<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM 8-K
Current Report
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) August 29, 1996
PEGASUS MEDIA & COMMUNICATIONS, INC.
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
Delaware 33-95042 23-2778525
- ------------------- ------------------------ -----------------------
(State or other (Commission (I.R.S. Employer
jurisdiction of File Number) Identification No.)
incorporation)
c/o Pegasus Communications Management Company, 100 Matsonford Road,
5 Radnor Corporate Center, Suite 454, Radnor, Pennsylvania 19087
- ------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 610-341-1801
Not Applicable
- ------------------------------------------------------------------------------
(Former name or former address, if changed since last report.)
<PAGE>
Item 2. Acquisition or Disposition of Assets.
On March 21, 1996, the Company's parent, Pegasus Communications
Holdings, Inc. ("PCH"), entered into a definitive agreement to acquire
substantially all of the assets of Dom's Tele-Cable, Inc. ("Dom's"), which
operates cable systems (the "San German Cable System") serving ten communities
contiguous to the Company's Mayaguez, Puerto Rico cable television system.
Subsequent to March 21, 1996, Dom's was liquidated and all assets relating to
the San German Cable System were transferred to Domar, Inc. ("Domar"), an
affiliate of Dom's, and PCH transferred all rights of acquisition to the San
German Cable System to a subsidiary of the Company, Pegasus Cable Television of
San German, Inc.
On August 29, 1996, Pegasus Cable Television of San German, Inc.
acquired from Domar the San German Cable System for approximately $25.0 million
in cash and $1.4 million of assumed liabilities. The Company financed the
acquisition of the San German Cable System primarily through borrowings under
the New Credit Facility (as defined).
The San German Cable System consists of franchises to build and operate
cable television systems serving the municipalities of Cabo Rojo, San German,
Lajas, Hormigueros, Guanica, Sabana Grande, Maricao, Anasco, Rincon and Las
Marias and serves a franchise area comprising approximately 72,400 households.
The system currently serves eight of these communities (two towns are unbuilt)
with 480 miles of plant from two headends. As of July 31, 1996, the system
served approximately 16,300 basic subscribers. The system currently offers 45
channels of programming and has a 52 channel capacity. The system is fully
addressable. The Company anticipates consolidating the acquired systems with its
Mayaguez system and operating them from a single head-end. The Company
anticipates that the consolidation will enable it to realize significant
economies. The consolidated system will serve approximately 27,200 basic
subscribers in a franchise area exceeding 110,000 television households.
Item 5. Other Events.
On August 29, 1996, the Company entered into a seven-year, senior
secured revolving credit facility (the "New Credit Facility"). The New Credit
Facility will be for $50.0 million upon the completion of the lending
consortium. Until such completion, or if other lenders do not join the
consortium, the New Credit Facility will be for $35.0 million. Proceeds of
borrowings under the New Credit Facility may be used for acquisitions approved
by the lenders in broadcast television, direct broadcast satellite television
and cable television and for general corporate purposes. All subsidiaries of the
Company (other than Pegasus Cable Television of Connecticut, Inc. and
subsidiaries that hold certain of the Company's broadcast television licenses)
are guarantors of the New Credit Facility, which is collateralized by a security
interest in all assets of, and all stock in, the Company and its subsidiaries
(other than the assets of Pegasus Cable Television of Connecticut, Inc., the
assets and stock of certain of the Company's license-holding subsidiaries, and
any shares of Class B Common Stock of the Company which are not held by PCH).
Borrowings under the New Credit Facility bear interest, payable
monthly, at LIBOR or the prime rate (as selected by the Company) plus spreads
that vary with the Company's ratio of total debt to operating cash flow. The New
Credit Facility required payment of a closing fee of approximately $950,000
(which will increase by $350,000 to approximately $1.3 million upon completion
of the lending consortium) and an annual commitment fee of 0.5% of the unused
portion of the commitment payable quarterly in arrears and requires the Company
to purchase an interest rate hedging contract covering an amount equal to at
least 50% of the total amount of borrowings from the reducing revolving facility
for a minimum period of at least two years.
-1-
<PAGE>
The New Credit Facility requires prepayments and concurrent reductions
of the commitment from asset sales or other transactions outside the ordinary
course of business (subject to provisions permitting the proceeds of certain
sales to be used to make approved acquisitions within stated time periods
without reducing the commitments of the lenders) and contains covenants limiting
the amounts of indebtedness that the Company may incur, requiring the
maintenance of minimum fixed charge coverage, interest coverage and debt service
coverage ratios and limiting capital expenditures, dividends and other
restricted payments. The New Credit Facility also contains other customary
covenants, representations, warranties, indemnities, conditions precedent to
closing and borrowing, and events of default.
Beginning March 31, 1998, commitments under the New Credit Facility
will reduce in quarterly amounts ranging from $1.3 million per quarter in 1998
to $2.3 million in 2002.
As of August 29, 1996, $31.6 million had been drawn under the New
Credit Facility. On that date, $8.8 million had been drawn under the New Credit
Facility to retire all outstanding indebtedness under the Company's credit
facility with IBJ Schroder Bank and Trust Company, as agent (the "Old Credit
Facility") and the balance was used to acquire the San German Cable System and
pay fees and transaction costs.
Item 7. Financial Statements, Pro Forma Financial Information, and Exhibits
(a) Financial Statements of Business Acquired
Report of Independent Accountants F-1
Balance Sheets as of May 31, 1995 and F-2
May 31, 1996
Statements of Operations and Deficit F-3
for the years ended May 31, 1994,
May 31, 1995 and May 31, 1996
Statements of Cash Flows for the years F-4
ended May 31, 1994, May 31, 1995 and
May 31, 1996
Notes to Financial Statements F-5 - F-9
-2-
<PAGE>
(b) Pro Forma Financial Information.
Pro Forma Balance Sheet as of June 30, 1996 F-10
Pro Forma Statements of Operations for the
year ended December 31, 1995 and for the
six months ended June 30, 1996 F-11
Pro Forma Footnotes F-13
(c) Exhibits
1. Asset Purchase Agreement, dated March 21, 1996, by
and among PCH, Dominica Padilla Acosta (aka Dominick
Padilla), Maria Del Carmen Padilla Lopez, and Dom's
(which is incorporated herein by reference to Exhibit
2.1 of the Company's Form 10-K for the year ended
December 31, 1995) (schedules and exhibits described
in the agreement are omitted, but will be furnished
supplementally to the Commission upon request).
2. Amendment No. 1 to Exhibit 1.
3. Franchise Agreement granted to Dom's to build and
operate cable television systems for the
municipalities of Cabo Rojo, San German, Lajas,
Hormigueros, Guanica, Sabana Grande and Maricao
(which is incorporated herein by reference to Exhibit
2 of the Company's Form 8-K dated March 21, 1996).
4. Franchise Agreement granted to Dom's to build and
operate cable television systems for the
municipalities of Anasco, Rincon and Las Marias
(which is incorporated herein by reference to Exhibit
3 of the Company's Form 8-K dated March 21, 1996).
5. Joinder Agreement dated as of May 31, 1996 by and
among PCH, Dominica Padilla Acosta (aka Dominick
Padilla), Maria Del Carmen Padilla Lopez, and Domar.
-3-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
PEGASUS MEDIA & COMMUNICATIONS, INC.
By /s/ Robert N. Verdecchio
------------------------------------
Robert N. Verdecchio,
Senior Vice President - Finance
September 12, 1996
-4-
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Dom's Tele Cable, Inc.
We have audited the accompanying balance sheets of Dom's Tele Cable, Inc. as
of May 31, 1995 and 1996 and the related statements of operations and deficit
and cash flows for the years ended May 31, 1994, 1995 and 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards required that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Dom's Tele Cable, Inc. as of
May 31, 1995 and 1996, and the results of operations and deficit and its cash
flows for the years ended May 31, 1994, 1995 and 1996 in conformity with
generally accepted accounting principles.
As discussed in Note 11, to the financial statements, the Company has
restated the depreciation expense for the year ended May 31, 1994, to
properly reflect the calculation of depreciation expense.
/s/ Coopers & Lybrand L.L.P.
- ----------------------------
COOPERS & LYBRAND L.L.P.
San Juan, Puerto Rico
August 9, 1996
F-1
<PAGE>
DOM'S TELE CABLE, INC.
BALANCE SHEETS
MAY 31, 1995 AND 1996
<TABLE>
<CAPTION>
May 31, May 31,
1995 1996
------------- -------------
<S> <C> <C>
ASSETS
Property, plant, and equipment net of accumulated
depreciation and amortization ...................... $ 5,077,102 $ 4,839,293
Cash ................................................ 60,648 146,368
Accounts receivable, trade -- net of allowance for
doubtful accounts of $26,900 and $30,390 for May 31,
1995 and 1996, respectively ........................ 107,876 26,314
Prepaid expenses .................................... 85,536 62,856
Other assets ........................................ 11,086 11,086
Due from related parties ............................ 212 212
Deferred tax asset .................................. 330,200 0
------------- -------------
Total assets ................................... $ 5,672,660 $ 5,086,129
============= =============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Liabilities:
Notes and loans payable ........................... $ 6,079,357 $ 5,086,232
Accounts payable, trade ........................... 695,519 194,856
Accrued expenses .................................. 942,227 1,055,337
Unearned revenues ................................. 53,852 41,369
Income tax payable ................................ 16,840 15,410
------------- -------------
7,787,795 6,393,204
------------- -------------
Commitments and contingencies ....................... 477,083 495,352
Stockholders' Deficiency:
Common stock -- $10 par value; authorized, 100,000
shares, issued and outstanding 9,575 shares .... 95,750 95,750
Accumulated deficit ............................... (2,687,968) (1,898,177)
------------- -------------
(2,592,218) (1,802,427)
------------- -------------
Total liabilities and stockholders' deficiency . $ 5,672,660 $ 5,086,129
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
DOM'S TELE CABLE, INC.
STATEMENTS OF OPERATIONS AND DEFICIT
FOR THE YEARS ENDED MAY 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
May 31, May 31, May 31,
1994 1995 1996
-------------- --------------- -------------
As Restated
<S> <C> <C> <C>
Revenues ........................... $ 5,356,652 $ 5,447,228 $ 6,015,072
Operating costs and expenses ....... 1,521,390 1,950,762 1,909,206
------------- --------------- -------------
Gross profit .................. 3,835,262 3,496,466 4,105,866
------------- --------------- -------------
Marketing, general, and
administrative expenses ..... 1,346,487 1,412,951 1,636,322
Depreciation and amortization . 634,750 491,295 505,042
------------- --------------- -------------
1,981,237 1,904,246 2,141,364
------------- --------------- -------------
Operating income ................... 1,854,025 1,592,220 1,964,502
Non-operating (income) expenses:
Other ............................ -- (50,000) --
Interest expense ................. 753,047 777,461 827,800
------------- --------------- -------------
Income before benefit (provision)
for income taxes .............. 1,100,978 864,759 1,136,702
Benefit (provision) for income
taxes ......................... 184,000 129,356 (346,911)
------------- --------------- -------------
Net income .................... 1,284,978 994,115 789,791
Deficit at beginning of period ..... (4,967,061) (3,682,083) (2,687,968)
------------- --------------- -------------
Deficit at end of period ........... $ (3,682,083) $ (2,687,968) $ (1,898,177)
============== =============== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
DOM'S TELE CABLE, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MAY 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
May 31, May 31, May 31 ,
1994 1995 1996
-------------- ------------- -------------
As Restated
<S> <C> <C> <C>
Cash flows from operating activities:
Net income .................................. $ 1,284,978 $ 994,115 $ 789,791
------------ ------------- -------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ............ 634,750 491,295 505,042
Provision for doubtful accounts .......... 50,595 9,241 110,408
Changes in assets and liabilities:
Increase in accounts
receivables, trade .................. (24,781) (51,864) (28,846)
(Increase) decrease in accounts
receivable, other ................... (14,743) 35,866 --
(Increase) decrease in prepaid expenses (35,218) (4,845) 22,679
Increase in other assets ............... (3,916) -- --
(Increase) decrease in due from related
parties ............................. (2,887) 3,414 --
(Increase) decrease in deferred tax
asset ............................... (184,000) (146,200) 330,200
Increase (decrease) in accounts payable 238,870 266,705 (500,663)
Increase (decrease) in accrued expenses (186,870) (120,322) 113,110
Increase (decrease) in income tax
payable ............................. -- 16,840 (1,430)
Decrease in unearned revenues .......... (12,483) (22,908) (12,483)
Increase in contingencies .............. -- 191,083 18,269
------------ ------------- -------------
Total adjustments ................... 459,317 668,305 556,286
------------ ------------- -------------
Net cash provided by operating
activities ........................ 1,744,295 1,662,420 1,346,077
------------ ------------- -------------
Cash flows from investing activities:
Capital expenditures ........................ (390,172) (249,727) (267,232)
------------ ------------- -------------
Net cash used in investing activities (390,172) (249,727) (267,232)
------------ ------------- -------------
Cash flows from financing activities:
Payments of notes payable ................... (1,469,104) (1,443,650) (1,011,925)
Proceeds from issuance of loan payable ...... 40,000 -- 18,800
------------ ------------- -------------
Net cash used in financing activities (1,429,104) (1,443,650) (993,125)
------------ ------------- -------------
Net increase (decrease) in cash ............... (74,981) (30,957) 85,720
Cash, beginning of period ..................... 166,586 91,605 60,648
------------ ------------- -------------
Cash, end of period ........................... $ 91,605 $ 60,648 $ 146,368
============ ============= =============
Supplemental disclosure of cash flows
information:
Cash paid during the period for interest ..... $ 713,821 $ 805,421 $ 833,209
============ ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
DOM'S TELE CABLE, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Dom's Tele Cable, Inc. (the "Company") was incorporated pursuant to the
provisions of the General Corporations Law of the Commonwealth of Puerto Rico
on February 23, 1983. The Company operates a cable television system under a
franchise authorization by the Public Service Commission of Puerto Rico and
the Federal Communications Commission which includes the towns of San German,
Lajas, Cabo Rojo, Sabana Grande, Hormigueros, Guanica, Rincon, Anasco, Las
Marias, and Maricao in Puerto Rico.
CLASSIFICATION OF ACCOUNTS
There is no distinction between current assets and liabilities and
non-current assets and liabilities inasmuch such distinction is not practical
in the cable industry.
REVENUE RECOGNITION
Revenues as well as costs and expenses are recognized under the accrual
method of accounting; as such revenues are earned as the related costs and
expenses are incurred.
UNEARNED REVENUES
Unearned revenues are recorded when a customer pays for the services
before they are delivered or rendered, and are included in income over the
contract or service period.
INITIAL SUBSCRIBER INSTALLATION COSTS
Initial subscriber installation costs, including material, labor and
overhead costs of the drop, are capitalized and depreciated over a period no
longer than 7 years.
HOOKUP REVENUES
The excess of revenues over selling costs for initial cable television
hookups are deferred and amortized over the estimated average period that
subscribers are expected to remain connected to the system, which is
estimated at 10 years.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are stated at cost. Expenditures for
additions and improvements that increase the productive capacity or extend
the useful life of the assets are capitalized and expenditures for
maintenance and repairs are charged to operations. When properties are
retired or otherwise disposed of, the costs and related accumulated
depreciation are removed from the books, and any gain or loss from disposal
is included in operations. Fully depreciated assets are written off against
accumulated depreciation.
Depreciation of property, and equipment is computed on the straight-line
method based upon the following estimated useful lives:
Tower and distribution system 18 years
Machinery and equipment 5 years
Furniture and fixtures 5 years
Motor vehicles 5 years
Building 30 years
Leasehold improvements 5 years
F-5
<PAGE>
DOM'S TELE CABLE, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
INCOME TAXES
Deferred income taxes are recognized for the tax consequences in future
years of differences between the tax bases of assets and liabilities and
their financial reporting amounts at each year-end based on enacted tax laws
and statutory tax rates applicable to the periods in which the differences
are expected to affect taxable income.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amounts expected to be realized. Income tax expense is the tax
payable for the period and the change during the period in deferred tax
assets and liabilities.
FAIR VALUE OF FINANCIAL INSTRUMENTS
For cash and accounts receivable, the estimated fair value is the same or
approximately the same as the recorded value.
RISKS AND UNCERTAINTIES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1995 financial statements
to be consistent with the current year presentation.
2. FRANCHISE FEES AND COMMITMENTS
The Company was granted a cable television franchise for certain
municipalities on December 28, 1984 by the Puerto Rico Service Commission for
twenty years. The franchise agreement requires a payment of 3% of the
Company's gross revenues. In addition, the Company has to pay its subscribers
5% interest on its customer deposits.
The Company's pole rental agreements with the Puerto Rico Telephone
Company and the Puerto Rico Electric Power Authority are renewed on a yearly
basis. These contracts specify that the Company will pay $3.00 and $7.33,
respectively, for the use of each pole. The rental expense for the years
ended May 31, 1994, 1995, and 1996, amounted to $58,334, $73,063 and $73,065,
respectively.
3. RELATED PARTY TRANSACTION
The Company was partially owned by Three-Sixty Corporation. Transactions
with Three-Sixty Corporation not disclosed elsewhere are management fees
amounting to $55,367, $54,952 and $55,367 in May 31, 1994, 1995, and 1996,
respectively.
In October 1994, all of the Company's stock was acquired by the majority
stockholder.
F-6
<PAGE>
DOM'S TELE CABLE, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
4. PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment consists of:
<TABLE>
<CAPTION>
May 31, May 31,
1995 1996
------------ ------------
<S> <C> <C>
Building ..................................... $ 122,713 $ 122,713
Tower and distribution ....................... 11,006,704 11,223,338
Furniture and fixtures ....................... 137,498 142,128
Equipment .................................... 394,703 433,743
Leasehold improvements ....................... 32,350 39,279
------------ ------------
11,693,968 11,961,201
Less accumulated depreciation and amortization 6,781,354 7,286,396
Land ......................................... 164,488 164,488
------------ ------------
Property, plant and equipment, net ........... $ 5,077,102 $ 4,839,293
============ ============
</TABLE>
5. NOTES AND LOANS PAYABLE
<TABLE>
<CAPTION>
May 31, May 31
1995 1996
------------ -----------
<S> <C> <C>
Loan payable in 84 monthly installments which fluctuates
from $13,543 up to $67,711 during the term of the loan in
accordance with a payment schedule known as the Term
Loan, plus interest at .75% over the prevailing prime
rate as published from time to time by Citibank N.A. in
New York or at 2% over the U.S. Internal Revenue Code
Section 936 interest rate for the portion of the loan
funded with 936 funds. The loan matures on July 1, 1996. $ 974,315 $ 188,874
Loan payable in 83 monthly installments which fluctuates
from $15,000 up to $100,000 during the term of the loan
in accordance with the payment schedule and one final
balloon payment of $3,305,000, known as the Credit
Facility Loan, plus interest at .75% over the prevailing
prime rate as published from time to time by Citibank
N.A. in New York or at 2% over the U.S. Internal Revenue
Code Section 936 interest rate for the portion of the
loan funded with 936 funds. The loan matures on July 1,
1996. ................................................... 5,080,020 4,880,021
Loan payable to Western Bank of Puerto Rico in 60 equal
monthly installments of $1,112, plus interest at 2% over
the prevailing prime rate, and collateralized with a
motor vehicle. This loan was paid in full on January 19,
1996. ................................................... 25,022 --
Capital lease equipment bearing interest at 7.56% with a
residual value of $3,900. This lease agreement is due in
2001. ................................................... -- 17,337
------------ -----------
$6,079,357 $5,086,232
=========== ===========
</TABLE>
F-7
<PAGE>
DOM'S TELE CABLE, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
5. NOTES AND LOANS PAYABLE - (Continued)
Aggregate maturities of notes and loans payable are as follows:
<TABLE>
<CAPTION>
Years Ending May 31,
--------------------
<S> <C>
1997 ............................................ $5,072,483
Thereafter ...................................... 13,749
------------
$5,086,232
============
</TABLE>
On October 26, 1995, Philip Credit Corporation sold, assigned and
transferred all of its rights, title, and interest, in and to the credit
agreement dated June 28, 1988, as amended to Lazard Freres & Co., L.L.C. The
credit agreement between the Company is comprised of a Term Loan and a Credit
Facility Loan which are collateralized by substantially all of the assets
owned by the Company along with a personal guarantee of the Company's
stockholder.
The credit agreement contains certain restrictive covenants such as: (i)
subscriber debt ratio; (ii) subscriber payment; (iii) number of homes in
cable system; (iv) number of subscribers; (v) combined plant mileage; and
(vi) subscribers' mileage ratio. As of May 31, 1995, and 1996, the Company
was not in compliance with certain of the restrictive covenants and is in
default on principal payments amounting to approximately $1,500,000 on the
Credit Facility Loan. See Note 10.
6. INCOME TAXES
The Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," as of June 1, 1993. The application of the
statement did not affect the Company's financial position and result of
operations because the components of the deferred tax primarily relate to net
operating loss carryforwards of $1,611,300 for which a valuation allowance of
100% was provided. During 1994, the Company changed its conclusion about the
realization of operating loss carryforwards and decided to record $184,000
for the realization of losses during 1995. The Company did not recognize a
deferred tax asset for net operating losses to be realized after May 31, 1995
because management expects to have completed the assets sale and liquidation
of the Company shortly after May 31, 1996.
The components of deferred tax asset were as follows:
<TABLE>
<CAPTION>
May 31, May 31,
1995 1996
------------ -----------
<S> <C> <C>
Net operating loss carryforwards $ 712,758 $ 500,677
Valuation allowance ............. (382,558) (500,677)
--------- ---------
$ 330,200 $ --
========= =========
</TABLE>
The comparison of income tax expense at the Puerto Rico statutory rate to
the Company's income tax benefit (provision) is as follows:
<TABLE>
<CAPTION>
May 31, May 31, May 31,
1994 1995 1996
------------ ------------- -----------
As Restated
<S> <C> <C> <C>
Tax at statutory rate ..................... $ 462,411 $ 363,199 $ 443,314
Adjustment due to:
Benefit of net operating loss
carryforwards ...................... (456,149) (354,255) (439,187)
Alternative minimum tax .............. 0 16,844 16,711
Change in valuation allowances ....... (184,000) (146,200) 330,200
Others, net .......................... (6,262) (8,944) (4,127)
------------ ------------- -----------
$ (184,000) $ (129,356) $ 346,911
============ ============= ===========
</TABLE>
F-8
<PAGE>
DOM'S TELE CABLE, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
7. CONCENTRATION OF CREDIT RISK
Substantially all of the Company's business activity is with customers
located in eight municipalities located in the southwestern area of Puerto
Rico and as such the Company is subject to the risks of Puerto Rico and more
specifically the economy of such geographic area.
8. CONTINGENCIES
The Company is involved in various litigations arising in the normal
course of business. Management believes that the outcome of these
uncertainties will not have a material adverse effect on its financial
statements.
The Company has not filed the Copyright Statement of Accounts with the
Copyright Office nor has paid royalty fees and interest amounting to
approximately $477,083 and $495,352 for May 31, 1995, and 1996, respectively.
The Company can be subject to various remedies for copyright infringement and
additional penalties for not filing the Copyright Statement of Accounts.
Management has accrued $477,083 and $495,352 for May 31, 1995 and 1996,
respectively, for royalty fees and interest for the unexpired filing periods,
which is three years in accordance with the statute of limitations.
Management plans to make the filing and payment concurrently with the
proposed sale of the Company.
9. SIGNIFICANT TRANSACTIONS
On January 11, 1996, the Company's sole stockholder signed a letter of
intent with respect to the liquidation of the Company's operations and the
eventual sale of its net assets, in a transaction that should be consummated
on or before August 31, 1996. Long-term obligations payable to Lazard Freres
& Co., L.L.C., at present, CIBC Wood Gundy Securities Corporation, will be
paid from the proceeds of this sale. In the event the planned sale is not
made the Company may need to seek additional financing from other sources or
restructure its debt.
10. SUBSEQUENT EVENTS
Effective on June 1, 1996, the Company was liquidated and a new legal
entity was incorporated under the laws of the Commonwealth of Puerto Rico
known as DOMAR Inc., to be in accordance with the sale contract agreement
entered with the buyer, Pegasus Media & Communications, Inc.
On July 1, 1996, Lazard Freres & Co., L.L.C., sold, assigned and
transferred all of its rights, title, interest and obligation to CIBC Wood
Gundy Securities Corporation.
11. PRIOR PERIOD ADJUSTMENT
The Company restated its depreciation expense by $520,329 to correct the
depreciation expense for the year ended May 31, 1994. The effect was to
increase net income for the year ended May 31, 1994 by $520,329.
F-9
<PAGE>
Pegasus Media & Communications, Inc.
Pro Forma Balance Sheet
June 30, 1996
<TABLE>
<CAPTION>
Dom's Credit
Actual TeleCable (a) Facility (b) Pro Forma
------------- ----------------------------- ----------------
(Dollars in thousands)
ASSETS
<S> <C> <C> <C> <C>
Cash and cash equivalents $3,167 ($22,200) $21,645 $2,612
Restricted cash 4,869 4,869
Accounts receivable, net 6,817 6,817
Inventory 460 460
Prepaid expenses and other current assets 1,708 1,708
Property and equipment, net 24,204 1,865 26,069
Intangibles, net 60,756 21,708 941 83,405
Other assets 1,935 1,935
------------- ------------- -------------- ----------------
Total assets $103,916 $1,373 $22,586 $127,875
============= ============= ============== ================
LIABILITIES AND TOTAL EQUITY
Current liabilities $6,505 $1,373 $7,878
Notes payable 54 54
Accrued interest 5,313 5,313
Current portion of long-term debt 309 309
Current portion of program rights payable 1,356 1,356
Long-term debt, net 94,263 22,800 117,063
Program rights payable 1,161 1,161
Other long term liabilities 115 115
Class A Common Stock 2 2
Class B Common Stock
Additional paid in capital 7,881 7,881
Retained deficit (834) (214) (1,048)
Partners deficit (12,209) (12,209)
------------- ------------- -------------- ----------------
Total liabilities and equity $103,916 $1,373 $22,586 $127,875
============= ============= ============== ================
</TABLE>
(a) To record acquisition of the assets of Dom's TeleCable.
(b) To record the Companies New Credit Facility and associated costs.
F-10
<PAGE>
Pegasus Media & Communications, Inc.
Pro Forma Statements of Operations
Year Ended December 31, 1995
<TABLE>
<CAPTION>
Portland
Actual Broadcasting WTLH, Inc Adjustments Sub-total
----------------------------------------------------------------------------------
(Dollars in thousands, except earnings per share)
<S> <C> <C> <C> <C> <C>
Net Revenues:
Television $19,973 $4,409 $2,784 $139 $27,305
DBS 1,469 1,469
Cable 10,606 10,606
----------------------------------------------------------------------------------
Total net revenues 32,048 4,409 2,784 139 39,380
----------------------------------------------------------------------------------
Operating expenses:
Television 13,979 3,441 2,133 (297) 19,256
DBS 1,379 1,379
Cable 5,791 5,791
Incentive compensation 528 528
Management fees 1,770 147 40 181 2,138
Depreciation and amortization 8,674 212 107 830 9,823
----------------------------------------------------------------------------------
Income (loss) from operations (73) 609 504 (575) 465
Interest expense (8,795) (1,138) (163) (301) (10,397)
Interest income 370 370
Other income (expenses), net (44) (542) (64) 606 (44)
Provision (benefit) for income taxes 30 105 135
----------------------------------------------------------------------------------
Income (loss) before
extraordinary item (8,572) (1,071) 172 (270) (9,741)
Extraordinary gain from
extinguishment of debt, net 10,210 10,210
----------------------------------------------------------------------------------
Net income (loss) $1,638 ($1,071) $172 ($270) $469
==================================================================================
Income (loss) per share:
Income (loss) before extraordinary items ($51.73) ($6.46) $1.04 ($1.63) ($58.79)
Extraordinary gain 61.62 61.62
==================================================================================
Net income (loss) $9.88 ($6.46) $1.04 ($1.63) $2.83
==================================================================================
Weighted average shares outstanding 165,692 165,692 165,692 165,692 165,692
==================================================================================
</TABLE>
F-11
<PAGE>
<TABLE>
<CAPTION>
Dom's Pro
TeleCable Adjustments Forma
- -------------------------------------------------
<S> <C> <C>
$27,305
1,469
$5,777 16,383
- -------------------------------------------------
5,777 45,157
- -------------------------------------------------
19,256
1,379
3,485 (332)(a) 8,944
528
2,138
501 1,256 (b) 11,580
- -------------------------------------------------
1,791 (924) 1,332
(850) (1,369)(c) (12,616)
370
50 6
(189) 189 (d) 135
- -------------------------------------------------
1,180 (2,482) (11,043)
10,210
- -------------------------------------------------
$1,180 ($2,482) ($833)
=================================================
$7.12 ($14.98) ($66.65)
61.62
- -------------------------------------------------
$7.12 ($14.98) ($5.03)
=================================================
165,692 165,692 165,692
=================================================
</TABLE>
<PAGE>
Pegasus Media & Communications, Inc.
Pro Forma Statements of Operations
Six Ended June 30, 1996
<TABLE>
<CAPTION>
Portland
Actual Broadcasting WTLH, Inc Adjustments Sub-total
---------------------------------------------------------------------------------
(Dollars in thousands, except earnings per share)
<S> <C> <C> <C> <C> <C>
Net Revenues:
Television $11,932 $247 $404 $17 $12,600
DBS 1,568 1,568
Cable 5,626 5,626
---------------------------------------------------------------------------------
Total net revenues 19,126 247 404 17 19,794
---------------------------------------------------------------------------------
Operating expenses:
Television 8,294 294 243 (43) 8,788
DBS 1,261 1,261
Cable 3,087 3,087
Incentive compensation 290 290
Management fees 1,096 12 21 1,129
Depreciation and amortization 4,851 6 11 154 5,022
---------------------------------------------------------------------------------
Income (loss) from operations 247 (65) 129 (94) 217
Interest expense (5,561) (565) (20) 400 (5,746)
Interest income 151 151
Other income (expenses), net (61) 20 (17) (58)
Provision (benefit) for income taxes (133) 35 (35) (133)
---------------------------------------------------------------------------------
Net income (loss) ($5,091) ($610) $57 $341 ($5,303)
=================================================================================
Income (loss) per share ($30.73) ($3.68) $0.34 $2.06 ($32.01)
=================================================================================
Weighted average shares outstanding 165,692 165,692 165,692 165,692 165,692
=================================================================================
</TABLE>
F-12
<PAGE>
<TABLE>
<CAPTION>
Dom's
TeleCable Adjustments Total
- --------------------------------------------------
<S> <C> <C>
$12,600
1,568
$3,190 8,816
- --------------------------------------------------
3,190 22,984
- --------------------------------------------------
8,788
1,261
1,811 $(166)(a) 4,732
290
1,129
201 577 (b) 5,800
- --------------------------------------------------
1,178 (411) 984
(413) (681)(c) (6,840)
151
(58)
333 (333)(d) (133)
- --------------------------------------------------
432 (759) (5,630)
==================================================
$2.61 ($4.58) ($33.98)
==================================================
165,692 165,692 165,692
==================================================
</TABLE>
<PAGE>
Pegasus Media & Communications, Inc.
Pro Forma Footnotes
(a) To account for the elimination of certain duplicate expenses when the
systems are combined.
(b) To adjust depreciation and amortization for the assets recorded by the
Company in connection with the acquisition of Dom's.
(c) To remove interest expense from the Dom's and record interest expense on
the $25,000,000 note and draw on the Company's credit facility in
connection with the acquisition of Dom's.
(d) To eliminate tax benefit.
F-13
<PAGE>
EXHIBIT INDEX
Exhibit
1. Asset Purchase Agreement, dated March 21, 1996, by and
among PCH, Dominica Padilla Acosta (aka Dominick
Padilla), Maria Del Carmen Padilla Lopez, and Dom's
(which is incorporated herein by reference to Exhibit
2.1 of the Company's Form 10-K for the year ended
December 31, 1995) (schedules and exhibits described
in the agreement are omitted, but will be furnished
supplementally to the Commission upon request).
2. Amendment No. 1 to Exhibit 1.
3. Franchise Agreement granted to Dom's to build and operate
cable television systems for the municipalities of Cabo Rojo,
San German, Lajas, Hormigueros, Guanica, Sabana Grande and
Maricao (which is incorporated herein by reference to Exhibit
2 of the Company's Form 8-K dated March 21, 1996).
4. Franchise Agreement granted to Dom's to build and operate
cable television systems for the municipalities of Anasco,
Rincon and Las Marias (which is incorporated herein by
reference to the Company's Form 8-K dated March 21, 1996).
5. Joinder Agreement dated as of May 31, 1996 by and among PCH,
Dominica Padilla Acosta (aka Dominick Padilla), Maria Del
Carmen Padilla Lopez, and Domar.
<PAGE>
Exhibit 2
AMENDMENT NO. 1
TO ASSET PURCHASE AGREEMENT
This Amendment No. 1 ("Amendment") made and entered into as of the 31st
day of May, 1996, by and among Pegasus Communications Holdings, Inc. ("Buyer"),
a Delaware corporation, and Dominica Padilla Acosta (a/k/a Dominick Padilla) and
his spouse, Maria del Carmen Padilla Lopez and the conjugal partnership formed
by them (collectively referred to herein as "Seller"), and Dom's Tele-Cable,
Inc. ("DTC"), a Puerto Rico corporation. Buyer, Seller and DTC are collectively
referred to herein as the "Parties."
RECITALS:
WHEREAS, Buyer, Seller and DTC have entered into that certain Asset
Purchase Agreement dated March 21, 1996 ("Asset Purchase Agreement"); and
WHEREAS, the Parties wish to amend the Asset Purchase Agreement as
provided herein.
NOW, THEREFORE, in consideration of the premises and mutual promises
made herein and in the Asset Purchase Agreement, and in consideration of the
representations, warranties and covenants contained herein and in the Asset
Purchase Agreement, and intending to be legally bound hereby, the Parties agree
as follows:
1. Defined Terms.
(a) Capitalized terms used herein which are not defined in this
Agreement shall have the meanings assigned to them in the Asset Purchase
Agreement.
(b) The defined term "Termination Date" set forth in Article I of
the Asset Purchase Agreement shall be deleted in its entirety.
<PAGE>
(c) The following defined terms shall be added to Article I of the
Asset Purchase Agreement:
"Amended and Restated Escrow Agreement" means that certain
Amended and Restated Escrow Agreement to be executed and delivered not later
than May 31, 1996 by Escrow Agent, Buyer, Seller, DTC and Domar, substantially
in the form of Appendix 1 attached hereto.
"Commitment Letter" means that certain commitment letter dated
March 21, 1996 from CIBC, Inc. to an Affiliate of Buyer.
"Joinder Agreement" means that certain Joinder Agreement to be
executed and delivered not later than May 31, 1996 by Buyer, Seller and Domar
pursuant to which Domar will become a party to the Agreement, substantially in
the form of Appendix 2 attached hereto.
"Management Agreement" means that certain Management Agreement
to be executed and delivered not later than May 31, 1996 by an Affiliate of
Buyer and Domar, substantially in the form of Appendix 3 attached
hereto.
"Net Purchase Price" means the Purchase Price less an amount
equal to the sum of (v) the Initial Deposit plus (w) the Additional Deposit plus
(x) the Extension Deposit plus (y) the Programmer Deposit (if applicable) plus
(z) the Base Purchase Price Advance plus (zz) any Current Liabilities assumed at
Closing.
"Seller" has the meaning assigned to it in the Preamble of the
Asset Purchase Agreement, and shall be deemed to include the conjugal
partnership formed by Seller.
2
<PAGE>
(d) The defined term "Liquidated Damages" set forth in Article I of
the Asset Purchase Agreement shall be amended in its entirety to read as
follows:
"Liquidated Damages" mean the Initial Deposit plus the
Additional Deposit plus the Extension Deposit plus the Base Purchase Price
Advance.
(e) The following terms are defined in the Sections of this
Amendment indicated:
Term Section
---- -------
"Base Purchase Price".............................................2
"Base Purchase Price Advance"..................................5(g)
"Closing".........................................................3
"Closing Date"....................................................3
"CRIM Deposit".................................................5(c)
"Domar"........................................................5(b)
"Extension Deposit"............................................5(f)
"IPO".............................................................3
"Programmer Deposit"...........................................5(f)
"Registration Statement"..........................................3
2. Consideration. Section 2.2(a) of the Asset Purchase Agreement shall
be amended in its entirety to read as follows:
Buyer will pay to Seller at Closing cash in the amount of $11.6
million ("Base Purchase Price"), subject to (x) the Base Purchase
Price adjustments set forth in Section 2.3, (y) the escrow
arrangements set forth in Sections 2.4, 5.17, 5.24 and 5.27, and (z)
the Base Purchase Price Advance, in accordance with Seller's
delivery instructions.
3. Closing. Section 2.6 of the Asset Purchase Agreement shall be
amended in its entirety to read as follows:
3
<PAGE>
The closing of the transactions contemplated by this Agreement
("Closing") shall take place at such location as the Parties may
agree, on the following date ("Closing Date"):
(i) May 31, 1996, if all conditions to the obligations of the
Parties to consummate the transactions contemplated hereby
have been satisfied or waived (other than those conditions
with respect to actions the respective Parties will take at
Closing);
(ii) if Closing has not occurred on May 31, 1996, the earlier to
occur of August 31, 1996 or the fifth Business Day after the
completion of an initial public offering of the common stock
of an Affiliate of Buyer ("IPO") pursuant to a registration
statement that would be filed under the Securities Act of
1933, as amended ("Registration Statement"), provided that all
conditions to the obligations of the Parties to consummate the
transactions contemplated hereby have been satisfied or waived
(other than those conditions with respect to actions the
respective Parties will take at Closing); or
(iii) if Closing has not occurred on or before August 31, 1996,
September 30, 1996 or such earlier date as the Parties may
agree, provided all conditions to the obligations of the
Parties to consummate the transactions contemplated hereby
have been satisfied or waived (other than those conditions
with respect to actions the respective Parties will take at
Closing itself).
4
<PAGE>
4. Representations and Warranties.
(a) The following shall be inserted after the word "Agreement" in
the third line of Section 4.1 of the Asset Purchase Agreement: "and as of the
date of Amendment No. 1 to this Agreement."
(b) The following shall be inserted after the word "Agreement" in
the second line of Section 4.2 of the Asset Purchase Agreement: "and as of the
date of Amendment No. 1 to this Agreement."
5. Pre-Closing Covenants.
(a) The phrase "DTC's assets" in clause (a) of Section 5.2 of the
Asset Purchase Agreement shall be replaced with the defined term "Assets."
(b) The clause "Pending Closing," at the beginning of Section 5.3 of
the Asset Purchase Agreement shall be deleted in its entirety. The introductory
clause "Immediately prior to Closing" set forth in the second sentence of
Section 5.3 shall be amended in its entirety to read: "On or before May 31,
1996,". The following shall be added to the end of Section 5.3:
Immediately upon liquidation of DTC as provided herein, Seller will
sell, transfer, convey and deliver the Assets to Domar, Inc.
("Domar"), a newly formed Puerto Rico corporation whose outstanding
capital stock is wholly owned by Seller, and Seller will cause Domar
to assume the Credit Agreement Obligations and those Current
Liabilities (and no other Current Liabilities) which were
Liabilities of DTC immediately prior to the liquidation of DTC.
(c) In the event that Closing does not occur on May 31, 1996,
Section 5.17 of the Asset Purchase Agreement shall be amended in its entirety to
read as follows:
5
<PAGE>
At Closing, Buyer will pay $240,000 into escrow ("CRIM Deposit")
pursuant to the terms and conditions of the Amended and Restated
Escrow Agreement, which amount will constitute a payment on account
of the Base Purchase Price that reduces by such amount cash payable
directly to Seller at Closing.
(d) The following shall be added to the end of Section 5.19 of the
Asset Purchase Agreement:
In the event the Closing does not occur on May 31, 1996, (i) Seller
shall use its best efforts to obtain the FCC's consents to the
transfer of the CARS License and Business Radio Licenses to Buyer,
and (ii) if the consents to transfer of the CARS License and/or the
Business Radio Licenses are not granted by July 24, 1996, Buyer may,
after consultation with Seller, apply for a new CARS License and/or
one or more new Business Radio Licenses, as Buyer deems appropriate.
However, acceptance of such CARS License by Buyer shall, subject to
all rules and regulations, be contingent upon Closing.
(e) Section 5.20 of the Asset Purchase Agreement shall be amended in
its entirety to read as follows:
Prior to Closing, Seller will cause Domar to obtain an assignable
lease from Mr. Radames Collado relating to Domar's use of poles on
Mr. Collado's property, as described in Section 4.1(f)(iii) of the
Disclosure Schedule, which form of lease must be reasonably
acceptable to Buyer.
(f) The last sentence of Section 5.24 of the Asset Purchase
Agreement shall be amended in its entirety to read as follows:
6
<PAGE>
In the event that DTC and Seller do not deliver the opinion required
hereunder, Buyer will pay 60 percent of the amount of "programmers
tax withholdings" disclosed in the financial statements required to
be delivered pursuant to Section 7.1 ("Programmer Deposit") into
escrow pursuant to the terms and conditions of the Amended and
Restated Escrow Agreement, which Amended and Restated Escrow
Agreement will be amended to reflect payment of this additional
amount into escrow for purposes of satisfying claims relating to
periods prior to Closing that are threatened or asserted by Hacienda
and/or programmers during the term of the Amended and Restated
Escrow Agreement, and the Programmer Deposit will constitute a
payment on account of the Base Purchase Price that reduces by such
amount cash payable directly to Seller at Closing.
(g) The following new Sections shall be added after Section 5.24 of
the Asset Purchase Agreement:
5.25. Bank Commitment Letter. On or before May 31, 1996, Buyer will
deliver to Seller an amended Commitment Letter which provides in
effect that, subject to the terms and conditions of the Commitment
Letter, (i) the senior bank financing contemplated by the Commitment
Letter will be used to finance the Net Purchase Price and (ii) the
expiration of the Commitment Letter will not be earlier than
September 30, 1996. Notwithstanding the foregoing, neither this
provision nor the amended Commitment Letter will be construed to
mean that Buyer is obligated to use financing described in the
amended Commitment Letter rather than IPO financing.
5.26. Registration Statement. Buyer will cause the Registration
Statement to provide in effect that, subject to the occurrence of
Closing, IPO proceeds will be applied to the payment of the Net
Purchase Price.
7
<PAGE>
5.27. Extension. In the event that Closing does not occur on May 31,
1996 and Seller complies with Sections 5.2, 5.29, 5.30, 5.31 and
5.32, on May 31, 1996 Buyer will pay $1,800,000 ("Extension
Deposit") into escrow pursuant to the terms and conditions of the
Amended and Restated Escrow Agreement, which amount will constitute
a payment on account of the Base Purchase Price that reduces by such
amount cash payable by Buyer directly to Seller at Closing.
5.28. Base Purchase Price Advance. In the event that Closing does
not occur on May 31, 1996 and Seller complies with Sections 5.2,
5.29, 5.30, 5.31 and 5.32, Buyer will pay to Seller $750,000, which
amount will constitute a payment on account of the Base Purchase
Price ("Base Purchase Price Advance") that reduces by such amount
cash payable by Buyer to Seller at Closing. In the event that
Closing does not occur by September 30, 1996, Seller will
immediately return the Base Purchase Price Advance to Buyer.
5.29. Liquidation Opinion. In the event that Closing does not occur
on May 31, 1996, Seller will deliver to Buyer on May 31, 1996 the
opinion of Eddie Lopez Alonso and/or Esteban F. Bird in form
satisfactory to Buyer relating to the liquidation of DTC and
transfer of Assets to Domar.
5.30. Amended Escrow Agreement. In the event that Closing does not
occur on May 31, 1996, Seller will, and Seller will cause Domar to,
and Buyer will, execute and deliver not later than May 31, 1996 the
Amended and Restated Escrow Agreement.
5.31 Joinder Agreement. In the event that Closing does not occur on
May 31, 1996, Seller will, and Seller will cause Domar to, and Buyer
will, execute and deliver not later than May 31, 1996 the Joinder
Agreement.
8
<PAGE>
5.32 Management Agreement. In the event that Closing does not occur
on May 31, 1996, Seller will, and Seller will cause Domar to, and an
Affiliate of Buyer will, execute and deliver not later than May 31,
1996 the Management Agreement.
6. Conditions Precedent.
(a) The following sentence shall be added to Section 6.1(c):
Notwithstanding the foregoing, there shall be no failure of this
condition precedent because of the failure of Seller to obtain the
consent of, or Buyer to enter into a contract with, the Puerto Rico
Electric Power Authority or the Puerto Rico Transportation and
Public Works Department resulting from the noncompliance of MCT
Cablevision, Limited Partnership with the requirements of those
Governmental Authorities.
(b) Section 6.1(u) shall be amended in its entirety to read as
follows:
Buyer shall have received the opinions of Eddie Lopez Alonso and/or
Esteban F. Bird, dated the Closing Date, in the form set forth in
Appendix 15, which form shall be revised to reflect the amended
structure of the transactions contemplated by this Amendment and
which form as revised shall be acceptable to Buyer and Seller; and
the opinion of Rini, Coran & Lancellota in form satisfactory to
Buyer and Seller.
(c) The following shall be inserted immediately after "Lodge &
Company" in Section 6.2(g) of the Asset Purchase Agreement: "and/or Drinker,
Biddle & Reath."
9
<PAGE>
(d) The following shall be added to the end of Section 6.1(h) of the
Asset Purchase Agreement: "; provided, however, that the transfer of CARS
License and Business Radio Licenses shall be treated in accordance with Section
5.19."
(e) The following shall be added to the end of Section 6.2(h) of the
Asset Purchase Agreement: ", except for any such consents and approvals that are
waived as conditions precedent to Closing by Buyer."
(f) Section 6.2(k) of the Asset Purchase Agreement shall be amended
to delete the phrase "and as of the Closing".
7. Post Closing Covenants. The introductory clause "Within 52 days
after Closing" set forth in Section 7.1 shall be amended in its entirety to
read: "On or before August 15, 1996,".
8. Termination.
(a) The first line of each of Section 8.1(b)(ii) and Section
8.1(c)(ii) shall be amended in its entirety to read as follows: "If Closing
shall not have occurred on or before September 30, 1996..."
(b) The following new sections shall be added after Section 8.3 of
the Asset Purchase Agreement:
10
<PAGE>
8.4. Return of Advance and Escrow Funds. In the event that this
Agreement is terminated for any reason and Seller has no right to
Liquidated Damages pursuant to Section 9.3(c), Seller will
immediately return to Buyer the Base Purchase Price Advance and
Buyer will be entitled to the immediate return of the Initial
Deposit, the Additional Deposit and the Extension Deposit from the
Escrow Agent.
8.5 CARS License. In the event that this Agreement is terminated for
any reason and the FCC has granted a new CARS License or Business
Radio License to Buyer relating to operation of the System, Buyer
agrees not to use such license and to use its best efforts to have
such license assigned immediately to Seller or its designee.
8. Remedies.
(a) The following parenthetical will be inserted in the first
sentence of Section 9.2(c) of the Asset Purchase Agreement immediately after
"$1,000,000":
(in addition to any liabilities relating to CRIM)
(b) Section 9.3(c) shall be amended in its entirety to read as
follows:
Notwithstanding anything to the contrary herein, the maximum
liability of Buyer under this Agreement shall be equal to $1
million; provided that if Closing does not occur on or before
September 30, 1996 because of Buyer's breach or default with respect
to any of its representations, warranties, covenants or agreements
contained in this Agreement, Buyer's liability under this Agreement
will be limited to, and Seller will be entitled to receive,
Liquidated Damages.
11
<PAGE>
(c) The following clause shall be added to the beginning of the
first sentence of Section 9.6 of the Asset Purchase Agreement: "Except as
provided in Section 9.7,".
(d) The following new Section shall be added after Section 9.6 of
the Asset Purchase Agreement:
9.7. Specific Performance. Seller acknowledges and agrees that a
breach of this Agreement by Seller and the resulting failure of
Seller to consummate this Agreement in accordance with its terms and
conditions would cause irreparable harm to Buyer for which money
damages alone would not be an adequate remedy because of the unique
nature of the Assets and their strategic importance to Buyer.
Therefore, in addition to Buyer's rights to damages under this
Agreement, Buyer will have the right to specifically enforce the
terms and conditions of this Agreement.
10. Miscellaneous.
(a) Section 10.3(c) of the Asset Purchase Agreement shall be amended
to delete reference to "Sal LaMarca."
(b) The parenthetical in Section 10.13 of the Asset Purchase
Agreement shall be amended in its entirety to read:
(including the documents referred to herein and Amendment No. 1 to
this Agreement, which are incorporated in and constitute part of
this Agreement)
12
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have duly executed this
Agreement as of the day and year first above written.
PEGASUS COMMUNICATIONS HOLDINGS, INC.
By: /s/ Marshall W. Pagon
----------------------------------------------
Marshall W. Pagon, Chief Executive Officer
/s/ Dominica Padilla Acosta
-------------------------------------------------
Dominica Padilla Acosta (a.k.a. Dominick Padilla)
/s/ Maria del Carmen Padilla Lopez
-------------------------------------------------
Maria del Carmen Padilla Lopez
DOM'S TELE-CABLE, INC.
By: /s/ Dominica Padilla Acosta
----------------------------------------------
Dominica Padilla Acosta (a.k.a. Dominick Padilla)
President
13
<PAGE>
Exhibit 5
JOINDER AGREEMENT
This JOINDER AGREEMENT ("Agreement") made and entered into as
of the 31st day of May, 1996 by and among Pegasus Communications Holdings, Inc.
("Buyer"), a Delaware corporation, and Dominick Padilla Acosta (a/k/a Dominick
Padilla) and his spouse, Marie del Carmen Padilla Lopez (collectively referred
to herein as "Seller"), and Domar, Inc. ("Domar"), a Puerto Rico corporation.
RECITALS:
WHEREAS, Buyer, Seller and Dom's Tele-Cable, Inc. ("DTC") have
entered into that certain Asset Purchase Agreement dated March 21, 1996, as
amended by that certain Amendment No. 1 to Asset Purchase Agreement dated May
31, 1996 ("Asset Purchase Agreement"), which provides that Pegasus and Seller
shall, and Seller shall cause Domar to, execute and deliver this Agreement
pursuant to which Domar will become a party to the Asset Purchase Agreement on
and subject to the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and mutual
promises made herein, and in the Asset Purchase Agreement, and in consideration
of the representations, warranties and covenants contained herein and in the
Asset Purchase Agreement, and intending to be legally bound hereby, the parties
hereto agree as follows:
1. Joinder. Except as specifically provided in this Agreement,
Domar hereby agrees to become a party to the Asset Purchase Agreement, and to be
bound by all the terms and conditions of the Asset Purchase Agreement as though
it were an original party thereto and were included in the definition of
"Seller" as used thereunder.
2. Recitals. The second and third recitals of the Asset
Purchase Agreement shall be amended in their entirety to read as follows:
<PAGE>
WHEREAS, on or before May 31, 1996, Seller will liquidate
DTC, which will distribute all of its assets in kind subject
to its liabilities to Seller, and Seller will in turn
immediately transfer such assets subject to liabilities to
Domar; and
WHEREAS, subject to the terms, conditions and provisions
hereof, Buyer wishes to acquire from Domar, and Domar wishes
to sell to Buyer, all of the assets and the Business for the
Purchase Price stipulated herein.
3. Definitions.
(a) Capitalized terms which are used herein and not otherwise
defined in this Agreement shall have the meanings assigned to
them in the Asset Purchase Agreement.
(b) The terms defined in Article I shall be amended as follows:
(i) The references to "DTC or Seller" in subparagraph (a) of
the definition of "Assumed Liabilities" shall be deemed to
refer instead to "Domar." The fifth reference to "DTC" in
the proviso of the definition of "Assumed Liabilities"
shall be deemed to include "Domar."
(ii) The defined term "Business" shall be amended its entirety
to read as follows:
"Business" means the cable television business conducted
by DTC on the date of this Agreement and by Domar on the
date of the Joinder Agreement through the System in and
around the Service Area, as described in Appendix 1
hereto.
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(iii) The defined term "Closing Balance Sheet" shall be amended
in its entirety to read as follows:
"Closing Balance Sheet" means the balance sheet of Domar
as of the Closing Date which is prepared in accordance
with GAAP on a basis consistent with the Financial
Statements referred to in Section 4.1(j) and which sets
forth in detail the Current Liabilities.
(iv) The reference to "DTC" in the definition of "Closing
Subscribers" shall be deemed to refer instead to "Domar."
(v) The defined term "Current Liabilities" shall be
amended in its entirety to read as follows:
"Current Liabilities" mean all Liabilities of DTC other
than the Credit Agreement for the period prior to the
liquidation contemplated by Section 5.3 and all
Liabilities of Domar other than the Credit Agreement for
the period from and after the transfer of the Assets
subject to Liabilities to Domar.
(vi) The reference to "DTC" in the definition of
"Equivalent Basic Subscribers" shall be deemed to refer
instead to "Domar."
4. Basic Transaction. Except for the last sentence of Section 2.3(a)(i)
and the first and last sentence of Section 2.3(a)(ii), all references to
"Seller" or "DTC or Seller" in Article II shall be deemed to refer instead to
"Domar."
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5. Representations and Warranties. Subject to the following, Domar
shall be deemed to make the representations and warranties set forth in Section
4.1 as of the date hereof and as of the Closing Date and all references to
"Seller" in Section 4.1 shall be deemed to include "Domar" from and after the
date hereof.
(a) The references to "DTC" in Section 4.1(a) shall be deemed to
include "Domar," and the reference to "Seller" in Section 4.1(a)
shall not be deemed to include "Domar."
(b) The references to "DTC" in Section 4.1(b) shall be deemed to
include "Domar," and the references to "Seller" in Section
4.1(b) shall not be deemed to include "Domar."
(c) The references to "DTC" in Section 4.1(c)(i) shall be deemed to
include "Domar."
(d) The clauses "DTC has, and on the Closing Date Seller will have,"
set forth in Sections 4.1(d), 4.1(e) and 4.1(f)(i)(A) shall be
amended in their entirety to read as follows:
DTC has, and immediately upon liquidation of DTC Seller will
have, and upon the transfer of the Assets to Domar as
contemplated by Section 5.3 Domar will have, and on the Closing
Date Domar will have,"
(e) The reference to "DTC" in Section 4.1(f)(i)(G) shall be deemed
to refer instead to "Domar" as of the date of the transfer of
the Assets to Domar as contemplated by Section 5.3 and as of the
Closing Date.
(f) The reference to "Seller" in Section 4.1(f)(ii) shall be deemed
to refer instead to "Domar."
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(g) The reference to "DTC" in Section 4.1(f)(iii) shall be deemed to
refer instead to "Domar" as of the date of the transfer of the
Assets to Domar as contemplated by Section 5.3 and as of the
Closing Date.
(h) The reference to "Seller" in the second clause of Section
4.1(h)(i) shall be deemed to refer instead to "Domar."
(i) The reference to "Seller" in the second clause of Section
4.1(h)(iv)(A) shall be deemed to refer instead to "Domar."
(j) The reference to "DTC" in the second sentence of Section
4.1(i)(iv) shall be deemed to include "Domar."
(k) The reference to "Seller's" in the last line of Section
4.1(i)(viii) shall be deemed to include "DTC's and Domar's."
(l) The reference to "DTC" in Section 4.1(i)(ix) shall be deemed to
include "Domar," and the reference to "Seller" in that Section
shall be deemed to include "DTC and Domar."
(m) The reference to "DTC" in Section 4.1(i)(x) shall be deemed to
include "Domar."
(n) The parenthetical "(and Seller before Closing)" set forth
numerous times in Section 4.1(i)(xi) shall be amended in its
entirety to read: "(and Seller upon liquidation of DTC, and
Domar upon the transfer of the Assets to Domar as contemplated
by Section 5.3 and before Closing)."
(o) Sections 4.1(k)(xi), (xii) and (xiii) shall be amended in their
entirety to read as follows:
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(xi) there has been no change made or authorized in DTC's or
Domar's Certificate of Incorporation or By-Laws, except as
necessary to effect the transactions contemplated by Section
5.3; (xii) neither DTC nor Domar has issued, sold or otherwise
disposed of any of its shares of capital stock or granted any
options, warrants or other rights to purchase or obtain any
interest therein; (xiii) neither DTC nor Domar has set aside or
paid any dividend or distribution to shareholders or redeemed,
purchased or otherwise acquired any shares of its capital stock
from any of its shareholders, except as necessary to effect the
transactions contemplated by Section 5.3;
(p) The references to "DTC" in Section 4.1(n) shall be deemed to
include "Domar."
(q) The reference to "DTC" in the last sentence of Section 4.1(o)(i)
shall be deemed to include "Domar."
(r) The references to "DTC" in Section 4.1(r)(vii), in the second
line of Section 4.1(r)(x) and in the third line of the paragraph
following Section 4.1(r)(xiv) shall be deemed to include "Domar"
and the references to "Seller" shall not be deemed to include
"Domar."
(s) The reference to "DTC" in the third line of Section 4.1(u) shall
be deemed to include "Domar."
(t) The references to "DTC" in Section 4.1(w) shall be deemed to
include "Domar."
(t) The references to "DTC" in Section 4.1(bb) shall be deemed to
include "Domar."
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6. Pre-Closing Covenants.
(a) The second reference to "DTC" in Section 5.2 shall be deemed to
include "Domar."
(b) The references to "Seller" in Section 5.3 shall not be deemed to
include "Domar." The following shall be added to the end of
Section 5.3:
After transfer of the Assets to Domar as provided herein,
neither Seller nor Domar will, directly or indirectly, by any
means including but not limited to a stock transfer, asset
transfer, liquidation or distribution, sell, transfer, convey or
deliver the Assets to any other Person; provided, however, that
Domar may engage an affiliate of Buyer to operate the System in
accordance with the Management Agreement.
(c) The sixth and eighth references to "DTC" in Section 5.4(a) shall
be deemed to include "Domar."
(d) The reference to "DTC" at the end of the first sentence of
Section 5.5(a) shall be deemed to include "Domar."
(e) The reference to "DTC" in the last sentence of Section 5.14
shall be deemed to include "Domar."
(f) The references to "DTC" in the first and last sentences of
Section 5.16 shall be deemed to include "Domar."
(g) The reference to "Seller" in Section 5.17 shall be deemed to
refer instead to "Domar."
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(h) The following sentence shall be added to the end of Section
5.21: "The compliance certificate shall cover operation of the
System by DTC and Domar."
(i) The reference to "DTC" in Section 5.22 shall be deemed to
include "Domar."
(j) The reference to "Seller" in the last line of Section 5.24 shall
be deemed to refer instead to "Domar."
(k) The second reference to "Seller" in Section 5.27 shall be deemed
to refer instead to "Domar."
(l) The third reference to "Seller" in Section 5.28 shall be deemed
to refer instead to "Domar."
(m) The references to "Seller" in Sections 5.30, 5.31 and 5.32 shall
not be deemed to include "Domar."
7. Conditions Precedent.
(a) The second and third references to "DTC" in Section 6.1(q) shall
be deemed to include "Seller or Domar."
(b) Section 6.1(s)(vii) shall be amended in its entirety to read as
follows:
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(vii) certified copies of DTC's Certificate of Incorporation,
By-Laws and Certificate of Dissolution, Domar's Certificate of
Incorporation and By-Laws, and such other documents and
instruments as Buyer may request from Governmental Authorities
or otherwise regarding the liquidation of DTC, the distribution
of its assets to Seller and the transfer of those assets to
Domar;
(c) References to "DTC" in Section 6.1(x), in the second line of
Section 6.1(y) and in the fourth line of Section 6.1(z) shall be
deemed to include "Domar."
8. Post Closing Covenants. The references to "DTC" in Sections 7.4 and
7.5 shall be deemed to include "Domar."
9. Miscellaneous. Each Article or Section reference in this Agreement
refers to an Article or Section of the Asset Purchase Agreement.
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IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
PEGASUS COMMUNICATIONS HOLDINGS, INC.
By: /s/ Marshall W. Pagon
-------------------------------------------------
Marshall W. Pagon, Chief Executive Officer
/s/ Dominica Padilla Acosta
--------------------------------------------------
Dominica Padilla Acosta (a.k.a. Dominick Padilla)
/s/ Maria del Carmen Padilla Lopez
--------------------------------------------------
Maria del Carmen Padilla Lopez
DOMAR, INC.
By: /s/ Dominica Padilla Acosta
------------------------------------------------
Dominica Padilla Acosta (a.k.a. Dominick Padilla)
President
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