories ..................................... (44,514) (30,188)
Payment of earnest deposits ............................................... (690) (1,020)
Purchases of furniture, fixtures and equipment ............................ (1,360) (13)
-------- --------
Net cash used in investing activities ............................ (46,564) (31,221)
-------- --------
Financing activities:
Proceeds from issuance of notes payable ................................... -- 2,115
Principal payments on notes payable ....................................... (2,350) (2,815)
Proceeds from credit agreement ............................................ 54,000 --
Financing costs ........................................................... (3,494) (50)
Proceeds from issuance of cumulative participating preferred stock ........ -- 34,350
Principal payments on obligations under capital leases .................... (129) --
-------- --------
Net cash provided by financing activities ............................ 48,027 33,600
-------- --------
Net increase (decrease) in cash and cash equivalents ................. (12,776) 887
Cash and cash equivalents, beginning of period ............................... 13,632 479
-------- --------
Cash and cash equivalents, end of period ..................................... $ 856 $ 1,366
======== ========
</TABLE>
See accompanying notes to condensed financial statements.
F-4
<PAGE> 110
GOLDEN SKY SYSTEMS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1997
(1) INTERIM FINANCIAL STATEMENTS
The condensed consolidated financial statements of Golden Sky Systems,
Inc. and subsidiaries (the "Company") have been prepared in accordance with the
Securities and Exchange Commission's instructions for interim financial
statements under Regulation S-X. To the extent that information and footnotes
required by generally accepted accounting principles for complete financial
statements are contained in or consistent with the audited consolidated
financial statements, such information and footnotes have not been duplicated
herein. The December 31, 1997 condensed consolidated balance sheet has been
derived from the audited consolidated financial statements as of that date. In
the opinion of management, all adjustments, consisting of normal recurring
accruals, considered necessary for a fair presentation of financial statements,
have been reflected herein. The results of interim periods are not necessarily
indicative of the results expected for the full year.
(2) ACQUISITIONS AND INTANGIBLE ASSETS
The Company accounts for its acquisitions under the purchase method.
During the six-month period ended June 30, 1998, the Company acquired the rights
to ten direct broadcast satellite territories in Montana, North Dakota, Iowa,
Colorado, Georgia, North Carolina, Oregon, and Alabama with approximately 26,900
subscribers. The total cost of these acquisitions, including direct costs, was
$54,668,000, which was allocated as follows (in thousands):
<TABLE>
<S> <C> <C>
Working Capital, net .. $ 180
Noncompete agreements.. 1,287
Customer Lists ........ 2,951
Goodwill .............. 50,250
-------
$54,668
=======
</TABLE>
Intangible assets, which are amortized using the straight-line method over
the estimated useful lives, consist of the following at June 30, 1998 (dollars
in thousands):
<TABLE>
<S> <C> <C>
Goodwill ...................... $ 172,219
Customer Lists ................ 12,854
Noncompete Agreements ......... 6,201
Less: accumulated amortization (15,772)
---------
$ 175,502
=========
</TABLE>
Subsequent to June 30, 1998, the Company acquired four additional
territories in Wisconsin, Texas and Missouri with approximately 5,800
subscribers. The aggregate purchase price of these acquisitions was $13,656,000.
The aggregate purchase price was allocated based on the estimated fair values of
assets and liabilities acquired, resulting in intangible assets of $13,586,000.
(3) REGULATORY DEVELOPMENTS
Certain television broadcast networks and their affiliates have commenced
litigation against a number of satellite providers of network programming,
regarding alleged violations of the Satellite Home Viewer Act (SHVA). PrimeTime
24, which provides network programming to several satellite providers, including
DirecTV, is one such programming service offered by the Company. On July 10,
1998, the Federal District Court, Southern District of Florida granted a
preliminary injunction that has the effect of prohibiting PrimeTime 24 from
providing CBS and Fox network programming to certain households and businesses
in designated geographic areas. The preliminary injunction further requires the
disconnection within 90 days of certain current Prime Time 24 customers for CBS
and
F-5
<PAGE> 111
GOLDEN SKY SYSTEMS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1998 AND 1997
Fox programming. The Company believes that it has complied to date with the SHVA
in providing network programming to only those customers eligible for such
programming services and has disconnected subscribers whose eligibility was
challenged by local broadcasters. Approximately half of the Company's current
subscribers receive some or all of PrimeTime 24's network programming. The
Company believes, however, that a material portion of such subscribers will be
unaffected by the preliminary injunction. The Company's monthly revenue per
subscriber for Prime Time 24 network services ranges from $.90 to $4.50.
Although the Company does not believe the preliminary injunction will materially
adversely affect the Company's operating results, subscriber churn rate or its
ability to attract new subscribers, there can be no assurance that the Company's
inability to provide CBS and Fox network services under the preliminary
injunction will not have such effects.
(4) AMENDED CREDIT FACILITY
On May 8, 1998, the Company entered into a seven year, $150 million
amended credit facility with a syndicate of lenders which provides for a term
loan commitment of $35 million and a revolving loan commitment of $115 million.
Outstanding loans under this agreement carry interest at variable rates (based
on the prime rate and LIBOR) which approximated 10% as of June 30, 1998.
Outstanding term and revolving loans under the amended credit facility were $114
million at June 30, 1998. In May 1998, the Company wrote off deferred financing
costs with a net book value of $2.6 million relating to the previous credit
agreement.
(5) SUBSEQUENT EVENTS
On July 31, 1998, the Company issued an aggregate principal amount of
$195.0 million of senior subordinated notes, bearing interest at a rate of
12 3/8%, which mature August 1, 2006. The Company realized net proceeds of
approximately $189.2 million. Approximately $45.2 million of the net proceeds
were placed in an escrow account to fund the first four semi-annual interest
payments when due. A portion of the approximately $144.0 million proceeds
remaining were used to repay the $83.3 million outstanding borrowings under the
revolving line of credit facility. Proceeds of approximately $3.0 million were
used to acquire one pending acquisition of a rural DIRECTV market. The remaining
net proceeds, approximately $57.7 million, is held in short term, liquid
investments, for use in funding future acquisitions and working capital
requirements.
F-6
<PAGE> 112
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
F-7
<PAGE> 113
GOLDEN SKY SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
--------- ------
<S> <C> <C>
ASSETS
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-8
<PAGE> 114
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:
Programming ................... $ 16,452 219
Equipment sale ................ 3,281 44
Installation .................. 543 13
Equipment lease ............... 944 36
-------- ------
Total revenue .......... 21,220 312
-------- ------
Cost of revenue:
Programming costs ............. 9,304 130
Equipment costs ............... 3,281 44
Installation and other ........ 984 16
-------- ------
Total cost of revenue .. 13,569 190
-------- ------
Gross profit ........... 7,651 122
-------- ------
Expenses:
Systems operations ............ 3,796 26
Sales and marketing ........... 6,875 70
Corporate ..................... 1,917 1,028
Depreciation and amortization . 7,515 97
Provision for doubtful accounts 414 7
-------- ------
Total Expenses ......... 20,517 1,228
-------- ------
Operating loss ......... (12,866) (1,106)
-------- ------
Nonoperating items:
Interest and investment income ... 40 1
Interest expense ............... (2,958) (62)
-------- ------
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-9
<PAGE> 115
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-10
<PAGE> 116
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 ............................................ 7,515 97
Provision for doubtful accounts .......................................... 414 7
Change in operating assets and liabilities, net of acquisitions:
Subscriber receivables, net of unearned revenue ........................ (2,915) (20)
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 accrued 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-11
<PAGE> 117
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. Equipment is sold
to customers in conjunction with commencement of programming service. The excess
of the Company's cost of such equipment over the selling price is classified as
sales and marketing expense.
Earnest Deposits
Earnest deposits include amounts deposited in good faith for the purchase
of new DBS territories (note 3).
F-12
<PAGE> 118
GOLDEN SKY SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997 AND 1996
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.
F-13
<PAGE> 119
GOLDEN SKY SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997 AND 1996
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.
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:
F-14
<PAGE> 120
GOLDEN SKY SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997 AND 1996
- 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.
- 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.
F-15
<PAGE> 121
GOLDEN SKY SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997 AND 1996
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>
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
F-16
<PAGE> 122
GOLDEN SKY SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997 AND 1996
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.
(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>
F-17
<PAGE> 123
GOLDEN SKY SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997 AND 1996
(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
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.
F-18
<PAGE> 124
GOLDEN SKY SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997 AND 1996
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 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,
F-19
<PAGE> 125
GOLDEN SKY SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997 AND 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.
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>
F-20
<PAGE> 126
GOLDEN SKY SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997 AND 1996
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.
(12) EMPLOYEE STOCK INCENTIVE PLAN
In July 1997, the Company approved an Employee Stock Incentive Plan. This
plan provides for grants to certain members of the Company's management of
options to purchase 62,525 shares of the Company's common stock for $1 per
share, which management estimates to be the fair market value at the date of
grant. All options have been granted at December 31, 1997. The options vest over
a three-year period and expire ten years from the date of grant. No options have
been exercised as of December 31, 1997.
F-21
<PAGE> 127
TRIANGLE COMMUNICATION SYSTEM, INC.
HAVRE, MONTANA
FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
F-22
<PAGE> 128
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-23
<PAGE> 129
TRIANGLE COMMUNICATION SYSTEM, INC.
HAVRE, MONTANA
BALANCE SHEETS
DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS
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-24
<PAGE> 130
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-25
<PAGE> 131
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-26
<PAGE> 132
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-27
<PAGE> 133
TRIANGLE COMMUNICATION SYSTEM, INC.
HAVRE, MONTANA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996, AND 1995
NOTE I - 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.
F-28
<PAGE> 134
TRIANGLE COMMUNICATION SYSTEM, INC.
HAVRE, MONTANA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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.
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-29
<PAGE> 135
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
F-30
<PAGE> 136
TRIANGLE COMMUNICATION SYSTEM, INC.
HAVRE, MONTANA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 Electric Cooperative, Inc. under this agreement in 1997
were approximately $157,000. A t 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-31
<PAGE> 137
WESTERN MONTANA DBS, INC.
dba ROCKY MOUNTAIN DBS
FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1997
(UNAUDITED)
F-32
<PAGE> 138
WESTERN MONTANA DBS, INC.
dba ROCKY MOUNTAIN DBS
BALANCE SHEETS
AS OF JUNE 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS June 30,1998 June 30,1997
------------ ------------
<S> <C> <C>
Current Assets
Cash and Equivalents .................................... $ 397,024 $ 870,107
Trade Receivables, net of allowance for doubtful accounts
of $6,000 (Note 3) ................................... 195,178 219,399
Inventories ............................................. 20,371 21,449
Due from Golden Sky Systems, Inc. ....................... -- 2,408,750
---------- ----------
Total Current Assets ................................. 612,573 3,519,705
Furniture and Equipment
Furniture and Equipment ................................. 82,431 40,174
Accumulated Depreciation ................................ (43,669) (22,566)
---------- ----------
Net Furniture and Equipment .......................... 38,762 17,608
---------- ----------
Intangible Assets
Franchise Costs ......................................... 1,046,171 1,046,170
Accumulated Amortization ................................ (435,915) (331,297)
---------- ----------
610,256 714,873
---------- ----------
Other Assets
Prepaid Expenses ........................................ -- 746
NRTC Patronage Capital .................................. 128,275 91,730
---------- ----------
128,275 92,476
---------- ----------
$1,389,866 $4,344,662
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Trade Payables .......................................... $ 239,332 $ 241,813
Unearned Revenues ....................................... 195,630 561,402
Accrued Salaries and Other .............................. 18,708 16,051
---------- ----------
Total Current Liabilities ............................ 453,670 819,266
---------- ----------
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 ....................................... (188,543) 2,400,657
---------- ----------
Total Stockholders' Equity ........................... 936,196 3,525,396
---------- ----------
$1,389,866 $4,344,662
========== ==========
</TABLE>
See Selected Information.
F-33
<PAGE> 139
WESTERN MONTANA DBS, INC.
dba ROCKY MOUNTAIN DBS
INCOME STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
REVENUES
DSS Programming Revenues ............................... $2,206,978 $2,027,555
DSS Equipment Sales .................................... 95,420 67,905
Other DSS Sales ........................................ 14,967 14,945
---------- ----------
2,317,365 2,110,405
---------- ----------
COST OF REVENUES
Programming Costs ...................................... 1,343,334 958,645
DSS Equipment Costs .................................... 68,832 67,905
Other DSS Cost of Revenues ............................. 14,032 3,493
Rebates ................................................ 27,691 321,535
---------- ----------
Gross Profit ............................. 1,453,889 1,351,578
---------- ----------
863,476 758,827
---------- ----------
SELLING, GENERAL & ADMINISTRATIVE EXPENSES
Salaries, Wages and Commissions ........................ 216,071 171,461
Amortization and Depreciation .......................... 67,227 62,519
Bad Debt Expense ....................................... 13,935 28,831
Marketing and Advertising .............................. 51,692 93,195
Other Selling, General and Administrative .............. 102,790 94,765
---------- ----------
Operating Income ......................... 451,715 450,771
---------- ----------
411,761 308,056
---------- ----------
OTHER INCOME (EXPENSE)
Interest Income ........................................ 143,581 70,634
Interest Expense ....................................... (3) (218)
---------- ----------
143,578 70,416
INCOME FROM CONTINUING OPERATIONS .............................. 555,339 378,472
DISCONTINUED OPERATIONS
Income from Operations of Colorado Franchise Territories -- 173,516
Gain on Sale of Colorado Franchise Territories ......... -- 4,654,996
---------- ----------
Net Income from Discontinued Operations .. -- 4,828,512
---------- ----------
NET INCOME ..................................................... $ 555,339 $5,206,984
========== ==========
</TABLE>
See Selected Information.
F-34
<PAGE> 140
WESTERN MONTANA DBS, INC.
dba ROCKY MOUNTAIN DBS
STATEMENTS OF RETAINED EARNINGS
FOR THE SIX MONTHS ENDED JUNE 30
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Balance, Beginning of Period $ 2,171,945 $ (484,136
Net Income ................. 555,339 5,206,984
Dividends and Distributions (2,915,827) (2,322,191)
----------- -----------
Balance, End of Period ..... $ (188,543) $ 2,400,657
=========== ===========
</TABLE>
See Selected Information.
F-35
<PAGE> 141
WESTERN MONTANA DBS, INC.
dba ROCKY MOUNTAIN DBS
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
June 30,1998 June 30,1997
------------ ------------
<S> <C> <C>
Cash Flows from Operating Activities
Net income ............................................... $ 555,339 $5,206,984
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation and Amortization ................... 67,227 62,519
Gain on Sale of Colorado Franchise Territories
(Increase) decrease in: ...................... -- (4,654,996)
Trade Accounts Receivable .................... (976) 82,651
Inventories .................................. 2,071 (7,955)
Prepaids ..................................... 1,559 674
Accrued Interest - Golden Sky Systems ........ 235,000 (58,750)
Increase (decrease) in:
Trade Accounts Payable ....................... 54,660 (114,018)
Accrued Expenses ............................. (93,100) (9,222)
Unearned Revenues ............................ (55,224) 13,059
---------- ----------
Net Cash Provided by Operating Activities 766,556 520,946
---------- ----------
Cash Flows from Investing Activities
Purchase of Property, Plant and Equipment ................ (2,614) (5,288)
Proceeds from Sale of Franchise Territories .............. 2,350,000 2,425,038
---------- ----------
Net Cash Provided by Investing Activities 2,347,386 2,419,750
---------- ----------
Cash Flows from Financing Activities
Distributions to Stockholders ............................ (2,915,827) (2,322,191)
---------- ----------
Net Cash Used by Financing Activities ... (2,915,827) (2,322,191)
---------- ----------
Net Decrease in Cash ............................................. 198,115 618,505
Cash, Beginning of Period ........................................ 198,909 251,602
---------- ----------
Cash, End of Period .............................................. $ 397,024 $ 870,107
========== ==========
SUPPLEMENTAL DISCLOSURES:
Cash paid during the period for interest ................. $ 3 $ 218
========== ==========
</TABLE>
See Selected Information.
F-36
<PAGE> 142
WESTERN MONTANA DBS, INC.
dba ROCKY MOUNTAIN DBS
SELECTED INFORMATION
JUNE 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.
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 June 30, 1998 or
1997.
F-37
<PAGE> 143
WESTERN MONTANA DBS, INC.
dba ROCKY MOUNTAIN DBS
SELECTED INFORMATION
JUNE 30, 1998 AND 1997
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 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.
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-38
<PAGE> 144
WESTERN MONTANA DBS, INC.
dba ROCKY MOUNTAIN DBS
FINANCIAL STATEMENTS
DECEMBER 31, 1997
F-39
<PAGE> 145
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-40
<PAGE> 146
WESTERN MONTANA DBS, INC.
dba ROCKY MOUNTAIN DBS
BALANCE SHEET
AS OF DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS
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-41
<PAGE> 147
WESTERN MONTANA DBS, INC.
dba ROCKY MOUNTAIN DBS
INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
Revenues
DSS programming revenues ............................... $ 3,541,723
DSS equipment sales .................................... 113,153
Other DSS sales ........................................ 34,894
-----------
3,689,770
Cost of revenues
Programming costs ...................................... 2,013,749
DSS equipment costs .................................... 113,153
Other DSS cost of revenues ............................. 13,970
Rebates ................................................ 308,699
-----------
2,449,571
-----------
Gross profit ................................... 1,240,199
-----------
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 ............................... 292,544
-----------
Other income (expenses)
Patronage income (Note 5) .............................. 36,545
Interest income ........................................ 255,889
Interest expense ....................................... (218)
-----------
292,216
-----------
Income from continuing operations ........................ 584,760
Discontinued Operations (Note 2)
Income from operations of Colorado franchise territories 173,516
Gain on sale of Colorado franchise territories ......... 4,654,996
-----------
Net income from discontinued operations ........ 4,828,512
-----------
Net income ............................................... $ 5,413,272
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-42
<PAGE> 148
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-43
<PAGE> 149
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-44
<PAGE> 150
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-45
<PAGE> 151
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 -- DISCONTINUED OPERATIONS
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-46
<PAGE> 152
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-47
<PAGE> 153
WESTERN MONTANA DBS, INC.
dba ROCKY MOUNTAIN DBS
FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
F-48
<PAGE> 154
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-49
<PAGE> 155
WESTERN MONTANA DBS, INC.
dba ROCKY MOUNTAIN DBS
BALANCE SHEETS
AS OF DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
ASSETS
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-50
<PAGE> 156
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-51
<PAGE> 157
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-52
<PAGE> 158
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-53
<PAGE> 159
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.
F-54
<PAGE> 160
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. 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.
F-55
<PAGE> 161
WESTERN MONTANA DBS, INC.
dba ROCKY MOUNTAIN DBS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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.
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-56
<PAGE> 162
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-57
<PAGE> 163
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
February 28, 1997
F-58
<PAGE> 164
SOUTH PLAINS DBS LIMITED PARTNERSHIP
BALANCE SHEET
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
December 31,
------------------------------
1996 1995
----------- -----------
<S> <C> <C>
ASSETS
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-59
<PAGE> 165
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-60
<PAGE> 166
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-61
<PAGE> 167
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-62
<PAGE> 168
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:
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%
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.
F-63
<PAGE> 169
SOUTH PLAINS DBS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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.
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.
F-64
<PAGE> 170
SOUTH PLAINS DBS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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>
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.
F-65
<PAGE> 171
SOUTH PLAINS DBS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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:
1997.............................................................. $32,280
1998.............................................................. $19,040
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.
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-66
<PAGE> 172
SOURIS RIVER TELEVISION, INC.
MINOT, NORTH DAKOTA
FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
F-67
<PAGE> 173
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-68
<PAGE> 174
SOURIS RIVER TELEVISION, INC.
MINOT, NORTH DAKOTA
BALANCE SHEETS
DECEMBER 31, 1996, AND 1995
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
ASSETS
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-69
<PAGE> 175
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-70
<PAGE> 176
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-71
<PAGE> 177
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-72
<PAGE> 178
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-73
<PAGE> 179
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-74
<PAGE> 180
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-75
<PAGE> 181
IMAGES DBS KANSAS, L.C.
FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
F-76
<PAGE> 182
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
F-77
<PAGE> 183
IMAGES DBS KANSAS L.C.
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
ASSETS
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-78
<PAGE> 184
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-79
<PAGE> 185
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-80
<PAGE> 186
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-81
<PAGE> 187
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-82
<PAGE> 188
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-83
<PAGE> 189
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-84
<PAGE> 190
IMAGES DBS OKLAHOMA, L.C.
FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
F-85
<PAGE> 191
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
F-86
<PAGE> 192
IMAGES DBS OKLAHOMA, L.C.
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- --------
<S> <C> <C>
ASSETS
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-87
<PAGE> 193
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-88
<PAGE> 194
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-89
<PAGE> 195
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-90
<PAGE> 196
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-91
<PAGE> 197
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.
F-92
<PAGE> 198
IMAGES DBS OKLAHOMA, L.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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>
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-93
<PAGE> 199
TOTAL COMMUNICATIONS, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
F-94
<PAGE> 200
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
F-95
<PAGE> 201
TOTAL COMMUNICATIONS, INC.
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
ASSETS
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-96
<PAGE> 202
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-97
<PAGE> 203
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-98
<PAGE> 204
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-99
<PAGE> 205
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.
F-100
<PAGE> 206
TOTAL COMMUNICATIONS, 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
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.
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-101
<PAGE> 207
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-102
<PAGE> 208
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-103
<PAGE> 209
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-104
<PAGE> 210
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
F-105
<PAGE> 211
THUNDERBOLT SYSTEMS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF NORTH CENTRAL MISSOURI ELECTRIC COOPERATIVE)
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
ASSETS
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-106
<PAGE> 212
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-107
<PAGE> 213
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-108
<PAGE> 214
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-109
<PAGE> 215
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.
F-110
<PAGE> 216
THUNDERBOLT SYSTEMS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF NORTH CENTRAL MISSOURI 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 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-111
<PAGE> 217
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-112
<PAGE> 218
JECTV
(A SEGMENT OF JACKSON ELECTRIC COOPERATIVE)
FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
F-113
<PAGE> 219
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
F-114
<PAGE> 220
JECTV
(A SEGMENT OF JACKSON ELECTRIC COOPERATIVE)
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---------- ---------
<S> <C> <C>
ASSETS
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-115
<PAGE> 221
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-116
<PAGE> 222
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-117
<PAGE> 223
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-118
<PAGE> 224
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.
F-119
<PAGE> 225
JECTV
(A SEGMENT OF JACKSON ELECTRIC COOPERATIVE)
NOTES TO 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
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 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.
F-120
<PAGE> 226
JECTV
(A SEGMENT OF JACKSON ELECTRIC COOPERATIVE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 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.
F-121
<PAGE> 227
JECTV
(A SEGMENT OF JACKSON ELECTRIC COOPERATIVE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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.
(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-122
<PAGE> 228
CAL-ORE DIGITAL TV, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 1996
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
F-123
<PAGE> 229
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-124
<PAGE> 230
CAL-ORE DIGITAL TV, INC.
BALANCE SHEET
DECEMBER 31, 1996
<TABLE>
<S> <C>
ASSETS
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-125
<PAGE> 231
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-126
<PAGE> 232
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-127
<PAGE> 233
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-128
<PAGE> 234
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.
F-129
<PAGE> 235
CAL-ORE DIGITAL TV, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
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
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 form $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.
F-130
<PAGE> 236
CAL-ORE DIGITAL TV, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
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.
(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-131
<PAGE> 237
DIRECT VISION
(A SEGMENT OF MANKATO CITIZENS TELEPHONE COMPANY)
FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
F-132
<PAGE> 238
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
F-133
<PAGE> 239
DIRECT VISION
(A SEGMENT OF MANKATO CITIZENS TELEPHONE COMPANY)
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---------- ---------
<S> <C> <C>
ASSETS
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-134
<PAGE> 240
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-135
<PAGE> 241
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-136
<PAGE> 242
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-137
<PAGE> 243
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.
F-138
<PAGE> 244
DIRECT VISION
(A SEGMENT OF MANKATO CITIZENS TELEPHONE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
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 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>
F-139
<PAGE> 245
DIRECT VISION
(A SEGMENT OF MANKATO CITIZENS TELEPHONE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
(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-140
<PAGE> 246
DIRECT BROADCAST SATELLITE
(A SEGMENT OF CTS COMMUNICATION CORPORATION)
FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
F-141
<PAGE> 247
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
F-142
<PAGE> 248
DIRECT BROADCAST SATELLITE
(A SEGMENT OF CTS COMMUNICATION CORPORATION)
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
-------- -------
<S> <C> <C>
ASSETS
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-143
<PAGE> 249
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-144
<PAGE> 250
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-145
<PAGE> 251
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-146
<PAGE> 252
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.
F-147
<PAGE> 253
DIRECT BROADCAST SATELLITE
(A SEGMENT OF CTS COMMUNICATION CORPORATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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.
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
F-148
<PAGE> 254
DIRECT BROADCAST SATELLITE
(A SEGMENT OF CTS COMMUNICATION CORPORATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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-149
<PAGE> 255
ARGOS SUPPORT
SERVICES COMPANY
FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(WITH INDEPENDENT AUDITORS' REPORTS THEREON)
F-150
<PAGE> 256
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
F-151
<PAGE> 257
ARGOS SUPPORT SERVICES COMPANY
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
ASSETS
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-152
<PAGE> 258
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-153
<PAGE> 259
ARGOS SUPPORT SERVICE COMPANY
STATEMENTS OF SHAREHOLDER'S EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
Common Additional Retained
stock paid-in 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-154
<PAGE> 260
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-155
<PAGE> 261
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.
F-156
<PAGE> 262
ARGOS SUPPORT SERVICES COMPANY
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.
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.
F-157
<PAGE> 263
ARGOS SUPPORT SERVICES COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Scheduled repayments of long-term debt and notes payable outstanding
at December 31, 1996 are as follows:
<TABLE>
<C> <S>
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. 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-158
<PAGE> 264
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-159
<PAGE> 265
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.
F-160
<PAGE> 266
SATELLITE ENTERTAINMENT, INC.
(A WHOLLY-OWNED SUBSIDIARY OF ACE TELEPHONE ASSOCIATION)
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
ASSETS
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-161
<PAGE> 267
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-162
<PAGE> 268
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-163
<PAGE> 269
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-164
<PAGE> 270
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.
F-165
<PAGE> 271
SATELLITE ENTERTAINMENT, INC.
(A WHOLLY-OWNED SUBSIDIARY OF ACE TELEPHONE ASSOCIATION)
NOTES TO 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 a period of 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 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.
F-166
<PAGE> 272
SATELLITE ENTERTAINMENT, INC.
(A WHOLLY-OWNED SUBSIDIARY OF ACE TELEPHONE ASSOCIATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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> <C>
$ 88,545 190,050 20,806
======== ======= ======
</TABLE>
(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>
F-167
<PAGE> 273
SATELLITE ENTERTAINMENT, INC.
(A WHOLLY-OWNED SUBSIDIARY OF ACE TELEPHONE ASSOCIATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(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> 274
GVEC RURAL TV, INC.
Financial Statements
December 31, 1996, 1995 and 1994
(With Independent Auditors' Report Thereon)
F-169
<PAGE> 275
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
F-170
<PAGE> 276
GVEC RURAL TV, INC.
BALANCE SHEETS
As of December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
ASSETS
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> 277
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> 278
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> 279
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> 280
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.
F-175
<PAGE> 281
GVEC RURAL TV, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
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.
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.
F-176
<PAGE> 282
GVEC RURAL TV, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
(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>
(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.
F-177
<PAGE> 283
GVEC RURAL TV, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
(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.
(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> 284
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> 285
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
F-180
<PAGE> 286
NRTC SYSTEM NO. 0093
A Segment of Cable and Communications Corporation
BALANCE SHEETS
December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
ASSETS
<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> 287
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> 288
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> 289
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> 290
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> 291
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>
F-186
<PAGE> 292
NRTC SYSTEM NO. 0093
A Segment of Cable and Communications Corporation
NOTES TO THE FINANCIAL STATEMENTS -- (Continued)
(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 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> 293
DIRECT BROADCAST SATELLITE
(A Segment of Nemont Communications Inc.)
FINANCIAL STATEMENTS
DECEMBER 31, 1997
F-188
<PAGE> 294
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> 295
DIRECT BROADCAST SATELLITE.
(A SEGMENT OF NEMONT COMMUNICATIONS INC.)
BALANCE SHEET
DECEMBER 31, 1997
<TABLE>
<CAPTION>
1997
----
<S> <C>
ASSETS
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> 296
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> 297
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> 298
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> 299
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 eights 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> 300
DIRECT BROADCAST SATELLITE.
(A SEGMENT OF NEMONT COMMUNICATIONS INC.)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
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>
F-195
<PAGE> 301
DIRECT BROADCAST SATELLITE.
(A SEGMENT OF NEMONT COMMUNICATIONS INC.)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
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.
NOTE F - NOTES PAYABLE
<TABLE>
<S> <C>
Non-interest bearing notes with associated companies are as follows:
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> 302
DIRECT BROADCAST SATELLITE
(A SEGMENT OF SCS COMMUNICATIONS & SECURITY, INC.)
FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
F-197
<PAGE> 303
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> 304
DIRECT BROADCAST SATELLITE
(A SEGMENT OF SCS COMMUNICATIONS & SECURITY, INC.)
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
ASSETS 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
-------- -------
2,829 5,887
Intangible assets, net of accumulated amortization ................... 202,209 221,734
NRTC patronage investment (Note 3) ................................... 11,802 7,445
-------- -------
$345,206 338,441
======== =======
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> 305
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> 306
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> 307
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
---- ----
Cash flows from operating activities:
<S> <C> <C>
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> 308
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.
F-203
<PAGE> 309
DIRECT BROADCAST SATELLITE
(A SEGMENT OF SCS COMMUNICATIONS & SECURITY, INC.)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997 AND 1996
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.
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> 310
PRIMEWATCH, INC.
FINANCIAL STATEMENTS AS OF DECEMBER 31, 1997
TOGETHER WITH REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
F-205
<PAGE> 311
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> 312
PRIMEWATCH, INC.
BALANCE SHEET - DECEMBER 31, 1997
<TABLE>
<CAPTION>
Assets
1997
----
Current assets:
<S> <C>
Cash ................................................................ $ 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> 313
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> 314
PRIMEWATCH, INC.
STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY (DEFICIT)
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Total
Stockholder's
Common Stock 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> 315
PRIMEWATCH, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
1997
----
Cash flows from operating activities:
<S> <C>
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> 316
PRIMEWATCH, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31,1997 AND 1996
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.
F-211
<PAGE> 317
PRIMEWATCH, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31,1997 AND 1996
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>
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>
F-212
<PAGE> 318
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.
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>
F-213
<PAGE> 319
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.
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 and 1996, 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> 320
DIRECT BROADCAST SATELLITE,
A DIVISION OF BALDWIN COUNTY
ELECTRIC MEMBERSHIP CORPORATION
SUMMERDALE, ALABAMA
DECEMBER 31, 1997
F-215
<PAGE> 321
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> 322
DIRECT BROADCAST SATELLITE, A DIVISION OF
BALDWIN COUNTY ELECTRIC MEMBERSHIP CORPORATION
SUMMERDALE, ALABAMA
BALANCE SHEET AT DECEMBER 31, 1997
ASSETS
<TABLE>
<CAPTION>
1997
----
Current assets
<S> <C>
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> 323
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
----
REVENUES
<S> <C>
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> 324
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
----
CASH FLOWS FROM (USED FOR) OPERATING ACTIVITIES:
<S> <C>
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> 325
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.
F-220
<PAGE> 326
DIRECT BROADCAST SATELLITE, A DIVISION OF
BALDWIN COUNTY ELECTRIC MEMBERSHIP CORPORATION
SUMMERDALE, ALABAMA
NOTES TO FINANCIAL STATEMENTS
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 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.
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> 327
DIRECT BROADCAST SATELLITE
(A Segment of Volcano Vision, Inc.)
PINE GROVE, CALIFORNIA
FINANCIAL STATEMENTS
AS OF JUNE 30, 1998 AND FOR THE
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
F-222
<PAGE> 328
DIRECT BROADCAST SATELLITE
(A Segment of Volcano Vision, Inc.)
BALANCE SHEET
JUNE 30, 1998
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
1998
----
<S> <C>
CURRENT ASSETS
Accounts receivable, less allowance for
doubtful accounts of $35,000 .................................. $ 376,960
Inventory ........................................................ 163,552
Prepaid expenses ................................................. 2,130
-----------
Total current assets .................................... 542,642
-----------
NONCURRENT ASSETS
Property and equipment (net of
accumulated depreciation of $224,256) ......................... 308,760
Intangible assets (net of accumulated
amortization of $596,297) ..................................... 894,446
NRTC patronage capital certificates .............................. 119,323
-----------
Net noncurrent assets ................................... 1,322,529
-----------
$ 1,865,171
===========
LIABILITIES AND SEGMENT DEFICIT
CURRENT LIABILITIES
Account payable - trade .......................................... $ 477,924
Payable to affiliates ............................................ 227,079
Unearned revenue ................................................. 284,279
Customer deposits ................................................ 3,305
-----------
Total current liabilities ............................... 992,587
-----------
NOTE PAYABLE TO AFFILIATE ................................................. 1,490,743
-----------
SEGMENT DEFICIT ........................................................... (618,159)
-----------
$ 1,865,171
===========
</TABLE>
See accompanying notes.
F-223
<PAGE> 329
] DIRECT BROADCAST SATELLITE
(A Segment of Volcano Vision, Inc.)
STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
REVENUES
Programming ..................... $ 2,465,489 $ 1,575,701
Equipment and installation sales 122,085 73,646
Lease and other ................. 38,034 46,962
----------- -----------
Total revenues ............... 2,625,608 1,696,309
----------- -----------
COST OF REVENUES
Programming costs ............... 1,654,752 1,111,922
Equipment and installation costs 123,019 105,660
Other costs ..................... 1,702 5,586
----------- -----------
Total cost of revenues ....... 1,779,473 1,223,168
----------- -----------
Gross profit ................. 846,135 473,141
----------- -----------
EXPENSES
Salaries, wages, and commissions 158,288 121,899
Selling, general and
administrative ................ 152,797 127,893
Depreciation and amortization ... 114,676 119,637
Marketing ....................... 19,043 45,790
Bad debt expense ................ -- 19,895
----------- -----------
Total expenses ............... 444,804 435,114
----------- -----------
OPERATING INCOME ......................... 401,331 38,027
----------- -----------
OTHER INCOME AND
(EXPENSES)
Patronage dividends ............. 40,134 43,052
Interest expense ................ (52,517) (52,350)
----------- -----------
Total other income and (expenses) (12,383) (9,298)
----------- -----------
NET INCOME ............................... $ 388,948 $ 28,729
=========== ===========
</TABLE>
See accompanying notes.
F-224
<PAGE> 330
DIRECT BROADCAST SATELLITE
(A Segment of Volcano Vision, Inc.)
STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
BALANCE BEGINNING .......................... $(535,541) $(269,359)
Segment contribution to the Company (471,566) (263,448)
Net income ........................ 388,948 28,729
--------- ---------
BALANCE ENDING ............................. $(618,159) $(504,078)
========= =========
</TABLE>
See accompanying notes.
F-225
<PAGE> 331
DIRECT BROADCAST SATELLITE
(A Segment of Volcano Vision, Inc.)
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income ................................................................... $ 388,948 $ 28,729
Adjustments to reconcile net income to net
cash from operating activities:
Depreciation and amortization ....................................... 114,676 119,637
Patronage dividend - noncash ........................................ (28,093) (30,137)
Increase (Decrease) in cash due to changes in assets and liabilities:
Accounts receivable ..................................... (34,841) 30,906
Inventory ............................................... 10,410 (60,154)
Prepaid expenses ........................................ 8,758 5,549
Accounts payable - trade ................................ 261,011 25,745
Unearned revenue ........................................ (46,364) 39,361
Customer deposits ....................................... 1,600 640
--------- ---------
Net cash from operating activities ................ 676,105 160,276
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Change in payable to affiliates ..................................... (203,271) 72,259
Purchase of property and equipment .................................. (1,268) (3,183)
Sale of property and equipment ...................................... -- 34,096
--------- ---------
Net cash from investing activities ................ (204,539) 103,172
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash contribution to Volcano Vision, Inc. ........................... (471,566) (263,448)
--------- ---------
Net cash from financing activities ................ (471,566) (263,448)
--------- ---------
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> 332
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 six months ended June 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.
F-227
<PAGE> 333
DIRECT BROADCAST SATELLITE
(A Segment of Volcano Vision, Inc.)
NOTES TO UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
Note 2 - Description of Operations and Summary of Significant Accounting
Policies (continued)
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.
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-228
<PAGE> 334
DIRECT BROADCAST SATELLITE
(A Segment of Volcano Vision, Inc.)
NOTES TO UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
Note 2 - Description of Operations and Summary of Significant Accounting
Policies
(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 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 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-229
<PAGE> 335
DIRECT BROADCAST SATELLITE
(A Segment of Volcano Vision, Inc.)
PINE GROVE, CALIFORNIA
INDEPENDENT AUDITOR'S REPORT
and
FINANCIAL STATEMENTS
DECEMBER 31, 1997
F-230
<PAGE> 336
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-231
<PAGE> 337
DIRECT BROADCAST SATELLITE
(A SEGMENT OF VOLCANO VISION, INC.)
BALANCE SHEET
DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS
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-232
<PAGE> 338
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-233
<PAGE> 339
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-234
<PAGE> 340
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-235
<PAGE> 341
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.
F-236
<PAGE> 342
DIRECT BROADCAST SATELLITE
(A SEGMENT OF VOLCANO VISION, INC.)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -DESCRIPTION OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
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.
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.
F-237
<PAGE> 343
DIRECT BROADCAST SATELLITE
(A SEGMENT OF VOLCANO VISION, INC.)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -DESCRIPTION OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
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.
F-238
<PAGE> 344
DIRECT BROADCAST SATELLITE
(A SEGMENT OF VOLCANO VISION, INC.)
NOTES TO FINANCIAL STATEMENTS
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.
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-239
<PAGE> 345
DBS SEGMENT OF CUMBY CELLULAR, INC.
CUMBY TEXAS
FINANCIAL STATEMENTS
AS OF JUNE 30, 1998 AND 1997
F-240
<PAGE> 346
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
========== ==========
</TABLE>
(See Selected Information)
F-241
<PAGE> 347
DBS SEGMENT OF CUMBY CELLULAR, INC.
BALANCE SHEETS
JUNE 30
(UNAUDITED)
LIABILITIES AND SEGMENT EQUITY
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
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-242
<PAGE> 348
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-243
<PAGE> 349
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-244
<PAGE> 350
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.
F-245
<PAGE> 351
DBS SEGMENT OF CUMBY CELLULAR, INC.
SELECTED INFORMATION
JUNE 30, 1998
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.
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-246
<PAGE> 352
DBS SEGMENT OF CUMBY CELLULAR, INC.
CUMBY, TEXAS
FINANCIAL STATEMENTS
AND ADDITIONAL INFORMATION
AS OF DECEMBER 31, 1997
WITH INDEPENDENT AUDITOR'S REPORT
F-247
<PAGE> 353
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.
February 3, 1998
(except for Notes 8 and 9
as to which the date is July 23, 1998)
F-248
<PAGE> 354
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
==========
</TABLE>
(The accompanying notes are an integral part of these financial statements.)
F-249
<PAGE> 355
DBS SEGMENT OF CUMBY CELLULAR, INC.
BALANCE SHEET
DECEMBER 31, 1997
LIABILITIES AND SEGMENT EQUITY
<TABLE>
<S> <C>
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-250
<PAGE> 356
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-251
<PAGE> 357
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-252
<PAGE> 358
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
F-253
<PAGE> 359
DBS SEGMENT OF CUMBY CELLULAR, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31,1997
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-254
<PAGE> 360
DBS SEGMENT OF CUMBY CELLULAR, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
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>
F-255
<PAGE> 361
DBS SEGMENT OF CUMBY CELLULAR, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
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 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-256
<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.
[LOGO GRAPHIC]
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
Exhibit
Number Description Page
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.
<PAGE> 364
Exhibit
Number Description Page
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 Stock Purchase Agreement, dated as of July 11, 1997, among the
registrant, Argos Support Services Company and the several
shareholders named therein.
10.5 Asset Purchase Agreement, dated as of July 10, 1998, by and
between the registrant and Volcano Vision, Inc.
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, between the registrant and William J. Gerski.*
10.9 Employment Agreement, between the registrant and Laquita Allen.*
10.10 Employment Agreement, 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.*
II-2
<PAGE> 365
Exhibit
Number Description Page
10.13 Non-Competition Agreement, 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.*
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.
___________________
* To be filed by amendment.
II-3
<PAGE> 366
Item 22. Undertakings
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.
II-4
<PAGE> 367
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 September 25, 1998.
Golden Sky Systems, Inc.
/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.
Signature Title Date
/s/ Rodney A. Weary Chairman of the Board, September 25, 1998
- -------------------- Chief Executive Officer and Director
Rodney A. Weary (Principal Executive Officer)
/s/ John R. Hager Vice President, Finance and Controller September 25, 1998
- -------------------- (Principal Financial and Accounting
John R. Hager Officer)
Director September , 1998
- --------------------
Robert F. Benbow
Director September , 1998
- --------------------
William O. Charman
<PAGE> 368
/s/ William P. Collaatos Director September 25, 1998
- ------------------------
William P. Collatos
/s/ William A. Johnston Director September 25, 1998
- ------------------------
William A. Johnston
/s/ Robert B. Liepold Director September 25, 1998
- ------------------------
Robert B. Liepold
/s/ Erik M. Torgerson Director September 25, 1998
- ------------------------
Erik M. Torgerson
<PAGE> 369
EXHIBIT INDEX
Exhibit
Number Description Page
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 Stock Purchase Agreement, dated as of July 11, 1997, among the
registrant, Argos Support Services Company and the several
shareholders named therein.
10.5 Asset Purchase Agreement, dated as of July 10, 1998, by and
between the registrant and Volcano Vision, Inc.
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, between the registrant and William J. Gerski.*
10.9 Employment Agreement, between the registrant and Laquita Allen.*
10.10 Employment Agreement, 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.*
<PAGE> 370
EXHIBIT INDEX
Exhibit
Number Description Page
10.13 Non-Competition Agreement, 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.*
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.
___________________
* To be filed by amendment.
<PAGE> 1
Exhibit 3.1
SECOND AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
GOLDEN SKY SYSTEMS, INC.
____________________
An original certificate of incorporation of Golden Sky Systems, Inc.
(the "Corporation") was filed with the secretary of State of the State of
Delaware on June 25, 1996. An Amended and Restated Certificate of Incorporation
was filed with the Secretary of State of the State of Delaware on December 12,
1997. This Second Amended and Restated Certificate of Incorporation has been
duly adopted by the Corporation in accordance with Sections 242 and 245 of the
General Corporation Law of the State of Delaware.
FIRST: The name of the Corporation is
Golden Sky Systems, Inc.
SECOND: The address of the registered office of the Corporation in the
State of Delaware is 1013 Centre Road, in the City of Wilmington, County of New
Castle. The name of the Corporation's registered agent at such address is
Corporation Service Company.
THIRD: The purposes for which the Corporation is formed are to engage
in any lawful act or activity for which corporations may be organized under the
General Corporation Law of the State of Delaware.
<PAGE> 2
FOURTH: The total number of shares of stock which the Corporation
shall have authority to issue is 1,000 shares of the par value of $.01 per
share. All such shares shall be of one class and shall be designated Common
Stock.
FIFTH: The name and mailing address of the sole incorporator of the
Corporation are as follows:
Rodney A. Weary
605 West 47th Street, Suite 300
Kansas City, Missouri 64112
SIXTH: In furtherance and not in limitation of the powers conferred by
the laws of the State of Delaware, the Board of Directors of the Corporation is
expressly authorized and empowered to make, alter or repeal the By-laws of the
Corporation, subject to the power of the stockholders of the Corporation to
alter or repeal any By-law made by the Board of Directors.
SEVENTH: The Corporation reserves the right at any time and from time
to time to amend, alter, change or repeal any provisions contained in this
Certificate of Incorporation, and other provisions authorized by the laws of the
State of Delaware at the time in force may be added or inserted, in the manner
now or hereafter prescribed by law, and all rights, preferences and privileges
of whatsoever nature conferred upon stockholders, directors or any other persons
whomsoever by and pursuant to this Certificate of Incorporation in its present
<PAGE> 3
form or as hereafter amended are granted subject to the right reserved in this
Article.
EIGHTH: No person shall be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
provided, however, that the foregoing shall not eliminate or limit the liability
of a director (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the General Corporation Law of the State of Delaware or (iv) for
any transaction from which the director derived an improper personal benefit. If
the General Corporation Law is subsequently amended to further eliminate or
limit the liability of a director, then a director of the Corporation, in
addition to the circumstances in which a director is not personally liable as
set forth in the preceding sentence, shall not be liable to the fullest extent
permitted by the amended General Corporation Law. For purposes of this Article
EIGHTH, "fiduciary duty as a director" shall include any fiduciary duty arising
out of serving at the Corporation's request as a director of another
corporation, partnership, joint venture or other enterprise, and "personal
liability to the Corporation or its stockholders" shall include any liability
to such other corporation, partnership, joint venture, trust or other
enterprise, and any liability to the Corporation in its capacity as a security
holder, joint venturer, partner, beneficiary, creditor or investor of or in any
such other corporation, partnership, joint venture, trust or other enterprise.
NINTH: Elections of directors need not be by written ballot except to
the extent required by the By-laws of the Corporation.
<PAGE> 4
Exhibit 3.2
BY-LAWS
OF
GOLDEN SKY SYSTEMS, INC.
Incorporated under the Laws of the
State of Delaware
Adopted as of
October 1, 1997
<PAGE> 5
TABLE OF CONTENTS
Page
ARTICLE I Offices............................................... 1
ARTICLE II Meetings of Stockholders.............................. 1
Section 1 Place of Meetings..................................... 1
Section 2 Annual Meeting........................................ 1
Section 3 Special Meetings...................................... 1
Section 4 Notice of Meetings.................................... 2
Section 5 List of Stockholders.................................. 2
Section 6 Quorum................................................ 2
Section 7 Voting................................................ 3
Section 8 Proxies............................................... 3
Section 9 Action Without a Meeting.............................. 3
ARTICLE III Board of Directors.................................... 4
Section 1 Powers................................................ 4
Section 2 Election and Term..................................... 4
Section 3 Number................................................ 4
Section 4 Quorum and Manner of Acting........................... 4
Section 5 Organization Meeting.................................. 4
Section 6 Regular Meetings...................................... 5
Section 7 Special Meetings; Notice.............................. 5
Section 8 Removal of Directors.................................. 5
Section 9 Resignations.......................................... 5
Section 10 Vacancies............................................. 5
Section 11 Compensation of Directors............................. 6
Section 12 Action Without a Meeting.............................. 6
Section 13 Telephonic Participation in Meetings.................. 6
ARTICLE IV Officers.............................................. 6
Section 1 Principal Officers.................................... 6
Section 2 Election and Term of Office........................... 6
Section 3 Other Officers........................................ 7
Section 4 Removal............................................... 7
Section 5 Resignations.......................................... 7
Section 6 Vacancies............................................. 7
Section 7 Chairman of the Board................................. 7
<PAGE> 6
Page
Section 8 President............................................. 7
Section 9 Vice President........................................ 8
Section 10 Treasurer............................................. 8
Section 11 Secretary............................................. 8
Section 12 Salaries.............................................. 8
ARTICLE V Indemnification of Officers and Directors............. 8
Section 1 Right of Indemnification.............................. 8
Section 2 Expenses.............................................. 9
Section 3 Other Rights of Indemnification....................... 9
ARTICLE VI Shares and Their Transfer............................. 9
Section 1 Certificate for Stock................................. 9
Section 2 Stock Certificate Signature........................... 9
Section 3 Stock Ledger.......................................... 10
Section 4 Cancellation.......................................... 10
Section 5 Registrations of Transfers of Stock................... 10
Section 6 Regulations........................................... 10
Section 7 Lost, Stolen, Destroyed or
Mutilated Certificates.............................. 10
Section 8 Record Dates.......................................... 11
ARTICLE VII Miscellaneous Provisions.............................. 11
Section 1 Corporate Seal........................................ 11
Section 2 Voting of Stocks Owned by the
Corporation......................................... 11
Section 3 Dividends............................................. 11
ARTICLE VIII Amendments............................................ 11
<PAGE> 1
BY-LAWS
OF
GOLDEN SKY SYSTEMS, INC.
(a Delaware corporation)
----------
ARTICLE I
OFFICES
The registered office of the Corporation in the State of Delaware
shall be located in the City of Wilmington, County of New Castle. The
Corporation may establish or discontinue, from time to time, such other offices
within or without the State of Delaware as may be deemed proper for the conduct
of the Corporation's business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Place of Meetings. All meetings of stockholders shall be
held at such place or places, within or without the State of Delaware, as may
from time to time be fixed by the Board of Directors, or as shall be specified
in the respective notices, or waivers of notice, thereof.
Section 2. Annual Meeting. The annual meeting of stockholders for the
election of Directors and the transaction of other business shall be held on
such date and at such place as may be designated by the Board of Directors. At
each annual meeting the stockholders entitled to vote shall elect a Board of
Directors and may transact such other proper business as may come before the
meeting.
Section 3. Special Meetings. A special meeting of the stockholders, or
of any class thereof entitled to vote, for any purpose or purposes, may be
called at any time by the Chairman of the Board, if any, or the President or by
order of the Board of Directors and shall be called by the Secretary upon the
<PAGE> 2
written request of stockholders holding of record at least 50% of the
outstanding shares of stock of the Corporation entitled to vote at such meeting.
Such written request shall state the purpose or purposes for which such meeting
is to be called.
Section 4. Notice of Meetings. Except as otherwise provided by law,
written notice of each meeting of stockholders, whether annual or special,
stating the place, date and hour of the meeting shall be given not less than ten
days or more than sixty days before the date on which the meeting is to be held
to each stockholder of record entitled to vote thereat by delivering a notice
thereof to him personally or by mailing such notice in a postage prepaid
envelope directed to him at his address as it appears on the records of the
Corporation, unless he shall have filed with the Secretary of the Corporation a
written request that notices intended for him be directed to another address, in
which case such notice shall be directed to him at the address designated in
such request. Notice shall not be required to be given to any stockholder who
shall waive such notice in writing, whether prior to or after such meeting, or
who shall attend such meeting in person or by proxy unless such attendance is
for the express purpose of objecting, at the beginning of such meeting, to the
transactions of any business because the meeting is not lawfully called or
convened. Every notice of a special meeting of the stockholders, besides the
time and place of the meeting, shall state briefly the objects or purposes
thereof.
Section 5. List of Stockholders. It shall be the duty of the Secretary
or other officer of the Corporation who shall have charge of the stock ledger to
prepare and make, at least ten days before every meeting of the stockholders, a
complete list of the stockholders entitled to vote thereat, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in his name. Such list shall be open to the examination of
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten days prior to the meeting, either
at a place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held. The list shall be kept and produced at the time
and place of the meeting during the whole time thereof and subject to the
inspection of any stockholder who may be present. The original or duplicate
ledger shall be the only evidence as to who are the stockholders entitled to
examine such list or the books of the Corporation or to vote in person or by
proxy at such meeting.
Section 6. Quorum. At each meeting of the stockholders, the holders
of record of a majority of the issued and outstanding stock of the Corporation
entitled to vote at such meeting, present in person or by proxy, shall
constitute a quorum for the transaction of business, except where otherwise
provided by law, the Certificate of Incorporation or these By-laws. In the
<PAGE> 3
absence of a quorum, any officer entitled to preside at, or act as Secretary of,
such meeting shall have the power to adjourn the meeting from time to time until
a quorum shall be constituted.
Section 7. Voting. Every stockholder of record who is entitled to vote
shall at every meeting of the stockholders be entitled to one vote for each
share of stock held by him on the record date; except, however, that shares of
its own stock belonging to the Corporation or to another corporation, if a
majority of the shares entitled to vote in the election of directors of such
other corporation is held by the Corporation, shall neither be entitled to vote
nor counted for quorum purposes. Nothing in this Section shall be construed as
limiting the right of the Corporation to vote its own stock held by it in a
fiduciary capacity. At all meetings of the stockholders, a quorum being present,
all matters shall be decided by majority vote of the shares of stock entitled to
vote held by stockholders present in person or by proxy, except as otherwise
required by law or the Certificate of Incorporation. Unless demanded by a
stockholder of the Corporation present in person or by proxy at any meeting of
the stockholders and entitled to vote thereat or so directed by the chairman of
the meeting or required by law, the vote thereat on any question need not be by
written ballot. On a vote by written ballot, each ballot shall be signed by the
stockholder voting, or in his name by his proxy, if there be such proxy, and
shall state the number of shares voted by him and the number of votes to which
each share is entitled.
Section 8. Proxies. Each stockholder entitled to vote at a meeting of
stockholders or to express consent to corporate action in writing without a
meeting may authorize another person or persons to act for him by proxy. A proxy
acting for any stockholder shall be duly appointed by an instrument in writing
subscribed by such stockholder. No proxy shall be valid after the expiration of
three years from the date thereof unless the proxy provides for a longer period.
Section 9. Action Without a Meeting. Any action required to be taken
at any annual or special meeting of stockholders or any action which may be
taken at any annual or special meeting of stockholders may be taken without a
meeting, without prior notice and without a vote, if a consent in writing
setting forth the action so taken shall be signed by the holders of outstanding
stock having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted. Prompt notice of the taking of the
corporate action without a meeting by less than unanimous written consent shall
be given to those stockholders who have not consented in writing.
<PAGE> 4
ARTICLE III
BOARD OF DIRECTORS
Section 1. Powers. The business and affairs of the Corporation shall
be managed under the direction of the Board of Directors.
Section 2. Election and Term. Except as otherwise provided by law,
Directors shall be elected at the annual meeting of stockholders and shall hold
office until the next annual meeting of stockholders and until their successors
are elected and qualify, or until they sooner die, resign or are removed. At
each annual meeting of stockholders, at which a quorum is present, the persons
receiving a plurality of the votes cast shall be the Directors. Acceptance of
the office of Director may be expressed orally or in writing, and attendance at
the organization meeting shall constitute such acceptance.
Section 3. Number. The number of Directors shall be such number as
shall be determined from time to time by the Board of Directors but shall not be
less than one nor more than seven and initially shall be one.
Section 4. Quorum and Manner of Acting. Unless otherwise provided by
law, the presence of 50% of the whole Board of Directors shall be necessary to
constitute a quorum for the transaction of business. In the absence of a quorum,
a majority of the Directors present may adjourn the meeting from time to time
until a quorum shall be present. Notice of any adjourned meeting need not be
given. At all meetings of Directors, a quorum being present, all matters shall
be decided by the affirmative vote of a majority of the Directors present,
except as otherwise required by law. The Board of Directors may hold its
meetings at such place or places within or without the State of Delaware as the
Board of Directors may from time to time determine or as shall be specified in
the respective notices, or waivers of notice, thereof.
Section 5. Organization Meeting. Immediately after each annual meeting
of stockholders for the election of Directors the Board of Directors shall meet
at the place of the annual meeting of stockholders for the purpose of
organization, the election of officers and the transaction of other business.
Notice of such meeting need not be given. If such meeting is held at any other
time or place, notice thereof must be given as hereinafter provided for special
meetings of the Board of Directors, subject to the execution of a waiver of the
notice thereof signed by, or the attendance at such meeting of, all Directors
who may not have received such notice.
<PAGE> 5
Section 6. Regular Meetings. Regular meetings of the Board of
Directors may be held at such place, within or without the State of Delaware, as
shall from time to time be determined by the Board of Directors. After there has
been such determination, and notice thereof has been once given to each member
of the Board of Directors as hereinafter provided for special meetings, regular
meetings may be held without further notice being given.
Section 7. Special Meetings; Notice. Special meetings of the Board of
Directors shall be held whenever called by the Chairman of the Board, if any,
the President or by a majority of the Directors. Notice of each such meeting
shall be mailed to each Director, addressed to him at his residence or usual
place of business, at least five days before the date on which the meeting is to
be held, or shall be sent to him at such place by telegraph, cable, radio or
wireless, or be delivered personally or by telephone, not later than the day
before the day on which such meeting is to be held. Each such notice shall state
the time and place of the meeting and, as may be required, the purposes thereof.
Notice of any meeting of the Board of Directors need not be given to any
Director if he shall sign a written waiver thereof either before or after the
time stated therein for such meeting, or if he shall be present at the meeting.
Unless limited by law, the Certificate of Incorporation, these By-laws or the
terms of the notice thereof, any and all business may be transacted at any
meeting without the notice thereof having specifically identified the matters to
be acted upon.
Section 8. Removal of Directors. Any Director or the entire Board of
Directors may be removed, with or without cause, at any time, by action of the
holders of record of the majority of the issued and outstanding stock of the
Corporation (a) present in person or by proxy at a meeting of holders of such
stock and entitled to vote thereon or (b) by a consent in writing in the manner
contemplated in Section 9 of Article II, and the vacancy or vacancies in the
Board of Directors caused by any such removal may be filled by action of such a
majority at such meeting or at any subsequent meeting or by consent.
Section 9. Resignations. Any Director of the Corporation may resign
at any time by giving written notice to the Chairman of the Board, if any, the
President, the Vice President or the Secretary of the Corporation. The
resignation of any Director shall take effect upon receipt of notice thereof or
at such later time as shall be specified in such notice; and, unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective.
Section 10. Vacancies. Any newly created directorships and vacancies
occurring in the Board by reason of death, resignation, retirement,
<PAGE> 6
disqualification or removal, with or without cause, may be filled by the action
of the holders of record of the majority of the issued and outstanding stock of
the Corporation (a) present in person or by proxy at a meeting of holders of
such stock and entitled to vote thereon or (b) by a consent in writing in the
manner contemplated in Section 9 of Article II. The Director so chosen, whether
selected to fill a vacancy or elected to a new directorship, shall hold office
until the next meeting of stockholders at which the election of Directors is in
the regular order of business, and until his successor has been elected and
qualifies, or until he sooner dies, resigns or is removed.
Section 11. Compensation of Directors. Directors, as such, shall not
receive any stated salary for their services, but, by resolution of the Board, a
specific sum fixed by the Board plus expenses may be allowed for attendance at
each regular or special meeting of the Board; provided, however, that nothing
herein contained shall be construed to preclude any Director from serving the
Corporation or any parent or subsidiary corporation thereof in any other
capacity and receiving compensation thereof.
Section 12. Action Without a Meeting. Any action required or permitted
to be taken at any meeting of the Board of Directors may be taken without a
meeting if a written consent thereto is signed by all members of the Board, and
such written consent is filed with the minutes or proceedings of the Board.
Section 13. Telephonic Participation in Meetings. Members of the Board
of Directors may participate in a meeting of the Board by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and such participation shall
constitute presence in person at such meeting.
ARTICLE IV
OFFICERS
Section 1. Principal Officers. The Board of Directors shall elect a
President, a Secretary and a Treasurer, and may in addition elect a Chairman of
the Board, one or more Vice Presidents and such other officers as it deems fit;
the President, the Secretary, the Treasurer, the Chairman of the Board, if any,
and the Vice Presidents, if any, being the principal officers of the
Corporation. One person may hold, and perform the duties of, any two or more of
said offices.
Section 2. Election and Term of Office. The principal officers of the
Corporation shall be elected annually by the Board of Directors at the
<PAGE> 7
organization meeting thereof. Each such officer shall hold office until his
successor shall have been elected and shall qualify, or until his earlier death,
resignation or removal.
Section 3. Other Officers. In addition, the Board may elect, or the
Chairman of the Board, if any, or the President may appoint, such other officers
as they deem fit. Any such other officers chosen by the Board of Directors shall
be subordinate officers and shall hold office for such period, have such author
ity and perform such duties as the Board of Directors, the Chairman of the
Board, if any, or the President may from time to time determine.
Section 4. Removal. Any officer may be removed, either with or without
cause, at any time, by resolution adopted by the Board of Directors at any
regular meeting of the Board, or at any special meeting of the Board called for
that purpose, at which a quorum is present.
Section 5. Resignations. Any officer may resign at any time by giving
written notice to the Chairman of the Board, if any, the President, the
Secretary or the Board of Directors. Any such resignation shall take effect upon
receipt of such notice or at any later time specified therein; and, unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
Section 6. Vacancies. A vacancy in any office may be filled for the
unexpired portion of the term in the manner prescribed in these By-laws for
election or appointment to such office for such term.
Section 7. Chairman of the Board. The Chairman of the Board of
Directors if one be elected, shall preside, if present, at all meetings of the
Board of Directors and he shall have and perform such other duties as from time
to time may be assigned to him by the Board of Directors.
Section 8. President. The President shall be the chief executive
officer of the Corporation and shall have the general powers and duties of
supervision and management usually vested in the office of president of a
corporation. He shall preside at all meetings of the stockholders if present
thereat, and in the absence or non-election of the Chairman of the Board of
Directors, at all meetings of the Board of Directors, and shall have general
supervision, direction and control of the business of the Corporation. Except as
the Board of Directors shall authorize the execution thereof in some other
manner, he shall execute bonds, mortgages, and other contracts on behalf of the
<PAGE> 8
Corporation, and shall cause the seal to be affixed to any instrument requiring
it and when so affixed the seal shall be attested by the signature of the
Secretary or the Treasurer.
Section 9. Vice President. Each Vice President shall have such powers
and shall perform such duties as shall be assigned to him by the President or
the Board of Directors.
Section 10. Treasurer. The Treasurer shall have charge and custody of,
and be responsible for, all funds and securities of the Corporation. He shall
exhibit at all reasonable times his books of account and records to any of the
Directors of the Corporation upon application during business hours at the
office of the Corporation where such books and records shall be kept; when
requested by the Board of Directors, he shall render a statement of the
condition of the finances of the Corporation at any meeting of the Board or at
the annual meeting of stockholders; he shall receive, and give receipt for,
moneys due and payable to the Corporation from any source whatsoever; in
general, he shall perform all the duties incident to the office of Treasurer and
such other duties as from time to time may be assigned to him by the Chairman of
the Board of Directors, the President or the Board of Directors. The Treasurer
shall give such bond, if any, for the faithful discharge of his duties as the
Board of Directors may require.
Section 11. Secretary. The Secretary, if present, shall act as
secretary at all meetings of the Board of Directors and of the stockholders and
keep the minutes thereof in a book or books to be provided for that purpose; he
shall see that all notices required to be given by the Corporation are duly
given and served; he shall have charge of the stock records of the Corporation;
he shall see that all reports, statements and other documents required by law
are properly kept and filed; and in general he shall perform all the duties
incident to the office of Secretary and such other duties as from time to time
may be assigned to him by the President or the Board of Directors.
Section 12. Salaries. The salaries of the principal officers shall be
fixed from time to time by the Board of Directors, and the salaries of any
other officers may be fixed by the President.
ARTICLE V
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 1. Right of Indemnification. Every person now or hereafter
serving as a Director or officer of the Corporation and every such Director or
officer serving at the request of the Corporation as a director, officer,
<PAGE> 9
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, shall be indemnified by the Corporation in accordance with
and to the fullest extent permitted by law for the defense of, or in connection
with, any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative.
Section 2. Expenses. Expenses incurred in defending a civil or
criminal action, suit or proceeding may be paid by the Corporation in advance of
the final disposition of such action, suit or proceeding as authorized by the
Board of Directors in the specific case upon receipt of an undertaking by or on
behalf of such Director or officer to repay such amount unless it shall
ultimately be determined that he is entitled to be indemnified by the
Corporation as authorized in this Article V.
Section 3. Other Rights of Indemnification. The right of
indemnification herein provided shall not be deemed exclusive of any other
rights to which any such Director or officer may now or hereafter 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 or officer and shall inure to the benefit of the
heirs, executors and administrators of such person.
ARTICLE VI
SHARES AND THEIR TRANSFER
Section 1. Certificate for Stock. Every stockholder of the Corporation
shall be entitled to a certificate or certificates, to be in such form as the
Board of Directors shall prescribe, certifying the number of shares of the
capital stock of the Corporation owned by him. No certificate shall be issued
for partly paid shares.
Section 2. Stock Certificate Signature. The certificates for such
stock shall be numbered in the order in which they shall be issued and shall be
signed by the Chairman of the Board, if any, or the President or any Vice
President and by the Secretary or an Assistant Secretary or the Treasurer of
the Corporation, and its seal shall be affixed thereto. If such certificate is
countersigned (1) by a transfer agent other than the Corporation or its
employee, or, (2) by a registrar other than the Corporation or its employee, the
signatures of such officers of the Corporation may be facsimiles. In case any
officer of the Corporation who has signed, or whose facsimile signature has been
placed upon, any such certificate shall have ceased to be such officer before
<PAGE> 10
such certificate is issued, it may be issued by the Corporation with the same
effect as if he were such officer at the date of issue.
Section 3. Stock Ledger. A record shall be kept by the Secretary or by
any other officer, employee or agent designated by the Board of Directors of
the name of each person, firm or corporation holding capital stock of the
Corporation, the number of shares represented by, and the respective dates of,
each certificate for such capital stock, and in case of cancellation of any
such certificate, the respective dates of cancellation.
Section 4. Cancellation. Every certificate surrendered to the
Corporation for exchange or registration of transfer shall be canceled, and no
new certificate or certificates shall be issued in exchange for any existing
certificate until such existing certificate shall have been so canceled, except,
subject to Section 7 of this Article VI, in cases provided for by applicable
law.
Section 5. Registrations of Transfers of Stock. Registrations of
transfers of shares of the capital stock of the Corporation shall be made on the
books of the Corporation by the registered holder thereof, or by his attorney
thereunto authorized by power of attorney duly executed and filed with the
Secretary of the Corporation or with a transfer clerk or a transfer agent
appointed as in Section 6 of this Article VI provided, and on surrender of the
certificate or certificates for such shares properly endorsed and the payment of
all taxes thereon. The person in whose name shares of stock stand on the books
of the Corporation shall be deemed the owner thereof for all purposes as regards
the Corporation; provided, however, that whenever any transfer of shares shall
be made for collateral security, and not absolutely, it shall be so expressed in
the entry of the transfer if, when the certificates are presented to the
Corporation for transfer, both the transferor and the transferee request the
Corporation to do so.
Section 6. Regulations. The Board of Directors may make such rules and
regulations as it may deem expedient, not inconsistent with the Certificate of
Incorporation or these Bylaws, concerning the issue, transfer and registration
of certificates for shares of the stock of the Corporation. It may appoint, or
authorize any principal officer or officers to appoint, one or more transfer
clerks or one or more transfer agents and one or more registrars, and may
require all certificates of stock to bear the signature or signatures of any of
them.
Section 7. Lost, Stolen, Destroyed or Mutilated Certificates. Before
any certificates for stock of the Corporation shall be issued in exchange for
<PAGE> 11
certificates which shall become mutilated or shall be lost, stolen or destroyed,
proper evidence of such loss, theft, mutilation or destruction shall be procured
for the Board of Directors, if it so requires.
Section 8. Record Dates. For the purpose of determining the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a date as a
record date for any such determination of stockholders. Such record date shall
not be more than sixty or less than ten days before the date of such meeting, or
more than sixty days prior to any other action.
ARTICLE VII
MISCELLANEOUS PROVISIONS
Section 1. Corporate Seal. The Board of Directors shall provide a
corporate seal, which shall be in the form of a circle and shall bear the name
of the Corporation and words and figures showing that it was incorporated in the
State of Delaware in the year 1997. The Secretary shall be the custodian of the
seal. The Board of Directors may authorize a duplicate seal to be kept and used
by any other officer.
Section 2. Voting of Stocks Owned by the Corporation. The Board of
Directors may authorize any person on behalf of the Corporation to attend, vote
and grant proxies to be used at any meeting of stockholders of any corporation
(except the Corporation) in which the Corporation may hold stock.
Section 3. Dividends. Subject to the provisions of the Certificate of
Incorporation, the Board of Directors may, out of funds legally available
therefor, at any regular or special meeting declare dividends upon the capital
stock of the Corporation as and when they deem expedient. Before declaring any
dividend there may be set apart out of any funds of the Corporation available
for dividends such sum or sums as the Directors from time to time in their
discretion deem proper for working capital or as a reserve fund to meet
contingencies or for equalizing dividends or for such other purposes as the
Board of Directors shall deem conducive to the interests of the Corporation.
<PAGE> 12
ARTICLE VIII
AMENDMENTS
These By-laws of the Corporation may be altered, amended or repealed
by the Board of Directors at any regular or special meeting of the Board of
Directors or by the affirmative vote of the holders of record of a majority of
the issued and outstanding stock of the Corporation (i) present in person or by
proxy at a meeting of holders of such stock and entitled to vote thereon or (ii)
by a consent in writing in the manner contemplated in Section 9 of Article II,
provided, however, that notice of the proposed alteration, amendment or repeal
is contained in the notice of such meeting. By-laws, whether made or altered by
the stockholders or by the Board of Directors, shall be subject to alteration or
repeal by the stockholders as in this Article VIII above provided.
<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
-ii-
<PAGE> 5
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> 6
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
-iv-
<PAGE> 7
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
-v-
<PAGE> 8
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
-vi-
<PAGE> 9
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
-vii-
<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.
"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> 12
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> 13
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> 14
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> 15
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> 16
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> 17
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> 18
"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> 19
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> 20
"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> 21
"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> 22
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> 23
"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> 24
"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> 25
"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> 26
"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> 27
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> 28
"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> 29
(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> 30
"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> 31
(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> 32
(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> 33
(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> 34
"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> 35
"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> 36
"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> 37
"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> 38
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> 39
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> 40
"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> 41
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> 42
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> 43
(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> 44
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> 45
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> 46
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> 47
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> 48
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> 49
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> 50
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> 51
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> 52
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> 53
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> 54
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> 55
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> 56
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> 57
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> 58
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> 59
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> 60
(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> 61
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> 62
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> 63
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> 64
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> 65
(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> 66
(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> 67
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> 68
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> 69
(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> 70
(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> 71
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> 72
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> 73
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> 74
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> 75
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
an
<PAGE> 1
Exhibit 4.3
================================================================================
REGISTRATION RIGHTS AGREEMENT
Dated as of July 31, 1998
by and among
GOLDEN SKY SYSTEMS, INC.
and
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
and
NATIONSBANC MONTGOMERY SECURITIES LLC
as Initial Purchasers
================================================================================
<PAGE> 2
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and
entered into as of July 31, 1998 by and among GOLDEN SKY SYSTEMS, INC., a
Delaware corporation (the "Company"), and MERRILL LYNCH & CO., MERRILL LYNCH,
PIERCE, FENNER & SMITH INCORPORATED ("Merrill Lynch") and NATIONSBANC MONTGOMERY
SECURITIES LLC ("NationsBanc" and, together with Merrill Lynch, the "Initial
Purchasers").
This Agreement is made pursuant to the Purchase Agreement dated as of
July 24, 1998 by and among the Company and the Initial Purchasers (the "Purchase
Agreement"), that provides for, among other things, the sale by the Company to
the Initial Purchasers of an aggregate of $195,000,000 principal amount of the
Company's 12 3/8% Senior Subordinated Notes due 2006 (the "Notes"). In order to
induce the Initial Purchasers to enter into the Purchase Agreement, the Company
has agreed to provide to the Initial Purchasers and their direct and indirect
transferees the registration rights set forth in this Agreement. The execution
and delivery of this Agreement is a condition to the closing under the Purchase
Agreement.
In consideration of the foregoing, the parties hereto agree as
follows:
1. Definitions. As used in this Agreement, the following capitalized
defined terms shall have the following meanings:
"Additional Interest" see Section 2(e) hereof.
"Advice" see the last paragraph Section 3 hereof.
"Applicable Period" see Section 3(s) hereof.
"Business Day" shall mean a day that is not a Saturday, a Sunday, or a
day on which banking institutions in New York, New York are required to be
closed.
"Closing Time" shall mean the Closing Time as defined in the Purchase
Agreement.
"Company" shall have the meaning set forth in the preamble to this
Agreement and also includes the Company's successors and permitted assigns.
<PAGE> 3
"Depositary" shall mean The Depository Trust Company, or any other
depositary appointed by the Company; provided, however, that such
depositary must have an address in the Borough of Manhattan, in The City of
New York.
"Effectiveness Period" see Section 2(b) hereof.
"Effectiveness Target Date" see Section 2(e) hereof.
"Event Date" see Section 2(e) hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Exchange Offer" shall mean the exchange offer by the Company of
Exchange Notes for Notes pursuant to Section 2(a) hereof.
"Exchange Offer Registration" shall mean a registration under the
Securities Act effected pursuant to Section 2(a) hereof.
"Exchange Offer Registration Statement" shall mean an exchange offer
registration statement on Form S-1, S-3 or S-4 (or, if applicable, on
another appropriate form), and all amendments and supplements to such
registration statement, in each case including the Prospectus contained
therein, all exhibits thereto and all material incorporated by reference
therein.
"Exchange Period" see Section 2(a) hereof.
"Exchange Notes" shall mean the 12 3/8% Senior Subordinated Notes due
2006, issued by the Company under the Indenture containing terms identical
to the Notes (except that (i) interest thereon shall accrue from the last
date on which interest was paid on the Notes or, if no such interest has
been paid, from the Issue Date, (ii) the transfer restrictions with respect
to the Notes and all registration rights in respect thereof shall be
eliminated and (iii) the provisions relating to Additional Interest shall
be eliminated) to be offered to Holders of Notes in exchange for Notes
pursuant to the Exchange Offer.
"Holders" shall mean the Initial Purchasers, for so long as they own
any Transfer Restricted Notes, each of their direct and indirect
successors, assigns and transferees who become registered owners of
Transfer Restricted Notes under the Indenture and each Participating
Broker-Dealer that holds Exchange Notes for so long as such Participating
Broker-Dealer is required to deliver a prospectus meeting the requirements
of the Securities Act in connection with any resale of such Exchange Notes.
<PAGE> 4
"Indenture" shall mean the Indenture relating to the Notes dated as of
July 31, 1998 between the Company and State Street Bank and Trust Company
of Missouri, N.A., as trustee, as the same may be amended from time to time
in accordance with the terms thereof.
"Initial Purchasers" shall have the meaning set forth in the preamble
to this Agreement.
"Inspectors" see Section 3(m) hereof.
"Issue Date" shall mean the date on which the Notes are originally
issued.
"Majority Holders" shall mean the Holders of a majority of the
aggregate principal amount of outstanding Transfer Restricted Notes.
"Merrill Lynch" shall have the meaning set forth in the preamble to
this agreement.
"Notes" shall have the meaning set forth in the preamble of this
Agreement.
"Participating Broker-Dealer" shall have the meaning set forth in
Section 3(s) hereof.
"Person" shall mean an individual, partnership, corporation, trust or
unincorporated organization, or a government or agency or political
subdivision thereof.
"Private Exchange" see Section 2(a) hereof.
"Private Exchange Notes" see Section 2(a) hereof.
"Prospectus" shall mean the prospectus included in a Registration
Statement, including any preliminary prospectus, and any such prospectus as
amended or supplemented by any prospectus supplement, including a
prospectus supplement with respect to the terms of the offering of any
portion of the Transfer Restricted Notes covered by a Shelf Registration
Statement, and by all other amendments and supplements to a prospectus,
including post-effective amendments, and in each case including all
material incorporated by reference therein.
<PAGE> 5
"Purchase Agreement" shall have the meaning set forth in the preamble
to this Agreement.
"Records" see Section 3(m) hereof.
"Registration Expenses" shall mean any and all expenses incident to
performance of or compliance by the Company with this Agreement, including
without limitation: (i) all applicable SEC, stock exchange or National
Association of Securities Dealers, Inc. (the "NASD") registration and
filing fees, (ii) all fees and expenses incurred in connection with
compliance with state securities or blue sky laws (including reasonable
fees and disbursements of one counsel for Holders that are Initial
Purchasers in connection with blue sky qualification of any of the Exchange
Notes or Transfer Restricted Notes) and compliance with the rules of the
NASD, (iii) all applicable expenses incurred by the Company in preparing or
assisting in preparing, word processing, printing and distributing any
Registration Statement, any Prospectus and any amendments or supplements
thereto, and in preparing or assisting in preparing any other documents
relating to the performance of and compliance with this Agreement, (iv) all
rating agency fees, if any, (v) the fees and disbursements of counsel for
the Company, (vii) all fees and expenses incurred in connection with the
listing, if any, of any of the Transfer Restricted Notes on any securities
exchange or exchanges, if the Company, in its discretion, elects to make
any such listing; but excluding fees of counsel to the Holders and
underwriting discounts and commissions and transfer taxes, if any, relating
to the sale or disposition of Transfer Restricted Notes by a Holder.
"Registration Statement" shall mean any registration statement
(including, without limitation, the Exchange Offer Registration Statement
and the Shelf Registration Statement) of the Company which covers any of
the Exchange Notes or Transfer Restricted Notes pursuant to the provisions
of this Agreement, and all amendments and supplements to any such
Registration Statement, including post-effective amendments, in each case
including the Prospectus contained therein, all exhibits thereto and all
material incorporated by reference therein.
<PAGE> 6
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Shelf Registration" shall mean a registration effected pursuant to
Section 2(b) hereof.
"Shelf Registration Event Date" see Section 2(b).
"Shelf Registration Statement" shall mean a "shelf" registration
statement of the Company pursuant to the provisions of Section 2(b) hereof
which covers all of the Transfer Restricted Notes or all of the Private
Exchange Notes, as the case may be, on an appropriate form under Rule 415
under the Securities Act, or any similar rule that may be adopted by the
SEC, and all amendments and supplements to such registration statement,
including post-effective amendments, in each case including the Prospectus
contained therein, all exhibits thereto and all material incorporated by
reference therein.
"Target Consummation Date" see Section 2(a).
"Target Effectiveness Date" see Section 2(a).
"TIA" shall have the meaning set forth in Section 3(k) hereof.
"Transfer Restricted Notes" means each Note until (i) the date on
which such has been exchanged by a person other than a broker-dealer for an
Exchange Note in the Exchange Offer, (ii) following the exchange by a
broker-dealer in the Exchange Offer of a Note for an Exchange Note, the
date on which such Exchange Note is sold to a purchaser who receives from
such broker-dealer on or prior to the date of such sale a copy of the
prospectus contained in the Exchange Offer Registration Statement, (iii)
the date on which such Note has been effectively registered under the
Securities Act and disposed of in accordance with the Shelf Registration
Statement, (iv) the date on which such Note is distributed to the public
pursuant to Rule 144(k) under the Securities Act (or any similar provision
then in force, but not Rule 144A under the Securities Act), (v) such Note
shall have been otherwise transferred by the holder thereof and a new Note
not bearing a legend restricting further transfer shall have been delivered
<PAGE> 7
by the Company and subsequent disposition of such Note shall not require
registration or qualification under the Securities Act or any similar state
law then in force or (vi) such Note ceases to be outstanding.
"Trustee" shall mean the trustee with respect to the Notes under the
Indenture.
2. Registration Under the Securities Act.
(a) Exchange Offer. The Company shall, for the benefit of the Holders,
at the Company's cost, (i) unless the Exchange Offer would not be permitted by
applicable law or SEC policy, file with the SEC within 60 days after the Closing
Time an Exchange Offer Registration Statement on an appropriate form under the
Securities Act covering the offer by the Company to the Holders to exchange all
of the Transfer Restricted Notes (other than Private Exchange Notes (as defined
below)) for a like principal amount of Exchange Notes, (ii) unless the Exchange
Offer would not be permitted by applicable law or SEC policy, use its best
efforts to have such Exchange Offer Registration Statement declared effective
under the Securities Act by the SEC not later than 150 days after the Closing
Time (the "Target Effectiveness Date"), (iii) have such Registration Statement
remain effective until the closing of the Exchange Offer and (iv) unless the
Exchange Offer would not be permitted by applicable law or SEC policy, commence
the Exchange Offer and use its best efforts to issue, on or prior to the 30th
Business Day after the date on which the Exchange Offer Registration Statement
was declared effective by the SEC (the "Target Consummation Date"), Exchange
Notes in exchange for all Notes tendered prior thereto in the Exchange Offer.
Upon the effectiveness of the Exchange Offer Registration Statement, the Company
shall promptly commence the Exchange Offer, it being the objective of such
Exchange Offer to enable each Holder eligible and electing to exchange Transfer
Restricted Notes for Exchange Notes (assuming that such Holder is not an
affiliate of the Company within the meaning of Rule 405 under the Securities Act
and is not a broker-dealer tendering Transfer Restricted Notes acquired directly
from the Company for its own account, acquires the Exchange Notes in the
ordinary course of such Holder's business and has no arrangements or
understandings with any Person to participate in the Exchange Offer for the
purpose of distributing (within the meaning of the Securities Act) the Exchange
Notes) and to transfer such Exchange Notes from and after their receipt without
any limitations or restrictions under the Securities Act and under state
securities or blue sky laws.
<PAGE> 8
In connection with the Exchange Offer, the Company shall:
(i) mail to each Holder a copy of the Prospectus forming part of the
Exchange Offer Registration Statement, together with an appropriate letter
of transmittal and related documents;
(ii) keep the Exchange Offer open for acceptance for a period of not
less than 20 Business Days after the date notice thereof is mailed to the
Holders (or longer if required by applicable law) (such period referred to
herein as the "Exchange Period");
(iii) utilize the services of the Depositary for the Exchange Offer;
(iv) permit Holders to withdraw tendered Notes at any time prior to
the close of business, New York time, on the last Business Day of the
Exchange Period, by sending to the institution specified in the notice, a
telegram, telex, facsimile transmission or letter setting forth the name of
such Holder, the principal amount of Notes delivered for exchange, and a
statement that such Holder is withdrawing his election to have such Notes
exchanged; and
(v) otherwise comply in all material respects with all applicable laws
relating to the Exchange Offer.
If, prior to consummation of the Exchange Offer the Initial Purchasers
hold any Notes acquired by them and having the status of an unsold allotment in
the initial distribution, the Company upon the request of any Initial Purchaser
shall, simultaneously with the delivery of the Exchange Notes in the Exchange
Offer, issue and deliver to such Initial Purchaser in exchange (the "Private
Exchange") for the Notes held by such Initial Purchaser, a like principal amount
of debt securities of the Company that are identical (except that such
securities shall bear appropriate transfer restrictions) to the Exchange Notes
(the "Private Exchange Notes").
The Exchange Notes and the Private Exchange Notes shall be issued
under (i) the Indenture or (ii) an indenture identical to all material respects
to the Indenture and that, in either case, has been qualified under the TIA or
is exempt from such qualification and shall provide that the Exchange Notes
shall not be subject to the transfer restrictions set forth in the Indenture.
The Indenture or such indenture shall provide that the Exchange Notes, the
Private Exchange Notes and the Notes shall vote and consent together on all
matters as one class and that none of the Exchange Notes, the Private Exchange
<PAGE> 9
Notes or the Notes will have the right to vote or consent as a separate class on
any matter. The Private Exchange Notes shall be of the same series as and the
Company shall use all commercially reasonable efforts to have the Private
Exchange Notes bear the same CUSIP number as the Exchange Notes. The Company
shall not have any liability under this Agreement solely as a result of such
Private Exchange Notes not bearing the same CUSIP number as the Exchange Notes.
The Exchange Offer and the Private Exchange shall not be subject to
any conditions, other than that (i) the Exchange Offer or Private Exchange, as
the case may be, does not violate applicable law or any applicable
interpretation of the staff of the SEC, (ii) no action or proceeding shall have
been instituted or threatened in any court or by any governmental agency that
might materially impair the ability of the Company to proceed with the Exchange
Offer or the Private Exchange, and no material adverse development shall have
occurred in any existing action or proceeding with respect to the Company and
(iii) all governmental approvals shall have been obtained, which approvals the
Company deems necessary for the consummation of the Exchange Offer or Private
Exchange. As soon as practicable after the close of the Exchange Offer and/or
the Private Exchange, as the case may be, the Company shall:
(i) accept for exchange all Transfer Restricted Notes or portions
thereof properly tendered and not validly withdrawn pursuant to the
Exchange Offer in accordance with the terms of the Exchange Offer
Registration Statement and the letter of transmittal that is an exhibit
thereto;
(ii) accept for exchange all Notes properly tendered pursuant to the
Private Exchange; and
(iii) deliver, or cause to be delivered, to the Trustee for
cancellation all Transfer Restricted Notes or portions thereof so accepted
for exchange by the Company, and issue, and cause the Trustee under the
Indenture to promptly authenticate and deliver to each Holder, a new
Exchange Note or Private Exchange Note, as the case may be, equal in
principal amount to the principal amount of the Transfer Restricted Notes
surrendered by such Holder and accepted for exchange.
<PAGE> 10
To the extent not prohibited by any law or applicable interpretation
of the staff of the SEC, the Company shall use its reasonable best efforts to
complete the Exchange Offer as provided above and shall comply with the
applicable requirements of the Securities Act, the Exchange Act and other
applicable laws in connection with the Exchange Offer. Each Holder of Transfer
Restricted Notes who wishes to exchange such Transfer Restricted Notes for
Exchange Notes in the Exchange Offer will be required to make certain customary
representations in connection therewith, including representations that such
Holder is not an affiliate of the Company within the meaning of Rule 405 under
the Securities Act, that any Exchange Notes to be received by it will be
acquired in the ordinary course of business and that at the time of the
commencement of the Exchange Offer it has no arrangement with any Person to
participate in the distribution (within the meaning of the Securities Act) of
the Exchange Notes. The Company shall inform the Initial Purchasers of the names
and addresses of the Holders to whom the Exchange Offer is made, and the Initial
Purchasers shall have the right to contact such Holders and otherwise facilitate
the tender of Transfer Restricted Notes in the Exchange Offer.
Upon consummation of the Exchange Offer in accordance with this
Section 2(a), the provisions of this Agreement shall continue to apply, mutatis
mutandis, solely with respect to Transfer Restricted Notes that are Private
Exchange Notes and Exchange Notes held by Participating Broker-Dealers, and the
Company shall have no further obligation to register Transfer Restricted Notes
(other than Private Exchange Notes) pursuant to Section 2(b) hereof.
(b) Shelf Registration. If (i) the Company is not permitted to file
the Exchange Offer Registration Statement or to consummate the Exchange Offer
because the Exchange Offer is not permitted by applicable law or SEC policy,
(ii) the Exchange Offer is not for any other reason consummated by the Target
Consummation Date, (iii) any holder of Notes notifies the Company within a
specified time period that (a) due to a change in law or policy, in the opinion
of counsel, it is not entitled to participate in the Exchange Offer, (b) due to
a change in law or policy, in the opinion of counsel, it may not resell the
Exchange Notes acquired by it in the Exchange Offer to the public without
delivering a prospectus and (x) the prospectus contained in the Exchange Offer
Registration Statement is not appropriate or available for such resales by such
holder and (y) such prospectus is not promptly amended or modified in order to
be suitable for use in connection with such resales for such holder and all
similarly situated holders or (c) it is a broker-dealer and owns Notes acquired
directly from the Company or an affiliate of the Company, (iv) the holders of a
majority of the Notes may not resell the Exchange Notes acquired by them in the
<PAGE> 11
Exchange Offer to the public without restriction under the Securities Act and
without restriction under applicable blue sky or state securities laws or (v)
the Exchange Offer shall not have been consummated within 150 days after the
Issue Date (the date of any of (i)-(v), the "Shelf Registration Event Date"),
then the Company shall, at its cost, use its best efforts to cause to be filed a
Shelf Registration Statement prior to the later of (A) 45 days after the Shelf
Registration Event Date or (B) 165 days after the Issue Date and use its best
efforts to cause the Shelf Registration Statement to be declared effective by
the SEC on or prior to 120 days after such obligation arises. Each Holder as to
which any Shelf Registration is being effected agrees to furnish to the Company
all information with respect to such Holder necessary to make any information
previously furnished to the Company by such Holder not materially misleading.
The Company agrees to use its best efforts to keep the Shelf
Registration Statement continuously effective for a period of two years from the
Issue Date (subject to extension pursuant to the last paragraph of Section 3
hereof) (or such shorter period that will terminate when all of the Transfer
Restricted Notes covered by such Shelf Registration Statement have been sold
pursuant thereto, cease to be outstanding or are eligible for resale pursuant to
the provisions of Rule 144(k) under the Securities Act) (the "Effectiveness
Period"); provided, however, that the Effectiveness Period in respect of the
Shelf Registration Statement shall be extended to the extent required to permit
dealers to comply with the applicable prospectus delivery requirements of Rule
174 under the Securities Act and as otherwise provided herein. The Company shall
not permit any securities other than Transfer Restricted Notes to be included in
the Shelf Registration. The Company further agrees, if necessary, to supplement
or amend the Shelf Registration Statement, if required by the rules, regulations
or instructions applicable to the registration form used by the Company for such
Shelf Registration Statement or by the Securities Act or by any other rules and
regulations thereunder for shelf registrations, and the Company agrees to
furnish to the Holders of Transfer Restricted Notes copies of any such
supplement or amendment promptly after its being used or filed with the SEC.
(c) Expenses. The Company shall pay all Registration Expenses in
connection with the registration pursuant to Section 2(a) or 2(b) hereof and the
<PAGE> 12
reasonable fees and expenses of one counsel, if any, designated in writing by
the Majority Holders to act as counsel for the Holders of the Transfer
Restricted Notes in connection with a Shelf Registration Statement. Except as
provided in the preceding sentence, each Holder shall pay all expenses of its
own counsel, underwriting discounts and commissions and transfer taxes, if any,
relating to the sale or disposition of such Holder's Transfer Restricted Notes
pursuant to the Shelf Registration Statement.
(d) Effective Registration Statement. An Exchange Offer Registration
Statement pursuant to Section 2(a) hereof or a Shelf Registration Statement
pursuant to Section 2(b) hereof will not be deemed to have become effective
unless it has been declared effective by the SEC; provided, however, that if,
after it has been declared effective, the offering of Transfer Restricted Notes
pursuant to a Shelf Registration Statement is interfered with by any stop order,
injunction or other order or requirement of the SEC or any other governmental
agency or court, such Registration Statement will be deemed not to have been
effective during the period of such interference, until the offering of Transfer
Restricted Notes may legally resume. The Company will be deemed not to have used
its best efforts to cause the Exchange Offer Registration Statement or the Shelf
Registration Statement, as the case may be, to become, or to remain, effective
during the requisite period if it voluntarily takes any action that would result
in any such Registration Statement not being declared effective or in the
Holders of Transfer Restricted Notes covered thereby not being able to exchange
or offer and sell such Transfer Restricted Notes during that period, unless such
action is required by applicable law and except as otherwise provided in the
second paragraph of Section 2(e) below.
(e) Additional Interest. In the event that (i) the applicable
Registration Statement is not filed with the SEC on or prior to the date
specified herein for such filing, (ii) the applicable Registration Statement is
not declared effective on or prior to the date specified herein for such
effectiveness after such obligation arises (the "Effectiveness Target Date"),
(iii) if the Exchange Offer is required to be consummated hereunder, the Company
fails to consummate the Exchange Offer within 30 Business Days of the
Effectiveness Target Date with respect to the Exchange Offer Registration
Statement or (iv) the applicable Registration Statement is filed and declared
effective during the period effectiveness is required by Section 2(e) and 3(a)
but shall thereafter cease to be effective or usable without being succeeded
immediately by an additional Registration Statement covering the Transfer
Restricted Notes that has been filed and declared effective (each such event
referred to in clauses (i) through (iv), a "Registration Default"), then the
interest rate on the Transfer Restricted Notes as to which such Registration
Default relates will increase ("Additional Interest"), with respect to the first
<PAGE> 13
90-day period (or portion thereof) while a Registration Default is continuing
immediately following the occurrence of such Registration Default in an amount
equal to 0.50% per annum of the principal amount of the Notes. The rate of
additional Interest will increase by an additional 0.50% per annum of the
principal amount of the Notes for each subsequent 90-day period (or portion
thereof) while a Registration Default is continuing until all Registration
Defaults have been cured, up to a maximum amount of 2.00% of the principal
amount of the Notes. Additional Interest shall be computed based on the actual
number of days elapsed during which any such Registration Defaults exists.
Following the cure of a Registration Default, the accrual of Additional Interest
with respect to such Registration Default will cease.
If the Company issues a notice that the Shelf Registration Statement
is unusable due to the pendency of an announcement of a material corporate
transaction, or such notice is required under applicable securities laws to be
issued by the Company, and the aggregate number of days in any consecutive
twelve-month period for which the Shelf Registration Statement shall not be
usable due to all such notices issued or required to be issued exceeds 60 days
in the aggregate, then the interest rate borne by the Notes will be increased by
0.25% per annum of the principal amount of the Notes for the first 90-day period
(or portion thereof) beginning on the 31st such date that such Shelf
Registration Statement ceases to be usable, which rate shall be increased by an
additional 0.25% per annum of the principal amount of the Notes at the beginning
of each subsequent 90-day period, up to a maximum amount of 1.00% of the
principal amount of the Notes. Upon the Shelf Registration Statement once again
becoming usable, the interest rate borne by the Notes will be reduced to the
original interest rate if the Company is otherwise in compliance with this
Agreement at such time. Additional Interest shall be computed based on the
actual number of days elapsed in each 90-day period in which the Shelf
Registration Statement is unusable.
The Company shall notify the Trustee within five Business Days after
each and every date on which an event occurs in respect of which Additional
Interest is required to be paid (an "Event Date"). Additional Interest shall be
paid by depositing with the Trustee, in trust, for the benefit of the Holders of
Transfer Restricted Notes, on or before the applicable semiannual interest
payment date, immediately available funds in sums sufficient to pay the
Additional Interest then due. The Additional Interest due shall be payable on
<PAGE> 14
each interest payment date to the record Holder of Notes entitled to receive the
interest payment to be paid on such date as set forth in the Indenture. Each
obligation to pay Additional Interest shall be deemed to accrue from and
including the day following the applicable Event Date.
3. Registration Procedures. In connection with the obligations of the
Company with respect to the Registration Statements pursuant to Sections 2(a)
and 2(b) hereof, the Company shall:
(a) prepare and file with the SEC a Registration Statement or
Registration Statements as prescribed by Sections 2(a) and 2(b) hereof
within the relevant time period specified in Section 2 hereof on the
appropriate form under the Securities Act, which form (i) shall be selected
by the Company, (ii) shall, in the case of a Shelf Registration, be
available for the sale of the Transfer Restricted Notes by the selling
Holders thereof and (iii) shall comply as to form in all material respects
with the requirements of the applicable form and include all financial
statements required by the SEC to be filed therewith; and use their best
efforts to cause such Registration Statement to become effective and remain
effective in accordance with Section 2 hereof. The Company shall not file
any Registration Statement or Prospectus or any amendments or supplements
thereto in respect of which the Holders must provide information for
inclusion therein without the Holders being afforded an opportunity to
review such documentation a reasonable time prior to the filing of such
document if the Majority Holders or such Participating Broker-Dealer, as
the case may be, their counsel or the managing underwriters, if any, shall
reasonably object;
(b) prepare and file with the SEC such amendments and post-effective
amendments to each Registration Statement as may be necessary to keep such
Registration Statement effective for the Effectiveness Period or the
Applicable Period, as the case may be; and cause each Prospectus to be
supplemented by any required prospectus supplement and as so supplemented
to be filed pursuant to Rule 424 (or any similar provision then in force)
under the Securities Act, and comply with the provisions of the Securities
<PAGE> 15
Act, the Exchange Act and the rules and regulations promulgated thereunder
applicable to it with respect to the disposition of all securities covered
by each Registration Statement during the Effectiveness Period or the
Applicable Period, as the case may be, in accordance with the intended
method or methods of distribution by the selling Holders thereof described
in this Agreement (including sales by any Participating Broker-Dealer);
(c) in the case of a Shelf Registration, (i) notify each Holder of
Transfer Restricted Notes, at least three Business Days prior to filing,
that a Shelf Registration Statement with respect to the Transfer Restricted
Notes is being filed and advising such Holder that the distribution of
Transfer Restricted Notes will be made in accordance with the method
selected by the Majority Holders; and (ii) furnish to each Holder of
Transfer Restricted Notes, without charge, as many copies of each
Prospectus, and any amendment or supplement thereto and such other
documents as such Holder may reasonably request, in order to facilitate the
disposition of the Transfer Restricted Notes; and (iii) subject to the last
paragraph of Section 3 hereof, hereby consent to the use of the Prospectus
or any amendment or supplement thereto by each of the selling Holders of
Transfer Restricted Notes in connection with the offering and sale of the
Transfer Restricted Notes covered by such Prospectus or any amendment or
supplement thereto subject to the limitations on the use thereof provided
in Sections 2(b) and 2(c);
(d) in the case of a Shelf Registration, use its best efforts to
register or qualify, as may be required by applicable law, the Transfer
Restricted Notes under all applicable state securities or "blue sky" laws
of such jurisdictions by the time the applicable Registration Statement is
declared effective by the SEC as any Holder of Transfer Restricted Notes
covered by a Registration Statement shall reasonably request in advance of
such date of effectiveness, and do any and all other acts and things that
may be reasonably necessary or advisable to enable such Holder to
<PAGE> 16
consummate the disposition in each such jurisdiction of such Transfer
Restricted Notes owned by such Holder; provided, however, that the Company
shall not be required to (i) qualify as a foreign corporation or as a
broker or dealer in securities in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3(d), (ii) file any
general consent to service of process or (iii) subject itself to taxation
in any such jurisdiction if it is not so subject;
(e) in the case of (1) a Shelf Registration or (2) Participating
Broker-Dealers who have notified the Company that they will be utilizing
the Prospectus contained in the Exchange Offer Registration Statement as
provided in Section 3(t) hereof, notify each Holder of Transfer Restricted
Notes, or such Participating Broker-Dealers, as the case may be, their
counsel, if any, promptly and confirm such notice in writing (i) when a
Registration Statement has become effective and when any post-effective
amendments and supplements thereto become effective, (ii) of any request by
the SEC or any state securities authority for amendments and supplements to
a Registration Statement or Prospectus or for additional information after
the Registration Statement has become effective, (iii) of the issuance by
the SEC or any state securities authority of any stop order suspending the
effectiveness of a Registration Statement or the initiation of any
proceedings for that purpose, (iv) if the Company receives any notification
with respect to the suspension of the qualification of the Transfer
Restricted Notes or the Exchange Notes to be sold by any Participating
Broker-Dealer for offer or sale in any jurisdiction or the initiation of
any proceeding for such purpose, (v) of the happening of any event or the
failure of any event to occur or the discovery of any facts or otherwise,
during the period a Shelf Registration Statement is effective that makes
any statement made in such Registration Statement or the related Prospectus
untrue in any material respect or that causes such Registration Statement
or Prospectus to omit to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading and (vi) the Company's reasonable determination that a
post-effective amendment to the Registration Statement would be
appropriate;
(f) make every reasonable effort to obtain the withdrawal of any order
suspending the effectiveness of a Registration Statement as soon as
practicable;
(g) in the case of a Shelf Registration, furnish to each Holder of
Transfer Restricted Notes, without charge, at least one conformed copy of
each Registration Statement relating to such Shelf Registration and any
post-effective amendment thereto (without documents incorporated therein by
reference or exhibits thereto, unless requested);
<PAGE> 17
(h) in the case of a Shelf Registration, cooperate with the selling
Holders of Transfer Restricted Notes to facilitate the timely preparation
and delivery of certificates not bearing any restrictive legends
representing Notes covered by such Shelf Registration to be sold and
relating to the subsequent transfer of such Notes; and cause such Transfer
Restricted Notes to be in such denominations (consistent with the
provisions of the Indenture) and registered in such names as the selling
Holders may reasonably request at least two Business Days prior to the
closing of any sale of Transfer Restricted Notes;
(i) in the case of a Shelf Registration or an Exchange Offer
Registration, upon the occurrence of any circumstance contemplated by
Section 3(e)(ii), 3(e)(iii), 3(e)(iv), 3(e)(v) or 3(e)(vi) hereof, use its
best efforts to prepare a supplement or post-effective amendment to a
Registration Statement or the related Prospectus or any document
incorporated therein by reference or file any other required document so
that, as thereafter delivered to the purchasers of the Transfer Restricted
Notes, such Prospectus will not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; and to notify each Holder to suspend use of the Prospectus as
promptly as practicable after the occurrence of such an event, and each
Holder hereby agrees to suspend use of the Prospectus until the Company has
amended or supplemented the Prospectus to correct such misstatement or
omission;
(j) obtain a CUSIP number for all Exchange Notes or Private Exchange
Notes, as the case may be, not later than the effective date of a
Registration Statement, and provide the Trustee with certificates for the
Exchange Notes or the Private Exchange Notes, as the case may be, in a form
eligible for deposit with the Depositary;
(k) cause the Indenture to be qualified under the Trust Indenture Act
of 1939, as amended (the "TIA"), in connection with the registration of the
Exchange Notes or Transfer Restricted Notes, as the case may be, cooperate
with the Trustee and the Holders to effect such changes to the Indenture as
may be required for the Indenture to be so qualified in accordance with the
<PAGE> 18
terms of the TIA and execute, and use its best efforts to cause the Trustee
to execute, all documents as may be required to effect such changes, and
all other forms and documents required to be filed with the SEC to enable
the Indenture to be so qualified in a timely manner;
(l) in the case of a Shelf Registration, enter into such agreements
(including underwriting agreements) and take all such other appropriate
actions as are reasonably requested in order to expedite or facilitate the
registration or the disposition of such Transfer Restricted Notes, and in
such connection, (i) make such representations and warranties to Holders of
such Transfer Restricted Notes with respect to the business of the Company
and its subsidiaries as then conducted and the Registration Statement,
Prospectus and documents, if any, incorporated or deemed to be incorporated
by reference therein, in each case, as are customarily made by issuers to
underwriters in underwritten offerings, and confirm the same if and when
requested; (ii) obtain opinions of counsel to the Company and updates
thereof in form and substance reasonably satisfactory to the Holders of a
majority in principal amount of the Transfer Restricted Notes being sold,
addressed to each selling Holder covering the matters customarily covered
in opinions requested in underwritten offerings and such other matters as
may be reasonably requested by such Holders; (iii) obtain "cold comfort"
letters and updates thereof from the independent certified public
accountants of the Company (and, if necessary, any other independent
certified public accountants of any subsidiary of the Company or of any
business acquired by the Company for which financial statements and
financial data are, or are required to be, included in the Registration
Statement), addressed to the selling Holders of Transfer Restricted Notes
that satisfy the applicable requirements of Statement of Accounting
Standards No. 72, such letters to be in customary form and covering matters
of the type customarily covered in "cold comfort" letters in connection
with underwritten offerings and such other matters as reasonably requested
by such selling Holders; and (iv) if an underwriting agreement is entered
into, the same shall contain indemnification provisions and procedures no
less favorable than those set forth in Section 4 hereof (or such other
provisions and procedures acceptable to the Company and the Holders of a
majority in aggregate principal amount of Transfer Restricted Notes covered
by such Registration with respect to all parties to be indemnified pursuant
to said Section including, without limitation, such selling Holders). The
above shall be done at each closing in respect of the sale of Transfer
Restricted Notes, or as and to the extent required thereunder;
<PAGE> 19
(m) if (1) a Shelf Registration is filed pursuant to Section 2(b) or
(2) a Prospectus contained in an Exchange Offer Registration Statement
filed pursuant to Section 2(a) is required to be delivered under the
Securities Act by any Participating Broker-Dealer who seeks to sell
Exchange Notes during the Applicable Period, make available for inspection
by each such person who would be an "underwriter" as a result of either (i)
the sale by such person of Notes covered by such Shelf Registration
Statement or (ii) the sale during the Applicable Period by a Participating
Broker-Dealer of Exchange Notes (provided that a Participating
Broker-Dealer shall not be deemed to be an underwriter solely as a result
of it being required to deliver a prospectus in connection with any resale
of Exchange Notes) and any attorney, accountant or other agent retained by
any such person (collectively, the "Inspectors"), at the offices where
normally kept, during reasonable business hours, all financial and other
records, pertinent corporate documents and properties of the Company and
its subsidiaries (collectively, the "Records") as shall be reasonably
necessary to enable them to exercise any applicable due diligence
responsibilities, and cause the officers, directors and employees of the
Company and its subsidiaries to supply all information in each case
reasonably requested by any such Inspector in connection with such
Registration Statement. Records that the Company determines, in good faith,
to be confidential and any Records that it notifies the Inspectors are
confidential shall not be disclosed by the Inspectors unless (i) the
disclosure of such Records is necessary to avoid or correct a material
misstatement or omission in such Registration Statement, (ii) the release
of such Records is ordered pursuant to a subpoena or other order from a
court of competent jurisdiction or (iii) the information in such Records
has been made generally available to the public. Each selling Holder of
such Transfer Restricted Notes and each such Participating Broker-Dealer
will be required to agree that information obtained by it as a result of
such inspections shall be deemed confidential and shall not be used by it
as the basis for any market transactions in the securities of the Company
unless and until such is made generally available to the public. Each
selling Holder of such Transfer Restricted Notes and each such
Participating Broker-Dealer will be required to further agree that it will,
upon learning that disclosure of such Records is sought in a court of
competent jurisdiction, give notice to the Company and allow the Company at
its expense to undertake appropriate action to prevent disclosure of the
Records deemed confidential;
<PAGE> 20
(n) comply with all applicable rules and regulations of the SEC and
make generally available to its securityholders earning statements
satisfying the provisions of Section 11(a) of the Securities Act and Rule
158 thereunder (or any similar rule promulgated under the Securities Act)
no later than 60 days after the end of any 12-month period (or 135 days
after the end of any 12-month period if such period is a fiscal year) (i)
commencing at the end of any fiscal quarter in which Transfer Restricted
Notes are sold to underwriters in a firm commitment or best efforts
underwritten offering and (ii) if not sold to underwriters in such an
offering, commencing on the first day of the first fiscal quarter of the
Company after the effective date of a Registration Statement, which
statements shall cover said 12-month periods;
(o) upon consummation of an Exchange Offer or a Private Exchange,
obtain an opinion of counsel to the Company addressed to the Trustee for
the benefit of all Holders of Transfer Restricted Notes participating in
the Exchange Offer or the Private Exchange, as the case may be, or
includes an opinion that (i) the Company has duly authorized, executed and
delivered the Exchange Notes and Private Exchange Notes, as the case may
be, and (ii) each of the Exchange Notes or the Private Exchange Notes, as
the case may be, constitute a legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with its respective
terms (in each case, with customary exceptions);
(p) if an Exchange Offer or a Private Exchange is to be consummated,
upon proper delivery of the Transfer Restricted Notes by Holders to the
Company (or to such other Person as directed by the Company) in exchange
for the Exchange Notes or the Private Exchange Notes, as the case may be,
the Company shall mark, or cause to be marked, on such Transfer Restricted
Notes and on the books of the Trustee, the Transfer Agent, the Registrar
and the Depositary delivered by such Holders that such Transfer Restricted
Notes are being canceled in exchange for the Exchange Notes or the Private
Exchange Notes, as the case may be; but in no event shall such Transfer
Restricted Notes be marked as paid or otherwise satisfied solely as a
result of being exchanged for Exchange Notes or Private Exchange Notes in
the Exchange Offer or the Private Exchange, as the case may be;
<PAGE> 21
(q) cooperate with each seller of Transfer Restricted Notes covered by
any Registration Statement participating in the disposition of such
Transfer Restricted Notes and one counsel acting on behalf of all such
sellers in connection with the filings, if any, required to be made with
the NASD;
(r) use its best efforts to take all other steps necessary to effect
the registration of the Transfer Restricted Notes covered by a Registration
Statement contemplated hereby; and
(s) (A) in the case of the Exchange Offer Registration Statement (i)
include in the Exchange Offer Registration Statement a section entitled
"Plan of Distribution," which section shall be reasonably acceptable to
Merrill Lynch, as representative of the Initial Purchasers, and which shall
contain a summary statement of the positions taken or policies made by the
staff of the SEC with respect to the potential "underwriter" status of any
broker-dealer (a "Participating Broker-Dealer") that holds Transfer
Restricted Notes acquired for its own account as a result of market-making
activities or other trading activities and that will be the beneficial
owner (as defined in Rule 13d-3 under the Exchange Act) of Exchange Notes
to be received by such broker-dealer in the Exchange Offer, whether such
positions or policies have been publicly disseminated by the staff of the
SEC or such positions or policies, in the reasonable judgment of Merrill
Lynch, as representative of the Initial Purchasers or such other
representative, represent the prevailing views of the staff of the SEC,
including a statement that any such broker-dealer who receives Exchange
Notes for Transfer Restricted Notes pursuant to the Exchange Offer may be
deemed a statutory underwriter and must deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of such
Exchange Notes, (ii) furnish to each Participating Broker-Dealer who has
delivered to the Company the notice referred to in Section 3(e), without
charge, as many copies of each Prospectus included in the Exchange Offer
Registration Statement, and any amendment or supplement thereto, as such
Participating Broker-Dealer may reasonably request; (iii) hereby consent to
the use of the Prospectus forming part of the Exchange Offer Registration
Statement or any amendment or supplement thereto, by any Person subject to
the prospectus delivery requirements of the SEC, including all
Participating Broker-Dealers, in connection with the sale or transfer of
the Exchange Notes covered by the Prospectus or any amendment or supplement
thereto, (iv) use its best efforts to keep the Exchange Offer Registration
Statement effective and to amend and supplement the Prospectus contained
therein in order to permit such Prospectus to be lawfully delivered by all
Persons subject to the prospectus delivery requirements of the Securities
Act for such period of time as such Persons must comply with such
requirements in order to resell the Exchange Notes; provided, however, that
such period shall not be required to exceed 90 days (or such longer period
if extended pursuant to the last sentence of Section 3 hereof) (the
"Applicable Period"), and (iv) include in the transmittal letter or similar
documentation to be executed by an exchange offeree in order to participate
in the Exchange Offer (x) the following provision:
<PAGE> 22
"If the exchange offeree is a broker-dealer
holding Transfer Restricted Notes acquired for its
own account as a result of market-making
activities or other trading activities, it will
deliver a prospectus meeting the requirements of
the Securities Act in connection with any resale
of Exchange Notes received in respect of such
Transfer Restricted Notes pursuant to the Exchange
Offer;"
and (y) a statement to the effect that by a broker-dealer making the
acknowledgment described in clause (x) and by delivering a Prospectus in
connection with the exchange of Transfer Restricted Notes, such
broker-dealer will not be deemed to admit that it is an underwriter within
the meaning of the Securities Act; and
(B) in the case of any Exchange Offer Registration Statement, the
Company agrees to deliver, upon request, to the Trustee or to Participating
Broker-Dealers upon consummation of the Exchange Offer (i) an opinion of
counsel substantially in the form attached hereto as Exhibit A, and (ii) an
officers' certificate containing certifications substantially similar to
those set forth in Section 7(c) of the Purchase Agreement.
<PAGE> 23
The Company may require each seller of Transfer Restricted Notes as to
which any registration is being effected to furnish to the Company such
information regarding such seller and the proposed distribution of such Transfer
Restricted Notes, as the Company may from time to time reasonably request in
writing. The Company may exclude from such registration the Transfer Restricted
Notes of any seller who fails to furnish such information within a reasonable
time (not to exceed 10 Business Days) after receiving such request and shall be
under no obligation to compensate any such seller for any lost income, interest
or other opportunity forgone, or any liability incurred, as a result of the
Company's decision to exclude such seller.
In the case of (1) a Shelf Registration Statement or (2) Participating
Broker-Dealers who have notified the Company that they will be utilizing the
Prospectus contained in the Exchange Offer Registration Statement as provided in
Section 3(t) hereof, that are seeking to sell Exchange Notes and are required to
deliver Prospectuses, each Holder agrees that, upon receipt of any notice from
the Company of the happening of any event of the kind described in Section
3(e)(ii), 3(e)(iii), 3(e)(v), 3(e)(vi) or 3(e)(vii) hereof, such Holder will
forthwith discontinue disposition of Transfer Restricted Notes pursuant to a
Registration Statement until such Holder's receipt of the copies of the
supplemented or amended Prospectus contemplated by Section 3(i) hereof or until
it is advised in writing (the "Advice") by the Company that the use of the
applicable Prospectus may be resumed, and, if so directed by the Company, such
Holder will deliver to the Company (at the Company's expense) all copies in such
Holder's possession, other than permanent file copies then in such Holder's
possession, of the Prospectus covering such Transfer Restricted Notes or
Exchange Notes, as the case may be, current at the time of receipt of such
notice. If the Company shall give any such notice to suspend the disposition of
Transfer Restricted Notes or Exchange Notes, as the case may be, pursuant to a
Registration Statement, the Company shall use its best efforts to file and have
declared effective (if an amendment) as soon as practicable an amendment or
supplement to the Registration Statement and, in the case of an amendment, have
such amendment declared effective as soon as practicable and shall extend the
period during which such Registration Statement shall be maintained effective
pursuant to this Agreement by the number of days in the period from and
including the date of the giving of such notice to and including the date when
the Company shall have made available to the Holders (x) copies of the
supplemented or amended Prospectus necessary to resume such dispositions or (y)
the Advice.
<PAGE> 24
4. Indemnification and Contribution. (a) The Company shall indemnify
and hold harmless each Initial Purchaser, each Holder, each Participating
Broker-Dealer, each underwriter who participates in an offering of Transfer
Restricted Notes, their respective affiliates, each Person, if any, who controls
any of such parties within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act, as follows:
(i) against any and all loss, liability, claim, damage and expense
whatsoever, joint or several, as incurred, arising out of any untrue
statement or alleged untrue statement of a material fact contained in any
Registration Statement (or any amendment or supplement thereto), covering
Transfer Restricted Notes or Exchange Notes, including all documents
incorporated therein by reference, or the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary to
make the statements therein not misleading or arising out of any untrue
statement or alleged untrue statement of a material fact contained in any
Prospectus (or any amendment or supplement thereto) or the omission or
alleged omission therefrom of a material fact necessary in order to make
the statements therein, in the light of the circumstances under which they
were made, not misleading;
(ii) against any and all loss, liability, claim, damage and expense
whatsoever, joint or several, as incurred, to the extent of the aggregate
amount paid in settlement of any litigation, or any investigation or
proceeding by any court or governmental agency or body, commenced or
threatened, or of any claim whatsoever based upon any such untrue statement
or omission, or any such alleged untrue statement or omission; provided
that (subject to Sections 4(c) and 4(d) below) any such settlement is
effected with the prior written consent of the Company; and
(iii) against any and all expenses whatsoever, as incurred (including
reasonable fees and disbursements of one counsel (in addition to any local
counsel) chosen by Merrill Lynch, such Holder, such Participating
Broker-Dealer or any underwriter (except to the extent otherwise expressly
provided in Section 4(c) hereof)), reasonably incurred in investigating,
preparing or defending against any litigation, or any investigation or
proceeding by any court or governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue statement or
omission, or any such alleged untrue statement or omission, to the extent
that any such expense is not paid under subparagraph (i) or (ii) of this
Section 4(a);
<PAGE> 25
provided, however, that this indemnity does not apply to any loss, liability,
claim, damage or expense to the extent arising out of an untrue statement or
omission or alleged untrue statement or omission (i) made in reliance upon and
in conformity with written information furnished in writing to the Company by or
on behalf of such Initial Purchaser, such Holder, such Participating
Broker-Dealer or any underwriter with respect to such Initial Purchaser, Holder,
Participating Broker-Dealer or underwriter, as the case may be, expressly for
use in the Registration Statement (or any amendment or supplement thereto) or
any Prospectus (or any amendment or supplement thereto) or (ii) contained in any
preliminary prospectus if such Initial Purchaser, such Holder, such
Participating Broker-Dealer or such underwriter failed to send or deliver a copy
of the Prospectus (in the form it was first provided to such parties for
confirmation of sales) to the Person asserting such losses, claims, damages or
liabilities on or prior to the delivery of written confirmation of any sale of
securities covered thereby to such Person in any case where the Company shall
have previously furnished copies thereof to such Initial Purchaser, such Holder,
such Participating Broker-Dealer or such underwriter, as the case may be, in
accordance with this Agreement, at or prior to the written confirmation of the
sale of such Notes to such Person and the untrue statement contained in or the
omission from the preliminary prospectus was corrected in the Final Prospectus
(or any amendment or supplement thereto). Any amounts advanced by the Company to
an indemnified party pursuant to this Section 4 as a result of such losses shall
be returned to the Company if it shall be finally determined by a court of
competent jurisdiction in a judgment not subject to appeal or final review that
such indemnified party was not entitled to indemnification by the Company.
(b) Each Holder agrees, severally and not jointly, to indemnify and
hold harmless the Company, each Initial Purchaser, each underwriter who
participates in an offering of Transfer Restricted Notes and the other selling
Holders and each of their respective directors and each Person, if any, who
controls any of the Company, any Initial Purchaser, any underwriter or any other
selling Holder within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act, against any and all loss, liability, claim, damage and expense
whatsoever described in the indemnity contained in Section 4(a) hereof, as
incurred, but only with respect to untrue statements or omissions, or alleged
untrue statements or omissions, made in the Registration Statement (or any
amendment or supplement thereto) or any Prospectus (or any amendment or
supplement thereto) in reliance upon and in conformity with written information
<PAGE> 26
furnished to the Company by or on behalf of such selling Holder with respect to
such Holder expressly for use in the Registration Statement (or any supplement
thereto), or any such Prospectus (or any amendment thereto); provided, however,
that, in the case of the Shelf Registration Statement, no such Holder shall be
liable for any claims hereunder in excess of the amount of net proceeds received
by such Holder from the sale of Transfer Restricted Notes pursuant to the Shelf
Registration Statement; provided, further, however, that for purposes of Section
4(a)(iii), such counsel shall (subject to Section 4(c) hereof) be chosen by the
Company.
(c) Each indemnified party shall give notice as promptly as reasonably
practicable to each indemnifying party of any action commenced against it in
respect of which indemnity may be sought hereunder, but failure to so notify an
indemnifying party shall not relieve such indemnifying party from any liability
hereunder to the extent it is not materially prejudiced as a result thereof and
in any event shall not relieve it from any liability that it may have otherwise
than on account of this indemnity agreement. In the case of parties indemnified
pursuant to Section 4(a) above, one counsel to all the indemnified parties shall
be selected by Merrill Lynch, and, in the case of parties indemnified pursuant
to Section 4(b) above, counsel to all the indemnified parties shall be selected
by the Company. An indemnifying party may participate at its own expense in the
defense of any such action; provided, however, that counsel to the indemnifying
party shall not (except with the consent of the indemnified party) also be
counsel to the indemnified party. Notwithstanding the foregoing, if it so elects
within a reasonable time after receipt of such notice, an indemnifying party,
jointly with any other indemnifying parties receiving such notice, may assume
the defense of such action with counsel chosen by it and approved by the
indemnified parties defendant in such action (which approval shall not be
unreasonably withheld), unless such indemnified parties reasonably object to
such assumption on the ground that there may be legal defenses available to them
which are different from or in addition to those available to such indemnifying
party. If an indemnifying party assumes the defense of such action, the
indemnifying parties shall not be liable for any fees and expenses of counsel
for the indemnified parties incurred thereafter in connection with such action.
In no event shall the indemnifying parties be liable for fees and expenses of
more than one counsel (in addition to any local counsel) separate from their own
counsel for all indemnified parties in connection with any one action or
separate but similar or related actions arising out of the same general
allegations or circumstances. No indemnifying party shall, without the prior
written consent of the indemnified parties, settle or compromise or consent to
the entry of any judgment with respect to any litigation, or any investigation
or proceeding by any governmental agency or body, commenced or threatened, or
any claim whatsoever in respect of which indemnification or contribution could
be sought under this Section 4 (whether or not the indemnified parties are
actual or potential parties thereto), unless such settlement, compromise or
consent (i) includes a full and unconditional release of each indemnified party
from all liability arising out of such litigation, investigation, proceeding or
claim and the offer and sale of any Notes and (ii) does not include a statement
as to or an admission of fault, culpability or a failure to act by or on behalf
of any indemnified party.
<PAGE> 27
(d) If at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for reasonable fees and
expenses of counsel pursuant to Section 4(a)(iii) above, then such indemnifying
party agrees that it shall be liable for any settlement of the nature
contemplated by Section 4(a)(ii) effected without its written consent if (i)
such settlement is entered into more than 45 days after receipt by such
indemnifying party of the aforesaid request, (ii) such indemnifying party shall
have received notice of the terms of such settlement at least 30 days prior to
such settlement being entered into and (iii) such indemnifying party shall not
have reimbursed such indemnified party in accordance with such request prior to
the date of such settlement.
(e) In order to provide for just and equitable contribution in
circumstances under which any of the indemnity provisions set forth in this
Section 4 is for any reason held to be unavailable to the indemnified parties
although applicable in accordance with its terms, the Company, the Initial
Purchasers and the Holders, as applicable, shall contribute to the aggregate
losses, liabilities, claims, damages and expenses of the nature contemplated by
such indemnity agreement incurred by the Company, the Initial Purchasers and the
Holders; provided, however, that no Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person that was not guilty of such
fraudulent misrepresentation. As between the Company and the Initial Purchasers
and the Holders, such parties shall contribute to such aggregate losses,
liabilities, claims, damages and expenses of the nature contemplated by such
indemnity agreement in such proportion as shall be appropriate to reflect the
relative fault of the Company on the one hand and of the Holder of Transfer
Restricted Notes, the Participating Broker-Dealer or Initial Purchaser, as the
case may be, on the other hand in connection with the statements or omissions
which resulted in such losses, liabilities, claims, damages or expenses, as well
as any other relevant equitable considerations.
The relative fault of the Company on the one hand and the Holder of
Transfer Restricted Notes, the Participating Broker-Dealer or the Initial
Purchasers, as the case may be, on the other hand shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company, or by the Holder of Transfer
Restricted Notes, the Participating Broker-Dealer or the Initial Purchasers, as
the case may be, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and the Holders of the Transfer Restricted Notes and the
Initial Purchasers agree that it would not be just and equitable if contribution
pursuant to this Section 4 were determined by pro rata allocation or by any
other method of allocation which does not take account of the equitable
considerations referred to above in this Section 4.
<PAGE> 28
For purposes of this Section 4, each affiliate of any Person, if any,
who controls a Holder of Transfer Restricted Notes, an Initial Purchaser or a
Participating Broker-Dealer within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act shall have the same rights to contribution
as such other Person, and each director of the Company, each affiliate of the
Company, each executive officer of the Company who signed the Registration
Statement, and each Person, if any, who controls the Company within the meaning
of Section 15 of the Securities Act or Section 20 of the Exchange Act shall have
the same rights to contribution as the Company.
5. Miscellaneous.
(a) Rule 144 and Rule 144A. The Company shall provide to each Holder
such reports as are required under Section 10.09 of the Indenture and, upon the
request of any Holder of Transfer Restricted Notes (a) make publicly available
such information as is necessary to permit sales pursuant to Rule 144 under the
Securities Act, (b) deliver such information to a prospective purchaser as is
necessary to permit sales pursuant to Rule 144A under the Securities Act and it
will take such further action as any Holder of Transfer Restricted Notes may
reasonably request, and (c) take such further action, if any, that is reasonable
in the circumstances, in each case, to the extent required from time to time to
enable such Holder to sell its Transfer Restricted Notes without registration
under the Securities Act within the limitation of the exemptions provided by (i)
Rule 144 under the Securities Act, as such rule may be amended from time to
time, (ii) Rule 144A under the Securities Act, as such rule may be amended from
time to time, or (iii) any similar rules or regulations hereafter adopted by the
SEC. Upon the reasonable request of any Holder of Transfer Restricted Notes, the
Company will deliver to such Holder a written statement as to whether they have
complied with such requirements.
(b) No Inconsistent Agreements. The rights granted to the Holders
hereunder do not, and will not for the term of this Agreement in any way
conflict with and are not, and will not during the term of this Agreement be
inconsistent with the rights granted to the holders of the Company's other
issued and outstanding securities under any other agreements entered into by the
Company.
(c) Amendments and Waivers. The provisions of this Agreement,
including provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, otherwise than with the prior written consent of the Company
and the Majority Holders; provided, however, that no amendment, modification, or
supplement or waiver or consent to the departure with respect to the provisions
of Section 4 hereof shall be effective as against any Holder of Transfer
Restricted Notes or the Company unless consented to in writing by such Holder of
Transfer Restricted Notes or the Company, as the case may be.
<PAGE> 29
(d) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, telex, telecopier, or any courier guaranteeing overnight
delivery (i) if to a Holder, at the most current address given by such Holder to
the Company by means of a notice given in accordance with the provisions of this
Section 5(d), which address initially is, with respect to the Initial
Purchasers, the address set forth in the Purchase Agreement; and (ii) if to the
Company, initially at the Company's address set forth in the Purchase Agreement
and thereafter at such other address, notice of which is given in accordance
with the provisions of this Section 5(d).
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five Business
Days after being deposited in the mail, postage prepaid, if mailed; when
answered back, if telexed; when receipt is acknowledged, if telecopied; and on
the next Business Day, if timely delivered to an air courier guaranteeing
overnight delivery.
Copies of all such notices, demands, or other communications shall be
concurrently delivered by the Person giving the same to the Trustee, at the
address specified in the Indenture.
(e) Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the successors, assigns and transferees of the Initial
Purchasers, including, without limitation and without the need for an express
assignment, subsequent Holders; provided, however, that nothing herein shall be
deemed to permit any assignment, transfer or other disposition of Transfer
Restricted Notes in violation of the terms of the Purchase Agreement or the
Indenture. If any transferee of any Holder shall acquire Transfer Restricted
Notes, in any manner, whether by operation of law or otherwise, such Transfer
Restricted Notes shall be held subject to all of the terms of this Agreement,
and by taking and holding such Transfer Restricted Notes, such Person shall be
conclusively deemed to have agreed to be bound by and to perform all of the
terms and provisions of this Agreement and such Person shall be entitled to
receive the benefits hereof.
<PAGE> 30
(f) Third Party Beneficiary. Each of the Initial Purchasers and each
Holder shall be a third party beneficiary of the agreements made hereunder
between the Company, on the one hand, and the Initial Purchasers, on the other
hand, and shall have the right to enforce such agreements directly to the extent
it deems such enforcement necessary or advisable to protect its rights or the
rights of Holders hereunder.
(g) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(i) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO
ANY PROVISIONS RELATING TO CONFLICTS OF LAWS. Specified times of day refer to
New York City time.
(j) Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
(k) Notes Held by the Company or Any of Its Affiliates. Whenever the
consent or approval of Holders of a specified percentage of Transfer Restricted
Notes is required hereunder, Transfer Restricted Notes held by the Company or
any of their affiliates (as such term is defined in Rule 405 under the
Securities Act) shall not be counted in determining whether such consent or
approval was given by the Holders of such required percentage.
[Signature Page Follows]
<PAGE> 31
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above.
GOLDEN SKY SYSTEMS, INC.
By: /s/ Rodney A.Weary
-------------------------
Name: Rodney A.Weary
Title: Chief Executive Officer
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: Merrill Lynch, Pierce, Fenner & Smith
Incorporated
By: /s/ Joseph B.Sheehan
-------------------------
Name: Joseph B.Sheehan
Title: Director
NATIONSBANC MONTGOMERY SECURITIES LLC
By: /s/ Michael Yagen
-------------------------
Name: Michael Yagen
Title:
<PAGE> 32
Exhibit A
Form of Opinion of Counsel
1. Each of the Exchange Offer Registration Statement and the
Prospectus (other than the financial statements, notes or schedules thereto and
other financial and statistical information and supplemental schedules included
or referred to therein or omitted therefrom and the Form T-1, as to which such
counsel need express no opinion), complies as to form in all material respects
with the applicable requirements of the Securities Act and the applicable rules
and regulations promulgated under the Securities Act.
2. In the course of such counsel's review and discussion of the
contents of the Exchange Offer Registration Statement and the Prospectus with
certain officers and other representatives of the Company and representatives of
the independent certified public accountants of the Company, but without
independent check or verification or responsibility for the accuracy,
completeness or fairness of the statements contained therein, on the basis of
the foregoing (relying as to materiality to a large extent upon representations
and opinions of officers and other representatives of the Company), no facts
have come to such counsel's attention which cause such counsel to believe that
the Exchange Offer Registration Statement (other than the financial statements,
notes and schedules thereto and other financial and statistical information
contained or referred to therein and the Form T-1, as to which such counsel need
express no belief), at the time the Exchange Offer Registration Statement became
effective and at the time of the consummation of the Exchange Offer, contained
an untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements contained
therein not misleading, or that the Prospectus (other than the financial
statements, notes and schedules thereto and other financial and statistical
information contained or referred to therein, as to which such counsel need
express no belief) contains any untrue statement of a material fact or omits to
state a material fact necessary to make the statements contained therein, in the
light of the circumstances under which they were made, not misleading.
<PAGE> 1
Exhibit 4.4
ESCROW AGREEMENT
This ESCROW AGREEMENT (this "Agreement"), dated as of July 31, 1998,
is entered into by and among State Street Bank and Trust Company of Missouri,
N.A., as escrow agent (in such capacity, the "Escrow Agent"), State Street Bank
and Trust Company of Missouri, N.A., as trustee (in such capacity, the
"Trustee") under the Indenture (as defined herein) and Golden Sky Systems, Inc.,
a Delaware corporation (the "Company").
R E C I T A L S :
A. Pursuant to the Indenture, dated as of July 31, 1998 (the
"Indenture"), between the Company and the Trustee, the Company is issuing
$195,000,000 aggregate principal amount of its 12 3/8% Senior Subordinated Notes
due 2006, Series A (the "Series A Securities"), and authorizing the issuance of
12 3/8% Senior Subordinated Notes due 2006, Series B (the "Series B Securities"
and, together with the Series A Securities, the "Securities").
B. As security for its obligations under the Securities and the
Indenture, the Company hereby grants to the Trustee, for the benefit of the
Trustee, any successor Trustee under the Indenture and the holders of the
Securities, a security interest in and lien upon the Escrow Account (as defined
herein) on the terms and conditions set forth herein.
C. The parties have entered into this Agreement in order to set forth
the conditions upon which, and the manner in which, funds will be disbursed from
the Escrow Account and released from the security interest and lien described
above.
A G R E E M E N T :
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Defined Terms. All capitalized terms used but not defined herein
shall have the meanings ascribed to them in the Indenture. In addition to any
other defined terms used herein, the following terms shall constitute defined
terms for purposes of this Agreement and shall have the meanings set forth
below:
<PAGE> 2
"Available Escrow Proceeds" has the meaning set forth in Section 3(a).
"Beneficiaries" has the meaning set forth in Section 2(b).
"Collateral" has the meaning set forth in Section 6(a).
"Escrow Account" shall mean the escrow account established pursuant to
Section 2.
"Escrow Account Statement" has the meaning set forth in Section 2(f).
"Escrow Proceeds Offer" has the meaning set forth in the Indenture.
"Escrow Proceeds Offer Purchase Date" has the meaning set forth in the
Indenture.
"Financial Information Condition" has the meaning set forth in Section
3(a)(i).
"Government Securities" means (i) securities that are direct
non-callable obligations of the United States of America or securities the
timely payment of whose principal and interest is unconditionally guaranteed by
the full faith and credit of the United States of America and (ii) securities
that are issued by the United States treasury pursuant to 31 CFR Part 357.
"Initial Escrow Amount" has the meaning set forth in Section 2(b).
"Interest Payment Date" means February 1 and August 1 of each year,
commencing on February 1, 1999 until the Securities are paid in full.
"Interest Reserve Amount" has the meaning set forth in Section 3(a).
"Investment Instructions" means the written instructions delivered by
the Company designating Government Securities in which funds held in the Escrow
Account, after giving effect to any authorized release pursuant to Section 3(a),
shall be invested that mature in an amount sufficient to and/or generate
interest income sufficient to, when added to the balance of funds held in the
Escrow Account, provide for the payment of interest on the outstanding
Securities on each Interest Payment Date beginning on and including February 1,
1999 and through and including the Interest Payment Date on August 1, 2000;
provided, however, that any such written instruction shall specify the
particular investment to be made, shall state that such investment is authorized
to be made by this Agreement and in particular satisfies the requirements of
this definition and Section 2(d)(v), shall contain the certification referred to
in Section 2(d)(ii), if required, and shall be executed by an Officer of the
Company. Such written instructions shall be accompanied by a report by an
independent accounting firm reflecting the calculations referred to above as
evidence that such written instructions conform to the requirements of Section
2(d)(v).
<PAGE> 3
"Issue Date" means July 31, 1998.
"Payment Notice and Disbursement Request" means a notice sent by the
Trustee to the Escrow Agent requesting a disbursement of funds in connection
with an Interest Payment Date from the Escrow Account in substantially the form
of Exhibit A hereto. Each Payment Notice and Disbursement Request shall be
signed by an Assistant Vice President or a Vice President of the Trustee.
"Permitted Investments" means a demand deposit account held at State
Street Bank and Trust Company in the Commonwealth of Massachusetts in the name
of and subject to the exclusive control of the Trustee, which is not represented
by (and as to which no person is entitled to be issued) an "indispensable
instrument" evidencing or entitling the holder to rights of ownership in,
transfer of or payment or withdrawal from such account (such as a passbook or
certificate of deposit or similar instrument) unless such instrument is in the
continuous and exclusive possession and control of the Trustee, and as to which
account no person other than the Trustee has any right of access thereto or
power of withdrawal, transfer or payment therefrom, or power to make third-party
payments from (whether by check, draft, negotiable order of withdrawal or
similar means) such account.
"Release Date" has the meaning set forth in Section 3(a).
"Required Filing Date" means the 60th day following the Issue Date.
<PAGE> 4
2. Escrow Account; Escrow Agent.
(a) Appointment of Escrow Agent. The Company and the Trustee hereby
appoint the Escrow Agent, and the Escrow Agent hereby accepts appointment, as
escrow agent, under the terms and conditions of this Agreement.
(b) Establishment of Escrow Account. On the Issue Date, the Escrow
Agent shall establish an escrow account entitled the "State Street Bank and
Trust Company of Missouri, N.A., as Escrow Agent/Escrow Account pledged by
Golden Sky Systems, Inc. to State Street Bank and Trust Company of Missouri,
N.A., as Trustee, pursuant to the Escrow Agreement dated as of July 31, 1998"
(such account, the "Escrow Account"). The Escrow Account shall be established
and maintained by the Escrow Agent with State Street Bank and Trust Company (the
"Custodian"), a Massachusetts trust company located in Boston, Massachusetts,
and each of the Escrow Agent, the Custodian and the Company shall enter into an
agreement substantially in the form of Exhibit B annexed hereto and made a part
hereof (the "Account Control Agreement"). On the Issue Date, the Company will
deposit with the Custodian $188,150,000 in cash, representing the net proceeds
of the issuance of the Securities (the "Initial Escrow Amount"). The Escrow
Agent will acknowledge in writing receipt of the Initial Escrow Amount. Such
Initial Escrow Amount shall constitute the only deposit by the Company in the
Escrow Account. The funds in the Escrow Account shall be released by the Escrow
Agent only pursuant to Section 3.
All funds accepted by the Escrow Agent pursuant to this Agreement
shall be held for the exclusive benefit of the Trustee, any successor Trustee
under the Indenture and the holders of the Securities, as secured parties
hereunder (collectively, the "Beneficiaries"). All such funds shall be held in
the Escrow Account until disbursed or paid in accordance with the terms hereof.
The Escrow Account, the funds held therein, any Government Securities or
Permitted Investments held by the Escrow Agent shall be held by the Escrow
Agent, for the benefit of the Beneficiaries, in the form required by Section
2(d)(i) and in such a manner as will result in the security interests
contemplated by Section 2(d)(ii) hereof.
(c) Escrow Agent Compensation. The Company shall pay to the Escrow
Agent such compensation for services to be performed by it under this Agreement
as the Company and the Escrow Agent may agree in writing from time to time. The
Escrow Agent shall be paid any compensation owed to it directly by the Company
and shall not disburse from the Escrow Account any such amounts.
<PAGE> 5
The Company shall reimburse the Escrow Agent upon request for all
reasonable expenses, disbursements and advances incurred or made by the Escrow
Agent in implementing any of the provisions of this Agreement, including
compensation and the reasonable expenses and disbursements of its counsel. The
Escrow Agent shall be paid any such expenses owed to it directly by the Company
and shall not disburse from the Escrow Account any such amounts.
(d) Investment of Funds in Escrow Account. Funds deposited in the
Escrow Account shall be invested and reinvested only upon the following terms
and conditions:
(i) Acceptable Investments. Until the release of Collateral pursuant
to, and in compliance with, Section 3(a)(i) or (ii) (the "Applicable
Time"), funds contained in the Escrow Account shall be held by the Escrow
Agent, within its sole control and dominion, only in the form of cash and
Permitted Investments as directed by the Company in writing and shall be
held in such a manner as will result in the security interests contemplated
by Section 2(d)(ii) hereof. Following the Applicable Time, funds contained
in the Escrow Account shall be invested by the Escrow Agent in Government
Securities in accordance with Investment Instructions. All Government
Securities shall be maintained in book entry form with the Federal Reserve
Bank of Boston (i.e., TRADES), transferred to a book entry account in
the name of the Custodian as a participant in the Federal Reserve Bank of
Boston pursuant to the Account Control Agreement; provided that Government
Securities maintained in book entry form with the Federal Reserve Bank of
Boston shall be transferred to a book entry account in the name of the
Custodian at the Federal Reserve Bank of Boston that includes only
Government Securities held by the Custodian for its customers and
segregated by separate recordation in the books and records of the
Custodian. The Escrow Agent shall not be liable for losses on any
investments made by it pursuant to and in compliance with written
instructions or Investment Instructions given hereunder. In the absence of
written instructions or Investment Instructions, as applicable, from the
Company that meet the requirements of this Agreement, the Escrow Agent
shall have no obligation to invest funds held in the Escrow Account.
<PAGE> 6
(ii) Security Interest in Investments. No investment of funds in the
Escrow Account shall be made unless the Company has certified to the Escrow
Agent and the Trustee that, upon such investment, the Escrow Agent will
have a first priority perfected security interest in the applicable
investment. If a certificate as to a class of investments has been provided
to the Escrow Agent, a certificate need not be issued with respect to
individual investments in securities in that class if the certificate
applicable to the class remains accurate with respect to such individual
investments, which continued accuracy the Escrow Agent may conclusively
assume. On the Issue Date, and on each anniversary of the Issue Date
thereafter until the date upon which the balance of the funds held in the
Escrow Account shall have been reduced to zero, each of the Trustee and the
Escrow Agent shall receive an Opinion of Counsel to the Company, dated each
such date as applicable, to the effect that the Trustee has a perfected
security interest in the Collateral, which opinion shall meet the
requirements of Section 314(b) of the Trust Indenture Act of 1939, as
amended (the "TIA"), and shall comply with Section 14.02(b) of the
Indenture.
(iii) Interest and Dividends. All interest earned and dividends paid
on funds contained in the Escrow Account shall remain deposited in the
Escrow Account as additional Collateral for the exclusive benefit of the
Beneficiaries and, if not required to be disbursed in accordance with the
terms hereof, shall be reinvested in accordance with the terms hereof at
the Company's written instruction in conformity with this Agreement.
(iv) Limitation on Escrow Agent's Responsibilities. The Escrow Agent's
sole responsibilities under this Section 2 shall be (A) to retain, or cause
the Custodian to retain, possession of Collateral to the extent necessary
to obtain a first priority perfected security interest therein (except,
however, that the Escrow Agent and the Custodian may surrender possession
to the issuer of any Collateral held by it to effect such perfected
security interest for the purposes of effecting assignment, crediting
interest, reinvesting such security or reducing such security to cash) and
to be the registered or designated owner of the Collateral, (B) to follow
the Company's written instructions or Investment Instructions, as
applicable, given in accordance with Section 2(d)(i), (C) to invest and
reinvest funds pursuant to this Section 2(d) and (D) to use reasonable
efforts to reduce to cash such Government Securities or Permitted
Investments as may be required to fund any disbursement or payment in
accordance with Section 3. In connection with clause (A) above, the
Custodian will maintain continuous possession in the State of Massachusetts
of Collateral and will cause the Collateral to be registered in the
book-entry system of, and transferred to an account of the Custodian at,
the Federal Reserve Bank of Boston or, in the case of Permitted
Investments, other books and records of the issuer thereof maintained in
the State of Massachusetts. Except as provided in Section 6, the Escrow
Agent shall have no other responsibilities with respect to perfecting or
maintaining the perfection of the Trustee's security interest in the
Collateral and shall not be required to file any instrument, document or
notice in any public office at any time or times. In connection with clause
(D) above and subject to the following sentence, the Escrow Agent shall not
<PAGE> 7
be required to reduce to cash any Government Securities or Permitted
Investments to fund any disbursement or payment in accordance with Section
3 in the absence of written instructions signed by an Officer of the
Company specifying the particular investment to liquidate. If no such
written instructions are received, the Escrow Agent may liquidate, first,
the Permitted Investments, and, second, those Government Securities having
the lowest interest rate per annum or if none such exist, those having the
nearest maturity.
(v) Manner of Investment. Prior to the Applicable Time, the Escrow
Agent shall invest funds only in cash or Permitted Investments. Following
the Applicable Time, funds deposited in the Escrow Account shall be
invested in accordance with the Investment Instructions, which shall be in
a manner such that there will be sufficient funds available without any
further investment by the Company to cover all interest due on the
outstanding Securities, as such interest becomes due, for each Interest
Payment Date occurring from the Issue Date and ending on (and including)
August 1, 2000, provided that such investments shall have such maturities
and/or interest payment dates such that funds will be available with
respect to each such Interest Payment Date no later than the time the
Escrow Agent is required to disburse such funds to the Trustee pursuant to
Section 3(c). The Escrow Agent shall have no responsibility for determining
whether funds held in the Escrow Account shall have been invested in such a
manner so as to comply with the preceding sentence.
<PAGE> 8
(e) Substitution of Escrow Agent. The Escrow Agent may resign by
giving no less than 30 days prior written notice to the Company and the Trustee.
Such resignation shall take effect upon the later to occur of (i) delivery of
all funds and Government Securities maintained by the Escrow Agent hereunder and
copies of all books, records, plans and other documents in the Escrow Agent's
possession relating to such funds or Government Securities or this Agreement to
a successor escrow agent mutually approved by the Company and the Trustee (which
approvals shall not be unreasonably withheld or delayed) and (ii) the Company,
the Trustee and such successor escrow agent entering into this Agreement or any
written successor agreement no less favorable to the interests of the holders of
the Securities and the Trustee than this Agreement; and the Escrow Agent shall
thereupon be discharged of all obligations under this Agreement and shall have
no further duties, obligations or responsibilities in connection herewith,
except as set forth in Section 4. If a successor escrow agent has not been
appointed or has not accepted such appointment within 20 Business Days after
notice of resignation is given to the Company, the Escrow Agent may apply to a
court of competent jurisdiction for the appointment of a successor escrow agent.
(f) Escrow Account Statement. The Escrow Agent shall deliver to the
Company and the Trustee a statement setting forth with reasonable particularity
the balance of funds then in the Escrow Account and the manner in which such
funds are invested ("Escrow Account Statement"). The Escrow Account Statement
shall be delivered by the Escrow Agent 30 days after the date of this Agreement
and every 30 days thereafter until the Applicable Time, at which point the
Escrow Account Statement shall be delivered at least 30 days prior to each
Interest Payment Date. The parties hereto irrevocably instruct the Escrow Agent
that on the first date upon which the balance in the Escrow Account (including
the holdings of all Government Securities) is reduced to zero, the Escrow Agent
shall deliver to the Company and to the Trustee a notice that the balance in the
Escrow Account has been reduced to zero.
3. Disbursements.
(a) Release of Available Escrow Proceeds. The Escrow Agent shall
release the Available Escrow Proceeds to the Company upon receipt of the
following documentation as applicable (the date of such proposed release being
the "Release Date"):
<PAGE> 9
(i) an Officers' Certificate, dated the Release Date, of the Chief
Executive Officer and Chief Financial Officer of the Company (an "Eligible
Officers' Certificate") to the effect that the Financial Information
Condition set forth in this Section 3(a)(i) has been satisfied on or prior
to the Required Filing Date by (A) the filing of the Exchange Offer
Registration Statement with the SEC that the Company, after due inquiry of
its independent auditors and outside counsel, believes to include all of
the audited, unaudited and pro forma financial statements and other
financial information (including unqualified reports of all of the
independent auditors that have prepared audited financial statements and
signed consents of such auditors) required to be included therein under the
Securities Act and the regulations promulgated thereunder (including Rule
3-05 and Article 11 of Regulation S-X) (it being understood that this
condition shall remain satisfied by the filing of the Exchange Offer
Registration Statement notwithstanding any subsequent determination by the
SEC that such Exchange Offer Registration Statement did not contain the
required financial statements and other information) or (B) the Company
having determined, after due inquiry of its independent auditors and
outside counsel, that (x) the Company has received or prepared all of the
audited, unaudited and pro forma financial statements and other financial
information (including unqualified reports of all of the independent
auditors that have prepared audited financial statements) in the form and
substance required to be included in a registration statement filed with
the SEC under the Securities Act and the regulations promulgated thereunder
(including Rule 3-05 and Article 11 of Regulation S-X) on Form S-4 as of
the Release Date; provided that, to the extent such Eligible Officers'
Certificate is delivered prior to August 15, 1998, the "stub" unaudited and
pro forma financial statements of the Company may be for the three-month
period ended March 31, 1998, rather than the six-month period ended June
30, 1998, if the Eligible Officers have stated that, after due inquiry,
they fully expect to have such information for the such six-month period
prior to August 15, 1998, and (y) the Company having received forms of
consents from each independent auditor that has issued a report referred to
in the preceding clause (x) that are required to be filed with the SEC
under the Securities Act and the regulations promulgated thereunder and an
indication that each such auditor is prepared to deliver such consent as of
the Release Date (the matter described in the preceding clause (A) or (B)
being referred to as the "Financial Information Condition"); or
<PAGE> 10
(ii) an Eligible Officers' Certificate to the effect that (a) the
Available Escrow Proceeds are being released on the Release Date because it
is also an Escrow Proceeds Offer Purchase Date and that such funds are
being used, upon release, first, to fund the Escrow Proceeds Offer and,
second, as set forth under "Use of Proceeds" in the Final Offering
Memorandum for the Securities and (b) the Company has otherwise complied
with all of its obligations in respect of the Escrow Proceeds Offer
contained in the Indenture.
Notwithstanding anything herein to the contrary, the Company shall not request a
release of funds under Section 3(a) in excess of the Available Escrow Proceeds.
The "Available Escrow Proceeds" shall equal the funds held in the Escrow Account
immediately prior to the release on the Release Date less the Interest Reserve
Amount as determined on the Release Date. The "Interest Reserve Amount" as of
the applicable Release Date shall represent the amount that, together with the
interest received from the investment thereof in Government Securities in which
funds remaining after the release under Section 3(a) contemplated to occur on
such Release Date (after giving effect to the Escrow Proceeds Offer, if
applicable) are to be invested on such Release Date pursuant to Investment
Instructions, will be sufficient to pay when due the first four scheduled
interest payments on the Securities (but in no event more than $48.3 million).
The Interest Reserve Amount will continue to be held in escrow pending
disbursement for the payment of such interest. The Escrow Agent shall disburse
the Interest Reserve Amount in accordance with Section 3(c) and (d).
(b) Failure to Satisfy the Financial Information Condition. In the
event that on or before the Required Filing Date, the Available Escrow Proceeds
have not been released in accordance with the requirements of Section 3(a), the
Company shall, within five Business Days of the Required Filing Date, make the
Escrow Proceeds Offer required by the Indenture. If the Escrow Agent receives a
notice of the Escrow Proceeds Offer, the Escrow Agent shall liquidate the
Available Escrow Proceeds held in the Escrow Account not later than the third
Business Day preceding the Escrow Proceeds Offer Purchase Date.
(c) Payment Notice and Disbursement Request; Disbursements. In
addition to the releases contemplated by Section 3(a)(i) and (ii), the Trustee
shall, at least five Business Days prior to an Interest Payment Date, submit to
the Escrow Agent a completed Payment Notice and Disbursement Request
substantially in the form of Exhibit A hereto.
<PAGE> 11
The Escrow Agent's disbursement pursuant to any Payment Notice and
Disbursement Request shall be subject to the satisfaction of the applicable
conditions set forth in Section 3(c). Provided such Payment Notice and
Disbursement Request is not rejected by it, the Escrow Agent, as soon as
reasonably practicable on the Interest Payment Date, but in no event later than
12:00 Noon (New York City time) on such Interest Payment Date, shall disburse
the funds requested in such Payment Notice and Disbursement Request by wire or
book-entry transfer of immediately available funds to the account of the Trustee
for the benefit of the Beneficiaries. The Escrow Agent shall notify the Trustee
as soon as reasonably possible (but not later than two Business Days from the
date of receipt of the Payment Notice and Disbursement Request) if any Payment
Notice and Disbursement Request is rejected and the reason(s) therefor. In the
event such rejection is based upon nonsatisfaction of the condition in Section
3(d)(I) below, the Trustee shall thereupon resubmit the Payment Notice and
Disbursement Request with appropriate changes.
(d) Conditions Precedent to Disbursement. The Escrow Agent's payment
of any disbursement shall be made only if: (I) the Trustee shall have submitted,
in accordance with the provisions of Section 3(a) or (c), as applicable, an
Eligible Officers' Certificate or a completed Payment Notice and Disbursement
Request to the Escrow Agent substantially in the form required by Section 3(a)
or Exhibit A with blanks appropriately filled in and (II) the Escrow Agent shall
not have received any notice from the Trustee that as a result of an Event of
Default under the Indenture the indebtedness represented by the Securities has
been accelerated and has become due and payable (in which event the Escrow Agent
shall apply all Collateral as required by Section 6(b)(iii)).
(e) Retired Securities. Following the Applicable Time, in the event a
portion of the Securities has been retired by the Company and submitted to the
Trustee for cancellation and there is no Default or Event of Default under the
Indenture, funds representing the lesser of (A) any funds remaining in the
Escrow Account that are in excess of the amount sufficient to pay interest
through and including August 1, 2000 on the Securities not so retired and (B)
the interest payments that have not previously been made on such retired
Securities for each Interest Payment Date through the Interest Payment Date to
occur on August 1, 2000 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 by the Escrow Agent
of a notice relating thereto from the Trustee.
<PAGE> 12
4. Escrow Agent.
(a) Limitation of the Escrow Agent's Liability; Responsibilities of
the Escrow Agent. The Escrow Agent's responsibility and liability under this
Agreement shall be limited as follows: (i) the Escrow Agent does not represent,
warrant or guaranty to the holders of the Securities from time to time the
performance of the Company; (ii) the Escrow Agent shall have no responsibility
to the Company or the holders of the Securities or the Trustee from time to time
as a consequence of performance or non-performance by the Escrow Agent
hereunder, except for any gross negligence or willful misconduct of the Escrow
Agent; (iii) the Company shall remain solely responsible for all aspects of the
Company's business and conduct; and (iv) the Escrow Agent is not obligated to
supervise, inspect or inform the Company or any third party of any matter
referred to above. In no event shall the Escrow Agent be liable (A) for acting
in accordance with or relying upon any instruction, notice, demand, certificate
or document from the Company or any entity acting on behalf of the Company, (B)
for any consequential, punitive or special damages, (C) for the acts or
omissions of its correspondents, designees, subagents or subcustodians chosen in
due care, including the Custodian, (D) for an amount in excess of the value of
the Escrow Account, valued as of the date of deposit or (E) by reason of any
occurrence beyond the control of the Escrow Agent (including but not limited to
any act or provision of any present or future law or regulation or governmental
authority, any act of God or war or the unavailability of the Federal Reserve
Bank of Boston wire or telex or other wire or communication facility).
No implied covenants or obligations shall be inferred from this
Agreement against the Escrow Agent, nor shall the Escrow Agent be bound by the
provisions of any agreement beyond the specific terms hereof. Specifically and
without limiting the foregoing, the Escrow Agent shall in no event have any
liability in connection with its investment, reinvestment or liquidation, in
good faith and in accordance with the terms hereof, of any funds or Government
Securities or Permitted Investments held by it hereunder, including without
limitation any liability for any delay not resulting from gross negligence or
willful misconduct in such investment, reinvestment or liquidation, or for any
loss of principal or income incident to any such delay.
<PAGE> 13
The Escrow Agent and its agents shall be entitled to rely upon any
judicial order or judgment, upon any written Opinion of Counsel or upon any
certification, instruction, notice, or other writing delivered to it by the
Company or the Trustee in compliance with the provisions of this Agreement
without being required to determine the authenticity or the correctness of any
fact stated therein or the propriety or validity of service thereof. The Escrow
Agent may act in reliance upon any instrument comporting with the provisions of
this Agreement or signature believed by it to be genuine and may assume that any
person purporting to give notice or receipt or advice or make any statement or
execute any document in connection with the provisions hereof has been duly
authorized to do so.
At any time the Escrow Agent may request in writing an instruction in
writing from the Company, and may at its own option include in such request the
course of action it proposes to take and the date on which it proposes to act,
regarding any matter arising in connection with its duties and obligations
hereunder; provided, however, that the Escrow Agent shall state in such request
that it believes in good faith that such proposed course of action is consistent
with another identified provision of this Agreement. The Escrow Agent shall not
be liable to the Company for acting without the Company's consent in accordance
with such a proposal on or after the date specified therein if (i) the specified
date is at least two Business Days after the Company receives the Escrow Agent's
request for instructions and its proposed course of action and (ii) prior to so
acting, the Escrow Agent has not received the written instructions requested
from the Company.
At the expense of the Company, the Escrow Agent may act pursuant to
the advice of counsel chosen by it with respect to any matter relating to this
Agreement and (subject to clause (ii) of the first paragraph of this Section
4(a)) shall not be liable for any action taken or omitted in accordance with
such advice.
The Escrow Agent shall not be called upon to advise any party as to
selling or retaining, or taking or refraining from taking any action with
respect to, any securities or other property deposited hereunder.
<PAGE> 14
In the event of any ambiguity in the provisions of this Agreement with
respect to any funds or property deposited hereunder, the Escrow Agent shall be
entitled to refuse to comply with any and all claims, demands or instructions
with respect to such funds or property, and the Escrow Agent shall not be or
become liable for its failure or refusal to comply with conflicting claims,
demands or instructions. The Escrow Agent shall be entitled to refuse to act
until either any conflicting or adverse claims or demands shall have been
finally determined by a court of competent jurisdiction or settled by agreement
between the conflicting claimants as evidenced in a writing, satisfactory to the
Escrow Agent, or the Escrow Agent shall have received security or an indemnity
satisfactory to the Escrow Agent sufficient to save the Escrow Agent harmless
from and against any and all loss, liability or expense that the Escrow Agent
may incur by reason of its acting. The Escrow Agent may in addition elect in its
sole option to commence an interpleader action or seek other judicial relief or
orders as the Escrow Agent may deem necessary. The costs and expenses incurred
in connection with such proceedings shall be paid by, and shall be deemed an
obligation of, the Company.
No provision of this Agreement shall require the Escrow Agent to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder.
5. Indemnity. The Company shall indemnify, hold harmless and defend
the Escrow Agent and its directors, officers, agents, employees and controlling
persons, from and against any and all claims, actions, obligations, liabilities
and expenses, including defense costs and expenses, investigative fees and
costs, legal fees and expenses and claims for damages, arising from the Escrow
Agent's performance or non-performance, or in connection with its acceptance or
appointment, as Escrow Agent, under this Agreement, except to the extent that
such liability, expense or claim is solely and directly attributable to the
gross negligence or willful misconduct of any of the foregoing persons. To the
extent that the undertaking to indemnify, pay and hold harmless set forth in the
preceding sentence may be unenforceable because it is violative of the law or
public policy, the Company shall contribute the maximum portion that it is
permitted to pay and satisfy under applicable law, to the payment and
satisfaction of all indemnified liabilities incurred by any of the persons
indemnified hereunder. The provisions of this Section 5 shall survive any
termination, satisfaction or discharge of this Agreement as well as the
resignation or removal of the Escrow Agent.
<PAGE> 15
6. Grant of Security Interest; Instructions to Escrow Agent.
(a) The Company hereby irrevocably grants a first priority security
interest in and lien on, and pledges, assigns and sets over to the Trustee for
the ratable benefit of the Beneficiaries, all of the Company's right, title and
interest in the Escrow Account, and all property now or hereafter placed or
deposited in, or delivered to the Escrow Agent for placement or deposit in, the
Escrow Account, including, without limitation, all funds held therein, all
Government Securities and Permitted Investments held by (or otherwise maintained
in the name of) the Escrow Agent pursuant to Section 2, and all security
entitlements thereto and therein, and all proceeds thereof as well as all rights
of the Company under this Agreement (collectively, the "Collateral"), in order
to secure the Secured Obligations (as defined below). As used herein, "Secured
Obligations" shall mean (i) until the Applicable Time, all of the Company's
Indenture Obligations and any other obligation, now or hereafter arising
(whether upon acceleration, consummation of an Escrow Proceeds Offer or
otherwise), of every kind and nature, owed by the Company under the Indenture
and the Securities to the Beneficiaries and (ii) following the Applicable Time,
the obligations of the Company under the Indenture and the Securities to pay
interest (including post-petition interest) on the Securities scheduled to be
paid through and including August 1, 2000, whether arising following an
acceleration or otherwise. The Escrow Agent hereby acknowledges the Trustee's
security interest and lien as set forth above. The Company shall take all
actions necessary on its part to ensure the continuance of a first priority
security interest in the Collateral in favor of the Trustee in order to secure
the Secured Obligations.
(b) The Company and the Trustee hereby irrevocably instruct the Escrow
Agent to, and the Escrow Agent shall: (i)(A) maintain sole dominion and control
over the funds and other Collateral in the Escrow Account for the benefit of the
Beneficiaries to the extent specifically required herein, (B) maintain, or cause
the Custodian to maintain, possession of all Collateral purchased hereunder that
to the extent needed to be physically possessed by the Custodian in order for
the Beneficiaries to enjoy a continuous perfected first priority security
interest therein under the law of the State of Massachusetts (the Company hereby
agreeing that in the event any Collateral is in the possession of the Company or
a third party, the Company shall use its best efforts to deliver all such
Collateral to the Custodian), (C) take all steps specified by the Company
<PAGE> 16
pursuant to paragraph (a) of this Section 6 to cause the Trustee to enjoy a
continuous perfected first priority security interest under any applicable
Federal and State of Massachusetts law in all Collateral purchased hereunder (D)
take all steps specified by the Company pursuant to paragraph (a) of this
Section 6 to cause the Trustee to enjoy a continuous perfected first priority
security under any applicable Federal and State of Massachusetts law in all
Collateral in the Escrow Account and (E) maintain the Collateral free and clear
of all liens, security interests, safekeeping or other charges, demands and
claims against the Escrow Agent of any nature now or hereafter existing in favor
of anyone other than the Trustee; (ii) promptly notify the Trustee if the Escrow
Agent receives written notice that any Person other than the Trustee has a lien
or security interest upon any portion of the Collateral; and (iii) in addition
to disbursing amounts held in escrow pursuant to Section 3, upon receipt of
written notice from the Trustee of the acceleration of the maturity of the
Securities, and direction from the Trustee to disburse all Collateral or
proceeds thereof to the Trustee, as promptly as practicable, after following, if
it so chooses, the procedures set forth in the fourth paragraph of Section 4(a),
disburse all funds held in the Escrow Account to the Trustee and transfer title
to all Collateral held by the Escrow Agent hereunder to the Trustee. The lien
and security interest provided for by this Section 6 shall automatically
terminate and cease as to, and shall not extend or apply to, and the Trustee
shall have no security interest in, any funds disbursed by the Escrow Agent to
the Company pursuant to this Agreement to the extent not inconsistent with the
terms hereof. Notwithstanding any other provision contained in this Agreement,
the Escrow Agent shall act solely as the Trustee's agent in connection with its
duties under this Section 6 or any other duties herein relating to the Escrow
Account or any funds or Government Securities or Permitted Investments held
thereunder. The Escrow Agent shall not have any right to receive compensation
from the Trustee and shall have no authority to obligate the Trustee or to
compromise or pledge its security interest hereunder. Accordingly, the Escrow
Agent is hereby directed to cooperate with the Trustee in the exercise of its
rights in the Collateral provided for herein.
(c) Any money and other Collateral collected by the Trustee pursuant
to Section 6(b)(iii) shall be applied as provided in Section 5.06 of the
Indenture. Any surplus of such cash or cash proceeds held by the Trustee and
remaining after indefeasible payment in full of the then Secured Obligations
under the Indenture shall be paid over to the Company or as a court of competent
jurisdiction may direct.
<PAGE> 17
(d) Upon demand, the Company will execute and deliver to the Trustee
such instruments and documents as the Trustee may deem necessary or advisable to
confirm or perfect the rights of the Trustee under this Agreement and the
Trustee's interest in the Collateral, including, but not limited to, (i) UCC-1
financing statements in the Company's principal place of business (and will
notify the Trustee and the Escrow Agent of any change in such place of business)
and (ii) UCC-3 financing statements with respect to any other financing
statements previously filed by third parties to the extent necessary to clarify
the interests of the beneficiaries in the Collateral. The Trustee shall be
entitled to take all necessary action to preserve and protect the security
interest created hereby as a lien and encumbrance upon the Collateral. The
Company will pay all costs and expenses incurred in connection with any of the
foregoing. It being understood that neither the Trustee nor the Escrow Agent has
a duty to determine whether to file or record any document or instrument
relating to the Collateral.
(e) The Company hereby appoints the Trustee as its attorney-in-fact
with full power of substitution to do any act that the Company is obligated
hereunder to do, and the Trustee may exercise such rights as the Company might
exercise with respect to the Collateral and take any action in the Company's
name to protect the Trustee's security interest hereunder.
7. Termination. This Agreement shall terminate automatically following
disbursement of all funds remaining in the Escrow Account (including Government
Securities), unless sooner terminated by agreement of the parties hereto (in
accordance with the terms hereof and not in violation of the Indenture);
provided, however, that the obligations of the Company under Section 2(c) and
Section 5 (and any existing claims thereunder) shall survive termination of this
Agreement and the resignation of the Escrow Agent; provided, further, that until
such disbursement, the Company will cause this Agreement (or any permitted
successor agreement) to remain in effect and will cause there to be an escrow
agent (including any permitted successor thereto) acting hereunder (or under any
such permitted successor agreement).
8. Miscellaneous.
(a) Waiver. Any party hereto may specifically waive any breach of this
Agreement by any other party, but no such waiver shall be deemed to have been
given unless such waiver is in writing, signed by the waiving party and
specifically designating the breach waived, nor shall any such waiver constitute
a continuing waiver of similar or other breaches.
<PAGE> 18
(b) Invalidity. If for any reason whatsoever any one or more of the
provisions of this Agreement shall be held or deemed to be inoperative,
unenforceable or invalid in a particular case or in all cases, such
circumstances shall not have the effect of rendering any of the other provisions
of this Agreement inoperative, unenforceable or invalid, and the inoperative,
unenforceable or invalid provision shall be construed as if it were written so
as to effectuate, to the maximum extent possible, the parties' intent.
(c) Assignment. This Agreement is personal to the parties hereto, and
the rights and duties of any party hereunder shall not be assignable except with
the prior written consent of the other parties. Notwithstanding the foregoing,
this Agreement shall inure to and be binding upon the parties and their
successors and permitted assigns.
(d) Benefit. The parties hereto and their successors and permitted
assigns, but no others, shall be bound hereby and entitled to the benefits
hereof; provided, however, that the Beneficiaries (including holders of the
Securities) and their assigns shall be entitled to the benefits hereof and to
enforce this Agreement.
(e) Time. Time is of the essence with respect to each provision of
this Agreement.
(f) Entire Agreement; Amendments. This Agreement, the Account Control
Agreement and the Indenture contain the entire agreement among the parties with
respect to the subject matter hereof and supersede any and all prior agreements,
understandings and commitments, whether oral or written. This Agreement may be
amended only in accordance with Article Nine of the Indenture and further by a
writing signed by a duly authorized representative of each party hereto.
(g) Notices. All notices and other communications required or
permitted to be given or made under this Agreement shall be in writing and shall
be deemed to have been duly given and received when actually received,
including: (a) on the day of hand delivery; (b) 3 Business Days following the
day sent, when sent by United States certified mail, postage and certification
fee prepaid, return receipt requested, addressed as set forth below; (c) when
transmitted by facsimile with confirmation of receipt; or (d) 1 Business Day
following the day timely delivered to a next-day air courier addressed as set
forth below:
<PAGE> 19
To the Escrow Agent or to the Trustee:
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 Division
Telephone: (314) 206-3016
Facsimile: (314) 206-3055
To the Company:
Golden Sky Systems, Inc.
605 West 47th Street, Suite 300
Kansas City, MO 64112
Attention: Chief Executive Officer
Telephone: (816) 753-5544
Facsimile: (816) 753-5595
or at such other address as the specified entity most recently may have
designated in writing in accordance with this Section.
(h) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
(i) Captions. Captions in this Agreement are for convenience only and
shall not be considered or referred to in resolving questions of interpretation
of this Agreement.
(j) Choice of Law. The existence, validity, construction, operation
and effect of any and all terms and provisions of this Agreement shall be
determined in accordance with and governed by the laws of the State of New York,
without regard to principles of conflicts of laws; provided that the creation,
attachment, validity and perfection of the liens on and security interests in
and to the Collateral and the exercise of remedies with respect thereto shall be
determined in accordance with the laws of the Commonwealth of Massachusetts,
without regard to principles of conflicts of laws, except to the extent United
States federal law is applicable to the perfection and priority of security
<PAGE> 20
interests in Government Securities. The parties to this Agreement hereby agree
that jurisdiction over such parties and over the subject matter of any action or
proceeding arising under this Agreement may be exercised by a competent court of
the State of New York or the Commonwealth of Massachusetts, as applicable, or by
a United States Court, sitting in New York or the Commonwealth of Massachusetts,
as applicable. The Company hereby submits to the personal jurisdiction of such
courts, hereby waives personal service of process upon it and consents that any
such service of process may be made by certified or registered mail,
return-receipt requested, directed to the Company at its address last specified
for notices hereunder, and service so made shall be deemed completed 5 days
after the same shall have been so mailed, and hereby waives the right to a trial
by jury in any action or proceeding with the Escrow Agent. All actions and
proceedings brought by the Company against the Escrow Agent relating to or
arising from, directly or indirectly, this Agreement shall be litigated only in
courts within the State of New York or the Commonwealth of Massachusetts.
(k) Representations and Warranties. (i) The Company hereby represents
and warrants that this Agreement has been duly authorized, executed and
delivered on its behalf and constitutes the legal, valid and binding obligation
of the Company. The execution, delivery and performance of this Agreement by the
Company does not violate any applicable law or regulation to which the Company
is subject and does not require the consent of any governmental or other
regulatory body to which the Company is subject, except for such consents and
approvals as have been obtained and are in full force and effect.
(ii) The Company is the beneficial owner of the Collateral, free and
clear of any lien or claims of any person or entity (except for the security
interest granted under this Agreement).
(iii) Each of the Escrow Agent and the Trustee hereby represents and
warrants that this Agreement has been duly authorized, executed and delivered on
its behalf and constitutes its legal, valid and binding obligation.
<PAGE> 21
IN WITNESS WHEREOF, the parties have executed and delivered this
Escrow Agreement as of the day first above written.
STATE STREET BANK AND TRUST
COMPANY OF MISSOURI, N.A.,
as Escrow Agent
By: /s/ R. Clasquin
--------------------------
Name: R. Clasquin
Title: Asst.Vice President
STATE STREET BANK AND TRUST
COMPANY OF MISSOURI, N.A.,
as Trustee
By: /s R.Clasquin
--------------------------
Name: R.Clasquin
Title: Asst.Vice President
GOLDEN SKY SYSTEMS, INC.
By: /s/ Rodney A. Weary
--------------------------
Name: Rodney A. Weary
Title: Chief Executive Officer
<PAGE> 22
EXHIBIT A
Form of Payment Notice and Disbursement Request
State Street Bank and Trust Company
of Missouri, N.A.
One Metropolitan Square, 39th Floor
211 North Broadway
St. Louis, MO 63102
[Date]
State Street Bank and Trust Company
of Missouri, N.A.
One Metropolitan Square, 39th Floor
211 North Broadway
St. Louis, MO 63102
Re: Disbursement Request No. ____
[indicate whether revised]
Ladies and Gentlemen:
We refer to the Escrow Agreement, dated as of July 31, 1998 (the
"Escrow Agreement") among you (the "Escrow Agent"), the undersigned as Trustee
and Golden Sky Systems, Inc., a Delaware corporation (the "Company").
Capitalized terms used herein shall have the meaning given in the Escrow
Agreement.
This letter constitutes a Payment Notice and Disbursement Request
under the Escrow Agreement.
[choose one of the following, as applicable]
[The undersigned hereby notifies you that a scheduled interest payment
in the amount of $__________ is due and payable on ____________, ____ and
requests a disbursement of funds contained in the Escrow Account in such amount
to the Trustee.]
[The undersigned hereby notifies you that Securities equaling
$__________ in aggregate principal amount have been retired and authorizes you
to release $__________ of funds in the Escrow Account to the Company (to an
account designated by the Company in writing), which amount represents the
amount permitted to be released in accordance with Section 3(e) of the Escrow
Agreement.]
<PAGE> 23
[The undersigned hereby notifies you that there has been an
acceleration of the maturity of the Securities. Accordingly, you are hereby
requested to disburse all remaining funds contained in the Escrow Account to the
Trustee such that the balance in the Escrow Account is reduced to zero.]
In connection with the requested disbursement, the undersigned hereby
notifies you that:
1. [The Securities have not, as a result of an Event of Default (as
defined in the Indenture), been accelerated and become due and payable.]
2. All prior disbursements from the Escrow Account pursuant to Section
3(c) of the Escrow Agreement have been applied to pay interest on the Securities
on an Interest Payment Date.
3. [add wire instructions]
The Escrow Agent is entitled to rely on the foregoing in disbursing
funds relating to this Payment Notice and Disbursement Request.
State Street Bank and Trust
Company of Missouri, N.A.,
as Trustee
By:
Name:
Title:
<PAGE> 24
EXHIBIT B
Account Control Agreement
<PAGE> 1
Exhibit 4.5
ACCOUNT CONTROL AGREEMENT
THIS ACCOUNT CONTROL AGREEMENT, dated as of JULY 31, 1998 (as amended,
supplemented or otherwise modified and in effect from time to time, this
"Agreement"), is by and among Golden Sky Systems, Inc., a Delaware corporation
(the "Debtor"), State Street Bank and Trust Company of Missouri, N.A. ("State
Street Missouri"), in its capacity as Escrow Agent under that certain Escrow
Agreement of even date between the Debtor and State Street Missouri, in its
respective capacities as Escrow Agent and as Trustee, each as defined therein
(the "Escrow Agreement"), acting for the benefit of said Trustee (State Street
Missouri, acting in such capacity as Escrow Agent, the "Escrow Agent") and State
Street Bank and Trust Company, a Massachusetts trust company, acting as
custodian and securities intermediary hereunder (the "Securities Intermediary").
Capitalized terms used herein but not otherwise defined herein shall
have the meanings assigned to such terms in, or incorporated by reference into,
the Escrow Agreement. All references herein to the "UCC" shall, unless otherwise
specified mean the Uniform Commercial Code as in effect in the Commonwealth of
Massachusetts.
IN CONSIDERATION of the mutual covenants herein contained and the
payment by State Street-Missouri of FIVE DOLLARS ($5.00) each to the Debtor and
to the Securities Intermediary, it is hereby agreed as follows:
SECTION 1. Establishment of Securities Account. The Securities
Intermediary hereby confirms that (i) an account, identified by account number
______________ and in the name of "State Street Bank and Trust Company of
Missouri, N.A., as Escrow Agent/Escrow Account pledged by Golden Sky Systems
Inc., to State Street Bank and Trust Company of Missouri, N.A., as Trustee"
(such account and any successor account the "Securities Account") has been
established with and is held by the Securities Intermediary, (ii) the Securities
Account is a "securities account" as such term is defined in Section 8-501(a) of
the UCC, (iii) the Securities Intermediary shall treat the Escrow Agent as
entitled to exercise the rights that comprise any financial asset credited to
the Securities Account, (iv) all property delivered to the Securities
Intermediary pursuant to the Escrow Agreement and required by the terms thereof
to be credited to the Securities Account will be promptly credited to the
Securities Account, and (v) all securities (or other investment property or
financial assets credited into the Securities Account) underlying any financial
assets credited to the Securities Account shall be registered in the name of the
Securities Intermediary, indorsed to the Securities Intermediary or in blank or
credited to another securities account maintained in the name of the Securities
Intermediary, and in no case will any financial asset credited to the Securities
Account be registered in the name of the Debtor, payable to the order of the
Debtor or specially indorsed to the Debtor (except to the extent the foregoing
have been specially indorsed to the Securities Intermediary or in blank).
SECTION 2. "Financial Assets" Election. The Securities Intermediary
hereby agrees that each item of property (whether investment property, financial
asset, security, instrument or cash) credited to the Securities Account shall be
treated as a "financial asset" within the meaning of Section 8-102(a)(9) of the
UCC.
<PAGE> 2
SECTION 3. Entitlement Orders. If at any time the Securities
Intermediary shall receive an "entitlement order" (within the meaning of Section
8-102(a)(8) of the UCC) issued by the Escrow Agent and relating to the
Securities Account, the Securities Intermediary shall comply with such
entitlement order without further consent by the Debtor or any other person.
SECTION 4. Subordination of Lien; Waiver of Set-Off. In the event that
the Securities Intermediary has or subsequently obtains by agreement, operation
of law or otherwise a security interest in or lien, claim, encumbrance of right
of set-off against the Securities Account or any security entitlement credited
thereto, the Securities Intermediary hereby waives and releases any such
security interest, lien, claim, encumbrance or right of set-off or recoupment
that it may have or may obtain with respect to the Securities Account or any
financial asset credited thereto.
SECTION 5. Choice of Law. Both this Agreement and the Securities
Account and the securities entitlements related thereto shall be governed by the
laws of the Commonwealth of Massachusetts. Regardless of any provision in any
other agreement, for purposes of Section 8-110(e) of UCC, the Commonwealth of
Massachusetts shall be deemed to be the Securities Intermediary's "jurisdiction"
for purposes of the Securities Account and the securities entitlements related
thereto.
SECTION 6. Duties of Securities Intermediary: Conflict with other
Agreements.
(a) The Securities Intermediary shall have no duties other than those
expressly set forth herein and applicable under the UCC; without limiting the
foregoing, the Securities Intermediary shall have no liability for the actions
or omissions of the Escrow Agent, or for following any instruction of the Escrow
Agent not in violation of the terms hereof, and shall have no responsibility
for, and shall have no duty to monitor, determine or compel, compliance with the
terms of the Escrow Agreement.
(b) There are no other agreements entered into between the Securities
Intermediary and the Debtor with respect to the Securities Account except for
the Security Agreement. In the event of any conflict between this Agreement (or
any portion thereof) and any other agreement now existing or hereafter entered
into, the terms of this Agreement shall prevail.
SECTION 7. Tax Reporting. All items of income, gain, expense and loss
recognized in the Securities Account which the Securities Intermediary
determines it is required by law to report to the Internal Revenue Service or
any state or local taxing authorities shall be reported to the Internal Revenue
Service or such state and local taxing authorities under the name and taxpayer
identification number of the Debtor.
SECTION 8. Representations, Warranties and Covenants of the Securities
Intermediary. The Securities Intermediary hereby makes the following
representations, warranties and covenants:
(i) The Securities Account has been established as set forth in
Section 1 above and the Securities Account will be maintained in the manner set
forth herein until termination of this Agreement. The Securities Intermediary
<PAGE> 3
shall not change the name or account number of the Securities Account without
the prior written consent of the Escrow Agent. No financial asset credited to
the Securities Account is or will be registered in the name of the Debtor,
payable to its order, or specially endorsed to it, except to the extent such
financial asset has been endorsed to the Securities Intermediary or in blank.
This Securities Account Control Agreement is a valid and legally binding
obligation of the Securities Intermediary.
(ii) The Securities Intermediary has not entered into, and until the
termination of this agreement, will not enter into, any agreement with any other
person relating to any of the Securities Account and/or any financial assets
credited thereto pursuant to which it has agreed to comply with entitlement
orders (as defined in Section 8-102(a)(8) of the UCC) of such person, other than
the Escrow Agent. The Securities Intermediary has not entered into any other
agreement with the Debtor or Escrow Agent purporting to limit or condition the
obligation of the Securities Intermediary to comply with entitlement orders as
set forth in Section 3 hereof. The Securities Intermediary is a "securities
intermediary" as defined in Section 8-102(a)(14) of the UCC and is acting in
such capacity hereunder.
SECTION 9. Securities Account Statement. The Securities Intermediary
shall deliver to the Escrow Agent a statement setting forth with reasonable
particularity the balance of funds then in the Securities Account and the manner
in which such funds are invested ("Securities Account Statement"). The
Securities Account Statement shall be delivered by the Securities Intermediary
20 days after the date of this Agreement and every 30 days thereafter until the
Applicable Date (as defined in the Escrow Agreement), at which point the
Securities Account Statement shall be delivered at least 35 days prior to each
Interest Payment Date, as defined in the Escrow Agreement (initially February 1
and August 1 of each year, commencing February 1, 1999).
SECTION 10. Amendments; Sealed Instrument. No amendment or
modification of this Agreement or waiver of any right hereunder shall be binding
on any party hereto unless it is in writing and is signed by all of the parties
hereto. This Agreement is intended by each of the parties hereto to take effect
as an instrument under seal.
SECTION 11. Successors. The terms of this Agreement shall be binding
upon, and shall inure to the benefit of, the parties hereto and their respective
corporate successors or heirs and personal representatives.
SECTION 12. Notices. Any notice, request or other communication
required or permitted to be given under this Agreement shall be in writing and
deemed to have been properly given when delivered in person, or when sent by
telecopy or other electronic means and electronic confirmation of error free
receipt is received or two (2) days after being sent by certified or registered
United States mail, return receipt requested, postage prepaid, addressed to the
party at the address provided for such Person in Section 8(g) of the Escrow
Agreement and as to the Securities Intermediary, at Two International Place,
Boston, Massachusetts 02110, Attention: Corporate Trust Department.
<PAGE> 4
SECTION 13. Termination. The rights and powers granted herein to the
Escrow Agent have been granted in order to perfect its security interests in the
Securities Account are powers coupled with an interest and will neither be
affected by the bankruptcy of the Debtor nor by the lapse of time. The
obligations of the Securities Intermediary hereunder shall continue in effect
until the interests of the Escrow Agent, for the benefit of the Trustee, in the
Securities Account have been terminated pursuant to the terms of the Escrow
Agreement and the Escrow Agent has notified the Securities Intermediary of such
termination in writing.
SECTION 14. Counterparts. This Agreement may be executed in any number
of counterparts, all of which shall constitute one and the same instrument, and
any party hereto may execute this Agreement by signing and delivering one or
more counterparts.
IN WITNESS WHEREOF, the undersigned have executed this Control
Agreement as of the 31st day of July, 1998.
GOLDEN SKY SYSTEMS, INC., as
Debtor
By: /s/ Rodney A. Weary
-------------------------
Name: Rodney A. Weary
Title: Chief Executive Officer
<PAGE> 5
STATE STREET BANK AND TRUST
COMPANY OF MISSOURI,N.A.,
as the Escrow Agent
By: /s/ R. Clasquin
------------------------
Name: R. Clasquin
Title: Assistant Vice President
STATE STREET BANK AND TRUST
COMPANY, as Securities Intermediary
By: /s/ Laura S. Roberson
--------------------------
Name: Laura S. Roberson
Title: Vice President
<PAGE> 1
Exhibit 10.1
$195,000,000
GOLDEN SKY SYSTEMS, INC.
PURCHASE AGREEMENT
July 24, 1998
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
NATIONSBANC MONTGOMERY SECURITIES LLC
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Ladies and Gentlemen:
Golden Sky Systems, Inc., a Delaware corporation (the "Company"),
confirms its agreement with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("Merrill Lynch") and each of the other Initial Purchasers
named in Schedule A hereto (collectively, the "Initial Purchasers," which term
shall also include any initial purchaser substituted as hereinafter provided in
Section 11 hereof), for whom Merrill Lynch and NationsBanc Montgomery Securities
LLC are acting as representatives (in such capacity, the "Representatives"),
with respect to the issue and sale by the Company and the purchase by the
Initial Purchasers, acting severally and not jointly, of the respective
principal amounts set forth in said Schedule A of $195,000,000 aggregate
principal amount of the Company's 12 3/8% Senior Subordinated Notes due 2006
(the "Securities"). The Securities are to be issued pursuant to an indenture
dated as of July 31, 1998 (the "Indenture") between the Company and State Street
Bank and Trust Company of Missouri, N.A., as trustee (the "Trustee"). Securities
issued in book-entry form will be issued to Cede & Co. as nominee of The
Depository Trust Company ("DTC") pursuant to a letter agreement, to be dated as
of the Closing Time (as defined in Section 2(b)) (the "DTC Agreement"), among
the Company, the Trustee and DTC.
<PAGE> 2
The Company understands that the Initial Purchasers propose to make an
offering of the Securities on the terms and in the manner set forth herein and
agrees that the Initial Purchasers may resell, subject to the conditions set
forth herein, all or a portion of the Securities to purchasers ("Subsequent
Purchasers") at any time after the date of this Agreement. The Securities are to
be offered and sold through the Initial Purchasers without being registered
under the Securities Act of 1933, as amended (the "1933 Act"), in reliance upon
exemptions therefrom. Pursuant to the terms of the Securities and the Indenture,
investors that acquire Securities may only resell or otherwise transfer such
Securities if such Securities are hereafter registered under the 1933 Act or if
an exemption from the registration requirements of the 1933 Act is available
(including the exemption afforded by Rule 144A ("Rule 144A") or Regulation S
("Regulation S") of the rules and regulations promulgated under the 1933 Act by
the Securities and Exchange Commission (the "Commission")).
The net proceeds from the sale of the Securities (the "Initial Escrow
Amount") are to be placed in a collateral account and pledged to the Trustee,
for the benefit of the holders of the Securities and the Trustee (in its
capacity as such under the Indenture) pursuant to the Escrow Agreement, dated as
of July 31, 1998 (the "Escrow Agreement") among the Company, State Street Bank
and Trust Company of Missouri, N.A., as escrow agent (the "Escrow Agent"), and
the Trustee pending release in accordance with the terms of the Escrow
Agreement. Approximately $39.3 million of the Initial Escrow Amount will be
maintained in such escrow account to pay the first four interest payments on the
Securities.
The holders of Securities (including the Initial Purchasers and
subsequent transferees) will be entitled to the benefits of a registration
rights agreement, to be dated as of July 31, 1998 (the "Registration Rights
Agreement"), by and among the Company and the Initial Purchasers. Pursuant to
the Registration Rights Agreement, the Company will agree to file with the
Commission under the circumstances set forth therein either (i) a registration
statement under the 1933 Act registering the Exchange Securities (as defined in
the Registration Rights Agreement) to be offered in exchange for the Securities
and to use its best efforts to cause such registration statement to be declared
effective and (ii) under certain circumstances set forth therein, to file with
the Commission a shelf registration statement pursuant to Rule 415 under the
1933 Act relating to the resale of the Securities by holders thereof or, if
<PAGE> 3
applicable, relating to the resale of Private Exchange Notes (as defined in the
Registration Rights Agreement) by the Initial Purchasers pursuant to an exchange
of the Securities for Private Exchange Notes, and to use its best efforts to
cause such shelf registration statement to be declared effective.
The Company has prepared and delivered to each Initial Purchaser
copies of a preliminary offering memorandum dated July 2, 1998 (the "Preliminary
Offering Memorandum"), a supplement to the preliminary offering memorandum dated
July 22, 1998 (the "Supplement") and has prepared and will deliver to each
Initial Purchaser, on the date hereof or the next succeeding day, copies of a
final offering memorandum dated July 24, 1998 (the "Final Offering Memorandum"),
each for use by such Initial Purchaser in connection with its solicitation of
purchases of, or offering of, the Securities. "Offering Memorandum" means, with
respect to any date or time referred to in this Agreement, the most recent
offering memorandum (whether the Preliminary Offering Memorandum as amended by
the Supplement or the Final Offering Memorandum, or any amendment or supplement
to either such document), including exhibits thereto and any documents
incorporated therein by reference, which has been prepared and delivered by the
Company to the Initial Purchasers in connection with their solicitation of
purchases of, or offering of, the Securities.
SECTION 1. Representations and Warranties.
(a) Representations and Warranties by the Company. The Company
represents and warrants to each Initial Purchaser as of the date hereof and as
of the Closing Time referred to in Section 2(b) hereof, and agrees with each
Initial Purchaser as follows:
(i) Similar Offerings. The Company has not, directly or
indirectly, solicited any offer to buy or offered to sell, and will not,
directly or indirectly, solicit any offer to buy or offer to sell, in the
United States or to any United States citizen or resident, any security
which is or would be integrated with the sale of the Securities in a manner
that would require the Securities to be registered under the 1933 Act.
(ii) Offering Memorandum. The Offering Memorandum does not,
and at the Closing Time will not, include an untrue statement of a material
fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided that this representation, warranty and
<PAGE> 4
agreement shall not apply to statements in or omissions from the Offering
Memorandum made in reliance upon and in conformity with information
furnished to the Company in writing by any Initial Purchaser through the
Representatives expressly for use in the Offering Memorandum.
(iii) Independent Accountants. The accountants who certified
the financial statements and supporting schedules included in the Offering
Memorandum are independent certified public accountants with respect to the
Company and its subsidiaries within the meaning of Regulation S-X under the
1933 Act.
(iv) Financial Statements. The financial statements (other
than the pro forma financial statements) of the Company and its
consolidated subsidiaries, together with the related schedules and notes,
included in the Offering Memorandum present fairly the financial position
of the Company and its consolidated subsidiaries at the dates indicated and
the statement of operations, stockholders' equity and cash flows of the
Company and its consolidated subsidiaries for the periods specified; said
financial statements have been prepared in conformity with generally
accepted accounting principles ("GAAP") applied on a consistent basis
throughout the periods involved. The supporting schedules, if any, included
in the Offering Memorandum present fairly in accordance with GAAP the
information required to be stated therein. The selected financial data and
the summary financial information included in the Offering Memorandum
present fairly the information shown therein and have been compiled on a
basis consistent with that of the audited financial statements included in
the Offering Memorandum. The pro forma financial statements of the Company
and its subsidiaries and the related notes thereto included in the Offering
Memorandum present fairly the information shown therein, have been prepared
in accordance with the Commission's rules and guidelines with respect to
pro forma financial statements and have been properly compiled on the bases
described therein, and the assumptions used in the preparation thereof are
reasonable and the adjustments used therein are appropriate to give effect
to the transactions and circumstances referred to therein.
Each of the Company and its subsidiaries maintains a system
of internal accounting controls sufficient to provide reasonable assurance
that (1) transactions are executed in accordance with management's general
or specific authorizations; (2) transactions are recorded as necessary to
permit preparation of financial statements in conformity with GAAP and to
<PAGE> 5
maintain asset accountability; (3) access to assets is permitted only in
accordance with management's general or specific authorization; and (4) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(v) No Material Adverse Change in Business. Since the
respective dates as of which information is given in the Offering
Memorandum, except as otherwise stated therein, (A) there has been no
material adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the Company and its
subsidiaries considered as one enterprise (a "Material Adverse Effect"),
whether or not arising in the ordinary course of business, (B) there have
been no transactions entered into by the Company or any of its
subsidiaries, other than those in the ordinary course of business, which
are material with respect to the Company and its subsidiaries considered as
one enterprise and (C) there has been no dividend or distribution of any
kind declared, paid or made by the Company on any class of its capital
stock.
(vi) Good Standing of the Company. The Company has been duly
organized and is validly existing as a corporation in good standing under
the laws of the State of Delaware and has corporate power and authority to
own, lease and operate its properties and to conduct its business as
described in the Offering Memorandum and to enter into and perform its
obligations under this Agreement; and the Company is duly qualified as a
foreign corporation to transact business and is in good standing in each
other jurisdiction in which such qualification is required, whether by
reason of the ownership or leasing of property or the conduct of business,
except where the failure so to qualify or to be in good standing would not
result in a Material Adverse Effect.
(vii) Good Standing of Designated Subsidiaries. Each
"significant subsidiary" of the Company (as such term is defined in Rule
1-02 of Regulation S-X) has been duly organized and is validly existing as
a corporation in good standing under the laws of the jurisdiction of its
incorporation, has corporate power and authority to own, lease and operate
its properties and to conduct its business as described in the Offering
Memorandum and is duly qualified as a foreign corporation to transact
<PAGE> 6
business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except where the failure so to qualify
or to be in good standing would not result in a Material Adverse Effect;
except as otherwise disclosed in the Offering Memorandum, all of the issued
and outstanding capital stock of each Designated Subsidiary has been duly
authorized and validly issued, is fully paid and non-assessable and is
owned by the Company, directly or through subsidiaries, free and clear of
any security interest, mortgage, pledge, lien, encumbrance, claim or
equity; none of the outstanding shares of capital stock of the Designated
Subsidiaries was issued in violation of any preemptive or similar rights
arising by operation of law, or under the charter or by-laws of any
Designated Subsidiary or under any agreement to which the Company or any
Designated Subsidiary is a party. The subsidiaries of the Company other
than Designated Subsidiaries, considered in the aggregate as a single
subsidiary, do not constitute a "significant subsidiary" as defined in Rule
1-02 of Regulation S-X.
(viii) Capitalization. The authorized, issued and
outstanding capital stock of the Company is as set forth in the financial
statements, including the schedules and notes, included in the Offering
Memorandum in the column entitled "Actual" under the caption
"Capitalization" (except for subsequent issuances, if any, pursuant to this
Agreement, pursuant to employee benefit plans referred to in the Offering
Memorandum or pursuant to the exercise of convertible securities or options
referred to in the Offering Memorandum).
(ix) Authorization of Agreement. This Agreement has been
duly authorized, executed and delivered by the Company.
(x) Authorization of the Indenture. The Indenture has been
duly authorized by the Company and, at the Closing Time, will have been
duly executed and delivered by the Company and will constitute a valid and
binding agreement of the Company, enforceable against the Company in
accordance with its terms, except as the enforcement thereof may be limited
by bankruptcy, insolvency (including, without limitation, all laws relating
to fraudulent transfers), reorganization, moratorium or other similar laws
relating to or affecting enforcement of creditors' rights generally, or by
general principles of equity (regardless of whether enforcement is
considered in a proceeding in equity or at law).
<PAGE> 7
(xi) Authorization of the Registration Rights Agreement. The
Registration Rights Agreement has been duly authorized by the Company and,
when executed and delivered by the Company, will constitute a valid and
binding obligation of the Company, enforceable against the Company in
accordance with its terms, except as the enforcement thereof may be limited
by bankruptcy, insolvency (including, without limitation, all laws relating
to fraudulent transfers), reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally, and subject, as to
enforceability, to general principles of equity, including principles of
commercial reasonableness, good faith and fair dealing (regardless of
whether enforcement is sought in a proceeding at law or in equity).
(xii) Authorization of the Securities. The Securities,
Exchange Securities and Private Exchange Notes, if any, have been duly
authorized and, at the Closing Time, will have been duly executed by the
Company and, when authenticated in the manner provided for in the Indenture
and delivered against payment of the purchase price therefor, will
constitute valid and binding obligations of the Company, enforceable
against the Company in accordance with their terms, except as the
enforcement thereof may be limited by bankruptcy, insolvency (including,
without limitation, all laws relating to fraudulent transfers),
reorganization, moratorium or other similar laws relating to or affecting
enforcement of creditors' rights generally, or by general principles of
equity (regardless of whether enforcement is considered in a proceeding in
equity or at law), and will be in the form contemplated by, and entitled to
the benefits of, the Indenture, and the Exchange Securities and the Private
Exchange Notes, if any, when executed, authenticated, issued and delivered
by the Company, in exchange for the Securities in accordance with the terms
of the Registration Rights Agreement, will constitute valid and binding
obligations of the Company, entitled to the benefits of the Indenture and
enforceable against the Company in accordance with the terms thereof,
except as the enforcement thereof may be limited by bankruptcy, insolvency
(including, without limitation, all laws relating to fraudulent transfers),
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally, and subject, as to enforceability, to general
principles of equity, including principles of commercial reasonableness,
good faith and fair dealing (regardless of whether enforcement is sought in
a proceeding at law or in equity).
<PAGE> 8
(xiii) Authorization of the Escrow Agreement. The Escrow
Agreement has been duly authorized by the Company and, when executed and
delivered by the Company, the Escrow Agent and the Trustee, will constitute
a valid and binding agreement of the Company, enforceable against the
Company in accordance with its terms, except as the enforcement thereof may
be limited by bankruptcy and insolvency (including, without limitation, all
laws relating to fraudulent transfers).
(xiv) Description of the Securities, the Registration Rights
Agreement and the Indenture. The Securities, the Exchange Securities, the
Private Exchange Notes, if any, the Registration Rights Agreement and the
Indenture will conform in all material respects to the respective
statements relating thereto contained in the Offering Memorandum and will
be in substantially the respective forms previously delivered to the
Initial Purchasers.
(xv) Absence of Defaults and Conflicts. Neither the Company
nor any of its subsidiaries is in violation of its charter or by-laws or in
default in the performance or observance of any obligation, agreement,
covenant or condition contained in any contract, indenture, mortgage, deed
of trust, loan or credit agreement, note, lease or other agreement or
instrument to which the Company or any of its subsidiaries is a party or by
which it or any of them may be bound, or to which any of the property or
assets of the Company or any of its subsidiaries is subject (collectively,
"Agreements and Instruments"), except for such defaults that would not
result in a Material Adverse Effect; and the execution, delivery and
performance of this Agreement, the Indenture and the Securities and any
other agreement or instrument entered into or issued or to be entered into
or issued by the Company in connection with the transactions contemplated
hereby or thereby or in the Offering Memorandum and the consummation of the
transactions contemplated herein and in the Offering Memorandum (including
the issuance and sale of the Securities and the use of the proceeds from
the sale of the Securities as described in the Offering Memorandum under
the caption "Use of Proceeds") and compliance by the Company with its
obligations hereunder have been duly authorized by all necessary corporate
<PAGE> 9
action and do not and will not, whether with or without the giving of
notice or passage of time or both, conflict with or constitute a breach of,
or default or a Repayment Event (as defined below) under, or result in the
creation or imposition of any lien, charge or encumbrance upon any property
or assets of the Company or any of its subsidiaries pursuant to, the
Agreements and Instruments, except for such conflicts, breaches or defaults
or liens, charges or encumbrances that, singly or in the aggregate, would
not result in a Material Adverse Effect, nor will such action result in any
violation of the provisions of the charter or by-laws of the Company or any
of its subsidiaries or any applicable law, statute, rule, regulation,
judgment, order, writ or decree of any government, government
instrumentality or court, domestic or foreign, having jurisdiction over the
Company or any of its subsidiaries or any of their assets or properties. As
used herein, a "Repayment Event" means any event or condition which gives
the holder of any note, debenture or other evidence of indebtedness (or any
person acting on such holder's behalf) the right to require the repurchase,
redemption or repayment of all or a portion of such indebtedness by the
Company or any of its subsidiaries.
(xvi) Absence of Labor Dispute. No labor dispute with the
employees of the Company or any of its subsidiaries exists or, to the
knowledge of the Company, is imminent, and the Company is not aware of any
existing or imminent labor disturbance by the employees of any of its or
any of its subsidiaries' principal suppliers, manufacturers, customers or
contractors, which, in either case, may reasonably be expected to result in
a Material Adverse Effect.
(xvii) Absence of Proceedings. Except as disclosed in the
Offering Memorandum, there is no action, suit, proceeding, inquiry or
investigation before or by any court or governmental agency or body,
domestic or foreign, now pending, or, to the knowledge of the Company,
threatened, against or affecting the Company or any subsidiary thereof
which might reasonably be expected to result in a Material Adverse Effect,
or which might reasonably be expected to materially and adversely affect
the properties or assets of the Company or any of its subsidiaries or the
consummation of this Agreement or the performance by the Company of its
obligations hereunder. The aggregate of all pending legal or governmental
<PAGE> 10
proceedings to which the Company or any subsidiary thereof is a party or of
which any of their respective property or assets is the subject which are
not described in the Offering Memorandum, including ordinary routine
litigation incidental to the business, could not reasonably be expected to
result in a Material Adverse Effect.
(xviii) Possession of Intellectual Property. The Company and
its subsidiaries own or possess, or can acquire on reasonable terms,
adequate patents, patent rights, licenses, inventions, copyrights, know-how
(including trade secrets and other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures),
trademarks, service marks, trade names or other intellectual property
(collectively, "Intellectual Property") necessary to carry on the business
now operated by them, and neither the Company nor any of its subsidiaries
has received any notice or is otherwise aware of any infringement of or
conflict with asserted rights of others with respect to any Intellectual
Property or of any facts or circumstances which would render any
Intellectual Property invalid or inadequate to protect the interest of the
Company or any of its subsidiaries therein, and which infringement or
conflict (if the subject of any unfavorable decision, ruling or finding) or
invalidity or inadequacy, singly or in the aggregate, would result in a
Material Adverse Effect.
(xix) Absence of Further Requirements. No filing with, or
authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or agency
is necessary or required for the performance by the Company of its
obligations hereunder, in connection with the offering, issuance or sale of
the Securities hereunder or the consummation of the transactions
contemplated by this Agreement.
(xx) Possession of Licenses and Permits. The Company and its
subsidiaries possess such permits, licenses, approvals, consents and other
authorizations (collectively, "Governmental Licenses") issued by the
appropriate federal, state, local or foreign regulatory agencies or bodies
necessary to conduct the business now operated by them; the Company and its
subsidiaries are in compliance with the terms and conditions of all such
Governmental Licenses, except where the failure so to comply would not,
singly or in the aggregate, have a Material Adverse Effect; all of the
Governmental Licenses are valid and in full force and effect, except when
<PAGE> 11
the invalidity of such Governmental Licenses or the failure of such
Governmental Licenses to be in full force and effect would not have a
Material Adverse Effect; and neither the Company nor any of its
subsidiaries has received any notice of proceedings relating to the
revocation or modification of any such Governmental Licenses which, singly
or in the aggregate, if the subject of an unfavorable decision, ruling or
finding, would result in a Material Adverse Effect.
(xxi) Title to Property. The Company and its subsidiaries
have good and marketable title to all real property owned by the Company
and its subsidiaries and good title to all other properties owned by them,
in each case, free and clear of all mortgages, pledges, liens, security
interests, claims, restrictions or encumbrances of any kind, except such as
(a) are described in the Offering Memorandum or (b) do not, singly or in
the aggregate, materially affect the value of such property and do not
interfere with the use made and proposed to be made of such property by the
Company or any of its subsidiaries; and all of the leases and subleases
material to the business of the Company and its subsidiaries, considered as
one enterprise, and under which the Company or any of its subsidiaries
holds properties described in the Offering Memorandum, are in full force
and effect, and neither the Company nor any of its subsidiaries has any
notice of any material claim of any sort that has been asserted by anyone
adverse to the rights of the Company or any of its subsidiaries under any
of the leases or subleases mentioned above, or affecting or questioning the
rights of such the Company or any subsidiary thereof to the continued
possession of the leased or subleased premises under any such lease or
sublease.
(xxii) Tax Returns. The Company and its subsidiaries have
filed all material federal, state, local and foreign tax returns that are
required to be filed or have duly requested extensions thereof and have
paid all taxes reflected as due on such returns and any related
assessments, fines or penalties, except for any such tax, assessment, fine
or penalty that is being contested in good faith and by appropriate
proceedings; and adequate charges, accruals and reserves have been provided
for in the financial statements referred to in Section 1(a)(v) above in
respect of all federal, state, local and foreign taxes for all periods as
<PAGE> 12
to which the tax liability of the Company or any of its subsidiaries has
not been finally determined or remains open to examination by applicable
taxing authorities.
(xxiii) Environmental Laws. Except as described in the
Offering Memorandum and except such matters as would not, singly or in the
aggregate, result in a Material Adverse Effect, (A) neither the Company nor
any of its subsidiaries is in violation of any federal, state, local or
foreign statute, law, rule, regulation, ordinance, code, policy or rule of
common law or any judicial or administrative interpretation thereof,
including any judicial or administrative order, consent, decree or
judgment, relating to pollution or protection of human health, the
environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata) or wildlife, including,
without limitation, laws and regulations relating to the release or
threatened release of chemicals, pollutants, contaminants, wastes, toxic
substances, hazardous substances, petroleum or petroleum products
(collectively, "Hazardous Materials") or to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Materials (collectively, "Environmental Laws"), (B) the Company
and its subsidiaries have all permits, authorizations and approvals
required under any applicable Environmental Laws and are each in compliance
with their requirements, (C) there are no pending or threatened
administrative, regulatory or judicial actions, suits, demands, demand
letters, claims, liens, notices of noncompliance or violation,
investigation or proceedings relating to any Environmental Law against the
Company or any of its subsidiaries and (D) there are no events or
circumstances that might reasonably be expected to form the basis of an
order for clean-up or remediation, or an action, suit or proceeding by any
private party or governmental body or agency, against or affecting the
Company or any of its subsidiaries relating to Hazardous Materials or
Environmental Laws.
<PAGE> 13
(xxiv) Investment Company Act. The Company is not, and upon
the issuance and sale of the Securities as herein contemplated and the
application of the net proceeds therefrom as described in the Offering
Memorandum will not be, an "investment company" or an entity "controlled"
by an "investment company" as such terms are defined in the Investment
Company Act of 1940, as amended (the "1940 Act").
(xxv) Rule 144A Eligibility. The Securities are eligible for
resale pursuant to Rule 144A and will not be, at the Closing Time, of the
same class as securities listed on a national securities exchange
registered under Section 6 of the 1934 Act, or quoted in a U.S. automated
interdealer quotation system.
(xxvi) No General Solicitation. None of the Company, its
affiliates, as such term is defined in Rule 501(b) under the 1933 Act
("Affiliates"), or any person acting on its or any of their behalf (other
than the Initial Purchasers, as to whom the Company makes no
representation) has engaged or will engage, in connection with the offering
of the Securities, in any form of general solicitation or general
advertising within the meaning of Rule 502(c) under the 1933 Act.
(xxvii) No Registration Required. Subject to compliance by
the Initial Purchasers with the representations and warranties set forth in
Section 2 and the procedures set forth in Section 6 hereof, it is not
necessary in connection with the offer, sale and delivery of the Securities
to the Initial Purchasers and to each Subsequent Purchaser in the manner
contemplated by this Agreement and the Offering Memorandum to register the
Securities under the 1933 Act or to qualify the Indenture under the Trust
Indenture Act of 1939, as amended (the "1939 Act").
(xxviii) No Directed Selling Efforts. With respect to those
Securities sold in reliance on Regulation S, (A) none of the Company, its
Affiliates or any person acting on its or their behalf (other than the
Initial Purchasers, as to whom the Company makes no representation) has
engaged or will engage in any directed selling efforts within the meaning
of Regulation S and (B) each of the Company and its Affiliates and any
person acting on its or their behalf (other than the Initial Purchasers, as
to whom the Company makes no representation) has complied and will comply
with the offering restrictions requirement of Regulation S.
(xxix) No Lien on Collateral. At the time of deposit with
the Escrow Agent of the Initial Escrow Amount no Lien (as such term is
defined in the Indenture) exists upon such Collateral (as such term is
defined in the Escrow Agreement) and no right or option to acquire the same
exists in favor of any other person or entity, except for the pledge and
security interest in favor of the Trustee for the benefit of the holders of
<PAGE> 14
the Securities and the Trustee (in its capacity as such under the
Indenture) to be created or provided for in the Escrow Agreement, which
pledge and security interest shall constitute a first priority perfected
pledge and security interest in and to all of the Collateral.
(xxx) Solvency. Neither the Company nor any of its
subsidiaries intend to, nor do any of them believe that they will, incur
debts beyond their ability to pay such debts as they mature. As of the date
hereof, the fair market value of the assets of the Company and its
subsidiaries exceeds, and at the Closing Time the fair market value of the
assets of the Company and its subsidiaries will exceed, the amounts that
will be required to be paid on or in respect of their existing debts and
other liabilities when and as they become absolute and mature. The assets
of the Company and its subsidiaries do not constitute unreasonably small
capital to carry on their respective businesses as conducted or proposed to
be conducted.
(xxxi) No Default under Senior Indebtedness. No event of
default exits under any contract, indenture, mortgage, loan agreement,
note, lease or other agreement or instrument constituting Senior
Indebtedness (as defined in the Indenture); and the Company has received
all the consents, waivers and approvals from the lenders under all such
Senior Indebtedness necessary to issue the Notes and consummate the
transactions contemplated by this Agreement.
(xxxii) No Stabilization or Manipulation. Neither the
Company nor any of its officers, directors or controlling persons has
taken, directly or indirectly, any action designed to cause or to result
in, or that has constituted or which might reasonably be expected to
constitute, the stabilization or manipulation of the price of any security
of the Company to facilitate the sale or resale of the Securities.
(b) Officer's Certificates. Any certificate signed by any officer of
the Company or any of its subsidiaries delivered to the Representatives or to
counsel for the Initial Purchasers shall be deemed a representation and warranty
by the Company to each Initial Purchaser as to the matters covered thereby.
<PAGE> 15
SECTION 2. Sale and Delivery to Initial Purchasers; Closing.
(a) Securities. On the basis of the representations and warranties
herein contained and subject to the terms and conditions herein set forth, the
Company agrees to sell to each Initial Purchaser, severally and not jointly, and
each Initial Purchaser, severally and not jointly, agrees to purchase from the
Company, at the price set forth in Schedule B, the aggregate principal amount of
Securities set forth in Schedule A opposite the name of such Initial Purchaser,
plus any additional principal amount of Securities that such Initial Purchaser
may become obligated to purchase pursuant to the provisions of Section 11
hereof.
(b) Payment. Payment of the purchase price for, and delivery of
certificates for, the Securities shall be made at the office of Cahill Gordon &
Reindel, 80 Pine Street, New York, New York 10005, or at such other place as
shall be agreed upon by the Representatives and the Company, at 9:00 A.M. on the
third business day after the date hereof (unless postponed in accordance with
the provisions of Section 11), or such other time not later than ten business
days after such date as shall be agreed upon by the Representatives and the
Company (such time and date of payment and delivery being herein called the
"Closing Time").
Payment shall be made to the Company by wire transfer of immediately
available funds to a bank account designated by the Company, against delivery to
the Representatives for the respective accounts of the Initial Purchasers of
certificates for the Securities to be purchased by them. It is understood that
each Initial Purchaser has authorized the Representatives, for its account, to
accept delivery of, receipt for, and make payment of the purchase price for, the
Securities which it has agreed to purchase. Merrill Lynch, individually and not
as representative of the Initial Purchasers, may (but shall not be obligated to)
make payment of the purchase price for the Securities to be purchased by any
Initial Purchaser whose funds have not been received by, the Closing Time, but
such payment shall not relieve such Initial Purchaser from its obligations
hereunder. The certificates representing the Securities shall be registered in
the name of Cede & Co. pursuant to the DTC Agreement and shall be made available
for examination and packaging by the Initial Purchasers in The City of New York
not later than 10:00 A.M. on the last business day prior to the Closing Time.
<PAGE> 16
(c) Qualified Institutional Buyer. Each Initial Purchaser severally
and not jointly represents and warrants to, and agrees with, the Company that it
is a "qualified institutional buyer" within the meaning of Rule 144A under the
1933 Act (a "Qualified Institutional Buyer").
(d) Denominations; Registration. Certificates for the Securities shall
be in such denominations ($1,000 or integral multiples thereof) and registered
in such names as the Representatives may request in writing at least one full
business day before the Closing Time.
SECTION 3. Covenants of the Company. The Company covenants with each
Initial Purchaser as follows:
(a) Offering Memorandum. The Company, as promptly as possible, will
furnish to each Initial Purchaser, without charge, such number of copies of the
Preliminary Offering Memorandum, the Final Offering Memorandum and any
amendments and supplements thereto and documents incorporated by reference
therein as such Initial Purchaser may reasonably request.
(b) Notice and Effect of Material Events. The Company will immediately
notify each Initial Purchaser, and confirm such notice in writing, of (x) any
filing made by the Company of information relating to the offering of the
Securities with any securities exchange or any other regulatory body in the
United States or any other jurisdiction, and (y) prior to the completion of the
placement of the Securities by the Initial Purchasers as evidenced by a notice
in writing from the Initial Purchasers to the Company, any material changes in
or affecting the earnings, business affairs or business prospects of the Company
and its subsidiaries that (i) make any statement in the Offering Memorandum
false or misleading or (ii) are not disclosed in the Offering Memorandum. In
such event or if during such time any event shall occur as a result of which it
is necessary, in the reasonable opinion of the Company, its counsel, the Initial
Purchasers or counsel for the Initial Purchasers, to amend or supplement the
Final Offering Memorandum in order that the Final Offering Memorandum not
include any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein not misleading in the light of
the circumstances then existing, the Company will forthwith amend or supplement
the Final Offering Memorandum by preparing and furnishing to each Initial
<PAGE> 17
Purchaser an amendment or amendments of, or a supplement or supplements to, the
Final Offering Memorandum (in form and substance satisfactory in the reasonable
opinion of counsel for the Initial Purchasers) so that, as so amended or
supplemented, the Final Offering Memorandum will not include an untrue statement
of a material fact or omit to state a material fact necessary in order to make
the statements therein, in the light of the circumstances existing at the time
it is delivered to a Subsequent Purchaser, not misleading.
(c) Amendment to Offering Memorandum and Supplements. The Company will
advise each Initial Purchaser promptly of any proposal to amend or supplement
the Offering Memorandum and will not effect such amendment or supplement without
the consent of the Initial Purchasers. Neither the consent of the Initial
Purchasers, nor the Initial Purchasers' delivery of any such amendment or
supplement, shall constitute a waiver of any of the conditions set forth in
Section 5 hereof.
(d) Qualification of Securities for Offer and Sale. The Company will
use its best efforts, in cooperation with the Initial Purchasers, to qualify the
Securities for offering and sale under the applicable securities laws of such
jurisdictions as the Representatives may designate and will maintain such
qualifications in effect as long as required for the sale of the Securities;
provided, however, that the Company shall not be obligated to file any general
consent to service of process or to qualify as a foreign corporation or as a
dealer in securities in any jurisdiction in which it is not so qualified or to
subject itself to taxation in respect of doing business in any jurisdiction in
which it is not otherwise so subject.
(e) DTC. The Company will cooperate with the Representatives and use
its best efforts to permit the Securities to be eligible for clearance and
settlement through the facilities of DTC.
(f) Use of Proceeds. The Company will use the net proceeds received by
it from the sale of the Securities in the manner specified in the Offering
Memorandum under "Use of Proceeds."
(g) Restriction on Sale of Securities. During a period of 180 days
from the date of the Offering Memorandum, the Company will not, without the
prior written consent of Merrill Lynch, directly or indirectly, issue, sell,
offer or agree to sell, grant any option for the sale of, or otherwise dispose
of, any other debt securities of the Company or securities of the Company that
are convertible into, or exchangeable for, the Securities or such other debt
securities.
<PAGE> 18
(h) Escrow Agreement. Pursuant to the Escrow Agreement, the Company
will deposit the Initial Escrow Amount into a collateral account and will take
all actions necessary to pledge, assign and set over to the Trustee, for the
benefit of the holders of the Securities and the Trustee (in its capacity as
such under the Indenture), and irrevocably grant to the Trustee for the benefit
of the holders of the Securities and the Trustee (in its capacity as such under
the Indenture) a first priority perfected security interest in, all of its
respective right, title and interest in such collateral account, all funds held
therein and all other Collateral (as such term is defined in the Escrow
Agreement) held by the Escrow Agent or on its behalf, in order to secure the
obligations and indebtedness of the Company under the Indenture, the Escrow
Agreement and the Securities.
(i) Financial Statements. The Company will use its best efforts to
ensure that the Exchange Offer Registration Statement (as defined in the
Registration Rights Agreement) complies with Rule 3.05 under Regulation S-X
under the 1933 Act and to satisfy the Financial Information Condition (as
defined in the Offering Memorandum).
SECTION 4. Payment of Expenses.
(a) Expenses. The Company will pay all expenses incident to the
performance of its obligations under this Agreement, including (i) the
preparation and printing of the Offering Memorandum (including financial
statements and any schedules or exhibits and any document incorporated therein
by reference) and of each amendment or supplement thereto, (ii) the preparation,
printing and delivery to the Initial Purchasers of this Agreement, any Agreement
among Initial Purchasers, the Indenture and such other documents as may be
required in connection with the offering, purchase, sale and delivery of the
Securities, (iii) the preparation, issuance and delivery of the certificates for
the Securities to the Initial Purchasers, including any charges of DTC in
connection therewith; (iv) the fees and disbursements of the Company's counsel,
accountants and other advisors, (v) the qualification of the Securities under
securities laws in accordance with the provisions of Section 3(f) hereof,
including filing fees and the reasonable fees and disbursements of counsel for
the Initial Purchasers in connection therewith and in connection with the
preparation of the Blue Sky Survey, any supplement thereto and any Legal
Investment Survey, (vi) the fees and expenses of the Trustee, including the fees
<PAGE> 19
and disbursements of counsel for the Trustee in connection with the Indenture
and the Securities, (vii) any fees payable in connection with the rating of the
Securities and (viii) any fees payable to the review by the National Association
of Securities Dealers, Inc. (the "NASD") in connection with the initial and
continued designation of the Securities as PORTAL securities under the PORTAL
Market Rules pursuant to NASD Rule 5322 (it being understood that, except as
provided in Sections 4(a)(v) and 4(b), the Initial Purchasers shall pay their
own costs and expenses in connection with the transactions contemplated hereby).
(b) Termination of Agreement. If this Agreement is terminated by the
Representatives in accordance with the provisions of Section 5 or Section
10(a)(i) hereof, the Company shall reimburse the Initial Purchasers for all of
their documented out-of-pocket expenses, including the reasonable fees and
disbursements of counsel for the Initial Purchasers.
SECTION 5. Conditions of Initial Purchasers' Obligations. The
obligations of the several Initial Purchasers hereunder are subject to the
accuracy of the representations and warranties of the Company contained in
Section 1 hereof or in certificates of any officer of the Company or any of its
subsidiaries delivered pursuant to the provisions hereof, to the performance by
the Company of its covenants and other obligations hereunder, and to the
following further conditions:
(a) Opinion of Counsel for Company. At the Closing Time, the
Representatives shall have received the favorable opinion, dated as of the
Closing Time, of Reboul, MacMurray, Hewitt, Maynard & Kristol, counsel for the
Company, in form and substance satisfactory to counsel for the Initial
Purchasers, together with signed or reproduced copies of such letter for each of
the other Initial Purchasers to the effect set forth in Exhibit A hereto and to
such further effect as counsel to the Initial Purchasers may reasonably request.
(b) Opinion of Regulatory Counsel for Company. At the Closing Time,
the Representatives shall have received the favorable opinion, dated as of the
Closing Time, of Fleischman & Walsh, regulatory counsel for the Company, in form
and substance satisfactory to counsel for the Initial Purchasers, to the effect
set forth in Exhibit B hereto and to such further effect as counsel to the
Initial Purchasers may reasonably request.
(c) Opinion of Counsel for Initial Purchasers. At the Closing Time,
the Representatives shall have received the favorable opinion, dated as of the
Closing Time, of Cahill Gordon & Reindel, counsel for the Initial Purchasers,
<PAGE> 20
with respect to the matters set forth in (vii), (viii), (xi) (solely as to the
information in the Offering Memorandum under "Description of the Notes") and
(xv) of Exhibit A hereto. In giving such opinion such counsel may rely, as to
all matters governed by the laws of jurisdictions other than the law of the
State of New York, upon the opinions of counsel satisfactory to the
Representatives. Such counsel may also state that, insofar as such opinion
involves factual matters, they have relied, to the extent they deem proper, upon
certificates of officers of the Company and its subsidiaries and certificates of
public officials.
(d) Officers' Certificate. At the Closing Time, there shall not have
been, since the date hereof or since the respective dates as of which
information is given in the Offering Memorandum, any material adverse change in
the condition, financial or otherwise, or in the earnings, business affairs or
business prospects of the Company and its subsidiaries considered as one
enterprise, whether or not arising in the ordinary course of business, and the
Representatives shall have received a certificate of the President or a Vice
President of the Company and of the chief financial or chief accounting officer
of the Company, dated as of the Closing Time, to the effect that (i) there has
been no such material adverse change, (ii) the representations and warranties in
Section 1 hereof are true and correct, in all material respects, with the same
force and effect as though expressly made at and as of the Closing Time (except
the representations and warranties in Section 1 qualified as to materiality
shall be true and correct with the same force and effect as though expressly
made at and as of the Closing Time) and (iii) the Company has complied, in all
material respects, with all agreements and satisfied all conditions on its part
to be performed or satisfied at or prior to the Closing Time.
(e) Accountant's Comfort Letter. At the time of the execution of this
Agreement, the Representatives shall have received from KPMG Peat Marwick LLP,
Eide Helmeke PLLP, Loucks & Glassley, pllp, and Bolinger, Segars, Gilbert &
Moss, L.L.P., a letter dated such date, in form and substance satisfactory to
the Representatives, containing statements and information of the type
ordinarily included in accountants' "comfort letters" to Initial Purchasers with
respect to the financial statements and certain financial information contained
in the Offering Memorandum.
<PAGE> 21
(f) Bring-down Comfort Letter. At the Closing Time, the
Representatives shall have received from KPMG Peat Marwick LLP a letter, dated
as of the Closing Time, to the effect that they reaffirm the statements made in
the letter furnished pursuant to subsection (d) of this Section, except that the
specified date referred to shall be a date not more than three business days
prior to the Closing Time.
(g) Maintenance of Rating. At the Closing Time, the Securities shall
be rated at least B3 by Moody's Investors Service Inc. and CCC+ by Standard &
Poor's Corporation, and the Company shall have delivered to the Representatives
a letter dated the Closing Time, from each such rating agency, or other evidence
satisfactory to the Representatives, confirming that the Securities have such
ratings; and since the date of this Agreement, there shall not have occurred a
downgrading in the rating assigned to the Securities or any of the Company's
other debt securities by any nationally recognized securities rating agency, and
no such securities rating agency shall have publicly announced that it has under
surveillance or review, with possible negative implications, its rating of the
Securities or any of the Company's other debt securities.
(h) PORTAL. At the Closing Time, the Securities shall have been
designated for trading on PORTAL.
(i) Escrow Agreement. The Company, the Trustee and the Escrow Agent
shall have entered into the Escrow Agreement.
(j) Stockholder Approval. The Company will have received all
stockholder approvals necessary to issue the Notes and consummate the
transactions contemplated by this Agreement.
(k) Additional Documents. At the Closing Time, counsel for the Initial
Purchasers shall have been furnished with such documents and opinions as they
may require for the purpose of enabling them to pass upon the issuance and sale
of the Securities as herein contemplated, or in order to evidence the accuracy
of any of the representations or warranties, or the fulfillment of any of the
conditions, herein contained; and all proceedings taken by the Company in
connection with the issuance and sale of the Securities as herein contemplated
shall be satisfactory in form and substance to the Representatives and counsel
for the Initial Purchasers.
(l) Termination of Agreement. If any condition specified in this
Section shall not have been fulfilled when and as required to be fulfilled, this
Agreement may be terminated by the Representatives by notice to the Company at
<PAGE> 22
any time at or prior to the Closing Time, and such termination shall be without
liability of any party to any other party except as provided in Section 4 and
except that Sections 1, 7 and 8 shall survive any such termination and remain in
full force and effect.
SECTION 6. Subsequent Offers and Resales of the Securities.
(a) Offer and Sale Procedures. Each of the Initial Purchasers and the
Company hereby establish and agree to observe the following procedures in
connection with the offer and sale of the Securities:
(i) Offers and Sales Only to Institutional Accredited Investors or
Non-U.S. Persons. Offers and sales of the Securities will be made only by
the Initial Purchasers or Affiliates thereof qualified to do so in the
jurisdictions in which such offers or sales are made. Each such offer or
sale shall only be made (A) to persons whom the offeror or seller
reasonably believes to be qualified institutional buyers (as defined in
Rule 144A under the 1933 Act and (B) non-U.S. persons outside the United
States to whom the offeror or seller reasonably believes offers and sales
of the Securities may be made in reliance upon Regulation S under the 1933
Act.
(ii) No General Solicitation. The Securities will be offered by
approaching prospective Subsequent Purchasers on an individual basis. No
general solicitation or general advertising (within the meaning of Rule
502(c) under the 1933 Act) will be used in the United States in connection
with the offering of the Securities.
(iii) Purchases by Non-Bank Fiduciaries. In the case of a non-bank
Subsequent Purchaser of a Security acting as a fiduciary for one or more
third parties, in connection with an offer and sale to such purchaser
pursuant to clause (a) above, each third party shall, in the judgment of
the applicable Initial Purchaser, be a Qualified Institutional Buyer or a
non-U.S. person outside the United States.
(iv) Subsequent Purchaser Notification. Each Initial Purchaser will
take reasonable steps to inform, and cause each of its U.S. Affiliates to
take reasonable steps to inform, persons acquiring Securities from such
Initial Purchaser or affiliate, as the case may be, in the United States
that the Securities (A) have not been and will not be registered under the
<PAGE> 23
1933 Act, (B) are being sold to them without registration under the 1933
Act in reliance on Rule 144A or in accordance with another exemption from
registration under the 1933 Act, as the case may be, and (C) may not be
offered, sold or otherwise transferred except (1) to the Company, (2)
outside the United States in accordance with Rule 904 of Regulation S, or
(3) inside the United States in accordance with (x) Rule 144A to a person
whom the seller reasonably believes is a Qualified Institutional Buyer that
is purchasing such Securities for its own account or for the account of a
Qualified Institutional Buyer to whom notice is given that the offer, sale
or transfer is being made in reliance on Rule 144A or (y) the exemption
from registration under the 1933 Act provided by Rule 144, if available.
(v) Minimum Principal Amount. No sale of the Securities to any one
Subsequent Purchaser will be for less than U.S. $100,000 principal amount
and no Security will be issued in a smaller principal amount. If the
Subsequent Purchaser is a non-bank fiduciary acting on behalf of others,
each person for whom it is acting must purchase at least U.S. $100,000
principal amount of the Securities.
(vi) Restrictions on Transfer. The transfer restrictions and the other
provisions set forth in Section Two of the Indenture, including the legend
required thereby, shall apply to the Securities except as otherwise agreed
by the Company and the Initial Purchasers. Following the sale of the
Securities by the Initial Purchasers to Subsequent Purchasers pursuant to
the terms hereof, the Initial Purchasers shall not be liable or responsible
to the Company for any losses, damages or liabilities suffered or incurred
by the Company, including any losses, damages or liabilities under the 1933
Act, arising from or relating to any resale or transfer of any Security.
(vii) Delivery of Offering Memorandum. Each Initial Purchaser will
deliver to each purchaser of the Securities from such Initial Purchaser, in
connection with its original distribution of the Securities, a copy of the
Offering Memorandum, as amended and supplemented at the date of such
delivery.
(b) Covenants of the Company. The Company covenants with each Initial
Purchaser as follows:
<PAGE> 24
(i) Due Diligence. In connection with the original distribution of the
Securities, the Company agrees that, prior to any offer or resale of the
Securities by the Initial Purchasers, the Initial Purchasers and counsel
for the Initial Purchasers shall have the right to make reasonable
inquiries into the business of the Company and its subsidiaries. The
Company also agrees to provide answers to each prospective Subsequent
Purchaser of Securities who so requests concerning the Company and its
subsidiaries (to the extent that such information is available or can be
acquired and made available to prospective Subsequent Purchasers without
unreasonable effort or expense and to the extent the provision thereof is
not prohibited by applicable law) and the terms and conditions of the
offering of the Securities, as provided in the Offering Memorandum.
(ii) Integration. The Company agrees that it will not and will cause
its Affiliates not to make any offer or sale of securities of the Company
of any class if, as a result of the doctrine of "integration" referred to
in Rule 502 under the 1933 Act, such offer or sale would render invalid
(for the purpose of (i) the sale of the Securities by the Company to the
Initial Purchasers, (ii) the resale of the Securities by the Initial
Purchasers to Subsequent Purchasers or (iii) the resale of the Securities
by such Subsequent Purchasers to others) the exemption from the
registration requirements of the 1933 Act provided by Section 4(2) thereof
or by Rule 144A or by Regulation S thereunder or otherwise.
(iii) Rule 144A Information. The Company agrees that, in order to
render the Securities eligible for resale pursuant to Rule 144A under the
1933 Act, while any of the Securities remain outstanding, it will make
available, upon request, to any holder of Securities or prospective
purchasers of Securities the information specified in Rule 144A(d)(4),
unless the Company furnishes information to the Commission pursuant to
Section 13 or 15(d) of the 1934 Act (such information, whether made
available to holders or prospective purchasers or furnished to the
Commission, is herein referred to as "Additional Information").
(iv) Restriction on Repurchases. Until the expiration of two years
after the original issuance of the Securities, the Company will not, and
will cause its Affiliates not to, purchase or agree to purchase or
otherwise acquire any Securities which are "restricted securities" (as such
<PAGE> 25
term is defined under Rule 144(a)(3) under the 1933 Act), whether as
beneficial owner or otherwise (except as agent acting as a securities
broker on behalf of and for the account of customers in the ordinary course
of business in unsolicited broker's transactions) unless, immediately upon
any such purchase, the Company or any Affiliate shall submit such
Securities to the Trustee for cancellation.
SECTION 7. Indemnification.
(a) Indemnification of Initial Purchasers. The Company agrees to
indemnify and hold harmless each Initial Purchaser and each person, if any, who
controls any Initial Purchaser within the meaning of Section 15 of the 1933 Act
or Section 20 of the 1934 Act as follows:
(i) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of any untrue statement or alleged
untrue statement of a material fact contained in any Preliminary Offering
Memorandum or the Final Offering Memorandum (or any amendment or supplement
thereto), or the omission or alleged omission therefrom of a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission; provided that (subject to Section
7(d) below) any such settlement is effected with the written consent of the
Company; and
(iii) against any and all expense whatsoever, as incurred (including
the fees and disbursements of counsel chosen by Merrill Lynch), reasonably
incurred in investigating, preparing or defending against any litigation,
or any investigation or proceeding by any governmental agency or body,
commenced or threatened, or any claim whatsoever based upon any such untrue
statement or omission, or any such alleged untrue statement or omission, to
the extent that any such expense is not paid under (i) or (ii) above;
provided, however, that this indemnity agreement shall not apply to any
loss, liability, claim, damage or expense to the extent arising out of any
untrue statement or omission or alleged untrue statement or omission made
<PAGE> 26
in reliance upon and in conformity with written information furnished to
the Company by any Initial Purchaser through Merrill Lynch expressly for
use in the Offering Memorandum (or any amendment thereto); and provided,
further, that the Company will not be liable to any Initial Purchaser
hereunder with respect to any such loss, liability, claim, damage or
expense that resulted from the fact that such Initial Purchaser sold
Securities to a person to whom such Initial Purchaser failed to send or
give, at or prior to the Closing Time, a copy of the Final Offering
Memorandum, as then amended or supplemented, if the Company has previously
furnished copies thereof (sufficiently in advance of the Closing Time to
allow for distribution by the Closing Time) to the Initial Purchasers and
the loss, liability, claim, damage or expense of such Initial Purchaser
resulted from an untrue statement or omission or alleged untrue statement
or omission of a material fact contained in or omitted from the Preliminary
Offering Memorandum as amended by the Supplement that was corrected in the
Final Offering Memorandum or, if applicable, amended or supplemented prior
to the Closing Time.
(b) Indemnification of Company, Directors and Officers. Each Initial
Purchaser severally agrees to indemnify and hold harmless the Company, its
directors, its officers and each person, if any, who controls the Company within
the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act against
any and all loss, liability, claim, damage and expense described in the
indemnity contained in subsection (a) of this Section, as incurred, but only
with respect to untrue statements or omissions, or alleged untrue statements or
omissions, made in the Offering Memorandum in reliance upon and in conformity
with written information furnished to the Company by such Initial Purchaser
through Merrill Lynch expressly for use in the Offering Memorandum.
(c) Actions Against Parties; Notification. Each indemnified party
shall give notice as promptly as reasonably practicable to each indemnifying
party of any action commenced against it in respect of which indemnity may be
sought hereunder, but failure to so notify an indemnifying party shall not
relieve such indemnifying party from any liability hereunder to the extent it is
not materially prejudiced as a result thereof and in any event shall not relieve
it from any liability which it may have otherwise than on account of this
indemnity agreement. In the case of parties indemnified pursuant to Section 7(a)
<PAGE> 27
above, counsel to the indemnified parties shall be selected by Merrill Lynch,
and, in the case of parties indemnified pursuant to Section 7(b) above, counsel
to the indemnified parties shall be selected by the Company. An indemnifying
party may participate at its own expense in the defense of any such action;
provided, however, that counsel to the indemnifying party shall not (except with
the consent of the indemnified party) also be counsel to the indemnified party.
In no event shall the indemnifying parties be liable for fees and expenses of
more than one counsel (in addition to any local counsel) separate from their own
counsel for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances. No indemnifying party shall,
without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any judgment with respect to any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever in respect of which
indemnification or contribution could be sought under this Section 7 or Section
8 hereof (whether or not the indemnified parties are actual or potential parties
thereto), unless such settlement, compromise or consent (i) includes an
unconditional release of each indemnified party from all liability arising out
of such litigation, investigation, proceeding or claim and (ii) does not include
a statement as to or an admission of fault, culpability or a failure to act by
or on behalf of any indemnified party.
(d) Settlement Without Consent if Failure to Reimburse. If at any time
an indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel, such indemnifying party
agrees that it shall be liable for any settlement of the nature contemplated by
Section 7(a)(ii) effected without its written consent if (i) such settlement is
entered into more than 45 days after receipt by such indemnifying party of the
aforesaid request, (ii) such indemnifying party shall have received notice of
the terms of such settlement at least 30 days prior to such settlement being
entered into and (iii) such indemnifying party shall not have reimbursed such
indemnified party in accordance with such request prior to the date of such
settlement.
SECTION 8. Contribution. If the indemnification provided for in
Section 7 hereof is for any reason unavailable to or insufficient to hold
harmless an indemnified party in respect of any losses, liabilities, claims,
damages or expenses referred to therein, then each indemnifying party shall
contribute to the aggregate amount of such losses, liabilities, claims, damages
and expenses incurred by such indemnified party, as incurred, (i) in such
proportion as is appropriate to reflect the relative benefits received by the
<PAGE> 28
Company on the one hand and the Initial Purchasers on the other hand from the
offering of the Securities pursuant to this Agreement or (ii) if the allocation
provided by clause (i) is not permitted by applicable law, in such proportion as
is appropriate to reflect not only the relative benefits referred to in clause
(i) above but also the relative fault of the Company on the one hand and of the
Initial Purchasers on the other hand in connection with the statements or
omissions which resulted in such losses, liabilities, claims, damages or
expenses, as well as any other relevant equitable considerations.
The relative benefits received by the Company on the one hand and the
Initial Purchasers on the other hand in connection with the offering of the
Securities pursuant to this Agreement shall be deemed to be in the same
respective proportions as the total proceeds from the offering of the Securities
pursuant to this Agreement (net of escrowed amount and discounts but before
deducting expenses) received by the Company and the total underwriting discount
received by the Initial Purchasers, bear to the aggregate initial offering price
of the Securities (net of escrowed amounts).
The relative fault of the Company on the one hand and the Initial
Purchasers on the other hand shall be determined by reference to, among other
things, whether any such untrue or alleged untrue statement of a material fact
or omission or alleged omission to state a material fact relates to information
supplied by the Company or by the Initial Purchasers and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
The Company and the Initial Purchasers agree that it would not be just
and equitable if contribution pursuant to this Section 8 were determined by pro
rata allocation (even if the Initial Purchasers were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to above in this Section 8. The
aggregate amount of losses, liabilities, claims, damages and expenses incurred
by an indemnified party and referred to above in this Section 8 shall be deemed
to include any legal or other expenses reasonably incurred by such indemnified
<PAGE> 29
party in investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue or alleged untrue
statement or omission or alleged omission.
Notwithstanding the provisions of this Section 8, no Initial Purchaser
shall be required to contribute any amount in excess of the amount by which the
total price at which the Securities underwritten by it and distributed to the
public were offered to the public exceeds the amount of any damages which such
Initial Purchaser has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the 1933 Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 8, each person, if any, who controls an
Initial Purchaser within the meaning of Section 15 of the 1933 Act or Section 20
of the 1934 Act shall have the same rights to contribution as such Initial
Purchaser, and each director of the Company, each officer of the Company, and
each person, if any, who controls the Company within the meaning of Section 15
of the 1933 Act or Section 20 of the 1934 Act shall have the same rights to
contribution as the Company. The Initial Purchasers' respective obligations to
contribute pursuant to this Section 8 are several in proportion to the principal
amount of Securities set forth opposite their respective names in Schedule A
hereto and not joint.
SECTION 9. Representations, Warranties and Agreements to Survive
Delivery. All representations, warranties and agreements contained in this
Agreement or in certificates of officers of the Company submitted pursuant
hereto, shall remain operative and in full force and effect, regardless of any
investigation made by or on behalf of any Initial Purchaser or controlling
person, or by or on behalf of the Company, and shall survive delivery of the
Securities to the Initial Purchasers.
SECTION 10. Termination of Agreement.
(a) Termination; General. The Representatives may terminate this
Agreement, by notice to the Company, at any time at or prior to the Closing Time
(i) if there has been, since the time of execution of this Agreement or since
the respective dates as of which information is given in the Offering
Memorandum, any material adverse change in the condition, financial or otherwise
<PAGE> 30
or in the earnings, business affairs or business prospects of the Company and
its subsidiaries considered as one enterprise, whether or not arising in the
ordinary course of business, or (ii) if there has occurred any material adverse
change in the financial markets in the United States, any outbreak of
hostilities or escalation thereof or other calamity or crisis or any change or
development involving a prospective change in national or international
political, financial or economic conditions, in each case the effect of which is
such as to make it, in the judgment of the Representatives, impracticable to
market the Securities or to enforce contracts for the sale of the Securities, or
(iii) if trading in any securities of the Company has been suspended or limited
by the Commission or, if trading generally on the American Stock Exchange or the
New York Stock Exchange or in the National Market System has been suspended or
limited, or minimum or maximum prices for trading have been fixed, or maximum
ranges for prices have been required, by any of said exchanges or by such system
or by order of the Commission, the National Association of Securities Dealers,
Inc. or any other governmental authority or (iv) if a banking moratorium has
been declared by either Federal or New York authorities.
(b) Liabilities. If this Agreement is terminated pursuant to this
Section, such termination shall be without liability of any party to any other
party except as provided in Section 4 hereof, and provided further that Sections
1, 7 and 8 shall survive such termination and remain in full force and effect.
SECTION 11. Default by One or More of the Initial Purchasers. If one
or more of the Initial Purchasers shall fail at the Closing Time to purchase the
Securities which it or they are obligated to purchase under this Agreement (the
"Defaulted Securities"), the Representatives shall have the right, but not the
obligation, within 24 hours thereafter, to make arrangements for one or more of
the non-defaulting Initial Purchasers, or any other Initial Purchasers, to
purchase all, but not less than all, of the Defaulted Securities in such amounts
as may be agreed upon and upon the terms herein set forth; if, however, the
Representatives shall not have completed such arrangements within such 24-hour
period, then this Agreement shall terminate without liability on the part of any
non-defaulting Initial Purchaser.
<PAGE> 31
No action pursuant to this Section shall relieve any defaulting
Initial Purchaser from liability in respect of its default.
In the event of any such default that does not result in a termination
of this Agreement, either the Representatives or the Company shall have the
right to postpone the Closing Time for a period not exceeding seven days in
order to effect any required changes in the Offering Memorandum or in any other
documents or arrangement.
SECTION 12. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the Initial
Purchasers shall be directed to the Representatives at North Tower, World
Financial Center, New York, New York 10281-1201, attention of John Curran;
notices to the Company shall be directed to it at 605 West 47th Street, Suite
300, Kansas City, Missouri 64112, attention of Robert Weaver.
SECTION 13. Parties. This Agreement shall each inure to the benefit of
and be binding upon the Initial Purchasers and the Company and their respective
successors. Nothing expressed or mentioned in this Agreement is intended or
shall be construed to give any person, firm or corporation, other than the
Initial Purchasers and the Company and their respective successors and the
controlling persons and officers and directors referred to in Sections 7 and 8
and their heirs and legal representatives, any legal or equitable right, remedy
or claim under or in respect of this Agreement or any provision herein
contained. This Agreement and all conditions and provisions hereof are intended
to be for the sole and exclusive benefit of the Initial Purchasers and the
Company and their respective successors, and said controlling persons and
officers and directors and their heirs and legal representatives, and for the
benefit of no other person, firm or corporation. No purchaser of Securities from
any Initial Purchaser shall be deemed to be a successor by reason merely of such
purchase.
SECTION 14. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. SPECIFIED
TIMES OF DAY REFER TO NEW YORK CITY TIME.
SECTION 15. Effect of Headings. The Section headings herein and the
Table of Contents are for convenience only, and shall not affect the
construction hereof.
<PAGE> 32
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company a counterpart hereof, whereupon
this instrument, along with all counterparts, will become a binding agreement
between the Initial Purchasers and the Company in accordance with its terms.
Very truly yours,
GOLDEN SKY SYSTEMS, INC.
By: /s/ Robert B. Weaver
--------------------------
Name: Robert B. Weaver
Title: Chief Financial Officer
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: Merrill Lynch, Pierce, Fenner & Smith
Incorporated
By: /s/ John T.Curran
-----------------------
Name: John T.Curran
Title: Director
NATIONSBANC MONTGOMERY SECURITIES LLC
By: /s/ Michael Yagen
-----------------------
Name: Michael Yagen
Title:
<PAGE> 33
SCHEDULE A
Principal
Amount of
Name of Initial Purchaser Securities
Merrill Lynch, Pierce, Fenner & Smith
Incorporated $165,750.00
NationsBanc Montgomery Securities LLC 29,250.00
---------
Total $195,000,000
============
Sch A-1
<PAGE> 34
SCHEDULE B
GOLDEN SKY SYSTEMS, INC.
$195,000,000 Senior Subordinated Notes due 2006
1. The initial public offering price of the Securities shall be 97% of
the principal amount thereof, plus accrued interest, if any, from the date of
issuance.
2. The purchase price to be paid by the Initial Purchasers for the
Securities shall be 3% of the principal amount thereof.
3. The interest rate on the Securities shall be 12 3/8% per annum.
Sch B-1
<PAGE> 35
Exhibit A
FORM OF OPINION OF COMPANY'S COUNSEL
TO BE DELIVERED PURSUANT TO
SECTION 5(a)
(i) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Delaware.
(ii) The Company has corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the Offering
Memorandum and to enter into and perform its obligations under the Purchase
Agreement.
(iii) The Company is duly qualified as a foreign corporation to
transact business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except where the failure so to qualify or
to be in good standing would not result in a Material Adverse Effect.
(iv) The authorized, issued and outstanding capital stock of the
Company is as set forth in the Offering Memorandum in the column entitled
"Actual" under the caption "Capitalization" (except for subsequent issuances, if
any, pursuant to the Purchase Agreement or pursuant to reservations, agreements,
employee benefit plans or the exercise of convertible securities or options
referred to in the Offering Memorandum); the shares of issued and outstanding
capital stock of the Company have been duly authorized and validly issued and
are fully paid and nonassessable; and none of the outstanding shares of capital
stock of the Company was issued in violation of the preemptive or other similar
rights of any security holder of the Company.
(v) Each Designated Subsidiary has been duly incorporated and is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has corporate power and authority to own,
lease and operate its properties and to conduct its business as described in the
Offering Memorandum and is duly qualified as a foreign corporation to transact
business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except where the failure so to qualify or
A-1
<PAGE> 36
to be in good standing would not result in a Material Adverse Effect; all of the
issued and outstanding capital stock of each Designated Subsidiary has been duly
authorized and validly issued, is fully paid and non-assessable and, to the best
of our knowledge and information, except as disclosed in the Offering
Memorandum, is owned by the Company, directly or through subsidiaries, free and
clear of any security interest, mortgage, pledge, lien, encumbrance, claim or
equity.
(vi) The Purchase Agreement has been duly authorized, executed and
delivered by the Company.
(vii) The Registration Rights Agreement has been duly authorized by
the Company and, when executed and delivered by the Company, will constitute a
valid and binding agreement of the Company, enforceable against the Company in
accordance with its terms, except as the enforcement thereof may be limited by
bankruptcy, insolvency (including, without limitation, all laws relating to
fraudulent transfers), reorganization, moratorium or similar laws affecting
enforcement of creditors' rights generally and except as enforcement thereof is
subject to general principles of equity (regardless of whether enforcement is
considered in a proceeding in equity or at law).
(viii) The Indenture has been duly authorized, executed and delivered
by the Company and (assuming the due authorization, execution and delivery
thereof by the Trustee) constitutes a valid and binding agreement of the
Company, enforceable against the Company in accordance with its terms, except as
the enforcement thereof may be limited by bankruptcy, insolvency (including,
without limitation, all laws relating to fraudulent transfers), reorganization,
moratorium or other similar laws relating to or affecting enforcement of
creditors' rights generally, or by general principles of equity (regardless of
whether enforcement is considered in a proceeding in equity or at law).
(ix) The Escrow Agreement has been duly authorized by the Company and,
when executed and delivered by the Company (assuming the due authorization,
execution and delivery by the other parties thereto), will constitute a valid
and binding agreement of the Company, enforceable against the Company in
accordance with its terms, except as the enforcement thereof may be limited by
A-2
<PAGE> 37
bankruptcy, insolvency (including, without limitation, all laws relating to
fraudulent transfers), reorganization, moratorium or similar laws affecting
enforcement of creditors' rights generally and except as enforcement thereof is
subject to general principles of equity (regardless of whether enforcement is
considered in a proceeding in equity or at law).
(x) The Securities are in the form contemplated by the Indenture, have
been duly authorized by the Company and, when executed by the Company and
authenticated by the Trustee in the manner provided in the Indenture (assuming
the due authorization, execution and delivery of the Indenture by the Trustee)
and delivered against payment of the purchase price therefor, and the Exchange
Securities and the Private Exchange Notes (other than with respect to the
delivery in book-entry form), if any, when executed, authenticated and delivered
in exchange for the Securities in accordance with the terms of the Registration
Rights Agreement, will be entitled to the benefits of the Indenture and will
constitute valid and binding obligations of the Company, enforceable against the
Company in accordance with their terms, except as the enforcement thereof may be
limited by bankruptcy, insolvency, reorganization, moratorium (including,
without limitation, all laws relating to fraudulent transfers), or other similar
laws relating to or affecting enforcement of creditor's rights generally, or by
general principles of equity (regardless of whether enforcement is considered in
a proceeding in equity or at law), and will be entitled to the benefits of the
Indenture.
(xi) The Securities, the Exchange Securities, the Private Exchange
Notes, the Registration Rights Agreement, the Escrow Agreement and the Indenture
conform in all material respects to the descriptions thereof contained in the
Offering Memorandum.
(xii) There is not pending or, to the best of their knowledge,
threatened any action, suit, proceeding, inquiry or investigation, to which the
Company or any subsidiary is a party, or to which the property of the Company or
any subsidiary thereof is subject, before or brought by any court or
governmental agency or body, which might reasonably be expected to result in a
Material Adverse Effect, or which might reasonably be expected to materially and
adversely affect the properties or assets thereof or the consummation of the
transactions contemplated in the Purchase Agreement or the performance by the
Company of its obligations thereunder or the transactions contemplated by the
Offering Memorandum.
(xiii) The information in the Offering Memorandum under "Offering
Memorandum Summary -- The Offering", "Business--Litigation", "Description of the
Notes", ["Exchange Offer and Registration Rights"] and "Certain Federal Income
A-3
<PAGE> 38
Tax Considerations", to the extent that it constitutes matters of law, summaries
of legal matters, or legal proceedings, or legal conclusions, has been reviewed
by them and is correct in all material respects.
(xiv) All descriptions in the Offering Memorandum of contracts and
other documents to which the Company or any of its subsidiaries are a party are
accurate in all material respects; and to the best of our knowledge, there are
no franchises, contracts, indentures, mortgages, loan agreements, notes, leases
or other instruments that would be required to be described in the Offering
Memorandum that are not described or referred to in the Offering Memorandum
other than those described or referred to therein.
(xv) Neither the Company nor any of its subsidiaries is in violation
of its charter or by-laws and, to the best of our knowledge, no default by the
Company or any of its subsidiaries exists in the due performance or observance
of any material obligation, agreement, covenant or condition contained in any
contract, indenture, mortgage, loan agreement, note, lease or other agreement or
instrument that is described or referred to in the Offering Memorandum.
(xvi) No authorization, approval, consent or order of any court or
governmental authority or agency, other than such as may be required under the
applicable securities laws of the various jurisdictions in which the Securities
will be offered or sold, as to which we need express no opinion is required in
connection with the due authorization, execution and delivery of the Purchase
Agreement or the due execution, delivery or performance of the Indenture by the
Company, or for the offering, issuance, sale or delivery of the Securities to
the Initial Purchasers or the resale by the Initial Purchasers in accordance
with the Purchase Agreement.
(xvii) It is not necessary in connection with the offer, sale and
delivery of the Securities to the Initial Purchasers and to each Subsequent
Purchaser in the manner contemplated by the Purchase Agreement and the Offering
Memorandum to register the Securities under the 1933 Act or to qualify the
Indenture under the Trust Indenture Act.
(xviii) The execution, delivery and performance of the Purchase
Agreement, the DTC Agreement, the Escrow Agreement, the Indenture and the
Securities and the consummation of the transactions contemplated in the Purchase
Agreement and in the Offering Memorandum (including the use of the proceeds from
the sale of the Securities as described in the Offering Memorandum under the
caption "Use Of Proceeds") and compliance by the Company with its obligations
A-4
<PAGE> 39
under the Purchase Agreement, the Escrow Agreement, the Indenture and the
Securities will not, whether with or without the giving of notice or lapse of
time or both, conflict with or constitute a breach of, or default or Repayment
Event (as defined in Section l(a)(iii) of the Purchase Agreement) under or
result in the creation or imposition of any lien, charge or encumbrance upon any
property or assets of the Company or any subsidiary thereof pursuant to any
contract, indenture, mortgage, deed of trust, loan or credit agreement, note,
lease or any other agreement or instrument, including agreements governing the
rights of stockholders of the Company, known to us, to which the Company or any
of its subsidiaries is a party or by which it or any of them may be bound, or to
which any of the property or assets of the Company or any subsidiary thereof is
subject (except for such conflicts, breaches or defaults or liens, charges or
encumbrances that would not have a Material Adverse Effect), nor will such
action result in any violation of the provisions of the charter or by-laws of
the Company or any of its subsidiaries, or any applicable law, statute, rule,
regulation, judgment, order, writ or decree, known to us, of any government,
government instrumentality or court, domestic or foreign, having jurisdiction
over the Company or any of its subsidiaries or any of their respective
properties, assets or operations.
(xix) The Company is not an "investment company" or an entity
"controlled" by an "investment company," as such terms are defined in the 1940
Act.
(xx) The Escrow Agreement creates a valid security interest in favor
of the Trustee in all right, title and interest of the Company in and to the
Escrow Account and the collateral (such counsel need not express an opinion as
to the perfection or priority of the security interest in the collateral created
by the Escrow Agreement).
Nothing has come to our attention that would lead us to believe that
the Offering Memorandum (except for financial statements and schedules and other
financial data included or incorporated by reference therein as to which we make
no statement), contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading or that the Offering Memorandum or any
amendment or supplement thereto (except for financial statements and schedules
and other financial data included therein, as to which such counsel need make no
A-5
<PAGE> 40
statement), at the time the Offering Memorandum was issued, at the time any such
amended or supplemented Offering Memorandum was issued or at the Closing Time,
included or includes an untrue statement of a material fact or omitted or omits
to state a material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
In rendering such opinion, such counsel may rely as to matters of fact
(but not as to legal conclusions), to the extent they deem proper, on
certificates of responsible officers of the Company and public officials. Such
opinion shall not state that it is to be governed or qualified by, or that it is
otherwise subject to, any treatise, written policy or other document relating to
legal opinions, including, without limitation, the Legal Opinion Accord of the
ABA Section of Business Law (1991).
A-6
<PAGE> 41
Exhibit B
FORM OF OPINION OF COMPANY'S REGULATORY
COUNSEL TO BE DELIVERED PURSUANT TO SECTION 5(b)
(i) The statements in the Offering Memorandum under the captions
["Risk Factors-Regulation" and "Business-Regulation,"] insofar as such
statements constitute summaries of the legal matters, documents or proceedings
referred to therein, fairly summarize the matters referred to therein and, to
our knowledge, such statements, as of the date of the Offering Memorandum and
the date hereof, contain no untrue statement of a material fact or omit to state
a material fact necessary to make the statements therein not misleading.
B-1
<PAGE> 1
Exhibit 10.2
$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> 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 10.4
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 10.5
- --------------------------------------------------------------------------------
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 10.6
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT made and entered into as of the 12th day of
February, 1997 by and between Golden Sky Systems, Inc., a Delaware corporation
(the "Company"), and Rodney A. Weary (the "Executive");
WHEREAS, the Executive is currently serving as President and Chief
Executive Officer of 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 closing date (the "Effective Date") of the sale of stock by the
Company contemplated by the Stock Purchase Agreement dated of even date herewith
between the Company and the various investors referred to therein (the "Purchase
Agreement") 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) Other Agreements. This Agreement supersedes the Employment
Agreement previously entered into by the Executive and the Company, which is
hereby terminated and of no further force and effect, and 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.
<PAGE> 2
2. Duties and Powers of Executive.
(a) Position; Location. During the Employment Period, the
Executive shall serve as Chief Executive Officer and President of the Company,
with such authority, duties and responsibilities as are set forth on Annex A to
this Agreement and as are appropriate for such position, and shall report to and
be supervised by the Board of Directors. The titles, 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) Board Membership. The Executive shall be a member of the
Board on the first day of the Employment Period, and the Board shall propose the
Executive for re-election to the Board throughout the Employment Period.
(c) 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, or in the activities set forth on Schedule A attached
hereto 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
<PAGE> 3
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 $200,000. 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. Notwithstanding anything in this Agreement to the
contrary, in the event that the number of active, paying subscribers of the
Company as of December 31, 1997 is less than the amounts indicated below, the
Annual Base Salary shall thereafter be reduced to the corresponding amounts
indicated below:
Subscribers Annual Base Salary
40,000 $100,000
20,000 $50,000
(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 1996 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.
<PAGE> 4
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 has been, or will be, unable to
perform substantially all of his duties and responsibilities under this
Agreement for a period in excess of 90 days.
(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; or (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.
(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. 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 which is beyond a
reasonable commuting distance from the Kansas City metropolitan
area.
(e) Notice of Termination. Any termination by the Company for
Cause, or by the Executive for Good Reason, shall be communicated by Notice of
<PAGE> 5
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:
(i) Continued payment of the Executive's Annual Salary at
the rate in effect on the Date of Termination, said payments to
be made through the remainder of the Employment Period and 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 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.
<PAGE> 6
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,
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) 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
<PAGE> 7
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
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,
<PAGE> 8
addressed, in either case, to the Company's headquarters or to such other
address as either party shall have furnished 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/ Robert B. Liepold
-------------------------------
Name: Robert B. Liepold
Title: Vice President
/s/ Rodney A. Weary
-------------------------------
Rodney A. Weary
<PAGE> 10
ANNEX A
TO EMPLOYMENT
AGREEMENT
CHIEF EXECUTIVE OFFICER
The Chief Executive Officer shall be responsible for (a) the strategic
direction, development and oversight of the company, (b) the growth of the
Company and (c) the deployment of strategic assets of the Company. The Chief
Executive Officer shall have responsibility for external relations with the
financial community and corporate governance. The Chief Financial Officer will
report directly to the Chief Executive Officer. The Chief Executive Officer
shall submit a report of the operations of the Company for the fiscal year to
the shareholders at their annual meeting and from time-to-time shall report to
the Board of Directors all matters within his knowledge that the interests of
the Company may require to be brought to their notice. So long as the Chief
Executive Officer is a member of the Board of Directors, he shall be the
Chairman of the Board of Directors.
<PAGE> 1
Exhibit 10.7
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT made and entered into as of the 12th day of
February, 1997 by and between Golden Sky Systems, Inc., a Delaware corporation
(the "Company"), and Jo Ellen Linn (the "Executive");
WHEREAS, the Executive is currently providing legal and administrative
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 closing date (the "Effective Date") of the sale of stock by the
Company contemplated by the Stock Purchase Agreement dated of even date herewith
between the Company and the various investors referred to therein (the "Purchase
Agreement") 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) Other Agreements. This Agreement supersedes the Employment
Agreement previously entered into by the Executive and the Company, which is
hereby terminated and of no further force and effect, and 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.
<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
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 her 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 her ability to fulfill
her 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 her
ability to fulfill her duties and responsibilities under this
Agreement.
3. Compensation. The Executive shall receive the following
compensation for her 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 $82,500. 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 1996 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 her 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 her 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 her 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 her 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
<PAGE> 4
subsidiary thereof; (ii) conviction of the Executive of a crime involving moral
turpitude, deceit, dishonesty or fraud; (iii) willful and substantial failure to
perform her 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; or (v) the number of active,
paying subscribers of the Company as of December 31, 1997 is less than 40,000.
(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 her 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 her
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. 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 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 her 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 her 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 furnished 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: Chief Executive Officer
/s/ Jo Ellen Linn
-----------------------
Jo Ellen Linn
<PAGE> 1
Exhibit 12.1
Golden Sky Systems, Inc.
Computation of Ratio of Earnings to Fixed Charges
<TABLE>
<CAPTION>
Inception to Year Ended Six Months Ended June 30,
December 31, 1998 December 31, 1997 1997 1998
<S> <C> <C> <C> <C>
Net Loss (1,167) (15,784) (2,858) (22,625)
Net Internet Expense 61 2,918 126 4,942
Rent Expense (Interest Portion) 9 145 33 119
-------------- ------------- -------------- ------------
Earnings (as defined) (1,097) (12,721) (2,699) (17,564)
-------------- -------------- -------------- -------------
Interest Expense 62 2,958 128 4,971
Rent Expense (Interest Portion) 9 145 33 119
-------------- ------------- -------------- ------------
Fixed Charges 71 3,103 161 5,090
-------------- ------------- -------------- ------------
Ratio of Earnings to Fixed Charges -- -- -- --
Pro Forma
Year Ended Six Months Ended
December 31, 1997 June 30, 1998
----------------- --------------
Net Loss (60, 311) (34,434)
Net Interest Expense 26,754 13,282
Rent Expense (Interest Portion) 145 119
---------------- ---------------
Earnings (as defined) (33,412) (21,033)
---------------- ---------------
Interest Expense 26,794 13,311
Rent Expense (Interest Portion) 145 119
---------------- ---------------
Fixed Charges 26,939 13,430
---------------- ---------------
Ratio of Earnings to Fixed Charges -- --
</TABLE>
The ratio of earnings to fixed charges is determined by dividing Earnings
(defined as the sum of net loss before net interest expense and a portion of
rent expense representative of interest) by Fixed Charges (defined as the sum of
interest expense and such portion of rent expenses). For the periods ended
December 31, 1996 and 1997 and the six month periods ending June 30, 1997 and
1998, the deficiency of earnings to fixed charges was $1,168, $15,824, $2,860
and $22,654, respectively. On a pro forma basis, for the year ended December 31,
1997 and the six month period ended June 30, 1998, the deficiency of earnings to
fixed charges was $60,351 and $34,463, respectively.
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
State of
Incorporation/
Name Organization
Argos Support Services Company.................................. Texas
d/b/a Argos Direct Broadcast Satellite, Inc.
DCE Satellite Entertainment, LLC................................ Wisconsin
PrimeWatch, Inc................................................. North Carolina
South Plains DBS Limited Partnership............................ Texas
<PAGE> 1
Ex. 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the use of our reports included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
Kansas City, Missouri
September 25, 1998
<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. of which this Exhibit forms a
part.
/s/ Eide Bailly LLP
September 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. of which this Exhibit forms a
part.
/s/ Loucks & Glassley, pllp
Great Falls, Montana
September 25, 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
September 24, 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.
/s/ Rocky L. Torgeson(1) CHMS, P.C.
Sidney, Montana
9/25/98
<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. of which this Exhibit forms a
part.
/s/ Aldrich, Kilbride & Tatone LLP
Salem, OR
September 24, 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.
/s/ Arthur Anderson LLP
Raleigh, North Carolina,
September 25, 1998.
<PAGE> 1
Exhibit 23.9
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation on Form S-4 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
September 24, 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
September 24, 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. of which this Exhibit forms
a part.
CURTIS BLAKELY & CO., P.C.
/s/ Curtis Blakely & Co., P.C.
---------------------------------
Longview, Texas
September 24, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF GOLDEN SKY SYSTEMS, INC. FOR THE YEAR ENDED
DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 13,632
<SECURITIES> 0
<RECEIVABLES> 3,981
<ALLOWANCES> (138)
<INVENTORY> 2,174
<CURRENT-ASSETS> 20,111
<PP&E> 3,997
<DEPRECIATION> (1,061)
<TOTAL-ASSETS> 156,236
<CURRENT-LIABILITIES> 16,284
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 70,449
<TOTAL-LIABILITY-AND-EQUITY> 156,236
<SALES> 3,281
<TOTAL-REVENUES> 21,220
<CGS> 3,281
<TOTAL-COSTS> 13,569
<OTHER-EXPENSES> 20,103
<LOSS-PROVISION> 414
<INTEREST-EXPENSE> 2,918
<INCOME-PRETAX> (15,784)
<INCOME-TAX> 0
<INCOME-CONTINUING> (15,784)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (15,784)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<PAGE> 1
Exhibit 99.3
- -------------------------------------------------------------------------------
GOLDEN SKY SYSTEMS, INC.
406,000 Shares of Series A
Convertible Participating Preferred Stock
And
100 Shares of Common Stock
STOCK PURCHASE AGREEMENT
Dated as of February 12, 1997
- -------------------------------------------------------------------------------
<PAGE> 2
Golden Sky Systems, Inc.
Stock Purchase Agreement
Dated as of February 12, 1997
INDEX
Page
SECTION 1. TERMS OF PURCHASE...............................................1
1.1 Description of Securities.......................................1
1.2 Reserved Shares.................................................1
1.3 Sale and Purchase...............................................1
1.4 Closings........................................................3
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY...................4
2.1 Organization and Corporate Power................................4
2.2 Authorization...................................................4
2.3 Non-contravention...............................................4
2.4 Capitalization of the Company...................................5
2.5 Financial Statements............................................6
2.6 Absence of Undisclosed Liabilities..............................6
2.7 Absence of Certain Developments.................................7
2.8 Accounts Receivable.............................................7
2.9 Title to Properties.............................................7
2.10 Tax Matters.....................................................7
2.11 Contracts and Commitments.......................................8
2.12 Proprietary Rights; Employee Restrictions.......................9
2.13 Litigation.....................................................11
2.14 Offeree........................................................11
2.15 Business; Compliance with Laws.................................11
2.16 Information Supplied to Investors..............................12
2.17 Investment Banking; Brokerage..................................12
2.18 Solvency.......................................................12
2.19 Environmental Matters..........................................12
2.20 Employee Benefit Programs......................................14
2.21 Product and Services Claims....................................15
2.22 Employees; Labor Matters.......................................16
2.23 Relationship with Subscribers, Retailers and Distributors......16
2.24 Corporate Records; Copies of Documents.........................16
2.25 Affiliate Transactions.........................................16
2.26 Investments Related to Certain Foreign Countries...............17
2.27 Small Business Concern, Etc....................................17
SECTION 2A. REPRESENTATIONS AND WARRANTIES OF THE FOUNDER..................17
<PAGE> 3
Page
SECTION 3. CONDITIONS OF PURCHASE.........................................18
3.1 Satisfaction of Conditions.....................................18
3.2 Opinion of Counsel.............................................18
3.3 Authorization..................................................18
3.4 Effectiveness of Preferred Stock Terms.........................18
3.5 Stockholders' Agreement........................................18
3.6 Non-Competition Agreements.....................................19
3.7 Redemption.....................................................19
3.8 Acquisitions...................................................19
3.9 Election of Directors; Indemnification Agreements..............19
3.10 All Proceedings Satisfactory...................................19
3.11 Delivery of Documents..........................................19
3.12 SBIC Deliveries................................................20
3.13 Additional Closing Conditions..................................20
SECTION 3A. CONDITIONS OF SALE.............................................21
SECTION 4. COVENANTS OF THE COMPANY.......................................21
4.1 Financial Statements; Minutes..................................22
4.2 Budget and Operating Forecast..................................22
4.3 Conduct of Business............................................22
4.4 Payment of Taxes, Compliance with Laws, etc....................23
4.5 Insurance......................................................23
4.6 Maintenance of Properties......................................23
4.7 Affiliated Transactions........................................23
4.8 Management Compensation........................................24
4.9 Use of Proceeds................................................24
4.10 Board of Directors Meetings; Meetings with Investors...........24
4.11 Sales of Additional Securities.................................25
4.12 Stockholders' Agreement, Non-Competition Agreements and
Confidentiality and Proprietary Rights Agreements..............26
4.13 Distributions on, and Redemptions of, Capital Stock............26
4.14 Merger, Consolidation, Sale of Assets, Acquisitions and Other
Actions .......................................................27
4.15 No Amendments to Certificate of Incorporation..................27
4.16 Capital Expenditures...........................................28
4.17 Life Insurance.................................................28
4.18 Annual Updates; Number of Stockholders; Use of Proceeds;
Regulatory Violation; Economic Impact Information; Amendment...28
SECTION 5. INVESTOR REPRESENTATIONS.......................................30
<PAGE> 4
Page
SECTION 6. INDEMNIFICATION................................................31
6.1 Indemnification for Vicarious Liability........................31
6.2 Notice; Defense of Claims......................................32
6.3 Satisfaction of Indemnification Obligations....................33
SECTION 7. GENERAL........................................................34
7.1 Amendments, Waivers and Consents...............................34
7.2 Survival of Representations, Warranties and Covenants;
Assignability of Rights........................................34
7.3 Governing Law..................................................35
7.4 Section Headings; Counterparts.................................35
7.5 Notices and Demands............................................35
7.6 Severability...................................................35
7.7 Expenses.......................................................35
7.8 Integration....................................................36
7.9 Certain Provisions Applicable to SBIC Investors................36
APPENDIX A - List of Investors
EXHIBITS
Exhibit A - Stock Option Plan
Exhibit B - Amended and Restated Certificate of Incorporation
Exhibit C - Confidentiality and Proprietary Rights Agreement
Exhibit D - Stockholders' Agreement
Exhibit E - Non-Competition Agreement
Exhibit F - Form of Indemnification Agreement
<PAGE> 5
SCHEDULES
Schedule 1.3 - Founding Investors
Schedule 2.4 - Capitalization and Beneficial Ownership
Schedule 2.6 - Undisclosed Liabilities
Schedule 2.7 - Material Developments
Schedule 2.8 - Accounts Receivable
Schedule 2.9 - Title to Properties
Schedule 2.10 - Tax Matters
Schedule 2.11 - Material Contracts
Schedule 2.12 - Proprietary Rights
Schedule 2.13 - Litigation
Schedule 2.15 - Business; Compliance with Laws
Schedule 2.16 - Business Plan
Schedule 2.19 - Environmental Matters
Schedule 2.21 - Product and Services Claims
Schedule 2.22 - Employees; Labor Matters
Schedule 2.25 - Affiliate Transactions
<PAGE> 6
FOR GEORGIA RESIDENTS:
THESE SECURITIES HAVE BEEN ISSUED OR SOLD IN RELIANCE ON PARAGRAPH (13) OF CODE
SECTION 10-5-9 OF THE GEORGIA SECURITIES ACT OF 1973, AND MAY NOT BE SOLD OR
TRANSFERRED EXCEPT IN A TRANSACTION WHICH IS EXEMPT UNDER SUCH ACT OR PURSUANT
TO AN EFFECTIVE REGISTRATION UNDER SUCH ACT.
<PAGE> 7
STOCK PURCHASE AGREEMENT
AGREEMENT made as of this 12th day of February, 1997 by and among
Golden Sky Systems, Inc., a Delaware corporation (the "Company"), Rodney A.
Weary (the "Founder"), the investors identified on the signature pages hereto as
the Outside Investors (the "Outside Investors") and the investors identified on
the signature pages hereto as the Founding Investors (the "Founding Investors").
The Outside Investors and the Founding Investors are herein collectively
referred to as the "Investors" and individually as an "Investor."
SECTION 1. TERMS OF PURCHASE
1.1 Description of Securities. The Company has authorized the issuance
and sale to the Investors of up to 406,000 shares (the "Series A Preferred
Shares") of its authorized but unissued Series A Convertible Participating
Preferred Stock, par value $.01 per share (the "Series A Preferred Stock"), for
a purchase price of $100.00 per Series A Preferred Share, and 100 shares (the
"Common Shares") of its authorized but unissued Common Stock, par value $.01 per
share (the "Common Stock"), for a purchase price of $1.00 per Common Share.
1.2 Reserved Shares. The Company has authorized and has reserved, and
covenants to continue to reserve, a sufficient number of shares of the Common
Stock and the Company's Redeemable Preferred Stock, par value $.01 per share
(the "Redeemable Preferred Stock"), to satisfy the rights of conversion of the
holders of the Series A Preferred Stock. Any shares of Common Stock, Redeemable
Preferred Stock or any successor class of capital stock of the Company hereafter
issued or issuable upon conversion of the Series A Preferred Shares are herein
referred to as "Conversion Shares." The Series A Preferred Shares, the Common
Shares and the Conversion Shares are herein collectively referred to as the
"Securities."
1.3 Sale and Purchase.
(a) At the Initial Closing (as hereinafter defined) and subject
to the terms and conditions herein set forth, the Company shall issue and sell
to each of the Investors, and each Investor severally and not jointly shall
purchase from the Company, the number of Series A Preferred Shares set forth
opposite the name of such Investor in Column 1 of Appendix A hereto and the
number of Common Shares set forth opposite the name of such Investor in Column 2
of Appendix A hereto for the aggregate purchase price set forth in the
corresponding row of Column 3 of said Appendix A; provided, however, that
certain investment funds affiliated with Alta Communications, Inc. (the "Alta
Investors") have previously extended loans of $3,750,000 to the Company (the
"Alta Loans"), the principal and interest of the Alta Loans shall be credited in
full against the purchase price obligation of the Alta Investors and the
promissory notes evidencing the Alta Loans shall be canceled as of the Initial
Closing; and provided further, however, that certain Founding Investors set
forth on Schedule 1.3 hereto have previously advanced to the Company an
aggregate amount of $2,750,000 (the "Founders' Advances") which is
non-interest-bearing and shall be credited in full against the purchase price
obligation of such Founding Investors.
<PAGE> 8
(b) Provided that the conditions to an Additional Closing (as
hereinafter defined) as set forth in Section 3 hereof are satisfied by the
Company or otherwise waived by each of the Outside Investors, and subject to the
terms and conditions herein set forth, the Company, by action of a majority of
its Board of Directors, including a majority of the Outside Investor
Representatives (as hereinafter defined), may at one or more Additional Closings
(which shall occur no later than the second anniversary of the date of this
Agreement), in its sole discretion, issue and sell to each of the Outside
Investors, and each Outside Investor severally and not jointly agrees to
purchase from the Company, up to the number of Series A Preferred Shares which,
together with all Series A Preferred Shares sold to such Outside Investor at any
prior Additional Closing(s), shall not exceed the number set forth opposite the
name of such Outside Investor in Column 4 of Appendix A hereto for a per share
purchase price of $100.00; provided, however, that (i) the aggregate number of
Series A Preferred Shares issued at any Additional Closing shall be allocated
among the Outside Investors such that, following such Additional Closing, each
such Outside Investor holds a number of Series A Preferred Shares that bears the
same proportion to the total number of Series A Preferred Shares then held by
all Outside Investors as the sum of the aggregate purchase price amounts set
forth opposite the name of such Outside Investor in Columns 3 and 6 of Appendix
A hereto bears to the sum of all amounts opposite all Outside Investors in
Columns 3 and 6 of Appendix A hereto, (ii) the aggregate purchase price paid by
each Outside Investor for Series A Preferred Shares at all Additional Closings
shall not exceed the aggregate purchase price set forth in the corresponding row
of Column 6 of said Appendix A, and (iii) the aggregate purchase price paid by
all of the Outside Investors for Series A Preferred Shares at any Additional
Closing shall be no less than $5,000,000 or the remaining amount of the
aggregate purchase price set forth in Column 6 of said Appendix A which has not
been previously paid by the Outside Investors at prior Additional Closings.
(c) The parties acknowledge that Spectrum Equity Investors II,
L.P. ("Spectrum II") is expected to close in February 1997. Spectrum II shall,
subject to its initial closing, the initial takedown of capital from its limited
partners and the approval of Spectrum II's investment in the Company by Spectrum
II's Advisory Committee (the "Advisory Committee") (if such approval is
required), purchase from the Company at one or more Additional Closings up to
100,000 Series A Preferred Shares and 25 Common Shares, subject to the terms and
conditions herein set forth, for an aggregate purchase price of $10,000,025.
Applegate & Collatos, Inc., the management company for Spectrum II, hereby
agrees to use its best efforts to close Spectrum II, fund the initial takedown
of capital and obtain investment approval by the Advisory Committee, if
required, as soon as practicable and, in any event, by March 9, 1997, and to
take any and all other actions necessary to consummate Spectrum II's investment
in the Company as contemplated by this Agreement. Upon the earlier of (i) the
Advisory Committee's rejection of Spectrum II's proposed investment in the
Company or (ii) March 9, 1997 (if Spectrum II has not closed, funded its initial
takedown of capital and obtained investment approval by the Advisory Committee,
if required, on or prior to such date), Spectrum II shall have no rights nor
obligations under this Agreement and the agreements contemplated hereby,
including, without limitation, the right to purchase any Series A Preferred
Shares or Common Shares hereunder, and shall be removed from Appendix A hereto;
provided, however, that in such event, Spectrum Equity Investors L.P. may
<PAGE> 9
purchase from the Company at one or more Additional Closings up to 25,000
additional Series A Preferred Shares and 6 additional Common Shares, subject to
the terms and conditions herein set forth, for an aggregate purchase price of
$2,500,006, by notifying the Company on such earlier date of its commitment to
purchase such Series A Preferred Shares and Common Shares. Upon receipt of such
notification, the Company shall amend Appendix A hereto in order to reflect the
additional investment that may be made by Spectrum Equity Investors L.P.,
subject to the terms and conditions herein set forth.
1.4 Closings.
(a) The initial closing (the "Initial Closing") of the sale and
purchase of 199,000 of the Series A Preferred Shares and 75 of the Common Shares
shall take place at the offices of Goodwin, Procter & Hoar LLP, located at
Exchange Place, Boston, Massachusetts, at 10:00 A.M., on the date hereof, or
such other date, time and place as shall be mutually agreed upon by the Company
and three-fourths in interest of the Investors (the "Initial Closing Date"). At
the Initial Closing, the Company will deliver the Series A Preferred Shares and
the Common Shares being acquired by each Investor in the form of a certificate,
issued in such Investor's name or in the name of its nominee (of which the
Investor shall notify the Company not less than two business days prior to the
Initial Closing), against payment of the full purchase price therefor by or on
behalf of each Investor to the Company by check or wire transfer.
(b) If the Company elects to sell additional Series A Preferred
Shares to the Outside Investors pursuant to Section 1.3(b) hereof, the Company
shall provide the Outside Investors with written notice of such election (the
"Sale Notice"). Provided that the conditions to an Additional Closing as set
forth in Section 3 hereof are satisfied by the Company or otherwise waived by
the Outside Investors and the conditions to an Additional Closing as set forth
in Section 3A hereof are satisfied by the Outside Investors or otherwise waived
by the Company, and the Company has delivered the Sale Notice to the Outside
Investors, one or more additional closings (the "Additional Closings") of the
sale and purchase of up to 207,000 of the Series A Preferred Shares shall take
place at such date, time and place as shall be mutually agreed upon by the
Company and three-fourths in interest of the Outside Investors, but in any event
not less than thirty (30) nor more than sixty (60) days following the date of
delivery of the Sale Notice (each, an "Additional Closing Date"). At each
Additional Closing, the Company will deliver the Series A Preferred Shares being
acquired by each Outside Investor in the form of a certificate, issued in such
Outside Investor's name or in the name of its nominee (of which the Outside
Investor shall notify the Company not less than two business days prior to such
Additional Closing), against payment of the full purchase price therefor by or
on behalf of each Outside Investor to the Company by check or wire transfer. For
the purposes of this Agreement, the Initial Closing and the Additional Closings
are sometimes hereafter referred to as the "Closings" or a "Closing."
<PAGE> 10
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
In order to induce the Investors to enter into this Agreement, the
Company, subject to Section 7.2 hereof, hereby represents and warrants to the
Investors that as of the date hereof:
2.1 Organization and Corporate Power. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware, and is qualified to do business as a foreign corporation in
each jurisdiction in which such qualification is required, except where failure
to so qualify would not have a material adverse effect on the business, assets,
operations or condition (financial or otherwise) of the Company. The Company has
all required corporate power and authority to own its property, to carry on its
business as presently conducted or contemplated, to enter into and perform this
Agreement and the agreements contemplated hereby, and generally to carry out the
transactions contemplated hereby and thereby. The copies of the Certificate of
Incorporation and By-laws of the Company, each as amended to date, which have
been furnished to counsel for the Investors, are correct and complete at the
date hereof. The Company is not in violation of any term of its Certificate of
Incorporation or By-laws or any material agreement, instrument, judgment,
decree, order, statute, rule or government regulation applicable to the Company.
2.2 Authorization. This Agreement and all documents and instruments
executed pursuant hereto or contemplated hereby (including without limitation,
agreements by which the Company has or will consummate the acquisitions (the
"Acquisitions") of certain National Rural Telecommunications Cooperative
("NRTC")/Direct Broadcast Satellite ("DBS") DirecTV franchises from Aurora
Cable, TV Tennessee and Images DBS (the "Acquisition Agreements)) are valid and
binding obligations of the Company, enforceable in accordance with their terms
against the Company. The execution, delivery and performance of this Agreement
and all documents and instruments contemplated hereby and the delivery and
issuance of the Securities have been duly authorized by all necessary corporate
or other action of the Company. Assuming the accuracy of the Investor
representations set forth in Section 5 hereof, no consent, approval or
authorization of, or designation, declaration or filing with, any governmental
authority is required of the Company in connection with the execution, delivery
and performance of this Agreement, or the issuance and delivery by the Company
of the Securities in accordance with the terms of this Agreement, or the
performance or consummation of any other transaction contemplated hereby.
2.3 Non-contravention. The execution, delivery and performance by the
Company of this Agreement and each of the other agreements and instruments to
which it is a party and which are contemplated hereby will not: (a) conflict
with or result in any default under any contract, obligation or commitment of
the Company or any charter provision, by-law or corporate restriction of the
Company; (b) result in the creation of any lien, charge or encumbrance of any
nature upon any of the properties or assets of the Company; or (c) violate any
instrument, agreement, judgment, decree, order, statute, rule or regulation of
any federal, state or local government or agency applicable to the Company or to
which the Company is a party.
<PAGE> 11
2.4 Capitalization of the Company. The authorized capital stock of the
Company consists of: (a) 1,000,000 shares of Common Stock, of which 75 shares
will be, as of the Initial Closing, duly and validly issued, outstanding, fully
paid, and nonassessable; (b) 1,012,000 shares of designated preferred stock, par
value $.01 per share, of which (i) 506,000 shares have been designated as Series
A Convertible Participating Preferred Stock, of which 199,000 shares will be, as
of the Initial Closing, duly and validly issued, outstanding, fully paid, and
nonassessable and (ii) 506,000 shares have been designated as Redeemable
Preferred Stock, none of which will be outstanding as of the Initial Closing;
and (c) 300,000 shares of undesignated preferred stock, par value $.01 per
share. Except for 62,525 shares of Common Stock reserved for issuance under a
Stock Option Plan to be adopted by the Board of Directors of the Company and to
contain the terms set forth on Exhibit A hereto (the "Stock Option Plan") and
5,682 shares of Common Stock issuable upon the exercise of warrants issued to
the Alta Investors in connection with the Alta Loans (the "Warrants" and any
shares of Common Stock or any successor class of capital stock of the Company
hereafter issued or issuable upon exercise of the Warrants, the "Warrant
Shares") and except as otherwise disclosed in Schedule 2.4, the Company has not
issued any other shares of its capital stock and there are no outstanding
warrants, options or other rights to purchase or acquire any of such shares, nor
any outstanding securities convertible into such shares or outstanding warrants,
options or other rights to acquire any such convertible securities. As of the
Initial Closing, all of the outstanding shares of capital stock of the Company
will have been offered, issued, sold and delivered in compliance with applicable
federal and state securities laws. The Series A Preferred Shares and the Common
Shares have been duly and validly authorized and, when delivered and paid for
pursuant to this Agreement, will be validly issued, fully paid and
nonassessable. The Series A Preferred Shares are initially convertible into
406,000 shares of Redeemable Preferred Stock and 406,000 shares of Common Stock
representing 85.6% of the Common Stock of the Company on a fully-diluted basis
after giving effect to the issuance of the 62,525 shares reserved for issuance
under the Stock Option Plan and the exercise, exchange or conversion of any
other securities exercisable or exchangeable for or convertible into Common
Stock. The relative rights, preferences, restrictions and other provisions
relating to the Series A Preferred Stock and the Redeemable Preferred Stock are
as set forth in Exhibit B attached hereto. The Company has authorized and
reserved for issuance upon conversion of the Series A Preferred Shares not less
than 406,000 shares of Redeemable Preferred Stock and 406,000 shares of Common
Stock, and the Conversion Shares issuable upon such conversion will be, when
issued in accordance with the Certificate of Incorporation of the Company, duly
and validly authorized and issued, fully paid and nonassessable. The Company has
authorized and reserved for issuance upon exercise of the Warrants not less than
5,682 shares of Common Stock, and the Warrant Shares issuable upon such exercise
will be, when issued in accordance with the Certificate of Incorporation of the
Company, duly and validly authorized and issued, fully paid and nonassessable.
Except as set forth in the Stockholders' Agreement referred to in
Section 3.5 hereof, there are no preemptive rights or rights of first refusal
with respect to the issuance or sale of the Company's capital stock, other than
rights to which holders of the Securities are entitled as set forth in Section
4.11 hereof. No officer, director or employee of the Company or any other person
or entity has, claims to have or has any right to claim to have any interest in
the Company's capital stock other than as disclosed in Schedule 2.4 or as an
<PAGE> 12
Investor hereunder. There are no restrictions on the transfer of the Company's
capital stock other than those arising from federal and state securities laws or
under this Agreement or the Stockholders' Agreement referred to in Section 3.5
hereof. Except as set forth in the Stockholders' Agreement, there are no rights,
obligations or restrictions on the voting of any of the Company's capital stock
or the registration of such capital stock for offering to the public pursuant to
the Securities Act of 1933, as amended (the "Securities Act"). The shares of the
capital stock outstanding before giving effect to the transactions contemplated
by this Agreement (which consist of 1,000 shares of Common Stock) are held of
record and beneficially by the Founder and will be redeemed by the Company at
the Initial Closing. After giving effect to the transactions contemplated by
this Agreement, the Investors will be the only stockholders of the Company.
The Company has no subsidiaries or investments in any other
corporation or business organization. Except as set forth in Schedule 2.4, the
Company does not own or have any direct or indirect interest in, a loan or
advance to, or control over any corporation, partnership, joint venture or other
entity of any kind.
2.5 Financial Statements. The Company has heretofore furnished to the
Investors the following financial statements: (i) an unaudited income statement
of the Company from the date of incorporation through December 31, 1996; (ii) an
unaudited balance sheet of the Company as of December 31, 1996; and (iii) a pro
forma balance sheet of the Company as of December 31, 1996 after giving effect
to the Acquisitions and the transactions contemplated hereby (the "Pro Forma
Balance Sheet"). Such financial statements and schedules of the Company have
been prepared in accordance with generally accepted accounting principles
applied on a consistent basis, except that such financial statements have been
prepared without footnote disclosures and year-end audit adjustments, which will
not, in any event, be material. Such financial statements contain notations for
all significant accruals or contingencies, fairly represent the financial
condition of the Company in all material respects as of the date thereof, and
are true and correct as of the date thereof in all respects. Nothing has come to
the attention of management of the Company since such dates that would indicate
that the financial statements were not true and correct as of the date thereof.
The Pro Forma Balance Sheet reflects all adjustments necessary as of December
31, 1996 to combine the assets acquired or to be acquired and liabilities
incurred or assumed by the Company in connection with the Acquisitions. The
Acquisitions were accounted for as purchases and booked in accordance with
generally accepted accounting principles.
2.6 Absence of Undisclosed Liabilities. Since the date if its
incorporation and after giving effect to the transactions contemplated hereby
and the Acquisitions, the Company does not have any material liability or
liabilities of any nature, whether accrued, absolute, contingent or otherwise,
asserted or unasserted, known or unknown, which are or would be required to be
disclosed in accordance with generally accepted accounting principles, except as
and to the extent disclosed in Schedule 2.6 or as otherwise set forth in the Pro
Forma Balance Sheet, and, to the best knowledge of the Company, there exists no
set of facts or circumstances which should be reasonably anticipated to form the
basis for any such material liabilities. Without limiting the generality of the
<PAGE> 13
foregoing and after giving effect to the transactions contemplated hereby, the
Company shall not have any obligation or liability to the Founder.
2.7 Absence of Certain Developments. Except as disclosed in Schedule
2.7, since the date of the Company's incorporation, there has been (i) no
adverse change in the condition, financial or otherwise, of the Company or in
the assets, liabilities, business or prospects of the Company, (ii) no
declaration, setting aside or payment of any dividend or other distribution with
respect to, or any direct or indirect redemption or acquisition of, any of the
capital stock of the Company, (iii) no waiver of any valuable right of the
Company or cancellation of any debt or claim held by the Company, (iv) no loan
by the Company to any officer, director, employee or stockholder of the Company,
or affiliates of any of the foregoing or any agreement or commitment therefor,
(v) no compensation paid or payable to the Founding Investors or any increase in
the compensation paid or payable to any other officer, director, employee or
agent of the Company or affiliates of any of the foregoing, (vi) no material
loss, destruction or damage to any property of the Company, whether or not
insured, (vii) no labor trouble involving the Company and no material change in
the personnel of the Company or the terms and conditions of their employment and
(viii) no acquisition or disposition of any assets (or any contract or
arrangement therefor) nor any other transaction by the Company otherwise than
for fair value in the ordinary course of business.
2.8 Accounts Receivable. After giving effect to the Acquisitions, to
the best knowledge of the Company, all of the accounts receivable of the Company
represent bona fide completed sales made in the ordinary course of business and
are valid and enforceable claims, subject to no express set-off or counterclaim.
Except as disclosed on Schedule 2.8, the Company has no accounts receivable from
any person, firm or corporation which is affiliated with it or from the Founder
or any of its directors, officers, employees or shareholders or any affiliates
of any of the foregoing.
2.9 Title to Properties. After giving effect to the Acquisitions, the
Company has good and marketable title to all of its material properties and
assets, free and clear of all liens, restrictions or encumbrances, except as
disclosed in Schedule 2.9, and such properties and assets constitute all of the
assets necessary for the conduct of the Company's business as presently
conducted. To the best knowledge of the Company, the Company's current
management systems and executive personnel are adequate to manage the business
of the Company as contemplated to be conducted. All machinery and equipment
included in such properties which is necessary to the business of the Company is
in good condition and repair and all leases of real or personal property to
which the Company is a party are fully effective and afford the Company peaceful
and undisturbed possession of the subject matter of the lease. The Company is
not in violation of any material zoning, building or safety ordinance,
regulation or requirement or other law or regulation applicable to the operation
of its owned or leased properties, nor has the Company received any notice of
violation with which it has not complied.
2.10 Tax Matters. Except as set forth in Schedule 2.10 attached
hereto:
<PAGE> 14
(a) The Company has paid or caused to be paid all federal, state,
local, foreign, and other taxes, including without limitation, income taxes,
estimated taxes, alternative minimum taxes, excise taxes, sales taxes, franchise
taxes, employment and payroll-related taxes, withholding taxes, transfer taxes,
and all deficiencies, or other additions to tax, interest, fines and penalties
owed by it (collectively, "Taxes"), required to be paid by it through the date
hereof whether disputed or not. All taxes and other assessments and levies which
the Company is required to withhold or collect have been withheld and collected
and have been paid over to the proper governmental authorities. The Company has,
in accordance with applicable law, timely and properly filed all federal, state,
local and foreign tax returns required to be filed by it through the date
hereof, all such returns correctly and accurately set forth the amount of any
Taxes relating to the applicable period and any deductions from, or credits
against any Taxes or taxable income relating to such returns are valid and
proper items of deduction or credit.
(b) Neither the Internal Revenue Service ("IRS") nor any other
governmental authority is now asserting or, to the knowledge of the Company or
threatening to assert against the Company any deficiency or claim for additional
Taxes. No claim has ever been made by an authority in a jurisdiction where the
Company does not file reports and returns that the Company is or may be subject
to taxation by that jurisdiction. There are no security interests on any of the
assets of the Company that arose in connection with any failure (or alleged
failure) to pay any Taxes. The Company has never entered into a closing
agreement pursuant to Section 7121 of the Internal Revenue Code of 1986, as
amended (the "Code"). The Company is not and never has been a "personal holding
company" as defined under Section 541 of the Code. There has not been any audit
of any tax return filed by the Company, no such audit is in progress, and the
Company has not been notified by any tax authority that any such audit is
contemplated or pending. No extension of time with respect to any date on which
a tax return was or is to be filed by the Company is in force, and no waiver or
agreement by the Company is in force for the extension of time for the
assessment or payment of any Taxes. The Company is not now and has never been a
member of an affiliated group filing a consolidated federal income tax return.
The Company does not have any liability for the Taxes of any person or entity
other than the Company.
(c) For purposes of this Agreement, all references to Sections of
the Code shall include any predecessor provisions to such Sections and any
similar provisions of federal, state, local or foreign law.
2.11 Contracts and Commitments. The Company is not, and after giving
effect to the Acquisitions will not be, a party to any contract, obligation or
commitment (whether written or oral) which involves a potential commitment in
excess of $50,000 or which is otherwise material and not entered into in the
ordinary course of business, nor is the Company a party to any employment
contracts; stock restriction, voting, redemption or purchase agreements; loan,
capital lease or other financing agreements; licenses; distributor, sales
representative agreement; agreements with the Founder or any other officers,
directors, employees or stockholders of the Company or persons or organizations
related to or affiliated with any such persons; leases; agreements relating to
the merger, consolidation or the acquisition or disposition of any assets or
<PAGE> 15
capital stock (other than the Acquisition Agreements); agreements relating to
the licensing, distribution, development or maintenance of DBS services,
including without limitation any contract with the NRTC or with Hughes
Communications Galaxy, Inc. ("Hughes"); material agreements with subscribers of
the Company's services, including without limitation, leases or rental
agreements for satellite receiving systems for DirecTV ("DSS Systems") with
subscribers; powers of attorney; or pension, profit-sharing, retirement or stock
option plans, except in each case as are described in Schedule 2.11. The Company
does not know of any basis for the termination, expiration or modification of
any such agreements prior to the expiration date thereof, which termination,
expiration or modification may have an adverse effect on the assets,
liabilities, business, financial condition or prospects of the Company. The
Company is not in default under any contract, obligation or commitment
(including without limitation the Acquisition Agreements), and to the best
knowledge of the Company, there is no state of facts which upon notice or lapse
of time or both would constitute such a default. The Company is not a party to
any contract or arrangement the performance of which under circumstances now
foreseeable is likely to have an adverse effect on the assets, liabilities,
business or condition, financial or otherwise, of the Company. The Company does
not have any liability for renegotiation of any government contracts or
subcontracts. The copies of the Acquisition Agreements (including the schedules
thereto) and the contracts with the NRTC that have been furnished to counsel for
the Investors are correct and complete as of the date hereof, and, to the best
knowledge of the Company, no term therein or in the Hughes/NRTC contract has
been waived, modified or amended as of the date hereof.
2.12 Proprietary Rights; Employee Restrictions. Set forth in Schedule
2.12 is a list and brief description of all patents, patent rights, patent
applications, trademarks, trademark applications, service marks, service mark
applications, trade names, licenses, sublicenses and copyrights owned by or
registered in the name of the Company, or of which the Company is a licensor or
licensee or in which the Company has any right, and in each case a brief
description of the nature of such right. The Company owns or possesses exclusive
licenses to use, free and clear of claims or rights of any other person, all
patents, patent applications, trademarks, trademark applications, service marks,
service mark applications, trade names, copyrights, licenses, sublicenses, trade
secrets and know how (collectively "Intellectual Property") necessary to the
conduct of its business as presently conducted and as proposed to be conducted.
All Intellectual Property that is used or incorporated into the Company's
business and which is unique or proprietary to the Company was developed by or
for the Company by the employees of the Company or its predecessors in interests
and is owned exclusively by the Company, free and clear of claims or rights of
any other person. The Company is not aware of any infringement by any other
person of any rights of the Company under any Intellectual Property. No claim is
pending or threatened against the Company nor has the Company received any
notice from any third parties, to the effect that any Intellectual Property
owned or licensed by the Company, or which the Company otherwise has the right
to use, or the operation, products or services of the Company infringe upon or
conflict with the asserted rights of any other person under any Intellectual
Property, and, to the best knowledge of the Company, there is no basis for any
such claim (whether or not pending or threatened). No claim is pending or
threatened against the Company, nor has the Company received any notice from any
<PAGE> 16
third parties, to the effect that any Intellectual Property owned or licensed by
the Company, or which the Company otherwise has the right to use, is invalid or
unenforceable by the Company, as the case may be, and, to the best knowledge of
the Company, there is no basis for any such claim (whether or not pending or
threatened).
All licenses or other agreements under which the Company is granted
rights in Intellectual Property are listed in Schedule 2.12. All such licenses
or other agreements are in full force and effect, there is no material default
by any party thereto, and, except as set forth on Schedule 2.12, all of the
rights of the Company thereunder are freely assignable. True and complete copies
of all such licenses or other agreements, and any amendments thereto, have been
provided to the Investors and, to the best knowledge of the Company, the
licensors under such licenses and other agreements have and had all requisite
power and authority to grant the rights purported to be conferred thereby.
All licenses or other agreements under which the Company has granted
rights to others in Intellectual Property are listed in Schedule 2.12. All of
said licenses or other agreements are in full force and effect, there is no
material default by any party thereto, and, except as set forth on Schedule
2.12, all of the rights of Company thereunder are freely assignable. True and
complete copies of all such licenses or other agreements, and any amendments
thereto, have been made available to the Investors.
All technical information developed by or belonging to the Company and
which is material to the business of the Company which has not been patented has
been kept confidential. The Company is not making unlawful use of any
Intellectual Property of any other person, including without limitation any
former employer of any past or present employees of the Company. Except as
disclosed in Schedule 2.12, neither the Company nor any of its employees,
officers or consultants has any agreements or arrangements with former employers
of such employees, officers or consultants relating to any Intellectual Property
of such employers, which interfere or conflict with the performance of such
employee's duties for the Company or results in any former employers of such
employees having any rights in, or claims on, the Company's Intellectual
Property. The activities of the Company's employees and officers do not, to the
Company's best knowledge, violate any agreements or arrangements which any such
employees have with former employers. The Company has taken all commercially
reasonable steps required to establish and preserve its ownership of all of the
Intellectual Property; each current and former employee and officer of the
Company has executed an agreement regarding confidentiality, proprietary
information and assignment of inventions to the Company substantially in the
form of Exhibit C hereto, and, to the knowledge of the Company, none of such
employees are in violation of such agreements.
Without limitation of any of the foregoing and except as otherwise
expressly disclosed in Schedule 2.12 hereto: (a) the Company has taken
reasonable security measures to guard against unauthorized disclosure or use of
any of the Intellectual Property; and (b) the Company has no reason to believe
that any person (including without limitation any former employee of the
Company) has unauthorized possession of any of the Intellectual Property, or any
part thereof, or that any person has obtained unauthorized access to any of the
<PAGE> 17
Intellectual Property.
2.13 Litigation. Except as disclosed in Schedule 2.13, there is no
litigation or governmental proceeding or investigation pending or, to the best
knowledge of the Company, threatened against the Company, or any officer or key
employee of the Company, which relates to the Company or its business or affairs
or which may call into question the validity or hinder the enforceability or
performance of this Agreement or the agreements and transactions contemplated
hereby or which could be reasonably expected to have an adverse effect on the
assets, liabilities, business or condition (financial or otherwise) of the
Company; nor, to the best knowledge of the Company, has there occurred any event
nor does there exist any condition on the basis of which any such litigation,
proceeding or investigation might properly be instituted.
2.14 Offeree. Neither the Company nor anyone acting on its behalf has
in the past or will sell, offer for sale or solicit offers to buy any securities
of the Company so as to bring the offer, issuance or sale of the Series A
Preferred Shares or the Conversion Shares, as contemplated by this Agreement,
within the provisions of Section 5 of the Securities Act, unless such offer,
issuance or sale was or will be within the exemptions of Section 4 thereof. The
Company has and will comply with all applicable state "blue-sky" or securities
laws in connection with the issuance and sale of its Common Stock, Series A
Preferred Shares, Warrants and other securities heretofore issued and to be
issued upon the closing of the Agreement. The Company has in the past complied
with all applicable federal and state securities laws in connection with the
offer, solicitation of offers and sales of its securities.
2.15 Business; Compliance with Laws. Except as disclosed in Schedule
2.15 and after giving effect to the Acquisitions, the Company has all necessary
franchises, permits, licenses and other rights and privileges necessary to
permit it to own its property and to conduct its business as it is presently
conducted. The Company is not in violation, in any respect, of any law,
regulation, authorization or order of any public authority. The Company is in
compliance, in all material respects, with all federal (including all laws and
regulations of the Federal Communications Commission ("FCC")), state and local
laws and regulations (including all applicable environmental laws and
regulations) relating to its business as presently conducted, except as
disclosed in Schedule 2.15, and has been approved as an NRTC franchisee and NRTC
Affiliate Member. Neither the Company nor any of its affiliates has been: (a)
subject to a voluntary or involuntary petition under the federal bankruptcy laws
or any state insolvency law or the appointment of a receiver, fiscal agent or
similar officer by a court for his business or property; (b) convicted in a
criminal proceeding or named as a subject of a pending criminal proceeding
(excluding traffic violations and other minor offenses); (c) subject to any
order, judgment, or decree (not subsequently reversed, suspended or vacated) of
any court of competent jurisdiction permanently or temporarily enjoining it, him
or her from, or otherwise imposing limits or conditions on its, his or her,
engaging in any securities, investment advisory, banking, insurance or other
type of business or acting as an officer or director of a public company; or (d)
found by a court of competent jurisdiction in a civil action or by the
Securities and Exchange Commission or the Commodity Futures Trading Commision to
<PAGE> 18
have violated any federal or state commodities, securities or unfair trade
practices law or regulations of any regulatory agency, which such judgment or
finding has not been subsequently reversed, suspended or vacated.
2.16 Information Supplied to Investors. This Agreement and the
Schedules (including the long-term business plan included herein as Schedule
2.16), taken as a whole, do not contain any untrue statement of a material fact
or omit to state a material fact necessary in order to make the statements
contained therein not misleading. Such business plan was prepared by the Company
in good faith and fairly presents the business and prospects of the Company in
all material respects as of its date. The forecasts and projections of future
financial results contained in such business plan were prepared by the Company
in good faith and are based upon information available to the Company as of the
date thereof and upon assumptions believed by the Company to be reasonable.
There is no material fact directly relating to the assets, liabilities, business
or condition (financial or otherwise) of the Company (other than facts which
relate to general economic or industry trends or conditions) presently known to
the Company which has not been disclosed to the Investors that materially
adversely affects or in the future may reasonably be expected to materially
adversely affect the same.
2.17 Investment Banking; Brokerage. No broker, finder, agent or
similar intermediary has acted on behalf of the Company or the Founder in
connection with this Agreement or the transactions contemplated hereby (other
than in connection with the Acquisitions) and there are no brokerage
commissions, finders fees or similar fees or commissions payable in connection
therewith (other than the Warrants issued to the Alta Investors). The Company
agrees to indemnify and hold the Outside Investors harmless from any losses,
damages, costs or expenses they may suffer or incur as a result of a breach of
this representation (including any dilution or diminution in value of their
investment in the Company).
2.18 Solvency. The Company has not: (a) made a general assignment for
the benefit of creditors; (b) filed any voluntary petition in bankruptcy or
suffered the filing of any involuntary petition by its creditors; (c) suffered
the appointment of a receiver to take possession of all, or substantially all,
of its assets; (d) suffered the attachment or other judicial seizure of all, or
substantially all, of its assets; (e) admitted in writing its inability to pay
its debts as they come due; or (f) made an offer of settlement, extension or
composition to its creditors generally. After giving effect to the transactions
provided for or contemplated therein (including the payment of the distribution
to the Company's existing shareholders): (a) the Company will be able to pay its
debts as they come due in the usual course of business and will have adequate
capital to conduct its business; and (b) the Company's total assets will be
greater than its total liabilities (total assets for this purpose being
determined on the basis of the "fair saleable value" thereof).
2.19 Environmental Matters.
(a) Except as set forth in Schedule 2.19, (i) the Company has
never generated, transported, used, stored, treated, disposed of, or managed any
Hazardous Waste (as defined below); (ii) to the best knowledge of the Company,
<PAGE> 19
no Hazardous Material (as defined below) has ever been or is threatened to be
spilled, released, or disposed of by the Company, at any site presently or
formerly owned, operated, leased, or used by the Company, or has ever come to be
located in the soil or groundwater at any such site; (iii) to the best knowledge
of the Company, no Hazardous Material of the Company has ever been transported
from any site presently or formerly owned, operated, leased, or used by the
Company for treatment, storage, or disposal at any other place; (iv) to the best
knowledge of the Company, the Company presently does not own, operate, lease, or
use, nor has the Company previously owned, operated, leased, or used, any site
on which underground storage tanks are or were located; and (v) no lien has ever
been imposed by any governmental agency on any property, facility, machinery, or
equipment owned, operated, leased, or used by the Company with the presence of
any Hazardous Material and based upon any action or inaction of the Company.
(b) Except as set forth in Schedule 2.19, (i) the Company has no
liability under, nor has it ever violated in any respect, any Environmental Law
(as defined below); (ii) the Company, any property owned, operated, leased, or
used by the Company, and any facilities and operations thereon are presently in
compliance in all respects with all applicable Environmental Laws; (iii) the
Company has never entered into or been subject to any judgment, consent, decree,
compliance order, or administrative order with respect to any environmental or
health and safety matter or received any request for information, notice, demand
letter, administrative inquiry, or formal or informal complaint or claim with
respect to any environmental or health and safety matter or the enforcement of
any Environmental Law; and (iv) none of the items enumerated in clause (iii) of
this paragraph will be forthcoming.
(c) Except as set forth in Schedule 2.19, to the best knowledge
of the Company, no site owned, operated, leased or used by the Company contains
any asbestos or asbestos-containing material, any polychlorinated biphenyls
(PCBs) or equipment containing PCBs, or any urea formaldehyde foam insulation.
(d) Goodwin, Procter & Hoar LLP has been provided with copies of
all documents, records, and information available concerning any environmental
or health and safety matter relevant to the Company, whether generated in
connection with the Company's business or otherwise, including, without
limitation, environmental audits, environmental risk assessments, site
assessments, documentation regarding off-site disposal of Hazardous Materials,
spill control plans, and reports, correspondence, permits, licenses, approvals,
consents, and other authorizations related to environmental or health and safety
matters issued by any governmental agency.
(e) For purposes of this Section 2.19, (i) "Hazardous Material"
shall mean and include any hazardous waste, hazardous material, hazardous
substance, petroleum product, oil, toxic substance, pollutant, contaminant, or
other substance which may pose a threat to the environment or to human health or
safety, as defined or regulated under any Environmental Law; (ii) "Hazardous
Waste" shall mean and include any hazardous waste as defined or regulated under
any Environmental Law; (iii) "Environmental Law" shall mean any environmental or
health and safety-related law, regulation, rule, ordinance, or by-law at the
<PAGE> 20
federal, state, or local level, whether existing as of the date hereof, or
subsequently enacted; and (iv) "Company" shall include the Company, and any
predecessor to the Company.
2.20 Employee Benefit Programs.
(a) The Company has never maintained (as defined below) an
Employee Program (as defined below) which has at any time been intended to
qualify under Section 401(a) or 501(c)(9) of the Code.
(b) Each Employee Program that has ever been maintained by the
Company has been maintained in compliance in all material respects with all
applicable laws. With respect to any Employee Program ever maintained by the
Company, there has occurred no "prohibited transaction," as defined in Section
406 of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), or Section 4975 of the Code (for which there exists neither a
statutory nor regulatory exception), or material breach of any duty under ERISA
or other applicable law (including, without limitation, any health care
continuation requirements or any other tax law requirements, or conditions to
favorable tax treatment, applicable to such plan or to any person in regard to
such plan), which could result, directly or indirectly (including, without
limitation, through any obligation of indemnification or contribution), in any
taxes, penalties or other liability to the Company or any of its affiliates. No
litigation, arbitration or governmental administrative proceeding (or
investigation) or other proceeding (other than those relating to routine claims
for benefits) is pending or, to the best knowledge of the Company, threatened
with respect to any such Employee Program.
(c) Neither the Company nor any Affiliate (as defined below) (i)
has ever maintained any Employee Program which has been subject to Title IV of
ERISA or Section 412 of the Code (including, but not limited to, any
Multiemployer Plan (as defined below)) or (ii) has ever provided health care or
any other non-pension benefits to any employees after their employment is
terminated (other than as required by part 6 of subtitle B of Title I of ERISA)
or has ever promised to provide such post-termination benefits.
(d) With respect to each Employee Program maintained by or on
behalf of the Company or any affiliate since its incorporation, complete and
correct copies of the following documents (if applicable to such Employee
Program) have previously been delivered to Goodwin, Procter & Hoar LLP: (i) all
documents embodying or governing such Employee Program, and any funding medium
for the Employee Program (including, without limitation, trust agreements), as
they may have been amended to the date hereof; (ii) the most recent IRS
determination or approval letter with respect to such Employee Program under
Code Section 401 or 501(c)(9), and any applications for determination or
approval subsequently filed with the IRS; (iii) the three most recently filed
IRS Forms 5500, with all applicable schedules and accountants' opinions attached
thereto; (iv) the summary plan description for such Employee Program (or other
descriptions of such Employee Program provided to employees) and all
modifications thereto; (v) any insurance policy (including any fiduciary
liability insurance policy and any excess loss policy) related to such Employee
Program; (vi) any documents evidencing any loan to an Employee Program that is a
leveraged employee stock ownership plan; and (vii) all other materials
<PAGE> 21
reasonably necessary for the Company to perform any of its responsibilities with
respect to any Employee Program subsequent to the Closing (including, without
limitation, health care continuation requirements).
(e) For purposes of this Section 2.20:
(i) "Employee Program" means (A) all employee benefit plans
within the meaning of ERISA Section 3(3), including, but not limited to,
multiple employer welfare arrangements (within the meaning of ERISA Section
3(40)), plans to which more than one unaffiliated employer contributes and
employee benefit plans (such as foreign or excess benefit plans) which are
not subject to ERISA; and (B) all stock or cash option plans, restricted
stock plans, bonus or incentive award plans, severance pay policies or
agreements, deferred compensation agreements, supplemental income
arrangements, vacation plans, and all other employee benefit plans,
agreements, and arrangements not described in (A) above. In the case of an
Employee Program funded through an organization described in Code Section
501(c)(9), each reference to such Employee Program shall include a
reference to such organization.
(ii) An entity "maintains" an Employee Program if such
entity sponsors, contributes to, or provides (or has promised to provide)
benefits under such Employee Program, or has any obligation (by agreement
or under applicable law) to contribute to or provide benefits under such
Employee Program, or if such Employee Program provides benefits to or
otherwise covers employees of such entity (or their spouses, dependents, or
beneficiaries).
(iii) An entity is an "Affiliate" of the Company if it would
have ever been considered a single employer with the Company or any Entity
under ERISA Section 4001(b) or part of the same "controlled group" as the
Company for purposes of ERISA Section 302(d)(8)(C).
(iv) "Multiemployer Plan" means a (pension or non-pension)
employee benefit plan to which more than one employer contributes and which
is maintained pursuant to one or more collective bargaining agreements.
2.21 Product and Services Claims. Except as set forth on Schedule
2.21, (i) there are no pending or, to the best knowledge of the Company,
threatened material product or service claims with respect to any products or
services provided by the Company prior to the Initial Closing Date nor are there
any facts upon which a claim of such nature could reasonably be anticipated to
be based and (ii) the Company does not have any contractual liability for breach
of warranty or service claims. No claims have been made against the Company for
renegotiation or price redetermination of any business transaction resulting
from or relating to defective products or services, and, to the best knowledge
of the Company, there are no facts upon which any such claim should reasonably
be anticipated to be based.
<PAGE> 22
2.22 Employees; Labor Matters. The Company employs a total of
approximately 16 full-time employees and two part-time employees and generally
enjoys good employer-employee relationships. The Company is not delinquent in
payments to any of its employees for any material amount of wages, salaries,
commissions, bonuses or other direct compensation for any services performed for
it to the date hereof or amounts required to be reimbursed to such employees.
The Company does not have any policy, practice, plan or program of paying
severance pay or any form of severance compensation in connection with the
termination of employment, except as set forth in Schedule 2.22. The Company is
in compliance in all material respects with all applicable laws and regulations
respecting labor, employment, fair employment practices, work place safety and
health, terms and conditions of employment, and wages and hours. There are no
charges of employment discrimination or unfair labor practices, nor are there
any strikes, slowdowns, stoppages of work or any other concerted interference
with normal operations which are existing, pending or threatened against or
involving the Company. The Company has not received any information indicating
that any of its employment policies or practices is currently being audited or
investigated by any federal, state or local government agency. The Company is,
and at all times since its incorporation has been, in compliance with the
requirements of the Immigration Reform Control Act of 1986. Schedule 2.22 sets
forth a complete list of each officer, employee and sales representative who is
scheduled to receive total remuneration from the Company on an annualized basis
in excess of $50,000 for the calendar year ending December 31, 1997.
2.23 Relationship with Subscribers, Retailers and Distributors. The
relationships of the Company with its subscribers, retailers and distributors
are good commercial working relationships. The Company has never intentionally
solicited, nor intentionally encouraged any of its representatives or any other
person to solicit, nor has the Company employed any scheme or device for the
purpose of encouraging nor has the Company encouraged any of its representatives
or any other person to employ any scheme or device for the purposes of
encouraging persons residing outside the Company's designated DBS service areas,
or persons not otherwise eligible, to become subscribers of the DBS services
offered in the ordinary course of the Company's business.
2.24 Corporate Records; Copies of Documents. The corporate record
books of the Company accurately record all corporate action taken by its
stockholder and board of directors and committees. The copies of the corporate
records of the Company, as made available to the Investors for review, are true
and complete copies of the originals of such documents. The Company has made
available for inspection by the Investor and their counsel true and correct
copies of all documents referred to in this Section 2.24 or in the Schedules
delivered pursuant to this Agreement.
2.25 Affiliate Transactions. Except as set forth in Schedule 2.25
hereto, neither the Company nor any officer, employee or director of the Company
(other than the Outside Investor Representatives) or any of their respective
spouses or family members or any of their affiliates, owns, directly or
indirectly, on an individual or joint basis, any material interest in, or serves
as an officer, director, partner or in another similar capacity of, any
competitor of the Company, or any organization which has a contract or
arrangement with the Company.
<PAGE> 23
2.26 Investments Related to Certain Foreign Countries. Neither the
Company nor any affiliate of the Company has participated in, or is
participating in, an anti-Israeli boycott within the scope of Chapter 7 of Part
2 of Division 4 of Title 2 of the California Government Code, as in effect from
time to time.
2.27 Small Business Concern, Etc.
(a) The Company, together with its "affiliates" (as that term is
defined in 13 CFR Section 121.103), is a "smaller business" within the meaning
of SBIC Regulations, including 13 CFR Section 107.710. The information regarding
the Company and its affiliates set forth in SBA Form 480, Form 652 and Section A
of Form 1031 delivered on or prior to the Initial Closing Date is accurate and
complete. The Company does not presently engage in, nor shall hereafter engage
in, any activities, and the Company shall not use the proceeds of the sale of
the Series A Preferred Shares hereunder directly or indirectly for any purpose,
for which an SBIC is prohibited from providing funds by SBIC Regulations
(including 13 CFR Section 107.720).
(b) As of the date hereof, the primary business activity of the
Company is (i) providing DBS services and (ii) classified under Standard
Industrial Classification Code number 4841 (Cable and Other Pay Television
Services), and the annual receipts (as such term is used in 13 CFR Section
121.201) of the Company are less than $11,000,000.
(c) For all purposes of this Agreement, the following terms shall
have the following meanings:
(i) "SBA" means the United States Small Business
Administration, and any successor agency performing the functions thereof;
(ii) "SBIC" means a Small Business Investment Company
licensed by the SBA under the SBIC Act;
(iii) "SBIC Act" means the Small Business Investment Act of
1958, as amended; and
(iv) "SBIC Regulations" means the SBIC Act and the
regulations issued by the SBA thereunder, codified at Title 13 of the Code
of Federal Regulations ("13 CFR"), Parts 107 and 121.
SECTION 2A. REPRESENTATIONS AND WARRANTIES OF THE FOUNDER
In order to induce the Outside Investors to enter into this Agreement,
the Founder hereby represents and warrants to the Outside Investors that (i) the
Company was incorporated in Delaware on June 25, 1996 and, other than with
respect to the Acquisitions or as disclosed in the schedules to this Agreement,
has not acquired any assets or created, incurred, assumed or become liable for
any indebtedness since such date, and (ii) the representations and warranties
<PAGE> 24
made by the Company in Sections 2.6, 2.7, 2.11, 2.13, 2.17 and 2.25 are true and
correct in all respects as of the date hereof.
SECTION 3. CONDITIONS OF PURCHASE
The Investors' obligation to purchase and pay for the Series A
Preferred Shares and the Common Shares shall be subject to compliance by the
Company with its agreements herein contained and to the fulfillment to the
Investors' satisfaction on or before the Initial Closing Date and/or an
Additional Closing Date, as the case may be, of the following conditions:
3.1 Satisfaction of Conditions. The representations and warranties of
the Company contained in this Agreement (including, but not limited to, the
representations and warranties made in Section 2 hereof) shall be true and
correct in all material respects on and as of the Initial Closing Date and, with
respect to an Additional Closing, the Additional Closing Date; each of the
conditions specified in this Section 3 shall have been satisfied or waived in
writing; and on the Initial Closing Date and each Additional Closing Date,
certificates to such effect executed by the President and the principal
financial officer of the Company shall be delivered to the Investors.
3.2 Opinion of Counsel. The Investors shall have received an opinion,
dated the Initial Closing Date and each Additional Closing Date, in form and
substance satisfactory to them on the organization and authority of the Company,
the enforceability of this Agreement and any related agreements, absence of
conflicts with organizational documents and other agreements, absence of
litigation and such other matters as requested by the Investors.
3.3 Authorization. The Board of Directors and the sole stockholder of
the Company shall have duly adopted resolutions in form reasonably satisfactory
to the Investors authorizing the Company to consummate the transactions
contemplated hereby in accordance with the terms hereof, and the Investors shall
have received a duly executed certificate of the Secretary of the Company
setting forth a copy of such resolutions and the Certificate of Incorporation
and By-laws of the Company and such other matters as may be requested by the
Investors.
3.4 Effectiveness of Preferred Stock Terms. The Board of Directors of
the Company shall have adopted a resolution establishing the terms of the Series
A Preferred Stock and Redeemable Preferred Stock as set forth in Exhibit B
hereto, and such action shall have been made effective by approval thereof by
the Founder and the filing of an Amended and Restated Certificate of
Incorporation with the Secretary of State for the State of Delaware.
3.5 Stockholders' Agreement. The Company, the Investors and all other
stockholders of the Company shall have executed and delivered a Stockholders'
Agreement in the form of Exhibit D hereto (the "Stockholders' Agreement").
<PAGE> 25
3.6 Non-Competition Agreements. The Founder and all other key
employees of the Company shall have entered into a Non-Competition Agreement
containing non-competition, non-solicitation and confidentiality provisions with
the Company in the form of Exhibit E hereto (the "Non-Competition Agreement").
All employees of the Company who are exposed to technical and proprietary
information of the Company shall have entered into confidentiality and invention
assignment agreements with the Company substantially in the form attached as
Exhibit C hereto (the "Confidentiality and Proprietary Rights Agreement").
3.7 Redemption. The Company shall have redeemed all of the shares of
capital stock of the Company held by the Founder as of the date hereof. The
Founder and the other Founding Investors shall have paid an aggregate of
$3,000,000 (including the full amount of the Founders' Advances) for the Series
A Preferred Shares and Common Shares being purchased by them hereunder. In
connection with the redemption, there shall have been delivered to the Company
(a) the certificate representing all of the capital stock held by the Founder,
marked canceled, and (b) a release executed by the Founder, in form and
substance satisfactory to the Outside Investors.
3.8 Acquisitions. The Company shall have consummated each of the
Acquisitions with Aurora Cable, TV Tennessee and Images DBS.
3.9 Election of Directors; Indemnification Agreements. In accordance
with the terms of the Stockholders' Agreement, the size of the Company's Board
of Directors shall have been fixed at no more than five (5) members and three
(3) designees of the Outside Investors shall have been elected to the Company's
Board of Directors (herein referred to, together with any successors as
replacements, as the "Outside Investor Representatives"). The Company shall have
entered into an Indemnification Agreement with each of its directors (including
the Outside Investor Representatives) in substantially the form of Exhibit F
hereto.
3.10 All Proceedings Satisfactory. All corporate and other proceedings
taken prior to or at the Initial Closing in connection with the transactions
contemplated by this Agreement, and all documents and evidences incident
thereto, shall be reasonably satisfactory in form and substance to three-fourths
in interest of the Investors (including each Outside Investor who has a
commitment to purchase at least 75,000 Series A Preferred Shares hereunder, as
appropriately adjusted for any stock split, combination, reorganization,
recapitalization, reclassification, stock distribution, stock dividend or
similar event), the Investors shall have received such copies thereof and other
materials (certified, if requested) as they may reasonably request in connection
therewith. The issuance and sale of the Series A Preferred Shares and Common
Shares to the Investors and the Warrants to the Alta Investors shall be made in
conformity with all applicable state and federal securities laws.
3.11 Delivery of Documents. The Company shall have executed and
delivered to the Investors (or shall have caused to be executed and delivered to
the Investors by the appropriate persons) the following:
(a) Certificates for the Series A Preferred Shares and Common
Shares;
<PAGE> 26
(b) Certified copies of resolutions of the Board of Directors
(and, if necessary, the stockholder) of the Company authorizing the execution
and delivery of this Agreement, the Stockholders' Agreement, the Amended and
Restated Certificate of Incorporation creating the Series A Preferred Shares,
the issuance of the Series A Preferred Shares and Common Shares and, upon
conversion of the Series A Preferred Shares, the issuance of the Conversion
Shares;
(c) A copy of the corporate charter of the Company, as amended,
certified as of a recent date by the Secretary of State of the State of
Delaware;
(d) A copy of the by-laws of the Company certified by the
Company's secretary;
(e) Certificates issued by the Secretary of State of the States
of Delaware and Missouri, certifying that the Company is in good standing in
their respective states;
(f) True and correct copies of the Acquisition Agreements,
together with all amendments thereto, and copies of all documents and
instruments evidencing the transactions consummated in connection therewith; and
(g) Such other supporting documents and certificates as the
Investors may reasonably request.
3.12 SBIC Deliveries. The Company shall have delivered to BancBoston
Ventures Inc. ("BancBoston"):
(a) duly completed and executed SBA Forms 480, 652 and Part A of
1031;
(b) if not delivered prior to the Initial Closing, a business
plan showing the Company's financial projections for a five-year period from the
Initial Closing;
(c) a written statement from the Company regarding its intended
use of the proceeds from the sale of the Series A Preferred Shares; and
(d) a list, after giving effect to the Initial Closing, of (i)
the name of each of the Company's directors, (ii) the name and title of each of
the Company's officers, and (iii) the name of each of the Company's stockholders
setting forth the number and class of shares held.
3.13 Additional Closing Conditions. In addition to the other
conditions set forth in this Section 3, the obligations of the Outside Investors
to purchase and pay for the Series A Preferred Shares to be sold by the Company
at each Additional Closing shall be subject to the fulfillment or waiver, on or
before the Additional Closing Date, of the following conditions: (a) the Company
shall have furnished to the Outside Investors the Sale Notice; (b) the Company
shall have furnished to the Outside Investors, at least ten days prior to the
Additional Closing Date, updated schedules to this Agreement, which shall be
reasonably acceptable to three-fourths in interest of the Outside Investors;
<PAGE> 27
(c) there shall not exist any condition or state of events which has resulted
in, or could reasonably be expected to result in, a material adverse effect on
the business operations or condition (financial or otherwise) of the Company;
(d) the Company shall have executed and delivered the certificates for the
additional Series A Preferred Shares; (e) three-fourths in interest of the
Outside Investors (including each Outside Investor who owns or has a commitment
to purchase at least 75,000 Series A Preferred Shares hereunder, as
appropriately adjusted for any stock split, combination, reorganization,
recapitalization, reclassification, stock distribution, stock dividend or
similar event), shall have approved the use of proceeds for which the additional
Series A Preferred Shares are being sold (which may include funding for approved
acquisitions, working capital and capital expenditures); and (f) there shall
have been no breach by the Company under this Agreement, the Stockholders'
Agreement or the Amended and Restated Certificate of Incorporation.
SECTION 3A. CONDITIONS OF SALE
The Company's obligation to sell the Series A Preferred Shares at each
Additional Closing shall be subject to (i) the delivery by all of the Outside
Investors of the purchase price set forth on Appendix A hereto at the Initial
Closing and (ii) the Company's reasonable satisfaction that the representations
and warranties of the Outside Investors contained in Section 5 hereof are true
and correct in all material respects on and as of the Additional Closing Date.
SECTION 4. COVENANTS OF THE COMPANY
The Company (which term shall be deemed to include, for purposes of
this Section 4, any subsidiary or subsidiaries of the Company formed after the
date of this Agreement) shall comply with the following covenants except as
shall otherwise be expressly agreed pursuant to a written consent or consents
executed by the holders of three-fourths in interest of the Series A Preferred
Shares (including each Outside Investor who owns or has a commitment to purchase
at least 75,000 Series A Preferred Shares hereunder, as appropriately adjusted
for any stock split, combination, reorganization, recapitalization,
reclassification, stock distribution, stock dividend or similar event), until
such time as all of the Series A Preferred Shares shall have been redeemed in
accordance with their terms or converted into Common Stock and Redeemable
Preferred Stock upon the vote of holders of three-fourths in interest of the
Series A Preferred Shares, upon the closing of an underwritten public offering
pursuant to an effective registration statement under the Securities Act
covering the offer and sale of Common Stock of the Company to the public in
which the proceeds received by the Company, net of underwriting discounts and
commissions, equal or exceed $35 million and the shares are offered to the
public at a price per share of no less than $300.00 (as appropriately adjusted
for any stock split, combination, reorganization, recapitalization,
reclassification, stock distribution, stock dividend or similar event) (a
"Qualified Public Offering") or as otherwise provided in the Amended and
Restated Certificate of Incorporation.
<PAGE> 28
4.1 Financial Statements; Minutes. The Company will maintain a
comparative system of accounts in accordance with generally accepted accounting
principles, keep full and complete financial records and furnish to the
Investors the following reports: (a) within 90 days after the end of each fiscal
year, a copy of the consolidated balance sheet of the Company as at the end of
such year, together with a consolidated statement of income and retained
earnings of the Company for such year, audited and certified by independent
public accountants of recognized national standing reasonably satisfactory to
the Investors, prepared in accordance with generally accepted accounting
principles and practices consistently applied; (b) within 45 days after the end
of each quarter, commencing with the quarter ending March 31, 1997, a
consolidated unaudited balance sheet of the Company as at the end of such
quarter and a consolidated unaudited statement of income and retained earnings
for the Company for such quarter and for the year to date; (c) within 30 days
after the end of each month, commencing with the month ended January 31, 1997, a
consolidated unaudited balance sheet of the Company as at the end of such month
and an unaudited statement of income and retained earnings for the Company for
such month and for the year to date, each of the foregoing balance sheets and
statements of earnings and retained earnings to set forth in comparative form
the corresponding figures for the prior fiscal period; and (d) such other
financial information as the holders of three-fourths in interest of the Series
A Preferred Shares may reasonably request, including without limitation,
certificates of the principal financial officer of the Company concerning
compliance with the covenants of the Company under this Section 4.
4.2 Budget and Operating Forecast. Commencing with the fiscal year
beginning January 1, 1998, the Company will prepare and submit to the Board of
Directors of the Company a budget for the Company for each fiscal year of the
Company at least 60 days prior to the beginning of such fiscal year, together
with management's written discussion and analysis of such budget. The budget
shall be accepted as the budget for such fiscal year when it has been approved
by a majority of the full Board of Directors of the Company and, thereupon, a
copy of such budget promptly shall be sent to the Investors. The Company shall
review the budget periodically and shall advise the Board of Directors and the
Investors of all changes therein and all material deviations therefrom.
4.3 Conduct of Business. The Company will continue to engage
principally in the business now conducted by the Company or a business or
businesses similar thereto or reasonably compatible therewith, and shall not
engage in any other business or businesses without the approval of the holders
of three-fourths in interest of the Series A Preferred Shares (including each
Outside Investor who owns or has a commitment to purchase at least 75,000 Series
A Preferred Shares hereunder, as appropriately adjusted for any stock split,
combination, reorganization, recapitalization, reclassification, stock
distribution, stock dividend or similar event). The Company shall not become a
holding company with all operating businesses being conducted by its
subsidiaries. The Company shall conduct its business in a manner that does not
cause the Outside Investors to recognize any item of gross income which would
generate "unrelated business taxable income" (as that term is defined in
Sections 512 through 514 of the Code), including without limitation any income
derived from or on account of any "debt-financed property" (as defined in
Section 514 of the Code), or gross income directly attributable to a "trade or
<PAGE> 29
business" (within the meaning of Sections 512 and 513 of the Code). The Company
will keep in full force and effect its corporate existence and all intellectual
property rights useful in its business (except such rights as the Board of
Directors has reasonably determined are not material to the Company's continuing
operations) and shall use its best efforts to cause each new key employee of the
Company to execute a noncompetition and confidentiality agreement with
substantially the same terms as are set forth in the form of Non-Competition
Agreement attached hereto as Exhibit E and each other employee to execute a
confidentiality and proprietary rights agreement with substantially the same
terms as are set forth in the Confidentiality and Proprietary Rights Agreement
attached hereto as Exhibit C, with such reasonable changes as may be deemed
appropriate by the Board of Directors.
4.4 Payment of Taxes, Compliance with Laws, etc. The Company will pay
and discharge all lawful taxes, assessments and governmental charges or levies
imposed upon it or upon its income or property before the same shall become in
default, as well as all lawful claims for labor, materials and supplies which,
if not paid when due, might become a lien or charge upon its property or any
part thereof; provided, however, that the Company shall not be required to pay
and discharge any such tax, assessment, charge, levy or claim so long as the
validity thereof is being contested by the Company in good faith by appropriate
proceedings and an adequate reserve therefor has been established on its books.
The Company will comply with all applicable laws and regulations in the conduct
of its business, including, without limitation, all applicable federal and state
securities laws in connection with the issuance of any shares of its capital
stock.
4.5 Insurance. The Company will keep its insurable properties insured,
upon reasonable business terms, by financially sound and reputable insurers
against liability, and the perils of casualty, fire and extended coverage in
amounts of coverage at least equal to those customarily maintained by companies
in the same or similar business as the Company. The Company will also maintain
with such insurers insurance against other hazards and risks and liability to
persons and property to the extent and in the manner customary for companies
engaged in the same or similar business.
4.6 Maintenance of Properties. The Company will maintain all
properties used or useful in the conduct of its business in good repair, working
order and condition, ordinary wear and tear excepted, as necessary to permit
such business to be properly and advantageously conducted.
4.7 Affiliated Transactions. All transactions by and between the
Company and the Founder and any officer or key employee of the Company or
persons controlling, controlled by, under common control with or otherwise
affiliated with the Founder or such officer or key employee, shall be conducted
on an arm's-length basis, shall be on terms and conditions no less favorable to
the Company than could be obtained from nonrelated persons and shall be approved
in advance by the disinterested members of the Board of Directors after full
disclosure of the terms thereof.
<PAGE> 30
4.8 Management Compensation. Compensation paid by the Company to its
management will be comparable to compensation paid to management in companies in
the same or similar businesses of similar size and maturity and with comparable
financial performance. In furtherance of the foregoing, the Company hereby
agrees that no compensation or other remuneration at an annualized rate in
excess of $50,000 shall be paid to, nor shall any capital stock of the Company
be issued to, or options to purchase any of its capital stock granted to, any
officer or employee of the Company or any of its subsidiaries, without the
approval of a compensation committee of the Board of Directors, a majority of
the members of which committee shall be comprised of the Outside Investor
Representatives and/or other non-employee members of the Board of Directors. Any
grants of capital stock or options hereunder shall be conditioned upon the
grantee agreeing to be bound by the terms of the Stockholders' Agreement.
4.9 Use of Proceeds. The Company shall use approximately $12,200,000
of the proceeds of the sale of the Series A Preferred Shares at the Initial
Closing to fund the Acquisitions, $367,838.89 of the proceeds of the sale of the
Series A Preferred Shares at the Initial Closing to pay in full the principal
and interest on the Promissory Notes issued to Rodney A. Weary Revocable Trust
and F.G. Weary Revocable Trust on January 15, 1997, and the remainder of the
proceeds of the sale of the Series A Preferred Shares at the Initial Closing for
working capital. The proceeds of the sale of the Series A Preferred Shares at
each Additional Closing shall be used to fund the acquisition of additional
NRTC/DBS DirecTV franchises and for working capital and capital expenditures.
Pending use for the above described purpose, said proceeds shall be temporarily
invested in short-term interest bearing securities, including U.S. Government
securities, shares of money market mutual funds and certificates of deposit and
similar instruments of federally or state-chartered banks.
4.10 Board of Directors Meetings; Meetings with Investors.
(a) The Company will ensure that meetings of its Board of
Directors are held at least six times each year and at intervals of not more
than three months and will reimburse Directors for their reasonable travel and
other out-of-pocket expenses incurred in connection with attending meetings of
the Board of Directors or performing such other business on behalf of the
Company as may be approved by the Company in advance. The Certificate of
Incorporation or By-laws of the Company will at all times during which any
nominee of the Investors serves as director of the Company provide for
indemnification of the directors and limitations on the liability of the
directors to the fullest extent permitted under applicable state law. The
Company will use its best efforts to obtain and maintain on reasonable business
terms directors and officers' liability insurance coverage of at least
$1,000,000 per occurrence and will notify its Directors promptly of any lapse of
such coverage.
(b) The Outside Investors shall be entitled to consult with and
advise the Board of Directors on significant business issues with respect to the
Company, including management's proposed annual operating plans for the Company,
and management will meet with the Outside Investors regularly during each year
at the Company's facilities at mutually agreeable times and intervals for such
<PAGE> 31
consultation and advice and to review progress in achieving said plans. The
Outside Investors may examine the books and records of the Company and inspect
its facilities and may request information at reasonable times and intervals
concerning the general status of the financial condition and operations of the
Company, provided that access to highly confidential proprietary information and
facilities need not be provided. If an Outside Investor is not represented on
the Board of Directors, the Company shall invite a representative of such
Outside Investor to attend all meetings of its Board of Directors relating to
the Company in a non-voting observer capacity, and in this respect shall give
such representative copies of all notices, minutes, consents, and other material
that it provides to all of its directors and which relate to the Company.
4.11 Sales of Additional Securities.
(a) The Company covenants and agrees that it shall not accept
subscriptions for or issue, sell, give away, transfer, pledge, mortgage, assign
or otherwise dispose of any shares of capital stock or any other equity
interests, or other securities convertible into or exchangeable for capital
stock or other equity interests or options, warrants or rights carrying any
rights to purchase capital stock or other equity interests or convertible or
exchangeable securities, without the express written consent of holders of
three-fourths in interest of the Series A Preferred Shares, except as provided
in Sections 1.3(b) and 4.11(b) hereof. In addition, the Company covenants and
agrees that, except as otherwise expressly permitted by Sections 1.3(b) and
4.11(b) hereof, it will not sell or issue any (i) shares of capital stock of the
Company, or bonds, certificates of indebtedness, debentures or other securities
convertible into or exchangeable for capital stock of the Company, or options,
warrants or rights carrying any rights to purchase capital stock or convertible
or exchangeable securities of the Company (collectively, "Additional Equity
Securities") or (ii) subordinated notes, bonds, certificates of indebtedness,
debentures or other mezzanine debt securities (collectively, "Additional Debt
Securities" and together with Additional Equity Securities, "Additional
Securities") unless (x) the Company shall have received a bona fide arms-length
offer (which may be in response to a solicitation by the Company) to purchase
such Additional Securities from a third party, and (y) the Company first submits
a written offer to the Investors who are then holders of Series A Preferred
Shares identifying the third party to whom such Additional Securities are
proposed to be sold and the terms of the proposed sale, and offering to such
Investors the opportunity to purchase such securities on terms and conditions,
including price, not less favorable than those on which the Company proposes to
sell such securities to the third party. Each of such Investors shall have the
right to purchase its proportionate share of such securities based on the ratio
which the Series A Preferred Shares owned by such Investor bears to all Series A
Preferred Shares owned by all Investors immediately prior to such issuance. Any
Investor may transfer its right to be offered any such opportunity to any
transferee of shares of its Series A Preferred Shares, in which event such
transferee shall be deemed to be an Investor for purposes of this Section 4.11.
The Company's offer to such Investors shall remain open and irrevocable for a
period of at least 45 days. Any securities so offered to such Investors which
are not purchased pursuant to such offer shall be offered to such Investors
wishing to purchase any such securities, and thereafter may be sold by the
Company to the third party originally named in the offer to such Investors on
terms and conditions, including price, not more favorable to the third party
<PAGE> 32
than those set forth in such offer at any time within 75 days following the date
of such offer, but may not be sold to any other person or on terms and
conditions, including price, that are more favorable to the purchaser than those
set forth in such offer or after such 75-day period without renewed compliance
with this Section 4.11.
(b) Notwithstanding the foregoing, the Company may (i) issue, or
issue options, warrants or rights to subscribe for, up to an aggregate of 62,525
shares of its Common Stock to officers, directors, employees, consultants or
agents of the Company pursuant to the terms of the Company's Stock Option Plan
and Section 4.8 hereof and issue shares of its Common Stock upon the exercise of
such stock options; (ii) issue the Warrants to the Alta Investors as
contemplated by Section 2.4 hereof; (iii) issue Conversion Shares upon the
conversion of the Series A Preferred Shares; (iv) issue Warrant Shares upon the
exercise of the Warrants; (v) declare, make or issue a dividend or other
distribution payable in shares of the Common Stock in respect of outstanding
shares of the Common Stock or the Series A Preferred Stock in accordance with
the Company's Amended and Restated Certificate of Incorporation, as amended;
(vi) issue shares of Common Stock in connection with a Qualified Public
Offering; (vii) with the prior consent of holders of three-fourths in interest
of the Series A Preferred Shares, issue, or issue options, warrants or rights to
subscribe for, shares of its Common Stock in connection with any debt, capital
lease or other similar financing transaction; or (viii) at any time on or prior
to May 9, 1997 (provided that the Company has issued all of the Series A
Preferred Shares and Common Shares to the Outside Investors issuable hereunder,
taking into account the provisions of Section 1.3(c) hereof), issue additional
shares of Series A Preferred Stock under the same terms and conditions set forth
in this Agreement (subject to the approval of a majority of the Outside Investor
Representatives and the execution by the purchaser(s) of such shares of a
Joinder Agreement in the form of Exhibit A to the Stockholders' Agreement) such
that the aggregate number of shares of Series A Preferred Stock issued does not
exceed 506,000, in each case without offering the holders of Series A Preferred
Shares the opportunity to purchase their proportionate share of such shares or
options under this Section 4.11.
4.12 Stockholders' Agreement, Non-Competition Agreements and
Confidentiality and Proprietary Rights Agreements. The Company will diligently
enforce all of its rights under the Stockholders' Agreement described in Section
3.5 hereof, and the agreements described in Section 3.6 hereof. The Company will
not effect any transfer of any of the outstanding capital stock of the Company
on the stock record books of the Company unless such transfer is made in
accordance with the terms of the Stockholders' Agreement referred to in Section
3.5 hereof. The Company will not waive or release any rights under, or consent
to the amendment of, any such agreement without the requisite written approval
of the parties thereto.
4.13 Distributions on, and Redemptions of, Capital Stock. Except as
otherwise expressly provided in this Agreement or in Exhibit B hereto, the
Company will not declare or pay any dividends or make any distributions of cash,
property or securities of the Company with respect to any shares of its Common
Stock or any other class of its capital stock, or directly or indirectly redeem,
purchase, or otherwise acquire for consideration any shares of its Common Stock
<PAGE> 33
or any other class of its capital stock; provided, however, that this
restriction shall not apply to the repurchase of shares of the Common Stock
pursuant to stock repurchase agreements under which the Company has the option
to repurchase such shares upon the occurrence of certain events, including the
termination of employment and involuntary transfers, by operation of law,
provided that the repurchase price paid by the Company does not exceed the
purchase price paid to the Company for such shares. Any redemption, repurchase
or other acquisition by the Company of any shares of its capital stock shall be
made in compliance with all laws, including but not limited to federal and state
securities laws.
4.14 Merger, Consolidation, Sale of Assets, Acquisitions and Other
Actions. The Company will not without the prior written consent of holders of
three-fourths in interest of the Series A Preferred Shares (including each
Outside Investor who owns or has a commitment to purchase at least 75,000 Series
A Preferred Shares hereunder, as appropriately adjusted for any stock split,
combination, reorganization, recapitalization, reclassification, stock
distribution, stock dividend or similar event): (a) sell, lease or otherwise
dispose of (whether in one transaction or a series of related transactions)
assets with a value in excess of $500,000, (b) merge with or into or consolidate
with another entity (except into or with a wholly-owned subsidiary of the
Company with the requisite shareholder approval), (c) acquire any other
corporation or business concern, whether by acquisition of assets, capital stock
or otherwise, and whether in consideration of the payment of cash, the issuance
of capital stock or otherwise (other than acquisitions of any NRTC franchisee
with fewer than 50,000 households which have been approved by the Board of
Directors of the Company, including a majority of the Outside Investor
Representatives), (d) voluntarily liquidate or wind up its operations, (e) issue
any shares of its capital stock which are senior to or on a parity with the
Series A Preferred Shares with respect to dividends, conversion, liquidation or
redemptions or with any special voting rights, (f) create, incur, assume, become
liable for, or permit to exist any indebtedness for borrowed money or any
indebtedness as a result of any acquisition, capital leases, or other similar
commitments or obligations (other than indebtedness approved by the Board of
Directors of the Company, including a majority of the Outside Investor
Representatives), which, for any one such borrowing or series of related
borrowings, is in excess of $500,000, (g) grant or permit to exist any liens
securing indebtedness in excess of $500,000, security interests or encumbrances
on any of the Company's assets or properties with a value of $500,000, except as
approved by the Board of Directors of the Company, including a majority of the
Outside Investor Representatives, or (h) enter into any agreement with any party
which by its terms restricts the payments due the holders of the Series A
Preferred Shares pursuant to Exhibit B hereto.
4.15 No Amendments to Certificate of Incorporation. The Company will
not make any amendment to its Certificate of Incorporation or make any amendment
to its By-laws (a) so as to adversely affect the rights of the holders of the
Series A Preferred Stock or Redeemable Preferred Stock with respect to
dividends, liquidation preferences, conversion or redemption without the prior
written consent of holders of three-fourths in interest of the Series A
Preferred Shares (including each Outside Investor who owns or has a commitment
to purchase at least 75,000 Series A Preferred Shares hereunder, as
appropriately adjusted for any stock split, combination, reorganization,
<PAGE> 34
recapitalization, reclassification, stock distribution, stock dividend or
similar event), or (b) that adversely affects any other preferences, powers,
rights or privileges of holders of the Preferred Stock without the prior written
consent of holders of three-fourths in interest of the Series A Preferred
Shares.
4.16 Capital Expenditures. The Company will not, without the prior
approval of the Board of Directors of the Company, including a majority of the
Outside Investor Representatives, make any expenditures for fixed or capital
assets, or any commitments for such expenditures, exceeding an amount of
$500,000 for any one such expenditure or series of related expenditures in any
one year.
4.17 Life Insurance. The Company shall use its best efforts to obtain
as soon as practicable following the Initial Closing, and to maintain and
continue to pay the premiums on, a key-man term life insurance policy on the
life of the Founder in the amount of at least $10,000,000, such policy to name
the Company as sole beneficiary thereof.
4.18 Annual Updates; Number of Stockholders; Use of Proceeds;
Regulatory Violation; Economic Impact Information; Amendment.
(a) As long as an SBIC Investor holds any of the Securities, the
Company shall, on an annual basis, provide to such SBIC Investor the information
required under 13 CFR Section 107.620(b) and shall provide the information and
access required by 13 CFR Section 107.620(c).
(b) As long as an SBIC Investor holds any of the Securities, the
Company shall notify such SBIC Investor:
(i) at least fifteen (15) days prior to taking any action
after which the number of record holders of the Company's voting stock
would be increased from fewer than 50 to 50 or more; and
(ii) of any other action or occurrence after which the
number of record holders of the Company's voting stock was increased (or
would increase) from fewer than 50 to 50 or more, as soon as practicable
after the Company becomes aware that such other action or occurrence has
occurred or is proposed to occur. For purposes of this Agreement, an "SBIC
Investor" shall mean BancBoston, an affiliate of BancBoston that has been
licensed as an SBIC and holds the Securities or any permitted transferee of
an Outside Investor that has been licensed as an SBIC and holds the
Securities.
(c) Within seventy-five (75) days after the Initial Closing, and
at the end of each month thereafter until all of the proceeds from the sale of
Series A Preferred Shares hereunder have been used by the Company, the Company
shall deliver to all Outside Investors a written statement certified by the
Company's president or chief financial officer describing in reasonable detail
the use of the proceeds of the purchase of Series A Preferred Shares hereunder
<PAGE> 35
hereunder by the Company. In addition to any other rights granted hereunder, the
Company shall grant all Outside Investors and the SBA access to the Company's
records for the purpose of verifying the use of such proceeds.
(d) Upon the occurrence of a Regulatory Violation (as defined
below) or in the event that any SBIC Investor determines in its reasonable good
faith judgment that a Regulatory Violation has occurred, in addition to any
other rights and remedies to which it may be entitled (whether under this
Agreement or any other agreement), such SBIC Investor shall have the right, to
the extent required under SBIC Regulations, to demand the immediate repurchase
of all of the outstanding Securities owned by such SBIC Investor at a price
equal to the purchase price paid for such Securities hereunder plus accrued
dividends by delivering written notice of such demand to the Company; provided,
however, that, in the event of a Regulatory Violation, any SBIC Investor shall,
prior to demanding the repurchase of all of the outstanding Securities owned by
such SBIC Investor, use reasonable efforts to retain its investment in the
Securities, including, without limitation, petitioning the SBA for its approval
with respect to any unforeseen changes in the principal business activity of the
Company. The Company shall pay the purchase price for such Securities by a
cashier's or certified check or by wire transfer of immediately available funds
to such SBIC Investor within thirty (30) days after the Company's receipt of the
demand notice, and, upon such payment, such SBIC Investor shall deliver the
certificates, if any, evidencing the Securities being repurchased duly endorsed
for transfer or accompanied by duly executed forms of assignment.
For purposes of this Agreement, "Regulatory Violation" means a change
in the principal business activity of the Company to an ineligible business
activity (within the meaning of the SBIC Regulations), if such change occurs
within one (1) year after the date of the initial purchase of Securities
hereunder.
(e) Promptly after the end of each fiscal year (but in any event
prior to February 28 of each year), the Company shall deliver to each Investor a
written assessment of the economic impact of the total investment by all SBIC
Investors in the Company, specifying the full-time equivalent jobs created or
retained in connection with the investment, the impact of the investment on the
businesses of the Company in terms of expanded revenue and taxes, and the other
economic benefits resulting from the investment, including but not limited to,
technology development or commercialization, minority business development,
urban or rural business development and expansion of exports, together with all
other information reasonably requested by any SBIC Investor in order to provide
the information required by 13 CFR Section 107.630.
(f) Notwithstanding anything herein to the contrary, the
provisions of this Section 4.18 shall not be amended without the prior written
consent of holders of a majority of the issued and outstanding Securities of any
SBIC Investors (determined on an as converted basis).
<PAGE> 36
SECTION 5. INVESTOR REPRESENTATIONS
It is the understanding of the Company, and each Investor hereby
severally represents with respect to such Investor's purchase of Securities
hereunder that:
(a) The execution of this Agreement has been duly authorized by
all necessary action on the part of the Investor, has been duly executed and
delivered, and constitutes a valid, binding and enforceable agreement of the
Investor.
(b) The Investor is acquiring the Series A Preferred Shares and
Common Shares for its own account, for investment, and not with a present view
to any "distribution" thereof within the meaning of the Securities Act. The
Investor was not formed or organized for the purpose of acquiring the Series A
Preferred Shares and Common Shares.
(c) The Investor understands that because the Series A Preferred
Shares and Common Shares have not been registered under the Securities Act, it
cannot dispose of any or all of the Series A Preferred Stock, the Conversion
Shares issuable upon conversion thereof or the Common Shares unless such
securities are subsequently registered under the Securities Act or exemptions
from such registration are available. The Investor understands that each
certificate representing the Series A Preferred Stock and the Common Stock will
bear the following legend or one substantially similar thereto:
The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the
"Act"). These securities have been acquired for investment and
not with a view to distribution or resale, and may not be sold,
mortgaged, pledged, hypothecated or otherwise transferred without
an effective registration statement for such securities under the
Act or the availability of an exemption from such registration
requirements.
(d) The Investor is sufficiently knowledgeable and experienced in
the making of venture capital investments so as to be able to evaluate the risks
and merits of its investment in the Company, and is able to bear the economic
risk of loss of its investment in the Company. The Investor acknowledges that
the Company may, subject to the restrictions set forth in this Agreement, enter
into one or more acquisitions, joint ventures or additional types of financings
in the future which could result in a valuation for the capital stock of the
Company that is significantly below the purchase price for the Series A
Preferred Shares hereunder.
(e) The Investors have been advised that the Series A Preferred
Shares and Common Shares have not been and are not being registered under the
Securities Act or under the "blue sky" laws of any jurisdiction and that the
Company in issuing the Series A Preferred Stock and the Common Stock is relying
upon, among other things, the representations and warranties of the Investors
contained in this Section 5.
<PAGE> 37
(f) No broker, finder, agent or similar intermediary has acted on
behalf of an Investor in connection with this Agreement or the transactions
contemplated hereby and there are no brokerage commissions, finder's fees or
similar fees or commissions payable in connection therewith.
(g) The Investor is an "accredited investor" as defined in
Regulation D of the Securities Act.
SECTION 6. INDEMNIFICATION
6.1 Indemnification for Vicarious Liability. Subject to Section 7.2
hereof, the Company shall, to the full extent permitted by law, and in addition
to any such rights that the Investors and persons serving as officers,
directors, partners, employees or agents of each Investor (individually an
"Indemnified Party" and collectively the "Indemnified Parties") may have
pursuant to statute, the Company's Certificate of Incorporation or By-laws, or
otherwise, indemnify and hold harmless each Investor (including its respective
directors, officers, partners, employees and agents, an "Indemnified Investor")
and each person (a "Controlling Person" and collectively with Indemnified
Investors, the "Indemnified Parties") who controls any of them within the
meaning of Section 15 of the Securities Act, or Section 20 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), from and against any and
all losses, claims, damages, expenses and liabilities, joint or several,
including any investigation, legal and other expenses incurred in connection
with the investigation, defense, settlement or appeal of, and any amount paid in
settlement of, any action, suit or proceeding or any claim asserted ("Losses" or
"Loss"), to which they, or any of them, may become subject by reason of their
status as a security holder, creditor, director, agent, representative or
controlling person of the Company, (including, without limitation, any and all
Losses under the Securities Act, the Exchange Act or other federal or state
statutory law or regulation, at common law or otherwise, which relates directly
or indirectly to the registration, purchase, sale or ownership of any securities
of the Company or to any fiduciary obligation owed with respect thereto);
provided, however, that the Company will not be liable to the extent that such
Loss arises from and is based on an untrue statement or omission or alleged
untrue statement or omission in a registration statement or prospectus which is
made in reliance on and in conformity with written information furnished to the
Company in an instrument duly executed by or on behalf of such Indemnified Party
specifically stating that it is for use in the preparation thereof. The
indemnification and contribution provided for in this Section 6.1 will remain in
full force and effect regardless of any investigation made by or on behalf of
the Indemnified Parties or any officer, director, employee, agent or Controlling
Person of the Indemnified Parties.
If the indemnification provided for in this Section 6.1 is for any
reason held by a court of competent jurisdiction to be unavailable to an
Indemnified Party in respect of any Losses referred to therein, then the
Company, in lieu of indemnifying such Indemnified Party thereunder, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such Losses (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company and the Investor relating to such Indemnified
<PAGE> 38
Party or (ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Company and the Investor relating to such Indemnified Party in connection
with the action or inaction which resulted in such Losses, as well as any other
relevant equitable considerations. In connection with any registration of the
Company's securities, the relative benefits received by the Company and the
Investors shall be deemed to be in the same respective proportions as the net
proceeds from the offering (before deducting expenses) received by the Company
and the Investors, in each case as set forth in the table on the cover page of
the applicable prospectus, bear to the aggregate public offering price of the
securities so offered. The relative fault of the Company and the Investors shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company or the Investors
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
The Company and the Investors agree that it would not be just and
equitable if contribution pursuant to the foregoing paragraph were determined by
pro rata or per capita allocation or by any other method of allocation which
does not take account of the equitable considerations referred to in the
immediately preceding paragraph. In connection with any registration of the
Company's securities, in no event shall an Investor be required to contribute
any amount under this Section 6.1 in excess of the lesser of (i) that proportion
of the total of such Losses indemnified against equal to the proportion of the
total securities sold under such registration statement which is being sold by
such Investors or (ii) the proceeds received by such Investor from its sale of
securities under such registration statement. No person found guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
found guilty of such fraudulent misrepresentation.
6.2 Notice; Defense of Claims. Promptly after receipt by an
Indemnified Party of notice of any third party or other claim, liability or
expense to which the indemnification obligations hereunder would apply,
including in connection with any governmental proceeding, the Indemnified Party
shall give notice thereof in writing to the Company, but the omission to so
notify the Company promptly will not relieve the Company from any liability
except, and only to the extent, that the Company shall have been materially
prejudiced as a result of the failure or delay in giving such notice. Such
notice shall state the information then available regarding the amount and
nature of such claim, liability or expense.
In the case of any third party claim, if within twenty (20) days after
receiving the notice described in the preceding paragraph the Company (i) gives
written notice to the Indemnified Party or Parties stating that it intends to
defend in good faith against such claim, liability or expense at its own cost
and expense and (ii) provides assurance and security reasonably acceptable to
such Indemnified Party or Parties that such indemnification will be paid fully
and promptly if required and such Indemnified Party or Parties will not incur
cost or expense during the proceeding, then counsel for the defense shall be
selected by the Company (subject to the consent of such Indemnified Party or
<PAGE> 39
Parties, which consent shall not be unreasonably withheld) and such Indemnified
Party or Parties shall not be required to make any payment with respect to such
claim, liability or expense as long as the Company is conducting a good faith
and diligent defense at its own expense; provided, however, that the assumption
of defense of any such matters by the Company shall relate solely to the claim,
liability or expense that is subject or potentially subject to indemnification.
If the Company assumes such defense in accordance with the preceding sentence,
it shall have the right, with the consent of such Indemnified Party or Parties,
which consent shall not be unreasonably withheld, to settle all indemnifiable
matters related to claims by third parties which are susceptible to being
settled provided the Company's obligation to indemnify such Indemnified Party or
Parties therefor will be fully satisfied and the settlement includes a complete
release of such Indemnified Party or Parties. The Company shall keep such
Indemnified Party or Parties apprised of the status of the claim, liability or
expense and any resulting suit, proceeding or enforcement action, shall furnish
such Indemnified Party or Parties with all documents and information that such
Indemnified Party or Parties shall reasonably request and shall consult with
such Indemnified Party or Parties prior to acting on major matters, including
settlement discussions. Notwithstanding anything herein stated, such Indemnified
Party or Parties shall at all times have the right to fully participate in such
defense at its own expense directly or through counsel; provided, however, if
the named parties to the action or proceeding include both the Company and the
Indemnified Party or Parties and representation of both parties by the same
counsel would be inappropriate under applicable standards of professional
conduct, the expense of separate counsel for such Indemnified Party or Parties
shall be paid by the Company. The Indemnified Party or Parties shall make
available all information and assistance that the Company may reasonably request
and shall cooperate with the Company in such defense.
If the Company does not give notice of its intent to defend against
any third party or other claim, liability or expense in accordance with the
foregoing paragraph, or if such diligent good faith defense is not being or
ceases to be conducted, the Indemnified Party will have the right to retain its
own counsel in any such action and all fees, disbursements and other charges
incurred in the investigation, defense and/or settlement of such action shall be
advanced and reimbursed by the Company promptly as they are incurred and shall
have the right to compromise or settle, such claim, liability or expense;
provided, however, that the Indemnified Party shall agree to repay any expenses
so advanced hereunder if it is ultimately determined by a court of competent
jurisdiction that the Indemnified Party to whom such expenses are advanced is
not entitled to be indemnified as a matter of law or under the terms of this
Agreement.
6.3 Satisfaction of Indemnification Obligations. Any indemnity payable
pursuant to this Section 6 shall be paid within the later of (a) ten (10) days
after the indemnified party's request therefor or (b) ten (10) days prior to the
date on which the Loss upon which the indemnity is based is required to be
satisfied by the indemnified party.
<PAGE> 40
SECTION 7. GENERAL
7.1 Amendments, Waivers and Consents. For the purposes of this
Agreement and all agreements, documents and instruments executed pursuant
hereto, except as otherwise specifically set forth herein or therein, no course
of dealing between the Company and the Founder, on the one hand, and any
Investor, on the other, and no delay on the part of any party hereto in
exercising any rights hereunder or thereunder shall operate as a waiver of the
rights hereof and thereof. No covenant or other provision hereof or thereof may
be waived otherwise than by a written instrument signed by the party so waiving
such covenant or other provision; provided, however, that except as otherwise
provided herein or therein, changes in or additions to, and any consents
required by, this Agreement may be made, and compliance with any term, covenant,
condition or provision set forth herein may be omitted or waived (either
generally or in a particular instance and either retroactively or prospectively)
by a consent or consents in writing signed by the holders of three-fourths in
interest of the Series A Preferred Shares (including for such purposes, on a
proportional basis, any Conversion Shares into which any of the Series A
Preferred Shares have been converted that have not been sold to the public) and
(in the case of any such change or addition) the Company; provided, however,
that the amendment, modification or waiver of any provision which by its terms
requires the consent or approval of holders of more than three-fourths in
interest of the Series A Preferred Shares or the consent or approval of certain
Outside Investors shall only be effective if it is signed by holders of such
requisite percentage or such Outside Investors. All references in this Agreement
to holders of three-fourths in interest of the Series A Preferred Shares refer
to holders of 75% of the outstanding Series A Preferred Shares. Any amendment or
waiver effected in accordance with this Section 7.1 shall be binding upon each
holder of Series A Preferred Shares purchased under this Agreement at the time
outstanding (including securities into which such Series A Preferred Shares have
been converted), each future holder of all such securities and the Company.
7.2 Survival of Representations, Warranties and Covenants;
Assignability of Rights. All covenants, agreements, representations and
warranties of the Company and/or the Founder made herein and in the
certificates, lists, exhibits, schedules or other written information delivered
or furnished by or on behalf of the Company and/or the Founder to any Investor
in connection herewith shall be deemed material and to have been relied upon by
such Investor, and, except as otherwise provided in this Agreement, shall
survive the delivery of the Securities regardless of any instruction and shall
not merge in the performance of any obligation and shall bind the Company's or
the Founder's successors, assigns and heirs, whether so expressed or not, and,
except as otherwise provided in this Agreement, all such covenants, agreements,
representations and warranties shall inure to the benefit of the Investors'
successors and assigns and to transferees of the Securities, whether so
expressed or not. Every assignee of an Outside Investor shall be deemed to be an
Outside Investor under this Agreement. Notwithstanding anything to the contrary
contained herein, the Founding Investors shall have no recourse against the
Company or the Outside Investors (including, without limitation, any rights of
indemnification under Section 6 hereof) with respect to any breach of the
representations and warranties made by the Company in Section 2 of this
Agreement of which they had knowledge or any breach of the representations and
warranties made by the Company in Section 2 of this Agreement as and to the
<PAGE> 41
extent that the Founder has given a similar representation in Section 2A of this
Agreement. The representations and warranties made by the Investors in Section 5
of this Agreement shall survive the delivery of the Securities and shall bind
the Investors' successors and assigns and shall inure to the benefit of the
Company's successors and assigns.
7.3 Governing Law. This Agreement shall be deemed to be a contract
made under, and shall be construed in accordance with, the laws of The
Commonwealth of Massachusetts (without giving effect to principles of conflicts
of law the effect of which would cause the application of domestic substantive
laws of any other jurisdiction).
7.4 Section Headings; Counterparts. The descriptive headings in this
Agreement have been inserted for convenience only and shall not be deemed to
limit or otherwise affect the construction of any provision thereof or hereof.
This Agreement may be executed simultaneously in any number of counterparts,
each of which when so executed and delivered shall be taken to be an original;
but such counterparts shall together constitute but one and the same document.
7.5 Notices and Demands. Any notice or demand which, by any provision
of this Agreement or any agreement, document or instrument executed pursuant
hereto or thereto, except as otherwise provided therein, is required or provided
to be given shall be deemed to have been sufficiently given or served and
received for all purposes when delivered or five days after being sent by
certified or registered mail, postage and charges prepaid, return receipt
requested, or by express delivery providing receipt of delivery, to the
following addresses: if to the Company, at its address as shown on the signature
page hereof, or at any other address designated by the Company to each of the
Investors in writing; if to an Investor, at its mailing address as shown on
Appendix A hereto, or at any other address designated by such Investor to the
Company and the other Investors in writing; and if to an assignee of an
Investor, at its address as designated to the Company and the other Investors in
writing.
7.6 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 shall be deemed
prohibited or invalid under such applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, and such
prohibition or invalidity shall not invalidate the remainder of such provision
or the other provisions of this Agreement.
7.7 Expenses. The Company shall pay all costs and expenses that each
of it and the Outside Investors incurs with respect to the negotiation,
execution, delivery and performance of this Agreement and any amendments hereto
and the agreements, documents and instruments contemplated hereby or executed
pursuant hereto and the Founding Investors shall pay all costs and expenses that
they incur with respect to the negotiation, execution, delivery and performance
of this Agreement and the agreements, documents and instruments contemplated
hereby or executed pursuant hereto.
<PAGE> 42
7.8 Integration. This Agreement together with the Stockholders'
Agreement, including the exhibits, documents and instruments referred to herein
or therein, constitutes the entire agreement, and supersedes all other prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof.
7.9 Certain Provisions Applicable to SBIC Investors. Sections 2.27,
3.12 and 4.18 hereof contain certain provisions that are included herein solely
for the benefit of SBIC Investors. A stockholder of the Company may not assert
any rights or claims with respect to such provisions arising at any time after
it has ceased to be an SBIC.
[Remainder of Page Intentionally Left Blank]
<PAGE> 43
IN WITNESS WHEREOF, the undersigned have executed this Agreement as a
sealed instrument as of the day and year first above written.
GOLDEN SKY SYSTEMS, INC.
605 W. 47th Street, Suite 300
Kansas City, MO 64112
By: /s/ Rodney A. Weary
----------------------------
Name: Rodney A. Weary
Title: President
FOUNDER: /s/ Rodney A. Weary
-----------------------
Rodney A. Weary
OUTSIDE INVESTORS:
ALTA SUBORDINATED DEBT
PARTNERS III, L.P.
By: Alta Subordinated Debt
Management III, L.P., General Partner
By: /s/ Eileen McCarthy
----------------------------
Name: Eileen McCarthy
Title: General Partner
ALTA COMMUNICATIONS VI, L.P.
By: Alta Communications VI Management
Partners, L.P., General Partner
By: /s/ Eileen McCarthy
----------------------------
Name: Eileen McCarthy
Title: General Partner
<PAGE> 44
ALTA-COMM S BY S, LLC
By: /s/ Eileen McCarthy
----------------------------
Name: Eileen McCarthy
Title: Member
SPECTRUM EQUITY INVESTORS L.P.
By: Spectrum Equity Associates L.P.,
General Partner
By: /s/ William P. Collatos
----------------------------
Name: William P. Collatos
Title: General Partner
SPECTRUM EQUITY
INVESTORS II, L.P.
By: Spectrum Equity Associates II, L.P.,
General Partner
By: /s/ William P. Collatos
----------------------------
Name: William P. Collatos
Title: General Partner
APPLEGATE & COLLATOS, INC.
(solely for purposes of Section 1.3(c))
By: /s/ William P. Collatos
----------------------------
Name: William P. Collatos
Title: Vice President
BANCBOSTON VENTURES INC.
By: /s/ William O. Charman
----------------------------
Name: William O. Charman
Title: Vice President
<PAGE> 45
THE MILLENNIAL FUND
By: /s/ G. Jackson Tankersly, Jr.
-----------------------------
G. Jackson Tankersley, Jr.
BUILDER INVESTMENT
PARTNERSHIP
By: Allen A. Builder
----------------------------
Name: Allen A. Builder
Title: General Partner
<PAGE> 46
FOUNDING INVESTORS:
Rodney A. Weary Revocable Trust Dated
10/25/95
By: /s/ Rodney A. Weary
----------------------------
Name: Rodney A. Weary
Title: Trustee
F.G. Weary III Revocable Trust
By: /s/ F.G. Weary III
----------------------------
Name: F.G. Weary III
Title: Trustee
Sarah Weary Revocable Trust
By: /s/ Sarah Weary
----------------------------
Name: Sarah Weary
Title: Trustee
/s/ Robert Liepold
-------------------------------
Robert B. Liepold
/s/ Ron D. Foster
-------------------------------
Ron D. Foster
/s/ Jo Ellen Linn
-------------------------------
Jo Ellen Linn
/s/ Robert Weaver
-------------------------------
Robert Weaver
<PAGE> 47
/s/ Donald Tucker
-------------------------------
Donald Tucker
/s/ Barbara Tucker
-------------------------------
Barbara Tucker
/s/ Robert H. Weaver
-------------------------------
Robert H. Weaver
/s/ Jeff K. Ramsey
-------------------------------
Jeff K. Ramsey
/s/ Rebecca D. Ramsey
-------------------------------
Rebecca D. Ramsey
A Delaware Trust
By: /s/ Arthur B. Ramsey, Trustee
------------------------------
Arthur B. Ramsey, Trustee
Ramsey Trust Dated 12/14/95
By: /s/ Arthur B. Ramsey, Trustee
------------------------------
Arthur Ramsey, Trustee
By: /s/ Lyle Ramsey, Trustee
----------------------------
Lyle Ramsey, Trustee
/s/ Paul Spurgeon
-------------------------------
Paul Spurgeon
<PAGE> 48
<TABLE>
<CAPTION>
Appendix A
List of Investors
Initial Closing Additional Closings
Number of Number of Aggregate Number of Number of Aggregate
Series A Preferred Common Purchase Price Series A Preferred Common Purchase Price
Name Shares Shares for Shares Shares Shares for Shares
---- ----------- ---------- -------------- ---------- ------- ---------
(Column 1) (Column 2) (Column 3) (Column 4) (Column 5) (Column 6)
<S> <C> <C> <C> <C> <C> <C>
Alta Subordinated Debt Partners III, L.P. 31,246 13 $3,124,613 24,286 -- $2,428,600
Alta Communications VI, L.P. 51,971 23 5,197,123 40,394 -- 4,039,400
Alta-Comm S By S, LLC 1,183 1 118,301 920 -- 92,000
c/o Alta Communications, Inc.
One Embarcadero Center
Suite 4050
San Francisco, CA 94111
Spectrum Equity Investors L.P. 50,000 12 5,000,012 -- -- --
Spectrum Equity Investors II L.P. -- -- -- 100,000 25 10,000,025
125 High Street, Suite 2600
Boston, MA 02110
Attn: William P. Collatos
BancBoston Ventures Inc. 33,600 19 3,360,019 41,400 -- 4,140,000
175 Federal Street, 10th Floor
Boston, MA 02110
Attn: William O. Charman
The Millennial Fund 500 -- 50,000 -- -- --
c/o G. Jackson Tankersley, Jr.
The Centennial Funds
1428 15th Street
Denver, CO 80202
Builder Investment Partnership 500 -- 50,000 -- -- --
Five Piedmont Center, Suite 700
Atlanta, GA 30305
Attn: Allen A. Builder
Rodney A. Weary Revocable Trust 16,030 4 1,603,004 -- -- --
Dated 10/25/95
3900 W. 90th
Prairie Village, KS 66207
F.G. Weary III Revocable Trust 2,500 1 250,001 -- -- --
1508 S. Golf Club Drive
Richmond, MO 64085
Sarah Weary Revocable Trust 2,500 1 250,001 -- -- --
1508 S. Golf Club Drive
Richmond, MO 64085
Robert B. Liepold 1,000 -- 100,000 -- -- --
6140 Mission Drive
Shawnee Mission, KS 66208
</TABLE>
<PAGE> 49
<TABLE>
<CAPTION>
Initial Closing Additional Closings
Number of Number of Aggregate Number of Number of Aggregate
Series A Preferred Common Purchase Price Series A Preferred Common Purchase Price
Name Shares Shares for Shares Shares Shares for Shares
---- ----------- ---------- -------------- ---------- ------- ---------
(Column 1) (Column 2) (Column 3) (Column 4) (Column 5) (Column 6)
<S> <C> <C> <C> <C> <C> <C>
Ron D. Foster 900 -- $90,000 -- -- --
4613C N.E. Whispering Winds Dr.
Lee's Summit, MO 64064
Jo Ellen Linn 430 -- 43,000 -- -- --
4613C N.E. Whispering Winds Dr.
Lee's Summit, MO 64064
Robert Weaver 1,000 -- 100,000 -- -- --
6221 Belle Rive Dr.
Brentwood, TN 37027
Donald & Barbara Tucker 150 -- 15,000 -- -- --
109 Lord Ashley Drive
Greenville, NC 27858
Robert H. Weaver 350 -- 35,000 -- -- --
1509 Douglas Drive
Jackson, MS 39211
Jeff K. or Rebecca D. Ramsey 100 -- 10,000 -- -- --
jt. tenants w/ rights of survivorship
P.O. Box 2293
Corrales, NM 87048
A Delaware Trust 20 -- 2,000 -- -- --
Arthur B. 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 1 500,001 -- -- --
3000 SW 19th Street
Topeka, KS 66604
Total 199,000 75 $19,900,075 207,000 25 $20,700,025
- --------------- ======= == =========== ======= == ===========
The purchase price for the Series A Preferred Shares is $100.00 per Series A Preferred Share and the purchase price for the Common
Shares is $1.00 per Common Share.
</TABLE>
<PAGE> 1
Exhibit 99.4
- --------------------------------------------------------------------------------
GOLDEN SKY HOLDINGS, INC.
178,075 Shares of Series B
Convertible Participating Preferred Stock
STOCK PURCHASE AGREEMENT
Dated as of November 24, 1997
- --------------------------------------------------------------------------------
<PAGE> 2
Golden Sky Holdings, Inc.
Stock Purchase Agreement
Dated as of November 24, 1997
INDEX
Page
1.1 Description of Series A Convertible Preferred Stock and
Common Stock..........................................................1
1.2 Description of Series B Convertible Preferred Stock.....................2
1.3 Conversion of Series B Convertible Notes................................2
1.4 Reserved Shares.........................................................2
1.5 Termination of Series A Stock Purchase Agreement........................3
1.6 Sale and Purchase.......................................................3
1.7 Closing.................................................................3
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.......................3
2.1 Organization and Corporate Power........................................3
2.2 Authorization...........................................................4
2.3 Non-contravention.......................................................4
2.4 Capitalization of the Company...........................................4
2.5 Financial Statements....................................................6
2.6 Absence of Undisclosed Liabilities......................................6
2.7 Absence of Certain Developments.........................................6
2.8 Accounts Receivable.....................................................7
2.9 Title to Properties.....................................................7
2.10 Tax Matters............................................................8
2.11 Contracts and Commitments..............................................8
2.12 Proprietary Rights; Employee Restrictions..............................9
2.13 Litigation............................................................11
2.14 Offeree...............................................................11
2.15 Business; Compliance with Laws........................................11
2.16 Information Supplied to Series B Outside Investors....................12
2.17 Investment Banking; Brokerage.........................................12
2.18 Solvency..............................................................12
2.19 Environmental Matters.................................................12
2.20 Employee Benefit Programs.............................................13
2.21 Product and Services Claims...........................................15
2.22 Employees; Labor Matters..............................................15
2.23 Relationship with Subscribers, Retailers and Distributors.............16
2.24 Corporate Records; Copies of Documents................................16
2.25 Affiliate Transactions................................................16
2.26 Investments Related to Certain Foreign Countries......................16
2.27 Small Business Concern, Etc...........................................16
2.28 Insurance.............................................................17
SECTION 3. CONDITIONS OF PURCHASE.............................................17
3.1 Satisfaction of Conditions.............................................17
3.2 Opinion of Counsel.....................................................18
3.3 Authorization..........................................................18
3.4 Effectiveness of Preferred Stock Terms.................................18
3.5 Stockholders' Agreement................................................18
3.6 All Proceedings Satisfactory...........................................18
3.7 Delivery of Documents..................................................18
3.8 SBIC Deliveries........................................................19
SECTION 3A. POST-CLOSING COVENANT OF COMPANY..................................19
<PAGE> 3
SECTION 4. COVENANTS OF THE COMPANY...........................................20
4.1 Financial Statements; Minutes..........................................20
4.2 Budget and Operating Forecast..........................................20
4.3 Conduct of Business....................................................21
4.4 Payment of Taxes, Compliance with Laws, etc............................21
4.5 Insurance..............................................................21
4.6 Maintenance of Properties..............................................22
4.7 Affiliated Transactions................................................22
4.8 Management Compensation................................................22
4.9 Use of Proceeds........................................................22
4.10 Board of Directors Meetings; Meetings with Investors..................22
4.11 Sales of Additional Securities........................................23
4.12 Stockholders' Agreement, Non-Competition Agreements and
Confidentiality and Proprietary Rights Agreements...................23
4.13 Distributions on, and Redemptions of, Capital Stock...................24
4.14 Merger, Consolidation, Sale of Assets, Acquisitions and
Other Actions.......................................................25
4.15 No Amendments to Amended and Restated Certificate
of Incorporation....................................................26
4.16 Capital Expenditures..................................................26
4.17 Life Insurance........................................................26
4.18 Annual Updates; Number of Stockholders; Use of Proceeds; Regulatory
Violation; Economic Impact Information; Amendment...................26
SECTION 5. SERIES B OUTSIDE INVESTOR REPRESENTATIONS..........................27
SECTION 6. INDEMNIFICATION....................................................29
6.1 Indemnification for Vicarious Liability................................29
6.2 Notice; Defense of Claims..............................................30
6.3 Satisfaction of Indemnification Obligations............................31
SECTION 7. GENERAL............................................................31
7.1 Amendments, Waivers and Consents.......................................31
7.2 Survival of Representations, Warranties and Covenants;
Assignability of Rights..............................................32
7.3 Governing Law..........................................................33
7.4 Section Headings; Counterparts.........................................33
7.5 Notices and Demands....................................................33
7.6 Severability...........................................................33
7.7 Expenses...............................................................33
7.8 Integration............................................................34
7.9 Certain Provisions Applicable to SBIC Investors........................34
7.10 Stockholder Confirmation and Waiver...................................34
APPENDIX A - List of Investors
EXHIBITS
Exhibit A - Amended and Restated Certificate of Incorporation
Exhibit B - Stockholders' Agreement
Exhibit C - Non-Competition Agreement
Exhibit D - Form of Indemnification Agreement
<PAGE> 4
SCHEDULES
Schedule 1.3 - Founding Investors
Schedule 2.4 - Capitalization and Beneficial Ownership
Schedule 2.6 - Undisclosed Liabilities
Schedule 2.7 - Material Developments
Schedule 2.8 - Accounts Receivable
Schedule 2.9 - Title to Properties
Schedule 2.10 - Tax Matters
Schedule 2.11 - Material Contracts
Schedule 2.12 - Proprietary Rights
Schedule 2.13 - Litigation
Schedule 2.15 - Business; Compliance with Laws
Schedule 2.16 - Business Plan
Schedule 2.19 - Environmental Matters
Schedule 2.21 - Product and Services Claims
Schedule 2.22 - Employees; Labor Matters
Schedule 2.25 - Affiliate Transactions
<PAGE> 5
STOCK PURCHASE AGREEMENT
AGREEMENT made as of this 24th day of November, 1997 by and among
Golden Sky Holdings, Inc., a Delaware corporation (the "Company"), Golden Sky
Systems, Inc., a Delaware corporation and wholly-owned subsidiary of the Company
("GSS"), Rodney A. Weary (the "Founder"), the investors identified on the
signature pages hereto as the Series A Outside Investors (the "Series A Outside
Investors"), the investors identified on the signature pages hereto as the
Series B Outside Investors (the "Series B Outside Investors", and together with
the Series A Outside Investors where no distinction is required, the "Outside
Investors") and the investors identified on the signature pages as the Founding
Investors (the "Founding Investors"). The Series A Outside Investors, the Series
B Outside Investors and the Founding Investors are herein collectively referred
to, where no distinction is required, as the "Investors" and individually as an
"Investor."
SECTION 1. TERMS OF PURCHASE
1.1 Description of Series A Convertible Preferred Stock and Common
Stock. GSS previously authorized the issuance and sale to the Series A Outside
Investors and the Founding Investors of 406,000 shares (the "GSS Series A
Convertible Preferred Shares") of its authorized but unissued Series A
Convertible Participating Preferred Stock, par value $.01 per share (the "GSS
Series A Convertible Preferred Stock"), for a purchase price of $100.00 per GSS
Series A Convertible Preferred Share, and 100 shares (the "GSS Common Shares")
of its authorized but unissued Common Stock, par value $.01 per share (the "GSS
Common Stock"), for a purchase price of $1.00 per GSS Common Share, and pursuant
to a Stock Purchase Agreement dated February 12, 1997 by and among GSS, the
Founder, the Series A Outside Investors and the Founding Investors (including
any amendments) (the "Series A Stock Purchase Agreement"), issued and sold the
GSS Series A Convertible Preferred Shares and the GSS Common Shares to such
Series A Outside Investors and Founding Investors. Pursuant to an Agreement and
Plan of Merger dated as of September 9, 1997 by and among the Company, GSS
Mergersub Inc., a Delaware corporation and wholly-owned subsidiary of the
Company ("Mergersub"), and GSS, Mergersub merged with and into GSS, with GSS
being the surviving corporation. Upon the consummation of such merger: (a) each
GSS Series A Convertible Preferred Share was converted into a share
(collectively, the "Series A Convertible Preferred Shares") of the Company's
authorized but unissued Series A Convertible Preferred Stock, par value $.01 per
share (the "Series A Convertible Preferred Stock"); (b) each GSS Common Share
was converted into a share (collectively, the "Common Shares") of the Company's
authorized but unissued Common Stock, par value $.01 per share (the "Common
Stock"); and (c) each share of Common Stock of Mergersub was converted into a
GSS Common Share, thereby causing GSS to become a wholly-owned subsidiary of the
Company. Pursuant to a letter agreement dated as of September 9, 1997 by and
between the Company and GSS, GSS assigned and the Company assumed all of the
rights and obligations of GSS under the Series A Stock Purchase Agreement.
<PAGE> 6
1.2 Description of Series B Convertible Preferred Stock. The Company
has authorized the issuance and sale to the Series B Outside Investors of
178,075 shares of its authorized but unissued Series B Convertible Participating
Preferred Stock, par value $.01 per share (the "Series B Convertible Preferred
Stock" and, together with the Series A Convertible Preferred Stock where no
distinction is required, the "Convertible Preferred Stock"), for a purchase
price of $200.00 per share.
1.3 Conversion of Series B Convertible Notes. The Company previously
authorized the issuance and sale to the Series B Outside Investors of
convertible promissory notes of the Company in the aggregate principal amount of
$10,000,000 (the "Series B Convertible Notes") and pursuant to a Note Purchase
Agreement dated as of November 6, 1997 by and among the Company and the Series B
Outside Investors (the "Note Purchase Agreement") issued and sold the Series B
Convertible Notes to the Series B Outside Investors. Each Series B Convertible
Note provides by its terms that in the event that the Company consummates a
Qualifying Financing (as defined in such Note), the principal amount of such
Note (together with, at the option of the Payee (as defined in such Note),
accrued interest thereon) shall automatically convert into the Applicable Number
(as defined in such Note) of Equity Securities (as defined in such Note). Each
party hereby agrees that: (a) the issuance and sale to the Series B Outside
Investors of 178,075 shares of the Company's authorized but unissued Series B
Convertible Preferred Stock pursuant to this Agreement for a purchase price of
$200 per share shall be deemed to be a Qualifying Financing and the shares of
Series B Convertible Preferred Stock issued therein shall be deemed to be Equity
Securities, in each case within the meaning of the Series B Convertible Notes;
and (b) upon the consummation of such financing the principal amount of each
Series B Convertible Note (together with accrued interest thereon) shall
automatically convert into the Applicable Number of shares of Series B
Convertible Preferred Stock. The principal amount of each Series B Convertible
Note (together with accrued interest thereon) as of the Closing Date (as
hereinafter defined) and the Applicable Number of shares of Series B Convertible
Preferred Stock to be issued at the Closing (as hereinafter defined) upon the
conversion of such Series B Convertible Note are set forth opposite the name of
the applicable Series B Outside Investor in Columns 1 and 2, respectively, of
Appendix A hereto. The shares of Series B Convertible Preferred Stock issued and
sold pursuant to this Agreement and those issued upon conversion of the Series B
Convertible Notes are herein collectively referred to as the "Series B
Convertible Preferred Shares." Each Series B Convertible Preferred Share
(including those issued upon conversion of the Series B Convertible Notes) shall
be deemed to have been issued and sold pursuant to this Agreement, and each
Series B Outside Investor shall be entitled to all of the benefits and subject
to all of the obligations of this Agreement with respect to all Series B
Convertible Preferred Shares issued to such Series B Outside Investor (including
those issued upon conversion of the Series Be Convertible Notes.)
1.4 Reserved Shares. The Company has authorized and has reserved, and
covenants to continue to reserve, a sufficient number of shares of the Common
Stock and the Company's Series A and Series B Redeemable Preferred Stock, par
value $.01 per share (the "Series A Redeemable Preferred Stock" and the "Series
B Redeemable Preferred Stock," respectively, and together where no distinction
is required, the "Redeemable Preferred Stock"), to satisfy the rights of
conversion of the holders of the Series A and Series B Convertible Preferred
Stock, respectively. Any shares of Common Stock, Redeemable Preferred Stock or
any successor class of capital stock of the Company hereafter issued or issuable
upon conversion of the Series A or Series B Convertible Preferred Shares are
herein referred to as "Series A Conversion Shares" and "Series B Conversion
<PAGE> 7
Shares," respectively, and together where no distinction is required, as
"Conversion Shares." The Series A Preferred Shares and Conversion Shares are
herein referred to as the "Series A Securities," the Series B Preferred Shares
and Conversion Shares as the "Series B Securities," and together where no
distinction is required, as the "Securities."
1.5 Termination of Series A Stock Purchase Agreement. The Series A
Stock Purchase Agreement is hereby terminated, and shall be of no further force
and effect, except that the representations and warranties of the parties
thereto shall survive such termination and shall continue to be of full force
and effect.
1.6 Sale and Purchase. At the Closing and subject to the terms and
conditions herein set forth, the Company shall issue and sell to each of the
Series B Outside Investors, and each Series B Outside Investor severally and not
jointly shall purchase from the Company, the number of Series B Convertible
Preferred Shares set forth opposite the name of such Series B Outside Investor
in Column 3 of Appendix A hereto for the aggregate purchase price set forth in
the corresponding row of Column 4 of Appendix A.
1.7 Closing. The closing (the "Closing") of the sale and purchase, and
issuance upon conversion of the Series B Convertible Notes, of the Series B
Convertible Preferred Shares shall take place at the offices of Faegre & Benson
LLP, 2200 Norwest Center, 90 South Seventh Street, Minneapolis, Minnesota
55402-3901, at 10:00 A.M., on the date hereof, or such other date, time and
place as shall be mutually agreed upon by the Company and fifty-eight percent in
interest of the Series B Outside Investors (the "Closing Date"). At the Closing,
the Company will deliver the Series B Convertible Preferred Shares being
acquired by each Series B Outside Investor in the form of a certificate, issued
in such Series B Outside Investor's name or in the name of its nominee (of which
the Series B Outside Investor shall notify the Company not less than two
business days prior to the Closing), against payment of the full purchase price
therefor by check or wire transfer, and the surrender of the applicable Series B
Convertible Note, by or on behalf of each Series B Outside Investor to the
Company.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
In order to induce the Series B Outside Investors to enter into this
Agreement, the Company (which term shall be deemed to include, for purposes of
this Section 2, any subsidiary or subsidiaries of the Company existing at the
date of this Agreement, including without limitation GSS), subject to Section
7.2 hereof, hereby represents and warrants to the Series B Outside Investors
that as of the date hereof:
2.1 Organization and Corporate Power. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware, and is qualified to do business as a foreign corporation in
each jurisdiction in which such qualification is required, except where failure
to so qualify would not have a material adverse effect on the business, assets,
operations or condition (financial or otherwise) of the Company. The Company has
all required corporate power and authority to own its property, to carry on its
business as presently conducted or contemplated to enter into and perform this
Agreement and the agreements contemplated hereby, and generally to carry out the
transactions contemplated hereby and thereby. The copies of the Certificate of
Incorporation and By-laws of the Company, each as amended to date, which have
<PAGE> 8
been furnished to counsel for the Investors, are correct and complete at the
date hereof. The Company is not in violation of any term of its Certificate of
Incorporation or By-laws or, except as set forth in Schedule 2.1, any material
agreement, instrument, judgment, decree, order, statute, rule or government
regulation applicable to the Company.
2.2 Authorization. This Agreement and all documents and instruments
executed pursuant hereto or contemplated hereby are valid and binding
obligations of the Company, enforceable in accordance with their terms against
the Company. The execution, delivery and performance of this Agreement and all
documents and instruments contemplated hereby and the delivery and issuance of
the Series B Securities have been duly authorized by all necessary corporate or
other action of the Company. Assuming the accuracy of the Series B Outside
Investor representations set forth in Section 5 hereof, no consent, approval or
authorization of, or designation, declaration or filing with, any governmental
authority is required of the Company in connection with the execution, delivery
and performance of this Agreement, or the issuance and delivery by the Company
of the Series B Securities in accordance with the terms of this Agreement, or
the performance or consummation of any other transaction contemplated hereby.
2.3 Non-contravention. The execution, delivery and performance by the
Company of this Agreement and each of the other agreements and instruments to
which it is a party and which are contemplated hereby will not: (a) conflict
with or result in any default under any contract, obligation or commitment of
the Company or any charter provision, by-law or corporate restriction of the
Company; (b) result in the creation of any lien, charge or encumbrance of any
nature upon any of the properties or assets of the Company; or (c) violate any
instrument, agreement, judgment, decree, order, statute, rule or regulation of
any federal, state or local government or agency applicable to the Company or to
which the Company is a party.
2.4 Capitalization of the Company. The authorized capital stock of the
Company consists of: (a) 1,000,000 shares of Common Stock, of which 100 shares
are, and will be as of the Closing, duly and validly issued, outstanding, fully
paid, and nonassessable; (b) 1,293,800 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 will be,
as of the Closing, duly and validly issued, outstanding, fully paid, and non
assessable, and (iii) 418,000 shares have been designated as Series A Redeemable
Preferred Stock, and 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 (c) 300,000 shares of undesignated preferred stock, par value $.01
per share. Except for 62,525 shares of Common Stock reserved for issuance under
the Company's Stock Option Plan adopted on July 24, 1997 (the "Stock Option
Plan") and 5,682 shares of Common Stock issuable upon the exercise of warrants
issued to the certain investment funds affiliated with Alta Communications, Inc.
(the "Alta Investors") in connection with loans extended by the Alta Investors
to the Company (the "Warrants" and any shares of Common Stock or any successor
class of capital stock of the Company hereafter issued or issuable upon exercise
of the Warrants, the "Warrant Shares") and except as otherwise disclosed in
Schedule 2.4, the Company has not issued any other shares of its capital stock
and there are no outstanding warrants, options or other rights to purchase or
acquire any of such shares, nor any outstanding securities convertible into such
shares or outstanding warrants, options or other rights to acquire any such
convertible securities. As of the Closing, all of the outstanding shares of
capital stock of the Company will have been offered, issued, sold and delivered
in compliance with applicable federal and state securities laws. The Series A
<PAGE> 9
Convertible Preferred Shares and the Common Shares are duly and validly
authorized, issued, outstanding, fully paid and nonassessable. The Series A
Convertible Preferred Shares are currently convertible into 418,000 shares of
Series A Redeemable Preferred Stock and 418,000 shares of Common Stock
representing 58.48% of the Common Stock of the Company on a fully-diluted basis
after giving effect to the issuance of the 62,525 shares reserved for issuance
under the Stock Option Plan and the exercise, exchange or conversion of any
other securities exercisable or exchangeable for or convertible into Common
Stock (including the Series B Convertible Preferred Shares and the Warrants).
The Series B Convertible Preferred Shares are duly and validly authorized and,
as of the Closing, will be validly issued, outstanding, fully paid and
non-assessable. The Series B Convertible Preferred Shares are, and as of the
Closing will be, initially convertible into 228,442 shares of Series B
Redeemable Convertible Preferred Stock and 228,442 shares of Common Stock
representing 31.97% of the Common Stock of the Company on a fully diluted basis
after giving effect to the issuance of the 62,525 shares reserved for issuance
under the Stock Option Plan and the exercise, exchange or conversion of any
other securities exercisable or exchangeable for or convertible into Common
Stock (including the Series A Convertible Preferred Shares and the Warrants).
The relative rights, preferences, restrictions and other provisions relating to
the Convertible Preferred Stock and the Redeemable Preferred Stock are as set
forth in the Company's Amended and Restated Certificate of Incorporation
attached as Exhibit A hereto. The Company has authorized and reserved for
issuance upon conversion of the Series A Preferred Shares not less than 418,000
shares of Series A Redeemable Preferred Stock and 418,000 shares of Common Stock
and has authorized and reserved for issuance upon conversion of the Series B
Convertible Preferred Shares not less than 228,442 shares of Series B Redeemable
Preferred Stock and 228,442 shares of Common Stock, and the Conversion Shares
issuable upon such conversion will be, when issued in accordance with the
Amended and Restated Certificate of Incorporation of the Company, duly and
validly authorized and issued, fully paid and nonassessable. The Company has
authorized and reserved for issuance upon exercise of the Warrants not less than
5,682 shares of Common Stock, and the Warrant Shares issuable upon such exercise
will be, when issued in accordance with the Amended and Restated Certificate of
Incorporation of the Company, duly and validly authorized and issued, fully paid
and nonassessable.
Except as set forth in the Stockholders' Agreement referred to in
Section 3.5 hereof, there are no preemptive rights or rights of first refusal
with respect to the issuance or sale of the Company's capital stock, other than
rights to which holders of the Securities are entitled as set forth in Section
4.11 hereof. No officer, director or employee of the Company or any other person
or entity has, claims to have or has any right to claim to have any interest in
the Company's capital stock other than as disclosed in Schedule 2.4 or as a
Series B Outside Investor hereunder. There are no restrictions on the transfer
of the Company's capital stock other than those arising from federal and state
securities laws or under this Agreement, or the Stockholders' Agreement referred
to in Section 3.5 hereof. Except as set forth in the Stockholders' Agreement,
there are no rights, obligations or restrictions on the voting of any of the
Company's capital stock or the registration of such capital stock for offering
to the public pursuant to the Securities Act of 1933, as amended (the
"Securities Act"). After giving effect to the transactions contemplated by this
Agreement, the Investors will be the only stockholders of the Company.
Except for GSS, which is a wholly-owned subsidiary of the corporation,
and Argos Support Services Company, which is a wholly-owned subsidiary of GSS,
the Company has no subsidiaries or investments in any other corporation or
<PAGE> 10
business organization. Except as set forth in Schedule 2.4, the Company does not
own or have any direct or indirect interest in, a loan or advance to, or control
over any corporation, partnership, joint venture or other entity of any kind.
2.5 Financial Statements. The Company has heretofore furnished to the
Series B Outside Investors drafts of the following financial statements: (i) an
audited income statement of GSS for the eight months ended August 31, 1997; and
(ii) an audited balance sheet of GSS as of August 31, 1997 (the "Audited Balance
Sheet"). Such financial statements and schedules of GSS have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis, except that such financial statements have been prepared without footnote
disclosures and year-end audit adjustments, which will not, in any event, be
material. Such financial statements contain notations for all significant
accruals or contingencies, fairly represent the financial condition of GSS in
all material respects as of the date thereof, and are true and correct as of the
date thereof in all respects. Nothing has come to the attention of management of
the Company since such dates that would indicate that the financial statements
were not true and correct as of the date thereof.
2.6 Absence of Undisclosed Liabilities. Since the date of its
incorporation (and, in the case of GSS, since the date of GSS' incorporation)
and after giving effect to the transactions contemplated hereby, the Company
does not have any material liability or liabilities of any nature, whether
accrued, absolute, contingent or otherwise, asserted or unasserted, known or
unknown, which are or would be required to be disclosed in accordance with
generally accepted accounting principles, except as and to the extent disclosed
in Schedule 2.6 or as otherwise set forth in the Audited Balance Sheet, and, to
the best knowledge of the Company, there exists no set of facts or circumstances
which should be reasonably anticipated to form the basis for any such material
liabilities.
2.7 Absence of Certain Developments. Except as disclosed in Schedule
2.7, since the date of the Company's incorporation (and, in the case of GSS,
since the date of GSS' incorporation), there has been (i) no adverse change in
the condition, financial or otherwise, of the Company or in the assets,
liabilities, business or prospects of the Company, (ii) no declaration, setting
aside or payment of any dividend or other distribution with respect to, or any
direct or indirect redemption or acquisition of, any of the capital stock of the
Company, (iii) no waiver of any valuable right of the Company or cancellation of
any debt or claim held by the Company, (iv) no loan by the Company to any
officer, director, employee or stockholder of the Company or affiliates of any
of the foregoing or any agreement or commitment therefor, (v) no compensation
paid or payable to the Founding Investors or any increase in the compensation
paid or payable to any other officer, director, employee or agent of the Company
or affiliates of any of the foregoing, (vi) no material loss, destruction or
damage to any property of the Company, whether or not insured, (vii) no labor
trouble involving the Company and no material change in the personnel of the
Company or the terms and conditions of their employment and (viii) no
acquisition or disposition of any assets (or any contract or arrangement
therefor) nor any other transaction by the Company otherwise than for fair value
in the ordinary course of business.
2.8 Accounts Receivable. To the best knowledge of the Company, all of
the accounts receivable of the Company represent bona fide completed sales made
in the ordinary course of business and are valid and enforceable claims, subject
to no express set-off or counterclaim. Except as disclosed on Schedule 2.8, the
Company has no accounts receivable from any person, firm or corporation which is
affiliated with it or from the Founder or any of its directors, officers,
employees or shareholders or any affiliates of any of the foregoing.
2.9 Title to Properties. The Company has good and marketable title to
all of its material properties and assets, free and clear of all liens,
restrictions or encumbrances, except as disclosed in Schedule 2.9, and such
properties and assets constitute all of the assets necessary for the conduct of
the Company's business as presently conducted. To the best knowledge of the
Company, the Company's current management systems and executive personnel are
adequate to manage the business of the Company as contemplated to be conducted.
All machinery and equipment included in such properties which is necessary to
the business of the Company is in good condition and repair and all leases of
real or personal property to which the Company is a party are fully effective
and afford the Company peaceful and undisturbed possession of the subject matter
of the lease. The Company is not in violation of any material zoning, building
or safety ordinance, regulation or requirement or other law or regulation
applicable to the operation of its owned or leased properties, nor has the
Company received any notice of violation with which it has not complied.
<PAGE> 11
2.10 Tax Matters. Except as set forth in Schedule 2.10 attached
hereto:
(a) The Company has paid or caused to be paid all federal, state,
local, foreign, and other taxes, including without limitation, income taxes,
estimated taxes, alternative minimum taxes, excise taxes, sales taxes, franchise
taxes, employment and payroll-related taxes, withholding taxes, transfer taxes,
and all deficiencies, or other additions to tax, interest, fines and penalties
owed by it (collectively, "Taxes"), required to be paid by it through the date
hereof whether disputed or not. All taxes and other assessments and levies which
the Company is required to withhold or collect have been withheld and collected
and have been paid over to the proper governmental authorities. The Company has,
in accordance with applicable law, timely and properly filed all federal, state,
local and foreign tax returns required to be filed by it through the date
hereof, all such returns correctly and accurately set forth the amount of any
Taxes relating to the applicable period and any deductions from, or credits
against any Taxes or taxable income relating to such returns are valid and
proper items of deduction or credit.
(b) Neither the Internal Revenue Service ("IRS") nor any other
governmental authority is now asserting or, to the knowledge of the Company or
threatening to assert against the Company any deficiency or claim for additional
Taxes. No claim has ever been made by an authority in a jurisdiction where the
Company does not file reports and returns that the Company is or may be subject
to taxation by that jurisdiction. There are no security interests on any of the
assets of the Company that arose in connection with any failure (or alleged
failure) to pay any Taxes. The Company has never entered into a closing
agreement pursuant to Section 7121 of the Internal Revenue Code of 1986, as
amended (the "Code"). The Company is not and never has been a "personal holding
company" as defined under Section 541 of the Code. There has not been any audit
of any tax return filed by the Company, no such audit is in progress, and the
Company has not been notified by any tax authority that any such audit is
contemplated or pending. No extension of time with respect to any date on which
a tax return was or is to be filed by the Company is in force, and no waiver or
agreement by the Company is in force for the extension of time for the
assessment or payment of any Taxes. The Company does not have any liability for
the Taxes of any person or entity other than the Company.
(c) For purposes of this Agreement, all references to Sections of
the Code shall include any predecessor provisions to such Sections and any
similar provisions of federal, state, local or foreign law.
2.11 Contracts and Commitments. The Company is not a party to any
contract, obligation or commitment (whether written or oral) which involves a
potential commitment in excess of $100,000 or which is otherwise material and
not entered into in the ordinary course of business, nor is the Company a party
to any employment contracts; stock restriction, voting, redemption or purchase
agreements; loan, capital lease or other financing agreements; licenses;
distributor or sales representative agreements; agreements with the Founder or
any other officers, directors, employees or stockholders of the Company or
persons or organizations related to or affiliated with any such persons; leases;
agreements relating to the merger, consolidation or acquisition of the Company
or disposition of any assets or capital stock; agreements relating to the
licensing, distribution, development or maintenance of Direct Broadcast
Satellite ("DBS") services, including without limitation any contract with the
National Rural Telecommunications Cooperative (the "NRTC") or with Hughes
Communications Galaxy, Inc. ("Hughes"); material agreements with subscribers of
the Company's services, including without limitation, leases or rental
agreements for satellite receiving systems for DirecTV ("DSS Systems") with
subscribers; powers of attorney; or pension, profit-sharing, retirement or stock
option plans, except in each case as are described in Schedule 2.11. The Company
does not know of any basis for the termination, expiration or modification of
any such agreements prior to the expiration date thereof, which termination,
expiration or modification may have an adverse effect on the assets,
liabilities, business, financial condition or prospects of the Company. The
Company is not in default under any contract, obligation or commitment
<PAGE> 12
(including without limitation the Acquisition Agreements, as defined below, and
to the best knowledge of the Company, there is no state of facts which upon
notice or lapse of time or both would constitute such a default. The Company is
not a party to any contract or arrangement the performance of which under
circumstances now foreseeable is likely to have an adverse effect on the assets,
liabilities, business or condition, financial or otherwise, of the Company. The
Company does not have any liability for renegotiation of any government
contracts or subcontracts. The copies of the various agreements relating to the
acquisition of NRTC and DBS DirecTV franchises and the contracts with the NRTC
(including in each case all related schedules, amendments, assignments and
consents) (the "Acquisition Agreements") that have been furnished to the Series
B Outside Investors are correct and complete as of the date hereof, and, to the
best knowledge of the Company, no term therein or in the agreement by and
between Hughes and the NRTC, pursuant to which the NRTC acquired the rights to
market DirecTV services in certain rural areas of the United States, has been
waived, modified or amended as of the date hereof. Without limiting the
generality of the foregoing, the Founder and all other key employees of the
Company and each of its subsidiaries have entered into a Non-Competition
Agreement containing non-competition, non-solicitation and confidentiality
provisions with the Company in form of Exhibit C hereto, which agreements
continue in full force and effect.
2.12 Proprietary Rights; Employee Restrictions. Set forth in Schedule
2.12 is a list and brief description of all patents, patent rights, patent
applications, trademarks, trademark applications, service marks, service mark
applications, trade names, licenses, sublicenses and copyrights owned by or
registered in the name of the Company, or of which the Company is a licensor or
licensee or in which the Company has any right, and in each case a brief
description of the nature of such right. The Company owns or possesses exclusive
licenses to use, free and clear of claims or rights of any other person, all
patents, patent applications, trademarks, trademark applications, service marks,
service mark applications, trade names, copyrights, licenses, sublicenses, trade
secrets and know how (collectively "Intellectual Property") necessary to the
conduct of its business as presently conducted and as proposed to be conducted.
All Intellectual Property that is used or incorporated into the Company's
business and which is unique or proprietary to the Company was developed by or
for the Company by the employees of the Company or its predecessors in interest
and is owned exclusively by the Company, free and clear of claims or rights of
any other person. The Company is not aware of any infringement by any other
person of any rights of the Company under any Intellectual Property. No claim is
pending or threatened against the Company nor has the Company received any
notice from any third parties, to the effect that any Intellectual Property
<PAGE> 13
owned or licensed by the Company, or which the Company otherwise has the right
to use, or the operation, products or services of the Company infringe upon or
conflict with the asserted rights of any other person under any Intellectual
Property, and, to the best knowledge of the Company, there is no basis for any
such claim (whether or not pending or threatened). No claim is pending or
threatened against the Company, nor has the Company received any notice from any
third parties, to the effect that any Intellectual Property owned or licensed by
the Company, or which the Company otherwise has the right to use, is invalid or
unenforceable by the Company, as the case may be, and, to the best knowledge of
the Company, there is no basis for any such claim (whether or not pending or
threatened).
All licenses or other agreements under which the Company is granted
rights in Intellectual Property are listed in Schedule 2.12. All such licenses
or other agreements are in full force and effect, there is no material default
by any party thereto, and, except as set forth on Schedule 2.12, all of the
rights of the Company thereunder are freely assignable. True and complete copies
of all such licenses or other agreements, and any amendments thereto, have been
provided to the Series B Outside Investors and, to the best knowledge of the
Company, the licensors under such licenses and other agreements have and had all
requisite power and authority to grant the rights purported to be conferred
thereby.
All licenses or other agreements under which the Company has granted
rights to others in Intellectual Property are listed in Schedule 2.12. All of
said licenses or other agreements are in full force and effect, there is no
material default by any party thereto, and, except as set forth on Schedule
2.12, all of the rights of Company thereunder are freely assignable. True and
complete copies of all such licenses or other agreements, and any amendments
thereto, have been made available to the Series B Outside Investors.
All technical information developed by or belonging to the Company and
which is material to the business of the Company which has not been patented has
been kept confidential. The Company is not making unlawful use of any
Intellectual Property of any other person, including without limitation any
former employer of any past or present employees of the Company. Except as
disclosed in Schedule 2.12, neither the Company nor any of its employees,
officers or consultants has any agreements or arrangements with former employers
of such employees, officers or consultants relating to any Intellectual Property
of such employers, which interfere or conflict with the performance of such
employee's duties for the Company or results in any former employers of such
employees having any rights in, or claims on, the Company's Intellectual
Property. The activities of the Company's employees and officers do not, to the
Company's best knowledge, violate any agreements or arrangements which any such
employees have with former employers. The Company has taken all commercially
reasonable steps required to establish and preserve its ownership of all of the
Intellectual Property; each current and former employee and officer of the
Company has executed an agreement regarding confidentiality, proprietary
information and assignment of inventions to the Company substantially in the
form of Exhibit B hereto, and, to the knowledge of the Company, none of such
employees are in violation of such agreements.
Without limitation of any of the foregoing and except as otherwise
expressly disclosed in Schedule 2.12 hereto: (a) the Company has taken
reasonable security measures to guard against unauthorized disclosure or use of
any of the Intellectual Property; and (b) the Company has no reason to believe
that any person (including without limitation any former employee of the
Company) has unauthorized possession of any of the Intellectual Property, or any
part thereof, or that any person has obtained unauthorized access to any of the
Intellectual Property.
2.13 Litigation. Except as disclosed in Schedule 2.13, there is no
litigation or governmental proceeding or investigation pending or, to the best
knowledge of the Company, threatened against the Company, or any officer or key
employee of the Company, which relates to the Company or its business or affairs
or which may call into question the validity or hinder the enforceability or
<PAGE> 14
performance of this Agreement or the agreements and transactions contemplated
hereby or which could be reasonably expected to have an adverse effect on the
assets, liabilities, business or condition (financial or otherwise) of the
Company; nor, to the best knowledge of the Company, has there occurred any event
nor does there exist any condition on the basis of which any such litigation,
proceeding or investigation might properly be instituted.
2.14 Offeree. Neither the Company nor anyone acting on its behalf has
in the past or will sell, offer for sale or solicit offers to buy any securities
of the Company so as to bring the offer, issuance or sale of the Series B
Convertible Preferred Shares or the Series B Conversion Shares, as contemplated
by this Agreement, within the provisions of Section 5 of the Securities Act,
unless such offer, issuance or sale was or will be within the exemptions of
Section 4 thereof. The Company has and will comply with all applicable state
"blue-sky" or securities laws in connection with the issuance and sale of its
Common Stock, Convertible Preferred Shares, Warrants and other securities
heretofore issued and to be issued upon the closing of the Agreement. The
Company has in the past complied with all applicable federal and state
securities laws in connection with the offer, solicitation of offers and sales
of its securities.
2.15 Business; Compliance with Laws. Except as disclosed in Schedule
2.15, the Company has all necessary franchises, permits, licenses and other
rights and privileges necessary to permit it to own its property and to conduct
its business as it is presently conducted. The Company is not in violation, in
any respect, of any law, regulation, authorization or order of any public
authority. The Company is in compliance, in all material respects, with all
federal (including all laws and regulations of the Federal Communications
Commission), state and local laws and regulations (including all applicable
environmental laws and regulations) relating to its business as presently
conducted, except as disclosed in Schedule 2.15, and has been approved as an
NRTC franchisee and NRTC Affiliate Member. Neither the Company nor any of its
affiliates has been: (a) subject to a voluntary or involuntary petition under
the federal bankruptcy laws or any state insolvency law or the appointment of a
receiver, fiscal agent or similar officer by a court for his business or
property; (b) convicted in a criminal proceeding or named as a subject of a
pending criminal proceeding (excluding traffic violations and other minor
offenses); (c) subject to any order, judgment, or decree (not subsequently
reversed, suspended or vacated) of any court of competent jurisdiction
permanently or temporarily enjoining it, him or her from, or otherwise imposing
limits or conditions on its, his or her, engaging in any securities, investment
advisory, banking, insurance or other type of business or acting as an officer
or director of a public company; or (d) found by a court of competent
jurisdiction in a civil action or by the Securities and Exchange Commission or
the Commodity Futures Trading Commission to have violated any federal or state
commodities, securities or unfair trade practices law or regulations of any
regulatory agency, which such judgment or finding has not been subsequently
reversed, suspended or vacated.
2.16 Information Supplied to Series B Outside Investors. This
Agreement and the Schedules (including the long-term business plan included
herein as Schedule 2.16), taken as a whole, do not contain any untrue statement
of a material fact or omit to state a material fact necessary in order to make
the statements contained therein not misleading. Such business plan was prepared
by the Company in good faith and fairly presents the business and prospects of
the Company in all material respects as of its date. The forecasts and
projections of future financial results contained in such business plan were
prepared by the Company in good faith and are based upon information available
to the Company as of the date thereof and upon assumptions believed by the
<PAGE> 15
Company to be reasonable. There is no material fact directly relating to the
assets, liabilities, business or condition (financial or otherwise) of the
Company (other than facts which relate to general economic or industry trends or
conditions) presently known to the Company which has not been disclosed to the
Series B Outside Investors that materially adversely affects or in the future
may reasonably be expected to materially adversely affect the same.
2.17 Investment Banking; Brokerage. No broker, finder, agent or
similar intermediary has acted on behalf of the Company or the Founder in
connection with this Agreement or the transactions contemplated hereby and there
are no brokerage commissions, finders fees or similar fees or commissions
payable in connection therewith (other than the Warrants issued to the Alta
Investors). The Company agrees to indemnify and hold the Series B Outside
Investors harmless from any losses, damages, costs or expenses they may suffer
or incur as a result of a breach of this representation (including any dilution
or diminution in value of their investment in the Company).
2.18 Solvency. The Company has not: (a) made a general assignment for
the benefit of creditors; (b) filed any voluntary petition in bankruptcy or
suffered the filing of any involuntary petition by its creditors; (c) suffered
the appointment of a receiver to take possession of all, or substantially all,
of its assets; (d) suffered the attachment or other judicial seizure of all, or
substantially all, of its assets; (e) admitted in writing its inability to pay
its debts as they come due; or (f) made an offer of settlement, extension or
composition to its creditors generally. After giving effect to the transactions
provided for or contemplated herein: (a) the Company will be able to pay its
debts as they come due in the usual course of business and will have adequate
capital to conduct its business; and (b) the Company's total assets will be
greater than its total liabilities (total assets for this purpose being
determined on the basis of the "fair saleable value" thereof).
2.19 Environmental Matters.
(a) Except as set forth in Schedule 2.19, (i) the Company has
never generated, transported, used, stored, treated, disposed of, or managed any
Hazardous Waste (as defined below); (ii) to the best knowledge of the Company,
no Hazardous Material (as defined below) has ever been or is threatened to be
spilled, released, or disposed of by the Company, at any site presently or
formerly owned, operated, leased, or used by the Company, or has ever come to be
located in the soil or groundwater at any such site; (iii) to the best knowledge
of the Company, no Hazardous Material of the Company has ever been transported
from any site presently or formerly owned, operated, leased, or used by the
Company for treatment, storage, or disposal at any other place; (iv) to the best
knowledge of the Company, the Company presently does not own, operate, lease, or
use, nor has the Company previously owned, operated, leased, or used, any site
on which underground storage tanks are or were located; and (v) no lien has ever
been imposed by any governmental agency on any property, facility, machinery, or
equipment owned, operated, leased, or used by the Company with the presence of
any Hazardous Material and based upon any action or inaction of the Company.
(b) Except as set forth in Schedule 2.19, (i) the Company has no
liability under, nor has it ever violated in any respect, any Environmental Law
(as defined below); (ii) the Company, any property owned, operated, leased, or
used by the Company, and any facilities and operations thereon are presently in
compliance in all respects with all applicable Environmental Laws; (iii) the
<PAGE> 16
Company has never entered into or been subject to any judgment, consent decree,
compliance order, or administrative order with respect to any environmental or
health and safety matter or received any request for information, notice, demand
letter, administrative inquiry, or formal or informal complaint or claim with
respect to any environmental or health and safety matter or the enforcement of
any Environmental Law; and (iv) none of the items enumerated in clause (iii) of
this paragraph will be forthcoming.
(c) Except as set forth in Schedule 2.19, to the best knowledge
of the Company, no site owned, operated, leased or used by the Company contains
any asbestos or asbestos-containing material, any polychlorinated biphenyls
("PCBs") or equipment containing PCBs, or any urea formaldehyde foam insulation.
(d) The Series B Outside Investors have been provided with copies
of all documents, records, and information available concerning any
environmental or health and safety matter relevant to the Company, whether
generated in connection with the Company's business or otherwise, including,
without limitation, environmental audits, environmental risk assessments, site
assessments, documentation regarding off-site disposal of Hazardous Materials,
spill control plans, and reports, correspondence, permits, licenses, approvals,
consents, and other authorizations related to environmental or health and safety
matters issued by any governmental agency.
(e) For purposes of this Section 2.19, (i) "Hazardous Material"
shall mean and include any hazardous waste, hazardous material, hazardous
substance, petroleum product, oil, toxic substance, pollutant, contaminant, or
other substance which may pose a threat to the environment or to human health or
safety, as defined or regulated under any Environmental Law; (ii) "Hazardous
Waste" shall mean and include any hazardous waste as defined or regulated under
any Environmental Law; (iii) "Environmental Law" shall mean any environmental or
health and safety-related law, regulation, rule, ordinance, or by-law at the
federal, state, or local level, whether existing as of the date hereof, or
subsequently enacted; and (iv) "Company" shall include the Company, and any
predecessor to the Company.
2.20 Employee Benefit Programs.
(a) The Company has never maintained (as defined below) an
Employee Program (as defined below) which has at any time been intended to
qualify under Section 401(a) or 501(c)(9) of the Code.
(b) Each Employee Program that has ever been maintained by the
Company has been maintained in compliance in all material respects with all
applicable laws. With respect to any Employee Program ever maintained by the
Company, there has occurred no "prohibited transaction," as defined in Section
406 of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), or Section 4975 of the Code (for which there exists neither a
statutory nor regulatory exception), or material breach of any duty under ERISA
or other applicable law (including, without limitation, any health care
continuation requirements or any other tax law requirements, or conditions to
favorable tax treatment, applicable to such plan or to any person in regard to
such plan), which could result, directly or indirectly (including, without
<PAGE> 17
limitation, through any obligation of indemnification or contribution), in any
taxes, penalties or other liability to the Company or any of its affiliates. No
litigation, arbitration or governmental administrative proceeding (or
investigation) or other proceeding (other than those relating to routine claims
for benefits) is pending or, to the best knowledge of the Company, threatened
with respect to any such Employee Program.
(c) Neither the Company nor any Affiliate (as defined below) (i)
has ever maintained any Employee Program which has been subject to Title IV of
ERISA or Section 412 of the Code (including, but not limited to, any
Multiemployer Plan (as defined below)) or (ii) has ever provided health care or
any other non-pension benefits to any employees after their employment is
terminated (other than as required by part 6 of subtitle B of Title I of ERISA)
or has ever promised to provide such post-termination benefits.
(d) With respect to each Employee Program maintained by or on
behalf of the Company or any affiliate since its incorporation, complete and
correct copies of the following documents (if applicable to such Employee
Program) have previously been delivered to the Series B Outside Investors: (i)
all documents embodying or governing such Employee Program, and any funding
medium for the Employee Program (including, without limitation, trust
agreements), as they may have been amended to the date hereof; (ii) the most
recent IRS determination or approval letter with respect to such Employee
Program under Code Section 401 or 501(c)(9), and any applications for
determination or approval subsequently filed with the IRS; (iii) the three most
recently filed IRS Forms 5500, with all applicable schedules and accountants'
opinions attached thereto; (iv) the summary plan description for such Employee
Program (or other descriptions of such Employee Program provided to employees)
and all modifications thereto; (v) any insurance policy (including any fiduciary
liability insurance policy and any excess loss policy) related to such Employee
Program; (vi) any documents evidencing any loan to an Employee Program that is a
leveraged employee stock ownership plan; and (vii) all other materials
reasonably necessary for the Company to perform any of its responsibilities with
respect to any Employee Program subsequent to the Closing (including, without
limitation, health care continuation requirements).
(e) For purposes of this Section 2.20:
(i) "Employee Program" means (A) all employee benefit plans
within the meaning of ERISA Section 3(3), including, but not limited to,
multiple employer welfare arrangements (within the meaning of ERISA Section
3(40)), plans to which more than one unaffiliated employer contributes and
employee benefit plans (such as foreign or excess benefit plans) which are
not subject to ERISA; and (B) all stock or cash option plans, restricted
stock plans, bonus or incentive award plans, severance pay policies or
agreements, deferred compensation agreements, supplemental income
arrangements, vacation plans, and all other employee benefit plans,
agreements, and arrangements not described in (A) above. In the case of an
Employee Program funded through an organization described in Code Section
501(c)(9), each reference to such Employee Program shall include a
reference to such organization.
(ii) An entity "maintains" an Employee Program if such
entity sponsors, contributes to, or provides (or has promised to provide)
benefits under such Employee Program, or has any obligation (by agreement
or under applicable law) to contribute to or provide benefits under such
Employee Program, or if such Employee Program provides benefits to or
otherwise covers employees of such entity (or their spouses, dependents, or
beneficiaries).
<PAGE> 18
(iii) An entity is an "Affiliate" of the Company if it would
have ever been considered a single employer with the Company or any Entity
under ERISA Section 4001(b) or part of the same "controlled group" as the
Company for purposes of ERISA Section 302(d)(8)(C).
(iv) "Multiemployer Plan" means a (pension or non-pension)
employee benefit plan to which more than one employer contributes and which
is maintained pursuant to one or more collective bargaining agreements.
2.21 Product and Services Claims. Except as set forth on Schedule
2.21, (i) there are no pending or, to the best knowledge of the Company,
threatened material product or service claims with respect to any products or
services provided by the Company prior to the Closing Date nor are there any
facts upon which a claim of such nature could reasonably be anticipated to be
based and (ii) the Company does not have any contractual liability for breach of
warranty or service claims. No claims have been made against the Company for
renegotiation or price redetermination of any business transaction resulting
from or relating to defective products or services, and, to the best knowledge
of the Company, there are no facts upon which any such claim should reasonably
be anticipated to be based.
2.22 Employees; Labor Matters. The Company employs a total of
approximately 254 full-time employees and 31 part-time employees and generally
enjoys good employer-employee relationships. The Company is not delinquent in
payments to any of its employees for any material amount of wages, salaries,
commissions, bonuses or other direct compensation for any services performed for
it to the date hereof or amounts required to be reimbursed to such employees.
The Company does not have any policy, practice, plan or program of paying
severance pay or any form of severance compensation in connection with the
termination of employment, except as set forth in Schedule 2.22. The Company is
in compliance in all material respects with all applicable laws and regulations
respecting labor, employment, fair employment practices, work place safety and
health, terms and conditions of employment, and wages and hours. There are no
charges of employment discrimination or unfair labor practices, nor are there
any strikes, slowdowns, stoppages of work or any other concerted interference
with normal operations which are existing, pending or threatened against or
involving the Company. The Company has not received any information indicating
that any of its employment policies or practices is currently being audited or
investigated by any federal, state or local government agency. The Company is,
and at all times since its incorporation has been, in compliance with the
requirements of the Immigration Reform Control Act of 1986. Schedule 2.22 sets
forth a complete list of each officer, employee and sales representative who is
scheduled to receive total remuneration from the Company on an annualized basis
in excess of $50,000 for the calendar year ending December 31, 1997.
2.23 Relationship with Subscribers, Retailers and Distributors. The
relationships of the Company with its subscribers, retailers and distributors
are good commercial working relationships. The Company has never intentionally
solicited, nor intentionally encouraged any of its representatives or any other
person to solicit, nor has the Company employed any scheme or device for the
purpose of encouraging nor has the Company encouraged any of its representatives
or any other person to employ any scheme or device for the purposes of
<PAGE> 19
encouraging persons residing outside the Company's designated DBS service areas,
or persons not otherwise eligible, to become subscribers of the DBS services
offered in the ordinary course of the Company's business.
2.24 Corporate Records; Copies of Documents. The corporate record
books of the Company accurately record all corporate action taken by its
stockholder and board of directors and committees. The copies of the corporate
records of the Company, as made available to the Series B Outside Investors for
review, are true and complete copies of the originals of such documents. The
Company has made available for inspection by the Investor and their counsel true
and correct copies of all documents referred to in this Section 2.24 or in the
Schedules delivered pursuant to this Agreement.
2.25 Affiliate Transactions. Except as set forth in Schedule 2.25
hereto, neither the Company nor any officer, employee or director of the Company
(other than the Outside Investor Representatives (as hereinafter defined)) or
any of their respective spouses or family members or any of their affiliates,
owns, directly or indirectly, on an individual or joint basis, any material
interest in, or serves as an officer, director, partner or in another similar
capacity of, any competitor of the Company, or any organization which has a
contract or arrangement with the Company.
2.26 Investments Related to Certain Foreign Countries. Neither the
Company nor any affiliate of the Company has participated in, or is
participating in, an anti-Israeli boycott within the scope of Chapter 7 of Part
2 of Division 4 of Title 2 of the California Government Code, as in effect from
time to time.
2.27 Small Business Concern, Etc.
(a) The Company, together with its "affiliates" (as that
term is defined in 13 CFR ss.121.103), is a "smaller business" within the
meaning of SBIC Regulations, including 13 CFR Section 107.710. The information
regarding the Company and its affiliates set forth in SBA Form 480, Form 652 and
Section A of Form 1031 delivered on or prior to the Closing Date is accurate and
complete. The Company does not presently engage in, nor shall hereafter engage
in, any activities, and the Company shall not use the proceeds of the sale of
the Series B Convertible Preferred Shares hereunder directly or indirectly for
any purpose, for which an SBIC is prohibited from providing funds by SBIC
Regulations (including 13 CFR Section 107.720).
(b) As of the date hereof, the primary business activity of
the Company is (i) providing DBS services and (ii) classified under Standard
Industrial Classification Code number 4841 (Cable and Other Pay Television
Services), and the annual receipts (as such term is used in 13 CFR Section
121.201) of the Company are less than $11,000,000.
(c) For all purposes of this Agreement, the following terms
shall have the following meanings:
(i) "SBA" means the United States Small Business
Administration, and any successor agency performing the
functions thereof;
(ii) "SBIC" means a Small Business Investment Company
licensed by the SBA under the SBIC Act;
<PAGE> 20
(iii) "SBIC Act" means the Small Business Investment
Act of 1958, as amended; and
(iv) "SBIC Regulations" means the SBIC Act and the
regulations issued by the SBA thereunder, codified at Title
13 of the Code of Federal Regulations ("13 CFR"), Parts 107
and 121.
2.28 Insurance. The Company maintains insurance which is adequate to
protect the Company and its financial condition against the risks involved in
the business conducted by the Company.
SECTION 3. CONDITIONS OF PURCHASE
The Series B Outside Investors' obligation to purchase and pay for the
Series B Convertible Preferred Shares shall be subject to compliance by the
Company and each of its subsidiaries, including without limitation GSS, with the
Company's agreements herein contained and to the fulfillment to the Series B
Outside Investors' satisfaction on or before the Closing Date of the following
conditions:
3.1 Satisfaction of Conditions. The representations and warranties of
the Company contained in this Agreement (including, but not limited to, the
representations and warranties made in Section 2 hereof) shall be true and
correct in all material respects on and as of the Closing Date; each of the
conditions specified in this Section 3 shall have been satisfied or waived in
writing; and on the Closing Date, certificates to such effect executed by the
President and the principal financial officer of the Company shall be delivered
to the Series B Outside Investors.
3.2 Opinion of Counsel. The Series B Outside Investors shall have
received an opinion, dated the Closing Date, in form and substance satisfactory
to them on the organization and authority of the Company and each of its
subsidiaries, the enforceability of this Agreement and any related agreements,
absence of conflicts with organizational documents and other agreements, absence
of litigation and such other matters as requested by the Series B Outside
Investors.
3.3 Authorization. The Board of Directors of the Company shall have
duly adopted resolutions in form reasonably satisfactory to the Series B Outside
Investors authorizing the Company to consummate the transactions contemplated
hereby in accordance with the terms hereof, and the Series B Outside Investors
shall have received a duly executed certificate of the Secretary of the Company
setting forth a copy of such resolutions and the Amended and Restated
Certificate of Incorporation and By-laws of the Company and such other matters
as may be requested by the Series B Outside Investors.
3.4 Effectiveness of Preferred Stock Terms. The Board of Directors of
the Company shall have adopted a resolution establishing the terms of the Series
B Preferred Stock and Series B Convertible Redeemable Preferred Stock as set
forth in Exhibit A hereto and such action shall have been made effective by the
required approval thereof by the holders of the Series A Convertible Preferred
<PAGE> 21
Stock and the Common Stock and the filing of an Amended and Restated Certificate
of Incorporation with the Secretary of State for the State of Delaware.
3.5 Stockholders' Agreement. The Company, the Investors and all other
stockholders of the Company, if any, shall have executed and delivered a
Stockholders' Agreement in the form of Exhibit B hereto (the "Stockholders'
Agreement").
3.6 All Proceedings Satisfactory. All corporate and other proceedings
taken prior to or at the Closing in connection with the transactions
contemplated by this Agreement, and all documents and evidences incident
thereto, shall be reasonably satisfactory in form and substance to fifty-eight
percent in interest of the Series B Outside Investors, the Series B Outside
Investors shall have received such copies thereof and other materials
(certified, if requested) as they may reasonably request in connection
therewith. The issuance and sale of the Series B Convertible Preferred Shares to
the Series B Outside Investors shall be made in conformity with all applicable
state and federal securities laws.
3.7 Delivery of Documents. The Company shall have executed and
delivered to the Series B Outside Investors (or shall have caused to be executed
and delivered to the Series B Outside Investors by the appropriate persons) the
following:
(a) Certificates for the Series B Convertible Preferred Shares;
(b) Certified copies of resolutions of the Board of Directors and
Stockholders of the Company authorizing the execution and delivery of this
Agreement, the Stockholders' Agreement, the Amended and Restated Certificate of
Incorporation creating the Series B Convertible Preferred Shares, the issuance
of the Series B Convertible Preferred Shares and, upon conversion of the Series
B Convertible Preferred Shares, the issuance of the Series B Conversion Shares;
(c) A copy of the corporate charter of the Company, as amended,
certified as of a recent date by the Secretary of State of the State of
Delaware;
(d) A copy of the By-laws of the Company certified by the
Company's secretary;
(e) Certificates issued by the Secretary of State of the States
of Delaware and Missouri, certifying that the Company and each of its
subsidiaries is in good standing in their respective states; and
(f) Such other supporting documents and certificates as the
Series B Outside Investors may reasonably request.
3.8 SBIC Deliveries. The Company shall have delivered to Norwest
Equity Partners V ("Norwest"):
(a) duly completed and executed SBA Forms 480, 652 and Part A of
1031;
(b) if not delivered prior to the Closing, a business plan
showing the Company's financial projections for a five-year period from the
Closing;
<PAGE> 22
(c) a written statement from the Company regarding its intended
use of the proceeds from the sale of the Series B Preferred Shares; and
(d) a list, after giving effect to the Closing, of (i) the name
of each of the Company's directors, (ii) the name and title of each of the
Company's officers, and (iii) the name of each of the Company's stockholders
setting forth the number and class of shares held.
SECTION 3A. POST-CLOSING COVENANT OF COMPANY.
The Company hereby covenants that, promptly following Closing and in
accordance with the terms of the Stockholders' Agreement, the size of the
Company's Board of Directors shall be fixed at seven (7) members and two (2)
designees of the Series B Outside Investors shall be elected to the Company's
Board of Directors (herein referred to, together with any successors as
replacements, as the "Series B Outside Investor Representatives"). The designees
of the Series A Outside Investors to the Company's Board of Directors are herein
referred to, together with any successors as replacements, as the "Series A
Outside Investor Representatives" and, together with the Series B Outside
Investor Representatives where no distinction is required, the "Outside Investor
Representatives." Promptly following Closing, the Company shall enter into an
Indemnification Agreement with each of the Series B Outside Investor
Representatives in substantially the form of Exhibit D hereto.
SECTION 4. COVENANTS OF THE COMPANY
The Company (which term shall be deemed to include, for purposes of
this Section 4, any subsidiary or subsidiaries of the Company existing at or
formed after the date of this Agreement) shall comply with the following
covenants except as shall otherwise be expressly agreed pursuant to a written
consent or consents executed by the holders of sixty-four percent in interest of
the Series A Convertible Preferred Shares and by the holders of fifty-eight
percent in interest of the Series B Convertible Preferred Shares, until such
time as all of the applicable series of Convertible Preferred Shares shall have
been redeemed in accordance with their terms or converted into Common Stock and
Redeemable Preferred Stock upon the vote of holders of fifty-eight percent in
interest of such series of Preferred Shares, upon the closing of an underwritten
public offering pursuant to an effective registration statement under the
Securities Act covering the offer and sale of Common Stock of the Company to the
public in which the proceeds received by the Company, net of underwriting
discounts and commissions, equal or exceed $35 million and the shares are
offered to the public at a price per share, in the case of the Series A
Convertible Preferred Shares, of no less than $300.00, and in the case of the
Series B Convertible Preferred Shares, of no less than $600.00 (in each case as
appropriately adjusted for any stock split, combination, reorganization,
recapitalization, reclassification, stock distribution, stock dividend or
similar event) (a "Qualified Public Offering") or as otherwise provided in the
Amended and Restated Certificate of Incorporation; provided, however, that the
covenants set forth in Section 4.18 shall not terminate upon any such event but
shall continue to be of full force and effect.
4.1 Financial Statements; Minutes. The Company will maintain a
comparative system of accounts in accordance with generally accepted accounting
principles, keep full and complete financial records and furnish to the
<PAGE> 23
Investors the following reports: (a) within 90 days after the end of each fiscal
year, a copy of the consolidated balance sheet of the Company as at the end of
such year, together with a consolidated statement of income and retained
earnings of the Company for such year, audited and certified by independent
public accountants of recognized national standing reasonably satisfactory to
the Investors, prepared in accordance with generally accepted accounting
principles and practices consistently applied; (b) within 45 days after the end
of each quarter, commencing with the quarter ending December 31, 1997, a
consolidated unaudited balance sheet of the Company as at the end of such
quarter and a consolidated unaudited statement of income and retained earnings
for the Company for such quarter and for the year to date; (c) within 30 days
after the end of each month, commencing with the month ended October 31, 1997, a
consolidated unaudited balance sheet of the Company as at the end of such month
and a consolidated unaudited statement of income and retained earnings for the
Company for such month and for the year to date, each of the foregoing balance
sheets and statements of earnings and retained earnings to set forth in
comparative form the corresponding figures for the prior fiscal period; and (d)
such other financial information as the holders of fifty-eight percent in
interest of the Series A Preferred Shares and the holders of fifty-eight percent
in interest of the Series B Convertible Preferred Shares may reasonably request,
including without limitation, certificates of the principal financial officer of
the Company concerning compliance with the covenants of the Company under this
Section 4.
4.2 Budget and Operating Forecast. Commencing with the fiscal year
beginning January 1, 1999, the Company will prepare and submit to the Board of
Directors of the Company a budget for the Company for each fiscal year of the
Company at least 60 days prior to the beginning of such fiscal year, together
with management's written discussion and analysis of such budget; with respect
to the fiscal year beginning January 1, 1998, such budget and management's
written discussion and analysis shall be submitted to the Board of Directors by
no later than January 1, 1998. The budget shall be accepted as the budget for
such fiscal year when it has been approved by a majority of the full Board of
Directors of the Company and, thereupon, a copy of such budget promptly shall be
sent to the Investors. The Company shall review the budget periodically and
shall advise the Board of Directors and the Investors of all changes therein and
all material deviations therefrom.
4.3 Conduct of Business. The Company will continue to engage
principally in the business now conducted by the Company or a business or
businesses similar thereto or reasonably compatible therewith, and shall not
engage in any other business or businesses without the approval of the holders
of fifty-eight percent in interest of the Series A Convertible Preferred Shares
and of the holders of fifty-eight percent in interest of the Series B
Convertible Preferred Shares. The Company shall conduct its business in a manner
that does not cause the Outside Investors to recognize any item of gross income
which would generate "unrelated business taxable income" (as that term is
defined in Sections 512 through 514 of the Code), including without limitation
any income derived from or on account of any "debt-financed property" (as
defined in Section 514 of the Code), or gross income directly attributable to a
"trade or business" (within the meaning of Sections 512 and 513 of the Code).
<PAGE> 24
The Company will keep in full force and effect its corporate existence and all
intellectual property rights useful in its business (except such rights as the
Board of Directors has reasonably determined are not material to the Company's
continuing operations) and shall use its best efforts to cause each new key
employee of the Company to execute a non-competition, non-solicitation and
confidentiality agreement with substantially the same terms as are set forth in
the form of Non-Competition Agreement attached hereto as Exhibit C.
4.4 Payment of Taxes, Compliance with Laws, etc. The Company will pay
and discharge all lawful taxes, assessments and governmental charges or levies
imposed upon it or upon its income or property before the same shall become in
default, as well as all lawful claims for labor, materials and supplies which,
if not paid when due, might become a lien or charge upon its property or any
part thereof; provided, however, that the Company shall not be required to pay
and discharge any such tax, assessment, charge, levy or claim so long as the
validity thereof is being contested by the Company in good faith by appropriate
proceedings and an adequate reserve therefor has been established on its books.
The Company will comply with all applicable laws and regulations in the conduct
of its business, including, without limitation, all applicable federal and state
securities laws in connection with the issuance of any shares of its capital
stock.
4.5 Insurance. The Company will keep its insurable properties insured,
upon reasonable business terms, by financially sound and reputable insurers
against liability, and the perils of casualty, fire and extended coverage in
amounts of coverage at least equal to those customarily maintained by companies
in the same or similar business as the Company. The Company will also maintain
with such insurers insurance against other hazards and risks and liability to
persons and property to the extent and in the manner customary for companies
engaged in the same or similar business.
4.6 Maintenance of Properties. The Company will maintain all
properties used or useful in the conduct of its business in good repair, working
order and condition, ordinary wear and tear excepted, as necessary to permit
such business to be properly and advantageously conducted.
4.7 Affiliated Transactions. All transactions by and between the
Company and the Founder and any officer or key employee of the Company or
persons controlling, controlled by, under common control with or otherwise
affiliated with the Founder or such officer or key employee, shall be conducted
on an arm's-length basis, shall be on terms and conditions no less favorable to
the Company than could be obtained from nonrelated persons and shall be approved
in advance by the disinterested members of the Board of Directors after full
disclosure of the terms thereof.
4.8 Management Compensation. Compensation paid by the Company to its
management will be comparable to compensation paid to management in companies in
the same or similar businesses of similar size and maturity and with comparable
financial performance. In furtherance of the foregoing, the Company hereby
agrees that no compensation or other remuneration at an annualized rate in
excess of $50,000 shall be paid to, nor shall any capital stock of the Company
be issued to, or options to purchase any of its capital stock granted to, any
officer or employee of the Company or any of its subsidiaries, without the
approval of a compensation committee of the Board of Directors, a majority of
the members of which committee shall be comprised of the Outside Investor
Representatives (including at least one Series A and one Series B Outside
Investor Representative) and/or other non-employee members of the Board of
Directors. Any grants of capital stock or options hereunder shall be conditioned
upon the grantee agreeing to be bound by the terms of the Stockholders'
Agreement.
4.9 Use of Proceeds. The Company shall use the proceeds of the sale of
the Series B Convertible Preferred Shares to finance acquisitions of NRTC
franchises and for working capital. Pending use for the above described
<PAGE> 25
purposes, said proceeds shall be temporarily invested in short-term interest
bearing securities, including U.S. Government securities, shares of money market
mutual funds and certificates of deposit and similar instruments of federally or
state-chartered banks.
4.10 Board of Directors Meetings; Meetings with Investors.
(a) The Company will ensure that meetings of its Board of
Directors are held at least six times each year and at intervals of not more
than three months and will reimburse Directors for their reasonable travel and
other out-of-pocket expenses incurred in connection with attending meetings of
the Board of Directors or performing such other business on behalf of the
Company as may be approved by the Company in advance. The Amended and Restated
Certificate of Incorporation or By-laws of the Company will at all times during
which any nominee of the Investors serves as director of the Company provide for
indemnification of the directors and limitations on the liability of the
directors to the fullest extent permitted under applicable state law. The
Company will use its best efforts to obtain and maintain on reasonable business
terms directors and officers' liability insurance coverage of at least
$1,000,000 per occurrence and will notify its Directors promptly of any lapse of
such coverage.
(b) The Outside Investors shall be entitled to consult with and
advise the Board of Directors on significant business issues with respect to the
Company, including management's proposed annual operating plans for the Company,
and management will meet with the Outside Investors regularly during each year
at the Company's facilities at mutually agreeable times and intervals for such
consultation and advice and to review progress in achieving said plans. The
Outside Investors may examine the books and records of the Company and inspect
its facilities and may request information at reasonable times and intervals
concerning the general status of the financial condition and operations of the
Company, provided that access to highly confidential proprietary information and
facilities need not be provided. If an Outside Investor is not represented on
the Board of Directors, the Company shall invite a representative of such
Outside Investor to attend all meetings of its Board of Directors relating to
the Company in a non-voting observer capacity, and in this respect shall give
such representative copies of all notices, minutes, consents, and other material
that it provides to all of its directors and which relate to the Company.
4.11 Sales of Additional Securities.
(a) The Company covenants and agrees that it shall not accept
subscriptions for or issue, sell, give away, transfer, pledge, mortgage, assign
or otherwise dispose of any shares of capital stock or any other equity
interests, or other securities convertible into or exchangeable for capital
stock or other equity interests or options, warrants or rights carrying any
rights to purchase capital stock or other equity interests or convertible or
exchangeable securities, without the express written consent of holders of
fifty-eight percent in interest of the Series A Convertible Preferred Shares and
of holders of fifty-eight percent in interest of the Series B Convertible
Preferred Shares, except as provided in Section 4.11(b) hereof. In addition, the
Company covenants and agrees that, except as otherwise expressly permitted by
Section 4.11(b) hereof, it will not sell or issue any (i) shares of capital
stock of the Company, or bonds, certificates of indebtedness, debentures or
other securities convertible into or exchangeable for capital stock of the
Company, or options, warrants or rights carrying any rights to purchase capital
stock or convertible or exchangeable securities of the Company (collectively,
"Additional Equity Securities") or (ii) subordinated notes, bonds, certificates
of indebtedness, debentures or other mezzanine debt securities (collectively,
"Additional Debt Securities" and together with Additional Equity Securities
where no distinction is required, "Additional Securities") unless (x) the
Company shall have received a bona fide arms-length offer (which may be in
response to a solicitation by the Company) to purchase such Additional
Securities from a third party, and (y) the Company first submits a written offer
to the Investors who are then holders of Convertible Preferred Shares
identifying the third party to whom such Additional Securities are proposed to
be sold and the terms of the proposed sale, and offering to such Investors the
opportunity to purchase such securities on terms and conditions, including
price, not less favorable than those on which the Company proposes to sell such
securities to the third party. Each of such Investors shall have the right to
<PAGE> 26
purchase its proportionate share of such securities based on the ratio which the
number of shares of Common Stock into which such Convertible Preferred Shares
owned by such Investor are then convertible bears to the number of shares of
Common Stock into which all Convertible Preferred Shares owned by all Investors
immediately prior to such issuance are then convertible. Any Investor may
transfer its right to be offered any such opportunity to any transferee of
shares of its Convertible Preferred Shares, in which event such transferee shall
be deemed to be an Investor for purposes of this Section 4.11. The Company's
offer to such Investors shall remain open and irrevocable for a period of at
least 45 days. Any securities so offered to such Investors which are not
purchased pursuant to such offer shall be offered to such Investors wishing to
purchase any such securities, and thereafter may be sold by the Company to the
third party originally named in the offer to such Investors on terms and
conditions, including price, not more favorable to the third party than those
set forth in such offer at any time within 75 days following the date of such
offer, but may not be sold to any other person or on terms and conditions,
including price, that are more favorable to the purchaser than those set forth
in such offer or after such 75-day period without renewed compliance with this
Section 4.11.
(b) Notwithstanding the foregoing, the Company may (i) issue, or
issue options, warrants or rights to subscribe for, up to an aggregate of 62,525
shares of its Common Stock to officers, directors, employees, consultants or
agents of the Company pursuant to the terms of the Stock Option Plan and Section
4.8 hereof and issue shares of its Common Stock upon the exercise of such stock
options; (ii) issue Conversion Shares upon the conversion of the Preferred
Shares; (iii) issue Warrant Shares upon the exercise of the Warrants; (iv)
declare, make or issue a dividend or other distribution payable in shares of the
Common Stock in respect of outstanding shares of the Common Stock or the
Convertible Preferred Stock in accordance with the Company's Amended and
Restated Certificate of Incorporation, as amended; (v) issue shares of Common
Stock in connection with a Qualified Public Offering; or (vi) with the prior
consent of holders of fifty-eight percent in interest of the Series A
Convertible Preferred Shares and of holders of fifty-eight percent in interest
of the Series B Convertible Preferred Shares, issue, or issue options, warrants
or rights to subscribe for, shares of its Common Stock in connection with any
debt, capital lease or other similar financing transaction.
4.12 Stockholders' Agreement, Non-Competition Agreements and
Confidentiality and Proprietary Rights Agreements. The Company will diligently
enforce all of its rights under the Stockholders' Agreement described in Section
3.5 hereof, and the agreements described in Section 3.6 hereof. The Company will
not effect any transfer of any of the outstanding capital stock of the Company
on the stock record books of the Company unless such transfer is made in
<PAGE> 27
accordance with the terms of the Stockholders' Agreement referred to in Section
3.5 hereof. The Company will not waive or release any rights under, or consent
to the amendment of, any such agreement without the requisite written approval
of the parties thereto.
4.13 Distributions on, and Redemptions of, Capital Stock. Except as
otherwise expressly provided in this Agreement or in Exhibit A hereto, the
Company will not declare or pay any dividends or make any distributions of cash,
property or securities of the Company with respect to any shares of its Common
Stock or any other class of its capital stock, or directly or indirectly redeem,
purchase, or otherwise acquire for consideration any shares of its Common Stock
or any other class of its capital stock; provided, however, that this
restriction shall not apply to the repurchase of shares of the Common Stock
pursuant to stock repurchase agreements under which the Company has the option
to repurchase such shares upon the occurrence of certain events, including the
termination of employment and involuntary transfers, by operation of law,
provided that the repurchase price paid by the Company does not exceed the
purchase price paid to the Company for such shares. Any redemption, repurchase
or other acquisition by the Company of any shares of its capital stock shall be
made in compliance with all laws, including but not limited to federal and state
securities laws.
4.14 Merger, Consolidation, Sale of Assets, Acquisitions and Other
Actions. The Company will not without the prior written consent of 58% in
interest of the Series A Convertible Preferred Shares and of holders of 58% in
interest of the Series B Convertible Preferred Shares: (a) merge or consolidate
with or into another entity (with respect to which less than a majority of the
outstanding voting power of such surviving entity is held by stockholders of the
Company immediately prior to such event), provided the provisions of clause (b)
below are not violated by such merger or consolidation, or sell, lease or
otherwise dispose of (whether in one transaction or a series of related
transactions) all, or substantially all, of the assets of the Company determined
on a consolidated basis, (b) acquire any other corporation or business concern,
whether by acquisition of assets, capital stock, merger or otherwise, and
whether in consideration of the payment of cash, the issuance of capital stock
or otherwise (other than acquisitions of any NRTC franchisee for a purchase
price not greater than $20,000,000 or acquisitions of any other entity for a
purchase price not greater than $5,000,000), (c) voluntarily liquidate or wind
up its operations, (d) issue any shares of its capital stock which are senior to
or on a parity with the Convertible Preferred Shares with respect to dividends,
conversion, liquidation or redemptions or with any special voting rights, (e)
create, incur, assume, become liable for, or permit to exist any indebtedness
for borrowed money or any indebtedness as a result of any acquisition, capital
leases, or other similar commitments or obligations, which, for any one such
borrowing or series of related borrowings, is in excess of $20,000,000, (f)
grant or permit to exist any liens securing indebtedness in excess of
$20,000,000 or security interests or encumbrances on any of the Company's assets
or properties with a value in excess of $20,000,000, or (g) enter into any
agreement with any party which by its terms restricts the payments due the
holders of the Convertible Preferred Shares pursuant to Exhibit A hereto.
In addition, the Company will not, without the prior approval of at
least five of the seven members of the Company's Board of Directors (including
at least two Series A Outside Investor Representatives and at least one Series B
Outside Investor Representative): (w) sell, lease or otherwise dispose of
(whether in one transaction or a series of related transactions) assets with a
value in excess of $1,000,000, (x) acquire any other corporation or business
concern, whether by acquisition of assets, capital stock or otherwise, and
whether in consideration of the payment of cash, the issuance of capital stock
<PAGE> 28
or otherwise, (y) create, incur, assume, become liable for, or permit to exist
any indebtedness for borrowed money or any indebtedness as a result of any
acquisition, capital leases, or other similar commitments or obligations, which,
for any one such borrowing or series of related borrowings, is in excess of
$1,000,000, or (z) grant or permit to exist any liens securing indebtedness in
excess of $1,000,000 or security interests or encumbrances on any of the
Company's assets or properties with a value in excess of $1,000,000.
4.15 No Amendments to Amended and Restated Certificate of
Incorporation. The Company will not make any amendment to its Amended and
Restated Certificate of Incorporation or make any amendment to its By-laws (a)
so as to adversely affect the rights of holders of Convertible Preferred Stock
or Redeemable Preferred Stock with respect to dividends, liquidation
preferences, conversion or redemption, or (b) that affects any other
preferences, powers, rights or privileges of holders of Convertible Preferred
Stock or Redeemable Preferred Stock without the prior written consent of holders
of fifty-eight percent in interest of each series of Preferred Shares.
4.16 Capital Expenditures. The Company will not, without the prior
approval of at least five of the seven members of the Board of Directors of the
Company, including at least two Series A Outside Investor Representatives and at
least one Series B Outside Investor Representative, make any expenditures for
fixed or capital assets, or any commitments for such expenditures, exceeding an
amount of $500,000 for any one such expenditure or series of related
expenditures in any one year.
4.17 Life Insurance. The Company shall use its best efforts to obtain,
maintain and continue to pay the premiums on, a key-man term life insurance
policy on the life of the Founder in the amount of at least $10,000,000, such
policy to name the Company as sole beneficiary thereof.
4.18 Annual Updates; Number of Stockholders; Use of Proceeds;
Regulatory Violation; Economic Impact Information; Amendment.
(a) As long as an SBIC Investor holds any of the Securities, the
Company shall, on an annual basis, provide to such SBIC Investor the information
required under 13 CFR Section 107.620(b) and shall provide the information and
access required by 13 CFR Section 107.620(c). For purposes of this Agreement, an
"SBIC Investor" shall mean BancBoston and Norwest, an affiliate of BancBoston or
Norwest that has been licensed as an SBIC and holds the Securities or any other
Outside Investor or any permitted transferee of an Outside Investor that has
been licensed as an SBIC and holds the Securities.
(b) The closing of the transactions contemplated by this
Agreement will cause the number of record holders of the Company's voting stock
to increase from fewer than 50 to 50 or more.
(c) Within seventy-five (75) days after the Closing, and at the
end of each month thereafter until all of the proceeds from the sale of Series B
Convertible Preferred Shares hereunder have been used by the Company, the
Company shall deliver to all Outside Investors a written statement certified by
the Company's president or chief financial officer describing in reasonable
detail the use of the proceeds of the purchase of Series B Convertible Preferred
<PAGE> 29
Shares hereunder by the Company. In addition to any other rights granted
hereunder, the Company shall grant all Outside Investors and the SBA access to
the Company's records for the purpose of verifying the use of such proceeds.
(d) Upon the occurrence of a Regulatory Violation (as defined
below) or in the event that any SBIC Investor determines in its reasonable good
faith judgment that a Regulatory Violation has occurred, in addition to any
other rights and remedies to which it may be entitled (whether under this
Agreement or any other agreement), such SBIC Investor shall have the right, to
the extent required under SBIC Regulations, to demand the immediate repurchase
of all of the outstanding Securities owned by such SBIC Investor at a price
equal to the purchase price paid for such Securities hereunder plus accrued
dividends by delivering written notice of such demand to the Company; provided,
however, that, in the event of a Regulatory Violation, any SBIC Investor shall,
prior to demanding the repurchase of all of the outstanding Securities owned by
such SBIC Investor, use reasonable efforts to retain its investment in the
Securities, including, without limitation, petitioning the SBA for its approval
with respect to any unforeseen changes in the principal business activity of the
Company. The Company shall pay the purchase price for such Securities by a
cashier's or certified check or by wire transfer of immediately available funds
to such SBIC Investor within thirty (30) days after the Company's receipt of the
demand notice, and, upon such payment, such SBIC Investor shall deliver the
certificates, if any, evidencing the Securities being repurchased duly endorsed
for transfer or accompanied by duly executed forms of assignment.
For purposes of this Agreement, "Regulatory Violation" means a change
in the principal business activity of the Company to an ineligible business
activity (within the meaning of the SBIC Regulations), if such change occurs
within one (1) year after the date of the initial purchase by the affected SBIC
Investor of Securities hereunder.
(e) Promptly after the end of each fiscal year (but in any event
prior to February 28 of each year), the Company shall deliver to each Investor a
written assessment of the economic impact of the total investment by all SBIC
Investors in the Company, specifying the full-time equivalent jobs created or
retained in connection with the investment, the impact of the investment on the
businesses of the Company in terms of expanded revenue and taxes, and the other
economic benefits resulting from the investment, including but not limited to,
technology development or commercialization, minority business development,
urban or rural business development and expansion of exports, together with all
other information reasonably requested by any SBIC Investor in order to provide
the information required by 13 CFR Section 107.630.
(f) Notwithstanding anything herein to the contrary, the
provisions of this Section 4.18 shall not be amended without the prior written
consent of holders of a majority of the issued and outstanding Securities of any
SBIC Investors (determined on an as converted basis).
SECTION 5. SERIES B OUTSIDE INVESTOR REPRESENTATIONS
It is the understanding of the Company, and each Series B Outside
Investor hereby severally represents with respect to such Series B Outside
Investor's purchase of Series B Convertible Preferred Shares hereunder that:
<PAGE> 30
(a) The execution of this Agreement has been duly authorized by
all necessary action on the part of the Series B Outside Investor, has been duly
executed and delivered, and constitutes a valid, binding and enforceable
agreement of the Series B Outside Investor.
(b) The Investor is acquiring the Series B Convertible Preferred
Shares for its own account, for investment, and not with a present view to any
"distribution" thereof within the meaning of the Securities Act. The Series B
Outside Investor was not formed or organized for the purpose of acquiring the
Series B Convertible Preferred Shares.
(c) The Series B Outside Investor understands that because the
Series B Convertible Preferred Shares have not been registered under the
Securities Act, it cannot dispose of any or all of the Series B Convertible
Preferred Shares or the Series B Conversion Shares issuable upon conversion
thereof unless such securities are subsequently registered under the Securities
Act or exemptions from such registration are available. The Series B Outside
Investor understands that each certificate representing the Series B Convertible
Preferred Shares will bear the following legend or one substantially similar
thereto:
The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the
"Act"). These securities have been acquired for investment and
not with a view to distribution or resale, and may not be sold,
mortgaged, pledged, hypothecated or otherwise transferred without
an effective registration statement for such securities under the
Act or the availability of an exemption from such registration
requirements.
(d) The Series B Outside Investor is sufficiently knowledgeable
and experienced in the making of venture capital investments so as to be able to
evaluate the risks and merits of its investment in the Company, and is able to
bear the economic risk of loss of its investment in the Company. The Series B
Outside Investor acknowledges that the Company may, subject to the restrictions
set forth in this Agreement, enter into one or more acquisitions, joint ventures
or additional types of financings in the future which could result in a
valuation for the capital stock of the Company that is significantly below the
purchase price for the Series B Convertible Preferred Shares hereunder.
(e) The Series B Outside Investors have been advised that the
Series B Convertible Preferred Shares have not been and are not being registered
under the Securities Act or under the "blue sky" laws of any jurisdiction and
that the Company in issuing the Series B Convertible Preferred Shares is relying
upon, among other things, the representations and warranties of the Series B
Outside Investors contained in this Section 5.
(f) No broker, finder, agent or similar intermediary has acted on
behalf of the Series B Outside Investor in connection with this Agreement or the
transactions contemplated hereby and there are no brokerage commissions,
finder's fees or similar fees or commissions payable in connection therewith.
(g) The Series B Outside Investor is an "accredited investor" as
defined in Regulation D of the Securities Act.
<PAGE> 31
SECTION 6. INDEMNIFICATION
6.1 Indemnification for Vicarious Liability. Subject to Section 7.2
hereof, the Company shall, to the full extent permitted by law, and in addition
to any such rights that the Investors and persons serving as officers,
directors, partners, employees or agents of each Investor may have pursuant to
statute, the Company's Amended and Restated Certificate of Incorporation or
By-laws, or otherwise, indemnify and hold harmless each Investor (including its
respective directors, officers, partners, employees and agents, an "Indemnified
Investor") and each person (a "Controlling Person") (collectively with the
Indemnified Investors, the "Indemnified Parties" and individually an
"Indemnified Party") who controls any of them within the meaning of Section 15
of the Securities Act, or Section 20 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), from and against any and all losses, claims,
damages, expenses and liabilities, joint or several, including any
investigation, legal and other expenses incurred in connection with the
investigation, defense, settlement or appeal of, and any amount paid in
settlement of, any action, suit or proceeding or any claim asserted ("Losses" or
"Loss"), to which they, or any of them, may become subject by reason of their
status as a security holder, creditor, director, agent, representative or
controlling person of the Company (including, without limitation, any and all
Losses under the Securities Act, the Exchange Act or other federal or state
statutory law or regulation, at common law or otherwise, which relates directly
or indirectly to the registration, purchase, sale or ownership of any securities
of the Company or any of its subsidiaries or to any fiduciary obligation owed
with respect thereto); provided, however, that the Company will not be liable to
the extent that such Loss arises from and is based on an untrue statement or
omission or alleged untrue statement or omission in a registration statement or
prospectus which is made in reliance on and in conformity with written
information furnished to the Company in an instrument duly executed by or on
behalf of such Indemnified Party specifically stating that it is for use in the
preparation thereof. The indemnification and contribution provided for in this
Section 6.1 will remain in full force and effect regardless of any investigation
made by or on behalf of the Indemnified Parties or any officer, director,
employee, agent or Controlling Person of the Indemnified Parties.
If the indemnification provided for in this Section 6.1 is for any
reason held by a court of competent jurisdiction to be unavailable to an
Indemnified Party in respect of any Losses referred to therein, then the
Company, in lieu of indemnifying such Indemnified Party thereunder, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such Losses (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company and the Investor relating to such Indemnified
Party or (ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Company and the Investor relating to such Indemnified Party in connection
with the action or inaction which resulted in such Losses, as well as any other
relevant equitable considerations. In connection with any registration of the
Company's securities, the relative benefits received by the Company and the
Investors shall be deemed to be in the same respective proportions as the net
proceeds from the offering (before deducting expenses) received by the Company
and the Investors, in each case as set forth in the table on the cover page of
the applicable prospectus, bear to the aggregate public offering price of the
securities so offered. The relative fault of the Company and the Investors shall
be determined by reference to, among other things, whether the untrue or alleged
<PAGE> 32
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company or the Investors
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
The Company and the Investors agree that it would not be just and
equitable if contribution pursuant to the foregoing paragraph were determined by
pro rata or per capita allocation or by any other method of allocation which
does not take account of the equitable considerations referred to in the
immediately preceding paragraph. In connection with any registration of the
Company's securities, in no event shall an Investor be required to contribute
any amount under this Section 6.1 in excess of the lesser of (i) that proportion
of the total of such Losses indemnified against equal to the proportion of the
total securities sold under such registration statement which is being sold by
such Investors or (ii) the proceeds received by such Investor from its sale of
securities under such registration statement. No person found guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
found guilty of such fraudulent misrepresentation.
6.2 Notice; Defense of Claims. Promptly after receipt by an
Indemnified Party of notice of any third party or other claim, liability or
expense to which the indemnification obligations hereunder would apply,
including in connection with any governmental proceeding, the Indemnified Party
shall give notice thereof in writing to the Company, but the omission to so
notify the Company promptly will not relieve the Company from any liability
except, and only to the extent, that the Company shall have been materially
prejudiced as a result of the failure or delay in giving such notice. Such
notice shall state the information then available regarding the amount and
nature of such claim, liability or expense.
In the case of any third party claim, if within twenty (20) days after
receiving the notice described in the preceding paragraph the Company (i) gives
written notice to the Indemnified Party or Parties stating that it intends to
defend in good faith against such claim, liability or expense at its own cost
and expense and (ii) provides assurance and security reasonably acceptable to
such Indemnified Party or Parties that such indemnification will be paid fully
and promptly if required and such Indemnified Party or Parties will not incur
cost or expense during the proceeding, then counsel for the defense shall be
selected by the Company (subject to the consent of such Indemnified Party or
Parties, which consent shall not be unreasonably withheld) and such Indemnified
Party or Parties shall not be required to make any payment with respect to such
claim, liability or expense as long as the Company is conducting a good faith
and diligent defense at its own expense; provided, however, that the assumption
of defense of any such matters by the Company shall relate solely to the claim,
liability or expense that is subject or potentially subject to indemnification.
If the Company assumes such defense in accordance with the preceding sentence,
it shall have the right, with the consent of such Indemnified Party or Parties,
which consent shall not be unreasonably withheld, to settle all indemnifiable
matters related to claims by third parties which are susceptible to being
settled provided the Company's obligation to indemnify such Indemnified Party or
Parties therefor will be fully satisfied and the settlement includes a complete
release of such Indemnified Party or Parties. The Company shall keep such
Indemnified Party or Parties apprised of the status of the claim, liability or
expense and any resulting suit, proceeding or enforcement action, shall furnish
such Indemnified Party or Parties with all documents and information that such
Indemnified Party or Parties shall reasonably request and shall consult with
such Indemnified Party or Parties prior to acting on major matters, including
<PAGE> 33
settlement discussions. Notwithstanding anything herein stated, such Indemnified
Party or Parties shall at all times have the right to fully participate in such
defense at its or their own expense directly or through counsel; provided,
however, if the named parties to the action or proceeding include both the
Company and the Indemnified Party or Parties and representation of both parties
by the same counsel would be inappropriate under applicable standards of
professional conduct, the expense of separate counsel for such Indemnified Party
or Parties shall be paid by the Company. The Indemnified Party or Parties shall
make available all information and assistance that the Company may reasonably
request and shall cooperate with the Company in such defense.
If the Company does not give notice of its intent to defend against
any third party or other claim, liability or expense in accordance with the
foregoing paragraph, or if such diligent good faith defense is not being or
ceases to be conducted, the Indemnified Party or Parties will have the right to
retain its or their own counsel in any such action and all fees, disbursements
and other charges incurred in the investigation, defense and/or settlement of
such action shall be advanced and reimbursed by the Company promptly as they are
incurred and shall have the right to compromise or settle such claim, liability
or expense; provided, however, that the Indemnified Party or Parties shall agree
to repay any expenses so advanced hereunder if it is ultimately determined by a
court of competent jurisdiction that the Indemnified Party or Parties to whom
such expenses are advanced is or are not entitled to be indemnified as a matter
of law or under the terms of this Agreement.
6.3 Satisfaction of Indemnification Obligations. Any indemnity payable
pursuant to this Section 6 shall be paid within the later of (a) ten (10) days
after the Indemnified Party's request therefor or (b) ten (10) days prior to the
date on which the Loss upon which the indemnity is based is required to be
satisfied by the Indemnified Party.
SECTION 7. GENERAL
7.1 Amendments, Waivers and Consents. For the purposes of this
Agreement and all agreements, documents and instruments executed pursuant
hereto, except as otherwise specifically set forth herein or therein, no course
of dealing between the Company and the Founder, on the one hand, and any
Investor, on the other, and no delay on the part of any party hereto in
exercising any rights hereunder or thereunder shall operate as a waiver of the
rights hereof and thereof. No covenant or other provision hereof or thereof may
be waived otherwise than by a written instrument signed by the party so waiving
such covenant or other provision; provided, however, that except as otherwise
provided herein or therein, changes in or additions to, and any consents
required by, this Agreement may be made, and compliance with any term, covenant,
condition or provision set forth herein may be omitted or waived (either
generally or in a particular instance and either retroactively or prospectively)
with respect to the holders of a series of Convertible Preferred Shares by a
consent or consents in writing signed by the holders of fifty-eight percent in
interest of such series of Convertible Preferred Shares (including for such
purposes, on a proportional basis, any Conversion Shares into which any of such
series of Convertible Preferred Shares have been converted that have not been
sold to the public) and (in the case of any such change or addition) the
Company; provided, however, that the amendment, modification or waiver of any
provision which by its terms requires the consent or approval of holders of more
than fifty-eight percent in interest of any series of Convertible Preferred
Shares or the consent or approval of certain Outside Investors shall only be
effective with respect to the holders of such series of Convertible Preferred
<PAGE> 34
Shares if it is signed by holders of such requisite percentage or such Outside
Investors. All references in this Agreement to holders of fifty-eight percent in
interest of a series of Convertible Preferred Shares refer to holders of 58% of
the outstanding Convertible Preferred Shares of such series. Any amendment or
waiver effected in accordance with this Section 7.1 shall be binding upon each
holder of Convertible Preferred Shares of the applicable series at the time
outstanding (including securities into which such Convertible Preferred Shares
have been converted), each future holder of all such securities and the Company.
7.2 Survival of Representations, Warranties and Covenants;
Assignability of Rights. Except as otherwise set forth in Section 1.5 hereof,
all covenants, agreements, representations and warranties of the Company and/or
the Founder made herein or in the Series A Stock Purchase Agreement and in the
certificates, lists, exhibits, schedules or other written information delivered
or furnished by or on behalf of the Company and/or the Founder to any Investor
in connection herewith or therewith shall be deemed material and to have been
relied upon by such Investor, and, except as otherwise provided in this
Agreement, shall survive the delivery of the Series B Convertible Preferred
Shares regardless of any instruction and shall not merge in the performance of
any obligation and shall bind the Company's or the Founder's successors, assigns
and heirs, whether so expressed or not, and, except as otherwise provided in
this Agreement, all such covenants, agreements, representations and warranties
shall inure to the benefit of such Investor's successors and assigns and to
transferees of the Securities of such Investor, whether so expressed or not.
Every assignee of a Series A Outside Investor or a Series B Outside Investor
shall be deemed to be a Series A Outside Investor or a Series B Outside
Investor, as the case may be, under this Agreement. It is contemplated by the
parties hereto that Norwest will assign two-thirds and one-third of its interest
in this Agreement and the Stockholders' Agreement to Norwest Equity Partners VI
and Norwest Venture Partners VI, respectively, and that, upon such assignment,
Norwest Equity Partners VI and Norwest Venture Partners VI shall be deemed for
all purposes to have been the parties in interest in this Agreement and the
Stockholders' Agreement from the date hereof and thereof. Notwithstanding
anything to the contrary contained herein, the Founding Investors shall have no
recourse against the Company or the Outside Investors (including, without
limitation, any rights of indemnification under Section 6 hereof) with respect
to any breach of the representations and warranties made by the Company in
Section 2 of this Agreement (or Section 2 of the Series A Stock Purchase
Agreement) of which they had knowledge or any breach of the representations and
warranties made by the Company in Section 2 of this Agreement (or Section 2 of
the Series A Stock Purchase Agreement) as and to the extent that the Founder has
given a similar representation in Section 2A of the Series A Stock Purchase
Agreement. The representations and warranties made by the Series B Outside
Investors in Section 5 of this Agreement (and by the Series A Outside Investors
in Section 5 of the Series A Stock Purchase Agreement) shall survive the
delivery of the Series B Convertible Preferred Shares and shall bind the Outside
Investors' successors and assigns and shall inure to the benefit of the
Company's successors and assigns.
7.3 Governing Law. This Agreement shall be deemed to be a contract
made under, and shall be construed in accordance with, the laws of the State of
New York (without giving effect to principles of conflicts of law the effect of
which would cause the application of domestic substantive laws of any other
jurisdiction).
7.4 Section Headings; Counterparts. The descriptive headings in this
Agreement have been inserted for convenience only and shall not be deemed to
<PAGE> 35
limit or otherwise affect the construction of any provision thereof or hereof.
This Agreement may be executed simultaneously in any number of counterparts,
each of which when so executed and delivered shall be taken to be an original;
but such counterparts shall together constitute but one and the same document.
7.5 Notices and Demands. Any notice or demand which, by any provision
of this Agreement or any agreement, document or instrument executed pursuant
hereto or thereto, except as otherwise provided therein, is required or provided
to be given shall be deemed to have been sufficiently given or served and
received for all purposes when delivered or five days after being sent by
certified or registered mail, postage and charges prepaid, return receipt
requested, or, in the case of a nationally recognized overnight courier service,
on the day following the date of such mailing, or by express delivery providing
receipt of delivery, to the following addresses: if to the Company, at its
address as shown on the signature page hereof, or at any other address
designated by the Company to each of the Investors in writing; if to an
Investor, at its mailing address as shown on Appendix A hereto, or at any other
address designated by such Investor to the Company and the other Investors in
writing; and if to an assignee of an Investor, at its address as designated to
the Company and the other Investors in writing.
7.6 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 shall be deemed
prohibited or invalid under such applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, and such
prohibition or invalidity shall not invalidate the remainder of such provision
or the other provisions of this Agreement.
7.7 Expenses. The Company shall pay all costs and expenses that each
of it and the Outside Investors incurs with respect to the negotiation,
execution, delivery and performance of this Agreement and any amendments hereto
and the agreements, documents and instruments contemplated hereby or executed
pursuant hereto and the Founding Investors shall pay all costs and expenses that
they incur with respect to the negotiation, execution, delivery and performance
of this Agreement and the agreements, documents and instruments contemplated
hereby or executed pursuant hereto. The Company shall reimburse all documented
costs and out-of-pocket expenses of each of the Outside Investor Representatives
(or any person acting on such Outside Investor Representative's behalf) that are
incurred in connection with attendance at Board meetings, at other Company
related meetings and activities and at industry related meetings and seminars.
7.8 Integration. Except to the extent set forth in Section 1.3 hereof,
this Agreement together with the Stockholders' Agreement, including the
exhibits, documents and instruments referred to herein or therein, constitutes
the entire agreement, and supersedes all other prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof.
7.9 Certain Provisions Applicable to SBIC Investors. Sections 2.27,
3.8 and 4.18 hereof contain certain provisions that are included herein solely
for the benefit of SBIC Investors. A stockholder of the Company may not assert
any rights or claims with respect to such provisions arising at any time after
it has ceased to be an SBIC.
7.10 Stockholder Confirmation and Waiver. Each of the Series A Outside
Investors and the Founding Investors hereby confirms that he, she or it approves
and consents to the Amended and Restated Certificate of Incorporation of the
Company in the form attached hereto as Exhibit A, and waives any right to
subscribe for or purchase shares of Series B Preferred Stock (pursuant to
Section 4.11 of the Series A Stock Purchase Agreement or otherwise) except to
the extent, if any, that such Investor is purchasing such shares hereunder.
[Remainder of Page Intentionally Left Blank]
<PAGE> 36
IN WITNESS WHEREOF, the undersigned have executed this Agreement as a
sealed instrument as of the day and year first above written.
GOLDEN SKY HOLDINGS, INC.
605 W. 47th Street, Suite 300
Kansas City, MO 64112
By: /s/ Rodney A. Weary
-------------------------
Name: Rodney A. Weary
Title: Chief Executive Officer
GOLDEN SKY SYSTEMS, INC.
605 W. 47th Street, Suite 300
Kansas City, MO 64112
By: /s/ Rodney A. Weary
-------------------------
Name: Rodney A. Weary
Title: Chief Executive Officer
FOUNDER:
/s/ Rodney A. Weary
-----------------------
Rodney A. Weary
SERIES B OUTSIDE INVESTORS:
NORWEST EQUITY PARTNERS V, A
MINNESOTA LIMITED PARTNERSHIP
By: Itasca Partners V, L.L.P.
General Partner
By: /s/ Eric Torgerson
--------------------------
Name: Eric Torgerson
Title: Partner
<PAGE> 37
HANCOCK VENTURE PARTNERS
V-DIRECT FUND L.P.
By: HVP V-Direct Associates, LLC
By: HarbourVest Partners, LLC
By: /s/ WIlliam A. Johnson
--------------------------
Name: William A. Johnson
Title: Partner
ALTA SUBORDINATED DEBT
PARTNERS III, L.P.
By: Alta Subordinated Debt
Management III, L.P.
By: /s/ Eileen McCarthy
--------------------------
Name: Eileen McCarthy
Title: General Partner
ALTA COMMUNICATIONS VI, L.P.
By: Alta Communications VI Management
Partners, L.P.
By: /s/ Eileen McCarthy
--------------------------
Name: Eileen McCarthy
Title: General Partner
ALTA-COMM S BY S, LLC
By: /s/ Eileen McCarthy
--------------------------
Name: Eileen McCarthy
Title: Member
<PAGE> 38
LION INVESTMENTS LIMITED
By: /s/ Patrick
--------------------------
Name: Patrick
Title: Director
WESTPOOL INVESTMENT TRUST
By: /s/ Patrick
--------------------------
Name: Patrick
Title: Director
WEBER FAMILY TRUST dated 1/6/89
By: /s/ E.M. Weber
--------------------------
Name: E.M. Weber
Title: Trustee
BANCBOSTON VENTURES INC.
By: /s/ William O. Charman
--------------------------
Name: William O. Charman
Title: Vice President
GENERAL ELECTRIC CAPITAL
CORPORATION
By: /s/ Molly S. Fergusson
--------------------------
Name: Molly S. Fergusson
Title: Manager, Operations
THE MILLENNIAL FUND
By: /s/ Jack Tankersley, Jr.
--------------------------
Name: G. Jackson Tankersley, Jr.
<PAGE> 39
BUILDER INVESTMENT
PARTNERSHIP
By: /s/ Allen A. Builder
--------------------------
Name: Allen A. Builder
Title: General Partner
SERIES A OUTSIDE INVESTORS:
ALTA SUBORDINATED DEBT
PARTNERS III, L.P.
By: Alta Subordinated Debt
Management III, L.P.,
General Partner
By: /s/ Eileen McCarthy
--------------------------
Name: Eileen McCarthy
Title: General Partner
ALTA COMMUNICATIONS VI, L.P.
By: Alta Communications VI
Management Partners,
L.P., General Partner
By: /s/ Eileen McCarthy
--------------------------
Name: Eileen McCarthy
Title: General Partner
ALTA-COMM S BY S, LLC
By: /s/ Eileen McCarthy
--------------------------
Name: Eileen McCarthy
Title: Member
<PAGE> 40
SPECTRUM EQUITY INVESTORS L.P.
By: Spectrum Equity Associates L.P.,
General Partner
By: /s/ William P. Collatos
--------------------------
Name: William P. Collatos
Title: General Partner
SPECTRUM EQUITY
INVESTORS II, L.P.
By: Spectrum Equity Associates II,
L.P., General Partner
By: /s/ William P. Collatos
--------------------------
Name: William P. Collatos
Title: General Partner
BANCBOSTON VENTURES INC.
By: /s/ William O. Charman
--------------------------
Name: William O. Charman
Title: Vice President
<PAGE> 41
FOUNDING INVESTORS:
Rodney A. Weary Revocable Trust Dated
10/25/95
By: /s/ Rodney A. Weary
--------------------------
Name: Rodney A. Weary
Title: Trustee
F.G. Weary III Revocable Trust
By: /s/ F.G. Weary
--------------------------
Name: F.G. Weary
Title: Trustee
Sarah Weary Revocable Trust
By: /s/ Sarah Weary
--------------------------
Name: Sarah Weary
Title: Trsutee
/s/ Robert B. Liepold
-----------------------------
Robert B. Liepold
/s/ Ron D. Foster
-----------------------------
Ron D. Foster
/s/ Jo Ellen Linn
-----------------------------
Jo Ellen Linn
/s/ Robert Weaver
-----------------------------
Robert Weaver
<PAGE> 42
/s/ Donald Tucker
-----------------------------
Donald Tucker
/s/ Barbara Tucker
-----------------------------
Barbara Tucker
/s/ Robert H. Weaver
-----------------------------
Robert H. Weaver
/s/ Jeff K. Ramsey
-----------------------------
Jeff K. Ramsey
/s/ Rebecca D. Ramsey
-----------------------------
Rebecca D. Ramsey
A Delaware Trust
By: /s/ Arthur B. Ramsey
--------------------------
Arthur B. Ramsey, Trustee
Ramsey Trust Dated 12/14/95
By: /s/ Arthur B. Ramsey
--------------------------
Arthur Ramsey, Trustee
By: /s/ Lyle Ramsey
--------------------------
Lyle Ramsey, Trustee
/s/ Paul Spurgeon
-----------------------------
Paul Spurgeon
<PAGE> 43
<TABLE>
<CAPTION>
Appendix A
List of Investors
Principal Amount Number of Series B Number of Series B Aggregate Purchase Total Number of
of Series B Convertible Convertible Preferred Convertible Preferred Price Series B Convertible
Note plus Accrued Shares Issuable Shares Purchased Preferred Shares
Interest Upon Conversion 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 Johnston
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
</TABLE>
<PAGE> 44
<TABLE>
<CAPTION>
Principal Amount Number of Series B Number of Series B Aggregate Purchase Total Number of
of Series B Convertible Convertible Preferred Convertible Preferred Price Series B Convertible
Note plus Accrued Shares Issuable Shares Purchased Preferred Shares
Interest Upon Conversion Issuable
(Column 1) (Column 2) (Column 3) (Column 4) (Column 5)
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
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
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 Partnership -- -- 250 $50,000 250
Five Piedmont Center, Suite 700
Atlanta, GA 30305
Attn: Allen A. Builder
Series A Outside Investors:
Alta Subordinated Debt Partners III, L.P.
Alta Communications VI, L.P.
Alta-Comm S By S, LLC
c/o Alta Communications, Inc.
One Embarcadero Center
Suite 4050
San Francisco, CA 94111
Spectrum Equity Investors L.P.
Spectrum Equity Investors II L.P.
125 High Street, Suite 2600
Boston, MA 02110
Attn: William P. Collatos
</TABLE>
<PAGE> 45
<TABLE>
<S> <C> <C> <C> <C> <C>
Principal Amount Number of Series B Number of Series B Aggregate Purchase Total Number of
of Series B Convertible Convertible Preferred Convertible Preferred Price Series B Convertible
Note plus Accrued Shares Issuable Shares Purchased Preferred Shares
Interest Upon Conversion Issuable
(Column 1) (Column 2) (Column 3) (Column 4) (Column 5)
---------- ---------- ---------- ---------- ----------
BancBoston Ventures Inc.
175 Federal Street, 10th Floor
Boston, MA 02110
Attn: William O. Charman
The Millennial Fund
c/o G. Jackson Tankersley, Jr.
The Centennial Funds
1428 15th Street
Denver, CO 80202
Builder Investment Partnership
Five Piedmont Center, Suite 700
Atlanta, GA 30305
Attn: Allen A. Builder
Founding Investors:
Rodney A. Weary Revocable Trust
Dated 10/25/95
3900 W. 90th
Prairie Village, KS 66207
F.G. Weary III Revocable Trust
1508 S. Golf Club Drive
Richmond, MO 64085
Sarah Weary Revocable Trust
1508 S. Golf Club Drive
Richmond, MO 64085
Robert B. Liepold
6140 Mission Drive
Shawnee Mission, KS 66208
Ron D. Foster
4613C N.E. Whispering Winds Dr.
Lee's Summit, MO 64064
Jo Ellen Linn
4613C N.E. Whispering Winds Dr.
Lee's Summit, MO 64064
Robert Weaver
6221 Belle Rive Dr.
Brentwood, TN 37027
</TABLE>
<PAGE> 46
<TABLE>
<CAPTION>
Principal Amount Number of Series B Number of Series B Aggregate Purchase Total Number of
of Series B Convertible Convertible Preferred Convertible Preferred Price Series B Convertible
Note plus Accrued Shares Issuable Shares Purchased Preferred Shares
Interest Upon Conversion Issuable
(Column 1) (Column 2) (Column 3) (Column 4) (Column 5)
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Donald & Barbara Tucker
109 Lord Ashley Drive
Greenville, NC 27858
Robert H. Weaver
1509 Douglas Drive
Jackson, MS 39211
Jeff K. or Rebecca D. Ramsey
jt. tenants w/ rights of survivorship
P.O. Box 2293
Corrales, NM 87048
A Delaware Trust
Arthur B. Ramsey, Trustee
1621 Sagebrush Trail S.E.
Albuquerque, NM 87123
Ramsey Trust Dated 12/14/95
1621 Sagebrush Trail S.E.
Albuquerque, NM 87123
Paul Spurgeon
3000 SW 19th Street
Topeka, KS 66604
</TABLE>
<PAGE> 1
Exhibit 99.5
STOCKHOLDERS' AGREEMENT
By and Among
Golden Sky Holdings, Inc.,
and
The Investors
as defined herein and set forth
on the signature pages hereto
Dated as of November 24, 1997
<PAGE> 2
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS.........................................................3
Section 1.1. Construction of Tems............................................3
Section 1.2. Terms Not Defined...............................................3
Section 1.3. Number of Shares of Stock.......................................3
Section 1.4. Defined Terms...................................................3
ARTICLE II REPRESENTATIONS AND WARRANTIES.....................................4
Section 2.1. Representations and Warranties of the Investors.................5
Section 2.2. Representations and Warranties of the Company...................5
ARTICLE III RESTRICTIONS ON TRANSFER; RIGHT OF FIRST OFFER; CO-SALE AND
DRAG-ALONG PROVISIONS.............................................5
Section 3.1. Restrictions on Transfer........................................5
Section 3.2. Right of First Offer............................................7
Section 3.3. Co-Sale Option..................................................9
Section 3.4. Drag-Along Obligations.........................................11
Section 3.5. Prohibited Transfers...........................................12
ARTICLE IV REGISTRATION RIGHTS...............................................13
Section 4.1. Piggyback Registration Rights..................................13
Section 4.2. Demand Registration Rights.....................................14
Section 4.3. Form S-3.......................................................15
Section 4.4. Further Obligations of the Company.............................16
Section 4.5. Information about Holders......................................17
Section 4.6. Indemnification; Contribution..................................17
Section 4.7. Rule 144 Requirements..........................................20
Section 4.8. Market Stand-Off...............................................20
Section 4.9. Transfer of Registration Rights................................20
ARTICLE V ELECTION OF DIRECTORS OF THE COMPANY...............................21
Section 5.1. Voting of Shares for Election of Directors of the Company......21
Section 5.2. Committees of the Board........................................21
Section 5.3. Vacancies......................................................22
Section 5.4. Removal........................................................22
Section 5.5. No Waiver......................................................22
Section 5.6. Assignment.....................................................22
Section 5.7. Board of Directors of Subsidiary...............................23
Section 5.8. Observer Rights................................................23
Section 5.9. Term...........................................................23
ARTICLE VI MISCELLANEOUS PROVISIONS..........................................23
<PAGE> 3
Page
Section 6.1. Survival of Representations and Covenants......................23
Section 6.2. Legend on Securities...........................................23
Section 6.3. Amendment and Waiver...........................................24
Section 6.4. Notices........................................................24
Section 6.5. Headings.......................................................29
Section 6.6. Counterparts...................................................29
Section 6.7. Remedies; Severability.........................................29
Section 6.8. Entire Agreement...............................................29
Section 6.9. Adjustments....................................................30
Section 6.10. Law Governing.................................................30
Section 6.11. Successors and Assigns........................................30
Exhibit A - Form of Joinder Agreement
Schedule 1.4 - Amended and Restated Certificate of Incorporation
<PAGE> 4
GOLDEN SKY HOLDINGS, INC.
STOCKHOLDERS' AGREEMENT
This Stockholders' Agreement is made as of this 24th day of November,
1997 by and among Golden Sky Holdings, Inc., a Delaware corporation (the
"Company"), the investment funds identified on the signature pages hereto as the
Alta Series A Investors (the "Alta Series A Investors"), the investment funds
identified on the signature pages hereto as the Spectrum Investors (the
"Spectrum Investors"), the investment fund identified on the signature pages
hereto as the BancBoston Series A Investor (the "BancBoston Series A Investor"),
the entity identified on the signature pages hereto as the Millennial Series A
Investor (the "Millennial Series A Investor"), the entity identified on the
signature pages hereto as the Builder Series A Investor (the "Builder Series A
Investor"), the investment fund identified on the signature pages hereto as the
Norwest Investor (the "Norwest Investor"), the investment fund identified on the
signature pages hereto as the HarbourVest Investor (the "HarbourVest Investor"),
the investment funds identified on the signature pages hereto as the Alta Series
B Investors (the "Alta Series B Investors"), the investment funds identified on
the signature pages hereto as the Lion/Westpool Investors (the "Lion/Westpool
Investors"), the investment fund identified on the signature pages hereto as the
BancBoston Series B Investor (the "BancBoston Series B Investor"), the
investment fund identified on the signature pages hereto as the General Electric
Investor (the "General Electric Investor"), the investment fund identified on
the signature pages hereto as the Millennial Series B Investor (the "Millennial
Series B Investor"), the investor identified on the signature pages hereto as
the Builder Series B Investor (the "Builder Series B Investor"), the investors
identified on the signature pages hereto as the Founding Investors (the
"Founding Investors"), and the other stockholders identified on the signature
pages hereto and any other stockholder or optionholder who from time to time
becomes party to this Agreement by execution of a Joinder Agreement in
substantially the form attached hereto as Exhibit A (together, the "Other
Stockholders"). The Alta Series A Investors, the Spectrum Investors, the
BancBoston Series A Investor, the Millennial Series A Investor and the Builder
Series A Investor are herein referred to collectively as the "Series A Outside
Investors". The Norwest Investor, the HarbourVest Investor, the Alta Series B
Investors, the Lion/Westpool Investors, the BancBoston Series B Investor, the
General Electric Investor, the Millennial Series B Investor and the Builder
Series B Investor are herein referred to collectively as the "Series B Outside
Investors". The Series A Outside Investors and the Series B Outside Investors
are herein referred to collectively, where no distinction is required, as the
"Outside Investors" and individually as an "Outside Investor." The Outside
Investors and the Founding Investors are herein referred to collectively, where
no distinction is required, as the "Investors" and individually as an "Investor"
and the Founding Investors and the Other Stockholders are herein referred to
collectively, where no distinction is required, as the "Stockholders" and
individually as a "Stockholder."
W I T N E S S E T H
WHEREAS, reference is made to the Stock Purchase Agreement, dated as
of February 12, 1997, by and among, inter alia, the Company's wholly owned
subsidiary, Golden Sky Systems, Inc. ("GSS") and the Series A Outside Investors
(the "Series A Stock Purchase Agreement"), pursuant to which the Series A
Outside Investors and the Founding Investors purchased (i) 406,000 shares of
Series A Convertible Participating Preferred Stock, par value $.01 per share, of
GSS, which was by merger converted and exchanged into a like security of the
<PAGE> 5
Company (the "Series A Convertible Preferred Stock"), which is convertible into
shares of the Company's authorized but unissued Series A Redeemable Preferred
Stock, par value $.01 per share (the "Series A Redeemable Preferred Stock"), and
shares of the Company's authorized but unissued Common Stock, par value $.01 per
share (the "Common Stock"), and (ii) 100 shares of the common stock of GSS,
which was by merger converted and exchanged into Common Stock; and
WHEREAS, reference is made to the Stock Purchase Agreement, dated as
of the date hereof, by and among, inter alia, the Company and the Investors (the
"Stock Purchase Agreement"), pursuant to which (i) the Series A Outside
Investors, subject to certain exceptions, terminated the Series A Stock Purchase
Agreement, and (ii) the Series B Outside Investors purchased 178,075 shares of
Series B Convertible Participating Preferred Stock, par value $.01 per share, of
the Company (the "Series B Convertible Preferred Stock" and, together with the
Series A Convertible Preferred Stock where no distinction is required, the
"Convertible Preferred Stock"), which is convertible into shares of the
Company's authorized but unissued Series B Redeemable Preferred Stock, par value
$.01 per share (the "Series B Redeemable Preferred Stock" and, together with the
Series A Redeemable Preferred Stock where no distinction is required, the
"Redeemable Preferred Stock"), and certain Series B Outside Investors
simultaneously converted the principal and accrued interest on certain
convertible promissory notes of the Company in the aggregate principal amount of
$10,000,000 (the "Series B Convertible Notes") into 50,367 shares of Series B
Convertible Preferred Stock; and
WHEREAS, the Company has from time to time issued other shares of its
capital stock; and
WHEREAS, GSS, the Series A Outside Investors and the Founding
Investors entered into a Stockholders' Agreement dated as of February 12, 1997
(the "Series A Stockholders' Agreement") relating to transfer, voting and other
matters arising from the ownership of preferred stock and common stock of GSS;
and
WHEREAS, pursuant to a letter agreement dated September 9, 1997, GSS
assigned, and the Company assumed, all of GSS' rights and obligations under the
Series A Stockholders' Agreement; and
WHEREAS, the effectiveness of this Agreement is a condition to the
consummation of the Stock Purchase Agreement; and
WHEREAS, the parties hereto desire to agree upon the terms upon which
their investment in the capital stock of the Company will be held, transferred
and voted.
NOW THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements hereinafter set forth, the parties hereto agree as
follows:
<PAGE> 6
ARTICLE I DEFINITIONS
Section 1.1 Construction of Terms. As used herein, the masculine,
feminine or neuter gender, and the singular or plural number, shall be deemed to
be or to include the other genders or number, as the case may be, whenever the
context so indicates or requires.
Section 1.2. Terms Not Defined. Capitalized terms used herein and not
otherwise defined shall have the meanings ascribed to them in the Stock Purchase
Agreement.
Section 1.3. Number of Shares of Stock. Whenever any provision of this
Agreement calls for any calculation based on a number of Shares held by a
Stockholder or Outside Investor, the number of Shares deemed to be held by that
Stockholder or Outside Investor shall be the total number of Shares of Common
Stock then owned by the Stockholder or Outside Investor, plus the total number
of Shares of Common Stock issuable upon conversion of any Convertible Preferred
Stock or other convertible securities or exercise of any options, warrants or
subscription rights then owned by the Stockholder or Outside Investor.
Section 1.4. Defined Terms. The following capitalized terms, as used
in this Agreement, shall have the meanings set forth below.
An "Affiliate" of any Person means a Person that directly or
indirectly, through one or more intermediaries, controls, is controlled by or is
under common control with the first mentioned Person. A Person shall be deemed
to control another Person if such first Person possesses directly or indirectly
the power to direct, or cause the direction of, the management and policies of
the second Person, whether through the ownership of voting securities, by
contract or otherwise.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Common Stock, par value $.01 per share, of
the Company, and any other common equity securities now or hereafter issued by
the Company (but not including the Preferred Stock), and any other shares of
stock issued or issuable with respect thereto (whether by way of a stock
dividend or stock split or in exchange for or upon conversion of such shares or
otherwise in connection with a combination of shares, recapitalization, merger,
consolidation or other corporate reorganization).
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, and the rules and regulations promulgated thereunder.
"Independent Third Party" means any Person who, together with its
Affiliates, immediately prior to the contemplated transaction, does not own in
excess of 10% of the Company's Common Stock on a fully-diluted basis, who is not
controlling, controlled by or under common control with any such 10% owner of
the Company's Common Stock and who is not the spouse or descendent (by birth or
adoption) of any such 10% owner of the Company's Common Stock.
"Person" means an individual, a corporation, an association, a
partnership, an estate, a trust, and any other entity or organization,
<PAGE> 7
governmental or otherwise.
"Preferred Stock" means the Convertible Preferred Stock and the
Redeemable Preferred Stock, each issued or to be issued in accordance with and
subject to the terms of the Amended and Restated Certificate of Incorporation of
the Company substantially in the form attached hereto as Schedule 1.4 (the
"Charter"), together with any other shares issued or issuable with respect
thereto (whether by way of a stock dividend, stock split or in exchange for or
in replacement or upon conversion of such shares or otherwise in connection with
a combination of shares, recapitalization, merger, consolidation or other
corporate reorganization) and the "Series A Preferred Stock" and the "Series B
Preferred Stock," respectively, shall have a corresponding meaning.
"Qualified Public Offering" means the first underwritten public
offering pursuant to an effective registration statement under the Securities
Act, covering the offer and sale of Common Stock to the public in which the
proceeds received by the Company, net of underwriting discounts and commissions,
equal or exceed $35 million and the shares are offered to the public at a price
per share of no less than (i) $300.00 in the case of holders of Series A
Preferred Stock and (ii) $600.00 in the case of holders of Series B Preferred
Stock (such dollar amounts as appropriately adjusted for any stock split,
combination, reorganization, recapitalization, reclassification, stock
distribution, stock dividend or similar event).
"Sale of the Company" means the sale of the Company to an Independent
Third Party or affiliated group of Independent Third Parties pursuant to which
such party or parties acquire (i) capital stock of the Company possessing the
voting power to elect a majority of the Board (whether by merger, consolidation
or sale or transfer of the Company's capital stock); or (ii) all or
substantially all of the Company's assets determined on a consolidated basis.
"Securities Act" means the Securities Act of 1933, as amended from
time to time, and the rules and regulations promulgated thereunder.
"Shares" means the shares of Common Stock, Preferred Stock and any
other equity securities now or hereafter issued by the Company, together with
any options or warrants thereon and any other shares of stock issued or issuable
with respect thereto (whether by way of a stock dividend, stock split or in
exchange for or upon conversion of such shares or otherwise in connection with a
combination of shares, recapitalization, merger, consolidation or other
corporate reorganization).
"Transfer" means any direct or indirect transfer, donation, sale,
assignment, pledge, hypothecation, grant of a security interest in or other
disposal or attempted disposal of all or any portion of a security or of any
rights (including, without limitation, any economic interest therein, whether by
means of a participation, swap transaction or otherwise). "Transferred" means
the accomplishment of a Transfer, and "Transferee" means the recipient of a
Transfer.
ARTICLE II REPRESENTATIONS AND WARRANTIES
Section 2.1. Representations and Warranties of the Investors. Each of
the Investors, individually and not jointly, hereby represents, warrants and
covenants to the Company as follows: (a) such Investor has full authority and
power under its charter, by-laws, governing partnership agreement or comparable
<PAGE> 8
document to enter into this Agreement; (b) this Agreement constitutes the valid
and binding obligation of such Investor; and (c) the execution, delivery and
performance by such Investor of this Agreement: (i) does not and will not
violate any laws, rules or regulations of the United States or any state or
other jurisdiction applicable to such Investor, or require such Investor to
obtain any approval, consent or waiver of, or to make any filing with, any
Person that has not been obtained or made; and (ii) does not and will not result
in a breach of, constitute a default under, accelerate any obligation under or
give rise to a right of termination of any indenture or loan or credit agreement
or any other agreement, contract, instrument, mortgage, lien, lease, permit,
authorization, order, writ, judgment, injunction, decree, determination or
arbitration award to which such Investor is a party or by which the property of
such Investor is bound or affected, or result in the creation or imposition of
any mortgage, pledge, lien, security interest or other charge or encumbrance on
any of the assets or properties of such Investor.
Section 2.2. Representations and Warranties of the Company. The
Company hereby represents, warrants and covenants to the Investors as follows:
(a) the Company has full corporate authority and power to enter into this
Agreement; (b) this Agreement constitutes the valid and binding obligation of
the Company enforceable against it in accordance with its terms; and (c) the
execution, delivery and performance by the Company of this Agreement: (i) does
not and will not violate any laws, rules or regulations of the United States or
any state or other jurisdiction applicable to the Company, or require the
Company to obtain any approval, consent or waiver of, or to make any filing
with, any Person that has not been obtained or made; and (ii) does not and will
not result in a breach of, constitute a default under, accelerate any obligation
under or give rise to a right of termination of any indenture or loan or credit
agreement or any other material agreement, contract, instrument, mortgage, lien,
lease, permit, authorization, order, writ, judgment, injunction, decree,
determination or arbitration award to which the Company is a party or by which
the property of the Company is bound or affected, or result in the creation or
imposition of any mortgage, pledge, lien, security interest or other charge or
encumbrance on any of the assets or properties of the Company or any of its
subsidiaries.
ARTICLE III RESTRICTIONS ON TRANSFER; RIGHT OF FIRST OFFER;
CO-SALE AND DRAG-ALONG PROVISIONS
The following provisions of this Article III shall terminate
immediately upon the closing of a Qualified Public Offering (provided such
termination shall be effective only in respect of each series of Preferred Stock
as to which an offering constitutes a Qualified Public Offering) or a Sale of
the Company.
Section 3.1. Restrictions on Transfer. No Transfers of any Shares
shall be made except in accordance with all applicable provisions of the
Securities Act and any relevant state securities law. Each Founding Investor
also agrees that, prior to the third anniversary of the date of this Agreement,
he will not, without the prior written consent of fifty-eight percent in
interest of each of the Series A and Series B Outside Investors, Transfer all or
any portion of the Shares now owned or hereafter acquired by him, except in
connection with, and strictly in compliance with the conditions of, Section
3.1(b), (c) or (d) below. Any Outside Investor may transfer its rights under the
foregoing sentence to any Transferee of its Shares, in which event such
Transferee shall be deemed to be an Outside Investor of the applicable series
<PAGE> 9
for purposes of such sentence. In addition, each Stockholder and Outside
Investor agrees that he or it will not, without the prior written consent of
fifty-eight percent in interest of each of the Series A and Series B Outside
Investors, Transfer all or any portion of the Shares now owned or hereafter
acquired by him or it, except in connection with, and strictly in compliance
with the conditions of, any of the following:
(a) Transfers effected pursuant to Sections 3.2, 3.3 and 3.4, in
each case made in accordance with the procedures set forth therein;
(b) Transfers by any Stockholder to his or her spouse or children
or to a trust of which he is the settlor and a trustee for the benefit of
his or her spouse or children, provided that any such trust does not
require or permit distribution of such Shares during the term of this
Agreement, and provided further that the Transferee shall have executed and
delivered a Joinder Agreement in the form attached hereto as Exhibit A;
(c) Transfers upon the death of any Stockholder to his or her
heirs, executors or administrators or to a trust under his or her will or
Transfers between such Stockholder and his or her guardian or conservator,
provided that the Transferee shall have executed and delivered a Joinder
Agreement in the form attached hereto as Exhibit A;
(d) Transfers pursuant to a public offering of the Company's
Common Stock registered under the Securities Act;
(e) With respect to any of the Outside Investors, a Transfer to
any other Investor or to a partner or Affiliate of such Outside Investor
(other than the Company) or to any other investment fund or other entity
for which such Outside Investor and/or one or more partners or Affiliates
thereof, directly or indirectly through one or more intermediaries, serve
as general partner or manager or in a like capacity, provided that the
Transferee shall have executed and delivered a Joinder Agreement in the
form attached hereto as Exhibit A; or
(f) In the event that BancBoston Ventures Inc. or Norwest Equity
Partners V or their respective Permitted Transferees (each an "SBIC
Investor") reasonably determines that it has a Regulatory Problem (as
defined below), each such SBIC Investor shall have the right to (i)
Transfer its Shares to a non-Affiliate of the Company and the other
Investors or Stockholders, provided that the Transferee shall have executed
and delivered a Joinder Agreement in the form attached hereto as Exhibit A,
or (ii) exchange its Shares for non-voting securities in the Company with
the same economic rights, and the Company shall take all such actions as
are reasonably requested by such SBIC Investor in order to (a) effectuate
and facilitate any such Transfer or (b) permit such SBIC Investor to
exchange for all or any portion of its Shares on a share-for-share basis
for shares of non-voting securities of the Company, which non-voting
securities shall be identical in all respects to the Shares exchanged for
it, except that such exchanged securities shall be non-voting and shall be
convertible into voting securities on such terms as are reasonably
<PAGE> 10
requested by such SBIC Investor, in light of regulatory considerations then
prevailing and do not alter the economic interests of the parties hereto.
For purposes of this Agreement, a "Regulatory Problem" means any set of
facts or circumstances wherein it has been asserted by any governmental
authority, including by the United States Small Business Administration
(the "SBA"), and any successor agency satisfactory to the Company
performing the functions thereof (or, based on written advice of counsel
satisfactory to the Company, such SBIC Investor reasonably believes that
there is a substantial risk of such assertion), that, pursuant to the Small
Business Act of 1958, as amended, and the regulations issued by the SBA
thereunder, codified at Title 13 of the Code of Federal Regulations, Parts
107 and 121 (the "SBIC Regulations"), or pursuant to the Bank Holding
Company Act, as amended, and the regulations issued thereunder, such SBIC
Investor is not entitled to hold all or a portion of the Shares held by it.
Any permitted Transferee described in the preceding clauses (a), (b), (c),
(e) or (f) shall be referred to herein as a "Permitted Transferee."
Anything to the contrary in this Agreement notwithstanding, Permitted
Transferees shall take any Shares so Transferred subject to all provisions
of this Agreement as if such Shares were still held by the Transferring
Stockholder or Outside Investor, whether or not they so agree with the
Transferring Stockholder or Outside Investor and/or the Company.
Section 3.2. Right of First Offer. In the event that any of the
Stockholders or Outside Investors, including any of their Permitted Transferees,
desires to Transfer all or any portion of the Shares held by such Stockholder or
Outside Investor in a transaction not expressly permitted under Section 3.1(b),
(c), (d), (e) or (f), such Stockholder or Outside Investor (a "Transferring
Party") may, subject to the provisions of Section 3.3 hereof, Transfer such
Shares pursuant to and in accordance with the following provisions of this
Section 3.2:
(a) Such Transferring Party shall deliver written notice (the
"Offer Notice") of its desire to Transfer such Shares held by such
Stockholder or Outside Investor to each of the Company and the Outside
Investors (a "Transaction Offer") and shall otherwise comply with the
provisions of this Section 3.2 and, if applicable, Section 3.3. The Offer
Notice shall specify (i) the number of Shares of the Transferring Party
subject to the Transaction Offer (the "Offered Shares"), (ii) the
consideration per Share to be paid for the Offered Shares, and (iii) all
other material terms and conditions of the Transaction Offer.
(b) The Company and the Outside Investors shall have the right
(the "Right of First Offer") to offer to collectively purchase all, but not
less than all, of the Offered Shares for the consideration per share and on
the terms and conditions specified in the Offer Notice in the order of
priority described below. In the event that the price set forth in the
Offer Notice is stated in consideration other than cash or cash
equivalents, the Board of Directors of the Company may determine the fair
market value of such consideration, reasonably and in good faith, and the
parties may exercise their Right of First Offer by payment of such fair
market value in cash or cash equivalents.
(i) The Company shall have the initial right to offer to
purchase the Offered Shares. To exercise its Right of First Offer, the
Company shall, within twenty (20) days of receipt of such written
notice, communicate in writing such election to the Transferring Party
<PAGE> 11
(with copies to the Outside Investors). Such written election to
purchase shall constitute a valid, legally binding and enforceable
agreement for the sale and purchase of such number of Offered Shares.
(ii) In the event the Company does not exercise its Right of
First Offer with respect to all of the Offered Shares, the
Transferring Party shall notify the Outside Investors in writing of
such fact. The Outside Investors shall then have the right to offer to
purchase all, but not less than all, of the available Offered Shares
which are not being purchased by the Company. In the event an Outside
Investor elects to exercise its Right of First Offer, such Outside
Investor shall, within twenty (20) days of receipt of such written
notice, communicate in writing such election to the Transferring Party
stating the maximum number of the available Offered Shares it desires
to purchase. Such written election to purchase shall constitute a
valid, legally binding and enforceable agreement for the sale and
purchase of the Offered Shares to the extent of the number of Offered
Shares allocated to such Outside Investor in accordance with this
Section 3.2. Each Outside Investor shall have the right to offer to
purchase up to that number of available Offered Shares as shall be
equal to the product obtained by multiplying (i) the total number of
available Offered Shares by (ii) a fraction, the numerator of which is
the total number of shares of Common Stock owned by such Outside
Investor on the date of the Offer Notice on an as converted basis
(including for this purpose any shares of Common Stock that may be
received upon conversion of the Convertible Preferred Stock), and the
denominator of which is the total number of shares of Common Stock
then held by all Outside Investors (other than the Transferring Party)
on the date of the Offer Notice on an as converted basis, subject to
increase as hereinafter provided. The number of Offered Shares that
each Outside Investor is entitled to purchase under this Section 3.2
shall be referred to as its "Pro Rata Fraction." Each Outside Investor
shall have the right to transfer its right to any Pro Rata Fraction or
part thereof with respect to any proposed Transaction Offer to any
Affiliate. In the event an Outside Investor does not wish to purchase
or to transfer its right to purchase its Pro Rata Fraction, then any
Outside Investors who so elect shall have the right to purchase, on a
pro rata basis with any other Outside Investors who so elect, any Pro
Rata Fraction not purchased by an Outside Investor or its Affiliates.
Upon the expiration of the twenty (20) day period during
which the Outside Investors have a right to exercise their Right of
First Offer in accordance with this Section 3.2, the number of Offered
Shares to be purchased by each Outside Investor and Affiliate shall be
determined as follows: (x) there shall first be allocated to each
Outside Investor and Affiliate electing to purchase a number of
Offered Shares equal to the lesser of (A) the number of Offered Shares
as to which such Outside Investor accepted the Transaction Offer or
(B) such Outside Investor's Pro Rata Fraction, and (y) the balance, if
any, not allocated under clause (x) above, shall be allocated to those
Outside Investors and Affiliates who accepted the Transaction Offer as
to a number of Offered Shares which exceeded their respective Pro Rata
Fractions, in each case on a pro rata basis in proportion to the
amount of such excess.
<PAGE> 12
(c) The closing of any such purchase of Offered Shares by the
Company and/or the Outside Investors pursuant to this Section 3.2 shall
take place within thirty (30) days after the expiration of the period
during which the parties have a right to exercise their Right of First
Offer in accordance with this Section 3.2, at the place and on the date
specified by three-fourths in interest of the Persons exercising their
Right of First Offer.
(d) In the event that the Company and the Outside Investors do
not elect to purchase all of the Offered Shares, the Transferring Party may
sell the Offered Shares to a non-Affiliate (the "Offeror") on no materially
better terms and conditions (from the standpoint of the Offeror) than those
set forth in the Offer Notice, subject to the restrictions set forth in the
provisions of Section 3.3. If the Transferring Party's transfer to an
Offeror is not consummated in accordance with the terms of the Transaction
Offer within the later of (i) one hundred twenty (120) days after the
expiration of the Right of First Offer and the Co-Sale Option set forth in
Section 3.3, if applicable, and (ii) the satisfaction of all governmental
approval or filing requirements, the Transaction Offer shall be deemed to
lapse, and any Transfers of Offered Shares pursuant to such Transaction
Offer shall be deemed to be in violation of the provisions of this
Agreement unless the Company and the Outside Investors are once again
afforded the Right of First Offer provided for herein with respect to such
Transaction Offer.
Section 3.3. Co-Sale Option. In the event that any Transferring Party
complies with the provisions of Section 3.2 above, and the Right of First Offer
is not exercised with respect to all of the Offered Shares, such Transferring
Party may Transfer such available Offered Shares only pursuant to and in
accordance with the following provisions of this Section 3.3:
(a) Each of the Outside Investors shall have the right to
participate in the Transaction Offer on the terms and conditions herein
stated. The class of Shares with which the Outside Investors shall have the
right to participate in the Transaction Offer shall be determined in
accordance with the following: (a) if the Transferring Party elects to
Transfer Convertible Preferred Stock of either series then the Outside
Investors shall have the right to participate in the Transaction Offer with
Convertible Preferred Stock of either series; (b) if the Transferring Party
elects to Transfer Redeemable Preferred Stock of either series then the
Outside Investors shall have the right to participate in the Transaction
Offer with Redeemable Preferred Stock of either series; and (c) if the
Transferring Party elects to Transfer Common Stock then the Outside
Investors shall have the right to participate in the Transaction Offer with
Common Stock. The right to participate shall be exercisable upon written
notice (the "Acceptance Notice") to the Transferring Party within the later
of (i) thirty (30) days after delivery to the Outside Investor of the Offer
Notice and (ii) ten (10) days after the Transferring Party notifies the
Outside Investors that the Right of First Offer has not been exercised with
respect to all of the Offered Shares (the "Co-Sale Option"). The Acceptance
Notice shall indicate the maximum number of Shares such Outside Investor
wishes to sell, including the number of Shares it would sell if one or more
other Outside Investors do not elect to participate in the sale on the
terms and conditions stated in the Offer Notice, except that any Outside
Investor who holds Preferred Stock shall be permitted to sell to the
relevant purchaser Shares of Common Stock acquired upon conversion thereof
or, at its election, an option to acquire such Common Stock when it
receives the same upon such conversion at the election of such Outside
Investor or as otherwise provided in the Charter with the same effect as if
Common Stock were being conveyed. In the event that different classes or
<PAGE> 13
series of Shares become the subject of the same Transaction Offer, the
prices of such respective classes or series of Shares shall be mutually
agreed upon among all parties to such Transaction Offer to appropriately
reflect the conversion, redemption and exercise rights attaching to, as
well as the relative preferences and priorities of, the different classes
or series of shares. If the parties cannot mutually agree upon such pricing
prior to the date upon which the Transaction Offer is due to be
consummated, the Transaction Offer shall be deemed to lapse and any
Transfers of Shares pursuant to such Transaction Offer shall be deemed to
be in violation of the provisions of this Agreement unless the Transferring
Party once again complies with the provisions of Section 3.2 and this
Section 3.3 hereof with respect to such Transaction Offer.
(b) Each of the Outside Investors shall have the right to sell a
portion of its Shares pursuant to the Transaction Offer which is equal to
or less than the product obtained by multiplying (i) the total number of
Shares subject to the Transaction Offer by (ii) a fraction, the numerator
of which is the total number of shares of Common Stock owned by such
Outside Investor on the date of the Offer Notice on an as converted basis
(including any Common Stock issuable upon exercise of the Convertible
Preferred Stock or other convertible securities or exercise of any options,
warrants or subscription rights then owned by the Outside Investor), and
the denominator of which is the total number of shares of Common Stock then
held by all Outside Investors and Stockholders on the date of the Offer
Notice on an as converted basis. To the extent one or more Outside
Investors elect not to sell, or fail to exercise their right to sell, the
full amount of such Shares which they are entitled to sell pursuant to this
Section 3.3, the other Outside Investors' rights to sell Shares shall be
increased proportionately and the other Outside Investors shall have an
additional five (5) days from the date upon which they are notified (by the
Transferring Party pursuant to Section 3.3(c) below) of such election or
failure to exercise in which to increase the number of Shares to be sold by
them hereunder by notice to that effect to the Transferring Party.
(c) Within ten (10) days after the date by which the Outside
Investors were first required to notify the Transferring Party of their
intent to participate, the Transferring Party shall notify each
participating Outside Investor of the number of Shares held by such Outside
Investor that will be included in the sale; whether, and if so, to what
extent any Outside Investor elected not to sell or failed to exercise the
rights to sell; the extent to which such participating Outside Investor may
elect to increase the number of Shares to be sold by it under Section
3.3(b) above; the period within which such participating Outside Investor
is required to notify the Transferring Party of its election to increase
such numbers of Shares to be sold by it; and the date on which the
Transaction Offer will be consummated, which shall be no later than the
later of (i) thirty (30) days after the date by which the Outside Investors
were required to notify the Transferring Party of their intent to
participate and (ii) the satisfaction of any governmental approval or
filing requirements, if any.
(d) Each of the participating Outside Investors may effect its
participation in any Transaction Offer hereunder by delivery to the
Offeror, or to the Transferring Party for delivery to the Offeror, of one
<PAGE> 14
or more instruments or certificates, properly endorsed for transfer,
representing the Shares it elects to sell therein. At the time of
consummation of the Transaction Offer, the Offeror shall remit directly to
each Outside Investor that portion of the sale proceeds to which each
Outside Investor is entitled by reason of its participation therein (less
any adjustments due to the conversion of any convertible securities or the
exercise of any exercisable securities).
(e) In the event that the Transaction Offer is not consummated
within the period required by subsection (c) hereof or the Offeror fails
timely to remit to each Outside Investor its portion of the sale proceeds,
the Transaction Offer shall be deemed to lapse, and any Transfers of Shares
pursuant to such Transaction Offer shall be deemed to be in violation of
the provisions of this Agreement unless the Transferring Party once again
complies with the provisions of Section 3.2 and this Section 3.3 hereof
with respect to such Transaction Offer.
Section 3.4. Drag-Along Obligations.
(a) In the event that fifty-eight percent in interest of each of
the Series A and Series B Outside Investors (the "Electing Investors")
determine to sell or otherwise dispose of all or substantially all of the
assets of the Company or all or substantially all of the capital stock of
the Company owned by all of the Outside Investors to any non-Affiliate(s)
of the Company or of any of the Outside Investors, or to cause the Company
to merge with or into or consolidate with any non-Affiliate(s) of the
Company or of any of the Outside Investors (in each case, the "Buyer") in a
bona fide negotiated transaction (an "Acquisition"), each of the
Stockholders and other Outside Investors, including any of their respective
Permitted Transferees (collectively, the "Non-Investor Stockholders"),
shall be obligated to and shall upon the written request of the Electing
Investors: (i) sell, transfer and deliver, or cause to be sold, transferred
and delivered, to the Buyer, his, her or its Shares (including for this
purpose all of such Non-Investor Stockholder's Shares that presently or as
a result of any such transaction may be acquired upon the exercise of
options (following the payment of the exercise price therefore)) on
substantially the same terms applicable to the Electing Investors (with
appropriate adjustments to reflect the conversion of convertible
securities, the redemption of redeemable securities and the exercise of
exercisable securities as well as the relative preferences and priorities
of the Preferred Stock); and (ii) execute and deliver such instruments of
conveyance and transfer and take such other action, including voting such
Shares in favor of any Acquisition proposed by the Electing Investors and
executing any purchase agreements, merger agreements, indemnity agreements,
escrow agreements or related documents that are also executed by the
Electing Investors or as the Buyer may reasonably require in order to carry
out the terms and provisions of this Section 3.4.
(b) In the event that the Outside Investors do not exercise their
"drag-along" rights in Section 3.4(a) above with respect to an Acquisition
to a Buyer, each Founding Investor shall have the right, exercisable by the
delivery of written notice to the Company and each of the Outside Investors
at least twenty (20) days prior to the date proposed for the closing of the
Acquisition, to require the Outside Investors to include such Founding
Investor's Shares in the Acquisition on the same terms as the Outside
Investors' Shares (with appropriate adjustments to reflect the conversion
<PAGE> 15
of convertible securities, the redemption of redeemable securities and the
exercise of exercisable securities as well as the relative priorities and
preferences of the Preferred Stock and the terms of any options issued by
the Company).
(c) Not less than thirty (30) days prior to the date proposed for
the closing of any Acquisition, the Outside Investors shall give written
notice to each Non-Investor Stockholder, setting forth in reasonable detail
the name or names of the Buyer, the terms and conditions of the
Acquisition, including the purchase price, and the proposed closing date.
In furtherance of the provisions of this Section 3.4, each of the
Non-Investor Stockholders hereby (i) irrevocably appoints Alta
Communications, Inc. as its agent and attorney-in-fact (the "Agent") (with
full power of substitution) to execute all agreements, instruments and
certificates and take all actions necessary or desirable to effectuate any
Acquisition hereunder; and (ii) grants to the Agent a proxy (which shall be
deemed to be coupled with an interest and irrevocable) to vote the Shares
held by such Non-Investor Stockholder and exercise any consent rights
applicable thereto in favor of any Acquisition hereunder; provided,
however, that the Outside Investors shall not exercise such
powers-of-attorney or proxies with respect to any Non-Investor Stockholder
unless such Non-Investor Stockholders are in breach of their obligations
under this Section 3.4.
Section 3.5. Prohibited Transfers. If any Transfer is made or attempted
contrary to the provisions of this Agreement, such purported Transfer shall be
void ab initio; the Company, the Outside Investors and the Other Stockholders
shall have, in addition to any other legal or equitable remedies which they may
have, the right to enforce the provisions of this Agreement by actions for
specific performance (to the extent permitted by law); and the Company shall
have the right to refuse to recognize any Transferee as one of its stockholders
for any purpose. Without limitation to the foregoing, each of the Outside
Investors and Stockholders further agrees that the provisions of Section 6.7
shall apply in the event of any violation or threatened violation of this
Agreement.
ARTICLE IV REGISTRATION RIGHTS
The Company's obligation to register shares of Common Stock under this
Article IV shall terminate seven (7) years following the closing by the Company
of its first underwritten public offering pursuant to a registration statement
under the Securities Act (an "IPO") or, with respect to shares held by
particular Investors who hold less than two percent (2%) of the then outstanding
Common Stock of the Company and commencing on the first anniversary of any IPO,
whenever all such shares can be legally transferred in any consecutive three (3)
month period under Rule 144 of the Securities Act as reasonably determined by
the Company and communicated to such Investors in writing; provided that, in all
circumstances, Section 4.7 shall remain in effect for seven years following the
closing of the IPO.
Section 4.1. Piggyback Registration Rights. If at any time or times
after the date hereof, the Company shall determine to register any shares of its
Common Stock or securities convertible into or exchangeable or exercisable for
shares of Common Stock under the Securities Act (whether in connection with a
public offering of securities by the Company (a "primary offering"), a public
offering of securities by stockholders (a "secondary offering"), or both, but
not in connection with a registration statement on Form S-4 or S-8 or any
<PAGE> 16
substitute form that is adopted by the Commission, a registration statement
filed in connection with an exchange offer of securities solely to the Company's
existing securityholders or a registration effected pursuant to Sections 4.2 or
4.3 hereof), the Company will promptly give written notice thereof to the
Investors. In connection with any such registration, if within thirty (30) days
after their receipt of such notice any Investor requests the inclusion in such
registration of some or all of the Common Stock owned by such Investor, or into
which any Shares held by such Investor are convertible or exchangeable (the
"Registrable Shares"), the Company will use its best efforts to effect the
registration under the Securities Act of all Registrable Shares which all such
Investors so request; provided, however, that if the Company is advised in
writing in good faith by the managing underwriter of the Company's securities
being offered in a public offering pursuant to such registration statement that
the amount to be sold by persons other than the Company (collectively, "Selling
Stockholders") is greater than the amount which can be offered without adversely
affecting the offering, the Company may reduce the amount offered for the
accounts of Selling Stockholders (including such holders of shares of
Registrable Shares) to a number deemed satisfactory by such managing
underwriter; provided that the shares to be excluded shall be determined in the
following order of priority: (i) securities held by any Persons not having any
such contractual, incidental registration rights shall be excluded first, (ii)
securities held by any Persons having contractual, incidental registration
rights pursuant to an agreement other than this Agreement shall be excluded
second, and (iii) Registrable Shares sought to be included by the Investors
shall be excluded last and any reduction in such number shall be determined on a
pro rata basis (based upon the aggregate number of Registrable Shares held by
such holders); and provided further, however, that if such registration is other
than the IPO, the managing underwriter may (subject to the allocation priority
set forth above) limit the number of Registrable Shares to be included in the
registration and underwriting to not less than forty percent (40%) of the
securities included therein (based on aggregate market values). The Company
shall advise all Investors promptly after such determination by the managing
underwriter, and the number of shares of Registrable Shares that may be included
in the registration and underwriting of the offering shall be allocated among
all Investors in proportion, as nearly as practicable, to their respective
holdings of Registrable Shares. If the Company includes in such registration any
Registrable Shares to be offered by it, all expenses of the registration and
offering and the reasonable fees and expenses of one independent counsel for all
of the Investors as a group shall be borne by the Company, except that the
Investors shall bear underwriting and selling commissions attributable to their
Registrable Shares being registered and transfer taxes on Shares being sold by
such Investors.
Section 4.2. Demand Registration Rights. If on any four (4) occasions
(which occasions shall in no event be less than six months apart from each
other) after the earlier of (i) February 12, 1999 or (ii) six (6) months after
the closing of the IPO, holders of an aggregate of at least twenty percent (20%)
of the Registrable Shares (excluding any shares of Series B Preferred Stock or
any shares of Common Stock issued upon conversion of such Series B Preferred
Stock) held collectively by the Series A Outside Investors and the Founding
Investors or their respective Transferees (the "Series A Registrable Shares") or
holders of an aggregate of at least twenty percent (20%) of the Registrable
Shares (excluding any shares of Series A Preferred Stock or any shares of Common
Stock issued upon conversion of such Series A Preferred Stock) held by the
<PAGE> 17
Series B Outside Investors or their respective Transferees (the "Series B
Registrable Shares") (or in the case of the IPO, holders of an aggregate of at
least fifty-eight percent of the Series A or Series B Convertible Preferred
Shares prior to conversion of such Shares of such series or holders of an
aggregate of at least fifty-one percent (51%) of the Series A or Series B
Registrable Shares following any such conversion) shall notify the Company in
writing that it or they intend to offer or cause to be offered for public sale
all or any portion of its or their Registrable Shares, the Company will notify
all of the Investors of its receipt of such notification from such Investor(s);
provided, however, that the holders of the Series A Registrable Shares and
Convertible Preferred Shares (as applicable), and the holders of the Series B
Registrable Shares and Convertible Preferred Shares (as applicable),
respectively, shall be entitled to exercise such rights on no more than two (2)
occasions. If within thirty (30) days after their receipt of such notice any
Investor requests the inclusion of some or all of the Registrable Shares owned
by such Investor in such registration, the Company will use its best efforts to
cause such Registrable Shares so requested (including the Registrable Shares
held by the Investor(s) giving the initial notice of intent to register
hereunder) to be registered under the Securities Act in accordance with the
terms of this Section 4.2; provided, however, that unless such registration
becomes effective, the Investors of the applicable series shall be entitled to
require an additional registration pursuant to this Section 4.2; and, provided
further that if the managing underwriter of the offering determines in good
faith that a limitation on the number of shares to be underwritten is required,
the shares to be excluded shall be determined in the following order of
priority: (i) shares held by any Persons not having any such contractual, demand
registration rights shall be excluded first, (ii) shares held by any Persons
having contractual, demand registration rights pursuant to an agreement other
than this Agreement shall be excluded second, (iii) shares registered for the
benefit of the Company shall be excluded third, and (iv) Registrable Shares
sought to be included by the Investors shall be excluded last and any reduction
in such number shall be determined on a pro rata basis (based upon the aggregate
number of Registrable Shares held by such holders).
All expenses of such registrations and offerings and the reasonable
fees and expenses of one independent counsel for all of the Investors as a group
shall be borne by the Company. The Company may postpone the filing of any
registration statement required hereunder for a reasonable period of time, not
to exceed 90 days during any twelve month period, if the Company determines in
good faith that such filing would require the disclosure of a material
transaction or other matter and the Company determines reasonably and in good
faith that such disclosure would have a material adverse effect on the Company
or otherwise would not be in the best interest of the Company. The Company shall
not be required to cause a registration statement requested pursuant to this
Section 4.2 to become effective prior to 180 days following the effective date
of a Registration Statement initiated by the Company and relating to the
Company's IPO (or 90 days with respect to any subsequent underwritten public
offering), if the request for registration has been received by the Company
<PAGE> 18
subsequent to the giving of written notice by the Company, made in good faith,
to the Investors to the effect that the Company is commencing to prepare a
Company-initiated Registration Statement (other than a registration effected
solely to implement an employee benefit plan or a transaction to which Rule 145
or any other similar rule of the Commission under the Securities Act is
applicable); provided, however, that the Company shall use its best efforts to
achieve such effectiveness promptly following such period if the request
pursuant to this Section 4.2 has been made prior to the expiration of such
period. If so requested by any Investor in connection with a registration under
this paragraph, the Company shall take such steps as are required to register
the Investors' Registrable Shares for sale on a delayed or continuous basis
under Rule 415, and also take such steps as are required to keep any
registration effective until all of the Investors' Registrable Shares registered
thereunder are sold. Notwithstanding the foregoing, the Company shall have no
obligation to keep any registration effective more than 120 days after the
initial date of effectiveness of such registration.
Section 4.3. Form S-3. If the Company becomes eligible to use Form S-3
under the Securities Act or a comparable successor form for secondary offerings
by its shareholders, (a) the Company shall use its best efforts to continue to
qualify at all times for registration of its capital stock on Form S-3 or such
successor form, and (b) holders of an aggregate of not less than ten percent
(10%) of the Series A or Series B Registrable Shares shall have the right to
request and have effected one (1) registration of Shares having an aggregate
proposed offering price of not less than $5,000,000 on Form S-3 or such
successor form (such requests shall be in writing and shall state the number of
Shares to be disposed of and the intended method of disposition of such Shares
by such Investor(s)) within any consecutive twelve (12) month period. The
Company will notify all of the holders of Registrable Shares of its receipt of
such notification from such holders. If within thirty (30) days after their
receipt of such notice any Investor requests the inclusion of some or all of the
Registrable Shares owned by such Investor in such registration, the Company will
use its best efforts to cause such Registrable Shares so requested (including
the Registrable Shares held by the Investor(s) giving the initial notice of
intent to register hereunder) to be registered on Form S-3 or such successor
form to the extent requested by such Investor(s). If so requested by such
Investor(s) in connection with a registration under this Section 4.3, the
Company shall take such steps as are required to register such Investor's
Registrable Shares for sale on a delayed or continuous basis under Rule 415, and
to keep such registration effective until all of such Investor's Registrable
Shares registered thereunder are sold. Notwithstanding the foregoing, the
Company shall have no obligation to keep any registration effective more than
180 days after the initial date of effectiveness of such registration. All
expenses incurred in connection with a registration requested pursuant to this
Section 4.3 and the reasonable fees and expenses of one independent counsel for
all of the Investors as a group shall be borne by the Company. The Company may
postpone the filing of any Registration Statement required hereunder for a
reasonable period of time, not to exceed 90 days, if the Company determines in
good faith that such filing would require the disclosure of a material
transaction or other factor and the Company determines reasonably and in good
faith that such disclosure would have a material adverse effect on the Company.
The Company shall not be required to cause a Registration Statement requested
pursuant to this Section 4.3 to become effective prior to 180 days following the
effective date of a Registration Statement initiated by the Investors pursuant
to Section 4.2 or by the Company and relating to the Company's IPO (or 90 days
with respect to any subsequent underwritten public offering), if the request for
registration has been received by the Company subsequent to the giving of
written notice by the Company, made in good faith, to the Investors to the
effect that the Company is commencing to prepare a Company-initiated
Registration Statement (other than a registration effected solely to implement
an employee benefit plan or a transaction to which Rule 145 or any other similar
rule of the Commission under the Securities Act is applicable); provided,
however, that the Company shall use its best efforts to achieve such
effectiveness promptly following such period if the request pursuant to this
Section 4.3 has been made prior to the expiration of such period.
Section 4.4. Further Obligations of the Company. Whenever, under the
provisions of Sections 4.1, 4.2 or 4.3 of this Agreement, the Company is
<PAGE> 19
required to register any Registrable Shares, it agrees that it shall also do the
following:
(a) Use its best efforts to diligently prepare and file with the
Commission a registration statement and such amendments, post-effective
amendments and supplements to said registration statement and the
prospectus used in connection therewith as may be necessary to keep said
registration statement effective and to comply with the provisions of the
Securities Act with respect to the sale of securities covered by said
registration statement for the period necessary to complete the proposed
public offering;
(b) Furnish to each selling Investor such copies of each
preliminary and final prospectus and such other documents as such Investor
may reasonably request to facilitate the public offering of its Registrable
Shares;
(c) Enter into any customary underwriting agreement required by
the proposed underwriter for the selling Investors, if any;
(d) Use its commercially reasonable efforts to register or
qualify the securities covered by said registration statement under the
securities or "blue-sky" laws of such jurisdictions as any selling
Investors may reasonably request, provided that the Company shall not be
required to register or qualify the securities in any jurisdictions which
require it to qualify to do business or subject itself to general service
of process therein;
(e) Immediately notify each selling Investor, at any time when a
prospectus relating to his Registrable Shares is required to be delivered
under the Securities Act, of the happening of any event as a result of
which such prospectus contains an untrue statement of a material fact or
omits any material fact necessary to make the statements therein not
misleading, and, at the request of any such selling Investor, prepare a
supplement or amendment to such prospectus so that, as thereafter delivered
to the purchasers of such Registrable Shares, such prospectus will not
contain any untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein not misleading;
(f) Cause all such Registrable Shares to be listed on or included
in each securities exchange or quotation system on which similar securities
issued by the Company are then listed;
(g) Otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission and make generally available to its
stockholders, in each case as soon as practicable, but not later than 30
days after the close of the period covered thereby an earnings statement of
the Company which will satisfy the provisions of Section 11(a) of the
Securities Act;
(h) The Company shall cooperate with each Investor and each
underwriter participating in the disposition of Registrable Shares and
their respective counsel in connection with (i) any filings required to be
made with the National Association of Securities Dealers, Inc. and (ii) any
<PAGE> 20
due diligence investigation reasonably requested by the selling Investors
and the underwriters in connection with a public offering of Registrable
Shares;
(i) The Company shall, during the period when the Prospectus is
required to be delivered under the Securities Act, promptly file all
documents required to be filed with the Commission pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act;
(j) The Company shall appoint a transfer agent and registrar for
all Registrable Shares covered by a Registration Statement not later than
the effective date of such Registration Statement; and
(k) In connection with an underwritten offering, the Company will
participate, to the extent reasonably requested by the managing underwriter
for the offering or the Investors, in efforts to sell the securities under
the offering (including without limitation, participating in "road show"
meetings with prospective investors) that would be customary in a primary
offering of equity securities of the Company.
Section 4.5. Information about Holders. Each holder of Registrable
Shares shall (a) furnish to the Company such information regarding such holder
(including a statement as to whether such holder believes or has reason to
believe that the Company is in default under any of its agreements with such
holder) and the distribution proposed by such holder as the Company may request
in writing and as shall be required in connection with any registration,
qualification or compliance referred to in this Agreement, and (b) with respect
to any underwritten public offering, enter into any customary underwriting
agreement required by the proposed underwriter for the selling Investors, if
any.
Section 4.6. Indemnification; Contribution.
(a) Incident to any registration statement referred to in this
Article IV, and subject to applicable law, the Company will indemnify and
hold harmless each underwriter or Investor who offers or sells any such
Registrable Shares in connection with such registration statement (a
"Selling Stockholder") (and in each case its partners (including partners
of partners and stockholders of any such partners) and directors, officers,
employees and agents of any of them) and each person who controls any of
them within the meaning of Section 15 of the Securities Act or Section 20
of the Exchange Act (a "Controlling Person"), from and against any and all
losses, claims, damages, expenses and liabilities, joint or several
(including any investigation, legal and other expenses incurred in
connection with, and any amount paid in settlement of, any action, suit or
proceeding or any claim asserted), to which they, or any of them, may
become subject under the Securities Act, the Exchange Act or other federal
or state statutory law or regulation, at common law or otherwise, insofar
as such losses, claims, damages or liabilities arise out of or are based on
(i) any untrue statement or alleged untrue statement of a material fact
contained in such registration statement (including any related preliminary
or definitive prospectus, or any amendment or supplement to such
registration statement or prospectus), (ii) any omission or alleged
<PAGE> 21
omission to state in such document a material fact required to be stated in
it or necessary to make the statements in it not misleading, or (iii) any
violation by the Company of the Securities Act, any state securities or
"blue sky" laws or any rule or regulation thereunder in connection with
such registration; provided, however, that the Company will not be liable
to the extent that such loss, claim, damage, expense or liability arises
from and is based on an untrue statement or omission or alleged untrue
statement or omission made in reliance on and in conformity with
information furnished in writing to the Company by such underwriter,
Selling Stockholder or Controlling Person expressly for use in such
registration statement or any willful or knowing violation of applicable
securities laws. With respect to such untrue statement or omission or
alleged untrue statement or omission in the information furnished in
writing to the Company by such Selling Stockholder expressly for use in
such registration statement, such Selling Stockholder will indemnify and
hold harmless each underwriter, the Company (including its directors,
officers, employees and agents), each Investor (including its partners
(including partners of partners and stockholders of such partners) and
directors, officers, employees and agents of any of them) so registered,
and each person who controls any of them within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act, from and against
any and all losses, claims, damages, expenses and liabilities, joint or
several, to which they, or any of them, may become subject under the
Securities Act, the Exchange Act or other federal or state statutory law or
regulation, at common law or otherwise to the same extent provided in the
immediately preceding sentence. In no event, however, shall the liability
of a Selling Stockholder for indemnification under this Section 4.6(a) in
its capacity as such (and not in its capacity as an officer or director of
the Company) exceed the lesser of (i) that proportion of the total of such
losses, claims, damages or liabilities indemnified against equal to the
proportion of the total securities sold under such registration statement
which is being sold by such Selling Stockholder or (ii) the proceeds
received by such Selling Stockholder from its sale of Registrable Shares
under such registration statement.
(b) If the indemnification provided for in Section 4.6(a) above
for any reason is held by a court of competent jurisdiction to be
unavailable to an indemnified party in respect of any losses, claims,
damages, expenses or liabilities referred to therein, then each
indemnifying party under this Section 4.6, in lieu of indemnifying such
indemnified party thereunder, shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims,
damages, expenses or liabilities (i) in such proportion as is appropriate
to reflect the relative benefits received by the Company, the indemnified
party, the other Selling Stockholders and the underwriters from the
offering of the Registrable Shares or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law, in such proportion as
is appropriate to reflect not only the relative benefits referred to in
clause (i) above but also the relative fault of the Company, the other
Selling Stockholders and the underwriters in connection with the statements
or omissions which resulted in such losses, claims, damages, expenses or
liabilities, as well as any other relevant equitable considerations. The
relative benefits received by the Company, the Selling Stockholders and the
underwriters shall be deemed to be in the same respective proportions that
<PAGE> 22
the net proceeds from the offering (before deducting expenses) received by
the Company and the Selling Stockholders and the underwriting discount
received by the underwriters, in each case as set forth in the table on the
cover page of the applicable prospectus, bear to the aggregate public
offering price of the Registrable Shares. The relative fault of the
Company, the Selling Stockholders and the underwriters shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company, the Selling
Stockholders or the underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
The Company, the Selling Stockholders, and the underwriters agree
that it would not be just and equitable if contribution pursuant to this
Section 4.6(b) were determined by pro rata or per capita allocation or by
any other method of allocation which does not take account of the equitable
considerations referred to in the immediately preceding paragraph. In no
event, however, shall a Selling Stockholder or any related indemnified
party be required to contribute any amount under this Section 4.6(b) in
excess of the lesser of (i) that proportion of the total of such losses,
claims, damages or liabilities indemnified against equal to the proportion
of the total Registrable Shares sold under such registration statement
which are being sold by such Selling Stockholder or (ii) the proceeds
received by such Selling Stockholder from its sale of Registrable Shares
under such registration statement. No person found guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities
Act) shall be entitled to contribution from any person who was not found
guilty of such fraudulent misrepresentation.
(c) The amount paid by an indemnifying party or payable to an
indemnified party as a result of the losses, claims, damages and
liabilities referred to in this Section 4.6 shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim, payable as the same
are incurred. The indemnification and contribution provided for in this
Section 4.6 will remain in full force and effect regardless of any
investigation made by or on behalf of the indemnified parties or any
officer, director, employee, agent or controlling person of the indemnified
parties.
(d) Any person entitled to indemnification hereunder will (i)
give prompt written notice to the indemnifying party of any claim with
respect to which it seeks indemnification, but the failure to do so shall
not relieve the indemnifying party from any liability, except to the extent
it is actually prejudiced by the failure or delay in giving such notice,
and (ii) unless in such indemnified party's reasonable judgment a conflict
of interest between such indemnified and indemnifying parties may exist
with respect to such claim, permit such indemnifying party to assume the
defense of such claim with counsel reasonably satisfactory to the
indemnified party. If such defense is assumed, the indemnifying party will
not be subject to any liability for any settlement made by the indemnified
party without its consent (but such consent will not be unreasonably
<PAGE> 23
withheld). No indemnifying party shall, without the prior written consent
of the indemnified parties (which consent shall not be unreasonably
withheld), settle or compromise or consent to the entry of any judgment
with respect to any pending or threatened claim, action, suit or proceeding
in respect of which indemnification or contribution may be sought hereunder
(whether or not the indemnified parties are actual or potential parties to
such claim or action) unless such settlement, compromise or consent
includes an unconditional release of each indemnified party from all
liability arising out of such claim, action, suit or proceeding. An
indemnifying party who is not entitled to, or elects not to, assume the
defense of a claim will not be obligated to pay the fees and expenses of
more than one counsel for all parties indemnified by such indemnifying
party with respect to such claim, unless in the reasonable judgment of any
indemnified party a conflict of interest may exist between such indemnified
party and any other of such indemnified parties with respect to such claim.
Section 4.7. Rule 144 Requirements. If the Company becomes subject to
the reporting requirements of either Section 13 or 15(d) of the Exchange Act,
the Company will use its best efforts thereafter to file with the Commission
such information as is specified under either of said Sections for so long as
any of the Investors hold any Registrable Shares; and in such event, the Company
shall use its best efforts to take all action as may be required as a condition
to the availability of Rule 144 under the Securities Act (or any successor or
similar exemptive rules hereafter in effect). The Company shall furnish to any
holder of Registrable Shares upon request a written statement executed by the
Company as to the steps it has taken to comply with the current public
information requirement of Rule 144 or such successor rules.
Section 4.8. Market Stand-Off. Each Investor agrees, if requested by
the Company and an underwriter of Registrable Shares of the Company, not to sell
or otherwise transfer or dispose of any Shares held by it for such period, not
to exceed 180 days following the effective date of any registration statement of
the Company filed under the Securities Act with respect to an IPO (or 90 days
with respect to any subsequent underwritten public offering following the IPO)
as the Company or such underwriter shall specify reasonably and in good faith.
Section 4.9. Transfer of Registration Rights. Subject to Section 6.11,
the registration rights and related obligations under this Article IV of the
Investors with respect to their Registrable Shares may be assigned to any
Transferee of Registrable Shares held by them, and upon such Transfer, the
relevant Transferee shall be deemed to be included within the definition of an
Investor.
ARTICLE V ELECTION OF DIRECTORS OF THE COMPANY
Section 5.1. Voting of Shares for Election of Directors of the
Company. With respect to each election or removal of members of the Board of
Directors of the Company (including, without limitation, any replacement
members), whether at an annual or special meeting of stockholders (which special
meeting may be called, solely for purposes specified under this Section 5.1, by
20% in interest of the Investors) or by written consent of stockholders, each of
the parties to this Agreement (including all Stockholders and Permitted
Transferees) agrees to vote his, her or its Shares (and any Shares over which
he, she or it exercises voting control) and to take such other action as may be
necessary to fix the number of Directors of the Company at seven (7) and to
elect as Directors of the Company and to keep in office as such, the persons
selected as follows: (a) two (2) persons designated by a majority in interest of
the Founding Investors; (b) one (1) person designated by the Alta Series A
Investors or any Transferee of a majority of the shares of Series A Preferred
Stock issued to the Alta Series A Investors under the Series A Stock Purchase
Agreement or the Company's Amended and Restated Certificate of Incorporation;
(c) one (1) person designated by the Spectrum Investors or any Transferee of a
majority of the shares of Series A Preferred Stock issued to the Spectrum
Investors under the Series A Stock Purchase Agreement or the Company's Amended
and Restated Certificate of Incorporation; (d) one (1) person designated by the
<PAGE> 24
BancBoston Series A Investor or any Transferee of a majority of the shares of
Series A Preferred Stock issued to the BancBoston Series A Investor under the
Series A Stock Purchase Agreement or the Company's Amended and Restated
Certificate of Incorporation; (e) one (1) person designated by the Norwest
Investor or any Transferee of a majority of the shares of Series B Preferred
Stock issued to the Norwest Investor under the Stock Purchase Agreement, upon
conversion of the Series B Convertible Notes or under the Company's Amended and
Restated Certificate of Incorporation; and (f) one (1) person designated by the
HarbourVest Investor or any Transferee of a majority of the shares of Series B
Preferred Stock issued to the HarbourVest Investor under the Stock Purchase
Agreement, upon conversion of the Series B Convertible Notes or under the
Company's Amended and Restated Certificate of Incorporation; provided, however,
that if any person designated by any of the Outside Investors is not an
Affiliate of an Outside Investor, such person shall be reasonably acceptable to
a majority in interest of the Founding Investors. Each of the Outside Investors,
the Stockholders and/or their Permitted Transferees, if any, further agrees to
vote his, her or its Shares (and any Shares over which he, she or it exercises
voting control) for the removal of any such designee upon the request of the
parties designating such designee, and for the election of a substitute designee
nominated by such parties upon request therefor.
Section 5.2. Committees of the Board. The Company and each of the
Outside Investors and Stockholders (including all Permitted Transferees) further
agrees to cause the Board of Directors to establish: (a) a Compensation
Committee (which shall be charged with exclusive authority over all compensation
and employment matters) and an Audit Committee (which shall be charged with
reviewing the Company's financial statements and accounting practices),
consisting in each case of six (6) Directors, five (5) of whom shall be the
directors designated by the specified Outside Investors pursuant to Section 5.1
above and one (1) of whom shall be designated by the Founding Investors; and (b)
an Executive Committee (which shall be charged with such matters as shall be
approved by at least five of the seven members of the Company's Board of
Directors (including at least two Series A Outside Investor Representatives (as
defined in the Stock Purchase Agreement) and at least one Series B Outside
Investor Representative (as defined in the Stock Purchase Agreement)) consisting
of one director designated by agreement among the Alta Series A Investors, the
Spectrum Investors and the BancBoston Series A Investor (or, in each case, any
Transferee of a majority of the shares of Series A Preferred Stock issued to
such Investor or Investors under the Series A Stock Purchase Agreement or the
Company's Amended and Restated Certificate of Incorporation); one director
designated by agreement between the Norwest Investor and the HarbourVest
Investor (or, in each case, any Transferee of a majority of the shares of Series
B Preferred Shares issued to such Investor under the Stock Purchase Agreement or
the Company's Amended and Restated Certificate of Incorporation); and two
management designees. Except for the foregoing committees or as otherwise
contemplated by this Agreement, the Company shall not permit the Board of
Directors to create any other committees or to delegate its authority to any
other Persons or groups.
Section 5.3. Vacancies. Each of the Outside Investors, Stockholders
and/or their Permitted Transferees, if any, agrees to vote his, her or its
Shares (and any Shares over which he, she or it exercises voting control), to
the extent required by Section 5.1, in such manner as shall be necessary or
appropriate so as to ensure that any vacancy occurring for any reason in the
Board of Directors of the Company held by designees of parties hereto shall be
<PAGE> 25
filled only by an individual who (a) is nominated directly or indirectly by the
party or parties that nominated directly or indirectly the director whose
departure created the vacancy, and that remains entitled at the time such
vacancy is filled to nominate directly or indirectly and have elected the
director who had held such directorship before such vacancy arose and (b) causes
the requirements described in Section 5.1 relating to the composition of the
Company's Board of Directors to be satisfied.
Section 5.4. Removal. The removal from the Board of Directors (with or
without cause) of any representative designated hereunder by an Outside Investor
or the Founding Investors shall be at such Outside Investor's or the Founding
Investors' request, respectively, but only upon such written request and under
no other circumstances (in the case of any Outside Investor, determined by such
Outside Investor, and in the case of the Founding Investors, determined by the
vote of a majority in interest of the Founding Investors).
Section 5.5. No Waiver. Any failure by any of the parties hereto to
fully exercise their rights to designate one or more Directors under this
Article V at any time shall not be construed to waive or limit their rights to
designate such Director(s) hereunder at any time thereafter.
Section 5.6. Assignment. Each of the Outside Investors and
Stockholders agrees, as a condition to any transfer of its shares, to cause the
transferee to agree to the provisions of this Article V, whereupon such
transferee shall be subject to the provisions hereof.
Section 5.7. Board of Directors of Subsidiary. Each of the Outside
Investors and Stockholders agrees, with respect to the composition, election,
removal and other considerations with respect to the Board of Directors of the
Company's subsidiaries, to cause the Company to vote, and the Company hereby
agrees to vote, its shares of capital stock of such subsidiary in a manner
consistent with and identical to the provisions set forth above in this Article
V.
Section 5.8. Observer Rights. For so long as any Outside Investor does
not have a representative serving on the Board of Directors pursuant to Section
5.1 hereof or such representative is unable to attend a meeting of the Board of
Directors or any of its committees, such Investor (or an Affiliate thereof)
shall be entitled to notice of and to have one representative (an "Observer")
attend, at its own expense, such meetings of the Board of Directors or any of
its committees; provided, however, that any such Observer (i) shall not be
entitled to participate in the discussions, deliberations or voting of the Board
of Directors or such committees and (ii) shall be excluded from any meetings or
deliberations if the Board of Directors reasonably determines that the inclusion
of such Observer might compromise or waive the attorney-client privilege for any
material matters discussed therein.
Section 5.9. Term. This Article V shall remain in effect until the
closing of a Qualified Public Offering (provided such termination of
effectiveness shall apply only in respect of each series of Preferred Stock as
to which an offering constitutes a Qualified Public Offering) or the Sale of the
Company or, if sooner, the latest date after the date hereof permitted by law.
ARTICLE VI MISCELLANEOUS PROVISIONS
Section 6.1. Survival of Representations and Covenants. Each of the
parties hereto agrees that each representation, warranty, covenant and agreement
made by each of them in this Agreement or in any certificate, instrument or
other document delivered pursuant to this Agreement is material, shall be deemed
<PAGE> 26
to have been relied upon by the other parties and shall remain operative and in
full force and effect after the date hereof regardless of any investigation.
This Agreement shall not be construed so as to confer any right or benefit upon
any Person other than the parties hereto and their respective successors and
permitted assigns to the extent contemplated herein.
Section 6.2. Legend on Securities. The Company, the Outside Investors
and the Stockholders acknowledge and agree that the following legend shall be
typed on each certificate evidencing any of the securities subject to this
Agreement held at any time by any of the Outside Investors, Stockholders or
their Permitted Transferees:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE OFFERED, SOLD, TRANSFERRED,
HYPOTHECATED OR OTHERWISE ASSIGNED EXCEPT PURSUANT TO (1) A REGISTRATION
STATEMENT WITH RESPECT TO SUCH SECURITIES WHICH IS EFFECTIVE UNDER SUCH ACT OR
(2) AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER SUCH ACT RELATING TO THE
DISPOSITION OF SECURITIES. THESE SECURITIES ARE ALSO SUBJECT TO THE PROVISIONS
OF A CERTAIN STOCKHOLDERS' AGREEMENT, DATED AS OF NOVEMBER 24, 1997, INCLUDING
CERTAIN RESTRICTIONS ON TRANSFER SET FORTH THEREIN. A COMPLETE AND CORRECT COPY
OF SUCH AGREEMENT IS AVAILABLE FOR INSPECTION AT THE PRINCIPAL OFFICE OF THE
COMPANY AND WILL BE FURNISHED UPON WRITTEN REQUEST AND WITHOUT CHARGE.
Section 6.3. Amendment and Waiver. Any party may waive any provision
hereof intended for its benefit in writing. No failure or delay on the part of
any party hereto in exercising any right, power or remedy hereunder shall
operate as a waiver thereof. The remedies provided for herein are cumulative and
are not exclusive of any remedies that may be available to any party hereto at
law or in equity or otherwise. This Agreement may be amended with the prior
written consent of the Company, a majority in interest of the Founding Investors
and fifty-eight percent in interest of each of the Series A Outside Investors
and the Series B Outside Investors; provided, however, that any amendment which
directly, materially and adversely affects any right specifically granted to a
particular Series A Outside Investor, Series B Outside Investor or Stockholder
in a manner different than other Series A Outside Investors, Series B Outside
Investors or Stockholders, respectively, shall not be effective unless such
Person has consented to that amendment. All actions by the Company hereunder
shall be taken by or upon the direction of a majority of the Directors
designated, from time to time, pursuant to Article V hereof.
Section 6.4. Notices. All notices and other communications provided
for herein shall be in writing and shall be deemed to have been duly given,
delivered and received (a) if delivered personally or (b) if sent by telex or
facsimile, registered or certified mail (return receipt requested) postage
prepaid, or by courier guaranteeing next day delivery, in each case to the party
to whom it is directed at the following addresses (or at such other address for
any party as shall be specified by notice given in accordance with the
provisions hereof, provided that notices of a change of address shall be
<PAGE> 27
effective only upon receipt thereof). Notices delivered personally shall be
effective on the day so delivered, notices sent by registered or certified mail
shall be effective three days after mailing, notices sent by telex shall be
effective when answered back, notices sent by facsimile shall be effective when
receipt is acknowledged, and notices sent by courier guaranteeing next day
delivery shall be effective on the earlier of the second business day after
timely delivery to the courier or the day of actual delivery by the courier:
(a) if to the Company:
Golden Sky Holdings, Inc.
605 W. 47th Street
Suite 300
Kansas City, Missouri 64112
Facsimile: (816) 753-5595
Attention: Rodney A. Weary, President
with a copy to:
Reboul, MacMurray, Hewitt,
Maynard & Kristol
45 Rockefeller Plaza
New York, New York 10111
Facsimile: (212) 841-5725
Attention: Karen C. Wiedemann, Esq.
and to:
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, Massachusetts 02109
Facsimile: (617) 523-1231
Attention: John J. Egan, Esq.
<PAGE> 28
(b) if to the Founding Investors:
Rodney A. Weary
c/o Golden Sky Systems, Inc.
605 W. 47th Street
Suite 300
Kansas City, Missouri 64112
Facsimile: (816) 753-5595
with a copy to:
Reboul, MacMurray, Hewitt,
Maynard & Kristol
45 Rockefeller Plaza
New York, New York 10111
Facsimile: (212) 841-5725
Attention: Karen C. Wiedemann, Esq.
(c) if to the Alta Series A Investors or the Alta Series B Investors:
Alta Subordinated Debt
Partners III, L.P.
Alta Communications VI, L.P.
Alta-Comm S by S, LLC
c/o Alta Communications, Inc.
One Post Office Square
Boston, Massachusetts 02109
Facsimile: (617) 482-1944
Attention: Robert F. Benbow
with a copy to:
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, Massachusetts 02109
Facsimile: (617) 523-1231
Attention: John J. Egan, Esq.
(d) if to the Spectrum Investors:
Spectrum Equity Investors, L.P.
125 High Street, Suite 2600
Boston, Massachusetts 02110
Facsimile: (617) 464-4601
Attention: William P. Collatos
<PAGE> 29
with a copy to:
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, Massachusetts 02109
Facsimile: (617) 523-1231
Attention: John J. Egan, Esq.
if to the Lion/Westpool Investors:
Lion Investments Limited
Carlton House
33 Robert Adam Street
London W1M 5AH
United Kingdom
Attention: Iain MacPhail
(e) if to the BancBoston Series A Investor or the BancBoston Series B
Investor:
BancBoston Ventures, Inc.
175 Federal Street, 10th Floor
Boston, Massachusetts 02110
Facsimile: (617) 434-1153
Attention: William O. Charman
with a copy to:
Ropes & Gray
One International Place
Boston, Massachusetts 02110
Facsimile: (617) 951-7050
Attention: Winthrop G. Minot, Esq.
(f) if to the Millennial Series A Investor or the Millennial Series B
Investor:
The Millennial Fund
c/o The Centennial Funds
1428 15th Street
Denver, Colorado 80202
Facsimile: (303) 405-7575
Attention: G. Jackson Tankersley, Jr.
<PAGE> 30
with a copy to:
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, Massachusetts 02109
Facsimile: (617) 523-1231
Attention: John J. Egan, Esq.
(g) if to the Builder Series A Investor or the Builder Series B
Investor:
Builder Investment Partnership
Five Peidmont Center, Suite 700
Atlanta, Georgia 30305
Facsimile: (404) 237-3168
Attention: Allen A. Builder
with a copy to:
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, Massachusetts 02109
Facsimile: (617) 523-1231
Attention: John J. Egan, Esq.
(h) if to the Norwest Investor:
Norwest Equity Partners V
c/o Norwest Venture Capital Management, Inc.
2800 Piper Jaffray Tower
222 South Ninth Street
Minneapolis, MN 55402
Facsimile: (612) 667-1660
Attention: Erik Torgerson
with a copy to:
Faegre & Benson LLP
2200 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402-3901
Facsimile: (612) 336-3026
Attention: David B. Miller
<PAGE> 31
(i) if to the HarbourVest Investor:
Hancock Venture Partners V - Direct Fund L.P.
c/o HarbourVest Partners, LLC
One Financial Center
44th Floor
Boston, MA 02111
Facsimile: (617) 350-0305
Attention: Bill Johnston
with a copy to:
Debevoise & Plimpton
875 3rd Avenue
New York, NY 10022
Facsimile: (212) 909-6836
Attention: David Schwarz
(j) if to the General Electric Investor:
GE Capital Services
Structured Finance Group
120 Long Ridge Road
3rd Floor
Stamford, CT 06927
Attention: Peter Foley
(k) if to Other Stockholders:
The address set forth in the Joinder Agreement
executed by any such Other Stockholder at the time
he/she becomes an Other Stockholder.
Section 6.5. Headings. The Article and Section headings used or
contained in this Agreement are for convenience of reference only and shall not
affect the construction of this Agreement.
Section 6.6. Counterparts. This Agreement may be executed in one or
more counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which
together shall be deemed to constitute one and the same agreement.
Section 6.7. Remedies; Severability. It is specifically understood and
agreed that any breach of the provisions of this Agreement by any Person subject
hereto will result in irreparable injury to the other parties hereto, that the
remedy at law alone will be an inadequate remedy for such breach, and that, in
addition to any other legal or equitable remedies which they may have, such
other parties may enforce their respective rights by actions for specific
performance (to the extent permitted by law) and the Company may refuse to
<PAGE> 32
recognize any unauthorized Transferee as one of its stockholders for any
purpose, including, without limitation, for purposes of dividend and voting
rights, until the relevant party or parties have complied with all applicable
provisions of this Agreement.
In the event that any one or more of the provisions contained herein,
or the application thereof in any circumstances, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be in any way impaired thereby, it being
intended that all of the rights and privileges of the parties hereto shall be
enforceable to the fullest extent permitted by law.
Section 6.8. Entire Agreement. This Agreement, together with the Stock
Purchase Agreement and the Series A Stock Purchase Agreement (as defined in, and
to the extent not terminated by, the Stock Purchase Agreement) and the other
agreements specifically contemplated hereby and thereby, is intended by the
parties as a final expression of their agreement and intended to be complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein and therein. This Agreement and
the Stock Purchase Agreement (and the Series A Stock Purchase Agreement to the
extent not terminated by the Stock Purchase Agreement) and other agreements
contemplated hereby and thereby (including the exhibits hereto and thereto)
supersede all prior agreements and understandings between the parties with
respect to such subject matter. Without limiting the generality of the
foregoing, the parties hereto which were also parties to the Series A
Stockholders' Agreement hereby terminate such agreement, which agreement shall
be of no further force and effect.
Section 6.9. Adjustments. All references to share prices and amounts
herein shall be equitably adjusted to reflect stock splits, stock dividends,
recapitalizations and similar changes affecting the capital stock of the
Company.
Section 6.10. Law Governing. This Agreement shall be construed and
enforced in accordance with and governed by the laws of the State of New York
(without giving effect to principles of conflicts of law), except that any
Delaware corporate law matters relating to the Company shall be construed and
enforced in accordance with and governed by the Delaware General Corporation Law
(without giving effect to principles of conflicts of law). Each party also
waives trial by jury in any action relating to this Agreement.
Section 6.11. Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the respective successors and assigns of the
parties hereto, but may not be assigned by any Stockholder without the prior
written consent of fifty-eight percent in interest of each of the Series A
Outside Investors and the Outside Investors, and without such prior written
consent any attempted transfer shall be null and void.
[Remainder of Page Intentionally Left Blank]
<PAGE> 33
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
COMPANY:
GOLDEN SKY HOLDINGS, INC.
By: /s/ Rodney A. Weary
-------------------------
Name: Rodney A. Weary
Title: Chief Executive Officer
ALTA SERIES A INVESTORS AND
ALTA SERIES B INVESTORS:
ALTA SUBORDINATED DEBT
PARTNERS III, L.P.
By: Alta Subordinated Debt
Management III, L.P.
By: /s/ Eileen McCarthy
--------------------------
Name: Eileen McCarthy
Title: General Partner
ALTA COMMUNICATIONS VI, L.P.
By: Alta Communications VI Management
Partners, L.P.
By: /s/ Eileen McCarthy
--------------------------
Name: Eileen McCarthy
Title: General Partner
<PAGE> 34
ALTA-COMM S BY S, LLC
By: /s/ Eileen McCarthy
--------------------------
Name: Eileen McCarthy
Title: Member
SPECTRUM INVESTORS:
SPECTRUM EQUITY INVESTORS L.P.
By: Spectrum Equity Associates L.P.,
General Partner
By: /s/ William P. Collatos
--------------------------
Name: William P. Collatos
Title: General Partner
SPECTRUM EQUITY
INVESTORS II, L.P.
By: Spectrum Equity Associates II, L.P.,
General Partner
By: /s/ William P. Collatos
--------------------------
Name: William P. Collatos
Title: General Partner
LION/WESTPOOL INVESTORS:
LION INVESTMENTS LIMITED
By: /s/ Patrick Raynor
--------------------------
Name: Patrick
Title: Director
<PAGE> 35
WESTPOOL INVESTMENT TRUST
By: /s/ Patrick Raynor
--------------------------
Name: Patrick
Title: Director
WEBER FAMILY TRUST dated 1/6/89
By: /s/ E.M. Weber
--------------------------
Name: E.M. Weber
Title: Trustee
BANCBOSTON VENTURES INC.
By: /s/ William O. Charman
--------------------------
Name: William O. Charman
Title: Vice President
<PAGE> 36
MILLENNIAL SERIES A INVESTOR AND
MILLENIAL SERIES B INVESTOR:
THE MILLENNIAL FUND
By: /s/ Jack Tankersley, Jr.
--------------------------
Name: G. Jackson Tankersley, Jr.
BUILDER SERIES A INVESTOR AND
BUILDER SERIES B INVESTOR:
BUILDER INVESTMENT
PARTNERSHIP
By: /s/ Allen A. Builder
--------------------------
Name: Allen A. Builder
Title: General Partner
NORWEST EQUITY PARTNERS V, A
MINNESOTA LIMITED PARTNERSHIP
By: Itasca Partners V, L.L.P.
General Partner
By: /s/ Eric Torgerson
--------------------------
Name: Eric Torgerson
Title: Partner
<PAGE> 37
HANCOCK VENTURE PARTNERS
V-DIRECT FUND L.P.
By: HVP V-Direct Associates, LLC
By: HarbourVest Partners, LLC
By: /s/ WIlliam A. Johnson
--------------------------
Name: William A. Johnson
Title: Partner
GENERAL ELECTRIC CAPITAL
CORPORATION
By: /s/ Molly S. Fergusson
--------------------------
Name: Molly S. Fergusson
Title: Manager, Operations
FOUNDING INVESTORS:
Rodney A. Weary Revocable Trust Dated
10/25/95
By: /s/ Rodney A. Weary
--------------------------
Name: Rodney A. Weary
Title: Trustee
F.G. Weary III Revocable Trust
By: /s/ F.G. Weary
--------------------------
Name: F.G. Weary
Title: Trustee
<PAGE> 38
Sarah Weary Revocable Trust
By: /s/ Sarah Weary
--------------------------
Name: Sarah Weary
Title: Trsutee
/s/ Robert B. Liepold
-----------------------------
Robert B. Liepold
/s/ Ron D. Foster
-----------------------------
Ron D. Foster
/s/ Jo Ellen Linn
-----------------------------
Jo Ellen Linn
/s/ Robert Weaver
-----------------------------
Robert Weaver
/s/ Donald Tucker
-----------------------------
Donald Tucker
/s/ Barbara Tucker
-----------------------------
Barbara Tucker
/s/ Robert H. Weaver
-----------------------------
Robert H. Weaver
/s/ Jeff K. Ramsey
-----------------------------
Jeff K. Ramsey
/s/ Rebecca D. Ramsey
-----------------------------
Rebecca D. Ramsey
<PAGE> 39
A Delaware Trust
By: /s/ Arthur B. Ramsey
--------------------------
Arthur B. Ramsey, Trustee
Ramsey Trust Dated 12/14/95
By: /s/ Arthur B. Ramsey
--------------------------
Arthur Ramsey, Trustee
By: /s/ Lyle Ramsey
--------------------------
Lyle Ramsey, Trustee
/s/ Paul Spurgeon
-----------------------------
Paul Spurgeon
/s/ Andy O'Pry, Sr.
-----------------------------
Andy O'Pry, Sr.
/s/ Jane O'Pry
-----------------------------
Jane O'Pry
/s/ Robert H. Weisert
-----------------------------
Robert Weisert
/s/ T.P. Dewhirst
-----------------------------
Tim Dewhirst
/s/ Richard A. Nerby
-----------------------------
Rick Nerby
/s/ John M. Burros
-----------------------------
Michael Burros
/s/ Shawn M. Richardson
-----------------------------
Shawn Richardson
/s/ Jacob Osborne
-----------------------------
Jacob Osborne
<PAGE> 40
/s/ Clinton Noren
-----------------------------
Clint Noren
/s/ Sandra Noren
-----------------------------
Sandra Noren
/s/ Andy O'Pry, Jr.
-----------------------------
Andy O'Pry, Jr.
/s/ Cory Duffy
-----------------------------
Cory Duffy
/s/ Eric Norgate
-----------------------------
Eric Norgate
/s/ Harold Poulsen
------------------------------------
Harold Poulsen
/s/ Carmen Poulsen
------------------------------------
Carmen Poulsen
<PAGE> 41
/s/ J. Mark Poulsen
------------------------------------
J. Mark Poulsen
/s/ Randy Robertson
------------------------------------
Randy Robertson
/s/ Mark Robertson
------------------------------------
Mark Robertson
/s/ Shirley Fjield
------------------------------------
Shirley Fjield
/s/ Jack S. Ramirez
------------------------------------
Jack S. Ramirez
DAVID GARLAND O'PRY
IRREVOCABLE TRUST
By: /s/ Andrew W. O'Pry. Sr.
---------------------------
Name:Andrew W. O'Pry. Sr.
Title: Trustee
/s/ J.W. Braman
-----------------------------------
J.W. Braman
/s/ D.H. Braman
-----------------------------------
D.H. Braman
KATE O'CONNOR TRUST FOR
THOMAS EDWARD BRAMAN
By: /s/ Kate O' Connor
---------------------------
Name: Kate O' Connor
Title: Trustee
<PAGE> 42
EXHIBIT A
Form of Joinder Agreement
The undersigned hereby agrees, effective as of the date hereof, to
become a party to that certain Stockholders' Agreement (the "Agreement") dated
as of November __, 1997 by and among Golden Sky Holdings, Inc. (the "Company")
and the parties named therein and for all purposes of the Agreement, the
undersigned shall be included within the term ["Investor"] ["Other Stockholder"]
and ["Stockholder"] (each as defined in the Agreement). As of the date hereof
the undersigned makes each of the representations and warranties set forth in
Section 2.1 of the Agreement. The address and facsimile number to which notices
may be sent to the undersigned is as follows:___________________________________
Facsimile No.____________________.
------------------------------
[NAME OF UNDERSIGNED]
