SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-24924
-------------------
THE ASSOCIATED GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 51-0260858
(State of Incorporation) (I.R.S. Employer Identification No.)
200 Gateway Towers, Pittsburgh, Pennsylvania 15222
(Address of principal executive offices) (Zip Code)
412-281-1907
(Registrant's telephone number)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
The number of shares outstanding of each of the issuer's classes of
common stock, as of August 9, 1996:
Common Stock, Class A 9,382,962
Common Stock, Class B 9,396,910
PART I
FINANCIAL INFORMATION
THE ASSOCIATED GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
----------------------------------
(amounts in thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (approximates fair value) $ 1,158 $ 1,018
Accounts receivable, less allowance for
doubtful accounts (June 30, 1996--$3,637,000;
December 31, 1995--$183,000) 4,744 626
Notes receivable from foreign affiliates 196 191
Inventory held for resale 1,409 1,311
Prepaid expenses and other assets 773 860
Deferred income taxes 1,689 1,057
-------- --------
Total current assets 9,969 5,063
Property and equipment, net of accumulated
depreciation and amortization (June 30, 1996--$23,394,000;
December 31, 1995--$7,676,000) 26,970 3,117
Marketable equity securities, at fair value
(cost: June 30, 1996--$6,883,000;
December 31, 1995--$6,898,000) 498,610 540,082
Notes receivable from foreign affiliates 20,046 11,240
Investments in wireless communications affiliates 14,571 13,602
Other noncurrent assets 8,662 1,367
-------- --------
Total assets $578,828 $574,471
======== ========
</TABLE>
See notes to consolidated financial statements
THE ASSOCIATED GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
----------------------------------
(amounts in thousands)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 6,723 $ 4,681
Other accrued expenses 1,844 1,297
Due to cellular equipment vendor 14,952 -
Short-term obligations 48,206 33,470
Current portion of long-term debt 2,082 -
-------- --------
Total current liabilities 73,807 39,448
Deferred compensation 1,303 1,264
Long-term debt, excluding current portion 9,367 -
Deferred income taxes 158,512 175,564
Minority interests 10,177 797
Commitments and contingencies - -
Stockholders' equity:
Preferred stock, par value $.01 per share;
authorized 5,000,000 shares; none issued - -
Class A Common Stock, par value $.10 per share;
authorized 100,000,000 shares; 9,382,962 issued
and outstanding in 1996 and 1995 938 938
Class B Common Stock, par value $.10 per share;
authorized 50,000,000 shares; 9,396,910 and
9,382,985 issued and outstanding in 1996 and 1995 940 938
Additional paid-in capital 11 -
Unrealized gain on marketable equity securities,
net of deferred taxes (June 30, 1996--$172,104,000;
December 31, 1995--$186,614,000) 319,623 346,570
Retained earnings 4,150 8,952
-------- --------
Total stockholders' equity 325,662 357,398
-------- --------
Total liabilities and stockholders' equity $578,828 $574,471
======== ========
</TABLE>
See notes to consolidated financial statements
THE ASSOCIATED GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1996 1995 1996 1995
--------------------------------- --------------------------------
(amounts in thousands, except share and per share amounts)
<S> <C> <C> <C> <C>
Revenues:
Cellular communication services $ 3,930 $ - $ 7,472 $ -
Microwave communication services 393 479 813 961
Radio broadcasting 588 536 930 936
Art gallery sales 178 68 310 387
-------------- ------------- ------------- --------------
5,089 1,083 9,525 2,284
Costs and expenses:
Cost of sales:
Cellular communication services 2,164 - 4,068 -
Microwave communication services 176 190 370 381
Radio broadcasting 164 136 329 267
Art gallery sales 133 69 229 339
Direct research and development expenses 1,955 1,228 3,683 2,236
Sales, general and administrative expenses 4,349 2,507 8,537 5,082
Depreciation and amortization expense 1,245 322 2,513 669
-------------- ------------- ------------- --------------
10,186 4,452 19,729 8,974
-------------- ------------- ------------- --------------
Operating loss (5,097) (3,369) (10,204) (6,690)
Equity in loss of affiliates (467) (487) (794) (1,157)
Other income (expense):
Gain on sale of marketable equity securities 719 1 3,397 1
Interest and dividend income 432 244 1,128 718
Interest expense (813) (422) (2,007) (724)
Minority interests 501 - 1,351 (1)
-------------- ------------- ------------- --------------
839 (177) 3,869 (6)
-------------- ------------- ------------- --------------
Loss before income taxes (4,725) (4,033) (7,129) (7,853)
Income tax benefit 1,512 1,379 2,327 2,692
-------------- ------------- ------------- --------------
Net loss $ (3,213) $ (2,654) $ (4,802) $ (5,161)
============== ============= ============= ==============
Net loss per common share $ (.17) $ (.14) $ (.26) $ (.28)
============== ============= ============= ==============
Weighted average common shares outstanding 18,769,428 18,765,947 18,767,936 18,765,947
</TABLE>
See notes to consolidated financial statements
THE ASSOCIATED GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1996 1995
-------------------------------------------
(amounts in thousands)
<S> <C> <C>
Cash Flows From Operating Activities
Net loss $ (4,802) $ (5,161)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 2,513 669
Loss on disposal of property and equipment - 156
Provision for losses on accounts receivable 628 77
Gain on sale of marketable equity securities (3,397) (1)
Equity in loss of affiliates 794 1,157
Minority interests (1,351) 1
Provision for deferred income taxes (2,541) (2,692)
Change in assets and liabilities:
Accounts receivable (2,215) (105)
Inventory held for resale 137 176
Prepaid expenses and other assets 407 145
Accounts payable (804) 64
Accrued transaction expenses - (5,433)
Other accrued expenses (580) (872)
Deferred compensation 39 45
-------------- --------------
Net Cash Used In Operating Activities (11,172) (11,774)
Cash Flows From Investing Activities
Cash and cash equivalents from consolidation of affiliate 751 -
Cash paid for acquisition (2,639) -
Purchases of property and equipment (1,790) (273)
Proceeds from sale of marketable equity securities 3,412 2
Increase in notes receivable from foreign affiliates (1,674) (684)
Investments in wireless communications affiliates (2,672) (320)
Other investing activities, net (427) (28)
-------------- --------------
Net Cash Used In Investing Activities (5,039) (1,303)
Cash Flows From Financing Activities
Proceeds from short-term obligations, net 14,736 11,262
Long-term debt assumed by cellular equipment vendor (2,845) -
Increase in due to cellular equipment vendor 3,450 -
Repayment of long-term debt (1,041) -
Investment by minority interests 2,038 1
Proceeds from stock option exercises 13 -
-------------- --------------
Net Cash Provided By Financing Activities 16,351 11,263
-------------- --------------
Net Increase (Decrease) In Cash And Cash Equivalents 140 (1,814)
Cash And Cash Equivalents At Beginning Of Period 1,018 1,919
-------------- --------------
Cash And Cash Equivalents At End Of Period $ 1,158 $ 105
============== ==============
</TABLE>
See notes to consolidated financial statements
THE ASSOCIATED GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. 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, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and six months ended June 30,
1996, are not necessarily indicative of the results that may be expected for the
year ended December 31, 1996. For further information, refer to the financial
statements and footnotes thereto included in The Associated Group, Inc. (the
"Company," as used herein, includes all consolidated subsidiaries, unless the
context otherwise indicates) Annual Report on Form 10-K for the year ended
December 31, 1995. The audited financial statements of Grupo Portatel, S.A. de
C.V. and Subsidiaries for the years ended December 31, 1995, 1994 and 1993 are
included as Exhibit 99.1 to The Associated Group, Inc. Annual Report on Form
10-K for the year ended December 31, 1995.
Certain amounts in the financial statements for the 1995 periods have been
reclassified to conform to the financial statement presentation for the current
period. These reclassifications have no effect on net loss.
2. CONSOLIDATION OF GRUPO PORTATEL, S.A. de C.V.
At June 30, 1996, the Company, through a wholly owned subsidiary, Associated
Communications of Mexico, Inc. ("ACM"), has a 30.2% interest in Grupo Portatel,
S.A. de C.V. ("Grupo"), of which Portatel del Sureste, S.A. de C.V.
("Portatel"), a Mexican cellular telephone company, is a wholly owned
subsidiary. Effective January 1, 1996, the Company and the other United States
shareholder of Grupo agreed to contribute their respective stock interests in
Grupo, as well as their rights under an Association in Participation Agreement
("AP Agreement") and a related Joint Venture Agreement, to Grupo Holdings,
L.L.C. ("Grupo Holdings"), a new joint venture limited liability company, in
which the Company has a 61.6% controlling equity interest. Through December 31,
1995, the Company recorded its investment in Grupo using the equity method. As a
result of the formation of Grupo Holdings and the effects of the AP Agreement,
the Company has consolidated the financial statements of Grupo with the
Company's financial statements as of January 1, 1996.
At June 30, 1996, excluding the effects of the AP Agreement and any dilution
that may result from the debt to equity conversion discussed in Note 9, the
Company has a 30.2% economic ownership interest and through Grupo Holdings
controls a 49.0% voting interest in Grupo. Upon closing of the agreement
discussed in Note 9, excluding the effects of the AP Agreement, the Company's
ownership interest in Grupo will be reduced to approximately 23.6%. Subsequent
to this transaction, through the AP Agreement and control of Grupo Holdings, the
Company will continue to exert sufficient control over Grupo to warrant
consolidation of Grupo's financial statements.
As a result of the consolidation of Grupo's financial statements and the
formation of Grupo Holdings, equity in loss of affiliates in the 1996 period no
longer includes Grupo, and at June 30, 1996, the Company's minority interests
include third-party ownership interests of 69.8% and 38.4% for Grupo and Grupo
Holdings, respectively. The Company's balance sheet includes $7,162,000 of notes
receivable and accrued interest from foreign affiliates resulting from the
formation of and initial contributions to Grupo Holdings by the minority member
of Grupo Holdings. The consolidation of Grupo has no effect on the Company's
consolidated net equity, consolidated net loss or per share data since its
economic ownership percentage is the same regardless of consolidation of Grupo.
The pro forma consolidated revenues of the Company for the three and six months
ended June 30, 1995 would have been $4,585,000 and $9,419,000, respectively,
assuming consolidation of Grupo as of January 1, 1995.
3. ACQUISITION
In the second quarter of 1996, the Company purchased the assets and was awarded
an assignment of the Federal Communications Commission ("FCC") license of radio
broadcasting station WCEZ-FM located in Delaware, Ohio, serving the
Delaware/Columbus, Ohio market, for consideration of approximately $3,250,000,
including amounts for noncompete and consulting agreements. The Company has
consolidated the results of operations of WCEZ since the date of acquisition.
The operations of WCEZ-FM are not material to the Company's revenues or net
loss.
4. FOREIGN CURRENCY TRANSLATION
The financial statements of Grupo are translated from Mexican new pesos to U.S.
dollars in accordance with Financial Accounting Standards No. 52, "Foreign
Currency Translation." Based upon the inflationary and political environment in
Mexico, along with the economic dependency Grupo has had on its shareholders
(including the Company) and the source of its cash outflows, the U.S. dollar has
been utilized as the functional currency. Nonmonetary assets and liabilities
have been translated at historical exchange rates and monetary assets and
liabilities have been translated based on the current exchange rate. Revenues
and expenses have been translated at the weighted average exchange rate in
effect during the period. Foreign currency translation gains and losses are
included in the statement of operations.
5. INVENTORY HELD FOR RESALE
Inventory, which consists of art prints of $1,244,000 and $1,311,000 at June 30,
1996 and December 31, 1995, respectively, and cellular telephones and related
equipment of $165,000 and $0 at June 30, 1996 and December 31, 1995,
respectively, is recorded at the lower of cost or market value. Cost of art
prints is determined under the first-in, first-out method and cost of cellular
telephones and related equipment is determined under the last-in, first-out
method. Inventory is reported net of a market valuation reserve relating to art
inventory of $1,574,000 and $1,582,000 at June 30, 1996 and December 31, 1995,
respectively.
6. MARKETABLE EQUITY SECURITIES
The cost and market value of marketable equity securities classified as
available for sale at June 30, 1996, are as follows:
<TABLE>
<CAPTION>
Cost of Market Value of
Name of Issuer and Number of Each Issue Each Issue
Title of Each Issue Shares In Thousands In Thousands
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tele-Communications, Inc.:
TCI Group Series A Common Stock 12,479,976 $ 3,839 $226,200
TCI Group Series B Common Stock 7,071,852 1,268 134,365
Liberty Media Group Series A Common Stock 3,119,993 1,229 82,680
Liberty Media Group Series B Common Stock 1,767,963 410 51,271
General Communication, Inc.:
Class A Common Stock 326,000 9 2,608
Class B Common Stock 138,668 4 901
Others Various 124 585
--------------------------------------------
$ 6,883 $498,610
============================================
</TABLE>
During March 1996, the Company sold 41,598 shares of Tele-Communications, Inc.
("TCI") Class B 6% Cumulative Redeemable Exchangeable Junior Preferred Stock for
pretax proceeds of approximately $2,690,000, and has recognized a gain on the
sale of approximately $2,678,000. During the second quarter of 1996, the Company
sold 90,000 shares of General Communication, Inc. ("GCI") Class A Common Stock
for pretax proceeds of approximately $722,000, and has recognized a gain on the
sale of approximately $719,000.
Including the effects of the sale of marketable equity securities during the
period, the adjustment to the unrealized gain on marketable equity securities,
net of tax, recorded as a separate component of stockholders' equity was
($26,947,000) and $14,299,000 in the six months ended June 30, 1996 and 1995,
respectively.
As of August 9, 1996, the aggregate market value of the marketable equity
securities held by the Company was approximately $435,491,000, representing an
approximate $63,119,000 decrease from June 30, 1996.
7. OTHER NONCURRENT ASSETS
At June 30, 1996, included in other noncurrent assets are amounts for
preoperating expenses of Grupo of $1,338,000, net of accumulated amortization of
$1,632,000, and amounts for the cost of concession rights granted to Portatel
from the Mexican Ministry of Communications and Transportation ("SCT") to
operate cellular telephone services in the southeast region of Mexico of
$2,542,000, net of accumulated amortization of $983,000. The preoperating
expenses are being amortized over a ten year period and the cost of concession
rights is being amortized over twenty years, the life of the concession.
At June 30, 1996, also included in other noncurrent assets are amounts for
goodwill and noncompete agreements related to the second quarter 1996 purchase
of the assets of WCEZ-FM (see Note 3) of $2,505,000, net of accumulated
amortization of $29,000. The goodwill is being amortized over a fifteen year
period and the noncompete agreements are being amortized over three years, the
term of the agreements.
8. SHORT-TERM OBLIGATIONS
As of June 30, 1996, the Company has outstanding short-term obligations of
$48,206,000 under its demand discretionary bank line of credit and a brokerage
margin loan facility, with an aggregate of 5,919,994 shares of TCI Group Series
A Common Stock pledged as collateral under the Company's credit facilities.
Subsequent to June 30, 1996 and through August 9, 1996, an additional 2,579,986
shares of TCI Group Series A Common Stock were pledged, increasing the total
number of shares pledged to 8,499,980.
9. LONG-TERM DEBT AND AMOUNTS DUE TO CELLULAR EQUIPMENT VENDOR
Portatel has long-term debt obligations under various credit facilities
with a U.S. bank and various related parties (the "Portatel Credit
Agreements"). Such long-term obligations are denominated in U.S. dollars
and were incurred for working capital, including the purchase and
construction of cellular infrastructure equipment. The outstanding debt
under the Portatel Credit Agreements is guaranteed by a cellular
equipment vendor of Portatel (the "Guarantor"). During 1995 and January
1996, Portatel failed to meet a portion of its debt obligations under
such credit facilities. Accordingly, payments were made by the Guarantor
to Portatel's lenders on Portatel's behalf. Such amounts are included in
current liabilities at June 30, 1996. As a result of Portatel's failure
to make such payments, the Guarantor had the right to require Grupo to
transfer to the Guarantor 40% of the stock of Portatel held in trust as
collateral for such guarantee, but did not exercise its right to acquire
such shares. Grupo, Portatel and certain shareholders of Grupo
(including the Company) entered into a Contribution Agreement with the
Guarantor, effective January 31, 1996, to convert the payments made by
the Guarantor in 1995 and January 1996 on behalf of Portatel into
capital stock of Grupo. Closing under the Contribution Agreement is
contingent upon certain Mexican regulatory consents and approvals, the
last of which is currently expected to be obtained in the third quarter
of 1996. Upon closing, excluding the effects of the AP Agreement, the
conversion provided for in the Contribution Agreement will result in a
reduction of the Company's ownership interest in Grupo to approximately
23.6%. The effect of the anticipated reduction in the Company's ownership
interest in Grupo will be a reclassification of $14,952,000 between due to
cellular equipment vendor and minority interests on the Company's consolidated
balance sheet. The Guarantor will continue to guarantee the remaining debt of
Portatel secured by an approximate 30.7% equity interest in Portatel.
The remaining debt of Portatel is subdivided into various pieces, referred to as
Tranches. The loans under Tranche I bear interest at the LIBOR rate plus 2.5%.
Interest and principal are payable in semiannual installments through November
15, 2001. The loans under Tranche II bear interest at the LIBOR rate plus 6%.
Interest and principal are payable in semiannual installments through September
25, 2001. The amounts outstanding under the Portatel Credit Agreements at June
30, 1996 (in thousands) are as follows:
Tranche I Tranche II Total
--------- ---------- -----
Current $ 1,742 $ 340 $ 2,082
Long-Term 7,835 1,532 9,367
----- ------ ------
$ 9,577 $ 1,872 $11,449
======= ======= =======
10. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest was approximately $1,107,000 and $564,000 for the six
months ended June 30, 1996 and 1995, respectively. The Company made no federal
and state income tax payments and through Grupo, paid approximately $394,000 in
Mexican taxes during the six months ended June 30, 1996. The Company made no
federal and state income tax payments in the six months ended June 30, 1995.
11. PER SHARE DATA
Weighted average common shares outstanding do not include common stock
equivalents since their effect on the net loss per common share would be
antidilutive.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
As of and for the three and six months ended June 30, 1996, the Company
has consolidated the financial statements of Grupo, which investment was
accounted for under the equity method in 1995 (see Note 2 to the consolidated
financial statements included elsewhere herein). As a result of the
consolidation of Grupo and the formation of Grupo Holdings (see Note 2 to the
consolidated financial statements included elsewhere herein), equity in loss of
affiliates in the 1996 period no longer reflects Grupo, and the Company's
minority interests at June 30, 1996 include third-party ownership interests of
69.8% and 38.4% for Grupo and Grupo Holdings, respectively. In addition, the
Company's balance sheet at June 30, 1996 reflects higher notes receivable from
foreign affiliates due to the formation of and initial contributions to Grupo
Holdings by the minority member of Grupo Holdings.
This Form 10-Q contains certain forward looking statements about the
Company's completion of pending transactions and availability of certain tax
benefits. Any such statements are subject to risks that could cause the actual
results or needs to vary materially.
Financial Condition
Currently, the Company is financing its cash requirements from three
credit facilities: a $100,000,000 demand discretionary bank line of credit (the
"line of credit") and two brokerage margin loan facilities. The line of credit
expires on November 16, 1996 and the Company presently anticipates renewal of
such facility. Short-term obligations outstanding as of June 30, 1996 were
$19,000,000 under the line of credit and $29,206,000 under one of the brokerage
margin loan facilities. As of August 9, 1996, the Company has pledged in the
aggregate 8,499,980 shares of TCI Group Series A Common Stock as collateral, and
borrowings under each of these credit facilities are limited to 50% of the
market value of such stock pledged, with an additional 15% collateral
requirement on one of the brokerage margin loan facilities if borrowings exceed
$100,000,000, up to a maximum of $200,000,000. Based on the market value of the
stock currently pledged, and outstanding short-term obligations of approximately
$51,622,000 as of August 9, 1996, the Company's unused borrowing capacity under
the three existing credit facilities is approximately $15,847,000. A significant
portion of the Company's assets are liquid, and can be pledged as collateral for
added borrowing capacity. Given the market value of the remaining shares of
marketable equity securities that could potentially be pledged as additional
collateral as of August 9, 1996, the Company's three credit facilities provide
for maximum additional borrowings of up to approximately $165,432,000. The
Company's ability to meet cash needs in the near term for future development
depends in large part on the value of its portfolio of securities. The Company
periodically evaluates its financial position and alternative financing
arrangements.
In March 1996, the Company sold 41,598 shares of TCI Class B 6%
Cumulative Redeemable Exchangeable Junior Preferred Stock for pretax proceeds of
approximately $2,690,000, and recognized a gain on the sale of approximately
$2,678,000. In the second quarter of 1996, the Company sold 90,000 shares of
General Communication, Inc. Class A Common Stock for pretax proceeds of
approximately $722,000, and recognized a gain on the sale of approximately
$719,000. The Company will utilize current year losses and/or net operating loss
carryforwards to offset the federal income taxes resulting from these gains.
Proceeds from these sales were used for working capital and to fund the
development of the Company's wireless technologies, as well as for the repayment
of $1,600,000 of short-term obligations in March 1996.
Portatel has long-term debt obligations under various credit facilities
with a U.S. bank and various related parties (the "Portatel Credit
Agreements"). Such long-term obligations are denominated in U.S. dollars
and were incurred for working capital, including the purchase and
construction of cellular infrastructure equipment. The outstanding debt
under the Portatel Credit Agreements is guaranteed by a cellular
equipment vendor of Portatel (the "Guarantor"). During 1995 and January
1996, Portatel failed to meet a portion of its debt obligations under
such credit facilities. Accordingly, payments were made by the Guarantor
to Portatel's lenders on Portatel's behalf. Such amounts are included in
current liabilities at June 30, 1996. As a result of Portatel's failure
to make such payments, the Guarantor had the right to require Grupo to
transfer to the Guarantor 40% of the stock of Portatel held in trust as
collateral for such guarantee, but did not exercise its right to acquire
such shares. Grupo, Portatel and certain shareholders of Grupo
(including the Company) entered into a Contribution Agreement with the
Guarantor, effective January 31, 1996, to convert the payments made by
the Guarantor in 1995 and January 1996 on behalf of Portatel into
capital stock of Grupo. Closing under the Contribution Agreement is
contingent upon certain Mexican regulatory consents and approvals, the
last of which is currently expected to be obtained in the third quarter
of 1996. Upon closing, excluding the effects of the AP Agreement, the
conversion provided for in the Contribution Agreement will result in a
reduction of the Company's ownership interest in Grupo from 30.2% to
approximately 23.6%. The effect of the anticipated reduction in the
Company's ownership interest in Grupo will be a reclassification of
$14,952,000 between due to cellular equipment vendor and minority
interests on the Company's consolidated balance sheet. The Guarantor
will continue to guarantee the remaining debt of Portatel of $11,449,000
at June 30, 1996, secured by an approximate 30.7% equity interest in
Portatel.
Grupo and Portatel have no external available lines of credit as of
June 30, 1996. The Company may be required to meet additional capital
commitments with respect to its ownership interest in Grupo, and is committed to
making additional loans to the Grupo stockholder who is a Mexican national and a
party to the AP Agreement for a portion of any such capital commitments with
respect to his ownership interest.
As of August 9, 1996, the Company has funded $3,531,000 for stock in
Teletrac, Inc. ("Teletrac") in 1996, and has subscribed to purchase additional
stock (on a pro rata basis with other Teletrac stockholders) for $1,004,000.
Such amount is payable as requested by Teletrac.
In the second quarter of 1996, the Company purchased the assets and was
awarded an assignment of the Federal Communications Commission ("FCC") license
of radio broadcasting station WCEZ-FM located in Delaware, Ohio, serving the
Delaware/Columbus, Ohio market, for consideration of approximately $3,250,000,
including amounts for noncompete and consulting agreements.
Net cash used in operating activities was $11,172,000 and $11,774,000
for the six months ended June 30, 1996 and 1995, respectively, a decrease of
$602,000. Although the Company's operating cash needs increased in the 1996
period for direct research and development expenses as well as interest expense,
there was a decrease in net cash used between periods due to payments made in
the 1995 period for accrued transaction expenses of $5,433,000 related to the
December 1994 merger and spin-off of the Company from Associated Communications
Corporation. Cash used in investing activities was $5,039,000 and $1,303,000 for
the six months ended June 30, 1996 and 1995, respectively. The increase in cash
used in investing activities of $3,736,000 was primarily due to $2,639,000 paid
for WCEZ-FM, $1,790,000 in capital expenditures, and investments of $2,672,000
in Teletrac in the 1996 period, partially offset by proceeds of $3,412,000 from
the sale of marketable equity securities in the 1996 period. The Company's
borrowings comprise most of the net cash provided by financing activities in the
1996 and 1995 periods of $16,351,000 and $11,263,000, respectively. The increase
between periods is primarily the result of higher borrowings in the 1996 period
to finance the investing activities described above. Other financing cash flows
in the 1996 period reflect the repayment by the Guarantor of amounts due for
Portatel's long-term debt (see Note 9 to the consolidated financial statements
included elsewhere herein) and the contribution of capital primarily by the
minority owners of Grupo and Grupo Holdings.
Operating Results for the Three Months Ended June 30, 1996, Compared to the
Three Months Ended June 30, 1995
Total revenues increased $4,006,000 in the 1996 period compared to the
1995 period. This increase is attributable to the inclusion of cellular
communication services revenues resulting from the consolidation of Grupo
described above. The increase in cost of cellular communication services is also
attributable to the consolidation of Grupo.
Microwave communication services revenues decreased $86,000, or 18% for
the 1996 period compared to the 1995 period. The decrease in microwave
communication services revenues reflects contract renewals at lower rates and a
decline in volume due to the continuing price competition from alternate access
providers and local exchange carriers. Cost of microwave communication services,
which to a large extent are fixed in nature, decreased $14,000, or 7% between
periods due to favorable renegotiation of certain transmission facility leases.
Broadcasting revenues increased $52,000, or 10% for the 1996 period
compared to the 1995 period, and the cost of radio broadcasting increased
$28,000, or 21%. The increase in revenues and costs is the result of the
acquisition of WCEZ-FM in the second quarter of 1996.
Art gallery revenues increased $110,000, or 162% for the 1996 period
compared to the 1995 period. The increase in art gallery revenues for the second
quarter of 1996 reflects higher priced sales as compared to the second quarter
of 1995. The cost of art sales increased $64,000, or 93% in the second quarter
of 1996 compared to the second quarter of 1995, reflecting the higher sales in
the 1996 period.
Direct research and development expenses were $1,955,000 and $1,228,000
in the 1996 and 1995 periods, respectively. The increase in 1996 was primarily
due to increased expenditures for TruePosition(Trademark), the Company's
cellular telephone and wireless transmitter location system. Sales, general and
administrative expenses were $4,349,000 and $2,507,000 in the 1996 and 1995
periods, respectively. The increase from 1995 to 1996 of $1,842,000 was
primarily the result of the consolidation of Grupo. Similarly, the increase in
depreciation and amortization expense from 1995 to 1996 of $923,000 was also
primarily the result of the consolidation of Grupo.
The Company's equity in loss of affiliates was $467,000 and $487,000 in
the 1996 and 1995 periods, respectively. Due to the consolidation of Grupo in
the 1996 period, the Company's equity in loss of affiliates in 1996 reflects
only the Company's approximate 20% share of the results of Teletrac for the
three months ended June 30, 1996. The Company's initial equity investment in
Teletrac was made in November 1995. The Company's equity in loss of affiliates
in the 1995 period reflects only the Company's share of the results of Grupo for
the three months ended June 30, 1995.
The $719,000 gain on the sale of marketable equity securities in the
1996 period is the result of the sale of 90,000 shares of General Communication,
Inc. Class A Common Stock. Interest and dividend income was $432,000 and
$244,000 in the 1996 and 1995 periods, respectively. The increase in 1996 of
$188,000 is the result of additional interest income on notes receivable from
foreign affiliates included as a result of the formation and consolidation of
Grupo Holdings. Interest expense was $813,000 and $422,000 in the 1996 and 1995
periods, respectively. The increase in 1996 of $391,000 is the result of the
consolidation of the financial statements of Grupo and an increase in the level
of outstanding short-term obligations. Minority interests increased $501,000 in
the 1996 period over the 1995 period, reflecting the 69.8% and 38.4% third-party
ownership interests in Grupo and Grupo Holdings, respectively, described above.
The Company recognized an income tax benefit (net of foreign tax
expense of Grupo) at an effective rate of approximately 32% and 34% in the 1996
and 1995 periods, respectively. The tax benefit recorded for the three months
ended June 30, 1996 includes approximately $1,148,000 of net operating loss.
Based on current projections, the Company anticipates it will generate a net
operating loss for federal income taxes for the year ended December 31, 1996.
The Company's net loss was $3,213,000 for the three months ended June
30, 1996, compared to a net loss of $2,654,000 for the three months ended June
30, 1995. The primary reason for the increased loss of $559,000 in the 1996
period was increased research and development costs relating to
TruePosition(Trademark) of $727,000, increased interest expense, and the equity
in loss of affiliates of $467,000 relating to the Company's investment in
Teletrac, offset by the gain on marketable equity securities of $719,000. The
consolidation of the financial statements of Grupo had no effect on the
Company's consolidated net loss.
Operating Results for the Six Months Ended June 30, 1996, Compared to the Six
Months Ended June 30, 1995
Total revenues increased $7,241,000 in the 1996 period compared to the
1995 period. This increase is attributable to the inclusion of cellular
communication services revenues resulting from the consolidation of Grupo
described above. The increase in cost of cellular communication services is also
attributable to the consolidation of Grupo.
Microwave communication services revenues decreased $148,000, or 15%
for the 1996 period compared to the 1995 period. The decrease in microwave
communication services revenues reflects contract renewals at lower rates and a
decline in volume due to the continuing price competition from alternate access
providers and local exchange carriers. Cost of microwave communication services,
which to a large extent are fixed in nature, decreased $11,000, or 3% between
periods due to favorable renegotiation of certain transmission facility leases.
Broadcasting revenues decreased $6,000, or 1% for the 1996 period
compared to the 1995 period, and the cost of radio broadcasting increased
$62,000, or 23%. 1996 revenues and costs reflect the acquisition of WCEZ-FM in
the second quarter of 1996. The additional revenues from WCEZ-FM in the second
quarter were offset by a short-term fall in revenues in the first quarter of
1996, the result of format and programming changes at the Company's radio
stations in late 1995.
Art gallery revenues decreased $77,000, or 20% for the 1996 period
compared to the 1995 period. The decrease in art gallery revenues for the six
months ended June 30, 1996 reflects a decline in sales volume as compared to the
same period in 1995. The cost of art sales decreased $110,000, or 32% in the
first six months of 1996 compared to the first six months of 1995 due to the
reduced sales volume in the 1996 period and inventory reserve adjustments in the
1995 period.
Direct research and development expenses were $3,683,000 and $2,236,000
in the 1996 and 1995 periods, respectively. The increase in 1996 was primarily
due to increased expenditures for TruePosition(Trademark). Sales, general and
administrative expenses were $8,537,000 and $5,082,000 in the 1996 and 1995
periods, respectively. The increase from 1995 to 1996 of $3,455,000 was
primarily the result of the consolidation of Grupo. Similarly, the increase in
depreciation and amortization expense from 1995 to 1996 of $1,844,000 was also
primarily the result of the consolidation of Grupo.
The Company's equity in loss of affiliates was $794,000 and $1,157,000
in the 1996 and 1995 periods, respectively. Due to the consolidation of Grupo in
the 1996 period, the Company's equity in loss of affiliates in 1996 reflects
only the Company's approximate 20% share of the results of Teletrac for the six
months ended June 30, 1996. The Company's initial equity investment in Teletrac
was made in November 1995. The Company's equity in loss of affiliates in the
1995 period reflects only the Company's share of the results of Grupo for the
six months ended June 30, 1995.
The $3,397,000 gain on the sale of marketable equity securities in the
1996 period is the result of the sale of 41,598 shares of TCI Class B 6%
Cumulative Redeemable Exchangeable Junior Preferred Stock and 90,000 shares of
General Communication, Inc. Class A Common Stock. Interest and dividend income
was $1,128,000 and $718,000 in the 1996 and 1995 periods, respectively. The
increase in 1996 of $410,000 is the result of additional interest income on
notes receivable from foreign affiliates included as a result of the formation
and consolidation of Grupo Holdings. Interest expense was $2,007,000 and
$724,000 in the 1996 and 1995 periods, respectively. The increase in 1996 of
$1,283,000 is the result of the consolidation of the financial statements of
Grupo and an increase in the level of outstanding short-term obligations.
Minority interests increased $1,352,000 in the 1996 period over the 1995 period,
reflecting the 69.8% and 38.4% third-party ownership interests in Grupo and
Grupo Holdings, respectively, described above.
The Company recognized an income tax benefit (net of foreign tax
expense of Grupo) at an effective rate of approximately 33% and 34% in the 1996
and 1995 periods, respectively. The tax benefit recorded for the six months
ended June 30, 1996 includes approximately $1,759,000 of net operating loss.
Based on current projections, the Company anticipates it will generate a net
operating loss for federal income taxes for the year ended December 31, 1996.
The Company's net loss was $4,802,000 for the six months ended June 30,
1996, compared to a net loss of $5,161,000 for the six months ended June 30,
1995. The primary reason for the decreased loss of $359,000 in the 1996 period
was the gain on marketable equity securities of $3,397,000, offset by increased
research and development costs relating to TruePosition(Trademark) of
$1,447,000, increased interest expense, and the equity in loss of affiliates of
$794,000 relating to the Company's investment in Teletrac. The consolidation of
the financial statements of Grupo had no effect on the Company's consolidated
net loss.
PART II
OTHER INFORMATION
Item 3. Defaults Upon Senior Securities
See Note 9 to the Company's consolidated financial statements included
herein, which is incorporated herein by reference.
Item 4. Submission of Matters to a Vote of Security Holders
On June 6, 1996, the Company held its 1996 Annual Meeting, at which the
Company's stockholders elected David J. Berkman as a director of the
Company to hold office for a term of three years. 8,188,456 votes were
cast for the election of Mr. Berkman, and there were 71,849 votes to
withhold authority. The term of Donald H. Jones as a director of the
Company continues until such term expires at the Company's 1997 Annual
Meeting, and the terms of Myles P. Berkman and Joseph A. Katarincic as
directors continue until such terms expire at the Company's 1998 Annual
Meeting.
At the 1996 Annual Meeting, the Company's stockholders approved the
Company's 1994 Stock Option and Incentive Award Plan (the "1994 Plan")
for purposes of Section 162(m) of the Internal Revenue Code of 1986, as
amended, with respect to future grants of awards under the 1994 Plan.
6,892,254 votes were cast for the approval of the 1994 Plan, 263,151
votes were cast against the approval of the 1994 Plan and there were
30,652 votes to abstain.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. The following exhibits are filed as part of this Form
10-Q:
Exhibit
Number Description
3.1 Restated Certificate of Incorporation, filed as
Exhibit 3.1 to Registration Statement on Form 10/A
dated November 15, 1994 and incorporated herein by
reference.
3.2 Amended and Restated By-Laws, filed as Exhibit 3.2
to Registration Statement on Form 10/A dated
November 15, 1994 and incorporated herein by
reference.
4.1 Common Stock Certificates, filed as Exhibits 4.2 and
4.3 to Form 8-K, dated December 22, 1994 and
incorporated herein by reference.
4.2 Rights Agreement, dated as of December 15, 1994, by
and between the Company and Mellon Bank, N.A., filed
as Exhibit 4.1 to Form 8-K, dated December 22, 1994
and incorporated herein by reference.
10.1 Microwave Services, Inc. 1996 Stock Incentive Plan.
27 Article 5 Financial Data Schedule for Quarterly
Report on Form 10-Q for the quarter ended June 30,
1996.
(b) Reports on Form 8-K. The Company did not file any reports on Form
8-K during the three months ended June 30, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE ASSOCIATED GROUP, INC.
(Registrant)
Date: August 9, 1996 By: /s/ Myles P. Berkman
--------------------
Myles P. Berkman
Chairman, President, Chief Executive Officer
and Treasurer
(Principal Financial and Accounting Officer)
EXHIBIT INDEX
<TABLE>
<CAPTION>
Page Where
Found or
Exhibit Incorporated
Number by Reference
------- ------------
<S> <C>
3.1 Restated Certificate of Incorporation, filed as Exhibit 3.1 to
Registration Statement on Form 10/A dated November 15, 1994 and *
incorporated herein by reference.
3.2 Amended and Restated By-Laws, filed as Exhibit 3.2 to Registration *
Statement on Form 10/A dated November 15, 1994 and incorporated herein by
reference.
4.1 Common Stock Certificates, filed as Exhibits 4.2 and 4.3 to Form *
8-K, dated December 22, 1994 and incorporated herein by
reference.
4.2 Rights Agreement, dated as of December 15, 1994, by and between *
the Company and Mellon Bank, N.A., filed as Exhibit 4.1 to Form
8-K, dated December 22, 1994 and incorporated herein by reference.
10.1 Microwave Services, Inc. 1996 Stock Incentive Plan.
27 Article 5 Financial Data Schedule for Quarterly Report on Form
10-Q for the quarter ended June 30, 1996. **
</TABLE>
- ------------------
* Previously filed and incorporated by reference
** Filed only electronically with the Securities and Exchange Commission
MICROWAVE SERVICES, INC.
1996 STOCK INCENTIVE PLAN
1. Purpose.
The purpose of the Microwave Services, Inc. 1996 Stock
Incentive Plan (the "Plan") is to align the interests of officers, other
employees, consultants and non-employee directors of Microwave Services, Inc., a
Delaware corporation ("MSI"), and its subsidiaries, now held or hereafter
acquired (collectively with MSI, the "Company") or of The Associated Group,
Inc., a Delaware corporation and the Company's parent corporation
("Associated"), with those of the stockholder(s) of MSI and with those of the
equity holders of any business entity (or successor thereto) originally formed
as a joint venture between MSI and one or more third parties to pursue one or
more aspects of MSI's business (any such entity being sometimes referred to as a
"Joint Venture"); to attract, motivate and retain the best available executive
personnel and key employees of the Company by permitting them to acquire or
increase their proprietary interest in MSI; to compensate MSI's non-employee
directors; and to reward the performance of individual officers, other
employees and non-employee directors in fulfilling their personal
responsibilities for long-range achievements.
2. Definitions.
The following terms, as used herein, shall have the following
meanings:
(a) "Associated" shall have the meaning set forth
in Section 1 hereof.
(b) "Award" shall mean any Option or Restricted
Stock granted pursuant to the Plan.
(c) "Award Agreement" shall mean any written agreement, contract
or other instrument or document between MSI and a Participant
evidencing an Award.
(d) "Board" shall mean the Board of Directors of
MSI.
(e) "Cause" shall mean (i) the engaging by the Participant in
willful misconduct that is materially injurious to the
Company or Associated, (ii) the embezzlement or
misappropriation of funds or property of the Company or
Associated by the Participant or the conviction of the
Participant of a felony or the entrance of a plea of guilty or
nolo contendere by the Participant to a felony, or (iii) the
willful failure or refusal by the Participant to substantially
perform his duties or responsibilities that continues after
being brought to the attention of the Participant (other than
any such failure resulting from the Participant's incapacity
due to disability). For purposes of this paragraph, no act, or
failure to act, on the Participant's part shall be considered
"willful" unless done, or omitted to be done, by him not in
good faith and without reasonable belief that his action or
omission was in the best interest of the Company.
Determination of Cause shall be made by the Committee in its
sole discretion. Any such determination shall be final and
binding on a Participant.
(f) "Change in Control" shall have the meaning set
forth in Section 9(f) hereof.
(g) "Common Stock" shall mean the Common Stock, par
value $.000556 per share of MSI.
(h) "Code" shall mean the Internal Revenue Code of
1986, as amended from time to time.
(i) "Committee" shall mean the committee of the Board comprised of
Non-Employee Directors which administers the Plan as provided
herein.
(j) "Company" shall have the meaning set forth in
Section 1 hereof.
(k) "Effective Date" shall have the meaning set
forth in Section 9(k) hereof.
(l) "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended from time to time.
(m) "Fair Market Value" of a share of Common Stock on any date
shall be the fair market value of such Common Stock as
determined by the Committee in its sole discretion; provided
that (A) if the Common Stock is admitted to trading on a
national securities exchange, Fair Market Value on any date
shall be the last sale price reported for the Common Stock on
such exchange on such date or, if none, the next earlier date
on which a sale was reported, (B) if the Common Stock is
admitted to quotation on the Nasdaq National Market or other
comparable quotation system, Fair Market Value on any date
shall be the last sale price reported for the Common Stock on
such system on such date or, if none, the next earlier date on
which a sale was reported, or (C) if prices for the Common
Stock are otherwise quoted on the Nasdaq System, Fair Market
Value on any date shall be the average of the highest bid and
lowest asked prices of the Common Stock on such system on such
date or, if none, the next earlier date on which a sale was
reported.
(n) "Incentive Stock Option" shall mean an Option that meets the
requirements of Section 422 of the Code, or any successor
provision, and is designated by the Committee as an Incentive
Stock Option.
(o) "Initial Director" shall mean a Non-Employee Director who is a
member of the Board at the date of approval of the Plan by the
stockholder(s) of MSI.
(p) "MSI" shall have the meaning set forth in Section 1 hereof.
(q) "Non-Employee Director" shall mean a member of
the Board who is not also an employee of the
Company or of Associated.
(r) "Nonqualified Stock Option" shall mean an Option other
than an Incentive Stock Option.
(s) "Option" shall mean the right, granted pursuant to the Plan,
of a holder to purchase shares of Common Stock at a price and
upon the terms to be specified by the Committee (or, with
respect to a Non-Employee Director, pursuant to Section 7
hereof).
(t) "Participant" shall mean an officer, other employee or
consultant of the Company or of Associated who is, pursuant to
Section 4 of the Plan, selected to participate in the Plan
and, with respect to Awards under Section 7 hereof, each
Non-Employee Director.
(u) "Plan" shall have the meaning set forth in
Section 1 hereof.
(v) "Plan Year" shall mean MSI's fiscal year.
(w) "Restricted Stock" shall mean any shares of Common Stock
issued to a Participant, without payment to MSI, pursuant to
Section 8 of the Plan.
(x) "Subsequent Director" shall mean a Non-Employee Director who
becomes a member of the Board (or with respect to directors
who are also employees of the Company or of Associated, a
director who becomes a Non-Employee Director) subsequent to
approval of the Plan by the stockholder(s) of MSI.
(y) "Ten Percent Stockholder" shall mean a Participant who, at
the time an Incentive Stock Option is to be granted to such
Participant, owns (within the meaning of Section 422(b)(6) of
the Code) stock possessing more than ten percent (10%) of the
total combined voting power of all classes of stock of MSI
within the meaning of Sections 422(e) and 422(f),
respectively, of the Code.
3. Administration.
The Plan shall be administered by the Committee. The Committee
shall have the authority, in its sole discretion, subject to and not
inconsistent with the express provisions of the Plan, to administer the Plan and
to exercise all the powers and authorities either specifically granted to it
under the Plan or necessary or advisable in connection with the administration
of the Plan, including, without limitation, the authority to grant Awards
(except under Section 7 hereof); to determine the persons to whom and the time
or times at which Awards shall be granted (except under Section 7 hereof); to
determine the type and number of Awards to be granted, the number of shares of
Common Stock to which an Award may relate and the terms, conditions,
restrictions and performance criteria relating to any Award (except under
Section 7 hereof); to determine whether, to what extent, and under what
circumstances an Award may be settled, cancelled, adjusted, forfeited,
exchanged, or surrendered or accelerated or an Option or Options may be repriced
to a lower exercise price (except under Section 7 hereof); to construe and
interpret the Plan and any Award; to prescribe, amend and rescind rules and
regulations relating to the Plan; to determine the terms and provisions of Award
Agreements, consistent with the terms and provisions of the Plan; and to make
all other determinations deemed necessary or advisable for the administration of
the Plan, consistent with the terms and provisions of the Plan. The Committee
shall consist of two or more persons who are intended to be "disinterested
persons" within the meaning of Rule 16b-3 under the Exchange Act.
4. Eligibility.
Awards may be granted to officers, other employees and
consultants of the Company and Associated in the sole discretion of the
Committee. In determining the persons to whom Awards shall be granted and the
type of Award, the Committee shall take into account such factors as the
Committee shall deem relevant in connection with accomplishing the purposes of
the Plan. Awards shall also be made to Non-Employee Directors in accordance with
the provisions of Section 7 hereof.
5. Stock Subject to the Plan.
(a) Number of Shares. The maximum number of shares of Common
Stock reserved for issuance pursuant to the Plan shall be 200,000. All such
shares of Common Stock shall be subject to equitable adjustment as provided
herein. Such shares may, in whole or in part, be authorized but unissued shares
or shares that shall have been or may be reacquired by the Company in the open
market, in private transactions or otherwise. If any shares subject to an Award
are forfeited, cancelled, exchanged or surrendered or if an Award otherwise
terminates or expires without a distribution of shares to the Participant, the
shares of Common Stock with respect to such Award shall, to the extent of any
such forfeiture, cancellation, exchange, surrender, termination or expiration,
again be available for Awards under the Plan.
(b) Equitable Adjustment. In the event that an extraordinary
transaction or other event or circumstance affecting MSI, a Joint Venture or
Associated is proposed or shall occur, including, but not limited to, any
dividend or other distribution (whether in the form of cash, stock or other
property), recapitalization, stock split, reverse stock split, public offering,
reorganization, tender offer, merger, consolidation, spin-off, combination,
repurchase, share exchange, sale of assets or other similar transaction or
event, and the Committee determines, in its sole discretion, that a change or
adjustment in the terms of any Award is appropriate, then the Committee may, in
its sole discretion, make such equitable changes or adjustments or take any
other actions that it deems necessary or appropriate (which shall be effective
at such time as the Committee in its sole discretion determines), including, but
not limited to (A) causing changes or adjustments to any or all of (i) the
number and kind of shares of stock or other securities or property which may
thereafter be issued in connection with Awards, (ii) the number and kind of
shares of stock or other securities or property issued or issuable in respect of
outstanding Awards, and (iii) the exercise price relating to any Award, and (B)
cancelling outstanding Awards in exchange for replacement awards or cash, it
being understood that the Committee shall have the authority to cause different
changes or adjustments to be made to any Awards held by Participants even if
such Awards are identical and such Participants are similarly situated; further,
provided, however, that with respect to Options which are intended by the
Committee to remain Incentive Stock Options subsequent to any such adjustment,
such adjustment shall be made in accordance with Section 424 of the Code.
6. Stock Options.
Each Option granted pursuant to this Section 6 shall be
evidenced by an Award Agreement, in such form and containing such terms and
conditions as the Committee shall from time to time approve, which Award
Agreement shall comply with and be subject to the following terms and
conditions, as applicable.
(a) Stock Options
(1) Number of Shares. Each Award Agreement shall
state the number of shares of Common Stock to which the Option relates.
(2) Type of Option. Each Award Agreement
shall state that the Option constitutes an Incentive Stock Option or a
Nonqualified Stock Option.
(3) Option Exercise Price. Each Award
Agreement shall state the Option exercise price, which, except as provided in
Section 6(a)(7)(B) below or if the Committee determines with respect to the
grant of a Nonqualified Stock Option, shall not be less than one hundred percent
(100%) of the Fair Market Value of the shares of Common Stock covered by the
Option on the date of grant. The Option exercise price shall be subject to
adjustment as provided in Section 5 hereof. Unless otherwise expressly stated in
the Committee resolution expressly granting an Option, the date as of which the
Committee adopts the resolution expressly granting an Option shall be considered
the day on which such Option is granted.
(4) Method and Time of Payment. The Option exercise
price shall be paid in full, at the time of exercise, in cash (which may include
cash received from the Company as compensation or cash borrowed from the
Company), in shares of Common Stock having a Fair Market Value equal to such
Option exercise price, in a combination of cash and Common Stock (or other
consideration deemed acceptable by the Committee) or, in the sole discretion of
the Committee, through a cashless exercise procedure.
(5) Term and Exercisability of Options.
Each Award Agreement shall provide that each Option shall become exercisable
over a period determined by the Committee in its discretion, provided, that the
Committee shall have the authority to accelerate the exercisability of any
outstanding Option at such time and under such circumstances as it, in
its sole discretion, deems appropriate. The exercise period shall be not more
than ten (10) years from the date of the grant of the Option, or such shorter
period as is determined by the Committee. The exercise period shall be subject
to earlier termination as provided in Section 6(a)(6) hereof. An Option may be
exercised, as to any or all full shares of Common Stock as to which the Option
has become exercisable, by written notice delivered in person or by mail to the
Secretary of MSI, specifying the number of shares of Common Stock with respect
to which the Option is being exercised, together with payment in full of the
Option exercise price. For purposes of the preceding sentence, the date of
exercise will be deemed to be the date upon which the Secretary of MSI receives
both the notification and such payment.
(6) Termination. If a Participant's
employment by the Company terminates, the Committee will have the exclusive
authority to determine if and for how long, and under what conditions, such
Option may be exercised after such termination; however, in no event will an
Option continue to be exercisable beyond the expiration date of such Option.
(7) Incentive Stock Options. Options
granted as Incentive Stock Options shall be subject to the following special
terms and conditions, in addition to the general terms and conditions specified
in this Section 6.
(A) Value of Shares. The aggregate
Fair Market Value (determined as of the date the Incentive Stock Option
is granted) of the shares of Common Stock with respect to which
Incentive Stock Options granted under this Plan and all other plans of
the Company become exercisable for the first time by each Participant
during any calendar year shall not exceed $100,000.
(B) Ten Percent Stockholder. In the
case of an Incentive Stock Option granted to a Ten Percent Stockholder,
(x) the option exercise price shall not be less than one hundred ten
percent (110%) of the Fair Market Value of the shares of Common Stock
on the date of grant of such Incentive Stock Option, and (y) the
exercise period shall not exceed five (5) years from the date of grant
of such Incentive Stock Option.
7. Non-Employee Directors Formula Stock Options.
The provisions of this Section 7 shall apply only to grants of
Options to Non-Employee Directors. The provisions of this Section 7 shall not be
amended more than every six months, other than to comport with changes in the
Code, the Employee Retirement Income Security Act of 1974, as amended, or the
rules and regulations promulgated thereunder.
(a) General. Non-Employee Directors shall receive Nonqualified
Stock Options under the Plan. The exercise price per share of Common Stock
purchasable under Options granted to Non-Employee Directors shall be the Fair
Market Value of a share of Common Stock on the date of grant. No Option granted
to a Non-Employee Director may be subject to a discretionary acceleration of
exercisability except upon a Change in Control as defined in Section 9(f)
hereof.
(b) Initial Grants to Initial Directors. Upon the Effective
Date, each Initial Director shall be granted automatically an Option to
purchase 5,000 shares of Common Stock.
(c) Initial Grants To Subsequent Directors. Each Subsequent
Director will, at the time such director becomes a member of the Board, be
granted automatically an Option to purchase 5,000 shares of Common Stock.
(d) Method and Time of Payment. The Option exercise price
shall be paid in full, at the time of exercise, in cash (including cash received
from the Company as compensation or cash borrowed from the Company), in shares
of Common Stock having a Fair Market Value equal to such Option exercise price,
in a combination of cash and Common Stock or through a cashless exercise
procedure.
(e) Term and Exercisability. Each Option granted under this
Section 7 shall be exercisable as to 100 percent of the shares of Common Stock
covered thereby on the first anniversary of the date the Option is granted. Each
Option granted under this Section 7 shall expire ten (10) years from the date of
grant. To the extent not exercised, installments shall accumulate and be
exercisable, in whole or in part, at any time after becoming exercisable, but
not later than the date the Option expires.
(f) Termination. Upon the termination of a Non-Employee
Director from such position, for any reason, all Options granted to such
Non-Employee Director pursuant to this Section 7 which are exercisable at the
time of such termination shall remain exercisable for a period of one year
following the date of such termination (and, subject to Section 9(f), all
Options which are not exercisable at such time will automatically terminate),
but in no event may the term of an Option be extended beyond its expiration
date.
8. Restricted Stock.
Restricted Stock granted pursuant to this Section 8 shall be
evidenced by an Award Agreement in such form as the Committee shall from time to
time approve and the terms and conditions of such Awards shall be set forth
therein. The Committee shall determine the number of shares of Restricted Stock
granted pursuant to the Award, the applicable restrictions on vesting, and the
performance criteria, if any, which must be attained as a condition of the
restrictions on such shares lapsing.
(a) Restrictions. Until all restrictions on Restricted Stock
lapse (including the attainment of performance criteria, if applicable) and such
shares become vested, such shares may not be sold, assigned, transferred,
pledged, hypothecated or otherwise disposed of by the Participant. Certificates
for shares of Common Stock issued pursuant to Awards of Restricted Stock shall
bear an appropriate legend referring to such restrictions, and any attempt to
dispose of any such shares of Common Stock in contravention of such restrictions
shall be null and void and without effect. Until all restrictions on shares of
Restricted Stock lapse (including the attainment of performance criteria, if
applicable), the Common Stock certificates shall be held in escrow by an escrow
agent appointed by the Committee.
(b) Forfeiture. Subject to such exceptions as may be
determined by the Committee, if the Participant's continuous employment with the
Company shall terminate for any reason prior to the lapsing of all restrictions
on shares of Restricted Stock (including the attainment of performance criteria,
if applicable) any shares of Restricted Stock remaining subject to restrictions
or performance criteria shall thereupon be forfeited by the Participant and
transferred to, and reacquired by, MSI at no cost thereto.
(c) Ownership. Except to the extent otherwise set forth in the
Award Agreement, and subject to the provisions of the Plan, so long as any
restrictions remain on shares of Restricted Stock (including the attainment of
performance criteria, if any) the Participant shall possess all incidents of
ownership of such shares, including the right to receive dividends with respect
to such shares and to vote such shares.
9. General Provisions.
(a) Compliance with Legal Requirements. The Plan and the
granting and exercising of Awards, and the other obligations of the Company
under the Plan and any Award Agreement or other agreement shall be subject to
all applicable federal and state laws, rules and regulations and to such
approvals by any regulatory or governmental authority or agency as may be
required. The Company, in its discretion, may postpone the issuance or delivery
of Common Stock under any Award as the Company may consider appropriate and may
require any Participant to make such representations and furnish such
information as it may consider appropriate in connection with the issuance or
delivery of Common Stock in compliance with applicable laws, rules and
regulations.
(b) Nontransferability. Awards shall not be transferable by a
Participant other than by will or the laws of descent and distribution or, if
then permitted by Rule 16b-3 under the Exchange Act, pursuant to a qualified
domestic relations order as defined under the Code or Title I of the Employee
Retirement Income Security Act of 1974, as amended, or the rules thereunder, and
shall be exercisable during the lifetime of a Participant only by such
Participant or his guardian or legal representative.
(c) No Right To Continued Employment. Nothing in the Plan or
in any Award granted or any Award Agreement or other agreement entered into
pursuant hereto shall confer upon any Participant the right to continue in the
employ of the Company or Associated or to be entitled to any remuneration or
benefits not set forth in the Plan or such Award Agreement or other agreement or
to interfere with or limit in any way the right of the Company or Associated to
terminate such Participant's employment.
(d) Withholding Taxes. Where a Participant or other person is
entitled to receive shares of Common Stock pursuant to the exercise of an Option
or is otherwise entitled to receive shares of Common Stock or cash pursuant to
an Award hereunder, the Company shall have the right to require the Participant
or such other person to pay to the Company the amount of any taxes which the
Company may be required to withhold before delivery to such Participant or other
person of cash or a certificate or certificates representing such shares.
Upon the disposition of shares of Common Stock acquired
pursuant to the exercise of an Incentive Stock Option, the Company shall have
the right to require the payment of the amount of any taxes which are required
by law to be withheld with respect to such disposition.
Unless otherwise prohibited by the Committee or by applicable
law, a Participant may satisfy any such withholding tax obligation by any of the
following methods, or by a combination of such methods: (a) tendering a cash
payment; (b) authorizing the Company to withhold from the shares of Common Stock
or cash otherwise payable to such Participant (1) one or more of such shares
having an aggregate Fair Market Value, determined as of the date the withholding
tax obligation arises, less than or equal to the amount of the total withholding
tax obligation or (2) cash in an amount less than or equal to the amount of the
total withholding tax obligation; or (c) delivering to the Company previously
acquired shares of Common Stock (none of which shares may be subject to any
claim, lien, security interest, community property right or other right of
spouses or present or former family members, pledge, option, voting agreement or
other restriction or encumbrance of any nature whatsoever) having an aggregate
Fair Market Value, determined as of the date the withholding tax obligation
arises, less than or equal to the amount of the total withholding tax
obligation. A Participant's election to pay his or her withholding tax
obligation (in whole or in part) by the method described in (b)(1) above is
irrevocable once it is made, may be disapproved by the Committee and, if made by
any director, officer or other person who is subject to Section 16(b) of the
Exchange Act, must be made (x) only during the period beginning on the third
business day following the date of release of the Company's quarterly or annual
summary statement of sales and earnings and ending on the twelfth business day
following the date of such release or (y) not less than six months prior to the
date such Participant's withholding tax obligation arises.
(e) Amendment and Termination of the Plan. The Board or the
Committee may at any time and from time to time alter, amend, suspend, or
terminate the Plan in whole or in part; provided that, no amendment which
requires stockholder approval under applicable Delaware law or in order for the
Plan to continue to comply with Rule 16b-3 under the Exchange Act shall be
effective unless the same shall be approved by the requisite vote of the
stockholder(s) of MSI. Notwithstanding the foregoing, subject to the other
provisions of the Plan, no amendment shall affect adversely any of the rights of
any Participant, without such Participant's consent, under any Award theretofore
granted under the Plan. The power to grant Options under the Plan will
automatically terminate at the end of the 2005 fiscal year. If the Plan is
terminated, any unexercised Option shall continue to be exercisable in
accordance with its terms and the terms of the Plan in effect immediately prior
to such termination. If, while any Awards remain outstanding under the Plan,
either MSI or Associated determines to register as an investment company or
elects to become a "business development company" as defined in the Investment
Company Act of 1940, as amended (the "ICA"), then notwithstanding anything
contained herein to the contrary, the Committee will have the discretion to
terminate the Plan, to make any provision it deems appropriate with respect to
any or all outstanding Awards (including without limitation the cancellation or
termination thereof in exchange for a cash payment) or to make any amendments to
the Plan as are necessary or appropriate to comply with the applicable
provisions of the ICA, it being understood that the Committee shall have the
authority to treat differently any Awards held by any Participants, even if such
Awards are identical and such Participants are similarly situated.
(f) Change in Control. Notwithstanding any other provision of
the Plan to the contrary, if, while any Awards remain outstanding under the
Plan, a Change in Control (as defined below) of either MSI or Associated shall
occur, then the Committee may, in its sole discretion (but shall not be required
to), cause any one or more of the following to occur upon, immediately prior to,
or after such Change in Control: (1) all Options granted under the Plan that are
outstanding at the time of such Change in Control may become immediately
exercisable in full, without regard to the years that have elapsed from the date
of grant, and/or may be cancelled in exchange for a cash payment or a
replacement award of equivalent value; and (2) all restrictions (including
performance criteria, if any) with respect to shares of Restricted Stock that
are outstanding at the time of such Change in Control shall lapse, and such
shares shall be fully vested and nonforfeitable.
For purposes of this paragraph 9(f), a "Change in Control" of
MSI or Associated (either entity being referred to herein as a "Corporation")
shall occur upon the happening of the earliest to occur of the following:
(i) any "person," as such term is used in Sections
13(d) and 14(d) of the Exchange Act (other than (1) a Corporation, (2)
any trustee or other fiduciary holding securities under an employee
benefit plan of a Corporation or (3) any corporation owned, directly or
indirectly, by the stockholders of a Corporation in substantially the
same proportions as their ownership of the common stock of such
Corporation (each an "excluded person")), is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of a Corporation (not including in the
securities beneficially owned by such person any securities acquired
directly from such Corporation or its affiliates) representing 30% or
more of the combined voting power of such Corporation's then
outstanding voting securities;
(ii) during any period of not more than two
consecutive years, individuals who at the beginning of such period
constitute either the Board or the Board of Directors of Associated
(either such board of directors being referred to herein as a
"Corporation Board"), and any new director (other than a director
designated by a person who has entered into an agreement with a
Corporation to effect a transaction described in clause (i), (iii) or
(iv) of this paragraph (f)) whose election by a Corporation Board or
nomination for election by the applicable Corporation's stockholders
was approved by a vote of at least two-thirds (2/3) of the directors
then still in office who either were directors at the beginning of the
period or whose election or nomination for election was previously so
approved (other than approval given in connection with an actual or
threatened proxy or election contest), cease for any reason to
constitute at least a 70% majority of such Corporation Board;
(iii) the stockholders of a Corporation
approve a merger or consolidation of such Corporation with any other
corporation, other than (A) a merger or consolidation which would
result in the voting securities of such Corporation outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding without conversion or by being converted into voting
securities of the surviving or parent entity) 80% or more of the
combined voting power of the voting securities of such Corporation or
such surviving or parent entity outstanding immediately after such
merger or consolidation or (B) a merger or consolidation effected to
implement a recapitalization of a Corporation (or similar transaction)
in which no "person" (as hereinabove defined) acquires 30% or more of
the combined voting power of such Corporation's then outstanding
securities; or
(iv) the stockholders of a Corporation approve a plan
of complete liquidation of such Corporation or an agreement for the
sale or disposition by such Corporation of all or substantially all of
such Corporation's assets (or any transaction having a similar effect).
(g) Restrictions on Transferability and Repurchase Rights. An
Award Agreement may provide that the shares of Common Stock issued to a
Participant pursuant to an Award be subject to repurchase by the Company and/or
be subject to restrictions on transferability, as well as any other terms and
conditions which the Board or the Committee deems necessary or appropriate. The
foregoing may be reflected in a shareholders or similar agreement which the
Participant is required to execute or in the form of a legend on the shares of
Common Stock.
(h) Participant Rights. No Participant shall have any claim to
be granted any Award under the Plan, and there is no obligation for uniformity
of treatment for Participants. Except as provided specifically herein, a
Participant or a transferee of an Award shall have no rights as a stockholder
with respect to any shares of stock covered by any Award until the date of the
issuance of a certificate to him for such shares.
(i) Unfunded Status of Awards. The Plan is intended to
constitute an "unfunded" plan for incentive and deferred compensation. With
respect to any payments not yet made to a Participant pursuant to an Award,
nothing contained in the Plan or any Award shall give any such Participant any
rights that are greater than those of a general creditor of MSI.
(j) No Fractional Shares. No fractional shares of Common Stock
shall be issued or delivered pursuant to the Plan or any Award. The Committee
shall determine whether cash, other Awards or other property shall be issued or
paid in lieu of such fractional shares or whether such fractional shares or any
rights thereto shall be forfeited or otherwise eliminated.
(k) Governing Law. The Plan and all determinations made and
actions taken pursuant hereto shall be governed by the laws of the State of
Delaware without giving effect to the conflict of laws principles thereof.
(l) Effective Date. The Plan has been adopted by the Board
and approved by Associated, as sole stockholder of MSI. The Plan shall become
effective on October 16, 1995, which shall be the Effective Date.
(m) Beneficiary. A Participant may file with the Committee a
written designation of a beneficiary on such form as may be prescribed by the
Committee and may, from time to time, amend or revoke such designation. If no
designated beneficiary survives the Participant, the executor or administrator
of the Participant's estate shall be deemed to be the grantee's beneficiary.
(n) Interpretation. The Plan is designed and intended to
comply with Rule 16b-3 promulgated under the Exchange Act, and all provisions
hereof shall be construed in a manner to so comply.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements of The Associated Group, Inc., as of and for
the six months ended June 30, 1996 included in Form 10-Q for the quarterly
period ending June 30, 1996 and is qualified in its entirety by reference
to such consolidated financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,158
<SECURITIES> 0<F1>
<RECEIVABLES> 8,381
<ALLOWANCES> 3,637
<INVENTORY> 1,409
<CURRENT-ASSETS> 9,969
<PP&E> 50,364
<DEPRECIATION> 23,394
<TOTAL-ASSETS> 578,828
<CURRENT-LIABILITIES> 73,807
<BONDS> 9,367
<COMMON> 1,878
0
0
<OTHER-SE> 323,784
<TOTAL-LIABILITY-AND-EQUITY> 578,828
<SALES> 310
<TOTAL-REVENUES> 9,525
<CGS> 229
<TOTAL-COSTS> 4,996
<OTHER-EXPENSES> 6,196
<LOSS-PROVISION> 628
<INTEREST-EXPENSE> 2,007
<INCOME-PRETAX> (7,129)
<INCOME-TAX> (2,327)
<INCOME-CONTINUING> (4,802)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,802)
<EPS-PRIMARY> (0.26)
<EPS-DILUTED> 0
<FN>
<F1>
Does not include $498,610 of noncurrent marketable equity securities.
</FN>
</TABLE>
