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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 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)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None.
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Title of each class
-------------------
Common Stock, Class A, par value $.10 per share
Common Stock, Class B, par value $.10 per share
Preferred Stock Purchase Rights
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 / /
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
As of March 25, 1997 the aggregate market value of the Registrant's
Common Stock held by nonaffiliates of the Registrant was approximately
$485,436,000.
The number of shares of the Registrant's classes of Common Stock
outstanding as of March 25, 1997:
Common Stock, Class A 9,382,962
Common Stock, Class B 9,398,410
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive proxy statement for the 1997
annual meeting of stockholders, scheduled for June 5, 1997, are incorporated by
reference into Part III as set forth herein.
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Table of Contents
PART I
ITEM 1. BUSINESS..................................................... 1
The Company................................................ 1
Digital Termination Services .............................. 1
TruePosition(TM) Wireless Location System.................. 4
Mexican Cellular Telephone System.......................... 6
Marketable Equity Securities............................... 6
Radio Broadcasting......................................... 7
Personal Communications Services........................... 8
Specialized Mobile Radio................................... 8
Other Wireless Communications Businesses................... 9
Retail Art Gallery......................................... 9
Industry Segments.......................................... 9
Regulatory Environment..................................... 9
Employees.................................................. 10
ITEM 2. PROPERTIES................................................... 10
ITEM 3. LEGAL PROCEEDINGS............................................ 10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.......... 11
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.......................................... 12
ITEM 6. SELECTED FINANCIAL DATA...................................... 13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.......................... 14
Liquidity and Capital Resources.............................. 14
Operating Results............................................ 16
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.................. 18
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.......................... 18
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT........... 19
ITEM 11. EXECUTIVE COMPENSATION....................................... 19
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT............................................... 19
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............... 19
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K..................................................... 20
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PART I
ITEM 1. BUSINESS
The Company
The Associated Group, Inc. (the "Company") is principally engaged in
the ownership and operation of, and also owns interests in, a variety of
wireless communications related businesses. In December 1994, the Company was
spun-off (the "Spin-Off") from Associated Communications Corporation
("Associated"), which at the time was one of the largest independent cellular
telephone system operators in the United States. The Company's businesses and
other assets are described below.
Digital Termination Services
Microwave Services, Inc. ("MSI"), a wholly-owned subsidiary of the
Company, was formed to pursue the provision of digital voice, high speed data
and video services over a broadband wireless radio network. MSI applied for and
received from the Federal Communications Commission ("FCC") licenses in top
Statistical Metropolitan Service Areas ("SMSA") to provide Digital Termination
Services utilizing channels in the 18 GHz frequency band (18.870 GHz to 19.260
GHz) allocated pursuant to the rules governing common carrier Digital Electronic
Message Services ("DEMS") in the United States.
In March 1996, MSI and Digital Services Corporation ("DSC"), another
licensee of DEMS channels, formed a joint venture limited liability company,
DMT, L.L.C., now known as Associated Communications, L.L.C. ("ACOM"), in which
MSI has a controlling 55% voting member equity interest, to provide
administrative and management services to each of MSI and DSC. Pursuant to an
Administration and Management Services Agreement (the "Management Agreements")
entered into between ACOM and each of MSI and DSC, MSI and DSC each seek to
achieve economies of scale for their licensed systems and their customers in an
effort to make use of their licensed frequencies more efficiently and to provide
a broader range and greater quality and quantity of services than either of the
companies would be able to accomplish independently. ACOM's services to MSI and
DSC include, among others, network design, purchase of equipment, deployment and
maintenance of network infrastructure, securing of site leases, and marketing of
services to potential customers. In addition, ACOM has the option to require the
contribution of the DEMS licenses owned by each joint venture member to ACOM,
subject to the approval of the FCC and other applicable governmental
authorities. MSI and DSC hold DEMS licenses in 31 of the top SMSAs in the United
States. In 1996, ACOM filed applications for additional DEMS licenses.
On August 30, 1996, the FCC issued an Order (the "Freeze Order")
freezing the filing of applications for new licenses (including amendments and
modifications to existing licenses) for DEMS in the 18 GHz band. The Freeze
Order held in abeyance ACOM's and MSI's applications for additional DEMS
licenses pending the outcome of an FCC review of the current licensing approach
for DEMS.
On March 10, 1997, ACOM entered into a Stock Contribution Agreement
(the "Stock Agreement") with another DEMS licensee and its sole shareholder (the
"Sole Shareholder") for the contribution of all of the stock of the licensee to
ACOM in exchange for an initial cash payment and additional cash payments and
ownership interests in ACOM upon consummation of the transactions and ACOM's
acquisition of the stock and the licenses contemplated by the Stock Agreement.
Consummation of the transactions and transfer of these licenses is subject to
certain closing conditions and the receipt of all necessary regulatory
approvals, including approval by the FCC. The amount of the equity interest in
ACOM to be issued to the Sole Shareholder is dependent upon certain conditions,
but shall not exceed 5% determined as of the date of the Stock Agreement.
Subsequent to a closing, the Sole Shareholder will have a full member interest
in ACOM pursuant to the Limited Liability Company Agreement, to which MSI and
DSC are parties.
On March 14, 1997, the FCC issued an Order (the "Relocation Order")
providing for the relocation of DEMS from the
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18 GHz to the 24 GHz band (24.25 GHz to 24.45 GHz and 25.05 GHz to 25.25 GHz).
The Relocation Order addressed the government's concerns regarding potential
interference with government satellite facilities at 18 GHz, as well as
potential coordination issues with a proposed commercial satellite network.
Pursuant to the Relocation Order, DEMS will be relocated from 100 MHz over 5
channels at 18 GHz to 400 MHz over 5 channels at 24 GHz, allowing DEMS systems
to maintain equivalent information capacity to similarly engineered systems at
18 GHz. MSI and DSC will be relocated on a channel-by-channel basis to the new
band. In the Relocation Order, the FCC also stated that it would grant licenses
for pending applications that had passed the 60-day period for filing mutually
exclusive applications prior to the Freeze Order. The Relocation Order is
subject to administrative or judicial review.
The following table represents a summary (upon implementation of the
Relocation Order) of (i) licenses held by MSI and DSC, which are subject to the
Management Agreements; (ii) licenses granted to MSI pursuant to pending
applications; and (iii) licenses to be acquired pursuant to the Stock Agreement,
subject to necessary regulatory approvals, including the FCC.
SMSA Amount of Spectrum (MHz)
Rank Market Upon Relocation to 24 GHz
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1 New York, NY 400
2 Los Angeles, CA 400
3 Chicago, IL 400
4 Philadelphia, PA 320
5 Detroit, MI 400
6 Dallas, TX 400
7 Houston, TX 400
8 Washington, DC 400
9 San Francisco, CA 320
10 Boston, MA 400
12 Atlanta, GA 400
13 San Diego, CA 320
15 Minneapolis, MN 400
17 St. Louis, MO 400
18 Baltimore, MD 320
19 Phoenix, AZ 400
20 Seattle, WA 400
21 Pittsburgh, PA 400
22 Denver, CO 80
23 Miami, FL 400
24 Tampa, FL 400
26 Cleveland, OH 320
27 Portland, OR 320
28 San Jose, CA 240
29 Cincinnati, OH 240
30 Kansas City, MO 320
31 Sacramento, CA 320
32 Milwaukee, WI 320
33 San Antonio, TX 320
35 Indianapolis, IN 320
36 Columbus, OH 80
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In addition, upon the grant of licenses by the FCC pursuant to pending
applications which passed the 60-day period for filing mutually exclusive
applications prior to the Freeze Order, ACOM will hold a DEMS license for 1
channel (80 MHz at 24 GHz) in each of the following markets:
Salt Lake City, UT Birmingham, AL Akron, OH
Orlando, FL Austin, TX Greenville, SC
Buffalo, NY Honolulu, HI El Paso, TX
New Orleans, LA Dayton, OH Omaha, NE
Hartford, CT Albany, NY Wilmington, DE
Nashville, TN Charlotte, NC Albuquerque, NM
Norfolk, VA Richmond, VA Springfield, MA
Rochester, NY Tulsa, OK Baton Rouge, LA
Memphis, TN Columbus, OH Charleston, SC
Jacksonville, FL Raleigh, NC New Haven, CT
Oklahoma City, OK Fresno, CA Stockton, CA
Greensboro, NC Tucson, AZ Newport News, VA
Louisville, KY Allentown, PA Santa Barbara, CA
West Palm Beach, FL Ventura, CA Trenton, NJ
Las Vegas, NV Syracuse, NY
DEMS licenses authorize the construction of transmission stations using
the specified channels at sites generally within these SMSA regions for the
purposes of providing DEMS, which may include both point-to-multipoint and
point-to-point applications. Unlike certain other portions of the spectrum for
fixed point-to-point services which are typically licensed on a per transmission
path basis following frequency coordination, a DEMS licensee has exclusive use
of the spectrum within its licensed SMSA.
ACOM continues to build its development team, including additional key
management, marketing, sales and administrative personnel. On September 1, 1996,
Alex J. Mandl, formerly President and Chief Operating Officer of AT&T, joined
ACOM as its Chairman and Chief Executive Officer. ACOM has also appointed Kirby
J. Pickle, Jr., formerly Executive Vice President of MFS Communications
Corporation and President of one of its principal subsidiaries, UUNet
Technologies, Inc., as President and Chief Operating Officer. In addition,
Laurence E. Harris, formerly Senior Vice President and General Counsel of MCI
Communications, Inc., has joined ACOM as Senior Vice President and General
Counsel.
MSI, through ACOM, seeks to expand its current service offerings
(consisting of internet access and microwave carrier services) to become a full
service broadband telecommunications provider, and to market a variety of
services, which include switch-based, fiber-quality digital services as a
Competitive Local Exchange Carrier ("CLEC"). ACOM plans to offer services to its
customers both on-net, through the broadband fixed wireless network, and
off-net, by reselling particular network elements. Initial customers are
anticipated to be small and medium sized businesses. Although there can be no
assurance, the Company believes that its broadband wireless network will be
highly flexible and modular, and will have significant advantages over wired
alternatives with regard to cost, speed of deployment, ease of installation,
comparable quality and reliability, and compatibility with existing
telecommunications architectures.
The Company's telecommunications services are subject to varying
degrees of federal, state and local regulation. Generally, the FCC exercises
jurisdiction over all telecommunications service providers to the extent such
services involve the provision of jurisdictionally interstate or international
telecommunications, including the resale of long distance services, the
provision of local access services necessary to connect callers to long distance
carriers, and the use of electromagnetic spectrum (i.e., wireless services).
With the passage of the Telecommunications Act of 1996 (the "Telecommunications
Act"), the FCC's jurisdiction has been extended to include certain
interconnection and related matters that traditionally have been considered
subject primarily to state regulation. The state regulatory commissions retain
nonexclusive jurisdiction over the provision of telecommunications services to
the extent such services involve the provision of jurisdictionally intrastate
telecommunications.
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In order to provide local exchange services, MSI must obtain the
approval of state regulatory authorities prior to offering such services in each
state. MSI is currently authorized to operate as a CLEC in Florida, Illinois,
Massachusetts, New York and the District of Columbia, and has applications
pending in each of the other jurisdictions for which it holds an FCC license.
There can be no assurance that MSI will obtain or retain such state
authorizations. Further, as a CLEC, MSI will be subject to additional state
regulatory and service requirements, including those relating to quality of
service.
It is expected that MSI's service offerings will compete with those
offered by the incumbent local exchange carriers ("LECs"), fiber-based
telecommunications providers, as well as other wireless carriers, including 2
GHz, 28 GHz and 38 GHz wireless communications operators, point-to-point
microwave operators and proposed global broadband satellite systems. Many of
these potential competitors have substantially greater financial, technical,
marketing, sales and other resources than MSI. In addition, the FCC has stated
in the Relocation Order that it will conduct a rulemaking proceeding regarding
the issuance of additional DEMS licenses in the 24 GHz band. The grant of
additional authorizations, as well as the auction and grant of additional
licenses in other frequency bands, could result in increased competition. The
Company believes that MSI, through ACOM, will be able to compete effectively in
the marketplace, although there can be no assurance in this regard.
As required by the Telecommunications Act, in August 1996 the FCC
adopted new rules implementing the Telecommunications Act (the "Interconnection
Order"). These rules constitute a pro-competitive, deregulatory national policy
framework designed to remove or minimize the regulatory, economic and
operational impediments to full competition for local services, including
switched local exchange service. Among other things, the Interconnection Order
established rules requiring LECs to interconnect with new entrants such as MSI
pursuant to certain enumerated procedures. In order to establish interconnection
arrangements with the LECs, MSI has initiated, pursuant to the Interconnection
Order, negotiations with several LECs. No assurance can be given that MSI will
be able to enter into interconnection arrangements that are optimal to MSI's
particular economic and technological requirements.
The Company does not anticipate that the Relocation Order will have an
adverse impact on the prospects of MSI or ACOM's success in the marketplace.
However, no assurance can be given in this regard. In particular, the Company is
unable to predict the availability, pricing and technical sufficiency of
equipment required to utilize the 24 GHz frequency, or the extent to which
implementation of the Relocation Order will affect MSI's service offerings in
the licensed markets.
TruePosition(TM) Wireless Location System
Through its wholly-owned subsidiary, Associated RT, Inc. ("ART"), the
Company is developing and seeking to commercialize systems and related services
for locating cellular telephones and other wireless transmitters, through its
TruePosition Wireless Location System ("TruePosition"). TruePosition is an
overlay system designed to enable mobile wireless service providers to determine
the location of any cellular or Personal Communication Services ("PCS")
telephone. TruePosition uses patented advanced time difference of arrival
("TDOA") technology to calculate the latitude and longitude of any designated
wireless telephone or transmitter and forwards this information in real time to
any desired application software. The system's design is intended to support
many cellular and end-user applications, including enhanced 911 services
("E911"), cellular fraud detection and prosecution, location sensitive billing,
fleet management systems, cellular system optimization, as well as various
vehicle, object and personal location applications. The system has initially
been developed to support analog cellular telephony, including the existing
United States base of an estimated 46 million wireless telephones, without
alteration to the telephone handsets. ART is in the process of developing
support for digital formats of cellular and PCS telephony.
There are three basic components of the TruePosition system. The Signal
Collection System ("SCS") consists of a wideband digital radio which is
generally located at certain of the existing cell sites of a wireless carrier.
The SCS collects signals transmitted by each mobile telephone on the wireless
system's reverse control channel. These signals are generated periodically (or
at the instruction of the carrier) while the mobile telephone is turned on or
otherwise in use. Therefore, it is not necessary for the mobile telephone user
to be on a telephone call to be located by TruePosition, nor does TruePosition
require the mobile telephone user to make any adjustments or additions to the
mobile telephone handset. The collected signals are transferred to a TDOA
Location Processor, which performs digital signal processing and algorithmic
functions to determine the latitude and longitude of the signal's origination.
The latitude and longitude, along with other information, such as the mobile
telephone's Mobile Identification Number, the dialed digits, speed of travel,
direction of travel and the mobile telephone's Electronic Serial Number, is then
transmitted to an Applications Processor, consisting of a variety of
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software packages that utilize the location data for specific applications. To
date, ART has developed three software packages to be used with the system. The
first is an interface between TruePosition and E911 systems that forwards
location information in real time to an emergency operator when a mobile
telephone user dials "911." ART has also developed a stand-alone billing system
for a wireless carrier that can be used for location sensitive billing. The
third application is a limited vehicle management application that is intended
to demonstrate a variety of functionality to potential end-users, although it is
expected that an actual end-user would require additional customized
development. ART is also creating a general purpose application programming
interface, so that third party developers can also build software packages that
work with TruePosition.
According to estimates of the Cellular Telephone Industry Association
("CTIA"), 18 million emergency calls are made each year from wireless
telephones. CTIA also estimates that nearly two-thirds of existing wireless
telephone subscribers purchased their wireless telephones for personal safety
reasons. In 1994, the FCC initiated a rulemaking procedure for the availability
of basic 911 services and the implementation of E911 for wireless services.
On June 12, 1996, the FCC issued a Report and Order (the "Order") which
requires Commercial Mobile Radio Service providers of real time voice services
to offer E911 access and services to mobile radio callers. The Order followed
discussions between the FCC and representatives of the wireless industry,
principally CTIA, and public safety organizations, principally the National
Emergency Number Association, the Association of Public Safety Communications
Officials and the National Association of State Nine One One Administrators,
regarding wireless compatibility issues and related matters. The Order mandates
a two phase implementation of location capability and also provides that the
processing and transmission of E911 and location information may not be subject
to any user validation or similar procedure. In Phase I, which must be
implemented by March 1998, wireless providers must provide cell site and
call-back information for wireless 911 callers to the Public Safety Answering
Point, where emergency service personnel handle 911 calls. Phase II, which must
be implemented by October 2001, requires wireless providers to report the
location of wireless 911 callers with an accuracy of 125 meters (410 feet) for
67% of all such calls. Both phases require 911 organizations to make a formal
request to the carrier for such services, and require a mechanism to fund the
technology upgrades. TruePosition has been designed to provide wireless carriers
with the ability to meet these requirements, although there can be no assurance
in this regard.
There are currently approximately 60 individuals working on
TruePosition, including consultants engaged by ART to assist in development
efforts. In addition, ART continues to build its team, which will include
additional development, marketing, sales and administrative personnel. In March
1997, Kent R. Sander joined ART as President and Chief Operating Officer, and
the Company as a Vice President. Mr. Sander spent fourteen years at Ericsson
Radio Systems, Inc., the principal U.S. subsidiary of the Swedish
telecommunications firm, LM Ericsson, most recently as Vice President, Business
Operations, East Region, in which he managed all of Ericsson's activities in the
East Region, including sales, operations and engineering.
ART continues to advance the commercialization process for
TruePosition. In December 1996, ART, in cooperation with the Greater Harris
County 911 Emergency Network and Houston Cellular, a partnership of BellSouth
and AT&T Wireless, successfully demonstrated the first installed TruePosition
system in an eight cell-site platform in Houston, Texas. In January 1997, in
conjunction with Comcast Cellular Communications, Inc. ("Comcast"), the State of
New Jersey, Bell Atlantic Corporation and other E911 participants, ART launched
a trial demonstration of TruePosition in New Jersey. The New Jersey Wireless
Enhanced 911 System covers the southernmost fifty miles of the I-295/New Jersey
Turnpike corridor, and provides real time location information for wireless E911
calls originating from Comcast subscribers within the trial area. The trial is
currently scheduled to run approximately through the end of April 1997. ART
continues to conduct discussions with Comcast and several other wireless
carriers regarding the potential commercial implementation of TruePosition
systems, although there can be no assurance that any commercial agreements will
be reached or that ART will be successful in commercializing its TruePosition
technology.
There exist several alternative location technologies, including global
positioning systems, angle of arrival, measurement of signal attenuation, as
well as other forms of time difference of arrival technology. ART believes that
the TruePosition technological approach has significant advantages over such
competing technologies. However, there can be no assurance as to the ultimate
success of TruePosition technology versus competing technologies. In addition,
potential competitors which are developing these alternative location
technologies include major domestic and international
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companies, many of which have substantially greater financial, technical,
marketing, sales and other resources than the Company.
In addition to TruePosition, ART currently owns a 12.7% equity interest
in Teletrac, Inc. ("Teletrac"), consisting of a combination of common and
preferred stock, for which ART paid in the aggregate $6 million. Teletrac is in
the business of providing location and, potentially, messaging services
primarily for vehicle and fleet management. Its technology differs from that of
TruePosition in that it requires the installation of dedicated equipment in the
vehicle to be located, and operates in a band which requires Teletrac to have a
specific license for location services from the FCC. TruePosition, in contrast,
is designed to operate on mobile telephone systems already licensed by the FCC.
Mexican Cellular Telephone System
As of December 31, 1996, the Company, through a wholly-owned
subsidiary, Associated Communications of Mexico, Inc. ("ACM"), owned 30.2% of
the capital stock of Grupo Portatel, S.A. de C.V. ("Grupo"), a Mexican
corporation of which Portatel del Sureste, S.A. de C.V. ("Portatel") is a
wholly-owned subsidiary. Portatel is licensed to provide cellular telephone
services in Region 8, covering southeastern Mexico and the Yucatan Peninsula.
ACM and another shareholder of Grupo (the "Grupo Shareholder") have granted
voting rights with respect to, and agreed to contribute, their interests in
Grupo to a joint venture limited liability company, known as Grupo Holdings,
L.L.C. ("Grupo Holdings"). ACM and the Grupo Shareholder are the only members of
Grupo Holdings, in which ACM has a 61.6% controlling equity interest.
During 1995 and January 1996, Portatel failed to make certain debt
payments under various credit facilities, which are guaranteed by a vendor of
Portatel (the "Guarantor"). Accordingly, payments were made by the Guarantor to
Portatel's lenders on Portatel's behalf. 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 ACM), have entered into a
Contribution Agreement dated as of January 31, 1996 with the Guarantor for the
purpose of converting approximately $14.7 million of Portatel's debt, which was
paid by the Guarantor, into an approximate 21.7% equity interest in Grupo. The
Guarantor will continue to guarantee the remaining debt of Portatel of
approximately $10.4 million, secured by an approximate 30.7% equity interest in
Portatel. The transactions contemplated by the Contribution Agreement were
subject to certain Mexican regulatory consents and approvals, the last of which
was received in the first quarter of 1997. After the closing under the
Contribution Agreement, excluding the effect of the agreements mentioned below,
Grupo Holdings will have a 38.4% voting equity interest in Grupo. Accordingly,
through control of Grupo Holdings and certain agreements among ACM, the Grupo
Shareholder and another shareholder of Grupo, ACM has sufficient control over
the assets of Grupo such that the Company consolidated the financial statements
of Grupo effective January 1, 1996 (see Note 3 to the Company's financial
statements included in Item 14 of this Annual Report on Form 10-K).
A subsidiary of Telefonos de Mexico, S.A. de C.V. ("RadioMovil") holds
a license to provide nationwide cellular service in Mexico. The Company believes
that Portatel competes effectively with RadioMovil, however, competition has
been intense and there can be no assurance in this regard. The Mexican Ministry
of Communications and Transportation ("SCT") regulates the tariffs of cellular
service providers in Mexico and service rate increases may only be implemented
with SCT approval.
Portatel has been significantly affected by the decline in the state of
the Mexican economy, which began in late 1994 as a result of the devaluation of
the Mexican new peso. Resulting high inflation rates have continued into 1996
and have impacted Portatel's revenues, financing and procurement. The Company's
operating results with respect to its investment in Grupo will continue to be
subject to fluctuations in the peso's exchange rate and inflation in the Mexican
economy. One potential impact on the Company is the possibility of an increase
in cash outlays to Grupo, the extent of which is not readily determinable.
Marketable Equity Securities
As of March 25, 1997, the Company's portfolio of marketable equity
securities (the "Portfolio Securities"), with a market value of approximately
$420,665,000, includes 12,479,976 shares of Tele-Communications, Inc. ("TCI")
Group Series A Common Stock, 7,071,852 shares of TCI Group Series B Common
Stock, 5,463,970 shares of Liberty Media ("Liberty") Group Series A Common
Stock, 1,767,963 shares of Liberty Media Group Series B Common Stock, 1,247,997
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shares of TCI Satellite Entertainment, Inc. ("TCI Satellite") Class A Common
Stock, 707,185 shares of TCI Satellite Class B Common Stock, and other
securities.
Holdings in TCI and Liberty account for over 95% of the value of the
Company's portfolio of marketable equity securities at March 25, 1997. TCI is
principally engaged in the development and operation of cable television systems
and is one of the nation's largest cable television companies in terms of
subscribers. Liberty is the cable television programming "tracking" stock of
TCI. Based on the number of outstanding TCI and Liberty shares as of January 31,
1997 reported in TCI's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, the Company's TCI and Liberty holdings represent
approximately 5.6% of the outstanding aggregate voting power of TCI and Liberty.
In December 1996, TCI distributed the stock of its satellite business
unit, TCI Satellite, to holders of TCI Group Series A and TCI Group Series B
Common Stock. The Company received a distribution of one share of TCI Satellite
Class A Common Stock and one share of TCI Satellite Class B Common Stock for
every ten shares of TCI Group Series A Common Stock and TCI Group Series B
Common Stock owned, respectively. Based on the number of outstanding shares of
TCI Satellite as of December 31, 1996 reported in TCI Satellite's Annual Report
on Form 10-K for the fiscal year ended December 31, 1996, the Company's holdings
represent approximately 5.8% of the outstanding voting power of TCI Satellite.
Other marketable equity securities owned by the Company have an
aggregate market value of approximately $4,392,000 as of March 25, 1997.
The Company utilizes the Portfolio Securities as a source of funds for
operations and development of its various businesses. In this regard, in order
to provide ART and MSI with an assured source of capital for their respective
development programs, in 1996 the Company and its wholly-owned subsidiary which
holds the Portfolio Securities ("Portfolio Sub") entered into an agreement with
ART and MSI whereby the Company committed to contribute to them as capital
during 1996 and 1997 specified minimum annual amounts. In turn, Portfolio Sub
agreed to obtain through borrowings or other sources of funds and to distribute
to the Company the cash amounts necessary for the Company to meet such capital
contribution commitments to ART and MSI, as well as certain additional specified
minimum quarterly cash amounts during 1996 and 1997 to fund the Company's
operating cash requirements during those years. In addition, the Company has
adopted a policy of disposing of a portion of the Portfolio Securities from time
to time, to the extent net operating loss carryforwards are available to offset
tax liabilities resulting from such dispositions and otherwise as deemed
appropriate by the Company, to fund the development and commercialization of its
wireless communications technologies and to make acquisitions of operating
companies. Consistent with this policy, in 1996 the Company sold certain of its
marketable securities for pretax proceeds of approximately $3,414,000 at a gain
of $3,398,000, and in 1997, as of March 25, 1997, for pretax proceeds of
approximately $2,245,000 at a gain of $2,223,000 (see Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations,
Liquidity and Capital Resources").
Radio Broadcasting
The Company owns and operates WSTV-AM and WRKY-FM in Steubenville, Ohio
and WOMP-AM/FM in Bellaire, Ohio, which serves Bellaire and the adjacent
Wheeling, West Virginia markets. Since the Bellaire and Wheeling markets are
adjacent to the Steubenville market, the radio operations share certain
services. Additionally, the Company owns and operates WCEZ-FM in Delaware, Ohio,
serving the Delaware/Columbus markets.
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The following table sets forth certain information concerning the broadcasting
stations:
Stations in Market
Market Station Format (AM & FM Combined)
------ ------- ------ ------------------
Steubenville, OH and WSTV-AM News-Talk-Sports 5
Weirton, WV WRKY-FM Hot Country
Wheeling, WV and WOMP-AM News-Talk-Sports 12
Bellaire, OH WOMP-FM Bright Adult Contemporary
Delaware/ WCEZ-FM Soft Adult Contemporary 29
Columbus, OH
The Company's radio broadcasting stations are subject to the
regulations and licensing requirements of the FCC. The FCC is authorized to
issue, revoke and modify broadcasting licenses, determine station frequencies,
areas to be served and power to be used, and to impose penalties for
noncompliance with its regulations. Pursuant to the Telecommunications Act,
radio broadcast licenses may be granted by the FCC for a maximum period of eight
years, and, upon application, may be renewed for successive eight year periods.
Each of the radio broadcast licenses listed above has been renewed under the
Telecommunications Act for such eight year periods, and the term of each license
continues to October 1, 2004.
Personal Communications Services
The Company has a 75% interest in a general partnership which holds a
4.42% interest in Omnipoint Communications, Inc. ("OCI"), a subsidiary of
Omnipoint Corporation ("Omnipoint Parent"). OCI was awarded one of three
pioneer's preferences by the FCC to receive a license to construct and operate a
broadband PCS system. The license received by OCI covers the New York Major
Trading Area ("MTA"), a region with a population of approximately 27 million,
including New York City. OCI is required to make a payment of approximately $350
million for its license, payable over five years (interest only payments during
the first two years). In January 1996, Omnipoint Parent successfully completed
an initial public offering and is currently traded on the Nasdaq National Market
under the symbol "OMPT."
Specialized Mobile Radio
The Company, through its wholly-owned subsidiary, Associated SMR, Inc.
("ASMR"), has an approximate 14% equity investment in Corporacion Mobilcom, S.A.
de C.V. ("Mobilcom"), a Mexican corporation which owns and operates SMR systems.
SMR, or "trunked mobile radio," is a wireless communication service which can
transmit voice and data. Mobilcom holds licenses or equity interests in
corporations licensed to provide trunked mobile radio service in the 800 MHz and
400 MHz bands in major metropolitan areas throughout Mexico, including Mexico
City, Guadalajara and Monterrey, as well as the connecting highways.
On August 23, 1996, Mobilcom and its shareholders completed a
transaction with Nextel Communications, Inc. ("Nextel"), an existing shareholder
of Mobilcom, pursuant to which Nextel purchased an additional 19% equity
interest in Mobilcom. In addition, ASMR and certain other shareholders of
Mobilcom (collectively, the "Mobilcom Investors"), entered into a put-call
agreement (the "Put-Call Agreement") with Nextel, pursuant to which, under
certain circumstances, the Mobilcom Investors have the right to cause Nextel to
purchase, and Nextel shall have the right to buy, the entire equity interest of
the Mobilcom Investors. The Put-Call Agreement became effective on October 24,
1996 (the "Effective Date"). After the first anniversary of the Effective Date,
and prior to the third anniversary of the Effective Date, the Mobilcom Investors
collectively shall have the right to put their shares to Nextel upon the taking
of certain actions by Mobilcom, if the Mobilcom Investors, or directors
designated by them, have voted against such actions (a "Put Event"). On the
third anniversary of the Effective Date, a Put Event is deemed to have occurred
automatically, and if the Mobilcom Investors do not exercise their put rights,
Nextel shall have the right to call such shares. A Put Event shall also be
deemed to have occurred on January 22, 1998 if the Mobilcom Investors have not
had the opportunity to vote for or against certain actions proposed by Mobilcom.
The purchase price for the put-call shares is based upon a fair market value of
Mobilcom, which fair market value shall in no event be deemed to be less than
$150 million. In the event that the fair market value of
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Mobilcom exceeds $250 million, for purposes of the Put-Call Agreement, the fair
market value shall be deemed to be $250 million plus 50% of the amount by which
such valuation exceeds $250 million.
Other Wireless Communications Businesses
The Company owns and operates a digital wireless communications network
in the Los Angeles, California market. The microwave network operates as a
Competitive Access Provider ("CAP") of local exchange service to interexchange
carriers and private users, who transmit voice and data through the network. The
CAP has initiated a program to expand its service offering in its licensed
market in cooperation with MSI and ACOM. The CAP faces significant competition
from other alternative access providers, particularly a LEC and companies using
fiber optic technology.
Retail Art Gallery
Associated American Artists ("AAA") is an art gallery owned by the
Company which sells original prints, drawings, oil paintings, sculptures and
related works of art, located at Twenty West 57th Street in New York City. The
gallery's inventory has been acquired directly from artists, as well as from
dealers, collectors and estates of artists. The gallery also holds inventory for
sale on consignment. The need to maintain a broad selection of works requires a
large inventory investment in relation to sales volume. AAA competes with other
galleries in the United States. AAA maintains exhibitions of outstanding artists
from Old Masters to Contemporary Masters, and loans works for exhibitions to
major museums, universities, libraries and other institutions around the
country.
Industry Segments
Financial information by industry segment is included in Note 17 to the
Company's financial statements included in Item 14 elsewhere in this Annual
Report on Form 10-K.
Regulatory Environment
Most of the businesses which the Company either owns or in which the
Company has an interest are subject to regulation at federal, state and local
levels in the United States or at various levels in other countries. The
Company's domestic broadcasting and communications assets and investments are
generally regulated by the FCC, and its Mexican communications assets and
investments are subject to Mexican regulatory authority. The Company currently
anticipates that similar regulations will govern certain of the industries in
which it is likely to operate or make investments in the future. Changes in the
laws or regulations governing these industries, in the United States or
elsewhere, could adversely affect the Company's business.
At the time of the Spin-Off, the Company's indirect interest in the
Portfolio Securities constituted a substantial majority of the total value of
its assets, and the Company could have been considered to be engaged in the
business of holding or owning investment securities within the meaning of the
Investment Company Act of 1940 (the "1940 Act"), potentially subjecting the
Company to regulation as an investment company by the Securities and Exchange
Commission (the "Commission") and potentially significantly and adversely
affecting the Company's activities. In accordance with the rules promulgated by
the Commission under the 1940 Act, the Company was deemed not to be engaged in
such business (and was therefore not subject to such regulation) for a period of
at least one year following the Spin-Off because of the Company's intent to be
engaged primarily in a business other than holding or owning investment
securities as soon as reasonably possible and, in any event, prior to the end of
such one-year period. These rules require that the Company's intent be evidenced
by the Company's business activities and an appropriate resolution of its Board
of Directors. The Board of Directors adopted such a resolution.
During 1995 and 1996, the Board of Directors of the Company conducted
extensive reviews of the Company's development, activities, assets and sources
of income. The Board of Directors in particular reviewed the Company's progress
in developing various communications technologies, ranges of valuations for the
Company's businesses and other assets at that time, the Company's policy of
borrowing against the Portfolio Securities, and disposing of a portion of the
Portfolio Securities from time to time to the extent net operating loss
carryforwards are available to offset tax liabilities resulting from such
dispositions and otherwise as deemed appropriate by the Company, to finance the
Company's development and commercialization of its communications technologies
and to make acquisitions of operating companies,
9
<PAGE>
the commitments of the Company and Portfolio Sub to fund the anticipated capital
needs of ART and MSI, as well as the anticipated operating cash requirements of
the Company, as described above, the Company's restructuring of certain of its
subsidiaries, the Company's interest in acquiring companies with emerging
technologies and its efforts to do so, and the activities of the Company's
officers and employees. In this connection the Board of Directors worked with
professional advisors and also reviewed their analyses.
Based on this review, the Board of Directors determined that the
Company was primarily engaged in businesses other than investing, owning,
holding or trading in securities, and accordingly was not at those times
required to register as an investment company under the 1940 Act. The Board's
determination has been confirmed as a result of events occurring, and activities
engaged in, by the Company during 1996. For example, as a result of the rapid
development of the Company's broadband wireless communications business and
wireless location business, as well as a decrease in the net after-tax value of
the Portfolio Securities, the Company believes that the Portfolio Securities no
longer constitute even 40% of the total value of the Company's assets. However,
the Company's ability to continue not being subject to such registration is
subject to numerous factors, some of which may be outside the Company's control.
These factors include, among others, whether the Company's wireless
communications businesses continue to develop favorably, whether the Company
makes additional acquisitions, whether the Portfolio Securities increase or
decrease in value, and the rate at which the Company borrows against and
disposes of Portfolio Securities in order to finance its developing businesses
and acquisitions. In view of the foregoing factors, no assurance can be given
that the Company will not at some point in the future be required to register as
an investment company or business development company under the 1940 Act.
Employees
As of March 25, 1997, the Company had an aggregate of 300 employees,
including 47 employees of ACOM and 145 employees of Grupo and its subsidiaries.
ITEM 2. PROPERTIES
The Company owns its principal executive office in Pittsburgh,
Pennsylvania. Additional executive offices are leased in New York, New York;
Bala Cynwyd, Pennsylvania; Tampa, Florida and Wilmington, Delaware. The
Company's wireless communications businesses lease office space in Alexandria,
Virginia; Philadelphia, Pennsylvania; Los Angeles, California, and in
southeastern Mexico. These businesses also lease transmitter and antenna sites
in various major cities in the United States and in southeastern Mexico. The
Company's radio broadcast operations maintain administrative offices, studios,
transmitter and antenna sites, located in Bellaire, Delaware and Steubenville,
Ohio, which are either owned or leased. The Company's New York City art gallery
leases sales and administrative offices.
See Note 12 to the Company's financial statements included in Item 14
elsewhere in this Annual Report on Form 10-K for additional information
regarding future minimum lease commitments.
The Company's management believes that its properties are adequate for
the existing business conditions and are in adequate operating condition.
ITEM 3. LEGAL PROCEEDINGS
On August 30, 1996, the FCC issued a Freeze Order freezing the filing
of applications for new licenses (including amendments and modifications to
existing licenses) for DEMS in the 18 GHz band. The Freeze Order held in
abeyance ACOM's applications for additional DEMS licenses, pending the outcome
of an FCC review of the current licensing approach and related issues in the 18
GHz band. The Freeze Order did not affect the ability of existing DEMS
licensees, including MSI and DSC, to continue to build out their licensed
markets. On September 30, 1996, MSI and DSC filed a Joint Petition for
Reconsideration of the Freeze Order requesting clarification or amendment of
portions thereof.
Subsequently, Teledesic Corporation ("Teledesic"), MSI and DSC filed
petitions and pleadings with the FCC with respect to the status of DEMS licenses
held by MSI and DSC, and whether or not Teledesic's proposed satellite system
could frequency coordinate in the 18 GHz band with existing licensed terrestrial
DEMS networks and therefore co-exist in
10
<PAGE>
the 18 GHz band. Specifically, on September 6, 1996, Teledesic filed a
Consolidation Petition to Deny and Petition to Determine Status of Licenses with
respect to the DEMS licenses held by MSI and DSC. On September 16, 1996, MSI and
DSC filed with the FCC a Joint Petition to Deny Teledesic's Applications for a
Non-Geostationary Orbit Fixed Satellite Service System, seeking a denial of
Teledesic's application for licenses in the 18 GHz band.
On February 24, 1997, MSI, DSC, ACOM, and Teledesic entered into an
agreement to resolve their dispute regarding sharing and frequency coordination
in the 18 GHz DEMS band. Pursuant to the agreement, the parties subsequently
withdrew all pleadings before the FCC with regard to these proceedings.
On March 14, 1997, the FCC issued an Order providing for the relocation
of DEMS from the 18 GHz to the 24 GHz band, modifying the freeze on the 18 GHz
band to provide for, among other things, the grant of licenses for pending
applications that had passed the 60-day period for filing mutually exclusive
applications prior to the Freeze Order.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year covered by this Annual
Report on Form 10-K, there were no matters submitted to a vote of public
security holders through the solicitation of proxies or otherwise.
11
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Class A Common Stock (symbol: AGRPA) and Class B Common
Stock (symbol: AGRPB) are traded on the Nasdaq National Market(R). The table
below sets forth the quarterly high and low bid quotations for the Class A
Common Stock and the Class B Common Stock for each quarter since January 1,
1995, compiled from information supplied by Nasdaq(R). All prices represent
inter-dealer quotations without retail mark-ups, mark-downs or commissions, and
may not necessarily represent actual transactions.
Class A Class B
--------------- ---------------
High Low High Low
----- --- ---- ---
1995:
First Quarter.................... $23.00 $18.50 $22.88 $18.00
Second Quarter................... 19.50 15.00 19.00 14.75
Third Quarter.................... 22.50 17.00 22.50 16.25
Fourth Quarter................... 20.75 16.50 20.75 16.50
1996:
First Quarter.................... $21.00 $17.75 $20.75 $18.00
Second Quarter................... 34.75 19.00 34.25 18.75
Third Quarter.................... 34.00 22.25 33.00 22.25
Fourth Quarter................... 33.50 27.50 33.50 27.25
On March 25, 1997, the Company's Class A Common Stock and Class B
Common Stock were held by approximately 495 and 457 stockholders of record,
respectively, which numbers do not include stockholders who beneficially own
shares held in street name by brokers.
The Company does not anticipate the payment of cash dividends in the
foreseeable future.
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<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected historical financial data of
the Company for each of the past five years. The financial data is on a
consolidated basis for the periods subsequent to the Spin-Off and on a combined
basis for the periods prior to the Spin-Off. Combined financial data includes
the accounts of the Company, certain of its subsidiaries, and certain other
assets and liabilities of Associated, all transferred to the Company prior to
the Spin-Off. The table should be read in conjunction with Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements of the Company and notes thereto, referred to in Item
8.
<TABLE>
<CAPTION>
Year ended December 31
---------------------------------------------------------------------
1996 (A) 1995 1994 1993 1992
-------- ---- ---- ---- ----
(In Thousands Except Per Share Amounts)
<S> <C> <C> <C> <C> <C>
Income Statement Data
Revenues $ 20,035 $ 4,272 $ 4,664 $ 6,075 $ 5,550
Cost and expenses 52,821 20,938 17,555 (B) 10,360 8,606
Operating loss (32,786) (16,666) (12,891) (4,285) (3,056)
Equity in loss of affiliates (2,119) (2,912) (2,957) (1,239) (1,214)
Other income (expense) 9,373 (C) (458) 3,599 (C) 3,215 2,701
(Loss) income before cumulative effect
of accounting change for income taxes (17,196) (13,213) (9,436) (1,971) 43
Cumulative effect of accounting
change for income taxes -- -- -- 883 (D) --
Net (loss) income $(17,196) $(13,213) $ (9,436) $ (1,088) $ 43
(Loss) income per share before
cumulative effect of accounting
change for income taxes (pro forma
1992 - 1994) (E) $(.92) $(.70) $(.50) $(.11) $.00
Net (loss) income per share (pro forma
1992 - 1994) (E) $(.92) $(.70) $(.50) $(.06) $.00
Average shares outstanding (pro forma
1992 - 1994) (E) 18,774 18,766 18,766 18,766 18,766
Balance Sheet Data
Total assets (F) $518,934 $574,471 $478,555 $653,282 $65,401
Working capital (deficit) (96,222) (34,385) (15,986) 3,899 (G) 42,709
Long-term debt (8,326) -- -- -- --
</TABLE>
(A)--Reflects consolidation of Grupo Portatel, S.A. de C.V. and subsidiaries as
of January 1, 1996.
(B)--Includes $4,026,000 in net transaction expenses relating to the Spin-Off.
(C)--Includes $3,398,000 and $2,831,000 gain on sale of marketable equity
securities for the years ended December 31, 1996 and 1994, respectively.
(D)--Reflects the adoption as of January 1, 1993 of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes."
(E)--Pro forma (loss) income per share data were calculated using 18,766,000
average shares outstanding from the Spin-Off to December 31, 1994, as if
such shares were outstanding for the years ended December 31, 1994, 1993
and 1992.
(F)--Reflects the adoption at December 31, 1993 of Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt
and Equity Securities."
(G)--Reflects the settlement of net intercompany amounts payable to the Company
by Associated.
13
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The historical operating results of the Company are presented on a
consolidated basis for the periods subsequent to the Spin-Off and on a combined
basis for the periods prior to the Spin-Off, when such amounts were included in
Associated's consolidated operating results. Combined financial data includes
the accounts of the Company, certain of its subsidiaries, and certain other
assets and liabilities of Associated, all transferred to the Company prior to
the Spin-Off. Past results of operations may not be indicative of future
results.
As discussed in Notes 1 and 3 to the financial statements of the
Company, included in Item 14 of this Annual Report on Form 10-K, for the year
ending December 31, 1996, the Company has consolidated the financial statements
of Grupo, an investment which was previously accounted for under the equity
method. As a result of the consolidation of Grupo, and the formation of Grupo
Holdings, equity in loss of affiliates in the 1996 period no longer reflects
Grupo, and the Company's minority interests at December 31, 1996, include
third-party ownership interests for Grupo and Grupo Holdings.
This Annual Report on Form 10-K 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.
Liquidity and Capital Resources
The Company has used its bank lines of credit and brokerage margin loan
facilities to fund the start-up operating and capital costs for its wireless
communications related businesses and interests, primarily TruePosition, MSI and
ACOM, during 1996. The Company expects to continue to incur substantial costs
developing these businesses and technologies. As described above under Item 1,
"Marketable Equity Securities," the Company has entered into an agreement with
ART and MSI to contribute to their capital a combined minimum of $25 million
during 1997. In light of the developmental nature of these businesses and other
factors, there can be no assurance regarding the rate, and extent to which, such
amounts will be expended by ART and MSI or that significant additional
investment by the Company in these businesses in excess of such amounts will not
be required. Other business opportunities or acquisitions, which may also
require additional capital, may also be evaluated from time to time.
In the first quarter of 1997 through March 25, 1997, the Company sold
100,000 shares of Liberty Media Group Series A Common Stock for pretax proceeds
of approximately $2,245,000. The Company will recognize a gain on the sale of
approximately $2,223,000, and expects to utilize its net operating loss
carryforwards to offset the taxes resulting from the gain. The Company used the
proceeds from the sale of the securities for working capital and to fund the
development of its wireless communications businesses.
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 telephone
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 December 31, 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 was contingent upon certain Mexican regulatory
consents and approvals, the last of which was obtained in the first quarter of
1997. Upon closing, excluding the effects of the Company's rights under an
Association in Participation Agreement ("AP Agreement"), the conversion provided
for in the Contribution Agreement will result in a reduction of the Company's
economic interest in Grupo from 30.2% to approximately 23.6% and a
reclassification of $15,069,000 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 approximately $10.4
million at December 31, 1996, secured by an
14
<PAGE>
approximate 30.7% equity interest in Portatel.
Grupo and Portatel have no external available lines of credit as of
December 31, 1996. The Company may be required to meet additional capital
requirements 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 requirements
with respect to his ownership interest.
The Company's future cash requirements are expected to be met by a
$100,000,000 demand discretionary bank line of credit and margin loan facilities
with three brokerage firms. Borrowings under the $100,000,000 line of credit are
limited to 65% of the market value of the TCI Group Series Common Stock pledged
as security under the agreement, and bear interest at rates as offered by the
bank at the time of borrowing. The line expires on November 30, 1997, and the
Company presently anticipates renewal of such facility.
The Company's margin loan facilities are also secured by shares of TCI
Group Series A Common Stock. Borrowings under one of the margin loan facilities
are limited to 65% of the market value of the pledged stock, with an additional
15% collateral requirement if borrowings exceed $100,000,000, up to a maximum of
$200,000,000. Borrowings under the other two brokerage margin loan facilities
are limited to 50% of the market value of the pledged stock. Borrowings under
the three margin loan facilities bear interest at variable rates based upon the
broker call rate or the Fed Funds rate plus an applicable margin, as offered by
the brokerage firm at the time of borrowing. At December 31, 1996, the weighted
average interest rate under the $100,000,000 line of credit and the margin loan
facilities was approximately 6.3%.
As of March 25, 1997, based on the market value of the 10,899,980
shares of TCI Group Series A Common Stock pledged in the aggregate and aggregate
outstanding short-term obligations under these credit facilities of
approximately $80,409,000, the Company's unused borrowing capacity is
approximately $7,290,000. A significant portion of the Company's assets are
liquid, and can be pledged as security for added borrowing capacity. Given the
market value of the remaining shares of marketable equity securities that can be
pledged as additional security, the Company's borrowing facilities provide for
maximum aggregate unused borrowings of approximately $175,043,000 as of March
25, 1997. The Company's ability to meet cash needs in the near term for future
development depends in large part on the value of the Portfolio Securities. The
Company periodically evaluates its financial position and alternative financing
arrangements.
In addition, ACOM has a $50,000,000 secured bank revolving credit
facility which is available to meet the cash needs of ACOM. Borrowings under
this credit facility bear interest at variable rates based upon the LIBOR rate,
prime rate or the Fed Funds rate plus an applicable margin, as offered by the
bank. A facility fee of 1/2% of the total credit available and a commitment fee
of 1/2% of the unused portion of the facility are payable quarterly. Borrowings
under ACOM's credit facility are secured by a pledge of the Company's stock in
MSI, a pledge of the stock of DSC, a pledge of MSI's and DSC's member interests
in ACOM, and a pledge of all of the assets of MSI, DSC, and ACOM, and are
guaranteed by MSI and DSC. The revolving credit facility restricts the payment
of distributions or dividends by ACOM. Based upon outstanding short-term
obligations under the ACOM credit facility of approximately $13,500,000 as of
March 25, 1997, ACOM has unused borrowing capacity of approximately $36,500,000.
The revolving credit facility matures on December 19, 1997, and ACOM is
presently evaluating its long-term financing options.
In 1996, 1995 and 1994, the Company's operations used cash of
$34,230,000, $16,319,000 and $3,706,000, respectively. The increase in cash used
in operations from 1995 to 1996 of $17,911,000 was due primarily to ACOM
start-up expenses (including the advance to the ACOM Executive discussed in Note
6 to the financial statements included in Item 14 of this Annual Report on Form
10-K). The increase in the cash used in operations from 1994 to 1995 of
$12,613,000 was due primarily to the increase in research and development
expenditures for TruePosition and the payment in 1995 of $5,433,000 of accrued
transaction expenses related to the Spin-Off and transactions related thereto.
In 1996, 1995 and 1994, the Company used cash of $12,125,000,
$3,052,000 and $9,348,000, respectively, in investing activities. The increase
in cash used in investing activities from 1995 to 1996 of $9,073,000 was
primarily due to $2,639,000 paid for WCEZ-FM, $4,452,000 in capital expenditures
which were primarily for the build-out of the broadband wireless network, and
equity investments of $5,533,000 in Teletrac in the 1996 period. These cash
outlays were partially offset by proceeds of $3,414,000 from the sale of
marketable equity securities in the 1996 period. The decrease in the cash used
in investing activities from 1994 to 1995 of $6,296,000 was primarily due to a
reduction in the Company's net investment in wireless communications ventures in
the 1995 period as compared to the 1994 period. The 1994 period also
15
<PAGE>
reflects proceeds the Company received from the sale of marketable equity
securities of $2,921,000 relating to the merger of Republic Pictures Corporation
with Spelling Entertainment Group.
In 1996, 1995 and 1994, the Company's financing activities provided net
cash of $48,678,000, $18,470,000 and $14,886,000, respectively. Increases in net
cash from financing activities between periods related primarily to higher
borrowings to finance the investing and operating activities described above.
Operating results
Wireless Communications
Revenues from wireless communications were $16,606,000, $1,884,000, and
$2,244,000 in 1996, 1995, and 1994, respectively. Cost of wireless
communications services were $9,475,000, $778,000 and $904,000 in 1996, 1995,
and 1994, respectively. The majority of the increases in both revenues and costs
from 1995 to 1996 was attributable to the consolidation of Grupo. The decrease
in revenues from 1994 to 1995 was the result of price competition from alternate
access providers and a local exchange carrier experienced by the Company's Los
Angeles, California digital microwave communications business. Cost of wireless
communication services decreased by 14% from 1994 to 1995 as a result of
renegotiation of certain transmission facility leases and maintenance contracts
for the Los Angeles digital microwave communications business. Direct research
and development expenses were $7,562,000, $7,361,000, and $1,381,000 in 1996,
1995, and 1994, respectively, and were higher in 1996 and 1995 compared to 1994
primarily due to increased expenditures for TruePosition.
Radio Broadcasting
Revenues from radio broadcasting were $2,688,000, $1,854,000, and
$1,897,000 in 1996, 1995, and 1994, respectively. Cost of radio broadcasting was
$698,000, $599,000, and $548,000, and gross margins were 74%, 68%, and 71% in
1996, 1995, and 1994, respectively. The increase in revenues and costs from 1995
to 1996 was principally the result of the acquisition of WCEZ-FM in the second
quarter of 1996. Revenues from 1994 to 1995 are comparable between periods. The
decrease in the margin from 1994 to 1995 was the result of expenses related to
programming changes at the Company's radio stations in 1995.
General
Sales, general and administrative expenses were $29,439,000,
$10,466,000, and $8,920,000 in 1996, 1995, and 1994, respectively. The increase
from 1995 to 1996 of $18,973,000 was the result of the consolidation of Grupo,
as well as expenditures for ACOM, which began providing wireless communications
services in 1996. The increase from 1994 to 1995 was primarily a result of
professional service expenses and internal costs relating to evaluating
potential business opportunities and acquisitions.
Transaction expenses in 1994 were for legal and other costs incurred in
completing the Spin-Off and transactions related thereto, which, under the
agreements with SBC Communications Inc. ("SBC"), were payable by the Company.
Transaction expenses were offset by the allowable amount of corporate expenses
allocable to Associated and its subsidiaries that were acquired by SBC (see Note
1 to the Company's financial statements included in Item 14 of this Annual
Report on Form 10-K).
The Company's equity in loss of affiliates was $2,119,000, $2,912,000,
and $2,957,000 in 1996, 1995, and 1994, respectively. Due to the consolidation
of Grupo, the Company's equity in loss of affiliates in 1996 reflects only the
Company's share of the results of Teletrac for 1996. The Company's initial
equity investment in Teletrac was made in November 1995. Therefore, the
Company's equity in loss of affiliates in the 1995 and 1994 periods primarily
reflects only the Company's share of the results of Grupo for those periods.
Foreign currency translation losses of Grupo are included in the
statement of operations and are immaterial in 1996. On an equity basis,
translation losses included in the equity in loss of affiliates in 1995 and 1994
were $473,000 and $1,068,000, respectively. Grupo's operating results will
continue to be subject to fluctuations in the Mexican peso's
16
<PAGE>
exchange rate based upon changes in the Mexican economy, the extent of which is
unknown.
The Company recognized a $3,398,000 gain on the sale of marketable
equity securities in 1996 from 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. The $2,831,000 gain from the
sale of marketable equity securities in 1994 was the result of the merger of
Republic Pictures Corporation with Spelling Entertainment Group. Interest and
dividend income was $2,296,000, $1,223,000 and $1,150,000 in 1996, 1995 and
1994, respectively. The increase from 1995 to 1996 of $1,073,000 was the result
of additional interest income on notes receivable from related parties included
as a result of the formation and consolidation of Grupo Holdings. Interest
expense was $4,328,000, $1,689,000, and $395,000 in 1996, 1995 and 1994,
respectively. The increase from 1995 to 1996 of $2,639,000 was the result of an
increase in the level of outstanding short-term obligations and interest on the
borrowings of Grupo. The increase from 1994 to 1995 of $1,294,000 resulted from
increases in both the level of outstanding short-term obligations and interest
rates. Minority interests increased $7,892,000 from 1995 to 1996, reflecting a
45% outside ownership interest in ACOM, as well as the third-party ownership
interests in Grupo and Grupo Holdings.
The Company recognized an income tax benefit (net of foreign tax
expense of Grupo in 1996) at an effective rate of approximately 33%, 34%, and
23% in 1996, 1995, and 1994, respectively. For the 1994 period through the
Spin-Off, the Company filed income tax returns as a consolidated group with
Associated and its other subsidiaries. See Note 13 to the Company's financial
statements included in Item 14 of this Annual Report on Form 10-K for a
discussion regarding the income tax allocation used. As of December 31, 1996,
the Company has recorded net deferred tax assets of $21,622,000, including net
operating loss carryforwards. Management believes that it is more likely than
not that such assets, net of the valuation allowance provided, will be realized
based on the Company policy referred to above (see Item 1, "Marketable Equity
Securities") of disposing of a portion of the Portfolio Securities from time to
time to the extent net operating loss carryforwards are available to offset tax
liabilities resulting from such dispositions and otherwise as deemed appropriate
by the Company.
The Company's net loss was $17,196,000 for the year ended December 31,
1996 compared to a net loss of $13,213,000 for the year ended December 31, 1995.
The higher loss in 1996 of $3,983,000 resulted primarily from start-up
expenditures for ACOM, increased interest expense, and the equity in loss of
affiliates of $2,119,000 relating to the Company's investment in Teletrac. Such
expenses and loss were offset in part by the gain on marketable equity
securities of $3,398,000. In addition, although the consolidation of the
financial statements of Grupo had no effect on the amount of the Company's
consolidated net loss for 1996, the reduction of Grupo's net loss from 1995 to
1996 partially offset other expenses that were higher in 1996 than in 1995. The
Company's net loss was $13,213,000 for the year ended December 31, 1995 compared
to a net loss of $9,436,000 for the year ended December 31, 1994. The higher
loss in 1995 resulted primarily from increased direct research and development
costs of $5,980,000 relating to TruePosition.
17
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's financial statements and supplementary data, as well as
those of Grupo for 1995 and 1994, together with the reports of independent
auditors, are included or incorporated by reference elsewhere herein. Reference
is made to the "Index of Financial Statements and Financial Statement Schedule"
following the signature page hereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
18
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is incorporated herein by
reference to the Company's definitive proxy statement for the 1997 annual
meeting of stockholders scheduled to be held on June 5, 1997.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by
reference to the Company's definitive proxy statement for the 1997 annual
meeting of stockholders scheduled to be held on June 5, 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated herein by
reference to the Company's definitive proxy statement for the 1997 annual
meeting of stockholders scheduled to be held on June 5, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated herein by
reference to the Company's definitive proxy statement for the 1997 annual
meeting of stockholders scheduled to be held on June 5, 1997.
19
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Financial Statements and Financial Statement Schedules. The list of
financial statements and financial statements schedule following the Exhibit
Index is incorporated herein by reference.
Exhibits. The following exhibits are filed as a part of this Annual Report
on Form 10-K:
2.1 Agreement and Plan of Distribution, dated as of December 14, 1994,
among Associated Communications Corporation, Associated
Communications of Delaware, Inc. and Associated Cellular Holdings,
Inc., filed as Exhibit 2.1 to Registration Statement on Form 10/A
dated November 15, 1994 and incorporated herein by reference.
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 Tax Disaffiliation Agreement, dated as of December 14, 1994, by
and among Associated Communications Corporation, Associated
Communications of Delaware, Inc. and Associated Cellular Holdings,
Inc., filed as Exhibit 10.1 to Registration Statement on Form 10/A
dated November 15, 1994 and incorporated herein by reference.
10.2 The Associated Group, Inc. 1994 Stock Option and Incentive Award
Plan, filed as Exhibit 10 to Form 8-K, dated December 22, 1994 and
incorporated herein by reference.
10.3 Associated RT, Inc. 1995 Stock Incentive Plan, filed as Exhibit
10.3 to Annual Report on Form 10-K for the fiscal year ended
December 31, 1995 and incorporated herein by reference.
10.4 Microwave Services, Inc. 1996 Stock Incentive Plan, filed as Exhibit
10.1 to Quarterly Report on Form 10-Q for the fiscal quarter ended
June 30, 1996 and incorporated herein by reference.
10.5 Form of Employment Agreement, dated December 15, 1994, between
Associated Communications of Delaware, Inc. and Myles P. Berkman,
filed as Exhibit 10.6 to Registration Statement on Form 10/A dated
November 15, 1994 and incorporated herein by reference.
20
<PAGE>
10.6 Form of Employment Agreement, dated December 15, 1994, between
Associated Communications of Delaware, Inc. and David J. Berkman,
filed as Exhibit 10.7 to Registration Statement on Form 10/A dated
November 15, 1994 and incorporated herein by reference.
10.7 Employment Agreement, dated as of August 19, 1996, between Associated
Communications, L.L.C. and Alex J. Mandl, filed as Exhibit 99.2 to
Form 8-K, dated September 6, 1996 and incorporated herein by
reference.
10.8 Margin Agreement, dated January 31, 1995, by and between Associated
Investments, Inc. and Pershing, a Division of Donaldson, Lufkin &
Jenrette Securities Corporation, filed as Exhibit 10.9 to Annual
Report on Form 10-K for the fiscal year ended December 31, 1994 and
incorporated herein by reference.
10.9 Corporate Margin Account Application and Agreement, dated February
15, 1995, by and between Associated Investments, Inc. and Goldman
Sachs & Co., filed as Exhibit 10.10 to Annual Report on Form 10-K
for the fiscal year ended December 31, 1994 and incorporated
herein by reference.
10.10 Amendment and Restatement of $100,000,000 Secured Discretionary Line
of Credit Letter Agreement, dated as of November 14, 1996, by and
between Associated Investments, Inc. and PNC Bank, National
Association.
10.11 Amended and Restated Discretionary Line of Credit Demand Note, dated
as of November 15, 1996, by and between Associated Investments, Inc.
and PNC Bank, National Association.
10.12 Amended and Restated Pledge Agreement, dated as of November 15, 1996,
by Associated Investments, Inc. in favor of PNC Bank, National
Association.
10.13 Loan Agreement, dated December 24, 1996, between Associated
Communications, L.L.C. and The Toronto-Dominion Bank.
10.14 Client Agreement, dated January 28, 1997, by and between Associated
Investments, Inc. and Lehman Brothers.
21 Subsidiaries of the Registrant.
23 Consents of Independent Accountants.
27 Article 5 Financial Data Schedule for Annual Report on Form 10-K
for the fiscal year ended December 31, 1996 (filed only
electronically with the Securities and Exchange Commission).
99.1 Grupo Portatel, S.A. de C.V. and Subsidiaries Consolidated Financial
Statements--Years ended December 31, 1995, 1994 and 1993, filed as
Exhibit 99.1 to Annual Report on Form 10-K for the fiscal year ended
December 31, 1995 and incorporated herein by reference.
________________
Reports on Form 8-K. No reports on Form 8-K were filed during the fourth
quarter of 1996.
21
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: March 25, 1997 By: /s/ Myles P. Berkman
-------------------------------
Myles P. Berkman
Chairman, President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Date: March 25, 1997 By: /s/ Myles P. Berkman
-------------------------------
Myles P. Berkman
Chairman, President and Chief Executive Officer
(Principal Financial and
Accounting Officer)
Date: March 25, 1997 By: /s/ David J. Berkman
-------------------------------
David J. Berkman
Director and Executive
Vice President
Date: March 25, 1997 By: /s/ Donald H. Jones
-------------------------------
Donald H. Jones
Director
Date: March 25, 1997 By: /s/ Joseph A. Katarincic
--------------------------------
Joseph A. Katarincic
Director
22
<PAGE>
EXHIBIT INDEX
Page Where
Found or
Exhibit Incorporated
Number by Reference
- ------- ------------
2.1 Agreement and Plan of Distribution, dated as of December *
14, 1994, among Associated Communications Corporation,
Associated Communications of Delaware, Inc. and Associated
Cellular Holdings, Inc., filed as Exhibit 2.1 to
Registration Statement on Form 10/A dated November 15, 1994
and incorporated herein by reference.
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 Tax Disaffiliation Agreement, dated as of December 14, 1994, *
by and among Associated Communications Corporation,
Associated Communications of Delaware, Inc. and Associated
Cellular Holdings, Inc., filed as Exhibit 10.1 to Registration
Statement on Form 10/A dated November 15, 1994 and incorporated
herein by reference.
10.2 The Associated Group, Inc. 1994 Stock Option and Incentive *
Award Plan, filed as Exhibit 10 to Form 8-K, dated December
22, 1994 and incorporated herein by reference.
10.3 Associated RT, Inc. 1995 Stock Incentive Plan, filed as *
Exhibit 10.3 to Annual Report on Form 10-K for the fiscal year
ended December 31, 1995 and incorporated herein by reference.
10.4 Microwave Services, Inc. 1996 Stock Incentive Plan, filed as *
Exhibit 10.1 to Quarterly Report on Form 10-Q for the fiscal
quarter ended June 30, 1996 and incorporated herein by
reference.
10.5 Form of Employment Agreement, dated December 15, 1994, between *
Associated Communications of Delaware, Inc. and Myles P. Berkman,
filed as Exhibit 10.6 to Registration Statement on Form 10/A
dated November 15, 1994 and incorporated herein by reference.
* Previously filed and incorporated by reference
** Filed only electronically with the Securities and Exchange Commission
23
<PAGE>
Page Where
Found or
Exhibit Incorporated
Number by Reference
- ------- ------------
10.6 Form of Employment Agreement, dated December 15, 1994, *
between Associated Communications of Delaware, Inc. and
David J. Berkman, filed as Exhibit 10.7 to Registration
Statement on Form 10/A dated November 15, 1994 and
incorporated herein by reference.
10.7 Employment Agreement, dated as of August 19, 1996, between *
Associated Communications, L.L.C. and Alex J. Mandl, filed
as Exhibit 99.2 to Form 8-K, dated September 6, 1996 and
incorporated herein by reference.
10.8 Margin Agreement, dated January 31, 1995, by and between *
Associated Investments, Inc. and Pershing, a Division of
Donaldson, Lufkin & Jenrette Securities Corporation, filed as
Exhibit 10.9 to Annual Report on Form 10-K for the fiscal year
ended December 31, 1994 and incorporated herein by reference.
10.9 Corporate Margin Account Application and Agreement, dated *
February 15, 1995, by and between Associated Investments, Inc.
and Goldman Sachs & Co., filed as Exhibit 10.10 to Annual
Report on Form 10-K for the fiscal year ended December 31, 1994
and incorporated herein by reference.
10.10 Amendment and Restatement of $100,000,000 Secured Discretionary
Line of Credit Letter Agreement, dated as of November 14, 1996,
by and between Associated Investments, Inc. and PNC Bank,
National Association.
10.11 Amended and Restated Discretionary Line of Credit Demand Note,
dated as of November 15, 1996, by and between Associated
Investments, Inc. and PNC Bank, National Association.
10.12 Amended and Restated Pledge Agreement, dated as of November 15,
1996, by Associated Investments, Inc. in favor of PNC Bank,
National Association.
10.13 Loan Agreement, dated December 24, 1996, between Associated
Communications, L.L.C. and The Toronto-Dominion Bank.
10.14 Client Agreement, dated January 28, 1997, by and between
Associated Investments, Inc. and Lehman Brothers.
21 Subsidiaries of the Registrant.
23 Consents of Independent Accountants.
* Previously filed and incorporated by reference
** Filed only electronically with the Securities and Exchange Commission
24
<PAGE>
Page Where
Found or
Exhibit Incorporated
Number by Reference
- ------- ------------
27 Article 5 Financial Data Schedule for Annual Report on **
Form 10-K for the fiscal year ended December 31, 1996.
99.1 Grupo Portatel, S.A. de C.V. and Subsidiaries Consolidated *
Financial Statements--Years ended December 31, 1995, 1994
and 1993, filed as Exhibit 99.1 to Annual Report on Form
10-K for the fiscal year ended December 31, 1995 and
incorporated herein by reference.
* Previously filed and incorporated by reference
** Filed only electronically with the Securities and Exchange Commission
25
<PAGE>
Annual Report on Form 10-K
Item 8, Item 14(a)(1) and (2), (c) and (d)
Financial Statements and Supplementary Data
Index of Financial Statements and Financial Statement Schedule
Certain Exhibits
Financial Statement Schedule
Year ended December 31, 1996
The Associated Group, Inc. and Subsidiaries
Pittsburgh, Pennsylvania
<PAGE>
The Associated Group, Inc. and Subsidiaries
Form 10-K--Item 14(a)(1) and (2)
Index of Financial Statements and Financial Statement Schedule
The following financial statements of The Associated Group, Inc. and
subsidiaries are included in Item 8:
Balance Sheets--December 31, 1996 and 1995
Statements of Operations--Years ended December 31, 1996, 1995, and 1994
Statements of Stockholders' Equity--Years ended December 31, 1996,
1995, and 1994
Statements of Cash Flows--Years ended December 31, 1996, 1995, and 1994
Notes to Financial Statements--December 31, 1996
The following financial statement schedule of The Associated Group, Inc. and
subsidiaries and separate financial statements of a significant equity investee
in 1995 and 1994 are included in Item 14(d):
Schedule II--Valuation and Qualifying Accounts
Grupo Portatel, S.A. de C.V. and Subsidiaries Consolidated Financial
Statements-- Years ended December 31, 1995, 1994, and 1993 (filed as
Exhibit 99.1 to this Form 10-K)
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
<PAGE>
Report of Independent Auditors
To the Stockholders and Directors
The Associated Group, Inc.
We have audited the accompanying balance sheets of The Associated Group, Inc.
and subsidiaries as of December 31, 1996 and 1995, and the related statements of
operations, stockholders' equity, and cash flows for each of the three years in
the period ended December 31, 1996. Our audits also included the financial
statement schedule listed in the Index at Item 14(a). These financial statements
and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits. We did not audit the financial statements of Grupo
Portatel, S.A. de C.V. (Grupo), a consolidated subsidiary as of January 1, 1996,
and an investment accounted for on the equity method for the years ended
December 31, 1995 and 1994. Grupo's statements reflect total assets of
$30,000,000 at December 31, 1996, and total revenues of $15,175,000 for the year
then ended. The Company's investment in and equity in Grupo was $909,000 at
December 31, 1995. The Company's equity in Grupo's net loss was $2,751,000 in
1995 and $2,957,000 in 1994. Those statements were audited by other auditors
whose report has been furnished to us, and our opinion, insofar as it relates to
the amounts included for Grupo, is based solely upon the report of the other
auditors.
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 and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based upon our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of The Associated Group, Inc. and subsidiaries at
December 31, 1996 and 1995, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles. Also, in our opinion,
the related financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
/s/ Ernst & Young LLP
----------------------------------
Ernst & Young LLP
Pittsburgh, Pennsylvania
February 28, 1997
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Grupo Portatel, S.A. de C.V.:
We have audited the consolidated balance sheets of Grupo Portatel, S.A. de C.V.
and Subsidiaries as of December 31, 1996 and 1995 and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
years in the three-year period ended December 31, 1996 (not presented separately
herein). 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
in Mexico which are substantially the same as those followed in the United
States. 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 Grupo Portatel, S.A.
de C.V. and Subsidiaries at December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1996, in conformity with generally accepted accounting
principles in the United States.
KPMG CARDENAS DOSAL, S.C.
Felipe Lopez Villegas
Mexico, D.F.
February 21, 1997
F-2
<PAGE>
The Associated Group, Inc. and Subsidiaries
Balance Sheets
December 31
1996 1995
---- ----
(In Thousands)
Assets
Current assets:
Cash and cash equivalents $ 3,341 $ 1,018
Accounts receivable, less allowance
for doubtful accounts (1996--$2,355,000;
1995--$183,000) 4,103 626
Notes receivable from related parties 203 191
Inventory held for resale 1,622 1,311
Prepaid expenses and other assets 651 860
Deferred income taxes 2,008 1,057
-------- --------
Total current assets 11,928 5,063
Property and equipment--net of accumulated
depreciation and amortization 27,513 3,117
Marketable equity securities, at fair
value (cost: 1996--$6,882,000;
1995--$6,898,000) 425,895 540,082
Notes receivable from related parties 28,780 11,240
Investments in wireless communications
affiliates 16,108 13,602
Other noncurrent assets 8,710 1,367
-------- --------
Total assets $518,934 $574,471
======== ========
F-3
<PAGE>
December 31
1996 1995
---- ----
(In Thousands)
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 7,716 $ 4,681
Employee compensation 4,753 759
Due to cellular equipment vendor 15,069 --
Short-term obligations 77,526 33,470
Current portion of long-term debt 2,082 --
Other current liabilities 1,004 538
-------- --------
Total current liabilities 108,150 39,448
Deferred compensation 1,440 1,264
Long-term debt, excluding current portion 8,326 --
Deferred income taxes 127,183 175,564
Minority interests 7,830 797
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 shares issued and outstanding
in 1996 and 1995 938 938
Class B Common Stock, par value $.10 per
share; authorized 50,000,000 shares;
9,397,910 and 9,382,985 shares issued
and outstanding in 1996 and 1995 940 938
Additional paid-in capital 12 --
Unrealized gain on marketable equity
securities, net of deferred taxes
(1996--$146,654,000; 1995--$186,614,000) 272,359 346,570
Retained earnings (deficit) (8,244) 8,952
-------- --------
Total stockholders' equity 266,005 357,398
-------- --------
Total liabilities and stockholders' equity $518,934 $574,471
======== ========
See accompanying notes.
F-4
<PAGE>
The Associated Group, Inc. and Subsidiaries
Statements of Operations
Year ended December 31
1996 1995 1994
------------------------
(In Thousands, Except Per Share Amounts)
Revenues:
Wireless communication services $ 16,606 $ 1,884 $ 2,244
Radio broadcasting 2,688 1,854 1,897
Art gallery 741 534 523
-------- ------- --------
20,035 4,272 4,664
Cost and expenses:
Cost of sales and services:
Wireless communication services 9,475 778 904
Radio broadcasting 698 599 548
Art gallery 591 432 345
Direct research and development
expenses 7,562 7,361 1,381
Sales, general and administrative
expenses 29,439 10,466 8,920
Transaction expenses, net (Note 1) -- -- 4,026
Depreciation and amortization expense 5,056 1,302 1,431
-------- ------- --------
52,821 20,938 17,555
-------- ------- --------
Operating loss (32,786) (16,666) (12,891)
Equity in loss of affiliates (2,119) (2,912) (2,957)
Other income (expense):
Gain on sale of marketable equity
securities 3,398 7 2,831
Interest and dividend income 2,296 1,223 1,150
Interest expense (4,328) (1,689) (395)
Other 114 -- --
Minority interests 7,893 1 13
------- ------- -------
9,373 (458) 3,599
------- ------- -------
Loss before income taxes (25,532) (20,036) (12,249)
Income tax benefit (8,336) (6,823) (2,813)
------- ------- -------
Net loss $(17,196) $(13,213) $ (9,436)
======== ======== ========
Net loss per common share (pro
forma in 1994) $ (.92) $ (.70) $ (.50)
======== ======== ========
Weighted average common shares
outstanding (pro forma in 1994) 18,774 18,766 18,766
See accompanying notes.
F-5
<PAGE>
The Associated Group, Inc. and Subsidiaries
Statesments of Stockholders' Equity
<TABLE>
<CAPTION>
Class A Class B
Common Stock Common Stock Common Stock Additional
---------------------- ----------------------- ---------------------- Paid-in Unrealized
Shares Amount Shares Amount Shares Amount Capital Gains
----------- ---------- ------------ ---------- ----------- ---------- ------------- -----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1994 1,000 $ 1 - $ - - $ - $ - $401,521
Net loss - - - - - - - -
Recapitalization and issuance
of common stock (1,000) (1) 9,383,076 938 9,383,076 938 - -
Common stock issuance costs - - - - - - - -
Purchase of treasury stock - - - - - - - -
Treasury stock retired - - (114) - (91) - - -
Change in unrealized gain on
marketable equity securities,
net of income taxes of $64,345 - - - - - - - (119,498)
----------- ---------- ------------ ---------- ----------- ---------- ------------- -----------
Balance, December 31, 1994 - - 9,382,962 938 9,382,985 938 - 282,023
Net loss - - - - - - - -
Change in unrealized gain on
marketable equity securities,
net of income taxes of $34,756 - - - - - - - 64,547
----------- ---------- ------------ ---------- ----------- ---------- ------------- -----------
Balance, December 31, 1995 - - 9,382,962 938 9,382,985 938 - 346,570
Net loss - - - - - - - -
Change in unrealized gain on
marketable equity securities,
net of income taxes of $39,960 - - - - - - - (74,211)
Stock options exercised - - - - 14,925 2 12 -
----------- ---------- ------------ ---------- ----------- ---------- ------------- -----------
Balance, December 31, 1996 - $ - 9,382,962 $938 9,397,910 $940 $12 $272,359
=========== ========== ============ ========== =========== ========== ============= ===========
See accompanying notes.
<CAPTION>
Retained Total
Earnings Treasury Stockholders'
(Deficit) Stock Equity
------------ ------------ ---------------
<S> <C> <C> <C>
Balance, January 1, 1994 $ 34,499 $ - $436,021
Net loss (9,436) - (9,436)
Recapitalization and issuance
of common stock (1,875) - -
Common stock issuance costs (1,018) - (1,018)
Purchase of treasury stock - (5) (5)
Treasury stock retired (5) 5 -
Change in unrealized gain on
marketable equity securities,
net of income taxes of $64,345 - - (119,498)
------------ ------------ ---------------
Balance, December 31, 1994 22,165 - 306,064
Net loss (13,213) - (13,213)
Change in unrealized gain on
marketable equity securities,
net of income taxes of $34,756 - - 64,547
------------ ------------ ---------------
Balance, December 31, 1995 8,952 - 357,398
Net loss (17,196) - (17,196)
Change in unrealized gain on
marketable equity securities,
net of income taxes of $39,960 - - (74,211)
Stock options exercised - - 14
------------ ------------ ---------------
Balance, December 31, 1996 $ (8,244) $ - $266,005
============ ============ ===============
</TABLE>
See accompanying notes.
F-6
<PAGE>
The Associated Group, Inc. and Subsidiaries
Statements of Cash Flows
Year ended December 31
1996 1995 1994
--------------------------
(In Thousands)
Cash flows from operating activities
Net loss $(17,196) $(13,213) $ (9,436)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 4,205 1,291 1,421
Amortization 851 11 10
Provision for losses on accounts
receivable 1,275 114 40
Equity in loss of affiliates 2,119 2,912 2,957
Gain on sale of marketable equity
securities (3,398) (7) (2,831)
Minority interests (7,893) (1) (13)
Provision for deferred income taxes (8,743) (6,823) (2,813)
Other 738 198 (9)
Change in assets and liabilities:
Accounts receivable (2,221) (54) 906
Notes receivable from related parties (8,427) -- --
Inventory held for resale (76) 224 171
Prepaid expenses and other assets 571 868 (409)
Accounts payable 189 3,776 98
Accrued transaction expenses -- (5,433) 5,353
Employee compensation 3,774 (629) 1,119
Accrued expenses (174) 242 (59)
Deferred compensation 176 205 (211)
-------- -------- --------
Net cash used in operating activities (34,230) (16,319) (3,706)
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, net (4,435) (642) (230)
Proceeds from sale of marketable equity
securities 3,414 15 2,921
Repayments of notes receivable from related
parties 50 31 4,742
Increase in notes receivable from related
parties (2,740) (1,183) (7,185)
Investments in wireless communications
affiliates (5,533) (784) (8,808)
Other investing activities, net (993) (489) (788)
-------- -------- -------
Net cash used in investing activities (12,125) (3,052) (9,348)
F-7
<PAGE>
Statements of Cash Flows (continued)
Year ended December 31
1996 1995 1994
--------------------------
(In Thousands)
Cash flows from financing activities
Proceeds from short-term obligations, net 44,056 18,470 15,000
Increase in due to cellular equipment vendor 455 -- --
Repayment of long-term debt (2,082) -- --
Investment by minority interests 6,235 -- 909
Other financing activities, net 14 -- (1,023)
------ ------ ------
Net cash provided by financing activities 48,678 18,470 14,886
------ ------ ------
Net increase (decrease) in cash and cash
equivalents 2,323 (901) 1,832
Cash and cash equivalents at beginning
of year 1,018 1,919 87
------ ------ ------
Cash and cash equivalents at end of year $3,341 $1,018 $1,919
====== ====== ======
Supplemental disclosure of noncash
financing activities
Contribution by minority interests of notes
receivable from related parties $7,162 $ -- $ --
====== ====== ======
Long-term debt assumed by cellular
equipment vendor, as guarantor $2,845 $ -- $ --
====== ====== ======
See accompanying notes.
F-8
<PAGE>
The Associated Group, Inc. and Subsidiaries
Notes to Financial Statements
December 31, 1996
1. Basis of Presentation
The Associated Group, Inc. ("AGI") (formerly known as Associated Communications
of Delaware, Inc. ("ACDI")) was a wholly owned subsidiary of Associated
Communications Corporation ("Associated") until December 15, 1994 (the
"Distribution Date") when, in accordance with the Agreement and Plan of
Distribution dated as of December 14, 1994 (the "Distribution Agreement"), among
Associated, ACDI, and Associated Cellular Holdings, Inc. ("ACH"), all of the
outstanding common stock of AGI, after giving effect to a recapitalization of
AGI, was distributed pro rata to the stockholders of Associated (the
"Distribution") and Associated, consisting of the parent company and its
domestic cellular businesses and interests (the "Associated Business to be
Merged"), was merged (the "Merger") with a subsidiary of Southwestern Bell
Corporation, currently known as SBC Communications Inc. ("SBC"), pursuant to the
Agreement and Plan of Merger and Reorganization dated as of February 23, 1994,
by and among SBC, SBMS Acquisition Corp., and Associated.
Prior to the Distribution, Associated held all 1,000 outstanding shares of the
then authorized 1,000 shares of $1.00 par value common stock of ACDI. In
accordance with the Distribution Agreement, prior to the Distribution, ACDI
amended its Certificate of Incorporation (the "Charter Amendment") to, among
other things, (i) change its name to AGI, (ii) create two classes of common
stock of AGI, Class A Common Stock and Class B Common Stock (the "AGI Common
Stock"), and increase the then currently authorized number of shares of common
stock of AGI to 100,000,000 shares of Class A Common Stock and 50,000,000 shares
of Class B Common Stock (and Associated exchanged the 1,000 shares of ACDI
common stock then outstanding for 9,383,076 shares of Class A Common Stock and
9,383,076 shares of Class B Common Stock), and (iii) to authorize 5,000,000
shares of AGI Preferred Stock. On December 15, 1994, pursuant to the
Distribution, each holder of record of Associated Class A Common Stock or
Associated Class B Common Stock ("Associated Common Stock") received one-quarter
of a share of AGI Class A Common Stock and one-quarter of a share of AGI Class B
Common Stock for each share of Associated Common Stock held.
The accompanying financial statements include, on a consolidated basis
subsequent to the Distribution Date and on a combined basis prior to the
Distribution Date, the accounts of AGI, certain of its subsidiaries, and certain
other assets and liabilities of Associated, all transferred to AGI prior to the
Distribution. Such entities and accounts are referred to as the "Company" in
these financial statements. For the period January 1, 1994 to December 15, 1994,
the financial statements include all of the historical corporate expenses of
Associated less an allowable amount (under the Distribution Agreement) of
$3,780,000 relating to expenses allocable to the Associated Business to be
Merged. Such allocation has been recorded as an offset to transaction
F-9
<PAGE>
The Associated Group, Inc. and Subsidiaries
Notes to Financial Statements (continued)
1. Basis of Presentation (continued)
expenses for the year ended December 31, 1994, resulting in net transaction
expenses of $4,026,000. Management believes that the corporate expense
allocation was made on a reasonable and consistent basis.
Through December 31, 1995, the Company has recorded its investment in Grupo
Portatel, S.A. de C.V. ("Grupo") using the equity method. Effective January 1,
1996, the Company has consolidated the financial statements of Grupo with the
Company's financial statements (see Note 3).
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-FM since the date of acquisition.
The operations of WCEZ-FM are not material to the Company's revenues or net
loss.
2. Significant Accounting Policies
Principles of Consolidation
The Company includes the accounts of AGI and its wholly owned and majority owned
subsidiaries. Minority investments in affiliates where the Company exercises
significant influence over operating and financial affairs are recorded under
the equity method. All significant intercompany accounts and transactions have
been eliminated.
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 amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Revenue Recognition
Wireless communication services revenues are recognized when the service is
provided. Radio broadcasting revenues are recognized when the commercial matter
is aired. Art gallery sales are recorded at the time of shipment of art works.
F-10
<PAGE>
The Associated Group, Inc. and Subsidiaries
Notes to Financial Statements (continued)
2. Significant Accounting Policies (continued)
Cash Equivalents
The Company considers all unrestricted highly liquid investments with a maturity
of three months or less when purchased to be cash equivalents.
Inventory Held for Resale
Inventory held for resale, comprised of finished goods, includes art prints of
$1,145,000 and $1,311,000 at December 31, 1996 and 1995, respectively, and
cellular telephones and related equipment of $477,000 and $0 at December 31,
1996 and 1995, respectively, and 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 $1,570,000 and $1,582,000 at December 31,
1996 and 1995, respectively. Provision for the difference between the cost and
market value of art inventories is made based on management's periodic analysis
of the composition of inventory and current art market conditions. The Company
also sells art inventory held on consignment from others. The Company does not
own these art prints; therefore, their cost is not included in the Company's
balance sheets at December 31, 1996 and 1995.
Marketable Equity Securities
Under Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" ("FASB 115"), the Company's
marketable equity securities, which are classified as available-for-sale, are
reported at fair value, with unrealized gains and losses excluded from earnings
and reported as a separate component of stockholders' equity until realized.
Foreign Currency Translation
The financial statements of Grupo are translated from Mexican new pesos to U.S.
dollars in accordance with Statement of Financial Accounting Standards No. 52,
"Foreign Currency Translation" ("FASB 52"). 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
F-11
<PAGE>
The Associated Group, Inc. and Subsidiaries
Notes to Financial Statements (continued)
2. Significant Accounting Policies (continued)
Foreign Currency Translation (continued)
period, except depreciation which has been translated at historical exchange
rates. Foreign currency translation gains and losses are included in the
statement of operations.
For the year ending December 31, 1996, the translation loss of Grupo
consolidated in the statement of operations was $178,000. For the years ending
December 31, 1995 and 1994, the equity in loss of affiliates includes the
effects of foreign currency translation adjustments for Grupo. On an equity
basis, translation losses were $473,000 and $1,068,000 in 1995 and 1994,
respectively.
Property and Equipment
Property and equipment is recorded at cost. Depreciation and amortization are
computed on the straight-line method.
Income Taxes
Income taxes have been recorded using the liability method in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("FASB 109").
Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("FASB 123"). This new standard establishes financial accounting
and reporting standards for stock-based compensation plans and to transactions
in which an entity issues its equity instruments to acquire goods and services
from non-employees. The new accounting standards prescribed by FASB 123 are
optional, and the Company has elected to account for its stock-based
compensation plans under Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," consistent with prior years. Accordingly, as the
Company grants stock options for a fixed number of shares with an exercise price
equal to the fair value of the shares at the date of grant, the Company
recognizes no compensation expense for the stock option grants. Compensation
expense is recorded for grants under variable award plans, based on the
intrinsic value of the grant.
F-12
<PAGE>
The Associated Group, Inc. and Subsidiaries
Notes to Financial Statements (continued)
2. Significant Accounting Policies (continued)
Stock-Based Compensation (continued)
Compensation expense recorded in 1996, 1995, and 1994 was not material to the
Company's financial statements, and had compensation cost for the Company's
stock-based compensation plans been determined based on the fair values at the
grant dates for awards under those plans consistent with FASB 123, the effect on
the financial statements would not have been material.
Reclassifications
Certain reclassifications have been made to the 1995 and 1994 financial
statements to conform to the 1996 presentation. These reclassifications have no
effect on the Company's net losses.
3. Consolidation of Grupo Portatel, S.A. de C.V.
At December 31, 1996, the Company, through a wholly owned subsidiary, Associated
Communications of Mexico, Inc. ("ACM"), has a 30.2% economic interest in Grupo,
of which Portatel del Sureste, S.A. de C.V. ("Portatel"), a Mexican cellular
telephone company, is a wholly owned subsidiary. Portatel holds a cellular
license for Region 8, one of nine regions in Mexico, to provide cellular
telephone service in the southeastern portion of Mexico.
In 1994, the Company entered into an Association in Participation Agreement ("AP
Agreement") and a related Joint Venture Agreement (together, the "Grupo
Documents") with another United States shareholder of Grupo and one of the
Mexican nationals to whom the Company has loaned funds for the acquisition of
Grupo stock. The United States shareholder and the Mexican national have 18.8%
and 1.7% direct equity interests in Grupo, respectively. Through the AP
Agreement, the Mexican national, acting as the Active Partner (as defined in the
AP Agreement), holds a 40.7% equity interest in Grupo as of December 31, 1996.
The Company is a Silent Partner (as defined in the AP Agreement) in the AP
Agreement. The Grupo Documents provide for the allocation to the parties to the
Grupo Documents, at a given ratio, of proceeds received from distributions made
by Grupo to its shareholders or from the sale of shares held pursuant to the AP
Agreement, after adjustment to such proceeds for income tax liabilities and
payment of capital advanced by the Company and the other Silent Partner and
related investment fees thereon (the "Distribution of Proceeds Provision"). In
the event that the Active Partner, after consultation with the Silent Partners,
votes in such a way that is against the express will of the Silent Partners,
then the Active Partner's proceeds from the sale of Grupo will be reduced by
50%, in accordance with the Distribution of Proceeds Provision. Additionally,
the Grupo Documents provide that in the event of a change in Mexican law which
would allow for the Silent Partners to hold direct ownership in Grupo without
any percentage limitation, then, at the option of the Silent Partners, the
Silent Partners may cause the AP
F-13
<PAGE>
The Associated Group, Inc. and Subsidiaries
Notes to Financial Statements (continued)
3. Consolidation of Grupo Portatel, S.A. de C.V. (continued)
Agreement to be dissolved, and the Silent Partners' ownership increase in Grupo
will be determined based upon allocation methodology consistent with the
Distribution of Proceeds Provision. As a result of a change in Mexican law, the
Silent Partners have the ability to increase their direct percentage ownership
in Grupo without any percentage limitation, subject to certain Mexican
regulatory approvals which are routine in nature, and thus, are entitled at
their option to cause the AP Agreement to be dissolved.
Effective January 1, 1996, the Company and the other United States shareholder
of Grupo have granted voting rights with respect to, and have agreed to
contribute, their interests in Grupo, including their rights under the Grupo
Documents, to Grupo Holdings, L.L.C. ("Grupo Holdings"), a new joint venture
limited liability company, in which the Company has a 61.6% controlling
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 December 31, 1996, excluding the effects of the AP Agreement and any dilution
that may result from the debt to equity conversion discussed in Note 11, the
Company has a 30.2% economic interest and through Grupo Holdings controls a
49.0% voting interest in Grupo. Upon closing of the agreement discussed in Note
11, excluding the effects of the AP Agreement, the Company's economic interest
in Grupo will be reduced to approximately 23.6%, and through Grupo Holdings,
will control a 38.4% voting interest in Grupo. 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 December 31, 1996, the Company's minority
interests include third-party ownership interests for Grupo and 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 years ended December 31, 1995 and
1994 would have been $17,800,000 and $32,226,000, respectively, assuming
consolidation of Grupo as of January 1, 1994.
F-14
<PAGE>
The Associated Group, Inc. and Subsidiaries
Notes to Financial Statements (continued)
3. Consolidation of Grupo Portatel, S.A. de C.V. (continued)
Summary financial information, in thousands, of Grupo for the periods prior to
consolidation of Grupo is as follows:
Year ended
1995 1994
--------- ----------
Current assets $ 4,584 $ 7,619
Noncurrent assets 28,240 32,159
Current liabilities 20,517 15,096
Noncurrent liabilities 10,408 15,335
Revenues 13,558 27,562
Expenses 20,708 33,425
Foreign currency translation loss (1,569) (3,541)
Net loss (8,719) (9,404)
The Company's share of the undistributed net deficit of Grupo is approximately
$9,273,000 at December 31, 1995. The Company has paid $9,690,000 for stock in
Grupo as of December 31, 1995.
4. Property and Equipment
Property and equipment, in thousands, consists of the following:
Estimated
December 31 Useful
1996 1995 Life-Years
---------------- ----------
Land $ 448 $ 100
Buildings and leasehold improvements 5,209 1,812 3-20
Operating equipment 39,349 6,094 4-10
Office furniture and equipment 6,296 2,787 3-10
Wireless communications systems
in progress 1,163 --
------- -------
52,465 10,793
Less accumulated depreciation and
amortization (24,952) (7,676)
------- -------
$27,513 $3,117
======= =======
F-15
<PAGE>
The Associated Group, Inc. and Subsidiaries
Notes to Financial Statements (continued)
5. Marketable Equity Securities
The cost and market value of the Company's marketable equity securities
classified as available for sale, at December 31, 1996, are as follows:
Cost of Market Value
Name of Issuer and Number of Each Issue in of Each Issue
Title of Each Issue Shares Thousands in Thousands
- ------------------------------------------------------------------------------
Tele-Communications, Inc.:
TCI Group Series A Common Stock 12,479,976 $3,505 $163,020
TCI Group Series B Common Stock 7,071,852 1,178 99,006
Liberty Media Group Series A
Common Stock 3,119,993 1,229 89,115
Liberty Media Group Series B
Common Stock 1,767,963 410 51,271
TCI Satellite Entertainment, Inc.:
Series A Common Stock 1,247,998 334 12,324
Series B Common Stock 707,185 90 7,072
Others various 136 4,087
-------------------------
$6,882 $425,895
=========================
During the first quarter of 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. In 1994, the
Company realized a gain on the disposal of marketable equity securities of
$2,831,000 pursuant to the merger of Republic Pictures Corporation with Spelling
Entertainment Group. Gains on disposals realized in 1995 also resulted from
mergers and acquisitions.
F-16
<PAGE>
The Associated Group, Inc. and Subsidiaries
Notes to Financial Statements (continued)
5. Marketable Equity Securities (continued)
In August 1995, TCI divided its common stock into four series: TCI Group Series
A Common Stock (which replaced TCI Class A), TCI Group Series B Common Stock
(which replaced TCI Class B), Liberty Media Group Series A Common Stock
("Liberty Series A"), and Liberty Media Group Series B Common Stock ("Liberty
Series B"). The Company received a distribution of one-quarter share of Liberty
Series A and one-quarter share of Liberty Series B for each share of TCI Class A
and TCI Class B owned, respectively.
In December 1996, TCI spun off its satellite business unit, TCI Satellite
Entertainment, Inc. ("TCI Satellite") to holders of TCI Group Series A and TCI
Group Series B Common Stock. The Company received a distribution of one share of
TCI Satellite Series A Common Stock and one share of TCI Satellite Series B
Common Stock for every ten shares of TCI Group Series A Common Stock and TCI
Group Series B Common Stock owned, respectively.
In January 1997, the board of directors of TCI declared a dividend to holders of
record of Liberty Series A and Liberty Series B as of December 27, 1996. In
1997, the Company received one share of Liberty Series A for every two shares of
Liberty Series A owned and one share of Liberty Series A for every two shares of
Liberty Series B owned.
On February 28, 1997, the aggregate market value of marketable equity securities
held by the Company was approximately $406,642,000.
6. Notes Receivable from Related Parties
Included in noncurrent notes receivable from related parties at December 31,
1996 and December 31, 1995 are amounts and accrued interest due from certain
Mexican stockholders of Grupo of $21,080,000 and $11,240,000, respectively,
used for their purchase of Grupo stock which is secured by said stock. Of the
increase between periods, $7,162,000 is the result of the formation of and
initial contributions of notes receivable to Grupo Holdings by the minority
member of Grupo Holdings as discussed in Note 3. Interest accrues on certain
of these notes at the prime rate plus 2%.
F-17
<PAGE>
The Associated Group, Inc. and Subsidiaries
Notes to Financial Statements (continued)
6. Notes Receivable from Related Parties (continued)
Also included in noncurrent notes receivable from related parties at December
31, 1996 is a $8,250,000 note and accrued interest of $177,000 due from the
Chairman and Chief Executive Officer (the "Executive") of Associated
Communications, L.L.C. ("ACOM"), in which Microwave Services, Inc. ("MSI"), a
wholly owned subsidiary of the Company, has a 55% ownership interest, and
Digital Services Corporation ("DSC"), a third-party, has the remaining 45%
ownership interest. Under the terms of the Executive's employment agreement,
one-fifth of the principal and interest due under the note will be forgiven on
each of the Executive's first two employment anniversary dates if he is still
employed by ACOM, and the remainder due will be forgiven on the fifth
anniversary of employment. In the event that the Executive terminates his
employment prior to the fifth anniversary date (other than by reason of his
death or disability or for good reason as defined in the employment agreement),
any outstanding principal and accrued interest on the note will become
immediately due and payable. As a result, the Company is expensing the accrued
interest and principal over five years, the term of the employment agreement,
and as such, the balance at December 31, 1996 is $7,700,000.
7. Investments in Wireless Communications Affiliates
Teletrac, Inc. ("Teletrac")
As of December 31, 1996, Associated RT, Inc. ("ART"), a wholly-owned subsidiary
of AGI, held 50,000 shares, or 20%, of the outstanding Class A Common Stock and
5,772 shares, or 3%, of the outstanding Series A Convertible Preferred Stock of
Teletrac, Inc. ("Teletrac"). Teletrac is in the business of providing location
and, potentially, messaging services primarily for vehicle and fleet management.
ART paid a total of $6,000,000 as of December 31, 1996 for Teletrac stock.
Through November 1996, ART held 20% of the voting stock of Teletrac and
accounted for its investment in Teletrac under the equity method. As a result of
Teletrac's issuance of the Series A Convertible Preferred Stock ("Teletrac
Preferred") in early December 1996, ART's voting interest was reduced to 12.7%
and, accordingly, ART began accounting for its investment under the cost method.
Shares of Teletrac Preferred entitle holders to receive cumulative, compounding
dividends at 15% per annum. Holders are entitled to voting rights, preference on
liquidation, voluntary equal share conversion into Teletrac Class A Common Stock
at a defined conversion price, and automatic equal share conversion into
Teletrac Class A Common Stock after either a qualified public stock offering or
a certain nonqualified public stock offering as defined.
Specialized Mobile Radio ("SMR")
The Company has an equity investment in a Mexican corporation, Corporacion
Mobilcom, S.A. de C.V. ("Mobilcom"), which operates SMR systems in Mexico.
SMR, or "trunked mobile
F-18
<PAGE>
The Associated Group, Inc. and Subsidiaries
Notes to Financial Statements (continued)
7. Investments in Wireless Communications Affiliates (continued)
Specialized Mobile Radio ("SMR") (continued)
radio," is a wireless communications service which can transmit voice and data.
Mobilcom holds licenses or equity interests in corporations licensed to provide
trunked mobile radio service in the 800 MHz and 400 MHz frequency bands in major
metropolitan areas in Mexico, including Mexico City, Guadalajara, and Monterrey,
as well as the connecting highways.
On March 3, 1995, Mobilcom and its shareholders completed a transaction with
Nextel Communications, Inc. ("Nextel"), pursuant to which Nextel made an
investment in Mobilcom of $57.5 million for an approximate 18% equity interest.
Nextel also received options which would allow Nextel to increase its ownership
stake in Mobilcom to approximately 40% over the next three years. On August 23,
1996, Mobilcom and its shareholders completed a transaction with Nextel pursuant
to which Nextel acquired an additional approximate 19% equity interest in
Mobilcom. The Company's current effective ownership interest in Mobilcom, prior
to exercise of the remaining Nextel options, is approximately 14%, compared to
19% just prior to the 1995 Nextel transactions.
In addition, on August 23, 1996, the Company and certain other shareholders of
Mobilcom (collectively, the "Mobilcom Investors"), entered into a put-call
agreement (the "Put-Call Agreement") with Nextel, pursuant to which, under
certain circumstances, the Mobilcom Investors have the right to cause Nextel to
purchase, and Nextel shall have the right to buy, the entire equity interest of
the Mobilcom Investors. The Put-Call Agreement became effective on October 24,
1996 (the "Effective Date"). After the first anniversary of the Effective Date,
and prior to the third anniversary of the Effective Date, the Mobilcom Investors
collectively shall have the right to put their shares to Nextel upon the taking
of certain actions by Mobilcom, if the Mobilcom Investors, or directors
designated by them, have voted against such actions (a "Put Event"). On the
third anniversary of the Effective Date, a Put Event is deemed to have occurred
automatically, and if the Mobilcom Investors do not exercise their put rights,
Nextel shall have the right to call such shares. A Put Event shall also be
deemed to have occurred on January 22, 1998 if the Mobilcom Investors have not
had the opportunity to vote for or against certain actions proposed by Mobilcom.
The purchase price for the put-call shares is based upon a fair market value of
Mobilcom, which fair market value shall in no event be deemed to be less than
$150 million. In the event that the fair market value of Mobilcom exceeds $250
million, for purposes of the Put-Call Agreement, the fair market value shall be
deemed to be $250 million plus 50% of the amount by which such valuation exceeds
$250 million.
F-19
<PAGE>
The Associated Group, Inc. and Subsidiaries
Notes to Financial Statements (continued)
7. Investments in Wireless Communications Affiliates (continued)
Personal Communications Services ("PCS")
The Company has a 75% interest in a general partnership (the "PCS Partnership")
which holds a 4.42% interest in Omnipoint Communications, Inc. ("OCI"), a
subsidiary of Omnipoint Corporation ("Omnipoint Parent"). Omnipoint Parent,
through OCI, was awarded one of three pioneer's preference licenses by the
Federal Communications Commission ("FCC") to construct and operate a broadband
PCS system in the New York Major Trading Area, a region with a population of
approximately 27 million. In January 1996, Omnipoint Parent successfully
completed an initial public offering and is traded on the Nasdaq National Stock
Market under the symbol "OMPT."
8. Other Noncurrent Assets
At December 31, 1996, included in other noncurrent assets are amounts for
preoperating expenses of Grupo of $1,188,000, net of accumulated amortization of
$1,782,000, 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
$2,452,000, net of accumulated amortization of $1,073,000. 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 December 31, 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 1) of $2,330,000, net of accumulated
amortization of $204,000. 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.
F-20
<PAGE>
The Associated Group, Inc. and Subsidiaries
Notes to Financial Statements (continued)
9. Short-Term Obligations
The Company's short-term borrowings as of December 31 were as follows (in
thousands):
<TABLE>
<CAPTION>
1996 1995
-------------------
<S> <C> <C>
General Credit Facilities:
$100 million demand discretionary bank line of credit $19,000 $16,500
Two brokerage margin loan facilities 56,526 16,970
-------------------
75,526 33,470
ACOM Credit Facility:
$50 million secured bank revolving credit facility 2,000 -
-------------------
$77,526 $33,470
===================
Weighted average interest rate 6.3% 6.6%
</TABLE>
a. General Credit Facilities
Borrowings under the $100,000,000 line of credit are limited to 65% of the
market value of the shares of TCI Group Series A Common Stock pledged as
security under the agreement, and bear interest at rates as offered by the bank
at the time of borrowing. The line expires on November 30, 1997 and the Company
presently anticipates renewal of such facility.
Borrowings under one of the brokerage margin loan facilities are limited to 65%
of the market value of the pledged TCI Group Series A Common Stock, with an
additional 15% collateral requirement if borrowings exceed $100,000,000, up to a
maximum of $200,000,000. Borrowings under the other brokerage margin loan
facilities are limited to 50% of the market value of the pledged stock.
Borrowings under these facilities bear interest at variable rates based upon the
broker call rate or the Fed Funds rate plus an applicable margin, as offered by
the brokerage firm at the time of borrowing.
As of December 31, 1996, 9,799,980 shares of TCI Group Series A Common Stock
were pledged as security under the line of credit and brokerage margin loan
facilities. Subsequent to December 31, 1996 and through February 28, 1997, an
additional 700,000 shares of TCI Group Series A Common Stock were pledged as
security under the margin loan facilities.
b. ACOM Credit Facility
The ACOM $50,000,000 secured bank revolving credit facility is available to meet
the cash flow needs of ACOM only. Borrowings under this credit facility bear
interest at variable rates based upon the LIBOR rate, prime rate, or the Fed
Funds rate plus an applicable margin, as offered by
F-21
<PAGE>
The Associated Group, Inc. and Subsidiaries
Notes to Financial Statements (continued)
9. Short-Term Obligations (continued)
b. ACOM Credit Facility (continued)
the bank. A facility fee of 1/2% of the total credit available and a commitment
fee of 1/2% of the unused portion of the facility are payable quarterly. The
ACOM credit facility is secured by a pledge of the Company's stock in MSI, a
pledge of the stock of DSC, and all of the assets of ACOM, and matures on
December 19, 1997.
10. Deferred Compensation
Two executive officers of the Company serve under employment agreements that
provide for the annual payment for ten years to the officers' beneficiary of
one-half of the officers' base salary upon termination due to disability or
death. The Company accrues the present value of the estimated payments due over
the expected service period of the employees, which is based on their life
expectancy.
The Executive of ACOM serves under an employment agreement that provides for,
among other things, a payment of $5,000,000 on the fifth anniversary of the
Executive's employment, or earlier in certain circumstances. In the event of
termination of employment prior to his fifth anniversary, the Executive will
receive either $5,000,000, or a pro rata portion thereof, depending on the
circumstances of his termination. The Company accrues the present value of the
payment due over the expected service period of five years.
11. 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 telephone
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 December 31, 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 ACM)
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 was contingent upon certain Mexican regulatory consents and
F-22
<PAGE>
The Associated Group, Inc. and Subsidiaries
Notes to Financial Statements (continued)
11. Long-Term Debt and Amounts Due to Cellular Equipment Vendor (continued)
approvals, the last of which was obtained in the first quarter of 1997. Upon
closing, excluding the effects of the AP Agreement, the conversion provided for
in the Contribution Agreement will result in a reduction of ACM's economic
interest in Grupo to approximately 23.6% and a reclassification of $15,069,000
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. Portatel has complied with its debt covenants or has obtained waivers
as of December 31, 1996.
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
December 31, 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
Tranche I Tranche II Total
------------------- ------------------- -------------------
<S> <C> <C> <C>
Current $ 1,742 $ 340 $ 2,082
Long-Term 6,964 1,362 8,326
------------------- ------------------- -------------------
$ 8,706 $ 1,702 $ 10,408
=================== =================== ===================
Weighted average
interest rate at
year-end 8.39% 12.12%
</TABLE>
Maturities of long-term debt for the next five years are as follows (in
thousands):
<TABLE>
<CAPTION>
<S> <C>
1997 $ 2,082
1998 2,082
1999 2,082
2000 2,081
2001 2,081
------------------
Total 10,408
Less current portion (2,082)
------------------
Total long-term debt $ 8,326
==================
</TABLE>
Cash paid for interest on both short-term and long-term debt obligations
amounted to approximately $2,211,000, $1,116,000, and $349,000 for the years
ended December 31, 1996, 1995, and 1994, respectively.
F-23
<PAGE>
The Associated Group, Inc. and Subsidiaries
Notes to Financial Statements (continued)
12. Leases
The Company and its subsidiaries lease sales, studio, administrative, and
certain corporate offices, as well as transmitter and antenna sites, under
operating lease agreements. Total rent expense was approximately $2,424,000,
$1,390,000, and $1,551,000 for the years ended December 31, 1996, 1995, and
1994, respectively.
Approximate future minimum lease payments, in thousands, by year and in the
aggregate, are as follows at December 31, 1996:
<TABLE>
<CAPTION>
<S> <C>
1997 $1,461
1998 1,169
1999 1,012
2000 644
2001 and thereafter 1,828
------------------
$6,114
==================
</TABLE>
13. Income Taxes
Prior to the Distribution Date, the Company filed income tax returns as a
consolidated group with Associated and its other subsidiaries. Income taxes for
1994 presented in these financial statements represent the portion of income
taxes that were attributable to the taxable income and book and tax bases
differences of the companies included in these financial statements. Such
amounts do not represent the taxes which would have been recorded if the Company
had filed income tax returns as an independent entity in that year. Had the tax
provision been calculated as though separate income tax returns were filed, the
pro forma income tax benefit and the pro forma net loss for the year ended
December 31, 1994 would have been $2,113,000 and $10,136,000, respectively.
The Company has no current tax liability for any periods prior to the
Distribution Date under the provisions of a Tax Disaffiliation Agreement entered
into by the Company, Associated, and ACH in connection with the Distribution.
Mexican tax law does not permit the use of net operating losses of one Mexican
subsidiary to offset the taxable income of other Mexican subsidiaries. Current
Mexican income taxes are computed taking into consideration the taxable and
deductible effects of inflation, such as depreciation calculated on restated
asset values and the deduction of purchases in place of cost of sales, which
permit the deduction of current cost, and taxable income is increased or reduced
by the effects of inflation on certain monetary assets and liabilities through
the inflationary component.
F-24
<PAGE>
The Associated Group, Inc. and Subsidiaries
Notes to Financial Statements (continued)
13. Income Taxes (continued)
Mexican tax law provides for an alternative minimum tax ("assets tax"). The
assets tax is computed at an annual rate of 1.8% of the average of the majority
or restated assets less certain liabilities, and the tax is paid only to the
extent that it exceeds regular income tax of the period. Any required payment of
assets tax is refundable against the excess of income taxes over asset taxes for
the following ten years. Cash paid for Mexican income taxes for the year ended
December 31, 1996 was approximately $553,000.
The tax effects of temporary differences that give rise to the net deferred tax
liability are as follows (in thousands):
<TABLE>
<CAPTION>
December 31
1996 1995
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss and assets tax
credit carryforwards:
United States $ 13,781 $ 7,372
Mexican 6,235 -
Equity in loss of affiliates 4,462 3,083
Inventory reserves and capitalized costs 994 995
Other 2,662 657
-----------------------------------
Total deferred tax assets 28,134 12,107
Valuation allowance (6,512) -
-----------------------------------
Net deferred tax assets 21,622 12,107
Deferred tax liabilities:
Unrealized gain on marketable
equity securities (146,654) (186,614)
Other (143) -
----------------------------------
Total deferred tax liabilities (146,797) (186,614)
----------------------------------
Net deferred tax liability $(125,175) $(174,507)
===================================
</TABLE>
The changes in the valuation allowance recorded by Grupo were as follows (in
thousands):
<TABLE>
<CAPTION>
<S> <C>
Beginning balance, January 1, 1996 $6,437
Provision 187
Foreign currency translation gain (112)
-----------
Ending balance, December 31, 1996 $6,512
============
F-25
<PAGE>
The Associated Group, Inc. and Subsidiaries
Notes to Financial Statements (continued)
13. Income Taxes (continued)
The increase in the 1996 valuation allowance relates to 1996 net operating
losses and assets tax credit carryforwards, along with the allowance for
doubtful accounts. In assessing the realizability of deferred tax assets,
Grupo's management considered whether it is more likely than not that some
portion of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of future
taxable income during the periods in which those temporary differences become
deductible. Based upon the level and trend of historical taxable income of Grupo
measured by individual subsidiary of Grupo, Grupo's management believes that it
is more likely than not Grupo will realize the benefit of these deductible
differences, net of the existing valuation allowances at December 31, 1996.
The income tax benefit for the three years ended December 31, 1996 consists of
the following (in thousands):
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
------------------- ------------------- -------------------
<S> <C> <C> <C>
Current:
Mexican $ 407 $ - $ -
Deferred:
United States $(8,967) (6,823) (2,813)
Mexican 224 - -
------------------- ------------------- -------------------
Total deferred (8,743) (6,823) (2,813)
------------------- ------------------- -------------------
$(8,336) $(6,823) $(2,813)
=================== =================== ===================
</TABLE>
F-26
<PAGE>
The Associated Group, Inc. and Subsidiaries
Notes to Financial Statements (continued)
13. Income Taxes (continued)
At December 31, 1996, the Company's federal net operating loss ("NOL")
carryforwards and Mexican NOL and assets tax credit carryforwards of Grupo were
as follows (in thousands):
<TABLE>
<CAPTION>
Federal Mexican Mexican Assets Tax
NOL NOL Credit
--------------------- --------------------- ---------------------
<S> <C> <C> <C>
Expiration date:
2001 $ - $ 27 $ -
2002 - 75 -
2003 - 641 353
2004 - 5,160 341
2005 - 5,903 399
2006 - 2,167 391
2008 1,244 - -
2009 980 - -
2010 18,870 - -
2011 19,437 - -
--------------------- --------------------- ---------------------
$40,531 $13,973 $1,484
===================== ===================== =====================
</TABLE>
Portatel del Sureste, S.A. de C.V., a subsidiary of Grupo, realized taxable
income for the year ended December 31, 1996. Net operating losses of $1,925,000
were utilized in 1996 to offset the liability for current Mexican tax expense.
A reconciliation between income taxes computed using the statutory federal
income tax rate (34%) and the effective rate, in thousands, is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ----------- ---------
<S> <C> <C> <C>
Federal income tax (credit)
at statutory rate $(8,681) $(6,812) $(4,165)
Tax effects attributable
to Mexican operations 1,145 - -
Effect of income tax allocation
between the Company and Associated - - 1,244
Other (800) (11) 108
--------- ---------- --------
$(8,336) $(6,823) $(2,813)
========= ========== ========
</TABLE>
F-27
<PAGE>
The Associated Group, Inc. and Subsidiaries
Notes to Financial Statements (continued)
14. Common Stock
In connection with the Distribution, the Company approved and adopted a
Stockholder Rights Plan. On December 14, 1994, the Board of Directors of the
Company declared a Rights dividend payable for each outstanding share of AGI
Common Stock distributed to Associated stockholders pursuant to the Distribution
on December 15, 1994. Each Right entitles the registered holder to purchase from
the Company a unit consisting of one one-hundredth of a share (a "Unit") of
Series A Junior Participating Preferred Stock, par value $.01 per share, at a
purchase price of $100 per Unit, subject to adjustment (the "Purchase Price").
Upon occurrence of certain events as set forth in the Stockholder Rights Plan,
each holder of a Right will thereafter have the right to receive, upon exercise,
Class B Common Stock (or, in certain circumstances, cash, property, or other
securities of the Company) having a value equal to two times the Purchase Price.
Each share of the Class A Common Stock entitles the holder to one vote and each
share of the Class B Common Stock entitles the holder to one twenty-fifth (1/25)
of a vote. There is no cumulative voting.
Class B Common Stock is mandatorily convertible at the election of the Company
and without stockholder action, into one share of Class A Common Stock, upon the
determination of the Company's Board of Directors that such a conversion is
necessary or appropriate in connection with an election by the Company to become
a business development company under the Investment Company Act of 1940, as
amended ("1940 Act"), or to register as an investment company under the 1940
Act. A total of 10,823,668 shares of Class A Common Stock are reserved for
issuance in the event of such a conversion.
1996 and 1995 per common share data is calculated using 18,774,261 and
18,765,947 weighted average common shares outstanding during the years ended
December 31, 1996 and 1995, respectively, and does not include common stock
equivalents since their effect on the net loss per share would be antidilutive.
1994 pro forma per common share data is calculated using 18,766,031 weighted
average common shares outstanding from December 15 to December 31, 1994, as if
such shares were outstanding throughout the entire year, and does not include
common stock equivalents since their effect on the pro forma net loss per share
would be antidilutive.
F-28
<PAGE>
The Associated Group, Inc. and Subsidiaries
Notes to Financial Statements (continued)
15. Stock Options
1989 Stock Option Plan of Associated Communications Resources, Inc. ("ACORN
Plan")
The ACORN Plan was sponsored by a wholly owned subsidiary of Associated which
was merged with the Company in connection with the Distribution and the Merger.
In accordance with the provisions of the ACORN Plan and as a result of the
Merger, all outstanding ACORN Plan options became fully vested and, as of the
effective time of the Merger, were rolled over into and became options for Class
B Common Stock of the Company. Such "rollover" options are governed by the
provisions of the Company's 1994 Stock Option and Incentive Award Plan described
below, with an option period of ten years from the date of original grant of the
ACORN Options.
ACORN Options held by persons who were not employees of Associated or the
Company at the Distribution Date were cashed out resulting in compensation
expense of $544,500 in 1994.
1994 Stock Option and Incentive Award Plan ("1994 Plan")
The 1994 Plan authorizes, among other award programs, the granting of options to
purchase up to 950,000 shares of Class B Common Stock, and an additional 490,683
shares of Class B Common Stock for the rollover options as described above.
Under the 1994 Plan, in general, options may be granted at an option price no
less than the fair market value of the stock covered by the option on the grant
date, for an option period of ten years. Options become exercisable over a
period determined by the committee of nonemployee directors which administers
the 1994 Plan. As of December 31, 1996, options for 903,458 shares were
exercisable under the 1994 Plan.
Activity of the 1994 Plan is summarized below:
<TABLE>
<CAPTION>
Option
Number of Options Price Per
1996 1995 1994 Share
---------------- --------------- ---------------- -----------------------
<S> <C> <C> <C> <C>
Options outstanding, beginning of year 1,151,683 495,683 -
Rolled over from ACORN Plan - - 490,683 $0.90-$1.31
Granted 35,000 656,000 5,000 $16.50-$22.625
Exercised (14,925) - - $0.90
Canceled and returned to plan (10,000) - - $16.50
---------------- --------------- ----------------
Options outstanding, end of year 1,161,758 1,151,683 495,683
================ =============== ================
</TABLE>
F-29
<PAGE>
The Associated Group, Inc. and Subsidiaries
Notes to Financial Statements (continued)
15. Stock Options (continued)
Associated RT, Inc. 1995 Stock Incentive Plan ("ART Plan")
The ART Plan, adopted in October 1995, authorizes the granting of options to
purchase up to 200,000 shares of common stock of Associated RT, Inc. Under the
ART Plan, in general, options may be granted at an option price no less than the
fair value of the stock covered by the option on the grant date, for an option
period of ten years. Options become exercisable over a period determined by the
committee of nonemployee directors which administers the ART Plan. Options
granted in 1996 and 1995 are exercisable over either a one- or four-year period.
As of December 31, 1996, options for 49,500 shares were exercisable under the
ART Plan.
Activity of the ART Plan is summarized below:
<TABLE>
<CAPTION>
Option
Number of Options Price Per
1996 1995 Share
------------------- ------------------- -------------------
<S> <C> <C> <C>
Options outstanding, beginning of year 97,500 -
Granted 41,050 97,500 $21.00-$42.00
Canceled and returned to plan (10,000) - $21.00
------------------- -------------------
Options outstanding, end of year 128,550 97,500
=================== ===================
</TABLE>
Microwave Services, Inc. 1996 Stock Incentive Plan ("MSI Plan")
The MSI Plan, adopted in April 1996, authorizes the granting of options to
purchase up to 200,000 shares of common stock of MSI. Under the MSI Plan, in
general, options may be granted at an option price no less than the fair value
of the stock covered by the option on the grant date, for an option period of
ten years. Options become exercisable over a period determined by the committee
of nonemployee directors which administers the MSI Plan. In 1996, options for
194,250 shares were granted under the MSI Plan at exercise prices from $25.00 to
$30.00 per share. Such options are exercisable over either a one- or four-year
period, and none were exerciseable as of December 31, 1996.
F-30
<PAGE>
The Associated Group, Inc. and Subsidiaries
Notes to Financial Statements (continued)
15. Stock Options (continued)
ACOM Company Appreciation Rights ("CARs")
On September 1, 1996, six separate CARs were granted to the Executive of ACOM
under the terms of his employment agreement. For each CAR, the Executive is
entitled to receive, as soon as practicable after the "settlement date" as
defined in the employment agreement, an amount equal to a percentage (initially
3%) of the excess of ACOM's fair market value over the target value for that
CAR. ACOM's Board of Directors, in its sole discretion, shall determine if the
CAR amount is settled with cash, equity securities of ACOM, a combination
thereof, or any other form of consideration as the Board may determine. The CAR
percentage and target values are subject to adjustment for certain equity and
other transactions of ACOM, as defined in the agreement, and expire ten years
after the grant date. The vesting date and unadjusted target value for each CAR
granted is as follows:
<TABLE>
<CAPTION>
Unadjusted
CAR Vesting Date Target Value
- ------------------------------------- -------------------------------------------- ----------------------------------
<S> <C> <C>
1 September 1, 1997 $ 200,000,000
2 September 1, 1998 250,000,000
3 September 1, 1999 325,000,000
4 September 1, 2000 425,000,000
5 September 1, 2001 500,000,000
6 September 1, 2002 2,750,000,000
</TABLE>
16. Fair Values of Financial Instruments
The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments.
Cash and Cash Equivalents
The carrying amount reported in the balance sheets for cash and cash equivalents
approximates its fair value.
Marketable Equity Securities
The fair values of marketable equity securities are based on quoted market
prices.
F-31
<PAGE>
The Associated Group, Inc. and Subsidiaries
Notes to Financial Statements (continued)
16. Fair Values of Financial Instruments (continued)
Notes Receivable from Related Parties
The fair value of the notes receivable from related parties is estimated using
discounted cash flow analyses.
Due to Cellular Equipment Vendor
The carrying amount of the amount due to cellular equipment vendor approximates
its fair value.
Short-Term Obligations
The carrying amount of the Company's short-term borrowings approximates fair
value.
Long-Term Debt
The carrying amount of the long-term debt, including the current portion,
approximates fair value based on quoted market prices for similar types of
borrowing arrangements.
Considerable judgment enters into estimates of fair value. Accordingly, the
estimates presented may not be indicative of the amounts that the Company could
realize in a current market exchange. The carrying amounts and fair values of
the Company's financial instruments, in thousands, were as follows:
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
---------------------------------- ----------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
----------------- ---------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 3,341 $ 3,341 $ 1,018 $ 1,018
Marketable equity securities 425,895 425,895 540,082 540,082
Notes receivable from related parties 28,983 28,983 11,431 11,431
Due to cellular equipment vendor 15,069 15,069 - -
Short-term obligations 77,526 77,526 33,470 33,470
Long-term debt, including current portion 10,408 10,408 - -
</TABLE>
F-32
<PAGE>
The Associated Group, Inc. and Subsidiaries
Notes to Financial Statements (continued)
16. Fair Values of Financial Instruments (continued)
Based upon the information reasonably available to it, including the information
set forth in Note 7, the Company believes that the fair market value of its
investments in Teletrac, SMR, and PCS are in excess of carrying value.
17. Segment Information
The Company operates principally in three industry segments: wireless
communication services in major cities across the United States and Southeastern
Mexico, radio broadcasting in Ohio, and retail art in New York, New York.
Financial information by industry segment, in thousands, is as follows:
<TABLE>
<CAPTION>
Year ended December 31
1996 1995 1994
----------------- ----------------- ----------------
<S> <C> <C> <C>
Revenues:
Wireless communication services $ 16,606 $ 1,884 $ 2,244
Radio broadcasting 2,688 1,854 1,897
Art gallery sales 741 534 523
----------------- ----------------- ----------------
Total revenues $ 20,035 $ 4,272 $ 4,664
================= ================= ================
Operating loss:
Wireless communication services $ (25,601) $ (7,462) $ (1,680)
Radio broadcasting (645) (293) (53)
Art gallery (731) (742) (659)
Corporate (5,809) (8,169) (10,499)
----------------- ----------------- ----------------
Operating loss (32,786) (16,666) (12,891)
Equity in loss of affiliates (2,119) (2,912) (2,957)
Other income (expense) 9,373 (458) 3,599
----------------- ----------------- ----------------
Loss before income taxes $ (25,532) $ (20,036) $ (12,249)
================= ================= ================
Identifiable assets:
Wireless communication services $ 82,209 $ 26,489 $ 28,358
Radio broadcasting 3,740 947 976
Art gallery 1,290 1,421 1,654
Corporate 431,695 545,614 447,567
----------------- ----------------- ----------------
$518,934 $574,471 $478,555
================= ================= ================
</TABLE>
F-33
<PAGE>
The Associated Group, Inc. and Subsidiaries
Notes to Financial Statements (continued)
17. Segment Information (continued)
<TABLE>
<CAPTION>
Year ended December 31
1996 1995 1994
------------------- ------------------- -------------------
<S> <C> <C> <C>
Depreciation and amortization:
Wireless communication services $ 4,426 $ 906 $ 1,058
Radio broadcasting 330 112 110
Art gallery 13 10 11
Corporate 287 274 252
------------------- ------------------- -------------------
$ 5,056 $ 1,302 $ 1,431
=================== =================== ===================
Capital expenditures:
Wireless communication services $ 4,087 $ 269 $ 45
Radio broadcasting 179 115 41
Art gallery 23 12 2
Corporate 163 251 201
------------------- ------------------- -------------------
$ 4,452 $ 647 $ 289
=================== =================== ===================
</TABLE>
Segment information by geographic area, in thousands, is as follows:
<TABLE>
<CAPTION>
Year ended December 31
1996 1995 1994
------------------- ------------------- --------------------
<S> <C> <C> <C>
Revenues:
United States $ 4,860 $ 4,272 $ 4,664
Mexico 15,175 - -
------------------- ------------------- --------------------
$ 20,035 $ 4,272 $ 4,664
=================== =================== ====================
Operating loss:
United States $ (30,457) $ (16,666) $ (12,891)
Mexico (2,329) - -
------------------- ------------------- --------------------
$ (32,786) $ (16,666) $ (12,891)
=================== =================== ====================
Identifiable assets:
United States $ 488,934 $ 574,471 $ 478,555
Mexico 30,000 - -
------------------- ------------------- --------------------
$ 518,934 $ 574,471 $ 478,555
=================== =================== ====================
</TABLE>
F-34
<PAGE>
The Associated Group, Inc. and Subsidiaries
Notes to Financial Statements (continued)
17. Segment Information (continued)
Revenues from wireless communication services included sales to one customer
representing approximately 19% and 24% of total revenues in 1995 and 1994,
respectively. No single customer accounted for more than 10% of the Company's
total revenues in 1996.
Approximately 50% of the Company's accounts receivables at December 31, 1996,
relate to Grupo. As part of its business of rendering cellular telephone
services in the southeast region of Mexico, Grupo grants unsecured credit to
customers, the majority of which are residents of that area. Grupo estimates an
allowance for doubtful accounts based on the creditworthiness of its customers
as well as general economic conditions. Consequently, an adverse change in those
factors could affect the Company's estimates for bad debts.
Corporate assets consist principally of cash and cash equivalents, marketable
equity securities, and prepaid expenses and other assets. Assets of the wireless
communications segment include Mexican cellular telephone services (consolidated
in 1996), microwave communications services, the investments in Grupo (equity
method in 1994 and 1995), Mobilcom, Omnipoint, and Teletrac, in addition to
assets related to ACOM and ART.
18. Related Party Transactions
The Company provided technical, administrative, and management services to the
45% minority member of ACOM, Grupo, and to other related organizations. The
Company was reimbursed for these services at rates which approximate cost. The
reimbursement of these costs is used to offset operating and sales, general and
administrative expenses. The total reimbursement for these services on a net
equity basis was approximately $456,000, $9,000, and $19,000 in 1996, 1995, and
1994, respectively. In 1996, related parties provided technical, administrative
and management services to ACOM at rates which approximate cost. The total
charge for these services is included in operating and sales, general and
administrative expenses and was approximately $378,000 on a net equity basis in
1996.
Accounts receivable at December 31, 1996 and 1995 includes approximately
$517,000 and $252,000, respectively, for balances due from related parties for
technical, administrative, and management services and other expenses. Accounts
payable at December 31, 1996 includes approximately $576,000 for balances due to
related parties for technical, administrative, and management services and other
expenses.
F-35
<PAGE>
The Associated Group, Inc. and Subsidiaries
Notes to Financial Statements (continued)
19. Quarterly Data (Unaudited)
<TABLE>
<CAPTION>
Quarter
----------------------------------------------------------------------
First Second Third Fourth
----------------- ---------------- ----------------- -----------------
(In Thousands, Except Per Share Data)
<S> <C> <C> <C> <C>
1996
Revenues $ 4,436 $ 5,089 $ 5,122 $ 5,388
Operating loss (5,107) (5,097) (8,927) (13,655)
Net loss (1,589) (3,213) (4,966) (7,428)
Net loss per common share $ (.08) $ (.17) $ (.26) $ (.41)
1995
Revenues $ 1,201 $ 1,083 $ 999 $ 989
Operating loss (3,321) (3,369) (4,174) (5,802)
Net loss (2,507) (2,654) (3,339) (4,713)
Net loss per common share $ (.13) $ (.14) $ (.18) $ (.25)
</TABLE>
F-36
<PAGE>
The Associated Group, Inc. and Subsidiaries
Schedule II--Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- ---------------------------------------- -------------- ---------------------------- -------------- ---------------
Additions
-----------------------------
Balance at Charged to Charged to Balance at
Beginning Costs and Other End of
Description of Period Expenses Accounts Deductions Period
- ---------------------------------------- ----------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996:
Deducted from assets:
Allowance for doubtful accounts
(deducted from accounts
receivable) $ 183 $ 1,275 $ 2,730 (A) $ 1,833 (B) $ 2,355
============== =============== ============== ============== ===============
Inventory market valuation reserve
(deducted from inventory) $ 1,582 $ - $ - $ 12 (C) $ 1,570
============== =============== ============== ============== ===============
Deferred tax asset valuation
allowance (deducted from deferred
taxes) $ - $ 187 $ 6,325 (A) $ - $ 6,512
============== =============== ============== ============== ===============
Year ended December 31, 1995:
Deducted from assets:
Allowance for doubtful accounts
(deducted from accounts
receivable) $ 92 $ 114 $ - $ 23 (B) $ 183
============== =============== ============== ============== ===============
Inventory market valuation
reserve (deducted from
inventory) $ 1,573 $ 0 $ - $ 51 (C) $ 1,582
============== =============== ============== ============== ===============
Year ended December 31, 1994:
Deducted from assets:
Allowance for doubtful accounts
(deducted from accounts
receivable) $ 263 $ 40 $ - $ 211 (B) $ 92
============== =============== ============== ============== ===============
Inventory market valuation
reserve (deducted from
inventory) $ 1,573 $ - $ - $ - $ 1,573
============== =============== ============== ============== ===============
Investment valuation reserve $ 461 $ - $ - $ 461 (D) $ -
============== =============== ============== ============== ===============
</TABLE>
(A)--Consolidation of Grupo Portatel, S.A. de C.V.
(B)--Accounts written off, net of recoveries.
(C)--Inventory written off or sold below cost.
(D)--Transferred to net unrealized gain on marketable equity securities.
F-37
<PAGE>
PNCBANK
As of November 14, 1996
Associated Investments, Inc.
300 Delaware Avenue, Suite 564
Wilmington, Delaware 19801-1612
Attention: Mr. Keith C. Hartman, Comptroller
Re: Amendment and Restatement of $100,000,000 Secured, Discretionary Line
of Credit Letter Agreement
Ladies and Gentlemen:
Reference is hereby made to that certain letter agreement dated February 15,
1995, between PNC Bank, National Association (the "Bank") and Associated
Investments, Inc., a Delaware corporation (the "Borrower"), as previously
amended (the "Original Letter Agreement"), pursuant to which the Bank made
available to the Borrower a discretionary line of credit in the principal amount
of $100,000,000. The Borrower and the Bank have agreed, and by execution of this
letter do agree, to amend and restate the Original Letter Agreement in its
entirety to read as follows:
The Bank has approved a $100,000,000 discretionary line of credit to the
Borrower. The line of credit may be used by the Borrower to fund its general
corporate purposes and to fund intercompany loans by the Borrower to (i) its
parent, The Associated Group, Inc. (the "Parent"), (ii) any direct and indirect
subsidiary of the Parent, and (iii) partnerships of which the Borrower, the
Parent or any direct or indirect subsidiary of the Parent is a partner. Advances
made under the line of credit, if any, shall be due and payable on demand and,
in the absence of demand by the Bank, on the last day of the applicable interest
period; provided, however, that Bank shall provide the Borrower four (4)
business days prior written notice of demand, except in the event of (i)
commencement of a bankruptcy, insolvency or similar proceeding by or against
Borrower or against the Parent, or (ii) acceleration of any other indebtedness
of Borrower for borrowed money, in which event no such notice is required. All
advances made hereunder will bear interest and be subject to the terms and
conditions set forth herein and in an amended and restated discretionary line of
credit demand note (the "Restated Note"), in form and content satisfactory
<PAGE>
Associated Investments, Inc.
Page 2
to the Bank. The line of credit will be reviewed by the Bank from time to time
and in any event prior to its expiration on November 30, 1997 (the "Expiration
Date") to determine whether it should be continued or renewed.
This is not a committed line of credit. The Borrower acknowledges and agrees
that advances made under this line of credit, if any, shall be made at the sole
discretion of the Bank. The Bank may decline to make advances under the line,
terminate the line or demand repayment of all outstanding obligations
thereunder, at any time and for any reason without prior notice to the Borrower
except as set forth above in the case of demand. This letter sets forth certain
terms and conditions solely to assure that the parties understand each other's
expectations and to assist the Bank in evaluating the status, on an ongoing
basis, of the line of credit.
In the event the Bank, in its sole discretion, makes an advance(s) hereunder,
then as collateral security therefore the Borrower must cause an amended and
restated pledge agreement (the "Restated Pledge Agreement"), in form and content
satisfactory to the Bank, to be executed and delivered to the Bank, thereby
granting to the Bank a first priority perfected lien in the shares of
Tele-Communications, Inc. Class A common stock (or such other publically traded
stock acceptable to the Bank in its sole discretion) owned by the Borrower (the
"Collateral"), having a market value equal to at least 154% of the amount of
such advance(s) made hereunder. In addition to the execution and delivery of the
Restated Pledge Agreement, Borrower shall also deliver to PNC Bank Delaware, as
bailee for the Bank, the original share certificates evidencing the Collateral,
together with stock powers for each such share certificate (the "Stock Powers"),
duly executed in blank.
Without limiting in any way the discretionary nature of this facility, the
Bank's willingness to consider making advances under this facility is subject to
Borrower's ongoing agreement to:
(a) furnish the Bank with audited annual financial statements of the Parent
within 90 days after the end of the Parent's fiscal year, unaudited quarterly
financial statements of the Parent within 45 days after the end of each fiscal
quarter and such other financial information as the Bank may reasonably request
from time to time, promptly after receipt of each request;
(b) furnish the Bank with Borrower's unaudited quarterly financial statements,
within 45 days after the end of each fiscal quarter;
(c) notify the Bank as soon as practicable following the occurrence of any
default (or event which, with the passage of time or giving of notice or both,
would become a default) under any direct or contingent obligation of Borrower;
<PAGE>
Associated Investments, Inc.
Page 3
(d) upon the Bank's request, promptly furnish copies of any covenant compliance
certificates prepared in connection with any such obligations; and
(e) upon the Bank's request, promptly furnish the Bank with a report detailing
the market value of the Collateral as of the date of the report.
This letter is governed by the laws of the Commonwealth of Pennsylvania.
Enclosed for execution by Borrower is the Restated Note evidencing this
facility, together with the Restated Pledge Agreement, the Stock Powers and Form
U-1. Please indicate the Borrower's agreement to the terms and conditions of
this letter by having the enclosed copy of this letter executed where indicated
and returning it to me. Prior to the making of any advance hereunder, the
Borrower must (a) deliver to the Bank a duly executed original of (i) the
Restated Note, (ii) the Restated Pledge Agreement, (iii) Form U-1, (iv) a
certified copy of resolutions adopted by Borrower's Board of Directors
authorizing the transactions contemplated by this letter, (v) an incumbency
certificate, (vi) a certified copy of Borrower's Articles of Incorporation and
By-laws, and (vii) an opinion from Borrower's counsel, each document in form and
content satisfactory to the Bank, and (b) deliver to PNC Bank Delaware, as
bailee for the Bank, the Stock Powers and the original share certificates
evidencing the Collateral having a market value equal to at least 154% of the
amount of such requested advance.
We are pleased to offer support for your banking needs and look forward to
working with you.
Very truly yours,
PNC BANK, NATIONAL ASSOCIATION
By: /s/ Thomas A. Coates
--------------------------------
Thomas A. Coates
Vice President
Communications Banking Division
<PAGE>
Associated Investments, Inc.
Page 4
With the intent to be legally bound, the above terms are hereby agreed to and
accepted as of this 14th day of November, 1996.
[CORPORATE SEAL] ASSOCIATED INVESTMENTS, INC.
Attest:___________________________ By: /s/ Keith C. Hartman
Print Name: ______________________ Print Name: Keith C. Hartman
Title: ____________________________ Title: Assistant Secretary
<PAGE>
PCNBANK
Amended and Restated Discretionary Line of Credit Demand Note
(As-Offered Rate)
$100,000,000.00 As of November 15, 1996
FOR VALUE RECEIVED, ASSOCIATED INVESTMENTS, INC., a Delaware corporation (the
"Borrower"), with an address at 300 Delaware Avenue, Suite 564, Wilmington,
Delaware 19801, promises to pay to the order of PNC BANK, NATIONAL ASSOCIATION
(the "Bank"), in lawful money of the United States of America in immediately
available funds at its offices located at 1600 Market Street, Philadelphia,
Pennsylvania 19103, or at such other location as the Bank may designate from
time to time, the principal sum of ONE HUNDRED MILLION AND 00/100 DOLLARS
($100,000,000.00) (the "Facility") or such lesser amount as may be advanced to
or for the benefit of the Borrower hereunder, together with interest accruing on
the outstanding principal balance from the date hereof, as provided below:
1. Rate of Interest. Each advance outstanding under this Note will bear interest
at a rate per annum as offered by the Bank in its sole discretion for the
interest period requested, each as agreed upon in writing between the Borrower
and the Bank. Interest will be calculated on the basis of a year of 360 days for
the actual number of days in each interest period. In no event will the rate of
interest hereunder exceed the maximum rate allowed by law.
2. Discretionary Advances. THIS IS NOT A COMMITTED LINE OF CREDIT AND ADVANCES
UNDER THIS NOTE, IF ANY, SHALL BE MADE BY THE BANK IN ITS SOLE DISCRETION.
NOTHING CONTAINED IN THIS NOTE OR ANY OTHER LOAN DOCUMENTS SHALL BE CONSTRUED TO
OBLIGATE THE BANK TO MAKE ANY ADVANCES. THE BANK SHALL HAVE THE RIGHT TO REFUSE
TO MAKE ANY ADVANCES AT ANY TIME WITHOUT PRIOR NOTICE TO THE BORROWER. The
Borrower may request advances, repay and request additional advances hereunder,
subject to the terms and conditions of this Note and the Loan Documents (as
defined herein). In no event shall the aggregate unpaid principal amount of
advances under this Note exceed the face amount of this Note.
3. Payment Terms. The outstanding principal amount of each advance shall be
payable on the last day of the applicable interest period for such advance and
ON DEMAND; provided, however, that Bank shall provide the Borrower four (4)
business days prior written notice of demand, except in the event of (i)
commencement of a bankruptcy, insolvency or similar proceeding by or against
Borrower or against The Associated Group, Inc. (Borrower's parent), or (ii)
acceleration of any other indebtedness for borrowed money of Borrower, in which
event no such notice is required and Bank may make immediate demand for
repayment hereunder. Accrued interest will be due and payable in the absence of
demand on the last day of the applicable interest period, and if such interest
period exceeds three (3) months, also on the last day of each three (3) month
period following the date of the advance. THE BORROWER ACKNOWLEDGES AND AGREES
THAT THE BANK MAY AT ANY TIME AND IN ITS SOLE DISCRETION DEMAND PAYMENT OF ALL
AMOUNTS OUTSTANDING UNDER THIS NOTE SUBJECT TO THE PRIOR NOTIFICATION PROVISIONS
SET FORTH IN THE FIRST SENTENCE OF THIS PARAGRAPH.
Any payment of principal or interest under this Note must be received by the
Bank by 2:00 p.m. prevailing Eastern Time on a business day in order to be
credited on such date. If any payment under this Note shall become due on a
Saturday, Sunday or public holiday under the laws of the Commonwealth of
Pennsylvania, such payment shall be made on the next succeeding business day and
such extension of time shall be included in computing interest in connection
with such payment. The Borrower hereby authorizes the Bank to charge the
Borrower's deposit account at the Bank for any payment when due hereunder.
Payments received will be applied to charges, fees and expenses (including
attorneys' fees), accrued interest and principal in any order the Bank may
choose, in its sole discretion.
4. Default Rate. From and after four (4) business days following written notice
of demand, this Note shall bear interest at a rate per annum (based on a year of
360 days and actual days elapsed) equal to two (2) percentage points above the
Prime Rate but not more than the maximum rate allowed by law (the "Default
Rate"). As used herein, "Prime Rate" shall mean the rate publicly announced by
the Bank from time to time as its prime rate. The Prime Rate is determined from
time to time by the Bank as a means of pricing some loans to its borrowers. The
Prime Rate is not tied to any external rate of interest or index, and does not
necessarily reflect the lowest rate of interest actually charged by the Bank to
any particular class or category of customers. If and when the Prime Rate
changes, the rate of interest on this Note will change automatically without
notice to the Borrower, effective on the date of any such change. The Default
Rate shall continue to apply whether or not judgment shall be entered on this
Note.
5. Prepayment. The Borrower shall have the right to prepay at any time and from
time to time, in whole or in part, without penalty, any advance hereunder which
is accruing interest at a rate based upon a floating rate or at a fixed rate
with an interest period of seven (7) days or less. If the Borrower prepays all
or any part of any advance which is accruing interest at a fixed rate with an
interest period of more than seven (7) days on other than the last day of the
applicable interest period, the Borrower shall also pay to the Bank, on demand
therefor, the Cost of Prepayment. "Cost of Prepayment" means an amount equal to
the present value, if positive, of the product of (a) the difference between (i)
the yield, on the beginning date of the applicable interest period, of a U.S.
Treasury obligation with a maturity similar to the applicable interest period
minus (ii) the yield, on the prepayment date, of a U.S. Treasury obligation with
a maturity similar to the remaining maturity of the applicable interest period,
and (b) the principal amount to be prepaid, and (c) the number of years,
including fractional years from the prepayment date to the end of the applicable
interest period. The yield on any U.S. Treasury obligation shall be determined
by reference to Federal Reserve Statistical Release H.15(519) "Selected Interest
Rates". For purposes of making present value calculations, the yield to maturity
of a similar maturity U.S. Treasury obligation on the prepayment date shall be
deemed the discount rate. The Cost of Prepayment shall also apply to any
payments made after acceleration of the maturity of this Note.
6. Other Loan Documents. This Note is issued in connection with (i) the Letter
Agreement between the Bank and the Borrower, dated as of November 14, 1996, (ii)
the Amended and Restated Pledge Agreement executed by the Borrower in favor of
the Bank, dated as of even date herewith, and (iii) the other documents referred
to in the Letter Agreement, the terms of which are incorporated herein by
reference (as such documents may be amended, modified, renewed or restated from
time to time, the "Loan Documents"), and is secured by the property described in
the Loan Documents.
7. Advance Procedures. A request for advance made by telephone must be received
by the Bank prior to 2:00 p.m., prevailing Eastern Time for same-day advances,
and must be promptly confirmed in writing by such method as the Bank may
require. The Borrower authorizes the Bank to accept telephonic requests for
advances, and the Bank shall be entitled to rely upon the authority of any
person providing such instructions. The Borrower hereby indemnifies and holds
the Bank harmless from and against any and all damages, losses, liabilities,
costs and expenses (including reasonable attorneys' fees and expenses) which may
arise or be created by the acceptance of such telephone requests or making such
advances. The Bank will enter on its books and records, which entry when made
will be presumed correct, the date and amount of each advance, the interest rate
and interest period for each advance, as well as the date and amount of each
payment made by the Borrower.
1
<PAGE>
8. Yield Protection. The Borrower shall pay to the Bank, on written demand
therefor, together with the written evidence of the justification therefor, all
direct costs incurred, losses suffered or payments made by Bank by reason of any
change in law or regulation or its interpretation imposing any reserve, deposit,
allocation of capital, or similar requirement (including without limitation,
Regulation D of the Board of Governors of the Federal Reserve System) on the
Bank, its holding company or any of their respective assets. The Bank's
determination of an amount payable under this paragraph shall, in the absence of
manifest error, be conclusive and shall be payable on demand.
9. Right of Setoff. In addition to all liens upon and rights of setoff against
the money, securities or other property of the Borrower given to the Bank by
law, the Bank shall have, with respect to the Borrower's obligations to the Bank
under this Note and to the extent permitted by law, a contractual possessory
security interest in and a contractual right of setoff against, and the Borrower
hereby assigns, conveys, delivers, pledges and transfers to the Bank all of the
Borrower's right, title and interest in and to, all deposits, moneys, securities
and other property of the Borrower now or hereafter in the possession of or on
deposit with, or in transit to, the Bank whether held in a general or special
account or deposit, whether held jointly with someone else, or whether held for
safekeeping or otherwise, excluding, however, (a) all IRA, Keogh, and trust
accounts, and (b) any of Borrower's custody accounts with PNC Bank Delaware
(other than the custody account containing the collateral pledged to the Bank as
security for this Note). Every such security interest and right of setoff may be
exercised without demand upon or notice to the Borrower. Every such right of
setoff shall be deemed to have been exercised hereunder without any action of
the Bank, although the Bank may enter such setoff on its books and records at a
later time.
10. Miscellaneous. No delay or omission of the Bank to exercise any right or
power arising hereunder shall impair any such right or power or be considered to
be a waiver of any such right or power, nor shall the Bank's action or inaction
impair any such right or power. The Borrower agrees to pay on demand, to the
extent permitted by law, all costs and expenses incurred by the Bank in the
enforcement of its rights in this Note and in any security therefor, including
without limitation reasonable fees and expenses of the Bank's counsel. If any
provision of this Note is found to be invalid by a court, all the other
provisions of this Note will remain in full force and effect. The Borrower and
all other makers and indorsers of this Note hereby forever waive presentment,
protest, notice of dishonor and notice of non-payment. The Borrower also waives
all defenses based on suretyship or impairment of collateral. This Note shall
bind the Borrower and its heirs, executors, administrators, successors and
assigns, and the benefits hereof shall inure to the benefit of the Bank and its
successors and assigns.
This Note has been delivered to and accepted by the Bank and will be deemed to
be made in the Commonwealth of Pennsylvania. THIS NOTE WILL BE INTERPRETED AND
THE RIGHTS AND LIABILITIES OF THE BANK AND THE BORROWER DETERMINED IN ACCORDANCE
WITH THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA, EXCLUDING ITS CONFLICT OF
LAWS RULES. The Borrower hereby irrevocably consents to the exclusive
jurisdiction of any state or federal court for the county or judicial district
where the Bank's office indicated above is located, and consents that all
service of process be sent by nationally recognized overnight courier service
directed to the Borrower at the Borrower's address set forth herein and service
so made will be deemed to be completed on the business day after deposit with
such courier; provided that nothing contained in this Note will prevent the Bank
from bringing any action, enforcing any award or judgment or exercising any
rights against the Borrower individually, against any security or against any
property of the Borrower within any other county, state or other foreign or
domestic jurisdiction. The Borrower acknowledges and agrees that the venue
provided above is the most convenient forum for both the Bank and the Borrower.
The Borrower waives any objection to venue and any objection based on a more
convenient forum in any action instituted under this Note.
11. Amendment and Restatement. This Note amends and restates, and is in
substitution for, that certain Discretionary Line of Credit Note in the
principal amount of $100,000,000, payable to the order of the Bank and dated
February 15, 1995 (the "Original Note"), and does not constitute a novation of
the Original Note.
12. Waiver of Jury Trial. THE BORROWER IRREVOCABLY WAIVES ANY AND ALL RIGHTS THE
BORROWER MAY HAVE TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR CLAIM OF ANY
NATURE RELATING TO THIS NOTE, ANY DOCUMENTS EXECUTED IN CONNECTION WITH THIS
NOTE OR ANY TRANSACTION CONTEMPLATED IN ANY OF SUCH DOCUMENTS. THE BORROWER
ACKNOWLEDGES THAT THE FOREGOING WAIVER IS KNOWING AND VOLUNTARY.
The Borrower acknowledges that it has read and understood all the provisions of
this Note, including the waiver of jury trial, and has been advised by counsel
as necessary or appropriate.
WITNESS the due execution hereof as a document under seal, as of the date first
written above, with the intent to be legally bound hereby.
[CORPORATE SEAL] ASSOCIATED INVESTMENTS, INC.
Attest:___________________________ By: /s/ Keith C. Hartman
Print Name:_______________________ Print Name: Keith C. Hartman
Title:____________________________ Title: Assistant Secretary
2
PNCBANK
Amended and Restated Pledge Agreement
(Stocks, Bonds and Commercial Paper)
THIS AMENDED AND RESTATED PLEDGE AGREEMENT, dated as of this 15th day of
November, 1996, is made by ASSOCIATED INVESTMENTS, INC., a Delaware corporation
(the "Pledgor"), with an address at 300 Delaware Avenue, Suite 564, Wilmington,
DE 19801, in favor of PNC BANK, NATIONAL ASSOCIATION (the "Secured Party"), with
an address at 1600 Market Street, Philadelphia, Pennsylvania 19103.
1. Pledge. In order to induce the Secured Party to extend the Obligations
(as defined below), the Pledgor hereby grants a security interest in and pledges
to the Secured Party all of the Pledgor's right, title and interest in and to
the collateral described in Exhibit A attached hereto and made a part hereof,
whether now owned or hereafter acquired, together with all additions,
substitutions, replacements and proceeds and all income, interest, dividends and
other distributions thereon (the "Collateral"). If the Collateral includes
certificated securities, documents or instruments, such certificates are
herewith delivered to the Secured Party accompanied by duly executed blank stock
or bond powers or assignments as applicable. The Pledgor hereby authorizes the
transfer of possession of all certificates, instruments, documents and other
evidence of the Collateral to the Secured Party.
2. Obligations Secured. The Collateral secures payment to the Secured Party
of all loans, advances, debts, liabilities, obligations, covenants and duties
owing to the Secured Party from the Pledgor, of any kind or nature, present or
future, whether or not evidenced by any note, guaranty or other instrument,
whether arising under any agreement, instrument or document, whether or not for
the payment of money, whether arising by reason of an extension of credit,
opening of a letter of credit, loan or guarantee or in any other manner, whether
arising out of overdrafts on deposit or other accounts or electronic funds
transfers (whether through automatic clearing houses or otherwise) or out of the
Secured Party's non- receipt of or inability to collect funds or otherwise not
being made whole in connection with depository transfer check or other similar
arrangements, whether direct or indirect (including those acquired by assignment
or participation), absolute or contingent, joint or several, due or to become
due, now existing or hereafter arising, and any amendments, extensions, renewals
or increases, and all costs and expenses of the Secured Party incurred in the
documentation, negotiation, modification, enforcement, collection or otherwise
in connection with any of the foregoing, including reasonable attorneys' fees
and expenses (collectively, the "Obligations").
3. Representations and Warranties. The Pledgor represents and warrants to
the Secured Party as follows:
3.1. There are no restrictions on the pledge or transfer of any of the
Collateral, other than restrictions referenced on the face of any certificates
evidencing the Collateral.
3.2. The Pledgor is the legal owner of the Collateral, which is
registered in the name of the Pledgor, the Custodian (as hereinafter defined) or
a nominee.
3.3. The Collateral is free and clear of any security interests,
pledges, liens, encumbrances, charges, agreements, claims or other arrangements
or restrictions of any kind, except as referenced in Section 3.1 above; and the
Pledgor will not incur, create, assume or permit to exist any pledge, security
interest, lien, charge or other encumbrance of any nature whatsoever on any of
the Collateral or assign, pledge or otherwise encumber any right to receive
income from the Collateral.
3.4. The Pledgor has the right to transfer the Collateral free of any
encumbrances and the Pledgor will defend the Pledgor's title to the Collateral
against the claims of all persons, and any registration with, or consent or
approval of, or other action by, any federal, state or other governmental
authority or regulatory body which was or is necessary for the validity of the
pledge of and grant of the security interest in the Collateral has been
obtained.
3.5. The pledge of and grant of the security interest in the
Collateral is effective to vest in the Secured Party a valid and perfected first
priority security interest, superior to the rights of any other person, in and
to the Collateral as set forth herein.
4. Covenants.
4.1. Unless otherwise agreed in writing between the Pledgor and the
Secured Party, the Pledgor agrees to maintain at all times Collateral having a
minimum market value equal to at least one hundred fifty-four percent (154%) of
the outstanding amount of the Obligations, and if such minimum market value is
not maintained at any time the Pledgor agrees to either (x) provide additional
shares of Tele-Communications, Inc. Class A common stock (or such other
publically traded stock acceptable to the Bank in its sole discretion) to the
Secured Party, or (y) repay a portion of the Obligations, in each case within
forty-eight (48) hours of the Secured Party's request and in an amount necessary
to cause the market value of the Collateral to be equal to at least one hundred
fifty-four percent (154%) of the outstanding amount of the Obligations. In
connection with the delivery to the Secured Party of additional shares pursuant
to this Section (which additional shares will be subject to this Pledge
Agreement and constitute a part of the Collateral), Pledgor agrees to also
execute and deliver to the Secured Party an Amendment to Exhibit A of this
Pledge Agreement describing such additional shares and duly executed blank stock
powers, each in form and content satisfactory to the Secured Party.
4.2. If all or part of the Collateral constitutes "margin stock"
within the meaning of Regulation U of the Federal Reserve Board, the Pledgor
agrees to execute and deliver Form U-1 to the Secured Party and, unless
otherwise agreed in writing between the Pledgor and the Secured Party, no part
of the proceeds of the Obligations may be used to purchase or carry margin
stock.
5. Default.
5.1. If any of the following occur (each an "Event of Default"): (i)
any Event of Default (as defined in any of the Obligations), (ii) any default
under any of the Obligations that does not have a defined set of "Events of
Default" and the lapse of any notice or cure period provided in such Obligations
with respect to such default, (iii) demand by the Secured Party under any of the
Obligations that have a demand feature, (iv) the failure by the Pledgor to
perform any of its obligations hereunder, (v) the falsity, inaccuracy or
material breach by the Pledgor of any written warranty, representation or
statement made or furnished to the Secured Party by or on behalf of the Pledgor,
(vi) the failure of the Secured Party to have a perfected first priority
security interest in the Collateral, or (vii) the termination or breach of the
notification and consent agreement referred to in Section 8 below, then the
Secured Party is authorized in its discretion to declare any or all of the
Obligations to be immediately due and payable without demand or notice, which
are expressly waived, and may exercise any one or more of the rights and
remedies granted pursuant to this Pledge Agreement or given to a secured party
under the Uniform Commercial Code of the applicable state, as it may be amended
from time to time, or otherwise at law or in equity, including the right to sell
or otherwise dispose of the Collateral.
5.2. (a) At any bona fide public sale the Secured Party shall be free
to purchase all or any part of the Collateral. Any such sale may be on cash or
credit. The Secured Party shall be authorized at any such sale (if it deems it
advisable to do so) to restrict the prospective bidders or purchasers to persons
who will represent and agree that they are purchasing the Collateral for their
own account in compliance with Regulation D of the
<PAGE>
Securities Act of 1933 or any other applicable exemption available under such
Act. The Secured Party will not be obligated to make any sale if it determines
not to do so, regardless of the fact that notice of the sale may have been
given. The Secured Party may adjourn any sale and sell at the time and place to
which the sale is adjourned. If the Collateral is customarily sold on a
recognized market and threatens to decline speedily in value, the Secured Party
may sell such Collateral at any time without giving prior notice to the Pledgor.
Whenever notice is otherwise required by law to be sent by the Secured Party to
the Pledgor of any sale or other disposition of the Collateral, five (5) days
written notice sent to the Pledgor at the notice address specified below will be
reasonable.
(b) The Pledgor recognizes that the Secured Party may be unable to
effect or cause to be effected a public sale of the Collateral by reason of
certain prohibitions contained in the Securities Act of 1933, as amended (the
"Act"), so that the Secured Party may be compelled to resort to one or more
private sales to a restricted group of purchasers who will be obligated to
agree, among other things, to acquire the Collateral for their own account, for
investment and without a view to the distribution or resale thereof. The Pledgor
understands that private sales so made may be at prices and on other terms less
favorable to the seller than if the Collateral were sold at public sales, and
agrees that the Secured Party has no obligation to delay or agree to delay the
sale of any of the Collateral for the period of time necessary to permit the
issuer of the securities which are part of the Collateral (even if the issuer
would agree), to register such securities for sale under the Act. The Pledgor
agrees that private sales made under the foregoing circumstances shall be deemed
to have been made in a commercially reasonable manner.
5.3. The net proceeds arising from the disposition of the Collateral after
deducting reasonable expenses incurred by the Secured Party will be applied to
the Obligations in the order determined by the Secured Party. If any excess
remains after the discharge of all of the Obligations, the same will be paid to
the Pledgor. If after exhausting all of the Collateral there is a deficiency,
the Pledgor will be liable therefor to the Secured Party; provided, however,
that nothing contained herein will obligate the Secured Party to proceed against
any other party obligated under the Obligations or against any other collateral
for the Obligations prior to proceeding against the Collateral.
5.4. If any demand is made at any time upon the Secured Party for the
repayment or recovery of any amount received by it in payment or on account of
any of the Obligations from the disposition of the Collateral and if the Secured
Party repays all or any part of such amount, the Pledgor will be and remain
liable for the amounts so repaid or recovered to the same extent as if never
originally received by the Secured Party.
6. Voting Rights and Transfer. Prior to the occurrence of an Event of
Default, the Pledgor will have the right to exercise all voting rights with
respect to the Collateral. At any time after the occurrence of an Event of
Default, the Secured Party may transfer any or all of the Collateral into its
name or that of its nominee and may exercise all voting rights with respect to
the Collateral, but no such transfer shall constitute a taking of such
Collateral in satisfaction of any or all of the Obligations unless the Secured
Party expressly so indicates by written notice to the Pledgor.
7. Dividends, Interest and Premiums. The Pledgor will have the right to
receive all cash dividends, interest and premiums declared and paid on the
Collateral prior to the occurrence of any Event of Default. In the event any
additional shares are issued to the Pledgor as a stock dividend or in lieu of
interest on any of the Collateral, as a result of any split of any of the
Collateral, by reclassification or otherwise, any certificates evidencing any
such additional shares will be immediately delivered to the Secured Party and
such shares will be subject to this Pledge Agreement and a part of the
Collateral to the same extent as the original Collateral. At any time after the
occurrence of an Event of Default, the Secured Party shall be entitled to
receive all cash or stock dividends, interest and premiums declared or paid on
the Collateral, all of which shall be subject to the Secured Party's rights
under Section 5 above.
8. Uncertificated Securities. If the Collateral includes uncertificated
securities, then the Pledgor agrees to cause the financial intermediary on whose
books and records the ownership interest of the Pledgor in the Collateral
appears (the "Custodian") to execute and deliver a notification and consent
agreement satisfactory to the Secured Party in order to perfect and protect the
Secured Party's security interest in the Collateral.
9. Further Assurances. At any time and from time to time, upon demand of
the Secured Party, the Pledgor will give, execute, file and record any notice,
financing statement, continuation statement, instrument, document or agreement
that the Secured Party may consider necessary or desirable to create, preserve,
continue, perfect or validate any security interest granted hereunder or to
enable the Secured Party to exercise or enforce its rights hereunder with
respect to such security interest. Without limiting the generality of the
foregoing, the Pledgor hereby irrevocably appoints the Secured Party as the
Pledgor's attorney-in-fact to do all acts and things in the Pledgor's name that
the Secured Party may deem necessary or desirable. The Secured Party is
authorized to file financing statements, continuation statements and other
documents under the Uniform Commercial Code relating to the Collateral without
the Pledgor's signature, naming the Pledgor as debtor and the Secured Party as
secured party.
10. Notices. All notices, demands, requests, consents, approvals and other
communications required or permitted hereunder must be in writing and will be
effective upon receipt if delivered personally to the Pledgor or the Secured
Party, or if sent by facsimile transmission with confirmation of delivery, or by
nationally recognized overnight courier service, to the address set forth above
or to such other address as either the Pledgor or the Secured Party may give to
the other in writing for such purpose.
11. Preservation of Rights. No delay or omission on the Secured Party's
part to exercise any right or power arising hereunder will impair any such right
or power or be considered a waiver of any such right or power, nor will the
Secured Party's action or inaction impair any such right or power. The Secured
Party's rights and remedies hereunder are cumulative and not exclusive of any
other rights or remedies which the Secured Party may have under other
agreements, at law or in equity.
12. Illegality. In case any one or more of the provisions contained in
this Pledge Agreement should be invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
contained herein shall not in any way be affected or impaired thereby.
13. Changes in Writing. No modification, amendment or waiver of any
provision of this Pledge Agreement nor consent to any departure by the Pledgor
therefrom will be effective unless made in a writing signed by the Secured
Party, and then such waiver or consent shall be effective only in the specific
instance and for the purpose for which given. No notice to or demand on the
Pledgor in any case will entitle the Pledgor to any other or further notice or
demand in the same, similar or other circumstance.
14. Entire Agreement. This Pledge Agreement (including the documents and
instruments referred to herein) constitutes the entire agreement and supersedes
all other prior agreements and understandings, both written and oral, between
the Pledgor and the Secured Party with respect to the subject matter hereof.
15. Successors and Assigns. This Pledge Agreement will be binding upon and
inure to the benefit of the Pledgor and the Secured Party and their respective
heirs, executors, administrators, successors and assigns; provided, however,
that the Pledgor may not assign this Pledge Agreement in whole or in part
without the Secured Party's prior written consent and the Secured Party at any
time may assign this Pledge Agreement in whole or in part.
16. Interpretation. In this Pledge Agreement, unless the Secured
Party and the Pledgor otherwise agree in writing, the singular includes the
plural and the plural the singular; references to statutes are to be construed
as including all statutory provisions consolidating, amending or replacing
the statute referred to; the word "or" shall be deemed to include "and/or",
the words "including", "includes" and "include" shall be deemed to be
followed by the words "without limitation." Section headings in this Pledge
Agreement are included for convenience of reference only and shall not
constitute a part of this Pledge Agreement for any other purpose. If this
2
<PAGE>
Pledge Agreement is executed by more than one party as Pledgor, the obligations
of such persons or entities will be joint and several.
17. Indemnity. The Pledgor agrees to indemnify each of the Secured Party,
its directors, officers and employees and each legal entity, if any, who
controls the Secured Party (the "Indemnified Parties") and to hold each
Indemnified Party harmless from and against any and all claims, damages, losses,
liabilities and expenses (including all reasonable fees of counsel with whom any
Indemnified Party may consult and all reasonable expenses of litigation or
preparation therefor) which any Indemnified Party may incur or which may be
asserted against any Indemnified Party as a result of the execution of or
performance under this Pledge Agreement; provided, however, that the foregoing
indemnity agreement shall not apply to claims, damages, losses, liabilities and
expenses solely attributable to an Indemnified Party's gross negligence or
willful misconduct. The indemnity agreement contained in this Section shall
survive the termination of this Pledge Agreement. The Pledgor may participate at
its expense in the defense of any such claim.
18. Governing Law and Jurisdiction. This Pledge Agreement has been
delivered to and accepted by the Secured Party and will be deemed to be made in
the State where the Secured Party's office indicated above is located. THIS
PLEDGE AGREEMENT WILL BE INTERPRETED AND THE RIGHTS AND LIABILITIES OF THE
PLEDGOR AND THE SECURED PARTY DETERMINED IN ACCORDANCE WITH THE LAWS OF THE
STATE WHERE THE SECURED PARTY'S OFFICE INDICATED ABOVE IS LOCATED, EXCLUDING ITS
CONFLICT OF LAWS RULES. The Pledgor hereby irrevocably consents to the exclusive
jurisdiction of any state or federal court for the county or judicial district
where the Secured Party's office indicated above is located, and consents that
all service of process be sent by nationally recognized overnight courier
service directed to the Pledgor at the Pledgor's address set forth herein and
service so made will be deemed to be completed on the business day after deposit
with such courier; provided that nothing contained in this Pledge Agreement will
prevent the Secured Party from bringing any action, enforcing any award or
judgment or exercising any rights against the Pledgor individually, against any
security or against any property of the Pledgor within any other county, state
or other foreign or domestic jurisdiction. The Pledgor acknowledges and agrees
that the venue provided above is the most convenient forum for both the Secured
Party and the Pledgor. The Pledgor waives any objection to venue and any
objection based on a more convenient forum in any action instituted under this
Pledge Agreement.
19. Amendment and Restatement. This Pledge Agreement amends and restates,
and is in substitution for, that certain Pledge Agreement dated as of February
15, 1995, executed by the Pledgor in favor of the Secured Party (the "Original
Pledge Agreement"). However, nothing herein is intended or should be construed
to impair the lien priority granted to the Bank under the Original Pledge
Agreement.
20. WAIVER OF JURY TRIAL. THE PLEDGOR IRREVOCABLY WAIVES ANY AND ALL RIGHT
THE PLEDGOR MAY HAVE TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR CLAIM OF
ANY NATURE RELATING TO THIS PLEDGE AGREEMENT, ANY DOCUMENTS EXECUTED IN
CONNECTION WITH THIS PLEDGE AGREEMENT OR ANY TRANSACTION CONTEMPLATED IN ANY OF
SUCH DOCUMENTS. THE PLEDGOR ACKNOWLEDGES THAT THE FOREGOING WAIVER IS KNOWING
AND VOLUNTARY.
The Pledgor acknowledges that it has read and understood all the provisions of
this Pledge Agreement, including the waiver of jury trial, and has been advised
by counsel as necessary or appropriate.
WITNESS the due execution hereof as a document under seal, as of the date first
written above.
[CORPORATE SEAL] ASSOCIATED INVESTMENTS, INC.
Attest:______________________________ By: /s/ Keith C. Hartman
Print Name:__________________________ Print Name: Keith C. Hartman
Title:_______________________________ Title: Assistant Secretary
3
<PAGE>
EXHIBIT A TO AMENDED AND RESTATED PLEDGE AGREEMENT
(CERTIFICATED SECURITIES)
The specific assets listed below are pledged as collateral and are restricted
from trading and withdrawals. The Secured Party's written approval is required
prior to any trading or withdrawals of such assets.
Quantity Description of Securities Certificate Number
- -------- ------------------------- ------------------
2,079,996 Tele-Communications, Inc. TA 08767
Class A Common Stock
500,000 Tele-Communications, Inc. TA 08775
Class A Common Stock
39,988 Tele-Communications, Inc. TA 08800
Class A Common Stock
4
<PAGE>
LOAN AGREEMENT
BETWEEN
ASSOCIATED COMMUNICATIONS, L.L.C.,
as the Borrower,
AND
THE TORONTO-DOMINION BANK,
as the Bank
December 24, 1996
<PAGE>
LOAN AGREEMENT
BETWEEN
ASSOCIATED COMMUNICATIONS, L.L.C. (THE "BORROWER")
AND
THE TORONTO-DOMINION BANK (THE "BANK")
INDEX
Page
----
ARTICLE 1 Definitions............................................... 1
ARTICLE 2 Loans..................................................... 16
Section 2.1 The Loans............................................. 16
Section 2.2 Manner of Borrowing and Disbursement.................. 16
Section 2.3 Interest.............................................. 17
Section 2.4 Fees.................................................. 18
Section 2.5 Mandatory Commitment Reductions....................... 18
Section 2.6 Voluntary Commitment Reductions....................... 19
Section 2.7 Prepayments and Repayments............................ 19
Section 2.8 Note; Loan Accounts................................... 20
Section 2.9 Manner of Payment..................................... 20
Section 2.10 Reimbursement......................................... 21
Section 2.11 Capital Adequacy...................................... 22
ARTICLE 3 Conditions Precedent...................................... 23
Section 3.1 Conditions Precedent to Effectiveness of
Agreement and Initial Advance......................... 23
Section 3.2 Conditions Precedent to Each Advance.................. 25
ARTICLE 4 Representations and Warranties............................ 25
Section 4.1 Representations and Warranties........................ 25
Section 4.2 Survival of Representations and Warranties,
etc................................................... 33
ARTICLE 5 General Covenants......................................... 33
Section 5.1 Preservation of Existence and Similar Matters......... 33
Section 5.2 Business; Compliance with Applicable Law.............. 34
Section 5.3 Maintenance of Properties............................. 34
Section 5.4 Accounting Methods and Financial Records.............. 34
Section 5.5 Insurance............................................. 34
Section 5.6 Payment of Taxes and Claims........................... 35
Section 5.7 Compliance with ERISA................................. 35
<PAGE>
Page
----
Section 5.8 Visits and Inspections................................ 37
Section 5.9 Payment of Indebtedness; Loans........................ 38
Section 5.10 Use of Proceeds....................................... 38
Section 5.11 Indemnity............................................. 38
Section 5.12 Covenants Regarding Formation of Subsidiaries
and Acquisitions; Partnership, Subsidiaries........... 39
Section 5.13 Payment of Wages...................................... 40
Section 5.14 Maintenance of Licenses............................... 40
Section 5.15 Further Assurances.................................... 40
ARTICLE 6 Information Covenants..................................... 41
Section 6.1 Quarterly Financial Statements and
Information........................................... 41
Section 6.2 Annual Financial Statements and Information........... 41
Section 6.3 Performance Certificates.............................. 42
Section 6.4 Copies of Other Reports............................... 42
Section 6.5 Notice of Litigation and Other Matters................ 42
ARTICLE 7 Negative Covenants........................................ 44
Section 7.1 Indebtedness for Money Borrowed of the
Borrower and its Subsidiaries......................... 44
Section 7.2 Limitation on Liens................................... 44
Section 7.3 Amendment and Waiver.................................. 45
Section 7.4 Liquidation, Merger, or Disposition of Assets......... 45
Section 7.5 Limitation on Guaranties.............................. 45
Section 7.6 Investments and Acquisitions.......................... 46
Section 7.7 Restricted Payments and Purchases..................... 47
Section 7.8 Affiliate Transactions................................ 47
Section 7.9 ERISA Liabilities..................................... 47
Section 7.10 Limitation on Upstream Dividends by
Subsidiaries.......................................... 47
ARTICLE 8 Default................................................... 48
Section 8.1 Events of Default..................................... 48
Section 8.2 Remedies.............................................. 51
Section 8.3 Payments Subsequent to Declaration of Event
of Default............................................ 53
ARTICLE 9 Change in Circumstances Affecting LIBOR Advances.......... 54
Section 9.1 LIBOR Basis Determination Inadequate.................. 54
Section 9.2 Illegality............................................ 54
Section 9.3 Increased Costs....................................... 54
Section 9.4 Effect On Other Advances.............................. 56
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<PAGE>
Page
----
ARTICLE 10 Miscellaneous............................................. 56
Section 10.1 Notices............................................... 56
Section 10.2 Expenses.............................................. 57
Section 10.3 Waivers............................................... 58
Section 10.4 Set-Off............................................... 58
Section 10.5 Assignment............................................ 59
Section 10.6 Accounting Principles................................. 61
Section 10.7 Counterparts.......................................... 61
Section 10.8 Governing Law......................................... 61
Section 10.9 Severability.......................................... 62
Section 10.10 Interest.............................................. 62
Section 10.11 Table of Contents and Headings........................ 63
Section 10.12 Amendment and Waiver.................................. 63
Section 10.13 Entire Agreement...................................... 63
Section 10.14 Other Relationships................................... 63
Section 10.15 Directly or Indirectly................................ 63
Section 10.16 Reliance on and Survival of Various
Provisions............................................ 63
Section 10.17 Senior Debt........................................... 64
Section 10.18 Confidentiality....................................... 64
ARTICLE 11 Waiver of Jury Trial...................................... 65
Section 11.1 Waiver of Jury Trial.................................. 65
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<PAGE>
EXHIBITS
Exhibit A - Form of Borrower Security Agreement
Exhibit B - Form of Member Guaranty
Exhibit C - Form of Member Security Agreement
Exhibit D - Form of Note
Exhibit E - Form of Request for Advance
Exhibit F - Form of Shareholder Pledge Agreement
Exhibit G - Form of Borrower's Loan Certificate
Exhibit H - Form of Member Loan Certificate
Exhibit I - Form of Assignment and Assumption Agreement
SCHEDULES
Schedule 1 - Licenses
Schedule 2 - Trademarks
Schedule 3 - Subsidiaries
Schedule 4 - Exceptions to Necessary Authorizations
Schedule 5 - Affiliate Transactions
-iv-
<PAGE>
LOAN AGREEMENT
THIS LOAN AGREEMENT (the "Agreement"), made as of this 24th day of
December, 1996, by and between ASSOCIATED COMMUNICATIONS, L.L.C., a Delaware
limited liability company (the "Borrower"), and THE TORONTO-DOMINION BANK (the
"Bank").
ARTICLE 1
Definitions
Section 1.1 Defined Terms. The following terms when used in this Agreement
shall have the following meanings:
"Acquisition" shall mean (whether by purchase, lease, exchange, issuance
of stock or other equity or debt securities, merger, reorganization or any other
method) (a) any acquisition by the Borrower or any of its Subsidiaries of any
other Person, which Person shall then become consolidated with the Borrower or
any such Subsidiary in accordance with GAAP, (b) any acquisition by the Borrower
or any of its Subsidiaries of all or any substantial part of the assets of any
other Person, or (c) any acquisition by the Borrower or any of its Subsidiaries
of any License (whether such acquisition is from a governmental agency or any
other Person).
"Advance" shall mean amounts advanced by the Bank to the Borrower pursuant
to Article 2 hereof on the occasion of any borrowing; and "Advances" shall mean
more than one Advance.
"Affiliate" shall mean, with respect to a Person, any other Person
directly or indirectly controlling, controlled by, or under common control with,
such first Person. For purposes of this definition, "control" when used with
respect to any Person includes, without limitation, the direct or indirect
beneficial ownership of more than fifteen percent (15%) of the voting securities
or voting equity of such Person or the power to direct or cause the direction of
the management and policies of such Person whether by contract or otherwise.
"Affiliate Subordinated Debt" shall mean Indebtedness of the Borrower to
any Member or Affiliate of the Borrower which is subordinated to the Obligations
on terms and conditions acceptable to the Bank in its sole discretion.
"Agreement" shall mean this Loan Agreement, as amended, supplemented,
restated or otherwise modified from time to time.
"Agreement Date" shall mean December 24, 1996.
<PAGE>
"Applicable Law" shall mean, in respect of any Person, all provisions of
constitutions, laws, statutes, rules, regulations, codes and orders of
governmental bodies or regulatory agencies applicable to such Person, including,
without limiting the foregoing, the Communications Act and all Environmental
Laws, and all orders, decisions, judgments and decrees of all courts and
arbitrators in proceedings or actions to which the Person in question is a party
or by which it or its properties or assets are bound.
"Applicable Margin" shall mean (i) in the case of Base Rate Advances,
1.75% and (ii) in the case of LIBOR Advances, 2.75%.
"Authorized Signatory" shall mean such senior personnel of a Person as may
be duly authorized and designated in writing by such Person to execute
documents, agreements and instruments on behalf of such Person.
"Bank" shall mean The Toronto-Dominion Bank, its successor and assigns.
"Base Rate" shall mean, as of any date, a fluctuating interest rate per
annum equal to the higher of (a) the Prime Rate, and (b) the sum of (i) the
Federal Funds Rate, plus (ii) one-half of one percent (1/2%). The Base Rate
shall be adjusted automatically as of the opening of business on the effective
date of each change in the Prime Rate or the Federal Funds Rate, as the case may
be.
"Base Rate Advance" shall mean an Advance which the Borrower requests to
be made as a Base Rate Advance or is reborrowed as a Base Rate Advance, in
accordance with the provisions of Section 2.2 hereof, and which shall be in a
principal amount of at least $500,000, and in an integral multiple of $250,000;
except for a Base Rate Advance which is an amount equal to the unused
Commitment, which Advance may be in such amount.
"Base Rate Basis" shall mean a simple per annum interest rate equal to the
sum of (i) the Base Rate and (ii) the Applicable Margin. The Base Rate Basis
shall be adjusted automatically as of the opening of business on the effective
date of each change in the Base Rate to account for such change.
"Borrower" shall mean Associated Communications, L.L.C., a Delaware
limited liability company.
"Borrower Security Agreement" shall mean that certain Security Agreement
between the Borrower and the Bank dated as of the Agreement Date in
substantially the form of Exhibit A attached hereto.
-2-
<PAGE>
"Business Day" shall mean a day on which banks and foreign exchange
markets are open for the transaction of business required for this Agreement in
New York, New York and London, England, as relevant to the determination to be
made or the action to be taken.
"Capital Expenditures" shall mean, in respect of any Person, expenditures
for the purchase of assets of long-term use which would be required to be
capitalized on the balance sheet of such Person in accordance with GAAP.
"Capital Stock" shall mean, as applied to any Person, any capital stock of
such Person, regardless of class or designation, and all warrants, options,
purchase rights, conversion or exchange rights, voting rights, calls or claims
of any character with respect thereto.
"Capitalized Lease Obligation" shall mean that portion of any obligation
of a Person as lessee under a lease which at the time would be required to be
capitalized on the balance sheet of such lessee in accordance with GAAP.
"Change of Control" shall mean (a) the failure of DSC and MSI to
collectively own eighty percent (80%) of the economic and voting ownership
interests of the Borrower, (b) the failure of MSI or DSC to hold at least
seventy-five percent (75%) of the economic and voting ownership interests of the
Borrower held by such Person on the Agreement Date, (c) The Associated Group,
Inc. shall cease to have the power, directly or indirectly, to elect a majority
of the voting members of the Board (as defined in the LLC Agreement) of the
Borrower, (d) any change in the direct or indirect ownership of the stock of DSC
(after giving effect to any shareholders' agreements, voting trust agreements or
similar agreements), such that Dr. Rajendra Singh shall cease to Control DSC, or
(e) any change in the direct and indirect ownership of the stock of MSI (after
giving effect to any shareholders' agreements, voting trust agreements or
similar agreements).
"COBRA" shall mean Title X of the Consolidated Omnibus Budget
Reconciliation Act of 1985 and any amendments thereto.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time.
"Collateral" shall mean any property of any kind constituting collateral
for the Obligations under any of the Security Documents.
"Commitment" shall mean the obligation of the Bank to make Loans to the
Borrower, subject to the terms and conditions hereof, up to an aggregate
principal amount not to exceed at any
-3-
<PAGE>
one time outstanding Fifty Million Dollars ($50,000,000), subject to reduction
as set forth in Section 2.5 hereof.
"Communications Act" shall mean the Communications Act of 1934, and any
similar or successor federal statute, and the rules and regulations of the FCC
thereunder, all as the same may be in effect from time to time.
"Control" shall mean the possession, directly or indirectly, of the power
to direct or cause the direction of the management or policies of a Person
through the ability to exercise voting power.
"Default" shall mean any Event of Default, and any of the events specified
in Section 8.1, regardless of whether there shall have occurred any passage of
time or giving of notice, or both, that would be necessary in order to
constitute such event an Event of Default.
"Default Rate" shall mean a simple per annum interest rate equal to the
sum of the otherwise applicable Interest Rate Basis plus two percent (2%), or if
no Interest Rate Basis is otherwise applicable, a simple per annum interest rate
equal to the sum of the Base Rate Basis plus two percent (2%).
"DSC" shall mean Digital Services Corporation, a Virginia corporation.
"Employee Pension Plan" shall mean any Plan which (a) is maintained by the
Borrower or any ERISA Affiliate and (b) is subject to Part 3 of Title I of
ERISA.
"Employment Agreement" shall mean that certain Employment Agreement
between the Borrower and Alex J. Mandl dated as of August 19, 1996.
"Environmental Laws" shall mean all applicable federal, state or local
laws, statutes, rules, regulations or ordinances, codes, common law, consent
agreements to which the Borrower or any Subsidiary is a party, orders, decrees,
judgments or injunctions issued, promulgated, approved or entered thereunder
relating to the pollution or protection of the environment, including, without
limitation, those relating to releases, discharges, emissions, spills, leaching,
or disposals to air, water, land or ground water, to the withdrawal or use of
ground water, to the use, handling or disposal of polychlorinated biphenyls,
asbestos or urea formaldehyde, to the treatment, storage, disposal or management
of hazardous substances (including, without limitation, petroleum, crude oil or
any fraction thereof, or other hydrocarbons), pollutants or contaminants, to
exposure to toxic, hazardous or other
-4-
<PAGE>
controlled, prohibited, or regulated substances, including, without limitation,
any such provisions under the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended (42 U.S.C. ss. 9601 et seq.), or the
Resource Conservation and Recovery Act of 1976, as amended (42 U.S.C. ss. 6901
et seq.) or any environmental laws relating to public health and safety.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
in effect from time to time.
"ERISA Affiliate" shall mean any Person, including a Subsidiary or an
Affiliate of the Borrower, that is a member of any group of organizations
(within the meaning of Code Sections 414(b), 414(c), 414(m), or 414(o)) of which
the Borrower is a member.
"Event of Default" shall mean any of the events specified in Section 8.1
hereof, provided that any requirement for notice or lapse of time has been
satisfied.
"FCC" shall mean the Federal Communications Commission, or any other
similar or successor agency of the federal government administering the
Communications Act.
"Federal Funds Rate" shall mean, as of any date, the weighted average of
the rates on overnight federal funds transactions with the 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 Bank from three (3) federal funds brokers
of recognized standing selected by the Bank.
"GAAP" shall mean, as in effect from time to time, generally accepted
accounting principles in the United States, consistently applied.
"Guaranty" or "Guaranteed," as applied to an obligation, shall mean and
include (a) a guaranty, direct or indirect, in any manner, of all or any part of
such obligation, and (b) any 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, any
reimbursement obligations as to amounts drawn down by beneficiaries of
outstanding letters of credit or capital call requirements.
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"Indebtedness" shall mean, with respect to any Person, and without
duplication, (a) all items, except items of shareholders' and partners' equity
or capital stock or surplus or general contingency or deferred tax liabilities,
which in accordance with GAAP would be included in determining total liabilities
as shown on the liability side of a balance sheet of such Person, including,
without limitation, secured non-recourse obligations of such Person, to the
extent of the higher of the book value or fair market value of the property or
asset securing such obligation (if less than the amount of such obligation), (b)
all direct or indirect obligations of any other Person secured by any Lien to
which any property or asset owned by such Person is subject, but only to the
extent of the higher of the fair market value or the book value of the property
or asset subject to such Lien (if less than the amount of such obligation) if
the obligation secured thereby shall not have been assumed, (c) to the extent
not otherwise included, all Capitalized Lease Obligations of such Person and all
obligations of such Person with respect to leases constituting part of a sale
and lease-back arrangement to the extent such lease is considered a Capitalized
Lease Obligation in accordance with GAAP, (d) all reimbursement obligations of
such Person with respect to outstanding letters of credit, (e) to the extent not
otherwise included, all obligations subject to Guaranties of such Person or its
Subsidiaries, and (f) all obligations of such Person under Interest Hedge
Agreements.
"Indebtedness for Money Borrowed" shall mean, with respect to any Person,
Indebtedness for money borrowed and Indebtedness represented by notes payable
and drafts accepted representing extensions of credit, all obligations evidenced
by bonds, debentures, notes or other similar instruments, all Indebtedness upon
which interest charges are customarily paid, all Capitalized Lease Obligations,
all reimbursement obligations with respect to outstanding letters of credit, all
Indebtedness issued or assumed as full or partial payment for property or
services (other than trade payables arising in the ordinary course of business,
but only if and so long as such accounts are payable on customary trade terms),
whether or not any such notes, drafts, obligations or Indebtedness represent
Indebtedness for money borrowed, and, without duplication, Guaranties of any of
the foregoing. For purposes of this definition, interest which is accrued but
not paid on the scheduled due date for such interest shall be deemed
Indebtedness for Money Borrowed.
"Indemnitee" shall have the meaning ascribed thereto in Section 5.11
hereof.
"Interest Hedge Agreements" shall mean the obligations of any Person
pursuant to (a) any arrangement with any other Person whereby, directly or
indirectly, such Person is entitled to receive from time to time periodic
payments calculated by
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applying either a floating or a fixed rate of interest on a stated notional
amount in exchange for periodic payments made by such Person calculated by
applying a fixed or a floating rate of interest on the same notional amount or
(b) interest rate swaps, caps, floors, collars and similar agreements.
"Interest Period" shall mean in connection with any LIBOR Advance, the
term of such Advance selected by the Borrower or otherwise determined in
accordance with this Agreement. Notwithstanding the foregoing, however, (i) any
applicable Interest Period which would otherwise end on a day which is not a
Business Day shall be extended to the next succeeding Business Day unless, such
Business Day falls in another calendar month, in which case such Interest Period
shall end on the next preceding Business Day, (ii) any applicable Interest
Period which begins on a day for which there is no numerically corresponding day
in the calendar month during which such Interest Period is to end shall (subject
to clause (i) above) end on the last day of such calendar month, and (iii) the
Borrower shall not select an Interest Period which extends beyond the Maturity
Date or such earlier date as would interfere with the Borrower's repayment
obligations under Section 2.7 hereof. Interest shall be due and payable with
respect to any Advance as provided in Section 2.3 hereof.
"Interest Rate Basis" shall mean the Base Rate Basis or the LIBOR Basis,
as appropriate.
"known to the Borrower" or "to the knowledge of the Borrower" shall mean
known by or reasonably should have been known by the chief executive officer,
the chief financial officer, the general counsel, or any senior vice president
of the Borrower.
"LIBOR" shall mean, for any Interest Period, the interest rate per annum
equal to the offered rate for deposits in United States Dollars for an amount
approximately equal to the principal amount of, and for a length of time
approximately equal to the Interest Period for, the LIBOR Advance sought by the
Borrower, which rate appears on the Reuter's Screen LIBO Page (or such other
page as may replace that page in that service) at approximately 11:00 a.m.
(London time) two (2) Business Days before the first day of such Interest
Period; provided, that (i) if more than one such offered rate appears on the
Reuter's Screen, LIBOR shall be the arithmetic average (rounded upward to the
nearest one-sixteenth (1/16) of one percent (1%)) of such offered rates, or (ii)
if the Reuter's Screen is not available, LIBOR shall be the average offered to
the Bank (or an affiliate thereof) by two (2) leading banks (rounded upward to
the nearest one-sixteenth (1/16) of one percent (1%)) of the interest rates per
annum at which deposits in United States Dollars for such
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Interest Period are offered to the Bank in the London eurodollar interbank
borrowing market at approximately 11:00 a.m. (London time) two (2) Business Days
before the first day of such Interest Period, in an amount approximately equal
to the principal amount of, and for a length of time approximately equal to the
Interest Period for, the LIBOR Advance sought by the Borrower.
"LIBOR Advance" shall mean an Advance which the Borrower requests to be
made as a LIBOR Advance or which is reborrowed as a LIBOR Advance, in accordance
with the provisions of Section 2.2 hereof, and which shall be in a principal
amount of at least $500,000 and in an integral multiple of $250,000, except for
a LIBOR Advance which is in an amount equal to the unused amount of the
Commitment, which Advance may be in such amount.
"LIBOR Basis" shall mean a simple per annum interest rate equal to the sum
of (a) the quotient of (i) LIBOR divided by (ii) one minus the LIBOR Reserve
Percentage, stated as a decimal, plus (b) the Applicable Margin. The LIBOR Basis
shall be rounded upward to the nearest one-hundredth of one percent (1/100%) and
shall apply to Interest Periods of one (1), two (2), three (3), and six (6)
months, and, subject to the second to the last sentence of this definition, nine
(9) and twelve (12) months, and, once determined, shall be subject to Article 10
hereof and shall remain unchanged during the applicable Interest Period. The
Borrower may not select an Interest Period for a LIBOR Advance in excess of six
(6) months unless the Bank has consented to such Interest Period.
"LIBOR Reserve Percentage" shall mean the percentage which is in effect
from time to time under Regulation D of the Board of Governors of the Federal
Reserve System, as such regulation may be amended from time to time, as the
actual requirement applicable with respect to Eurocurrency Liabilities (as that
term is defined in Regulation D).
"Licenses" shall mean any telephone, digital electronic message service,
microwave, personal communications or other license, authorization, certificate
of compliance, franchise, approval or permit, granted or issued to any Member,
the Borrower or a Subsidiary of the Borrower by the FCC which enables the
Borrower or any of the Borrower's Subsidiaries to engage in any
telecommunications business and investing in other Persons who engage in
telecommunications businesses, all of which Licenses are listed as of the
Agreement Date on Schedule 1 hereto.
"Lien" shall mean, with respect to any property, any mortgage, lien,
pledge, assignment, charge, security interest, title retention agreement, levy,
execution, seizure, attachment, garnishment or other encumbrance of any kind in
respect of such
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property, whether created by statute, contract, the common law or otherwise, and
whether or not choate, vested or perfected.
"LLC Agreement" shall mean the Limited Liability Company Agreement of the
Borrower dated March 5, 1996, as amended from time to time.
"Loan Documents" shall mean this Agreement, the Note, the Security
Documents, all fee letters, all Requests for Advance, all Interest Hedge
Agreements between the Borrower, on the one hand, and the Bank on the other
hand, and all other documents and agreements executed or delivered in connection
with or contemplated by this Agreement.
"Loans" shall mean, collectively, the amounts advanced by the Bank to the
Borrower under the Commitment, not to exceed the Commitment, and evidenced by
the Note.
"Management and Services Agreement" shall mean, collectively, (a) that
certain Administration and Management Services Agreement between the Borrower
and MSI dated as of March 5, 1996, and (b) that certain Administration and
Management Services Agreement between the Borrower and DSC dated as of March 5,
1996.
"Materially Adverse Effect" shall mean (a) any material adverse effect
upon the business, assets, liabilities, financial condition, results of
operations, properties (or the transferability thereof), or business prospects
of the Borrower and its Subsidiaries on a consolidated basis, taken as a whole,
or (b) a material adverse effect upon the binding nature, validity, or
enforceability of this Agreement and the Note, or upon the ability of the
Borrower and its Subsidiaries to perform the payment obligations or other
material obligations under this Agreement or any other Loan Document, or upon
the value of the Collateral or upon the rights, benefits or interests of the
Bank in and to the Loans or the rights of the Bank in the Collateral; in either
case, whether resulting from any single act, omission, situation, status, event
or undertaking, or taken together with other such acts, omissions, situations,
statuses, events or undertakings.
"Maturity Date" shall mean December 19, 1997, or as the case may be, such
earlier date as payment of the Obligations shall be due (whether by
acceleration, reduction of the Commitment to zero or otherwise).
"Member Guaranty" shall mean, collectively, (a) that certain Member
Guaranty dated the Agreement Date between DSC and the Bank, substantially in the
form of Exhibit B attached hereto, and (b) that certain Member Guaranty dated
the Agreement Date between
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MSI and the Bank, substantially in the form of Exhibit B attached hereto.
"Member Security Agreement" shall mean, collectively, (a) that certain
Security Agreement dated the Agreement Date between DSC and the Bank,
substantially in the form of Exhibit C attached hereto, and (b) that certain
Security Agreement dated the Agreement Date between MSI and the Bank,
substantially in the form of Exhibit C attached hereto.
"Members" shall mean MSI and DSC.
"MSI" shall mean Microwave Services, Inc., a Delaware corporation.
"Multiemployer Plan" shall mean a multiemployer pension plan as defined in
Section 3(37) of ERISA to which the Borrower or any ERISA Affiliate is or has
been required to contribute subsequent to September 25, 1980.
"Necessary Authorizations" shall mean all approvals and licenses from, and
all filings and registrations with, any governmental or other regulatory
authority and any other applicable state or local law, regulation or other
provision, necessary in order to enable the Borrower and the Borrower's
Subsidiaries to provide telecommunication services, including, without
limitation, fixed wireless services and investing in other Persons who operate
the same businesses, but shall exclude the Licenses and all approvals, licenses,
filings and registrations under the Communications Act or with or from the FCC.
"Net Income" shall mean, for the Borrower and its Subsidiaries, on a
consolidated basis, for any period, net income determined in accordance with
GAAP.
"Net Proceeds" shall mean, with respect to any sale, transfer or other
disposition of (A) ownership interests in any of the Borrower's Subsidiaries by
the Borrower, or (B) assets by the Borrower or any of its Subsidiaries, the
aggregate amount of cash received for such assets (including, without
limitation, any payments received for non-competition covenants, consulting or
management fees in connection with such sale, and any portion of the amount
received evidenced by a promissory note or other evidence of Indebtedness issued
by the purchaser), net of (i) amounts reserved, if any, for taxes payable with
respect to any such sale (after application of any available losses, credits or
other offsets), (ii) reasonable and customary transaction costs properly
attributable to such transaction and payable by the Borrower or any of its
Subsidiaries (other than to an Affiliate) in connection with such sale, lease,
transfer or other
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disposition of assets, including, without limitation, commissions, (iii) until
actually received by the Borrower or any of its Subsidiaries, any portion of the
amount received held in escrow or evidenced by a promissory note or other
evidence of Indebtedness issued by a purchaser or non-compete agreement or
covenant or otherwise for which compensation is paid over time, (iv) reasonable
and customary amounts, if any, reserved for indemnification claims payable with
respect to any such sale, and (v) the amounts, if any, of any purchase money
debt, with respect to the assets sold, owed by the Borrower or a Subsidiary, and
repaid with the proceeds of such sale. Upon receipt by the Borrower or any of
its Subsidiaries of (A) amounts referred to in item (iii) of the preceding
sentence, or (B) if there shall occur any reduction in the reserves referred to
in items (i) and (iv) of the preceding sentence resulting in a payment to the
Borrower or its Subsidiary, such amounts shall then be deemed to be "Net
Proceeds."
"Note" shall mean that certain promissory note in the aggregate original
principal amount of $50,000,000, issued to the Bank by the Borrower,
substantially in the form of Exhibit D attached hereto, any other promissory
note issued by the Borrower to evidence the Loans pursuant to this Agreement,
and any extensions, renewals, or amendments to, or replacements of, the
foregoing.
"Obligations" shall mean all payment and performance obligations of every
kind, nature and description of the Borrower, its Subsidiaries, and any other
obligors to the Bank under this Agreement and the other Loan Documents
(including any interest, fees and other charges on the Loans or otherwise under
the Loan Documents that would accrue but for the filing of a bankruptcy action
with respect to the Borrower, whether or not a claim for such amounts is allowed
in such bankruptcy action and including Obligations to the Bank pursuant to
Section 5.11 hereof) as they may be amended from time to time, or as a result of
making the Loans, whether such obligations are direct or indirect, absolute or
contingent, due or not due, contractual or tortious, liquidated or unliquidated,
arising by operation of law or otherwise, now existing or hereafter arising.
"Payment Date" shall mean the last day of each calendar quarter for Base
Rate Advances and, subject to Section 2.3(b) hereof, the last day of each
Interest Period for LIBOR Advances.
"PBGC" shall mean the Pension Benefit Guaranty Corporation, or any
successor thereto.
"Permitted Asset Sales" shall mean (a) sales or other dispositions of
assets by the Borrower or any Subsidiary in bona fide arms' length transactions
which do not generate, in any
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calendar year, Net Proceeds in excess of $1,000,000 in the aggregate, (b) the
disposition in the ordinary course of business of assets which are no longer
used or useful in the business of the Borrower or the Borrower's Subsidiaries,
(c) the sales, transfers or other dispositions of assets which are exchanged
for, or the Net Proceeds of which are contemporaneously used to procure or
acquire, similar assets of equal or greater value, and (d) the transfer of
assets (including cash or cash equivalents) among the Borrower and its
Subsidiaries or the transfer of assets (including cash or cash equivalents but
excluding the Licenses) between or among Subsidiaries so long as in each case,
such assets remain assets of Subsidiaries of the Borrower.
"Permitted Liens" shall mean, as applied to any Person:
(a) Any Lien in favor of the Bank given to secure the Obligations;
(b) (i) Liens on real estate or other property for taxes,
assessments, governmental charges or levies not yet delinquent and (ii) Liens
for taxes, assessments, judgments, governmental charges or levies or claims the
non-payment of which is being diligently contested in good faith by appropriate
proceedings and for which adequate reserves in accordance with GAAP have been
set aside on such Person's books, but only so long as no foreclosure, distraint,
sale or similar proceedings have been commenced with respect thereto;
(c) Liens of carriers, warehousemen, mechanics, landlords, laborers
and materialmen and other statutory Liens incurred in the ordinary course of
business for sums not yet due or being diligently contested in good faith, if
reserves or appropriate provisions shall have been made therefor in accordance
with GAAP;
(d) Liens incurred in the ordinary course of business in connection
with worker's compensation and unemployment insurance or other social security
obligations which are not overdue for more than sixty (60) days;
(e) Restrictions on the transfer of the Licenses or assets of the
Borrower or its Subsidiaries or any Member imposed by Applicable Law;
(f) Easements, rights-of-way, zoning restrictions and other similar
encumbrances on the use of real property and minor imperfections of title which
do not materially interfere with the ordinary conduct of the business of such
Person or the use of such property;
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(g) Purchase money security interests to the extent such security
interests secure Indebtedness permitted pursuant to Section 7.1(e)(1) hereof;
(h) Liens reflected by Uniform Commercial Code financing statements
filed in respect of Capitalized Lease Obligations permitted pursuant to Section
7.1(e)(2) hereof and true leases of the Borrower or any of its Subsidiaries; and
(i) Liens granted to secure the performance of letters of credit,
bids, tenders, contracts, leases, public or statutory obligations, surety,
customs, appeal and performance bonds, and of other similar obligations to the
extent otherwise permitted under this Agreement and not incurred in connection
with Indebtedness for Money Borrowed, the obtaining of advances or the payment
of the deferred purchase price of any property and which do not exceed $500,000
in the aggregate outstanding from time to time.
"Person" shall mean an individual, corporation, limited liability company,
association, partnership, joint venture, trust or estate, an unincorporated
organization, a government or any agency or political subdivision thereof, or
any other entity.
"Plan" shall mean an employee benefit plan within the meaning of Section
3(3) of ERISA or any other employee benefit plan maintained or contributed to by
the Borrower or any ERISA Affiliate.
"Prime Rate" shall mean, at any time, the rate of interest adopted by The
Toronto-Dominion Bank as its reference rate for the determination of interest
rates for loans of varying maturities in United States dollars to United States
residents of varying degrees of creditworthiness and being quoted at such time
by such bank as its "prime rate." The Prime Rate is not necessarily the lowest
rate of interest charged to borrowers of The Toronto-Dominion Bank.
"Reportable Event" shall mean, with respect to any Employee Pension Plan,
an event described in Section 4043(b) of ERISA, excluding, however, such events
(i) as to which the PBGC by regulation has waived the requirement of Section
4043(a) of ERISA that it be notified within thirty (30) days of the occurrence
of such event or (ii) which could not reasonably be expected to have a Material
Adverse Effect.
"Request for Advance" shall mean a certificate designated as a "Request
for Advance," signed by an Authorized Signatory of the Borrower requesting an
Advance hereunder, which shall be in substantially the form of Exhibit E
attached hereto, and shall, among other things, (i) specify the date of the
Advance, which
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shall be a Business Day, the amount of the Advance, the type of Advance (LIBOR
or Base Rate), and, with respect to LIBOR Advances, the Interest Period selected
by the Borrower, (ii) state that there shall not exist, on the date of the
requested Advance and after giving effect thereto, a Default, as of the date of
such Advance and after giving effect thereto, and (iii) provide the calculations
necessary to determine the Applicable Margin.
"Restricted Payment" shall mean any direct or indirect distribution,
dividend or other payment to any Person (other than to the Borrower or any
wholly-owned Subsidiary of the Borrower) on account of any general or limited
partnership interest in, or shares of Capital Stock or other securities of, the
Borrower or any of its Subsidiaries (other than dividends payable solely in
stock of the Borrower or such Subsidiary, as applicable, and stock splits),
including, without limitation, any direct or indirect distribution, dividend or
other payment to any Person (other than to the Borrower or any Subsidiary of the
Borrower) on account of any warrants or other rights or options to acquire
shares of capital stock of the Borrower or any of its Subsidiaries.
"Restricted Purchase" shall mean any payment (including, without
limitation, any sinking fund payment, prepayment or installment payment) on
account of the purchase, redemption or other acquisition or retirement of any
general or limited partnership interest in, or shares of capital stock or other
securities of the Borrower or any of the Borrower's Subsidiaries, including,
without limitation, any warrants or other rights or options to acquire shares of
capital stock of the Borrower or any of the Borrower's Subsidiaries or any loan,
advance, release or forgiveness of Indebtedness by the Borrower or its
Subsidiaries to any partner, shareholder or Affiliate of any such Person.
"Security Documents" shall mean the Member Security Agreement, the
Shareholder Pledge Agreement, any other agreement or instrument providing
collateral for the Obligations whether now or hereafter in existence, and any
filings, instruments, agreements, and documents related thereto or to this
Agreement, and providing the Bank with Collateral for the Obligations.
"Security Interest" shall mean all Liens in favor of the Bank created
hereunder or under any of the Security Documents to secure the Obligations.
"Shareholder Pledge Agreement" shall mean each Shareholder Pledge
Agreement between any Shareholder of the Members, on the one hand, and the Bank,
on the other hand, substantially in the form of Exhibit F attached hereto.
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"Shareholders" shall mean collectively, the shareholders, members or other
equity holders of the Members existing immediately prior to the Agreement Date
and any of their respective successors or assigns approved by the Bank.
"Subsidiary" shall mean, as applied to any Person, any corporation of
which more than fifty percent (50%) of the outstanding stock (other than
directors' qualifying shares) having ordinary voting power to elect a majority
of its board of directors, regardless of the existence at the time of a right of
the holders of any class or classes of securities of such corporation to
exercise such voting power by reason of the happening of any contingency, or any
partnership or limited liability company of which more than fifty percent (50%)
of the outstanding partnership or member interests, is at the time owned
directly or indirectly by such Person, or by one or more Subsidiaries of such
Person, or by such Person and one or more Subsidiaries of such Person.
"Trademarks" shall mean all registered trademarks and pending applications
for trademarks of the Borrower and the Borrower's Subsidiaries which are more
fully described on Schedule 2 hereto.
"Upstream Dividends" shall have the meaning set forth in Section 7.10
hereof.
Section 1.2 Interpretation. Each definition of an agreement in this
Article 1 shall, unless otherwise specified, include such agreement as modified,
amended, restated or supplemented from time to time in accordance herewith, and
except where the context otherwise requires, the singular shall include the
plural and vice versa. Except where otherwise specifically restricted, reference
to a party to this Agreement or any other Loan Document includes that party and
its successors and assigns. All capitalized terms used herein which are defined
in Article 9 of the Uniform Commercial Code in effect in the State of New York
on the date hereof and which are not otherwise defined herein shall have the
same meanings herein as set forth therein.
Section 1.3 Cross References. Unless otherwise specified, references in
this Agreement and in each other Loan Document to any Article or Section are
references to such Article or Section of this Agreement or such other Loan
Document, as the case may be, and, unless otherwise specified, references in any
Article, Section or definition to any clause are references to such clause in
such Article, Section or definition.
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ARTICLE 2
Loans
Section 2.1 The Loans. The Bank agrees upon the terms and subject to the
conditions of this Agreement, to lend and re- lend to the Borrower, prior to the
Maturity Date, an amount not at any one time outstanding to exceed, in the
aggregate, the Commitment. Subject to the terms and conditions hereof, Advances
under the Commitment may be repaid and reborrowed from time to time on a
revolving basis.
Section 2.2 Manner of Borrowing and Disbursement.
(a) Choice of Interest Rate, Etc. Any Advance (i) under the
Commitment shall, at the option of the Borrower, be made as a Base Rate Advance
or a LIBOR Advance; provided, however, that at such time as there shall have
occurred and be continuing a Default hereunder, the Borrower shall not have the
right to receive a LIBOR Advance, convert an Advance to a LIBOR Advance or
continue an existing LIBOR Advance at the end of its Interest Period. Any notice
given to the Bank in connection with a requested Advance hereunder shall be
given to the Bank prior to 11:00 a.m. (New York time) in order for such Business
Day to count toward the minimum number of Business Days required.
(b) Base Rate Advances.
(i) Advances. The Borrower shall give the Bank in the case of
Base Rate Advances irrevocable prior written notice in the form of a
Request for Advance or telephonic or telecopied notice followed
immediately by a Request for Advance not later than 10:00 a.m. (New York
time) on the day of the requested Advance; provided, however, that the
Borrower's failure to confirm any telephonic or telecopied notice with a
Request for Advance shall not invalidate any notice so given if acted upon
by the Bank.
(ii) Repayments and Conversions. The Borrower may (A) repay or
prepay a Base Rate Advance at any time upon at least one (1) Business
Day's irrevocable prior written notice, or (B) upon at least three (3)
Business Days' irrevocable prior written notice, convert all or a portion
of the principal thereof as one or more LIBOR Advances. On the date
indicated by the Borrower, such Base Rate Advance shall be so repaid or,
as applicable, converted.
(c) LIBOR Advances.
(i) Advances. The Borrower shall give the Bank in the case of
LIBOR Advances at least three (3) Business
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Days' irrevocable written notice in the form of a Request for Advance, or
notice by telephone or telecopy followed immediately by a Request for
Advance; provided, however, that the failure of the Borrower to confirm
any notice by telephone or telecopy with a Request for Advance shall not
invalidate any notice so given if acted upon by the Bank. The Bank, whose
determination shall be conclusive absent manifest error, shall determine
the available LIBOR Bases and shall notify the Borrower of such LIBOR
Bases. The Borrower shall promptly notify the Bank by telecopy or by
telephone, and shall immediately confirm any such telephonic notice in
writing, of its selection of a LIBOR Basis and Interest Period for such
Advance.
(ii) Repayments and Conversions. At least three (3) Business
Days prior to each Payment Date for a LIBOR Advance, subject to Sections
2.2(a) hereof, the Borrower shall give the Bank written notice specifying
whether all or a portion of any LIBOR Advance outstanding on the Payment
Date (a) is to be continued in whole or in part as a LIBOR Advance, or (b)
is to be converted in whole or in part as one or more Base Rate Advances,
or (c) subject to Section 2.10 hereof, is to be repaid and not continued
or converted. Upon such Payment Date such LIBOR Advance will, subject to
the provisions hereof, be so continued or converted or repaid. If the
Borrower fails to give any such notice, such LIBOR Advance will be
converted to a Base Rate Advance.
(d) Disbursement. Prior to 2:00 p.m. (New York time) on the date of
an Advance hereunder, the Bank shall, subject to the satisfaction of the
conditions set forth in Article 3 hereof, disburse the amount of such Advance by
(a) transferring such amount so requested by wire transfer pursuant to the
Borrower's instructions, or (b) in the absence of such instructions, crediting
such amount so made available to the account of the Borrower maintained with the
Bank.
Section 2.3 Interest.
(a) On Base Rate Advances. Interest on each Base Rate Advance shall
be computed on the basis of a year of 365/366 days for the actual number of days
elapsed and shall be payable at the Base Rate Basis for such Advance, in arrears
on the applicable Payment Date. Interest on Base Rate Advances then outstanding
shall also be due and payable on the Maturity Date.
(b) On LIBOR Advances. Interest on each LIBOR Advance shall be
computed on the basis of a 360-day year for the actual number of days elapsed
and shall be payable at the LIBOR Basis for such Advance, in arrears on the
applicable Payment Date, and,
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in addition, if the Interest Period for a LIBOR Advance exceeds three (3)
months, interest on such LIBOR Advance shall also be due and payable in arrears
on every three-month anniversary of the beginning of such Interest Period.
Interest on LIBOR Advances then outstanding shall also be due and payable on the
Maturity Date.
(c) Interest if no Notice of Selection of Interest Rate Basis. If
the Borrower fails to give the Bank timely notice of its selection of a LIBOR
Basis, or if for any reason (other than the failure of the Bank to take any
action required of it hereunder) a determination of a LIBOR Basis for any
Advance is not timely concluded, the Base Rate Basis shall apply to such
Advance.
(d) Interest Upon Default. Immediately upon the occurrence of an
Event of Default, the outstanding principal balance of the Loans shall bear
interest at the Default Rate. Such interest shall be payable on demand by the
Bank and shall accrue until the earlier of (i) waiver or cure (including
cessation) of the applicable Event of Default, (ii) agreement by the Bank to
rescind the charging of interest at the Default Rate, or (iii) payment in full
of the Obligations.
(e) Limitation on Interest Periods. At no time may the Borrower
have, in the aggregate for all Loans outstanding, more than four (4) different
Interest Periods for LIBOR Advances at any given time during the term of this
Agreement.
(f) Interest Calculation. In calculating interest hereunder,
interest shall be calculated to, but not including, the date of payment.
Section 2.4 Fees. The Borrower agrees to pay the Bank a commitment fee on
the aggregate unborrowed balance of the Commitment, for each day from the
Agreement Date until the Maturity Date, at a rate of one-half of one percent
(1/2%) per annum, commencing with the Agreement Date. Such commitment fee shall
be computed on the basis of a year of 365/366 days for the actual number of days
elapsed, shall be payable quarterly in arrears on the last day of each calendar
quarter (with the first such payment being due and payable on March 31, 1997,
for the period from the Agreement Date through March 31, 1997), and shall be
fully earned when due, and shall be non-refundable when paid. A final payment of
any commitment fee then payable shall also be due and payable on the Maturity
Date.
Section 2.5 Mandatory Commitment Reductions.
(a) Reduction From Asset Sales. Except with respect to Permitted
Asset Sales, on the Business Day of the receipt by
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the Borrower or any Subsidiary of any Net Proceeds, the Commitment shall be
automatically and permanently reduced by an amount equal to such Net Proceeds.
(b) Reduction From Debt Issuance. On the Business Day of the receipt
by the Borrower or any Subsidiary of the Borrower of any net proceeds with
respect to any debt issuance (other than from Affiliate Subordinated Debt), the
Commitment shall be automatically and permanently reduced by an amount equal to
the net proceeds received from such debt issuance.
Section 2.6 Voluntary Commitment Reductions. The Borrower shall have the
right, at any time and from time to time after the Agreement Date and prior to
the Maturity Date, upon at least three (3) Business Days' prior written notice
to the Bank to cancel or reduce permanently all or a portion of the Commitment;
provided, however, that any such partial reduction shall be made in an amount
not less than $1,000,000 and in integral multiples of not less than $1,000,000.
As of the date of cancellation or reduction set forth in such notice, the
Commitment shall be permanently reduced to the amount stated in the Borrower's
notice for all purposes herein.
Section 2.7 Prepayments and Repayments.
(a) Repayment Prior to Payment Date. The principal amount of any
Base Rate Advance may be repaid in full or in part at any time, without penalty.
LIBOR Advances may be prepaid in full or in part prior to the applicable Payment
Date, upon two (2) Business Days' prior written notice to the Bank, provided
that the Borrower shall reimburse the Bank, on demand by the Bank, for any loss
or out-of-pocket expense incurred by the Bank in connection with such
prepayment, as set forth in Section 2.10 hereof. Any prepayment hereunder shall
be in amounts of not less than $1,000,000 and in integral multiples of $500,000
or, if less, the remaining outstanding balance of any Base Rate Advance or LIBOR
Advance.
(b) Loans in Excess of Commitment. If, at any time, the amount of
the Loans then outstanding shall exceed the Commitment, the Borrower shall, on
such date and subject to Sections 2.10 and 2.11 hereof, make a repayment of the
principal amount of the Loans in an amount equal to such excess, together with
any accrued interest and fees with respect thereto.
(c) Repayment Upon Sales of Assets. Except with respect to Permitted
Asset Sales, the Borrower shall, on the Business Day of the receipt by the
Borrower or any Subsidiary of the Borrower of any Net Proceeds, make a repayment
of principal of the Loans then outstanding in an amount equal to such Net
Proceeds.
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(d) Repayment Upon Debt Issuances. The Borrower shall, on the
Business Day of the receipt by the Borrower or any Subsidiary of the Borrower of
any net proceeds with respect to any debt issuance (other than from Affiliate
Subordinated Debt), make a repayment of principal of the Loans then outstanding
in an amount equal to the net proceeds of such debt issuance.
(e) Maturity Date. In addition to the foregoing, a final payment of
all Obligations then outstanding shall be due and payable on the Maturity Date.
Section 2.8 Note; Loan Accounts.
(a) The Loans shall be repayable in accordance with the terms and
provisions set forth herein and shall be evidenced by the Note. The Note shall
be payable to the order of the Bank and shall be issued by the Borrower to the
Bank and shall be duly executed and delivered by one or more Authorized
Signatories.
(b) The Bank may open and maintain on its books in the name of the
Borrower a loan account with respect the Loans and interest thereon. The Bank
shall debit such loan account for the principal amount of each Advance made by
it and accrued interest thereon, and shall credit such loan account for each
payment on account of principal of or interest on the Loans. The records of the
Bank with respect to the loan account shall be prima facie evidence of the Loans
and accrued interest thereon absent manifest error, but the failure of the Bank
to make any such notations or any error or mistake in such notations shall not
affect the Borrower's repayment obligations with respect to such Loans.
Section 2.9 Manner of Payment.
(a) Each payment (including any prepayment) by the Borrower on
account of the principal of or interest on the Loans, commitment fees and any
other amount owed to the Bank under this Agreement or the Note shall be made not
later than 1:00 p.m. (New York time) on the date specified for payment under
this Agreement to the Bank at the Bank's lending office, in lawful money of the
United States of America in immediately available funds. Any payment received by
the Bank after 1:00 p.m. (New York time) shall be deemed, solely for the purpose
of the calculation of interest, received on the next Business Day. Receipt by
the Bank of any payment hereunder prior to 1:00 p.m. (New York time) on any
Business Day shall be deemed to constitute receipt by the Bank on such Business
Day.
(b) Provided that (i) the Bank delivers to the Borrower on or before
the date of the first Advance hereunder (and at such other times as required
under U.S. federal tax law),
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a validly completed Internal Revenue Service Form 4224 and (ii) all of the
provisions of Section 10.5 hereof are satisfied, the Borrower agrees to pay
principal, interest, fees and all other amounts due hereunder, under the Note or
under any other Loan Document without set-off or counterclaim or any deduction
whatsoever and free and clear of all taxes, levies and withholding other than
taxes on the revenues or net income of the Bank and except as provided in
Section 2.11 hereof. If the Borrower is required by Applicable Law to deduct any
taxes from or in respect of any sum payable to the Bank hereunder, under the
Note or under any other Loan Document: (A) the sum payable hereunder or
thereunder, as applicable, shall be increased to the extent necessary to provide
that, after making all required deductions (including deductions applicable to
additional sums payable under this Section 2.9(b)), the Bank receives an amount
equal to the sum it would have received had no such deductions been made; (B)
the Borrower shall make such deductions from such sums payable hereunder or
thereunder, as applicable, and pay the amount so deducted to the relevant taxing
authority as required by Applicable Law; and (C) the Borrower shall provide the
Bank with evidence reasonably satisfactory to the Bank that such deducted
amounts have been paid to the relevant taxing authority.
(c) Prior to the acceleration of the Loans under Section 8.2 hereof,
if some but less than all amounts due from the Borrower are received by the Bank
with respect to the Obligations, the Bank shall apply such amounts in the
following order of priority: (i) to the payment of any fees or expenses then due
and payable to the Bank; (ii) to the payment of interest then due and payable on
the Loans; (iii) to the payment of all other amounts not otherwise referred to
in this Section 2.9(c) then due and payable to the Bank hereunder or under the
Note or any other Loan Document; and (iv) to the payment of principal then due
and payable on the Loans.
(d) Subject to any contrary provisions in the definition of Interest
Period, if any payment under this Agreement or any of the other Loan Documents
is specified to be made on a day which is not a Business Day, it shall be made
on the next Business Day, and such extension of time shall in such case be
included in computing interest and fees, if any, in connection with such
payment.
Section 2.10 Reimbursement.
(a) Whenever the Bank shall sustain or incur any losses or
out-of-pocket expenses in connection with (i) failure by the Borrower to borrow
any LIBOR Advance, convert an outstanding Base Rate Advance to a LIBOR Advance
or to continue any outstanding LIBOR Advance after having given notice of its
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intention to borrow, continue or convert in accordance with Section 2.2 hereof
(whether by reason of the Borrower's election not to proceed or the
non-fulfillment of any of the conditions set forth in Article 3 hereof), or (ii)
prepayment on other than a Payment Date (or failure to prepay after giving
notice thereof) of any LIBOR Advance in whole or in part for any reason, the
Borrower agrees to pay to the Bank, upon the Bank's demand, an amount sufficient
to compensate the Bank for all such losses and out-of-pocket expenses. The Bank
shall notify the Borrower of any event occurring after the Agreement Date
entitling the Bank to such compensation as promptly as practicable. The Bank's
good faith determination of the amount of such losses or out-of-pocket expenses,
as set forth in writing and accompanied by calculations in reasonable detail
demonstrating the basis for its demand, shall be presumptively correct absent
manifest error.
(b) Losses subject to reimbursement hereunder shall include, without
limiting the generality of the foregoing, but without duplication, expenses
incurred by the Bank or any participant of the Bank permitted hereunder in
connection with the re-employment of funds prepaid, paid, repaid, not borrowed,
not converted or not paid, as the case may be, and will be payable whether the
Maturity Date is changed by virtue of an amendment hereto (unless such amendment
expressly waives such payment) or as a result of acceleration of the Obligations
and whether the Bank has a "matched funding" of such Advance.
Section 2.11 Capital Adequacy. If after the date hereof, the adoption of
any Applicable Law regarding the capital adequacy of banks or bank holding
companies, or any change in Applicable Law (whether adopted before or after the
Agreement Date) or any change in the interpretation or administration thereof by
any governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by the Bank with any
directive regarding capital adequacy (whether or not having the force of law) of
any such governmental authority, central bank or comparable agency, has or would
have the effect of reducing the rate of return on the Bank's capital as a
consequence of its obligations hereunder with respect to the Loans and the
Commitment to a level below that which it could have achieved but for such
adoption, change or compliance (taking into consideration the Bank's policies
with respect to capital adequacy immediately before such adoption, change or
compliance and assuming that the Bank's capital was fully utilized prior to such
adoption, change or compliance) by an amount reasonably deemed by the Bank to be
material, then, upon demand by the Bank, the Borrower shall promptly pay to the
Bank such additional amounts as shall be sufficient to compensate the Bank for
such reduced return, together with interest on such amount from the fifteenth
(15th) day after the date of demand or the Maturity Date, as applicable, until
payment in full thereof at the Default
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Rate. The Bank shall notify the Borrower of any event occurring after the date
of this Agreement entitling the Bank to such compensation as promptly as
practicable. A certificate of the Bank setting forth the amount to be paid to
the Bank by the Borrower as a result of any event referred to in this paragraph
and supporting calculations in reasonable detail shall be presumptively correct
absent manifest error.
ARTICLE 3
Conditions Precedent
Section 3.1 Conditions Precedent to Effectiveness of Agreement and Initial
Advance. The obligation of the Bank to undertake the Commitment, the
effectiveness of this Agreement and the obligation of the Bank to make the
initial Advance hereunder are subject to the prior or contemporaneous
fulfillment of each of the following conditions:
(a) The Bank shall have received each of the following:
(i) this Agreement duly executed;
(ii) a duly executed Note;
(iii) duly executed Shareholder Pledge Agreements, together
with appropriate stock certificates and undated stock powers executed in
blank;
(iv) a duly executed Member Guaranty from each Member;
(v) a duly executed Member Security Agreement from each
Member;
(vi) copies of insurance binders or certificates covering the
assets of the Borrower and its Subsidiaries, and otherwise meeting the
requirements of Section 5.5 hereof;
(vii) legal opinions of Skadden, Arps, Slate, Meagher & Flom
LLP, counsel to MSI and the Borrower, in form and substance satisfactory
to the Bank and its counsel;
(viii) legal opinions of counsel to DSC, in form and substance
satisfactory to the Bank and its counsel;
(ix) a duly executed Request for Advance for the initial
Advance;
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(x) any required consents to the closing of this Agreement or
to the execution, delivery and performance of this Agreement and the
other Loan Documents, each of which shall be in form and substance
reasonably satisfactory to the Bank;
(xi) the loan certificate of the Borrower dated as of the
Agreement Date, in substantially the form attached hereto as Exhibit G,
including a certificate of incumbency with respect to each Authorized
Signatory of such Person, together with the following items: (A) a true,
complete and correct copy of the organizational document and By-laws or
operating agreement of the Borrower as in effect on the Agreement Date,
(B) certificates of good standing for the Borrower issued by the
Secretary of State or similar state official for the state of formation
of the Borrower, and (C) a true, complete and correct copy of the
resolutions of the Borrower authorizing the Borrower to execute, deliver
and perform this Agreement and the other Loan Documents to which it is a
party;
(xii) a loan certificate from each of the Members in
substantially the form attached hereto as Exhibit H, including a
certificate of incumbency with respect to each Authorized Signatory of
such Person, together with the following items: (A) a copy of the
Certificate/Articles of Incorporation or similar organizational document
of each such Member, certified to be true, complete and correct by the
Secretary of State from the jurisdiction of incorporation or formation of
such Member, (B) certificates of good standing for such Member, issued by
the Secretary of State or similar state official for each state in which
such Member is incorporated or qualified to do business, (C) a true,
complete and correct copy of the By-Laws or operating agreement of such
Member, as in effect on the Agreement Date, and (D) a true, complete and
correct copy of the resolutions of such Member authorizing it to execute,
deliver and perform the Loan Documents to which it is a party;
(xiii) receipt by the Bank of all fees payable to the Bank on
the Agreement Date;
(xiv) all such other documents as the Bank may reasonably
request, certified by an appropriate governmental official or an
Authorized Signatory if so requested.
(b) The Borrower shall certify to the Bank that each of the
representations and warranties in Article 4 hereof are true and correct in all
material respects as of the Agreement
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Date and that no Default or Event of Default then exists or is continuing.
Section 3.2 Conditions Precedent to Each Advance. The obligation of the
Bank to make each Advance after the Agreement Date which, if funded, would
increase the principal amount of the Loans outstanding hereunder, is subject to
the fulfillment of each of the following conditions immediately prior to or
contemporaneously with such Advance:
(a) All of the representations and warranties of the Borrower under
this Agreement and the other Loan Documents (including, without limitation, all
representations and warranties with respect to the Borrower's Subsidiaries),
which, pursuant to Section 4.2 hereof, are made at and as of the time of such
Advance, shall be true and correct at such time in all material respects, both
before and after giving effect to the application of the proceeds of such
Advance, and after giving effect to any updates to information provided to the
Bank in accordance with the terms of such representations and warranties, and no
Default or Event of Default shall then exist or be caused thereby;
(b) The Bank shall have received a duly executed Request for
Advance;
(c) With respect to any Advance relating to any Acquisition or the
formation of any Subsidiary which is permitted hereunder, the Bank shall have
received such documents and instruments relating to such Acquisition or
formation of a new Subsidiary as are described in Section 5.12 hereof or
otherwise required herein; and
(d) No Materially Adverse Effect shall have occurred.
ARTICLE 4
Representations and Warranties
Section 4.1 Representations and Warranties. The Borrower hereby agrees,
represents and warrants, upon the Agreement Date, and at all times thereafter as
required pursuant to the terms hereof, in favor of the Bank that:
(a) Organization; Ownership; Power; Qualification. The Borrower is a
limited liability company duly organized, validly existing and in good standing
under the laws of the State of Delaware. The Borrower has the power and
authority to own its properties and to carry on its business as now being and as
proposed hereafter to be conducted. Each Subsidiary is a
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corporation or partnership duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation or formation, as the
case may be, and has the corporate or partnership power, as the case may be, and
authority to own its properties and to carry on its business as now being and as
proposed hereafter to be conducted. The Borrower and each of the Borrower's
Subsidiaries are duly qualified, in good standing and authorized to do business
in each jurisdiction in which the character of their respective properties or
the nature of their respective businesses requires such qualification or
authorization except where failure to so qualify and be qualified would not
reasonably be expected to have a Materially Adverse Effect.
(b) Authorization; Enforceability. The Borrower has the power and
has taken all necessary action to authorize it to borrow hereunder, to execute,
deliver and perform this Agreement and each of the other Loan Documents to which
it is a party in accordance with their respective terms, and to consummate the
transactions contemplated hereby and thereby. This Agreement has been duly
executed and delivered by the Borrower and is, and each of the other Loan
Documents to which the Borrower is a party is, a legal, valid and binding
obligation of the Borrower enforceable against the Borrower in accordance with
their respective terms, subject, as to enforcement of remedies, to the following
qualifications: (i) an order of specific performance and an injunction are
discretionary remedies and, in particular, may not be available where damages
are considered an adequate remedy at law, and (ii) enforcement may be limited by
bankruptcy, insolvency, liquidation, reorganization, reconstruction and other
similar laws affecting enforcement of creditors' rights generally (insofar as
any such law relates to the bankruptcy, insolvency or similar event of the
Borrower).
(c) Subsidiaries: Authorization; Enforceability. The Borrower's
Subsidiaries' and the Borrower's direct and indirect ownership thereof as of the
Agreement Date are as set forth on Schedule 3 attached hereto, and to the extent
such Subsidiaries are corporations, the Borrower has the unrestricted right to
vote the issued and outstanding shares of the Borrower's Subsidiaries shown
thereon and such shares of such Subsidiaries have been duly authorized and
issued and are fully paid and nonassessable. Each Subsidiary has the corporate
or partnership power and has taken all necessary corporate or partnership action
to authorize it to execute, deliver and perform each of the Loan Documents to
which it is a party in accordance with their respective terms and to consummate
the transactions contemplated by this Agreement and by such Loan Documents. Each
of the Loan Documents to which any Subsidiary is party is a legal, valid and
binding obligation of such Subsidiary enforceable against such Subsidiary in
accordance with its terms, subject, as to enforcement of remedies, to the
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following qualifications: (i) an order of specific performance and an injunction
are discretionary remedies and, in particular, may not be available where
damages are considered an adequate remedy at law, and (ii) enforcement may be
limited by bankruptcy, insolvency, liquidation, reorganization, reconstruction
and other similar laws affecting enforcement of creditors' rights generally
(insofar as any such law relates to the bankruptcy, insolvency or similar event
of any such Subsidiary). The Borrower's ownership interest in each of the
Borrower's Subsidiaries represents a direct or indirect controlling interest of
such Subsidiary for purposes of directing or causing the direction of the
management and policies of each Subsidiary.
(d) Compliance with Other Loan Documents and Contemplated
Transactions. The execution, delivery and performance, in accordance with their
respective terms, by the Borrower of this Agreement and the Note, and by the
Borrower and the Borrower's Subsidiaries of each of the other Loan Documents to
which they are respectively parties, and the consummation by the Borrower and
the Borrower's Subsidiaries, as applicable, of the transactions contemplated
hereby and thereby, do not and will not (i) require any consent or approval,
governmental or otherwise, not already obtained other than consents and
approvals that may be required from the FCC in connection with the exercise by
the Bank of certain of its rights and remedies under the Loan Documents, (ii)
violate any Applicable Law respecting the Borrower or any Subsidiary, (iii)
conflict with, result in a breach of, or constitute a default under (A) the
certificate or articles of incorporation or by-laws or partnership or limited
liability company agreements, as the case may be, as amended, of the Borrower or
of any Subsidiary (subject, in the case of the LLC Agreement, to applicable
provisions thereof in connection with any assignment or transfer of interests in
the Borrower or the exercise by the Bank of certain of its remedies under the
Loan Documents), or (B) any material indenture, agreement (subject to the
approval or consent of Alex J. Mandl under the Employment Agreement), or other
instrument, including without limitation, the Licenses (subject to the approval
or consent of the FCC referred to in clause (i)), to which the Borrower or any
of the Borrower's Subsidiaries is a party or by which any of them or their
respective properties may be bound, or (iv) result in or require the creation or
imposition of any Lien upon or with respect to any property now owned or
hereafter acquired by the Borrower or any of the Borrower's Subsidiaries, except
for Permitted Liens, except in the case of (i), (ii), (iii)(B) and (iv), to the
extent there would not be a Materially Adverse Effect.
(e) Business. The Borrower, together with its Subsidiaries, is
engaged in the management and provision of a
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variety of telecommunications services, including providing fixed wireless
services.
(f) Licenses, etc. Except as provided for in Schedule 4 attached
hereto, the Licenses have been duly issued and are in full force and effect. The
Members, the Borrower and the Borrower's Subsidiaries are in compliance in all
material respects with all of the provisions thereof to the extent applicable
thereto and such that there is not an Event of Default under Section 8.1(m)
hereof. The Members, the Borrower and the Borrower's Subsidiaries have secured
all material Necessary Authorizations to conduct the Borrower's business which
it is conducting as of the Agreement Date or as of the date of any Advance, as
the case may be, and, as of such date, all such Necessary Authorizations are in
full force and effect. Except as set forth on Schedule 4 attached hereto or as
otherwise disclosed in writing to the Bank, no License nor any material
Necessary Authorization is the subject of any pending or, to the best of the
Borrower's knowledge, threatened revocation. The Licenses of the Borrower and
its Subsidiaries as of the Agreement Date are set forth on Schedule 1 hereto.
(g) Compliance with Law. The Borrower and the Borrower's
Subsidiaries are in substantial compliance with all material Applicable Law.
(h) Title to Assets. The Borrower and each of the Borrower's
Subsidiaries has good title to, or a valid leasehold interest in, all of its
assets, free and clear of any Liens, except for Permitted Liens. Except for
financing statements evidencing Permitted Liens, no financing statement under
the Uniform Commercial Code as in effect in any jurisdiction and no other filing
which names the Borrower or any of the Borrower's Subsidiaries as debtor or
which covers or purports to cover any of the assets of the Borrower or any of
the Borrower's Subsidiaries is currently effective and on file in any state or
other jurisdiction, and neither the Borrower nor any of the Borrower's
Subsidiaries has signed any such financing statement or filing or any security
agreement authorizing any secured party thereunder to file any such financing
statement or filing.
(i) Litigation. There is no action, suit, proceeding or
investigation pending against, or, to the knowledge of the Borrower, threatened
against the Borrower or any of the Borrower's Subsidiaries or any of their
respective properties, including without limitation the Licenses, in any court
or before any arbitrator of any kind or before or by any governmental body
(including without limitation the FCC) except as set forth on Schedule 4
attached hereto or which (i) calls into question the validity of this Agreement
or any other Loan Document, or (ii) except as set forth in Schedule 4 attached
hereto,
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individually or collectively involves the possibility of any judgment or
liability not fully covered by insurance (subject to applicable deductibles), as
to which, in any such case, there is a reasonable possibility of an adverse
determination and which, if determined adversely to the Borrower or any of the
Borrower's Subsidiaries, could reasonably be expected to have a Materially
Adverse Effect.
(j) Taxes. All federal, state and other tax returns of the Borrower
and each of the Borrower's Subsidiaries required by law to be filed have been
duly filed and all federal, state and other taxes, including, without
limitation, withholding taxes, assessments and other governmental charges or
levies required to be paid by the Borrower or any of the Borrower's Subsidiaries
or imposed upon the Borrower or any of the Borrower's Subsidiaries or any of
their respective properties, income, profits or assets, which are due and
payable, have been paid, except any such taxes (i) (x) the payment of which the
Borrower or any Subsidiary is diligently contesting in good faith by appropriate
proceedings, (y) for which adequate reserves to the extent required by GAAP have
been provided on the books of the Borrower or the Subsidiary involved, and (z)
as to which no Lien other than a Permitted Lien has attached and no foreclosure,
distraint, sale or similar proceedings have been commenced, or (ii) which may
result from audits not yet conducted. The charges, accruals and reserves on the
books of the Borrower and each Subsidiary in respect of taxes are, in the
judgment of the Borrower, adequate.
(k) Financial Statements. The Borrower has furnished or caused to be
furnished to the Bank the unaudited financial statements for the Borrower for
the fiscal period ended September 30, 1996, all of which have been prepared in
accordance with GAAP and present fairly in all material respects the financial
position of the Borrower on and as at such date and the results of operations
for the periods then ended (subject to normal year-end and audit adjustments and
the absence of footnotes). As of the Agreement Date, neither the Borrower nor
any of the Borrower's Subsidiaries has any material liabilities, contingent or
otherwise, other than as disclosed in the financial statements referred to in
the preceding sentence or as set forth or referred to in this Agreement, or as
incurred in the ordinary course of business since the date of such financial
statements, and there are no material unrealized losses of the Borrower or any
of the Borrower's Subsidiaries.
(l) No Material Adverse Change. There has occurred no event since
September 30, 1996 which has or which would reasonably be expected to have a
Materially Adverse Effect, it being understood that the existence, in and of
itself, of the proceedings disclosed on Schedule 4 attached hereto shall not be
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deemed an event which would reasonably be expected to have a Materially Adverse
Effect.
(m) ERISA. The Borrower and each ERISA Affiliate and each of their
respective Plans are in material compliance with ERISA and the Code and neither
the Borrower nor any of its ERISA Affiliates has incurred any material
accumulated funding deficiency with respect to any such Plan within the meaning
of ERISA or the Code which has not been corrected. The Borrower and each ERISA
Affiliate have complied in all material respects with all requirements of COBRA.
Neither the Borrower nor any of its Subsidiaries has made any promises of
retirement or other benefits to employees, except as set forth in the Plans, in
written agreements with such employees, or in the Borrower's employee handbook
and memoranda to employees. Neither the Borrower nor any of its ERISA Affiliates
has incurred any material liability to PBGC in connection with any such Plan.
The assets of each such Plan which is subject to Title IV of ERISA are
sufficient to provide for the payment of all "benefit liabilities" (within the
meaning of Section 4041 of ERISA) due under the Plan upon termination except to
the extent that any such failure to maintain sufficient assets would not result
in any Materially Adverse Effect. No Reportable Event has occurred and is
continuing with respect to any such Plan. Neither the Borrower nor any ERISA
Affiliate has engaged in any "prohibited transaction" (as such term is defined
in Section 406 of ERISA or Section 4975 of the Code) which would subject the
Borrower or any such ERISA Affiliate to any material tax or penalty on
prohibited transactions imposed by ERISA Section 502 or Code Section 4975.
Neither the Borrower nor any ERISA Affiliate has withdrawn from or caused a
partial withdrawal to occur with respect to any Plan which is a Multiemployer
Plan and neither the Borrower nor any ERISA Affiliate knows, has reason to know
or has received notice that any such Plan is in reorganization (as defined in
Code Section 418 or Title IV of ERISA) (which reorganization or withdrawal could
reasonably be expected to have a Materially Adverse Effect). As of the date
hereof, neither the Borrower nor any ERISA Affiliate has any material obligation
or material liability to contribute to any Multiemployer Plan. No withdrawal
liability to any Multiemployer Plan has been or is expected to be incurred which
would result in a Materially Adverse Effect. Neither the Borrower nor any ERISA
Affiliate has engaged in any transaction which could subject it to any material
liability under Section 4096 or Section 4212 of ERISA.
(n) Compliance with Regulations G, T, U and X. Neither the Borrower
nor any of its Subsidiaries is engaged principally or as one of its important
activities in the business of extending credit for the purpose of purchasing or
carrying, and neither the Borrower nor any of its Subsidiaries owns or presently
intends to acquire, any "margin security" or "margin
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stock" as defined in Regulations G, T, U, and X (12 C.F.R. Parts 207, 220, 221
and 224) of the Board of Governors of the Federal Reserve System (herein called
"margin stock"). None of the proceeds of the Loans will be used, directly or
indirectly, for the purpose of purchasing or carrying any margin stock or for
the purpose of reducing or retiring any Indebtedness which was originally
incurred to purchase or carry margin stock or for any other purpose which might
constitute this transaction a "purpose credit" within the meaning of said
Regulations G, T, U, and X. The Borrower has not taken, caused or authorized to
be taken, and will not take any action which might cause this Agreement or the
Note to violate Regulation G, T, U, or X or any other regulation of the Board of
Governors of the Federal Reserve System or to violate the Securities Exchange
Act of 1934, in each case as now in effect or as the same may hereafter be in
effect. If so requested by the Bank, the Borrower will furnish the Bank with (i)
a statement or statements in conformity with the requirements of Federal Reserve
Forms G-3 and/or U-1 referred to in Regulations G and U of said Board of
Governors and (ii) other documents evidencing its compliance with the margin
regulations, reasonably requested by the Bank. Neither the making of the Loans
nor the use of proceeds thereof will violate, or be inconsistent with, the
provisions of Regulation G, T, U, or X of said Board of Governors.
(o) Investment Company Act. Neither the Borrower nor any of its
Subsidiaries is required to register under the provisions of the Investment
Company Act of 1940, as amended, and neither the entering into or performance by
the Borrower and its Subsidiaries of this Agreement and the Loan Documents to
which they are respectively parties nor the issuance of the Note violates any
provision of such Act or requires any consent, approval or authorization of, or
registration with, the Securities and Exchange Commission or any other
governmental or public body or authority pursuant to any provisions of such Act.
(p) Governmental Regulation. Neither the Borrower nor any of the
Borrower's Subsidiaries is required to obtain any consent, approval,
authorization, permit or license which has not already been obtained from, or
effect any filing or registration which has not already been effected with, any
federal, state or local regulatory authority in connection with the performance,
in accordance with their respective terms, of this Agreement or any other Loan
Document the failure of which to obtain could have a Materially Adverse Effect.
(q) Absence of Default, Etc. The Borrower and the Borrower's
Subsidiaries are in compliance in all material respects with all of the
provisions of their respective partnership agreements, Certificates or Articles
of Incorporation or similar organizational document and By-Laws or operating
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agreement, as the case may be, and no event has occurred or failed to occur
(including, without limitation, any matter which could create a Default
hereunder by cross-default) which has not been remedied or waived, the
occurrence or non-occurrence of which constitutes a Default. Except as set forth
on Schedules 4 and 5 attached hereto, neither the Borrower nor any of the
Borrower's Subsidiaries is a party to or bound by any contract or agreement
continuing after the Agreement Date, or bound by any Applicable Law, that could
reasonably be expected to have a Materially Adverse Effect or result in the loss
of any License.
(r) Accuracy and Completeness of Information. All information,
reports, prospectuses and other papers and data relating to the Borrower or any
of its Subsidiaries and furnished by or on behalf of the Borrower or any of its
Subsidiaries to the Bank were, at the time furnished, true, complete and correct
in all material respects to the extent necessary to give the Bank true and
accurate knowledge of the subject matter.
(s) Agreements with Affiliates. Except for agreements or
arrangements with Affiliates wherein the Borrower or one or more of the
Borrower's Subsidiaries provides goods or services to or receives goods or
services from such Affiliates for fair consideration or which are set forth on
Schedule 5 attached hereto, neither the Borrower nor any of the Borrower's
Subsidiaries has (i) any written agreements or binding arrangements of any kind
with any Affiliate or (ii) any management or consulting agreements of any kind
with any Affiliate.
(t) Payment of Wages. The Borrower and each of the Borrower's
Subsidiaries are in compliance with the Fair Labor Standards Act, as amended, in
all material respects, and to the knowledge of the Borrower and each of the
Borrower's Subsidiaries, such Persons have paid all minimum and overtime wages
required by law to be paid to their respective employees.
(u) Priority. The Security Interest is a valid and, to the extent
required by Applicable Law, upon the filing of appropriate financing statements,
perfected first priority security interest in the Collateral in favor of the
Bank, securing, in accordance with the terms of the Security Documents, the
Obligations, and the Collateral is subject to no Liens other than Permitted
Liens.
(v) Patents, Trademarks, etc. The Borrower and each of the
Borrower's Subsidiaries owns, possesses or has the right to use all material
licenses and rights to all material patents, Trademarks, trademark rights, trade
names, trade name rights, service marks, and copyrights, and rights with respect
thereto, necessary to conduct its business in all material respects as now
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conducted, without known conflict with any patent, Trademark, trade name,
service mark, license or copyright of any other Person, and in each case, with
respect to patents, Trademarks, trademark rights, trade names, trade name and
copyrights and licenses with respect thereto owned by Borrower or the Borrower's
Subsidiaries, subject to no mortgage, pledge, lien, lease, encumbrance, charge,
security interest, title retention agreement or option except for Permitted
Liens. All such licenses and rights with respect to patents, Trademarks,
trademark rights, trade names, trade name rights, service marks and copyrights
are in full force and effect, and to the extent applicable, the Borrower and the
Borrower's Subsidiaries are in compliance in all material respects with all of
the provisions thereof. No such material patent, Trademark, trademark rights,
trade names, trade name rights, service marks, copyrights or licenses is subject
to any pending (of which the Borrower has received notice) or, to the best of
the Borrower's knowledge, threatened attack or revocation.
Section 4.2 Survival of Representations and Warranties, etc. All
representations and warranties made under this Agreement and any other Loan
Document shall be deemed to be made, and shall be true and correct, at and as of
the Agreement Date and on the date of each Advance except to the extent
previously modified or waived in accordance with the terms hereof and to the
extent relating specifically to the Agreement Date or some other date. All
representations and warranties made under this Agreement and the other Loan
Documents shall survive, and not be waived by, the execution hereof by the Bank,
any investigation or inquiry by the Bank or the making of any Advance under this
Agreement.
ARTICLE 5
General Covenants
So long as any of the Obligations is outstanding and unpaid or the Bank
has an obligation to fund Advances hereunder (whether or not the conditions to
borrowing have been or can be fulfilled), and unless the Bank shall otherwise
consent in writing:
Section 5.1 Preservation of Existence and Similar Matters. The Borrower
will, and will cause each of the Borrower's Subsidiaries to:
(a) except as permitted in Section 7.4 hereof, preserve and maintain
its existence, and its material rights, franchises, licenses and
privileges in the state of its organization; and
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(b) qualify and remain qualified and authorized to do business in
each jurisdiction in which the character of its properties or the nature
of its business requires such qualification or authorization except where
the failure to so qualify and be authorized could not reasonably be
expected to have a Materially Adverse Effect.
Section 5.2 Business; Compliance with Applicable Law. The Borrower will,
and will cause each of the Borrower's Subsidiaries to, (a) engage in the
business described in Section 4.1(e) hereof and related businesses and no
unrelated activities, and (b) comply in all material respects with the
requirements of all Applicable Law.
Section 5.3 Maintenance of Properties. The Borrower will, and will cause
each of the Borrower's Subsidiaries to, maintain or cause to be maintained in
the ordinary course of business in good repair, working order and condition
(reasonable wear and tear excepted) all properties used in their respective
businesses (whether owned or held under lease), other than obsolete equipment or
unused assets and from time to time make or cause to be made all needed and
appropriate repairs, renewals, replacements, additions, betterments and
improvements thereto.
Section 5.4 Accounting Methods and Financial Records. The Borrower will,
and will cause each of its Subsidiaries on a consolidated and consolidating
basis to, maintain a system of accounting established and administered in
accordance with GAAP, keep adequate records and books of account in which
complete entries will be made in accordance with GAAP and reflecting all
transactions required to be reflected by GAAP and keep accurate and complete
records of their respective properties and assets. The Borrower and its
Subsidiaries will maintain a fiscal year ending on December 31.
Section 5.5 Insurance.
(a) The Borrower will, and will cause each of the Borrower's
Subsidiaries to:
(i) Maintain insurance including, but not limited to, public
liability coverage insurance from responsible companies in such amounts
and against such risks to the Borrower and each of the Borrower's
Subsidiaries as is prudent for similarly situated companies engaged in the
wireless telecommunications industry; and
(ii) Keep their respective assets insured against loss or
damage by fire, theft, burglary, loss in transit, explosions and hazards
by extended coverage, in amounts which are prudent for similarly situated
companies engaged
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in the wireless telecommunications industry; all premiums thereon to be
paid by or on behalf of the Borrower and its Subsidiaries.
(b) In the event that the Borrower or any of the Borrower's
Subsidiaries receives the proceeds in respect of any of the assets of any of the
Borrower's Subsidiaries of any insurance maintained pursuant to Section
5.5(a)(ii) hereof in excess of $1,000,000 in any calendar year, which proceeds
are not committed to be used within twelve (12) calendar months from receipt
thereof by the Borrower or the Borrower's Subsidiaries, as the case may be, to
obtain replacement assets, the Borrower shall make a principal payment of the
Loans in an amount equal to the amount of such proceeds. Any payment hereunder
shall be deemed to be Net Proceeds and applied in accordance with, and subject
to, Section 2.7(c) hereof, and shall permanently reduce the Commitment in
accordance with Section 2.5(a) hereof.
Section 5.6 Payment of Taxes and Claims. The Borrower will, and will cause
each of the Borrower's Subsidiaries to, pay and discharge all material taxes,
including, without limitation, withholding taxes, assessments and governmental
charges or levies required to be paid by them or imposed upon them or their
income or profits or upon any properties belonging to them, prior to the date on
which penalties attach thereto, and all lawful claims for labor, materials and
supplies which, if unpaid, would reasonably be expected to become a Lien or
charge upon any of their properties; except that no such tax, assessment,
charge, levy or claim need be paid which is being diligently contested in good
faith by appropriate proceedings and for which adequate reserves to the extent
required by GAAP shall have been set aside on the appropriate books, but only so
long as such tax, assessment, charge, levy or claim does not become a Lien or
charge other than a Permitted Lien and no foreclosure, distraint, sale or
similar proceedings shall have been commenced. The Borrower will, and will cause
each of the Borrower's Subsidiaries to, timely file all material information
returns required by federal, state or local tax authorities.
Section 5.7 Compliance with ERISA.
(a) The Borrower shall, and shall cause the Borrower's Subsidiaries
to, make all contributions to any Employee Pension Plan when such contributions
are due and not incur any "accumulated funding deficiency" within the meaning of
Section 412(a) of the Code, whether or not waived, and will otherwise comply
with the requirements of the Code and ERISA with respect to the operation of all
Plans, except to the extent that the failure to so comply would not reasonably
be expected to have a Materially Adverse Effect.
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(b) The Borrower shall, and shall cause the Borrower's Subsidiaries
to, comply in all respects with the requirements of COBRA with respect to any
Plans subject to the requirements thereof, except to the extent that the failure
to so comply would not reasonably be expected to have a Materially Adverse
Effect.
(c) The Borrower shall furnish to the Bank (i) within 30 days after
any officer of the Borrower obtains knowledge that (A) a "prohibited
transaction" (within the meaning of Section 406 of ERISA or Section 4975 of the
Code) has occurred with respect to any Plan of the Borrower or its ERISA
Affiliates, (B) any Reportable Event with respect to which the reporting
requirement under ERISA Section 4043 has not been waived or which could result
in a Materially Adverse Effect has occurred with respect to any Employee Pension
Plan or (C) PBGC has instituted or will institute proceedings under Title IV of
ERISA to terminate any Employee Pension Plan or to appoint a trustee to
administer any Employee Pension Plan, a statement setting forth the details as
to such prohibited transaction, Reportable Event or termination or appointment
proceedings and the action which it (or any other Employee Pension Plan sponsor
if other than the Borrower) proposes to take with respect thereto, together with
a copy of the notice of such Reportable Event given to PBGC if a copy of such
notice is available to the Borrower or any of its ERISA Affiliates, (ii)
promptly after receipt thereof, a copy of any material notice the Borrower or
any of its ERISA Affiliates receives from PBGC, or the Internal Revenue Service
or the Department of Labor which sets forth or proposes any action or
determination with respect to such Plan, (iii) promptly after the filing
thereof, any annual report required to be filed pursuant to ERISA in connection
with each Plan maintained by the Borrower or any of its ERISA Affiliates,
including only the Borrower's Subsidiaries, and (iv) promptly upon the Bank's
request therefor, such additional information concerning any such Plan as may be
reasonably requested by the Bank.
(d) The Borrower will promptly notify the Bank of any material
excise taxes which have been assessed or which the Borrower or any of its ERISA
Affiliates has reason to believe may be assessed against the Borrower or any of
its ERISA Affiliates by the Internal Revenue Service or the Department of Labor
with respect to any Plan of the Borrower or its ERISA Affiliates.
(e) Within the time required for notice to the PBGC under Section
302(f)(4)(A) of ERISA, the Borrower will notify the Bank of any lien arising
under Section 302(f) of ERISA in favor of any Plan of the Borrower or its ERISA
Affiliates.
(f) The Borrower will notify the Bank within 30 days after Borrower
or any ERISA Affiliate has any material present or future obligation to make or
to contribute to a Multiemployer
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Plan, and such notification will include the projected contributions for the
next twelve months. The Borrower will notify the Bank within 30 days after the
Borrower or any ERISA Affiliate knows that any Multiemployer Plan under which
the Borrower or any such ERISA Affiliate is an employer, is in reorganization,
as defined in Code Section 418 or Title IV of ERISA, or is insolvent. The
Borrower will promptly notify the Bank of any withdrawal liability imposed upon
the Borrower or any ERISA Affiliate under ERISA Section 4201(a) with respect to
any Plan.
(g) The Borrower will not, and will not permit any of its ERISA
Affiliates to take any of the following actions or permit any of the following
events to occur if such action or event together with all other such actions or
events would subject the Borrower or any of its ERISA Affiliates to any tax,
penalty, or other liabilities which would reasonably be expected to have a
Materially Adverse Effect:
(i) engage in any transaction in connection with which the
Borrower or any ERISA Affiliate could be subject to either a civil penalty
assessed pursuant to Section 502(i) of ERISA or a tax imposed by Section
4975 of the Code;
(ii) terminate any Employee Pension Plan in a manner, or take
any other action, which would result in any liability of the Borrower or
any ERISA Affiliate to the PBGC;
(iii) fail to make full payment when due of all amounts which,
under the provisions of any Plan, the Borrower or any ERISA Affiliate is
required to pay as contributions thereto, or permit to exist any
accumulated funding deficiency within the meaning of Section 412(a) of the
Code, whether or not waived, with respect to any Employee Pension Plan; or
(iv) permit the present value of all benefit liabilities under
all Employee Pension Plans which are subject to Title IV of ERISA to
exceed the present value of the assets of such Plans allocable to such
benefit liabilities (within the meaning of Section 4041 of ERISA), except
as may be permitted under actuarial funding standards adopted in
accordance with Section 412 of the Code.
Section 5.8 Visits and Inspections. The Borrower will, and will cause each
of the Borrower's Subsidiaries to, permit representatives of the Bank, to (i)
visit and inspect the properties of the Borrower or any of the Borrower's
Subsidiaries during business hours (which, prior to the occurrence and
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continuation of a Default shall require reasonable prior notice by the Bank),
(ii) inspect and make extracts from and copies of their respective books and
records, and (iii) discuss with their respective principal officers their
respective businesses, assets, liabilities, financial positions, results of
operations and business prospects. The Borrower and each of the Borrower's
Subsidiaries will also permit representatives of the Bank to discuss with their
respective accountants the Borrower's and the Borrower's Subsidiaries'
businesses, assets, liabilities, financial positions, results of operations and
business prospects.
Section 5.9 Payment of Indebtedness; Loans. Subject to any provisions
herein or in any other Loan Document, the Borrower will, and will cause each of
the Borrower's Subsidiaries to, pay any and all of their respective Indebtedness
when and as it becomes due or to the extent of trade payables of such Persons
otherwise in accordance with ordinary business practices customary for similarly
situated companies in the wireless telecommunications industry, other than
amounts diligently disputed in good faith and for which adequate reserves have
been set aside in accordance with GAAP.
Section 5.10 Use of Proceeds. The Borrower may only use the aggregate
proceeds of all Advances directly or indirectly: (a) to fund Capital
Expenditures; (b) for working capital needs (including interest payments and
fees with respect to the Loans) and for general corporate purposes; and (c)
Acquisitions described in clause (c) of the definition of Acquisitions set forth
herein. No proceeds of Advances hereunder shall be used for the purchase or
carrying or the extension of credit for the purpose of purchasing or carrying,
any margin stock within the meaning of Regulations G, T, U, and X of the Board
of Governors of the Federal Reserve System.
Section 5.11 Indemnity. The Borrower agrees to indemnify and hold harmless
the Bank and its affiliates, employees, representatives, shareholders, officers
and directors (any of the foregoing shall be an "Indemnitee") from and against
any and all claims, liabilities, losses, damages, actions, reasonable attorneys'
fees and expenses (as such fees and expenses are incurred) and demands by any
party, including the costs of investigating and defending such claims, whether
or not the Borrower, any Subsidiary or the Person seeking indemnification is the
prevailing party (a) resulting from any breach or alleged breach by the Borrower
or any Subsidiary of the Borrower of any representation or warranty made
hereunder; or (b) otherwise arising out of (i) the Commitment or otherwise under
this Agreement, any Loan Document or any transaction contemplated hereby or
thereby, including, without limitation, the use of the proceeds of Loans
hereunder in any fashion by the Borrower or the
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performance of their respective obligations under the Loan Documents by the
Borrower or any of the Borrower's Subsidiaries, (ii) allegations of any
participation by the Bank in the affairs of the Borrower or any of its
Subsidiaries, or allegations that any of them has any joint liability with the
Borrower or any of its Subsidiaries for any reason, (iii) any claims against the
Bank by any shareholder or other investor in or lender to the Borrower or any
Subsidiary of the Borrower, by any brokers or finders or investment advisers or
investment bankers retained by the Borrower or by any other third party, arising
out of the Commitment or otherwise under this Agreement or any other Loan
Document; or (c) in connection with taxes (not including federal or state income
taxes or taxes based upon the revenues of such Persons), fees, and other charges
payable in connection with the Loans, or the execution, delivery, and
enforcement of this Agreement, the Security Documents, the other Loan Documents,
and any amendments thereto or waivers of any of the provisions thereof; unless
the Person seeking indemnification hereunder is determined in such case to have
acted with gross negligence or willful misconduct, in any case, by a final,
non-appealable judicial order and provided that the foregoing indemnification
obligation shall not apply to the extent such claims, liabilities, losses,
damages, actions or attorneys' fees result from the breach of any Loan Document
by the Person seeking indemnification. The obligations of the Borrower under
this Section 5.11 are in addition to, and shall not otherwise limit, any
liabilities which the Borrower might otherwise have in connection with any
warranties or similar obligations of the Borrower in any other Loan Document.
Section 5.12 Covenants Regarding Formation of Subsidiaries and
Acquisitions; Partnership, Subsidiaries. At the time (i) of any Acquisition by a
Subsidiary, (ii) of any Acquisition of a Person which becomes a Subsidiary,
(iii) of the formation of any new Subsidiary which is permitted under this
Agreement, or (iv) any Subsidiary of the Borrower existing on the Agreement Date
obtains any License or other authorization to provide telecommunications
services or has assets with a value in excess of $100,000, the Borrower will,
and will cause the Borrower's Subsidiaries, as appropriate, to (a) provide to
the Bank an executed security agreement for such Subsidiary in form and
substance reasonably satisfactory to the Bank which shall constitute both a
Security Document and a Loan Document for purposes of this Agreement, as well as
a loan certificate for such Subsidiary in form and substance reasonably
satisfactory to the Bank, together with appropriate attachments; (b) pledge to
the Bank all of the stock or partnership interests (or other instruments or
securities evidencing ownership) of such Subsidiary which is acquired or formed,
beneficially owned by the Borrower or any of the Borrower's Subsidiaries, as the
case may be, as additional Collateral for the Obligations to be held by
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the Bank in accordance with the terms of an extant Borrower Pledge Agreement in
form and substance reasonably satisfactory to the Bank or Subsidiary pledge
agreement in form and substance reasonably satisfactory to the Bank, or an
assignment of rights by partner in form and substance reasonably satisfactory to
the Bank, and execute and deliver to the Bank all such documentation for such
pledge as, in the reasonable opinion of the Bank, is appropriate; (c) upon
reasonable request by the Bank, provide revised financial projections for the
remainder of the fiscal year and for each subsequent year until the Maturity
Date which reflect such Acquisition or formation, certified by the Chief
Financial Officer of the Borrower, together with a statement by such Person that
no Default exists or would be caused by such Acquisition or formation, (d)
obtain all material authorizations for the execution and delivery of the
foregoing documents, and (e) all other documentation, including one or more
opinions of counsel, reasonably satisfactory to the Bank which in its reasonable
opinion is appropriate with respect to such Acquisition or the formation of such
Subsidiary. Any document, agreement or instrument executed or issued pursuant to
this Section 5.12 shall be a "Loan Document" for purposes of this Agreement.
Section 5.13 Payment of Wages. The Borrower shall and shall cause each of
the Borrower's Subsidiaries to at all times comply, in all material respects,
with the requirements of the Fair Labor Standards Act, as amended, including,
without limitation, the provisions of such Act relating to the payment of
minimum and overtime wages as the same may become due from time to time.
Section 5.14 Maintenance of Licenses. The Borrower shall and shall cause
each of the Borrower's Subsidiaries to use their respective best efforts to
maintain all Licenses to the extent required such that there will not be an
Event of Default under Section 8.1(m) hereof. As of any date during the term of
this Agreement, the Borrower shall and shall cause each of the Borrower's
Subsidiaries to (a) obtain and maintain all Necessary Authorizations required to
conduct the Borrower's or such Subsidiary's business and operations as then
conducted, and (b) maintain all Necessary Authorizations in place on the
Agreement Date to the extent that failure to maintain such Necessary
Authorization would be reasonably likely to cause a Materially Adverse Effect.
Section 5.15 Further Assurances. The Borrower will promptly cure, or cause
to be cured, defects in the creation and issuance of any of the Note and the
execution and delivery of any of the Loan Documents (including this Agreement),
resulting from any acts or failure to act by the Borrower or any of the
Borrower's Subsidiaries or any employee or officer thereof. The
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Borrower at its expense will promptly execute and deliver to the Bank, or cause
to be executed and delivered to the Bank, all such other and further documents,
agreements, and instruments in compliance with or accomplishment of the
covenants and agreements of the Borrower in the Loan Documents, including this
Agreement or to obtain any consents required in connection with the Loan
Documents and as may be reasonably requested.
ARTICLE 6
Information Covenants
So long as any of the Obligations is outstanding and unpaid or the Bank
has an obligation to fund Advances hereunder (whether or not the conditions to
borrowing have been or can be fulfilled) and unless the Bank shall otherwise
consent in writing, the Borrower will furnish or cause to be furnished to the
Bank the following:
Section 6.1 Quarterly Financial Statements and Information. Within
forty-five (45) days after the last day of each quarter of each fiscal year of
the Borrower, the balance sheet of the Borrower and the balance sheet of the
Borrower's Subsidiaries as at the end of such quarter and as of the end of the
preceding fiscal year, and the related statements of operations and the related
statements of cash flows of the Borrower and of the Borrower's Subsidiaries for
such quarter and for the elapsed portion of the year ended with the last day of
such period, which shall set forth in comparative form such figures as at the
end of and for such period and appropriate prior period and shall be certified
by the chief financial officer of the Borrower to have been prepared in
accordance with GAAP and to present fairly in all material respects the
financial position of the Borrower and the Borrower's Subsidiaries as at the end
of such period and the results of operations for such period, and for the
elapsed portion of the year ended with the last day of such period, subject only
to normal year-end and audit adjustments and the absence of footnotes.
Section 6.2 Annual Financial Statements and Information. No later than
April 30, 1997, the audited consolidated balance sheet of the Borrower and its
Subsidiaries as of the end of 1996 and the related audited consolidated and
unaudited consolidating statements of operations for such fiscal year, the
related audited consolidated statements of cash flow and stockholders' equity
for such fiscal year, which shall be accompanied by an opinion which shall be in
scope and substance reasonably satisfactory to the Bank of independent certified
public accountants of recognized national standing reasonably acceptable to the
Bank.
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Section 6.3 Performance Certificates.
(a) Within ten (10) days following the last day of each calendar
month, a certificate of the president or chief financial officer of the Borrower
as to its financial performance in form and substance reasonably satisfactory to
the Bank, (1) stating that the signer has reviewed the terms of this Agreement
and that in the course of the performance of his or her duties, he or she would
normally have knowledge of any condition or event which would constitute a
Default and certifying that, to the best of his or her knowledge, no Default or
Event of Default has occurred as at the end of such quarter or year, as the case
may be, or, if a Default or an Event of Default has occurred, disclosing each
such Default or Event of Default and its nature, when it occurred, whether it is
continuing, and the steps being taken by the Borrower with respect to such
Default or Event of Default, (2) containing a status update with respect to all
material Necessary Authorizations being sought by the Borrower and its
Subsidiaries as of the last such certificate and on the date of such
certificate, and (3) summarizing the progress with respect to any build-out
requirements of any Licenses.
(b) No later than July 15, 1997, a certificate of the president,
chief executive officer or chief financial officer of the Borrower certifying
that to its knowledge the Borrower has satisfied the buildout requirements for
each of the Licenses set forth in Schedule 1 attached hereto.
Section 6.4 Copies of Other Reports.
(a) Promptly upon receipt thereof, copies of all management letters,
if any, submitted to the Borrower by the Borrower's independent public
accountants regarding the Borrower.
(b) Promptly upon receipt thereof, copies of any material adverse
notice or report regarding any License.
(c) From time to time and promptly upon each request, such data,
certificates, reports, statements, documents or further information regarding
the business, assets, liabilities, financial position, projections, results of
operations or business prospects of the Borrower or any of the Borrower's
Subsidiaries, as the Bank may reasonably request.
(d) Promptly after the sending thereof, copies of all statements,
reports and other information which the Borrower or any of the Borrower's
Subsidiaries sends to security holders of the Borrower generally.
Section 6.5 Notice of Litigation and Other Matters. Notice specifying the
nature and status of any of the following
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events, promptly, but in any event not later than five (5) Business Days after
the occurrence of any of the following events becomes known to the Borrower:
(i) the commencement of all actions, proceedings and
investigations by or before any governmental body and all actions and
proceedings in any court or before any arbitrator against, the Borrower or
any Subsidiary, or any of their respective properties, assets or
businesses or any License which, if determined adversely to the Borrower
or such Subsidiary, could reasonably be expected to have a Materially
Adverse Effect;
(ii) any material adverse change with respect to the business,
assets, liabilities, financial position, results of operations or business
prospects of the Borrower or any Subsidiary other than changes in the
ordinary course of business which have not had and would not reasonably be
expected to have a Materially Adverse Effect;
(iii) any Default or the occurrence or non-occurrence of any
event (A) which constitutes, or which with the passage of time or giving
of notice or both would constitute a default by the Borrower or any
Subsidiary under any material agreement other than this Agreement and the
other Loan Documents to which the Borrower or any Subsidiary is party or
by which any of their respective properties may be bound, and (B) which
could reasonably be expected to have a Materially Adverse Effect, giving
in each case the details thereof and specifying the action proposed to be
taken with respect thereto;
(iv) the occurrence of any Reportable Event or a "prohibited
transaction" (as such term is defined in Section 406 of ERISA or Section
4975 of the Code) with respect to any Plan of the Borrower or the
institution or threatened institution by PBGC of proceedings under ERISA
to terminate or to partially terminate any such Plan or the commencement
or threatened commencement of any litigation regarding any such Plan or
naming it or the trustee of any such Plan with respect to such Plan or any
action taken by the Borrower or any ERISA Affiliate of the Borrower to
withdraw or partially withdraw from any Plan or to terminate any Plan; and
(v) the occurrence of any event subsequent to the Agreement
Date which, if such event had occurred prior to the Agreement Date, would
have constituted an exception to the representation and warranty in
Section 4.1(m) of this Agreement.
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ARTICLE 7
Negative Covenants
So long as any of the Obligations is outstanding and unpaid or the Bank
has an obligation to fund Advances hereunder (whether or not the conditions to
borrowing have been or can be fulfilled) and unless the Bank shall otherwise
give its prior consent in writing:
Section 7.1 Indebtedness for Money Borrowed of the Borrower and its
Subsidiaries. The Borrower shall not, and shall not permit any of its
Subsidiaries to, create, assume, incur or otherwise become or remain obligated
in respect of, or permit to be outstanding, any Indebtedness for Money Borrowed
except:
(a) the Obligations;
(b) operating accounts payable, accrued expenses and customer
advance payments incurred in the ordinary course of business and taxes,
assessments, governmental charges or similar claims;
(c) Indebtedness secured by Permitted Liens;
(d) Obligations under Interest Hedge Agreements in respect of the
Loans;
(e) Indebtedness for Money Borrowed of the Borrower or the
Borrower's Subsidiaries which does not exceed $2,000,000 in the aggregate at any
one time outstanding; provided such Indebtedness for Money Borrowed is (1)
purchase money Indebtedness of any of the Borrower's Subsidiaries that is
incurred or assumed to finance part or all of (but not more than) the purchase
price of a tangible asset in which neither the Borrower nor such Subsidiary had
at any time prior to such purchase any interest other than a security interest
or an interest as lessee under an operating lease, (2) Capitalized Lease
Obligations of any of the Borrower's Subsidiaries, or (3) reimbursement
obligations of any of the Borrower's Subsidiaries with respect to letters of
credit; and
(f) Affiliate Subordinated Debt.
Section 7.2 Limitation on Liens. The Borrower shall not, and shall not
permit any of the Borrower's Subsidiaries to, create, assume, incur or permit to
exist or to be created, assumed, incurred or permitted to exist, directly or
indirectly, any Lien on any of its properties or assets (including, without
limitation, transmitting or receiving equipment of any type, fiber or any other
type of interconnection media, telephone
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switches of any type, Licenses, or any contract (whether in the name of the
Borrower or otherwise) pursuant to which the Borrower or any of the Borrower's
Subsidiaries provides telecommunications services), used in the business or
operations of the Borrower or any of the Borrower's Subsidiaries whether now
owned or hereafter acquired, except for Permitted Liens, and shall not, after
the Agreement Date, undertake, covenant or agree with any other Person that it
will not create, assume, incur or permit to exist or to be created, assumed,
incurred or permitted to exist any first priority lien by the Bank on any of
such assets.
Section 7.3 Amendment and Waiver. The Borrower shall not, and shall not
permit any of the Borrower's Subsidiaries to, enter into any amendment of, or
agree to or accept or consent to any waiver of any of the material provisions of
its articles or certificate of incorporation or partnership agreement or other
organizational agreement, as appropriate, or any management or service agreement
with any Member or any material employment agreement.
Section 7.4 Liquidation, Merger, or Disposition of Assets.
(a) Disposition of Assets. The Borrower shall not, and shall not
permit any of the Borrower's Subsidiaries to, at any time sell, lease, abandon,
or otherwise dispose of any assets (other than assets disposed of or leased in
the ordinary course of business) without the prior written consent of the Bank;
provided, however, that the prior written consent of the Bank shall not be
required for Permitted Asset Sales.
(b) Liquidation or Merger. The Borrower shall not, and shall not
permit any of the Borrower's Subsidiaries to, at any time liquidate or dissolve
itself (or suffer any liquidation or dissolution) or otherwise wind up, or enter
into any merger, other than (i) a merger or consolidation among the Borrower and
one or more Subsidiaries, provided the Borrower is the surviving corporation, or
(ii) a merger between or among two or more Subsidiaries, or (iii) in connection
with an Acquisition permitted hereunder effected by a merger in which the
Borrower or, in a merger in which the Borrower is not a party, its Subsidiary is
the surviving corporation.
Section 7.5 Limitation on Guaranties. The Borrower shall not, and shall
not permit any of the Borrower's Subsidiaries to, at any time Guaranty, assume,
be obligated with respect to, or permit to be outstanding any Guaranty of, any
obligation of any other Person other than (a) a guaranty by endorsement of
negotiable instruments for collection in the ordinary course of business, or (b)
obligations under agreements of the Borrower or any of its Subsidiaries entered
into in connection with leases of
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real property or the acquisition of services, supplies and equipment in the
ordinary course of business of the Borrower or any of its Subsidiaries or other
Affiliates, or (c) Guaranties of Indebtedness incurred as permitted pursuant to
Sections 7.1(f) hereof, or (d) as may be contained in any Loan Document.
Section 7.6 Investments and Acquisitions. The Borrower shall not, and
shall not permit any of the Borrower's Subsidiaries to, directly or indirectly
make any loan or advance, or otherwise acquire for consideration evidences of
Indebtedness, capital stock or other securities of any Person or other assets or
property (other than assets or property (i) acquired in the ordinary course of
business, (ii) received in connection with a capital contribution from a Member
or (iii) received in connection with a Permitted Asset Sale), or make any
Acquisition:
(a) the Borrower and the Borrower's Subsidiaries may, directly or
through a brokerage account (i) purchase marketable, direct obligations of the
United States of America, its agencies and instrumentalities maturing within
three hundred sixty-five (365) days of the date of purchase, (ii) purchase
commercial paper issued by corporations, each of which shall have a combined net
worth of at least $100 million and each of which conducts a substantial part of
its business in the United States of America, maturing within two hundred
seventy (270) days from the date of the original issue thereof, and rated "P-2"
or better by Moody's Investors Service, Inc. or "A-2" or better by Standard and
Poor's, a division of McGraw-Hill, Inc., and (iii) purchase repurchase
agreements, bankers' acceptances, and certificates of deposit maturing within
three hundred sixty-five (365) days of the date of purchase which are issued by,
or time deposits maintained with, a United States national or state bank the
deposits of which are insured by the Federal Deposit Insurance Corporation or
the Federal Savings and Loan Insurance Corporation and having capital, surplus
and undivided profits totaling more than $100 million and rated "A" or better by
Moody's Investors Service, Inc. or Standard and Poor's, a division of
McGraw-Hill, Inc.;
(b) except that so long as no Default then exists or would be caused
thereby and subject to compliance with Section 5.12 hereof (to the extent
applicable), the Borrower or any of its Subsidiaries may make Acquisitions
during the term hereof which do not require cash payments (or transfers of
tangible assets) by the Borrower in an aggregate amount after the Agreement Date
in excess of $12,000,000; and
(c) except that so long as no Event of Default under Section 8.1(s)
hereof then exists or would be caused thereby, each of MSI and DSC may transfer
the Licenses held by such Person to the Borrower as a contribution of capital.
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Notwithstanding the foregoing, it is expressly understood and agreed that the
Borrower's performance of its obligations existing under the Employment
Agreement shall not constitute a breach or default under Section 7.6 hereof or
any other provision of any Loan Document (other than Section 8.1(a) hereof).
Section 7.7 Restricted Payments and Purchases. The Borrower shall not, and
shall not permit any of the Borrower's Subsidiaries to, directly or indirectly
declare or make any Restricted Payment or Restricted Purchase; provided,
however, that the Borrower may make payments required under the Management and
Services Agreement and the Employment Agreement.
Section 7.8 Affiliate Transactions. Except as specifically provided herein
(including, without limitation, Sections 7.4 and 7.6 hereof) and as may be
described on Schedule 5 attached hereto, the Borrower shall not, and shall not
permit any of the Borrower's Subsidiaries to, at any time engage in any
transaction with an Affiliate, or make an assignment or other transfer of any of
its properties or assets to any Affiliate, on terms less advantageous to the
Borrower or such Subsidiary than would be the case if such transaction had been
effected with a non-Affiliate.
Section 7.9 ERISA Liabilities. The Borrower shall not, and shall cause
each of its ERISA Affiliates not to, (i) permit the assets of any of their
respective Plans to be less than the amount necessary to provide all accrued
benefits under such Plans to the extent that any such failure to maintain
sufficient assets could reasonably be expected to result in a Materially Adverse
Effect.
Section 7.10 Limitation on Upstream Dividends by Subsidiaries. The
Borrower shall not permit any Subsidiary to enter into or agree, or otherwise
become subject, to any agreement, contract or other arrangement with any Person
pursuant to the terms of which (a) such Subsidiary is or would be prohibited
from declaring or paying any cash dividends or distributions on any class of its
stock or any partnership interests owned directly or indirectly by the Borrower
or from making any other distribution on account of any class of any such stock
or any such partnership interests (herein referred to as "Upstream Dividends")
or (b) the declaration or payment of Upstream Dividends by a Subsidiary to the
Borrower or to another Subsidiary, on an annual or cumulative basis, is or would
be otherwise limited or restricted.
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ARTICLE 8
Default
Section 8.1 Events of Default. Each of the following shall constitute an
Event of Default, whatever the reason for such event and whether it shall be
voluntary or involuntary or be effected by operation of law or pursuant to any
judgment or order of any court or any order, rule or regulation of any
governmental or non-governmental body:
(a) Any representation or warranty made under this Agreement or any
other Loan Document shall prove to have been incorrect or misleading in any
material respect as of the time it was made or deemed to be made pursuant to
Section 4.2 hereof;
(b) The Borrower shall default in the payment of: (i) any interest
under any of the Note or fees or other amounts payable to the Bank under any of
the Loan Documents, or any of them, when due and such Default shall not be cured
by payment in full within five (5) Business Days from the due date; or (ii) any
principal under any of the Note when due;
(c) The Borrower shall default in the performance or observance of
any agreement or covenant contained in Sections 5.2(a), 5.10, 6.1, 6.2 or
Article 7 hereof;
(d) The Borrower shall default in the performance or observance of
any other agreement or covenant contained in this Agreement not specifically
referred to elsewhere in this Section 8.1, and such default shall not be cured
within a period of thirty (30) days from the occurrence of such default;
(e) There shall occur any default in the performance or observance
of any agreement or covenant or breach in any material respect of any
representation or warranty contained in any of the Loan Documents (other than
this Agreement or as otherwise provided in Section 8.1 of this Agreement) by the
Borrower, any of its Subsidiaries, or any other obligor thereunder, which shall
not be cured within a period of thirty (30) days from the occurrence of such
default;
(f) There shall be entered and remain unstayed a decree or order for
relief in respect of the Borrower or any of the Borrower's Subsidiaries under
Title 11 of the United States Code, as now constituted or hereafter amended, or
any other applicable Federal or state bankruptcy law or other similar law, or
appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator or
similar official of the Borrower or any of the Borrower's Subsidiaries, or of
any substantial part of their respective properties, or ordering the winding-up
or
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liquidation of the affairs of the Borrower, or any of the Borrower's
Subsidiaries; or an involuntary petition shall be filed against the Borrower or
any of the Borrower's Subsidiaries, and a temporary stay entered, and (i) such
petition and stay shall not be diligently contested, or (ii) any such petition
and stay shall continue undismissed for a period of sixty (60) consecutive days;
(g) The Borrower or any of the Borrower's Subsidiaries shall file a
petition, answer or consent seeking relief under Title 11 of the United States
Code, as now constituted or hereafter amended, or any other applicable Federal
or state bankruptcy law or other similar law, or the Borrower or any of the
Borrower's Subsidiaries shall consent to the institution of proceedings
thereunder or to the filing of any such petition or to the appointment or taking
of possession of a receiver, liquidator, assignee, trustee, custodian,
sequestrator or other similar official of the Borrower or any of the Borrower's
Subsidiaries or of any substantial part of their respective properties, or the
Borrower or any of the Borrower's Subsidiaries shall fail generally to pay their
respective debts as they become due or shall be adjudicated insolvent; the
Borrower shall suspend or discontinue its business; the Borrower or any of the
Borrower's Subsidiaries shall have concealed, removed any of its property with
the intent to hinder or defraud its creditors or shall have made a fraudulent or
preferential transfer under any applicable fraudulent conveyance or bankruptcy
law, or the Borrower or any of the Borrower's Subsidiaries shall take any action
in furtherance of any such action;
(h) A judgment not covered by insurance (subject to applicable
deductibles) shall be entered by any court against the Borrower or any of the
Borrower's Subsidiaries for the payment of money which exceeds singly or in the
aggregate with other such judgments, $1,000,000, or a warrant of attachment or
execution or similar process shall be issued or levied against property of the
Borrower or any of the Borrower's Subsidiaries which, together with all other
such property of the Borrower or any of the Borrower's Subsidiaries subject to
other such process, exceeds in value $1,000,000 in the aggregate, if, in any
such case, within thirty (30) days after the entry, issue or levy thereof, such
judgment, warrant or process shall not have been paid or discharged or stayed
pending appeal or removed to bond, or if, after the expiration of any such stay,
such judgment, warrant or process shall not have been paid or discharged or
removed to bond;
(i) There shall be at any time any "accumulated funding deficiency,"
as defined in ERISA or in Section 412 of the Code, with respect to any Plan
maintained by the Borrower or any ERISA Affiliate, or to which the Borrower or
any ERISA Affiliate
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has any liabilities, or any trust created thereunder to the extent that such
accumulated funding deficiency would have a Materially Adverse Effect; or, with
respect to any Plan (other than a Multiemployer Plan), a trustee shall be
appointed by a United States District Court to administer any such Plan; PBGC
shall institute proceedings to terminate any such Plan, or the Borrower or any
ERISA Affiliate shall incur any material liability to the PBGC in connection
with any such Plan; or, with respect to any Plan that is a Multiemployer Plan, a
trustee shall be appointed by a United States District Court to administer any
such Multiemployer Plan to the extent that such appointment would reasonably be
expected to have a Materially Adverse Effect; PBGC shall institute proceedings
to terminate any such Multiemployer Plan to the extent that the institution of
such proceedings would reasonably be expected to have a Materially Adverse
Effect; or the Borrower or any ERISA Affiliate shall incur any liability to PBGC
in connection with the termination of any such Plan which liability would
reasonably be expected to have a Materially Adverse Effect; or the Borrower or
any ERISA Affiliate shall engage in a "prohibited transaction" (as such term is
defined in Section 406 of ERISA or Section 4975 of the Code) which would subject
the Borrower or any ERISA Affiliate to any material tax or penalty on
"prohibited transactions" imposed by Section 502 of ERISA or Section 4975 of the
Code;
(j) There shall occur (i) any acceleration of the maturity of any
Indebtedness for Money Borrowed of the Borrower or any of the Borrower's
Subsidiaries in an aggregate principal amount exceeding $1,000,000; (ii) any
event which would permit (A) such acceleration or (B) the holder of such
Indebtedness for Money Borrowed to require the purchase or redemption of such
Indebtedness for Money Borrowed and which event has not been cured within any
applicable cure period or waived in writing prior to any declaration of an Event
of Default or acceleration of the Loans hereunder; or (iii) any material default
under any Interest Hedge Agreements which would permit the obligation of the
Borrower or any of the Borrower's Subsidiaries to make payments to the
counterparties thereunder in an amount exceeding $1,000,000 in the aggregate to
be then due and payable;
(k) The FCC shall deliver to the Borrower or any of its Subsidiaries
an order to show cause why an order of revocation should not be issued based
upon any alleged attribution of alien ownership (within the meaning of 47 U.S.C.
ss. 310(b) and any interpretation of the FCC thereunder) to the Borrower or any
of its Subsidiaries and (i) such order shall not have been rescinded within
thirty (30) days after such delivery or (ii) in the reasonable judgment of the
Bank, proceedings by or before the FCC related to such order are reasonably
likely to result in one or more orders of revocation and would constitute an
Event of Default under Section 8.1(m) hereof;
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(l) Any Loan Document or any material provision thereof, shall at
any time and for any reason be declared by a court of competent jurisdiction to
be null and void, or a proceeding shall be commenced by the Borrower or any of
its Subsidiaries or by any governmental authority having jurisdiction over the
Borrower or any of its Subsidiaries seeking to establish the invalidity or
unenforceability thereof (exclusive of questions of interpretation of any
provision thereof), or the Borrower or any of the Borrower's Subsidiaries shall
deny that it has any liability or obligation for the payment of principal or
interest purported to be created under any Loan Document;
(m) One or more Licenses shall be terminated or revoked or any such
License (excluding the Excluded Licenses referred to on Schedule 1 attached
hereto) shall fail to be renewed at the stated expiration thereof without
obtaining a replacement License which in the aggregate for all such Licenses
results in a loss of ten percent (10%) or more of the aggregate spectrum
represented by the Licenses set forth in Schedule 1 attached hereto (for
purposes of such calculation, any loss of any Excluded License shall not be
included);
(n) Any termination or default of any material provision under the
Management and Services Agreement shall occur;
(o) Any Security Document shall for any reason, fail or cease
(except by reason of lapse of time) to create a valid and perfected and
first-priority Lien on or Security Interest in any portion of the Collateral
purported to be covered thereby and such failure shall not be cured within
thirty (30) days from delivery of notice of such failure to the Borrower by the
Bank;
(p) There shall occur any Change of Control;
(q) Alex Mandl shall cease to be the chief executive officer of the
Borrower;
(r) There shall occur any Materially Adverse Effect; or
(s) At any time after the Borrower acquires (whether by way of
capital contribution or otherwise), any of the Licenses described on Schedule 1
attached hereto, the Bank shall fail to have a valid, first perfected security
interest in one hundred percent (100%) of the membership interests of the
Borrower.
Section 8.2 Remedies.
(a) If an Event of Default specified in Section 8.1 (other than an
Event of Default under Section 8.1(f) or
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Section 8.1(g)) shall have occurred and shall be continuing, the Bank may (i)
terminate the Commitment, and/or (ii) declare all or a portion of the principal
of and interest on the Loans and the Note and all other amounts owed to the Bank
under this Agreement, the Note and any other Loan Documents to be forthwith due
and payable without presentment, demand, protest or other notice of any kind,
all of which are hereby expressly waived, anything in this Agreement, the Note
or any other Loan Document to the contrary notwithstanding, and the Commitment
shall thereupon forthwith terminate.
(b) Upon the occurrence and continuance of an Event of Default
specified in Section 8.1(f) or Section 8.1(g), all principal, interest and other
amounts due hereunder and under the Note, and all other Obligations, shall
thereupon and concurrently therewith become due and payable and the Commitment
shall forthwith terminate and the principal amount of the Loans outstanding
hereunder shall bear interest at the Default Rate, all without any action by the
Bank and without presentment, demand, protest or other notice of any kind, all
of which are expressly waived, anything in this Agreement or in the other Loan
Documents to the contrary notwithstanding.
(c) Upon acceleration of the Note, as provided in subsection (a) or
(b) of this Section 8.2, above, the Bank shall have all of the post-default
rights granted to them, or any of them, as applicable under the Loan Documents
and under Applicable Law.
(d) Notwithstanding anything in this Agreement or in any of the Loan
Documents to the contrary, the Bank's remedies hereunder and under the Loan
Documents are subject to compliance with the Communications Act, to all
applicable rules, regulations and policies of the FCC, to the Licenses and the
Necessary Authorizations and to applicable statutes governing, and the rules and
regulations of, issuers of the Licenses and Necessary Authorizations, and the
Bank will not take any action pursuant to this Agreement and any of the Loan
Documents that will constitute or result in any assignment of a License or
Necessary Authorization or any change of control of the Borrower or any of its
Subsidiaries or any transfer of any shares of or partnership interests in the
Borrower or any of its Subsidiaries if such assignment of License or Necessary
Authorization or change of control or transfers of shares or partnership or
member interests would require under then existing law (including the written
rules and regulations promulgated by the FCC and the issuers of the Licenses and
Necessary Authorizations), the prior approval of the FCC or such other issuers,
without first obtaining such approval of the FCC and such other issuers. This
Agreement, the Loan Documents and the transactions contemplated hereby and
thereby do not and will not constitute, create, or have the
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effect of constituting or creating, directly or indirectly, actual or practical
ownership of the Borrower or any of its Subsidiaries by the Bank or control,
affirmative or negative, direct or indirect, of the Borrower or any of its
Subsidiaries by the Bank, over the management or any other aspect of the
operation of the Borrower or any of its Subsidiaries, which ownership and
control remain exclusively and at all times in the Borrower and its shareholders
until such time as the Bank has complied with such law, rules, regulations and
policies.
(e) Upon acceleration of the Note, as provided in subsection (a) or
(b) of this Section 8.2, the Bank shall, subject to compliance with Applicable
Law (including, but not limited to, Section 8.2(d) hereof), have the right to
the appointment of a receiver for the properties and assets of the Borrower and
its Subsidiaries, and the Borrower, for itself and on behalf of its
Subsidiaries, hereby consents to such rights and such appointment and hereby
waives any objection the Borrower or any Subsidiary may have thereto or the
right to have a bond or other security posted by the Bank in connection
therewith. The rights of the Bank under this Section 8.2(e) shall be subject to
its prior compliance with the Communications Act and the FCC rules and policies
promulgated thereunder and the terms and conditions of the Licenses, and the
applicable statutes governing, and the rules and regulations of, issuers of the
Licenses and the Necessary Authorizations to the extent applicable to the
exercise of such rights.
(f) The rights and remedies of the Bank hereunder shall be
cumulative, and not exclusive.
Section 8.3 Payments Subsequent to Declaration of Event of Default.
Subsequent to the acceleration of the Loans under Section 8.2 hereof, payments
and prepayments under this Agreement made to the Bank (from realization on
Collateral for the Obligations or otherwise) shall be applied by the Bank as
follows: first, to the Bank's reasonable costs and expenses, if any, incurred in
connection with the collection of such payment or prepayment, including, without
limitation, any reasonable costs incurred by it in connection with the sale or
disposition of any Collateral for the Obligations and all amounts under Section
10.2(b) and (c); second, to any fees hereunder or under any of the other Loan
Documents then due and payable; third, for the payment of any unpaid interest
which may have accrued on the Obligations; fourth, to all Loans until paid in
full (and, for purposes of this clause, obligations under Interest Hedge
Agreements with the Bank shall be paid on a pro rata basis with the Loans);
fifth, to unpaid amounts, to the payment of any other unpaid Obligations; and
sixth, to the Borrower or as otherwise required by law.
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ARTICLE 9
Change in Circumstances
Affecting LIBOR Advances
Section 9.1 LIBOR Basis Determination Inadequate. If with respect to any
proposed LIBOR Advance for any Interest Period, deposits in United States
dollars (in the applicable amount) are not being offered to the Bank in the
relevant market for such Interest Period, the Bank shall forthwith give notice
thereof to the Borrower, whereupon until the Bank notifies the Borrower that the
circumstances giving rise to such situation no longer exist, the obligations of
the Bank to make LIBOR Advances shall be suspended. The Bank shall promptly
notify the Borrower after the Bank becomes aware that circumstances set forth in
the preceding sentence no longer exist.
Section 9.2 Illegality. If after the date hereof, the adoption of any
Applicable Law, or any change in any Applicable Law (whether adopted before or
after the Agreement Date), or any change in interpretation or administration
thereof by any governmental authority, central bank or comparable agency charged
with the interpretation or administration thereof, or compliance by the Bank
with any directive (whether or not having the force of law) of any such
authority, central bank or comparable agency, shall make it unlawful for the
Bank to make, maintain or fund LIBOR Advances, the Bank shall forthwith give
notice thereof to the Borrower. Upon receipt of such notice, notwithstanding
anything contained in Article 2 hereof, the then outstanding principal amount of
the Bank's affected LIBOR Advance, together with accrued interest thereon, shall
automatically be converted to a Base Rate Advance on either (a) the last day of
the then current Interest Period applicable to such affected LIBOR Advances if
the Bank may lawfully continue to maintain and fund such LIBOR Advance to such
day or (b) immediately if the Bank may not lawfully continue to fund and
maintain such affected LIBOR Advances to such day.
Section 9.3 Increased Costs.
(a) If after the date hereof, the adoption of any Applicable Law, or
any change in any Applicable Law (whether adopted before or after the Agreement
Date), or any interpretation or change in interpretation or administration
thereof by any governmental authority, central bank or comparable agency charged
with the interpretation or administration thereof or compliance by the Bank with
any directive (whether or not having the force of law) of any such authority,
central bank or comparable agency:
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(1) shall subject the Bank to any tax, duty or other charge
(other than any tax, duty or other charge attributable to an assignment or
participation) with respect to its obligation to make LIBOR Advances, or
existing LIBOR Advances, or shall change the basis of taxation of payments
to the Bank of the principal of or interest on LIBOR Advances or in
respect of any other amounts due under this Agreement in respect of LIBOR
Advances or its obligation to make LIBOR Advances (except for changes in
the rate or method of calculation of tax on the overall net income of the
Bank); or
(2) shall impose, modify or deem applicable any reserve
(including, without limitation, any imposed by the Board of Governors of
the Federal Reserve System, but excluding any included in an applicable
LIBOR Reserve Percentage), special deposit, capital adequacy, assessment
or other requirement or condition against assets of, deposits with or for
the account of, or commitments or credit extended by the Bank or shall
impose on the Bank or the London interbank borrowing market any other
condition affecting its obligation to make such LIBOR Advances or existing
LIBOR Advances;
and the result of any of the foregoing is to increase the cost to the Bank of
making or maintaining any LIBOR Advances, or to reduce the amount of any sum
received or receivable by the Bank under this Agreement or under the Note with
respect thereto, then, the Borrower agrees to pay to the Bank such additional
amount or amounts as will compensate the Bank for such increased costs. The Bank
will promptly notify the Borrower of any event of which it has knowledge,
occurring after the date hereof, which will entitle the Bank to compensation
pursuant to this Section 9.3 and will designate a different lending office if
such designation will avoid the need for, or reduce the amount of, such
compensation and will not, in the reasonable judgment of the Bank made in good
faith, be otherwise disadvantageous to the Bank.
(b) The Bank shall provide the Borrower with a written certificate
setting forth the additional amount or amounts to be paid to it hereunder and
calculations therefor in reasonable detail. Such certificate shall be
presumptively correct absent manifest error. In determining such amount, the
Bank may use any reasonable averaging and attribution methods. If the Bank
demands compensation under this Section 9.3, the Borrower may at any time, upon
at least five (5) Business Days' prior notice to the Bank, prepay in full the
Bank's then outstanding LIBOR Advances, together with accrued interest thereon
to the date of prepayment, along with any reimbursement required under Section
2.10 hereof. Concurrently with prepaying such portion of
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LIBOR Advances the Borrower may borrow a Base Rate Advance, or a LIBOR Advance
not so affected, from the Bank, and the Bank shall, if so requested, make such
Advance in an amount such that the outstanding principal amount of the Note
shall equal the outstanding principal amount of such Note or Note immediately
prior to such prepayment.
Section 9.4 Effect On Other Advances. If notice has been given pursuant to
Section 9.1, 9.2 or 9.3 suspending the obligation of the Bank to make LIBOR
Advances, or requiring the Bank's LIBOR Advances to be repaid or prepaid, then,
unless and until the Bank notifies the Borrower that the circumstances giving
rise to such repayment no longer apply, all amounts which would otherwise be
made by the Bank as LIBOR Advances shall, unless otherwise notified by the
Borrower, be made instead as Base Rate Advances.
ARTICLE 10
Miscellaneous
Section 10.1 Notices.
(a) Except as otherwise expressly provided herein, all notices and
other communications under this Agreement and the other Loan Documents (unless
otherwise specifically stated therein) shall be in writing and shall be deemed
to have been given three (3) Business Days after deposit in the mail, designated
as certified mail, return receipt requested, postage-prepaid, or one (1)
Business Day after being entrusted to a reputable commercial overnight delivery
service for next day delivery, or when sent on a Business Day prior to 5:00 p.m.
(New York time) or, if later, the next Business Day, by telecopy addressed to
the party to which such notice is directed at its address determined as provided
in this Section 10.1. All notices and other communications under this Agreement
shall be given to the parties hereto at the following addresses:
(i) If to the Borrower, to it at:
Associated Communications, L.L.C.
11 Canal Center Plaza
Suite 300
Alexandria, Virginia 22310
Attn: Laurence Harris
Telecopy No.: (703) 299-4580
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<PAGE>
With copies to:
The Associated Group, Inc.
Three Bala Plaza East
Suite 502
Bala Cynwyd, Pennsylvania 19004
Attn: Scott G. Bruce, Esq.
Telecopy No.: (610) 660-4920
and
Skadden, Arps, Slate, Meagher & Flom LLP
One Beacon Street
Boston, Massachusetts 02108
Attn: K. A. Coit, Esq.
Telecopy No.: (617) 573-4822
(ii) If to the Bank, to it at:
The Toronto-Dominion Bank
USA Division
31 West 52nd Street
New York, NY 10019-6101
Attn: Communications Finance Group
Telecopy No.: (212) 262-1928
With a copy to:
Powell, Goldstein, Frazer & Murphy
Sixteenth Floor
191 Peachtree Street, N.E.
Atlanta, Georgia 30303
Attn: Douglas S. Gosden, Esq.
Telecopy No.: (404) 572-6999
Copies shall be provided to persons other than parties hereto only in the case
of notices under Article 8 hereof and the failure to provide such copies shall
not affect the validity of the notice given to the primary recipient.
(b) Any party hereto may change the address to which notices shall
be directed under this Section 10.1 by giving ten (10) days' written notice of
such change to the other parties.
Section 10.2 Expenses. The Borrower will promptly pay, or reimburse:
(a) all reasonable out-of-pocket expenses of the Bank in connection
with the preparation, negotiation, execution and delivery of this Agreement and
the other Loan Documents, and the
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transactions contemplated hereunder and thereunder and the making of the initial
Advance hereunder (whether or not such Advance is made), including, but not
limited to, the reasonable fees and disbursements of Powell, Goldstein, Frazer &
Murphy, special counsel for the Bank; and
(b) all out-of-pocket costs and expenses of enforcement under this
Agreement or the other Loan Documents and all out-of-pocket costs and expenses
of collection if an Event of Default occurs in the payment of the Note, which in
each case shall include reasonable fees and out-of-pocket expenses of respective
counsel for, or allocated costs of in-house counsel of, the Bank .
Section 10.3 Waivers. The rights and remedies of the Bank under this
Agreement and the other Loan Documents shall be cumulative and not exclusive of
any rights or remedies which they would otherwise have. No failure or delay by
the Bank in exercising any right, shall operate as a waiver of such right. The
Bank expressly reserves the right to require strict compliance with the terms of
this Agreement in connection with any future funding of a Request for Advance.
In the event the Bank decides to fund a Request for Advance at a time when the
Borrower is not in strict compliance with the terms of this Agreement, such
decision by the Bank shall not be deemed to constitute an undertaking by the
Bank to fund any further Request for Advance or preclude the Bank from
exercising any rights available under the Loan Documents or at law or equity.
Any waiver or indulgence granted by the Bank shall not constitute a modification
of this Agreement or any other Loan Document, except to the extent expressly
provided in such waiver or indulgence, or constitute a course of dealing at
variance with the terms of this Agreement or any other Loan Document such as to
require further notice of their intent to require strict adherence to the terms
of this Agreement or any other Loan Document in the future.
Section 10.4 Set-Off. In addition to any rights now or hereafter granted
under Applicable Law and not by way of limitation of any such rights, upon the
occurrence of an Event of Default and during the continuation thereof, the Bank
is hereby authorized by the Borrower at any time or from time to time, without
notice to the Borrower or to any other Person, any such notice being hereby
expressly waived, to set off and to appropriate and to apply any and all
deposits (general or special, time or demand, including, but not limited to,
Indebtedness evidenced by certificates of deposit, in each case whether matured
or unmatured) and any other Indebtedness at any time held or owing by the Bank,
to or for the credit or the account of the Borrower or any of its Subsidiaries,
against and on account of Obligations and any other claims of any nature or
description arising out of or connected with this Agreement, the
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<PAGE>
Note or any other Loan Document, irrespective of whether (a) the Bank shall have
made any demand hereunder or (b) the Bank shall have declared the principal of
and interest on the Loans and other amounts due hereunder to be due and payable
as permitted by Section 8.2 and although such obligations and liabilities or any
of them shall be contingent or unmatured. The Bank, if holding deposits of the
Borrower or any of its Subsidiaries, shall exercise its set-off rights; and,
within one (1) Business Day following any such setoff, the Bank shall give
notice thereof to the Borrower.
Section 10.5 Assignment.
(a) Except as provided in Section 10.20 hereof, the Borrower may not
assign or transfer any of its rights or obligations hereunder, under the Note or
under any other Loan Document without the prior written consent of the Bank.
(b) The Bank may sell assignments or participations of forty-nine
percent (49%) (or, with the consent of the Borrower not to be unreasonably
withheld or delayed, a larger percentage) of its interest hereunder to (A) one
or more wholly-owned Affiliates of the Bank (provided that, if such Affiliate is
not a financial institution, the Bank shall be obligated to repurchase such
assignment if such Affiliate is unable to honor its obligations hereunder), or
(B) any Federal Reserve Bank as collateral security pursuant to Regulation A of
the Board of Governors of the Federal Reserve System and any Operating Circular
issued by such Federal Reserve Bank (no such assignment referred to in this
clause (B) shall relieve the Bank from its obligations hereunder).
(c) Subject to Section 10.5(b) hereof, the Bank may at any time
enter into assignment agreements or participations with one or more other banks
or other financial institutions pursuant to which the Bank may assign or
participate its interest under this Agreement and the other Loan Documents,
including, its interest in any particular Advance or portion thereof, provided,
that (1) all assignments (other than assignments described in clause (b) hereof)
shall be in minimum principal amounts of $5,000,000, and (2) all assignments
(other than assignments described in clause (b) hereof) and participations
hereunder shall be subject to the following additional terms and conditions to
the extent expressly applicable thereto:
(i) No assignment (except assignments permitted in Section
10.5(b) hereof) shall be sold so long as a Default has not occurred and is
continuing, the Borrower, which consents shall not be unreasonably
withheld or delayed;
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(ii) Any Person purchasing a participation or an assignment of
any portion of the Loans from the Bank shall be required to represent and
warrant that its purchase shall not constitute a "prohibited transaction"
(as defined in Section 4.1(m) hereof);
(iii) The Borrower and the Bank agree that assignments
permitted hereunder (including the assignment of any Advance or portion
thereof) may be made with all voting rights, and shall be made pursuant to
an Assignment and Assumption Agreement substantially in the form of
Exhibit I attached hereto;
(iv) No participation agreement shall confer any rights under
this Agreement or any other Loan Document to any purchaser thereof, or
relieve the Bank from any of its obligations under this Agreement, and all
actions hereunder shall be conducted as if no such participation had been
granted; provided, however, that any participation agreement may confer on
the participant the right to approve or disapprove decreases in the
interest rate, increases in or forgiveness of the principal amount of the
Loans participated in by such participant, decreases in fees, extensions
of the Maturity Date or other principal payment date for the Loans or of
the scheduled reduction of the Commitment and releases of Collateral or
guarantors, except for Collateral the sale or disposition of which is
permitted hereunder;
(v) The Bank agrees to provide the Borrower with prompt
written notice of any issuance of participations in or assignments of its
interests hereunder;
(vi) No assignment, participation or other transfer of any
rights hereunder or under the Note shall be effected that would result in
any interest requiring registration under the Securities Act of 1933, as
amended, or qualification under any state securities law;
(vii) No such assignment may be made to any bank or other
financial institution (x) with respect to which a receiver or conservator
(including, without limitation, the Federal Deposit Insurance Corporation,
the Resolution Trust Company or the Office of Thrift Supervision) has been
appointed or (y) that with respect to any assignee that is a bank, to the
knowledge of the assignor after due inquiry, is not "adequately
capitalized" (as such term is defined in Section 131(b)(1)(B) of the
Federal Deposit Insurance Corporation Improvement Act as in effect on the
Agreement Date); and
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(viii) The Bank shall, and shall cause any Person to whom any
portion of an Advance is assigned or participated to provide to the
Borrower on or prior to the effective date of any assignment or
participation an appropriate Internal Revenue Service form as required by
Applicable Law demonstrating that no withholding by the Borrower or the
Bank for U.S. income tax payable by the Bank, assignee or participant in
respect of amounts received by it hereunder is required. For purposes of
this Agreement, an appropriate Internal Revenue Service form shall mean
Form 1001 (Ownership Exemption or Reduced Rate Certificate of the U.S.
Department of Treasury), or Form 4224 (Exemption from Withholding of Tax
on Income Effectively Connected with the Conduct of a Trade or Business in
the United States), or any successor or related forms adopted by the
relevant U.S. taxing authorities.
(d) Except as specifically set forth in Section 10.5(c) hereof,
nothing in this Agreement or the Note, expressed or implied, is intended to or
shall confer on any Person other than the respective parties hereto and thereto
and their successors and assignees permitted hereunder and thereunder any
benefit or any legal or equitable right, remedy or other claim under this
Agreement or the Note.
(e) In the case of any participation, all amounts payable by the
Borrower under the Loan Documents shall be calculated and made in the manner and
to the parties hereto as if no such participation had been sold.
(f) The parties hereto agree (and the Bank shall require any
assignee or participant to agree) that with the exception of matters customarily
requiring unanimous lender consent, all amendments and waivers with respect to
any Loan Document shall be made with the consent or approval of lenders holding
a majority of the Loans then outstanding (or, if no Loans are outstanding, a
majority of the Commitment).
Section 10.6 Accounting Principles. All references in this Agreement to
GAAP shall be to such principles as in effect from time to time. All accounting
terms used herein without definition shall be used as defined under GAAP.
Section 10.7 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
separate counterparts shall together constitute but one and the same instrument.
Section 10.8 Governing Law. This Agreement and the Note shall be construed
in accordance with and governed by the internal laws of the State of New York
applicable to agreements
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made and to be performed in New York. If any action or proceeding shall be
brought by the Bank hereunder or under any other Loan Document in order to
enforce any right or remedy under this Agreement or under any Note or any other
Loan Document, the Borrower hereby consents and will, and the Borrower will
cause each Subsidiary to, submit to the jurisdiction of any state or federal
court of competent jurisdiction sitting within the area comprising the Southern
District of New York on the date of this Agreement. The Borrower, for itself and
on behalf of its Subsidiaries, hereby agrees that service of the summons and
complaint and all other process which may be served in any such suit, action or
proceeding may be effected by mailing by registered mail a copy of such process
to the offices of the Borrower at the address given in Section 10.1 hereof and
that personal service of process shall not be required. Nothing herein shall be
construed to prohibit service of process by any other method permitted by law,
or the bringing of any suit, action or proceeding in any other jurisdiction. The
Borrower agrees that final judgment in such suit, action or proceeding shall be
conclusive and may be enforced in any other jurisdiction by suit on the judgment
or in any other manner provided by Applicable Law.
Section 10.9 Severability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall be ineffective to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof in that jurisdiction or affecting the validity or
enforceability of such provision in any other jurisdiction.
Section 10.10 Interest.
(a) In no event shall the amount of interest due or payable
hereunder or under the Note exceed the maximum rate of interest allowed by
Applicable Law, and in the event any such payment is inadvertently made by the
Borrower or inadvertently received by the Bank, then such excess sum shall be
credited as a payment of principal, unless the Borrower shall notify the Bank,
in writing, that it elects to have such excess sum returned forthwith. It is the
express intent hereof that the Borrower not pay and the Bank not receive,
directly or indirectly in any manner whatsoever, interest in excess of that
which may legally be paid by the Borrower under Applicable Law.
(b) Notwithstanding the use by the Bank of the Base Rate and the
LIBOR Rate as reference rates for the determination of interest on the Loans,
the Bank shall be under no obligation to obtain funds from any particular source
in order to charge interest to the Borrower at interest rates related to such
reference rates.
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<PAGE>
Section 10.11 Table of Contents and Headings. The Table of Contents and
the headings of the various subdivisions used in this Agreement are for
convenience only and shall not in any way modify or amend any of the terms or
provisions hereof, nor be used in connection with the interpretation of any
provision hereof.
Section 10.12 Amendment and Waiver. Neither this Agreement nor any term
hereof nor any Loan Document may be amended orally, nor may any provision hereof
be waived orally, but only by an instrument in writing signed by the Bank and
the Borrower. Any amendment to any provision hereunder governing the rights,
obligations, or liabilities of the Bank may be made only by an instrument in
writing signed by such affected Person and by the Bank.
Section 10.13 Entire Agreement. Except as otherwise expressly provided
herein, this Agreement and the other documents described or contemplated herein
will embody the entire agreement and understanding among the parties hereto and
thereto and supersede all prior agreements and understandings relating to the
subject matter hereof and thereof.
Section 10.14 Other Relationships. No relationship created hereunder or
under any other Loan Document shall in any way affect the ability of the Bank to
enter into or maintain business relationships with the Borrower or any of its
Affiliates beyond the relationships specifically contemplated by this Agreement
and the other Loan Documents.
Section 10.15 Directly or Indirectly. If any provision in this Agreement
refers to any action taken or to be taken by any Person, or which such Person is
prohibited from taking, such provision shall be applicable whether such action
is taken directly or indirectly by such Person, whether or not expressly
specified in such provision.
Section 10.16 Reliance on and Survival of Various Provisions. All
covenants, agreements, statements, representations and warranties made herein or
in any certificate delivered pursuant hereto (i) shall be deemed to have been
relied upon by the Bank notwithstanding any investigation heretofore or
hereafter made by it, and (ii) shall survive the execution and delivery of the
Note and shall continue in full force and effect so long as any Note is
outstanding and unpaid. Any right to indemnification hereunder, including,
without limitation, rights pursuant to Sections 2.10, 2.11, 5.11, 9.3 and 10.2
hereof, shall survive the termination of this Agreement and the payment and
performance of all Obligations.
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Section 10.17 Senior Debt. The Obligations are secured by the Security
Documents and are intended by the parties hereto to be in parity with the
Interest Hedge Agreements and senior in right of payment to all other
Indebtedness of the Borrower except for Indebtedness secured by Permitted Liens
(to the extent such Liens are statutorily senior to the Liens securing the
Obligations).
Section 10.18 Confidentiality. The Bank shall hold all non-public,
proprietary or confidential information (which has been identified as such by
the Borrower) obtained pursuant to the requirements of this Agreement in
accordance with their customary procedures for handling confidential information
of this nature and in accordance with safe and sound banking practices;
provided, however, the Bank may make disclosure of any such information to such
of their examiners, Affiliates, outside auditors, counsel, consultants,
appraisers and other professional advisors as may be reasonably necessary in
connection with this Agreement or as reasonably required by any proposed
syndicate member or any proposed transferee or participant in connection with
the contemplated transfer of any Note or participation therein or as required or
requested by any governmental authority or representative thereof or in
connection with the enforcement hereof or of any Loan Document or related
document or pursuant to legal process or with respect to any litigation between
or among the Borrower and the Bank; provided, however, that, as a condition to
receipt of any such information, each such Affiliate, auditor, counsel,
consultant, appraiser, professional advisor, proposed transferee or participant
shall agree in writing to treat all such information as confidential; and
provided, further, that prior to any such disclosure to any unrelated entity
outside the ordinary course of business or pursuant to legal process, the
disclosing Bank shall give notice of such disclosure to the Borrower and
cooperate with the Borrower in any efforts to limit or restrict such disclosure.
In no event shall the Bank be obligated or required to return any materials
furnished to it by the Borrower. The foregoing provisions shall not apply to a
Bank with respect to information that (i) is or becomes generally available to
the public (other than through the Bank), (ii) is already in the possession of
the Bank on a nonconfidential basis, or (iii) comes into the possession of the
Bank in a manner not known to the Bank to involve a breach of a duty of
confidentiality owing to the Borrower.
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ARTICLE 11
Waiver of Jury Trial
Section 11.1 Waiver of Jury Trial. THE BORROWER, FOR ITSELF AND ON BEHALF
OF THE BORROWER'S SUBSIDIARIES, AND THE BANK, HEREBY AGREE TO WAIVE AND HEREBY
WAIVE THE RIGHT TO A TRIAL BY JURY IN ANY COURT AND IN ANY ACTION OR PROCEEDING
OF ANY TYPE IN WHICH THE BORROWER, ANY OF THE BORROWER'S SUBSIDIARIES, THE BANK
OR ANY OF THEIR RESPECTIVE SUCCESSORS OR ASSIGNS IS A PARTY, AS TO ALL MATTERS
AND THINGS ARISING DIRECTLY OR INDIRECTLY OUT OF THIS AGREEMENT, THE NOTE OR THE
OTHER LOAN DOCUMENTS AND THE RELATIONS AMONG THE PARTIES LISTED IN THIS SECTION
11.1. EXCEPT AS PROHIBITED BY LAW, EACH PARTY TO THIS AGREEMENT WAIVES ANY
RIGHTS IT MAY HAVE TO CLAIM OR RECOVER IN ANY LITIGATION REFERRED TO IN THIS
SECTION, ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY
DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES. EACH PARTY TO THIS
AGREEMENT (i) CERTIFIES THAT NEITHER ANY REPRESENTATIVE, AGENT OR ATTORNEY OF
THE BANK HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE BANK WOULD NOT, IN
THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS AND (ii)
ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND EACH
OTHER LOAN DOCUMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION. THE PROVISIONS OF THIS SECTION HAVE BEEN FULLY
DISCLOSED BY AND TO THE PARTIES AND THE PROVISIONS SHALL BE SUBJECT TO NO
EXCEPTIONS. NO PARTY HAS IN ANY WAY AGREED WITH OR REPRESENTED TO ANY OTHER
PARTY THAT THE PROVISIONS OF THIS SECTION WILL NOT BE FULLY ENFORCED IN ALL
INSTANCES.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement or
caused it to be executed by their duly authorized officers, all as of the day
and year first above written.
BORROWER: ASSOCIATED COMMUNICATIONS, L.L.C., a
Delaware limited liability company
By: /s/ Alex J. Mandl
-------------------------------------
Its: Chief Executive Officer
BANK:
THE TORONTO-DOMINION BANK
By:______________________________________
Its:_____________________________________
ASSOCIATED COMMUNICATIONS, LLC
LOAN AGREEMENT
Signature Page 1
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement or
caused it to be executed by their duly authorized officers, all as of the day
and year first above written.
BORROWER: ASSOCIATED COMMUNICATIONS, L.L.C., a
Delaware limited liability company
By:______________________________________
Its: Chief Executive Officer
BANK:
THE TORONTO-DOMINION BANK
By: /s/ David G. Parker
Its: DAVID G. PARKER
MGR. CR. ADMIN.
ASSOCIATED COMMUNICATIONS, LLC
LOAN AGREEMENT
Signature Page 1
<PAGE>
LEHMAN BROTHERS ===================================
Client Agreement --------
Customer Account Services CPI 3025
P.O. Box 3760 --------
New York, NY 10008-3760 Before you sign this agreement,
read it thoroughly and return this
completed and signed agreement to
Lehman Brothers at the address on
the left side of this page.
Subsequently you will receive
literature containing important
information about new accounts.
Read the information carefully and
retain it for future reference.
- -------------------------------------------------
Account Number
Branch Account T C IR
831 52002 1 5 365
- -------------------------------------------------
- --------------------------------------------------------------------------------
Account Title/Name
Associated Investments, Inc.
- --------------------------------------------------------------------------------
Account Title/Name
________________________________________________________________________________
Mailing Address
300 Delaware Avenue Suite 564 Wilmington DE 19801
- --------------------------------------------------------------------------------
A. Tax Certification. Under penalties of perjury, I certify that the number
shown below (and to the left) is my correct taxpayer identification number or if
not, then the number I have entered below (and to the right) is my correct tax
identification number, and that I am not subject to backup withholding because
(a) I have not been notified by the Internal Revenue Service (IRS) that I am
subject to backup withholding as a result of failure to report all interest or
dividends, or (b) the IRS has notified me that I am no longer subject to backup
withholding (see below), or (c) I am exempt from backup withholding (see below).
Note: You must cross out (b) above if you are currently subject to backup
withholding because of underreporting interest or dividends on your tax return.
The Internal Revenue Service does not require your consent to any provisions of
this document other than the certifications required to avoid backup
withholding.
For those exempt from backup withholding (see instructions on page 4), write the
word "EXEMPT" here:_________________________.
- --------------------------------------------------------------------------------
B. Client Acknowledgment. I (we) hereby acknowledge that I (we) have read,
understand and agree to me terms of this agreement. If this is a joint account,
we further acknowledge that we have read, understand and agree to the terms of
this agreement contained in paragraph 21. Note: Texas residents must execute a
Texas Joint Account Supplement agreement (form 3882). I (We) acknowledge that I
(we) have received a copy of the agreement which contains a pre-dispute
arbitration clause at Paragraph 22; I (We) have read it and agree to its terms.
<TABLE>
<CAPTION>
===================================================================================================================================
<S> <C> <C> <C>
1. Account Owner's Signature (Please sign in box) Date 2. Account Owner's Signature (Please sign in box) Date
Keith C. Hartman Controller 1/28/97
- -----------------------------------------------------------------------------------------------------------------------------------
3. Account Owner's Signature (Please sign in box) Date 4. Account Owner's Signature (please sign in box) Date
===================================================================================================================================
</TABLE>
C. Name Disclosure. Please indicate your choice as to the release or withholding
of your name, address and securities positions to issuing corporations.
|_| NO, I do not want | my name, address and securities positions
| disclosed to any companies, upon their request, in
| which I own securities that are being held for me
| at Lehman Brothers Inc. ("Lehman") or any firm
|_| YES, I do want | acting as a clearing broker for Lehman.
- --------------------------------------------------------------------------------
D. Money Market Fund Agreement. Lehman will be authorized (but not required) to
invest or "sweep" available cash in your account into one of its money market
funds unless you elect otherwise below. If you want to choose a particular money
market fund or you do not want available cash swept into a money market fund,
please indicate below. If you wish to discuss or change your choice of money
market funds, please contact your Investment Representative. (Note to Wisconsin
residents: You must indicate below specifically whether or not you wish to have
a money market sweep for your account.)
|_| NO, I do not want cash balances in my account automatically swept into
a money market fund.
|_| YES, I want the cash balances in my account automatically swept into
the fund of my choice.
- --------------------------------------------------------------------------------
E. Joint Account With Rights of Survivorship. If the account has more than one
owner, this agree establishes a Joint Account With Rights of Survivorship. If
you and the other account owners wish to establish a Tenancy in Common instead,
each of you must execute a Joint Account Agreement As Tenants in Common in
addition to this Client Agreement. Note: Texas residents must execute a Texas
Joint Account Supplement agreement (form 3882).
- --------------------------------------------------------------------------------
F. Margin Account Agreement. Complete this section only if you accept the margin
agreement described in paragraphs 15 through 19 of this agreement. In
consideration of your opening and maintaining one or more margin accounts on my
behalf, I (we) hereby acknowledge that I (we) have read, understand and agree to
the terms of a margin account contained in paragraphs 16 through 19 of this
agreement. By signing this agreement I (we) acknowledge that my (our) securities
may be loaned to you or loaned out to others. If this is a joint account, all
parties must sign.
<TABLE>
<CAPTION>
===================================================================================================================================
<S> <C> <C> <C>
1. Account Owner's Signature (Please sign in box) Date 2. Account Owner's Signature (please sign in box) Date
Keith C. Hartman Controller 1/28/97
- -----------------------------------------------------------------------------------------------------------------------------------
3. Account Owner's Signature (please sign in box) Date 4. Account Owner's Signature (please sign in box) Date
===================================================================================================================================
</TABLE>
Note for joint accounts: The Social Security Number of this account is the
number of the client whose name appears first in the account title. Do not enter
the number of any other account owner.
- --------------------------------------------------------------------------------
----------------------------------
The Social Security Number or Taxpayer Identification Number
Taxpayer Identification Number on 251752998
Lehman Brothers' records is ----------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
----------------------------------
The Social Security Number or Taxpayer Identification Number
or Tax Identification Number
shown to the left is incorrect. __________________________________
The CORRECT number is
- --------------------------------------------------------------------------------
LBF 3025 (10/96) 1
<PAGE>
LEHMAN BROTHERS ===================================
Client Agreement --------
Customer Account Services CPI 3025
P.O. Box 3760 --------
New York, NY 10008-3760 Before you sign this agreement,
read it thoroughly and return this
completed and signed agreement to
Lehman Brothers at the address on
the left side of this page.
Subsequently you will receive
literature containing important
information about new accounts.
Read the information carefully and
retain it for future reference.
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Account Number
Branch Account T C IR
_________________________________________________
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Account Title/Name
________________________________________________________________________________
Account Title/Name
________________________________________________________________________________
Mailing Address
________________________________________________________________________________
A. Tax Certification. Under penalties of perjury, I certify that the number
shown below (and to the left) is my correct taxpayer identification number or if
not, then the number I have entered below (and to the right) is my correct tax
identification number, and that I am not subject to backup withholding because
(a) I have not been notified by the Internal Revenue Service (IRS) that I am
subject to backup withholding as a result of failure to report all interest or
dividends, or (b) the IRS has notified me that I am no longer subject to backup
withholding (see below), or (c) I am exempt from backup withholding (see below).
Note: You must cross out (b) above if you are currently subject to backup
withholding because of underreporting interest or dividends on your tax return.
The Internal Revenue Service does not require your consent to any provisions of
this document other than the certifications required to avoid backup
withholding.
For those exempt from backup withholding (see instructions on page 4), write the
word "EXEMPT" here:_________________________.
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B. Client Acknowledgment. I (we) hereby acknowledge that I (we) have read,
understand and agree to me terms of this agreement. If this is a joint account,
we further acknowledge that we have read, understand and agree to the terms of
this agreement contained in paragraph 21. Note: Texas residents must execute a
Texas Joint Account Supplement agreement (form 3882). I (We) acknowledge that I
(we) have received a copy of the agreement which contains a pre-dispute
arbitration clause at Paragraph 22; I (We) have read it and agree to its terms.
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<S> <C> <C> <C>
1. Account Owner's Signature (Please sign in box) Date 2. Account Owner's Signature (Please sign in box) Date
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3. Account Owner's Signature (Please sign in box) Date 4. Account Owner's Signature (please sign in box) Date
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C. Name Disclosure. Please indicate your choice as to the release or withholding
of your name, address and securities positions to issuing corporations.
|_| NO, I do not want | my name, address and securities positions
| disclosed to any companies, upon their request, in
| which I own securities that are being held for me
| at Lehman Brothers Inc. ("Lehman") or any firm
|_| YES, I do want | acting as a clearing broker for Lehman.
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D. Money Market Fund Agreement. Lehman will be authorized (but not required) to
invest or "sweep" available cash in your account into one of its money market
funds unless you elect otherwise below. If you want to choose a particular money
market fund or you do not want available cash swept into a money market fund,
please indicate below. If you wish to discuss or change your choice of money
market funds, please contact your Investment Representative. (Note to Wisconsin
residents: You must indicate below specifically whether or not you wish to have
a money market sweep for your account.)
|_| NO, I do not want cash balances in my account automatically swept into
a money market fund.
|_| YES, I want the cash balances in my account automatically swept into
the fund of my choice.
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E. Joint Account With Rights of Survivorship. If the account has more than one
owner, this agree establishes a Joint Account With Rights of Survivorship. If
you and the other account owners wish to establish a Tenancy in Common instead,
each of you must execute a Joint Account Agreement As Tenants in Common in
addition to this Client Agreement. Note: Texas residents must execute a Texas
Joint Account Supplement agreement (form 3882).
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F. Margin Account Agreement. Complete this section only if you accept the margin
agreement described in paragraphs 15 through 19 of this agreement. In
consideration of your opening and maintaining one or more margin accounts on my
behalf, I (we) hereby acknowledge that I (we) have read, understand and agree to
the terms of a margin account contained in paragraphs 16 through 19 of this
agreement. By signing this agreement I (we) acknowledge that my (our) securities
may be loaned to you or loaned out to others. If this is a joint account, all
parties must sign.
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<S> <C> <C> <C>
1. Account Owner's Signature (Please sign in box) Date 2. Account Owner's Signature (please sign in box) Date
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3. Account Owner's Signature (please sign in box) Date 4. Account Owner's Signature (please sign in box) Date
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Note for joint accounts: The Social Security Number of this account is the
number of the client whose name appears first in the account title. Do not enter
the number of any other account owner.
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The Social Security Number or Taxpayer Identification Number
Taxpayer Identification Number on
Lehman Brothers' records is __________________________________
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The Social Security Number or Taxpayer Identification Number
or Tax Identification Number
shown to the left is incorrect. __________________________________
The CORRECT number is
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LBF 3025 (10/96) 1 Copy
<PAGE>
In consideration of Lehman accepting my account and agreeing to act as my
broker, I agree to the following with respect to any of my accounts with you for
extensions of credit and the purchase and sale of securities, options, and other
property. This agreement shall not become effective until accepted by you in
your New York office. Acceptance may be evidenced by your internal records.
Throughout this agreement, "I," "me," "my," "we", and "us" refer to the client
and all others who are legally obligated on my accounts. "You" and "your" refer
to Lehman, its subsidiaries and parents and any and all divisions, their
officers, directors, agents and/or employees.
1. MY REPRESENTATIONS. I represent that I am of the age of majority according to
the laws of my place of residence. I further request that I am not an employee
of any exchange or the National Association of Securities Dealers, Inc.
("NASD"), or of a member firm of any exchange or the NASD or of a bank, trust
company, insurance company, registered investment company or registered
investment advisory firm unless I have notified you to that effect. If I become
so employed, I agree to notify you promptly. I also represent that no persons
other than those signing this agreement have an interest in my account. I
understand that Lehman is "prohibited under the NASD's "Free Riding and
Withholding Interpretation from selling securities in certain public offerings
to persons restricted by such rules. To my best knowledge, I am not presently so
restricted, and if I become so restricted I agree to notify you promptly.
I represent that the financial information objectives provided to you are
accurate in all material respects and that I will promptly inform you of any
material changes in my financial or other circumstances, including my investment
objectives.
2. DEFINITION OF "PROPERTY". In this agreement the word "property" means
securities of all kinds, certificates of deposit, commercial paper, monies,
options, commodities and contracts for the future delivery of, or otherwise
relating to, commodities or securities and all other property usually and
customarily dealt in by brokerage firms.
3. ORDERS, EXECUTIONS, DELIVERIES, SETTLEMENTS AND ORAL AUTHORIZATIONS. In
giving orders to sell, I will inform you which sales are "short" and which are
"long" sales. A "short sale" means any sale of a security not owned by the
seller or any sale that is consummated by delivery of a borrowed security. The
designation of a sale order as "long" is my representation that I own the
security, and if the security is not in your possession at the time of the
contract for sale, I agree to deliver it to you by settlement date. In case of
non-delivery of a security, you are authorized to purchase the security to cover
my position and charge any loss, commissions and fees to my account. I agree
that if you fail to receive payment for securities purchased you may, without
prior demand or notice, sell securities or other property held by you in any of
my accounts and any resulting loss will be charged to my account. Unless I
direct that an order to purchase or sell securities be executed on a specified
exchange or market and you agree to such execution, you will, at your sole
discretion and without prior notification to me, execute the order on the
over-the-counter market in any location or on any exchange, including a foreign
exchange where such security is traded, either on a principal or agency basis. I
agree that you shall in incur no liability in acting upon oral instructions
given to you concerning my account.
4. OPTION POSITIONS-MARGIN DEPOSITS. I agree not to enter into any purchase or
sale of equity, debt, foreign currency or index put & call options without
having read and fully understood the terms, conditions, and risks, as forth in
the Characteristics and Risks of Standardized Options booklet and applicable
supplements which you agree to furnish me prior to such transactions. I
understand clients' short options positions are assigned on an automated random
basis. All short options positions can be assigned at any time including the day
written. I agree that solely for purposes of entering into options positions,
you may treat my account as a margin account; except that you may not pledge,
repledge, hypothecate or rehypothecate my property in your possession or under
your control unless I execute the margin agreement provided herein. I also agree
not to exceed the position or exercise limits set by the options exchange,
either acting alone or in concert with others.
5. NOTICE TO EXERCISE OPTION. If I purchase any listed option, I will notify you
of my intention to exercise such option no later then two hours before the
expiration time of the option (one hour in the case of an over-the-counter
option). Failure to give such notice will constitute an abandonment of the
option, in which event it may be exercised for my account if it would be
profitable to do so. Except as required by the Options Clearing Corporation
Rules, you have no obligation to exercise any option absent specific
instructions form me to that effect. If it would not be profitable for my
account due to commission expenses, it may be permitted to expire or, at your
discretion, sold or acquired by you for some equitable payment to me based on
your expenses and risk, without any liability or responsibility on your part to
me.
6. IMPARTIAL LOTTERY ALLOCATION SYSTEM; CALL FEATURES. When you hold on my
behalf bonds or preferred stocks in street or bearer form which are callable in
part, I agree to participate in the impartial lottery allocation system of the
called securities in accordance with the change to provisions of the New York
Stock Exchange, Inc. ("NYSE") rules. Further, I understand when the call is
favorable, no allocation will be made to any account in which you, your
officers, or employees, have a financial interest until all other clients';
positions in such securities are satisfied on an impartial lottery basis.
For debt securities, call or other redemption features, in addition to those
disclosed on the trade confirmation, may exist. Debt securities subject to call
or redemption features, such as sinking funds, may be redeemed in whole or in
part before maturity, or before the first scheduled call dates. The existence of
sinking funds, or other special mandatory redemption features, may not be
disclosed on a trade confirmation. It is my obligation to review all
prospectuses and offering statements I may receive, and to understand the risks
of extraordinary calls or early redemptions, which may affect yield. Issuers may
from time to time publish notices of offers to redeem debt securities within
limited time, price and tender parameters. I understand that you are not
obligated to notify me of such published calls, nor will you tender any
securities on my behalf.
7. RESTRICTIONS ON TRADING; TERMINATION. I understand that you may in your sole
discretion prohibit or restrict trading of securities or substitution of
securities in any of my accounts and refuse to enter into any transaction with
me. You have the right to terminate any of my accounts (including multiple owner
accounts) at any time by notice to me.
8. TRANSFER OF FUNDS BY WIRE. By giving you instructions to transfer funds by
wire from my accounts to any bank or other entity, I agree to provide you with
an accurate account number designating the account to receive such funds. I
acknowledge that the bank or other receiving entity may be under no obligation
to verify the identity of the beneficiary of the funds transfer and may rely
exclusively upon the account number provided by me. I agree to indemnify and
hold you harmless from and against all liabilities arising from the provision by
me of an inaccurate account number.
9. TRANSFER OF EXCESS FUNDS; EXCHANGE RATE FLUCTUATIONS. You may transfer excess
funds (also called "free credit balances") between any of my accounts (including
commodity accounts) for any reason not in conflict with the Commodity Exchange
Act or any other applicable law. If you effect any transactions for me requiring
a foreign currency, any profit or loss as a result of a fluctuation in the
applicable exchange rate will be charged or credited to my account.
10. PRINCIPAL, INTEREST AND DIVIDEND PAYMENTS. With respect to principal and
interest payments on debt instruments, you may credit my account with principal
and interest due on the payment dates and are entitled to recover any such
payments from me if the same are not actually received by your from the trustee
or payment agent. You may redeem my money market fund shares, without notice, to
the extent necessary to satisfy any debits arising in any of my accounts. I
acknowledge that interest will not be paid to me on credit balances in any of my
accounts unless specifically agreed to by you in writing. You are not required
to remit interest or dividends to me on a daily basis.
11. FEES AND CHARGES. I understand that you may impose various service charges
and other fees relating to my account as well as charge commissions and other
fees for execution of transactions to purchase and sell securities, options or
other property, and I agree to pay such charges, commissions and fees at your
prevailing rates. I also understand that such charges, commissions and fees may
be changed from time to time without notice to me and I agree to be bound
thereby. I may be subject to an administrative fee on any of my accounts which
produce insufficient commission revenue for any calendar year and you will
notify me prior to applying this fee. I agree to pay a late charge, to the
extent permitted by law, if I purchase securities on a cash basis and fail to
pay for such securities by settlement date. Any late charge you may impose will
be at the maximum rate of interest set forth in your disclosure statement and
may be charged from the settlement date to the date of payment.
12. ACCURACY OF REPORTS; COMMUNICATIONS. Confirmation of orders and statements
of my accounts shall be conclusive if not objected to in writing within ten days
after mailing by you to me. In the even I fail to receive a confirmation within
ten days from the date of a transaction in my account, I agree to notify you
immediately in writing. Until you have received notice in writing from me of a
different address, communications mailed to me at the address specified by me
shall be deemed to have been personally delivered to me and I agree to waive all
claims resulting from failure to receive such communications.
13. INTRODUCED ACCOUNTS. If my account has been introduced to you and is carried
by you only as a clearing broker, I agree that you are not responsible for the
conduct of the introducing broker and your only responsibilities to me relate to
your execution, clearing and bookkeeping of transactions in my account.
14. SECURITY INTEREST. As security for the payment of all liabilities or
indebtedness presently outstanding or to be incurred under this or any other
agreement between us, I grant you a security interest in any and all property
belonging to me or in which I may have an interest, held by you or carried in
any of my accounts including individual, multiple owner or commodity accounts.
All property shall be subject to such security interest as collateral for the
discharge of my obligations to you, wherever or however arising and without
regard to whether or not you have made loans with respect to such property. You
are authorized to sell and/or purchase any and all property in any of my
accounts or to liquidate any open options, commodity futures or forward
contracts or redeem money market funds in any of my accounts without notice in
order to satisfy such obligations. In enforcing your security interest, you
shall have the discretion to determine the amount, order and manner of property
to be sold and shall have all the rights and remedies available to a secured
party under the New York Uniform Commercial Code. Without your prior written
consent, I will not cause or allow any of the collateral held in my account
whether now owned or hereafter acquired, to be or become subject to any liens,
security interests, mortgages or encumbrances of any nature other than your
security interest.
15. LIQUIDATION OF COLLATERAL OR ACCOUNT. You may sell any or all property held
in any of my accounts and cancel any open orders for the purchase or sale of any
property without notice in the event of my death or whenever in your discretion
you consider it necessary for your protection. In such events you also may
borrow or buy-in all property required to make delivery against any sale,
including a short sale, effected for me. Such sale or purchase may be public or
private and may be made without advertising or notice to me and in such manner
as your may in your discretion determine. No demands, calls, tenders or notices
by you shall invalidate this waiver by me. At any such sale you may purchase the
property free of any right of redemption and I shall be liable for any remaining
deficiency in any of my accounts.
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MARGIN AGREEMENT;
PARAGRAPHS 16 THROUGH 19 APPLY ONLY TO MARGIN ACCOUNTS.
16. MARGIN LOANS. From time to time you may, at your discretion, make loans to
me for the purpose of purchasing, carrying or trading in securities ("Margins
Loans"). Pursuant to Regulation T, Margin Loans will be made in a Margin
Account. The minimum and maximum amount of any particular loan may be
established by you in your discretion regardless of the amount of collateral
delivered to you and you may change such minimum and maximum amounts from time
to time.
17. PAYMENT OF LOANS ON DEMAND. I agree to pay ON DEMAND any balance owing on
any of my accounts, including interest, commissions and late charges and any
costs of collection (including attorneys' fees, if incurred by you). I
understand that you may demand full payment of the balance due in my accounts
plus any interest charges at your sole option, at any time and whether or not
such demand is made for your protection. I understand that all
LBF 3025 (10/96) 2 Copy
<PAGE>
loans made are not for any specific term or duration but are due and payable at
your discretion upon demand for payment made to me. I agree that all payments
received for my accounts including interest, dividends, premiums, principal or
other payments may be applied any you to by balances due in any of my accounts.
18. MAINTENANCE OF COLLATERAL. I understand that the properties in my Margin
Account may be carried as general loans and may be pledged or hypothecated by
you separately or in common with other properties. The pledge or hypothecation
by you may secure your indebtedness equal to or greater than the amount owed to
you by me. If hypothecated, I understand that Lehman Brothers will return to me
identical securities, and make distributions me equivalent to those on the
underlying securities. I further understand that if such securities are
hypocathecated, this will not diminish my risk of loss or opportunity for gain.
I agree to deposit additional collateral, as you may in your discretion require
from time to time, in the form of cash or securities in accordance with the
rules and regulations of the Federal Reserve Board, the NYSE, the American Stock
Exchange, Inc. ("AMEX"), other national securities exchanges, associations or
regulatory agencies under whose jurisdiction you are subject and your own
minimum house margin maintenance requirements. If I no longer maintain a debit
balance or an indebtedness to you, you will fully segregate all securities in my
accounts in your safekeeping or control (directly or through a clearing house)
and/or deliver them to me upon my request.
19. INTEREST CHARGES AND PAYMENTS. I agree to pay interest, to the extent not
prohibited by the laws of the State of New York, upon all amounts advanced and
other balances due in my accounts in accordance with your current disclosure
statement which by his reference is herein specifically incorporated. By
entering into any transactions with you after I receive your current disclosure
statement, I acknowledge that I have read and agree to its terms for all past
and future transactions in my account. I understand that interest on all debit
balances shall be payable ON DEMAND and that in the absence of any demand
interest shall be due on the first business day of each interest period. My
daily net debit balance will include accrued interest I have not paid from prior
interest periods, if any. Thus, to the extent permitted by applicable law you
may charge me compound interest. Payments of interest and principal and all
other payments made by me under this agreement shall be made to your main office
in New York, New York. You may, in your discretion, not deem any check or other
remittance to constitute payment until it has been paid by the drawee and the
funds representing such payment have become available to you.
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20. CREDIT AND BUSINESS CONDUCT INFORMATION AND INVESTIGATION. I authorize you
at your discretion to obtain reports and to provide information to others
concerning my credit standing and my business conduct. You may ask credit
reporting agencies for reports of my credit history. Upon my request you will
inform me whether you have obtained any such consumer reports and if you have,
you will inform me of the name and address of the credit reporting agency that
furnished the reports to you.
21. JOINT ACCOUNTS; DESIGNATION OF TENANCY.
a. If this is a Joint Account, we agree that each of us shall have the authority
on behalf of the account to buy, sell (including short sales) and otherwise deal
in, through you as brokers or dealers, securities, options or other property on
margin or otherwise; to receive for the account, confirmations, statements and
communications of every kind; to receive for the account and to dispose of
money, securities and other property; to make, terminate, or modify for the
account, agreements relating to these matters or waive any of the provisions of
such agreements; and generally to deal with you as if each of us along were the
account owner, all without notice to all account owners. We agree that notice to
any account owner shall be deemed to be notice to all account owners. Each
account owner shall be jointly and severally liable for this account.
b. You may follow the instructions of any of us concerning this account and make
deliveries to any of us, of any or all securities or other property in this
account, and make payments to any of us, of any or all monies in this account as
any of us, may order and direct, even if such deliveries and/or payments shall
be made to one of us personally or to third parties. You shall be under no
obligation to inquire into the purpose of such demand for delivery of
securities, property, or payment of monies, and you shall not be bound to see to
the application or disposition of the said securities, property, and/or so
delivered or paid to any of us. Notwithstanding the foregoing, you are
authorized, in your discretion, to require joint action by the joint tenants
with respect to any matter concerning the joint account, including the giving or
cancellation of orders and the withdrawal or transfer of monies, securities or
other property.
c. In the event of the death of any of us, the survivor(s) shall immediately
give you written notice thereof, and you may, before of after receiving such
notice, take such actions, require such papers, retain such portion of the
account and/or restrict transactions in the account as you may deem advisable to
protect you against any tax, liability, penalty or loss under any present or
future laws or otherwise. The estate of any of us who shall have died shall be
liable and each survivor will be liable, jointly and severally, to you for any
debt or loss in this account resulting from the completion of transactions
initiated prior to your receipt of a written notice of such death or incurred in
the liquidation of the account or the adjustment of the interests of the
respective parties.
d. Any taxes or other expenses becoming a lien against or being payable out of
the account as a result of the death of any of us, or through the exercise by
his or her estate or representatives of any rights in the account shall be
chargeable against the interest of the survivor(s) as well as against the
interest of the estate of the descendent. This provision shall not release the
decedent's estate from any liability provided for in this agreement.
e. It is express intention of us to create an estate or account as joint tenants
with rights of survivors and not as tenants-in-common, unless a separate
Tenancy-in-Common form is properly completed. In the event of the death of
either or any of us, the entire interest in the joint account shall be vested in
the survivor(s) on the same terms and conditions as theretofore held, without in
any manner releasing the descendent's estate from the liability, unless properly
designated as a Tenancy-in-Common.
22. ARBITRATION.
o Arbitration is final and binding on the parties.
o The parties are waiving their right to seek remedies in court, including the
right to a jury trail.
o Pre-arbitration discovery is generally more limited than and different from
court proceedings.
o The arbitrators' award is not required to include factual findings or legal
reasoning and any parry's right to appeal or to seek modification of rulings
by the arbitrators is strictly limited.
o The panel of arbitrators will typically include a minority of arbitrators who
were or are affiliated with the securities industry.
Any controversy: (1) arising out of or relating to any of my accounts with you,
maintained individually or jointly with any other party, in any capacity; or (2)
with respect to transactions of any kind executed by, through or with you, your
officers, directors, agents and/or employees; or (3) relating to my transactions
or accounts with any of your predecessor firms by merger, acquisition or other
business combination from the inception of such accounts; or (4) with respect to
this agreement or any other agreements entered into with you relating to my
accounts, or the breach thereof, shall be resolved by arbitration conducted only
at the NYSE, NASD, or AMEX or any other self-regulatory organization ("SRO")
subject to the jurisdiction of the Securities and Exchange Commission and
pursuant to the arbitration procedures then in effect at any such exchange or
SRO as I elect. If I do not make such election by registered mail addressed to
you at your main office within 5 days after demand by you that I make such
election, then you will have the right to elect the arbitration tribunal of your
choice. Judgment upon any award rendered by the arbitrators may be entered in
any court having jurisdiction thereof. No person shall bring a putative or
certified class action to arbitration, nor seek to enforce any pre-dispute
arbitration agreement against any person who has initiated in court a putative
class action, or who is a member of a putative class but has not opted out of
the class with respect to any claims encompassed by the putative class action,
until: (i) the class certification is denied; (ii) the class action is
decertified; or (iii) such person is excluded from the class by the court. Such
forbearance to enforce an agreement to arbitrate shall not constitute a waiver
of any rights under this agreement except to the extent stated herein. The
foregoing agreement to arbitrate does not entitle me to obtain arbitration of
claims that would be barred by the relevant statutes of limitations if such
claims were brought in a court of competent jurisdiction. If, at the time that a
demand for arbitration is made or an election or notice of intention to
arbitrate is served, the claims sought to be arbitrated would have been barred
by the relevant statue of limitations or other time bar, any party to this
agreement may assert the limitations as a bar to the arbitration either before
the arbitrators or by applying to any court of competent jurisdiction. I
expressly agree that any issues relating to the application of a statute of
limitations or other time bar are referable to such court.
23. GOVERNING LAW AND APPLICABLE REGULATIONS. This agreement, including the
arbitration provisions in paragraph 22, shall be governed by the laws of the
State of New York without giving effect to the choice of law or conflict of laws
provisions thereof. All transactions entered into under this agreement shall be
subject to any applicable constitution, rules, regulations, customs and usages
of the exchange or market and its clearinghouse, if any, where such transactions
are executed by Lehman or its agents and to all applicable laws, rules,
regulations of governmental authorities and SROs (collectively the "Rules"). Any
reference to such Rules in this agreement shall in no way be construed to create
a cause of action arising from any violation of such Rules. If any Rule is
enacted that would be inconsistent with any of the provisions of this agreement,
the provision so affected shall be deemed modified or superseded by the
enactment, but the remaining provisions of this agreement shall remain in full
force and effect.
24. BINDING EFFECT; ASSIGNMENT. This agreement and its terms shall be binding
upon my heirs, executors, successors, administrators, assigns, committee and/or
conservators ("successors"). In the event of my death, incompetency, or
disability, whether or not any successors of my estate and property shall have
qualified or been appointed, you may continue to operate as though I were alive
and competent and you may liquidate my account as described in Paragraph 15
above without prior notice to or demand upon my successors. This agreement shall
inure to the benefit of your assigns and successors, by merger, consolidation or
otherwise (and you may transfer my accounts to any such successors and assigns
at your discretion).
25. WAIVER NOT IMPLIED. Your failure to insist at any time upon strict
compliance with this agreement or with any of its terms or any continued course
of such conduct on your part shall not constitute or be considered a waiver by
you of any of your rights.
26. NO ORAL MODIFICATION; EFFECT ON PRIOR AGREEMENTS. No modification of this
agreement shall be effective unless in writing and executed by you and me. The
signing of this agreement supersedes any prior agreement (except those governing
transactions in my commodity accounts) made with you or any of your predecessors
or assignors. To the extent this agreement is inconsistent with any other
agreement governing my account, the provisions of this agreement shall govern.
27. FOREIGN SECURITIES. If my account contains securities issued by a foreign
issuer, I acknowledge that you are acting solely as a custodian with respect to
such securities and have no obligation to provide me with any proxies, annual
statements or other disclosures from the issuer or facilitate my participation
in any rights offer or other transaction that the issuer may conduct with or
offer to holders of its securities.
28. NOTICES; CLEARING ARRANGEMENTS. You will endeavor to notify me in advance of
any calls in my Margin Account and to provide various other notices relating to
activities in my accounts. But, I understand that you reserve the right to take
any necessary or appropriate action with respect to my accounts permitted by
this Agreement and/or required by law or regulation without prior notice to me
in advance of any such action. I acknowledge and consent that you may, from time
to time, monitor and/or electronically record conversations between me/us and
your employees or agents for the purpose of quality assurance, employee
training, and the mutual protection of both of us. Any such recordings may be
offered by you as evidence in any arbitration or other proceedings relating to
this agreement. During the term of any clearing agreement between Lehman and any
broker/dealer that is providing Lehman clearing services, Lehman's rights and
benefits (but not its obligations) under this agreement shall inure to any such
clearing firm.
LBF 3025 (10/96) 3 Copy
<PAGE>
IMPORTANT TAX INFORMATION
Under the Interest and Dividend Tax Compliance Act of 1983 you (as a payee) are
required to provide us with your correct Taxpayer Identification Number (TIN).
If you are an individual, your TIN is your Social Security Number. If you do not
provide us with your correct TIN you may be subject to a $50 penalty to the
I.R.S. and backup withholding tax, at a rate of 31% on all dividends, interest
and other payments made by us to you after January 1, 1984. Even though our
records indicate a TIN for your account, you must use the attached form to
certify the number as it appears on our files or to furnish us with your correct
TIN.
Instructions
(Section references are to the Internal Revenue Code.)
Purpose of Form. A person who is required to file an information return with the
IRS must obtain your correct taxpayer identification number (TIN) to report
income paid to you, real estate transactions, mortgage interest you paid, the
acquisition or abandonment of secured property, or contributions you made to an
individual retirement arrangement (IRA). Use Form W-9 to furnish your correct
TIN to the requester (the person asking you to furnish your TIN), and, when
applicable, (1) to certify that the TIN you are furnishing is correct (or that
you are waiting for a number to be issued), (2) to certify that you are not
subject to backup withholding, and (3) to claim exemption from backup
withholding if you are an exempt payee. Furnishing your correct TIN and making
the appropriate certifications will prevent certain payments from being subject
to backup withholding. Note: If a requester gives you a form other than a W-9 to
request your TIN, you must use the requester's form.
How to Obtain a TIN. If you do not have a TIN, apply for one immediately. To
apply, get Form SS-5, Application for a Social Security Number Card (for
individuals) from your local office of the Social Security Administration, or
Form SS-4, Application for Employer Identification Number (for business and
other entities), from your local Internal Revenue Service office. To complete
Form W-9. If you do not have a TIN, write "Applied For" in the space for the TIN
in Part 1, sign and date the form, and give it to the requester. Generally, you
will then have 60 days to obtain a TIN and furnish it to the requester. If the
requester does not receive your TIN within 60 days, backup withholding, if
applicable, will begin and continue until you furnish your TIN to the requester.
For reportable interest or dividend payments, the payer must exercise one of the
following options concerning backup withholding during the 6O-day period. Under
option (1), a payer must backup withhold on any withdrawals you make from your
account after 7 business days after the requester receives this form back from
you. Under option (2), the payer must backup withhold on any reportable interest
or dividend payments made to your account, regardless of whether you made any
withdrawals. The backup withholding under option (2) must begin no later than 7
business days after the requester receives this form back. Under option (2) the
payer is required to refund the amounts withheld if your certified TIN is
received within the 6o-day period and you were not subject to backup withholding
during that period. Note: Writing "Applied For" on the form means that you nave
already applied for a TIN OR that you intend to apply for one in the near
future. As soon as you receive your TIN, complete another Form W-9, including
your TIN, sign and date the form, and give it to the requester.
What is Backup Withholding? Persons making certain payments to you are required
to withhold and to pay the IRS 31% of such payments under certain conditions.
This is called "backup withholding". Payments that could be subject to backup
withholding include interest, dividends, broker and barter transactions, rents,
royalties, nonemployee compensation, and certain payments from fishing boat
operators, but do not include real estate transactions.
If you give the requester your correct TIN, make the appropriate certifications,
and report all your taxable interest and dividends on your tax return, your
payments will not be subject to backup withholding. Payments you receive will be
subject to backup withholding if:
(1) You do not furnish your TIN to the requester, or
(2) IRS notifies the requester that your furnished an incorrect TIN, or
(3) You are notified by the IRS that you are subject to backup withholding
because you failed to report all your interest and dividends on your
tax return (for interest and dividend accounts only), or
(4) You fail to certify to the requester that you are not subject to
backup withholding under (3) above (for interest and dividend
accounts opened after 1983 only), or
(5) You fail to certify your TIN. This applies only to interest, dividend,
broker, or barter exchange accounts opened after 1983, or broker
accounts considered inactive in 1983.
For other payments, you are subject to backup withholding only if (1) or (2)
above applies. Certain payees and payments are exempt from backup withholding
and information reporting. See Payees and Payments Exempt From Backup
Withholding, and Exempt Payees and Payments under Specific Instructions, below,
if you are an exempt payee.
Payees and Payments Exempt From Backup Withholding. The following is a list of
payees exempt from backup withholding and for which no information reporting is
required. For interest and dividends, all listed payees are exempt except item
(9). For broker transactions, payees listed in (1) through (13), and a person
registered under the Investment Advisers Act of 1940 who regularly acts as a
broker are exempt. Payments subject to reporting under sections 6041 and 6041A
are generally exempt from backup withholding only if made to payees described in
items (1) through (7), except that a corporation that provides medical and
health care services or bills and collects payments for such services is not
exempt from backup withholding or information reporting. Only payees described
in items (2) through (6) are exempt from backup withholding for barter exchange
transactions, patronage dividends, and payments by certain fishing boat
operators.
(1) A corporation.
(2) An organization exempt from tax under section 501(a), or an individual
retirement plan (IRA), or a custodial account under 403(b)(7).
(3) The United States or any of its agencies or instrumentalities.
(4) A state, the District of Columbia, a possession of the United States,
or any of their political subdivisions or instrumentalities.
(5) A foreign government or any of its political subdivisions, agencies or
instrumentalities.
(6) An international organization or any of its instrumentalities.
(7) A foreign central bank of issue.
(8) A dealer in securities or commodities required to register in the U.S.
or a possession of the U.S.
(9) A futures commission merchant registered with the Commodity Future
Trading Commission.
(10) A real estate investment trust.
(11) An entity registered at all times during the tax year under the
Investment Company Act of 1940.
(12) A common trust fund operated by a bank under section 584(a).
(13) A financial institution.
(14) A middleman known in the investment community as a nominee or listed
in the most recent publication of the American Society of Corporate
Secretaries, Inc. Nominee list.
(15) A trust exempt from tax under section 664 or described in section
4947.
Payments of dividends and patronage dividends generally not subject to backup
withholding also include the following:
o Payments to nonresident aliens subject to withholding under section
1441.
o Payments to partnerships not engaged in a trade or business in the
U.S. and that have at least one nonresident partner.
o Payments of patronage dividends not paid in money.
o Payments made by certain foreign organizations.
Payments of interest generally not subject to backup withholding include the
following:
o Payments of interest on obligations issued by individuals. Note: You
may be subject to backup withholding if this interest is $600 or more
and is paid in the course of the payer's trade or business and you
have not provided your correct TIN to the payer.
o Payments of tax-exempt interest (including exempt-interest dividends
under section 852).
o Payments described in section 6049(b)(5) to nonresident aliens.
o Payments on tax-free covenant bonds under section 1451.
o Payments made by certain foreign organizations.
o Mortgage interest paid by you.
Payments that are not subject to information reporting are also not subject to
backup withholding. For details, see sections 6041, 6041A(a), 6042, 6044,
6045, 6049, 6050A, and 6050N, and the regulations under such sections.
Penalties
Failure to Furnish TIN. If you fail to furnish your correct TIN to a requester,
you are subject to a penalty of $50 for each such failure unless your failure is
due to reasonable cause and not to willful neglect.
Failure To Include Certain Items on Your Tax Return. - If you fail to properly
include on your tax return certain items reported to the IRS, such failure will
be treated as being due to negligence, and you will be subject to a penalty of
5% on any part of an underpayment of tax attributable to that failure unless
there is clear and convincing evidence to the contrary.
Civil Penalty for False Information With Respect To Withholding. If you make a
false statement with no reasonable basis that results in no imposition of backup
withholding, you are subject to a penalty of $500.
Criminal Penalty for Falsifying Information. Willfully falsifying certifications
or affirmations may subject you to criminal penalties including fines and/or
imprisonment.
Specific Instructions
Name. if you are an individual, generally provide the name shown on your social
security card. However, if you have changed your last name, for instance, due to
marriage, without informing the Social Security Administration of the name
change, please enter your first name and both the last name shown on your social
security card and your new last name.
Signing the Certification.
(1) Interest, Dividend, and Barter Exchange Accounts Opened Before 1984 and
Broker Accounts That Were Considered Active During 1983. - You are not
required to sign the certification; however, you may do so. You are
required to provide your correct TIN.
(2) Interest, Dividend, Broker and Barter Exchange Accounts Opened After 1983,
and Broker Accounts That Were Considered Inactive During 1983. - You must
sign the certification or backup withholding will apply. If you are subject
to backup withholding and you are merely providing your correct TIN to the
requester, you must cross out item (b) in the certification before signing
the form.
(3) Real Estate Transactions. - You must sign the certification. You may cross
out item (b) of the certification if you wish.
(4) Other Payments. - You are required to furnish your correct TIN, but you are
not required to sign the certification unless you have been notified of an
incorrect TIN. Other payments include payments made in the course of the
requester's trade or business for rents, royalties, goods (other than bills
for merchandise), medical and health care services, payments to a
nonemployee for services (including attorney and accounting fees), and
payments to certain fishing boat crew members.
(5) Mortgage Interest Paid by You, Acquisition or Abandonment of Secured
Property, or IRA Contributions. - You are required to furnish your correct
TIN, but you are not required to sign the certification.
(6) Exempt Payees and Payments. - If you are exempt from backup withholding,
you should complete this form to avoid possible erroneous backup
withholding. Enter your correct TIN in Part I, write "EXEMPT" in the block
in Part II, sign and date the form. If you are a nonresident alien or
foreign entity not subject to backup withholding, give the requester a
completed Form W-8, Certificate of Foreign Status.
(7) TIN "Applied For." - Follow the instructions under How To Obtain a TIN,
above, sign and date this form. You must provide a TIN whether or not you
are required to file a tax return. Payers must generally withhold 31% of
taxable interest, dividend, and certain other payments to a payee who does
not furnish a TIN to a payer. Certain penalties may also apply.
What Name and Number To Give The Requester
(1) List first and circle the names of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Show the name of the owner.
(4) List first and circle the name of the legal trust, estate, or pension
trust.
Note: If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
LBF 3025 (10/96) 4
SIGNIFICANT SUBSIDIARIES OF THE ASSOCIATED GROUP, INC.
EXHIBIT 21
STATE OF
INCORPORATION
-------------
ASSOCIATED COMMUNICATIONS OF MEXICO, INC. DELAWARE
ASSOCIATED PCN HOLDING CORPORATION DELAWARE
ASSOCIATED SMR, INC. DELAWARE
ASSOCIATED RT, INC. DELAWARE
ASSOCIATED INVESTMENTS, INC. DELAWARE
MICROWAVE SERVICES, INC. DELAWARE
ASSOCIATED RADIO, INC. DELAWARE
Exhibit 23
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 33-880841) pertaining to the 1994 Stock Option and Incentive Award Plan
of The Associated Group, Inc. of our report dated February 28, 1997, with
respect to the consolidated financial statements and schedule of The Associated
Group, Inc. included in the Annual Report (Form 10-K) for the year ended
December 31, 1996.
s/ Ernst & Young LLP
---------------------------
Ernst & Young LLP
Pittsburgh, PA
March 27, 1997
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders
Grupo Portatel, S.A. de C.V.:
We consent to the incorporation by reference in the registration statement
(No. 33-880841) on Form S-8 of The Associated Group, Inc. of our report dated
February 21, 1997, relating to the consolidated balance sheets of Grupo
Portatel, S.A. de C.V. and subsidiaries, as of December 31, 1996 and 1995, and
the related consolidated statements of operations, stockholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1996
(not presented separately herein), which report appears in this Form 10-K of the
Associated Group, Inc.
KPMG CARDENAS DOSAL, S.C.
Felipe Lopez Villegas
Mexico, D.F.
March 26, 1997
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders
Grupo Portatel, S.A. de C.V.:
We consent to the incorporation by reference in the registration statement
(No. 33-880841) on Form S-8 of The Associated Group, Inc. of our report dated
February 17, 1996, except as to note 2a, which is as of March 15, 1996, relating
to the consolidated balance sheets of Grupo Portatel, S.A. de C.V. and
subsidiaries, as of December 31, 1995 and 1994, and the related consolidated
statements of operations, stockholders' equity (deficit) and cash flows for each
of the years in the three-year period ended December 31, 1995, which report
appears in this Form 10-K of the Associated Group, Inc.
Our report refers to a change in the method of accounting for income taxes in
1993 to adopt the provisions of the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 109.
KPMG CARDENAS DOSAL, S.C.
Hector Arturo Ramirez
Mexico, D.F.
March 26, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of The Associated Group, Inc. as of and for the twelve
months ended December 31, 1996 included in Form 10-K for the year ending
December 31, 1996 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 3,341
<SECURITIES> 0<F1>
<RECEIVABLES> 6,458
<ALLOWANCES> 2,355
<INVENTORY> 1,622
<CURRENT-ASSETS> 11,928
<PP&E> 52,465
<DEPRECIATION> 24,952
<TOTAL-ASSETS> 518,934
<CURRENT-LIABILITIES> 108,150
<BONDS> 8,326
0
0
<COMMON> 1,878
<OTHER-SE> 264,127
<TOTAL-LIABILITY-AND-EQUITY> 518,934
<SALES> 741
<TOTAL-REVENUES> 20,035
<CGS> 591
<TOTAL-COSTS> 10,764
<OTHER-EXPENSES> 12,618
<LOSS-PROVISION> 1,275
<INTEREST-EXPENSE> 4,328
<INCOME-PRETAX> (25,532)
<INCOME-TAX> (8,336)
<INCOME-CONTINUING> (17,196)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (17,196)
<EPS-PRIMARY> (0.92)
<EPS-DILUTED> 0
<FN>
Does not include $425,895 of noncurrent marketable equity securities.
</FN>
</TABLE>
