<PAGE>
As Filed With The Securities and Exchange Commission on August 13, 1998
Registration No. 333-51589
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------
AMENDMENT NO. 4
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------
LENFEST COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
Delaware 4841 23-2094942
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation) Classification Code Number) Identification No.)
1105 North Market Street
Suite 1300
P.O. Box 8985
Wilmington, DE 19899
(302) 427-8602
(Address, including zip code, and telephone number, including area
code, of Registrant's principal executive offices)
H. F. LENFEST
President and Chief Executive Officer
c/o The Lenfest Group
200 Cresson Boulevard
Oaks, PA 19456
(610) 650-3000
(Name, address, including zip code, and telephone number, including area
code, of agent for service)
------
Copy to:
THOMAS K. PASCH, ESQ.
Saul, Ewing, Remick & Saul LLP
1500 Market Street, 38th Floor
Philadelphia, PA 19102
(215) 972-7777
Approximate date of commencement of proposed offer
to the public: As soon as practicable after this
Registration Statement becomes effective.
If the securities being registered on this Form
are being offered in connection with the formation
of a holding company and there is compliance
with General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier registration statement
for the same offering. [ ]
================================================================================
<PAGE>
PROSPECTUS LOGO
OFFER TO EXCHANGE ALL OUTSTANDING
7-5/8% SENIOR NOTES DUE 2008 AND
8-1/4 % SENIOR SUBORDINATED NOTES DUE 2008
FOR
7-5/8% SENIOR NOTES DUE 2008 AND
8-1/4 % SENIOR SUBORDINATED NOTES DUE 2008
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
OF
LENFEST COMMUNICATIONS, INC.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME ON SEPTEMBER 16,
1998, UNLESS EXTENDED.
Lenfest Communications, Inc. (the "Company") or ("Lenfest") hereby
offers, upon the terms and subject to the conditions set forth in this
Prospectus and the accompanying letters of transmittal (the "Letters of
Transmittal," and together with this Prospectus, the "Exchange Offer"), its
7-5/8% Senior Notes due 2008 (the "Senior Exchange Notes") and its 8-1/4% Senior
Subordinated Notes due 2008 (the "Senior Subordinated Exchange Notes", and
together with the Senior Exchange Notes, the "Exchange Notes"), which have been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
pursuant to a Registration Statement (as defined) of which this Prospectus is a
part, for the outstanding 7-5/8% Senior Notes due 2008 (the "Old Senior Notes")
and the outstanding 8-1/4% Senior Subordinated Notes due 2008 (the "Old Senior
Subordinated Notes", and together with the Old Senior Notes, the "Old Notes",
and together with the Exchange Notes, the "Notes") of the Company.
The Company will accept for exchange any and all Old Notes that are
validly tendered on or prior to 5:00 p.m. New York City time, on the date the
Exchange Offer expires, which will be September 16, 1998, unless the Exchange
Offer is extended (the "Expiration Date"). The exchange of Exchange Notes for
the Old Notes will be made as soon as practicable after the close of the
Exchange Offer. The Company will accept for exchange all Old Notes tendered and
not validly withdrawn pursuant to the Exchange Offer and will deliver to the
Trustee (as defined) for cancellation all Old Notes so accepted for exchange.
The Company shall cause the Trustee to authenticate and deliver to each holder
of the Old Senior Notes the Senior Exchange Notes equal in principal amount to
the Old Senior Notes of such holder so accepted for exchange and to each holder
of the Old Senior Subordinated Notes the Senior Subordinated Exchange Notes
equal in principal amount to the Old Senior Subordinated Notes of such holder so
accepted for exchange. The Exchange Offer is not conditioned upon any minimum
principal amount of Old Notes being tendered for exchange. See "The Exchange
Offer." The Company has agreed to pay the expenses of the Exchange Offer.
The Senior Exchange Notes will be obligations of the Company issued
pursuant to the Senior Indenture (as defined) under which the Old Senior Notes
were issued. The form and terms of the Senior Exchange Notes are identical in
all material respects to the form and terms of the Old Senior Notes except that
the Senior Exchange Notes will not contain terms with respect to transfer
restrictions and the Senior Exchange Notes have been registered under the
Securities Act. The Senior Subordinated Exchange Notes will be obligations of
the Company issued pursuant to the Senior Subordinated Indenture (as defined)
under which the Old Senior Subordinated Notes were issued. The form and terms of
the Senior Subordinated Exchange Notes are identical in all material respects to
the form and terms of the Old Senior Subordinated Notes except that the Senior
Subordinated Exchange Notes will not contain terms with respect to transfer
restrictions and the Senior Subordinated Exchange Notes have been registered
under the Securities Act. See "The Exchange Offer."
Interest on the Exchange Notes will be payable semi-annually on
February 15 and August 15 of each year, commencing August 15, 1998. The Senior
Exchange Notes will not be redeemable at the option of the Company prior to
maturity. The Senior Subordinated
<PAGE>
Exchange Notes will be redeemable, in whole or in part, at the option of the
Company on or after February 15, 2003 at the redemption prices set forth herein
plus accrued interest (if any) to the redemption date. Upon a Change of Control
Triggering Event (as defined), the Company will be required to make an offer to
purchase the Exchange Notes at a purchase price equal to 101% of the principal
amount thereof, plus accrued and unpaid interest (if any) to the date of
purchase. See "Description of Notes--Change of Control Offer."
The Senior Exchange Notes will be general unsecured obligations of the
Company, and will be in all respects pari passu in right of payment to all
existing and future Senior Indebtedness of the Company. The Senior Subordinated
Exchange Notes will be general unsecured obligations of the Company,
subordinated in right of payment to all existing and future Senior Indebtedness
of the Company, and will be in all respects pari passu in right of payment to
all existing and future Senior Subordinated Indebtedness of the Company. In
addition, all the operations of the Company are conducted through the Company's
subsidiaries. Because the assets of the Company's subsidiaries constitute
substantially all of the assets of the Company, and because those subsidiaries
will not guarantee the payment of principal of or interest on the Exchange
Notes, all indebtedness and liabilities of such subsidiaries will be effectively
senior in right of payment to the Exchange Notes. At March 31, 1998, the total
consolidated indebtedness of the Company was approximately $1,286.1 million, the
total amount of Senior Indebtedness of the Company was $844.1 million, the total
amount of Senior Subordinated Indebtedness of the Company was approximately
$442.0 million, and the total liabilities and indebtedness of the Company's
subsidiaries (including trade payables and accrued liabilities), on an aggregate
basis, was approximately $154.7 million. See "Risk Factors - Substantial
Leverage," " - Subordination; Holding Company Structure" and "Description of
Notes."
The Exchange Notes are being offered hereunder to satisfy certain
obligations of the Company contained in the Registration Agreement (as defined)
in connection with the Company's offering of the Old Notes (the "Old Notes
Offering", and together with the Exchange Offer, the "Offering"). Based on
existing interpretations of the Securities Act by the staff of the Securities
and Exchange Commission ("Commission") set forth in several no-action letters to
third parties, and subject to the immediately following sentence, the Company
believes that the Exchange Notes issued pursuant to the Exchange Offer may be
offered for resale, resold and otherwise transferred by the holders thereof
without further compliance with the registration and prospectus delivery
provisions of the Securities Act. However, any holder of the Old Notes who is an
"affiliate" of the Company or who intends to participate in the Exchange Offer
for the purpose of distributing the Exchange Notes (i) will not be able to rely
on the interpretation by the staff of the Commission set forth in the above
mentioned no-action letters, (ii) will not be able to tender its Old Notes in
the Exchange Offer and (iii) must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any sale or
transfer of the Old Notes unless such sale or transfer is made pursuant to an
exemption from such requirements.
Each holder of the Old Notes (other than certain specified holders) who
wishes to exchange the Old Notes for Exchange Notes in the Exchange Offer is
required to represent to the Company that (i) it is not an affiliate of the
Company, (ii) any Exchange Notes to be received by it were acquired in the
ordinary course of its business and (iii) at the time of the commencement of the
Exchange Offer, it has no arrangement with any person to participate in the
distribution (within the meaning of the Securities Act) of the Exchange Notes.
Each broker-dealer that receives Exchange Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. The Letters of Transmittal
state that by so acknowledging and by delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of
Exchange Notes received in exchange for Old Notes where such Old Notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities. The Company has agreed that, until the close of business on
the 180th day following the Expiration Date, it will make this Prospectus
available to any broker-dealer for use in connection with any such resale. See
"The Exchange Offer" and "Plan of Distribution."
Prior to this Exchange Offer, there has been no public market for the
Notes. The Company does not intend to apply for listing of the Notes on any
national securities exchange or for quotation of the Notes through the Nasdaq
National Market. There can be no assurance that an active market for the Notes
will develop. To the extent that a market for the Notes does develop, the market
value of the Notes will depend on market conditions (such as yields on
alternative investments), general economic conditions, the Company's financial
condition and other conditions. Such conditions might cause the Notes, to the
extent that they are actively traded, to trade at a significant discount from
face value. See "Risk Factors - Absence of Active Trading Market."
The Company will not receive any proceeds from this offering, and no
underwriter is being utilized in connection with the Exchange Offer. See "Use of
Proceeds."
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN WHICH
THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE
SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
<PAGE>
The Exchange Notes are expected to be eligible for trading in the
Private Offerings Resales and Trading through Automated Linkages ("PORTAL")
market.
See "Risk Factors" beginning on page 11 hereof for discussion of
certain factors that should be considered by prospective purchasers of the
Exchange Notes.
No person is authorized in connection with any offering made hereby to
give any information or to make any representation not contained in this
Prospectus or the accompanying Letters of Transmittal, and, if given or made,
such information or representations must not be relied upon as having been
authorized by the Company. Neither the delivery of this Prospectus or the
accompanying Letters of Transmittal, nor any exchange made hereunder shall under
any circumstances create any implication that the information contained herein
is correct as of any date subsequent to the date hereof.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is August 13, 1998.
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-4 (the "Registration
Statement", which term shall encompass all amendments, exhibits, annexes and
schedules thereto) pursuant to the Securities Act and the rules and regulations
promulgated thereunder, covering the Exchange Notes being offered hereby. This
Prospectus does not contain all the information set forth in the Registration
Statement. For further information with respect to the Company and the Exchange
Offer, reference is made to the Registration Statement. Statements made in this
Prospectus as to the contents of any contract, agreement or other document
referred to are not necessarily complete. With respect to each such contract,
agreement or other document filed as an exhibit to the Registration Statement,
reference is made to the exhibit for a more complete description of the document
or matter involved, and each such statement shall be deemed qualified in its
entirety by such reference. The Registration Statement, including the exhibits
thereto, can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington.
D.C. 20549, at the Regional Offices of the Commission at 7 World Trade Center,
14th Floor, New York, New York 10048 and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such materials can be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates.
The Company is subject to the informational reporting requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports and other information with the Commission.
Such reports and other information may be inspected and copied at the public
reference facilities of the Commission, Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, as well as at the following Regional Offices: 7 World
Trade Center, 14th Floor, New York, New York 10048 and 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such material can be obtained
from the Commission by mail at prescribed rates. Requests should be directed to
the Commission's Public Reference Section of the Commission, Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549. The Commission maintains a Web site
on the Internet (http://www.sec.gov) that contains reports, proxy and
information statements and other information regarding registrants, including
the Company, that file electronically with the Commission. Any such request and
requests for the agreements summarized herein should be directed to the Investor
Relations Department of the Company, care of The Lenfest Group, 200 Cresson
Boulevard, Oaks, Pennsylvania 19456 (telephone (610) 650-3000).
FORWARD - LOOKING STATEMENTS
This Prospectus contains statements which constitute forward-looking
statements within the meaning of Section 27A of the Securities Act and Section
21B of the Exchange Act. Discussions containing such forward-looking statements
may be found under the captions "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business", as well as
elsewhere within this Prospectus. Forward-looking statements include statements
regarding the intent, belief or current expectations of the Company, primarily
with respect to the future operating performance of the Company or related
industry developments. When used in this Prospectus, terms such as "anticipate,"
"believe," "estimate," "expect," "intend," "indicate," "may be," "objective,"
"plan," "predict," and "will be" are intended to identify such statements.
Prospective purchasers of the Exchange Notes are cautioned that any such
forward-looking statements are not guarantees of future performance and involve
risks and uncertainties. Forward-looking statements are based upon management's
expectations at the time they are made. Actual results could differ materially
from those projected in the forward-looking statements as a result of the risk
factors set forth below in "Risk Factors" and the matters set forth in this
Prospectus, many of which are beyond the control of the Company. The Company
cautions the reader, however, that the list of risk factors may not be
exhaustive. The Company assumes no obligation to update any forward-looking
statements contained in this Prospectus.
2
<PAGE>
- --------------------------------------------------------------------------------
PROSPECTUS SUMMARY
The following information is qualified in its entirety by reference to,
and should be read in conjunction with, the more detailed information and
financial statements appearing elsewhere in this Prospectus.
The Company
Lenfest Communications, Inc. ("Lenfest" or the "Company") is
principally engaged in the development and operation of cable television systems
primarily through its subsidiaries which operate under the name of Suburban
Cable ("Suburban Cable"). Other subsidiaries hold the Company's investments in
other cable television system operating companies, media entities and companies
providing services to cable television system operating companies.
At March 31, 1998, the Company's wholly owned and operated television
systems (the "Core Cable Television Operations") served approximately 1,000,100
basic customers and passed approximately 1,391,500 homes. At March 31, 1998, the
Company also held equity interests in other cable television entities serving
approximately 445,300 basic customers, of which approximately 347,690 were in
areas contiguous to the Core Cable Television Operations. The Company's
attributable portion in such other cable television entities is approximately
184,300 basic customers, giving the Company a combined domestic base of
approximately 1,184,400 basic customers.
The Company's Core Cable Television Operations are located primarily in
the suburban areas surrounding Philadelphia (Eastern Pennsylvania, Southern New
Jersey and Northern Delaware) in predominantly middle and upper-middle income
areas that in recent years have had favorable household growth and income
characteristics. Management believes the "clustering" of its cable television
systems and the favorable demographics of its service area have contributed to
its high operating cash flow growth and margins. From January 1, 1993 through
March 31, 1998, the Company's Core Cable Television Operations have experienced
an average Adjusted EBITDA margin of 50.3%. (Adjusted EBITDA and Adjusted EBITDA
margin are defined in the footnotes to the table under the caption "Summary
Consolidated Financial and Operating Data".)
H. F. (Gerry) Lenfest, President and Chief Executive Officer of the
Company, together with his children, and Tele-Communications, Inc. ("TCI"),
through LMC Lenfest, Inc., an indirect wholly owned subsidiary, each
beneficially owns 50% of the Company's outstanding common stock. Mr. Lenfest is
a cable industry pioneer who founded the Company in 1974 and has grown the
Company both internally and through acquisitions. The Company believes that its
affiliation with TCI provides substantial benefits, including the ability to
purchase programming and equipment at rates approximating those available to
TCI. See "Business -- Relationship with TCI" and "-- Programming and Equipment
Supply."
Mr. Lenfest and LMC Lenfest, Inc. have an agreement that provides,
together with the amended and restated Certificate of Incorporation of the
Company, that Mr. Lenfest has the right to designate a majority of the Board of
Directors of the Company until January 1, 2002. During such period, vacancies in
respect of the directors designated by Mr. Lenfest are to be filled by designees
of Mr. Lenfest or in the event of Mr. Lenfest's death, of The Lenfest
Foundation. Thereafter, the Lenfest Family ("H.F. (Gerry) Lenfest, Marguerite
Lenfest, their issue, and The Lenfest Foundation") and LMC Lenfest, Inc. will
have the right to appoint an equal number of members of the Company's Board of
Directors. This right will continue for so long as any member of the Lenfest
Family owns any stock in the Company.
Operating Strategy
Management believes that the Company has significant growth potential
in the continued business of providing analog television programming services,
as well as in the business of providing new services such as Internet access,
digital video and audio programming services, video-on-demand, paging and other
data services. As a base for achieving that growth, the Company has implemented
the following:
- --------------------------------------------------------------------------------
3
<PAGE>
- --------------------------------------------------------------------------------
o Field Operations: The Company's operations are clustered in one
extended market area, divided into four regions of approximate equal
size. Management of these regions provides individualized focus on the
day-to-day requirements of the operations, including plant maintenance,
installations of new customers and service and repair functions.
o Customer Management (i.e., Billing) System: The Company uses one common
Customer Management System platform. That standardized platform now
allows fulfillment of work order scheduling, sales, service and repair
and billing inquiries from any location for the entire cluster. This
state-of-the-art Customer Management System will also be the platform
for support of new products, such as paging and Internet access.
o Customer Service: In May, 1997, the Company opened a Customer
Satisfaction Center ("Call Center") in New Castle County, Delaware. By
year end 1997, approximately 55% of the Company's customer base was
supported out of that location. By the end of 1998, the Company expects
the entire customer base to be supported from that location. The
Company intends to use the Call Center to provide billing, sales and
service for cable television and new products.
o Marketing and Advertising Sales: The concentration of a significant
sized customer base in one cluster affords the Company enhanced
benefits in both marketing and the sale of advertising. The Company
utilizes the local market media (television, radio and print) to reach
a wide audience in an efficient manner given the match of the Company's
coverage area to the local media market.
The Exchange Offer
Securities Offered................ $150,000,000 aggregate principal amount of
7-5/8% Senior Notes due 2008 which have been
registered under the Securities Act (the
"Senior Exchange Notes") and $150,000,000
aggregate principal amount of 8-1/4% Senior
Subordinated Notes due 2008 which have been
registered under the Securities Act (the
"Senior Subordinated Exchange Notes", and
together with the Senior Exchange Notes, the
"Exchange Notes").
The Exchange Offer................ Upon the terms and subject to the conditions
set forth in this Prospectus and the
accompanying letters of transmittal (the
"Letters of Transmittal"), the Company
hereby offers to exchange (the "Exchange
Offer") $1,000 principal amount of Senior
Exchange Notes for each $1,000 principal
amount of Old Senior Notes and $1,000
principal amount of Senior Subordinated
Exchange Notes for each $1,000 principal
amount of Old Senior Subordinated Notes that
are validly tendered and not withdrawn on or
prior to the Expiration Date (as defined).
Holders of Old Notes whose Old Notes are not
tendered and accepted in the Exchange Offer
will continue to hold such Old Notes and
will be entitled to all
- --------------------------------------------------------------------------------
4
<PAGE>
- --------------------------------------------------------------------------------
the rights and preferences and will be
subject to the limitations applicable
thereto under the Indentures governing the
Old Notes and the Exchange Notes.
Resale............................ Based on interpretations by the staff of the
Commission set forth in no-action letters
issued to third parties, the Company
believes the Exchange Notes issued pursuant
to the Exchange Offer in exchange for the
Old Notes may be offered for resale, resold
and otherwise transferred by any holder
thereof (other than broker-dealers, as set
forth below, and any such holder that is an
"affiliate" of the Company within the
meaning of Rule 405 under the Securities
Act) without compliance with the
registration and prospectus delivery
requirements of the Securities Act, provided
that such Exchange Notes are acquired in the
ordinary course of such holder's business
and that such holder has no arrangement or
understanding with any person to participate
in the distribution of such Exchange Notes.
Any holder who tenders in the Exchange Offer
with an arrangement with any person to
participate in a distribution of the
Exchange Notes or who is an affiliate of the
Company may not rely upon such
interpretations by the staff of the
Commission and, in the absence of an
exemption therefrom, must comply with the
registration and prospectus delivery
requirements of the Securities Act in
connection with any secondary resale
transaction. Failure to comply with such
requirements in such instance may result in
such holder incurring liabilities under the
Securities Act for which the holder is not
indemnified by the Company. Each
broker-dealer (other than an affiliate of
the Company) that receives Exchange Notes
for its own account pursuant to the Exchange
Offer must acknowledge that it will deliver
a prospectus in connection with any resale
of such Exchange Notes. The Letters of
Transmittal state that by so acknowledging
and by delivering a prospectus, a
broker-dealer will not be deemed to admit
that it is an "underwriter" within the
meaning of the Securities Act. The Company
has agreed that, for a period of 180 days
after the Expiration Date (as defined
herein), it will make this Prospectus
available to any broker-dealer for use in
connection with any such resale. See "Plan
of Distribution." Any broker-dealer who is
an affiliate of the Company may not rely on
such no-action letters and must comply with
the registration and prospectus delivery
requirements of the Securities Act in
connection with a secondary resale
transaction. The Exchange Offer is not being
made to, nor will the Company accept
surrenders for exchange from, holders of Old
Notes in any jurisdiction in which this
Exchange Offer or the acceptance thereof
would not be in compliance with the
securities or blue sky laws of such
jurisdiction.
<PAGE>
Expiration Date................... The Exchange Offer will expire at 5:00 p.m.,
New York City time, on September 16, 1998,
unless extended, in which case the term
"Expiration Date" shall mean the latest date
and time to which the Exchange Offer is
extended.
Condition to the
Exchange Offer.................... The Exchange Offer is subject to certain
customary conditions, which may be waived by
the Company. See "The Exchange Offer --
Conditions of the Exchange Offer." The
Exchange Offer is not conditioned upon any
minimum principal amount of Old Notes being
tendered.
Procedures for
Tendering Old Notes............... Each holder of Old Notes wishing to accept
the Exchange Offer must complete, sign and
date the applicable Letter of Transmittal
for such Old Note, or a facsimile thereof,
in accordance with the instructions
contained herein and therein, and mail or
otherwise deliver such Letter of
Transmittal, or facsimile thereof, together
with such Old Notes and any other required
documentation to
- --------------------------------------------------------------------------------
5
<PAGE>
- --------------------------------------------------------------------------------
The Bank of New York, the Exchange Agent, at
the address set forth herein and therein. By
executing the Letters of Transmittal, each
holder will represent to the Company that,
among other things, the Exchange Notes
acquired pursuant to the Exchange Offer are
being obtained in the ordinary course of
business of the person receiving such
Exchange Notes, whether or not such person
is the holder, that neither the holder nor
any such other person has an arrangement or
understanding with any person to participate
in the distribution of such Exchange Notes
and that neither the holder nor any such
other person is an "affiliate" of the
Company within the meaning of Rule 405 under
the Securities Act or, that if such holder
or other person is an affiliate of the
Company, such holder or other person will
comply with the registration and prospectus
delivery requirements of the Securities Act
to the extent applicable. See "The Exchange
Offer -- Terms of the Exchange Offer --
Procedures for Tendering Old Notes" and "The
Exchange Offer -- Terms of the Exchange
Offer -- Guaranteed Delivery Procedures."
Special Procedures for
Beneficial Owners................. Any beneficial owner whose Old Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other
nominee and who wishes to tender such Old
Notes in the Exchange Offer should contact
such registered holder promptly and instruct
such registered holder to tender on such
beneficial owner's behalf. If such
beneficial owner wishes to tender on his own
behalf, such beneficial owner must, prior to
completing and executing the applicable
Letter of Transmittal and delivering his Old
Notes, either make appropriate arrangements
to register ownership of the Old Notes in
such beneficial owner's name or obtain a
properly completed bond power from the
registered holder. The transfer of
registered ownership may take considerable
time and may not be able to be completed
prior to the Expiration Date. See "The
Exchange Offer -- Terms of the Exchange
Offer -- Procedures for Tendering Old
Notes."
Guaranteed Delivery
Procedures........................ Holders of Old Notes who wish to tender
their Old Notes and whose Old Notes are not
immediately available or who cannot deliver
their Old Notes, the applicable Letter of
Transmittal or any other documents required
by the applicable Letter of Transmittal to
the Exchange Agent prior to the Expiration
Date, or who cannot complete the procedure
for book-entry transfer on a timely basis,
must tender their Old Notes according to the
guaranteed delivery procedures set forth
herein under the caption "The Exchange Offer
Terms of the Exchange Offer -- Guaranteed
Delivery Procedures."
Acceptance of Old Notes and
Delivery of Exchange Notes........ Subject to certain conditions (as described
more fully in "The Exchange Offer --
Conditions of the Exchange Offer"), the
Company will accept for exchange any and all
Old Notes which are properly tendered in the
Exchange Offer and not withdrawn, prior to
5:00 p.m., New York City time, on the
Expiration Date. The Exchange Notes issued
pursuant to the Exchange Offer will be
delivered as promptly as practicable
following the Expiration Date.
Withdrawal Rights ................ Except as otherwise provided herein, tenders
of Old Notes may be withdrawn at any time
prior to 5:00 p.m., New York City time, on
the Expiration Date. See "The Exchange Offer
Terms of the Exchange Offer -- Withdrawal
of Tenders of Old Notes."
- --------------------------------------------------------------------------------
6
<PAGE>
- --------------------------------------------------------------------------------
Certain Material Federal Income
Tax Considerations................ For a discussion of certain material federal
income tax considerations relating to the
exchange of the Exchange Notes for the Old
Notes, see "Certain Material Federal Income
Tax Considerations."
Exchange Agent.................... The Bank of New York is the Exchange Agent.
The address, telephone number and facsimile
number of the Exchange Agent are set forth
in "The Exchange Offer -- Exchange Agent."
Consequences of Failure to
Exchange Old Notes................ Holders of Old Notes who do not exchange
their Old Notes for Exchange Notes pursuant
to the Exchange Offer will continue to be
subject to the restrictions on transfer of
such Old Notes as set forth in the legend
thereon as a consequence of the issuance of
the Old Notes pursuant to exemptions from,
or in transactions not subject to, the
registration requirements of the Securities
Act and applicable state securities laws. In
general, the Old Notes may not be offered or
sold, unless registered under the Securities
Act, except pursuant to an exemption from,
or in a transaction not subject to, the
Securities Act and applicable state
securities laws. The Company does not
currently anticipate that it will register
the Old Notes under the Securities Act.
The Notes
The Notes......................... $150,000,000 principal amount of 7-5/8%
Senior Notes due 2008 and $150,000,000
principal amount of 8-1/4% Senior
Subordinated Notes due 2008. The form and
terms of the Senior Exchange Notes are
identical in all material respects to the
form and terms of the Old Senior Notes
(except that the Senior Exchange Notes will
be registered under the Securities Act) and,
therefore, will be treated as a single class
under the Senior Indenture (as defined) with
any old Senior Notes that remain
outstanding. The form and terms of the
Senior Subordinated Exchange Notes are
identical in all material respects to the
form and terms of the Old Senior
Subordinated Notes (except that the Senior
Subordinated Exchange Notes will be
registered under the Securities Act) and,
therefore, will be treated as a single class
under the Senior Subordinated Indenture (as
defined) with any Old Senior Subordinated
Notes that remain outstanding.
Maturity. ........................ The Notes will mature on February 15, 2008.
Interest Payment Dates............ Interest on the Notes is payable
semiannually on each February 15 and August
15, commencing August 15, 1998.
Optional Redemption............... The Senior Notes will not be redeemable at
the option of the Company prior to maturity.
The Senior Subordinated Notes will be
redeemable, in whole or in part, at the
option of the Company on or after February
15, 2003 at the redemption prices set forth
herein plus accrued and unpaid interest (if
any) to the redemption date.
Sinking Fund...................... None.
Change of Control................. Upon a Change of Control Triggering Event,
the Company will be required to make an
offer to purchase the Notes at a purchase
price equal to 101% of the principal amount
thereof plus accrued and unpaid interest (if
any) to the date of purchase. See
"Description of Notes - Change of Control
Offer."
- --------------------------------------------------------------------------------
7
<PAGE>
- --------------------------------------------------------------------------------
Ranking .......................... The Senior Notes will be general unsecured
obligations of the Company, and will be in
all respects pari passu in right of payment
to all existing and future Senior
Indebtedness of the Company. The Senior
Subordinated Notes will be general unsecured
obligations of the Company, subordinated in
right of payment to all existing and future
Senior Indebtedness of the Company, and will
be in all respects pari passu in right of
payment to all existing and future Senior
Subordinated Indebtedness of the Company. In
addition, all the operations of the Company
are conducted through the Company's
subsidiaries. Because the assets of the
Company's subsidiaries constitute
substantially all of the assets of the
Company, and because those subsidiaries will
not guarantee the payment of principal of or
interest on the Notes, all indebtedness and
liabilities of such subsidiaries will be
effectively senior in right of payment to
the Notes. At March 31, 1998, the total
consolidated indebtedness of the Company was
approximately $1,286.1 million, the total
amount of Senior Indebtedness of the Company
was approximately $844.1 million, the total
amount of Senior Subordinated Indebtedness
of the Company was approximately $442.0
million, and the total liabilities and
indebtedness of the Company's subsidiaries
(including trade payables and accrued
liabilities), on an aggregate basis, was
approximately $154.7 million. See "Risk
Factors - Substantial Leverage," "
Subordination; Holding Company Structure"
and "Description of Notes."
Certain Covenants ................ The Indentures (as defined) for the Notes
will contain limitations on, among other
things, (a) the incurrence of additional
indebtedness, (b) in the case of the Senior
Subordinated Notes, the incurrence of
indebtedness that is subordinate to Senior
Indebtedness but senior to the Senior
Subordinated Notes, and the incurrence of
secured indebtedness that is not Senior
Indebtedness, (c) in the case of the Senior
Notes, the incurrence of certain liens, (d)
the payment of dividends and other
distributions with respect to the Capital
Stock (as defined) of the Company and the
purchase, redemption or retirement of
Capital Stock of the Company, (e)
transactions with Affiliates (as defined),
(f) the designation of Restricted and
Unrestricted Subsidiaries (as defined) and
(g) certain consolidations, mergers and
transfers of assets. During any period of
time the ratings assigned to the Notes are
Investment Grade Ratings (as defined), the
covenants that contain restrictions on the
activities described in clauses (a), (d) and
(e) above will cease to be in effect. All of
these limitations are subject to a number of
important qualifications. See "Description
of Notes - Certain Covenants."
Risk Factors...................... Investment in the Exchange Notes offered
hereby involves a high degree of risk.
Prospective purchasers of the Exchange Notes
should consider all of the information
contained or incorporated by reference in
this Prospectus and, in particular, the
factors set forth herein under "Risk
Factors."
Use of Proceeds .................. The Company will not receive any proceeds
from this Exchange Offer, and no underwriter
is being utilized in connection with the
Exchange Offer. See "Use of Proceeds."
- --------------------------------------------------------------------------------
8
<PAGE>
- --------------------------------------------------------------------------------
Summary Consolidated Financial And Operating Data
(Dollars In Thousands Except Per Customer Data)
The summary consolidated financial data as of and for each of the five
years in the period ended December 31, 1997 set forth below have been derived
from the audited Consolidated Financial Statements of the Company. The summary
consolidated financial data set forth below for and as of the end of the
three-month period ended March 31, 1997 and 1998 have been derived from the
unaudited Consolidated Financial Statements of the Company. These data should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial Statements
for each of the three years in the period ended December 31, 1997 and the
three-month periods ended March 31, 1997 and 1998 included elsewhere in this
Prospectus. The statement of operations data with respect to the fiscal years
ended December 31, 1993 and 1994 have been derived from audited consolidated
financial statements of the Company not included herein. The pro forma summary
financial data set forth below have been derived from the pro forma financial
information included elsewhere in this Prospectus. See "Pro Forma Financial
Information." The pro forma statement of operations data give effect to the
Offering as if it had occurred as of January 1, 1997. The pro forma summary
financial data do not purport to represent what Lenfest's results of operations
would actually have been had the Offering occurred on such date or to project
Lenfest's results of operations for any future period or date.
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31, Pro Forma
(Dollars in thousands) Year Ended
Statement of Operations Data* 1993 1994 1995 1996 1997 December
31, 1997
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 205,326 $ 226,185 $ 254,225 $ 381,810 $ 447,390 $ 447,390
Programming expenses 44,033 49,267 55,322 82,804 93,088 93,088
Selling, general & administrative 46,527 50,269 55,262 82,688 105,470 105,470
Technical and other 20,167 27,269 34,529 50,449 56,109 56,109
Depreciation and amortization 62,089 72,813 74,272 111,277 129,939 129,939
----------- ----------- ----------- ----------- ----------- -----------
Operating income 32,510 26,567 34,840 54,592 62,784 62,784
Interest expense (35,090) (47,749) (60,909) (107,201) (120,788) (120,556)
Other income and expense (net) (10,232) (7,072) 4,245 (90,361) (42,752) (42,752)
----------- ----------- ----------- ----------- ----------- -----------
Loss from continuing operations
before income taxes (12,812) (28,254) (21,824) (142,970) (100,756) (100,524)
Income tax benefit 2,018 10,174 10,724 14,329 36,179 36,098
----------- ----------- ----------- ----------- ----------- -----------
Loss from continuing operations (10,794) (18,080) (11,100) (128,641) (64,577) (64,426)
Discontinued operations, net of (1,073) (819) (395) 363 33,738 33,738
taxes
Extraordinary loss, net of taxes -- -- (6,739) (2,484) -- --
=========== =========== =========== =========== =========== ===========
Net loss $ (11,867) $ (18,899) $ (18,234) $ (130,762) $ (30,839) $ (30,688)
=========== =========== =========== =========== =========== ===========
Deficiency of earnings
available to cover
fixed charges (a) $ 5,079 $ 18,444 $ 19,956 $ 130,984 $ 104,249 $ 104,249
Balance Sheet Data*
(end of period)
Total assets $ 634,938 $ 664,555 $ 843,110 $ 1,221,788 $ 1,219,720
Total debt 612,392 626,121 810,725 1,312,863 1,295,306
Stockholders' equity (deficit) (56,029) (49,609) (45,192) (233,790) (254,264)
Core Cable Television Operations (Restricted Group)
Financial Ratios and Other Data (b)
Revenues $ 197,630 $ 212,800 $ 232,155 $ 354,561 $ 413,792 $ 413,792
Adjusted EBITDA (c) (d) (e) 100,476 105,711 115,261 182,905 205,861
Adjusted EBITDA margin (f) 50.8% 49.7% 49.6% 51.6% 49.7%
Cash Flows from:
Operating activities $ 62,531 $ 60,057 $ 71,911 $ 74,801 $ 114,017
Investing activities (158,216) (59,350) (60,085) (626,437) (96,226)
Financing activities 91,467 1,392 146,832 403,632 (18,645)
Interest expense 34,699 47,016 59,966 105,463 120,549 $ 120,317
Capital expenditures (g) 41,658 42,162 40,168 51,703 87,510 87,510
Total debt 609,159 616,657 807,535 1,309,735 1,293,579 1,298,179
Ratio of total debt to Adjusted EBITDA 6.06x 5.83x 7.01x 7.16x 6.28x
Monthly revenue per average
basic customer $ 32.05 $ 31.44 $ 32.97 $ 34.25 $ 35.18 $ 35.18
Annual Adjusted EBITDA per average
basic customer 195.51 187.42 196.40 212.00 210.04
Annual capital expenditures per
average basic customer (g) 81.06 74.75 68.44 59.93 89.28 89.28
</TABLE>
- --------------------------------------------------------------------------------
10
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Pro Forma
Three Months
Three Months Ended Ended
March 31, March 31, 1998
------------------------------------------------
1997 1998
---- ----
(unaudited)
<S> <C> <C> <C>
Statement of Operations Data*
Revenues $ 107,668 $ 110,665 $ 110,665
Programming expenses 23,462 24,919 24,919
Selling, general & administrative 22,391 22,719 22,719
Technical and other 14,207 14,338 14,338
Depreciation and amortization 32,125 36,656 36,656
----------- ----------- -----------
Operating income 15,483 12,033 12,033
Interest expense (31,917) (31,499) (31,470)
Other income and expense (net) 1,802 14,797 14,797
----------- ----------- -----------
Loss from continuing operations (14,632) (4,669) (4,640)
before income taxes
Income tax benefit 4,271 855 845
----------- ----------- -----------
Loss from continuing operations (10,361) (3,814) (3,795)
Discontinued operations, net of taxes 900 -- --
Extraordinary loss, net of taxes -- (3,061) (3,061)
----------- ----------- -----------
Net loss $ (9,461) $ (6,875) $ (6,856)
=========== =========== ===========
Deficiency of earnings
available to cover
fixed charges (a) $ 12,884 $ 2,331 $ 2,331
Balance Sheet Data*
(end of period)
Total assets $ 1,310,507 $ 1,209,368 $ 1,209,368
Total debt 1,380,069 1,286,145 1,286,145
Stockholders' equity (deficit) (233,832) (261,123) (261,123)
Core Cable Television Operations (Restricted Group)
Financial Ratios and Other Data (b)
Revenues $ 99,977 $ 103,457 $ 103,457
Adjusted EBITDA (c) (d) (e) 50,635 52,356
Adjusted EBITDA margin (f) 50.6% 50.6%
Cash flows from:
Operating activities $ 31,336 $ 26,629
Investing activities (103,488) (8,915)
Financing activities 59,578 (11,320)
Interest expense 31,804 31,499 $ 31,470
Capital expenditures (g) 13,120 19,035 19,035
Total debt 1,369,961 1,284,437 1,284,437
Ratio of total debt to Adjusted EBITDA 6.76x 6.13x
Monthly revenue per average basic customer $ 34.41 $ 34.63 $ 34.63
Annual Adjusted EBITDA per average basic customer 209.15 210.28
Annual capital expenditures per average basic customer (g) 54.19 76.45 76.45
</TABLE>
- --------------
* Prior year data is restated to reflect continuing operations.
<PAGE>
(a) For purposes of computing the deficiency of earnings available to cover
fixed charges, earnings represents the sum of income from continuing
operations before income taxes for the Company and its subsidiaries plus fixed
charges, minority interest in the loss of consolidated subsidiaries,
undistributed losses of equity method investments and distributed income of
equity method investments; less undistributed income of equity method
investments. Fixed charges represent interest paid or accrued on indebtedness
of the Company and its subsidiaries, amortization of debt discount and
deferred loan charges and one-third (the portion deemed representative of the
interest factor) of rents. In 1995, the Company increased its ownership in
Garden State Cablevision L.P. to 50% and, therefore, for 1995 and subsequent
periods, the equity loss from Garden State Cablevision L.P. has not been added
back for purposes of this calculation.
(b) The Core Cable Television Operations (Restricted Group) consists of all of
the Company's wholly owned cable television subsidiaries. Financial ratios and
other information are presented for the Restricted Group to facilitate the
evaluation of the results of operations of those operating entities on which the
Company relies to service all of its debt obligations.
(c) Adjusted EBITDA represents EBITDA (earnings before interest expense,
income taxes, depreciation and amortization) adjusted to include cash
distributions received from unconsolidated and unrestricted affiliates.
Adjusted EBITDA corresponds to the definition of "EBIDTA" contained in the
Company's publicly held debt securities, including, after the conclusion of
the Exchange Offer, the Exchange Notes. Consequently, Adjusted EBITDA,
Adjusted EBITDA margin, ratio of total debt to Adjusted EBITDA and annual
Adjusted EBITDA per average basic customer are presented for the convenience
of the holders of the Company's public debt securities, including the Exchange
Notes offered hereby, and industry analysts. Adjusted EBITDA should not be
considered by an investor as an alternative to net income (loss), as an
indicator of the operating performance of the Company or as an alternative to
cash flows as a measure of liquidity. Adjusted EBITDA and EBITDA are not
measures under generally accepted accounting principles. (d) CAH, Inc. became
a part of the restricted group in 1996. CAH, Inc. has not been included in the
1993-1995 presentation.
(e) Includes distributions received from unconsolidated and non core cable
affiliates for the years ended December 31, 1995, 1996 and 1997 and for the
three months ended March 31, 1997 and 1998 of $1.5 million, $5.7 million, $5.3
million, $1.1 million and $1.1 million, respectively.
(f) Adjusted EBITDA margin measures Adjusted EBITDA as a percentage of revenues.
(g) Excludes the purchase price of acquisitions consummated during the period.
- --------------------------------------------------------------------------------
11
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus, the
following risk factors should be carefully considered in evaluating the Company
and its business before purchasing the Exchange Notes offered hereby.
Substantial Leverage
The Company has and will have a significant amount of leverage. At
March 31, 1998, the Company's total consolidated indebtedness was approximately
$1,286.1 million, with a stockholders' deficit of $261.1 million. The degree to
which the Company is leveraged could have important consequences to holders of
the Notes, including (i) the ability of the Company to obtain any necessary
financing in the future for working capital, capital expenditures, debt service
requirements or other purposes may be limited; (ii) a substantial portion of the
Company's cash flow from operations must be dedicated to the payment of the
principal of and interest on its indebtedness and will not be available for
other purposes; (iii) the Company's level of indebtedness could limit its
flexibility in planning for, or reacting to changes in, its business; (iv) the
Company may be more highly leveraged than some of its competitors, which may
place it at a competitive disadvantage; and (v) the Company's high degree of
indebtedness may make it more vulnerable in the event of a downturn in its
business. Moreover, future acquisition or development activities may require the
Company to alter its capitalization significantly. These changes in
capitalization may significantly increase the leverage of the Company.
Net Losses/Deficiency of Earnings Available to Cover Fixed Charges
The Company has experienced net losses for each of the five years in
the five-year period ended December 31, 1997 and for the three-months ended
March 31, 1998. For the year ended December 31, 1997 and for the three-months
ended March 31, 1998, the Company's earnings were insufficient to cover its
fixed charges by approximately $104.2 million and $2.3 million, respectively,
and, in addition, after giving pro forma effect to the Offering and the
application of the net proceeds thereof, as if the Offering had occurred on
January 1, 1997, the Company's earnings would have been insufficient to cover
its fixed charges by approximately $104.2 million and $2.3 million for the year
ended December 31, 1997 and for the three-months ended March 31, 1998,
respectively. If the Company were unable to meet its debt service obligations or
working capital requirements, the Company would attempt to refinance its
indebtedness or obtain new financing. In this regard, after giving effect to the
Offering and the application of the net proceeds thereof approximately $1,129.2
million of the Company's total consolidated indebtedness cannot be repaid prior
to maturity. There can be no assurance that the Company would be able to
refinance its indebtedness in the future or that, if the Company were able to do
so, the terms available would be favorable to the Company.
Subordination; Holding Company Structure
The indebtedness evidenced by the Notes will constitute general
unsecured obligations of the Company, and the payment of the principal of and
premium (if any) and interest on the Senior Subordinated Notes will be
subordinate in right of payment, as set forth in the Senior Subordinated Notes
Indenture (as defined), to the prior payment in full of all Senior
Indebtedness of the Company. At March 31, 1998, the Company's Senior
Indebtedness was approximately $844.1 million. Although the Indentures contain
limitations on the amount of additional indebtedness that the Company may
incur, the amount of such indebtedness could be substantial under certain
circumstances and, in certain cases, such indebtedness may be Senior
Indebtedness. See "Description of Notes Certain Covenants - Limitation on
Indebtedness." At March 31, 1998, the Company had approximately $300.0 million
of borrowing availability under its then existing bank credit facility, and as
of the date hereof, it had approximately $300.0 million of borrowing
availability under the Bank Credit Facility (as defined).
12
<PAGE>
The operations of the Company are conducted through its subsidiaries.
As a holding company, the Company has no operations and, therefore, is dependent
on the cash flow of its subsidiaries and other entities to meet its own
obligations, including the payment of interest and principal obligations on the
Notes when due. Because the Company's subsidiaries do not guarantee the payment
of principal of or interest on the Notes, the claims of creditors of the
Company's subsidiaries, including trade creditors, secured creditors and
creditors holding indebtedness and guarantees issued by such subsidiaries, and
claims of preferred stockholders (if any) of such subsidiaries, generally will
have priority with respect to the assets and earnings of such subsidiaries over
the claims of creditors of the Company. At March 31, 1998, the total liabilities
of the Company's subsidiaries was approximately $154.7 million, including trade
payables and accrued liabilities.
Regulation of the Cable Television Industry
The cable television industry is subject to extensive regulation at the
federal, state and local levels, and many aspects of such regulation are
currently the subject of judicial proceedings and administrative or legislative
proposals. The Cable Television Consumer Protection and Competition Act of 1992
(the "1992 Cable Act") significantly expanded the scope of cable television
regulation. In particular, pursuant to the 1992 Cable Act, the Federal
Communications Commission (the "FCC") adopted regulations that limit the
Company's ability to set and increase rates for the Company's basic and cable
programming service ("CPS") packages and for the provision of cable
television-related equipment. The 1992 Cable Act permits certified local
franchising authorities and the FCC to order rate reductions and refunds of
previously collected rates determined to be in excess of the permitted
reasonable rates. It is possible that rate reductions or refunds of previously
collected fees may be required in the future. See "Legislation and Regulation."
The Telecommunications Act of 1996 (the "1996 Act") materially altered
federal, state and local laws and regulations pertaining to cable television,
telecommunications and other related services and, in particular, substantially
amended the Communications Act of 1934 (the "Communications Act"), including the
revision of certain of the customer rate provisions under the 1992 Cable Act.
The 1996 Act imposes certain new requirements on operators of cable television
systems, which may increase operating expenses for operators of cable television
systems, including the Company, and may provide a competitive advantage to less
regulated providers of video programming services.
Certain provisions of the 1996 Act could materially affect the growth
and operation of the cable television industry and the cable services provided
by the Company. Although the new legislation may substantially lessen regulatory
burdens, the cable television industry may be subject to additional competition
as a result thereof. There are numerous rulemakings being undertaken by the FCC
which will interpret and implement the provisions of the 1996 Act. In addition,
certain provisions of the new legislation (such as the deregulation of rates for
CPS packages) are not yet effective. Furthermore, certain provisions of the 1996
Act have been, and likely will be, subject to judicial challenge. The Company is
unable at this time to predict the outcome of such rulemakings or litigation or
the short and long-term effect (financial or otherwise) of the 1996 Act and FCC
rulemakings on the Company. See "Legislation and Regulation."
Competition
The cable television systems owned by the Company compete with other
communications and entertainment media as well as other means of video
distribution, including Direct Broadcast Satellite Systems ("DBS") and
Multichannel Multipoint Distribution Systems ("MMDS"). Currently, four DBS
providers compete with the Company for multichannel video entertainment
customers. In addition, some of the Regional Bell Telephone Companies (the
"RBOCs") and other local telephone companies are in the process of entering the
cable television business. The RBOCs have significant access to capital, and
several have expressed their intention to enter the video-to-home business as an
adjunct to their existing voice and data transmission businesses. In addition,
the RBOCs and local telephone companies have in place facilities which are
capable of delivering cable television service. Most of the Company's cable
television assets are located in the Bell Atlantic Corporation operating area.
13
<PAGE>
The 1996 Act repealed the prohibition on RBOCs and other local exchange
companies ("LECs") from providing cable service directly to customers in their
local telephone service areas. Thus, LECs may now acquire, construct and operate
cable systems both inside and outside their service areas. The 1996 Act also
authorizes LECs to operate quasi-common carrier "open video systems" without
obtaining a local cable franchise.
The Company also faces competition from other communications and
entertainment media, including conventional off-air television broadcasting
services, newspapers, movie theaters, live sporting events and home video
products. The Company cannot predict the extent to which such competition may
effect the Company. See "Legislation and Regulation."
Future Capital Requirements
As a result of existing and potential competition, cable television
operators are expanding and upgrading their cable television plant to increase
video channel capacity and to provide the capacity for the delivery of high
speed Internet access over the cable television system. The Company has begun to
upgrade its systems with broadband hybrid fiber/coaxial cable to accomplish
these purposes. The Company currently estimates such upgrading will take
approximately five years and expects to spend between $350 and $450 million over
such period. Although the Company has taken steps to begin the upgrading process
and anticipates that it will continue to upgrade portions of its systems over
the next several years, there can be no assurance that the Company will be able
to upgrade its cable television systems at a rate which will allow it to remain
competitive with other competitors which either do not rely on cable into the
home (e.g., MMDS and DBS) or have access to significantly greater amounts of
capital and an existing communications network. In addition, the Company
currently estimates that it will make additional capital expenditures of between
$35.00 and $40.00 per customer per year for maintenance of its cable television
plant, including plant extensions, and other fixed assets. Such capital
expenditures are in addition to those expected to be incurred in connection with
the upgrading of the Company's cable television systems described above.
Furthermore, new services could require additional incremental capital
expenditures, the amount of which will be dependent upon new service acceptance
and the cost of technology at the time of subscription. The Company estimates
the current cost of equipment per customer for high speed Internet access and
digital services to be $400 each, including approximately $50 of labor cost.
Although the Company believes it will be able to reduce some of the costs based
on the prospects of retail availability of modems, there can be no assurance
that the Company will be able to fund its planned capital expenditures. The
Company's inability to upgrade its cable television systems or make its other
planned capital expenditures could materially adversely affect the Company's
business, operations, financial condition and competitive position.
Restrictions Imposed by the Terms of the Company's Debt Instruments
The terms of the Company's debt instruments, including the terms of the
Bank Credit Facility, the indentures governing the 8-3/8% Senior Notes (as
defined) and the 10-1/2% Senior Subordinated Notes (as defined) and the
Indentures, contain a number of significant covenants that, among other things,
restrict the ability of the Company and its Restricted Subsidiaries to dispose
of assets or merge, incur debt, pay dividends, repurchase or redeem capital
stock and indebtedness, create liens, make capital expenditures and make certain
investments or acquisitions and otherwise restrict corporate activities. In
addition, the terms of the Bank Credit Facility contain among other covenants,
requirements that the Company maintain specified financial ratios. The ability
of the Company to comply with such provisions may be affected by events beyond
the Company's control. The breach of any of these covenants could result in a
default under the Company's Senior Indebtedness. In the event of any such
default, holders of such Senior Indebtedness could elect to declare all amounts
outstanding thereunder, together with accrued interest and other fees, to be due
and payable.
14
<PAGE>
If the indebtedness under the Bank Credit Facility or the indentures
for the 8-3/8% Senior Notes, the 10-1/2% Senior Subordinated Notes or the Notes
were to be accelerated, there can be no assurance that the assets of the Company
would be sufficient to repay such other indebtedness and the Notes in full. See
"- Subordination; Holding Company Structure," "Description of Other Debt
Obligations" and "Description of Notes."
Investment in Australis Media Limited
In November 1994, Mr. Lenfest and TCI International, Inc. jointly and
severally guaranteed $67.0 million in program license obligations of the
distributor of Australis' movie programming. As of March 31, 1998, the Company
believes the guarantee under the license agreements was approximately $42.9
million. The Company has agreed to indemnify Mr. Lenfest against loss from such
guaranty to the fullest extent permitted under the Company's debt obligations.
Under the terms of the Bank Credit Facility, however, Mr. Lenfest's claims for
indemnification are limited to $33.5 million. Effective March 6, 1997, as
subsequently amended, Mr. Lenfest released the parent Company and its cable
operating subsidiaries from their indemnity obligation until the last to occur
of January 1, 1999 and the last day of any fiscal quarter during which the
Company could incur the indemnity obligation without violating the terms of the
Bank Credit Facility. Certain of the Company's non-cable subsidiaries have
agreed to indemnify Mr. Lenfest for his obligations under the guarantee. As a
result, the Company will remain indirectly liable under the non-cable
subsidiaries' indemnity.
Concentration of Control in Single Stockholder
As a result of the stock ownership of the Company by H.F. Lenfest,
proxies (irrevocable until March 30, 2000) granted to him by certain
stockholders, an agreement between Mr. Lenfest and LMC Lenfest, Inc., a
wholly-owned subsidiary of TCI and the owner of 50% of the outstanding common
stock of the Company, and the amended and restated Articles of Incorporation of
the Company, Mr. Lenfest has the right to designate a majority of the Board of
Directors of the Company until January 1, 2002. During such period, vacancies in
respect of directors designated by Mr. Lenfest shall be filled by designees of
Mr. Lenfest or, in the event of Mr. Lenfest's death, of The Lenfest Foundation.
Thereafter, certain members of the Lenfest family and The Lenfest Foundation
(collectively, the "Lenfest Family") acting together and LMC Lenfest, Inc. will
have the right to appoint an equal number of members of the Company's Board of
Directors. This right will continue for so long as any member of the Lenfest
Family owns any stock in the Company. By virtue of this agreement, Mr. Lenfest
effectively is able to direct and control certain fundamental policy and
management decisions of the Company and its subsidiaries.
Loss of Favorable Programming Supply
Through an agreement with Satellite Services, Inc. (a wholly owned
subsidiary of TCI), the Company is able to purchase most of its programming
services at rates closely approximating those paid by TCI. The cable television
operator in which the Company has a 50% ownership interest (Garden State
Cablevision L.P.) and the three cable television operators in which the Company
has a minority ownership interest (Susquehanna Cable Co., Raystay Co. and
Clearview Partners) also obtain their programming pursuant to this agreement. In
addition, pursuant to an agreement between the Company and TCI, TCI must provide
the programming services available to TCI to the Company at rates closely
approximating those paid by TCI. As management believes that the rates at which
it purchases programming from Satellite Services, Inc. (and the rates at which
the Company could purchase programming from TCI) are significantly less than the
Company could obtain independently, loss of access to programming at such
favorable rates could materially adversely affect the financial position or
results of operations of the Company.
Litigation
The Company and several other entities and individuals, including H.F.
Lenfest, have been sued in the Federal Court of Australia, New South Wales
District Registry, by Mr. Albert Hadid, who seeks monetary damage of
approximately U.S. $467 million. The trial began on February 2, 1998, and is
expected to
15
<PAGE>
last until sometime in the third quarter of 1998. Although the Company believes
Mr. Hadid's allegations are without merit and is defending the action
vigorously, there can be no assurances that the Company will be successful. If
Mr. Hadid were successful in his suit and the court awarded Mr. Hadid monetary
damages substantially approximating his claimed damages, the Company would
assert certain cross-claims available to it against certain of the other
defendants, excluding Mr. Lenfest. There can be no assurance, however, that the
cross-claims would be successful or that the other defendants would have
sufficient funds to pay all or any portion of the damages awarded. There can
also be no assurances that the Company will have sufficient funds to satisfy a
judgment in favor of Mr. Hadid. For further information about this and other
legal proceedings involving the Company and its executive officers, see
"Business - Legal Proceedings".
On December 6, 1995, the Commission sued H.F. Lenfest and Marguerite
Lenfest (a director of the Company until December, 1997, the Treasurer of the
Company until April 1998 and a current employee of Suburban) in the United
States District Court for the Eastern District of Pennsylvania (the "SEC
Matter"). The Commission alleges that, in October 1993, Mr. Lenfest, while in
possession of non-public information, recommended to one of his sons that the
son purchase TCI stock and that Marguerite Lenfest purchased 5,000 shares of TCI
stock in October 1993 on the basis of information she misappropriated from her
husband. H.F. and Marguerite Lenfest have categorically denied that they engaged
in any improper conduct and are defending this action vigorously. The Company
has agreed to pay the legal expenses of H.F. and Marguerite Lenfest related to
this action and has paid $672,650 of such fees through March 31, 1998. H.F.
Lenfest and Marguerite Lenfest have agreed to repay such expenses if it is
subsequently determined that the Company is not permitted to make such payments
under Delaware corporate law. This matter is expected to go to trial in October
1998.
Absence of Active Trading Market
The Exchange Notes are a new issue of securities for which there is
currently no active trading market. If the Exchange Notes are traded after their
initial issuance, they may trade at a discount from their initial Exchange Offer
price, depending upon prevailing interest rates, the market for similar
securities and other factors, including general economic conditions and the
financial condition of the Company. The Company does not intend to apply for a
listing or quotation of the Exchange Notes on any securities exchange or stock
market. No assurance can be given as to the liquidity of the trading market for
the Exchange Notes.
Rapid Technological Changes
The cable industry is subject to rapid and significant changes in
technology. While the Company believes that many of its operating companies have
in place, or are in the process of installing or rebuilding, broadband networks
designed to be sufficiently flexible to permit the delivery of a variety of
existing television and telephony services to its customers and advanced,
interactive and integrated entertainment, telecommunications and information
services as they become available in the future, the effect of any future
technological changes on the viability or competitiveness of the Company's cable
operating companies cannot be predicted.
Dependence on Key Personnel
The success of the Company and its growth strategy depends in large
part on the Company's ability to attract and retain key management, marketing
and operations personnel. Currently, the Company's businesses are managed by a
small number of management and operating personnel. There can be no assurance
that the Company will attract and retain the qualified personnel needed to
manage, operate and further develop its business. In addition, the loss of the
services of any one or more members of the company's senior management team
could have a material adverse effect on the Company.
16
<PAGE>
Impact of the Year 2000 Issue
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four digits to define the applicable year. Certain
of the Company's and supporting vendors' computer programs that have
date-sensitive software may recognize the date using "00" as the year 1900
rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including, among other
things, an inability to process transactions, send invoices or engage in similar
normal business activities. The Company is in the process of identifying which
systems, if any, will require modification or replacement so that they will
properly recognize dates beyond December 31, 1999. In addition, the Company has
retained a consultant to review its systems, to identify which systems are in
need of remediation and to prepare a remediation report. In addition, the
Company is in the process of determining whether the systems of other companies
on whose services the Company depends or with whom the Company's systems
interface are Year 2000 compliant. Failure of the Company's systems or the
systems of such third parties to be Year 2000 compliant could have a material
adverse effect on the Company. The Company expects to have received the
consultant's report and to have identified all systems in need of remediation
not later than September 30, 1998. As it identifies systems in need of
remediation, the Company will develop and implement appropriate remediation
measures. The Company expects to complete the remediation processes for its Core
Cable Television Operations not later than June 30, 1999 and for the balance of
its operations not later than September 30, 1999. However, there can be no
guarantee that the systems of other companies on which the Company relies will
be converted on a timely basis, or that a failure to convert by another company
would not have a material adverse effect on the Company.
17
<PAGE>
USE OF PROCEEDS
The Company will not receive any proceeds from the Exchange Offer, and
no underwriter is being utilized in connection with the Exchange Offer.
18
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization and cash
and cash equivalents of the Company at March 31, 1998 on a historic basis. The
Company will receive no proceeds from the Exchange Offer.
March 31, 1998
(dollars in thousands)
Cash and Cash Equivalents ................................. $ 22,017
===========
Total Debt
Bank credit facility(a).................................... $ --
11.84% Senior Notes due 1998(b)............................ 1,470
8-3/8% Senior Notes due 2005, net of discount.............. 687,374
7-5/8% Senior Notes due 2008, net of discount ............ 148,258
Obligations under capital leases .......................... 6,987
10-1/2% Senior Subordinated Notes due 2006, net of discount 293,897
8-1/4% Senior Subordinated Notes due 2008, net of discount 148,159
===========
Total debt ......................................... 1,286,145
Stockholders' Equity (Deficit)
Common stock .............................................. 2
Additional paid-in capital ................................ 50,747
Accumulated other comprehensive income, net ............... 515
Accumulated deficit ....................................... (312,387)
-----------
Total stockholders' equity (deficit) ............... (261,123)
===========
Total capitalization .......................... $ 1,025,022
===========
- --------------
(a) The Company's then existing bank credit facility was amended and restated
pursuant to the Bank Credit Facility on August 4, 1998. As of the date
hereof, the Company has not borrowed any funds under the Bank Credit
Facility.
(b) Does not reflect a final mandatory principal payment made on May 15, 1998
of $1.47 million on the 11.84% Senior Notes.
19
<PAGE>
PRO FORMA FINANCIAL INFORMATION
Pro Forma Condensed Consolidated Statement of Operations
For the Three Months Ended March 31, 1998
(dollars in thousands)
<TABLE>
<CAPTION>
Historical Pro Forma
Lenfest (a) Adjustments
Restricted Unrestricted Offering (b) Pro Forma
---------- ------------ ------------ ---------
<S> <C> <C> <C> <C>
Revenues................................... $ 103,457 $ 7,208 $ -- $ 110,665
Programming expenses ...................... 24,919 -- -- 24,919
Selling, general & administrative ......... 16,527 6,192 -- 22,719
Technical and other ....................... 10,779 3,559 -- 14,338
Depreciation and amortization ............. 35,675 981 -- 36,656
--------- --------- --------- ---------
Total operating expenses ............... 87,900 10,732 -- 98,632
--------- --------- --------- ---------
Operating income (loss) ................ 15,557 (3,524) -- 12,033
Interest expense .......................... (31,499) -- 29 (31,470)
Other income (expense) (net) .............. 4,090 10,707 -- 14,797
--------- --------- --------- ---------
Income (loss) before income taxes ...... (11,852) 7,183 29 (4,640)
Income tax benefit (expense) (net) ........ 1,905 (1,050) (10) 845
--------- --------- --------- ---------
Income (loss) before extraordinary loss (9,947) 6,133 19 (3,795)
Extraordinary loss, net of taxes .......... (3,061) -- -- (3,061)
--------- --------- --------- ---------
Net income (loss) ...................... $ (13,008) $ 6,133 $ 19 $ (6,856)
========= ========= ========= =========
</TABLE>
See notes to pro forma financial information.
20
<PAGE>
Pro Forma Condensed Consolidated Statement of Operations
For the Year Ended December 31, 1997
(dollars in thousands)
<TABLE>
<CAPTION>
Historical Pro Forma
Lenfest (a) Adjustments
Restricted Unrestricted Offering (b) Pro Forma
---------- ------------ ------------ ---------
<S> <C> <C> <C> <C>
Revenues................................... $ 413,792 $ 33,598 $ 447,390
Programming expenses ...................... 93,088 -- 93,088
Selling, general & administrative ......... 86,382 19,088 105,470
Technical and other ....................... 33,772 22,337 56,109
Depreciation and amortization ............. 124,973 4,966 129,939
--------- --------- --------- ---------
Total operating expenses ............... 338,215 46,391 -- 384,606
--------- --------- --------- ---------
Operating income (loss) ................ 75,577 (12,793) -- 62,784
Interest expense .......................... (120,549) (239) 232 (120,556)
Other income (expense) (net) .............. 2,731 (45,483) (42,752)
--------- --------- --------- ---------
(Loss) from continuing operations
before income taxes ................. (42,241) (58,515) 232 (100,524)
Income tax benefit (net) .................. 12,308 23,871 (81) 36,098
--------- --------- --------- ---------
(Loss) from continuing operations ...... $ (29,933) $ (34,644) $ 151 $ (64,426)
========= ========= ========= =========
</TABLE>
See notes to pro forma financial information.
21
<PAGE>
Notes to Pro Forma Financial Information
(dollars in thousands)
(a) The historical financial statements of Lenfest have been segregated
between the Restricted Group and Unrestricted Subsidiaries. The
Restricted Group consists of all wholly owned cable television
subsidiaries of the Company as of March 31, 1998. The Unrestricted
Subsidiaries consist of all other consolidated subsidiaries of the
Company. Substantially all of Lenfest's investments in unconsolidated
subsidiaries, including Garden State Cablevision L.P., are held by
Unrestricted Subsidiaries.
(b) The pro forma adjustments to the Pro Forma Condensed Consolidated
Statement of Operations for the Offering are as follows:
<TABLE>
<CAPTION>
Year Ended Three Months Ended
December 31, 1997 March 31, 1998
<S> <C> <C>
Interest expense:
Decrease in interest expense.................................. $ 232 $ 29
Income tax benefit (expense) (net)
Decrease in deferred tax asset................................ $ 81 $ 10
</TABLE>
Debt issuance costs of the Notes are treated as a discount and are
amortized using the interest method. The difference between interest on
the Notes and interest included in the historical financial statements
for the debt that has been repaid is presented as a pro forma
adjustment.
The pro forma adjustment to income tax benefit reflects the income tax
effect of the Offering.
22
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
(dollars in thousands except per customer data)
Summary Consolidated Financial And Operating Data
(Dollars In Thousands Except Per Customer Data)
The summary consolidated financial data as of and for each of the five
years in the period ended December 31, 1997 set forth below have been derived
from the audited Consolidated Financial Statements of the Company. The summary
consolidated financial data set forth below for and as of the end of the
three-month period ended March 31, 1997 and 1998 have been derived from the
unaudited consolidated financial statements of the Company. These data should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial Statements
for each of the three years in the period ended December 31, 1997 and the
three-month periods ended March 31, 1997 and 1998 included elsewhere in this
Prospectus. The statement of operations data with respect to the fiscal years
ended December 31, 1993 and 1994 have been derived from audited consolidated
financial statements of the Company not included herein.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------------------------
(Dollars in thousands)
Statement of Operations Data* 1993 1994 1995 1996 1997
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues $ 205,326 $ 226,185 $ 254,225 $ 381,810 $ 447,390
Programming expenses 44,033 49,267 55,322 82,804 93,088
Selling, general & administrative 46,527 50,269 55,262 82,688 105,470
Technical and other 20,167 27,269 34,529 50,449 56,109
Depreciation and amortization 62,089 72,813 74,272 111,277 129,939
----------- ----------- ----------- ----------- -----------
Operating income 32,510 26,567 34,840 54,592 62,784
Interest expense (35,090) (47,749) (60,909) (107,201) (120,788)
Other income and expense (net) (10,232) (7,072) 4,245 (90,361) (42,752)
----------- ----------- ----------- ----------- -----------
Loss from continuing operations
before income taxes (12,812) (28,254) (21,824) (142,970) (100,756)
Income tax benefit 2,018 10,174 10,724 14,329 36,179
----------- ----------- ----------- ----------- -----------
Loss from continuing operations (10,794) (18,080) (11,100) (128,641) (64,577)
Discontinued operations, net of taxes (1,073) (819) (395) 363 33,738
Extraordinary loss, net of taxes -- -- (6,739) (2,484) --
----------- ----------- ----------- ----------- -----------
Net loss $ (11,867) $ (18,899) $ (18,234) $ (130,762) $ (30,839)
=========== =========== =========== =========== ===========
Deficiency of earnings
available to cover
fixed charges (a) $ 5,079 $ 18,444 $ 19,956 $ 130,984 $ 104,249
Balance Sheet Data*
(end of period)
Total assets $ 634,938 $ 664,555 $ 843,110 $ 1,221,788 $ 1,219,720
Total debt 612,392 626,121 810,725 1,312,863 1,295,306
Stockholders' equity (deficit) (56,029) (49,609) (45,192) (233,790) (254,264)
Core Cable Television Operations (Restricted Group)
Financial Ratios and Other Data (b)
Revenues $ 197,630 $ 212,800 $ 232,155 $ 354,561 $ 413,792
Adjusted EBITDA (c) (d) (e) 100,476 105,711 115,261 182,905 205,861
Adjusted EBITDA margin (f) 50.8% 49.7% 49.6% 51.6% 49.7%
Cash flows from:
Operating activities $ 62,531 $ 60,057 $ 71,911 $ 74,801 $ 114,017
Investing activities (158,216) (59,350) (60,085) (626,437) (96,226)
Financing activities 91,467 1,392 146,832 403,632 (18,645)
Interest expense 34,699 47,016 59,966 105,463 120,549
Capital expenditures (g) 41,658 42,162 40,168 51,703 87,510
Total debt 609,159 616,657 807,535 1,309,735 1,293,579
Ratio of total debt to Adjusted EBITDA 6.06x 5.83x 7.01x 7.16x 6.28x
Monthly revenue per average
basic customer $ 32.05 $ 31.44 $ 32.97 $ 34.25 $ 35.18
Annual Adjusted EBITDA per average
basic customer 195.51 187.42 196.40 212.00 210.04
Annual capital expenditures per
average basic customer (g) 81.06 74.75 68.44 59.93 89.28
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------------
1997 1998
------------ ------------
(unaudited)
Statement of Operations Data*
<S> <C> <C>
Revenues $ 107,668 $ 110,665
Programming expenses 23,462 24,919
Selling, general & administrative 22,391 22,719
Technical and other 14,207 14,338
Depreciation and amortization 32,125 36,656
----------- -----------
Operating income 15,483 12,033
Interest expense (31,917) (31,499)
Other income and expense (net) 1,802 14,797
----------- -----------
Loss from continuing operations (14,632) (4,669)
before income taxes
Income tax benefit 4,271 855
----------- -----------
Loss from continuing operations (10,361) (3,814)
Discontinued operations, net of taxes 900 --
Extraordinary loss, net of taxes -- (3,061)
----------- -----------
Net loss $ (9,461) $ (6,875)
=========== ===========
Deficiency of earnings
available to cover
fixed charges (a) $ 12,884 $ 2,331
Balance Sheet Data* (end of period)
Total assets $ 1,310,507 $ 1,209,368
Total debt 1,380,069 1,286,145
Stockholders' equity (deficit) (233,832) (261,123)
Core Cable Television Operations
(Restricted Group)
Financial Ratios and Other Data (b)
Revenues $ 99,977 $ 103,457
Adjusted EBITDA (c) (d) (e) 50,635 52,356
Adjusted EBITDA margin (f) 50.6% 50.6%
Cash flows from:
Operating activities $ 31,336 $ 26,629
Investing activities (103,488) (8,915)
Financing activities 59,578 (11,320)
Interest expense 31,804 31,499
Capital expenditures (g) 13,120 19,035
Total debt 1,369,961 1,284,437
Ratio of total debt to Adjusted EBITDA 6.76x 6.13x
Monthly revenue per average basic customer $ 34.41 $ 34.63
Annual Adjusted EBITDA per average basic customer 209.15 210.28
Annual capital expenditures per average 54.19 76.45
basic customer (g)
</TABLE>
- -----------------
* Prior year data is restated to reflect continuing operations.
<PAGE>
(a) For purposes of computing the deficiency of earnings available to cover
fixed charges, earnings represents the sum of income from continuing
operations before income taxes for the Company and its subsidiaries plus
fixed charges, minority interest in the loss of consolidated
subsidiaries, undistributed losses of equity method investments and
distributed income of equity method investments; less undistributed
income of equity method investments. Fixed charges represent interest
paid or accrued on indebtedness of the Company and its subsidiaries,
amortization of debt discount and deferred loan charges and one-third
(the portion deemed representative of the interest factor) of rents. In
1995, the Company increased its ownership in Garden State Cablevision
L.P. to 50% and, therefore, for 1995 and subsequent periods, the equity
loss from Garden State Cablevision L.P. has not been added back for
purposes of this calculation.
(b) The Core Cable Television Operations (Restricted Group) consists of all of
the Company's wholly owned cable television subsidiaries. Financial ratios
and other information are presented for the Restricted Group to facilitate
the evaluation of the results of operations of those operating entities on
which the Company relies to service all of its debt obligations.
(c) Adjusted EBITDA represents EBITDA (earnings before interest expense,
income taxes, depreciation and amortization) adjusted to include cash
distributions received from unconsolidated and unrestricted affiliates.
Adjusted EBITDA corresponds to the definition of "EBITDA" contained in
the Company's publicly held debt securities, including, after the
conclusion of the Exchange Offer, the Exchange Notes. Consequently,
Adjusted EBITDA, Adjusted EBITDA margin, ratio of total debt to Adjusted
EBITDA and annual Adjusted EBITDA per average basic customer are
presented for the convenience of the holders of the Company's public debt
securities, including the Exchange Notes offered hereby, and industry
analysts. Adjusted EBITDA should not be considered by an investor as an
alternative to net income (loss), as an indicator of the operating
performance of the Company or as an alternative to cash flows as a
measure of liquidity. Adjusted EBITDA and EBITDA are not measures under
generally accepted accounting principles.
(d) CAH, Inc. became a part of the restricted group in 1996. CAH, Inc. has not
been included in the 1993-1995 presentation.
(e) Includes distributions received from unconsolidated and non core cable
affiliates for the years ended December 31, 1995, 1996 and 1997 and for
the three months ended March 31, 1997 and 1998 of $1.5 million, $5.7
million, $5.3 million, $1.1 million and $1.1 million, respectively.
(f) Adjusted EBITDA margin measures Adjusted EBITDA as a percentage of
revenues.
(g) Excludes the purchase price of acquisitions consummated during the period.
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
Substantially all of the Company's revenues are earned from customer
fees for cable television programming services, the sale of advertising,
commissions for products sold through home shopping networks and ancillary
services (such as rental of converters and remote control devices and
installations). Federal law and regulations, including the regulation of certain
aspects of the cable television industry, have affected adversely the Company's
ability to increase or restructure its rates for certain services. These
regulations are intended to limit future rate increases. See "Legislation and
Regulation."
The Company has generated increases in revenues and Adjusted EBITDA
for each of the past three fiscal years primarily through acquisitions and, to
a lesser extent, through internal customer growth, increases in monthly
revenue per customer and, growth in advertising and home shopping revenues. As
used herein, Adjusted EBITDA represents EBITDA (earnings before interest
expense, income taxes, depreciation and amortization) adjusted to include cash
distributions received from unconsolidated and unrestricted affiliates.
Adjusted EBITDA corresponds to the definition of "EBITDA" contained in the
Company's publicly held debt securities, including, after the conclusion of
the Exchange Offer, the Exchange Notes. Consequently, Adjusted EBITDA and
Adjusted EBITDA margin are presented for the convenience of the holders of the
Company's public debt securities, including the Exchange Notes offered hereby,
and industry analysts. EBITDA should not be considered as an alternative to
net income, as an indicator of the operating performance of the Company or as
an alternative to cash flows as a measure of liquidity. Adjusted EBITDA and
EBITDA are not measures under generally accepted accounting principles.
Results of Operations
Three Months Ended March 31, 1998 Compared with Three Months Ended March
31, 1997
Consolidated Results
Revenues increased $3.0 million, or 2.8%, to $110.7 million for the
quarter ended March 31, 1998 as compared to the corresponding 1997 period. The
increase was primarily due to strong internal customer growth and the full
effect of the rate increases implemented during 1997 associated with the
Company's Core Cable Television Operations.
Beginning with the quarter ended March 31, 1998, the Company changed
its treatment of franchise fees. Historically, the franchise fees were not
separately itemized on the customer's bill, because prior to 1998 the Company
used several different billing systems each of which limited the number of
lines of text that could be printed on a bill. As a consequence, there was no
room for a separate listing of franchise fees included in the total amount
due. Such fees were considered part of the monthly charge for basic services
and equipment and, therefore, were treated as an item of revenue and an item
of expense. The 1992 Cable Act encouraged cable television operators to state
separately each charge on a customer's bill and permitted such separately
stated charges to be passed through directly to the customers. Effective
January 1, 1998, all of the Company's cable television systems were using a
new, single billing system in connection with its efforts to consolidate its
Core Cable Television Operations. The new billing system permits the printing
of increased number of lines of text, and the Company began listing the
franchise fee separately. Consequently, beginning with the quarter ended March
31, 1998, the Company determined that franchise fees collected would no longer
be included in revenue or as an item of expense since the Company merely
collects and remits to the appropriate franchising authorities the franchise
fees. The Company believes that its current method of accounting for the
franchise fees is consistent with the financial statement presentation
utilized in the cable television industry. For the period ended March 31,
1998, the changed treatment of franchise fees had the effect of reducing
revenue by $2.0 million. Had the Company used the methodology in effect for the
corresponding 1997 period, the increase in revenue for the quarter ended March
31, 1998 would have been approximately $5.0 million, a 4.8% increase from the
corresponding 1997 period.
<PAGE>
Service Expenses increased 23.1% to $10.8 million for the quarter ended
March 31, 1998 compared to the corresponding 1997 period. The increase was
primarily due to costs associated with the Company's Core Cable Television
Operations.
Programming Expenses increased 6.2% to $24.9 million for the quarter
ended March 31, 1998 compared to the corresponding 1997 period. The increase was
due to increases in programming costs associated with the Company's Core Cable
Television Operations.
Selling, General and Administrative Expense increased $0.3 million, or
1.5%, to $22.7 million for the quarter ended March 31, 1998 compared to the
corresponding 1997 period. These expenses are associated with salaries,
facility, and marketing costs. The increase was primarily due to legal fees
incurred in connection with the Australis Media, Ltd. litigation. See "Legal
Proceedings". As a result of the changed treatment of accounting for franchise
fees, selling, general and administrative expense for the quarter ended March
31, 1998 was reduced by $2 million, the amount of franchise fees collected and
paid in the quarter. Had the Company used the current
25
<PAGE>
methodology in the corresponding 1997 period, the increase in selling, general
and administrative expense for the quarter ended March 31, 1998 would have been
approximately $2.3 million, a 10.4% increase over the corresponding 1997 period.
Direct Costs Non-Cable decreased 34.7% to $3.6 million for the quarter
ended March 31, 1998 compared to the corresponding 1997 period. The decrease was
primarily due to the elimination of certain activities conducted by the
Company's Non-Cable Operations.
Depreciation and Amortization Expense increased 14.1% to $36.7 million
for the quarter ended March 31, 1998 compared to the corresponding 1997 period
primarily as a result of additional capital expenditures associated with the
Company's Core Cable Television Operations.
Adjusted EBITDA increased 3.7% to $49.8 million for the quarter ended
March 31, 1998 compared to the corresponding 1997 period. The Adjusted EBITDA
margin increased to 45.0% in the 1998 period compared to 44.6% for 1997 period.
These increases were primarily related to the Company's Core Cable Television
Operations.
Interest Expense decreased 1.3% to $31.5 million for the quarter ended
March 31, 1998 compared to the corresponding 1997 period. The decrease was
primarily due to lower interest rates on outstanding borrowings and lower
average outstanding indebtedness.
Loss from continuing operations before income tax decreased 68.1% to
$4.7 million. The decrease was attributable to a gain of $11.5 million realized
on the exchange of a partnership interest.
The Company has not established a valuation allowance for the net
operating losses, because it believes that all of the Company's net operating
losses will be utilized before they expire. The net operating losses begin to
expire in the year 2000 and will fully expire in 2012. The Company believes
the net operating losses should start to be used in the year 2000 and should
be fully utilized before they expire. The Company believes that commencing in
2000 it will begin generating taxable income as a result of increased
revenues, the anticipated elections of slower tax depreciation methods and
anticipated declines in amortization deductions. See Note 18 of the Company's
Consolidated Financial Statements for the minimum amounts of taxable income
required each year for the Company to fully utilize its net operating losses
for such year until such losses expire.
Core Cable Television Operations
Revenues increased 3.5% to $103.5 million for the quarter ended March
31, 1998 compared to the corresponding 1997 period. Revenues for basic and CPS
tiers, customer equipment, and installation ("regulated services") increased
11.2 % or $8.1 million compared to the corresponding 1997 period. This increase
was primarily attributable to strong internal customer growth of approximately
3.3% over the prior year period and the realization of the full effect of rate
increases implemented over the course of 1997. Non-regulated service revenue
decreased 16.6% or $3.5 million for the quarter ended March 31, 1998 compared to
the corresponding 1997 period. This decrease was primarily a result of the
discontinuation of the Prism regional sports network service which occurred as
of October 1, 1997. Other revenue decreased 16.0% or $1.1 million compared to
the corresponding 1997 period. The decrease was primarily a result of the
Company changing its methodology of recording franchise fee revenues and
expenses as described above.
Service Expenses increased 23.1% to $10.8 million for the quarter ended
March 31, 1998 compared to the corresponding 1997 period. These expenses are
related to technical salaries and general operating expenses. The increase was
primarily associated with customer installation, plant maintenance costs and the
continuing expense related to the consolidation efforts of the Company.
Programming Expenses increased 6.2% to $24.9 million for the quarter
ended March 31, 1998 compared to the corresponding 1997 period. The programming
expense increase was primarily due to increased network programming costs and
increased number of customers associated with the basic and CPS tier services.
Selling, General and Administrative Expense decreased 9.2% to $16.5
million for the quarter ended March 31, 1998 compared to the corresponding 1997
period. These expenses are associated with salaries, facility, and marketing
costs. The decrease was primarily a result of the Company changing its
methodology of recording franchise fee revenues and expenses as described above.
Depreciation and Amortization Expense increased 15.2% to $35.7 million
for the quarter ended March 31, 1998 compared to the corresponding 1997 period.
This increase was primarily due to increased capital expenditures.
Adjusted EBITDA increased 3.4% to $52.4 million for the quarter ended
March 31, 1998 compared to the corresponding 1997 period. The increase was
primarily attributable to strong internal customer growth of
26
<PAGE>
approximately 3.3% and the realization of the full effect of the rate increases
implemented during 1997. The Adjusted EBITDA margin was 50.6% in both 1998 and
1997.
Non-Cable Investments
Radius Communications
Revenues, prior to payment of affiliate fees, increased 20.8% to $6.4
million for the quarter ended March 31, 1998 compared to the corresponding 1997
period.
Operating Expenses increased 9.0% to $5.7 million for the quarter ended
March 31, 1998 compared to the corresponding 1997 period. The increase was
primarily due to increased selling expenses. Affiliate fees increased 2.2% to
$2.5 million of which $1.4 million was paid to the Company. Affiliate fees paid
to the Company are eliminated in consolidation.
Adjusted EBITDA was $0.7 million for the quarter ended March 31, 1998
compared to $0.1 million for the corresponding 1997 period.
Depreciation and Amortization Expense increased by 17.5% to $0.5
million for the quarter ended March 31, 1998 compared to the corresponding 1997
period. The increase was primarily due to the continued deployment of digital
advertising insertion equipment used for operations and expansion of sales
offices.
Operating Income was $0.3 million for the quarter ended March 31, 1998
compared to an Operating Loss of $0.4 million for the corresponding 1997 period.
Year Ended December 31, 1997 Compared with Year Ended December 31, 1996
Consolidated Results
Revenues for the company increased 17.2% to $447.4 million as compared
to 1996, primarily as a result of the Company's Core Cable Television
Operations. The TCI Exchange, the Sammons Acquisition, the Salem Acquisition,
the Shore Acquisition, and the Turnersville Acquisition, which are described in
Note 5 to the financial statements included herein (collectively, the
"Acquisitions"), accounted for approximately $40.2 million or 61.3% of the
increase.
Service and Programming Expenses increased 12.0% to $149.2 million for
the year ended December 31, 1997 compared to the prior year. These expenses are
related to technical salaries, general operating, and network programming costs.
The service and programming increase was primarily due to increased costs
associated with the Core Cable Television Operations.
Selling, General, and Administrative Expense increased 27.6% to $105.5
million for the year ended December 31, 1997 compared to the prior year. These
expenses are associated with office salaries, facility, and marketing costs.
This increase was primarily due to administrative expenses associated with the
Core Cable Television Operations.
Depreciation and Amortization Expense increased 16.8% to $129.9 million
for the year ended December 31, 1997 compared to the prior year. This increase
was primarily due to the Acquisitions and additional capital expenditures
associated with the Core Cable Television Operations.
Adjusted EBITDA increased 15.2% to $196.2 million for the year ended
December 31, 1997 compared to the prior year. The increase was primarily due to
the Core Cable Television Operations. The Adjusted EBITDA margin decreased to
43.9% in 1997 compared to 44.6% for 1996. This decrease was primarily caused by
one time costs associated with the consolidation effort related to the Core
Cable Television Operations.
Interest Expense increased 12.7% to $120.8 million for the year ended
December 31, 1997 compared to the prior year. The increase was primarily due to
higher average outstanding indebtedness related to the Acquisitions.
27
<PAGE>
Loss from continuing operations before income tax decreased 29.5% to
$100.8 million. The decrease was attributable to a loss associated with the
write-down of the balance of the Company's investment in Australis. The 1997
write-down of the Company's investment in Australis was $44.6 million compared
to an $86.4 million write-down of the investment in the prior year. At December
31, 1997, the Australis securities were no longer listed on Australian Stock
Exchange and were considered to be worthless. On May 5, 1998, the Trustee for
the holders of Australis' bond indebtedness appointed receivers in order to wind
up the affairs of Australis. Subsequent thereto, Australis' assets have been
liquidated and it has ceased to conduct business. The Company does not expect
this investment to have a material impact on future operations.
Core Cable Television Operations
Revenues increased 16.7% to $413.8 million for the year ended December
31, 1997 compared to the prior year. Revenues for basic and CPS tiers and
customer equipment and installation, ("regulated services") increased 24.3 % or
$60.4 million compared to the prior year. This increase was primarily
attributable to the realization of the full effect of the Acquisitions, strong
internal customer growth of approximately 2.9%, and rate increases occurring
predominately in the second and fourth quarters. Non-regulated service revenue
decreased 7.1% or $6.0 million for the year ended December 31, 1997 compared to
the prior year. This decrease was primarily as a result of the regional sports
network, Prism, ceasing operations on September 30, 1997. On October 1, 1997,
the Company added the new regional sports network, Comcast SportsNet to the
regulated CPS tier. Advertising, home shopping, and non-recurring revenue
increased 22.3% or $4.8 million for the year ended December 31, 1997 compared to
the prior year. This increase was primarily attributable to the Acquisitions and
internal customer growth.
Service and Programming Expenses increased 13.2% to $126.9 million for
the year ended December 31, 1997 compared to the prior year. These expenses are
related to technical salaries, general operating costs, and programming costs.
The technical service increase was primarily due to increased costs associated
with the consolidation efforts of the Company which included integrating the
Acquisitions. The programming expense increase was primarily due to the
Acquisitions and increased customer costs associated with the basic and CPS tier
services.
Selling, General and Administrative Expense increased 32.5% to $86.4
million for the year ended December 31, 1997 compared to the prior year. These
expenses are associated with office salaries, facility, and marketing costs.
This increase was primarily due to the Acquisitions and expenses associated with
the consolidation efforts of the Company which included migrating customer
service to the new Call Center.
Depreciation and Amortization Expense increased 16.7% to $125.0 million
for the year ended December 31, 1997 compared to the prior year. This increase
was primarily due to the Acquisitions as well as additional capital
expenditures.
Adjusted EBITDA increased 12.6% to $205.9 million for the year ended
December 31, 1997 compared to the prior year. The increase was primarily
associated with the Acquisitions. The Adjusted EBITDA margin decreased to 49.7%
in 1997 compared to 51.6% for 1996. This decrease was primarily caused by
one-time costs associated with the consolidation efforts of the Company.
Unrestricted Subsidiaries
The largest of the Company's Unrestricted Subsidiaries in 1997 were
Radius Communications and StarNet.
Lenfest Advertising, Inc. (d/b/a Radius Communications)
Revenues, prior to payment of affiliate fees, increased 70.2% to $25.9
million as compared to 1996, primarily as a result of the full realization of
the MetroBase Advertising acquisition in September 1996. Affiliate fees
increased 68.3% to $11.8 million, of which $4.8 million was paid to the Company.
Affiliate fees paid to the Company are eliminated in consolidation.
Operating Expenses increased proportionately to the increase in
revenues for the year ended December 31, 1997, due to the expansion of the
combined sales forces of Cable AdNet and MetroBase advertising.
28
<PAGE>
Depreciation and Amortization Expense increased by 83.3% to $1.9
million as compared to 1996 as a result of the purchasing of digital insertion
equipment used in daily operations.
Operating income decreased 28.6% to $0.5 million for the year ended
December 31, 1997, compared to $0.7 million in the prior year.
StarNet, Inc.
Revenues decreased by 38.1% to $5.0 million for the year ended December
31, 1997, primarily due to the elimination of The Barker (R) and Promoter
services.
Direct expenses decreased 36.3% to $6.0 million as compared to 1996 due
primarily to the reduction of operational expenses eliminated with the
termination of The Barker (R) and Promoter services.
Depreciation and Amortization Expense decreased by 23.7% to $1.2
million as compared to 1996 as a result of assets related to The Barker (R)
being transferred to Sneak Prevue, LLC, a partnership between StarNet, Inc. and
Prevue Network, Inc.
Operating loss decreased by 23.8% to $2.1 million in 1997 compared to
$2.8 million in 1996.
Year Ended December 31, 1996 Compared with Year Ended December 31, 1995
Consolidated Results
Revenues for the company increased 50.2% to $381.8 million for the year
ended December 31, 1996 as compared to 1995, primarily as a result of the
Company's Core Cable Television Operations. The Acquisitions accounted for
approximately $103.9 million or 81.4% of the increase.
Service and Programming Expenses increased 48.3% to $133.3 million for
the year ended December 31, 1996 compared to the prior year. These expenses are
related to technical salaries, general operating and programming costs. The
service and programming increase was primarily due to increased costs associated
with the Acquisitions.
Selling, General and Administrative Expense increased 49.6% to $82.7
million for the year ended December 31, 1996 compared to the prior year. These
expenses are associated with customer service, office, and marketing. This
increase was primarily due to selling and administrative expenses associated
with the Acquisitions.
Depreciation and Amortization Expense increased 49.8% to $111.3 million
for the year ended December 31, 1996 compared to the prior year. This increase
was primarily due to the Acquisitions.
Adjusted EBITDA increased 54.0% to $170.3 million for the year ended
December 31, 1996 compared to the prior year. The increase was primarily due to
the Acquisitions. The Adjusted EBITDA margin increased to 44.6% in 1996 compared
to 43.5% for 1995. This increase was primarily a result of an increase in
Adjusted EBITDA for Core Cable Television Operations.
Interest Expense increased 76.0% to $107.2 million for the year ended
December 31, 1996 compared to the prior year. The increase was primarily due to
higher average outstanding indebtedness related to the Acquisitions.
Loss from continuing operations before income tax increased 555.1% to
$143.0 million. The increase was attributable to a loss associated with the
write-down of the $86.4 million of the Company's investment in Australis. Due to
uncertainty the long-term financing of Australis, the Company determined that
the decline in market value was other than temporary.
Core Cable Television Operations
Revenues increased 52.7% to $354.6 million for the year ended December
31, 1996 compared to the prior year. Revenues for regulated services increased
56.3% or $89.6 million compared to the prior year. This increase
29
<PAGE>
was primarily attributable to the Acquisitions, internal customer growth of
approximately 2.8%, and rate increases occurring predominately in the second and
fourth quarters. Non-regulated service revenue increased 43.9% or $25.8 million
for the year ended December 31, 1996 compared to the prior year. This increase
was primarily as a result of the Acquisitions. Advertising, home shopping and
non-recurring revenue increased 49.4% or $7.1 million compared to the prior
year. This increase was primarily attributable to the Acquisitions.
Service and Programming Expenses increased 57.9% to $112.1 million for
the year ended December 31, 1996 compared to the prior year. These expenses are
related to technical salaries, general operating, and programming costs. The
technical service increase was primarily associated the Acquisitions. The
programming expense increase was primarily due to the Acquisitions and increased
customer costs associated with the basic and CPS tier services.
Selling, General and Administrative Expense increased 37.6% to $65.2
million for the year ended December 31, 1996 compared to the prior year. These
expenses are associated with office salaries, facility, and marketing costs.
This increase was primarily associated with the Acquisitions.
Depreciation and Amortization Expense increased 50.8% to $107.1 million
for the year ended December 31, 1997 compared to the prior year. This increase
was primarily due to the Acquisitions as well as increased capital expenditures.
Adjusted EBITDA increased 58.7% to $182.9 million for the year ended
December 31, 1996 compared to the prior year. The increase was primarily
associated with the Acquisitions. The Adjusted EBITDA margin increased to 51.6%
in 1996 compared to 49.6% for 1995. This increase was primarily caused by cash
distributions made to the Company by certain Unrestricted Subsidiaries and
affiliates.
Unrestricted Subsidiaries
Lenfest Advertising, Inc. (d/b/a Radius Communications)
Revenues, prior to payment of affiliate fees, were $15.2 million.
Affiliate fees were $7.0 million, of which $4.3 million was paid to the Company.
Affiliate fees paid to the Company are eliminated in consolidation.
Operating Expenses, including affiliate fees, totaled $13.8 million.
Operating Income was $0.7 million.
Radius, which began operations in 1996 in connection with the purchase
of certain advertising assets, had no revenue or expenses in 1995.
StarNet, Inc.
Revenues decreased 8.8% to $8.1 million in 1996 as compared to 1995,
the net result of the elimination of The Barker (R) and Promoter services in
November of 1996.
Direct expenses decreased 12.4% to $9.4 million due primarily to the
reduction of operational expenses eliminated with the termination of The Barker
(R) and Promoter services.
Depreciation and Amortization Expense increased 11.0% to $1.5 million
for the year ended December 31, 1996, primarily as a result of purchasing assets
related to The Barker (R).
Operating loss was $2.8 million for the year ended December 31, 1996,
as compared to $3.4 million for the prior year.
Recent Accounting Pronouncements
The Financial Accounting Standards Board (the "FASB") has recently
issued its Statement of Financial Accounting Standards ("SFAS") No. 130,
"Reporting Comprehensive Income" ("SFAS No. 130"). SFAS No. 130
30
<PAGE>
establishes standards for reporting and display of comprehensive income and its
components in the financial statements. SFAS No. 130 is effective for fiscal
years beginning after December 15, 1997. Reclassification of financial
statements for earlier periods provided for comparative purposes is required.
The Company is in the process of determining the preferred format. The adoption
of SFAS No. 130 will have no impact on the Company's consolidated results of
operations, financial position or cash flows.
The FASB has also recently issued its SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ( "SFAS No. 131"). SFAS No.
131 established standards for the way that public business enterprises report
information about operating segments in interim financial reports issued to
stockholders. It also established standards for related disclosures about
products and services, geographic areas, and major customers. SFAS No. 131 is
effective for financial statements for fiscal years beginning after December 15,
1997. Financial statement disclosures for prior periods are required to be
restated. The Company is in the process of evaluating the disclosure
requirements. The adoption of SFAS No. 131 will have no impact on the Company's
consolidated results of operations, financial position or cash flows.
Liquidity and Capital Resources
The Company's businesses require cash for operations, debt service,
capital expenditures and acquisitions. To date, cash requirements have been
funded by cash flow from operations and borrowings.
Financing Activities. At March 31, 1998, the Company had aggregate
total indebtedness of approximately $1,286.1 million. The Company's senior
indebtedness of approximately $844.1 million consisted of: (i) a debt
obligation in the amount of approximately $1.5 million; (ii) $687.4 million of
8-3/8% Notes; (iii) $148.2 million of 7-5/8% Notes; and (iv) obligations under
capital leases of approximately $7.0 million. The Bank Credit Facility
consists of a $300 million revolving credit facility, which can be increased
to $550 million under certain conditions.
At March 31, 1998, the Company's senior subordinated indebtedness of
approximately $442.0 million consisted of : (i) $293.9 million of 10-1/2% Notes
and (ii) $148.1 million of 8-1/4% Notes. The Subordinated Notes are general
unsecured obligations of the Company subordinate in right of payment to all
present and future senior indebtedness of the Company.
On August 4, 1998, the Company amended and restated its existing bank
credit facility (as amended and restated, the "Bank Credit Facility"). The
Bank Credit Facility establishes unsecured revolving credit facility
commitments under which the Company may borrow up to $300 million, which can
be increased to $550 million under certain conditions. The Company intends to
use the availability under the Bank Credit Facility for operations and
possibly for future acquisitions of cable systems. The commitments under the
Bank Credit Facility expire on March 31, 2006. As of the date hereof, no
amounts are outstanding under the Bank Credit Facility.
31
<PAGE>
The Company's operations are conducted through its direct and indirect
subsidiaries. As a holding company, the Company has no independent operations
and, therefore, is dependent on the cash flow of its subsidiaries to meet its
own obligations, including the payment of interest and principal obligations on
the Company's borrowings. There are no restrictions relating to the payment to
the Company of dividends, advances or other payments by any of the Company's
subsidiaries.
Cash flow generated from continuing operations, excluding changes in
operating assets and liabilities that result from timing issues and considering
only adjustments for non-cash charges, was approximately $89.1 million for the
year ended December 31, 1997 compared to approximately $62.2 million for the
year ended December 31, 1996. In 1997, the Company was required to make interest
payments of approximately $120.6 million on outstanding debt obligations,
whereas in 1996, the Company was required under its then existing debt
obligations to make interest payments of approximately $103.8 million. This
increase was primarily attributable to increased debt incurred by the Company in
connection with the Acquisitions.
Future minimum lease payments under all capital leases and
non-cancelable operating leases for each of the years 1998 through 2001 are $5.9
million (of which $680,000 is payable to a principal stockholder), $5.9 million
(of which $714,000 is payable to a principal stockholder), $5.5 million (of
which $750,000 is payable to a principal stockholder) and $3.8 million (of which
$788,000 is payable to a principal stockholder), respectively.
The Company has net operating loss carry forwards which it expects to
utilize notwithstanding recent losses. The net operating losses begin to
expire in the year 2000 and will fully expire in 2012. The Company believes
the net operating losses should start to be used in the year 2000 and should
be fully utilized before they expire. The Company believes that commencing in
2000 it will begin generating taxable income as a result of increased
revenues, the anticipated elections of slower tax depreciation methods and
anticipated declines in amortization deductions. See Note 18 of the Company's
Consolidated Financial Statements for the minimum amounts of taxable income
required each year for the Company to fully utilize its net operating losses
for such year until such losses expire.
In November 1994, Mr. Lenfest and TCI International, Inc. jointly and
severally guaranteed $67.0 million in program license obligations of the
distributor of Australis' movie programming. As of March 31, 1998, the Company
believes the guarantee under the license agreements was approximately $42.9
million. The Company has agreed to indemnify Mr. Lenfest against loss from such
guaranty to the fullest extent permitted under the Company's debt obligations.
Under the terms of the Bank Credit Facility, however, Mr. Lenfest's claims for
indemnification are limited to $33.5 million. Effective March 6, 1997, as
subsequently amended, Mr. Lenfest released the parent Company and its cable
operating subsidiaries from their indemnity obligation until the last to occur
of January 1, 1999 and the last day of any fiscal quarter during which the
Company could incur the indemnity obligation without violating the terms of the
Bank Credit Facility. Certain of the Company's non-cable subsidiaries have
agreed to indemnify Mr. Lenfest for his obligations under the guarantee. As a
result, the Company will remain indirectly liable under the non-cable
subsidiaries' indemnity.
On May 5, 1998, the Trustee for the holders of Australis' bond
indebtedness appointed receivers in order to wind up the affairs of Australis.
Subsequent thereto, Australis' assets have been liquidated and it has ceased to
conduct business. Australis will not make payments to the movie partnership for
film product thereby denying that partnership funds with which to pay the movie
studios whose license payments are guaranteed by Mr. Lenfest and TCI
International, Inc. However, the Company believes that the movie partnership has
entered into back-up arrangements with Foxtel, the partnership of News
Corporation and Telstra, to purchase movies from the partnership at
approximately the same price and under the same minimum guarantee arrangements
that the partnership had with Australis. Because of this arrangement, the
Company believes that payments will continue to be made by the partnership
pursuant to its license agreements with the movie studios. Consequently, the
Company believes that Mr. Lenfest's guarantee will not be called, and so the
Company's non-cable subsidiaries will not be required to pay any amounts to Mr.
Lenfest pursuant to the indemnification.
Capital Expenditures. During 1998, the Company expects to make
approximately $100 million of capital expenditures, of which approximately $90.0
million will be spent for capital expenditures for its Core Cable Television
Operations. These capital expenditures will be for the upgrading of certain of
its cable television systems, including wide deployment of fiber optics,
maintenance including plant extensions, installations, and other fixed assets as
well as other capital projects associated with implementing the Company's
32
<PAGE>
clustering strategy. The amount of such capital expenditures for years
subsequent to 1998 will depend on numerous factors, many of which are beyond the
Company's control, including responding to competition and increasing capacity
to handle new product offerings in affected cable television systems. The
Company anticipates that capital expenditures for years subsequent to 1998 will
continue to be significant.
Resources. Management believes that the Company has sufficient funds
available from operating cash flow and from borrowing capacity under the Bank
Credit Facility to fund its operations, capital expenditure plans and debt
service throughout 1998. However, the Company's ability to borrow funds under
the Bank Credit Facility requires that the Company be in compliance with
certain financial ratios at specified levels or obtain the consent of the
lenders thereunder to a waiver or amendment of the applicable financial
ratios. Management believes that the Company will be in compliance with such
financial ratios.
Year 2000 Issue. The Year 2000 Issue is the result of computer programs
being written using two digits rather than four to define the applicable year.
Certain of the Company's and supporting vendors' computer programs and other
electronic equipment have date-sensitive software which may recognize "00" as
the year 1900 rather than the year 2000 (the "Year 2000 Issue"). If this
situation occurs, the potential exists for computer system failure or
miscalculations by computer programs, which could cause disruption of
operations.
The Company is in the process of identifying the computer systems that
will require modification or replacement so that all of the Company's systems
will properly utilize dates beyond December 31, 1999. The Company has initiated
communications with most of its significant software suppliers to determine
their plans for remediating the Year 2000 Issue in their software which the
Company uses or relies upon. The Company has retained a consultant to review its
systems, to identify which systems are in need of remediation and to prepare a
remediation report. The Company expects to receive the consultant's report and
to have identified all systems in need of remediation not later than September
30, 1998. As it identifies systems in need of remediation, the Company will
develop and implement appropriate remediation measures. The Company expects to
complete the remediation processes for all of its operations not later than the
end of the third quarter of 1999. However, there can be no guarantee that the
systems of other companies on which the Company relies will be converted on a
timely basis, or that a failure to convert by another company would not have
material adverse effect on the Company.
Inflation
The net impact of inflation on operations has not been material in the
last three years due to the relatively low rates of inflation during this
period. If the rate of inflation increases the Company may increase customer
rates to keep pace with the increase in inflation, although there may be timing
delays.
33
<PAGE>
BUSINESS
General
Lenfest Communications, Inc. ("Lenfest" or the "Company") is
principally engaged in the development and operation of cable television systems
primarily through its subsidiaries which operate under the name of Suburban
Cable ("Suburban Cable"). Other subsidiaries hold the Company's investments in
other cable television system operating companies, media entities and companies
providing services to cable television system operating companies.
At March 31, 1998, the Company's wholly owned and operated cable
television systems (the "Core Cable Television Operations") served approximately
1,000,100 basic customers and passed approximately 1,391,500 homes. At March 31,
1998, the Company also held equity interests in other cable television entities
serving approximately 445,300 basic customers, of which approximately 347,690
were in areas contiguous to the Core Cable Television Operations. The Company's
attributable portion in such other cable television entities is approximately
184,300 basic customers, giving the Company a combined domestic base of
approximately 1,184,400 basic customers.
The Company's Core Cable Television Operations are located primarily in
the suburban areas surrounding Philadelphia (Eastern Pennsylvania, Southern New
Jersey and Northern Delaware) in predominantly middle and upper-middle income
areas that in recent years have had favorable household growth and income
characteristics. Management believes the "clustering" of its cable television
systems and the favorable demographics of its service area have contributed to
its high operating cash flow growth and margins. From January 1, 1993 through
March 31, 1998, the Company's Core Cable Television Operations have experienced
an average Adjusted EBITDA margin of 50.3%. (Adjusted EBITDA and Adjusted EBITDA
margin are defined in the footnotes to the table under the caption "Summary
Consolidation Financial and Operating Data".)
H. F. (Gerry) Lenfest, President and Chief Executive Officer of the
Company, together with his children, and Tele-Communications, Inc. ("TCI"),
through LMC Lenfest, Inc., an indirect wholly owned subsidiary, each
beneficially owns 50% of the Company's outstanding common stock. Mr. Lenfest is
a cable industry pioneer who founded the Company in 1974 and has grown the
Company both internally and through acquisitions. The Company believes that its
affiliation with TCI provides substantial benefits, including the ability to
purchase programming and equipment at rates approximating those available to
TCI. See "Business -- Relationship with TCI" and "-- Programming and Equipment
Supply."
Mr. Lenfest and LMC Lenfest, Inc. have an agreement that provides,
together with the amended and restated Certificate of Incorporation of the
Company, that Mr. Lenfest has the right to designate a majority of the Board of
Directors of the Company until January 1, 2002. During such period, vacancies in
respect of the directors designated by Mr. Lenfest are to be filled by designees
of Mr. Lenfest or in the event of Mr. Lenfest's death, of The Lenfest
Foundation. Thereafter, the Lenfest Family ("H.F. (Gerry) Lenfest, Marguerite
Lenfest, their issue, and The Lenfest Foundation") and LMC Lenfest, Inc. will
have the right to appoint an equal number of members of the Company's Board of
Directors. This right will continue for so long as any member of the Lenfest
Family owns any stock in the Company.
Operating Strategy
Management believes that the Company has significant growth potential
in the continued business of providing analog television programming services,
as well as in the business of providing new services such as Internet access,
digital video and audio programming services, video-on-demand, paging and other
data services. As a base for achieving that growth, the Company has implemented
the following:
o Field Operations: The Company's operations are clustered in one
extended market area, with Field Operations management divided into
four regions of approximate equal size (i.e., 250,000 customers
each). Management of these regions provides individualized focus on
the day-to-day
34
<PAGE>
requirements of the operations, including plant maintenance,
installations of new customers and service and repair functions.
Across all four regions the Company standardized scheduling of
installations and repairs, the hours of operation and all related
work procedures. The customer, therefore, sees a consistent and
superior level of service, regardless of the region.
o Customer Management (i.e., Billing) System: In 1997 the Company
effected the conversion to one common Customer Management System
platform (CBIS - Cincinnati Bell Information Systems) from the
previous five separate systems. That standardized platform now
allows fulfillment of work order scheduling, sales, service and
repair and billing inquiries from any location for the entire
cluster. This state-of-the-art Customer Management System will also
be the platform for support of new products, such as paging and
Internet.
o Customer Service: In May, 1997, the Company opened a Customer
Satisfaction Center ("Call Center") in New Castle County, Delaware.
At that time, the Call Center served as the source for inbound
telephone customer service for one system of 100,000 customers. As
planned, the Company proceeded to migrate the inbound telephone
customer service for additional systems to that Call Center through
the balance of the year. By year end 1997, approximately 55% of the
Company's customer base was supported out of that location. By the
end of 1998, the Company expects the entire customer base to be
supported from that location. The Company intends to use the Call
Center to provide billing, sales and service for cable television
and new products. Among other customer service initiatives, the
Company has implemented same day, evening and weekend installation
and repair appointment options.
o Marketing and Advertising Sales: The concentration of a significant
sized customer base in one cluster affords the Company enhanced
benefits in both marketing and the sale of advertising. The Company
utilizes the local market media (television, radio and print) to
reach a wide audience in an efficient manner given the match of the
Company's coverage area to the local media market. As the size of
the Company's cluster has grown, there has been no appreciable
increase in costs required to purchase those mass media.
Overview Of Core Cable Television Operations
Development Of The Systems
The Company has grown since its founding in 1974 both through the
internal growth of its owned and operated cable television systems and through
acquisitions. Through its acquisitions, the Company has successfully developed a
substantial cluster of contiguous cable operating systems, which comprise the
Company's Core Cable Television Operations. This single cluster is located in
areas surrounding Philadelphia, all of which are no more than a two hour drive
from the corporate offices of Suburban Cable TV Co. Inc. ("Suburban") in Oaks,
Pennsylvania, which is approximately 20 miles northwest of Philadelphia.
35
<PAGE>
Technical Overview and Upgrade Strategy
The Company utilizes a combination of coaxial and fiber optic cables to
distribute a wide range of programming and other broadband services to its
customers. As of March 31, 1998, approximately 95% of the Company's cable
television systems had the capacity to carry a minimum of 52 analog channels,
and approximately 28% had the capacity to carry a minimum of 78 analog channels.
The Company has commenced an upgrade of its cable television systems to
increase the channel capacity, improve the system reliability and provide the
capability for carrying enhanced, interactive two-way services such
36
<PAGE>
as video-on-demand and Internet access. The Company recently has revised its
plant upgrade strategy to begin accelerating the wide deployment of fiber optic
cable throughout all of its cable television systems to create segmented service
areas with between 500 and 2,000 homes in each area, followed by the activation
of two-way return amplifiers in each of the segmented nodes. This strategy
(using the already installed coaxial network infrastructure) will allow the
Company to accelerate delivery of two-way interactive services. The planned
fiber deployment will improve the reliability of the network by reducing the
number of amplification devices. The Company will continue to target selected
areas for upgrade to 750MHz (110 analog channel capacity), based on local
demographics, program carriage requirements and existing franchise commitments.
The Company's upgrade strategy also includes the introduction of second
generation digital set-top devices, and it has entered into a supplier agreement
for delivery commencing in 1998. These digital set-top devices will have the
capability to receive a minimum of 12 digitally compressed channels of
programming transmitted across one analog channel on the cable network. This 12
to 1 compression ratio will provide the capability to significantly increase the
number of programming services across the existing network by replacing one
current analog service (such as pay-per-view programming) with 12 new channels
of programming. Using digital compression, the Company will be able to increase
capacity to 100 channels, or more, depending on the number of analog channels
utilized on the existing cable network.
Rates And Ancillary Revenue Sources
Lenfest's cable television systems typically offer four levels of
programming services: basic; cable programming service ("CPS"); premium
services; and pay-per-view. As of March 31, 1998, the basic service package
consisted of local off-air broadcast channels, and public service/access
channels. The monthly rate charged for the basic service package ranged from
$8.69 to $14.95. The CPS package consisted of satellite-delivered networks such
as ESPN, MTV, CNN, The Discovery Channel and USA Network. The monthly rate for
the CPS package ranged from $11.42 to $19.46. Rates for basic and CPS services
and customer equipment and installation are currently subject to governmental
regulation. See "Legislation and Regulation."
The Company also offers premium services, which include HBO, Cinemax,
The Movie Channel, Showtime, The Disney Channel and STARZ. As of March 31, 1998,
the monthly charge for each of these services, priced individually, ranged from
$8.95 to $11.95. Rates for premium services and pay-per-view services are
currently exempt from governmental regulation. See "Legislation and Regulation."
Lenfest's systems typically offer four channels of pay-per-view
services which include feature movies, special events and adult programming. As
of March 31, 1998, prices for movies and adult programming ranged from $1.95 to
$6.95. Special event prices vary considerably based upon the type of event.
Pay-per-view revenues have increased in the last three years as a result of
expanded channel offerings and the growth in the number of customers having
addressable cable television converters.
In addition to customer fees, ancillary sources of revenue for cable
television system operators include the sale of advertising time on locally
originated and satellite-delivered programming, as well as home shopping sales
commissions. All of the Company's systems are involved in local advertising
sales and offer one or both of the leading shop-at-home services, QVC and Home
Shopping Network ("HSN"), as part of the basic programming package. Lenfest
receives commissions from both QVC and HSN based on orders placed by Lenfest
customers.
Lenfest also receives revenue from the rental of converter boxes and
remote controls and from installation fees. All such revenues are regulated by
the 1992 Cable Act. See "Legislation and Regulation."
Programming And Equipment Supply
Through an agreement with Satellite Services, Inc. (a wholly owned
subsidiary of TCI), the Company is able to purchase a majority of its
programming services at rates closely approximating those paid by TCI, although
the Company retains the option to purchase programming from other parties.
Management believes that these rates are significantly lower than the Company
could obtain independently. Programming is the Company's largest single expense
item, accounting for 24.2% of total operating expense during 1997. The four
cable television operators in which the Company has an equity interest (Garden
State Cablevision L.P., Susquehanna Cable Co., Clearview Partners and Raystay
Co.) also obtain a significant amount of their programming pursuant to this
agreement.
37
<PAGE>
In addition, the Company has been placed on the "approved list" of
major equipment vendors to receive the same discounts on equipment purchases as
are received by TCI. There can be no assurance that the Company will continue to
be eligible to receive these equipment discounts in the future.
Franchises
As of March 31, 1998, the Company held 350 cable television franchises.
These franchises are all non-exclusive and provide for the payment of fees to
the issuing authority, usually local governments. The Cable Communications
Policy Act of 1984 (the "1984 Cable Act") prohibits franchising authorities from
imposing annual franchise fees in excess of 5% of the gross revenues
attributable to customers located in the franchise area and also permits the
cable television system operator to seek renegotiation and modification of
franchise requirements if warranted by changed circumstances. For the three
years ended December 31, 1997, and the three-month period ended March 31, 1998
franchise fee payments made by the Company have averaged approximately 3.4% and
3.24%, respectively, of gross cable television revenues.
The 1984 Cable Act provides for an orderly franchise renewal process,
and it establishes comprehensive renewal procedures which require that an
incumbent franchisee's renewal application be assessed on its own merit and not
as part of a comparative process with competing applications. A franchising
authority may not unreasonably withhold the renewal of a franchise. If a
franchise renewal is denied and the system is acquired by the franchise
authority or a third party, then the franchise authority or other purchaser must
pay the operator the "fair market value" for the system covered by the
franchise. See "Legislation and Regulation."
The Company has never had a franchise revoked, and management believes
that its franchise relationships are good.
Unrestricted Cable Television Systems
In addition to its Core Cable Television Operations, at March 31, 1998,
Lenfest held investments in four cable television system entities. Lenfest holds
a 50% equity interest in Garden State Cablevision L.P. ("Garden State"); a 30%
equity interest in the cable subsidiaries of Susquehanna Cable Co. ("SCC"); a
45% equity interest in Raystay Co. ("Raystay"); and a 30% equity interest in
Clearview Partners ("Clearview"). As of March 31, 1998, these entities operated
cable television systems serving approximately 445,300 basic customers, of which
approximately 347,690 were in areas contiguous to the Core Cable Television
Operations. As a result of Lenfest's investment in these companies, the
companies participate in Lenfest's programming purchasing relationship with
Satellite Services, Inc. See "--Programming and Equipment Supply."
Garden State serves the Cherry Hill, New Jersey area.
38
<PAGE>
SCC has systems in York and Williamsport, Pennsylvania as well as
smaller systems in Maine, Mississippi, Illinois and Indiana. Beginning May 28,
1998, each of Lenfest and Susquehanna Media Co. (the owner of the balance of the
equity interest in SCC and its cable subsidiaries) may offer to purchase all of
the shares of stock of SCC and its cable subsidiaries owned by the other. If the
recipient of the offer rejects the offer, the recipient is then obligated to
purchase all of the shares of stock of the person who made the offer on the same
terms and conditions as were contained in the initial offer. Lenfest has pledged
its stock in SCC and in the SCC cable subsidiaries as collateral for obligations
incurred by Susquehanna Media Co.
Raystay owns and operates cable television systems in Pennsylvania.
Beginning July 30, 1998, upon a change of control which results in the Company
controlling Raystay, the stockholders of Raystay have the right to cause the
Company to purchase their shares at the then fair market value of the shares,
determined without discount for lack of marketability or minority interest,
subject to certain conditions. In addition, effective September 30, 2002 either
the Company or the other stockholders of Raystay may offer to purchase all of
the other's shares of stock. If the recipient of the offer rejects the offer,
the recipient is then obligated to purchase all the shares of stock of the other
party(ies) on the same terms and conditions as were contained in the initial
offer.
Clearview owns and operates cable television systems in Pennsylvania
and Maryland.
Unrestricted Non-Cable Investments
Lenfest Advertising, Inc. (d/b/a Radius Communications)
Lenfest Advertising, Inc. purchased the Philadelphia area assets of
Cable AdNet Partners, an indirect subsidiary of TCI in February, 1996. In
October 1996, after Lenfest Advertising acquired Metrobase Cable Advertising
from Harron Communications for $4.5 million, it began doing business under the
name of Radius Communications ("Radius").
Effective January 1, 1997, Radius, through its subsidiary, Lenfest
Philadelphia Interconnect, Inc., entered into a partnership with Comcast
Philadelphia Interconnect Partner for the purpose of representing regional and
national cable advertising sales in the Greater Philadelphia market. Under the
agreement, the percentage interests of the partners is determined on the basis
of the number of customers of the partners in the designated market area at the
beginning of the year. For 1997, the Company's partnership interest was 72%. The
partners have equal
39
<PAGE>
representation on the Executive Committee, and the Company will be the managing
partner of the partnership for its first two years. At March 31, 1998, Radius
provided local cable advertising sales and insertion for the Company and sixteen
other cable television system operators with approximately 1.8 million
customers, of which approximately 750,000 were customers of the Company.
StarNet, Inc.
StarNet, Inc. offers program promotion for basic, premium and
pay-per-view cable television through its "NuStar" service.
NuStar delivers and inserts fully tagged promotional spots for
programming into 25 cable television networks. Each spot targets specific viewer
groups and includes time specific information, channel numbers and system logos.
Up to 65 different programs are promoted monthly through NuStar. The spots are
delivered by NuStar through its satellite transponder to proprietary equipment
in cable system headends. NuStar launched its service in 1989, and as of March
31, 1998, served cable television systems having 23 million customers. In
December 1996, StarNet converted its service to Digicipher II delivery on a KU
Band transponder and relaunched the NuStar service as Customized NuStar and
Classic NuStar. Customized NuStar provides individual MSOs with their own
satellite feed in order to insert promotional spots of their own choosing.
In September 1996, StarNet formed a joint venture with Prevue Networks,
Inc. ("Prevue") in which each entity contributed assets consisting of all of
their pay-per-view promotional services. For its contribution of The Barker(R)
assets, StarNet received a 28% equity interest in the new venture, called Sneak
Prevue LLC. Prevue contributed all of its Sneak Prevue assets and received 72%
of the equity. The joint venture is managed and operated by Prevue. The joint
venture currently serves 33 million cable television customers using both The
Barker(R) and Sneak Prevue delivery systems.
Lenfest MCN, Inc.
As of October 31, 1997, Lenfest MCN, Inc. (formerly MicroNet, Inc.) and
Lenfest MCN Delmarva Associates, LP (formerly MicroNet Delmarva Associates, LP,
and together with Lenfest MCN, Inc., "Lenfest MCN"), each a wholly-owned
subsidiary of the Company, sold substantially all of their assets related to
their video, voice and data transmission businesses, and Suburban Cable, Lenfest
Atlantic, Inc. and Lenfest New Castle County sold certain of their towers. The
purchase price was approximately $70.3 million, subject to adjustments. The
Company repaid all of the bank debt ($7.0 million) owed by Lenfest MCN and used
approximately $45 million to repay amounts owed under the Bank Credit Facility
(as defined below). The Company used the balance for working capital purposes.
Effective with the three-month period ended June 30, 1997, MicroNet is
accounted for as discontinued operations. The revenues and expenses of Lenfest
MCN are not included with the consolidated revenues and expenses of the Company,
but are reflected as income (loss) from discontinued operations. The prior
period financial statements included herein have been restated to reflect the
continuing operations of the Company.
Lenfest International, Inc.
The Company and TCI each are partners in L-TCI Associates, a
partnership which held, as of March 31, 1998, a 29.0% interest in Videopole, a
French cable television company serving rural areas of France and suburbs of
Paris. As of March 31, 1998, Videopole held franchises in areas with nearly
547,000 homes, had built cable television systems passing approximately 317,000
homes, and served approximately 113,000 customers. Videopole is controlled by
Synergie Developpement et Services which is a wholly owned subsidiary of
D'Electricite De France, the French state-owned electric company.
40
<PAGE>
As of March 31, 1998, the Company's indirect interest in Videopole was
23.2% and TCI's indirect interest was 5.8%.
Lenfest Australia, Inc.
At March 31, 1998, the Company owned securities representing a 13.6%
voting interest and a 41.5% economic interest in Australis Media Limited
("Australis"), a publicly held Australian pay television company. The Company
had acquired its interest in Australis through a series of investments totaling
$131.0 million. In the fourth quarter of 1997, the Company wrote off the
remaining balance of its investment in Australis, approximately $12.0 million.
On May 5, 1998, the Trustee for the holders of Australis' bond indebtedness
appointed receivers in order to wind up the affairs of Australis. Subsequent
thereto, Australis' assets have been liquidated and it has ceased to conduct
business.
In November 1994, Mr. Lenfest and TCI International, Inc. jointly and
severally guaranteed $67.0 million in program license obligations of the
distributor of Australis' movie programming. As of March 31, 1998, the Company
believes the guarantee under the license agreements was approximately $42.9
million. The Company has agreed to indemnify Mr. Lenfest against loss from such
guaranty to the fullest extent permitted under the Company's debt obligations.
Under the terms of the Bank Credit Facility, however, Mr. Lenfest's claims for
indemnification are limited to $33.5 million. Effective March 6, 1997, as
subsequently amended, Mr. Lenfest released the parent Company and its cable
operating subsidiaries from their indemnity obligation until the last to occur
of January 1, 1999 and the last day of any fiscal quarter during which the
Company could incur the indemnity obligation without violating the terms of the
Bank Credit Facility. Certain of the Company's non-cable subsidiaries have
agreed to indemnify Mr. Lenfest for his obligations under the guarantee. As a
result, the Company will remain indirectly liable under the non-cable
subsidiaries' indemnity. Australis will not make payments to the movie
partnership for film product thereby denying that partnership funds with which
to pay the movie studios whose license payments are guaranteed by Mr. Lenfest
and TCI International, Inc. However, the Company believes that the movie
partnership has entered into back up arrangements with Foxtel, the partnership
of News Corporation and Telstra, to purchase movies from the partnership at
approximately the same price and under the same minimum guarantee arrangements
that the partnership had with Australis. Because of this arrangement, the
Company believes that payments will continue to be made by the partnership
pursuant to its license agreements with the movie studios. Consequently, the
Company believes that Mr. Lenfest's guarantee will not be called, and so the
Company's non-cable subsidiaries will not be required to pay any amounts to Mr.
Lenfest pursuant to the indemnification.
Properties
The Company's principal physical assets consist of cable television
operating plant and equipment, including signal receiving, encoding and decoding
devices, headends and distribution systems and customer drop equipment for each
of its cable television systems. The Company's cable distribution plant and
related equipment generally are attached to utility poles under pole rental
agreements with local public utilities and telephone companies, and in certain
locations are buried in underground ducts or trenches.
The Company owns or leases real property for signal receptions sites
and business offices in many of the communities served by its systems and for
its principal operating offices. See "Certain Transactions." On March 21,
41
<PAGE>
1996, Suburban entered into a lease for office space at 200 Cresson Boulevard,
Oaks, PA. The Company has moved administrative operations to this single
location. The office has approximately 57,000 square feet, which management
believes is adequate. In 1997, the Company, through one of its non-cable
subsidiaries, purchased land adjacent to its Oaks, PA office location where it
expects to build a master head-end facility. Since February 1996, the Company
has been leasing a portion of a building located at 4008 North DuPont Highway in
New Castle, Delaware for its cable operations. On April 15, 1997, the Company
and the landlord amended the lease to include the remainder of the building
which contains a total of approximately 80,800 square feet. The Call Center is
located in this facility and eventually will utilize the entire building after
remodeling is completed and the portion of the building used in the cable
operations is relocated to other space. Management believes that its properties
are in good operating condition and are suitable and adequate for the Company's
business operations.
H.F. Lenfest is negotiating with Suburban and Radius with respect to
the purchase by Suburban and Radius of three office and warehouse facilities
from H.F. and Marguerite Lenfest for an aggregate purchase price of $6 million.
These facilities currently are leased from H.F. and Marguerite Lenfest. The
purchase price was determined as a result of an independent appraisal. If the
transaction is finalized, the Company expects closing to take place during 1998.
Competition
Cable systems compete to varying degrees with a number of other
communications and entertainment media for customers. These media include, but
are not limited to movie theaters and movie store rentals, Internet service,
sporting events, and the direct reception of broadcast signals by the viewer's
own antenna. Congress has enacted legislation and the FCC has adopted regulatory
policies providing a more favorable operating environment for new and existing
technologies that provide, or have the potential to provide, substantial
competition to cable systems.
Cable communications systems operate pursuant to franchises granted on
a non-exclusive basis. The 1992 Cable Act prohibits franchising authorities from
unreasonably denying requests for additional franchises and permits franchising
authorities to operate cable systems. Well-financed businesses from outside the
cable industry (such as public utilities that own certain of the poles to which
cable is attached) may become competitors for franchises or providers of
competing services. The possibility of additional hardwire competition from
companies like Bell Atlantic, RCN, Connectiv, or PECO exists, but due to the
level of effort required to build and develop a hardwired video distribution
service, the Company estimates any significant threat from these entities to be
several years away. See "Legislation and Regulation."
42
<PAGE>
Other services compete directly with cable television by offering
similar video services. Currently, the most significant competition faced by the
Company is in providing service to commercial or multiple dwelling units (MDUs).
Competitors focus on MDUs because they can access a number of customers with one
contract thereby producing economies of scale.
Private satellite master antenna television (SMATV), direct broadcast
systems (DBS), and Multi-channel Multipoint Distribution systems (MMDS) are the
three types of companies that offer direct competitive services.
Cable operators face competition from SMATV systems that serve
condominiums, apartment and office complexes and private residential
developments. SMATV systems offer both reception of local television stations
and many of the same satellite-delivered programming services offered by
franchised cable communications systems. SMATV operators often enter into
exclusive agreements with building owners or homeowners' associations. These
services currently cannot offer non-broadcast local programming.
Cable systems also compete with wireless program distribution services
such as MMDS which use low-power microwave frequencies to transmit video
programming over-the-air to subscribers. There are two MMDS operators which are
authorized to provide or are providing broadcast and satellite programming to
subscribers in areas served by the Company's cable systems, CAI Wireless and
Orionvision. Neither uses digital technology and each offers fewer channels,
albeit at a lower price, than are currently available through Suburban Cable.
The customer is required to have an antenna installed on his house and needs a
converter box to translate the signals. CAI Wireless currently has about 9,500
customers in Suburban Cable's service areas, all within a 35 mile radius of
CAI's tower in Philadelphia. Orionvision currently has 5,000 customers within a
30 mile radius of its tower in Corbin City, New Jersey. About 60% of
Orionvision's customer base falls within Suburban Cable's New Jersey franchise
areas. Additionally, the FCC has adopted regulations allocating frequencies in
the 28-Ghz band for a new multichannel wireless video service called Local
Multipoint Distribution Service ("LMDS") that is similar to MMDS. The FCC
conducted spectrum auctions for LMDS licenses in February and March 1998.
43
<PAGE>
Cable systems also compete with services called DBS whereby signals are
transmitted by satellite to receiving facilities located on customer premises.
Programming is currently available to individual households, condominiums,
apartment and office complexes through medium and high-power satellites. DBS
providers can offer more than 100 channels to their subscribers. Several major
companies are offering or are currently developing nationwide DBS services,
including DirecTV, EchoStar Communications Corporation and Primestar (an
affiliate of TCI). DBS systems use video compression technology to increase the
channel capacity of their systems to provide movies, broadcast stations and
other program services comparable to those of cable systems. Digital satellite
service ("DSS") offered by DBS systems currently has certain advantages over
cable systems with respect to programming capacity and digital quality, as well
as certain current disadvantages that include high up-front customer equipment
and installation costs and a lack of local programming and service. The FCC and
Congress are presently considering proposals to enhance the ability of DBS
providers to gain access to additional programming and to authorize DBS carriers
to transmit local signals to local markets. If DBS gains permission to deliver
local signals, it would have a significant competitive advantage over cable
systems.
DBS offers sports and movie packages to its customers that Suburban
Cable cannot currently offer due to technical and regulatory constraints. Higher
DBS penetrations are achieved in the rural areas where fewer customers can get
connected to cable at a reasonable cost.
DirecTV/USSB is now making concerted efforts to provide service to a
number of Suburban Cable's commercial/bulk accounts. Additionally, Bell Atlantic
has recently signed an agreement with DirecTV to sell DirecTV/USSB services to
residential customers as well as commercial/MDU accounts, in certain of its
operating areas. Bell Atlantic has not yet announced where it will sell
DirecTV/USSB services.
Advances in communications technology as well as changes in the
marketplace and the regulatory and legislative environment are constantly
occurring. Thus, it is not possible to predict the effect that ongoing or future
developments might have on the cable communications industry or on the
operations of the Company.
Legal Proceedings
On January 20, 1995, Mr. Albert Hadid filed suit in the Federal Court
of Australia, New South Wales District Registry, against Australis see
"--Non-Cable Investments", the Company and several other entities and
individuals including H. F. Lenfest (the "Defendants"), involved in the
acquisition of a company of which Mr. Hadid was the controlling shareholder, the
assets of which included the right to acquire License B from the Australian
government. Mr. Hadid alleged that the Company and Mr. Lenfest breached
fiduciary duties that they owed to him and claimed damages of A$220 million. In
August 1995, Mr. Hadid amended the suit to include allegations that the
Defendants defrauded him by making certain representations to him in connection
with the acquisition of his company and to claim total damages of A$718 million
(approximately U.S.$467 million as of March 31, 1998). The Defendants have
denied all claims made against them by Mr. Hadid and stated their belief that
Mr. Hadid's allegations are without merit. They are defending this action
vigorously.
The trial in this action began on February 2, 1998 and is expected to
last until sometime in the third quarter of 1998. As of the date hereof, Mr.
Hadid and other witnesses testifying on his behalf have completed their
testimony and cross examination. The Defendants have begun the presentation of
their case. While the Company continues to deny all of Mr. Hadid's claims, it
cannot predict the outcome of the trial.
Employees
As of March 31, 1998, the Company had 1,646 full-time employees, of
which 175 employees were covered by collective bargaining agreements at three
locations.
As of March 31, 1998, the Company's Core Cable Television Operations
had 1,093 full-time employees, of which 175 employees were covered by collective
bargaining agreements at three locations.
The Company considers its relations with its current employees to be
good.
44
<PAGE>
LEGISLATION AND REGULATION
The cable television industry is regulated by the FCC, some state
governments and substantially all local governments. In addition, various
legislative and regulatory proposals under consideration from time to time by
Congress and various federal agencies may in the future materially affect the
cable television industry. The following is a summary of significant federal
laws and regulations affecting the growth and operation of the cable television
industry and a description of certain state and local laws.
Federal Statutory Law
Existing Laws
The Cable Communications Policy Act of 1984 ("1984 Cable Act") became
effective on December 29, 1984. This federal statute, which amended the
Communications Act of 1934 (the "Communications Act"), creates uniform national
standards and guidelines for the regulation of cable television systems. On
October 5, 1992, Congress enacted the Cable Television Consumer Protection and
Competition Act of 1992 ("1992 Cable Act"). This legislation amended the 1984
Cable Act in many respects and has significantly changed the regulatory
environment in which the cable industry operates. The 1992 Cable Act allows for
a greater degree of regulation of the cable television industry with respect to,
among other things: (i) cable television system rates for both basic and certain
nonbasic services; (ii) programming access and exclusivity arrangements; (iii)
access to cable channels by unaffiliated programming services; (iv) leased
access terms and conditions; (v) horizontal and vertical ownership of cable
television systems; (vi) customer service requirements; (vii) franchise
renewals; (viii) television broadcast signal carriage and retransmission
consent; (ix) technical standards; (x) customer privacy; (xi) consumer
protection issues; (xii) cable equipment compatibility; (xiii) obscene or
indecent programming; and (xiv) requiring subscribers to subscribe to tiers of
service other than basic service as a condition of purchasing premium services.
Additionally, the 1992 Cable Act encourages competition with existing cable
television systems by: allowing municipalities to own and operate their own
cable television systems without having to obtain a franchise; preventing
franchising authorities from granting exclusive franchises or unreasonably
refusing to award additional franchises covering an existing cable television
system's service area; and prohibiting, with certain exceptions, the common
ownership of cable television systems and co-located MMDS or SMATV systems. The
1992 Cable Act also precludes cable operators affiliated with video programmers
from favoring such programmers in determining carriage on their cable systems or
unreasonably restricting the sale of their programming to other multichannel
video distributors.
The 1996 Act significantly alters the federal, state and local
regulatory structure. As it pertains to cable television, the 1996 Act, among
other things, (i) deregulates rates for nonbasic cable service in 1999; (ii)
deregulates basic and nonbasic rates with respect to cable operators that face
video competition from LECs by expanding the definition of "effective
competition," the existence of which displaces rate regulation; (iii) eliminates
the restriction against the ownership and operation of cable systems by
telephone companies within their local exchange service areas; and (iv)
liberalizes certain of the FCC's cross-ownership restrictions.
Federal Regulation
The FCC, the principal federal regulatory agency with jurisdiction over
the cable television industry, has promulgated regulations covering a number of
subject matter areas. The FCC has the authority to enforce these regulations
through the imposition of substantial fines, the issuance of cease and desist
orders and/or the imposition of other administrative sanctions, such as the
revocation of FCC licenses needed to operate certain transmission facilities
often used in connection with cable operations. A brief summary of the most
significant of these federal regulations as adopted to date follows.
Rate Regulation
The 1984 Cable Act codified existing FCC preemption of rate regulation
for premium channels and optional nonbasic program tiers. The 1984 Cable Act
also deregulated basic cable rates for cable television systems determined by
the FCC to be subject to "effective competition." The 1992 Cable Act replaced
the FCC's old standard for determining "effective competition," under which most
cable television systems were exempt from local rate regulation, with a
statutory provision that subjected nearly all cable television systems to local
rate regulation of basic service. The 1996 Act expands the definition of
"effective competition" to cover situations
45
<PAGE>
where a local telephone company or its affiliate, or any multichannel video
provider using telephone company facilities, offers comparable video service by
any means except DBS. Regulation of both basic and nonbasic tier cable rates
ceases for any cable system subject to "effective competition."
Additionally, the 1992 Cable Act authorized the FCC to adopt a formula,
for franchising authorities to enforce, to ensure that basic cable rates are
reasonable; allowed the FCC to review rates for nonbasic service tiers (other
than per-channel or per-program services) in response to complaints filed by
franchising authorities and/or cable customers; prohibited cable television
systems from requiring subscribers to purchase service tiers above basic service
in order to purchase premium services if the system is technically capable of
doing so; required the FCC to adopt regulations to establish, on the basis of
actual costs, the price for installation of cable service, remote controls,
converter boxes and additional outlets; and allows the FCC to impose
restrictions on the retiering and rearrangement of cable services under certain
limited circumstances.
The FCC has adopted rules designed to implement these rate regulation
provisions. The FCC's regulations contain standards for the regulation of basic
and nonbasic cable service rates (other than per-channel or per-program
services). The rate regulations adopt a benchmark price cap system for measuring
the reasonableness of existing basic and nonbasic service rates, and a formula
for evaluating future rate increases. Alternatively, cable operators have the
opportunity to make cost-of-service showings which, in some cases, may justify
rates above the applicable benchmarks. The rules also require that charges for
cable-related equipment (e.g., converter boxes and remote control devices) and
installation services be unbundled from the provision of cable service and based
upon actual costs plus a reasonable profit. The charges for equipment and
installation services must be recalculated annually and adjusted accordingly.
The 1996 Act eliminates regulation of rates for CPS packages for all
cable operators as of March 31, 1999. In the interim, regulation of rates for
CPS packages can only be triggered if a franchising authority complaint based on
more than one subscriber complaint is made with the FCC within 180 days after a
rate increase. These 1996 Act provisions should materially alter the
applicability of FCC rate regulations adopted under the 1992 Cable Act.
In addition, the 1996 Act relaxes the uniform rate requirements of the
1992 Cable Act, which required an operator of cable television systems to have a
uniform rate structure for the provision of cable services throughout the
geographic area in which the operator provides cable service. Specifically, the
new legislation clarifies that the uniform rate provision does not apply where
an operator of a cable television system faces "effective competition." In
addition, bulk discounts to multiple dwelling units are exempted from the
uniform rate requirements. However, complaints may be made to the FCC against
operators of cable television systems not subject to effective competition for
"predatory" pricing (including with respect to bulk discounts to multiple
dwelling units). The 1996 Act also permits operators of cable television systems
to aggregate, on a franchise, system, regional or company level, its equipment
costs in broad categories. The 1996 Act is expected to facilitate the
rationalization of equipment rates across jurisdictional boundaries. However,
these cost-aggregation rules do not apply to the limited equipment used by
subscribers who only receive basic service.
Local franchising authorities and/or the FCC are empowered to order a
reduction of existing rates which exceed the maximum permitted level for either
basic and/or nonbasic cable services and associated equipment, and refunds can
be required. In general, the current regulations require an aggregate reduction
of as much as 17 percent, adjusted forward for inflation, from the rates in
effect as of September 30, 1992. The regulations also provide that future rate
increases may not exceed an inflation-indexed amount, plus increases in certain
costs beyond the cable operator's control, such as taxes, franchise fees and
programming costs. This can be done by an annual pass-through mechanism under
which cable operators can increase rates based on actual and anticipated cost
increases for the coming year. Cost-based adjustments to these capped rates also
can be made in the event a cable operator adds or deletes channels. There is
also a procedure under which cable operators can file abbreviated cost of
service showings for system rebuilds and upgrades, the result of which would be
a permitted increase in regulated rates to allow recovery of those costs. In
addition, new product tiers consisting of services new to the cable television
system can be created free of rate regulation as long as certain conditions are
met such as not moving services from existing tiers to the new tier.
In March 1997, the FCC provided operators of cable television systems
with the option of establishing uniform rates for similar service packages
offered in multiple franchise areas located in the same region. Under the FCC's
former rules, operators of cable television systems subject to rate regulation
were always required to establish
46
<PAGE>
rates on a franchise-specific basis. The new rules could lower operators'
marketing costs and also allow operators to respond better to competition from
alternative providers.
Carriage Of Broadcast Television Signals
The 1992 Cable Act allows commercial television broadcast stations
which are "local" to a cable television system to elect every three years either
(i) to require the cable television system to carry the station, subject to
certain exceptions (known as the "must carry" requirement), or (ii) to deny the
cable television system the right to carry the station without the station's
express consent (known as "re-transmission consent"). The next election between
must-carry and retransmission consent will be October 1, 1999. Local
non-commercial television stations are also given mandatory carriage rights,
subject to certain exceptions, but are not given the option to negotiate
retransmission consent for the carriage of their signal. In addition, cable
television systems must obtain retransmission consent for the carriage of all
"distant" commercial broadcast stations, except for certain "superstations",
i.e., commercial satellite-delivered independent stations such as WGN.
The FCC is currently conducting a rulemaking proceeding regarding the
carriage responsibilities of cable television systems during the transition of
broadcast television from analog to digial transmission. Specifically, the FCC
is exploring whether to amend the signal carriage rules to accommodate the
carriage of digital broadcast television signals.
Deletion Of Certain Programming
Cable television systems that have 1,000 or more customers must, upon
the appropriate request of a local television station, delete the simultaneous
or nonsimultaneous network programming of a distant station when such
programming has also been contracted for by the local station on an exclusive
basis. FCC regulations also enable television stations that have obtained
exclusive distribution rights for syndicated programming in their market to
require a cable television system to delete or "black out" such programming from
other television stations which are carried by the cable television system.
Renewal Of Franchises
The 1984 Cable Act established renewal procedures and criteria designed
to protect incumbent franchisees against arbitrary denials of renewal. While
these formal procedures are not mandatory unless timely invoked by either the
cable operator or the franchising authority, they can provide substantial
protection to incumbent franchisees. Notwithstanding the renewal process,
franchising authorities and cable operators remain free to negotiate a renewal
outside the formal process. Nevertheless, renewal is by no means assured, as the
franchisee must meet certain statutory standards if the formal renewal
procedures are invoked. Even if a franchise is renewed, a franchising authority
may impose new and more onerous requirements such as upgrading facilities and
equipment, although the municipality must take into account the cost of meeting
such requirements.
The 1992 Cable Act makes several changes to the process under which a
cable operator seeks to enforce his renewal rights which could make it easier in
some cases for a franchising authority to deny renewal. Franchising authorities
may consider the "level" of programming service provided by a cable operator in
deciding whether to renew. For alleged franchise violations occurring after
December 29, 1984, franchising authorities are no longer precluded from denying
renewal based on failure to substantially comply with the material terms of the
franchise where the franchising authority has "effectively acquiesced" to such
past violations. Rather, the franchising authority is estopped if, after giving
the cable operator notice and opportunity to cure, it fails to respond to a
written notice from the cable television operator of its failure or inability to
cure. Courts may not reverse a denial of renewal based on procedural violations
found to be "harmless error."
Channel Set-Asides
The 1984 Cable Act permits local franchising authorities to require
cable operators to set aside certain channels for public, educational and
governmental access programming. The 1984 Cable Act further requires cable
television systems with thirty-six or more activated channels to designate a
portion of their channel capacity for commercial leased access by unaffiliated
third parties. The 1992 Cable Act required the FCC to establish a formula for
determining maximum reasonable rates. In February 1997, the FCC revised its
leased access rate formula so as to produce lower rates. The Company does not
believe this action will have any material effect on its Core Cable Television
Operations.
47
<PAGE>
Ownership
The 1996 Act repealed the statutory ban against local exchange
telephone companies ("LECs") from providing video programming directly to
customers within their local exchange telephone service areas, except in rural
areas or by specific waiver of FCC rules. Consequently, the 1996 Act permits
telephone companies to compete directly with operators of cable television
systems. Under the 1996 Act and FCC rules recently adopted to implement the 1996
Act, LECs may provide video service as broadcasters, common carriers, or cable
operators or LECs and others may also provide video service through "open video
systems" ("OVS"), a regulatory regime that may give them more flexibility than
traditional cable systems. OVS operators (including LECs) may operate "open
video systems" without obtaining a local cable franchise, although they can be
required to make payments to local governmental bodies in lieu of cable
franchise fees. In general, OVS operators must make their systems available to
programming providers on rates, terms and conditions that are reasonable and
nondiscriminatory. Where carriage demand by programming providers exceeds the
channel capacity of an open video system, two-thirds of the channels must be
made available to programmers unaffiliated with the OVS operator.
The 1996 Act generally prohibits buyouts of cable television systems
(including any ownership interest of such systems exceeding 10%) by LECs within
an LEC's telephone service area, buyouts by operators of cable television
systems of LEC systems within a cable operator's franchise area, and joint
ventures between operators of cable television systems and LECs in the same
markets. There are some statutory exceptions, including a rural exemption that
permits buyouts in which the purchased system serves a non-urban area with fewer
than 35,000 inhabitants. Also, the FCC may grant waivers of the buyout
provisions in cases where (i) the operator of a cable television system or the
LEC would be subject to undue economic distress if such provisions were
enforced, (ii) the system or facilities would not be economically viable in the
absence of a buyout or a joint venture or (iii) the anticompetitive effects of
the proposed transaction are clearly outweighed by the transaction's effect in
light of community needs. The respective local franchising authority must
approve any such waiver.
The 1996 Act also authorizes registered utility holding companies and
their subsidiaries to provide video programming services, notwithstanding the
Public Utility Holding Company Act. In order to take advantage of the new
legislation, public utilities must establish separate subsidiaries through which
to operate any cable operations. Such utility companies must also apply to the
FCC for operating authority.
The 1996 Act eliminated the FCC rule prohibiting common ownership
between a cable system and a national broadcast television network. The 1996 Act
also eliminated the statutory ban covering certain common ownership interests,
operation or control between a television station and cable system within the
station's Grade B signal coverage area. However, the parallel FCC rule against
cable/television station cross-ownership remains in place, subject to review by
the FCC every two years. The FCC has recently begun an inquiry regarding this
rule and various other ownership restrictions. Finally, the 1992 Cable Act
prohibits common ownership, control or interest in cable television systems and
MMDS facilities or satellite master antenna television ("SMATV") systems having
overlapping service areas, except in limited circumstances. The 1996 Act exempts
cable systems facing "effective competition" from the MMDS and SMATV
cross-ownership restrictions.
Pursuant to the 1992 Cable Act, the FCC has adopted rules which, with
certain exceptions, preclude a cable television system from devoting more than
40% of its first 75 activated channels to national video programming services in
which the cable system owner has an attributable interest. The FCC also has set
a limit of 30% of total nationwide cable homes that can be served by any
multiple cable system operator. The FCC has stayed the effectiveness of this
ruling pending the outcome of its appeal from the U.S. District Court decision
holding the multiple ownership limit provision of the 1992 Cable Act
unconstitutional.
Equal Employment Opportunity
The 1984 Cable Act includes provisions to ensure that minorities and
women are provided equal employment opportunities within the cable television
industry. The statute requires the FCC to adopt reporting and certification
rules that apply to all cable television system operators with more than five
full-time employees. Pursuant to the requirements of the 1992 Cable Act, the FCC
has imposed more detailed annual Equal Employment Opportunity ("EEO") reporting
requirements on cable operators and has expanded those requirements to all
multichannel video service distributors. Failure to comply with the EEO
requirements can result in the imposition of fines and/or other administrative
sanctions, or may, in certain circumstances, be cited by a franchising authority
as a reason for denying a franchisee's renewal request.
48
<PAGE>
Franchise Transfers
The 1992 Cable Act requires franchising authorities to act on any
franchise transfer request within 120 days after receipt of all information
required by FCC regulations and by the franchising authority. Approval is deemed
to be granted if the franchising authority fails to act within such period
unless an extension of time has been agreed to.
Technical Requirements
The FCC has imposed technical standards applicable to all channels on
which downstream video programming is carried, and has prohibited franchising
authorities from adopting standards which are in conflict with or more
restrictive than those established by the FCC. Local franchising authorities are
permitted to enforce the FCC's new technical standards. In order to prevent
harmful interference with aeronautical navigation and safety radio services, the
FCC also has adopted additional standards applicable to cable television systems
using frequencies in the 108-137 MHz and 225-400 MHz bands and established
limits on cable television system signal leakage. Periodic testing by cable
operators for compliance with these technical standards and signal leakage
limits is required.
The FCC has adopted regulations to implement the requirements of the
1992 Cable Act designed to improve the compatibility of cable television systems
and consumer electronics equipment. These regulations, inter alia, generally
prohibit cable operators from scrambling their basic service tier and from
changing the infrared codes used in their existing customer premises equipment.
Under the 1996 Act, local franchising authorities may not prohibit, condition or
restrict a cable system's use of any type of subscriber equipment or
transmission technology.
FCC Implementation of the 1996 Act
The FCC has a proceeding pending to implement most of the cable-related
reform provisions of the 1996 Act. In this proceeding, the FCC has adopted
certain interim rules to govern cable operators while the agency completes its
implementation of the cable-related reform provisions of the 1996 Act. Among
other things, the FCC is requiring on an interim basis that for an LEC to
constitute "effective competition" to cable operators, the LEC's programming
must include the signals of local broadcasters. Cable television systems may
file a petition with the FCC at any time for a determination as to whether they
are subject to "effective competition" and thus exempt from rate regulation.
Depending on the outcome of the FCC proceeding, several of the Company's systems
in the Philadelphia area may become deregulated.
The FCC has also adopted interim rules governing the filing of rate
complaints regarding nonbasic cable service by local franchising authorities.
Local franchising authorities may file rate complaints with the FCC when the
local franchising authorities receive more than one customer complaint
concerning a cable operator's rate increase within 90 days of the date such
increase becomes effective. If the local franchising authority receives more
than one such customer complaint and decides to file its own complaint with the
FCC, it must do so within 180 days of the date the rate increase becomes
effective. Before filing a complaint with the FCC, the local franchising
authority must first provide the operator of the cable system written notice of
its intent to do so and must give the operator a minimum of 30 days to file the
relevant FCC forms used to justify a rate increase with the local franchising
authority. The local franchising authority must then forward its complaint and
the operator's response to the FCC within the 180 day deadline. The FCC must
issue a final order within 90 days of the date it receives a local franchising
authority complaint.
Other Matters
FCC regulation also includes matters regarding a cable television
system's carriage of local sports programming; franchise fees; pole attachments;
home wiring; closed captioning; indecent programming; customer service; rules
applicable to origination cablecasts; rules governing political programming;
sponsorship identification; lottery information; and limitations on advertising
contained in children's programming.
49
<PAGE>
Copyright
Cable television systems are subject to federal copyright licensing
covering carriage of broadcast signals. In exchange for making semi-annual
payments to a federal copyright royalty pool and meeting certain other
obligations, cable operators obtain a statutory license to retransmit broadcast
signals. The amount of this royalty payment varies, depending on the amount of
system revenues from certain sources, the number of distant signals carried, and
the location of the cable television system with respect to over-the-air
television stations. Cable operators are liable for interest on underpaid and
unpaid royalty fees, but are not entitled to collect interest on refunds
received for overpayment of copyright fees.
Copyrighted music performed in programming supplied to cable television
systems by pay cable networks (such as HBO) and basic cable networks (such as
USA Network) is licensed by the networks through private agreements with the
American Society of Composers and Publishers ("ASCAP") and BMI, Inc. ("BMI"),
the two major performing rights organizations in the United States. As a result
of extensive litigation, both ASCAP and BMI now offer "through to the viewer"
licenses to the cable networks which cover the retransmission of the cable
networks' programming by cable systems to their customers.
Copyrighted music performed in programming originated by cable systems
themselves on local channels or in advertisements inserted locally on cable
networks must also be licensed. Cable industry negotiations with ASCAP, BMI and
SESAC, Inc. (a smaller performing rights organization) are in progress over the
terms of such licenses.
State And Local Regulation
Because a cable television system uses local streets and rights-of-way,
cable television systems are subject to state and local regulation, typically
imposed through the franchising process. State and/or local officials are
usually involved in franchise selection, system design and construction, safety,
service rates, consumer relations, billing practices and community related
programming and services.
Cable television systems generally are operated pursuant to
nonexclusive franchises, permits or licenses granted by a municipality or other
state or local government entity. Franchises generally are granted for fixed
terms and in many cases are terminable if the franchise operator fails to comply
with material provisions. Although the 1984 Cable Act provides for certain
procedural protections, there can be no assurance that renewals will be granted
or that renewals will be made on similar terms and conditions. Franchises
usually call for the payment of fees (which are limited to 5% of the system's
gross subscriber revenues under the 1992 Cable Act) to the granting authority.
Upon receipt of a franchise, the cable television system owner usually is
subject to a broad range of obligations to the issuing authority directly
affecting the business of the system. Franchises generally contain provisions
governing fees to be paid to the franchising authority, length of the franchise
term, renewal, sale or transfer of the franchise, territory of the franchise,
design and technical performance of the system, use and occupancy of public
streets and number and types of cable services provided. The terms and
conditions of franchises vary materially from jurisdiction to jurisdiction, and
even from city to city within the same state, historically ranging from
reasonable to highly restrictive or burdensome.
The 1992 Cable Act prohibits exclusive franchises, and allows
franchising authorities to exercise greater control over the operation of
franchised cable television systems than the 1984 Cable Act did, especially in
the area of customer service and rate regulation. The 1992 Cable Act also allows
franchising authorities to operate their own multichannel video distribution
system without having to obtain a franchise and permits states or local
franchising authorities to adopt certain restrictions on the ownership of cable
television systems. Moreover, franchising authorities are immunized from
monetary damage awards arising from regulation of cable television systems or
decisions made on franchise grants, renewals, transfers and amendments.
Various proposals have been introduced at the state and local levels
with regard to the regulation of cable television systems, and a number of
states have adopted legislation subjecting cable television systems to the
jurisdiction of centralized state governmental agencies, some of which impose
regulation of a character similar to that of a public utility.
The foregoing does not purport to describe all present and proposed
federal, state and local regulations and
50
<PAGE>
legislation relating to the cable television industry. Other existing federal
regulations, copyright licensing and, in many jurisdictions, state and local
franchise requirements, currently are the subject of a variety of judicial
proceedings, legislative hearings and administrative and legislative proposals
which could change, in varying degrees, the manner in which cable television
systems operate. Neither the outcome of these proceedings nor their impact upon
the cable television industry can be predicted at this time.
51
<PAGE>
MANAGEMENT
Directors And Executive Officers
The directors and executive officers of the Company are as set forth
below:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
H. F. Lenfest................... 68 President, CEO and Director
H. Chase Lenfest................ 34 Director
Brook J. Lenfest................ 29 Director
John C. Malone, Ph.D............ 57 Director
Leo J. Hindery, Jr.............. 50 Director
Harry F. Brooks................. 61 Executive Vice President, Assistant Secretary
Samuel W. Morris, Jr., Esq...... 55 Vice President-General Counsel and Secretary
Maryann V. Bryla................ 32 Treasurer, Vice President-Finance, Assistant Secretary
Donald L. Heller................ 52 Vice President
</TABLE>
H. F. Lenfest is the founder, a Director and President and Chief
Executive Officer of the Company, the sole director of each of the Company's
subsidiaries and the President of each of the subsidiaries other than Lenfest
Programming and TeleSTAR Marketing, Inc. Mr. Lenfest's principal occupation
since 1974 has been serving as the President and CEO of the Company and its
subsidiaries. Mr. Lenfest is currently a director of TelVue Corporation.
H. Chase Lenfest has served as a Director of the Company since December
1997 and is Director of Local Sales of Tri-State Media, Inc., a subsidiary of
the Company. From January 1996 to January 1997, he was the Regional Photo
Classified Manager of Lenfest Programming, Inc. He was employed by TelVue
Corporation from February 1994 until January 1996. From March 1988 to January
1994, he was a stockbroker with Wheat First Butcher & Singer. He is the son of
H. F. Lenfest and the nephew of Harry F. Brooks.
Brook J. Lenfest has served as a Director of the Company since December
1997 and is Vice President and Director of Operations for the Company's StarNet,
Inc. subsidiary. He has been an officer of StarNet, Inc. since January 1995.
Prior to assuming his current position, he was Vice President-Business
Development, Director of Communications and Product Manager for StarNet, Inc.
From 1993 to 1994, he was Marketing Manager for the Company's South Jersey
Cablevision (now Lenfest Atlantic, Inc.) subsidiary. Prior to 1993 he held
various positions at Garden State Cablevision. He is the son of H. F. Lenfest
and the nephew of Harry F. Brooks.
John C. Malone has served as a Director of the Company since January
1982 other than for a brief period in 1997. Dr. Malone has served as the Chief
Executive Officer of TCI since January 1994, and as Chairman of the Board of TCI
since November 1996. Dr. Malone served as President of TCI from January 1994 to
March 1997, as Chief Executive Officer of TCI Communications, Inc., a subsidiary
of TCI ("TCIC"), from March 1992 to October 1994 and as President of TCIC from
1973 to October 1994. Dr. Malone is also a director of TCI, TCIC,
Tele-Communications International, Inc. ("International"), TCI Pacific
Communications, Inc. ("TCI Pacific"), TCI Satellite Entertainment, Inc., BET
Holdings, Inc., The At Home Corporation and The Bank of New York.
Leo J. Hindery, Jr. has served as a Director of the Company since May
22, 1998. Mr. Hindery has served as President and Chief Operating Officer for
TCI since May 1997. Mr. Hindery has served as President and Chief Executive
Officer of TCIC since March 1997 and has served as President and Chief Executive
Officer of TCI Pacific since September 1997. Mr. Hindery has served as a
director of TCIC since March 1997, has served as a director of TCI Pacific since
52
<PAGE>
September 1997, and has served as Chairman of the Board and a director of TCI
Music, Inc., a subsidiary of TCI since January 1997. Mr. Hindery was appointed
as director of International in April 1998. In addition, Mr. Hindery is
President, Chief Executive Officer and/or a director of many of the Company's
subsidiaries. Mr. Hindery was previously founder, Managing General Partner and
Chief Executive Officer of InterMedia partners, a cable TV operator, and its
affiliated entities from 1988 to March 1997. Mr. Hindery is a director of United
Video Satellite Group, Inc. and @Home Corporation, both of which are
consolidated subsidiaries of TCI. Mr. Hindery is also a director of TCI
Satellite Entertainment, Inc. and Cablevision Systems Corporation.
Harry F. Brooks is Executive Vice President and Assistant Secretary of
the Company. He has been Executive Vice President since 1991 and a Vice
President since 1983. Mr. Brooks is also Vice President/Assistant
Treasurer/Assistant Secretary of each of the Company's subsidiaries other than
TeleSTAR (where he is Treasurer and Assistant Secretary), Lenfest Raystay
Holdings, Inc. (where he is Vice President and Assistant Secretary) and Lenfest
Atlantic, Inc. Mr. Brooks is the brother-in-law of H.F. Lenfest and the uncle of
Chase Lenfest and Brook Lenfest.
Samuel W. Morris, Jr. has been Vice President-General Counsel of the
Company since November 1993 and Secretary since December 17, 1997. Prior to
assuming his current position, he was a founding partner in the law firm of
Hoyle, Morris & Kerr, where he remains Of Counsel. Mr. Morris is also Vice
President-General Counsel and Secretary of each of the Company's subsidiaries.
Maryann V. Bryla has been Vice President/Finance of the Company since
March 1997, Assistant Secretary since January 1998 and Treasurer since April
1998. Prior to that, Ms. Bryla was Assistant Vice President of Finance of the
Company since November 1996 and Director of Investor Relations since June 1996.
From March 1993 to June 1996, Ms. Bryla was a lending officer in the
Telecommunication and Media Lending Division of PNC Bank, N.A. From September
1988 to February 1993, she was an Assistant Treasurer and Manager in the North
America Corporate Finance Syndications Division at The Chase Manhattan Bank. Ms.
Bryla is also Assistant Secretary of Lenfest Clearview, Inc. and StarNet, Inc.
and Treasurer of Suburban.
Donald L. Heller has been a Vice President of the Company since March
1993. Prior to assuming his current position, Mr. Heller was, from June 1984 to
January 1993, the Vice President and General Manager of Sportschannel Prism
Associates, a regional cable television service which provided movies and
professional sports. Mr. Heller is also Vice President of Lenfest International,
Inc. and Lenfest Australia, Inc. He is currently a director of TelVue
Corporation.
All directors serve until the next annual meeting of stockholders and
until their successors have been elected and have qualified. All executive
officers serve at the discretion of the Board of Directors. The directors of the
Company receive no compensation in their capacity as directors.
Other Principal Employees
Debra A. Krzywicki has been an Executive Vice President of Suburban
since January 1, 1996, and a Vice President of Suburban from 1989 to December
31, 1995. She is primarily responsible for marketing, programming, customer
service, training and public relations.
Robert Lawrence has been an Executive Vice President of Suburban since
January 1996, and a Regional Vice President and General Manager of Suburban from
March 1982 to December 31, 1995. He is responsible for technical operations,
engineering, franchise relations, information systems and purchasing.
53
<PAGE>
Executive Compensation
The Company has no long-term compensation plans. The following table
sets forth certain information for the years ended December 31, 1995, 1996 and
1997 concerning cash and non-cash compensation earned by the CEO and the four
other most highly compensated executive officers of the Company whose combined
salary and bonus exceeded $100,000 during such periods.
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation
Name and All Other
Principal Position Year Salary Bonus Compensation
- ------------------- ---- ------ ----- ------------
<S> <C> <C> <C> <C>
H. F. Lenfest 1997 $ 749,996 $ --- $ 255,022(a) (b)
President and CEO 1996 1,000,000 --- 268,135(a) (b)
1995 500,000 750,000 293,218(a) (b)
Samuel W. Morris, Jr. 1997 $ 262,496 $ 25,000 $ 8,000(a)
Vice President and 1996 250,000 30,000 7,500(a)
General Counsel 1995 200,000 100,000 7,500(a)
Robert Lawrence 1997 $ 206,596 $ 20,000 $ 8,000(a)
Executive Vice President 1996 190,000 --- 7,500(a)
Suburban 1995 115,000 15,500 5,750(a)
Debra A. Krzywicki 1997 $ 189,404 $ --- $ 8,000(a)
Executive Vice President 1996 170,000 --- 7,500(a)
Suburban 1995 105,000 --- 5,250(a)
Harry F. Brooks 1997 $ 157,500 $ 42,500 $ 8,000(a)
Executive Vice President 1996 150,000 --- 7,500(a)
1995 135,000 --- 6,750(a)
</TABLE>
- ----------
(a) Matching contributions under the Company's 401(k) Plan for the individuals
in years noted. The contribution for Mr. Lenfest for the years 1997, 1996
and 1995 were $8,000, $7,500 and $7,500, respectively.
(b) Pursuant to agreements between the Company and a foundation and trusts
created by H. F. Lenfest, the foundation and the trusts have purchased
split-dollar life insurance policies on H. F. Lenfest's life and on the
joint lives of Mr. Lenfest and his wife, Marguerite Lenfest, an officer and
director of the Company. Under these agreements, the Company pays the
entire premium. The trusts and foundation are the beneficiaries of the
insurance policies. However, the Company has been granted a security
interest in the death benefits of each policy equal to the sum of all
premium payments made by the Company. These arrangements are designed so
that if the assumptions made as to mortality experience, policy dividends
and expenses are realized, the Company, upon the deaths of Mr. and Mrs.
Lenfest or the surrender of the policies, will recover all of its insurance
premium payments. The premiums paid by the Company in 1997, 1996 and 1995
pursuant to these arrangements were $346,043, $346,043 and $325,471,
respectively. The amounts in this column include the present value of such
premium payments using an imputed interest rate, such present value
calculated based upon Mr. and Mrs. Lenfest's remaining life expectancy,
which totaled $247,022, $260,635 and $232,985 in 1997, 1996 and 1995,
respectively. In addition, in 1995, Mr. Lenfest received $52,733 of
additional compensation, of which $50,213 consisted of the payment by the
Company of expenses incurred by Mr. Lenfest in connection with personal
investments.
Compensation Committee Interlocks And Insider Participation
The Company has no compensation committee. H. F. Lenfest has
participated in the past, and is expected to continue to participate, in the
deliberations of the Board of Directors concerning executive compensation.
54
<PAGE>
CERTAIN TRANSACTIONS
The Company is a party to an agreement with Satellite Services, Inc.
("SSI"), a wholly owned subsidiary of TCI, the indirect parent of LMC Lenfest,
Inc., a 50% stockholder of the Company and an affiliate of Dr. Malone, a
director of the Company, pursuant to which SSI provides certain cable
programming to the Company at a rate fixed as a percentage in excess of the rate
available to TCI. Management believes that these rates are significantly less
than the rates that the Company could obtain independently. For the year ended
December 31, 1997 and for the three-month period ended March 31, 1998, the
Company incurred programming expenses under its agreement with SSI of
approximately $62.9 million and $17.3 million, respectively.
Garden State obtains its cable television programming from SSI through
the Company. The programming services are at a rate which is not more than
Garden State could obtain independently. For the year ended December 31, 1997
and for the three-month period ended March 31, 1998, Garden State obtained
approximately $14.7 million and $3.8 million, respectively, of programming
through the Company.
The Company, through StarNet, Inc., sells cross channel tune-in
promotional services for cable television to affiliates of TCI. For the year
ended December 31, 1997 and for the three-month period ended March 31, 1998, the
Company generated revenues of $1.9 million and $0.2 million, respectively, for
such services.
Through October 31, 1997, the Company rented four office and warehouse
spaces from H. F. Lenfest and Marguerite Lenfest. Thereafter, the Company
rented, and continues to rent, three. For the year ended December 31, 1997 and
for the three-month period ended March 31, 1998, the Company paid the Lenfests
an aggregate of $647,000 and $165,000, respectively, under such leases. Rental
payments are on terms that are no less favorable than those the Company could
obtain from independent parties. H.F. Lenfest is negotiating with Suburban Cable
and Radius with respect to the purchase by Suburban Cable and Radius of three
facilities from H.F. Lenfest and Marguerite Lenfest for an aggregate purchase
price of $6 million. The purchase price was determined as a result of an
independent appraisal. If the transaction is finalized the Company expects
closing to take place during 1998.
For the year ended December 31, 1997 and the three months ended March
31, 1998, the Company incurred pay-per-view order placement fees to TelVue
Corporation, an affiliate of H. F. Lenfest, $470,000 and $100,000, respectively.
In November 1994, H.F. Lenfest and TCI International, Inc. jointly and
severally guaranteed $67.0 million in program license obligations of the
distributor of Australis' movie programming. At March 31, 1998, the amount
subject to the guarantee under the license agreements was approximately $42.9
million.
The Company had agreed to indemnify H.F. Lenfest against loss from such
guaranty to the fullest extent permitted under the Company's debt obligations.
Under the terms of the Bank Credit Facility, however, Mr. Lenfest's claims for
indemnification are limited to $33.5 million. Effective March 6, 1997, as
subsequently amended, Mr. Lenfest released the parent Company and its cable
operating subsidiaries from their indemnity obligation until the last to occur
of January 1, 1999 and the last day of any fiscal quarter during which the
Company could incur the indemnity obligation without violating the terms of the
Bank Credit Facility. Certain of the Company's Unrestricted Subsidiaries have
agreed to indemnify Mr. Lenfest for his obligations under the guarantee. On May
5, 1998, the Trustee for the holders of Australis' bond indebtedness appointed
receivers in order to wind up the affairs of Australis. Consequently, it is
probable that Australis will not continue to make payments to the movie
partnership for film product thereby denying that partnership funds with which
to pay the movie studios whose license payments are guaranteed by Mr. Lenfest
and TCI International, Inc. However, the Company believes that the movie
partnership has entered into back-up arrangements with Foxtel, the partnership
of News Corporation and Telstra, to purchase movies from the partnership at
approximately the same price and under the same minimum guarantee arrangements
that the partnership had with Australis. Because of this arrangement, the
Company believes that payments will continue to be made by the partnership
pursuant to its license agreements with the movie studios. Consequently, the
Company believes that Mr. Lenfest's guarantee will not be called, and the
Company will not be required to pay any amounts to Mr. Lenfest pursuant to the
indemnification.
55
<PAGE>
The Company has agreed to pay the legal expenses of H. F. Lenfest and
Marguerite Lenfest related to the pending SEC Matter against them. H. F. Lenfest
and Marguerite Lenfest have agreed to repay such expenses if it is subsequently
determined that the Company is not permitted to make such payments under
Delaware corporate law. The Company has paid $672,650 in legal expenses for H.F.
Lenfest and Marguerite Lenfest relating to this matter through March 31, 1998.
See "Risk Factors -- Litigation."
The Company paid the legal expenses of Harry Brooks related to the
federal criminal action against him as disclosed in the Company's Report on Form
10-K for the year ended December 31, 1996. The Company also paid Mr. Brooks
$49,550 which enabled him to pay the $25,000 fine levied against him in such
action and to pay the costs of his work release and home confinement program.
The Company paid $221,250 in legal expenses for Mr. Brooks relating to this
matter.
Dr. Malone, a director of the Company, is a director of The Bank of New
York, which is the Trustee under the Indentures for the Company's Senior Notes
and Subordinated Notes.
For the years ended December 31, 1995 and 1996 Cable AdNet Partners, an
affiliate of TCI and Dr. Malone, paid Suburban, approximately $2.6 million and
$193,000, respectively, for Suburban's share of advertising revenue under a
certain advertising agreement.
In February 1996, the Company completed the exchange of its cable
television systems in the East San Francisco Bay Area, a 41.67% partnership
interest in Bay Cable Advertising, and the right to acquire a certain other
cable television system for TCI's Wilmington, Delaware area cable television
system for a net aggregate price of $45.6 million. In connection with this the
Company also acquired certain of the assets of Cable AdNet Partners located in
the Wilmington, Delaware area for approximately $1.1 million.
In February 1996, Mr. Lenfest guaranteed the full payment and
performance of a credit facility which the Company's unrestricted subsidiary,
Lenfest Australia, had put in place to provide for its guarantee of $75.0
million of a $125.0 million Australis short term borrowing. This obligation was
terminated in October 1996.
In January 1995, Mr. Lenfest advanced $10.0 million to the Company in
connection with the investment by the Company's subsidiary, Lenfest Jersey,
Inc., in Garden State. This loan was repaid in April 1995.
56
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of March 31, 1998, certain
information with respect to the Common Stock beneficially owned by each
director, all officers and directors of the Company as a group, and each person
known to the Company to own beneficially more than 5% of such Common Stock.
Unless otherwise noted, the individuals have sole voting and investment power.
<TABLE>
<CAPTION>
Shares of Percent of
Name and Address Common Stock Common Stock
- ---------------- ------------ ------------
<S> <C> <C>
H. F. Lenfest, Director (a)(b)(c)(d)(g) 79,448 50.0%
John C. Malone, Director (e)(f) 79,448 50.0%
Brook J. Lenfest (a)(c)(d)(g) 14,862 9.4%
H. Chase Lenfest (a)(c)(d)(g) 14,862 9.4%
Diane A. Lenfest (a)(c)(g) 14,862 9.4%
LMC Lenfest, Inc. (c)(f)(h) 79,448 50.0%
(an indirect wholly owned subsidiary of TCI)
All officers and directors as a 158,896 100.0%
group (9 persons)
</TABLE>
- ----------
(a) Such person's address is c/o The Lenfest Group, 200 Cresson Boulevard,
Oaks, PA 19456.
(b) Includes 14,862 and 14,862 shares owned by Brook J. Lenfest and H. Chase
Lenfest which are held in trusts established by each of them, and 14,862
shares owned by Diane A. Lenfest, respectively, all of whom are children of
Mr. Lenfest. See Notes (d) and (g) below.
(c) H. F. Lenfest and LMC Lenfest, Inc. have an agreement that provides,
together with the amended and restated Certificate of Incorporation of the
Company, that Mr. Lenfest has the right to designate a majority of the
Board of Directors until January 1, 2002. During such period, vacancies in
respect of the directors designated by Mr. Lenfest shall be filled by
designees of Mr. Lenfest or, in the event of Mr. Lenfest's death, of The
Lenfest Foundation. Thereafter, the Lenfest Family and LMC Lenfest, Inc.
will have the right to appoint an equal number of members of the Company's
Board of Directors. This right will continue for so long as any member of
the Lenfest Family owns any stock in the Company. Pursuant to a separate
agreement, each of H. F. Lenfest, Brook J. Lenfest, H. Chase Lenfest and
Diane A. Lenfest (the "Lenfest Shareholders") have granted to LMC Lenfest,
Inc. a right of first refusal with respect to their shares of stock in the
Company and LMC Lenfest, Inc. has granted a right of first refusal to the
Lenfest Shareholders with respect to its shares of stock in the Company.
(d) Each of Mr. Lenfest, Brook J. Lenfest and H. Chase Lenfest hold their
34,862 shares, 14,862 shares and 14,862 shares, respectively, in trusts
established by each of them, each of which is terminable at will.
(e) Dr. Malone's address is c/o Terrace Tower II, 5619 DTC Parkway, Englewood,
CO 80111.
(f) Includes 79,448 shares owned by LMC Lenfest, Inc., of which Dr. Malone is
an affiliate. Dr. Malone disclaims beneficial ownership of these shares.
(g) Each of Brook J. Lenfest, H. Chase Lenfest and Diane A. Lenfest has given
to H. F. Lenfest an irrevocable proxy granting him the power (until March
30, 2000) to vote their shares for the election of directors. H. F. Lenfest
disclaims beneficial ownership of these shares.
(h) LMC Lenfest, Inc.'s address is 8101 East Pacific Avenue, Suite 500,
Englewood, CO 80111.
57
<PAGE>
DESCRIPTION OF OTHER DEBT OBLIGATIONS
8-3/8% Senior Notes Due 2005
In November 1995, the Company publicly issued $700 million of 8-3/8%
Senior Notes due 2005 (the "8-3/8% Senior Notes"). The 8-3/8% Senior Notes
mature on November 1, 2005. As of March 31, 1998, there was $687.4 million
principal amount of the 8-3/8% Senior Notes outstanding. The 8-3/8% Senior Notes
were issued pursuant to an indenture containing covenants and other provisions
substantially similar to the Indenture governing the Senior Notes.
10-1/2% Senior Subordinated Notes Due 2006
In September 6, 1996, the Company publicly issued $300 million of
10-1/2% Senior Subordinated Notes due 2006 (the "10-1/2% Senior Subordinated
Notes"). The 10-1/2% Senior Subordinated Notes mature on June 15, 2006. As of
March 31, 1998, there was approximately $293.9 million principal amount of the
10-1/2% Senior Subordinated Notes outstanding. The 10-1/2% Senior Subordinated
Notes were issued pursuant to an indenture containing covenants and other
provisions substantially similar to the Indenture governing the Senior
Subordinated Notes.
Bank Credit Facility
On August 4, 1998 the Company amended and restated its existing bank
credit facility pursuant to the Bank Credit Facility. The Bank Credit
Facility establishes unsecured revolving credit facility commitments under
which the Company may borrow up to $300 million, which can be increased to
$550 million under certain conditions. The Company intends to use the
availability under the Bank Credit Facility for operations and possibly for
future acquisitions of cable systems. The commitments under the Bank Credit
Facility expire on March 31, 2006. As of the date hereof, no amounts are
outstanding under the Bank Credit Facility.
58
<PAGE>
Loans outstanding under the Bank Credit Facility bear interest at
floating rates. The Bank Credit Facility contains customary covenants,
including restrictive covenants, which impose certain limitations on the
Company and its wholly-owned cable operating subsidiaries, including, among
other things, incurring additional indebtedness, the payment of dividends, the
repurchase of stock, the making of certain payments and purchases, the making
of acquisitions and investments, the creation of certain liens, disposing or
acquiring assets, sale-leaseback transactions, and transactions with
affiliates. The Bank Credit Facility also includes financial covenants
requiring the Company to maintain certain financial ratios at specified
levels. The Bank Credit Facility also contains customary default provisions,
including nonpayment of principal, interest, fees and other amounts when due,
violation of covenants, failure of representations and warranties to be true
and correct in all material respects when made, cross defaults and cross
acceleration to other debt obligations, bankruptcy events, unsatisfied
judgments in excess of specified amounts and change of control.
59
<PAGE>
DESCRIPTION OF NOTES
General
The Senior Exchange Notes will be issued under an indenture dated as of
February 5, 1998 (the "Senior Notes Indenture") between the Company and The Bank
of New York, as trustee (the "Trustee"). The Senior Notes Indenture authorizes
the issuance of $150 million in aggregate principal amount of the Senior
Exchange Notes. The form and terms of the Senior Exchange Notes are identical in
all material respects to the form and terms of the Old Senior Notes (except that
the Senior Exchange Notes will be registered under the Securities Act) and,
therefore, will be treated as a single class under the Senior Notes Indenture
with any Old Senior Notes that remain outstanding. Capitalized terms used in the
section "Description of Notes" which are not otherwise defined are defined in
the "- Certain Definitions" subsection. See "- Certain Definitions."
The Senior Subordinated Exchange Notes will be issued under an
indenture dated as of February 5, 1998 (the "Senior Subordinated Notes
Indenture") between the Company and the Trustee (the Senior Notes Indenture and
the Senior Subordinated Notes Indenture are sometimes collectively referred to
as the "Indentures"). The Senior Subordinated Notes Indenture authorizes the
issuance of $150 million in aggregate principal amount of the Senior
Subordinated Exchange Notes. The form and terms of the Senior Subordinated
Exchange Notes are identical in all material respects to the form and terms of
the Old Senior Subordinated Notes (except that the Senior Subordinated Exchange
Notes will be registered under the Securities Act) and, therefore, will be
treated as a single class under the Senior Subordinated Notes Indenture with any
Old Senior Subordinated Notes that remain outstanding.
The description of the Notes set forth below is separately applicable
to each of the Senior Notes and the Senior Subordinated Notes, except where
specific references are otherwise made to the Senior Notes, the Senior
Subordinated Notes or their respective Indentures. Although, for convenience,
the Senior Notes, the Senior Subordinated Notes and their respective Indentures
have been referred to below collectively as "the Notes" and as "the Indentures,"
the Senior Notes and the Senior Subordinated Notes will not together have any
class voting or other rights and the provisions of their respective Indentures
will operate independently of, and without regard to, one another.
Principal, premium (if any) and interest on the Notes will be payable
at the office or agency to be maintained by the Company, which, unless otherwise
provided by the Company, will be the offices of the Trustee. Principal, premium
(if any) and interest payments on the Notes may be paid by check. The Notes may
be presented for registration of transfer and exchange at such offices.
The terms of the Notes include those stated in the Indentures and those
made part of the Indentures by reference to the Trust Indenture Act of 1939, as
amended (the "Trust Indenture Act"), as in effect on the date of the Indentures.
The Notes are subject to all such terms, and holders of the Notes are referred
to the Indentures and the Trust Indenture Act for a statement of those terms.
The statements under this caption relating to the Notes and the Indentures are
summaries and do not purport to be complete. Such summaries may make use of
certain terms defined in the Indentures and are qualified in their entirety by
express reference to the Indentures. A copy of the proposed form of Indentures
are available upon request to the Company at the address set forth under
"Available Information."
The Notes will be issued in fully registered form only and will be
issued in denominations of $1,000 and integral multiples thereof.
Terms of the Notes
Maturity. The Notes will mature on February 15, 2008.
Interest. The Company will pay interest on the Notes on February 15 and
August 15 of each year, commencing August 15, 1998, to the persons who are
registered holders at the close of business on the February 1 and August 1
immediately preceding the interest payment date.
60
<PAGE>
Ranking
The indebtedness evidenced by the Senior Notes will be senior unsecured
obligations of the Company, will rank pari passu in right of payment with all
existing and future senior indebtedness of the Company, including the Bank
Credit Facility and the 8-3/8% Senior Notes, and will be senior in right of
payment to all existing and future subordinated indebtedness of the Company,
including the 10-1/2% Senior Subordinated Notes and the Senior Subordinated
Notes offered hereby.
The indebtedness evidenced by the Senior Subordinated Notes will be
senior subordinated, unsecured obligations of the Company. The payment of the
principal of and premium (if any) and interest on the Senior Subordinated Notes
will be subordinated in right of payment, as set forth in the Senior
Subordinated Notes Indenture, to the prior payment in full of all Senior
Indebtedness, whether outstanding on the Issue Date or thereafter incurred,
including the Company's obligations under the Bank Credit Facility, the 8-3/8%
Senior Notes and the Senior Notes offered hereby, and will be in all respects
pari passu in right of payment to all existing and future Senior Subordinated
Indebtedness.
As of March 31, 1998, the Company's Senior Indebtedness was
approximately $1,286.1 million. Although the Indentures contain limitations on
the amount of additional Indebtedness that the Company may incur, under certain
circumstances the amount of such Indebtedness could be substantial and, in any
case, such Indebtedness may be Senior Indebtedness. See "- Certain Covenants
Limitation on Indebtedness."
All the operations of the Company are conducted through its
subsidiaries. As a holding company, the Company has no operations and,
therefore, is dependent on the cash flow of its subsidiaries and other entities
to meet its own obligations, including the payment of interest and principal
obligations on the Notes when due. Claims of creditors of such subsidiaries,
including trade creditors, secured creditors and creditors holding indebtedness
and guarantees issued by such subsidiaries, and claims of preferred stockholders
(if any) of such subsidiaries, generally will have priority with respect to the
assets and earnings of such subsidiaries over the claims of creditors of the
Company, including holders of the Notes, even though such obligations will not
constitute Senior Indebtedness. The Notes, therefore, will be effectively
subordinated to creditors (including trade creditors) and preferred stockholders
(if any) of subsidiaries of the Company. At March 31, 1998, the total
liabilities of the Company's subsidiaries (including trade payables and accrued
liabilities) were approximately $154.7 million, of which approximately $1.7
million was indebtedness. Although the Indentures limit the incurrence of
Indebtedness and preferred stock of certain of the Company's subsidiaries, such
limitations are subject to a number of significant qualifications. Moreover, the
Indentures do not impose any limitation on the incurrence by such subsidiaries
of liabilities that are not considered Indebtedness under the Indentures. See
"Certain Covenants - Limitation on Indebtedness."
The Senior Subordinated Notes will in all respects rank pari passu with
all other Senior Subordinated Indebtedness of the Company. The Company has
agreed in the Senior Subordinated Notes Indenture that it will not incur,
directly or indirectly, any Indebtedness that is subordinate or junior in
ranking in right of payment to its Senior Indebtedness unless such Indebtedness
is Senior Subordinated Indebtedness or is expressly subordinated in right of
payment to Senior Subordinated Indebtedness. Unsecured Indebtedness is not
deemed to be subordinated or junior to secured Indebtedness merely because it is
unsecured.
The Company may not pay principal of, premium (if any) or interest on,
the Senior Subordinated Notes or make any deposit pursuant to the provisions
described under "Defeasance" below and may not repurchase, redeem or otherwise
retire any Senior Subordinated Notes (collectively, "pay the Senior Subordinated
Notes") if (i) any Designated Senior Indebtedness is not paid when due or (ii)
any other default on Designated Senior Indebtedness occurs and the maturity of
such Designated Senior Indebtedness is accelerated in accordance with its terms
unless, in either case, the default has been cured or waived and any such
acceleration has been rescinded or such Designated Senior Indebtedness has been
paid in full. However, the Company may pay the Senior Subordinated Notes without
regard to the foregoing if the Company and the Trustee receive written notice
approving such payment from the Representative of the Designated Senior
Indebtedness with respect to which either of the events set forth in clause (i)
or (ii) of the immediately preceding sentence has occurred and is continuing.
During the continuance of any default (other than a default described in clause
(i) or (ii) of the first sentence of this paragraph)
61
<PAGE>
with respect to any Designated Senior Indebtedness pursuant to which the
maturity thereof may be accelerated immediately without further notice (except
such notice as may be required to effect such acceleration) or the expiration of
any applicable grace periods, the Company may not pay the Senior Subordinated
Notes for a period (a "Payment Blockage Period") commencing upon the receipt by
the Trustee (with a copy to the Company) of written notice (a "Blockage Notice")
of such default from the Representative of the holders of such Designated Senior
Indebtedness specifying an election to effect a Payment Blockage Period and
ending 179 days thereafter (or earlier if such Payment Blockage Period is
terminated (i) by written notice to the Trustee and the Company from the Person
or Persons who gave such Blockage Notice, (ii) because the default giving rise
to such Blockage Notice is no longer continuing or (iii) because such Designated
Senior Indebtedness has been repaid in full). Notwithstanding the provisions
described in the immediately preceding sentence, unless the holders of such
Designated Senior Indebtedness or the Representative of such holders have
accelerated the maturity of such Designated Senior Indebtedness, the Company may
resume payments on the Senior Subordinated Notes after the end of such Payment
Blockage Period. The Senior Subordinated Notes shall not be subject to more than
one Payment Blockage Period in any consecutive 360-day period, irrespective of
the number of defaults with respect to Designated Senior Indebtedness during
such period.
Upon any payment or distribution of the assets of the Company upon a
total or partial liquidation or dissolution or reorganization of or similar
proceeding relating to the Company or its property, the holders of Senior
Indebtedness will be entitled to receive payment in full of such Senior
Indebtedness before the holders of Senior Subordinated Notes are entitled to
receive any payment, and until the Senior Indebtedness is paid in full, any
payment or distribution to which holders of Senior Subordinated Notes would be
entitled but for the subordination provisions of the Indenture will be made to
holders of such Senior Indebtedness as their interests may appear. If a
distribution is made to holders of Senior Subordinated Notes that, due to the
subordination provisions, should not have been made to them, such holders are
required to hold it in trust for the holders of Senior Indebtedness and pay it
over to them as their interests may appear.
If payment of the Senior Subordinated Notes is accelerated because of
an Event of Default, the Company or the Trustee shall promptly notify the
holders of Designated Senior Indebtedness or the Representative of such holders
of the acceleration.
By reason of the subordination provisions contained in the Senior
Subordinated Notes Indenture, in the event of insolvency, creditors of the
Company who are holders of Senior Indebtedness may recover more, ratably, than
the holders of Senior Subordinated Notes, and creditors of the Company who are
not holders of Senior Indebtedness may recover less, ratably, than holders of
Senior Indebtedness and may recover more, ratably, than the holders of Senior
Subordinated Notes.
The terms of the subordination provisions described above for the
Senior Subordinated Notes will not apply to payments from money or the proceeds
of U.S. Government Obligations held in trust by the Trustee for the payment of
principal of and interest on the Senior Subordinated Notes pursuant to the
provisions described under "- Defeasance."
Book-Entry, Delivery and Form
The Notes sold will be issued in the form of Global Notes. Each Global
Note will be deposited with, or on behalf of, the Depository and registered in
the name of the Depository or its nominee. Except as set forth below, each
Global Note may be transferred, in whole and not in part, only to the Depository
or another nominee of the Depository. Investors may hold their beneficial
interests in a Global Note directly through the Depository if they have an
account with the Depository or indirectly through organizations which have
accounts with the Depository.
The Depository has advised the Company as follows: The Depository is a
limited-purpose trust company and organized under the laws of the State of New
York, a member of the Federal Reserve System, a "clearing corporation" within
the meaning of the New York Uniform Commercial Code, and "a clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. The
Depository was created to hold securities of institutions that have accounts
with the Depository ("participants") and to facilitate the clearance and
settlement of securities transactions among its participants in such securities
through electronic book-entry changes in accounts of the participants, thereby
eliminating the need for physical movement of securities certificates. The
Depository's participants include securities brokers and dealers (which may
include the Initial Purchasers), banks, trust
62
<PAGE>
companies, clearing corporations and certain other organizations. Access to the
Depository's book-entry system is also available to others such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a participant, whether directly or indirectly.
Upon the issuance of the Global Notes, the Depository will credit, on
its book-entry registration and transfer system, the principal amount of the
Notes represented by each such Global Note to the accounts of participants. The
accounts to be credited shall be designated by the Initial Purchasers of such
Notes. Ownership of beneficial interests in the Global Notes will be limited to
participants or persons that may hold interests through participants. Ownership
of beneficial interests in the Global Notes will be shown on, and the transfer
of those ownership interests will be effected only through, records maintained
by the Depository (with respect to participants' interest) and such participants
(with respect to the owners of beneficial interests in the Global Note other
than participants). The laws of some jurisdictions may require that certain
purchasers of securities take physical delivery of such securities in definitive
form. Such limits and laws may impair the ability to transfer or pledge
beneficial interests in the Global Notes.
So long as the Depository, or its nominee, is the registered holder and
owner of the Global Notes, the Depository or such nominee, as the case may be,
will be considered the sole legal owner and holder of the related Notes for all
purposes of such Notes and the Indentures. Except as set forth below, owners of
beneficial interests in the Global Notes will not be entitled to have the Notes
represented by the Global Note registered in their names, will not receive or be
entitled to receive physical delivery of certificated Notes in definitive form
and will not be considered to be the owners or holders of any Notes under the
Global Notes. The Company understands that under existing industry practice, in
the event an owner of a beneficial interest in the Global Notes desires to take
any action that the Depository, as the holder of the Global Notes, is entitled
to take, the Depository would authorize the participants to take such action,
and that the participants would authorize beneficial owners owning through such
participants to take such action or would otherwise act upon the instructions of
beneficial owners owning through them.
Payment of principal of and premium (if any) and interest on Notes
represented by each of the Global Notes registered in the name of and held by
the Depository or its nominee will be made to the Depository or its nominee, as
the case may be, as the registered owner and holder of the Global Notes.
The Company expects that the Depository or its nominee, upon receipt of
any payment of principal of or premium (if any) or interest on the Global Notes,
will credit participants' accounts with payments in amounts proportionate to
their respective beneficial interests in the principal amount of the Global
Notes as shown on the records of the Depository or its nominee. The Company also
expects that payments by participants to owners of beneficial interests in the
Global Notes held through such participants will be governed by standing
instructions and customary practices and will be the responsibility of such
participants. The Company will not have any responsibility or liability for any
aspect of the records relating to, or payments made on account of, beneficial
ownership interests in the Global Notes for any Notes or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests or for any other aspect of the relationship between the Depository and
its participants or the relationship between such participants and the owners of
beneficial interests in the Global Notes owning through such participants.
Unless and until it is exchanged in whole or in part for certificated
Notes in definitive form, the Global Notes may not be transferred except as a
whole by the Depository to a nominee of such Depository or by a nominee of such
Depository to such Depository or another nominee of such Depository.
Although the Depository has agreed to the foregoing procedures in order
to facilitate transfers of interests in the Global Notes among participants of
the Depository, it is under no obligation to perform or continue to perform such
procedures, and such procedures may be discontinued at any time. Neither the
Trustee nor the Company will have any responsibility for the performance by the
Depository or its participants or indirect participants of their respective
obligations under the rules and procedures governing their operations.
63
<PAGE>
Certificated Notes
The Notes represented by the Global Notes are exchangeable for
certificated Notes in definitive form of like tenor as such Notes in
denominations of U.S. $1,000 and integral multiples thereof if (i) the
Depository notifies the Company that it is unwilling or unable to continue as
Depository for the Global Notes or if at any time the Depository ceases to be a
clearing agency registered under the Exchange Act, (ii) the Company in its
discretion at any time determines not to have all of the Notes represented by
the Global Notes or (iii) a default entitling the holders of the Notes to
accelerate the maturity thereof has occurred and is continuing. Any Note that is
exchangeable pursuant to the preceding sentence is exchangeable for certificated
Notes issuable in authorized denominations and registered in such names as the
Depository shall direct. Subject to the foregoing, the Global Notes are not
exchangeable, except for a Global Note of the same aggregate denomination to be
registered in the name of the Depository or its nominee. In addition, such
certificates will bear the legend referred to under "Notice to Investors"
(unless the Company determines otherwise in accordance with applicable law)
subject, with respect to such Notes, to the provisions of such legend.
Optional Redemption
The Senior Notes are not redeemable at the option of the Company prior
to maturity. The Senior Subordinated Notes are not redeemable at the option of
the Company prior to February 15, 2003. Thereafter, the Senior Subordinated
Notes are redeemable, in whole or in part, at the option of the Company on not
less than 30 nor more than 60 days' prior notice, at the following redemption
prices (expressed as percentages of principal amount) plus accrued and unpaid
interest (if any) to the redemption date (subject to the right of holders of
record on the relevant record date to receive interest due on the relevant
interest payment date), if redeemed during the 12-month period commencing on
February 15 of each of the years set forth below:
Redemption
Year Price
---- -----
2003................................................. 104.125%
2004................................................. 102.750
2005................................................. 101.375
2006 and thereafter.................................. 100.000
After any redemption date, interest will cease to accrue on the Senior
Subordinated Notes or portions thereof called for redemption unless the Company
shall fail to deposit with the Paying Agent on the redemption date the funds
necessary to redeem such Senior Subordinated Notes.
Mandatory Sinking Fund
There are no mandatory sinking fund payments for the Notes.
Change of Control Offer
Within 30 days of the occurrence of a Change of Control Triggering
Event with respect to the Notes, the Company shall notify the Trustee in writing
of such proposed occurrence and shall make an offer to purchase (the "Change of
Control Offer") the Notes at a purchase price (the "Change of Control Purchase
Price") equal to 101% of the principal amount thereof plus accrued and unpaid
interest (if any) to the Change of Control Payment Date (as defined), subject to
the right of holders of record on the relevant record date to receive interest
due on the relevant interest payment date, in accordance with the procedures set
forth in this covenant.
Within 50 days of the occurrence of a Change of Control Triggering
Event with respect to the Notes, the Company also shall (i) cause a notice of
the Change of Control Offer to be sent at least once to the Dow Jones News
Service or similar business news service in the United States and (ii) send by
first-class mail, postage prepaid, to the
64
<PAGE>
Trustee and to each registered holder of the Notes, at his address appearing in
the register of the Notes maintained by the Registrar, a notice stating:
(1) that the Change of Control Offer is being made pursuant to this
covenant and that all such Notes tendered will be accepted for payment, provided
that a Change of Control Triggering Event has occurred and otherwise subject to
the terms and conditions set forth herein;
(2) the Change of Control Purchase Price and the purchase date, which
shall be a Business Day no earlier than 30 days and no later than 60 days after
the date on which such notice is mailed (the "Change of Control Payment Date");
(3) that any such Note not tendered will continue to accrue interest;
(4) that, unless the Company defaults in the payment of the Change of
Control Purchase Price, any such Notes accepted for payment pursuant to the
Change of Control Offer shall cease to accrue interest after the Change of
Control Payment Date;
(5) that holders accepting the offer to have their Notes purchased
pursuant to a Change of Control Offer will be required to surrender such Notes
to the Paying Agent at the address specified in the notice prior to the close of
business on the Business Day preceding the Change of Control Payment Date;
(6) that holders will be entitled to withdraw their acceptance if the
Paying Agent receives, not later than the close of business on the third
Business Day preceding the Change of Control Payment Date, a facsimile
transmission or letter setting forth the name of the holder, the principal
amount of such Notes delivered for purchase, and a statement that such holder is
withdrawing his election to have such Notes purchased;
(7) that holders whose Notes are being purchased only in part will be
issued new Notes equal in principal amount to the unpurchased portion of the
Notes surrendered, provided that each Note purchased and each such new Note
issued shall be in an original principal amount in denominations of $1,000 and
integral multiples thereof; and
(8) any other procedures that a holder must follow to accept a Change
of Control Offer or effect withdrawal of such acceptance.
On the Change of Control Payment Date, the Company shall (i) accept for
payment the Notes or portions thereof tendered pursuant to the Change of Control
Offer, (ii) deposit with the Paying Agent money sufficient to pay the purchase
price of all Notes or portions thereof so tendered and (iii) deliver or cause to
be delivered to the Trustee the Notes so accepted together with an Officers'
Certificate indicating the Notes or portions thereof tendered to the Company.
The Paying Agent shall promptly mail to each holder of Notes so accepted payment
in an amount equal to the purchase price for such Notes, and the Trustee shall
promptly authenticate and mail to such holder a new Note equal in principal
amount to any unpurchased portion of the Notes surrendered; provided that each
such new Note shall be issued in an original principal amount in denominations
of $1,000 and integral multiples thereof.
The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Notes pursuant to the
covenant described hereunder. To the extent that the provisions of any
securities laws or regulations conflict with the provisions of the covenant
described hereunder, the Company shall comply with the applicable securities
laws and regulations and shall not be deemed to have breached its obligations
under the covenant described hereunder by virtue thereof.
The Change of Control purchase feature is a result of negotiations
between the Company and the Initial Purchasers. Management has no present
intention to engage in a transaction involving a Change of Control, although it
is possible that the Company would decide to do so in the future. Subject to the
limitations discussed below, the Company could, in the future, enter into
certain transactions, including acquisitions, refinancings or other
recapitalizations, that would not constitute a Change of Control under the
Indentures, but that could increase the amount of indebtedness outstanding at
such time or otherwise affect the Company's capital structure or credit ratings.
Restrictions on the ability of the Company to incur additional Indebtedness are
contained in the covenant
65
<PAGE>
described under "-Limitation on Indebtedness." Such restrictions can only be
waived with the consent of the registered holders of a majority in principal
amount of the Notes then outstanding. Except for the limitations contained in
such covenant, however, the Indentures will not contain any covenants or
provisions that may afford holders of the Notes protection in the event of a
highly leveraged transaction.
The occurrence of certain of the events which would constitute a Change
of Control would constitute a default under the Bank Credit Facility and may
require the Company to offer to repurchase the 8-3/8% Senior Notes and the
10-1/2% Senior Subordinated Notes and the Notes. In addition, future
indebtedness of the Company may contain prohibitions on the occurrence of
certain events that would constitute a Change of Control or require such
indebtedness to be repurchased upon a Change of Control. In the event a Change
of Control occurs at a time when such prohibitions are in effect, the Company
could seek the consent of its lenders or other holders of indebtedness to
purchase the Notes or could attempt to refinance borrowings containing such
prohibitions. If the Company does not obtain such consents or refinance such
borrowings, the Company will be effectively prohibited from purchasing the
Notes. Moreover, the exercise by the holders of the Notes of their right to
require the Company to repurchase the Notes could cause a default under such
indebtedness, even if the Change of Control itself does not, due to the
financial effect of such repurchase on the Company. Finally, the Company's
ability to pay cash to the holders of Notes following the occurrence of a Change
of Control Triggering Event may be limited by the Company's then existing
financial resources. There can be no assurance that sufficient funds will be
available when necessary to make any required repurchases.
Certain Covenants
Set forth below are certain covenants contained in the Indentures.
During any period of time that (i) the ratings assigned to the Notes by both of
the Rating Agencies are Investment Grade Ratings and (ii) no Default has
occurred and is continuing under the Indentures, the Company and its Restricted
Subsidiaries will not be subject to the provisions of the Indentures described
below under "Limitation on Indebtedness," "Limitation on Restricted Payments,"
"Limitation on Transactions with Affiliates" and clause (iv) of "Merger,
Consolidation and Sale of Assets" (collectively, the "Suspended Covenants"). In
the event that the Company and its Restricted Subsidiaries are not subject to
the Suspended Covenants with respect to the Notes for any period of time as a
result of the preceding sentence and, subsequently, one or both Rating Agencies
withdraws its ratings or downgrades the ratings assigned to such Notes below the
required Investment Grade Ratings, then the Company and its Restricted
Subsidiaries will thereafter again be subject to the Suspended Covenants for the
benefit of such Notes and compliance with the Suspended Covenants with respect
to Restricted Payments made after the time of such withdrawal or downgrade will
be calculated in accordance with the terms of the covenant described below under
"Limitation on Restricted Payments" as if such covenant had been in effect
during the entire period of time from the date of the Indenture.
Limitation on Indebtedness. The Company shall not, and shall not permit
any Restricted Subsidiary to, directly or indirectly, create, incur, issue,
assume or become liable for, contingently or otherwise (collectively, "incur"),
any Indebtedness unless, after giving effect to such incurrence on a pro forma
basis, the Company's Leverage Ratio would not exceed 8.0.
Notwithstanding the foregoing limitation, the Company and its
Restricted Subsidiaries may incur the following Indebtedness: (i) the Notes;
(ii) Indebtedness outstanding on the Issue Date; (iii) Permitted Refinancing
Indebtedness incurred in respect of Indebtedness incurred pursuant to the
provisions of the immediately preceding paragraph or clauses (i) and (ii) of
this paragraph; (iv) Indebtedness of the Company owing to and held by a
Restricted Subsidiary and Indebtedness of a Restricted Subsidiary owing to and
held by the Company or any other Restricted Subsidiary; provided, however, that
any subsequent issuance or transfer of any Capital Stock or other event that
results in any such Restricted Subsidiary ceasing to be a Restricted Subsidiary
or any subsequent transfer of any such Indebtedness (except to the Company or a
Restricted Subsidiary) shall be deemed, in each case, to constitute the
incurrence of such Indebtedness by the issuer thereof; (v) Indebtedness under
Interest Rate Agreements; provided, however, such Interest Rate Agreements do
not increase the Indebtedness of the Company or its Restricted Subsidiaries
outstanding at any time other than as a result of fluctuations in interest rates
or by reason of customary fees, indemnities and compensation payable thereunder;
and (vi) Indebtedness in connection with one or more standby letters of credit
or performance bonds issued in the ordinary course of business or pursuant to
self-insurance obligations.
66
<PAGE>
Limitation on Restricted Payments. The Company shall not make, and
shall not permit any Restricted Subsidiary to make, any Restricted Payment if at
the time of, and after giving effect to, such proposed Restricted Payment, (i) a
Default shall have occurred and be continuing, (ii) the aggregate amount of such
Restricted Payment and all other Restricted Payments made since November 14,
1995 (the amount of any Restricted Payment, if other than cash, to be based upon
Fair Market Value), would exceed an amount equal to the sum of (a) the excess of
(1) Cumulative EBITDA over (2) the product of 1.2 and Cumulative Interest
Expense, (b) Capital Stock Sale Proceeds, (c) the amount by which Indebtedness
of the Company or any Restricted Subsidiary is reduced on the Company's balance
sheet upon the conversion or exchange (other than by a Subsidiary) subsequent to
November 14, 1995 of any Indebtedness of the Company or any Restricted
Subsidiary convertible or exchangeable for Capital Stock (other than Redeemable
Stock) of the Company (less the amount of any cash or other Property distributed
by the Company or any Restricted Subsidiary upon conversion or exchange) and (d)
$100 million, or (iii) the Company could not incur at least $1.00 of additional
Indebtedness pursuant to the first paragraph of " - Limitation on Indebtedness."
Notwithstanding the foregoing limitation, the Company may (i) pay
dividends on its Capital Stock within 60 days of the declaration thereof if, on
the declaration date, such dividends could have been paid in compliance with the
foregoing limitation, (ii) redeem, repurchase, defease, acquire or retire for
value, any Indebtedness subordinate (whether pursuant to its terms or by
operation of law) in right of payment to the Notes with the proceeds of any
Permitted Refinancing Indebtedness or (iii) acquire, redeem or retire Capital
Stock or Indebtedness subordinate (whether pursuant to its terms or by operation
of law) in right of payment to the Notes in exchange for, or in connection with
a substantially concurrent issuance of, Capital Stock of the Company (other than
Redeemable Stock).
Any payments made pursuant to clauses (ii) and (iii) of the immediately
preceding paragraph shall be excluded from the calculation of the aggregate
amount of Restricted Payments made after November 14, 1995; provided, however
that the proceeds from the issuance of Capital Stock pursuant to clause (iii) of
the immediately preceding paragraph shall not constitute Capital Stock Sale
Proceeds for purposes of clause (ii)(b) of the first paragraph of this covenant.
Limitation on Transactions with Affiliates. The Company shall not, and
shall not permit any Restricted Subsidiary to, directly or indirectly, conduct
any business or enter into or suffer to exist any transaction or series of
transactions (including the purchase, sale, transfer, lease or exchange of any
Property or the rendering of any service) with, or for the benefit of, any
Affiliate (an "Affiliate Transaction") unless (i) the terms of such Affiliate
Transaction are in writing, (ii) such Affiliate Transaction is in the best
interest of the Company or such Restricted Subsidiary, as the case may be, (iii)
such Affiliate Transaction is on terms as favorable to the Company or such
Restricted Subsidiary, as the case may be, as those that could be obtained at
the time of such Affiliate Transaction for a similar transaction in arms-length
dealings with a Person who is not such an Affiliate and (iv) with respect to
each Affiliate Transaction involving aggregate payments in excess of $50
million, the Company delivers to the Trustee an opinion letter from an
Independent Appraiser to the effect that the consideration to be paid or
received in connection with such Affiliate Transaction is fair, from a financial
point of view, to the Company or such Restricted Subsidiary, as the case may be,
and an Officers' Certificate certifying that such Affiliate Transaction was
approved by a majority of the Board of Directors of the Company and that such
Affiliate Transaction complies with clauses (ii) and (iii).
Notwithstanding the foregoing limitation, the Company may enter into or
suffer to exist the following: (i) any transaction pursuant to any contract in
existence on the Issue Date, including contracts for the acquisition of cable
television programming and renewals, extensions and replacements thereof on
terms no less favorable to the Company and its Restricted Subsidiaries; (ii) any
Restricted Payment permitted to be made pursuant to the covenant described under
"- Limitation on Restricted Payments;" (iii) any transaction or series of
transactions between the Company and one or more of its Restricted Subsidiaries
or between two or more of its Restricted Subsidiaries (provided that no more
than 5% of the equity interest in any such Restricted Subsidiary is owned by an
Affiliate); and (iv) the payment of compensation (including amounts paid
pursuant to employee benefit plans) for the personal services of officers,
directors and employees of the Company or any of its Restricted Subsidiaries, so
long as the Board of Directors of the Company in good faith shall have approved
the terms thereof and deemed the services theretofore or thereafter to be
performed for such compensation or fees to be fair consideration therefor.
67
<PAGE>
Designation of Restricted and Unrestricted Subsidiaries. The Board of
Directors of the Company may designate an Unrestricted Subsidiary as a
Restricted Subsidiary or designate a Restricted Subsidiary as an Unrestricted
Subsidiary at any time; provided, however, that immediately after giving effect
to such designation on a pro forma basis, (i) the Company's Leverage Ratio would
not exceed 8.0, (ii) the Company and its Restricted Subsidiaries are in
compliance with the provisions of the Senior Notes Indenture described under
"-Limitation on Liens" and with the provisions of the Senior Subordinated Notes
Indenture described under "-Limitation on Layered Indebtedness" and "-Limitation
on Subordinated Liens" and (iii) an Officers' Certificate with respect to such
designation is delivered to the Trustee within 75 days after the end of the
fiscal quarter of the Company in which such designation is made (or, in the case
of a designation made during the last fiscal quarter of the Company's fiscal
year, within 120 days after the end of such fiscal year), which Officers'
Certificate shall state the effective date of such designation.
Limitations on Liens (Senior Notes only). The Company shall not, and
shall not permit any Restricted Subsidiary to, directly or indirectly, incur or
suffer to exist any Lien (other than Permitted Liens) upon any of its Property,
whether now owned or hereafter acquired, or any interest therein or any income
or profits therefrom, unless it has made or will make effective provision
whereby the Notes will be secured by such Lien equally and ratably with (or
prior to) all other Indebtedness of the Company or any Restricted Subsidiary
secured by such Lien for so long as any such other Indebtedness of the Company
or any Restricted Subsidiary shall be so secured.
Limitation on Layered Indebtedness (Senior Subordinated Notes only).
The Company shall not, directly or indirectly, incur any Indebtedness that is
subordinate or junior in ranking in right of payment to any other Indebtedness
of the Company unless such Indebtedness is Senior Subordinated Indebtedness or
is expressly subordinated in right of payment to Senior Subordinated
Indebtedness.
Limitation on Subordinated Liens (Senior Subordinated Notes only). The
Company shall not, and shall not permit any Restricted Subsidiary to, directly
or indirectly, incur or suffer to exist any Lien (other than Permitted Liens) on
or with respect to any of its Property, whether owned on the Issue Date or
thereafter acquired, or any interest therein or any income or profits therefrom,
securing any obligation or Indebtedness that is subordinate or junior in ranking
in right of payment to, or ranks pari passu with, the Notes, unless
contemporaneously therewith effective provision is made to secure the Notes
equally and ratably with (or prior to) such obligation or Indebtedness for so
long as such obligation is so secured.
Merger, Consolidation and Sale of Assets
The Company may not consolidate with or merge with or into, or convey,
sell, transfer, lease or otherwise dispose of all or substantially all of its
assets (as an entirety or substantially as an entirety in one transaction or a
series of related transactions), to any Person unless: (i) the Company shall be
the surviving Person (the "Surviving Person"), or the Surviving Person (if other
than the Company) formed by such consolidation or into which the Company is
merged or to which the assets of the Company are transferred shall be a
corporation organized and existing under the laws of the United States or any
State thereof or the District of Columbia; (ii) the Surviving Person (if other
than the Company) shall expressly assume, by supplemental indentures, executed
and delivered to the Trustee, in form satisfactory to the Trustee, all of the
obligations of the Company under the Notes and the Indentures, and the
obligations under the Indentures shall remain in full force and effect; (iii)
immediately before and immediately after giving effect to such transaction, no
Default shall have occurred and be continuing; and (iv) immediately after giving
effect to such transaction on a pro forma basis (including any Indebtedness
incurred or anticipated to be incurred in connection with such transaction or
series of transactions), the Surviving Person would be able to incur at least
$1.00 of additional Indebtedness pursuant to the first paragraph of "-Certain
Covenants- Limitation on Indebtedness."
In connection with any consolidation, merger, transfer or other
disposition contemplated by this provision, the Company shall deliver, or cause
to be delivered, to the Trustee, in form and substance reasonably satisfactory
to the Trustee, an Officers' Certificate and an Opinion of Counsel, each stating
that such consolidation, merger, transfer or other disposition and the
supplemental indenture in respect thereto comply with this provision and that
all conditions precedent herein provided for relating to such transaction or
transactions have been complied with.
68
<PAGE>
SEC Reports
Notwithstanding that the Company may not be required to remain subject
to the reporting requirements of Section 13 or 15(d) of the Exchange Act, the
Company shall file with the Commission and provide the Trustee and holders of
the Notes with such annual reports and such information, documents and other
reports as are specified in Sections 13 and 15(d) of the Exchange Act and
applicable to a U.S. corporation subject to such Sections, such information,
documents and other reports to be so filed and provided at the times specified
for the filing of such information, documents and reports under such Sections.
Events of Default
The following events are defined in the Indentures as "Events of
Default": (i) the Company fails to make the payment of any principal of, or
premium (if any) on, the Notes when the same becomes due and payable at
maturity, upon acceleration, redemption or declaration, or otherwise; (ii) the
Company fails to make the payment of any interest on the Notes when the same
becomes due and payable, and such failure continues for a period of 30 days;
(iii) the Company fails to comply with any other covenant in the Notes or
Indentures and such failure continues for 30 days after written notice from the
Trustee or the registered holders of not less than 25% in aggregate principal
amount of the Notes then outstanding; (iv) the Company or any Restricted
Subsidiary fails to pay when due principal, interest or premium aggregating $10
million or more with respect to any Indebtedness of the Company or any
Restricted Subsidiary or the acceleration of any such Indebtedness, which
default shall not be cured or waived, or which acceleration shall not be
rescinded or annulled, within 10 days after written notice (the "cross default
provisions"); (v) any final judgment or judgments for the payment of money in
excess of $10 million shall be rendered against the Company or any Restricted
Subsidiary and shall not be discharged for any period of 30 consecutive days
during which a stay of enforcement shall not be in effect (the "judgment default
provisions"); or (vi) certain events involving bankruptcy, insolvency or
reorganization of the Company or any Restricted Subsidiary (the "bankruptcy
provisions"). The Indenture provides that the Trustee may withhold notice to the
holders of the Notes of any default (except in payment of principal of or
premium (if any) or interest on such Notes) if the Trustee considers it to be in
the best interest of the holders of the Notes to do so.
The Indentures provide that if an Event of Default with respect to the
Notes (other than an Event of Default resulting from certain events of
bankruptcy, insolvency or reorganization with respect to the Company) shall have
occurred and be continuing, the Trustee or the registered holders of not less
than 25% in aggregate principal amount of the Notes then outstanding may declare
to be immediately due and payable the principal amount of all the Notes then
outstanding, plus accrued but unpaid interest to the date of acceleration;
provided, however, that after such acceleration but before a judgment or decree
based on acceleration is obtained by the Trustee, the registered holders of a
majority in aggregate principal amount of the Notes then outstanding may, under
certain circumstances, rescind and annul such acceleration if all Events of
Default, other than the nonpayment of accelerated principal, premium or
interest, have been cured or waived as provided in the Indentures. In case an
Event of Default resulting from certain events of bankruptcy, insolvency or
reorganization with respect to the Company shall occur, such amount with respect
to all of the Notes shall be due and payable immediately without any declaration
or other act on the part of the Trustee or the holders of the Notes.
The registered holders of a majority in principal amount of the Notes
then outstanding shall have the right to waive any existing Default with respect
to the Notes or compliance with any provision of the Indentures or the Notes and
to direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee, subject to certain limitations specified in the
Indentures.
No holder of the Notes will have any right to institute any proceeding
with respect to the Indentures or for any remedy thereunder, unless such holder
shall have previously given to the Trustee written notice of a continuing Event
of Default and unless also the registered holders of at least 25% in aggregate
principal amount of the Notes then outstanding shall have made written request
and offered reasonable indemnity to the Trustee to institute such proceeding as
a trustee, and unless the Trustee shall not have received from the registered
holders of a majority in aggregate principal amount of the Notes then
outstanding a direction inconsistent with such request and shall have failed to
institute such proceeding within 60 days. However, such limitations do not apply
to a suit instituted by a holder of a Note for enforcement of payment of the
principal of and premium (if any) or interest on such Note on or after the
respective due dates expressed in such Note.
69
<PAGE>
Amendments and Waivers
The Indentures may be amended with the consent of the registered
holders of a majority in principal amount of the Notes then outstanding
(including consents obtained in connection with a tender offer or exchange offer
for the Notes) and any past default or compliance with any provisions may also
be waived with the consent of the registered holders of a majority in principal
amount of the Notes then outstanding. However, without the consent of each
holder of an outstanding Note, no amendment may, among other things, (i) reduce
the amount of Notes whose holders must consent to an amendment, (ii) reduce the
rate of or extend the time for payment of interest on any Note, (iii) reduce the
principal of or extend the stated maturity of any Note, (iv) make any Note
payable in money other than that stated in the Note, (v) impair the right of any
holder of the Notes to receive payment of principal of and interest on such
holder's Notes on or after the due dates therefor or to institute suit for the
enforcement of any payment on or with respect to such holder's Notes, (vi) make
any change in the amendment provisions which require each holder's consent or in
the waiver provisions, (vii) subordinate the Senior Notes to any other
obligation of the Company, (viii) make any change to the subordination
provisions of the Senior Subordinated Notes Indenture that would adversely
affect the holders of the Senior Subordinated Notes or (ix) reduce the premium
payable upon the redemption of any Senior Subordinated Note or change the time
at which any Senior Subordinated Note may be redeemed, as described under
"-Optional Redemption."
Without the consent of any holder of the Notes, the Company and the
Trustee may amend the Indentures to cure any ambiguity, omission, defect or
inconsistency, to provide for the assumption by a successor corporation of the
obligations of the Company under the Indentures, to provide for uncertificated
Notes in addition to or in place of certificated Notes (provided that the
uncertificated Notes are issued in registered form for purposes of Section
163(f) of the Internal Revenue Code, or in a manner such that the uncertificated
Notes are described in Section 163(f)(2)(B) of the Internal Revenue Code), to
add Guarantees with respect to the Notes, to secure the Notes, to add to the
covenants of the Company for the benefit of the holders of the Notes or to
surrender any right or power conferred upon the Company, to make any change that
does not adversely affect the rights of any holder of the Notes or to comply
with any requirement of the Commission in connection with the qualification of
the Indentures under the Trust Indenture Act. However, no amendment made to the
subordination provisions of the Senior Subordinated Notes Indenture that
adversely affects the rights of any holder of Senior Indebtedness then
outstanding shall be effective as to such holder of Senior Indebtedness unless
such holder (or its Representative) consents to such change.
The consent of the holders of the Notes is not necessary under the
Indentures to approve the particular form of any proposed amendment. It is
sufficient if such consent approves the substance of the proposed amendment.
After an amendment under the Indentures becomes effective, the Company
is required to mail to registered holders of the Notes a notice briefly
describing such amendment. However, the failure to give such notice to all
holders of the Notes, or any defect therein, will not impair or affect the
validity of the amendment.
Defeasance
The Company at any time may terminate all its obligations under the
Notes and the Indentures ("legal defeasance"), except for certain obligations,
including those respecting the defeasance trust and obligations to register the
transfer or exchange of the Notes, to replace mutilated, destroyed, lost or
stolen Notes and to maintain a registrar and paying agent in respect of the
Notes. The Company at any time may terminate its obligations under the covenants
described under " - Certain Covenants" (other than the covenant described under
" Merger, Consolidation and Sale of Assets"), the operation of the cross default
provisions, the bankruptcy provisions with respect to Restricted Subsidiaries
and the judgment default provisions described under " - Events of Default" above
and the limitations contained in clause (iv) under "-Certain Covenants - Merger,
Consolidation and Sale of Assets" above ("covenant defeasance").
The Company may exercise its legal defeasance option notwithstanding
its prior exercise of its covenant defeasance option. If the Company exercises
its legal defeasance option, payment of the Notes may not be accelerated because
of an Event of Default with respect thereto. If the Company exercises its
covenant defeasance option, payment of the Notes may not be accelerated because
of an Event of Default specified in clause (iii) (with respect to the covenants
described under "Certain Covenants," other than the covenant described under "
Certain Covenants - Merger, Consolidation and Sale of Assets" above), (iv), (v)
or (vi) (with respect only to Restricted
70
<PAGE>
Subsidiaries) under "- Events of Default" above or because of the failure of the
Company to comply with clause (iv) under " - Certain Covenants - Merger,
Consolidation and Sale of Assets" above.
In order to exercise either defeasance option, the Company must
irrevocably deposit in trust (the "defeasance trust") with the Trustee money or
U.S. Government Obligations for the payment of principal and interest on the
Notes to maturity and must comply with certain other conditions, including
delivery to the Trustee of an Opinion of Counsel to the effect that holders of
the Notes will not recognize income, gain or loss for Federal income tax
purposes as a result of such deposit and defeasance and will be subject to
Federal income tax on the same amount and in the same manner and at the same
times as would have been the case if such deposit and defeasance had not
occurred (and, in the case of legal defeasance only, such Opinion of Counsel
must be based on a ruling of the Internal Revenue Service or other change in
applicable Federal income tax law).
The Trustee
The Bank of New York is to be the Trustee under the Indentures and has
been appointed by the Company as Registrar and Paying Agent with regard to the
Notes. The Indentures provide that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set forth
in the Indentures. During the existence of an Event of Default, the Trustee will
exercise such rights and powers vested in it under the Indentures and use the
same degree of care and skill in its exercise as a prudent person would exercise
under the circumstances in the conduct of such person's own affairs. John C.
Malone, a director of the Company, is a director of The Bank of New York.
Certain Definitions
Set forth below is a summary of certain of the defined terms used in
the Indentures. Reference is made to the Indentures for the full definition of
all such terms as well as any other capitalized terms used herein for which no
definition is provided.
"Affiliate" of any specified Person means (i) any other Person,
directly or indirectly, controlling or controlled by or under direct or indirect
common control with such specified Person or (ii) any other Person who is a
director or officer (a) of such specified Person, (b) of any Subsidiary of such
specified Person or (c) of any Person described in clause (i) above. For the
purposes of this definition, "control" when used with respect to any Person
means the power to direct the management and policies of such Person, directly
or indirectly, whether through the ownership of voting securities, by contract
or otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing. For purposes of the covenants described under
"-Certain Covenants - Limitation on Transactions with Affiliates" only,
"Affiliate" shall also mean any beneficial owner of shares representing 10% or
more of the total voting power of the Capital Stock (on a fully diluted basis)
of the Company or of rights or warrants to purchase such Capital Stock (whether
or not currently exercisable) and any Person who would be an Affiliate of -any
such beneficial owner pursuant to the first sentence hereof.
"Annualized Pro Forma EBITDA" means, with respect to any Person, the
product of such Person's Pro Forma EBITDA for the latest fiscal quarter for
which financial statements are available multiplied by four.
"Asset Sale" means the sale, transfer or other disposition (other than
to the Company or any of its Restricted Subsidiaries) in any single transaction
or series of related transactions of (a) any Capital Stock of or other equity
interest in any Restricted Subsidiary, (b) all or substantially all of the
assets of the Company or of any Restricted Subsidiary or (c) all or
substantially all of the assets of (1) a Company System or part thereof serving
at least 50,000 basic customers, (2) a division, (3) a line of business or (4) a
comparable business segment of the Company or any Restricted Subsidiary.
"Attributable Indebtedness" means Indebtedness deemed to be incurred in
respect of a Sale and Leaseback Transaction and shall be, at the date of
determination, the present value (discounted at the actual rate of interest
implicit in such transaction, compounded annually), of the total obligations of
the lessee for rental payments during the remaining term of the lease included
in such Sale and Leaseback Transaction (including any period for which such
lease has been extended).
71
<PAGE>
"Bank Indebtedness" means the Indebtedness and all other monetary
obligations of the Company incurred under the Bank Credit Facility.
"Capital Stock" means, with respect to any Person, any and all shares
or other equivalents (however designated) of corporate stock, partnership
interests or any other participation, right, warrant, option or other interest
in the nature of an equity interest in such Person, but excluding any debt
security convertible or exchangeable into such equity interest.
"Capital Stock Sale Proceeds" means the aggregate Net Cash Proceeds
received by the Company from the issue or sale (other than to a Subsidiary or an
employee stock ownership plan or trust established by the Company or any
Subsidiary) by the Company of any class of its Capital Stock (other than
Redeemable Stock) after November 14, 1995.
"Capitalized Lease Obligations" means Indebtedness represented by
obligations under a lease that is required to be capitalized for financial
reporting purposes in accordance with generally accepted accounting principles
and the amount of such Indebtedness shall be the capitalized amount of such
obligations determined in accordance with generally accepted accounting
principles.
"Change of Control" means such time as a "person" or "group" (within
the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act), other than one
or more of the Permitted Holders and their Affiliates, becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act) of more than 50% of the
total voting power required to elect or designate for election a majority of the
Company's Board of Directors and attaching to the then outstanding voting
Capital Stock of the Company.
"Change of Control Triggering Event" means, with respect to the Notes,
the occurrence of both a Change of Control and a Rating Decline with respect to
the Notes.
"Company System" means any cable television system owned by the Company
or any Restricted Subsidiary.
"Consolidated Interest Expense" means, for any Person, for any period,
the amount of interest in respect of Indebtedness (including amortization of
original issue discount, fees payable in connection with financings, including
commitment, availability and similar fees, and amortization of debt issuance
costs, non-cash interest payments on any Indebtedness and the interest portion
of any deferred payment obligation and after taking into account the effect of
elections made under, and the net costs associated with, any Interest Rate
Agreement, however denominated, with respect to such Indebtedness), the amount
of Redeemable Dividends, the amount of Preferred Stock dividends in respect of
all Preferred Stock of Restricted Subsidiaries held by Persons other than the
Company or a Restricted Subsidiary, commissions, discounts and other fees and
charges owed with respect to letters of credit and bankers' acceptance
financing, and the interest component of rentals in respect of any Capitalized
Lease Obligation or Sale and Leaseback Transaction paid, accrued or scheduled to
be paid or accrued by such Person during such period, determined on a
consolidated basis in accordance with generally accepted accounting principles.
For purposes of this definition, interest on a Capitalized Lease Obligation
shall be deemed to accrue at an interest rate reasonably determined by such
Person to be the rate of interest implicit in such Capitalized Lease Obligation
in accordance with generally accepted accounting principles consistently
applied.
"Consolidated Net Income" means for any period, the net income (loss)
of the Company and its Subsidiaries; provided, however, that there shall not be
included in such Consolidated Net Income (i) any net income (loss) of any Person
if such Person is not a Restricted Subsidiary, except that (a) subject to the
limitations contained in (iv) below, the Company's equity in the net income of
any such Person for such period shall be included in such Consolidated Net
Income up to the aggregate amount of cash actually distributed by such Person
during such period to the Company or a Restricted Subsidiary as a dividend or
other distribution (subject, in the case of a dividend or other distribution to
a Restricted Subsidiary, to the limitations contained in clause (iii) below) and
(b) the Company's equity in a net loss of any such Person (other than an
Unrestricted Subsidiary) for such period shall be included in determining such
Consolidated Net Income, (ii) any net income (loss) of any Person acquired by
the Company or a Subsidiary in a pooling of interests transaction for any period
prior to the date of such acquisition, (iii) any net income (loss) of any
Restricted Subsidiary if such Subsidiary is subject to restrictions, directly or
indirectly, on the payment of dividends or the making of distributions by such
Restricted Subsidiary,
72
<PAGE>
directly or indirectly, to the Company, except that (a) subject to the
limitations contained in (iv) below, the Company's equity in the net income of
any such Restricted Subsidiary for such period shall be included in such
Consolidated Net Income up to the aggregate amount of cash that could have been
distributed by such Restricted Subsidiary during such period to the Company or
another Restricted Subsidiary as a dividend (subject, in the case of a dividend
to another Restricted Subsidiary, to the limitation contained in this clause)
and (b) the Company's equity in a net loss of any such Restricted Subsidiary for
such period shall be included in determining such Consolidated Net Income, (iv)
any gain (but not loss) realized upon the sale or other disposition of any
property, plant or equipment of the Company or its consolidated Subsidiaries
(including pursuant to any Sale and Leaseback Transaction) which is not sold or
otherwise disposed of in the ordinary course of business and any gain (but not
loss) realized upon the sale or other disposition of any Capital Stock of any
Person, (v) any extraordinary gain or loss and (vi) the cumulative effect of a
change in accounting principles.
"Cumulative EBITDA " means at any date of determination the cumulative
EBITDA of the Company from and after September 30, 1995 to the end of the fiscal
quarter immediately preceding the date of determination or, if such cumulative
EBITDA for such period is negative, minus the amount by which such cumulative
EBITDA is less than zero.
"Cumulative Interest Expense" means at any date of determination the
aggregate amount of Consolidated Interest Expense paid, accrued or scheduled to
be paid or accrued by the Company from September 30, 1995 to the end of the
fiscal quarter immediately preceding the date of determination determined on a
consolidated basis in accordance with generally accepted accounting principles.
"Default" means any event which is, or after notice or passage of time
or both would be, an Event of Default.
"Designated Senior Indebtedness" means (i) the Bank Indebtedness, (ii)
the 8-3/8% Senior Notes and (iii) any other Senior Indebtedness of the Company
which, at the date of determination, has an aggregate principal amount
outstanding of, or under which, at the date of determination, the holders
thereof are committed to lend up to, at least $100 million and is specifically
designated by the Company in the instrument evidencing or governing such Senior
Indebtedness as "Designated Senior Indebtedness" for purposes of the Indenture.
"EBITDA" means, for any Person, for any period, an amount equal to (A)
the sum of (i) Consolidated Net Income for such period, plus (ii) the provision
for taxes for such period based on income or profits to the extent such income
or profits were included in computing consolidated net income and any provision
for taxes utilized in computing net loss under clause (i) hereof, plus (iii)
Consolidated Interest Expense for such period, plus (iv) depreciation for such
period on a consolidated basis, plus (v) amortization of intangibles for such
period on a consolidated basis, plus (vi) any other non-cash items reducing
consolidated net income for such period, minus (B) all non-cash items increasing
consolidated net income for such period, all for such Person and its
Subsidiaries determined in accordance with generally accepted accounting
principles consistently applied, except that with respect to the Company each of
the foregoing items shall be determined on a consolidated basis with respect to
the Company and its Restricted Subsidiaries only.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" means with respect to any Property, the price which
could be negotiated in an arm's length free market transaction, for cash,
between a willing seller and a willing buyer, neither of whom is under undue
pressure or compulsion to complete the transaction. Fair Market Value will be
determined, except as otherwise provided, (i) if such property or asset has a
Fair Market Value of less than $5 million, by any Officer of the Company or (ii)
if such property or asset has a Fair Market Value in excess of $5 million, by a
majority of the Board of Directors of the Company and evidenced by a resolution,
dated within 30 days of the relevant transaction, of such Board delivered to the
Trustee.
"Guarantee" means any obligation, contingent or otherwise, of any
Person directly or indirectly guaranteeing any Indebtedness of any Person and
any obligation, direct or indirect, contingent or otherwise, of such Person (i)
to purchase or pay (or advance or supply funds for the purchase or payment of)
such Indebtedness of such Person (whether arising by virtue of partnership
arrangements, or by agreements to keep-well, to purchase assets, goods,
securities or services, to take-or-pay or to maintain financial statement
conditions or otherwise) or (ii)
73
<PAGE>
entered into for the purpose of assuring in any other manner the obligee of such
Indebtedness or other obligation of the payment thereof or to protect such
obligee against loss in respect thereof (in whole or in part); provided,
however, that the term "Guarantee" shall not include endorsements for collection
or deposit in the ordinary course of business. The term "Guarantee" used as a
verb has a corresponding meaning.
"Indebtedness" means (without duplication), with respect to any Person,
any indebtedness, secured or unsecured, contingent or otherwise, which is for
borrowed money (whether or not the recourse of the lender is to the whole of the
assets of such Person or only to a portion thereof), or evidenced by bonds,
notes, debentures or similar instruments or representing the balance deferred
and unpaid of the purchase price of any property (excluding any balances that
constitute customer advance payments and deposits, accounts payable or trade
payables, and other accrued liabilities arising in the ordinary course of
business) if and to the extent any of the foregoing indebtedness would appear as
a liability upon a balance sheet of such Person prepared in accordance with
generally accepted accounting principles, and shall also include, to the extent
not otherwise included, (i) any Capitalized Lease Obligations, (ii) Indebtedness
of other Persons secured by a Lien to which the property or assets owned or held
by such Person is subject, whether or not the obligation or obligations secured
thereby shall have been assumed (the amount of such Indebtedness being deemed to
be the lesser of the value of such property or assets or the amount of the
Indebtedness so secured), (iii) Guarantees of Indebtedness of other Persons,
(iv) any Redeemable Stock, (v) any Attributable Indebtedness, (vi) all
obligations of such Person in respect of letters of credit, bankers' acceptances
or other similar instruments or credit transactions (including reimbursement
obligations with respect thereto), other than obligations with respect to
letters of credit securing obligations (other than obligations described in this
definition) entered into in the ordinary course of business of such Person to
the extent such letters of credit are not drawn upon or, if and to the extent
drawn upon, such drawing is reimbursed no later than the third Business Day
following receipt by such Person of a demand for reimbursement following payment
on the letter of credit, (vii) in the case of the Company, Preferred Stock of
its Restricted Subsidiaries and (viii) obligations of any such Person under any
Interest Rate Agreement applicable to any of the foregoing. Notwithstanding the
foregoing, Indebtedness shall not include any interest or accrued interest until
due and payable.
"Independent Appraiser" means an investment banking firm of national
standing with non-investment grade debt underwriting experience or any third
party appraiser of national standing; provided, however that such firm or
appraiser is not an Affiliate of the Company.
"Interest Rate Agreement" means, for any Person, any interest rate swap
agreement, interest rate cap agreement, interest rate collar agreement or other
similar agreement.
"Investment Grade Rating" means a rating equal to or higher than Baa3
(or the equivalent) and BBB- (or the equivalent) by Moody's Investors Service,
Inc. (or any successor to the rating agency business thereof) and Standard &
Poor's Ratings Service, a division of McGraw Hill, Inc. (or any successor to the
rating agency business thereof), respectively.
"Issue Date" means the date on which the Notes are initially issued.
"Lenfest Family" means collectively H. F. Lenfest and members of his
immediate family, any of their respective spouses, estates, lineal descendants,
heirs, executors, personal representatives, administrators, trusts for any of
their benefit and charitable foundations to which shares of the Company's
Capital Stock beneficially owned by any of the foregoing have been transferred.
"Leverage Ratio" is defined as the ratio of (i) the outstanding
Indebtedness of a Person and its Subsidiaries (or in the case of the Company,
its Restricted Subsidiaries) divided by (ii) the Annualized Pro Forma EBITDA of
such Person.
"Lien" means, with respect to any Property of any Person, any mortgage
or deed of trust, pledge, hypothecation, assignment, deposit arrangement,
security interest, lien, charge, casement (other than any easement not
materially impairing usefulness or marketability), encumbrance, preference,
priority, or other security agreement or preferential arrangement of any kind or
nature whatsoever on or with respect to such Property (including any Capitalized
Lease Obligation, conditional sale or other title retention agreement having
substantially the same economic effect as any of the foregoing or any Sale and
Leaseback Transaction).
74
<PAGE>
"Net Cash Proceeds" with respect to any issuance or sale of Capital
Stock, means the cash proceeds of such issuance or sale, net of attorney's fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"Officer" means the President, the Treasurer, or any Executive Vice
President or Vice President of the Company.
"Officers' Certificate" means a certificate signed by two Officers at
least one of whom shall be the principal executive officer, principal accounting
officer or principal financial officer of the Company.
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Trustee. The counsel may be an employee of or counsel to the
Company or the Trustee.
"Permitted Holders" means the Lenfest Family and Tele-Communications,
Inc.
"Permitted Liens" means (i) in the case of the Senior Notes only, Liens
incurred by the Company or any Restricted Subsidiary if, after giving effect to
such incurrence on a pro forma basis, the amount of the total Indebtedness or
other obligations of the Company and its Restricted Subsidiaries that is secured
by a Lien does not exceed the product of the Annualized Pro Forma EBITDA of the
Company multiplied by 3.00; (ii) Liens on the Property of the Company or any
Restricted Subsidiary existing on the Issue Date; (iii) Liens on the Property of
the Company or any Restricted Subsidiary to secure any extension, renewal,
refinancing, replacement or refunding (or successive extensions, renewals,
refinancings, replacements or refundings), in whole or in part, of any
Indebtedness secured by Liens referred to in any of clauses (i), (ii), (vii) or
(x); provided, however, that any such Lien will be limited to all or part of the
same Property that secured the original Lien (plus improvements on such
Property) and the aggregate principal amount of Indebtedness that is secured by
such Lien will not be increased to an amount greater than the sum of (A) the
outstanding principal amount, or, if greater, the committed amount, of the
Indebtedness described under clauses (i), (ii), (vii) and (x) at the time the
original Lien became a Permitted Lien under the Indenture and (B) an amount
necessary to pay any premiums, fees and other expenses incurred by the Company
in connection with such refinancing, refunding, extension, renewal or
replacement; (iv) Liens for taxes, assessments or governmental charges or levies
on the Property of the Company or any Restricted Subsidiary if the same shall
not at the time be delinquent or thereafter can be paid without penalty, or are
being contested in good faith and by appropriate proceedings; (v) Liens imposed
by law, such as carriers', warehousemen's and mechanics' Liens and other similar
Liens on the Property of the Company or any Restricted Subsidiary arising in the
ordinary course of business which secure payment of obligations not more than 60
days past due or are being contested in good faith and by appropriate
proceedings; (vi) Liens on the Property of the Company or any Restricted
Subsidiary in favor of issuers of performance bonds and surety or appeal bonds;
(vii) Liens on Property at the time the Company or any Restricted Subsidiary
acquired such Property, including any acquisition by means of a merger or
consolidation with or into the Company or such Restricted Subsidiary; provided,
however that such Lien shall not have been incurred in anticipation or in
connection with such transaction or series of related transactions pursuant to
which such Property was acquired by the Company or such Restricted Subsidiary;
(viii) other Liens on the Property of the Company or any Restricted Subsidiary
incidental to the conduct of their respective businesses or the ownership of
their respective Properties which were not created in connection with the
incurrence of Indebtedness or the obtaining of advances or credit and which do
not in the aggregate materially detract from the value of their respective
Properties or materially impair the use thereof in the operation of their
respective businesses; (ix) pledges or deposits by the Company or any Restricted
Subsidiary under workmen's compensation laws, unemployment insurance laws or
similar legislation, or good faith deposits in connection with bids, tenders,
contracts (other than for the payment of Indebtedness) or leases to which the
Company or any Restricted Subsidiary is a party, or deposits to secure public or
statutory obligations of the Company or any Restricted Subsidiary, or deposits
for the payment of rent, in each case incurred in the ordinary course of
business, (x) Liens on the Property of a Person at the time such Person becomes
a Restricted Subsidiary; provided, however, that any such Lien may not extend to
any other Property of the Company or any Restricted Subsidiary; provided
further, however, that any such Lien was not incurred in anticipation of or in
connection with the transaction or series of related transactions pursuant to
which such Person became a Restricted Subsidiary or (xi) utility easements,
building restrictions and such other encumbrances or charges against real
property as are of a nature generally existing with respect to properties of a
similar character.
75
<PAGE>
"Permitted Refinancing Indebtedness" means any renewals, extensions,
substitutions, refinancings. or replacements of any Indebtedness, including any
successive extensions, renewals, substitutions, refinancings or replacements so
long as (i) the aggregate amount of Indebtedness represented thereby is not
increased by such renewal, extension, substitution, refinancing or replacement,
(ii) the average life and the date such Indebtedness is scheduled to mature is
not shortened and (iii) the new Indebtedness shall not be senior in right of
payment to the Indebtedness that is being extended, renewed, substituted,
refinanced or replaced.
"Person" means any individual, corporation, company (including limited
liability company), partnership, joint venture, trust, unincorporated
organization or government or any agency or political subdivision thereof.
"Preferred Stock" means any Capital Stock of a Person, however
designated, which entitles the holder thereof to a preference with respect to
dividends, distributions or liquidation proceeds of such Person over the holders
of other Capital Stock issued by such Person.
"Pro Forma EBITDA " means for any Person, for any period, the EBITDA of
such Person as determined on a consolidated basis in accordance with generally
accepted accounting principles consistently applied after giving effect to the
following: (i) if, during or after such period, such Person or any of its
Subsidiaries shall have made any Asset Sale, Pro Forma EBITDA of such Person and
its Subsidiaries for such period shall be reduced by an amount equal to the Pro
Forma EBITDA (if positive) directly attributable to the assets which are the
subject of such Asset Sale for the period or increased by an amount equal to the
Pro Forma EBITDA (if negative) directly attributable thereto for such period and
(ii) if, during or after such period, such Person or any of its Subsidiaries
completes an acquisition of any Person or business which immediately after such
acquisition is a Subsidiary of such Person or whose assets are held directly by
such Person or a Subsidiary of such Person, Pro Forma EBITDA shall be computed
so as to give pro forma effect to the acquisition of such Person or business;
provided, however that, with respect to the Company, all of the foregoing
references to "Subsidiary" or "Subsidiaries" shall be deemed to refer only to
the "Restricted Subsidiaries" of the Company.
"Property" means, with respect to any Person, any interest of such
Person in any kind of property or asset, whether real, personal or mixed, or
tangible or intangible, including, without limitation, Capital Stock in any
other Person (but excluding Capital Stock or other securities issued by such
Person).
"Rating Agencies" mean Standard & Poor's Ratings Service, a division of
McGraw Hill, Inc., and Moody's Investors Service, Inc. or any successor to the
respective rating agency businesses thereof.
"Rating Date" means the date which is 90 days prior to the earlier of
(i) a Change of Control and (ii) public notice of the occurrence of a Change of
Control or of the intention of the Company to effect a Change of Control.
"Rating Decline" means, with respect to the Notes, the occurrence of
the following on, or within 90 days after, the date of public notice of the
occurrence of a Change of Control or of the intention by the Company to effect a
Change of Control (which period shall be extended so long as the rating of such
Notes is under publicly announced consideration for possible downgrade by either
of the Rating Agencies): (a) in the event the Notes are assigned an Investment
Grade Rating by either of the Rating Agencies on the Rating Date, the rating of
the Notes by both of the Rating Agencies shall be below an Investment Grade
Rating; or (b) in the event the Notes are rated below an Investment Grade Rating
by both of the Rating Agencies on the Rating Date, the rating of the Notes by
either of the Rating Agencies shall be decreased by one or more gradations
(including gradations within rating categories as well as between rating
categories).
"Redeemable Dividend" means, for any dividend with regard to Redeemable
Stock, the quotient of the dividend divided by the difference between one and
the maximum statutory federal income tax rate (expressed as a decimal number
between 1 and 0) then applicable to the issuer of such Redeemable Stock.
"Redeemable Stock" means, with respect to any Person, any Capital Stock
that by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable) or otherwise (i) matures or is mandatorily
redeemable pursuant to a sinking fund obligation or otherwise, (ii) is
redeemable at the option of the holder thereof, in whole or in part, or (iii) is
convertible or exchangeable for Indebtedness.
76
<PAGE>
"Representative" means any trustee, agent or representative (if any)
for an issue of Senior Indebtedness of the Company.
"Restricted Payment" means (i) any dividend or distribution (whether
made in cash, property or securities) declared or paid on or with respect to any
shares of Capital Stock of the Company or Capital Stock of any Restricted
Subsidiary except for any dividend or distribution which is made solely to the
Company or a Restricted Subsidiary (and, if such Restricted Subsidiary is not
wholly owned, to the other shareholders of such Restricted Subsidiary on a pro
rata basis) or dividends or distributions payable solely in shares of Capital
Stock (other than Redeemable Stock) of the Company; (ii) a payment made by the
Company or any Restricted Subsidiary to purchase, redeem, acquire or retire any
Capital Stock of the Company or Capital Stock of any Affiliate of the Company
(other than a Restricted Subsidiary) or any warrants, rights or options to
directly or indirectly purchase or acquire any such Capital Stock or any
securities exchangeable for or convertible into any such Capital Stock; or (iii)
a payment made by the Company or any Restricted Subsidiary to redeem,
repurchase, defease or otherwise acquire or retire for value, prior to any
scheduled maturity, scheduled sinking fund or mandatory redemption payment
(other than the purchase, repurchase, or other acquisition of any Indebtedness
subordinate in right of payment to the Notes purchased in anticipation of
satisfying a sinking fund obligation, principal installment or final maturity,
in each case due within one year of the date of acquisition), Indebtedness of
the Company which is subordinate (whether pursuant to its terms or by operation
of law) in right of payment to the Notes.
"Restricted Subsidiary" means (a) Suburban Cable TV Co. Inc., LenComm,
Inc., Lenfest West, Inc., Lenfest Atlantic, Inc., Lenfest Newcastle County,
Lenfest Newcastle County, Inc. and CAH, Inc.; (b) any Subsidiary of the Company
after the Issue Date unless such Subsidiary shall have been designated an
Unrestricted Subsidiary as permitted pursuant to "-Certain Covenants Designation
of Restricted and Unrestricted Subsidiaries"; and (c) an Unrestricted Subsidiary
which is redesignated as a Restricted Subsidiary as permitted pursuant to
"-Certain Covenants - Designation of Restricted and Unrestricted Subsidiaries."
"Sale and Leaseback Transaction" means, with respect to any Person, any
direct or indirect arrangement pursuant to which Property is sold or transferred
by such Person or a Restricted Subsidiary of such Person and is thereafter
leased back from the purchaser or transferee thereof by such Person or one of
its Restricted Subsidiaries.
"Senior Indebtedness" means (i) Indebtedness of the Company, whether
outstanding on the Issue Date or thereafter Incurred, and (ii) accrued and
unpaid interest (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to the Company to the
extent post-filing interest is allowed in such proceeding), in respect of (A)
indebtedness of the Company for money borrowed and (B) indebtedness evidenced by
notes, debentures, bonds or other similar instruments for the payment of which
the Company is responsible or liable, unless, in the instrument creating or
evidencing the same or pursuant to which the same is outstanding, it is provided
that such obligations are subordinate in right of payment to the Notes;
provided, however, that Senior Indebtedness shall not include (1) any obligation
of the Company to any Subsidiary, (2) any liability for Federal, state, local or
other taxes owed or owing by the Company, (3) any accounts payable or other
liability to trade creditors arising in the ordinary course of business
(including guarantees thereof or instruments evidencing such liabilities), (4)
any Indebtedness of the Company (and any accrued and unpaid interest in respect
thereof) which is subordinate or junior in any respect to any other Indebtedness
or other obligation of the Company or (5) that portion of any Indebtedness which
at the time of incurrence is incurred in violation of the Senior Subordinated
Notes Indenture.
"Senior Subordinated Indebtedness" means the Notes and any other
Indebtedness of the Company that specifically provides that such Indebtedness is
to rank pari passu with the Senior Subordinated Notes in right of payment and is
not subordinated by its terms in right of payment to any Indebtedness or other
obligation of the Company which is not Senior Indebtedness.
"Subsidiary" of any specified Person means any corporation,
partnership, joint venture, association or other business entity, whether now
existing or hereafter organized or acquired, (i) in the case of a corporation,
of which more than 50% of the total voting power of the Capital Stock entitled
(without regard to the occurrence of any contingency) to vote in the election of
directors, officers or trustees thereof is held by such first-named Person or
any of its Subsidiaries; or (ii) in the case of a partnership, joint venture,
association or other business entity, with respect to which such first-named
Person or any of its Subsidiaries has the power to direct or cause the direction
of
77
<PAGE>
the management and policies of such entity by contract or otherwise if in
accordance with generally accepted accounting principles such entity is
consolidated with the first-named Person for financial statement purposes.
"Unrestricted Subsidiary" means (a) any Subsidiary in existence on the
Issue Date that is not a Restricted Subsidiary; (b) any Subsidiary of an
Unrestricted Subsidiary; and (c) any Subsidiary of the Company which is
designated after the Issue Date as an Unrestricted Subsidiary as permitted
pursuant to " - Certain Covenants - Designation of Restricted and Unrestricted
Subsidiaries" and not thereafter redesignated as a Restricted Subsidiary as
permitted pursuant thereto.
THE EXCHANGE OFFER
The Old Notes Offering
The Old Notes were sold by the Company on February 5, 1998 to the
Initial Purchasers in reliance on Section 4(2) of the Securities Act. The
Initial Purchasers offered and sold the Old Notes only to "qualified
institutional buyers" (as defined in Rule 144A) in compliance with Rule 144A and
outside the United States to non-U.S. persons in reliance upon Regulation S
under the Securities Act.
In connection with the sale of the Old Notes, the Company and the
Initial Purchasers entered into a Registration Agreement dated January 30, 1998
(the "Registration Agreement"), which generally requires the Company (i) to
cause the Old Notes to be registered under the Securities Act pursuant to a
Shelf Registration Statement (as defined) or (ii) to file with the Commission
the Exchange Offer Registration Statement with respect to the Exchange Offer.
The Exchange Offer is being made pursuant to the Registration Agreement to
satisfy the Company's obligations thereunder with regard to the Exchange Notes.
The term "holder" with respect to the Exchange Offer means any person in whose
name Notes are registered on the registrar's books or any other person who has
obtained a properly completed bond power from the registered holder, or any
person whose Notes are held of record by The Depository Trust Company ("DTC")
who desires to deliver such Old Notes, by book-entry transfer at DTC.
Purpose and Effect of the Exchange Offer
Based on interpretations by the staff of the Commission set forth in
no-action letters issued to third parties, the Company believes the Exchange
Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be
offered for resale, resold and otherwise transferred by any holder thereof
(other than broker-dealers, as set forth below, and any such holder that is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act) without compliance with the registration and prospectus delivery
requirements of the Securities Act, provided that such Exchange Notes are
acquired in the ordinary course of such holder's business and that such holder
has no arrangement or understanding with any person to participate in the
distribution of such Exchange Notes. Any holder who tenders in the Exchange
Offer with the intention to participate, or for the purpose of participating, in
a distribution of the Exchange Notes or who is an affiliate of the Company may
not rely upon such interpretations by the staff of the Commission and, in the
absence of an exemption therefrom, must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
secondary resale transaction. Failure to comply with such requirements in such
instance may result in such holder incurring liabilities under the Securities
Act for which the holder is not indemnified by the Company. Each broker-dealer
(other than an affiliate of the Company) that receives Exchange Notes for its
own account in exchange for Old Notes, where such Old Notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. See "Plan of Distribution." The Letters
of Transmittal state that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. The Company has agreed that, for a period of 180
days after the Expiration Date, it will make the Prospectus available to any
broker-dealer for use in connection with any such sale. See "Plan of
Distribution." Any broker-dealer who is an affiliate of the Company may not rely
on such no-action letters and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with a secondary
resale transaction.
The Exchange Offer is not being made to, nor will the Company accept
surrenders for exchange from, holders of Old Notes in any jurisdiction in which
this Exchange Offer or the acceptance thereof would not be in compliance with
the securities or blue sky laws of such jurisdiction.
78
<PAGE>
By tendering in the Exchange Offer, each holder of Old Notes will
represent to the Company that, among other things, (i) the Exchange Notes
acquired pursuant to the Exchange Offer are being acquired in the ordinary
course of business of the person receiving such Exchange Notes, whether or not
such person is the holder, (ii) neither the holder of Old Notes nor any such
other person has an arrangement or understanding with any person to participate
in the distribution of such Exchange Notes, (iii) neither the holder nor any
such other person is an "affiliate" of the Company as defined in Rule 405 under
the Securities Act or, if such holder is an "affiliate, "that such holder will
comply with the registration and prospectus delivery requirements of the
Securities Act to the extent applicable, (iv) if the holder is not a
broker-dealer, that neither the holder nor any such other person is engaged in
or intends to engage in the distribution of such Exchange Notes, and (v) if such
holder is a broker-dealer, that it will receive Exchange Notes for its own
account in exchange for Old Notes that were acquired as a result of
market-making activities or other trading activities and that it will be
required to acknowledge that it will deliver a prospectus in connection with any
resale of such Exchange Notes.
Participation in the Exchange Offer is voluntary and holders should
carefully consider whether to participate. Holders of the Old Notes are urged to
consult their financial and tax advisors in making their own decisions on
whether to participate in the Exchange Offer.
Pursuant to the terms of the Registration Agreement, if, under certain
circumstances, the Exchange Offer is not permitted, the Company shall, as
promptly as practicable (but in no event more than 30 days after so required or
requested pursuant to the Registration Agreement), file with the Commission and
thereafter shall cause to be declared effective under the Securities Act by the
150th day after the Closing Date (as defined in the Registration Agreement) a
Shelf Registration Statement relating to the offer and sale of the Old Notes or
the Exchange Notes, as applicable, by the Holders from time to time in
accordance with the methods of distribution elected by such Holders and set
forth in such Shelf Registration Agreement. The Company will be required to keep
the Shelf Registration Statement continuously effective in order to permit the
prospectus forming part thereof to be usable by the Holders for a period of
three years from the date of the Shelf Registration Statement is declared
effective by the Commission or such shorter period that will terminate when all
the Old Notes or Exchange Notes, as applicable, covered by the Shelf
Registration Statement have been sold pursuant to the Shelf Registration
Statement.
Terms of the Exchange Offer
General. Upon the terms and subject to the conditions set forth in this
Prospectus and in the applicable Letter of Transmittal, the Company hereby
offers to exchange any and all Old Notes validly tendered and not withdrawn
prior to 5:00 p.m., New York City time, on the Expiration Date. Subject to the
minimum denomination requirements of the Exchange Notes, the Company will issue
$1,000 principal amount of Senior Exchange Notes in exchange for each $1,000
principal amount of outstanding Old Senior Notes accepted in the Exchange Offer,
and the Company will issue $1,000 principal amount of Senior Subordinated
Exchange Notes in exchange for each $1,000 principal amount of outstanding Old
Senior Subordinated Notes accepted in the Exchange Offer. Holders may tender
some or all of their Old Notes pursuant to the Exchange Offer, however, Old
Notes may be tendered only in amounts that are integral multiples of $1,000
principal amount.
The form and terms of the Senior Exchange Notes will be identical in
all material respects to the form and terms of the Old Senior Notes except that
(i) the Senior Exchange Notes will be registered under the Securities Act and,
therefore, will not bear legends restricting the transfer and (ii) holders of
the Senior Exchange Notes will not be entitled to certain rights of holders of
Old Senior Notes under the Registration Agreement, which will terminate upon
consummation of the Exchange Offer. The Senior Exchange Notes will evidence the
same debt as the Old Senior Notes, will be entitled to the benefits of the
Senior Notes Indenture and will be treated as a single class thereunder with any
Old Senior Notes that remain outstanding. The Exchange Offer is not conditioned
upon any minimum aggregate principal amount of Old Senior Notes being tendered
for exchange.
The form and terms of the Senior Subordinated Exchange Notes will be
identical in all material respects to the form and terms of the Old Senior
Subordinated Notes except that (i) the Senior Subordinated Exchange Notes will
be registered under the Securities Act and, therefore, will not bear legends
restricting the transfer and (ii) holders of the Senior Subordinated Exchange
Notes will not be entitled to certain rights of holders of Old Senior
Subordinated Notes under the Registration Agreement, which will terminate upon
consummation of the Exchange Offer. The Senior Subordinated Exchange Notes will
evidence the same debt as the Old Senior Subordinated Notes,
79
<PAGE>
will be entitled to the benefits of the Senior Subordinated Notes Indenture and
will be treated as a single class thereunder with any Old Senior Subordinated
Notes that remain outstanding. The Exchange Offer is not conditioned upon any
minimum aggregate principal amount of Old Senior Subordinated Notes being
tendered for exchange.
As of the date of this Prospectus, $300,000,000 aggregate principal
amount of Old Notes is outstanding. This Prospectus, together with the
applicable Letter of Transmittal, is first being sent on or about August 18,
1998 to all holders known to the Company.
Holders of Old Notes do not have any appraisal or dissenters' rights
under the Delaware General Corporation Law or the Indentures in connection with
the Exchange Offer. The Company intends to conduct the Exchange Offer in
accordance with the provisions of the Registration Agreement and the applicable
requirements of the Exchange Act, and the rules and regulations of the
Commission thereunder. Old Notes which are not tendered for exchange in the
Exchange Offer will remain outstanding and interest thereon will continue to
accrue.
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral (confirmed in writing ) or written
notice thereof to the Exchange Agent. The Exchange Agent will act as agent for
the tendering holders for the purposes of receiving the Exchange Notes from the
Company. If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates (or confirmation of a book-entry transfer of such Old
Notes into the Exchange Agent's account at DTC pursuant to the book-entry
procedures described below) for any such unaccepted Old Notes will be returned,
without expense, to the tendering holder thereof as promptly as practicable
after the Expiration Date.
Holders who tender Old Notes in the Exchange Offer will not be required
to pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. The Company will pay all charges and expenses,
other than certain applicable taxes described below, in connection with the
Exchange Offer. See "-- Fees and Expenses".
Expiration Date; Extensions; Amendments. The term "Expiration Date"
shall mean 5:00 p.m., New, York City time, on September 16, 1998, unless the
Company, in its sole discretion, extends the Exchange Offer, in which case the
term "Expiration Date" shall mean the latest date and time to which the Exchange
Offer is extended. Although the Company has no current intention to extend the
Exchange Offer, the Company reserves the right to extend the Exchange Offer at
any time and from time to time by giving oral or written notice to the Exchange
Agent and by timely public announcement communicated, unless otherwise required
by applicable law or regulation, by making a release to the Dow Jones News
Service. During any extension of the Exchange Offer, all Notes previously
tendered pursuant to the Exchange Offer and not withdrawn will remain subject to
the Exchange Offer. The date of the exchange of the Exchange Notes for Old Notes
will be consummated on or about the third New York Stock Exchange trading day
following the Expiration Date.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Old Notes, to extend the Exchange Offer or to terminate the
Exchange Offer if any of the conditions set forth under "-- Conditions of the
Exchange Offer" below shall not have been satisfied, by giving oral or written
notice of such delay, extension or termination to the Exchange Agent and (ii) to
amend the terms of the Exchange Offer in any manner. Any such delay in
acceptance, extension, termination or amendment will be followed as promptly as
practicable by oral or written notice thereof to the holders of Old Notes. If
the Exchange Offer is amended in any manner determined by the Company to
constitute a material change, the Company will promptly disclose such amendment
by means of a prospectus supplement that will be distributed to the holders of
Old Notes, and the Company will extend the Exchange Offer for a period of time,
depending upon the significance of the amendment and the manner of disclosure to
such holders, if the Exchange Offer otherwise would expire during such period.
In all cases, issuance of the Exchange Notes for Old Notes that are
accepted for exchange pursuant to the Exchange Offer will be made only after
timely receipt by the Exchange Agent of a properly completed and duly executed
Letter of Transmittal and all other required documents; provided, however, that
the Company reserves the absolute right to waive any conditions of the Exchange
Offer or defects or irregularities in the tender of Old Notes. If any tendered
Old Notes are not accepted for any reason set forth in the terms and conditions
of the Exchange Offer or if Old Notes are submitted for a greater principal
amount than the holder desires to exchange, such
80
<PAGE>
unaccepted or non-exchanged Old Notes or substitute Old Notes evidencing the
unaccepted portion, as appropriate, will be returned without expense to the
tendering holder (or, in the case of Old Notes tendered by book-entry transfer
into the Exchange Agent's account at DTC pursuant to the book-entry procedures
described below, such non-exchanged Old Notes will be credited to an account
maintained with DTC), unless otherwise provided in the Letter of Transmittal, as
promptly as practicable after the expiration or termination of the Exchange
Offer.
Interest on the Exchange Notes. Holders of Old Notes that are accepted
for exchange will not receive accrued interest thereon at the time of exchange.
However, each Exchange Note will bear interest from the most recent date to
which interest has been paid on the Old Notes or Exchange Notes, or if no
interest has been paid on the Old Notes or Exchange Notes, from February 5,
1998.
Procedures for Tendering Old Notes. The tender to the Company of Old
Notes by a holder thereof pursuant to one of the procedures set forth below will
constitute an agreement between such holder and the Company in accordance with
the terms and subject to the conditions set forth herein and in the applicable
Letter of Transmittal for such Old Note. A holder of the Old Notes may tender
such Old Notes by (i) properly completing and signing a Letter of Transmittal or
a facsimile thereof (all references in this Prospectus to a Letter of
Transmittal shall be deemed to include a facsimile thereof) and delivering the
same, together with any corresponding certificate or certificates representing
Old Notes being tendered (or confirmation of a book-entry-transfer of such Old
Notes into the Exchange Agent's account at DTC pursuant to the book-entry
procedures described below) and any required signature guarantees, to the
Exchange Agent at its address set forth in the Letter of Transmittal on or prior
to the Expiration Date (or complying with the procedure for book-entry transfer
described below) or (ii) complying with the guaranteed delivery procedures
described below.
If tendered Old Notes are registered in the name of the signer of the
Letter of Transmittal and the Exchange Notes to be issued in exchange therefor
are to be issued (and any untendered Old Notes are to be reissued)in the name of
the registered holder (which term, for the purposes described herein, shall
include any participant in DTC (also referred to as a book-entry facility) whose
name appears on a security listing as the owner of Old Notes, the signature of
such signer need not be guaranteed. In any other case, the tendered Old Notes
must be endorsed or accompanied by written instruments of transfer in form
satisfactory to the Company and duly executed by the registered holder and the
signature on the endorsement or instrument of transfer must be guaranteed by a
member firm of a registered national securities exchange or of the National
Association of Securities Dealers, Inc., a commercial bank or trust company
having an office or correspondent in the United States or an "eligible guarantor
institution" as defined by rule 17 Ad-15 under the Exchange Act (any of the
foregoing hereinafter referred to as an "Eligible Institution"). If the Exchange
Notes or Old Notes not exchanged are to be delivered to an address other than
that of the registered holder appearing on the note register for the Old Notes,
the signature in the Letter of Transmittal must be guaranteed by an Eligible
Institution.
THE METHOD OF DELIVERY OF OLD NOTES, THE APPLICABLE LETTER OF
TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE
ELECTION AND RISK OF THE HOLDER. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED
THAT REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED.
IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE
EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR OLD NOTES
SHOULD BE SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS,
DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE
TRANSACTIONS FOR SUCH HOLDERS.
A tender will be deemed to have been received as of the date when (i)
the tendering holder's properly completed and duly signed Letter of Transmittal
accompanied by the Old Notes (or a confirmation of book-entry transfer of such
Old Notes into the Exchange Agent's account at DTC) is received by the Exchange
Agent or (ii) a Notice of Guaranteed Delivery or letter, telegram or facsimile
transmission to similar effect (as provided below) from an Eligible Institution
is received by the Exchange Agent. Issuances of Exchange Notes in exchange for
Old Notes tendered pursuant to a Notice of Guaranteed Delivery or letter,
telegram or facsimile transmission to similar effect (as provided below) by an
Eligible Institution will be made only against submission of a duly signed
Letter of Transmittal (and any other required documents) and deposit of the
tendered Old Notes (or confirmation of a book-entry transfer of such Old Notes
into the Exchange Agent's account at DTC pursuant to the book-entry procedures
described below).
81
<PAGE>
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Old Notes tendered for exchange will be determined by
the Company, which determination will be final and binding. The Company reserves
the absolute right to reject any and all tenders not in proper form the
acceptance for exchange of which may, in the opinion of the Company's counsel,
be unlawful. The Company also reserves the absolute right to waive any of the
conditions of the Exchange Offer or any defect or irregularity in the tender of
any Old Notes. None of the Company, the Exchange Agent or any other person will
be under any duty to give notification of any defects or irregularities in
tenders or incur any liability for failure to give any such notification. Any
Old Notes received by the Exchange Agent that are not validly tendered and as to
which the defects or irregularities have not been cured or waived, or if Old
Notes are submitted in principal amount greater than the principal amount of Old
Notes being tendered by such tendering holder, such unaccepted or non-exchanged
Old Notes (or confirmation of a book-entry transfer of such Old Notes into the
Exchange Agent's account at DTC pursuant to the book-entry procedures described
below) will be returned by the Exchange Agent to the tendering holder, unless
otherwise provided in the Letter of Transmittal, as soon as practicable
following the Expiration Date.
In addition, the Company reserves the right in its sole discretion (i)
to purchase or make offers for any Old Notes that remain outstanding subsequent
to the Expiration Date and (ii) to the extent permitted by applicable law, to
purchase Old Notes in the open market, in privately negotiated transactions or
otherwise. The terms of any such purchases or offers will differ from the terms
of the Exchange Offer.
Book-Entry Transfer. The Company understands that the Exchange Agent
will make a request promptly after the date of this Prospectus to establish an
account with respect to the Old Notes at DTC for the purpose of facilitating the
Exchange Offer, and subject to the establishment thereof, any financial
institution that is a participant in DTC's system may make book-entry delivery
of Old Notes by causing DTC to transfer such Old Notes into the Exchange Agent's
account with respect to the Old Notes in accordance with DTC procedure for such
transfer. Although delivery of the Old Notes may be effected through book-entry
transfer into the Exchange Agent's account at DTC, an appropriate Letter of
Transmittal with any required signature guarantee and all other required
documents must in each case be transmitted to and received or confirmed by the
Exchange Agent at the address set forth in the Letter of Transmittal on or prior
to the Expiration Date, or if the guaranteed delivery procedures described below
are complied with, within the time period provided under such procedures.
Guaranteed Delivery Procedures. If a holder desires to participate in
the Exchange Offer and such holder's Old Notes are not immediately available, or
time will not permit such holder's Old Notes or other required documents to
reach the Exchange Agent before the Expiration Date, or the procedure for
book-entry transfer cannot be completed on a timely basis, a tender may be
effected if (i) the tender is made through an Eligible Institution, (ii) on or
prior to the Expiration Date, the Exchange Agent has received from an Eligible
Institution a properly completed and duly executed Letter of Transmittal (or
facsimile thereof) and Notice of Guaranteed Delivery, substantially in the form
provided by the Company (by telegram, telex, facsimile transmission, mail or
hand delivery), setting forth the name and address of the tendering holder, the
name(s) in which the Old Notes are registered, the certificate number(s) of the
Old Notes to be tendered and the amount tendered, and stating that the tender is
being made thereby and guaranteeing that, within three New York Stock Exchange
trading days after the date of execution of the Notice of Guaranteed Delivery,
such Old Notes, in proper form for transfer (or a confirmation of book-entry
transfer of such Old Notes into the Exchange Agent's account at DTC), will be
delivered by such Eligible Institution together with any other documents
required by the Letter of Transmittal and (iii) the certificates for all
physically tendered Old Notes, in proper form for transfer, or a confirmation of
book-entry transfer of such Old Notes into the Exchange Agent's account at DTC,
as the case may be, and all other documents required by the Letter of
Transmittal are received by the Exchange Agent within three New Stock Exchange
Trading Days after the date of execution of the Notice of Guaranteed Delivery.
Unless Old Notes being tendered by the above-described method are deposited with
the Exchange Agent within the time period set forth above (accompanied or
preceded by a properly completed Letter of Transmittal and any other required
documents), the Company may, at its option, reject the tender. Copies of a
Notice of Guaranteed Delivery which may be used by Eligible Institutions for the
purposes described in this paragraph are available from the Exchange Agent.
Terms and Conditions of the Letters of Transmittal. The Letters of
Transmittal contains, among other things, the following terms and conditions,
which are part of the Exchange Offer.
82
<PAGE>
The party tendering Notes for exchange (the "Transferor") exchanges,
assigns and transfers the Old Notes to the Company and irrevocably constitutes
and appoints the Exchange Agent as the Transferor's true and lawful agent and
attorney-in-fact with respect to such tendered Old Notes, with full power of
substitution, among other things, to cause the Old Notes to be assigned,
transferred and exchanged. The Transferor represents and warrants that it has
full power and authority to tender, exchange, assign and transfer the Old Notes
and to acquire Exchange Notes issuable upon the exchange of such tendered Old
Notes, and that, when the same are accepted for exchange, the Company will
acquire good and unencumbered title to the tendered Old Notes, free and clear of
all liens, restrictions, charges, encumbrances and adverse claims. The
Transferor also warrants that it will, upon request, execute and deliver any
additional documents reasonably requested by the Company or the Exchange Agent
as necessary or desirable to complete and give effect to the transactions
contemplated by the Letter of Transmittal. All authority conferred by the
Transferor will survive the death, bankruptcy or incapacity of the Transferor
and every obligation of the Transferor shall be binding upon the heirs, personal
representatives, executors, administrators, successors, assigns, trustees in
bankruptcy and other legal representatives of such Transferor.
By executing a Letter of Transmittal, each holder will make to the
Company the representations set forth above under the heading "-- Purpose and
Effect of the Exchange Offer".
Withdrawal of Tenders of Notes. Tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date.
To withdraw a tender of Old Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to 5:00 p.m., New York City time, on
the Expiration Date. Any such notice of withdrawal must (i) specify the name of
the person having tendered the Old Notes to be withdrawn (the "Depositor"), (ii)
identify the Notes to be withdrawn (including the certificate number or numbers
and principal amount of such Old Notes), (iii) contain a statement that such
holder is withdrawing his election to have such Old Notes exchanged, (iv) be
signed by the holder in the same manner as the original signature on the Letter
of Transmittal by which such Old Notes were tendered (including any required
signature guarantees) or be accompanied by documents of transfer sufficient to
have the Trustee with respect to the Old Notes register the transfer of such Old
Notes in the name of the person withdrawing the tender and (v) specify the name
in which any such Old Notes are to be registered, if different from that of the
Depositor. If Old Notes have been tendered pursuant to the procedure for
book-entry transfer, any notice of withdrawal must specify the name and number
of the account at DTC. All questions as to the validity, form and
eligibility(including time of receipt) of such notices will be determined by the
Company, which determination shall be final and binding on all parties. Any Old
Notes so withdrawn will be deemed not to have been validly tendered for purposes
of the Exchange Offer and no Exchange Notes will be issued with respect thereto
unless the Old Notes so withdrawn are validly retendered. Any Old Notes which
have been tendered but which are not accepted for exchange will be returned to
the holder thereof without cost to such holder (or, in the case of Old Notes
tendered by book-entry transfer into the Exchange Agent's account at DTC
pursuant to the book-entry transfer procedures described above, such Old Notes
will be credited to an account maintained with DTC for the Old Notes) as soon as
practicable after withdrawal, rejection of tender or termination of the Exchange
Offer. Properly withdrawn Old Notes may be retendered by following one of the
procedures described above under "-- Procedures for Tendering Old Notes" at
anytime on or prior to the Expiration Date.
Conditions of the Exchange Offer
Notwithstanding any other term of the Exchange Offer, or any extension
of the Exchange Offer, the Company shall not be required to accept for exchange,
or exchange Exchange Notes for, any Old Notes, and may terminate the Exchange
Offer as provided herein before the acceptance of such Old Notes, if:
(a) any statute, rule or regulation shall have been enacted,
or any action shall have been taken by any court or governmental authority
which, in the reasonable judgment of the Company, seeks to or would prohibit,
restrict, materially delay or otherwise render illegal consummation of the
Exchange Offer, or
(b) any change, or any development involving a prospective
change, in the business or financial affairs of the Company or any of its
subsidiaries has occurred which, in the sole judgment of the Company, might
materially impair the ability of the Company to proceed with the Exchange Offer
or materially impair the contemplated benefits of the Exchange Offer to the
Company, or
83
<PAGE>
(c) there shall occur a change in the current interpretations
by the staff of the Commission which, in the Company's reasonable judgment,
might materially impair the Company's ability to proceed with the Exchange
Offer.
If the Company determines in its sole discretion that any of the above
conditions is not satisfied, the Company may (i) refuse to accept any Old Notes
and return all tendered Old Notes to the tendering holders, (ii) extend the
Exchange Offer and retain all Old Notes tendered prior to the Expiration Date,
subject, however, to the right of holders to withdraw such Old Notes (see
"--Terms of the Exchange Offer --Withdrawal of Tenders of Old Notes") or (iii)
waive such unsatisfied conditions with respect to the Exchange Offer and accept
all validly tendered Old Notes which have not been withdrawn. If such waiver
constitutes a material change to the Exchange Offer, the Company will promptly
disclose such waiver by means of a prospectus supplement that will be
distributed to the holders of Old Notes, and the Company will extend the
Exchange Offer for a period of time, depending upon the significance of the
waiver and the manner of disclosure to the such holders, if the Exchange Offer
otherwise would expire during such period.
Exchange Agent
The Bank of New York has been appointed as Exchange Agent for the
Exchange Offer. All executed Letters of Transmittal should be directed to the
Exchange Agent at one of the addresses set forth below. Requests for additional
copies of this Prospectus or of the Letter of Transmittal and requests for
Notices of Guaranteed Delivery should be directed to the Exchange Agent
addressed as follows:
The Bank of New York
Reorganization Section
101 Barclay Street-7E
New York, New York 10286
Attn: Noriko Miyazaki
By Facsimile Transmission (for Eligible Institutions only):
(212) 571-3080
Attn: Noriko Miyazaki
Confirm by Telephone:
(212) 815-6333
Fees and Expenses
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telecopy, telephone or in person by officers and regular
employees of the Company and its affiliates. No additional compensation will be
paid to any such officers and employees who engage in soliciting tenders.
The Company has not retained any dealer-manager or other soliciting
agent in connection with the Exchange Offer and will not make any payments to
brokers, dealers or others soliciting acceptance of the Exchange Offer. The
Company, however, will pay the Exchange Agent reasonable and customary fees for
its services and will reimburse it for its reasonable out-of-pocket expenses in
connection therewith. The Company also may pay brokerage houses and other
custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding copies of this Prospectus, the Letter of
Transmittal and related documents to the beneficial owners of the Old Notes and
in handling or forwarding tenders for exchange.
The expenses to be incurred in connection with the Exchange Offer will
be paid by the Company. Such expenses include, among others, fees and expenses
of the Exchange Agent, accounting and legal fees and printing costs.
84
<PAGE>
The Company will pay all transfer taxes, if any, applicable to the
exchange of the Old Notes pursuant to the Exchange Offer. If, however, Exchange
Notes, or Old Notes for principal amounts not tendered or accepted for exchange,
are to be delivered to, or are to be issued in the name of, any person other
than the registered holder of the Old Notes tendered or if a transfer tax is
imposed for any reason other than the exchange of the Old Notes pursuant to the
Exchange Offer, then the amount of any such transfer taxes (whether imposed on
the holder or any other persons) will be payable by the tendering holder. If
satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with the Letter of Transmittal, the amount of such transfer taxes will
be billed directly to such tendering holder.
Consequences of Failure to Exchange
The Old Notes that are not exchanged for Exchange Notes pursuant to the
Exchange Offer will remain restricted securities within the meaning of Rule 144
of the Securities Act. Accordingly, such Old Notes may be resold only (i) to the
Company or any subsidiary thereof, (ii) inside the United States to a qualified
institutional buyer in compliance with Rule 144A, (iii) inside the United States
to an institutional accredited investor that, prior to such transfer, furnishes
to the Trustee a signed letter containing certain representations and agreements
relating to the restrictions on transfer of the Old Notes (the form of which
letter can be obtained from the Trustee) and, if such transfer is in respect of
an aggregate principal amount of Old Notes at the time of transfer of less than
$100,000, an opinion of counsel acceptable to the Company that such transfer is
in compliance with the Securities Act, (iv) outside the United States in
compliance with Rule 904 under the Securities Act, (v) pursuant to the exemption
from registration provided by Rule 144 under the Securities Act (if available)
or (vi) pursuant to an effective registration statement under the Securities
Act. The liquidity of the Old Notes could be adversely affected by the Exchange
Offer.
Accounting Treatment
The Exchange Notes will be recorded at the same carrying value as the
Old Notes, as reflected in the Company's accounting records on the date of the
exchange. Accordingly, no gain or loss for accounting purposes will be
recognized by the Company. The costs of the Exchange Offer and the unamortized
expenses related to the issuance of the Old Notes will be amortized over the
term of the Exchange Notes.
85
<PAGE>
CERTAIN MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of certain material United States
federal income tax consequences associated with the exchange of the Old Notes
for the Exchange Notes and the ownership and disposition of Exchange Notes by a
holder who holds the Exchange Notes as a "capital asset" (generally, property
held for investment). This discussion is based upon the Internal Revenue Code of
1986, as amended (the "Code"), the Treasury regulations promulgated thereunder,
rulings, official pronouncements, and judicial decisions, all as in effect on
the date hereof and all of which are subject to change, possibly with
retroactive effect. This discussion is a summary of certain of the United States
federal income tax consequences and does not address all aspects of federal
income taxation that may be relevant to holders, in light of their specific
circumstances, particularly holders subject to special tax treatment (such as
insurance companies, financial institutions, tax-exempt organizations or foreign
persons, except to the extent described below). This discussion does not address
any state or local tax consequences which may be associated with the Old Notes,
the Exchange Notes or the Exchange. Holders are urged to consult their own tax
advisors regarding the application of the United States federal income tax laws
to their particular situations as well as any tax consequences that may arise
under the laws of any foreign, state, local or other taxing jurisdiction.
Exchange of Notes. The exchange of the Old Notes for the Exchange Notes
pursuant to the Exchange Offer will not be a taxable event to the holder, and
the holder will not recognize any taxable gain or loss as a result of the
exchange. As such, a holder will have the same adjusted tax basis in the
Exchange Notes that such holder had in the Old Notes immediately before the
exchange, and such holder's holding period for the Exchange Notes will include
his or its holding period for the Old Notes. In addition, to the extent that a
holder acquired the Old Notes at a discount or with amortizable bond premium,
such discount or premium will carry over to the Exchange Notes received in
exchange for the Old Notes.
Taxation of Exchange Notes. Interest on the Exchange Notes will
generally be taxable to a holder as ordinary interest income in accordance with
such holder's method of accounting for United States federal income tax
purposes.
Disposition of Exchange Notes. In general, the holder of an Exchange
Note will recognize gain or loss upon the sale, redemption, retirement or other
disposition of the Exchange Note, measured by the difference between the amount
of cash and the fair market value of property received (except to the extent
attributable to the payment of accrued interest), and the holder's adjusted tax
basis in the Exchange Note. Subject to the market discount rules discussed
below, the gain or loss on the sale, redemption, retirement or other disposition
of an Exchange Note will be long-term capital gain or loss, provided the holder
has a holding period for the Exchange Note of more than one year and was holding
the Exchange Note for investment. In the case of a U.S. holder who is an
individual, any capital gain recognized on the sale or other disposition of an
Exchange Note generally will be subject to a maximum U.S. federal income tax
rate of (i) 20% if such U.S. holder's holding period exceeds 18 months and (ii)
28% if such U.S. holder's holding period is more than a year and not more than
18 months.
Market Discount on Resale. Holders, other than original purchasers of
the Old Notes in the original offering, should be aware that the resale or other
disposition of an Exchange Note may be affected by the market discount
provisions of the Code. These rules generally provide that if a subsequent
holder of an Exchange Note purchases it at a market discount in excess of a
statutorily defined de minimis amount, and thereafter recognizes gain upon a
disposition of the Exchange Note, then the lesser of such gain or the portion of
the market discount that accrued while the Exchange Note was held by such holder
will be treated as ordinary interest income at the time of the disposition. The
rules further provide that a holder who acquires an Exchange Note at a market
discount may be required to defer a portion of any interest expense that may
otherwise be deductible on any indebtedness incurred or maintained to purchase
or carry such Exchange Note until the holder disposes of such Exchange Note in a
taxable transaction. If, however, the holder of such an Exchange Note elects to
include market discount in income currently, both of the foregoing sentences
would not apply.
Information Reporting and Backup Withholding. A U.S. holder may be
subject to backup withholding at a rate of 31% with respect to interest paid on,
or proceeds derived from the sale or other disposition of, an Exchange Note,
unless the U.S. holder (i) is a corporation or comes within certain other exempt
categories, or (ii) provides a taxpayer identification number, certifies as to
no loss of exemption from backup withholding and otherwise complies with
applicable requirements of backup withholding. Any amounts withheld under the
backup
86
<PAGE>
withholding rules will be refunded or credited against the holder's United
States federal income tax liability, provided that the required information is
furnished to the Internal Revenue Service.
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Old Notes where such Old Notes were acquired by such broker-dealer
as a result of market-making activities or other trading activities. The Company
has agreed that, starting on the Expiration Date and ending on the close of
business on the 180th day following the Expiration Date, it will make this
Prospectus, as amended or supplemented, available to any broker-dealer for use
in connection with any such resale. In addition, until September 26, 1998, all
dealers effecting transactions in the Exchange Notes may be required to deliver
a prospectus.
The Company will not receive any proceeds from any sale of Exchange
Notes by broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
may be made directly to purchasers or to or through brokers or dealers who may
receive compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such Exchange Notes. Any
broker-dealer that resells Exchange Notes that were received by it for its own
account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit of any
such resale of Exchange Notes and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under the Securities
Act. The Letters of Transmittal state that by acknowledging that it will deliver
and by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay all expenses
incident to the Exchange Offer (including the expenses of one counsel for the
holders of the Notes) other than commissions or concessions of any brokers or
dealers and will indemnify the holders of the Notes (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
LEGAL MATTERS
The legality of the Exchange Notes offered hereby will be passed upon
for the Company by Saul, Ewing, Remick & Saul LLP, Philadelphia, Pennsylvania
and Samuel W. Morris, Jr., Esquire, Vice President and General Counsel of the
Company. Certain legal matters with respect to regulation and legislation
concerning the cable television industry will be passed upon for the Company by
Fleischman and Walsh, L.L.P., Washington, D.C.
EXPERTS
The consolidated financial statements and financial statement schedule
of the Company and its subsidiaries as of December 31, 1996 and 1997, and for
each year in the three-year period ended December 31, 1997, included in this
Prospectus and in the Registration Statement have been audited by Pressman
Ciocca Smith LLP, independent certified public accountants, as stated in their
report appearing herein and elsewhere in the Registration Statement. Such
financial statements and financial statement schedule have been included herein
in reliance upon such reports of such firm given upon their authority as experts
in auditing and accounting.
The financial statements relating to Garden State Cablevision L.P. as
of December 31, 1996 and 1997, and for each of the three years in the period
ended December 31, 1997, included in this Prospectus and elsewhere in the
Registration Statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated their report appearing herein and elsewhere in
the Registration Statement. Such financial statements have been included herein
in reliance upon such reports of such firm given upon their authority as experts
in auditing and accounting.
87
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS
- --------------------
<S> <C>
LENFEST COMMUNICATONS, INC. AND SUBSIDIARIES
Report of Independent Certified Public Accountants ................................................................. F-2
Consolidated Balance Sheets, December 31, 1996 and 1997, and March 31, 1998 ....................................... F-3
Consolidated Statements of Operations, Years Ended December 31, 1995, 1996 and 1997, and the Three Months Ended
March 31, 1997 and 1998 .......................................................................................... F-5
Consolidated Statements of Changes in Stockholders' Equity (Deficit),
Years Ended December 31, 1995, 1996 and 1997, and the Three Months Ended March 31, 1997 and 1998 ................ F-6
Consolidated Statements of Cash Flows, Years Ended December 31, 1995, 1996 and 1997, and the Three Months Ended
March 31, 1997 and 1998 ........................................................................................... F-7
Notes to Consolidated Financial Statements ......................................................................... F-9
GARDEN STATE CABLEVISION L.P.
Report of Independent Public Accountants............................................................................ F-38
Balance Sheets, December 31, 1996 and 1997 ......................................................................... F-39
Statements of Operations, Years Ended December 31, 1995, 1996 and 1997 ............................................. F-40
Statements of Cash Flows, Years Ended December 31, 1995, 1996 and 1997 ............................................. F-41
Statements of Partners' (Deficit) Capital, Years Ended December 31,
1995, 1996 and 1997 .............................................................................................. F-42
Notes to Financial Statements ...................................................................................... F-43
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
Lenfest Communications, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Lenfest
Communications, Inc. (a Delaware corporation) and subsidiaries as of December
31, 1996 and 1997, and the related consolidated statements of operations,
changes in stockholders' equity (deficit) and cash flows for each of the years
in the three-year period ended December 31, 1997. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated 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 Lenfest
Communications, Inc. and subsidiaries as of December 31, 1996 and 1997, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1997, in conformity with generally accepted
accounting principles.
As discussed in Note 2 to the financial statements, the Company has sold
substantially all of the assets of Lenfest MCN, Inc. and MicroNet Delmarva
Associates, L.P., wholly owned subsidiaries of the Company. Prior period
financial statements have been restated to reflect the continuing operations of
the Company.
Pressman Ciocca Smith LLP
Hatboro, Pennsylvania
March 4, 1998 (except as to the sixth
paragraph of Note 12, the first
paragraph and second paragraph
of Note 20 and the second paragraph
of Note 26 as to which the
date is June 22, 1998)
F-2
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
(Unaudited)
December 31, March 31,
----------------------------------- ------------
1996 1997 1998
-------------- -------------- ------------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 19,162 $ 15,623 $ 22,017
Marketable securities 79,830 14,452 11,825
Accounts receivable - trade and other, less allowance for doubtful
accounts of $1,985 in 1996, $2,923 in 1997 and $2,659 in 1998 19,885 23,206 17,510
Inventories 2,757 2,153 2,242
Prepaid expenses 2,364 2,960 3,278
Property and equipment, net of accumulated
depreciation 372,387 413,787 409,677
Investments in affiliates, accounted for under the equity
method, and related receivables 41,333 46,471 45,146
Other investments, at cost 10,410 10,410 22,116
Goodwill, net of amortization 74,404 73,136 72,222
Deferred franchise costs, net of amortization 494,568 507,023 494,601
Other intangible assets, net of amortization 24,908 28,341 24,333
Deferred Federal tax asset (net) 52,257 74,251 77,671
Net assets of discontinued operations 20,971 2,660 375
Other assets 6,552 5,247 6,355
-------------- -------------- ------------
$ 1,221,788 $ 1,219,720 $ 1,209,368
============== ============== ============
</TABLE>
See accompanying notes.
(continued)
F-3
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, (continued)
(Dollars in thousands)
<TABLE>
<CAPTION>
(Unaudited)
December 31, March 31,
----------------------------------- -----------
1996 1997 1998
-------------- -------------- -----------
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
Notes payable $ 1,303,200 $ 1,287,988 $ 1,279,158
Obligations under capital leases - related party 5,186 3,722 3,684
Obligations under capital leases - unrelated parties 4,477 3,596 3,303
Accounts payable and accrued expenses - unrelated parties 38,781 50,867 61,201
Accounts payable - affiliate 12,855 26,304 21,653
Customer service prepayments and deposits 8,614 6,984 7,310
Deferred interest - 7,063 6,930
Deferred state tax liability (net) 9,066 9,580 9,505
Investment in Garden State Cablevision L.P. 72,454 77,880 77,747
-------------- -------------- -----------
TOTAL LIABILITIES 1,454,633 1,473,984 1,470,491
MINORITY INTEREST in equity of consolidated
subsidiaries 945 - -
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $.01 par value, 158,896 shares
authorized, issued and outstanding 2 2 2
Additional paid-in capital 50,747 50,747 50,747
Accumulated other comprehensive income (loss), net of deferred
tax liabilities of $317 in 1996, $269 in 1997 and $278 in 1998 (9,866) 499 515
Accumulated deficit (274,673) (305,512) (312,387)
-------------- -------------- -----------
(233,790) (254,264) (261,123)
-------------- -------------- -----------
$ 1,221,788 $ 1,219,720 $ 1,209,368
============== ============== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(Dollars in thousands) (Unaudited)
Three Months Ended
Year Ended December 31, March 31,
------------------------------------------------ ---------------------
1995 1996 1997 1997 1998
------------- ------------ -------------- ----------- -------
<S> <C> <C> <C> <C> <C>
REVENUES $ 254,225 $ 381,810 $ 447,390 $ 107,668 $ 110,665
OPERATING EXPENSES
Service 15,670 29,299 33,772 8,755 10,779
Programming - from affiliate 37,685 57,344 62,892 15,687 17,335
Programming - other cable 17,637 25,460 30,196 7,775 7,584
Selling, general and administrative 55,262 82,688 105,470 22,391 22,719
Direct costs - non-cable 18,859 21,150 22,337 5,452 3,559
Depreciation 49,126 65,712 78,801 18,611 22,133
Amortization 25,146 45,565 51,138 13,514 14,523
--------- ---------- ----------- ---------- --------
219,385 327,218 384,606 92,185 98,632
--------- ---------- ----------- ---------- --------
OPERATING INCOME 34,840 54,592 62,784 15,483 12,033
OTHER INCOME (EXPENSE)
Interest expense (60,909) (107,201) (120,788) (31,917) (31,499)
Equity in net (losses) of unconsolidated affiliates (10,682) (17,870) (7,334) 1,292 (814)
Recognized (loss) on decline in market value of
securities -
Australis Media Limited - (86,400) (44,572) - -
Other income and expense (net) 14,927 13,909 9,154 510 15,611
--------- ---------- ----------- ---------- --------
(56,664) (197,562) (163,540) (30,115) (16,702)
--------- ---------- ----------- ---------- --------
(LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (21,824) (142,970) (100,756) (14,632) (4,669)
INCOME TAX BENEFIT (NET) 10,724 14,329 36,179 4,271 855
--------- ---------- ----------- ---------- --------
(LOSS) FROM CONTINUING OPERATIONS (11,100) (128,641) (64,577) (10,361) (3,814)
DISCONTINUED OPERATIONS (net of applicable
income taxes)
Income (loss) from discontinued operations of Lenfest (395) 363 1,469 900 -
MCN, Inc. and affiliates
Gain on sale of assets of Lenfest MCN, Inc. and affiliates - - 32,269 - -
--------- ---------- ----------- ---------- --------
(395) 363 33,738 900 -
--------- ---------- ----------- ---------- --------
(LOSS) BEFORE EXTRAORDINARY LOSS (11,495) (128,278) (30,839) (9,461) (3,814)
--------- ---------- ----------- ---------- --------
EXTRAORDINARY (LOSS)
Early extinguishment of debt, net of income taxes of
$3,629 in 1995 and $1,337 in 1996 (6,739) (2,484) - - (3,061)
--------- ---------- ----------- ---------- --------
NET (LOSS) (18,234) (130,762) (30,839) (9,461) (6,875)
OTHER COMPREHENSIVE INCOME, net of tax
Unrealized gains on securities:
Unrealized holding gains (losses) arising during the
period 36,168 (143,894) (33,739) 9,492 3,680
Less: reclassification adjustment for (gains) losses
included in net (loss) (13,517) 86,058 44,104 (73) (3,664)
--------- ---------- ----------- ---------- --------
22,651 (57,836) 10,365 9,419 16
--------- ---------- ----------- ---------- --------
COMPREHENSIVE INCOME (LOSS) $ 4,417 $ (188,598) $ (20,474) $ (42) $ (6,859)
========= ========== =========== =========== ========
</TABLE>
See accompanying notes.
F-5
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS'
EQUITY (DEFICIT)
(Dollars in thousands)
<TABLE>
<CAPTION>
(Unaudited)
Three Months Ended
Year Ended December 31, March 31,
----------------------------------------------- -----------------------
1995 1996 1997 1997 1998
------------ ------------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
COMMON STOCK
BALANCE AT BEGINNING
AND END OF YEAR $ 2 $ 2 $ 2 $ 2 $ 2
=========== =========== =========== =========== ========
ADDITIONAL PAID-IN CAPITAL
BALANCE AT BEGINNING
AND END OF YEAR $ 50,747 $ 50,747 $ 50,747 $ 50,747 $ 50,747
=========== =========== =========== =========== =========
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
UNREALIZED GAIN (LOSS) ON MARKETABLE
SECURITIES
Balance at beginning of year $ 25,319 $ 47,970 $ (9,866) $ (4,866) $ 499
Net unrealized gain (loss) on marketable
securities, net of
deferred tax liabilities 22,651 (57,836) 10,365 4,420 16
----------- ----------- ----------- ------------ ---------
BALANCE AT END OF YEAR $ 47,970 $ (9,866) $ 499 $ (446) $ 515
=========== =========== =========== =========== =========
ACCUMULATED DEFICIT
Balance at beginning of year $ (125,677) $ (143,911) $ (274,673) $ (274,673) $(305,512)
Net (loss) (18,234) (130,762) (30,839) (9,461) (6,875)
----------- ----------- ----------- ------------ ---------
BALANCE AT END OF YEAR $ (143,911) $ (274,673) $ (305,512) $ (284,134) $(312,387)
=========== =========== =========== =========== =========
TOTAL STOCKHOLDERS'
EQUITY (DEFICIT) $ (45,192) $ (233,790) $ (254,264) $ (233,831) $(261,123)
=========== =========== =========== =========== =========
</TABLE>
See accompanying notes.
F-6
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
(Unaudited)
Three Months Ended
Year Ended December 31, March 31,
----------------------------------------------- -----------------------
1995 1996 1997 1997 1998
------------ ------------ ------------ ---------- -----------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $ (18,234) $ (130,762) $ (30,839) $ (9,461) $ (6,875)
(Income) loss from discontinued operations 395 (363) (1,469) (900) -
(Gain) on sale of assets of discontinued operations - - (32,269)
Extraordinary loss 6,739 2,484 - - 3,061
----------- ----------- ----------- ------------ -----------
Loss from continuing operations (11,100) (128,641) (64,577) (10,361) (3,814)
Adjustments to reconcile loss from continuing operations
to net cash provided by operating activities:
Depreciation and amortization 74,272 111,277 129,939 32,125 36,656
Accretion of debt discount 328 1,081 1,788 376 438
Accretion of discount on marketable securities - (1,026) (477) (26) -
Net (gains) on sales of marketable securities (13,517) (342) (468) (73) (3,664)
Recognized loss on decline in market value of securities -
Australis Media Limited - 86,400 44,572 - -
(Gain) on disposition of equity investment - (7,210) (7,318) - (11,489)
Deferred income tax (benefit) (10,724) (15,226) (21,431) (4,271) (1,855)
Write off of assets upon rebuild of cable systems 282 846 - - -
(Gain) loss on sales of property and equipment (115) (326) 694 (28) (33)
Equity in net losses of unconsolidated affiliates 10,682 17,870 7,334 (1,292) 814
Loss on other investments 75 - - - -
Minority interests (1,347) (2,492) (945) (282) -
Changes in operating assets and liabilities, net
of effects from acquisitions:
Cash - restricted escrow 3,273 - -
Accounts receivable 2,675 (7,100) (3,321) (611) 5,696
Inventories 2,260 2,175 604 497 (89)
Prepaid expenses 594 278 (596) (995) (318)
Other assets (291) (3,363) 1,305 (1,227) (1,108)
Deferred interest - - 7,063 - (132)
Accounts payable and accrued expenses:
Affiliate (433) 5,650 13,449 (491) (4,651)
Unrelated parties 11,749 6,599 12,086 18,273 10,334
Customer service prepayments and deposits (70) 637 (1,630) (278) (156)
----------- ----------- ----------- ------------ -----------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 68,593 67,087 118,071 31,336 26,629
----------- ----------- ----------- ------------ -----------
</TABLE>
See accompanying notes.
(continued)
F-7
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, (continued)
(Dollars in thousands)
<TABLE>
<CAPTION>
(Unaudited)
Year Ended December 31, Three Months Ended March 31,
------------------------------------- ---------------------------
1995 1996 1997 1997 1998
---------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of cable systems $ - $ (604,032) $ (84,500) $ (84,500) $ -
Acquisition of the minority interest of South
Jersey Cablevision Associates (8,838) - - - -
Non cable acquisitions - (5,600) - - -
Purchases of property and equipment (44,144) (57,397) (94,519) (14,508) (18,023)
Purchases of marketable securities (2,678) (582) (3,091) (301) (1,078)
Purchases of other investments (71) - - - -
Proceeds from transfer of cable system - 4,500 - - -
Proceeds from sales of property and equipment 192 381 1,091 28 33
Proceeds from sales of marketable securities 16,545 1,952 45,223 189 7,878
Proceeds from sale of assets of - - 70,250 - -
discontinued operations
Discontinued operations (1,677) (255) (18,558) 1,083 2,285
Loans to Australis Media - (41,139) - - -
Proceeds from Australis Media note receivable 19,240 41,139 - - -
Investments in unconsolidated affiliates (19,492) (4,183) (9,346) (6,592) -
Distributions from unconsolidated affiliates 1,826 45,932 775 75 475
(Increase) in other intangible assets - investing (306) (4,539) (8,876) (747) (165)
Loans and advances to unconsolidated affiliates (726) (470) (4,849) (181) (890)
Loans and advances from unconsolidated affiliates 1,110 8,390 3,627 1,966 570
---------- ---------- ---------- --------- ----------
NET CASH (USED IN)
INVESTING ACTIVITIES (39,019) (615,903) (102,773) (103,488) (8,915)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in debt 741,363 942,023 105,000 75,000 296,386
Early extinguishment of debt (91,118) (448,821) - - (67,375)
Other debt reduction:
Notes (515,528) (80,345) (122,000) (15,000) (240,000)
Obligations under capital leases (49) (256) (1,490) (170) (331)
(Increase) in other intangible assets - financing (4,110) (9,045) (347) (252) -
---------- ---------- ---------- --------- ----------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 130,558 403,556 (18,837) 59,578 (11,320)
---------- ---------- ---------- --------- ----------
NET INCREASE
(DECREASE) IN CASH 160,132 (145,260) (3,539) (12,574) 6,394
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 4,290 164,422 19,162 19,162 15,623
---------- ---------- ---------- --------- ----------
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 164,422 $ 19,162 $ 15,623 $ 6,588 $ 22,017
========== ========== ========== ========= ==========
</TABLE>
See accompanying notes.
F-8
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1996 and 1997
(Information as of March 31, 1998, and for the three months ended March 31, 1997
and 1998 are unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Lenfest Communications, Inc.
and subsidiaries ("the Company") is presented to assist in understanding its
financial statements. These accounting policies conform to generally accepted
accounting principles and have been consistently applied in the preparation of
the consolidated financial statements.
Business Activities and Concentrations of Credit Risk
The Company, through its cable subsidiaries, owns and operates clusters of cable
television systems located in the suburbs of Philadelphia, Pennsylvania, from
Harrisburg, Pennsylvania through Wilmington, Delaware and south through Atlantic
City, New Jersey. In addition, the Company, through its non-cable subsidiaries,
sells advertising for cable television systems and provides satellite delivered
cross channel tune-in promotional services for cable television. The Company's
ability to collect the amounts due from customers is primarily affected by
economic fluctuations in these geographic areas.
The Company maintains cash balances at several financial institutions located
primarily in the Philadelphia Area. Accounts at each institution are insured by
either the FDIC or another institutional insurance fund up to $100,000 and
$500,000, respectively. The Company maintains cash balances in excess of the
insured amounts.
Basis of Consolidation, Change in Reporting Entity and Restatement
The consolidated financial statements include the accounts of Lenfest
Communications, Inc. and those of all wholly owned subsidiaries. In addition,
effective 1995, the accounts of L-TCI Associates, a partnership that is owned
approximately eighty percent (80%) by the Company, are also included.
Significant intercompany accounts and transactions have been eliminated in
consolidation.
During 1996, the Company acquired an additional 50% interest in Atlantic
Communication Enterprises, which increased its holdings to 100%. Accordingly,
the Company changed its method of accounting for this investment from the equity
method to consolidation as required by generally accepted accounting principles.
This change in consolidation policy had no effect on net loss for 1995 or 1996.
Since the amounts are not material and have no effect on net loss, the prior
period financial statements were not restated to reflect the change in
consolidation policy.
The prior period financial statements have been restated to reflect the
continuing operations of the Company. See Note 2 - Discontinued Operations.
Unaudited Interim Statements
The financial statements as of March 31, 1998, and for the three months ended
March 31, 1997 and 1998 are unaudited; however, in the opinion of the management
of the Company, all adjustments (consisting solely of normal recurring
adjustments) necessary for a fair presentation of the financial statements for
these interim periods have been made. The results for the interim periods ended
March 31, 1997 and 1998 are not necessarily indicative of the results to be
obtained for a full fiscal year.
Use of Estimates
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and reported amount of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand and marketable debt securities
with original maturities of three months or less.
F-9
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (continued)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (continued)
Inventories
Inventories are stated at the lower of cost or market on a first-in, first-out
basis. Inventories consist of equipment assembled and sold by some of the
Company's non-cable wholly owned subsidiaries.
Property and Equipment
Property and equipment are stated at cost. For the newly acquired systems or
companies, the purchase price has been allocated to net assets on the basis of
fair market values as determined by the reproduction cost technique which
involves determining the current cost of all labor, materials and overhead
necessary to create the assets, and then deducting allowances for depreciation
and obsolescence. Depreciation is provided using the accelerated and
straight-line methods of depreciation for financial reporting purposes at rates
based on estimated useful lives. For income tax purposes, recovery of capital
costs for property and equipment is made using accelerated methods over
statutory recovery periods.
Expenditures for renewals and betterments that extend the useful lives of
property and equipment are capitalized. Expenditures for maintenance and repairs
are charged to expense as incurred.
Property and Equipment Under Capital Leases
Property and equipment capitalized under capital leases are amortized on the
straight-line method over the term of the leases or the estimated useful lives
of the assets. Amortization of leased assets is included in depreciation expense
in the statements of operations.
Capitalization of Self Constructed Assets
All costs attributable to cable television plant, including materials, direct
labor, and construction overhead are capitalized. Initial customer installation
costs, including material, labor and overhead are capitalized and depreciated
over eight years. The costs of subsequently disconnecting and reconnecting are
charged to expense. Installation income has been fully recognized.
Deferred Franchise Costs, Goodwill and Other Intangible Assets
Deferred franchise costs, goodwill and other intangible assets acquired in
connection with the purchases of cable systems and other companies have been
valued at acquisition cost on the basis of the allocation of the purchase price
on a fair market value basis to net assets as determined by the projected
earnings method which discounts projected earnings over a fifteen year period to
a present value. Additions to these assets are stated at cost. Other intangible
assets consist of customer lists, debt acquisition costs, organization costs and
covenants not to compete. Management has determined in its reasonable judgment
and based on its understanding of practices of similarly situated multiple cable
system operators that franchises it holds, in the aggregate, comprise the
material portion of its intangible assets and, as a result, it has allocated
only a minimal value to customer lists. Goodwill represents the cost of acquired
cable systems and companies in excess of amounts allocated to specific assets
based on their fair market values. Deferred franchise costs are amortized on the
straight-line method over the legal franchise lives, generally 10 to 20 years.
Other intangible assets are being amortized on the straight-line method over
their legal or estimated useful lives, generally ranging from 5 to 10 years.
Goodwill is amortized on the straight-line method over 20 to 40 years.
Valuation of Long-Lived Assets
In accordance with Statement of Financial Accounting Standards No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of" and Accounting Principles Board ("APB") Opinion No. 17
"Intangible Assets", the Company assesses, on an on-going basis, the
recoverability of long-lived assets based on estimates of future undiscounted
cash flows for the applicable business acquired compared to net book value.
Long-lived assets include property and equipment, deferred franchise costs,
goodwill and other intangible assets. If the future undiscounted cash flow
estimate is less than net book value, net book value is then reduced to the fair
value of the assets. The Company also evaluates the depreciation and
amortization periods of tangible and intangible assets, including goodwill, to
determine whether events or circumstances warrant revised estimates of useful
lives. As of December 31, 1997, management believes that no revisions to the
remaining useful lives or writedowns of long-lived assets are required.
F-10
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (continued)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (continued)
Investments
Investments in non-publicly traded entities that do not have a readily
ascertainable fair market value, in which the voting interest is less than 20%,
are generally carried at cost. Investments in marketable equity securities are
carried at fair market value and any unrealized appreciation is presented as a
separate component of stockholders' equity (deficit), net of deferred taxes. For
those investments in affiliates in which the Company's voting interest is 20% to
50%, the equity method of accounting is used. Under this method, the original
investment, recorded at cost, is adjusted to recognize the Company's share of
the net earnings or losses of the affiliates as they occur rather than as
dividends or other distributions are received, limited to the extent of the
Company's investment in, advances to and guarantees for the investee. The
Company's share of net earnings or losses of affiliates includes the
amortization of purchase adjustments.
Foreign Currency Translation
All balance sheet accounts of foreign investments are translated at the current
exchange rate as of the end of the year. Statement of operations items are
translated at average currency exchange rates. The resulting translation
adjustment is included with unrealized gain (loss) on marketable securities, a
separate component of stockholders' equity (deficit), net of deferred taxes.
Income Taxes
The Company files a consolidated Federal tax return. Investment and other tax
credits are recognized under the flow-through method of accounting.
Advertising
The Company follows the policy of charging the costs of advertising to expense
as incurred.
Interest Rate Swap Agreements
The amount of interest to be paid or received is accrued as interest rates
change and is recognized over the life of the agreements as an adjustment to
interest expense.
Compensated Absences
Employees of the Company are entitled to carry over up to five days of earned,
unused vacation to the following year. The Company also pays employees for
earned, unused vacation days upon termination of employment. The Company does
not accrue this liability because it does not believe this liability to be
material.
Revenue Recognition
The Company bills its customers in advance; however, revenue is recognized as
cable television services are provided. Receivables are generally collected
within 30 days. Credit risk is managed by disconnecting services to customers
who are delinquent. Other revenues are recognized as services are provided or
equipment is delivered. Revenues obtained from the connection of customers of
the cable television system are less than related direct selling costs;
therefore, such revenues are recognized as received.
F-11
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (continued)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (continued)
Recent Accounting Pronouncements
The Financial Accounting Standards Board (the "FASB") has recently issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income" ("SFAS No. 130"). SFAS No. 130 established standards for
reporting and display of comprehensive income and its components in the
financial statements. SFAS No. 130 is effective for fiscal years beginning after
December 15, 1997. Reclassification of financial statements for earlier periods
provided for comparative purposes is required. The Company is in the process of
determining its preferred format. The adoption of SFAS No. 130 will have no
impact on the Company's consolidated results of operations, financial position
or cash flows.
The FASB has also recently issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information" ("SFAS No. 131"). SFAS No. 131
established standards for the way that public business enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim financial reports issued to stockholders. It also established standards
for related disclosures about products and services, geographic areas, and major
customers. SFAS No. 131 is effective for financial statements for fiscal years
beginning after December 15, 1997. Financial statement disclosures for prior
periods are required to be restated. The Company is in the process of evaluating
the disclosure requirements. The adoption of SFAS No. 131 will have no impact on
the Company's consolidated results of operations, financial position or cash
flows.
NOTE 2 - DISCONTINUED OPERATIONS
Effective October 31, 1997, Lenfest MCN, Inc. and MicroNet Delmarva Associates,
LP (collectively "MicroNet"), each a wholly owned subsidiary of the Company,
sold substantially all of their assets and Suburban Cable TV Co. Inc., Lenfest
Atlantic, Inc. and Lenfest New Castle County sold certain of their towers. The
purchase price was approximately $70.3 million, subject to adjustments. The sale
resulted in a gain of $32.3 million, net of applicable income taxes of $17.7
million. The sale represents the disposition of the major segment of the
Company's tower rental, microwave service, video, voice and data service
businesses. The assets sold were not material to the cable television operations
of the Company.
The 1995 and 1996 consolidated financial statements and notes thereto have been
restated to reflect continuing operations of the Company. The net assets of
MicroNet have been separately classified in the accompanying consolidated
balance sheet under the caption "Net assets of discontinued operations" and
consist of the following at December 31, 1996 and 1997:
1996 1997
--------- ---------
(Dollars in thousands)
Cash $ 1,471 $ -
Accounts receivable 2,916 2,660
Prepaid expenses 460 -
Property and equipment 16,642 -
Goodwill 4,120 -
Other intangible assets 1,168 -
Deferred federal tax asset 3,363 -
Other assets 60 -
Notes payable (7,000) -
Accounts payable and accrued expenses (1,596) -
Deferred state tax liability (99) -
Customer service prepayments (534) -
-------- --------
$ 20,971 $ 2,660
========= ========
F-12
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (continued)
NOTE 2 - DISCONTINUED OPERATIONS - (continued)
Operating results of MicroNet for the years ended December 31, 1995, 1996 and
1997, are shown separately in the accompanying consolidated statements of
operations under the caption "Income (loss) from discontinued operations of
Lenfest MCN, Inc. and affiliates" and consist of the following:
<TABLE>
<CAPTION>
(Unaudited)
Year Ended December 31, Three Months Ended
--------------------------------------------------- ------------------------
1995 1996 1997 1997 1998
------------ ----------- ----------- ----------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Revenues $ 12,024 $ 15,508 $ 15,496 $ 5,068 $
-
Operating expenses (8,794) (9,961) (9,812) (2,783) -
Depreciation and amortization (3,428) (4,104) (2,862) (909) -
------------ ----------- ----------- ----------- -----------
OPERATING INCOME (LOSS) (198) 1,443 2,822 1,376 -
Interest expense (629) (715) (598) (117) -
Other income 61 23 42 12 -
Income tax (expense) benefit 371 (388) (797) (371) -
------------ ----------- ----------- ----------- -----------
NET INCOME (LOSS) $ (395) $ 363 $ 1,469 $ 900 -
============ =========== =========== =========== ===========
</TABLE>
NOTE 3 - COMMON STOCK OWNERSHIP AND CONTROL
The 158,896 shares of common stock outstanding at December 31, 1996 and 1997,
are 50% owned by members of the Lenfest Family ("H.F. (Gerry) Lenfest,
Marguerite Lenfest, their issue and The Lenfest Foundation") and 50% by LMC
Lenfest, Inc., an indirect wholly owned subsidiary of Tele-Communications, Inc.
("TCI"). All Lenfest Family members have granted irrevocable proxies to H.F.
Lenfest. These proxies expire March 30, 2000. Pursuant to an agreement among
H.F. Lenfest, the Lenfest Family and LMC Lenfest, Inc. dated December 18, 1991,
and the amended and restated Articles of Incorporation of the Company, Mr.
Lenfest has the right to continue as chief executive officer of the Company
until January 1, 2002, and has the right to designate a majority of the Board of
Directors of the Company until the earlier of January 1, 2002, or Mr. Lenfest's
death. During such period, vacancies in respect of the directors designated by
Mr. Lenfest shall be filled by designees of Mr. Lenfest or, in the event of Mr.
Lenfest's death, of The Lenfest Foundation. Thereafter, the Lenfest Family and
LMC Lenfest, Inc. will have the right to appoint an equal number of members of
the Company's Board of Directors. This right will continue for so long as any
member of the Lenfest Family owns any stock in the Company.
NOTE 4 - SUPPLEMENTAL DISCLOSURE TO STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Unaudited)
Year Ended December 31, Three Months Ended
------------------------------------------------ -----------------------
1995 1996 1997 1997 1998
------------- ------------ ------------- ----------- ----------
Cash paid during the year for: (Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Interest:
Continuing operations $ 55,326 $ 103,836 $ 120,580 $ 8,169 $ 8,703
Discontinued operations 519 494 612 177 -
Income taxes:
Continuing operations $ 160 $ - $ 1,522 $ 1,522 $ -
Discontinued operations - - - - -
</TABLE>
F-13
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (continued)
NOTE 4 - SUPPLEMENTAL DISCLOSURE TO STATEMENTS OF CASH FLOW - (continued)
Supplemental Schedules Relating to Acquisitions
<TABLE>
<CAPTION>
(Unaudited)
Year Ended December 31, Three Months Ended
March 31,
------------------------------------------------ -----------------------
1995 1996 1997 1997 1998
------------- ------------ ------------- ----------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Property and equipment $ 3,585 $ 170,085 $ 27,965 $ 27,965 $ -
Deferred franchise costs 2,124 398,260 53,797 53,797 -
Minority interest in partnership equity 3,129 - - - -
Goodwill and other intangible assets - 32,543 2,738 2,738 -
Equity interests in affiliates - 2,877 - - -
Other asset - 5,867 - - -
------------ ------------- ------------ ---------- -----------
$ 8,838 $ 609,632 $ 84,500 $ 84,500 -
============ ============= ============ ========== ===========
</TABLE>
Noncash Investing and Financing Transactions
On December 16, 1997, The Box Worldwide, Inc. ("Box") merged with a subsidiary
of TCI Music, Inc. ("TCI Music"), an affiliate of TCI. As a result of the
merger, the Company's 7,111,319 shares of Box were converted into rights to
receive 501,290 shares of TCI Music preferred stock. A former employee of the
Company has an option to purchase 14,000 of these shares. This option will
expire on December 31, 1998. Each share of the TCI Music preferred stock is
convertible into three shares of TCI Music series A common stock.
On December 23, 1996, the Company received 18,000,000 shares of voting stock of
Australis Media Limited ("Australis") and 52,238,547 non-voting debentures of
Australis in connection with the termination of a technical services agreement
with Australis and also received 500,000 shares of voting stock for late
repayment of a loan to the Company by Australis. Also on December 23, 1996, the
Company converted 5,000,000 non-voting debentures of Australis into 5,000,000
shares of voting stock.
On October 31, 1996, the Company financed $80,000,000 used to acquire additional
debt and equity securities of Australis (See Note 12).
On September 30, 1996, the Company contributed the right to receive assets of a
cable television system for a partnership interest (See Note 5). Also, in
September 1996, the Company contributed the assets that comprise the business
known as "the Barker" to a newly formed joint venture (See Note 5).
On May 10, 1996, the Company entered into an agreement to guarantee up to
$75,000,000 of a new $125,000,000 Australis bank facility as part of
recapitalization plans pursued by Australis. On May 2, 1996, the Company entered
into a stand-by $75,000,000 senior subordinated credit facility in order to
provide any required funding under this guaranty. As of October 31, 1996, the
guaranty and stand-by facility were terminated.
F-14
<PAGE>
In February 1996, the Company exchanged the assets of its cable television
systems in the East San Francisco Bay area, its 41.67% partnership interest in
Bay Cable Advertising, and the right to receive assets of a cable television
system located in Fort Collins, CO, for the assets of a cable television system
serving Wilmington, Delaware and the surrounding area. A gain of $7,210,000,
which represents the excess of the market value of the partnership interest over
its book value, has been included in the accompanying consolidated statement of
operations (See Note 5).
In 1996 and 1997, the Company incurred additional capital lease obligations of
$4,635,000 and $449,000, respectively.
In 1995, the Company financed a $19,240,000 loan to Australis Media Limited and
$20,000,000 of its additional investment in Garden State Cablevision L.P.
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (continued)
NOTE 4 - SUPPLEMENTAL DISCLOSURE TO STATEMENTS OF CASH FLOW - (continued)
During 1995 and 1997, the Company disposed of $4,231,000 and $5,972,000,
respectively of fully depreciated plant in connection with the rebuild of
certain of its systems.
NOTE 5 - NEW BUSINESS AND ACQUISITIONS
Domestic Cable
On January 10, 1997, the Company acquired a cable television system from Cable
TV Fund 14-A, Ltd., an affiliate of Jones Intercable, Inc., for approximately
$84,500,000, subject to certain adjustments. The system, located in
Turnersville, New Jersey, passed approximately 47,000 homes and served
approximately 36,900 basic customers. For financial reporting purposes, the
Company accounts for the acquisition of these assets under the purchase method.
This acquisition was funded in part by borrowings under the bank credit
facility.
On September 30, 1996, the Company through its newly formed subsidiary, Lenfest
Clearview, Inc. ("Clearview") completed the acquisition of a 30% general
partnership interest in a newly formed general partnership, Clearview Partners
(the "Partnership"). The Company contributed $500,000 and its right to receive
the assets of the Gettysburg, PA cable television system (see acquisition from
Sammons Communications, Inc. discussed below) and its right to exchange the
Gettysburg system for the assets of the Stewartstown, PA cable television system
owned by GS Communications, Inc. The Company received a payment of $4.5 million
from GS Communications, Inc. in connection with these transactions. No gain or
loss was recorded on the exchange. Clearview CATV, Inc., an unaffiliated
company, contributed the assets and certain liabilities of its cable television
system located in Maryland and Pennsylvania to the Partnership for a 70% general
partnership interest. The Partnership's systems passed approximately 13,400
homes and served approximately 9,650 basic customers. The Company reports its
proportionate share of partnership net income (loss) on the equity method. The
Company's cash contribution was made from available funds.
On April 30, 1996, the Company acquired from Tri-County Cable Television
Company, an affiliate of Time Warner, its Salem, NJ cable television system for
approximately $16,000,000. The system passed approximately 10,600 homes and
served approximately 7,700 basic customers. On the same date, the Company
acquired from Shore Cable Company of New Jersey its Ventnor, NJ cable television
system for approximately $11,000,000. The system passed approximately 6,100
homes and served approximately 5,000 basic customers. For financial reporting
purposes, the Company accounts for the acquisition of these assets under the
purchase method. These acquisitions were funded in part by borrowings under the
existing bank credit facility.
On February 29, 1996, the Company acquired four cable television systems and
equity interests in three affiliates from Sammons Communications, Inc. for
approximately $531,000,000. The systems, which are located in Bensalem and
Harrisburg, PA and in Vineland and Atlantic City/Pleasantville, N.J., passed
approximately 358,000 homes and served approximately 282,000 basic customers.
The equity interests consist of a 50% partnership interest in Hyperion
Telecommunications of Harrisburg, a 50% partnership interest in Atlantic
Communication Enterprises and a 25% partnership interest in Cable Adcom. For
financial reporting purposes, the Company accounts for the acquisition of these
assets under the purchase method. The acquisition was funded in part by
$420,000,000 borrowed under the Company's bank credit facility existing at that
date, and the remaining proceeds from a public offering of debt securities in
November 1995. The purchase price included the assets of a fifth system, located
in Gettysburg, PA, to which the Company did not take title. The Company managed
the Gettysburg system from February 29, 1996, until the assets of the system
were transferred to GS Communications, Inc. on September 30, 1996 by Clearview
Partners in connection with the exchange of assets between Clearview Partners
(to whom the right to receive the assets from Sammons Communications, Inc. and
the right to exchange the assets for other assets of GS Communications, Inc. was
contributed by the Company) and GS Communications, as described above.
F-15
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (continued)
NOTE 5 - NEW BUSINESS AND ACQUISITIONS - (continued)
In February 1996, the Company completed an exchange transaction with a
subsidiary of TCI whereby the Company exchanged the assets of its cable
television systems in the East San Francisco Bay area with a book value of
$33,194,000, its 41.67% partnership interest in Bay Cable Advertising with a
book value of $3,545,000 and a fair market value of $10,755,000, and the right
to receive assets of a cable television system located in Fort Collins, CO,
which right was acquired for $54,385,000, less settlement adjustments of
$8,799,000, for the assets of a cable television system, serving Wilmington,
Delaware and the surrounding area. The assets of the Wilmington system have been
recorded at the net book value of the cable television system assets exchanged
and the market value of the partnership interest, less the settlement
adjustment. A gain of $7,210,000, which represents the excess of the market
value of the partnership interest over its book value, has been included in the
accompanying consolidated statement of operations. The acquisition of these
cable systems were financed with proceeds from the Company's public offering of
debt securities in November 1995.
On June 29, 1995, the Company, through its subsidiary, Lenfest Raystay Holdings,
Inc., exercised options to acquire an additional 5,275 shares of Class B common
stock of Raystay Co. for $3,073,000 increasing the Company's ownership to 45%.
The Company initially acquired 31.99% of the outstanding stock of Raystay Co.
for $6,238,000 on July 29, 1994. The Company uses the equity method to account
for this investment.
On June 23, 1995, the Company through its subsidiary, Lenfest South Jersey
Investments, Inc., purchased the remaining 40% minority general partnership
interest in South Jersey Cablevision Associates ("South Jersey") for $8,838,000.
The Company, through its subsidiary, Lenfest Atlantic, Inc. owned a sixty
percent (60%) general partnership interest in South Jersey, and has managed the
South Jersey's operations since its inception on April 2, 1993. Lenfest
Atlantic's original investment was $6,000,000. South Jersey owned and operated
contiguous cable systems serving approximately 21,000 customers in southern New
Jersey. As of June 30, 1996, Lenfest South Jersey Investments, Inc. was merged
into Lenfest Atlantic, Inc., which became the 100% owner of South Jersey,
thereby terminating the partnership. The accounts of Lenfest Atlantic, Inc. are
included in these consolidated financial statements.
On January 10, 1995, the Company, through its subsidiary, Lenfest Jersey, Inc.,
acquired a 10.005% general partnership interest in Garden State Cablevision,
L.P. for $29,250,000, increasing its ownership to a total of 50% of the
partnership. (See Note 8).
The accompanying consolidated financial statements include the results of
operations for these acquisitions since the dates of the acquisitions.
The following summarized pro forma (unaudited) information assumes the
acquisitions had occurred on January 1, 1995:
1995 1996 1997
----------- ------------ ----------
(Dollars in thousands)
Revenues $ 382,389 $ 418,109 $ 447,848
----------- ----------- ----------
Loss from continuing operations $ (46,902) $ (143,619) $ (64,683)
----------- ----------- ----------
Net loss $ (54,036) $ (145,740) $ (30,945)
----------- ----------- ----------
F-16
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (continued)
NOTE 5 - NEW BUSINESS AND ACQUISITIONS - (continued)
Other
The Company, through its subsidiaries, StarNet, StarNet Interactive
Entertainment, Inc. and Suburban Cable TV Co. Inc., owned a total of 7,111,319
shares of Box. The Company used the equity method to account for this
investment. On December 16, 1997, Box merged with a subsidiary of TCI Music and
the Company's shares of Box were converted into rights to receive 501,290 shares
of TCI Music preferred stock. The investment in TCI Music is accounted for as
marketable securities. The Company recognized a gain of $7,318,000 on this
exchange. The fair value of the securities at December 31, 1997 was
approximately $8.6 million.
Effective January 1, 1997, the Company, through its subsidiary, Lenfest
Philadelphia Interconnect, Inc., entered into a partnership with Comcast
Philadelphia Interconnect Partner for the purpose of representing regional and
national cable advertising sales in the Greater Philadelphia market. Under the
agreement, the percentage interests of the partners is determined on the basis
of the number of customers of the partners in the designated market area at the
beginning of the year. For 1997, the Company's partnership interest was 72%. The
partners have equal representation on the Executive Committee and the Company
will be the managing partner of the partnership for its first two years. Lenfest
Advertising, Inc., d/b/a Radius Communications ("Radius"), a wholly owned
subsidiary of the Company, will continue to provide local cable advertising
sales and insertion for the Company and sixteen other cable television system
operators. The Registrant does not own a majority voting interest and does not
have a controlling financial interest in Philadelphia Interconnect. The other
partner has equal voting rights in all matters, including the appointment of
management and approval of operating and capital budgets. Therefore,
consolidation is not appropriate. The Company uses the equity method to account
for this investment.
On September 30, 1996, Radius acquired the assets of Metrobase Cable Advertising
from a subsidiary of Harron Communications Corp. for approximately $4,500,000.
For financial reporting purposes, the Company accounts for the acquisition of
these assets under the purchase method. This acquisition was funded from
available funds.
On September 11, 1996, StarNet, Inc. ("StarNet"), a wholly owned subsidiary of
the Company, entered into a joint venture with Prevue Networks, Inc. ("Prevue"),
a wholly owned subsidiary of United Video Satellite Group, Inc. ("UVSG"), to
combine the two companies' pay-per-view promotion services. StarNet contributed
its Barker service to the joint venture and received a 28% partnership interest.
The new joint venture, Sneak Prevue, L.L.C., is based in Tulsa, Oklahoma and is
managed and controlled by UVSG. The Company reports its proportionate share of
net income (loss) on the equity method.
In February 1996, Radius purchased the Philadelphia area assets of Cable AdNet
Partners, a subsidiary of TCI, for approximately $1,100,000.
The Company, through its wholly owned subsidiary, Lenfest International, Inc.,
is a partner in L-TCI Associates ("L-TCI"). UA-France, Inc. ("UAF"), an indirect
wholly owned subsidiary of TCI, is the only other partner. L-TCI was formed to
acquire 29% of the issued and outstanding shares of stock in Videopole, a French
cable television holding and management company that franchises, builds and
operates cable television systems in medium to smaller communities in France.
The Company invested $4,860,000 to fund its pro-rata share of the L-TCI
acquisition in 1993 and made an additional investment of $1,627,000 in 1994.
L-TCI was obligated to make additional capital contributions pursuant to its
stock subscription agreement. In 1995 through 1997, UAF did not fund its
pro-rata share of the capital contributions. Pursuant to the L-TCI partnership
agreement, the Company is contingently liable for the UAF share of L-TCI's
commitment. During 1995 through 1997, the Company invested an aggregate of
$19,233,000 to fund the L-TCI contributions. The additional investments
increased the Company's ownership percentage of L-TCI to approximately 80%. The
accounts of L-TCI are included in the Company's consolidated financial
statements. The Company uses the equity method to account for L-TCI's interest
in Videopole.
F-17
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (continued)
NOTE 6 - INVENTORIES
The schedule of inventories at December 31, 1996 and 1997 are as follows:
1996 1997
------------ ------------
(Dollars in thousands)
Raw materials $ 2,285 $ 2,153
Finished goods and work-in process 472 -
------------ ------------
$ 2,757 $ 2,153
============ ============
At December 31, 1996 and 1997, inventories have been written down to estimated
net realizable value and the accompanying consolidated statements of operations
for 1996 and 1997 include corresponding charges of $1,047,000 and $948,000,
respectively, which have been included with direct costs - non-cable.
NOTE 7 - PROPERTY AND EQUIPMENT
The schedule of property and equipment of continuing operations at December 31,
1996 and 1997 is as follows:
<TABLE>
<CAPTION>
Estimated
Useful Lives
1996 1997 in Years
-------------- -------------- -----------------
(Dollars in thousands)
<S> <C> <C> <C>
Land $ 2,993 $ 4,246 -
Building and improvements 25,462 30,779 10-39
Cable distribution systems 578,874 659,366 5-12
Computer hardware and software 11,283 25,325 3-5
Office equipment, furniture and
fixtures 9,726 12,609 7
Vehicles 12,571 15,758 5
Other equipment 10,580 15,560 5-7
Assets under capital leases 9,767 9,269 5-15
-------------- --------------
661,256 772,912
Accumulated depreciation 288,869 359,125
-------------- --------------
$ 372,387 $ 413,787
============== ==============
</TABLE>
NOTE 8 - INVESTMENTS IN AFFILIATES INCLUDING GARDEN STATE
CABLEVISION L.P.
The Company, through several subsidiaries, owns non-controlling interests in
several general partnerships and corporations. Any subsidiary of the Company
that is a general partner is, as such, liable, as a matter of partnership law,
for all debts of such partnership. Investments and advances in affiliates
accounted for under the equity method amounted to $41,333,000 and $46,471,000 at
December 31, 1996 and 1997, respectively. Net losses recognized under the equity
method for the years ended December 31, 1995, 1996 and 1997 were $10,682,000,
$17,870,000 and $7,334,000, respectively. Under the equity method, the initial
investments are recorded at cost. Subsequently, the carrying amount of the
investments are adjusted to reflect the Company's share of net income or loss of
the affiliates as they occur. Losses in excess of amounts recorded as
investments on the Company's books have been offset against loans and advances
to these unconsolidated affiliates to the extent they exist.
F-18
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (continued)
NOTE 8 - INVESTMENTS IN AFFILIATES INCLUDING GARDEN STATE
CABLEVISION L.P. - (continued)
The Company, through its subsidiary, Lenfest Jersey, Inc., owns a 10.005%
general partnership interest and a 39.995% limited partnership in Garden State
Cablevision L.P. (Garden State), a cable company serving approximately 208,000
customers in southern New Jersey at December 31, 1997. Under a consulting
agreement, the Company advises Garden State on various operational and financial
matters for a consulting fee that was equal to 1.5% of Garden State's gross
revenues. On January 10, 1995, in connection with the increase in ownership
described in Note 5, the consulting fee was changed to 3% of gross revenues. Due
to restrictions contained in Garden State's debt agreements, the payment of a
portion of these fees had been deferred. In December 1996, the Company received
a $50 million distribution from Garden State. The distribution received included
$8.1 million of prior accrued management fees that had been deferred. Garden
State also obtains its cable television programming from Satellite Services,
Inc. through the Company. The programming services are at a rate which is not
more than Garden State could obtain independently. For the years ended December
31, 1995, 1996 and 1997, and the three months ended March 31, 1998, the total
programming obtained through the Company was approximately $11,985,000,
$13,659,000, $14,650,000 and $4,279,000, respectively.
The Company accounts for its investment in Garden State under the equity method.
Effective January 10, 1995, the Company is allocated a total of 50% of Garden
State's losses. Previously, the Company was allocated 49.5% of losses. In
addition, the Company is required to make up its partner capital deficits upon
the termination or liquidation of the Garden State partnership. Because of the
requirement to make up capital deficits, the accompanying financial statements
reflect equity in accumulated losses, net of related receivable, in excess of
the investments in Garden State in the amount of $72,454,000, $77,880,000 and
$77,747,000 at December 31, 1996 and 1997, and March 31, 1998, respectively.
Summarized audited financial information of Garden State, accounted for under
the equity method, at December 31, 1996 and 1997, and March 31, 1998, is as
follows:
<TABLE>
<CAPTION>
December 31,
-------------------------------------- March 31,
1996 1997 1998
--------------- --------------- ---------
(Dollars in thousands)
<S> <C> <C>
Financial Position
Cash and cash equivalents $ 4,858 $ 5,271 $ 4,796
Accounts receivable, net 2,683 3,551 2,641
Other current assets 1,033 666 789
Property and equipment, net 75,920 83,863 85,988
Deferred assets, net 85,204 55,938 50,800
-------------- -------------- ---------
TOTAL ASSETS $ 169,698 $ 149,289 $ 145,014
============== ============== =========
Debt $ 333,000 $ 324,000 $ 322,000
Liabilities to the Company 3,246 3,579 4,657
Accounts payable and accrued expenses 13,674 12,388 8,694
Customer prepayments and deposits 947 875 882
Other liabilities 1,098 1,523 1,511
Partners' deficit (182,267) (193,076) $(192,730)
-------------- -------------- ---------
TOTAL LIABILITIES AND DEFICIT $ 169,698 $ 149,289 $ 145,014
============== ============== =========
</TABLE>
F-19
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (continued)
NOTE 8 - INVESTMENTS IN AFFILIATES INCLUDING GARDEN STATE
CABLEVISION L.P. - (continued)
<TABLE>
<CAPTION>
Year Ended December 31, Three Months
-------------------------------------------------------- Ended
1995 1996 1997 March 31, 1998
-------------- -------------- -------------- --------------
(Dollars in thousands)
Results of Operations
<S> <C> <C> <C>
Revenues $ 91,771 $ 100,756 $ 109,126 $ 27,730
Operating expenses (40,595) (43,608) (45,902) (11,391)
Management and consulting fees (5,590) (6,045) (6,548) (1,663)
Depreciation and amortization (46,976) (48,524) (44,698) (8,725)
------------- ------------- ------------- --------
OPERATING INCOME (LOSS) (1,390) 2,579 11,978 5,951
Interest expense (19,166) (16,405) (22,787) (5,605)
------------- ------------- ------------- --------
NET INCOME (LOSS) $ (20,556) $ (13,826) $ (10,809) $ 346
============= ============= ============= ========
Cash Flows
Cash flows from operating activities $ 30,452 $ 26,132 $ 32,815 $ 7,237
Cash flows from investing activities (14,794) (22,759) (23,308) (5,712)
Cash flows from financing activities (17,009) (1,774) (9,094) (2,000)
------------- ------------- ------------- --------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (1,351) 1,599 413 (475)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 4,610 3,259 4,858 5,271
------------- ------------- ------------- --------
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 3,259 $ 4,858 $ 5,271 $ 4,796
============= ============= ============= ========
</TABLE>
Summarized financial information of affiliates other than Garden State,
accounted for under the equity method, at December 31, 1996 and 1997, is as
follows:
<TABLE>
<CAPTION>
1996 1997
--------------- ---------------
(Dollars in thousands)
<S> <C> <C>
Financial Position
Cash and cash equivalents $ 5,972 $ 6,595
Accounts receivable, net 11,071 16,793
Other current assets 13,071 31,658
Property and equipment, net 172,864 209,333
Due from related party (not the Company) 533 -
Deferred tax asset 8,730 550
Other assets, net 44,806 62,000
-------------- --------------
TOTAL ASSETS $ 257,047 $ 326,929
============== ==============
</TABLE>
F-20
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (continued)
NOTE 8 - INVESTMENTS IN AFFILIATES INCLUDING GARDEN STATE
CABLEVISION L.P. - (continued)
<TABLE>
<CAPTION>
1996 1997
--------------- ---------------
(Dollars in thousands)
Financial Position - (continued)
<S> <C> <C>
Liabilities to the Company $ 2,375 $ 4,435
Accounts payable and accrued expenses 47,202 44,131
Debt 135,086 136,089
Deferred tax liability 11,943 12,343
Payable to related party (not the Company) 67,136 90,991
Other liabilities 9,195 29,985
Equity (deficit) (15,890) 8,955
------------- --------------
TOTAL LIABILITIES
AND EQUITY $ 257,047 $ 326,929
============= ==============
1995 1996 1997
--------------- --------------- ---------------
(Dollars in thousands)
Results of Operations
Revenues $ 124,171 $ 125,534 $ 156,405
Operating expenses (84,615) (96,909) (120,782)
Depreciation and amortization (15,876) (25,755) (32,357)
------------- ------------- -------------
OPERATING INCOME 23,680 2,870 3,266
Interest expense (8,988) (16,964) (18,284)
Other income and expense (net) (2,548) 1,054 9,565
------------- ------------- -------------
NET INCOME (LOSS) $ 12,144 $ (13,040) $ (5,453)
============= ============= =============
Cash Flows
Cash flows from operating activities $ 18,146 $ 6,070 $ 35,378
Cash flows from investing activities (24,598) (57,436) (74,331)
Cash flows from financing activities 4,289 46,450 34,153
------------- ------------- -------------
NET (DECREASE) IN CASH
AND CASH EQUIVALENTS $ (2,163) $ (4,916) $ (4,800)
============= ============= =============
</TABLE>
F-21
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (continued)
NOTE 8 - INVESTMENTS IN AFFILIATES INCLUDING GARDEN STATE CABLEVISION L.P.
- - (continued)
The following table of the Company's investments, other than Garden State,
accounted for under the equity method, reflects ownership percentage as of
December 31, 1997, and the carrying amount, including related receivables, as of
December 31, 1996 and 1997:
<TABLE>
<CAPTION>
December 31, 1997
Ownership
Percentage 1996 1997
------------------- ------------- ---------------
(Dollars in Thousands)
<S> <C> <C> <C>
Susquehanna Cable Co. Subsidiaries ("SCC Subs")(Note 9) 30% $ 10,880 $ 10,671
The Box Worldwide, Inc. ("Box") (Note 5) - 4,161 -
Raystay Co. ("Raystay") (Note 5) 45% 6,981 11,807
Videopole (Note 5) 29% 9,015 11,117
MetroNet Communications and GlobeNet ("MetroNet") 50% 1,674 1,086
Hyperion Telecommunications of Harrisburg ("Hyperion") 50% 1,043 217
Sneak Prevue, L.L.C. ("Sneak Prevue") (Note 5) 28% 3,091 2,512
Clearview Partners ("Clearview") (Note 5) 30% 1,825 1,825
Cable Adcom ("Adcom") 50% 1,481 1,533
Philadelphia Interconnect ("Interconnect") (Note 5) 72% - 3,843
Others 1,182 1,860
-------------- --------------
$ 41,333 $ 46,471
============== ==============
</TABLE>
The carrying amounts of Garden State, SCC Subs and Raystay at December 31, 1997
include excess purchase accounting adjustments of $14, 252,000, $24,732,000 and
$12,023,000, respectively. The excess amounts are being written off based on the
depreciation and amortization methods and lives of the related tangible and
intangible assets. None of the investments in common stock at December 31, 1997
have quoted market prices available.
Lenfest York, Inc., a subsidiary of the Company, owns a 30% equity interest in
five subsidiaries of Susquehanna Cable Co. Suburban Cable TV Co. Inc., a wholly
owned subsidiary of the Company, owns a 50% general partnership interest in
Cable Adcom. Cable Adcom is a cable advertising interconnect that serves the
Harrisburg, Pennsylvania, Area of Dominant Influence ("ADI"). The Company's
indirect, wholly owned subsidiary, LenNet, Inc., owns a 50% general partnership
interest in MetroNet Communications, a company that provides microwave
transmissions of voice and data between two points of presence for its customers
located throughout the United States and a 50% general partnership interest in
GlobeNet, a company that provides international call back telephone service for
its customers located in foreign countries. The Company's wholly owned
subsidiary, Lenfest Telephony, Inc., owned a 50% partnership interest in
Hyperion Telecommunications of Harrisburg (See Note 26).
The following table reflects the Company's share of earnings or losses of Garden
State and each of the aforementioned affiliates:
<TABLE>
<CAPTION>
1995 1996 1997
--------------- --------------- ---------------
(Dollars in thousands)
<S> <C> <C> <C>
Garden State $ (8,527) $ (5,068) $ (3,340)
SCC Subs (1,263) (1,010) (208)
Box 132 (2,671) (1,414)
Raystay (886) (1,575) 4,826
Videopole (2,644) (7,408) (7,200)
BCA 1,711 50 -
MetroNet 190 (92) 81
Hyperion - (734) (826)
Sneak Prevue - (326) (426)
Clearview - (100) -
Adcom 530 1,070 851
Interconnect - - 359
Other 75 (6) (37)
------------- ------------- -------------
$ (10,682) $ (17,870) $ (7,334)
============= ============= =============
</TABLE>
F-22
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (continued)
NOTE 8 - INVESTMENTS IN AFFILIATES INCLUDING GARDEN STATE
CABLEVISION L.P. - (continued)
CAH, Inc., a subsidiary of the Company, owned a 41.67% general partnership
interest in Bay Area Interconnect d/b/a Bay Cable Advertising ("BCA"), a cable
advertising interconnect serving the San Francisco, California, ADI (See Note
5).
NOTE 9 - OTHER INVESTMENTS
Other investments, accounted for under the cost method, are summarized as
follows:
1996 1997
--------------- ---------------
(Dollars in thousands)
Susquehanna Cable Co., Inc. (a) $ 10,359 $ 10,359
Other 51 51
-------------- --------------
$ 10,410 $ 10,410
============== ==============
(a) The Company has 14.9% ownership of the voting stock of Susquehanna
Cable Co. Inc. and accounts for this investment under the cost method.
Susquehanna is an indirect subsidiary of Susquehanna Pfaltzgraff Co.
and is the parent company of five cable operating subsidiaries, of
which the Company has a direct ownership interest of the voting stock
of 17.75%. The Company's investment in these subsidiaries are
accounted for under the equity method because the Company's direct and
indirect ownership interests in these subsidiaries approximate thirty
percent (30%).
NOTE 10 - GOODWILL
The excess of the purchase price paid over the acquired net assets has been
allocated to goodwill. Accumulated amortization at December 31, 1996 and 1997,
was $25,202,000 and $28,594,000, respectively.
F-23
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (continued)
NOTE 11 - DEFERRED FRANCHISE COSTS AND OTHER INTANGIBLE ASSETS
A schedule of deferred franchise costs and other intangible assets and
accumulated amortization of continuing operations at December 31, 1996 and 1997,
is as follows:
<TABLE>
<CAPTION>
Accumulated
Amount Amortization Net
------------- ----------------- --------------
(Dollars in thousands)
<S> <C> <C> <C>
December 31, 1996
Deferred franchise costs $ 639,131 $ 144,563 $ 494,568
============== ============== ==============
Debt acquisition costs $ 12,572 $ 3,157 $ 9,415
Covenants not to compete 12,500 5,867 6,633
Other deferred assets 11,368 2,508 8,860
-------------- -------------- --------------
$ 36,440 $ 11,532 $ 24,908
============== ============== ==============
December 31, 1997
Deferred franchise costs $ 693,050 $ 186,027 $ 507,023
============== ============== ==============
Debt acquisition costs $ 12,589 $ 4,735 $ 7,854
Covenants not to compete 12,500 7,117 5,383
Other deferred assets 19,920 4,816 15,104
-------------- -------------- --------------
$ 45,009 $ 16,668 $ 28,341
============== ============== ==============
</TABLE>
NOTE 12 - MARKETABLE SECURITIES
The Company's investment in the securities of Australis Media Limited
("Australis") consists of 77,982,000 shares of voting common stock and
269,427,000 non-voting convertible debentures. The debentures are classified as
equity securities by Australis as the debentures are unsecured non-voting
securities that have interest entitlements equivalent in both timing and amount
to the dividend entitlements attaching to common stock and will be subordinated
to all creditors other than common stock shareholders upon any liquidation or
winding up. The convertible debentures will not be redeemable for cash but will
be convertible into ordinary shares on a one-for-one basis providing that
certain conditions are met.
Although the Company had a 41.5% economic interest in Australis, the securities
only represented a 13.6% voting interest. Australian regulations prohibit
foreign corporations from owning 20% or more voting interest of an Australian
corporation. Since the Company did not have significant influence, this
investment was accounted for as marketable securities and not as an investment
under the equity method.
The aggregate cost and market values of the securities at December 31, 1996 and
1997 are as follows:
<TABLE>
<CAPTION>
Gross
Aggregate Unrealized Fair
Cost Gain (Loss) Value
-------------- ----------------- --------------
(Dollars in thousands)
December 31, 1996
<S> <C> <C> <C>
Australis Media Limited convertible debentures $ 33,687 $ (7,952) $ 25,735
Australis Media Limited common stock 10,885 (2,505) 8,380
Australis Media Limited discount notes 41,026 - 41,026
Other marketable equity securities 3,781 908 4,689
-------------- ------------- --------------
$ 89,379 $ (9,549) $ 79,830
============== ============= ==============
December 31, 1997
Other marketable equity securities $ 13,684 $ 768 $ 14,452
============== ============= ==============
</TABLE>
F-24
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (continued)
NOTE 12 - MARKETABLE SECURITIES - (continued)
In December 1993, the Company acquired 11,000,000 shares of the voting stock and
173,000,000 non-voting debentures of Australis for $90,972,000. As of August 12,
1996, the Australis securities held by the Company had a market value of
approximately $24.0 million. At that time, Australis announced that a proposed
long-term financing would not be completed. Australis had previously commented
that if it was unable to obtain financing it would be forced to consider
bankruptcy. The Company determined that the decline in market value was other
than temporary and, accordingly, the Company recognized a loss of $66.9 million,
as of June 30, 1996, resulting from a write-down of the Australis investment
from cost in the accompanying consolidated statement of operations. The
write-down established a new cost basis in the Australis investment.
In October 1996, Australis received consent from its bondholders to issue $250
million of debt and equity securities contingent upon additional investments
from the existing stockholders as part of Australis' plan to ensure its
survival. The Company agreed to acquire additional securities to permit the
Australis debt offering to proceed. On October 31, 1996, the Company purchased
senior subordinated discount notes of Australis Holding Pty Limited, with a face
value of $71,339,000, and 71,339 warrants for an aggregate of $40 million. These
discount notes and warrants were sold in May 1997, for $41.5 million. In
connection with the long-term financing, the Company purchased 43,482,000 shares
of voting stock and 49,188,779 non-voting debentures for an aggregate of $40
million. At the time of the transaction, these securities had a fair value of
$13.6 million, and the Company recognized a loss of $26.4 million in the
accompanying statement of operations.
On December 23, 1996, the Company received 18,000,000 shares of voting stock and
52,238,547 non-voting debentures of Australis in connection with the termination
of a technical services agreement with Australis and also received 500,000
shares of voting stock for late repayment of a loan to the Company by Australis.
The securities were recorded at the fair value when received, which was $7.0
million and the income recognized has been offset against the recognized losses
on the decline in market value. On December 23, 1996, the Company converted
5,000,000 non-voting debentures of Australis into 5,000,000 shares of voting
stock.
During 1997, Australis continued to have difficulty obtaining adequate funding
for its operations and the value of its stock continued to drop. At December 31,
1997, the Australis securities were no longer listed on the Australian Stock
Exchange and were considered to be worthless. Based upon Australis' inability to
obtain additional financing and the delisting of its stock, the Company
determined that the decline in market value was other than temporary and,
accordingly, recognized a loss of $44.6 million, resulting from a write-down of
the Australis investment. On May 5, 1998, the Trustee for the holders of
Australis' bond indebtedness appointed receivers in order to wind up the affairs
of Australis. Subsequent thereto, Australis' assets were liquidated and it has
ceased to conduct business.
In accordance with the Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities", all of the
Company's securities are considered to be available for sale. Net realized gains
from the sale of marketable securities, in the amount of $13,517,000, $342,000
and $468,000 are included in other income and expense (net) in 1995, 1996 and
1997, respectively. The 1995 net realized gains includes a net gain of
approximately $13,100,0000 from the sale of its QVC, Inc. stock holdings. The
specific identification method is used to determine the cost of each security at
the time of sale.
NOTE 13 - NOTES PAYABLE
Notes payable of continuing operations consisted of the following at December
31, 1996 and 1997:
<TABLE>
<CAPTION>
1996 1997
--------------- ---------------
(Dollars in thousands)
<S> <C> <C>
8-3/8% senior notes due November 1, 2005 (a) $ 685,970 $ 687,082
10-1/2% senior subordinated notes due June 15, 2006 (b) 293,105 293,781
Bank credit facility (c) 230,000 240,000
11.30% senior promissory notes due September 1, 2000 (d) 60,000 45,000
11.84% senior promissory notes due May 15, 1998 (e) 21,000 10,500
9.93% senior promissory notes due September 30, 2001 (f) 13,125 11,625
-------------- --------------
$ 1,303,200 $ 1,287,988
============== ==============
</TABLE>
F-25
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (continued)
NOTE 13 - NOTES PAYABLE - (continued)
(a) These notes, which are stated net of an unamortized discount of $12,918,000
at December 31, 1997, were issued through a public offering in November
1995. The notes require semi-annual interest payments. The notes are not
redeemable at the option of the Company prior to maturity. Upon a Change of
Control Triggering Event, holders of the notes may require the Company to
purchase all or a portion of the notes at a purchase price equal to 101% of
the principal amount thereof, plus accrued and unpaid interest. The net
proceeds were used to provide funds for the early extinguishment of debt,
to pay off notes payable to banks, and to provide funding for the exchange
of assets with TCI (Note 5) and to provide partial funding for the cable
television systems acquired from Sammons Communications, Inc. (Note 5).
(b) These notes, which are stated net of an unamortized discount of $6,219,000
at December 31, 1997, were issued through a private placement in June 1996
and were later exchanged for publicly traded notes in a public offering in
September 1996. The notes require semi-annual interest payments. The notes
are general unsecured obligations of the Company subordinate in right of
payment to all present and future senior indebtedness of the Company. The
net proceeds were used, together with $150 million from initial borrowings
under the term loan portion of the new bank credit facility described in
(c) to prepay all amounts outstanding under the Company's old bank credit
facility. The Company incurred extraordinary charges from the write-off of
the unamortized loan costs associated with the old bank credit facility.
These charges increased net loss by $2,484,000, net of income tax benefit
of $1,337,000 in 1996.
(c) On June 27, 1996, the Company entered into a bank credit facility
consisting of a $150 million term loan and a $300 million revolving credit
facility. Principal payments under the term loan facility and commitment
reductions under the revolving loan facility will commence on March 31,
1999, with quarterly reductions thereafter until the termination of the
facility on September 30, 2003. Loans outstanding under the facility bear
interest, at the Company's option, at either (i) the Base Rate plus an
applicable margin ranging from 0% to 1 3/8% or (ii) LIBOR plus an
applicable margin ranging from 3/4% to 2 3/8%, in each case based upon
certain levels of leverage ratios. The effective weighted average interest
rate at December 31, 1997 was 7.37%.
(d) These notes are payable to a group consisting of several insurance
companies. The notes are payable in annual installments, with the final
payment due September 1, 2000. In connection with the offering described in
(a), the Company and the holders agreed to amend the terms thereof, which
included increasing the interest rate from 10.15% to 11.30% per annum.
Interest is payable quarterly.
(e) These notes are payable to an insurance company and to its assignees. The
notes are payable in annual installments, with the final payment due May
15, 1998. In connection with the offering described in (a), the Company and
the holders agreed to amend the terms thereof, which included increasing
the interest rate from 10.69% to 11.84% per annum. Interest is payable
quarterly.
(f) This consists of a note payable to an insurance company. The note is
payable in annual installments, with the final payment due September 30,
2001. Interest is at the fixed rate of 9.93% per annum, payable
semi-annually. Additional notes payable to a group consisting of several
insurance companies were redeemed in connection with the offering described
in (a). The Company incurred extraordinary charges associated with the
early extinguishment of these notes. These charges increased the net loss
by $6,739,000, net of income tax benefit of $3,629,000 in 1995.
The above debt agreements place certain financial restrictions on the
Company and its restricted subsidiaries which, among others, require
meeting certain ratios relating to interest coverage and debt coverage.
F-26
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (continued)
NOTE 13 - NOTES PAYABLE - (continued)
Maturities of notes payable, excluding the unamortized discount of $19,137,000
are as follows:
(Dollars in thousands)
Year Ending December 31,
1998 $ 27,450
1999 43,800
2000 44,250
2001 37,875
2002 63,750
Thereafter 1,090,000
---------------
$ 1,307,125
===============
The Company had entered into interest rate cap agreements to reduce the impact
of changes in interest rates on its floating rate long-term debt. The three
interest rate cap agreements with commercial banks, having notional principal
amounts of $50,000,000, $25,000,000 and $25,000,000, terminated on July 18,
1996, November 8, 1996 and February 28, 1997, respectively. No gain or loss was
realized upon the termination of these interest rate cap agreements.
The Company had also entered into four interest rate swap agreements. These
agreements effectively changed the Company's interest rate on $300,000,000 of
its fixed rate debt to a floating rate based on LIBOR. On October 31, 1997, the
Company terminated all four interest rate swap agreements and received
$8,750,000 in consideration of early termination. The Company has recorded the
gain as "Deferred interest" on its consolidated balance sheet and is amortizing
the gain as a reduction in interest expense to June 15, 2006, which is the
maturity date of the fixed rate debt obligation.
NOTE 14 - LEASES
Subsidiaries of the Company have entered into three leases for office and
warehouse space from H.F. Lenfest, a principal stockholder of the Company, and
his wife. The leases are classified as capital leases. At December 31, 1997, two
of the leases provide for an aggregate minimum monthly payment of $31,000. On
each anniversary date of these two leases, the monthly payment will increase by
a minimum of 6%. At December 31, 1997, the minimum monthly payment of the third
lease is $24,000. On each anniversary date of the third lease, the minimum
monthly payment will increase by $957.
The Company has entered into various capital lease agreements. The agreements
are for the financing of equipment. The economic substance of the leases is that
the Company is financing the acquisition of the assets through the leases and,
accordingly, they are recorded in the Company's assets and liabilities.
F-27
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (continued)
NOTE 14 - LEASES - (continued)
Future minimum lease payments under all capital leases and non-cancelable
operating leases with initial terms of one year or more consisted of the
following at December 31, 1997:
<TABLE>
<CAPTION>
Capital Capital
Leases - Leases -
Principal Unrelated Operating
Stockholder Parties Leases
----------------- ---------------- ---------------
(Dollars in thousands)
<S> <C> <C> <C>
Year Ending December 31,
1998 $ 680 $ 1,338 $ 3,858
1999 714 1,338 3,830
2000 750 975 3,772
2001 788 422 2,603
2002 826 1 1,285
Thereafter 2,562 - 834
-------------- -------------- --------------
TOTAL MINIMUM LEASE PAYMENTS 6,320 4,074 $ 16,182
==============
LESS AMOUNT REPRESENTING
INTEREST (2,598 ) (478)
-------------- --------------
PRESENT VALUE OF MINIMUM
LEASE PAYMENTS $ 3,722 $ 3,596
============== ==============
</TABLE>
Property and equipment under capitalized leases at December 31, 1996 and
1997, are summarized as follows:
<TABLE>
<CAPTION>
1996 1997
--------------- ---------------
(Dollars in thousands)
<S> <C> <C>
Buildings - related party $ 5,132 $ 3,893
Equipment 4,635 5,376
-------------- --------------
9,767 9,269
Accumulated depreciation 2,406 3,174
-------------- --------------
$ 7,361 $ 6,095
============== ==============
</TABLE>
Rental expense for all operating leases, principally office and warehouse
facilities, pole rent and satellite transponders from continuing operations,
amounted to $6,867,000, $8,561,000 and $8,085,000 for the years ended December
31, 1995, 1996 and 1997, respectively. In addition, the Company made total
payments to a principal stockholder for buildings under capitalized leases of
$584,000, $615,000 and $647,000 in 1995, 1996 and 1997, respectively.
In addition to fixed rentals, certain leases require payment of maintenance and
real estate taxes and contain escalation provisions based on future adjustments
in price indices. It is expected that, in the normal course of business,
expiring leases will be renewed or replaced by leases on other properties; thus,
it is anticipated that future minimum operating lease commitments will not be
less than the amount shown for 1998.
On April 8, 1996, the Company entered into a five year agreement with GE
American Communications, Inc. requiring monthly payments of $190,000 to lease a
transponder on the GE-1 communications satellite.
F-28
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (continued)
NOTE 15 - RESEARCH AND DEVELOPMENT
The Company, through its subsidiaries CAM Systems, Inc., StarNet Development,
Inc., Suburban Connect, Inc. and StarNet, Inc., incurred research and
development costs of $1,037,000, $2,427,000 and $1,139,000 for the years ended
December 31, 1995, 1996 and 1997, respectively, in connection with the
development of new equipment and computer software. These costs have been
included with direct costs - non-cable on the accompanying consolidated
statements of operations.
NOTE 16 - EMPLOYEE HEALTH BENEFIT PLAN
On February 1, 1984, the Company established the Lenfest Group Employee Health
Benefit Plan (a trust), which provides health insurance for the employees of
most of its subsidiaries and affiliates. This trust is organized under Internal
Revenue Code Section 501(c)(9) Voluntary Employees Beneficiary Association
(VEBA). Benefits are prefunded by contributions from each participating
subsidiary. Insurance expense is recognized as benefits are incurred. The
Company does not provide post retirement benefits to its employees. Therefore,
Statement of Financial Accounting Standards No. 106, "Employers' Accounting for
Post Retirement Benefits Other than Pensions", does not have an impact on the
Company's financial statements.
NOTE 17 - 401(k) PLAN
The Company provides a 401(k) profit sharing plan. The Company matches the
entire amount contributed by a participating, eligible employee up to five
percent (5%) of salary. For the years ended December 31, 1995, 1996 and 1997,
the Company matched contributions of $777,000, $1,190,000 and $1,393,000,
respectively, in its continuing operations.
NOTE 18 - CORPORATE INCOME TAXES
The Company uses the asset and liability method of accounting for income taxes
in accordance with Financial Accounting Standards Board Statement (SFAS) No.
109, "Accounting for Income Taxes". SFAS 109 requires recognition of deferred
tax assets and liabilities for the expected future tax consequences of events
that have been recognized in the financial statement or tax returns. Under this
method, deferred tax liabilities and assets are determined based on the
differences between the financial statement carrying amounts and tax bases of
assets and liabilities using enacted tax rates in effect in the years in which
the differences are expected to reverse. Differences between financial reporting
and tax bases arise most frequently from differences in timing of income and
expense reorganization. Deferred income tax expense is measured by the change in
the net deferred income tax asset or liability during the year.
The provisions for income tax benefit (expense) from continuing operations
consist of the following components:
<TABLE>
<CAPTION>
1995 1996 1997
--------------- --------------- ---------------
(Dollars in thousands)
<S> <C> <C> <C>
Current
Federal $ - $ (211) $ 15,013
State - (686) (265)
-------------- ------------- -------------
- (897) 14,748
Deferred
Federal 1,213 3,581 (1,359)
State 2,994 769 (514)
Benefit of operating loss carryforward 6,420 10,746 23,138
Decrease in valuation allowance 97 130 166
-------------- ------------- -------------
10,724 15,226 21,431
-------------- ------------- -------------
$ 10,724 $ 14,329 $ 36,179
============== ============= =============
</TABLE>
F-29
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (continued)
NOTE 18 - CORPORATE INCOME TAXES - (continued)
The current tax benefit from continuing operations for 1997 represents tax
savings resulting from utilization of current losses to eliminate the tax
expense incurred by the current income and gain from discontinued operations.
The categories of temporary differences that give rise to deferred tax assets
and liabilities are as follows:
<TABLE>
<CAPTION>
Federal State
------------------------------- ------------------------------
1996 1997 1996 1997
------------- -------------- ------------- -------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Deferred Tax Assets:
Allowance for doubtful accounts $ 619 $ 985 $ 186 $ 290
Deferred start-up costs 187 27 - -
Net operating loss carryforward 75,515 102,578 - -
Investments in affiliates, principally
due to differences in taxable income 2,704 3,570 - 280
Investments and other tax credits 1,719 1,553 249 249
----------- ----------- ------------ -----------
Gross Deferred Tax Asset 80,744 108,713 435 819
Deferred Tax Liabilities:
Property and equipment, principally
due to differences in depreciation (13,818) (21,246) (4,246) (6,414)
Investments in affiliates, principally
due to differences in taxable income - - (881) -
Property and equipment and intangible
assets arising from purchase
accounting adjustments (13,934) (12,695) (4,374) (3,985)
Unrealized gain on marketable
securities (317) (269) - -
----------- ----------- ------------ -----------
Gross Deferred Tax Liability (28,069) (34,210) (9,501) (10,399)
----------- ----------- ------------ -----------
Net deferred tax asset (liability)
before valuation allowance 52,675 74,503 (9,066) (9,580)
Valuation allowance (418) (252) - -
----------- ----------- ------------ -----------
Net Deferred Tax Asset (Liability) $ 52,257 $ 74,251 $ (9,066) $ (9,580)
=========== =========== ============ ===========
</TABLE>
The difference between the income tax benefit (net) and the amounts expected by
applying the U.S. Federal income tax rate of 35% to loss before income taxes is
as follows:
<TABLE>
<CAPTION>
1995 1996 1997
--------------- --------------- ---------------
(Dollars in thousands)
<S> <C> <C> <C>
Federal income tax benefit at statutory rates $ 7,638 $ 50,040 $ 35,265
Nondeductible amortization of goodwill and
other intangibles (949) (949) (949)
Nondeductible loss on marketable securities - (30,240) -
Net operating losses applied towards
prior years audit adjustments - (6,306) -
Provision for state income taxes, net of
Federal income tax benefit 1,946 54 (506)
Other 2,089 1,730 2,369
------------- ------------- -------------
$ 10,724 $ 14,329 $ 36,179
============= ============= =============
</TABLE>
F-30
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (continued)
NOTE 18 - CORPORATE INCOME TAXES - (continued)
The Company has a net operating loss carryforward of approximately $300,000,000
on a tax reporting basis. The carryforward will begin to expire in 2000, if not
utilized. The Company has available an alternative minimum tax credit of
$430,000 for indefinite carryover to subsequent years. The Company also has
available unused general business tax credits, after reduction required under
the Tax Reform Act of 1986, of approximately $1,123,000 for carryover to
subsequent years. The operating loss and general business tax credits expire as
follows:
Tax Net Operating
Credits Losses
------- -------------
(Dollars in Thousands)
Year Ending December 31,
------------------------
1998 $ 252 $ --
1999 361 --
2000 485 1,020
2001 5 11,770
2002 5 13,138
2003 -- 19,817
2004 5 35,600
2005 -- 39,076
2006 10 4,439
2007 -- 10,269
2008 -- --
2009 -- 21,397
2010 -- 23,710
2011 -- 46,261
2012 -- 72,521
------ --------
$1,123 $299,018
====== ========
The increased operating loss carryforwards scheduled to expire in the years 2011
and 2012 represent significant tax losses incurred in 1996 and 1997 resulting
from accelerated depreciation on new acquisitions and increased interest on debt
incurred to finance the acquisitions.
The Company has not yet established a valuation allowance for its deferred tax
asset arising from its net operating loss carryforward. In assessing the
appropriateness of a valuation allowance, the Company considered negative
evidence, namely, net operating losses incurred in all years since 1985 (except
in 1993) and positive evidence, namely, anticipated increases in taxable income
as a result of increased revenues, the anticipated elections of slower tax
depreciation methods and anticipated declines in amortization deductions. In
addition, interest expense is expected to remain at its current levels.
In evaluating the above components of positive evidence, the Company believes
that it is more likely than not that it will benefit from the net operating loss
carryforward and therefore, has not established a valuation allowance for the
loss carryforward.
NOTE 19 - OTHER INCOME AND EXPENSE
The schedules of other income and expense from continuing operations for the
years ended December 31, 1995, 1996 and 1997 are as follows:
<TABLE>
<CAPTION>
(Unaudited)
Three Months Ended
Year Ended December 31, March 31,
----------------------------------------------- ------------------------
1995 1996 1997 1997 1998
-------------- -------------- --------- --------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
(Loss) on disposal of assets upon rebuild of
cable systems $ (282) $ (846) $ - $ - $ -
Gain (loss) on sales of property and equipment 115 326 (694) 28 33
Gain on sales of marketable securities 13,517 342 468 73 3,664
Gain on disposition of equity investment (See Note 4) - 7,210 7,318 - 11,489
Interest and dividend income 2,051 4,699 1,242 139 425
Minority interest in net loss of South Jersey
Cablevision 212 - - - -
Minority interest in net loss of L-TCI Associates 1,135 2,492 945 281 -
Litigation settlements (1,900) - (282) - -
Miscellaneous income (expense) 79 (314) 157 (11) -
------------- ------------- -------- -------- ----------
$ 14,927 $ 13,909 $ 9,154 $ 510 $ 15,611
============= ============= ======== ======== ==========
</TABLE>
F-31
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (continued)
NOTE 19 - OTHER INCOME AND EXPENSE - (continued)
In December 1995, the Company's subsidiary, LenComm, Inc. d/b/a Bay Cablevision,
paid a contractor $1,550,000 under a binding arbitration award in connection
with a breach of contract action.
In October 1995, the Company's subsidiary, Lenfest West, Inc. d/b/a Cable
Oakland, under an order by the Superior Court of the State of California, County
of Alameda, paid $350,000 into a settlement fund in settlement of a class action
which alleged that the charges imposed by Cable Oakland for delinquent payments
from subscribers were illegally high.
NOTE 20 - COMMITMENTS AND CONTINGENCIES
Mr. Lenfest, on behalf of the Company, and TCI have jointly and severally
guaranteed an aggregate of $67 million obligation of Australis incurred in
connection with the purchase of program licenses in April 1995. The terms of the
guarantees provide that the amount of the guarantees will be reduced on a
dollar-for-dollar basis with payments made by Australis under the licenses. The
Company has agreed to indemnify Mr. Lenfest against loss from such guaranty to
the fullest extent permitted under the Company's debt obligations. Under the
terms of its bank credit facility, however, Mr. Lenfest's claims for
indemnification are limited to $33.5 million. Effective March 6, 1997, as
subsequently amended, Mr. Lenfest released the parent Company and its cable
operating subsidiaries from their indemnity obligation until the last to occur
of January 1, 1999 and the last day of any fiscal quarter during which the
Company could incur the indemnity obligation without violating the terms of its
bank credit facility. Certain of the Company's non-cable subsidiaries have
agreed to indemnify Mr. Lenfest for his obligations under the guarantee. As a
result, the Company will remain indirectly liable under the non-cable
subsidiaries' indemnity. At December 31, 1997, the amount subject to guarantee
under the license agreements was approximately $47.5 million.
On January 20, 1995, an individual (the "Plaintiff") filed suit in the Federal
Court of Australia, New South Wales District Registry against the Company and
several other entities and individuals (the "Defendants") including Mr. Lenfest,
involved in the acquisition of a company owned by the Plaintiff, the assets of
which included the right to acquire Satellite License B from the Australian
government. The Plaintiff alleges that the Defendants defrauded him by making
certain representations to him in connection with the acquisition of his company
and claims total damages of A$718 million (approximately U.S. $467 million as of
December 31, 1997). The Plaintiff also alleges that Australis and Mr. Lenfest
owed to him a fiduciary duty and that both parties breached this duty. The
Defendants have denied all claims made against them by the Plaintiff and stated
their belief that the Plaintiff's allegations are without merit. They are
defending this action vigorously. The trial in this action began on February 2,
1998, and is expected to last until sometime in the third quarter of 1998. As of
June 22, 1998, the Plaintiff and other witnesses testifying on his behalf have
completed their testimony and cross examination. The Defendants have begun the
presentation of their case. While the Company continues to deny all of Mr.
Hadid's claims, neither it nor its counsel can predict the outcome of the trial.
The Company has also been named as a defendant in various legal proceedings
arising in the ordinary course of business. In the opinion of management, the
ultimate amount of liability with respect to the above actions will not
materially affect the financial position, the results of operations or the cash
flows of the Company.
The Company's operating cable television subsidiaries hold various franchises
and, in connection therewith, are obligated to pay franchise fees based on
certain gross revenues. For the years ended December 31, 1995 and 1996,
franchise fees in the amount of $9,166,000 and $10,824,000, respectively were
paid. For the year ended December 31, 1997, franchise fees in the amount of
$12,764,000 will be paid.
NOTE 21 - RELATED PARTY TRANSACTIONS
The Company has entered into an agreement whereby Satellite Services, Inc., an
affiliate of TCI, provides certain cable television programming to the Company
and its unconsolidated cable television affiliates with programming services at
a rate which is not more than the Company could obtain independently. For the
years ended December 31, 1995, 1996 and 1997, the Company recorded programming
expenses of $37,685,000, $57,344,000 and $62,892,000, respectively, under this
agreement.
The Company, through its subsidiaries, StarNet and StarNet Development, Inc.,
generates revenue from cross channel tune-in promotional services for cable
television and equipment sales to affiliates of TCI. For the years ended
December 31, 1995, 1996 and 1997, the Company has generated revenues of
$3,900,000, $4,789,000 and $1,945,000 respectively, from affiliates of TCI.
F-32
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (continued)
NOTE 21 - RELATED PARTY TRANSACTIONS - (continued)
Cable AdNet Partners, an affiliate of TCI, paid Suburban approximately
$2,637,000 for the year ended December 31, 1995, for Suburban's share of
advertising revenue under certain advertising agreements. In 1996, Radius
purchased the Philadelphia area assets of Cable AdNet for approximately
$1,100,000. (See Note 5).
The Company incurred pay-per-view order placement fees to TelVue Corporation, an
affiliate of Mr. Lenfest, of $190,000, $325,000 and $470,000 for the years ended
December 31, 1995, 1996 and 1997, respectively.
During 1996, the Company loaned a total of $41,139,000 to Australis. All loans
were repaid with interest.
In January 1995, Mr. Lenfest advanced $10,000,000 to the Company in connection
with the investment by the Company's subsidiary, Lenfest Jersey, Inc., in Garden
State Cablevision, L.P. The advance was repaid on April 20, 1995.
In January 1995, the Company advanced $19,240,000 to Australis. The funds were
used to prepay license fees to U.S. movie studios in connection with and under
certain contracts to supply movies to Australis. The loan bore interest at a
rate equal to the rate charged to the Company under its bank credit facility
dated June 24, 1994. The loan was repaid on April 20, 1995.
Subsidiaries of the Company have entered into various leasing arrangements with
a principal stockholder for office and warehouse facilities. (See Note 14).
John C. Malone, a director of the Company, is a director of The Bank of New
York, which is the trustee under the indentures for the Company's senior notes
and senior subordinated notes and a lender under the bank credit facility.
NOTE 22 - SEGMENT INFORMATION
The Company operates primarily in the cable television industry. Certain
subsidiaries of the Company operate in other industries which provide
promotional, cable advertising traffic and billing services. Information
concerning continuing operations by industry segment as of and for each of the
three years ended December 31, was as follows:
<TABLE>
<CAPTION>
Cable Other Total
--------------- --------------- ---------------
(Dollars in thousands)
<S> <C> <C> <C>
Year Ended December 31, 1995
Revenues $ 232,155 $ 22,070 $ 254,225
============== ============= ==============
Operating income (loss) $ 44,199 $ (9,359) $ 34,840
============== ============= ==============
Depreciation and amortization $ 71,054 $ 3,218 $ 74,272
============== ============= ==============
Equity in net income (losses)
unconsolidated affiliates $ (13,320) $ 2,638 $ (10,682)
============== ============= ==============
Capital expenditures, including
acquisitions $ 47,658 $ 5,324 $ 52,982
============== ============= ==============
Identifiable assets $ 740,063 $ 91,382 $ 831,445
============== ============= ==============
</TABLE>
F-33
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (continued)
NOTE 22 - SEGMENT INFORMATION - (continued)
<TABLE>
<CAPTION>
Cable Other Total
--------------- --------------- ---------------
(Dollars in thousands)
<S> <C> <C> <C>
Year Ended December 31, 1996
Revenues $ 354,561 $ 27,249 $ 381,810
============== ============= ==============
Operating income (loss) $ 70,135 $ (15,543) $ 54,592
============== ============= ==============
Depreciation and amortization $ 107,115 $ 4,162 $ 111,277
============== ============= ==============
Equity in net (losses) of unconsolidated
affiliates $ (15,161) $ (2,709) $ (17,870)
============== ============= ==============
Capital expenditures, including
acquisitions $ 655,735 $ 11,294 $ 667,029
============== ============= ==============
Identifiable assets $ 1,116,214 $ 84,603 $ 1,200,817
============== ============= ==============
Year Ended December 31, 1997
Revenues $ 413,792 $ 33,598 $ 447,390
============== ============= ==============
Operating income (loss) $ 75,577 $ (12,793) $ 62,784
============== ============= ==============
Depreciation and amortization $ 124,973 $ 4,966 $ 129,939
============== ============= ==============
Equity in net (losses) of
unconsolidated affiliates $ (5,922) $ (1,412) $ (7,334)
============== ============= ==============
Capital expenditures, including
acquisitions $ 172,010 $ 7,009 $ 179,019
============== ============= ==============
Identifiable assets $ 1,173,358 $ 43,702 $ 1,217,060
============== ============= ==============
</TABLE>
NOTE 23 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial instruments is
presented in accordance with the provisions of SFAS No. 107, "Disclosures about
Fair Value of Financial Instruments". The following methods and assumptions were
used to estimate the fair value of each class of financial instruments for which
it is practicable to estimate that value:
Cash and Cash Equivalents, Accounts Receivable, Accounts Payable and Deposits on
Converters
The carrying amount approximates fair market value because of the short maturity
of those instruments
Marketable Securities
The fair market values of securities are estimated based on quoted market prices
for those investments.
F-34
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (continued)
NOTE 23 - FAIR VALUE OF FINANCIAL INSTRUMENTS - (continued)
Other Investments
The Company's investment in Susquehanna Cable Co., Inc. is carried at cost. (See
Note 9). There are no quoted market prices for Susquehanna, which is a holding
company that has majority ownership in cable operating subsidiaries in which the
Company also has ownership interests. The Company uses the equity method to
account for its ownership in the subsidiaries. (See Note 8). Because of its
relationship with subsidiaries, the Company does not believe that it is
practicable to estimate fair market value for its investment in Susquehanna.
Long-term Debt
The fair value of the Company's long-term debt is estimated based on the quoted
market prices for the same or similar issues or on current rates at which the
Company could borrow funds with similar remaining maturities.
The estimated fair values of the Company's financial instruments as of December
31, 1997 are as follows:
Carrying Fair
Amount Value
------------ -------------
(Dollars in thousands)
Balance Sheet Financial Instruments
Cash and cash equivalents $ 15,623 $ 15,623
Marketable securities 14,452 14,452
Long-term debt (1,287,988) (1,371,625)
Deposits on converters (3,878) (3,878)
Limitations
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates are subjective in nature, involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision. Changes
in assumptions could significantly affect the estimates.
F-35
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (continued)
NOTE 24 - REGULATORY MATTERS
The Federal Communications Commission ("FCC") has adopted regulations under The
Cable Television Consumer Protection and Competition Act of 1992 (the "1992
Cable Act") governing rates charged to customers for basic and tier service and
for equipment and installation charges (the "Regulated Services"). The 1992
Cable Act placed the Company's basic service, equipment and installation rates
under the jurisdiction of local franchising authorities and its tier service
rates under the jurisdiction of the FCC. The rate regulations do not apply to
services offered on an individual service basis, such as per-channel or
pay-per-view services. The rate regulations adopt a benchmark price cap system
for measuring the reasonableness of existing basic and tier service rates.
Alternatively, cable operators have the opportunity to make cost-of-service
showings which, in some cases, may justify rates above the applicable
benchmarks. The rules also require that charges for cable-related equipment
(e.g., converter boxes and remote control devices) and installation services be
unbundled from the provision of cable service and based upon actual costs plus a
reasonable profit. The regulations also provide that future rate increases may
not exceed an inflation-indexed amount, plus increases in certain costs beyond
the cable operator's control, such as taxes, franchise fees and increased
programming costs. Cost-based adjustments to these capped rates can also be made
in the event a cable operator adds or deletes channels. In addition, new product
tiers consisting of services new to the cable system can be created free of rate
regulation as long as certain conditions are met such as not moving services
from existing tiers to the new tier. There is also a streamlined cost-of-service
methodology available to justify a rate increase on basic and regulated nonbasic
tiers for "significant" system rebuilds or upgrades.
The Company believes that it has complied in all material respects with the
provision of the 1992 Cable Act, including its rate setting provisions. However,
the Company's rates for Regulated Services are subject to review by the FCC, if
a complaint has been filed, or the appropriate franchise authority, if such
authority has been certified. If, as a result of the review process, a cable
system cannot substantiate its rates, it could be required to retroactively
reduce its rates to the appropriate benchmark and refund the excess portion of
rates received. Any refunds of the excess portion of tier service rates would be
retroactive to the date of the complaint. Any refunds of the excess portion of
all other Regulated Service rates would be retroactive to one year prior to the
Refund Order issued by the applicable franchise authority. The amount of
refunds, if any, which could be payable by the Company in the event that systems
rates are successfully challenged by franchising authorities is not considered
to be material.
NOTE 25 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses of continuing operations consist of the
following:
<TABLE>
<CAPTION>
December 31,
-------------------------------- (Unaudited)
1996 1997 March 31, 1998
--------------- -------------- ----------------
(Dollars in thousands)
<S> <C> <C> <C>
Accounts payable - unrelated parties $ 8,930 $ 11,619 $ 6,227
Accounts payable - affiliate 12,855 26,304 21,653
Accrued copyright fees 1,460 1,318 1,713
Accrued franchise fees 7,011 7,898 8,520
Accrued interest 13,995 14,101 36,591
Accrued payroll and fringe benefits 1,680 2,407 3,476
Accrued rate refund liability - 1,625 1,625
Accrued sales taxes 553 424 393
Accrued other 5,152 11,475 2,656
-------------- ---------------- -----------
$ 51,636 $ 77,171 $ 82,854
============== ================ ===========
</TABLE>
F-36
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (continued)
NOTE 25 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES - (continued)
Accrued payroll and fringe benefits includes $610,000 for severance packages for
customer satisfaction specialists that are anticipated to be paid in 1998. In
May 1997, the Company opened a customer satisfaction center in New Castle
County, Delaware and proceeded to migrate inbound telephone customer service to
that location. By year-end, approximately 55% of the Company's customer base was
supported by that location. Specialists who elected not to migrate to the new
center were entitled to receive severance pay and benefits. This total expense
amounted to approximately $797,000 and is included in selling, general and
administrative expenses in the accompanying consolidated statement of
operations.
NOTE 26 - SUBSEQUENT EVENTS
On February 5, 1998, the Company issued $150,000,000 7-5/8% Senior Notes due
2008 and $150,000,000 8-1/4% Senior Subordinated Notes due 2008, through a
private offering. The proceeds of the notes are net of estimated issuance costs
of $3,575,000. The notes require semi-annual interest payments. The Senior Notes
are not redeemable by the Company prior to maturity. The Senior Subordinated
Notes may be redeemed, in whole or in part, at the option of the Company, on or
after February 15, 2003. Upon a Change of Control Triggering Event, holders of
the notes may require the Company to purchase all or a portion of the notes at a
purchase price equal to 101% of the principal amount thereof, plus accrued and
unpaid interest. The net proceeds were used for the early extinguishment of
existing debt.
On February 12, 1998, the Company's wholly owned subsidiary, Lenfest
Telephony, Inc., exchanged its 50% general partnership interest in Hyperion
Telecommunications of Harrisburg ("HTH") for a warrant to acquire 731,624
shares (the effective number of shares after a stock split) or approximately
2% of Class A common stock of Hyperion Telecommunications, Inc. ("Hyperion"),
the other 50% general partner in HTH. No exercise price was paid with the
exercise of the warrant in May 1998. The value of the warrant was estimated to
be $11.7 million, based on the initial public offering of the Class A common
stock of Hyperion in May 1998. The Company believes that this value approximated
fair market value of the warrant on February 12, 1998. A gain of $11.5 million,
which represents the excess of the market value of the parnership interest
over its book value, has been included in the accompanying consolidated
statement of operations and comprehensive income (loss). The stock is included
in investments in the accompanying condensed consolidated balance sheet as it
was not readily marketable at March 31, 1998. Due to the small percentage of
ownership and the Company's inability to exercise influence over Hyperion, the
Company has discontinued the usage of the equity method. The Company accounts
for this investment in accordance with SFAS 115.
F-37
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Garden State Cablevision L.P.:
We have audited the accompanying balance sheet of Garden State Cablevision L.P.
(a Delaware Limited Partnership) as of December 31, 1996 and 1997, and the
related statements of operations, cash flows and partners' deficit for each of
the three years in the period ended December 31, 1997. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 Garden State Cablevision L.P.
as of December 31, 1996 and 1997, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Philadelphia, Pa.,
January 28, 1998
F-38
<PAGE>
GARDEN STATE CABLEVISION L.P.
BALANCE SHEET
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31,
------------
1996 1997
------------- ------------
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 4,858 $ 5,271
Accounts receivable, less allowance for doubtful
accounts of $682 and $629 2,683 3,551
Other current assets 916 666
------------- ------------
Total current assets 8,457 9,488
PREPAID INTEREST 117
PROPERTY, PLANT AND EQUIPMENT, net 75,920 83,863
DEFERRED CHARGES, net 85,204 55,938
------------- ------------
$ 169,698 $ 149,289
============= ============
LIABILITIES AND PARTNERS' DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 15,698 $ 14,394
Accrued interest 500 1,315
Subscribers' advance payments and deposits 947 875
------------- ------------
Total current liabilities 17,145 16,584
LONG-TERM DEBT 333,000 324,000
OTHER LIABILITIES 1,562 1,523
DEFERRED MANAGEMENT AND CONSULTING FEES 258 258
PARTNERS' DEFICIT (182,267) (193,076)
------------- ------------
$ 169,698 $ 149,289
============= ============
</TABLE>
See notes to financial statements.
F-39
<PAGE>
GARDEN STATE CABLEVISION L.P.
STATEMENT OF OPERATIONS
(Dollars in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1995 1996 1997
------------ ------------ ---------
<S> <C> <C> <C>
SERVICE INCOME $ 91,771 $ 100,756 $ 109,126
COSTS AND EXPENSES
Direct Costs and amortization 19,959 22,273 23,080
Technical and other 10,038 10,761 11,549
Selling, general and administrative 10,598 10,574 11,273
Management and consulting fees 5,590 6,045 6,548
Depreciation and amortization 46,976 48,524 44,698
------------ ----------- -----------
OPERATING INCOME (LOSS) (1,390) 2,579 11,978
OTHER EXPENSES
INTEREST EXPENSE, net of interest income
of $247, $296 and $404 19,166 16,405 22,787
------------ ----------- -----------
NET LOSS $ (20,556) $ (13,826) $ (10,809)
============ =========== ===========
</TABLE>
See notes to financial statements.
F-40
<PAGE>
GARDEN STATE CABLEVISION L.P.
STATEMENT OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1995 1996 1997
---------- ---------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $ (20,556) $ (13,826) $ (10,809)
Noncash items included in net loss
Depreciation and amortization 46,976 48,524 44,698
Amortization of prepaid interest 295 261 160
Deferred management and consulting fees 2,742 258
Losses on disposal of property, plant and equipment 323 118
(Decrease) increase in other liabilities 62 134 (39)
(Increase) decrease in accounts receivable and other
current assets (707) 14 (634)
(Decrease) increase in current liabilities 1,317 4,732 (561)
Payment of deferred management and consulting fees (14,083)
---------- ---------- ----------
Net cash provided by operating activities 30,452 26,132 32,815
---------- ---------- ----------
INVESTING ACTIVITIES
Capital expenditures (14,652) (22,715) (23,286)
Additions to deferred charges (142) (44) (22)
---------- ---------- ----------
Net cash used in investing activities (14,794) (22,759) (23,308)
---------- ---------- ----------
FINANCING ACTIVITIES
Repayments of debt (17,000) (12,000) (9,000)
Proceeds from borrowing 100,000
Distributions to partners (88,716)
Debt acquisition costs (9) (796) (67)
Prepaid interest (262) (27)
---------- ---------- ----------
Net cash used in financing activities (17,009) (1,774) (9,094)
---------- ---------- ----------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (1,351) 1,599 413
CASH AND CASH EQUIVALENTS, beginning of year 4,610 3,259 4,858
---------- ---------- ----------
CASH AND CASH EQUIVALENTS, end of year $ 3,259 $ 4,858 $ 5,271
========== ========== ==========
</TABLE>
See notes to financial statements.
F-41
<PAGE>
GARDEN STATE CABLEVISION L.P.
STATEMENT OF PARTNERS' DEFICIT
(Dollars in thousands)
<TABLE>
<CAPTION>
General Limited
Partners Partners Total
-------- -------- -----
<S> <C> <C> <C>
BALANCE, JANUARY 1, 1995 $ 23,161 $ (82,330) $ (59,169)
Net loss (206) (20,350) (20,556)
----------- ----------- -----------
BALANCE, DECEMBER 31, 1995 22,955 (102,680) (79,725)
Distributions to partners (17,757) (70,959) (88,716)
Net loss (138) (13,688) (13,826)
----------- ----------- -----------
BALANCE, DECEMBER 31, 1996 5,060 (187,327) (182,267)
Net loss (108) (10,701) (10,809)
----------- ----------- -----------
BALANCE, DECEMBER 31, 1997 $ 4,952 $ (198,028) $ (193,076)
=========== =========== ===========
</TABLE>
See notes to financial statements.
F-42
<PAGE>
GARDEN STATE CABLEVISION L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. ORGANIZATION AND PARTNERS' INTERESTS
Formation and Business
Garden State Cablevision L.P. (the "Partnership"), a Delaware limited
partnership, was formed in 1989, to acquire, own, operate and maintain a cable
television system (the "System") servicing Camden, Burlington, Gloucester, Ocean
and Salem counties in New Jersey. As of December 31, 1997, the Partnership
served more than 208,000 subscribers and passed more than 297,000 homes.
The General Partners of the Partnership are Comcast Garden State, Inc., a wholly
owned subsidiary of Comcast Corporation ("Comcast"), and Lenfest Jersey, Inc.,
an affiliate of Lenfest Communications, Inc. ("Lenfest"). The Limited Partners
of the Partnership are AWACS Garden State, Inc., an indirect wholly owned
subsidiary of Comcast, and Lenfest Jersey, Inc.
Partners' Capital
Additional capital contributions may be requested from the partners in
proportion to each partner's percentage interest, if the General Partners
determine that the Partnership requires additional capital beyond the
Partnership's borrowing capacity.
Distribution Ratios
Net losses are allocated 1% to the General Partners and 99% to the Limited
Partners.
Partnership Agreement
Each Limited Partner may at any time, without the approval of any other partner,
transfer all of its Partnership interests to any of its affiliates, subject to
the maintenance of certain criteria. Remaining partners have the right of first
refusal to purchase the interests of a partner seeking to transfer ownership to
a third party.
F-43
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Management's Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Fair Value of Financial Instruments
The estimated fair value amounts discussed in these notes to financial
statements have been determined by the Partnership using available market
information and appropriate methodologies. However, considerable judgment is
required in interpreting market data to develop the estimates of fair value. The
estimates discussed herein are not necessarily indicative of the amounts that
the Partnership could realize in a current market exchange. The use of different
market assumptions and/or estimation methodologies may have a material effect on
the estimated fair value amounts. Such fair value estimates are based on
pertinent information available to management as of December 31, 1997 and 1996,
and have not been comprehensively reevaluated for purposes of these financial
statements since such dates.
The Partnership believes that the carrying value of all financial instruments,
including the aggregate carrying value of long-term debt, is a reasonable
estimate of fair value at December 31, 1996 and 1997. The fair value of
long-term debt was estimated using interest rates that would be currently
available to the Partnership for debt issuances of similar terms and remaining
maturities.
Cash Equivalents
Cash equivalents consist of bank commercial paper that is readily convertible to
cash and is recorded at cost, plus accrued interest, which approximates its
market value.
Prepaid Interest
The Partnership uses interest rate cap agreements to manage its exposure to
fluctuations in interest rates. Premiums associated with these instruments are
amortized to interest expense over their term.
The Partnership does not hold or issue any derivative financial instruments for
trading purposes and is not a party to leveraged instruments. The credit risks
associated with the Partnership's derivative financial instruments are
controlled through the evaluation and monitoring of the creditworthiness of the
counterparties. Although the Partnership may be exposed to losses in the event
of nonperformance by the counterparties, the Partnership does not expect such
losses, if any, to be significant.
F-44
<PAGE>
Property, Plant and Equipment
Property, plant and equipment are stated at cost (see note 4). Depreciation is
provided using the straight-line method over estimated useful lives, as follows:
Distribution plant and equipment 3 to 12 years
Converters 3 to 5 years
Other 3 to 20 years
Improvements that extend asset lives are capitalized; other repair and
maintenance charges are expensed as incurred. The cost and related accumulated
depreciation applicable to assets sold or retired are removed from the accounts
and the gain or loss on disposition is recognized in net loss.
Deferred Charges
Deferred charges consist principally of subscriber lists, franchise operating
rights and fees, debt acquisition costs, organization costs and the cost of the
acquired business in excess of amounts allocated to specific assets based on
their fair values, and are being amortized on a straight-line basis over their
legal or estimated useful lives, as follows:
Subscriber Lists 5 to 8.5 years
Franchise Operating Rights and Fees 10 to 12 years
Other Deferred Charges 8 to 40 years
Valuation of Long-Lived Assets
The Company evaluates on a quarterly basis whether events or circumstances have
occurred that indicate that the remaining useful lives of its long-lived assets
should be revised or that the remaining balance of such assets may not be
recoverable using objective methodologies. Such methodologies include
evaluations based on the undiscounted cash flows generated by the underlying
assets or other determinants of fair value. The Company also evaluates
depreciation and amortization periods of tangible and intangible assets to
determine whether events or circumstances warrant revised estimates of useful
lives.
Post Retirement Benefits Other Than Pensions
The Partnership accrues the estimated cost of retiree benefits earned during the
years the employee provides services. The Partnership continues to fund benefit
costs principally as incurred, with the retiree paying a portion of the costs.
The Partnership's liability for postretirement benefits is included in other
liabilities.
Revenue Recognition
Service income is recognized as service is provided. Credit risk is managed by
disconnecting services to customers who are delinquent.
Income Taxes
Income taxes have not been recorded in the accompanying financial statements as
they accrue directly to the partners.
F-45
<PAGE>
Reclassifications
Certain reclassifications have been made to the prior years' financial
statements to conform to those classifications used in 1997.
3. SUPPLEMENTAL CASH FLOW DISCLOSURE
The Partnership made cash payments for interest of $19.8 million, $17.1 million
and $22.5 million in 1995, 1996 and 1997, respectively.
4. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
December 31,
------------
1996 1997
------------- -------------
<S> <C> <C>
Distribution plant and equipment $ 137,224 $ 141,954
Converters 33,402 34,042
Other 14,834 15,388
------------- -------------
185,460 191,384
Less accumulated depreciation (109,540) (107,521)
------------- -------------
$ 75,920 $ 83,863
============= =============
5. DEFERRED CHARGES
December 31,
------------
1996 1997
-------------- ------------
Subscriber contracts $ 148,712 $ 148,712
Franchise operating rights and fees 136,230 136,252
Other 14,566 14,633
------------- -------------
299,508 299,597
Less accumulated amortization (214,304) (243,659)
------------- -------------
$ 85,204 $ 55,938
============= =============
</TABLE>
6. LONG-TERM DEBT
On December 23, 1996, the Partnership amended its $300 million Credit Agreement
(the "1994 Credit Agreement") with various banks to a $360 million facility (the
"Amended Credit Agreement"). At that time, the Partnership borrowed additional
funds under the Amended Credit Agreement for the purpose of making cash
distributions, and the payment of deferred management and consulting fees to its
partners. Under the terms of the Amended Credit Agreement, scheduled principal
reductions are to commence on March 31, 1999 and extend through June 30, 2005.
F-46
<PAGE>
Interest rate options under the Amended Credit Agreement are periodically fixed
for defined terms based on one or more of the following rates, as agreed by the
Partnership and the banks:
Base rate (higher of federal funds rate plus 1/2% or prime) plus up to
1/2%.
Eurodollar Rate (Eurodollar Rate divided by a percentage equal to 1
minus the reserve requirement in effect) plus 1/2% to 1.625%.
The level of the preceding applicable margin is based upon the leverage ratio,
as defined. The Partnership also pays a commitment fee of 1/4% to 3/8% on the
unused principal which is based upon the leverage ratio, as defined. The loan is
secured by the ownership interests of the General Partners and the Limited
Partners in the assets of the Partnership. As of December 31, 1996 and 1997, all
borrowings under the Amended Credit Agreement were subject to the Eurodollar
Rate option resulting in weighted average interest rates of 7.10% and 7.15%,
respectively.
The Amended Credit Agreement requires 50% of the aggregate principal amount of
the loan outstanding to be hedged against interest rate risk for at least two
years. The Partnership currently maintains interest rate protection on $170
million of the loan which takes effect when the Base rate or Eurodollar interest
rate on the outstanding borrowings exceeds 7%. The total cost of the agreements
was capitalized and is being amortized over the two year terms of the
agreements.
The Amended Credit Agreement is subject to certain restrictive covenants, with
which the Partnership was in compliance as of December 31, 1997.
Based upon the outstanding borrowings as of December 31, 1997, maturities for
the four years after 1998 are as follows (dollars in thousands):
1999 $
2000 36,000
2001 45,000
2002 45,000
7. MANAGEMENT AND CONSULTING FEES
In connection with the Amended and Restated Agreement of Limited Partnership and
Amended Consulting Agreement, Comcast and Lenfest are each compensated for their
services as consultants at a fee equal to 3% of service income. Services include
providing the Partnership advice and consultation based on their industry
experience, knowledge and trained personnel. Payment of such fees is
subordinated to the prior payment of and provision for operating expenses and
capital requirements and pursuant to certain financial conditions as defined in
the Amended Credit Agreement.
In 1995, 1996 and 1997, the Partnership paid $2.7 million, $19.9 million and
$5.6 million of management and consulting fees to the Partners. The payments
made in 1996 include the payment of previously deferred management and
consulting fees. As of December 31, 1996 and 1997, accounts payable and accrued
expenses includes $750,000 and $1.6 million, respectively, of management and
consulting fees payable to the Partners.
F-47
<PAGE>
8. 1992 CABLE ACT
On April 1, 1993, the Federal Communications Commission (the "FCC") adopted
regulations under the Cable Television Consumer Protection and Competition Act
of 1992 (the "1992 Cable Act") governing the rates charged to subscribers for
basic service and cable programming service, other than programming offered on a
per-channel or per-program basis. The FCC's rate regulations became effective on
September 1, 1993.
In June 1996, the FCC adopted an order approving a negotiated settlement of rate
complaints pending against the Partnership for cable programming service tiers
("CPSTs"), which provided approximately $1.6 million in refunds, plus interest,
being given in the form of bill credits, to approximately 198,000 of the
Partnership's cable subscribers. Approximately $1.9 million of bill credits for
such refunds, including interest, were issued through December 31, 1996, with
the balance of $74,000 issued during 1997. This FCC order resolved the
Partnership's cost-of-service cases for CPSTs covering the period September 1993
through December 1, 1995. As part of the negotiated settlement, the Partnership
agreed to forego certain inflation and external cost adjustments for systems
covered by its cost-of-service filing for CPSTs.
9. RELATED PARTY TRANSACTIONS
The Partnership has entered into agreements whereby affiliates of Lenfest and
Comcast provide certain cable television programming to the Partnership at rates
that are not more than the Partnership could obtain independently. For the years
ended December 31, 1995, 1996 and 1997, the Partnership charged to expense
approximately $12.3 million, $14.0 million, and $17.2 million, respectively,
under these agreements.
A subsidiary of Comcast provides the Partnership with the use of certain
computerized financial systems at a rate that may be more favorable than those
available from unrelated parties. The Partnership charged to expense $24,000 in
1995, 1996 and 1997 for such services.
In addition, the Partnership has acquired certain vendor services through
cooperative arrangements with affiliates of the Limited Partners. These services
include such items as legal services, insurance and association dues. The
amounts paid for these services are not more than the rates the Partnership
could obtain independently. Payments to affiliates of Lenfest Jersey, Inc.
totaled $88,000, $86,000 and $115,000 in 1995, 1996 and 1997, respectively.
Payments to affiliates of AWACS Garden State, Inc. were $234,000, $627,000 and
$415,000 in 1995, 1996 and 1997, respectively.
10. CONTINGENCIES
The Partnership is subject to legal proceedings and claims which arise in the
ordinary course of its business. In the opinion of management, the amount of
ultimate liability with respect to these actions will not materially affect the
financial position, results of operations or liquidity of the Partnership.
F-48
<PAGE>
No dealer, salesperson or other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus in connection with the offer made by this Prospectus and, if given or
made, such information or representations must not be relied upon as having been
authorized by Lenfest. Neither the delivery of this Prospectus nor any sale made
hereunder shall under any circumstances create any implication that there has
been no change in the affairs of Lenfest since the date as of which information
is given in this Prospectus. This Prospectus does not constitute an offer or
solicitation by anyone in any jurisdiction in which such offer or solicitation
is not authorized or in which the person making such offer or solicitation is
not qualified to do so or to anyone to whom it is unlawful to make such offer or
solicitation.
----------------------
TABLE OF CONTENTS
Page
----
Available Information................................ 2
Forward Looking Statements........................... 2
Prospectus Summary................................... 3
Risk Factors......................................... 12
Use of Proceeds...................................... 18
Capitalization....................................... 19
Pro Forma Financial Information...................... 20
Selected Consolidated Financial and
Operating Data.................................... 23
Management's Discussion and Analysis of
Financial Condition and Results of Operations..... 25
Business............................................. 34
Legislation and Regulation........................... 45
Management........................................... 52
Certain Transactions................................. 55
Principal Stockholders............................... 57
Description of Other Debt Obligations................ 58
Description of Notes................................. 60
The Exchange Offer................................... 78
Certain Material Federal Income Tax Consequences..... 86
Plan of Distribution................................. 87
Legal Matters........................................ 87
Experts.............................................. 87
Index to Consolidated Financial Statements........... F-1
Until September 26, 1998, all dealers effecting transactions in the registered
securities, whether or not participating in this distribution, may be required
to deliver a Prospectus. This is in addition to the obligation of dealers to
deliver a Prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
<PAGE>
LENFEST
COMMUNICATIONS, INC.
Offer to Exchange its
$150,000,000 7 5/8% Senior Notes Due 2008
and
$150,000,000 8 1/4% Senior
Subordinated Notes Due 2008
for
$150,000,000 7 5/8% Senior Notes
Due 2008
and
$150,000,000 8 1/4% Senior
Subordinated Notes Due 2008
Which have been Registered Under
the Securities Act of 1933
<PAGE>
Prospectus
Dated August 13, 1998
<PAGE>
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
The Company's By-laws provide that persons who are made a party to
certain actions (other than an action by or in the right by the Company) by
reason of the fact that they are or were a director, officer, employee or agent
of the Company shall be indemnified by the Company against expenses (including
attorneys' fees), judgments, fines and amounts incurred by such person if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to, the best interests of the Company.
With respect to actions by or in the right of the Company, such
directors, officers, employees and agents shall be indemnified by the Company
against expenses (including attorneys' fees) incurred in a defense if he acted
in good faith and in a manner he reasonably believed to be in, or not opposed
to, the best interests of the Company; except, however, that no indemnification
shall be made in respect of any matter as to which such person shall have been
adjudged to be liable for negligence or misconduct in the performance of his
duty to the Company.
Any indemnification shall be made upon a determination that such
indemnification is proper by a vote of the directors who are not parties to the
action, by independent legal counsel in a written opinion or by the stockholders
of the Company.
Item 21. Exhibits and Financial Statement Schedules.
The following Exhibits are furnished as part of this Registration
Statement:
<TABLE>
<CAPTION>
Exhibit
Number Title or Description
------------- ---------------------
<S> <C>
####1 Purchase Agreement, dated as of January 30, 1998, between the Registrant, Salomon Brothers Inc
and Nations Banc Montgomery Securities LLC.
*2.1 Amended and Restated Asset Exchange Agreement, dated September 8, 1995, between Lencom,
Inc. and Lenfest West, Inc. and Heritage Cablevision of Delaware, Inc.
*++++2.2 Asset Purchase Agreement, dated as of May 9, 1995, by and between TCI Communications, Inc.
and Sammons Communications of New Jersey, Inc., Oxford Valley Cablevision, Inc.,
Sammons Communications of Pennsylvania, Inc., NTV Realty, Inc., Capital Tele-Communications,
Inc. and AC Communications, Inc.
*2.3 Assignment and Assumption Agreement, dated as of June 1, 1995, among TCI Communications, Inc.,
TKR Cable Company and Lenfest Communications, Inc.
*2.4 Asset Purchase Agreement, dated as of September 7, 1995, by and between Lenfest Atlantic,
Inc. and Tri-County Cable Television Company.
*2.5 Letter Agreement, dated July 13, 1995, between Suburban Cable TV Co, Inc. and Service Electric
Cable TV, Inc.
*2.6 Letter Agreement, dated August 11, 1995, between Suburban Cable TV Co, Inc. and Service
Electric Cablevision, Inc.
++2.7 Assignment and Assumption Agreement, dated as of February 16, 1996, by and between Heritage
Cablevision of Delaware, Inc. and Lenfest New Castle County, a Delaware general partnership.
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Title or Description
------------- ---------------------
<S> <C>
++2.8 Bill of Sale, Assignment and Assumption and Release, dated as of February 16, 1996, by and
among Lenfest New Castle County, Heritage Cablevision of Delaware, Inc. and The World
Company.
***2.9 Asset Purchase Agreement, dated March 28, 1996, between Cable TV Fund 14-A, Ltd. and Lenfest
Atlantic, Inc.
+++3.1 Restated Certificate of Incorporation of the Registrant.
+++3.2 Amended and Restated By-laws of the Registrant.
*4.1 Form of $700,000,000 8 3/8 % Senior Note Due 2005.
**4.2 Indenture, dated as of November 1, 1995, between the Registrant and The Bank of New York.
+++4.3 Indenture, dated as of June 15, 1996, between the Registrant and The Bank of New York.
+++4.4 Form of Certificated Note, dated June 27, 1996 between the Registrant and Salomon Brothers
Inc (In accordance with Item 601 of Regulation S-K similar Notes between the Registrant and Salomon
Brothers Inc have not been filed because they are identical in all material respects to the
filed exhibit.)
+++4.5 Form of 10 1/2 % Senior Subordinated Note, dated June 27, 1996 in the principal sum of $296,700,000.
+++4.6 Registration Agreement, dated as of June 20, 1996, between the Registrant and Salomon Brothers
Inc., Toronto Dominion Securities (USA) Inc., CIBC Wood Gundy Securities Corp. and
Nationsbanc Capital Markets, Inc.
####4.7 Registration Agreement, dated January 30, 1998, between the Company, Salomon Brothers Inc. and
NationsBank Montgomery Securities LLC.
####4.8 Indenture, dated as of February 5, 1998, between the Company and The Bank of New York relating to
the $150,000,000 7 5/8% Senior Notes due 2008.
####4.9 Form of $150,000,000 7 5/8% Senior Notes due 2008. (In accordance with Item 601 of Regulation S-K
similar notes between the same parties which reference CUSIP No. 526055 AF 5 and CUSIP No.
U52547 AA 1 have not been filed because they are identical in all material respects to the filed exhibit.)
####4.10 Indenture, dated as of February 5, 1998, between the Company and The Bank of New York relating to the
$150,000,000 8 1/4% Senior Subordinated Notes due 2008.
####4.11 Form of $150,000,000 8 1/4% Senior Subordinated Notes due 2008. (In accordance with Item 601 of Regulation
S-K similar notes between the same parties which reference CUSIP No. U52547 AB 9 and CUSIP
No. 526055 AH 1 have not been filed because they are identical in all material respects to the filed
exhibit.)
######5. Opinion of Saul, Ewing, Remick & Saul LLP.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Title or Description
------------- ---------------------
<S> <C>
*++++10.1 Programming Supply Agreement, effective as of September 30, 1986, between Satellite Services,
Inc. and Lenfest Communications, Inc.
*10.2 Lease, dated as of May 1, 1990 by and between H.F. Lenfest and Marguerite Lenfest and Suburban
Cable TV Co. Inc.
*10.3 Lease, dated as of May 1, 1990 by and between H.F. Lenfest and Marguerite Lenfest and Suburban
Cable TV Co. Inc.
*10.4 Lease, dated as of May 24, 1990 by and between H.F. Lenfest and Marguerite Lenfest and
Lenfest MCN, Inc.
*10.5 Lease, dated as of June 20, 1991, as amended January 1, 1995, by and between H.F. Lenfest
and Marguerite Lenfest and StarNet, Inc. (as successor to NuStar).
*10.6 Supplemental Agreement, dated December 15, 1981, by and between TCI Growth, Inc., H.F.
Lenfest, Marguerite Lenfest and Lenfest Communications, Inc. and Joinder Agreement executed
by LMC Lenfest, Inc.
*10.7 Amendment to Supplemental Agreement, dated May 4, 1984 between Lenfest Communications, Inc.
and TCI Growth, Inc.
*10.8 Agreement, dated July 1, 1990, between H.F. Lenfest, Marguerite B. Lenfest, Diane A. Lenfest,
H. Chase Lenfest, Brook J. Lenfest and the Lenfest Foundation, Tele-Communications, Inc. and
Liberty Media Corporation.
*10.9 Agreement and Consent, dated as of November 1, 1990, by and among TCI Development
Corporation, TCI Holdings, Inc., TCI Liberty, Inc., Liberty Cable, Inc., H.F. Lenfest, Marguerite
B. Lenfest, H. Chase Lenfest, Brook J. Lenfest, Diane A. Lenfest and Lenfest Communications,
Inc.
*10.10 Letter Agreement, dated as of December 18, 1991, among Liberty Media Corporation, Lenfest
Communications, Inc., Marguerite B. Lenfest, Diane A. Lenfest, H. Chase Lenfest, Brook J.
Lenfest and the Lenfest Foundation.
*10.11 Irrevocable Proxies of H. Chase Lenfest, Diane A. Lenfest and Brook J. Lenfest, each dated
March 30, 1990.
*10.12 Partnership Agreement of L-TCI Associates, dated April 1993 between Lenfest International,
Inc. and UA-France, Inc.
*10.13 Stock Pledge Agreement, dated May 28, 1993, between Lenfest York, Inc. and CoreStates Bank,
N.A., as Collateral Agent.
*10.14 Pledge Agreement, dated July 29, 1994, between Lenfest Raystay Holdings, Inc. and Farmers
Trust Company as Collateral Agent.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Title or Description
------------- ---------------------
<S> <C>
*++++10.15 Agreement, dated September 30, 1986, between Lenfest Communications, Inc and Tele-Communications, Inc.
*10.16 Agreement for the Sale of Advertising on Cable Television Stations, dated as of November 25,
1991 between Suburban Cable TV Co. Inc. and Cable Ad Net Partners.
***10.17 First Amendment to Credit Agreement, dated as of February 29, 1996 by and among Lenfest
Communications, Inc., The Toronto-Dominion Bank, PNC Bank, National Association and
NationsBank of Texas, N.A., as Arranging Agents, the Lenders and Toronto-Dominion (Texas), Inc.,
as Administrative Agent.
***10.18 Agreement, dated as of February 29, 1996, in favor of the Company by H.F. Lenfest.
***10.19 Credit Agreement, dated as of February 29, 1996, between Lenfest Australia, Inc. and The
Toronto-Dominion Bank and NationsBank of Texas, N.A. and Toronto-Dominion (Texas), Inc. as
Administrative Agent.
***10.20 Sublease Agreement, dated March 21, 1996, between Suburban Cable TV Co. Inc. and Surgical
Laser Technologies, Inc.
***10.21 Letter Agreement, dated November 30, 1995, between the Company and The Prudential Insurance
Company of America.
***10.22 Letter Agreement, dated November 30, 1995, between the Company and The Prudential Insurance
Company of America. (In accordance with Item 601 of Regulation S-K, agreements between the
Company and MLB Life Assurance Corp. and Full & Co. have not been filed because they are
identical in all material respects to the filed exhibit.)
+10.23 Form of Second Amendment, dated as of April 29, 1996, to Credit Agreement, dated as of December 14, 1995,
by and among Lenfest Communications, Inc., The Toronto- Dominion Bank, PNC Bank, National Association
and NationsBank of Texas, N.A., as Arranging Agents, the Lenders and Toronto-Dominion (Texas),
Inc., as Administrative Agent.
+10.24 Form of Letter Agreement, dated May 2, 1996, between the Company and The Prudential Insurance
Company of America.
+10.25 Form of Letter Agreement, dated May 2, 1996 between the Company and The Prudential Insurance
Company of America. (In accordance with Item 601 of Regulation S-K, agreements between the Company
and ECM Fund, L.P.I. and Equitable Life Insurance Society have not been filed because they are
identical in all material respects to the filed exhibit.)
+10.26 Form of Senior Subordinated Credit Agreement, dated as of May 2, 1996, between Lenfest
Communications, Inc. and The Toronto-Dominion Bank.
+++10.27 Letter Agreement, dated June 11, 1996, and accepted June 20, 1996, between the Company and MBL
Life Assurance Corporation. (In accordance with Item 601 of Regulation S-K, an agreement between
the Company and The Prudential Insurance Company of America has not been filed
because it is identical in all material respects to the filed exhibit.)
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Title or Description
------------- ---------------------
<S> <C>
+++10.28 Letter Agreement, dated June 20, 1996, between the Company and The Prudential Insurance
Company of America.
+++10.29 Credit Agreement, dated June 27, 1996 between the Company, The Toronto-Dominion Bank, PNC Bank,
National Association and NationsBank of Texas, as Arranging Agents, the Lenders and Toronto-Dominion
(Texas), Inc., as Administrative Agent.
+++10.30 First Amendment to Credit Agreement, dated August 29, 1996, by and among Lenfest Australia, Inc.,
The Toronto-Dominion Bank, NationsBank of Texas, N.A., and Toronto-Dominion (Texas), Inc.
#10.31 Second Amendment, dated September 30, 1996, to Credit Agreement, dated as of February 29,
1996, by and among Lenfest Australia, Inc., The Toronto-Dominion Bank, NationsBank of Texas,
N.A. and Toronto Dominion (Texas), Inc.
#10.32 Form of First Amendment, dated as of October 28, 1996, to Credit Agreement, dated as of June 27, 1996,
by and among Lenfest Communications, Inc., The Toronto-Dominion Bank, PNC Bank, National Association
and NationsBank of Texas, N.A., as Arranging Agents, the Lenders and Toronto Dominion (Texas),
Inc., as Administrative Agent.
##10.33 Letter, dated March 6, 1997, from H. F. Lenfest to the Company.
##10.34 Agreements, dated as of June 5, 1997, between H.F. Lenfest and Lenfest Jersey, Inc., Lenfest York,
Inc., Lenfest Raystay, Inc. and MCN, Inc. (formerly, Lenfest MCN, Inc.).
####10.35 Letter, dated March 26, 1998 (effective September 30, 1997), from H.F. Lenfest to the Company.
#####10.36 Form of Second Amendment, dated as of January 27, 1998, to Credit Agreement, dated as of June 27, 1996,
by and among Lenfest Communications, Inc., The Toronto-Dominion Bank, PNC Bank, National
Association and NationsBank of Texas, N.A., as Arranging Agents, the Lenders and Toronto Dominion
(Texas), Inc., as Administrative Agent.
10.37 Amended and Restated Loan Agreement, dated as of August 4, 1998, among Lenfest Communications, Inc., a certain
Lead Arranger, certain Arranging Agents, a certain Documentation Agent, a certain Syndication Agent, the Lenders
and a certain Administrative Agent.
#####21 Subsidiaries of Registrant.
######23.1 Consent of Saul, Ewing, Remick & Saul LLP (included in Exhibit 5).
23.2 Consent of Fleischman & Walsh, LLP (FCC Counsel).
23.3 Consent of Pressman Ciocca Smith LLP.
23.4 Consent of Arthur Andersen LLP.
#####25 Statement of Eligibility on Form T-1 of The Bank of New York for the 7 5/8% Senior Notes due 2008
and the 8 1/4% Senior Subordinated Notes due 2008.
+++++27 Financial Data Schedule
#####99.1 Form of Letter of Transmittal for the 7 5/8% Senior Notes due 2008. (In accordance with Item 601
of Regulation S-K, a Letter of Transmittal for the 8 1/4% Senior Subordinated Notes due 2008 has not
been filed because it is identical in all material respects to the filed exhibit.)
#####99.2 Form of Guaranteed Delivery Procedures for the 7 5/8% Senior Notes due 2008. (In accordance with
Item 601 of Regulation S-K, a Guaranteed Delivery Procedures for the 8 1/4% Senior Subordinated Notes
due 2008 has not been filed because it is identical in all material respects to the filed exhibit.)
#####99.3 Form of Exchange Agent Agreement between the Company and The Bank of New York.
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
- ----------------------------
* Filed as an Exhibit to the Registrant's Registration Statement on Form S-1 (File No. 33-96804)
declared effective by the Securities and Exchange Commission on November 8, 1995, and
incorporated herein by reference.
** Filed as an Exhibit to the Registrant's Quarterly Report on Form 10-Q (File No. 33-96804) for
the quarter ended September 30, 1995, and incorporated herein by reference.
*** Filed as an Exhibit to the Registrant's Annual Report on Form 10-K (File No. 33-96804) for the
year ended December 31, 1995, and incorporated herein by reference.
+ Filed as an Exhibit to the Registrant's Quarterly Report on Form 10-Q (File No 33-96804) for the
quarter ended March 31, 1996, and incorporated herein by reference.
++ Filed as an Exhibit to the Registrant's Report on Form 8-K (File No. 33-96804) for the period
ended February 26, 1996, and incorporated herein by reference.
+++ Filed as an Exhibit to the Registrant's Registration Statement on Form S-4 (File No. 333-09631)
filed on August 6, 1996, and incorporated herein by reference.
# Filed as an Exhibit to the Registrant's Quarterly Report on Form 10-Q (File No. 33-96804),
dated November 14, 1996, for the quarter ended September 30, 1996, and incorporated herein by
reference.
## Filed as an Exhibit to the Registrant's Annual Report on Form 10-K (File No. 33-96804), dated
March 22, 1997, for the year ended December 31, 1996, and incorporated herein by reference.
### Filed as an Exhibit to the Registrant's Quarterly Report on Form 10-Q (File No. 33-96804), dated
August 14, 1997, for the quarter ended June 30, 1997, and incorporated herein by reference.
#### Filed as an Exhibit to the Registrant's Annual Report on Form 10-K (File No. 33-96804), dated
March 27, 1998, for the year ended December 31, 1997, and incorporated herein by reference.
++++ Confidential portions have been omitted pursuant to Rule 406 and filed separately with the Commission.
##### Filed as an Exhibit to the Registrant's Registration Statement on Form S-4 (File No. 333-51589)
filed on May 1, 1998, and incorporated herein by reference.
###### Filed as an Exhibit to the Registrant's Amendment No. 2 to Registration Statement on Form S-4
(File No. 333-51589) filed on July 15, 1998, and incorporated herein by reference.
+++++ Filed as an Exhibit to the Registrant's Amendment No. 3 to Registration Statement on Form S-4
(File No. 333-51589) filed on July 31, 1998, and incorporated herein by reference.
</TABLE>
II-6
<PAGE>
(b) Financial Statement Schedules
The following financial statement schedules are included in Part II
beginning on page II-9
(1) Report of Pressman Ciocca Smith LLP on Schedules
Schedule II -- Valuation and Qualifying Accounts
Lenfest Communications, Inc. and Subsidiaries
(2) Report of Arthur Andersen LLP
Schedule II -- Valuation and Qualifying Accounts
Garden State Cablevision L.P.
Item 22. Undertakings.
The Company hereby undertakes with respect to the securities offered by
it:
1. Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended (the "Act"), may be permitted to directors,
officers and controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit, or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
2. The undersigned Registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
3. The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Philadelphia, Commonwealth of Pennsylvania, on the 13th day of August, 1998.
LENFEST COMMUNICATIONS, INC.
By /s/ H.F. Lenfest
-----------------------------------
H.F. Lenfest
President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
Signature Title Date
- --------------------- ---------------------- -----------
/s/ H.F. Lenfest Chairman of the Board, August 13, 1998
- --------------------------- Director and President
H.F. Lenfest (Principal Executive Director)
/s/ H. Chase Lenfest Director August 13, 1998
- ---------------------------
H. Chase Lenfest
/s/ Brook J. Lenfest Director August 13, 1998
- ---------------------------
Brook J. Lenfest
- --------------------------- Director
John C. Malone
- ---------------------------
Leo J. Hindery, Jr. Director
/s/ Maryann V. Bryla Treasurer August 13, 1998
- --------------------------- (Principal Financial and
Maryann V. Bryla Accounting Officer)
II-8
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULES
To the Board of Directors and Stockholders
Lenfest Communications, Inc. and Subsidiaries
We have audited in accordance with generally accepted auditing standards, the
consolidated balance sheets of Lenfest Communications, Inc. and subsidiaries
as of December 31, 1996 and 1997, and the related consolidated statements of
operations, changes in stockholders' equity (deficit) and cash flows for each
of the years in the three-year period ended December 31, 1997, and have issued
our report thereon dated March 4, 1998 (except as to the sixth paragraph of
Note 12, the first paragraph and second paragraph of Note 20 and the second
paragraph of Note 26 as to which the date is June 22, 1998), which is included
in the December 31, 1997, annual report on Form 10-K. In connection with our
audits of the aforementioned consolidated financial statements, we also
audited the related financial statement Schedule II. This financial statement
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion on this financial statement schedule based on our
audits.
In our opinion, the related financial statement schedule, when considered in
relation to the basic consolidated financial statement taken as a whole,
presents fairly, in all material respects, the information set forth therein.
Pressman Ciocca Smith LLP
Hatboro, Pennsylvania
March 4, 1998
II-9
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1995, 1996 and 1997
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Additions
Balance at Charged to Deductions - Balance
Beginning Costs and Bad Debts at End
of Year Expenses Written Off of Year
--------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
(Dollars in thousands)
RESERVES AND ALLOWANCES
DEDUCTED FROM ASSET
ACCOUNTS:
Allowance for doubtful accounts
Year ended December 31, 1995 $ 775 $ 3,512 $ 3,347 $ 940
============= ============= ============= =============
Year ended December 31, 1996 $ 940 $ 4,674 $ 3,629 $ 1,985
============= ============= ============= =============
Year ended December 31, 1997 $ 1,985 $ 9,715 $ 8,777 $ 2,923
============= ============= ============= =============
</TABLE>
II-10
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Garden State Cablevision L.P.:
We have audited in accordance with generally accepted auditing standards, the
financial statements for Garden State Cablevision L.P. and have issued our
report thereon dated January 28, 1998. Our audit was made for the purpose of
forming an opinion on the basic financial statements taken as a whole. The
schedule of valuation and qualifying accounts is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
Philadelphia, Pa.,
January 28, 1998
II-11
<PAGE>
<TABLE>
<CAPTION>
Additions
Balance at Charged to Deductions- Balance
Beginning Costs and Bad Debts at End
of Year Expenses Written Off of Year
---------- ---------- ----------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C>
RESERVES AND ALLOWANCES
DEDUCTED FROM ASSET
ACCOUNTS:
Allowance for doubtful accounts
Year ended December 31, 1995 $ 642 $ 658 $ 691 $ 609
======== ======== ======== ========
Year ended December 31, 1996 $ 609 $ 733 $ 660 $ 682
======== ======== ======== ========
Year ended December 31, 1997 $ 682 $ 812 $ 865 $ 629
======== ======== ======== ========
</TABLE>
II-12
<PAGE>
EXHIBIT INDEX
Exhibit Number Title or Description
- -------------- --------------------
10.37 Amended and Restated Loan Agreement, dated as of August
4, 1998, among Lenfest Communications, Inc., a certain
Lead Arranger, certain Arranging Agents, a certain
Documentation Agent, a certain Syndication Agent, the
Lenders and a certain Administrative Agent.
23.2 Consent of Fleischman & Walsh LLP (FCC Counsel)
23.3 Consent of Pressman Ciocca Smith LLP
23.4 Consent of Arthur Andersen LLP
<PAGE>
EXECUTION COPY
8/3/98
AMENDED AND RESTATED LOAN AGREEMENT
AMONG
LENFEST COMMUNICATIONS, INC.,
AS BORROWER,
NATIONSBANK, N.A.,
AS LEAD ARRANGER,
SALOMON BROTHERS HOLDING COMPANY INC,
AND ROYAL BANK OF CANADA,
AS ARRANGING AGENTS,
SALOMON BROTHERS HOLDING COMPANY INC,
AS DOCUMENTATION AGENT,
ROYAL BANK OF CANADA,
AS SYNDICATION AGENT,
THE LENDERS PARTY HERETO
AND
NATIONSBANK, N.A.,
AS ADMINISTRATIVE AGENT
Dated as of August 4, 1998
Powell, Goldstein, Frazer & Murphy LLP,
Atlanta, Georgia
<PAGE>
AMENDED AND RESTATED LOAN AGREEMENT
AMONG
LENFEST COMMUNICATIONS, INC.,
AS BORROWER,
NATIONSBANK, N.A.,
AS LEAD ARRANGER,
SALOMON BROTHERS HOLDING COMPANY INC,
AND ROYAL BANK OF CANADA,
AS ARRANGING AGENTS,
SALOMON BROTHERS HOLDING COMPANY INC,
AS DOCUMENTATION AGENT,
ROYAL BANK OF CANADA,
AS SYNDICATION AGENT,
THE LENDERS PARTY HERETO
AND
NATIONSBANK, N.A.,
AS ADMINISTRATIVE AGENT
Dated as of August 4, 1998
WHEREAS, the Borrower and certain of the Lenders (the "Prior
Lenders") are parties to that certain Credit Agreement dated as of June 27,
1996, as amended (the "Prior Loan Agreement") among the Borrower, The
Toronto-Dominion Bank, PNC Bank, National Association and NationsBank, N.A.,
as Arranging Agents, PNC Bank, National Association, as Documentation Agent,
NationsBank, N.A., as Syndication Agent, the financial institutions parties
thereto, and Toronto Dominion (Texas), Inc., as Administrative Agent; and
WHEREAS, the Borrower has requested that the Prior Lenders consent to
certain amendments to the Prior Loan Agreement, as more fully set forth in
this Amended and Restated Loan Agreement; and
WHEREAS, the Prior Lenders have agreed to amend and restate the Prior
Loan Agreement in its entirety as set forth herein; and
<PAGE>
WHEREAS, the Borrower acknowledges and agrees that (i) the
Obligations (as defined herein) represent, among other things, the amendment,
restatement, renewal, extension, consolidation and modification of the
Obligations (as defined in the Prior Loan Agreement) arising in connection
with the Prior Loan Agreement and the other Loan Documents (as defined in the
Prior Loan Agreement) executed in connection therewith; and (ii) the Loan
Documents (as defined herein) are intended to restructure, restate, renew,
extend, consolidate, amend and modify the Prior Loan Agreement and the other
Loan Documents (as defined in the Prior Loan Agreement) executed in connection
therewith; and
WHEREAS, the parties hereto intend that (i) the provisions of the
Prior Loan Agreement and the other Loan Documents (as defined in the Prior
Loan Agreement) executed in connection therewith, to the extent restructured,
restated, renewed, extended, consolidated, amended and modified hereby, are
hereby superseded and replaced by the provisions hereof and of the Loan
Documents (as defined herein); and (ii) the Notes (as hereinafter defined)
amend, renew, extend, modify, replace, are substituted for and supersede in
their entirety, but do not extinguish the indebtedness arising under the
promissory notes issued pursuant to the Prior Loan Agreement;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by each of the parties hereto,
the parties hereby amend and restate the Prior Loan Agreement as follows:
ARTICLE 1
Definitions
For the purposes of this Agreement:
"Administrative Agent" shall mean NationsBank, N.A., a national
banking association, acting as administrative agent for the Lenders and the
Arranging Agents.
"Administrative Agent's Office" shall mean the office of the
Administrative Agent located at NationsBank, N.A., 901 Main Street, Dallas,
Texas 75202 or such other office as may be designated pursuant to the
provisions of Section 11.1 hereof.
"Advance" or "Advances" shall mean amounts advanced by the Lenders to
the Borrower pursuant to Article 2 hereof on the occasion of any borrowing.
"Advance Purchase" shall mean any commercially reasonable transaction
or series of transactions whereby the Borrower purchases, leases, or otherwise
acquires income-producing cable television related assets prior to making an
upgrade in, or expansion, modification or repair to any other income-producing
cable television related assets for the purpose of making such upgrade,
expansion, modification or repair.
-2-
<PAGE>
"Affiliate" shall mean any Person directly or indirectly controlling,
controlled by, or under common control with, the Borrower. 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
five percent (5%) 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, including, without limitation,
the power to elect a majority of the directors or trustees of a corporation or
trust, as the case may be.
"Agreement" shall mean this Amended and Restated Loan Agreement, as
amended, modified, restated or supplemented from time to time.
"Agreement Date" shall mean August 4, 1998.
"AML Movie Studio Guaranties" shall mean those certain personal
guaranties, each dated November 19, 1994, relating to certain television cable
and satellite operations in Australia.
"AML Movie Studio Guaranty Liability" shall mean the aggregate amount
of all indemnification obligations of the Borrower or any Restricted
Subsidiary to H.F. Lenfest in respect of the AML Movie Studio Guaranties.
"Annual Excess Cash Flow" shall mean, as of the end of any fiscal
year of the Borrower, as determined based upon the audited annual financial
statements for such year required to be provided under Section 6.2 hereof, the
remainder of (a) Operating Cash Flow for such year, minus (b) the sum of the
following items for the Borrower and the Restricted Subsidiaries on a
consolidated basis for such year: (i) Total Interest Expense paid during such
period; (ii) Capital Expenditures made (net of any proceeds realized in
respect of damaged or destroyed capital assets or from the disposition of
obsolete or retired capital assets); (iii) payments of principal of Total Debt
scheduled to be made pursuant to the documents, instruments or agreements
evidencing such Total Debt; (iv) income taxes (without duplication) paid or
payable in cash during or with respect to such year; and (v) the lesser of (A)
cash or Cash Equivalents then held by the Borrower and the Restricted
Subsidiaries on a consolidated basis or (B) $5,000,000.
"Annualized Operating Cash Flow" shall mean an amount equal to
Operating Cash Flow for the most recent fiscal quarter for which financial
statements have been delivered pursuant to Section 6.1 or 6.2 hereof, times
four (4).
"Applicable Law" shall mean, in respect of any Person, all provisions
of constitutions, statutes, rules, regulations and orders of governmental
bodies or regulatory agencies applicable to such Person, including, without
limiting the foregoing, the Licenses, the Federal Communications Act of 1934,
as amended, and Title 47 of the United States Code, and all orders and decrees
of all courts and arbitrators in proceedings or actions to which the Person in
question is a party or by which it is bound.
-3-
<PAGE>
"Applicable Margin" shall mean the interest rate margin applicable to
Base Rate Advances and LIBOR Advances, as the case may be, in each case
determined in accordance with Section 2.3(f) hereof.
"Arranging Agents" shall mean, collectively, the Lead Arranger,
Salomon Brothers Holding Company Inc, and Royal Bank of Canada; and "Arranging
Agent" shall mean any one of the foregoing Arranging Agents.
"Australia Litigation" shall mean the case of Lenfest Communications,
Inc. and ORS ats. Hadid, which commenced on February 2, 1998, before his
Honour Justice Lehane in the Federal Court of Australia, New South Wales
District Registry.
"Authorized Officer" shall mean any officer of the Borrower or any
Restricted Subsidiary holding the office of Vice President or above.
"Authorized Signatory" shall mean such senior personnel of the
Borrower as may be duly authorized and designated in writing by the Borrower
to execute documents, agreements and instruments on behalf of the Borrower.
"Available Commitment" shall mean, as of any date, an amount equal to
(a) the Commitment on such date, minus (b) the aggregate principal amount of
all Loans outstanding on such date.
"Base Rate" shall mean, at any time, the greater of (a) the rate of
interest adopted by NationsBank, N.A., 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 NationsBank, N.A., as its
"prime rate," and (b) the sum of (i) the Federal Funds Rate, plus (ii)
one-half of one percent (1/2%). The Base Rate is not necessarily the lowest
rate of interest charged to borrowers of NationsBank, N.A.
"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 $5,000,000 and in integral multiples of
$1,000,000 in excess thereof, except for a Base Rate Advance which is in an
amount equal to the unused amount of the Commitment, which Advance may be in
such amount.
"Base Rate Basis" shall mean a simple interest rate equal to the sum
of (a) the Base Rate, plus (b) 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 or the Applicable Margin to account for
such changes.
"Basic Subscriber" shall mean a dwelling unit, including an apartment
which is separately billed for cable television services within an apartment
building, in respect of which the Borrower or any of its Restricted
Subsidiaries has in effect an agreement to provide one or more of the basic
cable television subscription services offered by the Borrower or any of its
Restricted Subsidiaries and for which the Borrower or any of its Restricted
Subsidiaries has received at least one full month's payment at the rate
customarily charged by such Person within the applicable franchise area,
except for those dwelling units for which payment is more than sixty (60) days
past due, or for which notices of termination of service have been sent by the
Borrower or any of its Restricted Subsidiaries or by the customer. As to bulk
subscribers, such as hotels, motels, and apartments, billed on a bulk basis,
the number of Basic Subscribers of the Borrower and its Restricted
Subsidiaries shall be computed by dividing the monthly basic cable revenues
received by the Borrower and its Restricted Subsidiaries from any such bulk
subscribers by the average monthly subscription price received by the Borrower
and its Restricted Subsidiaries from other Basic Subscribers within the
portion of the System serving such bulk subscriber.
-4-
<PAGE>
"Borrower" shall mean Lenfest Communications, Inc., a Delaware
corporation.
"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 London, England; Dallas, Texas; and New York, New York, 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, repair, replacement or construction of fixed
assets, plant and equipment which are capitalized 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.
"Cash Equivalents" shall mean (a) marketable, direct obligations of
the United States of America, maturing within three hundred sixty-five (365)
days of the date of purchase; (b) commercial paper issued by corporations,
each of which conducts a substantial part of its business in the United States
of America, maturing within one hundred and eighty (180) days from the date of
the original issue thereof, and rated "A-1" or better by Standard and Poor's
Rating Group, a division of The McGraw-Hill Companies, Inc., or "P-1" or
better by Moody's Investors Service; (c) repurchase agreements maturing within
three hundred sixty-five (365) days of the date of purchase, which are issued
by any Lender or by any United States national or state bank having capital,
surplus and undivided profits totaling more than $250,000,000 and rated "A" or
better by Standard and Poor's Rating Group, a division of The McGraw-Hill
Companies, Inc., or "A-2" or better by Moody's Investors Service; or (d)
certificates of deposit with maturities of two hundred seventy (270) days or
less from the date of acquisition and overnight bank deposits of any Lender or
of any commercial bank having capital and surplus in excess of $500,000,000.
-5-
<PAGE>
"Certificate of Financial Condition" shall mean a certificate of
financial condition of the Borrower substantially in the form of Exhibit A
attached hereto, and signed by an Authorized Signatory.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
"Commission" shall mean the Federal Communications Commission or any
successor thereto.
"Commitment" shall mean the several obligations of the Lenders to
advance the sum of up to $300,000,000 at any one time outstanding to the
Borrower pursuant to the terms hereof in accordance with their respective
Commitment Ratios, as such obligations may be increased pursuant to Section
2.13 hereof or reduced from time to time pursuant to the terms hereof.
"Commitment Ratios" shall mean the percentages in which the Lenders
are severally bound to satisfy the Commitment to make Advances to the
Borrower, which shall be determined for any Lender as of any date of
determination by dividing the Lender's Maximum Dollar Commitment by the
Commitment, which Commitment Ratios, Maximum Dollar Commitments, and other
information as of the date hereof are set forth in Schedule 14 hereto or as
may be modified in connection with assignments or increases in the Commitment
or as otherwise required hereunder. For any date of determination after the
date upon which the Commitment shall have terminated, the Commitment Ratios
shall be determined using the Commitment and Maximum Dollar Commitment as of
the date immediately prior to such termination.
"Contiguous Areas" shall mean those geographical areas which are
geographically contiguous to any geographical boundary of the System.
"Default" shall mean any Event of Default, and any of the events
specified in Section 8.1 hereof regardless of whether there shall have
occurred any passage of time or giving of notice or both that would be
necessary for such event to be an Event of Default.
"Default Rate" shall mean a simple per annum interest rate equal to
the sum of (a) the otherwise applicable Interest Rate Basis, plus (b) two
percent (2%). In the event there is no otherwise applicable Interest Rate
Basis, the Default Rate shall mean a simple per annum interest rate equal to
the sum of (i) Base Rate Basis, plus (ii) two percent (2%).
"Documentation Agent" shall mean Salomon Brothers Holding Company Inc.
"Dollar" or "$" shall mean (except where specifically designated
otherwise) lawful money of the United States of America.
"Environmental Laws" shall mean any and all applicable federal,
state, local or municipal laws, rules, orders, regulations, statutes,
ordinances, codes, decrees or requirements of any governmental authority
regulating, relating to or imposing liability or standards of conduct
concerning environmental protection matters, including without limitation,
Hazardous Materials, as now or may at any time hereafter be in effect.
-6-
<PAGE>
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as in effect on the Agreement Date and as amended thereafter from time
to time.
"ERISA Affiliate" shall mean any Person whose employees, together
with employees of the Borrower or any Restricted Subsidiary, are treated as
employed by a single employer for purposes of Section 414 of the Code.
"Existing Notes" shall mean, collectively, (a) the unsecured 7-5/8%
Senior Notes due 2008, (b) the 8-3/8% Senior Notes due 2005, and (c) Existing
Subordinated Debt.
"Existing Subordinated Debt" shall mean, collectively, (a) the 1996
Senior Subordinated Debt and (b) the 1998 Senior Subordinated Debt.
"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.
"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 Administrative
Agent from three (3) federal funds brokers of recognized standing selected by
the Administrative Agent.
"GAAP" shall mean, as in effect from time to time, generally accepted
accounting principles in the United States, consistently applied.
"Guaranty", "Guaranteed," or "Guarantees," as applied to an
obligation, shall mean and include (a) a guaranty, direct or indirect, in any
manner, of any part or all of such obligation or (b) any other 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 any part or all of such obligation, including,
without limiting the foregoing, any reimbursement obligations with respect to
outstanding letters of credit, but excluding guaranties by endorsement of
negotiable instruments for collection or deposit in the ordinary course of
business.
"Hazardous Materials" shall mean any hazardous materials, hazardous
wastes, hazardous constituents, hazardous or toxic substances, petroleum
products (including crude oil or any fraction thereof), or friable asbestos
containing materials defined or regulated as such in or under any
Environmental Law.
-7-
<PAGE>
"Indebtedness" shall mean, with respect to any Person, without
duplication, (a) all items 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, except (i) accounts payable which by their terms are
less than sixty (60) days past due, (ii) items of partners' or shareholders'
equity or Capital Stock or surplus or (iii) items of general contingency or
deferred tax reserves, (b) all direct or indirect obligations secured by any
Lien to which any property or asset owned by such Person is subject, whether
or not the obligation secured thereby shall have been assumed, (c) 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, (d) all obligations, contingent or otherwise, arising under
Guaranties issued by such Person, (e) all reimbursement obligations with
respect to outstanding letters of credit, and (f) all obligations of such
Person under Interest Rate Hedge Agreements.
"Indebtedness for Money Borrowed" shall mean, with respect to any
Person, 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 reimbursement
obligations with respect to outstanding letters of credit, and all
Indebtedness issued or assumed as full or partial payment for property or
services, whether or not any such notes, drafts, obligations or Indebtedness
represent Indebtedness for money borrowed. For purposes of this definition,
interest which is accrued but not paid on the original due date for such
interest shall be deemed Indebtedness for Money Borrowed. Where obligations
are evidenced by bonds, debentures, notes or other similar instruments whose
face amount exceeds the amount received by the Borrower with respect thereto,
only the amount received plus any debt discount amortized as of the
calculation date need be taken into account as Indebtedness for money
borrowed.
"Indemnitees" shall have the meaning assigned to such term in Section
5.10 hereof.
"Interest Period" shall mean, (a) in connection with any Base Rate
Advance, the period beginning on the date such Advance is made and ending on
the last day of the calendar quarter in which such Advance is made, provided,
however, that if a Base Rate Advance is made on the last day of any such
calendar quarter, it shall have an Interest Period ending on, and its Payment
Date shall be, the last day of the following such calendar quarter; and (b) 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, with respect to LIBOR Advances only,
(i) any 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 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) no
Interest Period shall extend beyond the Maturity Date or such earlier date as
would cause the Borrower to incur reimbursement obligations under Section 2.10
hereof in light of the Borrower's scheduled 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.
-8-
<PAGE>
"Interest Rate Basis" shall mean the Base Rate Basis or the LIBOR
Basis, as appropriate.
"Interest Rate Hedge Agreement" shall mean the obligations of any
Person pursuant to any arrangement with any other Person whereby, directly or
indirectly, such Person is entitled to receive from time to time periodic
payments calculated by 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 and shall include, without limitation, interest rate
swaps, caps, floors, collars and similar agreements.
"Investments" shall have the meaning ascribed thereto in Section
7.6(a) hereof.
"Lead Arranger" shall mean NationsBank, N.A.
"Lenders" shall mean those financial institutions whose names are set
forth on the signature pages hereof as "Lenders," any assignees (but not
participants) thereof pursuant to and in accordance with Section 11.5 hereof
and any financial institution which becomes a lender pursuant to Section 2.13
hereof; and "Lender" shall mean any one of the foregoing Lenders.
"LIBOR" shall mean, for any Interest Period, the average (rounded
upward to the nearest one-sixteenth of one percent (1/16%)) of the interest
rates per annum at which deposits in United States dollars for such Interest
Period are offered to NationsBank, N.A. in the London interbank borrowing
market at approximately 11:00 a.m. (London, England 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 $5,000,000 and in integral multiples of
$1,000,000 in excess thereof.
"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 upwards to the nearest one-sixteenth of one
percent (1/16%) and shall apply to Interest Periods of one (1), two (2), three
(3), six (6) and, with the prior consent of each of the Lenders, nine (9) and
twelve (12) months, and, once determined, shall remain unchanged during the
applicable Interest Period, except for changes to reflect adjustments in the
LIBOR Reserve Percentage and the Applicable Margin.
-9-
<PAGE>
"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 maximum reserve requirement applicable with respect to Eurocurrency
Liabilities (as that term is defined in said Regulation D), whether or not any
Lender has any Eurocurrency Liabilities subject to such reserve requirement at
that time. The LIBOR Basis for any LIBOR Advance shall be adjusted as of the
effective date of any change in the LIBOR Reserve Percentage.
"Licenses" shall mean any rights, whether based upon any agreement,
statute, ordinance or otherwise, granted by any governmental authority to the
Borrower or any Restricted Subsidiary to own and operate cable television
systems, described, in form reasonably satisfactory to the Administrative
Agent, as of the Agreement Date on Schedule 1 attached hereto, and any other
such rights subsequently obtained by the Borrower or any Restricted
Subsidiary, together with any amendment, modification or replacement with
respect thereto.
"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 property, whether or not choate, vested or perfected,
but excluding any negative pledge with respect to such property. For purposes
of this Agreement, the Borrower and the Restricted Subsidiaries shall be
deemed to own subject to a Lien any assets which they have acquired or hold
subject to the interest of a vendor or lessor under any conditional sale
agreement, capital lease or other title retention agreement relating to any
such assets.
"Loan Documents" shall mean, without limitation, this Agreement, the
Notes, all Requests for Advances, all Notices of Increased Commitment, any
Interest Rate Hedge Agreements, and all other documents and agreements
executed or delivered in connection with or contemplated by this Agreement.
"Loans" shall mean, collectively, the loans made by the Lenders to
the Borrower pursuant to Section 2.1 hereof; and "Loan" shall mean any of the
foregoing Loans.
"Materially Adverse Effect" shall mean any materially adverse effect
upon the business, assets, liabilities, financial condition, or results of
operations of the Borrower and any of the Restricted Subsidiaries, taken as a
whole, or upon the ability of the Borrower or any of the Restricted
Subsidiaries to construct, operate and maintain the System, or to ensure
performance under the Licenses, this Agreement or any other Loan Document by
the Borrower or any of the Restricted Subsidiaries, resulting from either any
act, omission, situation, status, event or undertaking, or any combination or
series of acts, omissions, situations, statuses, events or undertakings.
"Maturity Date" shall mean March 31, 2006, or such earlier date as
payment of the Loans shall be due (whether by acceleration or otherwise).
-10-
<PAGE>
"Maximum Dollar Commitment" shall mean for any Lender as of any date
the maximum dollar amount such Lender is severally bound to advance to the
Borrower to satisfy such Lender's portion of the Commitment which amount may
be decreased by assignments made pursuant to Section 11.5 hereof, decreased on
a pro rata basis with respect to any reduction in the Commitment pursuant to
Section 2.5 hereof, or increased pursuant to Section 2.13 hereof.
"Multiemployer Plan" shall have the meaning set forth in Section
4001(a)(3) of ERISA.
"Necessary Authorizations" shall mean all approvals and licenses
from, and all filings and registrations with, any governmental or other
regulatory authority, including, without limiting the foregoing, the Licenses
and all approvals, licenses, filings and registrations under the Federal
Communications Act of 1934, as amended, necessary in order to enable the
Borrower and the Restricted Subsidiaries to acquire, construct, maintain and
operate the System.
"Net Income" shall mean, as applied to any Person for any fiscal
period, the aggregate amount of net income (or net loss) of such Person, after
taxes, for such period as determined in accordance with GAAP.
"Net Proceeds" shall mean, with respect to any sale, lease, transfer,
or other disposition of the assets of the Borrower or the assets of or
interests in any of its Restricted Subsidiaries, the gross sales price for the
assets being sold (including, without limitation, any payments received for
non-competition covenants), net of (a) amounts reserved, if any, for taxes
payable with respect to the sale (after application of any available losses,
credits or offsets), (b) reasonable and customary transaction costs payable by
the Borrower or such Restricted Subsidiary in connection with such sale,
lease, transfer or other disposition of assets or interests, (c) reasonable
contingencies with respect to such sale, lease, transfer or other disposition
appropriately reserved for by the Borrower or such Restricted Subsidiary, and
(d) until actually received by the Borrower or such Restricted Subsidiary, any
portion of the sales price held in escrow or paid in installments or evidenced
by a non-compete agreement or covenant for which compensation is paid over
time. Upon receipt by the Borrower or any of its Restricted Subsidiaries of
amounts referred to in clause (d) above, such amounts shall be deemed to be
"Net Proceeds." "Net Proceeds" of any sale, lease, transfer or other
disposition of assets of or interests held by a Restricted Subsidiary in an
Unrestricted Subsidiary which is not a wholly-owned direct or indirect
Subsidiary of the Borrower shall be adjusted to reflect the aggregate
percentage ownership of such Unrestricted Subsidiary by the Borrower and the
Restricted Subsidiaries.
"1998 Senior Subordinated Debt" shall mean the unsecured 8-1/4%
Senior Subordinated Notes issued by the Borrower pursuant to that certain
Indenture dated as of February 5, 1998 between the Borrower and The Bank of
New York, as trustee, or any notes issued in replacement thereof pursuant to
the Registration Rights Agreement, dated January 30, 1998, entered into by
Borrower in connection with the original issuance thereof.
"1996 Senior Subordinated Debt" shall mean the unsecured 10-1/2%
Senior Subordinated Notes issued by the Borrower pursuant to that certain
Indenture dated as of June 15, 1996 between the Borrower and The Bank of New
York, as trustee.
-11-
<PAGE>
"Notes" shall mean those certain revolving loan promissory notes in
the aggregate principal amount equal to the Commitment as in effect from time
to time, one such note issued to each of the Lenders by the Borrower, in
accordance with the Lenders' respective Commitment Ratios and each one
substantially in the form of Exhibit B attached hereto, and any extensions,
renewals, amendments, replacements or substitutions to any of the foregoing;
and "Note" shall mean any one of the foregoing Notes.
"Notice of Increased Commitment" shall mean each notice by the
Borrower of an increase in the Commitment pursuant to Section 2.13 hereof,
which notice shall be substantially in the form of Exhibit C attached hereto
and shall be delivered to the Administrative Agent and the Lenders.
"Obligations" shall mean (a) all payment and performance obligations
of the Borrower to the Lenders, the Administrative Agent and the Arranging
Agents, or any of them, under this Agreement and the other Loan Documents, as
the same may be amended from time to time, or as a result of making the Loans,
(b) all payment and performance obligations of all obligors (other than the
Borrower) to the Lenders, the Arranging Agents and the Administrative Agent,
or any of them, under the Loan Documents, as the same may be amended from time
to time, and (c) the obligation to pay an amount equal to the amount of any
and all damage which the Lenders, the Arranging Agents, and the Administrative
Agent, or any of them, may suffer by reason of a breach by the Borrower or any
other obligor of any obligation, covenant or undertaking with respect to this
Agreement or any other Loan Document.
"Operating Cash Flow" shall mean, for the Borrower and the Restricted
Subsidiaries on a consolidated basis in respect of any period, without
duplication, the remainder of (a) the sum of (i) Net Income (excluding any
gain on the sale of any assets or properties of the Borrower or any of the
Restricted Subsidiaries and any non-cash income of the Borrower or any of the
Restricted Subsidiaries), plus, (ii) to the extent deducted from Net Income,
(A) Total Interest Expense, (B) depreciation, (C) amortization, (D) deferred
income taxes, (E) cash income taxes paid, (F) other non-cash charges, and (G)
extraordinary losses, minus, (b) to the extent included in Net Income,
extraordinary income, all as determined in accordance with GAAP. Operating
Cash Flow shall be calculated for the Borrower and the Restricted Subsidiaries
on a consolidated basis after giving effect to any acquisitions and
dispositions of assets occurring during such period as if such transactions
had occurred on the first day of such period.
"Payment Date" shall mean the last day of any Interest Period.
"Permitted Liens" shall mean, as applied to any Person:
(a) any Lien in favor of the Administrative Agent, the
Lenders and the Arranging Agents (or the Administrative Agent on behalf of
such Persons) given to secure the Obligations;
-12-
<PAGE>
(b) (i) Liens on real estate for real estate taxes 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 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 and remain unstayed for a period of thirty (30) days after
their commencement;
(c) Liens of carriers, warehousemen, mechanics, laborers and
materialmen incurred in the ordinary course of business for sums not yet due
or being diligently contested in good faith, if such reserve or appropriate
provision, if any, as shall be required by GAAP shall have been made
therefor;
(d) Liens incurred in the ordinary course of business in
connection with worker's compensation and unemployment insurance;
(e) Restrictions on the transfer of assets imposed by any of
the Licenses as presently in effect, the Federal Communications Act of 1934,
as amended, and any regulations thereunder or the States of Delaware or New
Jersey;
(f) Liens created under Pole Agreements on cables and other
property affixed to transmission poles;
(g) Easements, rights-of-way, restrictions and other similar
encumbrances on the use of real property which do not interfere with the
ordinary conduct of the business of such Person, or Liens incidental to the
conduct of the business of such Person or to the ownership of its properties
which were not incurred in connection with Indebtedness or other extensions
of credit and which do not in the aggregate materially detract from the
value of such properties or materially impair their use in the operation of
the business of such Person;
(h) Purchase money security interests which are perfected by
operation of law only for a period not in excess of ten (10) days after the
inception thereof and limited to Liens on assets so purchased;
(i) Liens securing Indebtedness permitted under Section
7.1(f) hereof to the extent incurred in connection with the acquisition of
any property or assets by the Borrower or any of the Restricted
Subsidiaries, and Liens securing Capitalized Lease Obligations permitted
under Section 7.1(f) hereof; provided, however, that
(1) such Lien shall attach only to the property or
asset acquired in such transaction and shall not extend to or cover
any other assets or properties of the Borrower or any of the
Restricted Subsidiaries; and
(2) the Indebtedness secured or covered by such
Lien shall not exceed the cost of the asset or property acquired and
shall not be renewed or extended by the Borrower or any of the
Restricted Subsidiaries;
-13-
<PAGE>
(a) Liens arising under operating leases for leased
equipment; and
(b) Liens existing as of the Agreement Date as described on
Schedule 2 attached hereto.
"Person" shall mean an individual, corporation, partnership, limited
liability company, trust or unincorporated organization, or a government or
any agency or political subdivision thereof or, for the purpose of the
definition of "ERISA Affiliate," any trade or business.
"Plan" shall mean an employee benefit plan within the meaning of
Section 3(3) of ERISA maintained for employees of any Person or any affiliate
of such Person.
"Pole Agreements" shall mean the agreements between the Borrower or
any of the Restricted Subsidiaries and the parties referred to in Schedule 3
attached hereto, as more particularly described therein, and any other
agreement subsequently entered into by the Borrower or any of the Restricted
Subsidiaries permitting the Borrower or any of the Restricted Subsidiaries to
make use of the transmission poles or conduits of such parties in distributing
its cable television signals.
"Pro Forma Debt Service" shall mean, with respect to the Borrower and
the Restricted Subsidiaries on a consolidated basis for the four (4) fiscal
quarters immediately following the date of calculation, the sum of (a)
interest scheduled to accrue in respect of Total Debt, plus (b) payments of
principal scheduled to be paid on Total Debt, all in accordance with the
documents, instruments and agreements evidencing such Total Debt. For purposes
of calculating Pro Forma Debt Service (i) where any item of interest on any
Total Debt varies or depends upon a variable rate of interest (including,
without limitation, the Base Rate or LIBOR), such rate shall be assumed to
equal the rate in effect on the date of calculation thereof and (ii) the
principal amount outstanding under any revolving or line of credit facility
shall be assumed to be the outstanding principal balance thereunder on the
last day of the fiscal quarter immediately preceding the period in respect of
which the calculation of Pro Forma Debt Service is being determined or, if
less, the aggregate commitment under such revolving or line of credit facility
as of the date of calculation, in each case adjusted to give effect to any
mandatory commitment reductions which are scheduled to occur during such
period in respect of which the calculation of Pro Forma Debt Service is being
determined.
"Regulations" shall have the meaning ascribed thereto in Section
4.1(m) hereof.
"Reportable Event" shall have the meaning set forth in Title IV of
ERISA.
"Request for Advance" shall mean any certificate signed by an
Authorized Signatory of the Borrower requesting an Advance hereunder which
will increase the aggregate amount of the Loans outstanding hereunder, which
certificate shall be denominated a "Request for Advance," and shall be in
substantially the form of Exhibit D attached hereto. Each Request for Advance
shall, among other things, (a) specify the date of the Advance, which shall be
a Business Day, the amount of the Advance, the type of Advance and, with
respect to LIBOR Advances, the Interest Period selected by the Borrower, and
(b) state that there shall not exist, on the date of the requested Advance and
after giving effect thereto, a Default.
-14-
<PAGE>
"Required Lenders" shall mean, at any time, (a) if there are no Loans
outstanding, Lenders the total of whose Commitment Ratios equals or exceeds
fifty-one percent (51%), or (b) if there are Loans outstanding, Lenders the
total principal amount of whose Loans outstanding equals or exceeds fifty-one
(51%) of the total principal amount of the Loans outstanding hereunder.
"Restricted Payment" shall mean (a) any direct or indirect
distribution, dividend or other payment (other than with Capital Stock of the
Borrower) to any Person (i) on account of any Capital Stock (whether common or
preferred) of, general or limited partnership interest in, or other equity
securities of or other ownership interests in, the Borrower or any of the
Restricted Subsidiaries (or of any warrants, options or other rights to
acquire the same) or (ii) in connection with any tax sharing agreement; (b)
any management, consulting or other similar fees, or any interest thereon,
payable by the Borrower to any Affiliate, or to any other Person; and (c) any
payment of principal, interest, premium, fees or other amounts payable in
respect of Subordinated Debt other than scheduled payments of interest in
respect of Subordinated Debt.
"Restricted Purchase" shall mean any payment (other than with Capital
Stock of the Borrower) on account of the purchase, redemption, defeasance or
other acquisition or retirement of any Capital Stock of, general or limited
partnership interest in, or other equity securities of, or other ownership
interest in, the Borrower or any Restricted Subsidiary (or of any warrants,
options or other rights to acquire the same) or any Subordinated Debt of the
Borrower or any Restricted Subsidiary.
"Restricted Subsidiaries" shall mean Suburban Cable TV Co. Inc., a
Pennsylvania corporation; LenComm, Inc., a California corporation; Lenfest
West, Inc., a California corporation; Lenfest Atlantic, Inc., a New Jersey
corporation; Lenfest New Castle County Partnership, a Delaware general
partnership; Lenfest Newcastle County, Inc., a Delaware corporation; CAH,
Inc., a Pennsylvania corporation; any other wholly-owned Subsidiaries of the
Borrower which are solely engaged in businesses directly related to the cable
television business in the United States and which are acquired by the
Borrower or another Restricted Subsidiary in accordance with the terms of this
Agreement; and such other Subsidiaries of the Borrower as may be designated by
the Borrower as "Restricted Subsidiaries" with prior written notice to the
Administrative Agent.
"Senior Debt" shall mean, with respect to the Borrower and the
Restricted Subsidiaries on a consolidated basis as of any calculation date,
the sum, without duplication, of (a) Indebtedness for Money Borrowed other
than Subordinated Debt, plus (b) the deferred purchase price of property
(including, without limitation, Capitalized Lease Obligations and contingent
obligations), plus (c) the AML Movie Studio Guaranty Liability, all as
determined in accordance with GAAP.
-15-
<PAGE>
"Senior Leverage Ratio" shall mean, for any period, the ratio of
Senior Debt as of the end of such period to Annualized Operating Cash Flow for
such period.
"Shareholders' Agreements" shall mean (i) that certain letter
agreement dated as of December 18, 1991 among H. F. (Gerry) Lenfest, Liberty
Media Corporation, Marguerite B. Lenfest, Diane A. Lenfest, H. Chase Lenfest,
Brook J. Lenfest and the Lenfest Foundation, (ii) that certain Supplemental
Agreement dated as of December 15, 1981 among TCI Growth, Inc., a Nevada
corporation, H. F. and Marguerite B. Lenfest, and Lenfest Communications, Inc.
and that certain Joinder Agreement executed by LMC Lenfest, Inc., (iii) that
certain Amendment to Supplemental Agreement dated May 4, 1984 between Lenfest
Communications, Inc. and TCI Growth, Inc., (iv) that certain Agreement dated
July 1, 1990 between H.F. Lenfest, Marguerite B. Lenfest, Diane A. Lenfest, H.
Chase Lenfest, Brook J. Lenfest and the Lenfest Foundation,
Telecommunications, Inc. and Liberty Media Corporation, (v) that certain
Agreement and Consent dated as of November 1, 1990 by and among TCI
Development Corporation, TCI Holdings, Inc., TCI Liberty, Inc., Liberty Cable,
Inc., H. F. Lenfest, Marguerite B. Lenfest, H. Chase Lenfest, Brook J.
Lenfest, Diane A. Lenfest and Lenfest Communications, Inc., (vi) those certain
Irrevocable Proxies dated March 30, 1990 by Harold Chase Lenfest, Diane A.
Lenfest and Brook J. Lenfest, respectively, in favor of H. F. Lenfest, and
(vii) that certain Assignment and Assumption Agreement dated as of November 4,
1993 among Liberty Cable, Inc., a Wyoming corporation, Liberty Media
Corporation, a Delaware corporation, and LMC Lenfest, Inc., a Colorado
corporation.
"Solvent" shall mean, with respect to any Person on a particular
date, that on such date (i) the fair value of the property (tangible or
intangible) of such Person is greater than the total amount of liabilities,
including, without limitation, contingent liabilities, of such Person, (ii)
the amount that will be required to pay the probable liabilities of such
Person on its debts as they become absolute and matured will not be greater
than the fair salable value of the assets of such Person at such time if sold
pursuant to an orderly sale, (iii) such Person is able to realize upon its
assets and pay its debts and other liabilities, contingent obligations and
other commitments as they mature in the normal course of business, (iv) such
Person does not intend to, and does not believe that it will, incur debts or
liabilities beyond such Person's ability to pay as such debts and liabilities
mature, and (v) to the best of such Person's knowledge (after due inquiry),
and in its good faith reasonable judgment, such Person is not engaged in
business or a transaction, and is not about to engage in business or a
transaction, for which such Person's property would constitute unreasonably
small capital after giving due consideration to prevailing practices in the
industry in which such Person is engaged. In computing the amount of any
contingent liability at any time, it is intended that such liability will be
computed at the amount which, in light of all the facts and circumstances
existing at such time, represents the amount that might reasonably be expected
to become an actual or matured liability.
"Subordinated Debt" shall mean, for the Borrower and the Restricted
Subsidiaries on a consolidated basis as of any calculation date, all
Indebtedness for Money Borrowed permitted hereunder which is expressly
subordinated by its terms to the Obligations pursuant to subordination terms
satisfactory to the Required Lenders, including, without limitation, the
Existing Subordinated Debt.
-16-
<PAGE>
"Subsidiary" shall mean, as applied to any Person, (a) any
corporation of which fifty percent (50%) or more 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 of which fifty percent (50%) or more of the
outstanding partnership interests, is at the time owned by such Person, or by
one or more Subsidiaries of such Person, or by such Person and one or more
Subsidiaries of such Person, and (b) any other entity which is controlled or
capable of being controlled by such Person, or by one or more Subsidiaries of
such Person, or by such Person and one or more Subsidiaries of such Person,
whether by contract or otherwise.
"Syndication Agent" shall mean Royal Bank of Canada.
"System" shall mean, collectively, the cable television systems owned
by the Borrower and the Restricted Subsidiaries on the Agreement Date or
hereafter acquired by the Borrower or any of the Restricted Subsidiaries in
accordance with the terms and conditions of this Agreement.
"Total Debt" shall mean, with respect to the Borrower and the
Restricted Subsidiaries on a consolidated basis as of any calculation date,
without duplication, the sum of (a) Senior Debt, plus (b) Subordinated Debt,
plus (c) the principal amount outstanding under the Guaranties, including,
without limitation, the AML Movie Studio Guaranty Liability.
"Total Interest Expense" shall mean, with respect to the Borrower and
the Restricted Subsidiaries on a consolidated basis, the aggregate amount of
all interest expense and commitment fees in respect of Total Debt and the
portion of payments under Capitalized Lease Obligations which constitutes
imputed interest, in each case for the four (4) most recently completed fiscal
quarters, whether accrued or paid, and as determined in accordance with GAAP.
"Total Leverage Ratio" shall mean, for any period, the ratio of (a)
Total Debt as of the end of such period to (b) Annualized Operating Cash Flow
for such period.
"Unrestricted Subsidiaries" shall mean all Subsidiaries of the
Borrower which are not Restricted Subsidiaries.
"Year 2000 Compliant" shall have the meaning ascribed thereto in
Section 4.1(x) hereof.
"Year 2000 Problem" shall have the meaning ascribed thereto in
Section 4.1(x) hereof.
Each definition of an agreement in this Article 1 shall include such
agreement as amended from time to time with the prior written consent of the
Required Lenders, except as provided in Section 11.12 hereof.
-17-
<PAGE>
ARTICLE 2
Loans
Section 2.1 The Loans. The Lenders hereby agree, severally in
accordance with their respective Commitment Ratios and not jointly, upon the
terms and subject to the conditions of this Agreement, to lend and relend to
the Borrower amounts which in the aggregate at any one time outstanding do not
exceed the amount of the Available Commitment as in effect from time to time
hereunder. Subject to the terms hereof, Advances under the Commitment may be
repaid and then reborrowed as provided in Sections 2.2(b)(ii) and (c)(ii)
hereof.
Section 2.2 Manner of Borrowing and Disbursement.
(a) Choice of Interest Rate, Etc. Any Advance shall, at the
option of the Borrower as provided in this Section 2.2, be made as a Base Rate
Advance or a LIBOR Advance; provided, however, that the Borrower may not
receive a LIBOR Advance pursuant to a reborrowing of an Advance under Section
2.2(b)(ii) or (c)(ii) hereof or otherwise after the occurrence and during the
continuance of an Event of Default hereunder. LIBOR Advances shall in all
cases be subject to Section 2.3(e) and Article 10 hereof. Any notice given to
the Administrative Agent in connection with a requested Advance hereunder
shall be given to the Administrative Agent prior to 11:00 a.m. (Dallas, Texas
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
Administrative Agent in the case of Base Rate Advances written notice
prior to 11:00 a.m. (Dallas, Texas time) on the date of any requested
Base Rate Advance (which notice shall be in the form of a Request for
Advance in the case of any Advance which would increase the aggregate
principal amount of the Loans outstanding), or telecopied notice
followed immediately by written notice (which notice shall be in the
form of an original Request for Advance in the case of any Advance
which would increase the aggregate principal amount of the Loans
outstanding); provided, however, that the Borrower's failure to
confirm any telecopied notice with written notice (whether in the
form of an original Request for Advance or otherwise) shall not
invalidate any notice so given.
(ii) Repayments and Reborrowings. The Borrower may
repay or prepay a Base Rate Advance without regard to its Payment
Date and (i) upon irrevocable written notice prior to 11:00 a.m.
(Dallas, Texas time) on the date of any requested repayment and
reborrowing, to the Administrative Agent, reborrow all or a portion
of the principal amount thereof as one (1) or more Base Rate
Advances, or, (ii) subject to the provisions of Section 2.3(e)
hereof, upon at least three (3) Business Days' irrevocable prior
written notice to the Administrative Agent, reborrow all or a portion
of the principal thereof as one or more LIBOR Advances, or (iii) upon
prior notice to the Administrative Agent, not reborrow all or any
portion of such Base Rate Advance. On the date indicated by the
Borrower, such Base Rate Advance shall be so repaid and, as
applicable, reborrowed.
-18-
<PAGE>
(c) LIBOR Advances.
(i) Advances. Upon request, the Administrative
Agent, whose determination shall be conclusive, shall determine the
available LIBOR Bases and shall notify the Borrower of such LIBOR
Bases. The Borrower shall give the Administrative Agent in the case
of LIBOR Advances at least three (3) Business Days' irrevocable prior
written notice (which notice shall be in the form of a Request for
Advance in the case of any Advance which would increase the aggregate
principal amount of the Loans outstanding), or telecopied notice
followed immediately by written notice (which notice shall be in the
form of an original Request for Advance in the case of any Advance
which would increase the aggregate principal amount of the Loans
outstanding); provided, however, that the Borrower's failure to
confirm any telecopied notice with written notice (whether in the
form of an original Request for Advance or otherwise) shall not
invalidate any notice so given.
(ii) Repayments and Reborrowings. The Borrower
shall give the Administrative Agent at least three (3) Business
Days' prior written notice if all or a portion of any LIBOR Advance
outstanding on its Payment Date (i) is to be repaid and then
reborrowed in whole or in part as a LIBOR Advance, or (ii) is to be
repaid and not reborrowed. The Borrower shall give the
Administrative Agent at least one (1) Business Day's prior written
notice if all or a portion of any LIBOR Advance outstanding on its
Payment Date is to be repaid and then reborrowed as a Base Rate
Advance. Upon such Payment Date such LIBOR Advance will, subject to
the provisions hereof, be so repaid and, as applicable, reborrowed.
(d) Notification of Lenders. Upon receipt of a Request for
Advance, or a notice from the Borrower with respect to any outstanding Advance
prior to the Payment Date for such Advance, the Administrative Agent shall
promptly notify each Lender by telephone or telecopy of the contents thereof
and the amount of such Lender's portion of the Advance. Each Lender shall, not
later than 12:00 noon (Dallas, Texas time) on the date specified in such
notice, make available to the Administrative Agent at the Administrative
Agent's Office, or at such account as the Administrative Agent shall
designate, the amount of its portion of any such Advance which would increase
the aggregate principal amount of the Loans outstanding in immediately
available funds.
-19-
<PAGE>
(e) Disbursement. Prior to 1:00 p.m. (Dallas, Texas time) on
the date of an Advance hereunder, the Administrative Agent shall, subject to
the satisfaction of the conditions set forth in Article 3 hereof, disburse the
amounts made available to the Administrative Agent by the Lenders (or as
otherwise provided below) in like funds by transferring the amounts so made
available (or as otherwise provided below) by wire transfer pursuant to the
Borrower's instructions. Unless the Administrative Agent shall have received
notice from a Lender prior to the date of any borrowing that such Lender will
not make available to the Administrative Agent such Lender's ratable portion
of such borrowing, the Administrative Agent may assume that such Lender has
made such portion available to the Administrative Agent on the date of such
borrowing and the Administrative Agent may, in its sole discretion and in
reliance upon such assumption, make available to the Borrower on such date a
corresponding amount. If and to the extent such Lender shall not have so made
such ratable portion available to the Administrative Agent, such Lender agrees
to repay to the Administrative Agent forthwith on demand such corresponding
amount together with interest thereon, for each day from the date such amount
is made available to the Borrower until the date such amount is repaid to the
Administrative Agent, at the Federal Funds Rate for three (3) Business Days
and thereafter at the Base Rate. If such Lender shall repay to the
Administrative Agent such corresponding amount, such amount so repaid shall
constitute such Lender's Loan as part of such borrowing for purposes of this
Agreement. If such Lender does not repay such corresponding amount immediately
upon the Administrative Agent's demand therefor, the Administrative Agent
shall notify the Borrower and the Borrower shall immediately pay such
corresponding amount to the Administrative Agent. In the event that any Lender
fails to notify the Administrative Agent prior to the date of any borrowing
that such Lender will not make available to the Administrative Agent such
Lender's pro rata portion of any borrowing, such Lender (and not the Borrower)
shall be responsible to reimburse the Administrative Agent for any losses or
out-of-pocket expenses of the type described in Section 2.10 hereof incurred
by the Administrative Agent in conjunction with the Borrower's repayment of
amounts disbursed hereunder pursuant to the immediately preceding sentence.
The failure of any Lender to make the Loan to be made by it as part of any
borrowing shall not relieve any other Lender of its obligation, if any,
hereunder to make its Loan on the date of such borrowing, but no Lender shall
be responsible for any such failure of any other Lender. In the event that, at
any time when the Borrower is not in Default and the conditions to borrowing
have been satisfied and the Required Lenders have funded their respective
portions of a requested Advance, a Lender for any reason fails or refuses to
fund its portion of such Advance, then, until such time as such Lender has
funded its portion of such Advance, or all other Lenders have received payment
from the Borrower (whether by repayment or prepayment or otherwise) of
principal and interest in an aggregate amount equal to or greater than the
amount of principal and interest due in respect of such Advance, such
non-funding Lender shall not have the right (A) to vote regarding any issue on
which voting is required or advisable under this Agreement or any other Loan
Document (and the amount of the Loans of such Lender shall not be counted as
outstanding for purposes of determining "Required Lenders" hereunder) or (B)
to receive payments of principal, interest or fees from the Borrower, the
Administrative Agent or the other Lenders in respect of its Loans.
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 on the applicable Payment Date. Interest on Base Rate Advances
then outstanding shall also be due and payable on the Maturity Date.
-20-
<PAGE>
(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, 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 each three (3) month anniversary of the
date of such LIBOR Advance during 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 Administrative Agent timely notice of
its selection of a LIBOR Basis, or if for any reason 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
and during the continuance of an Event of Default, interest on the
outstanding principal balance of the Loans shall accrue at the Default Rate
from the date of such Event of Default. Such interest shall be payable on
the earlier of demand or the Maturity Date and shall accrue until the
earlier of (i) waiver or cure (to the satisfaction of the Required Lenders
or of all Lenders, as applicable) of the applicable Event of Default, (ii)
agreement by the Required Lenders to rescind the charging of interest at the
Default Rate, or (iii) payment in full of the Obligations. The Lenders shall
not be required to (1) accelerate the maturity of the Loans, (2) exercise
any other rights or remedies under the Loan Documents, or (3) give notice to
the Borrower of the decision to charge interest on the Loans at the Default
Rate in accordance herewith, prior to or in conjunction with the effective
date of the decision to charge interest at the Default Rate.
(e) LIBOR Contracts. At no time may the number of
outstanding LIBOR Advances exceed seven (7).
(f) Applicable Margin. With respect to any Advance, the
Applicable Margin shall be as set forth in the table set forth below based
upon the Total Leverage Ratio as of the end of the most recently completed
fiscal quarter of the Borrower. Changes to the Applicable Margin shall be
effective (i) with respect to an increase in the Applicable Margin, as of the
second (2nd) Business Day after the day on which the financial statements are
required to be delivered to the Administrative Agent and the Lenders pursuant
to Section 6.1 or 6.2 hereof, as the case may be; provided, however, that if
such financial statements are not delivered to the Administrative Agent and
the Lenders on or before the date specified in such Section, such increase
shall be effective as of the date specified in such Section for delivery of
the financial statements; and (ii) with respect to a decrease in the
Applicable Margin, as of the later of (A) the second (2nd) Business Day after
the day on which such financial statements are required to be delivered
pursuant to Section 6.1 or 6.2 hereof, as the case may be, and (B) the date on
which such financial statements are actually delivered to the Administrative
Agent and the Lenders.
-21-
<PAGE>
<TABLE>
<CAPTION>
the Applicable the Applicable
If the Total Margin for Base Margin for LIBOR
Leverage Ratio is: then Rate Advances shall be and Advances shall be
- ------------------ ---------------------- -----------------
<S> <C> <C>
Greater than or equal to 6.50:1 0.500% 1.500%
Greater than or equal to 6.00:1, but 0.250% 1.250%
less than 6.50:1
Greater than or equal to 5.50:1, but 0.125% 1.125%
less than 6.00:1
Greater than or equal to 5.00:1, but 0.000% 0.875%
less than 5.50:1
Greater than or equal to 4.50:1, but 0.000% 0.750%
less than 5.00:1
Less than 4.50:1 0.000% 0.625%
</TABLE>
(g) All interest on the Loans shall accrue as of the first
day of each Advance hereunder through but excluding the Payment Date for such
Advance.
Section 2.4 Commitment Fees. The Borrower agrees to pay to the
Lenders, in accordance with their respective Commitment Ratios, a commitment
fee on the aggregate unborrowed balance of the Available Commitment for each
day from the Agreement Date until the payment and performance, in full, of all
Obligations, and the termination of the Commitment, for each day on which the
Total Leverage Ratio is (1) greater than or equal to 5.50:1, at a rate of
three-eighths of one percent (3/8%) per annum, or (2) less than 5.50:1, at a
rate of one-quarter of one percent (1/4%) per annum. 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, commencing on the first such date following the Agreement
Date and on the Maturity Date, and shall be fully earned when due and
non-refundable when paid.
Section 2.5 Commitment Reductions.
(a) Optional. The Borrower may, without penalty, at any time
terminate or permanently reduce the Commitment by giving the Administrative
Agent and the Lenders at least three (3) Business Days' notice thereof;
provided, however, that any reduction shall reduce the Commitment in a
principal amount of at least $5,000,000 and an integral multiple of
$1,000,000. The Borrower shall make a repayment of the Loans outstanding under
the Commitment, plus accrued interest on such outstanding Loans, together with
any costs incurred on account of such repayment under Section 2.10 hereof, on
or before the effective date of the reduction of the Commitment, such that the
principal amount of the Loans outstanding under the Commitment after such
repayment does not exceed the Commitment as so reduced. The Borrower shall not
have any right to rescind any termination or reduction pursuant to this
Section 2.5(a).
-22-
<PAGE>
(b) Mandatory.
(i) Scheduled Reductions. Commencing on December
31, 2001, the Commitment (as then in effect) shall be automatically
and permanently reduced on the dates and by the percentages set
forth below:
Commitment Percentage
Reduction Date Reduction
-------------- ----------
December 31, 2001 5.000%
March 31, 2002, June 30, 2002,
September 30, 2002 and December 31, 2002 2.500%
March 31, 2003, June 30, 2003,
September 30, 2003, and December 31, 2003 3.750%
March 31, 2004, June 30, 2004,
September 30, 2004, and December 31, 2004 5.500%
March 31, 2005, June 30, 2005,
September 30, 2005, and December 31, 2005 7.000%
March 31, 2006 20.000%
(ii) Reductions from Net Proceeds of Asset Sales.
The Commitment shall also be automatically and permanently reduced
by an amount equal to the Net Proceeds of any sale, lease, transfer
or other disposition of assets of the Borrower or any of the
Restricted Subsidiaries (other than sales or other dispositions of
(A) cable television-related assets having an aggregate sales price
not to exceed (1) $3,000,000 in any fiscal year and (2) $10,000,000
in the aggregate prior to the Maturity Date, or (B) obsolete
equipment or other immaterial assets in the ordinary course having
an aggregate sales price not to exceed $2,000,000 in any fiscal
year), (x) which Net Proceeds are not reinvested in other
income-producing cable television-related assets of the Borrower or
any of the Restricted Subsidiaries within one (1) year of such sale,
lease, transfer or other disposition, or, (y) with respect to an
Advance Purchase, which amount equal to such Net Proceeds has not
been invested in other income-producing cable television related
assets of the Borrower or any of the Restricted Subsidiaries within
one (1) year immediately prior to such sale, lease, transfer or
other disposition; provided, however, that no reduction shall be
required under this Section 2.5(b)(ii) if the Total Leverage Ratio
at the time such repayment is required to be made is less than 5.50
to 1. Reductions in the Commitment prescribed by this Section
2.5(b)(ii) shall be effective on the first anniversary of the
applicable sale, lease, transfer or other disposition of assets and
applied to the Commitment on a pro rata basis to each mandatory
reduction in the Commitment scheduled to occur thereafter.
-23-
<PAGE>
(iii) Reductions Upon Issuance of Debt. In the
event that the Borrower issues Indebtedness permitted under Section
7.1(d) hereof, the Commitment shall also be automatically and
permanently reduced by an amount equal to the net proceeds of such
debt issuance; provided, however, that no reduction shall be required
under this Section 2.5(b)(iii) unless a Default or Event of Default
exists at the time of or is caused by such debt issuance. Reductions
in the Commitment prescribed by this Section 2.5(b)(iii) shall be
applied to the Commitment on a pro rata basis to each mandatory
reduction in the Commitment scheduled to occur thereafter.
Section 2.6 Prepayment. The principal amount of any Base Rate Advance
may be prepaid in full or in part at any time, without penalty and without
regard to the Payment Date for such Advance upon prior notice to the
Administrative Agent. LIBOR Advances may be prepaid prior to the applicable
Payment Date, upon three (3) Business Days' prior written notice to the
Administrative Agent; provided, however, that the Borrower shall reimburse the
Lenders on the earlier of demand or the Maturity Date, for any loss or
out-of-pocket expense incurred by the Lenders in connection with such
prepayment, as set forth in Section 2.10. Any notice of prepayment shall be
irrevocable and all amounts prepaid on the Loans shall be applied first to
interest and fees and other amounts due hereunder, and then to principal.
Partial prepayments shall be in a principal amount of at least $2,000,000 and
integral multiples of $1,000,000. Upon receipt of any notice of prepayment,
the Administrative Agent shall promptly notify each Lender of the contents
thereof by telephone or telecopy and of such Lender's portion of the
prepayment.
Section 2.7 Repayment.
(a) Payments Upon Commitment Reductions. The Borrower shall
make a repayment of the Loans outstanding under the Commitment, plus accrued
interest on the portion of such Loans required to be repaid, together with any
costs incurred on account of such repayment under Section 2.10 hereof, on or
before the effective date of each reduction of the Commitment, such that the
principal amount of the Loans outstanding under the Commitment after such
repayment does not exceed the Commitment as so reduced.
(b) Repayments from Net Proceeds of Asset Sales. The
Borrower shall make a repayment of the Loans outstanding under the Commitment
to the extent that the Borrower is required to reduce the Commitment pursuant
to Section 2.5(b)(ii) hereof.
-24-
<PAGE>
(c) Repayments Upon Issuance of Debt. In the event that the
Borrower issues Indebtedness permitted under Section 7.1(d) hereof, the
Borrower shall make a repayment of the Loans outstanding under the Commitment
in an amount equal to the net proceeds of such debt issuance.
(d) Maturity Date. A final payment of all Obligations then
outstanding shall be due and payable on the Maturity Date.
Section 2.8 Notes; Loan Accounts.
(a) The Loans shall be repayable in accordance with the
terms and provisions set forth herein, and shall be evidenced by the Notes.
One Note shall be issued by the Borrower to each Lender and payable to the
order of such Lender in accordance with the respective Commitment Ratio of
such Lender, and each Note shall be duly executed and delivered by the
Authorized Signatories.
(b) Each Lender may open and maintain on its books in the
name of the Borrower a loan account with respect to the Loans and interest
thereon. The records of a Lender with respect to the loan account maintained
by it shall be prima facie evidence of the Loans and accrued interest thereon.
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 Lenders or the Administrative Agent under this
Agreement or the other Loan Documents shall be made not later than 11:00 a.m.
(Dallas, Texas time) on the date specified for payment under this Agreement to
the Administrative Agent at the Administrative Agent's Office, for the account
of the Lenders and the Administrative Agent, or any of them, as the case may
be, in lawful money of the United States of America in immediately available
funds. Any payment received by the Administrative Agent after 11:00 a.m.
(Dallas, Texas time) shall be deemed received on the next Business Day.
Receipt by the Administrative Agent of any payment intended for any Lender or
the Administrative Agent hereunder prior to 11:00 a.m. (Dallas, Texas time) on
any Business Day shall be deemed to constitute receipt by such Lender or the
Administrative Agent (as appropriate) on such Business Day. In the case of a
payment for the account of a Lender, the Administrative Agent will promptly
thereafter distribute the amount so received in like funds to such Lender. If
the Administrative Agent shall not have received any payment from the Borrower
as and when due, the Administrative Agent will promptly notify the Lenders
accordingly. If any payment under this Agreement or any of the Notes shall be
specified to be made on a day which is not a Business Day, such payment shall
be made on the next succeeding day which is a Business Day, and such extension
of time shall in such case be included in computing interest and fees, if any,
due and payable on such next succeeding Business Day.
-25-
<PAGE>
(b) The Borrower agrees to pay principal, interest, fees and
all other amounts due hereunder or under the Notes or the other Loan Documents
without set-off or counterclaim or any deduction whatsoever.
(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 Administrative Agent, the Administrative Agent shall distribute such
amounts in the following order of priority, all in accordance where applicable
with the Commitment Ratios: (i) to the costs and expenses, if any, incurred by
the Administrative Agent in the collection of such amounts under this
Agreement; (ii) to the payment of all fees then due and payable hereunder;
(iii) to the payment of interest then due and payable on the Loans; (iv) to
the payment of all other amounts not otherwise referred to in this Section
2.9(c) then due and payable hereunder or under the Notes or the other Loan
Documents; and (v) to the payment of principal then due on the Loans
outstanding, which payment shall be applied against outstanding Advances in
the following order of priority: (A) Advances, the Interest Period for which
is expiring concurrently with such payment, (B) other Base Rate Advances, and
(C) other LIBOR Advances. Subsequent to the acceleration of the Loans under
Section 8.2 hereof, all amounts received from any source whatsoever by the
Administrative Agent or any of the Lenders with respect to the Borrower shall
be paid to and distributed by the Administrative Agent in the manner provided
in Section 2.11(c) hereof.
(d) Prior to the date on which any Person becomes a Lender
hereunder, and from time to time thereafter if required by law due to a change
in circumstances or if reasonably requested by the Borrower or the
Administrative Agent (unless such Lender is unable to do so by reasons of
change in law or otherwise), each Lender organized under the laws of a
jurisdiction outside the United States shall provide the Administrative Agent
and the Borrower with an IRS Form 4224 or Form 1001 or other applicable form,
certificate or document prescribed by the Internal Revenue Services certifying
as to such Lender's entitlement to full exemption from United States
withholding tax with respect to all payments to be made to such Lender
hereunder and under any Note. Unless the Borrower and the Administrative Agent
have received forms or other documents satisfactory to them indicating that
payments hereunder or under any Note are not subject to United States
withholding tax (or there is a change in law preventing delivery thereof), the
Borrower or the Administrative Agent shall, in the case of payments to or for
any Lender organized under the law of a jurisdiction outside the United
States, (i) withhold taxes from such payments at the applicable statutory
rate, or at a rate reduced by an applicable tax treaty (provided that the
Borrower and the Administrative Agent have received forms or other documents
satisfactory to them indicating that such reduced rate applies) and (ii) pay
such Lender such payment net of any taxes withheld. To the extent that the
Borrower is obligated hereunder, the Borrower shall provide evidence that such
taxes of any nature whatsoever in respect of this Agreement, any Loan or any
Note shall have been paid to the appropriate taxing authorities by delivery to
the Lender on whose account such payment was made of the official tax receipts
or notarized copies of such receipts within thirty (30) days after payment of
such tax. If the Borrower fails to make any such payment when due, the
Borrower shall indemnify the Lenders for any incremental taxes, interest or
penalties that may become payable by any Lender as a result of any such
failure.
-26-
<PAGE>
Section 2.10 Reimbursement.
(a) Whenever any Lender shall sustain or incur any losses or
out-of-pocket expenses in connection with (i) failure by the Borrower to
borrow any LIBOR Advance after having given notice of its intention to borrow
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 or repayment of any LIBOR
Advance in whole or in part (including a prepayment pursuant to Sections 10.2
and 10.3(b) hereof) prior to its Payment Date, the Borrower agrees to pay to
such Lender, upon the earlier of such Lender's demand or the Maturity Date, an
amount sufficient to compensate such Lender for all such losses and
out-of-pocket expenses. Such Lender's good faith determination of the amount
of such losses or out-of-pocket expenses, absent manifest error, shall be
binding and conclusive. Upon the request of the Borrower, any Lender seeking
compensation hereunder shall provide the Borrower with its calculation of such
losses and out-of-pocket expenses.
(b) Loss subject to reimbursement hereunder shall be any
loss incurred by any Lender in connection with the re-employment of funds
prepaid, repaid, not borrowed, or paid, as the case may be, and the amount of
such loss shall be the excess, if any, of (i) interest or other costs to such
Lender of the deposit or other sources of funding used to make any such LIBOR
Advance for the remainder of its Interest Period over (ii) the interest which
would be earned by such Lender if the amount of such LIBOR Advance were
redeployed in the London interbank borrowing market for the remainder of its
putative Interest Period.
Section 2.11 Pro Rata Treatment.
(a) Advances. Each Advance from the Lenders under this
Agreement shall be made pro rata on the basis of their respective Commitment
Ratios.
(b) Payments Prior to Declaration of Event of Default. Prior
to the acceleration of the Loans under Section 8.2 hereof, each payment and
prepayment of the Loans, and, except as provided in Section 2.2(e) and Article
10 hereof, each payment of interest on the Loans, shall be made to the Lenders
pro rata on the basis of their respective unpaid principal amounts outstanding
immediately prior to such payment or prepayment. If any Lender shall obtain
any payment (whether involuntary, through the exercise of any right of
set-off, or otherwise) on account of the Loans made by it in excess of its
ratable share of the Loans under its Commitment Ratio, such Lender shall
forthwith purchase from the other Lenders such participations in the Loans
made by them as shall be necessary to cause such purchasing Lender to share
the excess payment ratably with each of them; provided, however, that if all
or any portion of such excess payment is thereafter recovered from such
purchasing Lender, such purchase from each Lender shall be rescinded and such
Lender shall repay to the purchasing Lender the purchase price to the extent
of such recovery. The Borrower agrees that any Lender so purchasing a
participation from another Lender pursuant to this Section 2.11(b) may, to the
fullest extent permitted by law, exercise all its rights of payment
(including, without limitation, the right of set-off) with respect to such
participation as fully as if such Lender were the direct creditor of the
Borrower in the amount of such participation.
-27-
<PAGE>
(c) Payments Subsequent to Declaration of Event of Default.
Subsequent to the acceleration of the Loans under Section 8.2 hereof,
payments and prepayments made to the Administrative Agent or the Lenders or
otherwise received by any of them (from realization on collateral for the
Obligations or otherwise) shall be distributed as follows: first, to the
Administrative Agent's costs and expenses, if any, incurred in connection
with the collection of such payment or prepayment, including, without
limitation, any costs incurred in connection with the sale or disposition of
any collateral for the Obligations; second, to the payment of fees then due
and payable to the Lenders and any costs and expenses, if any, incurred by
any of the Lenders under Section 11.2(c) hereof; third, to any unpaid
interest which may have accrued on the Obligations; fourth, to any unpaid
principal of the Obligations; fifth, to damages incurred by the
Administrative Agent or any Lender by reason of any breach hereof or of any
other Loan Document; and sixth, upon satisfaction in full of all
Obligations, to the Borrower or as otherwise required by law.
Section 2.12 Capital Adequacy. If any Lender shall determine that the
adoption of any Applicable Law regarding the capital adequacy of banks or bank
holding companies, or any change in any Applicable Law 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 such Lender with any request or
directive regarding capital adequacy (whether or not having the force of law)
of any such governmental authority, central bank or comparable agency, has the
effect of reducing the rate of return on such Lender's capital as a
consequence of its commitment or its obligations to fund or maintain Advances
hereunder to a level below that which it could have achieved but for such
adoption, change or compliance (taking into consideration such Lender's
policies with respect to capital adequacy immediately before such adoption,
change or compliance and assuming that such Lender's capital was fully
utilized prior to such adoption, change or compliance) by an amount deemed by
such Lender in good faith to be material and such Lender has attempted in good
faith, but without success, to mitigate or eliminate such reduction in its
rate of return by assigning its Loans and its portion of the Commitment to an
affiliate of such Lender if such assignment would be reasonable under the
circumstances as determined by such Lender in good faith and would not be
otherwise disadvantageous to such Lender, then, upon the earlier of demand by
such Lender or the Maturity Date, the Borrower shall immediately pay to such
Lender, such additional amounts as shall be sufficient to compensate such
Lender for such reduced return, together with interest on such amount from the
fourth (4th) day after the date of demand or the Maturity Date, as applicable,
until payment in full thereof at the Default Rate. A certificate of such
Lender setting forth the amount to be paid to such Lender by the Borrower as a
result of any event referred to in this paragraph shall, absent manifest
error, be conclusive, and, at the Borrower's request, such Lender shall set
forth the basis for such determination.
-28-
<PAGE>
Section 2.13 Increases in the Commitment. Subject to the terms and
conditions of this Agreement, the Borrower may request an increase in the
Commitment on any Business Day on or prior to December 28, 2001. The amount of
any such increase in the Commitment (each such increase, a "Commitment
Increase") shall be in integral multiples of $25,000,000 and the aggregate
amount of all such Commitment Increases shall not exceed $250,000,000. The
effectiveness of any such Commitment Increase shall be subject to the
satisfaction of each of the conditions precedent to Commitment Increase set
forth in Section 3.3 hereof. The decision of any Lender to participate in a
Commitment Increase shall be at such Lender's sole discretion. Any such
Commitment Increase shall be effective on the date of delivery by the Borrower
to the Administrative Agent of a Notice of Increased Commitment (each such
date, a "Commitment Increase Effective Date"). On each such Commitment
Increase Effective Date, the "Maximum Dollar Amount" of each Lender
participating in each such Commitment Increase shall automatically increase by
such Lender's portion of the Commitment Increase as set forth in the Notice of
Increased Commitment and the dollar amount contained in the definition of
"Commitment" set forth in Article 1 hereof shall automatically be increased by
the amount of such Commitment Increase as set forth in such Notice of
Increased Commitment.
ARTICLE 3
Conditions Precedent
Section 3.1 Conditions Precedent to Initial Advance. The obligation
of the Lenders to undertake the Commitment and to make the initial Advance
under the Commitment is subject to the prior fulfillment of each of the
following conditions:
(a) The Administrative Agent or the Lenders, as appropriate,
shall have received each of the following, in form and substance satisfactory
to the Administrative Agent and the Lenders:
(i) duly executed Notes;
(ii) opinions of corporate and special FCC counsel
to the Borrower and the Restricted Subsidiaries, addressed to each
Lender and the Administrative Agent and satisfactory to the
Administrative Agent and the Lenders, dated the Agreement Date, and
the Borrower hereby instructs such counsel to deliver such opinions
to the Administrative Agent and the Lenders;
(iii) the loan certificate of the Borrower, in
substantially the form attached hereto as Exhibit E, including a
certificate of incumbency with respect to each Authorized Signatory,
together with appropriate attachments which shall include without
limitation, the following items: (A) a copy of the Certificate of
Incorporation of the Borrower, certified to be true, complete and
correct by the Delaware Secretary of State, (B) a true, complete and
correct copy of the Bylaws of the Borrower, as in effect on the date
hereof, (C) a true, complete and correct copy of the resolutions of
the Borrower authorizing the execution, delivery and performance of
this Agreement and the other Loan Documents to which the Borrower is
party, (D) certificates of good standing from appropriate
jurisdictions for the Borrower, (E) a true and correct list of all
Licenses granted to the Borrower and the Restricted Subsidiaries,
together with all amendments thereto through the date hereof and
certified to be in full force and effect, (F) a true and correct list
of all Pole Agreements granted to the Borrower and the Restricted
Subsidiaries, together with all amendments thereto through the date
hereof and certified to be in full force and effect;
-29-
<PAGE>
(iv) a Master Assignment and Assumption Agreement
among the Prior Lenders and the Lenders;
(v) financial projections with respect to the
Borrower and the Restricted Subsidiaries;
(vi) a letter from New Jersey counsel to the
Borrower with respect to regulatory issues;
(vii) a duly executed Certificate of Financial
Condition of the Borrower;
(viii) copies of insurance binders or certificates
covering the assets of the Borrower and the Restricted Subsidiaries
and otherwise meeting the requirements of Section 5.5 hereof;
(ix) opinion of Powell, Goldstein, Frazer & Murphy
LLP, special counsel to the Arranging Agents, addressed to the
Administrative Agent and the Lenders, and the Arranging Agents hereby
instruct such counsel to deliver such opinion to the Administrative
Agent and the Lenders; and
(x) all such other documents as the Administrative
Agent or any Lender may reasonably request, certified by an
appropriate governmental official or an Authorized Signatory if so
requested.
(b) The Lenders shall have received evidence reasonably
satisfactory to the Administrative Agent and the Lenders that all Necessary
Authorizations, including all necessary consents to the closing of this
Agreement from the grantors of the Licenses, have been obtained or made, are
in full force and effect and are not subject to any pending or threatened
reversal or cancellation, and the Administrative Agent and the Lenders shall
have received a certificate of an Authorized Signatory so stating.
(c) The Administrative Agent and the Lenders shall have
received such fees as are due and payable to them on the Agreement Date.
(d) There shall not have occurred any event which could have
or which has had a Materially Adverse Effect since December 31, 1997, except
for any such event affecting the cable television industry generally.
-30-
<PAGE>
Section 3.2 Conditions Precedent to Each Advance. The obligation of
the Lenders to make each Advance, including, without limitation, the initial
Advance, is subject to the fulfillment of each of the following conditions
immediately prior to or contemporaneously with such Advance:
(a) With respect to Advances which, if funded, would
increase the aggregate amount of the Loans outstanding hereunder, all of the
representations and warranties of the Borrower under this Agreement, 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 making of the Advance and application of
the proceeds of the Advance, except to the extent they relate solely to an
earlier date or time period;
(b) The incumbency of the Authorized Signatories shall be as
stated in the certificate of incumbency contained in the Borrower's loan
certificate delivered pursuant to Section 3.1(a) hereof or as subsequently
modified and reflected in a certificate of incumbency delivered to the
Administrative Agent and the Lenders;
(c) With respect to Advances which, if funded, would
increase the aggregate amount of Loans outstanding hereunder, the
Administrative Agent and the Lenders shall have received a duly executed
Request for Advance, which shall certify the Borrower's compliance with
Sections 7.8, 7.9, 7.10, 7.14 and 7.15 hereof, both before and after giving
effect to the making of the requested Advance; and
(d) With respect to Advances which, if funded, would
increase the aggregate amount of the Loans outstanding hereunder, there shall
not exist, on the date of the making of the Advance and after giving effect
thereto, a Default hereunder, and, since the date of the most recent audited
annual financial statements of the Borrower and the Restricted Subsidiaries
referred to in Section 4.1(k) or required to have been delivered to the
Administrative Agent and the Lenders pursuant to Section 6.2 hereof, there
shall not have occurred any event which could reasonably be expected to have
or which has had a Materially Adverse Effect, except for any such event
affecting the cable television industry generally.
Section 3.3 Conditions Precedent to Each Commitment Increase. The
effectiveness of any Commitment Increase is subject to the fulfillment of each
of the following conditions immediately prior to or contemporaneously with
such Commitment Increase:
(a) All of the representations and warranties of the
Borrower under this Agreement, which, pursuant to Section 4.2 hereof, are made
at and as of the time of such Commitment Increase, shall be true and correct
at such time in all material respects, both before and after giving effect to
the Commitment Increase, except to the extent they relate solely to an earlier
date or time period;
(b) The incumbency of the Authorized Signatories shall be as
stated in the certificate of incumbency contained in the Borrower's loan
certificate delivered pursuant to Section 3.1(a) hereof or as subsequently
modified and reflected in a certificate of incumbency delivered to the
Administrative Agent and the Lenders;
-31-
<PAGE>
(c) The Administrative Agent and the Lenders shall have
received a duly executed Notice of Increased Commitment, which shall certify
the Borrower's compliance with Sections 7.8, 7.9, 7.10, 7.14 and 7.15 hereof,
both before and after giving effect to the Commitment Increase; and
(d) There shall not exist, on the date of the Commitment
Increase and after giving effect thereto, a Default hereunder, and, since the
date of the most recent audited annual financial statements of the Borrower
and the Restricted Subsidiaries referred to in Section 4.1(k) or required to
have been delivered to the Administrative Agent and the Lenders pursuant to
Section 6.2 hereof, there shall not have occurred any event which could
reasonably be expected to have or which has had a Materially Adverse Effect,
except for any such event affecting the cable television industry generally.
ARTICLE 4
Representations and Warranties
Section 4.1 Representations and Warranties. The Borrower hereby
agrees, represents and warrants to the Administrative Agent and the Lenders
that:
(a) Organization; Ownership; Power; Qualification;
Capitalization. The Borrower is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware. The Borrower has
the corporate power and authority to own its properties and to carry on its
business as now being and hereafter proposed to be conducted. The Borrower is
duly qualified, in good standing and authorized to do business in each
jurisdiction in which the character of its properties or the nature of its
businesses requires such qualification or authorization.
(b) Authorization; Enforceability. The Borrower has the
corporate power and has taken all necessary corporate 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 party
is, a legal, valid and binding obligation of the Borrower enforceable in
accordance with its terms, except as such enforceability may be limited by (a)
bankruptcy, insolvency, reorganization, arrangement, moratorium or similar
laws of general applicability affecting the enforcement of creditors' rights
and (b) the application of general principles of equity.
-32-
<PAGE>
(c) Subsidiaries; Authorization. Except for changes
permitted by this Agreement, Schedule 4 sets forth a true and complete list of
each of the Borrower's Subsidiaries and accurately designates as of the
Agreement Date whether each such Subsidiary is a Restricted Subsidiary or an
Unrestricted Subsidiary. The Borrower has or will have delivered to the
Administrative Agent, an updated Schedule 4 within fifteen (15) days after any
changes thereto. Each of the Restricted Subsidiaries is a corporation or
partnership, as the case may be, duly organized, validly existing, and in good
standing under the laws of the state of its organization, and has the power
and authority, corporate, partnership or otherwise, to own its properties and
to carry on its business as now being and hereafter proposed to be conducted.
Each Restricted Subsidiary is duly qualified, in good standing 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.
The outstanding shares of Capital Stock of each Restricted Subsidiary have
been duly authorized and validly issued and are fully paid and non-assessable,
and all of the outstanding shares of each class of the Capital Stock of each
Restricted Subsidiary are owned, directly or indirectly, beneficially and of
record, by the Borrower, free and clear of all Liens. None of the Restricted
Subsidiaries has any stock or securities or other ownership interests
convertible into or exchangeable for any shares of its Capital Stock or other
ownership interests, nor are there any preemptive or similar rights to
subscribe for or to purchase, or any other rights to subscribe for or to
purchase, or any options for the purchase of, or any agreements providing for
the issuance (contingent or otherwise) of, or any calls, commitments, or
claims of any character relating to, any such Capital Stock or other ownership
interests, or any stock or securities convertible into or exchangeable for any
such Capital Stock or other ownership interests. None of the Restricted
Subsidiaries is subject to any obligation (contingent or otherwise) to
repurchase or otherwise acquire or retire any shares of its Capital Stock or
other ownership interests or to register any shares of its Capital Stock or
other ownership interests, and there are no agreements restricting the
transfer of any shares of such Capital Stock or other ownership interests.
(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 other Loan
Documents to which it is party, and the consummation of the transactions
contemplated hereby and thereby, do not and will not (i) require any consent
or approval not already obtained, (ii) violate any Applicable Law respecting
the Borrower or any of its Subsidiaries, (iii) conflict with, result in a
breach of, or constitute a default under any of the certificates or articles
of incorporation or partnership or bylaws or partnership agreements, as
amended, of the Borrower or of any of its Subsidiaries, under any License or
under any indenture, agreement, or other instrument to which the Borrower or
any of its Subsidiaries is a party or by which it or any of its properties may
be bound, including, without limitation, the Pole Agreements, 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
Restricted Subsidiaries except Permitted Liens.
(e) Business. The Borrower is engaged solely in the business
of acting as a holding company for its Subsidiaries and of investing in other
cable television systems and investing in other activities directly relating
to the cable television business. The Restricted Subsidiaries are engaged
principally in the business of owning, operating and maintaining the System.
Not less than ninety percent (90%) of Annualized Operating Cash Flow of the
Restricted Subsidiaries as of any date of determination is derived directly
from the cable television business in the United States.
-33-
<PAGE>
(f) Licenses, etc. The Licenses have been duly authorized
(to the best of the Borrower's knowledge after due inquiry) by the grantors
thereof and are in full force and effect. The Borrower and the Restricted
Subsidiaries are in compliance in all material respects with all of the
provisions thereof. The Borrower has secured all Necessary Authorizations and
all such Necessary Authorizations are in full force and effect. Neither any
License nor any Necessary Authorization is the subject of any pending or, to
the best of the Borrower's knowledge after due inquiry, threatened revocation
which, with respect to any License or Licenses, if determined adversely, would
constitute an Event of Default under Section 8.1(l) hereof. Except as
described on Schedule 5 attached hereto, there is no Person other than the
Borrower or any of its Restricted Subsidiaries which is currently providing
cable, wireless or satellite delivered television services in any territory
within the System.
(g) Compliance with Law. The Borrower and each of the
Restricted Subsidiaries are in compliance in all material respects with all
Applicable Laws.
(h) Title to Assets. Except for Permitted Liens, the
Borrower and the Restricted Subsidiaries have good, legal and marketable title
to, or a valid leasehold interest in, all of their respective assets. None of
such properties or assets is subject to any Liens, except for 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 Restricted
Subsidiary as debtor or which covers or purports to cover any of the assets of
the Borrower or any Restricted Subsidiary is on file in any state or other
jurisdiction, and neither the Borrower nor any Restricted Subsidiary 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. Neither the Borrower nor any Restricted Subsidiary owns any parcel
of real estate with a fair market value in excess of $2,500,000, except as set
forth on Schedule 6 attached hereto.
(i) Litigation. Except as described on Schedule 7 attached
hereto and except for actions, suits, proceedings or investigations as to
which the Borrower is not required to notify the Lenders or has given
appropriate notice in accordance with Section 6.6 hereof, there is no action,
suit, proceeding or investigation pending against, or, to the best of the
Borrower's knowledge after due inquiry, threatened against or in any other
manner relating adversely to, the Borrower or any Restricted Subsidiary or any
of its respective properties, including, without limitation, the Licenses, in
any court or before any arbitrator of any kind or before or by any
governmental body, and no such action, suit, proceeding or investigation (i)
calls into question the validity of this Agreement or any other Loan Document,
or (ii) could, if determined adversely to the Borrower or any Restricted
Subsidiary, have a Materially Adverse Effect, except to the extent such
action, suit, proceeding or investigation affects the cable television
industry generally.
-34-
<PAGE>
(j) Taxes. All federal, state and other tax returns of the
Borrower and the Restricted 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 Restricted Subsidiary or
imposed upon the Borrower or any Restricted Subsidiary or any of its
respective properties, income, profits or assets, which are due and payable,
have been paid, except any such tax, assessment, charge, levy or claim (x) the
payment of which the Borrower or the applicable Restricted Subsidiary is
diligently contesting in good faith by appropriate proceedings, (y) for which
adequate reserves have been provided on the books of the Borrower or the
applicable Restricted Subsidiary, 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. The charges, accruals and reserves on the
books of the Borrower and the Restricted Subsidiaries in respect of taxes are,
in the judgment of the Borrower, adequate. All pro forma financial information
provided to the Lenders in connection with this Agreement have been based upon
reasonable assumptions and prepared in good faith.
(k) Financial Statements. The Borrower has furnished to the
Administrative Agent and the Lenders audited financial statements and
unaudited financial statements for the Borrower and the Restricted
Subsidiaries on a consolidated basis which are complete and correct in all
material respects and present fairly, in accordance with GAAP, the financial
position of such Persons as of December 31, 1997 and March 31, 1998,
respectively, and the results of operations for the periods then ended. The
Borrower and the Restricted Subsidiaries have no material liabilities,
contingent or otherwise, other than as disclosed in the financial statements
referred to in the preceding sentence or in the financial statements delivered
to the Administrative Agent and the Lenders pursuant to Sections 6.1 and 6.2
hereof, and there are no material unrealized losses of the Borrower and the
Restricted Subsidiaries and no material anticipated losses of the Borrower and
the Restricted Subsidiaries other than those which have been previously
disclosed in writing to the Administrative Agent and the Lenders and
identified to the Administrative Agent and the Lenders as such. The financial
projections delivered to the Lenders prior to the Agreement Date have been
prepared by the Borrower in good faith and based on reasonable assumptions.
(l) ERISA. The Borrower, each Restricted Subsidiary, each
ERISA Affiliate and each of their Plans are in compliance with ERISA and the
Code. Neither the Borrower, nor any Restricted Subsidiary, nor any ERISA
Affiliate has incurred any accumulated funding deficiency with respect to any
such Plan within the meaning of ERISA or the Code. The Borrower, each
Restricted Subsidiary, and each ERISA Affiliate have complied with all
requirements of Sections 601 through 608 of ERISA and Section 4980B of the
Code. Neither the Borrower, nor any Restricted Subsidiary, nor any ERISA
Affiliate has made any promises of retirement or other benefits to employees,
except as set forth in any Plan. Neither the Borrower, nor any Restricted
Subsidiary, nor any ERISA Affiliate has incurred any liability to the Pension
Benefit Guaranty Corporation in connection with any such Plan. The assets of
each such Plan which is subject to Title IV of ERISA, if any, are sufficient
to provide the benefits under such Plan payment of which the Pension Benefit
Guaranty Corporation would guarantee if such Plan were terminated, and such
assets are also sufficient to provide all other "benefit liabilities" (as
defined in Section 4001(a)(1b) of ERISA) due under the Plan upon termination.
No Reportable Event has occurred and is continuing with respect to any such
Plan. No such Plan or trust created thereunder, or party in interest (as
defined in Section 3(14) of ERISA), or any fiduciary (as defined in Section
3(21) of ERISA), has engaged in a "prohibited transaction" (as such term is
defined in Section 406 of ERISA or Section 4975 of the Code) which would
subject such Plan or any other Plan of the Borrower, any trust created
thereunder, or any such party in interest or fiduciary, or any party dealing
with any such Plan or any such trust to the penalty or tax on "prohibited
transactions" imposed by Section 502 of ERISA or Section 4975 of the Code.
Neither the Borrower, nor any Restricted Subsidiary, nor any ERISA Affiliate
is a participant in, or is obligated to make any payment to, any Multiemployer
Plan.
-35-
<PAGE>
(m) Compliance with Regulations T, U and X. Neither the
Borrower nor any Restricted Subsidiary is engaged principally in or has as one
of its important activities the business of extending credit for the purpose
of purchasing or carrying, and neither the Borrower nor any Restricted
Subsidiary owns or presently intends to acquire, any "margin security" or
"margin stock" as defined in Regulations T, U, and X (12 C.F.R. Parts 220,
221, and 224) (collectively, the "Regulations") 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 the Regulations. Neither the Borrower
nor any Restricted Subsidiary nor any bank acting on its behalf has taken or
will take any action which might cause this Agreement or the Notes to violate
any of the Regulations or any other regulation of the Board of Governors of
the Federal Reserve System or to violate the applicable provisions of 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 Administrative Agent or any
Lender, the Borrower will furnish the Administrative Agent or such Lender with
(i) a statement or statements in conformity with the requirements of Federal
Reserve Form U-1 referred to in Regulation U of said Board of Governors and
(ii) other documents evidencing its compliance with the margin regulations,
including without limitation an opinion of counsel in form and substance
satisfactory to the Required Lenders. Neither the making of the Loans nor the
use of proceeds thereof will violate, or be inconsistent with, the provisions
of any of the Regulations.
(n) Investment Company Act; Public Utility Holding Company
Act. Neither the Borrower nor any Restricted Subsidiary 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 of this
Agreement nor the issuance of the Notes 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. Neither the Borrower nor any
Restricted Subsidiary is subject to regulation under the Public Utility
Holding Company Act of 1935.
(o) Government Regulation. Neither the Borrower nor any
Restricted Subsidiary 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
execution and delivery of this Agreement or any other Loan Document. Neither
the Borrower nor any Restricted Subsidiary 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, or the borrowing hereunder, other than filings and
consents relating to the renewal of Licenses and ongoing filings and consents
relating to the Commission.
-36-
<PAGE>
(p) Absence of Default. The Borrower and the Restricted
Subsidiaries are in compliance with all of the provisions of their
certificates or articles of incorporation and bylaws, or certificates of
partnership and partnership agreements, 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, or with the
passage of time or giving of notice or both would constitute, (i) an Event of
Default or (ii) a default by the Borrower or any Restricted Subsidiary under
any material indenture, agreement or other instrument, including without
limiting the foregoing, the material Pole Agreements, or any judgment, decree
or order to which the Borrower or any Restricted Subsidiary is a party or by
which the Borrower or any Restricted Subsidiary or any of its respective
properties may be bound or affected.
(q) Accuracy and Completeness of Information. All
information, reports, prospectuses and other papers and data relating to the
Borrower and the Restricted Subsidiaries and furnished by or on behalf of the
Borrower or any of the Restricted Subsidiaries to the Administrative Agent and
the Lenders, or any of them, were, at the time furnished, complete and correct
in all material respects to the extent necessary to give the recipients true
and accurate knowledge of the subject matter. Notwithstanding the foregoing,
with respect to projections of the future performance of the Borrower and the
Restricted Subsidiaries, such representations and warranties are made in good
faith and to the best of the Borrower's knowledge after due inquiry, but
without any assurances by the Borrower of the future achievement of such
performance.
(r) Agreements with Affiliates. Except as set forth on
Schedule 8 attached hereto, neither the Borrower nor any Restricted
Subsidiaries have (i) any agreements or binding arrangements of any kind with
any Affiliates or (ii) any management or consulting agreements of any kind
with any third party (including, without limitation, Affiliates).
(s) Solvency. The Borrower and the Restricted Subsidiaries
are, and after giving effect to the making of the Loans and the other
transactions contemplated hereby will be, Solvent.
(t) Collective Bargaining. Except as set forth on Schedule 9
attached hereto, no employee of the Borrower or of any of the Restricted
Subsidiaries is a party to any collective bargaining agreement with the
Borrower or any of the Restricted Subsidiaries and, to the best knowledge of
the Borrower after due inquiry, there are no material grievances, disputes, or
controversies with any union or any other organization of the employees of the
Borrower or any of the Restricted Subsidiaries or threats of strikes, work
stoppages, or any asserted pending demands for collective bargaining by any
union or other organization.
-37-
<PAGE>
(u) No Adverse Change. Since the date of the most recent
audited annual financial statements of the Borrower and the Restricted
Subsidiaries required to have been delivered to the Administrative Agent and
the Lenders pursuant to Section 6.2 hereof (or, prior to the first such
delivery required hereunder, since December 31, 1997), there has occurred no
event which would have a Materially Adverse Effect, except for such events
affecting the cable television industry generally.
(v) Environmental Matters.
(i) None of the properties of the Borrower and the
Restricted Subsidiaries contains, including, without limitation, in,
on or under the soil and groundwater thereunder, any Hazardous
Materials in violation of Environmental Laws or in amounts that could
give rise to liability under Environmental Laws.
(ii) The Borrower and the Restricted Subsidiaries
are in compliance with all Environmental Laws, and, to the best of
the Borrower's knowledge after due inquiry, there is no contamination
of any of such properties which could interfere with the continued
operation of any of such properties or impair the financial condition
of the Borrower or any of the Restricted Subsidiaries.
(iii) Neither the Borrower nor any Restricted
Subsidiary has received from any governmental authority any
complaint, notice of violation, alleged violation, investigation or
advisory action or notice of potential liability regarding matters of
environmental protection or permit compliance under applicable
Environmental Laws with regard to any such properties that have not
been resolved to the satisfaction of the issuing governmental
authority, nor is the Borrower or any Restricted Subsidiary aware
that any governmental authority is contemplating delivering any such
notice to the Borrower or any of the Restricted Subsidiaries.
(iv) There has been no pending or threatened
complaint, notice of violation, alleged violation, investigation or
notice of potential liability under Environmental Laws with regard to
any of such properties.
(v) Hazardous Materials have not been generated,
treated, stored, disposed of, at, on or under any of such property in
violation of any Environmental Laws or in a manner that could give
rise to liability under Environmental Laws, nor have any Hazardous
Materials been transported or disposed of from any of such properties
to any other location in violation of any Environmental Laws or in a
manner that could give rise to liability under Environmental Laws.
-38-
<PAGE>
(vi) Neither the Borrower nor any of the Restricted
Subsidiaries are a party to any governmental administrative actions
or judicial proceedings pending under any Environmental Law with
respect to any of such properties nor are there any consent decrees
or other decrees, consent orders, administrative orders or other
orders, or other administrative or judicial requirements outstanding
under any Environmental Law with respect to any of such properties.
(w) Voting Control of the Borrower. As of the Agreement
Date, all of the shares of the issued and outstanding Capital Stock of the
Borrower are fully paid and non-assessable and owned, beneficially and of
record, as set forth on Schedule 10 attached hereto. The Borrower has no stock
or securities convertible into or exchangeable for any shares of its Capital
Stock, and there are no preemptive or similar rights to subscribe for or to
purchase, or any other rights to subscribe for or to purchase, or any options
for the purchase of, or any agreements providing for the issuance (contingent
or otherwise) of, or any calls, commitments, or claims of any character
relating to, any such Capital Stock, or any stock or securities convertible
into or exchangeable for any such Capital Stock, except as set forth on
Schedule 10 attached hereto. The Borrower is not subject to any obligation
(contingent or otherwise) to repurchase or otherwise acquire or retire any
shares of its Capital Stock or to register any shares of its Capital Stock,
and there are no agreements restricting the transfer of any shares of such
Capital Stock, except as set forth in the Shareholders' Agreements as in
effect on the Agreement Date. The voting control of H. F. Lenfest of the
shares of the Borrower's Capital Stock is evidenced by the Shareholders'
Agreements. There has been no change in or other modification to such
Shareholders' Agreements or the voting control of H. F. Lenfest evidenced
thereby.
(x) Year 2000 Compliance. The Borrower has (i) initiated a
review and assessment of all areas within its and each of its Subsidiaries'
businesses and operations (including those affected by suppliers, vendors and
customers) that could be adversely affected by the "Year 2000 Problem" (that
is, the risk that computer applications used by the Borrower or any of its
Subsidiaries (or suppliers, vendors and customers) may be unable to recognize
and perform properly date-sensitive functions involving certain dates prior to
and any date after December 31, 1999), (ii) developed a plan and timeline for
addressing the Year 2000 Problem on a timely basis, and (iii) to date,
implemented that plan in accordance with that timetable. Based on the
foregoing, the Borrower reasonably believes that all computer applications
(including those of its suppliers, vendors and customers) that are material to
its or any of its Subsidiaries' businesses and operations are reasonably
expected by September 30, 1999 to be able to perform properly date-sensitive
functions for all dates before and after January 1, 2000 (that is, be "Year
2000 Compliant"), except to the extent that a failure to do so could not
reasonably be expected to have a Materially Adverse Effect.
Section 4.2 Survival of Representations and Warranties, etc. All
representations and warranties made under this Agreement shall be deemed to be
made, and shall be true and correct, at and as of the Agreement Date, and
shall be true and correct in all material respects as of the date of each
Advance which increases the principal amount of the Loans outstanding
hereunder, except to the extent they relate solely to an earlier date or time
period. All representations and warranties made under this Agreement shall
survive, and not be waived by, the execution hereof by the Administrative
Agent and the Lenders, any investigation or inquiry by any of the
Administrative Agent and the Lenders, or the making of any Advance.
-39-
<PAGE>
ARTICLE 5
General Covenants
So long as any of the Obligations is outstanding and unpaid or the
Borrower shall have the right to borrow hereunder (whether or not the
conditions to borrowing have been or can be fulfilled), and unless the
Required Lenders shall otherwise consent in writing:
Section 5.1 Preservation of Existence and Similar Matters. The
Borrower will, and will cause each Restricted Subsidiary to:
(a) preserve and maintain its existence in the state of its
formation, its material rights, franchises, licenses and privileges,
including, without limiting the foregoing, the Licenses (to the extent
required to prevent the occurrence of an Event of Default under Section 8.1(l)
hereof), all material Pole Agreements, and all other Necessary Authorizations,
and
(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 businesses requires such qualification or authorization.
Section 5.2 Business; Compliance with Applicable Law. The Borrower
will engage solely in the business of (a) acting as a holding company for its
Subsidiaries, (b) investing in other cable television systems, (c) investing
in other activities directly relating to the cable television industry, and
(d) providing consulting services to Garden State Cablevision L.P., a Delaware
limited partnership. The Borrower will cause the Restricted Subsidiaries to
engage principally in the business of owning, operating and maintaining the
System. The Borrower will, and will cause the Restricted Subsidiaries to,
comply with the requirements of Applicable Law.
Section 5.3 Maintenance of Properties. The Borrower will 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 its and the Restricted Subsidiaries' businesses (whether owned or held
under lease), 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 Restricted Subsidiary 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 such accounting principles consistently applied and reflecting
all transactions required to be reflected by such accounting principles, and
keep accurate and complete records of its properties and assets. The Borrower
will, and will cause each Restricted Subsidiary to, maintain a fiscal year
ending on December 31st.
-40-
<PAGE>
Section 5.5 Insurance. The Borrower will, and will cause each
Restricted Subsidiary to:
(a) maintain insurance including, but not limited to, public
liability, business interruption and worker's compensation insurance from
responsible companies in such amounts and against such risks to the Borrower
and the Restricted Subsidiaries as shall be standard in the cable television
industry for cable television companies similar in size and location to the
Borrower and the Restricted Subsidiaries;
(b) keep its assets insured by insurers on terms and in a
manner acceptable to the Required Lenders against loss or damage by fire,
theft, burglary, loss in transit, explosions and hazards insured against by
extended coverage, in amounts which are standard in the cable television
industry for cable television companies similar in size and location to the
Borrower and the Restricted Subsidiaries, all premiums thereon to be paid by
the Borrower and the Restricted Subsidiaries; and
(c) require that each insurance policy provide for at least
thirty (30) days' prior written notice to the Administrative Agent of any
termination of or proposed cancellation or nonrenewal of such policy.
Section 5.6 Payment of Taxes and Claims. The Borrower will, and will
cause each Restricted Subsidiary to, pay and discharge all taxes, including,
without limitation, withholding taxes, assessments and governmental charges or
levies required to be paid by it or imposed upon it or its income or profits
or upon any properties belonging to it prior to the date on which penalties
attach thereto, and all lawful claims for labor, materials and supplies which,
if unpaid, might become a Lien or charge upon any of its properties; provided,
however, 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 shall have been set aside on the appropriate
books in accordance with GAAP, 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 shall, and shall cause each Restricted Subsidiary
to, timely file all information returns required by federal, state or local
tax authorities.
Section 5.7 Visits and Inspections. The Borrower will, and will cause
each Restricted Subsidiary to, permit representatives of the Administrative
Agent and the Lenders to (a) visit and inspect the properties of the Borrower
and the Restricted Subsidiaries at all reasonable times, (b) inspect and make
extracts from and copies of its books and records, and (c) discuss with the
principal officers of the Borrower and the Restricted Subsidiaries, its
business, assets, liabilities, financial position, results of operations and
business prospects.
-41-
<PAGE>
Section 5.8 Payment of Indebtedness; Loans. Subject to any provisions
regarding subordination herein or in any other Loan Document, the Borrower
will, and will cause each of the Restricted Subsidiaries to, pay any and all
of its Indebtedness when and as it becomes due, other than amounts diligently
disputed in good faith and as to which adequate reserves have been set aside
in accordance with GAAP.
Section 5.9 Use of Proceeds. The Borrower will use the aggregate
proceeds of the Loans to finance general corporate expenditures, including,
without limitation, permitted acquisitions, investments and Capital
Expenditures, to provide working capital to the Borrower and the Restricted
Subsidiaries and for payment by the Borrower of any money judgment against the
Borrower in connection with the Australia Litigation in an aggregate amount
not to exceed $7,000,000.
Section 5.10 Indemnity. The Borrower will indemnify and hold harmless
each Lender, each Arranging Agent and the Administrative Agent, and each of
their respective employees, representatives, officers, directors, affiliates,
agents and attorneys (collectively, "Indemnitees"), from and against any and
all claims, liabilities, losses, damages, actions, attorneys' fees and demands
incurred by any Indemnitee, whether or not such Indemnitee is a party to any
litigation, investigation or other proceeding, (a) resulting from, arising out
of or otherwise relating to any breach or alleged breach by the Borrower of
any representation or warranty made hereunder, or (b) arising out of (i) the
making or administration of any Loans or the actual or proposed use of the
proceeds of any Loans, (ii) the issuance by the Borrower of additional
Indebtedness for Money Borrowed, (iii) allegations of any participation by any
Indemnitee in the affairs of the Borrower or any Subsidiary of the Borrower,
or allegations that any Indemnitee has any joint liability with the Borrower
or any Subsidiary of the Borrower for any reason, or (iv) any claims against
any Indemnitee by any investor in or lender to the Borrower or any Subsidiary
of the Borrower, for any reason whatsoever; unless, in any case referred to
above, the Indemnitee seeking indemnification hereunder is determined to have
acted or failed to act with gross negligence or willful misconduct by a
non-appealable judicial order.
Section 5.11 Interest Rate Hedging. The Borrower shall at all times
maintain one (1) or more Interest Rate Hedge Agreements, fixed rate loan
agreements or similar arrangements with respect to its interest obligations
relating to an aggregate principal amount of not less than fifty percent (50%)
of Total Debt outstanding from time to time. Such Interest Rate Hedge
Agreements and other agreements and arrangements shall have the effect of
fixing the interest rate payable by the Borrower with respect to such amount
of Total Debt for a weighted average period of not less than two (2) years
from the date of such Interest Rate Hedge Agreement or other agreement or
arrangement or, if earlier, until the Maturity Date, and shall be subject to
terms reasonably acceptable to the Administrative Agent. Such terms shall
include consideration of the creditworthiness of the other party to such
Interest Rate Hedge Agreements or other agreement or arrangement. All
obligations of the Borrower to any of the Administrative Agent or any Lender
pursuant to any Interest Rate Hedge Agreement shall rank pari passu with the
Obligations. All obligations of the Borrower under any other fixed rate loan
agreement or similar arrangement, as described above, may rank pari passu with
the Obligations to the extent they are otherwise permitted hereunder, but
shall not be secured by any Lien and shall not otherwise be senior to the
Obligations.
-42-
<PAGE>
Section 5.12 Year 2000 Compliance. The Borrower will promptly notify
the Administrative Agent in the event the Borrower discovers or determines
that any computer application (including, without limitation, those of its
suppliers and vendors) that is material to its or any of its Subsidiaries'
business and operations will not be Year 2000 Compliant on a timely basis,
except to the extent that such failure could not reasonably be expected to
have a Materially Adverse Effect.
Section 5.13 Further Assurances. The Borrower will promptly cure, or
cause to be cured, defects in the creation and issuance of any of the Notes
and the execution and delivery of the Loan Documents, resulting from any acts
or failure to act by the Borrower or any of its Restricted Subsidiaries or any
employee or officer thereof. The Borrower at its expense will promptly execute
and deliver to the Administrative Agent and the Lenders, or cause to be
executed and delivered to the Administrative Agent and the Lenders, 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 correct any omissions in the Loan
Documents, or more fully to state the obligations set out herein or in any of
the Loan Documents, or to obtain any consents, all as may be necessary or
appropriate in connection therewith and as may be reasonably requested.
-43-
<PAGE>
ARTICLE 6
Information Covenants
So long as any of the Obligations is outstanding and unpaid or the
Borrower has a right to borrow hereunder (whether or not the conditions to
borrowing have been or can be fulfilled) and unless the Required Lenders shall
otherwise consent in writing, the Borrower will furnish or cause to be
furnished to each Lender and to the Administrative Agent at their respective
offices:
Section 6.1 Quarterly Financial Statements. As soon as available and
in any event within sixty (60) days after the end of each fiscal quarter in
each fiscal year of the Borrower, the consolidated financial statements of the
Borrower and its Subsidiaries and the special-purpose consolidated financial
statements for the Borrower and the Restricted Subsidiaries, each consisting
of a balance sheet as of the end of such fiscal quarter and related statements
of income, stockholders' equity and cash flows for the fiscal quarter then
ended and the fiscal year through that date, all in reasonable detail and
certified (subject to normal year-end audit adjustments) by the chief
executive officer, president or chief financial officer of the Borrower as
having been prepared in accordance with GAAP, and setting forth in comparative
form the respective financial statements for the corresponding date and period
in the previous fiscal year, together with a completed Quarterly Capital
Expenditure Report in a form substantially identical to Exhibit F attached
hereto.
Section 6.2 Annual Financial Statements. As soon as available and in
any event within one hundred twenty (120) days after the end of each fiscal
year of Borrower, the consolidated financial statements of the Borrower and
its Subsidiaries and the special-purpose consolidated financial statements for
the Borrower and the Restricted Subsidiaries, each consisting of a balance
sheet as of the end of such fiscal year and related statements of income,
stockholders' equity and cash flows for the fiscal year then ended, all in
reasonable detail and setting forth in comparative form the financial
statements as of the end of and for the preceding fiscal year, and certified
by the Borrower's current independent certified public accountants or other
nationally recognized independent certified public accountants satisfactory to
the Arranging Agents. The certificate or report of accountants shall be free
of qualifications (other than any consistency qualification that may result
from a change in the method used to prepare the financial statements as to
which such accountants concur) and shall not indicate the occurrence or
existence of any event, condition or contingency which would materially impair
the prospect of payment or performance of any covenant, agreement or duty of
the Borrower under any of the Loan Documents, together with a letter of such
accountants substantially to the effect that, based upon their ordinary and
customary examination of the affairs of the Borrower, performed in connection
with the preparation of such consolidated financial statements, and in
accordance with generally accepted auditing standards, they are not aware of
the existence of any condition or event which constitutes a Default or Event
of Default or, if they are aware of such condition or event, stating the
nature thereof and confirming the Borrower's calculations with respect to the
certificate to be delivered pursuant to Section 6.4 hereof with respect to
such financial statements.
-44-
<PAGE>
Section 6.3 Quarterly Operating Reports. As soon as practicable, and
in any event at the time financial statements are furnished pursuant to
Sections 6.1 and 6.2 hereof, a quarterly operating report of the Borrower and
the Restricted Subsidiaries, certified by the chief financial or executive
officer of the Borrower and of each Restricted Subsidiary, in such detail and,
if requested by the Arranging Agents, on a form supplied by the Arranging
Agents, accurately setting forth, (a) the number of new Basic Subscribers of
each Restricted Subsidiary as to which hook-ups were completed during the
preceding quarter, (b) the total number of all Basic Subscribers, new Basic
Subscribers, pay TV subscribers, homes passed and miles of cable plant as of
the end of such quarter for the Borrower and the Restricted Subsidiaries,
taken as a whole, and (c) such other information as the Arranging Agents may
reasonably request.
Section 6.4 Performance Certificates. At the time the financial
statements are furnished pursuant to Sections 6.1 and 6.2 hereof, a
certificate of an Authorized Officer substantially in the form of Exhibit G
attached hereto and otherwise in form and substance satisfactory to the
Required Lenders:
(a) reaffirming the representations and warranties set forth
in Article 4 hereof as of the date of such certificate with the same effect as
though such representations and warranties had been made on and as of such
date (except for representations and warranties which expressly relate solely
to an earlier date or time period);
(b) setting forth as at the end of such quarterly period or
fiscal year, as the case may be, the arithmetical calculations required to
establish whether or not the Borrower was in compliance with the requirements
of Sections 7.1, 7.4, 7.6(d), 7.6(e), 7.8, 7.9, 7.10, 7.14 and 7.15 hereof;
(c) summarizing in reasonable detail (i) all investments
made by the Borrower or any of the Restricted Subsidiaries since the Agreement
Date pursuant to Section 7.6(a)(iii) and (iv) hereof; (ii) all acquisitions
made by the Borrower or any of the Restricted Subsidiaries since the Agreement
Date pursuant to Sections 7.4(b), (c) and (d) hereof; and (iii) all
investments in excess of $1,000,000 made by the Borrower or any of the
Restricted Subsidiaries during such quarterly period or fiscal year, other
than pursuant to Section 7.6(a)(iii) and (iv) hereof; and
(d) stating that, to the best of his or her knowledge after
due inquiry, no Default or Event of Default has occurred as at the end of such
quarterly period 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.
Section 6.5 Copies of Other Reports.
(a) No later than January 31st of each year, a copy of the
annual budget for the Borrower for such fiscal year, including, without
limitation, the budget for Capital Expenditures.
-45-
<PAGE>
(b) From time to time and promptly upon each request, such
data, certificates, reports, statements, opinions of counsel, documents or
further information regarding the business, assets, liabilities, financial
position, projections, results of operations or business prospects of the
Borrower or any Restricted Subsidiary, as the Administrative Agent or any
Lender reasonably may request.
Section 6.6 Notice of Litigation and Other Matters. Prompt notice of
the following events after an Authorized Officer has received notice or has
otherwise become aware thereof:
(a) the commencement of all 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 Restricted
Subsidiary involving a claim for damages or potential cost to the Borrower or
any Restricted Subsidiary of $2,500,000 or more with respect to any single or
related series of proceedings, investigations or actions or, to the extent
known to the Borrower or any Restricted Subsidiary, in any other way relating
materially adversely and directly to the Borrower or any Restricted
Subsidiary, or any of its respective properties, assets or businesses or any
License, including, without limitation, proceedings, investigations or actions
arising under Environmental Laws;
(b) any Default or the occurrence or non-occurrence of any
event (i) which constitutes, or which with the passage of time or giving of
notice or both would constitute a Default by the Borrower or any Restricted
Subsidiary under any material agreement other than this Agreement to which the
Borrower or any Restricted Subsidiary is party or by which any of its
properties may be bound, or (ii) which could have a Materially Adverse Effect,
giving in each case the details thereof and specifying the action proposed to
be taken with respect thereto; and
(c) 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, any Restricted
Subsidiary or any ERISA Affiliate or the institution or threatened institution
by the Pension Benefit Guaranty Corporation 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.
ARTICLE 7
Negative Covenants
So long as any of the Obligations is outstanding and unpaid or the
Borrower has a right to borrow hereunder (whether or not the conditions to
borrowing have been or can be fulfilled) and unless the Required Lenders shall
otherwise give their prior consent in writing:
-46-
<PAGE>
Section 7.1 Indebtedness of the Borrower and the Restricted
Subsidiaries. The Borrower shall not, and shall not permit any Restricted
Subsidiary to, create, assume, incur or otherwise become or remain obligated
in respect of, or permit to be outstanding, any Indebtedness except:
(a) Indebtedness under this Agreement and the Notes;
(b) Accounts payable, subscriber deposits, accrued expenses
and customer advance payments incurred in the ordinary course of business,
which are (1) current or (2) being contested in good faith by appropriate
proceedings and for which the Borrower or the applicable Restricted Subsidiary
has established adequate reserves on its books;
(c) Obligations arising under Interest Rate Hedge Agreements;
(d) Unsecured Indebtedness for Money Borrowed of the
Borrower, which is subject to terms which are no more restrictive than the
terms of this Agreement and the other Loan Documents, and which does not
amortize or mature prior to one (1) year after the Maturity Date and, if such
Indebtedness will be Subordinated Debt, which is subordinated on terms
satisfactory to the Required Lenders;
(e) (i) Indebtedness arising in respect of the AML Movie
Studio Guaranty Liability and under Guaranties existing as of the Agreement
Date, as described on Schedule 11 attached hereto, in an aggregate amount not
to exceed, in the aggregate, the lesser of (A) $33,500,000 and (B) the maximum
face amount of the AML Movie Studio Guaranties; and (ii) Indebtedness arising
under Guaranties (other than in respect of the AML Movie Studio Guaranty
Liability and those existing on the Agreement Date) in an aggregate amount not
to exceed $50,000,000 at any time outstanding;
(f) Other Indebtedness incurred in the ordinary course of
business which is either unsecured or secured by Liens described in clause (i)
of the definition of "Permitted Liens" in an aggregate amount not to exceed
$10,000,000, plus Indebtedness arising under Capitalized Lease Obligations
existing as of the Agreement Date;
(g) Indebtedness of the Borrower to any Restricted
Subsidiary or of any Restricted Subsidiary to the Borrower or any other
Restricted Subsidiary; and
(h) Indebtedness existing as of the Agreement Date,
including, without limitation, the Existing Notes as described on Schedule 11
attached hereto.
Notwithstanding the foregoing, the Borrower may refinance its Indebtedness
existing as of the Agreement Date in respect of the Existing Notes and other
Indebtedness permitted pursuant to Section 7.1(d) hereof (as described on
Schedule 11 attached hereto) with other Indebtedness (other than proceeds of
the Loans) so long as (i) the refinanced Indebtedness has a maturity of not
less than one (1) year greater than the maturity of the Loans, (ii) the terms
governing the refinanced Indebtedness are no more restrictive than the terms
of this Agreement and the other Loan Documents nor the terms governing the
Indebtedness proposed to be refinanced, and (iii) the refinanced Indebtedness
is unsecured. Any such refinanced Indebtedness (other than Subordinated Debt)
incurred by the Borrower in accordance herewith may rank pari passu with the
Obligations.
-47-
<PAGE>
Further notwithstanding the foregoing or Section 7.7 hereof, the Borrower may
repurchase the Existing Notes for cash using proceeds of the Loans or
otherwise so long as (A) no Default then exists or would be caused thereby,
(B) the Total Leverage Ratio, calculated using the financial statements of the
Borrower and the Restricted Subsidiaries for the most recently completed
fiscal quarter for which financial statements are required to have been
provided to the Administrative Agent in accordance with Section 6.1 hereof as
of the proposed date of the repurchase of the Existing Notes, is less than
5.50 to 1, and (C) the aggregate consideration paid by the Borrower to
repurchase the Existing Subordinated Debt is less than the sum of (1)
$50,000,000, plus (2) any cash consideration received by the Borrower from the
sale or other monetization of its investment in @ Home Network.
Section 7.2 Limitation on Liens. The Borrower shall not, and shall
not permit any Restricted Subsidiary 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, with respect to any Restricted Subsidiary, Capital Stock of such
Restricted Subsidiary), whether now owned or hereafter acquired, except for
Permitted Liens.
Section 7.3 Amendment and Waiver. The Borrower shall not, and shall
not permit any Restricted Subsidiary to, enter into any amendment of, or agree
to or accept or consent to any waiver of any of the provisions of (a) its
certificate or articles of incorporation or bylaws, or certificate of
partnership or partnership agreement, as applicable; (b) any Loan Document; or
(c) any of the documents, instruments and agreements evidencing or relating to
the Existing Notes or any other Subordinated Debt if the effect of any such
amendment or waiver is to (i) increase the aggregate principal amount
outstanding thereunder, (ii) reduce the weighted average life to maturity
thereof, or (iii) cause the terms governing such Indebtedness to be more
restrictive than the terms of this Agreement or of the existing documents,
instruments or agreements governing such Indebtedness.
-48-
<PAGE>
Section 7.4 Liquidation, Change in Ownership, Disposition or
Acquisition of Assets; Change in Business.
(a) The Borrower shall not, and shall not permit any
Restricted Subsidiary to, at any time (i) liquidate or dissolve itself (or
suffer any liquidation or dissolution) or otherwise wind up its affairs; (ii)
enter into any merger or consolidation (other than any merger or consolidation
of a Restricted Subsidiary into another Restricted Subsidiary or, so long as
the Borrower is the surviving corporation and so long as no Default then
exists or would be caused thereby, of a Restricted Subsidiary into the
Borrower); or (iii) sell, lease, abandon, transfer, exchange or otherwise
dispose of all or any of its assets, property or business (other than sales or
other dispositions as provided in Section 2.5(b)(ii) hereof); provided,
however, that so long as no Default then exists or would be caused thereby,
the Borrower or any of the Restricted Subsidiaries may sell or otherwise
dispose of assets for fair consideration so long as: (A) the assets sold or
otherwise disposed of in any single or series of related transactions
contributed or accounted for less than twenty-five percent (25%) of Annualized
Operating Cash Flow, calculated using the financial statements of the Borrower
and the Restricted Subsidiaries for the most recently completed fiscal quarter
for which financial statements are required to have been provided to the
Administrative Agent and the Lenders in accordance with Section 6.1 hereof as
of the date of such proposed sale or other disposition; and (B) the aggregate
amount of Annualized Operating Cash Flow contributed by or attributable to all
assets sold or otherwise disposed of during the term of this Agreement
(calculated in the manner set forth in clause (A) above with respect to each
such sale or other disposition) is less than forty-nine percent (49%) of
Annualized Operating Cash Flow calculated using the financial statements of
the Borrower and the Restricted Subsidiaries for the most recently completed
fiscal quarter for which financial statements are required to have been
provided to the Administrative Agent and the Lenders as of the proposed date
of the most recent such sale or other disposition. All Net Proceeds of any
sale, lease, transfer, exchange or other disposition of assets permitted
hereunder shall be used to prepay the Loans outstanding or to reduce the
Commitment to the extent required under Section 2.5(b)(ii) hereof.
(b) The Borrower shall not, and shall not permit any
Restricted Subsidiary to, at any time, acquire any assets, property or
business of any other Person, or acquire stock, partnership or other ownership
interests in any other Person, other than as permitted by Section 7.6 hereof
and other than:
(i) assets directly related to the cable television
business in the United States;
(ii) all of the issued and outstanding Capital
Stock or other ownership interests of Persons engaged in businesses
directly related to the cable television business in the United
States; or
(iii) the assets or all of the issued and
outstanding Capital Stock or other ownership interests of Persons not
engaged in businesses directly related to the cable television
business in the United States, for an aggregate purchase price not to
exceed (1) $25,000,000 in any fiscal year, and (2)(A) if the Total
Leverage Ratio, calculated using the financial statements of the
Borrower and the Restricted Subsidiaries for the most recently
completed fiscal quarter for which financial statements are required
to have been provided to the Administrative Agent and the Lenders
under Section 6.1 hereof as of the proposed date of such acquisition,
is less than 5.00 to 1, $100,000,000 during the term of this
Agreement, or (B) if the Total Leverage Ratio (calculated in the
manner set forth in clause (A) above with respect to such
acquisition) is greater than or equal to 5.00 to 1, $50,000,000
during the term of this Agreement;
-49-
<PAGE>
and provided that, in any such case, no Default then exists or would be caused
thereby. Prior to consummating any such acquisition, the Borrower shall
provide the Administrative Agent and the Lenders with calculations
specifically demonstrating the Borrower's pro forma compliance with Sections
7.8, 7.9, 7.10, 7.11, 7.14 and 7.15 hereof, both before and after giving
effect to the proposed acquisition. Any Subsidiary formed or acquired by the
Borrower or any Restricted Subsidiary in connection with any acquisition
described in this subsection 7.4(b) shall be deemed to be a Restricted
Subsidiary unless the Required Lenders shall otherwise consent in writing.
(c) The Borrower shall not permit less than ninety percent
(90%) of Annualized Operating Cash Flow of Restricted Subsidiaries as of any
date of determination to be derived directly from the cable television
business in the United States.
Section 7.5 Limitation on Guaranties. The Borrower shall not, and
shall not permit any Restricted Subsidiary 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) obligations under agreements of
the Borrower or any Restricted Subsidiary entered into in connection with the
acquisition of services, supplies and equipment in the ordinary course of
business of the Borrower or such Restricted Subsidiary, and (b) Guaranties
described in Section 7.1(e) hereof.
Section 7.6 Investments.
(a) The Borrower shall not, and shall not permit any
Restricted Subsidiary to, purchase or otherwise acquire or invest in the
Capital Stock of, or any other equity interest in, any Person (including,
without limitation, the Capital Stock of the Borrower), or make any loan to,
or enter into any arrangement for the purpose of providing funds or credit to,
or guarantee or become contingently obligated in respect of the obligations of
or make any other investment, whether by way of capital contribution or
otherwise in, to or with any Person, or permit any Restricted Subsidiary so to
do (collectively, the "Investments"); provided, however, that so long as no
Default then exists or would be caused thereby, the Borrower or any Restricted
Subsidiary may:
(i) make Investments in Cash Equivalents;
(ii) maintain the Investments described as of the
Agreement Date on Schedule 12 attached hereto;
(iii) make Investments in Persons engaged in
businesses directly related to the cable television business in the
United States; and
(iv) make Investments in Persons engaged in
businesses not directly related to the cable television business in
the United States in (A) an aggregate amount not to exceed (1)
$50,000,000 so long as the Total Leverage Ratio for the most recently
completed fiscal quarter for which financial statements are required
to have been provided to the Lenders in accordance with Section 6.1
or 6.2 hereof, as applicable, is greater than or equal to 5.0 to 1,
or (2) $100,000,000 so long as the Total Leverage Ratio for such
fiscal quarter is less than 5.0 to 1, and (B) an aggregate amount not
to exceed $25,000,000 in any fiscal year; provided, however, that in
each such case, the Borrower has provided the Administrative Agent
and the Lenders with calculations specifically demonstrating the
Borrower's pro forma compliance with Sections 7.8, 7.9, 7.10, 7.14
and 7.15 hereof, both before and after giving effect to the proposed
investment.
-50-
<PAGE>
(b) The Borrower shall require, and shall cause each of the
Restricted Subsidiaries to require, that any Investment in the form of an
advance or loan made by the Borrower or such Restricted Subsidiary, as
applicable, to any other Person be evidenced by a duly executed and delivered
promissory note of such other Person in an original principal amount not less
than the amount of such loan; provided, however, that loans or advances made
to the Borrower or any Subsidiary of the Borrower need not be evidenced by
such promissory notes if regulatory approval by any governmental body of the
State of New Jersey or Delaware would be required in connection therewith.
(c) The Borrower shall require, and shall cause each of the
Restricted Subsidiaries to require, that any Investment in an Unrestricted
Subsidiary be in the form of a loan or intercompany advance and be evidenced
by a promissory note in the principal amount of such investment. The Borrower
will cause each such promissory note to be repaid by the applicable
Unrestricted Subsidiary upon a sale of any assets of such Unrestricted
Subsidiary (other than in the ordinary course of its business) or upon a sale
of any Capital Stock of such Unrestricted Subsidiary.
Section 7.7 Restricted Payments and Purchases. The Borrower shall
not, and shall not permit any Restricted Subsidiary to, directly or indirectly
declare or make any Restricted Payment or Restricted Purchase; provided,
however, that the Restricted Subsidiaries may declare and make Restricted
Payments to, and Restricted Purchases from, the Borrower, and so long as no
Default then exists or would be caused thereby, the Borrower may make (a)
Restricted Payments in an aggregate amount not to exceed during any fiscal
year, fifty percent (50%) of Annual Excess Cash Flow for the preceding fiscal
year and (b) distributions on preferred stock issued after the Agreement Date
in an amount not to exceed $10,000,000 in the aggregate during the term of
this Agreement so long as the Total Leverage Ratio for the most recently
completed fiscal quarter for which financial statements are required to have
been delivered to the Lenders pursuant to Section 6.1 or 6.2 hereof, as
applicable, is less than or equal to 5.50 to 1.
Section 7.8 Senior Leverage Ratio. (a) As of the end of any calendar
quarter, (b) at the time of any Advance which increases the aggregate
principal amount of the Loans outstanding hereunder, and (c) at the time of
any incurrence of Indebtedness, any proposed sale, lease, transfer, exchange
or other disposition of assets, any proposed acquisition of assets, or any
proposed investment in any other Person, the Borrower shall not permit the
Senior Leverage Ratio for the calendar quarter end being tested in the case of
Section 7.8(a) hereof, or the most recent quarter end for which financial
statements are required to have been provided to the Administrative Agent and
the Lenders pursuant to Sections 6.1 and 6.2 hereof in the case of Sections
7.8(b) and (c) hereof after giving effect to the Advance or other transaction
proposed to be effected as of such date, to exceed the ratios set forth below
for calculation dates using financial statements for periods ending during the
periods shown below:
-51-
<PAGE>
Period Senior Leverage Ratio
------ ---------------------
From the Agreement Date through December 30, 2000 5.50:1
From December 31, 2000 through December 30, 2001 4.50:1
From December 31, 2001 through December 30, 2002 4.00:1
From December 31, 2002 through December 30, 2003 3.50:1
At December 31, 2003 and all times thereafter 3.00:1
Section 7.9 Operating Cash Flow to Total Interest Expense Ratio. (a)
As of the end of any calendar quarter, (b) at the time of any Advance which
increases the aggregate principal amount of the Loans outstanding hereunder,
and (c) at the time of any proposed sale, lease, transfer, exchange or other
disposition of assets, any proposed acquisition of assets, or any proposed
investment in any other Person, the Borrower shall not permit the ratio of (1)
Operating Cash Flow, minus cash taxes to (2) Total Interest Expense for the
twelve (12) month period then ending in the case of Section 7.9(a) hereof, or
for the most recently ended twelve (12) month period for which financial
statements are required to have been provided to the Administrative Agent and
the Lenders pursuant to Section 6.1 and 6.2 hereof in the case of Sections
7.9(b) and (c) hereof, in each case, after giving effect to the Advance or
other transaction proposed to be effected as of such date, to be less than the
ratios set forth below for calculation dates using financial statements for
periods ending during the periods shown below:
Period Ratio
------ -----
From the Agreement Date through December 30, 1999 1.50:1
From December 31, 1999 through December 30, 2000 1.75:1
At December 31, 2000 and all times thereafter 2.00:1
Section 7.10 Annualized Operating Cash Flow to Pro Forma Debt Service
Ratio. (a) As of the end of any calendar quarter, (b) at the time of any
Advance which increases the aggregate principal amount of the Loans
outstanding hereunder, and (c) at the time of any proposed sale, lease,
transfer, exchange or other disposition of assets, any proposed acquisition of
assets, or any proposed investment in any other Person, the Borrower shall not
permit the ratio of (1) Annualized Operating Cash Flow, minus cash taxes for
the calendar quarter end being tested in the case of Section 7.10(a) hereof,
or the most recent quarter end for which financial statements are required to
be delivered to the Administrative Agent and the Lenders pursuant to Sections
6.1 and 6.2 hereof in the case of Sections 7.10(b) and (c) hereof, to (2) Pro
Forma Debt Service to be less than 1.15 to 1.
-52-
<PAGE>
Section 7.11 Affiliate Transactions. The Borrower shall not, and
shall not permit any Restricted Subsidiary to, at any time engage in any
transaction with an Affiliate, nor make an assignment or other transfer of any
of its properties or assets to any Affiliate, on terms less advantageous to
the Borrower or the applicable Restricted Subsidiary than would be the case if
such transactions had been effected on an arm's length basis with a
non-Affiliate.
Section 7.12 ERISA Liabilities. The Borrower shall not, and shall not
permit any Restricted Subsidiary to, allow any of its Plans to have an
accumulated funding deficiency as defined in Section 4971(c)(ii) of the Code
and measured at the end of the plan year. The Borrower shall not, and shall
not permit any Restricted Subsidiary to, become a participant in any
Multiemployer Plan.
Section 7.13 Restrictions on Upstream Dividends by Subsidiaries. The
Borrower shall not permit to exist at any time any consensual restriction
limiting the ability (whether by covenant, event of default, subordination or
otherwise) of any Restricted Subsidiary to (a) make Restricted Payments to or
Restricted Purchases from the Borrower or any Restricted Subsidiary, (b) pay
any obligation owed to the Borrower or any Restricted Subsidiary, (c) make any
loans or advances to or investments in the Borrower or in any Restricted
Subsidiary, or (d) transfer any of its property or assets (other than property
or assets subject to Permitted Liens) to the Borrower or any Restricted
Subsidiary.
Section 7.14 Total Debt to Annualized Operating Cash Flow Ratio. (a)
As of the end of any calendar quarter, (b) at the time of any Advance which
increases the aggregate principal amount of the Loans outstanding hereunder,
and (c) at the time of any incurrence of Indebtedness, any proposed sale,
lease, transfer, exchange or other disposition of assets, any proposed
acquisition of assets, or any proposed investment in any other Person, the
Borrower shall not permit the Total Leverage Ratio for the calendar quarter
end being tested in the case of Section 7.14(a) hereof, or the most recent
quarter end for which financial statements are required to be delivered to the
Administrative Agent and the Lenders pursuant to Sections 6.1 and 6.2 hereof
in the case of Sections 7.14(b) and (c) hereof, after giving effect to the
Advance or other transaction proposed to be effected as of such date, to
exceed the ratios set forth below for calculation dates using financial
statements for periods ending during the periods shown below:
Period Senior Leverage Ratio
------ ---------------------
From the Agreement Date through December 30, 2000 6.75:1
From December 31, 2000 through December 30, 2001 6.00:1
From December 31, 2001 through December 30, 2002 5.50:1
From December 31, 2002 through December 30, 2003 5.00:1
At December 31, 2003 and all times thereafter 4:50:1
-53-
<PAGE>
Section 7.15 Limitation on Leases; Sale/Leasebacks. The Borrower
shall not, and shall not permit any Restricted Subsidiary to, make or be or
become obligated to make any payment in respect of any obligations as lessee
under a lease, except for (x) payments under leases to be used in connection
with the operation of its business (other than Pole Agreements and tower
rental agreements entered into in the ordinary course of business), which,
when aggregated with all other payments under such leases by the Borrower and
the Restricted Subsidiaries would not exceed in the aggregate during any one
fiscal year of the Borrower, $5,000,000, and during the term of this
Agreement, $25,000,000, and (y) payments relating to Capitalized Lease
Obligations permitted hereunder, and (z) payments under Pole Agreements and
tower rental agreements entered into in the ordinary course of business. The
Borrower shall not, and shall not permit any Restricted Subsidiary to, enter
into any sale/leaseback transaction.
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 material representation or warranty made under this
Agreement shall prove incorrect or misleading in any material respect when
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 the Notes, or fees or other amounts payable hereunder or under
any other Loan Document (except as provided in clause (ii) of this Section
8.1(b)), when due and such Default shall not be cured by payment in full
within three (3) Business Days from the due date; or (ii) any principal under
the Notes, or any of them, when due;
(c) The Borrower shall default in the performance or
observance of any agreement or covenant contained in Article 6 or 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 to the Required Lenders' satisfaction within a period of thirty
(30) days from the date of the occurrence of such default;
(e) There shall occur any default in the performance or
observance of any agreement or covenant or material breach 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),
which shall not be cured to the Required Lenders' satisfaction within a period
of thirty (30) days from the date of the occurrence of such default;
-54-
<PAGE>
(f) H.F. Lenfest (individually or through his control, by
written proxy, of the voting rights of his family, employees of the Borrower
or any employee stock option plan of the Borrower with respect to the Capital
Stock of the Borrower), Tele-Communications, Inc., a Delaware corporation,
directly or indirectly through one or more direct or indirect wholly-owned
Subsidiaries, and any successors of Tele-Communications, Inc., shall own
beneficially less than sixty percent (60%) of all voting shares of the
Borrower's Capital Stock and have the right to elect less than fifty-one
percent (51%) of the members of the board of directors of the Borrower; or the
Borrower shall cease to own, directly or indirectly through a wholly-owned
Restricted Subsidiary, all of the issued and outstanding Capital Stock of the
Restricted Subsidiaries;
(g) There shall be entered a decree or order for relief in
respect of the Borrower or any Restricted Subsidiary 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 Restricted Subsidiary or of any substantial
part of its properties, or ordering the winding-up or liquidation of the
affairs of the Borrower or any Restricted Subsidiary or an involuntary
petition shall be filed against the Borrower or any Restricted Subsidiary, and
(i) such petition shall not be diligently contested, or (ii) any such petition
shall continue undismissed for a period of sixty (60) consecutive days;
(h) The Borrower or any Restricted Subsidiary 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
Restricted Subsidiary 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 Restricted
Subsidiary or of any substantial part of its properties, or the Borrower or
any Restricted Subsidiary shall fail generally to pay its debts as they become
due, or the Borrower or any Restricted Subsidiary shall take any action in
furtherance of any such action;
(i) A final judgment shall be entered by any court against
the Borrower or any Restricted Subsidiary for the payment of money in excess
of $5,000,000 in the aggregate in excess of insurance coverage, or a warrant
of attachment or execution or similar process shall be issued or levied
against property of the Borrower or any Restricted Subsidiary which, together
with all other such property of the Borrower and the Restricted Subsidiaries
subject to other such process exceeds $5,000,000 in the aggregate in excess of
insurance coverage, and if, 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 if, after the expiration of any such
stay, such judgment, warrant or process shall not have been paid or
discharged;
-55-
<PAGE>
(j) 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, any Restricted Subsidiary or any ERISA
Affiliate, or to which the Borrower, any Restricted Subsidiary or any ERISA
Affiliate has any liabilities, or any trust created thereunder; or a trustee
shall be appointed by a United States District Court to administer any such
Plan; or the Pension Benefit Guaranty Corporation shall institute proceedings
to terminate any such Plan; or the Borrower, any Restricted Subsidiary or any
ERISA Affiliate shall incur any liability to the Pension Benefit Guaranty
Corporation in connection with the termination of any such Plan; or any Plan
or trust created under any Plan of the Borrower, any Restricted Subsidiary 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 any such Plan, any trust created thereunder, any trustee or
administrator thereof, or any party dealing with any such Plan or trust to the
tax or penalty on "prohibited transactions" imposed by Section 502 of ERISA or
Section 4975 of the Code; or the Borrower, any Restricted Subsidiary or any
ERISA Affiliate shall enter into or become obligated to contribute to a
Multiemployer Plan;
(k) There shall occur any default or event of default or any
event which gives rise to a right of redemption or similar option or privilege
with respect to Indebtedness of the Borrower or any Restricted Subsidiary or
which causes the Borrower or any Restricted Subsidiary to be required to offer
to purchase any such Indebtedness under any agreement or instrument evidencing
Indebtedness of the Borrower or any Restricted Subsidiary in an aggregate
principal amount exceeding $10,000,000, or there shall occur any material
default under any Interest Rate Hedge Agreement, fixed rate loan agreement or
other similar arrangement having a notional principal amount of $10,000,000 or
more, which default or event of default, in any such case, has not been cured
within any applicable cure period and as to which notice, if any is required
to be given in order for such event to constitute an event of default, has
been given under such agreement or instrument;
(l) Any number of Licenses shall be terminated or revoked
such that the Borrower or one or more Restricted Subsidiaries are no longer
entitled to operate the portion of the System subject to such Licenses and
retain the revenue received therefrom, or the Borrower or any Restricted
Subsidiary or any grantor or grantors of Licenses shall fail to renew any
number of Licenses at the stated expiration thereof such that the Borrower
or one or more Restricted Subsidiaries are no longer entitled to operate the
portion of the System subject to such Licenses and retain the revenue
received therefrom, and the overall effect of all such terminations,
revocations and failures to renew would be or has been to reduce, by ten
percent (10%) or more, Annualized Operating Cash Flow as of the Agreement
Date; or
(m) Any material provision of any Loan Document shall at any
time and for any reason be declared to be null and void, or a proceeding
shall be commenced by the Borrower or any Restricted Subsidiary, or by any
governmental authority having jurisdiction over the Borrower or any
Restricted Subsidiary, seeking to establish the invalidity or
unenforceability thereof (exclusive of questions of interpretation of any
provision thereof), or the Borrower or any Restricted Subsidiary shall deny
that it has any liability or obligation for the payment of principal or
interest purported to be created under any Loan Document.
-56-
<PAGE>
Section 8.2 Remedies. If an Event of Default shall have occurred and
shall be continuing:
(a) With the exception of an Event of Default specified in
Section 8.1(g) or (h) hereof, the Administrative Agent, at the direction of
the Required Lenders, shall (i) terminate the Commitment and/or (ii) declare
the principal of and interest on the Loans and the Notes and all other amounts
owed under this Agreement, the Notes or the other Loan Documents, to be
forthwith due and payable without presentment, demand, protest or notice of
any kind, all of which are hereby expressly waived, anything in this
Agreement, the Notes or the other Loan Documents to the contrary
notwithstanding.
(b) Upon the occurrence and continuance of an Event of
Default specified in Section 8.1(g) or (h) hereof, such principal, interest
and other amounts shall thereupon and concurrently therewith become due and
payable and the Commitment shall forthwith terminate, all without any action
by any of the Administrative Agent, the Lenders, the Required Lenders or the
holders of the Notes, and without presentment, demand, protest or other notice
of any kind, all of which are expressly waived, anything in this Agreement,
the Notes or the other Loan Documents to the contrary notwithstanding.
(c) The Administrative Agent, in accordance with Section 9.8
hereof, shall exercise all of the post-default rights granted to it under the
Loan Documents or under Applicable Law.
(d) The rights and remedies of the Administrative Agent and
the Lenders hereunder shall be cumulative, and not exclusive.
ARTICLE 9
The Agents
Section 9.1 Appointment and Authorization. Each Lender hereby
irrevocably appoints and authorizes, and hereby agrees that it will require
any transferee of any of its interest in its Loans and in its Notes
irrevocably to appoint and authorize, the Administrative Agent to take such
actions as its agent on its behalf and to exercise such powers hereunder as
are delegated by the terms hereof, together with such powers as are reasonably
incidental thereto. Neither the Administrative Agent nor any of its respective
directors, officers, employees or agents shall be liable for any action taken
or omitted to be taken by it or them hereunder or in connection herewith,
except for its or their own gross negligence or willful misconduct.
Section 9.2 Interest Holders. The Administrative Agent may treat each
Lender, or the Person designated in the last notice filed with the
Administrative Agent under this Section, as the holder of all of the interests
of such Lender in its Loans and in its Notes until written notice of transfer,
signed by such Lender (or the Person designated in the last notice filed with
the Administrative Agent) and by the Person designated in such written notice
of transfer, in form and substance satisfactory to the Administrative Agent,
shall have been filed with the Administrative Agent.
-57-
<PAGE>
Section 9.3 Consultation with Counsel. The Administrative Agent may
consult with such legal counsel selected by it and shall not be liable for any
action taken or suffered by it in good faith reliance on the advice of such
counsel.
Section 9.4 Documents. The Administrative Agent shall be under no
duty to examine, inquire into, or pass upon the validity, effectiveness or
genuineness of this Agreement, any Note, or any other instrument, document or
communication furnished pursuant hereto or in connection herewith, and the
Administrative Agent shall be entitled to assume that they are valid,
effective and genuine, have been signed or sent by the proper parties and are
what they purport to be.
Section 9.5 Administrative Agent and Affiliates. With respect to the
Loans and all other matters herein, the Lender which is an affiliate of the
Administrative Agent shall have the same rights and powers hereunder as any
other Lender and the Administrative Agent and its affiliates may accept
deposits from, lend money to and generally engage in any kind of business with
the Borrower and its Subsidiaries, and any Affiliates of, or Persons doing
business with, the Borrower and its Subsidiaries, as if it were not affiliated
with the Administrative Agent and without any obligation to account therefor.
The Lenders acknowledge that the Administrative Agent and its affiliates have
other lending and investment relationships with the Borrower and its
Subsidiaries and its Affiliates and in the future may enter into additional
such relationships.
Section 9.6 Responsibility of the Administrative Agent. The duties
and obligations of the Administrative Agent under this Agreement are only
those expressly set forth in this Agreement. The Administrative Agent shall be
entitled to assume that no Default or Event of Default has occurred and is
continuing unless it has actual knowledge, or has been notified by the
Borrower, of such fact, or has been notified by a Lender that such Lender
considers that a Default or an Event of Default has occurred and is
continuing, and such Lender shall specify in detail the nature thereof in
writing. The Administrative Agent shall not be liable hereunder for any action
taken or omitted to be taken except for its gross negligence or willful
misconduct.
Section 9.7 Action by Administrative Agent.
(a) The Administrative Agent shall be entitled to use its
discretion with respect to exercising or refraining from exercising any rights
which may be vested in it by, and with respect to taking or refraining from
taking any action or actions which it may be able to take under or in respect
of, this Agreement, unless the Administrative Agent shall have been instructed
by the Required Lenders to exercise or refrain from exercising such rights or
to take or refrain from taking such action; provided, however, that the
Administrative Agent shall not exercise any rights under Section 8.2(a) or (c)
hereof without the request of the Required Lenders. The Administrative Agent
shall not incur any liability under or in respect of this Agreement with
respect to anything which it may do or refrain from doing in the reasonable
exercise of its judgment or which may seem to it to be necessary or desirable
in the circumstances, except for its gross negligence or willful misconduct.
-58-
<PAGE>
(b) The Administrative Agent shall not be liable to the
Lenders or to any Lender in acting or refraining from acting under this
Agreement in accordance with the instructions of the Required Lenders or all
the Lenders, if expressly required by the terms of this Agreement, and any
action taken or failure to act pursuant to such instructions shall be binding
on all Lenders.
Section 9.8 Notice of Default or Event of Default. In the event that
the Administrative Agent or any Lender shall acquire actual knowledge, or
shall have been notified, of any Default or Event of Default, the
Administrative Agent or such Lender shall promptly notify the Lenders and the
Administrative Agent, and the Administrative Agent shall take such action and
assert such rights under this Agreement as the Required Lenders shall request
in writing, and the Administrative Agent shall not be subject to any liability
by reason of its action pursuant to any such request. If the Required Lenders
shall fail to request the Administrative Agent to take action or to assert
rights under this Agreement in respect of any Default or Event of Default
within ten (10) days after their receipt of the notice of any Default or Event
of Default from the Administrative Agent, or shall request inconsistent action
with respect to such Default or Event of Default, the Administrative Agent
may, but shall not be required to, take such action and assert such rights as
it deems in its discretion to be advisable for the protection of the Lenders;
provided, however, that, if the Required Lenders have instructed the
Administrative Agent not to take such action or assert such right, in no event
shall the Administrative Agent act contrary to such instructions.
Section 9.9 Responsibility Disclaimed. The Administrative Agent shall
be under no liability or responsibility whatsoever as Administrative Agent:
(a) To the Borrower or any other Person as a consequence of
any failure or delay in performance by or any breach by, any Lender of any of
its or their obligations under this Agreement;
(b) To any Lender, as a consequence of any failure or delay
in performance by, or any breach by, the Borrower or any other Person of any
of its obligations under this Agreement or the Notes or any other Loan
Document; or
(c) To any Lender, for any statements, representations or
warranties in this Agreement, or any other document contemplated by this
Agreement, or any information provided pursuant to this Agreement, any other
Loan Document, or any other document contemplated by this Agreement, or for
the validity, effectiveness, enforceability or sufficiency of this Agreement,
the Notes, any other Loan Document, or any other document contemplated by this
Agreement.
-59-
<PAGE>
Section 9.10 Indemnification. The Lenders agree to indemnify the
Administrative Agent (to the extent not reimbursed by the Borrower) pro rata
according to their respective Commitment Ratios, from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses (including reasonable fees and expenses of experts,
agents, consultants and counsel), or disbursements of any kind or nature
whatsoever which may be imposed on, incurred by or asserted against the
Administrative Agent in any way relating to or arising out of this Agreement,
any other Loan Document, or any other document contemplated by this Agreement
or any action taken or omitted by the Administrative Agent under this
Agreement, any other Loan Document, or any other document contemplated by this
Agreement, except that no Lender shall be liable to the Administrative Agent
for any portion of such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses, or disbursements resulting from
the gross negligence or willful misconduct of the Administrative Agent.
Section 9.11 Credit Decision. Each Lender represents and warrants to
each other and to the Administrative Agent and the Borrower that:
(a) In making its decision to enter into this Agreement and
to make its Advances it has independently taken whatever steps it considers
necessary to evaluate the financial condition and affairs of the Borrower and
the Restricted Subsidiaries and that it has made an independent credit
judgment, and that it has not relied upon information provided by the
Administrative Agent; and
(b) So long as any portion of the Loans remains outstanding,
it will continue to make its own independent evaluation of the financial
condition and affairs of the Borrower and the Restricted Subsidiaries.
Section 9.12 Successor Agents. The Administrative Agent may resign at
any time by giving written notice thereof to the Lenders and the Borrower, and
may be removed at any time for cause by the Required Lenders. Upon any such
resignation or removal, the Required Lenders shall have the right to appoint a
successor Administrative Agent and, prior to the occurrence and continuance of
an Event of Default, with the consent of the Borrower which consent shall not
be unreasonably withheld or delayed. If no successor Administrative Agent
shall have been so appointed by the Required Lenders and shall have accepted
such appointment within ten (10) days after the retiring Administrative
Agent's giving of notice of resignation or the Required Lenders' removal of
the retiring Administrative Agent, then the retiring Administrative Agent may,
on behalf of the Lenders, appoint a successor Administrative Agent which shall
be any Lender or a commercial bank organized under the laws of the United
States of America or any political subdivision thereof which has combined
capital and reserves in excess of $250,000,000. Such successor Administrative
Agent shall thereupon succeed to and become vested with all the rights,
powers, privileges, duties and obligations of the retiring Administrative
Agent, and the retiring Administrative Agent shall be discharged from its
duties and obligations hereunder. After any retiring Administrative Agent's
resignation or removal hereunder as Administrative Agent, the provisions of
this Article shall continue in effect for its benefit in respect of any
actions taken or omitted to be taken by it while it was acting as
Administrative Agent.
-60-
<PAGE>
Section 9.13 Arranging Agents. The Arranging Agents shall have no
duties or obligations under this Agreement or the other Loan Documents in
their capacities as Arranging Agents other than as expressly provided herein.
ARTICLE 10
Change in Circumstances Affecting Advances
Section 10.1 LIBOR Basis Determination Inadequate or Unfair. If with
respect to any proposed LIBOR Advance for any Interest Period, any Lender
determines that deposits in dollars (in the applicable amount) are not being
offered to such Lender in the relevant market for such Interest Period, or if
the rate quoted by the Administrative Agent does not reflect such Lender's
actual cost of funding such Advance, such Lender shall forthwith give notice
thereof to the Administrative Agent, the Borrower and the Lenders, whereupon
until the Administrative Agent notifies the Borrower that the circumstances
giving rise to such situation no longer exist, the obligations of such Lender
to make LIBOR Advances shall be suspended.
Section 10.2 Illegality. If any applicable law, rule
or regulation, or any change therein, 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 any Lender with any request or
directive (whether or not having the force of law) of any such authority,
central bank or comparable agency, shall make it unlawful or impossible for
any Lender to make, maintain or fund its LIBOR Advances, such Lender shall
notify the Administrative Agent, and the Administrative Agent shall forthwith
give notice thereof to the Lenders and the Borrower. Before giving any notice
to the Administrative Agent pursuant to this Section, such Lender shall
designate a different lending office if such designation will avoid the need
for giving such notice and will not, in the judgment of such Lender, be
otherwise disadvantageous to such Lender. Upon receipt of such notice,
notwithstanding anything contained in Article 2 hereof, the Borrower shall
repay in full the then outstanding principal amount of each LIBOR Advance of
such Lender so affected, together with accrued interest thereon, either (a) on
the last day of the then current Interest Period applicable to such Advance if
such Lender may lawfully continue to maintain and fund such Advance to such
day or (b) immediately if such Lender may not lawfully continue to fund and
maintain such Advance to such day. Concurrently with repaying each LIBOR
Advance of such Lender so affected, notwithstanding anything contained in
Article 2 hereof, the Borrower shall borrow a Base Rate Advance from such
Lender, and such Lender shall make such Advance in an amount such that the
outstanding principal amount of the Notes held by such Lender shall equal the
outstanding principal amount of such Notes immediately prior to such
repayment.
-61-
<PAGE>
Section 10.3 Increased Costs.
(a) If any applicable law, rule or regulation, or any change
therein, 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 any
Lender with any request or directive (whether or not having the force of law)
of any such authority, central bank or comparable agency:
(1) shall subject any Lender to any tax, duty or
other charge with respect to this Agreement, the Notes, the
Loans or payments by the Borrower of principal, interest,
fees or other amounts due from the Borrower hereunder or
under the Notes or its obligation to make Loans hereunder
(except for taxes on the overall net income of such Lender),
or shall change the basis of taxation of payments to any
Lender of the principal of or interest on its Loans or in
respect of any other amounts due under this Agreement in
respect of its Loans, or its obligation to make Loans; 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, any Lender or shall impose on any Lender
or the London Interbank Borrowing Market any other condition
affecting its obligation to make Loans;
and the result of any of the foregoing is to increase the cost to such Lender
of making or maintaining any such Loans, or to reduce the amount of any sum
received or receivable by the Lender under this Agreement or under its Notes
with respect thereto, then, on the earlier of a date within fifteen (15) days
after demand by such Lender or the Maturity Date, the Borrower agrees to pay
to such Lender such additional amount or amounts as will compensate such
Lender for such increased costs. Each Lender will promptly notify the Borrower
and the Administrative Agent of any event of which it has knowledge, occurring
after the date hereof, which will entitle such Lender to compensation pursuant
to this Section 10.3 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 sole judgment of such Lender made in good
faith, be otherwise disadvantageous to such Lender.
(b) A certificate of any Lender claiming compensation under
this Section 10.3 and setting forth the additional amount or amounts to be
paid to it hereunder and calculations therefor shall be presumptively correct
in the absence of manifest error. In determining such amount, such Lender may
use any reasonable averaging and attribution methods. If any Lender demands
compensation under this Section 10.3 with respect to LIBOR Advances, the
Borrower may at any time, upon at least three (3) Business Days' prior notice
to such Lender, prepay in full the then outstanding LIBOR Advances of such
Lender, together with accrued interest thereon to the date of prepayment,
along with any reimbursement required under Section 2.10 hereof. Concurrently
with prepaying such LIBOR Advances the Borrower shall borrow a Base Rate
Advance from such Lender, and such Lender shall make such Advance in an amount
such that the outstanding principal amount of the Notes held by such Lender
shall equal the outstanding principal amount of such Notes immediately prior
to such prepayment.
-62-
<PAGE>
Section 10.4 Effects on Other Advances. If notice has been given
pursuant to Section 10.1, 10.2 or 10.3 hereof suspending the obligation of any
Lender to make any LIBOR Advance, or requiring LIBOR Advances of any Lender to
be repaid or prepaid, then, unless and until the Administrative Agent notifies
the Borrower that the circumstances giving rise to such repayment no longer
apply, all Advances which would otherwise be made by such Lender as LIBOR
Advances shall be made instead as Base Rate Advances.
ARTICLE 11
Miscellaneous
Section 11.1 Notices.
(a) Except as provided in the following sentence, all
notices and other communications under this Agreement shall be in writing and
shall be deemed to have been given three (3) days after deposit in the mail,
designated as certified mail, return receipt requested, post-prepaid, or one
(1) day after being entrusted to a reputable commercial overnight delivery
service, or when sent out by telecopy addressed to the party to which such
notice is directed at its address determined as provided in this Section 11.1.
All Requests for Advances and other borrowing and payment notices shall be in
writing and shall be deemed to be given only upon actual receipt by the
Administrative Agent. 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:
Lenfest Communications, Inc.
c/o The Lenfest Group
200 Cresson Boulevard
Oaks, Pennsylvania 19456-0989
Telecopy No.: (610) 650-3011
Attn: Harry F. Brooks
Maryann Bryla
Samuel W. Morris, Jr., Esq.
with a copy to (which copy shall not constitute notice):
Saul, Ewing, Remick & Saul, LLP
3800 Centre Square West
Philadelphia, PA 19102
Attn: Thomas K. Pasch, Esq.
Telecopy No: (215) 972-1831
-63-
<PAGE>
(ii) If to the Administrative Agent, to it at:
NationsBank, N.A.
901 Main Street, 64th Floor
Dallas, Texas 75202-3748
Telecopy No.: (214) 508-9390
Attn: Pam Kurtzman
with a copy to (which copy shall not constitute notice):
Powell, Goldstein, Frazer & Murphy LLP
191 Peachtree Street, N.E.
16th Floor
Atlanta, GA 30303
Attn: Cindy A. Brazell, Esq.
Telecopy No.: (404) 572-6999
(iii) If to the Documentation Agent, the Syndication
Agent or the Lenders, to them at the address set
forth on Schedule 14 attached hereto.
Copies shall be provided to persons other than parties hereto only in the case
of notices under Article 8 hereof.
(b) Any party hereto may change the address to which notices
shall be directed under this Section 11.1 by giving ten (10) days' written
notice of such change to other parties.
Section 11.2 Expenses. The Borrower will promptly pay:
(a) all reasonable out-of-pocket costs and expenses of the
Arranging Agents in connection with the preparation, negotiation, execution
and delivery of this Agreement and other Loan Documents, and the transactions
contemplated hereunder and thereunder and the making of the initial Advance
hereunder whether or not such Advance is made; provided, however, that legal
fees and expenses under this Section 11.2(a) shall be limited to the
reasonable fees and disbursements of Powell, Goldstein, Frazer & Murphy LLP,
Atlanta, Georgia, special counsel for the Arranging Agents;
(b) all reasonable out-of-pocket costs and expenses of the
Administrative Agent in connection with the administration of the transactions
contemplated in this Agreement or the other Loan Documents (other than routine
overhead expenses) and the preparation, negotiation, execution and delivery of
any waiver, amendment or consent by the Lenders or the Required Lenders
relating to this Agreement or the other Loan Documents, including, but not
limited to, the reasonable fees and disbursements of any experts, agents or
consultants and of counsel for the Administrative Agent; and
-64-
<PAGE>
(c) all reasonable out-of-pocket costs and expenses of the
Administrative Agent and the Lenders in obtaining performance under this
Agreement or the other Loan Documents and in connection with any
restructuring, refinancing or "work out" of the transactions contemplated
hereby and thereby, and all reasonable out-of-pocket costs and expenses of
collection if default is made in the payment of the Notes, which in each case
shall include reasonable fees and out-of-pocket expenses of any experts,
agents, consultants and counsel for each of the Administrative Agent and the
Lenders.
Section 11.3 Waivers. The rights and remedies of the Administrative
Agent and the Lenders 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 Administrative Agent, the Required
Lenders, and the Lenders, or any of them, in exercising any right shall
operate as a waiver of such right. The Administrative Agent and the Lenders
expressly reserve the right to require strict compliance with the terms of
this Agreement in connection with any funding of a request for an Advance. In
the event the Lenders decide to fund a request for an Advance at a time when
the Borrower is not in strict compliance with the terms of this Agreement,
such decision by the Lenders shall not be deemed to constitute an undertaking
by the Lenders to fund any further requests for Advances or preclude the
Lenders from exercising any rights available to the Lenders under the Loan
Documents or at law or equity. Any waiver or indulgence granted by the Lenders
or by the Required Lenders shall not constitute a modification of this
Agreement, except to the extent expressly provided in such waiver or
indulgence, or constitute a course of dealing by the Administrative Agent and
the Lenders at variance with the terms of this Agreement such as to require
further notice by the Administrative Agent and the Lenders of their intent to
require strict adherence to the terms of this Agreement in the future. Any
such actions shall not in any way affect the ability of the Administrative
Agent and the Lenders, in their discretion, to exercise any rights available
to them under this Agreement or under any other agreement, whether or not the
Administrative Agent and the Lenders are party, relating to the Borrower.
Section 11.4 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 Lenders and any subsequent holder or holders of the Notes are
hereby authorized by the Borrower at any time or from time to time, without
notice to the Borrower (other than as expressly provided below) or to any
other Person, any such notice being hereby expressly waived, to set-off,
appropriate and apply any and all deposits (general or special, time or
demand, including, without limitation, 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 Lenders or such holder to or for
the credit or the account of the Borrower, against and on account of the
obligations and liabilities of the Borrower, to the Lenders or such holder
under this Agreement, the Notes and any other Loan Document, including,
without limitation, all claims of any nature or description arising out of or
connected with this Agreement, the Notes or any other Loan Document,
irrespective of whether (a) the Lenders or the holder of the Notes shall have
made any demand hereunder or (b) the Lenders shall have declared the principal
of and interest on the Loans, Notes, and other amounts due hereunder, to be
due and payable as permitted by Section 8.2 hereof and although such
obligations and liabilities, or any of them, shall be contingent or unmatured.
Any sums obtained by any Lender or by any subsequent holder of the Notes shall
be subject to the pro rata treatment provisions of Section 2.11 hereof. Upon
direction by the Administrative Agent with the consent of the Required
Lenders, each Lender holding deposits of the Borrower shall exercise its
set-off rights as so directed. The Administrative Agent shall give the
Borrower notice of any exercise of set-off rights of which it is aware after
the occurrence thereof; provided, however, that failure by the Administrative
Agent to provide such notice shall not invalidate or otherwise render
inappropriate or unlawful any such exercise of set-off rights hereunder.
-65-
<PAGE>
Section 11.5 Assignment.
(a) The Borrower may not assign or transfer any of its
rights or obligations hereunder or under the Notes without the prior written
consent of the Administrative Agent and the Lenders.
(b) Each Lender may at any time enter into assignment
agreements or participations with one or more other banks or other Persons
pursuant to which such Lender may assign or participate its interest under
this Agreement, the Notes and the other Loan Documents, including, without
limitation, its interest in any particular Advance or portion thereof, as
follows:
(i) Each Lender may sell assignments or
participations of up to one hundred percent (100%) of its
interest hereunder to (A) one or more U.S. affiliates of
such Lender, and (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, without restriction.
(ii) All other assignments and participations (as
applicable) shall be subject to the following additional
terms and conditions:
(A) No Lender shall assign its interests
in the Commitment without (i) obtaining the prior consent of
the Administrative Agent and, (ii) so long as no Default has
occurred and is continuing, obtaining the prior consent of
the Borrower. No such consent shall be unreasonably withheld
or delayed.
(B) Any Person purchasing a participation
or an assignment of the Loans from a Lender shall be
required to represent and warrant that its purchase shall
not constitute a "prohibited transaction" (as defined in
Section 406 of ERISA or Section 4975 of the Code).
-66-
<PAGE>
(C) Assignments (including any 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 attached
hereto as Exhibit I. No assignment shall be in an amount
less than $10,000,000 or such lesser amount as shall be
agreed to by the Borrower and the Administrative Agent. As
of the effective date thereof, assignments shall relieve the
assigning Lender of all future obligations with respect to
the portion of the Loans so assigned and shall confer on the
assignee all rights and obligations of the assigning Lender
with respect to such portion of the Loans.
(D) Participants shall have the same
rights and benefits as the assigning Lender under Sections
2.10 and 2.12 hereof and Articles 6 and 10 hereof.
(E) No participation agreement shall
confer any rights under this Agreement or the other Loan
Documents to any purchaser thereof, or relieve the selling
Lender from its obligations under this Agreement; provided,
however, that a participation agreement may confer on the
participant the right to approve or disapprove (w) decreases
in the interest rates or commitment fees applicable to the
Loans, (x) any forgiveness of principal or interest, (y) any
extension of any Maturity Date or any scheduled date for the
payment of principal or reduction in the Commitment, or (z)
any release of any collateral or guaranty with respect to
the Obligations.
(F) No assignment, participation or other
transfer of any rights hereunder or under the Notes 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.
(G) If applicable, the assigning Lender
shall, and shall cause each of its assignees and
participants to provide to the Administrative Agent on or
prior to the Agreement Date or effective date of any
assignment, as the case may be, an appropriate Internal
Revenue Service form as required by Applicable Law
supporting the assignee's or participant's position that no
withholding by the Borrower for U.S. income tax payable by
the Lenders and their assignees and participants 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.
(c) The Borrower hereby agrees that any holder of a
participation in, and any assignee or transferee of, all or any portion of any
amount owed by the Borrower under this Agreement and the Notes may exercise
any and all rights of banker's lien, set-off, or counterclaim with respect to
any and all amounts owed by the Borrower to such assignee, transferee, or
holder as fully as if such assignee, transferee, or holder had made the Loans
in the amount of the obligation in which it holds a participation or which is
assigned or transferred to it.
-67-
<PAGE>
(d) Except as specifically set forth in this Section,
nothing in this Agreement or the other Loan Documents, 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 other Loan Documents.
(e) Each Lender who sells or assigns a portion of its Loans,
Commitment and/or Notes, including, without limitation, to another Lender, but
excluding assignments made pursuant to Section 11.5(b)(i) hereof, shall pay to
the Administrative Agent an assignment fee of $3,500 for each such assignment
on or before the effective date of such assignment.
(f) The provisions of this Section 11.5 shall not apply to
any purchase of participations among the Lenders pursuant to Section 2.11
hereof.
Section 11.6 Accounting Principles. All references in this Agreement
to generally accepted accounting principles 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. All calculations to be made hereunder
with respect to the Borrower and the Restricted Subsidiaries on a consolidated
basis shall be made using the special-purpose financial statements of such
Persons on a consolidated basis prepared in accordance herewith.
Section 11.7 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 11.8 Governing Law. This Agreement and the other Loan
Documents shall be construed in accordance with and governed by the internal
laws of the State of New York, without giving effect to any conflict of law
principles.
Section 11.9 Severability. Any provision of this Agreement which is
prohibited or unenforceable 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 11.10 Interest.
(a) In no event shall the amount of interest due or payable
hereunder or under the Notes 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 any Lender, then such excess sum shall
be credited as a payment of principal, unless the Borrower shall notify such
Lender 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 Lenders 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.
-68-
<PAGE>
(b) Notwithstanding the use by the Lenders of the Base Rate
and LIBOR as reference rates for the determination of interest on the Loans,
the Lenders shall be under no obligation to obtain funds from any particular
source in order to charge interest to the Borrower at interest rates tied to
such reference rates.
Section 11.11 Headings. Headings used in this Agreement are for
convenience only and shall not be used in connection with the interpretation
of any provision hereof.
Section 11.12 Amendment and Waiver. Neither this Agreement nor any
term hereof may be amended orally, nor may any provision hereof be waived
orally but only by an instrument in writing signed by the Required Lenders
and, in the case of an amendment, also by the Borrower, except that in the
event of (a) any decrease (other than pro rata) or any increase in the amount
of the Commitment, (b) any delay in the timing of, or reduction of the amount
of, any mandatory reduction in the Commitment or any payments of principal,
interest, and fees due hereunder, or any change in the method of calculating
interest and fees payable hereunder, (c) any release or impairment of
collateral or any guaranty issued in favor of the Administrative Agent and the
Lenders in respect of the Obligations, (d) any waiver of any Event of Default
arising from the failure by the Borrower to pay any sum due hereunder, or (e)
any amendment of Section 2.11 or this Section 11.12 or of the definition of
Required Lenders or any provision specifying the number of Lenders required to
take action hereunder, any amendment or waiver may be made only by an
instrument in writing signed by each of the Lenders and, in the case of an
amendment, also by the Borrower.
Section 11.13 Entire Agreement. Except as otherwise expressly
provided herein, this Agreement and the other documents described or
contemplated herein 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 11.14 Consent to Jurisdiction. The Borrower agrees that any
suit, action or proceeding with respect to this Agreement or Advances
hereunder may be brought in any court of the United States of America for the
Southern District of New York or the State of New York, and by execution and
delivery of this Agreement the Borrower irrevocably submits to each such
jurisdiction for that purpose. The Borrower irrevocably waives, to the fullest
extent permitted by law, any objection that it may now or hereafter have to
the laying of the venue of any such suit, action or proceeding brought in such
court and any claim that any such suit, action or proceeding brought in such a
court has been brought in an inconvenient forum. The Borrower agrees that a
final judgment in any such suit, action or proceeding brought in such a court,
after all appropriate appeals, shall be conclusive and binding upon the
Borrower.
-69-
<PAGE>
Section 11.15 Confidentiality. The Lenders 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; however, the Lenders may make disclosure of any such information to
their examiners, Affiliates, outside auditors, counsel, consultants,
appraisers and other professional advisors 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
any of the Lenders or involving any Lender. In no event shall any Lender be
obligated or required to return any materials furnished to it by the Borrower.
The foregoing provisions shall not apply to a Lender with respect to
information that (i) is or becomes generally available to the public (other
than through such Lender), (ii) is already in the possession of such Lender on
a nonconfidential basis, or (iii) comes into the possession of such Lender in
a manner not involving a breach of a duty of confidentiality owing to the
Borrower.
Section 11.16 Senior Debt. The Obligations of the Borrower hereunder
are intended by the parties hereto to be Senior Debt and rank pari passu with
all other Senior Debt and senior in right of payment to all Subordinated Debt
of the Borrower.
ARTICLE 12
Waiver of Jury Trial
Section 12.1 Waiver of Jury Trial. THE BORROWER, THE ADMINISTRATIVE
AGENT, EACH LENDER AND EACH ARRANGING AGENT 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, THE ADMINISTRATIVE AGENT, THE LENDERS AND THE ARRANGING AGENTS, OR
ANY OF THEM, 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, ANY OF THE NOTES OR THE OTHER LOAN DOCUMENTS AND THE RELATIONS
AMONG THE PARTIES SET FORTH ABOVE.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
-70-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
or caused it to be executed under seal by their duly authorized officers, all
as of the day and year first above written.
BORROWER: LENFEST COMMUNICATIONS, INC.
By: /s/ MARYANN V. BRYLA
-------------------------------------
[CORPORATE SEAL] Name: MARYANN V. BRYLA
-------------------------------
Title: VICE PRESIDENT AND TREASURER
------------------------------
Attest: /s/ SAMUEL W. MORRIS, JR.
---------------------------------
Name: SAMUEL W. MORRIS, JR.
-----------------------------------
Title: VICE PRESIDENT AND GENERAL COUNSEL
-----------------------------------
Lenfest Communications, Inc.
Signature 1
<PAGE>
NATIONSBANK, N.A., as Administrative Agent,
Arranging Agent and Lender
By: /s/ PAMELA S. KURTZMAN
---------------------------------------
Pamela S. Kurtzman
Vice President
Lenfest Communications, Inc.
Signature 2
<PAGE>
SALOMON BROTHERS HOLDING COMPANY
INC, as Arranging Agent, Documentation Agent
and Lender
By: /s/ CHAD LEAT
----------------------------------------
Name: CHAD LEAT
-----------------------------------
Title: MANAGING DIRECTOR
----------------------------------
Lenfest Communications, Inc.
Signature 3
<PAGE>
ROYAL BANK OF CANADA, as Arranging
Agent, Syndication Agent and Lender
By: /s/ WAYNE P. GRAY
-------------------------------
Name: WAYNE P. GRAY
--------------------------
Title: MANAGER
--------------------------
Lenfest Communications, Inc.
Signature 4
<PAGE>
PNC BANK, NATIONAL ASSOCIATION,
as a Lender
By: /s/ JEFFREY E. HAUSER
-------------------------------
Name: JEFFREY E. HAUSER
--------------------------
Title: VICE PRESIDENT
--------------------------
Lenfest Communications, Inc.
Signature 5
<PAGE>
THE BANK OF NOVA SCOTIA, as a Lender
By: /s/ T. K. FRYETT
-------------------------------
Name:
--------------------------
Title:
--------------------------
Lenfest Communications, Inc.
Signature 6
<PAGE>
THE FIRST NATIONAL BANK OF
MARYLAND, as a Lender
By: /s/ TIMOTHY A. KNABE
-------------------------------
Name: TIMOTHY A. KNABE
--------------------------
Title: VICE PRESIDENT
--------------------------
Lenfest Communications, Inc.
Signature 7
<PAGE>
THE DAI-ICHI KANGYO BANK LIMITED,
as a Lender
By: /s/ NANCY STENGEL
-------------------------------
Name: NANCY STENGEL
--------------------------
Title: VICE PRESIDENT
--------------------------
Lenfest Communications, Inc.
Signature 8
<PAGE>
SUMMIT BANK, as a Lender
By: /s/ CHRISTOPHER J. ANNAS
-------------------------------
Name: CHRISTOPHER J. ANNAS
--------------------------
Title: REGIONAL VICE PRESIDENT
--------------------------
Lenfest Communications, Inc.
Signature 9
<PAGE>
SUNTRUST BANK, CENTRAL FLORIDA,
N.A., as a Lender
By: /s/ RONALD K. RUEVE
-------------------------------
Name: RONALD K. RUEVE
--------------------------
Title: VICE PRESIDENT
--------------------------
Lenfest Communications, Inc.
Signature 10
<PAGE>
BANQUE NATIONALE DE PARIS., as a Lender
By: /s/ CLIVE BETTLES
-----------------------------------
Name: CLIVE BETTLES
------------------------------
Title: SENIOR VICE PRESIDENT AND MANAGER
------------------------------
By: /s/ JANICE S. H. HO
-----------------------------------
Name: JANICE S. H. HO
------------------------------
Title: VICE PRESIDENT
------------------------------
Lenfest Communications, Inc.
Signature 11
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE 1 DEFINITIONS............................................................................................2
ARTICLE 2 LOANS.................................................................................................17
2.1 THE LOANS.............................................................................................18
2.2 MANNER OF BORROWING AND DISBURSEMENT..................................................................18
2.3 INTEREST..............................................................................................20
2.4 COMMITMENT FEES.......................................................................................22
2.5 COMMITMENT REDUCTIONS.................................................................................22
2.6 PREPAYMENT............................................................................................24
2.7 REPAYMENT.............................................................................................24
2.8 NOTES; LOAN ACCOUNTS..................................................................................25
2.9 MANNER OF PAYMENT.....................................................................................25
2.10 REIMBURSEMENT.........................................................................................27
2.11 PRO RATA TREATMENT....................................................................................27
2.12 CAPITAL ADEQUACY......................................................................................28
2.13 INCREASES IN THE COMMITMENT...........................................................................29
ARTICLE 3 CONDITIONS PRECEDENT..................................................................................29
3.1 CONDITIONS PRECEDENT TO INITIAL ADVANCE...............................................................29
3.2 CONDITIONS PRECEDENT TO EACH ADVANCE..................................................................31
3.3 CONDITIONS PRECEDENT TO EACH COMMITMENT INCREASE......................................................31
ARTICLE 4 REPRESENTATIONS AND WARRANTIES........................................................................32
4.1 REPRESENTATIONS AND WARRANTIES........................................................................32
4.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES, ETC.......................................................40
ARTICLE 5 GENERAL COVENANTS.....................................................................................40
5.1 PRESERVATION OF EXISTENCE AND SIMILAR MATTERS.........................................................40
5.2 BUSINESS; COMPLIANCE WITH APPLICABLE LAW..............................................................40
5.3 MAINTENANCE OF PROPERTIES.............................................................................41
5.4 ACCOUNTING METHODS AND FINANCIAL RECORDS..............................................................41
5.5 INSURANCE.............................................................................................41
5.6 PAYMENT OF TAXES AND CLAIMS...........................................................................41
5.7 VISITS AND INSPECTIONS................................................................................42
5.8 PAYMENT OF INDEBTEDNESS; LOANS........................................................................42
5.9 USE OF PROCEEDS.......................................................................................42
5.10 INDEMNITY.............................................................................................42
5.11 INTEREST RATE HEDGING.................................................................................43
5.12 YEAR 2000 COMPLIANCE..................................................................................43
5.13 FURTHER ASSURANCES....................................................................................43
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
ARTICLE 6 INFORMATION COVENANTS.................................................................................44
6.1 QUARTERLY FINANCIAL STATEMENTS........................................................................44
6.2 ANNUAL FINANCIAL STATEMENTS...........................................................................44
6.3 MONTHLY OPERATING REPORTS.............................................................................45
6.4 PERFORMANCE CERTIFICATES..............................................................................45
6.5 COPIES OF OTHER REPORTS...............................................................................46
6.6 NOTICE OF LITIGATION AND OTHER MATTERS................................................................46
ARTICLE 7 NEGATIVE COVENANTS....................................................................................46
7.1 INDEBTEDNESS OF THE BORROWER AND THE RESTRICTED SUBSIDIARIES..........................................47
7.2 LIMITATION ON LIENS...................................................................................48
7.3 AMENDMENT AND WAIVER..................................................................................48
7.4 LIQUIDATION, CHANGE IN OWNERSHIP, DISPOSITION OR ACQUISITION OF ASSETS; CHANGE IN BUSINESS............49
7.5 LIMITATION ON GUARANTIES..............................................................................50
7.6 INVESTMENTS...........................................................................................50
7.7 RESTRICTED PAYMENTS AND PURCHASES.....................................................................51
7.8 SENIOR LEVERAGE RATIO.................................................................................52
7.9 OPERATING CASH FLOW TO TOTAL INTEREST EXPENSE RATIO...................................................52
7.10 ANNUALIZED OPERATING CASH FLOW TO PRO FORMA DEBT SERVICE RATIO........................................53
7.11 AFFILIATE TRANSACTIONS................................................................................53
7.12 ERISA LIABILITIES.....................................................................................53
7.13 RESTRICTIONS ON UPSTREAM DIVIDENDS BY SUBSIDIARIES....................................................53
7.14 TOTAL DEBT TO ANNUALIZED OPERATING CASH FLOW RATIO....................................................53
7.15 LIMITATION ON LEASES; SALE/LEASEBACKS.................................................................54
ARTICLE 8 DEFAULT...............................................................................................54
8.1 EVENTS OF DEFAULT.....................................................................................54
8.2 REMEDIES..............................................................................................57
ARTICLE 9 THE AGENTS............................................................................................58
9.1 APPOINTMENT AND AUTHORIZATION.........................................................................58
9.2 INTEREST HOLDERS......................................................................................58
9.3 CONSULTATION WITH COUNSEL.............................................................................58
9.4 DOCUMENTS.............................................................................................58
9.5 ADMINISTRATIVE AGENT AND AFFILIATES...................................................................58
9.6 RESPONSIBILITY OF THE ADMINISTRATIVE AGENT............................................................59
9.7 ACTION BY ADMINISTRATIVE AGENT........................................................................59
9.8 NOTICE OF DEFAULT OR EVENT OF DEFAULT.................................................................59
9.9 RESPONSIBILITY DISCLAIMED.............................................................................60
9.10 INDEMNIFICATION.......................................................................................60
9.11 CREDIT DECISION.......................................................................................60
9.12 SUCCESSOR AGENTS......................................................................................61
9.13 ARRANGING AGENTS......................................................................................61
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
ARTICLE 10 CHANGE IN CIRCUMSTANCES AFFECTING ADVANCES............................................................61
10.1 LIBOR BASIS DETERMINATION INADEQUATE OR UNFAIR........................................................61
10.2 ILLEGALITY............................................................................................62
10.3 INCREASED COSTS.......................................................................................62
10.4 EFFECTS ON OTHER ADVANCES.............................................................................63
ARTICLE 11 MISCELLANEOUS.........................................................................................64
11.1 NOTICES...............................................................................................64
11.2 EXPENSES..............................................................................................65
11.3 WAIVERS...............................................................................................66
11.4 SET-OFF...............................................................................................66
11.5 ASSIGNMENT............................................................................................67
11.6 ACCOUNTING PRINCIPLES.................................................................................69
11.7 COUNTERPARTS..........................................................................................69
11.8 GOVERNING LAW.........................................................................................69
11.9 SEVERABILITY..........................................................................................69
11.10 INTEREST..............................................................................................69
11.11 HEADINGS..............................................................................................70
11.12 AMENDMENT AND WAIVER..................................................................................70
11.13 ENTIRE AGREEMENT......................................................................................70
11.14 CONSENT TO JURISDICTION...............................................................................70
11.15 CONFIDENTIALITY.......................................................................................70
11.16 SENIOR DEBT...........................................................................................71
ARTICLE 12 WAIVER OF JURY TRIAL..................................................................................71
12.1 WAIVER OF JURY TRIAL..................................................................................71
</TABLE>
iii
<PAGE>
EXHIBITS
Exhibit A - Form of Certificate of Financial Condition
Exhibit B - Form of Promissory Note
Exhibit C - Form of Notice of Increased Commitment
Exhibit D - Form of Request for Advance
Exhibit E - Form of Borrower Loan Certificate
Exhibit F - Form of Quarterly Capital Expenditure Report
Exhibit G - Form of Performance Certificate
Exhibit H - Form of Assignment and Assumption Agreement
SCHEDULES
Schedule 1 - Licenses
Schedule 2 - Liens as of the Agreement Date
Schedule 3 - Pole Agreements
Schedule 4 - Subsidiaries
Schedule 5 - Overbuilding
Schedule 6 - Real Property
Schedule 7 - Litigation
Schedule 8 - Agreements with Affiliates
Schedule 9 - Collective Bargaining
Schedule 10 - Ownership of Borrower
Schedule 11 - Existing Indebtedness
Schedule 12 - Existing Investments
Schedule 13 - Additional Permitted Investments
Schedule 14 - Commitment Ratios and Lender Information
iv
<PAGE>
To: Lenfest Communications, Inc.
Re: Amendment No. 4 to Registration Statement on Form S-4 for Senior
Securities
Date: August 13, 1998
================================================================================
In our capacity as special federal communications regulatory counsel to
Lenfest Communications, Inc., a Delaware corporation ("Lenfest"), we have
reviewed and advised Lenfest with respect to certain disclosure in the
Prospectus that forms a part of the above referenced Amendment No. 1 to
Registration Statement, including amendments thereto, under the heading
"Legislation and Regulation." In that regard, we hereby consent to the use of
our name under the heading "Legal Matters" in said Prospectus. In giving such
consent, we do not thereby concede that we are within the category of persons
whose consent is required under Section 7(a) of the Securities Act of 1933, as
amended, or the rules and regulations promulgated pursuant thereto by the
Securities and Exchange Commission.
Sincerely,
FLEISCHMAN AND WALSH, L.L.P.
/s/ Fleischman and Walsh, L.L.P.
-----------------------------------
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the use of our
reports and to all references to our Firm included in or made part of this
registration statement.
PRESSMAN CIOCCA SMITH LLP
/s/ Pressman Ciocca Smith LLP
-------------------------------
Hatboro, Pennsylvania
August 13, 1998
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the use of our
report on Garden State Cablevision L.P. and to all references to our Firm
included in or made part of Lenfest Communication, Inc.'s Form S-4 Registration
Statement File No. 333-51589.
/s/ Arthur Andersen LLP
--------------------------------
Philadelphia, Pennsylvania
August 13, 1998
