<PAGE>
As Filed With The Securities and Exchange Commission on May 1, 1998
Registration No. 333-_____
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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LENFEST COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
Delaware 4841 23-2094942
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction Classification Code Number) Identification No.)
of incorporation)
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)
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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. [ ]
<TABLE>
<CAPTION>
====================================================================================================================================
Title of each Class of Amount to be Proposed Maximum Offering Proposed Maximum Amount of Registration
Securities to be Registered Registered Price Per Unit Aggregate Offering Price Fee (1)
(1)
- ---------------------------- ------------------------- --------------------------- -------------------------- ----------------------
<S> <C> <C> <C> <C>
7-5/8% Senior Notes due 2008 $150,000,000 100% $150,000,000 $14,582.15
8-1/4% Senior Subordinated
Notes due 2008 $150,000,000 100% $150,000,000 $14,566.31
</TABLE>
(1) Calculated in accordance with Rule 457(f)(2) under the Securities Act of
1933. Because the Registrant has an accumulated capital deficit, the filing fee
is based on a maximum aggregate offering price equal to one-third of the 7-5/8%
Senior Notes' par value ($148,293,000) and one-third of the 8-1/4% Senior
Subordinated Notes' par value ($148,132,000). Therefore, in accordance with Rule
457(f)(2), the maximum aggregate offering price for purposes of calculating the
registration fee for the 7-5/8% Senior Notes is $49,431,000 and for the 8-1/4%
Senior Subordinated Notes is $49,377,333.33.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
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<PAGE>
Information contained herein is subject to completion or amendment. A
Registration Statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold, nor may
offers to buy be accepted prior to the time the Registration Statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy, nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
Subject to Completion, Dated May 1, 1998
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 ____________,
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"), it's
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 ____________, 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."
<PAGE>
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 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. As of December 31, 1997, after
giving effect to the offering of the Old Notes (the "Old Notes Offering", and
together with the Exchange Offer, the "Offering") and the application of the net
proceeds thereof, the total consolidated indebtedness of the Company would have
been approximately $1,299.9 million, the total amount of Senior Indebtedness of
the Company would have been approximately $858.0 million, the total amount of
Senior Subordinated Indebtedness of the Company would have been
<PAGE>
approximately $441.9 million, and the total liabilities and indebtedness of the
Company's subsidiaries (including trade payables and accrued liabilities), on an
aggregate basis, would have been approximately $171.9 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).
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.
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 May , 1998.
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<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, Judiciary Plaza, 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, Judiciary Plaza, 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, Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission maintains
a Web site (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 Results
of Operations and Financial Condition" 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.
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<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.
Management believes the Company's wholly owned and operated cable
television systems (the "Core Cable Television Operations") provide service to
one of the largest contiguous blocks of customers served by a single cable
operator in the United States. As of December 31, 1997, the Company's Core Cable
Television Operations served approximately 991,800 basic customers and passed
approximately 1,388,900 homes. At December 31, 1997, the Company also held
equity interests in other cable television entities serving approximately
441,300 basic customers, of which approximately 380,000 were in areas near or
contiguous to the Core Cable Television Operations. The Company's attributable
portion in such other cable television entities is approximately 183,000 basic
customers, giving the Company a combined domestic base of approximately
1,174,800 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
December 31, 1997, the Company's Core Cable Television Operations have
experienced an average EBITDA margin of 50.3%.
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 the earlier of January 1, 2002 or his death.
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:
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<PAGE>
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 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 access.
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.
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 the rights and
preferences and will be subject to the limitations
applicable thereto under the Indentures governing the
Old Notes and the Exchange Notes.
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<PAGE>
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.
Expiration Date............The Exchange Offer will expire at 5:00 p.m., New York
City time, on __________, 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.
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<PAGE>
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 The Bank of New
York, the Exchange Agent, at the address set forth
herein and therein. By executing the Letter 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."
-7-
<PAGE>
Certain Federal Income
Tax Considerations.........For a discussion of certain federal income tax
considerations relating to the exchange of the
Exchange Notes for the Old Notes, see "Certain
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."
-8-
<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. As of December 31, 1997, after giving effect
to the Offering and the application of the net
proceeds thereof, the total consolidated indebtedness
of the Company would have been approximately $1,299.9
million, the total amount of Senior Indebtedness of
the Company would have been approximately $858.0
million, the total amount of Senior Subordinated
Indebtedness of the Company would have been
approximately $441.9 million, and the total
liabilities and indebtedness of the Company's
subsidiaries (including trade payables and accrued
liabilities), on an aggregate basis, would have been
approximately $171.9 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."
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<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. 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
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 Offerings as if they had occurred as of January 1, 1997
and the pro forma balance sheet data and pro forma summary customer data give
effect to the Offerings as if they occurred on December 31, 1997. The pro forma
summary financial data do not purport to represent what Lenfest's results of
operations or financial condition would actually have been had the Offerings
occurred on such dates or to project Lenfest's results of operations or
financial condition 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) (50,070) (50,070)
-------- -------- -------- --------- --------- --------
Loss from continuing operations
before income taxes (12,812) (28,254) (21,824) (142,970) (108,074) (107,842)
Income tax benefit 2,018 10,174 10,724 14,329 38,740 38,659
-------- -------- -------- --------- --------- --------
Loss from continuing operations (10,794) (18,080) (11,100) (128,641) (69,334) (69,183)
Discontinued operations, net of taxes (1,073) (819) (395) 363 33,738 33,738
Extraordinary loss, net of taxes -- -- (6,739) (2,484) -- --
-------- -------- -------- --------- --------- --------
Net loss $(11,867) $(18,899) $(18,234) $(130,762) $(35,596) $(35,445)
======== ======== ======== ========= ========= ========
Balance Sheet Data*
(end of period)
Total assets $634,938 $664,555 $843,110 $1,221,788 $1,219,720 $1,221,330
Total debt 612,392 626,121 810,725 1,312,863 1,295,306 1,299,906
Stockholders' equity (deficit) (56,029) (49,609) (45,192) (233,790) (254,264) (257,254)
Core Cable Television Operations (Restricted Group)
Financial Ratios and Other Data (a)
Revenues $197,630 $212,800 $232,155 $ 354,561 $ 413,792 $ 413,792
EBITDA (b)(c) 100,476 105,711 115,261 182,905 205,861 205,861
EBITDA margin (d) 50.8% 49.7% 49.6% 51.6% 49.7% 49.7%
Interest expense $ 34,699 $ 47,016 $ 59,966 $ 105,463 $ 120,549 120,317
Capital expenditures (e) 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 EBITDA 6.06x 5.83x 7.01x 7.16x 6.28x 6.31x
Monthly revenue per average
basic customer $ 32.05 $ 31.44 $ 32.97 $ 34.25 $ 35.18 $ 35.18
Annual EBITDA per average
basic customer 195.51 187.42 196.40 212.00 210.04 210.04
Annual capital expenditures per
average basic customer (e) 81.06 74.75 68.44 59.93 89.28 89.28
Summary Customer Data
(end of period) (a)
Homes passed 870,718 892,549 904,753 1,278,673 1,388,887 1,388,887
Basic customers 550,703 577,377 596,366 927,249 991,758 991,758
Basic Penetration 63.2% 64.7% 65.9% 72.5% 71.4% 71.4%
</TABLE>
- ----------
* Prior year data is restated to reflect continuing operations.
(a) 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.
(b) EBITDA represents consolidated net income from continuing operations plus
the provision for income taxes, interest expense, depreciation,
amortization, any other non-cash items reducing consolidated net income and
cash actually distributed by an unconsolidated affiliate, minus all
non-cash items increasing consolidated net income. EBITDA is presented
because it is a widely accepted financial indicator of a company's ability
to incur and service debt. 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. EBITDA is not a measure under generally accepted accounting
principles.
(c) CAH, Inc. became a part of the restricted group in 1996. CAH, Inc. has not
been included in the 1993-1995 presentation.
(d) EBITDA margin measures EBITDA as a percentage of revenues.
(e) Excludes the purchase price of acquisitions consummated during the period.
-10-
<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, following this Exchange Offer, will have a
significant amount of leverage. As of December 31, 1997, after giving effect to
the Offering and the application of the net proceeds thereof, the Company's
total consolidated indebtedness would have been approximately $1,299.9 million,
with a stockholders' deficit of $258.9 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. For the year ended December 31,
1997, the Company's earnings were insufficient to cover its fixed charges by
approximately $59.7 million 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 $59.7 million for the
year ended December 31, 1997. Historically, the Company's cash generated from
operating activities and borrowings has been sufficient to meet its debt
service, working capital and capital expenditure requirements. 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. As of December 31,1997, after giving pro forma effect to the
Offering and the application of the net proceeds thereof, the Company's Senior
Indebtedness would have been approximately $858.0 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." As of December 31, 1997, after giving pro forma effect to the
Offering, the Company would have had approximately $284.7 million of borrowing
availability under the Bank Credit Facility (as defined).
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
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<PAGE>
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
December 31, 1997, and after giving effect to the Offering and the application
of the net proceeds thereof, the total liabilities of the Company's subsidiaries
would have been approximately $171.9 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.
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,
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<PAGE>
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 experiencing increased pressure to expand and upgrade their cable
television plant to increase channel capacity and to provide the capacity for
the delivery of high speed internet access and local telephone service over the
cable television system. The Company has begun to upgrade its systems with a
broadband hybrid coaxial/fiber optic cable to accomplish these purposes. The
Company currently estimates such an upgrading will take approximately five years
and the Company expects to spend approximately $300 million over that 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 other capital expenditures of
approximately $35.00 per customer, per year for maintenance of its cable
television plant, including plant extensions, and other fixed assets. The
Company presently has approximately 1 million customers. 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. 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 adversely affect the Company's
operations 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.
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. At December 31, 1997, the amount
subject to the guarantee under the license agreements was approximately $47.5
million.
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<PAGE>
The Company had 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 Unrestricted Subsidiaries have
agreed to indemnify Mr. Lenfest for his obligations under the guarantee.
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. $573 million. The trial for the case began on February 2,
1998, and is expected to 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".
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<PAGE>
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.
-15-
<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.
-16-
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization and cash
and cash equivalents of the Company as of December 31, 1997 (i) on a historic
basis and (ii) on an as adjusted basis after giving effect to the Offering and
the application of the net proceeds thereof.
<TABLE>
<CAPTION>
December 31, 1997
---------------------------
Actual As Adjusted
------ -----------
(dollars in thousands)
<S> <C> <C>
Cash and Cash Equivalents $ 15,623 $ 15,623
========== ==========
Total Debt
Bank Credit Facility............................................ $ 240,000 $ 15,300
11.84% Senior Notes due 1998.................................... 10,500 --
11.30% Senior Notes due 2000.................................... 45,000 --
9.93% Senior Notes due 2001..................................... 11,625 --
8-3/8% Senior Notes due 2005, net of discount 687,082 687,082
7-5/8% Senior Notes due 2008, net of discount.................. -- 148,293
Obligations under capital leases ............................... 7,318 7,318
10-1/2% Senior Subordinated Notes due 2006, net of discount..... 293,781 293,781
8-1/4% Senior Subordinated Notes due 2008, net of discount...... -- 148,132
---------- ---------
Total debt 1,295,306 1,299,906
---------- ---------
Stockholders' Equity (Deficit)
Common stock.................................................... 2 2
Additional paid-in capital...................................... 50,747 50,747
Unrealized gain on marketable securities, net................... 5,256 5,256
Accumulated deficit............................................. (310,269) (314,869)
--------- ---------
Total stockholders' equity (deficit)....................... (254,264) (258,864)
---------- ---------
Total capitalization.................................... $1,041,042 $1,041,042
========== ==========
</TABLE>
-17-
<PAGE>
PRO FORMA FINANCIAL INFORMATION
Pro Forma Condensed Consolidated Balance Sheet
As of December 31, 1997
(dollars in thousands)
<TABLE>
<CAPTION>
Historical
-------------------------------
Lenfest (a) Pro Forma
------------------------------- Adjustments
Restricted Unrestricted Offering (b) Pro Forma
---------- ------------ ------------ ---------
ASSETS
<S> <C> <C> <C> <C>
Cash and cash equivalents................. $ 13,673 $ 1,950 $ 15,623
Receivables, inventory and prepaids....... 17,251 5,955 23,206
Marketable securities..................... 6,791 7,661 14,452
Property and equipment, net of
accumulate depreciation................ 401,228 12,559 413,787
Other investments......................... 1,533 55,348 56,881
Goodwill, net............................. 69,827 3,309 73,136
Deferred franchise costs, net............. 507,023 -- 507,023
Other intangible assets, net.............. 26,194 2,147 28,341
Deferred tax asset........................ 39,837 34,414 $1,610 75,861
Other assets.............................. 7,206 5,814 13,020
---------- -------- ------ ----------
$1,090,563 $129,157 $1,610 $1,221,330
========== ======== ====== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Debt...................................... $1,293,579 $ 1,727 $4,600 $1,299,906
Intercompany payable (receivable)......... (310,076) 310,076 --
Payables and accruals..................... 72,736 4,435 77,171
Deferred tax liability.................... 10,717 (1,137) 9,580
Other liabilities......................... 13,547 78,380 91,927
---------- --------- ------ ----------
Total liabilities............... 1,080,503 393,481 4,600 1,478,584
Stockholders' equity (deficit)............
Common stock........................... 2 -- 2
Additional paid-in capital............. 50,747 -- 50,747
Unrealized gain on marketable securities 2,062 3,194 5,256
Accumulated deficit.................... (42,751) (267,518) (2,990) (313,259)
---------- --------- ------ ----------
10,060 (264,324) (2,990) (257,254)
---------- -------- ------ ----------
$1,090,563 $129,157 $1,610 $1,221,330
========== ======== ====== ==========
</TABLE>
See notes to pro forma information
-18-
<PAGE>
Pro Forma Condensed Consolidated Statement of Operations
For the Year Ended December 31, 1997
(dollars in thousands)
<TABLE>
<CAPTION>
Historical
-------------------------------
Lenfest (a) Pro Forma
------------------------------- 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).................... 2,731 (52,801) (50,070)
-------- --------- -------- ---------
(Loss) from continuing operations
before income taxes................. (42,241) (65,833) 232 (107,842)
Income tax benefit (net).................. 12,308 26,432 (81) 38,659
-------- -------- -------- ---------
(Loss) from continuing operations...... $(29,933) $ (39,401) $ 151 $(69,183)
======== ========= ======== =========
</TABLE>
See notes to pro forma financial information.
-19-
<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 December 31, 1997. 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) Gives effect to the consummation of the Offering and the application of
the estimated proceeds therefrom as follows:
<TABLE>
<CAPTION>
<S> <C>
Source of proceeds:
Gross proceeds from the Offering.......................................$300,000
Use of proceeds:
Prepayment of Existing Insurance Company Notes.........................$ 67,125
Prepayment of Existing Bank Term Loan.................................. 150,000
Payment of Existing Bank Revolver...................................... 74,700
Penalty for early prepayment of Insurance Company Notes................ 4,600
Estimated expenses of the Offering..................................... 3,575
--------
$300,000
The pro forma adjustments to the Pro Forma Condensed Consolidated
Balance Sheet for the Offering are as follows:
Deferred tax asset:
Increase in deferred tax asset.........................................$ 1,610
Debt:
Net proceeds of Offering...............................................$296,425
Payment of Existing Debt...............................................(291,825)
--------
$ 4,600
Accumulated deficit:
Penalty for early extinguishment of debt...............................$ 4,600
Increase in deferred tax asset......................................... (1,610)
--------
The $1.6 million pro forma deferred tax asset adjustment relating to
the adjustment to record the prepayment penalty has been calculated at
the federal tax rate of 35%. A deferred tax asset has not been recorded
for state taxes.
The pro forma adjustments to the Pro Forma Condensed Consolidated
Statement of Operations for the Offering are as follows:
Interest expense:
Decrease in interest expense...........................................$ 232
Income tax benefit (net)
Decrease in deferred tax asset.........................................$ 81
</TABLE>
-20-
<PAGE>
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.
-21-
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
(dollars in thousand except per customer date)
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. 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
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)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data* 1993 1994 1995 1996 1997
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) (50,070)
Loss from continuing operations
before income taxes (12,812) (28,254) (21,824) (142,970) (108,074)
Income tax benefit 2,018 10,174 10,724 14,329 38,740
Loss from continuing operations (10,794) (18,080) (11,100) (128,641) (69,334)
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) $ (35,596)
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 (a)
Revenues $ 197,630 $ 212,800 $ 232,155 $ 354,561 $ 413,792
EBITDA (b) (c) 100,476 105,711 115,261 182,905 205,861
EBITDA margin (d) 50.8% 49.7% 49.6% 51.6% 49.7%
Interest expense $ 34,699 $ 47,016 $ 59,966 $ 105,463 $ 120,549
Capital expenditures (e) 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 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 EBITDA per average
basic customer 195.51 187.42 196.40 212.00 210.04
Annual capital expenditures per
average basic customer (e) 81.06 74.75 68.44 59.93 89.28
Summary Customer Data
(end of period) (a)
Homes passed 870,718 892,549 904,753 1,278,673 1,388,887
Basic customers 550,703 577,377 596,366 927,249 991,758
Basic Penetration 63.2% 64.7% 65.9% 72.5% 71.4%
</TABLE>
-22-
<PAGE>
- ----------
* Prior year data is restated to reflect continuing operations.
(a) 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.
(b) EBITDA represents consolidated net income from continuing operations plus
the provision for income taxes, interest expense, depreciation,
amortization, any other non-cash items reducing consolidated net income and
cash actually distributed by an unconsolidated affiliate, minus all
non-cash items increasing consolidated net income. EBITDA is presented
because it is a widely accepted financial indicator of a company's ability
to incur and service debt. 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. EBITDA is not a measure under generally accepted accounting
principles.
(c) CAH, Inc. became a part of the restricted group in 1996. CAH, Inc. has not
been included in the 1993-1995 presentation.
(d) EBITDA margin measures EBITDA as a percentage of revenues.
(e) Excludes the purchase price of acquisitions consummated during the period.
-22-
<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 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,
"EBITDA" represents consolidated net income from continuing operations plus the
provision for income taxes, interest expense, depreciation, amortization, any
other non-cash items reducing consolidated net income and cash actually
distributed by an unconsolidated affiliate, minus all non-cash items increasing
consolidated net income. EBITDA is presented because it is a widely accepted
financial indicator of a company's ability to incur and service debt. 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. EBITDA is not a measure under generally accepted
accounting principles.
Results of Operations
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.
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 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.
-23-
<PAGE>
Loss from continuing operations before income tax decreased 24.4% to
$108.1 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.
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.
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 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.
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.
-24-
<PAGE>
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.
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 EBITDA margin increased to 44.6% in 1996 compared to 43.5% for
1995. This increase was primarily a result of an increase in 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.
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 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.
-25-
<PAGE>
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.
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 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 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.
-26-
<PAGE>
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 December 31, 1997, the Company had aggregate
total indebtedness of approximately $1,295.3 million. The Company's senior
indebtedness of approximately $1,001.5 million consisted of: (i) three debt
obligations in the amount of approximately $45.0 million, $10.5 million and
$11.6 million (collectively, the "Private Placement Notes"); (ii) $687.1 million
of 8-3/8% Notes; (iii) $240 million under a bank credit facility dated as of
June 27, 1996 (the "Bank Credit Facility"); and (iv) obligations under capital
leases of approximately $7.3 million. The Company issued the Private Placement
Notes from 1988 to 1991 in connection with the refinancing of revolving bank
debt. The Bank Credit Facility consists of a $150 million term loan facility and
a $300 million revolving credit facility. At December 31, 1997, the term loan
was fully drawn.
At December 31, 1997, the only outstanding senior subordinated
indebtedness was the Company's Subordinated Notes which were issued on June 27,
1996 pursuant to a private offering to certain institutional and other
accredited investors and subsequently exchanged in a registered exchange offer
for publicly traded Subordinated 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 February 5, 1998, the Company issued $150 million of 7-5/8% Senior
Notes due 2008 and $150 million of 8-1/4% Senior Subordinated Notes due 2008.
The proceeds of this offering were used to repay the Private Placement Notes,
pay off and cancel the Company's bank term loan facility and to pay down the
revolving credit facility. As of March 27, 1998, the Company's revolving credit
facility had no outstanding borrowings.
The Bank Credit Facility contains provisions which limit the Company's
ability to make certain investments in excess of $50 million in the aggregate
and prohibiting the Company from having: (i) a Senior Debt Leverage Ratio for
the quarter ended December 31, 1997 through December 30, 1999 in excess of
5.00:1 and 4.50:1 commencing on December 31, 1999 and thereafter; and (ii) a
Total Debt Leverage Ratio in excess of 6.50:1 at December 31, 1997, and
declining to 6.00:1 commencing on December 31, 1998 and thereafter. The Company
expects to refinance the Bank Credit Facility in 1998.
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.
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<PAGE>
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 and expected near term losses. The net operating
losses begin to expire in the year 2001 and will fully expire in 2012.
Management bases its expectation on its belief that depreciation and
amortization expense will level off and that interest expense will decline as
debt is repaid, resulting in higher levels of pretax income.
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. At December 31, 1997, the amount
subject to the guarantee under the license agreements was approximately $47.5
million.
The Company had 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 Unrestricted Subsidiaries have
agreed to indemnify Mr. Lenfest for his obligations under the guarantee.
Capital Expenditures. It is anticipated that during 1998, the Company
will spend at least $80.0 million for capital expenditures for its Core Cable
Television Operations. These capital expenditures will be for the upgrading of
certain of its cable television systems, maintenance and other capital projects
associated with implementing the Company's 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. These factors include
whether competition in a particular market necessitates a cable television
system upgrade and whether a particular cable television system has sufficient
capacity to handle new product offerings. The Company, however, 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 the
Senior and Total Debt Leverage Ratios or obtain the consent of the lenders
thereunder to a waiver or amendment of the applicable Senior or Total Debt
Leverage Ratio. Management believes that the Company will be in compliance with
such Debt Leverage Ratios.
The Company proposes to make a public offering of certain of its equity
securities to be registered under the Securities Act before the close of the
third quarter of 1998. Such offering shall be made only by means of a prospectus
in compliance with the Securities Act.
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 computer programs that have date-sensitive software may
recognize the date using "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 they will properly utilize
dates beyond December 31, 1999. The Company has initiated communications with
all 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's estimate to complete the remediation plan includes
the estimated time associated with mitigating the Year 2000 Issue for third
party software. 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.
The Company continues to use both internal and external resources to
reprogram or replace software for Year 2000 Issue modifications. The costs
directly attributable to the Year 2000 Issue are not expected to have a material
effect on the Company's financial position, results of operations or cash flows.
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<PAGE>
The costs of the project and the date on which the Company plans to
complete the Year 2000 Issue modifications and replacements are based on
management's best estimates, which were derived using assumptions of future
events, including the continued availability of resources and the reliability of
third party modification plans. However, there can be no guarantee that these
estimates will be achieved and actual results could differ materially from those
plans.
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.
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<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.
Management believes the Company's wholly owned and operated cable
television systems (the "Core Cable Television Operations") provide service to
one of the largest contiguous blocks of customers served by a single cable
operator in the United States. As of December 31, 1997, the Company's Core Cable
Television Operations served approximately 991,800 basic customers and passed
approximately 1,388,900 homes. At December 31, 1997, the Company also held
equity interests in other cable television entities serving approximately
441,300 basic customers, of which approximately 380,000 were in areas near or
contiguous to the Core Cable Television Operations. The Company's attributable
portion in such other cable television entities is approximately 183,000 basic
customers, giving the Company a combined domestic base of approximately
1,174,800 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
December 31, 1997, the Company's Core Cable Television Operations have
experienced an average EBITDA margin of 50.3%.
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 the earlier of January 1, 2002 or his death.
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 requirements of the
operations, including plant maintenance, installations of new customers and
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<PAGE>
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 access.
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.
The following table provides customer data for each of the years in the
five-year period ended December 31, 1997, for the Company's owned and operated
and affiliated cable television systems.
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<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Owned and Operated
- ------------------
Homes passed
Beginning of period 759,635 870,718 892,549 904,753 1,278,673
Internal growth 48,283 21,831 12,204 26,424 63,129
% Internal growth 5.87 % 2.51% 1.37% 2.11% 4.76%
Acquired 62,800 --- --- 347,496 47,085
End of period 870,718 892,549 904,753 1,278,673 1,388,887
Basic customers
Beginning of period 477,130 550,703 577,377 596,366 927,249
Internal growth 31,573 26,674 18,989 24,817 27,609
% Internal growth 6.08% 4.84% 3.29% 2.75% 2.86%
Acquired 42,000 --- --- 306,066 36,900
End of period 550,703 577,377 596,366 927,249(b) 991,758
Affiliated Systems
- ------------------
Homes passed
Beginning of period 491,003 505,521 518,425 538,082 594,068
Internal growth 14,518 12,904 19,657 25,053 13,331
% Internal growth 2.96% 2.55% 3.79% 4.40% 2.24%
Acquired --- --- --- 30,933 ---
End of period 505,521 518,425 538,082 594,068 607,399
Attributable homes passed at
end of period (a) 163,258 185,457 229,390 248,720 254,294
Basic customers
Beginning of period 336,388 353,935 366,041 384,480 431,819
Internal growth 17,547 12,106 18,439 25,686 9,458
% Internal growth 5.22% 3.42% 5.04% 6.32% 2.19%
Acquired --- --- --- 21,653 ---
End of period 353,935 366,041 384,480 431,819 441,277
Attributable basic customers 113,294 130,247 162,338 179,118 182,886
at end of period (a)
</TABLE>
<PAGE>
- ------------------
(a) For each affiliated cable television system, the number of attributable
homes passed and attributable basic customers is determined by multiplying
the Company's percentage equity interest in such cable television system
by the actual homes passed and actual basic customers of such system. As
of December 31, 1997, the Company held a 50% equity interest in Garden
State Cablevision L.P., a 30% equity interest in the cable television
subsidiaries of Susquehanna Cable Co., a 45% equity interest in Raystay
Co. and a 30% equity interest in Clearview Partners. See "-- Unrestricted
Cable Television Systems." The Company receives no direct customer revenue
from attributable basic customers.
(b) Ending customers for 1996 were restated as a result of the conversion to a
single billing system in 1997 and the resulting conversion to a unified
criteria for calculating customers.
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 December 31, 1997, 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 as
video-on-demand and Internet access. The Company recently has revised its plant
upgrade strategy to begin
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<PAGE>
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 December 31, 1997, 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 December 31,
1997, 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 December 31, 1997, 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.
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<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 December 31, 1997, 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, franchise fee payments made by the
Company have averaged approximately 3.4% 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 December 31,
1997, 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 December 31, 1997, these entities
operated cable television systems serving approximately 441,300 basic customers,
of which approximately 380,000 are served by systems which are near or
contiguous to the Company's cluster of cable television systems. 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. The following
table provides customer data at year end for each of the years in the three-year
period ended December 31, 1997 for Garden State's cable television system.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Homes passed ............................... 292,454 294,390 297,783
Basic customers ............................ 200,086 204,179 208,204
Basic penetration .......................... 68.4% 69.4% 69.9%
</TABLE>
SCC has systems in York and Williamsport, Pennsylvania as well as
smaller systems in Maine, Mississippi, Illinois and Indiana. The following table
provides customer data at year end for each of the years in the three-year
period ended December 31, 1997 for SCC's cable television systems.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Homes passed ............................... 182,465 206,715 211,778
Basic customers ............................ 137,885 159,871 164,186
Basic penetration .......................... 75.6% 77.3% 77.5%
</TABLE>
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
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<PAGE>
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. The
following table provides customer data at year end for each of the years in the
three-year period ended December 31, 1997 for Raystay's cable television
systems.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Homes passed ............................... 63,163 79,029 83,451
Basic customers ............................ 46,509 57,743 59,085
Basic penetration .......................... 73.6% 73.1% 70.8%
</TABLE>
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, 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. As of December 31, 1997, Clearview had approximately 9,800 basic
customers and passed approximately 14,400 homes.
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 representation on the Executive Committee, and the Company
will be the managing partner of the partnership for its first two years. At
December 31, 1997, 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
December 31, 1997 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.
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<PAGE>
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.
Local Programming
In late 1996, a decision was made to combine the Company's NewsChannel
operations with Suburban Cable's existing local origination channels. In
October, 1997, however, the Company ceased airing the NewsChannel. The Company
currently is evaluating the creation of a new regional programming channel to
provide local news, information and entertainment.
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 December 31, 1997, a 29.0% interest in Videopole,
a French cable television company serving rural areas of France and suburbs of
Paris. As of December 31, 1997, 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.
As of December 31, 1997, the Company's indirect interest in Videopole
was 23.2% and TCI's indirect interest was 5.8%.
Lenfest Australia, Inc.
At December 31, 1997, 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 April 8, 1998, Australis Holdings Pty. filed for reorganization under
Chapter 11 of the United States Bankruptcy Code in the Southern District of New
York. The purpose of such filing was to enable Australis Holdings and other
subsidiaries of Australis to restructure approximately $440 million face amount
of bond indebtedness held primarily by U.S. investors. It is expected that
Australis' operations in Australia will not be effected by this reorganization
petition. Australis has announced that an investment group intends to make an
investment of $100 million in cash and other assets into Australis, assuming
that the Court approves the reorganization of the bond indebtedness. The Company
does not intend to make any further investment in the
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reorganization of Australis. If the reorganization is successful, the company
may own about two percent (2%) of the equity of the reorganized Australis.
Additionally, in November 1994, H. F. Lenfest, the President and Chief
Executive Officer of the Company, and TCI jointly and severally guaranteed up to
$67 million in program license payment obligations of the distributor of
Australis' movie programming. At December 31, 1997, the amount subject to the
guarantee was approximately $47.5 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. Effective March 6, 1997 (as amended on
March 27, 1998, but effective as of September 30, 1997), however, Mr. Lenfest
released the Company and its cable operating subsidiaries from their indemnity
obligation until the last to occur of September 30, 1997, 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. The Company has neither
sought nor obtained any consents which may be required in connection with this
indemnification obligation. Certain of the Company's Unrestricted Subsidiaries
have agreed to indemnify Mr. Lenfest for his obligations under the guarantee.
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, 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. Management believes that its properties are in
good operating condition and are suitable and adequate for the Company's
business operations.
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."
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.
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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.
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
base 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 (a company in
which the Company holds a 41.5% aggregate economic interest, 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
claimed additional
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damages of A$485 million. Mr. Hadid seeks total monetary damages in the amount
of A$718 million (approximately U.S.$467 million as of December 31, 1997). 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 not completed their
testimony and cross examination. The Defendants have not presented any part 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 December 31, 1997, the Company had 1,646 full-time employees, of
which 175 employees were covered by collective bargaining agreements at three
locations.
As of December 31, 1997, 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.
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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 where
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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
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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.
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.
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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 reconsideration and 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
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reason for denying a franchisee's renewal request.
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.
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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
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<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.
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<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................... 67 President, CEO and Director
H. Chase Lenfest................ 34 Director
Brook J. Lenfest................ 29 Director
John C. Malone, Ph.D............ 57 Director
William R. Fitzgerald........... 40 Director
Harry F. Brooks................. 60 Executive Vice President, Assistant Secretary
Marguerite B. Lenfest........... 64 Treasurer
Samuel W. Morris, Jr., Esq...... 54 Vice President-General Counsel and Secretary
Maryann V. Bryla................ 32 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. He is married to Marguerite B. Lenfest. 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. Prior to 1994, he was a
stockbroker with Wheat First Butcher & Singer. He is the son of H. F. and
Marguerite B. Lenfest.
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 that he held
various positions at Garden State Cablevision. He is the son of H. F. and
Marguerite B. Lenfest.
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., TCI Pacific Communications, Inc., TCI
Satellite Entertainment, Inc., BET Holdings, Inc., The At Home Corporation and
The Bank of New York.
William R. Fitzgerald has served as a Director of the Company since
January 30, 1998. Mr. Fitzgerald serves as Executive Vice President of Corporate
Development and Partnership Relations for TCI. Mr. Fitzgerald joined TCI
Communications, Inc. in March of 1996. Prior to joining TCI, he was a Senior
Vice President and Partner with Daniels & Associates. Before joining Daniels &
Associates, Mr. Fitzgerald was a Vice President at The First National Bank of
Chicago.
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
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<PAGE>
Lenfest Atlantic, Inc. He is the brother of Marguerite B. Lenfest.
Marguerite B. Lenfest has served as Treasurer of the Company since
1974. She is the wife of H. F. Lenfest and the sister of Harry F. Brooks.
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.
Mr. Morris also serves as a director of Australis Media Ltd. since January 1998.
Maryann V. Bryla has been Vice President, Finance of the Company since
March 1997 and Assistant Secretary since January 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. Prior to joining the Company,
Ms. Bryla was a lending officer in the Telecommunication and Media Lending
Division of PNC Bank, N.A. Prior to that, 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 and Australis Media Ltd.
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.
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<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 $ 40,000 $ 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 (i)
the premium on each policy, minus a sum equal to the lesser of the
applicable one-year term premium cost computed under the Internal Revenue
Service Ruling 55-747 or the cost of comparable one-year term life
insurance in the amount of each policy or (ii) 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.
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<PAGE>
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.
CERTAIN TRANSACTIONS
The Company is a party to an agreement with Satellite Services, Inc.
("SSI"), an affiliate of TCI, the indirect parent of LMC Lenfest, Inc., a 50%
stockholder of the Company and an affiliate of Mr. Malone, 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, the Company incurred
programming expenses under its agreement with SSI of approximately $62.9
million.
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,
Garden State obtained approximately $14.7 million 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, the Company generated revenues of $1.9 million 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
three. For the year ended December 31, 1997, the Company paid the Lenfests an
aggregate of $647,000 under such leases. Rental payments are on terms that are
no less favorable than those the Company could obtain from independent parties.
For the year ended December 31, 1997, the Company incurred pay-per-view
order placement fees to TelVue Corporation, an affiliate of H. F. Lenfest,
$470,000 for pay-per-view order placement services.
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. At December 31, 1997, the amount
subject to the guarantee under the license agreements was approximately $47.5
million.
The Company had 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 Unrestricted Subsidiaries have
agreed to indemnify Mr. Lenfest for his obligations under the guarantee.
The Company has agreed to pay the legal expenses of H. F. Lenfest and
Marguerite Lenfest related to a pending SEC action 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 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 an
amount 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.
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 Subordinated Notes and a lender under the Bank Credit Facility.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of December 31, 1997, 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 (10 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 the earlier of January 1, 2002 or until his 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.
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.
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<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 December 31, 1997, there was $686.8 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
December 31, 1997, there was approximately $293.7 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 June 27, 1996, the Toronto-Dominion Bank, PNC Bank, N.A. and
NationsBank of Texas, N.A. and certain other lenders party thereto
(collectively, the "Lenders") entered into a credit agreement with the Company
pursuant to which the Lenders provided the Company with the $450 million Bank
Credit Facility ($150 million term and $300 million revolving). The $150 million
outstanding under the term loan portion of the Bank Credit Facility will be
prepaid with a portion of the net proceeds of the Exchange Offer and the term
loan facility will be terminated. In addition, a portion of the revolving loan
facility will be repaid with a portion of the net proceeds of the Exchange
Offer. Amounts repaid with the revolving loan facility may be reborrowed until
the termination of the Bank Credit Facility. The Company intends to use the
resulting increased availability under the Bank Credit Facility for operations
and possible future acquisitions of cable systems, including certain cable
systems owned or to be acquired by TCI and its other affiliates.
Commitment reductions under the revolving loan facility will commence
on March 31, 1999, with quarterly reductions thereafter until the termination of
the Bank Credit Facility on September 30, 2003. Loans outstanding under the Bank
Credit 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 terms of the Bank Credit Facility prohibit the Company from (i)
incurring certain additional Indebtedness in excess of $10 million until the
ratio of Total Debt to Annualized Operating Cash Flow is less than 6.00:1, (ii)
having a Senior Debt Leverage Ratio for the most recent quarter end in excess of
5.25:1 through December 30, 1997, and declining thereafter to 4.50:1 beginning
on December 31, 1999, (iii) having a ratio of Operating Cash Flow to Total
Interest Expense of less than 1.50:1 through December 31, 1997, and less than
1.75:1 thereafter and (iv) having a Total Debt Leverage Ratio in excess of
6.75:1 through December 30, 1997, declining thereafter to 6.00:1 beginning on
December 31, 1998. In addition, the Bank Credit Facility contains certain
restrictions on the Company and its Restricted Subsidiaries with respect to,
among other things, the payment of dividends, the repurchase of stock, the
making of Restricted Payments and Restricted Purchases, the making of
investments, the creation of Liens, certain asset sales, sale-leaseback
transactions, transactions with Affiliates, the disposition of certain
securities of its Restricted Subsidiaries, the designation of subsidiaries as
Restricted Subsidiaries and Unrestricted Subsidiaries and mergers and
consolidations; provided, however, that the Company is permitted under the terms
of the Bank Credit Facility (a) to make investments in related businesses not to
exceed, until the ratio of Total Debt to Annualized Operating Cash Flow is less
than 6.00:1 for two consecutive fiscal quarters, $50 million in the aggregate
and (b) to make acquisitions in an aggregate amount of $100 million over the
life of the Bank Credit Facility, including the acquisition of the Turnersville
system for an aggregate purchase price of approximately $84.5 million in January
1997. In addition, the Company is permitted to make distributions equal to 50%
of Annual Excess Cash Flow once the ratio of Total Debt to Annualized Operating
Cash Flow is less than
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<PAGE>
6.00:1 for the most recently completed two consecutive fiscal quarters. In
addition, it is an event of default if neither H.F. Lenfest (individually or by
written proxy of the voting rights of the members of his immediate family with
respect to the capital stock of the Company) nor TCI own beneficially 50% or
more of the voting shares of the Company's capital stock and have the right to
elect at least 50% of the members of the board of directors of the Company.
Terms capitalized but not defined above have the meanings assigned to them in
the Bank Credit Facility.
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<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.
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.
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
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<PAGE>
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 December 31, 1997, after giving pro forma effect to the Offering
and the application of the net proceeds thereof, the Company's Senior
Indebtedness would have been approximately $858.0 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 December 31, 1997, the total
liabilities of the Company's subsidiaries (including trade payables and accrued
liabilities) were approximately $171.9 million, of which approximately $7.3
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) 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
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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 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.
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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.
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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
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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 described under "-Limitation on Indebtedness." Such
restrictions can only be waived with the consent of the
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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 8.00.
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.
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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.
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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 8.00, (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.
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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.
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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
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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).
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"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,
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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)
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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).
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"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.
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"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.
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"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
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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
Purpose and Effect of the Exchange Offer
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.
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 states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. 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.
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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 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,
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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 May , 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 ___________, 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 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
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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).
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
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<PAGE>
Company reserves the absolute right to reject any and all tenders not in proper
former 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.
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
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<PAGE>
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
(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.
-77-
<PAGE>
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: Ms. Jodi Smith
By Facsimile Transmission (for Eligible Institutions only):
(212) 571-3080
Attn: Ms. Jodi Smith
Confirm by Telephone:
(212) 815-2791
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.
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
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<PAGE>
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.
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<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of certain 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 should not be a taxable event to the holder, and
the holder should 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 should generally 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 should be long-term capital gain or loss, provided the
holder has a holding period for the Exchange Note of more than one year. 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
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
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<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 ____________, 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, 1995, 1996 and 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 pro forma statement of
operations for the year ended December 31, 1997, included under "Pro Forma
Financial Information" has been examined by Pressman Ciocca Smith LLP and is
included herein in reliance upon the report of such firm given upon their
authority on reporting on examinations of pro forma financial statements.
Because of the limited nature of the review procedures applied, the degree of
reliance on their report on such information should be restricted. In addition,
the accountants are not subject to the liability provisions of
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<PAGE>
Section 11 of the Securities Act of 1933 for their report on the unaudited
interim and proforma financial information because that report is not a "report"
or a "part" of the Registration Statement prepared or certified by the
accountants within the meaning of Sections 7 and 11 of the Securities Act of
1933.
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<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS
<S> <C>
Report of Independent Certified Public Accountants ................................................................ F-2
Consolidated Balance Sheets, December 31, 1996 and 1997 ........................................................... F-3
Consolidated Statements of Operations, Years Ended December 31, 1995, 1996 and 1997 ............................... F-5
Consolidated Statements of Changes in Stockholders' Equity (Deficit),
Years Ended December 31, 1995, 1996 and 1997 .................................................................... F-6
Consolidated Statements of Cash Flows, Years Ended December 31, 1995, 1996 and 1997 ............................... F-7
Notes to Consolidated Financial Statements ........................................................................ F-9
</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 first
paragraph of Note 20, as to which
the date is March 26, 1998)
F-2
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31,
-----------------------------------
1996 1997
-------------- --------------
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 19,162 $ 15,623
Marketable securities 79,830 14,452
Accounts receivable - trade and other, less allowance
for doubtful accounts of $1,985 in 1996 and $2,923 in 1997 19,885 23,206
Inventories 2,757 2,153
Prepaid expenses 2,364 2,960
Property and equipment, net of accumulated
depreciation 372,387 413,787
Investments in affiliates, accounted for under the equity
method, and related receivables 41,333 46,471
Other investments, at cost 10,410 10,410
Goodwill, net of amortization 74,404 73,136
Deferred franchise costs, net of amortization 494,568 507,023
Other intangible assets, net of amortization 24,908 28,341
Deferred Federal tax asset (net) 52,257 74,251
Net assets of discontinued operations 20,971 2,660
Other assets 6,552 5,247
-------------- --------------
$ 1,221,788 $ 1,219,720
============== ==============
</TABLE>
See accompanying notes.
(continued)
F-3
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, (continued)
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31,
-----------------------------------
1996 1997
-------------- --------------
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
<S> <C> <C>
Notes payable $ 1,303,200 $ 1,287,988
Obligations under capital leases - related party 5,186 3,722
Obligations under capital leases - unrelated parties 4,477 3,596
Accounts payable and accrued expenses - unrelated parties 38,781 50,867
Accounts payable - affiliate 12,855 26,304
Customer service prepayments and deposits 8,614 6,984
Deferred interest - 7,063
Deferred state tax liability (net) 9,066 9,580
Investment in Garden State Cablevision L.P. 72,454 77,880
-------------- --------------
TOTAL LIABILITIES 1,454,633 1,473,984
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
Additional paid-in capital 50,747 50,747
Unrealized gain (loss) on marketable securities, net of deferred
tax liabilities of $317 in 1996 and $2,830 in 1997 (9,866) 5,256
Accumulated deficit (274,673) (310,269)
------------- -------------
(233,790) (254,264)
------------- -------------
$ 1,221,788 $ 1,219,720
============= =============
</TABLE>
See accompanying notes.
F-4
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------
1995 1996 1997
------------- ------------ -------------
<S> <C> <C> <C>
REVENUES $ 254,225 $ 381,810 $ 447,390
OPERATING EXPENSES
Service 15,670 29,299 33,772
Programming - from affiliate 37,685 57,344 62,892
Programming - other cable 17,637 25,460 30,196
Selling, general and administrative 55,262 82,688 105,470
Direct costs - non-cable 18,859 21,150 22,337
Depreciation 49,126 65,712 78,801
Amortization 25,146 45,565 51,138
------------- ------------ -------------
219,385 327,218 384,606
------------- ------------ -------------
OPERATING INCOME 34,840 54,592 62,784
OTHER INCOME (EXPENSE)
Interest expense (60,909) (107,201) (120,788)
Equity in net (losses) of unconsolidated affiliates (10,682) (17,870) (7,334)
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 1,836
------------ ----------- ------------
(56,664) (197,562) (170,858)
------------ ----------- ------------
(LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (21,824) (142,970) (108,074)
INCOME TAX BENEFIT (NET) 10,724 14,329 38,740
------------ ----------- ------------
(LOSS) FROM CONTINUING
OPERATIONS (11,100) (128,641) (69,334)
DISCONTINUED OPERATIONS (net of applicable income taxes) Income (loss) from
discontinued operations of Lenfest MCN, Inc.
and affiliates (395) 363 1,469
Gain on sale of assets of Lenfest MCN, Inc. and affiliates - - 32,269
------------ ----------- ------------
(395) 363 33,738
------------ ----------- ------------
(LOSS) BEFORE
EXTRAORDINARY LOSS (11,495) (128,278) (35,596)
EXTRAORDINARY (LOSS)
Early extinguishment of debt, net of income taxes of
$3,629 in 1995 and $1,337 in 1996 (6,739) (2,484) -
------------ ----------- ------------
NET (LOSS) $ (18,234) $ (130,762) $ (35,596)
============ =========== ============
</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>
Year Ended December 31,
------------------------------------------------
1995 1996 1997
------------ ------------ -------------
<S> <C> <C> <C>
COMMON STOCK
BALANCE AT BEGINNING
AND END OF YEAR $ 2 $ 2 $ 2
=========== =========== ============
ADDITIONAL PAID-IN CAPITAL
BALANCE AT BEGINNING
AND END OF YEAR $ 50,747 $ 50,747 $ 50,747
=========== =========== ============
UNREALIZED GAIN (LOSS) ON MARKETABLE
SECURITIES
Balance at beginning of year $ 25,319 $ 47,970 $ (9,866)
Net unrealized gain (loss) on marketable securities, net of
deferred tax liabilities 22,651 (57,836) 15,122
------------ ------------ ------------
BALANCE AT END OF YEAR $ 47,970 $ (9,866) $ 5,256
============ =========== ============
ACCUMULATED DEFICIT
Balance at beginning of year $ (125,677) $ (143,911) $ (274,673)
Net (loss) (18,234) (130,762) (35,596)
----------- ----------- ------------
BALANCE AT END OF YEAR $ (143,911) $ (274,673) $ (310,269)
=========== =========== ============
TOTAL STOCKHOLDERS'
EQUITY (DEFICIT) $ (45,192) $ (233,790) $ (254,264)
=========== =========== ============
</TABLE>
See accompanying notes.
F-6
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------
1995 1996 1997
------------ ------------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $ (18,234) $ (130,762) $ (35,596)
(Income) loss from discontinued operations 395 (363) (1,469)
(Gain) on sale of assets of discontinued operations - - (32,269)
Extraordinary loss 6,739 2,484 -
----------- ------------ -----------
Loss from continuing operations (11,100) (128,641) (69,334)
Adjustments to reconcile loss from continuing operations
to net cash provided by operating activities:
Depreciation and amortization 74,272 111,277 129,939
Accretion of debt discount 328 1,081 1,788
Accretion of discount on marketable securities - (1,026) (477)
Net (gains) on sales of marketable securities (13,517) (342) (468)
Recognized loss on decline in market value of securities -
Australis Media Limited - 86,400 44,572
(Gain) on disposition of partnership interest - (7,210) -
Deferred income tax (benefit) (10,724) (15,226) (23,992)
Write off of assets upon rebuild of cable systems 282 846 -
(Gain) loss on sales of property and equipment (115) (326) 694
Equity in net losses of unconsolidated affiliates 10,682 17,870 7,334
Loss on other investments 75 - -
Minority interests (1,347) (2,492) (945)
Changes in operating assets and liabilities, net of effects
from acquisitions:
Cash - restricted escrow 3,273 - -
Accounts receivable 2,675 (7,100) (3,321)
Inventories 2,260 2,175 604
Prepaid expenses 594 278 (596)
Other assets (291) (3,363) 1,305
Deferred interest - - 7,063
Accounts payable and accrued expenses:
Affiliate (433) 5,650 13,449
Unrelated parties 11,749 6,599 12,086
Customer service prepayments and deposits (70) 637 (1,630)
----------- ------------ -----------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 68,593 67,087 118,071
----------- ------------ -----------
</TABLE>
See accompanying notes. (continued)
F-7
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, (continued)
(Dollars in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------
1995 1996 1997
-------------- -------------- --------------
<S> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of cable systems $ - $ (604,032) $ (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)
Purchases of marketable securities (2,678) (582) (3,091)
Purchases of other investments (71) - -
Proceeds from transfer of cable system - 4,500 -
Proceeds from sales of property and equipment 192 381 1,091
Proceeds from sales of marketable securities 16,545 1,952 45,223
Proceeds from sale of assets of discontinued operations - - 70,250
Discontinued operations (1,677) (255) (18,558)
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)
Distributions from unconsolidated affiliates 1,826 45,932 775
(Increase) in other intangible assets - investing (306) (4,539) (8,876)
Loans and advances to unconsolidated affiliates (726) (470) (4,849)
Loans and advances from unconsolidated affiliates 1,110 8,390 3,627
------------- ------------- -------------
NET CASH (USED IN)
INVESTING ACTIVITIES (39,019) (615,903) (102,773)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in debt 741,363 942,023 105,000
Early extinguishment of debt (91,118) (448,821) -
Other debt reduction:
Notes (515,528) (80,345) (122,000)
Obligations under capital leases (49) (256) (1,490)
(Increase) in other intangible assets - financing (4,110) (9,045) (347)
------------- ------------- -------------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 130,558 403,556 (18,837)
------------- ------------- -------------
NET INCREASE
(DECREASE) IN CASH 160,132 (145,260) (3,539)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 4,290 164,422 19,162
------------- ------------- -------------
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 164,422 $ 19,162 $ 15,623
============= ============ =============
</TABLE>
See accompanying notes.
F-8
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1996 and 1997
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.
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 an independent appraiser. 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 properly attributable to capital items, including that portion of
employees' compensation allocable to installation, engineering, design,
construction and various other capital projects are capitalized. 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 an independent
appraiser. Additions to these assets are stated at cost. Other intangible assets
consist of debt acquisition costs, organization costs and covenants not to
compete. 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", 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. If the future
undiscounted cash flow estimate is less than net book value, net book value is
then reduced to the undiscounted cash flow estimate. The Company also evaluates
the depreciation and amortization periods of tangible and intangible assets 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>
Year Ended December 31,
---------------------------------------------------
1995 1996 1997
------------- ------------ ------------
(Dollars in thousands)
<S> <C> <C> <C>
Revenues $ 12,024 $ 15,508 $ 15,496
Operating expenses (8,794) (9,961) (9,812)
Depreciation and amortization (3,428) (4,104) (2,862)
------------ ----------- -----------
OPERATING INCOME (LOSS) (198) 1,443 2,822
Interest expense (629) (715) (598)
Other income 61 23 42
Income tax (expense) benefit 371 (388) (797)
------------ ----------- -----------
NET INCOME (LOSS) $ (395) $ 363 $ 1,469
============ =========== ===========
</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>
Year Ended December 31,
-----------------------------------------------
1995 1996 1997
------------ ------------ ------------
Cash paid during the year for: (Dollars in thousands)
- ------------------------------
<S> <C> <C> <C>
Interest:
Continuing operations $ 55,326 $ 103,836 $ 120,580
Discontinued operations 519 494 612
Income taxes:
Continuing operations $ 160 $ - $ 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>
Year Ended December 31,
-----------------------------------------------
1995 1996 1997
------------ ------------ ------------
(Dollars in thousands)
<S> <C> <C> <C>
Property and equipment $ 3,585 $ 170,085 $ 27,965
Deferred franchise costs 2,124 398,260 53,797
Minority interest in partnership equity 3,129 - -
Goodwill and other intangible assets - 32,543 2,738
Equity interests in affiliates - 2,877 -
Other asset - 5,867 -
------------ ------------ -------------
$ 8,838 $ 609,632 $ 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.
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.
F-14
<PAGE>
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.
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:
<TABLE>
<CAPTION>
1995 1996 1997
------------ ------------ -------------
(Dollars in thousands)
<S> <C> <C> <C>
Revenues $ 382,389 $ 418,109 $ 447,848
------------ ------------ -------------
Loss from continuing operations $ (46,902) $ (143,619) $ (69,440)
------------ ------------ -------------
Net loss $ (54,036) $ (145,740) $ (35,702)
------------ ------------ -------------
</TABLE>
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's cost basis in the securities is
approximately $2.7 million. 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 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, the total programming obtained through the Company was
approximately $11,985,000, $13,659,000 and $14,650,000, 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 and $77,880,000 at
December 31, 1996 and 1997, respectively.
Summarized audited financial information of 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 $ 4,858 $ 5,271
Accounts receivable, net 2,683 3,551
Other current assets 1,033 666
Property and equipment, net 75,920 83,863
Deferred assets, net 85,204 55,938
-------------- --------------
TOTAL ASSETS $ 169,698 $ 149,289
============== ==============
Debt $ 333,000 $ 324,000
Liabilities to the Company 3,246 3,579
Accounts payable and accrued expenses 13,674 12,388
Customer prepayments and deposits 947 875
Other liabilities 1,098 1,523
Partners' deficit (182,267) (193,076)
-------------- --------------
TOTAL LIABILITIES AND DEFICIT $ 169,698 $ 149,289
============== ==============
</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>
1995 1996 1997
-------------- -------------- --------------
(Dollars in thousands)
Results of Operations
<S> <C> <C> <C>
Revenues $ 91,771 $ 100,756 $ 109,126
Operating expenses (40,595) (43,608) (45,902)
Depreciation and amortization (46,976) (48,524) (44,698)
------------- ------------- -------------
OPERATING INCOME 4,200 8,624 18,526
Interest expense (19,166) (16,405) (22,787)
Other expense (5,590) (6,045) (6,548)
------------- ------------- -------------
NET LOSS $ (20,556) $ (13,826) $ (10,809)
============= ============= =============
Cash Flows
Cash flows from operating activities $ 30,452 $ 26,132 $ 32,815
Cash flows from investing activities (14,794) (22,759) (23,308)
Cash flows from financing activities (17,009) (1,774) (9,094)
------------- ------------- -------------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (1,351) 1,599 413
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 4,610 3,259 4,858
------------- ------------- -------------
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 3,259 $ 4,858 $ 5,271
============= ============= =============
</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)
Financial Position
<S> <C> <C>
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
============= =============
<CAPTION>
1995 1996 1997
--------------- --------------- ---------------
(Dollars in thousands)
Results of Operations
<S> <C> <C> <C>
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 reflects the carrying value of the Company's investments,
other than Garden State, accounted for under the equity method, including
related receivables, as of December 31, 1996 and 1997:
<TABLE>
<CAPTION>
1996 1997
--------------- ---------------
(Dollars in thousands)
<S> <C> <C>
Susquehanna Cable Co. Subsidiaries ("SCC Subs")(Note 9) $ 10,880 $ 10,671
The Box Worldwide, Inc. ("Box") (Note 5) 4,161 -
Raystay Co. ("Raystay") (Note 5) 6,981 11,807
Videopole (Note 5) 9,015 11,117
MetroNet Communications and GlobeNet ("MetroNet") 1,674 1,086
Hyperion Telecommunications of Harrisburg ("Hyperion") 1,043 217
Sneak Prevue, L.L.C. ("Sneak Prevue") (Note 5) 3,091 2,512
Clearview Partners ("Clearview") (Note 5) 1,825 1,825
Cable Adcom ("Adcom") 1,481 1,533
Philadelphia Interconnect ("Interconnect") (Note 5) - 3,843
Others 1,182 1,860
-------------- --------------
$ 41,333 $ 46,471
============== ==============
</TABLE>
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.
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)
<S> <C> <C> <C>
December 31, 1996
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 $ 6,366 $ 8,086 $ 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. Due to uncertainty regarding the long-term
financing of Australis, 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.
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.
At December 31, 1997, the Australis securities were no longer listed on the
Australian Stock Exchange and were considered to be worthless. 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.
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)
Year Ending December 31,
<S> <C> <C> <C>
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
============= =============
Property and equipment under capitalized leases at December 31, 1996 and 1997,
are summarized as follows:
1996 1997
--------------- ---------------
(Dollars in thousands)
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 25,699
Decrease in valuation allowance 97 130 166
-------------- -------------- --------------
10,724 15,226 23,992
-------------- -------------- --------------
$ 10,724 $ 14,329 $ 38,740
============== ============== ==============
</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 75,515 105,139 - -
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 80,744 111,274 435 819
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) (2,830) - -
----------- ----------- ------------ -----------
Gross Deferred Tax Liability (28,069) (36,771) (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 $ 37,826
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 $ 38,740
============= ============= =============
</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 2001, 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 general business tax credits expire as follows:
(Dollars in thousands)
Year Ending December 31,
- ------------------------
1998 $ 252
1999 361
2000 485
2001 5
2002 5
2003-2006 15
---------------
$ 1,123
===============
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>
Year Ended December 31,
-----------------------------------------------------
1995 1996 1997
-------------- -------------- --------------
(Dollars in thousands)
<S> <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)
Gain on sales of marketable securities 13,517 342 468
Gain on disposition of partnership interest (See Note 4) - 7,210 -
Interest and dividend income 2,051 4,699 1,242
Minority interest in net loss of South Jersey Cablevision 212 - -
Minority interest in net loss of L-TCI Associates 1,135 2,492 945
Litigation settlements (1,900) - (282)
Miscellaneous income (expense) 79 (314) 157
------------- ------------- -------------
$ 14,927 $ 13,909 $ 1,836
============= ============= =============
</TABLE>
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.
F-31
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (continued)
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 under an
agreement dated June 5, 1997. 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 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)
Year Ended December 31, 1995
<S> <C> <C> <C>
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
============== ============== ==============
Capital expenditures, including
acquisitions $ 47,658 $ 5,324 $ 52,982
============== ============== ==============
Identifiable assets $ 576,855 $ 254,590 $ 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)
Year Ended December 31, 1996
<S> <C> <C> <C>
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
============= ============= =============
Capital expenditures, including
acquisitions $ 655,735 $ 11,294 $ 667,029
============= ============= =============
Identifiable assets $ 1,026,116 $ 174,701 $ 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
============= ============= =============
Capital expenditures, including
acquisitions $ 172,010 $ 7,009 $ 179,019
============= ============= =============
Identifiable assets $ 1,090,563 $ 126,497 $ 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 as of December 31:
1996 1997
--------------- ---------------
(Dollars in thousands)
Accounts payable - unrelated parties $ 8,930 $ 11,619
Accounts payable - affiliate 12,855 26,304
Accrued copyright fees 1,460 1,318
Accrued franchise fees 7,011 7,898
Accrued interest 13,995 14,101
Accrued payroll and fringe benefits 1,680 2,407
Accrued rate refund liability - 1,625
Accrued sales taxes 553 424
Accrued other 5,152 11,475
-------------- --------------
$ 51,636 $ 77,171
============== ==============
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 for a warrant
to purchase 225,115 shares of Class A common stock of Hyperion
Telecommunications, Inc., the other 50% general partner in Hyperion. No exercise
price is payable in connection with the exercise of the warrant.
F-37
<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................................ 3
Forward Looking Statements........................... 3
Prospectus Summary................................... 4
Risk Factors......................................... 11
Use of Proceeds...................................... 16
Capitalization....................................... 17
Pro Forma Financial Information...................... 18
Selected Consolidated Financial and
Operating Data.................................... 22
Management's Discussion and Analysis of
Financial Condition and Results of Operations..... 23
Business............................................. 30
Legislation and Regulation........................... 40
Management........................................... 47
Certain Transactions................................. 50
Principal Stockholders............................... 51
Description of Other Debt Obligations................ 52
Description of Notes................................. 54
The Exchange Offer................................... 72
Certain Federal Income Tax Consequences.............. 80
Plan of Distribution................................. 81
Legal Matters........................................ 81
Experts.............................................. 81
Index to Consolidated Financial Statements........... F-1
Until ___, 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.
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
Prospectus
Dated May , 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:
Exhibit
Number Title or Description
---------- --------------------
####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.
II-1
<PAGE>
Exhibit
Number Title or Description
---------- --------------------
++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 (to be filed by
amendment).
II-2
<PAGE>
Exhibit
Number Title or Description
---------- --------------------
*++++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.
*++++10.15 Agreement, dated September 30, 1986, between Lenfest
Communications, Inc and Tele-Communications, Inc.
II-3
<PAGE>
Exhibit
Number Title or Description
---------- --------------------
*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.)
+++10.28 Letter Agreement, dated June 20, 1996, between the Company and
The Prudential Insurance Company of America.
II-4
<PAGE>
Exhibit
Number Title or Description
---------- --------------------
+++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.
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.
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.
II-5
<PAGE>
- ----------------------------
* 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.
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
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 1st day of May, 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, May 1, 1998
- ----------------------- Director and President
H.F. Lenfest (Principal Executive Director)
/s/ H. Chase Lenfest Director May 1, 1998
- -----------------------
H. Chase Lenfest
/s/ Brook J. Lenfest Director May 1, 1998
- -----------------------
Brook J. Lenfest
Director May , 1998
- -----------------------
John C. Malone
Director May , 1998
- -----------------------
William R. Fitzgerald
/s/ Harry F. Brooks Executive Vice President May 1, 1998
- ----------------------- (Principal Financial Officer)
Harry F. Brooks
/s/ Maryann V. Bryla Assistant Treasurer May 1, 1998
- ----------------------- (Principal Accounting Officer)
Maryann V. Bryla
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 first paragraph of Note 20,
as to which the date is March 26, 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 Balance
Beginning Costs and at End
of Year Expenses Deductions of Year
--------------- --------------- --------------- ---------------
(Dollars in thousands)
RESERVES AND ALLOWANCES
DEDUCTED FROM ASSET
ACCOUNTS:
<S> <C> <C> <C> <C> <C>
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>
EXHIBIT INDEX
Exhibit Number Title or Description
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.
21. Subsidiaries of Registrant
23.2 Consent of Fleishman & Walsh LLP (FCC Counsel)
23.3 Consent of Pressman Ciocca Smith 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
Registrant and the Bank of New York.
<PAGE>
SECOND AMENDMENT TO CREDIT AGREEMENT
THIS SECOND AMENDMENT TO CREDIT AGREEMENT (this "Amendment") dated as
of the 27th day of January, 1998, is made by and among LENFEST COMMUNICATIONS,
INC., a Delaware corporation (the "Borrower"), the FINANCIAL INSTITUTIONS
SIGNATORY HERETO and TORONTO DOMINION (TEXAS), INC., its capacity as
administrative agent (the "Administrative Agent" for the Lenders (as defined in
the Loan Agreement defined below).
WITNESSETH:
WHEREAS, the Borrower, the Administrative Agent, the Arranging Agents
(as defined therein) and the Lenders are parties to that certain Credit
Agreement dated as of June 27, 1996 (as heretofore and as hereafter amended,
modified or supplemented from time to time, the "Credit Agreement"); and
WHEREAS, the Borrower has requested that the Lenders consent to the
incurrence by the Borrower of additional Senior Debt and/or Subordinated Debt in
an aggregate principal amount not to exceed $300,000,000 as more particularly
described herein; and
WHEREAS, the Borrower and the Lenders have agreed to amend certain
provisions of the Credit Agreement on the terms and conditions set forth
herein'.
NOW THEREFORE, in consideration of the premises set forth above, the
covenants and agreements hereinafter set forth, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
par-ties hereto agree that all capitalized terms used and not defined herein
shall have the meanings ascribed thereto in the Credit Agreement, and further
agree as follows:
1. Amendments to Article 1.
(a) Article I of the Credit Agreement, Definitions, is hereby
amended by deleting the existing definitions of "Senior Subordinated Debt" and
"Senior Subordinated Debt Indenture" in their entireties and by substituting the
following definitions in lieu thereof-
"'Senior Subordinated Debt' shall mean, collectively, (a) the
1996 Senior Subordinated Debt and (b) the 1998 Senior Subordinated
Debt."
"'Senior Subordinated Debt Indenture' shall mean,
collectively, (a) the 1996 Senior Subordinated Debt Indenture and (b)
the 1998 Senior Subordinated Debt Indenture."
(b) Article I of the Credit Agreement, Definitions, is hereby
further amended by adding the following definitions of " 1996 Senior
Subordinated Debt," "1996
<PAGE>
Senior Subordinated Debt Indenture," " 1998 Senior Subordinated Debt" and " 1998
Senior Subordinated Debt Indenture" in appropriate alphabetical order:
"'1996 Senior Subordinated Debt' shall mean the unsecured,
10-1/2% Senior Subordinated Notes issued by the Borrower pursuant to
the Senior Subordinated Debt Indenture."
"'1996 Senior Subordinated Debt Indenture' shall mean that
certain Indenture dated as of June 15, 1996 between the Borrower and
The Bank of New York, as trustee, with respect to the Borrower's
10-1/2% Senior Subordinated Notes due 2006."
"'1998 Senior Subordinated Debt' shall mean the unsecured
senior subordinated notes to be issued by the Borrower in early 1998
pursuant to the 1998 Senior Subordinated Debt Indenture."
"'1998 Senior Subordinated Debt Indenture' shall mean that
certain Indenture issued by the Borrower in early 1998 with respect to
the 1998 Senior Subordinated Debt."
2. Amendment to Article 2. Section 2.5(b)(v) of the Credit Agreement,
Payments Upon Issuance of Subordinated Debt, is hereby amended by deleting the
terms "Senior Subordinated Debt" and "Senior Subordinated Debt Indenture"
appearing in the second and third lines thereof and replacing them with the
terms "1996 Senior Subordinated Debt" and "1996 Senior Subordinated Debt
Indenture."
3. Amendments to Article 7.
(a) Section 7.1 of the Credit Agreement, Indebtedness of the
Borrower and the Restricted Subsidiaries, is hereby amended by deleting
subsection 7. 1(d) in its entirety and by substituting the following in lieu
thereof
"(d) 1996 Senior Subordinated Debt;"
(b) Section 7.1 of the Credit Agreement, Indebtedness of the
Borrower and the Restricted Subsidiaries, is hereby further amended (I) by
deleting the word "and" at the end of subsection (h) thereof and (II) by adding
thereto the following new subsections 7.1(j) and (k):
"(j) 1998 Senior Subordinated Debt in an amount not to
exceed, together with the Indebtedness permitted under Section 7.1(k),
$300,000,000 in the aggregate, provided, however, that, (i) such
Indebtedness is subordinated to the Obligations, on terms at least as
favorable to the Lenders as those contained in the 1996 Senior
Subordinated Debt Indenture and (ii) the proceeds of such Indebtedness
are used to permanently repay the Borrower's 11.30% Senior Notes due
2000 and 11.84% Senior
Notes due 1998, related transaction costs and the balance used to
prepay the Loans hereunder; and
(k) Unsecured Indebtedness for Money Borrowed in an amount
not to exceed, together with the Indebtedness permitted under Section
7.1(j), $300,000,000 in the aggregate; provided, however, that (i) the
Indebtedness has a weighted average life to maturity of not less than
one (1) year greater than the maturity of the Loans, (ii) the terms
governing such Indebtedness are no more restrictive than the terms of
the Loan Agreement and the other Loan Documents and (iii) the proceeds
of such Indebtedness are used to permanently repay the Borrower's
11.30% Senior Notes due 2000 and 11.84% Senior Notes due 1998, related
transaction costs and the balance used to prepay the Loans hereunder."
3. No Other Amendment or Waiver. Notwithstanding the agreement of the
Administrative Agent and the Lenders to the terms and provisions of this
Amendment, the Borrower acknowledges and expressly agrees that this Amendment is
limited to the extent expressly set forth herein and shall not constitute a
modification of the Credit Agreement or a course of dealing at variance with the
terms of the Credit Agreement (other than as expressly set forth above) so as to
require further notice by the Administrative Agent or the Lenders, or any of
them, of its or their intent to require strict adherence to the terms of the
Credit Agreement in the future. All of the terms, conditions, provisions and
covenants of the Credit Agreement and the other Loan Documents shall remain
unaltered and in full force and effect except as expressly modified by this
Amendment.
4. Representations and Warranties. The Borrower hereby represents and
warrants in favor of the Administrative Agent and each Lender, as follows:
(i) Each representation and warranty set forth in Article 4 of the
Credit Agreement is hereby restated and affirmed as true and correct in all
material respects as of the date hereof, except to the extent previously
fulfilled in accordance with the terms of the Credit Agreement, as amended
hereby, and to the extent relating specifically to the Agreement Date or
otherwise inapplicable
(ii) The Borrower has the corporate power and authority to enter
into this Amendment and to do all acts and things as are required or
contemplated hereunder to be done, observed and performed by it;
(iii) This Amendment has been duly authorized, validly executed and
delivered by Authorized Signatories, and constitutes the legal, valid and
binding obligation of the Borrower enforceable against it in accordance with its
terms, subject, as to enforcement of remedies, to the following qualifications:
(a) an order of specific performance and an injunction are discretionary
remedies and, in particular, may not be available where damages are considered
an adequate remedy at law, and (b) enforcement may be limited by bankruptcy,
insolvency, liquidation, reorganization, reconstruction and other similar laws
affecting
3
<PAGE>
enforcement of creditors' rights generally (insofar as any such law relates to
the bankruptcy, insolvency or similar event of the Borrower); and
(iv) The execution and delivery of this Amendment and the
Borrower's performance hereunder do not and will not require the consent or
approval of any regulatory authority or governmental authority or agency having
jurisdiction over the Borrower, nor be in contravention of or in conflict with
the certificate of incorporation or the by-laws of the Borrower, or the
provision of any statute, judgment, order, indenture, instrument, agreement, or
undertaking to which the Borrower is party or by which the Borrower's assets or
properties are or may become bound.
5. Conditions Precedent to Effectiveness of Amendment. The
effectiveness of this Amendment is subject to the following:
(i) the truth and accuracy of the representations and
warranties contained in Section 4 hereof, and
(ii) receipt by the Administrative Agent and the Lenders of
the 1998 Senior Subordinated Debt Indenture, the documents evidencing the
Indebtedness permitted by Section 7.1(k) of the Credit Agreement and of all
other documents as the Administrative Agent shall reasonably request.
6. Counterparts. This Amendment may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
separate counter-parts shall together constitute one and the same instrument.
7. Loan Documents. Each reference in the Credit Agreement or any other
Loan Document to the term "Credit Agreement" shall hereafter mean and refer to
the Credit Agreement as amended hereby or as the same may hereafter be amended.
8. Governing, Law. This Amendment shall be construed in accordance with
and governed by the laws of the State of New York, without giving effect to any
conflict of laws principles.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the parties hereto cause their respective duly
authorized officers or representatives to execute and deliver this Amendment as
of the day and year first above written, to be effective as of the day and year
first above written.
BORROWER: LENFEST COMMUNICATIONS, INC., a
Delaware corporation
By: _______________________________
Its: __________________________
ADMINISTRATIVE AGENT
AND LENDERS: TORONTO DOMINION (TEXAS), INC.,
as Administrative Agent and as a Lender
By: _______________________________
Its: __________________________
PNC BANK, NATIONAL
ASSOCIATION, as a Lender
By: _______________________________
Its: __________________________
NATIONSBANK OF TEXAS, N.A., as a
Lender
By: _______________________________
Its: __________________________
<PAGE>
BANK OF MONTREAL, as a Lender
By: _______________________________
Its: __________________________
THE BANK OF NOVA SCOTIA, as a
Lender
By: _______________________________
Its: __________________________
BANQUE NATIONALE DE PARIS, as a
Lender
By: _______________________________
Its: __________________________
CIBC INC., as a Lender
By: _______________________________
Its: __________________________
<PAGE>
CORESTATES BANK, N.A., as a Lender
By: _______________________________
Its: __________________________
CREDIT LYONNAIS NEW YORK
BRANCH, as a Lender
By: _______________________________
Its: __________________________
DRESDNER BANK AG, NEW YORK
AND GRAND CAYMAN
BRANCHES, as a Lender
By: _______________________________
Its: __________________________
THE FIRST NATIONAL BANK OF
MARYLAND, as a Lender
By: _______________________________
Its: __________________________
LTCB TRUST COMPANY, as a Lender
By: _______________________________
Its: __________________________
<PAGE>
MEESPIERSON CAPITAL CORP., as a
Lender
By: _______________________________
Its: __________________________
MERITA BANK LTD., GRAND
CAYMAN BRANCH, as Lender
By: _______________________________
Its: __________________________
By: _______________________________
Its: __________________________
ROYAL BANK OF CANADA, as Lender
By: _______________________________
Its: __________________________
<PAGE>
THE SUMTOMO BANK, LTD., as a
Lender
By: _______________________________
Its: __________________________
THE BANK OF NEW YORK
COMPANY, INC., as a Lender
By: _______________________________
Its: __________________________
VAN KAMPEN AMERICAN CAPITAL
PRIME RATE INCOME TRUST,
as a Lender
By: _______________________________
Its: __________________________
THE DAI-ICHI KANGYO BANK,
LIMITED, as a Lender
By: _______________________________
Its: __________________________
<PAGE>
EXHIBIT 21
LENFEST COMMUNICATIONS, INC. SUBSIDIARIES
1. CAH, INC.
(Formerly Cable AdNet, Inc. as of 11/25/91)
Pennsylvania Corporation
2. CAM Systems, Inc.
Delaware Corporation
3. LenComm, Inc.
California Corporation
Fictitious Names
Bay Cablevision
4. Lenfest Advertising, Inc. (d/b/a "Radius Communications")
Delaware Corporation
Fictitious Names
Radius Communications
5. Lenfest Atlantic, Inc.
New Jersey Corporation
Fictitious Names
Suburban Cable TV Co. Inc.
6. Lenfest Australia, Inc.
Delaware Corporation
7. Lenfest Bay Area, Inc.
Delaware Corporation
8. Lenfest Clearview, Inc.
Delaware Corporation
9. Lenfest International, Inc.
Delaware Corporation
10. Lenfest Jersey, Inc.
Delaware Corporation
11. Lenfest New Castle County, Inc.
Delaware Corporation
12. Lenfest Oaks, Inc.
Pennsylvania Corporation
13. Lenfest Philadelphia Interconnect, Inc.
Delaware Corporation
Fictitious Names
The Philadelphia Interconnect
1
<PAGE>
14. Lenfest Programming Services, Inc.
Pennsylvania Corporation
15. Lenfest Raystay Holdings, Inc.
Delaware Corporation
16. Lenfest - Smart Tone, Inc.
Delaware Corporation
17. Lenfest Telephony, Inc.
Delaware Corporation
Fictitious Names
Suburban Telecommunications
18. Lenfest West, Inc.
California Corporation
Fictitious Names
Cable Oakland
19. Lenfest York, Inc.
Delaware Corporation
20. LenNet, Inc.
Pennsylvania Corporation
Fictitious Names
MetroNet Communications (A joint venture)
GlobeNet is a Partner
21. Lenfest MCN, Inc.
(formerly MicroNet, Inc. and Garden State Micro Relay, Inc.)
Delaware Corporation
Fictitious Names
Garden State Micro Relay (PA and NJ)
22. Lenfest Atlantic Communications, Inc.
(formerly MicroNet Atlantic Communications, Inc. 12/30/97)
Delaware Corporation
23. Lenfest MCN Delmarva, Inc.
(formerly MicroNet Delmarva, Inc., 12/30/97)
Delaware Corporation
24. Lenfest MCN Delmarva Investments, Inc.
MicroNet Diversified Investments, Inc.
Delaware Corporation
25. StarNet, Inc.
Delaware Corporation
26. StarNet Development, Inc.
Utah Corporation
2
<PAGE>
27. StarNet Interactive Entertainment, Inc.
Delaware Corporation
28. Suburban Cable TV Co. Inc.
Pennsylvania Corporation
Fictitious Names
Bridge Cable
Suburban Cable of Lancaster County
Suburban Cable of Chester County
29. Suburban Connect, Inc.
Delaware Corporation
30. TeleStar Marketing, Inc.
Pennsylvania Corporation
31. Tri-State Media, Inc.
Delaware Corporation
32. Cable AdCom
Pennsylvania General Partnership
33. Clearview Partners
Pennsylvania General Partnership
34. Garden State Cablevision, L. P.
New Jersey Limited Partnership
35. GlobeNet
Pennsylvania General Partnership
36. L-TCI
Delaware General Partnership
37. Lenfest New Castle County
Delaware General Partnership
Fictitious Names
Suburban Cable TV
38. MetroNet
Pennsylvania Joint Venture
39. Lenfest MCN Delmarva Associates, L.P. effective December 30, 1997
(formerly MicroNet Delmarva Associates, L.P.)
Delaware Limited Partnership
40. StarNet/CEA II Partners
Delaware General Partnership
3
<PAGE>
To: Lenfest Communications, Inc.
Re: Registration Statement on Form S-4 for Senior Securities
Date: May 1, 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 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
May 1, 1998
<PAGE>
THIS CONFORMING PAPER FORMAT DOCUMENT IS BEING SUBMITTED
PURSUANT TO RULE 901(d) OF REGULATION S-T
===============================================================================
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) [__]
------------------
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
48 Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
------------------
LENFEST COMMUNICATIONS, INC.
(Exact name of obligor as specified in its charter)
Delaware 23-2094942
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
1105 North Market Street
Suite 1300
P.O. Box 8985
Wilmington, DE 19899
(Address of principal executive offices) (Zip code)
------------------
7-5/8% Senior Notes due 2008
8-1/4% Senior Subordinated Notes due 2008
(Title of the indenture securities)
===============================================================================
<PAGE>
1. General information. Furnish the following information as to the Trustee:
(a) Name and address of each examining or supervising authority to
which it is subject.
- --------------------------------------------------------------------------------
Name Address
- --------------------------------------------------------------------------------
Superintendent of Banks of the State of 2 Rector Street, New York,
New York N.Y. 10006, and Albany,
N.Y. 12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York,
N.Y. 10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York 10005
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
2. Affiliations with Obligor.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
16. List of Exhibits.
Exhibits identified in parentheses below, on file with the Commission,
are incorporated herein by reference as an exhibit hereto, pursuant to
Rule 7a-29 under the Trust Indenture Act of 1939 (the "Act") and 17
C.F.R. 229.10(d).
1. A copy of the Organization Certificate of The Bank of New York
(formerly Irving Trust Company) as now in effect, which
contains the authority to commence business and a grant of
powers to exercise corporate trust powers. (Exhibit 1 to
Amendment No. 1 to Form T-1 filed with Registration Statement
No. 33-6215, Exhibits 1a and 1b to Form T-1 filed with
Registration Statement No. 33-21672 and Exhibit 1 to Form T-1
filed with Registration Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to
Form T-1 filed with Registration Statement No. 33-31019.)
-2-
<PAGE>
6. The consent of the Trustee required by Section 321(b) of the
Act. (Exhibit 6 to Form T-1 filed with Registration Statement
No. 33-44051.)
7. A copy of the latest report of condition of the Trustee
published pursuant to law or to the requirements of its
supervising or examining authority.
-3-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New
York, a corporation organized and existing under the laws of the State of New
York, has duly caused this statement of eligibility to be signed on its behalf
by the undersigned, thereunto duly authorized, all in The City of New York, and
State of New York, on the 21st day of April, 1998.
THE BANK OF NEW YORK
By: /s/ WALTER N. GITLIN
----------------------------
Name: WALTER N. GITLIN
Title: VICE PRESIDENT
-4-
<PAGE>
Exhibit 7
Consolidated Report of Condition of
THE BANK OF NEW YORK
of 48 Wall Street, New York, N.Y. 10286 And Foreign and Domestic Subsidiaries, a
member of the Federal Reserve System, at the close of business December 31,
1997, published in accordance with a call made by the Federal Reserve Bank of
this District pursuant to the provisions of the Federal Reserve Act.
<TABLE>
<CAPTION>
Dollar Amounts
ASSETS in Thousands
<S> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin ................................ $ 5,742,986
Interest-bearing balances ......................................................... 1,342,769
Securities:
Held-to-maturity securities ....................................................... 1,099,736
Available-for-sale securities ..................................................... 3,882,686
Federal funds sold and Securities purchased under agreements to resell .............. 2,568,530
Loans and lease financing receivables:
Loans and leases, net of unearned income .......................................... 35,019,608
LESS: Allowance for loan and lease losses ......................................... 627,350
LESS: Allocated transfer risk reserve ............................................. 0
Loans and leases, net of unearned income, allowance, and reserve .................. 34,392,258
Assets held in trading accounts ..................................................... 2,521,451
Premises and fixed assets (including capitalized leases) ............................ 659,209
Other real estate owned ............................................................. 11,992
Investments in unconsolidated subsidiaries and associated companies ................. 226,263
Customers' liability to this bank on acceptances outstanding ........................ 1,187,449
Intangible assets ................................................................... 781,684
Other assets ........................................................................ 1,736,574
------------
Total assets ........................................................................ $ 56,153,587
============
LIABILITIES
Deposits:
In domestic offices ............................................................... $ 27,031,362
Noninterest-bearing ............................................................... 11,899,507
Interest-bearing .................................................................. 15,131,855
In foreign offices, Edge and Agreement subsidiaries, and IBFs ..................... 13,794,449
Noninterest-bearing ............................................................... 590,999
Interest-bearing .................................................................. 13,203,450
Federal funds purchased and Securities sold under agreements to repurchase .......... 2,338,881
Demand notes issued to the U.S. Treasury ............................................ 173,851
Trading liabilities ................................................................. 1,695,216
Other borrowed money:
With remaining maturity of one year or less ....................................... 1,905,330
With remaining maturity of more than one year through three years ................. 0
With remaining maturity of more than three years .................................. 25,664
Bank's liability on acceptances executed and outstanding ............................ 1,195,923
Subordinated notes and debentures ................................................... 1,012,940
Other liabilities ................................................................... 2,018,960
------------
Total liabilities ................................................................... 51,192,576
------------
EQUITY CAPITAL
Common stock ........................................................................ 1,135,284
Surplus ............................................................................. 731,319
Undivided profits and capital reserves .............................................. 3,093,726
Net unrealized holding gains (losses) on available-for-sale securities .............. 36,866
Cumulative foreign currency translation adjustments ................................. (36,184)
------------
Total equity capital ................................................................ 4,961,011
------------
Total liabilities and equity capital ................................................ $ 56,153,587
============
</TABLE>
I, Robert E. Keilman, Senior Vice President and Comptroller of the
above-named bank do hereby declare that this Report of Condition has been
prepared in conformance with the instructions issued by the Board of Governors
of the Federal Reserve System and is true to the best of my knowledge and
belief.
Robert E. Keilman
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
Thomas A. Renyi |
Alan R. Griffith | Directors
J. Carter Bacot |
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1997, AND THE CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997, AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 15,623
<SECURITIES> 14,452
<RECEIVABLES> 26,129
<ALLOWANCES> 2,923
<INVENTORY> 2,153
<CURRENT-ASSETS> 0
<PP&E> 772,912
<DEPRECIATION> 359,125
<TOTAL-ASSETS> 1,219,720
<CURRENT-LIABILITIES> 0
<BONDS> 1,295,306
0
0
<COMMON> 2
<OTHER-SE> (254,266)
<TOTAL-LIABILITY-AND-EQUITY> 1,219,720
<SALES> 447,390
<TOTAL-REVENUES> 447,390
<CGS> 0
<TOTAL-COSTS> 384,606
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 9,715
<INTEREST-EXPENSE> 120,788
<INCOME-PRETAX> (108,074)
<INCOME-TAX> 38,740
<INCOME-CONTINUING> (69,334)
<DISCONTINUED> 33,738
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (35,596)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<PAGE>
LETTER OF TRANSMITTAL
Offer For Any and All Outstanding
8-1/4% Senior Subordinated Notes Due 2008
in Exchange for
8-1/4% Senior Subordinated Notes Due 2008
Which Have Been Registered Under the Securities Act of 1933, as amended
Pursuant to the Prospectus dated May ___, 1998
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON JUNE ____, 1998, UNLESS THE OFFER IS EXTENDED. TENDERS MAY BE WITHDRAWN
PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
The Exchange Agent For The Exchange Offer Is:
The Bank Of New York
<TABLE>
<CAPTION>
<S> <C> <C>
By Hand or Overnight Delivery: Facsimile Transmissions: By Registered or Certified Mail:
(Eligible Institutions Only)
The Bank of New York The Bank of New York
101 Barclay Street 101 Barclay Street, 7E
Corporate Trust Services Window To Confirm by Telephone or New York, New York 10286
Ground Level for Information Call: Attention: Reorganization Section,
Attention: Reorganization Section,
</TABLE>
Delivery of this letter of transmittal to an address other than as set
forth above or transmission of this letter of transmittal via facsimile to a
number other than as set forth above does not constitute a valid delivery.
The undersigned acknowledges that he or she has received the
Prospectus, dated May ___, 1998 (the "Prospectus"), of Lenfest Communications,
Inc., a Delaware corporation ("the Company"), and this Letter of Transmittal,
which together constitute the Company's offer (the "Exchange Offer") to exchange
an aggregate principal amount up to $150,000,000 of the Company's 8-1/4% Senior
Subordinated Notes due February 15, 2008, which have been registered under the
Securities Act of 1933, as amended (the "Securities Act") (the "Senior
Subordinated Exchange Notes") for a like principal amount of the Company's
issued and outstanding 8-1/4% Senior Subordinated Notes due 2008 (the "Old
Senior Subordinated Notes") from the holders thereof.
<PAGE>
THE INSTRUCTIONS CONTAINED HEREIN SHOULD BE READ CAREFULLY BEFORE THIS
LETTER OF TRANSMITTAL IS COMPLETED.
Capitalized terms used but not defined herein shall have the same
meaning given them in the Prospectus (as defined below).
This Letter of Transmittal is to be completed by holders of Old Senior
Subordinated Notes either if Old Senior Subordinated Notes are to be forwarded
herewith or if tenders of Old Senior Subordinated Notes are to be made by
book-entry transfer to an account maintained by The Bank of New York (the
"Exchange Agent") at The Depository Trust Company (the "Book-Entry Transfer
Facility" or "DTC") pursuant to the procedures set forth in "The Exchange
Offer-Procedures for Tendering Old Notes" in the Prospectus.
Holders of Old Senior Subordinated Notes whose certificates (the
"Certificates") for such Old Senior Subordinated Notes are not immediately
available or who cannot deliver their Certificates and all other required
documents to the Exchange Agent on or prior to the Expiration Date (as defined
in the Prospectus) or who cannot complete the procedures for book-entry transfer
on a timely basis, must tender their Old Senior Subordinated Notes according to
the guaranteed delivery procedures set forth in "The Exchange Offer--Procedures
for Tendering Old Senior Subordinated Notes" in the Prospectus.
DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY DOES NOT
CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
The undersigned has completed the appropriate boxes below and signed
this Letter of Transmittal to indicate the action the undersigned desires to
take with respect to the Exchange Offer.
-2-
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF OLD SENIOR SUBORDINATED NOTES 1 2 3
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aggregate Principal
Name(s) and Address(es) of Registered Amount of Old Senior Principal Amount of
Registered Holder(s): Certificate Subordinated Notes Old Senior
(Please fill in, if blank) Number(s)* Subordinated Notes
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Total
- ---------------------------------------------------------------------------------------------------------------------
* Need not be completed if Old Senior Subordinated Notes are being tendered by book-entry holders.
** Unless otherwise indicated in this column, a holder will be deemed to have tendered ALL of the Old Senior
Subordinated Notes represented by the Old Senior Subordinated Notes listed in column 2.
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(BOXES BELOW TO BE CHECKED BY ELIGIBLE INSTITUTIONS ONLY)
[ ] CHECK HERE IF TENDERED OLD SENIOR SUBORDINATED NOTES ARE BEING
DELIVERED BY BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE
EXCHANGE AGENT WITH THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE
FOLLOWING:
Name of Tendering Institution ________________________________________
Account Number _______________________________________________________
Transaction Code Number ______________________________________________
-3-
<PAGE>
[ ] CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED DELIVERY
IF TENDERED OLD SENIOR SUBORDINATED NOTES ARE BEING DELIVERED PURSUANT
TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE
AGENT AND COMPLETE THE FOLLOWING:
Name of Registered Holder(s)__________________________________________
Window Ticket Number (if any)_________________________________________
Date of Execution of Notice of Guaranteed Delivery ___________________
Name of Institution which Guaranteed Delivery ________________________
If Guaranteed Delivery is to be made By Book-Entry Transfer:
Name of Tendering Institution ________________________________________
Account Number _______________________________________________________
Transaction Code Number ______________________________________________
[ ] CHECK HERE IF TENDERED BY BOOK-ENTRY TRANSFER AND NON-EXCHANGED OLD
SENIOR SUBORDINATED NOTES ARE TO BE RETURNED BY CREDITING THE
BOOK-ENTRY TRANSFER FACILITY ACCOUNT NUMBER SET FORTH ABOVE.
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED THE OLD SENIOR
SUBORDINATED NOTES FOR ITS OWN ACCOUNT AS A RESULT OF MARKET MAKING OR
OTHER TRADING ACTIVITIES (A "PARTICIPATING BROKER-DEALER") AND WISH TO
RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY
AMENDMENTS OR SUPPLEMENTS THERETO.
Name: _________________________________________________________________________
Address: ______________________________________________________________________
-4-
<PAGE>
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the above described aggregate
principal amount of the Old Senior Subordinated Notes in exchange for a like
aggregate principal amount of the Senior Subordinated Exchange Notes which have
been registered under the Securities Act upon the terms and subject to the
conditions set forth in the Prospectus dated May ____, 1998 (as the same may be
amended or supplemented from time to time, the "Prospectus"), receipt of which
is acknowledged, and in this Letter of Transmittal (which, together with the
Prospectus, constitute the "Exchange Offer").
Subject to and effective upon the acceptance for exchange of all or any
portion of the Old Senior Subordinated Notes tendered herewith in accordance
with the terms and conditions of the Exchange Offer (including, if the Exchange
Offer is extended or amended, the terms and conditions of any such extension or
amendment), the undersigned hereby sells, assigns and transfers to or upon the
order of the Company all right, title and interest in and to such Old Senior
Subordinated Notes as are being tendered herewith. The undersigned hereby
irrevocably constitutes and appoints the Exchange Agent as its agent and
attorney-in-fact (with full knowledge that the Exchange Agent is also acting as
agent of the Company in connection with the Exchange Offer) with respect to the
tendered Old Senior Subordinated Notes, with full power of substitution (such
power of attorney being deemed to be an irrevocable power coupled with an
interest) subject only to the right of withdrawal described in the Prospectus,
to (i) deliver Certificates for Old Senior Subordinated Notes to the Company
together with all accompanying evidences of transfer and authenticity to, or
upon the order of, the Company, upon receipt by the Exchange Agent, as the
undersigned's agent, of the Senior Subordinated Exchange Notes to be issued in
exchange for such Old Senior Subordinated Notes, (ii) present Certificates for
such Old Senior Subordinated Notes for transfer, and to transfer the Old Senior
Subordinated Notes on the books of the Trust, and (iii) receive for the account
of the Trust all benefits and otherwise exercise all rights of beneficial
ownership of such Old Senior Subordinated Notes, all in accordance with the
terms and conditions of the Exchange Offer.
THE UNDERSIGNED HEREBY REPRESENTS AND WARRANTS THAT THE UNDERSIGNED HAS
FULL POWER AND AUTHORITY TO TENDER, EXCHANGE, SELL, ASSIGN AND TRANSFER THE OLD
SENIOR SUBORDINATED NOTES TENDERED HEREBY AND THAT, WHEN THE SAME ARE ACCEPTED
FOR EXCHANGE, THE TRUST WILL ACQUIRE GOOD, MARKETABLE AND UNENCUMBERED TITLE
THERETO, FREE AND CLEAR OF ALL LIENS, RESTRICTIONS, CHARGES AND ENCUMBRANCES,
AND THAT THE OLD SENIOR SUBORDINATED NOTES TENDERED HEREBY ARE NOT SUBJECT TO
ANY ADVERSE CLAIMS OR PROXIES. THE UNDERSIGNED WILL, UPON REQUEST, EXECUTE AND
DELIVER ANY ADDITIONAL DOCUMENTS DEEMED BY THE COMPANY OR THE EXCHANGE AGENT TO
BE NECESSARY OR DESIRABLE TO COMPLETE THE EXCHANGE, ASSIGNMENT AND TRANSFER OF
THE OLD SENIOR SUBORDINATED NOTES TENDERED HEREBY, AND THE UNDERSIGNED WILL
COMPLY WITH ITS OBLIGATIONS UNDER THE REGISTRATION RIGHTS
-5-
<PAGE>
AGREEMENT. THE UNDERSIGNED HAS READ AND AGREES TO ALL OF THE TERMS OF THE
EXCHANGE OFFER.
The name(s) and address(es) of the registered holder(s) of the Old
Senior Subordinated Notes tendered hereby should be printed above, if they are
not already set forth above, as they appear on the Certificates representing
such Old Senior Subordinated Notes. The Certificate number(s) and the Old Senior
Subordinated Notes that the undersigned wishes to tender should be indicated in
the appropriate boxes above.
If any tendered Old Senior Subordinated Notes are not exchanged
pursuant to the Exchange Offer for any reason, or if Certificates are submitted
for more Old Senior Subordinated Notes than are tendered or accepted for
exchange, Certificates for such non-exchanged or nontendered Old Senior
Subordinated Notes will be returned (or, in the case of Old Senior Subordinated
Notes tendered by book-entry transfer, such Old Senior Subordinated Notes will
be credited to an account maintained at DTC), without expense to the tendering
holder, promptly following the expiration or termination of the Exchange Offer.
The undersigned understands that tenders of Old Senior Subordinated
Notes pursuant to any one of the procedures described in "The Exchange Offer --
Procedures for Tendering Old Notes" in the Prospectus and in the instruction,
attached hereto will, upon the Company's acceptance for exchange of such
tendered Old Senior Subordinated Notes, constitute a binding agreement between
the undersigned, and the Company upon the terms and subject to the conditions of
the Exchange Offer. The undersigned recognizes that, under certain circumstances
set forth in the Prospectus, the Company may not be required to accept for
exchange any of the Old Senior Subordinated Notes tendered hereby.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, the undersigned hereby directs that the Senior Subordinated
Exchange Notes be issued in the name(s) of the undersigned or, in the case of a
book-entry transfer of Old Senior Subordinated Notes, that such Senior
Subordinated Exchange Notes be credited to the account indicated above
maintained at DTC. If applicable, substitute Certificates representing Old
Senior Subordinated Notes not exchanged or not accepted for exchange will be
issued to the undersigned or, in the case of a book-entry transfer of Old Senior
Subordinated Notes, will be credited to the account indicated above maintained
at DTC. Similarly, unless otherwise indicated under "Special Delivery
Instructions," please deliver Senior Subordinated Exchange Notes to the
undersigned at the address shown below the undersigned's signature.
BY TENDERING OLD SENIOR SUBORDINATED NOTES AND EXECUTING THIS LETTER OF
TRANSMITTAL, THE UNDERSIGNED HEREBY REPRESENTS AND AGREES THAT (I) THE
UNDERSIGNED IS NOT AN "AFFILIATE" OF THE COMPANY, (II) ANY SENIOR SUBORDINATED
EXCHANGE NOTES TO BE RECEIVED BY THE UNDERSIGNED ARE BEING ACQUIRED IN THE
ORDINARY COURSE OF ITS BUSINESS, (III) THE UNDERSIGNED HAS NO ARRANGEMENT OR
UNDERSTANDING WITH ANY PERSON TO PARTICIPATE IN A DISTRIBUTION (WITHIN THE
MEANING OF THE SECURITIES ACT) OF SENIOR SUBORDINATED EXCHANGE
-6-
<PAGE>
NOTES TO BE RECEIVED IN THE EXCHANGE OFFER, AND (IV) IF THE UNDERSIGNED IS NOT A
BROKER-DEALER, THE UNDERSIGNED IS NOT ENGAGED IN, AND DOES NOT INTEND TO ENGAGE
IN, A DISTRIBUTION (WITHIN THE MEANING OF THE SECURITIES ACT) OF SUCH SENIOR
SUBORDINATED EXCHANGE NOTES. BY TENDERING OLD SENIOR SUBORDINATED NOTES PURSUANT
TO THE EXCHANGE OFFER AND EXECUTING THIS LETTER OF TRANSMITTAL, A HOLDER OF OLD
SENIOR SUBORDINATED NOTES WHICH IS A BROKER-DEALER REPRESENTS AND AGREES,
CONSISTENT WITH CERTAIN INTERPRETIVE LETTERS ISSUED BY THE STAFF OF THE DIVISION
OF CORPORATION FINANCE OF THE SECURITIES AND EXCHANGE COMMISSION TO THIRD
PARTIES, THAT (A) SUCH OLD SENIOR SUBORDINATED NOTES HELD BY THE BROKER-DEALER
ARE HELD ONLY AS A NOMINEE, OR (B) SUCH OLD SENIOR SUBORDINATED NOTES WERE
ACQUIRED BY SUCH BROKER-DEALER FOR ITS OWN ACCOUNT AS A RESULT OF MARKET-MAKING
ACTIVITIES OR OTHER TRADING ACTIVITIES AND IT WILL DELIVER THE PROSPECTUS (AS
AMENDED OR SUPPLEMENTED FROM TIME TO TIME) MEETING THE REQUIREMENTS OF THE
SECURITIES ACT IN CONNECTION WITH ANY RESALE OF SUCH SENIOR SUBORDINATED
EXCHANGE NOTES (PROVIDED THAT, BY SO ACKNOWLEDGING AND BY DELIVERING A
PROSPECTUS, SUCH BROKER-DEALER WILL NOT BE DEEMED TO ADMIT THAT IT IS AN
"UNDERWRITER" WITHIN THE MEANING OF THE SECURITIES ACT).
AND THE COMPANY HAS AGREED THAT, SUBJECT TO THE PROVISIONS OF THE
REGISTRATION RIGHTS AGREEMENT, THE PROSPECTUS, AS IT MAY BE AMENDED OR
SUPPLEMENTED FROM TIME TO TIME, MAY BE USED BY A PARTICIPATING BROKER-DEALER (AS
DEFINED BELOW) IN CONNECTION WITH RESALES OF SENIOR SUBORDINATED EXCHANGE NOTES
RECEIVED IN EXCHANGE FOR OLD SENIOR SUBORDINATED NOTES, WHERE SUCH OLD SENIOR
SUBORDINATED NOTES WERE ACQUIRED BY SUCH PARTICIPATING BROKER-DEALER FOR ITS OWN
ACCOUNT AS A RESULT OF MARKET-MAKING ACTIVITIES OR OTHER TRADING ACTIVITIES, FOR
A PERIOD ENDING 90 DAYS AFTER THE EXPIRATION DATE (SUBJECT TO EXTENSION UNDER
CERTAIN LIMITED CIRCUMSTANCES DESCRIBED IN THE PROSPECTUS) OR, IF EARLIER, WHEN
ALL SUCH SENIOR SUBORDINATED EXCHANGE NOTES HAVE BEEN DISPOSED OF BY SUCH
PARTICIPATING BROKER-DEALER. IN THAT REGARD, EACH BROKER-DEALER WHO ACQUIRED OLD
SENIOR SUBORDINATED NOTES FOR ITS OWN ACCOUNT AS A RESULT OF MARKET-MAKING OR
OTHER TRADING ACTIVITIES (A "PARTICIPATING BROKER-DEALER"), BY TENDERING SUCH
OLD SENIOR SUBORDINATED NOTES AND EXECUTING THIS LETTER OF TRANSMITTAL, AGREES
THAT, UPON RECEIPT OF NOTICE FROM THE COMPANY OF THE OCCURRENCE OF ANY EVENT OR
THE DISCOVERY OF ANY FACT WHICH MAKES ANY STATEMENT CONTAINED OR INCORPORATED BY
REFERENCE IN THE PROSPECTUS UNTRUE IN ANY MATERIAL RESPECT OR WHICH CAUSES THE
PROSPECTUS TO OMIT TO STATE A MATERIAL FACT NECESSARY IN ORDER TO MAKE THE
STATEMENTS CONTAINED OR
-7-
<PAGE>
INCORPORATED BY REFERENCE THEREIN, IN LIGHT OF THE CIRCUMSTANCES UNDER WHICH
THEY WERE MADE, NOT MISLEADING OR OF THE OCCURRENCE OF CERTAIN OTHER EVENTS
SPECIFIED IN THE REGISTRATION RIGHTS AGREEMENT, SUCH PARTICIPATING BROKER-DEALER
WILL SUSPEND THE SALE OF SENIOR SUBORDINATED EXCHANGE NOTES PURSUANT TO THE
PROSPECTUS UNTIL THE COMPANY HAS AMENDED OR SUPPLEMENTED THE PROSPECTUS TO
CORRECT SUCH MISSTATEMENT OR OMISSION AND HAS FURNISHED COPIES OF THE AMENDED OR
SUPPLEMENTED PROSPECTUS TO THE PARTICIPATING BROKER-DEALER, OR THE COMPANY HAS
GIVEN NOTICE THAT THE SALE OF THE SENIOR SUBORDINATED EXCHANGE NOTES MAY BE
RESUMED, AS THE CASE MAY BE IF THE COMPANY GIVES SUCH NOTICE TO SUSPEND THE SALE
OF THE SENIOR SUBORDINATED EXCHANGE NOTES. THEY SHALL EXTEND THE 90-DAY PERIOD
REFERRED TO ABOVE DURING WHICH PARTICIPATING BROKER-DEALERS ARE ENTITLED TO USE
THE PROSPECTUS IN CONNECTION WITH THE RESALE OF SENIOR SUBORDINATED EXCHANGE
NOTES BY THE NUMBER OF DAYS DURING THE PERIOD FROM AND INCLUDING THE DATE OF THE
GIVING OF SUCH NOTICE TO AND INCLUDING THE DATE WHEN PARTICIPATING
BROKER-DEALERS SHALL HAVE RECEIVED COPIES OF THE SUPPLEMENTED OR AMENDED
PROSPECTUS NECESSARY TO PERMIT RESALES OF THE SENIOR SUBORDINATED EXCHANGE NOTES
OR TO AND INCLUDING THE DATE ON WHICH THE COMPANY HAS GIVEN NOTICE THAT THE SALE
OF SENIOR SUBORDINATED EXCHANGE NOTES MAY BE RESUMED, AS THE CASE MAY BE.
Holders of Old Senior Subordinated Notes whose Old Senior Subordinated
Notes are accepted for exchange will not receive accrued interest on such Old
Senior Subordinated Notes for any period from and after the last Interest
Payment Date to which interest has been paid or duty provided for on such Old
Senior Subordinated Notes prior to the original issue date of the Senior
Subordinated Exchange Notes or, if no such interest has been paid or duly
provided for, will not receive any accrued interest on such Old Senior
Subordinated Notes, and the undersigned waives the right to receive any interest
on such Old Senior Subordinated Notes accrued from and after such Interest
Payment Date or, if no such interest has been paid or duly provided for, from
and after ____________________, 1998.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Company to be necessary or desirable to complete the
sale, assignment and transfer of the Old Senior Subordinated Notes tendered
hereby. All authority herein conferred or agreed to be conferred in this Letter
of Transmittal shall survive the death or incapacity of the undersigned and any
obligation of the undersigned hereunder shall be binding upon the heirs,
executors, administrators, personal representatives, trustees in bankruptcy,
legal representatives, successors and assigns of the undersigned. Except as
stated in the Prospectus, this tender is irrevocable.
-8-
<PAGE>
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OLD
SENIOR SUBORDINATED NOTES" ABOVE AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE
TENDERED THE OLD SENIOR SUBORDINATED NOTES AS SET FORTH IN SUCH BOX.
HOLDER(S) SIGN HERE
(SEE INSTRUCTIONS 2, 5 AND 6)
(PLEASE COMPLETE SUBSTITUTE FORM W-9 ATTACHED HERETO)
(NOTE: SIGNATURE(S) MUST BE GUARANTEED IF REQUIRED BY INSTRUCTION 2)
Must be signed by registered holder(s) exactly as name(s) appear(s) on
Certificate(s) for the Old Senior Subordinated Notes hereby tendered or on the
register of holders maintained by the Company, or by any person(s) authorized to
become the registered holder(s) by endorsements and documents transmitted
herewith (including such opinions of counsel, certifications and other
information as may be required by the Company for the Old Senior Subordinated
Notes to comply with the restrictions on transfer applicable to the Old Senior
Subordinated Notes). If signature is by an attorney-in-fact, executor,
administrator, trustee, guardian, officer of a corporation or another acting in
a fiduciary capacity or representative capacity, please set forth the signer's
full title. See Instruction 5.
________________________________________________________________________________
________________________________________________________________________________
(SIGNATURE(S) OF HOLDER(S))
Date: ______________________________, 199__
Name(s) ________________________________________________________________________
________________________________________________________________________
(PLEASE PRINT)
Capacity (full title) __________________________________________________________
Address ________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
(INCLUDE ZIP CODE)
Area Code and Telephone Number _________________________________________________
________________________________________________________________________________
(TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER(S))
-9-
<PAGE>
GUARANTEE OF SIGNATURE(S)
(SEE INSTRUCTIONS 2 AND 5)
________________________________________________________________________________
(AUTHORIZED SIGNATURE)
Date: _____________________, 199__
Name of Firm ___________________________________________________________________
Capacity (full title) _________________________________________________
(PLEASE PRINT)
Address ________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
(INCLUDE ZIP CODE)
Area Code and Telephone Number _________________________________________________
-10-
<PAGE>
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5 AND 6)
To be completed ONLY if the Senior Subordinated Exchange Notes or Old Senior
Subordinated Notes not tendered are to be issued in the name of someone other
than the registered holder of the Old Senior Subordinated Notes whose name(s)
appear(s) above.
Issue
[ ] Old Senior Subordinated Notes not tendered to:
[ ] Senior Subordinated Exchange Notes, to:
Name(s) ________________________________________________________________________
Address ________________________________________________________________________
________________________________________________________________________________
(INCLUDE ZIP CODE)
Area Code and
Telephone Number _______________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER(S))
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5 AND 6)
To be completed ONLY if Senior Subordinated Exchange Notes or Old Senior
Subordinated Notes not tendered are to be sent to someone other than the
registered holder of the Old Senior Subordinated Notes whose name(s) appear(s)
above, or such registered holder(s) at an address other than that shown above.
Mail
[ ] Old Senior Subordinated Notes not tendered to:
[ ] Senior Subordinated Exchange Notes, to:
Name(s) ________________________________________________________________________
-11-
<PAGE>
Address ________________________________________________________________________
________________________________________________________________________________
(INCLUDE CODE)
Area Code and
Telephone Number _______________________________________________________________
(TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER(S))
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES; GUARANTEED
DELIVERY PROCEDURES. This Letter of Transmittal is to be completed either if (a)
Certificates are to be forwarded herewith or (b) tenders are to be made pursuant
to the procedures for tender by book-entry transfer set forth in "The Exchange
Offer--Procedures for Tendering Old Notes" in the Prospectus. Certificates, or
timely confirmation of a book-entry transfer of such Old Senior Subordinated
Notes into the Exchange Agent's account at DTC, as well as this Letter of
Transmittal (or facsimile thereof), properly completed and duly executed, with
any required signature guarantees, and any other documents required by this
Letter of Transmittal, must be received by the Exchange Agent at its address set
forth herein on or prior to the Expiration Date.
Holders who wish to tender their Old Senior Subordinated Notes and (i)
whose Old Senior Subordinated Notes are not immediately available or (ii) who
cannot deliver their Old Senior Subordinated Notes, this Letter of Transmittal
and all other required documents to the Exchange Agent on or prior to the
Expiration Date or (iii) who cannot complete the procedures for delivery by
book-entry transfer on a timely basis, may tender their Old Senior Subordinated
Notes by properly completing and duly executing a Notice of Guaranteed Delivery
pursuant to the guaranteed delivery procedures set forth in "The Exchange
Offer--Procedures for Tendering Old Notes" in the Prospectus. Pursuant to such
procedures: (i) such tender must be made by or through an Eligible Institution
(as defined below); (ii) a properly completed and duly executed Notice of
Guaranteed Delivery, substantially in the form made available by the Company,
must be received by the Exchange Agent on or prior to the Expiration Date; and
(iii) the Certificates (or a book-entry confirmation (as described in the
Prospectus)) representing all tendered Old Senior Subordinated Notes, in proper
form for transfer, together with a Letter of Transmittal (or facsimile thereof),
properly completed and duly executed, with any required signature guarantees and
any other documents required by this Letter of Transmittal, must be received by
the Exchange Agent within five New York Stock Exchange, Inc. trading days after
the date of execution of such Notice of Guaranteed Delivery, all as provided in
"The Exchange Offer--Procedures for Tendering Old Notes" in the Prospectus.
-12-
<PAGE>
The Notice of Guaranteed Delivery may be delivered by hand or
transmitted by facsimile or mail to the Exchange Agent, and must include a
guarantee by an Eligible Institution in the form set forth in such Notice. For
Old Senior Subordinated Notes to be properly tendered pursuant to the guaranteed
delivery procedure, the Exchange Agent must receive a Notice of Guaranteed
Delivery on or prior to the Expiration Date. As used herein and in the
Prospectus, "Eligible Institution" means a firm or other entity identified in
Rule 17Ad-15 under the Exchange Act as "an eligible guarantor institution,"
including (as such terms are defined therein) (i) a bank; (ii) a broker, dealer,
municipal securities broker or dealer or government securities broker or dealer;
(iii) a credit union; (iv) a national securities exchange, registered securities
association or clearing agency; or (v) a savings association that is a
participant in a Securities Transfer Association.
THE METHOD OF DELIVERY OF CERTIFICATES, THIS LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERING
HOLDER AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE
EXCHANGE AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT
REQUESTED PROPERLY INSURED, OR OVERNIGHT DELIVERY SERVICE IS RECOMMENDED. IN ALL
CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
The Company will not accept any alternative, conditional or contingent
tenders. Each tendering holder, by execution of a Letter of Transmittal (or
facsimile thereof), waives any right to receive any notice of the acceptance of
such tender.
2. GUARANTEE OF SIGNATURES. No signature guarantee on this Letter of
Transmittal is required if:
(i) this Letter of Transmittal is signed by the registered holder (which
term, for purposes of this document, shall include any participant in
DTC whose name appears on the register of holders maintained by the
Trust as the owner of the Old Senior Subordinated Notes) of Old Senior
Subordinated Notes tendered herewith, unless such holder(s) has
completed either the box entitled "Special Issuance Instructions" or
the box entitled "Special Delivery Instructions" above, or
(ii) such Old Senior Subordinated Notes are tendered for the account of a
firm that is an Eligible Institution.
In all other cases, an Eligible Institution must guarantee the
signatures on this Letter of Transmittal. See Instruction 5.
3. INADEQUATE SPACE. If the space provided in the box captioned
"Description of Old Senior Subordinated Notes" is inadequate, the Certificate
number(s)
-13-
<PAGE>
and/or the principal amount of Old Senior Subordinated Notes and any other
required information should be listed on a separate signed schedule which is
attached to this Letter of Transmittal.
4. WITHDRAWAL RIGHTS. Except as otherwise provided herein, tenders of
Old Senior Subordinated Notes may be withdrawn at any time on or prior to the
Expiration Date. In order for a withdrawal to be effective on or prior to that
time, a written, telegraphic, telex or facsimile transmission of such notice of
withdrawal must be timely received by the Exchange Agent at one of its addresses
set forth above or in the Prospectus on or prior to the Expiration Date. Any
such notice of withdrawal must specify the name of the person who tendered the
Old Senior Subordinated Notes to be withdrawn, the aggregate principal amount of
Old Senior Subordinated Notes to be withdrawn, and (if Certificates for Old
Senior Subordinated Notes have been tendered) the name of the registered holder
of the Old Senior Subordinated Notes as set forth on the Certificate for the Old
Senior Subordinated Notes, if different from that of the person who tendered
such Old Senior Subordinated Notes. If Certificates for the Old Senior
Subordinated Notes have been delivered or otherwise identified to the Exchange
Agent, then prior to the physical release of such Certificates for the Old
Senior Subordinated Notes, the tendering holder must submit the serial numbers
shown on the particular Certificates for the Old Senior Subordinated Notes to be
withdrawn and the signature on the notice of withdrawal must be guaranteed by an
Eligible Institution, except in the case of Old Senior Subordinated Notes
tendered for the account of an Eligible Institution. If Old Senior Subordinated
Notes have been tendered pursuant to the procedures for book entry transfer set
forth in the Prospectus under "The Exchange Offer--Procedures for Tendering Old
Notes," the notice of withdrawal must specify the name and number of the account
at DTC to be credited with the withdrawal of Old Senior Subordinated Notes, in
which case a notice of withdrawal will be effective if delivered to the Exchange
Agent by written, telegraphic, telex or facsimile transmission. Withdrawals of
tenders of Old Senior Subordinated Notes may not be rescinded. Old Senior
Subordinated Notes properly withdrawn will not be deemed validly tendered for
purposes of the Exchange Offer, but may be retendered at any subsequent time on
or prior to the Expiration Date by following any of the procedures described in
the Prospectus under "The Exchange Offer--Procedures for Tendering Old Notes."
All questions as to the validity, form and eligibility (including time
of receipt) of such withdrawal notices will be determined by Orion and the
Trust, in their sole discretion, whose determination shall be final and binding
on all parties. None of the Company, the Trust, any affiliates or assigns of the
Company, the Exchange Agent or any other person shall be under any duty to give
any notification of any irregularities in any notice of withdrawal or incur any
liability for failure to give any such notification. Any Old Senior Subordinated
Notes which have been tendered but which are withdrawn will be returned to the
holder thereof without cost to such holder promptly after withdrawal.
5. SIGNATURES ON LETTER OF TRANSMITTAL, ASSIGNMENTS AND ENDORSEMENTS.
If this Letter of Transmittal is signed by the registered holder(s) of the Old
Senior Subordinated Notes tendered hereby, the signature(s) must correspond
exactly with
-14-
<PAGE>
the name(s) as written on the face of the Certificate(s) without alteration,
enlargement or any change whatsoever.
If any of the Old Senior Subordinated Notes tendered hereby are owned
of record by two or more joint owners, all such owners must sign this Letter of
Transmittal.
If any tendered Old Senior Subordinated Notes are registered in
different name(s) on several Certificates, it will be necessary to complete,
sign and submit as many separate Letters of Transmittal (or facsimiles thereof)
as there are different registrations of Certificates.
If this Letter of Transmittal or any Certificates or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing and must submit proper
evidence satisfactory to the Company, in its sole discretion, of each such
person's authority so to act.
When this Letter of Transmittal is signed by the registered owner(s) of
the Old Senior Subordinated Notes listed and transmitted hereby, no
endorsement(s) of Certificate(s) or separate bond power(s) are required unless
Senior Subordinated Exchange Notes are to be issued in the name of a person
other than the registered holder(s). Signature(s) on such Certificate(s) or bond
power(s) must be guaranteed by an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered owner(s) of the Old Senior Subordinated Notes listed, the
Certificates must be endorsed or accompanied by appropriate bond powers, signed
exactly as the name or names of the registered owner(s) appear(s) on the
Certificates, and also must be accompanied by such opinions of counsel,
certifications and other information as Orion, the Trust or the Trustee for the
Old Senior Subordinated Notes may require in accordance with the restrictions on
transfer applicable to the Old Senior Subordinated Notes. Signatures on such
Certificates or bond powers must be guaranteed by an Eligible Institution.
6. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. If Senior Subordinated
Exchange Notes are to be issued in the name of a person other than the signer of
this Letter of Transmittal, or if Senior Subordinated Exchange Notes are to be
sent to someone other than the signer of this Letter of Transmittal or to an
address other than that shown above, the appropriate boxes on this Letter of
Transmittal should be completed. Certificates for Old Senior Subordinated Notes
not exchanged will be returned by mail or, if tendered by book-entry transfer,
by crediting the account indicated above maintained at DTC. See Instruction 4.
7. IRREGULARITIES. The Company will determine, in its sole discretion,
all questions as to the form of documents, validity, eligibility (including time
of receipt) and acceptance for exchange of any tender of Old Senior Subordinated
Notes, which determination shall be final and binding on all parties. The
Company reserves the absolute right to reject any and all tenders it determines
not to be in proper form or the acceptance of which, or
-15-
<PAGE>
exchange for which, may, in the view of counsel to the Company, be unlawful. The
Company also reserves the absolute right, subject to applicable law, to waive
any of the conditions of the Exchange Offer set forth in the Prospectus under
"The Exchange Offer--Certain Conditions to the Exchange Offer" or any conditions
or irregularity in any tender of Old Senior Subordinated Notes of any particular
holder, whether or not similar conditions or irregularities are waived in the
case of other holders. The Company's interpretation of the terms and conditions
of the Exchange Offer (including this Letter of Transmittal and the instructions
hereto) will be final and binding. No tender of Old Senior Subordinated Notes
will be deemed to have been validly made until all irregularities with respect
to such tender have been cured or waived. The Company, any affiliates or assigns
of the Company, the Exchange Agent, or any other person shall not be under any
duty to give notification of any irregularities in tenders or incur any
liability for failure to give such notification.
8. QUESTIONS, REQUESTS FOR ASSISTANCE AND ADDITIONAL COPIES. Questions
and requests for assistance may be directed to the Exchange Agent at its address
and telephone number set forth on the front of this Letter of Transmittal.
Additional copies of the Prospectus, the Notice of Guaranteed Delivery and the
Letter of Transmittal may be obtained from the Exchange Agent or from your
broker, dealer, commercial bank, trust company or other nominee.
9. 31% BACKUP WITHHOLDING; SUBSTITUTE FORM W-9. Under U.S. Federal
income tax law, a holder whose tendered Old Senior Subordinated Notes are
accepted for exchange is required to provide the Exchange Agent with such
holder's correct taxpayer identification number ("TIN") on Substitute Form W-9
below. If the Exchange Agent is not provided with the correct TIN, the Internal
Revenue Service (the "IRS") may subject the holder or other payee to a $50
penalty. In addition, payments to such holders or other payees with respect to
Old Senior Subordinated Notes exchanged pursuant to the Exchange Offer may be
subject to 31% backup withholding.
The box in Part 2 of the Substitute Form W-9 may be checked if the
tendering holder has not been issued a TIN and has applied for a TIN or intends
to apply for a TIN in the near future. If the box in Part 2 is checked, the
holder or other payee must also complete the Certificate of Awaiting Taxpayer
Identification Number below in order to avoid backup withholding.
Notwithstanding that the box in Part 2 is checked and the Certificate of
Awaiting Taxpayer Identification Number is completed, the Exchange Agent will
withhold 31% of all payments made prior to the time a properly certified TIN is
provided to the Exchange Agent. The Exchange Agent will retain such amounts
withheld during the 60 day period following the date of the Substitute Form W-9.
If the holder furnishes the Exchange Agent with its TIN within 60 days after the
date of the Substitute Form W-9, the amounts retained during the 60 day period
will be remitted to the holder and no further amounts shall be retained or
withheld from payments made to the holder thereafter. If, however, the holder
has not provided the Exchange Agent with its TIN within such 60 day period,
amounts withheld will be remitted to the IRS as backup withholding. In addition,
31% of all payments made thereafter will be withheld and remitted to the IRS
until a correct TIN is provided.
-16-
<PAGE>
The holder is required to give the Exchange Agent the TIN (e.g., social
security number or employer identification number) of the registered owner of
the Old Senior Subordinated Notes or of the last transferee appearing on the
transfers attached to, or endorsed on, the Old Senior Subordinated Notes. If the
Old Senior Subordinated Notes are registered in more than one name or are not in
the name of the actual owner, consult the enclosed "Guidelines for Certification
of Taxpayer Identification Number on Substitute Form W-9" for additional
guidance on which number to report.
Certain holders (including, among others, corporations, financial
institutions and certain foreign persons) may not be subject to these backup
withholding and reporting requirements. Such holders should nevertheless
complete the attached Substitute Form W-9 below, and write "exempt" on the face
thereof, to avoid possible erroneous backup withholding. A foreign person may
qualify as an exempt recipient by submitting a properly completed IRS Form W-8,
signed under penalties of perjury, attesting to that holder's exempt status.
Please consult the enclosed "Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9" for additional guidance on which
holders are exempt from backup withholding.
Backup withholding is not an additional U.S. Federal income tax.
Rather, the U.S. Federal income tax liability of a person subject to backup
withholding will be reduced by the amount of tax withheld. If withholding
results in an overpayment of taxes, a refund may be obtained.
10. WAIVER OF CONDITIONS. The Company reserves the absolute right to
waive satisfaction of any or all conditions enumerated in the Prospectus.
11. NO CONDITIONAL TENDERS. No alternative, conditional, irregular or
contingent tenders will be accepted. All tendering holders of Old Senior
Subordinated Notes, by execution of this Letter of Transmittal, shall waive any
right to receive notice of the acceptance of their Old Senior Subordinated Notes
for exchanges.
Neither the Company, the Exchange Agent nor any other person is
obligated to give notice of any defect or irregularity with respect to any
tender of Old Senior Subordinated Notes nor shall any of them incur any
liability for failure to give any such notice.
12. LOST, DESTROYED OR STOLEN CERTIFICATES. If any Certificate(s)
representing Old Senior Subordinated Notes have been lost, destroyed or stolen,
the holder should promptly notify the Exchange Agent. The holder will then be
instructed as to the steps that must be taken in order to replace the
Certificate(s). This Letter of Transmittal and related documents cannot be
processed until the procedures for replacing lost, destroyed or stolen
Certificate(s) have been followed.
13. SECURITY TRANSFER TAXES. Holders who tender their Old Senior
Subordinated Notes for exchange will not be obligated to pay any transfer taxes
in connection therewith. If, however, Senior Subordinated Exchange Notes are to
be delivered to, or are to
-17-
<PAGE>
be issued in the name of, any person other than the registered holder of the Old
Senior Subordinated Notes tendered, or if a transfer tax is imposed for any
reason other than the exchange of Old Senior Subordinated Notes in connection
with the Exchange Offer, then the amount of any such transfer tax (whether
imposed on the registered 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.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR FACSIMILE THEREOF) AND
ALL OTHER REQUIRED DOCUMENTS MUST BE RECEIVED BY THE EXCHANGE
AGENT ON OR PRIOR TO THE EXPIRATION DATE.
TO BE COMPLETED BY ALL TENDERING SECURITYHOLDERS
(See Instruction 9)
-18-
<PAGE>
<TABLE>
<CAPTION>
PAYER'S NAME: THE BANK OF NEW YORK
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
Part 1 - PLEASE PROVIDE YOUR TIN ON TIN:____________________
THE LINE AT THE RIGHT AND CERTIFY BY Social Security Number or
SIGNING AND DATING BELOW Employer Identification
Number
-----------------------------------------------------------------------------
Part 2 - TIN Applied for [ ]
-----------------------------------------------------------------------------
SUBSTITUTE CERTIFICATION - UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT:
Form W-9 (1) the number shown on this form is my correct taxpayer identification
Department of the Treasury number (or I am waiting for a number to be issued to me).
Internal Revenue Service
Payor's Request for Taxpayer (2) I am not subject to backup withholding either because (i) I am exempt
Identification Number ("TIN") Payor's Request for Taxpayer from backup withholding, (ii) I have not been
and Certification notified by the Internal Identification Number ("TIN") and Revenue Service
("IRS") that I am subject to backup withholding as a result Certification
of a failure to report all interest or dividends, or (iii) the IRS has
notified me that I am no longer subject to backup withholding, and
(3) any other information provided on
this form is true and correct.
Signature ________________________________ Date _____________, 1998
- ---------------------------------------------------------------------------------------------------------------------
You must cross out item (iii) in Part (2) above if you have been notified by the IRS that you are subject to backup
withholding because of underreporting interest or dividends on your tax return and you have not been notified by the
IRS that you are no longer subject to backup withholding.
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY IN CERTAIN CIRCUMSTANCES
RESULT IN BACKUP WITHHOLDING OF 31% OF ANY AMOUNTS PAID TO YOU PURSUANT TO THE
EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF
TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
-19-
<PAGE>
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX
IN PART 2 OF SUBSTITUTE FORM W-9
- --------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me, and either (1) I have mailed or delivered an application
to receive a taxpayer identification number to the appropriate Internal Revenue
Service Center or Social Security Administration Office or (2) I intend to mail
or deliver an application in the near future. I understand that if I do not
provide a taxpayer identification number by the time of payment, 31% of all
payments made to me on account of the Senior Subordinated Exchange Notes shall
be retained until I provide a taxpayer identification number to the Exchange
Agent and that, if I do not provide my taxpayer identification number within 60
days, such retained amounts shall be remitted to the Internal Revenue Service as
backup withholding and 31% of all reportable payments made to me thereafter will
be withheld and remitted to the Internal Revenue Service until I provide a
taxpayer identification number.
Signature _________________________________ Date ______________________, 1998
- --------------------------------------------------------------------------------
-20-
<PAGE>
NOTICE OF GUARANTEED DELIVERY
FOR TENDER OF
7-5/8% SENIOR NOTES DUE 2008
(INCLUDING THOSE IN BOOK ENTRY FORM)
OF
LENFEST COMMUNICATIONS, INC.
This Notice of Guaranteed Delivery, or one substantially equivalent to
this form, must be used to accept the Exchange Offer of Lenfest Communications,
Inc. (the "Company") made pursuant to the Prospectus, dated May __, 1998 (as the
same may be amended or supplemented from time to time, the "Prospectus"), if (i)
certificates for the 7-5/8% Senior Notes due 2008 (the "Old Senior Notes") are
not available, (ii) the Old Senior Notes, the Letter of Transmittal and all
other required documents cannot be delivered to The Bank of New York (the
"Exchange Agent") on or prior to 5:00 P.M. New York City time, on the Expiration
Date (as defined in the Prospectus) or (iii) the procedures for delivery by
book-entry transfer cannot be completed on a timely basis. This Notice of
Guaranteed Delivery may be delivered by hand, overnight courier or mail, or
transmitted by facsimile transmission, to the Exchange Agent. See "The Exchange
Offer--Procedures for Tendering Old Notes" in the Prospectus. In addition, in
order to utilize the guaranteed delivery procedure to tender Old Senior Notes
pursuant to the Exchange Offer, a completed, signed and dated Letter of
Transmittal relating to the Old Senior Notes (or facsimile thereof) must also be
received by the Exchange Agent prior to 5:00 P.M. New York City time, on the
Expiration Date. Capitalized terms not defined herein have the meanings assigned
to them in the Prospectus.
The Exchange Agent For The Exchange Offer Is:
The Bank Of New York
<TABLE>
<CAPTION>
<S> <C> <C>
By Registered or Certified Mail Facsimile Transmissions: By Hand Or Overnight
(Eligible Institutions Only) Delivery
The Bank of New York The Bank of New York
101 Barclay Street, 7E 101 Barclay Street
New York, New York 10286 Confirm By Telephone: Corporate Trust Services
Attn: Reorganization Section Window, Ground Level
New York, NY 10286
For Information Call: Attn: Reorganization Section
</TABLE>
<PAGE>
Delivery of this Notice Of Guaranteed Delivery to an address other than
as set forth above or transmission of this Notice of Guaranteed Delivery via
facsimile to a number other than as set forth above will not constitute a valid
delivery.
THIS NOTICE OF GUARANTEED DELIVERY IS NOT TO BE USED TO GUARANTEE
SIGNATURES. IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE
GUARANTEED BY AN "ELIGIBLE INSTITUTION" UNDER THE INSTRUCTIONS THERETO, SUCH
SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE PROVIDED IN THE
SIGNATURE BOX ON THE LETTER OF TRANSMITTAL.
Ladies and Gentlemen:
The undersigned hereby tenders to the Company, upon the terms and
subject to the conditions set forth in the Prospectus, and the related Letter of
Transmittal (which together constitute the "Exchange Offer"), receipt of which
is hereby acknowledged, the aggregate principal amount of Old Senior Notes set
forth below pursuant to the guaranteed delivery procedures set forth in the
Prospectus under the caption "The Exchange Offer--Procedures for Tendering Old
Notes."
Aggregate Liquidation Amount Name(s) of Registered Holder(s):
Amount Tendered: $________________ ____________________________________
____________________________________
Certificate No(s)
if available): _______________________
(Total Liquidation Amount Represented by
Old Senior Note(s)
$ _________________________________
If Old Senior Notes will be tendered by book-entry transfer, provide the
following information:
DTC Account Number: ______________________
Date: ____________________________________
_______________________
-2-
<PAGE>
- --------------------------------------------------------------------------------
All authority herein conferred or agreed to be conferred shall survive
the death or incapacity of the undersigned and every obligation of the
undersigned hereunder shall be binding upon the heirs, personal representatives,
successors and assigns of the undersigned.
- --------------------------------------------------------------------------------
PLEASE SIGN HERE
x_______________________________ ____________
x_______________________________ ____________
Signature(s) of Owner(s) Date
or Authorized Signatory
Area Code and Telephone Number: ____________
Must be signed by the holder(s) of the Old Senior Notes as their
name(s) appear(s) on certificates for the Old Senior Notes or on a security
position listing, or by person(s) authorized to become registered holder(s) by
endorsement and documents transmitted with this Notice of Guaranteed Delivery.
If signature is by a trustee, executor, administrator, guardian,
attorney-in-fact, officer or other person acting in a fiduciary or
representative capacity, such person must set forth his or her full title below.
Please print name(s) and address(es)
Name(s): _________________________________________________________
_________________________________________________________
_________________________________________________________
Capacity: _________________________________________________________
Address(es) _________________________________________________________
_________________________________________________________
_________________________________________________________
-3-
<PAGE>
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm or other entity identified in Rule 17Ad-15
under the Securities Exchange Act of 1934, as amended, as an "eligible guarantor
institution," including (as such terms are defined therein): (i) a bank; (ii) a
broker, dealer, municipal securities broker, municipal securities dealer,
government securities broker, government securities dealer, (iii) a credit
union; (iv) a national securities exchange, registered securities association or
learning agency; or (v) a savings association that is a participant in a
Securities Transfer Association recognized program (each of the foregoing being
referred to as an "Eligible Institution"), hereby guarantees to deliver to the
Exchange Agent, at one of its addresses set forth above, either the Old Senior
Notes tendered hereby in proper form for transfer, or confirmation of the
book-entry transfer of such Old Senior Notes to the Exchange Agent's account at
The Depositary Trust Company ("DTC"), pursuant to the procedures for book-entry
transfer set forth in the Prospectus, in either case together with one or more
properly completed and duly executed Letter(s) of Transmittal (or facsimile
thereof and any other required documents within five business days after the
date of execution of this Notice of Guaranteed Delivery.
The undersigned acknowledges that it must deliver the Letter(s) of
Transmittal and the Old Senior Notes tendered hereby to the Exchange Agent
within the time period set forth above and that failure to do so could result in
a financial loss to the undersigned.
__________________________________ __________________________________
Name of Firm Authorized Signature
__________________________________ __________________________________
Address Title
__________________________________ __________________________________
Zip Code (Please Type or Print)
Area Code and Telephone No. ________ Dated: ________________
NOTE: DO NOT SEND CERTIFICATES FOR OLD SENIOR NOTES WITH THIS FORM.
CERTIFICATES FOR OLD SENIOR NOTES SHOULD NLY BE SENT WITH YOUR LETTER OF
TRANSMITTAL.
-4-
<PAGE>
May __, 1998
EXCHANGE AGENT AGREEMENT
------------------------
The Bank of New York
Corporate Trust Trustee Administration
101 Barclay Street - 21st Floor
New York, New York 10286
Ladies and Gentlemen:
Lenfest Communications, Inc. (the "Company") proposes to make an offer
(the "Exchange Offer") to exchange its 7-5/8% Senior Notes due 2008 (the "Old
Senior Notes") and its 8-1/4% Senior Subordinated Notes due 2008 (the "Old
Senior Subordinated Notes", together with the Old Senior Notes, the "Old Notes")
for 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," together with the Series Exchange Notes, the "Exchange Notes," and
together with the Old Notes, the "Notes"), which have been registered under the
Securities Act at 1933, as amended (the "Securities Act"). The terms and
conditions of the Exchange Offer as currently contemplated are set forth in a
prospectus, dated May ___, 1998 (the "Prospectus"), proposed to be distributed
to all record holders of the Old Notes.
The Company hereby appoints The Bank of New York to act as exchange
agent (the "Exchange Agent") in connection with the Exchange Offer. References
hereinafter to "you" shall refer to The Bank of New York.
The Exchange Offer is expected to be commenced by the Company on or
about May __, 1998. The Letter of Transmittal accompanying the Prospectus (or in
the case of book entry securities, the ATOP system) is to be used by the holders
of the Old Notes to accept the Exchange Offer and contains instructions with
respect to the delivery of certificates for Old Notes tendered in connection
therewith.
The Exchange Offer shall expire at 5:00 P.M., New York City time, on
June ___, 1998 or on such later date or time to which the Company may extend the
Exchange Offer (the "Expiration Date"). Subject to the terms and conditions set
forth in the Prospectus, the Company expressly reserves the right to extend the
Exchange Offer from time to time and may extend the Exchange Offer by giving
oral (confirmed in writing) or written notice to you before 9:00 A.M., New York
City time, on the business day following the previously scheduled Expiration
Date.
The Company expressly reserves the right to amend or terminate the
Exchange Offer, and not to accept for exchange any Old Notes not theretofore
accepted for exchange, upon the occurrence of any of the conditions of the
Exchange Offer specified in the Prospectus under the caption "The Exchange Offer
- -- Conditions to the Exchange Offer." The Company will give oral
<PAGE>
(confirmed in writing) or written notice of any amendment, termination or
nonacceptance to you as promptly as practicable.
In carrying out your duties as Exchange Agent, you are to act in
accordance with the following instructions:
1. You will perform such duties and only such duties as are specifically set
forth in the section of the Prospectus captioned "The Exchange Offer" or as
specifically set forth herein; provided, however, that in no way will your
general duty to act in good faith be discharged by the foregoing.
2. You will establish an account with respect to the Old Notes at The Depository
Trust Company (the "Book-Entry Transfer Facility") for purposes of the Exchange
Offer within two business days after the date of the Prospectus, and any
financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of the Old Notes by causing the
Book-Entry Transfer Facility to transfer such Old Notes into your account in
accordance with the Book-Entry Transfer Facility's procedure for such transfer.
3. You are to examine each of the Letters of Transmittal and the Old Notes (or
confirmation of book-entry transfer into your account at the Book-Entry Transfer
Facility) and any other documents delivered or mailed to you by or for holders
of the Old Notes to ascertain whether: (i) the Letters of Transmittal and any
such other documents are duly executed and properly completed in accordance with
instructions set forth therein and (ii) the Old Notes have otherwise been
properly tendered. In each case where the Letter of Transmittal or any other
document has been improperly completed or executed or any of the certificates
for Old Notes are not in proper form for transfer or some other irregularity in
connection with the acceptance of the Exchange Offer exists, you will endeavor
to inform the presenters of the need for fulfillment of all requirements and to
take any other action as may be necessary or advisable to cause such
irregularity to be corrected.
4. With the approval of the President, Senior Vice President, Executive Vice
President, or any Vice President of the Company (such approval, if given orally,
to be confirmed in writing) or any other party designated by such an officer in
writing, you are authorized to waive any irregularities in connection with any
tender of Old Notes pursuant to the Exchange Offer.
5. Tenders of Old Notes may be made only as set forth in the Letter of
Transmittal and in the section of the Prospectus captioned "The Exchange Offer
- -- Procedures for Tendering Old Notes", and Old Notes shall be considered
properly tendered to you only when tendered in accordance with the procedures
set forth therein.
Notwithstanding the provisions of this paragraph 5, Old Notes
which the President, Senior Vice President, Executive Vice President, or any
Vice President of the Company shall approve as having been properly tendered
shall be considered to be properly tendered (such approval, if given orally,
shall be confirmed in writing).
2
<PAGE>
6. You shall advise the Company with respect to any Old Notes received
subsequent to the Expiration Date and accept its instructions with respect to
disposition of such Old Notes.
7. You shall accept tenders:
(a) in cases where the Old Notes are registered in two or more names
only if signed by all named holders;
(b) in cases where the signing person (as indicated on the Letter of
Transmittal) is acting in a fiduciary or a representative capacity only when
proper evidence of his or her authority so to act is submitted; and
(c) from persons other than the registered holder of Old Notes provided
that customary transfer requirements, including any applicable transfer taxes,
are fulfilled.
You shall accept partial tenders of Old Notes where so indicated and as
permitted in the Letter of Transmittal and deliver the Old Notes to the transfer
agent for split-up and return any untendered Old Notes to the holder (or such
other person as may be designated in the Letter of Transmittal) as promptly as
practicable after expiration or termination of the Exchange Offer.
8. Upon satisfaction or waiver of all of the conditions to the Exchange
Offer, the Company will notify you (such notice, if given orally, to be
confirmed in writing) of its acceptance, promptly after the Expiration Date, of
all Old Notes properly tendered and you, on behalf of the Company, will exchange
such Old Notes for Exchange Notes and cause such Old Notes to be cancelled.
Delivery of Exchange Notes will be made on behalf of the Company by you at the
rate of $1,000 principal amount of Exchange Notes for each $1,000 principal
amount of the corresponding series of Old Notes tendered promptly after notice
(such notice if given orally, to be confirmed in writing) of acceptance of said
Old Notes by the Company; provided, however, that in all cases, Old Notes
tendered pursuant to the Exchange Offer will be exchanged only after timely
receipt by you of such Old Notes (or confirmation of book-entry transfer into
your account at the Book-Entry Transfer Facility), a properly completed and duly
executed Letter of Transmittal (or facsimile thereof) with any required
signature guarantees and any other required documents. You shall issue Exchange
Notes only in denominations of $1,000 or any integral multiple thereof.
9. Tenders pursuant to the Exchange Offer are irrevocable, except that,
subject to the terms and upon the conditions set forth in the Prospectus and the
Letter of Transmittal, Old Notes tendered pursuant to the Exchange Offer may be
withdrawn at any time prior to the Expiration Date.
10. The Company shall not be required to exchange any Old Notes tendered if
any of the conditions set forth in the Exchange Offer are not met. Notice of any
decision by the Company not to exchange any Old Notes tendered shall be given
(and confirmed in writing) by the Company to you.
3
<PAGE>
11. If, pursuant to the Exchange Offer, the Company does not accept for
exchange all or part of the Old Notes tendered because of an invalid tender, the
occurrence of certain other events set forth in the Prospectus under the caption
"The Exchange Offer -- Conditions to the Exchange Offer" or otherwise, you shall
as soon as practicable after the expiration or termination of the Exchange Offer
return those unaccepted Old Notes (or effect appropriate book-entry transfer),
together with any related required documents and the Letters of Transmittal
relating thereto that are in your possession, to the persons who deposited them.
12. All revised Old Notes, unaccepted Old Notes or Exchange Notes shall be
forwarded by first-class mail.
13. You are not authorized to pay or offer to pay any concessions,
commissions or solicitation fees to any broker, dealer, bank or other persons or
to engage or utilize any person to solicit tenders.
14. As Exchange Agent hereunder you:
(a) shall have no duties or obligations other than those specifically
set forth herein or as may be subsequently agreed to in writing by you and the
Company;
(b) will be regarded as making no representations and having no
responsibilities as to the validity, sufficiency, value or genuineness of any of
the Old Notes deposited with you pursuant to the Exchange Offer, and will not be
required to and will make no representation as to the validity, value or
genuineness of the Exchange Offer;
(c) shall not be obligated to take any legal action hereunder which
might in your reasonable judgment involve any expense or liability, unless you
shall have been furnished with reasonable indemnity;
(d) may reasonably rely on and shall be protected in acting in reliance
upon any certificate, instrument, opinion, notice, letter, telegram or other
document or security delivered to you and reasonably believed by you to be
genuine and to have been signed by the proper party or parties;
(e) may reasonably act upon any tender, statement, request, comment,
agreement or other instrument whatsoever not only as to its due execution and
validity and effectiveness of its provisions, but also as to the truth and
accuracy of any information contained therein, which you shall in good faith
believe to be genuine or to have been signed or represented by a proper person
or persons;
(f) may rely on and shall be protected in acting upon written or oral
instructions from any officer of the Company;
4
<PAGE>
(g) may consult with your counsel with respect to any questions
relating to your duties and responsibilities and the advice or opinion of such
counsel shall be full and complete authorization and protection in respect of
any action taken, suffered or omitted to be taken by you hereunder in good faith
and in accordance with the advice or opinion of such counsel; and
(h) shall not advise any person tendering Old Notes pursuant to the
Exchange Offer as to the wisdom of making such tender or as to the market value
or decline or appreciation in market value of any Old Notes.
15. You shall take such action as may from time to time be requested by the
Company or its counsel (and such other action as you may reasonably deem
appropriate) to furnish copies of the Prospectus, Letter of Transmittal and the
Notice of Guaranteed Delivery (as defined in the Prospectus) or such other forms
as may be approved from time to time by the Company, to all persons requesting
such documents and to accept and comply with telephone requests for information
relating to the Exchange Offer, provided that such information shall relate only
to the procedures for accepting (or withdrawing from) the Exchange Offer. The
Company will furnish you with copies of such documents at your request. All
other requests for information relating to the Exchange Offer shall be directed
to the Company, Attention: Maryann V. Bryla, Assistant Treasurer.
16. You shall advise by facsimile transmission or telephone, and promptly
thereafter confirm in writing to Maryann V. Bryla, Assistant Treasurer of the
Company, and such other person or persons as it may request, daily (and more
frequently during the week immediately preceding the Expiration Date and if
otherwise requested) up to and including the Expiration Date, as to the number
and amounts of Old Notes which have been tendered pursuant to the Exchange Offer
and the items received by you pursuant to this Agreement, separately reporting
and giving cumulative totals as to items properly received and items improperly
received. In addition, you will also inform, and cooperate in making available
to, the Company or any such other person or persons upon oral request made from
time to time prior to the Expiration Date of such other information as it or he
or she reasonably requests. Such cooperation shall include, without limitation,
the granting by you to the Company and such person as the Company may request of
access to those persons on your staff who are responsible for receiving tenders,
in order to ensure that immediately prior to the Expiration Date the Company
shall have received information in sufficient detail to enable it to decide
whether to extend the Exchange Offer. You shall prepare a final list of all
persons whose tenders were accepted, the aggregate principal amount of Old Notes
tendered, the aggregate principal amount of Old Notes accepted and deliver said
list to the Company.
17. Letters of Transmittal and Notices of Guaranteed Delivery shall be
stamped by you as to the date and the time of receipt thereof and shall be
preserved by you for a period of time at least equal to the period of time you
preserve other records pertaining to the transfer of securities. You shall
dispose of unused Letters of Transmittal and other surplus materials by
returning them to the Company.
5
<PAGE>
18. You hereby expressly waive any lien, encumbrance or right of set-off
whatsoever that you may have with respect to funds deposited with you for the
payment of transfer taxes by reasons of amounts, if any, borrowed by the
Company, or any of its subsidiaries or affiliates pursuant to any loan or credit
agreement with you or for compensation owed to you hereunder.
19. For services rendered as Exchange Agent hereunder, you shall be
entitled to such compensation as set forth on Schedule I attached hereto.
20. You hereby acknowledge receipt of the Prospectus and the Letter of
Transmittal and further acknowledge that you have examined each of them. Any
inconsistency between this Agreement, on the one hand, and the Prospectus and
the Letter of Transmittal (as they may be amended from time to time), on the
other hand, shall be resolved in favor of the latter two documents, except with
respect to the duties, liabilities and indemnification of you as Exchange Agent,
which shall be controlled by this Agreement.
21. The Company covenants and agrees to indemnify and hold you harmless in
your capacity as Exchange Agent hereunder against any loss, liability, cost or
expense, including attorneys' fees and expenses, arising out of or in connection
with any act, omission, delay or refusal made by you in reliance upon any
signature, endorsement, assignment, certificate, order, request, notice,
instruction or other instrument or document reasonably believed by you to be
valid, genuine and sufficient and in accepting any tender or effecting any
transfer of Old Notes reasonably believed by you in good faith to be authorized,
and in delaying or refusing in good faith to accept any tenders or effect any
transfer of Old Notes; provided, however, that the Company shall not be liable
for indemnification or otherwise for any loss, liability, cost or expense to the
extent arising out of your gross negligence or willful misconduct. In no case
shall the Company be liable under this indemnity with respect to any claim
against you unless the Company shall be notified by you, by letter or by
facsimile confirmed by letter, of the written assertion of a claim against you
or of any other action commenced against you, promptly after you shall have
received any such written assertion or notice of commencement of action. The
Company shall be entitled to participate at its own expense in the defense of
any such claim or other action, and, if the Company so elects, the Company shall
assume the defense of any suit brought to enforce any such claim. In the event
that the Company shall assume the defense of any such suit, the Company shall
not be liable for the fees and expenses of any additional counsel thereafter
retained by you so long as the Company shall retain counsel satisfactory to you
to defend such suit, and so long as you have not determined, in your reasonable
judgment, that a conflict of interest exists between you and the Company.
22. You shall arrange to comply with all requirements under the tax laws of
the United States, including those relating to missing Tax Identification
Numbers, and shall file any appropriate reports with the Internal Revenue
Service. The Company understands that you are required to deduct 31% on payments
to holders who have not supplied their correct Taxpayer Identification Number or
required certification. Such funds will be turned over to the Internal Revenue
Service in accordance with applicable regulations.
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23. You shall deliver or cause to be delivered, in a timely manner to each
governmental authority to which any transfer taxes are payable in respect of the
exchange of Old Notes, the Company's check in the amount of all transfer taxes
so payable, and the Company shall reimburse you for the amount of any and all
transfer taxes payable in respect of the exchange of Old Notes; provided,
however, that you shall reimburse the Company for amounts refunded to you in
respect of your payment of any such transfer taxes, at such time as such refund
is received by you.
24. This Agreement and your appointment as Exchange Agent hereunder shall
be construed and enforced in accordance with the laws of the State of New York
applicable to agreements made and to be performed entirely within such state,
and without regard to conflicts of law principles, and shall inure to the
benefit of, and the obligations created hereby shall be binding upon, the
successors and assigns of each of the parties hereto.
25. This Agreement may be executed in two or more counterparts, each of
which shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.
26. In case any provision of this Agreement shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
27. This Agreement shall not be deemed or construed to be modified,
amended, rescinded, cancelled or waived, in whole or in part, except by a
written instrument signed by a duly authorized representative of the party to be
charged. This Agreement may not be modified orally.
28. Unless otherwise provided herein, all notices, requests and other
communications to any party hereunder shall be in writing (including facsimile
or similar writing) and shall be given to such party, addressed to it, at its
address or telecopy number set forth below:
If to the Company:
Lenfest Communications, Inc.
200 Cresson Boulevard
P.O. Box 989
Oaks, PA 19456-0989
Facsimile: 610-650-3021
Attention: Maryann V. Bryla
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With a copy to:
Thomas K. Pasch, Esquire
Saul, Ewing, Remick & Saul LLP
Centre Square West
1500 Market Street, 38th Floor
Philadelphia, PA 19102
Facsimile: 215-972-1831
If to the Exchange Agent:
The Bank of New York
101 Barclay Street
Floor 21 West
New York, New York 10286
Facsimile: (212) 815-5915
Attention: Corporate Trust Trustee Administration
29. Unless terminated earlier by the parties hereto, this Agreement shall
terminate 90 days following the Expiration Date. Notwithstanding the foregoing,
Paragraphs 19, 21 and 23 shall survive the termination of this Agreement. Upon
any termination of this Agreement, you shall promptly deliver to the Company any
certificates for Notes, funds or property then held by you as Exchange Agent
under this Agreement.
30. This Agreement shall be binding and effective as of the date hereof.
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Please acknowledge receipt of this Agreement and confirm the
arrangements herein provided by signing and returning the enclosed copy.
LENFEST COMMUNICATIONS, INC.
By:_____________________________
Name: Maryann V. Bryla
Title: Assistant Treasurer
Accepted as of the date
first above written:
THE BANK OF NEW YORK, as Exchange Agent
By:_____________________
Name:
Title:
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SCHEDULE I
FEES
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